H2DIESEL HOLDINGS, INC. Stock Option Agreement
1. Grant
of Option.
In
accordance with and subject to the terms and conditions of this Stock Option
Agreement (the “Agreement”),
H2Diesel Holdings, Inc., a Florida corporation (the “Corporation”
which
term shall include any entity which acquires, through merger, share exchange,
purchase of assets or otherwise, substantially all of the capital stock or
assets of the Corporation), grants to the person identified on Schedule
1
attached
hereto (the “Optionee”)
a
nonqualified stock option (the “Option”)
to
purchase the number of shares (the “Option
Shares”)
of its
Common Stock, par value $.001 per share (“Common
Stock”),
set
forth on Schedule
1,
at the
initial option exercise price set forth in Schedule
1
(such
price, as it may be adjusted hereunder from time to time, the “Exercise
Price”).
2. Acceptance
by Optionee.
The
exercise of the Option or any portion thereof is conditioned upon acceptance
by
the Optionee of the terms and conditions of this Agreement, as evidenced by
the
Optionee’s execution of Schedule
1
to this
Agreement and the delivery of an executed copy of this Agreement to the
Corporation.
3. Vesting
of Option.
The
Option shall vest and be exercisable as set forth in Schedule
1.
(A)
Pursuant to a Consulting Services Agreement executed simultaneously with this
Agreement (the “Consulting Agreement”) the Corporation has entered into
arrangements with the firm eBarton, LLC, which is controlled by the Optionee.
Except as specifically herein provided, the Consulting Agreement is deemed
incorporated herein and the Definitions therein shall be referenced for purposes
of interpretation hereof. The Consulting Agreement contains as Exhibit A a
list
of firms that are designated as Potential Customers (“Potential Customers”) for
the purpose of vesting under Schedule 1. Corporation and eBarton have agreed
pursuant to the Consulting Agreement that additional firms may be added to
Exhibit A as Potential Customers, and that nominees of eBarton shall not be
unreasonably excluded from Exhibit A. The termination of the Consulting
Agreement shall not be deemed to terminate the designation of Persons as
Potential Customers under this Agreement so long as an introduction has been
made.
(B)
The
Corporation shall specifically require any person with whom it enters any of
the
transaction contemplated by Sections 6(c)(iii), Section 8 hereof, or similar
transactions (“Successors”) to provide, as a condition of the closing of such
transactions, specific assurances to Optionee that, notwithstanding any prior
contacts of any type Such Successor has had or subsequent with Potential
Customers, whether with respect to the proprietary biofuel; or otherwise, that
the vesting and exercise provisions of this Option Agreement shall continue
to
apply in full force and effect to the vesting of Optionee’s shares in accordance
with the terms of Schedule 1 hereof.
4. Expiration
of Option.
The
Option shall expire on the expiration date set forth in
Schedule 1
(the
“Expiration
Date”)
and
may not be exercised after such date.
EXHIBIT
A
- Page 1
5. Conditions
to Exercise of Option.
The
Optionee may exercise the Option or any portion thereof to the extent then
vested at any time or from time to time during the period commencing on the
Grant Date set forth on Schedule
1
and
ending on the Expiration Date (the “Option
Term”).
The
Option may be exercised only by the Optionee or, in the event of his death
or
incompetence, his personal representative or heirs, as the case may
be.
6. Procedure
for Exercise.
(a) The
vested portion of the Option may be exercised for the number of Option Shares
specified in a written notice delivered to the Corporation at least five days
prior to the date on which purchase is requested (such notice, an “Exercise
Notice”),
accompanied by full payment in cash of the aggregate Exercise Price in respect
of such Option Shares. If specified in the Exercise Notice, payment of such
Exercise Price may also be made by means of the Corporation retaining from
the
Option Shares to be delivered upon exercise of the Option, or portion thereof,
that number of Option Shares having an aggregate Fair Market Value (as defined
below) on the date that the Exercise Notice is delivered to the Corporation
(the
date that the Exercise Notice is delivered to the Corporation being referred
to
as the “Valuation
Date”;
provided, however
, that
if such date is not a day on which securities markets are open for trading,
then
the Valuation Date shall be the first succeeding date that such markets are
open) equal to the aggregate Exercise Price of the total number of Option Shares
with respect to which the Optionee shall then be exercising the Option. If
upon
exercise of all or a portion of the Option there shall be payable by the
Corporation or a subsidiary any amount for withholding taxes, then, at the
Corporation’s election and as a condition to such exercise, either (i) the
Corporation shall reduce the number of Option Shares to be issued to the
Optionee by a number of Option Shares of Common Stock having an aggregate Fair
Market Value on the Valuation Date equal to the amount of such withholding
tax
or (ii) the Optionee shall pay such amount to the Corporation or its subsidiary,
as applicable.
(b)
If
any applicable law requires the Corporation to take any action with respect
to
the Option Shares specified in the Exercise Notice, or if any action remains
to
be taken under the Certificate of Incorporation or Bylaws of the Corporation,
as
in effect at the time, to effect due issuance of Option Shares, then the
Corporation shall take such action and the day for delivery of such Option
Shares shall be extended for the period necessary to take such action. The
Optionee shall not have any of the rights of a shareholder of the Corporation
under the Option.
(c)
As
used herein, the phrase “Fair Market Value” shall mean (i) if the Common
Stock is listed or admitted for trading on a national securities exchange,
an
automated quotation system or the Over-the-Counter Bulletin Board, the last
reported sale price per share of the Common Stock on the Valuation Date, or,
in
case no such reported sale takes place on such day or is reported, then the
average of the last reported per share bid and ask prices for shares of the
Common Stock on such date (or if such bid and ask prices are not available
on
such date, the most recent preceding date), in either case as officially
reported by such securities exchange, quotation system or Bulletin Board on
which the Common Stock is listed or admitted to trading, (ii) if not so
listed or admitted for trading, the fair market value of a share of the Common
Stock as determined by the Corporation’s board of directors in good faith, or
(iii) if such exercise is in connection with a merger or consolidation of the
Corporation in which the Corporation is not the survivor or in which the Common
Stock is exchanged for cash or other securities or a sale of all or
substantially all of the assets of the Corporation (collectively, a
“Sale”),
the
implied price per share of the Common Stock resulting from such
Sale.
EXHIBIT
A - Page 2
7. Adjustment
of Exercise Price and Option Shares. (a)
If,
at any time prior to the Expiration Date, the number of outstanding shares
of
Common Stock is (i) increased by a stock dividend payable in shares of Common
Stock or by a subdivision or split-up of shares of Common Stock, or (ii)
decreased by a combination of shares of Common Stock, then, following the record
date fixed for the determination of holders of Common Stock entitled to receive
the benefits of such stock dividend, subdivision, split-up, or combination,
the
Exercise Price shall be adjusted to a new amount equal to the product of (A)
the
Exercise Price in effect on such record date, and (B) the quotient obtained
by
dividing (x) the number of Option Shares for which the Option was exercisable
on
such record date without giving effect to the event referred to in the foregoing
clause (i) or (ii) (such number of Option Shares, the “Record
Date Option Shares”),
by
(y) the aggregate number of shares to which the Record Date Option Shares would
have been increased or decreased immediately after and as a result of the event
referred to in the foregoing clause (i) or (ii) had the Record Date Option
Shares been issued immediately prior to such record date.
(b) Upon
each adjustment of the Exercise Price as provided in
Section 8(a),
the
Optionee shall thereafter be entitled to subscribe for and purchase, at the
Exercise Price resulting from such adjustment, the number of Option Shares
equal
to the product of (i) the number of Record Date Option Shares and (ii) the
quotient obtained by dividing (A) the Exercise Price existing prior to such
adjustment by (B) the new Exercise Price resulting from such
adjustment.
8. Reclassification,
Etc. In
case
of any reclassification or change of the outstanding Common Stock of the
Corporation (other than as a result of a subdivision, combination or stock
dividend), or in case of any consolidation of the Corporation with, or merger
of
the Corporation into, another corporation or other business organization (other
than a consolidation or merger in which the Corporation is the continuing
corporation and which does not result in any reclassification or change of
the
outstanding Common Stock of the Corporation) at any time prior to the Expiration
Date, then, as a condition of such reclassification, reorganization, change,
consolidation or merger, lawful provision shall be made, and duly executed
documents evidencing the same from the Corporation or its successor shall be
delivered to the Optionee, so that the Optionee shall have the right prior
to
the Expiration Date to purchase, at a total price not to exceed that payable
upon the exercise of this Option as to the number of Option Shares is then
exercisable, the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, reorganization, change,
consolidation or merger by a holder of the number of Option Shares which might
have been purchased by the Optionee immediately prior to such reclassification,
reorganization, change, consolidation or merger, and in any such case
appropriate provisions shall be made with respect to the rights and interest
of
the Optionee to the end that the provisions hereof (including provisions for
the
adjustment of the Exercise Price and of the number of shares purchasable upon
exercise of the Option) shall thereafter be applicable in relation to any shares
of stock and other securities and property thereafter deliverable upon exercise
of the Option.
9. Non-Transferability
of Option.
The
Option granted hereunder to the Optionee shall not be transferable by the
Optionee otherwise than by will, or by the laws of descent and
distribution.
EXHIBIT
A - Page 3
10. Compliance
With Applicable Law.
The
issuance of the Option Shares pursuant to the exercise of the Option is subject
to compliance with all applicable laws, including without limitation laws
governing withholding from employees and nonresident aliens for income tax
purposes.
11. Representations
and Warranties of Optionee.
(a) The
Optionee acknowledges his understanding that the grant of the Option is intended
to be exempt from registration under the Securities Act of 1933, as amended
(the
“Securities
Act”),
by
virtue of Section 4(2) of the Securities Act and the provisions of Regulation
D
promulgated thereunder (“Regulation
D”).
In
furtherance thereof, the Optionee represents and warrants to the Company as
follows:
(i) The
Optionee realizes that the basis for the exemption from registration may not
be
available if, notwithstanding the Optionee’s representations contained herein,
the Optionee is merely acquiring the Option for a fixed or determinable period
in the future, or for a market rise, or for sale if the market does not rise.
The Optionee does not have any such intention.
(ii) The
Optionee is acquiring the Option solely for the Optionee’s own account and not
with view to, or resale in connection with, any distribution of the Option
or
the Option Shares.
(iii) The
Optionee has the financial ability to bear the economic risk of the Option,
has
adequate means for providing for his current needs and contingencies, and has
no
need for liquidity with respect to the Option or the Option Shares.
(iv) The
Optionee and the Optionee’s attorney, accountant, purchaser representative
and/or tax advisor, if any (collectively, “Advisors”),
have
received this Agreement and all other documents provided by the Company pursuant
to the requests of the Optionee or its Advisors, if any, and have carefully
reviewed them and they understand the information contained therein, prior
to
the execution of this Agreement.
(v) The
Optionee (together with his, her or its Advisors, if any) has such knowledge
and
experience in financial and business matters as to be capable of evaluating
the
merits and risks of the Option and the Option Shares. If other than an
individual, the Optionee also represents it has not been organized solely for
the purpose of acquiring the Option or the Option Shares.
(b) The
Optionee is an “accredited investor,” as that term is defined in Rule 501(a) of
Regulation D.
(c) The
Optionee acknowledges that each of the Company and H2Diesel, Inc., its wholly
owned subsidiary (“Subsidiary”,
and
together with the Company, the “H2Diesel
Companies”),
is a
development stage company with no or a limited operating history or revenues,
and no or few employees. The Optionee further acknowledges that the Company
has
not made any representations to the Optionee regarding its or Subsidiary’s
business prospects or the Company’s or Subsidiary’s ability to generate revenues
in the future.
EXHIBIT
A
- Page 4
(d) The
Optionee represents, warrants and agrees that he, she or it will not sell or
otherwise transfer the Option or any Option Shares without registration under
the Securities Act or an exemption therefrom, and fully understands and agrees
that the Optionee must bear the economic risk of his, her or its purchase
because, among other reasons, the Option and the Option Shares have not been
registered under the Securities Act or under the securities laws of any state
and, therefore, cannot be resold, pledged, assigned or otherwise disposed of
unless they are subsequently registered under the Securities Act and under
the
applicable securities laws of such states, or an exemption from such
registration is available. In particular, the Optionee is aware that the Option
is and any Option Shares will be “restricted securities,” as such term is
defined in Rule 144 promulgated under the Securities Act (“Rule
144”),
and
they may not be sold pursuant to Rule 144 unless all of the conditions of Rule
144 are met. The Optionee also understands that the Company is under no
obligation to register the Option or any Option Shares on his, her or its behalf
or to assist them in complying with any exemption from registration under the
Securities Act or applicable state securities laws. The Optionee understands
that any sales or transfers of the Option and any Option Shares are further
restricted by state securities laws and the provisions of this
Agreement.
(e) No
representations or warranties have been made to the Optionee by any of the
H2Diesel Companies, or any of their respective officers, employees, agents,
sub-agents, affiliates or subsidiaries, other than any representations of the
Company contained herein, and in accepting the Option the Optionee is not
relying upon any representations other than those contained herein.
(f) The
Optionee understands and acknowledges that the Option and the value of the
Option Shares is speculative and may ultimately become worthless and has
carefully read and considered the matters set forth in the public reports filed
with the Securities and Exchange Commission, and, in particular, acknowledges
that the Company has a limited operating history and is engaged in a highly
competitive business.
(g) The
Optionee’s overall commitment to investments that are not readily marketable is
not disproportionate to the Optionee’s net worth, and the Option and the Option
Shares will not cause such overall commitment to become excessive.
(h) The
Optionee and his, her or its Advisors, if any, have had a reasonable opportunity
to ask questions of and receive answers from a person or persons acting on
behalf of the Company concerning the Option and the Option Shares and the
business, financial condition, results of operations and prospects of the
Company, and all such questions have been answered to the full satisfaction
of
the Optionee and his, her or its Advisors, if any.
(i) The
Optionee has taken no action which would give rise to any claim by any person
for brokerage commissions, finders’ fees or the like relating to this Agreement
or the transactions contemplated hereby.
EXHIBIT
A
- Page 5
12.
Restrictions on Option Shares.
Unless a
current registration statement under the Securities Act shall be in effect
with
respect to the Option Shares to be issued upon exercise of the Option, the
Optionee, by accepting the Option, covenants and agrees that, at the time of
exercise the Option, the Optionee will deliver to the Corporation such written
representations that the Company may deem necessary or appropriate to ensure
that the Option Shares are not required to be registered under the Securities
Act or applicable state securities laws. The Optionee agrees that certificates
representing Option Shares may bear a legend substantially as
follows:
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS.
THESE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR TRANSFERRED UNTIL THE
HOLDER HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE
DISCRETION OF THE ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO
THE
ISSUER) THAT SUCH OFFER, SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT
VIOLATE APPLICABLE FEDERAL OR STATE LAWS.
13. Notices
Generally. Any
notice, request, consent, other communication or delivery pursuant to the
provisions hereof shall be in writing and shall be sent by one of the following
means: (i) by registered or certified first class mail, postage prepaid, return
receipt requested; (ii) by facsimile transmission with confirmation of receipt;
(iii) by overnight courier service; or (iv) by personal delivery, and shall
be
properly addressed to the Optionee at the last known address or facsimile number
appearing on the books of the Corporation, or, except as herein otherwise
expressly provided, to the Corporation at its principal executive office
Attention: Chief Executive Officer, or such other address or facsimile number
as
shall have been furnished to the party giving or making such notice, demand
or
delivery.
14. Miscellaneous.
(a) This
Agreement has been duly authorized on behalf of the Corporation by the Board.
The Optionee represents that he is free to enter into this Agreement and that
his entering into this Agreement does not violate any obligation that he has
to
any other person or legal entity.
EXHIBIT
A
- Page 6
(c)
This
Agreement sets forth the entire understanding of the Corporation and the
Optionee with respect to the subject matter hereof and cannot be amended or
modified except by a writing signed by both parties.
(d) Except
as otherwise expressly provided herein, this Agreement shall be binding upon
and
inure to the benefit of the parties hereto, and their respective permitted
successors and assigns, heirs and personal representatives.
(d) This
Agreement shall be interpreted, construed and administered in accordance with
the laws of the State of Florida without regard to its choice of law provisions
that would cause the laws of another jurisdiction to apply.
(e) This
Agreement may be executed in counterparts which, taken together, shall
constitute a single original document.
IN
WITNESS WHEREOF,
the
Corporation has caused this Agreement to be executed as of the Date of Grant
set
forth in Schedule 1.
By:
___/s/
▇▇▇▇▇ ▇. Gillespie_______
Name:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Chief
Executive Officer
EXHIBIT
A
- Page 7
Schedule
1
|
1.
Name of Optionee:
|
▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
|
|
2.
Number of Option Shares:
|
1,500,000
shares of Common Stock
|
|
3.
Option Exercise Price Per Share:
|
$6.00
|
|
4.
Date of Grant:
|
April
24, 2007
|
|
5.
Expiration Date:
|
April
23, 2012
|
|
6.
Vesting Schedule:
|
Options
will vest as follows:
25,000
shares on execution by the company of each Test Burn Agreement with
a
counter party introduced to the Company by the Optionee.
25,000
shares on completion of the physical testing included in such Test
Burn
Agreement.
50,000
shares for each 10,000,000 gallons per year of biofuel delivered
to
customers that have completed such Test ▇▇▇▇▇, or have been otherwise
introduced to the Company by the Optionee. 50,000 shares for each
10,000,000 gallon per year increment above the initial annual volumes
for
each such customer. Any unvested portion of the Option on April 23,
2010
will expire.
|
Accepted
and agreed to as of the date first above written:
/s/
▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇
▇.
▇▇▇▇▇▇▇
EXHIBIT
A
- Page 8