Exhibit 10.1

 

STRICTLY CONFIDENTIAL

 

MEMORANDUM OF UNDERSTANDING

SUMMARY OF TERMS

 

This Memorandum of Understanding (the ‘MOU”) is entered into by and between
MAGNEGAS CORPORATION (“MAGNEGAS”) and XXXX, effective as of this 7th day of
October, 2013 (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 XXXX may be jointly referred to herein as the
“Parties and each of them, a “Party”.

 

This binding 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. 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 commercialize their respective coal
co-combustion knowledge by collaborating and jointly developing and marketing
the MAGNEGAS technology for application solely in the coal and coal by-product
co-combustion power industry in the United States and Canada, including the
production and sale of any by- products thereof (the “Business Purpose”). 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, other than coal and coal by-product co-combustion for the electric
power industry in the United States and Canada will be impacted by this
contract. Notwithstanding any other provision or implication in the MOU to the
contrary, (though those provisions are accepted and valid herewith) both parties
will make a best effort to extend these rights world-wide, to the extent
available. In order to carry out the Business Purpose, the Parties desire to
contribute respective efforts and resources and share the profits generated from
their collaboration 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 limited liability
company (“NewCo”), which will be initially owned 50% by MAGNEGAS and 50% by
XXXX. A financial investor or any new partners may be added to expedite the
NewCo start up, and any such additional partners may be issued membership an
equal, proportional basis) NewCo interests held by MAGNEGAS and XXXX.

 

3.           EQUITY CONTRIBUTIONS.  Nominal financial equity contributions will
be made in equal amounts by each of the Parties (i.e., $1,000).

 

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

 

 

 

  

STRICTLY CONFIDENTIAL

 

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

 

4.            NEWCO MANAGEMENT CONTROL.   NewCo will be “Manager Managed” by a
five-person Board of Managers; two (2) members of which will be appointed by
MAGNEGAS; two (2) members appointed by XXXX; and one (1) member appointed by a
financial partner or other significant member added to NewCo, depending on which
group becomes a partner in NewCo. 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:

 

-Action by one party that dilutes the other parties interest in NewCo

-Distribution of profits with a different allocation than shareholder ownership
percentages

- NewCo executive compensation / related party transactions

- Change / reduction / expansion of Board seats

- Issuance, transfer or sale of any 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 $100,000

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

-Filing of New Patents

-Approval of Annual Budgets, including any deviations therefrom

-Pursuing any new business purpose or territory for NewCo

-Specific delegation of policy and business decisions impacting or altering any
of the unanimous Board decisions required above

 

5.           OFFICERS.    The following Officers shall report to the Board of
Managers:

 

  Co-Chief Executive Officers: Robert Dingess     XXXX   President: XXXX  
Secretary/Treasurer: XXXX     Luisa Ingargiola

  

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.

 

6.            NEWCO FINANCING.    As part of its equity contribution to NewCo,
XXXX will pay, and provide the cash and resources for the initial testing and
certification of MagneGas as described below in Paragraph 8, to be undertaken
within the next ±40-50 days following execution of this MOU. XXXX will further
cover the costs and expenses of Chris Pollard and XXXX’s office staff as
utilized by NewCo through the date of receipt of the results of this initial
testing. MagneGas will cover its own costs and expenses incurred, relating
directly or indirectly to NewCo, through the date of the receipt of the results
of this initial testing.

 

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STRICTLY CONFIDENTIAL

 

Thereafter each of the Parties will cover their own ongoing costs incurred to
effectuate NewCo’s start up, until a financial partner is obtained, both Parties
agree to utilize their best, good faith efforts to obtain a financial partner to
fund the additional testing, certification and other activities necessary to
commercialize the co-combustion process.

 

Neither party shall be required to make any further financial commitment to
NewCo and under no circumstances will either party’s ownership interest be
diluted except on an equal basis, to bring in a new financial partner.

 

7.            RECYCLER PRODUCTION AND ASSEMBLY.  After the initial Recycler
purchase outlined in Clause 9 below, NewCo shall have the right to buy recyclers
for the co-combustion of coal and coal by-products in electric power plants from
MagneGas at a cost of $500,000 or 50% (whichever is greater) over and above
MagneGas’s fully burdened (including reasonable overhead allocation) production
costs. After the first 10 recyclers have been formally ordered and paid for,
NewCo shall have the exclusive license to manufacture recyclers for the Coal
Co-Combustion Power Generation Industry for the United States and Canada. These
rights exclude the electronic control panel (or other future trade secret deemed
necessary by Magnegas) which is proprietary and will be provided to NewCo at
cost. In order to maintain this license, NewCo will sell at least one 300kw
Recycler or greater every twelve months (or equivalent in gas and/or
byproducts), with a maximum of two years of license granted for every group of
recyclers sold. In addition, NewCo will pay MAGNEGAS $250,000 or 25% of fully
burdened costs whichever is greater per unit produced by NewCo at the time of
installation.

 

8.            TESTING AND CERTIFICATIONS.    XXXX will, at its sole expense,
retain an EPA certified laboratory to undertake initial testing and
certification of the MagneGas and coal co-combustion process, to assure the
reduction of carbon emissions, and verify that other objectionable elements are
not being produced. This certification process, in conjunction with the lab,
will include XXXX building a pilot combustion vessel, and testing 67 known
compounds as required by the EPA using sophisticated calibrated equipment and
following EPA protocol.

 

MAGNEGAS and XXXX will receive all test results in a written format from the
testing lab, MAGNEGAS and XXXX will also reasonably cooperate in all requested
regards with these tests and certifications, including providing MagneGas in
reasonable amounts.

 

9.            INTELLECTUAL PROPERTY RIGHTS AND EXCLUSIVE DISTRIBUTION RIGHTS.
Possible new IP resulting from this venture will be the exclusive property of
NewCo in perpetuity, except to the extent that it conflicts with existing
MAGNEGAS IP.

 

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STRICTLY CONFIDENTIAL

 

MAGNEGAS hereby grants to NewCo exclusive distribution rights for the coal
and/or coal by-products, co-combustion power generation industry for United
States and Canada where MAGNEGAS is the holder of such rights. On or before 9
months from the signature of this MOU, NewCo will purchase and pay in full a
first 300kw recycler unit at a price of $2.7 million, MAGNEGAS will return
$600,000 to NewCo to cover NewCo operating expenses, including funding beyond
initial testing period described in Paragraph 8. Should said Recycler not be
purchased and paid in full within 9 months of the signature of this MOU, all
rights granted to NewCo under this MOU revert back to MAGNEGAS and all rights
granted will terminate automatically.

 

The term of NewCo’s exclusive distribution rights will be extended after the
initial 9 months, in one year increments, provided a new 300kW unit or greater
is purchased or sold. If a 300 kW unit is not purchased or sold within any
twelve (12) month period of time, MAGNEGAS may terminate this exclusivity upon
30 days’ prior written notice to NewCo. If multiple units are sold under a
single contract, the maximum aggregate extension term shall be two years.

 

In case of liquidation or bankruptcy of NewCo, any exclusive distribution rights
and MAGNEGAS manufacturing license rights granted to NewCo revert back to
MAGNEGAS.

 

10.         WAIVERS.   In partial consideration for this MOU, both Parties
hereby expressly waive and release any and all claims of each Party arising
against the other from or in connection with that certain “Non-Circumvention
Agreement” between them dated March 5, 2013 with subsequent extension signed
September 5, 2013, including any extensions thereof, and any other verbal or
written agreements between them prior to the date hereof. This mutual waiver and
release does not constitute an admission of wrongdoing or of any violation of
any of the provisions of any such agreements.

 

11.      CONFIDENTIALITY.   This MOU, any discussions preceding the Effective
Date and relating to the Parties’ collaboration and the Business Purpose, as
well as any discussion continuing hereafter with respect to the subject matter
hereof until the execution of Definitive Documents are to be kept confidential
by each Party. MAGNEGAS will not discuss MagneGas technology in connection with
coal (or coal by-product) co-combustion for the power industry with any third
parties for the purpose of selling into the US or Canadian markets, and will
refer to NewCo any and all inquiries from any third party for the Coal Co
Combustion power generation market for that territory to NewCo. Any results of
testing or other proprietary information owned by NewCo cannot be shared or
divulged by MAGNEGAS or XXXX for any purpose outside the United States and
Canada without the unanimous approval of the Board of  Managers.

 

12.       DISPUTE RESOLUTION.   The Parties anticipate resolution of disputes
through mutual negotiations and discussions in good faith. However, in the
unlikely event of an unresolved dispute that remains unresolved for more than 60
days, both parties will agree to an arbitration process that will be outlined in
Definitive Documents.

 

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STRICTLY CONFIDENTIAL

 

This arbitration process shall be as follows: either party may initiate a formal
dispute resolution procedure by written notice to the other party, which written
notice will fully describe the dispute and include the initiating party’s last,
best position to resolve the dispute. Upon receipt of such communication from
the other party, the receiving party will, within five (5) business days,
respond with their last, best position to resolve the dispute. In the event this
exchange of last, best positions does not resolve the dispute within the
following three (3) business days, the issue and positions will be immediately
submitted to final and binding arbitration, upon which a judgment shall be
entered in a court of appropriate jurisdiction. If the parties are unable to
promptly agree upon an independent arbitrator, each party shall select their own
arbitrator and those two arbitrators shall promptly select a third independent
arbitrator and this third independent arbitrator shall promptly hold an informal
hearing and receive any evidence or information that either party wishes to
present, and promptly issue his decision. There will be no discovery prior to
this hearing. The arbitrator’s decision must be the designation of the one of
the party’s last, best positions. The arbitrator may not under any circumstances
compromise between the parties’ two last, best positions. The party whose last,
best position is not selected by the arbitrator as his/her decision, shall pay
all the costs of the arbitration, as well as the costs and expenses of the other
party, including the other party’s actual attorney’s fees.

 

13.         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.

 

14.         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 Board of Directors, prior to a contractual obligation being
created.

 

15.         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 Company sale or transfer discussions with any
third parties, at any time, without the prior written consent and agreement of
the other Party.

 

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STRICTLY CONFIDENTIAL

  

16.         LIABILITIES AND EXPENSES.

 

A.           Liabilities From Other Businesses.  Each Party shall indemnify and
hold the other Party harmless for any claims, actions, liabilities, costs and
expenses, including reasonable attorneys’ fees, incurred as a result of the
indemnifying Party’s other business activities unrelated to the Business Purpose
or NewCo.

 

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).

 

17.         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 XXXX 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. 

 

18.         TERM.    The Parties will negotiate in good faith and execute
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 9 months from the date hereof.

 

19.         MISCELLANEOUS.

 

A.           Entire Agreement. This Agreement contains the entire agreement
between the parties as to the matters contained herein and supersedes and annuls
all other agreements, contracts, promises or representations, whether written or
oral, between the parties, except only for contemporaneous agreements set forth
in writing and signed by the parties. No subsequent agreements, contracts,
promises or representations shall be binding or effective between the parties,
unless set forth in writing and signed by the parties.

 

B.           Actions In Furtherance Of Agreement.  In addition to the agreements
herein provided, each of the parties shall, from time to time upon the
reasonable request of the other party, execute and deliver such additional
documents or notices, and shall take such other actions as may reasonably be
required to carry out the terms of this Agreement.

 

C.           The parties expect that the Definitive Documents may include, in
addition to the NewCo Operating Agreement, a Joint Venture Agreement that will
set out each Party’s relative contributions and mutual goals for the Business
Purpose, including License Agreement between MAGNEGAS and NewCo, and other
customary documents.

 

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STRICTLY CONFIDENTIAL

 

D.           This is a binding MOU and each Party (including its successors or
assigns) agree to be bound hereby.

 

AGREED:   AGREED:       XXXX   MAGNEGAS CORPORATION       By: /s/ XXXX   By: /s/
Ermanno Santilli   XXXX     Ermanno Santilli         Its: President and
Authorized Representative   Its: CEO and Authorized Representative

 

 

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