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Share Name | Share Symbol | Market | Type |
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O2Diesel Corp. | AMEX:OTD | AMEX | Ordinary Share |
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File No. 333-141974
Filed Pursuant to Rule 424(b)(4)
PROSPECTUS SUPPLEMENT NO. 3 DATED APRIL 2, 2008
(To Prospectus Dated November 20, 2007)
O2DIESEL CORPORATION
12,805,987 Shares of Common Stock
Sticker Supplement to Prospectus
This prospectus supplement supplements the prospectus dated November 20, 2007, of O2Diesel Corporation, relating to the sale by Fusion Capital II, LLC of up to 12,805,987 shares of our common stock. You should read this prospectus supplement in conjunction with the prospectus, and this prospectus supplement is qualified by reference to the prospectus, except to the extent that the information in this prospectus supplement supercedes the information contained in the prospectus.
Investing in our common stock involves certain risks. See "Risk Factors" beginning on page 3 of the prospectus for a discussion of these risks.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if the prospectus or this prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense.
ANNUAL REPORT ON FORM 10-KSB
On March 31, 2008, O2Diesel Corporation filed an Annual Report on Form 10-KSB (the "10-KSB") for the year ended December 31, 2007. The text of the 10-KSB, including Exhibits 31 and 32 thereto, is attached hereto as Annex A to this Prospectus Supplement No. 3 and incorporated herein by reference.
Annex A
Form 10-KSB for 12/31/2007
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One) | |
ý |
Annual report under section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2007 |
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OR |
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o |
Transition report under section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition Period from to . |
Commission file number: 001-32228
O2Diesel Corporation
(Name of small business issuer in its charter)
Delaware
(State or other jurisdiction of incorporation or organization) |
91-2023525
(I.R.S. Employer Identification No.) |
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100 Commerce Drive Suite 301 Newark, Delaware (Address of principal executive offices) |
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19713 (Zip Code) |
Issuer's telephone number: (302) 266-6000 Securities registered under Section 12(b) of the Exchange Act: |
Title of Class
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Name of exchange on which registered
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Common Stock, $0.0001 par value | The American Stock Exchange |
Securities
registered under Section 12(g) of the Exchange Act: Common Stock, None
(Title of class)
Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. ý
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes o No ý
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the Past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.)
Registrant's revenues for its most recent fiscal year: $358,464
The aggregate market value of the voting stock held by non-affiliates of the registrant on March 19, 2008 computed by the average bid and asked price as of March 19, 2008, at which the stock was sold, was $21,824,668, assuming solely for purposes of this calculation that all directors and executive officers of the issuer are "affiliates." This determination of affiliate status is not necessarily a conclusive determination for other purposes.
On March 19, 2008, the registrant had 87,298,674 shares of common stock, $0.0001 par value per share, issued and outstanding.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT: Yes o No ý
DOCUMENTS INCORPORATED BY REFERENCE
Documents incorporated by reference are listed in the Exhibit Index.
O2Diesel Corporation
(A Development Stage Company)
TABLE OF CONTENTS TO
ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 2007
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Page
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PART I |
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Item 1 |
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Description of Business |
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4 |
Item 2 |
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Description of Property |
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15 |
Item 3 |
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Legal Proceedings |
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15 |
Item 4 |
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Submission of Matters to a Vote of Security Holders |
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15 |
PART II |
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Item 5 |
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Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities |
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15 |
Item 6 |
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Management's Discussion and Analysis or Plan of Operation |
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22 |
Item 7 |
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Financial Statements |
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31 |
Item 8 |
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Changes In and Disagreements with Accountants on Accounting and Financial Disclosures |
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31 |
Item 8A |
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Controls and Procedures |
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31 |
Item 8B |
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Other Information |
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32 |
PART III |
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Item 9 |
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Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance With Section 16(a) of the Exchange Act |
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32 |
Item 10 |
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Executive Compensation |
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35 |
Item 11 |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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40 |
Item 12 |
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Certain Relationships and Related Transactions, and Director Independence |
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42 |
Item 13 |
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Exhibits |
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42 |
Item 14 |
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Principal Accountant Fees and Services |
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45 |
SIGNATURES |
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46 |
NOTE REGARDING FORWARD LOOKING STATEMENTS
This annual report on Form 10-KSB contains forward-looking statements concerning O2Diesel Corporation ("O2Diesel," the "Company" or the "Registrant") and the Company's future operations, plans and other matters. Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using phrases such as "expects", or "does not expect", "is expected", "anticipates" or "does not anticipate", "plans", "estimates" or "intends", or stating that certain actions, events or results "may", "could", "might", or "will" be taken or occur or be achieved) are not statements of historical fact and may be "forward looking statements" which include statements relating to, among other things, the ability of O2Diesel to successfully compete in the fuel additive and fuel distribution businesses.
O2Diesel cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Such forward-looking statements are based on the beliefs of O2Diesel's management as well as on assumptions made by and information currently available to O2Diesel at the time such statements were made. Forward-looking statements are subject to a variety of risks and uncertainties which could cause actual events or results to differ from those reflected in the forward-looking statements, including, without limitation, the failure to obtain adequate financing on a timely basis and other risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements, as a result of either the matters set forth or incorporated in this report generally or certain economic and business factors, some of which may be beyond the control of O2Diesel. These factors include adverse economic conditions, entry of new and stronger competitors, inadequate capital, unexpected costs, failure to gain product approval in the United States or foreign countries for the commercialization and distribution of our products and failure to capitalize upon access to new markets and failure in obtaining the quality and quantity of ethanol necessary to produce our product at competitive prices. O2Diesel disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. "O2Diesel" and "CityHome" are trademarks of O2Diesel Corporation.
3
PART I
Item 1. Description Of Business
(a) Form and Year of Organization
O2Diesel Corporation ("O2Diesel" or the "Company") is a development stage company and has developed a proprietary additive product designed to enable distillate liquid transportation fuels to burn cleaner by facilitating the addition of ethanol as an oxygenate to these fuels. To date, the Company's operations continue to be primarily focused on raising capital, performing product tests and demonstrations and bringing its product to market.
O2Diesel's predecessor, Dynamic Ventures, Inc., was incorporated in the State of Washington on April 24, 2000. Dynamic Ventures, Inc. changed its name to O2Diesel Corporation effective June 10, 2003, in contemplation of the reverse acquisition of AAE Technologies International Plc ("AAE"). On July 15, 2003, O2Diesel acquired all of the issued and outstanding share capital of AAE in exchange for 17,847,039 shares of its common stock (the "Offer"). As a result of this transaction, the former shareholders of AAE acquired control of the combined companies. The acquisition of AAE has been accounted for as a capital transaction followed by a recapitalization as AAE was considered to be the accounting acquirer. Accordingly, the consolidated financial statements of AAE are now treated as the historical financial statements of O2Diesel for all periods presented.
On June 15, 2004, the American Stock Exchange ("AMEX" or "Exchange") approved an application to list 46,518,898 shares of our common stock under the symbol OTD. Subsequent to this date, the Exchange has approved additional applications to list 72,830,013 shares of the Company's common stock so that the total number of shares approved for listing is now 119,348,911. Our shares began to trade on the exchange on July 1, 2004.
On December 29, 2004, the Company consummated a merger (the "Reincorporation Merger") with and into its wholly owned subsidiary, O2Diesel Delaware Corporation, a Delaware corporation ("O2Diesel Delaware") in order to reincorporate in the State of Delaware (the "Reincorporation"). The Reincorporation Merger was affected pursuant to an Agreement and Plan of Merger entered into between the Company and O2Diesel Delaware on December 29, 2004. The Reincorporation was submitted to a vote of, and approved by, the Company's shareholders at its annual meeting held on August 16, 2004. As a result of the Reincorporation, the legal domicile of the Company is now Delaware. The merger became effective on December 31, 2004.
The Company's audited consolidated financial statements for the year ended December 31, 2007, have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. At December 31, 2007, the Company had a working capital surplus of $848,207 and has accumulated losses of $43,912,832. However $2,333,959 of the working capital is restricted cash which is primarily intended to be used for operational costs associated with developing markets in Europe. The lack of adequate working capital and continuing losses, as well as the uncertain conditions regarding the Company's AMEX listing status as stated below, create an uncertainty about the Company's ability to continue as a going concern. Management has concluded that additional equity must be raised in 2008 in order for the Company to have sufficient cash to execute its business plan and to be in compliance with the AMEX listing requirements.
Listing on AMEX
The Company has been actively involved in raising equity to fund its working capital requirements and to fulfill the listing standards of the AMEX. On June 29, 2007, the Company was notified by AMEX that it was not in compliance with the listing standards of the Exchange because of its
4
continuing losses and the fact that our shareholders' equity had fallen below $6.0 million. In accordance with a plan submitted to the AMEX on July 27, 2007, the Company raised $0.5 million from a potential $10.0 million private placement, $2.52 million in a separate private placement and $1.25 million in a third private placement. In addition, the Company had intended to raise additional new equity in conjunction with its acquisition of ProEco Energy Company ("ProEco"). We anticipated that these actions would enable us to meet or exceed the equity requirements of the Exchange. On September 13, 2007, the AMEX approved this plan.
On January 8, 2008, the Company announced that due to the unfavorable market conditions for raising capital for ethanol plants, the Company and ProEco had entered into an agreement to extend the Share Exchange Agreement and the maturity date of the loan from the Company to ProEco until January 31, 2008. These agreements were subsequently extended again until February 29, 2008. On March 19, 2008, the Company and ProEco entered into a letter agreement terminating the Share Exchange Agreement and extending the maturity date of the loan from February 29, 2008 until November 30, 2008. The Company and ProEco have agreed to continue to develop a new fuel-grade ethanol plant (the "Ethanol Plant") when conditions in the capital markets improve.
Management has evaluated this project based on its assessment of the challenges to financing projects of this nature, posed by the present debt and equity markets, as well as the limited likelihood that a buyer will be identified for this project in the near future. Accordingly, the Company believes that it is prudent not to assign a value to this asset. As such, an impairment charge of $1,288,614 was warranted and this adjustment was recorded in December 2007.
On February 7, 2008, the Company received a notice from the AMEX that due to this deferral of the ProEco project, the Company was no longer demonstrating progress consistent with the July 27, 2007 plan and was commencing action to de-list the Company's common stock. The Company filed an appeal of the AMEX's action on February 12, 2008 and is waiting to present the Company's plan to remain on the Exchange at a hearing scheduled for April 15, 2008.
If the Company's common stock were to be de-listed by the AMEX, the Company believes its shares would continue to be traded as a bulletin board stock.
Since July 2003, the Company has raised approximately $37 million for its operations.
(b) Business of O2Diesel Corporation
Principal Products and Markets:
O2Diesel has developed a proprietary additive product designed to facilitate the use of renewable components that improve the performance of distillate liquid transportation fuels. By facilitating the addition of ethanol to diesel and biodiesel blends, such oxygenated blends assist in the combustion process to provide a clean burning fuel. O2Diesel has further refined its product into a series of additive blends for a variety of fuel applications. The Company's core product, O2D05, is a proprietary surfactant derived from renewable sources such as soybean oil, other vegetable oils, or animal fats. The additive stabilizes and enhances the blending of fuel grade ethanol with diesel fuel. Blending O2D05 with ethanol and various grades of diesel fuel in turn creates a proprietary clean burning fuel called O2Diesel TM . Extensive testing at independent laboratories and in real world fleet trials has been carried out to quantify the benefits and operability of this fuel as well as other O2Diesel TM fuel blends in a wide range of engine types and ages. These tests have demonstrated that the use of the fuel can produce significant and verifiable reductions in emissions. As an example, test data has shown the following reductions in harmful emissions:
Up to a 70% reduction in visible smoke;
Up to a 46% reduction in particulate matter ("PM");
Up to a 23% reduction in carbon monoxide;
5
Up to a 6% reduction of oxides of nitrogen ("NOx").
By way of background, fuel ethanol has been blended with gasoline for over 25 years in the U.S. and even longer in Brazil, with the combined benefits of improving air quality, reducing the use of petroleum based fuels and increasing the demand for agricultural products. Because of the incompatibility of diesel fuel and ethanol in a stand-alone environment, it has not been possible to combine ethanol and diesel fuel to produce a stable motor fuel. The Company's additive, O2D05, permits diesel fuel to be blended with ethanol to produce a fuel that is suited for use by centrally fueled truck and bus fleets, off-road diesel equipment and other diesel powered machinery. However, some changes were necessary to prepare vehicles and equipment to use the fuel, as well as to the storage and delivery systems used to dispense it.
The Company originally identified the U.S., Canada and Brazil as its first target markets, with an initial focus on the U.S. and Brazil. Since that time, the Company has developed additional strategic partnerships to expand its markets on a broader global basis. In 2008, we will continue to work with a large strategic partner in the ethanol industry to develop the European market for the Company's products as well as an important supplier of alternative energy solutions and technology to develop the Asian market. O2Diesel's strategy, with the support and resources of its commercial partners, is to create end-user demand from centrally fueled on and off-road diesel fleets, as well as large scale industrial operations that require significant diesel fuel supply, such as ports and military installations.
Potential customers in the Company's global markets include:
The U.S. market for diesel fuel is large and growing. It has been estimated by the Energy Information Administration that the use of diesel fuel in the U.S. exceeds 65 billion gallons per year and is expected to grow by approximately 1% in 2008.
Basic to the success of the Company's sales program is the availability of abundant supplies of fuel grade ethanol. According to statistics compiled by the Renewable Fuels Association, domestic ethanol plants in 2007 produced 6.5 billion gallons of ethanol, an increase of 33% over 2006. At the end of 2007, there were 142 plants producing ethanol with another 65 under construction or expansion, which, at completion, are expected to have an annual capacity of about 13.4 billion gallons. At present, the Company does not anticipate any supply problems in securing sufficient quantities of ethanol for use in the U.S. and Canada.
At the end of 2007, four customers in the U.S. and one customer in India were using the Company's fuel on a regular basis. Two U.S. Air Force bases and four bus fleets were using the fuel on a trial basis. Typically, first-time users of O2Diesel TM want to test the fuel in a small portion of their fleets before committing all of their vehicles to its use. These trials typically last for a period of three months or more and involve 10% or less of the vehicles in a prospective fleet.
In March 2004, O2Diesel began operations in Brazil through its 75% owned subsidiary, O2Diesel Químicos Ltda. Brazil is one of the pioneers in the use of ethanol and has a long history of manufacturing ethanol as a by-product from the production of sugar. Due to the low cost and
6
availability of ethanol, Brazil's transportation sector has used large amounts of this renewable fuel for the last three decades. Fuel ethanol has become an important fuel in Brazil due to its positive effects on the creation of jobs in the sugar industry and as a means of reducing the country's dependence on imported diesel fuel, of which Brazil is a net importer. Moreover, both the Brazilian government and the sugar producers have sought various means to increase the demand for sugar and sugar derivatives. The Company has determined that, similar to the U.S., it must hire and train its own sales force to achieve meaningful sales in Brazil.
According to market studies, approximately 9 billion gallons of diesel fuel are consumed by Brazil's transport sectors. As in the U.S. market, we initially targeted centrally fueled truck and bus fleets as our customers. Brazil experienced the same profile of testing by potential customers as that found in the U.S. During 2004, one sugar mill tested O2Diesel TM in only a small portion of its truck fleet. In 2005, Brazil added an additional sugar mill customer, a municipal transit system and one waste fleet to its users of the fuel. During 2006 and 2007, the Company successfully concluded these demonstrations. At the beginning of 2008, we were continuing this demonstration activity with a municipal bus fleet in Curitiba, the third largest city in Brazil. The Company has expanded its South America activity by entering into a distribution agreement with a European-based energy trading company. Utilizing our staff in Brazil for technical support, we are working with this distributor to develop first fleet demonstrations and later commercial accounts in Columbia and Paraguay.
To summarize, the current potential customers for O2Diesel TM in Brazil include the following:
Later, our Brazilian subsidiary will seek to widen its market to include:
In Europe and Asia, our market focus continues to be on centrally fueled bus fleets and large trucking fleets.
In North America, we expect to distribute our product, O2D05, directly to jobbers. "Jobbers" is a term in the fuel industry to describe companies that have a supply infrastructure that facilitates the purchase, blending, storage and delivery of fuel, which may include O2Diesel TM . After purchasing our additive, jobbers will be responsible for all of the logistics necessary to blend the components to produce O2Diesel TM . In most cases, they will purchase diesel and ethanol and blend these with our additive. At the time of sale of the O2Diesel TM , the jobber will deliver the fuel using its own transportation fleet, common carriers or fuel trucks of its customer.
In Europe and Asia, we intend to distribute our product to large distributors who will operate under exclusive contracts covering specific geographic regions. As of December 31, 2007, we have maintained our exclusive distribution agreement in Asia.
In all our markets we also intend to have our sales force market O2Diesel TM directly to large centrally fueled fleets of vehicles and equipment, where the user would typically have its own refueling infrastructure. In these cases, we must arrange for the delivery of O2Diesel TM to the customer's central fueling location. In limited situations, O2D05 by itself may be sold to large, central fleet customers, but in these cases, the customer must have the proper facilities to blend diesel fuel with fuel grade ethanol and additive. In most situations, we or the customer will contract with jobbers or other fuel transportation companies to blend and deliver the O2Diesel TM .
To plan for the logistics necessary to deliver O2Diesel TM , we are continuing our efforts to establish a reliable network of ethanol producers and providers of fuel transportation services. To that end, we
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have established supply relationships with sixteen jobbers (fuel blending and distribution companies) in the U.S. and with two jobbers in Europe. We continue to negotiate supply agreements with ethanol distributors in order to obtain stable pricing for this commodity. Additional progress towards creating a network was achieved in 2007, but more needs to be accomplished to arrive at the point where we have a seamless distribution network to serve our major markets.
For large centrally fueled fleets, the methods of distribution will be substantially the same for customers regardless of the market. However, the distribution of fuel in Brazil poses a potentially greater challenge than those in the U.S. and Europe, particularly due to legal restrictions imposed on the sales and distribution of ethanol and the structure of the fuel distribution markets. This occurs because there are only a few companies in Brazil that deliver petroleum fuels to the end user. As such, we have fewer choices from which to select partners in Brazil to establish an infrastructure for the distribution of our fuel.
Competitive business conditions and position in the marketplace:
In general, competition to O2Diesel's technology may be split into three categories:
1. Ethanol-diesel blended fuel technologies (e-diesel);
2. Exhaust after treatment technologies;
3. "Other" fuels.
Within the first category, which comprises e-diesel fuel technologies, we believe there are a number of competitor companies that have or are attempting to develop fuel additives to compete with our technology. Based on limited market information, and even though some of the competing technologies are owned by larger and better financed corporations, it appears that none of the technologies are as advanced. Other cost effective diesel fuel additive technologies which would be expected to compete with our technology, such as metallic combustion improvers, are subject to significant regulatory issues that may affect their commercial viability. Various exhaust after treatment technologies are available in the marketplace to reduce emissions. Many of these technologies are designed for use on new vehicles, and, as such, may take several years to have an impact on emissions over a large vehicle population. In addition, these after treatment technologies may have higher implementation costs including the cost of vehicle retrofits, which may also be expensive. For this reason, we do not view exhaust after treatment technologies as being in direct competition to O2Diesel TM . In 2007, we tested several of these devices with our fuel to confirm that additional benefits can be achieved when the two technologies are used together, such as reduced maintenance costs and enhanced control of emissions. In every case tested, the data shows that after treatment technology is compatible and synergistic with our technology.
Ultra-Low Sulfur Diesel ("ULSD") with and without bio-diesel has lower emissions than low sulfur diesel ("LSD"). Beginning in mid-2006, the diesel fuel specifications for the U.S. changed to require the use of ULSD for all on-highway use. ULSD is defined as having less than 15 parts per million sulfur. Combusting this low level of sulfur not only gives lower emissions but is necessary to allow current exhaust after treatment technologies to work effectively. ULSD is more expensive to produce than its predecessor, LSD, but is now supplied throughout the U.S. as a result of mandated change in the fuel specification. In 2005 and 2006, we demonstrated that our product not only works effectively with a base blend of ULSD, but also improves the lubricity elements of the base blend. In 2007, we continued to pursue a long-term strategy of working with refiners and distributors of ULSD as a means of broadening the market for both fuels ULSD and O2Diesel TM . Biodiesel is an ester containing hydrocarbon derived from renewable sources and blends of this component with ULSD is a viable alternative to ULSD alone. A blend of 20% biodiesel in ULSD has been legislatively designated as an "EPACT fuel" and is used by the military to fulfill governmental requirements for reducing the use of
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petroleum. Biodiesel has had quality and some other drawbacks, among which can include cost, lack of availability, emission increases as well as handling, storage and usage issues.
During 2005 and 2006, we had one of our customers in our City Home TM initiative successfully use a blend of biodiesel and O2Diesel TM fuel. Our work with the Department of Defense ("DoD") has resulted in a new alternative fuel combining our additive technology, ULSD and biodiesel. In addition to our proprietary solubilizing agent and cetane improver, this fuel also has technology to improve the low temperature flow properties of the fuel which is necessary for cold temperature operation. This fuel, with about 28% renewable components, was shown to perform equal to straight ULSD while providing additional operational benefits in an urban transit system at the end of 2007. To our knowledge, it is the highest concentration of complementary renewable sourced components used for winter applications.
Below is a table which gives a brief overview of the advantages and disadvantages of the broad ranges of technologies that may be considered as competing with O2Diesel's fuel technologies. This summary is not intended to be all-inclusive for competing technologies.
Lower Emissions Options
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Advantages
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Disadvantages
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Bio-diesel |
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Renewable content lowers the most regulated emissions and governmental incentives. |
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Variable quality, availability, price, storage/handling & distribution |
Exhaust Gas After Treatment |
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Effective and an OEM hardware addition to meet 2007 model year vehicle emission needs |
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High cost, owner resistance and maintenance issues |
Gas to Liquid & Fischer Tropsch |
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Clean fuel and number of feedstock options |
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High production cost, long lead time, price |
Hydrogen Gas/Fuel Cells |
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Ultra clean vehicles |
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Still at early research stage |
Diesel-Water |
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Reduces both PM and NOx |
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Poor fuel stability, reduced power, special equipment and maintenance issues |
In Brazil, there are both domestic and foreign companies seeking to develop an ethanol diesel blending additive, but we believe that none of these potential competitors have perfected their respective technologies.
Sources and availability of raw materials:
O2Diesel has a cooperation agreement with Cognis Deutschland GmbH ("Cognis") for the manufacture and marketing of the Company's additive globally. Cognis has manufacturing facilities in or near each country in which we intend to sell our product. According to Cognis, these plants have sufficient capacity to produce enough product to allow us to meet our budgeted sales for the United States, Europe, India and Brazil for the next twelve months. Cognis has informed us that it does not anticipate there will be any shortages of raw material over the next twelve months. To date, Cognis has supplied all the additive required.
Dependence on one or a few major customers:
At the end of 2007, the Company was still a development stage company and we reported additive sales of only $337,089 for the year. In 2008, we started the year with four North American customers and one Indian customer and have not reached the stage when we can start to develop a customer profile sufficiently large enough to allow us to affirmatively state that we will not be dependent on just
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one or even a few major customers. However, given the usage of diesel fuel in our target markets, U.S., Canada, Brazil, Europe and Asia, the drive of local and national governments to press for cleaner air legislation, and the mandates for our potential customers to comply with these legislative requirements, it is unlikely that we will be dependent in any of these markets on one or even a few large customers. Notwithstanding the foregoing, we have almost no sales history and cannot yet know for certain what our likely customer base will be or if one will develop at all.
Because of the many fuel distribution companies in the U.S. and Canada, it is unlikely that we will be dependent upon one or only a few large companies to distribute O2Diesel TM . However, this may not be true for Brazil. For example, in Brazil, the country's fuel distribution network is concentrated among a small number of large companies. Thus, it is possible, and perhaps likely, that we could become dependent on one or two large distributors for the sale of O2Diesel TM in Brazil. O2Diesel cooperates on a non-exclusive basis with Brazil's largest fuel distributor, BR, the distribution arm of the state-owned mineral oil company, Petrobrás.
In India, we have signed an exclusive agreement with one distributor for the market in that country. In Europe, we are exploring distribution agreements on a country by country basis.
Patents/Trademarks:
The Company has 82 patents granted or applications pending for nine different proprietary fuel and additive product inventions registered with the international WIPO (PCT) Registration System. Seven inventions currently have 40 patents granted, and 23 applications pending in 22 different countries in Europe, North America, South America and Asia. Two additional inventions currently have 19 patent applications pending and are about to undergo examination in 16 different countries. In August 2008, one of these inventions could be the subject of further patent applications in several additional countries worldwide which are members of the Patent Cooperation Treaty. During this period, O2Diesel's intellectual property rights over its additive products are protected through its registration with the WIPO (PCT) Registration System and its pending national patent applications.
As part of our cooperation agreement with Cognis, we, along with Cognis, are the joint owners of all patents covering both the use and composition of O2D05. All legal costs associated with preparing, filing and administering the jointly owned patents are shared equally by the Company and Cognis. We also have a number of patents that have been issued that relate to the predecessor technology of O2D05. As a strategic measure, we continue to fund all costs necessary to maintain some of these patents. O2Diesel is the sole owner of these latter patents, which in general cover the use and composition of its prior generation technology.
We have registered a trademark in the U.S. and the European Union for a mark which includes the words and numbers O2Diesel TM as well as a figurative logo of the words. We also registered trademarks for "CityHome" (and design) in eight classes of goods and services, "TODAY'S CLEAN AIR SOLUTION TOMORROW'S BRIGHTER FUTURE" and "CITYHO2ME", each covering one class of goods and services.
Government Approvals:
In the U.S., O2Diesel TM is subject to regulation at the federal, state and local levels. In addition, organizations such as the American Society for Testing & Material ("ASTM") and the National Conference on Weights & Measures ("NCWM") set uniform industry product quality standards and test methods which are often adopted by legislative bodies and regulatory agencies.
These laws and regulations are modified over time and these changes may favor or disfavor one product over another. This is particularly true in the case of incentives that are either available or are becoming available for the expanded use of cleaner-burning fuels like O2Diesel TM or other emissions reduction technologies.
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In the U.S., O2Diesel TM is continuing the process to obtain regulatory approvals at various levels of government. At the federal level, the primary regulatory body from which the necessary approvals are required is the U.S. Environmental Protection Agency ("EPA"). The EPA requires the registration of all fuels for on-highway commercial use. The process of becoming a registered fuel for on-highway use is complex, costly and time-consuming. The Company has registered its base additive (O2D05) with the EPA as well as two other additive packages (O2D5000 and O2D5005). The latter package is more robust with respect to the fuel's water tolerance at low temperatures. O2Diesel TM has also submitted emissions testing and other required data as part of EPA's Tier 1 fuel registration to demonstrate that O2Diesel TM does not generate additional air emissions as compared to diesel fuel. In 2007, EPA completed its initial review of the registration of O2Diesel TM as a Tier 1 atypical fuel. Tier 2 requirements are triggered if sales exceed $10 million in annual revenue. Tier 2 tests are intended to detect potential adverse health effects related to the inhalation of any additional emissions.
The Company has received several review questions from EPA related to the applications of the newer additive packages and the blended fuel. In response to these and subsequent review questions, the Company has submitted an extensive compilation of emission reduction and engine performance data from its demonstrations and real-world trials as well as a substantial literature review of the benefits of e-diesel blends. It has been the Company's position in this submission that O2Diesel TM is "substantially similar" to current in use e-diesel certified fuels and that the Company's fuel products continue to support emissions reductions over the useful life of diesel engines, either with or without aftertreatment devices. At the end of 2007, the Agency was continuing its review of this submission.
States set strict requirements for the sale and distribution of motor fuels, and provide certain incentives for the use of cleaner-burning fuels. Certain states also levy disincentives for the use of "dirtier" fuels, often in the form of monetary penalties. With the exception of California and Texas, which are permitted to set stricter state standards, all state motor fuel environmental regulations are governed by EPA policies set forth in the Clean Air Act. In addition to environmental issues, many states have other regulations regarding the sale of fuel to which the Company may be subjected.
In 2003, O2Diesel TM achieved regulatory recognition (known as "verification") in California granted by the California Air Resources Board ("CARB") for O2Diesel TM as an "alternative diesel fuel," thus making the fuel eligible for state and local incentives. During this same period, the Division of Measurement Standards ("DMS") of the California Department of Food & Agriculture designated O2Diesel TM as a "developmental engine fuel" which is a requirement for a fuel to be marketed legally in the state if it lacks a specification from a peer reviewed body such as ASTM. In 2006, the Company submitted several programs to complete the protocols to allow O2Diesel TM to be classified as a Diesel Emissions Control Strategy (DECS) fuel by CARB. Given the base fuel changes, along with the Agency's rule changes, O2Diesel has had to rework its original test plan. At the end of 2007, we were continuing to work through these issues, including Tier 1, Tier 2 and Tier 3 Multimedia Assessment. The Company's focus in California in 2008 will continue to demonstrate how the use of O2Diesel TM not only reduces emissions, but more importantly, improves the performance of various aftertreatment hardware technologies, thereby assisting them to be verified at higher tier levels than they can achieve when used alone. Being a Verified Technology will allow O2Diesel to be competitive in this large market. As a condition to permitting the sale of O2Diesel TM in California, CARB mandated, among other things, that in the case of storage or use of O2Diesel TM , fuel storage tank vents, vehicle tank vents and fill openings must be fitted with flame arrestors.
In August 2004, Nevada's Division of Environmental Regulation approved O2Diesel TM as an "alternative fuel". Nevada requires that state, county and municipal fleets of 10 or more vehicles must use an alternative fuel rather than regular transportation fuels such as gasoline or diesel fuel.
Ethanol and diesel fuel blends do not have an ASTM specification. In 2006, a member of the Company became the Chairman of the E-Diesel task force. This task force submitted a specification for the purpose of proposing a ballot for incorporation of this fuel as an ASTM specification and received
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the initial results of this vote during the December 2006 ASTM meeting. Throughout 2007, the task force continued to answer inquiries regarding the fuel and submitted a revised ballot based upon these initial comments. Subsequent ballots in 2007 showed a reduced number of negative votes which the task force has continued to respond to. It is expected that a revised ballot will be submitted to ASTM during the second quarter of 2008 so that it can be discussed and voted on during the June ASTM international meeting.
In Canada, there are fewer limits or restrictions on the introduction of new motor fuel products like O2Diesel TM , despite the fact that the key federal regulatory agencies Environment Canada and Natural Resources Canada tend to follow the general policies set by the United States. One important quasi-governmental organization that serves a regulatory control function is the Canadian General Standards Board ("CGSB"), which works in a manner similar to ASTM. Fuels sold in Canada on a widespread basis will ultimately be subject to an industry and government consensus-based product specification. Across Canada and among the provinces, various tax and other incentives are in place to encourage the expanded production and use of biomass-based transportation fuels.
Various governmental approvals are required to sell O2Diesel TM in Brazil. These approvals are administered and granted by two Brazilian agencies ANP and IBAMA. ANP is the National Fuel Regulation Agency and IBAMA is the National Environment Protection Agency. Approvals are needed from both agencies before O2Diesel TM may be sold in Brazil. In 2004, we submitted applications to both agencies and received limited, but favorable approvals from each. ANP has classified O2Diesel TM as an alternative diesel fuel. In addition, IBAMA, approved O2Diesel TM for off road (e.g. in mining) and railroad applications. Also, in response to requests that we submitted to ANP, it granted approval for O2Diesel TM to be sold to specific customers and for specific regions in Brazil.
In Europe, the regulatory environment surrounding alternative fuels is largely centered on biodiesel. Since ethanol-diesel is a new technology in the European Union, the Company is working on a country by country basis to better define e-diesel regulatory requirements and how they can be supplemented by changes to the existing regulatory structure. Like in the United States, alternative fuels are allowed for individual test demonstrations in most European countries, but must be approved by the country's appropriate governmental agency on a case-by-case basis. In 2007, O2Diesel received the required government approvals in France from the DRIRE and the DIREM, the regulatory bodies responsible for the Environment and Fuel specifications and applications for the use of O2Diesel TM in demonstrations in that country. Similarly, the Company was able to obtain permission from the Spanish regulatory authorities to utilize the fuel in demonstrations in that country.
In India, the Company sells its base additive directly to its exclusive distributor for this market. The distributor bears the responsibility for blending the final e-diesel product and to fulfill the local and national regulatory requirements needed to market the final product.
Effect of existing or probable governmental regulations:
Regulations may affect new motor fuel products by raising barriers to entry (thus keeping out untested products that lack proof of claims for performance) or by providing incentives for products that help achieve public policy goals. O2Diesel TM began an intensive engine and fleet testing program in 1999 which will continue through 2008. This testing is designed to provide proof to federal, state and local regulatory bodies as well as to the U.S. military that O2Diesel TM has a positive impact in reducing emissions that contribute to ground-level ozone in urban areas, and that it will reduce toxic particulate matter emissions. Some of these agencies may provide incentives for the use of such products in cases where the benefits of using the products can be verified.
Regulations for motor fuels may have the effect of limiting competition from products that cannot prove their claims to regulators, while giving others that can an advantage in the marketplace. Moreover, the availability of federal, state and local incentives to encourage the use of verified products may make O2Diesel TM a cost-effective fuel for fleets seeking to comply with tougher new air
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quality regulations. As an example of these incentives, the U.S. government permits a credit against excise tax for ethanol blended with diesel fuel. In prior years, this incentive was computed differently, was more complex and was subject to a number of limitations, the most significant being that it did not apply to ethanol diesel blends used in off-road vehicles and equipment.
On October 22, 2004, President Bush signed into law the American Jobs Creation Act of 2004 (P.L. 108-357). This new law made important changes to the existing law by allowing a refundable excise tax credit for ethanol blended with diesel fuel. The new law, which is called the "Volume Ethanol Excise Tax Credit" (VEETC) extends the credit through December 31, 2010. Generally, it provides that a credit may be taken at $0.51 per gallon for ethanol blended with diesel fuel used for both on-road and off-road applications. O2Diesel TM , when blended with the appropriate ethanol, qualifies for this excise tax credit.
The Company is not aware of any incentives for the use of its additive or fuel in Brazil and is in the process of exploring Europe and Asia for available incentives.
The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act") comprehensively revised the laws affecting corporate governance, accounting obligations and corporate reporting for companies, such as O2Diesel, with equity or debt securities registered under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). In particular, the Sarbanes-Oxley Act established: (1) new requirements for audit committees, including independence, expertise, and responsibilities; (2) requirements with respect to the establishment and evaluation of disclosure controls and procedures and internal control over financial reporting, and the audit of internal control over financial reporting; (3) additional responsibilities for the Chief Executive Officer and Chief Financial Officer of the reporting company with respect to financial statements and other information included in Exchange Act reports; (4) new standards for auditors and regulation of audits; (5) increased disclosure and reporting obligations for the reporting company and its directors and executive officers; and new and increased civil and criminal penalties for violations of the securities laws. Beginning with the 2007 annual report, Company management is required to make a statement in their Sarbanes-Oxley Act Section 302 certification that the Company designed, under their direction, internal controls over financial reporting that would provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Estimate of the amount of time spent during each of the last two fiscal years on research and development activities:
O2Diesel has an agreement with Cognis for the joint development of co-solvency additive products as well as the joint ownership of patents covering such products. Pursuant to the terms of this agreement, O2Diesel is not required to devote time or incur any research and development expenditures for the work performed by Cognis, but we are required to share equally in the legal costs to prepare, file and maintain all joint patent applications and issued patents. See section below Costs and effects of complying with environmental laws.
Costs and effects of complying with environmental laws:
O2Diesel is faced with very few costs for it to comply with environmental laws and regulations. However, we have incurred substantial costs in carrying out tests to demonstrate that the use of our product will enable customers to comply with environmental laws and regulations. In the case of O2Diesel TM , many of the tests required by the U.S. government have been funded by governmental appropriations. More specifically, in 2007, we incurred expenses of approximately $1.4 million in the U.S. in connection with governmental sponsored projects and tests. Most of the costs incurred in these government test programs were reimbursed by appropriations from the U.S. Departments of Energy
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and Defense. For a more detailed description of government appropriations, see Note 4 to the Financial Statements.
At the start of 2008, the Company had government test programs in progress with total remaining costs of approximately $1.1 million. A wide array of tests and product demonstrations are being carried out under these programs.
Included are product demonstrations in Nevada, North Dakota and Louisiana to test O2Diesel TM in non-tactical military equipment. Other test programs underway include completing the protocols to allow O2Diesel TM to be classified as a Diesel Emissions Control Strategy fuel by the California Air Resources Board. O2Diesel is conducting demonstrations with a number of school bus and transit agencies testing O2Diesel TM as well as O2Diesel TM blended with B20 in various weather conditions, engine types, and uses. These demonstrations have been developed to show not only the emission benefits obtainable by the use of our product, but also the maintenance cost reductions achievable from the use of various blends of O2Diesel TM . Still other tests will provide emissions and engine performance data to support our efforts to obtain an ASTM specification as well as a military procurement specification for the fuel. Based on the government funding in place, we believe that approximately 80% of the costs to conduct all of these tests may be funded by appropriations from the U.S. Departments of Energy and Defense.
In 2007, we did not conduct additional research and development projects in Brazil. However, we continued a fleet demonstration in Curibita as a further effort to obtain approvals for O2Diesel TM from the agencies that are responsible for the country's petroleum industry and environmental laws. Brazil's environmental agency, IBAMA, has classified O2Diesel TM as an alternative diesel fuel, and ANP, Brazil's national petroleum agency, has granted approvals in specific cases for the sale and use of O2Diesel TM .
For 2008, we do not anticipate spending any funds on various product and vehicle tests in Brazil with regard to environmental laws.
Employees:
At present, O2Diesel has fourteen full-time employees, thirteen of which are in the U.S. and one is in Europe. We have one part-time employee. During this past year, we have relied on consultants to assist in commercializing our technology and to help us in key technical areas. We expect to continue this practice in 2008. At present, we employ seven consultants in the U.S.; three in marketing and business development, one laboratory technician, one chemist; and two in regulatory affairs. The Company has entered into separate consulting contracts with two shareholders of its Brazilian subsidiary for the purpose of providing office rent and administrative services and in lieu of employment contracts with these two individuals. In Europe, we employ two consultants, one for general management and business development and one for regulatory affairs.
We will add new personnel in 2008 based on the pace of our commercialization. Under our business plan, we do not anticipate the need to add employees in the U.S. or Brazil, but we do plan to add technical positions for our European market testing and development in 2008. We anticipate continuing to employ eleven consultants serving in most of the same capacities in 2008 as in 2007.
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(c) Reports to Security Holders:
We file annual and quarterly reports, proxy statements and other information with the Securities and Exchange Commission ("SEC"). You may read and copy any document we file at the SEC's Public Reference Room at 100 F Street, N.E., Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information concerning filers. We also maintain a web site at http://www.O2Diesel.com that provides additional information about our company and links to documents we file with the SEC. The charters of the Audit Committee, the Compensation Committee and the Nominating and Governance Committee; and the Code of Business Conduct and Ethics are also available on the Company's website.
Item 2. Description of Property
O2Diesel owns no real property. We rent 4,950 square feet of office space located at 100 Commerce Drive, Suite 301, Newark, Delaware, 19713, under a five-year lease entered into in December 2003. This space serves as the corporate headquarters of the group. The aggregate cost of this office space over the lease term is $392,875, plus common area charges that are billed monthly to the Company. We also have a small laboratory of about 2,000 square feet in Bear, Delaware, rented under a two year lease for $1,400 per month, which expires on November 30, 2009.
In July 2005, we entered into a month to month lease for office space of about 650 square feet in Sao Paulo, Brazil, which can be cancelled with a thirty day notice at a cost of about $900 per month.
In September 2006, we entered into a one year lease for office space of approximately 1,350 square feet in Brussels, Belgium at a cost of 2,240€ per month.
We own office furniture and equipment costing approximately $269,000 (including approximately $43,000 in ProEco assets) and test and fuel storage equipment costing approximately $383,000.
During 2007, there were approximately $169,621 of additions of test equipment, $67,585 to office furniture and equipment consisting of furniture, computers and related equipment and $1,288,614 of additions to construction in progress (before impairment charges of $1,288,614). Of these amounts, $0, $42,620 and $1,288,614, respectively, were attributable to the consolidation of ProEco. In February 2006, the Company purchased a used truck and outfitted it to be able to provide mobile fueling to equipment at an NREL project in Wyoming. The truck had a cost of $28,813 and has $10,806 of accumulated depreciation as of December 31, 2007.
Item 3. Legal Proceedings
O2Diesel is not a party to any legal proceedings as of the date of this report.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the stockholders through solicitation of proxies or otherwise during the fourth quarter of the year ended December 31, 2007.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Market Information:
O2Diesel's common stock is traded on the American Stock Exchange (AMEX) under the symbol "OTD".
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The following table sets forth, for the periods indicated, the range of the high and low sale prices for O2Diesel's common stock:
Quarter Ended
|
High
|
Low
|
||||
---|---|---|---|---|---|---|
December 31, 2007 | $ | 0.54 | $ | 0.31 | ||
September 30, 2007 | 0.62 | 0.37 | ||||
June 30, 2007 | 0.70 | 0.50 | ||||
March 31, 2007 | 0.92 | 0.69 | ||||
December 31, 2006 | 0.91 | 0.68 | ||||
September 30, 2006 | 1.28 | 0.78 | ||||
June 30, 2006 | 2.82 | 0.92 | ||||
March 31, 2006 | 0.87 | 0.40 |
Source of Information: Yahoo Finance
Holders of Common Equity:
As of March 19, 2008, there were 87,298,674 shares of our common stock outstanding, held by approximately 9,250 stockholders of record.
Dividends:
To date, we have not paid any dividends on our common stock and we do not expect to declare or pay any dividends on our common stock in the foreseeable future. Payment of dividends will depend upon our future earnings, if any, our financial condition, and other factors as deemed relevant by the Board.
AMEX Listing Standards
On June 29, 2007, the Company was notified by AMEX that it was not in compliance with the listing standards of the Exchange because it lacked the requisite amount of stockholders' equity. The Company was asked to submit a plan by July 27, 2007 advising AMEX of actions the Company would be taking to bring it into compliance with the continued listing standards by December 29, 2008.
On July 27, 2007, the Company filed a plan with the Exchange describing the steps it plans to take to return to full compliance. The Company has entered into a common stock purchase agreement with Fusion Capital II, LLC to raise up to $10 million in new equity over a twenty-five month period starting on February 16, 2007. Also, the Company announced a private placement in which we raised an additional $2.52 million in July and August 2007. As noted below, the Company intended to raise additional new equity in conjunction with the acquisition of ProEco. We anticipated that these actions would enable us to meet or exceed the equity requirements of the Exchange.
On September 13, 2007, the Company received a written notice from the AMEX indicating that AMEX had reviewed and accepted the Company's plan to regain listing qualifications compliance. With the acceptance of the plan, the Company will be able to continue its listing during the plan period pursuant to an extension granted until December 29, 2008. The AMEX notice also advised the Company that, in addition to the previously disclosed deficiency with respect to Section 1003(a)(iii) of the AMEX Company Guide, it had triggered an additional deficiency with respect to Section 1003(a)(ii) of the AMEX Company Guide which requires listed companies to have at least $4.0 million of stockholders' equity when it has sustained losses from continuing operations and/or net losses in its four most recent fiscal years.
During the interim period until December 29, 2008, the Company must continue to provide AMEX staff with updates regarding initiatives set forth in its plan of compliance. The Company will be subject to periodic review by AMEX staff during the interim period. If the Company is not in compliance with the listing standards on December 29, 2008, or the Company does not make progress
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consistent with the plan during the interim period, the AMEX would likely initiate procedures to de-list the Company's common stock. If the Company's common stock were to be de-listed by the AMEX, the Company believes its shares would continue to be traded as a bulletin board stock.
The consolidated financial statements in this report do not include any adjustments to reflect other anticipated private placements or the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result should management be unsuccessful in obtaining financing on terms acceptable to the Company.
On January 8, 2008, the Company announced that due to the unfavorable market conditions for raising capital for ethanol plants, the Company and ProEco entered into a letter agreement that modified the terms of the Share Exchange Agreement, dated January 12, 2007. Pursuant to this letter agreement, the parties agreed to extend the maturity date of the outstanding $1.4 million loan from the Company to ProEco from December 15, 2007 to January 31, 2008. In addition, the parties agreed that ProEco may negotiate with other parties regarding the development of the Ethanol Plant and the Company may enter into any similar transaction with respect to the design, construction and operation of ethanol power plants and/or biodiesel plants. On February 2, 2008, the parties announced a further extension of the maturity date on the loan from January 31, 2008 to February 29, 2008. On March 19, 2008, the Company and ProEco entered into a letter agreement terminating the Share Exchange Agreement and extending the maturity date of the loan from February 29, 2008 until November 30, 2008. The parties are redefining their long-term relationship with regard to the development of the Ethanol Plant. On February 7, 2008, the Company received a notice from the AMEX that due to the deferral of the ProEco project, the Company was no longer demonstrating progress consistent with the July 27, 2007 plan and was commencing action to de-list the Company's common stock. The Company filed an appeal of the AMEX's action on February 12, 2008 and is waiting to present its argument to remain on the Exchange at a hearing scheduled for April 15, 2008.
Recent Sales of Unregistered Securities over the past three years:
During the past three years, the Company sold the following securities. For these issuances, the common stock and the warrants were issued to the accredited investors in transactions exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and/or Regulation D promulgated under the Securities Act. All securities were issued for working capital requirements.
Series A 0% Convertible Preferred Stock Private Placement
Pursuant to a Convertible Preferred Stock Purchase Agreement between the Company and the purchaser named therein (the "Series A Purchaser") dated as of March 3, 2004, the Company issued to the Series A Purchaser, 800,000 shares of Series A 0% Convertible Preferred Stock, par value $.0001 ("Series A Preferred Stock"). The offering resulted in gross proceeds of approximately $3,200,000 to the Company, prior to the deduction of fees and commissions. The sale of the Series A Preferred Stock was exempt from registration pursuant to Regulation S promulgated under the Securities Act.
The Series A Preferred Stock was initially convertible into the Company's common stock at a variable conversion ratio which was the lesser of (a) $4.00 as adjusted as provided in the Series A Certificate of Designation (the "Series A Fixed Conversion Price") or (b) eighty percent (80%) of the lowest closing bid price for the Common Stock in the ten business days preceding the date of conversion, but, in no case, less than 50% of the Series A Fixed Conversion Price. In September 2004, we renegotiated the conversion formula with the holder of these shares. The revised minimum price at which the shares may be converted is equal to twenty-five percent (25.0%) of the Fixed Conversion Price, or $1.00 per share. Pursuant to the amended agreement, the Series A Purchaser may not convert Series A Preferred Stock into our common stock for a period of two (2) years following the closing date of this transaction. Under the revised agreement, in no event will the Series A Purchaser receive
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more than 8,000,000 or less than 2,000,000 shares of the Company's common stock upon conversion of the Series A Preferred Stock.
The Series A Purchaser was granted an option to purchase additional shares of the Company's common stock equal to the difference between the number of shares of common stock actually received upon conversion and the number of shares that would have been received at a conversion price of $1.82. The exercise price shall be the Series A Fixed Conversion Price.
Series B 0% Convertible Preferred Stock Private Placement
Pursuant to a Convertible Preferred Stock Purchase Agreement between the Company and the purchaser named therein (the "Series B Purchaser") dated as of March 29, 2004, the Company issued to the Series B Purchaser, 750,000 shares of Series B 0% Convertible Preferred Stock, par value $.0001 ("Series B Preferred Stock"). The offering resulted in gross proceeds of approximately $3,000,000 to the Company, prior to the deduction of fees and commissions. The sale of the Series B Preferred Stock was exempt from registration pursuant to Regulation S promulgated under the Securities Act.
The Series B Preferred Stock was initially convertible into the Company's common stock at a variable conversion ratio which was the lesser of (a) $3.65 as adjusted as provided in the Series B Certificate of Designation (the "Series B Fixed Conversion Price") or (b) eighty percent (80%) of the lowest closing bid price for the Common Stock in the ten business days preceding the date of conversion, but, in no case, less than 50% of the Series B Fixed Conversion Price. In September 2004, we renegotiated the conversion formula with the holder of these shares. The revised minimum price at which the shares may be converted is equal to twenty-seven and four tenths per cent (27.4%) of the Series B Fixed Conversion Price, or $1.00 per share. Pursuant to the amended agreement, the Series B Purchaser may not convert Series B Preferred Stock into our common stock for a period of two (2) years following the closing date of this transaction. Under the revised agreement, in no event will the Series B Purchaser receive more than 7,500,000 or less than 2,054,795 shares of the Company's common stock upon conversion of the Series B Preferred Stock.
The Series B Purchaser was granted an option to purchase additional shares of the Company's common stock equal to the difference between the number of shares of common stock actually received upon conversion and the number of shares that would have been received at a conversion price of $1.82. The exercise price shall be the Series B Fixed Conversion Price.
In April 2006, the holders of both the Series A and Series B Convertible Preferred Stock exercised all of their conversion rights and converted 1,550,000 shares of Convertible Preferred Stock into 15,500,000 shares of common stock.
$2.0 and $3.0 Million Private Placements
In a series of two private placements of the Company's common stock in 2005, the Company raised $4,833,192 after payment of an 8% commission and other expenses, and issued 7,535,981 shares of common stock at a price of $0.70 per share. Subscribers to this private placement received for each two shares of common stock purchased one warrant to purchase one additional share of common stock. The warrant expires twenty-four months following the closing of the private placement. Each warrant is exercisable at a price of $0.70 per share during the first twelve months following the close of the private placement, or at an exercise price of $1.05 per share in the second twelve months following the close of the private placement. The total number of warrants issued was 3,757,990.
$2.3 Million Private Placement
On October 24, 2005, the Company issued 3,228,070 shares of common stock at a purchase price of $0.7125 per share in a private placement for total proceeds of $2,300,000.
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As part of this sale, the Company also issued warrants to purchase 1,614,035 shares of common stock at an exercise price of $1.425 per share during the period of six months to forty-two months subsequent to issuance or at a cashless exercise if a registration statement is not effective within one year of issuance. The warrants expire forty-two months after the date of issuance.
As part of the transaction, the Company agreed to sell up to an additional $700,000 of its common stock to the Purchaser at a purchase price of $0.7125 per share for 982,456 shares. The Company also issued warrants to purchase 491,228 shares of common stock at an exercise price of $1.425 per share during the period of six months to forty-two months subsequent to issuance or at a cashless exercise if a registration statement is not effective within one year of issuance. The warrants expire forty-two months after the date of issuance. The purchaser had 180 days following the date of the Purchase Agreement to acquire additional shares. This offer expired unexercised on March 20, 2006.
The Company agreed to issue warrants to purchase 1,614,035 shares of common stock at an exercise price of $0.7125 per share to its advisor in connection with this transaction. The warrants expire forty-two months after the date of issuance.
$3.6 Million Private Placement
On December 16, 2005, the Company issued 6,419,840 shares of the Company's common stock in a private placement, for total proceeds of 3,000,000€, or approximately $3.6 million at the then current exchange rates.
As part of the transaction, the Company issued warrants to purchase 2,853,262 shares of common stock at an exercise price of $0.85 per share during the period six to forty-two months subsequent to the date of issuance or at an exercise price of $1.13 per share during the period forty-three to sixty-six months after the date of issuance. The warrants expire sixty-six months after the date of issuance.
$4.0 and $2.5 Million Private Placements
On April 6, 2006, the Company entered into a Common Stock and Warrant Purchase Agreement ("$4.0 million Purchase Agreement") with a UK investor (the "Investor") for 5,333,333 shares of common stock at a purchase price of $0.75 per share in a private placement for total proceeds of $4,000,000 (the "$4.0 million Private Placement"). As part of this sale, the Company also issued warrants to purchase 2,666,667 shares of common stock at an exercise price of $0.825 per share during the period of six months to forty-two months subsequent to issuance. The warrants expire forty-two months after the date of issuance. Also on April 6, 2006, the Company entered into a Common Stock and Warrant Purchase Agreement ("$2.5 million Purchase Agreement") with a different European investor (the "2nd Investor") for 3,333,333 shares of common stock at a purchase price of $0.75 per share in a private placement for total proceeds of $2,500,000 (the "$2.5 million Private Placement") before payment of a 9% commission and other expenses. As part of this sale, the Company also issued warrants to purchase 1,666,667 shares of common stock at an exercise price of $0.825 per share during the period of six months to forty-two months subsequent to issuance. The warrants expire forty-two months after the date of issuance.
Subsequent to entering into these agreements, the Company entered into an identical amendment to each agreement which (i) modified the amount of liquidated damages to a maximum of 8% of the purchase price and (ii) added that shareholder approval will be obtained prior to the Company issuing the shares of common stock issuable upon exercise of the warrants. There were no other changes to either agreement. Both transactions closed and the warrants were issued on April 27, 2006.
$1.0 Million Private Placement
On November 9, 2006, the Company issued 1,371,742 shares of the Company's common stock at a purchase price of $0.729 per share in a private placement for total proceeds of $1,000,000. The transaction closed and the funds were received on November 22, 2006.
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As part of the sale, the Company issued warrants to purchase 685,871 shares of common stock at an exercise price of $0.972 per share during the period of six months to sixty-six months subsequent to issuance. The warrants expire sixty-six months after the date of issuance.
Warrants
On February 3, 2006, the Company offered existing warrant holders from the $2.0 million and $3.0 million Private Placements and the $2.3 million Private Placement an opportunity to exercise their warrants at the reduced price of $0.35 per share. On February 27, 2006, the Warrant Offering expired and the Company received proceeds of $592,692 (after expenses) for the exercise of warrants to purchase 1,864,035 shares of common stock. Between May 31 to June 12, 2006, several other existing warrant holders elected to exercise their warrants at the contract price identified in their warrant documentation. Proceeds for these exercises were $865,452 (after expenses) for the purchase of 1,287,857 shares of common stock.
On April 27, 2007, the Company offered existing warrant holders an opportunity to exercise their warrants at the reduced price of $0.50 per share. If all eligible warrant holders had exercised their warrants at the reduced price, the Company would have received proceeds of approximately $4.3 million. The warrant offer was originally set to expire on May 25, 2007, however on May 9, 2007, the Company extended this reduced price offer until June 8, 2007. As of May 15, 2007, the Company amended the offer to grant the warrant holders who tender their warrants additional shares of Common Stock if the Company enters into any agreement for the sale of shares of Common Stock at less than $0.50 per share to June 8, 2008. The offer expired on June 8, 2007, without any of the warrant holders exercising at the reduced price.
$10.0 Million Private Placement
On February 16, 2007, the Company entered into a common stock purchase agreement (the "Purchase Agreement") with Fusion Capital Fund II, LLC, an Illinois limited liability company ("Fusion Capital"). Pursuant to the Purchase Agreement, at the Company's discretion, the Company may sell up to $10.0 million of the Company's common stock to Fusion Capital from time to time over a 25-month period. The Company has reserved for issuance up to 12,000,000 shares of the Company's common stock for sale to Fusion Capital under this agreement. Subject to earlier termination at the Company's discretion, Fusion Capital's purchases commenced after June 8, 2007 when the SEC declared effective the registration statement related to the transaction. The Company has issued to Fusion Capital 805,987 shares of the Company's common stock as a commitment fee for entering into the Purchase Agreement.
Concurrently with entering into the Purchase Agreement, the Company entered into a registration rights agreement with Fusion Capital (the "Registration Rights Agreement"). Pursuant to the Registration Rights Agreement, the Company agreed to file a registration statement with the SEC covering the shares that have been issued or may be issued to Fusion Capital under the Purchase Agreement. After the SEC has declared effective the registration statement, generally the Company has the right but not the obligation from time to time to sell shares of the Company's common stock to Fusion Capital in amounts between $100,000 and $1 million depending on certain conditions. The Company has the right to control the timing and amount of any sales of the Company's shares to Fusion Capital. The purchase price of the shares will be determined based upon the market price of the shares of common stock without any fixed discount. Fusion Capital shall not have the right or the obligation to purchase any shares of the Company's common stock on any business day that the price of the Company's common stock is below either $0.50 or $0.60, depending on the transaction size of the purchase. The agreement may be terminated by the Company at any time at its discretion without any cost to the Company.
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During the year ended December 31, 2007, the Company executed five separate transactions under this agreement, selling a total of 970,994 shares of common stock at an average price of $0.515 per share for total proceeds of $500,000.
$2.52 Million Private Placement
Between June 26, 2007 and July 16, 2007, the Company entered into Agreements with five European institutional and private investors for the sale of 6,123,346 shares of the Company's common stock at a purchase price of approximately $0.41 per share in a private placement, for total proceeds of $2,517,710 before commissions. As a condition to the enforceability of these agreements against the Company, the investors were required to fund the purchase price in an escrow account, which funds were received between June 19, 2007 and July 31, 2007. The Company closed this transaction on July 20, 2007 and August 20, 2007.
As part of the sale, the Company issued warrants to purchase 1,530,827 shares of common stock at an exercise price of $0.62 per share during the period of six months to sixty-six months subsequent to issuance. The warrants expire sixty-six months after the date of issuance.
Stock Repurchase
On July 17, 2007, the Company repurchased 100,000 shares of its common stock for treasury for an aggregate purchase price of $40,100. The purchase price was $0.401 per share, which was the daily volume weighted average for the five trading days prior to the day the Company's board of directors approved the repurchase.
Energenics Transactions
On October 17, 2007, the Company entered into a private financing agreement and a joint venture transaction with Energenics Holdings Pte Ltd ("Energenics Holdings") to provide funding and commercial support to develop the Asian market for O2Diesel TM , the Company's ethanol diesel fuel blend.
The parties entered into a Common Stock and Warrant Purchase Agreement (the "Energenics Agreement"), as amended on December 10, 2007 (the "Amendment"), pursuant to which Energenics Holdings agreed to purchase 3,333,333 shares of the Company's common stock in a private placement, for total proceeds of approximately $1.25 million. The effective per share price of $0.375 represents 121% of the market price on the AMEX on the day prior to the signing of the Amendment. As part of the transaction, the Company agreed to issue a warrant to purchase 1,666,667 shares of common stock at an exercise price of $0.375 per share, which warrant will be issued upon the closing of the transactions contemplated by the Energenics Agreement and shall be exercisable from the date that is six months following the date of issuance until October 17, 2012 ("Investment Warrant").
The parties also entered into a Shareholders Agreement in which Energenics Holdings and the Company will jointly develop the market for O2Diesel TM in Asia through O2Diesel Asia Limited ("O2Diesel Asia"). Energenics agreed to pay the Company $750,000 for a fifty percent (50%) equity interest in O2Diesel Asia. The balance of the interest in O2Diesel Asia will be held by O2Diesel Europe Limited, a wholly-owned subsidiary of the Company. For the past year, pursuant to the Supply and Distribution Agreement, dated September 15, 2006, O2Diesel has supplied its additive to Energenics for the blending and distribution of O2Diesel TM in the Asian Pacific and South Asia.
The parties entered into a License agreement whereby O2Diesel Europe Limited (formerly AAE Technologies International Plc) will license to O2Diesel Asia certain patents and know-how that are required to make and sell O2Diesel TM in the territory in exchange for certain payments pursuant to the Shareholders Agreement. In addition, the Company entered into a similar License agreement with O2Diesel Asia, pursuant to which the Company will pay to O2Diesel Asia a royalty based on sales of the Company's product in the territory.
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As part of the transaction, upon the purchase of certain quantities of O2D05 or the equivalent, the Company will also issue a warrant to purchase 1,500,000 shares of common stock at an exercise price of $0.375 per share, which warrant shall be exercisable during the period from the date of issuance until October 17, 2012 ("JV Warrant").
Also, as part of the transaction, upon the achievement by Energenics Holdings of certain levels of additional purchases of O2D05 or the equivalent, the Company will issue additional warrants to purchase up to an aggregate of 6,500,000 shares of common stock at a price per share equal to the lesser of $0.375 or 121% of the closing price per share (rounded to the nearest cent) of the Company's common stock on the AMEX on the date such warrants are earned ("Market Development Warrants," and, collectively with the Investment Warrant and the JV Warrant, the "Warrants"). The Market Development Warrants are exercisable from the date of issuance to October 17, 2012.
Due to market conditions in the global credit markets, Energenics Holdings has been able to fund only a portion of this transaction. The Company has received $1,250,000 in two deposits on November 14, 2007 and December 21, 2007 and Energenics Holdings has committed to remit the remaining $750,000 to fulfill the Shareholders Agreement. The Company anticipates closing the transaction early in the second quarter of 2008.
Item 6. Management's Discussion and Analysis or Plan Of Operation
Business Plan:
The Company is classified as a development stage company as shown on our consolidated financial statements for the year ended December 31, 2007. In 2007, we have not experienced sales of our O2D05 additive and O2Diesel TM in sufficient volumes to cause our status as a development stage company to terminate. We anticipate that a change in our status as a development stage company will not occur until 2009 at the earliest. During 2008, we intend to devote our efforts to generating sales to our targeted customers in the U.S., Asia, and South America; and continuing to improve our logistics network for the delivery of our products. In addition, we plan to continue a series of product tests and demonstrations that relate directly to our sales efforts, including having O2Diesel TM designated as a Diesel Emissions Control Strategy (DECS) fuel in California, attaining an ASTM specification for our additives and O2Diesel TM ; obtaining EPA verification and registration for O2Diesel TM and several additional additives; obtaining approval for a DoD procurement specification for a blended fuel containing O2Diesel TM and biodiesel and expanding our presence in the European market through test and demonstration efforts as well as regulatory certification. Finally, the Company intends to expand its participation in the broader biofuels industry through acquisition, strategic partnerships or joint venture arrangements that will provide operating revenue streams to support our working capital needs as well as our equity requirements.
North America :
Our focus for North America continues to be to target key geographical areas and specific diesel markets based upon:
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In the U.S., O2Diesel's sales and marketing efforts will be focused on fleet and port sales in the state of California where DESC solutions have been mandated, general fleet customers (municipal or private transits, commercial vehicles or off-road applications) seeking higher usage of alternative fuels, and non-tactical vehicle fleet usage within the DoD. Until we have commercialized our technology in the US, no significant resources will be devoted to Canada.
We maintain a small internal sales force to advance our sales efforts. Since 2004, our sales force has identified a number of potential customers that fit the profile to use O2Diesel TM . These have been mainly centrally fueled fleets that were served by jobbers. In selling to these customers, we have overcome several challenges that were primarily centered on the logistics for delivering O2Diesel TM to the customer. O2Diesel has implemented several parallel strategies to attain our sales goals, and we are continuing to perfect these strategies in all of our global markets.
The first element of our strategy deals with the general distribution channel for O2Diesel TM fuel. Here, we have adopted two methodologies. First, we have signed distribution agreements with 16 jobbers, who in turn have centrally fueled fleets as their customers. We sell our additive directly to these jobbers and, if required, assist them in purchasing ethanol by either locating ethanol suppliers or purchasing and reselling ethanol to them. However, we will only purchase ethanol as an accommodation to a jobber, because we do not wish to tie-up our limited working capital to finance the purchase of ethanol. In some cases, we will obtain potential customers or test demonstrations directly and then take initial responsibility for the logistics required to deliver O2Diesel TM to the customer. To achieve this end, we continue to work with fuel distributors that have the ability to blend diesel fuel, ethanol and additives for delivery to a customer's central fueling location. Under either method, the jobbers blend our additive and ethanol with diesel fuel and then sell O2Diesel TM to their customers.
Whether we work with the jobber initially or after we have already identified our customer, the Company must assure the quality and reliability of the distribution of O2Diesel TM . To achieve this, our sales force and technical staff work jointly with both the jobber and the customers to assist in the transition from the use of regular diesel fuel to O2Diesel TM . A key part of working with each customer is to provide safety and training materials covering the use of our fuel. In addition, O2Diesel's technical staff works with each customer in the process of purchasing and installing flame arrestors and other devices for customer vehicles and storage facilities. In some cases, we are responsible for sourcing and installing these devices while, in other cases, our technical staff has only an oversight role. Finally, our technical staff will work with the customer to insure that its storage facilities are clean and are compatible for storing and dispensing O2Diesel TM .
Under our second distribution method, we will market directly to large centrally fueled fleets, government municipalities and others that operate centrally fueled fleets of diesel powered equipment and maintain their own blending and storage facilities. These target customers may initially include truck, bus and school bus fleets, construction and mining companies as well as port facilities, and, later on, railroads, agricultural users, and the military. In this regard, the Company experienced expanded commercial success in 2007 with its activities at the Port of Long Beach and is currently pursuing additional opportunities in this market segment. Our efforts in the on-road truck, bus and school fleet markets will require successful EPA registration for O2Diesel TM .
Additionally, the Company announced that the U.S. Air Force had approved the expansion of its successful test demonstration with a USAF base in Nevada and has increased this to include two additional bases in North Dakota and Louisiana. Upon the successful conclusion of these two demonstrations, the Company expects to complete the development of a formal purchasing specification for O2Diesel TM that will allow for full scale commercial supply of its product to non-tactical equipment throughout all DoD installations.
Under this distribution method, we will supply our additive and may purchase the ethanol for delivery to the fleet operator, although our clear preference is to not finance the purchase of ethanol
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for our customers. In the process of transitioning a customer's fleet to O2Diesel TM , we need to put in place the same logistical support to insure that fuel is delivered on a timely basis. With these large fleet customers, our technical staff works closely with each in all facets necessary to prepare the vehicles or other equipment to use O2Diesel TM . This includes a review of the customer's fueling facilities for cleanliness and compatibility to O2Diesel TM , arranging for the cleaning of tanks and filtering systems as necessary, as well as either purchasing and installing flame arrestors and other devices or assisting the customer to do so.
Through both distribution methods, we have continued to establish and improve the logistics network required for the delivery of O2Diesel TM to fleet and demonstration customers alike. These efforts have centered on developing strategic relationships with ethanol producers and distributors in order to improve both quality consistency and price stability. At the end of 2007, the Company continued to maintain a negotiated supply agreement with an ethanol industry group to obtain a supply of limited amounts of ethanol at preferential pricing for our Midwestern customers.
In another logistical initiative, the Company had previously entered into an agreement to acquire an 80% ownership share in ProEco, which was planning to build a 56 million gallon Ethanol Plant in South Dakota. As described earlier, this project has been deferred due to the current unfavorable market conditions for raising capital for ethanol plant construction. In 2008, the Company plans to continue its efforts to acquire ethanol production capacity in order to obtain a reliable source of high quality, competitively priced ethanol for the Company to use in developing its commercial markets.
A final element of our marketing strategy has been to implement fleet demonstrations that document the effectiveness of our product. Many of these demonstrations have been funded under government grants and appropriations, however others have been supported directly by the Company. In 2004, we developed a sales and marketing concept styled as CityHome TM , which we have used successfully as an important component of our test/demonstration strategy. This program stressed the environmental benefits of our fuel and was designed to improve the air quality in urban locations. In short, CityHome TM provided a means for municipal transit agencies to convert their fleets to O2Diesel TM without having to pay the higher costs of our fuel.
Through an innovative cost sharing concept with companies that wish to be good corporate citizens (sponsors), we designed a program which permitted the municipalities to purchase our fuel at costs which are the same as what they pay for regular diesel fuel. Corporate sponsors, generally with a national or international presence, have paid sponsorship fees to O2Diesel to take part in a clean air program for one or more of the communities participating in a CityHome TM program. In return for sponsorship payments, each sponsor has been given access to currently unused advertising space on buses and other advertising assets owned by the municipality. Sponsorship fees become additional revenue for us and are recognized as such when the related advertising is displayed and all other criteria for revenue recognition have been met. Costs that are intended to be supported by the sponsorship fees are recorded separately in the related expense line in our statement of operations. With regard to the advertising space, since the CityHome TM program is still limited in the number of installations and since we have been unable to assess the fair market value of the advertising space received, we have assigned no value to the space at the time of the receipt. We are recognizing the value associated with the advertising space when we enter into a contractual arrangement with a third party. The Company will consider assigning a fair value to the advertising space received at the time of the initial sale when such fair value is more readily determinable, based upon a history of cash transactions.
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To date, we have used this initiative as an important component of our test/demonstration strategy and have been successful in attracting fuel distributors to work with us to get this initiative started. However, while we have received sponsorship funding for several CityHome TM programs, fleet demonstrations executed under this program have required significant financial support from the Company. As a result, we have decided to limit new CityHome TM programs to instances where we are assured of a level of sponsorship funding needed to cover all expenses of the demonstration. In 2006, we had four municipal fleets in smaller cities in the Midwest use O2Diesel TM in CityHome TM installations. At the end of 2007, we had successfully concluded three of these programs as well as an initiative in the Midwest with a company that operates both school bus and tour bus fleets. The Company currently is continuing its longest running CityHome TM program in Lincoln, Nebraska as well as a small school bus fleet in Chicago.
Europe
In Europe, the Company continued its efforts to define the EU regulatory requirements and to identify market opportunities for testing and potential commercialization. Our efforts in this region focused on developing fuel blending capability, identifying flame arrestor and other hardware requirements for fleet fueling, working with local and EU regulators to clarify the application of existing regulations to ethanol-diesel as an alternative fuel, establishing procedures to be used to manage fleet conversions to our fuel and discussing test demonstration opportunities. The Company has implemented demonstration programs with municipal bus fleets in France and Spain. These demonstrations are funded by government grants and the Company. Upon successful conclusion of these demonstrations, it is anticipated that the Company will have fulfilled the requirements to be able to market O2Diesel TM in these countries on a commercial basis. We have identified several additional fleet demonstration opportunities in Spain, the Netherlands and Belgium. We expect these or other potential customers to develop into new demonstration programs in 2008.
Asia
In Asia, we negotiated an exclusive distribution agreement in 2006 with an Asian supplier of alternative fuels and its wholly owned subsidiary to provide funding and commercial support to develop a market in certain countries in South Asia and Asia Pacific for the Company's products. In 2007, this company announced that it had concluded a successful trial demonstration of the fuel and is supplying portions of a large municipal fleet in Karnataka, India.
South America
In Brazil, O2Diesel is targeting customers on a very focused basis. In general, these will be miller fleets (sugar and ethanol producers), municipal bus and other fleets, and to a lesser extent centrally fueled truck fleets. Up until 2006, we had established a small sales force and technical staff in Brazil. The roll out of our product has been much slower than planned. Obtaining government approvals and gaining market awareness has taken longer than we anticipated. In addition, the cost of ethanol in Brazil has historically fluctuated throughout the year, making it difficult to produce our blended fuel at a consistently cost competitive level. In response to these matters, we have made a decision to follow a less aggressive marketing strategy for Brazil. We have reduced our overhead and scaled back our marketing plans and staff until we have a solid base of customers in Brazil. During 2006-2007, we successfully completed our demonstrations in four test fleets, and continued our support of a municipal bus fleet in Curitiba.
Brazil's fuel distribution system is more concentrated than in the U.S. As a consequence, O2Diesel must join with one or more large fuel distributors that can blend and deliver O2Diesel TM to customers in Brazil. O2Diesel has decided to cooperate on a non-exclusive basis with Brazil's largest fuel distributor, BR, the distribution arm of the state-owned mineral oil company Petrobrás. Failure to
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attract additional distribution partners to cover other parts of Brazil will likely set back our timetable for achieving market penetration in that country.
At the beginning of 2008, the Company has succeeded in verifying its technology in several demonstration fleets and has seen a reduction in the market price of ethanol. However, just as in the U.S., we have found that commercial success in Brazil will depend on reliable, cost competitive supplies of ethanol. It is the Company's intention to identify strategic partners in the ethanol industry in Brazil in order to negotiate such supply contracts.
In April, 2007, the Company announced the appointment of Fair Energy, S.A. as our distributor for several new markets in Central and South America. Demonstration programs in Columbia, Paraguay and Bolivia are targeted by the Company over the next several quarters. The first of these demonstrations was initiated in the fourth quarter of 2007 in Asunción, Paraguay's capital.
Cash Requirements and Risk Factors:
Cash Requirements
Based on current projected levels of operations and expenditures, we will need to raise additional funds over the next twelve months. At December 31, 2007, we do not have any bank trade facilities. However, if the Company achieves significant sales, we plan to apply for trading lines with banks in the U.S., Europe or Brazil as a means to finance our working capital needs.
Given our projected level of expenses and the cash on hand as shown on our consolidated audited balance sheet at December 31, 2007, it is clear that we lack adequate cash to conduct our business according to our business plan. Throughout 2007, the Company received nearly $4.3 million (before expenses) from various private placements. In addition, we still have the opportunity to raise additional funds in 2008 from our $10.0 million agreement with Fusion Capital in 2007, assuming we meet certain conditions. Even with the capital raised in 2007, it will be necessary to raise substantial additional funds in 2008 to allow us to execute our business plan and to be in compliance with the AMEX's listing standards.
There can be no assurance that we will be successful in our efforts to raise additional funds. Nor can there be any assurance that the Company will generate sales and collect cash to offset our operating expenses. As shown in the consolidated audited statements of operations contained in this report, we have generated only $358,464 in total revenues for calendar year 2007. As of the date of this report, we have only minimal orders on hand for either our additives or O2Diesel TM . Lastly, there can be no assurance that actual events will not differ from those anticipated, or that general economic conditions may not vary significantly in ways that could negatively impact our operations and cash position.
Risk Factors
Technical and Logistical Issues and the Availability of Ethanol
Significant technical and logistical issues have affected our ability to generate sales in 2005, 2006 and 2007. While we have either solved or made substantial progress with these challenges over these three years, they have impeded our efforts to commercialize O2Diesel TM fuel. In general, these challenges fall into the following categories: (1) logistics of delivering, storing and dispensing O2Diesel TM fuel, (2) sourcing and installation of flame arrestors and other devices in vehicles and storage facilities, (3) negotiating reliable, price-competitive supplies of fuel grade ethanol, and (4) obtaining regulatory approval and an industry accepted specification for our "e-diesel" (ethanol-diesel) fuel. O2Diesel has devised several strategies to meet these challenges and has undertaken a variety of activities to overcome them and to position O2Diesel TM as a premium clean-burning fuel.
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In order to ensure fuel quality, we have developed a quality control function that constantly tests the ethanol, the diesel blended with our additive and the final blended fuel used by our customers. We have established our own laboratory facility to support and enhance our quality control standards, as well as to carry out the tests that are necessary to prepare a fleet for
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conversion to use O2Diesel TM . Additionally, the Company has installed several testing devices in the field so that samples can be evaluated more efficiently than with a centralized laboratory alone.
The Company has taken several steps since 2005 to overcome these problems and to support the introduction of O2Diesel TM fuel to new customer opportunities. First, we have assembled documentation regarding the design requirements of flame arrestors and equipment used in our markets to serve as a basis for a catalogue of flame arrestors and parts that can be used for a wide variety of engine/vehicle types and customer applications. We have identified several equipment vendors who we now work with so that needed equipment can be delivered to customer locations quickly and at competitive prices. To support these efforts further, we have developed a modest parts inventory at our laboratory facility so that in the event of an emergency, required parts can be supplied to our customers. Second, we have developed a checklist of procedures to be used by our technicians (in conjunction with our customer) to prepare a comprehensive fleet profile of hardware requirements, tank cleaning procedures and the time required to perform the work necessary to bring a fleet on-line. In addition, we have developed a training program that will enable our technicians to teach our customer's fleet maintenance staff about handling and storing O2Diesel TM fuel, fleet modification and maintenance issues that can be expected. Third, to support our implementation efforts, we commissioned a third party engineering consulting firm to review our written safety training procedures as well as to conduct on-site reviews of four of our customer locations in order to evaluate the adequacy of the training and the quality of safety procedure implementation. The ensuing report from the consultant indicated that our safety program requirements were well conceived and were being followed quite closely at all locations. Additional safety procedures to enhance this program continue to be evaluated.
All of these issues have led to greater lead times than expected to convert fleets from using regular diesel to O2Diesel TM . In fact, we have seen that the time it takes to do the conversion work can be the most important factor in bringing on more customers to use our fuel. Other factors, such as the availability of the customer's vehicles for conversion, the degree of participation provided by the customer's maintenance employees and the flexibility provided to O2Diesel employees in assisting the implementation process (due to union, insurance or safety reasons) can all add to the length of time to accomplish these conversion tasks. The Company anticipates that the work completed since 2005 will allow us to bring all of these factors into the implementation planning process so that we can avoid the costs and delays we experienced in the past.
Another challenge to our commercialization strategy in 2007 has been the price and availability of ethanol. The Company has seen that even with a reliable supplier, the price of this commodity can be volatile as a result of a number of factors, such as the overall supply and demand, the level of government supports and the availability and the price of competing products. For example, starting in the second quarter of 2006, many petroleum refiners began replacing methyl tertiary butyl ether (MTBE) in gasoline with ethanol. This replacement has caused the demand for ethanol to increase dramatically, with a corresponding increase in its price. Similarly, the demand for corn has increased significantly, since this commodity is the primary ingredient in the production of ethanol. In addition, since most ethanol is transported by rail, freight costs continue to play a larger role in its price, particularly when the end users are geographically distant from the production facilities. While
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production quantities of ethanol have continued to increase, the rise in its production and distribution costs have made the cost of O2Diesel TM increase in relation to convention diesel fuel throughout 2007. It is the Company's strategy going forward to help control the costs of ethanol by continuing our contract with the ethanol industry group at preferred prices and continuing our efforts to acquire production capacity from projects like the ProEco acquisition.
These challenges have presented significant hurdles to commercializing our technology. In many cases, we have overcome these obstacles by the application of technical resources, payments to support our customers and a high level of customer service. All of this has been time-consuming and has slowed our ability to bring our product to market. But it has also created a base of knowledge which is helpful as we continue our efforts to commercialize our technology in the U.S., Europe, and other markets. We have been encouraged to see a port facility and a municipal bus fleet that have been successfully utilizing the fuel for approximately three years. Even with this technical knowledge, we will need to continue to refine our efforts in this area as well as attain the appropriate regulatory certification in order to bring on greater numbers of customers and to better predict the cost and timing of work required to have fleets conform to the requirements of using our product.
Listing on AMEX
The Company has been actively involved in raising equity to fund its working capital requirements and to fulfill the listing standards of the AMEX. In December 2004, the Company was notified by AMEX that it had not met the required listing standards because of its continuing losses and the fact that our shareholders' equity had fallen below $2.0 million. In accordance with a plan submitted to the AMEX on February 15, 2005, and subsequently revised on April 5, 2006, the Company raised $1.45 million pursuant to the exercise of warrants and the closing of three private placements totaling $7.5 million. On July 17, 2006, the Company received a letter from the AMEX indicating that the Company had regained compliance with the listing requirements of the Exchange.
On June 29, 2007, the Company was notified by AMEX that it was not in compliance with the listing standards of the Exchange because of its continuing losses and the fact that our shareholders' equity had fallen below $6.0 million. In accordance with a plan submitted to the AMEX on July 27, 2007, the Company raised $0.5 million from a potential $10.0 million private placement, $2.52 million in a separate private placement and $1.25 million in a third private placement. In addition, the Company had intended to raise additional new equity in conjunction with its acquisition of ProEco. We anticipated that these actions would enable us to meet or exceed the equity requirements of the Exchange. On September 13, 2007, the AMEX approved this plan.
On January 8, 2008, the Company announced that due to the unfavorable market conditions for raising capital for ethanol plants, the Company and ProEco had entered into an agreement to extend the Share Exchange Agreement and the maturity date of the loan from the Company to ProEco until January 31, 2008. These agreements were subsequently extended again until February 29, 2008. On March 19, 2008, the Company and ProEco entered into a letter agreement terminating the Share Exchange Agreement and extending the maturity date of the loan from February 29, 2008 until November 30, 2008. The Company and ProEco have agreed to continue to develop the Ethanol Plant when conditions in the capital markets improve. On February 7, 2008, the Company received a notice from the AMEX that due to this deferral of the ProEco project, the Company was no longer demonstrating progress consistent with the July 27, 2007 plan and was commencing action to de-list the Company's common stock. The Company filed an appeal of the AMEX's action on February 12, 2008 and is waiting to present the Company's plan to remain on the Exchange at a hearing scheduled for April 15, 2008.
If the Company's common stock were to be de-listed by the AMEX, the Company believes its shares would continue to be traded as a bulletin board stock.
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Research & Development:
The Company has 82 patents granted or applications pending for nine different proprietary fuel and additive product inventions registered with the international WIPO (PCT) Registration System. Seven inventions currently have 40 patents granted, and 23 applications pending in 22 different countries in Europe, North America, South America and Asia. Two additional inventions currently have 19 patent applications pending and about to undergo examination in 16 different countries. In August 2008, one of these inventions could be the subject of further patent applications in several additional countries worldwide which are members of the Patent Cooperation Treaty. During this period, O2Diesel's intellectual property rights over its additive products are protected through its registration with the WIPO (PCT) Registration System and its pending national patent applications.
As part of our cooperation agreement with Cognis, we, along with Cognis, are the joint owners of all patents covering both the use and composition of O2D05. All legal costs associated with preparing, filing and administering the jointly owned patents are shared equally by the Company and Cognis. We also have a number of patents that have been issued that relate to the predecessor technology of O2D05. As a strategic measure, we continue to fund all costs necessary to maintain some of these patents. O2Diesel is the sole owner of these latter patents, which in general cover the use and composition of its prior generation technology.
We have registered a trademark in the U.S. and the European Union for a mark which includes the words and numbers O2Diesel TM as well as a figurative logo of the words. We also registered trademarks for "CityHome" (and design) in eight classes of goods and services, "TODAY'S CLEAN AIR SOLUTION TOMORROW'S BRIGHTER FUTURE" and "CITYHO2ME", each covering one class of goods and services.
During 2007, we incurred substantial costs in carrying out tests to demonstrate that the use of our product will enable customers to comply with environmental laws and regulations. More specifically, in 2007, we incurred expenses of approximately $1.4 million in the U.S. in connection with governmental sponsored projects and tests. Most of the costs incurred in these government test programs were reimbursed by appropriations from the U.S. Departments of Energy and Defense.
At the start of 2008, we have government test programs in progress with total remaining costs to complete of approximately $1.1 million. Under these programs a wide array of engine tests and product demonstrations are to be conducted to further prove the emissions benefits of O2Diesel TM and to show that the fuel performs well in specific applications.
Included in the foregoing programs is a product demonstration in Nevada to test O2Diesel TM in non-tactical military equipment. Other programs underway include completing the protocols to allow O2Diesel TM to be classified as a Diesel Emissions Control Strategy fuel by the California Air Resources Board. O2Diesel TM is conducting demonstrations with a number of school bus and transit agencies testing O2Diesel TM as well as O2Diesel TM blended with B20 in various weather conditions, engine types, and uses. Still other tests have included using O2Diesel TM in large mining equipment as well as seeking to obtain a military procurement specification for the fuel. In January 2006, we initiated a project to develop a fuel that would meet EPA's alternative fuel requirements for the military. Based on the government funding in place, we believe that approximately 80% of the costs to conduct these tests may be funded by appropriations from the U.S. Departments of Energy and Defense.
We will also continue to devote time and to invest in the design and development of flame arrestor technology. We have found that this is more labor intensive and time consuming rather than requiring large outlays of capital. Most of the design work has been performed by our own personnel and consultants with the actual fabrication work contracted out to specialized manufacturers. We expect this work to continue in 2008.
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In 2007, we did not conduct additional research and development projects in Brazil. However, we continued a fleet demonstration in Curitiba as a further effort to obtain approvals for O2Diesel TM from the agencies that are responsible for the country's petroleum industry and environmental laws.
These approvals are administered and granted by two Brazilian agenciesANP and IBAMA. ANP is the National Fuel Regulation Agency and IBAMA is the National Environment Protection Agency. Approvals are needed from both agencies before O2Diesel TM may be sold in Brazil. In 2004, we submitted applications to both agencies and received limited, but favorable approvals from each. ANP has classified O2Diesel TM as an alternative diesel fuel. In addition, IBAMA, approved O2Diesel TM for off road (e.g. in mining) and railroad applications. Also, in response to requests that we submitted to ANP, it granted approval for O2Diesel TM to be sold to specific customers and for specific regions in Brazil. In 2005, O2Diesel fuel received approvals from the environmental and health secretaries of the Cities of Rio de Janeiro, Curitiba and Maringá.
O2Diesel fuel has also become the first alternative fuel to be certified by the TECPAR's national certification program Transporte Limpo (Clean Transport). For 2007, we do not anticipate spending any funds on various product and vehicle tests in Brazil.
Employees:
At present, O2Diesel has fourteen full-time employees, thirteen of which are in the U.S., one is in Europe and no employees at ProEco. We have one part-time employee. During this past year, we have relied on consultants to assist in commercializing our technology and to help us in key technical areas. We expect to continue this practice in 2008. At present, we employ seven consultants in the U.S.; three in marketing and business development, one laboratory technician, one chemist; and two in regulatory affairs. The Company has entered into separate consulting contracts with two shareholders of its Brazilian subsidiary for the purpose of providing office rent and administrative services and in lieu of employment contracts with these two individuals. In Europe, we employ two consultants, one for general management and business development and one for regulatory affairs.
We will add new personnel in 2008 based on the pace of our commercialization. Under our business plan, we do not see the need to add employees in the U.S. or Brazil, but we do plan to add technical positions for our European market testing and development in 2008. We anticipate continuing to employ eleven consultants serving in most of the same capacities in 2008 as in 2007.
Item 7. Financial Statements
The Company's Consolidated Financial Statements are filed with and begin on Page F-1 of this Report.
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
There were no disagreements with accountants on accounting and financial disclosures during the fiscal year 2007 that were not previously disclosed.
Item 8A. Controls and Procedures
Disclosure adjustment to Internal Controls:
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. O2Diesel's Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2007. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and
31
reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluation the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2007, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING. During the most recent fiscal year, there have not been any changes in the Company's internal controls over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect internal controls over financial reporting.
Item 8B. Other Information
There were no disclosures of any information required to be filed on Form 8-K during the fourth quarter of 2007 that were not filed.
PART III
Item 9. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance With Section 16(a) of the Exchange Act
The following sets forth the names and ages, as of March 19, 2008, of the nominees for election to the Board of Directors, as well as the directors whose terms will continue, their respective positions and offices with the Company, the period during which each has served as a director of the Company and their principal occupations or employment during the past five years.
Name
|
Age
|
Position
|
||
---|---|---|---|---|
Hendrik Rethwilm | 43 | Director | ||
Karim Jobanputra | 44 | Director | ||
David L. Koontz | 65 | Director | ||
Alan R. Rae | 49 | Chief Executive Officer, President and Director | ||
E. Holt Williams | 65 | Director | ||
Arthur E. Meyer | 80 | Chairman, Board of Directors | ||
Jeffrey L. Cornish | 56 | Director | ||
Gerson Santos-Leon | 48 | Director | ||
David Shipman | 60 | Chief Financial Officer |
Hendrik Rethwilm has been a Director since July 15, 2003 and serves on the Governance and Compensation Committees. From 1993-1999, he worked with PricewaterhouseCoopers in its corporate finance department focusing on financial and organizational restructuring of medium-to-large sized companies. Subsequently, from 2000-2001, Mr. Rethwilm worked with a subsidiary of Ericsson, the Swedish mobile phone producer, as a financial executive advising on mobile eCommerce. During his tenure with Ericsson, Mr. Rethwilm also developed a venture capital arm within Ericsson Consulting to invest in companies developing applications for the mobile eCommerce sector. Currently, Mr. Rethwilm is self-employed and provides consulting services to various companies in the areas of corporate finance and business development. He previously served on the board of directors of Rapidtron, Inc., a
32
company that trades on the OTCBB under the symbol "RPDT", but resigned effective December 31, 2003.
Karim Jobanputra has been a Director since July 15, 2003. Mr. Jobanputra is an entrepreneur and owns companies that do business mostly in the Middle East and Europe. Mr. Jobanputra has experience in the areas of corporate finance and international business development, and also works as a self-employed consultant based in the United Kingdom. For the past five years he has provided consulting services to companies in the areas of corporate finance and business development in the Asian and Middle East markets, including Indonesia, Qatar, Saudi Arabia, India and China.
David L. Koontz has been Chief Financial Officer for WLG, Inc. since August, 2005. From July 15, 2003 to August 6, 2005 he was the Chief Financial Officer and Secretary of the Company and has been a Director of the Company since July 15, 2003. He joined the AAE Group in September 2002, serving first as the Chief Financial Officer and Secretary of O2Diesel, Inc. Prior to joining the Company, Mr. Koontz had worked primarily as an independent business consultant, mostly with businesses located in Asia, for the period January 2000 to September 2002. During 1999, Mr. Koontz acted as a consultant and chief financial officer for an apparel company in Boulder, Colorado. Mr. Koontz was a partner with Arthur Andersen & Co. until 1988 and holds a CPA certificate. Mr. Koontz currently serves on the Board of Directors and Audit Committee of RGGL, Inc.
Alan R. Rae has been the Chief Executive Officer and a Director of the Company since July 15, 2003, the Secretary since August 6, 2005 and President between July 15, 2003 to July 28, 2005 and since September 20, 2007. Mr. Rae joined the AAE Technologies group of companies in 1997, and has served as a Director and an executive of several companies within the group. In August 1999, he became a Director and President of AAE Technologies, Inc. (now O2Diesel Inc.), and in October 2000 became a Director and Chief Operating Officer of AAE Technologies International PLC and continues to hold these positions in both companies. Mr. Rae was a Director and the Chief Executive Officer of AAE Holdings plc (UK) from October 1998 until September 2001. He was the Chief Executive Officer and a Director of AAE Technologies Ltd. from October 1997 until September 2001. Mr. Rae currently serves on the Board of Directors and Compensation Committee of ReoStar Energy Corporation.
E. Holt Williams has been a Director since May 31, 2005 and is the Chairman of the Audit Committee and is a member of the Governance Committee. He has served as the Chairman, CEO and also as the CFO for Coastal Equipment Inc. for over 27 years. He headed both the domestic and foreign operations of the company, which were centered in the Gulf States of the US and in Asia. Prior to entering the private sector, Mr. Williams practiced as a certified public accountant with an international accounting firm. He has also been active in buying and selling real estate in Houston, Texas. Mr. Williams is a member of and has served in various capacities on a number of professional, charitable and civic groups such as U.S. Chamber of Commerce; Singapore American Chamber of Commerce; Houston Foreign Affairs Group; Georgetown University McDonough School of Business and various other civic, school and church related organizations. He holds a B.S. degree in Accounting and an M.B.A. In addition, he maintains professional certification as a CPA.
Arthur E. Meyer has been Chairman of the Board since May 31, 2005 and serves on the Compensation, Governance and Audit Committees. He has served as the Executive Vice President and Vice Chairman of Board of Mohawk Oil Company Canada Limited until its sale to Husky Oil Co. Ltd. Mr. Meyer has a long history of experience in crude oil refining, product development, distribution and marketing. He has a wide background in all facets of the petroleum industry in Canada, including building the first ethanol plant in Canada as well as managing the blending and marketing of Gasohol in Canada. Mr. Meyer has been member of the Board of several oil companies in Canada, and has served on the Boards of a number of universities and other organizations, including the University of Calgary, Northern Alberta Institute of Technology, Consulting Engineers of Canada, National
33
Biotechnology Committee and the FBC Foundation of Calgary. Mr. Meyer holds a degree in Mechanical Engineering from the University of Saskatchewan.
Jeffrey L. Cornish has been a Director since May 31, 2005 and serves on the Audit and Compensation Committees. He currently serves as President of Performance Transportation Services (PTS). Prior to his service with PTS, Mr. Cornish was the Senior Vice President-Finance, Chief Financial Officer and Chief Information Officer for Pilot Travel Centers LLC for many years. He has rich and varied experiences in executing joint ventures, developing large financing vehicles to support large-scale growth of petroleum retailing businesses and restaurant franchisee operations. Mr. Cornish has held several other senior financial management positions, including senior level director and consulting positions for Coopers & Lybrand and Price Waterhouse. He has served on several municipal and Chamber of Commerce boards and holds a BA degree in Accounting and an MBA in Finance. He holds professional certifications as a CPA and a CMA.
Gerson Santos-Leon is serving as the R&D Corporate Director of the Abengoa Bioenergy Group. He is responsible for developing technologies for the conversion of renewable biomass resources to ethanol, related co-products and utilization technology. Prior to his service at Abengoa, Mr. Santos-Leon led the Biofuels Program at the U.S. Department of Energy Office. He has served on a number of management boards responsible for evaluating and developing energy programs and has over twenty years of experience in the energy sector developing nuclear and renewable technologies. Mr. Santos-Leon holds a Chemical Engineering degree.
David H. Shipman has been the Chief Financial Officer of the Company since October 1, 2005. Prior to joining the Company, Mr. Shipman was the Vice President/Chief Operating Officer at Kurz-Hastings, Inc. ("Kurz"). Prior to his position as Chief Operating Officer at Kurz, he served as the company's Chief Financial Officer and Controller for 18 years. Before his service with Kurz, he spent four years as a management consultant at Deloitte Haskins & Sells and three years as an officer in the United States Air Force. Mr. Shipman holds a professional certification as a CPA, and has an M.B.A., Finance from the Wharton School, a B.A., English from Trinity College and a M.S. Communications from Boston University.
Audit Committee
On May 27, 2004, the Board established and approved an Audit Committee. The Audit Committee has three members, Mr. E. Holt Williams (Chairman), Mr. Jeffrey L. Cornish and Mr. Arthur E. Meyer. The Board has determined that two directors who serve as members of the Audit Committee, Mr. Williams and Mr. Cornish, are "financial experts" as defined in SEC rules.
Code of Business Conduct and Ethics
On June 29, 2004, the Board adopted a Code of Business Conduct and Ethics ("Code of Conduct") that applies to all of the Company's employees. A copy of the Code of Conduct is available on our website http:/www.o2diesel.com. The Code of Conduct addresses the professional, honest and candid conduct of each director, officer and employee; conflicts of interest, disclosure process, compliance with laws, rules and regulations, (including insider trading laws); corporate opportunities, confidentiality, fair dealing, protection and proper use of Company assets; and encourages the reporting of any illegal or unethical behavior. We intend to post notice of any waiver from, or amendment to, any provision of our Code of Conduct on our web site.
34
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's executive officers, directors and persons who beneficially own more than 10% of a registered class of the Company's equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Such executive officers, directors, and greater than 10% beneficial owners are required by SEC regulation to furnish the Company with copies of all Section 16(a) reports filed by such reporting persons.
To our knowledge, based solely on our review of such forms furnished to the Company and written representations from certain reporting persons, except for one director, we believe that all filing requirements applicable to our executive officers, directors and greater than 10% beneficial owners were complied with during fiscal 2007. Director Arthur Meyer filed a Form 4 in connection with the purchase of shares one day late. This missed filing was inadvertent and the required filing has since been made.
Item 10. Executive Compensation
The following summary compensation table sets forth the aggregate compensation paid or accrued by the Company to the Named Executive Officers for the fiscal years ended December 31, 2006 and December 31, 2007.
SUMMARY COMPENSATION TABLE
Name & Principal Position
|
Year
|
Salary
($) (1) |
Bonus
($) (2) |
Stock
Awards ($) (3),(4) |
Option
Awards ($) (4) |
Non-Equity
Incentive Plan Compensation ($) |
Nonqualified Deferred Compensation
Earnings ($) (5) |
All Other Compensation
($) (7) |
Total
($) |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Alan Rae
Chief Executive Officer |
2007
2006 |
$
$ |
254,000
254,000 |
$
$ |
100,000
0 |
$
$ |
0
0 |
$
$ |
18,350
13,610 |
$
$ |
0
0 |
$
$ |
0
0 |
$
$ |
26,653
30,531 |
$
$ |
399,003
298,141 |
|||||||||
Richard Roger President & COO |
|
2007 2006 |
|
$ $ |
145,833 250,000 |
|
$ $ |
75,000 0 |
|
$ $ |
218,334 0 |
|
$ $ |
47,639 108,890 |
|
$ $ |
0 0 |
|
$ $ |
0 0 |
|
$ $ |
124,340 15,012 |
(6) |
$ $ |
611,146 373,902 |
David H. Shipman Chief Financial Officer |
|
2007 2006 |
|
$ $ |
210,000 177,500 |
|
$ $ |
0 0 |
|
$ $ |
0 0 |
|
$ $ |
20,825 46,550 |
|
$ $ |
0 0 |
|
$ $ |
0 0 |
|
$ $ |
20,513 17,967 |
|
$ $ |
251,338 242,017 |
On August 29, 2007, the Board of Directors established a bonus plan for Mr. Rae for the year ended December 31, 2007. Pursuant to the terms of this bonus plan, Mr. Rae could earn up to $150,000 based on the achievement of certain goals and key management objectives. In 2007, Mr. Rae was awarded $100,000 under this bonus plan.
35
and prior to 2006. Assumptions used in the calculation of these amounts are included in footnote 2 to the Company's audited financial statements for the fiscal year ended December 31, 2007.
Name
|
Year
|
Car Allowance
|
Health Insurance
Premiums |
Severance
Payments |
All Other
Compensation |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
A. Rae | 2007 | $ | 12,000 | $ | 14,653 | $ | 0 | $ | 26,653 | |||||
R. Roger | 2007 | $ | 7,000 | $ | 13,174 | $ | 104,166 | $ | 124,340 | |||||
D. Shipman | 2007 | $ | 12,000 | $ | 8,513 | $ | 0 | $ | 20,513 |
GRANTS OF PLAN BASED AWARDS FOR FISCAL YEAR 2007
|
|
Estimated Future Payouts Under Non-Equity Incentive Plan Awards
|
Estimated Future Payouts Under Equity Incentive Plan Awards
|
|
|
|
|
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name
|
Grant Date
|
Threshold
($) |
Target
($) (1) |
Maximum
($) |
Threshold
(#) |
Target
(#) |
Maximum
(#) |
All Other Stock Awards; Number of Shares of Stock or Units
(#) |
All Other Option Awards; Number of Securities Underlying Options
(#) (2) |
Exercise or Base Price of Option Awards
($/Sh) (2) |
Grant Date Fair Value of Stock and Option Awards
(2)
($) |
||||||||||||||
Alan Rae | 8/29/2007 | $ | 150,000 | ||||||||||||||||||||||
11/9/2007 | 250,000 | $ | 1.50 | $ | 18,250 |
There were no other stock based awards under the Stock Incentive Plan in 2007 to the Named Executive Officers.
36
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table sets forth the outstanding equity awards of the Named Executive Officers as of December 31, 2007.
|
Option Awards
|
Stock Awards
|
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name
|
No. of Securities
Underlying Unexercised Options (#) Exercisable |
No. of Securities
Underlying Unexercised Options (#) Unexercisable |
Equity
Incentive Plan Awards: No. of Securities Underlying Unexercised Unearned Options (#) |
Option Exercise Price ($)
|
Option Expiration Date
|
No. of Shares or Units of Stock That Have Not Vested (#)
(4)
|
Market Value of Shares or Units of Stock That Have Not Vested ($)
(5)
|
Equity Incentive Plan Awards: No. of Unearned Shares, Units or Other Rights That Have Not Vested (#)
|
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
|
|||||||||||
Alan Rae
Chief Executive Officer |
1,500,000 | (1) | $ | 1.50 | 7/14/2013 | |||||||||||||||
Richard Roger President & COO (3) |
|
|
|
|
|
|
|
|
|
|
|
|
166,666 |
(2) |
$ |
53,333 |
|
|
|
|
David H. Shipman Chief Financial Officer |
|
301,500 |
(4) |
148,500 |
|
|
|
$ |
1.50 |
|
10/1/2015 |
|
|
|
|
|
|
|
|
|
OPTION EXERCISES AND STOCK VESTED
There were no options exercised during the year ended December 31, 2007. A portion of the restricted stock awarded to Richard Roger in 2006 vested in 2007.
|
Option Awards
|
Stock Awards
|
|||||||
---|---|---|---|---|---|---|---|---|---|
Name
|
Number of
Shares Acquired on Exercise(#) |
Value
Realized on Exercise($) |
Number of
Shares Acquired on Vesting(#) (1) |
Value Realized on
Vesting($) (1) |
|||||
Richard Roger | | | 333,333 | $ | 220,834 |
37
PENSION BENEFITS AND NONQUALIFIED DEFERRED COMPENSATION
The Company maintains a voluntary 401(k) plan for its employees and did not make any contributions in 2007. The Company does not maintain any other qualified retirement plans or non-nonqualified deferred compensation plans for its employees or directors.
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company has the following Employment Agreements with its Named Executive Officers:
Alan Rae, Chief Executive Officer
In July 2003, the Company entered into an Employment Agreement with Alan R. Rae, to serve as our President and Chief Executive Officer. Pursuant to the Employment Agreement, Mr. Rae is entitled to an annual base salary of $254,000 per year and is eligible to receive an annual bonus, at the discretion of the Board, of 100% of his base salary. He is also entitled to reimbursement for health insurance premiums and a car allowance. Pursuant to the agreement, the Company granted Mr. Rae 1,500,000 stock options at an exercise price of $1.50 per share in 2005, which were granted pursuant to the Company's Stock Incentive Plan and were approved by the Board on September 29, 2005. On November 11, 2005, Mr. Rae relinquished his options to the Company to purchase 250,000 shares of common stock. The agreement continues in effect until terminated by either Mr. Rae or the Company by written notice or upon the death or disability of Mr. Rae. If the agreement is terminated by disability, Mr. Rae is entitled to receive his salary until he begins to receive disability benefits, to receive a prorated portion of any bonus he would otherwise have been entitled to receive and to be paid for any accrued but unused vacation. The agreement also provides that any inventions discovered by Mr. Rae during service to the Company shall be the property of the Company, and contains confidentiality, non-disparagement and non-competition provisions.
On November 9, 2007, the Board of Directors appointed Mr. Rae as the Company's President.
Richard Roger, Chief Operating Officer
On June 9, 2005, the Company entered into an Employment Agreement with Richard Roger to serve as our President and Chief Operating Officer. The terms of Mr. Roger's Employment Agreement are substantially similar to the terms of Mr. Rae's Employment Agreement, as described above, except that Mr. Roger is entitled to an annual base salary of $250,000 per year and 1,250,000 stock options, of which 1,000,000 shares were approved by the Board on September 29, 2005 and 250,000 shares were approved by the Board on November 11, 2005. The Board agreed if Mr. Roger leaves the Company before all of the additional 250,000 shares vest, the remaining unvested portion will be granted to the executive officer who relinquished these options. Effective July 2005, Mr. Roger was promised 500,000 shares of restricted stock at par value, vesting annually in equal amounts over three years commencing on January 1, 2007, with payment of the third award to be made on January 1, 2009.
On August 1, 2007, the Company entered into a Separation Agreement with Mr. Roger. Mr. Roger will receive severance payments and health benefits from the Company in accordance with his Employment Agreement. Mr. Roger's Separation Agreement includes continuing obligations relating to confidentiality, non-competition and non-solicitation. The Separation Agreement also provides for a release by Mr. Roger of any and all claims he may have against the Company. In addition, all of Mr. Roger's options vested as of the date of the Separation Agreement and in accordance with the Incentive Plan, Mr. Roger had thirty days to exercise these options, which expired unexercised. Finally, 166,666 of the remaining shares will vest on July 31, 2008. Mr. Roger agreed not to sell or transfer these shares until after that date.
38
David H. Shipman, Chief Financial Officer
Effective October 1, 2005, the Company entered into an Employment Agreement with David H. Shipman to serve as our Chief Financial Officer. The terms of Mr. Shipman's Employment Agreement are substantially similar to the terms of Mr. Rae's Employment Agreement, as described above, except that Mr. Shipman is entitled to an annual base salary of $177,500 per year and 450,000 stock options, which were approved by the Board on September 29, 2005. On March 26, 2007, the Company amended Mr. Shipman's employment agreement, increasing his salary to $210,000, effective as of January 1, 2007.
Compensation Upon a Change of Control
Each of these employment agreements provides for certain compensation in the event of termination without cause or a change in control. In either event, the Company will (i) continue to make monthly payments of base salary and health insurance premiums for 12 months (15 months for Mr. Rae), (ii) pay a pro-rated bonus to which the executive would have otherwise been eligible, (iii) cause any unvested options granted to the executive to vest immediately, (iv) pay the executive for any unused accrued vacation time, and (v) reimburse the executive for expenses that would otherwise be entitled. In the case of Mr. Rae, the Company will reimburse his expenses reasonably incurred in connection with his and his family's repatriation to the United Kingdom. In general, the employment agreement defines a change in control if more than fifty percent (50%) of the combined voting power of the continuing or surviving entity's securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization.
DIRECTOR COMPENSATION
The following table sets forth the aggregate compensation paid or accrued by the Company to the Directors for the fiscal year ended December 31, 2007.
Name
|
Fees Earned or Paid in Cash ($)
(2)(3)
|
Stock Awards
($) |
Option Awards ($)
(4)(5)
|
Non-Equity
Incentive Plan Compensation ($) |
Non Qualified
Deferred Compensation Earnings ($) |
All Other
Compensation ($) |
Total
($) |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Arthur E. Meyer
Chairman |
$ | 60,000 | $ | 14,199 | $ | 74,199 | |||||||||||
Hendrik Rethwilm |
|
$ |
30,000 |
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
30,000 |
Karim Jobanputra |
|
$ |
30,000 |
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
30,000 |
David L. Koontz |
|
$ |
30,000 |
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
30,000 |
E. Holt Williams |
|
$ |
35,000 |
|
|
|
$ |
7,100 |
|
|
|
|
|
|
|
$ |
42,100 |
Jeffrey L. Cornish |
|
$ |
33,000 |
|
|
|
$ |
7,100 |
|
|
|
|
|
|
|
$ |
40,100 |
Gerson Santos-Leon |
|
$ |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
Alan Rae (1) |
|
$ |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
39
directors must assign all director compensation to ABRD. Accordingly, Mr. Santos Leon's director's fees for 2007 in the amount of $30,000 were paid directly to ABRD.
Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Equity Composition Plan Information
The following table provides information as of December 31, 2007 related to the equity compensation plans in effect at that time:
Plan Category
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights
|
Weighted-
average exercise price of outstanding options, warrants and rights |
Number of securities remaining available for future issuances under equity compensation plans
|
||||
---|---|---|---|---|---|---|---|
Equity Compensation Plans approved by shareholders | 6,175,000 | $ | 1.45 | 3,575,000 | |||
Equity Compensation Plans not approved by shareholders | 0 | 0 | 0 | ||||
|
|
|
|||||
Totals | 6,175,000 | $ | 1.45 | 3,575,000 | |||
|
|
|
The following table sets forth certain information as of December 31, 2007, regarding the beneficial ownership of the Company's common stock by (i) those persons known to the Company to be the beneficial owners of more than 5% of the outstanding shares of Common Stock, (ii) each of the named executive officers, (iii) each director, or nominee for director, of the Company, and (iv) all current directors and executive officers as a group.
Beneficial ownership is determined in accordance with SEC rules computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person.
40
Except as indicated in the footnotes to this table, each stockholder named in the table below has sole voting and investment power for the shares shown as beneficially owned by them. Percentage of ownership is based on 87,298,674 shares of common stock outstanding on March 19, 2008. In computing the number of shares beneficially owned by a person and the percentage of ownership held by that person, shares of common stock subject to options held by that person that are currently exercisable or will become exercisable within 60 days after December 31, 2007 are deemed exercised and outstanding, while these shares are not deemed exercised and outstanding for computing percentage ownership of any other person.
Directors, Officers and 5% Shareholders
|
Shares Directly and Beneficially Owned
|
Percent
|
|||
---|---|---|---|---|---|
Abengoa Bioenergy R&D Inc.
c/o Crochet & Crochet Squaidelile, Geneva, Switzerland |
9,273,102 | 10.6 | % | ||
UBS AG 100 Liverpool Street London EC2m2RH |
|
8,000,000 |
|
9.2 |
% |
Standard Bank Plc 25 Dowgate Hill London EC4R 2SB |
|
5,000,000 |
|
5.7 |
% |
Alan Rae (a) 100 Commerce Drive, Suite 301 Newark, Delaware 19713 |
|
2,107,736 |
|
2.4 |
% |
Karim Jobanputra 100 Commerce Drive, Suite 301 Newark, Delaware 19713 |
|
774,000 |
|
* |
|
Hendrik Rethwilm 100 Commerce Drive, Suite 301 Newark, Delaware 19713 |
|
750,000 |
|
* |
|
Arthur Meyer 100 Commerce Drive, Suite 301 Newark, Delaware 19713 |
|
343,000 |
|
* |
|
David H. Shipman 100 Commerce Drive, Suite 301 Newark, Delaware 19713 |
|
306,500 |
|
* |
|
David Koontz 100 Commerce Drive, Suite 301 Newark, Delaware 19713 |
|
290,512 |
|
* |
|
E. Holt Williams 100 Commerce Drive, Suite 301 Newark, Delaware 19713 |
|
208,395 |
|
* |
|
Jeffrey Cornish 100 Commerce Drive, Suite 301 Newark, Delaware 19713 |
|
167,000 |
|
* |
|
41
Item 12. Certain Relationships and Related Transactions, and Director Independence
Review and Approval of Related Person Transactions.
The Company has operated under a Code of Conduct for many years. The Company's Code of Conduct requires all employees, officers and directors, without exception, to avoid engagement in activities or relationships that conflict, or would be perceived to conflict, with the Company's interests or adversely affect its reputation. It is understood, however, that certain relationships or transactions may arise that would be deemed acceptable and appropriate upon full disclosure of the transaction, following review and approval to ensure there is a legitimate business reason for the transaction and that the terms of the transaction are no less favorable to the Company than could be obtained from an unrelated person.
The Audit Committee is responsible for reviewing and approving, as appropriate, all transactions with related persons. The Company has not adopted written procedures for reviewing related person transactions. The Company reviews all relationships and transactions in which the company and our directors and executive officers or their immediate family members are participants to determine whether such persons have a direct or indirect material interest. As required under SEC rules, transactions, if any, that are determined to be directly or indirectly material to the company or a related person are disclosed.
Director Independence
In accordance with AMEX rules, the Board affirmatively determines the independence of each Director and nominee for election as a Director in accordance with AMEX's independence standards as set forth in Section 803A of the AMEX Company Guide. Based on these standards, at its meeting held on March 20, 2008, the Board determined that each of the following non-employee Directors is independent and has no relationship with the Company, except as a Director and stockholder of the Company: Mr. Meyer, Mr. Rethwilm, Mr. Williams, Mr. Cornish and Mr. Santos-Leon.
Item 13. Exhibits
(a) Exhibits
Exhibits included or incorporated by reference in this document are set forth in the Exhibit Index below.
3.1 (1) | Certificate of Amendment, amending the Certificate of Incorporation | |
3.2 (2) | Amended and Restated Bylaws | |
3.3 (3) | Certificate of Eliminating Reference to the Company's Series A Convertible Preferred stock and Series B Convertible Preferred Stock from the Certificate of Incorporation of O2Diesel Corporation, dated December 6, 2006 | |
4.1 (4) | Specimen Stock Certificate | |
10.1 (5) | Form of Employment Agreement between O2Diesel Corporation and Alan Rae* | |
10.2 (5) | Cooperation agreement between Cognis and AAE+ | |
10.3 (6) | Letter dated September 23, 2003 from the California Air Resources Board | |
10.4 (7) | Employment Agreement by and between O2Diesel Corporation and Richard Roger* | |
10.5 (8) | Employment Agreement by and between O2Diesel Corporation and David Shipman* | |
10.6 (9) | Common Stock and Warrant Purchase Agreement by and between O2Diesel Corporation and Abengoa Bioenergy R&D, Inc. | |
10.7 (9) | Commercial Agreement by and between O2Diesel Corporation and Abengoa Bioenergy R&D, Inc. | |
10.8 (9) | Form of Warrant for Abengoa Bioenergy R&D, Inc. | |
10.9 (10) | Form of Incentive Stock Option Agreement* |
42
10.10 (11) | Common Stock and Warrant Agreement, by and between O2Diesel Corporation and Energenics Holdings Pte Ltd+ | |
10.11 (11) | Supply and Distribution Agreement+ | |
10.12 (11) | Form of Warrant | |
10.13 (11) | Form of Additional Warrant | |
10.14 (11) | Amendment No. 1 to Common Stock and Warrant Purchase Agreement+ | |
10.15 (12) | Form of Restricted Stock Agreement* | |
10.16 (13) | Share Exchange Agreement, by and among O2Diesel Corporation, ProEnergy Company, Inc., and its shareholders | |
10.17 (14) | Common Stock Purchase Agreement, dated as of February 16, 2007, by and between O2Diesel Corporation and Fusion Capital Fund II, LLC | |
10.18 (14) | Registration Rights Agreement, dated as of February 16, 2007, by and between O2Diesel Corporation and Fusion Capital Fund II, LLC | |
10.19 (15) | O2Diesel Corporation 2004 Stock Incentive Plan, as amended.* | |
10.20 (13) | Amendment No. 1 to David Shipman's Employment Agreement* | |
10.21 (13) | Supply and Distribution Agreement, by and between O2Diesel Corporation and Fair Energy S.A.+ | |
10.22 (16) | Form of Common Stock and Warrant Purchase Agreement for $2.52 million Private Placement | |
10.23 (16) | Form of Warrant for $2.52 million Private Placement | |
10.24 (17) | Separation Agreement with Richard Roger* | |
10.25 (18) | Common Stock and Warrant Purchase Agreement, dated as of October 17, 2007, by and between O2Diesel Corporation and Energenics Holdings Pte Ltd+ | |
10.26 (18) | Licence Agreement, dated as of November 9, 2007, by and between O2Diesel Europe Limited and O2Diesel Asia Limited | |
10.27 (18) | Licence Agreement, dated as of November 9, 2007, by and between O2Diesel Corporation and O2Diesel Asia Limited+ | |
10.28 (18) | Shareholders Agreement, dated October 17, 2007, by and between O2Diesel Europe Limited, Energenics Holdings Pte Ltd. and O2Diesel Asia Limited+ | |
10.29 (18) | Form of Investment Warrant | |
10.30 (18) | Form of JV Warrant | |
10.31 (18) | Form of Market Development Warrant | |
10.32 (18) | Amendment No. 1 to Common Stock and Warrant Purchase Agreement, dated as of December 10, 2007, by and between O2Diesel Corporation and Energenics Holdings Pte Ltd | |
10.33 (18) | Form of Additional Warrant | |
10.34 (18) | Letter Agreement, effective as of January 2, 2008, by and between O2Diesel Corporation and ProEco Energy Company | |
10.35 (18) | Letter Agreement, effective as of February 2, 2008, by and between O2Diesel Corporation and ProEco Energy Company | |
21 (18) | Subsidiaries of O2Diesel Corporation | |
23.1 (18) | Consent of Mayer Hoffman McCann P.C. | |
31.1 (18) | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 (18) | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 (18) | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
43
44
Item 14. Principal Accountant Fees and Services
During our fiscal year ended December 31, 2005, Ernst & Young LLP served as the Company's auditors and during our fiscal years ended December 31, 2006 and 2007, Mayer Hoffman McCann P.C. served as the Company's auditors. Following are the fees billed by Mayer Hoffman McCann P.C. and Ernst & Young LLP for the fiscal years ended December 31, 2006 and 2007:
|
2007
|
2006
|
|||||
---|---|---|---|---|---|---|---|
Audit Fees
Mayer Hoffman McCann P.C. |
$ | 73,743 | $ | 173,445 | |||
Tax Fees Mayer Hoffman McCann P.C. |
|
|
30,744 |
|
|
28,356 |
|
Audit Related Fees Mayer Hoffman McCann P.C. |
|
|
73,594 |
|
|
28,067 |
|
Ernst & Young LLP | 37,700 | 33,346 | |||||
Total Fees | |||||||
Mayer Hoffman McCann P.C. | 178,081 | 229,868 | |||||
Ernst & Young LLP | 37,700 | 33,346 | |||||
|
|
||||||
$ | 215,781 | $ | 263,214 | ||||
|
|
Non-Audit Services
The Audit Committee has considered the compatibility of non-audit services with the auditor's independence. The Audit Committee pre-approves all audit and permissible non-audit services provided by our independent auditors.
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
O2DIESEL CORPORATION | |||
By: |
/s/ ALAN R. RAE Alan R. Rae Chief Executive Officer and Director March 31, 2008 |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.
|
TITLE
|
DATE
|
||
---|---|---|---|---|
|
|
|
|
|
/s/
ALAN R. RAE
Alan R. Rae |
Director and Chief Executive Officer (Principal Executive Officer) | March 31, 2008 | ||
/s/ DAVID H. SHIPMAN David H. Shipman |
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
|
March 31, 2008 |
/s/ ARTHUR MEYER Arthur Meyer |
|
Chairman |
|
March 31, 2008 |
/s/ DAVID L. KOONTZ David L. Koontz |
|
Director |
|
March 31, 2008 |
/s/ KARIM JOBANPUTRA Karim Jobanputra |
|
Director |
|
March 31, 2008 |
/s/ HENDRIK RETHWILM Hendrik Rethwilm |
|
Director |
|
March 31, 2008 |
/s/ E. HOLT WILLIAMS E. Holt Williams |
|
Director |
|
March 31, 2008 |
46
/s/ JEFFREY CORNISH Jeffery Cornish |
|
Director |
|
March 31, 2008 |
/s/ GERSON SANTOS-LEON Gerson Santos-Leon |
|
Director |
|
March 31, 2008 |
47
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
PAGE
|
|
---|---|---|
Report of Independent Registered Public Accounting Firm |
|
F-1 |
Consolidated Balance Sheet as of December 31, 2007 |
|
F-2 |
Consolidated Statements of Operations for the years ended December 31, 2007 and 2006 and the period from October 14, 2000 (inception) through December 31, 2007 |
|
F-3 |
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the years ended December 31, 2007 and 2006 and the period from October 14, 2000 (inception) through December 31, 2007 |
|
F-4 |
Consolidated Statements of Cash Flows for the years ended December 31, 2007 and 2006 and the period from October 14, 2000 (inception) through December 31, 2007 |
|
F-10 |
Notes to Consolidated Financial Statements |
|
F-11 |
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders
O2Diesel Corporation
We have audited the accompanying consolidated balance sheet of O2Diesel Corporation (a development stage company) as of December 31, 2007 and the related consolidated statements of operations, changes in stockholders' equity (deficit), and cash flows for the years ended December 31, 2007 and 2006 and for the period from October 14, 2000 (inception) through December 31, 2007. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of O2Diesel Corporation as of December 31, 2007, and the results of its operations and its cash flows for the years ended December 31, 2007 and 2006 and for the period from October 14, 2000 (inception) through December 31, 2007, in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company's accumulated losses and lack of available working capital raise substantial doubt about the Company's ability to continue as a going concern. Management's plans with regard to these matters are also described in Note 1. The 2007 financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Mayer Hoffman McCann P.C.
Plymouth
Meeting, Pennsylvania
March 28, 2008
F-1
O2DIESEL CORPORATION
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
December 31, 2007
|
|
|||||
---|---|---|---|---|---|---|
ASSETS | ||||||
CURRENT ASSETS | ||||||
Cash | $ | 581,645 | ||||
Restricted cash | 2,333,959 | |||||
Accounts receivable | 115,536 | |||||
Other receivables | 192,619 | |||||
Unbilled appropriations | 145,576 | |||||
Inventory | 174,447 | |||||
Prepaid expenses, parts and deposits | 209,428 | |||||
|
||||||
Total current assets | 3,753,210 | |||||
|
||||||
FIXED ASSETS |
|
|
|
|
||
Office furniture and equipment | 268,828 | |||||
Fuel and test equipment | 382,971 | |||||
|
||||||
651,799 | ||||||
Less accumulated depreciation | (283,742 | ) | ||||
|
||||||
Total fixed assets | 368,057 | |||||
|
||||||
TOTAL ASSETS | $ | 4,121,267 | ||||
|
||||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
||
CURRENT LIABILITIES | ||||||
Accounts payable | $ | 1,774,248 | ||||
Accrued expenses | 568,442 | |||||
Deferred grants | 475,980 | |||||
Deferred marketing program | 86,333 | |||||
|
||||||
Total current liabilities | 2,905,003 | |||||
|
||||||
TOTAL LIABILITIES | 2,905,003 | |||||
|
||||||
STOCKHOLDERS' EQUITY |
|
|
|
|
||
Preferred stock: par value of $0.0001; 20,000,000 shares authorized; none issued and outstanding | | |||||
Common stock: par value of $0.0001; 135,000,000 shares authorized; 86,666,837 issued and outstanding | 8,667 | |||||
Additional paid-in capital | 45,123,009 | |||||
Unearned compensation | (14,668 | ) | ||||
Accumulated other comprehensive income | 12,088 | |||||
Deficit accumulated during the development stage | (43,912,832 | ) | ||||
|
||||||
Total stockholders' equity | 1,216,264 | |||||
|
||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 4,121,267 | ||||
|
See Notes to Consolidated Financial Statements
F-2
O2DIESEL CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
|
Year Ended
December 31, 2007 |
Year Ended
December 31, 2006 |
October 14,
2000 (inception) through December 31, 2007 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenue: | ||||||||||||
Additive related sales | $ | 337,089 | $ | 167,063 | $ | 775,412 | ||||||
Sponsorship income | 21,375 | 83,871 | 169,248 | |||||||||
|
|
|
||||||||||
358,464 | 250,934 | 944,660 | ||||||||||
Expenses: | ||||||||||||
Cost of goods sold | 249,252 | 119,367 | 575,559 | |||||||||
ProEco operating expenses | 400,673 | | 400,673 | |||||||||
Selling and marketing | 1,419,111 | 1,217,731 | 9,265,965 | |||||||||
Product testing and government grants, net | 621,830 | (394,982 | ) | 1,599,613 | ||||||||
General and administrative | 7,538,400 | 7,416,679 | 33,087,430 | |||||||||
|
|
|
||||||||||
Total operating expense | 10,264,266 | 8,358,795 | 44,929,240 | |||||||||
Operating loss |
|
|
(9,870,802 |
) |
|
(8,107,861 |
) |
|
(43,984,580 |
) |
||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
||
Interest expense | (10,342 | ) | (8,223 | ) | (132,865 | ) | ||||||
Interest income | 39,232 | 126,543 | 234,598 | |||||||||
Foreign currency gain/(loss), net | 306,661 | 395,104 | 805,444 | |||||||||
Loss on impairment of construction in progress | (1,288,614 | ) | | (1,288,614 | ) | |||||||
Other (expense)/income, net | (2,527 | ) | (13,718 | ) | 307,543 | |||||||
|
|
|
||||||||||
Total other income (expense) | (955,590 | ) | 499,706 | (73,894 | ) | |||||||
|
|
|
||||||||||
Loss before provision (benefit) for income taxes | (10,826,392 | ) | (7,608,155 | ) | (44,058,474 | ) | ||||||
Benefit for income taxes | | | 145,642 | |||||||||
|
|
|
||||||||||
Net loss | (10,826,392 | ) | (7,608,155 | ) | (43,912,832 | ) | ||||||
Deemed dividend to preferred stockholders | | (5,581,133 | ) | (6,200,005 | ) | |||||||
|
|
|
||||||||||
Net loss allocable to common stockholders | $ | (10,826,392 | ) | $ | (13,189,288 | ) | $ | (50,112,837 | ) | |||
|
|
|
||||||||||
Net loss per common share (basic and diluted) |
|
$ |
(0.14 |
) |
$ |
(0.20 |
) |
$ |
(1.30 |
) |
||
|
|
|
||||||||||
Weighted average shares of common shares outstanding | 79,144,383 | 65,723,876 | 56,938,276 | |||||||||
Recapitalization resulting from the AAE Technologies International PLC acquisition | | | (18,270,114 | ) | ||||||||
|
|
|
||||||||||
Weighted average shares of common shares outstandinggiving effect to the recapitalization | 79,144,383 | 65,723,876 | 38,668,162 | |||||||||
|
|
|
See Notes to Consolidated Financial Statements
F-3
O2DIESEL CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
for the years ended December 31, 2007 and 2006 and the
Period from October 14, 2000 (inception) through December 31, 2007
|
Preferred Stock
|
Common Stock
|
|
|
|
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Unearned
Compensa- tion |
Common
Stock Subscribed |
Additional
Paid-In Capital |
|||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
||||||||||||||||
Balance at October 14, 2000
(Inception) |
||||||||||||||||||||
Common stock issued in exchange for interest in wholly owned subsidiaries | | $ | | 43,008,772 | $ | 430,088 | $ | | $ | | $ | 3,603,415 | ||||||||
Net loss | | | | | | | | |||||||||||||
Foreign currency translation adjustment | | | | | | | | |||||||||||||
Comprehensive loss | | | | | | | | |||||||||||||
Common stock issued on various dates during 2001 | | | 24,181,038 | 241,810 | | | 1,268,031 | |||||||||||||
|
|
|
|
|
|
|
||||||||||||||
Balance at December 31, 2001 | | | 67,189,810 | 671,898 | | | 4,871,446 | |||||||||||||
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment | | | | | | | | |||||||||||||
Comprehensive loss | | | | | | | | |||||||||||||
Common stock issued at $0.225 per share on various dates during 2002 | | | 703,282 | 7,033 | | | 515,657 | |||||||||||||
|
|
|
|
|
|
|
||||||||||||||
Balance at December 31, 2002 | | | 67,893,092 | 678,931 | | | 5,387,103 | |||||||||||||
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment | | | | | | | | |||||||||||||
Comprehensive loss | | | | | | | | |||||||||||||
Common stock issued on various dates during 2003 | | | 555,556 | 5,556 | | | 119,444 | |||||||||||||
Common stock issued for consulting services | | | 200,000 | 2,000 | | | 43,000 | |||||||||||||
Common stock issued for remaining interest in subsidiaries on July 15, 2003 | | | 4,356,200 | 43,562 | | | 46,323 | |||||||||||||
Common stock issued upon exercise of stock options on various dates during 2003 | | | 8,670,881 | 86,709 | | | 1,131,595 | |||||||||||||
Recapitalization resulting from AAE acquisition on July 15, 2003 | | | (56,928,690 | ) | (814,283 | ) | | | 814,283 | |||||||||||
Common stock issued at $1.50 per share on various dates during 2003 | | | 3,333,333 | 333 | | | 4,999,667 | |||||||||||||
Expenses related to 2003 issuance of common stock and recapitalization | | | | | | | (795,650 | ) | ||||||||||||
Subscriptions for 754,900 shares of common stock at $1.50 per share on various dates during 2003 | | | | | | 1,132,350 | | |||||||||||||
|
|
|
|
|
|
|
||||||||||||||
Balance at December 31, 2003 | | | 28,080,372 | 2,808 | | 1,132,350 | 11,745,765 |
See Notes to Consolidated Financial Statements
F-4
O2DIESEL CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
for the years ended December 31, 2007 and 2006 and the
Period from October 14, 2000 (inception) through December 31, 2007 (Continued)
|
Preferred Stock
|
Common Stock
|
|
|
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Unearned
Compensa- tion |
Common
Stock Subscribed |
Additional
Paid-In Capital |
||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||
Net loss | | | | | | | | ||||||||
Foreign currency translation adjustment | | | | | | | | ||||||||
Comprehensive loss | | | | | | | | ||||||||
Common stock issued at $1.50 per share on various dates in 2004 | | | 1,070,451 | 107 | | (1,132,350 | ) | 1,535,770 | |||||||
Preferred stock issued on various dates during 2004 | 1,550,000 | 155 | | | | | 5,478,609 | ||||||||
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2004 | 1,550,000 | 155 | 29,150,823 | 2,915 | | | 18,760,144 | ||||||||
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment | | | | | | | | ||||||||
Comprehensive loss | | | | | | | | ||||||||
Common stock issued for consulting services | | | 63,750 | 6 | | | 63,094 | ||||||||
Warrants issued for consulting services in 2005 | | | | | | | 135,000 | ||||||||
Common stock issued at $0.70 per share on various dates in 2005 | | | 7,515,981 | 752 | | | 4,832,439 | ||||||||
Common stock issued at $0.7125 per share on various dates in 2005 | | | 3,228,070 | 322 | | | 2,090,178 | ||||||||
Common stock issued at $0.564 per share on various dates in 2005 | | | 6,419,840 | 642 | | | 3,599,658 | ||||||||
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2005 | 1,550,000 | 155 | 46,378,464 | 4,637 | | | 29,480,513 | ||||||||
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment | | | | | | | | ||||||||
Comprehensive loss | | | | | | | | ||||||||
Common stock issued via exercise of warrants on various dates in 2006 | | | 3,151,892 | 315 | | | 1,457,829 | ||||||||
Common stock issued for consulting services in 2006 | | | 56,250 | 6 | | | 50,994 | ||||||||
Conversion of preferred stock into common stock on various dates in 2006 | (1,550,000 | ) | (155 | ) | 15,500,000 | 1,550 | | | (1,395 | ) | |||||
Common stock issued at $0.75 per share in 2006 | | | 8,666,666 | 867 | | | 6,256,282 | ||||||||
Common stock issued at $0.729 per share in 2006 | | | 1,371,742 | 138 | | | 979,367 | ||||||||
Fair value of unvested stock options upon adoption of SFAS 123(R) | | | | | (376,031 | ) | | 376,031 | |||||||
Amortization of unearned compensation | | | | | 250,890 | | | ||||||||
Fair value of stock options issued in 2006 | | | | | | | 1,476,684 | ||||||||
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2006 | | | 75,125,014 | 7,513 | (125,141 | ) | | 40,076,305 |
See Notes to Consolidated Financial Statements
F-5
O2DIESEL CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
for the years ended December 31, 2007 and 2006 and the
Period from October 14, 2000 (inception) through December 31, 2007 (Continued)
|
Preferred Stock
|
Common Stock
|
|
|
|
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Unearned
Compensa- tion |
Common
Stock Subscribed |
Additional
Paid-In Capital |
|||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
||||||||||||||||
Net loss | | | | | | | | |||||||||||||
Foreign currency translation adjustment | | | | | | | | |||||||||||||
Comprehensive loss | | | | | | | | |||||||||||||
Common stock issued to employee | | | 333,333 | 33 | | | 273,266 | |||||||||||||
Fair value of unearned shares related to commitment shares | | | 805,987 | 80 | | | 668,889 | |||||||||||||
Unearned common stock issued for commitment shares | | | (465,170 | ) | (47 | ) | | | (386,044 | ) | ||||||||||
Fusion shares issued at various prices in 2007 | | | 970,994 | 97 | | | 499,903 | |||||||||||||
Common stock issued for consulting services | | | 540,000 | 54 | | | 263,446 | |||||||||||||
Common stock issued at $0.405 per share in 2007 | | | 2,993,346 | 299 | | | 1,109,944 | |||||||||||||
Repurchase of shares | | | | | | | | |||||||||||||
Retirement of repurchased shares | | | (100,000 | ) | (10 | ) | | | (40,090 | ) | ||||||||||
Common stock issued at $0.417 per share in 2007 | | | 3,130,000 | 313 | | | 1,194,821 | |||||||||||||
Common stock issued at $0.375 per share in 2007 | | | 3,333,333 | 334 | | | 1,249,666 | |||||||||||||
Amortization of unearned compensation | | | | | 110,473 | | (24,727 | ) | ||||||||||||
Fair value of stock options issued in 2006 and 2007 | | | | | | | 237,631 | |||||||||||||
|
|
|
|
|
|
|
||||||||||||||
Balance at December 31, 2007 | | $ | | 86,666,837 | $ | 8,667 | $ | (14,668 | ) | $ | $ | 45,123,009 | ||||||||
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-6
O2DIESEL CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
for the years ended December 31, 2007 and 2006 and the
Period from October 14, 2000 (inception) through December 31, 2007
|
Common
Stock Subscriptions Receivable |
Accumulated
Other Comprehensive Income (Loss) |
Treasury
Stock |
Deficit
Accumulated During the Development Stage |
Total
Stockholders' Equity (Deficit) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at October 14, 2000 (Inception) | ||||||||||||||||
Common stock issued in exchange for interest in wholly owned subsidiaries | $ | | $ | | $ | | $ | (4,138,684 | ) | $ | (105,181 | ) | ||||
Net loss | | | | (1,406,709 | ) | (1,406,709 | ) | |||||||||
Foreign currency translation adjustment | | (4,476 | ) | | | (4,476 | ) | |||||||||
|
||||||||||||||||
Comprehensive loss | | | | | (1,411,185 | ) | ||||||||||
|
||||||||||||||||
Common stock issued on various dates during 2001 | | | | | 1,509,841 | |||||||||||
|
|
|
|
|
||||||||||||
Balance at December 31, 2001 | | (4,476 | ) | | (5,545,393 | ) | (6,525 | ) | ||||||||
Net loss | | | | (1,712,803 | ) | (1,712,803 | ) | |||||||||
Foreign currency translation adjustment | | (74,085 | ) | | | (74,085 | ) | |||||||||
|
||||||||||||||||
Comprehensive loss | | | | | (1,786,888 | ) | ||||||||||
|
||||||||||||||||
Common stock issued at $0.225 per share on various dates during 2002 | | | | | 522,690 | |||||||||||
|
|
|
|
|
||||||||||||
Balance at December 31, 2002 | | (78,561 | ) | | (7,258,196 | ) | (1,270,723 | ) | ||||||||
Net loss | | | | (4,230,296 | ) | (4,230,296 | ) | |||||||||
Foreign currency translation adjustment | | 179,689 | | | 179,689 | |||||||||||
|
||||||||||||||||
Comprehensive loss | | | | | (4,050,607 | ) | ||||||||||
|
||||||||||||||||
Common stock issued on various dates during 2003 | | | | | 125,000 | |||||||||||
Common stock issued for consulting services | | | | | 45,000 | |||||||||||
Common stock issued for remaining interest in subsidiaries on July 15, 2003 | | | | (409,614 | ) | (319,729 | ) | |||||||||
Common stock issued upon exercise of stock options on various dates during 2003 | | | | | 1,218,304 | |||||||||||
Recapitalization resulting from AAE acquisition on July 15, 2003 | | | | | | |||||||||||
Common stock issued at $1.50 per share on various dates during 2003 | | | | | 5,000,000 | |||||||||||
Expenses related to 2003 issuance of common stock and recapitalization | | | | | (795,650 | ) | ||||||||||
Subscriptions for 754,900 shares of common stock at $1.50 per share on various dates during 2003 | (180,000 | ) | | | | 952,350 | ||||||||||
|
|
|
|
|
||||||||||||
Balance at December 31, 2003 | (180,000 | ) | 101,128 | | (11,898,106 | ) | 903,945 | |||||||||
Net loss | | | | (6,728,014 | ) | (6,728,014 | ) | |||||||||
Foreign currency translation adjustment | | (97,446 | ) | | | (97,446 | ) | |||||||||
|
||||||||||||||||
Comprehensive loss | | | | | (6,825,460 | ) | ||||||||||
|
||||||||||||||||
Common stock issued at $1.50 per share on various dates in 2004 | 180,000 | | | | 583,527 | |||||||||||
Preferred stock issued on various dates during 2004 | | | | | 5,478,764 | |||||||||||
|
|
|
|
|
||||||||||||
Balance at December 31, 2004 | | 3,682 | | (18,626,120 | ) | 140,776 |
See Notes to Consolidated Financial Statements
F-7
O2DIESEL CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
for the years ended December 31, 2007 and 2006 and the
Period from October 14, 2000 (inception) through December 31, 2007 (Continued)
|
Common
Stock Subscriptions Receivable |
Accumulated
Other Comprehensive Income (Loss) |
Treasury
Stock |
Deficit
Accumulated During the Development Stage |
Total
Stockholders' Equity (Deficit) |
||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Net loss | | | | (6,852,165 | ) | (6,852,165 | ) | ||||
Foreign currency translation adjustment | | 2,329 | | | 2,329 | ||||||
|
|||||||||||
Comprehensive loss | | | | | (6,849,836 | ) | |||||
|
|||||||||||
Common stock issued for consulting services in 2005 | | | | | 63,100 | ||||||
Warrants issued for consulting services in 2005 | | | | | 135,000 | ||||||
Common stock issued at $0.70 per share on various dates in 2005 | | | | | 4,833,191 | ||||||
Common stock issued at $0.7125 per share on various dates in 2005 | | | | | 2,090,500 | ||||||
Common stock issued at $0.564 per share on various dates in 2005 | | | | | 3,600,300 | ||||||
|
|
|
|
|
|||||||
Balance at December 31, 2005 | | 6,011 | | (25,478,285 | ) | 4,013,031 | |||||
Net loss | | | | (7,608,155 | ) | (7,608,155 | ) | ||||
Foreign currency translation adjustment | | (10,392 | ) | | | (10,392 | ) | ||||
|
|||||||||||
Comprehensive loss | | | | | (7,618,547 | ) | |||||
|
|||||||||||
Common stock issued via exercise of warrants on various dates in 2006 | | | | | 1,458,144 | ||||||
Common stock issued for consulting services in 2006 | | | | | 51,000 | ||||||
Conversion of preferred stock into common stock on various dates in 2006 | | | | | | ||||||
Common stock issued at $0.75 per share in 2006 | | | | | 6,257,149 | ||||||
Common stock issued at $0.729 per share in 2006 | | | | | 979,505 | ||||||
Fair value of unvested stock options upon adoption of SFAS 123(R) | | | | | | ||||||
Amortization of unearned compensation | | | | | 250,890 | ||||||
Fair value of stock options issued in 2006 | | | | | 1,476,684 | ||||||
|
|
|
|
|
|||||||
Balance at December 31, 2006 | | (4,381 | ) | | (33,086,440 | ) | 6,867,856 |
See Notes to Consolidated Financial Statements
F-8
O2DIESEL CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
for the years ended December 31, 2007 and 2006 and the
Period from October 14, 2000 (inception) through December 31, 2007 (Continued)
|
Common
Stock Subscriptions Receivable |
Accumulated
Other Comprehensive Income (Loss) |
Treasury
Stock |
Deficit
Accumulated During the Development Stage |
Total
Stockholders' Equity (Deficit) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net loss | | | | (10,826,392 | ) | (10,826,392 | ) | |||||||||
Foreign currency translation adjustment | | 16,469 | | | 16,469 | |||||||||||
|
||||||||||||||||
Comprehensive loss | | | | | (10,809,923 | ) | ||||||||||
|
||||||||||||||||
Common stock issued to employee | | | | | 273,299 | |||||||||||
Fair value of unearned shares related to commitment shares | | | | | 668,969 | |||||||||||
Unearned common stock issued for commitment shares | | | | | (386,091 | ) | ||||||||||
Fusion shares issued at various prices in 2007 | | | | | 500,000 | |||||||||||
Common stock issued for consulting services | | | | | 263,500 | |||||||||||
Common stock issued at $0.405 per share in 2007 | | | | | 1,110,243 | |||||||||||
Repurchase of shares | | | (40,100 | ) | | (40,100 | ) | |||||||||
Retirement of repurchased shares | | | 40,100 | | | |||||||||||
Common stock issued at $0.417 per share in 2007 | | | | | 1,195,134 | |||||||||||
Common stock issued at $0.375 per share in 2007 | | | | | 1,250,000 | |||||||||||
Amortization of unearned compensation | | | | | 85,746 | |||||||||||
Fair value of stock options issued in 2006 and 2007 | | | | | 237,631 | |||||||||||
|
|
|
|
|
||||||||||||
Balance at December 31, 2007 | $ | | $ | 12,088 | $ | | $ | (43,912,832 | ) | $ | 1,216,264 | |||||
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-9
O2DIESEL CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
October 14,
2000 (inception) through December 31, 2007 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Years Ended December 31,
|
|||||||||||
|
2007
|
2006
|
||||||||||
Cash flows from operating activities | ||||||||||||
Net loss | $ | (10,826,392 | ) | $ | (7,608,155 | ) | $ | (43,912,832 | ) | |||
Adjustments to reconcile loss to net cash used in operating activities: | ||||||||||||
Depreciation | 97,612 | 87,127 | 381,376 | |||||||||
Amortization | | | 7,786 | |||||||||
Write off of patent | | | 337,329 | |||||||||
Write off of obsolete inventory | | | 5,925 | |||||||||
Loss on sale/disposal of furniture & equipment | 1,724 | 18,044 | 10,252 | |||||||||
Loss on impairment of construction in progress | 1,288,614 | | 1,288,614 | |||||||||
Non cash contributions | | 5,312 | 5,312 | |||||||||
Common stock and warrants issued for consulting services | 263,500 | 51,000 | 517,600 | |||||||||
Common stock issued to employee | 273,299 | | 273,299 | |||||||||
Common stock issued for commitment shares | 282,878 | | 282,878 | |||||||||
Amortization of unearned compensation | 323,377 | 1,727,574 | 2,050,951 | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | (101,761 | ) | (275 | ) | (115,536 | ) | ||||||
Other receivables | 576,008 | (614,957 | ) | (192,619 | ) | |||||||
Inventory, prepaid expenses and other current assets | (55,500 | ) | (74,347 | ) | (535,376 | ) | ||||||
Accounts payable | 1,083,195 | (66,365 | ) | 1,774,248 | ||||||||
Accrued expenses | 175,213 | 130,756 | 557,284 | |||||||||
Deferred grants | 466,021 | (286,137 | ) | 475,980 | ||||||||
Deferred marketing program | (148,167 | ) | (172,533 | ) | 86,333 | |||||||
|
|
|
||||||||||
Cash flows used in operating activities | (6,300,379 | ) | (6,802,956 | ) | (36,701,196 | ) | ||||||
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
||
Restricted cash | 1,310,468 | (91,267 | ) | (2,333,959 | ) | |||||||
Purchase of furniture and equipment | (1,525,820 | ) | (137,752 | ) | (2,054,701 | ) | ||||||
Proceeds from sale of furniture & equipment | | 1,250 | 13,150 | |||||||||
Purchase of patent | | | (345,115 | ) | ||||||||
|
|
|
||||||||||
Cash flows used in investing activities | (215,352 | ) | (227,769 | ) | (4,720,625 | ) | ||||||
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
||
Net proceeds from issuance of preferred stock | | | 5,478,764 | |||||||||
Net proceeds from private placement | | | 5,953,757 | |||||||||
Purchase of treasury stock | (40,100 | ) | | (40,100 | ) | |||||||
Net proceeds from issuance of common stock | 4,055,377 | 8,694,798 | 30,605,870 | |||||||||
|
|
|
||||||||||
Cash flows provided by financing activities | 4,015,277 | 8,694,798 | 41,998,291 | |||||||||
Effect of exchange rate changes on cash |
|
|
16,469 |
|
|
(11,294 |
) |
|
5,175 |
|
||
Net (decrease) increase in cash | (2,483,985 | ) | 1,652,779 | 581,645 | ||||||||
Cash at beginning of period |
|
|
3,065,630 |
|
|
1,412,851 |
|
|
|
|
||
|
|
|
||||||||||
Cash at end of period | $ | 581,645 | $ | 3,065,630 | $ | 581,645 | ||||||
|
|
|
||||||||||
Cash paid for interest |
|
$ |
10,342 |
|
$ |
8,223 |
|
$ |
123,513 |
|
||
Cash paid for income taxes | None | None | None |
Non-cash transactions: Conversion of Bridge loan to common stock at 9/30/2003, $2,322,500. Conversion of preferred to common stock at various dates during 2006, $1,550,000.
See Notes to Consolidated Financial Statements
F-10
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company and Basis of Presentation
The Company
O2Diesel Corporation ("O2Diesel" or the "Company") is in the development stage and has developed a proprietary additive product designed to enable distillate liquid transportation fuels to burn cleaner by facilitating the addition of ethanol as an oxygenate to these fuels. To date, the Company's operations have continued to be focused on raising capital, performing research and development, and bringing its product to market.
O2Diesel's predecessor, Dynamic Ventures, Inc., was incorporated in the State of Washington on April 24, 2000. Dynamic Ventures, Inc. changed its name to O2Diesel Corporation effective June 10, 2003, in contemplation of the reverse acquisition of AAE Technologies International Plc (AAE). On July 15, 2003, O2Diesel acquired all of the issued and outstanding shares of AAE in exchange for 17,847,039 shares of its common stock. As a result of this transaction, the former shareholders of AAE acquired control of the combined companies. The acquisition of AAE has been accounted for as a capital transaction followed by a recapitalization. AAE was considered to be the accounting acquirer. Accordingly, the historical financial statements of AAE are considered to be those of O2Diesel for all periods presented.
In conjunction with the reverse acquisition, the Company completed a private placement of its common stock whereby it issued 3,333,333 shares of common stock at $1.50 per share. Of the $5.0 million raised, approximately $800,000 was used to pay the costs of the reverse acquisition and private placement, $1.0 million was used to repay a bridge loan that was made in contemplation of the transaction, and the balance of $3.2 million was used to fund the ongoing developmental activities of the Company. Subsequent to its first private placement, the Company undertook to raise an additional $3.5 million through a follow-on private placement of our common stock (the "Follow-On Private Placement"). In the Follow-On Private Placement, we raised $1,535,770, before expenses, and issued 1,025,784 shares of our common stock at a price of $1.50 per share.
On June 15, 2004, the American Stock Exchange ("AMEX" or "Exchange") approved an application to list 46,518,898 shares of our common stock under the symbol OTD. Subsequent to this date, the Exchange has approved additional applications to list 72,830,013 shares of the Company's common stock so that the total number of shares approved for listing is now 119,348,911. Our shares began to trade on the Exchange on July 1, 2004.
O2Diesel was reincorporated in the state of Delaware in a transaction that became effective on December 31, 2004.
Basis of presentation
The Company's consolidated financial statements for the year ended December 31, 2007, have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. We have reclassified certain prior-year amounts to conform to the current year's presentation.
At December 31, 2007, the Company had a working capital surplus of $848,207 and has accumulated losses of $43,912,832. However $2,333,959 of the working capital is restricted in use to operational costs associated with developing markets in Europe. The lack of adequate working capital and continuing losses, as well as the uncertain conditions regarding the Company's AMEX listing status as stated below, create an uncertainty about the Company's ability to continue as a going concern.
F-11
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. The Company and Basis of Presentation (Continued)
Management has concluded that additional equity must be raised in 2008 in order for the Company to have sufficient cash to execute its business plan and to be in compliance with the AMEX listing requirements.
AMEX Listing
On June 29, 2007, the Company was notified by AMEX that it was not in compliance with the listing standards of the Exchange because it lacked the requisite amount of stockholders' equity. The Company was asked to submit a plan by July 27, 2007 advising AMEX of actions the Company would be taking to bring it into compliance with the continued listing standards by December 29, 2008.
On July 27, 2007, the Company filed a plan with the Exchange describing the steps it plans to take to return to full compliance. The Company has entered into a common stock purchase agreement with Fusion Capital Fund II, LLC to raise up to $10 million in new equity over a twenty-five month period starting on February 16, 2007. Also, the Company announced a private placement in which we raised an additional $2.52 million in July and August 2007. As noted below, the Company intends to raise additional new equity in conjunction with the acquisition of the ProEco Energy Company ("ProEco"). We believe these actions will enable us to meet or exceed the equity requirements of the Exchange.
On September 13, 2007, the Company received a written notice from the AMEX indicating that AMEX had reviewed and accepted the Company's plan to regain listing qualifications compliance. With the acceptance of the plan, the Company was allowed to continue its listing during the plan period pursuant to an extension granted until December 29, 2008. The AMEX notice also advised the Company that, in addition to the previously disclosed deficiency with respect to Section 1003(a)(iii) of the AMEX Company Guide, it had triggered an additional deficiency with respect to Section 1003(a)(ii) of the AMEX Company Guide which requires listed companies to have at least $4.0 million of stockholders' equity when it has sustained losses from continuing operations and/or net losses in its four most recent fiscal years. During the interim period until December 29, 2008, the Company was required to provide AMEX staff with updates regarding initiatives set forth in its plan of compliance.
The Company previously stated that, as a result of the U.S. ethanol industry experiencing several economic and logistical challenges to the general expansion of production capacity, increased prices for corn, declining prices for ethanol and thinning supplies of skilled labor required by experienced EPC contractors, the estimated timetable to obtain the financing and start construction of the Ethanol Plant was shifted to the second half of 2008. Subsequent to this announcement, and prior to providing AMEX with a formal update regarding our compliance plan initiatives, AMEX advised us on February 7, 2008 that it was going to proceed with an application to the SEC to remove O2Diesel Corporation stock from listing and registration on AMEX. On February 12, 2008, the Company appealed the delisting determination by requesting an oral hearing to present an update on its AMEX listing compliance plan. This hearing is scheduled for April 15, 2008.
If the Company's common stock were to be de-listed by the AMEX, the Company believes its shares would continue to be traded as a bulletin board stock.
The consolidated financial statements in this report do not include any adjustments to reflect the anticipated private placements or the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result should management be unsuccessful in obtaining financing on terms acceptable to the Company.
F-12
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. The Company and Basis of Presentation (Continued)
Since July 2003, the Company has raised approximately $37 million for its operations.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and all subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation. Based on Financial Accounting Standards Board ("FASB") Interpretation No. 46R, Consolidation of Variable Interest Entities " ("FIN 46R"), the Company is the holder of the majority of the risks and rewards relating to ProEco. As such, the Company is considered to be the "primary beneficiary" of ProEco, deemed to be a variable interest entity ("VIE"), and has included ProEco's assets, liabilities and operating results in its consolidated financial statements for the year ended December 31, 2007.
Variable Interest Entity (VIE)
In general, a VIE is a corporation, partnership, limited-liability corporation, trust or any other legal structure used to conduct activities or hold assets that either (i) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support; (ii) has a group of equity owners that are unable to make significant decisions about its activities; or (iii) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations. Based on these guidelines, the Company has determined that ProEco is a VIE beginning with the third quarter of 2007. Prior to that period, activity with ProEco was not material.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. As of December 31, 2007, cash deposits exceeded federally insured limits which are generally $100,000 per financial institution.
Restricted Cash
On December 16, 2005, the Company completed a private placement of its common stock, whereby it received approximately $3.6 million which is restricted to operational costs associated with developing markets in Europe. Prior to 2005, restricted cash consisted of cash held in the Company's bank account pursuant to the provisions set forth in documents to the acquisition of AAE on July 15, 2003. The restricted funds associated with the acquisition of AAE were released in equal amounts on October 15, 2003, and January 15, 2004. Beginning in 2008, the Company was permitted to utilize these funds for current non-European operating purposes and used approximately $467,000 during the first quarter of calendar 2008.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, due to/from related parties, other receivables, accounts payable, accrued expenses, deferred marketing program accruals, and deferred grants approximate fair value because of their short-term nature.
F-13
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Concentration of Credit Risk and Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. The Company does not require collateral and it does not charge finance fees on outstanding trade receivables. The allowance is determined by analyzing historical data and trends, as well as specific customers' financial condition. Past-due or delinquency status is based upon the credit terms of that specific customer from the date of delivery. Charges for doubtful accounts are recorded in selling and marketing expenses. Trade accounts receivables are written off to the allowance for doubtful accounts when collection appears unlikely. Customer concentrations, in excess of 10% of additive sales, were as follows:
Period
|
# of Customers
|
% of Additive Sales
|
||||
---|---|---|---|---|---|---|
Year ended December 31, 2007 | 1 | 71.9 | % | |||
Year ended December 31, 2006 | 1 | 33.6 | % | |||
3 | 43.6% | (total) | ||||
From October 14, 2000 (inception) | 1 | 38.5 | % | |||
To December 31, 2007 |
Inventories
Inventories, consisting of fuel additive held at third party locations, are stated at the lower of cost, as determined using the first in, first out (FIFO) method, or market value.
Furniture, Equipment and Depreciation
Furniture and equipment are stated at cost, less accumulated depreciation. Depreciation is provided over the estimated useful lives of the assets using the straight-line method. The estimated useful lives of fixed assets are as follows:
Office
furniture and equipment: 3 to 5 years
Fuel and test equipment: 5 to 20 years
Depreciation expense recorded in the accompanying Consolidated Statements of Operations was $97,612, $87,127 and $381,376 for the years ended December 31, 2007, and 2006, and the period October 14, 2000 (inception) through December 31, 2007, respectively.
Accounting for Impairment of Long-Lived Assets
The carrying value of intangible assets and other long-lived assets are reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.
In light of the postponement of the Ethanol Plant project, due to unfavorable market conditions, the Company has re-examined the carrying value of the construction in progress asset. Management has evaluated this project based on its assessment of the challenges to financing projects of this nature, posed by the present debt and equity markets, as well as the limited likelihood that a buyer will be identified for this project in the near future. Accordingly, the Company believes that it is prudent not
F-14
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
to assign a value to this asset. As such, an impairment charge of $1,288,614 was warranted and this adjustment was recorded in December 2007.
Revenue Recognition
The Company sells its product directly to its customers and revenue is recognized and recorded upon the passage of title of the product to the customer and following confirmation that the customer is utilizing the final blended fuel.
The Company has developed the CityHome TM program to serve as an element of its sales/marketing and product demonstration strategy. This program involves the sale of our additive, the receipt of sponsorship fees and the potential sale of advertising space. Sponsorship fees will become additional revenue for us and will be recognized as such when a sponsorship agreement is signed and the fees have been invoiced and payment is assured. Costs that are intended to be supported by the sponsorship fees are recorded separately in the related expense line in our statements of operations. With regard to the advertising space, since we have been unable to assess the fair market value of the advertising space received, we assign no value to the space at the time of receipt. We are recognizing the value associated with the advertising space when we enter into a contract arrangement with a third party. The Company will consider assigning a fair value to the advertising space received at the time of the initial sale when such fair value is more readily determinable, based upon a history of cash transactions.
The Company has supported certain fleet equipment conversion costs in these CityHome TM initiatives and has also been required to bear the incremental costs of the blended fuel, where it is experienced. Whenever the expected costs of the program are determined to be in excess of the contracted sponsorship fees and related fuel additive revenue, the Company records the loss for the contract as an expense and a deferred liability to be amortized over the life of the contract. As of December 31, 2007, costs remaining to be amortized for CityHome TM programs were recorded on the balance sheet as Deferred Marketing Program in the amount of $86,333. The Company recorded $100,627, $251,762 and $1,222,003 in costs for the CityHome TM initiatives in excess of sponsorship fees during the years ended December 31, 2007, December 31, 2006 and the period October 14, 2000 (inception) through December 31, 2007, respectively.
Shipping and Handling Costs
The Company classifies costs associated with shipping and handling activities within cost of goods sold in the consolidated statements of operations. Shipping and handling costs for the years ended December 31, 2007, and 2006, and the period October 14, 2000, (inception) through December 31, 2007, were $17,623, $14,600 and $69,315, respectively.
Research and Development Costs
Research and development costs are expensed as incurred.
Product Test and Demonstration Appropriations
The Company receives appropriations from governmental agencies to fund certain of its research and development efforts. The Company evaluates the conditions of each appropriation and either increases revenue, decreases expenses or reduces the cost of fixed assets depending upon the attributes
F-15
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
of the underlying grant. Appropriations activities are not recognized until there is reasonable assurance that the Company will comply with the conditions of the grant and that the grant will be received.
Advertising Expenses
Advertising costs are expensed as incurred. Advertising expense was $0, $0 and $450,000 for the years ended December 31, 2007, and 2006, and the period October 14, 2000 (inception) through December 31, 2007, respectively.
Net Loss Per Common Share (Basic and Diluted)
Basic net loss per common share is computed by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share gives effect to all dilutive potential common shares outstanding during the period using the if-converted method. Diluted net loss per share excludes all potential dilutive common shares if their effect is anti-dilutive. The weighted average number of shares used to compute basic and diluted loss per common share is the same since the effect of the dilutive securities is anti-dilutive.
Accounting for Stock-Based Compensation
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123(R)"), which replaces FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and supersedes Accounting Principles Board ("APB") Opinion No. 25 ("APB 25"). Prior to January 1, 2006, the Company's share-based employee compensation plan was accounted for under the recognition and measurement provisions of APB 25 and related Interpretations, as permitted by SFAS 123. The Company did not recognize stock-based compensation cost in its statement of operations for periods prior to December 31, 2005 as all options granted had an exercise price equal to or higher than the market value of the underlying common stock on the date of grant. However, compensation expense was recognized under APB 25 for certain options granted to non-employees of the Company based upon the intrinsic value. SFAS 123(R) requires all share-based payments, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first interim period after December 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition.
Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123(R) using the modified prospective transition method. As a result, the Company's net loss before taxes was $1,727,574 higher, for the year ended December 31, 2006 and for the period October 14, 2000 (inception) through December 31, 2007, than if it had continued to account for share-based compensation under APB 25.
F-16
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
The Company implemented a Stock Incentive Plan (the "Incentive Plan") in 2004 for which the Board of Directors has authorized 7,212,957 shares of common stock to be reserved for future issuance under the Plan. At December 31, 2005, the Company had committed to award 7,750,000 options to purchase common stock to certain officers, employees and directors, of which 5,950,000 options had been approved and granted by the Board of Directors. As of June 30, 2006, one employee who had been promised (but not granted) 600,000 options left the employment of the Company and forfeited the promised options. Four other employees received new promises for 350,000 options, resulting in net commitments from the Company of 7,500,000 options to purchase common stock. The Company obtained approval from the shareholders at the annual meeting on July 6, 2006 to increase the number of common shares available for issuance under the Incentive Plan in order to effectuate the grant of the remaining stock options promised to plan participants. Subsequent to this approval, the Board of Directors granted the promised 350,000 options and an additional 1,200,000 options to six other employees and consultants and one director. During August 2006, one employee who had been granted 100,000 options left the employment of the Company and forfeited them under the terms of the Incentive Plan. In November 2006, one employee was granted an additional 100,000 options. During 2007, four employees left the employment of the Company and forfeited an aggregate of 1,575,000 options (including 1,450,000 options awarded to one officer) under the terms of the Incentive Plan. In addition, as a result of previously approved agreements, an officer of the Company was awarded 250,000 options in November 2007 which he had previously relinquished.
Stock options generally vest over three years and will expire ten years from the effective date. However, the Company has the latitude under the Incentive Plan to issue options at various stages of vesting. Once these options are granted by the Board of Directors under the provisions of the plan, the Company will record a compensation charge for the difference between the fair value of the common stock and the exercise price of the options on the date of issuance if the fair value of the common stock exceeds the exercise price of the option on that date.
The fair value of each option granted was estimated on the date of grant using the Black-Scholes option-pricing model. The assumptions used with this model were as follows:
|
2007
|
2006
|
2005
|
||||
---|---|---|---|---|---|---|---|
Expected life | 3 years | 3 years | 3 years | ||||
Dividend yield | 0 | % | 0 | % | 0 | % | |
Volatility range* | 73 | % | 72%209 | % | 59%120 | % | |
Risk-free interest rate* | 4.16 | % | 4.64%5.09 | % | 3.39%3.96 | % |
Income Taxes
Income taxes are accounted for using the liability method in accordance with SFAS No. 109, "Accounting for Income Taxes". Under SFAS 109, deferred tax assets or liabilities are computed based upon the difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expense or benefits are based on the changes in the asset or liability from
F-17
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
period to period. If available evidence suggests that it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recorded to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance would be included in the provision for deferred income taxes in the period of change.
In June, 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48) which was effective for fiscal years beginning after December 15, 2006. This interpretation clarified the accounting for uncertainty in income taxes recognized in accordance with SFAS 109. Specifically, FIN 48 clarifies the application of SFAS 109 by defining a criterion that an individual tax position must meet for any part of the benefit of that position to be recognized in an enterprise's financial statements. Additionally, FIN 48 provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods of income taxes, as well as the required disclosure and transition. This interpretation was effective for fiscal years beginning after December 15, 2006. Effective January 1, 2007, the Company adopted FIN 48 and has determined that such adoption did not have a significant affect on the Company's consolidated financial position and results of operations.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Foreign Subsidiaries
The Company has foreign subsidiaries whose local currency has been determined to be the functional currency. For these foreign subsidiaries, the assets and liabilities have been translated using the current exchange rates, and the income and expenses have been translated using the weighted average of historical exchange rates during the reporting period. The adjustments resulting from translation have been recorded separately in shareholders' (deficit) equity as "other comprehensive income (loss)" and are not included in determining the consolidated net loss.
The Company began operations in Brazil in March of 2004 by establishing a 75% owned subsidiary. The Brazilian subsidiary recognized $0, $0 and $7,682 in revenue during the years ended December 31, 2007 and 2006, and the period October 14, 2000 (inception) through December 31, 2007, respectively, and had total assets less current liabilities (exclusive of intercompany amounts eliminated in consolidation) of $95,201 at December 31, 2007. Transactions in Brazil are denominated in, and the functional currency is, the Brazilian Real. At December 31, 2007, the Brazilian operations had aggregate losses of $2,038,986. The minority stockholder's portion of aggregate losses is not recorded in the consolidated balance sheet since reimbursement of this amount from the minority stockholders is not assured.
The Company began operations in Spain in April of 2006 by establishing a 100% owned subsidiary. The Spanish subsidiary recognized $12,176, $0 and $12,176 in revenue for the years ended December 31, 2007 and 2006, and the period October 14, 2000 (inception) through December 31, 2007,
F-18
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
and had total assets less current liabilities (exclusive of intercompany amounts eliminated in consolidation) of $275,678 at December 31, 2007. Transactions in Spain are denominated in, and the functional currency is, the Euro. At December 31, 2007, the Spanish operations had aggregate losses of $1,933,878.
The Company expanded its operations in Ireland in August 2007 by establishing a 100% owned subsidiary. At December 31, 2007, this subsidiary had not been an active company.
On December 31, 2004, the Company ceased operations at two of its wholly-owned subsidiaries in the United Kingdom. In connection with the cessation, the Company recorded an exchange gain in the 2004 consolidated statement of operations of $94,396 to recognize cumulative translation gains previously recorded in other comprehensive income (loss). The subsidiaries were primarily holding companies and had no assets or liabilities as of December 31, 2004. For the years ended December 31, 2007 and December 31, 2006, these subsidiaries incurred no activity.
Segment Reporting
The Company is a development stage company and has not made sales of its products in commercial volumes. Management believes that the Company currently operates and manages the business as one business segment.
Impairment of Intellectual Property Rights
Prior to the fourth quarter of 2002, the Company was pursuing the marketability of a technology it had acquired for $424,659. In December 2002, the Company determined that the related product was no longer commercially viable and would no longer be pursued. As a result of this decision, it was determined that the asset would not be recoverable as there was no alternative market for the technology. Accordingly, the net book value of $345,115 was charged to general and administrative expenses during 2002.
3. ProEco Transaction
On January 12, 2007, the Company entered into a Share Exchange Agreement (the "Agreement") with ProEco Energy Company ("ProEco") and its shareholders ("ProEco Shareholders") to acquire shares equal to 80% of the outstanding capital stock of ProEco in exchange for approximately 9.2 million shares of the Company's common stock (the "Transaction Shares") valued at $0.872 per share for a total purchase price of $8.0 million.
ProEco, which has had limited operations to date, had been in the process of developing a new fuel-grade Ethanol Plant with planned capacity of at least 100 million gallons per year to be built in two 50 million gallon stages (each a "Train"). Pursuant to the terms of the Agreement, ProEco Shareholders would receive 60% of the Transaction Shares at the time of the closing and would receive the remaining 40% of the Transaction Shares in two equal installments upon the completion of construction of the first Train (20%) and the commencement of construction of the final Train (20%). The remaining 40% of the Transaction Shares would be held in escrow until the conditions for their release had been met. The parties intended the transaction to qualify as a tax-free reorganization under Section 368(a) of the U.S. Internal Revenue Code of 1986, as amended (the "Code").
F-19
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. ProEco Transaction (Continued)
The Agreement required ProEco to complete a number of steps toward completion of the Ethanol Plant project in order for the closing of the share exchange to occur. At the time of the closing, ProEco was required to have entered into a definitive engineering, procurement and construction ("EPC") contract, with a reputable firm with extensive experience in implementing and completing projects similar to the Ethanol Plant project, and executed marketing agreements for the sale of the production of the Ethanol Plant as well as corn feedstock. Under the terms of the Agreement, ProEco was responsible for having the Ethanol Plant designated as a facility nameplated, or certified, as producing ethanol at a level of at least 100 million gallons of production a year.
As a condition to the closing of the ProEco share exchange, the Company was obligated to secure the financing necessary to complete the construction costs to build the Ethanol Plant. Accordingly, the Company was required to raise $60 to $70 million in debt and between $30 and $40 million in equity in the first quarter of 2008 for each train.
Prior to closing, the Company and the ProEco Shareholders were to enter into a stockholder agreement that will, among other things, impose restrictions on the transfer of the Transaction Shares.
The Common Stock was to be issued to the ProEco shareholders in a transaction that would be exempt from the registration requirement pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act") and under Regulation D promulgated under the Securities Act.
Under the terms of the letter of intent for the Agreement, the Company agreed to enter into a secured loan agreement with ProEco for the purposes of financing the purchase options for the land to be used for the Ethanol Plant and certain engineering and permitting work required for the closing of the ProEco share exchange. The annual interest rate on the loan is 7% and the maturity date of the loan was December 15, 2007.
Current trends in the ethanol industry have seen increases in the price of corn and other feedstocks as well as a decline in the average selling price of ethanol. For a number of new plant construction projects, the lack of EPC contractor availability has resulted in increased costs and delays in completion dates. On January 8, 2008, the Company announced that due to the unfavorable market conditions for raising capital for ethanol plants, the Company and ProEco had entered into an agreement to extend the Share Exchange Agreement and the maturity date of the loan from the Company to ProEco until January 31, 2008. These agreements were subsequently extended again until February 29, 2008. On March 19, 2008, the Company and ProEco entered into a letter agreement terminating the Share Exchange Agreement and extending the maturity date of the loan from February 29, 2008 until November 30, 2008. The Company and ProEco have agreed to continue to develop the Ethanol Plant when conditions in the capital markets improve. Management has evaluated this project based on its assessment of the challenges to financing projects of this nature, posed by the present debt and equity markets, as well as the limited likelihood that a buyer will be identified for this project in the near future. Accordingly, the Company believes that it is prudent not to assign a value to this asset. As such, an impairment charge of $1,288,614 was warranted and this adjustment was recorded in December 2007.
Based on FIN 46R, the Company is the holder of the majority of the risks and rewards relating to ProEco. As such, the Company is considered to be the "primary beneficiary" of ProEco, deemed to be a VIE, and has included ProEco's assets, liabilities and operating results in its consolidated financial
F-20
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. ProEco Transaction (Continued)
statements. (In general, a VIE is a corporation, partnership, limited-liability corporation, trust or any other legal structure used to conduct activities or hold assets that either (i) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support; (ii) has a group of equity owners that are unable to make significant decisions about its activities; or (iii) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations.) Based on these guidelines, the Company has determined that ProEco is a VIE beginning with the third quarter of 2007. Prior to that period, activity with ProEco was not material.
The following table summarizes the significant assets and liabilities of ProEco as of December 31, 2007:
Cash | $ | 8,310 | |
Accounts payable | 351,005 | ||
Accrued expenses | 31,304 |
ProEco expenses, including a $1,288,614 impairment charge and after elimination of intercompany transactions, of $1,679,928, $9,359 and $1,689,287 for the years ended December 31, 2007, and 2006, and the period October 14, 2000 (inception) through December 31, 2007, respectively, are also reflected in the Company's consolidated statements of operations.
Management has evaluated this project based on its assessment of the challenges to financing projects of this nature, posed by the present debt and equity markets, as well as the limited likelihood that a buyer will be identified for this project in the near future. Accordingly, the Company believes that it is prudent not to assign a value to this asset. As such, an impairment charge of $1,288,614 was warranted and this adjustment was recorded in December 2007.
4. Government Appropriations
Appropriation from the U.S. Department of Energy (1)
In 2002, the Company received an appropriation of $1,107,734 from the U.S. Department of Energy ("DOE") to test the Company's fuel additive as well as its blended fuel, O2Diesel TM . The appropriation was increased to $2,039,651 as of September 15, 2004. This appropriation is managed for the DOE by the National Renewable Energy Laboratory ("NREL") under a contract which, as amended, continues until June 30, 2007. Under the terms of the contract, the Company is reimbursed by NREL for 80% of the costs incurred to complete the Statement of Work as set forth in the contract. The Company charges all expenses as incurred to operations and accrues all amounts receivable under the contract as a reduction to contract expenses when the Company is reasonably certain all conditions of the reimbursement are satisfied. As of December 31, 2007, the Company had incurred cumulative costs of $2,039,651 to complete the contract. From the inception of the contract in December 2002 through December 31, 2007, the Company billed NREL $1,631,720 of which $16,317 is included in other receivables as of December 31, 2007.
F-21
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Government Appropriations (Continued)
Appropriation from the U.S. Department of Energy (2)
In 2003, the Company received an appropriation of $1,123,834 to test the Company's fuel additive under the CARB Diesel Emissions Control Strategy (DECS) verification rules. The Company is eligible to receive reimbursements of 80% of costs incurred under a contract up to the appropriation amount, or $899,067. This appropriation is managed for the DOE by NREL which contracted with the Company in the third quarter of 2006. As of December 31, 2007, the Company had incurred cumulative costs of $986,222 towards completion of the contract, leaving a balance of $137,612. From the inception of the contract in August 2006 through December 31, 2007 the Company billed NREL $786,847 of which $57,690 is included in other receivables as of December 31, 2007.
Appropriation from the U.S. Department of Energy (3)
During 2004 and 2005, the Company received $1,000,000 in available appropriations for the purpose of continued testing and verification of our fuel additive. The Company has submitted its proposal for several possible test projects and expects to enter into a contract, eligible for approximately 80% reimbursement, in the second quarter of 2008.
Appropriation from the U.S. Department of Defense (1)
In 2003, the Company received an appropriation of $1,000,000 from the DoD to test O2Diesel TM fuel in non-strategic military vehicles operated by the U.S. Air Force at Nellis Air Force Base in Las Vegas, Nevada. Under the terms of this Appropriation, a third party is to be paid $200,000 to administer this program on behalf of the DoD. The remaining $800,000 is to be used to fund purchases of O2Diesel TM fuel, certain capital equipment and to reimburse the Company for its labor, overhead and out-of-pocket costs required to complete this project. This contract contains a payment schedule based on meeting performance milestones. Thus, upon achieving a milestone, the Company accrues the amount due and submits an invoice for reimbursement. All amounts are expensed as incurred, and all amounts receivable for work completed are treated as a reduction to expense over the period earned. The period of performance for this program ran from October 7, 2003 to December 31, 2004. Through December 31, 2004, the Company had achieved five milestones and, since inception, has billed $360,000 related to this appropriation, of which $160,000 was billed in January, 2005. By its terms, this contract expired on December 31, 2004 and was not extended. No activity under this appropriation has taken place subsequent to March 31, 2005. The work required to achieve the milestones not completed as of December 31, 2004 has been included as part of the Statement of Work for Appropriation (2) from the DoD as is permitted under that contract. However, the funds from Appropriation (1) cannot be applied to Appropriation (2). Through December 31, 2005, the Company had received cash in excess of costs incurred of $296,097 and had recorded Deferred Grants at December 31, 2005 in the Consolidated Balance Sheet. All amounts billed had been received as of December 31, 2005. No additional reimbursements are expected from this appropriation. During the fourth quarter of 2006 the Company was notified by the subcontractor that the contract was officially closed and O2Diesel has no further requirements. Based on this information, the Company applied the previously recorded liability of $296,097 for this contract as an offset to 2006 grant expenses for the year ended December 31, 2006.
F-22
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Government Appropriations (Continued)
Appropriation from the U.S. Department of Defense (2)
On January 11, 2005, the Company entered into a contract with a value of $1,085,000 with the DoD. Under this contract, the Company's O2Diesel TM fuel is to be tested in a maximum of forty (40) non-tactical vehicles at US Air Force bases in Nevada for an 18 month period. Furthermore, the Company is to complete certain engine testing and other work required for the acceptance of O2Diesel TM as a viable alternative fuel for use by the Air Force. Work on this contract commenced on November 1, 2004 and continued through November 30, 2006. Notwithstanding that the agreement for this contract was signed in January 2005, the Company was asked to begin work in 2004 and, by a letter from Innovative Technologies Corporation (ITC), was authorized to incur costs in an amount not to exceed $75,000. This is a time and materials contract that is administered for the DoD by a third party contractor. The Company charges all costs as incurred to expense and accrues all amounts receivable under the contract as a reduction to contract expenses. The contract amount was amended in May 2006 to $1,012,564. As of December 31, 2006, costs totaling $1,011,215 had been incurred and billed, leaving a remaining contract balance of $1,349. As of December 31, 2007, this contract was formally closed.
Appropriation from the U.S. Department of Defense (3)
The Company received an appropriation during 2005 of approximately $910,000 from the DoD. Concurrent Technologies Corporation (CTC) manages this appropriation on behalf of the DoD. This contract contains a payment schedule based on meeting performance milestones. Four milestones were achieved during 2006 which resulted in issuing $530,000 of invoices during 2006. The primary objective of this contract is to create potential fuels using the Company additive that contains no more than 80% petroleum. If this project is successful, an application will be made to DOE for "alternative fuel" status, creating an incentive for federal customers to use the fuel. Part of this research entails conducting demonstrations in various climates at three Air Force bases, including Nellis Air Force Base (expanded fleet) in Nevada and Minot Air Force Base in North Dakota. As of December 31, 2007, $860,576 in expenses has been incurred, leaving an available contract balance of $49,424. In addition to the $715,000 in expenses that have been invoiced, based on achieving seven milestones through 2007, the Company has recorded Unbilled Appropriations of $145,576 at December 31, 2007 in the Consolidated Balance Sheet.
Appropriation from the U.S. Department of Defense (4)
In 2005, the Company received an appropriation of approximately $1,100,000 for continued testing and verification of O2Diesel TM . The Company entered into a contract for $575,000 in 2007. As of December 31, 2007, lab testing of a new fuel combining O2Diesel TM , biodiesel, and diesel had been conducted and field testing had begun at Nellis Air Force Base in Las Vegas, Nevada. Another field test is planned during 2008 at Barksdale Air Force Base in Shreveport, Louisiana.
Appropriation from the U.S. Department of Defense (5)
In 2006, the Company received an appropriation of approximately $1,000,000 for continued testing and verification of O2Diesel. Of this amount, $688,710 was added during the third quarter of 2007 to the contract described in DoD (4), for a total contract amount of $1,263,710. This contract contains a
F-23
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Government Appropriations (Continued)
payment schedule based on meeting performance milestones. Six milestones have been achieved through 2007 which resulted in the issuance of invoices totaling $620,536. Aggregate costs of $144,556 were incurred under this contract resulting in the balance of $475,980 being recorded in Deferred Grants in the Consolidated Balance Sheet at December 31, 2007.
Appropriation from the U.S. Department of Defense (6)
In 2007, the Company received an appropriation of approximately $1,600,000 for continued testing and verification of O2Diesel TM . The Company will submit its proposal for several possible test projects and expects to enter into a contract, eligible for approximately 80% of the appropriation, in the second quarter of 2008.
5. Other Receivables
Other Receivables consisted of the following at December 31, 2007:
NREL Appropriation | $ | 74,007 | |
Receivables related to product demonstrations in Spain | 45,407 | ||
VAT receivable (Spain) | 57,594 | ||
Employee travel advances, etc. | 15,611 | ||
|
|||
$ | 192,619 | ||
|
6. Accrued Liabilities
Accrued liabilities consisted of the following at December 31, 2007:
Legal and professional | $ | 234,721 | |
Payroll-related liabilities | 30,304 | ||
Severance payments | 190,508 | ||
Other | 112,909 | ||
|
|||
$ | 568,442 | ||
|
7. Income Taxes
No provision for Federal and state income taxes has been recorded during the periods presented due to the Company's significant operating losses in each year. The income tax benefit reflected in the accompanying consolidated statement of operations is the benefit recognized in Ireland for the periods presented.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax
F-24
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Income Taxes (Continued)
reporting purposes. Significant components of the Company's deferred tax asset as of December 31, 2007 are as follows:
Net operating loss carryforwards | $ | 11,831,969 | ||
Deferred revenue | 453,020 | |||
Accrued expenses | 255,818 | |||
|
||||
Total deferred tax asset | 12,540,807 | |||
Valuation allowance | (12,540,807 | ) | ||
|
||||
Net deferred tax asset | $ | | ||
|
Management has determined that a valuation allowance equal to 100% of the existing deferred tax asset is appropriate given the uncertainty regarding the ultimate realization of these assets. At December 31, 2007, the Company had Federal and state net operating loss carryforwards of approximately $28.7 million for income tax purposes. If not used, these carryforwards begin to expire in 2021. Federal tax rules impose limitations on the use of net operating losses following certain changes in ownership. If such a change occurs, the limitation would reduce the amount of the benefits that would be available to offset future taxable income each year, starting with the year of ownership change. As a result, certain amounts of the net operating loss carryforwards may expire without being utilized. As of December 31, 2007, the Company had an Irish net operating loss carryforward of approximately $680,000 which can be carried forward indefinitely, a cumulative Spanish loss of approximately $1.78 million and a Brazilian net operating loss of approximately $1.69 million that may be carried forward indefinitely, but which is subject to annual usage limitations.
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 " ("FIN 48"). FIN 48 clarifies the accounting and disclosure for uncertainty in tax positions, as defined and prescribes the measurement process and a minimum recognition threshold, for a tax position taken or expected to be taken in a tax return, that is required to be met before being recognized in the financial statements. Under FIN 48, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.
The Company is subject to the provisions of FIN 48 as of January 1, 2007, and has analyzed filing positions in all of the U.S. federal and state jurisdictions where it is required to file income tax returns, as well as its tax returns in Ireland, Spain and Brazil and all open tax years in these jurisdictions. The Company has identified its U.S. federal tax return and its state tax returns in Delaware and California as "major" tax jurisdictions as defined. Based on the Company's evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our financial statements. Our evaluation was performed for the tax years which remain subject to examination by the major U.S. tax jurisdictions (tax years ended December 31, 2004 to December 31, 2007) and for the tax years which remain open for examination in Ireland (December 31, 2007), Spain (December 31, 2007) and Brazil (December 31, 2007). Based on this evaluation, no reserves for uncertain income tax positions have
F-25
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Income Taxes (Continued)
been recorded pursuant to FIN 48 during the period ended December 31, 2007 and the Company does not anticipate that it is reasonably possible that any material increase or decrease in its unrecognized tax benefits will occur within twelve months. In addition, the Company did not record a cumulative effect adjustment related to the adoption of FIN 48.
Upon adoption on January 1, 2007 and as of December 31, 2007, the Company had no unrecognized tax benefits or accruals for the potential payment of interest and penalties. The Company's policy for recording interest and penalties associated with tax audits is to record such items as a component of income or loss before provision (benefit) for income taxes. Penalties are recorded in other expenses, and interest paid or received is recorded in interest expense or interest income, related to the settlement of tax audits for certain prior periods. For the year ended December 31, 2007, there were no penalties or interest recorded relating to the settlement of tax audits.
Federal tax rules under Section 382 of the Code impose limitations on the use of net operating losses following certain changes in ownership. If such a change occurs, the limitation would reduce the amount of the benefits that would be available to offset future taxable income each year, starting with the year of ownership change. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. Since the Company's formation, the Company has raised capital through the issuance of capital stock on several occasions which, combined with the purchasing shareholders' subsequent disposition of those shares, may have resulted in a change of control, as defined by Section 382, or could result in a change of control in the future upon subsequent disposition. The Company has not currently completed a study to assess whether a change of control has occurred or whether there have been multiple changes of control since the Company's formation due to the significant complexity and cost associated with such study and that there could be additional changes in control in the future. If we have experienced a change of control at any time since the Company's formation, utilization of our NOL carryforwards would be subject to an annual limitation under Section 382. Any limitation may result in the expiration of a portion of the NOL carryforwards before utilization. Further, until a study is completed and any limitation is known, no amounts are being presented as an uncertain tax position under FIN 48.
8. Stockholders' Equity
Recapitalization
On July 15, 2003, O2Diesel Corporation and AAE Technologies International Plc ("AAE") entered into a merger transaction whereby O2Diesel acquired all of the issued and outstanding share capital of AAE in exchange for the issuance of 17,847,039 shares of common stock of O2Diesel. Although O2Diesel was the legal acquirer, AAE was deemed to be the accounting acquirer. The transaction was accounted for as an AAE capital transaction, accompanied by a recapitalization.
F-26
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Stockholders' Equity (Continued)
As a result of the transaction, the historical financial statements of AAE are deemed to be those of the Company for financial reporting purposes. The equity accounts of AAE have been adjusted for the recapitalization to reflect the equity structure of O2Diesel, the legal acquirer. Specifically, the historical stockholders' equity of AAE prior to the transaction has been affected for the equivalent number of shares of O2Diesel common stock received in the transaction, with an offset to paid-in capital; the accumulated deficit of AAE was carried forward after the transaction; and the loss per share for all periods prior to the transaction was restated to reflect the number of equivalent common shares received by AAE in the transaction.
Common Stock Activity
In connection with the merger between O2Diesel and AAE in July 2003, the Company completed a private placement of 3,333,333 shares of common stock at $1.50 per share. The private placement was partially effectuated through the issuance of a $4 million convertible note that was convertible into the Company's common stock at $1.50 per share. In October 2003, the Company repaid $1,677,500 of the note and the $2,322,500 balance was converted into 1,548,333 shares of common stock. The remaining 1,785,000 shares of common stock issuable under the private placement were issued to other parties in exchange for cash proceeds of $2,677,500. The expenses associated with the merger and subsequent issuances of shares were $795,650 and have been reflected as a reduction of additional paid-in capital.
Subsequent to its first private placement in 2003, the Company undertook to raise an additional $3.5 million through a follow-on private placement of our common stock (the "Follow-On Private Placement"). In the Follow-On Private Placement, we raised $1,535,570, before expenses, and issued 1,025,784 shares of our common stock at a price of $1.50 per share. The Follow-On Private Placement was closed on March 31, 2004. There was no underwriter involved in the Follow-On Private Placement. Sales of common stock under the Follow-On Private Placement that were completed in non-U.S. transactions were exempt from registration pursuant to Regulation S promulgated under the Securities Act. The sales of common stock under the Follow-On Private Placement to accredited U.S. investors were exempt pursuant to Regulation D promulgated under the Securities Act.
On July 17, 2007, the Company repurchased 100,000 shares of its common stock for treasury for an aggregate purchase price of $40,100. The purchase price was $0.401 per share, which was the daily volume weighted average for the five trading days prior to the day the Company's board of directors approved the repurchase. In December 2007, management decided to retire these shares.
$2.0 and $3.0 Million Private Placements
In January 2005, the Company retained a third party to raise, in a series of two private placements of the Company's common stock, $5.0 million at a price of $0.70 per share. This offering price per share represented a discount from the market value of our common stock of approximately ten-percent (10%). The first private placement was for just under $2.0 million ("$2.0 million Private Placement") and the second private placement was for just over $3.0 million ("$3.0 million Private Placement", and together with the $2.0 million Private Placement, the "Private Placements"). As part of this transaction, the Company was obligated to comply with certain conditions in connection with the $2.0 million Private Placement and was also obligated to satisfy still other conditions applicable to the $3.0 million Private Placement. Further, the AMEX requires that shareholder approval be obtained by the
F-27
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Stockholders' Equity (Continued)
Company for the sale of common stock in a transaction if the price of the shares to be sold is less than the greater of book or market value, and the number of shares equal 20% or more of the presently outstanding common stock. In order to comply with this requirement, the Company was required to seek shareholder approval for the $3.0 million Private Placement. No shareholder approval was required for the shares issued in conjunction with the $2.0 million Private Placement.
Pursuant to the $2.0 million Private Placement, the Company received qualified subscriptions for 2,803,428 shares of its common stock and total proceeds of $1,962,400 before payment of an 8% commission and other expenses. The parties subscribing to these shares agreed to waive certain of the conditions to permit the transaction to be closed as to their respective subscriptions. An initial closing for the $2.0 million Private Placement was held on March 17, 2005 for 1,915,143 shares. A final closing for the remaining 888,285 shares was held on May 20, 2005.
On June 10, 2005, an initial closing was held for the $3.0 million Private Placement covering 4,583,973 shares of common stock, for total proceeds of $3,208,781, before payment of an 8% commission and other expenses. In addition, the Company received additional subscriptions for 128,580 shares of its common stock and cash of $90,006, before payment of an 8% commission. As part of the terms for the $3.0 million Private Placement, the Company was required to satisfy two conditions in order to close the transaction. As indicated above, the first condition required that shareholder approval be obtained to issue the shares, and this was approved by the Company's shareholders at its annual shareholder meeting held on May 31, 2005. Pursuant to the second condition, the Company was required to expand its senior management team, and it did so by creating the position of Chief Operating Officer and President. The Board of Directors (the "Board") confirmed that both of these conditions had been satisfied as of May 31, 2005. On August 9, 2005, the Company received the final $89,874 (after expense) for the $3.0 million Private Placement, and these transactions are now closed.
In total, the Company received $4,833,192 (after expenses) from the $2.0 million and $3.0 million Private Placements and it issued 7,535,981 shares of its common stock.
Subscribers to both of the Private Placements received one warrant to purchase one additional share of common stock for each two shares of common stock purchased. The warrant expires twenty-four months following the closing of the $2.0 million Private Placement and the $3.0 million Private Placement, respectively. Each warrant is exercisable at a price of $0.70 per share during the first twelve months following the close of each Private Placement, or at an exercise price of $1.05 per share in the second twelve months following the close of each Private Placement. The total number of warrants issued was 3,757,990.
$2.3 Million Private Placement
On October 24, 2005, the Company issued 3,228,070 shares of common stock at a purchase price of $0.7125 per share in a private placement for total proceeds of $2,300,000.
As part of this sale, the Company also issued warrants to purchase 1,614,035 shares of common stock at an exercise price of $1.425 per share during the period of six months to forty-two months subsequent to issuance or at a cashless exercise if a registration statement is not effective within one year of issuance. The warrants expire forty-two months after the date of issuance.
F-28
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Stockholders' Equity (Continued)
As part of the transaction, the Company agreed to sell up to an additional $700,000 of its common stock to the Purchaser at a purchase price of $0.7125 per share for 982,456 shares. The Company also issued warrants to purchase 491,228 shares of common stock at an exercise price of $1.425 per share during the period of six months to forty-two months subsequent to issuance or at a cashless exercise if a registration statement is not effective within one year of issuance. The warrants expire forty-two months after the date of issuance. The purchaser had 180 days following the date of the Purchase Agreement to acquire additional shares. This offer expired unexercised on March 20, 2006.
The Company agreed to issue warrants to purchase 1,614,035 shares of common stock at an exercise price of $0.7125 per share to its advisor in connection with this transaction. The warrants expire forty-two months after the date of issuance.
$3.6 Million Private Placement
On December 16, 2005, the Company issued 6,419,840 shares of the Company's common stock in a private placement, for total proceeds of 3,000,000€, or approximately $3.6 million at the then current exchange rates.
As part of the transaction, the Company issued warrants to purchase 2,853,262 shares of common stock at an exercise price of $0.85 per share during the period six to forty-two months subsequent to the date of issuance or at an exercise price of $1.13 per share during the period forty-three to sixty-six months after the date of issuance. The warrants expire sixty-six months after the date of issuance.
$4.0 and $2.5 Million Private Placements
On April 6, 2006, the Company entered into a Common Stock and Warrant Purchase Agreement ("$4.0 million Purchase Agreement") with a UK investor (the "Investor") for 5,333,333 shares of common stock at a purchase price of $0.75 per share in a private placement for total proceeds of $4,000,000 (the "$4.0 million Private Placement"). As part of this sale, the Company also issued warrants to purchase 2,666,667 shares of common stock at an exercise price of $0.825 per share during the period of six months to forty-two months subsequent to issuance. The warrants expire forty-two months after the date of issuance.
Also on April 6, 2006, the Company entered into a Common Stock and Warrant Purchase Agreement ("$2.5 million Purchase Agreement") with a different European investor (the "Second Investor") for 3,333,333 shares of common stock at a purchase price of $0.75 per share in a private placement for total proceeds of $2,500,000 (the "$2.5 million Private Placement") before payment of a 9% commission and other expenses. As part of this sale, the Company also issued warrants to purchase 1,666,667 shares of common stock at an exercise price of $0.825 per share during the period of six months to forty-two months subsequent to issuance. The warrants expire forty-two months after the date of issuance.
The purchase price of both transactions represented a discount of approximately 10% in comparison to the prevailing market price of the Company's common stock during the period of negotiations for these private placements.
Subsequent to entering into these agreements, the Company entered into an identical amendment to each agreement which (i) modified the amount of liquidated damages to a maximum of 8% of the
F-29
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Stockholders' Equity (Continued)
purchase price and (ii) added that shareholder approval will be obtained prior to the Company issuing the shares of common stock issuable upon exercise of the warrants. There were no other changes to either agreement. Both transactions closed on April 27, 2006.
AMEX requires that shareholder approval be obtained by the Company for the sale of common stock in a transaction if the price of the shares to be sold is less than the greater of book or market value, and the number of shares equal twenty-percent (20%) or more of the presently outstanding common stock. In order to comply with this requirement, the Company was required to obtain shareholder approval for the $4.0 and the $2.5 million Private Placements. Shareholder approval was obtained at the Company's annual shareholder meeting on July 6, 2006.
$1.0 Million Private Placement
On September 15, 2006, the Company entered into an agreement with an Asian supplier of alternative fuels and its wholly owned subsidiary to provide funding and commercial support to develop a market in certain countries in South Asia and Asia Pacific for the Company's products.
The parties entered into a Common Stock and Warrant Purchase Agreement ("$1.0 million Purchase Agreement") for 1,371,742 shares of the Company's common stock at a purchase price of $0.729 per share in a private placement for total proceeds of $1,000,000. As a condition of enforceability of the Agreement against the Company, the Asian supplier was required to fund the purchase price in an escrow account, which funds were received and deposited into escrow on October 19, 2006.
As part of the sale, the Company issued warrants to purchase 685,871 shares of common stock at an exercise price of $0.972 per share during the period of six months to sixty-six months subsequent to issuance. The warrants expire sixty-six months after the date of issuance. The Asian supplier's obligation to purchase the shares is subject to the Company satisfying certain additional conditions.
The parties also entered into a Supply and Distribution Agreement (the "Supply Agreement"), in which the parties will jointly develop the market for O2Diesel TM in South Asia and Asia Pacific during a five year period. As part of the Supply Agreement, the Asian supplier will be the exclusive distributor of O2Diesel TM within the territory.
As part of the transaction, upon certain purchases of O2Diesel TM , the Company has agreed to sell up to an additional $250,000 of its common stock to the Asian supplier at a purchase price of $0.729 per share for 342,936 shares and to issue warrants to purchase up to 685,871 shares of common stock at an exercise price of $1.1664 per share. These warrants expire sixty-six months after the date of issuance.
The purchase price of this transaction represented a discount of approximately 25% in comparison to the prevailing market price of the Company's common stock during the period of negotiations for this private placement.
On November 9, 2006, the Company entered into Amendment No. 1 to the $1.0 million Purchase Agreement with the Asian supplier. The amendment corrected the minimum purchase amount of additive for the purchase of additional shares by the Asian supplier. There were no other changes to the $1.0 million Purchase Agreement.
F-30
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Stockholders' Equity (Continued)
The common stock and the warrants were issued to the accredited investor in a transaction that is exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and/or Regulation D promulgated under the Securities Act.
The transaction closed and the funds were received on November 22, 2006.
$10.0 Million Private Placement
On February 16, 2007, the Company entered into a common stock purchase agreement (the "Purchase Agreement") with Fusion Capital Fund II, LLC, an Illinois limited liability company ("Fusion Capital"). Pursuant to the Purchase Agreement, at the Company's discretion, the Company may sell up to $10.0 million of the Company's common stock to Fusion Capital from time to time over a twenty-five month period. The Company has reserved for issuance up to 12,000,000 shares of the Company's common stock for sale to Fusion Capital under this agreement. The Company has issued to Fusion Capital 805,987 shares of the Company's common stock as a commitment fee for entering into the Purchase Agreement.
Concurrent with entering into the Purchase Agreement, the Company entered into a registration rights agreement with Fusion Capital (the "Registration Rights Agreement"). Under the Registration Rights Agreement, the Company filed a registration statement with the SEC covering the shares that have been issued or may be issued to Fusion Capital under the Purchase Agreement. Subject to earlier termination at the Company's discretion, Fusion Capital's purchases commenced after June 8, 2007 when the SEC declared effective the registration statement related to the transaction. Generally, the Company has the right but not the obligation from time to time to sell an aggregate of up to 12 million shares of the Company's common stock to Fusion Capital in amounts between $100,000 and $1 million depending on certain conditions. The Company has the right to control the timing and amount of any sales of the Company's shares to Fusion Capital. The purchase price of the shares will be determined based upon the market price of the shares of common stock without any fixed discount. Fusion Capital shall not have the right or the obligation to purchase any shares of the Company's common stock on any business day that the price of the Company's common stock is below either $0.50 or $0.60, depending on the transaction size of the purchase. The agreement may be terminated by the Company at any time at its discretion without any cost to the Company.
During the year ended December 31, 2007, the Company executed five separate transactions under this agreement, selling a total of 970,994 shares of common stock at an average price of $0.515 per share for total proceeds of $500,000.
$2.52 Million Private Placement
Between June 26, 2007 and July 16, 2007, the Company entered into Agreements with five European institutional and private investors for the sale of 6,123,346 shares of the Company's common stock at a purchase price of approximately $0.41 per share in a private placement, for total proceeds of $2,517,710 before commissions. As a condition to the enforceability of these agreements against the Company, the investors were required to fund the purchase price in an escrow account, which funds were received between June 19, 2007 and July 31, 2007.
F-31
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Stockholders' Equity (Continued)
As part of the sale, the Company issued warrants to purchase 1,530,827 shares of common stock at an exercise price of $0.62 per share during the period of six months to sixty-six months subsequent to issuance. The warrants expire sixty-six months after the date of issuance.
The Company was obligated to file a registration statement with the SEC including the common stock and the shares issuable upon exercise of the warrants within 90 days of the closing date. A Form S-3 registration statement, including these shares and shares issuable upon exercise of the warrants, was filed by the Company on October 18, 2007 and declared effective by the SEC on October 31, 2007. All the costs and expenses incurred in connection with the registration of the common stock and warrants are paid by the Company. The Company closed this transaction on July 20, 2007 and August 20, 2007.
Energenics Transactions
On October 17, 2007, the Company entered into a private financing agreement and a joint venture transaction with Energenics Holdings Pte Ltd ("Energenics Holdings") to provide funding and commercial support to develop the Asian market for O2Diesel TM , the Company's ethanol diesel fuel blend.
The parties entered into a Common Stock and Warrant Purchase Agreement (the "Energenics Agreement"), as amended on December 10, 2007 (the "Amendment"), pursuant to which Energenics Holdings agreed to purchase 3,333,333 shares of the Company's common stock in a private placement, for total proceeds of approximately $1.25 million. The effective per share price of $0.375 represents 121% of the market price on the AMEX on the day prior to the signing of the Amendment. As part of the transaction, the Company agreed to issue a warrant to purchase 1,666,667 shares of common stock at an exercise price of $0.375 per share, which warrant will be issued upon the closing of the transactions contemplated by the Energenics Agreement and shall be exercisable from the date that is six months following the date of issuance until October 17, 2012 ("Investment Warrant").
The parties also entered into a Shareholders Agreement in which Energenics Holdings and the Company will jointly develop the market for O2Diesel TM in Asia through O2Diesel Asia Limited ("O2Diesel Asia"). Energenics agreed to pay the Company $750,000 for a fifty percent (50%) equity interest in O2Diesel Asia. The balance of the interest in O2Diesel Asia will be held by O2Diesel Europe Limited, a wholly-owned subsidiary of the Company. For the past year, pursuant to the Supply and Distribution Agreement, dated September 15, 2006, O2Diesel has supplied its additive to Energenics for the manufacture and distribution of O2Diesel TM in the Asian Pacific and South Asia.
The parties entered into a License agreement whereby O2Diesel Europe Limited (formerly AAE Technologies International Plc) will license to O2Diesel Asia certain patents and know-how that are required to make and sell O2Diesel TM in the territory in exchange for certain payments pursuant to the Shareholders Agreement. In addition, the Company entered into a similar License agreement with O2Diesel Asia, pursuant to which the Company will pay to O2Diesel Asia a royalty based on sales of the Company's product in the Territory.
As part of the transaction, upon the purchase of a certain quantities of O2D05 or the equivalent, the Company will also issue a warrant to purchase 1,500,000 shares of common stock at an exercise price of $0.375 per share, which warrant shall be exercisable during the period from the date of issuance until October 17, 2012 ("JV Warrant").
F-32
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Stockholders' Equity (Continued)
Also, as part of the transaction, upon the achievement by Energenics Holdings of certain levels of additional purchases of O2D05 or the equivalent, the Company will issue additional warrants to purchase up to an aggregate of 6,500,000 shares of common stock at a price per share equal to the lesser of $0.375 or 121% of the closing price per share (rounded to the nearest cent) of the Company's common stock on the American Stock Exchange on the date such warrants are earned ("Market Development Warrants," and, collectively with the Investment Warrant and the JV Warrant, the "Warrants"). The Market Development Warrants are exercisable from the date of issuance to October 17, 2012.
The common stock and the Warrants will be issued to the accredited investor in a transaction that will be exempt from registration pursuant to Section 4(2) of the Securities Act and/or Regulation D promulgated under the Securities Act.
Due to market conditions in the global credit markets, Energenics Holdings has been able to fund only a portion of this transaction. The Company has received $1,250,000 in two deposits on November 14, 2007 and December 21, 2007 and Energenics Holdings has committed to remit the remaining $750,000 to fulfill the Shareholders Agreement. The Company anticipates closing the transaction early in the second quarter of 2008.
Issuances of Preferred Stock
In March 2004, the Company approved the designation of two new series of preferred shares. The new preferred shares, which consist of one million five hundred and fifty thousand (1,550,000) shares of Preferred Stock, are Series A and B 0% Convertible Preferred Stock, par value $.0001 (the "Series A Preferred Stock" and "Series B Preferred Stock"). Subsequent to approving the new Series A and Series B Preferred Stock, the Company immediately completed a transaction with a publicly traded investment trust on the London Stock Exchange in which it received approximately $2.8 million, net of all expenses, in exchange for all of the 800,000 shares of its Series A Preferred Stock. Effective March 29, 2004, the Company completed a second transaction with another publicly traded investment trust on the London Stock Exchange in which it received approximately $2.1 million in May 2004, net of all expenses, in exchange for 600,000 shares of its Series B Preferred Stock. As part of the Series B transaction, the remaining 150,000 shares of Series B Preferred Stock were released from escrow to the same publicly traded investment trust, for which the Company received approximately $536,000, net of all expenses.
The Series A and B Preferred Stock do not pay dividends and shall have no voting power, except as may be provided by state law. The stated value of both the Series A and B Preferred Stock is $10.00 per share ("Stated Value"), and the liquidation preference with respect to a share of the Series A and B Preferred Stock shall be its Stated Value. The Series A and B Preferred Stock shall, as to redemptions and distribution of assets, dissolution, or winding up of the Company, rank (i) prior to any class of the Company's common stock, (ii) prior to any class or series of capital stock hereafter created that, by its terms, ranks junior to the Series A and B preferred Stock, (iii) junior to any class or series of capital stock of the Company hereafter created which by its terms ranks senior to the Series A and B preferred stock. The Series A and B Preferred Stock shall rank pari passu as to one another.
The Series A and B Preferred Stock may be converted at the option of the holder at any time following two years from the Closing dates for the purchases of the preferred shares, which were March 3, 2004 and March 29, 2004, respectively. Except as specified in the Certificates of Designation, neither the holders of the Series A and Series B Preferred Stock nor the Company may demand that
F-33
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Stockholders' Equity (Continued)
the preferred shares be redeemed. In the event that the Company engages in a transaction or a series of transactions that cause it to consolidate or merge with or into another entity, or permit any other entity to consolidate or merge with or into it, or undergo a change in control, the Company may demand that the holders convert all shares of the Series A and B Preferred Stock into shares of the Company's common stock. If the holders do not comply with such demand, the Company may redeem all shares of the Series A and B Preferred Stock at the Stated Value of each.
Each share of Series A Preferred Stock is convertible into shares of the Company's common stock, at a variable conversion ratio which is the lesser of (a) $4.00 as adjusted (the "Series A Fixed Conversion Price") or (b) eighty percent (80%) of the lowest closing bid price for the common stock in the ten business days preceding the date of conversion, but, in no case, less than twenty-five percent (25.0%) of the Series A Fixed Conversion Price, as adjusted, or $1.00 per share. Based on the conversion ratio the holder of Series A Preferred Stock will never receive more than 8,000,000 or less than 2,000,000 shares of the Company's common stock upon conversion of the Series A Preferred Stock.
Each share of Series B Preferred Stock is convertible into shares of the Company's common stock, at a variable conversion ratio which is the lesser of (a) $3.65 as adjusted (the "Series B Fixed Conversion Price") or (b) eighty percent (80%) of the lowest closing bid price for the common stock in the ten business days preceding the date of conversion, but, in no case, less than twenty-seven and four tenths percent (27.4%) of the Series B Fixed Conversion Price, as adjusted, or $1.00 per share. Based on the conversion ratio the holder of Series B Preferred Stock will never receive more than 7,500,000 or less than 2,054,795 shares of the Company's common stock upon conversion of the Series B Preferred Stock.
The purchaser of the Series A Preferred Stock was granted an option to purchase additional shares of the Company's common stock equal to the difference between the number of shares of common stock actually received upon conversion and the number of shares that would have been received at a conversion price of $1.82. The exercise price shall be the Series A Fixed Conversion Price.
The purchaser of the Series B Preferred Stock was granted an option to purchase additional shares of the Company's common stock equal to the difference between the number of shares of common stock actually received upon conversion and the number of shares that would have been received at a conversion price of $1.82. The exercise price shall be the Series B Fixed Conversion Price.
The Company determined that the intrinsic value of the beneficial conversion features embedded in the Series A and Series B Preferred Stock exceeded the proceeds from these Preferred Stock issuances. The Company accreted the value of the beneficial conversion feature through equity and recorded a deemed dividend to preferred stockholders. These dividends amounted to $0, $5,581,133 and $6,200,005 for the years ending December 31, 2007 and 2006 and the period from October 14, 2000 (inception) through December 31, 2007, respectively, and are included in the consolidated statements of operations. The amount recorded for the year ended December 31, 2006 reflected that in April 2006, the holders of both the Series A and Series B Convertible Preferred Stock exercised all of their conversion rights and converted 1,550,000 shares of Convertible Preferred Stock into 15,500,000 shares of common stock.
Warrant Activity
A wholly-owned subsidiary of the Company entered into a supply and distribution agreement (the "Distribution Agreement") with a distributor dated July 10, 2001 that granted the distributor the right
F-34
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Stockholders' Equity (Continued)
to purchase up to 10% of the outstanding common stock of the Company for $1.00 per share should certain sales targets be achieved. The warrant was to expire on July 10, 2006. None of the sales targets have been achieved under the Distribution Agreement and as of December 10, 2004 this Distribution Agreement was terminated and replaced by a new supply and distribution agreement (the "New Agreement"). Pursuant to this New Agreement, the distributor received a warrant to purchase 600,000 shares of O2Diesel's common stock at a price of $2.00 per share, which expired on May 5, 2007.
On February 3, 2006, the Company offered existing warrant holders from the $2.0 million and $3.0 million Private Placements and the $2.3 million Private Placement an opportunity to exercise their warrants at the reduced price of $0.35 per share. On February 27, 2006, the Warrant Offering expired and the Company received proceeds of $592,692 (after expenses) for the exercise of warrants to purchase 1,864,035 shares of common stock. Between May 31 and June 12, 2006, several other existing warrant holders elected to exercise their warrants at the contract price identified in their warrant documentation. Proceeds for these exercises were $865,452 (after expenses) for the purchase of 1,287,857 shares of common stock.
On April 27, 2007, the Company offered existing warrant holders an opportunity to exercise their warrants at the reduced price of $0.50 per share. If all eligible warrant holders had exercised their warrants at the reduced price, the Company would have received proceeds of approximately $4.3 million. The warrant offer was originally set to expire on May 25, 2007, however on May 9, 2007, the Company extended this reduced price offer until June 8, 2007. As of May 15, 2007, the Company amended the offer to grant the warrant holders who tender their warrants additional shares of Common Stock if the Company enters into any agreement for the sale of shares of Common Stock at less than $0.50 per share to June 8, 2008. The offer expired on June 8, 2007, without any of the warrant holders exercising at the reduced price.
Options
The Company implemented a Stock Incentive Plan (the "Incentive Plan") in 2004 for which the Board of Directors had authorized 7,212,957 shares of common stock to be reserved for future issuance under the Plan. At December 31, 2005, the Company had committed to award 7,750,000 options to purchase common stock to certain officers, employees and directors, of which 5,950,000 options had been approved and granted by the Board of Directors. As of June 30, 2006, one employee who had been promised (but not granted) 600,000 options left the employment of the Company and forfeited the promised options. Four other employees received new promises for 350,000 options, resulting in net commitments from the Company of 7,500,000 options to purchase common stock. The Company obtained approval from the shareholders at the annual meeting on July 6, 2006 to increase the number of common shares available for issuance under the Incentive Plan to 9,750,000 in order to effectuate the grant of the remaining stock options promised to plan participants. Subsequent to this approval, the Board of Directors granted the promised 350,000 options and an additional 1,200,000 options to six other employees and consultants and one director. During August 2006, one employee who had been granted 100,000 options left the employment of the Company and forfeited them under the terms of the Incentive Plan. In November 2006, one employee was granted an additional 100,000 options. During 2007, four employees left their employment with the Company and forfeited an aggregate of 1,575,000 options (including 1,450,000 options awarded to one officer) under the terms of the Incentive Plan. As a result of previously approved agreements, the Board of Directors awarded an officer of the Company 250,000 options in November 2007 which he had previously relinquished to the Company.
F-35
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Stockholders' Equity (Continued)
As of December 31, 2007, the Company had granted options to the following groups:
Directors | 3,000,000 | ||
Officers | 1,950,000 | ||
Employees & Consultants | 1,225,000 | ||
|
|||
Total | 6,175,000 | ||
|
The weighted average fair values of the options granted were $0.07, $1.15 and $0.41 during the years ended December 31, 2007 and 2006, and for the period October 14, 2000 (inception) through December 31, 2007, respectively. The expense related to the fair value of stock options issued during the year ended December 31, 2007 was $18,250. The total value of shares vested during the years ended December 31, 2007, 2006 and for the period October 14, 2000 (inception) through December 31, 2007 was $565,772, $1,544,467 and $2,837,769, respectively. As of December 31, 2007, the compensation cost related to non-vested awards amounted to $316,206 and is expected to be recognized over a weighted average period of 0.73 years.
The following table shows the outstanding options granted under the Stock Incentive Plan.
|
Shares
|
Weighted Ave
Exercise Price |
Weighted Ave
Remaining Contractual Term |
|||||
---|---|---|---|---|---|---|---|---|
Outstanding at January 1, 2005 | 500,000 | $ | 1.50 | |||||
Granted | 5,450,000 | $ | 1.50 | 7.8 | ||||
Exercised | | $ | | | ||||
Forfeited or Expired | | $ | | | ||||
|
||||||||
Outstanding at December 31, 2005 | 5,950,000 | $ | 1.50 | 7.8 | ||||
Granted | 1,350,000 | $ | 1.28 | 8.5 | ||||
200,000 | $ | 1.50 | 8.5 | |||||
100,000 | $ | 0.71 | 8.9 | |||||
Exercised | | $ | | | ||||
Forfeited or Expired | (100,000 | ) | $ | 1.28 | | |||
|
||||||||
Outstanding at December 31, 2006 | 7,500,000 | $ | 1.45 | 7.9 | ||||
Granted | 250,000 | $ | 1.50 | 10.0 | ||||
Exercised | | $ | | | ||||
Forfeited or Expired | (1,575,000 | ) | $ | 1.48 | | |||
|
||||||||
Outstanding at December 31, 2007 | 6,175,000 | $ | 1.45 | 8.1 | ||||
|
||||||||
Exercisable at December 31, 2007 | 5,630,500 | $ | 1.46 | 8.0 | ||||
|
Restricted Stock Awards
On November 16, 2006, the Board of Directors approved the grant of 500,000 shares of restricted stock to Mr. Roger, pursuant to the terms of the Company's 2004 Stock Incentive Plan and Mr. Roger's employment agreement. The terms of the award were that the shares were to be issued on January 1, 2007 with 166,667 shares to vest on January 1, 2007, 166,667 shares to vest on January 1, 2008 and 166,666 shares to vest on January 1, 2009. Under the terms of the agreement, the receipt of shares was contingent on Mr. Roger remaining employed by the Company on the date of vesting. In 2006, there was no FAS 123(R) expense for the grant of restricted stock.
F-36
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Stockholders' Equity (Continued)
On August 1, 2007, the Company entered into a Separation Agreement with Mr. Roger. Pursuant to the Separation Agreement, all of Mr. Roger's options vested as of the date of the Separation Agreement and in accordance with the Incentive Plan, Mr. Roger had thirty days to exercise these options, which expired unexercised. Finally, 166,667 of the remaining shares of Mr. Roger's restricted stock vested on the date of the Separation Agreement and 166,666 of the remaining shares will vest on July 31, 2008. Mr. Roger agreed not to sell or transfer these shares until after that date.
On May 14, 2007, the Company entered into an investor relations consulting agreement for a term of two months. In exchange for services, the Company paid the consultant a fee of $10,000. In addition, the Company awarded the consultant 50,000 shares of restricted stock. In connection with the stock award, the Company recognized $27,000 of consulting expense during the year ended December 31, 2007.
On May 16, 2007, the Company entered into a second investor relations consulting agreement for a term of six months. In exchange for services, the Company awarded the consultant 440,000 shares of restricted stock. In connection with the stock award, the Company recognized $213,000 of consulting expense during the year ended December 31, 2007. Pursuant to the terms of the consulting agreement, 220,000 shares, 120,000 shares and 100,000 shares of the restricted stock were earned by the consultant on May 16, 2007, July 16, 2007 and September 17, 2007, respectively. As December 31, 2007, the restrictions on 440,000 shares issued under this contract have lapsed and such shares were earned.
On September 20, 2005, the Company entered into an investor relations consulting agreement for a term of one year. In exchange for services, the Company paid the consultant $7,250 per month. In addition, the Company awarded the consultant 100,000 shares of restricted stock. For the years ended December 31, 2007, and 2006, and for the period October 14, 2000 (inception) through December 31, 2007, the Company recognized $0, $51,000 and $81,500, respectively, in connection with the stock award. As of December 31, 2007, the restrictions on all 100,000 shares issued under this contract have lapsed and such shares were earned and able to be sold.
On November 4, 2004, the Company entered into a separate investor relations consulting agreement for a term of four years. In exchange for services, the Company awarded the consultant 50,000 shares of restricted stock as settlement of this agreement, effective November 9, 2007 and recognized $23,500 of consulting expense in 2007.
The following schedule presents shares of common stock issued and outstanding and reserved for future issuance as of December 31, 2007:
Common Shares Outstanding | 86,666,837 | ||||
Reserved For Future Issuance | |||||
Options granted to officers and directors | 6,175,000 | ||||
Unearned restricted stock award to former officer | 166,666 | ||||
Unearned common stock issued for commitment
shares |
465,170 | ||||
Warrants | 12,683,997 | 19,490,833 | |||
|
|
||||
Total shares issued and outstanding and reserved for future issuance at December 31, 2007. |
|
|
|
106,157,670 |
|
|
F-37
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Related Party Transactions
A company controlled by a former Chairman of the Board provides office space, accounting and other services to the Company at a cost of approximately $2,500 per month, through June 2007, to the Company's Irish subsidiary. For the years ended December 31, 2007, and 2006, and for the period October 14, 2000, (inception) through December 31, 2007, the Company paid $27,744, $17,956, and $207,595, respectively, to the company controlled by the former Chairman. At December 31, 2007, there was no amount accrued as a payable to this related party.
Included in other receivables at December 31, 2007 is $15,611 which primarily represents travel advances made to employees. Included in accounts payable at December 31, 2007 is $150,486 which primarily represents directors' fees and travel expenses reimbursable to employees and directors.
The Company has entered into two separate consulting contracts with two shareholders of its Brazilian subsidiary for the purpose of providing office rent and administrative services and in lieu of employment contracts with these two individuals. These two contracts provide support significant to the operation of the Brazilian subsidiary. For the years ended December 31, 2007 and 2006, and for the period October 14, 2000, (inception) through December 31, 2007, the Company incurred expenses of $147,561, $182,008 and $620,953, respectively, with these related parties.
10. Commitments
Operating leases
The Company leases certain office equipment under agreements that are accounted for as operating leases. As of December 31, 2007, future minimum lease payments under non-cancelable operating leases were as follows:
2008 | $ | 147,829 | ||
2009 | 15,400 | |||
|
||||
Total |
|
$ |
163,229 |
|
|
Rent expense under the leases with unrelated parties for the years ended December 31, 2007, and 2006, and the period October 14, 2000, (inception) through December 31, 2007, were $217,657, $124,300 and $514,132 respectively.
11. Subsequent Events
On February 7, 2008, the Company received notice that the staff of the AMEX has determined to proceed with an application to the Securities and Exchange Commission to remove the common stock of the Company from listing and registration on AMEX. This action, which has been appealed by the Company, is being taken because the Company is not in compliance with Section 1003(a)(iii) of the AMEX Company Guide, in that its stockholders' equity is less than $6 million and it has sustained losses from continuing operations and/or net losses in its five most recent fiscal years. In addition, the Company is not in compliance with Section 1003(a)(ii) as its stockholders' equity is less than $4 million and it has sustained losses from continuing operations and/or net losses in three out of four of its most recent fiscal years.
The Company submitted a plan on July 27, 2007, advising AMEX of the actions the Company has taken, or will take, that would bring it into compliance with the applicable listing standards. AMEX accepted this plan on September 13, 2007. AMEX believes that the Company has not provided
F-38
O2DIESEL CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Subsequent Events (Continued)
sufficient evidence to support that the plan will result in the Company regaining compliance by December 29, 2008, largely due to the deferral of the ProEco transaction.
The Company has submitted a plan to AMEX which it believes will bring it into compliance with the continued listing standards by December 29, 2008. On February 12, 2008, the Company appealed the delisting determination by requesting an oral hearing to present this plan, its progress in achieving the plan and maintaining its AMEX listing. The oral hearing is scheduled for April 15, 2008. The Company's common stock continues to trade on AMEX.
There is no guarantee that the Company will be successful at maintaining its AMEX listing. If the Company's common stock was to be de-listed by AMEX, the Company expects its shares would continue to be traded as a bulletin board stock.
F-39
Exhibit 10.25
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
This Common Stock and Warrant Purchase Agreement (this Agreement) is made as of October 17, 2007 (the Execution Date), by and among
O2Diesel Corporation , a Delaware corporation, with file number 3857061 and publicly traded on the American Stock Exchange and having its Principal Executive Offices at 100 Commerce Drive, Suite 301, Newark, Delaware 19713 (the Company),
and
Energenics Holdings Pte Ltd , a company incorporated in Singapore with registration number 200612991G and having its registered office at 7 Temasek Bvd, #04-01A Suntec Tower One, Singapore 038987 (the Purchaser).
In consideration of the mutual promises and covenants herein, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. OMITTED TEXT IS INDICATED BY A *.
Purchases (in liters) |
|
Warrant Coverage |
|
* |
|
1,750,000 |
|
* |
|
2,250,000 |
|
* |
|
2,500,000 |
|
Purchases shall mean the total cumulative amount of liters of O2D05 or equivalent purchased by the Purchaser since September 15, 2006 against which Purchaser or Energenics has made full and timely payment, in accordance with the Companys payment terms. Warrant Coverage shall mean the number of shares of Common Stock purchasable pursuant to a Market Development Warrant issuable to Purchaser for the corresponding amount of Purchases. The volumes of Purchases above are applicable to a Treat-rate of * parts per million. If the Treat-rates decrease, then the amounts required to achieve the next level of Purchases shall also be decreased by the same percentage as the percentage decrease in the Treat-rate. The Treat-rate for the purposes of this Schedule shall mean the volume of the O2D05 or equivalent required to stabilize one blended unit of ethanol diesel fuel.
1.2 Sale and Issuance of Shares . Subject to the terms and conditions hereof, the Company shall issue and sell to the Purchaser and the Purchaser will buy from the Company the Shares at a per share purchase price of US$0.49 (the Per Share Price), and at the aggregate purchase price of US$1,249,999.80 (the Purchase Price). The calculation of the Per Share Price consists of 105% of the closing price per share of the Companys Common Stock on the American Stock Exchange on the day before to the date hereof.
1.3 Sale and Issuance of Investment Warrant . As further consideration for the Purchasers purchase from the Company of the Shares, and subject to the terms hereof, at the Closing, the Company shall issue to the Purchaser the Investment Warrant.
1.4 Issuance of JV Warrant . In consideration of the Purchasers purchase from the Company of the Companys interest in O2Diesel Asia Limited, and subject to the terms hereof, the Company shall issue to the Purchaser the JV Warrant within thirty business days after the receipt by the Company from the Purchaser or Energenics at or after the Closing of:
(i) a purchase order for a quantity of O2D05 or the equivalent that, together with all other purchase orders received by the Company from the Purchaser or Energenics at or after the Closing, totals * liters or more (collectively, the Purchase Orders), and
(ii) full and timely payment on all Purchase Orders in accordance with the Companys payment terms.
1.5 Issuance of Market Development Warrant . Upon the achievement by the Purchaser and/or Energenics of any of the three levels of Purchases as described in Section 1.1(c) above, within thirty business days after achievement of such level, the Company shall issue to
2
the Purchaser a Market Development Warrant that includes the Warrant Coverage corresponding to the level of Purchases achieved. By way of example, if on January 1, 2008 Purchaser makes an order for * liters which, together with all other orders made by Purchaser after the Closing, totals * liters, then Purchaser shall receive a Market Development Warrant covering 2,250,000 shares of Common Stock. Further, the Company would have previously issued to Purchaser a Market Development Warrant covering 1,750,000 shares of Common Stock for having achieving total Purchases of * liters.
2.1 Closing Date . It is anticipated that the purchase and sale of the Shares hereunder shall be consummated at a closing (the Closing) held at the offices of Arnold & Porter LLP, 1600 Tysons Boulevard, Suite 900, McLean, VA 22102 on October 26, 2007, at 10:00 a.m., local time, or at such other date, time and place upon which the Company and the Purchaser shall agree (the date and time of the Closing is hereinafter referred to as the Closing Date).
(i) payment of the Purchase Price, by wire transfer per the Companys instructions; and
(ii) an irrevocable purchase order made by Energenics for 1,000,000 liters of O2DO5, which purchase order shall be backed by an irrevocable letter of credit reasonably acceptable to the Company.
2.3 Escrow of Funds Pending Closing . Concurrent with the execution of this Agreement, the Purchaser will tender to legal counsel for the Company funds equal to the Purchase Price for the Shares. Such funds will be held by such counsel in escrow pending notice by the Company and Purchaser of the Closing. If the Closing has not occurred by the termination date specified in Section 9.1, the parties will instruct counsel to return the funds to the Purchaser. Such funds shall be delivered to Arnold & Porter LLP, 1600 Tysons Boulevard, McLean, Virginia 22102, Attn.: Kevin J. Lavin, Esq. by wire transfer to the following account:
Account Name: |
|
Arnold & Porter LLP Client Trust Account |
Account No. |
|
3700 3879 |
ABA No. |
|
254 07 0116 |
Bank Name: |
|
Citibank FSB |
|
|
1101 Pennsylvania Avenue, NW |
|
|
Washington, DC 20004 |
Note: |
|
O2Diesel Corporation / Equity Subscription |
3
The Company represents and warrants to the Purchaser that, as of the Closing Date:
3.1 Organization and Standing; Certificate of Incorporation and Bylaws . The Company is a corporation duly organized and existing under, and by virtue of, the laws of the State of Delaware and is in good standing under such laws. The Company has all requisite legal and corporate power and authority to execute and deliver this Agreement, to sell and to issue the Shares and the Warrants hereunder, and to issue the shares of Common Stock issuable upon exercise of the Warrants.
3.2 Disclosure Documents . The Disclosure Documents (as hereinafter defined) are true, correct and complete in all material respects, and do not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Since the respective dates as of which information was given in the Disclosure Documents, except as otherwise stated therein, there has been no material adverse change in the financial condition, or in the results of operations or affairs of the Company.
The Purchaser hereby represents and warrants to the Company as follows:
4.1 Preexisting Relationship with Company; Business and Financial Experience . By reason of its business or financial experience or the business or financial experience of its professional advisors who are unaffiliated with the Company and who are not compensated by the Company, the Purchaser has the capacity to protect its own interests in connection with the purchase of the Shares, the Warrants and the shares of Common Stock issuable upon exercise of the Warrants. Purchaser is an accredited investor as defined in Rule 501(a) under the Securities Act of 1933, as amended (Securities Act).
4.2 Investment Intent; Blue Sky . It is acquiring the Shares, the Warrants and any shares of Common Stock issued upon exercise of the Warrants for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. It understands that the issuance of the Shares, the Warrants and the shares of Common Stock issuable upon exercise of the Warrants have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the Purchasers investment intent and the accuracy of the Purchasers representations as expressed herein. The Purchasers address set forth herein represents the Purchasers true and correct state of domicile, upon which the Company may rely for the purpose of complying with applicable Blue Sky laws.
4.3 Rule 144 . It acknowledges that the Shares, the Warrants and the shares of Common Stock issuable upon exercise of the Warrants must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from such registration is available. It is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of
4
certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being effected through a brokers transaction or in a transaction directly with a market maker, and the number of shares being sold during any three-month period not exceeding specified limitations.
4.4 Restrictions on Transfer; Restrictive Legends . It understands that the transfer of the Shares, the Warrants and the shares of Common Stock issuable upon exercise of the Warrants is restricted by applicable state and Federal securities laws and by the provisions of this Agreement, and that the certificates representing the Shares, the Warrants and the shares of Common Stock issuable upon exercise of the Warrants will be imprinted with legends in the following form restricting transfer except in compliance therewith:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED BY THE HOLDER FOR ITS OWN ACCOUNT, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO THE DISTRIBUTION OF SUCH SECURITIES. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS, (II) IN COMPLIANCE WITH RULE 144 UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR (III) UPON THE DELIVERY TO O2DIESEL CORPORATION (THE COMPANY) OF AN OPINION OF COUNSEL OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/ OR COMPLIANCE IS NOT REQUIRED.
Without in any way limiting the above, the Purchaser agrees not to make any disposition of all or any portion of the Shares, the Warrants or any shares of Common Stock issued upon exercise of the Warrants unless and until twelve (12) months after the Closing Date. Notwithstanding anything to the contrary, the legend requirements shall terminate when (i) the security has been effectively registered under the Securities Act and disposed of pursuant thereto, or (ii) the Company shall have received an opinion of counsel reasonably satisfactory to it that such legend is not required in order to insure compliance with the Securities Act.
4.5 Access to Data; Disclosure Documents . Purchaser acknowledges that it has received all such information as Purchaser deems necessary and appropriate to enable it to evaluate the financial risk inherent in making an investment in the Shares, the Warrants and the shares of Common Stock issuable upon exercise of the Warrants, including but not limited to the Companys reports filed under the Securities Exchange Act of 1934, as amended (Exchange Act), with the SEC (Disclosure Documents). Purchaser further acknowledges that Purchaser has (a) received satisfactory and complete information concerning the business and financial condition of the Company in response to all inquiries in respect thereof, and (b) been given the opportunity to meet with management of the Company. Purchaser has relied solely upon the
5
Disclosure Documents, advice of its representatives, if any, and independent investigations made by the Purchaser and/or its representatives, if any, in making the decision to purchase the Shares, the Warrants and the shares of Common Stock issuable upon exercise of the Warrants and acknowledges that no representations or agreements other than those set forth in this Agreement have been made to the Purchaser in respect thereto.
4.6 Authorization . All action on the part of the Purchasers partners, members, board of directors, and stockholders, as applicable, necessary for the authorization, execution, delivery and performance of this Agreement by the Purchaser, the purchase of and payment for the Shares and the Warrants and the performance of all of the Purchasers obligations under this Agreement have been taken or will be taken prior to the Closing.
(a) The Company agrees it shall include the Shares and all shares of Common Stock issued or issuable upon the exercise of the Warrants, including the Common Stock issued pursuant to recapitalizations, stock splits, stock dividends and similar distributions with respect to such shares (the Registrable Securities) on the first new registration statement on Form S-3 filed by the Company after January 1, 2008 (the Registration Statement) under the Securities Act with the SEC, qualify the Registrable Securities under all applicable state securities laws and include such Registrable Securities in all other applicable compliance, which registration, qualification and compliance shall in no event be later than one year following the Closing Date (Deadline). The Company will pay to the Purchaser, in cash or shares of Common Stock at the Companys discretion, 1% of the Purchase Price as liquidated damages for every month after the Deadline that it takes for the Registration Statement to be declared effective; provided that the maximum aggregate liquidated damages payable to the Purchaser under this Section 5.1(a) shall not exceed eight percent (8%) of the Purchase Price. If a Registration Statement is not declared effective eighteen (18) months following the Closing Date, the registration rights set forth in this Section 5.2 may be transferred to any transferee of Registrable Securities.
(b) The Company will use its reasonable best efforts to cause such Registration Statements to become effective within ninety (90) days from filing, or one hundred twenty (120) days from filing, if such Registration Statement is subject to review by the staff of the SEC, in each case from the initial filing thereof.
(c) All the costs and expenses incurred in connection with the registration of the Shares and the shares of Common Stock issuable upon exercise of the Warrants.
6.1 Indemnification by the Company . The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless the Purchaser, and each subsequent holder of the Registrable Securities (each a Holder, and collectively, the Holders), the officers, directors, members, partners, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees (and any other persons with
6
a functionally equivalent role of a person holding such titles, notwithstanding a lack of such title or any other title) of each of them, each person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, members, shareholders, partners, agents and employees (and any other persons with a functionally equivalent role of a person holding such titles, notwithstanding a lack of such title or any other title) of each such controlling person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys fees) and expenses (collectively, Losses), as incurred, arising out of or relating to (1) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, or (2) any violation or alleged violation by the Company of the Securities Act, Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holders proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement, such prospectus or such form of prospectus or in any amendment or supplement thereto or (ii) the use by such Holder of an outdated or defective prospectus after the Company has notified such Holder in writing that the prospectus is outdated or defective. The Company shall notify the Holders promptly of the institution, threat or assertion of any an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened (Proceeding) arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware.
7
An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed within thirty days of written notice to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and counsel to the Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of no more than one separate counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.
Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten business days of written notice thereof to the Indemnifying Party; provided, that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is judicially determined to be not entitled to indemnification hereunder.
8
The Purchasers obligation to purchase the Shares and the Warrants is, unless waived in writing by the Purchaser, subject to the fulfillment as of the date of Closing of the following conditions:
7.1 Representations and Warranties Correct . The representations and warranties made by the Company in Section 3 hereof shall be true and correct in all material respects as of the date of the Closing.
7.2 Covenants . All covenants, agreements and conditions contained in this Agreement to be performed or complied with by the Company on or prior to the Closing Date shall have been performed or complied with.
7.3 Listing . The Shares and shares of Common Stock issuable upon exercise of the Warrants shall have been authorized for listing on the AMEX, subject to official notice of issuance.
7.4 Compliance and Incumbency Certificates . The Company shall have delivered to the Purchaser a certificate of the Company, executed by the Chief Executive Officer of the Company, dated as of the date of the Closing and certifying to the fulfillment of the conditions specified in Sections 7.1 and 7.2 of this Agreement.
7.5 Execution of Joint Venture Shareholders Agreement . Each of the Company, O2Diesel Europe Limited and O2Diesel Asia Limited shall have executed and delivered to the Purchaser a mutually agreeable Shareholders Agreement between O2Diesel Europe Limited, the Company, the Purchaser and O2Diesel Asia Limited establishing, among other things, the rights and duties among the shareholders of O2Diesel Asia Limited.
7.6 Execution of Joint Venture License Agreement . Each of O2Diesel Europe Limited, O2Diesel Asia Limited shall have executed and delivered to O2Diesel Asia Limited a mutually agreeable License Agreement licensing certain of O2Diesel Europe Limiteds intellectual property with respect to O2DO5.
7.7 Transfer of Shares of O2Diesel Asia Limited . O2Diesel Europe Limited and the Company shall together have tendered for transfer to the Purchaser 50 Ordinary Shares of O2Diesel Asia Limited.
The Companys obligation to sell and issue the Shares and the Warrants is, unless waived in writing by the Company, subject to the fulfillment as of the date of Closing of the following conditions:
8.1 Representations and Warranties Correct . The representations made in Section 4 hereof by the Purchasers shall be true and correct in all material respects as of the date of Closing.
9
8.2 Covenants . All covenants, agreements, and conditions contained in this Agreement to be performed or complied with by the Purchaser on or prior to the date of Closing shall have been performed or complied with in all material respects.
8.3 Listing . The Shares and shares of Common Stock issuable upon exercise of the Warrants shall have been authorized for listing on the American Stock Exchange, subject to official notice of issuance.
8.4 Execution of Joint Venture Shareholders Agreement . The Purchaser shall have executed and delivered to the Company a mutually agreeable Shareholders Agreement between O2Diesel Europe Limited, the Company, the Purchaser and O2Diesel Asia Limited establishing, among other things, the rights and duties among the shareholders of O2Diesel Asia Limited.
8.5 Execution of Other License Agreement . O2Diesel Asia Limited shall have executed and delivered to the Company a mutually agreeable License Agreement between O2Diesel Asia Limited and the Company sublicensing certain of O2Diesel Europe Limiteds intellectual property with respect to O2DO5.
8.6 Payment for Transfer of Shares of O2Diesel Asia Limited . The Purchaser shall have tendered US$750,000 as payment for the transfer of 50 Ordinary Shares of O2Diesel Asia Limited from O2Diesel Europe Limited and the Company.
9.1 Termination . This Agreement may be terminated (a) by mutual agreement of the Company and the Purchaser at any time or (b) by either the Company or the Purchaser if the Closing shall not have occurred by the thirtieth (30 th ) day following the date of this Agreement. If this Agreement is terminated in accordance with this Section 9.1 and the transactions contemplated hereby are not consummated, (i) this Agreement shall become null and void and of no further force and effect except that the terms and provisions of this Section 9 shall survive the termination of this Agreement and (ii) any termination of this Agreement shall not relieve any party hereto from any liability for any willful breach of its obligations hereunder.
9.2 Governing Law . This Agreement shall be governed in all respects by the internal laws of the State of Delaware without regard to conflict of laws provisions.
9.3 Survival . The warranties, representations, and covenants of the Company and the Purchasers contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and Closing.
9.4 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. 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.
10
9.5 Entire Agreement; Amendment . This Agreement, including the exhibits hereto, constitutes the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof, 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. 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 Purchaser.
9.6 Notices, etc . All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by facsimile transmission, by hand or by messenger, addressed:
Energenics Holdings Pte Limited
7 Temasek Boulevard
Suntec City Tower 1 #04-01A
Singapore 038987
Attn: Ronen Hazarika
Fax: +65 6415 1656
O2Diesel Corporation
100 Commerce Drive
Suite 300
Newark, Delaware 19713
Attn: Alan Rae
Fax: 302-266-7076
or at such other address as the Company shall have furnished to the Purchasers, with a copy to:
Arnold & Porter, LLP
1600 Tysons Blvd.
Suite 900
McLean, Virginia 22102
Attn: Kevin J. Lavin
Fax: 703-720-7399
Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when received if delivered personally, if sent by facsimile, the first business day after the date of confirmation that the facsimile has been successfully transmitted to the facsimile number for the party notified, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid.
9.7 Delays or Omissions . Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach or default of
11
another party under this Agreement, shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.
9.8 Expenses . The Company and the Purchasers shall bear their own expenses incurred on their own behalf with respect to this Agreement and the transactions contemplated hereby.
9.9 Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which together shall constitute one instrument.
9.10 Severability . In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision, which shall be replaced with an enforceable provision closest in intent and economic effect as the severed provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party.
9.11 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.
9.12 Designation of Forum and Consent to Jurisdiction . The parties hereto (i) designate the courts of the State of Delaware as the forum where all matters pertaining to this Agreement may be adjudicated, and (ii) by the foregoing designation, consent to the exclusive jurisdiction and venue of such courts for the purpose of adjudicating all matters pertaining to this Agreement.
9.13 Waiver of Jury Trial . Each of the parties hereto waives any right it may have to have a jury participate in resolving any dispute arising out of or related to this Agreement. Instead, any such disputes resolved in court shall be resolved in a bench trial without a jury.
[Remainder of Page Intentionally Left Blank]
12
The foregoing agreement is hereby executed effective as of the date first set forth above.
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O2DIESEL CORPORATION |
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By: |
/s/ Alan R. Rae |
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Name: |
Alan R. Rae |
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Title: |
Chief Executive Officer |
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ENERGENICS HOLDINGS PTE LTD |
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By: |
/s/ Ronen Hazarika |
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Name: |
Ronen Hazarika |
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Title: |
Director |
[Signature Page to Common Stock and Warrant Purchase Agreement]
Exhibit 10.26
Dated the 9th day of November 2007
O2DIESEL EUROPE LIMITED
(FORMERLY AAE TECHNOLOGIES INTERNATIONAL PLC)
as Licensor
and
O2DIESEL ASIA LIMITED
as Licensee
LICENCE AGREEMENT
WATSON, FARLEY & WILLIAMS
Singapore
INDEX
Clause |
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Page |
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1 |
INTERPRETATION |
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1 |
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2 |
GRANT |
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3 |
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3 |
SUB-LICENSING |
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3 |
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4 |
FURTHER ASSURANCES |
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3 |
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5 |
LICENSEES OBLIGATIONS |
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4 |
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6 |
PATENT PROSECUTION AND RENEWAL |
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4 |
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7 |
PROVISION OF LICENSED KNOW-HOW |
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4 |
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8 |
IMPROVEMENTS |
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5 |
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9 |
CONFIDENTIALITY |
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5 |
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10 |
PROTECTION OF LICENSED PATENTS & THIRD PARTY CLAIMS |
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6 |
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11 |
WARRANTIES |
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7 |
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12 |
DURATION AND TERMINATION |
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8 |
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13 |
GENERAL |
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9 |
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EXECUTION PAGE |
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12 |
i
THIS LICENCE is made the 9th day of November 2007
BETWEEN
(1) O 2 DIESEL EUROPE LIMITED (formerly AAE Technologies International Plc), a company registered in the Republic of Ireland (Company No. 327106) whose registered office is at 5 Lapps Quay, Cork, Republic of Ireland (the Licensor); and
(2) O2DIESEL ASIA LIMITED, a company registered in the Republic of Ireland (Company No. 444569) whose registered office is 3 Burlington Road, Dublin 4, Republic of Ireland (the Licensee)
(each a Party and together the Parties).
WHEREAS:
(A) The Licensor is the sole proprietor of the Licensed Patents used in the manufacture of the Licensed Products.
(B) The Licensor has agreed to grant and the Licensee has agreed to take an exclusive licence under the Licensed Patents and the Licensed Know-how in the Territory on the terms set out in this Licence.
IT IS AGREED as follows:
Associated Company |
|
means, in relation to a company, its parent undertaking or its subsidiary undertaking, or a subsidiary undertaking of its parent undertaking or any other person controlled by or under the same control either directly or indirectly (as defined in sections 258 and 259 of the Companies Act 1985); |
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Business of the Licensor |
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means the technical and commercial development of oxygenated diesel fuels using ethanol and the development and production of co-solvent technologies that enable the stable blending and storage of diesel fuels containing ethanol; |
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Competitor |
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means a person, firm or company, not being the Licensor or the licensees sub-licencees, engaged in the Business of the Licensor:- (i) in the Territory; or (ii) outside the Territory into the Territory; |
Confidential Information |
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means all information disclosed by one Party to the other in material form (including without limitation in a written document) provided that each such item of information would appear to a reasonable person to be confidential; |
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Improvement |
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means any improvement, enhancement or modification to the Licensed Products or their method of manufacture; |
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Licensed Know-How |
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means any methods, techniques, processes, discoveries or inventions (whether patentable or not), specifications, formulae, data and any other substantial and identifiable know-how which relates to the Licensed Products; |
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Licensed Patents |
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means
1. the patents and patent applications listed in Schedule 1 to which the Licensor is the sole registered proprietor;
2. all granted patents and patent applications in the Territory which are equivalent to and/or claim priority from the applications listed at Schedule 1 from time to time and granted patents issuing from such applications together with all re-issues and extensions of such granted patents; and
3. all patent applications and/or granted patents in the Territory for inventions developed by the Licensor or its Associated Companies which relate to the mixing of diesel fuel and ethanol; |
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Licensed Products |
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means the O2 Diesel Additive and the O2 Diesel Product and any other product manufactured using, or embodying, (i) the Licensed Patents and/or (ii) Licensed Know-How and/or (iii) any Improvement developed by the Head Licensor; |
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O2 Diesel Additive |
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means the O2 Diesel proprietary compound that allows the mixing of diesel fuel and ethanol; |
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O2 Diesel Product |
|
means oxygenated diesel fuel comprising base diesel fuel, the O2 Diesel Additive, ethanol and acetane improver; |
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Person(s) |
|
includes any person, firm or company or group of persons or unincorporated body; |
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Territory |
|
means India, Singapore, Thailand, Malaysia, Hong Kong, Australia, New Zealand, and South Africa, including all other countries in Asia in which the Licensor may choose to file further patent applications and any further territories agreed between the parties from time to time in writing. |
2
6
Means of Dispatch |
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Deemed Received |
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Delivery by hand or courier |
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The day of delivery; |
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Facsimile or other means of delivery |
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At the visible electronic reproduction provided that no delivery error message was subsequently received by the Party making the notice, |
provided that if, in accordance with the above provisions, any such notice or other communication would otherwise be deemed to have been given or made outside working hours (being 9.00 a.m. to 5.00 p.m. on a Business Day) such notice or other communication shall be deemed to be given or made at the start of working hours on the next Business Day. The relevant addressee, address and facsimile number of each Party for the purposes of this Agreement, subject to notification of change under this Clause are:
NAME OF PARTY |
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ADDRESS/FAX NUMBER |
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O2Diesel Europe |
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Attn:
Mr. Alan Rae
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O2Diesel Asia Limited |
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Attn:
Mr. Alan Rae
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10
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Fax: +1 (302) 266-7076 |
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And |
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Mr. Ronen Hazarika
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A Party shall notify the other of a change in its name, relevant address, address, telephone number or facsimile number for the purposes of this Clause. Such notification shall only be effective on the date specified in the notification as the date on which the change is to take place; or if no date is specified or the date specified is less than five clear Business Days after the date on which notice is given, the date falling five clear Business Days after notice of any such change has been given.
EXECUTION PAGE
AS WITNESS the hands of the duly authorised representatives of the parties the day and year first above written.
SIGNED BY |
/s/ Alan Rae |
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Name: ALAN RAE |
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Title: CEO |
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For and on behalf of O2DIESEL EUROPE LMITED |
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SIGNED BY |
/s/ Ronen Hazarika |
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Name: RONEN HAZARIKA |
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Title: Director |
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For and on behalf of O2DIESEL ASIA LIMITED |
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12
Schedule 1
The Licensed Patents
Invention |
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Country |
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Application No |
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Grant No |
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Fatty acid alkoxylate/alkananolamide fuel additives (Invention 2) |
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Australia |
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2002308016 |
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Pending. Acceptance advertised 27 Sept. 2007. |
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Alkanolamide-free selected fuel additives (Invention 3) |
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Australia |
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2002223789 |
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2002223789. Granted 14 June 2007. |
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Alkoxylate and Alcohol free fuel additives (Invention 4) |
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Australia |
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2002223787 |
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200223787 Granted 16 Nov. 2006. |
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|
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Emission reduction using additised E-diesel with diesel oxidation catalysts (Invention 5) |
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Australia |
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2005212304 |
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Pending |
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Fuel Additive alkoxylates & alkanolamides with higher alcohols). (Invention 6) |
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Australia |
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P118550AU |
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Pending |
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Fuel composition priority patent (AAE07) (Invention 1) |
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Hong Kong |
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00103597.1 |
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HK 1024259 Granted 12 Nov 2004. |
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Alkanolamide-free selected fuel additives (Invention 3) |
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Hong Kong |
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04101060.9 |
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Pending |
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Alkoxylate and Alcohol free fuel additives (Invention 4) |
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Hong Kong |
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04101059.2 |
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HK1059797 Granted 4 May 2007. |
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|
|
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|
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Emission reduction using additised E-diesel with diesel oxidation catalysts (Invention 5) |
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Hong Kong |
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07100559.6 |
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Pending |
|
|
|
|
|
|
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Fuel Additive alkoxylates & alkanolamides with higher alcohols. (Invention 6) |
|
Hong Kong |
|
P118550HK |
|
Pending |
|
|
|
|
|
|
|
Emission reduction using additised E-diesel with diesel oxidation catalysts (Invention 5) |
|
India |
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4448/DELNP/2006 |
|
Pending |
|
|
|
|
|
|
|
Fuel additive alkoxylates & alkanolamides with higher alcohols. |
|
India |
|
16571DEL/2007 |
|
Pending |
1
Invention |
|
Country |
|
Application No |
|
Grant No |
|
|
|
|
|
|
|
(Invention 6) |
|
|
|
|
|
|
|
|
|
|
|
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Fuel additive alkanolamides & alkoxylates with higher alcohols. (Invention 6) |
|
Indonesia |
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P118550 ID |
|
Pending |
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|
|
|
|
|
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Fuel Additive alkoxylates & alkanolamides with higher alcohols. (Invention 6) |
|
Malaysia |
|
P118550 MY |
|
Pending |
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|
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|
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Fuel Additive alkoxylates & alkanolamides with higher alcohols (Invention 6) |
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New Zealand |
|
P 118550 NZ |
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Pending |
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|
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Fuel Additive alkoxylates & alkanolamides with higher alcohols. (Invention 6) |
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Singapore |
|
P118550 SG |
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Pending |
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|
|
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Fuel Additive alkoxylates & alkanolamides with higher alcohols. (Invention 6) |
|
South Africa |
|
P118550 ZA |
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Pending |
|
|
|
|
|
|
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Fuel Additive alkoxylates & alkanolamides with higher alcohols. (Invention 6) |
|
Thailand |
|
P118550TH |
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Pending |
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Alkoxylated fatty acid/ester additive in fuel compositions. (Invention 7) |
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Thailand |
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0638413 |
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Pending |
2
EXHIBIT 10.27
Dated the 9th day of November 2007
O2DIESEL ASIA LIMITED
as Licensor
and
O2DIESEL CORPORATION
as Licensee
LICENCE AGREEMENT
WATSON, FARLEY & WILLIAMS
Singapore
[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. OMITTED TEXT IS INDICATED BY A *.
INDEX |
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|
Clause |
|
|
Page |
|
|
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1 |
INTERPRETATION |
|
1 |
|
|
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2 |
GRANT |
|
4 |
|
|
|
|
3 |
SUB-LICENSING |
|
4 |
|
|
|
|
4 |
FORMAL LICENCES |
|
5 |
|
|
|
|
5 |
LICENSEES OBLIGATIONS |
|
5 |
|
|
|
|
6 |
PROVISION OF LICENSED KNOW-HOW |
|
5 |
|
|
|
|
7 |
IMPROVEMENTS |
|
6 |
|
|
|
|
8 |
CONFIDENTIALITY |
|
6 |
|
|
|
|
9 |
PROTECTION OF LICENSED PATENTS & THIRD PARTY CLAIMS |
|
7 |
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10 |
INDEMNITY |
|
8 |
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11 |
ROYALTIES |
|
8 |
|
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|
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12 |
RESTRICTIONS ON THE PARTIES |
|
9 |
|
|
|
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13 |
LIABILITY UNDER THIS AGREEMENT |
|
9 |
|
|
|
|
14 |
DURATION AND TERMINATION |
|
9 |
|
|
|
|
15 |
GENERAL |
|
11 |
i
THIS LICENCE is made the 9th day of November 2007
BETWEEN
(1) O2DIESEL ASIA LIMITED, a company registered in the Republic of Ireland with Company No. 444569 and whose registered office is at 3 Burlington Road, Dublin 4, Republic of Ireland (the Licensor); and
(2) O2DIESEL CORPORATION, a company registered in the State of Delaware and trading on the American Stock Exchange and having its registered office at 100 Commerce Drive, Newark, DE 19713 USA (the Licensee)
(each a Party and together the Parties).
WHEREAS:
(A) The Licensor is the exclusive licensee of the rights to Licensed Patents and Licensed Know-How under the Head Licence. The Licensor has agreed to grant and the Licensee has agreed to take an exclusive licence under the Licensed Patents and the Licensed Know-How in the Territory on the terms set out in this Licence.
IT IS AGREED as follows:
Associated Company |
|
means, in relation to a company, its parent undertaking or its subsidiary undertaking, or a subsidiary undertaking of its parent undertaking or any other person controlled by or under the same control either directly or indirectly (as defined in sections 258 and 259 of the Companies Act 1985); |
|
|
|
Annual Net Profit |
|
means the Licensees total and received profit from sales of the Licensed Products in the Territory in any calendar year calculated by deducting from the total gross sales of the Licensed Products in the Territory in that calendar year (i) the manufacturing costs incurred by or paid to third parties, not being the Licensees Associated Companies, by the Licensee, (ii) the Royalties paid or to be paid to the Licensor in respect of the sale by the Licensee of the Licensed Products in the Territory in the relevant calendar year and (iii) cost of transportation, handling charges, taxes and any other costs and charges reasonably incurred by the Licensee in connection with, and required to facilitate, the supply and/or sale of the Licensed Products in the Territory; |
Confidential Information |
|
means all information disclosed by one Party to the other in material form (including without limitation in a written document) provided that each such item of information would appear to a reasonable person to be confidential; |
|
|
|
Control |
|
means the direct or indirect beneficial ownership of 25% or more of the combined voting power of shares; |
|
|
|
Current Treat Rate |
|
means the ratio of * parts per million of Licensed Product required to stabilize one blended unit of ethanol diesel fuel; |
|
|
|
Head Licence |
|
means the licence agreement between the Head Licensor and the Licensor dated 9 November 2007; |
|
|
|
Head Licensor |
|
means O2 Diesel Europe Limited; |
|
|
|
Improvement |
|
means any improvement, enhancement or modification to the Licensed Products or their method of manufacture; |
|
|
|
Licensed Know-How |
|
means any methods, techniques, processes, discoveries or inventions (whether patentable or not), specifications, formulae, data and any other substantial and identifiable know-how which relates to the Licensed Products; |
|
|
|
Licensed Patents |
|
means
1. the patents and patent applications listed in Schedule 1 to which the Licensor is the sole registered proprietor;
2. all granted patents and patent applications in the Territory which are equivalent to and/or claim priority from the applications listed at Schedule 1 from time to time and granted patents issuing from such applications together with all re-issues and extensions of such granted patents; and
3. all patent applications and/or granted patents in the Territory for inventions developed by the Licensor or its Associated Companies which relate to the mixing of diesel fuel and ethanol; |
|
|
|
Licensed Products |
|
means the O2 Diesel Additive and the O2 Diesel Product and any other product manufactured using, or embodying, (i) the Licensed Patents and/or (ii) Licensed Know-How and/or (iii) any Improvement developed by the Head Licensor; |
2
Net Sales Price |
|
means the actual invoiced price in an arms length transaction, less transport, freight and value added (or like) tax to the extent identified on the invoice provided that where the Licensed Products are:
(a) used by the Licensee; or
(b) old or otherwise supplied to any Associated Company of the Licensee (being a subsidiary or holding company of the Licensee, or any subsidiary of such holding company from time to time, where such terms have the meanings given in section 736 of the Companies Act 1985, as amended by the Companies Act 1989); or
(c) incorporated in another product and sold or otherwise supplied at a price which is included in the price of the other product,
the Net Sales Price of each such Licensed Product shall be deemed to be the Net Sales Price which would have been applied under this agreement, had such Licensed Product been transferred to an independent arms length customer; |
|
|
|
O2 Diesel Additive |
|
means the O2 Diesel proprietary compound that allows the mixing of diesel fuel and ethanol; |
|
|
|
O2 Diesel Product |
|
means oxygenated diesel fuel comprising base diesel fuel, the O2 Diesel Additive, ethanol and acetane improver; |
|
|
|
Person(s) |
|
includes any person, firm or company or group of persons or unincorporated body; |
|
|
|
Profit Royalties |
|
means *% of the Licensees Annual Net Profit payable in the event that the volume of Sales of the Licensed Products by the Licensee in the Territory in any calendar year exceeds * litres or the applicable volume as adjusted to take into account any downward adjustment from the Current Treat Rate; |
|
|
|
Royalties |
|
means the Sales Royalties and the Profit Royalties; |
|
|
|
Sales Royalties |
|
means *% of the Net Sales Price of Licensed Products made, sold or used in the Territory by Licensee; |
|
|
|
Sales |
|
means sales made by the Licensee of the Licensed Products in the Territory as a result of orders received by the Licensee in the relevant calendar year and in respect of which the Licensee has received payment; |
3
Supply Agreement |
|
means the Supply and Distribution Agreement between Energenics Pte Limited and the Licensee dated 15 September 2006; and |
|
|
|
Territory |
|
means India, Singapore, Thailand, Malaysia, Hong Kong, Australia, New Zealand, and South Africa, including all other countries in Asia in which the Licensor may choose to file further patent applications and any further territories agreed between the parties from time to time in writing. |
8
Means of Dispatch |
|
Deemed Received |
|
|
|
Delivery by hand or courier |
|
The day of delivery; |
|
|
|
Facsimile or other means of delivery |
|
At the visible electronic reproduction provided that no delivery error message was subsequently received by the Party making the notice, |
provided that if, in accordance with the above provisions, any such notice or other communication would otherwise be deemed to have been given or made outside working hours (being 9.00 a.m. to 5.00 p.m. on a Business Day) such notice or other communication shall be deemed to be given or made at the start of working hours on the next Business Day. The relevant addressee, address and facsimile number of each Party for the purposes of this Agreement, subject to notification of change under this Clause are:-
NAME OF PARTY |
|
ADDRESS/FAX NUMBER |
|
|
|
O2Diesel Corporation |
|
Mr
Alan Rae
|
|
|
|
O2Diesel Asia Limited |
|
Mr
Alan Rae
|
|
|
|
|
|
And |
|
|
|
|
|
Mr Ronen Hazarika
|
A Party shall notify the other of a change in its name, relevant address, address, telephone number or facsimile number for the purposes of this Clause. Such notification shall only
12
be effective on the date specified in the notification as the date on which the change is to take place; or if no date is specified or the date specified is less than five clear Business Days after the date on which notice is given, the date falling five clear Business Days after notice of any such change has been given.
EXECUTION PAGE
AS WITNESS the hands of the duly authorised representatives of the parties the day and year first above written.
SIGNED BY |
/s/ Ronen Hazarika |
|
|
||
Name: RONEN HAZARIKA |
||
|
||
Title: Director |
||
|
||
For and on behalf of O2DIESEL ASIA |
||
|
||
|
||
SIGNED BY |
/s/ Alan Rae |
|
|
||
Name: ALAN RAE |
||
|
||
Title: CEO |
||
|
||
For and on behalf of O2DIESEL CORPORATION |
14
SCHEDULE 1
THE LICENSED PATENTS
Invention |
|
Country |
|
Application No |
|
Grant No |
|
|
|
|
|
|
|
Fatty acid alkoxylate/alkananolamide fuel additives (Invention 2) |
|
Australia |
|
20O2308016 |
|
Pending. Acceptance advertised 27 Sept 2007. |
|
|
|
|
|
|
|
Alkanolamide-free selected fuel additives (Invention 3) |
|
Australia |
|
20O2223789 |
|
20O2223789. Granted 14 June 2007. |
|
|
|
|
|
|
|
Alkoxylate and Alcohol free fuel additives (Invention 4) |
|
Australia |
|
20O2223787 |
|
20O223787 Granted 16 Nov 2006. |
|
|
|
|
|
|
|
Emission reduction using additised E-diesel with diesel oxidation catalysts (Invention 5) |
|
Australia |
|
2005212304 |
|
Pending |
|
|
|
|
|
|
|
Fuel Additive alkoxylates & alkanolamides with higher alcohols). (Invention 6) |
|
Australia |
|
P118550AU |
|
Pending |
|
|
|
|
|
|
|
Fuel composition priority patent (AAE07) (Invention 1) |
|
Hong Kong |
|
00103597.1 |
|
HK 1O24259 Granted 12 Nov 2004. |
|
|
|
|
|
|
|
Alkanolamide-free selected fuel additives (Invention 3) |
|
Hong Kong |
|
04101060.9 |
|
Pending |
|
|
|
|
|
|
|
Alkoxylate and Alcohol free fuel additives (Invention 4) |
|
Hong Kong |
|
04101059.2 |
|
HK1059797 Granted 4 May 2007. |
|
|
|
|
|
|
|
Emission reduction using additised E-diesel with diesel oxidation catalysts (Invention 5) |
|
Hong Kong |
|
07100559.6 |
|
Pending |
15
Invention |
|
Country |
|
Application No |
|
Grant No |
|
|
|
|
|
|
|
Fuel Additive alkoxylates & alkanolamides with higher alcohols. (Invention 6) |
|
Hong Kong |
|
P118550HK |
|
Pending |
|
|
|
|
|
|
|
Emission reduction using additised E-diesel with diesel oxidation catalysts (Invention 5) |
|
India |
|
4448/DELNP/2006 |
|
Pending |
|
|
|
|
|
|
|
Fuel additive alkoxylates & alkanolamides with higher alcohols. (Invention 6) |
|
India |
|
1657/DEL/2007 |
|
Pending |
|
|
|
|
|
|
|
Fuel additive alkanolamides & alkoxylates with higher alcohols. |
|
Indonesia |
|
P118550 ID |
|
Pending |
|
|
|
|
|
|
|
Fuel Additive alkoxylates & alkanolamides with higher alcohols. (Invention 6) |
|
Malaysia |
|
P118550 MY |
|
Pending |
|
|
|
|
|
|
|
Fuel Additive alkoxylates & alkanolamides with higher alcohols (Invention 6) |
|
New Zealand |
|
P 118550 NZ |
|
Pending |
|
|
|
|
|
|
|
Fuel Additive alkoxylates & alkanolamides with higher alcohols. (Invention 6) |
|
Singapore |
|
P118550 SG |
|
Pending |
|
|
|
|
|
|
|
Fuel Additive alkoxylates & alkanolamides with higher alcohols. (Invention 6) |
|
South Africa |
|
P118550 ZA |
|
Pending |
|
|
|
|
|
|
|
Fuel Additive alkoxylates & alkanolamides with higher alcohols. (Invention 6) |
|
Thailand |
|
P118550TH |
|
Pending |
|
|
|
|
|
|
|
Alkoxylated fatty acid/ester additive in fuel compositions. (Invention 7) |
|
Thailand |
|
0638413 |
|
Pending |
16
Exhibit 10.28
Dated the 17th day of October 2007
O2DIESEL EUROPE LIMITED
as Existing Shareholder
and
ENERGENICS HOLDINGS PTE LTD
as New Shareholder
and
O2DIESEL ASIA LIMITED
as Company
SHAREHOLDERS AGREEMENT
EUGENE F. COLLINS,
Solicitors,
Temple Chambers,
3, Burlington Road,
Dublin 4
O28720.1
WATSON,
FARLEY & WILLIAMS
Singapore
[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. OMITTED TEXT IS INDICATED BY A *.
|
INDEX |
|
|
|
|
|
|
Clause |
|
Page |
|
|
|
|
|
1. |
DEFINITIONS AND INTERPRETATION |
|
2 |
|
|
|
|
2. |
OBJECTS/OBLIGATIONS OF THE COMPANY |
|
6 |
|
|
|
|
3. |
COMPLETION |
|
6 |
|
|
|
|
4. |
COVENANTS |
|
7 |
|
|
|
|
5. |
COVENANTS CONCERNING THE COMPANY |
|
8 |
|
|
|
|
6. |
ISSUE OF SHARES |
|
10 |
|
|
|
|
7. |
TRANSFER OF SHARES |
|
11 |
|
|
|
|
8. |
DIVIDEND POLICY |
|
12 |
|
|
|
|
9. |
WARRANTIES |
|
13 |
|
|
|
|
10. |
DURATION AND TERMINATION |
|
13 |
|
|
|
|
11. |
CONFIDENTIALITY |
|
14 |
|
|
|
|
12. |
RELATIONSHIP BETWEEN THE SHAREHOLDERS |
|
16 |
|
|
|
|
13. |
RELATIONSHIP BETWEEN THE SHAREHOLDERS AND THE COMPANY |
|
16 |
|
|
|
|
14. |
RELATIONSHIP BETWEEN THIS AGREEMENT AND THE ARTICLES OF ASSOCIATION |
|
16 |
|
|
|
|
15. |
RE-ORGANISATION |
|
17 |
|
|
|
|
16. |
NOTICES |
|
17 |
|
|
|
|
17. |
DISPUTES |
|
19 |
|
|
|
|
18. |
GENERAL |
|
19 |
|
|
|
|
19. |
INDEPENDENT LEGAL ADVICE |
|
20 |
|
|
|
|
20. |
GOVERNING LAW |
|
20 |
|
|
|
|
|
ANNEXURE A MEMORANDUM AND ARTICLES OF ASSOCIATION |
|
21 |
|
|
|
|
|
FIRST SCHEDULE PARTICULARS IN RELATION TO THE. COMPANY |
|
22 |
|
|
|
|
|
SECOND SCHEDULE DEED OF ADHERENCE |
|
23 |
|
|
|
|
|
THIRD SCHEDULE |
|
24 |
i
THIS AGREEMENT is made the 17 th day of October 2007
BETWEEN
(1) O2 DIESEL EUROPE LIMITED, a company registered under the laws of Ireland with company number 327106 and having its registered office at 5 Lapps Quay, Cork (the Existing Shareholder, which expression shall include its successors in title and permitted assigns);
(2) ENERGENICS HOLDINGS PTE LTD, a company registered under the laws of Singapore with registration number 200612991G and having its principal place of business at 7 Temasek Boulevard, #04-01A Suntec Tower One, Singapore 038987 (the New Shareholder, which expression shall include its successors in title and permitted assigns); and
( 3 ) O2 DIESEL ASIA LIMITED, a company registered under the laws of Ireland with company number 444569 and having its registered office at 3 Burlington Road, Dublin 4 (the Company, which expression shall include its successors in title).
WHEREAS:
(A) The Company is a limited company which was incorporated in Ireland on 13 August, 2007 under the Companies Acts, 1963 to 2006 and at the date hereof has an authorised share capital of 100,000,000 divided into 100,000,000 Ordinary Shares of 1.00 each (Ordinary Shares) of which 100 of the Ordinary Shares have been issued and are fully paid.
(B) The Existing Shareholder and O2Diesel Corporation, a company trading on the American Stock Exchange and having its principal place of business at 100 Commerce Drive, Suite 301, Newark, Delaware DE 19713, U.S.A. (the Departing Shareholder, which expression shall include its successors in title and permitted assigns) are the legal and beneficial owners of the entire issued share capital of the Company.
(C) The Existing Shareholder and the Departing Shareholder have together agreed to transfer 50% of the issued share capital in the Company to the New Shareholder at a total price of USD750,000 (the Transfer).
(D) The First Schedule contains particulars of the Company as at the date hereof.
(E) The Memorandum and Articles of Association of the Company as at the date hereof are in the form annexed hereto as Annexure A.
(F) The parties hereto have agreed to enter into this Agreement for the purposes of regulating the relationship between the New Shareholder and the Existing Shareholder as the holders of the entire issued and allotted share capital in the Company.
(G) The Company has joined in this Agreement for the purposes hereafter appearing.
1
NOW THIS AGREEMENT WITNESSETH that in consideration of the mutual covenants, conditions, agreements and payments hereafter set forth and provided for IT IS HEREBY COVENANTED AND AGREED by and between the parties hereto as follows:-
Affiliate means, in the case of a body corporate, each of its subsidiaries and holding companies (as such expressions are defined in Section 155 of the Companies Act, 1963) and any subsidiary of any such company, including any companies which become subsidiaries or holding companies after the date hereof;
Accountants means Cremin McCarthy OConnor, of 28 Harcourt Street, Dublin 2;
Auditors means any firm of independent international auditors;
Board means the Board of Directors of the Company;
Business means the entering into of the O2Diesel Europe Licence and the O2Diesel Asia Licence as well as the distribution of royalties received in accordance with this Agreement.
Business Day means a full working day in Dublin, Ireland and Singapore, being a day when a day when banks in these cities are open for business and not including Saturday, Sunday or a Bank or Public Holiday;
Closing means the consummation of the transaction as contemplated by this Agreement including but not limited to the payment and receipt of all monies from the New Shareholder, the agreement by the parties to the terms of the License Deeds and the execution and delivery of all documents by the parties.
Control and Change of Control means any event whereby any of the following occurs:-
50% of the combined voting power for the election of directors of that Shareholder immediately following the merger.
Competitor means a person, firm or company engaged in any present business of the Company:-
Companies Acts means the Companies Acts, 1963 to 2006 together with all orders and regulations made thereunder or made under the European Communities Acts, 1972 to 2006 and intended to be construed as one with the Companies Acts, 1963 to 2006;
Completion Date means the date of execution of this Agreement;
Confidential Information means all information, forms, specifications, processes statements, formulae, trade secrets, drawings and data (and copies and extracts made of or from that information and data) concerning:-
Deed of Adherence means a Deed of Adherence in the form set out in the Second Schedule;
Default Notice means a notice in the form of the Third Schedule;
Encumbrance means and includes any interest or equity of any person (including, without prejudice to the generality of the foregoing, any right to acquire, option or right of pre-emption) or any claim, charge, security, mortgage, pledge, lien or assignment or any other encumbrance, priority or security interest or arrangement of whatsoever nature over or in the relevant property;
EURO and means the lawful currency for the time being of, inter alia, Ireland;
Fair Value means, with respect to any Ordinary Shares at any time, the market value of those Ordinary Shares at that time as determined by the Auditors on the basis of the price a willing vendor would expect to receive in respect of the sale of those Ordinary Shares, there being taken into account any rights attaching thereto and not taking into account that the Ordinary Shares may constitute a minority interest.
3
In the event that (i) any person being party hereto or claiming through such party (being the intending or deemed vendor or the Company) disagrees with such market value of the Shares as determined by the Auditors of the Company or (ii) the Auditors are unprepared to determine such market value, within fourteen (14) days of such determination such person shall have the right to refer the matter to another firm of Auditors agreed between the parties or in default of agreement on the choice of such firm within a period of five (5) days to such firm of Auditors as shall be chosen by the President for the time being of the Institute of Auditors in Ireland who shall be requested to make such appointment within a period of fourteen (14) days of such party referring this matter to him.
The said firm of Auditors so agreed or so determined shall be requested to give their determination of such market value of the shares in the Company within a period of twenty-eight (28) days of their appointment. In making their determination the firm of Auditors chosen or appointed to determine the value of the Shares shall act as experts and the provisions of the Arbitration Acts 1954 to 1998 shall not apply and their decision shall be binding on the Company and the parties hereto.
The date by reference to which the Fair Value is to be determined is the date of the Transfer Notice, deemed Transfer Notice (as hereafter defined) or Board resolution (as the case may be);
Financial Year means the calendar year;
Holding Company means a holding company of the Company as defined in Section 155 of the Companies Act, 1963;
Industry Participant a customer, supplier or other person involved directly or indirectly in the Business or a person whose personal interests actually or potentially conflict with those of the Company;
Intellectual Property means the Intellectual Property as defined in the O2Diesel Asia License, and the O2Diesel Europe License;
Net Profit means the Revenue less all necessary, reasonable and prudent provisions and reserves in respect of the costs, taxation and expenses of the Company for the current financial year;
O2 Diesel Europe Licence means the Licence Deed dated the date hereof pursuant to which the Intellectual Property is licensed by the Existing Shareholder to the Company;
O2 Diesel Asia Licence means the Licence Deed dated the date hereof pursuant to which the Intellectual Property is licensed by the Company to the Departing Shareholder;
Related Company has the meaning given to that term in Section 140(5) of the Companies Act, 1990;
Revenue means all sums annually received by the Company by way of royalty payments in accordance with and pursuant to the terms of the O2Diesel Asia Licence;
4
Shareholders means the Existing Shareholder and the New Shareholder and any (if any) other holder of Ordinary Shares in the capital of the Company;
Shares means the shares of the Company;
Territory means all geographic areas detailed or envisaged in either or both of the O2 Diesel Europe Licence and the O2Diesel Asia Licence; and
Transfer Notice means the Notice in the form set out in the Fourth Schedule.
(d) an annual budget for the Company will be prepared by the Company, at least four weeks prior to the end of each Financial Year;
(e) all rents, rates, taxes, duties and assessments payable by it shall be paid on or before the date any such payments are due; and
(f) the Accountants shall maintain the books of account and records of the Company.
(A) where, so long as it is not solicited to do so, the relevant person, firm or company shall approach a Shareholder or shall have ceased to be such a customer (otherwise than by reason of canvassing or solicitation by any Shareholder); or
(B) where the canvassing or solicitation is undertaken by method of general advertising or mail-shots to particular segments (whether defined geographically or otherwise) of the potential market;
9
9.1 Each party hereby represents, warrants to and undertakes in favour of the other parties that:-
(a) until the passing of a resolution to wind up the Company or upon an order being made that the Company be wound up;
(b) until an encumbrance takes possession or a Receiver is appointed over any of the property or assets of the Company or an Examiner is appointed to the Company;
(c) until the Company ceases to carry on the Business; or
(d) until such time as a party to this Agreement ceases to hold Shares in the capital of the Company at which time the Agreement will be deemed to be terminated against the party disposing of all its shares but thereafter shall continue as regards each remaining party hereto unless terminated by agreement in writing by all such remaining parties.
13
10.2 The following constitute or shall be deemed to constitute an Event of Default by any of the Shareholders:-
(a) an encumbrancer takes possession or a receiver is appointed over any of the property or assets of that Shareholder (or, if applicable, its Holding Company);
(b) a Shareholder makes any voluntary arrangement with its creditors (in a situation that includes insolvency of that Shareholder);
(c) a Shareholder enters into liquidation (except for the purposes of an amalgamation, reconstruction or other re-organisation while still solvent and in such a manner that the company resulting from the re-organisation effectively agrees to be bound by or to assume the obligations imposed on that party under this Agreement and such reconstruction does not cause any loss to the Company);
(d) a Shareholder becomes bankrupt or there is any Change of Control in a Shareholder; or
(e) the provisions of clauses 10.2(b) to 10.2(d) shall apply equally to the Departing Shareholder as well as Energenics Pte Limited, and such shareholder shall be referred to as a Defaulting Shareholder.
(i) with the consent of the Owner;
(ii) with the consent of the Company and the Shareholders with respect to Confidential Information of the Company; or
(iii) to officers, employees and consultants or advisers of the Recipient and the Recipients Related Companies who have a need to know (and only to the extent that each has a need to know) and are aware that the Confidential Information must be kept confidential,
and the Shareholders must take or cause to be taken reasonable precautions necessary to maintain the secrecy and confidentiality of the Confidential Information.
Each of the Shareholders agree that if it is subsequently decided by those of the Shareholders holding more than 50% of the voting issued Ordinary Shares of the Company to establish a Holding Company for the Company then, in such circumstances, each of the Shareholders shall transfer to any such Holding Company his/its entire holding of shares in the Company in exchange, on a pro-rata basis, for shares in the said Holding Company and each of the Shareholders confirm, acknowledge, accept and agree that the provisions of this Agreement shall apply to, and govern, their relationship as shareholders in the Holding Company.
Means of Dispatch |
|
Deemed Received |
|
|
|
Delivery by hand or courier |
|
The day of delivery; |
|
|
|
Facsimile or other means of delivery |
|
At the visible electronic reproduction provided that no delivery error message was subsequently received by the Party making the notice, |
provided that if, in accordance with the above provisions, any such notice or other communication would otherwise be deemed to have been given or made outside working hours (being 9.00 a.m. to 5.00 p.m. on a Business Day) such notice or other
17
communication shall be deemed to be given or made at the start of working hours on the next Business Day.
NAME OF PARTY |
|
ADDRESS/FAX NUMBER |
|
|
|
(a) O2Diesel Europe |
|
Attn:
Mr. Alan Rae
|
|
|
|
(b) O2Diesel Asia Limited |
|
Attn:
Mr. Alan Rae
|
|
|
|
|
|
And |
|
|
|
|
|
Attn: Ronen Hazarika
|
|
|
|
(c) Energenics Holdings Pte Limited |
|
Attn: Ronen Hazarika
|
Each of the Shareholders acknowledges that they have the right to take independent legal advice and that they understand the effect and implications of this Agreement and every part thereof. Each of the Shareholders further acknowledges that they have entered into this Agreement without any coercion of any description.
This Agreement shall be governed by and construed in accordance with the laws of Ireland.
IN WITNESS WHEREOF this Agreement has been entered into the day and year first herein written.
20
ANNEXURE A
MEMORANDUM AND ARTICLES OF ASSOCIATION
21
FIRST SCHEDULE
PARTICULARS IN RELATION TO THE COMPANY
Registered Number: |
|
444569 |
|
|
|
Registered Office: |
|
3 Burlington Road, Dublin 4, Ireland |
|
|
|
Date of Incorporation: |
|
13 August, 2007 |
|
|
|
Annual Return Date: |
|
13 February, 2008 |
|
|
|
Directors: |
|
Alan
Rae
|
|
|
|
Secretary: |
|
David Shipman |
|
|
|
Authorised Capital: |
|
100,000,000 divided into 100,000,000 Ordinary Shares of 1.00 each |
|
|
|
Issued Capital: |
|
100 Ordinary Shares of 1.00 each |
|
|
|
Shareholders: |
|
O2
Diesel Europe Limited
|
|
|
|
Charges, Mortgages: |
|
Nil |
22
SECOND SCHEDULE
DEED OF ADHERENCE
By this Deed of Adherence I/We [ · ] of [ · ] having my address/our registered office at [ · ] intending to become a shareholder of O2Diesel Asia Limited (the Company) in respect of [number and class of shares] in the capital of the Company (the Shares) hereby agree[s] with the Company and each of its shareholders to comply with and to be bound by all of the provisions of a certain Share Subscription and Shareholders Agreement dated [ · ] between a list of persons referred to therein as therein as the Existing Shareholder, the New Shareholders and the Company (the Agreement) a copy of which has been delivered to me/us and which I/we have initialed and attached hereto for identification in all respects as if I/We was/were a party/parties to such agreement and named therein as a party/parties thereto of the same part/parts as the proposing transferor [name] of the Shares.
IN WITNESS whereof I/We have executed this Deed under Seal on the [ · ] day of [ · ]
SIGNED SEALED AND DELIVERED |
) |
by the said |
) |
in the presence of:- |
) |
or
PRESENT when the Common Seal |
) |
of |
) |
was affixed hereto:-of |
) |
|
|
Director |
|
|
|
|
|
|
|
Director/Secretary |
23
THIRD SCHEDULE
1 All Dividends declared by the Company shall be divided between the New Shareholder and the Existing Shareholder in the proportions set out in the table below.
2 For the avoidance of doubt, the division of dividends between the parties shall be determined by reference to the aggregate gross volume of the Licensed Product (as defined in the O2 Diesel Europe Licence) sold in the relevant year by the Departing Shareholder and paid for by Energenics Pte Ltd pursuant to the terms of a Supply & Distributorship Agreement dated 15 September 2006.
3 For the purposes of determining the aggregate gross volume of Licensed Product sold in the relevant year, the parties agree that the figure stated as the gross volume in each of the relevant invoices issued by the Departing Shareholder with respect to which payment has been received shall be conclusive.
4 In the event the New Shareholder achieves sales of the Licensed Product of the volumes set out in Column I below, it shall receive the corresponding percentage dividend as set out in Column II with the balance of the Dividend payable to the Existing Shareholder in the corresponding percentage as set out in Column III.
5 Payment of the dividend by the Company shall only be made to the extent that payment of the invoice by Energenics Pte Ltd has been made to the Departing Shareholder.
I |
|
II |
|
III |
|
Aggregate Annual Volume of
|
|
Percentage
Dividend
|
|
Percentage
Dividend
|
|
|
|
|
|
|
|
For sales up to * |
|
* |
% |
* |
% |
|
|
|
|
|
|
Between * and * |
|
* |
% |
* |
% |
|
|
|
|
|
|
Between * and * |
|
* |
% |
* |
% |
|
|
|
|
|
|
Between * and * |
|
* |
% |
* |
% |
|
|
|
|
|
|
Between * and * |
|
* |
% |
* |
% |
|
|
|
|
|
|
Any amount greater than * |
|
* |
% |
* |
% |
6 The volumes above are defined as applying to a Treat-rate of * parts per million. If the Treat-rates are adjusted downwards, i.e. , below * ppm, then the volume applicable will be adjusted downward on a pro rata basis.
7 The Treat-rate for the purposes of this Schedule shall mean the volume of the Licensed Product required to stabilize one blended unit of ethanol diesel fuel.
24
PRESENT when the Common Seal of |
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/s/ David Shipman |
O2 DIESEL EUROPE LIMITED |
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Director |
was affixed hereto:- |
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/s/ Alan Rae |
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Director/Secretary |
SIGNED by [ ] |
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on behalf of ENERGENICS HOLDINGS |
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PTE LIMITED |
/s/ Ronen Hazarika |
being duly authorised |
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PRESENT when the Common Seal of |
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/s/ David Shipman |
O2 DIESEL ASIA LIMITED |
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Director |
was affixed hereto:- |
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/s/ Alan Rae |
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Director/Secretary |
25
Exhibit 10.29
INVESTMENT WARRANT
WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THE SECURITIES ACT OR AN OPINION OF COUNSEL IS OBTAINED STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
October 17, 2007
O2DIESEL CORPORATION
Warrant for the Purchase of Common Stock (Void after October 17, 2012)
No. W-
FOR VALUE RECEIVED, this Warrant is hereby issued by O2DIESEL CORPORATION, a Delaware corporation with file number 3857061 and publicly traded on the American Stock Exchange and having its Principal Executive Offices at 100 Commerce Drive, Suite 301, Newark, Delaware 19713 (the Company), to Energenics Holdings Pte Ltd, a company incorporated in Singapore with registration number 200612991G and having its registered office at 7 Temasek Boulevard, Suntec City Tower 1 #04-01A, Singapore 038987 (the Holder). Subject to the provisions of this Warrant, the Company hereby grants to Holder the right to purchase up to 1,275,510 shares of the Companys common stock, par value $.0001 per share (Common Stock), at US$0.375 per share (Exercise Price).
The Holder agrees with the Company that this Warrant is issued, and all the rights hereunder shall be held, subject to all of the conditions, limitations and provisions set forth herein.
1. Exercise of Warrant. Subject to the terms and conditions set forth herein, the Holder may exercise this Warrant on or after April 17, 2008, but no later than October 17, 2012. To exercise this Warrant the Holder shall present and surrender this Warrant to the Company at its principal office, with the Warrant Exercise Form, attached hereto as Appendix A , duly executed by the Holder and accompanied by payment in cash or by certified check, payable to the order of the Company or by a wire transfer to the Company, of the aggregate Exercise Price for the total aggregate number of securities for which this Warrant is exercised. The Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter referred to as Warrant Stock.
Upon receipt by the Company of this Warrant, together with the executed Warrant Exercise Form and payment of the Exercise Price, if any, for the securities to be acquired, in proper form for exercise, and subject to the Holders compliance with all requirements of this Warrant for the exercise hereof, the Holder shall be deemed to be the holder of record of the
1
Warrant Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such securities shall not then be actually delivered to the Holder; provided, however, that no exercise of this Warrant shall be effective, and the Company shall have no obligation to issue any Warrant Stock to the Holder upon any attempted exercise of this Warrant, unless the Holder shall have first delivered to the Company, in form and substance reasonably satisfactory to the Company, appropriate representations so as to provide the Company reasonable assurances that the securities issuable upon exercise may be issued without violation of the registration requirements of the Securities Act and applicable state securities laws, including without limitation representations that the exercising Holder is an accredited investor as defined in Regulation D under the Securities Act and that the Holder is familiar with the Company and its business and financial condition and has had an opportunity to ask questions and receive documents relating thereto to his reasonable satisfaction.
2. Reservation of Shares. The Company will reserve for issuance and delivery upon exercise of this Warrant all shares of Warrant Stock. All such shares shall be duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and non-assessable and free of all preemptive rights.
3. Assignment or Loss of Warrant. Subject to the transfer restrictions herein (including Section 6), upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form, attached hereto as Appendix B , duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be canceled. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and of reasonably satisfactory indemnification by the Holder, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a replacement Warrant of like tenor and date.
4. Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant.
5. Adjustments.
(a) Adjustment for Recapitalization. If the Company shall at any time after the date hereof subdivide its outstanding shares of Common Stock by recapitalization, reclassification or split-up thereof, or if the Company shall declare a stock dividend or distribute shares of Common Stock to its shareholders, the number of shares of Common Stock subject to this Warrant immediately prior to such subdivision shall be proportionately increased, and if the Company shall at any time after the date hereof combine the outstanding shares of Common Stock by recapitalization, reclassification or combination thereof, the number of shares of Common Stock subject to this Warrant immediately prior to such combination shall be proportionately decreased.
2
(b) Adjustment for Reorganization, Consolidation, Merger, Etc. If at any time after the date hereof the Company has a Change in Control, the Holder agrees that, either (a) Holder shall exercise its purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Change in Control or (b) if the Holder elects not to exercise the Warrant, this Warrant will expire upon the consummation of the Change of Control. For purposes of this Warrant, a Change in Control shall be deemed to occur in the event of a change in ownership or control of the Company effected through any of the following transactions: (i) the acquisition, directly or indirectly, by any person or related group of persons (other than the Company or a person that immediately before the Change of Control directly or indirectly controls, or is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of outstanding securities possessing more than fifty percent (50%) of the total combined voting power of the Companys outstanding securities; or (ii) the sale, transfer or other disposition of all or substantially all of the Companys assets; or (iii) the consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than fifty percent (50%) of the combined voting power of the continuing or surviving entitys 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.
(c) Certificate as to Adjustments. The adjustments provided in this Section 5 shall be interpreted and applied by the Company in such a fashion so as to reasonably preserve the applicability and benefits of this Warrant (but not to increase or diminish the benefits hereunder). In each case of an adjustment in the number of shares of Common Stock receivable on the exercise of the Warrant, the Company at its expense will promptly compute such adjustment in accordance with the terms of the Warrant and prepare a certificate executed by two executive officers of the Company setting forth such adjustment and showing in detail the facts upon which such adjustment is based. The Company will mail a copy of each such certificate to each Holder.
(d) Notices of Record Date, Etc. In the event that:
(i) the Company shall declare any dividend or other distribution to the holders of Common Stock, or authorizes the granting to Common Stock holders of any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities; or
(ii) the Company has a Change in Control; or
(iii) the Company authorizes any voluntary or involuntary dissolution, liquidation or winding up of the Company,
then, and in each such case, the Company shall mail or cause to be mailed to the holder of this Warrant at the time outstanding a notice specifying, as the case may be, (a) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (b) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or
3
winding up is to take place, and the time, if any is to be fixed, as to which the holders of record of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding up. Such notice shall be mailed at least 20 days prior to the date therein specified.
(e) No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against impairment.
6. Transfer to Comply with the Securities Act. This Warrant and any Warrant Stock may not be sold, transferred, pledged, hypothecated or otherwise disposed of except as follows: (a) to a person who, in the opinion of counsel to the Company, is a person to whom this Warrant or the Warrant Stock may legally be transferred without registration and without the delivery of a current prospectus under the Securities Act with respect thereto and then only against receipt of an agreement of such person to comply with the provisions of this Section 6 with respect to any resale or other disposition of such securities; or (b) to any person upon delivery of a prospectus then meeting the requirements of the Securities Act relating to such securities and the offering thereof for such sale or disposition, and thereafter to all successive assignees.
7. Reports Under Securities Exchange Act of 1934. With a view to making available to the Holder the benefits of Rule 144 under the Securities Act (Rule 144) and any other rule or regulation of the Securities Exchange Commission (Commission) that may at any time permit a Holder to sell securities of the Company to the public without registration, the Company shall:
(a) make and keep public information available, as required by Rule 144, at all times;
(b) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to the Holder, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act; (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the Commission which permits the selling of any such securities without registration.
8. Legend.
(a) Unless the shares of Warrant Stock have been registered under the Securities Act, upon exercise of this Warrant and the issuance of any of the shares of Warrant
4
Stock, all certificates representing shares shall bear on the face thereof substantially the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED BY THE HOLDER FOR ITS OWN ACCOUNT, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO THE DISTRIBUTION OF SUCH SECURITIES. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS, (II) IN COMPLIANCE WITH RULE 144 UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR (III) UPON THE DELIVERY TO O2DIESEL CORPORATION (THE COMPANY) OF AN OPINION OF COUNSEL OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/ OR COMPLIANCE IS NOT REQUIRED.
(b) The legend requirements shall terminate when (i) the shares in question shall have been effectively registered under the Securities Act and disposed of pursuant thereto or (ii) the Company shall have received an opinion of counsel reasonably satisfactory to it that such legend is not required in order to insure compliance with the Securities Act.
(c) Upon termination of the legend requirements as per Section 8(b) above, the Company shall instruct its transfer agent to issue a new share certificate at no cost to the Holder without a legend limiting the sale or transfer of the shares.
9. Notices. All notices required hereunder shall be in writing and shall be deemed given by facsimile transmission, delivered personally or within one day after mailing when mailed by an overnight courier service, to the Company or the Holder, as the case may be, for whom such notice is intended, if to the Holder, at the address of such party as set forth in the Common Stock and Warrant Purchase Agreement, dated as of October 17, 2007, between the Company and Energenics Holdings Pte Ltd, or if to the Company, O2Diesel Corporation, 100 Commerce Drive, Suite 301, Newark, Delaware 19713 or at such other address of which the Company or the Holder has been advised by notice hereunder.
10. Applicable Law. The Warrant is issued under and shall for all purposes be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflict of laws provisions of such State.
5
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on its behalf, in its corporate name, by its duly authorized officer, all as of the day and year first above written.
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O2Diesel Corporation |
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By: |
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Alan R. Rae |
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Chief Executive Officer |
6
Appendix A
WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to (i) exercise the within Warrant to purchase shares of the Common Stock of O2DIESEL CORPORATION, a Delaware corporation, pursuant to the provisions of Section 1 of the attached Warrant, and hereby makes payment of $ in payment therefor, or (ii) exercise this Warrant for the purchase of shares of Common Stock, pursuant to the provisions of Section 1 of the attached Warrant. The undersigneds execution of this form constitutes the undersigneds agreement to all the terms of the Warrant and to comply therewith.
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7
Appendix B
ASSIGNMENT FORM
FOR VALUE RECEIVED (Assignor) hereby sells, assigns and transfers unto (Assignee) all of Assignors right, title and interest in, to and under Warrant No. W- issued by , dated .
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The undersigned agrees to all of the terms of the Warrant and to comply therewith.
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8
Exhibit 10.30
JV WARRANT
WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THE SECURITIES ACT OR AN OPINION OF COUNSEL IS OBTAINED STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
[Date]
O2DIESEL CORPORATION
Warrant for the Purchase of Common Stock (Void after October 17, 2012)
No. W-
FOR VALUE RECEIVED, this Warrant is hereby issued by O2DIESEL CORPORATION, a Delaware corporation with file number 3857061 and publicly traded on the American Stock Exchange and having its Principal Executive Offices at 100 Commerce Drive, Suite 301, Newark, Delaware 19713 (the Company), to Energenics Holdings Pte Ltd, a company incorporated in Singapore with registration number 200612991G and having its registered office at 7 Temasek Boulevard, Suntec City Tower 1 #04-01A, Singapore 038987 (the Holder). Subject to the provisions of this Warrant, the Company hereby grants to Holder the right to purchase up to 1,500,000 shares of the Companys common stock, par value $.0001 per share (Common Stock), at US$0.375 per share (Exercise Price).
The Holder agrees with the Company that this Warrant is issued, and all the rights hereunder shall be held, subject to all of the conditions, limitations and provisions set forth herein.
1. Exercise of Warrant. Subject to the terms and conditions set forth herein, the Holder may exercise this Warrant on or after the date hereof, but no later than October 17, 2012. To exercise this Warrant the Holder shall present and surrender this Warrant to the Company at its principal office, with the Warrant Exercise Form, attached hereto as Appendix A , duly executed by the Holder and accompanied by payment in cash or by certified check, payable to the order of the Company or by a wire transfer to the Company, of the aggregate Exercise Price for the total aggregate number of securities for which this Warrant is exercised. The Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter referred to as Warrant Stock.
Upon receipt by the Company of this Warrant, together with the executed Warrant Exercise Form and payment of the Exercise Price, if any, for the securities to be acquired, in proper form for exercise, and subject to the Holders compliance with all requirements of this Warrant for the exercise hereof, the Holder shall be deemed to be the holder of record of the Warrant Stock issuable upon such exercise, notwithstanding that the stock transfer books of the
1
Company shall then be closed or that certificates representing such securities shall not then be actually delivered to the Holder; provided, however, that no exercise of this Warrant shall be effective, and the Company shall have no obligation to issue any Warrant Stock to the Holder upon any attempted exercise of this Warrant, unless the Holder shall have first delivered to the Company, in form and substance reasonably satisfactory to the Company, appropriate representations so as to provide the Company reasonable assurances that the securities issuable upon exercise may be issued without violation of the registration requirements of the Securities Act and applicable state securities laws, including without limitation representations that the exercising Holder is an accredited investor as defined in Regulation D under the Securities Act and that the Holder is familiar with the Company and its business and financial condition and has had an opportunity to ask questions and receive documents relating thereto to his reasonable satisfaction.
2. Reservation of Shares. The Company will reserve for issuance and delivery upon exercise of this Warrant all shares of Warrant Stock. All such shares shall be duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and non-assessable and free of all preemptive rights.
3. Assignment or Loss of Warrant. Subject to the transfer restrictions herein (including Section 6), upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form, attached hereto as Appendix B , duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be canceled. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and of reasonably satisfactory indemnification by the Holder, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a replacement Warrant of like tenor and date.
4. Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant.
5. Adjustments.
(a) Adjustment for Recapitalization. If the Company shall at any time after the date hereof subdivide its outstanding shares of Common Stock by recapitalization, reclassification or split-up thereof, or if the Company shall declare a stock dividend or distribute shares of Common Stock to its shareholders, the number of shares of Common Stock subject to this Warrant immediately prior to such subdivision shall be proportionately increased, and if the Company shall at any time after the date hereof combine the outstanding shares of Common Stock by recapitalization, reclassification or combination thereof, the number of shares of Common Stock subject to this Warrant immediately prior to such combination shall be proportionately decreased.
(b) Adjustment for Reorganization, Consolidation, Merger, Etc. If at any time after the date hereof the Company has a Change in Control, the Holder agrees that, either
2
(a) Holder shall exercise its purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Change in Control or (b) if the Holder elects not to exercise the Warrant, this Warrant will expire upon the consummation of the Change of Control. For purposes of this Warrant, a Change in Control shall be deemed to occur in the event of a change in ownership or control of the Company effected through any of the following transactions: (i) the acquisition, directly or indirectly, by any person or related group of persons (other than the Company or a person that immediately before the Change of Control directly or indirectly controls, or is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of outstanding securities possessing more than fifty percent (50%) of the total combined voting power of the Companys outstanding securities; or (ii) the sale, transfer or other disposition of all or substantially all of the Companys assets; or (iii) the consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than fifty percent (50%) of the combined voting power of the continuing or surviving entitys 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.
(c) Certificate as to Adjustments. The adjustments provided in this Section 5 shall be interpreted and applied by the Company in such a fashion so as to reasonably preserve the applicability and benefits of this Warrant (but not to increase or diminish the benefits hereunder). In each case of an adjustment in the number of shares of Common Stock receivable on the exercise of the Warrant, the Company at its expense will promptly compute such adjustment in accordance with the terms of the Warrant and prepare a certificate executed by two executive officers of the Company setting forth such adjustment and showing in detail the facts upon which such adjustment is based. The Company will mail a copy of each such certificate to each Holder.
(d) Notices of Record Date, Etc. In the event that:
(i) the Company shall declare any dividend or other distribution to the holders of Common Stock, or authorizes the granting to Common Stock holders of any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities; or
(ii) the Company has a Change in Control; or
(iii) the Company authorizes any voluntary or involuntary dissolution, liquidation or winding up of the Company,
then, and in each such case, the Company shall mail or cause to be mailed to the holder of this Warrant at the time outstanding a notice specifying, as the case may be, (a) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (b) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding up is to take place, and the time, if any is to be fixed, as to which the holders of record of Common Stock shall be entitled to exchange their shares of Common Stock for securities or
3
other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding up. Such notice shall be mailed at least 20 days prior to the date therein specified.
(e) No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against impairment.
6. Transfer to Comply with the Securities Act. This Warrant and any Warrant Stock may not be sold, transferred, pledged, hypothecated or otherwise disposed of except as follows: (a) to a person who, in the opinion of counsel to the Company, is a person to whom this Warrant or the Warrant Stock may legally be transferred without registration and without the delivery of a current prospectus under the Securities Act with respect thereto and then only against receipt of an agreement of such person to comply with the provisions of this Section 6 with respect to any resale or other disposition of such securities; or (b) to any person upon delivery of a prospectus then meeting the requirements of the Securities Act relating to such securities and the offering thereof for such sale or disposition, and thereafter to all successive assignees.
7. Reports Under Securities Exchange Act of 1934. With a view to making available to the Holder the benefits of Rule 144 under the Securities Act (Rule 144) and any other rule or regulation of the Securities Exchange Commission (Commission) that may at any time permit a Holder to sell securities of the Company to the public without registration, the Company shall:
(a) make and keep public information available, as required by Rule 144, at all times;
(b) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to the Holder, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act; (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the Commission which permits the selling of any such securities without registration.
8. Legend.
(a) Unless the shares of Warrant Stock have been registered under the Securities Act, upon exercise of this Warrant and the issuance of any of the shares of Warrant Stock, all certificates representing shares shall bear on the face thereof substantially the following legend:
4
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED BY THE HOLDER FOR ITS OWN ACCOUNT, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO THE DISTRIBUTION OF SUCH SECURITIES. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS, (II) IN COMPLIANCE WITH RULE 144 UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR (III) UPON THE DELIVERY TO O2DIESEL CORPORATION (THE COMPANY) OF AN OPINION OF COUNSEL OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/ OR COMPLIANCE IS NOT REQUIRED.
(b) The legend requirements shall terminate when (i) the shares in question shall have been effectively registered under the Securities Act and disposed of pursuant thereto or (ii) the Company shall have received an opinion of counsel reasonably satisfactory to it that such legend is not required in order to insure compliance with the Securities Act.
(c) Upon termination of the legend requirements as per Section 8(b) above, the Company shall instruct its transfer agent to issue a new share certificate at no cost to the Holder without a legend limiting the sale or transfer of the shares.
9. Notices. All notices required hereunder shall be in writing and shall be deemed given by facsimile transmission, delivered personally or within one day after mailing when mailed by an overnight courier service, to the Company or the Holder, as the case may be, for whom such notice is intended, if to the Holder, at the address of such party as set forth in the Common Stock and Warrant Purchase Agreement, dated as of October 17, 2007, between the Company and Energenics Holdings Pte Ltd, or if to the Company, O2Diesel Corporation, 100 Commerce Drive, Suite 301, Newark, Delaware 19713 or at such other address of which the Company or the Holder has been advised by notice hereunder.
10. Applicable Law. The Warrant is issued under and shall for all purposes be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflict of laws provisions of such State.
5
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on its behalf, in its corporate name, by its duly authorized officer, all as of the day and year first above written.
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O2Diesel Corporation |
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By: |
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David H. Shipman |
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Chief Financial Officer |
6
Appendix A
WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to (i) exercise the within Warrant to purchase shares of the Common Stock of O2DIESEL CORPORATION, a Delaware corporation, pursuant to the provisions of Section 1 of the attached Warrant, and hereby makes payment of $ in payment therefor, or (ii) exercise this Warrant for the purchase of shares of Common Stock, pursuant to the provisions of Section 1 of the attached Warrant. The undersigneds execution of this form constitutes the undersigneds agreement to all the terms of the Warrant and to comply therewith.
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7
Appendix B
ASSIGNMENT FORM
FOR VALUE RECEIVED (Assignor) hereby sells, assigns and transfers unto (Assignee) all of Assignors right, title and interest in, to and under Warrant No. W- issued by , dated .
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8
Exhibit 10.31
Form of Market Development Warrant
WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THE SECURITIES ACT OR AN OPINION OF COUNSEL IS OBTAINED STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
[Date]
O2DIESEL CORPORATION
Warrant for the Purchase of Common Stock (Void after October 17, 2012)
No. W-
FOR VALUE RECEIVED, this Warrant is hereby issued by O2DIESEL CORPORATION, a Delaware corporation with file number 3857061 and publicly traded on the American Stock Exchange and having its Principal Executive Offices at 100 Commerce Drive, Suite 301, Newark, Delaware 19713 (the Company), to Energenics Holdings Pte Ltd, a company incorporated in Singapore with registration number 200612991G and having its registered office at 7 Temasek Boulevard, Suntec City Tower 1 #04-01A, Singapore 038987 (the Holder). Subject to the provisions of this Warrant, the Company hereby grants to Holder the right to purchase up to shares of the Companys common stock, par value $.0001 per share (Common Stock), at US$0.375 per share (Exercise Price).
The Holder agrees with the Company that this Warrant is issued, and all the rights hereunder shall be held, subject to all of the conditions, limitations and provisions set forth herein.
1. Exercise of Warrant. Subject to the terms and conditions set forth herein, the Holder may exercise this Warrant on or after date hereof and no later than October 17, 2012. To exercise this Warrant the Holder shall present and surrender this Warrant to the Company at its principal office, with the Warrant Exercise Form, attached hereto as Appendix A , duly executed by the Holder and accompanied by payment in cash or by certified check, payable to the order of the Company or by a wire transfer to the Company, of the aggregate Exercise Price for the total aggregate number of securities for which this Warrant is exercised. The Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter referred to as Warrant Stock.
Upon receipt by the Company of this Warrant, together with the executed Warrant Exercise Form and payment of the Exercise Price, if any, for the securities to be acquired, in proper form for exercise, and subject to the Holders compliance with all requirements of this Warrant for the exercise hereof, the Holder shall be deemed to be the holder of record of the Warrant Stock issuable upon such exercise, notwithstanding that the stock transfer books of the
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Company shall then be closed or that certificates representing such securities shall not then be actually delivered to the Holder; provided, however, that no exercise of this Warrant shall be effective, and the Company shall have no obligation to issue any Warrant Stock to the Holder upon any attempted exercise of this Warrant, unless the Holder shall have first delivered to the Company, in form and substance reasonably satisfactory to the Company, appropriate representations so as to provide the Company reasonable assurances that the securities issuable upon exercise may be issued without violation of the registration requirements of the Securities Act and applicable state securities laws, including without limitation representations that the exercising Holder is an accredited investor as defined in Regulation D under the Securities Act and that the Holder is familiar with the Company and its business and financial condition and has had an opportunity to ask questions and receive documents relating thereto to his reasonable satisfaction.
2. Reservation of Shares. The Company will reserve for issuance and delivery upon exercise of this Warrant all shares of Warrant Stock. All such shares shall be duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and non-assessable and free of all preemptive rights.
3. Assignment or Loss of Warrant. Subject to the transfer restrictions herein (including Section 6), upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form, attached hereto as Appendix B , duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be canceled. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and of reasonably satisfactory indemnification by the Holder, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a replacement Warrant of like tenor and date.
4. Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant.
5. Adjustments.
(a) Adjustment for Recapitalization. If the Company shall at any time after the date hereof subdivide its outstanding shares of Common Stock by recapitalization, reclassification or split-up thereof, or if the Company shall declare a stock dividend or distribute shares of Common Stock to its shareholders, the number of shares of Common Stock subject to this Warrant immediately prior to such subdivision shall be proportionately increased, and if the Company shall at any time after the date hereof combine the outstanding shares of Common Stock by recapitalization, reclassification or combination thereof, the number of shares of Common Stock subject to this Warrant immediately prior to such combination shall be proportionately decreased.
(b) Adjustment for Reorganization, Consolidation, Merger, Etc. If at any time after the date hereof the Company has a Change in Control, the Holder agrees that, either
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(a) Holder shall exercise its purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Change in Control or (b) if the Holder elects not to exercise the Warrant, this Warrant will expire upon the consummation of the Change of Control. For purposes of this Warrant, a Change in Control shall be deemed to occur in the event of a change in ownership or control of the Company effected through any of the following transactions: (i) the acquisition, directly or indirectly, by any person or related group of persons (other than the Company or a person that immediately before the Change of Control directly or indirectly controls, or is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of outstanding securities possessing more than fifty percent (50%) of the total combined voting power of the Companys outstanding securities; or (ii) the sale, transfer or other disposition of all or substantially all of the Companys assets; or (iii) the consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than fifty percent (50%) of the combined voting power of the continuing or surviving entitys 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.
(c) Certificate as to Adjustments. The adjustments provided in this Section 5 shall be interpreted and applied by the Company in such a fashion so as to reasonably preserve the applicability and benefits of this Warrant (but not to increase or diminish the benefits hereunder). In each case of an adjustment in the number of shares of Common Stock receivable on the exercise of the Warrant, the Company at its expense will promptly compute such adjustment in accordance with the terms of the Warrant and prepare a certificate executed by two executive officers of the Company setting forth such adjustment and showing in detail the facts upon which such adjustment is based. The Company will mail a copy of each such certificate to each Holder.
(d) Notices of Record Date, Etc. In the event that:
(i) the Company shall declare any dividend or other distribution to the holders of Common Stock, or authorizes the granting to Common Stock holders of any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities; or
(ii) the Company has a Change in Control; or
(iii) the Company authorizes any voluntary or involuntary dissolution, liquidation or winding up of the Company,
then, and in each such case, the Company shall mail or cause to be mailed to the holder of this Warrant at the time outstanding a notice specifying, as the case may be, (a) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (b) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding up is to take place, and the time, if any is to be fixed, as to which the holders of record of Common Stock shall be entitled to exchange their shares of Common Stock for securities or
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other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding up. Such notice shall be mailed at least 20 days prior to the date therein specified.
(e) No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against impairment.
6. Transfer to Comply with the Securities Act. This Warrant and any Warrant Stock may not be sold, transferred, pledged, hypothecated or otherwise disposed of except as follows: (a) to a person who, in the opinion of counsel to the Company, is a person to whom this Warrant or the Warrant Stock may legally be transferred without registration and without the delivery of a current prospectus under the Securities Act with respect thereto and then only against receipt of an agreement of such person to comply with the provisions of this Section 6 with respect to any resale or other disposition of such securities; or (b) to any person upon delivery of a prospectus then meeting the requirements of the Securities Act relating to such securities and the offering thereof for such sale or disposition, and thereafter to all successive assignees.
7. Reports Under Securities Exchange Act of 1934. With a view to making available to the Holder the benefits of Rule 144 under the Securities Act (Rule 144) and any other rule or regulation of the Securities Exchange Commission (Commission) that may at any time permit a Holder to sell securities of the Company to the public without registration, the Company shall:
(a) make and keep public information available, as required by Rule 144, at all times;
(b) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to the Holder, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act; (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the Commission which permits the selling of any such securities without registration.
8. Legend.
(a) Unless the shares of Warrant Stock have been registered under the Securities Act, upon exercise of this Warrant and the issuance of any of the shares of Warrant Stock, all certificates representing shares shall bear on the face thereof substantially the following legend:
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED BY THE HOLDER FOR ITS OWN ACCOUNT, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO THE DISTRIBUTION OF SUCH SECURITIES. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS, (II) IN COMPLIANCE WITH RULE 144 UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR (III) UPON THE DELIVERY TO O2DIESEL CORPORATION (THE COMPANY) OF AN OPINION OF COUNSEL OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/ OR COMPLIANCE IS NOT REQUIRED.
(b) The legend requirements shall terminate when (i) the shares in question shall have been effectively registered under the Securities Act and disposed of pursuant thereto or (ii) the Company shall have received an opinion of counsel reasonably satisfactory to it that such legend is not required in order to insure compliance with the Securities Act.
(c) Upon termination of the legend requirements as per Section 8(b) above, the Company shall instruct its transfer agent to issue a new share certificate at no cost to the Holder without a legend limiting the sale or transfer of the shares.
9. Notices. All notices required hereunder shall be in writing and shall be deemed given by facsimile transmission, delivered personally or within one day after mailing when mailed by an overnight courier service, to the Company or the Holder, as the case may be, for whom such notice is intended, if to the Holder, at the address of such party as set forth in the Common Stock and Warrant Purchase Agreement, dated as of October 17 2007, between the Company and Energenics Holdings Pte Ltd, or if to the Company, O2Diesel Corporation, 100 Commerce Drive, Suite 301, Newark, Delaware 19713 or at such other address of which the Company or the Holder has been advised by notice hereunder.
10. Applicable Law. The Warrant is issued under and shall for all purposes be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflict of laws provisions of such State.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on its behalf, in its corporate name, by its duly authorized officer, all as of the day and year first above written.
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Appendix A
WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to (i) exercise the within Warrant to purchase shares of the Common Stock of O2DIESEL CORPORATION, a Delaware corporation, pursuant to the provisions of Section 1 of the attached Warrant, and hereby makes payment of $ in payment therefor, or (ii) exercise this Warrant for the purchase of shares of Common Stock, pursuant to the provisions of Section 1 of the attached Warrant. The undersigneds execution of this form constitutes the undersigneds agreement to all the terms of the Warrant and to comply therewith.
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Appendix B
ASSIGNMENT FORM
FOR VALUE RECEIVED (Assignor) hereby sells, assigns and transfers unto (Assignee) all of Assignors right, title and interest in, to and under Warrant No. W- issued by , dated .
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8
Exhibit 10.32
AMENDMENT No. 1 to
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
This AMENDMENT No. 1 (this Amendment ), dated as of December 10, 2007, by and between O2Diesel Corporation, a corporation organized and existing under the laws of the State of Delaware (the Company ), and Energenics Holdings Pte Ltd, a company incorporated in Singapore (the Energenics ).
W I T N E S S E T H
WHEREAS , the Company and Seller are parties to the Common Stock and Warrant Purchase Agreement, dated October 17, 2007 (the Purchase Agreement ), pursuant to which the Company is selling to Energenics shares of the Companys common stock, par value $0.0001 per share (the Common Stoc k) and warrants to purchase shares of Common Stock ( Investment Warrant ); and
WHEREAS , the parties wish to modify certain provisions of the Purchase Agreement as provided herein.
NOW, THEREFORE , in consideration of the premises and the respective agreements hereinafter set forth, the Parties hereby agree as follows:
1. AMENDMENTS TO THE PURCHASE AGREEMENT.
a. In Section 1.1(a), the number (i) 2,551,020 is hereby deleted, and 3,333,333 is inserted in lieu thereof, and (ii) 1,275,510 is hereby deleted, and 1,666,667 is inserted in lieu thereof.
b. In Section 1.1(b), the number US$0.50 is hereby deleted and US$0.375 is inserted in lieu thereof.
c. In Section 1.1(c), the phrase equal to the lesser of (i) US$0.50, or (ii) 106% of the closing price per share (rounded to the nearest cent) of the Companys Common Stock on the American Stock Exchange or, if the Companys Common Stock is not listed on the American Stock Exchange, the closing price or bid per share on such other national securities exchange or quotation system upon which the Companys Common Stock is listed or quoted, on the date such warrants are earned as described below is hereby deleted and of US$0.375 is inserted in lieu thereof.
d. In Section 1.2, (i) the number US$0.49 is hereby deleted and US$0.375 is inserted in lieu thereof, and (ii) the phrase The calculation of the Per Share Price consists of 105% of the closing price per share of the Companys Common Stock on the American Stock Exchange on the day before the date hereof is hereby deleted, and The calculation of the Per Share Price consists of 121% of the closing price per share of the
Companys Common Stock on the American Stock Exchange on the day before the date of the Amendment.
2. MISCELLANEOUS.
a. Except as expressly provided herein, the Purchase Agreement shall be unmodified and shall remain in full force and effect in accordance with its terms.
b. This Amendment may be executed in any number of counterparts, which taken together shall constitute one and the same document.
[Remainder of Page Intentionally Left Blank]
The foregoing Amendment is hereby executed effective as of the date first set first set forth above.
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ENERGENICS HOLDINGS PTE
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[Signature Page to Amendment - Share Price at $0.375]
Exhibit 10.33
ADDITIONAL WARRANT
WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THE SECURITIES ACT OR AN OPINION OF COUNSEL IS OBTAINED STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
October 17, 2007
O2DIESEL CORPORATION
Warrant for the Purchase of Common Stock (Void after October 17, 2012)
No. W-
FOR VALUE RECEIVED, this Warrant is hereby issued by O2DIESEL CORPORATION, a Delaware corporation with file number 3857061 and publicly traded on the American Stock Exchange and having its Principal Executive Offices at 100 Commerce Drive, Suite 301, Newark, Delaware 19713 (the Company), to Energenics Holdings Pte Ltd, a company incorporated in Singapore with registration number 200612991G and having its registered office at 7 Temasek Boulevard, Suntec City Tower 1 #04-01A, Singapore 038987 (the Holder). Subject to the provisions of this Warrant, the Company hereby grants to Holder the right to purchase up to 391,157 shares of the Companys common stock, par value $.0001 per share (Common Stock), at US$0.375 per share (Exercise Price).
The Holder agrees with the Company that this Warrant is issued, and all the rights hereunder shall be held, subject to all of the conditions, limitations and provisions set forth herein.
1. Exercise of Warrant. Subject to the terms and conditions set forth herein, the Holder may exercise this Warrant on or after April 17, 2008, but no later than October 17, 2012. To exercise this Warrant the Holder shall present and surrender this Warrant to the Company at its principal office, with the Warrant Exercise Form, attached hereto as Appendix A , duly executed by the Holder and accompanied by payment in cash or by certified check, payable to the order of the Company or by a wire transfer to the Company, of the aggregate Exercise Price for the total aggregate number of securities for which this Warrant is exercised. The Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter referred to as Warrant Stock.
Upon receipt by the Company of this Warrant, together with the executed Warrant Exercise Form and payment of the Exercise Price, if any, for the securities to be acquired, in proper form for exercise, and subject to the Holders compliance with all requirements of this Warrant for the exercise hereof, the Holder shall be deemed to be the holder of record of the
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Warrant Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such securities shall not then be actually delivered to the Holder; provided, however, that no exercise of this Warrant shall be effective, and the Company shall have no obligation to issue any Warrant Stock to the Holder upon any attempted exercise of this Warrant, unless the Holder shall have first delivered to the Company, in form and substance reasonably satisfactory to the Company, appropriate representations so as to provide the Company reasonable assurances that the securities issuable upon exercise may be issued without violation of the registration requirements of the Securities Act and applicable state securities laws, including without limitation representations that the exercising Holder is an accredited investor as defined in Regulation D under the Securities Act and that the Holder is familiar with the Company and its business and financial condition and has had an opportunity to ask questions and receive documents relating thereto to his reasonable satisfaction.
2. Reservation of Shares. The Company will reserve for issuance and delivery upon exercise of this Warrant all shares of Warrant Stock. All such shares shall be duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and non-assessable and free of all preemptive rights.
3. Assignment or Loss of Warrant. Subject to the transfer restrictions herein (including Section 6), upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form, attached hereto as Appendix B , duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be canceled. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and of reasonably satisfactory indemnification by the Holder, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a replacement Warrant of like tenor and date.
4. Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant.
5. Adjustments.
(a) Adjustment for Recapitalization. If the Company shall at any time after the date hereof subdivide its outstanding shares of Common Stock by recapitalization, reclassification or split-up thereof, or if the Company shall declare a stock dividend or distribute shares of Common Stock to its shareholders, the number of shares of Common Stock subject to this Warrant immediately prior to such subdivision shall be proportionately increased, and if the Company shall at any time after the date hereof combine the outstanding shares of Common Stock by recapitalization, reclassification or combination thereof, the number of shares of Common Stock subject to this Warrant immediately prior to such combination shall be proportionately decreased.
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(b) Adjustment for Reorganization, Consolidation, Merger, Etc. If at any time after the date hereof the Company has a Change in Control, the Holder agrees that, either (a) Holder shall exercise its purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Change in Control or (b) if the Holder elects not to exercise the Warrant, this Warrant will expire upon the consummation of the Change of Control. For purposes of this Warrant, a Change in Control shall be deemed to occur in the event of a change in ownership or control of the Company effected through any of the following transactions: (i) the acquisition, directly or indirectly, by any person or related group of persons (other than the Company or a person that immediately before the Change of Control directly or indirectly controls, or is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of outstanding securities possessing more than fifty percent (50%) of the total combined voting power of the Companys outstanding securities; or (ii) the sale, transfer or other disposition of all or substantially all of the Companys assets; or (iii) the consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than fifty percent (50%) of the combined voting power of the continuing or surviving entitys 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.
(c) Certificate as to Adjustments. The adjustments provided in this Section 5 shall be interpreted and applied by the Company in such a fashion so as to reasonably preserve the applicability and benefits of this Warrant (but not to increase or diminish the benefits hereunder). In each case of an adjustment in the number of shares of Common Stock receivable on the exercise of the Warrant, the Company at its expense will promptly compute such adjustment in accordance with the terms of the Warrant and prepare a certificate executed by two executive officers of the Company setting forth such adjustment and showing in detail the facts upon which such adjustment is based. The Company will mail a copy of each such certificate to each Holder.
(d) Notices of Record Date, Etc. In the event that:
(i) the Company shall declare any dividend or other distribution to the holders of Common Stock, or authorizes the granting to Common Stock holders of any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities; or
(ii) the Company has a Change in Control; or
(iii) the Company authorizes any voluntary or involuntary dissolution, liquidation or winding up of the Company,
then, and in each such case, the Company shall mail or cause to be mailed to the holder of this Warrant at the time outstanding a notice specifying, as the case may be, (a) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (b) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or
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winding up is to take place, and the time, if any is to be fixed, as to which the holders of record of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding up. Such notice shall be mailed at least 20 days prior to the date therein specified.
(e) No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against impairment.
6. Transfer to Comply with the Securities Act. This Warrant and any Warrant Stock may not be sold, transferred, pledged, hypothecated or otherwise disposed of except as follows: (a) to a person who, in the opinion of counsel to the Company, is a person to whom this Warrant or the Warrant Stock may legally be transferred without registration and without the delivery of a current prospectus under the Securities Act with respect thereto and then only against receipt of an agreement of such person to comply with the provisions of this Section 6 with respect to any resale or other disposition of such securities; or (b) to any person upon delivery of a prospectus then meeting the requirements of the Securities Act relating to such securities and the offering thereof for such sale or disposition, and thereafter to all successive assignees.
7. Reports Under Securities Exchange Act of 1934. With a view to making available to the Holder the benefits of Rule 144 under the Securities Act (Rule 144) and any other rule or regulation of the Securities Exchange Commission (Commission) that may at any time permit a Holder to sell securities of the Company to the public without registration, the Company shall:
(a) make and keep public information available, as required by Rule 144, at all times;
(b) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to the Holder, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act; (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the Commission which permits the selling of any such securities without registration.
8. Legend.
(a) Unless the shares of Warrant Stock have been registered under the Securities Act, upon exercise of this Warrant and the issuance of any of the shares of Warrant
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Stock, all certificates representing shares shall bear on the face thereof substantially the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED BY THE HOLDER FOR ITS OWN ACCOUNT, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO THE DISTRIBUTION OF SUCH SECURITIES. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS, (II) IN COMPLIANCE WITH RULE 144 UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR (III) UPON THE DELIVERY TO O2DIESEL CORPORATION (THE COMPANY) OF AN OPINION OF COUNSEL OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/ OR COMPLIANCE IS NOT REQUIRED.
(b) The legend requirements shall terminate when (i) the shares in question shall have been effectively registered under the Securities Act and disposed of pursuant thereto or (ii) the Company shall have received an opinion of counsel reasonably satisfactory to it that such legend is not required in order to insure compliance with the Securities Act.
(c) Upon termination of the legend requirements as per Section 8(b) above, the Company shall instruct its transfer agent to issue a new share certificate at no cost to the Holder without a legend limiting the sale or transfer of the shares.
9. Notices. All notices required hereunder shall be in writing and shall be deemed given by facsimile transmission, delivered personally or within one day after mailing when mailed by an overnight courier service, to the Company or the Holder, as the case may be, for whom such notice is intended, if to the Holder, at the address of such party as set forth in the Common Stock and Warrant Purchase Agreement, dated as of October 17, 2007, between the Company and Energenics Holdings Pte Ltd, or if to the Company, O2Diesel Corporation, 100 Commerce Drive, Suite 301, Newark, Delaware 19713 or at such other address of which the Company or the Holder has been advised by notice hereunder.
10. Applicable Law. The Warrant is issued under and shall for all purposes be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflict of laws provisions of such State.
5
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on its behalf, in its corporate name, by its duly authorized officer, all as of the day and year first above written.
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O2Diesel Corporation |
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By: |
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Alan R. Rae |
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Chief Executive Officer |
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Appendix A
WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to (i) exercise the within Warrant to purchase shares of the Common Stock of O2DIESEL CORPORATION, a Delaware corporation, pursuant to the provisions of Section 1 of the attached Warrant, and hereby makes payment of $ in payment therefor, or (ii) exercise this Warrant for the purchase of shares of Common Stock, pursuant to the provisions of Section 1 of the attached Warrant. The undersigneds execution of this form constitutes the undersigneds agreement to all the terms of the Warrant and to comply therewith.
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7
Appendix B
ASSIGNMENT FORM
FOR VALUE RECEIVED (Assignor) hereby sells, assigns and transfers unto (Assignee) all of Assignors right, title and interest in, to and under Warrant No. W- issued by , dated .
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The undersigned agrees to all of the terms of the Warrant and to comply therewith. |
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8
Exhibit 10.34
December 15, 2007
Mr. Dale S. Barker
ProEco Energy Company
P.O. Box 26
Belle Fourche, South Dakota 57717
Re: |
Project for Ethanol Plants |
Dear Mr. Barker:
As we have previously discussed, the current market conditions for raising capital for ethanol plants are not favorable. Nonetheless, we would like to continue our relationship with you, regarding the 56 million gallons per year ethanol plant in South Dakota ( Potential Project ). The purpose of this letter (this Letter ) is to set forth certain binding agreements between O2Diesel Corporation, a Delaware corporation ( O2Diesel ), and ProEco Energy Company, Inc. ( ProEco ) and certain selling shareholders of ProEco (the Shareholder s), with respect to the Potential Project. This Letter shall become effective on the day it is countersigned by you ( Effective Date ).
1. Loan Agreement . The parties agree to extend the maturity date of the Amended and Restated Term Loan Agreement, dated as of December 22, 2006, and as amended and restated on September 14, 2007 ( Loan Agreement ) from December 15, 2007 to January 31, 2008 ( Maturity Date ), and the parties shall execute a revised Amended and Term Loan Agreement, as attached hereto as Exhibit A . As of December 15, 2007, there is $1,396,971.92 principal and interest outstanding (the Loan ), and ProEco acknowledges and agrees that no further funds will be advanced pursuant to Section 2.1(b) of the Loan Agreement. The Loan is evidenced by the Secured Promissory Note, as attached hereto as Exhibit B , and the Secured Promissory Note, as attached hereto as Exhibit C .
2. Share Exchange Agreement . Section 6.1(f) of the Share Exchange Agreement (the Exchange Agreement ), dated as of January 12, 2007, by and between O2Diesel and ProEco, sets forth the automatic termination date of the Exchange Agreement. Since the parties agree to extend the Maturity Date, the automatic termination date of the Exchange Agreement is also extended to January 31, 2008.
3. Guarantee for Katzen International, Inc. From the Effective Date, ProEco acknowledges and agrees that O2Diesel will not guarantee any additional payments above the $250,000, as set forth in the Letter, dated March 27, 2007, from O2Diesel to Katzen International, Inc.
4. Negotiations with Other Parties .
a. From the Effective Date, O2Diesel hereby expressly waives the prohibition in Section 4.4 of the Share Exchange Agreement.
b. From the Effective Date, the parties agree that O2Diesel may enter into any merger, consolidation, share exchange, sale of assets, sale of securities, acquisition of beneficial ownership of capital stock of any party, or any joint venture or a similar transaction with respect to the design, construction and operation of ethanol power plants and/or biodiesel plants.
5. Miscellaneous .
a. Except as expressly set forth herein, the Loan Agreement and the Exchange Agreement remain in full force and effect in accordance with their respective terms.
b. This Letter may be executed in any number of counterparts, which taken together shall constitute one and the same document.
[Remainder of the Page Left Intentionally Blank]
2
Please sign and date this Letter in the space provided below to confirm the binding agreement and return a copy to the undersigned. We look forward to continuing working together with you.
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Very truly yours, |
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O2DIESEL CORPORATION |
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/s/ Alan Rae |
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Alan Rae, Chief Executive Officer |
Accepted and agreed. |
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PROECO ENERGY COMPANY, INC. |
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By: |
/s/ Dale S. Baker |
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Dale S. Barker |
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Date: January 2, 2008 |
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3
EXHIBIT A
AMENDED AND RESTATED TERM LOAN AGREEMENT
Dated as of December 22, 2006, and as amended and restated on December 15, 2007
between
ProEco Energy Company (the Borrower)
and
Dale S. Barker and Barbara Pyle, as Pledgors
and
O2Diesel Corporation (the Lender and the Collateral Agent)
AMENDED AND RESTATED TERM LOAN AGREEMENT
This Amended and Restated Term Loan Agreement (this Agreement), dated as of December 22, 2006, (the Effective Date) and amended and restated as of December 15, 2007, is entered into by and among ProEco Energy Company, a South Dakota corporation (the Borrower), the Pledgors (as defined herein) and O2Diesel Corporation, a Delaware corporation as lender (the Lender) and as collateral agent (the Collateral Agent).
RECITALS:
WHEREAS, the Borrower requires capital for the purchase of an option (the Option) to purchase parcels of land (collectively, the Parcels and individually, a Parcel) on which a new fuel-grade ethanol plant (the Potential Project) is to be constructed;
WHEREAS, the Borrower is willing to secure all of its Obligations (as hereinafter defined) by granting to the Collateral Agent, for the benefit of itself and the Lender, security interests in and a lien upon all of its property and assets now owned or hereafter acquired by the Borrower;
WHEREAS, certain stockholders and officers of the Borrower will benefit from the Loans (as hereinafter defined) made by the Lender to the Borrower and are willing to pledge collateral as security for payment and performance of all of the Obligations of the Borrower and to grant to the Collateral Agent, for the benefit of itself and the Lender, a security interest in and a lien upon all shares of the issued and outstanding common stock of the Borrower (the Common Stock) held by such officers;
WHEREAS, the Lender is willing to provide the Borrower with such capital on the terms and conditions hereafter provided; and
WHEREAS, the Borrower has requested, and the Lender has agreed to provide, (i) an extension of the Maturity Date of the Loans (as defined below) and (ii) an increase in the aggregate principal amount of the Delayed Draws (as defined below) that may be borrowed pursuant to this Agreement.
NOW, THEREFORE, in consideration of the undertakings set forth herein and other good and valuable consideration, the receipt and sufficiency of which hereby is acknowledged, the parties hereto agree as follows:
ARTICLE I
As used in this Agreement:
Business Day means, with respect to any borrowing or payment, a day other than Saturday or Sunday on which banks are open for business in the State of Delaware.
Change in Control means (i) the failure of Dale S. Barker and Barbara Pyle to own, beneficially and of record, the issued and outstanding shares of voting stock of the Borrower held by
them as of the Closing Date (appropriately adjusted to reflect stock splits, stock dividends, reverse stock splits and similar events), (ii) any merger, consolidation, reorganization, recapitalization, or other business combination involving the Borrower, in which the stockholders of the Borrower immediately prior thereto do not own, directly or indirectly, outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving entity in such merger, consolidation, reorganization, recapitalization or other business combination; (iii) the sale of all, or substantially all, of the assets of the Borrower; or (iv) the sale of voting securities of the Borrower in a transaction or a series of related transactions to any person (or group of persons acting in concert) that results in such person (or group of persons) (together with their affiliates) owning more than fifty percent (50%) of the outstanding voting securities of the Borrower; provided that Change of Control shall not include any transaction involving the Lender acquiring voting securities or assets or merging with the Borrower.
Closing Date means December 22, 2006, or such later date as may be agreed by the parties hereto.
Collateral shall have the meaning ascribed to such term in the Security Agreement.
Credit Parties (each individually, a Credit Party) shall mean the Borrower and each of the Pledgors.
Disclosure Schedule means the disclosure schedule to this Agreement delivered to the Lender by the Borrower upon execution and delivery of this Agreement.
Environmental Condition means any contamination or damage to the environment caused by or relating to the use, handling, storage, treatment, recycling, generation, transportation, release, spilling, leaching, pumping, pouring, emptying, discharging, injection, escaping, disposal, dumping or threatened release of Hazardous Materials by the Borrower or any other Person. With respect to claims by employees or any other third parties, Environmental Condition shall also include the exposure of Persons to amounts of Hazardous Materials in amounts that have been determined to be deleterious to human health.
Environmental Laws means all currently applicable federal, state and local laws, ordinances, rules and regulations and standards, policies and other governmental requirements, administrative rulings and court judgments and decrees, including all amendments, and requirements applicable under common law that relate to (1) pollution; (2) the protection of human health and safety; (3) the protection or regulation of the environment, including without limitation, air, soils, wetlands, surface and underground water; (4) aboveground or underground storage tank regulation or removal; (5) wildlife; (6) protection or regulation of natural resources; (7) radioactive materials, including without limitation radon; (8) indoor air quality; and (9) chemicals, pesticides, mold or fungus or similar substances. Environmental Laws include, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601, et seq. , the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq. , the Toxic Substance Control Act, 15 U.S.C. Section 2601, et seq. , the Federal Water Pollution Control Act, 33 U.S.C. Section 1251, et seq. , the Hazardous Materials Transportation Act, 49 U.S.C. 5101, et seq. , the Clean Air Act, 42 U.S.C. Section 7401, et seq. , the Safe Drinking Water Act, 42 U.S.C. Section 300f, et seq. , the Occupational Safety and Health Act, 29 U.S.C. Section 651, et seq. , the Emergency
Planning and Community Right to Know Act of 1986, 42 U.S.C. 11001, et seq. , the Atomic Energy Act, 42 U.S.C. Section 2014, et seq. , the National Environmental Policy Act, 42 U.S.C. Section 4321, et seq. , the Endangered Species Act, 16 U.S.C. Section 1531, et seq. , the Federal Insecticide, Fungicide & Rodenticide Act, 7 U.S.C. Section 136, et seq. , and their state analogs, all applicable state superlien or environmental clean-up or disclosure statutes in any state in which the Borrower operates or conducts any business, and all similar local laws, and all implementing regulations.
Environmental Noncompliance means any violation of any Environmental Law.
Hazardous Materials shall mean any materials regulated as hazardous or toxic under applicable Environmental Laws, or any other material regulated, or that could result in the imposition of liability, under Environmental Laws, including, without limitation, petroleum, petroleum products, fuel oil, crude oil or any fraction thereof, derivatives or byproducts of petroleum products or fuel oil, natural gas, mold, hazardous substances, toxic substances, polychlorinated biphenyls, any materials containing more than one percent (1%) asbestos by weight and any other substance determined to present a deleterious effect on human health or the environment.
Intellectual Property means all of the following as they exist in any jurisdiction throughout the world, in each case, to the extent owned by, licensed to, or otherwise used by the Borrower: (a) patents, patent applications and the inventions, designs and improvements described and claimed therein, patentable inventions, and other patent rights (including any divisionals, continuations, continuations-in-part, substitutions, or reissues thereof, whether or not patents are issued on any such applications and whether or not any such applications are amended, modified, withdrawn, or refiled) (collectively, Patents); (b) trademarks, service marks, trade dress, trade names, brand names, Internet domain names, designs, logos, or corporate names (including, in each case, the goodwill associated therewith), whether registered or unregistered, and all registrations and applications for registration thereof (collectively, Trademarks); (c) works of authorship and all copyrights therein, including all renewals and extensions, copyright registrations and applications for registration, and non-registered copyrights (collectively, Copyrights); (d) trade secrets, confidential business information, concepts, ideas, designs, research or development information, processes, procedures, techniques, technical information, specifications, operating and maintenance manuals, engineering drawings, methods, know-how, data, mask works, discoveries, inventions, modifications, extensions, improvements, and other proprietary rights (whether or not patentable or subject to copyright, trademark, or trade secret protection) (collectively, Trade Secrets); (e) all domain name registrations, web sites and web pages and related rights, items and documentation related thereto (collectively, Internet Assets); (f) computer software programs, including all source code, object code, and documentation related thereto and all software modules, tools and databases (Software); (g) mask works, and (h) all licenses, and sublicenses, and other agreements or permissions related to the preceding property.
IT Assets means computers, computer software (except for off the shelf or shrink-wrap software), firmware, middleware, servers, workstations, routers, hubs, switches, data communication lines, and all other information technology equipment, and all associated documentation.
Loan Documents means this Agreement, the LOI, the Notes and any Security Documents.
LOI means that certain letter of intent, dated November 30, 2006, signed by the Lender and acknowledged by the Borrower.
Maturity Date means January 31, 2008.
Mortgage (or Mortgages) means any mortgage, deed of trust, deed to secure debt and other instrument, from time to time executed by the Borrower for the purpose of granting the Collateral Agent, for its benefit and the benefit of the Lender, a lien on real property of the Borrower, in form and substance satisfactory to the Lender.
Obligations means (i) all current or future unpaid principal of and accrued and unpaid interest (including without limitation, interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Notes when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise; (ii) all other monetary obligations, including but not limited to, interest, fees, charges; and (iii) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Borrower now or hereafter due arising under or in connection with the Loan Documents, expenses, indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) of the Borrower now or hereafter due under or in connection with the Loan Documents.
Person means any corporation, natural person, firm, joint venture, partnership, trust, unincorporated organization, enterprise, government or any department or agency of any government.
Pledge Agreement means that certain Pledge Agreement dated as of the date hereof, by and among the Pledgors and the Collateral Agent.
Pledged Collateral shall have the meaning ascribed to such term in the Pledge Agreement.
Pledgors means Dale S. Barker and Barbara Pyle.
Purchase Agreement means that any definitive agreement entered into between the Borrower and the Lender pursuant to which the Lender acquires all or a portion of the Borrowers assets or voting securities.
Security Documents means the Security Agreement, the Pledge Agreement and such other agreements, instruments, documents, financing statements, warehouse receipts, bills of lading, notices of assignment of accounts, schedules of accounts assigned, mortgages and other written matter necessary or reasonably requested by the Lender to perfect and maintain perfected the Lenders first priority security interest in the Collateral.
Security Agreement means that certain Security Agreement, dated as of the date hereof, by and between the Borrower and the Pledgors as Grantors and the Collateral Agent.
Solvent means, with respect to any Person, that (i) the fair value of all of such Persons properties and assets is in excess of the total amount of its debts (within the meaning of the U.S. Bankruptcy Code); (ii) it is able to pay its debts as they mature; (iii) it does not have unreasonably small capital for the business in which it is engaged or for any business or transaction in which it is about to engage; and (iv) it is not insolvent as such term is defined in Section 101(31) of the U.S. Bankruptcy Code.
Trains Project means the project to build two 50 million gallon trains in connection with the Potential Project as described in the LOI.
Transaction means the acquisition by the Lender of 80% of the Common Stock of the Borrower in accordance with the terms and conditions set forth in the Purchase Agreement.
U.S. Bankruptcy Code means Title 11 of the United States Code, 11 U.S.C. Section 101, et seq .
The words herein, hereof and hereunder and other words of similar import refer to this Agreement as a whole, including the Exhibits and Schedules hereto, as the same may from time to time be amended, modified or supplemented, and not to any particular section, subsection or clause contained in this Agreement.
Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter.
ARTICLE II
ARTICLE III
3.2 Conditions to Subsequent Drawings . The obligation of the Lender to lend additional amounts for any Delayed Draw shall be subject to the following conditions precedent and solely at the discretion of the Lender:
3.3 Post-Closing Conditions Subsequent .
ARTICLE IV
Except as set forth on the Disclosure Schedule delivered by the Borrower to the Lender, each section of which shall only qualify the representation or warranty in the correspondingly numbered Section of this Agreement, each Credit Party, as applicable, represents and warrants to the Lender that on the date hereof:
ARTICLE V
ARTICLE VI
The occurrence of any one or more of the following events shall constitute a default hereunder (each, a Default):
ARTICLE VII
ARTICLE VIII
[Remainder of page intentionally left blank; signature page follows]
IN WITNESS WHEREOF, the parties hereto have executed this Loan Agreement as of the date first above written.
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PROECO ENERGY COMPANY |
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By: |
/s/ Dale S. Barker |
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Name: |
Dale S. Barker |
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Title: |
President |
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Address: |
P.O. Box 261 |
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Belle Fourche, South Dakota 57717 |
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Telephone: |
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Facsimile: |
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O2DIESEL CORPORATION |
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By: |
/s/ David H. Shipman |
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Name: |
David H. Shipman |
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Title: |
Chief Financial Officer |
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Address: |
100 Commerce Drive, Suite 301 |
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Newark, Delaware 19713 |
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Telephone: |
(302) 266-6000 |
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Facsimile: |
(302) 266-7076 |
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PLEDGORS: |
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DALE S. BARKER |
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/s/ Dale S. Barker |
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Address: |
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Telephone: |
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Facsimile: |
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BARBARA PYLE |
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/s/ Barbara Pyle |
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Telephone: |
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Facsimile: |
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EXECUTION COPY
EXHIBIT B
SECURED PROMISSORY NOTE
$150,000 |
Newark, Delaware |
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December 26, 2006 |
ProEco Energy Company, Inc. , a South Dakota corporation (the Company ), FOR VALUE RECEIVED, hereby unconditionally promises to pay to the order of O2Diesel Corporation ( O2Diesel or the Holder ), in U.S. dollars in immediately available funds, the principal amount of One Hundred Fifty Thousand and NO/100 ($150,000) (the Principal Amount ), together with interest on the unpaid principal balance of this Secured Promissory Note (the Note ) outstanding from time to time from the date hereof, at the rate provided in the Loan Agreement (as defined below). The books and records of the Holder shall be conclusive as to the unpaid principal amount of this Note at any time outstanding, absent manifest error.
This Note is issued pursuant to the terms of the Loan Agreement, dated December 22, 2006 (as such agreement may from time to time be amended, restated, modified or supplemented, the Loan Agreement ) to which the Company and the Holder are parties, to which reference is hereby made for a statement of all of the terms and conditions applicable to the Loan evidenced, hereby. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement.
O2Diesel Corporation |
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100 Commerce Drive, Suite 301 |
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Newark, Delaware 19713 |
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Attn: |
David Shipman, Chief Financial Officer |
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Tel: |
(302) 266-6000 |
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Fax: |
(302) 266-7076 |
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With a copy to:
Arnold & Porter LLP |
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1600 Tysons Boulevard, Suite 900 |
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McLean, Virginia 22102 |
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Attn: Kevin J. Lavin, Esq. |
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Tel: |
(703) 720-7011 |
Fax: |
(703) 720-7399 |
2
and to the Company at the address indicated below:
ProEco Energy Company. |
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P.O. Box 261 |
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Belle Fourche, South Dakota 57717 |
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Attn: Dale S. Barker |
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Tel: |
(605) |
Fax: |
(605) |
With a copy to:
Buckmaster Law Offices, PC |
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P.O. Box 726 |
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Belle Fourche, South Dakota 57717 |
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Attn: Wesley W. Buckmaster |
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Tel: |
(605) 892-2623 |
Fax: |
(605) 892-6337 |
or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party.
(c) THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING WHICH IN ANY MANNER ARISES OUT OF OR IN CONNECTION WITH OR IS IN ANY WAY RELATED TO THIS NOTE OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.
[SIGNATURE PAGE FOLLOWS]
3
IN WITNESS WHEREOF , this Note has been executed and delivered on the date first above written by the undersigned duly authorized representative of the Company.
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PROECO ENERGY COMPANY |
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By: |
/s/ Dale Barker |
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Name: |
Dale Barker |
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Title: |
President |
4
EXECUTION COPY
EXHIBIT C
SECURED PROMISSORY NOTE
Newark, Delaware
ProEco Energy Company, Inc. , a South Dakota corporation (the Company ), FOR VALUE RECEIVED, hereby unconditionally promises to pay to the order of O2Diesel Corporation ( O2Diesel or the Holder ), in U.S. dollars in immediately available funds, the Principal Amount (as defined below) together with interest on the unpaid principal balance of this Secured Promissory Note (the Note ) outstanding from time to time from the date hereof, at the rate provided in the Loan Agreement (as defined below). The books and records of the Holder shall be conclusive as to the unpaid Principal Amount of this Note at any time outstanding, absent manifest error.
This Note is issued pursuant to the terms of the Loan Agreement, dated December 22, 2006 (as such agreement may from time to time be amended, restated, modified or supplemented, the Loan Agreement ) to which the Company and the Holder are parties, to which reference is hereby made for a statement of all of the terms and conditions applicable to the Loan evidenced, hereby. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement.
O2Diesel Corporation |
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100 Commerce Drive, Suite 301 |
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Newark, Delaware 19713 |
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Attn: |
David Shipman, Chief Financial Officer |
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Tel: |
(302) 266-6000 |
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Fax: |
(302) 266-7076 |
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With a copy to:
Arnold & Porter LLP |
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1600 Tysons Boulevard, Suite 900 |
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McLean, Virginia 22102 |
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Attn: Kevin J. Lavin, Esq. |
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Tel: |
(703) 720-7011 |
Fax: |
(703) 720-7399 |
and to the Company at the address indicated below:
ProEco Energy Company. |
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P.O. Box 261 |
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Belle Fourche, South Dakota 57717 |
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Attn: Dale S. Barker |
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Tel: |
(605) |
Fax: |
(605) |
With a copy to:
Buckmaster Law Offices, PC |
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P.O. Box 726 |
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Belle Fourche, South Dakota 57717 |
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Attn: Wesley W. Buckmaster |
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Tel: |
(605) 892-2623 |
Fax: |
(605) 892-6337 |
or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party.
(c) THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING WHICH IN ANY MANNER ARISES OUT OF OR IN CONNECTION WITH OR IS IN ANY WAY RELATED TO THIS NOTE OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF , this Note has been executed and delivered on the date first above written by the undersigned duly authorized representative of the Company.
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PROECO ENERGY COMPANY |
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By: |
/s/ Dale Barker |
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Name: |
Dale Barker |
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Title: |
President |
SCHEDULE A
Date |
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Amount |
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1/17/2007 |
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125,000.00 |
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3/14/2007 |
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125,000.00 |
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4/25/2007 |
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75,000.00 |
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5/14/2007 |
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65,000.00 |
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5/30/2007 |
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65,000.00 |
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6/12/2007 |
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65,000.00 |
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6/27/2007 |
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65,000.00 |
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7/10/2007 |
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65,000.00 |
|
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7/25/2007 |
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65,000.00 |
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8/15/2007 |
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65,000.00 |
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9/07/2007 |
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65,000.00 |
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10/01/2007 |
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65,000.00 |
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10/15/2007 |
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65,000.00 |
|
|
10/25/2007 |
|
40,000.00 |
|
|
11/01/2007 |
|
65,000.00 |
|
|
11/15/2007 |
|
40,000.00 |
|
|
11/30/2007 |
|
40,000.00 |
|
|
12/14/2007 |
|
40,000.00 |
|
|
|
|
|
|
|
Total: |
|
$ |
1,200,000.00 |
|
Exhibit 10.35
January 31, 2008
Mr. Dale S. Barker
ProEco Energy Company
P.O. Box 26
Belle Fourche, South Dakota 57717
Re: Project for Ethanol Plants
Dear Mr. Barker:
In our previous letter dated December 15, 2007 ( December Letter ), the parties agreed to revise the agreements relating to their relationship regarding the 56 million gallons per year ethanol plant in South Dakota ( Potential Project ). The purpose of this letter (this Letter ) is to set forth additional binding agreements between O2Diesel Corporation, a Delaware corporation ( O2Diesel ), and ProEco Energy Company, Inc. ( ProEco ) and certain selling shareholders of ProEco, with respect to the Potential Project. This Letter shall become effective on the day it is countersigned by you.
1. Loan Agreement . The parties agree to extend the maturity date of the Amended and Restated Term Loan Agreement, dated as of December 22, 2006, and as amended and restated on September 14, 2007 and December 15, 2007 ( Loan Agreement ) from January 31, 2008 to February 29, 2008 ( Maturity Date ), and the parties shall execute a revised Amended and Term Loan Agreement, as attached hereto as Exhibit A . As of January 31, 2008, there is $1,419,424.25 principal and interest outstanding (the Loan ). The Loan is evidenced by the Secured Promissory Note, as attached hereto as Exhibit B , and the Secured Promissory Note, as attached hereto as Exhibit C .
2. Share Exchange Agreement . Section 6.1(f) of the Share Exchange Agreement (the Exchange Agreement ), dated as of January 12, 2007, by and between O2Diesel and ProEco, sets forth the automatic termination date of the Exchange Agreement. Since the parties agree to extend the Maturity Date, the automatic termination date of the Exchange Agreement is also extended to February 29, 2008.
3. Miscellaneous .
a. Except as expressly set forth herein, the Loan Agreement, the Exchange Agreement and December Letter remain in full force and effect in accordance with their respective terms.
b. This Letter may be executed in any number of counterparts, which taken together shall constitute one and the same document.
Please sign and date this Letter in the space provided below to confirm the binding agreement and return a copy to the undersigned. We look forward to continuing working together with you.
|
Very truly yours, |
|
|
|
|
|
O2DIESEL CORPORATION |
|
|
|
|
|
|
|
|
By: |
/s/ Alan Rae |
|
|
Alan Rae, Chief Executive Officer |
Accepted and agreed.
PROECO ENERGY COMPANY, INC.
By: |
/s/ Dale S. Baker |
|
|
Dale S. Barker |
|
Date: February 2, 2008
2
EXECUTION COPY
EXHIBIT A
AMENDED AND RESTATED TERM LOAN AGREEMENT
Dated as of December 22, 2006, and as amended and restated on January 31, 2008
between
ProEco Energy Company (the Borrower)
and
Dale S. Barker and Barbara Pyle, as Pledgors
and
O2Diesel Corporation (the Lender and the Collateral Agent)
AMENDED AND RESTATED TERM LOAN AGREEMENT
This Amended and Restated Term Loan Agreement (this Agreement), dated as of December 22, 2006, (the Effective Date) and amended and restated as of January 31, 2008, is entered into by and among ProEco Energy Company, a South Dakota corporation (the Borrower), the Pledgors (as defined herein) and O2Diesel Corporation, a Delaware corporation as lender (the Lender) and as collateral agent (the Collateral Agent).
RECITALS:
WHEREAS, the Borrower requires capital for the purchase of an option (the Option) to purchase parcels of land (collectively, the Parcels and individually, a Parcel) on which a new fuel-grade ethanol plant (the Potential Project) is to be constructed;
WHEREAS, the Borrower is willing to secure all of its Obligations (as hereinafter defined) by granting to the Collateral Agent, for the benefit of itself and the Lender, security interests in and a lien upon all of its property and assets now owned or hereafter acquired by the Borrower;
WHEREAS, certain stockholders and officers of the Borrower will benefit from the Loans (as hereinafter defined) made by the Lender to the Borrower and are willing to pledge collateral as security for payment and performance of all of the Obligations of the Borrower and to grant to the Collateral Agent, for the benefit of itself and the Lender, a security interest in and a lien upon all shares of the issued and outstanding common stock of the Borrower (the Common Stock) held by such officers;
WHEREAS, the Lender is willing to provide the Borrower with such capital on the terms and conditions hereafter provided; and
WHEREAS, the Borrower has requested, and the Lender has agreed to provide, (i) an extension of the Maturity Date of the Loans (as defined below) and (ii) an increase in the aggregate principal amount of the Delayed Draws (as defined below) that may be borrowed pursuant to this Agreement.
NOW, THEREFORE, in consideration of the undertakings set forth herein and other good and valuable consideration, the receipt and sufficiency of which hereby is acknowledged, the parties hereto agree as follows:
As used in this Agreement:
Business Day means, with respect to any borrowing or payment, a day other than Saturday or Sunday on which banks are open for business in the State of Delaware.
Change in Control means (i) the failure of Dale S. Barker and Barbara Pyle to own, beneficially and of record, the issued and outstanding shares of voting stock of the Borrower held by
them as of the Closing Date (appropriately adjusted to reflect stock splits, stock dividends, reverse stock splits and similar events), (ii) any merger, consolidation, reorganization, recapitalization, or other business combination involving the Borrower, in which the stockholders of the Borrower immediately prior thereto do not own, directly or indirectly, outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving entity in such merger, consolidation, reorganization, recapitalization or other business combination; (iii) the sale of all, or substantially all, of the assets of the Borrower; or (iv) the sale of voting securities of the Borrower in a transaction or a series of related transactions to any person (or group of persons acting in concert) that results in such person (or group of persons) (together with their affiliates) owning more than fifty percent (50%) of the outstanding voting securities of the Borrower; provided that Change of Control shall not include any transaction involving the Lender acquiring voting securities or assets or merging with the Borrower.
Closing Date means December 22, 2006, or such later date as may be agreed by the parties hereto.
Collateral shall have the meaning ascribed to such term in the Security Agreement.
Credit Parties (each individually, a Credit Party) shall mean the Borrower and each of the Pledgors.
Disclosure Schedule means the disclosure schedule to this Agreement delivered to the Lender by the Borrower upon execution and delivery of this Agreement.
Environmental Condition means any contamination or damage to the environment caused by or relating to the use, handling, storage, treatment, recycling, generation, transportation, release, spilling, leaching, pumping, pouring, emptying, discharging, injection, escaping, disposal, dumping or threatened release of Hazardous Materials by the Borrower or any other Person. With respect to claims by employees or any other third parties, Environmental Condition shall also include the exposure of Persons to amounts of Hazardous Materials in amounts that have been determined to be deleterious to human health.
Environmental Laws means all currently applicable federal, state and local laws, ordinances, rules and regulations and standards, policies and other governmental requirements, administrative rulings and court judgments and decrees, including all amendments, and requirements applicable under common law that relate to (1) pollution; (2) the protection of human health and safety; (3) the protection or regulation of the environment, including without limitation, air, soils, wetlands, surface and underground water; (4) aboveground or underground storage tank regulation or removal; (5) wildlife; (6) protection or regulation of natural resources; (7) radioactive materials, including without limitation radon; (8) indoor air quality; and (9) chemicals, pesticides, mold or fungus or similar substances. Environmental Laws include, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601, et seq. , the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq. , the Toxic Substance Control Act, 15 U.S.C. Section 2601, et seq. , the Federal Water Pollution Control Act, 33 U.S.C. Section 1251, et seq. , the Hazardous Materials Transportation Act, 49 U.S.C. 5101, et seq. , the Clean Air Act, 42 U.S.C. Section 7401, et seq. , the Safe Drinking Water Act, 42 U.S.C. Section 300f, et seq. , the Occupational Safety and Health Act, 29 U.S.C. Section 651, et seq. , the Emergency
Planning and Community Right to Know Act of 1986, 42 U.S.C. 11001, et seq. , the Atomic Energy Act, 42 U.S.C. Section 2014, et seq. , the National Environmental Policy Act, 42 U.S.C. Section 4321, et seq. , the Endangered Species Act, 16 U.S.C. Section 1531, et seq. , the Federal Insecticide, Fungicide & Rodenticide Act, 7 U.S.C. Section 136, et seq. , and their state analogs, all applicable state superlien or environmental clean-up or disclosure statutes in any state in which the Borrower operates or conducts any business, and all similar local laws, and all implementing regulations.
Environmental Noncompliance means any violation of any Environmental Law.
Hazardous Materials shall mean any materials regulated as hazardous or toxic under applicable Environmental Laws, or any other material regulated, or that could result in the imposition of liability, under Environmental Laws, including, without limitation, petroleum, petroleum products, fuel oil, crude oil or any fraction thereof, derivatives or byproducts of petroleum products or fuel oil, natural gas, mold, hazardous substances, toxic substances, polychlorinated biphenyls, any materials containing more than one percent (1%) asbestos by weight and any other substance determined to present a deleterious effect on human health or the environment.
Intellectual Property means all of the following as they exist in any jurisdiction throughout the world, in each case, to the extent owned by, licensed to, or otherwise used by the Borrower: (a) patents, patent applications and the inventions, designs and improvements described and claimed therein, patentable inventions, and other patent rights (including any divisionals, continuations, continuations-in-part, substitutions, or reissues thereof, whether or not patents are issued on any such applications and whether or not any such applications are amended, modified, withdrawn, or refiled) (collectively, Patents); (b) trademarks, service marks, trade dress, trade names, brand names, Internet domain names, designs, logos, or corporate names (including, in each case, the goodwill associated therewith), whether registered or unregistered, and all registrations and applications for registration thereof (collectively, Trademarks); (c) works of authorship and all copyrights therein, including all renewals and extensions, copyright registrations and applications for registration, and non-registered copyrights (collectively, Copyrights); (d) trade secrets, confidential business information, concepts, ideas, designs, research or development information, processes, procedures, techniques, technical information, specifications, operating and maintenance manuals, engineering drawings, methods, know-how, data, mask works, discoveries, inventions, modifications, extensions, improvements, and other proprietary rights (whether or not patentable or subject to copyright, trademark, or trade secret protection) (collectively, Trade Secrets); (e) all domain name registrations, web sites and web pages and related rights, items and documentation related thereto (collectively, Internet Assets); (f) computer software programs, including all source code, object code, and documentation related thereto and all software modules, tools and databases (Software); (g) mask works, and (h) all licenses, and sublicenses, and other agreements or permissions related to the preceding property.
IT Assets means computers, computer software (except for off the shelf or shrink-wrap software), firmware, middleware, servers, workstations, routers, hubs, switches, data communication lines, and all other information technology equipment, and all associated documentation.
Loan Documents means this Agreement, the LOI, the Notes and any Security Documents.
LOI means that certain letter of intent, dated November 30, 2006, signed by the Lender and acknowledged by the Borrower.
Maturity Date means February 29, 2008.
Mortgage (or Mortgages) means any mortgage, deed of trust, deed to secure debt and other instrument, from time to time executed by the Borrower for the purpose of granting the Collateral Agent, for its benefit and the benefit of the Lender, a lien on real property of the Borrower, in form and substance satisfactory to the Lender.
Obligations means (i) all current or future unpaid principal of and accrued and unpaid interest (including without limitation, interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Notes when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise; (ii) all other monetary obligations, including but not limited to, interest, fees, charges; and (iii) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Borrower now or hereafter due arising under or in connection with the Loan Documents, expenses, indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) of the Borrower now or hereafter due under or in connection with the Loan Documents.
Person means any corporation, natural person, firm, joint venture, partnership, trust, unincorporated organization, enterprise, government or any department or agency of any government.
Pledge Agreement means that certain Pledge Agreement dated as of the date hereof, by and among the Pledgors and the Collateral Agent.
Pledged Collateral shall have the meaning ascribed to such term in the Pledge Agreement.
Pledgors means Dale S. Barker and Barbara Pyle.
Purchase Agreement means that any definitive agreement entered into between the Borrower and the Lender pursuant to which the Lender acquires all or a portion of the Borrowers assets or voting securities.
Security Documents means the Security Agreement, the Pledge Agreement and such other agreements, instruments, documents, financing statements, warehouse receipts, bills of lading, notices of assignment of accounts, schedules of accounts assigned, mortgages and other written matter necessary or reasonably requested by the Lender to perfect and maintain perfected the Lenders first priority security interest in the Collateral.
Security Agreement means that certain Security Agreement, dated as of the date hereof, by and between the Borrower and the Pledgors as Grantors and the Collateral Agent.
Solvent means, with respect to any Person, that (i) the fair value of all of such Persons properties and assets is in excess of the total amount of its debts (within the meaning of the U.S. Bankruptcy Code); (ii) it is able to pay its debts as they mature; (iii) it does not have unreasonably small capital for the business in which it is engaged or for any business or transaction in which it is about to engage; and (iv) it is not insolvent as such term is defined in Section 101(31) of the U.S. Bankruptcy Code.
Trains Project means the project to build two 50 million gallon trains in connection with the Potential Project as described in the LOI.
Transaction means the acquisition by the Lender of 80% of the Common Stock of the Borrower in accordance with the terms and conditions set forth in the Purchase Agreement.
U.S. Bankruptcy Code means Title 11 of the United States Code, 11 U.S.C. Section 101, et seq .
The words herein, hereof and hereunder and other words of similar import refer to this Agreement as a whole, including the Exhibits and Schedules hereto, as the same may from time to time be amended, modified or supplemented, and not to any particular section, subsection or clause contained in this Agreement.
Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter.
3.2 Conditions to Subsequent Drawings . The obligation of the Lender to lend additional amounts for any Delayed Draw shall be subject to the following conditions precedent and solely at the discretion of the Lender:
3.3 Post-Closing Conditions Subsequent .
Except as set forth on the Disclosure Schedule delivered by the Borrower to the Lender, each section of which shall only qualify the representation or warranty in the correspondingly numbered Section of this Agreement, each Credit Party, as applicable, represents and warrants to the Lender that on the date hereof:
The occurrence of any one or more of the following events shall constitute a default hereunder (each, a Default):
[Remainder of page intentionally left blank; signature page follows]
IN WITNESS WHEREOF, the parties hereto have executed this Loan Agreement as of the date first above written.
|
PROECO ENERGY COMPANY |
||
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|
||
|
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||
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By: |
/s/ Dale S. Barker |
|
|
Name: |
Dale S. Barker |
|
|
Title: |
President |
|
|
Address: |
P.O. Box 261 |
|
|
|
Belle Fourche, South Dakota 57717 |
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Telephone: |
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Facsimile: |
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O2DIESEL CORPORATION |
||
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||
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||
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By: |
/s/ David H. Shipman |
|
|
Name: |
David H. Shipman |
|
|
Title: |
Chief Financial Officer |
|
|
Address: |
100 Commerce Drive, Suite 301 |
|
|
|
Newark, Delaware 19713 |
|
|
|
|
|
|
Telephone: |
(302) 266-6000 |
|
|
Facsimile: |
(302) 266-7076 |
|
|
PLEDGORS: |
|
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|
|
|
DALE S. BARKER |
|
|
|
|
|
/s/ Dale S. Barker |
|
|
Address: |
|
|
Telephone: |
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|
Facsimile: |
|
|
|
|
|
|
|
|
BARBARA PYLE |
|
|
|
|
|
/s/ Barbara Pyle |
|
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Address: |
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|
Telephone: |
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|
Facsimile: |
|
EXECUTION COPY
EXHIBIT B
SECURED PROMISSORY NOTE
$150,000 |
|
Newark, Delaware |
|
|
|
December 26, 2006 |
|
ProEco Energy Company, Inc. , a South Dakota corporation (the Company ), FOR VALUE RECEIVED, hereby unconditionally promises to pay to the order of O2Diesel Corporation ( O2Diesel or the Holder ), in U.S. dollars in immediately available funds, the principal amount of One Hundred Fifty Thousand and NO/100 ($150,000) (the Principal Amount ), together with interest on the unpaid principal balance of this Secured Promissory Note (the Note ) outstanding from time to time from the date hereof, at the rate provided in the Loan Agreement (as defined below). The books and records of the Holder shall be conclusive as to the unpaid principal amount of this Note at any time outstanding, absent manifest error.
This Note is issued pursuant to the terms of the Loan Agreement, dated December 22, 2006 (as such agreement may from time to time be amended, restated, modified or supplemented, the Loan Agreement ) to which the Company and the Holder are parties, to which reference is hereby made for a statement of all of the terms and conditions applicable to the Loan evidenced, hereby. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement.
O2Diesel Corporation |
|
|
|
100 Commerce Drive, Suite 301 |
|
|
|
Newark, Delaware 19713 |
|
|
|
Attn: David Shipman, Chief Financial Officer |
|
|
|
Tel: |
(302) 266-6000 |
|
|
Fax: |
(302) 266-7076 |
|
|
With a copy to:
Arnold & Porter LLP |
|
|
|
1600 Tysons Boulevard, Suite 900 |
|
|
|
McLean, Virginia 22102 |
|
|
|
Attn: Kevin J. Lavin, Esq. |
|
|
|
Tel: |
(703) 720-7011 |
|
|
Fax: |
(703) 720-7399 |
|
|
2
and to the Company at the address indicated below:
ProEco Energy Company. |
|
|
|
P.O. Box 261 |
|
|
|
Belle Fourche, South Dakota 57717 |
|
|
|
Attn: Dale S. Barker |
|
|
|
Tel: |
(605) |
|
|
Fax: |
(605) |
|
|
With a copy to:
Buckmaster Law Offices, PC |
|
|
|
P.O. Box 726 |
|
|
|
Belle Fourche, South Dakota 57717 |
|
|
|
Attn: Wesley W. Buckmaster |
|
|
|
Tel: |
(605) 892-2623 |
|
|
Fax: |
(605) 892-6337 |
|
|
or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party.
(c) THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING WHICH IN ANY MANNER ARISES OUT OF OR IN CONNECTION WITH OR IS IN ANY WAY RELATED TO THIS NOTE OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.
[SIGNATURE PAGE FOLLOWS]
3
IN WITNESS WHEREOF , this Note has been executed and delivered on the date first above written by the undersigned duly authorized representative of the Company.
|
PROECO ENERGY COMPANY |
|
|
|
|
|
|
|
|
By: |
/s/ Dale Barker |
|
Name: |
Dale Barker |
|
Title: |
President |
4
EXECUTION COPY
EXHIBIT C
SECURED PROMISSORY NOTE
|
|
Newark, Delaware |
|
ProEco Energy Company, Inc. , a South Dakota corporation (the Company ), FOR VALUE RECEIVED, hereby unconditionally promises to pay to the order of O2Diesel Corporation ( O2Diesel or the Holder ), in U.S. dollars in immediately available funds, the Principal Amount (as defined below) together with interest on the unpaid principal balance of this Secured Promissory Note (the Note ) outstanding from time to time from the date hereof, at the rate provided in the Loan Agreement (as defined below). The books and records of the Holder shall be conclusive as to the unpaid Principal Amount of this Note at any time outstanding, absent manifest error.
This Note is issued pursuant to the terms of the Loan Agreement, dated December 22, 2006 (as such agreement may from time to time be amended, restated, modified or supplemented, the Loan Agreement ) to which the Company and the Holder are parties, to which reference is hereby made for a statement of all of the terms and conditions applicable to the Loan evidenced, hereby. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement.
O2Diesel Corporation |
|
|
|
100 Commerce Drive, Suite 301 |
|
|
|
Newark, Delaware 19713 |
|
|
|
Attn: David Shipman, Chief Financial Officer |
|
|
|
Tel: |
(302) 266-6000 |
|
|
Fax: |
(302) 266-7076 |
|
|
With a copy to:
Arnold & Porter LLP |
|
|
|
1600 Tysons Boulevard, Suite 900 |
|
|
|
McLean, Virginia 22102 |
|
|
|
Attn: Kevin J. Lavin, Esq. |
|
|
|
Tel: |
(703) 720-7011 |
|
|
Fax: |
(703) 720-7399 |
|
|
and to the Company at the address indicated below:
ProEco Energy Company. |
|
|
|
P.O. Box 261 |
|
|
|
Belle Fourche, South Dakota 57717 |
|
|
|
Attn: Dale S. Barker |
|
|
|
Tel: |
(605) |
|
|
Fax: |
(605) |
|
|
With a copy to:
Buckmaster Law Offices, PC |
|
|
|
P.O. Box 726 |
|
|
|
Belle Fourche, South Dakota 57717 |
|
|
|
Attn: Wesley W. Buckmaster |
|
|
|
Tel: |
(605) 892-2623 |
|
|
Fax: |
(605) 892-6337 |
|
|
or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party.
(c) THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING WHICH IN ANY MANNER ARISES OUT OF OR IN CONNECTION WITH OR IS IN ANY WAY RELATED TO THIS NOTE OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF , this Note has been executed and delivered on the date first above written by the undersigned duly authorized representative of the Company.
|
PROECO ENERGY COMPANY |
|
|
|
|
|
|
|
|
By: |
/s/ Dale Barker |
|
Name: |
Dale Barker |
|
Title: |
President |
SCHEDULE A
Date |
|
Amount |
|
|
1/17/2007 |
|
125,000.00 |
|
|
3/14/2007 |
|
125,000.00 |
|
|
4/25/2007 |
|
75,000.00 |
|
|
5/14/2007 |
|
65,000.00 |
|
|
5/30/2007 |
|
65,000.00 |
|
|
6/12/2007 |
|
65,000.00 |
|
|
6/27/2007 |
|
65,000.00 |
|
|
7/10/2007 |
|
65,000.00 |
|
|
7/25/2007 |
|
65,000.00 |
|
|
8/15/2007 |
|
65,000.00 |
|
|
9/07/2007 |
|
65,000.00 |
|
|
10/01/2007 |
|
65,000.00 |
|
|
10/15/2007 |
|
65,000.00 |
|
|
10/25/2007 |
|
40,000.00 |
|
|
11/01/2007 |
|
65,000.00 |
|
|
11/15/2007 |
|
40,000.00 |
|
|
11/30/2007 |
|
40,000.00 |
|
|
12/14/2007 |
|
40,000.00 |
|
|
1/18/2008 |
|
10,000.00 |
|
|
|
|
|
|
|
Total: |
|
$ |
1,210,000.00 |
|
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
O2Diesel Corporation (the "Company") is a Delaware corporation. The table below sets forth all of the Company's subsidiaries as to state or jurisdiction of organization.
Subsidiary
|
State or Jurisdiction of Organization
|
|
---|---|---|
O2Diesel, Inc. | Delaware | |
O2Diesel Químicos, Ltda. | Brazil | |
O2Diesel R&D SPA, S.L. | Spain | |
O2Diesel Europe PLC | Ireland | |
O2Diesel Asia Limited | Ireland |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
As independent registered public accountants, we hereby consent to the incorporation by reference in Registration Statement Nos. 333-146797, 333-136119 and 333-127720 on Form S-3 and No. 333-136121 on Form S-8 of our report dated March 28, 2008, relating to the consolidated balance sheet of O2Diesel Corporation as of December 31, 2007, and the related consolidated statements of operations, changes in stockholders' equity (deficit), and cash flows for the years ended December 31, 2007 and 2006 and for the period October 14, 2000 (inception) through December 31, 2007, included in the 2007 Annual Report on Form 10-KSB of O2Diesel Corporation.
/s/ Mayer Hoffman McCann P.C.
Plymouth
Meeting, Pennsylvania
March 31, 2008
Exhibit 31.1
CERTIFICATIONS OF THE CHIEF EXECUTIVE OFFICER PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Alan Rae, certify that:
Date:
March 31, 2008
/s/
ALAN R. RAE
Alan R. Rae
Chief Executive Officer
Exhibit 31.2
CERTIFICATIONS OF THE CHIEF FINANCIAL OFFICER PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David Shipman, certify that:
Date:
March 31, 2008
/s/
David Shipman
David Shipman
Chief Financial Officer
Exhibit 32.1
O2DIESEL CORPORATION
(A Development Stage Company)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
In connection with the Annual Report of O2Diesel Corporation (the "Company") on Form 10-KSB for the year ended December 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Alan Rae, Chief Executive Officer of the Company, and I, David H. Shipman, Chief Financial Officer of the Company certify, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge that:
This certificate is being made for the exclusive purpose of compliance by the Chief Executive Officer and Chief Financial Officer of the Company with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and may not be disclosed, distributed or used by any person or for any reason other than as specifically required by law.
Date: March 31, 2008
/s/
ALAN RAE
Alan Rae Chief Executive Officer |
/s/
DAVID H. SHIPMAN
David H. Shipman Chief Financial Officer |
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