Exhibit 10.1

 

STRICTLY CONFIDENTIAL

 

MEMORANDUM OF UNDERSTANDING

SUMMARY OF TERMS

 

This Memorandum of Understanding (the ‘MOU”) is signed by MAGNEGAS CORPORATION
(“MAGNEGAS”) and Green Gas Supply, L.L.C. (“GGS”), effective as of this 16th day
of July, 2015 (the “Effective Date”), for the purpose of setting forth their
understanding as to the terms under which they would contemplate pursuing a
mutual relationship for jointly carrying out the specific business activities
described herein. MagneGas and GGS may be jointly referred to herein as the
“Parties” and each of them, a “Party”.

 

This MOU sets forth a summary of the essential terms of the contemplated
business relationship but is not exhaustive of all the terms the Parties will
require in the final binding agreements between them, if the Parties are
successful in negotiating such agreements. It is the Parties’ intent that this
MOU provide an outline for the preparation of the definitive documentation
between the Parties as to the subject matter hereof (the “Definitive
Documents”).

 

1.          PURPOSE.  The Parties desire to enter into a Joint Venture
arrangement to produce MagneGas fuel and distribute MagneGas fuel, by
collaborating and jointly developing and marketing products within the approved
Territory. The Parties agree that each of them engage in other activities that
are outside the scope of the contemplated relationship and that none of their
respective activities will interfere with this relationship. The Parties desire
to contribute their respective efforts and resources and share the profits
generated from their collaboration in connection with the Business Purpose, by
creating and co-owning a new entity as described below.

 

2.          NEW ENTITY. The Parties will create a new entity (“NewCo”), which
will be initially owned 50% by MagneGas and 50% by GGS.

 

3.          CAPITAL CONTRIBUTIONS AND OTHER PAYMENTS. Within 7 days of the
signature of this MOU, GGS will pay a non-refundable deposit of $10,000 to
MagneGas. If Definitive Documents are successfully negotiated between and
executed by the Parties, it is currently contemplated that (a) GGS will pay to
MagneGas an amount of $540,000 upon execution of the Definitive Documents by the
Parties, in consideration for which GGS will receive an undivided 50% interest
in a minimum 200 kw gasification system for the production of MagneGas2 (the
“First System”); and (b) GGS and MagneGas will both contribute their respective
50% interests in the First System as a capital contribution to NewCo.

 

NewCo will pay to MagneGas a GROSS royalty payment equal to 5% (with a minimum
of $1.25 per 140cft cylinder) of revenue received from the sale of MagneGas fuel
(whichever is higher.).

 

In order to maintain Territory Exclusivity as defined below, GGS will contribute
capital required to purchase future gasification units on terms and conditions
to be particularly specified in the Definitive Documents. MagneGas will reduce
their profit margin significantly on all gasification sales as their capital
contribution as outlined below and as to be specified in the Definitive
Documents, and will provide exclusive distribution rights as outlined in this
MOU and to be specified in the Definitive Documents.

 

 

 

  

STRICTLY CONFIDENTIAL

 

Cylinders will be purchased by GGS and will be owned separately by GGS therefore
all rent will be paid directly to GGS and will not be part of NewCo.

 

MagneGas and GGS will share 50% each any profit distributions, based on net
income after expenses. Such profit distributions will occur quarterly with a
schedule to be determined by the Board of Managers.

 

The other equity contributions and additional consideration(s) of each of the
parties are set forth below.

 

Neither Party will have any financial obligations or other responsibilities to
the other Party, except as expressly set forth in the Definitive Documents.

 

MagneGas will transfer to NewCo a minimum 200kw gasification system for the
production of MagneGas2 within 6 months of the signature of the Definitive
Documents and full receipt of GGS’s payment of $550,000 as outlined above. NewCo
will purchase additional gasification systems from MagneGas. Gasification
systems will be provided to NewCo at a 50% discount from advertised retail
market price for a period of 18 months following the signature of the Definitive
Documents. Thereafter, gasification systems will be provided at a 30% mark-up
over cost.

 

4.          NEWCO MANAGEMENT CONTROL. NewCo will be “Manager Managed” by a three
person Board of Managers; one (1) member of which will be appointed by MagneGas
and one (1) member appointed by GGS and one appointed by mutual agreement of
both MagneGas and GGS. The Board of Managers shall be responsible for all
significant policy and business decisions of NewCo, except as may be
specifically delegated to any of the NewCo Officers. The Board of Managers shall
act by vote of the majority of its members, except for the following actions,
which must be approved unanimously by all members of the Board of Managers:

 

-Dilution of members

-Distribution of profits with a different allocation than ownership percentages

- NewCo executive compensation / related party transactions

- Change / reduction / expansion of Board seats

- Issuance of any new Membership Interests or Profit Interests, the creation of
a new class of Membership Interests whether with or without voting rights

- Sale of NewCo or of any of its assets

-Approval of debt in excess of $50,000

-Approval of any guarantees for the debt of any other party

-Approval of Annual Budgets, including any deviations therefrom

 

5.          OFFICERS. The Board of Managers will appoint the officers of NewCo.

 

NewCo’s day-to-day operations will be managed by the President, consistent with
the approved budgets (as provided below) and as directed by the Board of
Managers.

 

 

 

  

STRICTLY CONFIDENTIAL

 

6.          NEWCO FINANCING. As part of its equity contribution to NewCo, GGS
will complete the site construction, including necessary power brought to the
facility and all electrical and plumbing hookups, obtain all permits up to and
including certificate of occupancy. MagneGas will transfer and ship to NewCo a
minimum 200kw gasification unit for the production of MagneGas fuel. As part of
its equity contribution, MagneGas will transfer the exclusive distribution
rights to the Territory under the terms and conditions outlined below.

 

Thereafter each of the Parties will contribute equally the capital necessary for
NewCo’s operations, on terms and conditions to be specifically set forth in the
Definitive Documents.

 

7.          RESERVED.

 

8.          TERRITORY. NewCo will only be an authorized product distributor
within the Territory. Territory is defined to be exclusive distribution rights
within certain regions of Louisiana and Texas as further defined below with
non-exclusive distribution rights in Oklahoma, Arkansas and Mississippi.
Expansion of said Territory can only be approved with unanimous acceptance by
all Board Members. Initial operations will be in Louisiana. Territory expressly
includes only the sale of MagneGas fuel for use in metal cutting or welding and
specifically excludes the Co-Combustion or Sterilization business lines.

 

The Parties contemplate that the Definitive Documents will detail a specific
subdivision of the States of Louisiana and Texas into individual regions. The
Definitive Documents will detail the time within which a gasification system
would have to be purchased and installed by NewCo in a region in order to
maintain NewCo’s exclusivity in that region. GGS would contribute to NewCo the
capital required to purchase each such gasification system from MagneGas. NewCo
would have a continuing right of first refusal to purchase and install a
gasification system in any region in Louisiana or Texas in which exclusivity
rights have been lost, on terms to be specified in the Definitive Documents.

 

In order to maintain exclusivity in Louisiana and Texas, minimum sales
performance requirements will be outlined in the Definitive Agreements. At a
minimum performance requirements will include for NewCo to achieve sales levels
in a region that coincide with at least 40 hours of fuel production at full
power per week on or before 24 months from the delivery of the gasification
system in that region. Should minimum performance standards not be achieved, the
distribution rights will become non-exclusive. MagneGas as their capital
contribution will provide these gasification systems at a discounted profit
margin as outlined in this MOU and the Definitive Documents, and will abide by
exclusivity terms.

 

The Parties further contemplate that an entity under common ownership and
control with GGS will have the exclusive right to purchase all gas produced by
NewCo for resale to end users in the Territory, on terms and conditions to be
mutually agreed upon by the Parties and to be specifically set forth in the
Definitive Documents.

 

 

 

  

STRICTLY CONFIDENTIAL

 

9.          DISPUTE RESOLUTION. The Parties anticipate resolution of disputes
through mutual negotiations and discussions in good faith. The parties
contemplate that the Definitive Documents will include mutually acceptable
procedures for the use of alternative dispute resolution methods (mediation and
arbitration) in the event that a dispute cannot be resolved through good faith
discussions.

 

10.         BUDGET PROCEDURES AND FINANCIAL REPORTING. The Parties will work
together to prepare annual budgets that will be presented on or about December 1
of each year (the “Annual Budget(s)”) for approval by the NewCo Board of
Managers, voting unanimously. The day-to-day operations will be undertaken
consistent with these budget projections. These budgets will provide monthly
breakdowns, and monthly financial reports will be prepared and include
comparisons to these budgets. Projections will also be prepared periodically
over the course of the year (ordinarily on a quarterly basis) which will project
revised year-end financials, based on the then-current circumstances.

 

11.         EXECUTIVE COMPENSATION AND OTHER RELATED-PARTY PAYMENTS. The basic
principle underlying all executive compensation, general overhead expense
allocations, and any other payments to “related parties” (including future
adjustments), is that the payments are based on the reasonable fair market value
for the services and/or products received, as would be negotiated between
parties in an arms’ length transaction. Any and all “related party” payment
arrangements will be fully disclosed to all owners, and agreed upon in writing
by unanimous vote of the Board of Managers, prior to a contractual obligation
being created.

 

12.         BUY-SELL/OPERATING AGREEMENTS. The Operating Agreement for NewCo
will include customary provisions restricting and regulating the transfer of
membership interests in NewCo, including but not limited to a first right of
refusal for each Party to purchase the membership interests of the other Party
(or of any other members of NewCo), “take—along” provisions in the event of an
approved sale to a third party, the pledge or hypothecation of membership
interests, the addition of new members and other similar provisions.

 

Neither Party will engage in any NewCo sale or transfer discussions with any
third parties, at any time, without the prior written consent and agreement of
the other Party.

 

13.         LIABILITIES AND EXPENSES.

 

A.           Reserved.

 

B.           Expenses. Expenses incurred in connection with and/or relating to
the negotiation(s) of this transaction and/or document(s) finalization shall be
paid by the Party incurring these expense(s), including, without limitation, the
legal fees incurred by a Party in connection with the negotiation and
preparation of the Definitive Documents.

 

14.         PUBLIC ANNOUNCEMENT(S). Public announcement(s) of this transaction
and any other transaction shall be mutually agreed upon by the Parties unless
required by law, in which case prior notice to NewCo and GGS will be provided.
To the extent that applicable law permits any public filing or announcement to
be made without disclosing the names of the Parties, such anonymity will be
employed to the extent available by Law. Since MagneGas is a publicly traded
Company and the Definitive Documents and this MOU would be considered a material
agreement, a copy of the Definitive Documents and MOU would need to be filed in
full with the Securities and Exchange Commission within 72 hours of execution.
GGS hereby agrees to this disclosure.

 

 

 

 

STRICTLY CONFIDENTIAL

 

15.         TERM. The Parties will negotiate in good faith with respect to the
preparation of mutually agreeable Definitive Documents consistent with the terms
and provisions of this MOU and including other provisions which are reasonable
and customary in these types of transactions. This MOU will expire on the
earlier of the execution of the Definitive Documents or 90 days from the date
hereof. If Definitive Documents have not been approved and executed by the
parties within 90 days from the date hereof, neither Party shall have any
further obligations hereunder.

 

16.          Governing Law

This MOU shall be governed by Florida law, without reference to the Florida
rules on conflict of laws.

 

17.         Transferability

This MOU is non-transferable except to a wholly owned subsidiary of any Party;
provided, that the interest of GGS hereunder may be assigned to an entity under
common ownership and control with GGS, which entity would be a party to the
Definitive Documents rather than GGS; the change of control of any Party shall
be deemed a “transfer“of this MOU for purposes of this paragraph.

 

18.         Counterparts

For the convenience of the Parties hereto, this MOU may be executed in multiple
counterparts, each of which will be deemed an original, and all counterparts
hereof so executed by the Parties hereto, whether or not such counterpart will
bear the execution of each of the Parties hereto, will be deemed to be, and will
be construed as, one and the same.

 

19.         Trading of Stock

The parties acknowledge that MNGA is a public company listing its common stock
on the NASDAQ exchange. If any material, non-public information is disclosed,
Recipient agrees that it will comply with United States Securities and Exchange
Commission Regulation FD (Fair Disclosure), and refrain from trading in MNGA
stock until that material non-public information is publicly disseminated.

 

20.         Confidentiality

Nothing in this agreement constitutes a transfer of ownership of intellectual
property between the parties including, without limitation, patents, copyrights,
and/or registered trademarks. The Parties agree to keep the confidentiality of
any proprietary information of a Party disclosed to any of the other Parties
hereunder, and to use such information solely for the purposes of negotiating
the Definitive Documents. The Definitive Documents, if they are successfully
negotiated, will contain customary confidentiality provisions to protect each
Party’s proprietary information, as well as provisions relative to the
disclosure of other material information in compliance with the requirements of
the U.S. Securities and Exchange Commission as such apply to MagneGas.

 

 

 

  

STRICTLY CONFIDENTIAL

 

Each Party’s signature below will confirm that the foregoing is acceptable to
them.

 

22.         MISCELLANEOUS.

 

A.           The parties expect that the Definitive Documents may include a
License Agreement between MagneGas and NewCo, an exclusive supply agreement
between NewCo and an entity under common ownership and control with GGS for the
resale of gas to end users in the Territory, and other customary documents. Each
Party may assign its rights hereunder to a wholly owned subsidiary or a special
purpose entity (in the case of GGS, including any entity under common ownership
and control with GGS) who will be a party to the Definitive Documents.

 

B.           The parties acknowledge that this MOU does not contain all of the
matters upon which agreement must be reached for the potential transaction to be
consummated and, therefore, does not constitute a binding agreement or create
legal obligations, except for paragraphs 13.B, 14 and 20, which are binding and
enforceable.

 

GREEN GAS SUPPLY, L.L.C.   MAGNEGAS CORPORATION         By:     By:  [tsig.jpg]
        Luisa Ingargiola           By:     Its: CFO Authorized Representative  
                  Its: Authorized Representatives