As
filed with
the Securities and Exchange Commission on September 7,
2007 Registration
No.
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
____________________
FORM
SB-2
REGISTRATION
STATEMENT
Under
The
Securities Act of 1933
____________________
CLEANTECH
BIOFUELS, INC.
(Name
of Small Business Issuer in Its Charter)
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Delaware
(State
or Other Jurisdiction of
Incorporation
or
Organization
)
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2869
(Primary
Standard Industrial
Classification
in Number)
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33-0754902
(IRS
Employer
Identification
No.)
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7320
Forsyth, Unit 102
St.
Louis, Missouri 63105
(314)
727-6253
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(Address
and Telephone Number
of
Principal Executive
Offices)
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___________________
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Edward
P. Hennessey, Jr.
Chief
Executive Officer and President
CleanTech
Biofuels, Inc.
7320
Forsyth, Unit 102
St.
Louis, Missouri 63105
(314)
727-6253
Fax:
(314) 721-3920
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(Name,
Address and Telephone Number
of
Agent for Service)
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___________________
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Copies
to:
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Michael
D. Kime, Esq.
General
Counsel
7326
Kingsbury
St.
Louis, Missouri 63130
(314)
725-2579
Fax:
(314) 727-4601
|
Ruben
K. Chuquimia, Esq.
Gallop,
Johnson, & Neuman, L.C.
101
S. Hanley, Suite 1700
St.
Louis, Missouri 63105
(314) 615-6000
Fax:
(314) 615-6001
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___________________
Approximate
date of commencement of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement.
If
any of
the securities being registered on this form are being offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933,
check the following box.
ý
If
this
form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration 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
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
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, please
check the following box.
¨
___________________
CALCULATION
OF REGISTRATION FEE
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Title
of each class
of
securities to be registered
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Number
of shares to be
registered (1)
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Proposed
maximum offering
price
per share (2)
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Proposed
maximum
aggregate
offering
price (1)(2)
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Amount
of registration
fee
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Common
Stock, par value $0.001 per share
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18,880,133
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$0.20
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$3,776,026
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$116
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(1)
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All
of these shares are to be offered for resale by selling security
holders.
Of these shares, 7,866,800 shares are shares of common stock that
were
issued upon the conversion of certain convertible promissory notes
issued
in 2004, and 11,013,333 shares are the maximum number of shares of
common
stock issuable upon the conversion of outstanding convertible debentures
issued in 2007. In accordance with Rules 416 and 457 under the Securities
Act of 1933, as amended, there are also being registered such
indeterminate number of shares of common stock as may become issuable
upon
conversion of the convertible debenture to prevent dilution resulting
from
stock splits and stock dividends.
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(2)
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Estimated
solely for the purpose of computing the amount of the registration
fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended,
based on the average of the bid and ask prices reported on August 31,
2007 on the Pink Sheets.
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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 or until the Registration Statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to
said
Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed with
the
Securities and Exchange Commission is effective. This preliminary prospectus
is
not an offer to sell nor does it seek an offer to buy these securities in
any
jurisdiction where the offer or sale is not
permitted.
SUBJECT
TO COMPLETION, DATED SEPTEMBER 7, 2007.
Prospectus
18,880,133
Shares
Common
Stock
This
prospectus covers the resale by selling stockholders named on page 47 of up
to
18,880,133 shares of our common stock, $0.001 par value per share, which
include:
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·
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11,013,333
shares of common stock underlying our Series A Convertible Debentures
issued in 2007 having a fixed conversion rate of $0.15 per share,
which
includes accrued interest through the stated maturity date of the
Series A
Convertible Debentures.
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·
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7,866,800
shares of common stock issued upon the conversion of certain convertible
promissory notes made in 2003.
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This
offering is not being underwritten. These securities will be offered for sale
by
the selling stockholders identified in this prospectus in accordance with the
methods and terms described in the section of this prospectus entitled "Plan
of
Distribution." We will not receive any of the proceeds from the sale of these
shares. We will pay all expenses incurred in connection with the offering,
except for the brokerage expenses, fees, discounts and commissions, which will
all be paid by the selling stockholders. Our common stock is more fully
described in the section of this prospectus entitled "Description of
Securities."
The
prices at which the selling stockholders may sell the shares of common stock
that are part of this offering will be determined by the prevailing market
price
for the shares at the time the shares are sold, a price related to the
prevailing market price, at negotiated prices or prices determined, from time
to
time by the selling stockholders. See "Plan of Distribution."
Our
common stock is currently listed on the Pink Sheets under the symbol “AETA,” but
we intend to change the symbol to “CTBF” to reflect our recent name
change. On August 31, 2007, the closing price of our common stock was
$0.25 per share. Prior to our 100:1 reverse stock split earlier this
year, however, our stock price was approximately $0.01.
AN
INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING AT PAGE 4.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
date of this prospectus is
,
2007.
TABLE
OF CONTENTS
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Page
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Prospectus
Summary
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1
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Risk
Factors
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4
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Forward-Looking
Statements
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15
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Market
Data and
Forecasts
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15
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Use
of
Proceeds
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15
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Market
Price of Common Stock and Restated Stockholder Matters
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16
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Dividend
Policy
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16
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Registration
Rights
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17
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Plan
of
Operation
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18
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Business
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22
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Directors,
Executive Officers, Promoters and Control Persons
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41
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Corporate
Governance
Matters
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42
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Executive
and Director
Compensation
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43
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Security
Ownership of Certain Beneficial Owners and Management
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46
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Selling
Stockholders
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47
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Plan
of
Distribution
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48
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Certain
Relationships and Related
Transactions
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50
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Description
of
Securities
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50
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Indemnification
for Securities Act
Liabilities
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54
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Experts
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54
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Validity
of
Securities
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54
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Where
You Can Find More
Information
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55
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Index
to Consolidated Financial
Statements
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F-1
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You
may rely only on the information contained in this prospectus. We and
the selling stockholders have not authorized anyone to provide information
different from that contained in this prospectus. When you make a
decision about whether to invest in our common stock, you should not rely upon
any information other than the information in this
prospectus. Neither the delivery of this prospectus nor the sale of
common stock means that the information contained in this prospectus is correct
after the date of this prospectus. This prospectus is not an offer to
sell or solicitation of an offer to buy these shares of common stock in any
circumstances under which the offer of solicitation is
unlawful.
PROSPECTUS
SUMMARY
This
summary highlights information contained elsewhere in this prospectus. Because
it is a summary, it may not contain all the information that is important to
you
or that you should consider before investing in our common stock. Before making
an investment decision, you should read the entire prospectus carefully,
including the section entitled “Risk Factors” and our financial statements and
the related notes included elsewhere in this prospectus.
All
references to “we,” “us,” “our,” or “our company” in this prospectus refer to
CleanTech Biofuels, Inc. and its consolidated direct and indirect subsidiaries.
All share amounts assume full conversion of our Series A Convertible Debentures
and the conversion of interest through the maturity date of those
debentures.
Our
Company
Overview
We
are a
development stage company engaged in the development of “green” technologies in
anticipation of becoming an operating company that builds, owns, and operates
facilities to convert municipal solid waste, which we sometimes refer to as
MSW,
and other waste into ethanol and other combustible fuels. We were
originally incorporated in 1996 as Long Road Entertainment, Inc. to operate
as a
holding company for businesses in the theater, motion picture and entertainment
industries. We ceased conducting business by the end of 2005 and
were dormant until the fall of 2006, at which time our founder and controlling
stockholder decided to pursue the sale of the company. In furtherance
of a possible transaction, we were renamed Alternative Ethanol Technologies,
Inc. in January 2007.
On
March
27, 2007, we entered into an Agreement and Plan of Merger and Reorganization
pursuant to which we agreed to acquire SRS Energy, Inc., a Delaware corporation.
The merger agreement contemplated SRS Acquisition Sub, our wholly-owned
subsidiary, merging into SRS Energy, with SRS Energy as the surviving
corporation. We consummated the merger on May 31, 2007, which resulted in
SRS
Energy becoming our wholly-owned subsidiary. In connection with the merger,
the
security holders of SRS Energy surrendered all of the issued and outstanding
capital stock of SRS Energy and received in the aggregate and on a fully-diluted
basis 40,547,275 shares of our common stock, par value $0.001 per share and
Series A Convertible Debentures convertible into up to 11,013,333 shares of
our common stock. Our security holders immediately prior to the merger retained
in the aggregate and on a fully-diluted, as if converted basis, 10,119,900
shares of our common stock. On August 3, 2007, we changed our name to
CleanTech Biofuels, Inc.
At
this
time, we have no material operations and our primary non-cash assets are
two
limited exclusive licenses to technology held by SRS Energy. Our
principal focus is to test the commercial viability of these technologies,
which
we believe when put together, will convert cellulosic feedstocks, including
municipal solid waste, into ethanol and other combustible sources of
energy.
One
of
the technologies, which we refer to as the “Eley technology” after its inventor
Dr. Michael Eley, involves the use of a rotating pressure vessel or autoclave,
to combine heat, pressure and agitation to separate municipal solid waste into
its component parts, including cellulosic material. The cellulosic
material is then cleaned in preparation of being used as a feedstock in the
production of ethanol. The other technology, which we refer to as the
“Brelsford technology,” is an acid hydrolysis technology that
converts
cellulosic material into fermentable sugars. The sugars are then
fermented and distilled to produce fuel grade ethanol.
Although
not independently tested, the Eley technology has been used by an operator
to
generate cellulosic material on a commercial scale for the production of
paper. The Brelsford process, however, has only been used in small
scale production tests in a unit designed by Brelsford and has not been
independently tested on how the process will perform or operate in large scale
commercial applications. Accordingly, we have engaged Merrick &
Company, an engineering firm located in Denver, Colorado, to evaluate the
commercial viability of the Brelsford technology’s ability to process cellulosic
material generated by the Eley process and other sources such as wood waste,
switch grass, and corn stover into fermentable sugars.
As
part
of that testing process, Merrick will construct a pilot plant test unit, which
is a small-scale replica of a fully operating plant. With Merrick’s
consultation, we expect to use the pilot plant to test the technologies and
demonstrate and prove the Brelsford
process, and gather
data needed to complete the engineering, design, and construction of a
full-scale commercial demonstration plant that implements both the Eley and
Brelsford technologies.
As
a
result of a private placement conducted by SRS Energy in April 2007, we
have obtained $1.4 million of funding consisting of $950,000 in cash and
$450,000 aggregate principal amount of promissory notes that are secured by
$450,000 of certificates of deposit. We anticipate these proceeds will fund
the
testing and the construction of the pilot plant test unit, and will provide
initial working capital to fund our organizational activities. If,
after Merrick completes its testing and validation, we conclude that the
technology is commercially viable, we intend to raise additional capital and
begin constructing a full-scale commercial demonstration plant that we believe
will convert waste to ethanol and other fuels.
Although
we expect Merrick’s testing will prove our technology, we have no operating
history and may not be capable of engaging in material operations for a
significant period of time, if at all. We have not earned any
revenues to date and expect that our current capital and other existing
resources will be sufficient only to fund preliminary testing of our technology
and to provide a limited amount of working capital.
Recent
Developments
On
February 21, 2007, we effected a 100 to 1 reverse stock split, which reduced
our
issued and outstanding common stock at that time from 75,310,000 shares to
753,100 shares.
On
April
16, 2007, SRS Energy completed a private placement of $1.4 million Series A
Convertible Debentures having a fixed conversion rate of $0.15 per share,
subject to customary antidilution provisions. We assumed the debentures as
part
of our acquisition of SRS Energy and the debentures are now convertible into
up
to 11,013,333 shares of our common stock. SRS Energy received gross
proceeds of $950,000 in cash and $450,000 aggregate principal amount of
promissory notes secured by certificates of deposit held in escrow in the
aggregate amount of $450,000. After deducting transaction costs, the net
proceeds from this private placement were approximately $1,300,000.
Corporate
Information
We
were
organized as a Delaware corporation in 1996. Our principal executive
offices are currently located at 7320 Forsyth, Unit 102, St. Louis, Missouri
63105, and our telephone number is (314) 727-
6253. Our
website, which is currently under construction, is
www.cleantechbiofuels.net. Information contained on, or that can be
accessed through, our website is not a part of this prospectus.
Offering
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Common
stock offered by
selling
stockholders: (1)
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·
common
stockholders
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7,866,800
shares
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·
convertible
debenture holders
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11,013,333
shares
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Common
stock to be outstanding after this
offering:
(1)(2)
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63,604,003
shares
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Use
of
proceeds
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We
will not receive any of the proceeds from sales of common stock
by the
selling stockholders in the offering.
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Risk
factors
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See
“Risk Factors” beginning on page 4 and other information included in this
prospectus for a discussion of factors you should carefully consider
before deciding to invest in our common stock.
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Pink
Sheet
symbol
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“CTBF”
(3)
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___________________________________
(1) Assumes
the full conversion of the convertible debentures and includes interest through
the applicable maturity date.
(2) Assumes
the full exercise of our two immediately exercisable and outstanding
warrants.
(3) After
the effectiveness of our symbol change.
RISK
FACTORS
The
purchase of our common stock involves investment risks. You should consider
the
following risks carefully before making a decision to invest in our common
stock. Although the risks described below are the risks that we believe are
material, there may also be risks of which we are currently unaware, or that
we
currently regard as immaterial based on the information available to us that
later prove to be material. These risks may adversely affect our business,
financial condition and operating results. As a result, the trading price of
our
common stock could decline, and you could lose part or all of your
investment.
Risks
Related to Our Business
We
have no operating experience and may not be able to implement our business
plan.
As
an
early stage company, there is no material operating history upon which to
evaluate our business and prospects. We do not expect to commence any
significant operations until we receive testing information from Merrick &
Company regarding our technologies that we consider favorable. As a result,
we
will sustain losses without corresponding revenues, which will result in the
Company incurring a net operating loss that will increase continuously for
the
foreseeable future. We cannot provide any assurance that we will be profitable
in any given period or at all.
In
addition, we currently have only three full-time employees, our Chief Executive
Officer, General Counsel and Chief Financial Officer, and collectively, they
may
have less experience in operating an alternative energy company compared to
our
competitors. Moreover, given our newness and the rapid changes in the
industry, we face challenges in planning and forecasting accurately. Our lack
of
expertise and resources may have a negative impact on our ability to implement
our strategic plans, which may result in our inability to commence meaningful
operations, achieve profitable operations or otherwise succeed in other aspects
of our business plan.
We
need to obtain significant additional capital to complete the development of
our
technologies, and the failure to secure additional capital will prevent us
from
commercializing our technology and executing our plan of
operation.
Based
on
our current proposed plans and assumptions, we estimate we have sufficient
cash
to operate through the remainder of calendar year 2007. We estimate
that the cost of completing the testing of our technology and constructing
a
pilot plant unit will be $400,000. Assuming that we deem the test
results to be favorable, we intend to continue our technology development effort
and construct a full-scale commercial demonstration plant. Without
the test results, we are not able to estimate the costs of a full-scale
commercial demonstration plant. We know, however, that the cost will
be significant and well in excess of the amount of cash that we currently have
available to us. Accordingly, in order to fund the development and construction
of a full-scale commercial demonstration plant, we will be required
to:
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·
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obtain
additional debt or equity financing,
and/or
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·
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enter
into a strategic alliance with a larger energy company to provide
funding.
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The
amount of funding needed to complete the development of our technology will
be
very substantial and may be in excess of the amount of capital we are able
to
raise. In addition, we have not identified the sources for the
additional financing that we will require, and we do not have commitments from
any third
parties
to provide this financing. Our ability to obtain additional funding will be
subject to a number of factors, including market conditions, the results and
quality of the testing being conducted by Merrick & Company and investor
sentiment. These factors may make the timing, amount, terms and conditions
of
additional funding unattractive. For these reasons, sufficient funding, whether
on terms acceptable to us or not, may not be available. If we are unable to
obtain sufficient financing on a timely basis, the development of our
technology, facilities and products could be delayed and we could be forced
to
limit or terminate our operations altogether. Further, any additional funding
that we obtain in the form of equity will reduce the percentage ownership held
by our existing security holders.
Our
Eley technology may have design and engineering issues that may increase the
costs of using the technology.
The
Eley
technology involves the use of a rotating pressure vessel, or autoclave, to
combine heat, pressure and agitation to convert MSW into cellulosic material
that can then be cleaned to be used to produce ethanol. Although
technologies that involve the separation and processing of MSW using large-scale
autoclaves, such as our Eley technology, have not been widely adapted in
commercial applications, World Waste Technologies has used the Eley process
to
generate cellulosic material from MSW for the production of
paper. However, World Waste Technologies initially announced design
and engineering issues with its autoclave as first implemented in its operating
plant. On April 13, 2007, World Waste filed a lawsuit against
Bio-Products International, the licensor of the Eley technology, in the Superior
Court of the State of California alleging, among other things, breach of
contract and negligence with respect to the construction of the autoclaves
it
purchased from Bio-Products International. Subsequent to announcing
the initial design problems, Dr. Eley redesigned the autoclaves being used
by
World Waste Technologies. Based on the redesign, Dr. Eley and World
Waste Technologies have both indicated that they believe that the initial design
issues relating to the separation of cellulosic material encountered have been
resolved.
Although
we believe the redesigned autoclaves will operate properly on a commercial
scale, we may encounter design and engineering problems similar to those
encountered by World Waste Technologies and other new problems when we try
to
implement this technology on a large-scale for ethanol production. Any design,
engineering or other issue may cause delays, increase production and development
costs and require us to shut down our operation.
Our
Brelsford technology is commercially unproven and may not be viable on a
full-scale basis.
The
Brelsford technology is a two-step process involving acid hydrolysis, which
is
the conversion of cellulose into sugars, and the fermentation of these sugars
into ethanol. Production of ethanol by fermenting sugars and starches
derived from agricultural products such as corn, sugar cane and sugar beets
is a
mature technology that is widely-used in the production of
ethanol. Fermentation, however, can not be used to produce ethanol
from cellulosic material. In order to convert cellulose into ethanol,
the cellulose must first be processed through an acid hydrolysis or enzymatic
action to convert it into fermentable sugars. Neither acid hydrolysis
nor enzymatic processes, however, have been proven to be commercially viable
for
the production of ethanol.
Our
Brelsford technology, which uses an acid hydrolysis process, successfully
generated fermentable sugars on a small-scale with limited feedstock, but it
has
not been demonstrated at commercial scale. In particular, the
Brelsford technology has never been attempted under the conditions or at the
volumes that will be required to be profitable and we cannot predict all of
the
difficulties that may arise. It is possible that the technologies,
when used, may require further research, development, design and testing prior
to
larger-scale
commercialization. Accordingly, we may experience delays and
increased production or development costs when attempting to commercialize
the
technology. We may also determine that the technology cannot be
performed successfully on a commercial basis or will not be
profitable.
We
may not have sufficient legal protection of our technologies and other
proprietary rights, which could result in the loss of some or all of our rights
or the use of our intellectual properties by our
competitors.
Our
success depends substantially on our ability to use the Eley and Brelsford
technologies and to keep our licenses in full force, and for our technology
licensors to maintain their patents, maintain trade secrecy and not infringe
the
proprietary rights of third parties. We cannot be sure that the
patents of others will not have an adverse effect on our ability to conduct
our
business. We have relied substantially on the patent legal work that
was performed for our licensors with respect to these patents, and have not
independently verified the validity or any other aspect of the patents or patent
applications covering our technology and anticipated products with our own
patent counsel. Further, we cannot be sure that others will not independently
develop similar or superior technologies, duplicate elements of our technologies
or design around them. Even if we are able to obtain or license patent
protection for our process or products, there is no guarantee that the coverage
of these patents will be sufficiently broad to protect us from competitors
or
that we will be able to enforce our patents against potential infringers. Patent
litigation is expensive, and we may not be able to afford the costs. Third
parties could also assert that our process or products infringe patents or
other
proprietary rights held by them.
It
is
possible that we may need to acquire other licenses to, or to contest the
validity of, issued or pending patents or claims of third parties. We
cannot be sure that any license would be made available to us on acceptable
terms, if at all, or that we would prevail in any such contest. In
addition, we could incur substantial costs in defending ourselves in suits
brought against us for alleged infringement of another party’s patents or in
bringing patent infringement suits against other parties based on our licensed
patents.
We
also
rely on trade secrets, proprietary know-how and technology that we will seek
to
protect, in part, by confidentiality agreements with our prospective joint
venture partners, employees and consultants. We cannot be sure that these
agreements will not be breached, that we will have adequate remedies for any
breach, or that our trade secrets and proprietary know-how will not otherwise
become known or be independently discovered by others.
We
could lose our exclusive rights to licensed technology
.
Bio-Products,
Inc. sub-licenses the Eley technology to us pursuant to a license
originally granted to Bio-Products by the University of Alabama Huntsville,
which gives Bio-Products the exclusive right to use and sub-license the Eley
technology. The university’s rights as the owner and original
licensor of the Eley technology under the agreement were acquired by World
Waste
Technologies, which also licenses the Eley technology from Bio-Products for
uses
other than the production of ethanol. As a result, World Waste
Technologies is now the licensor of the Eley technology to
Bio-Products. To maintain exclusivity under its license agreement,
Bio-Products must make certain payments and fulfill certain
obligations. World Waste Technologies has publicly stated its desire
to acquire the rights to use the Eley technology for ethanol
production. Because World Waste Technologies is now the licensor of
the Eley technology to Bio-Products, any breach of or other default under the
license agreement by Bio-Products could adversely affect the rights of
Bio-Products, and our rights indirectly, to the Eley technology.
Pursuant
to our license for the Brelsford technology, we must identify and procure a
site
for construction of a full-scale commercial demonstration plant before September
2008 in order to maintain that license. There is no assurance that we
will have sufficient financing to meet that requirement. There are a
number of factors that could keep us from meeting this requirement.
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unsatisfactory
results from Merrick & Company,
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·
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inability
to secure favorable financing,
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·
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the
failure to identify an appropriate site, and
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inability
to obtain all governmental permits and
approvals.
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We
will be dependent on our ability to negotiate favorable feedstock supply
and
ethanol off-take agreements.
In
addition to proving and commercializing our technology, the viability of
our
business plan will depend on our ability to develop long-term supply
relationships with municipalities, municipal waste haulers or operators of
material recovery facilities, also known as MRFs, and landfills to provide
us
with the necessary waste streams on a long-term basis. We also will
depend on these haulers, operators and facilities to take residual waste
streams
from our plants and to deliver or accept these streams for land
filling. We currently have no such relationships or
agreements. If we are unable to create these relationships and
receive supply agreements on terms favorable to us we may not be able to
implement our business plan and achieve profitability.
We
may not be able to attract and retain management and other personnel we need
to
succeed.
We
currently have only three full-time employees, our Chief Executive Officer,
General Counsel and Chief Financial Officer. As a result, our success
depends on our ability to recruit senior management and other key technology
development, construction and operations employees. We cannot be certain that
we
will be able to attract, retain and motivate such employees. The inability
to
hire and retain one or more of these employees could cause delays or prevent
us
from implementing our business strategy. The majority of our new
hires will be engineers, project managers and operations personnel. There is
intense competition from other companies and research and academic institutions
for qualified personnel in the areas of our activities. If we cannot attract
and
retain, on acceptable terms, the qualified personnel necessary for the
development of our business, we may not be able to commence operations or grow
at an acceptable pace.
We
will incur increased costs as a result of being a public
company.
As
an
operating public company, we will incur significant legal, accounting and other
expenses we did not incur as a private company and our corporate governance
and
financial reporting activities will become more time-consuming. The
Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the
Securities and Exchange Commission, have required changes in corporate
governance practices of public companies. For example, as a result of becoming
an operating public company, we are required to have independent directors,
create board committees and approve and adopt polices regarding internal
controls and disclosure controls and procedures, including the preparation
of
reports on internal control over financial reporting. In addition, we will
incur
significant additional costs associated with our public company reporting
requirements. We also expect these rules and regulations to make it more
difficult and more expensive for us to obtain director and officer liability
insurance and we may be required to accept reduced policy limits and coverage
or
incur substantially higher costs to obtain
the
same
or similar coverage. As a result, it may be more difficult for us to attract
and
retain qualified persons to serve on our board of directors or as executive
officers.
Our
failure to adequately adhere to the new corporate governance practices or the
failure or circumvention of our controls and procedures could seriously harm
our
business.
Compliance
with the new and evolving corporate governance practices will require a
significant diversion of management time and attention, particularly with regard
to disclosure controls and procedures and internal control over financial
reporting. Although we have reviewed our disclosure and internal controls and
procedures in order to determine whether they are effective, our controls and
procedures may not be able to prevent errors or frauds in the future. Faulty
judgments, simple errors or mistakes, or the failure of our personnel to adhere
to established controls and procedures may make it difficult for us to ensure
that the objectives of the control system are met. A failure of our controls
and
procedures to detect other than inconsequential errors or fraud could seriously
harm our business and results of operations.
Our
senior management’s lack of experience managing a publicly traded company will
divert management’s attention from operations and harm our
business.
Our
management team has limited experience managing a publicly traded company and
complying with federal securities laws, including compliance with recently
adopted disclosure requirements on a timely basis. Our management is required
to
design and implement appropriate programs and policies in response to increased
legal, regulatory compliance and reporting requirements, and any failure to
do
so could lead to the imposition of fines and penalties and harm our
business.
Risks
Related to our Industry
As
a new small company, we will be at a competitive disadvantage to most of our
competitors, which include larger, established companies that have substantially
greater financial, technical, manufacturing, marketing, distribution and other
resources than us.
The
alternative energy industry in the United States is highly competitive and
continually evolving as participants strive to distinguish themselves and
compete in the larger transportation fuel industry. Competition is likely to
continue to increase with the emergence and commercialization of new alternative
energy technologies. If we are not successful in constructing systems that
generate competitively-priced ethanol, we will not be able to compete with
other
energy technologies. Moreover, the success of alternative energy
generation technologies may cause larger, conventional energy companies with
substantial financial resources to enter the alternative energy industry. These
companies, due to their greater capital resources and substantial technical
expertise, may be better positioned to develop and exploit new technologies.
Our
inability to respond effectively to our competition could result in our
inability to commence meaningful operations, achieve profitable operations
or
otherwise succeed in other aspects of our business plan.
Our
success is dependent on continued high transportation fuel
prices.
Prices
for fuels, generally, and ethanol, specifically, can vary significantly over
time and decreases in price levels could adversely affect our profitability
and
viability. Most importantly, the price of ethanol is closely related to the
price of petroleum fuels. Any lowering of wholesale gasoline prices will likely
also lead to lower prices for ethanol and will adversely affect our operating
results. We cannot be sure that we will be able to sell ethanol fuels at a
price
that will recover our full costs.
New
ethanol
plants under construction or decreases in the demand for
ethanol may result in excess U.S. production
capacity
.
According
to the Renewable Fuels Association, domestic ethanol production capacity has
increased from 1.9 billion gallons per year at the start of 2001 to an estimated
5.4 billion gallons per year as of the end of 2006. The Association
estimates that, as of the end of 2006, 109 ethanol refineries were in production
with 57 facilities beginning construction and eight under expansion, totaling
approximately 4.8 billion gallons per year of additional production
capacity. Excess capacity in the ethanol industry would decrease
demand for our products and make it less likely that we will generate sufficient
cash flows or become profitable. We also anticipate excess capacity
could result in the reduction of the market price of ethanol to a level that
is
inadequate for us to generate sufficient cash flow in excess of our
costs.
Waste
processing and energy production is subject to inherent operational accidents
and disasters from which we may not be able to recover, especially if we have
only one or a very small number of facilities.
Our
anticipated operations would be subject to significant interruption if any
of
our proposed facilities experience a major accident or are damaged by severe
weather or other natural disasters. In particular, processing waste and
producing ethanol is subject to various inherent operational hazards, such
as
equipment failures, fires, explosions, abnormal pressures, blowouts,
transportation accidents and natural disasters. Some of these operational
hazards may cause personal injury or loss of life, severe damage to or
destruction of property and equipment or environmental damage, and may result
in
suspension of operations and the imposition of civil or criminal penalties.
Currently we do not have any insurance to cover those risks. We
intend to seek various insurance coverage appropriate for our business before
we
commence significant operations. The insurance that we plan to
obtain, if obtained, may not be adequate to cover fully the potential
operational hazards described above.
Alternative
technologies could make our business obsolete.
Even
if
our technology currently proves to be commercially feasible, there is
extensive research and development being conducted in cellulosic ethanol
production and other alternative energy sources. Technological
developments in any of a large number of competing processes and technologies
could make our technology obsolete and we have little ability to manage that
risk.
Risks
Related to Government Regulation and Subsidization
Federal
tax incentives that benefit ethanol producers could expire and other federal
and
state programs designed to assist ethanol producers may
end.
The
cost
of producing ethanol is made significantly more competitive with regular
gasoline by federal tax incentives known as the blenders’ credit, which is
currently $0.51 per gallon and is scheduled to expire in 2010. The blenders’
credits may not be renewed in 2010 or may be renewed on terms that are less
favorable than they are today. In addition, the blenders’ credits, as well as
other federal and state programs benefiting ethanol producers, generally are
subject to U.S. government obligations under international trade agreements,
including those under the World Trade Organization Agreement on Subsidies and
Countervailing Measures, and might be the subject of challenges, in whole or
in
part. The elimination or significant reduction in the blenders’ credit or other
programs would decrease the likelihood that we will become profitable and weaken
our overall financial position.
Tariffs
imposed on imported ethanol could be reduced or eliminated, which would increase
competition from foreign producers.
Most
ethanol imported into the United States is subject to a $0.54 per gallon tariff
that was designed to offset the $0.51 per gallon blender’s credit available
under the federal excise tax incentive program for refineries that blend ethanol
in their fuel. However, a special exemption from the tariff exists for ethanol
imported from 24 countries in Central America and the Caribbean
Islands. Total current ethanol production from these countries is
only 7 percent of U.S. production per year, but, imports from the exempted
countries may increase as a result of new plants that are now under development.
Because production costs for ethanol in these countries are estimated to be
significantly less than they are in the United States, the duty-free import
of
ethanol through the countries exempted from the tariff may reduce the demand
for
domestic ethanol and the price at which we sell our ethanol.
Further,
in May 2006, bills were introduced in both the U.S. House of Representatives
and
U.S. Senate to repeal the $0.54 per gallon tariff, but they did not pass. The
current tariff is scheduled to expire in December 2007. We do not know the
extent to which the volume of imports would increase or the effect on U.S.
prices for ethanol if the tariff is not renewed beyond its current expiration
in
December 2007. Any changes in the tariff or exemption from the tariff would
likely increase competition from foreign producers, which could decrease the
demand for and lower the prices for our products.
Enforcement
of energy policy regulations could change.
Energy
policy in the United States is evolving rapidly. Within the past
three years, the United States Congress has passed two separate major pieces
of
legislation addressing energy policy and related regulations and is currently
considering a third new piece of legislation addressing energy
policy. We anticipate that energy policy will continue to be a very
important legislative priority on a national, state and local
level.
Currently,
the ethanol industry is supported by several important rules, regulations,
and
credits at the federal level. These include the $0.51 blender’s
credit, the $0.54 tariff on imported ethanol, restrictions on the use of MTBE
as
a gasoline additive, and targeted production levels for United States’ ethanol
production. Additionally, many states have adopted separate
restrictions on the use of MTBE as a gasoline additive and adopted independent
incentives to spur development of alternative energy resources.
As
energy
policy continues to evolve, the existing rules and regulations that benefit
the
ethanol industry may change. For example, certain Senators attempted
to amend a provision to the Senate’s Energy bill in 2006 and again in 2007 that
would limit the liability of manufacturers of MTBE for damages caused by using
it as a gasoline additive. Such a change would benefit the producers
of MTBE to the detriment of the ethanol industry.
It
is
difficult, if not impossible, to predict changes in energy policy that could
occur on a federal, state or local level in the future. The
elimination of or a change in any of the current rules, regulations or credits
that support the ethanol industry could create a regulatory environment that
prevents us from developing a commercially viable or profitable
business.
Costs
of compliance may increase with changing environmental and operational safety
regulations.
As
we
pursue our business plan, we will become subject to various federal, state
and
local environmental laws and regulations, including those relating to the
discharge of materials into the air, water and ground, the generation, storage,
handling, use, transportation and disposal of hazardous materials, and the
health and safety of our employees. In addition, some of these laws and
regulations require our contemplated facilities to operate under permits that
are subject to renewal or modification. These laws, regulations and permits
can
often require expensive pollution control equipment or operational changes
to
limit actual or potential impacts to the environment. A violation of these
laws
and regulations or permit conditions can result in substantial fines, natural
resource damages, criminal sanctions, permit revocations and/or facility
shutdowns.
Furthermore,
upon implementing our plan, we may become liable for the investigation and
cleanup of environmental contamination at any property that we would own or
operate and at off-site locations where we may arrange for the disposal of
hazardous substances. If these substances have been or are disposed of or
released at sites that undergo investigation and/or remediation by regulatory
agencies, we may be responsible under CERCLA, or other environmental laws for
all or part of the costs of investigation and/or remediation, and for damages
to
natural resources. We may also be subject to related claims by private parties
alleging property damage and personal injury due to exposure to hazardous or
other materials at or from those properties. Some of these matters may require
expending significant amounts for investigation, cleanup, or other
costs.
In
addition, new laws, new interpretations of existing laws, increased governmental
enforcement of environmental laws, or other developments could require us to
make additional significant expenditures. Continued government and public
emphasis on environmental issues can be expected to result in increased future
investments for environmental controls at ethanol production facilities. Present
and future environmental laws and regulations applicable to MSW processing
and
ethanol production, more vigorous enforcement policies and discovery of
currently unknown conditions may require substantial expenditures that could
have a material adverse effect on the results of our contemplated operations
and
financial position.
The
hazards and risks associated with processing MSW and producing and transporting
ethanol (such as fires, natural disasters, explosions, and abnormal pressures
and blowouts) may also result in personal injury claims or damage to property
and third parties. As protection against operating hazards, we intend to
maintain insurance coverage against some, but not all, potential losses. We
could, however, sustain losses for uninsurable or uninsured risks, or in amounts
in excess of existing insurance coverage. Events that result in significant
personal injury or damage to our property or third parties or other losses
that
are not fully covered by insurance could have a material adverse effect on
the
results of our contemplated operations and financial position.
Risks
related to our Common Stock and Stock Price Fluctuation
Our
stock is thinly traded, so you may be unable to sell at or near ask prices
or at
all.
The
shares of our common stock are thinly-traded on the Pink Sheets, meaning that
the number of persons interested in purchasing our common shares at or near
ask
prices at any given time may be relatively small or non-existent. This situation
is attributable to a number of factors, including:
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we
only recently re-commenced
operations;
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stock
analysts, stock brokers and institutional investors may be risk-averse
and
be reluctant to follow an unproven, early stage company such as
ours or
purchase or recommend the purchase of our shares until such time
as we
became more seasoned and viable.
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we
are a small company that is relatively unknown to stock analysts,
stock
brokers, institutional investors and others in the investment
community
that generate or influence sales volume;
and
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As
a
consequence, our stock price may not reflect an actual or perceived
value. Also, there may be periods of several days or more when
trading activity in our shares is minimal or non-existent, as compared
to a
seasoned issuer that has a large and steady volume of trading activity
that will
generally support continuous sales without an adverse effect on share price.
A
broader or more active public trading market for our common shares may
not
develop or if developed, may not be sustained. Due to these conditions,
you may
not be able to sell your shares at or near ask prices or at all if you
need
money or otherwise desire to liquidate your shares.
Even
if an active trading market should develop, the price of our common stock is
likely to be highly volatile and subject to wide fluctuations, and stockholders
may be unable to resell at a satisfactory price.
Even
if
an active trading market develops, the market price for our common stock may
be
highly volatile and could be subject to wide fluctuations after this offering.
We believe that newer alternative energy companies and companies that effect
reverse mergers, such as our company, are particularly susceptible to
speculative trading that may not be based on the actual performance of the
company, which increases the risk of price volatility in a common stock. In
addition, the price of the shares of our common stock could decline
significantly if our future operating results fail to meet or exceed the
expectations of market analysts and investors.
Some
of
the factors that could affect the volatility of our share price
include:
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significant
sales of our common stock or other securities in the open
market;
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speculation
in the press or investment
community;
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actual
or anticipated variations in quarterly operating
results;
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changes
in earnings estimates;
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publication
(or lack of publication) of research reports about
us;
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increases
in market interest rates, which may increase our cost of
capital;
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changes
in applicable laws or regulations, court rulings, and other legal
actions;
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changes
in market valuations of similar companies;
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additions
or departures of key personnel;
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actions
by our stockholders; and
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general
market and economic conditions.
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Shares
of ethanol companies that trade in the public markets may be
overvalued.
Recently,
a number of ethanol companies have entered the public markets. As a result
of
the continuing influx of the shares of these companies and the levels at which
they trade in comparison to the current earnings of these companies, the
volatility of the price of our shares may be greater than in other market
segments. Moreover, adverse movement in the market price of shares of other
ethanol producers may adversely affect the value of our shares for reasons
related or unrelated to our contemplated business. The presence of these
competitive share offerings may also make it more difficult for our stockholders
to resell their shares in the public markets.
Trading
in our common stock is subject to special sales practices and may be difficult
to sell.
Our
common stock is subject to the Securities and Exchange Commission’s “penny
stock” rule, which imposes special sales practice requirements upon
broker-dealers who sell such securities to persons other than established
customers or accredited investors. Penny stocks are generally defined to be
an
equity security that has a market price of less than $5.00 per
share. For purposes of the rule, the phrase "accredited investors"
means, in general terms, institutions with assets in excess of $5,000,000,
or
individuals having a net worth in excess of $1,000,000 or having an annual
income that exceeds $200,000 (or that, when combined with a spouse's income,
exceeds $300,000). For transactions covered by the rule, the broker-dealer
must
make a special suitability determination for the purchaser and receive the
purchaser's written agreement to the transaction prior to the sale.
Consequently, the rule may affect the ability of broker-dealers to sell our
securities and also may affect the ability of our shareholders in this offering
to sell their securities in any market that might develop.
Stockholders
should be aware that, according to Securities and Exchange Commission Release
No. 34-29093, the market for penny stocks has suffered from patterns of fraud
and abuse. Such patterns include:
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control
of the market for the security by one or a few broker-dealers that
are
often related to the promoter or
issuer;
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manipulation
of prices through prearranged matching of purchases and sales and
false
and misleading press
releases;
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“boiler
room” practices involving high-pressure sales tactics and unrealistic
price projections by inexperienced sales
persons;
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excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
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the
wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with
the
resulting inevitable collapse of those prices and with consequent
investor
losses.
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Our
management is aware of the abuses that have occurred historically in the penny
stock market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our common
stock.
Substantial
future sales of shares of our common stock in the public market could cause
our
stock price to fall.
If
our
stockholders sell substantial amounts of our common stock, or the public
market
perceives that stockholders might sell substantial amounts of our common
stock,
the market price of our common stock could decline significantly. Such sales
also might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that our management deems
appropriate. We currently have outstanding 48,743,680 shares of common stock.
We
also have outstanding Series A Convertible Debentures convertible into up
to
11,013,333 shares of our common stock (including shares issuable for interest
due under such Debentures) and two outstanding warrants, each
immediately exercisable and representing the right to purchase 1,923,495
shares
of our common stock. An additional 7,000,000 shares of our common
stock have been reserved for issuance pursuant to our 2007 Stock Option
Plan.
Potential
issuance of additional common and preferred stock could dilute existing
stockholders.
We
are
authorized to issue up to 240,000,000 shares of common stock. To the extent
of
such authorization, our board of directors has the ability, without seeking
stockholder approval, to issue additional shares of common stock in the future
for such consideration as the board of directors may consider sufficient. We
are
also authorized to issue up to one million shares of preferred stock, the rights
and preferences of which may be designated in series by the board of directors.
Such designation of new series of preferred stock may be made without
stockholder approval, and could create additional securities which would have
dividend and liquidation preferences over the common stock offered hereby.
Preferred stockholders could adversely affect the rights of holders of common
stock by:
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exercising
voting, redemption and conversion rights to the detriment of the
holders
of common stock;
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receiving
preferences over the holders of common stock regarding or surplus
funds in
the event of our dissolution or
liquidation;
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delaying,
deferring or preventing a change in control of our company;
and
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discouraging
bids for our common stock.
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Additionally,
our Series A Convertible Debentures and some of our outstanding options and
warrants to purchase common stock have anti-dilution protection. This means
that
if we issue securities for a price less than the price at which these securities
are convertible or exercisable for shares of common stock, the securities will
become eligible to acquire more shares of common stock at a lower price, which
will dilute the ownership of our common stockholders.
Finally,
we are a party to registration rights agreements with some of our stockholders.
The registration rights agreements provide, among other things, that we register
shares of our common stock held by those stockholders within a specified period
of time and that we keep the registration statement associated with those shares
continuously effective. If we are unable to comply with these provisions of
the
registration rights agreements, we may be obligated to pay those stockholders
liquidated damages in the form of warrants to purchase additional common
stock.
In
all
the situations described above, the issuance of additional common stock in
the
future will reduce the proportionate ownership and voting power of our current
stockholders.
FORWARD
LOOKING STATEMENTS
This
prospectus contains forward-looking statements within the meaning of Section
27A
of the Securities Act and Section 21E of the Securities Exchange Act of 1934,
as
amended. All statements, other than statements of historical facts, included
herein regarding our strategy, future operations, financial position, future
revenues, projected costs, prospects, plans, objectives and other future events
and circumstances are forward-looking statements. In some cases, you can
identify forward-looking statements by terminology such as “anticipates,”
“believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,”
“would,” “should” and similar expressions or negative expressions of these
terms. Such statements are only predictions and, accordingly, are subject to
substantial risks, uncertainties and assumptions.
Actual
results or events could differ materially from the plans, intentions and
expectations disclosed in the forward-looking statements we make. We caution
you
that any forward-looking statement reflects only our belief at the time the
statement is made. Although we believe that the expectations reflected in
our
forward-looking statements are reasonable, we cannot guarantee our future
results, levels of activity, performance or achievements. We have included
in
this prospectus important factors that we believe could cause actual results
or
events to differ materially from the forward-looking statements that we make.
These factors include:
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the
commercial viability of our
technologies,
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our
ability to maintain and enforce our exclusive rights to our
technologies,
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our
ability to raise additional capital on favorable
terms,
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the
demand for and production costs of
ethanol,
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competition
from other alternative energy technologies, and
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the
other factors described in the section titled “Risk Factors” in this
prospectus.
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However,
management cannot predict all factors, or combination of factors, that
may cause
actual results to differ materially from those projected in any forward-looking
statements. In addition, unless required by law, we undertake no obligation
to
publicly update or revise any forward-looking statements to reflect events
or
developments after the date of this prospectus.
MARKET
DATA AND FORECASTS
Unless
otherwise indicated, information in this prospectus concerning economic
conditions and our industry is based on information from independent industry
analysts and publications as well as our estimates. Our estimates are derived
from publicly available information released by third-party sources, as well
as
data from our internal research, and are based on such data and our knowledge
of
our industry, which we believe to be reasonable. None of the independent
industry publications used in this prospectus were prepared on our or our
affiliates’ behalves, and none of the sources cited in this prospectus has
consented to the inclusion of any data from its reports, nor have we sought
consent from any of them.
USE
OF PROCEEDS
We
will
not receive any proceeds from the sale of shares to be offered by the selling
stockholders. The proceeds from the sale of each selling stockholder’s common
stock will belong to that selling stockholder.
MARKET
PRICE OF COMMON STOCK
AND
RELATED STOCKHOLDER MATTERS
Our
common stock is listed on the Pink Sheets under the symbol
“AETA.” The following table sets forth for the periods indicated the
high and low bid prices per share of our common stock as quoted by the Pink
Sheets:
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Price
Range of
Common
Stock(1)
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Fiscal
Year
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High
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Low
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Year
Ended December 31, 2005
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First
Quarter
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$40.00
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$20.00
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Second
Quarter
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$15.00
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$10.00
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Third
Quarter
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$39.00
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$1.20
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Fourth
Quarter
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$1.80
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$0.50
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Year
Ended December 31, 2006
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First
Quarter
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$0.80
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$0.40
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Second
Quarter
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$2.00
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$0.70
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Third
Quarter
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$0.80
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$0.31
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Fourth
Quarter
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$0.80
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$0.30
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Year
Ending December 2007
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First
Quarter
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$2.00
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$0.65
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Second
Quarter
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$1.01
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$0.65
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(1)
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All
periods presented are adjusted for the 100 to 1 reverse stock
split that occurred on February 21,
2007.
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On
August
31, 2007, the closing price of our common stock, as quoted by the Pink Sheets,
was $0.25 per share. As of August 30, 2007, we had approximately 128
stockholders of record.
We
had no
equity compensation plans as of the end of the most recently completed fiscal
year. In connection with the merger with SRS Energy, we assumed SRS
Energy’s 2007 Stock Option Plan, which was adopted by the SRS Energy Board of
Directors on April 16, 2007 and approved by the SRS Energy shareholders on
April
16, 2007. We have 7,000,000 shares of our common stock authorized for
issuance under that plan and awarded stock options and restricted stock
covering 4,610,000 shares of our common stock to our officers and
directors.
DIVIDEND
POLICY
We
have
no material operating history and therefore have had no earnings to distribute
to stockholders. Even if we commence material operations, we do not anticipate
paying any cash dividends in the foreseeable future. Rather, we currently intend
to retain our earnings, if any, and reinvest them in the development of our
business. Any future determination to pay cash dividends will be at the
discretion of our board of directors and will be dependent upon our financial
condition, results of operations, capital
requirements,
restrictions under any existing indebtedness and other factors the board of
directors may deem relevant.
REGISTRATION
RIGHTS
In
connection with our acquisition of SRS Energy, we assumed SRS Energy’s
obligations under an Investor Rights Agreement with the purchasers of Series
A
Debentures. Under our registration rights agreement with these persons, we
agreed to use our reasonable best efforts to file with the SEC a registration
statement covering the resale of the common stock issuable upon conversion
of
the Series A Debentures and the common stock held by certain of our stockholders
who have “piggyback” registration rights. The Investors Rights Agreement also
requires us to use our reasonable best efforts to obtain the effectiveness
of
the registration statement not later than 210 days after the closing of the
purchase of the Series A Debentures, subject to certain exceptions and
limitations. If the filing or effectiveness of the registration statement do
not
occur within the time period specified in the agreement due to our failure
to
satisfy our obligations, we must pay liquidated damages to the holders in the
form of warrants covering the purchase of additional shares of common stock
in
an aggregate amount equal to 1% of the shares of our common stock issuable
upon
conversion of the Series A Debentures for each month (pro rated for partial
months) that the registration statement has not been filed or declared effective
by the SEC until the registration statement is filed or becomes effective.
After
the registration statement is declared effective, we are obligated to use our
reasonable best efforts to maintain the effectiveness of the registration
statement for a period of 24 months at our expense.
This
prospectus relates to the resale of common stock held by the selling
stockholders. Pursuant to our obligations under the above-described registration
rights agreement between us and these holders, we filed with the SEC a
registration statement on Form SB-2 with respect to the common stock offered
by
this prospectus.
PLAN
OF OPERATION
Management’s
discussion and plan of operation
The
following discussion of our Plan of Operation should be read in conjunction
with
the financial statements and related notes to the financial statements included
elsewhere in this registration statement. This discussion contains
forward-looking statements that relate to future events or our future financial
performance. These statements involve known and unknown risks, uncertainties
and
other factors that may cause our actual results, levels of activity, performance
or achievements to be materially different from any future results, levels
of
activity, performance or achievements expressed or implied by these
forward-looking statements. These risks and other factors include, among others,
those listed under
“
Forward-Looking Statements
” and
“Risk
Factors” and those included elsewhere in this registration
statement.
Plan
of operation
To
date
we have engaged in very limited activities. Our
predecessor-in-interest, Long Road Entertainment, Inc. was formed to be a
holding company for operating companies engaged in the entertainment
industry. Long Road Entertainment raised a small amount of capital
and had limited operations. In 2005 Long Road Entertainment
became dormant and did not engage in any material operating activities
until acquiring SRS Energy through the merger of its wholly-owned subsidiary
with SRS Energy. Prior to the merger, SRS Energy’s activities consisted
primarily of investigating and obtaining licenses to the Eley and Brelsford
technologies.
Our
plan
of operation is focused on the commercialization of our Eley and Brelsford
technologies in three phases: testing, demonstration and
commercialization, and replication and rollout. Over the next 12
months, we expect to complete the testing phase and commence the demonstration
and commercialization phase. In particular, our plan over the next 12
months is to:
Testing
Phase
|
|
·
|
conduct
testing and evaluation with Merrick & Company of our Brelsford
technology’s ability to process cellulosic material generated by the Eley
process (and other sources) into fermentable
sugars;
|
|
|
·
|
finalize
contract and arrangements with Colorado State University or another
suitable testing facility for the construction of a pilot
plant;
|
|
|
·
|
build
and operate a pilot plant using our Eley and Brelsford
technologies;
|
|
|
·
|
evaluate
the performance of the pilot plant and identify required improvements
to
implement the technologies in a commercial setting;
and
|
|
|
·
|
begin
design of a small-scale commercial demonstration
plant.
|
Demonstration
and Commercialization Phase
|
|
·
|
identify
and evaluate sites with advantageous feedstock supplies and transportation
logistics in areas that facilitate the prompt granting of development
and
environmental permits for first small-scale commercial demonstration
plant;
|
|
|
·
|
negotiate
co-location rights from the operator of a MRF or landfill for construction
of the small-scale commercial demonstration plant in order to realize
cost
savings from utilizing common
|
|
|
|
infrastructure
and operating savings from proximity to feedstock, landfill capacity
and
transportation;
|
|
|
·
|
identify
and qualify contractors and subcontractors to construct a small-scale
commercial demonstration plant;
|
|
|
·
|
negotiate
feedstock supply and product off-take
contracts;
|
|
|
·
|
secure
funding for the construction of the small-scale demonstration plant;
and
|
|
|
·
|
begin
permitting and pre-construction activities for a small-scale commercial
demonstration plant.
|
We
intend to commence the replication and rollout phase of our plan of
operation if and when we successfully operate the commercial demonstration
plant. We anticipate completing the demonstration and
commercialization phase over the next 24 to 30 months. Prior to
commencing the demonstration and commercialization phase, we will require a
significant amount of capital.
As
a
result of the limited operating history of our company and SRS Energy, prior
years’ financial statements provide little information and virtually no guidance
as to our future performance. Moreover, we do not anticipate
generating any revenue for the foreseeable future. In order to
finance our business beyond the testing phase, we will be required to raise
additional capital. Management plans to raise additional funds
through project financings or through future sales of the Company’s common
stock, preferred stock or debentures, until such time as the Company’s revenues
are sufficient to meet its cost structure, and ultimately achieve profitable
operations. The consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties. We may not
be able to secure financing on favorable terms, or at all. If we are
unable to obtain acceptable financing on a timely basis, our business will
likely fail and our common stock may become worthless.
Critical
Accounting Estimates
The
following are deemed to be the most significant accounting estimates affecting
us and our results of operations:
Research
and Development Costs
Research
and development expenditures, including payments to collaborative research
partners and research and development costs (which are comprised of costs
incurred in performing research and development activities including wages
and
associated employee benefits, facilities and overhead costs) are expensed as
incurred.
Intellectual
Property
Intellectual
property, consisting of our licensed patents and other proprietary technology,
are stated at cost and amortized on a straight-line basis over their economic
estimated useful life. Costs and expenses incurred in creating intellectual
property are expensed as incurred. The cost of purchased intellectual property
is capitalized.
Results
of Operations
For
accounting purposes, we treated our acquisition of SRS Energy as a
recapitalization of our company. As a result, we treat the historical
financial information of SRS Energy as our historical financial
information.
The
principal operating expenses of SRS Energy have been license fees, interest
payments on loans made to SRS Energy, transaction fees in connection with fund
raising and legal fees related to the business of SRS Energy. Prior
to the merger, SRS Energy did not pay salary to Ed Hennessey or any other
persons. All of the indebtedness of SRS Energy outstanding at the
time of the merger from its operations were paid from the closing proceeds
of
the sale of the Series A Convertible Debentures.
The
following table sets forth the amounts of expenses and percentages of total
expenses represented by certain items reflected in our consolidated statements
of operations for the year ended December 31, 2006 and for the six months ended
June 30, 2007:
|
|
|
Six
Months Ended
June
30,
|
|
|
Year
Ended
December
31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
$
|
233,351
|
|
|
|
57.4
|
%
|
|
$
|
16,496
|
|
|
|
20.6
|
%
|
|
Professional
fees
|
|
|
156,843
|
|
|
|
38.6
|
%
|
|
|
47,078
|
|
|
|
58.8
|
%
|
|
Research
and development
|
|
|
|
|
|
|
0.0
|
%
|
|
|
14,000
|
|
|
|
17.5
|
%
|
|
Interest
|
|
|
16,722
|
|
|
|
4.1
|
%
|
|
|
2,439
|
|
|
|
3.0
|
%
|
|
Other
income
|
|
|
(645
|
)
|
|
|
|
|
|
|
(25,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income applicable
to
common stockholders
|
|
$
|
(406,271
|
)
|
|
|
|
|
|
$
|
(55,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity
and Capital Resources
As
a
development-stage company, we have no revenues and will be required to raise
additional capital in order to execute our business plan and commercialize
our
products.
On
April
16, 2007, we completed a $1.4 million private placement of Series A Convertible
Debentures to a group of accredited investors with each debenture being
convertible into shares of our common stock at a conversion ratio of $0.15
per
share. The proceeds from the private placement consisted
of $950,000 in cash and $450,000 aggregate principal amount of short-term
promissory notes having a maturity date of April 16, 2008 and bearing interest
at a per annum rate of 6.0%. The promissory notes are secured by
$450,000 of certificates of deposit held in an escrow account for our
benefit.
We
expect
all of our current cash will be used to operate the Company during the time
that
we complete the testing and development of our Eley and Brelsford technologies
and designing and constructing a pilot plant. Thereafter, we anticipate
incurring costs of designing and constructing a small-scale demonstration plant,
obtaining all required regulatory approvals to build a full-scale operating
plant and constructing an operating plant. These costs will be
substantially greater than the amount of funds we currently have available.
As a
result, we will have to obtain significant additional funds during the next
six
to 12 months. We currently expect attempting to obtain additional financing
through the sale of additional equity and possibly through strategic alliances
with larger energy companies. However, we may not be successful in raising
additional capital. Further, ever assuming that we raise additional funds,
we
may never achieve profitability or positive cash flow. If we are not able to
timely and successfully raise additional capital and/or achieve profitability
or
positive cash flow, we will not have sufficient capital resources to implement
our business plan.
Contractual
Obligations and Commitments
Currently
we have the following two contractual obligations that will require us to make
payments as set forth below over the next 12 months:
Merrick
& Company.
We have entered into an engagement agreement with
Merrick & Company where we have paid them a $30,000 retainer to develop a
complete project management plan for the pilot development
plan. After completing the project management plan, we intend to
engage Merrick & Company to construct, test, and evaluate the pilot
development testing vessel. As part of the testing and evaluation,
Merrick & Company will design and then provide construction observation of
the pilot scale system in conjunction with Colorado State University or another
suitable third party testing facility. The system will employ the
Brelsford technology to demonstrate the efficacy of the process. Our
engagement calls for further payments to Merrick & Company on an as billed
basis as they proceed with the engineering review and testing of our
technology. We anticipate that the total payments to Merrick &
Company under the engagement agreement will be at least $400,000.
Five
Sigma Ltd.
We have paid a $200,000 retainer to Five Sigma Ltd to
assist us in developing appropriate plans and materials for presenting the
Company and our business plan, strategy and personnel to the financial
community, establishing the image of the Company in the financial community
and
creating the foundation for subsequent financial public
relations. This agreement provides for monthly payments by the
Company in the amount of $16,666.66 plus any expenses incurred by Five Sigma
Ltd. Either Five Sigma Ltd. or the Company can cancel this agreement
at any time on three business days’ notice. Upon cancellation
Five Sigma is required to return any unused portion of the retainer to the
Company.
Off-Balance
Sheet Arrangements
We
have
not entered into any transaction, agreement or other contractual arrangement
with an unconsolidated entity under which we have:
|
|
·
|
a
retained or contingent interest in assets transferred to the
unconsolidated entity or similar arrangement that serves as
credit;
|
|
|
·
|
liquidity
or market risk support to such entity for such
assets;
|
|
|
·
|
an
obligation, including a contingent obligation, under a contract that
would
be accounted for as a derivative instrument;
or
|
|
|
·
|
an
obligation, including a contingent obligation, arising out of a variable
interest in an unconsolidated entity that is held by, and material
to, us
where such entity provides financing, liquidity, market risk or credit
risk support to, or engages in leasing, hedging, or research and
development services with us.
|
BUSINESS
Company
Overview
We
are a
development stage company that intends to:
|
|
·
|
complete
the research and development of our two licensed technologies,
which we
believe when combined can convert municipal solid waste into ethanol;
and
|
|
|
·
|
explore,
develop and/or license additional technologies for processing waste
into
energy products as opportunities to do so present
themselves.
|
Our
two
licensed technologies are:
|
|
·
|
the
“Eley” technology, named after its inventor, Dr. Michael Eley, which
was originally owned by Bio-Products International, Inc. and converts
municipal solid waste, also known as MSW, into cellulosic material
while
simultaneously segregating and eliminating any inorganic materials
in the
solid waste; and
|
|
|
·
|
the
“Brelsford” technology, developed by Brelsford Engineering, Inc., that
employs an acid hydrolysis process to convert cellulosic material
into
fermentable sugars, which can then be fermented into
ethanol.
|
We
were
originally incorporated in 1996 as Long Road Entertainment, Inc., and were
formed to operate as a holding company for businesses in the theater, motion
picture and entertainment industries. We ceased conducting that business in
2005
and were dormant until the fall of 2006, at which time our founder and then
controlling stockholder decided to pursue the sale of the company. In
anticipation of that sale, we changed our name to Alternative Ethanol
Technologies, Inc.
On
March
27, 2007, we entered into an Agreement and Plan of Merger and Reorganization
in
which we agreed to acquire SRS Energy, Inc., a Delaware corporation that is
the
holder of the Eley and Brelsford technology licenses. Pursuant to the
merger agreement, SRS Acquisition Sub, our wholly-owned subsidiary, merged
into
SRS Energy with SRS Energy as the surviving corporation. We consummated the
merger on May 31, 2007 resulting in SRS Energy becoming our wholly-owned
subsidiary. Today, SRS Energy is our principal operating company.
SRS
Energy was formed as a wholly-owned subsidiary of Supercritical Recovery
Systems, Inc., a Delaware corporation, in July 2004. At that time,
Supercritical Recovery Systems was a licensee of various technologies for
the
processing of waste materials into usable products. While
investigating different technologies, Supercritical Recovery Systems was
introduced to the Eley and Brelsford technologies and secured licenses to
the
technologies in SRS Energy. Prior to our acquisition of SRS Energy,
Supercritical Recovery Systems distributed approximately 80% of its ownership
of
SRS Energy to the stockholders of Supercritical Recovery
Systems. Since our acquisition of SRS Energy, Supercritical Recovery
Systems has ceased its business activities with respect to licensing other
technologies.
The
license to the Eley technology grants SRS Energy limited exclusive rights to
use
the technology to process municipal solid waste and convert the cellulosic
component of that waste to a homogenous feedstock to produce ethanol in the
United States, subject to the right of Bio-Products to request five sites to
construct solid waste to ethanol plants in the United States. SRS
Energy’s license to the Brelsford
technology
is limited to the production of fuel grade ethanol in the United
States. The license is exclusive with regard to the conversion of MSW
to cellulosis biomass for the production of ethanol. We do not have
exclusive rights to the other aspects of the Brelsford technology. By
coupling these technologies, we believe we may have the ability to extract
biomass from curbside solid waste (among other potential sources of cellulosic
material) and convert it into fuel grade ethanol.
We
have
no operating history as a producer of ethanol and have not constructed any
ethanol plants to date. We have not earned any revenues to date and expect
that
our current capital and other existing resources will be sufficient only to
complete the testing of our technologies and to provide a limited amount of
working capital. We will require substantial additional capital to
implement our business plan and we may be unable to obtain the capital
required to build any commercial plants.
Industry
Overview
General
Ethanol,
today, is produced mostly from sugars or starches, obtained from fruits and
grains. Production in the United States ethanol industry is currently
dominated by corn distillation. According to the Renewable Fuels Association,
domestic ethanol production increased from 1.3 billion gallons per year in
1997
to 5.4 billion gallons per year as of December 2006. The top 12
producers accounted for approximately 47 percent of the industry’s total
estimated production capacity. More than 50 smaller producers and farmer-owned
cooperatives, most with production of 50 million gallons per year or less,
generate the remaining production.
Corn
Ethanol
Although
the ethanol industry continues to explore production technologies employing
various feedstock, corn-based production technologies are the predominant
methods used by ethanol producers today and are likely to remain dominant for
the near future. Consequently, most U.S. ethanol is, and we expect will be
for
the foreseeable future, produced in the Midwest, where corn is
abundant. At the current cost of $3.00 per bushel for corn, raw
material cost represents about 60 percent of the cost of production of ethanol,
which means corn ethanol producers are susceptible to fluctuating corn
costs. In fact, the rapid growth in demand for corn for ethanol
production is creating intensifying competition with the demand for corn as
a
food source, which will likely result in higher future corn prices that in
turn
may increase the cost of ethanol produced from corn.
In
addition, corn ethanol faces distribution issues. More than half
of the total U.S. ethanol production is consumed in the east-coast and
west-coast markets, primarily as a result of the stricter air quality
requirements in large parts of those markets. The movement of ethanol via
pipeline is limited as a result of the tendency of ethanol to absorb water
and
other impurities found in the pipelines, logistical limitations of existing
pipelines and limited volumes of ethanol that need to be transported. As a
result, the primary means of transporting ethanol from the Midwest to the coasts
is by rail transportation, at additional cost. Consequently, ethanol
today is sold primarily in the marketplace in which it is
produced. Since most corn is grown in the Midwest, most ethanol
plants in the United States are also located in the Midwest, but many of the
largest cities, where energy consumption is the greatest, are great distances
from existing ethanol plants.
Cellulosic
ethanol is obtained from cellulose. Cellulose is plentiful as it is
present in every plant, straw, grass and wood, as well as being abundant
in
solid waste and other waste. Moreover, since cellulose is the main
components of plants, the whole plant, rather than just the fruits and
grains, can be harvested. In fact, a joint study by the United
States Departments of Agriculture and Energy recently concluded that the
United
States land resources could produce a sustainable supply of biomass sufficient
to displace 30 percent of the country’s current gasoline
consumption. Most of these "bio-mass" products are currently
discarded. Since cellulose cannot be digested by humans, the
production of cellulose does not compete with the production of food. The
price
per ton of the raw material is thus much cheaper than fruits or grains and
in the case of municipal solid waste, processors such as our company may be
paid to take the material.
We
believe that because of the size of the untapped biomass resource, for example,
agricultural, forestry and municipal wastes, the cost of cellulosic material
as
a feedstock to ethanol producers will be less than the cost of
corn.
In
June
2006, a United States Senate hearing determined that the cost of producing
cellulosic ethanol is $2.25 per gallon. This was primarily due to the current
poor conversion efficiency. The Department of Energy has stated,
however, that it is optimistic that new technologies will improve
efficiencies in the manufacturing of cellulosic ethanol. Based on
this optimism, the Department of Energy has requested a doubling of research
funding. The same Senate hearing was told that the research target was to
reduce
the cost of production to $1.07 per gallon by 2012.
The
ability to take advantage of the potential biomass feedstock resource will
depend, however, on further progress in developing and commercializing
technologies to cost-effectively process cellulosic materials. A
number of cellulosic-based technologies are currently in various stages of
development and commercialization. We believe the most promising
technologies are:
|
|
·
|
acid
hydrolysis of cellulosic materials followed by fermentation
of the
resulting sugars, which is the technology we plan to
employ;
|
|
|
·
|
Enzymatic
processing of cellulose into fermentable sugars;
and
|
|
|
·
|
gasification
followed by either catalytic or fermentation transformation of
the
synthesis gas into fuel.
|
It
has
been known for over 100 years that acids act as catalyst to convert, or
hydrolyze, cellulose and hemicellulose into simple sugars such as hexose and
pentose sugars. The chemistry for hexose and pentose is C
6
and C
5
,
respectively. Traditional acid hydrolysis occurs in two stages to
accommodate the differences between hemicellulose and cellulose. The first
stage
can be operated under milder conditions, which maximizes yield from more readily
hydrolyzed hemicellulose. The second stage is optimized for hydrolysis of the
more resistant cellulose fraction and traditionally requires high temperatures
and acid concentration to operate efficiently. At each stage, sugar
water is recovered and fermented and distilled to alcohol. Residual cellulose
and lignin left over in the solids from the hydrolysis reactors can serve as
boiler fuel but cannot be used to produce ethanol. Until recently,
however, acid hydrolysis-based technologies were too expensive to compete with
low-cost production methods of petroleum-based products. We believe,
however, that our Breslford technology utilizes an efficient acid hydrolysis
process that will enable us to be cost competitive.
Enzymatic
conversion of cellulose to ethanol faces a number of near-term technical
challenges, but offers considerable longer-term promise as a low-cost
approach. Enzymatic processes break down cellulose chains into
glucose molecules by cellulosic enzymes. This reaction occurs
naturally at body temperature in the stomach of ruminants, such as cows and
sheep, where the enzymes are produced by bacteria. The laboratory processes
being developed use several enzymes at various stages to replicate this biologic
process. Using a similar enzymatic system, cellulosic materials can be
enzymatically hydrolyzed (at a relatively mild temperature and acid level),
thus
enabling effective cellulose breakdown without the formation of byproducts
that
would otherwise inhibit enzyme activity.
Gasification
of cellulosic materials is also a technology undergoing rapid improvement and
may present serious near- to mid-term competition to ethanol production that
is
based on acid hydrolysis. The gasification process does not rely on
chemical decomposition of the cellulose chain. Instead of breaking the cellulose
into sugar molecules, the carbon in the raw material is converted into synthesis
gas, using what amounts to partial combustion. The carbon monoxide, carbon
dioxide and hydrogen may then be fed into a special kind of fermenter. Instead
of yeast, which operates on sugar, this process uses microorganisms in the
Clostridium genus. These microorganisms ingest carbon monoxide, carbon dioxide
and hydrogen and produce ethanol and water. The process can thus be broken
into
three steps:
|
|
·
|
Gasification
— Complex carbon based molecules are broken apart to access
the carbon as
carbon monoxide, carbon dioxide and hydrogen are
produced;
|
|
|
·
|
Fermentation
— Convert the carbon monoxide, carbon dioxide and hydrogen
into ethanol
using the microorganisms; and
|
|
|
·
|
Distillation
— Ethanol is separated from water.
|
Alternatively,
the synthesis gas from gasification may be fed to a catalytic reactor where
the
synthesis gas is used to produce ethanol and other higher alcohols as
well.
National,
state, and local governmental policies has, and we will continue to play a
critical role in the development of the ethanol industry.
Clean
Air Oxygen
Standards
The
federal Clean Air Act requires that “ozone non-attainment areas”, which are the
regions of the country with the worst smog, use reformulated gasoline, also
referred to as RFG. Today almost one-third of U.S. gasoline is
RFG. Methyl tertiary butyl ether, referred to as MTBE, and ethanol
have been the two most commonly used substances to add oxygen to gasoline to
meet the RFG requirements.
Phase
out of MTBE
Because
MTBE is a possible human carcinogen, it is being phased out in many
states. If MTBE were to be banned completely, it could create a huge
boost in demand for ethanol, especially if the oxygen standard for reformulated
gasoline remains in place.
Renewable
Fuels
Standard
The
Energy Policy Act of 2005 sets a nationwide renewable fuels standard that
required almost a doubling of the use of ethanol by 2012. This
legislation effectively sets a low floor under the use of ethanol and biodiesel,
because the market is already well above the mandated
minimums. In addition, in order to encourage the use of cellulosic
ethanol, the legislation credits every gallon of cellulose-derived ethanol
with
the equivalent to 2.5 gallons of other renewable fuel.
Tax
Incentives
Currently,
two types of federal tax incentives apply to biomass-derived ethanol that is
sold as fuel: (1) a partial excise tax exemption, and (2) income tax
credits. Ethanol blends of 10 percent or more qualify for a $0.053
per gallon exemption, with proportionally lower amounts applying to lower
ethanol/gasoline blends. In effect, this exemption structure provides
a $0.53 per gallon of ethanol exemption from excise taxes.
Tariff
Protection
The
government currently levies a tariff of $0.54 per gallon on imported fuel
ethanol. This tariff is justified as a measure to offset the effect
of the excise tax exemption, but its effect is to give significant protection
to
domestic producers from low cost foreign sources such as Brazil. Fuel
ethanol imported from Jamaica, Trinidad, El Salvador, Costa Rica and certain
other Caribbean nations, however, is not subject to tariff and therefore gives
these smaller countries preferential access to the U.S. market.
Our
technologies
We
believe we can convert municipal solid waste into cellulosic material using
our
Eley technology, and then use our Breslford technology to process that
cellulosic material into fermentable sugars using an acid hydrolysis method
and
ferment the sugars into ethanol.
Eley
technology
Municipal
solid waste contains valuable resources if they can be recovered
economically. Waste haulers often bring unsorted waste by truck to
materials recovery facilities, also known as MRFs, for sorting and removal
of
selected materials prior to disposal in sanitary landfills. To date,
however, the amounts of materials recovered are relatively small, typically
on
the order of 20 percent of the total volume of waste.
The
Eley
technology we plan to use was developed by Dr. Michael Eley at the University
of
Alabama, Huntsville. The process separates curbside municipal solid
waste into organic and inorganic materials using a patented and proprietary
process, referred to as pressurized steam classification, which involves a
unique combination of steam, pressure and agitation. The separation
is accomplished by placing waste material in a rotating pressure vessel, or
autoclave. In the autoclave, the material is heated to several
hundred degrees, which sterilizes the waste material, while the
pressure and agitation cause a pulping action. This combination is designed
to
result in a large volume reduction, yielding the following two sterilized
resource streams for further manufacturing of new products:
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Cellulosic
biomass, a decontaminated, homogeneous feedstock that
we expect will
represent approximately 55 to 60 percent of the MSW
and will be suitable
for conversion to ethanol or other
uses.
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Separated
recyclables (steel cans and other ferrous materials,
aluminum cans,
plastics, and glass), which we expect will represent
about 25 percent of
the MSW input and are sorted and can be sold to
recyclers.
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The
process also creates residual waste (fines, rocks, soil, textiles
and non-
recyclable fractions), which we expect will represent the remaining
15 to 20
percent of the MSW input. We will not be able to recover any value in
this residual waste. We will be required to deliver this waste to
landfills, thereby reducing the tipping fees we are
paid.
Although
the Eley technology has not been independently tested, World Waste Technologies,
Inc. a licensee of the technology, has used the Eley process to generate
cellulosic material from MSW for the production of paper. In addition
to having been used on a commercial scale, we believe that the Eley process
represents a significant improvement over other autoclave technologies currently
in use because of:
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the
relationship between agitation of the waste material,
moisture, and the
temperature and pressure of steam in the
vessel;
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the
method of introduction of steam into the autoclave
vessel, the pressure
range, along with the method of full depressurization,
and treatment of
the steam being vented from the process to prevent
air
pollution;
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the
method of mixing the heat and steam with the waste uniformly
throughout
the vessel; and,
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the
direct and critical correlation between the length and
diameter of the
vessel, internal flighting and the total tonnage of waste
to be processed
for proper mixing and product
yield.
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In
2007,
World Waste Technologies purchased the patent for the Eley technology
from the
University of Alabama Huntsville subject to a preexisting exclusive
license
granted by the University to Bio-Products and the sub-license granted
to us by
Bio-Products. World Waste Technologies has announced design and
engineering issues with the technology. We believe, however, that
certain redesign efforts have resolved these
issues.
Under
its
license, Bio-Products is required to continue to make certain payments to World
Waste Technologies to maintain exclusive rights to the
technology. Our license agreement provides that if for any reason
Bio-Products loses its exclusive rights to the process, we are entitled to
use
the Eley technology at no cost. Nevertheless, if Bio-Products loses
its exclusive rights, we anticipate that World Waste Technologies will begin
using the process to produce ethanol and other fuel products. World
Waste Technologies has publicly stated its intention to try to extend its
license with Bio-Products to include the right to use the Bio-Products process
in the production of ethanol. Additionally, World Waste has filed
suit against Bio-Products alleging it breached certain representations and
warranties to World Waste in its license agreement.
Brelsford
technology
Currently,
the primary feedstocks for the existing ethanol industry are the sugars and
starches found in plants, such as corn. Sugars and starch comprise
only a small part of a plant. Most of the rest of a plant is
cellulose. Moreover, cellulose is widely available and highly
concentrated in waste that we pay to dispose of, such as municipal solid waste,
green waste, saw dust and agricultural waste, which we sometimes refer to
generally as biomass waste. The underutilization of biomass waste has
driven decades of research into ethanol production from
cellulose. Recent increases in the costs of fuels have caused the
research to intensify in the past several years.
Nevertheless,
several obstacles continue to prevent wide-spread commercialization of the
process, including:
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difficulties
accelerating the hydrolysis reaction that breaks
down cellulose fibers
without consuming so much energy, which produces
heat, that the process
becomes
uneconomical;
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the
high level of the acid concentration needed
to hydrolyze cellulose;
and
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the
disposal of the lignin
byproduct.
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We
believe that the Brelsford process differs from currently used
technology in a
few key respects. First, the process uses a low pressure, high
temperature oil to provide heat to drive the hydrolysis reaction
rather than the
high temperature steam used in other hydrolysis processes. This
results in lower energy requirements for the Brelsford
process. Second, the Brelsford process recovers heat and acid used in
the first stage of its hydrolysis and reuses them in the second
stage. Recycling heat and acid, further reduces the energy
requirements to run the process and lowers raw material
costs.
The
Brelsford technology is comprised of two double-tube heat-exchanger
plug-flow-reactor systems, which are assembled in-series. It
incorporates a three-step process that we believe is a cost-effective acid
hydrolysis process. First, the process separates cellulosic
feedstock, such as the cellulosic material generated by the Eley technology,
into two main components: (1) cellulose and hemicellulose, which can be
converted into sugars, and (2) lignin, which is the glue that holds the
cellulosic building blocks together and is not dissolved in the
process. Second, acid is introduced into the mixture, which breaks
down the chemical bonds in the cellulose and hemicellulose and converts them
primarily into hexose and pentose sugars and glucose, which are then fermented
by yeast. Third, the fermented liquids are purified into ethanol and
other useful end-products, and unhydrolyzed lignin residues, which cannot be
used to make ethanol.
According
to a review of the technology conducted by the National Institute of Science
and
Technology (NIST – Final Technical Evaluation Report No. 457), the “Brelsford
process has a potential for achieving considerable economic savings in: (1)
acid
composition, (2) heat-energy supplied for cellulose hydrolysis and (3)
process-energy for fuel ethanol production. These process and
economic savings are likely to be partially off-set, by no more than one percent
loss in total sugars yield.” We estimate the net effect may lead to a
reduction in total capital and operating costs of roughly 30 percent compared
to
any other acid hydrolysis process of which we are aware.
The
Brelsford technology may be suitable for processing a wide range of cellulosic
materials such as soft and hardwood mill wastes, crop residues such as corn
stover and wheat straw, as well as cellulosic residue from MSW.
Proving
our technologies
We
have
engaged Merrick & Company, an engineering firm located in Denver, Colorado,
to evaluate our Brelsford technology. In particular, Merrick &
Company is evaluating the thermo chemical reaction conditions of the Brelsford
technology that is at the heart of our waste-to-ethanol process, using feedstock
generated by the Eley technology. We will also test whether other
cellulosic materials such as switch grass, corn stover and wood waste may be
used as the feedstock for that process. As part of the testing and
evaluation, Merrick & Company will design and build a pilot plant in
conjunction with Colorado State University (or another suitable facility) that
will utilize the Brelsford technology to demonstrate the operation of the
process. The primary purpose of the pilot plant is to determine
whether the Brelsford technology has the potential to produce ethanol at
commercially viable costs and, if so, to obtain sufficient design basis
information to commence designing a commercial plant using the
technology. Determining whether our technology is commercially viable
for cellulosic ethanol production requires understanding two elements of costs,
the operating costs to process waste to ethanol and the construction costs
to
build an operating plant. We anticipate developing a better
understanding of both of these elements of costs as we work with Merrick &
Company.
Our
present engagement of Merrick does not provide for testing the Eley technology.
We believe, however, that the deployment of the Eley technology on a commercial
basis by World Waste Technologies demonstrates that the Eley technology can
be
commercialized. While World Waste Technologies initially encountered
design problems with its plant, we believe many of the problems relate to
the
production of paper using the Eley technology (the purpose for which World
Waste
Technologies licensed the Eley technology) and we believe will not be implicated
in the ethanol production process. Additionally, Dr. Eley
subsequently implemented design changes to his rotating pressure vessel that
he
and World Waste Technologies have indicated resolved the initial problems
encountered with respect to the use of Eley technology to separate cellulosic
material from municipal waste.
In
June
2006, a U.S. Senate hearing was told that the current cost of producing
cellulosic ethanol is $2.25 per gallon based on known technology then in
use. The same Senate hearing was told that the research target was to
reduce the cost of production to $1.07 per gallon by 2012 in order for ethanol
to be competitive with other fuels. Currently, the average cost for
producing ethanol from corn, currently the most prevalent feedstock, is $1.65
per gallon.
Based
on
our current assumptions concerning the future price of fuel ethanol, if our
testing indicates that our cost of producing ethanol from MSW after taking
into
account projected operating costs and construction costs is equal to or less
than $1.65 per gallon, we expect that we will consider our technology to
be
commercially viable. If our testing and evaluation indicates that the
cost of producing ethanol using our technologies is in excess of $1.65 per
gallon, we intend to evaluate the results of the testing, current and expected
market conditions in the transportation fuels industry, and any potential
improvements or modifications to our technology that may be
proposed. If after evaluating these factors, we determine that the
technologies are not usable on a commercial scale, we may elect cease the
development of the technologies at that time or proceed on a basis different
than our current business plan. There can be no assurances that the
price of fuel ethanol will be maintained at levels that make our technology
economically viable, regardless of the costs of production.
Principal
Products or Services and their Markets
We
are in
the process of having Merrick & Company test the Brelsford technology using
biomass from the Eley process, among other feedstocks. If we
determine these technologies are mutually reinforcing technologies and are
commercially viable, and we are able to raise a significant amount of additional
capital, we may be in a position to build and operate waste-to-ethanol plants
and enter into long-term contracts with municipalities, solid waste haulers,
and
operators of landfills and materials recovery facilities to process a large
portion of their waste stream into recyclable materials and cellulosic
material. We believe we could then be in a position to convert the
cellulosic component of the MSW into ethanol and sell the ethanol in selected
markets. Although not currently our focus, our technologies may be
able to produce ethanol from other sources of cellulosic material (e.g. wood
waste, corn stover, and switchgrass, among others) if the material can be
acquired on sufficiently favorable terms and the Brelsford technology proves
to
be commercially viable for processing other forms of waste into
ethanol.
Ethanol
We
expect
the primary product we will sell will be fuel-grade ethanol. Ethanol
is ethyl alcohol (200-proof grain alcohol). When it is denatured with
5 percent gasoline, fuel-grade ethanol created that can be used to enhance
gasoline performance and reduce exhaust emissions as well as used directly
as a
gasoline alternative.
The
U.S.
market for ethanol is currently experiencing a surge in demand, having grown
from 4.0 billon gallons in 2005 to 5.3 billon gallons in 2006. We
believe this demand is being driven by a number of factors including using
ethanol as an oxygenate and a replacement for methyl tertiary butyl ether,
or
MTBE, as a clean air additive, as an extender of fuel supplies, and as an
alternative to gasoline. We believe that the ethanol market will
continue to grow as a result of the following factors.
Continuing
High Petroleum
Prices
Demand
for petroleum products has been growing faster than supply, which has been
constrained by declining oil reserves and shortages of refining
capacity. Fundamentally, the wholesale rack price of fuel-grade
ethanol as a fuel alternative is driven by the price of gasoline, and as long
as
gasoline prices remain high, we expect the demand for ethanol will be
strong.
Expanding
Infrastructure to use
Ethanol as a Gasoline Alternative
Ethanol
can be blended with small amounts of gasoline in an 85-15 percent mix, referred
to as E85, and used as an alternative to gasoline. Vehicles must be
specially equipped to use E85 and there must be adequate service stations with
the capacity to dispense E85. Currently about 6 million U.S. vehicles
are so equipped, but less than one thousand service stations offer
E85. Many initiatives are currently being considered to dramatically
increase the number of service stations offering E85 and this may increase
the
usage of E85 as long as it remains price competitive with gasoline.
Government
Regulations
Historically,
producers and blenders had a choice of fuel additives to increase the oxygen
content of fuels. MTBE, a petroleum-based additive, was the most popular
additive, accounting for up to 75% of the fuel oxygenate market. However, in the
United States, ethanol is replacing MTBE as a common fuel additive. While both
increase octane and reduce air pollution, MTBE is a presumed carcinogen that
contaminates
ground
water. It has already been banned in California, New York, Illinois and 16
other
states. Major oil companies have voluntarily abandoned MTBE and it is scheduled
to be phased out completely under the Energy Policy Act. As MTBE is phased
out,
we expect demand for ethanol as a fuel additive and fuel extender to rise.
A
blend of 5.5% or more of ethanol, which does not contaminate ground water like
MTBE, effectively complies with U.S. Environmental Protection Agency
requirements for reformulated gasoline, which is mandated in most urban areas.
At this time, we are unaware of any economically feasible substitutes for MTBE
other than ethanol. Regional demand is also being created by the
requirement to use reformulated gasoline in non-attainment areas under the
federal Clean Air Act. In addition, the federal Energy Policy Act of
2005 sets a minimum use (with certain safeguards) of ethanol and biodiesel,
rising to 7.5 billion gallons per year by 2012.
MSW
Processing Services
We
believe that the opportunity to help communities, haulers and landfill managers
reduce the amount of material transported and deposited in landfills is large
and growing. The Resource Conservation and Recovery Act of 1991,
referred to as RCRA, requires landfills to install expensive liners and other
equipment to control leaching toxics. Due to the increased costs and
expertise required to manage landfills under RCRA, many small, local landfills
have closed during the 1990’s. Larger regional landfills were built
requiring increased transportation costs for the waste haulers. As a
result, landfill space is increasingly scarce and disposal costs have been
increasing.
Currently,
landfill operators charge a tipping fee to deliver municipal solid waste to
a
landfill, waste-to-energy facility, recycling facility, transfer station or
similar facility. Tipping fees vary widely based on geographic
location and the number of available places to dispose of MSW in a given
location.
Because
of the increasing cost pressures on waste haulers and based on current tipping
fee pricing, we believe we will be able to negotiate a payment of part of their
tipping fee from waste haulers who deliver MSW to us for processing that would
range from as low as $10 per ton in some central parts of the country to over
$70 per ton in the Northeast and some parts of the Southeast. The
availability of tipping fees at favorable rates will be a key component of
our
business.
Recyclable
Byproducts
We
anticipate that our process will generate other recyclable byproducts from
the
processing of MSW, such as aluminum and other metals. We believe the
Eley technology will produce scrap aluminum, tin, steel, glass and plastic
(typically amounting 20 to 25 percent of the total waste stream). The
markets for these recovered products are volatile and subject to rapid and
unpredictable changes making it impossible at this time to provide estimated
per
ton cost to revenue information.
Limited
opportunities also exist for selling the insoluble materials, primarily lignin,
left after the sugars are filtered out through the Brelsford technology as
these
materials can be pressed into a cake and further processed into a boiler fuel,
which can be gasified or co-fired with coal. As ethanol production
volumes increase and this type of residual fuel becomes more widely accepted,
a
more robust market for this byproduct may develop, but pricing will depend
heavily on proximity to potential users and prices of other fuels
available.
Basic
business plan
Our
strategy is to build our company in several phases with the ultimate goal of
becoming a leading producer of ethanol and other combustible fuels from
municipal waste and other feedstocks. We are currently focusing on
testing, demonstrating and commercializing our existing licensed technologies.
On an ongoing basis, we intend to continue investigating opportunities to
develop or acquire complementary technologies, especially those that would
allow
us improve our existing processes or to add value to the various byproducts
produced by those processes. In addition, we will look for
opportunities to combine our technologies with other synergistic processes
in
innovative energy parks, where some of our byproducts (e.g., lignin) could
be
used as inputs to other processes (e.g., gasifiers) that could produce inputs
for us (e.g., steam).
We
have
structured our Strategic Plan on the following three phases with respect to
the
development and commercialization of our existing technologies:
Testing
Phase
The
Eley
technology for converting MSW to cellulose has been implemented by World Waste
Technologies on a commercial scale for the production of paper, which we believe
has thin profit margins. Although we are aware World Waste
Technologies has identified design and production issues with the Eley
technology, we anticipate our ethanol will have wider profit margins and will
therefore have greater flexibility to overcome these issues. The
Brelsford process has only been tested at a small pilot scale at Brelsford’s
facilities in Bozeman, Montana. As a result, we intend to construct a
pilot plant at Colorado State University (or another suitable facility) with
the
assistance of Merrick & Company. This pilot plant should be
completed within the next six to 12 months and will provide the basis for
identifying the optimal design criteria and quantifying the expected
engineering, construction costs and economic performance of a commercial
demonstration plant and ultimately a full-scale commercial plant. We
expect we will spend all of our current funds on and during this phase of our
development. There can be no assurance that the pilot plant will be
completed on the schedule we anticipate.
Demonstration
and Commercialization Phase
We
are in
the early stages of identifying and evaluating potential sites for locating
the
first operational plant, which we anticipate will be a relatively small-sized
commercial demonstration facility to further test and refine engineering design
and operating procedures. The preferred property is likely to be
co-located with an existing municipal waste processor in order to share
infrastructure and to facilitate reaching a satisfactory long-term feedstock
supply agreement. One of the options that is currently being
considered is a joint venture with an existing waste hauler, municipal waste
processor or landfill operator in order to realize potential synergies and
reduce the risks. We currently do not have any agreements with regard
to either the location or the feedstock.
Replication
and Rollout Phase
We
intend
to follow a systematic evaluation process in identifying and selecting
additional sites for the construction of full-scale operating plants in order
to
focus on those with the best near-term and long-term potential. If
market conditions are not favorable for the construction of new plants, we
may
consider licensing our technology to third parties with existing waste-to-energy
facilities. To date, we have not identified any sites for a
full-scale facility or commenced any material discussions with any
party
regarding
building a full-scale operating plant and/or licensing our technology to a
third-party. We have only preliminarily begun to explore these
possibilities.
Our
ability to implement the strategy outlined in our basic business plan will
depend on our ability to raise significant amounts of additional capital and
to
hire appropriate managers and staff. Our success will also depend on
a variety of market forces and other developments beyond our
control.
Distribution
Methods of the Products or Services
We
anticipate utilizing existing distribution channels to sell the ethanol that
we
produce. Depending on plant location, the preferred purchasers may be
blenders, wholesalers or municipal and commercial fleet
operators. When possible and appropriate, we will seek long-term
ethanol purchase agreements in order to reduce price volatility and
risks. This will require extensive and systematic marketing in order
to find fleet operators or other entities willing to enter into these kinds
of
contracts in order to meet environmental or price stability
objectives. Because of these challenges, we may not be able to
execute a significant number of longer-term fuel off-take purchase
agreements.
Competition
We
will
be a very small player in the huge market for transportation fuels and will
compete directly and indirectly with a large number of well-established and
better funded firms. In addition, demand for our product will be
affected by competition with traditional petroleum products, primarily gasoline
and diesel, other alternative energy products such so bio-diesel, and other
ethanol producers. We will also experience significant competition
from ethanol importers.
Petroleum
products
Petroleum
products, because of their dominant market position, largely determine the
market price for transportation fuels. The general expectation is
that declining oil reserves, increasing demand from emerging economies like
China and India, together with political instability in many oil producing
countries are likely to provide continuing upward pressures on future oil
prices. Nonetheless, it is instructive to note that the major oil
companies reportedly use benchmark prices in the range of $30-40 per barrel
in
evaluating investment projects. If prices fall to these levels, even
temporarily, because of global recession or other reasons, conventional
petroleum products will put extreme downward pressure on alternative fuel
producers.
Bio-Diesel
and competing alternative energy products
Within
the alternative energy sector, our cellulosic ethanol will compete with a
variety of other technologies in producing transportation and other
fuels. At a user level, ethanol is facing increasing competition from
biodiesel, which is currently experiencing an advantage because of adverse
publicity about the low net energy balance from corn ethanol. This is
being exacerbated by the impact that the dramatic growth in corn ethanol has
had
on corn prices. As improved technologies permit diesel engines to
meet the new strict U.S. emissions standards, Americans may begin to follow
the
European lead in turning to diesel as the preferred transportation
fuel.
Ethanol
from sugars and starches
Currently,
worldwide ethanol production uses agricultural products almost exclusively
for
its feedstock. In the United States, ethanol is derived primarily
from corn, while internationally, ethanol is produced primarily from sugar
cane
and sugar beets. As of January 2007, approximately 110 ethanol
production facilities were operating in the United States located predominately
in the cornbelt in the Midwest with a combined annual production capacity of
5.4
billion gallons of ethanol. At June 1, 2007, there were more than 75
additional corn ethanol plants under construction or being expanded that, when
completed, are anticipated to double the current production capacity in the
United States.
Corn
ethanol plants operate in two basic ways, wet and dry milling
processes. Wet milling produces more valuable by-products from the
ethanol production process. However, wet mill plants cost
substantially more to build and have higher operating costs than dry mill
processing plants, and hence, are usually much bigger than dry mill plants
in
order to achieve economies of scale.
Unlike
ethanol production from MSW, traditional ethanol production techniques from
agricultural feedstocks are mature and well entrenched in the
marketplace. In the recent past, well-funded national and
international corporations have built wet mill ethanol plants in the United
States to produce ethanol from corn. Currently,
Archer-Daniels-Midland Company accounts for approximately 20% of all domestic
ethanol production capacity in the United States with more than 1 billion
gallons of production under its control. Its larger plants are wet milling,
as
opposed to dry milling, and each plant has the capacity to produce as much
as
150 to 300 million gallons of ethanol per year. These large plants have cost
advantages and economies of scale that provide significant competitive
advantages over alternative ways of producing ethanol.
Ethanol
production is also expanding internationally. Ethanol produced or processed
in
certain countries in Central America and the Caribbean region is eligible for
tariff reduction or elimination upon importation to the United States under
a
program known as the Caribbean Basin Initiative. Large ethanol producers, such
as Cargill, have expressed interest in building ethanol plants in participating
Caribbean Basin countries, such as El Salvador, which would produce fuel-grade
ethanol for shipment to the United States. Ethanol imported from Caribbean
Basin
countries may be a less expensive alternative to domestically produced ethanol
and may affect our ability to sell our ethanol profitably. For
instance, currently, the cost of producing ethanol in Brazil is about $0.60
per
gallon, more than a dollar per gallon cheaper than the average cost of producing
corn ethanol in the United States.
Cellulosic
Ethanol
Today
there are few companies and no commercial production infrastructure built to
produce ethanol from cellulosic feedstocks, but a large amount of research
and
development is being conducted in these areas. Pilot plants are being
built using alternative technologies and at least one full scale production
plant is under construction.
On
February 20, 2007, the United States Department of Energy announced $385 million
in grant funding to six cellulosic ethanol plants. This grant funding
accounts for 40% of the investment costs. The remaining 60% comes from the
promoters of those facilities. We will likely face especially intense
competition from several pioneers in the cellulosic ethanol industry who will
be
gaining from early government support for some large pilot projects from these
grants.
The
grants, ranging from $33 million to $80 million, went to Abengoa Bioenergy,
ALICO, Inc., BlueFire Ethanol, Broin Companies, Iogen Biorefinery Partners,
and
Range Fuels. These companies are pursuing projects ranging from 11
million to 125 million gallons per year in capacity using a variety of
enzymatic, acid hydrolysis and gasification technologies. We do not
believe that these competitive processes have been demonstrated commercially,
but any that are successful will have a substantial “first-mover” advantage over
our company, even though we believe none currently intend to use MSW as
feedstock.
Enzymatic
Conversion
Various
enzyme companies have contributed significant technological breakthroughs in
cellulosic ethanol. Iogen Corporation is a Canadian producer of
enzymes. They promote an enzymatic-hydrolysis process that uses specially
engineered enzymes. Another Canadian company, SunOpta Inc. markets a
patented technology known as "Steam Explosion" to pre-treat cellulosic biomass,
overcoming its recalcitrance and making the cellulose and hemicellulose
accessible to enzymes for conversion into fermenatable sugars. SunOpta designs
and engineers cellulosic ethanol biorefineries and its process technologies
and
equipment are in use in the first three commercial demonstration scale plants
in
the world: Celunol Corporation's facility in Jennings, Louisiana, Abengoa's
facility in Salamanca, Spain, and a facility in China owned by China Resources
Alcohol Corporation (CRAC). The CRAC facility is currently producing cellulosic
ethanol from local corn stover on a 24-hour a day basis utilizing SunOpta's
process and technology. Genencor and Novozymes are two other
companies that have received United States government Department of Energy
funding for research into reducing the cost of cellulase, the key enzyme in
the
production of cellulosic ethanol by enzymatic hydrolysis.
Other
enzyme companies, such as Dyadic International, Inc., are developing genetically
engineered fungi that would produce large volumes of cellulase, xylanase and
hemicellulase enzymes. These enzymes can be utilized to convert
agricultural residues, such as corn stover, distiller grains, wheat straw and
sugar cane bagasse, and energy crops, such as switch grass, into fermentable
sugars, which may be used to produce cellulosic ethanol.
Acid
Hydrolysis
Currently,
there are no operating commercial
plants in the United
States using acid hydrolysis to produce ethanol. Blue Fire Ethanol,
however, recently announced plans to build an operating plant in Sacramento,
California to produce ethanol using their concentrated acid hydrolysis
process.
Blue
Fire
licenses technology from Arkenol, Inc. that enables widely available cellulosic
materials, or more commonly, biomass, to be converted into sugar.
Biomass
feedstocks that can be used in the Arkenol process include:
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agricultural
residues (straws, corn stalks and cobs,
bagasse, cotton gin trash, palm
oil wastes,
etc.),
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crops
grown specifically for their biomass (grasses,
sweet sorghum, fast growing
trees,
etc.),
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paper
(recycled newspaper, paper mill sludge's, sorted
municipal solid waste,
etc.),
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wood
wastes (prunings, wood chips, sawdust, etc.),
and
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green
wastes (leaves, grass clippings, vegetable and fruit
wastes,
etc.).
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Arkenol
has constructed and operated a pilot plant near its Southern
California offices
for roughly five years. Since 2003, the technology has been
successfully used by
an unrelated corporation to produce ethanol for the Japanese
transportation fuel
market.
The
Arkenol process varies from our processes in two key ways. First,
Arkenol’s technology utilizes a concentrated acid solution to hydrolyze
cellulosic material in a high temperature environment. The Brelsford
process uses a more dilute acid concentration at milder temperatures, which
we
anticipate will make our process less costly and more energy
efficient.
Second,
to use municipal waste as a feedstock, Blue Fire is required to hand separate
the components of the municipal solid waste they receive. In other
words, all the noncellulosic materials are removed by hand. This is a
time-consuming and costly process and it increases the risk of contaminating
the
hydrolysis process and reducing efficiency when municipal solid waste is used
as
feedstock in Blue Fire’s technology. Because our Eley technology
converts municipal solid waste to cellulosic feedstock via thermodynamic and
chemical processes and does not require separation of noncellulosic materials
by
hand, we anticipate that our process will be less expensive and more efficient
than the process used by Blue Fire.
In
addition, a number of other companies are developing and testing a variety
of
innovative technologies and some of these are likely to emerge as serious
competitors.
Imports
Imports
of fuel ethanol from foreign sources, principally Brazil, do affect overall
supply and pricing. Total foreign imports in 2006 were estimated to amount
to
between 210 and 230 million gallons, or approximately 5 percent of total current
U.S. production. At price levels reached in the second quarter of
2006, prices of imported ethanol, including transportation costs, tariff and
taxes, were competitive with domestically produced ethanol. As a
result, world market forces are likely to provide a restraining influence on
future fuel ethanol price increases.
Sources
and Availability of Raw Materials
The
emergence of technologies to convert municipal waste to energy is opening new
opportunities. What was once perhaps the greatest sanitation and
health challenge for communities may now become an economic and environmental
asset. Instead of adding to landfills already nearing capacity
limits, converting MSW to ethanol can provide one of the building blocks to
a
more sustainable energy future.
American
people produce more than 245 million tons of MSW annually. Only about
20 percent of this waste is currently recovered and recycled. We
estimate that an additional 50 to 60 percent could potentially be recovered,
with roughly two-thirds of that in the form of cellulosic material that could
serve as feedstock for conversion to ethanol. Currently, very little
of this cellulosic material is being recovered from mixed waste
streams. However, as various waste processing and cellulosic ethanol
technologies are refined, competition for this future resource will
intensify. As a result, it will be important for us to attempt to
lock up as much of it as possible through long-term feedstock supply agreements
with operators of materials recovery facilities and landfills.
In
addition to our exclusive license to use the Brelsford technology to produce
ethanol from MSW and other waste, we have a non-exclusive license to produce
ethanol from any other cellulosic materials. We are, therefore, also
potentially interested in pursing projects using other forms of cellulosic
feedstock.
The
most
important potential source of feedstock for us other than MSW is likely to
be
agricultural wastes, especially corn stover and wheat straw, but including
a
tremendous variety of other wastes such as grass seed straw, sugar cane bagasse,
seed hulls, trimmings, and the like. There are, however, serious
practical limits on the amounts of these materials that will be commercially
feasible. Part of the problem is that some of the biomass has to be
plowed back into the soil to maintain fertility. More importantly, it
is expensive to collect and transport these types of relatively low density
materials. As just one example, the Oregon Wheat League estimates the
collection cost for straw at between $25 and $35 per
ton. Unless these collection and transportation cost can be
reduced significantly, it is unlikely that agricultural wastes will be
competitive with MSW as a source of feedstock for our projects except in very
specific situations.
Over
time, it is likely that purpose grown crops, such as switch or miscanthus grass
or fast growing trees, such as poplar, will become a preferred source of
cellulosic material for ethanol production. Until the technologies
are perfected and the plants built for converting them to ethanol we anticipate
that farmers will be reluctant to take the risk of shifting their cropping
pattern. Similarly, we believe that the economic incentive to build
these plants will be limited until there are adequate feedstock
supplies.
In
the
interim, it is possible that we could use forestry residues as a feedstock
source. The total forestland in the United States is about 750
million acres, representing roughly one-third of the nation’s total land
area. About 178 million metric tons of woody residue and wood waste
are generated annually from timber harvesting, with 86 million metric tons
being
unused and deemed available for recovery. There is also considerable
latitude for improving the efficiency of the current energy recovery processes
through better combustion and gasification technologies, which might free up
substantial additional amounts of forestry wastes at the plant
site. As a result, there might be opportunities for us to develop
facilities using the Brelsford technology and co-locate them with existing
forest products processing plants as long as we could secure long-term feedstock
supply agreements on favorable terms.
Customers
Because
of the size and commodity nature of the ethanol market, we are unlikely to
become dependent on a few major customers until we enter into specific,
long-term product off-take agreements. At that point, once the
off-take agreements have been finalized, we will be locked into the terms of
those contracts. The advantage of this approach, however, is that it
avoids the likely price fluctuations of the ethanol spot and futures market,
which is driven largely by the overall market for petroleum
products. This market can be highly volatile, so the benefits of
price stability are likely to outweigh the potential advantage of being able
to
realize higher prices on the spot market at various times in the business
cycle. Nonetheless, we will always have the option of selling in the
spot or futures market if it appears advantageous to do so rather than enter
into long-term off-take agreements.
Intellectual
Property License Terms
Eley
Technology
On
August
17, 2005, SRS Energy entered into a U.S. Technology License Agreement with
Bio-Products giving SRS Energy exclusive rights to use the Eley technology
to
process municipal solid waste into a cellulosic biomass product for use as
the
feedstock for conversion into fuel grade ethanol. The technology was
developed by the University of Alabama Huntsville for improved separation,
recovery and recycling of components of waste materials and for chemical and/or
biological conversion of cellulosic materials to fuels and
chemicals.
The
company’s license dated August 17, 2005 with Bio-Products is for a period of
twenty years. Our Bio-Products process royalty is $1.50 for every ton of
waste
received and processed at each facility to be constructed and operated under
the
agreement. We will also owe a by-product royalty of 2.5 percent of
the gross sales price in excess of ten dollars per ton obtained from the
sale of
recyclable byproducts, excluding the cellulosic biomass. Bio-Products
will also be paid a monthly fee for Technical Services for each facility
to be
constructed and operated which initially will be $10,000 per month and will
increase to $20,000 per month when vessels for processing waste are ordered
for
the facility. The $20,000 per month fee continues until construction
of the facility is completed. On March 8, 2007 we granted a
restricted license to a company affiliated with the founder of Bio-Products
for
up to five sites and we get a royalty of $0.25 for every ton of MSW processed
at
any of those sites.
Brelsford
Technology
On
April
1, 2005, SRS Energy entered into a U.S. Technology License Agreement with
Brelsford giving SRS exclusive rights to use Brelsford’s technology as it
relates to processing municipal solid waste and green waste to
ethanol. Although this license is exclusive only with respect to the
production of ethanol in the United States, we also have non-exclusive rights
to
use other biomass such as sugar cane bagasse, switch grass and other
fast-growing plants, and forestry products and wastes to produce ethanol, and
a
right of first refusal to extend our license to Canada.
Under
the
terms of the license, we paid an initial fee of $50,000 and pay a minimum annual
fee of $15,000 and a project fee of $30,000 for each annual project that
commences manufacture of a plant. On August 30, 2007, we paid the
first annual project fee in the amount of $30,000 to Breslford and Brelsford
simultaneously acknowledged that we have met all requirements to maintain the
exclusivity in our license. In addition, we will pay a royalty fee
equal to 4 percent of net sales resulting from use of the licensed
product.
Government
Approvals
The
Company is not subject to any government approvals or oversight for its current
operations other than normal corporate governance and taxes. Once we
begin developing our own commercial production facilities, however, we will
be
subject to multiple federal, state, and local environmental laws and
regulations, such as those relating to the discharge of materials into the
air,
water and ground, the generation, storage, handling, use, transportation and
disposal of hazardous materials, and the employee health and
safety. In addition, some of these laws and regulations will require
our facilities to operate under permits that are subject to renewal or
modification. These laws, regulations and permits often require
expensive pollution control equipment of operational changes to limit actual
or
potential impacts to the environment. A violation of these laws and
regulations or permit conditions can result in substantial fines, natural
resource damages, criminal sanctions, permit revocations and/or facility
shutdowns. Additionally, we will be required to test that the ethanol
we produce meets certain quality and consistency standards for it to be
saleable.
Governmental
Regulation and Industry Standards for Fuel Grade Ethanol
Gasoline
and gasoline/ethanol blends are subject to a variety of federal and state
regulations. These include Federal Trade Commission octane posting
requirements and Environmental Protection Agency Phase II volatility
regulations. In carbon monoxide non attainment areas, these fuels are
subject to minimum and/or average oxygen content
requirements. Gasoline sold in certain ozone non-attainment areas are
required to be reformulated including, among other things, meeting an average
oxygen content
and
maintaining stricter controls over volatile organic compounds and nitrous oxide
in gasoline or gasoline blends.
In
addition many states place additional requirements on fuels including such
items
as restrictions on Reid Vapor Pressure, distillation characteristics, and in
some cases a minimum octane requirement for fuels designated as Super or Premium
grades.
Because
of the wide-variety of standards applicable to fuels, the refining industry
has
developed standards set forth in ASTM 4814 published by the American Society
for
Testing and Standards that are designed to ensure that fuels will perform in
as
wide a range of consumers vehicles as possible. The ATSM standards
and specifications are voluntary compliance standards, however, some states
have
adopted all, or a portion of, ASTM 4814 into law, making adherence
mandatory. Compliance with these standards will be necessary in
order for blenders to purchase the ethanol we produce.
The
American Society for Testing and Standards also publishes the industry standards
for fuel grade ethanol in ASTM D 4806. The standard includes the
volume requirements or limitations for various components of ethanol in order
for the ethanol to be considered fuel grade. In addition the federal
government has placed limitations on the amount of sulfur (30 ppm) that can
be
included in denatured ethanol used in gasoline. The State of
California has further restricted the amount of sulfur that can be included
in
denatured ethanol as well as placing additional limitations on other compounds
found in ethanol. As the ethanol industry develops, we anticipate
additional governmental regulations with respect to the composition of fuel
grade ethanol will be adopted.
We
can
not assure that if we ever are able to produce ethanol on a commercial scale
that the ethanol we produce will meet the governmental and industry standards
to
be considered fuel grade ethanol.
Environmental
Laws
The
Company will be subject to extensive air, water and other environmental
regulations and we will have to obtain a number of environmental permits to
construct and operate our plants such as air pollution and construction permits,
pollutant discharge permits, storm water discharge permits, water withdrawal
permits, and alcohol fuel producers permits. In addition, we may have
to complete spill prevention control and countermeasures plans.
The
production facilities that we will build are subject to oversight activities
by
the federal, state, and local regulatory agencies. There is always a
risk that the federal agencies may enforce certain rules and regulations
differently than state and local environmental
administrators. Federal, state, and local rules are subject to
change, and any such changes could result in greater regulator burdens on plant
operations. We could also be subject to environmental or nuisance
claims from adjacent property owners or residents in the areas arising from
possible foul smells or other air or water discharges from the
plant. We do not know the potential cost of these requirements or
potential claims.
Employees
The
Company currently has only three full-time employees, its President, Edward
P.
Hennessey, Jr., its General Counsel, Michael Kime, and its Chief Financial
Officer, Thomas Jennewein.
Property
Due
to
the fact that we are still just a development stage company and have limited
cash, we currently operate out of the home office of Mr.
Hennessey. Mr. Kime and Mr. Jennewein also maintain home
offices. We are in the process, however, of leasing office space and
expect to enter into a lease agreement in the near future.
Legal
Proceedings
RAM
Resources, LLC v. Supercritical Recovery Systems, Inc.
On July 11, 2005,
RAM Resources, L.L.C filed suit against Supercritical Recovery Systems (the
former parent company of SRS Energy, Inc.) alleging breach of a Letter Agreement
dated May 11, 2003 as amended between RAM Resources and Supercritical Recovery
Services. We were not named in the suit by RAM, however, RAM alleged
that it had certain rights to be issued additional shares of the common stock
of
SRS Energy, our wholly-owned operating subsidiary.
We
settled all claims of RAM against us and any of our predecessors arising from
the Letter Agreement under a global Settlement and Release Agreement dated
August 29, 2007. Pursuant to that agreement, RAM obtained the right
to acquire an aggregate of 1,923,495 of our common stock at a price of $0.13
per
share. The Warrant is exercisable during a two year term that started
on August 29, 2007 and ends on August 29, 2009. RAM agreed to
terminate the Letter Agreement and release all claims to acquire any shares
of
our stock.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS
AND
CONTROL PERSONS
Executive
Officers
Edward
P. Hennessey, Jr.
Mr. Hennessey currently is Chief Executive
Officer and President of the Company. He also serves as a Class III
director of our board of directors with a term that expires in
2010. Mr. Hennessey has been the President and CEO of SRS Energy
since 2003 and as President of Supercritical Recovery Systems, Inc. prior to
that time since 2002. Mr. Hennessey joined Shearson Lehman
Brothers in 1986 and worked in the securities industry from 1986 until
2000.
Michael
D. Kime.
Mr. Kime has served as General Counsel of the Company
since August 31, 2007. Prior to joining the Company, Mr. Kime was a
partner in the law firm Sauerwein, Simon, Blanchard & Kime, P.C. from 2005
until 2007 and as an associate at that firm from 2002 until 2005. Mr.
Kime has been a practicing attorney since 1994, focusing on securities laws,
finance and mergers & acquisitions. Mr. Kime serves on the Board
of Directors of Missouri Votes Conservation, a bi-partisan lobbying group that
supports pro-conservation legislation in Missouri.
Thomas
Jennewein.
Mr. Jennewein has been Chief Financial Officer of the
Company since August 31, 2007. Prior to joining the Company, Mr.
Jennewein served as the Manager of Financial Reporting for Maverick Tube
Corporation from 2005 until 2006, when Maverick Tube Corporation was acquired
by
Tenaris, S.A. At Maverick Tube Corporation, Mr. Jennewein was
responsible for preparing all of the company’s filings with the Securities and
Exchange Commission. Before joining Maverick Tube Corporation,
Mr. Jennewein held a similar position at Argosy Gaming Company where he served
as Manager of Financial Reporting from 2000 until 2005.
Board
of Directors
We
have
sought to assemble a Board of Directors that is composed of individuals who
have
demonstrated competent leadership abilities and who possess unique expertise
in
areas that are necessary for us to succeed. We believe that our Board
of Directors will provide necessary counsel and advice to management as we
conduct our business.
Our
restated bylaws and restated certificate of incorporation provide for three
classes of directors, each class serving for a three-year term expiring one
year
after expiration of the term of the preceding class, so that the term of one
class will expire each year. The terms of the current Class I, Class II and
Class III directors expire in 2008, 2009 and 2010, respectively. Our Board
of
Directors, in addition to Mr. Hennessey, includes:
Benton
Becker.
Mr. Becker has served as a Class I director of our board
of directors since August 21, 2007. His term expires in
2008. Mr. Becker has been engaged in the private practice of law in
Miami Dade County, Florida since 1984. He also serves on the faculty
of St. Thomas University School of Law in Miami, Florida, teaching
Constitutional Law and previously served on the faculty of the University of
Miami Law School. From 1992 to 2000 he served on the Board of
Directors of Tengasco, Inc., an American Exchange public oil and gas company
located in Knoxville, TN. Mr. Becker is a graduate of the University
of Maryland where he received a B.A. in Psychology and the Washington College
of
Law, American University, where he received a J.D. Prior to moving to
Florida, Mr. Becker worked in Washington D.C., both in private practice and
in
public service. Mr. Becker served as legal counsel to
President
Gerald Ford during the time that President Ford assumed the
Presidency. Mr. Becker has served in a number of distinguished
positions inside the federal government and as legal counsel to government
officials throughout his career.
Ira
Langethal, Phd.
Dr. Langenthal has served as a Class II director
of our board of directors since August 21, 2007. His term expires in
2009. Dr. Langenthal received his BSEE from City College of New York and M.Eng.
and a Phd. (Statistical Communications/Information Theory) from Yale
University. He also took courses at Stanford and Wharton in Finance
and Accounting at Exeter in Corporate Finance and Strategic Planning and at
the
Levinson Institute in Leadership. Early in his career he was a
consultant to various organizations including General Instruments. In
1967 Dr. Langenthal Co-founded Signal Analysis Industries Corp. (SAJCOR), an
instrument manufacturing company specializing in communications, acoustics
and
vibration and segments of the medical markets. In 1972, SAJCOR was
purchased by Honeywell, Inc. Over the next 19 years Dr. Langenthal
worked at Honeywell in positions of increasing responsibility in virtually
every
phase of business including positions as Director of Engineering, Vice President
of Operations and Vice President and General Manager of Honeywell’s Test
Instruments Division. He retired in 1991. Since his
retirement, Dr. Langenthal has been active in the Colorado Business Incubator
initiative, the Colorado Advanced Technology Institute advising entrepreneurs
and start-up businesses. He served on the Board of Directors of
several companies, including Colorado Med Tech, a NASDAQ listed
corporation.
Larry
McGee.
Mr. McGee has served as a Class II director of our board
of directors since August 14, 2007. His term expires in
2009. Mr. McGee has been a Senior Vice President and Chief
Development Officer with IESI Corporation in Fort Worth, Texas since 1998.
Founded in 1995, IESI is an environmental services company that collects,
transports and disposes of non-hazardous residential, industrial and commercial
waste as well as providing recycling services. IESI was
purchased by BFI Canada in 2005. Prior to joining IESI, Mr. McGee
held a variety of positions with various companies in the waste management
business from 1982 until 1998. Mr. McGee received his B.S. in
Accounting from the University of Tennessee in 1973. From 1974 until
1981 he worked as a Certified Public Accountant.
Paul
Simon.
Mr. Simon has served as a Class I director of our board
of directors since August 21, 2007. His term expires in 2008. He is a
licensed attorney practicing in St. Louis, Missouri and has been a partner
in
the firm, Sauerwein, Simon, Blanchard & Kime., P.C. since
2006. Prior to that time, he was a partner with the firm Halfrey,
Simon and Jones, P.C. from 1994 until 2006. Mr. Simon is a graduate
of the University of Missouri where he received his B.S. in Business
Administration and St. Louis University School of Law where he received his
J.D.
CORPORATE
GOVERNANCE MATTERS
Independent
Directors
The
Pink
Sheets, which is the quotation system on which our common stock is traded,
does
not have a definition for “independence” with respect to directors and does not
have a requirement that a majority of our board be independent. Accordingly,
we
have chosen to comply with the director independence requirements of the Nasdaq
Stock Market. Under Rule 4200 (a)(15) of the National Association of Securities
Dealers listing standards, a director is independent if he or she is not an
officer or employee of the company and does not have any relationship with
the
company which, in the opinion of the board of directors, would interfere with
the exercise of independent judgment in carrying out the responsibilities of
a
director. Our board has reviewed the independence of its directors under the
Rule 4200 and has determined that Messrs. Becker, McGee and Langenthal are
independent.
Audit
Committee
On
August
29, 2007, we appointed Messrs. Becker, Langenthal and McGee as members of our
audit committee, each of whom are independent directors. In addition, our Board
has determined that Mr. McGee, a member of the Audit Committee, is qualified
as
an audit committee financial expert, as that term is defined in the rules of
the
Securities and Exchange Commission. The Audit Committee will recommend the
engagement of independent auditors, confer with the external auditors regarding
the adequacy of our financial controls and fiscal policy and direct changes
to
financial policies or procedures as appropriate.
Compensation
Committee
Decisions
regarding executive compensation will principally be made by the compensation
committee, which is composed of Messrs. McGee and Simon, in consultation with
the Board of Directors. Mr. McGee serves as the Chairperson of the
Compensation Committee and as such, possesses the authority to determine any
matters for which there is a tied vote of the committee. No member of
the compensation committee during the fiscal year ended December 31, 2006 was
an
officer or employee of the Company or any of its subsidiaries or was formerly
an
officer of the Company or any of its subsidiaries. None of our
executive officers have served as a member of the compensation committee (or
other committee serving an equivalent function) and the Charter of our
Compensation Committee prohibits them from doing so.
Compensation
Committee Report on Executive Compensation
The
compensation committee was formed to review our compensation plan on a regular
basis. The compensation committee periodically retains independent consultants
on an as needed basis to provide current market data with regard to base salary
structure, short-term cash incentives and with the development of long-term
incentive plans. The compensation committee is required to regularly update
its
assessment of various long-term incentive tools including stock options,
restricted stock, performance-based equity, and other alternatives that might
be
available.
Our
primary objective in developing executive compensation policies is to attract,
motivate and retain highly qualified and effective leaders. The compensation
policy includes various components of compensation that are intended to align
management behaviors and priorities directly with our strategic objectives
and
to encourage management to act in the best long-term interest of us and our
shareholders.
EXECUTIVE
AND DIRECTOR COMPENSATION
Executive
Officers
Compensation
We
did
not pay any compensation to any executive officer for the prior two fiscal
years. Following our acquisition of SRS Energy in 2007, we began
paying Edward P. Hennessey, Jr., our Chief Executive Officer and President,
a
salary of $84,000 per year. Prior to our acquisition of SRS Energy,
Mr. Hennessey had not been paid salary by SRS Energy or Supercritical Recovery
Services. Mr. Hennessey has agreed to maintain his salary at its
current level until such time as we raise additional capital sufficient to
fund
our operations. Michael D. Kime, our General Counsel, and Thomas Jennewein,
our
Chief
Financial
Officer, have agreed to work for no salary until such time as we raise
additional capital sufficient to fund our operations.
On
August
31, 2007, we awarded stock options to each of our executive officers as
follows:
|
Executive
Officer
|
Number
of Shares
Underlying
Options
|
|
|
|
|
Edward
P. Hennessey, Jr.
|
2,250,000
|
|
Michael
D. Kime
|
800,000
|
|
Thomas
Jennewein
|
800,000
|
All
of
the stock options awarded to our executives have an exercise price of $0.15
per
share and vest in equal one-third tranches on each of August 31, 2008,
2009, and 2010.
We
anticipate revisiting the compensation paid to our executives if we are able
to
raise additional capital to fund our operations in the future. While
we have not agreed to any specific amounts to be paid to such executives,
we
anticipate paying salaries comparable for similarly situated executives when
we
are capable of doing so.
Employment
Agreements
The
Company has entered into an Employment Agreement with each of Messrs. Hennessey,
Kime and Jennewein. The Agreements provide that Mr. Hennessey shall
be paid a salary of $84,000 per year. Messrs. Kime and Jennewein are not
currently paid salary. All of the executives are entitled to be paid
their then-current salary for one year if they are terminated at any time
without cause. In addition, Mr. Hennessey has been granted options to
acquire 2,250,000 shares of our common stock at $0.15 per share. The
options vest as follows: 750,000 shares on each of August 31, 2008, 2009,
and 2010 if Mr. Hennessey is employed with the Company at those
times. Mr. Hennessey will also be entitled to a stock option to
acquire 1,200,000 additional shares if and when we commence the operation
of a
pilot plant. The exercise price of this stock option will be the fair
market value of our common stock on the date of grant and will vest in three
equal tranches on August 31, 2009, August 31, 2010, and August 31,
2011. If Mr. Hennessey is terminated without cause or the Company is
subject to a change in control, all of his options vest
immediately. Mr. Kime and Mr. Jennewein have each been granted an
option to acquire 800,000 shares of our common stock at $0.15 per
share. These options vest one-third on August 31, 2008, 2009, and
2010 if they are employed with the Company at that time. If Mr. Kime
or Mr. Jennewein, respectively, is terminated without cause one-half of his
options vest to the extent not already vested. If the Company is
subject to a change in control, all of Mr. Kime’s and Mr. Jennewein’s options
vest.
Directors
We
did
not pay any compensation to any of our directors for the prior two fiscal
years.
On
August
21, 2007, we awarded stock options to acquire 40,000 shares of our common stock
to each of Benton Becker, Larry McGee, Ira Langenthal and Paul Simon, our four
non-employee directors. All of the stock options awarded to these directors
have
an exercise price of $0.15 per share and vest in 50% increments on August 21,
2008 and August 21, 2009.
Also
on
August 21, 2007, we awarded 150,000 shares of restricted stock to each of
Messrs. Becker, McGee, Langenthal and Simon for $0.15 per share. Each director
issued to the company a promissory note equal to $22,500. The shares are subject
to forfeiture if the director resigns from our board of directors prior to
the
shares vesting. For each director, the shares vest at the rate of 8,333 shares
per month commencing on September 21, 2007 until August 21, 2008 and at the
rate
of 4,167 shares per month thereafter until fully vested.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding beneficial ownership
of
our common stock as of August 22, 2007 (a) by each person known by us to own
beneficially 5% or more of any class of our common stock, (b) by each of our
Named Executive Officers and our directors and (c) by all executive officers
and
directors of this company as a group. As of August 22, 2007, there were
48,743,680 shares of our common stock issued and outstanding. In addition,
9,333,333 shares are issuable upon conversion of the Series A Debentures of
the
Company (plus shares issuable for accrued interest thereunder), 7,000,000 shares
of our common stock are reserved for issuance under our 2007 Stock Option Plan,
and 3,846,990 shares of our common stock are reserved for issuance pursuant
to
two outstanding warrants. Unless otherwise noted, we believe that all persons
named in the table have sole voting and investment power with respect to all
the
shares beneficially owned by them. Except as otherwise indicated, the address
of
each stockholder is c/o the company at 7320 Forsyth Blvd, Unit 102, St. Louis,
Missouri 63105.
|
|
|
Shares
of Common Stock Beneficially
Owned
|
|
|
Beneficial
Owner
|
|
Number
|
|
|
Percentage
|
|
|
Edward
P. Hennessey, Jr.
|
|
|
7,847,860
|
(1)(2)
|
|
|
16.1
|
%
|
|
Michael
D. Kime
|
|
|
-
|
(2)
|
|
|
*
|
%
|
|
Thomas
Jennewein
|
|
|
-
|
(2)
|
|
|
*
|
%
|
|
Benton
Becker
|
|
|
24,999
|
(2)(3)
|
|
|
*
|
%
|
|
Larry
McGee
|
|
|
24,999
|
(2)(3)
|
|
|
*
|
%
|
|
Ira
Langenthal
|
|
|
24,999
|
(2)(3)
|
|
|
*
|
%
|
|
Paul
Simon
|
|
|
24,999
|
(2)(3)
|
|
|
*
|
%
|
|
SRS
Legacy Trust
(4)
|
|
|
8,580,645
|
|
|
|
17.6
|
%
|
|
RAM
Resources, L.L.C.
(5)
|
|
|
6,630,520
|
(6)
|
|
|
13.1
|
%
|
|
William
Meyer
|
|
|
3,997,512
|
(6)
|
|
|
7.9
|
%
|
|
Total
owned by All Officers and Directors
|
|
|
16,528,501
|
|
|
|
25.31
|
%
|
_____________________________
* less
than 1%.
|
(1)
|
Amount
represents shares owned by Supercritical Recovery Systems, Inc.,
of which
Mr. Hennessey serves as President and a Member of the Board of
Directors.
|
|
(2)
|
Each
executive officer and director were awarded equity grants described
in
“Executive And Director Compensation” that do not vest within 60 days from
the date hereof.
|
|
(3)
|
Amount
represents the vested portion, and the portion that will vest
within 60
days hereof, of shares of restricted stock owned by such
director.
|
|
(4)
|
SRS
Legacy Trust is an irrevocable trust of which Edward P. Hennessey,
Jr. is
a beneficiary. Michael Hennessey, Mr. Hennessey’s brother, has
sole voting power, and Paul Simon, one of our directors, has
sole
dispositive power with respect to these
shares.
|
|
(5)
|
Based
on information available to us, we believe Rod Thomas is the
manager and
principal owner of RAM Resources, L.L.C. and therefore has sole
voting and
dispositive power over the shares held by RAM. RAM’s address is
13397 Lakefront Drive, Earth City,
Missouri 63045.
|
|
(6)
|
Amount
includes 1,923,495 shares issuable upon exercise of a Warrant
to purchase
such shares at a price of $0.13 per
share.
|
SELLING
STOCKHOLDERS
The
shares to be offered by the selling stockholders are “restricted” securities
under applicable federal and state securities laws and are being registered
under the Securities Act of 1933, as amended, or the Securities Act, to give
the
selling stockholders the opportunity to publicly sell or otherwise dispose
of
those shares. The registration of these shares does not require that any of
the
shares be offered or sold by the selling stockholders. The shares included
in
this prospectus may be disposed of by the selling stockholders or their
transferees on any stock exchange, market, or trading facility on which the
shares are traded or in private transactions. These dispositions may be at
fixed
prices, at prevailing market prices at the time of sale, at prices related
to
the prevailing market price, at varying prices determined at the time of sale,
or at negotiated prices. We will not control or determine the price at which
a
selling stockholder decides to dispose of its shares.
No
estimate can be given as to the amount or percentage of our common stock that
will be held by the selling stockholders after any sales or other dispositions
made pursuant to this prospectus because the selling stockholders are not
required to sell any of the shares being registered under this prospectus.
The
following table assumes that the selling stockholders will sell all of the
shares listed in this prospectus.
None
of
the selling stockholders has, or within the past three years has had, any
material relationship with us, our predecessors or any of our
affiliates.
The
following table sets forth the beneficial ownership of the selling
stockholders:
|
|
|
Shares
of Common Stock
Owned
Prior
to
the Offering
|
|
|
Number
of Shares of
Common
Stock
|
|
|
Shares
of Common Stock
to
be Owned After
the
Offering
|
|
|
Selling
Stockholder
|
|
Number
|
|
|
Percentage
|
|
|
Offered
for Sale
|
|
|
Number
|
|
|
Percentage
|
|
|
Brite
Star Associates, Inc.
(1)
|
|
|
1,777,867
|
|
|
|
3.65
|
%
|
|
|
1,777,867
|
|
|
|
0
|
|
|
|
0.0
|
%
|
|
Two
Shamrocks, Inc.
(2)
|
|
|
1,600,000
|
|
|
|
3.28
|
%
|
|
|
1,600,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
|
Fountain
Consulting, Inc.
(3)
|
|
|
1,482,000
|
|
|
|
3.04
|
%
|
|
|
1,482,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
|
St
Ives Consulting, Inc.
(4)
|
|
|
1,368,000
|
|
|
|
2.81
|
%
|
|
|
1,368,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
|
STL
Capital Holdings, Inc.
(5)
|
|
|
1,638,933
|
|
|
|
3.36
|
%
|
|
|
1,638,933
|
|
|
|
0
|
|
|
|
0.0
|
%
|
|
IS
Investments, Inc.
(6)
|
|
|
786,667
|
|
|
|
1.59
|
%
|
|
|
786,667
|
|
|
|
0
|
|
|
|
0.0
|
%
|
|
Legwear
International, Ltd.
(7)
|
|
|
786,667
|
|
|
|
1.59
|
%
|
|
|
786,667
|
|
|
|
0
|
|
|
|
0.0
|
%
|
|
Trinity
Enterprises, L.L.C.
(8)
|
|
|
1,966,667
|
|
|
|
3.88
|
%
|
|
|
1,966,667
|
|
|
|
0
|
|
|
|
0.0
|
%
|
|
Padstow
Estates, Inc.
(9)
|
|
|
1,966,667
|
|
|
|
3.88
|
%
|
|
|
1,966,667
|
|
|
|
0
|
|
|
|
0.0
|
%
|
|
Anahuac
Management, Inc.
(10)
|
|
|
1,573,333
|
|
|
|
3.13
|
%
|
|
|
1,573,333
|
|
|
|
0
|
|
|
|
0.0
|
%
|
|
Agest,
Inc.
(11)
|
|
|
1,180,000
|
|
|
|
2.36
|
%
|
|
|
1,180,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
|
James
Karl
|
|
|
157,333
|
|
|
|
*
|
%
|
|
|
157,333
|
|
|
|
0
|
|
|
|
0.0
|
%
|
|
Gary
Slay
|
|
|
236,000
|
|
|
|
*
|
%
|
|
|
236,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
|
Jeff
Slay
|
|
|
236,000
|
|
|
|
*
|
%
|
|
|
236,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
|
Jill
Garlich
|
|
|
236,000
|
|
|
|
*
|
%
|
|
|
236,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
|
Michael
McMahon
|
|
|
118,000
|
|
|
|
*
|
%
|
|
|
118,000
|
|
|
|
0
|
|
|
|
0.0
|
%
|
|
John
A. Caito
|
|
|
78,667
|
|
|
|
*
|
%
|
|
|
78,667
|
|
|
|
0
|
|
|
|
0.0
|
%
|
|
Glen
T. Slay
|
|
|
2,201,579
|
|
|
|
4.37
|
%
|
|
|
1,691,333
|
|
|
|
510,246
|
|
|
|
*
|
%
|
____________________
|
(1)
|
Yirlania
Rivas Marin, who serves as the Director of Brite Star Associates,
Inc.,
has sole voting and dispositive power over the shares owned by
Brite
Star.
|
|
(2)
|
Anthony
D. Cupini, who serves as the President and sole shareholder of
Two
Shamrocks, Inc., has sole voting and dispositive power over the
shares
owned by Two Shamrocks, Inc.
|
|
(3)
|
M
eyvis
Sanchez, who serves
as the President and Director of Fountain Consulting, Inc., has
sole
voting and dispositive power over the shares owned by
Fountain.
|
|
(4)
|
Hector
Montes, who serves as the Treasurer and Director of St. Ives Consulting,
has sole voting and dispositive power over the shares owned by
St.
Ives.
|
|
(5)
|
Anthony
D. Cupini, who serves as
the President and sole shareholder of STL Capital Holdings, Inc.,
has sole
voting and dispositive power over the shares owned by STL
Capital.
|
|
(6)
|
Richard
Sauget, who serves as the President and Director of IS Investments,
has
sole voting and dispositive power over the shares owned by IS
Investments.
|
|
(7)
|
Keith
Burant, who serves as the
Director of Legwear International, Ltd., has sole voting and dispositive
power over the shares owned by
Legwear.
|
|
(8)
|
Maritza
Sanabria, who is the 100% owner and serves as the Manager of Trinity
Enterprises, LLC, has sole voting and dispositive power over the
shares
owned by Trinity.
|
|
(9)
|
Marissa
Simmons, who is the 100% owner and serves as the President of Padstow
Estates, Inc., has sole voting and dispositive power over the shares
owned
by Padstow.
|
|
(10)
|
Yuriy
Memenov, who is the 100% owner and serves as the President of Anahuac
Management, Inc., has sole voting and dispositive power over the
shares
owned by Anahuac.
|
|
(11)
|
Eugene
P. Slay, who is the 100% owner and serves as the President of Agest,
Inc., has sole voting and dispositive power over the shares owned
by
Agest.
|
PLAN
OF DISTRIBUTION
The
selling stockholders may, from time to time, sell, transfer or otherwise dispose
of any or all of their shares of common stock or interests in shares of common
stock on any stock exchange, market or trading facility on which the shares
are
traded or in private transactions. These dispositions may be at fixed prices,
at
prevailing market prices at the time of sale, at prices related to the
prevailing market price, at varying prices determined at the time of sale,
or at
negotiated prices.
The
selling stockholders may use any one or more of the following methods when
disposing of shares or interests therein:
|
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
|
·
|
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;
|
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
|
·
|
privately
negotiated transactions;
|
|
|
·
|
short
sales effected after the date the registration statement of which
this
prospectus is a part is declared effective by the
SEC;
|
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
|
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
|
|
·
|
a
combination of any such methods of sale;
and
|
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
aggregate proceeds to the selling stockholders from the sale of the common
stock
offered by them will be the purchase price of the common stock less discounts
or
commissions, if any. Each of the selling stockholders reserves the right to
accept and, together with their agents from time to time, to reject, in whole
or
in part, any proposed purchase of common stock to be made directly or through
agents.
The
selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act of 1933,
provided that they meet the criteria and conform to the requirements of that
rule.
The
selling stockholders and any underwriters, broker-dealers or agents that
participate in the sale of the common stock or interests therein may be
“underwriters” within the meaning of Section 2(11) of the Securities Act. Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Selling stockholders who are “underwriters” within the meaning of Section 2(11)
of the Securities Act will be subject to the prospectus delivery requirements
of
the Securities Act.
To
the
extent required, the shares of our common stock to be sold, the names of the
selling stockholders, the respective purchase prices and public offering prices,
the names of any agents, dealer or underwriter, any applicable commissions
or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this
prospectus.
In
order
to comply with the securities laws of some states, if applicable, the common
stock may be sold in these jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the common stock may not be
sold
unless it has been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied
with.
We
have
advised the selling stockholders that the anti-manipulation rules of Regulation
M under the Exchange Act may apply to sales of shares in the market and to
the
activities of the selling stockholders and their affiliates. In addition, we
will make copies of this prospectus (as it may be supplemented or amended from
time to time) available to the selling stockholders for the purpose of
satisfying the
prospectus
delivery requirements of the Securities Act. The selling stockholders may
indemnify any broker-dealer that participates in transactions involving the
sale
of the shares against certain liabilities, including liabilities arising under
the Securities Act.
We
have
agreed to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to
the
registration of the shares offered by this prospectus.
We
have
agreed with the selling stockholders to keep the registration statement of
which
this prospectus constitutes a part effective until the earlier of (1) such
time
as all of the shares covered by this prospectus have been disposed of pursuant
to and in accordance with the registration statement or (2) the date on which
the shares may be sold pursuant to Rule 144(k) of the Securities
Act.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Paul
Simon, Jr., one of our directors, is a partner of Sauerwein, Simon, Blanchard
& Kime, PC. Our subsidiary, SRS Energy, has historically retained
Mr. Simon’s firm and we paid approximately $35,000 in legal fees in
2006. After our acquisition of SRS Energy, we retained Mr. Simon’s
firm to represent us generally and expect to incur a material amount of legal
fees going forward.
DESCRIPTION
OF SECURITIES
We
are
presently authorized to issue 240,000,000 shares of $0.001 par value common
stock and 10,000,000 shares of $0.001 par value preferred stock. As of August
22, 2007, we had 48,743,680
shares of common stock issued
and outstanding and no preferred stock issued and outstanding.
Common
Stock
The
holders of our common stock are entitled to equal dividends and distributions
per share with respect to the common stock when, as and if declared by the
board
of directors from funds legally available therefor. No holder of any shares
of
common stock has a preemptive right to subscribe for any of our securities,
nor
are any common shares subject to redemption or convertible into other
securities. Upon liquidation, dissolution or winding-up of our company, and
after payment of creditors and preferred stockholders, if any, the assets will
be divided pro rata on a share-for-share basis among the holders of the shares
of common stock. All shares of common stock now outstanding are fully paid,
validly issued and non-assessable. Each share of our common stock is entitled
to
one vote with respect to the election of any director or any other matter upon
which stockholders are required or permitted to vote. We have not paid any
dividends on our common stock to date and do not anticipate that we will be
paying dividends in the foreseeable future. Any payment of cash dividends on
our
common stock in the future will be dependent upon the amount of funds legally
available, our earnings, if any, our financial condition, our anticipated
capital requirements and other factors that the board of directors may think
are
relevant. However, we currently intend for the foreseeable future to follow
a
policy of retaining all of our earnings, if any, to finance the development
and
expansion of our business and, therefore, do not expect to pay any dividends
on
our common stock in the foreseeable future.
Preferred
Stock
Under
our
restated certificate of incorporation, the board of directors has the power,
without further action by the holders of the common stock, to designate the
relative rights and preferences of the preferred stock, and to issue the
preferred stock in one or more series as designated by the board of directors.
The
designation
of rights and preferences could include preferences as to liquidation,
redemption and conversion rights, voting rights, dividends or other preferences,
any of which may be dilutive of the interest of the holders of the common stock
or the preferred stock of any other series. The issuance of preferred stock
may
have the effect of delaying or preventing a change in control of the company
without further stockholder action and may adversely affect the rights and
powers, including voting rights, of the holders of the common
stock.
Registration
Rights
In
connection with the private placement of the Series A Convertible Debentures,
we
entered into a registration rights agreement with the investors. In that
registration rights agreement, we agreed to file a registration statement,
at
our expense, to register the resale of the common stock issuable upon conversion
of the Series A Convertible Debentures. In the event that the resale
registration statement has not been declared effective within certain time
periods or if sales cannot be made pursuant to the registration statement
following its effectiveness, each as described in the registration rights
agreement, we will be obligated to pay to each investor liquidated damages,
subject to certain limitations set forth in the registration rights agreement.
This prospectus includes the 11,013,333 shares of common stock that we are
obligated to register under the registration rights agreement.
In
the
merger agreement pursuant to which we acquired SRS Energy, we granted the holder
of certain convertible notes “piggyback registration” rights. Under the
piggyback registration provisions, we are required, subject to certain limited
exceptions, to register all of the common stock issuable upon conversion of
such
notes in any registration statement that we file. This prospectus includes
the
7,866,800 shares of common stock that we are obligated to register under the
registration rights provision of the merger agreement.
Delaware
Law and Certain Charter and By-law Provisions
The
provisions of Delaware law and of our restated certificate of incorporation
and
restated by-laws discussed below could discourage or make it more difficult
to
accomplish a proxy contest or other change in our management or the acquisition
of control by a holder of a substantial amount of our voting stock. It is
possible that these provisions could make it more difficult to accomplish,
or
could deter, transactions that stockholders may otherwise consider to be in
their best interests or our best interests.
Classified
Board of Directors
.
Delaware
law permits any Delaware corporation to classify its board of directors into
as
many as three classes as equally as possible with staggered terms of office.
After initial implementation of a classified board, one class will be elected
at
each annual meeting of the stockholders to serve for a term of three years
(depending upon the number of classes into which directors are classified)
or
until their successors are elected and take office. Our restated certificate
of
incorporation provides for a classified board of directors divided into three
classes, with no class having more than one director more than any other class
and each class serving for a term of three years or until their successors
are
elected and qualified. Under Delaware law, stockholders of a corporation with
a
classified board of directors may only remove a director “for cause” unless the
restated certificate of incorporation provides otherwise. Our restated
certificate of incorporation does not so provide and, accordingly, stockholders
may
only remove a director “for cause.”
The
likely effect of the classification of the board of directors and the
limitations on the removal of directors is an increase in the time required
for
the stockholders to change the composition of the board of directors. For
example, because only approximately one-third of the directors may be replaced
by stockholder vote at each annual meeting of stockholders, stockholders seeking
to replace a majority of the members of the board of directors will need at
least two annual meetings of stockholders to effect this change.
Business
Combinations
.
We
are
subject to the provisions of Section 203 of the General Corporation Law of
the
State of Delaware. Section 203 prohibits a publicly-held Delaware corporation
from engaging in a “business combination” with an “interested stockholder” for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in
a prescribed manner. A “business combination” includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder. Subject to specified exceptions, an “interested stockholder” is a
person who, together with affiliates and associates, owns, or within three
years
did own, 15% or more of the corporation’s voting stock.
Limitation
of Liability; Indemnification
.
Our
charter contains provisions permitted under the General Corporation Law of
the
State of Delaware relating to the liability of directors. The provisions
eliminate a director’s liability for monetary damages for a breach of fiduciary
duty as a director, except in circumstances involving wrongful acts, such as
the
breach of a director’s duty of loyalty or acts or omissions which involve
intentional misconduct or a knowing violation of law. The limitation of
liability described above does not alter the liability of our directors and
officers under federal securities laws. Furthermore, our restated certificate
of
incorporation and restated by-laws contain provisions to indemnify our
directors and officers to the fullest extent permitted by the General
Corporation Law of the State of Delaware. These provisions do not limit or
eliminate our right or the right of any stockholder of ours to seek non-monetary
relief, such as an injunction or rescission in the event of a breach by a
director or an officer of his duty of care to us. We believe that these
provisions will assist us in attracting and retaining qualified individuals
to
serve as directors.
Special
Meeting of Stockholders
.
Our
restated by-laws provide that special meetings of our stockholders may be called
only by our chairman of the board, chief executive officer or by our board
of
directors.
Advance
Notice Requirements for Stockholder Proposals and Director
Nominations
.
Our
restated by-laws provide that stockholders seeking to bring business before
an
annual meeting of stockholders, or to nominate candidates for election as
directors at an annual or special meeting of stockholders, must meet specified
procedural requirements. These provisions may preclude stockholders from
bringing matters before an annual meeting of stockholders or from making
nominations for directors at an annual or special meeting of
stockholders.
Preferred
Stock Issuances
.
Our
restated certificate of incorporation provides that, without stockholder
approval, we can issue up to 10,000,000 shares of preferred stock with rights
and preferences determined by our board of directors.
Shares
Eligible for Future Sale
As
of the
date of this prospectus, we had 48,743,680
shares of
common stock outstanding. That number does not include (i) the 7,000,000 shares
that are reserved for issuance under outstanding options and that may be issued
if and when the options are exercised, (ii) 9,333,333 (plus shares issuable
for
accrued interest) shares that may be issued upon the conversion of the Series
A
Convertible Debentures owned by the selling stockholders listed in this
prospectus, or (iii) 3,846,990 shares that may be issued upon the exercise
of
outstanding Warrants.
Freely
Tradeable Shares After Offering
.
As
of the
date of this prospectus, excluding the shares that are covered by this
prospectus, we believe 2,253,100
shares of our
48,743,680
currently outstanding shares can be publicly
resold without restriction under the Securities Act. Upon the re-sale of the
currently outstanding shares covered by this prospectus, approximately
21,133,233 shares will also be freely tradable without restriction or limitation
under the Securities Act.
Rule
144
.
In
general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned restricted securities for
at
least one year, including persons who may be deemed our “affiliates,” as that
term is defined under the Securities Act, would be entitled to sell within
any
three month period a number of shares that does not exceed the greater of 1%
of
the then outstanding shares (approximately 636,040
shares
on a fully diluted, as if converted basis) or the average weekly trading volume
of shares during the four calendar weeks preceding such sale. Sales under Rule
144 are subject to certain manner-of-sale provisions, notice requirements and
the availability of current public information about the company. A person
who
has not been our affiliate at any time during the three months preceding a
sale,
and who has beneficially owned his shares for at least two years, would be
entitled under Rule 144(k) to sell such shares without regard to any volume
limitations under Rule 144. Subject to certain volume limitations and other
conditions, all of the currently outstanding unregistered shares are eligible
for public resale under Rule 144. The availability of Rule 144 to our holders
of
restricted securities is, however, conditioned on various factors, including
the
availability of certain public information concerning the Company.
Transfer
Agent
Our
transfer agent currently is:
Signature
Stock Transfer, Inc.
2301
Ohio
Drive - Suite 100
Plano,
Texas 75093
Telephone
Number (972) 612 4120
Facsimile
Number (972) 612 4122
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
We
have
adopted provisions in our restated certificate of incorporation and restated
by-laws that limit the liability of our directors and provide for
indemnification of our directors and officers to the full extent permitted
under
the Delaware General Corporation Law. Under our restated certificate of
incorporation, and as permitted under the Delaware General Corporation Law,
directors are not liable to us or our stockholders for monetary damages arising
from a breach of their fiduciary duty of care as directors. Such provisions
do
not, however, relieve liability for breach of a director’s duty of loyalty to us
or our stockholders, liability for acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law, liability
for
transactions in which the director derived as improper personal benefit or
liability for the payment of a dividend in violation of Delaware law. Further,
the provisions do not relieve a director’s liability for violation of, or
otherwise relieve us or our directors from the necessity of complying with
federal or state securities laws or affect the availability of equitable
remedies such as injunctive relief or rescission.
At
present, there is no pending litigation or proceeding involving any of our
directors, officers, employees or agents where indemnification will be required
or permitted. We are not aware of any threatened litigation or proceeding
that
may result in a claim for indemnification by any director or
officer.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to our directors, officers and controlling persons 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 Securities Act and is, therefore,
unenforceable.
In
the
event that a claim for indemnification against such liabilities (other than
the
payment by our company of expenses incurred or paid by any of our directors,
officers or controlling persons 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, we will, unless in the opinion
of our 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.
EXPERTS
The
financial statements for the years ended December 31, 2006 and 2005 included
in
this prospectus have been audited by Larry O’Donnell, C.P.A., P.C. to the extent
and for the periods indicated in their report thereon. Such financial statements
have been included in this prospectus and registration statement in reliance
upon the report of Larry O’Donnell, C.P.A., P.C. and upon the authority of such
firm as experts in auditing and accounting.
VALIDITY
OF SECURITIES
The
validity of the common stock offered hereby will be passed upon for us by
Sauerwein, Simon & Blanchard, P.C. Paul Simon, a shareholder of
Sauerwein, Simon & Blanchard, P.C., is one of our directors and beneficially
owns 24,994 shares of our common stock.
WHERE
YOU CAN FIND MORE INFORMATION
We
filed
with the SEC a registration statement on Form SB-2 under the Securities Act
for
the common stock to be sold in this offering. This prospectus does not contain
all of the information in the registration statement and the exhibits and
schedules that were filed with the registration statement. For further
information with respect to the common stock and us, we refer you to the
registration statement and the exhibits and schedules that were filed with
the
registration statement. Statements made in this prospectus regarding the
contents of any contract, agreement or other document that is filed as an
exhibit to the registration statement are not necessarily complete, and we
refer
you to the full text of the contract or other document filed as an exhibit
to
the registration statement. A copy of the registration statement and the
exhibits and schedules that were filed with the registration statement may
be
inspected without charge at the public reference facilities maintained by
the
SEC, 100 F Street, Washington, DC 20549. Copies of all or any part of the
registration statement may be obtained from the SEC upon payment of the
prescribed fee. Information regarding the operation of the public reference
rooms may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains
a
web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC.
The
address of the site is
http://www.sec.gov
.
What
follows are the financial statements detailed below of CleanTech Biofuels,
Inc.
Prior to August 1, 2007, our name was Alternative Ethanol Technologies,
Inc.
INDEX
TO FINANCIAL STATEMENTS
|
|
Page
|
|
Audited
Financial Statements
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Balance
Sheet as of December 31, 2006
|
F-3
|
|
Statements
of Operations for each of the two years in the period ended December
31,
2006
and
the period from inception to December 31, 2006
|
|
|
Statements
of Changes in Stockholders’ Deficit for the period from
inception
to
December 31, 2006
|
F-5
|
|
Statements
of Cash Flows for each of the two years in the period ended December
31,
2006
and
the period from inception to December 31, 2006
|
F-6
|
|
Notes
to Financial Statements
|
F-7
|
|
|
|
|
Unaudited
Financial Statements
|
|
|
|
|
|
Balance
Sheet as of June 30, 2007 (unaudited)
|
F-11
|
|
Statements
of Operations for the three and six month periods ended June 30,
2007
and
2006 and the period from inception to June 30, 2007
(unaudited)
|
F-12
|
|
Statements
of Changes in Stockholders’ Deficit for the period from
inception
to
June 30, 2007 (unaudited)
|
F-13
|
|
Statements
of Cash Flows or the six month periods ended June 30, 2007 and
2006
and
the period ended June 30, 2007 (unaudited)
|
F-14
|
|
Notes
to the Interim Financial Statements
|
F-15
|
Larry
O'Donnell, CPA, P.C.
|
Telephone
(303) 745-4545
|
2228
South Fraser Street
|
|
|
Unit
I
|
|
|
Aurora,
Colorado 80014
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors
Alternative
Ethanol Technologies, Inc.
(Formerly
SRS Energy, Inc.)
I
have
audited the accompanying balance sheet of Alternative Ethanol Technologies,
Inc.
(formerly SRS Energy, Inc.) as of December 31, 2006, and the related
statements of operations, changes in stockholders’ deficit and cash flows for
each of the years in the two-year period ended and for the period July 14,
2004
(inception) to December 31, 2006. These financial statements are the
responsibility of the Company’s management. My responsibility is to
express an opinion on these financial statements based on my
audits.
I
conducted my audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that I 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. I believe that my audits provide a reasonable basis for
my opinion.
In
my
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Alternative Ethanol Technologies,
Inc. (formerly SRS Energy, Inc.) as of December 31, 2006, and the
results of its operations and its cash flows for the years then ended and for
the period from July 14, 2004 (inception) to December 31, 2006, in conformity
with generally accepted accounting principles in the United States of
America.
Larry
O'Donnell, CPA, P.C.
June
29,
2007
ALTERNATIVE
ETHANOL TECHNOLOGIES, INC.
(Formerly
SRS Energy, Inc.)
(A
Development Stage Company)
Balance
Sheet
December
31, 2006
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
Cash
|
|
$
|
20
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
Technology
license
|
|
|
117,500
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
117,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accrued
interest
|
|
$
|
2,439
|
|
|
Accrued
professional fees
|
|
|
42,103
|
|
|
Advances
- related parties
|
|
|
111,144
|
|
|
|
|
|
155,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
deficit:
|
|
|
|
|
|
Common
stock; no par value; authorized - 1,500
shares;
issued and outstanding - 1,004 shares
|
|
|
25,100
|
|
|
Deficit
accumulated during the development stage
|
|
|
(63,266
|
)
|
|
|
|
|
(38,166
|
)
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ deficit
|
|
$
|
117,520
|
|
|
|
|
|
|
|
See notes to financial statements.
ALTERNATIVE
ETHANOL TECHNOLOGIES, INC.
(Formerly
SRS Energy, Inc.)
(A
Development Stage Company)
Statements
of Operations
|
|
|
Year
ended December 31,
|
|
|
July
14, 2004
(inception)
to
December
31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
$
|
16,496
|
|
|
$
|
6,104
|
|
|
$
|
22,700
|
|
|
Professional
fees
|
|
|
47,078
|
|
|
|
1,750
|
|
|
|
48,828
|
|
|
Research
and development
|
|
|
14,000
|
|
|
|
|
|
|
|
14,000
|
|
|
Interest
|
|
|
2,439
|
|
|
|
299
|
|
|
|
2,738
|
|
|
Other
income
|
|
|
(25,000
|
)
|
|
|
|
|
|
|
(25,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss applicable to common shareholders
|
|
$
|
(55,013
|
)
|
|
$
|
(8,153
|
)
|
|
$
|
(63,266
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share
|
|
$
|
(54.79
|
)
|
|
$
|
(8.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common
shares
outstanding
|
|
|
1,004
|
|
|
|
1,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial
statements.
ALTERNATIVE
ETHANOL TECHNOLOGIES, INC.
(Formerly
SRS Energy, Inc.)
(A
Development Stage Company)
Statements
of Changes in Stockholders' Deficit
|
|
|
Common
Stock
|
|
|
Deficit
Accumulated
From
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Inception
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
July 14, 2004 (inception)
|
|
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for organizational costs
|
|
|
1,000
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2004
|
|
|
1,000
|
|
|
|
100
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock sold for cash
|
|
|
1
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
(8,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2005
|
|
|
1,001
|
|
|
|
10,100
|
|
|
|
(8,253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock sold for cash
|
|
|
3
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
(55,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2006
|
|
|
1,004
|
|
|
$
|
25,100
|
|
|
$
|
(63,266
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial
statements.
ALTERNATIVE
ETHANOL TECHNOLOGIES, INC.
(Formerly
SRS Energy, Inc.)
(A
Development Stage Company)
Statements
of Cash Flows
|
|
|
Year
ended December 31,
|
|
|
July
14, 2004
(inception)
to
December
31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(55,013
|
)
|
|
$
|
(8,153
|
)
|
|
$
|
(63,266
|
)
|
|
Adjustments
to reconcile net loss to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for organizational costs
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
license
|
|
|
(75,000
|
)
|
|
|
(42,500
|
)
|
|
|
(117,500
|
)
|
|
Accrued
interest
|
|
|
2,439
|
|
|
|
|
|
|
|
2,439
|
|
|
Accrued
professional fees
|
|
|
42,103
|
|
|
|
|
|
|
|
42,103
|
|
|
Advances
- related parties
|
|
|
69,914
|
|
|
|
41,230
|
|
|
|
111,144
|
|
|
Net
cash used in operating activities
|
|
|
(15,557
|
)
|
|
|
(9,423
|
)
|
|
|
(24,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of common stock
|
|
|
15,000
|
|
|
|
10,000
|
|
|
|
25,000
|
|
|
Net
cash provided by financing activities
|
|
|
15,000
|
|
|
|
10,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash
|
|
|
(557
|
)
|
|
|
577
|
|
|
|
20
|
|
|
Cash
at beginning of year
|
|
|
577
|
|
|
|
|
|
|
|
|
|
|
Cash
at end of year
|
|
$
|
20
|
|
|
$
|
577
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of noncash investing and
financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for organizational costs
|
|
|
|
|
|
|
|
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes
to financial statements.
Note
1 - Organization
Alternative
Ethanol Technologies, Inc. (formerly SRS Energy, Inc.) (“SRS Energy” or
“Company”), a wholly-owned subsidiary of Supercritical Recovery Systems, Inc.,
was incorporated in Delaware on July 14, 2004.
The
Company is a development stage company that has been engaged in technology
development and pre-operational activities since its formation. Its
business strategy is to develop, own and operate renewable energy facilities
with a primary focus on the conversion of cellulose feedstocks to fuel ethanol
and other combustible fuels. The Company has limited exclusive
licenses to technology designed to convert cellulosic feed stocks, including
municipal garbage, into ethanol and other combustible sources of
energy. The Company has no operating history as a producer of ethanol
and has not constructed any ethanol plants to date. It has no
revenues to date and expects that its current capital and other existing
resources will be sufficient only to provide a limited amount of working
capital. The Company will require substantial additional capital
to implement our business plan and it may be unable to obtain the capital
required to do so.
Note
2 - Summary of Significant Accounting Policies
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reporting amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the periods. Management makes these estimates using the best
information available at the time the estimates are made; however, actual
results could differ materially from these estimates.
Impairment
of Long-Lived Assets
The
Company records impairment losses on long-lived assets used in operations and
finite lived intangible assets when events and circumstances indicate the assets
might be impaired and the undiscounted cash flows estimated to be generated
by
those assets are less than their carrying amounts. The impairment
loss is measured by comparing the fair value of the asset to its carrying
amount.
Fair
Value of Financial Instruments
The
fair
value of the advances to officers/directors is not practicable to estimate,
based upon the related party nature of the underlying transactions.
Stock-Based
Compensation
The
Company accounts for stock-based compensation in accordance with SFAS No. 123(R)
Share-Based Payment.
Under the fair value recognition
provisions of this statement, stock-based compensation cost is measured at
the
grant date based on the fair value of the award and is recognized as expense
on
a straight-line basis over the requisite service period, which is the vesting
period. We elected the modified-prospective method, under which prior
periods are not revised for comparative purposes. The valuation
provisions of SFAS 123R apply to new grants and to grants that were outstanding
as of the effective date and subsequently modified.
During
the years ended December 31, 2006 and 2005, there were no stock options granted
or outstanding.
Comprehensive
Income
SFAS
No.
130,
Reporting Comprehensive Income
, establishes requirements for
disclosure of comprehensive income (loss). During the years ended
December 31, 2006 and 2005, the Company did not have any components of
comprehensive income (loss) to report.
Net
Loss Per Share
SFAS
No.
128,
Earnings per Share
, requires dual presentation of basic and
diluted earnings or loss per share (“EPS”) for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of
the
basic EPS computation to the numerator and denominator of the diluted EPS
computation. Basic EPS excludes dilution; diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the
entity.
Basic
loss per share is computed by dividing net loss applicable to common
shareholders by the weighted average number of common shares outstanding during
the period. Diluted loss per share reflects the potential dilution
that could occur if dilutive securities and other contracts to issue common
stock were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the Company, unless the
effect is to reduce a loss or increase earnings per share. The
Company had no potential common stock instruments which would result in a
diluted loss per share. Therefore, diluted loss per share is
equivalent to basic loss per share.
Recently
Issued Accounting Pronouncements
In
June
2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in
Income Taxes - An Interpretation of FASB Statement No. 109,
(“FIN
48”). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements in accordance with FASB
Statement No. 109,
Accounting for Income Taxes
. FIN 48 also
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to
be
taken in a tax return that results in a tax benefit. Additionally,
FIN 48 provides guidance on de-recognition, income statement classification
of
interest and penalties, accounting in interim periods, disclosure, and
transition. This interpretation is effective for fiscal years
beginning after December 15, 2006. The Company does not expect the
application of FIN 48 to have a material affect on its financial
statements.
In
September 2006, the FASB issued SFAS No. 157,
Fair Value
Measurements
. This statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. This statement
applies under other accounting pronouncements that require or permit fair value
measurements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007. The Company does not expect the application
of SFAS No. 157 to have a material affect on its financial
statements.
Note
3 - Technology Licenses
On
April 1, 2005, the Company
entered into an exclusive license with Brelsford Engineering, Inc. (“Brelsford”)
to use their technology (Patent No. 5,411,594) to convert cellulosic biomass
into fuel grade ethanol in the United States. This agreement was amended
in November 2005. On August 17, 2005, the Company entered into an
exclusive license agreement with Bio-Products International, Inc.
(“Bio-
Products”)
giving it limited
exclusive rights to use Bio-Products technology (Patent No. 6,306,248) to
process municipal solid waste and convert the cellulosic component of that
waste
to a homogenous feedstock to produce ethanol in the United States, subject
to
the right of Bio-Products to request five sites to construct garbage to ethanol
plants in the United States.
Intangible
assets are reviewed for impairment whenever events or other changes in
circumstances indicate that the carrying amount may not be
recoverable. An impairment charge is recognized if an intangible
assets carrying amount exceeds its implied fair value.
Note
4 - Stockholders' Deficit
In
July
2004, the Company issued 1,000 shares of common stock to Supercritical Recovery
Systems, Inc., our parent, for organizational costs. These shares
were valued at $.10 per share.
In
May
2005, the Company sold one share of common stock for $10,000. In
January 2006, the Company sold 3 shares of common stock for
$15,000.
Dividends
may be paid on outstanding shares as declared by the Board of
Directors. Each share of common stock is entitled to one
vote.
Note
5 - Income Taxes
The
Company recognizes deferred income tax liabilities and assets for the expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the differences between the financial statement
carrying amounts and the tax basis of assets and liabilities using enacted
tax
rates in effect in the years in which the differences are expected to
reverse.
The
Company incurred no income taxes for the years ended December 31, 2006 and
2005. The expected income tax benefit for the years ended December
31, 2006 and 2005 is approximately $11,000 and $1,600,
respectively. The difference between the expected income tax benefit
and non-recognition of an income tax benefit in each period is the result of
a
valuation allowance applied to deferred tax assets.
Net
operating loss carryforwards of approximately $63,300 at December 31, 2006
are
available to offset future taxable income, if any, and expire in
2026. This results in a net deferred tax asset of approximately
$12,600 at December 31, 2006. A valuation allowance in the same
amount has been provided to reduce the deferred tax asset, as realization of
the
asset is not assured.
The
net
operating loss carryforwards may be limited under the Change of Control
provisions of the Internal Revenue Code section 382.
Note
6 - Related Party Transactions
During
2006 and 2005, the Company incurred corporate and administrative fees of
approximately $7,300 and $33,700 for expenses paid by its president on behalf
of
the Company. The Company has advances from its president of $39,041
at December 31, 2006. At the present time, the Company does not
require any office space and the Company uses the office of its president for
corporate and administrative purposes.
The
Company has a $72,103 advance from one of its board of director members at
December 31, 2006. The advance accrues interest at 9.5% per annum. In
April 2007, the advance and accrued interest were
repaid
and the Company issued a warrant exercisable for four years to purchase
1,923,497 shares of its common stock at $.13 per share.
Note
7 - Subsequent Events
Recapitalization
of Company
On
March
27, 2007, the Company entered into an Agreement and Plan of Merger and
Reorganization with Alternative Ethanol Technologies, Inc. (“AETA”) and its
wholly-owned subsidiary SRS Acquisition Sub, a Delaware
corporation. We consummated the merger on May 31, 2007 resulting in
SRS Energy becoming a wholly-owned subsidiary of AETA. As a result of
the merger, the shareholders of SRS Energy surrendered all of its issued and
outstanding common stock and received shares of AETA’s $.001 par value common
stock. Our former parent, SRS, Inc. immediately prior to the merger,
had distributed 78.8% of its 96% ownership in SRS Energy to their shareholders
on a pro rate basis.
Series
A Convertible Debentures
In
April
2007, the Company sold $1,400,000 of Series A Convertible Debentures
(“Debentures”) that convert into shares of the Company’s common stock at $.15
per share. The Debentures have Demand Registration Rights and accrue
interest at 6% per annum. The interest is payable in cash or shares
of the Company’s common stock at the Company’s option. The Company
received cash of $950,000 and Promissory Notes Receivable (“Notes”) of $450,000
that accrues interest at 6.0%. The Notes are due on the effectiveness
of the Company’s SB-2 Registration Statement.
2007
Stock Option Plan
In
March
2007, the Company adopted the 2007 Stock Option Plan (“Stock Plan”) for its
employees, officers, directors and consultants. The Company has
reserved a maximum of 7,000,000 shares of common stock to be issued for the
exercise of options or shares awarded under the Stock Plan.
Commitment
The
Company has engaged Merrick & Company (“Merrick”), an engineering firm
located in Denver to test the commercial viability of the technologies that
we
have licensed and to construct a proto-type unit to demonstrate the various
processes used to convert waste to ethanol. Merrick is also
investigating other potential feed stocks such as wood waste, smith grass,
and
corn stover that can be used with our licensed technology to produce
ethanol. If the technology proves commercially viable after Merrick
completes its testing and validation, we intend to begin constructing operating
plants using this technology. The Company estimates the cost of this
testing and pilot plant construction at $400,000.
ALTERNATIVE
ETHANOL TECHNOLOGIES, INC.
(Formerly
SRS Energy, Inc.)
(A
Development Stage Company)
Balance
Sheet (Unaudited)
June
30, 2007
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
442,974
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
Technology
license
|
|
|
132,500
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
575,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accrued
interest
|
|
$
|
13,125
|
|
|
Accrued
professional fees
|
|
|
56,599
|
|
|
Advances
- related parties
|
|
|
187
|
|
|
|
|
|
69,911
|
|
|
|
|
|
|
|
|
Series
A Convertible Debentures
|
|
|
950,000
|
|
|
|
|
|
|
|
|
Stockholders’
deficit:
|
|
|
|
|
|
Preferred
stock; $.001 par value; authorized - 10,000,000
|
|
|
|
|
|
shares;
issued - none
|
|
|
--
|
|
|
Common
stock; $.001 par value; authorized - 240,000,000
|
|
|
|
|
|
shares;
issued and outstanding - 48,743,170 shares
|
|
|
48,744
|
|
|
Additional
paid-in capital
|
|
|
(23,644
|
)
|
|
Deficit
accumulated during the development stage
|
|
|
(469,537
|
)
|
|
|
|
|
(444,437
|
)
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ deficit
|
|
$
|
575,474
|
|
|
|
|
|
|
|
See
notes
to financial statements.
ALTERNATIVE
ETHANOL TECHNOLOGIES, INC.
(Formerly
SRS Energy, Inc.)
(A
Development Stage Company)
Statements
of Operations (Unaudited)
|
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
July
14, 2004
(inception)
to
June
30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
$
|
229,344
|
|
|
$
|
5,952
|
|
|
$
|
233,351
|
|
|
$
|
12,258
|
|
|
$
|
256,051
|
|
|
Professional
fees
|
|
|
154,873
|
|
|
|
4,976
|
|
|
|
156,843
|
|
|
|
4,976
|
|
|
|
205,672
|
|
|
Research
and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
14,000
|
|
|
Interest
|
|
|
13,125
|
|
|
|
|
|
|
|
16,722
|
|
|
|
|
|
|
|
19,459
|
|
|
Other
income
|
|
|
(645
|
)
|
|
|
(25,000
|
)
|
|
|
(645
|
)
|
|
|
(25,000
|
)
|
|
|
(25,645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
common stockholders
|
|
$
|
(396,697
|
)
|
|
$
|
14,072
|
|
|
$
|
(406,271
|
)
|
|
$
|
3,766
|
|
|
$
|
(469,537
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
per common share
|
|
$
|
(.01
|
)
|
|
$
|
|
**
|
|
$
|
(.01
|
)
|
|
$
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
shares outstanding
|
|
|
48,743,170
|
|
|
|
39,376,370
|
|
|
|
44,059,770
|
|
|
|
39,376.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
**
less
than $.01 per share
See
notes
to financial statements.
ALTERNATIVE
ETHANOL TECHNOLOGIES, INC.
(Formerly
SRS Energy, Inc.)
(A
Development Stage Company)
Statements
of Changes in Stockholders' Deficit (Unaudited)
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
July
14, 2004
(inception)
to
June
30,
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
July 14, 2004 (inception)
|
|
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
organizational
costs
|
|
|
1,000
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
January 1, 2005
|
|
|
1,000
|
|
|
|
100
|
|
|
|
--
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock sold for cash
|
|
|
1
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2005
|
|
|
1,001
|
|
|
|
10,100
|
|
|
|
--
|
|
|
|
(8,253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock sold for cash
|
|
|
3
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2006
|
|
|
1,004
|
|
|
|
25,100
|
|
|
|
--
|
|
|
|
(63,266
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization
|
|
|
39,375,366
|
|
|
|
14,277
|
|
|
|
(147,873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of promissory notes
|
|
|
9,366,800
|
|
|
|
9,367
|
|
|
|
124,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(406,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
June 30, 2007
|
|
|
48,743,170
|
|
|
$
|
48,744
|
|
|
$
|
(23,644
|
)
|
|
$
|
(469,537
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes
to financial statements.
ALTERNATIVE
ETHANOL TECHNOLOGIES, INC.
(Formerly
SRS Energy, Inc.)
(A
Development Stage Company)
Statements
of Cash Flows (Unaudited)
|
|
|
Six
Months ended June 30,
|
|
|
July
14, 2004
(inception)
to
June
30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(406,271
|
)
|
|
$
|
3,766
|
|
|
$
|
(469,537
|
)
|
|
Adjustments
to reconcile net (loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for organizational costs
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
- related parties
|
|
|
|
|
|
|
(15,700
|
)
|
|
|
|
|
|
Technology
license
|
|
|
(15,000
|
)
|
|
|
(25,000
|
)
|
|
|
(132,500
|
)
|
|
Accrued
interest
|
|
|
10,686
|
|
|
|
4,977
|
|
|
|
13,125
|
|
|
Accrued
professional fees
|
|
|
14,496
|
|
|
|
|
|
|
|
56,599
|
|
|
Advances
- related parties
|
|
|
(110,957
|
)
|
|
|
17,439
|
|
|
|
187
|
|
|
Net
cash used in operating activities
|
|
|
(507,046
|
)
|
|
|
(14,518
|
)
|
|
|
(532,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
A convertible debentures
|
|
|
950,000
|
|
|
|
|
|
|
|
950,000
|
|
|
Sale
of common stock
|
|
|
|
|
|
|
15,000
|
|
|
|
25,000
|
|
|
Net
cash provided by financing activities
|
|
|
950,000
|
|
|
|
15,000
|
|
|
|
975,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
442,954
|
|
|
|
482
|
|
|
|
442,974
|
|
|
Cash
at beginning of year
|
|
|
20
|
|
|
|
577
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
442,974
|
|
|
$
|
1,059
|
|
|
$
|
442,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
6,334
|
|
|
$
|
--
|
|
|
$
|
6,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of noncash investing and
financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for organizational costs
|
|
|
|
|
|
|
|
|
|
$
|
100
|
|
|
Common
stock issued for promissory notes
|
|
$
|
133,596
|
|
|
$
|
--
|
|
|
$
|
133,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes
to financial statements.
Note
1 – Interim Financial Statements
The
accompanying unaudited financial statements have been prepared in accordance
with the accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form
10-QSB and Item 310 of Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States of America for annual financial
statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals considered necessary for a fair presentation,
have
been included. Operating results for the three and six months ended June 30,
2007 are not necessarily indicative of the results that may be expected for
the
year ending December 31, 2007. These interim financial statements
should be read in conjunction with the Company’s audited financial statements
for the year ended December 31, 2006.
Note
2 - Organization
Alternative
Ethanol Technologies, Inc. (formerly SRS Energy, Inc.) (“Company”), was
incorporated in Delaware on December 20, 1996.
On
March
27, 2007, the Company entered into an Agreement and Plan of Merger and
Reorganization with Alternative Ethanol Technologies, Inc. (“AETA”) and its
wholly-owned subsidiary SRS Acquisition Sub, a Delaware
corporation. The merger was consummated on May 31, 2007 resulting in
SRS Energy, Inc. (“SRS Energy”) becoming a wholly-owned subsidiary of
AETA. As a result of the merger, the shareholders of SRS Energy
surrendered all of its issued and outstanding common stock and received shares
of AETA’s $.001 par value common stock. The former parent of SRS
Energy, Supercritical Recovery Systems, Inc. immediately prior to the merger,
distributed 78.8% of its 96% ownership in SRS Energy to their shareholders
on a
pro rate basis.
For
accounting purposes, the share exchange was treated as a recapitalization of
the
Company. As such, the historical financial information prior to the
share exchange is that of SRS Energy. Historical share amounts have
been restated to reflect the effect of the share exchange.
The
Company is a development stage company that has been engaged in technology
development and pre-operational activities since its formation. Its
business strategy is to develop, own and operate renewable energy facilities
with a primary focus on the conversion of cellulose feedstocks to fuel ethanol
and other combustible fuels. The Company has limited exclusive
licenses to technology designed to convert cellulosic feed stocks, including
municipal garbage, into ethanol and other combustible sources of
energy. The Company has no operating history as a producer of ethanol
and has not constructed any ethanol plants to date. It has no
revenues to date and expects that its current capital and other existing
resources will be sufficient only to provide a limited amount of working
capital. The Company will require substantial additional capital
to implement our business plan and it may be unable to obtain the capital
required to do so.
Note
3 - Technology Licenses
On
April 1, 2005, the Company
entered into an exclusive license with Brelsford Engineering, Inc. (“Brelsford”)
to use their technology (Patent No. 5,411,594) to convert cellulosic biomass
into fuel grade ethanol in the United States. This agreement was amended
in November 2005. On August 17, 2005, the Company entered into an
exclusive license agreement with Bio-Products International, Inc.
(“Bio-Products”) giving it limited exclusive rights to use Bio-Products
technology (Patent No. 6,306,248) to process municipal solid waste and convert
the cellulosic component of that waste to a homogenous
feedstock
to produce ethanol
in the United States, subject to the right of Bio-Products to request five
sites
to construct garbage to ethanol plants in the United States.
Intangible
assets are reviewed for impairment whenever events or other changes in
circumstances indicate that the carrying amount may not be
recoverable. An impairment charge is recognized if an intangible
assets carrying amount exceeds its implied fair value.
Note
4 - Series A Convertible Debentures
In
April
2007, the Company sold $1,400,000 of Series A Convertible Debentures
(“Debentures”) that convert into shares of the Company’s common stock at $.15
per share. The Debentures have Demand Registration Rights and accrue
interest at 6% per annum. The interest is payable in cash or shares
of the Company’s common stock at the Company’s option. The Company
received cash of $950,000 and Promissory Notes Receivable (“Notes”) of $450,000
that accrues interest at 6.0%. The Notes are due on the effectiveness
of the Company’s SB-2 Registration Statement.
Note
5 - Stockholders' Deficit
Common
Stock
In
July
2004, the Company issued 1,000 shares of common stock to Supercritical Recovery
Systems, Inc., our former parent, for organizational costs. These
shares were valued at $.10 per share.
In
May
2005, the Company sold one share of common stock for $10,000. In
January 2006, the Company sold 3 shares of common stock for
$15,000.
In
May
2007, SRS Energy completed its reverse merger with AETA with the issuance of
38,623,780 shares of AETA’s common stock and the assumption of a warrant
exercisable for four years to purchase 1,923,497 shares of common stock at
$.13
per share. AETA in January 2007 had reversed split its common stock
100 to 1.
In
May
2007, AETA issued 9,366,800 shares of common stock ($.014 per share) for three
promissory notes totaling $114,681 and accrued interest of $18,915.
2007
Stock Option Plan
In
March
2007, the Company adopted the 2007 Stock Option Plan (“Stock Plan”) for its
employees, officers, directors and consultants. The Company has
reserved a maximum of 7,000,000 shares of common stock to be issued for the
exercise of options or shares awarded under the Stock Plan.
Note
6 - Related Party Transactions
During
the three and six-month periods ended June 30, 2007, the Company incurred
corporate and administrative fees of approximately $-0- and $4,000, respectively
($700 and $2,000 for the three and six-month periods ended June 30, 2006) for
expenses paid by its president on behalf of the Company. The Company has
advances from its president of $187 at June 30, 2007. At the present
time, the Company does not require any office space and the Company uses the
office of its president for corporate and administrative purposes.
The
Company had a $72,103 advance from one of its board of director members at
December 31, 2006. The advance accrued interest at 9.5% per annum. In
April 2007, the advance and accrued interest were repaid and the Company issued
a warrant exercisable for four years to purchase 1,923,497 shares of its common
stock at $.13 per share.
Note
7 - Commitment
The
Company has engaged Merrick & Company (“Merrick”), an engineering firm
located in Denver, to test the commercial viability of the technologies that
we
have licensed and to construct a proto-type unit to demonstrate the various
processes used to convert waste to ethanol. Merrick is also
investigating other potential feed stocks such as wood waste, smith grass,
and
corn stover that can be used with our licensed technology to produce
ethanol. If the technology proves commercially viable after Merrick
completes its testing and validation, we intend to begin constructing operating
plants using this technology. The Company estimates the cost of this
testing and pilot plant construction at $400,000.
PART
II – INFORMATION NOT REQUIRED IN PROSPECTUS
Item
24. Indemnification Of Directors And Officers
Section
145 of the Delaware General Corporation Law (“DGCL”) makes provision for the
indemnification of officers and directors of corporations in terms sufficiently
broad to indemnify our officers and directors under certain circumstances from
liabilities (including reimbursement of expenses incurred) arising under the
Securities Act.
As
permitted by the DGCL, our restated certificate of incorporation provides that,
to the fullest extent permitted by the DGCL, no director shall be personally
liable to us or to our stockholders for monetary damages for breach of his
fiduciary duty as a director. Delaware law does not permit the elimination
of
liability (i) for any breach of the director’s duty of loyalty to us or our
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases or (iv)
for any transaction from which the director derives an improper personal
benefit. The effect of this provision in the restated certificate of
incorporation is to eliminate the rights of this corporation and its
stockholders (through stockholders’ derivative suits on behalf of this
corporation) to recover monetary damages against a director for breach of
fiduciary duty as a director thereof (including breaches resulting from
negligent or grossly negligent behavior) except in the situations described
in
clauses (i)-(iv), inclusive, above. These provisions will not alter the
liability of directors under federal securities laws.
Our
restated certificate of incorporation provides that we have the power to
indemnify, and our restated by-laws state that we shall indemnify, any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in our right) by
reason of the fact that he is or was a director, officer, employee or agent
of
this corporation or is or was serving at our request as a director, officer,
employee or agent of another corporation or enterprise, against expenses
(including attorneys’ fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to our best interests, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such person’s conduct was unlawful. Our restated by-laws further provide that we
may purchase and maintain insurance on our own behalf and on behalf of any
person who is or was a director, officer, employee, fiduciary or agent of this
corporation or was serving at our request as a director, officer, employee
or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and incurred by
him
or her in any such capacity, whether or not we would have the power to indemnify
such person against such liability under our restated by-laws.
Item
25. Other Expenses Of Issuance And Distribution
We
estimate that expenses in connection with the distribution described in this
registration statement (other than brokerage commissions, discounts or other
expenses relating to the sale of the shares by the selling stockholders) will
be
as set forth below. We will pay all of the expenses with respect to the
distribution, and such amounts, with the exception of the Securities and
Exchange Commission registration fee, are estimates.
|
|
|
|
|
|
|
|
Amount
to be Paid
|
|
|
Securities
and Exchange Commission registration fee
|
|
$
|
1,000
|
|
|
Legal
fees and expenses
|
|
|
75,000
|
|
|
Accounting
fees and expenses
|
|
|
25,000
|
|
|
Transfer
agent and registrar fees
|
|
|
6,000
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
107,000
|
|
|
|
|
|
|
|
Item
26. Recent Sales of Unregistered Securities
Our
predecessor, Long Road Entertainment, Inc., issued the following shares of
common stock (adjusted for our 100:1 reverse split in 2007):
|
Amount
of Shares
|
|
Date
|
Issued
To
|
|
Price/Consideration
|
|
|
|
78,900
|
|
10/18/04
|
Seaside
Investments, LLC
|
|
Services
rendered
|
|
|
|
3,945
|
|
10/21/04
|
Hunter
Wise Securities, LLC
|
|
Services
rendered
|
|
|
|
1,119
|
|
3/21/05
|
King’s
Point Capital
|
|
$
|
5,952
|
|
|
|
16,500
|
|
4/6/05
|
Crescent
Fund, LLC
|
|
$
|
82,500
|
|
|
|
15,000
|
|
7/13/05
|
Crescent
Fund, LLC
|
|
$
|
75,000
|
|
|
|
1,500
|
|
8/17/05
|
Hayde
Family Revocable Trust
|
|
$
|
7,500
|
|
|
|
1,500
|
|
8/17/05
|
Sweeney
Family Revocable Trust
|
|
$
|
7,500
|
|
Each
issuance set forth above was exempt from the registration requirements of
the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Rule
506 of Regulation D promulgated under the Securities Act and Section 4(2)
of the
Securities Act.
On
April
16, 2007, SRS Energy, Inc., currently our wholly-owned subsidiary, completed
a
$1,400,000 private placement of Series A Convertible Debentures to a group
of
accredited investors with each debenture being convertible into shares of
common
stock at an initial conversion ratio of $0.15 per share. The private placement
was exempt from the registration requirements of the Securities Act, pursuant
to
Rule 506 of Regulation D promulgated under the Securities Act and Section
4(2)
of the Securities Act.
On
May
24, 2007, holders of certain convertible notes originally issued in 2003
and
2004 by Long Road Entertainment, our predecessor, converted their notes at
$0.01
per share of common stock pursuant to the terms of the notes. As a
result, we issued 9,366,800 shares of our common stock in the aggregate to
the
following holders of the convertible notes:
|
Holder
|
Number
of Shares
|
|
Brite
Star Associates, Inc.
|
1,777,867
|
|
Two
Shamrocks, Inc.
|
1,600,000
|
|
Fountain
Consulting, Inc.
|
1,482,000
|
|
St
Ives Consulting, Inc.
|
1,368,000
|
|
STL
Capital Holdings, Inc.
|
1,638,933
|
|
Deluth
Venture Capital Partners
|
1,500,000
|
The
noteholders acquired the notes in April 2007 from Robert Stinson, the former
founder and controlling stockholder of our company, a company affiliated
with
Mr. Stinson, and a consulting company that acted
as
an
advisor to our company in 2004, but was not an affiliate of our
company. The issuance was exempt from the registration requirements
of the Securities Act, pursuant to Rule 506 of Regulation D promulgated
under
the Securities Act and Section 4(2) of the Securities Act.
On
May
31, 2007, we consummated our acquisition of SRS Energy, Inc. through
the merger
of SRS AcquisitionSub, our wholly-owned subsidiary, with and into SRS
Energy. In connection therewith, we issued a total of 38,623,780
shares of our common stock to the former shareholders of SRS Energy,
a warrant
to William Meyer to acquire 1,923,495 shares of our common stock at a
price of
$0.13 per share and assumed the Series A Convertible Debentures previously
issued by SRS Energy, as consideration for the acquisition for all of
the
outstanding shares of SRS Energy. The warrant is exercisable at any
time up until August 31, 2009, when it expires. The issuances were
exempt from the registration requirements of the Securities Act, pursuant
to
Rule 506 of Regulation D promulgated under the Securities Act and Section
4(2)
of the Securities Act.
On
August
21, 2007 and August 31, 2007, we awarded stock options to our (i) executive
officers representing the right to acquire in the aggregate 3,850,000
shares of
our common stock, and (ii) directors, other than Mr. Hennessey, representing
the
right to acquire in the aggregate 160,000 shares of our common
stock. All of these stock options have an exercise price of $0.15 per
share. On August 21, 2007, we also issued to our directors, other
than Mr. Hennessey, 600,000 restricted shares of our common stock in
the
aggregate at a price of $0.15 per share. The award of stock options
and the issuance of restricted stock to our executive officers and directors
were exempt from the registration requirements of the Securities Act
pursuant to
Rule 701 promulgated under the Securities Act.
On
August
30, 2007, we issued a warrant to RAM Resources, L.L.C. to purchase 1,923,495
shares of our common stock at a price of $0.13 per share. The warrant
is exercisable at any time in the two years since its issuance. The
warrant was issued as consideration for the full and unconditional release
of
the Company from any and all claims of RAM Resources, L.L.C, relating to
rights
to acquire shares of our common stock. The issuance was exempt from
the registration requirements of the Securities Act, pursuant to Rule 506
of
Regulation D promulgated under the Securities Act and Section 4(2) of the
Securities Act.
Item
27. Exhibits
The
following exhibits are filed as part of this report:
|
Exhibit
Number
|
Description
|
|
3.1
|
Restated
Certificate of Incorporation.
|
|
3.2
|
Restated
By-Laws.
|
|
4.1
|
Form
of Series A Convertible Debenture.
|
|
4.2
|
Investors’
Rights Agreement dated as of April 16, 2007 by and among SRS Energy,
Inc.
and certain Investors.
|
|
4.3
|
Series
A Debenture Purchase Agreement dated as of April 16, 2007 by and
among SRS
Energy, Inc. and certain Investors.
|
|
4.4
|
Warrant
dated August 31, 2007 by CleanTech Biofuels, Inc. in favor of RAM
Resources, L.L.C.
|
|
5.1
|
Opinion
of Sauerwein, Simon & Blanchard, P.C.
|
|
10.1
|
Exclusive
License Agreement between Brelsford Engineering, Inc. and SRS Energy,
Inc.
dated as of April 1, 2005.
|
|
10.2
|
Amendment
to Exclusive License Agreement between Brelsford Engineering, Inc.
and SRS
Energy, Inc. dated as of January 11, 2006.
|
|
10.3
|
Technology
License Agreement between Bio-Products International, Inc. and SRS
Energy,
Inc. dated as of August 17, 2005.
|
|
10.4
|
Technology
License Agreement between Bio Products International, Inc. and SRS
Energy,
Inc. dated as of March 8, 2007.
|
|
10.5
|
Engagement
Agreement between Alternative Ethanol Technologies, Inc. k/n/a CleanTech
Biofuels, Inc. and Merrick & Company.
|
|
10.6
|
Consulting
Fee Agreement between Alternative Ethanol Technologies k/n/a CleanTech
Biofuels, Inc. and Five Sigma Ltd. dated as of April 17,
2007.
|
|
10.7
|
2007
Stock Option Plan.
|
|
10.8
|
Form
of Director Stock Option Agreement.
|
|
10.9
|
Director
Stock Purchase Agreement.
|
|
10.10
|
Employment
Agreement – Edward P. Hennessey,
Jr.
|
|
10.11
|
Form
of Employee Agreement – Michael Kime and Tom Jennewein.
|
|
10.12
|
Form
of Employee Stock Option Agreement – Edward P. Hennessey, Jr., Michael
Kime and Tom Jennewein.
|
|
21.1
|
List
of Subsidiaries.
|
|
23.1
|
Consent
of Sauerwein, Simon & Blanchard, P.C. (contained in Exhibit
5.1).
|
|
23.2
|
Consent
of Larry O’Donnell, CPA, P.C.
|
|
24
|
Power
of Attorney (set forth on signature
page).
|
Item
28. Undertakings
A.
Rule
415 Offering
We
hereby
undertake:
(1)
To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i)
To
include any prospectus required by Section 10(a)(3) of the Securities Act of
1933;
(ii)
To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth 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; and
(iii)
To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement.
(2)
That,
for the purpose of determining any liability under the Securities Act of 1933,
each post-effective amendment 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.
(3)
To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4)
For
determining liability of the Company under the Securities Act of 1933 to any
purchaser in the initial distribution of the securities, the Company undertakes
that in a primary offering of securities of the Company pursuant to this
registration statement, regardless of the underwriting method used to sell
the
securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the Company will
be a
seller to the purchaser and will be considered to offer or sell such securities
to such purchaser:
(i)
Any
preliminary prospectus or prospectus of the Company relating to the offering
required to be filed pursuant to Rule 424;
(ii)
Any
free writing prospectus relating to the offering prepared by or on behalf of
the
Company or used or referred to by the Company;
(iii)
The
portion of any other free writing prospectus relating to the offering containing
material information about the Company or its securities provided by or on
behalf of the Company; and
(iv)
Any
other communication that is an offer in the offering made by the Company to
the
purchaser.
B.
Request for Acceleration of Effective Date
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
(the
“Act”) may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
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.
In
the
event that a claim for indemnification against such liabilities (other than
the
payment by the Company of expenses incurred or paid by a director, officer
or
controlling person of the Company 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, the Company 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 Act and
will
be governed by the final adjudication of such issue.
C.
Each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule
430B
or other than prospectuses filed in reliance on Rule 430A, shall be deemed
to be
part of and included in the registration statement as of the date it is first
used after effectiveness.
Provided
,
however
, that no statement
made in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to
such
first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made
in
any such document immediately prior to such date of first use.
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 of filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, in St. Louis, Missouri, on
September 7, 2007.
|
|
|
|
|
CleanTech
Biofuels, Inc.
|
|
|
|
|
|
|
|
By:
|
|
/s/
Edward P. Hennessey, Jr.
|
|
|
|
Edward
P. Hennessey, Jr.
|
|
|
|
President
and
Chief
Executive Officer
|
POWER
OF ATTORNEY
KNOW
ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby
constitutes and appoints Edward P. Hennessey, Jr. and Michael D. Kime., Jr.,
and
each of them acting individually, as his true and lawful attorneys-in-fact
and
agents, each with full power of substitution, for him in any and all capacities,
to sign any and all amendments to this registration statement (including
post-effective amendments or any abbreviated registration statement and any
amendments thereto filed pursuant to Rule 462(b) increasing the number of
securities for which registration is sought), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, with full power of each to act alone, full power and authority to do
and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully for all intents and purposes as he might or
could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or his or their substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant
to 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
indicated:
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Signature
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Title
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Date
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/s/
Edward P. Hennessey, Jr.
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Chief
Executive Officer, President, Chairman of the Board, and Director
(Principal Executive Officer and Principal Financial and Accounting
Officer)
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September
7, 2007
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Edward
P. Hennessey, Jr.
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/s/
Michael D. Kime
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General
Counsel and Secretary
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September
7, 2007
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Michael
D. Kime
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/s/
Benton Becker
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Director
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September
7, 2007
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Benton
Becker
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/s/
Ira Langenthal, Phd.
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Director
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September
7, 2007
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Ira
Langenthal, Phd.
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/s/
Paul Simon, Jr.
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Director
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September
7, 2007
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Paul
Simon, Jr.
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/s/
Larry McGee
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Director
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September
7, 2007
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Larry
McGee
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Exhibit
Number
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Description
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3.1
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Restated
Certificate of Incorporation.
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3.2
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Restated
By-Laws.
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4.1
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Form
of Series A Convertible Debenture.
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4.2
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Investors’
Rights Agreement dated as of April 16, 2007 by and among SRS Energy,
Inc.
and certain Investors.
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4.3
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Series
A Debenture Purchase Agreement dated as of April 16, 2007 by and
among SRS
Energy, Inc. and certain Investors.
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4.4
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Warrant
dated August 31, 2007 by CleanTech Biofuels, Inc. in favor of RAM
Resources, L.L.C.
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5.1
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Opinion
of Sauerwein, Simon & Blanchard, P.C.
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10.1
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Exclusive
License Agreement between Brelsford Engineering, Inc. and SRS Energy,
Inc.
dated as of April 1, 2005.
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10.2
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Amendment
to Exclusive License Agreement between Brelsford Engineering, Inc.
and SRS
Energy, Inc. dated as of January 11, 2006.
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10.3
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Technology
License Agreement between Bio-Products International, Inc. and SRS
Energy,
Inc. dated as of August 17, 2005.
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10.4
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Technology
License Agreement between Bio Products International, Inc. and SRS
Energy,
Inc. dated as of March 8, 2007.
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10.5
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Engagement
Agreement between Alternative Ethanol Technologies, Inc. k/n/a CleanTech
Biofuels, Inc. and Merrick & Company.
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10.6
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Consulting
Fee Agreement between Alternative Ethanol Technologies k/n/a CleanTech
Biofuels, Inc. and Five Sigma Ltd. dated as of April 17,
2007.
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10.7
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2007
Stock Option Plan.
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10.8
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Form
of Director Stock Option Agreement.
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10.9
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Director
Stock Purchase Agreement.
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10.10
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Employment
Agreement – Edward P. Hennessey,
Jr.
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10.11
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Form
of Employee Agreement – Michael Kime and Tom Jennewein.
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10.12
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Form
of Employee Stock Option Agreement – Michael Kime and Tom
Jennewein.
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21.1
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List
of Subsidiaries.
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23.1
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Consent
of Sauerwein, Simon & Blanchard, P.C. (contained in Exhibit
5.1).
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23.2
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Consent
of Larry O’Donnell, CPA, P.C.
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24
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Power
of Attorney (set forth on signature
page).
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Exhibit
3.1
RESTATED
CERTIFICATE OF INCORPORATION OF
ALTERNATIVE
ETHANOL TECHNOLOGIES, INC.
This
Restated Certificate of Incorporation has been duly adopted by the Corporations
Board of Directors and Stockholders in accordance with the applicable provisions
of Section 242 and 245 of the General Corporation Law of the State of
Delaware.
ARTICLE
1
Name
The
name
this Corporation was initially organized under is Long Road Entertainment,
Inc.
The name of the Corporations was to Alternative Ethanol Technologies, Inc.
in
January 2007. Effective upon filing this Restated Certificate of
Incorporation the name of the corporation shall be changed to CleanTech
Biofuels, Inc.
ARTICLE
2
Registered
Agent and Incorporator
The
address of the Corporation’s registered office in the State of Delaware is 1220
N. Market Street, Suite 606, Wilmington, DE 19801, County of
Newcastle. The name of the corporation’s registered agent at such
address is American Incorporators, Ltd.
ARTICLE
3
Purpose
The
nature of the business or purposes to be conducted or promoted is to engage
in
any lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware.
ARTICLE
4
Capitalization
A. Classes
of Stock. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares that this corporation is authorized to issue is two hundred fifty
million (250,000,000) shares. Two Hundred Forty Million (240,000,000) shares
shall be Common Stock and Ten Million (10,000,000) shares shall be Preferred
Stock, each with a par value of $0.001 per share.
B. Rights,
Preferences and Restrictions of Preferred Stock. The Preferred Stock authorized
by this Restated Certificate of Incorporation may be issued from time to time
in
one or more series. The Board of Directors is hereby authorized to
fix or alter the rights, preferences, privileges and restrictions granted to
or
imposed upon any authorized series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or of any of them.
Subject to compliance with applicable protective voting rights that have been
or
may be granted to the Preferred Stock or series thereof in Certificates of
Designation or this corporation's Certificate of Incorporation ("Protective
Provisions"), but notwithstanding any other rights of the Preferred Stock or
any
series thereof, the rights, privileges, preferences and restrictions of any
such
additional series may be subordinated to, pari passu with (including, without
limitation, inclusion in provisions with respect to liquidation and acquisition
preferences, redemption and/or approval of matters by vote or written consent),
or senior to any of those of any present or future class or series of Preferred
or Common Stock. Subject to compliance with applicable Protective Provisions,
the Board of Directors is also authorized to increase or decrease the number
of
shares of any series, prior or subsequent to the issue of that series, but
not
below the number of shares of such series then outstanding. In case the number
of shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
C. Common
Stock. The rights, preferences, privileges and restrictions granted to and
imposed on the Common Stock are as set forth below in this Article
4(C). Subject to the prior rights of holders of all classes of stock
at the time outstanding having prior rights as to dividends, the holders of
the
Common Stock shall be entitled to receive, when and as declared by the Board
of
Directors, out of any assets of this corporation legally available therefor,
such dividends as may be declared from time to time by the Board of
Directors. The holder of each share of Common Stock shall have the
right to one vote for each such share, and shall be entitled to notice of any
stockholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE
5
Bylaws
Except
as
otherwise provided in this Certificate of Incorporation, in furtherance and
not
in limitation of the powers conferred by statute, the board of directors is
expressly authorized to make, repeal, alter, amend and rescind any or all of
the
Bylaws of the Corporation.
ARTICLE
6
Directors
The
Board
shall be composed of not less than 5 nor more than 9 Directors, the specific
number to be set by resolution of the Board, provided that the Board may be
less
than 5 until vacancies are filled. No decrease in the number of
Directors shall have the effect of shortening the term of any incumbent
Director.
The
Board
of Directors shall be divided into three classes, with said classes to be as
equal in number as may be possible. At the first election of
Directors to such classified Board of Directors, each Class 1 Director shall
be
elected to serve until the next ensuing annual meeting of stockholders, each
Class 2 Director shall be elected to serve until the second ensuing annual
meeting of stockholders and each Class 3 Director shall be elected to serve
until the third ensuing annual meeting of stockholders. At each
annual meeting of stockholders following the meeting at which the Board of
Directors is initially classified, the number of Directors equal to the number
of Directors in the class whose term expires at the time of such meeting shall
be elected to serve until the third ensuing annual meeting of
stockholders. Notwithstanding any of the foregoing, Directors shall
serve until their successors are elected and qualified or until their earlier
death, resignation or removal from office or until there is a decrease in the
number of Directors. Directors need not be stockholders of the
corporation or residents of the State of Delaware and need not meet any other
qualifications.
ARTICLE
7
Stockholders
Meeting
of stockholders may be held within or without the State of Delaware, as the
Bylaws may provide. The books of the Corporation may be kept (subject to any
provision contained in the statutes) outside the State of Delaware at such
place
or places as may be designated from time to time by the board of directors
or in
the Bylaws of the Corporation.
ARTICLE
8
Director
Liability
A
director of the Corporation shall not be personally liable to the corporation
or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director’s duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions
not
in good faith or which involve intentional misconduct or a knowing violation
of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived any improper personal
benefit. If the Delaware General Corporation Law is amended after approval
by
the stockholders of this Article to authorize corporation action further
eliminating or limiting the personal liability of directors then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law as so
amended. Any repeal or modification of the foregoing provisions of
this Article 8 by the stockholders of the corporation shall not adversely affect
any right or protection of a director of the corporation existing at the time,
or increase the liability of any director of this Corporation with respect
to
any acts or omissions of such director occurring prior to, such repeal or
modification.
ARTICLE
9
Indemnification
To
the
fullest extent permitted by applicable law, this Corporation is also authorized
to provide indemnification of (and advancement of expenses to) such agents
(and
any other persons to which Delaware law permits this Corporation to provide
indemnification) through Bylaw provisions, agreements with such agents or other
persons, vote of stockholders or disinterested directors or otherwise, in excess
of the indemnification and advancement otherwise permitted by Section 145 of
the
General Corporation Law of the State of Delaware, subject only to limits created
by applicable Delaware law (statutory or non-statutory), with respect to actions
for breach of duty to this Corporation, its stockholders, and
others. Any repeal or modification of any of the foregoing provisions
of this Article 9 shall not adversely affect any right or protection of a
director, officer, agent or other person existing at the time of, or increase
the liability of any director of this Corporation with respect to any acts
or
omissions of such director, officer or agent occurring prior to such repeal
or
modification.
ARTICLE
10
Amendment
The
Corporation reserves the right to amend, alter, change or repeal any provision
contained in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
IN
WITNESS WHEREOF, the undersigned has executed this Restated Certificate of
Incorporation on this _______ day of __________, 2007.
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___________________________________
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Edward
Hennessey, President
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Exhibit
3.2
RESTATED
BY-LAWS
OF
CLEANTECH
BIOFUELS, INC.
(A
Delaware Corporation)
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ARTICLE
I
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Offices
and Records
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ARTICLE
II
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Corporate
Seal
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ARTICLE
III
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Stockholders
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ARTICLE
IV
|
Directors
|
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ARTICLE
V
|
Officers
|
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ARTICLE
VI
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Shares
of Stock
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ARTICLE
VII
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Indemnification
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ARTICLE
VIII
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General
Provisions
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(Restated
as of August 21, 2007)
ARTICLE
I
Offices
and Records
Section
1
.
Registered
Office and Registered Agent.
The location of the registered
office and the name of the registered agent of the Corporation in the State
of
Delaware shall be determined from time to time by the Board of Directors and
shall be on file in the appropriate office of the State of Delaware pursuant
to
applicable provisions of law.
Section
2
. Corporate
Offices
. The Corporation may have such corporate offices,
anywhere within and without the State of Delaware as the Board of Directors
from
time to time may appoint, or the business of the Corporation may
require. The “principal place of business” or “principal business” or
“executive office or offices” of the Corporation may be fixed and so designated
from time to time by the Board of Directors, but the location or residence
of
the Corporation in Delaware shall be deemed for all purposes to be in the county
in which its registered office in Delaware is maintained.
Section
3
. Records
. The
Corporation shall keep at its registered office in Delaware, at its principal
place of business, or at the office of its transfer agent, original or duplicate
books in which shall be recorded the number of its shares subscribed, the names
of the owners of its shares, the numbers owned of record by them respectively,
the amount of shares paid, and by whom, the transfer of said shares with the
date of transfer, the amount of its assets and liabilities, and the names and
places of residence of its officers, and from time to time such other or
additional records, statements, lists, and information as may be required by
law, including the stockholder lists mentioned in these By-Laws.
Section
4
. Inspection of
Records
. A stockholder, if such stockholder is entitled to
and demands to inspect the records of the Corporation pursuant to any statutory
or other legal right, shall be privileged to inspect such records only during
the usual and customary hours of business and in such manner as will not unduly
interfere with the regular conduct of the business of the
Corporation. In order to exercise this right of examination, a
stockholder must make written demand upon the Corporation, stating with
particularity the records sought to be examined and the purpose
therefor. A stockholder may delegate this right of inspection to such
stockholder’s representative on the condition that, if the representative is not
an attorney, the stockholder and representative agree with the Corporation
to
furnish to the Corporation, promptly as completed or made, a true and correct
copy of each report with respect to such inspection made by such
representative. No stockholder shall use or permit to be used or
acquiesce in the use by others of any information so obtained, to the detriment
competitively of the Corporation, nor shall any stockholder furnish or permit
to
be furnished any information so obtained to any competitor or prospective
competitor of the Corporation.
The
Corporation may, as a condition precedent to any stockholder’s inspection of the
records of the Corporation, require the stockholder to indemnify the Corporation
against any loss or damage which may be suffered by it arising out of or
resulting from any unauthorized disclosure made or permitted to be made by
such
stockholder or any representative or financial advisor of the stockholder of
information obtained in the course of such inspection. The Corporation may,
as a
further condition precedent to any stockholder’s inspection of the records of
the Corporation, also require the stockholder to execute and deliver to the
Corporation a confidentiality agreement in which the stockholder: (i)
acknowledges that the Corporation is engaged in a highly competitive economic
environment, that the nonpublic records of the Corporation are secret and
confidential, and that the Corporation would suffer material adverse financial
consequences if competitors or other entities with which the Corporation does
business should gain access to nonpublic information contained in the records
of
the Corporation; (ii) agrees that the stockholder will not, directly or
indirectly, without the Corporation’s prior written consent, disclose any
nonpublic information obtained from the records of the Corporation to any party
other than the stockholder’s representative or personal financial advisor; and
(iii) agrees to instruct any such representative and/or any such personal
financial advisor not to disclose, directly or indirectly, without the
Corporation’s prior written consent, any such nonpublic information received and
that no applicable professional-client privileges shall be
waived. The Corporation may also require any representative or
personal financial advisor of a stockholder to sign a confidentiality agreement
containing substantially the provisions described above as a condition precedent
to inspection of the records of the Corporation. As used herein,
“nonpublic” information is all information other than: (i) what the
Corporation has filed with a governmental agency and which (a) was not
designated as confidential, secret, proprietary, or the like and (b) is
generally open to public inspection in accordance with applicable laws, rules,
and regulations; and (ii) what the Corporation has released to the press or
other media for general publication.
ARTICLE
II
Corporate
Seal
Section
1
.
Corporate
Seal
. The corporate seal, if any, shall have inscribed
thereon the name of the Corporation. Said seal may be used by causing
it or a facsimile thereof to be impressed or affixed or in any manner
reproduced.
ARTICLE
III
Stockholders
Section
1
.
Place of
Meetings.
All meetings of the stockholders shall be held at
the principal business office of the Corporation, except such meetings as the
Board of Directors to the extent permissible by law expressly determines shall
be held elsewhere, in which case such meetings may be held, upon notice thereof
as herein provided, at such other place or places, within or without the State
of Delaware, as said Board of Directors shall determine and as shall be stated
in such notice; and, unless specifically prohibited by law, any meeting may
be
held at any place and time, and for any purpose if consented to in writing
by
all of the stockholders entitled to vote thereat.
Section
2
.
Annual
Meeting.
Commencing April 2008, an annual meeting of the
stockholders shall be held on such day in the month of April each year, and
at
such time on that day, as shall be determined by the Board of Directors, at
which time the stockholders shall elect directors to succeed those whose terms
expire and transact such other business as may properly come before the
meeting.
Section
3
.
Special
Meetings.
Special meetings of the stockholders may be called
by the (i) the Chairman of the Board of Directors, (ii) the President of the
Company, or (iii) one-third of the directors (rounded up to the nearest whole
number).
The
holders of not less than one-third of all of the issued and outstanding shares
of capital stock of the Corporation entitled to vote for the election of
directors also may call a special meeting of the stockholders in accordance
with
the following procedures. Upon receipt by the Secretary of the
Corporation of a written demand for a special meeting signed by the holders
of
record of the requisite number of shares of capital stock entitled to vote
which
demand sets forth (i) the specific purpose or purposes for which the meeting
is
to be called, (ii) the names and current addresses of all stockholders joining
in the written demand, and (iii) the number of shares of capital stock of the
Corporation that each such stockholder holds, the Board of Directors shall,
within 20 days after receipt of said written demand, set a place, date, hour,
and record date for said special meeting, and shall direct the Chairman of
the
Board (if any), the President, or the Secretary of the Corporation to give
notice of said special meeting to the stockholders of the Corporation in the
manner provided for in this Article.
Section
4
.
Action in Lieu
of Meeting.
Any action required to be taken at a meeting of
the stockholders or any other action which may be taken at a meeting of the
stockholders may be taken without prior notice and without a meeting if consents
in writing setting forth the action so taken shall be signed by stockholders
entitled to vote with respect to the subject matter thereof having not less
than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
Section
5
.
Notice of
Meetings.
Written or printed notice stating the place, day,
and hour of the meeting and, in the case of a special meeting, the purpose
or
purposes for which the meeting is called, shall be given not less than ten
nor
more than sixty days before the date of the meeting, either personally or by
mail, by or at the direction of the Board of Directors, the Chairman of the
Board (if any), the President, or the Secretary, to each stockholder of record
entitled to vote at such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail in a sealed
envelope addressed to the stockholder at such stockholder’s address as it
appears on the records of the Corporation, with postage thereon
prepaid.
Section
6
.
Presiding
Officials.
Every meeting of the stockholders for whatever
purpose, shall be convened (in the order shown, unless otherwise determined
by
resolution of the Board of Directors) by the Chairman of the Board (if any),
or
by the President, or by the officer who called the meeting by notice as above
provided; but it shall be presided over by the officers specified elsewhere
in
these By-Laws.
Section
7
.
Waiver of
Notice.
Whenever any notice is required to be given under
the provisions of these By-Laws, the Certificate of Incorporation of the
Corporation, or any law, a waiver thereof in writing signed by the person or
persons entitled to such notice, whether before, at, or after the time stated
therein, shall be deemed the equivalent of the giving of such
notice. To the extent provided by law, attendance at any meeting
shall constitute a waiver of notice of such meeting.
Section
8
.
Business
Transacted at Annual Meetings.
At each annual meeting of the
stockholders, the stockholders shall elect a Board of Directors to hold office
until the next succeeding annual meeting; and they may transact such other
business as may be desired, whether or not the same was specified in the notice
of the meeting, unless the consideration of such other business without its
having been specified in the notice of the meeting as one of the purposes
thereof is prohibited by law, the Corporation’s Certificate of Incorporation, or
any other provision of these By-Laws.
Section
9
.
Business
Transacted at Special Meetings.
Business transacted at all
special meetings of the stockholders shall be confined to the purposes stated
in
the notice of such meetings unless the transaction of other business is
consented to by the holders of all of the outstanding shares of stock of the
Corporation entitled to vote thereat.
Section
10
.
Quorum.
Except
as may be otherwise provided by law or by the Certificate of Incorporation,
the
holders of a majority of the shares issued and outstanding and entitled to
vote
for the election of directors, whether present in person or by proxy, shall
constitute a quorum for the transaction of business at all meetings of the
stockholders. Every decision of a majority in amount of shares of
such quorum shall be valid as a corporate act, except in those specific
instances in which a larger vote is required by law, by these By-Laws, or by
the
Certificate of Incorporation. If, however, such quorum should not be
present at any meeting, the stockholders present and entitled to vote shall
have
the power successively to adjourn the meeting, without notice other than
announcement at the meeting, to a specified date not longer than ninety days
after such adjournment. At any such adjourned meeting at which a
quorum is present any business may be transacted which might have been
transacted at the meeting of which the stockholders were originally
notified. However, if the adjournment is for more than thirty days,
or if after the adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given in the manner otherwise
provided herein to each stockholder of record entitled to vote at such adjourned
meeting. Withdrawal of stockholders from any meeting shall not cause
the failure of a duly constituted quorum at such meeting.
Section
11
.
Proxies.
At
any meeting of the stockholders every stockholder having the right to vote
shall
be entitled to vote in person, or by vesting another person with authority
to
exercise the voting power of any or all of such stockholder’s stock by executing
in writing any voting trust agreement, proxy, or any other type of appointment
form or agreement, except as may be expressly limited by law or by the
Certificate of Incorporation. Any copy, facsimile telecommunication,
or other reliable reproduction of any writing referred to in this Section may
be
used in lieu of the original writing for any and all purposes for which the
original writing could be used, provided that such copy, facsimile
telecommunication, or other reproduction shall be a complete reproduction of
the
entire original writing. No proxy shall be valid after three years
from the date of its execution, unless otherwise provided in the
proxy.
Section
12
.
Voting.
Each
stockholder shall have one vote (or such other number of votes as may be
specifically provided) for each share of stock entitled to vote under the
provisions of the Certificate of Incorporation which is registered in such
stockholder’s name on the books of the Corporation; in all elections of
directors of the Corporation, each share of stock entitled to vote shall be
entitled to one vote as to each director to be elected by the holders thereof
and no stockholder shall have the right to cast votes in the aggregate or to
cumulate such stockholder’s votes for the election of any director, and
cumulative voting of shares in elections of directors is hereby specifically
negated. All elections for directors shall be determined by a
plurality of the votes cast. All other matters, except as required by
law or the Certificate of Incorporation, shall be determined by a majority
of
the votes cast. Any stockholder who is in attendance at a meeting of
the stockholders either in person or by proxy, but who abstains from voting
on
any matter, shall not be deemed present or represented at such meeting for
purposes of the preceding sentence with respect to such vote, but shall be
deemed present or represented for all other purposes.
The
rights and powers of the holders of any class or series of preferred stock
with
respect to the election of directors shall be only as may be duly designated
with respect to such class or series and as is consistent with the provisions
of
the Certificate of Incorporation.
All
elections of directors shall be by written ballot, unless otherwise provided
in
the Certificate of Incorporation.
No
person
shall be permitted to vote any shares belonging to the Corporation.
Shares
standing in the name of another corporation, domestic or foreign, may be voted
by such officer, agent, or proxy as the by-laws of such corporation may
prescribe, or, in the absence of such provision, as the board of directors
of
such corporation may determine.
Shares
standing in the name of a deceased person may be voted by that person’s personal
representative either in person or by proxy. Shares standing in the
name of a conservator or trustee may be voted by such fiduciary, either in
person or by proxy, but no conservator or trustee shall be entitled as such
fiduciary to vote shares held by him, her, or it without transfer of such shares
into his, her, or its name.
Shares
standing in the name of a receiver, and shares held by or under the control
of a
receiver may be voted by such receiver without the transfer thereof into the
receiver’s name if authority to do so is contained in an appropriate order of
the court by which such receiver was appointed.
A
stockholder whose shares are pledged shall be entitled to vote such shares
until
the shares have been transferred into the name of the pledgee, and thereafter
the pledgee shall be entitled to vote the shares transferred; provided, however,
that if the pledgor in the transfer on the books of the Corporation has
expressly empowered the pledgee to vote the shares, only the pledgee, or the
pledgee’s proxy, may represent any such shares.
With
respect to shares standing in the names of two or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two or more persons have the same fiduciary
relationship respecting the same shares, such shares shall be represented or
voted in accordance with Section 217 of the General Corporation Law of the
State
of Delaware, as amended from time to time.
Section
13
.
Registered
Stockholders.
The Corporation shall be entitled to treat the
holder of any share or shares of stock of the Corporation, as recorded on the
stock record or transfer books of the Corporation, as the holder of record
and
as the holder and owner in fact thereof and, accordingly, shall not be required
to recognize any equitable or other claim to or interest in such share(s) on
the
part of any other person, firm, partnership, corporation or association, whether
or not the Corporation shall have express or other notice thereof, save as
is
otherwise expressly required by law, and the term “stockholder” as used in these
By-Laws means one who is a holder of record of shares of the Corporation;
provided, however, that if permitted by law:
Shares
standing in the name of another corporation, domestic or foreign, may be voted
by such officer, agent or proxy as the by-laws of such corporation prescribe,
or, in the absence of such provision, as the board of directors of such
corporation may determine;
Shares
standing in the name of a deceased person may be voted by that person’s
administrator or personal representative, either in person or by proxy; and
shares standing in the name of a guardian, curator, or trustee may be voted
by
such fiduciary, either in person or by proxy; but no guardian, curator, or
trustee shall be entitled, as such fiduciary, to vote shares held by him, her,
or it without a transfer of such shares into his, her, or its name;
Shares
standing in the name of a receiver may be voted by such receiver, and shares
held by or under the control of a receiver may be voted by such receiver without
the transfer thereof into his, her, or its name if authority to do so is
contained in an appropriate order of the court by which such receiver was
appointed; and
A
stockholder whose shares are pledged shall be entitled to vote such shares
until
the shares have been transferred of record into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred;
provided, however, that if the pledgor in the transfer on the books of the
Corporation has expressly empowered the pledgee to vote the shares, in which
case only the pledgee, or the pledgee’s proxy, may represent any such
shares.
Section
14
.
Stockholder
List.
A complete list of the stockholders entitled to vote
at each meeting of the stockholders, arranged in alphabetical order, with the
address of, and the number of voting shares held by each, shall be prepared
by
the officer of the Corporation having charge of the stock transfer books of
the
Corporation, and shall for a period of ten days prior to the meeting be kept
on
file either at the place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held, and shall at any time during
ordinary business hours be subject to inspection by any stockholder for any
purpose germane to the meeting. A similar or duplicate list shall
also be produced and kept open for the inspection of any stockholder during
the
whole time of the meeting. The original share ledger or transfer book
shall be prima facie evidence as to who are stockholders entitled to examine
such list, ledger, or transfer book or to vote at any meeting of
stockholders. Failure to comply with the foregoing shall not affect
the validity of any action taken at any such meeting.
Section
15
.
Removal of
Directors.
Except as otherwise provided in the Certificate
of Incorporation or by law, the stockholders shall have the power by an
affirmative vote of a majority of the outstanding shares then entitled to vote
for the election of directors at any regular meeting or special meeting
expressly called for that purpose, to remove any director from office with
or
without cause. Such meeting shall be held at any place prescribed by
law or at any other place which may, under law, permissibly be, and which is,
designated in the notice of the special meeting.
ARTICLE
IV
Directors
Section
1
.
Qualifications
and Number.
Each director shall be a natural person who is
at least eighteen years of age. A director need not be a stockholder,
a citizen of the United States, or a resident of the State of Delaware unless
required by law or the Certificate of Incorporation.
The
number of Directors that shall constitute the Board of Directors shall be
determined by resolution of the Board of Directors or by the stockholders at
the
annual meeting of the stockholders, except as provided in Section 10 of this
Article, and each Director elected shall hold office until his successor is
elected and qualified. The Board of Directors, if, to the extent, and
in such manner as may be permitted by the Certificate of Incorporation and
by
law, shall have the power to change the number of directors, in which case
any
notice required by law of any such change shall be duly given. If the
power to change these By-Law provisions concerning the number of directors
is
not granted to the Board of Directors, such power shall be exercised by such
vote of the stockholders entitled to vote as may be required in the Certificate
of Incorporation; and if no specific vote of the stockholders is required,
then
by a majority of the stockholders then entitled to vote.
Section
2
.
Powers of the
Board.
The property and business of the Corporation shall be
managed by the directors, acting as a Board. The Board shall have and
is vested with all and unlimited powers and authorities, except as may be
expressly limited by law, the Certificate of Incorporation, or these By-Laws,
to
do or cause to be done any and all lawful things for and on behalf of the
Corporation (including, without limitation, the declaration of dividends on
the
outstanding shares of the Corporation and the payment thereof in cash, property
or shares), and to exercise or cause to be exercised any or all of its powers,
privileges and franchises, and to seek the effectuation of its objects and
purposes.
Section
3
.
Annual Meeting
of the Board, Notice.
Any continuing members and the newly
elected members of the Board shall meet: (i) immediately following the
conclusion of the annual meeting of the stockholders for the purpose of
appointing officers and for such other purposes as may come before the meeting,
and the time and place of such meeting shall be announced at the annual meeting
of the stockholders by the chairman of such meeting, and no other notice to
any
continuing or the newly elected directors shall be necessary in order to legally
constitute the meeting, provided a quorum of the directors shall be present;
or
(ii) if no meeting immediately following the annual meeting of stockholders
is
announced, at such time and place, either within or without the State of
Delaware, as may be suggested or provided for by resolution of the stockholders
at their annual meeting and no other notice of such meeting shall be necessary
to the newly elected directors in order to legally constitute the meeting,
provided a quorum of the directors shall be present; or (iii) if not so
suggested or provided for by resolution of the stockholders or if a quorum
of
the directors shall not be present, at such time and place as may be consented
to in writing by a majority of any continuing and the newly elected directors,
provided that written or printed notice of such meeting shall be given to each
of any continuing and the newly elected directors in the same manner as provided
in these By-Laws with respect to the notice for special meetings of the Board,
except that it shall not be necessary to state the purpose of the meeting in
such notice; or (iv) regardless of whether or not the time and place of such
meeting shall be suggested or provided for by resolution of the stockholders
at
the annual meeting, at such time and place as may be consented to in writing
by
all of any continuing and the newly elected directors. Each director,
upon his or her election, shall qualify by accepting the office of director,
and
his or her attendance at, or his or her written approval of the minutes of,
any
meeting which includes the newly elected directors shall constitute his or
her
acceptance of such office; or he or she may execute such acceptance by a
separate writing, which shall be placed in the minute book.
Section
4
.
Regular
Meetings, Notice.
Regular meetings of the Board may be held
at such times and places either within or without the State of Delaware as
shall
from time to time be fixed by resolution adopted by a majority of the full
Board
of Directors. No notice of any regular meeting need be given other
than by announcement at the immediately preceding regular meeting, communicated
in writing to all absent directors; provided, however, that written notice
of
any regular meeting of the Board of Directors stating the place, day, and hour
of such meeting shall be given if required by resolution adopted by the Board
of
Directors. Any business may be transacted at a regular
meeting. Neither the business to be transacted at nor the purpose
need be specified in any notice or waiver of notice of any regular meeting
of
the Board of Directors.
Section
5
.
Special
Meetings, Notice.
Special meetings of the Board may be
called at any time by the Chairman of the Board (if any), the President, or
by
one-third of the directors (rounded up to the nearest whole
number). The place may be within or without the State of Delaware as
designated in the notice.
Written
notice of each special meeting of the Board, stating the place, day, and hour
of
the meeting shall be given to each director at least two days before the date
on
which the meeting is to be held. The notice (i) shall be given in the
manner provided for in these By-Laws or (ii) may be given telephonically, if
confirmed promptly in writing, in which case the notice shall be deemed to
have
been given at the time of telephonic communication. The notice may be
given by any officer directed to do so by any officer having authority to call
the meeting or by the director(s) who have called the meeting.
Neither
the business to be transacted at nor the purpose need be specified in the notice
or any waiver of notice of any special meeting of the Board of
Directors.
Section
6
.
Action in Lieu
of Meetings.
Unless otherwise restricted by the Certificate
of Incorporation, these By-Laws, or applicable law, any action required to
be
taken at a meeting of the Board of Directors or any other action which may
be
taken at a meeting of the Board of Directors may be taken without a meeting
if a
consent in writing setting forth the action so taken shall be signed by all
of
the directors. Any such consent signed by all the directors shall
have the same effect as a unanimous vote and may be stated as such in any
document describing the action taken by the Board of Directors.
Section
7
.
Meeting by
Conference Telephone or Similar Communications
Equipment.
Unless otherwise restricted by the Certificate of
Incorporation, these By-Laws, or applicable law, members of the Board of
Directors of the Corporation, or any committee designated by such Board, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment whereby all persons participating
in the meeting can hear each other, and participation in a meeting in such
manner shall constitute presence in person at such meeting.
Section
8
.
Quorum.
At
all meetings of the Board a majority of the full Board of Directors shall,
unless a greater number as to any particular matter is required by the
Certificate of Incorporation or these By-Laws, constitute a quorum for the
transaction of business. The act of a majority of the directors
present at any meeting at which there is a quorum, except as may be otherwise
specifically provided by law, the Certificate of Incorporation, or these
By-Laws, shall be the act of the Board of Directors. A director who
is in attendance at a meeting of the Board of Directors but who abstains from
voting on a matter shall not be deemed present at such meeting for purposes
of
the preceding sentence with respect to such vote, but shall be deemed present
at
such meeting for all other purposes. Withdrawal by a director from
any meeting at which a duly constituted quorum is present shall not cause the
failure of the quorum.
Less
than
a quorum may adjourn a meeting successively until a quorum is present, and
no
notice of adjournment shall be required.
Section
9
.
Waiver of
Notice; Attendance at Meeting.
Any notice provided or
required to be given to the directors may be waived in writing by any of them,
whether before, at, or after the time stated therein.
Attendance
of a director at any meeting shall constitute a waiver of notice of such meeting
except where the director attends for the express purpose, and so states at
the
opening of the meeting, of objecting to the transaction of any business because
the meeting is not lawfully called or convened.
Section
10
.
Vacancies.
If
the office of any director is or becomes vacant by reason of the death,
resignation, or due to an increase in the number of directors, a majority of
the
survivors or remaining directors, though less than a quorum, may appoint a
director to fill the vacancy until a successor shall have been duly elected
at
an annual meeting of the stockholders.
Section
11
.
Executive
Committee.
The Board of Directors may, by resolution passed
by a majority of the full Board, designate an executive committee, such
committee to consist of two or more directors of the
Corporation. Such committee, except to the extent limited in said
resolution, shall have and may exercise all of the powers of the Board of
Directors in the management of the Corporation. The members
constituting the executive committee shall be determined from time to time
by
resolution adopted by a majority of the full Board; and any director may vote
for himself or herself as a member of the executive committee. In no
event, however, shall the executive committee have any authority to amend the
Certificate of Incorporation, to adopt any plan of merger or consolidation
with
another corporation or corporations, to recommend to the stockholders the sale,
lease, exchange, mortgage, pledge, or other disposition of all or substantially
all of the property and assets of the Corporation if not made in the usual
and
regular course of its business, to recommend to the stockholders a voluntary
dissolution of the Corporation or a revocation thereof, to amend, alter, or
repeal the By-Laws of the Corporation, to elect or remove officers of the
Corporation or members of the executive committee, to fix the compensation
of
any member of the executive committee, to declare any dividend, or to amend,
alter or repeal any resolution of the Board of Directors which by its terms
provides that it shall not be amended, altered, or repealed by the executive
committee.
The
executive committee shall keep regular minutes of its proceedings and the same
shall be recorded in the minute book of the Corporation. The
Secretary or an Assistant Secretary of the Corporation may act as secretary
for
the executive committee if the executive committee so requests.
Section
12
.
Other
Committees.
The Board of Directors may, by resolution passed
by a majority of the full Board, designate one or more standing or ad hoc
committees, each committee to consist of two or more of the directors of the
Corporation and such other person(s) as may be appointed as advisory members
under authority provided in the resolution. Each such committee, to
the extent provided in the resolution and permitted by law, shall have and
may
exercise the power of the Board of Directors. The members
constituting each such committee shall be determined from time to time by
resolution adopted by a majority of the full Board; and any director may vote
for himself or herself as a member of any such committee.
Each
such
committee shall, to the extent required by resolution of the Board of Directors
(or, in the absence of any such resolution, to the extent a majority of its
members determines is appropriate) keep minutes of its proceedings and the
same
shall be recorded in the minute book of the Corporation. The
Secretary or Assistant Secretary of the Corporation may act as secretary for
any
such committee if the committee so requests.
Section
13
.
Compensation
of Directors and Committee Members.
Directors and members of
all committees shall receive such compensation for their services as may be
determined from time to time by resolution adopted from time to time by the
Board, as well as such expenses, if any, as may be allowed pursuant to
resolution adopted from time to time by the Board. No such resolution
shall be deemed voidable or invalid by reason of the personal or pecuniary
interest of the directors or any director in adopting it. Nothing
herein contained shall be construed to preclude any director or committee member
from serving the Corporation in any other capacity and receiving compensation
therefor.
Section
14
.
Protection of
Director for Reliance on Corporate Records.
No director
shall be liable for dividends legally declared, distributions legally made
to
stockholders, or any other action taken in reliance in good faith upon financial
statements of the Corporation represented to such director to be correct by
the
Chairman of the Board (if any), the President, or the officer of the Corporation
having charge of the books of account, or certified by an accountant to fairly
represent the financial condition of the Corporation; nor shall any such
director be liable for determining in good faith the amount available for
dividends or distributions by considering the assets to be of their book
values.
Section
15
. Advisory
Directors.
The Board of Directors of the Corporation may
appoint one or more Advisory Directors from time to time, whose function shall
be to provide advice and counsel to the members of the Corporation’s Board of
Directors on matters brought to the attention of the Advisory
Directors. No Advisory Director shall have any vote on any matter to
be decided by the Board of Directors, and no Advisory Director shall have any
responsibility to the Corporation or its stockholders to take or not to take
any
action on behalf of the Corporation. Notwithstanding the foregoing,
each Advisory Director shall be entitled to the same indemnification against
claims and losses as is provided for regular members of the Corporation’s Board
of Directors pursuant to other provisions of these By-Laws.
ARTICLE
V
Officers
Section
1
.
Officers--Who
Shall Constitute.
The officers of the Corporation shall be a
President, one or more Vice Presidents, a Secretary, a Treasurer, one or more
Assistant Secretaries, and one or more Assistant Treasurers. The
Board shall appoint a President, and Secretary at its first meeting and at
each
annual meeting of the Board of Directors which shall follow the annual meeting
of the shareholders. The Board then, or from time to time, may also
elect or appoint one or more of the other prescribed officers as it shall deem
advisable, but need not elect or appoint any officers other than a President
and
a Secretary. The Board may, if it desires, further identify or
describe any one or more of such officers.
An
officer need not be a shareholder unless required by law or the Articles of
Incorporation. Any two or more of such offices may be held by the
same person.
An
officer shall be deemed qualified when he or she enters upon the duties of
the
office to which he or she has been elected or appointed and furnishes any bond
required by the Board; but the Board may also require such person to accept
any
such office and promise faithfully to discharge the duties of such office in
writing.
Section
2
.
Term of
Office.
Each officer of the Corporation shall hold his or
her office for the term for which he or she was elected, or until he or she
resigns or is removed by the Board, whichever first occurs.
Section
3
.
Appointment of
Officers and Agents--Terms of Office.
The Board from time to time may
also appoint such other officers and agents for the Corporation as it shall
deem
necessary or advisable. All appointed officers and agents shall hold
their respective positions at the pleasure of the Board or for such terms as
the
Board may specify, and they shall exercise such powers and perform such duties
as shall be determined from time to time by the Board, or by an elected officer
empowered by the Board to make such determination.
Section
4
.
Removal.
Any
officer or agent elected or appointed by the Board of Directors, and any
employee, may be removed or discharged by the Board whenever in its judgment
the
best interests of the Corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed. Election or appointment of an officer or agent shall not of
itself create contract rights.
Section
5
.
Salaries and
Compensation.
Salaries and compensation of all elected
officers of the Corporation shall be fixed, increased or decreased by the Board
of Directors, but this power may, unless prohibited by law, be delegated by
the
Board to the Chairman of the Board (if any) or to the President (except as
to
their own compensation), or to a committee. Salaries and compensation
of all other appointed officers and agents, and employees of the Corporation,
may be fixed, increased or decreased by the Board of Directors or a committee
thereof, but until action is taken with respect thereto by the Board of
Directors or a committee thereof, the same may be fixed, increased or decreased
by the Chairman of the Board (if any), the President, or by such other officer
or officers as may be empowered by the Board of Directors or a committee thereof
to do so.
Section
6
.
Delegation of
Authority to Hire, Discharge, Etc.
The Board, from time to
time, may delegate to the Chairman of the Board (if any), the President, or
any
other officer or executive employee of the Corporation, authority to hire,
discharge, and fix and modify the duties, salary, or other compensation of
employees of the Corporation under their jurisdiction; and the Board may
delegate to such officer or executive employee similar authority with respect
to
obtaining and retaining for the Corporation the services of attorneys,
accountants, and other experts.
Section
7
.
The President.
The President
shall be the chief executive officer of the
Corporation. Except as otherwise provided for in these By-Laws, the
President shall preside at all meetings of the Shareholders and
Directors. The President shall have general and active management of
the business of the Corporation and shall carry into effect all directions
and
resolutions of the Board.
The
President may execute all bonds, notes, debentures, mortgages and other
contracts requiring a seal to be affixed thereto, and all other instruments
for
and in the name of the Corporation.
The
President, when authorized to do so by the Board, may execute powers of attorney
from, for, and in the name of the Corporation, to such proper person or persons
as he or she may deem fit, in order that thereby the business of the Corporation
may be furthered or action taken as may be deemed by the President necessary
or
advisable in furtherance of the interests of the Corporation.
The
President, except as may be otherwise directed by the Board, shall be authorized
to attend meetings of shareholders of other corporations to represent this
Corporation thereat and to vote or take action with respect to the shares of
any
such corporation owned by this Corporation in such manner as the President
shall
deem to be for the interest of the Corporation or as may be directed by the
Board.
The
President shall, unless the Board otherwise provides, be ex officio a member
of
all standing committees. The President shall have such general (and
concurrent) executive powers and duties of supervision and management as are
usually vested in the office of the chief executive of a
corporation.
The
President shall have such other or further duties and authority as may be
prescribed elsewhere in these By-Laws or from time to time by the Board of
Directors, and the Board may from time to time divide the responsibilities,
duties, and authority between him or her and such other officers of the
Corporation to such extent as it may deem advisable.
Section
8
.
Vice
Presidents.
The Vice Presidents, in the order of their
seniority as determined by the Board, shall, in the absence, disability or
inability to act of the President, perform the duties and exercise the powers
of
the President, and shall perform such other duties as the Board of Directors
shall from time to time prescribe.
Section
9.
The Secretary and Assistant Secretaries.
The Secretary shall attend all sessions of the Board
and except as
otherwise provided for in these By-Laws, all meetings of the shareholders,
and
shall record or cause to be recorded all votes taken and the minutes of all
proceedings in a minute book of the Corporation to be kept for that
purpose. The Secretary shall perform like duties for the executive
and other standing committees when requested by the Board or such committee
to
do so.
The
Secretary shall have the principal responsibility to give, or cause to be given,
notice of all meetings of the shareholders and of the Board of Directors, but
this shall not lessen the authority of others to give such notice as is
authorized elsewhere in these By-Laws.
The
Secretary shall see that all books, records, lists and information, or
duplicates, required to be maintained at the registered office or at some office
of the Corporation in Missouri, or elsewhere, are so maintained.
The
Secretary shall keep in safe custody the seal of the Corporation, and when
duly
authorized to do so, shall affix the same to any instrument requiring it, and
when so affixed, shall attest the same by his or her signature.
The
Secretary shall perform such other duties and have such other authority as
may
be prescribed elsewhere in these By-Laws or from time to time by the Board
of
Directors or the President, under whose direct supervision the Secretary shall
be.
The
Secretary shall have the general duties, powers and responsibilities of a
Secretary of a corporation.
The
Assistant Secretaries, in the order of their seniority, in the absence,
disability, or inability to act of the Secretary, shall perform the duties
and
exercise the powers of the Secretary, and shall perform such other duties as
the
Board may from time to time prescribe.
Section
10.
The Treasurer and Assistant
Treasurers.
The Treasurer shall have responsibility for the
safekeeping of the funds and securities of the Corporation, and shall keep
or
cause to be kept full and accurate accounts of receipts and disbursements in
books belonging to the Corporation. The Treasurer shall keep, or
cause to be kept, all other books of account and accounting records of the
Corporation, and shall deposit or cause to be deposited all moneys and other
valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors.
The
Treasurer shall disburse, or permit to be disbursed, the funds of the
Corporation as may be ordered, or authorized generally, by the Board and shall
render to the chief executive officer of the Corporation and the directors,
whenever they may require it, an account of all his transactions as Treasurer
and of those under the Treasurer’s jurisdiction, and of the financial condition
of the Corporation.
The
Treasurer shall perform such other duties and shall have such other
responsibility and authority as may be prescribed elsewhere in these By-Laws
or
from time to time by the Board of Directors.
The
Treasurer shall have the general duties, powers and responsibility of a
Treasurer of a corporation, and shall be the chief financial and accounting
officer of the Corporation.
If
required by the Board, the Treasurer shall give the Corporation a bond in a
sum
and with one or more sureties satisfactory to the Board for the faithful
performance of the duties of the Treasurer office, and for the restoration
to
the Corporation, in the case of the Treasurer’s death, resignation, retirement,
or removal from office, of all books, papers, vouchers, money and other property
of whatever kind in the Treasurer’s possession or under the Treasurer’s control
which belong to the Corporation.
The
Assistant Treasurers in the order of their seniority shall, in the absence,
disability or inability to act of the Treasurer, perform the duties and exercise
the powers of the Treasurer, and shall perform such other duties as the Board
of
Directors shall from time to time prescribe.
Section
11.
Bond.
At the option of the
Board of Directors, any officer may be required to give bond for the faithful
performance of such officer’s duties.
Section
12.
Checks and Other Instruments.
All
checks, drafts, notes, acceptances, bills of exchange and other negotiable
and
non-negotiable instruments and obligations for the payment of money, and all
contracts, deeds, mortgages and all other papers and documents whatsoever,
unless otherwise provided for by these By-Laws, shall be signed by such officer
or officers or such other person or persons and in such manner as the Board
of
Directors from time to time shall designate. If no such designation
is made, and unless and until the Board otherwise provides, the Chairman of
the
Board (if any) or the President and the Secretary, or the Chairman of the Board
(if any) or the President and the Treasurer, shall have power to sign all such
instruments for, and on behalf of and in the name of the Corporation, which
are
executed or made in the ordinary course of the Corporation's
business.
Section
13.
Duties of Officers May be Delegated.
If
any officer of the Corporation shall be absent or unable to act, or for any
other reason the Board may deem sufficient, the Board may delegate, for the
time
being, some or all of the functions, duties, powers and responsibilities of
any
officer to any other officer, or to any other agent or employee of the
Corporation or other responsible person, provided a majority of the then sitting
Board concurs therein.
ARTICLE
VI
Shares
of Stock
Section
1
.
Payment for
Shares of Stock.
The Corporation shall not issue shares of
stock except for (i) cash received, (ii) labor done or services actually
received, or (iii) real property or personal property actually received, (iv)
leases of real property, or (v) a combination thereof; provided, however, that
shares may also be issued (vi) in consideration of the cancellation of valid
bona fide antecedent debts, (vii) as stock dividends, (viii) pursuant to stock
splits, reverse stock splits, stock combinations, reclassifications of
outstanding shares into shares of another class or classes, exchanges of
outstanding shares for shares of another class or classes, or (ix) other bona
fide changes respecting outstanding shares. Notwithstanding the
foregoing, so long as the Corporation receives aggregate consideration in the
forms specified in subclauses (i) through (v) above in an amount equal to the
par value or stated value allocated to capital of the shares issued, it may
accept a binding obligation from a subscriber or purchaser for the balance
of
the consideration due for such shares. The Corporation may also issue
partly paid shares pursuant to the provisions of Section 156 of the General
Corporation Law of the State of Delaware, as amended from time to
time.
Section
2
.
Certificates
for Shares of Stock.
The certificates for shares of stock of
the Corporation shall be numbered, shall be in such form as may be prescribed
by
the Board of Directors in conformity with law, and shall be entered in the
stock
books of the Corporation as they are issued, and such entries shall show the
name and address of the person, firm, partnership, corporation, or association
to whom each certificate is issued. Each certificate shall have
printed, typed, or written thereon the name of the person, firm, partnership,
corporation, or association to whom it is issued and number of shares
represented thereby and shall be signed by the Chairman of the Board (if any)
or
the President or a Vice President, and the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary of the Corporation and sealed with
the seal of the Corporation, which seal may be facsimile, engraved, or
printed. If the Corporation has a registrar, a transfer agent, or a
transfer clerk who actually signs such certificates, the signature of any of
the
other officers above mentioned may be facsimile, engraved, or
printed. In case any such officer who has signed or whose facsimile
signature has been placed upon any such certificate shall have ceased to be
such
officer before such certificate is issued, such certificate may nevertheless
be
issued by the Corporation with the same effect as if such officer were an
officer at the date of its issue.
Section
3
.
Lost or
Destroyed Certificates.
In case of the loss or destruction
of any certificate for shares of stock of the Corporation, upon due proof of
the
registered owner thereof or his or her representative, by affidavit of such
loss
or otherwise, the Chairman of the Board (if any) or the President and Secretary
may issue a duplicate certificate or replacement certificate in its place,
upon
the Corporation being fully indemnified therefor. Any such officer
may request the posting of an indemnity bond in favor of the Corporation
whenever and to the extent that they deem appropriate as a precondition to
the
issuance of any duplicate or replacement certificate.
Section
4
.
Transfers of
Shares, Transfer Agent, Registrar.
Transfers of shares of
stock shall be made on the stock record or transfer books of the Corporation
only by the person named in the stock certificate, or by such person’s attorney
lawfully constituted in writing, and upon surrender of the certificate
therefor. The stock record book and other transfer records shall be
in the possession of the Secretary (or other person appointed and empowered
by
the Board to do so) or of a transfer agent or clerk for the
Corporation. The Corporation, by resolution of the Board, may from
time to time appoint a transfer agent, and, if desired, a registrar, under
such
arrangements and upon such terms and conditions as the Board deems advisable;
but until and unless the Board appoints some other person, firm, or corporation
as its transfer agent (and upon the revocation of any such appointment,
thereafter until a new appointment is similarly made) the Secretary of the
Corporation (or other person appointed and empowered by the Board) shall be
the
transfer agent or clerk of the Corporation, without the necessity of any formal
action of the Board, and the Secretary or other person shall perform all of
the
duties thereof.
Section
5
.
Record
Date.
The Board of Directors shall have the power to fix in
advance a date not more than sixty days preceding nor less than ten days
preceding the date of any meeting of stockholders, or the date for the payment
of any dividend, or the date for the allotment of rights, or the date when
any
change or conversion or exchange of shares shall go into effect, as a record
date for the determination of the stockholders entitled to notice of, and to
vote at, the meeting or any adjournment thereof, or entitled to receive payment
of the dividends, or entitled to the allotment of rights, or entitled to
exercise the rights in respect of the change, conversion, or exchange of
shares. In such case, only the stockholders who are stockholders of
record on the record date so fixed shall be entitled to such notice of, and
to
vote at, the meeting, and any adjournment thereof (unless the Board of Directors
fixes a new record date with respect to the adjournment), or to receive payment
of the dividend, or to receive the allotment of rights, or to exercise the
rights, as the case may be, notwithstanding any transfer of any shares on the
books of the Corporation after the date of closing of the transfer books or
the
record date fixed as aforesaid. If the Board of Directors does not
set a record date for the determination of the stockholders entitled to notice
of, and to vote at, the meeting and any adjournment of the meeting, the record
date shall be the close of business on the day next preceding the day on which
notice is given; except that, if prior to the meeting written waivers of notice
of the meeting are signed and delivered to the Corporation by all of the
stockholders of record at the time the meeting is convened, only the
stockholders who are stockholders of record at the close of business on the
day
next preceding the day on which the meeting is held shall be entitled to vote
at
the meeting and at any adjournment of the meeting. If the Board of
Directors does not set a record date with respect to any dividend, allotment
of
rights, or exercise of rights in respect of the change, conversion, or exchange
of shares, the record date for such purpose shall be the close of business
on
the day on which the Board of Directors adopts the resolution relating
thereto.
The
record date for actions taken by consent of the stockholders shall be determined
in accordance with Section 213(b) of the General Corporation Law of the State
of
Delaware, as amended from time to time.
Section
6
.
Fractional
Share Interests or Scrip.
The Corporation may issue
fractions of a share and it may issue a certificate for a fractional share,
or
by action of the Board of Directors, the Corporation may issue in lieu thereof
it may issue scrip or other evidence of ownership which shall entitle the holder
to receive a certificate for a full share upon the surrender of such scrip
or
other evidence of ownership aggregating a full share. A certificate
for a fractional share shall (but scrip or other evidence of ownership shall
not, unless otherwise provided by resolution of the Board of Directors) entitle
the holder to all of the rights of a stockholder, including without limitation
the right to exercise any voting right, or to receive dividends thereon or
to
participate in any of the assets of the Corporation in the event of
liquidation. The Board of Directors may cause such scrip or evidence
of ownership (other than a certificate for a fractional share) to be issued
subject to the condition that it shall become void if not exchanged for share
certificates before a specified date, or subject to the condition that the
shares for which such scrip or evidence of ownership is exchangeable may be
sold
by the Corporation and the proceeds thereof distributed to the holders of such
scrip or evidence of ownership, or subject to any other condition which the
Board of Directors may deem advisable.
ARTICLE
VII
Indemnification
Section
1. Third Party Actions.
The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative (other than an action by
or in
the right of the Corporation) by reason of the fact that such person is or
was a
director or officer of the Corporation, or is or was serving at the request
of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust, or other enterprise, against expenses, including attorney
fees, judgments, fines, and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit, or proceeding
if
such person acted in good faith and in a manner he or she reasonably believed
to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
or
her conduct was unlawful. The termination of any action, suit, or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he or she reasonably
believed to be in or not opposed to the best interests of the Corporation,
and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
Section
2. Actions By or in the Right of the
Corporation.
The Corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the Corporation
to
procure a judgment in its favor by reason of the fact that such person is or
was
a director or officer of the Corporation, or is or was serving at the request
of
the Corporation, as a director or officer of another corporation, partnership,
joint venture, trust, or other enterprise against expenses, including attorney
fees and amounts paid in settlement, actually and reasonably incurred by such
person in connection with the defense or settlement of the action or suit if
he
or she acted in good faith and in a manner reasonably believed to be in or
not
opposed to the best interests of the Corporation, except that no indemnification
shall be made in respect of any claim, issue, or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his or her duty to the Corporation unless and only to the extent
that the court in which such action or suit was brought determines upon
application that, despite the adjudication of liability and in view of all
the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court shall deem proper.
Section
3. Indemnity if Successful.
To the extent that a
director, officer, employee, or agent of the Corporation has been successful
on
the merits or otherwise in defense of any action, suit, or proceeding referred
to in Sections 1 and 2 of this Article, or in defense of any claim, issue,
or
matter therein, such person shall be indemnified against expenses (including
attorney fees) actually and reasonably incurred by such person in connection
with the action, suit, or proceeding.
Section
4. Standard of Conduct.
Any indemnification under
Sections 1 and 2 of this Article (unless ordered by a court) shall be made
by
the Corporation only as authorized in the specific case upon a determination
that indemnification of the director or officer is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in this
Article. The determination shall be made (i) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit, or proceeding, (ii) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders by majority vote of the shares eligible to vote for directors
and
actually voted, where shares held by the individual about whom such
indemnification is at issue shall not be eligible to vote.
Section
5. Expenses.
Expenses incurred in defending a
civil or criminal action, suit, or proceeding may be paid by the Corporation
in
advance of the final disposition of the action, suit, or proceeding as
authorized by the Board of Directors in the specific case upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount
unless it shall ultimately be determined that he or she is entitled to be
indemnified by the Corporation as authorized in this Article.
Section
6. Nonexclusivity.
The indemnification provided
by this Article shall not be deemed exclusive of any other rights to which
those
seeking indemnification may be entitled under the Certificate of Incorporation,
these By-Laws, or any agreement, vote of the stockholders or disinterested
directors or otherwise, both as to action in such person’s official capacity and
as to action in another capacity while holding such office, and shall continue
as to a person who has ceased to be a director or officer and shall inure to
the
benefit of the heirs, personal representatives, and administrators of such
a
person.
Section
7. Further Indemnity Permissible.
The Corporation
shall have the power to give further indemnity, in addition to the indemnity
authorized or contemplated under the various sections of this Article, including
Section 6 thereof, to any person who is or was a director, officer, employee,
or
agent, or to any person who is or was serving at the request of the Corporation
as a director, officer, employee, or agent of another Corporation, partnership,
joint venture, trust, or other enterprise, provided such further indemnity
is
either (i) authorized, directed, or provided for in the Certificate of
Incorporation of the Corporation or a duly adopted amendment thereof or (ii)
authorized, directed, or provided for in these By-Laws or in any agreement
of
the Corporation which has been adopted by the stockholders of the Corporation,
and provided further that no such indemnity shall indemnify any person from
or
on account of such person’s conduct which has been finally adjudged to have been
knowingly fraudulent, deliberately dishonest, or willful
misconduct. Nothing in this Section 7 shall be deemed to limit the
power of the Corporation under Section 6 of this Article to enact By-Laws or
to
enter into agreements without stockholder adoption of the same.
Section
8. Insurance.
The Corporation shall have power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee, or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee, or agent
of
another corporation, partnership, joint venture, trust, or other enterprise
against any liability asserted against any such person and incurred by any
such
person in any such capacity, or arising out of such person’s status as such,
whether or not the Corporation would have the power to indemnify such person
against such liability under the provisions of this Article.
Section
9. Corporation.
For the purpose of this Article,
references to “the Corporation” include all constituent corporations absorbed in
a consolidation or merger as well as the resulting or surviving corporation
so
that any person who is or was a director or officer of such a constituent
corporation or is or was serving at the request of such constituent corporation
as a director or officer of another corporation, partnership, joint venture,
trust, or other enterprise shall stand in the same position under the provisions
of this Article with respect to the resulting or surviving corporation as such
person would if he or she had served the resulting or surviving corporation
in
the same capacity.
Section
10. Other Definitions.
For purposes of this
Article, the term “other enterprise” shall include without limitation employee
benefit plans; the term “fines” shall include without limitation any excise
taxes assessed on a person with respect to an employee benefit plan; and the
term “serving at the request of the Corporation” shall include without
limitation any service as a director, officer, employee, or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in
a
manner such person reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted
in a
manner “not opposed to the best interests of the Corporation” as referred to in
this Article.
Section
11.
Indemnity for Agents and
Employees.
The Corporation may, by resolution duly adopted
by a majority of the disinterested members of the Board of Directors, grant
such
indemnity rights and reimbursement for such expenses as it determines to be
appropriate to any person who was or is a party to any threatened, pending,
or
completed action or suit, whether civil, criminal, administrative, or
investigative, including any action by or in the right of the Corporation,
by
reason of the fact that such person is or was an agent or employee of the
Corporation, or is or was serving as an agent or employee, at the request of
the
Corporation, of another corporation, partnership, joint venture, trust, or
other
enterprise. Any such grant of indemnification shall be only to the
extent so provided in the resolution granting indemnification, but shall, in
no
event, be greater than the rights of indemnification and reimbursement of
expenses granted to directors and officers of this Corporation.
ARTICLE
VIII
General
Provisions
Section
1
.
Fixing of
Capital, Transfers of Surplus.
Except as may be specifically
otherwise provided in the Certificate of Incorporation, the Board of Directors
is expressly empowered to exercise all authority conferred upon it or the
Corporation by any law or statute, and in conformity therewith, relative
to:
The
determination of what part of the consideration received for shares of the
Corporation shall be capital;
Increasing
capital;
Transferring
surplus to capital;
The
consideration to be received by the Corporation for its shares; and
All
similar or related matters;
provided
that any concurrent action or consent by or of the Corporation and its
stockholders required to be taken or given pursuant to law shall be duly taken
or given in connection therewith.
Section
2
.
Dividends.
Ordinary
dividends upon the shares of the Corporation, subject to the provisions of
the
Certificate of Incorporation and applicable law, may be declared by the Board
of
Directors at any regular or special meeting. Dividends may be paid in
cash, in property, or in shares of its stock.
Liquidating
dividends or dividends representing a distribution of paid-in surplus or a
return of capital shall be made only when and in the manner permitted by
law.
Section
3
.
Creation of
Reserves.
Before the payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such
sum
or sums as the directors from time to time, in their reasonable discretion,
think proper as a reserve fund or funds, to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purposes as the Board of Directors shall
determine in the best interests of the Corporation, and the Board may abolish
any such reserve in the manner in which it was created.
Section
4
.
Fiscal
Year.
The Board of Directors shall have the paramount power
to fix, and from time to time, to change, the fiscal year of the
Corporation. In the absence of action by the Board of Directors,
however, the fiscal year of the Corporation shall be determined and signified
by
the filing of the Corporation’s first federal income tax return, and shall so
continue until such time, if any, as the fiscal year shall be changed by the
Board of Directors.
Section
5
.
Notices
. Except
as otherwise specifically provided herein with respect to notice to stockholders
or otherwise, or as otherwise required by law, all notices required to be given
by any provision of these By-Laws shall be in writing and shall be deemed to
have been given: (i) when received if delivered in person; (ii) on
the date of acknowledgment or confirmation of receipt if sent by telex,
facsimile, or other electronic transmission; (iii) one day after delivery,
properly addressed and fees prepaid, to a reputable courier for same day or
overnight delivery; or (iv) two days after being deposited, properly addressed
and postage prepaid, in the United States mail.
Section
6
.
Amendments to
By-Laws.
The By-Laws of the Corporation may from time to
time be repealed, amended or altered, or new and/or restated By-Laws may be
adopted, in either of the following ways:
By
such
vote of the stockholders entitled to vote at any annual or special meeting
thereof as may be required by the Certificate of Incorporation, and if there
is
no such specific requirement, then by the vote of a majority of said
stockholders; or
By
resolution adopted by the Board of Directors if such power shall have been
vested in the Board of Directors by the Certificate of Incorporation; provided,
however, that such power shall be exercisable only by such number or percentage
of the Directors as is required by the Certificate of Incorporation, and if
there is no such specific requirement, then by a majority of the Board of
Directors. Notwithstanding the foregoing, the Board of Directors
shall not have the power to suspend, repeal, amend or otherwise alter the
By-Laws or portion thereof enacted by the stockholders if at the time of such
enactment or thereafter the stockholders shall so expressly
provide.
____________________________
Exhibit
4.1
NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY
AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED
IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
Original
Issue Date: April 16, 2007
Original
Conversion Price (subject to adjustment herein):
$5,770.48
$__________
SERIES
A CONVERTIBLE DEBENTURE
DUE
APRIL 16, 2010
THIS
SERIES A CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly
issued convertible debentures of SRS Energy, Inc., a Delaware corporation (the
“
Company
”), designated as its Series A Convertible Debenture, due April
16, 2010 (this debenture, the “
Debenture
” and collectively with the other
such series of debentures, the “
Debentures
”).
FOR
VALUE
RECEIVED, the Company promises to pay to ____________ or its registered assigns
(the “
Holder
”), or shall have paid pursuant to the terms hereunder, the
principal sum of $_________ by April 16, 2010, or such earlier date as this
Debenture is required or permitted to be repaid as provided hereunder (the
“
Maturity Date
”), and to pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Debenture in
accordance with the provisions hereof. This Debenture is subject to the
following additional provisions:
Section
1. Definitions
. For the purposes hereof, in addition
to the terms defined elsewhere in this Debenture, capitalized terms not
otherwise defined herein shall have the meanings set forth in the Purchase
Agreement and the following terms shall have the following
meanings:
“
Bankruptcy
Event
” means any of the following events: (a) the Company or any subsidiary
thereof commences a case or other proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction relating to the
Company or any subsidiary thereof; (b) there is commenced against the Company
or
any subsidiary thereof any such case or proceeding that is not dismissed within
60 days after commencement; (c) the Company or any subsidiary thereof is
adjudicated insolvent or bankrupt or any order of relief or other order
approving any such case or proceeding is entered; (d) the Company or any
subsidiary thereof suffers any appointment of any custodian or the like for
it
or any substantial part of its property that is not discharged or stayed within
60 calendar days after such appointment; (e) the Company or any subsidiary
thereof makes a general assignment for the benefit of creditors; or (f) the
Company or any Significant Subsidiary thereof, by any act or failure to act,
expressly indicates its consent to, approval of or acquiescence in any of the
foregoing or takes any corporate or other action for the purpose of effecting
any of the foregoing.
“
Change
of Control Transaction
” means the occurrence after the date hereof of any of
the following events: (a) an acquisition after the date hereof by an individual
or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under
the Exchange Act) of effective control (whether through legal or beneficial
ownership of capital stock of the Company, by contract or otherwise) of in
excess of 33% of the voting securities of the Company (other than by means
of
conversion or exercise of the Debentures and the Securities issued together
with
the Debentures); (b) the Company merges into or consolidates with any other
Person, or any Person merges into or consolidates with the Company and, after
giving effect to such transaction, the stockholders of the Company immediately
prior to such transaction own less than 66% of the aggregate voting power of
the
Company or the successor entity of such transaction; (c) the Company sells
or
transfers all or substantially all of its assets to another Person and the
stockholders of the Company immediately prior to such transaction own less
than
66% of the aggregate voting power of the acquiring entity immediately after
the
transaction; (d) a replacement at one time or within a three year period of
more
than one-half of the members of the Company’s board of directors that is not
approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof); or (e) the execution by the Company of an agreement
to which the Company is a party or by which it is bound, providing for any
of
the events set forth in clauses (a) through (d) above.
“
Common
Stock
” means the common stock no par value of the Company and stock of any
other class of securities into which such common stock may hereafter be
reclassified or changed into.
“
Conversion
Shares
” means, collectively, the shares of Common Stock issuable upon
conversion of this Debenture in accordance with the terms hereof.
“
Effectiveness
Period
” shall have the meaning set forth in the Registration Rights
Agreement.
“
Exchange
Act
” means the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder.
“
Interest
Conversion Rate
” means the lesser of (a) the Conversion Price or (b) the 90%
of the lesser of (i) the average of the VWAPs for the 10 consecutive Trading
Days ending on the Trading Day that is immediately prior to the applicable
Interest Payment Date or (ii) the average of the VWAPs for the 10 consecutive
Trading Days ending on the Trading Day that is immediately prior to the date
the
applicable Interest Conversion Shares are issued and delivered if after the
Interest Payment Date.
“
Original
Issue Date
” means the date of the first issuance of the Debentures,
regardless of any transfers of any Debenture and regardless of the number of
instruments which may be issued to evidence such Debentures.
“
Person
”
means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.
“
Purchase
Agreement
” means the Debenture Purchase Agreement among the Company and the
original Holders, dated as of April 16, 2007, as amended, modified or
supplemented from time to time in accordance with its terms.
“
Registration
Rights Agreement
” means the Investors’ Rights Agreement among the Company
and the original Holders, dated as of the date of the Purchase Agreement, as
amended, modified or supplemented from time to time in accordance with its
terms.
“
Registration
Statement
” means a registration statement that registers the resale of all
Conversion Shares and Interest Conversion Shares of the Holder, who shall be
named as a “selling stockholder” therein, and meets the requirements of the
Registration Rights Agreement.
“
Securities
Act
” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
“
Trading
Day
” means a day on which the principal Trading Market is open for
business.
“
Trading
Market
” means the following markets or exchanges on which the Common Stock
is listed or quoted for trading on the date in question: the American Stock
Exchange, the Nasdaq Capital Market, the Nasdaq National Market or the New
York
Stock Exchange.
“
VWAP
”
means, for any date, the price determined by the first of the following clauses
that applies: (a) if the Common Stock is then listed or quoted on a Trading
Market, the daily volume weighted average price of the Common Stock for such
date (or the nearest preceding date) on the Trading Market on which the Common
Stock is then listed or quoted for trading as reported by Bloomberg L.P. (based
on a Trading Day from 8:30 a.m. (St. Louis, MO time) to 3:02 p.m. (St. Louis,
MO
time); (b) if the OTC Bulletin Board is not a Trading Market, the volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
quoted for trading on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a
similar organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported; or
(d) in all other cases, the fair market value of a share of Common Stock as
determined by an independent appraiser selected in good faith by the Holder
and
reasonably acceptable to the Company.
Section
2. Interest
.
(a)
Interest
Accrual
. Interest shall accrue on the outstanding principal balance hereof
at an annual rate equal to six percent (6%). Interest shall be calculated on
the
basis of a 360-day year and the actual number of days elapsed, to the extent
permitted by applicable law. Interest hereunder will be paid to the Holder
or
its assignee in whose name this Debenture is registered on the records of the
Company regarding registration and transfers of Debentures (the “
Debenture
Register
”).
(b)
Interest
Payment
. The Company shall make payment of all outstanding and accrued
interest at the Maturity Date in shares of the Company’s Common Stock or cash,
at the Company’s election. If such Schedule Payment is made in Common
Stock, such number of shares of the Company’s Common Stock due as payment shall
be calculated based on the amount of interest due divided by the Conversion
Price. Notwithstanding the foregoing, this Debenture shall become due and
immediately payable, including all accrued but unpaid interest, upon an Event
of
Default.
Section
3. No Prepayment
. Except as otherwise set forth in this
Debenture, the Company may not prepay any portion of the principal amount of
this Debenture without the prior written consent of the Holder.
Section
4. Conversion
.
(a)
Voluntary
Conversion
. At any time after the Original Issue Date until this Debenture
is no longer outstanding, this Debenture (principal and accrued and unpaid
interest thereon) shall be convertible, in whole or in part, into shares of
Common Stock at the option of the Holder, at any time and from time to time.
The
Holder shall effect conversions by delivering to the Company a Notice of
Conversion, the form of which is attached hereto as
Annex A
(a “
Notice
of Conversion
”), specifying therein the principal amount of this Debenture
to be converted and the date on which such conversion shall be effected (a
“
Conversion Date
”). If no Conversion Date is specified in a Notice of
Conversion, the Conversion Date shall be the date that such Notice of Conversion
is deemed delivered hereunder. To effect conversions hereunder, the Holder
shall
not be required to physically surrender this Debenture to the Company unless
the
entire principal amount of this Debenture, plus all accrued and unpaid interest
thereon, has been so converted. Conversions hereunder shall have the effect
of
lowering the outstanding principal amount of this Debenture and accrued and
unpaid interest thereon in an amount equal to the applicable conversion. The
Holder and the Company shall maintain records showing the principal amount(s)
converted and the date of such conversion(s).
The Holder, and any
assignee by acceptance of this Debenture, acknowledge and agree that, by reason
of the provisions of this paragraph, following conversion of a portion of this
Debenture, the unpaid and unconverted principal amount of this Debenture may
be
less than the amount stated on the face hereof.
(b)
Conversion
Price
. The conversion price in effect on any Conversion Date shall be equal
to
$5,770.48
(subject to adjustment herein) (the “
Conversion
Price
”).
(c)
Mechanics
of Conversion
.
(i)
Conversion
Shares Issuable Upon Conversion of Principal Amount
. The number of shares of
Common Stock issuable upon a conversion hereunder shall be determined by the
quotient obtained by dividing (A) the outstanding principal amount of this
Debenture and accrued and unpaid interest thereon to be converted by (B) the
Conversion Price.
(ii)
Delivery
of Certificate Upon Conversion
. Not later than three Trading Days after each
Conversion Date (the “
Share Delivery Date
”), the Company shall deliver,
or cause to be delivered, to the Holder (A) a certificate or certificates
representing the Conversion Shares representing the number of shares of Common
Stock being acquired upon the conversion of this Debenture and (B) a bank check
in the amount of accrued and unpaid interest (if the Company has elected or
is
required to pay accrued interest in cash). On or after the
Effective Date, the Company shall use its best efforts to deliver any
certificate or certificates required to be delivered by the Company under this
Section 4 electronically through the Depository Trust Company or another
established clearing corporation performing similar functions.
(iii)
Failure
to Deliver Certificates
. If in the case of any Notice of Conversion such
certificate or certificates are not delivered to or as directed by the
applicable Holder by the third Trading Day after the Conversion Date, the Holder
shall be entitled to elect by written notice to the Company at any time on
or
before its receipt of such certificate or certificates, to rescind such
Conversion, in which event the Company shall promptly return to the Holder
any
original Debenture delivered to the Company and the Holder shall promptly return
the Common Stock certificates representing the principal amount of this
Debenture tendered for conversion to the Company.
(iv)
Obligation
Absolute; Partial Liquidated Damages
. The Company’s obligations to issue and
deliver the Conversion Shares upon conversion of this Debenture in accordance
with the terms hereof are absolute and unconditional, irrespective of any action
or inaction by the Holder to enforce the same, any waiver or consent with
respect to any provision hereof, the recovery of any judgment against any Person
or any action to enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the Holder or
any
other Person of any obligation to the Company or any violation or alleged
violation of law by the Holder or any other Person, and irrespective of any
other circumstance which might otherwise limit such obligation of the Company
to
the Holder in connection with the issuance of such Conversion Shares;
provided
,
however
, that such delivery shall not operate as a
waiver by the Company of any such action the Company may have against the
Holder. In the event the Holder of this Debenture shall elect to convert any
or
all of the outstanding principal amount hereof, the Company may not refuse
conversion based on any claim that the Holder or anyone associated or affiliated
with the Holder has been engaged in any violation of law, agreement or for
any
other reason, unless an injunction from a court, on notice to Holder,
restraining and or enjoining conversion of all or part of this Debenture shall
have been sought and obtained. If the Company fails for any reason to deliver
to
the Holder such certificate or certificates pursuant to Section 4(c)(ii) by
the
Share Delivery Date, the Company shall pay to such Holder, in cash, as
liquidated damages and not as a penalty, for each $1000 of principal amount
being converted, $10 per Trading Day (increasing to $20 per Trading Day on
the
fifth Trading Day after such liquidated damages begin to accrue) for each
Trading Day after the second Trading Day following the Share Delivery Date
until
such certificates are delivered. Nothing herein shall limit a Holder’s right to
pursue actual damages or declare an Event of Default pursuant to Section 7
hereof for the Company’s failure to deliver Conversion Shares within the period
specified herein and such Holder shall have the right to pursue all remedies
available to it hereunder, at law or in equity including, without limitation,
a
decree of specific performance and/or injunctive relief. The exercise of any
such rights shall not prohibit the Holder from seeking to enforce damages
pursuant to any other Section hereof or under applicable law.
(v)
Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon Conversion
. In
addition to any other rights available to the Holder, if the Company fails
for
any reason to deliver to the Holder such certificate or certificates by two
Trading Days following the Share Delivery Date pursuant to Section 4(c)(ii),
and
if after two Trading Days following such Share Delivery Date the Holder is
required by its brokerage firm to purchase (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by such
Holder of the Conversion Shares which the Holder was entitled to receive upon
the conversion relating to such Share Delivery Date (a “
Buy-In
”), then
the Company shall (A) pay in cash to the Holder (in addition to any other
remedies available to or elected by the Holder) the amount by which (x) the
Holder’s total purchase price (including any brokerage commissions) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number
of
shares of Common Stock that such Holder was entitled to receive from the
conversion at issue multiplied by (2) the actual sale price at which the sell
order giving rise to such purchase obligation was executed (including any
brokerage commissions) and (B) at the option of the Holder, either reissue
(if
surrendered) this Debenture in a principal amount equal to the principal amount
of the attempted conversion or deliver to the Holder the number of shares of
Common Stock that would have been issued if the Company had timely complied
with
its delivery requirements under Section 4(c)(ii). The Holder shall provide
the
Company written notice indicating the amounts payable to the Holder in respect
of the Buy-In and, upon request of the Company, evidence of the amount of such
loss.
(vi)
Reservation
of Shares Issuable Upon Conversion
. The Company covenants that it will at
all times reserve and keep available out of its authorized and unissued shares
of Common Stock for the sole purpose of issuance upon conversion of this
Debenture and payment of interest on this Debenture, each as herein provided,
free from preemptive rights or any other actual contingent purchase rights
of
Persons other than the Holder (and the other holders of the Debentures), not
less than such aggregate number of shares of the Common Stock as shall (subject
to the terms and conditions set forth in the Purchase Agreement) be issuable
(taking into account the adjustments and restrictions of Section 5) upon the
conversion of the outstanding principal amount of this Debenture and payment
of
interest hereunder. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly authorized, validly issued,
fully paid and nonassessable and, if the Registration Statement is then
effective under the Securities Act, shall be registered for public sale in
accordance with such Registration Statement.
(vii)
Fractional
Shares
. Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of Common Stock,
but
may if otherwise permitted, make a cash payment in respect of any final fraction
of a share based on the VWAP at such time. If the Company elects not, or is
unable, to make such a cash payment, the Holder shall be entitled to receive,
in
lieu of the final fraction of a share, 1 whole share of Common
Stock.
(viii)
Transfer
Taxes
. The issuance of certificates for shares of the Common Stock on
conversion of this Debenture shall be made without charge to the Holder hereof
for any documentary stamp or similar taxes that may be payable in respect of
the
issue or delivery of such certificates, provided that the Company shall not
be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of this Debenture so converted and the Company
shall not be required to issue or deliver such certificates unless or until
the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
Section
5. Certain Adjustments
.
(a)
Stock
Dividends and Stock Splits
. If the Company, at any time while this Debenture
is outstanding: (i) pays a stock dividend or otherwise makes a distribution
or
distributions payable in shares of Common Stock on shares of Common Stock or
rights, warrants, options or other securities or debt that are convertible
into
or exchangeable for shares of Common Stock (“
Common Stock Equivalents
”);
(ii) subdivides outstanding shares of Common Stock into a larger number of
shares; (iii) combines (including by way of a reverse stock split) outstanding
shares of Common Stock into a smaller number of shares; or (iv) issues, in
the
event of a reclassification of shares of the Common Stock, any shares of capital
stock of the Company, then the Conversion Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding any treasury shares of the Company) outstanding immediately before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event. Any adjustment made pursuant
to
this Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case
of a
subdivision, combination or re-classification.
(b)
Subsequent
Equity Sales
. If the Company or any subsidiary thereof, as applicable, at
any time while this Debenture is outstanding, sells or grants any option to
purchase or sells or grants any right to reprice its securities, or otherwise
disposes of or issues (or announces any sale, grant or any option to purchase
or
other disposition) any Common Stock or Common Stock Equivalents entitling any
Person to acquire shares of Common Stock at an effective price per share that
is
lower than the then Conversion Price (such lower price, the “
Base Conversion
Price
” and such issuances collectively, a “
Dilutive Issuance
”) (if
the holder of the Common Stock or Common Stock Equivalents so issued shall
at
any time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price
per share that is lower than the Conversion Price, such issuance shall be deemed
to have occurred for less than the Conversion Price on such date of the Dilutive
Issuance), then the Conversion Price shall be reduced to equal the Base
Conversion Price. Such adjustment shall be made whenever such Common Stock
or
Common Stock Equivalents are issued. Notwithstanding the foregoing, no
adjustment will be made under this Section 5(b) in respect of a conversion
of
any convertible debt existing at the Original Issue Date or the granting of
securities to employees of the Company pursuant to an equity incentive plan
adopted by the board of directors of the Company, provided that the
fully-diluted aggregate number of shares of Common Stock issuable under such
plans is equal to or less than 15% of the total issued and outstanding shares
of
Common Stock (collectively, “
Exempt Issuances
”). The Company shall notify
the Holder in writing, no later than the business day following the issuance
of
any Common Stock or Common Stock Equivalents subject to this Section 5(b),
indicating therein the applicable issuance price, or applicable reset price,
exchange price, conversion price and other pricing terms (such notice, the
“
Dilutive Issuance Notice
”). For purposes of clarification, whether or
not the Company provides a Dilutive Issuance Notice pursuant to this Section
5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled
to
receive a number of Conversion Shares based upon the Base Conversion Price
on or
after the date of such Dilutive Issuance, regardless of whether the Holder
accurately refers to the Base Conversion Price in the Notice of
Conversion.
(c)
Subsequent
Rights Offerings
. If the Company, at any time while the Debenture is
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to Holders) entitling them to subscribe for or purchase shares
of
Common Stock at a price per share that is lower than the VWAP on the record
date
referenced below other than Exempt Issuances, then the Conversion Price shall
be
multiplied by a fraction of which the denominator shall be the number of shares
of the Common Stock outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of Common Stock offered for
subscription or purchase, and of which the numerator shall be the number of
shares of the Common Stock outstanding on the date of issuance of such rights
or
warrants plus the number of shares which the aggregate offering price of the
total number of shares so offered (assuming delivery to the Company in full
of
all consideration payable upon exercise of such rights, options or warrants)
would purchase at such VWAP. Such adjustment shall be made whenever such rights
or warrants are issued, and shall become effective immediately after the record
date for the determination of stockholders entitled to receive such rights,
options or warrants.
(d)
Pro
Rata Distributions
. If the Company, at any time while this Debenture is
outstanding, distributes to all holders of Common Stock (and not to the Holders)
evidences of its indebtedness or assets (including cash and cash dividends)
or
rights or warrants to subscribe for or purchase any security (other than the
Common Stock, which shall be subject to Section 5(b)), then in each such case
the Conversion Price shall be adjusted by multiplying such Conversion Price
in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the VWAP determined as of the record date mentioned above,
and of which the numerator shall be such VWAP on such record date less the
then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to 1 outstanding share of the Common
Stock as determined by the Board of Directors of the Company in good faith.
In
either case the adjustments shall be described in a statement delivered to
the
Holder describing the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to 1 share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
(e)
Fundamental
Transaction
. If, at any time while this Debenture is outstanding, (i) the
Company effects any merger or consolidation of the Company with or into another
Person, (ii) the Company effects any sale of all or substantially all of its
assets in one transaction or a series of related transactions, (iii) any tender
offer or exchange offer (whether by the Company or another Person) is completed
pursuant to which holders of Common Stock are permitted to tender or exchange
their shares for other securities, cash or property, or (iv) the Company effects
any reclassification of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or exchanged
for other securities, cash or property (in any such case, a “
Fundamental
Transaction
”), then, upon any subsequent conversion of this Debenture, the
Holder shall have the right to receive, for each Conversion Share that would
have been issuable upon such conversion immediately prior to the occurrence
of
such Fundamental Transaction, the same kind and amount of securities, cash
or
property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of 1 share of Common Stock (the “
Alternate
Consideration
”). For purposes of any such conversion, the determination of
the Conversion Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in respect
of 1 share of Common Stock in such Fundamental Transaction, and the Company
shall apportion the Conversion Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components
of
the Alternate Consideration. If holders of Common Stock are given any choice
as
to the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any conversion of this Debenture following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions,
any
successor to the Company or surviving entity in such Fundamental Transaction
shall issue to the Holder a new debenture consistent with the foregoing
provisions and evidencing the Holder’s right to convert such debenture into
Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this Section
5(e)
and insuring that this Debenture (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
(f)
Calculations
.
All calculations under this Section 5 shall be made to the nearest cent or
the
nearest 1/100th of a share, as the case may be. For purposes of this Section
5,
the number of shares of Common Stock deemed to be issued and outstanding as
of a
given date shall be the sum of the number of shares of Common Stock (excluding
any treasury shares of the Company) issued and outstanding.
(g)
Notice
to the Holder
.
(i)
Adjustment
to Conversion Price
. Whenever the Conversion Price is adjusted pursuant to
any provision of this Section 5, the Company shall promptly mail to each Holder
a notice setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment. If the Company
issues a variable rate security, the Company shall be deemed to have issued
Common Stock or Common Stock Equivalents at the lowest possible conversion
or
exercise price at which such securities may be converted or
exercised.
(ii)
Notice
to Allow Conversion by Holder
. If (A) the Company shall declare a dividend
(or any other distribution in whatever form) on the Common Stock, (B) the
Company shall declare a special nonrecurring cash dividend on or a redemption
of
the Common Stock, (C) the Company shall authorize the granting to all holders
of
the Common Stock of rights or warrants to subscribe for or purchase any shares
of capital stock of any class or of any rights, (D) the approval of any
stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which
the
Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the Common
Stock
is converted into other securities, cash or property or (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding
up of
the affairs of the Company, then, in each case, the Company shall cause to
be
filed at each office or agency maintained for the purpose of conversion of
this
Debenture, and shall cause to be delivered to the Holder at its last address
as
it shall appear upon the Debenture Register, at least 20 calendar days prior
to
the applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled
to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided that the
failure to deliver such notice or any defect therein or in the delivery thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder is entitled to convert this Debenture during the
20-day period commencing on the date of such notice through the effective date
of the event triggering such notice.
Section
6
.
Negative Covenants
. As long as Debentures representing
at least 51% of the aggregate principal amount of Debentures issued on the
Original Issue Date are outstanding and without the prior written consent of
Holders holding a majority of the then issued and outstanding Debentures, the
Company shall not, and shall not permit any of its subsidiaries to, directly
or
indirectly:
(a) enter
into, create, incur, assume, guarantee or suffer to exist any indebtedness
for
borrowed money senior to or having any priority over the Debentures, including
but not limited to, a guarantee, on or with respect to any of its property
or
assets now owned or hereafter acquired or any interest therein or any income
or
profits therefrom;
(b)
enter into, create, incur, assume or suffer to exist any liens, security
interests or other encumbrances of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein
or
any income or profits therefrom;
(c) amend
its charter documents, including without limitation, the certificate of
incorporation and bylaws, in any manner that materially and adversely affects
any rights of the Holder;
(d) repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a
de
minimis
number of shares of its Common Stock or Common Stock
Equivalents;
|
(e)
|
enter
into any agreement with respect to any of the foregoing;
or
|
|
(f)
|
pay
cash dividends or distributions on any equity securities of the
Company.
|
Section
7. Events of Default
.
(a)
“
Event
of Default
” means, wherever used herein, any of the following events
(whatever the reason for such event and whether such event shall be voluntary
or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative
or
governmental body):
(i) any
default in the payment of (A) the principal amount of any Debenture or (B)
interest, liquidated damages and other amounts owing to a Holder on any
Debenture, as and when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or otherwise) which
default, solely in the case of an interest payment or other default under clause
(B) above, is not cured within three Trading Days;
(ii) the
Company shall fail to observe or perform any other covenant or agreement
contained in the Debentures (other than a breach by the Company of its
obligations to deliver shares of Common Stock to the Holder upon conversion,
which breach is addressed in clause (x) below) which failure is not cured,
if
possible to cure, within the earlier to occur of (A) five Trading Days after
notice of such failure sent by the Holder or by any other Holder and (B) 10
Trading Days after the Company has become or should have become aware of such
failure;
(iii) a
default or event of default (subject to any grace or cure period provided in
the
applicable agreement, document or instrument or any unanimous waiver thereof)
shall occur under any other material agreement, lease, document or instrument
to
which the Company or any subsidiary is obligated;
(iv) any
representation or warranty made in this Debenture, any written statement
pursuant hereto or any other report, financial statement or certificate made
or
delivered to the Holder or any other Holder shall be untrue or incorrect in
any
material respect as of the date when made or deemed made;
(v) the
Company or any subsidiary shall be subject to a Bankruptcy Event;
(vi)
the
Common Stock shall not be eligible for listing or quotation for trading on
a
Trading Market and shall not be eligible to resume listing or quotation for
trading thereon within five Trading Days;
(vii)
the
Company
shall be a party to any Change of Control Transaction or Fundamental Transaction
or shall agree to sell or dispose of all or in excess of 33% of its assets
in
one transaction or a series of related transactions (whether or not such sale
would constitute a Change of Control Transaction);
(viii) a
Registration Statement shall not have been declared effective by the Commission
on or prior to the 210
th
calendar
day after
the Closing Date;
(ix) if,
during the Effectiveness Period (as defined in the Registration Rights
Agreement), either (A) the effectiveness of the Registration Statement lapses
for any reason or (B) the Holder shall not be permitted to resell Registrable
Securities (as defined in the Registration Rights Agreement) under the
Registration Statement for a period of more than 20 consecutive Trading Days
or
30 non-consecutive Trading Days during any 12 month period;
provided
,
however
, that if the Company is negotiating a merger, consolidation,
acquisition or sale of all or substantially all of its assets or a similar
transaction and, in the written opinion of counsel to the Company, the
Registration Statement would be required to be amended to include information
concerning such pending transaction(s) or the parties thereto which information
is not available or may not be publicly disclosed at the time, the Company
shall
be permitted an additional 10 consecutive Trading Days during any 12 month
period pursuant to this Section 7(a)(ix);
(x) the
Company shall fail for any reason to deliver certificates to a Holder prior
to
the tenth Trading Day after a Conversion Date pursuant to Section 4(c) or the
Company shall provide at any time notice to the Holder, including by way of
public announcement, of the Company’s intention to not honor requests for
conversions of any Debentures in accordance with the terms hereof;
or
(xi) any
monetary judgment, writ or similar final process shall be entered or filed
against the Company, any subsidiary or any of their respective property or
other
assets for more than $250,000, and such judgment, writ or similar final process
shall remain unvacated, unbonded or unstayed for a period of 45 calendar
days.
(b)
Remedies
Upon Event of Default
. If any Event of Default occurs, the outstanding
principal amount of this Debenture, plus accrued but unpaid interest, liquidated
damages and other amounts owing in respect thereof through the date of
acceleration, shall become, at the Holder’s election, immediately due and
payable in cash at the Mandatory Default Amount. Commencing five days after
the
occurrence of any Event of Default that results in the eventual acceleration
of
this Debenture, the interest rate on this Debenture shall accrue at an interest
rate equal to the lesser of 22% per annum or the maximum rate permitted under
applicable law. Upon the payment in full of the Mandatory Default Amount, the
Holder shall promptly surrender this Debenture to or as directed by the Company.
In connection with such acceleration described herein, the Holder need not
provide, and the Company hereby waives, any presentment, demand, protest or
other notice of any kind, and the Holder may immediately and without expiration
of any grace period enforce any and all of its rights and remedies hereunder
and
all other remedies available to it under applicable law. Such acceleration
may
be rescinded and annulled by Holder at any time prior to payment hereunder
and
the Holder shall have all rights as a holder of the Debenture until such time,
if any, as the Holder receives full payment pursuant to this Section 7(b).
No
such rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereon.
Section
8. Miscellaneous
.
(a)
Notices
.
Any and all notices or other communications or deliveries to be provided by
the
Holder hereunder, including, without limitation, any Notice of Conversion,
shall
be in writing and delivered personally, by facsimile, or sent by a nationally
recognized overnight courier service, addressed to the Company, at
_____________________, facsimile number (____) _______
,
Attn:
____________
or such other facsimile number or address as
the Company may specify for such purpose by notice to the Holder delivered
in
accordance with this Section 8. Any and all notices or other communications
or
deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, or sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile number or address
of
such Holder appearing on the books of the Company, or if no such facsimile
number or address appears, at the principal place of business of the Holder.
Any
notice or other communication or deliveries hereunder shall be deemed given
and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified
in
this Section 8 prior to 5:00 p.m. (St. Louis, MO time), (ii) the date
immediately following the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number specified in this Section
8
between 5:00 p.m. (St. Louis, MO time) and 11:59 p.m. (St. Louis, MO time)
on
any date, (iii) the second Business Day following the date of mailing, if sent
by nationally recognized overnight courier service, or (iv) upon actual receipt
by the party to whom such notice is required to be given.
(b)
Absolute
Obligation
. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, liquidated damages and accrued
interest, as applicable, on this Debenture at the time, place, and rate, and
in
the coin or currency, herein prescribed. This Debenture is a direct debt
obligation of the Company. This Debenture ranks
pari
passu
with all
other Debentures of the same series now or hereafter issued under the terms
set
forth herein.
(c)
Lost
or Mutilated Debenture
. If this Debenture shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Debenture, or in lieu
of
or in substitution for a lost, stolen or destroyed Debenture, a new Debenture
for the principal amount of this Debenture so mutilated, lost, stolen or
destroyed, but only upon receipt of evidence of such loss, theft or destruction
of such Debenture, and of the ownership hereof, reasonably satisfactory to
the
Company.
(d)
Governing
Law
. All questions concerning the construction, validity, enforcement and
interpretation of this Debenture shall be governed by and construed and enforced
in accordance with the internal laws of the State of Delaware, without regard
to
the principles of conflict of laws thereof. If either party shall commence
an
action or proceeding to enforce any provisions of this Debenture, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys’ fees and other costs and expenses incurred in the
investigation, preparation and prosecution of such action or
proceeding.
(e)
Waiver
.
Any waiver by the Company or the Holder of a breach of any provision of this
Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not
be
considered a waiver or deprive that party of the right thereafter to insist
upon
strict adherence to that term or any other term of this Debenture. Any waiver
by
the Company or the Holder must be in writing.
(f)
Severability
.
If any provision of this Debenture is invalid, illegal or unenforceable, the
balance of this Debenture shall remain in effect, and if any provision is
inapplicable to any Person or circumstance, it shall nevertheless remain
applicable to all other Persons and circumstances. If it shall be found that
any
interest or other amount deemed interest due hereunder violates the applicable
law governing usury, the applicable rate of interest due hereunder shall
automatically be lowered to equal the maximum rate of interest permitted under
applicable law. The Company covenants (to the extent that it may lawfully do
so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law
or
other law which would prohibit or forgive the Company from paying all or any
portion of the principal of or interest on this Debenture as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this indenture, and the Company
(to
the extent it may lawfully do so) hereby expressly waives all benefits or
advantage of any such law, and covenants that it will not, by resort to any
such
law, hinder, delay or impeded the execution of any power herein granted to
the
Holder, but will suffer and permit the execution of every such as though no
such
law has been enacted.
(g)
Next
Business Day
. Whenever any payment or other obligation hereunder shall be
due on a day other than a business day, such payment shall be made on the next
succeeding business day.
(h)
Headings
.
The headings contained herein are for convenience only, do not constitute a
part
of this Debenture and shall not be deemed to limit or affect any of the
provisions hereof.
(i)
Assumption
.
Any successor to the Company or any surviving entity in a Fundamental
Transaction shall (A) assume, prior to such Fundamental Transaction, all of
the
obligations of the Company under this Debenture, the Debenture Purchase
Agreement and the other transaction documents pursuant to written agreements
in
form and substance satisfactory to the Holder (such approval not to be
unreasonably withheld or delayed) and (B) issue to the Holder a new debenture
of
such successor entity evidenced by a written instrument substantially similar
in
form and substance to this Debenture, including, without limitation, having
a
principal amount and interest rate equal to the principal amount and the
interest rate of this Debenture and having similar ranking to this Debenture,
which shall be satisfactory to the Holder (any such approval not to be
unreasonably withheld or delayed). The provisions of this Section 8(i)
shall apply similarly and equally to successive Fundamental Transactions and
shall be applied without regard to any limitations of this
Debenture.
[Remainder
of page intentionally left blank; signature page to follow]
IN
WITNESS WHEREOF, the Company has caused this Debenture to be duly executed
by a
duly authorized officer as of the date first above indicated.
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SRS
ENERGY, INC.
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By:
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Name:
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Title:
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ANNEX
A
NOTICE
OF CONVERSION
The
undersigned hereby elects to convert principal under the Series A Convertible
Debenture of SRS Energy, Inc., a Delaware corporation (the “
Company
”),
due on April 16, 2010, into shares of common stock, par value $0.001 per share
(the “
Common Stock
”), of the Company according to the conditions hereof,
as of the date written below. If shares are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates and opinions
as reasonably requested by the Company in accordance therewith. No fee will
be
charged to the holder for any conversion, except for such transfer taxes, if
any.
The
undersigned agrees to comply with the prospectus delivery requirements under
the
applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.
Conversion
Calculations:
Date
to
Effect Conversion:
Principal
Amount of Debenture to be Converted:
Number
of
shares of Common Stock to be issued:
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Signature:
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Name:
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Address:
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Schedule
1
The
Series A Convertible Debentures due on April 16, 2010, in the aggregate
principal amount of $____________ issued by SRS Energy, Inc. This Conversion
Schedule reflects conversions made under Section 4 of the above referenced
Debenture.
Exhibit
4.2
INVESTORS'
RIGHTS AGREEMENT
THIS
INVESTORS' RIGHTS AGREEMENT is made as of the 10
th
day of
April,
2007, by and among SRS Energy, Inc., a Delaware corporation (the "Company"),
and
the parties listed on
Schedule A
hereto each of which such parties is
herein referred to as a "Holder."
RECITALS
WHEREAS,
the Company and the certain Holders (the “Investors”) are parties to the Series
A Debenture Purchase Agreement of even date herewith (the "Series A
Agreement");
WHEREAS,
immediately following the Closing (as defined in the Series A Agreement) the
Company desires to consummate a merger (the “Merger”) with SRS Acquisition Corp.
pursuant to that certain Agreement and Plan of Merger and Reorganization dated
as of March 14, 2007 (the “Merger Agreement”); and
WHEREAS,
in order to induce the Investors to invest funds in the Company pursuant to
the
Series A Agreement and to induce the stakeholders of the parent corporation
of
SRS Acquisition Corp. that are Holders to effect the Merger, the Company hereby
agrees to cause the Company to register the shares of Common Stock issued or
issuable to the Holders as set forth herein;
NOW,
THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1.
Registration
Requirement
. The Company covenants and agrees as follows:
1.1
Definitions
.
For purposes of this Section I:
(a) The
term "Act" means the Securities Act of 1933, as amended.
(b) The
term “Common Stock” shall mean the shares of common stock, $0.001 per value per
share of the Company.
(c) The
term "Form S-3" means such form under the Act as in effect on the date hereof
or
any registration form under the Act subsequently adopted by the SEC that permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(d) The
term "Holder" means any person owning or having the right to acquire Registrable
Securities or any assignee thereof.
(e) The
term" 1934 Act" means the Securities Exchange Act of 1934, as
amended.
(f) The
term "register," "registered," and "registration" refer to a registration
effected by preparing and filing a Registration Statement or similar document
in
compliance with the Act, and the declaration or ordering of effectiveness of
such Registration Statement or document.
(g) The
term "Registrable Securities" means (i) the Common Stock issuable or issued
upon
conversion of the Series A Debentures issued to investors pursuant to that
certain Debenture Purchase Agreement, (ii) the Common Stock issuable or issued
to any holder of piggyback registration rights granted by the Company that
by
virtue of such rights are to be registered hereunder; and (iii) any Common
Stock
of the Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security that is issued as) a dividend or other
distribution with respect to, or in exchange for, or in replacement of, the
shares referenced in (i) or (ii) above, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which the rights
under this Section 1 are not assigned.
(h) The
number of shares of "Registrable Securities" outstanding shall be determined
by
the number of shares of Common Stock outstanding that are, and the number of
shares of Common Stock issuable pursuant to then exercisable or convertible
securities that are, Registrable Securities.
(i) The
term "SEC" shall mean the Securities and Exchange Commission.
1.2
Registration
. Within
sixty days of the date of the Closing as such is defined in the Series A
Agreement the Company shall file a Registration Statement under the Act covering
the registration of the Registrable Securities and use all reasonable best
efforts to effect, as soon as practicable, the registration under the Act of
all
Registrable Securities.
1.3
Obligations
of the Company
. The Company shall keep each Holder reasonably advised
as to the filing and effectiveness of the Registration Statement contemplated
hereunder. At its expense, the Company shall, as expeditiously as reasonably
possible:
(a) prepare
and file with the SEC with respect to the Registrable Securities, a Registration
Statement on Form SB-2, or any other form for which the Company then qualifies
or which counsel for the Company shall deem appropriate and which form shall
be
available for the sale of the Registrable Securities in accordance with the
intended methods of distribution thereof (the “Registration Statement”), and use
all reasonable efforts to cause such Registration Statement to become and remain
effective for a period of two years or for such shorter period ending on the
earlier to occur of (i) the sale of all Registrable Securities and (ii) the
availability of Rule 144(k) for the Holders to sell the Registrable Securities
(in either case, the “Effectiveness Period”);
(b) if
the Registration Statement is subject to review by the SEC, promptly respond
to
all comments and diligently pursue resolution of any comments to the
satisfaction of the SEC;
(c) prepare
and file with the SEC such amendments and supplements to such Registration
Statement and the prospectus used in connection with such Registration Statement
as may be necessary to keep such Registration Statement effective during the
Effectiveness Period;
(d) furnish
without charge to each Holder such numbers of copies of a the Registration
Statement and prospectus, including a preliminary prospectus, any exhibits
to
the Registration Statement, amendments and supplements, as such Holder may
reasonably request, in conformity with the requirements of the Act, and such
other documents as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them;
(e) use
all reasonable efforts to register and qualify the securities covered by such
Registration Statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders, provided that
the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process
in
any such states or jurisdictions;
(f) as
promptly as practicable after becoming aware of such event, notify each Holder
of Registrable Securities covered by such Registration Statement at any time
when a prospectus relating thereto is required to be delivered under the Act
or
the happening of any event as a result of which the prospectus included in
such
Registration Statement, as then in effect, includes an untrue statement of
a
material fact or omits to state a material fact required to be stated therein
or
necessary to make the statements therein not misleading in the light of the
circumstances then existing and the Company shall promptly thereafter prepare
and furnish to such Holder a supplement or amendment to such prospectus so
that,
as thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not contain an untrue statement of a material fact or omit
to
state a material fact required to be stated therein or necessary to make the
statement therein not misleading in light of the circumstances then
existing;
(g) comply,
and continue to comply, during the Effectiveness Period, in all material
respects with the Act and the 1934 Act and with all applicable rules and
regulations of the SEC;
(h) as
promptly as practicable after becoming aware of such event, notify each Holder
of Registrable Securities being offered or sold pursuant to the Registration
Statement of the issuance by the SEC of any stop order or other suspension
of
effectiveness of the Registration Statement;
(i) use
its reasonable efforts to cause all the Registrable Securities covered by the
Registration Statement to be quoted on the NASD OTC Bulletin Board;
(j) during
the Effectiveness Period, refrain from bidding for or purchasing any Common
Stock or any right to purchase Common Stock or attempting to induce any person
to purchase any such security or right if such bid, purchase or attempt would
in
any way limit the right of the Holders to sell Registrable Securities by reason
of the limitations set forth in Regulation M under the 1934 Act;
and
(k) provide
a transfer agent and registrar for all Registrable Securities registered
pursuant hereunder and a CUSIP number for all such Registrable Securities,
in
each case not later than the effective date of such registration.
1.4
Expenses
of Registration
. All expenses other than underwriting discounts and
commissions incurred in connection with registrations, filings or qualifications
under this Agreement, including (without limitation) all registration, filing
and qualification fees, printers' and accounting fees, fees and disbursements
of
counsel for the Company shall be borne by the Company.
1.5
Delay
of Registration
. No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
1.6
Default,
Penalty
.
For
purposes of this Agreement an Event of Default shall occur if the Registration
is not effective on or before the date that is 120 days from the date of
Closing
for any reason other than actions attributable to an Investor (provided such
date shall be extended to 180 days after the date of Closing if the SEC elects
to review the Registration Statement filed by the Company, and further provided
that if the Company diligently pursues using all reasonable best efforts,
as
reasonably determined by the auditor, to complete an audit of its financial
statements and such audit is not completed within 60 days of the date hereof,
such period to complete the audit in excess of 60 days shall be added to
the
time periods set forth in this paragraph.)
If
an
Event of Default occurs, each Holder (so long as such Holder has complied with
its obligations hereunder and under any agreement it may have with the Company
with respect to the Common Stock of the Company) shall be entitled to be issued
Warrants to purchase shares of Common Stock at an exercise price of $0.01 per
share and in an amount equal to 1% of the number of Registrable Securities
owned
(on an as-if converted basis) by such Holder per month (prorated for partial
months) that such Default continues uncured.
1.7
Indemnification
.
In the event any Registrable Securities are included in a Registration Statement
under this Section 1:
(a) To
the extent permitted by law, the Company will indemnify and hold harmless each
Common Holder, the partners or officers, directors and stockholders of each
Holder, legal counsel and accountants for each Holder, any underwriter (as
defined in the Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Act or the 1934 Act, against
any
losses, claims, damages or liabilities (joint or several) and expenses to which
they may become subject under the Act, the 1934 Act or any state securities
laws, insofar as such losses, claims, damages, liabilities or expenses (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of any material fact contained in such Registration Statement,
including any preliminary prospectus or final prospectus contained therein
or
any amendments or supplements thereto, (ii) the omission or alleged omission
to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities laws
or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities laws; and the Company will reimburse each such Holder, underwriter
or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this subsection 1.9(a) shall not apply to amounts paid in settlement of
any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon a Violation that occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person; provided
further, however, that the foregoing indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any Holder or
underwriter, or any person controlling such Holder or underwriter, from whom
the
person asserting any such losses, claims, damages or liabilities purchased
shares in the offering, if a copy of the prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Holder or underwriter
to
such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the- shares to such person, and if the
prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage or liability.
(b) To
the extent permitted by law, each selling Holder will indemnify and hold
harmless the Company, each of its directors, each of its officers who has signed
the Registration Statement, each person, if any, who controls the Company within
the meaning of the Act, legal counsel and accountants for the Company, any
underwriter, any other Holder selling securities in such Registration Statement
and any controlling person of any such underwriter or other Holder, against
any
losses, claims, damages or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Act, the 1934 Act or any state
securities laws, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs
in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will reimburse any person intended to be indemnified pursuant to this
subsection l. 9(b), for any legal or other expenses reasonably incurred by
such
person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this subsection l.9(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder (which consent shall
not be unreasonably withheld), provided that in no event shall any indemnity
under this subsection l.9(b) exceed the gross proceeds from the offering
received by such Holder.
(c) Promptly
after receipt by an indemnified party under this Section 1.9 of notice of the
commencement of any action (including any governmental action), such indemnified
party will, if a claim in respect thereof is to be made against any indemnifying
party under this Section 1.9, deliver to the indemnifying party a written notice
of the commencement thereof and the indemnifying party shall have the right
to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party (together with all other indemnified parties that
may
be represented without conflict by one counsel) shall have the right to retain
one separate counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained
by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement
of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 1.9, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to
any
indemnified party otherwise than under this Section 1.9.
(d) If
the indemnification provided for in this Section 1.9 is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect
to
any loss, liability, claim, damage or expense referred to herein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amount paid or payable by such indemnified party as
a
result of such loss, liability, claim, damage or expense in such proportion
as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions that resulted in such loss, liability, claim, damage
or
expense, as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to
information supplied by the indemnifying party or by the indemnified party
and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding
the foregoing, to the extent that the provisions on indemnification and
contribution contained in the underwriting agreement entered into in connection
with the underwritten public offering are in conflict with the foregoing
provisions, the provisions in the underwriting agreement shall
control.
(f) The
obligations of the Company and Holders under this Section 1.9 shall survive
the
completion of any offering of Registrable Securities in a Registration Statement
under this Section I, and otherwise.
1.8
"Market
Stand-Off" Agreement
. Each of the persons listed on Schedule 1.10
hereto and the Company, with respect to shares issuable under the Company’s 2007
Stock Option Plan, hereby agrees that it will not, during the period commencing
on the date of the final prospectus relating to the Company's Registration
hereunder and ending 180 days thereafter, (i) lend, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (whether such shares or any such securities are then owned by
the
such person or are thereafter acquired), or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise. In order to enforce the
foregoing covenant, the Company may impose stop-transfer instructions with
respect to the shares or securities of every person subject to the foregoing
restriction until the end of such period.
2.
Covenants
of the Company
.
2.1
Delivery
of Financial Statements
. The Company shall deliver to each
Investor:
(a) as
soon as practicable, but, in any event within ninety (90) days after the end
of
each fiscal year of the Company, an income statement for such fiscal year,
a
balance sheet of the Company and statement of stockholder's equity as of the
end
of such year, and a statement of cash flows for such year, such year-end
financial reports to be in reasonable detail, prepared in accordance with
generally accepted accounting principles ("GAAP"), and audited and certified
by
independent public accountants of nationally recognized standing selected by
the
Company;
(b) as
soon as practicable, but in any event within forty-five (45) days after the
end
of each of the first three (3) quarters of each fiscal year of the Company,
an
unaudited income statement, statement of cash flows for such fiscal quarter
and
an unaudited balance sheet as of the end of such fiscal quarter.
(c) within
thirty (30) days of the end of each month, an unaudited income statement and
statement of cash flows and balance sheet for and as of the end of such month,
in reasonable detail;
(d) as
soon as practicable, but in any event at least thirty (30) days prior to the
end
of each fiscal year, a budget and business plan for the next fiscal year,
prepared on a monthly basis, including balance sheets, income statements and
statements of cash flows for such months and, as soon as prepared, any other
budgets or revised budgets prepared by the Company; provided that, all such
budgets and business plans shall be subject to the review and approval of the
Investors, with such approval not to be unreasonably withheld, delayed or
conditioned, and, further provided, that in the event the Investors and the
Company cannot reach agreement, the subject budget or business plan as proposed
will be automatically implemented in the event it varies by no more than ten
percent (10%), plus or minus, from the immediately preceding budget or plan,
as
the case may be;
(e) with
respect to the financial statements called for in subsections (b)and (c) of
this
Section 2.1, an instrument executed by the Chief Financial Officer or President
of the Company certifying that such financials were prepared in accordance
with
GAAP consistently applied with prior practice for earlier periods (with the
exception of footnotes that may be required by GAAP) and fairly present the
financial condition of the Company and its results of operation for the period
specified, subject to year-end audit adjustment; and
(f) such
other information relating to the financial condition, business, prospects
or
corporate affairs of the Company as the Investor or any assignee of the Investor
may from time to time request, provided, however, that the Company shall not
be
obligated under this subsection (f) or any other subsection of Section 2.1
to
provide information that it deems in good faith to be a trade secret or similar
confidential information.
2.2
Inspection
.
The Company shall permit each Investor, at such Investor's expense, to visit
and
inspect the Company's properties, to examine its books of account and records
and to discuss the Company's affairs, finances and accounts with its officers,
all at such reasonable times as may be requested by the Investor; provided,
however, that the Company shall not be obligated pursuant to this Section 2.2
to
provide access to any information that it reasonably considers to be a trade
secret or similar confidential information.
2.3
Termination
of Information and Inspection Covenants
. The covenants set forth in
Sections 2.1 and 2.2 shall terminate as to Investors and be of no further force
or effect when the sale of securities pursuant to a Registration Statement
filed
by the Company under the Act in connection with the firm commitment underwritten
offering of its securities to the general public is consummated or when the
Company first becomes subject to the periodic reporting requirements of Sections
12(g) or 15(d) of the 1934 Act, whichever event shall first occur.
2.4
Rule
144
. For a period of at least 24 months following the Closing Date, the
Company will use its reasonable best efforts to timely file all reports required
to be filed by the Company after the date hereof under the Act and the 1934
Act
and the rules and regulations adopted by the SEC thereunder, and if the Company
is not required to file reports pursuant to such sections, it will prepare
and
furnish to the Holders and make publicly available in accordance with Rule
144(c) such information as is required for the Holders to sell shares of Common
Stock under Rule 144.
2.5
Termination
of Certain Covenants
. The covenants set forth in Sections 2.4, and 2.5
shall terminate and be of no further force or effect upon the consummation
of
the sale of securities pursuant to a bona fide, firmly underwritten public
offering of shares of common stock, registered under the Act.
3.
Miscellaneous
.
3.1
Successors
and Assigns
. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties (including transferees
of
any shares of Registrable Securities). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto
or
their respective successors and assigns any rights, remedies, obligations,
or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
3.2
Governing
Law
. This Agreement shall be governed by and construed under the laws
of the State of Missouri as applied to agreements among Missouri residents
entered into and to be performed entirely within Missouri.
3.3
Counterparts
.
This Agreement may be executed in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
3.4
Titles
and Subtitles
. The titles and subtitles used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting
this Agreement.
3.5
Notices
.
Unless otherwise provided, any notice required or permitted under this Agreement
shall be given in writing and shall be deemed effectively given upon personal
delivery to the party to be notified or upon delivery by confirmed facsimile
transmission, nationally recognized overnight courier service, or upon deposit
with the United States Post Office, by registered or certified mail, postage
prepaid and addressed to the party to be notified at the address indicated
for
such party on the signature page hereof, or at such other address as such party
may designate by ten (10) days' advance written notice to the other
parties.
3.6
Expenses
.
If any action at law or in equity is necessary to enforce or interpret the
terms
of this Agreement, the prevailing party shall be entitled to reasonable
attorneys' fees, costs and necessary disbursements in addition to any other
relief-to which such party may be entitled.
3.7
Entire
Agreement
: Amendments and Waivers. This Agreement (including the
Exhibits hereto, if any) constitutes the full and entire understanding and
agreement among the parties with regard to the subjects hereof and thereof.
Any
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the holders of a majority of the Registrable Securities; provided, however,
that in the event that such amendment or waiver adversely affects the
obligations and/or rights of the Common Holders in a different manner than
the
other Holders, such amendment or waiver shall also require the written consent
of the holders of a majority in interest of the Common Holders. Any amendment
or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Securities each future holder of all such Registrable
Securities, and the Company.
3.8
Severability
.
If one or more provisions of this Agreement are held to be unenforceable under
applicable law, such provision shall be excluded from this Agreement and the
balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
3.9
Aggregation
of Stock
. All shares of Registrable Securities held or acquired by
affiliated entities or persons shall be aggregated together for the purpose
of
determining the availability of any rights under this Agreement.
3.10
Independent
Nature of Each Holder’s Obligations and Rights.
The
obligations of each Holder under this Agreement are several and not joint with
the obligations of any other Holder, and each Holder shall not be responsible
in
any way for the performance of the obligations of any other Holder under this
Agreement. Nothing contained herein and no action taken by any Holder pursuant
hereto, shall be deemed to constitute such Holders as a partnership, an
association, a joint venture, or any other kind of entity or create a
presumption that the Holders are in any way acting in concert or as a group
with
respect to such obligations or the transactions contemplated by this Agreement.
Each Holder shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement, and
it
shall not be necessary for any other Holder to be joined as an additional party
in any proceeding for such purpose.
3.11
Edward
Hennessey Salary
: The Company shall pay Edward Hennessey a
salary as set forth on
Schedule B
of that Series A Debenture Purchase
Agreement dated as of the date hereof by and among the parties
hereof.
[Remainder
of page intentionally left blank; signature page to
follow.]
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first
above written.
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COMPANY
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SRS
ENERGY, INC.
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By:
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Name:
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Title:
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HOLDERS:
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IS
INVESTMENTS
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By:
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Name:
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Title:
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TRINITY
ENTERPRISES, L.L.C.
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By:
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Name:
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Title:
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LEGGWEAR
INTERNATIONAL, LTD.
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By:
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Name:
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Title:
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PADSTOW
ESTATES, INC.
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By:
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Name:
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Title:
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ANAHUAC
MANAGEMENT, INC.
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By:
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Name:
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Title:
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Schedule
A
Schedule
of Investors
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Investor
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Debenture
Amount
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Common
Shares Initially
Issuable
on Conversion
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IS
Investments
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$100,000.00
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666,667
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Leggwear
International, Ltd.
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$100,000.00
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666,667
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Trinity
Enterprises, L.L.C.
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$250,000.00
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1,666,667
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Padstow
Estates, Inc.
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$250,000.00
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1,666,667
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Anahuac
Management, Inc.
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$200,000.00
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1,333,333
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Agest,
Inc.
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$150,000.00
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1,000,000
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James
Karl
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$20,000.00
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133,333
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Gary
Slay
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$30,000.00
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200,000
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Jeff
Slay
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$30,000.00
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200,000
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Jill
Garlich
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$30,000.00
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200,000
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Michael
McMahon
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$15,000.00
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100,000
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John
A. Caito
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$10,000.00
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66,667
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Glen
T. Slay
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$215,000.00
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1,433,333
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SCHEDULE
1.10
Exhibit
4.3
SRS
ENERGY, INC.
SERIES
A DEBENTURE
PURCHASE
AGREEMENT
THIS
SERIES A DEBENTURE PURCHASE AGREEMENT is made as of the 20
th
day of
March,
2007, by and among SRS Energy, Inc., a Delaware corporation (the "Company"),
and
the investors severally and not jointly listed on Schedule A hereto, each of
which is herein referred to as an "Investor."
THE
PARTIES HEREBY AGREE AS FOLLOWS:
1.
Purchase
and Sale of Debentures.
1.1
Sale
and Issuance of Series A Debentures.
(a) On
or prior to the Closing (as defined below), the Company shall have authorized
(i) the sale and issuance to the Investors of the Series A Debentures and (ii)
the issuance of the shares of Common Stock to be issued upon conversion of
the
Series A Debentures (the "Conversion Shares"). The Series A Debentures and
the
Conversion Shares shall have the rights, preferences, privileges and
restrictions set forth in the Form of Debenture attached as
Exhibit A
and
this Agreement.
(b) Subject
to the terms and conditions of this Agreement, each Investor agrees, severally
and not jointly, to purchase at the Closing and the Company agrees to sell
and
issue to each Investor at the Closing, that amount of the Company's Series
A
Debentures set forth opposite such Investor's name on
Schedule A
hereto
for the purchase price set forth thereon.
1.2
Closing
.
The purchase and sale of the Series A Debentures shall take place at the offices
of Sauerwein, Simon, Blanchard & Kime, P.C. immediately prior to the closing
of the transactions set forth in that certain Agreement and Plan of Merger
and
Reorganization among the Company, Alternative Ethanol Technologies, Inc. (the
“Parent”) and SRS Acquisition Corp. and dated as of March 19, 2007 (the “Merger
Agreement”), which is anticipated to be at 9:00 A.M., on March 27, 2007, or at
such other time and place as the Company and Investors acquiring in the
aggregate more than half the Series A Debentures sold pursuant hereto mutually
agree upon orally or in writing (which time and place are designated as the
"Closing"). At the Closing the Company shall deliver to each Investor the Series
A Debentures that such Investor is purchasing against payment of the purchase
price therefore by check, wire transfer, cancellation of indebtedness, or any
combination thereof.
1.3
Additional
Sale of Series A Debentures
. The Company reserves the right,
solely through Parent, to sell up to an additional $1.0 million of Debentures
at
any time prior to filing the Registration Statement as such is defined in the
Investors’ Rights Agreement dated as of the date hereof by and among the parties
hereto (“Investors’ Rights Agreement”) provided any Purchaser of such Debentures
shall be required to enter into this Agreement (or an agreement substantially
similar to this Agreement, in the discretion of the Company and the Purchasers)
and the Investors’ Rights Agreement. Any such new Purchaser shall be subject to
the market stand-off provisions of the Investors’ Rights Agreement.
2.
Representations
and Warranties of the Company
. The Company hereby represents and
warrants to each Investor that, except as set forth on a Schedule of Exceptions
(the "Schedule of Exceptions") furnished each Investor specifically identifying
the relevant subparagraph hereof, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
2.1
Organization,
Good Standing and Qualification
. The Company is a
corporation duly organized, validly existing and in good standing under the
laws
of the State of Delaware and has all requisite corporate power and authority
to
carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on its business or properties. The Company has all requisite
corporate power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it.
2.2
Capitalization
and Voting Rights
.
(a) The
authorized capital of the Company consists of 1,500 shares of common stock,
par
value $0.001 ("Common Stock"), of which 1,004 shares are issued and
outstanding.
(b) The
outstanding shares of Common Stock are owned by the stockholders and in the
numbers specified in
Exhibit B
hereto.
(c) The
outstanding shares of Common Stock are all duly and validly authorized and
issued, fully paid and nonassessable, and were issued in accordance with the
registration or qualification provisions of the Securities Act of 1933, as
amended (the" Act") and any relevant state securities laws, or pursuant to
valid
exemptions therefrom.
(d)
In
addition to the aforementioned options, the Company will cause Parent to reserve
an additional 7,000,000 shares of its Common Stock for purchase upon exercise
of
options to be granted in the future under the SRS ENERGY, INC. 2007 Stock Option
Plan. Except as set forth on Schedule 2.2(e) the Company is not a
party or subject to any agreement or understanding, and, to the best of the
Company's knowledge, there is no agreement or understanding between any persons
and/or entities, which affects or relates to the voting or giving of written
consents with respect to any security or by a director of the
Company.
2.3
Subsidiaries
.
Except as set forth in the Schedule of Exceptions, the Company does not
presently own or control, directly or indirectly, any interest in any other
corporation, association, or other business entity. The Company is not a
participant in any joint venture, partnership, or similar
arrangement.
2.4
Authorization
.
All corporate action on the part of the Company, its officers, directors and
stockholders necessary for the authorization, execution and delivery of this
Agreement and the Investors' Rights Agreement, and the Ancillary Agreements,
the
performance of all obligations of the Company hereunder and thereunder, and
the
authorization, issuance (or reservation for issuance), sale and delivery of
the
Series A Debentures being sold hereunder and the Common Stock issuable upon
conversion of the Series A Debentures has been taken or will be taken prior
to
the Closing, and this Agreement and the Investors' Rights Agreement and the
Ancillary Agreements constitute valid and legally binding obligations of the
Company, enforceable in accordance with their respective terms, except (i)
as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, and (iii) to the
extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities
laws.
2.5
Valid
Issuance of Series A Debentures Common Stock
. The Series A Debentures
being purchased by the Investors hereunder, when issued, sold and delivered
in
accordance with the terms of this Agreement for the consideration expressed
herein, will be duly and validly issued, fully paid, and nonassessable, and
will
be free of restrictions on transfer other than restrictions on transfer under
this Agreement and the Investors' Rights Agreement and under applicable state
and federal securities laws. The Series A Debentures will be assumed by Parent
in accordance with the Merger Agreement and the Common Stock issuable upon
conversion of the Series A Debentures will be duly and validly reserved for
issuance by Parent and, upon issuance, will be duly and validly issued, fully
paid, and nonassessable and will be free of restrictions on transfer other
than
restrictions on transfer under this Agreement and the Investors' Rights
Agreement and under applicable state and federal securities laws.
2.6
Governmental
Consents
. No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated
by
this Agreement, except the filing of the Restated Certificate with the Secretary
of State of Delaware.
2.7
Offering
.
Subject in part to the truth and accuracy of each Investor's representations
set
forth in Section 3 of this Agreement, the offer, sale and issuance of the Series
A Debentures as contemplated by this Agreement are exempt from the registration
requirements of any applicable state and federal securities laws, and neither
the Company nor any authorized agent acting on its behalf will take any action
hereafter that would cause the loss of such exemption.
2.8
Litigation
.
Except as set forth in the Schedule of Exceptions, there is no action, suit,
proceeding or investigation pending or, to the Company's knowledge, currently
threatened against the Company that questions the validity of this Agreement
or
the Investors' Rights Agreement or any Ancillary Agreements, or the right of
the
Company to enter into such agreements, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or
in
the aggregate, in any material adverse changes in the assets, condition, affairs
or prospects of the Company, financially or otherwise, or any change in the
current equity ownership of the Company, nor is the Company aware that there
is
any basis for the foregoing. The foregoing includes, without limitation,
actions, suits, proceedings or investigations pending or threatened involving
the prior employment of any of the Company's employees, their use in connection
with the Company's business of any information or techniques allegedly
proprietary to any of their former employers, or their obligations under any
agreements with prior employers. The Company is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court
or
government agency or instrumentality. Except as set forth in the Schedule of
Exceptions, there is no action, suit, proceeding or investigation by the Company
currently pending or that the Company intends to initiate.
2.9
Proprietary
Information and Inventions Agreement
. Ed Hennessey has executed, or at
Closing will execute, a Proprietary Information and Inventions Agreement in
a
form satisfactory to the Investors.
2.10
Patents
and Trademarks
. The Company has sufficient title and ownership of or
licenses to all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes necessary for
its
business as now conducted and as proposed to be conducted without any conflict
with or infringement of the rights of others, except for such items as have
yet
to be conceived or developed or that are expected to be available for licensing
on reasonable terms from third parties. The Company is the licensee
of the “Brelsford” technology pursuant to that certain Exclusive License
Agreement set forth on Schedule of Exception and of the “Eley” technology
pursuant to that certain Technology License Agreement set forth on the Schedule
of Exception and pursuant to such agreements has the exclusive right to use
such
technology with regard to the production of ethanol. No circumstances
exist that would permit any party (including either the licensor of the
“Brelsford” technology or of the “Eley” technology, or the owner of such
technology, if different) to claim any right to use such technology for any
application or other process that would result in or be associated with
production of ethanol. The Schedule of Exceptions contains a complete
list of, licenses, patents and pending patent applications of the Company.
Except as set forth on the Schedule of Exceptions, there are no outstanding
options, licenses, or agreements of any kind relating to the foregoing, nor
is
the Company bound by or a party to any options, licenses or agreements of any
kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other person or entity. The Company has not received any
communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights
of
any other person or entity. The Company is not aware that any of its employees
areobligated under any contract (including licenses, covenants or commitments
of
any nature) or other agreement, or subject to any judgment, decree or order
of
any court or administrative agency, that would interfere with the use of his
or
her best efforts to promote the interests of the Company or that would conflict
with the Company's business as proposed to be conducted. Neither the
execution nor delivery of this Agreement or the Investors' Rights Agreement
or
the Ancillary Agreements, nor the carrying on of the Company's business by
the
employees of the Company, nor the conduct of the Company's business as proposed,
will, to the best of the Company's knowledge, conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
any contract, covenant or instrument under which any of such employees is now
obligated. The Company does not believe it is or will be necessary to utilize
any inventions of any of its employees (or people it currently intends to hire)
made prior to or outside the scope of their employment by the
Company.
2.11
Compliance
With Other Instruments
. The Company is not in violation or default in
any material respect of any provision of its Restated Certificate or Bylaws,
or
in any material respect of any instrument, judgment, order, writ, decree or
contract to which it is a party or by which it is bound, or, to the best of
its
knowledge, of any provision of any federal or state statute, rule or regulation
applicable to the Company. Subject to the filing of the Restated
Certificate, neither the execution and delivery by the Company of this
Agreement, the Investors’ Rights Agreement or the Ancillary Agreements, nor the
consummation by the Company of the transactions contemplated hereby, will (a)
conflict with or violate any provision of the certificate of incorporation
or
bylaws of the Company, as amended to date, (b) require on the part of the
Company any filing with, or any permit, authorization, consent or approval
of,
any court, arbitrational tribunal, administrative agency or commission or other
governmental or regulatory authority or agency (a “Governmental Entity”), (c)
conflict with, result in a breach of, constitute (with or without due notice
or
lapse of time or both) a default under, result in the acceleration of
obligations under, create in any Party the right to terminate, modify or cancel,
or require any notice, consent or waiver under, any contract or instrument
to
which the Company is a party or by which the Company is bound or to which any
of
their assets is subject, (d) result in the imposition of any mortgage, pledge,
security interest, encumbrance, charge or other lien (whether arising by
contract or by operation of law), (each, a “Security Interest”) upon any assets
of the Company or (e) violate any order, writ, injunction, decree, statute,
rule
or regulation applicable to the Company or any of its properties or
assets.
2.12
Agreements;
Action
.
(a) Except
for agreements explicitly contemplated hereby and by the Investors' Rights
Agreement and the Ancillary Agreements, there are no agreements, understandings
or proposed transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.
(b) Except
as set forth on the Schedule of Exceptions, There are no agreements,
understandings, instruments, contracts, proposed transactions, judgments,
orders, writs or decrees to which the Company is a party or by which it is
bound
that may involve (i) obligations (contingent or otherwise) of, or payments
to
the Company in excess of, $5,000, or (ii) the license of any patent, copyright,
trade secret or other proprietary right to or from the Company, or (iii)
provisions restricting or affecting the development, manufacture or distribution
of the Company's products or services.
(c) The
Company has not (i) declared or paid any dividends or authorized or made any
distribution upon or with respect to any class or series of its capital stock,
(ii), except as set forth on Schedule 2.12(c)(ii), incurred any indebtedness
for
money borrowed or any other liabilities individually in excess of $5,000 or,
in
the case of indebtedness and/or liabilities individually less than $5,000,
in
excess of $25,000 in the aggregate, (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than
the
sale of its inventory in the ordinary course of business.
(d) For
the purposes of subsections (b) and (c) above, all indebtedness, liabilities,
agreements, understandings, instruments, contracts and proposed transactions
involving the same person or entity (including persons or entities the Company
has reason to believe are affiliated therewith) shall be aggregated for the
purpose of meeting the individual minimum dollar amounts of such
subsections.
(e) The
Company is not a party to and is not bound by any contract, agreement or
instrument, or subject to any restriction under its Restated Certificate or
Bylaws that adversely affects its business as now conducted or as proposed
to be
conducted, its properties or its financial condition.
2.13
Related-Party
Transactions
. Except as set forth on the Schedule of Exceptions, no
employee, officer, or director of the Company or member of his or her immediate
family is indebted to the Company, nor is the Company indebted (or committed
to
make loans or extend or guarantee credit) to any of them. None of such persons
has any direct or indirect ownership interest in any firm or corporation with
which the Company is affiliated (does this apply to SRS) or with which the
Company has a business relationship, or any firm or corporation that competes
with the Company, except that employees, officers, or directors of the Company
and members of their immediate families may own stock in publicly traded
companies that may compete with the Company. No member of the immediate family
of any officer or director of the Company is directly or indirectly interested
in any material contract with the Company.
2.14
Permits
.
The Company has all permits, licenses, and any similar authority necessary
for
the conduct of its business as now being conducted by it, the lack of which
could materially and adversely affect the business, properties, prospects,
or
financial condition of the Company, and the Company believes it can obtain,
without undue burden or expense, any similar authority for the conduct of its
business as planned to be conducted. The Company is not in default in any
material respect under any of such franchises, permits, licenses, or other
similar authority.
2.15
Environmental
and Safety Laws
. The Company is not in violation of any applicable
statute, law or regulation relating to the environment or occupational health
and safety, and to the best of its knowledge, no material expenditures are
or
will be required in order to comply with any such existing statute, law or
regulation.
2.16
Manufacturing
and Marketing Rights
. The Company has not granted rights to
manufacture, produce, assemble, license, market, or sell its products to any
other person and is not bound by any agreement that affects the Company's
exclusive right to develop, manufacture, assemble, distribute, market or sell
its products.
2.17
Disclosure
.
No representation or warranty by the Company contained in this Agreement, and
no
statement contained in the Disclosure Schedule or any other document,
certificate or other instrument delivered or to be delivered by or on behalf
of
the Company pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary, in light of the circumstances under which it was or will be made,
in
order to make the statements herein or therein not misleading. The Company
has
disclosed to the Parent all material information relating to the business of
the
Company or any Subsidiary or the transactions contemplated by this Agreement.
Neither this Agreement, the Investors' Rights Agreement, nor any other
statements or certificates made or delivered in connection herewith or therewith
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements herein or therein not
misleading.
2.18
Registration
Rights
. Except as provided in the Investors' Rights Agreement and the
Merger Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or
entity.
2.19
Corporate
Documents
. Except for amendments necessary to satisfy representations
and warranties or conditions contained herein (the form of which amendments
has
been approved by the Investors), the Restated Certificate and Bylaws of the
Company are in the form previously provided to special counsel for the
Investors.
2.20
Title
to Property and Assets
. The Company owns its property and assets free
and clear of all mortgages, liens, loans and encumbrances, except such
encumbrances and liens that arise in the ordinary course of business and do
not
materially impair the Company's ownership or use of such property or assets.
With respect to the property and assets it leases, the Company is in compliance
with such leases and, to the best of its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances.
2.21
Financial
Statements/Material Liabilities
. The Company has delivered
to the Parent copies of its unaudited balance sheet as of December 31, 2005
and
2006 and the related statements of operations, changes in stockholders’ equity
(deficiency), and cash flows for the years ended December 31, 2005 and 2006
(the
“Company Financial Statements”). The Company Financial Statements have been
prepared in accordance with United States generally accepted accounting
principles (“GAAP”) consistently applied, and present fairly the financial
condition and results of operations of the Company at the dates and for the
periods covered by the Company Financial Statements. Since December 31, 2005,
(a) there has occurred no event or development which, individually or in the
aggregate, has had, or could reasonably be expected to have in the future,
a
Material Adverse Effect to the Company. The Company does not have any liability
(whether known or unknown, whether absolute or contingent, whether liquidated
or
unliquidated and whether due or to become due), except for (a) liabilities
that
have arisen since the December 31, 2006 in the ordinary course of business
and
(b) liabilities disclosed in the Company Financial Statements.
2.22
Changes
.
Since December 31, 2005 there has not been:
(a) any
change in the assets, liabilities, financial condition or operating results
of
the Company from that reflected in the Financial Statements, except changes
in
the ordinary course of business that have not been, in the aggregate, materially
adverse;
(b) any
damage, destruction or loss, whether or not covered by insurance, materially
and
adversely affecting the assets, properties, financial condition, operating
results, prospects or business of the Company (as such business is presently
conducted and as it is proposed to be conducted);
(c) any
waiver by the Company of a valuable right or of a material debt owed to
it;
(d) any
satisfaction or discharge of any lien, claim or encumbrance or payment of any
obligation by the Company, except in the ordinary course of business and that
is
not material to the assets, properties, financial condition, operating results
or business of the Company (as such business is presently conducted and as
it is
proposed to be conducted);
(e) any
material change or amendment to a material contract or arrangement by which
the
Company or any of its assets or properties is bound or subject;
(f) any
material change in any compensation arrangement or agreement with any
employee;
(g) any
sale, assignment or transfer of any patents, trademarks, copyrights, trade
secrets or other intangible assets;
(h) any
resignation or termination of employment of any key officer of the Company;
and
the Company, to the best of its knowledge, does not know of the impending
resignation or termination of employment of any such officer;
(i) receipt
of notice that there has been a loss of, or material order cancellation by,
any
major customer of the Company;
(j) any
mortgage, pledge, transfer of a security interest in, or lien, created by the
Company, with respect to any of its material properties or assets, except liens
for taxes not yet due or payable;
(k) any
loans or guarantees made by the Company to or for the benefit of its employees,
officers or directors, or any members of their immediate families, other than
travel advances and other advances made in the ordinary course of its
business;
(l) any
declaration, setting aside or payment or other distribution in respect of any
of
the Company's capital stock, or any direct or indirect redemption, purchase
or
other acquisition of any of such stock by the Company;
(m) to
the best of the Company's knowledge, any other event or condition of any
character that might materially and adversely affect the assets, properties,
financial condition, operating results or business of the Company (as such
business is presently conducted and as it is proposed to be conducted);
or
(n) any
agreement or commitment by the Company to do any of the things described in
this
Section 2.22.
2.23
Employee
Benefit Plans
. The Company does not have any Employee Benefit Plan as
defined in the Employee Retirement Income Security Act of 1974.
2.24
Tax
Returns, Payments and Elections
. The Company has filed all tax returns
and reports (including information returns and reports) as required by law.
These returns and reports are true and correct in all material respects. The
Company has paid all taxes and other assessments due. The Company has not
elected pursuant to the Internal Revenue Code of 1986, as amended (the "Code"),
to be treated as a Subchapter S corporation or a collapsible corporation
pursuant to Section 1362(a) or Section 341(f) of the Code, nor has it made
any
other elections pursuant to the Code (other than elections that relate solely
to
methods of accounting, depreciation or amortization) that would have a material
effect on the Company, its financial condition, its business as presently
conducted or proposed to be conducted or any of its properties or material
assets. The Company has never had any tax deficiency proposed or assessed
against it and has not executed any waiver of any statute of limitations on
the
assessment or collection of any tax or governmental charge. None of the
Company's federal income tax returns and none of its state income or franchise
tax or sales or use tax returns have ever been audited by governmental
authorities. The Company has withheld or collected from each payment made to
each of its employees, the amount of all taxes (including, but not limited
to,
federal income taxes, Federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes) required to be withheld or collected therefrom,
and
has paid the same to the proper tax receiving officers or authorized
depositories.
2.25
Labor
Agreements and Actions; Employee Compensation
. The Company is not bound
by or subject to (and none of its assets or properties is bound by or subject
to) any written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested or, to the best of the
Company's knowledge, has sought to represent any of the employees,
representatives or agents of the Company. There is no strike or other labor
dispute involving the Company pending, or to the best of the Company's
knowledge, threatened, that could have a material adverse effect on the assets,
properties, financial condition, operating results, or business of the Company
(as such business is presently conducted and as it is proposed to be conducted),
nor is the Company aware of any labor organization activity involving its
employees. The Company is not aware that any officer or key employee, or that
any group of key employees, intends to terminate their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing. The employment of each officer and employee
of the Company is terminable at the will of the Company. The Company has
complied in all material respects with all applicable state and federal equal
employment opportunity and other laws related to employment. The Company is
not
a party to or bound by any currently effective employment contract, deferred
compensation agreement, bonus plan, incentive plan, profit sharing plan,
retirement agreement, or other employee compensation agreement.
2.26
Brokers
.
The Company has no contract, arrangement or understanding with any broker,
finder or similar agent with respect to the transactions contemplated by this
Agreement.
2.27
Legal
Compliance.
Each of the Company and the Subsidiaries, and the conduct
and operations of their respective businesses, are in compliance with each
applicable law (including rules and regulations thereunder) of any federal,
state, local or foreign government, or any Governmental Entity, including,
without limitation, those related to requirements pertaining to equal employment
opportunity, employee retirement, affirmative action and other hiring practices,
environmental matters, occupational safety and health workers’ compensation and
unemployment, except for any violations or defaults that, individually or in
the
aggregate, have not had and would not reasonably be expected to have a Company
Material Adverse Effect. No claims have been filed against the Company, and
the
Company has not received any written notice, alleging a violation of any such
laws, regulations or other requirements.
2.28
Use
of Proceeds.
The Company shall use the proceeds of the sale of the
Series A Debentures solely as set forth in the budget attached hereto as
Schedule B
and for no other purpose or in no other manner, other than as
may be approved by a majority of the Purchasers (not including any additional
Purchaser that purchases Series A Debentures pursuant to Section 1.3 of this
Agreement).
3.
Representations
and Warranties of the Investors
. Each Investor hereby represents and
warrants that:
3.1
Authorization
.
Such Investor has full power and authority to enter into this Agreement and
the
Investors' Rights Agreement, and each such Agreement constitutes its valid
and
legally binding obligation, enforceable in accordance with its terms except
(i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, and (iii) to the
extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities
laws.
3.2
Purchase
Entirely for Own Account
. This Agreement is made with such Investor in
reliance upon such Investor's representation to the Company, which by such
Investor's execution of this Agreement such Investor hereby confirms, that
the
Series A Debentures to be received by such Investor and the Common Stock
issuable upon conversion thereof (collectively, the "Securities") will be
acquired for investment for such Investor's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that such Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, such Investor further represents that such Investor does not have
any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Securities.
3.3
Disclosure
of Information
. Such Investor further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding
the
terms and conditions of the offering of the Series A Debentures and the
business, properties, prospects and financial condition of the Company. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 2 of this Agreement or the right of the Investors
to
rely thereon.
3.4
Investment
Experience
. Such Investor is an investor in securities of companies in
the development stage and acknowledges that it is able to fend for itself,
can
bear the economic risk of its investment, and has such knowledge and experience
in financial or business matters that it is capable of evaluating the merits
and
risks of the investment in the Series A Debentures. If other than an individual,
Investor also represents it has not been organized for the purpose of acquiring
the Series A Debentures.
3.5
Accredited
Investor
. Such Investor is an "accredited investor" within the meaning
of Securities and Exchange Commission ("SEC") Rule 501 of Regulation D, as
presently in effect.
3.6
Restricted
Securities
. Such Investor understands that the Securities it is
purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, such
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the
Act.
3.7
Further
Limitations on Disposition
. Without in any way limiting the
representations set forth above, such Investor further agrees not to make any
disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound
by
this Section 3 and the Investors' Rights Agreement provided and to the extent
this Section and such agreement are then applicable, and:
(a) There
is then in effect a Registration Statement under the Act covering such proposed
disposition and such disposition is made in accordance with such Registration
Statement; or
(b) (i)
Such Investor shall have notified the Company of the proposed disposition and
shall have furnished the Company with a detailed statement of the circumstances
surrounding the proposed disposition, and (ii) if reasonably requested by the
Company, such Investor shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company that such disposition will
not
require registration of such shares under the Act. It is agreed that the Company
will not require opinions of counsel for transactions made pursuant to Rule
144
except in unusual circumstances.
(c) Notwithstanding
the provisions of Paragraphs (a) and (b) above, no such registration statement
or opinion of counsel shall be necessary for a transfer by an Investor that
is a
partnership to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner or the transfer by gift, will or intestate succession
of any partner to his or her spouse or to the siblings, lineal descendants
or
ancestors of such partner or his or her spouse, if the transferee agrees in
writing to be subject to the terms hereof to the same extent as if he or she
were an original Investor hereunder.
3.8
Legends
.
It is understood that the certificates evidencing the Securities may bear one
or
all of the following legend:
"These
securities have not been registered under the Securities Act of 1933, as
amended. They may not be sold, offered for sale, pledged or hypothecated in
the
absence of a registration statement in effect with respect to the securities
under such Act or an opinion of counsel satisfactory to the Company that such
registration is not required or unless sold pursuant to Rule 144 of such Act.
"
3.9
Further
Representations by Foreign Investors
. If an Investor is not a United
States person, such Investor hereby represents that he or she has satisfied
himself or herself as to the full observance of the laws of his or her
jurisdiction in connection with any invitation to subscribe for the Securities
or any use of this Agreement, including (i) the legal requirements within his
jurisdiction for the purchase of the Securities, (ii) any foreign exchange
restrictions applicable to such purchase, (iii) any governmental or other
consents that may need to be obtained, and (iv) the income tax and other tax
consequences, if any, that may be relevant to the purchase, holding, redemption,
sale, or transfer of the Securities. Such Investor's subscription and payment
for, and his or her continued beneficial ownership of the Securities, will
not
violate any applicable securities or other laws of his or her
jurisdiction.
4.
Conditions
of Investors' Obligations at Closing
. The obligations of each Investor
under subsection 1.1 (b) of this Agreement are subject to the fulfillment on
or
before the Closing of each of the following conditions, the waiver of which
shall not be effective against any Investor who does not consent
thereto:
4.1
Representations
and Warranties
. The representations and warranties of the Company
contained in Section 2 shall be true on and as of the Closing with the same
effect as though such representations and warranties had been made on and as
of
the date of such Closing.
4.2
Performance
.
The Company shall have performed and complied with all agreements, obligations
and conditions contained in this Agreement that are required to be performed
or
complied with by it on or before the Closing.
4.3
Compliance
Certificate
. The President of the Company shall deliver to each
Investor at the Closing a certificate stating that the conditions specified
in
Sections 4.1 and 4.2 have been fulfilled and stating that there shall have
been
no adverse change in the business, affairs, operations, properties, assets
or
condition of the Company since the date of this Agreement.
4.4
Qualifications
.
All authorizations, approvals, or permits, if any, of any governmental authority
or regulatory body of the United States or of any state that are required in
connection with the lawful issuance and sale of the Securities pursuant to
this
Agreement shall be duly obtained and effective as of the Closing.
4.5
Proceedings
and Documents
. All corporate and other proceedings in connection with
the transactions contemplated at the Closing and all documents incident thereto
shall be reasonably satisfactory in form and substance to Investors' special
counsel, and they shall have received all such counterpart original and
certified or other copies of such documents as they may reasonably request.
This
may include, without limitation, good standing certificates and certification
by
the Company's Secretary regarding the Company's Certificate of Incorporation
and
Bylaws and Board of Director and stockholder resolutions relating to this
transaction.
4.6
Proprietary
Information and Employee Stock Purchase Agreements
. Ed Hennessey shall
have entered into a Proprietary Information and Inventions
Agreement.
4.7
Bylaws
.
The Bylaws of the Company shall provide that the Board of Directors of the
Company shall consist of five (5) persons.
4.8
Board
of Directors
. The directors of the Company shall be Messrs. Edward
Hennessey, _______________ and ______________ and there shall be two vacancies
on the Board of Directors.
4.9
Opinion
of Company Counsel
. Each Investor shall have received from Sauerwein,
Simon, Blanchard & Kime, P.C., counsel for the Company, an opinion, dated as
of the Closing, in the form attached hereto as
Exhibit C
.
4.10
Investors'
Rights Agreement
. The Company and each Investor shall have entered into
the Investors' Rights Agreement.
5.
Conditions
of the Company's Obligations at Closing
. The obligations of the Company
to each Investor under this Agreement are subject to the fulfillment on or
before the. Closing of each of the following conditions by that
Investor:
5.1
Representations
and Warranties
. The representations and warranties of the Investors
contained in Section 3 shall be true on and as of the Closing with the same
effect as though such representations and warranties had been made on and as
of
the Closing.
5.2
Payment
of Purchase Price
. The Investor shall have delivered the purchase price
specified in Section 1.2, and Investors shall collectively have acquired and
paid for at the closing at least $1,400,000 in principal amount of Series A
Debentures hereunder.
5.3
Qualifications.
All authorizations, approvals, or permits, if any, of any governmental authority
or regulatory body of the United States or of any state that are required in
connection with the lawful issuance and sale of the Securities pursuant to
this
Agreement shall be duly obtained and effective as of the Closing.
6.
Indemnification
.
6.1
Indemnification
.
The Company shall indemnify each Investor in respect of, and hold it harmless
against, any and all debts, obligations and other liabilities (whether absolute,
accrued, contingent, fixed or otherwise, or whether known or unknown, or due
or
to become due or otherwise), monetary damages, fines, fees, penalties, interest
obligations, deficiencies, losses and expenses (including without limitation
amounts paid in settlement, interest, court costs, costs of investigators,
fees
and expenses of attorneys, accountants, financial advisors and other experts,
and other expenses of litigation) incurred or suffered by such Investor
resulting from, relating to or constituting: any misrepresentation,
breach of warranty or failure to perform any covenant or agreement of the
Company contained in this Agreement, the Investors’ Rights Agreement, any
Ancillary Agreement or the Company Certificate required in Section
4.3.
6.2
Indemnification
Claims
. Any Investor entitled to indemnification under this Section 6
will give written notice to the Company of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Section 6.
7.
Miscellaneous
.
7.1
Survival
of Warranties
. The warranties, representations and covenants of the
Company and Investors contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing and shall
in no way be affected by any investigation of the subject matter thereof made
by
or on behalf of the Investors or the Company.
7.2
Successors
and Assigns
. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties (including transferees
of
any Securities). Nothing in this Agreement, express or implied, is intended
to
confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this
Agreement.
7.3
Governing
Law
. This Agreement shall be governed by and construed under the laws
of the State of Missouri as applied to agreements among Missouri residents
entered into and to be performed entirely within Missouri.
7.4
Counterparts
.
This Agreement may be executed in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
7.5
Titles
and Subtitles
. The titles and subtitles used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting
this Agreement.
7.6
Notices
.
Unless otherwise provided, any notice required or permitted under this Agreement
shall be given in writing and shall be deemed effectively given upon personal
delivery to the party to be notified or upon deposit with the United States
Post
Office, by registered or certified mail, postage prepaid and addressed to the
party to be notified at the address indicated for such party on the signature
page hereof, or at such other address as such party may designate by ten (10)
days' advance written notice to the other parties.
7.7
Finder's
Fee
. Each party represents that it neither is nor will be obligated for
any finders' fee or commission in connection with this transaction. Each
Investor agrees to indemnify and to hold harmless the Company from any liability
for any commission or compensation in the nature of a finders' fee (and the
costs and expenses of defending against such liability or asserted liability)
for which such Investor or any of its officers, partners, employees, or
representatives is responsible.
The
Company agrees to indemnify and hold harmless each Investor from any liability
for any commission or compensation in the nature of a finders' fee (and the
costs and expenses of defending against such liability or asserted liability)
for which the Company or any of its officers, employees or representatives
is
responsible.
7.8
Expenses
.
Each party shall pay all costs and expenses that it incurs with respect to
the
negotiation, execution, delivery and performance of this
Agreement. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the Investors' Rights Agreement or
the
Restated Certificate, the prevailing party shall be entitled to reasonable
attorney's fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.
7.9
Amendments
and Waivers
. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or
in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of a majority of the Common
Stock
issuable or issued upon conversion of the Series A Debentures. Any amendment
or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities are convertible), each future
holder of all such securities, and the Company.
7.10
Severability
.
If one or more provisions of this Agreement are held to be unenforceable under
applicable law, such provision shall be excluded from this Agreement and the
balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
7.11
Entire
Agreement
. This Agreement and the documents referred to herein
constitute the entire agreement among the parties and no party shall be liable
or bound to any other party in any manner by any warranties, representations,
or
covenants except as specifically set forth herein or therein.
7.12
Waiver
of Conflicts
. Each party to this Agreement acknowledges that Sauerwein,
Simon, Blanchard & Kime, P.C., counsel for the Company, has in the past and
may continue to perform legal services for certain of the Investors in matters
unrelated to the transactions described in this Agreement, including the
representation of such Investors in venture capital financings and other
matters. Accordingly, each party to this Agreement hereby (1) acknowledges
that
they have had an opportunity to ask for information relevant to this disclosure;
(2) acknowledges that Sauerwein, Simon, Blanchard & Kime, P.C. represented
the Company in the transaction contemplated by this Agreement and has not
represented any individual Investor or any individual shareholder or employee
of
the Company in connection with such transaction; and (3) gives its informed
consent to Sauerwein, Simon, Blanchard & Kime, P.C.’s representation of
certain of the Investors in such unrelated matters and to Sauerwein, Simon,
Blanchard & Kime, P.C.'s representation of the Company in connection with
this Agreement and the transactions contemplated hereby.
[Remainder
of page intentionally left blank; signature page to follow.]
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first
above written.
|
|
COMPANY
|
|
|
|
|
|
SRS
ENERGY, INC.
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
Name:
|
|
|
|
Title:
|
|
|
|
HOLDERS:
|
|
|
|
|
|
IS
INVESTMENTS
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
Name:
|
|
|
|
Title:
|
|
|
|
TRINITY
ENTERPRISES, L.L.C.
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
Name:
|
|
|
|
Title:
|
|
|
|
LEGGWEAR
INTERNATIONAL, LTD.
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
Name:
|
|
|
|
Title:
|
|
|
|
PADSTOW
ESTATES, INC.
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
Name:
|
|
|
|
Title:
|
|
|
|
ANAHUAC
MANAGEMENT, INC.
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
Name:
|
|
|
|
Title:
|
|
Schedule
A
Schedule
of Investors
|
Investor
|
Debenture
Amount
|
Common
Shares Initially
Issuable
on Conversion
|
|
|
|
|
|
IS
Investments
|
$100,000.00
|
666,667
|
|
Leggwear
International, Ltd.
|
$100,000.00
|
666,667
|
|
Trinity
Enterprises, L.L.C.
|
$250,000.00
|
1,666,667
|
|
Padstow
Estates, Inc.
|
$250,000.00
|
1,666,667
|
|
Anahuac
Management, Inc.
|
$200,000.00
|
1,333,333
|
|
Agest,
Inc.
|
$150,000.00
|
1,000,000
|
|
James
Karl
|
$20,000.00
|
133,333
|
|
Gary
Slay
|
$30,000.00
|
200,000
|
|
Jeff
Slay
|
$30,000.00
|
200,000
|
|
Jill
Garlich
|
$30,000.00
|
200,000
|
|
Michael
McMahon
|
$15,000.00
|
100,000
|
|
John
A. Caito
|
$10,000.00
|
66,667
|
|
Glen
T. Slay
|
$215,000.00
|
1,433,333
|
Exhibit
4.4
WARRANT
FOR THE PURCHASE OF
SHARES
OF COMMON STOCK
OF
ALTERNATIVE
ETHANOL TECHNOLOGIES, INC.
(a
Delaware corporation)
DATED
AS OF MAY 31, 2007
VOID
AFTER 5:00 P.M., CENTRAL STANDARD TIME, ON AUGUST 31, 2009
Alternative
Ethanol Technologies, Inc., a Delaware corporation (the “Company”), hereby
certifies that William Meyer (“Warrant Holder”), is entitled, subject to the
terms set forth below, to purchase, at the time, in the amounts and during
the
period described in Section 3 below, that number of shares of its Common Stock
of the Company determined pursuant to the provisions of Section 2 below, at
the
Purchase Price (as defined below).
1. Definitions.
“
Common
Stock
” means the Company’s common stock and stock of any other class of the
equity of the Company into which such shares may hereafter have been
changed.
“
Exercise
Term
” means any time between the date hereof and August 31,
2009.
“
Market
Price
” of a share of Common Stock on any day means (i) the average closing
price of a share of Common Stock for the three consecutive trading days
preceding such day on the principal national securities exchange on which the
shares of Common Stock are listed or admitted to trading, or (ii) if not listed
or admitted to trading on any national securities exchange, the average of
the
last reported sales price for the three consecutive trading days preceding
such
day on the Nasdaq National Market, or (iii) if not traded on the Nasdaq National
Market, the average of the highest reported bid and the lowest reported asked
prices on each of the three consecutive trading days preceding such day in
the
over-the-counter market as furnished by the National Association of Securities
Dealers automated quotation system, or (iv) if such firm is not then engaged
in
the business of reporting such prices, as furnished by any similar firm then
engaged in such business selected by the Company or, if there is no such firm,
as furnished by any member of the National Association of Securities Dealers,
Inc. selected by the Company or, if the shares of Common Stock are not publicly
traded, the Market Price for such day shall be equal to the price per share
of
the Company’s Common Stock (or other capital stock of the Company convertible
into Common Stock at a 1:1 ratio) sold in the Company’s latest bona fide round
of equity financing or if none, determined in good faith by the Company’s Board
of Directors.
“
New
Security
” shall have the meaning set forth in Section 4(b)
hereof.
“
Purchase
Price
” shall have the meaning set forth in Section 3(b) hereof.
“
Strike
Price
” means the price per share for which Common Stock is issuable upon the
exercise of any rights, options or warrants for the purchase of Common Stock,
determined by dividing (i) the total amount, if any, received or receivable
by
the Company as consideration for the grant of such rights, options or warrants,
plus the minimum aggregate amount of additional consideration payable to the
Company upon the exercise of such rights, options or warrants, by (ii) the
total
maximum number of shares of Common Stock issuable upon the exercise of such
rights, options or warrants.
“
Warrant
Holder
” means William Meyer, together with any successors and permitted
assigns.
“
Warrant
Stock
” means the shares of Common Stock or New Securities acquired or
acquirable upon exercise of this Warrant, any shares of Common Stock or New
Securities issued as (or issuable upon the conversion or exercise of any
warrant, right or other security that is issued as) a dividend or other
distribution with respect to, or in exchange for, or in replacement of, such
shares of Common Stock, or any other interest in the Company that has been
or
may be acquired upon exercise of this Warrant.
2. Shares
to be Issued Upon Exercise.
The
Warrant Holder is hereby entitled to purchase from the Company 1,923,495 shares
of Common Stock at a total price of $0.13 per share of Warrant
Stock.
3. Exercise
of Warrant.
(a) In
addition to the Warrant Holder’s rights pursuant to Section 3(e) hereof, this
Warrant may be exercised at any time during the Exercise Term by the Warrant
Holder in whole or in part, and from time to time, by surrendering this Warrant,
with the purchase form appended hereto as Annex B duly executed by such Warrant
Holder, at the principal office of the Company, or at such other office or
agency as the Company may designate, accompanied by payment in full of the
Purchase Price payable in respect of the number of shares of Warrant Stock
purchased upon such exercise. The Purchase Price may be paid by a
check drawn on the bank account of the Warrant Holder, or, initial public
offering, by the surrender of shares of Warrant Stock or Common Stock having
a
Market Price as of the date of the surrender equal to the Purchase
Price.
(b) As
used herein, the term “Purchase Price,” with respect to a share of Warrant
Stock, shall mean $0.13 per share.
(c) Each
exercise of this Warrant shall be deemed to have been effected immediately
prior
to the close of business on the day on which this Warrant shall have been
surrendered to the Company as provided in subsection 3(a) above. At
such time, the person(s) or entity(ies) in whose name or names any certificates
for Warrant Stock shall be issuable upon such exercise as provided in subsection
3(d) below shall be deemed to have become the holder or holders of record of
the
Warrant Stock represented by such certificates.
(d) As
soon as practicable after each exercise of this Warrant in whole or in part,
and
in any event within ten (10) days thereafter, the Company at its expense will
cause to be issued in the name of, and delivered to, the Warrant Holder, or,
subject to the terms and conditions hereof, as the Warrant Holder (upon payment
by the Warrant Holder of any applicable transfer taxes) may direct:
(i) a
certificate or certificates for the number of full shares of Warrant Stock
to
which such Warrant Holder shall be entitled upon such exercise plus, in lieu
of
any fractional share to which such Warrant Holder would otherwise be entitled,
cash in an amount determined pursuant to Section 5 hereof; and
(ii) in
case such exercise is in part only, a new warrant or warrants (dated the date
hereof) of like tenor, with a new Warrant Schedule attached thereto reflecting
the number of shares of Warrant Stock equal (without giving effect to any
adjustment therein) to the number of such shares reflected in the Warrant
Schedule attached as Annex A to this Warrant on the date of such exercise minus
the number of such shares purchased by the Warrant Holder upon such exercise
as
provided in subsection 3(a) above.
(e)
Net
Issue Election
. The Warrant Holder may elect to receive, without
the payment by the Warrant Holder of any additional consideration, shares equal
to the value of this Warrant or any portion hereof by the surrender of this
Warrant or such portion to the Company, with the net issue election notice
(attached hereto as Annex C) duly executed, at the office of the
Company. Thereupon, the Company shall issue to the Warrant Holder
such number of fully paid and nonassessable shares of Common Stock as is
computed using the following formula:
where
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X
=
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the
number of shares to be issued to the Warrant Holder pursuant to this
Section 3(e).
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Y
= the number of
shares covered by this Warrant in respect of which the net issue election is
made pursuant to this Section 3(e).
A
= the Market
Price of one share of Common Stock at the time the net issue election is made
pursuant to this Section 3(e).
B
= the Purchase
Price in effect under this Warrant at the time the net issue election is made
pursuant to this Section 3(e).
The
Board
of Directors of the Company shall promptly respond in writing to an inquiry
by
the Warrant Holder as to the Market Price of one share of Common
Stock.
4. Adjustments.
(a)
Adjustment
of Purchase Price Amount Upon Stock Splits, Dividends, Distributions and
Combinations
. In case the Company shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares or issue
a
stock dividend or make a distribution with respect to outstanding shares of
Common Stock or convertible securities payable in Common Stock or in convertible
securities which are convertible with no additional consideration into shares
of
Common Stock, the Purchase Price for all shares of Warrant Stock issuable
immediately prior to such subdivision or stock dividend or distribution shall
be
proportionately reduced (treating for such purpose any such shares of
convertible securities outstanding or payable as being the number of shares
of
Common Stock issuable upon their conversion); and conversely, in case the shares
of Common Stock of the Company shall be combined into a smaller number of
shares, the Purchase Price for all shares of Warrant Stock issuable immediately
prior to such combination shall be proportionately increased.
(b)
Reorganization
or Reclassification
.
In case of any capital
reorganization, or of any reclassification of the capital stock, of the Company
(other than a change in par value or from par value to no par value or from
no
par value to par value), or any consolidation or merger of the Company with
another corporation or other entity, or the sale of all or substantially all
of
the assets of the Company which shall be effected in a manner by which the
holders of Common Stock shall be entitled (either directly or upon subsequent
liquidation) to equity securities with respect to or in exchange for Common
Stock, then this Warrant shall, after such capital reorganization,
reclassification of capital stock, merger or sale of assets, entitle the Warrant
Holder hereof to purchase the kind and number of shares of stock or other
securities of the Company, or of the entity resulting from such consolidation
(the “Surviving Entity”) to which the Warrant Holder hereof would have been
entitled if it had held the Common Stock issuable upon the exercise hereof
immediately prior to such capital reorganization, reclassification of capital
stock, consolidation, merger or sale of assets. If the holders of
Common Stock shall be entitled to cash, cash equivalents, nonequity securities
or other property of the Company or the Surviving Entity (“Property”) with
respect to or in exchange for Common Stock, then this Warrant shall, after
such
capital reorganization, reclassification of capital stock, merger or sale of
assets, entitle the Warrant Holder hereof to purchase the kind of issued and
outstanding common stock or other equity security of the Company or the
Surviving Entity (“New Security”), as the case may be, which is most similar to
the Common Stock, which shall be in an amount equal to a number of shares of
the
New Security having a Market Price on the effective date of such capital
reorganization, reclassification of capital stock, merger or sale of assets
equal to the Market Price on such effective date of the Property issued per
share of the Common Stock. The Company shall not effect any such
capital reorganization, reclassification of capital stock, consolidation, merger
or sale of assets unless prior to the consummation thereof the Surviving Entity
(if other than the Company) resulting therefrom or the corporation purchasing
such assets shall, by written instrument executed and mailed to the Warrant
Holder hereof at the last address of such Warrant Holder appearing on the books
of the Company, (i) assume the obligation to deliver to such Warrant Holder
such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such Warrant Holder may be entitled to purchase, and (ii) agree
to
be bound by all the terms of this Warrant. Furthermore, in the case
of a capital reorganization, reclassification of capital stock, consolidation,
merger or sale of assets which entitles the Warrant Holder to purchase New
Securities under this Warrant, the Purchase Price for all shares of
Warrant Stock issuable immediately prior to such capital reorganization,
reclassification of capital stock, consolidation, merger or sale of assets
shall
be adjusted to equal the price determined by dividing the Purchase Price for
each such share of Warrant Stock immediately prior to such capital
reorganization, reclassification of capital stock, consolidation, merger or
sale
of assets by the number of shares of New Securities the Warrant Holder is
entitled to receive for each share of Common Stock hereunder.
(c)
Computation
of Adjustments
. Upon each computation of an adjustment in
the Purchase Price for any share of Warrant Stock issuable hereunder, the
Purchase Price for all such shares of Warrant Stock shall be computed to the
nearest cent (
i.e
., fractions of .5 of a cent, or greater, shall be
rounded to the highest cent) and the shares which may be purchased upon exercise
of this Warrant shall be calculated to the nearest whole share (
i.e
.,
fractions of one half of a share, or greater, shall be treated as being a whole
share). No such adjustment shall be made, however, if the change in
the Purchase Price for any such share of Warrant Stock would be less than $.05
per share, but any such lesser adjustment shall be made at the time and together
with the next subsequent adjustment which, together with any adjustments carried
forward, shall amount to $.05 per share or more.
(d)
Certain
Prohibited Adjustments
. Notwithstanding anything herein to the
contrary, the Company agrees not to enter into any transaction which would
cause
an adjustment of the Purchase Price to less than the par value of the Common
Stock.
(e)
Notice
of Adjustment of Purchase Price
.
Upon any adjustment of
the Purchase Price for any share of Warrant Stock issuable hereunder or in
the
occurrence of any event which should result in an adjustment to the Purchase
Price for any share of Warrant Stock issuable hereunder, the Company shall
promptly give written notice thereof to the Warrant Holder of this Warrant,
which notice shall state the Purchase Price resulting from such adjustment
and
the increase or decrease, if any, in the number of shares purchasable at such
price upon the exercise of this Warrant and the increase or decrease, if any,
in
the number of shares constituting the Maximum Issuance, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
5. Fractional
Shares.
The
Company shall not be required to issue fractional shares upon the exercise
of
this Warrant. If the Warrant Holder would be entitled upon the
exercise of any rights evidenced hereby to receive a fractional interest in
a
share of Common Stock, the Company shall, upon such exercise, pay in lieu of
such fractional interest an amount in cash equal to the value of such fractional
interest, calculated based upon the Market Price as of the date this Warrant
is
exercised.
6. Limitation
on Sales.
The
Warrant Holder, and each subsequent holder of this Warrant, if any, acknowledges
that this Warrant and the Warrant Stock have not been registered under the
Securities Act of 1933, as now in force or hereafter amended, or any successor
legislation (the “Act”), and agrees not to sell, pledge, distribute, offer for
sale, transfer or otherwise dispose of this Warrant or any Warrant Stock issued
upon its exercise in the absence of (i) an effective registration statement
under the Act as to this Warrant or such Warrant Stock and registration or
qualification of this Warrant or such Warrant Stock under any applicable Blue
Sky or state securities law then in effect, or (ii) an opinion of counsel,
reasonably satisfactory to the Company and the Warrant Holder, that such
registration and qualification are not required. Without limiting the generality
of the foregoing, unless the offering and sale of the Warrant Stock to be issued
upon the particular exercise of this Warrant shall have been effectively
registered under the Act, the Company shall be under no obligation to issue
the
shares covered by such exercise unless and until the Warrant Holder shall have
executed an investment letter in form and substance satisfactory to the Company,
including a warranty at the time of such exercise that it is acquiring such
shares for its own account, for investment and not with a view to, or for sale
in connection with, the distribution of any such shares, in which event the
Warrant Holder shall be bound by the provisions of a legend to such effect
on
the certificate(s) representing the Warrant Stock. In addition,
without limiting the generality of the foregoing, the Company may delay issuance
of the Warrant Stock until completion of any action or obtaining of any consent,
which the Company deems necessary under any applicable law (including without
limitation state securities or “blue sky” laws).
7. Notices
of Record Date, Etc.
In
the
event that:
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(a)
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the
Company shall set a record date for the purpose of entitling or enabling
the holders of its Common Stock (or other stock or securities at
the time
deliverable upon the exercise of this Warrant) to receive any dividend
or
other distribution, or to receive any right to subscribe for or purchase
any shares of stock of any class or any other securities, or to receive
any other right, or
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(b)
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there
shall occur any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation
or
merger of the Company with or into another corporation, or any transfer
of
all or substantially all of the assets of the Company,
or
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(c)
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there
shall occur any voluntary or involuntary dissolution, liquidation
or
winding-up of the Company,
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then,
and
in each such case, the Company will mail or cause to be mailed to the Warrant
Holder a notice specifying, as the case may be, (i) the record date for the
purpose of such dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, (ii) the effective date
of such reorganization, reclassification, consolidation, merger or transfer
or
(iii) the date of such dissolution, liquidation or winding-up is to take
place, and also specifying, if applicable, the date and time as of which the
holders of record of Common Stock (or such other stock or securities at the
time
deliverable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least ten (10) days prior
to the record date or effective date for the event specified in such
notice.
8. Reservation
of Stock.
The
Company will at all times reserve and keep available, solely for issuance and
delivery upon the exercise of this Warrant, such shares of Warrant Stock and
other stock, securities and property, as from time to time shall be issuable
upon the exercise of this Warrant.
9. Replacement
of Warrants.
Upon
receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and (in the case of loss, theft or
destruction) upon delivery of an indemnity agreement (with surety if reasonably
required) in an amount reasonably satisfactory to the Company, or (in the case
of mutilation) upon surrender and cancellation of this Warrant, the Company
will
issue, in lieu thereof, a new Warrant of like tenor.
10. Transfers,
Etc.
(a) The
Company will maintain a register containing the names and addresses of the
Warrant Holders of this Warrant. The Warrant Holder may change its,
his or her address as shown on the warrant register by written notice to the
Company requesting such change.
(b) This
Warrant shall not be transferable by the Warrant Holder and shall be exercisable
only by the Warrant Holder; provided that this Warrant may be transferred to,
and may be exercisable by, any company that directly, or indirectly through
one
or more intermediaries, is controlled by, or is under common control with,
the
Warrant Holder.
(c) Until
any transfer of this Warrant is made in the warrant register, the Company may
treat the Warrant Holder of this Warrant as the absolute owner hereof for all
purposes; provided, however, that if and when this Warrant is properly assigned
in blank, the Company may (but shall not be obligated to) treat the bearer
hereof as the absolute owner hereof for all purposes, notwithstanding any notice
to the contrary.
11. Mailing
of Notices, Etc.
All
notices and other communications to the Warrant Holder of this Warrant shall
be
mailed by first-class certified or registered mail, postage prepaid, to the
address furnished to the Company in writing by the last Warrant Holder of this
Warrant who shall have furnished an address to the Company in
writing. All notices and other communications in connection herewith
shall be mailed by first-class certified or registered mail, postage prepaid,
to
the party’s address listed below or to such other address as such party shall so
notify the other party:
If
to the
Company, to:
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Alternative
Ethanol Technologies, Inc.
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If
to the
Warrant Holder, to:
12. No
Rights as Stockholder.
Until
the
exercise of this Warrant, the Warrant Holder of this Warrant shall not have
or
exercise any rights by virtue hereof as a stockholder of the
Company.
13. Change
or Waiver.
Any
term
of this Warrant may be changed or waived only by an instrument in writing signed
by the party against which enforcement of the change or waiver is
sought.
14. Headings.
The
headings in this Warrant are for purposes of reference only and shall not limit
or otherwise affect the meaning of any provision of this Warrant.
15. Governing
Law.
This
Warrant shall be governed by and construed in accordance with the laws of the
State of Delaware.
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ALTERNATIVE
ETHANOL
TECHNOLOGIES,
INC.
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By:
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Dated:
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May
31, 2007
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Name:
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Title:
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ANNEX
A
WARRANT
SCHEDULE
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Date
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Number
of Shares
of
Warrant Stock
Issuable
Pursuant
to Warrant
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Purchase
Price
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ANNEX
B
PURCHASE
FORM
The
undersigned pursuant to the provisions set forth in the attached Warrant, hereby
irrevocably elects to purchase ___________ shares of the Common Stock (the
“Common Stock”) covered by such Warrant and herewith makes payment of $_______,
representing the full purchase price for such shares at the price per share
provided for in such Warrant.
The
undersigned understands and acknowledges the terms and restrictions on the
right
to transfer or dispose of the Common Stock set forth in Section 6 of the
attached Warrant, which the undersigned has carefully reviewed. The
undersigned consents to the placing of a legend on its certificate for the
Common Stock referring to such restrictions and the placing of stop transfer
orders until the Common Stock may be transferred in accordance with the terms
of
such restrictions.
Net
Issue
Election Notice
The
undersigned hereby elects under Section 3(e) to surrender the right to purchase
_______ shares of Common Stock pursuant to this Warrant. The
certificate(s) for the shares issuable upon such net issue election shall be
issued in the name of the undersigned or as otherwise indicated
below.
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[INSERT
NAME OF WARRANT HOLDER]
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By:
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Name:
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Title:
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Name
for Registration:
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Mailing
Address:
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Exhibit
5.1
[Sauerwein,
Simon & Blanchard, P.C. Letterhead]
September
7, 2007
Cleantech
Biofuels, Inc.
7320
Forsyth, Unit 102
St.
Louis, Missouri 63105
Gentlemen:
On
or about September 7, 2007,
Cleantech Biofuels, Inc. (the “Company”) will file with the
Securities and Exchange Commission on Form SB-2 its Registration Statement
(“Registration Statement”) pursuant to the Securities Act of 1933, as amended
(the “Act”), relating to the resale by selling stockholders named on page ___ of
the prospectus of up to 18,880,013 shares of common stock, $0.001 par value
per
share (the “Common Stock”), comprised of 11,013,333 shares of common stock
underlying the Company’s Series A Convertible Debentures issued in 2007 having a
fixed conversion rate of $0.15 per share, which includes accrued interest
through the stated maturity date of the Series A Convertible Debentures; and,
7,866,680 shares of common stock issued upon the conversion of certain
convertible promissory notes made in 2003.
With
respect to the Company, the shares
of its Common Stock and its Series A Convertible Debentures, we are of the
opinion that:
A. The
Company is a corporation duly incorporated and existing under and by virtue
of
the laws of the State of Delaware and is in good standing with the Delaware
Secretary of State.
B. The
18,880,013 shares of Common Stock referred to above:
(i) are
duly authorized; and,
(ii) will
be validly issued and outstanding, fully paid and nonassessable upon issuance
or
transfer.
C. The
Series A Convertible Debentures of the Company referred to above:
(i) are
duly authorized and validly issued and represent the legitimate debt obligations
of the Company; and,
(ii) the
shares of Common Stock issuable upon conversion of the Series A Convertible
Debentures are duly authorized and when issued will be validly issued, fully
paid and nonassessable.
In
arriving at the foregoing opinion,
we have examined corporate records, agreements and other documents of the
Company and have conducted such other investigations of act and law as we have
considered necessary or appropriate to permit us to render the opinions
expressed herein. In rendering this opinion, we have also relied on
such certificates issued by the Secretary of State of Delaware as we have deemed
appropriate.
We
do not express any opinion herein
concerning any law other than the laws of the State of Missouri, the United
States of America and the General Corporate law of the State of
Delaware.
Our
opinions are effective as of the
date hereof, and we specifically disclaim any obligation to monitor any of
the
matters stated in this opinion or to advise of any change in law or in fact
after the date hereof which might affect any of the opinions stated
herein.
We
consent to the use of this opinion
as an exhibit to the Registration Statement. In giving such consent, we do
not
admit that we come within the category of persons whose consent is required
under Section 7 of the Act, as amended, or the rules and regulations promulgated
thereunder by the Securities and Exchange Commission.
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Very
truly yours,
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/s/
Sauerwein, Simon & Blanchard, P.C.
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Sauerwein,
Simon & Blanchard, P.C.
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Exhibit
10.1
BRELSFORD
ENGINEERING, INC.
8655
BRIDGER CANYON RD.
BOZEMAN,
MONTANA
EXCLUSIVE
LICENSE AGREEMENT
A. Parties
to This Agreement
THIS
EXCLUSIVE LICENSE AGREEMENT is made this 1
st
day of
April 2005
by and between:
LICENSOR:
BRELSFORD ENGINEERING, INC.
Having
its principal place of business at:
8655
BRIDGER CANYON RD.
BOZEMAN,
MONTANA 59715
And
LICENSEE:
SRS Energy, Inc.
Having
its principal place of business at:
7320
Forsyth, Unit 102
St.
Louis, MO 63105
B. Definitions
The
following terms, whenever used in this Agreement, shall have the respective
meanings set forth below:
(1)
“Licensed
Products” shall mean (1) the technology, processes, techniques which are applied
in accordance with the Licensed Know-How or the Licensed Patents as hereinafter
defined, and; (2) any equipment and substances which are manufactured in
accordance with the Licensed Know-How or the Licensed Patents as hereinafter
defined.
(2)
“Subject
Matter of this Agreement” shall mean the Licensed Products, any processes for
producing the same, or any of them, and any devices for practicing or applying
any such processes, or for producing the Licensed Products.
(3)
“Licensed
Know-How” shall mean LICENSOR’s present and future specialized, novel, and
unique techniques, inventions, practices, knowledge, skill, experience, and
other proprietary information relating to the Subject Matter of this
Agreement.
(4)
“Designated
Affiliate” shall mean any firm, corporation, or other organization in which
LICENSEE has an ownership interest and which LICENSEE has identified in writing
to LICENSOR as an Affiliate of LICENSEE.
(5)
“Agreement”
shall mean this Agreement and License including all Exhibits
hereto.
(6)
“Licensed
Territory” as specified below.
(7)
“Year”
shall mean each successive twelve-month period during the term of this
agreement, the first of which shall commence on the date of this Agreement,
or
on the date of the end of the “Trial Option Period”, if one is
exercised.
(8)
“Licensed
Product” shall include Licensed Know-How.
(9)
“Minimum
Annual Royalty” shall mean the minimum royalty required to keep this U.S. Patent
License Agreement in full force and effect throughout the term of this
Agreement.
(10)
“Monthly
Trial Option Premium” shall mean the monthly amount due LICENSOR from LICENSEE
to keep this agreement in full force and effect during and through the Trial
Option Period.
(11)
“Net
Sales” shall mean the actual gross sales; related to anyway to the Licensed
Products, and made by the LICENSEE and/or Designated Affiliate; f.o.b. seller’s
factory, less; (a) all sales, use, and other similar taxes paid or payable
by
the seller in connection with the particular transaction involved and not
reimbursed or reimbursable by the purchaser or customer, and; (b) Amounts
credited or refunded to the purchaser or customer for returned or defective
goods.
C. Licensing
Fee
Exclusive
License Territories: All of USA
Initiation
of License Execution Fee: $50,000.00
Minimum
Annual Royalty; begins 10-01-06: $15,000.00
Annual
License Payment per project: $30,000.00
License
Royalty Fees: 4% Net Sales, related to “Licensed Product”
Monthly
Trial Option Premium: $5,000.00
PATENT
NUMBER AND ISSUE DATE:
U.S. P. # 5,411,594 – MAY 2,
1995
TRIAL
OPTION GRANTED:
xx
Yes __ No
TRIAL
OPTION PERIOD:
6
Months
D. General
Scope of LICENSEE’s Activities
(1)
LICENSEE
and/or its Designated Affiliates shall manufacture the Licensed Products or
use
and sell such products.
(2)
LICENSEE
and/or its Designated Affiliates shall have the Exclusive Right to utilize
the
Licensed Products and Know How for all applications as they relate to processing
Municipal Solid Waste and Green Waste. If such a “MSW & “GW” to
Fuel Ethanol” Project is not initiated within three (3) years of the date of
this Agreement, the Exclusive Right will be automatically drop to
Non-Exclusive.
(3)
LICENSEE
and/or its Designated Affiliates shall have the Non Exclusive Right to utilize
the Licensed Products and Know How for processing biomass feedstock applications
including but not limited to Sugar Cane Bagasse (SCB), High Fiber Cane (HFC),
and Forestry Product (FP) feed-stocks in all United States
territories.
(4)
LICENSEE
and/or its Designated Affiliates shall have a 60 day first right of refusal
on
any licensing agreement for the Country of Canada.
(5)
LICENSEE
and/or its Designated Affiliates will neither manufacture, use, nor sell,
directly or indirectly, any of the Licensed Products in any area other than
the
Licensed Territories, unless exempted by written agreement with the
LICENSOR.
(6)
LICENSEE
and/or its Designated Affiliates will neither manufacture, use, nor sell,
directly nor indirectly, any of the Licensed Products in or for shipment to,
or
(to the best of its ability) for resale in, any area other than the Licensed
Territory; unless mutually agreed to by written exception agreement with the
LICENSOR.
E. Trial
Option
If
a
“Trial Option” is granted and noted in Section C, then the Patent License Grant
of Section F below shall not apply except as defined in this Section; LICENSOR
hereby grants to LICENSEE, for the Monthly Trial Option Premium stated herein,
the exclusive rights to investigate LICENSOR’s invention for the Trial Option
Period, noted in Section C. Such Trial Option Period shall commence
from the date of this agreement. LICENSOR will furnish to LICENSEE
all information and know-how (if any) concerning LICENSOR’s invention then in
LICENSOR’s possession. LICENSEE will thereafter investigate
LICENSOR’s invention for operability, cost, marketability, etc. At
any time, during the Trial Option Period, LICENSEE shall have the right to
the
following, in its sole and absolute discretion:
(1) To
terminate the Trial Option by giving written notice of termination to the
LICENSOR at its principal place of business. If the LICENSEE gives
such notice, then no Patent License grant shall take effect, and all rights
hereunder shall revert to the LICENSOR effective as of the date of the
notice. LICENSEE will not make, use, nor sell the Licensed Products
and will not profit in any manner, directly or indirectly from said Licensed
Products. LICENSEE shall also keep confidential all discussions,
drawings, samples and any other related material pertaining to the Licensed
Products.
(2) To
exercise the Trial Option by giving written notice of that option to the
LICENSOR at its principal place of business. If the LICENSEE gives
such notice, then Patent License Grant of Section F below shall become effective
as of the date of the notice.
F. Exercised
Grant or No Trial Option
If
a
Trial Option has been granted, and LICENSEE had exercised its option, or if
a
Trial Option had not been granted, then the LICENSOR hereby grants LICENSEE,
subject to the terms and conditions herein, a Patent License indicated in
Section C herein. Such Patent License shall include the right to use
throughout the Licensed Territories: (1) any of the Licensed Know
How, and (2) the patents set forth in Section C of this agreement and (3) any
other patent(s) relating to the Subject Matter of this Agreement which may
hereafter be issued to the LICENSOR, or to a third party and then subsequently
acquired by LICENSOR (all of which patents are herein collectively called
Licensed Patents) and (4) to make the Licensed Products and to sell such
products in the Licensed Territories. The Patent License may be
Exclusive and Non-Exclusive, as defined in Paragraph D of this
agreement.
G. Disclosure
of Licensed Know-How
(1) Promptly
upon the execution of this Agreement, and from time to time thereafter, as
the
same shall become available to LICENSOR, the LICENSOR shall disclose to LICENSEE
the Licensed Know-How.
(2) Statements,
provisions, and/or Sections of this Agreement to the contrary notwithstanding,
LICENSOR shall not be required to disclose to LICENSEE any Licensed
Know-How.
(a) Regarding
aspects of this Licensed Product still in research or development
(b) Regarding
matters with respect to which patent applications are to be filed, unless
or
until the same shall have been filed
(c) Which
LICENSOR shall be prevented from disclosing to LICENSEE by reason of any
governmental regulation, or
(d) Which,
by the express terms and provisions of any other part of this Agreement,
LICENSOR shall not be required to disclose to LICENSEE.
H. Inspection
of LICENSEE’s Premises
LICENSEE
shall permit, during normal business hours, one duly authorized representative
of the LICENSOR, upon (5) days advance notice, to enter into and upon any
premises of the LICENSEE where LICENSEE is conducting operations pertaining
to
said licensed Products hereunder for the purpose of ascertaining that the
LICENSEE is complying with the provisions of this agreement.
I. Confidential
Information
All
the
Licensed Know-How shall be and remain the sole and exclusive property of the
LICENSOR. Said Know-How shall be used by LICENSEE only in connection
with and for the term of this Agreement and shall be disclosed by the LICENSEE
only to those of its employees or contractors to whom such disclosure shall
be
absolutely necessary in order to facilitate LICENSEE’s operations
hereunder. Furthermore, said Know-How shall be kept and maintained by
LICENSEE in strict confidence both during the term of this Agreement, as well
as
after the termination of this Agreement for any reason, and LICENSEE will take
all reasonable measures to prevent its employees and others from divulging
the
Licensed Know-how, provided however that the provisions of this paragraph shall
apply only while the Licensed Know-how is not published or becomes otherwise
available in the public domain from any source other than from the
LICENSEE.
J. New
Developments and Improvements
In
the
event that an improvement patent is licensed or granted to the LICENSOR bearing
the same expiration date as a patent listed in this agreement, that patent
shall
be automatically included under the terms defined herein.
In
the
event that the LICENSEE is granted an improvement patent, bearing the same
expiration date as any patent listed in this agreement, this Agreement shall
include said granting.
K. Licensing
Fees and Royalties
(1)
Initiation
of Licensee Execution Fee: Unless a Trial Option has been granted,
LICENSEE shall pay to LICENSOR upon execution of this Agreement, a nonrefundable
Initiation of License Execution Fee as specified in Section C
hereof. This Initiation of License Execution Fee shall not be
construed as an advance against future royalties. If a Trial Option
is granted and exercised in accordance with Section C above, then LICENSEE
shall
pay the Initiation of License Fee to LICENSOR if and when LICENSEE exercises
said Trial Option.
(2)
Minimum
Annual Royalties: In the event that this is an Exclusive Agreement as
noted in Section C or elsewhere in this agreement, minimum royalties shall
commence on the date specified in Section C. Minimum annual royalties
shall be due and payable on the first day of said royalty year and upon the
anniversary of each subsequent 12-month royalty year thereafter. If a
Trial Option is granted under Section C, then no minimum annual royalty shall
be
due until and unless LICENSEE exercises the option.
(3)
Annual
License Payment Per Project: The Annual License Payment Per Project,
as noted in Section C, shall be first due and payable on the day of the
initiation of the Project as generated by the exploitation of the Licensed
Products for any facility of the LICENSEE or its Designated
Affiliate(s). Succeeding Annual License Payments Per Project shall be
due and payable on the anniversary of the day first due above.
(4)
The
License Royalty Fees due shall be paid by LICENSEE to LICENSOR in the following
manner:
|
(a)
|
On
the fifteenth business day following each and every successive three-month
period during the term of this Agreement, LICENSEE shall pay to LICENSOR
the royalties due hereunder for the immediately preceding
quarter.
|
|
(b)
|
Sales
shall be deemed to have been made either when the Licensed Products
shall
have been shipped, or when such sales shall have been charged against
a
purchaser or customer on the books of said LICENSEE, whichever event
shall
first occur.
|
|
(c)
|
Sales
shall be deemed to include all sales, whether for cash or on credit,
and
whether the amount thereof shall be collected or uncollected, and
whether
made by an affiliate of LICENSEE.
|
I. Accounting
for Royalties
(1)
At
each
and every time a royalty payment is due and payable hereunder, LICENSEE will
render to LICENSOR a written Statement of Account giving full disclosures
regarding LICENSEE’s sales of the Licensed Products to which royalties shall
have accrued during the period then involved.
(2)
LICENSEE
shall keep, and will cause each of its Designated Affiliates to keep, full
and
true Books of Accounts and other records in sufficient detail to enable the
royalties’ payable hereunder to be properly ascertained.
(3)
LICENSEE
shall permit at it’s request, and share the expense with the LICENSOR, a
certified public accountant selected by LICENSOR, and to whom LICENSEE has
no
reasonable objection, to have access to such Books of Accounts and other records
as may be necessary or desirable to insure the correctness of any statement
of
account or payment made under this Agreement.
M. Minimum
Royalty Default
(1)
In
the
event LICENSOR is operating under an “Exclusive License” grant, and if sales of
Licensed Products in any royalty year do not equal or exceed the Minimum Annual
Royalty identified in Section C hereof, LICENSEE may elect not to pay the
Minimum Annual Royalty when due and payable. In this case, LICENSEE
shall notify LICENSOR of this election by the date on which the last royalty
for
such year is due, i.e., within one month after any anniversary of the date
identified in Section A above. Thereupon the licenses granted under
Section C above shall automatically and without further notice be converted
to a
Non-Exclusive Grants, and LICENSOR may immediately license others to a
Non-Exclusive Grant for the Licensed Product. The late Minimum Annual
Royalty will continue to be due and payable, subject to the terms as noted
in
this Section M.
(2)
Royalty
payments due but not paid, as agreed herein, are subject to a penalty not to
exceed 15% per year on balances late, overdue, or unpaid. Such
interest shall be compounded monthly.
N. Patent
Prosecution
(1)
LICENSOR
shall, at LICENSOR’s sole expense, prosecute its above named United States
Patent Application, and any continuations, divisions, continuations-in-part,
substitutes, and reissues of each patent application or any patent thereon,
similarly maybe prosecuted at LICENSOR’s own expense, until all applicable
patents issue or any patent application becomes finally
abandoned. LICENSOR shall also pay any maintenance fees which become
due on any patent(s) which issue on said patent application. If for
any reason LICENSOR intends to abandon any patent application hereunder,
LICENSOR shall notify LICENSEE at least two months prior to any such abandonment
to permit LICENSEE the opportunity to assume prosecution of any such application
and maintenance of any patent. If LICENSEE assumes prosecution,
LICENSOR shall cooperate with LICENSEE in any manner LICENSEE requires, at
LICENSEE’s expense.
(2)
The
LICENSOR shall be responsible for all maintenance fees due and payable to the
U.S. Patent and Trademark Office as applicable during the term of this Agreement
and warrants that it will pay such fees so as to preserve all rights
hereunder. If LICENSOR intends not to pay any such fees, LICENSOR
shall notify LICENSEE, at least two months prior, whereupon LICENSEE may, at
its
sole discretion and option, pay such fees, whereupon LICENSEE shall deduct
said
amount from any royalty payment due LICENSOR. Such payment by
LICENSEE shall not relieve LICENSOR of its obligation to pay maintenance fees
as
required herein.
(3)
If
LICENSEE assumes prosecution of any United States patent application under
sub-section (1) above, and LICENSEE is successful so that a patent issued,
then
LICENSEE shall pay LICENSOR royalties thereafter at a rate of 75% of the regular
or normal royalty rate and 75% of any applicable minimum
royalties. Subsequently, LICENSOR shall be entitled to deduct
prosecution and maintenance expenses from royalty payments.
(4)
Infringement: If
either Party discovers that the LICENSOR’s patent is infringed upon, the
discoverer shall notify the other Party. LICENSOR shall thereupon
have the right, but not the obligation, to take whatever action it deems
necessary, including the filing of lawsuits, to protect the rights of the
Parties to this Agreement and to cause such infringement to
terminate. LICENSEE shall cooperate with LICENSOR if LICENSOR takes
such action. All expenses of such action shall be borne by
LICENSOR. If LICENSOR recovers any damages or compensation for any
action hereunder, LICENSOR shall be entitled to retain 100% of such awards
or
damages. If LICENSOR elects not to take any legal action hereunder,
LICENSEE shall then have the right, but not the obligation, to take any such
action. In such event, LICENSOR shall cooperate with LICENSEE, but
all of LICENSEE’s expenses shall be borne by LICENSEE. LICENSEE shall
be entitled to receive 75% of any damages or compensation recovered from any
such infringement and shall pay 25% of such damages or compensation to LICENSOR,
after deducting its costs, including attorney’s fees.
O. Warranty
Disclaimer
Nothing
herein shall be construed as a warranty or representation given by LICENSOR
to
LICENSEE attesting to the scope or validity of the herein named Patent or any
Patent Improvement thereon.
P. Default
Any
obligation or duty, to be done by LICENSEE, which LICENSEE fails or refuses
to
do or perform, shall be considered a “default”. Any obligation or
duty, to be done by LICENSOR, which LICENSOR fails or refuses to do or perform,
shall be considered a “default”.
If
LICENSEE fails to make any payment on the date such payment is due under this
Agreement, or if LICENSEE causes any other default under or breach of this
Agreement, LICENSOR shall have the right to terminate this Agreement upon giving
sixty (60) days written notice of intent to terminate. Said notice
shall specify the failure, breach, or default. If LICENSEE fails to
make-up any payment in arrears, or otherwise fails to cure said breach or
default within sixty (60) days following written notice, then LICENSOR may
terminate this Agreement. If this Agreement is terminated, LICENSEE
shall not be relieved of any of its obligations to the date of termination,
and
LICENSOR may act to enforce LICENSEE’s obligations after any such
termination.
Q. Term
and Termination
(1) The
term of the Agreement shall continue, unless sooner terminated as otherwise
herein provided, until the expiration of the letters patent comprising the
Technology. The term of the Agreement for each Project shall be for
the earlier of: (i) the cessation of all activities with respect to the active
use of the Technology at any plant/facility using the Technology and located
or
to be located on the Project site by LICENSEE and/or any Designated affiliate;
or (ii) the life of the patent(s) used by LICENSEE and/or any Designated
Affiliate thereon. LICENSOR expressly agrees that LICENSEE and/or any
Designated Affiliate shall not be liable for any damages that may be incurred
by
LICENSOR as a result of the failure of LICENSEE or any Designated Affiliate
to
pay any royalties. The payment of royalty fees under this Agreement are for
the
life of the patent(s) used, the longest patent validity period
governing. Notwithstanding the foregoing, the termination of the
Agreement for one Project site due to the cessation of activities using the
Technology at such plant/facility does not terminate this Agreement with respect
to any other or future Projects.
(2) Nothing
herein to the contrary, this Agreement shall terminate, without notice from
LICENSOR, upon (a) the bankruptcy or insolvency of LICENSEE, (b) the filing
by
LICENSEE of a petition therefore, (c) LICENSEE’s assignment for the benefit of
creditors, (d) the appointment of a receiver for LICENSEE or of any of its
assets which appointment shall not be vacated within sixty (60) days thereafter,
or (e) the filing of any other petition based upon an alleged bankruptcy or
insolvency of LICENSEE.
(3) LICENSOR
shall not be liable to LICENSEE, for any reason, by virtue of the termination
of
this Agreement, for any compensation, reimbursement, expenditure, or statutory
or other indemnities, or for any investment, leases, or other commitments,
or
for any damages on account of the loss of prospective profits or anticipated
sales, or for any other loss, damage, expense, or matter growing out of such
termination.
(4) No
termination of this Agreement for any reason shall relieve LICENSEE of or
release LICENSEE from its obligations to be performed after such termination
has
become effective.
(5) Antishelving: If
LICENSEE discontinues its sales or manufacture of Licensed Product without
intent to resume, LICENSEE shall so notify LICENSOR within 30 days of such
discontinuance, whereupon LICENSOR shall have the right to terminate this
Agreement upon 30 days written notice, even if this Agreement has been converted
to a Non-Exclusive Grant. If LICENSEE does not begin manufacture or
sales of Licensed Product within one and one-half years from either the date
of
this Agreement or the date of the option trial exercise if an option is granted,
LICENSOR shall have the right to terminate this Agreement upon 30 days written
notice. LICENSOR at LICENSOR’s sole option may extend an additional
period of up to one (1) year to enable LICENSEE to resume or begin manufacture
or sales.
(6) Upon
the termination of this Agreement prior to expiration of the Term of this
Agreement, in addition to the other matters herein provided:
(a) All
rights, privileges, and licenses of LICENSEE hereunder shall terminate
immediately and revert to LICENSOR, and LICENSEE thereafter shall not make
any
use whatsoever of any Licensed Know-How or of any licensed Patent, PROVIDED
HOWEVER THAT this prohibition shall apply only in relation to licensed Know
How
which is not then published or in the public domain from a source other than
the
LICENSEE.
(b) LICENSEE
shall promptly return to LICENSOR all the Licensed Know How, including, but
not
limited to, blueprints, drawings, and specifications.
R. Assignment
and Succession
This
agreement shall not be assigned, pledged, or otherwise encumbered or disposed
of
by LICENSEE, whether in whole or in part, whether voluntarily or involuntarily,
by operation of law, without the prior consent of LICENSOR in each such
instance. LICENSEE shall not grant any Sub-Licenses
hereunder. Any attempt by LICENSEE to assign, pledge, or otherwise
encumber said License, or to grant any such Sub-License without written consent
from LICENSOR shall be null and void, and of no force or
effect. Furthermore, such attempt by LICENSEE to assign, encumber, or
sub-license shall result in the termination of this
Agreement. Notwithstanding anything to the contrary contained in this
Agreement, LICENSEE shall have the right, without the consent of LICENSOR,
to
appoint Agents on terms usual in the trade between unrelated parties to sell
the
Licensed Products in the Licensed Territory. And in addition where
local laws or conditions make appointment of agents either necessary or
desirable, the Licensee shall have the further right to appoint agents to
manufacture the Licensed Product.
S. Notice
All
notices, payments, or statements one Party to the other under this Agreement,
shall be in writing and shall be sent by first-class certified mail, return
receipt requested, postage prepaid, to the Party concerned at the address as
shown on page one (1) of this Agreement, or to any substituted address given
by
notice hereunder. Any such notice, payment, or statement shall be
considered sent or made on the day deposited in the mail and evidenced by
postmark.
T. Arbitration
If
any
dispute arises under this Agreement, the Parties shall negotiate in good faith
to settle such dispute. If the Parties cannot resolve such dispute
themselves, then either Party may submit the dispute to mediation by a mediator
approved by both Parties. The Parties both shall cooperate with the
mediator. If the parties cannot agree to any mediator, or if either
Party fails to abide by any decision of the mediator, then both Parties shall
submit the dispute to arbitration by any mutually-acceptable
arbitrator. If no arbitrator is mutually acceptable, then the Parties
shall submit the matter to arbitration under the rules of the American
Arbitration Association (AAA). Under any arbitration, both parties
shall be bound by the decision of the arbitration proceeding. The
arbitration hearing shall be held in the city of the arbitrator selected under
the rules of AAA. Division of the costs of arbitration shall be at
the discretion of the arbitrator. The arbitrator’s award shall be
final and enforceable in any court of competent jurisdiction.
U. Jurisdiction
This
Agreement shall be interpreted under and in accordance with the laws of
LICENSOR’s State, as provided in Section A above.
V. Miscellaneous
(1) LICENSOR
shall be held harmless and shall have no liability what so ever to LICENSEE
or
any other Party regarding the sale, manufacture, or use of the Licensed
Product.
(2) If
any of the terms or provisions of this Agreement are in conflict with any
applicable statute or rule of law, then such terms or provisions shall be deemed
inoperative to the extent that they may conflict therewith and shall be deemed
to be modified to conform to such statute or rule of law. The
voidance of one term does not void the entire Agreement.
(3) The
failure of either Party hereto to enforce any of the terms or provisions herein
shall not be deemed to be a waiver of any further or future breach of or default
in any of those or any other of the terms or provisions herein. Nor
shall the acceptance by LICENSOR of any money paid hereunder after any breach
or
default by LICENSEE of any one or more of the terms or provisions herein,
whether before or after notice or knowledge thereof or by LICENSOR, constitute
a
waiver by LICENSOR of such breach of default.
(4) The
headings of sections hereof are inserted for convenience only and are in no
way
to be construed as limiting any of the terms or provisions of this
Agreement.
(5) If
and when a patent issues, LICENSEE shall attach proper notices of the Licensed
Patents to all of the Licensed Products manufactured by LICENSEE and in a manner
conforming to the applicable law of the licensed Territory or any political
subdivision thereof. Patent pending markings will be appropriately
attached to Licensed Product if applicable until the patent issues.
(6) This
Agreement contains all the oral and written agreements, representations,
arrangements, and understandings between the Parties hereto. Any
rights which the respective parties hereto may have had under any previous
agreements, representations, arrangement, or understandings, whether written
or
oral, are hereby canceled and terminated. This Agreement can be
changed only by an instrument in writing executed by the Parties
hereto.
(7) Nothing
contained herein shall be construed as making the Parties hereto partners or
joint-ventures, or to render either party liable for any of the debts or
obligations of the other party hereto. Licensee shall in no way be
considered as being an agent or representative of LICENSOR in any dealings
which
LICENSEE may have with any third party, and LICENSEE may neither act for, nor
bind the Licensor in any such dealings.
W. Signatures
|
LICENSOR:
|
/s/
Donald L. Brelsford
|
LICENSEE:
|
/s/
Edward P. Hennessey, Jr.
|
|
|
(Signature)
|
|
(Signature)
|
|
|
|
|
Donald
L. Brelsford, P.E., President
|
Edward
P. Hennessey, Jr., President
|
|
Brelsford
Engineering, Inc.
|
SRS
Energy, Inc.
|
|
|
|
|
Dated:
/s/ 4/6/05
|
Dated:
/s/ 4/1/05
|
Exhibit
10.2
AMENDMENT
TO EXCLUSIVE LICENSING AGREEMENT
Extension
of Trial Period
This
Agreement is made January l1th, 2006 by and between Brelsford Engineering,
a
Montana corporation, whose operating office is located at 8655 Bridger Canyon
Road, Bozeman, MT 59715 (hereinafter the “LICENSOR”) and SRS Energy, Inc., a
Delaware corporation, whose operating office is located at 7320 Forsyth, Unit
102, St. Louis, MO 63105 (hereinafter the “LICENSEE”).
RECITALS
WHEREAS
,
LICENSOR and LICENSEE are parties to an exclusive license agreement dated April
1, 2005 (hereinafter referred to as the “license agreement”), copies of which
are attached hereto as Exhibit A, and incorporated herein by
reference;
WHEREAS
,
the Parties desire to amend the license agreement pursuant to paragraph V
(6).
NOW
THEREFORE
, in consideration of the respective agreements and
commitments as set forth below, and other good and valuable consideration,
the
receipt and sufficiency of which. is acknowledged by each of the parties, the
parties agree as follows:
1.
Section
C:
The section of the license agreement titled “Licensing Fee” is
amended to include the following: The “Trial Option Period” shall be extended
for an additional six (6) months, and; the initiation of the License Execution
Fee of fifty thousand dollars ($50,000) due date shall be moved forward a
commensurate six (6) months and become due beginning April 1, 2006,
2.
Full
Force and Effect:
The License Agreement is hereby amended by this
Amendment. All other terms and conditions of the License Agreement remain
unchanged and in full force and effect.
3.
Term:
This Amendment shall commence on the date hereof and shall continue concurrently
with the term of the License Agreement.
4.
Monthly
Trial Option Period:
The Monthly Trial Option payment shall be paid at
the time of submission to BEI of this final Amendment to Exclusive Licensing
Agreement
IN
WITNESS WHEREOF,
each signatory hereto, through their respective duly
authorized representatives, have executed this Amendment to the license
Agreement consisting of a total of two pages on the date herein set
forth.
Brelsford
Engineering, Inc.
A
Montana
Corporation
By:
/s/
Donald L. Brelsford DLB
Print
Name: Donald Brelsford
Title:
President
SRS
Energy, Inc.
By:
/s/
Edward P. Hennessey, Jr.
Print
Name: Edward P. Hennessey, Jr.
Title:
President
Exhibit
10.3
TECHNOLOGY
LICENSE AGREEMENT
This
Technology License Agreement (the “Agreement”) is made and entered into
8/17
, 2005 between Bio-Products International,
Inc. (“Bio-Products”), a Company incorporated under the laws of the State of
Alabama (the “Licenser), and SRS Energy, Inc., a Company incorporated under the
laws of the State of Delaware (the “Licensee”). The Licensor and Licensee may
hereinafter be either individually referred to as the “Party” or collectively
referred to as the “Parties”.
PREMISES:
Whereas,
Dr. Michael H. Eley (“Eley”), in his continuous capacity as an employee of the
University of Alabama in Huntsville (“UAH”), developed certain proprietary
intellectual property, patented processes, and patent pending processes for
the
volume reduction, separation, recovery, and recycling of various components
of
waste materials, including without limitation, Municipal Solid Waste (“MSW”),
which technology has been reduced to United States Patent No. 6,306,248 (the
“U.S. Patent”) and Patent Cooperation Treaty, International Application No,
PCT/USO1/50049 (the “PCT”) (collectively, the “UAH Technology”). The UAH
Technology constitutes the first of the two parts of the “Technology” (as
defined herein). Eley is also a major stockholder, a Director, and the President
and CEO of Bio-Products;
Whereas,
pursuant to that certain Amended and Restated License Agreement, effective
August 18, 2003 (the “UAH License”) (a copy of which is attached as Exhibit A),
UAH granted an exclusive worldwide license to Bio-Products covering the UAH
Technology, including the rights to make, have made, use, lease and sell certain
products, and to practice certain processes, and to license some or all of
the
rights granted to others, such products and processes being more specifically
defined in the UAH License;
Whereas,
Donald E. Malley (“Malley”), doing business as M&M Consulting. Inc., a
Company incorporated under the laws of the State of Mississippi (“M & M),
developed certain proprietary intellectual property, equipment designs, and
process operating procedures related to the UAH technology, including the
expertise and know-how for fabrication and continuous operation of a small
waste
reduction process plant at a commercial sanitary landfill for a period of
eighteen months (collectively, the “Malley/M&M “Technology”‘). Malley (the
Developer”) and M&M Consulting, Inc. have assigned to Bio-Products
exclusively throughout the world all right, title and interest in the
Malley/M&M Technology (the “Malley/M&M Assignment”) (a copy of which is
attached as Exhibit B). The Malley/M&M Technology constitutes the second of
the two parts of the “Technology” (as defined herein). M & M is a
stockholder in Bio-Products and Malley is a Vice President of
Bio-Products;
Whereas.
Bio-Products desires to enter into a license agreement with the Licensee to
provide the Technology and future improvements for the construction and
operation of commercial scale municipal solid waste processing and recycling
facilities subject to the terms and conditions set forth herein;
Whereas,
the Licensee either has the financial resources, or has agreed to use their
best
efforts to secure the financial resources, for the design, engineering, and
fabrication of processing equipment and facilities, acquisition and permitting
of construction sites, purchase of processing equipment, construction and
operation of processing facilities, and marketing and promotion of commercial
facilities that are compatible with the Technology;
Whereas,
the Licensee desires to enter into a license agreement with Bio-Products to
use
the Technology for commercial purposes upon the terms and conditions hereinafter
set forth; and
Now,
therefore, in consideration of the premises and the mutual covenants contained
herein, the Parties hereto agree as follows;
ARTICLE
I – DEFINITIONS
For
purposes of this Agreement, the following words and phrases shall have the
following meanings:
1.1 “Technology”
shall mean the inventions, technology, and proprietary intellectual property
and
information developed by Bio-Products, Eley, Malley, and UAH created or
discovered prior to or after the effective date of this Agreement, including,
but not limited to, inventions, processes, process operating procedures and
discoveries, patents, patent applications, trade secrets, developments, facility
designs, equipment designs, works of authorship, formulas, software programs,
techniques, information, expertise, know-how, data, research, mask works, all
intellectual and industrial property rights of any sort, all rights of
integrity, disclosure and withdrawal, copyrights, trade names and trademarks,
which are related to the recycling, processing, collection, storage, disposal,
treatment, utilization or reduction of waste, including Municipal Solid Waste
(“MSW’’), or waste components or the conversion of the cellulosic biomass
product to fuels, chemicals, or other materials or other uses of cellulosic
biomass product for the production of energy or otherwise. Technology
as defined in this Agreement shall be limited to the use of the cellulosic
biomass product in applications in which the cellulosic product of waste,
including MSW, processed utilizing the Technology is used as the feedstock
specifically for conversion into fuel grade ethanol. Technology otherwise
includes without limitation, the UAH Technology, the Malley Technology, United
States Patent Number 6,306,248 and foreign patents that may be issued based
on
Patent Cooperation Treaty International Application Number
PCT/USO1/50049.
1.2 “Third
Party” shall mean any person or entity other than Bio-Products, Eley, Malley,
UAH, or the Licensee.
1.3 “Operating
Day” shall mean a day in which the facility (i) processes waste equal to or in
excess of the facility’s daily design capacity; or (ii) processes all of the
waste brought to the facility for processing on such day; or (iii) processes
as
much waste as allowed by any downstream limitations, such as but not limited
to,
any limitations on the downstream processing or disposal of the cellulosic
product
1.4 “Cellulosic
Biomass or Cellulosic Biomass Product” shall be defined as the smallest size
material obtained from screening the processed materials produced utilizing
the
Technology, typically through a one-half inch screening device, in which more
than fifty percent (50%) by dry weight can be chemically characterized as
material originating from forest products or other living plant
components.
ARTICLE
II – GRANT OF LICENSE;
2.1 Subject
to the terms and conditions of this Agreement, Bio-Products hereby grants an
exclusive license to the Licensee to utilize the Technology to construct and
operate commercial scale MSW processing and recycling facilities in the United
States of America (“USA”) in which the cellulosic biomass product of the process
Technology is used specifically for the production of fuel grade
ethanol,
2.2 The
term of this license shall extend from the effective date of this Agreement
for
a period of twenty (20) years, unless extended, terminated or replaced by
agreement of the Parties hereto, or unless otherwise extended or terminated,
as
elsewhere provided in this Agreement. This Agreement shall be extended
automatically until the expiration date of the last patent issued to
Bio-Products or UAH covering the Technology.
2.3 Anything
to the contrary contained elsewhere in this Agreement notwithstanding,
Bio-Products shall retain all of the exclusive rights granted under the UAH
License and all of the exclusive rights obtained by the Malley/M&M
Assignment, including the worldwide exclusive right to license some or all
of
its rights not granted to the Licensee under this Agreement to Third Parties
to
utilize the Technology.
ARTICLE
III – FEES, ROYALTIES, AND OTHER CONSIDERATION
3.1 The
Licensee shall pay to Bio-Products a Process Royalty of one dollar and fifty
cents (S1.50) for every ton of waste received and processed at each facility
to
be constructed and operated under this Agreement, excluding waste received
and
processed at the proof of concept validation ethanol demonstration plant, which
shall have a capacity of not more than one hundred (100) tons per day of MSW,
and which may be only a part of a larger waste processing facility, The Process
Royalty payments shall become payable on the thirtieth (30th) day following
the
end of the calendar month in which such amount becomes due and owing until
this
Agreement or any extension thereof expires or is terminated. Bio-Products agrees
that no Process Royalty shall be due and payable with respect to waste processed
at any facility until such facility has been in operation for thirty (30)
Operating Days, as defined in Paragraph 1.3 (the Operational Date”). Licensee
shall pay said Process Royalty by wire transfer of funds to a Bio-Products
bank
account.
3.2 The
Licensee shall pay to Bio-Products a By-Product Royalty of two and one half
percent (2.5%) of the gross sales price in excess of ten dollars ($10.00) per
ton obtained from the sale of recyclable by-products, excluding the cellulosic
biomass product, obtained from processing waste, including MSW, utilizing the
Technology at each facility to be constructed and operated under this Agreement,
excluding waste received and processed at the proof of concept validation
demonstration plant. The By-Product Royalty shall become due and payable on
the
ninetieth (90
th
) day following
the
end of the calendar quarter in which such recyclable product sales are made
until this Agreement or any extension thereof expires or is terminated. The
above notwithstanding, no By-Product Royalty shall be due and payable with
respect to the cellulosic product produced at the facility until the facility
reaches its Operational Date. Licensee shall pay said By-Product Royalty by
wire
transfer of funds to a Bio-Products bank account.
3.3 As
additional consideration and for their experience and know-how regarding the
Technology, the Licensee shall pay Bio-Products a monthly fee for Technical
Services for each facility to be constructed and operated under this Agreement.
Such Technical Services shall initially be provided by Eley and Malley who
are
employees of Bio-Products, and who agree to provide whatever Technical Services
are reasonably requested of them by Licensee. Payments to Bio-Products for
Technical Services shall be ten thousand dollars ($10,000) per month payable
on
or before the first (1
st
) business
day of
each month beginning sixty (60) days after funding is secured for the proof
of
concept validation demonstration plant. For each subsequent facility, Licensee
shall pay Bio-Products for Technical Services in the amount of ten thousand
dollars ($10,000) per month beginning within thirty (30) days of the date of
submission of the first permit to construct each subsequent facility. Payments
for the Technical Services of Bio-Products shall be increased to twenty thousand
dollars ($20,000) per month commencing on the first business day of the month
following the Licensee’s initial down payment for the process vessels for
construction of the Licensee’s first commercial scale facility and continuing
each month thereafter until the first commercial facility reaches its
Operational Date. After the. Operational Date of the first plant, the monthly
Technical Services fee shall he reduced to ten thousand dollars ($10,000) for
a
period of twelve (12) months. Additional Technical Services, unrelated to the
above, may be provided by Bio-Products employees at the request of the Licensee
at a rate of one hundred dollars ($100) per hour. If at any time Bio-Products
fails to undertake Technical Services requested, then Licensee may cease all
payments as set forth in this Paragraph 3.4, until such time as the failure
to
undertake the Technical Services requested is remedied.
3.4 Additionally,
with respect to the Technical Services provided by Bio-Products, the Licensee
shall either provide pre-paid expense accounts or reimburse Bio-Products
employees directly for the reasonable transportation, lodging, food, and other
expenses incurred by Bio-Products employees in the performance of such Technical
Services for the Licensee. In either case, Bio-Products employees shall submit
weekly, itemized expense reports and receipts to the Licensee for periods which
expenses are incurred. If the Licensee has or establishes a travel
expense policy and procedure, Bio-Products employees shall adhere to said
policy, unless the Parties agree, in writing, otherwise. The Licensee
shall pay Bio-Products employees directly within ten (10) business days of
receipt of such expense reports.
3.5 The
Licensee may enter into research and development contracts with Bio-Products,
with Eley as the principal investigator, to be defined front time to time in
exchange for results and information. Such results and information, including
but not limited to test results, notes, and reports regarding the work performed
as requested by the Licensee shall be turned over to the Licensee by Eley within
thirty (30) days of completion, and all such results and information shall
be
kept confidential and shall not be disclosed in any harm without first obtaining
approval from the Licensee. Any and all research and development results from
contracts with Licensee are confidential and may not be provided to Third
Parties without the written permission of Licensee. If permission is granted
by
Licensee for Third Parties to use such unrelated technology then Licensee shall
be compensated at the rate of 20% of royalties received by Bio-Products for
the
use of the unrelated technology by a Third Party. Eley shall allow the Licensee
to visit the pilot plant facility for any purposes, including demonstrations,
recyclable product production, and testing upon reasonable notice by the
Licensee and mutual agreement with Eley as to the dates and times. Eley shall
also provide training for the Licensee’s employees to use the licensed
Technology at the pilot plant. Eley shall be compensated at a rate of five
hundred dollars ($500.00) per day plus expenses for all pilot plant operations.
For demonstration, recyclable product production, testing, and training at
the
pilot plant at the request of the Licensee, the Licensee shall compensate
Bio-Products for the expenses for such demonstration and test runs as
follows:
|
(a) For
Each Series of Test Runs:
|
|
(i) Pilot
Plant Preparation/Set up
|
$500
|
|
(ii) Pilot
Plant Clean-Up Shutdown
|
$500
|
|
(b) For
Each Test Run in a Series:
|
|
(i) Boiler
Fuel/Water Treatment
|
$200
|
|
(ii) Labor
|
$800
|
|
(iii) Waste
Disposal
|
$100
|
|
(c) Follow
up Costs:
|
|
(i) Small
Sample Collection, Packaging & Storage
|
$100
|
|
(ii) Large
Sample Collection & Packaging
|
$250
|
|
(iii) Dry
Cellulose Product per ton
|
$500
|
|
(iv) Shipping
Containers & Shipping Costs
|
Actual,
plus 25%
|
|
(d) Additional
expenses:
|
|
(i) Tractor
Rental
|
$100/day
|
|
(ii) Auto/Truck
mileage for Laborers
|
$0.40/mile
|
|
(iii) Truck
towing mileage
|
$0.80/mile
|
|
(iv) Local
Lodging for Laborers
|
$50/day
|
|
(v) Per
Diem allowance for Laborers
|
$25/day
|
3.6 For
the proof of concept validation ethanol demonstration plant to be constructed
and operated under this Agreement, the Licensee agrees that the facility design,
equipment designs and specifications, equipment fabricators, engineering firm,
construction contractors, and sub-contractors, and all facility management
and
labor personnel involving the process Technology must be approved by
Bio-Products, which approval shall not be unreasonably withheld. The Licensee
also agrees to begin the facility permitting, facility and equipment design,
equipment selection, and engineering for the proof of concept validation
demonstration plant within one (1) year from the date of execution of this
Agreement and to begin placing orders for equipment and construction site work
within one (1) year from the date of approval of all permitting to begin
construction of the proof of concept validation demonstration plant.
Notwithstanding the foregoing, Licensee shall begin placing orders for equipment
and shall commence and diligently pursue construction and completion of the
proof of concept validation demonstration plant no later than three (3} years
from the effective date of this Agreement.
3.7 Due
to the proprietary nature of the process vessel design, the Licensee agrees
that
Bio-Products shall maintain the exclusive right of vessel design, engineering,
and manufacturing, and the Licensee shall purchase all required vessels
exclusively from Bio-Products. The purchase price shall be cost plus
fifteen percent (15%), not including shipping costs or applicable taxes. All
other equipment required for construction and operation of waste processing
and
recycling facilities utilizing the Technology may be purchased from other
venders. The vessels are to be built to Bio-Products’ specifications in
Hattiesburg, Mississippi and shipped to the requested locations. Shipping costs
and applicable taxes shall be itemized and included in the cost of vessels
and
shall be invoiced to and paid by the Licensee. The Licensee will be provided
with a written operator’s manual and a standard equipment warranty for the
process vessels.
3.8 In
order to maintain the exclusivity of this Agreement, the Licensee further agrees
that, within two (2) years from the Operational Date of the proof of concept
validation demonstration plant, the Licensee shall begin the facility
permitting, facility and equipment design, equipment selection, and engineering
for construction of the first commercial scale facility with a capacity to
process at least five hundred (500) tons per day, The Licensee also agrees
to
expand existing facilities and/or add new facilities with design capacity for
processing at least an average of an additional one thousand (1,000) tons per
day of MSW each year thereafter, unless prevented from doing so by a regulatory
or government agency. If Licensee fails to perform as specified under this
Paragraph 3.8 for two (2) consecutive years, then this Agreement shall convert
from an exclusive to a non-exclusive license.
3.9 The
Licensee shall maintain all such books and records as are necessary to
accurately determine all amounts due and payable to Bio-Products, Eley, and
Malley under Paragraphs 3.1, 3.2, 3.3, and 3.4 of this Agreement, which books
and records the Licensee shall make reasonably available, upon the submission
of
a written request from Bio-Products for inspection by Bio-Products and or its
designated representative at a time mutually convenient to Bio-Products and
the
Licensee. Rio-Products agrees to treat all such information respecting
Licensee’s books and records as confidential.
3.10 All
payments shall be paid to Bio-Products at the addresses set forth in Paragraph
14.15 of this Agreement or as otherwise notified in writing by, the
Parties.
ARTICLE
IV - INVENTIONS AND DISCOVERIES
4.1 All
rights, title, and interest in and to the Technology and all patent applications
and patents thereon or relating thereto as presently exist, specifically United
States (Patent No. 6,306,248 and foreign patents filed on Patent Cooperation
Treaty International Application No. PCT/US01/50049 shall remain the sole and
exclusive property of UAH. In addition, future patents and patent
applications, both foreign and domestic, with respect to the existing Technology
shall be applied for and prosecuted, and if received, shall issue solely in
Bio-Products’ name (See Paragraph 2.7 of the UAH License., attached hereto as
Exhibit A).
4.2. All
right, title and interest in and to all future inventions, processes,
enhancements, improvements and other discoveries made by Bio-Products, or any
person acting for and under the direction of Bio-Products or the Licensee,
or
any other employees or consultants of Bio-Products or the Licensee, relating
specifically to the design, engineering, fabrication, and operation of the
process vessels required to utilize the Technology, whether or not patentable,
shall be owned exclusively by Bio-Products. All patent applications and patents
thereon, foreign and domestic, whether made by any of the Parties, or jointly
by
the Parties, or jointly by at least one employee of each Party, shall be owned
exclusively by Bio-Products. Bio-Products shall add the names of Licensee’s
employees and consultants that make substantive contributions to the development
of such patent applications as co-inventors. To the extent required to
accomplish the foregoing, the Licensee and/or its employees and consultants
shall execute any and all assignments of patents or other documents to
Bio-Products, if required for any such patents to issue in Bio-Products’ name.
Bio-Products shall provide the Licensee with detailed information concerning
all
such related, future inventions, processes, enhancements, improvements and
other
discoveries. Bio-Products hereby grants to the Licensee an exclusive license
in
the USA to utilize all such future inventions, processes, enhancements, and
other discoveries at no additional royalty or cost, except that the term of
this
Agreement shall be extended automatically to the expiration date of any
subsequently issued patent.
4.3 The
Technology of Bio-Products and/or UAH shall be maintained by the Licensee free
and clear of all liens and encumbrances or rights of any Third
Party. Licensee shall not sub-license, encumber, transfer or assign
the Technology of Bio-Products and/or UAH without the written consent of
Bio-Products, except as provided in this Agreement.
4.4 The
provisions Paragraphs 4.1, 4.2, and 4.3 of this Article shall apply to both
foreign and domestic inventions, processes, enhancements, improvements and
other
discoveries relating to the Technology, whether or not patentable, and to all
patent applications and patents related thereto.
4.5 All
right, title and interest in and to all future inventions, processes,
enhancements, improvements and other discoveries made jointly by Bio-Products
and Licensee, or any person acting for and under the direction of Bio-Products
and Licensee, or any other employees or consultants of Bio-Products and
Licensee, relating to the use of the cellulosic biomass product for the
production of fuel grade ethanol or any other by-products obtained from the
processing of MSW utilizing the Technology, whether or not patentable, shall
be
owned jointly by the Parties or jointly by at least one employee of each Party,
shall be jointly owned by Bio-Products and Licensee. The Parties
shall add the names of all employees and consultants that make substantive
contributions to development of such patent applications as co-inventors. To
the
extent required to accomplish the foregoing, Bio-Products and Licensee and/or
their respective employees and consultants shall execute any and all assignments
of patents or other documents to Bio-Products and Licensee, if required for
any
such patents to issue jointly in Bio-Products’ and Licensee’s
names. Bio-Products and Licensee shall share equally in the costs of
patent preparation, application, prosecution, and maintenance for all such
jointly owned inventions The Parties shall provide each other with detailed
information concerning all such related, future inventions, rocesses,
enhancements, improvements and other discoveries, Bio-Products and Licensee,
as
co-owners of any such jointly developed inventions, shall jointly license such
co-owned inventions to Third Parties. The term of this Agreement shall be
extended automatically to the expiration date of any jointly issued
patent.
4.6 If
Licensee, its employees, and/or its consultants, not including any Bio-Products
e employees or consultants performing Technical Services for Licensee, should
alone develop a patentable invention regarding the use of the cellulosic product
in any applications, including the production of fuel grade ethanol or any
other
by-product obtained from the processing of MSW utilizing the Technology, then
Licensee may, in its sole discretion, pay all of the costs of patent
preparation, application, prosecution, and maintenance for said invention with
Licensee being the exclusive owner of such a patented invention. Licensee hereby
grants Bio-Products a non-exclusive right to use any such Licensee-owned
patented invention in Bio-Products facilities worldwide, with royalties to
be
negotiated in good faith between the Parties.
4.7 The
Parties shall cooperate in good faith to protect any such invention, process,
enhancement, improvement or other discovery, and to make all necessary
applications, assignments, as provided herein, and filings, including patents,
industrial designs, copyright registrations, trademark registrations and other
legal protections, necessary or helpful to protect their interests
therein.
ARTICLE
V – REPRESENTATIONS AND WARANTIES
OF
BIO-PRODUCTS
Bio-Products
hereby represents and warrants, as of the date hereof, as follows:
5.1 Bio-Products
is a corporation, duly organized, validly existing and in good standing under
the laws of the State of Alabama. Bio-Products has all requisite power and
authority, corporate and otherwise to execute, deliver, observe, and perform
its
obligations under, this Agreement. The execution, delivery and performance
by
Bio-Products of this Agreement have been duly authorized by all necessary
corporate action and does not and will not violate Bio-Products’ Articles of
Incorporation or Bylaws or any provision of any agreement, law, rule,
regulation, order, writ, judgment, injunction, decree, determination, or award
presently in effect to which Bio-Products is a party or is subject.
5.2 Bio-Products
possesses all such franchises, licenses, patents, or other rights necessary
to
enter into, and satisfy its obligations under, this Agreement, without (to
the
best of Bio-Products’ knowledge) any conflict with, or infringement of, the
franchises, licenses, patents or other rights of Third Parties.
5.3 Bio-Products
has the exclusive rights to grant some or all of its rights or licenses to
Third
Parties to utilize the Technology not granted to the Licensee under this
Agreement in various geographical locations worldwide.
5.4 There
is no action, suit, proceeding or claim pending or, to the knowledge of
Bio-Products, threatened against Bio-Products in any way relating to the
Technology. There is no action, suit, proceeding or claim pending or, to the
knowledge of Bio-Products, threatened against Bio-Products’ properties, assets
or business which might have a materially adverse effect on Bio-Products’ rights
or ability to perform this Agreement in accordance with its terms. No
investigation by any governmental agency is pending or threatened against
Bio-Products or the properties, business, or goodwill of Bio-Products, which
has
or might have a materially adverse effect on Bio-Products’ rights or ability to
perform this Agreement in accordance with its terms. There is no outstanding
order, writ, injunction, or decree of any court, government or governmental
agency against Bio-Products or its assets, business, or goodwill, Bio-Products
is not in violation of any law or governmental regulation applicable to it,
to
the Technology, or to its properties or business, including but not limited
to
any applicable safety, environmental control, or similar law or
regulation.
5.5 There
is no claim or demand of any Third Party pertaining to, or any proceedings,
which are pending or, to the knowledge of Bio-Products, threatened which
challenge the rights of Bio-Products in respect of any of the Technology. No
technology owned, licensed or used by Bio-Products is subject to any outstanding
order, decree, judgment, or stipulation by or with any court, arbitrator or
administrative agency, or, to the best of Bio-Products’ knowledge, infringes
upon the rights of Third Parties
5.6 Bio-Products
reserves the right to, but as of the effective date of this Agreement has not,
put any Third Party on notice of and is not a party to any suit alleging, any
infringement or alleged infringement of any of the
Technology. Bio-Products is aware that there are currently bases for
putting certain Third Parties on notice and/or filing claims, action, or
litigation alleging infringement of the Technology.
ARTICLE
VI – INDEMNITY AND INSURANCE
|
6.1
|
(a)
|
The
Licensee shall indemnity, defend and hold Bio-Products and UAH
and their
respective Trustees, Directors, officers and employees harmless
from and
against any and all claims and expenses, including reasonable
attorneys’
fees and other legal expenses, arising out of the death or injury
of any
person or persons, any damage to property, or any other claim,
proceeding,
demand, expense, or liability of any kind whatsoever resulting
from, or
attributable to utilization of the. Technology (see Paragraph
10.3 below
and Article VIII of Exhibit
A).
|
|
|
(b)
|
At
least ten (10) days prior to commencement of vessel installation
and
operating activities on the site of each facility of the Licensee
to be
constructed and utilize the Technology pursuant to this Agreement,
the
Licensee shall provide to Bio-Products copies of certificates evidencing
the purchase of policies of insurance against the liabilities described
in
Paragraph 6.1(a), naming UAH, Bio-Products, and all of the Parties
hereto
as additional insureds, in amounts not less than one million dollars
($1,000,000) per claim.
|
VII
– PATENT INFRINGEMENT
|
7.1
|
(a)
|
Bio-Products
and UAH shall notify the Licensee, and the Licensee shall notify
Bio-Products and UAH, of any actual or threatened infringement
claims or
suits that are or may be brought or made against any Party to
this
Agreement within five (5) days after learning of the existence
thereof. UAH may elect to defend Licensee, at UAH’s sole costs
and expense from and against all infringement suits relating
to the
patents assigned to UAH. In connection with the defense by UAH
of any Third Party claim, the Licensee, at the request and expense
of UAH,
shall take all such actions as are necessary or desirable to
assist UAH in
any such action. Licensee will be reimbursed by UAH for out-of-pocket
expenses incurred as a result of such action. UAH shall not,
without Licensee’s prior written consent, grant any license rights granted
under this Agreement in connection with the settlement or other
disposition of any infringement
action.
|
|
|
(b)
|
In
the event UAH elects not to defend Licensee from and against any
actual or
threatened infringement claim or suit, Bio-Products shall have the
right
to defend such suit or claim. Bio-Products may elect to defend Licensee,
at Bio-Products’ sole costs and expense, from and against all infringement
suits relating to the patents assigned to UAH and from and against
any
actual or threatened infringement claims or suits that are or may
be
brought or made against any Party to this Agreement relating to the
Technology as defined herein that was not assigned to UAH. If Bio-Products
cannot for financial reasons take such action, Bio-Products would
request
Licensee to provide such financial resources as are necessary to
take such
action. Licensee, in its sole discretion, may elect to provide the
financial resources for Bio-Product and Licensee to jointly pursue
such
action. Any compensation recovered from such action would first be
used to
reimburse the Parties for their out-of-pocket expenses in relation
to the
suit, and any remaining funds would be divided equally between
Bio-Products and Licensee. In the event of an unsuccessful outcome
of such
suit, any damages and out-of-pocket expenses of Licensee would be
deducted
from future royalty payments payable to Bio-Products at a rate of
fifty
percent (50%) of the amount due and payable from each royalty payment
until all such damages and out-of-pocket expenses are
recovered.
|
|
|
(c)
|
In
the event Bio-Products elects not to defend Licensee from and against
any
actual or threatened infringement claim or suit, Licensee shall have
the
right to defend such suit or claim. Licensee may elect to defend
such
suit, at Licensee’s sole costs and expense, from and against all
infringement suits relating to the patents assigned to UAH and from
and
against any actual or threatened infringement claims or suits that
are or
may be brought or made against any Party to this Agreement relating
to the
Technology as defined herein that was not assigned to UAH. Licensee
must
agree to indemnify UAH and Bio-Products, the respective Trustees
or
Directors, officers and employees from any damages that may occur
as a
result of suit. Any compensation recovered from such action would
first be
used to reimburse the Parties for their out-of-pocket expenses in
relation
to the suit, and any remaining funds would be belong Licensee. In
the
event of an unsuccessful outcome of such suit, any damages and
out-of-pocket expenses of UAH and Bio-Products would be reimbursed
by
Licensee.
|
|
|
(d)
|
The
Licensee shall at its own expense defend all infringement suits relating
to any variations, modifications and alterations of the Technology
that
were made by the Licensee without the written acknowledgement and
consent
of Bio-Products to make any such variations, modifications, and
alterations of the Technology, The Licensee shall not be entitled
to any
deduction from amounts due Bio-Products on account of such
expenses.
|
7.3 In
connection with the defense by Bio-Products of any Third Party claims not
addressed in Paragraphs 7.1 or 7.2, the Licensee shall participate and
cooperate, as Bio-Products shall, from time to time, reasonably request. If
the
Licensee is called upon to take action in a way which shall require it to make
available its own personnel or to retain counsel and/or experts, the Licensee
shall be entitled to a deduction from any amounts due Bio-Products under this
Agreement. If there are no such amounts due Bio-Products under this Agreement,
then Bio-Products agrees to pay Licensee all personnel, counsel, expert and
courts costs thirty days after notification of such expenses by the Licensee
in
connection with Bio-Products’ defense of such suits.
ARTICLE
VIII – FABRICATION AND CONSTRUCTION
8.1 The
Licensee shall use its best efforts to assure that all construction and
fabrication meets or exceeds all required safety standards of the United States
and the jurisdiction wherein the Technology shall be utilized.
8.2 Bio-Products
will use its best efforts to assure that all designs, processes, formulas,
recipes, and plans to be provided to the Licensee meet or exceed all applicable
and material safety standards of the United States and any jurisdiction wherein
the Technology shall be utilized.
8.3 The
Licensee shall use its best efforts to obtain, or cause to be obtained, all
material local, state and federal permits necessary for the construction and
operation of any facility that will utilize the Technology.
ARTICLE
IX – CONFIDENTIALITY
9.1 The
Parties hereto each possess confidential information of both a technical and
a
non-technical nature. It is understood that it has been and may be necessary
for
one to disclose same to the other, and the Parties agree such disclosures have
been and will be made under and subject to the following terms (Copies of
respective Non-disclosure/Confidentiality Agreements are attached hereto as
Exhibits C and D).
ARTICLE
X – AGREEMENT BETWEEN RIO-PRODUCTS AND UAH
10.1 Bio-Products
shall comply with all of the terms and conditions of, and perform all of its
obligations under, the UAH License. Bio-Products shall not agree to any
amendment or modification of the UAH License that would materially affect the
terms and conditions of this Agreement without the written consent of
Licensee.
10.2 If
at any time Bio-Products defaults in its duties in connection with, or by its
conduct attempts to or actually terminates the UAH License which default and/or
termination affects or terminates the ability of Bio-Products to grant the
license contained in this Agreement, then the Licensee will be automatically
entitled to and may at its sole discretion enter into contractual agreements
with and pay directly to UAH the amounts necessary to obtain or maintain the
UAH
License. If Licensee does not enter into contractual agreements with UAH, but
rather cures any financial default of Bio-Products only, then such sums paid
to
UAH on behalf of Bio-Products shall be deducted from any royalties owed to
Bio-Products under this Agreement. If no such royalties are owed to Bio-Products
under this Agreement then such sums will be treated as an interest free loan
to
Bio-Products.
10.3 Any
provision of this Agreement to the contrary notwithstanding, this Agreement
shall be construed and interpreted so that the terms and conditions hereof
shall
not be inconsistent with the terms and conditions of the UAH License, attached
hereto as
Exhibit A
.
ARTICLE
XI – PUBLICITY OF LICENSE
11.1 All
documents and visual aids using the name of The University of Alabama in
Huntsville in any manner require submittal to and approval of the University.
Upon the request of the Licensee, Bio-Products shall cooperate and provide
assistance in the development of public statements, advertising, sales
literature or promotional materials to describe or promote the Technology and
assist in gaining University approval.
ARTICLE
XII – VISITS TO PREMISES
12.1 The
Licensee shall, from time to time, permit Bio-Products to bring visitors to
tour
any facility utilizing the Technology, provided, that Bio-Products shall notify
the Licensee at least seventy-two (72) hours in advance of any proposed visit,
that such visits shall be limited to reasonable times and intervals, and
contingent upon each visitor signing an appropriate Confidentiality,
Non-Disclosure and Non-Competition Agreement, and such visitors shall also
be
subject to all relevant safety and other regulations that apply to any other
visitors to the facility. No persons other than those designated by Bio-Products
shall have the right to visit any facility utilizing the Technology without
the
Licensee’s express written consent.
ARTICLE
XIII – EVENTS OF DEFAULT AND REMEDIES
13.1. The
Licensee shall be in breach of this Agreement in the event of
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(a)
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The
Licensee’s failure to make any payment hereunder on or before the date on
which such payment becomes due and payable and the continuation of
such
failure unremedied for thirty (30) days after written notice thereof
has
been given to the Licensee by
Bio-Products;
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(b)
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The
Licensee’s failure to observe or perform any covenant, condition or
agreement contained in this Agreement and the continuation of such
failure
unremedied for thirty (30) days after written notice thereof has
been
given to the Licensee by Bio-Products, unless such breach can not
be
remedied within such thirty (30) days for reasons beyond the Licensee’s
control, in which case the Licensee shall have a reasonable time
within
which to remedy such breach; or
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(c)
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Any
warranty or representation made herein by the Licensee and contained
in
this Agreement, shall prove to have been false, misleading or incorrect
in
any material respect as of the date made, or shall have failed to
state a
fact necessary in order to make the statements made not
misleading.
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No
termination of this Agreement shall relieve the Licensee of the obligation
to
pay to Bio-Products all royalties, fees, and other payments accrued at the
time
of the termination.
13.2 Bio-Products
shall be in default of this Agreement in the event of:
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(a)
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Bio-Products’
failure to observe or perform any covenant, condition or agreement
contained in this Agreement or in the UAH License and the continuation
of
such failure unremedied for thirty (3.0) days after written notice
thereof
shall have been given to Bio-Products by the
Licensee;
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(b)
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Any
warranty or representation made herein by or on behalf of Bio-Products,
contained in this Agreement or in the UAH License, shall prove to
have
been false, misleading or incorrect in any material respect as of
the date
made, or shall have failed to state a fact necessary in order to
make the
statements made not misleading; or
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(c)
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If
at any time BM-Products defaults in its duties in connection with,
or by
its conduct attempts to or actually terminates the UAH License which
default and/or termination affects or terminates the ability of
Bio-Products to grant the license contained in this Agreement, or
affects
or terminates Licensee’s ability to continue operation of existing plants
or build new plants.
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13.3 The
Licensee shall have the following remedies for breach or default of this
Agreement or the UAH License by Bio-Products:
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(a)
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Upon
Bio-Products’ breach or termination of the UAH License or this Agreement,
such that the breach or termination has affected the ability of Licensee
to continue operation of existing plants and preclusion of building
new
plants, the Licensee may at its option terminate this Agreement and
contract directly with UAH as provided in this Agreement., The Licensee
and any sub-licensee shall utilize the Technology, free of any royalties,
fees, and other amounts accrued through the date of such default
or breach
and thereafter.
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(b)
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In
addition to any other right or remedy available to the Licensee under
this
Agreement or in law or equity, upon Bio-Products’ breach or default of
this Agreement or the UAH License, the Licensee shall be entitled
to
withhold and/or offset any and all royalties or other fees due to
Bio-Products under this Agreement.
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(c)
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Notwithstanding
anything to the contrary in this Agreement, the Licensee may terminate
this Agreement at any time upon six (6) months prior written notice
to
Bio-Products, at which time the Licensee will cease utilizing the
Technology, and pay to Bio-Products any royalties, fees and other
amounts
accrued through the date of such termination. Immediately upon termination
of this Agreement all rights, privileges and licenses granted to
the
Licensee hereunder shall revert to Bio-Products, including all
sub-licenses of facilities granted by the
Licensee.
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13.4 Upon
the Licensees’ breach of this Agreement and it’s failure to cure said breach as
provided above in 13.1, Bio-Products may, at its option, (i) terminate this
Agreement, at which time Licensee shall cease utilizing the Technology and
such
termination shall relieve Licensee of its obligations to pay Bio-Products any
further royalties or fees other than those fees and royalties already accrued
through the date of termination and all sub-licenses granted by Licensee shall
be assigned to Bio-Products; or (ii) Bio-Products may seeks to recover such
damages to which it may be entitled by applicable law, including but not limited
to, equitable and injunctive relief.
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13.5
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(a)
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Upon
Bio-Products’ breach or termination of the UAH License or this Agreement,
such that the breach or termination has affected the ability of
Licensee
to continue operation of existing plants and preclusion of building
new
plants, the Licensee may at its option terminate this Agreement
and
contract directly with UAH as provided in this Agreement., The
Licensee
and any sub-licensee shall utilize the Technology, free of any
royalties,
fees, and other amounts accrued through the date of such default
or breach
and thereafter.
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(b)
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Neither
of the Parties nor the arbitrator may disclose the existence,
content or
results of any arbitration hereunder without the prior written
consent of
the Parties except to counsel, accountants, and other need
to know
professionals.
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(c)
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All
fees and expenses of the arbitration shall be born by the
Parties equally.
However, each Party shall bear the expense of its own counsel,
experts,
witnesses, and preparation and presentation of
proofs.
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(d)
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In
the event that a claim or controversy over the right
of any Party to
terminate this Agreement shall be submitted for arbitration,
this
Agreement shall continue in full force and effect,
and the termination
shall be of no effect, until the arbitrator renders
a final
decision..
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13.6 In
the event of the commencement of a voluntary case under the Bankruptcy Code
by
the Licensee, or Licensee’s acquiescence in an involuntary petition under the
Bankruptcy Code which voluntary or involuntary case remains undismissed for
a
period of ninety (90) days or more, the right and license conferred under this
Agreement shall automatically become and shall thereafter be null and void.
The
commencement of a voluntary case under the Bankruptcy Code by Bio-Products,
or
Bio-Products’ acquiescence in an involuntary petition under the Bankruptcy Code,
which voluntary or involuntary case remains undismissed for a period of ninety
(90) days or more, shall be treated as a material breach of the
Agreement,
ARTICLE
XIV – GENERAL PROVISIONS
14.1 The
titles of the various articles and sections of this Agreement are solely for
convenience of reference and are not part of this Agreement for purposes of
interpreting the provisions hereof.
14.2 The
Licensee may assign all of its rights and obligations under, and all of its
interest in, this Agreement, including without limitation the license granted
hereby, either (i) in a transaction accompanied by the sale or other transfer
of
the Licensee’s entire business, its stock, or substantially all of its assets,
or (ii) to any other entity owned by the same shareholders of Licensee and
this
Agreement shall be binding upon, and inure to the benefit of, any such successor
or assign of the Licensee, provided that Bier-Products consents in writing,
such
assignment shall not be unreasonably conditioned, withheld, or
delayed..
14.3 Nothing
in this Agreement shall be deemed or construed to constitute or to create a
partnership, joint venture or agency between the Parties. Except as may be
otherwise provided herein, neither Party shall have any authority to bind the
other Party in any respect.
14.4 If
any provision of this Agreement is or becomes unenforceable under any law of
mandatory application, it is the intent of the Parties hereto that such
provision will be deemed severed and omitted herefrom, the remaining portions
hereof to remain in full force and effect as written.
14.5 The
waiver by any Party of any failure on the part of any other Party to perform
any
of its obligations under this Agreement shall not be construed as a waiver
of
any failure or continuing failure or failures, whether similar or dissimilar
thereto.
14.6 This
Agreement, including the exhibits hereto, constitutes the entire Agreement
between the Parties with respect to the subject matter hereof and supersedes
all
prior and contemporaneous agreements between the Parties, whether oral or
written, related to the subject matter hereof. This Agreement may be amended
or
modified only by a written instrument executed by the authorized representatives
of the Parties hereto.
14.7 This
Agreement may be executed in one or more counterparts, each of which shall
be
deemed to be a duplicate original, but all of which, taken together, constitute
a single document. This Agreement may be executed by each Party on separate
copies, which copies, when combined so as to include the signatures of all
Parties, shall constitute a single counterpart of this Agreement.
14.8 This
Agreement shall be governed by and construed in accordance with the laws of
the
State of Alabama.
14.9 Each
Party to this Agreement shall execute all instruments and documents and take
all
actions as may be reasonably required to effectuate this Agreement.
14.10 For
purposes of venue and jurisdiction, this Agreement shall deemed made and to
be
performed in the City of Huntsville, Alabama.
14.11 This
Agreement and all exhibits contain the entire agreement between the Parties
to
this Agreement with respect to the subject matter of this Agreement, is intended
as a final expression of such Parties’ agreement with respect to such terms as
are included in this Agreement, is intended as a complete and exclusive
statement of the terms of such agreement, and supersedes all negotiations,
stipulations, understandings, agreements, representations and warranties, if
any, with respect to such subject matter, which precede or accompany the
execution of this Agreement.
14.12 Whenever
the context so requires in this Agreement, all words used in the singular shall
be construed to have been used in the plural (and vice versa), each gender
shall
be construed to include any other genders.
14.13 Subject
to any restriction on transferability contained in this Agreement, this
Agreement shall be binding upon and shall inure to the benefit of the
successors-in-interest and permitted assigns of each Party to this Agreement.
Nothing in this Paragraph shall create any rights enforceable by any Third
Party
that is not a Party to this Agreement, except for the rights of the
successors-in-interest and permitted assigns of each Party to this Agreement,
unless such rights are expressly granted in this Agreement to other specifically
identified Third Parties.
14.14 Except
as otherwise provided in this Agreement, in the event any litigation,
arbitration, mediation, or other proceeding (“Proceeding”) is initiated by any
Party against any other Party to enforce, interpret or otherwise obtain judicial
or quasi-judicial relief in connection with this Agreement, the prevailing
Party
in such Proceeding shall be entitled to recover from the unsuccessful Party
all
costs, expenses, and reasonable attorneys’ fees relating to or arising out of
(a) such Proceeding (whether or not such Proceeding proceeds to judgment),
and
(b) any post- judgment or post-award proceeding including without limitation
one
to enforce any judgment or award resulting from any such Proceeding. Any such
judgment or award shall contain a specific provision for the recovery of all
such subsequently incurred costs, expenses, and actual attorneys’
fees.
14.15 Any
notice or other communication pursuant to this Agreement shall be sufficiently
made or given five days after the date sent, postage pre-paid, by certified
mail, return receipt requested, if sent to the following addresses, or to such
other address as the Party may from time to time designate to the other Parties
in writing:
In
the
case of BM-Products:
Dr.
Michael H. Eley, President & CEO
BIO-PRODUCTS
INTERNATIONAL, INC
3317
Clifford. Road, NW
Huntsville,
Alabama .35810 USA
256-852-3139
(phone)
256-436-6992
(cellular)
256-824-6305
(fax)
eleym
@email.uah.eda (email)
In
the
case of SRS Energy, Inc:
Edward
P.
Hennessey, Jr., President
SRS
Energy, Inc.
7320
Forsyth Blvd., Unit 102
St.
Louis, MO 63105
314-727-6253
(phone)
314-504-7504
(cellular)
____________
(fax)
ehennesseyjr@sbcglobal.net
(email)
Each
Party shall make a reasonable, good faith effort to ensure that it will accept
or receive notices to it that are given in accordance with this paragraph.
A
Party may change its address for purposes of this paragraph by giving the other
Parties written notice of a new address in the manner set forth
above.
14.16 In
the event either Party hereto shall be rendered wholly or partly unable to
perform its obligations under this Agreement by reason of causes beyond its
control, including but not limited to acts of Nature, acts of terrorism, acts,
omissions, or regulation of any government or agency thereof, judicial action,
labor disputes, or transportation failure, except as specified herein, the
performance of the obligations of such Party insofar as it is affected by such
condition shall be suspended for the duration of such condition, provided the
Party affected advises the other Party of the basis of its inability within
ten
(10) days of the beginning of such known inability. After the cessation of
the
condition causing such inability, the Party suffering such inability shall
have
a period of thirty (30) days to restore its operation(s) and restore its
obligations to the other Party.
14.17 No
representations have been made to any Party regarding taxes, it being understood
by each of the Parties that each such Party accepts full responsibility for
calculation of and payment of his or its taxes, levies, duties or other charges
incurred or imposed as a consequence of this Agreement and the transactions
described herein.
14.18 This
Agreement shall become effective when it has been executed by all of the Parties
to this Agreement.
IN
WITNESS WHEREOF, the Parties have caused their duly authorized representatives
to duly execute and deliver this Agreement effective as of the date written
above.
BIO-PRODUCTS
INTERNATIONAL, INC.
By:
/s/
Michael H.
Eley
Dr.
Michael H.
Eley, President & CEO
SRS
.ENERGY, INC.
By:
/s/
Edward P.
Hennessey
Edward
P. Hennessey, Jr.,
President
Exhibit
10.4
TECHNOLOGY
LICENSE AGREEMENT
This
Technology License Agreement (the “Agreement”) is made and entered into March 8,
2007 between S-R-S Energy, Inc., a Company incorporated under the laws of the
State of Delaware (“SRS” or the “Licensor”), and Bio-Products International,
Inc. (“Bio-Products” or the “Licensee”), a Company incorporated under the laws
of the State of Alabama. The Licensor and Licensee may hereinafter be either
individually referred to as the “Party” or collectively referred to as the
“Parties”.
PREMISES:
Whereas,
pursuant to a Technology License Agreement dated September l9, 2005, SRS was
granted an exclusive license by Bio-Products to utilize certain technology
in
commercial scale MSW processing and recycling facilities in the United States
of
America (“USA”) in which the cellulosic biomass product of the process
technology is used specifically for the production of fuel grade ethanol;
and
Whereas,
SRS desires to grant, and Bio-Products desires to obtain, a limited,
non-exclusive license back to the technology SRS originally licensed from
Bio-Products pursuant to the Technology License Agreement dated September 9th,
2005.
Now,
therefore, in consideration of the premises and the mutual covenants contained
herein, the Parties hereto agree as follows:
ARTICLE
I – DEFINITIONS
Terms
in
this Agreement shall have the same meanings as set forth in the Technology
License Agreement dated September 19, 2005.
ARTICLE
1I
–
GRANT OF LICENSE
2.1 Subject
to the terms and conditions of this Agreement, SRS hereby grants a
non-exclusive, limited license to Bio-Products to utilize the Technology to
construct and operate up to five (5) commercial scale MSW processing and
recycling facilities in the United States of America (“USA”) in which the
cellulosic biomass product of the process Technology is used specifically for
the production of fuel grade ethanol. It is understood that Bio-Products may
not
operate or control the actual USA facility in which the Technology will be
used
for the production of fuel grade ethanol. Accordingly, the Parties agree and
acknowledge that the rights granted herein allows Bio-Products to sub-license
its rights to the entity which operates or controls the facility using the
Technology for the production of fuel grade ethanol.
2.2 Unless
extended, terminated or replaced by agreement of the Parties hereto, the license
term shall be perpetual.
ARTICLE
III – FEES, ROYALTIES, AND OTHER CONSIDERATION
3.1 It
is the intent of the parties that the Technology be used to process waste,
including MSW, into a cellulosic biomass product that can be used as a feedstock
specifically for conversion into fuel grade ethanol. Bio-Products shall pay
to
SRS Energy a Process Royalty of twenty-five cents ($.25) for every ton (dry
weight) of the cellulosic biomass product that is used as a feedstock
specifically for conversion into fuel grade ethanol by Bio-Products pursuant
to
this Agreement. Such Process Royalty payments shall become payable on the
thirtieth (30th) day following the end of the calendar month in which such
amount becomes due and owing until this Agreement or any extension thereof
expires or is terminated. To the extent a sublicensee operates the facility
as
provided herein, payment shall be due from Bio-Products fifteen (15) days after
Bio-Products receives payment from the sublicense. SRS agrees that no Process
Royalty shall be due and payable with respect to the cellulosic biomass product
processed at any facility until such facility has been in operation for thirty
(30) Operating Days. Bio-Products shall pay said Process Royalty by wire
transfer of funds to a SRS bank account.
3.2 Bio-Products
shall maintain all such books and records as are necessary to accurately
determine all amounts due and payable to SRS under this Agreement, which books
and records Bio-Products shall make reasonably available, upon the submission
of
a written request from SRS for inspection by SRS and/or its designated
representative at a time mutually convenient to Bio-Products and SRS. SRS agrees
to treat all such information respecting Bio-Products’ books and records as
confidential.
ARTICLE
IV – REPRESENTATIONS AND WARRANTIES
4.1 Each
party represents and warrants, as of the date hereof, that it is a corporation,
duly organized, validly existing and in good standing and has all requisite
power and authority, corporate and otherwise, to execute, deliver, observe,
and
perform its obligations under, this Agreement. The execution, delivery and
performance by each party have been duly authorized by all necessary corporate
action and does not and will not violate the respective party’s Articles of
Incorporation or Bylaws.
4.2 OTHER
THAN THE EXPRESS WARRANTY PROVIDED IN PARAGRAPH 4.1, THE LICENSE GRANTED HEREIN
IS “AS IS”, AND ALL OTHER WARRANTIES ARE HEREBY DISCLAIMED BY SRS ENERGY. SRS
ENERGY SHALL NOT BE REQUIRED OR OBLIGATED TO PROVIDE BIO-PRODUCTS WITH ANY
TECHNICAL INFORMATION OR KNOW-HOW.
ARTICLE
V – EVENTS OF DEFAULT AND REMEDIES
5.1 Bio-Products
shall be in breach of this Agreement in the event of its failure to make any
payment hereunder on or before the date on which such payment becomes due and
payable and the continuation of such failure remains unremedied for thirty
(30)
days after written notice thereof has been given to Bio-Products.
5.2 Bio-Products
may terminate this Agreement at any time upon six (6) months prior written
notice to SRS Energy, at which time the license granted herein shall terminate
and Bio-Products shall pay to SRS Energy any royalties, fees and other amounts
accrued through the date of such termination. Immediately upon termination
of
this Agreement all rights, privileges and licenses granted to Bio-Products
hereunder shall revert to SRS Energy, including all sub-licenses of facilities
granted by Bio-Products.
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5.3
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(a)
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Any
claim or controversy arising out of or relating to this Agreement,
or the
breach thereof, including without limitation the right of any Party
hereto
to terminate this Agreement, shall be settled by binding arbitration
administered by the American Arbitration Association in accordance
with
its then current Commercial Arbitration Rules, and judgment upon
the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitration shall be before one neutral arbitrator
to be
selected in accordance with the then current Commercial Arbitration
Rules
of the American Arbitration Association. The parties shall have
all rights
to pre-arbitration discovery pursuant to the Federal Rules of Civil
Procedure.
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(b)
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Neither
of the Parties nor the arbitrator may disclose the existence, content
or
results of any arbitration hereunder without the prior written consent
of
the Parties except to counsel, accountants, and other need to know
professionals.
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(c)
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All
fees and expenses of the arbitration shall be born by the Parties
equally.
However, each Party shall bear the expense of its own counsel, experts,
witnesses, and preparation and presentation of
proofs.
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(d)
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In
the event that a claim or controversy over the right of any Party
to
terminate this Agreement shall be submitted for arbitration, this
Agreement shall continue in full force and effect, and the termination
shall be of no effect, until the arbitrator renders a final
decision.
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ARTICLE
VI – GENERAL PROVISIONS
6.1 The
titles of the various articles and sections of this Agreement are solely for
convenience of reference and are not part of this Agreement for purposes of
interpreting the provisions hereof.
6.2 The
Licensee may assign all of its rights and obligations under, and all of its
interest in, this Agreement, including without limitation the license granted
hereby, either (i) in a transaction accompanied by the sale or other transfer
of
the Licensee’s entire business, its stock, or substantially all of its assets,
or (ii) to any other entity owned by the same shareholders of Licensee and
this
Agreement shall be binding upon, and inure to the benefit of, any such successor
or assign of the Licensee, provided that SRS consents in writing, such consent
shall not be unreasonably conditioned, withheld, or delayed.
6.3 Nothing
in this Agreement shall be deemed or construed to constitute or to create a
partnership, joint venture or agency between the Parties. Except as may be
otherwise provided herein, neither Party shall have any authority to bind the
other Party in any respect.
6.4 If
any provision of this Agreement is or becomes unenforceable under any law of
mandatory application, it is the intent of the Parties hereto that such
provision will be deemed severed and omitted herefrom, the remaining portions
hereof to remain in full force and effect as written.
6.5 The
waiver by any Party of any failure on the part of any other Party to perform
any
of its obligations under this Agreement shall not be construed as a waiver
of
any failure or continuing failure or failures, whether similar or dissimilar
thereto.
6.6 This
Agreement, including the exhibits hereto, constitutes the entire Agreement
between the Parties with respect to the subject matter hereof and supersedes
all
prior and contemporaneous agreements between the Parties, whether oral or
written, related to the subject matter hereof. This Agreement may be amended
or
modified only by a written instrument executed by the authorized representatives
of the Parties hereto.
6.7 This
Agreement may be executed in one or more counterparts, each of which shall
be
deemed to be a duplicate original, but all of which, taken together, constitute
a single document. This Agreement may be executed by each Party on separate
copies, which copies, when combined so as to include the signatures of all
Parties, shall constitute a single counterpart of this Agreement.
6.8 This
Agreement shall be governed by and construed in accordance with the laws of
the
State of Alabama.
6.9 Each
Party to this Agreement shall execute all instruments and documents and take
all
actions as may be reasonably required to effectuate this Agreement.
6.10 For
purposes of venue and jurisdiction, this Agreement shall be deemed made and
to
be performed in the City of Huntsville, Alabama.
6.11 This
Agreement and all exhibits contain the entire agreement between the Parties
to
this Agreement with respect to the subject matter of this Agreement, is intended
as a final expression of such Parties’ agreement with respect to such terms as
are included in this Agreement, is intended as a complete and exclusive
statement of the terms of such agreement, and supersedes all negotiations,
stipulations, understandings, agreements, representations and warranties, if
any, with respect to such subject matter, which precede or accompany the
execution of this Agreement.
6.12 Whenever
the context so requires in this Agreement, all words used in the singular shall
be construed to have been used in the plural (and vice versa), each gender
shall
be construed to include any other genders.
6.13 Subject
to any restriction on transferability contained in this Agreement, this
Agreement shall be binding upon and shall inure to the benefit of the
successors-in-interest and permitted assigns of each Party to this Agreement.
Nothing in this Paragraph shall create any rights enforceable by any Third
Party
that is not a Party to this Agreement, except for the rights of the
successors-in-interest and permitted assigns of each Party to this Agreement,
unless such rights are expressly granted in this Agreement to other specifically
identified Third Parties.
6.14 Except
as otherwise provided in this Agreement, in the event any litigation,
arbitration, mediation, or other proceeding (“Proceeding”) is initiated by any
Party against any other Party to enforce, interpret or otherwise obtain judicial
or quasi-judicial relief in connection with this Agreement, the prevailing
Party
in such Proceeding shall be entitled to recover from the unsuccessful Party
all
costs, expenses, and reasonable attorneys’ fees relating to or arising out of
(a) such Proceeding (whether or not such Proceeding proceeds to judgment),
and
(b) any post- judgment or post-award proceeding including without limitation
one
to enforce any judgment or award resulting from any such Proceeding. Any such
judgment or award shall contain a specific provision for the recovery of all
such subsequently incurred costs, expenses, and actual attorneys’
fees.
6.15 Any
notice or other communication pursuant to this Agreement shall be sufficiently
made or given five days after the date sent, postage pre-paid, by certified
mail, return receipt requested, if sent to the following addresses, or to such
other address as the Party may from time to time designate to the other Parties
in writing:
In
the
case of Bio-Products:
Dr.
Michael H. Eley, President & CEO
BIO-PRODUCTS
INTERNATIONAL, INC.
3317
Clifford Road, NW
Huntsville,
Alabama 35810 USA
256-852-3139
(phone)
256-426-6992
(cellular)
256-824-6305
(fax)
mheley@msn.com
(email)
In
the
case of SRS Energy, Inc
Edward
P.
Hennessey, President
SRS
Energy, Inc.
7320
Forsyth Blvd., Unit 102
St.
Louis, MO 63105
314-727-6253
(phone)
314-504-7504
cellular)
314-721-3920
(fax)
ehennessseyjr@sbcglobal.net
(email)
Each
Party shall make a reasonable, good faith effort to ensure that it will accept
or receive notices to it that are given in accordance with this paragraph.
A
Party may change its address for purposes of this paragraph by giving the other
Parties written notice of a new address in the manner set forth
above.
6.16 In
the event either Party hereto shall be rendered wholly or partly unable to
perform its obligations under this Agreement by reason of causes beyond its
control, including but not limited to acts of Nature, acts of terrorism, acts,
omissions, or regulation of any government or agency thereof, judicial action,
labor disputes, or transportation failure, except as specified herein, the
performance of the obligations of such Party insofar as it is affected by such
condition shall be suspended for the duration of such condition, provided the
Party affected advises the other Party of the basis of its inability within
ten
(10) days of the beginning of such known inability. After the cessation of
the
condition causing such inability, the Party suffering such inability shall
have
a period of thirty (30) days to restore its operation(s) and restore its
obligations to the other Party.
6.17 No
representations have been made to any Party regarding taxes, it being understood
by each of the Parties that each such Party accepts full responsibility for
calculation of and payment of his or its taxes, levies, duties or other charges
incurred or imposed as a consequence of this Agreement and the transactions
described herein.
6.18 This
Agreement shall become effective when it has been executed by all of the Parties
to this Agreement.
IN
WITNESS WHEREOF
, the. Parties have caused their duly authorized
representatives to duly execute and deliver this Agreement effective as of
the
date written above.
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BIO-PRODUCTS
INTERNATIONAL, INC.
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SRS
ENERGY, INC.
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By:
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/s/
Michael H. Eley
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By:
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/s/
Edward P. Hennessey, Jr.
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Dr.
Michael H. Eley, President & CEO
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Edward
P. Hennessey, Jr. President
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Date:
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/s/
3-8-07
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Date:
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/s/
3/8/07
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Exhibit
10.5
CLIENT
AGREEMENT
FOR
PROFESSIONAL
SERVICES
Between
Merrick
& Company
and
Alternative
Ethanol Technologies, Inc.
Table
of Contents
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Article
1
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Merrick’s
Services and Personnel
|
3
|
|
|
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Article
2
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Compensation
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4
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Article
3
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Changes
to Scope of Work, Suspension
|
4
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|
|
|
|
|
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Article
4
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Technical
and Contractual Representatives
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5
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Article
5
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Client
Responsibilities
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5
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Article
6
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Records,
Audit and Documents
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6
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Article
7
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Conflict
of Interest, No Contingent Fees
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6
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Article
8
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Confidential
& Proprietary Information
|
7
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Article
9
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Software
Rights, Copyright, Patent, Trademark
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7
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Article
10
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Subcontracts
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8
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|
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Article
11
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Indemnification
& Risk Allocation
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8
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Article
12
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Insurance
|
9
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|
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Article
13
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Termination
|
9
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Article
14
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Dispute
Resolution
|
10
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Article
15
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General
|
11
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Article
16
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Incorporation
of Attachments
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13
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A
-
Statement of Services, Project Schedule, Deliverables & Additional
Services
B
-
Schedule of Payment
C
–
Additional Client Responsibilities
D
-
Insurance
Client
Agreement for Professional Services
This
Client Agreement for Professional Services (“
Agreement
”) is
made by and between Merrick & Company, a Colorado corporation
(“
Merrick
”) and Alternative Ethanol Technologies Inc., a
Delaware corporation (“
Client
”) and its permitted
assigns.
Client
desires to obtain professional services for the “
Project
”
described on Attachment A and the parties wish to set forth
the terms and
conditions for performance of these services.
NOW
THEREFORE, for and in consideration of the mutual promises and covenants herein,
and for other good and valuable consideration, the receipt and sufficiency
of
which are hereby acknowledged, the parties agree as follows:
Article
1 - Merrick’s Services and Personnel
|
1.1
|
Merrick
agrees to perform the services described in
Attachment A
(“Statement of Services, Project Schedule, Deliverables & Additional
Services”)
. Upon notification to proceed, Merrick
shall promptly commence and diligently continue the services to completion
in compliance with Attachment A, except as may be otherwise provided
herein.
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1.2
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Merrick’s
services shall be performed in a manner consistent with the care
and skill
exercised by professionals practicing in the same locality and specialty
under similar conditions subject to the time limits and financial
and
physical constraints imposed on Merrick’s services by
Client. There are no warranties, express or implied, including,
without limitation and to the extent they may be applicable, the
implied
warranty of “merchantability” and “fitness for a particular purpose,”
which extend beyond the description in this
Agreement.
|
|
1.3
|
Merrick
shall follow and comply with federal, state and local government
laws,
rules, regulations, codes and ordinances. Merrick shall be
responsible for completeness and accuracy of its services and shall
correct its errors or omissions at its own expense. Should
Client become aware of errors or omissions in the services or should
Client otherwise become dissatisfied with the services, Client shall
give
prompt written notice to Merrick so that Merrick may take measures
to
minimize the consequences of such condition, and thereafter allow
a
reasonable time for correction by
Merrick.
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1.4
|
Warranties
for machinery, equipment, and the like procured or furnished by Merrick
shall be limited to those provided by the suppliers or manufacturers
and
any purchase of such machinery, equipment and the like shall be part
of a
Client approved plan.
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1.5
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Merrick
shall promptly pay, when due, taxes, excises, license fees directly
applicable and chargeable to the services it performs under this
Agreement. Merrick shall take out and keep current municipal,
county, state or federal licenses required to perform the
services.
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1.6
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Client
and Merrick agree to work together, and with other members of the
project
team, on the basis of trust, good faith and fair dealing, and shall
take
actions reasonably necessary to enable each other to perform this
Agreement in a timely, efficient and economical manner. Client
shall endeavor to promote harmony and cooperation among Client, Merrick,
and other members of the project
team.
|
Article
2 - Compensation
|
2.1
|
Client
shall pay Merrick for its basic services as provided in
Attachment
B (“Schedule of Payment”)
. If Client changes the scope
of services or requests additional services which cause an increase
or
decrease in Merrick’s services, an equitable adjustment as agreed by the
parties shall be made to Merrick’s compensation under Article 3 and this
Agreement shall be modified in writing
accordingly.
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Article
3 - Changes to Scope of Work, Suspension
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3.1
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A
partial itemization of additional services available is set forth
in
Attachment C. Client may request that Merrick perform these and
other additional services or make changes to the scope of
services. Such changes or additions may include the work
required to evaluate such a request. Except where time is of
the essence (in which case changes or additions may be authorized
verbally
and later confirmed in writing), Merrick and Client shall agree in
writing
to the exact nature of the change or addition prior to its
implementation. This writing, when signed by both parties,
shall constitute an authorization for changes or additions and shall
contain a description of the services, the commencement date and
expected
completion date for the services, and any special conditions applicable
to
the services.
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3.2
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If
Client’s changes or additions cause an increase or decrease in Merrick’s
services, the parties shall in good faith attempt to reach a written
agreement adjusting Merrick’s compensation in an equitable manner.
If such an equitable adjustment cannot be reached, Merrick shall
perform
such services on a time and material basis in accordance with Attachment
B. In this event, Merrick shall keep an accurate record of its
services, supported by time sheets, invoices and other documentation
reasonably requested by Client. Merrick shall accurately
substantiate costs in a clear and precise
manner.
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3.3
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Client
may at any time, by written notice to Merrick, suspend further performance
of the services by Merrick. Upon receiving notice of
suspension, Merrick shall promptly suspend performance of the services
to
the extent specified. During the period of a suspension,
Merrick shall care for and protect its services in
progress. For a period of ninety (90) days, consecutive or in
the aggregate, Client may withdraw the suspension of performance
of the
services as to all or part of the suspended services by written notice
to
Merrick specifying the effective date and scope of
withdrawal. Merrick shall then resume performance of the
services for which the suspension was
withdrawn.
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3.4
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So
long as Client’s suspension of Merrick’s performance is not necessitated
by Merrick’s performance or non-performance, an equitable adjustment shall
be made to Merrick’s compensation under Attachment B and to any scheduling
or deliverable dates justified by the suspension or withdrawal of
suspension, and this Agreement shall be modified in writing
accordingly.
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3.5
|
If
Merrick disagrees with a request by Client for a noncompensible correction
of defects or errors or omissions in the services, then in addition
to or
in lieu of the other provisions of this Agreement, Merrick may invoice
Client for additional compensation in performing the services and
the
Dispute Resolution procedures of Article 14 shall apply to such invoiced
amounts.
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Article
4 - Technical and Contractual Representatives
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4.1
|
Authorized
representatives of Client and Merrick
are:
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Client:
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Merrick
& Company:
|
|
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Technical: Ira
Langenthal, PhD
|
Technical: John
Englick
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|
|
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Contractual:
Edward Hennessey
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Contractual:Carter
E. Boardman
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4.2
|
Modifications
or amendments required or permitted under this Agreement should be
made by
the Contractual Representatives, and technical directions and
communications concerning the services should be made by the Technical
Representatives. Change of an authorized representative should
be made in writing but may be effected by course of conduct without
writing.
|
Article
5 - Client Responsibilities
|
5.1
|
Client’s
representatives as identified in Article 4 above shall have, respectively,
authority to act for Client in all things pertaining to this Agreement
including, without limitation, authority to make changes to the scope
of
services or request additional services or suspend services, authority
to
transmit instructions, receive information, interpret and define
Client’s
policies and decisions with respect to Merrick’s services, and to make
decisions on Client’s behalf when requested to do so by
Merrick.
|
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5.2
|
Client
shall cooperate with Merrick in all aspects of the Project and shall
provide information and criteria of Client’s requirements for the Project,
including, if appropriate, objectives and constraints, space, capacity
and
performance requirements, flexibility and expendability, and any
time or
budgetary limitations. Each party shall have access to the project
site,
and Client shall furnish copies of specifications and standards,
which it
will require to be included in the services, and Merrick shall examine,
and respond promptly to Client’s submissions. Client shall consult with
Merrick on a regular basis concerning the timeliness, cost and adequacy
of
services during the phases of scheduled work and the work progress
dates
and promptly furnish to Merrick written notice of any noncompliance
therewith.
|
|
5.3
|
Merrick
shall not be responsible for taking precautions for protection of
the work
or safety of the public through or around the Project operations
and
Merrick shall not be responsible for the means, methods, techniques,
sequencing or procedures of the work of others unless such work is
directed by or under the supervision of
Merrick.
|
Article
6 - Records, Audit and Documents
|
6.1
|
Merrick
shall maintain records of performance under this Agreement and shall
make
these records available for inspection and for audit (if the payment
provisions herein are of a type capable of audit) by Client at all
reasonable times during the course of services and for a period of
two (2)
years after completion of services. Audits shall be conducted
in accordance with generally accepted auditing principles consistently
applied.
|
|
6.2
|
Subject
to the provisions of Article 9, herein, all designs, drawings,
calculations, specifications, and similar services provided by Merrick
are
instruments of service and Merrick retains common law, statutory,
and
other ownership rights therein, including the copyright thereto and
the
right of reuse by and at the discretion of Merrick, whether or not
the
Project is completed. Submission of documents or other
instruments prepared under this Agreement to any regulatory agency
or
others for use on the Project shall not be construed as publication
to
defeat Merrick’s rights herein.
|
|
6.3
|
Unless
specifically provided to the contrary in Attachment A, the instruments
of
Merrick’s service are not intended or represented to be suitable for reuse
by Client or others on extensions of the Project or on any other
project. Any such reuse without the prior express written
consent of Merrick, which consent shall not be unreasonably withheld,
conditioned or delayed, shall be at Client’s sole risk and without
liability or loss exposure to Merrick and Client shall indemnify,
defend
and hold Merrick harmless from any and all claims, damages, losses,
liabilities and expenses, including attorney fees and expert and
consulting fees, arising out of or resulting from such an unauthorized
reuse.
|
|
6.4
|
Client,
its officers and its employees shall not use Merrick’s name, publish
articles, give press releases, or make speeches about, or otherwise
publicize in any way the results achieved or the services performed
by
Merrick under this Agreement, without first obtaining Merrick’s written
consent, which consent shall not be unreasonably withheld, delayed
or
conditioned.
|
Article
7 - Conflict of Interest, No Contingent Fees
|
7.1
|
Merrick
represents it has no known direct or indirect interest, which would
conflict with the performance of its services under this
Agreement.
|
|
7.2
|
Except
as disclosed to Client in writing and except for the compensation
to be
paid hereunder, Merrick warrants it has not directly or indirectly
paid or
agreed to pay any person or company any fee, commission, contribution,
donation, gift, or any other type of consideration to solicit or
secure an
award of this Agreement.
|
Article
8 - Confidential & Proprietary Information
|
8.1
|
Merrick
and Client, to the extent of their rights and abilities to do so,
may
exchange technical data and information reasonably required of each
to
perform this Agreement. It is anticipated these exchanges will
include technical methods, design details, techniques and pricing
data of
Merrick, together with trade secrets and other confidential and
proprietary information of the parties which shall constitute
“Confidential Information” when marked, or stamped or identified as
such.
|
|
8.2
|
Each
party will treat as confidential all Confidential Information, which
has
been or may hereafter be made available to the other in connection
with
this Agreement. Except as necessary for the Project, each party
agrees that under no circumstance will it make use of or disclose
Confidential Information to any third party or use Confidential
Information to the detriment or competitive disadvantage of the other
party.
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8.3
|
Each
party agrees to limit disclosure of the Confidential Information
to its
officers, directors, employees and agents and then only to the extent
reasonably necessary to effectuate the purposes of the
Project. The party receiving Confidential Information shall
take diligent precautions to insure that those persons to whom disclosures
are made keep the Confidential Information
confidential.
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8.4
|
These
restrictions shall not apply to the extent Confidential Information
was in
the public domain at the time of the disclosure or subsequently becomes
a
part of the public domain through no fault of the party receiving
the
Confidential Information; was known to the receiving party at the
time of
the disclosure; was readily ascertainable from public or trade sources
at
the time of its disclosure; was independently developed by the receiving
party without recourse to any Confidential Information provided under
this
Agreement; or is the subject of demand by subpoena, court or governmental
order or other similar mandatory legal process in which case the
party
against whom the demand or request is made shall forthwith give written
notice to the other to preserve the opportunity to resist and/or
respond
to such process.
|
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8.5
|
The
covenants of this Article shall survive expiration or termination
of this
Agreement and shall apply for a period of two (2) years
thereafter. In addition to and without prejudice to its other
rights and remedies, a party shall be entitled to injunctive relief
upon
proof of a breach or threatened breach of this
Article.
|
Article
9 - Software Rights, Copyright, Patent and Trademark
|
9.1
|
Ownership
and Nondisclosure of Confidential Information
. All
Confidential Information is the sole property of Client, Client’s assigns,
and Client’s customers, as the case may be, and Client, Client’s assigns
and Client’s customers, as the case may be, shall be the sole and
exclusive owner of all patents, copyrights, mask works, trade secrets
and
other rights in Client’s Confidential Information. Merrick
hereby does and will assign to Client all rights, title and interest
it
may have or acquire in Client’s Confidential
Information.
|
|
9.2
|
Ownership
and Return of Materials
. All materials (including, without
limitation, documents, drawings, models, apparatus, sketches, designs,
lists, and all other tangible media of expression) furnished to Merrick
by
Client shall remain the property of Client. Upon termination of
Merrick’s engagement, or at any time on the request of Client before the
termination of such engagement, Merrick will promptly (but no later
than
five (5) days after the earlier of the termination of Merrick’s engagement
or Client’s request) destroy or deliver to Client, at Client’s option,
(a) all materials furnished to Merrick by Client, (b) all
tangible media of expression which are in Merrick’s possession and which
incorporate any Confidential Information or otherwise relate to Client’s
business, and (c) written certification of Merrick’s compliance with
its obligations under this
sentence.
|
|
9.3
|
Innovations
. As
used in this Agreement, the term “Innovations” means all processes,
machines, manufactures, compositions of matter, improvements, inventions
(whether or not protectable under patent laws), works of authorship,
information fixed in any tangible medium of expression (whether or
not
protectable under copyright laws), moral rights, mask works, trademarks,
trade names, trade dress, trade secrets, know-how, ideas (whether
or not
protectable under trade secret laws), and all other subject matter
protectable under patent, copyrights, moral right, mask work, trademark,
trade secret or other laws, and includes without limitation all new
or
useful art, combinations, discoveries, formulae, manufacturing techniques,
technical developments, discoveries, artwork, software, source code
and
designs including “Inventions,” which is defined to mean any inventions
protected under patent laws.
|
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9.4
|
Assignment
of Innovations;
Merrick hereby agrees promptly to disclose
and describe to Client, and hereby does and will assign to Client
or
Client’s designee its entire right, title, and interest in and to, each
of
the Innovations (including Inventions), and any associated intellectual
property rights, which Merrick may solely or jointly conceive, reduce
to
practice, create, derive, develop or make during Merrick’s engagement
(collectively, the “Client Innovations”). To the extent any of
the rights, title and interest in and to Client Innovations cannot
be
assigned by Merrick to Client, Merrick hereby grants to Client an
exclusive, royalty-free, transferable, irrevocable, worldwide license
(with rights to sublicense through multiple tiers of sublicensees)
to
practice such non-assignable rights, title and interest. To the
extent any of the rights, title and interest in and to Client Innovations
can be neither assigned nor licensed by Merrick to Client, Merrick
hereby
irrevocably waives and agrees never to assert such non-assignable
and
non-licensable rights, title and interest against Client or any of
Client’s successors in interest to such non-assignable and non-licensable
rights.
|
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9.5
|
Future
Innovations.
Merrick recognizes that Client Innovations or
Confidential Information relating to Merrick’s activities under this
Agreement while engaged by Client and conceived, reduced to practice,
created, derived, developed, or made by Merrick, alone or with others,
within two (2) years after termination of Merrick’s engagement may have
been conceived, reduced to practice, created derived, developed,
or made,
as applicable, in significant part while performing services for
Client. Accordingly, Merrick agrees that such Innovations and
Confidential Information shall be presumed to have been conceived,
reduced
to practice, created, derived, developed, or made, as applicable,
during
Merrick’s engagement and are to be promptly assigned to Client unless and
until Merrick has established the contrary by written evidence satisfying
the applicable standard of proof.
|
9.6
Cooperation
in Perfecting Rights to Proprietary Information and
Innovations.
Merrick
agrees to perform, during and after its engagement, all acts deemed necessary
or
desirable by Client to permit and assist Client, at Client’s expense, in
obtaining and enforcing the full benefits, enjoyment, rights and title
throughout the world in the Proprietary Information and Innovations assigned
or
licensed to, or whose rights are irrevocably waived and shall not be asserted
against Client under this Agreement. Such acts may include, but are
not limited to, execution of documents and assistance or cooperation (i) in
the filing, prosecution, registration, and memorialization of assignment of
any
applicable patents, copyrights, mask work, or other applications, (ii) in
the enforcement of any applicable patents, copyrights, mask work, moral rights,
trade secrets, or other proprietary rights, and (iii) in other legal
proceedings related to the Proprietary Information or Innovations.
Notwithstanding
any other provision in this Agreement to the contrary, including any other
provision with the same or similar limiting language, nothing in this Agreement
shall be construed to prohibit Merrick from offering and performing its standard
services, either before or after this engagement with Client. Unless
as provided to the contrary in this Agreement, Merrick shall retain ownership
of
and proprietary rights to any software programs or data be used by Merrick
under
this Agreement. Merrick retains the right to use, sell, and/or modify
any databases developed and/or modified in performing its services
hereunder.
|
9.7
|
At
Merrick’s expense, Merrick shall indemnify and hold Client harmless and
shall defend any suits brought against Client based on a claim that
the
use of any design, process, apparatus, or any part, methodology,
software,
publication, or other proprietary right (“Proprietary Property”) furnished
by Merrick under this Agreement constitutes an infringement of any
patent,
trademark, or copyright of the United States; provided that Merrick
is
notified promptly in writing by Client of such a claim or contention
and
given the authority, information, and assistance for the defense
(at
Merrick’s expense) thereof.
|
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9.8
|
Notwithstanding
the foregoing, Merrick shall not be liable to Client for claims under
this
Article resulting from the use of Proprietary Property that is directed
for use by Client or by another on Client’s behalf, or that is not
developed or proposed by Merrick.
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Article
10 - Subcontracts
|
10.1
|
Except
as provided in the Attachments, Merrick shall not subcontract any
part of
its services under this Agreement without first providing written
notice
to Client. Merrick shall obligate each subcontractor of every
tier to consent to compliance with all applicable provisions of this
Agreement.
Nothing
contained
in any subcontract of any tier shall create a contractual relationship
between Client and any such
subcontractor.
|
Article
11 - Indemnification & Risk Allocation
|
11.1
|
Merrick
agrees to indemnify and save Client harmless from any liability,
loss,
cost, or expense, including attorney fees, claimed by third parties
for
property damage or bodily injury, including death, caused by the
negligence of Merrick in connection with Merrick’s professional
services. Client agrees to indemnify and save Merrick harmless
from any liability, loss, cost, or expense, including attorney fees,
claimed by third parties for property damage or bodily injury, including
death, caused by the negligence of Client in connection with the
operations of Client. If the negligence of both Merrick and
Client is the cause of such damage or injury, the liability, loss,
cost,
or expense shall be shared between Merrick and Client in proportion
to
their relative degrees of negligence and the right of indemnity shall
apply for such proportion.
|
|
11.2
|
It
is intended by the parties to this Agreement that performance of
Merrick’s
services shall not subject Merrick’s personnel, including its employees,
officers, directors, or shareholders, to any personal legal exposure
for
any risk associated with the Project. Client agrees that any
claim, demand or suit shall be made only against Merrick & Company, a
Colorado corporation, and not against any of Merrick’s
personnel.
|
|
11.3
|
Client
and Merrick agree that notwithstanding any other provision in this
Agreement to the contrary (including any other provision with the
same or
similar limiting language), Merrick’s maximum liability to Client, in the
aggregate, for claims, liabilities, losses, or damages of any nature
arising out of or resulting from this Agreement (including, without
limitation, indemnity obligations, contract damages, attorney’s fees and
expert-witness fees), arising from any cause(s) and regardless of
the
legal theory asserted (including, without limitation, negligence,
indemnity, breach of contract or warranty, strict liability, or tort),
shall in no event exceed the greater of (a) $50,000, or
(b) the total compensation received by Merrick for services
rendered under this Agreement (or if separate task orders are issued
for
each project, then the total compensation received by Merrick for
services
under the applicable task order). Client and Merrick agree that
this Article 11.3 shall not apply in the event of Merrick’s breach of
Articles 7, 8 or 9 of this Agreement or in the event of Merrick’s reckless
or intentional misconduct.
|
|
11.4
|
Notwithstanding
any other provision in this Agreement to the contrary (including
any other
provision with the same or similar limiting language), Client and
Merrick
waive claims against each other for incidental, special, indirect
or
consequential damages arising out of or relating to this Agreement,
and
Merrick shall not be liable for any cost or expense that provides
betterment, upgrade or enhancement of the
Project.
|
|
11.5
|
The
provisions of this Article apply to all services provided to Client
by
Merrick, whether within or not within the scope of services of this
Agreement, except as the parties may otherwise provide in a signed
writing
making specific reference to this
Article.
|
|
11.6
|
The
provisions of this Article shall survive expiration or termination
of this
Agreement.
|
Article
12 - Insurance
|
12.1
|
Merrick
shall maintain during the term of this Agreement and, if Client is
not in
material default hereunder for which Merrick provided written notice
to
Client and which material default Client failed to cure within a
reasonable time, for a period of two (2) years after Merrick’s services,
insurance of the kinds and with the limits not less than the amounts
set
forth in
Attachment D
(Schedule
of
Insurance).
|
Article
13 - Termination
|
13.1
|
Subject
to the other provisions of this Agreement, this Agreement may be
terminated in whole or in part in writing by either party in the
event of
a substantial failure by the other party to fulfill its obligations
under
this Agreement. No such termination shall be effective until
the other party is given not less than ten (10) working days written
notice of intent to terminate and an opportunity for consultation
with the
terminating party prior to
termination.
|
|
13.2
|
This
Agreement may be terminated in whole or in part in writing by Client
for
its convenience. No such termination shall be effective until
Merrick is given not less than ten (10) working days written notice
of
intent to terminate and an opportunity for consultation with Client
prior
to termination.
|
|
13.3
|
Upon
receipt of a notice of termination, Merrick shall promptly discontinue
all
services affected (unless the notice directs otherwise). If
Client is not in material breach of this Agreement following Client’s
reasonable opportunity to cure any alleged breach, Merrick shall
deliver
or otherwise make available to Client all finished services; provided,
however, Merrick shall not be responsible for the accuracy, completeness
or workability of documents prepared by Merrick to the extent changed
or
completed by Client or by another
party.
|
|
13.4
|
Subject
to the provisions of Article 2, Merrick shall be paid for its costs
and
services performed through the effective date of termination, less
allowances for negligent services, which must be corrected. If
this Agreement is terminated for Client’s convenience, in addition to
payment for costs and services performed through the effective date
of
termination, Client shall pay Merrick as a termination expense five
(5)
percent of the total amount invoiced, or to be invoiced by Merrick
through
the effective date of termination. Merrick’s final invoice to
Client, which may be submitted after the effective date of termination,
shall calculate such sum.
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Article
14 - Dispute Resolution
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14.1
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If
a claim or controversy between Client and Merrick is not resolved
by the
designated representatives of the parties, the chief executive officers
of
Merrick and Client, or a senior member of management with authority
to
negotiate and execute a binding settlement, shall meet within 30
days
thereafter to review and discuss such claim or controversy and attempt,
in
good faith, to settle or resolve the matter. If a claim for
professional negligence is involved, the certification identified
below
shall be included as a part of the review and
discussion.
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14.2
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Any
dispute, controversy, or claim arising out of or relating to this
Agreement, or the breach, termination, or invalidity thereof (whether
in
tort, contract, statute or otherwise), shall be resolved by binding
arbitration by a single mutually agreed upon arbitrator in accordance
with
the Commercial Arbitration Rules of the American Arbitration Association
(“AAA”) then in effect. If the parties are unable to agree on a
single arbitrator the arbitration shall be conducted by a panel of
three
(3) arbitrators with Client and Merrick each selecting one (1) arbitrator
and the two (2) arbitrators selecting a third arbitrator. If
the two arbitrators are unable to agree on a third arbitrator, the
appointing authority shall be the AAA. The arbitrators selected
by Merrick and Client shall each be skilled in the engineering,
procurement and construction business as a consumer, provider, or
consultant for such services, and the third arbitrator shall be an
attorney familiar with civil litigation. The rules of evidence,
discovery and privilege applicable under the United States Federal
Rules
of Civil Procedure and Federal Rules of Evidence shall
apply. The decision of the arbitrators shall be rendered in
writing and may include injunctive relief including specific
performance. If a party disagrees with the decision of the
arbitrators, within fifteen (15) days after such written decision
is
rendered that the party may request a rehearing before the same
arbitrators. Such rehearing shall be granted as a matter of
right, but shall not last more than two (2) hours unless extended
by the
arbitrators. The arbitrators may, in their discretion, modify
their decision, or grant a new
hearing.
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14.3
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The
arbitration may be conducted even if the arbitration body does not
have
jurisdiction over a necessary party (other than a party to this
Agreement). The location of any arbitration shall be Denver,
Colorado or such other location mutually agreed upon by the
parties. An award of the arbitrator(s) may be entered in any
court of competent jurisdiction.
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14.4
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If
a party seeks temporary injunctive relief, it may apply to a court
of
competent jurisdiction for such relief notwithstanding this arbitration
provision, but such injunctive relief shall be terminated by the
arbitration order if not sooner terminated by the court ordering
such
relief.
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14.5
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Client
shall make no direct or indirect claim for professional negligence
against
Merrick unless Client has first complied with the provisions above
and
provided Merrick with a written certification executed by an independent,
licensed professional, currently practicing in the field(s) of work
called
for under this Agreement. This certification shall (1) contain
the name and license number of the certifier; (2) to the extent known
without further investigation, specify each act or omission the certifier
contends was a violation of the standard of care set forth in Section
1.2,
and (3) to the extent known without further investigation, detail
the
basis for the certifier’s opinion that each such act or omission
constitutes such a violation.
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14.6
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The
certificate shall be provided to Merrick at least thirty (30) calendar
days prior to the assertion of any claim in an arbitration, judicial,
or
other alternative dispute resolution proceeding and compliance with
the
provisions of this Article 14 shall be a condition precedent to such
a
proceeding.
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Article
15 - General
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15.1
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Governing
Law & Costs
. This Agreement shall be governed by
the laws of the State of Colorado without reference to conflict of
law
principles, if any. In the event of an action to enforce the
terms and conditions of this Agreement or of any of the rights or
obligations arising from this Agreement, the prevailing party shall
be
entitled to an award of the costs of such action, including reasonable
attorney fees and expert witness and consulting
fees.
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15.2
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Entire
Agreement, Amendments
. This Agreement sets forth the
entire agreement of the parties, supercedes all prior negotiations
and
understandings, and shall govern any services by Merrick on the Project
prior to execution of this Agreement. Except as
otherwise
expressly
provided
in this Agreement, this Agreement may be modified or amended only
upon the
signed written agreement of both parties. Merrick shall not be
required to execute any documents subsequent to the signing of this
Agreement that increase Merrick’s contractual or legal obligations or
risks, or jeopardize the availability of or increase the cost of
its
professional or general liability insurance, and Client shall make
no
request of Merrick that would be contrary to Merrick’s professional
responsibilities to the public. Merrick and Client have each
read and fully understand the terms of this Agreement, each has had
the
opportunity to have it reviewed by counsel, and this Agreement shall
not
be construed against either party in the event of an
ambiguity.
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15.3
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Severability
. If
any provision of this Agreement is held to be invalid or unenforceable
by
a court or other authority with like jurisdiction, the remainder
of this
Agreement shall be unaffected and enforceable, and there shall be
deemed
substituted for the affected provision(s) a valid and enforceable
provision(s) as similar as possible to the affected
provision(s).
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15.4
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Assignment
. This
Agreement is for personal services and neither party may assign its
rights
nor delegate the performance of its duties hereunder without the
prior
written approval of the other, which approval shall not be unreasonably
withheld, delayed or conditioned.
Any assignment,
voluntary or involuntary, in violation of the foregoing shall be
voidable.
This Agreement is not intended to benefit
any third party. Notwithstanding the foregoing, Client may
assign this Agreement, without the consent of Merrick, to any of
Client’s
affiliates or subsidiaries.
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15.5
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Successors
and Approved Assigns
. This Agreement shall inure to
the benefit of and shall be binding upon the parties and their respective
legal representatives, successors, and approved
assigns.
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15.6
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Non-Waiver
. No
delay or failure by either party to exercise any right under this
Agreement, and no partial or single exercise of that right shall
constitute a waiver of that or any other
right.
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15.7
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Independent
Contractor
. Merrick shall perform its services as an
independent contractor and not as an agent, employee, fiduciary,
representative, joint venturer or partner of
Client.
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15.8
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Force
Majeure
. Merrick shall not be in default of its
obligations if performance is prevented or delayed by an existing
or
future
force majeure
condition including, without limitation, act
of government, act of God, act of Client or Client’s contractor, strike,
insurrection, embargo, fire, flood, earthquake, explosion, riot,
war,
rebellion, sabotage, epidemic, weather disruptions or natural disasters
or
any other cause beyond the reasonable control of a party to this
Agreement.
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15.9
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Notices
. Notice
required or permitted hereunder shall be in writing and delivered
in a
manner most efficient under the circumstances. Subject to the
foregoing and unless otherwise specifically provided, notice shall
be
given by (1) hand delivery, (2) facsimile, or (3) certified mail
(postage
prepaid & return receipt requested), delivered as
follows
:
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Merrick
:
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Merrick
& Company
2450
S. Peoria Street
Aurora,
Colorado 80014
Attn:
John Englick
Telephone
No.: (303) 751-0741
Facsimile
No.: (303) 751-2581
Email:
john.englick@merrick.com
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Client:
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Alternative
Ethanol Technologies, Inc.
7320
Forsyth Boulevard
St.
Louis, Missouri 63105
Attn:
Edward Hennessey, President
Telephone
No.: (314) 727-6253
Facsimile
No.: (314) 721-3920
Email: ehennesseyjr@sbcglobal.net
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With
a copy to
:
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Sauerwein,
Simon, Blanchard & Kime, PC
147
N. Meramec, Suite 200
St.
Louis, Missouri 63105
Attn: Paul
Simon, Jr.
Telephone
No.: (314) 863-9100
Facsimile
No.: (314) 863-9101
Email: pas@sauerwein.com
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or
at
such other address as a party hereto may designate by written
notice. Notice shall be deemed effective on the date of delivery if
hand delivered or faxed (to be an effective notice by fax, there must be a
written confirmation of the date and time of the transmission, generated
contemporaneously by the transmission device in the ordinary course), or on
the
third day after mailing if sent by certified mail.
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15.10
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Headings
. The
captions and headings of this Agreement are for convenience and reference
only, and shall not affect the construction or interpretation of
any of
its provisions.
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15.11
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Pronouns
& Terms
. In this Agreement the singular shall
include the plural, the plural the singular, and the use of any gender
shall be applicable to all genders.
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15.12
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Counterparts
. This
Agreement may be executed in multiple original or facsimile counterparts,
each of which shall be deemed an original but all of which together
shall
constitute one and the same
instrument.
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Article
16 - Incorporation of Attachments
The
following Attachments are incorporated into and made a part of this
Agreement:
A
- Statement of Services, Project Schedule, Deliverables & Additional
Services
B
- Schedule of Payment
C
– Additional Client Responsibilities
D
– Insurance
SINGNATURE
PAGE TO FOLLOW
IN
WITNESS
WHEREOF
, the parties execute this Agreement on the date last written
below.
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Alternative
Ethanol Technologies, Inc.
A
Delaware corporation
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Merrick
& Company, a
Colorado
corporation
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Signature
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Signature
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Name
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Name
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Title
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Title
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Date
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Date
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Attachment
A
Statement
of Services, Project Schedule, Deliverables, & Additional
Services
A.1
Statement
of
Services
In
accordance with the provisions of Article 1, Merrick agrees to perform the
services described below (describe services in detail, services not described
are not included in the scope of services and will not be implied by course
of
conduct or custom in the industry, or otherwise).
Merrick
to create a Program Management Plan (PMP) for the development of a pilot
facility sized to obtain sufficient design basis information to verify the
commercial viability of the technology and to mitigate the risk on the first
commercial plant. The PMP will also include a framework of the tasks
necessary to implement the technology on a commercial scale. A more
detailed statement of services is contained in Merrick’s June 5, 2007 letter
attached hereto and incorporated herein by reference.
A.2
Project
Schedule
The
PMP
will be delivered on or before eight (8) weeks from the date of Notice to
Proceed from your firm.
A.3
Deliverables
These
items contemplated in the Statement of Services, including but not limited
to,
single PMP per the terms of the referenced proposal letter, dated June 5,
2007. Single Process Flow Diagram and or a single P&ID as the
design basis document to support pilot plant estimate basis.
A.4
Additional
Services
The
following services, and any other services not specifically described in
Statement of Services, are not included in Merrick’s basic
services. An undertaking for Additional Services shall not be
presumed by course of conduct or custom in the industry. Additional
Services may be provided if authorized by Client in
writing. Additional Services shall be paid by Client as provided in
the Agreement, in addition to the compensation for Merrick’s basic
services.
A.4.1.
Providing financial feasibility or other special studies not otherwise
contemplated by Sections A1, A2 and A3 of this Attachment A.
A.4.2.
Providing planning surveys, site evaluations, environmental studies or
comparative studies of prospective sites, and preparing special surveys, studies
and submissions required for approval of governmental authorities or others
having jurisdiction over the Project.
A.4.3. Providing
services relative to future facilities, systems and equipment, which are not
intended to be constructed during the Construction Phase.
A.4.4. Preparing
documents of alternate, separate or sequential bids or extra services in
connection with bidding, negotiation or construction prior to the completion
of
the Construction Documents Phase, when requested by Client.
A.4.5. Providing
coordination of Work performed by separate contractors or by Client’s own
forces.
A.4.6. Providing
services in connection with the work of a construction manager or separate
consultants retained by Client except as provided elsewhere in this
agreement.
A.4.7. Providing
Detailed Estimates of Construction Cost, analyses of owning and operating costs,
or detailed quantity surveys or inventories of materials, equipment and
labor.
A.4.8. Providing
interior design and other similar services required for or in connection with
the selection, procurement or installation of furniture, furnishings and related
equipment other than permanently installed laboratory case work and equipment,
if beyond the scope of this Project.
A.4.9. Making
revisions in Drawings, Specifications or other documents when such revisions
are
inconsistent with written approvals or instructions previously given, are
required by the enactment or revision of codes laws or regulations subsequent
to
the preparation of such documents or are due to other causes not solely within
the control of Merrick.
A.4.10. Preparing
as-built drawings, or preparing drawings, specifications and supporting data
and
providing other services in connection with Change Orders to the extent that
the
adjustment in the basic Compensation resulting from the adjusted Construction
Cost is not commensurate with the services required of Merrick, provided such
Change Orders are required by causes not solely within the control of
Merrick.
A.4.11. Making
investigations, surveys, valuations, inventories or detailed appraisals of
existing facilities, and services required in connection with construction
performed by Client or others.
A.4.12. Providing
consultation concerning replacement of any Work damaged by fire or other cause
during construction, and furnishing services as may be required in connection
with the replacement of such Work.
A.4.13. Providing
services made necessary by the default of the Contractor or others, or by major
defects or deficiencies in the Work of the Contractor or others, or by failure
of performance of either the Client or Prime Contractor under the Contract
for
Construction.
A.4.14. Preparing
a set of reproducible record drawings showing significant changes in the Work
made during construction based on marked-up prints, drawings and other data
furnished to Merrick.
A.4.15. Providing
extensive assistance in the utilization of any equipment or system such as
initial start-up or testing, adjusting and balancing, preparation of operation
and maintenance manuals, training personnel for operation and maintenance,
and
consultation during operation.
A.4.16. Providing
services after issuance to the Client of the final Certificate of
Occupancy.
A.4.17. Preparing
to serve or serving as an expert witness in connection with any public hearing,
arbitration proceeding or legal proceeding.
A.4.18. Providing
services of consultants for other than the normal architectural, structural,
mechanical and electrical engineering services of the Project.
A.4.19. Providing
any other services not otherwise specifically included in this
Agreement.
A.4.20 laims
arbiter service, including interpretation and decisions on matters
concerning performance of Client and any contractor.
A.5
Provisions
Applicable
to all Services
A.5.1. When
it is within its scope to make written responses to requests from a contractor
for clarification and interpretation of the requirements of the contract
documents (“RFI”), Merrick shall provide written responses to such RFI’s with
reasonable promptness. If an RFI seeks information readily apparent
from reasonable observation of field conditions or a review of the contract
documents (or reasonably inferable therefrom), Merrick shall be entitled to
additional compensation under Article 3 for the time spent in responding to
such
an RFI.
A.5.2. When
it is within its scope to review and approve or take other appropriate action
on
the contractor submittals, such as shop drawings, product data, samples and
other data, which a contractor is required to submit, Merrick shall do so but
only for the limited purpose of checking for conformance with the design concept
and the information shown in the construction documents. This review
shall not include review of the accuracy or completeness of details, such as
quantities, dimensions, weights or gauges, fabrication processes, construction
means or methods, coordination of the work with other trades or construction
safety precautions, all of which are the sole responsibility of the
contractor. Review of a specific item shall not indicate that Merrick
has reviewed the entire assembly of which the item is a
component. Merrick shall not be responsible for any deviations from
the construction documents not brought to the attention of Merrick in writing
by
the contractor. Merrick shall not be required to review partial
submissions or those for which submissions of correlated items have not been
received.
A.5.3. Merrick
shall have the authority to reject any work that is not, in the judgment of
Merrick, in conformance with the construction documents or work
plans. Neither this authority nor Merrick’s good-faith judgment to
reject or not reject any work shall subject Merrick to any liability or cause
of
action to the contractor, subcontractor or any other suppliers or persons
performing work on the project.
A.5.4. Merrick
shall be under no duty or obligation to execute any instruments, no matter
by
whom requested, that would result in Merrick having to certify, guarantee or
warrant the existence or nonexistence of conditions that Merrick cannot
ascertain, or that were not within the scope of services.
A.5.5. Unless
the scope of services in Attachment A includes an undertaking by Merrick to
confirm the accuracy of plans, drawings, specifications, criteria, maps, surveys
or other documents or information (“Data”) furnished by Client or others,
Merrick shall be entitled to rely upon as accurate and correct Data furnished
by
Client or others. If subsequent errors are discovered in Data
furnished by Client or others, which necessitate reperformance of services,
Merrick shall be compensated for such extra services in accordance with Article
3. Merrick shall not be liable for errors or omissions in Data
furnished by Client or others.
A.5.6. Since
Merrick has no control over such things as the cost or availability of labor,
materials, equipment or services furnished by others, nor over any contractors’
method of determining prices, nor over competitive bidding or market conditions,
any cost estimate provided for under this Agreement or otherwise made by Merrick
shall be on the basis of Merrick’s professional experience and judgment; but
Merrick cannot and does not guarantee or warrant that the bids or negotiated
costs will not vary from estimates prepared by Merrick. If Client
wishes greater assurance as to cost estimates, Client shall employ an
independent cost estimator.
A.5.7. Extra
services by Merrick to modify its services or deliverables to meet any Client
imposed cost limitation shall entitle Merrick to additional compensation in
accordance with Article 3.
A.5.8. Design
review, construction observation, or quality assurance services performed by
Merrick shall not guarantee the performance of and Merrick shall not have
responsibility or liability for damages arising from the acts or omissions
of
any contractor, subcontractor, supplier or any other entity or person furnishing
materials or performing any work on the Project.
A.5.9. In
the event Merrick or any other party encounters hazardous materials at the
jobsite, or should it become known in any way that hazardous materials may
be
present at the jobsite or any adjacent areas that may affect the performance
of
Merrick’s services, Merrick may, at its option and without liability for
consequential or any other damages, suspend performance of its services until
Client retains an appropriate specialist to identify, abate and/or remove the
hazardous materials, and warrant that the jobsite is in compliance with
applicable laws and regulations. Since Merrick’s scope of services
does not include services related to the presence of hazardous materials,
hazardous materials encountered in the performance of Merrick’s services shall
be the responsibility of Client, and Client waives all claims and causes of
action against Merrick in connection with hazardous materials. As
used in this Agreement, “hazardous materials” means any substances (including
but not limited to asbestos), toxic or hazardous waste, PCB’s, combustible gases
and materials, petroleum or radioactive materials (as the phrase hazardous
materials and each of these is defined in applicable federal statutes) or any
other substances under any conditions and in such quantities as would pose
a
substantial danger to persons or damage to property exposed to such
substances.
A.5.10 The
following applies in the event Merrick provides electronic files to
Client. Any modification to or interpretation of the electronic files
should be undertaken only by a qualified professional. Merrick makes
no representation as to the compatibility of any electronic files with client’s
hardware or software. Merrick will remove all indicia of its
involvement with the electronic files, and any modification or interpretation
will be at Client’s sole risk and without liability or legal exposure to
Merrick. The electronic files are instruments of
service. Under no circumstances shall delivery of the electronic
files for use by Client be deemed a sale by Merrick, and Merrick makes no
warranties, either express or implied, of merchantability or fitness for any
particular purpose, and in no event shall Merrick be liable for any damages,
including incidental, special, indirect or consequential damages as a result
of
Client’s modification of these electronic files.
A.5.11 When
a certification by Merrick is within the scope of its services, such
certification shall mean an expression of Merrick’s professional opinion to the
best of its information, knowledge and belief, and shall not constitute a
warranty or guarantee by Merrick.
A.5.12 Since
the Americans with Disabilities Act contains general provisions subject to
differing interpretations on a case-by-case basis, services in connection
therewith shall be on the basis of Merrick’s professional experience and
judgment but Merrick cannot and does not guarantee or warrant its services
will
be in compliance therewith.
Attachment
B
Schedule
of Payment
B.2.
Payment
Provisions
Payment
for services rendered shall be in accordance with the attached rate
sheet.
B.2.
Provisions
Applicable to
all forms of Payment
B.2.1. Client
shall make an initial payment of $20,000 as a retainer upon execution of this
Agreement. Upon receipt of the retainer Merrick shall commence
services. The retainer shall be held by Merrick and applied against
the final invoice. If the amount of the retainer exceeds the final
invoice, Merrick shall refund the balance with the final invoice. If
the final invoice exceeds the retainer, Client shall promptly remit the amount
due. Interest earned on the retainer shall in all instances be for
the account of Merrick and shall not be included in any refund or remittance
calculation.
B.2.2. Except
where the payment provisions below provide or require otherwise, Merrick shall
submit invoices to Client on a periodic basis with a summary of services
performed in accordance with Merrick’s standard invoicing
practices. Client shall notify Merrick of any objection within
fourteen (14) calendar days of the invoice date, identifying the reasons there
for in writing and timely paying that portion of the invoice not in
dispute. Invoices will be considered acceptable to Client if no such
objections are made.
B.2.3. Unless
otherwise provided in Attachment B, payment is due upon presentment of an
invoice. Invoices not paid within thirty (30) days of presentment
(excepting any portion of an invoiced amount in dispute and resolved in favor
of
Client) shall accrue interest at the rate of 1.5 percent per month, compounded
annually. Interest shall be calculated from the date of an invoice,
with payments credited first to interest and then to principal.
B.2.4. Payment
to Merrick shall not be withheld, postponed or made contingent on the
construction, completion or success of the project or upon receipt by Client
of
offsetting reimbursement or credit from other parties who may have caused
additional services or expenses. No withholdings, deductions or
offsets shall be made from Merrick’s compensation for any reason except upon
compliance with the certification requirements of Article 14.
B.2.5.
Timely payment by Client to Merrick is a material part of the consideration
of
this Agreement. If payment is withheld, Merrick may suspend services
or terminate this Agreement without incurring liability to Client or others
for
damages, including incidental, special, indirect, or consequential
damages.
B.2.6. If
during the term of this Agreement circumstances or conditions that were not
originally contemplated by or known to Merrick are revealed, to the extent
that
they affect the scope of services, compensation, schedule, allocation of risks
or other material terms of this Agreement, Merrick may call for renegotiation
of
appropriate portions of this Agreement. Merrick shall notify Client
of the changed conditions necessitating renegotiation, and Merrick and Client
shall promptly and in good faith enter into renegotiation of this
Agreement. If terms cannot be agreed to, either party may then
terminate this Agreement.
B.2.7. In
the event of an action to enforce the payment terms and conditions of this
Agreement, the prevailing party shall be entitled to an award of the costs
and
expenses of such action, including attorney fees, expert witness and consulting
fees.
Attachment
C
Additional
Client Responsibilities
Client
will be required to review and approve the pilot plant design drawing to serve
as the estimate basis for this equipment.
Attachment
D
Schedule
of Insurance
Merrick
shall maintain during the term of this Agreement, and for a period of two (2)
years after completion of Merrick’s services, insurance of the kinds and with
the limits not less than the amounts below:
Worker’s
Compensation Insurance
as required by statute, including
Employers Liability
, with limits of $100,000 each accident;
$500,000 disease - policy limit; $100,000 disease - each employee.
Commercial
General Liability Insurance
with limits of $1,000,000 per occurrence
and $2,000,000 aggregate.
Business
Automobile Liability Insurance
with limits of $1,000,000 per
occurrence, combined single limits (owned, hired & non-owned).
Umbrella/Excess
Liability Insurance
with limits of $3,000,000 per
occurrence.
Professional
Liability Practice Policy
with limits of $1,000,000 per claim and
$2,000,000 annual aggregate.
Certificates
of insurance evidencing these minimum coverages shall be submitted to Client
at
the commencement of Merrick’s services. The coverages are subject to
the terms, exclusions and conditions of the policies. Merrick’s
insurance policies shall be endorsed to include, for the benefit of Client,
a
30-day advance written notice of cancellation. Failure to submit the
certificates or endorsements or failure of Client to insist upon submission
shall not relieve Merrick of its duty to maintain the required
insurance.
Unless
otherwise provided, Client shall maintain insurance upon the entire work at
the
site to the full insurable value thereof. This insurance shall
include the interests of Client, the Owner, Merrick, any other beneficially
interested person or entity, and shall insure against the perils of fire and
extended coverage and shall include “all risk” insurance for loss or
damage. If Client does not intend to maintain such insurance, Client
shall inform Merrick in writing prior to commencement of Merrick’s services in
which case, at the option of Merrick, Merrick may then obtain insurance to
protect its interests. If Merrick is damaged by failure of Client to
maintain such insurance and to so notify Merrick, then Client shall bear all
costs properly attributable thereto. Client shall require that
all contractors of any tier on this project obtain and maintain insurance,
with
appropriate limits, to cover the perils of their undertakings.
Exhibit
10.6
FIVE
SIGMA LTD
Consulting
Fee Agreement
This
Consulting Fee Agreement
is made as of the 17th day of April,
2007 by
BETWEEN:
Alternative
Ethanol Technologies, Inc.
(Hereinafter
referred to as the Company)
OF
THE
FIRST PART;
And
–
Five
Sigma Ltd.
(Hereinafter
called the Consultant)
OF
THE
SECOND PART
WHEREAS
the Company is desirous of engaging the services of the Consultant to provide
services in accordance with the terms of this Agreement.
NOW
THEREFORE in consideration of the mutual covenants herein contained and other
good and valuable consideration,
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ARTICLE
1.00 -
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INTERPRETATION
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1.01
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The
division of this Agreement into Articles, sections and subsections
and the
insertion of headings are for convenience of reference only and shall
not
affect the interpretation of construction of this
Agreement.
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1.02
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In
this Agreement, the use of the singular number shall include the
plural
and vice versa. The use of gender shall include the masculine,
feminine and neuter genders and the word "person" shall include an
individual, a trust, a partnership, a body corporate or politic,
an
association or any other form of incorporated or unincorporated
organization or entity.
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1.03
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When
calculating the period of time within which or following which any
act is
to be done or step taken pursuant to this Agreement, the date which
is the
reference date in calculating such period shall be excluded. If
the last day of such period is not a business day, the period in
question
shall end of the next business day.
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1.04
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Any
references herein to any law, by-law, rule, regulation, order or
act of
any government, governmental body or other regulatory body shall
be
construed as a reference thereto as amended or re-enacted from time
to
time or as a reference to any successor thereto.
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ARTICLE
2.00 -
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DUTIES
AND RESPONSIBILITIES
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2.01
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The
Consultant agrees that it will generally provide the following specified
consulting services during the term specified in Sec.
3.1;
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2.02
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Advise
and assist the Company in developing and implementing appropriate
plans
and materials for presenting the Company and its business plans,
strategy
and personnel to the financial community, establishing an image for
the
Company in the financial community and creating the foundation for
subsequent financial public relations efforts; and
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2.03
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Assist
and advise the Company with respect to its stockholder and investor
relations, relations with brokers, dealers, analysts and other investment
professionals, and financial public relations generally;
and
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2.04
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At
the Company’s request, review business plans, strategies, mission
statements, budgets, proposed transactions and other plans for the
purpose
of advising the Company of the investment community implications
thereof;
and
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2.05
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Otherwise
perform as the Company’s financial relations and public relations
consultant.
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2.06
|
It
is further understood that the Company shall be responsible for complying
with all applicable laws and regulations.
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2.07
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The
Company agrees to indemnify and hold the Consultant harmless from
any loss
or expense, including reasonable attorneys' fees incurred by the
Consultant as a result of any failure by the Company, to comply with
its
responsibilities as described in this Agreement.
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2.08
|
The
Company further agrees not to attempt to circumvent this agreement
in any
form or attempt to deprive the Consultant of any fees or other forms
of
remuneration due under this Agreement. To that end, this
document shall apply to all corporations of the Company, divisions,
subsidiaries, employees, consultants, principals, agents, associates,
assignees and/or other associated persons.
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2.09
|
The
Company acknowledges that this agreement may be modified to reflect
a
legal name change to the name utilized for funding.
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ARTICLE
3.00
|
TERMS
AND TERMINATION
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3.01
|
This
Agreement shall continue for a term of twelve (12) months from the
date of
its execution and shall be exclusive to the Consultant for the initial
four (4) months of the term unless otherwise terminated by either
party by
written notice thereof. Termination shall not affect
obligations of the Company, arising prior to
termination. During the initial four (4) months of this
Agreement, the Company therein agrees not to enter into an agreement
for
similar or like type services as provided under this
Agreement.
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3.02(a)
|
Notwithstanding
anything set forth herein, the Company shall have the right to terminate
this Agreement for any reason at any time within the terms of this
Agreement. In the event of such termination, this Agreement
shall terminate and be effective on the date set forth in the Notice
of
Termination and when full and final payment of fees and expenses
due, have
been made to the Consultant. Any amount of the Retainer Fee not
applied to monthly fees hereunder or expenses incurred prior to the
date
of such termination shall be returned to the Company.
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3.02(b)
|
This
Agreement may be terminated by the Consultant at any time. Upon
such termination, the Consultant shall be entitled to receive from
the
Company in no less than three (3) business days, an amount equal
to all
non paid fees and non-reimbursed expenses incurred by the Consultant
as of
the date of termination.
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ARTICLE
4.00 -
|
FEES
AND INDEMNITY
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4.01
|
In
return for the Consulting Services rendered hereunder, the Company
agrees
to compensate the Consultant with a Retainer Fee in the amount of
$200,000
due in line with the execution of this Agreement. The Retainer
Fee shall be applied monthly against the fee charged by Consultant
in the
amount of $16,666.66 per month for each month during the term
of this Agreement.
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4.02
|
The
Company agrees to reimburse the Consultant for expenses incurred
by the
Consultant while traveling either on Company business or while traveling
to or from the Company and the Consultant’s
office. Reimbursable expenses incurred by the Consultant
shall include but shall not be limited to air fare, hotel/motel lodging,
meals, car rentals, parking and telephone and/or communication expenses
incurred in the representation of the Company. A mileage
expense will be charged at a rate $.62 a mile when the Consultant
is
traveling utilizing his own vehicle on behalf of the
Company. Expenses incurred by the Consultant shall be paid by
the Company upon presentation of an appropriate invoice for the expenses
incurred. Upon presentation of said invoice by the Consultant,
the Company will take immediate steps to pay the Consultant’s in a time
frame not to exceed three (3) business days from date of
presentation.
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4.02
|
It
is expressly agreed, represented and understood that the Consultant
is not
a broker-dealer, underwriter, employee, agent or servant of the Company
and the parties hereto have entered into an arms length independent
contract for the rendering of consulting services. Furthermore,
this Agreement shall not be deemed to constitute or create a partnership,
joint venture, master-servant, employer-employee, principal-agent
or any
other relationship apart from that of an independent contractor and
contractee relationship.
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4.03
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Should
the Company at any time require “additional” services from the Consultant,
the Consultant will therein provide a “quotation,” either verbal or in
writing, at the Consultant’s then current billing rate.
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4.04
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The
Company agrees to indemnify the Consultant against any liabilities,
costs,
claims, actions or legal expenses incurred as a result of this
engagement.
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ARTICLE
5.00 -
|
GENERAL
CONTRACT PROVISIONS
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5.01
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In
the event, that any provision herein or part thereof, shall be deemed
void
or invalid by a court of competent jurisdiction, the remaining provisions
or parts thereof shall be and remain in full force and
effect. If, in any judicial proceeding, any provision of
this Agreement is found to be so broad as to be unenforceable, it
is
hereby agreed that such provision shall be interpreted to be only
so broad
as to be enforceable.
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5.02
|
This
Agreement binds the Company and its successors and assigns
hereafter.
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5.03
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The
Consultant and the Company are independent business entities. Wherein,
neither party has the right or authority to and shall not assume
or create
any obligation of any nature whatsoever on behalf of the other party
or
bind the other party in any respect.
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5.04
|
Unless
otherwise indicated to the contrary, all monetary amounts referred
to in
this Agreement referencing actions meriting a Consulting Fee and/or
reimbursement of expenses due to the Consultant shall be in United
States
dollars.
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5.05
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The
Company agrees to reimburse the Consultant for any cost and expense
(including reasonable attorney’s fees, court costs and disbursements)
incurred by the Consultant in collection of the fees and/or expenses
due
under this Agreement.
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5.10
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This
Agreement constitutes the entire Agreement between the parties in
connection therewith and there are no warranties, representations
or other
Agreements between the parties in connection with the subject matter
hereof except as specifically set forth herein. The parties
herein agree that the execution of this Agreement has not been induced
by,
nor do either of the parties regard as material, any representation
not
made expressly herein. No modification, variation, waiver
or termination of this Agreement shall be binding unless executed
in
writing by both parties and clearly expressed to be a modification,
variation waiver or termination, as the case may
be.
|
IN
WITNESS WHEREOF, the Company has executed this Agreement as of the date first
written below.
ACCEPTED
AND AGREED TO
THIS
DATE,
Alternative
Ethanol Technologies, Inc.
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Ed
Hennessey, President
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Date
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Exhibit
10.7
CLEANTECH
BIOFUELS, INC.
(f/k/a
SRS Energy, Inc.)
2007
STOCK OPTION PLAN
(As
Adopted Effective April 16, 2007)
CLEANTECH
BIOFUELS, INC.
2007
STOCK OPTION PLAN
ARTICLE
1. INTRODUCTION.
The
Plan
was adopted by the Board effective April 16, 2007. The purpose of the Plan
is to
promote the long-term success of the Company and the creation of stockholder
value by (a) encouraging Employees, Outside Directors and Consultants to focus
on critical long-range objectives, (b) encouraging the attraction and retention
of Employees, Outside Directors and Consultants with exceptional qualifications
and (c) linking Employees, Outside Directors and Consultants directly to
stockholder interests through increased stock ownership. The Plan seeks to
achieve this purpose by providing for Awards in the form of Options to purchase
shares of the Company’s Common Stock (which may constitute incentive stock
options or nonstatutory stock options).
The
Plan
shall be governed by, and construed in accordance with, the laws of the State
of
Delaware (except their choice-of-law provisions).
ARTICLE
2. ADMINISTRATION.
2.1
Committee
Composition
. The Plan shall be administered by the The Committee. The
Committee shall consist exclusively of two or more directors of the Company,
who
shall be appointed by the Board. In addition, the composition of the Committee
shall satisfy:
(a)
Such
requirements as the Securities and Exchange Commission may establish for
administrators acting under plans intended to qualify for exemption under Rule
16b-3 (or its successor) under the Exchange Act; and
(b)
Such
requirements as the Internal Revenue Service may establish for outside directors
acting under plans intended to qualify for exemption under Section 162(m)(4)(C)
of the Code.
2.2
Committee
Responsibilities
. The Committee or Board of Directors, as appropriate,
shall (a) select the Employees, Outside Directors and Consultants who are to
receive Awards under the Plan, (b) determine the type, number, vesting
requirements and other features and conditions of such Awards, (c) interpret
the
Plan and (d) make all other decisions relating to the operation of the Plan.
The
Committee and/or Board of Directors may adopt such rules or guidelines as it
deems appropriate to implement the Plan. The Committee’s and or Board of
Directors’ determinations under the Plan shall be final and binding on all
persons.
2.3
Committee
for Non-Officer Grants
. The Board may also appoint a secondary
committee of the Board, which shall be composed of one or more directors of
the
Company who need not satisfy the requirements of Section 2.1. Such secondary
committee may administer the Plan with respect to Employees and Consultants
who
are not considered officers or directors of the Company under Section 16 of
the
Exchange Act, may grant Awards under the Plan to such Employees and Consultants
and may determine all features and conditions of such Awards. Within the
limitations of this Section 2.3, any reference in the Plan to the Committee
shall include such secondary committee.
ARTICLE
3. SHARES AVAILABLE FOR GRANTS.
3.1
Basic
Limitation
. Common Shares issued pursuant to the Plan may be authorized
but unissued shares or
treasury
shares. The aggregate number of Options awarded under the Plan shall
not exceed 7,000,000 Common Shares. The limitation of this Section 3.1 shall
be
subject to adjustment pursuant to Article 9.
3.2
Additional
Shares
. If Options are forfeited or terminate for any other reason
before being exercised, then the corresponding Common Shares shall again become
available for the grant of Options under the Plan, if Common Shares issued
upon
the exercise of Options are forfeited, then such Common Shares shall again
become available for the grant under the Plan. The aggregate number of Common
Shares that may be issued under the Plan upon the exercise of ISOs shall not
be
increased when Common Shares are forfeited.
ARTICLE
4. ELIGIBILITY.
4.1
Nonstatutory
Stock Options
. Only Employees, Outside Directors and Consultants shall
be eligible for the grant of NSOs.
4.2
Incentive
Stock Options
. Only Employees who are common-law employees of the
Company, a Parent or a Subsidiary shall be eligible for the grant of ISOs.
In
addition, an Employee who owns more than 10% of the total combined voting power
of all classes of outstanding stock of the Company or any of its Parents or
Subsidiaries shall not be eligible for the grant of an ISO unless the
requirements set forth in Section 422(c)(6) of the Code are
satisfied.
ARTICLE
5. OPTIONS.
5.1
Stock
Option Agreement
. Each grant of an Option under the Plan shall be
evidenced by a Stock Option Agreement between the Optionee and the Company.
Such
Option shall be subject to all applicable terms of the Plan and may be subject
to any other terms that are not inconsistent with the Plan. The provisions
of
the various Stock Option Agreements entered into under the Plan need not be
identical. Options may be granted in consideration of a reduction in the.
Optionee’s other compensation.
5.2
Number
of Shares
. Each Stock Option Agreement shall specify the number of
Common Shares subject to the Option and shall provide for the adjustment of
such
number in accordance with Article 9. The limitations set forth in the
preceding sentence shall be subject to adjustment in accordance with Article
9.
5.3
Exercise
Price
. Each Stock Option Agreement shall specify the Exercise Price;
provided that the Exercise Price under an ISO shall in no event be less than
100% of the Fair Market Value of a Common Share on the date of grant and the
Exercise Price under an NSO shall in no event be less than 85% of the Fair
Market Value of a Common Share on the date of grant. In the case of an NSO,
a
Stock Option Agreement may specify an Exercise Price that varies in accordance
with a predetermined formula while the NSO is outstanding.
5.4
Exercisability
and Term
. Each Stock Option Agreement shall specify the date or event
when all or any installment of the Option is to become exercisable. The Stock
Option Agreement shall also specify the term of the Option; provided that the
term of an ISO shall in no event exceed 10 years from the date of grant. A
Stock
Option Agreement may provide for accelerated exercisability in the event of
the
Optionee’s death, disability or retirement or other events and may provide for
expiration prior to the end of its term in the event of the termination of
the
Optionee’s service.
5.5
Effect
of Change in Control
. The Committee and/or the Board of Directors may
determine, at the time of granting an Option or thereafter, that such Option
shall become exercisable as to all or part of the Common Shares subject to
such
Option in the event that a Change in Control occurs with respect to the Company,
subject to the following limitations:
(a)
In
the case of an ISO, the acceleration of exercise ability shall not occur without
the Optionee’s written consent.
(b)
If
the Company and the other party to the transaction constituting a Change in
Control agree that such transaction is to be treated as a “pooling of interests”
for financial reporting purposes, and if such transaction in fact is so treated,
then the acceleration of exercisability shall not occur to the extent that
the
Company’s independent accountants and such other party’s independent accountants
each determine in good faith that such acceleration would preclude the use
of
“pooling of interests” accounting.
5.6
Modification
or Assumption of Options.
Within the limitations of the Plan,
the Committee and/or the Board of Directors may modify, extend or assume
outstanding options or may accept the cancellation of outstanding options
(whether granted by the Company or by another issuer) in return for the grant
of
new options for the same or a different number of shares and at the same or
a
different exercise price. The foregoing notwithstanding, no
modification of an Option shall, without the consent of the Optionee, alter
or
impair his or her rights or obligations under such Option.
5.7
Buyout
Provisions
. The Committee and/or the Board of Directors may at any time
(a) offer to buy out for a payment in cash or cash equivalents an Option
previously granted or (b) authorize an Optionee to elect to cash out an Option
previously granted, in either case at such time and based upon such terms and
conditions as the Committee and/or the Board of Directors shall
establish.
ARTICLE
6. PAYMENT FOR OPTION SHARES.
6.1
General
Rule
. The entire Exercise Price of Common Shares issued upon exercise
of Options shall be payable in cash or cash equivalents at the time when such
Common Shares are purchased, except that the Committee and/or Board
of Directors may at any time accept payment in any form(s) described in this
Article 6.
6.2
Surrender
of Stock
. To the extent that this Section 6.2 is applicable,
all or any part of the Exercise Price may be paid by surrendering, or attesting
to the ownership of, Common Shares that are already owned by the
Optionee. Such Common Shares shall be valued at their Fair Market
Value on the date when the new Common Shares are purchased under the Plan.
The
Optionee shall not surrender, or attest to the ownership of, Common Shares
in
payment of the Exercise Price if such action would cause the Company to
recognize compensation expense (or additional compensation expense) with respect
to the Option for financial reporting purposes.
6.3
Exercise/Sale
.
To the extent that this Section 6.3 is applicable, all or any part of the
Exercise Price and any withholding taxes may be paid by delivering (on a form
prescribed by the Company) an irrevocable direction to a securities broker
approved by the Company to sell all or part of the Common Shares being purchased
under the Plan and to deliver all or part of the sales proceeds to the
Company.
6.4
Exercise/Pledge
.
To the extent that this Section 6.4 is applicable, all or any part of the
Exercise Price and any withholding taxes may be paid by delivering (on a form
prescribed by the Company) an irrevocable direction to pledge all or part of
the
Common Shares being purchased under the Plan to a securities broker or lender
approved by the Company, as security for a loan, and to deliver all or part
of
the loan proceeds to the Company.
6.5
Promissory
Note
. To the extent that this Section 6.5 is applicable, all or any
part of the Exercise Price and any withholding taxes may be paid by delivering
(on a form prescribed by the Company) a full-recourse promissory note. However,
the par value of the Common Shares being purchased under the Plan, if newly
issued, shall be paid in cash or cash equivalents.
6.6
Other
Forms of Payment
. To the extent that this Section 6.6 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid
in
any other form that is consistent with applicable laws, regulations and
rules.
ARTICLE
7
. AUTOMATIC OPTION GRANTS TO OUTSIDE
DIRECTORS.
7.1
Initial
Grants
. Each Outside Director who first becomes a member of the Board
after the date of the Company’s initial public offering shall receive a one-time
grant of an NSO covering ______ Common Shares (subject to adjustment under
Article 9). Such NSO shall be granted on the date when such Outside Director
first joins the Board and shall become exercisable in _____ equal installments
at ________ intervals over the ________-month period commencing on the date
of
grant.
7.2
Annual
Grant
. Upon the conclusion of each regular annual meeting of the
Company’s stockholders held in the year 199_ or thereafter, each Outside
Director who will continue serving as a member of the Board thereafter shall
receive an NSO covering ____ Common Shares (subject to adjustment under Article
9),
except that such NSO shall not be granted in
the calendar year in which the same Outside Director received the NSO described
in Section 7.l. NSOs granted under this Section 7.2 shall become
exercisable in full on
the first anniversary of the date
of grant.
7.3
Accelerated
Exercisability
. All NSOs granted to an Outside Director under this
Article 7
shall also become exercisable in full
in the event of:
(a) The
termination of such Outside Director’s service because of death, total and
permanent disability or retirement at or after age 65; or
(b) A
Change in Control with respect to the Company, except as provided in the next
following sentence.
If
the
Company and the other party to
the transaction
constituting a Change in Control agree that such transaction is to be treated
as
a “pooling of interests” for financial reporting purposes, and if such
transaction in fact is so treated, then the acceleration of exerciseability
shall not occur to the extent that the Company’s independent accountants and
such other party’s independent accountants each determine
in
good faith that such acceleration would preclude the
use of “pooling of interests” accounting.
7.4
Exercise
Price
. The Exercise Price under all NSOs granted to an Outside Director
under this Article 7 shall be equal to 100% of the Fair Market Value of a Common
Share on the date of grant, payable in one of the forms described in Sections
6.1, 6.2, 6.3 and 6.4.
7.5
Term
.
All NSOs granted to an Outside Director under this Article 7 shall terminate
on
the earliest of (a) the 10th anniversary of the date of grant, (b) the date_____
months after the termination of such Outside Director’s service for any reason
other than death or total and permanent disability or (c) the date ____ months
after the termination of such Outside Director’s service because of death or
total and permanent disability.
7.6
Affiliates
of Outside Directors
. The Committee and/or the Board of Directors may
provide that the NSOs that otherwise would be granted to an Outside Director
under this Article 7 shall Instead be granted to an affiliate of such Outside
Director. Such affiliate shall then be deemed to be an Outside Director for
purposes of the Plan, provided that the service- related vesting and termination
provisions pertaining to the NSOs shall be applied with regard to the service
of
the Outside Director.
ARTICLE
8. PROTECTION AGAINST DILUTION.
8.1
Adjustments
.
In the event of a subdivision of the outstanding Common Shares, a declaration
of
a dividend payable in Common Shares, a declaration of a dividend payable in
a
form other than Common Shares in an amount that has a material effect on the
price of Common Shares, a combination or consolidation of the outstanding Common
Shares (by reclassification or otherwise) into a lesser number of Common Shares,
a recapitalization, a spin-off or a similar occurrence, the Committee and/or
the
Board of Directors shall make such adjustments as it, in its sole discretion,
deems appropriate in one or more of:
(a) The
number of Options available for future Awards under Article 3;
(b) The
limitations set forth in Section 5.2;
(c) The
number of NSOs to be granted to Outside Directors under Article 7;
(d) The
number of Common Shares covered by each outstanding Option; or
(e) The
Exercise Price under each outstanding Option.
Except
as
provided in this Article 9, a Participant shall have no rights by reason of
any
issue by the Company of stock of any class or securities convertible into stock
of any class, any subdivision or consolidation of shares of stock of any class,
the payment of any stock dividend or any other increase or decrease in the
number of shares of stock of any class.
8.2
Dissolution
or Liquidation
. To the extent not previously exercised, Options shall
terminate immediately prior to the dissolution or liquidation of the
Company.
8.3
Reorganizations
.
In the event that the Company is a party to a merger or other reorganization,
outstanding Options shall be subject to the agreement of merger or
reorganization. Such agreement shall provide for:
(a) The
continuation of the outstanding Awards by the Company, if the Company is a
surviving corporation;
(b) The
assumption of the outstanding Awards by the surviving corporation or its parent
or subsidiary;
(c) The
substitution by the surviving corporation or its parent or subsidiary of its
own
awards for the outstanding Awards;
(d) Full
exercisability or vesting and accelerated expiration of the outstanding Awards;
or
(e) Settlement
of the full value of the outstanding Awards in cash or cash equivalents followed
by cancellation of such Awards.
ARTICLE
9. DEFERRAL OF DELIVERY OF SHARES.
The
Committee and/or the Board of Directors (in its sole discretion) may permit
or
require an Optionee to have Common Shares that otherwise would be delivered
to
such Optionee as a result of the exercise of an Option converted into amounts
credited to a deferred compensation account established for such Optionee by
the
Committee and/or the Board of Directors as an entry on the Company’s books. Such
amounts shall be determined by reference to the Fair Market Value of such Common
Shares as of the date when they otherwise would have been delivered to such
Optionee. A deferred compensation account established under this Article 9
may
be credited with interest or other forms of investment return, as determined
by
the Committee and/or the Board of Directors. An Optionee for whom such an
account is established shall have no rights other than those of a general
creditor of the Company. Such an account shall represent an unfunded and
unsecured obligation of the Company and shall be subject to the terms and
conditions of the applicable agreement between such Optionee and the Company.
If
the conversion of Options is permitted or required, the Committee and/or the
Board of Directors (in its sole discretion) may establish rules, procedures
and
forms pertaining to such conversion, including (without limitation) the
settlement of deferred compensation accounts established under this Article
9.
ARTICLE
10. AWARDS UNDER OTHER PLANS.
The
Company may grant awards under other plans or programs. Such awards may be
settled in the form of Options issued under this Plan.
ARTICLE
11. LIMITATION ON RIGHTS.
11.1
Retention
Rights
. Neither the Plan nor any Award granted under the Plan shall be
deemed to give any individual a right to remain an Employee, Outside Director
or
Consultant. The Company and its Parents, Subsidiaries and Affiliates reserve
the
right to terminate the service of any Employee, Outside Director or Consultant
at any time, with or without cause, subject to applicable laws, the Company’s
certificate of incorporation and by-laws and a written employment agreement
(if
any).
11.2
Stockholders’
Rights
. A Participant shall have no dividend tights, voting rights or
other rights as a stockholder with respect to any Common Shares covered by
his
or her Award prior to the time when a stock certificate for such Common Shares
is issued or, in the case of an Option, the time when he or she becomes entitled
to receive such Common Shares by filing a notice of exercise and paying the
Exercise Price. No adjustment shall be made for cash dividends or other rights
for which the record date is prior to such time, except as expressly provided
in
the Plan.
11.3
Regulatory
Requirements
. Any other provision of the Plan notwithstanding, the
obligation of the Company to issue Common Shares under the Plan shall be subject
to all applicable laws, rules and regulations and such approval by any
regulatory body as may be required. The Company reserves the right to restrict,
in whole or in part, the delivery of Common Shares pursuant to any Award prior
to the satisfaction of all legal requirements relating to the issuance of such
Common Shares, to their registration, qualification or listing or to an
exemption from registration, qualification or listing.
ARTICLE
12. WITHHOLDING TAXES.
12.1
General
.
To the extent required by applicable federal, state, local or foreign law,
a
Participant or his or her successor shall make arrangements satisfactory to
the
Company for the satisfaction of any withholding tax obligations that arise
in
connection with the Plan. The Company shall not be required to issue any Common
Shares or make any cash payment under the Plan until such obligations are
satisfied.
12.2
Share
Withholding
. The Committee and/or the Board of Directors may permit a
Participant to satisfy all or part of his or her withholding or income tax
obligations by having the Company withhold all or a portion of any Common Shares
that otherwise would be issued to him or her or by surrendering all or a portion
of any Common Shares that he or she previously acquired. Such Common Shares
shall be valued at their Fair Market Value on the date when taxes otherwise
would be withheld in cash.
ARTICLE
13. FUTURE OF THE PLAN.
13.1
Term
of the Plan
. The Plan, as set forth herein, shall become effective on
March 27, 2007. The Plan shall remain in effect until it is
terminated under Section 13.2, except that no ISOs shall be granted on or after
the 10th anniversary of the later of (a) the date when the Board adopted the
Plan or (b) the date when the Board adopted the most recent increase in the
number of Common Shares available under Article 3 which was approved by the
Company’s stockholders.
13.2
Amendment
or Termination
. The Board may, at any time and for any reason, amend or
terminate the Plan. An amendment of the Plan shall be subject to the approval
of
the Company’s stockholders only to the extent required by applicable laws,
regulations or rules. No Awards shall be granted under the Plan after
the termination thereof. The termination of the Plan, or any amendment thereof,
shall not affect any Award previously granted under the Plan.
ARTICLE
14. DEFINITIONS.
14.1
“
Affiliate
”
means any entity other than a Subsidiary, if the Company and/or one or more
Subsidiaries own not less than 50% of such entity.
14.2
“
Award
”
means any award of an Option under the Plan.
14.3
“
Board
”
means the Company’s Board of Directors, as constituted from time to
time.
14.4
“
Change
in
Control
” means:
(a) The
consummation of a merger or consolidation of the Company with or into another
entity or any other corporate reorganization, if more than 50% of the combined
voting power of the continuing or surviving entity’s securities outstanding
immediately after such merger, consolidation or other reorganization is owned
by
persons who were not stockholders of the Company immediately prior to such
merger, consolidation or other reorganization;
(b) The
sale, transfer or other disposition of all or substantially all of the Company’s
assets;
(c) A
change in the composition of the Board, as a result of which fewer than 50%
of
the incumbent directors are directors who either (i) had been directors of
the
Company on the date 24 months prior to the date of the event that may constitute
a Change in Control (the “original directors”) or (ii) were elected, or
nominated for election, to the Board with the affirmative votes of at least
a
majority of the aggregate of the original directors who were still in office
at
the time of the election or nomination and the directors whose election or
nomination was previously so approved; or
(d) Any
transaction as a result of which any person is the “beneficial owner” (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing at least 50% of the total voting power
represented by the Company’s then outstanding voting securities. For purposes of
this Subsection (d), the term “person” shall have the same meaning as when used
in Sections 13(d) and 14(d) of the Exchange Act but shall exclude (i) a trustee
or other fiduciary holding securities under an employee benefit plan of the
Company or of a Parent or Subsidiary and (ii) a corporation owned directly
or
indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of the common stock of the Company.
A
transaction shall not constitute a Change in Control if its sole purpose is
to
change the state of the Company’s incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who
held
the Company’s securities immediately before such transaction.
14.5
“
Code
”
means the Internal Revenue Code of 1986, as amended.
14.6
“
Committee
”
means a committee of the Board, as described in Article 2.
14.7
“
Common
Share
” means one share of the common stock, $0.001 par value per share,
of the Company.
14.8
“
Company
”
means SRS Energy, Inc., a Delaware corporation.
14.9
“
Consultant
”
means a consultant or adviser who provides bona fide services to the Company,
a
Parent, a Subsidiary or an Affiliate as an independent contractor. Service
as a
Consultant shall be considered employment for all purposes of the Plan, except
as provided in Section 4.2.
14.10
“
Employee
”
means a common-law employee of the Company, a Parent, a Subsidiary or an
Affiliate.
14.11
“
Exchange
Act
” means the Securities Exchange Act of 1934, as
amended.
14.12
“
Exercise
Price
” means the amount for which one Common Share may be purchased
upon exercise of such Option, as specified in the applicable Stock Option
Agreement.
14.13
“
Fair
Market Value
” means the market price of Common Shares, determined by
the Committee and/or the Board of Directors in good faith on such basis as
it
deems appropriate. Whenever possible, the determination of Fair Market Value
by
the Committee and/or the Board of Directors shall be based on the prices
reported in the
Wall Street Journal.
Such determination shall be
conclusive and binding on all persons.
14.14
“
ISO
”
means an incentive stock option described in Section 422(b) of the
Code.
14.15
“
NSO
”
means a stock option not described in Sections 422 or 423 of the
Code.
14.16
“
Option
”
means an ISO or NSO granted under the Plan and entitling the holder to purchase
Common Shares.
14.17
“
Optionee
”
means an individual or estate who holds an Option.
14.18
“
Outside
Director
” means a member of the Board who is not an Employee. Service
as an Outside Director shall be considered employment for all purposes of the
Plan, except as provided in Section 4.2.
14.19
“
Parent
”
means any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company, if each of the corporations other than
the
Company owns stock possessing 50% or more of the total combined voting power
of
all classes of stock in one of the other corporations in such chain. A
corporation that attains the status of a Parent on a date after the adoption
of
the Plan shall be considered a Parent commencing as of such date.
14.20
“
Participant
”
means an individual or estate who holds an Award.
14.21
“Plan”
means this SRS Energy, Inc. 2007 Stock Option Plan, as amended from
time to time.
14.22
“
Stock
Option
Agreement
” means the agreement between the Company and an Optionee that
contains the terms, conditions and restrictions pertaining to his or her
Option.
14.23
“
Subsidiary
”
means any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company, if each of the corporations other
than
the last corporation In the unbroken chain owns stock possessing 50% or more
of
the total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a
Subsidiary on a date after the adoption of the Plan shall be considered a
Subsidiary commencing as of such date.
ARTICLE
15. EXECUTION.
To
record
the adoption of the Plan by the Board, the Company has caused its duly
authorized officer to execute this document in the name of the
Company.
Exhibit
10.8
STOCK
OPTION AGREEMENT
THIS
AGREEMENT is made and entered into as of the date last below written by and
between CleanTech Biofuels, Inc., a Delaware corporation (the
“
Company
”), and _________________ (the
“
Optionee
”).
WHEREAS
,
the Optionee was made a Director of the Company as of the ____ day of
__________, 2007; and
WHEREAS
,
the Company, in order to induce the Optionee to accept a position as a Director
of the Company and to contribute to the success of the Company, agreed to grant
the Optionee an option to acquire a proprietary interest in the Company through
the purchase of shares of stock of the Company; and
WHEREAS
,
the Company adopted the Company’s 2007 Stock Option Plan (the
“
Plan
”) under which the Company is authorized to grant stock
options to certain employees, directors and consultants of the Company;
and
WHEREAS
,
the Committee (as defined in the Plan) has determined that the Company should,
in recognition of Optionee’s contributions, grant an option to the Optionee
pursuant to the terms of this Agreement and the Plan; and
WHEREAS
,
the Optionee desires to accept the option.
NOW,
THEREFORE,
in consideration of the mutual covenants set forth herein
and for other valuable consideration hereinafter set forth, the parties agree
as
follows:
1.
Grant
of Option.
The Company hereby grants a Qualified Stock
Option in the amount and subject to the terms provided in this Agreement (the
“
Option
”) effective as of the _____ day of __________, 2007
(the “
Grant Date
”). If the Option is a Nonqualified
Stock Option, the Option is not intended to be and shall not be treated as
a
qualified incentive stock option as defined under Section 422 of the Internal
Revenue Code of 1986, as amended (the “
Code
”). If
the Option is a Qualified Stock Option, the Option is intended to be and shall
be treated as a qualified incentive stock option as defined under Section 422
of
the Internal Revenue Code of 1986, as amended (the
“
Code
”). The foregoing notwithstanding, to the
extent the aggregate fair market value of stock with respect to which Qualified
Stock Options are exercisable for the first time by Optionee in any given
calendar year exceeds $100,000, such Qualified Stock Options shall be treated
as
Nonqualified Stock Options under the Plan. In such event,
Section 8
of this Agreement shall not apply to shares acquired
by Optionee as a result of the exercise of such Nonqualified Stock
Options.
2.
Shares.
The
shares of stock subject to the Option shall be the Company’s authorized but
unissued or reacquired Common Stock, $0.001 par value (the “
Common
Stock
”).
3.
Number
of Shares.
The number of shares of Common Stock which the
Optionee may purchase under the Option is _______.
4.
Term
and Exercise of Option.
The Option shall be first
exercisable with respect to one half (1/2) of the shares subject to the Option
commencing on the First Anniversary of Grant Date, with respect to another
one
half (1/2) of the shares subject to the Option commencing on the Second
Anniversary of Grant Date, if Optionee is a member of the Board of Directors
of
the Company as of each of such dates. The exercise period for the
Option shall end upon the earliest of the following:
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a.
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The
date three (3) months after the Optionee’s termination of Optionee as a
member of the Board of Directors of the Company for any reason other
than
retirement, disability, or death;
or
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b.
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The
date one-year after termination of the Optionee as a Member of the
Board
of Directors of the Company due to retirement or disability;
or
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c.
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The
date one (1) year after the Optionee’s death, if and only if the Optionee
was a member of the Board of Directors of the Company on the date
three
(3) months prior to the Optionee’s
death.
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d.
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The
date seven (7) years after the Grant
Date.
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To
the
extent the Option for any of the shares is not exercised within the foregoing
periods, the Option shall expire and thereafter shall be null and
void.
Notwithstanding
anything herein to the contrary, if Optionee is employed by the Company upon
the
effective date of any merger, consolidation, sale of all (or substantially
all)
of the assets of the Company, or other business combination involving the sale
or transfer of all (or substantially all) of the capital stock or assets of
the
Company in which the Company is not the surviving entity, or if it is the
surviving entity, either (i) it does not survive as an operating ongoing concern
in substantially the same line of business, or (ii) it is controlled by persons
or entities previously unaffiliated with the Company, the Option shall become
exercisable immediately prior to the consummation of any of the foregoing events
with respect to one hundred percent (100%) of the shares subject to the
Option.
5.
Manner
of Exercise, Purchase Price, and Payment.
Exercise of the
Option shall be made by delivery to the Company by Optionee (or other person
entitled to exercise the Option as provided hereunder) of (i) an executed
“
Notice of Exercise of Stock Option and Record of Stock
Transfer
”, in the form attached hereto as
Exhibit A
and incorporated herein by reference, and (ii) payment of the aggregate purchase
price for shares purchased pursuant to the exercise. The price per
share of the Common Stock which the Optionee may purchase hereunder is
$0.15. The purchase price shall be payable in full in United States
dollars in cash or by certified check upon the exercise of the
Option.
6.
Restriction
on Transfer.
This Option is not transferable by the Optionee
other than by will or the laws of descent and distribution, and is exercisable,
during the Optionee’s lifetime, only by the Optionee. Upon the death
of the Optionee, the executors or administrators of the Optionee’s estate, or
any person or persons who shall have acquired the right to exercise the Option
by bequest, inheritance, or otherwise by reason of the death of the Optionee
shall have the right to exercise the Option, provided that such exercise occurs
not more than seven (7) years from the Grant Date and also within one (1) year
of the Optionee’s death.
7.
Restrictions
on Exercise.
The Option shall be exercisable subject to the
following restrictions:
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a.
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The
Optionee must be a director of the Company at all times during the
period
beginning on the Grant Date and ending three (3) months before the
earlier
of the date of exercise of the Option or the date of the Optionee’s death;
provided, however, that if the Optionee terminates employment with
the
Company due to retirement or disability, then the aforementioned
period
shall be extended to end thirty-six (36) months before the date of
exercise of the Option. If the Option is a Qualified Stock
Option, the foregoing notwithstanding, the Optionee recognizes and
acknowledges by the Optionee’s signature below that it is anticipated that
the favorable tax consequences afforded by Section 422 of the Code
will
only be available to the Optionee if the Optionee exercises the Option
within three (3) months of termination of employment with the Company
or,
in the event of the Optionee’s termination of employment due to
disability, within one (1) year of such termination;
and
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b.
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So
long as the Optionee remains a director of the Company, the Option
may be
exercised in whole or in part; provided, however, that the Optionee
shall
not exercise part of the Option for fewer than twenty-five (25) shares
at
one time unless the total number of shares subject to the Option
is fewer
than twenty-five (25), in which case the Optionee shall not exercise
the
Option for fewer than all of such
shares.
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8.
Restriction
on Disposition of Common Stock.
It is recognized that, under
current tax laws, if the Option is a Qualified Stock Option and the Optionee
disposes of Common Stock acquired pursuant to the Optionee’s exercise of the
Option within two (2) years after the Grant Date or within one (1) year after
the transfer of such Common Stock to the Optionee, then the Optionee must
recognize ordinary income, as opposed to capital gain, on such
disposition. Further, the Optionee hereby consents to enter into and
execute such agreements restricting the sale, assignment, transfer, or other
disposition of the Common Stock by Optionee as may be required by the Committee
and/or Board of Directors of the Company upon any exercise of the Option granted
hereunder.
9.
Other
Restrictions.
The Option shall be subject to all of the
terms, conditions, and restrictions of the Plan, the terms of which are
incorporated herein by reference. The Option shall in all respects be
interpreted in accordance with the Plan. To the extent the terms of
the Plan and this Agreement or any other document pertaining to the Option
are
inconsistent, the Plan shall prevail. The Committee shall interpret
and construe the Plan and this Agreement and its interpretations and
determinations shall be conclusive and binding on the parties hereto and any
other person claiming an interest hereunder, with respect to any issue
pertaining to the Option or the Plan.
10.
Obligation
of the Optionee.
The Optionee shall at no time be obligated
to exercise the Option.
11.
Rights
as a Shareholder.
The Optionee and any transferee of the
Option shall have no rights as a shareholder of the Company with respect to
any
shares of Common Stock which are the subject of the Option until the date of
transfer on the records of the Company of the shares of stock.
12.
Adjustment
of and Changes in Stock of the Company.
In the event of a
reorganization, recapitalization, change of shares, stock split, spin-off,
stock
dividend, reclassification, subdivision or combination of shares of stock of
the
Company, or the merger, consolidation, rights offering, or any other change
in
the corporate structure or shares of the Company, the Committee shall make
such
adjustment as it deems appropriate in the number and kind of shares of Common
Stock subject to the Option or in the option price; provided, however, that
no
such adjustment shall give the Optionee any additional benefits under the
Option.
13.
Employment
Rights Not Affected.
Neither the granting of the Option nor
its exercise shall be construed as granting to the Optionee any right with
respect to continuance of employment with the Company. Except as may
otherwise be limited by a written agreement between the Company and the
Optionee, the right of the Company to terminate at will the Optionee’s
employment with the Company at any time and for any reason whatsoever is
specifically reserved by the Company, and acknowledged by the
Optionee.
14.
Amendment
of Option.
The Option may be amended by the Board of
Directors of the Company or by the Committee at any time (i) if the Board or
the
Committee determines, in its sole discretion, that amendment is necessary or
advisable in light of any addition to or change in the Code or in the
regulations issued thereunder, or any federal or state securities law or other
law or regulation, which change occurs after the Grant Date and by its terms
applies to the Option; or (ii) other than in the circumstances described in
clause (i) or provided in the Plan, with the consent of the
Optionee. The foregoing notwithstanding, the Committee may, in its
sole discretion, cancel the Option at any time prior to the Optionee’s exercise
of the Option if, in the opinion of the Committee, the Optionee engages in
activities contrary to the interests of the Company.
15.
Notice.
Any
notice to the Company provided for in this Agreement shall be addressed to
it in
care of its Secretary at its executive offices at 7320 Forsyth Blvd., Unit
102,
St. Louis, Missouri 63105, and any notice to the Optionee shall be addressed
to
the Optionee at the current address shown on the payroll records of the Company,
or to such other address and to the attention of such other person(s) or
officer(s) as either party may designate by written notice. Any
notice shall be deemed to be duly given if and when properly addressed and
deposited, postage paid, in the United States mail or when hand delivered to
the
party to whom it is addressed.
16.
Governing
Law.
This Agreement shall be construed in accordance with
and shall be subject to the internal laws of the State of Missouri, except
to
the extent preempted by federal law.
17.
Acknowledgment
of Receipt of Plan.
By Optionee’s signature below, Optionee
hereby acknowledges receipt of a copy of the Plan.
IN
WITNESS WHEREOF,
the Company has caused its duly authorized officers to
execute this Agreement and the Optionee has placed his signature hereon as
of
the ____ day of _______________, _____, and effective as of the Grant
Date.
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COMPANY:
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CLEANTECH
BIOFUELS, INC.
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By:
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Title
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EXHIBIT
A
Larry
McGee
Notice
of Exercise of Option
and
Record of Stock Transfer
I
hereby
exercise my Option granted by Larry McGee subject to all the terms
and provisions set forth in the Stock Option Agreement dated August 14, 2007,
pertaining thereto and of the CleanTech Biofuels, Inc. 2007 Stock Option Plan
referred to therein, and notify you of my desire to purchase ____________ shares
of Common Stock, $0.001 par value of the Company (the “
Common
Stock
”) which were offered to me pursuant to said Stock Option
Agreement. Enclosed is my certified check in the sum of
$_____________ in full payment for such shares.
I
hereby
represent that I have previously received a Stock Option Agreement from the
Company and that I understand the terms and restrictions described
therein. I further represent that the ____________ shares of Common
Stock to be delivered to me pursuant to the above-mentioned exercise of the
Option granted to me on August 14, 2007 are being acquired by me as an
investment and not with a view to, or for sale in connection with, the
distribution of any of such shares.
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Dated:
_________________, ______
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___________________________________
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Optionee
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Receipt
Receipt
is hereby acknowledged of the delivery to me by Larry McGee , on the
____
day of __________
, _____
of stock
certificates for ____________ shares of Common Stock purchased by me pursuant
to
the terms and conditions of the CleanTech Biofuels, Inc. 2007 Stock Option
Plan
referred to above, which shares were transferred to me on the Company’s stock
record books on the
______
day of
_____________
,_____
.
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___________________________________
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Optionee
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Exhibit
10.9
DIRECTORS
STOCK PURCHASE AGREEMENT
THIS
DIRECTORS STOCK PURCHASE AGREEMENT
is entered into as of _____________, 2007, by CleanTech Biofuels, Inc. (the
“Company”) and _____________ (the “Director”).
ARTICLE
1
ACQUISITION
OF SHARES
1.1 Sale
and Purchase. On the terms and conditions set forth in this Agreement, the
Company agrees to sell to the Director, and Director agrees to purchase, 150,000
Shares. The sale and purchase shall occur at the offices of the Company on
the
date set forth above or at such other place and time as the parties may
agree.
1.2 Consideration.
The Director agrees to pay $0.15 for each Purchased Share, which may be paid
pursuant to a note in a form satisfactory to the Company.
1.3 Defined
Terms. Capitalized terms not defined above are defined in Section 11 of this
Agreement.
ARTICLE
2
RIGHT
OF
REPURCHASE
2.1 Scope
of Repurchase Right. All Purchased Shares initially shall be Restricted Shares
and shall be subject to a right (but not an obligation) of repurchase by the
Company. The Director shall not transfer, assign, encumber or otherwise dispose
of any Restricted Shares, except as provided in the following sentence. The
Director may transfer Restricted Shares (i) by beneficiary designation, will
or
intestate succession or (ii) to the Director’s spouse, children or grandchildren
or to a trust established by the Director for the benefit of the Director or
the
Director’s spouse, children or grandchildren, provided in either case that the
Transferee agrees in writing on a form prescribed by the Company to be bound
by
all provisions of this Agreement. If the Director transfers any Restricted
Shares, then this Section 2 shall apply to the Transferee to the same extent
as
to the Director.
2.2 Condition
Precedent to Exercise. The Right of Repurchase shall be exercisable only during
the 60-day period next following the date when the Director’s Service terminates
for any reason, with or without cause, including (without limitation) death
or
disability.
2.3 Lapse
of Repurchase Right. During the first year after the date hereof, the Right
of
Repurchase shall lapse with respect to 8,333 of the Purchased Shares for each
month of continuous Service completed by the Director following the date of
this
Agreement. During the second year after the date hereof the Right of Repurchase
shall lapse with respect to an additional 4,167 of the Purchased Shares when
the
Director completes each month of continuous Service thereafter until such Right
of Repurchase has elapsed with respect to all of the Purchased Shares. The
Right
of Repurchase shall lapse and all of the remaining Restricted Shares shall
become vested if (i) the Company is subject to a Change in Control and (ii)
the
Right of Repurchase is not assigned to the entity that employs the Director
immediately after the Change in Control or to its parent or
subsidiary.
2.4 Repurchase
Cost. If the Company exercises the Right of Repurchase, it shall pay the
Director an amount in cash or cash equivalents equal to the Purchase Price
for
each of the Restricted Shares being repurchased.
2.5 Exercise
of Repurchase Right. The Right of Repurchase shall be exercisable only by
written notice delivered to the Director prior to the expiration of the 60-day
period specified in Subsection 2.2 above. The notice shall set forth the date
on
which the repurchase is to be effected. Such date shall not be more than 30
days
after the date of the notice. The certificate(s) representing the Restricted
Shares to be repurchased shall, prior to the close of business on the date
specified for the repurchase, be delivered to the Company properly endorsed
for
transfer. The Company shall. concurrently with the receipt of such
certificate(s), pay to the Director the purchase price determined according
to
Subsection 2.4 above. Payment shall be made in cash or cash equivalents or
by
canceling indebtedness to the Company incurred by the Director in the purchase
of the Restricted Shares. The Right of Repurchase shall terminate with respect
to any Restricted Shares for which it has not been timely exercised pursuant
to
this Subsection 2.5.
2.6 Additional
Shares or Substituted Securities. In the event of the declaration of a stock
dividend, the declaration of an extraordinary dividend payable in a form other
than stock, a spin-off, a stock split, an adjustment in conversion ratio, a
recapitalization or a similar transaction affecting the Company’s outstanding
securities without receipt of consideration, any new, substituted or additional
securities or other property (including money paid other than as an ordinary
cash dividend) that by reason of such transaction are distributed with respect
to any Restricted Shares or into which such Restricted Shares thereby become
convertible shall immediately be subject to the Right of Repurchase. Appropriate
adjustments to reflect the distribution of such securities or property shall
be
made to the number and/or class of the Restricted Shares. After each such
transaction, appropriate adjustments shall also be made to the price per share
to be paid upon the exercise of the Right of Repurchase in order to reflect
any
change in the Company’s outstanding securities effected without receipt of
consideration therefor; provided, however, that the aggregate purchase price
payable for the Restricted Shares shall remain the same.
2.7 Termination
of Rights as Stockholder. If the Company makes available, at the time and place
and in the amount and form provided in this Agreement, the consideration for
the
Restricted Shares to be repurchased in accordance with this Section 2, then
after such time the person from whom such Restricted Shares are to be
repurchased shall, no longer have any rights as a holder of such Restricted
Shares’ ‘(other than the right to receive payment of such consideration in
accordance with this Agreement). Such Restricted Shares shall be deemed to
have
been repurchased in accordance with the applicable provisions hereof, whether
or
not the certificate(s) therefor have been delivered as required by this
Agreement.
2.8 Escrow.
Upon issuance, the certificates for Restricted Shares shall be deposited in
escrow with the Company to be held in accordance with the provisions of this
Agreement. Any new, substituted or additional securities or other property
described in Subsection 2.6 above shall immediately be delivered to the Company
to be held in escrow, but only to the extent the Purchased Shares are at the
time Restricted Shares. All regular cash dividends on Restricted Shares (or
other securities at the time held in escrow) shall be paid directly to the
Director and shall not be held in escrow. Restricted Shares, together with
any
other assets or securities held in escrow hereunder, shall be (i) surrendered
to
the Company for repurchase and cancellation upon the Company’s exercise of its
Right of Repurchase or Right of First Refusal or (ii) released to the Director
upon the Director’s request to the extent the Purchased Shares are no longer
Restricted Shares (but not more frequently than once every six months). In
any
event, all Purchased Shares that have vested (and any other vested assets and
securities attributable thereto) shall be released within 60 days after the
earlier of (i) the Director’s cessation of Service or (ii) the lapse of the
Right of First Refusal.
ARTICLE
3
OTHER
RESTRICTIONS ON TRANSFER
3.1 Director
Representations. In connection with the issuance and acquisition of Shares
under
this Agreement, the Director hereby represents and warrants to the Company
as
follows:
(a) The
Director is acquiring and will hold the Purchased Shares for investment for
his
or her account only and not with a view to, or for resale in connection with,
any “distribution” thereof within the meaning of the Securities
Act.
(b) The
Director understands that the Purchased Shares have not been registered under
the Securities Act by reason of a specific exemption therefrom and that the
Purchased Shares must be held indefinitely, unless they are subsequently
registered under the Securities Act or the Director obtains an opinion of
counsel, in form and substance satisfactory to the Company and its counsel,
that
such registration is not required. The Director further acknowledges and
understands that the Company is under no obligation to register the Purchased
Shares.
(c) The
Director is aware of the adoption of Rule 144 by the Securities and Exchange
Commission under the Securities Act, which permits limited public resales of
securities acquired in a nonpublic offering, subject only to the satisfaction
of
certain conditions. The Director acknowledges and understands that the
conditions for resale set forth in Rule 144 have not been satisfied and that
the
Company has no plans to satisfy these conditions in the foreseeable
future.
(d) The
Director will not sell, transfer or otherwise dispose of the Purchased Shares
in
violation of the Securities Act, the Securities Exchange Act of 1934, or the
rules promulgated thereunder, including Rule 144 under the Securities Act.
The
Director agrees that he or she will not dispose of the Purchased Shares unless
and until he or she has complied with all requirements of this Agreement
applicable to the disposition of Purchased Shares and he or she has provided
the
Company with written assurances, in substance and form satisfactory to the
Company, that (A) the proposed disposition does not require registration of
the
Purchased Shares under the Securities Act or all appropriate action necessary
for compliance with the registration requirements of the Securities Act or
with
any exemption from registration available under the Securities Act (including
Rule 144) has been taken and (B) the proposed disposition will not result in
the
contravention of any transfer restrictions applicable to the
Purchased.
(e) The
Director has been furnished with, and has had access to, such information as
he
or she considers necessary or appropriate for deciding whether to invest in
the
Purchased Shares, and the Director has had an opportunity to ask questions
and
receive answers from the Company regarding the terms and conditions of the
issuance of the Purchased Shares.
(f) The
Director is aware that his or her investment in the Company is a speculative
investment that has limited liquidity and is subject to the risk of complete
loss. The Director is able, without impairing his or her financial condition,
to
hold the Purchased Shares for an indefinite period and to suffer a complete
loss
of his or her investment in the Purchased Shares.
3.2 Securities
Law Restrictions. Regardless of whether the offering and sale of Shares under
this Agreement have been registered under the Securities Act or have been
registered or qualified under the securities laws of any state, the Company
at
its discretion may impose restrictions upon the sale, pledge or other transfer
of the Purchased Shares (including the placement of appropriate legends on
stock
certificates or the imposition of stop-transfer instructions) if, in the
judgment of the Company, such restrictions are necessary or desirable in order
to achieve compliance with the Securities Act, the securities laws of any state
or any other law.
3.3 Market
Stand-Off. In connection with any underwritten public offering by the Company
of
its equity securities pursuant to an effective registration statement filed
under the Securities Act, including the Company’s initial public offering, the
Director shall not, without the prior written consent of the Company’s managing
underwriter, (i) lend, offer, pledge, sell, contract to sell, sell any option
or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly
or
indirectly, any shares of Stock or any securities convertible into or
exercisable or exchangeable for Stock (whether such shares or any such
securities are then owned by the Director or are thereafter acquired), or (ii)
enter into any swap or other arrangement that transfers to another, in whole
or
in part, any of the economic consequences of ownership of the Stock, whether
any
such transaction described in clause (i) or (ii) above is to be settled by
delivery of Stock or such other securities, in cash or otherwise. Such
restriction (the “Market Stand-Off”) shall be in effect for such period of time
following the date of the final prospectus for the offering as may be requested
by the Company or such underwriters. In no event, however, shall such period
exceed 180 days. The Market Stand-Off shall in any event terminate-two years
after the date of the Company’s initial public offering. In the event of the
declaration of a stock dividend, a spin-off, a stock split. an adjustment in
conversion ratio, a recapitalization or a similar transaction affecting the
Company’s outstanding securities without receipt of consideration, any new,
substituted or additional securities that are by reason of such transaction
distributed with respect to any Shares subject to the Market Stand-Off, or
into
which such Shares thereby become convertible, shall immediately be subject
to
the Market Stand-Off. In order to enforce the Market Stand-Off, the Company
may
impose stop-transfer instructions with respect to the Purchased Shares until
the
end of the applicable stand-off period. The Company’s underwriters shall be
beneficiaries of the agreement set forth in this Subsection 3.3. This Subsection
3.3 shall not apply to Shares registered in the public offering under the
Securities Act, and the Director shall be subject to this Subsection 3.3 only
if
the directors and officers of the Company are subject to similar
arrangements.
3.4 Rights
of the Company. The Company shall not be required to (i) transfer on its books
any Purchased Shares that have been sold or transferred in contravention of
this
Agreement or (ii) treat as the owner of Purchased Shares, or otherwise to accord
voting, dividend or liquidation rights to, any transferee to whom Purchased
Shares have been transferred in contravention of this Agreement.
ARTICLE
4
SUCCESSORS
AND ASSIGNS
Except
as otherwise expressly provided
to the contrary, the provisions of this Agreement shall inure to the benefit
of,
and be binding upon, the Company and its successors and assigns and be binding
upon the Director and the Director’s legal representatives, heirs, legatees,
distributees, assigns and transferees by operation of law, whether or not any
such person has become a party to this Agreement or has agreed in writing to
join herein and to be bound by the terms, conditions and restrictions
hereof
ARTICLE
5
NO
RETENTION RIGHTS
Nothing
in this Agreement shall confer
upon the Director any right to continue in Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Company (or any Parent or Subsidiary employing or retaining the Director) or
of
the Director, which rights are hereby expressly reserved by each, to terminate
his or her Service at any time and for any reason, with or without
cause.
ARTICLE
6
TAX
ELECTION
The
acquisition of the Purchased Shares
may result in adverse tax consequences that may be avoided or mitigated by
filing an election under Code Section 83(b). Such election may be filed only
within 30 days after the date of purchase. The form for making the Code Section
83(b) election is attached to this Agreement as an Exhibit. The Director should
consult with his or her tax advisor to determine the tax consequences of
acquiring the Purchased Shares and the advantages and disadvantages of filing
the Code Section 83(b) election. The Director acknowledges that it is his or
her
sole responsibility, and not the Company’s, to file a timely election under Code
Section 83(b), even if the Director requests the Company or its representatives
to make this filing on his or her behalf.
ARTICLE
7
LEGENDS
Legends.
All certificates evidencing
Purchased Shares shall bear the following legends:
“THE
SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED
OR
IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN
AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE
PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT GRANTS TO THE COMPANY
CERTAIN RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER OF THE SHARES AND
CERTAIN REPURCHASE RIGHTS UPON TERMINATION OF SERVICE WITH THE COMPANY THE
SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH
AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE. “
“THE
SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF
1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT
AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.”
If
required by the authorities of any
state in connection with the issuance of the Purchased Shares, the legend or
legends required by such state authorities shall also be endorsed on all such
certificates.
ARTICLE
8
NOTICE
Any
notice required by the terms of
this Agreement shall be given in writing and shall be deemed effective upon
personal delivery or upon deposit with the United States Postal Service, by
registered or certified mail, with postage and fees prepaid. Notice shall be
addressed to the Company at its principal executive office and to the Director
at the address that he or she most recently provided to the
Company.
ARTICLE
9
ENTIRE
AGREEMENT
This
Agreement constitutes the entire
contract between the parties hereto with regard to the subject matter hereof.
It
supersedes any other agreements, representations or understandings (whether
oral
or written and whether express or implied) relating to the subject matter
hereof.
ARTICLE
10
CHOICE
OF
LAW
This
Agreement shall be governed by,
and construed in accordance with, the laws of the State of Missouri, as such
laws are applied to contracts entered into and to be performed entirely within
such State.
ARTICLE
11
DEFINITIONS
11.1
“Agreement”
shall
mean this Stock Purchase Agreement.
11.2
“Board
of Directors”
shall mean the Board of Directors of the Company, as constituted from time
to
time.
11.3
“Change
in Control”
shall mean:
(a) The
consummation of a merger or consolidation of the Company with or into another
entity or any other corporate reorganization, if more than 50% of the combined
voting power of the continuing or surviving entity’s securities outstanding
immediately after such merger, consolidation or other reorganization is owned
by
persons who were not stockholders of the Company immediately prior to such
merger, consolidation or other reorganization; or
(b) The
sale, transfer or other disposition of all or substantially all of the Company’s
assets.
A
transaction shall not constitute a
Change in Control if its sole purpose is to change the state of the Company’s
incorporation or to create a holding company that will be owned in substantially
the same proportions by the persons who held the Company’s securities
immediately before such transaction.
11.4
“Code”
shall
mean the
Internal Revenue Code of 1986, as amended.
11.5
“Company”
shall
mean
CleanTech Biofuels, Inc., a Delaware corporation.
11.6
“Consultant”
shall
mean an individual who performs bona fide services for the Company, a Parent
or
a Subsidiary as a consultant or advisor, excluding Employees and Outside
Directors,
11.7
“Employee”
shall
mean
any individual who is a common law employee of the Company, a Parent or a
Subsidiary.
11.8
“Fair
Market Value”
shall mean the fair market value of a Share, as determined by the Board of
Directors in good faith. Such determination shall be conclusive and binding
on
all persons.
11.9
“Outside
Director”
shall mean a member of the Board of Directors who is not an
Employee.
11.10
“Parent”
shall
mean
any corporation (other than the Company) in an unbroken chain of corporations
ending with the Company, if each of the corporations other than the Company
owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
11.11
“Purchased
Shares”
shall mean the Shares purchased by the Director pursuant to this
Agreement.
11.12
“Purchase
Price”
shall mean the amount for which one Share may be purchased pursuant to this
Agreement, as specified in Subsection 1.2.
11.13
“Restricted
Share”
shall mean a Purchased Share that is subject to the Right of
Repurchase.
11.14
“Right
of First
Refusal” shall mean the Company’s right of first refusal described in Section
3.
11.15
“Right
of Repurchase”
shall mean the Company’s right of repurchase described in Section
2.
11.16
“Securities
Act”
shall mean the Securities Act of 1933, as amended.
11.17
“Service”
shall
mean
service as an Employee, Outside Director or Consultant.
11.18
“Share”
shall
mean
one share of Stock.
11.19
“Stock”
shall
mean
the Common Stock of the Company, with a par value of $0.001 per
Share.
11.20
“Subsidiary”
shall
mean any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company, if each of the corporations other
than
the last corporation in the unbroken chain owns stock possessing 50% or more
of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
11.21
“Transferee”
shall
mean any person to whom the Director has directly or indirectly transferred
any
Purchased Share.
11.22
“Transfer
Notice”
shall mean the notice of a proposed transfer of Purchased Shares described
in
Section 3.
Exhibit
10.10
EMPLOYMENT
AGREEMENT
This
EMPLOYMENT AGREEMENT is made and entered into as of the date last written below,
between CLEANTECH BIOFUELS, INC., a Delaware corporation (the
“
Company
”), and Edward P. Hennessey, Jr.
(the “
Employee
”).
WHEREAS,
the Company desires to retain the services of Employee as Chief Executive
Officer, and Employee desires to be employed by the Company as Chief Executive
Officer, upon the terms and conditions hereinafter set forth; and
WHEREAS,
as an integral part of this Agreement, the Company desires to obtain Employee’s
covenant not to compete and other covenants, and Employee desires to make a
covenant not to compete and such other covenants as hereinafter set
forth.
NOW,
THEREFORE,
in consideration of the premises and agreements herein
contained, and other good and valuable consideration, the receipt and adequacy
of which are hereby forever acknowledged and confessed, the parties agree as
follows:
1.
Employment
.
The Company hereby employs Employee, and Employee hereby accepts such
employment by the Company, upon the terms and conditions specified herein for
the Term of Employment (as hereinafter defined).
2.
Duties
of Employee
.
During the Term of Employment,
Employee is hereby employed as Chief Executive Officer. Employee
shall report directly to the Company’s Board of Directors. In
furtherance of the foregoing, Employee shall, subject to the direction and
instruction of the Board of Directors: (a) devote Employee’s full and
entire working time, attention and energies to the Company, and will diligently
and to the best of Employee’s ability perform all duties incident to Employee’s
employment hereunder; (b) use Employee’s best efforts to promote the interests
of the Company; and (c) perform such other duties as the Company may from time
to time direct.
3.
Financial
Arrangements
.
3.1
Compensation.
As
compensation for Employee’s services hereunder and in consideration of
Employee’s covenant not to compete and other covenants as set forth in that
Section of this Agreement entitled
Restrictive Covenants
hereof, the
Company shall pay Employee a salary of One Dollar $84,000.00 per year, payable
on at least a monthly basis, subject to such payroll and withholding deductions
as may be required by law or as otherwise authorized by Employee in
writing. Employee’s compensation arrangement will be reviewed
annually by the Board of Directors and may be increased, but not decreased,
in
the sole discretion of the Board of Directors.
3.2
Bonus.
In addition to the salary payable to Employee described in that Subsection
of this Agreement entitled
Compensation
, the Company may pay Employee a
bonus in accordance with any bonus compensation program as adopted from time
to
time by the Company (the “
Bonus
”). The
Company shall determine the amount of and pay the Bonus, if any, to Employee
in
accordance with any bonus compensation program then in effect. The
payment of the Bonus, if any, is subject to such payroll and withholding
deductions as may be required by law or as otherwise authorized by Employee
in
writing.
3.3
Expenses
. Throughout
the term of Employee’s employment hereunder, the Company shall reimburse
Employee for all reasonable and necessary travel, entertainment, and other
business expenses which may be incurred in direct connection with the
performance of Employee’s duties in accordance with policies adopted from time
to time by the Company concerning expense reimbursement for
employees. Such expenses as are authorized for payment or
reimbursement shall be paid for by the Company or reimbursed to Employee upon
presentation to the Company of an itemized expense statement with respect
thereto.
3.4
Fringe
Benefits
. Employee shall be eligible to participate with other
employees of the Company, so long as Employee meets the applicable eligibility
requirements, in such employee fringe benefits as may be authorized and adopted
from time to time by the Board of Directors of the Company, including but not
limited to the Company’s 2007 Stock Option Plan. Employee shall be
entitled to three weeks paid vacation per year.
3.5
Stock
Options
. Employee shall be granted an option to purchase
2,250,000 shares of the Company’s common stock pursuant to the terms of the
Option Agreement attached hereto as Exhibit A (the “Option”). Upon the
Commissioning of the Pilot Plant (as defined herein), Employee shall be granted
an option to acquire and additional 1,200,000 shares of common stock of the
Company (adjusted for splits, recapitalizations and similar events as set
forth in the CleanTech Biofuels, Inc 2007 Stock Option Plan (the “Option Plan”))
(the “Additional Option”). The Additional Option shall be exercisable
one-third on August 31 of each of 2009, 2010, and 2011 at an exercise
price equal to $0.15 per share at the time of issuance of the option; provided
that if the Compensation Committee of the Company, in its discretion and
consistent with its Charter, determines that changing events or additional
developments with respect to the Company’s business necessitate establishing a
new basis for the grant of the Additional Option, this Agreement may be amended
in writing to provide for such change by mutual consent of the Company and
Employee.
For
purposes of this Agreement, “Commissioning of the Pilot Plant” shall mean the
completion of construction and commencement of operation of a plant (regardless
of size) that utilizes the technology licensed by the Company from Brelsford
Engineering, Inc. to process cellulosic material into water containing sugar
in
limited small batches.
4.
Definitions
.
4.1 As
used herein, the term “
Confidential Information
” shall
mean any information obtained at any time while Employee is or was employed
by
the Company which is not generally known and which is proprietary to the
Company, including, but is not limited to, trade secrets, Inventions (as defined
herein), information pertaining to research, computer software, development,
techniques, engineering, purchasing, marketing, selling, accounting, licensing,
specialized know-how, processes, discoveries, products, equipment, models,
prototypes, devices, computer programs, lists of employees, mailing lists,
details of contracts, cost systems, pricing policies, operational methods,
marketing plans, business acquisition plans, customer lists, the particular
needs and requirements of customers, and the identity of customers and potential
customers. All information designated or treated as Confidential
Information or as a trade secret by the Company shall, regardless of its source,
be deemed Confidential Information for all purposes.
4.2 As
used herein, the term “
Inventions
” shall mean all
ideas, discoveries, and improvements, whether or not shown or described in
writing or reduced to practice or use, and whether or not patentable, relating
in any manner to any of the Company’s present or future products, computer
software, services, manufacturing, or research.
5.
Restrictive
Covenants
.
5.1
Non-Disclosure.
Employee represents and warrants that Employee is free of any contractual
restrictions and restraints in entering this Agreement, and has not, and will
not, in connection with his or her employment with the Company divulge any
confidential information, trade secrets, or copyright-protected information
of
any prior employer or of any other third party to whom Employee owes an
obligation of confidentiality.
Employee
recognizes Employee’s responsibility to protect all of the Company’s
Confidential Information and agrees to use his or her best efforts and to
exercise utmost diligence to protect and guard the Confidential Information
of
the Company and any subsidiaries or affiliated companies. Employee
agrees to hold in strictest and total confidence all Confidential
Information. Employee will at no time, without prior written
authorization by the Company, disclose or in any way transfer or communicate,
or
use for the benefit of any person or entity other than the Company, any
Confidential Information.
5.2
Return
of Confidential Information.
Upon termination of employment with the
Company or at any other time upon the Company’s request, Employee shall promptly
return to the Company all originals and all copies (including photocopies,
facsimiles, and computer or other means of electronic storage) of all materials
relating in any way to Confidential Information or the business of the Company
or any affiliated companies and subsidiaries of the Company, and will so
represent to the Company upon termination of employment.
5.3
Work
Product.
Employee shall promptly and fully disclose to the
Company and Employee shall hold in trust for the Company’s sole right and
benefit any Invention that Employee makes, conceives, or reduces to practice,
or
causes to be made, conceived, or reduced to practice during the period when
Employee is or was employed with the Company; provided, however, that this
disclosure obligation shall only be applicable to those Inventions that relate
in any manner to subject matter pertaining to Employee’s employment, or that
relate in any manner or are directly or indirectly connected with the business,
services, products, projects, or Confidential Information of the Company, or
that involve in any manner the use of any time, material, or facilities of
the
Company, or services of any of the Company’s employees during normal working
hours.
All
items, including without limitation software, specifications, drawings, samples,
tools, technical information, or data, regardless of format or medium, prepared
or originated by or for Employee specifically for the Company at the Company’s
request in connection with his or her employment shall be the exclusive property
of the Company and shall be deemed to be works for hire, and to the extent
they
may not be works for hire, Employee assigns to the Company all rights, title,
and interest in and to such items (“
Work Product
”),
including rights to copyright. Employee hereby assigns to the Company
all of Employee’s right, title and interest in and to all Work Product and
Inventions that are subject to the disclosure obligations hereof and hereby
agrees, upon the Company’s request, to execute, verify, and deliver to the
Company documents including, but not limited to, assignments and applications
for Letters of Patent, and to perform such other acts, including, but not
limited to, appearing as a witness in any action brought in connection with
this
Agreement, that is deemed reasonably necessary or appropriate by the Company
to
allow it to obtain the sole right, title, interest and benefit of all such
Work
Product and Inventions.
The
assignment of Work Product and Inventions herein and Employee’s agreements in
connection therewith shall not apply to any Invention for which: (i) no
equipment, supplies, facilities, or Confidential Information of the Company
or
services of any of the Company’s employees during normal working hours was used;
(ii) was developed entirely on Employee’s own time; (iii) does not relate to (a)
the business of the Company or (b) the Company’s actual or demonstratively
anticipated research or development;
and
(iv) which does not result
from any work performed by Employee for the Company.
5.4
Competition.
Employee
recognizes that the Company’s entering into this Agreement is induced primarily
because of the covenants and assurances made by Employee, that Employee’s
covenant not to compete is necessary to insure that continuation of the business
of the Company and its subsidiaries and/or affiliates, and that irreparable
harm
and damage will be done to the Company and its subsidiaries and/or affiliates
in
the event that Employee competes with the Company or its subsidiaries and/or
affiliates.
During
the Term of Employment (as defined below) and for a period of 1 year thereafter,
Employee shall not, directly or indirectly, enter into or participate (whether
as owner, partner, shareholder, officer, director, salesman, consultant,
employee, principal or in any other relationship or capacity) in any business,
operating or providing services within the United States which is in direct
competition with the Company or its subsidiaries and/or affiliates, including
without limitation, any business which competes directly with the Company’s
business as being conducted at such time.
Company
and Employee understand and agree that the scope and duration of the covenants
contained in this Section of this Agreement entitled
Restrictive
Covenants
are reasonable both in time and geographical area and are fairly
necessary to protect the Company’s legitimate business
interests. Such covenants shall survive the termination of Employee’s
employment except as otherwise provided herein. The parties further
agree that such covenants shall be regarded as divisible and shall be operative
as to time and geographical area to the extent that they may be made so and,
if
any part of such covenants is declared invalid or unenforceable, the validity
and enforceability of the remainder shall not be affected. Employee
hereby warrants to Company that Employee’s compliance with each of the
restrictive covenants set forth in this Agreement will not, upon the termination
of Employee’s employment with the Company for any reason whatsoever, cause
Employee to be unable to earn a living that is suitable and acceptable to
Employee.
5.5
Non-Solicitation.
Because the Company’s employees are a valuable resource the loss of whom could
cause significant harm to the Company’s business, Employee agrees that during
the term of Employee’s employment with the Company, and for a period of 1 year
thereafter, Employee will not be materially involved in any manner in the
recruitment or hiring or any attempt to recruit or hire as an employee, officer,
director, consultant, or advisor any person who is at the time or 12 months
prior thereto had been an employee or consultant of the Company.
5.6
Non-Disparagement
. Employee
shall not disparage the business reputation of the Company (or its management
team) or take any actions that are harmful to the Company’s goodwill with its
customers, shareholders, providers, vendors, employees, the media or the
public.
5.7
Enforcement.
Company
spends considerable amounts of time, money and effort in developing and
maintaining good will in its industry. Employee agrees the covenants
set forth in the Section of this Agreement entitled
Restrictive
Covenants
: (i) are reasonable and necessary in all respects to
protect the goodwill, trade secrets, confidential information, and business
interests of Company; (ii) are not oppressive to Employee; and (iii) do not
impose any greater restraint on Employee than is reasonably necessary to protect
the goodwill, trade secrets, confidential information and legitimate business
interests of Company.
Without
limiting other possible remedies to the Company for the breach of this
Agreement, Employee agrees that injunctive or other equitable relief shall
be
available to enforce the covenants set forth in this Section of this Agreement
entitled
Restrictive Covenants
, such relief to be without the necessity
of posting a bond, cash or otherwise. Employee further agrees
that if any restriction contained in the Section of this Agreement entitled
Restrictive Covenants
is held by any court to be unenforceable or
unreasonable, a lesser restriction shall be severable therefrom and be enforced
in its place, and all remaining restrictions contained herein shall be enforced
independently of each other.
If
any
party shall commence a proceeding (whether in arbitration or in court) against
the other to enforce and/or recover damages for breach of this Agreement, the
prevailing party in such proceeding shall be entitled to recover from the other
party all reasonable costs and expenses of enforcement and collection of any
and
all remedies and damages, or all reasonable costs and expenses of defense,
as
the case may be. The foregoing costs and expenses shall include
reasonable attorneys’ fees.
6.
Term
and Termination of Agreement
.
6.1
Term
of Employment.
The term of this Agreement (the “
Term
of Employment
”) shall commence effective as of the date hereof
(the “
Commencement Date
”), and shall continue until
the third anniversary of the Commencement Date, unless extended or earlier
terminated as hereinafter provided. This Agreement shall be
automatically extended for successive 1 year periods at the end of the initial
term and each extended term thereafter, subject to the termination provisions
in
Section 6.2 hereof.
6.2
Termination.
Notwithstanding
any other provision of this Subsection of this Agreement entitled
Termination
, Employee’s obligations pursuant to that Section of this
Agreement entitled
Restrictive Covenants
shall continue in full force
and effect after termination of Employee’s employment or expiration of this
Agreement.
(a)
Death.
Employee’s
employment hereunder shall terminate immediately upon death.
(b)
For
Cause.
The Company may terminate Employee’s employment hereunder at any
time, effective immediately upon written notice, for cause. For the
purpose of this Agreement “
cause
” shall
mean:
i. The
willful and continued failure by Employee to substantially perform Employee’s
duties hereunder other than any such failure resulting from Employee’s
incapacity due to physical or mental illness or resulting from a diminution
of
Employee’s duties following a Change of Control (as defined below);
ii. The
willful engaging by Employee in conduct which is demonstrably and materially
injurious to the Company, monetarily or otherwise;
iii. Actions
of Employee which constitute a breach of that Section of this Agreement entitled
Restrictive Covenants
; or
iv. Employee’s
conviction of, or plea of nolo contendere to a felony, provided any right of
appeal has been exercised or has lapsed.
In
the
event that Employee is terminated for cause, the Company shall pay Employee’s
salary through the date of termination, and shall thereafter have no further
obligation to Employee. For purposes of this Subsection of this
Agreement entitled
Termination
, no act, or failure to act, on the part
of the Employee shall be deemed “
willful
” unless done,
or omitted to be done, by the Employee without good faith and without reasonable
belief that the action or omission was in the best interest of the
Company.
(c)
For
Change of Control.
For purposes of this Agreement, a
“
Change of Control
” shall mean and be deemed to have
occurred if:
i. The
acquisition by any person, entity or “group” within the meaning of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended (the
“
Exchange Act
”), other than a person, entity or
“group” that includes Employee, of beneficial ownership
(within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of two-thirds or more of the
Company’s then outstanding voting securities; or
ii. If
the individuals who serve on the Board of Directors as of the Commencement
Date
(the “
Incumbent Board
”) cease for any reason to
constitute at least a majority of the Board of Directors; provided, however,
any
person who becomes a director subsequent to the Commencement Date, whose
election or nomination for election was approved by a vote of at least a
majority of the directors then constituting the Incumbent Board, shall for
purposes of this Agreement be considered a member of the Incumbent Board;
or
iii. Approval
by the Company’s equity holders of (A) a merger, reorganization or consolidation
whereby the Company’s equity holders immediately prior to such approval do not,
immediately after consummation of such reorganization, merger or consolidation
own more than 50% of the combined voting power of the surviving entity’s then
outstanding voting securities entitled to vote generally in the election of
directors; or (B) the sale of all or substantially all of the assets of the
Company.
Notwithstanding
anything to the
contrary herein, a Change of Control shall not be deemed to have occurred if
the
Company sells substantially all of its assets for less than the amount of
capital (whether in cash or other property) contributed by shareholders to
the
Company.
For
purposes of this Agreement,
“
Change of Control Date
” shall mean the date of the
Change of Control. If a Change of Control occurs and if the
Employee’s employment with the Company is terminated prior to the date on which
the Change of Control occurs, and if it is reasonably demonstrated by Employee
that such termination of employment: (i) was at the request of a
third party who has taken steps reasonably calculated to effect a Change of
Control, or (ii) otherwise arose in connection with or anticipation of a Change
of Control, then for all purposes of this Agreement, “Change of Control Date”
shall mean the date immediately prior to the date of such termination of
employment, and a Change of Control shall be deemed to have occurred on the
Change of Control Date.
Following
a Change of Control Date, if: (i) Employee is terminated without
cause, or (ii) Employee terminates his employment subsequent to the Company
assigning Employee duties which are inconsistent with Employee’s position
(including status, offices, titles, or reporting requirements), or the Company
takes action which results in a material dimunition of Employee’s position,
authority, duties, or responsibilities, then the Company shall be obligated
to
pay to Employee as severance pay an amount equal to Employee’s salary in effect
upon said termination for the next twelve consecutive months, payable
periodically at the same payroll cycle as the Company’s other
employees.
(d)
Long-Term
Disability.
Employee’s employment hereunder shall terminate
immediately should Employee commence a Long-Term Disability, as hereinafter
defined. Employee shall have commenced a “
Long-Term
Disability
” if: (i) Employee cannot perform the essential
functions of his employment position, with or without a reasonable accommodation
for his disability; or (ii) Employee cannot perform the essential functions
of
his employment position without an accommodation that would be an undue hardship
for the Company to provide. The foregoing definition of Long-Term
Disability is not intended to and shall not affect the definition of
“disability” or any similar term in any insurance policy the Company may
provide.
(e)
Without
Cause.
Employee’s employment hereunder may be terminated by the
Company at any time, effective upon written notice of termination. In
the event that Employee is terminated without cause, the Company shall pay
Employee’s salary through the date of termination, and then the Company shall be
obligated to pay to Employee as severance pay an amount equal to Employee’s
salary in effect upon said termination for the next twelve consecutive months,
payable periodically at the same payroll cycle as the Company’s other
employees.
(f)
By
Employee.
Employee may terminate this Agreement for Good reason
upon providing Company with 15 days’ written notice and without Good Reason on
90 days written notice.
i.
Termination
by Employee with Good Reason
. The Employee may terminate his
employment for Good Reason (as defined herein) at any time during the term
of
this Agreement, by giving written notice to the Company thereof. Such
termination shall become effective immediately upon notice. In the
event that Employee terminates his employment for Good Reason, the Company
shall
pay Employee his Base Salary (as in effect on the date of termination and
excluding any bonus payment) for a period of twelve (12) months following the
date of such termination. Employee shall execute a release in favor
of Company, and the Company shall have no further obligations to the Employee
under this Agreement except as otherwise may be provided under the Stock Option
Plan or any Option Agreement between Company and Employee.
ii.
Termination
by Employee without Good Reason
. The Employee may terminate his
employment at any time, by giving advance written notice to the Company. Any
such termination shall become effective on the date specified in such notice,
which shall not be earlier than ninety (90) days after the date of such notice
(or such earlier date that the Company may determine in its sole discretion),
and the Employee shall continue to perform his duties pursuant to the terms
of
this Agreement for such period. In the event that Employee terminates
his employment without Good Reason, the Company shall pay Employee’s salary
through the date of termination, and shall thereafter have no further obligation
to Employee.
iii. For
purposes of this Agreement, “Good Reason” shall mean, without Employee’s consent
(A) a reduction by the Company in Employee’s Base Salary pursuant to the terms
of this Agreement; (B) requiring Employee to relocate more than 50 miles from
St. Louis, Missouri; (C) the failure of Company to permit Employee to
participate in Company’s benefit plans on a basis consistent with other Company
employees holding similar positions as that of Employee; or (D) the failure
by
Company to obtain the assumption of this Agreement by any successor of
Company.
7.
Additional
Provisions
.
7.1
Notices.
Any
notice, demand, or communication required, permitted, or desired to be given
hereunder, shall be deemed effectively given when personally delivered or when
mailed by prepaid, certified mail, return receipt requested, addressed as
follows:
Employee
Company
or
to
such other address, and to the attention of such other person(s) or officer(s)
as either party may designate by written notice.
7.2
Governing
Law.
This Agreement has been executed and delivered in, and
shall be interpreted, construed, and enforced pursuant to and in accordance
with
the laws of Missouri, without reference to conflict of laws rules or
principles.
7.3
Assignment.
This
Agreement and the rights and obligations hereunder shall bind and inure to
the
benefit of any successor or successors of the Company by way of reorganization,
merger or consolidation, and any assignee of all or substantially all of its
business and properties, but, except as to any such successor or assignee of
the
Company, neither this Agreement nor any rights or benefits hereunder may be
assigned by either party.
7.4
Waiver
of Breach.
The waiver by either party of a breach or violation
of any provision of this Agreement shall not operate as, or be construed to
be,
a waiver of any subsequent breach of the same or other provision
hereof.
7.5
Headings;
Gender and Number.
The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the context hereof
requires, the gender of all words shall include the masculine, feminine and
neuter, and the number of all words shall include the singular and
plural.
7.6
Additional
Assurances.
The provisions of this Agreement shall be
self-operative and shall not require further agreement by the parties except
as
may be herein specifically provided to the contrary; provided, however, at
the
request of the Company, Employee shall execute such additional instruments
and
take such additional acts as the Company may deem necessary to effectuate this
Agreement.
7.7
Severability.
In
the event any provision of this Agreement is held to be unenforceable for any
reason, the unenforceability thereof shall not effect the remainder of this
Agreement, which shall remain in full force and effect and enforceable in
accordance with its terms.
7.8
Entire
Agreement.
This Employment Agreement supersedes all previous
agreements, and constitutes the entire Agreement between
parties. Employee shall be entitled to no other benefits than those
specified herein. No oral statements or prior written material not
specifically incorporated herein shall be of any force and effect, and no
changes in or additions to this Agreement shall be recognized unless
incorporated herein by amendment as provided herein, such amendment(s) to become
effective on the date stipulated therein. Employee specifically
acknowledges that in entering into and executing this Agreement, Employee relies
solely upon the representations and agreements contained in this Agreement
and
no others.
REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGE FOLLOWS
IN
WITNESS WHEREOF,
the parties have executed this Agreement as of the
______ day of _______________, 2007.
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COMPANY:
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CLEANTECH
BIOFUELS, INC.
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By
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EMPLOYEE:
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Edward
P. Hennessey, Jr.
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Exhibit
10.11
EMPLOYMENT
AGREEMENT
This
EMPLOYMENT AGREEMENT is made and entered into as of the date last written below,
between CLEANTECH BIOFUELS, INC., a Delaware corporation (the
“
Company
”), and Tom Jennewein (the
“
Employee
”).
WHEREAS,
the Company desires to retain the services of Employee as Chief Financial
Officer, and Employee desires to be employed by the Company as Chief Financial
Officer, upon the terms and conditions hereinafter set forth; and
WHEREAS,
as an integral part of this Agreement, the Company desires to obtain Employee’s
covenant not to compete and other covenants, and Employee desires to make a
covenant not to compete and such other covenants as hereinafter set
forth.
NOW,
THEREFORE,
in consideration of the premises and agreements herein
contained, and other good and valuable consideration, the receipt and adequacy
of which are hereby forever acknowledged and confessed, the parties agree as
follows:
1.
Employment
.
The Company hereby employs Employee, and Employee hereby accepts such
employment by the Company, upon the terms and conditions specified herein for
the Term of Employment (as hereinafter defined).
2.
Duties
of Employee
.
During the Term of Employment,
Employee is hereby employed as Chief Financial Officer. Employee
shall report directly to the Company’s Chief Executive Officer. In
furtherance of the foregoing, Employee shall, subject to the direction and
instruction of the Company: (a) devote Employee’s full and entire
working time, attention and energies to the Company, and will diligently and
to
the best of employee’s ability perform all duties incident to Employee’s
employment hereunder; (b) use Employee’s best efforts to promote the interests
of the Company; and (c) perform such other duties as the Company may from time
to time direct.
3.
Financial
Arrangements
.
3.1
Compensation.
As
compensation for Employee’s services hereunder and in consideration of
Employee’s covenant not to compete and other covenants as set forth in that
Section of this Agreement entitled
Restrictive Covenants
hereof, the
Company shall pay Employee a salary of One Dollar $1.00 per year, payable on
at
least a annual basis, subject to such payroll and withholding deductions as
may
be required by law or as otherwise authorized by Employee in
writing. Employee’s compensation arrangement will be reviewed
annually by the Board of Directors and may be increased, but not decreased,
in
the sole discretion of the Board of Directors.
3.2
Bonus.
In addition to the salary payable to Employee described in that Subsection
of this Agreement entitled
Compensation
, the Company may pay Employee a
bonus in accordance with any bonus compensation program as adopted from time
to
time by the Company (the “
Bonus
”). The
Company shall determine the amount of and pay the Bonus, if any, to Employee
in
accordance with any bonus compensation program then in effect. The
payment of the Bonus, if any, is subject to such payroll and withholding
deductions as may be required by law or as otherwise authorized by Employee
in
writing.
3.3
Expenses
. Throughout
the term of Employee’s employment hereunder, the Company shall reimburse
Employee for all reasonable and necessary travel, entertainment, and other
business expenses which may be incurred in direct connection with the
performance of Employee’s duties in accordance with policies adopted from time
to time by the Company concerning expense reimbursement for
employees. Such expenses as are authorized for payment or
reimbursement shall be paid for by the Company or reimbursed to Employee upon
presentation to the Company of an itemized expense statement with respect
thereto.
3.4
Fringe
Benefits
. Employee shall be eligible to participate with other
employees of the Company, so long as Employee meets the applicable eligibility
requirements, in such employee fringe benefits as may be authorized and adopted
from time to time by the Board of Directors of the Company, including but not
limited to the Company’s 2007 Stock Option Plan. Employee shall be
entitled to three weeks paid vacation per year.
4.
Definitions
.
4.1 As
used herein, the term “
Confidential Information
” shall
mean any information obtained at any time while Employee is or was employed
by
the Company which is not generally known and which is proprietary to the
Company, including, but is not limited to, trade secrets, Inventions (as defined
herein), information pertaining to research, computer software, development,
techniques, engineering, purchasing, marketing, selling, accounting, licensing,
specialized know-how, processes, discoveries, products, equipment, models,
prototypes, devices, computer programs, lists of employees, mailing lists,
details of contracts, cost systems, pricing policies, operational methods,
marketing plans, business acquisition plans, customer lists, the particular
needs and requirements of customers, and the identity of customers and potential
customers. All information designated or treated as Confidential
Information or as a trade secret by the Company shall, regardless of its source,
be deemed Confidential Information for all purposes.
4.2 As
used herein, the term “
Inventions
” shall mean all
ideas, discoveries, and improvements, whether or not shown or described in
writing or reduced to practice or use, and whether or not patentable, relating
in any manner to any of the Company’s present or future products, computer
software, services, manufacturing, or research.
5.
Restrictive
Covenants
.
5.1
Non-Disclosure.
Employee represents and warrants that Employee is free of any contractual
restrictions and restraints in entering this Agreement, and has not, and will
not, in connection with his or her employment with the Company divulge any
confidential information, trade secrets, or copyright-protected information
of
any prior employer or of any other third party to whom Employee owes an
obligation of confidentiality.
Employee
recognizes Employee’s responsibility to protect all of the Company’s
Confidential Information and agrees to use his or her best efforts and to
exercise utmost diligence to protect and guard the Confidential Information
of
the Company and any subsidiaries or affiliated companies. Employee
agrees to hold in strictest and total confidence all Confidential
Information. Employee will at no time, without prior written
authorization by the Company, disclose or in any way transfer or communicate,
or
use for the benefit of any person or entity other than the Company, any
Confidential Information.
5.2
Return
of Confidential Information.
Upon termination of employment with the
Company or at any other time upon the Company’s request, Employee shall promptly
return to the Company all originals and all copies (including photocopies,
facsimiles, and computer or other means of electronic storage) of all materials
relating in any way to Confidential Information or the business of the Company
or any affiliated companies and subsidiaries of the Company, and will so
represent to the Company upon termination of employment.
5.3
Work
Product.
Employee shall promptly and fully disclose to the
Company and Employee shall hold in trust for the Company’s sole right and
benefit any Invention that Employee makes, conceives, or reduces to practice,
or
causes to be made, conceived, or reduced to practice during the period when
Employee is or was employed with the Company; provided, however, that this
disclosure obligation shall only be applicable to those Inventions that relate
in any manner to subject matter pertaining to Employee’s employment, or that
relate in any manner or are directly or indirectly connected with the business,
services, products, projects, or Confidential Information of the Company, or
that involve in any manner the use of any time, material, or facilities of
the
Company, or services of any of the Company’s Employees during normal working
hours.
All
items, including without limitation software, specifications, drawings, samples,
tools, technical information, or data, regardless of format or medium, prepared
or originated by or for Employee specifically for the Company at the Company’s
request in connection with his or her employment shall be the exclusive property
of the Company and shall be deemed to be works for hire, and to the extent
they
may not be works for hire, Employee assigns to the Company all rights, title,
and interest in and to such items (“
Work Product
”),
including rights to copyright. Employee hereby assigns to the Company
all of Employee’s right, title and interest in and to all Work Product and
Inventions that are subject to the disclosure obligations hereof and hereby
agrees, upon the Company’s request, to execute, verify, and deliver to the
Company documents including, but not limited to, assignments and applications
for Letters of Patent, and to perform such other acts, including, but not
limited to, appearing as a witness in any action brought in connection with
this
Agreement, that is deemed reasonably necessary or appropriate by the Company
to
allow it to obtain the sole right, title, interest and benefit of all such
Work
Product and Inventions.
The
assignment of Work Product and Inventions herein and Employee’s agreements in
connection therewith shall not apply to any Invention for which: (i) no
equipment, supplies, facilities, or Confidential Information of the Company
or
services of any of the Company’s Employees during normal working hours was used;
(ii) was developed entirely on Employee’s own time; (iii) does not relate to (a)
the business of the Company or (b) the Company’s actual or demonstratively
anticipated research or development;
and
(iv) which does not result
from any work performed by Employee for the Company.
5.4
Competition.
Employee
recognizes that the Company’s entering into this Agreement is induced primarily
because of the covenants and assurances made by Employee, that Employee’s
covenant not to compete is necessary to insure that continuation of the business
of the Company and its subsidiaries and/or affiliates, and that irreparable
harm
and damage will be done to the Company and its subsidiaries and/or affiliates
in
the event that Employee competes with the Company or its subsidiaries and/or
affiliates.
During
the Term of Employment (as defined below) and for a period of 1 year thereafter,
Employee shall not, directly or indirectly, enter into or participate (whether
as owner, partner, shareholder, officer, director, salesman, consultant,
employee, principal or in any other relationship or capacity) in any business,
operating or providing services within the United States which is in direct
competition with the Company or its subsidiaries and/or affiliates, including
without limitation, any business which competes directly with the Company’s
business as being conducted at such time.
Company
and Employee understand and agree that the scope and duration of the covenants
contained in this Section of this Agreement entitled
Restrictive
Covenants
are reasonable both in time and geographical area and are fairly
necessary to protect the Company’s legitimate business
interests. Such covenants shall survive the termination of Employee’s
employment except as otherwise provided herein. The parties further
agree that such covenants shall be regarded as divisible and shall be operative
as to time and geographical area to the extent that they may be made so and,
if
any part of such covenants is declared invalid or unenforceable, the validity
and enforceability of the remainder shall not be affected. Employee
hereby warrants to Company that Employee’s compliance with each of the
restrictive covenants set forth in this Agreement will not, upon the
termination, of Employee’s employment with the Company for any reason
whatsoever, cause Employee to be unable to earn a living that is suitable and
acceptable to Employee.
5.5
Non-Solicitation.
Because the Company’s Employees are a valuable resource the loss of whom could
cause significant harm to the Company’s business, Employee agrees that during
the term of Employee’s employment with the Company, and for a period of 1 year
thereafter, Employee will not be materially involved in any manner in the
recruitment or hiring or any attempt to recruit or hire as an employee, officer,
director, consultant, or advisor any person who is at the time or 12 months
prior thereto had been an Employee or consultant of the Company.
5.6
Non-Disparagement
. Employee
shall not disparage the business reputation of the Company (or its management
team) or take any actions that are harmful to the Company’s goodwill with its
customers, content providers, network infrastructure providers, vendors,
employees, the media or the public.
5.7
Enforcement.
Company
spends considerable amounts of time, money and effort in developing and
maintaining good will in its industry. Employee agrees the covenants
set forth in the Section of this Agreement entitled
Restrictive
Covenants
: (i) are reasonable and necessary in all respects to
protect the goodwill, trade secrets, confidential information, and business
interests of Company; (ii) are not oppressive to Employee; and (iii) do not
impose any greater restraint on Employee than is reasonably necessary to protect
the goodwill, trade secrets, confidential information and legitimate business
interests of Company.
Without
limiting other possible remedies to the Company for the breach of this
Agreement, Employee agrees that injunctive or other equitable relief shall
be
available to enforce the covenants set forth in this Section of this Agreement
entitled
Restrictive Covenants
, such relief to be without the necessity
of posting a bond, cash or otherwise. Employee further agrees
that if any restriction contained in the Section of this Agreement entitled
Restrictive Covenants
is held by any court to be unenforceable or
unreasonable, a lesser restriction shall be severable therefrom and be enforced
in its place, and all remaining restrictions contained herein shall be enforced
independently of each other.
If
any
party shall commence a proceeding (whether in arbitration or in court) against
the other to enforce and/or recover damages for breach of this Agreement, the
prevailing party in such proceeding shall be entitled to recover from the other
party all reasonable costs and expenses of enforcement and collection of any
and
all remedies and damages, or all reasonable costs and expenses of defense,
as
the case may be. The foregoing costs and expenses shall include
reasonable attorneys’ fees.
6.
Term
and Termination of Agreement
.
6.1
Term
of Employment.
The term of this Agreement (the “
Term
of Employment
”) shall commence effective as of the date hereof
(the “
Commencement Date
”), and shall continue until
the third anniversary of the Commencement Date, unless extended or earlier
terminated as hereinafter provided. This Agreement shall be
automatically extended for successive 1 year periods at the end of the initial
term and each extended term thereafter, subject to the termination provisions
in
Section 6.2 hereof.
6.2
Termination.
Notwithstanding
any other provision of this Subsection of this Agreement entitled
Termination
, Employee’s obligations pursuant to that Section of this
Agreement entitled
Restrictive Covenants
shall continue in full force
and effect after termination of Employee’s employment or expiration of this
Agreement.
(a)
Death.
Employee’s
employment hereunder shall terminate immediately upon death.
(b)
For
Cause.
The Company may terminate Employee’s employment hereunder at any
time, effective immediately upon written notice, for cause. For the
purpose of this Agreement “
cause
” shall
mean:
i. The
willful and continued failure by Employee to substantially perform Employee’s
duties hereunder other than any such failure resulting from Employee’s
incapacity due to physical or mental illness or resulting from a diminution
of
Employee’s duties following a Change of Control (as defined below);
ii. The
willful engaging by Employee in conduct which is demonstrably and materially
injurious to the Company, monetarily or otherwise;
iii. Actions
of Employee which constitute a breach of that Section of this Agreement entitled
Restrictive Covenants
; or
iv. Employee’s
conviction of, or plea of nolo contendere to a felony, provided any right of
appeal has been exercised or has lapsed.
In
the
event that Employee is terminated for cause, the Company shall pay Employee’s
salary through the date of termination, and shall thereafter have no further
obligation to Employee. For purposes of this Subsection of this
Agreement entitled
Termination
, no act, or failure to act, on the part
of the Employee shall be deemed “
willful
” unless done,
or omitted to be done, by the Employee without good faith and without reasonable
belief that the action or omission was in the best interest of the
Company.
(c)
For
Change of Control.
For purposes of this Agreement, a
“
Change of Control
” shall mean and be deemed to have
occurred if:
i. The
acquisition by any person, entity or “group” within the meaning of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended (the
“
Exchange Act
”), other than a person, entity or
“group” that includes Employee, of beneficial ownership
(within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of two-thirds or more of the
Company’s then outstanding voting securities; or
ii. If
the individuals who serve on the Board of Directors as of the Commencement
Date
(the “
Incumbent Board
”) cease for any reason to
constitute at least a majority of the Board of Directors; provided, however,
any
person who becomes a director subsequent to the Commencement Date, whose
election or nomination for election was approved by a vote of at least a
majority of the directors then constituting the Incumbent Board, shall for
purposes of this Agreement be considered a member of the Incumbent Board;
or
iii. Approval
by the Company’s equity holders of (A) a merger, reorganization or consolidation
whereby the Company’s equity holders immediately prior to such approval do not,
immediately after consummation of such reorganization, merger or consolidation
own more than 50% of the combined voting power of the surviving entity’s then
outstanding voting securities entitled to vote generally in the election of
directors; or (B) the sale of all or substantially all of the assets of the
Company.
Notwithstanding
anything to the contrary herein, a Change of Control shall not be deemed to
have
occurred if the Company sells substantially all of its assets for less than
the
amount of capital (whether in cash or other property) contributed by
shareholders to the Company.
For
purposes of this Agreement, “
Change of Control Date
”
shall mean the date of the Change of Control. If a Change of Control
occurs and if the Employee’s employment with the Company is terminated prior to
the date on which the Change of Control occurs, and if it is reasonably
demonstrated by Employee that such termination of employment: (i) was
at the request of a third party who has taken steps reasonably calculated to
effect a Change of Control, or (ii) otherwise arose in connection with or
anticipation of a Change of Control, then for all purposes of this Agreement,
“Change of Control Date” shall mean the date immediately prior to the date of
such termination of employment, and a Change of Control shall be deemed to
have
occurred on the Change of Control Date.
Following
a Change of Control Date, if: (i) Employee is terminated without
cause, or (ii) Employee terminates his employment subsequent to the Company
assigning Employee duties which are inconsistent with Employee’s position
(including status, offices, titles, or reporting requirements), or the Company
takes action which results in a material dimunition of Employee’s position,
authority, duties, or responsibilities, then the Company shall be obligated
to
pay to Employee as severance pay an amount equal to Employee’s salary in effect
upon said termination for the next twelve consecutive months, payable
periodically at the same payroll cycle as the Company’s other
employees.
(d)
Long-Term
Disability.
Employee’s employment hereunder shall terminate
immediately should Employee commence a Long-Term Disability, as hereinafter
defined. Employee shall have commenced a “
Long-Term
Disability
” if: (i) Employee cannot perform the essential
functions of his employment position, with or without a reasonable accommodation
for his disability; or (ii) Employee cannot perform the essential functions
of
his employment position without an accommodation that would be an undue hardship
for the Company to provide. The foregoing definition of Long-Term
Disability is not intended to and shall not affect the definition of
“disability” or any similar term in any insurance policy the Company may
provide.
(e)
Without
Cause.
Employee’s employment hereunder may be terminated by the
Company at any time, effective upon written notice of termination. In
the event that Employee is terminated without cause, the Company shall pay
Employee’s salary through the date of termination, and then the Company shall be
obligated to pay to Employee as severance pay an amount equal to Employee’s
salary in effect upon said termination for the next twelve consecutive months,
payable periodically at the same payroll cycle as the Company’s other
employees.
(f)
By
Employee.
Employee may terminate this Agreement upon providing
Company with 15 days written notice.
i.
Termination
by Employee with Good Reason
. The Employee may terminate his
employment for Good Reason (as defined herein) at any time during the term
of
this Agreement, by giving written notice to the Company thereof. Such
termination shall become effective immediately upon notice. In the
event that Employee terminates his employment for Good Reason, the Company
shall
pay Employee his Base Salary (as in effect on the date of termination and
excluding any bonus payment) for a period of twelve (12) months following the
date of such termination. Employee shall execute a release in favor
of Company, and the Company shall have no further obligations to the Employee
under this Agreement except as otherwise may be provided under the Stock Option
Plan or any Option Agreement between Company and Employee.
ii.
Termination
by Employee without Good Reason
. The Employee may terminate his
employment at any time, by giving advance written notice to the Company. Any
such termination shall become effective on the date specified in such notice,
which shall not be earlier than ninety (90) days after the date of such notice
(or such earlier date that the Company may determine in its sole discretion),
and the Employee shall continue to perform his duties pursuant to the terms
of
this Agreement for such period. In the event that Employee terminates
his employment without Good Reason, the Company shall pay Employee’s salary
through the date of termination, and shall thereafter have no further obligation
to Employee.
iii. For
purposes of this Agreement, “Good Reason” shall mean, without Employee’s consent
(A) a reduction by the Company in Employee’s Base Salary pursuant to the terms
of this Agreement; (B) requiring Employee to relocate more than 50 miles from
St. Louis, Missouri; (C) the failure of Company to permit Employee to
participate in Company’s benefit plans on a basis consistent with other Company
employees holding similar positions as that of Employee; or (D) the failure
by
Company to obtain the assumption of this Agreement by any successor of
Company.
7.
Additional
Provisions
.
7.1
Notices.
Any
notice, demand, or communication required, permitted, or desired to be given
hereunder, shall be deemed effectively given when personally delivered or when
mailed by prepaid, certified mail, return receipt requested, addressed as
follows:
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Employee
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Company
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________________________
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_________________________
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________________________
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_________________________
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________________________
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_________________________
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or
to
such other address, and to the attention of such other person(s) or officer(s)
as either party may designate by written notice.
7.2
Governing
Law.
This Agreement has been executed and delivered in, and
shall be interpreted, construed, and enforced pursuant to and in accordance
with
the laws of Missouri, without reference to conflict of laws rules or
principles.
7.3
Assignment.
This
Agreement and the rights and obligations hereunder shall bind and inure to
the
benefit of any successor or successors of the Company by way of reorganization,
merger or consolidation, and any assignee of all or substantially all of its
business and properties, but, except as to any such successor or assignee of
the
Company, neither this Agreement nor any rights or benefits hereunder may be
assigned by either party.
7.4
Waiver
of Breach.
The waiver by either party of a breach or violation
of any provision of this Agreement shall not operate as, or be construed to
be,
a waiver of any subsequent breach of the same or other provision
hereof.
7.5
Headings;
Gender and Number.
The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the context hereof
requires, the gender of all words shall include the masculine, feminine and
neuter, and the number of all words shall include the singular and
plural.
7.6
Additional
Assurances.
The provisions of this Agreement shall be
self-operative and shall not require further agreement by the parties except
as
may be herein specifically provided to the contrary; provided, however, at
the
request of the Company, Employee shall execute such additional instruments
and
take such additional acts as the Company may deem necessary to effectuate this
Agreement.
7.7
Severability.
In
the event any provision of this Agreement is held to be unenforceable for any
reason, the unenforceability thereof shall not effect the remainder of this
Agreement, which shall remain in full force and effect and enforceable in
accordance with its terms.
7.8
Entire
Agreement.
This Employment Agreement supersedes all previous
agreements, and constitutes the entire Agreement between
parties. Employee shall be entitled to no other benefits than those
specified herein. No oral statements or prior written material not
specifically incorporated herein shall be of any force and effect, and no
changes in or additions to this Agreement shall be recognized unless
incorporated herein by amendment as provided herein, such amendment(s) to become
effective on the date stipulated therein. Employee specifically
acknowledges that in entering into and executing this Agreement, Employee relies
solely upon the representations and agreements contained in this Agreement
and
no others.
REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGE FOLLOWS
IN
WITNESS WHEREOF,
the parties have executed this Agreement as of the
______ day of _______________, 2007.
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COMPANY:
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CLEANTECH
BIOFUELS, INC.
|
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By
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EMPLOYEE:
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Tom
Jennewein
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Exhibit
10.12
TOM
JENNEWEIN
STOCK
OPTION AGREEMENT
THIS
AGREEMENT is made and entered into as of the date last below written by and
between CleanTech Biofuels, Inc., a Delaware corporation (the
“
Company
”), and Tom Jennewein (the
“
Optionee
”).
WHEREAS
,
the Optionee was hired as Chief Financial Officer of the Company as of the
_____
day of August, 2007; and
WHEREAS
,
the Company, in order to induce the Optionee to accept a position as Chief
Financial Officer of the Company and to contribute to the success of the
Company, agreed to grant the Optionee an option to acquire a proprietary
interest in the Company through the purchase of shares of stock of the Company;
and
WHEREAS
,
the Company adopted the Company’s 2007 Stock Option Plan (the
“
Plan
”) under which the Company is authorized to grant stock
options to certain employees, directors and consultants of the Company;
and
WHEREAS
,
the Committee (as defined in the Plan) has determined that the Company should,
in recognition of Optionee’s contributions, grant an option to the Optionee
pursuant to the terms of this Agreement and the Plan; and
WHEREAS
,
the Optionee desires to accept the option.
NOW,
THEREFORE,
in consideration of the mutual covenants set forth herein
and for other valuable consideration hereinafter set forth, the parties agree
as
follows:
1.
Grant
of Option
.
The Company hereby grants a
Qualified Stock Option in the amount and subject to the terms provided in this
Agreement (the “
Option
”) effective as of the _________ day of
August, 2007 (the “
Grant Date
”). If the Option is a
Nonqualified Stock Option, the Option is
not
intended to be and shall
not
be treated as a qualified incentive stock option as defined
under
Section 422 of the Internal Revenue Code of 1986, as amended (the
“
Code
”). If the Option is a Qualified Stock Option,
the Option is intended to be and shall be treated as a qualified incentive
stock
option as defined under Section 422 of the Internal Revenue Code of 1986, as
amended (the “
Code
”). The foregoing notwithstanding,
to the extent the aggregate fair market value of stock with respect to which
Qualified Stock Options are exercisable for the first time by Optionee in any
given calendar year exceeds $100,000, such Qualified Stock Options shall be
treated as Nonqualified Stock Options under the Plan. In such event,
Section 8
of this Agreement shall not apply to shares
acquired by Optionee as a result of the exercise of such Nonqualified Stock
Options.
2.
Shares
.
The
shares of stock subject to the Option shall be the Company’s authorized but
unissued or reacquired Common Stock, $0.001 par value (the “
Common
Stock
”).
3.
Number
of Shares
.
The number of shares of
Common Stock which the Optionee may purchase under the Option is
800,000.
4.
Term
and Exercise of Option
.
The Option
shall be first exercisable with respect to one third (1/3) of the shares subject
to the Option commencing on the First Anniversary of Grant Date, with respect
to
another one third (1/3) of the shares subject to the Option commencing on the
Second Anniversary of Grant Date and with respect to the final one third (1/3)
of the shares subject to the Option commencing on the Third Anniversary of
Grant
Date, if Optionee is an employee of the Company as of each of such dates;
provided
,
however
, if Optionee’s employment is terminated for any
reason other than for Cause or without Good Reason, as such terms are defined
in
Optionee’s Employment Agreement, then one half (1/2) of the shares
subject to the Option shall immediately vest to the extent not already vested
at
such time. The exercise period for the Option shall end upon the
earliest of the following:
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a.
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Immediately
upon the termination of Optionee’s employment for Cause or without Good
Reason; or
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b.
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The
date three (3) months after the Optionee’s termination of Optionee as an
employee of the Company for any reason other than for Cause or without
Good Reason, retirement, disability, or death;
or
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c.
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The
date thirty-six (36) months after termination of the Optionee as
an
employee of the Company due to retirement or disability;
or
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d.
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The
date one (1) year after the Optionee’s death, if and only if the Optionee
was an employee of the Company on the date three (3) months prior
to the
Optionee’s death; or
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e.
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The
date seven (7) years after the Grant
Date.
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To
the
extent the Option for any of the shares is not exercised within the foregoing
periods, the Option shall expire and thereafter shall be null and
void.
Notwithstanding
anything herein to the contrary, if Optionee is employed by the Company upon
the
effective date of any merger, consolidation, sale of all (or substantially
all)
of the assets of the Company, or other business combination involving the sale
or transfer of all (or substantially all) of the capital stock or assets of
the
Company in which the Company is not the surviving entity, or if it is the
surviving entity, either (i) it does not survive as an operating ongoing concern
in substantially the same line of business, or (ii) it is controlled by persons
or entities previously unaffiliated with the Company, the Option shall become
exercisable immediately prior to the consummation of any of the foregoing events
with respect to one hundred percent (100%) of the shares subject to the
Option.
5.
Manner
of Exercise, Purchase Price, and
Payment
.
Exercise of the Option shall
be made by delivery to the Company by Optionee (or other person entitled to
exercise the Option as provided hereunder) of (i) an executed “
Notice of
Exercise of Stock Option and Record of Stock Transfer
”, in the form
attached hereto as
Exhibit A
and incorporated herein
by reference, and (ii) payment of the aggregate purchase price for shares
purchased pursuant to the exercise. The price per share of the Common
Stock which the Optionee may purchase hereunder is
$0.15
. The purchase price shall be payable in full in United
States dollars in cash or by certified check upon the exercise of the
Option.
6.
Restriction
on Transfer
.
This Option is not
transferable by the Optionee other than by will or the laws of descent and
distribution, and is exercisable, during the Optionee’s lifetime, only by the
Optionee. Upon the death of the Optionee, the executors or
administrators of the Optionee’s estate, or any person or persons who shall have
acquired the right to exercise the Option by bequest, inheritance, or otherwise
by reason of the death of the Optionee shall have the right to exercise the
Option, provided that such exercise occurs not more than seven (7) years from
the Grant Date and also within one (1) year of the Optionee’s
death.
7.
Restrictions
on Exercise
.
The Option shall be
exercisable subject to the following restrictions:
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a.
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The
Optionee must be an employee of the Company at all times during the
period
beginning on the Grant Date and ending three (3) months before the
earlier
of the date of exercise of the Option or the date of the Optionee’s death;
provided, however, that if the Optionee terminates employment with
the
Company due to retirement or disability, then the aforementioned
period
shall be extended to end thirty-six (36) months before the date of
exercise of the Option. If the Option is a Qualified Stock
Option, the foregoing notwithstanding, the Optionee recognizes and
acknowledges by the Optionee’s signature below that it is anticipated that
the favorable tax consequences afforded by Section 422 of the Code
will
only be available to the Optionee if the Optionee exercises the Option
within three (3) months of termination of employment with the Company
or,
in the event of the Optionee’s termination of employment due to
disability, within one (1) year of such termination;
and
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b.
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So
long as the Optionee remains an employee of the Company, the Option
may be
exercised in whole or in part; provided, however, that the Optionee
shall
not exercise part of the Option for fewer than twenty-five (25) shares
at
one time unless the total number of shares subject to the Option
is fewer
than twenty-five (25), in which case the Optionee shall not exercise
the
Option for fewer than all of such
shares.
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8.
Restriction
on Disposition of Common Stock.
It is recognized
that, under current tax laws, if the Option is a Qualified Stock Option and
the
Optionee disposes of Common Stock acquired pursuant to the Optionee’s exercise
of the Option within two (2) years after the Grant Date or within one (1) year
after the transfer of such Common Stock to the Optionee, then the Optionee
must
recognize ordinary income, as opposed to capital gain, on such
disposition. Further, the Optionee hereby consents to enter into and
execute such agreements restricting the sale, assignment, transfer, or other
disposition of the Common Stock by Optionee as may be required by the Committee
and/or Board of Directors of the Company upon any exercise of the Option granted
hereunder.
9.
Other
Restrictions
.
The Option shall be
subject to all of the terms, conditions, and restrictions of the Plan, the
terms
of which are incorporated herein by reference. The Option shall in
all respects be interpreted in accordance with the Plan. To the
extent the terms of the Plan and this Agreement or any other document pertaining
to the Option are inconsistent, the Plan shall prevail. The Committee
shall interpret and construe the Plan and this Agreement and its interpretations
and determinations shall be conclusive and binding on the parties hereto and
any
other person claiming an interest hereunder, with respect to any issue
pertaining to the Option or the Plan.
10.
Obligation
of the Optionee
.
The Optionee shall at
no time be obligated to exercise the Option.
11.
Rights
as a Shareholder
.
The Optionee and any
transferee of the Option shall have no rights as a shareholder of the Company
with respect to any shares of Common Stock which are the subject of the Option
until the date of transfer on the records of the Company of the shares of
stock.
12.
Adjustment
of and Changes in Stock of the
Company
.
In the event of a
reorganization, recapitalization, change of shares, stock split, spin-off,
stock
dividend, reclassification, subdivision or combination of shares of stock of
the
Company, or the merger, consolidation, rights offering, or any other change
in
the corporate structure or shares of the Company, the Committee shall make
such
adjustment as it deems appropriate in the number and kind of shares of Common
Stock subject to the Option or in the option price; provided, however, that
no
such adjustment shall give the Optionee any additional benefits under the
Option.
13.
Employment
Rights Not Affected
.
Neither the
granting of the Option nor its exercise shall be construed as granting to the
Optionee any right with respect to continuance of employment with the
Company. Except as may otherwise be limited by a written agreement
between the Company and the Optionee, the right of the Company to terminate
at
will the Optionee’s employment with the Company at any time and for any reason
whatsoever is specifically reserved by the Company, and acknowledged by the
Optionee.
14.
Amendment
of Option
.
The Option may be amended
by the Board of Directors of the Company or by the Committee at any time (i)
if
the Board or the Committee determines, in its sole discretion, that amendment
is
necessary or advisable in light of any addition to or change in the Code or
in
the regulations issued thereunder, or any federal or state securities law or
other law or regulation, which change occurs after the Grant Date and by its
terms applies to the Option; or (ii) other than in the circumstances described
in clause (i) or provided in the Plan, with the consent of the
Optionee. The foregoing notwithstanding, the Committee may, in its
sole discretion, cancel the Option at any time prior to the Optionee’s exercise
of the Option if, in the opinion of the Committee, the Optionee engages in
activities contrary to the interests of the Company.
15.
Notice
.
Any
notice to the Company provided for in this Agreement shall be addressed to
it in
care of its Secretary at its executive offices at 7320 Forsyth, Unit 102, St.
Louis, Missouri 63105, and any notice to the Optionee shall be
addressed to the Optionee at the current address shown on the payroll records
of
the Company, or to such other address and to the attention of such other
person(s) or officer(s) as either party may designate by written
notice. Any notice shall be deemed to be duly given if and when
properly addressed and deposited, postage paid, in the United States
mail or when hand delivered to the party to whom it is addressed.
16.
Governing
Law
.
This Agreement shall be construed
in accordance with and shall be subject to the internal laws of the State of
Missouri, except to the extent preempted by federal law.
17.
Acknowledgment
of Receipt of Plan.
By Optionee’s signature below,
Optionee hereby acknowledges receipt of a copy of the Plan.
IN
WITNESS WHEREOF,
the Company has caused its duly authorized officers to
execute this Agreement and the Optionee has placed his signature hereon as
of
the ____ day of ___________________, _____, and effective as of the Grant
Date.
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COMPANY:
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CLEANTECH
BIOFUELS, INC.
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By:
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Title: President
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ATTEST:
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By:
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Title:
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OPTIONEE:
|
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Tom
Jennewein
|
EXHIBIT
A
Tom
Jennewein
Notice
of Exercise of Option
and
Record of Stock Transfer
I
hereby
exercise my Option granted by Tom Jennewein subject to all the terms and
provisions set forth in the Stock Option Agreement dated _______________, _____,
pertaining thereto and of the Tom Jennewein Incentive Stock Option Plan referred
to therein, and notify you of my desire to purchase ____________ shares of
Common Stock, $<__________> par value of the Company (the “
Common
Stock
”) which were offered to me pursuant to said Stock Option
Agreement. Enclosed is my certified check in the sum of
$_____________ in full payment for such shares.
I
hereby
represent that I have previously received a Stock Option Agreement and a copy
of
the Tom Jennewein Incentive Stock Option Plan from the Company and that I
understand the terms and restrictions described therein. I further
represent that the ____________ shares of Common Stock to be delivered to me
pursuant to the above-mentioned exercise of the Option granted to me on
________________ are being acquired by me as an investment and not with a view
to, or for sale in connection with, the distribution of any of such
shares.
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Dated:
_________________, ______
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___________________________________
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Optionee
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Receipt
Receipt
is hereby acknowledged of the delivery to me by Tom Jennewein, on the
____
day of __________
_
, ___
of stock
certificates for ____________ shares of Common Stock purchased by me pursuant
to
the terms and conditions of the Tom Jennewein Incentive Stock Option Plan
referred to above, which shares were transferred to me on the
Company’s
stock
record books on the
_____
day of
____________
,____
.
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___________________________________
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Optionee
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Exhibit
21.1
List
of Subsidiaries
SRS
Energy, Inc., Delaware corporation
EXHIBIT
23.2
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the use, in the registration statement on Form SB-2 of CleanTech
Biofuels, Inc., of our report dated June 29, 2007 on our audit of the financial
statements of CleanTech Biofuels, Inc. as of December 31, 2006, and the related
statements of operations, stockholders’ equity and cash flows from Inception
July 14, 2004 through December 31, 2006, the twelve months ended December 31,
2006 of SB-2 of CleanTech Biofuels, Inc. and the reference to us under the
caption “Experts.”
Larry
O'Donnell, CPA, PC
September
7, 2007
