Document:

paceth_8k-ex1004.htm

 Exhibit 10.4

 

[FORM OF]

AMENDED AND RESTATED

DISTILLERS GRAINS MARKETING AGREEMENT

 

([__________] PROJECT)

 

by and between

 

PACIFIC ETHANOL [__________], LLC

 

and

 

PACIFIC AG. PRODUCTS, LLC

 

 

Dated as of June 30, 2011

 

  

  

  

TABLE OF CONTENTS

 

	
ARTICLE I

	
DEFINITIONS; INTERPRETATION

	
1

	 	 	 
	
1.1

	
DEFINITIONS

	
1

	
1.2

	
INTERPRETATION

	
5

	 	 	 
	
ARTICLE II

	
MARKETING ACTIVITIES

	
5

	 	 	 
	
2.1

	
BILATERAL TRANSACTIONS.

	
5

	
2.2

	
STORAGE

	
6

	
2.3

	
OBLIGATIONS OF PROJECT COMPANY.

	
6

	
2.4

	
BACK-TO-BACK TRANSACTIONS

	
7

	
2.5

	
NETTING

	
7

	
2.6

	
TITLE; DELIVERY POINT; NOMINATIONS; MEASUREMENT.

	
7

	
2.7

	
BENCHMARKING

	
8

	 	 	 
	
ARTICLE III

	
PAYMENTS

	
8

	 	 	 
	
3.1

	
FEES AND PAYMENTS.

	
8

	
3.2

	
OVERDUE PAYMENTS; BILLING DISPUTE

	
9

	
3.3

	
AUDIT

	
9

	 	 	 
	
ARTICLE IV

	
TERM; TERMINATION

	
10

	 	 	 
	
4.1

	
TERM

	
 
10

	
4.2

	
PROJECT COMPANY DEFAULTS AND PAP REMEDIES

	
 
10

	
4.3

	
PAP DEFAULTS AND PROJECT COMPANY REMEDIES

	
 
10

	
4.4

	
CHANGE OF CONTROL

	
11

	
4.5

	
EFFECT OF TERMINATION

	
11

 

	
ARTICLE V

	
INSURANCE

	
11

	 	 	 
	
5.1

	
PAP INSURANCE

	
11

	
5.2

	
PAP INSURANCE PREMIUMS AND DEDUCTIBLES

	
12

	 	 	 
	
ARTICLE VI

	
LIMITATIONS ON LIABILITY

	
13

	 	 	 
	
6.1

	
NO CONSEQUENTIAL OR PUNITIVE DAMAGES

	
13

	 	 	 
	
ARTICLE VII

	
INDEMNIFICATION

	
13

	 	 	 
	
7.1

	
PROJECT COMPANY’S INDEMNITY

	
13

	
7.2

	
PAP’S INDEMNITY

	
13

	 	 	 

 

  

  

  

 

	
ARTICLE VIII

	
REPRESENTATIONS AND WARRANTIES

	
13

	 	 	 
	
ARTICLE IX

	
FORCE MAJEURE

	
14

	 	 	 
	
9.1

	
DEFINITION

	
14

	
9.2

	
EFFECT

	
14

	
9.3

	
LIMITATIONS

	
14

	 	 	 
	
ARTICLE X

	
DISPUTE RESOLUTION

	
15

	 	 	 
	
10.1

	
ATTEMPTS TO SETTLE

	
 
15

	
10.2

	
RESOLUTION BY EXPERT

	
 
15

	
10.3

	
ARBITRATION

	
 
15

	
10.4

	
CONSEQUENTIAL AND PUNITIVE DAMAGES

	
 
15

	
10.5

	
FINALITY AND ENFORCEMENT OF DECISION

	
 
15

	
10.6

	
COSTS

	
16

	
10.7

	
CONTINUING PERFORMANCE OBLIGATIONS

	
 
16

 

	
ARTICLE XI

	
CONFIDENTIALITY

	
 
16

	 	 	 
	
ARTICLE XII

	
ASSIGNMENT AND TRANSFER

	
 
16

	 	 	 
	
ARTICLE XIII

	
MISCELLANEOUS

	
 
16

	 	 	 
	
13.1

	
ENTIRE AGREEMENT

	
 
16

	
13.2

	
COUNTERPARTS

	
17

	
13.3

	
SURVIVAL

	
 
17

	
13.4

	
SEVERABILITY

	
 
17

	
13.5

	
GOVERNING LAW

	
 
17

	
13.6

	
BINDING EFFECT

	
 
17

	
13.7

	
NOTICES

	
 
17

	
13.8

	
AMENDMENT

	
18

	
13.9

	
NO IMPLIED WAIVER

	
18

	 	 	 
	 
EXHIBIT

	 	 
	 	 	 
	Exhibit A:  	Form of Guaranty	 
	Exhibit B:	Operating Protocol	 
	Exhibit C:	Benchmarking	 
	 	 	 

 

  

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This AMENDED AND RESTATED DISTILLERS GRAINS MARKETING AGREEMENT (as amended, amended and restated, supplemented or otherwise modified from time to time, this “Agreement”) is entered into by and between PACIFIC ETHANOL [__________], LLC, a Delaware limited liability company (“Project Company”), and PACIFIC AG. PRODUCTS, LLC, a California limited liability company (“PAP”), as of June 30, 2011.  Project Company and PAP are each individually referred to herein as a “Party”, and collectively are referred to herein as the “Parties”.

 

RECITALS

 

A.           The Parties hereto were previously party to that certain Distillers Grains Marketing Agreement, dated as of [______], 2010 (the “Prior Agreement”), pursuant to which PAP provided certain services to the Project Company.

 

B.           PAP provides marketing services for Distillers Grains (as defined below) from denatured fuel ethanol production facilities.

 

C.           Project Company owns an approximately [____] million gallons-per-year denatured fuel ethanol production facility in [____], [____] (the “Facility”) and Project Company has requested that PAP provide Distillers Grains marketing services for the Facility.

 

D.           The Parties desire to amend and restate in its entirety the Prior Agreement and enter into this Amended and Restated Distillers Grains Marketing Agreement pursuant to which PAP will provide such marketing services.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the agreements and covenants hereinafter set forth, and intending to be legally bound, the Parties hereto covenant and agree as follows:

 

ARTICLE I

DEFINITIONS; INTERPRETATION

 

1.1           Definitions.  The following terms shall have the meanings set forth below when used in this Agreement:

 

“Act of Insolvency” means, with respect to any Person, any of the following:  (a) commencement by such Person of a voluntary proceeding under any jurisdiction’s bankruptcy, insolvency or reorganization law; (b) the filing of an involuntary proceeding against such Person under any jurisdiction’s bankruptcy, insolvency or reorganization law which is not vacated within 60 days after such filing; (c) the admission by such Person of the material allegations of any petition filed against it in any proceeding under any jurisdiction’s bankruptcy, insolvency or reorganization law; (d) the adjudication of such Person as bankrupt or insolvent or the winding up or dissolution of such Person; (e) the making by such Person of a general assignment for the benefit of its creditors (assignments for a solvent financing excluded); (f) such Person fails or admits in writing its inability to pay its debts generally as they become due; (g) the appointment of a receiver or an administrator for all or a substantial portion of such Person’s assets, which receiver or administrator, if appointed without the consent of such Person, is not discharged within 60 days after its appointment; or (h) the occurrence of any event analogous to any of the foregoing with respect to such Person occurring in any jurisdiction.

 

  

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“Affiliate” of a specified Person means any corporation, partnership, sole proprietorship or other Person which directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with the Person specified.  The term “control” means the ownership, either direct or indirect, of twenty-five percent (25%) or more of the voting securities (or comparable equity interests) or other ownership interests of a Person, or the possession, either direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or any other means whatsoever.

 

“Agreement” has the meaning given to such term in the preamble hereto.

 

“Asset Management Agreement” means that certain Second Amended and Restated Asset Management Agreement by and among PEI, Pacific Ethanol Stockton, LLC, Pacific Ethanol Holding Co. LLC, Pacific Ethanol Madera LLC, Pacific Ethanol Columbia, LLC and Pacific Ethanol Magic Valley, LLC, dated as of June 30, 2011, as the same may be amended, supplemented or otherwise modified from time to time.

 

“Bilateral Transaction” means, with respect to each sale of Distillers Grains produced at the Facility by Project Company, a transaction entered into by PAP with one or more Third Parties consisting of one or more forward sales of Distillers Grains.

 

“Business Day” means any day other than a Saturday, Sunday or a day on which commercial banks in Sacramento, California or New York, New York are required or authorized to be closed.

 

“Change of Control” has the meaning ascribed thereto in the Credit Agreement.

 

“Credit Agreement” means the Credit Agreement, dated as of June 25, 2010, by and among Pacific Ethanol Holding Co. LLC, Pacific Ethanol Madera LLC, Pacific Ethanol Stockton, LLC, Pacific Ethanol Magic Valley, LLC, and Pacific Ethanol Columbia, LLC, as Borrowers, Pacific Ethanol Holding Co. LLC, as Borrowers’ Agent, WestLB AG, New York Branch, as the administrative agent and the collateral agent, and the lenders parties thereto from time to time, as the same may be amended, supplemented or otherwise modified from time to time.

 

“DDG” means dried distillers grains produced by Project Company at the Facility.

 

“Dispute” means a dispute, controversy or claim.

 

“Distillers Grains” means DDG, WDG and any other form of distillers grain products produced by Project Company at the Facility from time to time.

 

“Expert” means an expert having sufficient technical expertise to address the matter subject to a Dispute.

 

“Extension Notice” has the meaning assigned to such term in Section 4.1.

 

 “Facility” has the meaning given to such term in the recitals hereto.

 

  

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“Financing Documents” means any and all loan agreements, credit agreements (including the Credit Agreement), reimbursement agreements, notes, indentures, bonds, security agreements, pledge agreements, mortgages, guarantee documents, intercreditor agreements, subscription agreements, equity contribution agreements and other agreements and instruments relating to the financing (or refinancing) of the ownership, operation and maintenance of the Facility.

 

“Financing Parties” means the banks, lenders, noteholders and/or other financial institutions (or an agent or trustee thereof) party to the Financing Documents.

 

“Force Majeure Event” has the meaning set forth in Section 9.1.

 

“Good Industry Practice” means any of the practices, methods and acts engaged in or approved by a significant portion of the distillers grains production or marketing (as the case may be) industry during the relevant time period, or any of the practices, methods and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition.  “Good Industry Practice” is not limited to a single, optimum practice, method or act to the exclusion of others, but rather is intended to include acceptable practices, methods or acts generally accepted in the region.

 

“Governmental Authority” means any United States federal, state, municipal, local, territorial, or other governmental department, commission, board, bureau, agency, regulatory authority, instrumentality, judicial or administrative body.

 

“Incentive Fee” means, for each Bilateral Transaction, the product of 5% multiplied by the aggregate amount of the Purchase Price for such Bilateral Transaction; provided, however, that in no event shall the Incentive Fee for any Bilateral Transaction be less than $2.00 per ton of Distillers Grains nor greater than $3.50 per ton of Distillers Grains.

 

“Incentive Fee (Estimated)” means, for each Bilateral Transaction, the product of 5% multiplied by the aggregate amount of the Purchase Price (Estimated) for such Bilateral Transaction; provided, however, that in no event shall the Incentive Fee (Estimated) for any Bilateral Transaction be less than $2.00 per ton of Distillers Grains nor greater than $3.50 per ton of Distillers Grains.

 

 “Law” means any law, statute, act, legislation, bill, enactment, policy, treaty, international agreement, ordinance, judgment, injunction, award, decree, rule, regulation, interpretation, determination, requirement, writ or order of any Governmental Authority.

 

“Liabilities” has the meaning given to such term in Section 7.1.

 

“Monthly Date” means the last Business Day of each calendar month.

 

“NewCo” means New PE Holdco LLC, a Delaware limited liability company and the indirect owner on the date hereof of all the equity interests in Project Company.

 

  

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“PAP” has the meaning given to such term in the preamble hereto.

 

“PAP Indemnified Person” has the meaning given to such term in Section 7.2.

 

“Party” or “Parties” has the meaning given to such term in the preamble hereto.

 

“Payment Adjustment Date” has the meaning given to such term in Section 3.1(b).

 

“PEI” means Pacific Ethanol, Inc., a Delaware corporation.

 

“Person” means and includes natural persons, corporations, limited liability companies, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies and other organizations, whether or not legal entities, Governmental Authorities and any other entity.

 

“Prime Rate” means the rate per annum listed as the “Prime Rate” in the “Money Rates” section of The Wall Street Journal from time to time.

 

“Prior Agreement” has the meaning assigned to such term in the Recitals.

 

 “Project Company” has the meaning given to such term in the preamble hereto.

 

“Project Company Indemnified Person” has the meaning given to such term in Section 7.1.

 

“Purchase Price” means, with respect to each Bilateral Transaction, the aggregate gross payments received by PAP (or, if the applicable Third Party defaults in its payment obligations to PAP in respect of such Bilateral Transaction, the aggregate amount of gross payments which PAP was entitled to receive) for such Bilateral Transaction from the applicable Third Party.

 

“Purchase Price (Estimated)” means, with respect to each Bilateral Transaction, the aggregate amount of gross payments anticipated to be received by PAP for such Bilateral Transaction from the applicable Third Party (as reasonably determined by PAP).

 

“Syrup” means corn condensed distiller’s solubles produced by Project Company at the Facility.

 

“Tonnage Fees” means all documented fees or taxes payable to any Governmental Authority in connection with the tonnage of Distillers Grains or Syrup produced or marketed within a given jurisdiction.

 

“Tonnage Fees (Estimated)” means all estimated fees or taxes payable to any Governmental Authority in connection with the tonnage of Distillers Grains or Syrup produced or marketed within a given jurisdiction.

 

“Third Party” means any Person (other than PEI or a subsidiary thereof) that enters into a Bilateral Transaction with PAP.

 

  

4

  

“Transportation Costs” means, for each Bilateral Transaction, all actual, out-of-pocket and documented costs and other expenses incurred by or on behalf of PAP in connection with the transportation of Distillers Grains to the applicable Third Party, including truck, rail, barge and/or terminal costs.

 

“Transportation Costs (Estimated)” means, for each Bilateral Transaction, the aggregate amount of Transportation Costs anticipated to be incurred by PAP in connection with such Bilateral Transaction (as reasonably determined by PAP).

 

“WDG” means wet distillers grains produced by Project Company at the Facility.

 

1.2           Interpretation.  The following interpretations and rules of construction shall apply to this Agreement:  (a) titles and headings are for convenience only and will not be deemed part of this Agreement for purposes of interpretation; (b) unless otherwise stated, references in this Agreement to “Sections” or “Articles” refer, respectively, to Sections or Articles of this Agreement; (c) “including” means “including, but not limited to”, and “include” or “includes” means “include, without limitation” or “includes, without limitation”; (d) “hereunder”, “herein”, “hereto” and “hereof’, when used in this Agreement, refer to this Agreement as a whole and not to a particular Section or clause of this Agreement; (e) in the case of defined terms, the singular includes the plural and vice versa; (f) unless otherwise indicated, each reference to a particular Law is a reference to such Law as it may be amended, modified, extended, restated or supplemented from time to time, as well as to any successor Law thereto; (g) unless otherwise indicated, references to agreements shall be deemed to include all subsequent amendments, supplements and other modifications thereto; and (h) unless otherwise indicated, each reference to any Person shall include such Person’s successors and permitted assigns.

 

ARTICLE II

MARKETING ACTIVITIES

 

2.1           Bilateral Transactions.

 

(a)           Subject to the terms hereof, Project Company hereby grants PAP the exclusive right to market, purchase and sell all of Project Company’s Distillers Grains (which, as of the date hereof, is approximately 533,000 tons-per-year) commencing June 30, 2011 and continuing through the expiration or early termination of this Agreement, provided, that during the continuance of any default by PAP that would allow Project Company to terminate this Agreement pursuant to Section 4.3 or during the 30-day cure period provided in Section 4.3(c) (notwithstanding such cure period), if PAP is not performing its obligations with respect to marketing the Project Company’s Distillers Grains or during the continuance of any Force Majeure Event (including the effects thereof) that renders PAP unable to perform its obligations under this Agreement, then Project Company shall have the right to engage any other Person to market, purchase and sell the Project Company’s Distillers Grains and PAP shall not be entitled to any compensation (including Incentive Fees) with respect to any replacement services provided by such Person.  PAP shall use its reasonable commercial efforts to solicit, negotiate and enter into, and PAP shall perform, Bilateral Transactions with Third Parties.  PAP shall have absolute discretion in the solicitation, negotiation, administration (including the collection of payments), enforcement and execution of Bilateral Transactions and all sales of Distillers Grains produced by the Facility shall be effectuated by Bilateral Transactions.  PAP shall not enter into any transaction in respect of the Project Company’s Distillers Grains that (i) is not a Bilateral Transaction or (ii) requires deliveries of WDG or DDG more than one hundred (180) days after the date of execution of such transaction, without the prior written consent of the Project Company, which consent may be withheld by Project Company in its discretion.  Project Company hereby grants PAP the power and authority necessary to perform its obligations and exercise its rights hereunder.

 

  

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(b)           As further described in Sections 2.3, 2.4 and 2.6 below and except as otherwise provided herein, Project Company shall provide Distillers Grains to PAP free and clear of all liens and encumbrances.

 

(c)           PAP shall perform its obligations hereunder and under Bilateral Transactions in accordance with this Agreement, applicable Laws and Good Industry Practice and shall use commercially reasonable efforts to maximize the proceeds generated from the sale of Distillers Grains.

 

2.2           Storage.  PAP acknowledges that Project Company has only limited storage capacity and PAP agrees that it shall take any Distillers Grains requested by PAP within two days (or such longer period of time as may reasonably be agreed by Project Company) of the time that Project Company has made such Distillers Grains available to PAP.

 

2.3           Obligations of Project Company.

 

(a)           Project Company shall provide PAP with all information reasonably requested by PAP, and Project Company shall assist PAP as reasonably requested in the solicitation, negotiation and performance of Bilateral Transactions.

 

(b)           Notwithstanding anything to the contrary herein, Project Company shall not be responsible for the delivery of any Distillers Grains to PAP during any periods of scheduled Facility maintenance (unless and to the extent the applicable Distillers Grains is available to be delivered to PAP from Project Company’s storage facilities); provided, that, at any time that PEI or one of its Affiliates is not the asset manager pursuant to the Asset Management Agreement (or any successor agreement), PAP shall have received at least ten Business Days prior notice of such scheduled maintenance (it being acknowledged and agreed that if PAP does not receive at least ten Business Days prior notice, then such maintenance activity shall be deemed to be a mechanical breakdown and covered by clause (c) below for purposes hereof).

 

(c)           If on any day Project Company is unable to perform its obligations to deliver Distillers Grains under this Agreement due to a mechanical breakdown (including a forced outage of the Facility) that is not a Force Majeure Event and such mechanical breakdown has continued for more than three consecutive days, PAP shall, at Project Company’s option and at Project Company’s expense, and provided that, at any time that PEI or one of its Affiliates is not the asset manager pursuant to the Asset Management Agreement (or any successor agreement), Project Company provides PAP with prompt notice of its intent to exercise such option, use commercially reasonable efforts to identify and procure replacement distillers grains to be delivered to the Third Party under the applicable Bilateral Transaction.  In such event, if and only if the Parties reach agreement as to an alternative delivery point, PAP shall acquire and deliver replacement distillers grains in a quantity sufficient to meet the contract quantity of such Bilateral Transaction at such alternate point (and Project Company shall be responsible for all transportation costs associated therewith).  In all other instances, Project Company shall be responsible for any damages incurred by PAP in connection with PAP’s failure to perform under the applicable Bilateral Transaction as a result of such mechanical breakdown (it being acknowledged and agreed that PAP shall use commercially reasonable efforts to mitigate the effects of any such mechanical breakdown and Project Company’s resulting inability to deliver Distillers Grains.

 

  

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(d)           At the request of the Project Company, PAP will cause PEI to execute and deliver and maintain in full force and effect a guaranty in the form of Exhibit A hereto.

 

2.4           Back-to-Back Transactions.  Each Bilateral Transaction undertaken by PAP shall immediately and automatically, without necessity of further documentation or any action whatsoever by any of the Parties, create and cause to be undertaken according to the terms of this Agreement an equivalent transaction in terms of the obligation to deliver Distillers Grains, the quantity of Distillers Grains sold and the timing for the delivery of such Distillers Grains by Project Company with PAP (as if PAP were the Third Party).

 

2.5           Netting.  Netting of amounts due in respect of Bilateral Transactions between PAP and a Third Party may arise in circumstances in which PAP owes amounts to such Third Party in respect of Bilateral Transactions and, at the same time, such Third Party owes amounts to PAP in respect of Bilateral Transactions.  In such circumstances, the party owing the greater amount may pay such amount to the other party as reduced by the amount owed to it and both parties will be deemed to have satisfied their obligations thereby.  When such netting occurs, for purposes of this Agreement, for all Bilateral Transactions that have been subject to such netting arrangements, PAP shall be deemed to have paid amounts owed by it and to have received amounts owed to it.

 

2.6           Title; Delivery Point; Nominations; Measurement.

 

(a)           Project Company shall deliver Distillers Grains to PAP in respect of Bilateral Transactions (or corresponding back-to-back transactions under Section 2.4) via bucket-loader into a receiving truck that will remove such Distillers Grains from the Facility.  Title to, risk of loss with respect to and the obligation to transport such Distillers Grains shall pass from Project Company to PAP at the point that such Distillers Grains drop into the applicable receiving truck.  The Parties acknowledge that the quality and quantity of Distillers Grains may degrade or shrink after such Distillers Grains is delivered by Project Company to PAP at such delivery point, and the Parties acknowledge that the risk of such degradation or shrinkage and all other risk of loss shall be borne by PAP.

 

(b)           PAP and Project Company shall use the previously agreed upon operating protocol with respect to the mechanics, timing and process for (i) PAP to communicate to Project Company its Distillers Grains requirements on a monthly, weekly and daily basis, (ii) determining the quantity of Distillers Grains to be stored by Project Company in its storage facilities, and (iii) implementing the Distillers Grains sales contemplated by this Agreement.  By mutual agreement, such operating protocol shall be updated from time to time thereafter.  A copy of such protocol is attached hereto as Exhibit B.

 

  

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2.7           Benchmarking.  PAP shall furnish on a monthly basis a report benchmarking its performance in accordance with Exhibit C.

 

ARTICLE III

PAYMENTS

 

3.1           Fees and Payments.

 

(a)           Within ten days after the date Project Company delivers Distillers Grains to PAP in accordance with Section 2.6(a), PAP shall pay to Project Company an amount equal to (i) the Purchase Price (Estimated) with respect to the Bilateral Transaction to which such delivery of Distillers Grains relates minus (ii) the aggregate amount of Transportation Costs (Estimated) with respect to such Bilateral Transaction minus (iii) the aggregate amount of the Incentive Fee (Estimated) with respect to such Bilateral Transaction minus Tonnage Fees (Estimated) with respect to such Bilateral Transaction (it being acknowledged that PAP shall retain for its own account the amount of such Transportation Costs (Estimated), Incentive Fee (Estimated) and Tonnage Fees (Estimated), and that such amount represents an estimate of the net amounts to be paid to Project Company in connection with such Bilateral Transaction).  In connection with each such payment, PAP shall deliver to Project Company a statement detailing its calculations of the applicable Purchase Price (Estimated), the applicable Transportation Costs (Estimated), the applicable Incentive Fee (Estimated) and the applicable Tonnage Fees (Estimated).

 

(b)           Within the first five Business Days of each calendar month (each such date, a “Payment Adjustment Date”), the Parties shall reconcile and “true-up” the actual Purchase Price, Transportation Costs, Incentive Fees and Tonnage Fees for all Bilateral Transactions entered into since the previous Payment Adjustment Date, with the intent of the Parties being that PAP shall make up the difference of any “under estimations” and Project Company shall refund any “over estimations”.  For example, if there are “under estimations” then PAP shall pay to Project Company an amount equal to:

 

(i)           (A) the Purchase Price with respect to such Bilateral Transaction minus (B) the Purchase Price (Estimated) with respect to such Bilateral Transaction (to the extent actually paid by PAP to Project Company pursuant to Section 3.1(a)), minus

 

(ii)           (A) the Transportation Costs with respect to each such Bilateral Transaction minus (B) the Transportation Costs (Estimated) with respect to such Bilateral Transaction, minus

 

(iii)           (A) the Incentive Fee with respect to each such Bilateral Transaction minus (B) the Incentive Fee (Estimated) with respect to such Bilateral Transaction, minus

 

(iv)           (A) the Tonnage Fees with respect to each such Bilateral Transaction minus (B) the Tonnage Fees (Estimated) with respect to such Bilateral Transaction.

 

  

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Each such monthly reconciliation or “true-up” payment shall be paid by PAP or Project Company (as applicable) no later than five Business Days after the applicable Payment Adjustment Date.  Each Party acknowledges that Project Company (and not PAP) bears the risk of non-payment by a Third Party in connection with a Bilateral Transaction.

 

(c)           Notwithstanding anything to the contrary in clause (a) or (b) above, if Project Company defaults in its obligation to provide Distillers Grains to PAP in accordance with the terms of this Agreement (including, without limitation, as contemplated by Section 2.3(c)), then PAP shall be entitled to set-off and deduct from current and/or future payments owed to PAP by Project Company (including the estimated payments pursuant to clause (a) above and the reconciliation and “true-up” payments pursuant to clause (b) above) an amount equal to, as applicable, (i) the amount of damage payments owed by PAP to the applicable Third Party for failure to provide such Distillers Grains and (ii) the cost of any replacement Distillers Grains procured by PAP to satisfy the requirements of any Bilateral Transaction, each as a result of Project Company’s failure to perform hereunder net of any revenue received in respect of such Bilateral Transaction.

 

3.2           Overdue Payments; Billing Dispute.  If Project Company or PAP, in good faith, disputes the amount of any payment received by it or to be paid by it or set-off pursuant to Section 3.1 above, the disputing Party shall immediately notify the other Party of the basis for the dispute.  The Parties will then meet and use their best efforts to resolve any such dispute.  If any amount is ultimately determined to be due to or permitted to be set-off by Project Company or PAP (as the case may be), to the extent not previously paid or set-off, (a) PAP (or the Project Company as the case may be) shall pay such amount to Project Company (or PAP, as the case may be) within five Business Days of such determination or (b) PAP (or the Project Company as the case may be) may then set-off such amount (as the case may be).  If any Party shall fail to make any payment when due hereunder, such overdue payment shall accrue interest at the Prime Rate plus 2% from the date originally due until the date paid.

 

3.3           Audit.  Notwithstanding the payment of any amount pursuant to this Article III, Project Company shall remain entitled (upon reasonable prior notice, at reasonable times and at PAP’s corporate offices) and the administrative agent under the Credit Agreement (and its consultants, as directed by the administrative agent) shall be entitled (upon reasonable prior notice, not more than once per calendar quarter and at PAP’s corporate offices) to conduct a subsequent audit and review of (a) all Bilateral Transactions and related records to verify the amount of gross payments, Incentive Fees, Transportation Costs and damage payments and (b) the determination and calculation of the Purchase Price, in each case for a period of two years from and after the applicable Payment Adjustment Date.  If, pursuant to such audit and review, it is determined that any amount previously paid by PAP to Project Company did not constitute all of the amounts which should have been paid to Project Company, Project Company shall advise PAP indicating such amount and the reason the amount should have been paid to Project Company and, subject to the next two sentences, PAP shall pay such amount to Project Company within five Business Days of such request along with interest accrued at the Prime Rate plus 5% from the date originally due until the date paid.  If the Parties do not agree with respect to any item so noted, the Parties will then meet and use their best efforts to resolve the dispute.  If Parties are not able to resolve issues raised by such an audit and review, any disputed items will be resolved in accordance with the provisions of Article X.

 

  

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ARTICLE IV

TERM; TERMINATION

 

4.1           Term.  This Agreement shall be effective on the date hereof and, unless earlier terminated in accordance with its terms, shall continue in effect until and including June 30, 2012; provided, that either Project Company or PAP may extend this Agreement for additional one year periods, in each case by written notice to the other (an “Extension Notice”) delivered not less than ninety (90) days prior to the end of the original or renewal term, provided further that this Agreement shall nonetheless terminate if the recipient of any such Extension Notice rejects such Extension Notice not more than fifteen (15) days after receipt of the Extension Notice.

 

4.2           Project Company Defaults and PAP Remedies.  Upon the occurrence of any of the following events, PAP may exercise such rights and remedies as may be available to it at law or in equity, including the right to terminate this Agreement, by written notice to Project Company, provided, that no such notice shall be required for a termination pursuant to clause (b) of this Section 4.2:

 

(a)           the failure by Project Company to make any payment, deposit or transfer required hereunder within thirty (30) Business Days after the date such payment, deposit or transfer is due, and such failure continues for fifteen (15) Business Days after receipt of written notice from PAP of such failure;

 

(b)           the occurrence of an Act of Insolvency with respect to Project Company; or

 

(c)           the failure of Project Company to perform any of its material obligations under this Agreement and such failure continues for 30 days after receipt of written notice from PAP of such failure; provided, that such 30-day period shall be extended for up to an aggregate of 90 days so long as Project Company is diligently attempting to cure such failure.

 

4.3           PAP Defaults and Project Company Remedies.  Upon the occurrence of any of the following events, Project Company may exercise such rights and remedies as may be available to it at law or in equity, including the right to terminate this Agreement, by written notice to PAP, provided, that no such notice shall be required for a termination pursuant to clause (b) of this Section 4.3:

 

(a)           the failure by PAP to make any payment, deposit or transfer required hereunder within fifteen (15) Business Days after the date such payment, deposit or transfer is due, and such failure continues for fifteen (15) Business Days after receipt of written notice from Project Company of such failure;

 

(b)           the occurrence of an Act of Insolvency with respect to PAP; or

 

  

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(c)           the failure of PAP to perform any of its material obligations under this Agreement and such failure continues for 30 days after receipt of written notice from Project Company of such failure; provided, that such 30-day period shall be extended for up to an aggregate of 90 days so long as PAP is diligently attempting to cure such failure.

 

4.4           Change of Control.  This Agreement shall terminate 45 days after the occurrence of (i) any Change of Control with respect to Project Company or any transfer, assignment, sale or other disposition of more than a majority of the membership interests in PAP to any Person that is not an Affiliate of PEI or (ii) any transfer, assignment, sale or other disposition of all or substantially all of the assets comprising the Facility, unless in each case the Parties mutually agree to the contrary.

 

4.5           Effect of Termination.  No termination under this Article IV shall release any of the Parties from any obligations arising hereunder prior to such termination, including payment and obligations under any Bilateral Transaction (or such Bilateral Transaction’s corresponding back-to-back transaction arising under Section 2.4), that are not fully performed as of the date of such termination.  The exercise of the right of a Party to terminate this Agreement, as provided herein, does not preclude such Party from exercising other remedies that are provided herein or are available at law or in equity; provided, however, that no Party shall have a right to terminate, revoke or treat this Agreement as repudiated other than in accordance with the other provisions of this Agreement; and provided, further, that the Parties’ respective rights upon termination shall be subject to the liability limitations of Article VI.  Except as otherwise set forth in this Agreement, remedies are cumulative, and the exercise of, or the failure to exercise, one or more remedies by a Party shall not, to the extent provided by Law, limit or preclude the exercise of, or constitute a waiver of, other remedies by such Party.

 

ARTICLE V

INSURANCE

 

5.1           PAP Insurance.  Without limiting any of the other obligations or liabilities of PAP under this Agreement, PAP shall at all times carry and maintain or cause to be carried and maintained, the minimum insurance coverage set forth in this Section:

 

(a)           PAP shall maintain or cause to be maintained (i) Workers’ Compensation insurance in compliance with the workers’ compensation laws of the states in which PAP provides services hereunder as extended by the Broad Form All States Endorsements, the United States Longshoreman’s and Harbor Workers’ Coverage Endorsements on an if-any-exposure basis and the Voluntary Compensation Coverage Endorsement, and (ii) Employer’s Liability (including Occupational Disease) coverage with limits of not less than $1,000,000, which shall cover all of PAP’s employees engaged in providing services hereunder.

 

(b)           PAP shall maintain or cause to be maintained automobile liability insurance for owned (if any), non-owned and hired vehicles with combined single limits for bodily injury/property damage not less than $1,000,000 per occurrence and containing appropriate no-fault insurance provisions wherever applicable.

 

  

11

  

(c)           PAP will maintain or cause to be maintained commercial general liability insurance with a limit for bodily injury/property damage of not less than $1,000,000 per occurrence and $2,000,000 in the annual aggregate.  Such coverage shall include premises/operations, explosion, collapse and underground property damage, broad form contractual, independent contractors, products/completed operations (including operator errors and omissions), broad form property damage, personal injury and incidental professional liability (if not covered under product/completed operations and if commercially available).

 

(d)           PAP shall maintain or cause to be maintained umbrella liability insurance providing coverage limits in excess of those set forth in Section (a), (b) and (c) above.  The limits of this umbrella coverage shall not be less than $10,000,000 per occurrence and in the annual aggregate.

 

(e)           PAP shall maintain or cause to be maintained pollution legal liability for sudden and accidental pollution for physical damage and bodily injury to third parties in an amount of $3,000,000 per occurrence and in the annual aggregate.

 

The terms and conditions of all insurance policies (including the amount, scope of coverage, deductibles, and self-insured retentions) shall be acceptable in all respects as of the effective date of this Agreement.  All insurance carried pursuant to this Section shall conform to the relevant provisions of this Agreement and be with insurance companies which are rated “A-, X” or better by Best’s Insurance Guide and Key Ratings, or other insurance companies of recognized responsibility satisfactory to Project Company.  Project Company shall be furnished with satisfactory evidence that the foregoing insurance is in effect and Project Company shall be notified 30 calendar days prior to the cancellation or material change of any such coverage.  Coverage for the insurance under Section (c) and (d) above shall be written on a claims made basis provided that if the policy is not renewed, PAP shall obtain for the benefit of Project Company an extended reporting period coverage or “tail” of at least three years past the final day of coverage of such policy.  PAP shall provide Project Company with evidence that such extended reporting period coverage or “tail” has been obtained.  PAP agrees to ensure that the insurance policies outlined in this Section require the insurer to waive subrogation against Project Company, the Financing Parties and their respective Affiliates together with their respective officers, directors, Affiliates and employees and all such Persons shall be an additional insured as their interests may appear with respect to all policies procured by PAP.

 

5.2           PAP Insurance Premiums and Deductibles.  All premiums for insurance coverage procured by PAP pursuant to Section 5.1 shall be reimbursed by Project Company upon demand.  PAP shall be liable for the payment of all deductibles on insurance policies obtained pursuant to Section 5.1, which amounts shall not be reimbursed by Project Company, provided that, to the extent that a claim under a policy described in Section 5.1 is attributable to Project Company’s (including its employees’ or agents’) gross negligence or willful misconduct, Project Company shall be liable for the entire amount of such deductible.  In no event shall any premiums, deductibles or any losses in excess of insurance coverage be reimbursed by Project Company hereunder.

 

  

12

  

ARTICLE VI

LIMITATIONS ON LIABILITY

 

6.1           No Consequential or Punitive Damages.  In no event shall either Party be liable to any other Party by way of indemnity or by reason of any breach of contract or of statutory duty or by reason of tort (including negligence or strict liability) or otherwise for any loss of profits, loss of revenue, loss of use, loss of production, loss of contracts or for any incidental, indirect, special or consequential or punitive damages of any other kind or nature whatsoever that may be suffered by such other Party, including any losses for which such other Party has insurance to the extent proceeds of insurance have been recovered for such losses.

 

6.2           Breach. Notwithstanding anything to the contrary herein, any failure, breach or default by Project Company under this Agreement that is caused by or is a result of a failure, breach or default by PEI under the Asset Management Agreement will not be a breach of this Agreement.

 

ARTICLE VII

INDEMNIFICATION

 

7.1           Project Company’s Indemnity.  Project Company shall defend, indemnify and hold harmless PAP and its Affiliates (and each officer, director, employee, shareholder, partner, member or agent of PAP and its Affiliates) (each, a “Project Company Indemnified Person”) from and against any and all third party claims, actions, damages, expenses (including reasonable and documented attorneys’ fees and expenses), losses, settlements or liabilities (collectively, “Liabilities”) incurred or asserted against any Project Company Indemnified Person (a) as a result of any failure on the part of Project Company to perform Project Company’s obligations under this Agreement (including with respect to any back-to-back transaction under Section 2.4), or (b) arising out of or in any way connected with the grossly negligent acts or omissions of Project Company or its Affiliates.

 

7.2           PAP’s Indemnity.  PAP shall defend, indemnify and hold harmless Project Company and its Affiliates (and each officer, director, employee, shareholder, partner, member or agent of Project Company and their Affiliates) (each, a “PAP Indemnified Person”) from and against any and all third party Liabilities incurred or asserted against any PAP Indemnified Person (a) as a result of any failure on the part of PAP to perform its obligations under this Agreement (including with respect to any Bilateral Transaction), or (b) arising out of or in any way connected with the grossly negligent acts or omissions of PAP or its Affiliates.

 

ARTICLE VIII

REPRESENTATIONS AND WARRANTIES

 

Each Party represents that (i) it is duly organized under its jurisdiction of formation and in good standing in each jurisdiction where its failure to so qualify could have a material adverse affect on its ability to perform its obligations hereunder, (ii) it has all necessary power and authority to enter into this Agreement, (iii) it has duly authorized, executed and delivered this Agreement and (iv) this Agreement constitutes a legal, valid and binding obligation of such Party enforceable in accordance with its terms, subject to bankruptcy, reorganization, moratorium or other similar laws affecting the enforcement of the rights of creditors generally and subject to general principles of equity.

 

  

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ARTICLE IX

FORCE MAJEURE

 

9.1           Definition.  As used herein, “Force Majeure Event” means any cause(s) which render(s) a Party wholly or partly unable to perform its obligations under this Agreement (other than obligations to make payments when due), and which are neither reasonably within the control of such Party nor the result of the fault or negligence of such Party, and which occur despite all reasonable attempts to avoid, mitigate or remedy, and shall include acts of God, war, riots, civil insurrections, cyclones, hurricanes, floods, fires, explosions, earthquakes, lightning, storms, chemical contamination, epidemics or plagues, acts or campaigns of terrorism or sabotage, blockades, embargoes, accidents or interruptions to transportation, trade restrictions, acts of any Governmental Authority after the date of this Agreement, strikes and other labor difficulties (other than with respect to its own employees), and other events or circumstances beyond the reasonable control of such Party.  Mechanical breakdown (including a forced outage of the Facility) that continues for more than five consecutive days shall be deemed not to be “Force Majeure Event” unless such mechanical breakdown resulted from or was caused by a separate “Force Majeure Event.”

 

9.2           Effect.  A Party claiming relief as a result of a Force Majeure Event shall give the other Parties written notice within five Business Days of becoming aware of the occurrence of the Force Majeure Event, or as soon thereafter as practicable, describing the particulars of the Force Majeure Event, and will use reasonable efforts to remedy its inability to perform as soon as possible.  If the Force Majeure Event (including the effects thereof) continues for fifteen consecutive days, the affected Party shall report to the other Parties the status of its efforts to resume performance and the estimated date thereof.  If the Force Majeure Event (including the effects thereof) continues for 180 consecutive days, either Party may terminate this Agreement for convenience.  If the affected Party was not able to resume performance prior to or at the time of the report to the other Party of the onset of the Force Majeure Event, then it will report in writing to the other Party when it is again able to perform.  If a Party fails to give timely notice, the excuse for its non-performance shall not begin until notice is given.

 

9.3           Limitations.  Any obligation(s) of a Party (other than an obligation to make payments when due) may be temporarily suspended during any period such Party is unable to perform such obligation(s) by reason of the occurrence of a Force Majeure Event, but only to the extent of such inability to perform, provided, that:

 

(a)           the suspension of performance is of no greater scope and of no longer duration than is reasonably required by the Force Majeure Event; and

 

(b)           the Party claiming the occurrence of the Force Majeure Event bears the burden of proof.

 

  

14

  

ARTICLE X

DISPUTE RESOLUTION

 

10.1           Attempts to Settle.  In the event that a Dispute between the Parties arises under, out of or in relation to, this Agreement, the Parties shall attempt in good faith to settle such Dispute by mutual discussions within fifteen Business Days after the date that an aggrieved Party gives written notice of the Dispute to the other Party.  In the event that a Dispute is not resolved by discussion in accordance with the preceding sentence within the time period set forth therein, the Parties shall refer the Dispute to their respective senior officers for further consideration and attempted resolution within fifteen Business Days after the Dispute has been referred to such individuals (or such longer period as the Parties may agree).

 

10.2           Resolution by Expert.  If the Parties shall have failed to resolve the Dispute within fifteen Business Days after the date that the Parties referred the Dispute to their senior officers, then, provided the Parties shall so agree, the Dispute may be submitted for resolution by an Expert, such Expert to be appointed by the mutual agreement of the Parties.  Proceedings before an Expert shall be held in Sacramento, California (or any other location agreed to by the Parties).  The Expert shall apply to such proceedings the substantive law of the State of New York in effect at the time of such proceedings.  The decision of the Expert shall be final and binding upon the Parties.  In the event that (a) the Parties cannot agree on the appointment of an Expert within ten Business Days after the date that the Parties agreed to submit the Dispute for resolution by the Expert or (b) the Expert fails to resolve such Dispute within 60 days after the Parties have submitted such Dispute to the Expert, then any Party may file a demand for arbitration in writing in accordance with Section 10.3.

 

10.3           Arbitration.  Any Dispute that has not been resolved following the procedures set forth in Section 10.1 or 10.2 shall be settled by binding arbitration in Sacramento, California (or any other location agreed to by the Parties) before a panel of three arbitrators.  Such arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association as in effect on the date of execution of this Agreement.  Such arbitration shall be governed by the laws of the State of New York.  If arbitration proceedings have been initiated pursuant to this Section 10.3 and raise issues of fact or law which, in whole or in part, are substantially the same as issues of fact or law already pending in arbitration proceedings involving the applicable Parties, such issues shall be consolidated with the issues in the ongoing proceedings.  THE PARTIES HEREBY AGREE THAT THE PROCEDURES SET FORTH IN THIS Article X SHALL BE THE EXCLUSIVE DISPUTE RESOLUTION PROCEDURES APPLICABLE TO ANY DISPUTE, CONTROVERSY OR CLAIM UNDER THIS AGREEMENT AND, EXCEPT AS SET FORTH IN SECTION 10.5, THE PARTIES HEREBY WAIVE ALL RIGHTS TO A COURT TRIAL OR TRIAL BY JURY WITH RESPECT TO ANY DISPUTE, CONTROVERSY OR CLAIM UNDER THIS AGREEMENT.

 

10.4           Consequential and Punitive Damages.  Awards of Experts and arbitral panels shall be subject to the provisions of Article VI.

 

10.5           Finality and Enforcement of Decision.  Any decision or award of an Expert or a majority of an arbitral panel, as applicable, shall be final and binding upon the Parties.  Each of the Parties agrees that the arbitral award may be enforced against it or its assets wherever they may be found and that a judgment upon the arbitral award may be entered in any court having jurisdiction thereof.

 

  

15

  

10.6           Costs.  The costs of submitting a Dispute to an Expert shall be shared equally among the Parties involved in the Dispute, unless the arbitral panel or the Expert determines otherwise.  The costs of arbitration shall be paid in accordance with the decision of the arbitral panel pursuant to the Commercial Arbitration Rules of the American Arbitration Association as in effect on the date of execution of this Agreement.

 

10.7           Continuing Performance Obligations.  While a Dispute is pending, each Party shall continue to perform its obligations under this Agreement, unless such Party is otherwise entitled to suspend its performance hereunder or terminate this Agreement in accordance with the terms hereof.

 

ARTICLE XI

CONFIDENTIALITY

 

Each Party and its Affiliates shall treat as confidential the data and information in their possession regarding the Facility, the other Parties or any Affiliate of any other Party, unless:  (a) the applicable other Party agrees in writing to the release of such data or information; (b) such data or information becomes publicly available other than through the wrongful actions of the disclosing Party or the disclosing Party’s Affiliate; (c) such data or information was in the possession of the receiving Party or the receiving Party’s Affiliate prior to receipt thereof from the disclosing Party with no corresponding confidentiality obligation; or (d) such data or information is required by Law to be disclosed.  Notwithstanding the generality of the foregoing, any Party may disclose data and information to (i) the officers, directors, managers, partners, members, employees and Affiliates of such Party, but only to the extent such Persons have a need to know such information for purposes of permitting such Party to perform its obligations hereunder, (ii) any successors in interest and permitted assigns of such Party, (iii) any actual or potential Financing Parties or actual or potential lenders to PEI or any subsidiary thereof, and (iv) any potential equity investors in such Party or its Affiliates or acquirer or potential acquirer of the Project or all or any of the equity interests in Newco or any subsidiary thereof; provided, that any Person who receives confidential data and information pursuant to an exception contained in clauses (ii) through (iv) of this Article agrees to confidentiality provisions at least as restrictive as the provisions set forth herein.

 

ARTICLE XII

ASSIGNMENT AND TRANSFER

 

No Party shall assign this Agreement or any of its rights or obligations hereunder without first obtaining the prior written consent of (a) in the case of Project Company, PAP, or (b) in the case of PAP, Project Company, provided, that any Party shall be entitled to assign its rights hereunder (as collateral security or otherwise) for financing purposes (including a collateral assignment to any Financing Parties) without the consent of any other Party.

 

ARTICLE XIII

MISCELLANEOUS

 

13.1           Entire Agreement.  This Agreement contains the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior agreements, negotiations and understandings among the Parties with respect to such subject matter.  Nothing in this Agreement shall be construed as creating a partnership or joint venture between the Parties.

 

  

16

  

13.2           Counterparts.  This Agreement may be executed in any number of counterparts and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute one and the same agreement.

 

13.3           Survival.  Cancellation, expiration or earlier termination of this Agreement shall not relieve the Parties of obligations that by their nature should survive such cancellation, expiration or termination, including remedies, limitations on liability, promises of indemnity and payment, and confidentiality.  Without limiting the generality of the foregoing, the following provisions of this Agreement shall survive:  Ariticles III, IV, VII, X and XI and Section 13.3, 13.4, 13.5, 13.6, 13.8 and 13.9.

 

13.4           Severability.  In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.  The Parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic and practical effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

 

13.5           Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to the principles of conflicts of laws thereof.

 

13.6           Binding Effect.  This Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and their respective successors and permitted assigns.  This Agreement is not made for the benefit of any Person or entity not a party hereto, and nothing in this Agreement shall be construed as giving any Person or entity, other than the Parties and their respective successors and permitted assigns, any right, remedy or claim under or in respect of this Agreement or any provision hereof.

 

13.7           Notices.  All notices or other communications which are required or permitted hereunder shall be in writing and shall be deemed sufficiently given (a) upon delivery, if delivered personally, (b) the day the notice is received, if it is delivered by overnight courier or certified or registered mail, postage prepaid, or (c) upon the effective receipt of electronic transmission, facsimile, telex or telegram (with effective receipt being deemed to occur upon the sender’s receipt of confirmation of successful transmission of such notice or communication), to the addresses set forth below or such other address as the addressee may have specified in a notice duly given to sender as provided herein:

 

  

17

  

 

If to PAP:

 

	  	
Pacific Ag. Products, LLC

	  	
c/o Pacific Ethanol, Inc.

	  	
400 Capitol Mall

	  	
Suite 2060

	  	
Sacramento, California 95814

	 	Attention	Neil Koehler
	 	Telephone:	(916) 403-2123
	 	Facsimile:	(916) 446-3936

 

	 	 
With a copy to:

	 	 
	  	
Pacific Ethanol, Inc.

	  	
400 Capitol Mall, Suite 2060

	  	
Sacramento, California 95814

	 	Attention	
General Counsel

	 	Telephone:	
(916) 403-2130

	 	Facsimile:	
(916) 403-2785

 

If to Project Company:

 

	  	

 
Pacific Ethanol [__________], LLC

	  	

c/o JT Miller Group LLC

	 	
777 Campus Commons Road # 200

	  	
Sacramento, California 95825

	 	Attention	

John Miller

	 	Telephone:	
(916) 565-7422

	 	Facsimile:	
(916) 565-7423

 

13.8           Amendment.  No Party hereto shall be bound by any termination, amendment, supplement, waiver or modification of any term hereof unless such Party shall have consented thereto in writing.

 

13.9           No Implied Waiver.  No delay or failure on the part of any Party in exercising any rights hereunder, and no partial or single exercise thereof, shall constitute a waiver of such rights or of any other rights hereunder.

 

 

 

[THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY]

 

 

 

 

 

  

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IN WITNESS WHEREOF, this Amended and Restated Distillers Grains Marketing Agreement has been duly executed by the Parties hereto as of the date first written above.

 

	 	 
PACIFIC ETHANOL [__________], LLC

	 
	 	 	 	 
	 	
By: 

	/s/ 	 
	 	 	 
Name:

	 
	 	 	 
Title:

	 
	 	 	 	 

 

	 	 
PACIFIC AG. PRODUCTS, LLC

	 
	 	 	 	 
	
 

	
By: 

	/s/ Neil M. Koehler	 
	 	 	 
Name:  Neil M. Koehler

	 
	 	 	Title:   Chief Executive Officer	 
	 	 	 	 

 

 

 

[Signature Page to Distillers Grains Marketing Agreement – [__________]]

 

 

 

 

 

 

  

19

  

 

 

Exhibit A

 

[Form of PEI Guaranty]

 

[Please see attached.]

 

 

 

 

 

 

 

 

  

A-1

  

Form of Parent Guaranty (Amended and Restated Distillers Grains Marketing Agreement)

 

[DATE]

 

Pacific Ethanol [__________], LLC

c/o JT Miller Group LLC

777 Campus Commons Road # 200

Sacramento, California, 95825

Attention:  John Miller

 

	
Re:

	
Guaranty of Affiliate Project Party Obligations under Amended and Restated Distillers Grains Marketing Agreement

 

Ladies and Gentlemen:

 

1.           The Guaranty.  For value received, Pacific Ethanol, Inc., a corporation organized under the laws of Delaware (the “Guarantor”), hereby unconditionally and absolutely guarantees the prompt and complete payment and performance when due, whether by acceleration or otherwise, of all obligations and liabilities, whether now in existence or hereafter arising (the “Obligations”), of Pacific Ag. Products, LLC, a California limited liability company (the “Affiliate Project Party”), to Pacific Ethanol [__________], LLC, a Delaware limited liability company (the “Project Owner”), under that certain Amended and Restated Distillers Grains Marketing Agreement, dated as of _________, __, 2011 (the “Agreement”); provided that the Guarantor’s maximum aggregate liability under this Guaranty shall not exceed the maximum amount which the Affiliate Project Party owes the Project Owner under the Agreement.

 

Following any demand by the Project Owner for payment hereunder, the Guarantor shall pay, or cause to be paid, such Obligations within five (5) business days of receipt of such demand.  Such payments shall be made to:  [Insert Revenue Account Wire Instructions]

 

The Guarantor’s obligations hereunder are primary obligations of the Guarantor and are an absolute, unconditional, continuing and irrevocable guaranty of payment and performance and not of collectibility, and are in no way conditioned on or contingent upon any attempt to enforce in whole or in part any liabilities and obligations of the Affiliate Project Party or any other person.  Each failure by the Guarantor to payor perform, as the case may be, any amounts due or any obligations under this Guaranty shall give rise to a separate cause of action hereunder, and separate suits may be brought hereunder as each cause of action arises.

 

2.           Waivers; Absolute Obligations.  The Guarantor hereby waives notice of acceptance of this Guaranty and notice of any obligation or liability to which it may apply, and waives presentment, demand for payment, protest, notice of dishonor or non-payment of any such obligation or liability, suit or the taking of other action by the Project Owner against, and any other notice to, the Affiliate Project Party, the Guarantor or others, notice of entry into the Agreement between Affiliate Project Party and Project Owner and of any amendments, supplements or modifications thereto; or any waiver of consent under the Agreement, including waivers of the payment and performance of the obligations thereunder; and any requirement that suit be brought against, or any other action by the Project Owner be taken against, or any notice of default or other notice be given to, or any demand be made on the Project Owner or any other person, or that any other action be taken or not taken as a condition to the Guarantor’s liability for the Obligations under this Guaranty or as a condition to the enforcement of this Guaranty against the Guarantor.

 

  

A-2

  

The Project Owner may at any time and from time to time without notice to or consent of the Guarantor and without impairing or releasing the obligations of the Guarantor hereunder:  (1) agree with the Affiliate Project Party to make any change in the terms of any obligation or liability of the Affiliate Project Party to the Project Owner, (2) take or fail to take any action of any kind in respect of any security for any obligation or liability of the Affiliate Project Party to the Project Owner, (3) exercise or refrain from exercising any rights against the Affiliate Project Party or others, or (4) compromise or subordinate any obligation or liability of the Affiliate Project Party to the Project Owner including any security therefor.

 

The liability of the Guarantor under this Guaranty shall be absolute and unconditional irrespective of:

 

	
  

	
(a)

	
any lack of validity or enforceability of or defect or deficiency applicable to the Affiliate Project Party in the Agreement or any other documents executed in connection with the Agreement; or

 

	
  

	
(b)

	
any modification, extension or waiver of any of the terms of the Agreement; or

 

	
  

	
(c)

	
any change in the time, manner, terms or place of payment of or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to departure from the Agreement or any other agreement or instrument executed in connection therewith; or

 

	
  

	
(d)

	
failure, omission, delay, waiver or refusal by the Project Owner to exercise, in whole or in part, any right or remedy held by the Project Owner with respect to the Agreement or any transaction under the Agreement; or

 

	
  

	
(e)

	
any change in the existence, structure or ownership of the Guarantor or the Affiliate Project Party or Project Owner, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Affiliate Project Party or its assets; or

 

	
  

	
(f)

	
any defense arising by reason of any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, liquidation or dissolution proceeding commenced by or against any person, including any discharge of, or bar or stay against collecting, all or any part of the amounts due under this Guaranty (or any interest on all or any part of the amounts due under this Guaranty) in or as a result of any such proceeding, any failure of the Project Owner to file a claim in any such proceeding, or the occurrence of any of the following:  (i) the election by the Project Owner, in any bankruptcy proceeding of any person, of the application or non-application of Section 1111(b)(2) of Title 11 of the United States Code entitled “Bankruptcy” (together with any successor statute, and all rules promulgated thereunder, the “Bankruptcy Code”), (ii) any extension of credit or the grant of any lien or encumbrance under Section 364 of the Bankruptcy Code, (iii) any use of cash collateral under Section 363 of the Bankruptcy Code, or (iv) any agreement or stipulation with respect to the provision of adequate protection in any bankruptcy proceeding of any person; or

 

  

A-3

  

	
  

	
(g)

	
any duty on the part of the Project Owner to disclose to the Guarantor any facts the Project Owner may now or hereafter know about the Affiliate Project Party, regardless of whether the Project Owner has reason to believe that any such facts materially increase the risk beyond that which the Guarantor intends to assume, or have reason to believe that such facts are unknown to the Guarantor, or have a reasonable opportunity to communicate such facts to the Guarantor, since the Guarantor acknowledges that the Guarantor is fully responsible for being and keeping informed of the financial condition of the Affiliate Project Party and of all circumstances bearing on the risk of non-payment of any amounts due or non-performance of any obligations under this Guarantor.

 

Without limiting the foregoing, the Guarantor hereby unconditionally and irrevocably waives and relinquishes, to the maximum extent permitted by applicable laws, all rights and remedies accorded to sureties or guarantors and agrees not to assert or take advantage of any such rights or remedies.

 

3.           Bankruptcy Waivers.  The Guarantor hereby irrevocably waives, to the extent it may do so under applicable laws, any protection to which it may be entitled under Sections 365(c)(l), 365(c)(2) and 365(e)(2) of the Bankruptcy Code or equivalent provisions of the laws or regulations of any other jurisdiction with respect to any proceedings, or any successor provision of law of similar import, in the event of any Act of Insolvency (as defined in the Agreement) with respect to the Project Company or the Affiliate Project Party or any other guarantor or surety.  Specifically, in the event that the trustee (or similar official) in an Act of Insolvency with respect to the Affiliate Project Party or any other guarantor or surety or the debtor-in-possession takes any action (including the institution of any action, suit or other proceeding for the purpose of enforcing the rights of the relevant Borrower(s), or any other guarantor or surety under this Guaranty), the Guarantor shall, to the fullest extent it may do so under applicable law, not assert any defense, claim or counterclaim denying liability hereunder on the basis that this Guaranty is an executor contract or a “financial accommodation” that cannot be assumed, assigned or enforced or on any other theory directly or indirectly based on Sections 365(c)(l), 365(c)(2) or 365(e)(2) of the Bankruptcy Code, or equivalent provisions of the law or regulations of any other jurisdiction with respect to any proceedings or any successor provision of law of similar import.  If an Act of Insolvency with respect to the Affiliate Project Party or any other guarantor or surety shall occur, the Guarantor agrees, after the occurrence of such Act of Insolvency, to reconfirm in writing, to the extent permitted by applicable laws, its pre-petition waiver of any protection to which it may be entitled under Sections 365(c)(l), 365(c)(2) and 365(e)(2) of the Bankruptcy Code or equivalent provisions of the laws or regulations of any other jurisdiction with respect to proceedings and, to give effect to such waiver, the Guarantor consents, to the fullest extent it may do so under applicable law, to the assumption and enforcement of each provision of this Guaranty by the debtor-in-possession or the trustee in bankruptcy of the Affiliate Project Party or of any other guarantor or surety, as the case may be.

 

  

A-4

  

4.           No Assignment.  The Guarantor may not assign its rights nor delegate its obligations under this Guaranty, in whole or in part, without prior written consent of the Project Owner, and any purported assignment or delegation absent such consent is void, except for an assignment and delegation of all of the Guarantor’s rights and obligations hereunder in whatever form the Guarantor determines may be appropriate to a partnership, corporation, trust or other organization in whatever form that succeeds to all or substantially all of the Guarantor’s assets and business and that assumes such obligations by contract, operation of law or otherwise.  Upon any such delegation and assumption of obligations, the Guarantor shall be relieved of and fully discharged from all obligations hereunder, whether such obligations arose before or after such delegation and assumption.  The Project Owner may, upon notice to the Guarantor, assign its rights hereunder (including any collateral assignment) without the consent of Guarantor to any person to which it assigns its interests in the Agreement.

 

5.           Representations and Warranties.  The Guarantor hereby represents and warrants for itself, as of the date hereof, that:

 

	
  

	
(a)

	
it is duly organized and validly existing under the laws of its jurisdiction of incorporation, has the corporate power and has obtained all required governmental approvals to comply with and perform its respective obligations under and enter into this Guaranty;

 

	
  

	
(b)

	
this Guaranty has been duly authorized and executed by it and constitutes its valid and legally binding obligation enforceable in accordance with its terms, except as enforceability hereof may be limited by bankruptcy, moratorium, insolvency or other similar laws affecting the enforcement of creditor’s rights generally;

 

	
  

	
(c)

	
neither the execution and delivery of this Guaranty nor the compliance with its terms will conflict with or result in a breach of any of the terms, conditions or provisions of, or constitute a default or require any consent which has not been obtained under, any indenture, mortgage, agreement or other instrument or arrangement to which it is a party or by which it or any of its properties or assets are bound, or violate any of the terms or provisions of its organizational documents (including its bylaws) or any governmental approval, judgment, decree or order or any other applicable law;

 

	
  

	
(d)

	
it is, and after giving effect to the transactions contemplated under this Guaranty will be, solvent; and

 

	
  

	
(e)

	
it is not executing this Guaranty with any intention to hinder, delay or defraud any of its present or future creditor or creditors.

 

6.           Subrogation.  Notwithstanding any payment or payments made by the Guarantor or the exercise by the Project Owner of any of the remedies provided under this Guaranty or any set-off or application of funds of the Guarantor by the Project Owner, the Guarantor hereby waives all rights of subrogation with respect to payments made under this Guaranty until all of the Obligations have been paid in full.  Notwithstanding the foregoing, if any amount shall be paid to the Guarantor on account of such subrogation, such amount shall be held by the Guarantor in trust for the Project Owner, segregated from other funds of the Guarantor, and shall be turned over to the Project Owner, in the exact form received by the Guarantor (or duly endorsed by the Guarantor to the Project Owner, if required) to be applied against such amounts in such order as the Project Owner may elect.

 

  

A-5

  

7.           Notices.  All demands, notices and other communications provided for hereunder shall, unless otherwise specifically provided herein, (a) be in writing addressed to the party receiving the notice at the address set forth below or at such other address as may be designated by written notice, from time to time, to the other party, and (b) be effective upon receipt, when mailed by U.S. mail, registered or certified, return receipt requested, postage prepaid, facsimile or personally delivered.  Notices shall be sent to the following addresses:

 

If to Project Owner:

 

Pacific Ethanol [__________], LLC

c/o JT Miller Group LLC

777 Campus Commons Road # 200

Sacramento, California, 95825

Attention:    John Miller

 

If to Guarantor:

 

Pacific Ethanol, Inc.

400 Capitol Mall, Suite 2060

Sacramento, California  95814

Attention:    Neil Koehler

Telephone:  (530) 750-3017

Facsimile:     (530) 309-4172

 

8.           Cumulative Remedies; Benefits.  No failure by the Project Owner to exercise, and no delay by the Project Owner in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.  The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.  The remedies herein provided are cumulative and not exclusive of any remedies provided by law.  Nothing in this Guaranty, express or implied, shall give to any person, other than the parties hereto, and each of their successors and permitted assigns under this Guaranty, any benefit or any legal or equitable right or remedy under this Guaranty.

 

9.           Reinstatement.  This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations are annulled, set aside, invalidated, declared to be fraudulent or preferential, rescinded or must otherwise be returned, refunded or repaid by Project Owner upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Affiliate Project Party or any other guarantor, or upon or as a result of the appointment of a receiver or conservator of, or trustee for the Affiliate Project Party or any other guarantor or any substantial part of its property or otherwise, all as though such payment or payments had not been made.

 

  

A-6

  

10.           Governing Law, etc.  (A) THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

(B)           EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT.  EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING IN THIS GUARANTY SHALL AFFECT ANY RIGHT THAT ANY OF THE PARTIES HERETO MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS GUARANTY IN THE COURTS OF ANY JURISDICTION.

 

(C)           EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY.  EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

 

11.           Termination.  This Guaranty shall terminate on the earlier of (i) date the Agreement terminates in accordance with the terms thereof and (ii) the date on which the Affiliate Project Party ceases to be an Affiliate of Guarantor.

 

  

A-7

  

12.           Survivability.  If any provision of this Guaranty is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Guaranty shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions.  The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

 

13.           Counterparts.  This Guaranty may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  This Guaranty shall become effective when it has been executed by each of the parties hereto.  Delivery of an executed counterpart of a signature page of this Guaranty by telecopy or portable document format (“pdf’) shall be effective as delivery of a manually executed counterpart of this Guaranty.

 

[Signature Page Follows]

 

  

A-8

  

 

 

	 	Very truly yours, 
 

PACIFIC ETHANOL, INC.

	 
	 	 	 	 
	
 

	
By: 

	/s/ Neil M. Koehler 	 
	 	 	Name: Neil M. Koehler 	 
	 	 	Title:   Chief Executive Officer	 
	 	 	 	 

 

Acknowledged and Accepted by:

 

PACIFIC ETHANOL [__________], LLC

 

	
By:

	 	 

	
  

	
Name:

	
  

	
Title:

  

A-9

  

 

 

Exhibit B

 

Operating Protocol

 

Pacific Ethanol [__________], LLC ([___]) will by the end of day Monday each week submit to Pacific Agricultural Products, LLC (PAP) a 12 week production forecast, (see attached example) that includes weekly production and scheduled maintenance downtime. [___] will promptly notify PAP of any unscheduled downtime or other event or circumstance that will affect forecasted production.

PAP will by 12 noon on Friday each week submit to [___] a weekly truck schedule for the following week. Changes to the weekly truck schedule will be communicated to [____] as the changes are identified.

 

 

 

 

 

 

 

  

B-1

  

 

 

 

Exhibit C

 

Benchmarking

 

[Please see attached.]

 

 

 

 

 

  

C-1

  

 

 

Exhibit D

 

Benchmarking

 

 

 

 

 

 

 

 

 

 

 

  

D-1

  

 

	 	PEHC Commodity Price Benchmark Example	  June 10, 2011

 

BENCHMARK 

 

We propose the following example benchmarks and monitor criteria. Modifications to the benchmarks are expected to be made periodically as appropriate to reflect with changes in commodity market environments and in company purchase/sales contract pricing mechanisms.     

 

	
Commodity/Facility 

	
PEHC actual data 

	
Benchmark 

	
Market Data Provider 

	 	
Possible  Discrepancy Reasons/Noises 

	
ETHANOL 

	  	  	  	 	  
	
  PECOL 

	
Netback ethanol 

	
OPIS Pacific Northwest 

	
Posting as provided by 

	a)	
Fixed price contracts 

	 	sales price 	 	Oil Price 	b) 	
Other Price index

	
  PEMV 

	
Netback ethanol 

	
OPIS Chicago 

	Information Service 	c)	
Shipments distribution in a highly volatile market

	 	sales price 	 	(OPIS)  	d) 	Other accounting adjustments items 
	
  PES 

	
Netback ethanol 

	
OPIS LA CI-90 

	  	 	
 

	 	sales price 	 	 	 	 
	
CORN 

	 	 	 	 	 
	
  ALL 

	
Corn CBOT 

	
Delivered basis = FOB 

	
Trade West report 

	a)	
Fixed futures as a result of hedge  

	 	equivalent 	Midwest + freight 	 	b)	
Contracts based on corn futures other than nearby futures (Usually, this happens a couple of weeks before current future contract expires 

	 	 	 	 	c)	
Uneven distribution of corn consumptions (such as shut down) in a highly volatile market 

	
WDG/Syrup 

	  	  	  	 	  
	
  ALL 

	
Plant co-product 

	
WDG Value as a % of 

	
FC Stone Co-product 

	a)	
Fixed price contracts 

	 	netback	Plant delivered corn on	report	
b)

	Hedge activities
	 	 	DDG equivalent basis 	 	c)	
WDG freight 

 

  

D-2

  

 

	 	PEHC Commodity Price Benchmark Example	  June 10, 2011

 

ETHANOL  

 

	 	 	 	 	 	 
	  	
Plant Sales

Netback 

	  	
Basis

(netback) 

	
Benchmark 

	
Actual vs. 

Benchmark 

	
PECOL 

	  	
OPIS PNW 

	  	  	  
	
Jan-11 

	
2.42 

	
2.42 

	
(0.04) 

	
2.38 

	
1.4% 

	
Feb-11 

	
2.45 

	
2.50 

	
(0.04) 

	
2.46 

	
-0.2% 

	
Mar-11 

	
2.60 

	
2.63 

	
(0.04) 

	
2.59 

	
0.5% 

	
Apr-11 

	
2.73 

	
2.76 

	
(0.04) 

	
2.72 

	
0.2% 

	  	  	  	  	  	  
	
PEMV 

	  	
OPIS Chicago 

	  	  	  
	
Jan-11 

	
2.38 

	
2.32 

	
0.01 

	
2.33 

	
2.1% 

	
Feb-11 

	
2.47 

	
2.43 

	
0.01 

	
2.44 

	
1.5% 

	
Mar-11 

	
2.54 

	
2.50 

	
0.01 

	
2.51 

	
1.2% 

	
Apr-11 

	
2.65 

	
2.65 

	
0.01 

	
2.66 

	
-0.2% 

	  	  	  	  	  	  
	
PES 

	  	
OPISLA CI-90 

	  	  	  
	
Jan-11 

	
2.47 

	
2.46 

	
(0.01) 

	
2.45 

	
1.0% 

	
Feb-11 

	
2.57 

	
2.53 

	
(0.01) 

	
2.52 

	
2.1% 

	
Mar-11 

	
2.68 

	
2.66 

	
(0.01) 

	
2.65 

	
0.9% 

	
Apr-11 

	
2.80 

	
2.80 

	
(0.01) 

	
2.79 

	
0.1% 

 

  

D-3

  

   

	 	PEHC Commodity Price Benchmark Example	  June 10, 2011

 

CORN 

	 	 	 	 	 	 
	  	
Plant CBOT 

Equivalent 

	
Plant basis 

	
Plant Actual Corn 

dlvd $/bu 

	
Market 

	
Actual vs. 

Market 

	
PECOL 

	  	  	  	  	  
	
Jan-11 

	
6.27 

	
0.563 

	
6.83 

	
7.18 

	
(0.35) 

	
Feb-11 

	
6.56 

	
0.595 

	
7.15 

	
7.74 

	
(0.59) 

	
Mar-11 

	
6.68 

	
0.519 

	
7.20 

	
7.64 

	
(0.44) 

	
Apr-11 

	
7.22 

	
0.496 

	
7.71 

	
8.35 

	
(0.64) 

	  	  	  	  	  	  
	
PEMV 

	  	  	  	  	  
	
Jan-11 

	
6.34 

	
0.650 

	
6.99 

	
7.04 

	
(0.06) 

	
Feb-11 

	
6.87 

	
0.650 

	
7.52 

	
7.60 

	
(0.08) 

	
Mar-11 

	
6.90 

	
0.563 

	
7.46 

	
7.50 

	
(0.04) 

	
Apr-11 

	
7.38 

	
0.639 

	
8.02 

	
8.20 

	
(0.18) 

	  	  	  	  	  	  
	
PES 

	  	  	  	  	  
	
Jan-11 

	
6.22 

	
0.656 

	
6.88 

	
7.18 

	
(0.30) 

	
Feb-11 

	
6.76 

	
0.663 

	
7.42 

	
7.74 

	
(0.32) 

	
Mar-11 

	
6.74 

	
0.619 

	
7.36 

	
7.65 

	
(0.28) 

	
Apr-11 

	
7.21 

	
0.687 

	
7.90 

	
8.36 

	
(0.46) 

 

  

D-4

  

 

	 	PEHC Commodity Price Benchmark Example	  June 10, 2011

 

CO PRODUCTS  

	 	 	 	 	 	 
	  	
Plant Co-product 

$/ton Netback 

	
Plant Co-product 

DM 

	
Plant Actual Corn 

dlvd $/bu 

	
Plant Actual Corn 

dlvd $/ton 

	
WDG Value 

% of Corn (1) 

	
PECOL 

	  	  	  	  	  
	
Jan-11 

	
56.62 

	
30% 

	
6.83 

	
243.91 

	
69.2% 

	
Feb-11 

	
56.85 

	
30% 

	
7.15 

	
255.37 

	
66.4% 

	
Mar-11 

	
60.80 

	
31% 

	
7.20 

	
257.06 

	
68.0% 

	
Apr-11 

	
61.97 

	
31% 

	
7.71 

	
275.44 

	
65.3% 

	  	  	  	  	  	  
	
PEMV 

	  	  	  	  	  
	
Jan-11 

	
61.90 

	
32% 

	
6.99 

	
249.48 

	
70.5% 

	
Feb-11 

	
67.04 

	
32% 

	
7.52 

	
268.48 

	
71.0% 

	
Mar-11 

	
69.53 

	
32% 

	
7.46 

	
266.45 

	
74.3% 

	
Apr-11 

	
71.74 

	
32% 

	
8.02 

	
286.40 

	
70.5% 

	  	  	  	  	  	  
	
PES 

	  	  	  	  	  
	
Jan-11 

	
59.21 

	
33% 

	
6.88 

	
245.68 

	
65.4% 

	
Feb-11 

	
59.94 

	
33% 

	
7.42 

	
264.98 

	
61.4% 

	
Mar-11 

	
67.17 

	
33% 

	
7.36 

	
262.95 

	
70.3% 

	
Apr-11 

	
71.47 

	
32% 

	
7.90 

	
282.00 

	
70.5% 

 

(1)DDG equivalent, adjusted to standard 90% dry matter 

 

D-5helix_8k-ex1001.htm

Exhibit 10.1

 

NOTE PURCHASE AGREEMENT

THIS NOTE PURCHASE AGREEMENT, dated as of July 1, 2011 (this “Agreement”), is entered into by and between Helix Wind, Corp., a Nevada corporation (the “Company”), with its principal executive office at 13125 Danielson Street, San Diego, CA 92064, and St. George Investments, LLC, an Illinois limited liability company, its successors or assigns (the “Buyer”), with its principal executive office at 303 East Wacker Drive, Suite 1200, Chicago, Illinois 60601.

W I T N E S S E T H:

WHEREAS, the Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration for offers and sales to accredited investors afforded, inter alia, by Rule 506 under Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”), and/or Section 4(2) of the 1933 Act; and

WHEREAS, the Buyer wishes to acquire from the Company, and the Company desires to issue and sell to the Buyer, (i) the First Note (as defined hereafter), which First Note will be convertible into shares of Common Stock, $0.0001 par value, of the Company (the “Common Stock”), and (ii) certain Additional Notes (as defined hereafter), upon the terms and subject to the conditions of the First Note, the Additional Notes, this Agreement and the other Transaction Documents (as defined hereafter).

NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.           CERTAIN DEFINITIONS.   As used herein, each of the following terms has the meaning set forth below, unless the context otherwise requires:

“Affiliate” means, with respect to a specific Person referred to in the relevant provision, another Person who or which controls or is controlled by or is under common control with such specified Person.

“Buyer’s Counsel” means Carman Lehnhof Israelsen LLP.

“Buyer Control Person” means each director, executive officer, promoter, and such other Persons as may be deemed in control of the Buyer pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act (as defined hereafter).

“Certificate of Incorporation” means the certificate of incorporation, articles of incorporation or other charter document (howsoever denominated) of the Company, as amended to date.

“Company Control Person” means each director, executive officer, promoter, and such other Persons as may be deemed in control of the Company pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act.

“Company Counsel” means Steven James Davis, a Professional Corporation.

“Company’s SEC Documents” means the Company’s filings on the SEC’s EDGAR system.

“Conversion Date” means the date a Holder submits a Notice of Conversion, as provided in the applicable Note (as defined hereafter).

  

1

  

“Conversion Shares” means the shares of Common Stock issuable upon conversion of the Notes and/or in payment of accrued interest, as contemplated in the Notes.

“Delivery Date” has the meaning ascribed to it in the applicable Note (with respect to Conversion Shares).

“Holder” means the Person holding the relevant Securities at the relevant time.

“Initial Closing Date” means the date of the closing of the purchase and sale of the First Note.

“Last Audited Date” means March 31, 2011.

“Material Adverse Effect” means an event or combination of events, which individually or in the aggregate, would reasonably be expected to (a) adversely affect the legality, validity or enforceability of the Notes or any of the Transaction Documents, (b)  have or result in a material adverse effect on the results of operations, assets, or financial condition of the Company and its subsidiaries, taken as a whole, or (c) adversely impair the Company’s ability to perform fully on a timely basis its material obligations under any of the Transaction Documents or the transactions contemplated thereby.

“Maturity Date” has the meaning ascribed to it in the applicable Note.

“Person” means any living person or any entity, such as, but not necessarily limited to, a corporation, partnership or trust.

“Principal Trading Market” means (a) NYSE Amex, (b) the New York Stock Exchange, (c) the Nasdaq Global Market, (d) the Nasdaq Capital Market, (e) the OTC Bulletin Board, (f) the OTCQX or OTCQB, or (g) such other market on which the Common Stock is principally traded at the relevant time, but shall not include the “pink sheets.”

“Rule 144” means (i) Rule 144 promulgated under the 1933 Act or (ii) any other similar rule or regulation of the SEC that may at any time permit Holder to sell securities of the Company to the public without registration under the 1933 Act.

“Securities” means the Notes and the Shares.

“Shares” means the shares of Common Stock representing any or all of the Conversion Shares.

“State of Incorporation” means Nevada.

“Subsidiary” means, as of the relevant date, any subsidiary of the Company (whether or not included or identified in the Company’s SEC Documents) whether now existing or hereafter acquired or created.

“Trading Day” means any day during which the Principal Trading Market shall be open for business.

“Transaction Documents” means (i) this Agreement, (ii) each of the Notes (as defined hereafter), (iii) the Consents to Entry of Judgment by Confession substantially in the form attached hereto as Annex I (the “Confession of Judgment”), (iv) the Secretary’s Certificate substantially in the form attached hereto as Annex II, (v) the irrevocable transfer agent instruction letter substantially in the form attached hereto as Annex III (the “Transfer Agent Letter”), (vi) the Security Agreement in the form attached hereto as Annex IV, (vii) the Guaranty in the form attached hereto as Annex V (the “Guaranty”), (viii) the Security Agreement substantially in the form attached hereto as Annex VI (the “Helix Sub Security Agreement”), and (ix) all other certificates, documents, agreements, resolutions and instruments delivered to any party under or in connection with this Agreement.

  

2

  

“Transfer Agent” means, at any time, the transfer agent for the Company’s Common Stock.

“Wire Instructions” means the Company wire instructions set forth on Annex VII.

2.           AGREEMENT TO PURCHASE; INITIAL NET PURCHASE PRICE; INITIAL CLOSING.

a.           Purchase.

(i)           Subject to the terms and conditions of this Agreement and the other Transaction Documents, the undersigned Buyer hereby agrees to loan to the Company the Initial Net Purchase Price (as defined hereafter) set forth on the Buyer’s signature page of this Agreement.

 

(ii)          The obligation to repay the loan from the Buyer shall be evidenced by the Company’s issuance of a Secured Convertible Promissory Note to the Buyer in the principal amount of $72,500.00 substantially in the form attached hereto as Annex VIII (the “First Note”).  The First Note shall provide for a Conversion Price (as defined in the First Note), which price may be adjusted from time to as provided in the First Note, and shall be secured by the Security Agreement and guarantied by Helix Wind, Inc., a Nevada corporation and wholly owned subsidiary of the Company (“Helix Sub”), pursuant to the Guaranty, which Guaranty will be secured by all of Helix Sub’s assets pursuant to the Helix Sub Security Agreement.

b.           Initial Closing; Delivery of Transaction Documents. The sale and purchase of the First Note shall take place at a closing (the “Initial Closing”) to be held at the offices of the Buyer on the Initial Closing Date pursuant to Section 8 hereof.  Subject to the terms and conditions of this Agreement, including without limitation subsection (d) below, at the Initial Closing the Company will deliver to the Buyer the Transaction Documents required under Section 10 hereof against receipt by the Company of the Initial Net Purchase Price.

c.           Initial Net Purchase Price.  The First Note carries an original issue discount of $15,000.00 (the “OID”).  In addition, the Company agrees to pay $7,500 to the Buyer to cover the Buyer’s legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the purchase and sale of the Notes (the “Transaction Expenses”).  The Transaction Expenses shall be added to the principal balance of the First Note such that the “Initial Net Purchase Price” shall be $50,000.00, computed as follows: $72,500.00 less the OID less the Transaction Expenses.

d.           Method of Payment.  Payment of the Initial Net Purchase Price shall be made to the Company in immediately available funds of the United States as provided in the Wire Instructions.

3.           ADDITIONAL NOTES.

a.           Additional Purchases.

(i)           Subject to the terms and conditions of this Agreement and the other Transaction Documents, and so long as (1) no Event of Default (as defined in the Notes) has occurred under any of the Notes, (2) each of the representations and warranties of the Company herein remain true and correct as of the date of purchase of each Additional Note), and (3) the Company has complied with all of its obligations and covenants herein and in the Notes as of such date, the undersigned Buyer hereby agrees to loan to the Company an additional $50,000.00 (each an “Additional Net Purchase Price”) on or about each two-week anniversary of the issuance of the First Note beginning on the date that is two weeks from the Initial Closing Date and ending on August 15, 2011, for a total aggregate Additional Net purchase Price of $150,000.00.

  

3

  

 

(ii) The obligation to repay such additional loans from the Buyer shall be evidenced by the Company’s issuance of three additional corresponding Secured Convertible Promissory Notes to the Buyer each in the principal amount of $65,000.00 substantially in the form attached hereto as Annex IX (the “Second Note,” “Third Note,”  and “Fourth Note,” and collectively, the “Additional Notes”).  The First Note, together with each of the Additional Notes shall be referred to herein each as a “Note” and collectively as the “Notes.”  Each of the Additional Notes shall provide for a Conversion Price (as defined therein), which price may be adjusted from time to as provided in such Additional Note and shall be secured by a security agreement substantially in the form of the Security Agreement and guarantied by Helix Sub pursuant to a guaranty substantially in the form of the Guaranty, which Guaranty will be secured by all of Helix Sub’s assets pursuant to the Helix Sub Security Agreement.

b.           Subsequent Closings; Delivery of Certain Transaction Documents.  The Company shall execute and deliver each Additional Note together with its execution and delivery of this Agreement, which Additional Notes shall be held by the Buyer, but shall not become effective or valid until such time that the Buyer delivers the Additional Net Purchase Price applicable to each Additional Note. The delivery of the Additional Net Purchase Price for each of the Additional Notes shall take place at three subsequent closings to be held at the offices of the Buyer pursuant to Section 8 hereof (each a “Subsequent Closing”), with the Second Note becoming effective, then the Third Note, then the Fourth Note, at each such Subsequent Closing.  At each Subsequent Closing the Company will acknowledge receipt of the applicable Additional Net Purchase Price and the applicable Additional Note shall be deemed effective, valid and outstanding as of each such date.  The Initial Closing, together with each of the Subsequent Closings shall be referred to herein individually as a “Closing,” and collectively as the “Closings.”

c.           Additional Net Purchase Price.  Each of the Additional Notes carries an original issue discount of $15,000.00.  Accordingly, each “Additional Net Purchase Price” shall be $50,000.00, computed as follows: $65,000.00 less such original issue discount.

d.           Method of Payment.  Payment of the applicable Additional Net Purchase Price shall be made to the Company in immediately available funds of the United States as provided in the Wire Instructions.

4.           BUYER REPRESENTATIONS AND WARRANTIES.  The Buyer represents and warrants to the Company, as of the date hereof and as of the Initial Closing Date and the date of each Subsequent Closing, as follows:

a.           Binding Obligation.  The Transaction Documents to which the Buyer is a party, and the transactions contemplated hereby and thereby, have been duly and validly authorized by the Buyer.  This Agreement has been executed and delivered by the Buyer, and this Agreement is, and each of the other Transaction Documents to which the Buyer is a party, when executed and delivered by the Buyer (if necessary), will be valid and binding obligations of the Buyer enforceable in accordance with their respective terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors’ rights generally.

b.           Access to Information.  The Buyer acknowledges that the Company has offered the Buyer access to the corporate records and accounts of the Company and to all information in its possession relating to the Company, has made its officers and representatives available for interview by the Buyer, and has furnished the buyer with all documents and other information required for the Buyer to make an informed decision with respect to the purchase of the Notes.

  

4

  

c.           Accredited Investor Status.  The Buyer is an “accredited investor” as that term is defined in Rule 501 of the General Rules and Regulations under the 1933 Act.

5.           COMPANY REPRESENTATIONS AND WARRANTIES.   The Company represents and warrants to the Buyer as of the date hereof and as of the Initial Closing Date and the date of each Subsequent Closing that:

a.           Rights of Others Affecting the Transactions.  There are no preemptive rights of any stockholder of the Company, as such, to acquire the Notes or the Shares.  No other party has a currently exercisable right of first refusal which would be applicable to any or all of the transactions contemplated by the Transaction Documents.

b.           Status.  The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Incorporation and has the requisite corporate power to own its properties and to carry on its business as now being conducted.  The Company is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have or result in a Material Adverse Effect.  The Company has registered its stock under Section 12(g) of the Securities and Exchange Act of 1934, as amended (the “1934 Act”), and is obligated to file reports pursuant to Section 13 or Section 15(d) of the 1934 Act.   The Company has taken no action designed to terminate, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the 1934 Act, nor has the Company received any notification that the SEC is contemplating terminating such registration.  The Common Stock is quoted on the Principal Trading Market.  The Company has received no notice, either oral or written, with respect to the continued eligibility of the Common Stock for quotation on the Principal Trading Market, and the Company has maintained all requirements on its part for the continuation of such quotation. The Company has not, in the twelve (12) months preceding the date hereof, received notice from the Principal Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Principal Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.

c.           Authorized Shares.

 

(i)           Other than as set forth in the Company’s SEC Documents, there are no outstanding securities which are convertible into or exchangeable for shares of Common Stock, whether such conversion is currently exercisable or exercisable only upon some future date or the occurrence of some event in the future.

(ii)          All issued and outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and non-assessable.  After considering all other commitments that may require the issuance of Common Stock, the Company has sufficient authorized and unissued shares of Common Stock as may be necessary to effect the issuance of the Shares on the Initial Closing Date and the date of each Subsequent Closing, were all of the Notes fully converted on that date.

(iii)         The Shares have been duly authorized by all necessary corporate action on the part of the Company, and, when issued on conversion of, or in payment of interest on any of the Notes in accordance with their respective terms, will have been duly and validly issued, fully paid and non-assessable, free from all taxes, liens, claims, pledges, mortgages, restrictions, obligations, security interests and encumbrances of any kind, nature and description, and will not subject the Holder thereof to personal liability by reason of being such Holder.

  

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d.           Transaction Documents and Stock.  This Agreement and each of the other Transaction Documents, and the transactions contemplated hereby and thereby, have been duly and validly authorized by the Company.  This Agreement has been duly executed and delivered by the Company and this Agreement is, and the First Note, and each of the other Transaction Documents (including without limitation all of the other Notes), when executed and delivered by the Company (if necessary), will be, valid and binding obligations of the Company enforceable in accordance with their respective terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium, and other similar laws affecting the enforcement of creditors’ rights generally.

e.           Non-contravention.  The execution and delivery of this Agreement and each of the other Transaction Documents by the Company, the issuance of the Securities in accordance with the terms hereof, and the consummation by the Company of the other transactions contemplated by this Agreement, the Notes, and the other Transaction Documents do not and will not conflict with or result in a breach by the Company of any of the terms or provisions of, or constitute a default under (i) the Certificate of Incorporation or by-laws of the Company, each as currently in effect, (ii) any indenture, mortgage, deed of trust, or other material agreement or instrument to which the Company is a party or by which it or any of its properties or assets are bound, including any listing agreement for the Common Stock except as herein set forth, or (iii) to its knowledge, any existing applicable law, rule, or regulation or any applicable decree, judgment, or order of any court, United States federal or state regulatory body, administrative agency, or other governmental body having jurisdiction over the Company or any of its properties or assets, except such conflict, breach or default which would not have or result in a Material Adverse Effect.

f.           Approvals.  No authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market or the stockholders of the Company is required to be obtained by the Company for the issuance and sale of the Securities to the Buyer as contemplated by this Agreement, except such authorizations, approvals and consents that have been obtained.

g.           Filings; Financial Statements.  None of the Company’s SEC Documents contained, at the time they were filed, any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading.  The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company with the SEC under the 1934 Act on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Document prior to the expiration of any such extension.  As of their respective dates, the financial statements of the Company included in the Company’s SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto.  Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).

  

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h.           Absence of Certain Changes.  Since the Last Audited Date, there has been no Material Adverse Effect, except as disclosed in the Company’s SEC Documents. Since the Last Audited Date, except as provided in the Company’s SEC Documents, the Company has not (i) incurred or become subject to any material liabilities (absolute or contingent) except liabilities incurred in the ordinary course of business consistent with past practices; (ii) discharged or satisfied any material lien or encumbrance or paid any material obligation or liability (absolute or contingent), other than current liabilities paid in the ordinary course of business consistent with past practices; (iii) declared or made any payment or distribution of cash or other property to stockholders with respect to its capital stock, or purchased or redeemed, or made any agreements to purchase or redeem, any shares of its capital stock; (iv) sold, assigned or transferred any other material tangible assets, or canceled any material debts owed to the Company by any third party or material claims of the Company against any third party, except in the ordinary course of business consistent with past practices; (v) waived any rights of material value, whether or not in the ordinary course of business, or suffered the loss of any material amount of existing business; (vi) made any increases in employee compensation, except in the ordinary course of business consistent with past practices; or (vii) experienced any material problems with labor or management in connection with the terms and conditions of their employment.

i.           Full Disclosure.  There is no fact known to the Company or that the Company should know after having made all reasonable inquiries (other than conditions known to the public generally or as disclosed in the Company’s SEC Documents) that has not been disclosed in writing to the Buyer that would reasonably be expected to have or result in a Material Adverse Effect.

j.           Absence of Litigation.  There is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of the Company, threatened against or affecting the Company before or by any governmental authority or non-governmental department, commission, board, bureau, agency or instrumentality or any other person, wherein an unfavorable decision, ruling or finding would have a Material Adverse Effect or which would adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, any of the Transaction Documents, except as disclosed in the Company’s SEC Documents.  The Company is not aware of any valid basis for any such claim that (either individually or in the aggregate with all other such events and circumstances) could reasonably be expected to have a Material Adverse Effect. There are no outstanding or unsatisfied judgments, orders, decrees, writs, injunctions or stipulations to which the Company is a party or by which it or any of its properties is bound, that involve the transaction contemplated herein or that, alone or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

k.           Absence of Events of Default. Neither the Company nor any of its Subsidiaries is in violation of or in default with respect to (i) its certificate of incorporation or Bylaws or other organizational documents, each as currently in effect, or any material judgment, order, writ, decree, statute, rule or regulation applicable to such entity; or (ii) any material mortgage, indenture, agreement, instrument or contract to which such entity is a party or by which it or any of its properties or assets are bound (nor is there any waiver in effect which, if not in effect, would result in such a violation or default), except such breach or default which would not have or result in a Material Adverse Effect.

l.           Absence of Certain Company Control Person Actions or Events.  Other than as set forth in the Company’s SEC Documents, none of the following has occurred during the past five (5) years with respect to a Company Control Person:

(i)           A petition under the federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for, the business or property of such Company Control Person, or any partnership in which he or she was a general partner at or within two years before the time of such filing, or any corporation or business association of which he or she was an executive officer at or within two years before the time of such filing;

(ii)          Such Company Control Person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

  

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(iii)           Such Company Control Person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him or her from, or otherwise limiting, the following activities:

(1)  acting, as an investment advisor, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, any other Person regulated by the Commodity Futures Trading Commission (“CFTC”) or engaging in or continuing any conduct or practice in connection with such activity;

(2)    engaging in any type of business practice; or

(3)    engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;

(iv)           Such Company Control Person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such Company Control Person to engage in any activity described in subsection (3) immediately above, or to be associated with Persons engaged in any such activity; or

(v)           Such Company Control Person was found by a court of competent jurisdiction in a civil action or by the CFTC or SEC to have violated any federal or state securities law, and the judgment in such civil action or finding by the CFTC or SEC has not been subsequently reversed, suspended, or vacated.

m.           No Undisclosed Liabilities or Events.  The Company has no liabilities or obligations other than those disclosed in the Transaction Documents or the Company’s SEC Documents or those incurred in the ordinary course of the Company’s business since the Last Audited Date, or which individually or in the aggregate, do not or would not have a Material Adverse Effect.  No event or circumstance has occurred or exists with respect to the Company or its properties, business, operations, condition (financial or otherwise), or results of operations, which, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed.  There are no proposals currently under consideration or currently anticipated to be under consideration by the Board of Directors or the executive officers of the Company which proposal would (i) change the Certificate of Incorporation or by-laws of the Company, each as currently in effect, with or without stockholder approval, which change would reduce or otherwise adversely affect the rights and powers of the stockholders of the Common Stock or (ii) materially or substantially change the business, assets or capital of the Company, including its interests in Subsidiaries.

n.           No Integrated Offering.  Neither the Company nor any of its Affiliates nor any Person acting on its or their behalf has, directly or indirectly, made any offer or sales of any security or solicited any offers to buy any security under circumstances that would eliminate the availability of the exemption from registration under Regulation D in connection with the offer and sale of the Securities as contemplated hereby.

  

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o.           Dilution.  Each of the Company and its executive officers and directors is aware that the number of shares issuable on conversion of the Notes or pursuant to the other terms of the Transaction Documents, may have a dilutive effect on the ownership interests of the other stockholders (and Persons having the right to become stockholders) of the Company.  The Company specifically acknowledges that its obligations to issue the Conversion Shares upon conversion of the Notes are binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other stockholders of the Company, and the Company will honor such obligations, including honoring every Notice of Conversion (as contemplated by the Notes), unless the Company is subject to an injunction (which injunction was not sought by the Company) prohibiting the Company from doing so.

p.           Fees to Brokers, Placement Agents and Others. The Company has taken no action which would give rise to any claim by any Person for brokerage commission, placement agent or finder’s fees or similar payments by Buyer relating to this Agreement or the transactions contemplated hereby.  Except for such fees arising as a result of any agreement or arrangement entered into by the Buyer without the knowledge of the Company (a “Buyer’s Fee”), Buyer shall have no obligation with respect to such fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this subsection that may be due in connection with the transactions contemplated hereby.  The Company shall indemnify and hold harmless each of Buyer, its employees, officers, directors, agents, and partners, and their respective Affiliates, from and against all claims, losses, damages, costs (including the costs of preparation and attorney’s fees) and expenses suffered in respect of any such claimed or existing fees (other than a Buyer’s Fee).

q.           Disclosure.  All information relating to or concerning the Company set forth in the Transaction Documents or in the Company’s public filings with the SEC or otherwise provided by or on behalf of the Company to the Buyer, is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.  No event or circumstance has occurred or exists with respect to the Company or its business, properties, prospects, operations or financial conditions, which under applicable law, rule or regulation, requires public disclosure or announcement by the Company.

r.           Confirmation.  The Company agrees that, if, to the knowledge of the Company, any events occur or circumstances exist prior to the payment of the Initial Net Purchase Price or any Additional Net Purchase Price to the Company which would make any of the Company’s representations or warranties set forth herein materially untrue or materially inaccurate as of such date, the Company shall immediately notify the Buyer in writing prior to such date of such fact, specifying which representation, warranty or covenant is affected and the reasons therefor.

 

s.           Title. The Company and its Subsidiaries, if applicable, own and have good and marketable title in fee simple absolute to, or a valid leasehold interest in, all their respective real properties and good title to their other respective assets and properties, subject to no liens except as have been disclosed to the Buyer.

 

t.           Intellectual Property.

 

(i) Ownership.  The Company owns or possesses or can obtain on commercially reasonable terms sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses (software or otherwise), information, processes and similar proprietary rights (“Intellectual Property”) necessary to the business of the Company as presently conducted, the lack of which could reasonably be expected to have a Material Adverse Effect.  Except for agreements with its own employees or consultants, standard end-user license agreements, support/maintenance agreements and agreements entered in the ordinary course of the Company’s business, all of which have been made available for review by the Buyer, there are no outstanding options, licenses or agreements relating to the Intellectual Property, and the Company is not bound by or a party to any options, licenses or agreements with respect to the Intellectual Property of any other person or entity.  The Company has not received any written communication alleging that the Company has violated or, by conducting its business as currently conducted, would violate any of the Intellectual Property of any other person or entity, nor is the Company aware of any basis therefor.  The Company is not obligated to make any payments by way of royalties, fees or otherwise to any owner or licensor of or claimant to any Intellectual Property with respect to the use thereof in connection with the present conduct of its business other than in the ordinary course of its business.  There are no agreements, understandings, instruments, contracts, judgments, orders or decrees to which the Company is a party or by which it is bound which involve indemnification by the Company with respect to infringements of Intellectual Property, other than in the ordinary course of its business.

 

  

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(ii)  No Breach by Employees.  The Company is not aware that any of its employees is obligated under any contract or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would materially interfere with the use of his or her efforts to promote the interests of the Company or that would conflict with the Company’s business as presently conducted.  Neither the execution nor delivery of this Agreement, nor the carrying on of the Company’s business by the employees of the Company, nor the conduct of the Company’s business as presently conducted, will, to the Company’s knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any such employee is now obligated.  The Company does not believe it is or will be necessary to use any inventions of any of its employees made prior to their employment by the Company of which it is aware.

6.           CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

a.           Covenants and Acknowledgements of Buyer.

(i)           Transfer Restrictions.  The Buyer acknowledges that (1) the Securities may not be transferred until (A) the Registration Statement is filed and deemed effective, or (B) the Buyer shall have delivered to the Company an opinion of counsel, reasonably satisfactory in form, scope and substance to the Company, to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; and (2) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any resale of such Securities under circumstances in which the seller, or the Person through whom the sale is made, may be deemed to be an underwriter, as that term is used in the 1933 Act, may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder.

 

(ii)        Restrictive Legend.  The Buyer acknowledges and agrees that, until such time as the relevant Shares have been registered under the 1933 Act pursuant to Section 10(b)(iii) hereof, and may be sold in accordance with the effective Registration Statement, or until such Shares can otherwise be sold without restriction, whichever is earlier, the certificates and other instruments representing any of the Securities shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of any such Securities):

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

(iii)        Shorting.  So long as any amounts remain owing under any of the Notes, neither the Buyer nor any of its Affiliates shall engage in any short sales of, or sell put options or similar instruments with respect to, the Common Stock.  Notwithstanding the above, if the Buyer elects to receive shares of Common Stock in payment of the Company’s obligations under the Notes, the Buyer may sell shares of Common Stock against delivery of the Conversion Shares, pursuant to Section 7.

  

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(iv)         Confession of Judgment.  The Buyer agrees it will not file a Confession of Judgment unless and until an Event of Default or a Trigger Event (as defined in the Notes) under a Note has occurred; provided, however, that upon such an Event of Default or Trigger Event, the Buyer shall be entitled to immediately file such Confession in an ex parte fashion.

b.           Covenants, Acknowledgements and Agreements of the Company.  As a condition to the Buyer’s obligation to purchase the Securities contemplated by this Agreement, and as a material inducement for the Buyer to enter into this Agreement and the other Transaction Documents, until all of the Company’s obligations hereunder and all of the Notes are paid and performed in full, or within the timeframes otherwise specifically set forth below, the Company shall comply with the following covenants:

 

(i)           Filings.  From the date hereof until the date that is six (6) months after all the Conversion Shares either have been sold by the Buyer, or may permanently be sold by the Buyer without any restrictions pursuant to Rule 144, (the “Registration Period”), the Company shall  timely make all filings required to be made by it under the 1933 Act, the 1934 Act, Rule 144 or any United States state securities laws and regulations thereof applicable to the Company or by the rules and regulations of the Principal Trading Market, and such reports shall conform to the requirement of the applicable laws, regulations and government agencies, and, unless such filing is publicly available on the SEC’s EDGAR system (via the SEC’s web site at no additional charge), the Company shall provide, upon written request, a copy thereof to the Buyer promptly after such filing.  The Company shall furnish to the Buyer, upon written request, so long as the Buyer owns any Notes or Common Stock, promptly upon request, (1) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (2) 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 (3) such other information as may be reasonably requested to permit the Buyer to sell such securities pursuant to Rule 144 without registration.

(ii)          Reporting Status.  So long as the Buyer beneficially owns any of the Notes and for at least twenty (20) Trading Days thereafter, the Company shall file all reports required to be filed with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, shall take all reasonable action under its control to ensure that adequate current public information with respect to the Company, as required in accordance with Rule 144(c)(2) of the 1933 Act, is publicly available, and shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would permit such termination.

(iii)         Listing.  The Common Stock shall be listed or quoted for trading on any of (1) NYSE Amex, (2) the New York Stock Exchange, (3) the Nasdaq Global Market, (4) the Nasdaq Capital Market, (5) the OTC Bulletin Board, or (6) the OTCQX or OTCQB. The Company shall promptly secure the listing of all of the Conversion Shares upon each national securities exchange and automated quotation system, if any, upon which the Common Stock is then listed (subject to official notice of issuance) and shall maintain such listing of all securities from time to time issuable under the terms of the Transaction Documents.  The Company will comply in all material respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Principal Trading Market and/or the Financial Industry Regulatory Authority, Inc. (“FINRA”) or any successor thereto, as the case may be, applicable to it at least through the date which is sixty (60) days after the later of the date on which (1) all of the Notes have been converted, or (2) all of the Notes have been paid in full.

(iv)         Use of Proceeds.  The Company will use the net proceeds received hereunder for operations and general corporate purposes.

  

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(v)          Publicity, Filings, Releases, Etc.  Each of the parties agrees that it will not disseminate any information relating to the Transaction Documents or the transactions contemplated thereby, including issuing any press releases, holding any press conferences or other forums, or filing any reports (collectively, “Publicity”), without giving the other party reasonable advance notice and an opportunity to comment on the contents thereof.  Neither party will include in any such Publicity any statement or statements or other material to which the other party reasonably objects, unless in the reasonable opinion of counsel to the party proposing such statement, such statement is legally required to be included.  In furtherance of the foregoing, the Company will provide to the Buyer’s Counsel drafts of the applicable text of the first filing of a current report on Form 8-K or a Quarterly or Annual Report on Form 10-Q or 10-K (or equivalent SB forms), as the case may be, intended to be made with the SEC which refers to the Transaction Documents or the transactions contemplated thereby as soon as practicable (but at least two (2) Trading Days before such filing will be made) and will not include in such filing (or any other filing filed before then) any statement or statements or other material to which the other party reasonably objects, unless in the reasonable opinion of counsel to the party proposing such statement, such statement is legally required to be included.  Notwithstanding the foregoing, each of the parties hereby consents to the inclusion of the text of the Transaction Documents in filings made with the SEC (but any descriptive text accompanying or part of such filing shall be subject to the other provisions of this subsection).  Notwithstanding, but subject to, the foregoing provisions of this  provision, the Company will, within four business days after the Initial Closing Date, promptly issue a press release and file a current report on Form 8-K or, if appropriate, a quarterly or annual report on the appropriate form, describing the terms of the transactions contemplated by the Transaction Documents in the form required by the 1934 Act and approved by Buyer and attaching the material Transaction Documents as exhibits to such filing.

(vi)         FINRA Rule 5110. In the event the Corporate Financing Rule 5110 (“FINRA Rule 5110”) of FINRA is or becomes applicable to the transactions contemplated by the Transaction Documents or to the sale by a Holder of any of the Securities, then the Company shall, to the extent required by such rule, timely make any filings and cooperate with any broker or selling stockholder in respect of any consents, authorizations or approvals that may be necessary for FINRA to timely and expeditiously permit the Holder to sell the Securities.

(vi)         Keeping of Records and Books of Account. The Company shall keep and cause each Subsidiary, if any, to keep adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied, reflecting all financial transactions of the Company and such Subsidiaries, and in which, for each fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business shall be made.

(vii)        Corporate Existence.  The Company shall (a) do all things necessary to preserve and keep in full force and effect its corporate existence, including, without limitation, all licenses or similar qualifications required by it to engage in its business in all jurisdictions in which it is as of the date hereof so engaged, (b) continue to engage in business of the same general type as conducted as of the date hereof, and (c) continue to conduct its business substantially as now conducted or as otherwise permitted hereunder.

(viii)       Taxes.  The Company shall pay and discharge promptly when due all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property before the same shall become delinquent or in default, which, if unpaid, might reasonably be expected to give rise to liens or charges upon such properties or any part thereof, unless, in each case, the validity or amount thereof is being contested in good faith by appropriate proceedings and the Company has maintained adequate reserves with respect thereto in accordance with GAAP.

  

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(ix)         Compliance. The Company shall comply in all material respects with all federal, state and local laws and regulations, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations and requirements applicable to it (collectively, “Requirements”) of all governmental bodies, departments, commissions, boards, companies or associations insuring the premises, courts, authorities, officials or officers which are applicable to the Company, its business, operations, or any of its properties, except where the failure to so comply would not have a Material Adverse Effect on the Company or any of its properties; provided, however, that nothing provided herein shall prevent the Company from contesting in good faith the validity or the application of any Requirements.

(x)          Litigation.  From and after the date hereof and until all of the Company’s obligations hereunder and all of the Notes are paid and performed in full, the Company shall notify the Buyer in writing, promptly upon learning thereof, of any litigation or administrative proceeding commenced or threatened against the Company involving a claim in excess of $100,000.

(xi)         Performance of Obligations.  The Company shall promptly and in a timely fashion perform and honor all demands, notices, requests and obligations that exist or may arise under the Transaction Documents.

 

 (xii)        Authorized Shares.  The Company shall take all action reasonably necessary to at all times have authorized, and reserved for the purpose of issuance, such number of shares of Common Stock as shall be necessary to effect the full conversion of all of the Notes multiplied by 1.5 (the “Share Reserve”). If at any time the Share Reserve is insufficient to effect the full conversion of the Notes, the Company shall immediately increase the Share Reserve accordingly. If the Company does not have sufficient authorized and unissued shares of Common Stock available to increase the Share Reserve, the Company shall call and hold a special meeting of the stockholders within thirty days of such occurrence, for the sole purpose of increasing the number of shares authorized. The Company’s management shall recommend to the Company’s stockholders to vote in favor of increasing the number of authorized shares of Common Stock.  Management shall also vote all of its shares in favor of increasing the number of authorized shares of Common Stock.

(xiii)       Investor Information.  Upon written request, the Company shall promptly furnish the Buyer with the names and other identifying information of each party with which the Company has completed a financing transaction including, without limitation, any person or entity to whom the Company has issued or sold any debt, equity, option, warrant or other security of any kind during the five year period immediately preceding the request.

 

(xiv)      Certain Negative Covenants of the Company.  From and after the date hereof and until all of the Company’s obligations hereunder and all of the Notes are paid and performed in full, the Company shall not:

 

1.           Incur any new indebtedness for borrowed money without the prior written consent of the Buyer; provided, however, the Company may incur obligations under trade payables in the ordinary course of business consistent with past practice without the consent of the Buyer; or

2.           Grant or permit any security interest (or other lien or other encumbrance) in or on any of its assets except as incurred in the ordinary course of business; or

3.           Enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate of the Company, or amend or modify any agreement related to any of the foregoing, except on terms that are no less favorable, in any material respect, than those obtainable from any person or entity who is not an Affiliate of the Company; or

 

  

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4.           Enter into any financing transaction (including issuing promissory notes or selling equity, warrants, convertible notes or other instruments convertible into or exchangeable for Common Stock, equity or equity-like instruments to any person or entity) without giving the Buyer at least ten (10) days notice of such prospective financing transaction (the “Transaction Notice”) and the pre-emptive right to provide such financing on substantially the same terms upon notice thereof to the Company within five (5) days of receiving the Transaction Notice; or

5.           Settle any debt for Common Stock with any other party in a transaction which may rely on, be based upon or structured in accordance with Sections 3(a)(9) or 3(a)(10) of the 1933 Act; or

6.           Arrange or facilitate the sale or exchange of any existing securities of the Company, including without limitation warrants, options, convertible debt instruments, or other securities convertible into or exchangeable for shares of Common Stock or other equity of the Company (“Existing Securities”), held by any party other than the Buyer. The Company further covenants not to enter into any debt settlement agreement or similar agreement or arrangement with any party other than the Buyer to settle or exchange Existing Securities for share of Common Stock or other equity of the Company.

7.           TRANSFER AGENT INSTRUCTIONS.

a.           The Company warrants that, with respect to the Securities, other than the stop transfer instructions to give effect to Section 6(a)(i) hereof, it will give the Transfer Agent no instructions inconsistent with instructions to issue Common Stock from time to time upon conversion of the Notes in such amounts as specified from time to time by the Company to the Transfer Agent, bearing the restrictive legend specified in Section 6(a)(ii) of this Agreement prior to registration of the Shares under the 1933 Act, registered in the name of the Buyer or its nominee and in such denominations to be specified by the Holder in connection therewith.  Except as so provided, the Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the other Transaction Documents.  Nothing in this Section shall affect in any way the Buyer’s obligations and agreement to comply with all applicable securities laws upon resale of the Securities.  If the Buyer provides the Company with an opinion of counsel reasonably satisfactory to the Company that registration of a resale by the Buyer of any of the Securities in accordance with clause (1)(B) of Section 6(a)(i) of this Agreement is not required under the 1933 Act or upon request from a Holder while an applicable Registration Statement is effective, the Company shall (except as provided in clause (2) of Section 6(a)(i) of this Agreement) permit the transfer of the Securities and, in the case of the Conversion Shares, as may be applicable, use its best efforts to cause the Transfer Agent to promptly electronically transmit to the Holder via the Depository Trust Company (“DTC”) Fast Automated Securities Transfer program such Conversion Shares.  The Company specifically represents that, as of the date hereof and as of the Initial Closing Date and the date of each Subsequent Closing, (i) the Company’s Transfer Agent is (a) participating in the DTC program, (b) is DWAC eligible, and (ii) the Company is not aware of any plans of the Transfer Agent to terminate such DTC participation or DWAC eligibility.  While any Holder holds Securities, the Company shall at all times maintain a transfer agent which participates in the DTC program and is DWAC eligible, and the Company will not appoint any transfer agent which does not both participate in the DTC program and maintain DWAC eligibility.  Nevertheless, in the event the Transfer Agent is not participating in the DTC/DWAC program or the Conversion Shares are not otherwise transferable via the DTC/DWAC program, then the Company shall instruct the Transfer Agent to issue one or more certificates for Common Stock without legend in such name and in such denominations as specified by the Buyer.  In the event the Company’s transfer agent is not DWAC eligible on any Conversion Date, and consequently the Company issues Conversion Shares pursuant to the Notice of Conversion in certificated rather than electronic form, then in such event if the closing bid price of the Common Stock on the Principal Trading Market is lower on the date of delivery of the certificates to the Buyer than on the Conversion Date, such difference in the closing bid prices, multiplied by the number of Conversion Shares, shall be added to the principal balance of the applicable Note.

  

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b.

(i)           The Company understands that a delay in the delivery of Shares, whether on conversion of a Note and/or in payment of accrued interest beyond the relevant Delivery Date (as defined in the applicable Note) could result in economic loss to the Holder.  As compensation to the Holder for such loss, in addition to any other available remedies at law or equity, the Company agrees to pay late payments to the Holder for late delivery of the Shares in accordance with the following schedule (where “No. Business Days Late” is defined as the number of Trading Days beyond two (2) Trading Days after the Delivery Date):

 

   Late Payment for Each $10,000 of

         No. Business Days Late     Principal or Interest Being Converted

1                                                      $100

2                                                      $200

3                                                      $300

4                                                      $400

5                                                      $500

6                                                      $600

7                                                      $700

8                                                      $800

9                                                      $900

10                                                    $1,000

>10                                                 $1,000 + $200 for each Business Day Late beyond 10 days

The amount of any payments incurred under this Section 7(b) shall be automatically added to the principal balance of the applicable Note and the Company shall pay any such payments in immediately available funds upon demand. Nothing herein shall limit the Holder’s right to pursue actual damages for the Company’s failure to issue and deliver the Shares to the Holder within a reasonable time.  Furthermore, in addition to any other remedies which may be available to a Holder, in the event that the Company fails for any reason to effect delivery of such Shares within two (2) Trading Days after the Delivery Date, the Holder will be entitled to revoke the relevant Notice of Conversion by delivering a notice to such effect to the Company prior to the Holder’s receipt of the relevant Shares, whereupon the Company and the Holder shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion or Notice of Exercise, as the case may be; provided, however, that any payments contemplated by this Section 7(b) which have accrued through the date of such revocation notice shall remain due and owing to the Holder notwithstanding such revocation.

(ii)           If, by the tenth Trading Day after the  relevant Delivery Date, the Company fails for any reason to deliver the Shares, but at any time after the Delivery Date, the Holder purchases, in an arm’s-length open market transaction or otherwise, shares of Common Stock (the “Covering Shares”) in order to make delivery in satisfaction of a sale of Common Stock by the Holder (the “Sold Shares”), which delivery such Holder anticipated to make using the shares to be issued upon such conversion or exercise (a “Buy-In”), the Holder shall have the right to require the Company to pay to the Holder, in addition to and not in lieu of  the amounts contemplated in other provisions of the Transaction Documents, including, but not limited to, the provisions of the immediately preceding Section 7(b)(i)), the Buy-In Adjustment Amount (as defined hereafter).  The “Buy-In Adjustment Amount” is the amount equal to the number of Sold Shares multiplied by the excess, if any, of (1) the Holder’s total purchase price per share (including brokerage commissions, if any) for the Covering Shares over (2) the net proceeds per share (after brokerage commissions, if any) received by the Holder from the sale of the Sold Shares.  The Company shall pay the Buy-In Adjustment Amount to the Holder in immediately available funds immediately upon demand by the Holder.  By way of illustration and not in limitation of the foregoing, if the Holder purchases shares of Common Stock having a total purchase price (including brokerage commissions) of $11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required to pay to the Holder will be $1,000.

  

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c.           The Company shall assume any fees or charges of the Transfer Agent or Company Counsel regarding (i) the removal of a legend or stop transfer instructions with respect to the Securities, and (ii) the issuance of certificates or DTC registration to or in the name of the Holder or the Holder’s designee or to a transferee as contemplated by an effective Registration Statement.  Notwithstanding the foregoing, it shall be the Holder’s responsibility to obtain all needed formal requirements (specifically: medallion guarantee and prospectus delivery compliance) in connection with any electronic issuance of shares of Common Stock.

d.           The Holder of a Note shall be entitled to exercise its conversion privilege with respect to such Note, as the case may be, notwithstanding the commencement of any case under 11 U.S.C. §101 et seq. (the “Bankruptcy Code”).  In the event the Company is a debtor under the Bankruptcy Code, the Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.S.C. §362 in respect of such Holder’s exercise privilege.  The Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.S.C. §362 in respect of the conversion of such Note. The Company agrees, without cost or expense to such Holder, to take or to consent to any and all action necessary to effectuate relief under 11 U.S.C. §362.

8.           CLOSING DATES.

a.           The Initial Closing Date shall occur on the date which is the first Trading Day after each of the conditions contemplated by Sections 9 and 10 hereof shall have either been satisfied or been waived by the party in whose favor such conditions run.  Closing of the purchase and sale of the First Note, which the parties anticipate shall occur concurrently with the execution of this Agreement, shall occur at the offices of the Buyer and shall take place no later than 3:00 P.M., Eastern Time, or on such day or such other time as is mutually agreed upon by the Company and the Buyer.

b.           Each of the seven Subsequent Closings shall occur approximately every fifteen days, on the date which is the first Trading Day after the fifteen-day anniversary of the payment of the most recent Additional Net Purchase Price hereunder (each a “Payment Date”) and after each of the conditions contemplated by Sections 11 and 12 hereof shall have either been satisfied or been waived by the party in whose favor such conditions run, but in any event shall not be later than fifteen (15) days after the applicable Payment Date.  Closing of the purchase and sale of each of the Additional Notes pursuant to Section 3 above shall occur, if at all, as described above at the offices of the Buyer and shall take place no later than 3:00 P.M., Eastern Time, or on such day or such other time as is mutually agreed upon by the Company and the Buyer.

9.           CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL AT THE INITIAL CLOSING.  The Buyer understands that the Company’s obligation to sell the First Note to the Buyer pursuant to this Agreement on the Initial Closing Date is conditioned upon and subject to the fulfillment of all of the following conditions, any of which may be waived in whole or in part by the Company:

a.           The execution and delivery of this Agreement and, as applicable, the other Transaction Documents by the Buyer on or before such Initial Closing Date;

  

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b.           Delivery by the Buyer by the Initial Closing Date of good funds as payment in full of an amount equal to the Initial Net Purchase Price in accordance with this Agreement;

c.           The accuracy on the Initial Closing Date of the representations and warranties of the Buyer contained in this Agreement, each as if made on such date, and the performance by the Buyer on or before such date of all covenants and agreements of the Buyer required to be performed on or before such date; and

d.           There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained.

10.           CONDITIONS TO THE BUYER’S OBLIGATION TO PURCHASE AT THE INITIAL CLOSING.  The Buyer’s obligation to purchase the First Note is conditioned upon and subject to the fulfillment, on or prior to the Initial Closing Date, of all of the following conditions, any of which may be waived in whole or in part by the Buyer:

a.           The execution and delivery of this Agreement and, as applicable, the other Transaction Documents by the Company and all other necessary parties (including without limitation execution of a Guaranty by Helix Sub) on or before the Initial Closing Date;

b.           Without limiting the generality of the requirement in the immediately preceding subsection, the delivery by the Company of:

(i)           the First Note and each Additional Note, duly executed by the Company; and

(ii)          the Transfer Agent Letter, duly executed by the Company and acknowledged by the Transfer Agent.

c.           On the Initial Closing Date, each of the Transaction Documents executed by the Company on or before such date shall be in full force and effect and the Company shall not be in default thereunder;

d.           The accuracy in all material respects on the Initial Closing Date of the representations and warranties of the Company contained in this Agreement and the other Transaction Documents, each as if made on such date, and the performance by the Company on or before such date of all covenants and agreements of the Company required to be performed on or before such date;

e.           There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained;

f.           From and after the date hereof to and including the Initial Closing Date, each of the following conditions will remain in effect: (i) the trading of the Common Stock shall not have been suspended by the SEC or on the Principal Trading Market; (ii) trading in securities generally on the Principal Trading Market shall not have been suspended or limited; (iii) no minimum prices shall been established for securities traded on the Principal Trading Market; and (iv) there shall not have occurred any Material Adverse Effect;

g.           Except for any notices required or permitted to be filed after the Initial Closing Date with certain federal and state securities commissions, the Company shall have obtained (i) all governmental approvals required in connection with the lawful sale and issuance of all of the Securities, and (ii) all third party approvals required to be obtained by the Company in connection with the execution and delivery of the Transaction Documents by the Company or the performance of the Company’s obligations thereunder; and

  

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i.           All corporate and other proceedings in connection with the transactions contemplated at the Initial Closing and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to the Buyer.

11.           CONDITIONS TO THE ADDITIONAL NOTES BECOMING EFFECTIVE.  The Buyer understands that the effectiveness of each of the Additional Notes pursuant to this Agreement on the date of each Subsequent Closing is conditioned upon and subject to delivery by the Buyer by such Subsequent Closing date of good funds as payment in full of an amount equal to the applicable Additional Net Purchase Price, in accordance with this Agreement, which condition may be waived in whole or in part by the Company.

12.           CONDITIONS TO THE BUYER’S OBLIGATION TO DELIVER THE ADDITIONAL NET PURCHASE PRICE AT THE SUBSEQUENT CLOSINGS.  The Buyer’s obligation to purchase each Additional Note by delivering the applicable Additional Net Purchase Price is conditioned upon and subject to the fulfillment, on or prior to the applicable Subsequent Closing Date, of all of the following conditions, any of which may be waived in whole or in part by the Buyer:

a.           The execution and delivery of this Agreement and, as applicable, the other Transaction Documents by the Company and all other necessary parties (including a Guaranty for each Additional Note executed by Helix Sub) on or before such Subsequent Closing date;

b.           Without limiting the generality of the requirement in the immediately preceding subsection, the delivery by the Company, as of the Initial Closing Date (unless waived by the Buyer, then as of the applicable Subsequent Closing Date) of the applicable Additional Note, duly executed by the Company.

c.           On such Subsequent Closing date, each of the Transaction Documents executed by the Company on or before such date shall be in full force and effect and the Company shall not be in default thereunder;

d.           The accuracy in all material respects on such Subsequent Closing date of the representations and warranties of the Company contained in this Agreement and the other Transaction Documents, each as if made on such date, and the performance by the Company on or before such date of all covenants and agreements of the Company required to be performed on or before such date;

e.           There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained;

f.           From and after the date hereof to and including such Subsequent Closing date, each of the following conditions will remain in effect: (i) the trading of the Common Stock shall not have been suspended by the SEC or on the Principal Trading Market; (ii) trading in securities generally on the Principal Trading Market shall not have been suspended or limited; (iii) no minimum prices shall been established for securities traded on the Principal Trading Market; and (v) there shall not have occurred any Material Adverse Effect;

g.           Except for any notices required or permitted to be filed after such Subsequent Closing date with certain federal and state securities commissions, the Company shall have obtained (a) all governmental approvals required in connection with the lawful sale and issuance of all of the Securities, and (b) all third party approvals required to be obtained by the Company in connection with the execution and delivery of the Transaction Documents by the Company or the performance of the Company’s obligations thereunder;

  

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h.           Without limiting any of the foregoing, the satisfaction of all conditions set forth in Section 3(a)(i) above;

i.            All corporate and other proceedings in connection with the transactions contemplated at such Subsequent Closing and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to the Buyer; and

j.           The Buyer determines, in the Buyer’s sole and absolute discretion, to deliver the applicable Additional Net Purchase Price; provided, however, that if the Company sends to the Buyer a written inquiry prior to the tenth day preceding any Subsequent Closing Date, but in no event prior to the fifteenth day preceding such Subsequent Closing Date, requesting the Buyer to declare its intentions with respect to providing the Additional Net Purchase Price on such Subsequent Closing Date, then the Buyer shall promptly respond to the Company with an indication of its intentions with respect thereto.

13.           INDEMNIFICATION.

a.           The Company agrees to defend, indemnify and forever hold harmless the Buyer and its officers, directors, employees, and agents, and each Buyer Control Person (the “Buyer Parties”) from and against any losses, claims, damages, liabilities or expenses incurred (collectively, “Damages”), joint or several, and any action in respect thereof to which the Buyer, its partners, Affiliates, officers, directors, employees, and duly authorized agents, and any such Buyer Control Person becomes subject, resulting from, arising out of or relating to any misrepresentation, breach of warranty or nonfulfillment of or failure to perform any covenant or agreement on the part of Company contained in this Agreement, as such Damages are incurred.  The Buyer Parties with the right to be indemnified under this Section (the “Indemnified Parties”) shall have the right to defend any such action or proceeding with attorneys of their own selection, and the Company shall be solely responsible for all costs and expenses related thereto.  If the Indemnified Parties opt not to retain their own counsel, the Company shall defend any such action or proceeding with attorneys of its choosing at its sole cost and expense, provided that such attorneys have been pre-approved by the Indemnified Parties, which approval shall not be unreasonably withheld, and provided further that the Company may not settle any such action or proceeding without first obtaining the written consent of the Indemnified Parties.

b.           The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar rights of the Buyer Parties against the Company or others, and (ii) any liabilities the Company may be subject to.

14.           SPECIFIC PERFORMANCE.  The Company and  the Buyer acknowledge and agree that irreparable damage would occur in the event that any provision of this Agreement or any of the other Transaction Documents were not performed in accordance with its specific terms or were otherwise breached.  It is accordingly agreed that the parties (including any Holder) shall be entitled to an injunction or injunctions, without (except as specified below) the necessity to post a bond, to prevent or cure breaches of the provisions of this Agreement or such other Transaction Document and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity; provided, however that the Company, upon receipt of a Notice of Conversion or a Notice of Exercise, may not fail or refuse to deliver the stock certificates and the related legal opinions, if any, or if there is a claim for a breach by the Company of any other provision of this Agreement or any of the other Transaction Documents, the Company shall not raise as a legal defense any claim that the Holder or anyone associated or affiliated with the Holder has violated any provision hereof or any other Transaction Document or has engaged in any violation of law or any other claim or defense, unless the Company has first posted a bond for one hundred fifty percent (150%) of the principal amount and, if relevant, then obtained a court order specifically directing it not to deliver said stock certificates to the Holder. The proceeds of such bond shall be payable to the Holder to the extent that the Holder obtains judgment or its defense is recognized.  Such bond shall remain in effect until the completion of the relevant proceeding and, if the Holder appeals therefrom, until all such appeals are exhausted.  This provision is deemed incorporated by reference into each of the Transaction Documents as if set forth therein in full.

 

  

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15.           OWNERSHIP LIMITATION. If at any time after the Closing, the Buyer shall or would receive shares of Common Stock in payment of interest or principal under a Note or upon conversion of a Note, so that the Buyer would, together with other shares of Common Stock held by it or its Affiliates, hold by virtue of such action or receipt of additional shares of Common Stock a number of shares exceeding 9.99% of the number of shares of Common Stock outstanding on such date (the “9.99% Cap”), the Company shall not be obligated and shall not issue to the Buyer shares of Common Stock which would exceed the 9.99% Cap, but only until such time as the 9.99% Cap would no longer be exceeded by any such receipt of shares of Common Stock by the Buyer. The foregoing limitations are enforceable, unconditional and non-waivable and shall apply to all Affiliates and assigns of the Buyer.

16.           GOVERNING LAW; MISCELLANEOUS.  The Company and the Buyer hereby agree that the provisions of this Section 16 shall apply to all of the Transaction Documents.

a.           Governing Law and Venue.  This Agreement shall be governed by and interpreted in accordance with the laws of the State of Illinois for contracts to be wholly performed in such state and without giving effect to the principles thereof regarding the conflict of laws.  Each of the parties consents to the exclusive jurisdiction of the federal courts whose districts encompass any part of the County of Cook or the state courts of the State of Illinois sitting in the County of Cook in connection with any dispute arising under this Agreement or any of the other Transaction Documents and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions or any claim that such venue of the suit, action or proceeding is improper.  Nothing in this subsection shall affect or limit any right to serve process in any other manner permitted by law.

b.           No Waiver.  Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

c.           Successors and Assigns.  This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties hereto.

d.           Pronouns.  All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may permit or require.

e.           Counterparts.  This Agreement may be signed in one or more counterparts, each of which shall be deemed an original, but all of which together shall be deemed to constitute one instrument.  Facsimile and email copies of signed signature pages will be deemed binding originals.

f.           Headings.  The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

g.           Severability.  Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such provision shall be modified to achieve the objective of the parties to the fullest extent permitted and such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.

  

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h.           Amendment.  This Agreement may be amended only by an instrument in writing signed by the party to be charged with enforcement thereof.

i.           Entire Agreement.  This Agreement together with the other Transaction Documents constitute and contain the entire agreement between the Company and the Buyer and supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof.

j.           Currency.  All dollar amounts referred to or contemplated by this Agreement or any other Transaction Document shall be deemed to refer to US Dollars, unless otherwise explicitly stated to the contrary.

k.           Expenses.  The Company, without regard to whether any Closing is effectuated, will pay Buyer the Transaction Expenses, which the parties acknowledge shall be withheld by the Buyer at the Initial Closing pursuant to Section 2(c) above; provided, however, that in the event a Closing does not occur for whatever reason, the Company shall promptly pay the Transaction Expenses to the Buyer in cash.  Except as provided in the immediately preceding sentence, the Company and the Buyer shall be responsible for paying such party’s own fees and expenses (including legal expenses) incurred in connection with the preparation and negotiation of this Agreement and the other Transaction Documents and the closing of the transactions contemplated hereby and thereby.

l.            Assignment by the Company.  Notwithstanding anything to the contrary herein, the rights, interests or obligations hereunder may not be assigned, by operation of law or otherwise, in whole or in part, by the Company without the prior written consent of the Buyer, which consent may be withheld at the sole discretion of the Buyer; provided, however, that in the case of a merger, sale of substantially all of the Company’s assets or other corporate reorganization, the Buyer shall not unreasonably withhold, condition or delay such consent.

m.           Advice of Counsel. In connection with the preparation of this Agreement and all other Transaction Documents, each of the Company, its stockholders, officers, agents, and representatives acknowledges and agrees that the attorney that prepared this Agreement and all of the other Transaction Documents acted as legal counsel to the Buyer only.  Each of the Company, its stockholders, officers, agents, and representatives (i) hereby acknowledges that he/she/it has been, and hereby is, advised to seek legal counsel and to review this Agreement and all of the other Transaction Documents with legal counsel of his/her/its choice, and (ii) either has sought such legal counsel or hereby waives the right to do so.

n.           No Strict Construction. The language used in this Agreement is the language chosen mutually by the parties hereto and no doctrine of construction shall be applied for or against any party.

o.           Attorney’s Fees.  In the event of any action at law or in equity to enforce or interpret the terms of this Agreement or any of the other Transaction Documents, the Prevailing Party (as defined hereafter) shall be entitled to reasonable attorneys’ fees, court costs and collection costs in addition to any other relief to which such party may be entitled.  “Prevailing Party” shall mean the party in any litigation or enforcement action that prevails in the highest number of final rulings, counts or judgments adjudicated by a court of competent jurisdiction.

p.           Replacement of the Notes. Subject to any restrictions on or conditions to transfer set forth in the Notes, the Holder of a Note, at its option, may in person or by duly authorized attorney surrender the same for exchange at the Company’s chief executive office, and promptly thereafter and at the Company’s expense, except as provided below, receive in exchange therefor one or more new convertible promissory note(s), each in the principal requested by such Holder, dated the date to which interest shall have been paid on the Note so surrendered or, if no interest shall have yet been so paid, dated the date of the Note so surrendered and registered in the name of such person or persons as shall have been designated in writing by such holder or its attorney for the same principal amount as the then unpaid principal amount of the Note so surrendered. As applicable, upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of a Note and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it; or (b) in the case of mutilation, upon surrender thereof, the Company, at its expense, will execute and deliver in lieu thereof a new convertible promissory note executed in the same manner as the Note being replaced, in the same principal amount as the unpaid principal amount of such Note and dated the date to which interest shall have been paid on such Note or, if no interest shall have yet been so paid, dated the date of such Note.

  

21

  

 

17.           NOTICES.  Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given on the earliest of (a) the date delivered, if delivered by personal delivery as against written receipt therefor or by confirmed facsimile transmission, (b)  the fifth Trading Day after deposit, postage prepaid, in the United States Postal Service by registered or certified mail, (c) the third Trading Day after mailing by domestic or international express courier, with delivery costs and fees prepaid, or (d) when faxed or sent by electronic mail, upon confirmation of receipt, in each case, addressed to the other party thereunto entitled at the following addresses (or at such other addresses as such party may designate by ten (10) days’ advance written notice similarly given to the other party hereto):

If to the Company:

Helix Wind, Corp.

c/o Kevin Claudio

                            13125 Danielson Street

                            San Diego, California  92064

If to the Buyer:

St. George Investments, LLC

Attn: John M. Fife

303 East Wacker Drive, Suite 1200

Chicago, Illinois  60601

with a copy to (which shall not constitute notice):

                             

                             Carman Lehnhof Israelsen LLP

                             Attn: Jonathan K. Hansen

                             4626 North 300 West, Suite 160

                             Provo, Utah 84604

Telephone: (801) 209-5558

18.           SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES.  The Company’s and the Buyer’s covenants, agreements, representations and warranties contained herein shall survive the execution and delivery of this Agreement and the other Transaction Documents and each Closing hereunder and shall inure to the benefit of the Buyer and the Company and their respective successors and permitted assigns.

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]

 

  

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IN WITNESS WHEREOF, each of the undersigned represents that the foregoing statements made by it above are true and correct and that it has caused this Agreement to be duly executed on its behalf (if an entity, by one of its officers thereunto duly authorized) as of the date first above written.

 

 

	INITIAL NET PURCHASE PRICE:	 $50,000.00	 
	 	 	 
	 	
THE COMPANY:

	 
	 	 	 
	 	
HELIX WIND, CORP.,

	 
	 	a Nevada corporation	 
	 	 	 	 
	
 

	
By: 

	  	 
	 	 	Name: James Tilton 	 
	 	 	Title: Chief Operating Officer 	 
	 	 	 	 

 

 

	 	THE BUYER:	 
	 	 	 
	 	
ST. GEORGE INVESTMENTS, LLC,

	 
	 	
an Illinois limited liability company

	 
	 	 	 
	 	
By: Fife Trading, Inc., Manager

	 
	 	 	 	 
	
 

	
By: 

	 	 
	 	 	
John Fife, President

	 

 

 

 

 

 

[SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT]

 

                                                                

  

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ANNEX I                                            CONFESSION OF JUDGMENT

ANNEX II                                           UNANIMOUS WRITTEN CONSENT OF THE BOARD

ANNEX III                                         TRANSFER AGENT LETTER

ANNEX IV                                         SECURITY AGREEMENT

ANNEX V                                           GUARANTY

ANNEX VI                                         HELIX SUB SECURITY AGREEMENT

ANNEX VII                                        WIRE INSTRUCTIONS

ANNEX VIII                                       FIRST NOTE

ANNEX IX                                         FORM OF ADDITIONAL NOTES

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