SETTLEMENT AGREEMENT AND RELEASESettlement Agreement |
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SETTLEMENT AGREEMENT AND RELEASE
THIS SETTLEMENT AGREEMENT
AND RELEASE (the “ Agreement
”) is dated as of June ___, 2008 (the “
Effective
Date ”) by and between (i) Black Forest
International, LLC (“ BFI
”) a Delaware limited liability company, (ii) Earth
Biofuels, Inc. and all of its subsidiaries, which include,
but are not limited to, Earth LNG, Inc., a Texas corporation,
and each of Applied LNG Technologies USA, L.L.C., Fleet Star,
Inc., Apollo Leasing, Inc. and Arizona LNG, L.L.C., each of
which are wholly owned subsidiaries of Earth LNG
(collectively referred to hereinafter as “ EBOF
”) a Delaware corporation and (iii) PNG Ventures, Inc.
(“ PNGX
”) a Nevada corporation. (BFI, EBOF and PNGX may be
referred to hereinafter individually as a “ Party
” and collectively as the “ Parties
.”)
WHEREAS on or about April
9, 2008, EBOF issued 535,000 shares of Series A Preferred
Stock (the “ Preferred
Stock ,” a copy of the stock certificate
representing the Preferred Stock has been attached hereto as
Exhibit
A ) to BFI which carried certain rights, powers and
preferences as outlined in the Certificate of Amendment of
the Certificate of Incorporation of EBOF (the “
Certificate of
Designation ,” a copy of which has been attached
hereto as Exhibit
B ) filed with the Delaware Secretary of State and
disclosed in EBOF’s Form 8-K filed with the United
States Securities and Exchange Commission on April 25,
2008;
WHEREAS,
the Preferred Stock provided certain rights, powers and
preferences, including a restriction on selling or otherwise
disposing of any EBOF asset (which was violated pursuant to
the actions taken by EBOF related to the BCA Deal defined
below) and a mandatory redemption which required EBOF to
redeem the Preferred Stock on April 27, 2008, at a redemption
price of $1.35 per share of Preferred Stock for a total
redemption amount of $722,250 (the “ Mandatory
Redemption Amount ”), the failure to deliver such
Mandatory Redemption Amount being a “ Deemed
Liquidation Event ” (as defined in the
Certificate of Designation);
WHEREAS,
the Preferred Stock provided certain rights, powers and
preferences, including the right to convert the Preferred
Shares into shares of EBOF’s common stock (the “
Common
Stock ”) at a conversion price, upon a Deemed
Liquidation Event, of $.0025 for every dollar of Preferred
Stock;
WHEREAS,
in connection with the purchase of the Preferred Stock, EBOF
placed 50,000,000 shares of its common stock into escrow with
EBOF’s transfer agent, Nevada Agency and Trust Company
(the “ EBOF Escrow
Agent ”) to be held pursuant to an escrow
agreement, for the benefit of BFI;
WHEREAS,
on April 30, 2008, BFI made a demand upon EBOF for payment of
the Mandatory Redemption Amount pursuant to the Certificate of
Designation (a copy of such demand has been attached hereto as
Exhibit
C) ;
WHEREAS,
on or about May 2, 2008, BFI and EBOF entered into an
Assignment Agreement (the “ Assignment
Agreement ,” a copy of which has been attached
hereto as Exhibit
D ) whereby EBOF agreed to assign $535,000 due to EBOF
related to the sale of EBOF’s interest in Biofuels
Company of America, LLC (the “ BCA Deal
”) directly to BFI. In connection with such assignment,
EBOF executed an Irrevocable Funds Instruction Letter (the
“ Funds
Letter ,” a copy of which has been attached
hereto as Exhibit
E ) authorizing the aforementioned $535,000 to be
delivered directly to BFI via wire transfer;
WHEREAS,
initially on May 8, 2008, BFI sent notice to all parties
involved in the BCA Deal of the Assignment Agreement. At the
end of May, BFI learned funds from the BCA Deal were delivered
directly to EBOF despite the Assignment Agreement and Funds
Letter. Again on May 27, 2008, BFI’s counsel sent notice
to all parties involved in the BCA Deal demanding return of
the funds due to BFI pursuant to the Assignment Agreement. As
of the Effective Date, EBOF and the parties involved in the
BCA Deal have failed to deliver funds as agreed to in the
Assignment Agreement.
WHEREAS,
as of the Effective Date herein, EBOF has failed to deliver
the Mandatory Redemption Amount to BFI due under the
Certificate of Designation and therefore a Deemed Liquidation
Event has occurred;
WHEREAS,
pursuant to the binding letter agreement between BFI and EBOF
executed May 15, 2008, and subsequently amended and restated
on May 22, 2008 (the “ LOI
,” a copy of which has been attached hereto as
Exhibit
F ), PNGX agreed acquire 100% of Earth LNG, Inc., a
wholly owned subsidiary of EBOF, and all of Earth LNG,
Inc.’s subsidiaries in exchange for a controlling
interest of PNGX’s common stock (the final closing and
effectiveness of such transaction shall be referred to
hereinafter as the “ Merger
”). Pursuant to the LOI, PNGX agreed to assume financial
responsibility for the entire Mandatory Redemption Amount (the
“ PNGX
Assumption ”). As of the Effective Date herein,
PNGX and EBOF have not finalized nor completed the
Merger;
WHEREAS,
on or about May 29, 2008, BFI filed an action against EBOF and
Earth LNG, Inc. entitled Black Forest
International, LLC v. Earth Biofuels, Inc. et al. Case
No: 2008 CA 008514 NC (the “ Action
”) in the Circuit Court of the Twelfth Judicial Circuit,
Sarasota County, Florida (the “ Court
”), whereby BFI asserted claims against EBOF alleging,
among other things, that EBOF failed to pay BFI the Mandatory
Redemption Amount due and owing under the Certificate of
Designation as of the Effective Date herein;
WHEREAS,
PNGX has notified EBOF and BFI that it will be unable to
assume the PNGX Assumption as agreed to in the LOI and
therefore breached such LOI. Accordingly, such amount remains
due and owing to BFI by EBOF pursuant to the Certificate of
Designation;
WHEREAS,
on or about June ____, 2008, BFI amended the Action to include
PNGX as a defendant related to claims against PNGX for failure
to deliver the PNGX Assumption as described
above;
WHEREAS, EBOF and PNGX have
notified the relevant Parties that they (i) wish to complete
the Merger and (ii) do not have sufficient cash, nor do they
anticipate having sufficient cash in the near future, to
satisfy the claims made in the Action, or to defend the
Action, and the Parties seek to resolve this Action and agree
to settle the Mandatory Redemption Amount and breach of the
LOI, as further described herein;
WHEREAS, EBOF and PNGX
currently only have the means to satisfy payment of the bona
fide claims made herein through the issuance of authorized
shares of the relevant Party’s common stock pursuant to
Section 3(a)(10) of the Securities Act of 1933 (hereinafter
the “ Act
”);
WHEREAS, the Parties desire
to resolve, settle, and compromise all bona fide claims
asserted against EBOF and PNGX for the Mandatory Redemption
Amount and related claims, which arise out of or relate to
the Certificate of Designation and breach of the
LOI;
NOW,
THEREFORE, with this background incorporated herein and in
consideration of the mutual covenants described in this
Agreement, the Parties hereby agree to the following
settlement:
AGREEMENT
1.
Settlement
Conditions . With the exception
of the settlement of the EBOF-BFI Note (as defined in Section
2.1), the Parties hereby agree that the terms, conditions and
covenants herein shall be contingent upon the final closing of
the Merger (the “ Closing
”) and the Parties shall not be bound by such terms of
this Agreement until such Closing which, according to the LOI,
shall occur by or before June 30, 2008.
2.
BFI
Settlement Terms . The Parties hereby
agree to settle the Mandatory Redemption Amount due and owing
to BFI for a settlement amount, which shall include all legal
fees and additional contract damages incurred by BFI, for a
settlement amount of $751,250 (the “ BFI Settlement
Amount ”). This BFI Settlement Amount
shall be paid to BFI as follows:
2.1
EBOF-BFI
Note . Immediately upon execution of this
Agreement, and as settlement and redemption of 92,592
Preferred Shares, EBOF shall issue to BFI a $125,000
convertible promissory note (the “ EBOF-BFI
Note ,” a copy of which has been attached hereto
as Exhibit
G ). The EBOF-BFI Note shall not be contingent upon the
Closing of the Merger and, pursuant to this Agreement, shall
be convertible at anytime into freely tradeable and
non-legended EBOF common shares from the EBOF-BFI Settlement
Shares Pool 1 (as
defined below). the number of such shares to be delivered to
BFI shall be derived by dividing a dollar amount of the
EBOF-BFI Note to be converted by .0025, the conversion price
previously agreed to in the Certificate of Designation upon
the occurrence of a Deemed Liquidation Event.
2.2
EBOF-BFI
Settlement Shares Pool . The 50,000,000
shares of EBOF common stock currently held by the EBOF Escrow
Agent, as described in the recitals herein, shall remain in
escrow and shall be held by the EBOF Escrow Agent for the
benefit of BFI pursuant to the terms of the EBOF-BFI Note and
this Agreement. The EBOF Escrow Agent shall
continue to hold the 50,000,000 shares of EBOF common stock
(the “ EBOF-BFI
Settlement Shares Pool ”), and immediately
following the entry of an order by the Court in accordance
with Section 4 herein, such
shares shall be considered issued pursuant to an exemption
from registration in Section 3(a)(10) of the Act 2 , to be
utilized to satisfy the EBOF-BFI Note. The EBOF-BFI Settlement
Shares Pool shall be held in escrow for the benefit of BFI
pursuant to the escrow agreement (the “ EBOF-BFI Escrow
Agreement ,” a copy of which has been attached
hereto as Exhibit
H ). Pursuant to the EBOF-BFI Escrow Agreement, the
EBOF Escrow Agent shall, upon the sole request of BFI and with
no request or confirmation of EBOF, issue in the name of BFI,
or any of it’s assignees, the number of shares requested
so long as the number of shares requested does not make BFI
the owner of more than 4.99% of the total number of issued and
outstanding shares of EBOF common stock; provided, however
, such restriction may be waived, in whole or in part, upon
sixty (60) days prior notice from BFI to the EBOF Escrow Agent
whereby BFI may decide to convert shares of the EBOF-BFI
Settlement Shares Pool to achieve an interest of greater than
4.99%.
2.3
PNGX-BFI
Note . Upon the Closing, and as settlement
and redemption of the remaining 442,407 Preferred Shares, PNGX
shall issue to BFI a $626,250 convertible promissory note (the
“ PNGX-BFI
Note ,” a copy of which has been attached hereto
as Exhibit
I ) which shall be issued. A portion of the PNGX-BFI
Note equal to $63,000 (the “ Minority
PNGX-BFI Note Interest ”) shall, pursuant to this
Agreement and the PNGX-BFI Note, be convertible into freely
tradeable
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