Exhibit 10.1

 

EXCHANGE AGREEMENT

 

EXCHANGE AGREEMENT (the “Agreement”) is made as of the 9th day of May 2017, by
and between MagneGas Corporation, a Delaware corporation (the “Company”), and
the investor signatory hereto (the “Investor”).

 

WHEREAS, on June 27, 2016, pursuant to a Securities Purchase Agreement
(“Purchase Agreement”) between the Company and the Investor, the Company sold
(i) Senior Convertible Debentures (the “Debentures”), Series E-1 Common Stock
Purchase Warrants, Series E-2 Common Stock Purchase Warrants, Series E-5 Common
Stock Purchase Warrants and Series E-6 Common Stock Purchase Warrants
(collectively, the “144 Warrants”), pursuant to an exemption from the
registration requirements of Section 5 of the Securities Act of 1933, as amended
(the “Securities Act”) contained in Section 4(a)(2) thereof and/or Regulation D
thereunder and (ii) Series E-4 Common Stock Purchase Warrants and Series E-7
Common Stock Purchase Warrants (collectively, the “Registered Warrants” and
collectively with the 144 Warrants, the “Warrants”) pursuant to an effective
registration statement under the Securities Act;

 

WHEREAS, on the date hereof, the Investor owns Warrants to purchase up to
22,198,554 shares of Common Stock (the “Held Warrants”);

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(a)(2) of the Securities Act , and in reliance on Section
3(a)(9) of the Securities Act, the Company desires to exchange with the
Investor, and the Investor desires to exchange with the Company, the Held
Warrants for Series B Convertible Preferred Stock (“Preferred Stock”), which
Preferred Stock shall be subject to the terms of the Certificate of Designation
in the form of Exhibit A attached hereto, and shares of Common Stock; and

 

WHEREAS, the subject to the terms and conditions set forth in this Agreement the
Company wishes to reduce the Conversion Price of the Debentures and make such
additional amendments to the Debentures as set forth in Section 1 herein.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and in consideration of the premises and the
mutual agreements, representations and warranties, provisions and covenants
contained herein, the parties hereto, intending to be legally bound hereby,
agree as follows:

 

1.                  Amendments to Debentures.

 

(a) Reset of Conversion Price under the Debentures. As of the date hereof, the
Conversion Price of the Debenture is reduced to $0.30, subject to adjustment
hereunder or under the terms of such Debenture.

 

(b) Prepayment Provision. From and after the date hereof, upon 10 Trading Days’
prior written notice to the Investor, the Company shall be permitted to prepay,
in whole or in part, outstanding principal amount of the Debenture, together
with a prepayment premium in the amount of ten percent (10%) of the amount of
principal being prepaid by the Company, without having to obtain the prior
written consent of the Investor as required by Section 2(b) of the Debenture.
Notwithstanding anything herein contained to the contrary, if any portion of the
principal amount subject to redemption remains unpaid after the date set for
redemption in the notice to the Investor, other than as a result of a Material
Adverse Effect (as defined below), the Investor may elect, by written notice to
the Company given at any time thereafter, to invalidate such redemption, ab
initio, and the Company shall have no further right to exercise such redemption
right. The Investor may elect to convert the outstanding principal amount of the
Debenture that the Company has elected to prepay prior to actual payment in cash
for any redemption hereunder by the delivery of a Notice of Conversion to the
Company. Additionally, in the event the Investor exercises its right to exchange
this Debenture pursuant to Section 6.18(b) prior to the later of the expiration
of the notice period and actual prepayment in cash, such exchange shall be
honored and the Debenture may not then be prepaid. For purposes of
clarification, any rights of the Investor under Section 6.18(b) of the Purchase
Agreement shall supersede any rights of prepayment by the Company. As used
herein, a “Material Adverse Effect” shall mean a material adverse effect on the
results of operations, assets, business, prospects or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, which occurs
prior to the expiration of the 10 Trading Day notice period set forth in this
Section 1(b) and as a result, makes it impractical or inadvisable for the
Company to proceed with its election for prepayment.

 

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(c)       Issuance Limitations. Notwithstanding anything herein to the contrary,
if the Company has not obtained Shareholder Approval, then the Company may not
issue, upon conversion of the Debenture, a number of shares of Common Stock
which, when aggregated with (i) any shares of Common Stock issued pursuant to
this Agreement, (ii) any shares of Common Stock issued in connection with any
conversion of Preferred Stock issued pursuant to this Agreement and (iii) any
shares of Common Stock issued in connection with any conversion of the
Debenture, would exceed 11,913,546 shares of Common Stock (subject to adjustment
for forward and reverse stock splits, recapitalizations and the like).
“Shareholder Approval” means such approval as may be required by the applicable
rules and regulations of the Nasdaq Capital Market (or any successor entity)
from the shareholders of the Company with respect to the transactions
contemplated by this Agreement, including the issuance of all of the underlying
shares in excess of 19.99% of the issued and outstanding Common Stock on the
date of execution of this Agreement.

 

2.                  Exchange. On the Closing Date, subject to the terms and
conditions of this Agreement, the Investor shall, and the Company shall,
pursuant to Section 3(a)(9) of the Securities Act, exchange all of the Held
Warrants for (a) shares of Preferred Stock convertible into 9,000,000 shares of
Common Stock and, via The Depository Trust Company Deposit or Withdrawal at
Custodian system (“DWAC”) and (b) 1,000,000 shares of Common Stock (such
Preferred Stock and shares of Common Stock, the “Exchange Securities”). Subject
to the conditions set forth below, the Exchange shall take place at the offices
of Ellenoff Grossman & Schole LLP, on the third Trading Day (as defined below)
after the date hereof, or at such other time and place as the Company and the
Investor mutually agree (the “Closing” and the “Closing Date”). At the Closing,
the following transactions shall occur (such transactions in this Section 1, the
“Exchange”):

 

2.1              On the Closing Date, in exchange for the Held Warrants, the
Company shall deliver the Exchange Securities to the Investor or its designee in
accordance with the Investor’s delivery instructions set forth on the Investor
signature page hereto. Upon receipt of the Exchange Securities in accordance
with this Section 2.1, all of the Investor’s rights under the Held Warrants
shall be extinguished. The Investor shall tender to the Company the Held
Warrants within three Trading Days (as defined below) of the Closing Date.

 

2.2              On the Closing Date, the Investor shall be deemed for all
corporate purposes to have become the holder of record of the Exchange
Securities, irrespective of the date such Exchange Securities are delivered to
the Investor in accordance herewith. As used herein, “Trading Day” means any day
on which the Common Stock is traded on the NASDAQ Capital Market, or, if the
NASDAQ Capital Market is not the principal trading market for the Common Stock,
then on the principal securities exchange or securities market on which the
Common Stock is then traded.

 

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2.3              The Company and the Investor shall execute and/or deliver such
other documents and agreements as are customary and reasonably necessary to
effectuate the Exchange.

 

3.                  Closing Conditions.

 

3.1              Conditions to Investor’s Obligations. The obligation of the
Investor to consummate the Exchange is subject to the fulfillment, to the
Investor’s reasonable satisfaction, prior to or at the Closing, of each of the
following conditions:

 

(a)                Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on the date hereof and on and as of the Closing Date as
if made on and as of such date.

 

(b)               No Actions. No action, proceeding, investigation, regulation
or legislation shall have been instituted, threatened or proposed before any
court, governmental agency or authority or legislative body to enjoin, restrain,
prohibit or obtain substantial damages in respect of, this Agreement or the
consummation of the transactions contemplated by this Agreement.

 

(c)                Proceedings and Documents. All proceedings in connection with
the transactions contemplated hereby and all documents and instruments incident
to such transactions shall be satisfactory in substance and form to the
Investor, and the Investor shall have received all such counterpart originals or
certified or other copies of such documents as they may reasonably request.

 

(d)               Listing of Exchange Securities. The Company shall have secured
the listing or designation for quotation (as applicable) of all of the shares of
Common Stock issued in the Exchange and the shares of Common Stock underlying
the Preferred Stock issued in the Exchange, upon each national securities
exchange and automated quotation system, if any, upon which the shares of Common
Stock issued in the Exchange and shares of Common Stock underlying the Preferred
Stock issued in the Exchange are then listed or designated for quotation (as
applicable).

 

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(e)                Opinion. An opinion of Company counsel confirming that the
issuance of the Exchange Securities does not require registration under the
Securities Act in form and substance reasonably satisfactory to the Investor and
other matters reasonably required by the Investor.

 

3.2              Conditions to the Company’s Obligations. The obligation of the
Company to consummate the Exchange is subject to the fulfillment, to the
Company’s reasonable satisfaction, prior to or at the Closing, of each of the
following conditions:

 

(a)                Representations and Warranties. The representations and
warranties of the Investor contained in this Agreement shall be true and correct
in all material respects on the date hereof and on and as of the Closing Date as
if made on and as of such date.

 

(b)               No Actions. No action, proceeding, investigation, regulation
or legislation shall have been instituted, threatened or proposed before any
court, governmental agency or authority or legislative body to enjoin, restrain,
prohibit, or obtain substantial damages in respect of, this Agreement or the
consummation of the transactions contemplated by this Agreement.

 

(c)                Proceedings and Documents. All proceedings in connection with
the transactions contemplated hereby and all documents and instruments incident
to such transactions shall be satisfactory in substance and form to the Company
and the Company shall have received all such counterpart originals or certified
or other copies of such documents as the Company may reasonably request.

 

4.                  Representations and Warranties of the Company. The Company
hereby represents and warrants to Investor that:

 

4.1              Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company is duly qualified to transact business and
is in good standing in each jurisdiction in which the failure to so qualify
would have a material adverse effect on its business or properties.

 

4.2              Authorization. All corporate action on the part of the Company,
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement and the performance of all obligations
of the Company hereunder, and the authorization (or reservation for issuance
of), the Exchange, and the issuance of the Exchange Securities and the shares of
Common Stock issuable upon conversion or exercise of the Exchange Securities
have been taken on or prior to the date hereof.

 

4.3              Valid Issuance of the Exchange Securities. The Exchange
Securities, when issued and delivered in accordance with the terms of this
Agreement, for the consideration expressed herein, will be duly and validly
issued, fully paid and nonassessable. Subject to the truth and accuracy of the
Investor’s representations set forth in Section 5 of this Agreement, the
Exchange Securities issued in exchange for the Held Warrant (assuming cashless
exercise of the applicable Exchange Warrants) are freely tradeable without the
need for registration under the Securities Act and shall not be required to bear
any Securities Act legend.

 

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4.4              Offering. Subject to the truth and accuracy of the Investor’s
representations set forth in Section 5 of this Agreement, the offer and issuance
of the Exchange Securities as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act. Neither the Company nor any
authorized agent acting on its behalf will take any action hereafter that would
cause the loss of such exemptions.

 

4.5              Compliance With Laws. The Company has not violated any law or
any governmental regulation or requirement which violation has had or would
reasonably be expected to have a material adverse effect on its business, and
the Company has not received written notice of any such violation.

 

4.6              Consents; Waivers. No consent, waiver, approval or authority of
any nature, or other formal action, by any Person, not already obtained, is
required in connection with the execution and delivery of this Agreement by the
Company or the consummation by the Company of the transactions provided for
herein and therein.

 

4.7              Acknowledgment Regarding Investor’s Purchase of Exchange
Securities. The Company acknowledges and agrees that the Investor is acting
solely in the capacity of arm’s length Investor with respect to this Agreement
and the other documents entered into in connection herewith (collectively, the
“Transaction Documents”) and the transactions contemplated hereby and thereby
and that the Investor is not (i) an officer or director of the Company, (ii) an
“affiliate” of the Company (as defined in Rule 144 promulgated under the
Securities Act), or (iii) to the knowledge of the Company, a “beneficial owner”
of more than 10% of the shares of Common Stock (as defined for purposes of Rule
13d-3 of the Securities Exchange Act of 1934, as amended). The Company further
acknowledges that the Investor is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by the Investor or any of its representatives or agents in connection with
the Transaction Documents and the transactions contemplated hereby and thereby
is merely incidental to the Investor’s acceptance of the Exchange Securities.
The Company further represents to the Investor that the Company’s decision to
enter into the Transaction Documents has been based solely on the independent
evaluation by the Company and its representatives.

 

4.8              Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, selfregulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company, the Exchange Securities or
any of the Company’s officers or directors in their capacities as such.

 

4.9              No Group. The Company acknowledges that, to the Company’s
knowledge, the Investor is acting independently in connection with this
Agreement and the transactions contemplated hereby, and is not acting as part of
a “group” as such term is defined under Section 13(d) of the Securities Act and
the rules and regulations promulgated thereunder.

 

4.10          Validity; Enforcement; No Conflicts. This Agreement and each
Transaction Document to which the Company is a party have been duly and validly
authorized, executed and delivered on behalf of the Company and shall constitute
the legal, valid and binding obligations of the Company enforceable against the
Company in accordance with their respective terms, except as such enforceability
may be limited by general principles of equity or to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws
relating to, or affecting generally, the enforcement of applicable creditors’
rights and remedies. The execution, delivery and performance by the Company of
this Agreement and each Transaction Document to which the Company is a party and
the consummation by the Company of the transactions contemplated hereby and
thereby will not (i) result in a violation of the organizational documents of
the Company or (ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company is a party or by
which it is bound, or (iii) result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities or “blue sky”
laws) applicable to the Company, except in the case of clause (ii) above, for
such conflicts, defaults or rights which would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
ability of the Company to perform its obligations hereunder.

 

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4.11          Disclosure. The Company confirms that neither it nor any other
Person acting on its behalf has provided the Investor or its agents or counsel
with any information that constitutes or could reasonably be expected to
constitute material, nonpublic information. The Company understands and confirms
that the Investor will rely on the foregoing representations in effecting
transactions in the Exchange Securities.

 

5.                  Representations and Warranties of the Investor. The Investor
hereby represents, warrants and covenants that:

 

5.1              Authorization. The Investor has full power and authority to
enter into this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby and has taken all action
necessary to authorize the execution and delivery of this Agreement, the
performance of its obligations hereunder and the consummation of the
transactions contemplated hereby.

 

5.2              Accredited Investor Status; Investment Experience. The Investor
is an “accredited investor” as that term is defined in Rule 501(a) of Regulation
D. The Investor can bear the economic risk of its investment in the Exchange
Securities, and has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of an investment
in the Exchange Securities.

 

5.3              Reliance on Exemptions. The Investor understands that the
Exchange Securities are being offered and issued to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and the Investor’s compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Investor set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Investor to acquire the Exchange Securities.

 

5.4              Information. The Investor and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and issuance of the Exchange
Securities which have been requested by the Investor. The Investor has had the
opportunity to review the Company's filings with the Securities and Exchange
Commission. The Investor and its advisors, if any, have been afforded the
opportunity to ask questions of the Company. Neither such inquiries nor any
other due diligence investigations conducted by the Investor or its advisors, if
any, or its representatives shall modify, amend or affect the Investor’s right
to rely on the Company’s representations and warranties contained herein. The
Investor understands that its investment in the Exchange Securities involves a
high degree of risk. The Investor has sought such accounting, legal and tax
advice as it has considered necessary to make an informed investment decision
with respect to its acquisition of the Exchange Securities. The Investor is
relying solely on its own accounting, legal and tax advisors, and not on any
statements of the Company or any of its agents or representatives, for such
accounting, legal and tax advice with respect to its acquisition of the Exchange
Securities and the transactions contemplated by this Agreement.

 

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5.5              No Governmental Review. The Investor understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Exchange
Securities or the fairness or suitability of the investment in the Exchange
Securities nor have such authorities passed upon or endorsed the merits of the
offering of the Exchange Securities.

 

5.6              Validity; Enforcement; No Conflicts. This Agreement and each
Transaction Document to which the Investor is a party have been duly and validly
authorized, executed and delivered on behalf of the Investor and shall
constitute the legal, valid and binding obligations of the Investor enforceable
against the Investor in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies. The execution, delivery and performance by the
Investor of this Agreement and each Transaction Document to which the Investor
is a party and the consummation by the Investor of the transactions contemplated
hereby and thereby will not (i) result in a violation of the organizational
documents of the Investor or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Investor is
a party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities or “blue sky” laws)
applicable to the Investor, except in the case of clause (ii) above, for such
conflicts, defaults or rights which would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the ability of the
Investor to perform its obligations hereunder.

 

5.7              Ownership of Held Warrants. The Investor owns and holds,
beneficially and of record, the entire right, title, and interest in and to the
Held Warrants. The Investor has full power and authority to transfer and dispose
of the Held Warrants to the Company free and clear of any right or Lien. Other
than the transactions contemplated by this Agreement, there is no outstanding
vote, plan, pending proposal, or other right, of any Person to acquire all or
any part of the Held Warrants. As used herein, “Liens” shall mean any security
or other property interest or right, claim, lien, pledge, option, charge,
security interest, contingent or conditional sale, or other title claim or
retention agreement, interest or other right or claim of third parties, whether
perfected or not perfected, voluntarily incurred or arising by operation of law,
and including any agreement (other than this Agreement) to grant or submit to
any of the foregoing in the future.

 

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5.8              No Consideration Paid. No commission or other remuneration has
been paid by the Investor (or any of its agents or affiliates) to the Company
related to the Exchange.

 

6.                  Additional Covenants.

 

6.1              Disclosure. The Company shall (a) by 9:00 a.m. (New York City
time) on the Business Day immediately following the date of this Agreement,
issue a press release disclosing the material terms of the transactions
contemplated hereby and (b) file a Current Report on Form 8-K (collectively, the
“8-K Filing”), with the Commission within one (1) Business Day of the date of
this Agreement. From and after the issuance of the 8-K Filing, the Investor
shall not be in possession of any material, nonpublic information received from
the Company or any of its respective officers, directors, employees or agents,
that is not disclosed in the 8-K Filing. The Company shall not, and shall cause
its officers, directors, employees and agents, not to, provide the Investor with
any material, nonpublic information regarding the Company from and after the
filing of the 8-K Filing without the express written consent of the Investor.
The Company shall not disclose the name of the Investor in any filing,
announcement, release or otherwise, unless such disclosure is required by law or
regulation. In addition, effective upon the filing of the 8-K Filing, the
Company acknowledges and agrees that any and all confidentiality or similar
obligations under any agreement, whether written or oral, between the Company,
any of its subsidiaries or any of their respective officers, directors,
affiliates, employees or agents, on the one hand, and the Investor or any of its
affiliates, on the other hand, shall terminate.

 

6.2              Listing and Electronic Transfer. The Company shall use its best
efforts to maintain the listing or designation for quotation (as applicable) of
all of the shares of Common Stock issued in the Exchange and the shares of
Common Stock underlying the Preferred Stock issued in the Exchange upon each
national securities exchange and automated quotation system on which the Common
Stock is currently listed or designated while such securities are outstanding.
The Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 6.2. The Company agrees to maintain the
eligibility of the Common Stock for electronic transfer through the Depository
Trust Company or another established clearing corporation, including, without
limitation, by timely payment of fees to the Depository Trust Company or such
other established clearing corporation in connection with such electronic
transfer.

 

6.3              Registered Characteristics. Subject to the truth and accuracy
of the Investor’s representations set forth in Section 4 of this Agreement, the
parties acknowledge and agree that in accordance with Section 3(a)(9) of the
Securities Act, the Debentures as amended pursuant to this Agreement, the
Exchange Securities and shares issuable thereunder (assuming cashless exercise
of the Warrants) issued in exchange for the Registered Warrants take on the
registered characteristics of the Debentures and the Registered Warrants and the
Company agrees not to take a position to the contrary. As applicable, upon
conversion such Debentures or Exchange Securities, the shares issuable
thereunder shall be freely tradeable and free of any restrictions on resale or
Securities Act legends.

 

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6.4              Tacking. Subject to the truth and accuracy of the Investor’s
representations set forth in Section 4 of this Agreement, the parties
acknowledge and agree that in accordance with Section 3(a)(9) of the Securities
Act, the Exchange Securities (assuming cashless exercise of the Warrants) issued
in exchange for the 144 Warrants will tack back to the original issue date of
such 144 Warrants pursuant to Rule 144 and the Company agrees not to take a
position to the contrary.

 

6.5              Blue Sky. The Company shall make all filings and reports
relating to the Exchange required under applicable securities or “Blue Sky” laws
of the states of the United States following the date hereof, if any.

 

6.6              Fees and Expenses. Each party shall pay the fees and expenses
of its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement.

 

6.7              Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Exchange Securities may result in dilution of the outstanding
shares of Common Stock, which dilution may be substantial under certain market
conditions. The Company further acknowledges that its obligations under the
Transaction Documents, including, without limitation, its obligation to issue
the shares of Common Stock underlying the Preferred Stock issued in the Exchange
pursuant to the Transaction Documents, are unconditional and absolute and not
subject to any right of set off, counterclaim, delay or reduction, regardless of
the effect of any such dilution or any claim the Company may have against the
Investor and regardless of the dilutive effect that such issuance may have on
the ownership of the other stockholders of the Company.

 

6.8              Integration. The Company shall not sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
issuance of the Exchange Securities for purposes of the rules and regulations of
any Trading Market (as defined in the Purchase Agreement) such that it would
require shareholder approval prior to the closing of such other transaction
unless shareholder approval is obtained before the closing of such subsequent
transaction.

 

6.9              Reservation. The Company shall maintain a reserve from its duly
authorized shares of Common Stock for issuance pursuant to the Transaction
Documents in such amount as may then be required to fulfill its obligations in
full under the Transaction Documents. If, on any date, the number of authorized
but unissued (and otherwise unreserved) shares of Common Stock is less than the
Required Minimum on such date, then the Board of Directors shall use
commercially reasonable efforts to amend the Company’s certificate or articles
of incorporation to increase the number of authorized but unissued shares of
Common Stock to at least the Required Minimum at such time, as soon as possible
and in any event not later than the 75th day after such date. “Required Minimum”
means, as of any date, the maximum aggregate number of shares of Common Stock
then issued or potentially issuable upon conversion in full of all shares of
Preferred Stock, ignoring any conversion limits set forth therein, and assuming
that the conversion price of the Preferred Stock is at all times on and after
the date of determination 75% of the then conversion price on the trading day
immediately prior to the date of determination.

 

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6.10          Indemnification of Investors. Subject to the provisions of this
Section 6.10, the Company will indemnify and hold each Investor and its
directors, officers, shareholders, members, partners, employees and agents (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), each person who
controls such Investor (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or 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 such controlling persons (each, an
“Investor Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Investor Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against the
Investor Parties in any capacity, or any of them or their respective affiliates,
by any stockholder of the Company who is not an affiliate of such Investor
Party, with respect to any of the transactions contemplated by the Transaction
Documents (unless such action is based upon a breach of such Investor Party’s
representations, warranties or covenants under the Transaction Documents or any
agreements or understandings such Investor Party may have with any such
stockholder or any violations by such Investor Party of state or federal
securities laws or any conduct by such Investor Party which constitutes fraud,
gross negligence, willful misconduct or malfeasance). If any action shall be
brought against any Investor Party in respect of which indemnity may be sought
pursuant to this Agreement, such Investor Party shall promptly notify the
Company in writing, and the Company shall have the right to assume the defense
thereof with counsel of its own choosing reasonably acceptable to the Investor
Party. Any Investor Party shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such Investor Party except to the extent
that (i) the employment thereof has been specifically authorized by the Company
in writing, (ii) the Company has failed after a reasonable period of time to
assume such defense and to employ counsel or (iii) in such action there is, in
the reasonable opinion of counsel, a material conflict on any material issue
between the position of the Company and the position of such Investor Party, in
which case the Company shall be responsible for the reasonable fees and expenses
of no more than one such separate counsel. The Company will not be liable to any
Investor Party under this Agreement (y) for any settlement by an Investor Party
effected without the Company’s prior written consent, which shall not be
unreasonably withheld or delayed; or (z) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Investor Party’s
breach of any of the representations, warranties, covenants or agreements made
by such Investor Party in this Agreement or in the other Transaction Documents.
The indemnification required by this Section 6.10 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as and when bills are received or are incurred. The indemnity
agreements contained herein shall be in addition to any cause of action or
similar right of any Investor Party against the Company or others and any
liabilities the Company may be subject to pursuant to law.

 

6.11          Non-Public Information. Except with respect to the material terms
and conditions of the transactions contemplated by the Transaction Documents,
which shall be disclosed pursuant to Section 6.1, the Company covenants and
agrees that neither it, nor any other person acting on its behalf will provide
any Investor or its agents or counsel with any information that constitutes, or
the Company reasonably believes constitutes, material non-public information,
unless prior thereto such Investor shall have consented to the receipt of such
information and agreed with the Company to keep such information confidential.
The Company understands and confirms that each Investor shall be relying on the
foregoing covenant in effecting transactions in securities of the Company. To
the extent that the Company delivers any material, non-public information to an
Investor without such Investor’s consent, the Company hereby covenants and
agrees that such purchaser shall not have any duty of confidentiality to
Company, any of its subsidiaries, or any of their respective officers,
directors, agents, employees or affiliates, or a duty to the Company, and of its
subsidiaries or any of their respective officers, directors, agents, employees
or affiliates not to trade on the basis of, such material, non-public
information, provided that the Investor shall remain subject to applicable law.
To the extent that any notice provided pursuant to any Transaction Document
constitutes, or contains, material, non-public information regarding the Company
or any subsidiaries, the Company shall simultaneously file such notice with the
Commission pursuant to a Current Report on Form 8-K. The Company understands and
confirms that each Investor shall be relying on the foregoing covenant in
effecting transactions in securities of the Company.

 

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6.12          Shareholder Rights Plan. No claim will be made or enforced by the
Company or, with the consent of the Company, any other person, that any Investor
is an “Acquiring Person” under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that any Investor could be deemed to trigger the provisions of
any such plan or arrangement, by virtue of receiving Exchange Securities under
the Transaction Documents or under any other agreement between the Company and
the Investors.

 

6.13          Conversion Procedures. The form of Notice of Conversion included
in the Preferred Stock sets forth the totality of the procedures required of the
Investors in order to convert the Preferred Stock. Without limiting the
preceding sentence, no ink-original Notice of Conversion shall be required, nor
shall any medallion guarantee (or other type of guarantee or notarization) of
any Notice of Conversion form be required in order to convert the Preferred
Stock. No additional legal opinion, other information or instructions shall be
required of the Investors to convert their Preferred Stock. The Company shall
honor conversions of the Preferred Stock and shall deliver the underlying shares
issuable upon conversion of the Preferred Stock, in accordance with the terms,
conditions and time periods set forth in the Transaction Documents.

 

6.14          Participation in Future Financing. The terms and conditions set
forth in Section 4.12 of the Purchase Agreement (Participation in Future
Financing) shall be terminated and of no further force and effect upon execution
of this Agreement (except as it relates to Section 6.18(b) below).

 

6.15          Furnishing of Information; Public Information.

 

(a) Until the time that no Investor owns Exchange Securities, the Company
covenants to maintain the registration of the Common Stock under Section 12(b)
or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect
thereof and file within the applicable grace period) all reports required to be
filed by the Company after the date hereof pursuant to the Exchange Act even if
the Company is not then subject to the reporting requirements of the Exchange
Act.

 

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(b) At any time during the period ending at such time that all of the Exchange
Securities may be sold without the requirement for the Company to be in
compliance with Rule 144(c)(1) and otherwise without restriction or limitation
pursuant to Rule 144, if the Company (i) shall fail for any reason to satisfy
the current public information requirement under Rule 144(c) or (ii) has ever
been an issuer described in Rule 144 (i)(1)(i) or becomes an issuer in the
future, and the Company shall fail to satisfy any condition set forth in Rule
144(i)(2) (a “Public Information Failure”) then, in addition to such Investor’s
other available remedies, the Company shall pay to an Investor, in cash, as
partial liquidated damages and not as a penalty, by reason of any such delay in
or reduction of its ability to sell the Exchange Securities, an amount in cash
equal to two percent (2.0%) of the aggregate Subscription Amount (as defined in
the Purchase Agreement) on the day of a Public Information Failure and on every
thirtieth (30th) day (pro rated for periods totaling less than thirty days)
thereafter until the earlier of (a) the date such Public Information Failure is
cured and (b) such time that such public information is no longer required for
the Investors to transfer the Exchange Securities pursuant to Rule 144. The
payments to which an Investor shall be entitled pursuant to this Section 6.15(b)
are referred to herein as “Public Information Failure Payments.” Public
Information Failure Payments shall be paid on the earlier of (i) the last day of
the calendar month during which such Public Information Failure Payments are
incurred and (ii) the third (3rd) business day after the event or failure giving
rise to the Public Information Failure Payments is cured. In the event the
Company fails to make Public Information Failure Payments in a timely manner,
such Public Information Failure Payments shall bear interest at the rate of 1.5%
per month (prorated for partial months) until paid in full. Nothing herein shall
limit such Investor’s right to pursue actual damages for the Public Information
Failure, and such Investor shall have the right to pursue all remedies available
to it at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief.

 

6.16          No Legends. The Exchange Securities and the shares of Common Stock
underlying the shares of Preferred Stock shall be issued free of legends.

 

6.17          Capital Changes. The terms and conditions set forth in Section
4.16 of the Purchase Agreement (Capital Changes) shall be terminated and of no
further force and effect upon execution of this Agreement.

 

6.18          Most Favored Nation Provision.

 

(a)                The terms and conditions set forth in Section 4.17 of the
Purchase Agreement (Most Favored Nation Provision) shall be terminated and of no
further force and effect upon execution of this Agreement.

 

(b)               From the date hereof until the date when such Investor no
longer holds any Debentures, if the Company enters into any agreement with, or
issues or announces the issuance or proposed issuance of any shares of Common
Stock or Common Stock Equivalents to the Investor (“Subsequent Financing”), each
Investor may elect, in its sole discretion, to exchange (in lieu of cash
subscription payments) all or some of the Debenture then held by such Investor
for any securities or units issued in such Subsequent Financing on a $1.00 for
$1.00 basis based on the outstanding principal amount of such Debenture being
surrendered; provided, however, that this Section 6.18 shall not apply with
respect to an Exempt Issuance. The Company shall provide the Investor with at
least 3 Business Days’ (provided that such Business Days shall not include
Business Days that are Jewish holidays) prior written notice of such Subsequent
Financing with the Investor along with the material terms of such Subsequent
Financing such that the Investor may exercise its rights under this Section
6.18. In the event the Subsequent Financing would cause such Investor’s
beneficial ownership interest to exceed 4.9% of the issued and outstanding
shares of Common Stock, then the securities issued to the Investor in such
Subsequent Financing shall contain appropriate conversion blockers in order to
keep Investor’s beneficial ownership to 4.9%.

 

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7.                  Miscellaneous.

 

7.1              Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and 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.

 

7.2              Governing Law; Jurisdiction; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of New
York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state or federal courts sitting in The City of New York, Borough of Manhattan,
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

7.3              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.

 

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7.4              Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party) or by electronic mail; or (iii) one Business
Day after deposit with an overnight courier service, in each case properly
addressed to the party to receive the same. The addresses, facsimile numbers and
email addresses for such communications shall be:

 

If to the Company: MagneGas Corporation, 11885 44th St. N. Clearwater, Florida
33762; Attention: Chief Financial Officer

 

E-mail: scottmahoney@magnegas.com

 

With a copy to: MagneGas Corporation, 11885 44th St. N. Clearwater, Florida
33762; Attention: General Counsel

 

Email: tylerwilson@magnegas.com

 

If to the Investor, to its address, facsimile number and email address set forth
on its signature page hereto,

 

or to such other address, facsimile number and/or email address and/or to the
attention of such other Person as the recipient party has specified by written
notice given to each other party five (5) days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender’s facsimile machine or email containing
the time, date, recipient facsimile number and an image of the first page of
such transmission or (C) provided by an overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from an
overnight courier service in accordance with clause (i), (ii) or (iii) above,
respectively.

 

7.5              Finder’s Fees. Each party represents that it neither is nor
will be obligated for any finders’ fee or commission in connection with this
transaction. The Investor shall indemnify and hold harmless the Company from any
liability for any commission or compensation in the nature of a finders’ fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Investor or any of its officers, partners, employees or
representatives is responsible. The Company shall indemnify and hold harmless
the Investor from any liability for any commission or compensation in the nature
of a finders’ fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Company or any of its officers,
employees or representatives is responsible.

 

7.6              Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investor.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon Investor and the Company, provided that no such amendment shall be
binding on a holder that does not consent thereto to the extent such amendment
treats such party differently than any party that does consent thereto.

 

14 

 

  

7.7              Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.

 

7.8              Entire Agreement. This Agreement and the other Transaction
Documents represents the entire agreement and understanding between the parties
concerning the Exchange and the other matters described herein and therein and
supersedes and replaces any and all prior agreements and understandings solely
with respect to the subject matter hereof and thereof.

 

7.9              Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

 

7.10          Interpretation. Unless the context of this Agreement clearly
requires otherwise, (a) references to the plural include the singular, the
singular the plural, the part the whole, (b) references to any gender include
all genders, (c) “including” has the inclusive meaning frequently identified
with the phrase “but not limited to” and (d) references to “hereunder” or
“herein” relate to this Agreement.

 

7.11          No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.

 

7.12          Survival. The representations, warranties and covenants of the
Company and the Holder contained herein shall survive the Closing and delivery
of the Exchange Securities.

 

7.13          Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

 

7.14          No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.

 

[SIGNATURES ON THE FOLLOWING PAGES]

 

15 

 

 

 

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
and delivered as of the date provided above.

 

  THE COMPANY       MAGNEGAS CORPORATION       By: /s/Ermanno Santilli   Name:
Ermanno Santilli   Title: Chief Executive Officer

 

 

16 

 

 

 

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
and delivered as of the date provided above.

 

INVESTOR       Name of Investor: Alpha Capital Anstalt     Signature of
Authorized Signatory of Investor: /s/ Konrad Ackermann     Name of Authorized
Signatory: Konrad Ackermann     Title of Authorized Signatory: Director    
Email Address of Authorized Signatory:       Address for Notice to Investor:

Alpha Capital Anstalt

  Lettstrasse 32  

9490 Vaduz

  Principality of Liechtenstein  

Email: info@alphacapital.li

 

Address for Delivery of Preferred Stock to Investor (if not same as address for
notice):

 

  Alpha Capital Anstalt   c/o LH Financial Services Corp.   510 Madison Avenue
Suite 1400   New York, NY 10022

 

DWAC Instructions for Shares:

 

 

 

 

 

[SIGNATURE PAGES CONTINUE]

 

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