Organizational Agreement, dated as of May 30, 2006, by and between Xethanol Corporation, a Delaware corporation, Coastal Energy Development, Inc., a Georgia corporation. ORGANIZATIONAL AGREEMENT
Exhibit
1.1
Organizational
Agreement, dated as of May 30, 2006, by and between Xethanol Corporation, a
Delaware corporation, Coastal Energy Development, Inc., a Georgia
corporation.
This
Organizational Agreement is made as of the 30th day of May, 2006 by and among
Xethanol Corporation, a Delaware corporation with an address at 1185 Avenue
of
the ▇▇▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ ("Xethanol"),
Coastal Energy Development, Inc., a Georgia corporation with an address at
▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ (“CED”)
and
CoastalXethanol, LLC, a Delaware limited liability company with an address
at ▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇(“CX”).
R
E C I T A L S :
I.
Xethanol
and CED have organized CX for the purpose of initiating, developing, investing
in and managing projects for the production of ethanol in the State of Georgia
and in the counties of South Carolina in which the cities of Charleston and
Georgetown are located (the “Territory”);
(ii)
engaging in any or all general business activities that may be related or
incidental to, or may appear conducive or expedient for the accomplishment
of,
the foregoing ; and (iii) engaging in any business or activity that might be
engaged in or carried on by a limited liability company formed under the Act.
Each of them will have an interest in CX as set forth in this Agreement.
II.
Xethanol
and CED have agreed upon the method by which they will manage the ethanol
project to be engaged in by CX and upon certain financial obligations that
they
will have to each other and CX. They wish to set forth their understandings
and
agreement in this Agreement.
NOW,
THEREFORE, in order to evidence their mutual agreements and understandings
concerning the subject matter hereof, the parties hereto agree as
follows:
1.
Organization
of CX.
1.1 Organization
and Initial Ownership Interests.
On the
date hereof, the parties will execute the CX Operating Agreement (the
“Operating
Agreement”)
and
will take or cause to be taken all such further action as may be necessary
or
proper to effect the existence of CX under the laws of the State of Delaware.
Pursuant to the Operating Agreement, Xethanol will own 8 Units of Interest
as a
Member in CX and CED will own 2 Units of Interest as a Member in CX. Xethanol
will be the Manager of CX. In consideration for such Interests, each of CED
and
Xethanol will contribute $5,000 per unit to the capital of CX. Prior to the
date
of this Agreement, Xethanol has contributed $5,700 to the capital of CX and
CED
has contributed $4,300 to the capital of CX. The unpaid portion of the capital
contribution of each of the parties shall be paid concurrently with the
execution of this Agreement.
2. Project
Management.
CED
will be responsible for site selection and acquisition, the development of
facilities for the production of ethanol and the management of those facilities,
in accordance with the following:
2.1 The
facilities which CED will develop pursuant to this agreement will be
biorefineries for the production of ethanol, each having an annual production
capacity of 10,000,000 to 35,000,000 gallons of ethanol per year (each, a
“Facility”).
2.2 CED
will
identify sites within the Territory for the proposed location of Facilities.
Upon identification of each site, CED will so notify the Members and, upon
approval of such site by the Members, CED will commence negotiation for the
acquisition or lease of such site.
2.3 Upon
identification of a site for a Facility, CED shall cause a Bankable
Feasibility Study with respect to such Facility and its operation, to determine
whether or not such Facility can support a stand-alone capital structure (each,
a “Study”). Among other things, each Study will set forth the risks and returns
applicable to each Facility, the probable terms and conditions for the financing
of such facility and a preliminary analysis of available feedstock, pricing
and
quantity. The Study will include financial modeling illustrating total required
capital investment for the Facility and proposed financing terms, operating
cash
flow scenarios, debt servicing (with coverages) and returns on membership
interests.
2.4 If
CED is
successful in procuring a site, the Study applicable to such site is acceptable
to both CED and Xethanol and CX has been able to procure financing for the
construction and operation of the applicable Facility that is acceptable to
both
CED and Xethanol, then CX will form a single-purpose limited liability company
(a “Special
LLC”),
which
will (a) acquire or lease that site, (b) conduct such environmental and other
tests as are required, (c) engage engineers, architects and other professional
advisors as may be necessary for the development of a Facility on such site,
(d)
enter into contracts for the construction of, and effect the construction of,
such Facility and (e) operate such Facility, directly or under contract with
third parties.
2.5 CED
will
source investment capital opportunities from third parties for purposes of
funding the development and operation of each Facility. Xethanol will have
the
right, but not the obligation, to invest in any or all of such Special LLCs,
on
the same terms as are offered to third party investors. Such investment may
be
made, at the option of Xethanol, in either the applicable Special LLC or CX,
in
which latter event the percentage interest to be obtained by Xethanol in CX
or
other means (special allocation, structured instrument, etc) to compensate
Xethanol for its investment shall be agreed upon by CED and
Xethanol.
2.6 CX
will
be the Managing Member of each Special LLC.
2.7 With
respect to the ongoing operations of each Special LLC, CED will provide each
Special LLC with the services set forth on Exhibit A to this Agreement. CED
and
CX will enter into management services agreement further documenting such
arrangement.
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2.8 Xethanol
will provide CX and each Special LLC access to all of its intellectual property
that is useful in developing or operating Facilities including, but not limited
to, patents and know-how relating to ethanol production and the engineering
of
biorefineries for ethanol production, feedstock analysis and procurement, plant
location, strategic alliances, customers, corporate branding, plant management,
recruitment and training. All of such information shall be deemed to be, and
shall be treated by CX and Special LLC as Confidential Information pursuant
to
the provisions of Section 5.1 of this Agreement.
3
Financial
Obligations.
3.1 In
consideration of the services to be rendered by CX as Manager of each Special
LLC, CX will cause each Special LLC to pay CX a management fee as
follows:
3.1.1 Commencing
on the date of the approval of a Project and the formation and capitalization
of
the related Special LLC in accordance with Section 2.4, such Special LLC will
pay the CX a project management fee of $15,000 per month, which fee shall be
payable in advance on or before the tenth (10th)
day of
each calendar month and ending on the earlier of (a) the date on which the
applicable Facility first produces ethanol in commercial quantities or (b)
CX
elects to discontinue development of that Facility.
3.1.2 Commencing
on the date that such Special LLC first produces ethanol and thereafter until
the first calendar month in which the operating cash flow of such Special LLC
is
positive, a monthly fee of $15,000 per month, which fee shall be payable on
the
tenth day of each month during the period.
3.1.3 Commencing
with the first month following the first calendar month in which the operating
cash flow of such Special LLC is positive, a monthly fee equal to the greater
of
(a) $15,000 or (b) the sum of (x) 3% of the gross revenues of the applicable
Facility and (y) 2% of the net income (determined in accordance with generally
accepted accounting principles consistently applied) of such Special LLC with
respect to such month, which fee shall be payable on the tenth day of each
month
during the period.
3.2 Xethanol
or CED may lend or advance money to CX. Such loans shall be evidenced by a
grid
note made payable by CX to the order of CED or Xethanol. The amount of any
such
loan or advance shall be repayable out of CX's cash and shall bear interest
at
the Prime Rate as published in the Wall
Street Journal,
and
shall change concurrently with each change in such published Prime Rate. No
Member shall be obligated to make any loan or advance to CX. As of the date
of
this agreement Xethanol has advanced funds to CX totaling $321,000 and are
covered by this Section.
.
3.3 CX
may
loan CED such sums as may be requested by CED for working capital to the extent
necessary for CED to provide the services required of it under this Agreement,
not to exceed the sum of $63,000 in any month. Such loans shall be repayable
on
demand, and shall bear interest at the Prime Rate as published in the
Wall
Street Journal,
and
shall change concurrently with each change in such published Prime Rate. Such
loans shall be evidenced by a grid note made payable by CED to the order of
CX.
All of such loans (including the principal thereof, interest accrued thereon
and
other fees, charges and expenses payable with respect thereto) shall be paid
from distributions by CX to CED in respect of its membership interest in CX,
and
CED authorizes CX to deduct from distributions due it all of such amounts.
As of
the date of this agreement, CX has advanced funds to CED totaling $113,000
and
are covered by this Section.
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3.4 In
consideration of the intellectual property provided by Xethanol in Section
2.8,
CX and each Special LLC shall, jointly and severally, pay Xethanol a license
fee
of $1,000,000 with respect to each Facility, which fee shall be paid as
follows:
3.4.1
$500,000
when the construction of such Facility commences;
3.4.2 $250,000
on the date on which the applicable Facility first produces ethanol;
and
3.4.3 $250,000
on the tenth day of the calendar month following the calendar month in which
the
operating cash flow of such Special LLC is positive.
4
Equity
Interests.
4.1 Concurrently
with the execution of this Agreement, Xethanol shall issue CED warrants to
purchase 200,000 shares of Xethanol’s Common Stock, par value $.001 per share
(“Common Stock”) in the form of Exhibit B.
| 4.1.1 |
Such
warrants shall have an exercise price of $6.85 per share of Common
Stock;
|
| 4.1.2 |
Such
warrants shall vest and become exercisable for a 3-year term commencing
on
the first anniversary of the date of this Agreement; provided, however,
that such warrants shall become exercisable immediately upon the
occurrence of a Change of Control Event, as defined in Section
4.2.
|
Subject
to (a) compliance with applicable securities laws and regulations and (b) the
consent of Xethanol, which consent shall not be unreasonably withheld, CED
may
distribute such warrants to (or direct that Xethanol issue such warrants
directly to) CED’s management, key advisors and directors.
Xethanol
shall use reasonable efforts to include the shares of Common Stock underlying
such warrants in any registration statement filed with the Securities and
Exchange Commission, subject to (w) CED or the then holders of such warrants
complying with such reasonable and customary requirements as Xethanol may
request, including the providing of information and the entering into of
customary indemnification agreements, (x) CED or the then holders of such
warrants complying with such reasonable and customary requirements as any
underwriter with respect to such registration may request, (y) cutbacks or
limitations imposed by other holders of securities to be included in such
registration statement, whether now outstanding or hereafter issued by Xethanol
and (z) and limitations imposed by any underwriter of the securities to be
included in such registration statement.
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4.2 Effective
on and after the occurrence of a Change of Control Event with respect to
Xethanol, CED shall have the option (the “Change
of Control Right”),
to
require Xethanol to purchase the interest of CED in CX in exchange for shares
of
Common Stock of Xethanol. CED shall exercise its Change of Control Right, if
at
all, by giving Xethanol written notice of its election to do so within 10 days
of the date the applicable Change of Control Event becomes effective. If CED
shall exercise its Change of Control Right, Xethanol shall issue and deliver
to
CED as consideration for the entire interest of CED in CX, such number of shares
of Xethanol Common Stock as Xethanol and CED may agree or, if no such agreement
is reached within thirty (30) days of written notice from CED to Xethanol that
it is exercising its Change of Control Right, such number of shares as is equal
to (a) the value of CED’s interest in CX, as determined by an investment banker
mutually agreeable to CED and Xethanol, divided by (b) the average closing
price
of Xethanol Common stock for the 15 days preceding the date on which the
valuation of CED’s interest in CX is received from such investment banker,
multiplied by (c) 0.95. For purposes of this Section 4.1, a Change of Control
Event shall mean the approval by the stockholders of Xethanol, and the
completion of the transaction resulting from such approval, of (A) the sale
or
other disposition of all or substantially all the assets of CX or (B) a complete
liquidation or dissolution of CX; or the acquisition by any entity or individual
of all or substantially all of the capital stock of CX, other than in connection
with a corporate reorganization of Xethanol.
4.3 Effective
on and after the third anniversary of the date of this Agreement, CED shall
have
the option (the “Put
Right”),
to
require Xethanol to purchase the interest of CED in CX in exchange for shares
of
the Common Stock of Xethanol. CED shall exercise its Put Right, if at all,
by
giving Xethanol written notice of its election to do so. If CED shall exercise
its Put Right, Xethanol shall issue and deliver to CED as consideration for
the
entire interest of CED in CX, such number of shares of Xethanol Common Stock
as
Xethanol and CED may agree or, if no such agreement is reached within thirty
(30) days of written notice from CED to Xethanol that it is exercising its
Put
Right, such number of shares as is equal to (a) the value of CED’s interest in
CX, as determined by an investment banker mutually agreeable to CED and
Xethanol, divided by (b) the average closing price of Xethanol Common stock
for
the 15 days preceding the date on which the valuation of CED’s interest in CX is
received from such investment banker.
4.4 Effective
on and after the third anniversary of the date of this Agreement, Xethanol
shall
have the option (the “Call
Right”),
to
require CED to sell to Xethanol the interest of CED in CX in exchange for shares
of the Common Stock of Xethanol. Xethanol shall exercise its Call Right, if
at
all, by giving CED written notice of its election to do so. If Xethanol shall
exercise its Put Right, Xethanol shall issue and deliver to CED as consideration
for the entire interest of CED in CX, such number of shares of Xethanol Common
Stock as Xethanol and CED may agree or, if no such agreement is reached within
thirty (30) days of written notice from CED to Xethanol that it is exercising
its Call Right, such number of shares as is equal to (a) the value of CED’s
interest in CX, as determined by an investment banker mutually agreeable to
CED
and Xethanol, divided by (b) the average closing price of Xethanol Common stock
for the 15 days preceding the date on which the valuation of CED’s interest in
CX is received from such investment banker.
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5 Miscellaneous.
5.1 Confidentiality.
All
information received by any party with respect to the business and affairs
of CX
or any Special LLC shall be considered confidential and shall not be utilized
by
any other party for its advantage or disclosed to others to the detriment of
such party; provided, however, that this sentence is not intended to and shall
not prevent any disclosure of information relating to CX or any Special LLC
to
the professional advisors or agents of any party nor to prevent any disclosure
to the extent required by law. Confidential information shall be deemed to
include all information disclosed by Xethanol pursuant to the provisions of
Section 2.8.
5.2 Expenses.
Each
party hereto shall pay his, her or its own expenses in connection with the
preparation of this Agreement and the consummation of the transactions
contemplated herein.
5.3 Notices.
All
notices, requests, demands or other communi-cations required or authorized
or
contemplated to be given under this Agreement shall be in writing and shall
be
deemed to have been duly given if hand delivered or sent by certified or
registered mail, postage prepaid, and addressed to a party at its address as
first set froth above, or at such other address as any party may from time
to
time furnish to the other party by a notice given in accordance with the
provisions of this Section. All notices shall be deemed given (i) two business
days after deposit into the U.S. Mail, or (ii) when personally delivered in
the
manner provided in this Section.
5.4 Counterparts.
This
Agreement may be executed simultaneously in two or more counterparts, each
of
which shall be deemed an original, but all of which together shall constitute
one and the same Agreement.
5.5 Assignment.
This
Agreement may not be assigned by any party without the prior written consent
of
all of the parties hereto; provided that Associates may assign this Agreement
to
any entity which is controlled by or is under common control with it, without
consent. Any attempt to assign this Agreement without the required consent
shall
be void. This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective heirs, successors and
assigns.
5.6 Entire
Agreement.
This
Agreement, together with the Exhibits hereto, contains the entire understanding
between the parties hereto concerning the subject matter hereof and may not
be
changed, modified, altered or amended except by an agree-ment in writing
executed by the parties hereto.
5.7 Amendments.
Any
change, modification, alteration or amendment shall be effective only in the
specific instance for the specific purpose for which given. Any waiver by either
party of any of its rights under this Agreement or of any breach of this
Agreement shall not constitute a waiver of any other rights or of any other
future breach.
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5.8 Applicable
Law.
This
Agreement shall be governed by, construed and enforced in accordance with
the
internal laws of the State of New York for contracts to be performed wholly
within the State of New York, without reference to conflict of law
principles.
5.9 Jurisdiction
and Venue.
In the
event that any legal proceedings are commenced in any court with respect
to any
matter arising under this Agreement, the parties agree that:
5.9.1 The
courts of the State of New York and/or the United States Federal Courts located
in the State of New York shall have exclusive jurisdiction over each of the
parties hereto and over the subject matter of any such proceedings;
and
5.9.2 The
venue
of any such action shall be in New York County, New York and/or the United
States District Court for the Southern District of New York.
5.10 Headings.
The
headings contained in this Agreement are for reference purposes only and
shall
not affect in any way the meaning or interpretation of the terms and conditions
contained in this Agreement.
IN
WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the day
and year first above written.
| Xethanol Corporation | Coastal Energy Development, Inc. | ||||
| By: | /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | By: |
/s/
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
|
||
|
Chief Financial Officer |
President |
||||
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Schedule
A
Operational
Services to be Provided by CED
1. The
selection, employment, promotion, discharge and supervision of the executive
staff and through the executive staff, the hiring, promotion, discharge, and
work of all other operating and service employees performing services on behalf
of each Special LLC and relating to each applicable Special LLC. All employees
shall be on the payroll of the applicable Special LLC. The decision in regard
to
any change or replacement of employees shall be at the sole discretion of
CED.
2. The
negotiation and arranging of contracts for the acquisition of feedstock,
utilities and other goods and services required for the operation of the
applicable Special LLC, and the monitoring, supervision of the performance
of
third parties under and enforcement of such agreements.
3. Applying
for, obtaining, and maintaining in the name of the applicable Special LLC all
licenses and permits required of in connection with the operation of the
applicable Special LLC. The applicable Special LLC shall execute and deliver
any
and all applications and other documents necessary therefor and to cooperate
to
the fullest extent possible with CED in the performance of these
obligations.
4. The
submission to CX for its approval of an annual budget of operations for each
Special LLC thirty (30) days before the commencement of each fiscal year. CED
may deviate from such budget if in its reasonable judgment a deviation is
necessary or desirable for the efficient operation of the Special LLC, subject
to the approval of CX, unless in the judgment of CED, the expense in question
must be incurred as an emergency expense.
5. The
implementation and maintenance of suitable accounting and internal control
systems so as to be in compliance with the provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act
of 2002.
6.
Performing all acts reasonably necessary in connection with the operation of
the
applicable Special LLC in an efficient and proper manner.
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