October
29, 2009
VIA FACSIMILE, U.S. MAIL AND
EDGAR CORRESPONDENCE
Tia
Jenkins
Senior
Assistant Chief Accountant
Division
of Corporation Finance
Mail Stop
3561
Securities
and Exchange Commission
100 F
Street, N.E.
Washington,
D.C. 20549
|
Re:
|
Global Clean Energy Holdings,
Inc.
|
|
Form
10-K for the Fiscal Year Ended December 31,
2008
|
Dear Ms.
Jenkins:
This
letter will respond to the Staff’s letter of comments, dated October 15, 2009,
to Global Clean Energy Holdings, Inc. (“Company”) regarding additional comments
to the Company’s above-referenced report. Our responses correspond to the
numbers you placed adjacent to your comments.
Form 10-K for Fiscal Year
Ended December 31, 2008
Report of Independent
Registered Public Accounting Firm, page F-2
1. As
the Staff has noted, the consolidated financial statements include the
cumulative amounts from the inception of the development stage, in connection
with the discontinuance of the bio-pharmaceutical operations. The cumulative
information is now marked as “unaudited” and the associated audit report has
been revised in accordance with the accommodation granted by the Commission.
Please see the revised financial statements attached hereto as Exhibit A, which
financial statements have been marked to show the changes we propose to
make.
Bruce
K. Nelson
Chief
Financial Officer
|
6033 W. Century Boulevard
Suite 895
Los Angeles, California 90045
|
Telephone: 310.641.4234
Email: bnelson@gceholdings.com
Web: www.gceholdings.com
|
Notes to Consolidated
Financial Statements
Note A- Organization and
Significant Accounting Policies
Principles of Consolidation,
page F-8
2. As
the Staff has noted, our analysis concluded that GCE Mexico and Asideros are
variable interest entities. In the accompanying financial statements, the
financial statements of GCE Mexico and Asideros are consolidated. As
has been explained in our previous correspondence to the Staff, the financial
statements of Asideros had been included in our consolidated financial
statements as originally filed. We have clarified in Note A,
Principles of Consolidation, that the Company is the primary beneficiary of
Asideros and that the financial statements of Asideros have been consolidated in
accordance with FIN46(R). We have also clarified in Note A,
Principles of Consolidation, that the Company is the primary beneficiary of GCE
Mexico and that the financial statements of GCE Mexico have been consolidated in
accordance with FIN46(R). However, in response to the Staff’s
comment, we point out that GCE Mexico has functioned as a pass-through entity in
that the preferred members made their investment in GCE Mexico, and
simultaneously GCE Mexico made its investment in Asideros. At
December 31, 2008, GCE Mexico has no assets apart from its investment in
Asidero, no liabilities (except as discussed in the following
sentence), and no contingent liabilities. GCE
Mexico has the obligation to pay a “preferred return” of 12% of their investment
to the preferred members. Based on the expectation that this
obligation would be paid from distributable cash of the consolidated entity,
when available, a liability was reported in the consolidated financial
statements as originally filed. At December 31, 2008, the amount of
the “Accrued Return on Minority Interest” was $138,014. In summary,
all assets and liabilities of Asideros and GCE Mexico have been reported on a
consolidated basis in the financial statements as originally
filed. We believe that in the footnotes to the accompanying
consolidated financial statements, these factors have been clarified to better
disclose a) the accounting for Asideros and GCE Mexico (that they are variable
interest entities and have been consolidated); b) all assets and liabilities of
the group; c) the nature of the operations of the group; and d) the rights and
obligations of both the Company and of the Minority Interests.
Exhibits
3.
As requested, the operating agreement for GCE Mexico and the English
translation of the Articles of Incorporation (and By-Laws) of Asideros are
attached as Exhibits B and C.
* * * * *
As
requested by the Staff, we hereby acknowledge that:
|
·
|
This
Company is responsible for the adequacy and accuracy of the disclosure in
the filing;
|
|
·
|
Staff
comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to the
filing; and
|
|
·
|
This
Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
|
Please
direct questions regarding this letter to the undersigned at (310)
641-4234.
Sincerely
yours,
|
|
GLOBAL
CLEAN ENERGY HOLDINGS,
INC.
|
|
/s/ BRUCE
NELSON
|
Bruce
Nelson,
|
Chief
Financial Officer
|
Bruce
K. Nelson
Chief
Financial Officer
|
6033 W. Century Boulevard
Suite 895
Los Angeles, California 90045
|
Telephone: 310.641.4234
Email: bnelson@gceholdings.com
Web: www.gceholdings.com
|
Enclosures
cc:
|
Mr.
Richard Palmer (w/enclosures)
|
Mr. David
Walker (w/enclosures)
Mr. Scott
Gilderman,CPA (w/enclosures)
Mr. Craig
Allen, CPA(w/enclosures)
Mr. Mark
Andersen, CPA (w/enclosures)
Ms.
Alawna Echols , CPA (w/enclosures)
Istvan
Benko, Esq. (w/enclosures)
Bruce
K. Nelson
Chief
Financial Officer
|
6033 W. Century Boulevard
Suite 895
Los Angeles, California 90045
|
Telephone: 310.641.4234
Email: bnelson@gceholdings.com
Web: www.gceholdings.com
|
CERTIFIED
PUBLIC ACCOUNTANTS
AND
BUSINESS
CONSULTANTS
5
Triad Center, Suite 750
Salt
Lake City, UT 84180-1128
Phone:
(801) 532-2200
Fax:
(801) 532-7944
www.hbmcpas.com
|
Registered
with the Public Company
Accounting
Oversight Board
A
Member of the Forum of Firms
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders
Global
Clean Energy Holdings, Inc.
Los
Angeles, CA
We
have audited the accompanying consolidated balance sheets of Global Clean Energy
Holdings, Inc. and subsidiaries (a development stage company) as of December 31,
2008 and 2007, and the related consolidated statements of operations,
stockholders’ deficit, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Global Clean Energy
Holdings, Inc. and subsidiaries as of December 31, 2008 and 2007, and the
results of their operations and their cash flows for the years then ended, in
conformity with U.S. generally accepted accounting
principles.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. The Company is a development stage
enterprise previously engaged in developing bio-pharmaceutical research and
currently developing bio-diesel fuels. As discussed in Note B to the
financial statements, the stockholders’ deficit and the operating losses since
inception raise substantial doubt about the Company’s ability to continue as a
going concern. Management’s plans concerning these matters are also
described in Note B. The financial statements do not include any
adjustments that might result from the outcome of these
uncertainties.
/s/
HANSEN, BARNETT & MAXWELL, P.C.
HANSEN, BARNETT & MAXWELL,
P.C.
Salt Lake City, Utah
April 14,
2009
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
Development Stage Company)
CONSOLIDATED
BALANCE SHEETS
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
291,309 |
|
|
$ |
805,338 |
|
Subscription
receivable
|
|
|
- |
|
|
|
75,000 |
|
Other
current assets
|
|
|
131,715 |
|
|
|
51,073 |
|
Total
Current Assets
|
|
|
423,024 |
|
|
|
931,411 |
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT
|
|
|
|
|
|
|
|
|
Land
|
|
|
2,051,282 |
|
|
|
- |
|
Plantation
development costs
|
|
|
2,117,061 |
|
|
|
308,777 |
|
Plantation
equipment
|
|
|
509,037 |
|
|
|
- |
|
Office
equipment
|
|
|
10,993 |
|
|
|
1,127 |
|
|
|
|
4,688,373 |
|
|
|
309,904 |
|
Less
accumulated depreciation
|
|
|
(22,296 |
) |
|
|
(563 |
) |
|
|
|
4,666,077 |
|
|
|
309,341 |
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
2,691 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
5,091,792 |
|
|
$ |
1,240,752 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
1,890,999 |
|
|
$ |
1,656,292 |
|
Accrued
payroll and payroll taxes
|
|
|
1,158,808 |
|
|
|
950,971 |
|
Accrued
interest payable
|
|
|
522,097 |
|
|
|
300,651 |
|
Accrued
return on minority interest
|
|
|
138,014 |
|
|
|
- |
|
Secured
promissory note
|
|
|
460,000 |
|
|
|
250,000 |
|
Notes
payable to shareholders
|
|
|
56,000 |
|
|
|
56,000 |
|
Convertible
notes payable
|
|
|
193,200 |
|
|
|
193,200 |
|
Research
and development obligation
|
|
|
2,607,945 |
|
|
|
2,701,555 |
|
Financial
instrument
|
|
|
- |
|
|
|
2,166,514 |
|
Total
Current Liabilities
|
|
|
7,027,063 |
|
|
|
8,275,183 |
|
|
|
|
|
|
|
|
|
|
MORTGAGE
NOTE PAYABLE
|
|
|
2,051,282 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
MINORITY
INTEREST
|
|
|
1,962,022 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
|
|
|
Preferred
stock - no par value; 50,000,000 shares authorized
|
|
|
|
|
|
|
|
|
Series
A, convertible; zero and 28,928 shares issued and outstanding,
respectively (aggregate liquidation preference of $0 and $2,892,800,
respectively)
|
|
|
- |
|
|
|
514,612 |
|
Series
B, convertible; 13,000 shares issued or subscribed (aggregate liquidation
preference of $1,300,000)
|
|
|
1,290,735 |
|
|
|
1,290,735 |
|
Common
stock, no par value; 500,000,000 shares authorized; 224,813,819 and
174,838,967 shares issued and outstanding, respectively
|
|
|
17,634,474 |
|
|
|
16,526,570 |
|
Additional
paid-in capital
|
|
|
3,672,724 |
|
|
|
1,472,598 |
|
Deficit
accumulated prior to the development stage
|
|
|
(1,399,577 |
) |
|
|
(1,399,577 |
) |
Deficit
accumulated during the development stage
|
|
|
(27,146,931 |
) |
|
|
(25,439,369 |
) |
Total
Stockholders' Deficit
|
|
|
(5,948,575 |
) |
|
|
(7,034,431 |
) |
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$ |
5,091,792 |
|
|
$ |
1,240,752 |
|
See Notes to Consolidated Financial
Statements
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
From Inception of
|
|
|
|
|
|
|
|
|
|
the Development Stage
|
|
|
|
For the Years Ended
|
|
|
on November 20, 1991
|
|
|
|
December 31,
|
|
|
through
|
|
|
|
2008
|
|
|
2007
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
$ |
1,828,727 |
|
|
$ |
2,949,885 |
|
|
$ |
9,729,285 |
|
Research
and development
|
|
|
- |
|
|
|
986,584 |
|
|
|
986,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(1,828,727 |
) |
|
|
(3,936,469 |
) |
|
|
(10,715,869 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on financial instrument
|
|
|
5,469 |
|
|
|
(147,636 |
) |
|
|
4,722,632 |
|
Interest
income
|
|
|
4,310 |
|
|
|
4,441 |
|
|
|
66,915 |
|
Interest
expense
|
|
|
(234,470 |
) |
|
|
(51,929 |
) |
|
|
(1,472,019 |
) |
Interest
expense from amortization of discount on secured promissory
note
|
|
|
(36,369 |
) |
|
|
(250,000 |
) |
|
|
(286,369 |
) |
Gain
on debt restructuring
|
|
|
- |
|
|
|
485,137 |
|
|
|
2,524,787 |
|
Other
income
|
|
|
- |
|
|
|
- |
|
|
|
906,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income (Expenses)
|
|
|
(261,060 |
) |
|
|
40,013 |
|
|
|
6,462,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Continuing Operations Before Minority Interest in Net
Loss
|
|
|
(2,089,787 |
) |
|
|
(3,896,456 |
) |
|
|
(4,253,438 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest in net loss
|
|
|
315,115 |
|
|
|
- |
|
|
|
315,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Continuing Operations
|
|
|
(1,774,672 |
) |
|
|
(3,896,456 |
) |
|
|
(3,938,323 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Discontinued Operations (net of gain on disposal of MDI-P of
$258,809 in 2007)
|
|
|
67,110 |
|
|
|
(518,428 |
) |
|
|
(22,516,409 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
(1,707,562 |
) |
|
|
(4,414,884 |
) |
|
|
(26,454,732 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividend from beneficial conversion feature
|
|
|
- |
|
|
|
- |
|
|
|
(692,199 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss Applicable to Common Shareholders
|
|
$ |
(1,707,562 |
) |
|
$ |
(4,414,884 |
) |
|
$ |
(27,146,931 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Loss per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Continuing Operations
|
|
$ |
(0.009 |
) |
|
$ |
(0.029 |
) |
|
|
|
|
Income
(Loss) from Discontinued Operations
|
|
$ |
0.001 |
|
|
$ |
(0.004 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(0.008 |
) |
|
$ |
(0.033 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Weighted-Average Common Shares Outstanding
|
|
|
207,895,116 |
|
|
|
134,707,205 |
|
|
|
|
|
See Notes
to Consolidated Financial Statements
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
Period
From November 20, 1991 (Date of Inception of the Development Stage) through
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Prior to
|
|
|
During the
|
|
|
Escrow/
|
|
|
|
|
|
|
Preferred Stock – Series A
|
|
|
Preferred Stock – Series B
|
|
|
Common stock
|
|
|
Paid in
|
|
|
Development
|
|
|
Development
|
|
|
Subscription
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Stage
|
|
|
Receivables
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at October 31, 1991
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
|
1,750,000 |
|
|
$ |
252,997 |
|
|
$ |
- |
|
|
$ |
(1,482,514 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(1,229,517 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restatement
for reverse acquisition of WPI Pharmaceutical, Inc. by Medical
Discoveries, Inc.
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(252,997 |
) |
|
|
- |
|
|
|
252,997 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in merger of WPI Pharmaceutical, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
Discoveries, Inc., $0.01 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,000,000 |
|
|
|
135,000 |
|
|
|
- |
|
|
|
(170,060 |
) |
|
|
- |
|
|
|
- |
|
|
|
(35,060 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at November 20, 1991 (Date of Inception of Development
Stage)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
11,750,000 |
|
|
|
135,000 |
|
|
|
- |
|
|
|
(1,399,577 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1,264,577 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1992
- $0.50 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
200,000 |
|
|
|
100,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
100,000 |
|
1992
- $1.50 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
40,000 |
|
|
|
60,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
60,000 |
|
1993
- $0.97 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
542,917 |
|
|
|
528,500 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
528,500 |
|
1994
- $1.20 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
617,237 |
|
|
|
739,500 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
739,500 |
|
1995
- $0.67 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
424,732 |
|
|
|
283,200 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
283,200 |
|
1996
- $0.66 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
962,868 |
|
|
|
635,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(60,000 |
) |
|
|
575,000 |
|
1997
- $0.43 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
311,538 |
|
|
|
135,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
60,000 |
|
|
|
195,000 |
|
1998
- $0.29 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,236,928 |
|
|
|
650,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
650,000 |
|
1999
- $0.15 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13,334 |
|
|
|
2,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,000 |
|
2001
- $0.15 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
660,000 |
|
|
|
99,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
99,000 |
|
2003
- $0.04 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
20,162,500 |
|
|
|
790,300 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
790,300 |
|
2004
- $0.09 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
20,138,024 |
|
|
|
1,813,186 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,813,186 |
|
2005
- $0.18 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,922,222 |
|
|
|
281,926 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
281,926 |
|
Services
and Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1992
- $0.50 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
500,000 |
|
|
|
250,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
250,000 |
|
1993
- $0.51 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
251,450 |
|
|
|
127,900 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
127,900 |
|
1993
- $0.50 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
800,000 |
|
|
|
400,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
400,000 |
|
1994
- $1.00 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
239,675 |
|
|
|
239,675 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
239,675 |
|
1995
- $0.39 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,333,547 |
|
|
|
1,683,846 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(584,860 |
) |
|
|
1,098,986 |
|
1996
- $0.65 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
156,539 |
|
|
|
101,550 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
101,550 |
|
1997
- $0.29 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
12,500 |
|
|
|
3,625 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,625 |
|
1998
- $0.16 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
683,000 |
|
|
|
110,750 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
110,750 |
|
1999
- $0.30 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
100,000 |
|
|
|
30,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
30,000 |
|
2001
- $0.14 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,971,496 |
|
|
|
284,689 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
284,689 |
|
2002
- $0.11 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,956,733 |
|
|
|
332,236 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
332,236 |
|
2003
- $0.04 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
694,739 |
|
|
|
43,395 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
43,395 |
|
2004
- $0.06 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,189,465 |
|
|
|
66,501 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
66,501 |
|
2005
- $0.18 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
104,167 |
|
|
|
11,312 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
11,312 |
|
2006
- $0.18 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
435,556 |
|
|
|
78,400 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
78,400 |
|
Conversion
of Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1996
- $0.78 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
239,458 |
|
|
|
186,958 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
186,958 |
|
1997
- $0.25 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
100,000 |
|
|
|
25,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
25,000 |
|
1998
- $0.20 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
283,400 |
|
|
|
56,680 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
56,680 |
|
2002
- $0.03 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
17,935,206 |
|
|
|
583,500 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
583,500 |
|
2004
- $0.07 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
9,875,951 |
|
|
|
650,468 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
650,468 |
|
Conversion
of preferred stock to common stock, 2006
|
|
|
(7,580 |
) |
|
|
(8,722 |
) |
|
|
- |
|
|
|
- |
|
|
|
10,242,424 |
|
|
|
8,722 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
Issuances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1993
-License - $0.50 share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,000,000 |
|
|
|
1,000,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,000,000 |
|
1997
- Settlement of contract
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
800,000 |
|
|
|
200,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
200,000 |
|
1998
- Issuance of common stock from exercise of warrants, $0.001 per
share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
200,000 |
|
|
|
200 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
200 |
|
2000
- Reversal of shares issued
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(81,538 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Escrow
and Subscription Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1996
- Common stock canceled -$0.34 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,400,000 |
) |
|
|
(472,360 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
472,360 |
|
|
|
- |
|
2000
- Issuance for escrow receivable -$0.09 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,500,000 |
|
|
|
500,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(500,000 |
) |
|
|
- |
|
2000
- Write-off of subscription receivable
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
112,500 |
|
|
|
112,500 |
|
2000
- Research and development costs
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
115,400 |
|
|
|
115,400 |
|
2001
- Research and development costs
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
132,300 |
|
|
|
132,300 |
|
2001
- Operating expenses
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
25,000 |
|
|
|
25,000 |
|
2004
- Termination of escrow agreement
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,356,200 |
) |
|
|
(227,300 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
227,300 |
|
|
|
- |
|
(Continued)
See Notes to Consolidated Financial Statements
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT - (Continued)
Period
From November 20, 1991 (Date of Inception of the Development Stage) through
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Prior to
|
|
|
During the
|
|
|
Escrow/
|
|
|
|
|
|
|
Preferred Stock Series A
|
|
|
Preferred Stock - Series B
|
|
|
Common stock
|
|
|
Paid in
|
|
|
Development
|
|
|
Development
|
|
|
Subscription
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Stage
|
|
|
Receivables
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
carried forward
|
|
|
(7,580 |
) |
|
$ |
(8,722 |
) |
|
|
- |
|
|
$ |
- |
|
|
|
117,749,868 |
|
|
$ |
12,528,359 |
|
|
$ |
- |
|
|
$ |
(1,399,577 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
11,120,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of Options and Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1997
- $0.25 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
87,836 |
|
|
|
21,959 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
21,959 |
|
1999
- Waived option price $0.14 per
share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
170,000 |
|
|
|
24,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
24,000 |
|
Value
of Options Issued for Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1998
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,336,303 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,336,303 |
|
1999
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
196,587 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
196,587 |
|
2001
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
159,405 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
159,405 |
|
2002
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
124,958 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
124,958 |
|
2003
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
295,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
295,000 |
|
2004
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,675,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,675,000 |
|
2006
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
67,350 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
67,350 |
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1994
– Cash contributed
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
102,964 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
102,964 |
|
1995
- Issuance of common stock option to satisfy debt
restructuring
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
20,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
20,000 |
|
2004
- Issuance of preferred stock and warrants for cash
|
|
|
12,000 |
|
|
|
523,334 |
|
|
|
- |
|
|
|
- |
|
|
|
350,000 |
|
|
|
68,845 |
|
|
|
477,821 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,070,000 |
|
2004
- Convertible preferred stock beneficial conversion
dividend
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
692,199 |
|
|
|
- |
|
|
|
(692,199 |
) |
|
|
- |
|
|
|
- |
|
2005
- Issuance of preferred stock and warrants for cash
|
|
|
30,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
2005
- Reclassification of warrants to a financial
instrument
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,435,713 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,435,713 |
) |
Net
loss from inception through December 31, 2006
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(20,332,286 |
) |
|
|
- |
|
|
|
(20,332,286 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006 (Unaudited)
|
|
|
34,420 |
|
|
|
514,612 |
|
|
|
- |
|
|
|
- |
|
|
|
118,357,704 |
|
|
|
15,299,017 |
|
|
|
1,056,020 |
|
|
|
(1,399,577 |
) |
|
|
(21,024,485 |
) |
|
|
- |
|
|
|
(5,554,413 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for Global Clean Energy Holdings, LLC
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
36,540,146 |
|
|
|
986,584 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
986,584 |
|
Issuance
of Series B preferred stock for cash, net of offering
costs
|
|
|
- |
|
|
|
- |
|
|
|
13,000 |
|
|
|
1,290,735 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,290,735 |
|
Conversion
of preferred stock to common stock
|
|
|
(5,492 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,983,521 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Share-based
compensation from issuance of options
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
29,652 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
29,652 |
|
Share-based
compensation from issuance of common stock, $0.027 per
share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,357,298 |
|
|
|
117,647 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
117,647 |
|
Amortization
of share-based compensation for common stock held in
escrow
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
510,248 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
510,248 |
|
Release
of escrowed shares upon satisfaction of underlying
milestones
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,567,518 |
|
|
|
123,322 |
|
|
|
(123,322 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Adjustment
of outstanding shares
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
32,780 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
loss for the year ended December 31, 2007
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,414,884 |
) |
|
|
- |
|
|
|
(4,414,884 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
28,928 |
|
|
|
514,612 |
|
|
|
13,000 |
|
|
|
1,290,735 |
|
|
|
174,838,967 |
|
|
|
16,526,570 |
|
|
|
1,472,598 |
|
|
|
(1,399,577 |
) |
|
|
(25,439,369 |
) |
|
|
- |
|
|
|
(7,034,431 |
) |
Reclassification
of financial instrument to equity
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,161,045 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,161,045 |
|
Exchange
of Series A preferred stock for common stock
|
|
|
(28,928 |
) |
|
|
(514,612 |
) |
|
|
- |
|
|
|
- |
|
|
|
28,927,000 |
|
|
|
514,612 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance
of common stock for cash at $0.036 per share
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,777,778 |
|
|
|
100,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
100,000 |
|
Issuance
of warrants in satisfaction of accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payable
and amendment of note payable
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
160,934 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
160,934 |
|
Share-based
compensation from issuance of options
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
184,146 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
184,146 |
|
Amortization
of share-based compensation for common stock held in
escrow
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
187,293 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
187,293 |
|
Release
of escrowed shares upon satisfaction of underlying
milestones
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
18,270,074 |
|
|
|
493,292 |
|
|
|
(493,292 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
loss for the year ended December 31, 2008
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,707,562 |
) |
|
|
- |
|
|
|
(1,707,562 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
|
- |
|
|
$ |
- |
|
|
|
13,000 |
|
|
$ |
1,290,735 |
|
|
|
224,813,819 |
|
|
$ |
17,634,474 |
|
|
$ |
3,672,724 |
|
|
$ |
(1,399,577 |
) |
|
$ |
(27,146,931 |
) |
|
$ |
- |
|
|
$ |
(5,948,575 |
) |
See Notes to Consolidated Financial
Statements
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
From Inception of
|
|
|
|
|
|
|
the Development Stage
|
|
|
|
For the Years Ended
|
|
|
on November 20, 1991
|
|
|
|
December 31,
|
|
|
through
|
|
|
|
2008
|
|
|
2007
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(1,707,562 |
) |
|
$ |
(4,414,884 |
) |
|
$ |
(26,454,732 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency transaction loss (gain)
|
|
|
(107,369 |
) |
|
|
296,370 |
|
|
|
250,022 |
|
Gain
on debt restructuring
|
|
|
- |
|
|
|
(485,137 |
) |
|
|
(2,524,787 |
) |
Share-based
compensation for services, expenses, litigation, and research and
development
|
|
|
371,439 |
|
|
|
3,118,021 |
|
|
|
12,714,180 |
|
Commitment
for research and development obligation
|
|
|
- |
|
|
|
- |
|
|
|
2,378,445 |
|
Depreciation
|
|
|
1,365 |
|
|
|
10,494 |
|
|
|
139,031 |
|
Reduction
of escrow receivable from research and development
|
|
|
- |
|
|
|
- |
|
|
|
272,700 |
|
Unrealized
loss (gain) on financial instrument
|
|
|
(5,469 |
) |
|
|
147,636 |
|
|
|
(4,722,632 |
) |
Interest
expense from amortization of discount on secured promissory
note
|
|
|
36,369 |
|
|
|
250,000 |
|
|
|
286,369 |
|
Minority
interest in net loss
|
|
|
(315,115 |
) |
|
|
- |
|
|
|
(315,115 |
) |
Reduction
of legal costs
|
|
|
- |
|
|
|
- |
|
|
|
(130,000 |
) |
Write-off
of subscriptions receivable
|
|
|
- |
|
|
|
- |
|
|
|
112,500 |
|
Impairment
loss on assets
|
|
|
- |
|
|
|
- |
|
|
|
9,709 |
|
Gain
on disposal of assets, net of losses
|
|
|
- |
|
|
|
(258,809 |
) |
|
|
(228,445 |
) |
Write-off
of receivable
|
|
|
- |
|
|
|
- |
|
|
|
562,240 |
|
Note
payable issued for litigation
|
|
|
- |
|
|
|
- |
|
|
|
385,000 |
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
- |
|
|
|
- |
|
|
|
(7,529 |
) |
Other
current assets
|
|
|
(80,642 |
) |
|
|
(51,073 |
) |
|
|
(131,715 |
) |
Accounts
payable and accrued expenses
|
|
|
802,314 |
|
|
|
678,104 |
|
|
|
5,020,326 |
|
Net
Cash Used in Operating Activities
|
|
|
(1,004,670 |
) |
|
|
(709,278 |
) |
|
|
(12,384,433 |
) |
Cash
Flows From Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Plantation
development costs
|
|
|
(1,787,916 |
) |
|
|
(308,777 |
) |
|
|
(2,096,693 |
) |
Purchase
of property and equipment
|
|
|
(518,903 |
) |
|
|
- |
|
|
|
(740,237 |
) |
Proceeds
from disposal of assets
|
|
|
- |
|
|
|
310,000 |
|
|
|
310,000 |
|
Change
in deposits
|
|
|
(2,691 |
) |
|
|
- |
|
|
|
(53,791 |
) |
Issuance
of note receivable
|
|
|
- |
|
|
|
- |
|
|
|
(313,170 |
) |
Payments
received on note receivable
|
|
|
- |
|
|
|
- |
|
|
|
130,000 |
|
Net
Cash Provided by (Used in) Investing Activities
|
|
|
(2,309,510 |
) |
|
|
1,223 |
|
|
|
(2,763,891 |
) |
Cash
Flows From Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from common stock, preferred stock, and warrants for
cash
|
|
|
175,000 |
|
|
|
1,215,735 |
|
|
|
11,424,580 |
|
Proceeds
from issuance of preferred membership in GCE Mexico I,
LLC
|
|
|
2,415,151 |
|
|
|
- |
|
|
|
2,415,151 |
|
Contributed
equity
|
|
|
- |
|
|
|
- |
|
|
|
131,374 |
|
Proceeds
from notes payable and related warrants
|
|
|
260,000 |
|
|
|
350,000 |
|
|
|
1,946,613 |
|
Payments
on notes payable
|
|
|
(50,000 |
) |
|
|
(100,000 |
) |
|
|
(951,287 |
) |
Proceeds
from convertible notes payable
|
|
|
- |
|
|
|
- |
|
|
|
571,702 |
|
Payments
on convertible notes payable
|
|
|
- |
|
|
|
- |
|
|
|
(98,500 |
) |
Net
Cash Provided by Financing Activities
|
|
|
2,800,151 |
|
|
|
1,465,735 |
|
|
|
15,439,633 |
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
|
|
(514,029 |
) |
|
|
757,680 |
|
|
|
291,309 |
|
Cash
and Cash Equivalents at Beginning of Year
|
|
|
805,338 |
|
|
|
47,658 |
|
|
|
- |
|
Cash
and Cash Equivalents at End of Year
|
|
|
291,309 |
|
|
|
805,338 |
|
|
|
291,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
13,024 |
|
|
$ |
12,146 |
|
|
|
|
|
Noncash
Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
of financial instrument to permanent equity
|
|
$ |
2,161,045 |
|
|
$ |
- |
|
|
|
|
|
Acquisition
of land in exchange for mortgage note payable
|
|
|
2,051,282 |
|
|
|
- |
|
|
|
|
|
Exchange
of Series A preferred stock for common stock
|
|
|
514,612 |
|
|
|
- |
|
|
|
|
|
Release
of common stock held in escrow
|
|
|
493,292 |
|
|
|
123,322 |
|
|
|
|
|
Issuance
of warrants in satisfaction of accounts payable
|
|
|
124,565 |
|
|
|
- |
|
|
|
|
|
Accrual
of return on minority interest
|
|
|
138,014 |
|
|
|
- |
|
|
|
|
|
Equipment
depreciation capitalized to plantation development
costs
|
|
|
20,638 |
|
|
|
- |
|
|
|
|
|
See Notes to
Consolidated Financial Statements
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A — ORGANIZATION AND
SIGNIFICANT ACCOUNTING POLICIES
Medical
Discoveries, Inc. was incorporated under the laws of the State of Utah on
November 20, 1991. Effective as of August 6, 1992, the Company merged
with and into WPI Pharmaceutical, Inc., a Utah corporation (“WPI”), pursuant to
which WPI was the surviving corporation. Pursuant to the MDI-WPI merger, the
name of the surviving corporation was changed to Medical Discoveries, Inc.
(“MDI”). MDI’s initial purpose was the research and development of an
anti-infection drug know as MDI-P.
On
March 22, 2005, MDI formed MDI Oncology, Inc., a Delaware corporation, as a
wholly-owned subsidiary to acquire and operate the assets and business
associated with the Savetherapeutics transaction. With this
transaction, MDI acquired the SaveCream technology and carried on the research
and development of this drug candidate. As discussed in Note M, MDI
made the decision in 2007 to discontinue further development of these two drug
candidates and sell these technologies.
On
September 7, 2007, MDI entered into a share exchange agreement pursuant to which
it acquired all of the outstanding ownership interests in Global Clean Energy
Holdings, LLC, discussed further in Note C. Global Clean Energy
Holdings, LLC was an entity that had certain trade secrets, know-how, business
plans, term sheets, business relationships, and other information relating to
the start-up of a business related to the cultivation and production of seed oil
from the seed of the Jatropha plant. With this transaction, MDI
commenced the research and development of a business whose purpose will be
providing feedstock oil intended for the production of bio-diesel.
On
January 29, 2008, a meeting of shareholders was held and, among other things,
the name Medical Discoveries, Inc. was changed to Global Clean Energy Holdings,
Inc. (the “Company”).
Effective
April 23, 2008, the Company entered into a limited liability company agreement
to form GCE Mexico I, LLC (GCE Mexico) along with six unaffiliated
investors. The Company owns 50% of the common membership interest of
GCE Mexico and five of the unaffiliated investors own the other 50% of the
common membership interest. Additionally, a total of 1,000 preferred
membership units were issued to two of the unaffiliated
investors. GCE Mexico owns a 99% interest in Asideros Globales
Corporativo, (Asideros) a corporation newly organized under the laws of Mexico,
and the Company owns the remaining 1% directly. GCE Mexico was
organized primarily to, among other things, acquire land in Mexico through
Asideros for the cultivation of the Jatropha plant.
Principles
of Consolidation
The
consolidated financial statements include the accounts of Global Clean Energy
Holdings, Inc., its subsidiaries, and the variable interest entities of GCE
Mexico and Asideros. All significant intercompany transactions have been
eliminated in consolidation.
Financial
Accounting Standards Board Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest
Entities, (FIN 46(R)), requires that if an entity is the primary
beneficiary of a variable interest entity (VIE), the entity should consolidate
the assets, liabilities and results of operations of the VIE in its consolidated
financial statements. Global Clean Energy Holdings, Inc. considers
itself to be the primary beneficiary of GCE Mexico and Asideros, and
accordingly, has consolidated these entities since April 2008, with the equity
interests of the unaffiliated investors in GCE Mexico presented as Minority
Interests in the accompanying consolidated financial
statements.
Development
Stage Company
The
Company has not yet obtained substantial revenue from its planned principal
operations and is, therefore, considered a development stage company as defined
in Statement of Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting by
Development Stage Enterprises.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and
Cash Equivalents
For
purposes of the statement of cash flows, the Company considers all highly liquid
debt instruments maturing in three months or less to be cash
equivalents.
Concentration of Credit
Risk
The
Company’s financial instruments that are exposed to concentration of credit risk
consist primarily of cash and cash equivalents on deposit in excess of
federally-insured limits in the aggregate amount of $27,891 at December 31,
2008. The Company has maintained its cash balances at what management considers
to be high credit-quality financial institutions.
As
described in Note D, substantially all property and equipment relate to the
development of a plantation to cultivate the Jatropha Curcas
plant. Property and equipment are stated at
cost. Depreciation of office equipment is computed using the
straight-line method over estimated useful lives of 5
years. Plantation equipment is depreciated using the straight-line
method over estimated useful lives of 5 to 15 years and is currently being
capitalized as part of plantation development costs. Plantation
development costs are being accumulated in the balance sheet during the
development period and will be accounted for in accordance with Statement of
Position 85-3, Accounting by
Agricultural Producers and Agricultural Cooperatives (SOP
85-3). Plantation development costs are not currently being
depreciated. Under the provisions of SOP 85-3, land developments and
other improvements with indefinite lives are capitalized and not
depreciated. Other developments that have a limited life and
intermediate-life plants that have growth and production cycles of more than one
year are depreciated over their respective lives once they are placed in
service. Upon completion of the plantation development, the
development costs having a limited life and the costs of cultivating the
Jatropha plants will be depreciated over the useful lives of the related
assets. Land, plantation development costs, and plantation equipment
are located in Mexico.
Except
for costs incurred during the development period of the plantation, normal
maintenance and repair items are charged to costs and expensed as
incurred. During the development period, maintenance, repairs, and
depreciation of plantation equipment have been capitalized as part of the
plantation development costs. The cost and accumulated depreciation
of property and equipment sold or otherwise retired are removed from the
accounts and gain or loss on disposition is reflected in results of
operations.
In
accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, the carrying value of intangible assets
and other long-lived assets is reviewed on a regular basis for the existence of
facts or circumstances that may suggest impairment. The Company recognizes
impairment when the sum of the expected undiscounted future cash flows is less
than the carrying amount of the asset. Impairment losses, if any, are measured
as the excess of the carrying amount of the asset over its estimated fair
value.
The
Company utilizes the liability method of accounting for income taxes. Under the
liability method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and the carryforward of operating losses and tax credits, and are measured using
the enacted tax rates and laws that will be in effect when the differences are
expected to reverse. A valuation allowance against deferred tax assets is
recorded when it is more likely than not that such tax benefits will not be
realized. Research tax credits are recognized as
utilized.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue
Recognition
Revenue
is recognized in accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 104, Revenue Recognition in Financial
Statements. Revenue is recognized when all of the following
criteria are met: persuasive evidence of an arrangement exists; delivery has
occurred or services have been rendered; the seller’s price to the buyer is
fixed or determinable; collectibility is reasonably assured; and title and the
risks and rewards of ownership have transferred to the buyer.
Prior to
the discontinuation of its bio-pharmaceutical business as discussed in Note M,
research and development had been the principal function of the Company. For
fiscal years ended December 31, 2006 and earlier, research and development
expense included certain costs which were directly associated with the Company’s
research and development of the Company’s anti-infective pharmaceutical, MDI-P,
as well as the purchase of the intellectual property assets of Savetherapeutics
AG. For the year ended December 31, 2007, research and development
costs related to the exchange of common stock for the trade secrets, know-how,
etc. of Global Clean Energy Holdings, LLC (See Note C). Research and
development costs totaled $0 and $986,584 for the years ended December 31,
2008 and 2007, respectively. For years prior to the discontinuation
of its bio-pharmaceutical business, research and development costs are included
in loss from discontinued operations.
Foreign Currency
Translation
The
Company’s functional and reporting currency is the United States dollar.
Monetary assets and liabilities denominated in foreign currencies are translated
using the exchange rate prevailing at the balance sheet date. Gains and losses
arising on translation or settlement of foreign currency denominated
transactions or balances are included in the determination of income or loss.
Foreign currency transactions are primarily undertaken in Euros. Foreign
currency balances denominated in Euros relate to the discontinued
bio-pharmaceutical business. Consequently, foreign currency gains and
losses have been included in loss from discontinued operations. The
Company has not entered into derivative instruments to offset the impact of
foreign currency fluctuations.
Fair
Value of Financial Instruments
The
Company estimates that the fair value of all financial instruments at
December 31, 2008 do not differ materially from the aggregate carrying
values of its financial instruments recorded in the accompanying balance sheet.
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies.
Considerable judgment is required in interpreting market data to develop the
estimates of fair value, and accordingly, the estimates are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange.
Management
uses estimates and assumptions in preparing financial statements. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and reported revenues and
expenses. Significant estimates used in preparing these financial statements
include a) those assumed in determining the valuation of common stock, warrants,
and stock options, b) estimated useful lives of plantation equipment, and c)
undiscounted future cash flows for purpose of evaluating possible impairment of
long-term assets. It is at least reasonably possible that the significant
estimates used will change within the next year.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Basic and
Diluted Loss per Share
Basic
loss per share is computed on the basis of the weighted-average number of common
shares outstanding during the year. Diluted loss per share is
computed on the basis of the weighted-average number of common shares and all
dilutive potentially issuable common shares outstanding during the year. Common
stock issuable upon conversion of debt and preferred stock, common stock held in
escrow, stock options and stock warrants have not been included in the loss per
share for 2008 and 2007 as they are anti-dilutive. The potentially
issuable common shares as of December 31, 2008 and 2007 are as
follows:
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Convertible
notes
|
|
|
128,671 |
|
|
|
128,671 |
|
Convertible
preferred stock - Series A
|
|
|
- |
|
|
|
57,856,000 |
|
Convertible
preferred stock - Series B
|
|
|
11,818,181 |
|
|
|
11,818,181 |
|
Warrants
|
|
|
29,742,552 |
|
|
|
31,033,379 |
|
Compensation-based
stock options and warrants
|
|
|
51,809,083 |
|
|
|
44,883,000 |
|
Common
stock held in escrow
|
|
|
4,567,519 |
|
|
|
22,837,593 |
|
|
|
|
98,066,006 |
|
|
|
168,556,824 |
|
The
Company recognizes compensation expense for stock-based awards expected to vest
on a straight-line basis over the requisite service period of the award based on
their grant date fair value. The Company estimates the fair value of
stock options using a Black-Scholes option pricing model which requires
management to make estimates for certain assumptions regarding risk-free
interest rate, expected life of options, expected volatility of stock and
expected dividend yield of stock.
Reclassifications
Certain amounts from the 2007
consolidated balance sheet have been reclassified in the current presentation to
conform to the 2008 presentation of current liabilities. These
reclassifications had no effect on the total amount of current liabilities or
the amount of stockholders’ deficit.
Recently
Issued Accounting Statements
In
September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No.
157, Fair Value Measurements
(SFAS 157). SFAS 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. This statement is
effective for the Company’s fiscal year beginning January 1, 2008 for
financial assets and liabilities and January 1, 2009 for non-financial assets
and liabilities. The adoption of SFAS 157 for financial assets and
liabilities on January 1, 2008 did not have a material impact on the
Company’s financial statements. Management is currently evaluating
the impact of SFAS 157 for non-financial assets and liabilities, if any, on the
reporting of its financial position and results of operations.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
141(R)), which replaces SFAS 141, Business
Combinations. SFAS 141(R) retains the underlying concepts of
SFAS 141 in that all business combinations are still required to be accounted
for at fair value under the acquisition method of accounting, but SFAS 141(R)
changed the method of applying the acquisition method in a number of significant
aspects. Acquisition costs will generally be expensed as incurred;
noncontrolling interests will be valued at fair value at the acquisition date;
in-process research and development will be recorded at fair value as an
indefinite-lived intangible asset at the acquisition date; restructuring costs
associated with a business combination will generally be expensed subsequent to
the acquisition date; and changes in deferred tax asset valuation allowances and
income tax uncertainties after the acquisition date generally will affect income
tax expense. SFAS 141(R) is effective on a prospective basis for all business
combinations for which the acquisition date is on or after the beginning of the
first annual period subsequent to December 15, 2008, with the exception of
the accounting for valuation allowances on deferred taxes and acquired tax
contingencies. SFAS 141(R) amends SFAS 109 such that adjustments made to
valuation allowances on deferred taxes and acquired tax contingencies associated
with acquisitions that closed prior to the effective date of SFAS 141(R) would
also apply the provisions of SFAS 141(R). Early adoption is not
permitted. Management is currently evaluating the effects, if any,
that SFAS 141(R) may have on the Company’s financial
statements. Management does not expect that it will have any
immediate effect on the Company’s financial statements; however, the revised
standard will govern the accounting for any future business combinations that
the Company may enter into.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51 (SFAS
160). This statement is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008,
with earlier adoption prohibited. This statement requires the
recognition of a noncontrolling interest (minority interest) as equity in the
consolidated financial statements and separate from the parent’s
equity. The amount of net income attributable to the noncontrolling
interest will be included in consolidated net income on the face of the income
statement. It also amends certain of ARB No. 51’s consolidation
procedures for consistency with the requirements of SFAS 141(R). This
statement also includes expanded disclosure requirements regarding the interests
of the parent and its noncontrolling interest. Management is
currently evaluating this new statement. Based on the current
consolidated financial statements, if SFAS 160 were effective, the minority
interest in the consolidated balance sheet would be presented as noncontrolling
interest in Owners’ Equity (Deficit), the minority interest in net loss would be
included in consolidated net loss in the consolidated statement of operations,
and the footnotes would include expanded disclosure regarding the ownership
interests of the Company and of the noncontrolling interests.
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133
(SFAS 161). SFAS 161 requires enhanced disclosures about an
entity’s derivative and hedging activities. Entities will be required
to provide enhanced disclosures about: (a) how and why an entity uses
derivative instruments; (b) how derivative instruments and related hedge items
are accounted for under SFAS No. 133 and its related interpretations; and
(c) how derivative instruments and related hedge items affect an entity’s
financial position, financial performance and cash flows. The
provisions of SFAS 161 are effective January 1, 2009. Management
is currently evaluating the impact of SFAS 161 on the Company’s financial
statements.
In June
2008, the FASB ratified EITF Issue No. 07-5, Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity's Own Stock (EITF 07-5).
EITF 07-5 provides that an entity should use a two step approach to evaluate
whether an equity-linked financial instrument (or embedded feature) is indexed
to its own stock, including evaluating the instrument's contingent exercise and
settlement provisions. It also clarifies on the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning
after December 15, 2008. Management is currently evaluating the
impact of SFAS 161 on the Company’s financial statements.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
B — BASIS OF PRESENTATION AND GOING CONCERN
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As shown in the
accompanying financial statements, the Company incurred a net loss applicable to
common shareholders of $1,707,562 during the year ended December 31, 2008,
and has incurred losses applicable to common shareholders since inception of the
development stage of $27,146,931. The Company also used cash in
operating activities of $1,004,670 during the year ended December 31,
2008. At December 31, 2008, the Company has negative working capital
of $6,604,039 and a stockholders’ deficit of $5,948,575. Those
factors raise substantial doubt about the Company’s ability to continue as a
going concern.
The
Company discontinued its former bio-pharmaceutical business during the quarter
ended March 31, 2007. Management plans to meet its cash needs through
various means including selling assets related to its former bio-pharmaceutical
business, securing financing, entering into joint ventures, and developing a new
business model. In order to fund its new operations related to the
cultivation of the Jatropha plant, the Company sold Series B preferred stock
during the quarter ended December 31, 2007 in the amount of $1,300,000 and
issued a secured promissory note under which the Company has borrowings of
$460,000 as of December 31, 2008. The Company is developing a new business
operation to participate in the rapidly growing bio-diesel
industry. The Company continues to expect to be successful in this
new venture, but there is no assurance that its business plan will be
economically viable. The ability of the Company to continue as a
going concern is dependent on that plan’s success. The financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
NOTE
C — JATROPHA BUSINESS VENTURE
Having
agreed to discontinue its bio-pharmaceutical operations and dispose of the
related assets, the Company considered entering into a number of other
businesses that would enable it to be able to provide the shareholders with
future value. The Company’s Board of Directors decided to develop a
business to produce and sell seed oils, including seed oils harvested from the
planting and cultivation of the Jatropha curcas plant, for
the purpose of providing feedstock oil intended for the generation of methyl
ester, otherwise known as bio-diesel (the “Jatropha Business”). The
Company’s Board concluded that there was a significant opportunity to
participate in the rapidly growing biofuels industry, which previously was
mainly driven by high priced, edible oil-based feedstock. In order to
commence its new Jatropha Business, the Company entered into various
transactions during September and October of 2007, including: (i) hired Richard
Palmer, an energy consultant, and a member of Global Clean Energy Holdings LLC
(“Global”) to act as its new President, Chief Operating Officer and future Chief
Executive Officer, (ii) engaged Mobius Risk Group, LLC, a Texas company engaged
in providing energy risk advisory services, to provide it with consulting
services related to the development of the Jatropha Business, (iii) acquired
certain trade secrets, know-how, business plans, term sheets, business
relationships, and other information relating to the cultivation and production
of seed oil from the Jatropha plant for the production of bio-diesel from
Global, and (iv) engaged Corporativo LODEMO S.A DE CV to assist with the
development of the Jatropha Business in Mexico. Subsequent to
entering into these transactions, the Company identified certain real property
in Mexico it believed to be suitable for cultivating the Jatropha
plant. During April 2008, the Company entered into a limited
liability company agreement to form GCE Mexico I, LLC (GCE Mexico). In August
2008 the Company terminated the agreement with Mobius Risk Group, LLC. Through
Asideros Globales Corporativo (Asideros), a Mexican corporation of which GCE
Mexico holds a 99% equity interest and Global Clean Energy Holdings, Inc. holds
a 1% equity interest, land has been acquired in Mexico for the cultivation of
the Jatropha plant. All of these transactions are described in
further detail in the remainder of this note to the consolidated financial
statements.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Share Exchange
Agreement
The
Company entered into a share exchange agreement (the Global Agreement) pursuant
to which the Company acquired all of the outstanding ownership interests in
Global Clean Energy Holdings, LLC, a Delaware limited liability company
(Global), on September 7, 2007 from Mobius Risk Group, LLC (Mobius) and from
Richard Palmer (Mr. Palmer). Mr. Palmer owns a 13.33% equity interest
in Mobius and, as described further in this Note, became the Company’s new
President and Chief Operating Officer in September 2007 and its Chief Executive
Officer in December 2007. Mobius and Mr. Palmer are considered
related parties to the Company. Global is an entity that had certain
trade secrets, know-how, business plans, term sheets, business relationships,
and other information relating to the start-up of a business related to the
cultivation and production of seed oil from the seed of the Jatropha plant, for
the purpose of providing feedstock oil intended for the production of
bio-diesel. Under the Global Agreement, the Company issued 63,945,257
shares of its common stock for all of the issued and outstanding membership
interests of Global. Of the 63,945,257 shares issued under the Global
Agreement, 36,540,146 shares were issued and delivered at the closing of the
Global Agreement without any restrictions. The remaining 27,405,111
shares of common stock were, however, held in escrow by the Company, subject to
forfeiture in the event that certain specified performance and market-related
milestones were not achieved. Upon the satisfaction, from time to
time, of the operational and market capitalization condition milestones, the
restricted shares would be released by the Company from escrow and delivered to
the buyers in accordance with the terms and conditions of the Global
Agreement. In the event that all of the milestone conditions were not
achieved, the restricted shares that had not been released from escrow would be
cancelled by the Company and thereafter cease to be outstanding.
Prior to
the exchange of common stock, Global had no tangible assets or operations, but
rather had certain trade secrets, know-how, business plans, term sheets,
business relationships, and other information relating to the start-up of a
business related to the cultivation and production of seed oil from the seed of
the Jatropha plant. Accordingly, Global was not considered a business
in accordance with FASB Emerging Issues Task Force Issue 98-3, Determining Whether a Nonmonetary
Transaction Involves Receipt of Productive Assets or of a
Business. With the exchange of the 36,540,146 shares of common
stock, the Company acquired the trade secrets, know-how, business plans, term
sheets, business relationships, and other information relating to the start-up
of this new business. Accordingly, the Company has recorded research
and development expense of $986,584, or $0.027 per share, for the value of the
shares issued. The closing price of the Company’s common stock on
September 7, 2007 was $0.027 per share.
Of the
restricted shares issued under the Global Agreement, 13,702,556 shares were to
be released from escrow if and when i) certain land lease agreements suitable
for the planting and cultivation of Jatropha curcas were executed
and ii) certain operation management agreements with a third-party land and
operations management company with respect to the management, planting and
cultivation of Jatropha
curcas were executed. These restricted shares were to be held
in escrow subject to the satisfaction of these milestones, at which time such
shares would be released from escrow and delivered to the
sellers. The Company has accounted for these potentially issuable
shares as share-based compensation under SFAS No. 123(R) for shares of common
stock that contain a performance or service condition. The Company
has determined the value of these shares to be $369,969, or $0.027 per share,
and amortized this compensation over four months, the period of time in which
the satisfaction of the operational milestones was expected to be fulfilled that
would result in the release of the 13,702,556 shares from escrow. For
accounting purposes, shares held in escrow are not considered outstanding, but
are deemed to be potential dilutive shares for loss per share
calculations. During the years ended December 31, 2008 and 2007, the
Company amortized and recognized $21,581 and $348,388 of share-based
compensation related to these shares, respectively. With the
acquisition of the land for the Jatropha Farm in April 2008, the operational
milestones were satisfied under the Global Agreement. Consequently,
13,702,556 shares of common stock being held in escrow have been released to the
former owners of Global Clean Energy Holdings, LLC.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
remaining 13,702,555 restricted shares issued under the Global Agreement are to
be released from escrow upon satisfaction of certain market capitalization
levels (based on the number of outstanding shares at the average closing price
of the previous sixty trading days) and average daily trading volume (for the
previous sixty trading days). These potentially issuable shares are
to be released as follows:
|
a.
|
4,567,518
shares are to be released upon the achievement of $6 million market
capitalization and 75,000 shares of average daily trading
volume,
|
|
b.
|
4,567,518
shares are to be released upon the achievement of $12 million market
capitalization and 100,000 shares of average daily trading volume,
and
|
|
c.
|
4,567,519
shares are to be released upon the achievement of $20 million market
capitalization and 125,000 shares of average daily trading
volume.
|
These
restricted shares were placed in escrow subject to the satisfaction of these
milestones, at which time such shares are to be released from escrow and
delivered to the sellers. On November 30, 2007, the first of these
milestones was met and 4,567,518 shares were released from escrow and delivered
to the sellers. During May 2008, the second market-related milestones
under the Global Agreement were satisfied, which resulted in the release of an
additional 4,567,518 shares of common stock being held in
escrow. There are 4,567,519 shares of common stock held in escrow at
December 31, 2008, which will be released upon the satisfaction of the third
market-related milestones. The Company is accounting for these
potentially issuable shares as share-based compensation under SFAS No. 123(R),
for shares of common stock that contain a market condition. The
Company determined the value of these shares to be $369,969, or $0.027 per
share, and is amortizing this compensation over the periods of time in which the
satisfaction of each of the three market capitalization and trading volume
milestones is expected to be fulfilled that will result in the release of the
13,702,555 shares from escrow. The Company originally estimated these time
periods to be approximately three months for the first tranche of stock and two
years for the second and third tranches. For accounting purposes,
shares held in escrow are not considered outstanding, but are deemed to be
potential dilutive shares for loss per share calculations. During the
years ended December 31, 2008 and 2007, the Company amortized and recognized
$165,712 and $161,860, respectively, of share-based compensation related to
these shares.
Palmer Employment
Agreement
Effective
September 1, 2007, the Company entered into an employment agreement with Richard
Palmer pursuant to which the Company hired Mr. Palmer to serve as its President
and Chief Operating Officer. Mr. Palmer was also appointed to serve
as a director on the Company’s Board of Directors to serve until the next
election of directors by the Company’s shareholders. Upon the
resignation of the former Chief Executive Officer on December 21, 2007, Mr.
Palmer also became the Company’s Chief Executive Officer. The Company
hired Mr. Palmer to take advantage of his experience and expertise in the
feedstock/bio-diesel industry, and in particular, in the Jatropha bio-diesel and
feedstock business. The term of employment commenced September 1,
2007 and ends on September 30, 2010, unless terminated in accordance with the
provisions of the agreement.
Mr.
Palmer’s compensation package includes an annual base salary of $250,000,
subject to annual increases based on changes in the Consumer Price Index, and a
bonus payment based on Mr. Palmer’s satisfaction of certain performance criteria
established by the compensation committee of the Company’s Board of
Directors. The bonus amount in any fiscal year will not exceed 100%
of Mr. Palmer’s base salary. Mr. Palmer is eligible to participate in
the Company’s employee stock option plan and other welfare plans. The
Company granted Mr. Palmer an incentive option to purchase up to 12,000,000
shares of its common stock at an exercise price of $0.03 per share (the trading
price on the date the agreement was signed). The options vest upon
the Company’s achievement of certain market capitalization
goals. When the Company’s market capitalization reaches $75 million,
the incentive option will vest with respect to 6,000,000 shares. When
the Company’s market capitalization reaches $120 million, the incentive option
will vest with respect to the remaining 6,000,000 shares. The option
expires five years after grant.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
If Mr.
Palmer’s employment is terminated by the Company without “cause” or by Mr.
Palmer for “good reason”, he will be entitled to severance payments including
100% of his then-current annual base salary, plus 50% of the target bonus for
the fiscal year in which his employment is terminated, and the incentive option
to purchase 12,000,000 shares of common stock shall vest following termination
of Mr. Palmer’s employment.
The
Company has accounted for the options under Mr. Palmer’s employment agreement as
share-based compensation under SFAS No. 123(R), for options to purchase common
stock that contain a market condition. The Company valued these
options at $264,000 using the Black-Scholes pricing model. The
weighted average fair value of the stock options was $0.022 per
share. The weighted-average assumptions used for the calculation of
fair value were risk-free rate of 4.21%, volatility of 116%, expected life of
five years, and dividend yield of zero. The Company is amortizing
this compensation over the period of time in which the satisfaction of each of
the two market capitalization milestones is expected to be fulfilled that will
result in the vesting of these stock options. The Company currently
estimates these time periods to be three years. During the years
ended December 31, 2008 and 2007, the Company amortized and recognized $88,000
and $29,652, respectively, of share-based compensation related to these
options.
Mobius Consulting
Agreement
Concurrent
with the execution of the Global Agreement, the Company entered into a
consulting agreement with Mobius pursuant to which Mobius agreed to provide
consulting services to the Company in connection with the Company’s new Jatropha
bio-diesel feedstock business. The Company engaged Mobius as a consultant to
obtain Mobius’ experience and expertise in the feedstock/bio-diesel market to
assist the Company and Mr. Palmer in developing this new line of operations for
the Company. Mobius agreed to provide the following services to the
Company: (i) manage and supervise a contemplated research and development
program contracted by the Company and conducted by the University of Texas Pan
American regarding the location, characterization, and optimal economic
propagation of the Jatropha plant; and (ii) assist
with the management and supervision of the planning, construction, and start-up
of plant nurseries and seed production plantations in Mexico, the Caribbean or
Central America.
The term
of the agreement was twelve months and the scope of work under the agreement has
been completed. Mobius supervised the hiring of certain staff to
serve in management and operations roles of the Company, or hired such persons
to provide similar services as independent contractors. Mobius’
compensation for the services provided under the agreement was a monthly
retainer of $45,000. The Company also reimbursed Mobius for
reasonable business expenses incurred in connection with the services
provided. The agreement contained customary confidentiality
provisions with respect to any confidential information disclosed to Mobius or
which Mobius received while providing services under the
agreement. Under this agreement, the Company has paid Mobius or
accrued $437,279 during the year ended December 31, 2008, of which $42,155 was
expensed as compensation to Mobius and $395,124 was capitalized as plantation
development costs pursuant to AICPA Statement of Position 85-3, Accounting by Agricultural Producers
and Agricultural Cooperatives. During the year ended December 31, 2007,
the Company paid Mobius or accrued $191,547, of which $40,797 was expensed as
compensation to Mobius and $150,750 was capitalized as plantation development
costs. The Company owed Mobius $322,897 and $50,700 for accrued, but
unpaid, compensation and costs as of December 31, 2008 and 2007,
respectively.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
LODEMO
Agreement
On
October 15, 2007, the Company entered into a service agreement with Corporativo
LODEMO S.A DE CV, a Mexican corporation (the LODEMO Group). The
Company had decided to initiate its Jatropha Business in Mexico, and had
identified parcels of land in Mexico to plant and cultivate
Jatropha. In order to obtain all of the logistical and other services
needed to operate a large-scale farming and transportation business in Mexico,
the Company entered into the service agreement with the LODEMO Group, a
privately held Mexican company with substantial land holdings, significant
experience in diesel distribution and sales, liquids transportation, logistics,
land development and agriculture.
Under the
supervision of the Company’s management and Mobius, the LODEMO Group is
responsible for the establishment, development, and day-to-day operations of the
Jatropha Business in Mexico, including the extraction of the oil from the
Jatropha seeds, the delivery of the Jatropha oil to buyers, the purchase or
lease of land in Mexico, the establishment and operation of one or more Jatropha
nurseries, the clearing, planting and cultivation of the Jatropha fields, the
harvesting of the Jatropha seeds, the operation of the Company’s oil extraction
facilities, and the logistics associated with the foregoing. Although
the LODEMO Group is responsible for identifying and acquiring the farmland,
ownership of the farmland or any lease thereto will be held directly by the
Company or by a Mexican subsidiary of the Company. The LODEMO Group
will be responsible for hiring and managing all necessary
employees. All direct and budgeted costs of the Jatropha Business in
Mexico will be borne by the Company.
The
LODEMO Group will provide the foregoing and other necessary services for a fee
primarily based on the number of hectares of Jatropha under
cultivation. The Company has agreed to pay the LODEMO Group a fixed
fee per year of $60 per hectare of land planted and maintained with minimum
payments based on 10,000 hectares of developed land, to follow a planned
planting schedule. The Agreement has a 20-year term but may be terminated
earlier by the Company under certain circumstances. The LODEMO Group
will also potentially receive incentive compensation for controlling costs below
the annual budget established by the parties, production incentives for
increased yield and a sales commission for biomass sales. Under this
agreement, the Company has paid the LODEMO Group or accrued $1,089,554 and
$158,028 during the years ended December 31, 2008 and 2007, respectively, all of
which was capitalized as plantation development costs pursuant to AICPA
Statement of Position 85-3, Accounting by Agricultural Producers
and Agricultural Cooperatives. During the year ended December
31, 2008, the Company issued warrants to acquire 2,076,083 shares of common
stock to the LODEMO Group and an affiliated entity in satisfaction of accounts
payable in the amount of $124,565. As of December 31, 2008, the
Company had prepaid $98,159 of plantation development costs to the LODEMO
Group. As of December 31, 2007, the Company owed the LODEMO Group
$117,758 for accrued, but unpaid, compensation and costs.
GCE Mexico I,
LLC
Effective
April 23, 2008, the Company entered into a limited liability company agreement
(“LLC Agreement”) to form GCE Mexico I, LLC, a Delaware limited liability
company (GCE Mexico), with six unaffiliated investors (collectively,
the Investors). GCE Mexico was organized primarily to acquire
approximately 5,000 acres of farm land (the Jatropha Farm) in the State of
Yucatan in Mexico to be used primarily for the (i) cultivation of Jatropha curcas, (ii) the
marketing and sale of the resulting fruit, seeds, or pre-processed crude
Jatropha oil, whether as biodiesel feedstock, biomass or otherwise, and (iii)
the sale of carbon value, green fuel value, or renewable energy credit value
(and other similar environmental attributes) derived from activities at the
Jatropha Farm.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Under the
LLC Agreement, the Company owns 50% of the issued and outstanding common
membership units of GCE Mexico. The remaining 50% of the common
membership units was issued to five of the Investors. The Company and
the other owners of the common membership interest were not required to make
capital contributions to GCE Mexico.
In
addition, two of the Investors agreed to invest approximately $4.2 million in
GCE Mexico through the purchase of preferred membership units and through the
funding of the purchase of land in Mexico. An aggregate of 1,000
preferred membership units were issued to these two Investors who each agreed to
make capital contributions to GCE Mexico of up to $2,232,624, in installments
and as required, to fund the development and operations of the Jatropha
Farm. Shortly after entering into the LLC Agreement, the preferred
members made an initial capital contribution of $957,191 toward the development
of the Jatropha Farm. Additional capital contributions of $1,457,960
have been received by GCE Mexico from these Investors during the remainder of
the year ended December 31, 2008. The agreement calls for additional
contributions from the Investors over and above the initial capital
contributions, as requested by management and as required by the operation in
2009 and the following years. Subsequent to December 31, 2008, these Investors
have made additional capital contributions of $1,071,278. These
Investors are entitled to earn a preferential 12% per annum cumulative
compounded return on the cumulative balance of their preferred membership
interest.
These
investors also directly funded the purchase of approximately 5,000 acres of land
in the State of Yucatan in Mexico by the payment of $2,051,282. The
land was acquired in the name of Asideros and Asideros issued a mortgage in the
amount of $2,051,282 in favor of these two Investors. The mortgage
bears interest at the rate of 12% per annum, payable quarterly. The
Board has directed that this interest shall continue to accrue until such time
as the Board determines that there is sufficient cash flow to pay all accrued
interest. The entire mortgage, including any unpaid interest, is due
April 23, 2018.
Since the
acquisition of the land, approximately 2,500 acres have been improved so far,
approximately 750 acres have been planted, and roads and other infrastructure
have been developed on the farm. Furthermore, heavy equipment is now
in place that will greatly facilitate rapid improvement and planting.
The
net income or loss of Asideros is allocated to its shareholders based on their
respective equity ownership, or 99% to GCE Mexico and 1% directly to the
Company. GCE Mexico has no operations separate from its investment in
Asideros. According to the LLC Agreement of GCE Mexico, the net loss
of GCE Mexico (composed solely of its share of the operating results of
Asideros) is allocated to its members according to their respective investment
balances. Accordingly, since the common membership interest did not
make a capital contribution, all of the losses have been allocated to the
preferred membership interest. The Minority Interest presented
in the accompanying consolidated balance sheet includes the carrying value of
the preferred membership interests and of the common membership interests owned
by the Investors, and excludes any common membership interest in GCE Mexico held
by the Company. Accordingly, the Minority Interest is composed of the
following elements at December 31, 2008:
Capital
contribution from preferred membership interest
|
|
$ |
2,415,151 |
|
Allocation
of net loss of GCE Mexico to the
|
|
|
|
|
preferred
membership interest
|
|
|
(315,115 |
) |
Accrual
of preferential return for the preferred
|
|
|
|
|
membership
interest
|
|
|
(138,014 |
) |
Investment
of common membership interest held by
|
|
|
|
|
other
Investors, excluding the Company
|
|
|
- |
|
|
|
|
|
|
Minority
Interest
|
|
$ |
1,962,022 |
|
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
D – PROPERTY AND EQUIPMENT
Property
and equipment as of December 31, 2008 and 2007 are as
follows:
|
|
2008
|
|
|
2007
|
|
Land
|
|
$ |
2,051,282 |
|
|
$ |
- |
|
Plantation
development costs
|
|
|
2,117,061 |
|
|
|
308,777 |
|
Plantation
equipment
|
|
|
509,037 |
|
|
|
- |
|
Office
equipment
|
|
|
10,993 |
|
|
|
1,127 |
|
Total
cost
|
|
|
4,688,373 |
|
|
|
309,904 |
|
Less
accumulated depreciation
|
|
|
(22,296 |
) |
|
|
(563 |
) |
Property
and equipment, net
|
|
$ |
4,666,077 |
|
|
$ |
309,341 |
|
The
Company has capitalized farming equipment and costs related to the development
of land for farm use in accordance with AICPA Statement of Position 85-3, Accounting by Agricultural Producers
and Agricultural Cooperatives. Plantation equipment is
depreciated using the straight-line method over estimated useful lives of 5 to
15 years and is currently being capitalized as part of plantation development
costs. Plantation development costs are not currently being
depreciated. Upon completion of the plantation development,
development costs having a limited life and intermediate-life plants that have
growth and production cycles of more than one year will be depreciated over the
useful lives of the related assets.
Commencing
in June 2008, Asidero purchased certain equipment for purposes of rapidly
clearing the land, preparing the land for planting, and actually planting the
Jatropha trees. The land, plantation development costs, and
plantation equipment are located in Mexico.
NOTE
E – ACCRUED PAYROLL AND PAYROLL TAXES
Accrued
payroll and payroll taxes principally relate to unpaid compensation for officers
and directors that are no longer affiliated with the Company. Accrued
payroll taxes will become due upon payment of the related accrued
compensation. Accrued payroll and payroll taxes are composed of the
following:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Former
Chief Executive Officer, resigned 2007, including
|
|
|
|
|
|
|
$500,000
under the Release and Settlement Agreement
|
|
$ |
570,949 |
|
|
$ |
583,332 |
|
Other
former Officers and Directors
|
|
|
311,200 |
|
|
|
311,200 |
|
Accrued
payroll taxes on accrued compensation to
|
|
|
|
|
|
|
|
|
former
officers and directors
|
|
|
38,510 |
|
|
|
38,510 |
|
Accrued
payroll, vacation, and related payroll taxes
|
|
|
|
|
|
|
|
|
for
current officers
|
|
|
238,149 |
|
|
|
17,929 |
|
Accrued
payroll and payroll taxes
|
|
$ |
1,158,808 |
|
|
$ |
950,971 |
|
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On August
31, 2007, the Company entered into a Release and Settlement Agreement with Judy
Robinett, the Company’s then-current Chief Executive Officer. Under
the agreement, Ms. Robinett agreed to, among other things, assist the Company in
the sale of its legacy assets and complete the preparation and filing of the
delinquent reports to the Securities and Exchange Commission. Under
the agreement, Ms. Robinett agreed to (i) forgive her potential right to receive
$1,851,805 in accrued and unpaid compensation, un-accrued and pro-rata bonuses,
and severance pay and (ii) the cancellation of stock options to purchase
14,000,000 shares of common stock at an exercise price of $0.02 per
share. In consideration for her services, the forgiveness of the
foregoing cash payments, the cancellation of the stock options, and settlement
of other issues, the Company agreed to, among other things, to pay Ms. Robinett
$500,000 upon the receipt of the cash payment under the agreement to sell the
SaveCream Assets to Eucodis. Pursuant to this agreement, Ms. Robinett
resigned on December 21, 2007.
Secured Promissory
Note
In order
to fund ongoing operations pending closing of the sale of the SaveCream Assets,
the Company entered into a loan agreement with, and issued a promissory note in
favor of, Mercator Momentum Fund III, L.P. (Mercator) in September
2007. At that time, Mercator, along with two other affiliates, owned
all of the issued and outstanding shares of the Company’s Series A Convertible
Preferred Stock, and is considered a related party to the
Company. The loan is secured by a lien on all of the assets of the
Company. Under the loan agreement, interest was originally payable on
the loan at a rate of 12% per annum, payable monthly.
Pursuant
to the loan agreement, Mercator made available to the Company a secured term
credit facility in principal amount of $1,000,000. The promissory
note initially was due and payable on December 14, 2007. As of
December 13, 2007, the Company owed Mercator $250,000 under the
loan. Mercator agreed to extend the maturity date of the $250,000 to
February 21, 2008. In March, 2008, the loan was paid down to $200,000
and the maturity date was extended to June 21, 2008. In May 2008, the
Company and Mercator entered into an amendment to the loan agreement, whereby,
Mercator loaned the Company and additional $250,000 increasing the outstanding
balance to $450,000. In connection with the amendment, the interest
rate was reduced to 8.68% and the due date was extended to August 19,
2008. Additionally, as part of the amendment, the Company issued
Mercator a two-year warrant to purchase 581,395 shares of common stock at $0.129
per share. For the consideration of increasing the note by $10,000,
the maturity date was further extended to January 13, 2009. On December 9, 2008
these notes were assigned to the limited partners of Mercator. Subsequent to
December 31, 2008, these notes were further extended from January 13, 2009 to
July 31, 2009 for consideration of increasing the total principal balance of the
notes by $15,000 and increasing the interest rate to 10.68%.
In
connection with the closing of the original loan, the Company agreed to (i) the
cancellation of certain warrants to purchase 27,452,973 shares of common stock
at $0.1967 per share previously issued to the lender and certain of its
affiliates and (ii) the issuance of new warrants to purchase 27,452,973 shares
of common stock at $0.01 per share. The new warrants permit the
cash-less exercise of the warrants and expire on September 30,
2013. As more fully described in Note G, the warrants that were
cancelled were being accounted for as a liability in the accompanying financial
statements because the Company was unable to guarantee that there would be
enough shares of common stock to settle other “freestanding
instruments.” The carrying value of the liability related to these
warrants on the date of cancellation was $62,205. The new warrants
that were issued in connection with this loan agreement were also characterized
as a liability in these financial statements. The fair value of the
new warrants was determined to be $691,815, or $0.0252 per share, using the
Black-Scholes pricing model. The weighted-average assumptions used
for the calculation of fair value were risk-free interest rate of 4.10%,
volatility of 123%, expected life of six years, and dividend yield of
zero. On the date of issuance, the fair value of the new warrants has
been recorded as (i) a discount to the note in the amount of $250,000 and (ii) a
charge of $441,815 to “Unrealized Gain (Loss) on Financial Instrument” in the
accompanying Consolidated Statement of Operations. The discount to
the note was amortized over the original term of the loan agreement from
September 7, 2007 to December 14, 2007, and recorded as “interest expense from
amortization of discount on secured promissory note” in the amount of $250,000.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
proceeds of $250,000 resulting of the amendment of the loan agreement in May
2008 have been allocated between the promissory note and the warrant based on
the relative fair value of each instrument. The fair value of the
warrant was estimated on the date of issuance using the Black-Scholes option
pricing model. The assumptions used for valuing the warrant were
risk-free interest rate of 2.4%, volatility of 168%, expected life of 2.0 years,
and dividend yield of zero. The allocation resulted in a $36,369
discount to the promissory note, which has been amortized as additional interest
over the period from May 19, 2008 through the original extended due date of
August 19, 2008 under the amendment.
Notes
Payable
The
Company has notes payable to shareholders in the aggregate amount of $56,000 at
December 31, 2008 and 2007. The notes originated between 1997
and 1999, bear interest at 12%, are unsecured, and are currently in
default. Accrued interest on the notes totaled $78,821 and $72,091 at
December 31, 2008 and 2007, respectively.
Convertible Notes
Payable
The
Company has convertible notes payable to certain individuals in the aggregate
amount of $193,200 at December 31, 2008 and 2007. The notes
originated in 1996, bear interest at 12%, are unsecured, and are currently in
default. Each $1,000 note is convertible into 667 shares of the
Company’s common stock. Accrued interest on the convertible notes
totaled $248,799 and $225,552 at December 31, 2008 and 2007,
respectively.
Long-Term Liability and Gain
on Debt Restructuring
On
June 10, 2006, the Company entered into an agreement with a former creditor
to forgive certain amounts owed. The balance owed before the agreement was
$229,066. According to the agreement, $3,975 was paid on the date of
the agreement, another $3,975 was paid on August 13, 2006, and $131,116 was
forgiven. The remaining balance of $90,000 was to be due and payable immediately
upon the Company’s receipt of $1 million in cumulative license revenue from
the Company’s drug MDI-P in any human indication. The remaining
liability of $90,000 was recorded as Long-Term Liability. As further
described in Note M, this liability was extinguished as a result of the sale of
MDI-P for less than $1 million. Accordingly, this liability was no
longer owed and was written off in 2007. Additionally, as further
described in Note L, the Company entered into a settlement agreement with its
former chief executive officer during 2007, which resulted in a gain of $395,137
on the settlement of compensation owing to her. As a consequence of
these two transactions, the Company recorded gain on debt restructuring in the
amount of $485,137 in the accompanying financial statements for the year ended
December 31, 2007.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
G — STOCKHOLDERS’ EQUITY
Common
Stock
As more fully described in Note C, the
Company issued 63,945,257 shares of its common stock for all of the issued and
outstanding membership interests of Global Clean Energy Holdings,
LLC. Of the 63,945,257 shares issued under the Global Agreement,
36,540,146 shares were issued and delivered at the closing of the Global
Agreement without any restrictions and have been recorded in the accompanying
financial statements as issued and outstanding. The remaining
27,405,111 shares of common stock were held in escrow by the Company until the
achievement of certain operational and market-related
milestones. During the year ended December 31, 2007, 4,567,518 shares
were released from escrow upon achieving the first market-related
milestones. During the year ended December 31, 2008, an additional
18,270,074 shares were released from escrow upon the achievement of the
operational milestones and the second market-related milestones. At
December 31, 2008, there are 4,567,519 shares still held in escrow pending
achievement of the third market-related milestones. Shares held in
escrow are not reported in the accompanying financial statements as issued and
outstanding.
On
September 14, 2007, the Company entered into a one-year agreement with a
consultant for investor relations services. Under the agreement, the
Company agreed to pay total compensation of $105,000 over the one-year
term. As additional compensation, the Company issued 4,357,298 shares
of common stock to the consultant and granted piggyback registration rights for
the stock to be registered in connection with the Company’s next registration of
securities. The issuance of the common stock was expensed as
share-based compensation in the amount of $117,647, or $0.027 per share on the
date of the agreement.
On
November 13, 2008, the Company entered into stock purchase agreements with
certain individuals for the issuance of 2,777,778 shares of common stock for
$100,000, or $0.036 per share.
Series A Convertible
Preferred Stock, Warrants and Financial Instrument
During
the year ended December 31, 2005, the Company issued an additional 30,000 shares
of Series A Convertible Preferred Stock and warrants to purchase 22,877,478
shares of common stock for a total offering price of $3.0 million. In connection
with the offering, the Company issued to the placement agent warrants to
purchase 1,220,132 shares. Each share of Preferred Stock entitled the
holder to convert the share of Preferred Stock into the number of shares of
common stock resulting from dividing $100 by the conversion price.
The
conversion feature of the Series A Convertible Preferred Stock had more of the
attributes of an equity instrument than of a liability instrument, and thus was
not considered a derivative. However, at the time of issuance, the
Company was unable to guarantee that there would be enough shares of stock to
settle other “freestanding instruments.” Accordingly, all of the
warrants attached to the convertible preferred stock were measured at their fair
value and recorded as a liability in the financial statements. For
these same reasons, all other warrants and options outstanding on March 11, 2005
or issued during the remainder of 2005 and through 2007 (except for stock
options issued to employees) were measured at their fair value and recorded as
additional liability in the financial statements.
At
December 31, 2006, the fair value of the financial instrument was $294,988 based
on a Black-Scholes calculation with the weighted-average assumptions for
volatility of 138%, risk-free interest rate of 5.0%, an expected life of one
year, and a dividend yield of zero. During the year ended December
31, 2007, the Company remeasured the fair value of the outstanding
warrants. At December 31, 2007, the fair value was determined to be
$2,166,514 based on a Black-Scholes pricing calculation with the
weighted-average assumptions for volatility of 136%, a risk-free interest rate
of 3.7%, an expected life of 7.3 years, and a dividend yield of
zero. For the year ended December 31, 2007 the Company recorded an
unrealized loss on financial instrument of $147,636. For the period
from December 31, 2007 through January 29, 2008, the fair value of this
liability decreased by $5,469 resulting in a balance of
$2,161,045. On January 29, 2008, the shareholders of the Company
approved an increase in the number of authorized shares of common stock from 250
million to 500 million. Consequently, as the result of this amendment
to the Company’s Articles of Incorporation, the Company is now able to settle
all ‘freestanding instruments”. Accordingly, the Company reclassified
the liability, characterized in the accompanying financial statements as
“Financial Instrument”, in the amount of $2,161,045, to permanent equity in
January 2008.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
September 2007, the preferred stockholders converted 5,492 shares of Series A
Preferred Stock into 10,983,521 shares of common stock at a conversion price of
$0.05 per share. This preferred stock also did not have any assigned
value.
Mercator
Momentum Fund, LP; Monarch Pointe Fund, Ltd.; and Mercator Momentum Fund III,
LP, each a private investment entity (collectively, the MAG Funds) were the
preferred stockholders who purchased all of the shares of the Company’s Series A
Preferred Convertible Stock in 2004 and in 2005. In connection with
the 2005 investment, the Company had agreed to eliminate the conversion price
floor of the Series A Stock. The Company failed to file an amendment
to the Series A Stock Certificate of Designations of Preferences and Rights for
the Series A Stock that would have eliminated the conversion price
floor. Accordingly, in connection with an intended conversion of some
of their Series A Stock in September 2007, the MAG Funds were required to
convert Series A Stock at a conversion price higher than the price that would
have applied if the Amendment had been filed as agreed.
On
October 22, 2007, the Company executed and entered into a Release and Settlement
Agreement (the Release Agreement), with the MAG Funds to settle all losses and
damages that MAG may have suffered, and may hereafter suffer, as result of the
Company’s failure to file the amendment to the Series A Stock Certificate of
Designations of Preferences and Rights for the Series A
Stock. Pursuant to the Release Agreement, the Company issued to the
MAG Funds a ten-year warrant to acquire up to 17,000,000 shares of the Company’s
common stock at an exercise price of $0.01 per share, expiring October 17,
2017. The initial warrant price is subject to adjustments in
connection with (i) the Company’s issuance of dividends in shares of Common
Stock, or shares of Common Stock or other securities convertible into shares of
Common Stock without consideration, (ii) any cash paid or payable to the holders
of Common Stock other than as a regular cash dividend, and (ii) future stock
splits, reverse stock splits, mergers or reorganizations, and similar changes
affecting common stockholders. The issuance of the warrant has been
accounted for as share-based compensation in the amount of $1,181,890 based on a
Black-Scholes pricing calculation with the assumptions for volatility of 141.5%,
a risk-free interest rate of 4.57%, an expected life of 10 years, and a dividend
yield of zero. The fair value of the warrant has been included in the
liability for the financial instrument.
The
warrant issued to the MAG Funds contain beneficial ownership limitations, which
preclude the MAG Funds from exercising its warrant if, as a result of such
conversion or exercise, the MAG Funds would own beneficially more than 9.99% of
the Company’s outstanding common stock then outstanding. Pursuant to
the Release Agreement, the MAG Funds released the Company from any and all
claims, past, present or future, relating to the losses or the Company’s failure
to file the amendment. In addition, MAG has agreed not to pursue
litigation against the Company in connection with the losses or the Company’s
failure to file the amendment.
Effective
April 18, 2008, the Company entered into an exchange agreement ( the Exchange
Agreement) with Mercator Momentum Fund, L.P., Mercator Momentum Fund III, L.P.,
and Monarch Pointe Fund, Ltd. (collectively, the MAG Funds), comprising all of
the holders of the Company’s Series A Convertible Preferred Stock (the Series A
Stock). Pursuant to the Exchange Agreement, the MAG Funds agreed to
exchange 28,928 shares of the Series A Stock, constituting all of the issued and
outstanding shares of the Series A Stock, for an aggregate of 28,927,000 shares
of the Company’s common stock. The exchange ratio was determined by dividing the
$100 purchase price of the preferred shares by $0.10 per share of common
stock.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Prior to
the Exchange Agreement, the Series A Stock had been convertible at a price equal
to 75% of the “Market Price”, as defined in the Certificate of Designations of
Preferences and Rights of the Series A Stock. The conversion price could not
exceed $0.1967 and had a conversion price floor of $0.05. On April
18, 2008, the closing price of the Company’s common stock was $0.10 and the
“Market Price” would have been $0.045 per share. In connection with
the Exchange Agreement, the Company agreed to waive the limitation that the MAG
Funds could not own more that 9.99% of the Company’s outstanding common stock as
a concession for the MAG Funds agreeing to a conversion price that was more
favorable to the Company.
Series B Preferred
Stock
In order
to obtain additional working capital, on November 6, 2007, the Company entered
into a Securities Purchase Agreement with two accredited investors, pursuant to
which the Company sold a total of 13,000 shares of our newly authorized Series B
Convertible Preferred Stock (“Series B Shares”) for an aggregate purchase price
of $1,300,000, less offering costs of $9,265. Each share of the
Series B Shares has a stated value of $100. The Company collected
$1,225,000 of the proceeds from the sales of the Series B Preferred Stock in
2007. The remaining proceeds of $75,000 were collected in February
2008, and are reflected as a subscription receivable in the accompanying Balance
Sheet at December 31, 2007.
The
Series B Shares may, at the option of each holder, be converted at any time or
from time to time into shares of our common stock at the conversion price then
in effect. The number of shares into which one Series B Share shall
be convertible is determined by dividing $100 per share by the conversion price
then in effect. The initial conversion price per share for the Series
B Shares is $0.11, which is subject to adjustment for certain events, including
stock splits, stock dividends, combinations, or other recapitalizations
affecting the Series B Shares.
Each
holder of Series B Shares is entitled to the number of votes equal to the number
of shares of our common stock into which the Series B Shares could be converted
on the record date for such vote, and shall have voting rights and powers equal
to the voting rights and powers of the holders of the Company’s common stock. In
the event of our dissolution or winding up, each share of the Series B Shares is
entitled to be paid an amount equal to $100 (plus any declared and unpaid
dividends) out of the assets of the Company then available for distribution to
shareholders.
No
dividends are required to be paid to holders of the Series B
shares. However, the Company may not declare, pay or set aside any
dividends on shares of any class or series of our capital stock (other than
dividends on shares of our common stock payable in shares of common stock)
unless the holders of the Series B shares shall first receive, or simultaneously
receive, an equal dividend on each outstanding share of Series B
shares.
Income
taxes are provided for temporary differences between financial and tax bases of
assets and liabilities. The following is a reconciliation of the amount of
benefit that would result from applying the federal statutory rate to pretax
loss with the benefit from income taxes for the years ended December 31,
2008 and 2007:
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
2008
|
|
|
2007
|
|
Federal
income tax benefit at statutory rate of 34%
|
|
$ |
581,000 |
|
|
$ |
1,501,000 |
|
State
income tax, net of federal benefit
|
|
|
102,000 |
|
|
|
265,000 |
|
Unrealized
gain (loss) on financial instrument
|
|
|
2,000 |
|
|
|
(59,000 |
) |
Foreign
currency translation adjustment
|
|
|
43,000 |
|
|
|
(119,000 |
) |
Amortization
of discount on notes payable
|
|
|
(15,000 |
) |
|
|
(100,000 |
) |
Share-based
compensation, net
|
|
|
(147,000 |
) |
|
|
(764,000 |
) |
Expiration
of operating loss and research credit carryforwards
|
|
|
(511,000 |
) |
|
|
(164,000 |
) |
Adjustment
of operating loss carryforwards
|
|
|
- |
|
|
|
1,627,000 |
|
Research
and development
|
|
|
- |
|
|
|
(395,000 |
) |
Other
differences
|
|
|
(1,000 |
) |
|
|
(4,000 |
) |
Change
in valuation allowance
|
|
|
(54,000 |
) |
|
|
(1,788,000 |
) |
|
|
$ |
- |
|
|
$ |
- |
|
The
components of deferred tax assets and liabilities are as follows at December 31,
2008 and 2007, using a combined deferred income tax rate of
40%:
|
|
2008
|
|
|
2007
|
|
Net
operating loss carryforward
|
|
$ |
9,483,000 |
|
|
$ |
9,534,000 |
|
Research
and development credits
|
|
|
- |
|
|
|
80,000 |
|
Share-based
compensation
|
|
|
716,000 |
|
|
|
714,000 |
|
Accrued
compensation
|
|
|
511,000 |
|
|
|
408,000 |
|
Deferred
revenue
|
|
|
- |
|
|
|
(80,000 |
) |
Valuation
allowance
|
|
|
(10,710,000 |
) |
|
|
(10,656,000 |
) |
Net
deferred tax asset
|
|
$ |
- |
|
|
$ |
- |
|
Inasmuch
as it is not possible to determine when or if the net operating losses will be
utilized, a valuation allowance has been established to offset the benefit of
the utilization of the net operating losses.
The
Company has available net operating losses of approximately $23,700,000 which
can be utilized to offset future earnings of the Company. The utilization of the
net operating losses are dependent upon the tax laws in effect at the time such
losses can be utilized. The loss carryforwards expire between the years 2009 and
2028. Should the Company experience a significant change of ownership, the
utilization of net operating losses could be reduced.
NOTE
I – CONSULTING AGREEMENTS
In
February 2007, the Company engaged the Emmes Group, a consulting firm, to assist
it in resolving its financial issues, to obtain advice regarding any strategic
alternatives that may be available to it, and to prevent the Company from losing
all of its assets in bankruptcy. The Executive Vice President and
Managing Director of the Emmes Group was appointed to be a director of the
Company in August 2007. The Company explored a number of transactions
that would (i) prevent the Company’s shareholders from losing their entire
investment in the Company and (ii) enable the Company to repay some of its
currently outstanding debts and liabilities. The consulting agreement
had a term of one year. As compensation for its services, the
consultant received $15,000 per month plus a warrant to purchase 5,000,000
shares of the Company’s common stock. The warrant has an exercise
price of $0.03 per share, contains a cash-less exercise provision, and expires
ten years from date of issue. The Company valued this warrant at
$146,000 using the Black-Scholes pricing model. The weighted average
fair value of the stock options was $0.0292 per share. The
weighted-average assumptions used for the calculation of fair value were
risk-free interest rate of 4.84%, volatility of 134%, expected life of ten
years, and dividend yield of zero. The fair value of the warrant was
expensed as share-based compensation on the date of issue. The fair
value of the warrant was included in the liability for the financial
instrument.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
February 2007, the Company entered into another consulting agreement with an
individual to assist it in the preparation of financial statements and reporting
to the SEC. The consulting agreement had a term of one
year. As compensation for its services, the consultant was to receive
$10,000 per month plus a warrant to purchase 5,000,000 shares of the Company’s
common stock. The warrant has an exercise price of $0.03 per share,
contains a cash-less exercise provision, and expires ten years from date of
issue. The Company valued this warrant at $146,000 using the
Black-Scholes pricing model. The weighted average fair value of the
stock options was $0.0292 per share. The weighted-average assumptions
used for the calculation of fair value were risk-free interest rate of 4.84%,
volatility of 134%, expected life of ten years, and dividend yield of
zero. The fair value of the warrant was expensed as share-based
compensation on the date of issue. The fair value of the warrant was
included in the liability for the financial instrument. This
consulting agreement was terminated in May 2007. Since the consulting
agreement was terminated prior to its expiration date, the Company’s obligations
under the consulting agreement, if any, for the period after the termination
date are unclear. No demand for any additional compensation has been
made against the Company under the consulting agreement.
NOTE
J – EMPLOYMENT AGREEMENT
On March
20, 2008, the Company entered into an employment agreement with Bruce K. Nelson
pursuant to which the Company hired Mr. Nelson to serve as its Executive
Vice-President and Chief Financial Officer effective April 1, 2008. The initial
term of employment commenced March 20, 2008 and continues through March 20,
2010. Thereafter, the term of employment shall automatically renew for
successive one-year periods unless otherwise terminated in accordance with the
employment agreement.
Mr.
Nelson’s compensation package includes a base salary of $175,000, subject to
annual increases based on the Consumer Price Index for the immediately preceding
12-month period, and a bonus payment based on Mr. Nelson’s satisfaction of
certain performance criteria established by the compensation committee of the
Company’s Board of Directors. The bonus amount in any fiscal year will not
exceed 100% of Mr. Nelson’s base salary. Mr. Nelson is eligible to participate
in the Company’s employee stock option plan and other benefit
plans.
The
Company granted Mr. Nelson an option (the Initial Option) to acquire up to
2,000,000 shares of the Company’s common stock at an exercise price of $0.05.
The Initial Option vests in tranches of 500,000 shares after 90 days, nine
months, fifteen months, and two years of the employment term. The Initial Option
expires after 10 years. The Company also granted Mr. Nelson an option
(the Performance Option) to acquire up to 2,500,000 shares of the Company’s
common stock at an exercise price of $0.05, subject to the Company’s achievement
of certain market capitalization goals. The Performance Option expires after
five years.
The
Company was permitted to terminate Mr. Nelson’s employment on the first
anniversary of the employment term, provided that the Company pay Mr. Nelson
three (3) months salary if such termination was without “cause.” If Mr. Nelson’s
employment is terminated by the Company without “cause” or by Mr. Nelson for
“good reason” after the first anniversary of the employment term, Mr. Nelson
will be entitled to receive severance payments including (i) an amount equal to
his unpaid salary through the end of the second year of the employment
agreement, and (ii) 100% of Initial Option shall vest, to the extent not already
vested.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company has accounted for the options under Mr. Nelson’s employment agreement as
share-based compensation under SFAS No. 123(R). The Company valued
these options at $189,500 using the Black-Scholes pricing model. The
weighted average fair value of the stock options was $0.042 per
share. The weighted-average assumptions used for the calculation of
fair value were risk-free rate of 2.38%, volatility of 127%, expected life of
5.2 years, and dividend yield of zero. The Company is amortizing this
compensation over the vesting period for the Initial Option and over the period
of time in which the satisfaction of market capitalization milestones for the
Performance Option are expected to be fulfilled that will result in the vesting
of these stock options. The Company currently estimates these time
periods to be three years for the Performance Options. During the
year ended December 31, 2008, the Company amortized and recognized $91,346 of
share-based compensation related to these options.
NOTE
K – STOCK OPTIONS AND WARRANTS
Stock Options and
Compensation-Based Warrants
The
Company has two incentive stock option plans wherein 24,000,000 shares of
the Company’s common stock are reserved for issuance thereunder. As
of December 31, 2008, 300,000 shares remain available under these
plans. As more fully described in Notes C, G, I, and J, the Company
has issued stock options and compensation-based warrants during the years ended
December 31, 2008 and 2007 to acquire 4,500,000 and 39,000,000 million shares,
respectively, of the Company’s common stock. Additionally, during the
year ended December 31, 2008, the Company issued warrants to acquire 2,076,083
shares of common stock to Lodemo and an affiliated entity in satisfaction of
accounts payable in the amount of $124,565. The Company also granted
options to acquire 700,000 shares of common stock to independent contractors
during the year ended December 31, 2008. During the year ended
December 31, 2007, as more fully described in Note L, the Company canceled an
option to acquire 14,000,000 shares of common stock pursuant to a settlement
agreement with the Company’s former chief executive officer. No
income tax benefit has been recognized for share-based compensation arrangements
and no compensation cost has been capitalized in the balance sheet.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
A summary
of the status of options and compensation-based warrants at December 31, 2008
and 2007, and changes during the years then ended is presented in the following
table:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
Shares
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
|
Under
|
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Option
|
|
|
Price
|
|
Life
|
|
Value
|
|
Outstanding
at December 31, 2006
|
|
|
19,883,000 |
|
|
$ |
0.05 |
|
|
|
|
|
Granted
|
|
|
39,000,000 |
|
|
|
0.02 |
|
|
|
|
|
Expired
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Cancelled
|
|
|
(14,000,000 |
) |
|
|
0.02 |
|
|
|
|
|
Outstanding
at December 31, 2007
|
|
|
44,883,000 |
|
|
|
0.03 |
|
|
|
|
|
Granted
|
|
|
7,276,083 |
|
|
$ |
0.04 |
|
|
|
|
|
Expired
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Outstanding
at December 31, 2008
|
|
|
52,159,083 |
|
|
$ |
0.03 |
|
6.4
years
|
|
$ |
316,141 |
|
Exercisable
at December 31, 2008
|
|
|
36,134,083 |
|
|
$ |
0.03 |
|
7.4
years
|
|
$ |
316,141 |
|
At
December 31, 2008, 80,000 of the options outstanding have no stated contractual
life. Except for warrants issued in satisfaction of accounts payable,
the fair value of each stock option grant and compensation-based warrant is
estimated on the date of grant or issuance using the Black-Scholes option
pricing model. In the case of the warrants issued in satisfaction of
accounts payable, the warrants were valued at the amount of the accounts payable
satisfied. The weighted-average fair value of stock options and
compensation-based warrants issued during the year ended December 31, 2008 was
$0.039. The weighted-average assumptions used for options granted and
compensation-based warrants issued during the year ended December 31, 2008 were
risk-free interest rate of 2.2%, volatility of 132%, expected life of 4.9 years,
and dividend yield of zero. The weighted-average fair value of stock
options and compensation-based warrants issued during the year ended December
31, 2007 was $0.045. The weighted-average assumptions used for
options granted and compensation-based warrants issued during the year ended
December 31, 2007 were risk-free interest rate of 4.5%, volatility of 132%,
expected life of 8.5 years, and dividend yield of zero. The
assumptions employed in the Black-Scholes option pricing model include the
following. The expected life of stock options represents the period
of time that the stock options granted are expected to be outstanding prior to
exercise. The expected volatility is based on the historical price volatility of
the Company’s common stock. The risk-free interest rate represents the U.S.
Treasury constant maturities rate for the expected life of the related stock
options. The dividend yield represents anticipated cash dividends to be paid
over the expected life of the stock options.
Share-based
compensation from all sources recorded during the years ended December 31, 2008
and 2007 was $371,439 and $3,118,021, respectively. Share-based
compensation has been included in the accompanying Consolidated Statements of
Operations as follows:
Period
Reported
|
|
General
and
Administrative
Expense
|
|
|
Research
and
Development
Expense
|
|
|
Loss
from
Discontinued
Operations
|
|
|
Total
|
|
Year
ended December 31, 2008
|
|
$ |
371,439 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
371,439 |
|
Year
ended December 31, 2007
|
|
|
2,014,637 |
|
|
|
986,584 |
|
|
|
116,800 |
|
|
$ |
3,118,021 |
|
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
As of
December 31, 2008, there is approximately $295,000 of unrecognized compensation
cost related to stock-based payments that will be recognized over a weighted
average period of approximately 1.6 years.
A summary
of the status of the warrants granted at December 31, 2008 and 2007, and changes
during the years then ended is presented in the following
table:
|
|
|
|
|
Weighted
|
|
|
|
Shares
|
|
|
Average
|
|
|
|
Under
|
|
|
Exercise
|
|
|
|
Warrant
|
|
|
Price
|
|
Outstanding
at December 31, 2006
|
|
|
38,973,861 |
|
|
$ |
0.19 |
|
Issued
|
|
|
29,161,157 |
|
|
|
0.01 |
|
Cancelled
|
|
|
(29,161,157 |
) |
|
|
0.20 |
|
Expired
|
|
|
(7,940,482 |
) |
|
|
0.15 |
|
Outstanding
at December 31, 2007
|
|
|
31,033,379 |
|
|
|
0.02 |
|
Issued
|
|
|
581,395 |
|
|
|
0.13 |
|
Expired
|
|
|
(1,872,222 |
) |
|
|
0.18 |
|
Outstanding
at December 31, 2008
|
|
|
29,742,552 |
|
|
$ |
0.01 |
|
NOTE
L – RELEASE AND SETTLEMENT AGREEMENT WITH CHIEF EXECUTIVE OFFICER
On August
31, 2007, the Company entered into a Release and Settlement Agreement with Judy
Robinett, the Company’s then-current Chief Executive Officer, pursuant to which
Ms. Robinett agreed to continue to act as the Company’s transitional Chief
Executive Officer. Under the agreement, Ms. Robinett agreed to, among
other things, assist the Company in the sale of its legacy assets, complete the
preparation and filing of the delinquent reports to the Securities and Exchange
Commission (the SEC) that related to the periods prior to the appointment of Mr.
Palmer, and provide certain shareholder and creditor related
services. Upon the completion of the foregoing matters, in particular
the filing of the delinquent reports to the SEC, Ms. Robinett was to resign, and
Mr. Palmer was to thereafter assume the office of Chief Executive
Officer. Under the agreement, Ms. Robinett agreed to (i)
forgive her potential right to receive $1,851,805 in accrued and unpaid
compensation, un-accrued and pro-rata bonuses, and severance pay and (ii) the
cancellation of stock options to purchase 14,000,000 shares of common stock at
an exercise price of $0.02 per share. In consideration for her
services, the forgiveness of the foregoing cash payments, the cancellation of
the foregoing stock options, and settlement of other issues, the Company agreed
to (a) pay Ms. Robinett $500,000 upon the receipt of the Eucodis cash payment
under the agreement to sell the SaveCream Assets, (b) pay Ms. Robinett a
commission of fifteen percent of the gross proceeds received by the Company from
the sale of the MDI-P asset, (c) pay Ms. Robinett $20,833 in monthly salary for
serving as transitional Chief Executive Officer of the Company during the period
from April 1, 2007 until the effective date of her resignation, and (d) permit
Ms. Robinett to retain some of her previously granted incentive stock options in
such an amount allowing her to purchase up to two million shares of common
stock, which options shall continue to have the same terms and conditions as
currently in existence, including an option price of $0.01 per share and
expiration date of December 31, 2112. Pursuant to this agreement, Ms.
Robinett resigned on December 21, 2007. As a consequence of the
settlement agreement, the Company i) has recorded a gain on the settlement of
debt of $395,137, representing the difference between Ms. Robinett’s accrued
compensation and the settlement amount of $500,000, and ii) has cancelled her
option to purchase 14,000,000 shares of common stock.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
M – DISCONTINUED OPERATIONS
Prior to
2007, the Company was a developmental-stage bio-pharmaceutical company engaged
in the research, validation, development and ultimate commercialization of two
drugs known as SaveCream and MDI-P. SaveCream is a drug candidate
that the Company was developing to reduce breast cancer tumors. MDI-P
was a drug candidate being developed as an anti-infective treatment for
bacterial infections, viral infections and fungal infections. During
the three months ended March 31, 2007, the Board of Directors determined that it
could no longer fund the development of these drug candidates and could not
obtain additional funding for these drug candidates. The Board
evaluated the value of its developmental stage drug candidates and in March
2007, the Board determined that the best course of action was to discontinue
further development of these drug candidates and sell these
technologies.
Plan to Sell SaveCream
Assets
On March
8, 2007, the Company entered into a binding letter of intent with Eucodis
Pharmaceuticals Forschungs und Entwicklungs GmbH, an Austrian company (Eucodis),
regarding their intent to proceed with the evaluation, negotiation, and
execution of a sale and purchase agreement related to certain assets of the
Company. On July 6, 2007, the Company entered into a sale and
purchase agreement (the Asset Sale Agreement) with Eucodis, pursuant to which
Eucodis agreed to acquire certain assets of the Company in consideration for a
cash payment and the assumption by Eucodis of certain indebtedness of the
Company. The assets to be acquired by Eucodis pursuant to the Asset
Sale Agreement included all of the Company’s right, title and interest in all
patents, patent applications, United States and foreign regulatory files and
data, pre-clinical study data and anecdotal clinical trial data concerning
SaveCream. In addition, at the closing of the sale, the Company was
to assign to Eucodis all of its right, title and interest in a co-development
agreement with Eucodis, dated as of July 29, 2006, related to the co-development
and licensing of SaveCream (including the intellectual property rights acquired
in connection with that development) and their rights under certain other
contracts relating to SaveCream. The sale to Eucodis was scheduled to
close at the end of January 2008 after the Company’s shareholders approved the
sale. On January 29, 2008, the shareholders of the Company approved
the transaction. Shortly before the scheduled closing, Eucodis
informed the Company that it was unable to complete the transaction as agreed
because it had insufficient funds and needed to obtain additional
financing.
The
Company thereafter commenced discussions with Eucodis regarding the possibility
of obtaining financing and possibly deferring the closing of the sale. However,
as of February 27, 2008, Eucodis still had not obtained sufficient financing to
complete its purchase of the SaveCream technology. Accordingly, on February 27,
2008, the Company delivered to Eucodis a letter formally notifying Eucodis that
the Asset Agreement had been terminated. On February 29, 2008,
Eucodis informed the Company that (i) it was completing an agreement for
financing, which financing would provide Eucodis with sufficient funds to
purchase the SaveCream assets for the purchase price, and substantially on the
terms set forth in the Asset Sale Agreement, and (ii) that it still desired to
complete the transaction contemplated by the Asset Sale Agreement. On February
29, 2008, the Company prepared a letter agreement again agreeing to sell the
SaveCream assets to Eucodis on substantially the terms set forth in the Asset
Sale Agreement (as amended). Under the letter agreement, the sale to
Eucodis was scheduled to occur at such time as Eucodis completed its financing,
but in no event later than April 30, 2008. As of April 30, 2008,
Eucodis had not completed its financing, therefore, the Asset Sale Agreement, as
amended by the Letter Agreement, terminated on its own terms. The
Company continued discussions with Eucodis and explored other potential
purchasers of SaveCream. All discussions and agreements with Eucodis were
terminated in July 2008 due to their inability to obtain their own pending
financing. As a result of the failed funding of Eucodis, they were forced to
cease their operations. However, the principal of Eucodis has agreed to continue
to work with the Company in connection with the sale of the Company’s legacy
assets.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company has engaged investment banking firms to expedite the sale of the
SaveCream asset. The Company continues to seek interested parties
that may purchase the asset. However, the recent contraction of the
capital markets has negatively impacted the abilities for several potential
purchasers to consummate a purchase. Although, management is
continuing to taking steps to market and sell the SaveCream assets to potential
buyers, no assurance can be given that this sale will actually be completed in
the near future, or ever. Due to the inability of the engaged investment bankers
to facilitate a sales transaction of the asset, the Company has terminated the
engagement of the investment banking firms.
Agreement to Sell
MDI-P
The
Company also entertained various offers to purchase the Company’s rights to the
assets related to the MDI-P compound. On August 9, 2007, the Company
sold the MDI-P related assets for $310,000 in cash realizing a gain of
$258,809. The sale included the patents, name, and other intellectual
property, research results and test data, production units and equipment, and
other assets related to this technology. No liabilities were assumed
by the purchaser in this transaction. A liability in the amount of
$90,000 was extinguished due to the sale. This extinguished liability
was only payable when the Company received $1 million in cumulative license
revenue from the MDI-P compound in any human indication. Due to the
sale of MDI-P for less than $1 million, this liability was no longer owed and
was written off.
Accounting for Discontinued
Operations
Pursuant
to accounting rules for discontinued operations, the Company has classified all
revenue and expense related to the operations, assets, and liabilities of its
bio-pharmaceutical business as discontinued operations. For all
periods prior to March 2007, the Company has reclassified all revenue and
operating expenses to discontinued operations, except for estimated general
corporate overhead, because all of its operations related to the discontinued
technologies. For the year ended December 31, 2007, revenues of
$200,000 are included in the Loss from Discontinued Operations and the Company
has recorded a gain from the sale of MDI-P of $258,809. For the year
ended December 31, 2008, the Income from Discontinued Operations consists of the
foreign currency transaction gains in the amount of $107,369 related to current
liabilities associated with the discontinued operations that are denominated in
euros, less $40,259 of expenses related to the SaveCream asset. The
assets that were under contract to be sold to Eucodis have no carrying value in
the accompanying balance sheet, while the liabilities that were to be assumed in
the planned sale were formerly segregated in the balance sheets and were
previously characterized as Current Liabilities Associated with Assets Held for
Sale. As a consequence of the termination of the Asset Sale Agreement
in 2008, these current liabilities have been reclassified into the captions
Research and Development Obligation and Accounts Payable, as
appropriate. The Company has not recorded any gain or loss through
December 31, 2008 associated with the planned sale of the SaveCream
assets.
Transactions Related to the
SaveCream Asset Purchase
On
March 16, 2005, the Company completed the purchase of the intellectual
property assets (the “Assets”) of Savetherapeutics AG, a German corporation in
liquidation in Hamburg, Germany (“SaveT”). The Assets consisted primarily of
patents, patent applications, pre-clinical study data and clinical trial data
concerning SaveCream, a developmental-stage topical aromatase inhibitor
treatment for breast cancer. The purchase price of the Assets was
€2,350,000, payable as follows: €500,000 at closing, €500,000 upon conclusion of
certain pending transfers of patent and patent application rights from the
inventors to the Company, and the remaining €1,350,000 upon successful
commercialization of the Assets.
GLOBAL
CLEAN ENERGY HOLDINGS, INC. AND SUBSIDIARIES
FORMERLY
KNOWN AS MEDICAL DISCOVERIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
pending transfers of patent and patent application rights have not occurred. The
Company has deemed the transfers are reasonably likely to occur due to existing
contractual commitments of the inventors and the reasonably likely success of
the Company’s action in German court proceeding to affect these transfers.
Accordingly, the Company has recorded the second €500,000 payment as Research
and Development Obligation in these financial statements. In July
2006 the Company entered into a co-development and license agreement with
Eucodis, which provided for up-front licensing fees and milestone payments in
excess of the €1,350,000 threshold for successful commercialization of the
Assets. Accordingly, in the year ended December 31, 2006 the Company recorded
the final €1,350,000 purchase price payment as Research and Development
Obligation in the accompanying financial statements. The total
obligation of €1,850,000 is included in current liabilities in the amount of
$2,607,945 and $2,701,555, based on exchange rates in effect at December 31,
2008 and 2007, respectively.
On March
27, 2009, the Company was informed by German counsel that pending action in
German courts appears to be settled in favor of the Company.
NOTE
N – SUBSEQUENT EVENTS
Acquisition of Jatropha Farm
in Belize
On
October 29, 2008, the Company entered into a Stock Purchase Agreement with the
four shareholders of Technology Alternatives Limited (TAL), a company formed
under the Laws of Belize. TAL owns and operates a 400 acre farm in subtropical
Belize, Central America, that currently is producing Jatropha. TAL has also been
performing plant science research and has been providing technical advisory
services for propagation of Jatropha for a number of years.
The
shareholders of TAL are unaffiliated persons residing in the United Kingdom.
Pursuant to the Stock Purchase Agreement, the Company will acquire 100% of the
issued and outstanding shares of TAL for common stock in the Company, thereby
making TAL a wholly-owned subsidiary of the Company. It is anticipated that the
Company will issue 8,952,756 common shares in exchange for all of the
outstanding shares of TAL. In addition to receiving the Company’s shares, the
sellers will be repaid the promissory notes previously issued to them by TAL.
However, as of March 27, 2009 all conditions precedent required for the exchange
of consideration had not been satisfied, and shares have not been issued.
Consequently, this transaction is not reflected in the Company’s financial
statements dated as of December 31, 2008.
Furthermore,
the seller had an obligation to maintain the asset in accordance with the Stock
Purchase Agreement and failed to do so. Therefore, the sellers have agreed to
decrease the acquisition price and to decrease the principal amounts of the
promissory notes.
The
selling shareholders had previously made loans to TAL to fund the operations of
TAL. As of October 29, 2008 the transaction contemplated by the Stock Purchase
Agreement, the remaining outstanding balance of these loans, in the aggregate,
was determined to be $453,611. To reflect the current value of TAL, these notes
will be reduced to $303,611 at closing. At the closing, the promissory notes
evidencing these loans will be replaced by new promissory notes issued by TAL to
the selling shareholders. The new notes have the following terms: (i) Interest
free for 90 days; (ii) Interest accrues at an annual rate of 8% per annum
commencing on the 91st day after the issuance of the notes; (iii) Interest
accrues until maturity; (iv) The entire remaining unpaid balance of the notes is
due and payable on August 31, 2009; (v) TAL and/or the Company may prepay the
notes at any time without penalty, and the Company is required to prepay the
notes if and when it receives future funding in an amount that, in the Company’s
reasonable discretion, is sufficient to permit the prepayment of the notes
without adversely affecting the Company’s operations or financial condition. The
new notes are secured by the deed of legal mortgage on the 400 acre farm owned
by TAL. Accordingly, in the event that TAL defaults under the notes, the selling
shareholders will have the right to foreclose on the 400 acre Jatropha
farm.
The
acquisition will be accounted for under the purchase method of accounting and
the results of operations of TAL will be consolidated with the results of
operations of the Company from the date of acquisition.
Exhibit
B
LIMITED
LIABILITY COMPANY AGREEMENT
OF
GCE
MEXICO I, LLC
A
DELAWARE LIMITED LIABILITY COMPANY
This
Limited Liability Company Agreement is made as of April 23, 2008, by and among
Stewart Resnick and Lynda Resnick, as trustees of the Stewart and Lynda Resnick
Revocable Trust dated December 27, 1998, as amended, Selim Zilkha, as trustee of
the Selim K. Zilkha Trust, Michael Zilkha, as trustee of the DMZ 2000 Trust,
Michael Zilkha, as trustee of the LLZ 2000 Trust, Nadia Z. Wellisz, as trustee
of the JW 2000 Trust, Nadia Z. Wellisz, as trustee of the DW 2000 Trust and
Global Clean Energy Holdings, Inc., a Utah corporation, with reference to the
following facts:
A.
The parties desire to form GCE Mexico I, LLC as a limited liability company
under the laws of the State of Delaware and, to that end, have filed a
Certificate of Formation for the Company with the Delaware Secretary of
State.
B.
The parties now desire to adopt a limited liability company agreement to
govern their respective rights and obligations as members and as the manager of
the Company.
NOW,
THEREFORE, in consideration of the mutual covenants contained herein and for
other good and valuable consideration, the receipt of which is acknowledged, the
parties agree that the following shall be the Limited Liability Company
Agreement of the Company.
ARTICLE
I
DEFINITIONS
When used
in this Agreement, the following terms have the following meanings:
1.1
“Act”
means the Limited Liability Company Act of the State of Delaware.
1.2
“Adjusted
Capital Account” of a Member means the Capital Account of that Member
increased by the Member’s share of Company Minimum Gain and Member Minimum
Gain.
1.3
“Adjusted Capital
Contribution” of a Member means the excess of (a) that Member’s Capital
Contribution to the Company, over (b) the Distributions to the Member under
Section 6.10(b) and the Distributions under Section 10.5(a) that shall
constitute return of capital Distributions. Distributions to a Member under
Section 10.5(a) first shall constitute return of capital Distributions to the
extent that these Distributions reduce the Member’s Adjusted Capital
Contribution to an amount not less than zero, and thereafter Distributions under
Section 10.5(a) shall constitute Distributions of Unpaid Preferred Return to the
extent that these Distributions reduce the Member’s Unpaid Preferred Return to
an amount not less than zero.
1.4
“Affiliate” of a
Member or Manager means (a) a Person directly or indirectly (through one or
more intermediaries) controlling, controlled by or under common control with
that Member or Manager; (b) an officer, director, trustee, partner, member
or immediate family member of that Member or Manager; or (c) a member of the
immediate family of an officer, director, trustee, partner or member of that
Member or Manager; provided, however, that (i) neither the Company nor any of
its Subsidiaries will be deemed an Affiliate of a Member or Manager and (ii)
neither a Member nor a Manager nor any of their respective Affiliates will be
deemed an Affiliate of the Company or any of the Company’s
Subsidiaries. For these purposes “control” means the possession,
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 otherwise.
1.5
“AGC” means
ASIDEROS GLOBALES CORPORATIVO, a wholly-owned Subsidiary of the Company formed
under the laws of Mexico.
1.6
“Agreement”
means this Limited Liability Company Agreement of GCE Mexico I, LLC, as
originally executed and as amended from time to time.
1.7
“Applicable Purchase
Price” has the meaning specified in Section 5.3(d).
1.8
“Bankruptcy” of a
Person means the institution of any proceedings under any federal or state law
for the relief of debtors, including the filing by or against that Person of a
voluntary or involuntary case under the federal bankruptcy law, which
proceedings, if involuntary, are not dismissed within sixty (60) days after
their filing; an assignment of the property of that Person for the benefit of
creditors; the appointment of a receiver, trustee or conservator of any
substantial portion of the assets of that Person, which appointment, if obtained
ex parte, is not dismissed within sixty (60) days thereafter; the seizure by a
sheriff, receiver, trustee or conservator of any substantial portion of the
assets of that Person; the failure by that Person generally to pay its debts as
they become due within the meaning of Section 303(h)(1) of the United States
Bankruptcy Code, as determined by the Bankruptcy Court; or that Person’s
admission in writing of its inability to pay its debts as they become
due.
1.9
“Bona Fide
Offer” means an offer in writing to a Member offering (subject to no
financing contingencies) to purchase all or any part of that Member’s Membership
Interest or any interest therein and setting forth all of the material terms and
conditions of the proposed purchase from an offeror who is ready, willing and
able to consummate the purchase and who is neither the Company nor an Affiliate
of that Member.
1.10
“Board” means the
Board of Directors of the Company established pursuant to Section 5.1(a) and
consisting of all of the Board Members.
1.11
“Board
Member” means each member of the Board appointed by the Members pursuant
to Section 5.1(a).
1.12
“Budget”
means the budget for the operations of the Company and its Subsidiaries for a
Fiscal Year, including without limitation, clearing, planting and farm
management and all activities relating thereto (but excluding the cost of
acquiring any real estate), setting forth month by month information for such
Fiscal Year. The initial Budget approved by the Members is attached
hereto as Exhibit
B.
1.13
“Business
Day” means any day of the year in which banks are not required or
authorized to close in Los Angeles, California.
1.14
“Capital
Account” of a Member means the capital account of that Member determined
from the inception of the Company strictly in accordance with the rules set
forth in Section 1.704-1(b)(2)(iv) of the Treasury Regulations. In
the event that assets of the Company other than cash are distributed to a Member
in kind, Capital Accounts shall be adjusted for the hypothetical “book” gain or
loss that would have been realized by the Company if the distributed assets had
been sold for their Fair Market Values in a cash sale (in order to reflect
unrealized gain or loss). In the event of the liquidation of the
Company, Capital Accounts shall be adjusted for the hypothetical “book” gain or
loss that would have been realized by the Company if all Company assets had been
sold for their Fair Market Values in a cash sale (in order to reflect unrealized
gain or loss). In the event of the liquidation of the Company,
Capital Accounts shall be adjusted for the hypothetical “book” gain or loss that
would have been realized by the Company if all Company assets had been sold for
their Fair Market Values in a cash sale (in order to reflect unrealized gain or
loss). There shall be only one Capital Account for each Member, regardless of
whether the Member owns more than one class of interest in the
Company.
1.15
“Capital
Contribution” of a Member, at any particular time, means the amount of
money or property which that Member has theretofore contributed to the capital
of the Company.
1.16
“Certificate of
Formation” means the Certificate of Formation of the Company as filed
under the Act with the Delaware Secretary of State.
1.17
“Closing”
has the meaning specified in Section 7.8.
1.18
“Code” means
the Internal Revenue Code of 1986.
1.19
“Common
Member” means a Member who holds Common Units.
1.20
“Common
Unit” means a unit of Membership Interest having the rights and
obligations specified with respect to Common Units in this
Agreement.
1.21
“Company” means GCE
Mexico I, LLC, a Delaware limited liability company.
1.22
“Company Minimum
Gain” with respect to any taxable year of the Company means the
“partnership minimum gain” of the Company as determined for “book” purposes and
computed strictly in accordance with the principles of Section 1.704-2(d) of the
Treasury Regulations.
1.23
“Distributable
Cash” at any time means that portion of the cash then on hand or in bank
accounts of the Company which the Board deems available for distribution to the
Members, taking into account (a) the amount of cash required for the
payment of all current expenses, liabilities and obligations of the Company
(whether for expense items, capital expenditures, improvements, retirement of
indebtedness or otherwise), including, without limitation, all accrued interest
and any other amounts payable under the Land Acquisition Loans, and (b) the
amount of cash necessary to establish prudent reserves for the payment of future
capital expenditures, improvements, retirements of indebtedness, amounts that
will become payable under the Land Acquisition Loans, operations and
contingencies, known or unknown, liquidated or unliquidated, including, but not
limited to, liabilities which may be incurred in litigation and liabilities
undertaken pursuant to the indemnification provisions of this
Agreement. Notwithstanding anything in this Agreement to the
contrary, Distributable Cash shall be computed so that, after the distribution
of Distributable Cash under Sections 6.10(a) and (b), one dollar of cash of the
Company shall be applied to the Land Acquisition Loans and shall be treated as
current indebtedness of the Company for every one dollar of Distributable Cash
available for distribution to Members under Section 6.10(c); this sentence shall
apply until all principal, accrued interest and other amounts payable under the
Land Acquisition Loans have been paid.
1.24
“Distribution” means
the transfer of money or property by the Company to one or more Members without
separate consideration.
1.25
“Economic
Interest” means a share, expressed as a percentage, of one or more of the
Company’s Net Profits, Net Losses, Tax Credits, Distributable Cash or other
Distributions, but does not include any other rights of a Member, including,
without limitation, the right to vote or participate in the management of the
Company or the right to information concerning the business and affairs of the
Company.
1.26
“Economic Risk
of Loss” means the economic risk of loss within the meaning of Section
1.752-2 of the Treasury Regulations.
1.27
“Exculpatory
Liability” means a liability that is treated as an “exculpatory
liability” pursuant to Part V.B of Treasury Decision 8385, 56 Federal Register
66978-66995 (December 27, 1991).
1.28
“Fair Market Value”
means, with respect to an asset or group of assets, the price at which that
asset or group of assets would be sold for cash payable at closing between a
willing buyer and a willing seller, each having reasonable knowledge of all
relevant facts concerning the asset or group of assets and neither acting under
any compulsion to buy or sell.
1.29
“Fiscal
Year” means the Company’s fiscal year, which shall be the calendar
year.
1.30
“Former
Member” has the meaning specified in Section 8.2.
1.31
“Former Member’s
Interest” has the meaning specified in Section 8.2.
1.32
“GCE”
means Global Clean Energy Holdings, Inc. or any permitted successor-in-interest
to some or all of its Membership Interest.
1.33
“GCE ROFO
Notice” has the meaning specified in Section 7.6(b).
1.34 “GCE ROFR Notice” has
the meaning specified in Section 7.6(b).
1.35 “Land Acquisition
Loan” has the meaning specified in Section 3.2(a).
1.36 “Lender” has the
meaning specified in Section 3.2(b).
1.37 “Manager” shall mean
GCE or any successor manager approved by the Preferred Members pursuant to
Section 5.2(e) or unanimously approved by all of the Board Members.
1.38 “Member” means each
Person who (a) is an initial signatory to this Agreement, has been admitted to
the Company as a Member in accordance with the Certificate of Formation or this
Agreement or is a transferee of a Member who has become a Member in accordance
with ARTICLE VII, and (b) has not suffered a Membership Termination Event or
Transferred its entire Membership Interest in accordance with the provisions of
ARTICLE VII.
1.39 “Member IP” has the
meaning specified in Section 5.8(b).
1.40 “Member Minimum Gain”
has the meaning given to the term “partner nonrecourse debt minimum gain” in
Section 1.704-2(i) of the Treasury Regulations.
1.41 “Member Nonrecourse
Debt” means any “partner nonrecourse liability” or “partner nonrecourse
debt” under Section 1.704-2(b)(4) of the Treasury
Regulations. Subject to the foregoing, it means any Company liability
to the extent the liability is nonrecourse for purposes of Section 1.1001-2 of
the Treasury Regulations, and a Member (or related Person within the
meaning of Section 1.752-4(b) of the Treasury Regulations) bears the Economic
Risk of Loss under Section 1.752-2 of the Treasury Regulations because, for
example, the Member or related Person is the creditor or a
guarantor.
1.42 “Member Nonrecourse
Deductions” means the Company deductions, losses and Code Section
705(a)(2)(B) expenditures, as the case may be (as computed for “book”
purposes), that are treated as deductions, losses and expenditures attributable
to Member Nonrecourse Debt under Section 1.704-2(i)(2) of the Treasury
Regulations.
1.43 “Membership Interest”
means a Member’s total interest as a member of the Company, including that
Member’s share of the Company’s Net Profits, Net Losses, Distributable Cash or
other Distributions, its right to inspect the books and records of the Company
and its right, to the extent specifically provided in this Agreement, to
participate in the business, affairs and management of the Company and to vote
or grant consent with respect to matters coming before the Company.
1.44 “Membership Termination
Event” with respect to any Member means one or more of the
following: the insanity, permanent disability, withdrawal,
resignation, Bankruptcy, dissolution or an attempted Transfer of a Member’s
Membership Interest or Economic Interest which is not made in accordance with
the provisions of ARTICLE VII.
1.45 “Net Profits” and
“Net Losses”
mean, for each Fiscal Year of the Company, the net income or net loss,
respectively, of the Company. For this purpose, “income” shall refer to all
items (other than Capital Contributions) that increase capital accounts under
Treasury Regulations Section 1.704-1(b)(2)(iv) (such as “book” gain and income),
and “loss” shall refer to all items (other than Distributions) that decrease
capital accounts under Treasury Regulations Section 1.704-1(b)(2)(iv) (such as
“book” deduction and loss). Notwithstanding the foregoing, all items specially
allocated under Sections 6.1 through 6.7 shall be excluded from the computation
of Net Profits and Net Losses.
1.46 “Nonrecourse
Deductions” in any fiscal period means the amount of Company “book”
deductions that are characterized as “nonrecourse deductions” under Treasury
Regulations Section 1.704-2(b) of the Treasury Regulations.
1.47 “Non-Transferring
Member” has the meaning specified in Section 7.6(a).
1.48 “Notice” has the
meaning specified in Section 7.7(a).
1.49 “Offering Member(s)”
has the meaning specified in Section 7.7(a).
1.50 “Other Member(s)” has
the meaning specified in Section 7.7(a).
1.51 “Percentage Interest”
means the percentage interest of a Member with respect to Common Units set forth
opposite the name of that Member in Exhibit A, as such
percentage may be adjusted from time to time pursuant to the provisions of this
Agreement.
1.52 “Person” means any
entity, corporation, company, association, joint venture, joint stock company,
partnership (whether general, limited or limited liability), trust, limited
liability company, real estate investment trust, organization, individual
(including any personal representative, executor or heir of a deceased
individual), nation, state, government (including any agency, department,
bureau, board, division or instrumentality thereof), trustee, receiver or
liquidator.
1.53 “Preferred Member”
means a Member who holds Preferred Units.
1.54 “Preferred Return” of
a Preferred Member means a cumulative preferential rate of return in an amount
equal to twelve percent (12%) per annum (compounded annually on January 1 of
each year), prorated for fractional periods, on the amount of that Member’s
Adjusted Capital Contribution. The Preferred Return shall be computed on the
basis of a computational year of 360 days comprised of equal months of 30 days
each. Contributions shall not bear the Preferred Return for the day on which
funds are contributed to the Company; however, funds distributed to Members that
reduce a Member’s Adjusted Capital Contribution shall bear the Preferred Return
for the day on which those funds are distributed to the Member.
1.55 “Preferred Unit” means
a unit of Membership Interest having the rights and obligations specified with
respect to Preferred Members and Preferred Units in this Agreement.
1.56 “Project” means the
acquisition by the Company, whether directly or indirectly through one or more
Subsidiaries, of up to 2,100 hectares of land located in the State of Yucatan,
in Mexico to be used primarily for planting, growing and harvesting Jatropha
curcas, and the marketing, distribution and sale of the resulting fruit, seeds,
or pre-processed Crude Jatropha Oil, as biodiesel feedstock, biomass or
otherwise, and the sale or utilization of environmental attributes relating
thereto, including without limitation, carbon value, green fuel value, or
renewable energy credit value.
1.57 “Purchase Price” has
the meaning specified in Section 7.7(a)
1.58 “Resnick Trust” means
the Stewart and Lynda Resnick Revocable Trust dated December 27, 1998, as
amended, or any permitted successor-in-interest to some or all of its Membership
Interest.
1.59 “Resnick/Zilkha
Members” has the meaning specified in Section 7.6(b).
1.60 “ROFO Notice” has the
meaning specified in Section 7.6(a).
1.61 “ROFR Notice” has the
meaning specified in Section 7.6(a).
1.62 “Subsidiary” means
with respect to any Person, any corporation, association, joint venture,
partnership, limited liability company or other business entity (whether now
existing or hereafter organized) of which at least a majority of the voting
stock or other ownership interests having ordinary voting power for the election
of directors (or the equivalent) is, at the time as of which any determination
is being made, owned or controlled by such Person or one or more subsidiaries of
such Person or by such Person and one or more subsidiaries of such
Person.
1.63
“Tax Credits”
means all credits against income or franchise taxes and credits allowable to
Members under state, federal or other tax statutes.
1.64 “Tax Matters Partner”
means the Member appointed pursuant to the provisions of Section 9.3 to serve as
the “tax matters partner” of the Company for purposes of Sections 6221-6233 of
the Code. Initially, the Tax Matters Partner shall be
GCE.
1.65 “Transfer” means, with
respect to a Membership Interest or any interest therein, the sale, assignment,
transfer, disposition, pledge, hypothecation or encumbrance thereof, whether
direct or indirect, voluntary, involuntary or by operation of law, and whether
or not for value, of (a) all or any part of that Membership Interest or interest
therein or (b) in the case of GCE, a controlling interest in any Person which
directly or indirectly through one or more intermediaries holds GCE’s Membership
Interest or interest therein.
1.66 “Transferring Member”
has the meaning specified in Section 7.6(a).
1.67 “Treasury Regulations”
means the regulations of the United States Treasury Department pertaining to the
income tax.
1.68 “Units” means either
Common Units and/or Preferred Units.
1.69 “Unpaid Preferred
Return” of a Member means the excess of (i) the Preferred Return of the
Member accrued to date over (ii) the sum of all Distributions to the Member
under Section 6.10(a) and the Distributions to the Member under Section 10.5(a)
that shall constitute return of capital Distributions. Distributions
to a Member under Section 10.5(a) first shall constitute return of capital
Distributions to the extent that these Distributions reduce the Member’s
Adjusted Capital Contribution to an amount not less than zero, and thereafter
Distributions under Section 10.5(a) shall constitute Distributions of Unpaid
Preferred Return to the extent that these Distributions reduce the Member’s
Unpaid Preferred Return to an amount not less than zero.
1.70 “Zilkha Members” means
the Zilkha Trust, DMZ 2000 Trust, LLZ 2000 Trust, JW 2000 Trust and DW 2000
Trust, or any permitted successor-in-interest to some or all of any of their
Membership Interests.
1.71
“Zilkha
Transferor” has the meaning specified in Section 7.5(a)
1.72
“Zilkha Trust”
means the Selim K. Zilkha Trust or any permitted successor-in-interest to some
or all of its Membership Interest.
References
in this Agreement to “Articles,” “Sections,” “Exhibits” and “Schedules,” shall
be to the Articles, Sections, Exhibits and Schedules of this Agreement, unless
otherwise specifically provided; all Exhibits and Schedules to this Agreement
are incorporated herein by reference; any of the terms used in this Agreement
may, unless the context otherwise requires, be used in the singular or the
plural and in any gender depending on the reference; the words “herein”,
“hereof” and “hereunder” and words of similar import, when used in this
Agreement, shall refer to this Agreement as a whole and not to any particular
provision of this Agreement; and except as otherwise specified in this
Agreement, all references in this Agreement (a) to any Person shall be
deemed to include such Person’s permitted heirs, personal representatives,
successors and assigns; and (b) to any agreement, any document or any other
written instrument shall be a reference to such agreement, document or
instrument together with all exhibits, schedules, attachments and appendices
thereto, and in each case as amended, restated, supplemented or otherwise
modified from time to time in accordance with the terms thereof; and (c) to
any law, statute or regulation shall be deemed references to such law, statute
or regulation as the same may be supplemented, amended, consolidated, superseded
or modified from time to time.
ARTICLE
II
ORGANIZATIONAL
MATTERS
2.1
Name. The
name of the Company shall be “GCE MEXICO I, LLC.” The business of the
Company may be conducted under that name or, upon compliance with applicable
law, under any other name that the Board deems appropriate or
advisable.
2.2
Term. The
term of the Company’s existence commenced upon the filing of its Certificate of
Formation with the Delaware Secretary of State on February 27, 2008 and shall continue
until such time as it is terminated pursuant to ARTICLE X.
2.3
Office and
Agent. The principal office of the Company shall be at 6033 W.
Century Blvd., Suite 1090, Los Angeles, California 90045 or at such other place
as the Board may determine from time to time. The Company may also
have such offices within and without the State of California as the Board may
from time to time determine. The name and business address of the
Company’s agent for service of process in the State of Delaware is Corporation
Trust Center, 1209 Orange Street, in the city of Wilmington, County of New
Castle, or as may otherwise be determined by the Board from time to
time.
2.4
Purpose of
Company. The Company may engage in any lawful activity for
which a limited liability company may be organized under the Act; however, its
primary purpose shall be to engage in the Project to establish a commercial
product focused on the growing of the Jatropha curcas to supply crude Jatropha
oil suitable for use as a biodiesel feedstock and to take all actions
relating thereto. Notwithstanding the foregoing, the Company shall
not engage in any business unrelated to the Project or in furtherance of the
purposes of the Company, unless the Board consents thereto.
2.5
Intent. It
is the intent of the Members that the Company shall always be operated in a
manner consistent with its treatment as a “partnership” for Federal and state
income tax purposes. It also is the intent of the Members that the
Company not be operated or treated as a “partnership” for purposes of Section
303 of the United States Bankruptcy Code. No Member shall take any
action inconsistent with that express intent.
2.6
Formation
Expenses. GCE shall be responsible for and shall pay all fees
and expenses incurred by it in connection with the formation of the Company,
including, without limitation, all legal and accounting fees and expenses
incurred by it in connection with the negotiation, preparation, execution and
delivery of this Agreement. The Company shall pay, or reimburse the
Resnick Trust and the Zilkha Trust for the payment of, fees and expenses
incurred by the Resnick Trust and the Zilkha Trust in connection with the
formation of the Company, including, without limitation, all legal and
accounting fees and expenses incurred by them in connection with the
negotiation, preparation, execution and delivery of this
Agreement. The Company shall pay all filing fees, minimum franchise
or other similar taxes and other governmental charges incident to its formation
and qualification to do business.
ARTICLE
III
CAPITAL
CONTRIBUTIONS
3.1 Units.
(a) Authorized
Units. The authorized Units which the Company has authority to
issue consists of 1,000 authorized Common Units, and 1,000 authorized Preferred
Units. The ownership by a Member of Units shall entitle such Member
to allocations of Net Profit and Net Loss and other items and Distributions as
set forth in ARTICLE VI
hereof. On the date hereof, the Company has issued to each of the
Members the number of Common Units and Preferred Units set forth opposite the
Member’s name on Exhibit A attached
hereto.
(b) Capital
Contributions.
(i) Common
Units. No Capital Contribution is required with respect to the
issuance of Common Units.
(ii) Preferred Units. With
respect to the Preferred Units, each Preferred Member shall make Capital
Contributions, up to the aggregate amount set forth on Exhibit A attached
hereto, as described in this paragraph. At least ten (10) Business
Days prior to the commencement of any calendar quarter, the Manager shall
provide written notice to each Preferred Member of the funds necessary for the
Company’s operations, as reflected in the then current Budget approved by the
Board, for such quarter. At least three (3) Business Days prior to
the commencement of such quarter, each Preferred Member shall make a Capital
Contribution in immediately available funds to the Company in an amount equal to
fifty percent (50%) of the necessary funds set forth in such notice; provided,
however, that, notwithstanding anything to the contrary contained herein, (A)
the aggregate Capital Contribution obligation for each Preferred Member under
this subparagraph shall not exceed $1,116,312 and (B) in the event of a conflict
between the amount of funds requested in the notice and the amount of funds
reflected in the then current Budget approved by the Board, the Capital
Contribution obligations for a Preferred Member with respect to such request
shall be limited to fifty percent (50%) of the lesser of the two
amounts.
(iii) Additional Capital
Contributions. No Member shall be required to make any Capital
Contributions other than as described in this Section 3.1. To the
extent approved by the Board, from time to time, the Members may be permitted to
make additional Capital Contributions if and to the extent they so desire, and
if the Members determine that such additional Capital Contributions are
necessary or appropriate for the conduct of the Company’s
business. In that event, the Members shall have the opportunity, but
not the obligation, to participate in such additional Capital Contributions on a
pro rata basis in accordance with their Percentage Interests, and such
Percentage Interests and Sections 6.8, 6.9 and 6.10 shall be modified in such
manner as agreed to by the Board and the Members.
(iv) Each
Member shall receive a credit to its Capital Account in the amount of any
capital which it contributes to the Company. The Board shall update
Exhibit A from
time to time to credit each Member with the amount of any additional Capital
Contributions hereafter made by such Member and additional Units issued to such
Members.
(c) Unit
Rights. Each class of Units, and each Unit in a class, shall
have the rights and obligations described in this Agreement, including without
limitation, with respect to Capital Account balances, allocations of Net Profit
and Net Loss, Distributions, approval rights, Transfer restrictions and purchase
and sale rights and obligations.
3.2 Loans.
(a) Loans for Land
Acquisition. Each of the Resnick Trust and the Zilkha Trust shall lend up
to $1,026,000 to AGC to be used solely for the purpose of purchasing land
necessary for the Project (each, a “Land Acquisition
Loan”) upon the satisfaction of all of the following terms and
conditions: (a) the Board has authorized AGC to execute and deliver
an agreement for the acquisition of real estate for the Project, (b) the Manager
has given each of the Resnick Trust and the Zilkha Trust at least ten (10)
Business Days prior written notice of the expected closing date for such
acquisition and the amount of funds necessary for AGC to satisfy its obligations
under such acquisition agreement, (c) AGC has executed and delivered to the
Resnick Trust and the Zilkha Trust the promissory note and mortgage in the form
of Exhibit C,
and D,
respectively, attached hereto; provided, however, that (i) the interest
payable under such Land Acquisition Loans shall be twelve percent (12%) per
annum, compounded annually on January 1 of each year, prorated for fractional
periods, computed on the basis of a computational year of 360 days comprised of
equal months of 30 days each, with no interest accruing for the day on which the
loan is made, but with interest accruing for the day on which the loan is
paid, (ii) the
promissory note shall contain a “due on sale clause” and accelerate upon a
default under the note or GCE’s purchase of the Membership Interests of the
Resnick Trust or the Zilkha Trust, and (iii) the maturity date shall be ten (10)
years after the date of such Land Acquisition Loans. Provided that
such terms and conditions have been satisfied, each of the Resnick Trust and the
Zilkha Trust shall, on the expected closing date, make a Land Acquisition Loan
to AGC in immediately available funds in an amount equal to fifty percent (50%)
of the necessary funds set forth in such notice; provided, however, that,
notwithstanding anything to the contrary contained herein, the obligation for
each of the Resnick Trust and the Zilkha Trust to make a Land Acquisition Loan
under this Section shall not exceed $1,026,000.
(b) Treatment of
Loans. To the fullest extent permitted by law, all principal,
interest, costs and expenses due and payable by the Company to the Members or
Affiliates thereof in repayment of loans shall be treated in the same manner as
liabilities payable to unaffiliated creditors of the Company and shall be paid
and taken into account, as such, before any Distributions of Distributable Cash
are made to the Members. Without limiting the foregoing, the Members
acknowledge that any Member or Affiliate of a Member (“Lender”) who loans
money to the Company shall have rights, the exercise of which will be in
conflict with the Company’s best interests. In that regard, the
Members hereby authorize, agree and consent to the Lender’s exercise of any of
Lender’s rights under any promissory note, deed of trust, security agreement or
other loan document, even though the Lender’s exercise of those rights may be
detrimental to the Company or the Company’s business. Further, the
Members agree that any Lender’s proper exercise of the rights shall not be
deemed a breach of that Lender’s fiduciary duties (if any) to the
Company.
3.3 Capital
Accounts. The Company shall establish and maintain an
individual Capital Account for each Member.
3.4 No Priorities of Members; No
Withdrawals of Capital. Except as otherwise specified in
ARTICLE VI, ARTICLE X and in the Act, no Member shall have a priority over any
other Member as to any Distribution, whether by way of return of capital or by
way of profits, or as to any allocation of Net Profits or Net
Losses. No Member shall have the right to withdraw or reduce its
Capital Contributions in the Company except as a result of the dissolution of
the Company or as otherwise provided in the Act, and, except as provided in
Section 10.3, no Member shall have the right to demand or receive property other
than cash in return for its Capital Contributions or Membership
Interest.
3.5 No Interest on Capital
Contributions. No Member shall be entitled to receive any
interest on its Capital Contributions; it being acknowledged that the Preferred
Return does not constitute interest. This Section shall not restrict
the right of any member to receive interest on loans made to the Company by such
Member.
ARTICLE
IV
MEMBERS
4.1 Limited
Liability. Except as required under the Act or as expressly
set forth in this Agreement, no Member shall be personally liable for any debt,
obligation or liability of the Company, whether that liability or obligation
arises in contract, tort or otherwise.
4.2 Admission of Additional
Members. Subject to compliance with applicable law and the
approval of the Board, additional Members may be admitted to the Company from
time to time upon such terms and conditions as the Board may determine, and any
such additional Members shall be granted Membership Interests and may
participate in the management, Distributable Cash, Net Profits, Net Losses, Tax
Credits and other Distributions of the Company on such terms as the Board may
fix; provided, however, that if such terms may require amendment to this
Agreement, all of the Members must also consent to such amendment.
4.3 Withdrawal. No
Member may withdraw or resign from the Company except with the prior written
consent of the other Members which consent
may be given or withheld, conditioned or delayed in the other Members’ sole
discretion. Any such permitted withdrawal or resignation of a Member
shall constitute a Membership Termination Event, and upon the occurrence
thereof, that Member’s Membership Interest may, at the election of the holders
of a majority of the Units held by all other Members, either be converted to a
bare Economic Interest or purchased as provided in Section 8.2. In
addition, such Member will be liable to the Company and the other Members for
all damages suffered by the Company and the other Members as a result of such
withdrawal.
4.4 Members Are Not
Agents. No Member, acting solely in its capacity as a Member,
may be an agent of the Company, nor may any Member, in that capacity, bind or
execute any instrument on behalf of the Company without the prior written
consent of the Manager.
4.5 Meetings of Members; Written
Consent. Meetings of the Members shall be held at such times
and places within or without the State of California as the Members may fix from
time to time, but, in any event, any Member may call a special meeting of the
Members upon fourteen (14) days prior written notice to the other
Members. No annual, regular or special meetings of Members are
required, but if such meetings are held, they shall be conducted pursuant to the
Act. Members may participate in any meeting through the use of
conference telephones or similar communications equipment as long as all Members
participating can hear one another. A Member so participating is
deemed to be present in person at the meeting. Any action which may
be taken by the Members at a meeting may also be taken without a meeting, if a
consent in writing setting forth the action so taken is signed by all the
Members. A consent transmitted by electronic transmission by a Member
or other Person authorized to act for that Member shall be deemed to be written
and signed by that Member for these purposes, and the term “electronic
transmission” means any form of communication not directly involving the
physical transmission of paper that creates a record that may be retained,
retrieved and reviewed by a recipient thereof and that may be directly
reproduced in paper form by such a recipient through an automated
process. Except where any of the Preferred Members have been given
the right to act alone, the affirmative unanimous vote of all the Members shall
be required for the Members to approve any action. The Zilkha Members
shall vote as a block.
4.6 Member
Approvals. Except where this Agreement requires the consent or
approval of all of the Members, the consent or approval of the Members shall
occur at such time as Members holding at least a majority of the Units in each
class have given their consent or approval. Except where this
Agreement requires the consent or approval of all of the Members of a class of
Units, the consent or approval of Members holding a class of Units shall occur
at such time as Members holding at least a majority of the Units in such class
have given their consent or approval
ARTICLE
V
MANAGEMENT
AND CONTROL OF THE COMPANY
5.1 Board of
Directors.
(a) Election and Term of
Board. The business and affairs of the Company shall be
managed under the direction of the Board which shall be constituted in
accordance with this Section 5.1. The expression of any power or
authority of the Board in this Agreement shall not in any way limit or exclude
any other power or authority of the Board which is not specifically or expressly
set forth in this Agreement. The Members shall designate the members
of the Board (the “Board Members”) as
follows: two (2) Board Members shall be designated by GCE and two (2) Board
Members shall be designated by the Preferred Members, with each of the Resnick
Trust and the Zilkha Trust having the right to designate one (1) Board Member;
provided, however, that (a) if GCE shall be removed as the Manager pursuant to
Section 5.2(e), the Board Members designated by GCE shall thereupon be deemed
removed as Board Members and GCE shall have no further right to designate Board
Members, or (b) if a Member’s Membership Interest is converted to an Economic
Interest, whether as a result of a Membership Termination Event, a Transfer to a
Person who is not then admitted as a substituted Member or otherwise, any Board
Member designated by such Member shall be deemed removed and such Member or its
successor or transferee shall have no further right to designate any Board
Member. Subject to the foregoing, each of GCE and the Preferred
Members shall have the right to change the identity of the Board Member
appointed by it at any time and for any reason, by written notice to the other
Member, and each Board Member so appointed shall serve in that capacity until he
or she resigns or is removed by the Member which appointed him or her, in its
absolute discretion. Initially, Richard Palmer and Bruce K. Nelson
shall be the Board Members appointed by GCE, and Stewart A. Resnick and Selim
Zilkha shall be the Board Members appointed by the Preferred
Members.
(b) Meetings of the
Board. Meetings of the Board may be called at any time, upon
five (5) Business Days’ prior notice, by any Board Member or by the Manager;
provided, however, that in case of an emergency such meeting may be called on
one (1) Business Day’s notice. Unless the Board agrees otherwise,
such meetings shall be held at the principal offices of the Company. A notice of
a meeting need not specify the purpose of that meeting, and notice of the
meeting need not be given to any Board Member who signs a waiver of notice, a
consent to holding the meeting or an approval of the minutes thereof, whether
before or after the meeting, or who attends the meeting without protesting the
lack of notice prior to the commencement of the meeting. Any Board
Member may grant any other Board Member a proxy to act in his or her place at
any meeting of the Board. Board Members may participate in any
meeting of the Board by means of conference telephones or similar communications
equipment so long as all Board Member participating can hear one
another. A Board Member so participating is deemed to be present at
the meeting. The affirmative unanimous vote of all Board Members in
office shall be required for the Board to approve any action.
(c) Written
Consent. Any action which may be taken by the Board Members at
a meeting may also be taken without a meeting, if a consent in writing setting
forth the action so taken is signed by all the Board Members. A
consent transmitted by electronic transmission by a Board Member or other Person
authorized to act for that Board Member shall be deemed to be written and signed
by that Board Member for these purposes, and the term “electronic transmission”
means any form of communication not directly involving the physical transmission
of paper that creates a record that may be retained, retrieved and reviewed by a
recipient thereof and that may be directly reproduced in paper form by such a
recipient through an automated process.
(d) Standard of
Care. Every Board Member shall discharge his or her duties in
good faith, with the care an ordinary prudent person in a like position would
exercise under similar circumstances, and in a manner he or she reasonably
believes to be in the best interests of the Company and its Members; provided,
however, that Board Members may, in their sole discretion, take actions which
are in the best interests of the Member who appointed them regardless of whether
such action is in the best interest of the Company or the other
Members.
(e) Limitation of
Liability. Except as otherwise prohibited by the Act, a Board
Member shall not be liable, responsible or accountable for damages or otherwise
to the Company for any action taken or failure to act on behalf of the Company
within the scope of the authority conferred on the Board Members by this
Agreement, by law or by the Members, unless such action or omission is performed
or omitted fraudulently or constitutes willful misconduct or gross
negligence. In no event shall the Board Members be liable to the
Company, the Members or any of their respective Affiliates or constituent owners
for any consequential, indirect, incidental or special damages arising from
their acts or omissions.
(f) Reliance. In
performing their duties, the Board Members shall be entitled to rely on
information, opinions, reports or statements, including financial statements and
other financial data, of any attorney, independent accountant or other Person as
to matters which the Board Members believe to be within such Person’s
professional or expert competence unless the Board Members have actual knowledge
concerning the matter in question that would cause such reliance to be
unwarranted.
(g) Devotion of
Time. The Board Members shall not be obligated to devote all
of their time or business efforts to the affairs of the Company.
(h) Actions Requiring Board
Approval. Without limiting the matters or actions that must be
approved by the Board, the approval of the Board shall be required for any of
the following actions:
(i)
other than the declaration and payment of the Preferred Return, the
declaration or payment of any Distributions on any Membership
Interests;
(ii) the
sale, exchange or other disposition of all, or substantially all, of the assets
of the Company or any of its Subsidiaries occurring as part of a single
transaction or plan, or in a series of transactions, except in the orderly
liquidation and winding up of the business of the Company and its Subsidiaries
upon its duly authorized dissolution;
(iii) the
merger of the Company or any of its Subsidiaries with another limited liability
company or a corporation, general partnership, limited partnership or other
Person;
(iv) except
to secure a Land Acquisition Loan, the encumbrance of any significant asset of
the Company or any of its Subsidiaries, including without limitation, any real
property owned by the Company or any of its Subsidiaries;
(v) any
issuance of Membership Interests or any increase or decrease in the number of
authorized Membership Interests or any redemption or repurchase of Membership
Interests;
(vi) any
change to the rights, preferences, and privileges of any class of Membership
Interests or issuance of any Membership Interests;
(vii) any
increase or decrease in the size of the Board;
(viii) the
approval of the Budget and any changes in any line item of the Budget (except
for changes that move line items between categories in the Budget as long as
such change does not increase the Budget or alter the overall Budget); provided,
however, that if the Board does not approve a Budget for a new Fiscal Year, the
Budget for such year shall be the same as the then current Budget as adjusted to
reflect increases for increased government assessments, cost increases under
existing contracts and other increases consistent with the increase in consumer
prices over the prior Fiscal Year which occurred for the area in which the
Company operates as such increases in consumer prices are determined by a
governmental agency or other Person approved by the Board;
(ix) the
admission of another Person as a Member of the Company;
(x) any
alteration of the primary purpose of the Company as set forth in Section
2.4;
(xi) any
decision to place the Company or any of its Subsidiaries into Bankruptcy;
or
(xii) any
amendment to the Certificate of Formation or this Agreement.
5.2 Manager.
(a) Management by
Manager. Subject to the other provisions of this Agreement,
the day-to-day operations of the Company shall be managed by one (1) Manager
within the parameters set forth in the Budget and by the Board. The
initial Manager is GCE, who hereby accepts such appointment. The
Manager may at any time be replaced by a unanimous vote of the Board
Members. Additionally, the Preferred Members may remove and replace
the Manager in accordance with Section 5.2(e). The Manager is hereby
designated as a “manager” pursuant to Section 18-402 of the Delaware
Act. Notwithstanding the foregoing, the Manager shall owe the Company
the duties of loyalty and due care of the type owed by the officers of a
corporation to such corporation and its stockholders under the Laws of the State
of Delaware.
(b) Duties of the
Manager. The Manager shall undertake all actions approved by
the Board and shall cause the Preferred Return to be paid annually to the
Preferred Members to the extent that Distributable Cash exists and payment of
the Preferred Return is not then prohibited under this Agreement or law or any
third party agreement approved by the Board.
Except for situations in which this
Agreement provides for the Manager to act in a certain manner or the approval of
the Members or the Board is specifically required by the Act, the Certificate of
Formation or this Agreement, the Manager shall have full, complete and exclusive
authority, power and discretion to manage and control the business, property and
affairs of the Company, to make all decisions regarding those matters, to
supervise, direct and control the actions of the officers, if any, of the
Company and to perform any and all other actions customary or incident to the
management of the Company’s business, property and affairs. Subject
to the foregoing, the Manager shall control and direct the administration of the
business and affairs of the Company in accordance this Agreement and with sound
business practice, taking such steps as are necessary or appropriate in its
reasonable judgment to conserve and enhance the value and profitability of the
Company’s business, property and affairs. The Manager shall be
serving in a fiduciary role for all of the Members and shall seek to obtain the
best possible terms and conditions for the Project in connection with the sale
of all off-take from the Project, including, without limitation, controlling and
managing the monetization of all potential revenue sources from the Project or
the Company’s operations, including but not limited to fruit, seeds,
pre-processed crude Jatropha oil, biomass, and by-product, press cake and hulls
revenue and carbon credits.
Without
limiting any of the other duties of the Manager described in this Agreement, the
duties of the Manager shall include, among other things, responsibility for
identifying the land, aggregating, negotiating the purchase, managing the
Project development process and the Company on a day-to-day basis, including,
but not limited to the following: (i) providing Jatropha
seedlings/rootstock from existing GCE plantings, nurseries, or seed stocks; (ii)
sourcing additional seeds from suppliers; (iii) overseeing any additional
nursery construction and operations; (iv) managing land clearing, planting,
harvesting and maintenance of the plantation (all or parts of which may be
accomplished through GCE employees or through sub contractors subject to the
payment restrictions set forth herein); (v) leasing or building storage
facilities for seed and finished product; (vi) coordinating and managing all
logistics relating to the Company’s operations; (vii) managing all sales
efforts; (viii) negotiating all off-take agreements and (ix) preparing and
submitting the Budget as described in Section 5.2(c).
(c) Budget. At
least two (2) months prior to the commencement of each Fiscal Year (other than
the Company’s initial Fiscal Year), the Manager shall prepare and deliver to
each Board Member a proposed Budget for such Fiscal Year. Such
proposed Budget shall be in the form of Exhibit B, provided,
however, that if the Preferred Members request that the proposed Budget be
prepared in a different form, the Manager shall prepare the proposed Budget in
such form. If the Board does not approve a proposed Budget, the
Manager shall promptly revise the proposed Budget to reflect comments received
from Board Members and submit such revised Budget to the Board Members for
approval.
(d) Liability of
Manager. The Manager shall not be liable to the Company or to
any Member for any losses or damages suffered by them, except as the result of
the Manager’s fraud, deceit, gross negligence, reckless or intentional
misconduct, embezzlement, breach of fiduciary duty, knowing violation of law or
breach of this Agreement or any other obligations of the Manager hereunder
(whether committed knowingly, negligently or otherwise) or as a result of an act
from which the Manager derives an improper personal benefit.
(e) Removal of
Manager. The Manager may be removed or replaced by holders of
all of the Preferred Units at any time or from time to time, without liability
to the Company or any of its Members, for fraud, deceit, gross negligence,
reckless or intentional misconduct, embezzlement, breach of a fiduciary duty, a
material violation of law or a breach of this Agreement, any act from which the
Manager derives an improper personal benefit, a breach of the Manager’s
obligations hereunder (which shall include, without limitation, taking any
action not authorized under this Agreement), the Manager’s failure to operate
the Company within the budgetary guidelines established by the Board and such
failure has a material adverse effect on the Company, the inability of Richard
Palmer or his assignee to render services on behalf of the Manager and the
failure of GCE to obtain a replacement acceptable to the holders of the
Preferred Units within thirty (30) days, or a dissolution, merger, liquidation
or bankruptcy of the Manager. If the Manager is so removed or
replaced, the Preferred Members shall have the right under Section 5.3 to
purchase the Common Units and all of the Membership Interest owned by the
Manager or to require the Manager to purchase all of the Units and Membership
Interests held by the Resnick Trust and the Zilkha Members.
5.3 Buy-Sell Rights Upon Removal
of GCE as Manager.
(a) Buy-Sell
Right. If GCE is removed as the Manager pursuant to Section
5.2(e), then the Preferred Members may, at any time within ninety (90) calendar
days after such removal, elect to either purchase the Membership Interest of GCE
or to sell the Membership Interests of the Resnick Trust and the Zilkha Members
to GCE upon the terms and conditions set forth herein; provided that such
election by the Preferred Members shall not give rise to any purchase right
afforded to GCE pursuant to Section 7. To exercise such right, the
Preferred Members shall deliver written notice to GCE of their intention to
exercise such right; provided, however, that the Preferred Members shall not be
required to state in such notice whether they have elected to sell the
Membership Interests of the Resnick Trust and the Zilkha Members to GCE or to
purchase the Membership Interest of GCE.
(b) Suspension of Exercise of
Buy-Sell Right. If GCE disputes the basis for its removal as
the Manager pursuant to Section 5.2(e), GCE shall initiate an arbitration
proceeding pursuant to Section 13.3 no later than 110 days following such
removal. The failure to so initiate such proceeding during such
period, or the termination of such proceeding by GCE, shall constitute an
irrevocable waiver and release by GCE of, and an absolute bar against the
exercise by GCE of, any right, remedy, or claim regarding its removal as the
Manager. If an arbitration proceeding is so initiated within such
period, then the exercise of the rights under this Section 5.3 shall be
suspended until the earlier of the termination or dismissal of the proceeding or
the rendering of a decision by the arbitrator. If the arbitrator
finds that the removal of the Manager was not in accordance with Section 5.2(e),
then any exercise of the rights under Section 5.3 with respect to such removal
shall be considered void and of no force or effect.
(c) Determination of Fair Market
Value of the Company. If the Members are unable to agree upon
a purchase price for the respective Membership Interests within thirty (30)
calendar days following the delivery of the notice of exercise (or if an
arbitration proceeding as to the removal is initiated by GCE pursuant to
Section 5.3(b), within thirty (30) calendar days following the termination
or dismissal of such proceeding or the rendering of a decision by the
arbitrator), they shall within the next thirty (30) calendar days agree upon the
selection of an appraiser to value the Fair Market Value of the Company as of the
date of removal (or other repurchase event). If no agreement can be
reached as to the selection of an appraiser, the Preferred Members shall
promptly choose one appraiser by notice to GCE and GCE shall promptly choose one
appraiser by notice to the Preferred Members; provided, however, that all
appraisers selected by the parties shall be reasonably experienced in valuing
interests in businesses similar to the business then conducted by the
Company. Each appraiser shall, within twenty (20) calendar days after
his or her appointment, prepare an appraisal of the Fair Market Value of the
Company as of the date of removal (or other repurchase event). In
making the appraisal, the appraisers shall be obligated to take into account the
value of comparable companies if known, and the present value of future cash
flows to be derived from the existing assets of the Company and its
Subsidiaries. The arithmetic average of the two appraisals shall be
the Fair Market Value of the Company.
If either
GCE or the Preferred Members fail to appoint an appraiser within thirty (30)
calendar days after the lapse of the initial thirty (30) calendar day period
referred to above, then the appraiser appointed by the party which does appoint
an appraiser shall alone determine the Fair Market Value of the Company as of the
date of removal (or other repurchase event), and its appraisal shall
govern. Each party shall compensate the appraiser appointed by that
party.
(d) Applicable Purchase
Price. Within thirty (30) calendar days of such determination
of the Fair Market Value of the Company, the Company’s accountants shall prepare
a schedule setting forth the amounts that would be distributed to each of the
Members on the assumption that the Company completes a sale of its assets for,
and receives cash equal to, such Fair Market Value as of the date of the notice,
pays all outstanding obligations and customary closing and transaction costs
that would have been likely to have been incurred if the Company was sold for
such Fair Market Value, dissolves and then distributes the remaining balance to
the Members in accordance with the terms of this Agreement. The
amount that would be so distributed to each such Member shall be the purchase
price (the “Applicable
Purchase Price”) for such Member’s Membership Interest under this
Section.
(e) Election. Within ten
(10) calendar days of the determination of such Applicable Purchase Price, the
Preferred Members shall notify GCE in writing as to whether they elect to
purchase GCE’s Membership Interest, or elect to require GCE to purchase the
Membership Interests of the Resnick Trust and the Zilkha Members, for the
Applicable Purchase Price; provided, however, that, notwithstanding anything to
the contrary set forth in this Agreement: (i) the Applicable Purchase Price
payable by any Member hereunder shall be reduced by an amount equal to all
indebtedness then owed by the selling Member to that purchaser (without regard
to whether or not such indebtedness is then due and payable in whole or in
part); (ii) if GCE’s Membership Interest is being purchased as a result of
a breach of this Agreement by GCE, the Applicable Purchase Price payable by any
Preferred Member hereunder shall be reduced by an amount equal to the damages
suffered by that purchaser as a result of the breach; (iii) if at least
five (5) Business Days prior to the Closing, GCE initiates an arbitration
proceeding pursuant to Section 13.3 with respect to the amount of damages,
then instead of withholding the amount of the damages from the payment of the
purchase price, the Preferred Members shall at the Closing deposit the amount of
the reduction for damages in an escrow which shall provide for the release of
the funds to the Preferred Members if the arbitration is dismissed or terminated
or otherwise in accordance with the findings of the arbitrator, and for all
interest and earnings on such funds to be paid to the Preferred Members, and
(iv) if the Preferred Members elect to require GCE to purchase the Membership
Interests of the Resnick Trust and the Zilkha Members, then GCE must also cause
AGC to pay to the Resnick Trust and the Zilkha Trust at the Closing all
principal, accrued interest and other amounts payable under the Land Acquisition
Loans; provided, however, if within ten (10) Business Days of the delivery of
the notice from the Preferred Members, GCE provides written notice to the
Preferred Members that the board of directors of GCE has made a good faith
determination that GCE is unable to pay, or finance the payment of, the
Applicable Purchase Price and cause AGC to pay to the Resnick Trust and the
Zilkha Trust at the Closing all principal, accrued interest and other amounts
payable under the Land Acquisition Loans, then the Preferred Members may elect
to (A) dissolve the Company, (B) instead purchase the Membership Interests of
GCE for the Applicable Purchase Price, or (C) cancel the exercise of its
buy-sell rights under this Section 5.3, and any election by the Preferred
Members shall be without prejudice to any right or remedy of the Preferred
Members with respect to GCE.
5.4 Transactions between the
Company and the Manager or its Affiliates. Subject to the
terms and provisions of this Agreement, the Manager may provide, or cause the
Company to engage one or more of its Affiliates to provide, any or all goods
and/or services required by the Company or its Subsidiaries in the conduct of
its business, provided that the Manager has first notified each of the Board
Members in writing that the Manager or any of its Affiliates may be providing
such goods and/or services to the Company or its Subsidiaries and the Board has
approved the terms and conditions of any such engagement or the Budget expressly
approved by the Board contains a line-item reflecting payments to the Manager or
its Affiliates for such good or services.
5.5 Officers of the
Company.
(a) Appointment of
Officers. The Manager may, at its discretion, appoint officers
of the Company at any time to conduct, or to assist the Manager in the conduct
of, the day-to-day business and affairs of the Company. The officers
of the Company may include a Chairperson, a President or Chief Executive
Officer, one or more Senior Vice Presidents, one or more Vice Presidents, a
Secretary, one or more Assistant Secretaries, a Chief Financial Officer, a
Treasurer, one or more Assistant Treasurers and a Comptroller. The
officers shall serve at the pleasure of the Manager, subject to all rights, if
any, of an officer under any contract of employment; provided, however, that the
Manager shall not enter into any employment agreement with an officer without
the prior approval of the Board. Any individual may hold any number
of offices. If a Manager is not an individual, that Manager’s
officers may serve as officers of the Company if appointed by the
Manager. The officers shall exercise such powers and perform such
duties as are typically exercised by similarly titled officers in a corporation
and as shall be determined from time to time by the Manager, but subject in all
instances to the supervision and control of the Manager.
(b) Signing Authority of
Officers. The officers, if any, shall have such authority to
sign checks, instruments and other documents on behalf of the Company as may be
delegated to them by the Manager.
5.6 Limitations on Power of
Manager and Officers. Notwithstanding any other provision of
this Agreement, however, neither the Manager nor any officer of the Company or
any of its Subsidiaries shall have any power or authority to approve or cause
the Company or any of its Subsidiaries to engage in any of the following,
without first obtaining the unanimous vote or written consent of all Board
Members:
(a) entering
into any contract with a supplier, customer, or partner that imposes material
restrictions or limitations on the conduct of the Company or a Subsidiary such
as, but not limited to, exclusivity provisions and non-compete
provisions;
(b) entering
into any contract that may restrict the payment of the Preferred
Return;
(c) any
borrowing of money (it being acknowledged that incurring customary trade
payables in the ordinary course of business which when incurred are expected to
be paid when due shall not be considered “the borrowing of money”), other than
pursuant to Section 3.2, which, after giving effect to the borrowing, causes the
Company or a Subsidiary to have more than $25,000 in principal amount of
borrowings outstanding;
(d) any
loan by the Company or a Subsidiary to any Person, any guaranty by the Company
or a Subsidiary of any other Person’s obligations or any investment by the
Company or a Subsidiary in the business of any other Person;
(e) any
transaction between the Company or a Subsidiary and a Member or Manager or any
Affiliate of a Member or Manager, or any transaction between the Company or a
Subsidiary and any Person in which a Member or Manager or any Affiliate of a
Member or Manager has a material financial interest;
(f) any
act which would make it impossible to carry on the ordinary business of the
Company or a Subsidiary;
(g) the
formation by the Company or a Subsidiary of any Subsidiary;
(h) the
formation of any joint venture or any investment by the Company or a Subsidiary
in another Person; or
(i)
any other act for which the approval of the Board is required
under this Agreement.
5.7 Competing
Activities. No Manager, Board Member or Member shall be
obligated to present any prospective project, business venture, investment
opportunity or economic advantage to the Company or any other Members, even if
the opportunity is one of the character that, if presented to the Company or the
other Members, could be taken by the Company or the other Members, and each
Member shall have the right to hold any such prospective project, business
venture, investment opportunity or economic advantage for its own account or to
recommend the same to Persons other than the Company or the other
Members. The Manager, Board Member, Members and their respective
officers, directors, shareholders, partners, members, managers, agents,
employees and Affiliates may engage or invest in, independently or with others,
any business activity of any type or description, including without limitation
those that might be the same as or similar to the Company’s business and that
might be in direct or indirect competition with the Company. Neither
the Company nor the other Members shall have the right in or to such other
ventures or activities or to the income or proceeds derived
therefrom.
5.8 Intellectual
Property.
(a) Company Intellectual
Property. The Company shall, directly or indirectly through
Subsidiaries, own all of the rights and assets of the Project, including, but
not limited to land, equipment, seed procurement contracts, Jatropha oil
off-take contracts, biomass sales and/or carbon credit sales agreements, as well
as all intellectual property, whether patentable or not, created, developed,
discovered, invented or acquired by the Company or any of its Subsidiaries
relating to the Project. Any intellectual property created, developed,
discovered or invented by GCE or its Affiliates or employees in connection with
the performance of duties by or on behalf of GCE under this Agreement shall be
considered developed by the Company and shall belong to the
Company. GCE or its Affiliates or employees shall execute such
intellectual property assignment documents as may be necessary from time to time
to vest the Company with title to all such intellectual property
rights. Each Member shall have a non-transferable, non-exclusive,
perpetual, non-sublicenseable (other than to the Member’s Affiliates)
royalty-free license to use any intellectual property rights owned by the
Company, which license shall survive the termination of a Member’s Membership
Interest or a dissolution of the Company.
(b) Member Intellectual
Property. The Members acknowledge that, absent a separate written
agreement between the Company and any of its Members, the Company shall have no
rights to any intellectual property created, developed, discovered, invented or
acquired by any of the Members or any intellectual property of another Person
(other than the Company) which is used by such Member with the consent of such
Person (any such intellectual property is referred to as “Member IP”) without
regard to whether any Member IP may be similar to intellectual property
developed by the Company or its Subsidiaries. Member IP shall remain
the property of the applicable Member and not the Company, notwithstanding that
a Member may license or otherwise permit the Company to use Member
IP. Any Member IP provided by a Member to the Company for its use may
be used by the Company on a royalty free basis.
5.9 Payments to the Manager and
Others. The Company is authorized to pay any Person
remuneration or reimbursement for goods and services provided to the Company;
provided, however, that the Manager and its Affiliates shall be entitled to
receive only the following remuneration or reimbursement:
(a) No Management
Fee. The Manager shall not be entitled to any management fee
or other compensation for its services as the Manager.
(b) Services Performed by
Members or Affiliates. The Company shall pay the Members and
their Affiliates for services rendered or goods provided by them to the Company
to the extent that those Members or Affiliates are not required to render such
services or goods themselves without charge to the Company, and to the extent
that the fees paid to those Members or Affiliates do not exceed the fees that
would be payable to independent responsible third parties that are willing to
perform those services or provide those goods; provided, however, that in the
case of the Manager or its Affiliates, the payment of such fees also is
authorized under Section 5.4.
(c) Expenses. Subject
to Section 5.10, the Company shall reimburse the Manager, Members and their
respective Affiliates for all reasonable out-of-pocket costs and expenses
incurred by them in connection with the business and affairs of the Company, as
well as organizational expenses incurred by them to form the Company and to
prepare the Certificate of Formation; provided, however, that (i) such
costs and expenses are consistent with the Budget approved by the Board,
(ii) the Company shall pay, or reimburse the Resnick Trust and the Zilkha
Trust for the payment of, any legal and accounting fees incurred by them in
connection with the preparation and negotiation of this Agreement, but GCE shall
be solely responsible for the payment of its legal and accounting fees,
(iii) GCE shall be solely responsible for the payment of any broker’s,
finders or comparable fees and costs relating to the formation, structuring and
initial funding of the Company or the acquisition of any land by the Company or
any Subsidiary, and (iv) unless expressly approved by the Board or in the Budget
approved by the Board, the Manager and its Affiliates shall not be reimbursed by
the Company for (A) any salaries, compensation or fringe benefits of directors,
officers or employees of the Manager or their Affiliates or (B) any overhead
expenses of the Manager or its Affiliates including, without limitation, rent
and general office expenses.
5.10 GCE Obligations for Public
Company Compliance. GCE represents and warrants to the other
Members that it is a publicly held company and that GCE presently intends to
consolidate the financial results of the Company with its financial results and
that of its Subsidiaries. GCE acknowledges that (a) as a publicly
held company, GCE may need the financial results of the Company to be audited
and/or to institute accounting or operating procedures or controls to satisfy
applicable laws, rules, regulations or listing requirements, and (b) if GCE were
not a publicly held company, the Company would not incur costs with respect to
an audit or such procedures or controls. GCE agrees that GCE shall be
solely responsible for, and shall pay directly, any audit costs, costs of
establishing any such accounting procedures or controls and any other costs
which the Company would not otherwise incur but for such laws, rules,
regulations or listing requirements; provided, however, that to the extent that
such costs are not capable of being paid directly by GCE, GCE shall promptly
reimburse the Company for such costs. By way of example only, if an
employee of the Company spends 50% of his time with respect to monitoring or
complying with such procedures or controls, the Company would pay the employee
his or her customary compensation and GCE would reimburse the Company for 50% of
the cost thereof (including all the cost of all related benefits and
taxes).
ARTICLE
VI
ALLOCATIONS
OF NET PROFITS, NET LOSSES AND DISTRIBUTIONS
6.1 Minimum Gain
Chargeback. In the event that there is a net decrease in the
Company Minimum Gain during any taxable year, the minimum gain chargeback
described in Sections 1.704-2(f) and (g) of the Treasury Regulations shall
apply.
6.2 Member Minimum Gain
Chargeback. If during any taxable year there is a net decrease
in Member Minimum Gain, the partner minimum gain chargeback described in Section
1.704-2(i)(4) of the Treasury Regulations shall apply.
6.3 Qualified Income
Offset. Any Member who unexpectedly receives an adjustment,
allocation or Distribution described in subparagraphs (4), (5) or (6) of Section
1.704-1(b)(2)(ii)(d) of the Treasury
Regulations, which adjustment, allocation or distribution creates or increases a
deficit balance in that Member’s Capital Account, shall be allocated items of
“book” income and gain in accordance with the provisions of the “qualified
income offset” as described in Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations.
6.4 Nonrecourse
Deductions. Nonrecourse Deductions shall be allocated to the
Members in proportion to their Percentage Interests.
6.5 Member Nonrecourse
Deductions. Member Nonrecourse Deductions shall be allocated
to the Members as required in Section 1.704-2(i)(1) of the Treasury Regulations
in accordance with the manner in which the Members bear the burden of an
Economic Risk of Loss corresponding to the Member Nonrecourse
Deductions.
6.6 Income from Exculpatory
Liabilities. Any allocations of items of “book” income or gain
attributable to an Exculpatory Liability as contemplated by Part V.B of Treasury
Decision 8385, 56 Federal Register 66978-66995 (December 27, 1991), shall be
allocated to the Members who have received prior allocations of “book”
deductions and losses allocable to the Exculpatory Liability, in accordance with
the ratio of such prior allocations of “book” deductions and losses that have
not been previously charged back by this Section 6.6.
6.7 Losses from Exculpatory
Liabilities. Any allocations of items of “book” loss or
deduction attributable to an Exculpatory Liability as contemplated by Part V.B
of Treasury Decision 8385, 56 Federal Register 66978-66995 (December 27, 1991),
shall be allocated to the Members in accordance with their Percentage
Interests.
6.8 Allocation of Net
Profits. The Net Profits for each fiscal period of the Company
shall be allocated to the Members in accordance with the following order of
priority:
(a) first,
to those Members with negative Adjusted Capital Accounts, among them in
proportion to the ratio of the negative balances in their Adjusted Capital
Accounts, until no Member has a negative Adjusted Capital Account;
(b) second,
to those Members whose Adjusted Capital Contributions are in excess of their
Adjusted Capital Accounts, among them in accordance with the ratio of these
excesses, until all of these excesses have been eliminated;
(c) third,
to those Members for whom the sum of their Adjusted Capital Contributions and
their Unpaid Preferred Returns are in excess of their Adjusted Capital Accounts,
among them in accordance with the ratio of these excesses, until all of these
excesses have been eliminated; and
(d) finally,
to the Members in proportion to their Percentage Interests.
6.9 Allocation of Net
Losses. Net Losses for each fiscal period of the Company shall
be allocated to the Members:
(a) first,
to those Members whose Adjusted Capital Accounts are in excess of the sum of
their Adjusted Capital Contributions and their Unpaid Preferred Returns, among
them in accordance with the ratio of these excesses, until all of these excesses
have been eliminated.
(b) second,
to those Members whose Adjusted Capital Accounts are in excess of their Adjusted
Capital Contributions, among them in accordance with the ratio of these
excesses, until all of these excesses have been eliminated; and
(c) third,
to those Members whose Adjusted Capital Accounts are greater than zero, among
them in accordance with the ratio of their positive Adjusted Capital Account
balances, until no Member has a positive Adjusted Capital Account.
6.10 Distribution of Assets by
the Company. Subject to applicable law and any limitations
contained elsewhere in this Agreement, the Board (and only the Board) may elect
from time to time to cause the Company to distribute Distributable Cash to the
Members, which Distributions shall be in the following order of
priority:
(a) first,
to the Members with Unpaid Preferred Returns, in proportion to their Unpaid
Preferred Return until each Member’s Unpaid Preferred Return has been reduced to
zero;
(b) second,
to those Members with positive Adjusted Capital Contributions, in proportion to
their positive Adjusted Capital Contributions, until each Member’s Adjusted
Capital Contribution has been reduced to zero; and
(c) third,
to the Members in proportion to their Percentage Interests.
6.11 Allocation of Net Profits
and Losses in Respect of a Transferred Interest. If any
Membership Interest is Transferred or is increased or decreased by reason of the
admission of a new Member or otherwise during any Fiscal Year, the varying
interests rule shall be applied to allocate each item of income, gain, loss, and
deduction on a pro rata basis based on the percentage that the number of days
before the increase and decrease (including the day of increase or decrease)
constitutes as a percentage of the number of days during the year.
6.12 Tax Allocation
Matters.
(a) Contributed or Revalued
Property. Each Member’s allocable share of the taxable income
or loss of the Company, depreciation, depletion, amortization and gain or loss
with respect to any contributed property, or with respect to revalued property
where the Company’s property is revalued pursuant to Paragraph (b)(2)(iv)(f) of
Section 1.704-1 of the Treasury Regulations, shall be determined in
accordance with the “traditional method” as set forth in Section 1.704-3(b)
of the Treasury Regulations.
(b) Recapture
Items. In the event that the Company has taxable income that
is characterized as ordinary income under the recapture provisions of the Code,
then Sections 1.1245-1(e) and 1.1250-1(f) of the Treasury Regulations shall
apply, and in the event that the Company has taxable income that is
characterized as “unrecaptured Section 1250 gain” under Section 1(h)(6) of the
Code, then the principles of such Treasury Regulations shall apply.
6.13 Order of
Application. To the extent that any allocation, Distribution
or adjustment specified in any of the preceding Sections of this ARTICLE VI
affects the results of any other allocation, Distribution or adjustment required
herein, the allocations, Distributions and adjustments specified in the
following Sections shall be made in the priority listed:
(a) Section
6.10.
(b) Section
6.1.
(c) Section
6.2.
(d) Section
6.3.
(e) Section
6.4.
(f) Section
6.5.
(g) Section
6.6.
(h) Section
6.7.
(i) Section
6.8.
(j) Section
6.9.
(k) Section
10.5.
These
provisions shall be applied as if all Distributions and allocations were made at
the end of the Company’s Fiscal Year. Where any provision depends on
the Capital Account of any Member, that Capital Account shall be determined
after the operation of all preceding provisions for the Fiscal
Year.
6.14 Allocation of
Liabilities. Each Member’s interest in “partnership” profits
for purposes of determining that Member’s share of “excess nonrecourse
liabilities” of the Company as used in Section 1.752-3(a)(3) of the Treasury
Regulations, shall be equal to that Member’s Percentage Interest.
6.15 Form of
Distribution. Except as provided in Section 10.3, no
Member, regardless of the nature of its Capital Contribution, has the right to
demand and receive any Distribution from the Company in any form other than
money unless it is approved by the Board. No Member may be compelled to accept
from the Company a Distribution of any asset in kind in lieu of a proportionate
Distribution of money being made to other Member(s), and except upon a
dissolution and the winding up of the Company, no Member may be compelled to
accept a Distribution of any asset in kind.
ARTICLE
VII
TRANSFER
OF INTERESTS
7.1 Transfer of
Interests. Except as permitted in Section 5.3 and this ARTICLE
VII, no Member or holder of an Economic Interest shall be entitled to Transfer
all or any part of its Membership Interest or Economic Interest except with the
prior written consent of all Members, which consent may be given or withheld,
conditioned or delayed (as allowed by this Agreement or the Act) as such Members
may determine in their sole and absolute discretion. Any attempted
Transfer in violation of this Article VII shall be null and void ab initio, and
the transferee shall not become a Member or holder of an Economic
Interest. If, for any reason, a court refuses to enforce the
foregoing provision then, upon any such Transfer of a Membership Interest or
part thereof in violation of this ARTICLE VII, the transferee shall only be
entitled to become a holder of an Economic Interest to the extent of the
Membership Interest attempted or purported to be Transferred to it in violation
of this Agreement. After the consummation of any permitted Transfer
of all or any part of a Membership Interest, the Membership Interest so
Transferred shall continue to be subject to the terms and provisions of this
Agreement, and any further Transfers shall be required to comply with the terms
and provisions of this Agreement.
7.2 Permitted
Transfers. Notwithstanding anything to the contrary contained
herein and subject to compliance with Section 7.3 below, a Member may transfer
all, but not part, of its Membership Interest or Economic Interest (a) upon the
death of such Member or the trustee(s) of such Member, to the respective heirs,
executors, administrators, testamentary trustees, legatees or beneficiaries of
such Member or trustee(s) of such Member or to a trust created under such
trustee(s) will, or (b) to one of its Affiliates or to a trust, foundation or
another entity that is created pursuant to the estate planning of a Member or
the trustee(s) of a Member. In addition, the Zilkha Members and the
Resnick Trust can Transfer its Membership Interest to the other at any
time.
7.3 Admission of
Transferee. Notwithstanding anything in this Agreement to the
contrary, no transferee of the whole or any part of a Membership Interest shall
become a substituted Member in the place of its transferor unless all of the
following conditions are satisfied:
(a) The
Transferring Member and the transferee execute and acknowledge such other
instrument or instruments as the other Members may deem necessary or desirable
to effectuate the admission, including the written acceptance and adoption by
the transferee of all of the terms and conditions of this Agreement as the same
may have been amended, and the spouse or registered domestic partner, if any, of
the transferee executes and delivers to the Manager a Consent substantially in
the form of Exhibit
E; and
(b) The
transferee pays to the Company a transfer fee which is sufficient, in the
reasonable discretion of the other Members, to cover all expenses incurred by
the Company in connection with the Transfer and substitution.
7.4 Further Restrictions on
Transfers. In addition to any other restrictions found in this
Agreement, no Member may Transfer its Membership Interest or any part thereof:
(a) without compliance with the Securities Act of 1933, the California
Corporate Securities Law of 1968 and any other applicable securities laws, or
(b) if the Transfer could result in the termination of the Company for federal
or state income tax purposes or the Company not being classified as a
partnership for federal or state income tax purposes. In addition,
GCE cannot elect to purchase Membership Interests pursuant to Section 7.6(a) or
7.7 unless it is able to cause AGC to pay to the Resnick Trust and the Zilkha
Trust at the Closing all principal, accrued interest and other amounts payable
under the Land Acquisition Loans.
7.5 Member Transfer
Rights.
(a) Resnick Trust and Zilkha
Members Transfer Rights. Except as permitted by Section 7.2,
if the Resnick Trust desires to Transfer all or any part of its Membership
Interest, it must first offer such Membership Interests to the Zilkha Trust in
accordance with the procedures set forth in Section 7.6(a). If any
Zilkha Member desires to transfer all or all or any part of its Membership
Interest (the “Zilkha
Transferor”), it must first offer such Membership Interest to the Resnick
Trust in accordance with the procedures set forth in Section
7.6(a). If the Resnick Trust or the Zilkha Trust, as applicable, does
not exercise its right to purchase such offered Membership Interest, the Resnick
Trust or the Zilkha Transferor, as applicable, must then offer such Membership
Interest to GCE in accordance with the procedures set forth in Section
7.6(a).
(b) GCE Transfer
Rights. Except as permitted by Section 7.2, GCE may not
Transfer all or any part of its Membership Interest for the three year period
following the date hereof. After the third anniversary of the date
hereof, if GCE desires to Transfer all or any part of its Membership Interest,
GCE must first offer such Membership Interest to the other Members in accordance
with the procedures set forth in Section 7.6(b).
7.6 Member Transfer
Procedures.
(a) Resnick Trust and Zilkha
Members Transfer Procedures. If the Resnick Trust or a Zilkha
Transferor desires to Transfer all or any part of its Membership Interests (the
“Transferring
Member”) to a third party under Section 7.5(a) above, then the
Transferring Member shall give written notice to the Zilkha Trust or the Resnick
Trust, as applicable (the “Non-Transferring
Member”), which notice shall (i) if the Transfer is pursuant to a Bona
Fide Offer, set forth the terms of such Bona Fide Offer and the identity of the
offeror(s) (the “ROFR
Notice”) or (ii) if the Transfer is not pursuant to a Bona Fide Offer,
set forth the offered Membership Interest and the cash price and other terms
upon which it proposes to Transfer such offered Membership Interest (the “ROFO
Notice”). The Non-Transferring Member shall have ten (10)
calendar days from the date of receipt of the ROFR Notice or ROFO Notice, as
applicable, to notify the Transferring Member in writing whether the
Non-Transferring Member agrees to purchase all of such offered Membership
Interests upon the terms specified in the ROFR Notice or ROFO Notice, as
applicable. In the event that the Non-Transferring Member does not
elect to purchase the offered Membership Interests, then the Transferring Member
shall deliver the ROFR Notice or ROFO Notice, as applicable, to GCE and GCE
shall have (10) calendar days following its receipt of such notice to elect to
purchase all, but not part, of the offered Membership Interest upon the terms
specified in the ROFR Notice or ROFO Notice, as applicable. If GCE
does not elect to purchase all of the offered Membership Interest, then the
Transferring Member may, if otherwise permitted by this Agreement, sell all, but
not part, of the offered Membership Interest to a third party upon the terms set
forth in the ROFR Notice or ROFO Notice, as applicable, within ninety (90)
calendar days after the date of the termination of GCE’s rights under this
Section 7.6(a); provided, however, that the Transferring Member may not sell any
of the offered Membership Interest to any third party or GCE on terms which are
more favorable than those offered to the Non-Transferring Member under a ROFR
Notice or ROFO Notice, as applicable, without again complying with the
provisions of this Section 7.6(a).
(b) GCE Transfer
Procedures. If GCE desires to Transfer all or any part of its
Membership Interest to a third party under Section 7.5(b) above (i) pursuant to
a Bona Fide Offer, GCE shall give written notice to the other Members (the
“Resnick/Zilkha
Members”), setting forth in full the terms of such Bona Fide Offer and
the identity of the offeror(s) (“GCE ROFR Notice”) or
(ii) not pursuant to a Bona Fide Offer, GCE shall give written notice to the
Resnick/Zilkha Members, setting forth the offered Membership Interest and the
cash price and other terms upon which GCE proposes to Transfer such offered
Membership Interest (the “GCE ROFO
Notice”). The Resnick/Zilkha Members shall then have the right
and option, for a period ending ten (10) calendar days following its receipt of
the GCE ROFR Notice or GCE ROFO Notice, as applicable, to elect to purchase all,
but not part, of the offered Membership Interest, pro rata in accordance with
the ratio of their Percentage Interests, at the purchase price and upon the
terms specified in the GCE ROFR Notice or GCE ROFO Notice, as
applicable. If all the Resnick/Zilkha Members do not elect to
purchase the entire balance of the offered Membership Interest, then the
Resnick/Zilkha Members electing to purchase shall have the right and option, for
a period of ten (10) calendar days thereafter and pro rata in accordance with
the ratio of their Units, to elect to purchase the balance of the offered
Membership Interest available for purchase. If the Resnick/Zilkha
Members do not elect to purchase all of the offered Membership Interest, the
Resnick/Zilkha Members shall not have a right to purchase the offered Membership
Interest and GCE may, if otherwise permitted under this Agreement, Transfer all,
but not part of, the offered Membership Interest to a third party upon the terms
set forth in the GCE ROFR Notice or GCE ROFO Notice, as applicable, within
ninety (90) calendar days after the date of the termination of the
Resnick/Zilkha Members’ rights under this Section 7.6(b); provided, however,
that GCE may not sell any of the offered Membership Interest to any third party
on terms which are more favorable than those offered to the Resnick/Zilkha
Members under the GCE ROFR Notice or GCE ROFO Notice, as applicable, without
again complying with the provisions of this Section 7.6(b).
7.7 Reciprocal Right to Purchase
Membership Interests.
(a) Initiation of Purchase
Offer. At any time after the third anniversary of the date
hereof, either all of the Zilkha Members and the Resnick Trust collectively or
GCE (the “Offering
Member(s)”) may notify the other (the “Other Member(s)”) by
written notice (the “Notice”) that the
Offering Member(s) elects to purchase all, but not less than all, of the
Membership Interest owned by the Other Member(s) specifying in the Notice the
purchase price at which the Offering Member(s) elects to purchase such
Membership Interest for cash (the “Purchase
Price”).
(b) Option in Favor of Other
Member(s). Immediately upon its receipt of the Notice and for
a period of thirty (30) calendar days thereafter, the Other Member(s) shall have
an option to purchase all, but not less than all, of the Membership Interest
owned by the Offering Member(s) at the Purchase Price. If, within
such thirty (30) calendar day period, the Other Member(s) notifies the Offering
Member(s) in writing that it elects to exercise its option to purchase all of
the Membership Interest owned by the Offering Member(s), as aforesaid, the
Offering Member(s) shall be obligated to sell all of said Membership Interest to
the Other Member(s), and the Other Member(s) shall be obligated to purchase all
of said Membership Interest, at the Purchase Price.
(c) Non-Exercise of Reciprocal
Option. If, within such thirty (30) calendar day period, the
Other Member(s) does not notify the Offering Member(s) in writing that it elects
to exercise its option to purchase all of the Membership Interest owned by the
Offering Member(s), as aforesaid, the Offering Member(s) shall purchase all of
the Membership Interest owned by the Other Member(s), and the Other Member(s)
shall sell all of said Membership Interest to the Offering Member(s), for the
Purchase Price.
(d) No
Challenge. Each of the Members agrees to be bound by and to
sell its Membership Interest in accordance with this Section 7.7 and
specifically waives any rights to challenge or otherwise contest the sufficiency
or adequacy of the consideration to be paid for such Membership Interest
pursuant to this Section 7.7.
7.8 Consummation of
Sale. Unless the parties involved mutually agree otherwise,
delivery to the selling Member and the purchasing Members of the Membership
Interest to be sold to a Member under this ARTICLE VII or Section 5.3 and
payment of the purchase price therefor shall take place at a closing (the “Closing”) to be held
at the principal office of the Company at 10:00 a.m. within thirty (30)
calendar days following the election to purchase or sell pursuant to
Section 5.3, 7.6, or 7.7, or, if later, the determination of the applicable
purchase price. At the Closing, (a) the transferring Member shall
deliver to the purchasing Members a bill of sale and assignment effecting the
transfer of the Membership Interest to be sold, in form and substance
satisfactory to the purchasing Members, and shall deliver, in addition, any
other documents reasonably requested by the purchasing Members to effectuate the
purposes of this Agreement, (b) the purchasing Members shall pay the purchase
price in immediately available funds and, (c) if the transferring Members are
the Resnick Trust or the Zilkha Members, AGC shall pay in full to the Resnick
Trust and the Zilkha Trust all principal, accrued interest and other amounts
payable under the Land Acquisition Loans. Subject to the foregoing,
title to the Membership Interest shall pass to the purchasing Members as of the
date of the repurchase event free and clear of any liens or
encumbrances.
7.9 Enforcement. The
Transfer restrictions contained in this Agreement are of the essence of the
ownership of a Membership Interest or an Economic Interest. Upon
application to any court of competent jurisdiction, either the Company or any of
its Members shall be entitled to a decree against any Person violating or about
to violate such restrictions, requiring their specific performance, including
those requiring a Member to sell all or part of its Membership Interest to the
other Members, requiring a Member to purchase the Membership Interest of other
Members or prohibiting a Transfer of all or part of a Membership
Interest. No election by a Member to purchase, or not to purchase,
all or any part of an Membership Interest shall affect in any manner the rights
or remedies of the Company or the Members, whether pursuant to this Agreement,
at law or in equity, relating to a breach of this Agreement by the Transferring
Member.
ARTICLE
VIII
CONSEQUENCES
OF MEMBERSHIP TERMINATION EVENTS
8.1 No Dissolution of
Company. The occurrence of a Membership Termination Event as
to any Member other than the last and only remaining Member shall not dissolve
the Company. Upon the occurrence of a Membership Termination Event as
to the last and only remaining Member or as otherwise provided by law, the
Company shall dissolve unless the personal representative or other
successor-in-interest of the last and only remaining Member consents in writing
within ninety (90) days of that Membership Termination Event to the continuation
of the Company and to the admission of such personal representative or other
successor-in-interest, or its designee or nominee, as a Member.
8.2 Admission, Conversion or
Purchase. Upon the occurrence of a Membership Termination
Event with respect to a Member under circumstances where the Company does not
dissolve, the remaining Members shall determine which one of the following shall
occur and give written notice thereof to the Member who suffered the Membership
Termination Event (the “Former
Member”):
(a) the
Former Member’s personal representative or other successor-in-interest shall be
admitted as a Member of the Company in the place and stead of the Former Member
to the extent of the Former Member’s Membership Interest (the “Former Member’s
Interest”);
(b) the
Former Member’s Interest shall be converted to a bare Economic Interest, and the
Former Member’s representative or other successor-in-interest shall become the
owner of that Economic Interest; or
(c) Subject
to the rights set forth in Article VII, the remaining Members shall purchase the
Former Member’s Interest for a purchase price determined in accordance with
Section 5.3(d).
8.3 Closing of Purchase of
Former Member’s Interest. The closing of the sale of a Former
Member’s Interest shall be held no later than thirty (30) days after the
determination of the purchase price. At such closing, the Former
Member or the Former Member’s legal representative shall deliver to the
purchasers a bill of sale and assignment effecting the transfer of the
Membership Interest to be sold, in form and substance satisfactory to the
purchasing Members, and shall deliver, in addition, any other documents
reasonably requested by the purchasing Members to effectuate the purposes of
this Agreement, and the purchasers shall execute and deliver to the Former
Member or the Former Member’s legal representative, a promissory note in the
amount of the purchase price secured by a pledge of the Membership Interest
being purchased. The promissory note shall provide for thirty-six
(36) equal monthly payments of principal and interest, with interest computed on
a 360 day year and at the then mid-term applicable federal rate provided in the
Code for the month in which the Closing occurs, but the purchasers shall have
the right to prepay in full or in part at any time without
penalty. The Former Member or the Former Member’s legal
representative and the purchasers shall do all things and execute and deliver
all papers necessary to consummate the transaction in accordance with the
provisions of this Agreement. Title to the Former Member’s Interest
shall pass to the purchasers as of the date of the Membership Termination
Event.
ARTICLE
IX
ACCOUNTING,
RECORDS, REPORTING BY MEMBERS
9.1 Books and
Records. The books and records of the Company shall be kept,
and the financial position and the results of its operations recorded, in
accordance with generally accepted accounting principles. The books
and records of the Company shall reflect all the Company transactions and shall
be appropriate and adequate for the Company’s business. Board
Members, and, as long as a Member’s Percentage Interest is at least ten percent
(10%), then such Member and its duly authorized representative, shall have
complete access to all such books and records at any time.
9.2 Bank Accounts; Invested
Funds. All funds of the Company shall be deposited in such
account or accounts of the Company as may be determined by the Board and
withdrawals may be made upon checks signed by such persons and in such manner as
the Board may determine. Temporary surplus funds of the Company may
be invested in commercial paper, time deposits, short-term government
obligations or other investments determined by the Board.
9.3 Tax Matters for the Company
Handled by Board and Tax Matters Partner.
(a) Tax
Elections. The Board shall from time to time cause the Company
to make such tax elections as it deems to be in the best interests of the
Company and the Members.
(b) Designation of Tax Matters
Partner. GCE shall be the Tax Matters Partner. If no person
shall be serving as Tax Matters Partner, the Person meeting the requirements for
a tax matters partner under Code Section 6231(a)(7) and designated by vote of
Management Committee shall become the Tax Matters Partner. The Tax Matters
Partner may resign upon thirty (30) days’ prior written notice to the other
Members.
(c) Powers. The Tax
Matters Partner has all of the powers and authority of a tax matters partner
under the Code. The Tax Matters Partner shall represent the Company in
connection with all administrative and/or judicial proceedings instituted by the
Internal Revenue Service or any taxing authority involving any tax return of the
Company. This representation shall be at the Company’s expense. The Tax Matters
Partner may expend the Company’s funds for professional services and costs
associated with any administrative and/or judicial proceedings instituted by the
Internal Revenue Service or any taxing authority involving any tax return of the
Company. The Tax Matters Partner shall provide to the Members prompt notice of
any communication to or from or agreements with a federal, state or local taxing
authority regarding any tax return of the Company (including a summary of the
communication).
9.4 Accounting
Matters. All decisions as to accounting matters shall be made
by the Board; provided, however, that the Board may at any time request the
Manager to provide its recommendation as to any accounting matter. At
any time or upon request of the Manager, the Board shall review and approve the
accounting procedures that will be implemented by the Manager.
9.5 Confidentiality. All
books, records, financial statements, tax returns, budgets, business plans and
projections of the Company, all other information concerning the business,
affairs and properties of the Company and all of the terms and provisions of
this Agreement shall be held in confidence by the Manager, Board Members and the
Members and their respective Affiliates, subject to any obligation to comply
with (a) any applicable law, (b) any rule or regulation of any legal authority
or securities exchange or (c) any subpoena or other legal process to make
information available to the Persons entitled thereto. Such
confidentiality shall be maintained to the same degree as each Manager. Board
Member and Member maintains its own confidential information and shall be
maintained until such time, if any, as any such confidential information either
is, or becomes, published or a matter of public knowledge.
ARTICLE
X
DISSOLUTION
AND WINDING UP
10.1 Dissolution. The
Company shall be dissolved, its assets disposed of and its affairs wound up upon
(and only upon) the first to occur of the following:
(a) the
expiration of the term of the Company specified in the Certificate of Formation
or any other event of dissolution specified in the Certificate of
Formation;
(b) the
unanimous vote of the Members;
(c) the
vote of the Preferred Members following their receipt of a written notice from
GCE in accordance with Section 5.3(e) stating GCE’s desire to dissolve the
Company;
(d) the
occurrence of a Membership Termination Event as to the last and only remaining
Member if the Board and that Member’s personal representative or other
successor-in-interest fail to consent to the continuation of the Company in
accordance with Section 8.1 within ninety (90) days after the occurrence of that
event;
(e) the
Company’s Bankruptcy;
(f) the
occurrence of an event which makes it unlawful for the business of the Company
to be continued; or
(g) as
otherwise required by law.
10.2 Date of
Dissolution. Dissolution of the Company shall be effective on
the day on which the event occurs giving rise to the dissolution, but the
Company shall not terminate until the assets of the Company have been liquidated
and distributed as provided herein. Notwithstanding the dissolution
of the Company, prior to the termination of the Company the business of the
Company and the rights and obligations of the Members, as such, shall continue
to be governed by this Agreement.
10.3 Winding
Up. Upon the occurrence of any event specified in Section
10.1, the Company shall continue solely for the purpose of winding up its
affairs in an orderly manner, liquidating its assets and satisfying the claims
of its creditors. The Board shall be responsible for overseeing the
winding up and liquidation of the Company, shall take full account of the
liabilities and assets of the Company, shall cause its assets either to be sold
or distributed, as they may determine, and shall cause the proceeds therefrom,
to the extent sufficient, to be applied and distributed as provided in Section
10.5; provided, however, that at the request of the Resnick Trust or the Zilkha
Members, any real property owned directly or indirectly by the Company shall be
distributed in kind to such Members subject to Section 10.4; provided, however,
that if such distribution in kind would result in the Resnick Trust or the
Zilkha Members receiving greater distributions than they would otherwise be
entitled to under Section 10.5, such Members shall refund such excess
distributions in cash to the Company. The Persons winding up the
affairs of the Company shall give written notice of the commencement of winding
up by mail to all known creditors and claimants whose addresses appear on the
records of the Company.
10.4 Distributions in
Kind. Any non-cash asset distributed to one or more Members
shall first be valued at its Fair Market Value to determine the Net Profit or
Net Loss that would have resulted if that asset had been sold for that value,
the Net Profit or Net Loss shall then be allocated pursuant to ARTICLE VI, and
the Members’ Capital Accounts shall be adjusted to reflect those allocations.
The amount distributed and charged to the Capital Account of each Member
receiving an interest in the distributed asset shall be the Fair Market Value of
the interest (net of any liability secured by the asset that the Member assumes
or takes subject to). The Fair Market Value of that asset shall be
determined by the Board.
10.5 Order of Payment of Proceeds
Upon Dissolution.
(a) Liquidating
Distributions. After determining that all known debts and
liabilities of the Company, including, without limitation, the Land Acquisition
Loans and other debts and liabilities to Members who are creditors of the
Company, have been paid or adequately provided for, the remaining assets shall
promptly be distributed to the Members in accordance with their positive Capital
Account balances, after taking into account income and loss allocations for the
Company’s taxable year during which the liquidation occurs.
(b) No
Liability. No Member shall have any liability to the Company,
any Member or any creditor of the Company on account of any deficit balance in
its Capital Account.
10.6 Limitations on Payments Made
in Dissolution. Except as otherwise specifically provided in
this Agreement, each Member shall be entitled to look only to the assets of the
Company for the return of that Member’s positive Capital Account balance and
shall have no recourse for its Capital Contributions and/or share of Net Profits
(upon dissolution or otherwise) against the Manager or any other
Member.
10.7 Certificate of
Cancellation. Upon completion of the winding up of the
Company’s affairs, the Board shall cause a Certificate of Cancellation to be
filed with the Delaware Secretary of State.
10.8 Compensation for
Services. The Persons winding up the affairs of the Company
shall be entitled to reasonable compensation from the Company for their
services.
ARTICLE
XI
INDEMNIFICATION
11.1 Indemnification. The
Company shall indemnify and hold harmless each of the Members and the Manager,
and each of their respective officers, directors, shareholders, partners,
members, trustees, beneficiaries, employees, agents, heirs, assigns,
successors-in-interest and Affiliates, (collectively, “Indemnified Persons”)
from and against any and all losses, damages, liabilities and expenses,
(including costs and reasonable attorneys’ fees), judgments, fines, settlements
and other amounts (collectively “Liabilities”)
reasonably incurred by any such Indemnified Person in connection with the
defense or disposition of any civil, administrative or investigative action,
suit or other proceeding, whether and whether threatened, pending or completed
(collectively a “Proceeding”), in
which any such Indemnified Person may be involved or with which any such
Indemnified Person may be threatened, with respect to or arising out of any act
performed by the Indemnified Person or any omission or failure to act if the
performance of the act or the omission or failure was done in good faith and
within the scope of the authority conferred upon the Indemnified Person by this
Agreement or by the Act, except for acts of fraud, deceit, reckless or
intentional misconduct, gross negligence, embezzlement, breach of a fiduciary
duty, knowing violations of law, acts which constituted breaches of this
Agreement (whether committed knowingly, negligently or otherwise) or acts from
which such Indemnified Person derived an improper personal
benefit. The Company’s indemnification obligations hereunder shall
apply not only with respect to any Proceeding brought by the Company or a Member
but also with respect to any Proceeding brought by a third party. As
a condition to the indemnification and other rights granted to an Indemnified
Person pursuant to this Article, however, that Indemnified Person may not settle
any action, suit or proceeding without the written consent of the
Board.
11.2 Contract Right;
Expenses. The right to indemnification conferred in this
ARTICLE XI shall be a contract right and shall include the right to require the
Company to advance the expenses incurred by the Indemnified Person in defending
any such Proceeding in advance of its final disposition; provided, however,
that, if the Act so requires, the payment of such expenses in advance of the
final disposition of a Proceeding shall be made only upon receipt by the Company
of an undertaking, by or on behalf of the indemnified Person, to repay all
amounts so advanced if it shall ultimately be determined that such Person is not
entitled to be indemnified under this ARTICLE XI or otherwise.
11.3 Indemnification of Officers
and Employees. The Company may, to the extent authorized from
time to time by the Board, grant rights to indemnification and to advancement of
expenses to any officer, employee or agent of the Company to the fullest extent
of the provisions of this ARTICLE XI with respect to the indemnification and
advancement of expenses of Members and the Manager.
11.4 Insurance. The
Company may purchase and maintain insurance on behalf of any Person who is or
was an agent of the Company against any liability asserted against that Person
and incurred by that Person in any such capacity or arising out of that Person’s
status as an agent, whether or not the Company would have the power to indemnify
that Person against liability under the provisions of Section 11.1 or under
applicable law.
ARTICLE
XII
INVESTMENT
REPRESENTATIONS
Each
Member represents and warrants to the other Members and the Company as
follows:
12.1 Preexisting Relationship or
Experience. (a) The Member has a preexisting personal or
business relationship with the Company or its Manager, officers or control
persons or (b) by reason of the Member’s business or financial experience, or by
reason of the business or financial experience of the Member’s financial advisor
who is unaffiliated with and who is not compensated, directly or indirectly, by
the Company or any Affiliate or selling agent of the Company, the Member is
capable of evaluating the risks and merits of an investment in its Membership
Interest and of protecting the Member’s own interests in connection with the
investment.
12.2 Access to
Information. The Member has had an opportunity to review all documents,
records and books pertaining to this investment and has been given the
opportunity to consult with counsel of his or her choice with respect to all
aspects of this investment and the Company’s proposed business
activities. Such Member has personally met with the Manager and has
been provided with such information as may have been requested and has at all
times been given the opportunity to obtain additional information necessary to
verify the accuracy of the information received and the opportunity to ask
questions of and receive answers from the Manager concerning the terms and
conditions of the investment and the nature and prospects of the Company’s
business.
12.3 Economic
Risk. The Member is financially able to bear the economic risk
of an investment in its Membership Interest, including the total loss
thereof.
12.4 Investment
Intent. The Member is acquiring its Membership Interest for
investment purposes and for the Member’s own account only and not with a view
to, or for sale in connection with, any distribution of all or any part of its
Membership Interest. Except for the partners or members of the
Member, no other Person will have any direct or indirect beneficial interest in,
or right to, its Membership Interest.
12.5 Consultation with
Attorney. The Member has been advised to consult with its own
attorney regarding all legal and tax matters concerning an investment in its
Membership Interest and has done so to the extent it considers
necessary.
12.6 Purpose of
Entity. If the Member is a corporation, partnership, limited
liability company, trust or other entity, it was not organized for the specific
purpose of acquiring its Membership Interest.
12.7 No
Advertising. The Member has not seen, received or been
solicited by any leaflet, public promotional meeting, newspaper or magazine
article or advertisement, radio or television advertisement or any other form of
advertising or general solicitation with respect to the sale of its Membership
Interest.
12.8 Membership Interest is
Restricted Security. The Member understands that its
Membership Interest is a “restricted security” under the Securities Act of 1933
in that the Membership Interest will be acquired from the Company in a
transaction not involving a public offering, that its Membership Interest may be
resold without registration under the Securities Act of 1933 only in certain
limited circumstances and that otherwise its Membership Interest must be held
indefinitely.
12.9 No Registration of
Membership Interest. The Member acknowledges that its
Membership Interest has not been registered under the Securities Act of 1933 or
qualified under any state securities law in reliance, in part, upon its
representations, warranties and agreements herein.
ARTICLE
XIII
MISCELLANEOUS
13.1
Amendments. No
amendment to this Agreement may be made without the consent of all
Members. All amendments to this Agreement must be in
writing.
13.2 Offset
Privilege. Any monetary obligation owing from the Company to
any Member or Manager may be offset by the Company against any monetary
obligation then owing from that Member or Manager to the Company.
13.3 Arbitration.
(a) General. In
the event of any dispute, claim or controversy among the parties (other than a
claim for equitable relief) arising out of or relating to this Agreement or the
Certificate of Formation, whether in contract, tort, equity or otherwise, and
whether relating to the meaning, interpretation, effect, validity, performance
or enforcement of this Agreement or the Certificate of Formation, such dispute,
claim or controversy shall be resolved by and through an arbitration proceeding
to be conducted under the auspices and the commercial arbitration rules of the
American Arbitration Association (or any like organization successor thereto) at
Los Angeles, California. The arbitrability of the dispute, claim or
controversy shall likewise be determined in the arbitration. The
arbitration proceeding shall be conducted in as expedited a manner as is then
permitted by the commercial arbitration rules (formal or informal) of the
American Arbitration Association. Both the foregoing agreement of the
parties to arbitrate any and all such disputes, claims and controversies, and
the results, determinations, findings, judgments and/or awards rendered through
any such arbitration shall be final and binding on the parties and may be
specifically enforced by legal proceedings in any court of competent
jurisdiction.
(b) Governing
Law. The arbitrator(s) shall follow any applicable federal law
and Delaware state law (with respect to all matters of substantive law) in
rendering an award.
(c) Costs of
Arbitration. The cost of the arbitration proceeding and any
proceeding in court to confirm or to vacate any arbitration award, as applicable
(including, without limitation, each party’s attorneys’ fees and costs), shall
be borne by the unsuccessful party or, at the discretion of the arbitrator(s),
may be prorated between the parties in such proportion as the arbitrator(s)
determines to be equitable and shall be awarded as part of the arbitrator’s
award.
13.4 Remedies
Cumulative. Except as otherwise provided herein, the remedies
under this Agreement are cumulative and shall not exclude any other remedies to
which any Person may be lawfully entitled.
13.5 Notices. Any
notice to be given to the Company or any Member in connection with this
Agreement must be in writing, signed by the sender, and will be deemed to have
been given and received when delivered to the address specified by the party to
receive the notice by courier or other means of personal service, when received
if sent by facsimile, portable document format or other form of electronic
transmission (as defined in the Act) or three (3) days after deposit of the
notice by first class mail, postage prepaid, or certified mail,
return receipt requested. Any such notice must be given to the
Company at its principal place of business, and to any Member at the address
specified in Exhibit A. Any
party may, at any time by giving five (5) days’ prior written notice to the
other parties, designate any other address as the new address to which notice
must be given. In the case of notice by facsimile, portable document
format or other form of electronic transmission, a copy thereof shall be
personally delivered or sent by registered or certified mail, in the manner
specified above, within three (3) Business Days thereafter.
13.6 Attorney’s
Fees. In the event that any dispute between the Company, the
Manager and/or the Members should result in litigation or arbitration, the
prevailing party in that dispute shall be entitled to recover from the other
party all reasonable fees, costs and expenses of enforcing any right of the
prevailing party, including without limitation, reasonable attorneys’ fees and
expenses, subject, however to the provisions of Section
13.3(c).
13.7 Jurisdiction. Each
Member and the Manager consents to the exclusive jurisdiction of the state and
federal courts sitting in Los Angeles, California in any action on a claim
arising out of, under or in connection with this Agreement or the transactions
contemplated by this Agreement, provided such claim is not required to be
arbitrated pursuant to Section 13.3. Each Member and the Manager
further agrees that personal jurisdiction over it may be effected by service of
process by registered or certified mail addressed as provided in Section 13.5
and that when so made shall be as if served upon it personally.
13.8 Complete
Agreement. This Agreement and the Certificate of Formation
constitute the complete and exclusive statement of agreement among the Members
with respect to their respective subject matters and supersede all prior written
and oral agreements or statements by and among the Members. No
representation, statement, condition or warranty not contained in this Agreement
or the Certificate of Formation shall be binding on the Members or have any
force or effect whatsoever. To the extent that any provision of the
Certificate of Formation conflicts with any provision of this Agreement, the
Certificate of Formation shall control.
13.9 Binding
Effect. Subject to the provisions of this Agreement relating
to Transferability, this Agreement shall be binding upon and inure to the
benefit of the Members and their respective successors and assigns.
13.10 Section
Headings. All Section headings are inserted only for
convenience of reference and are not to be considered in the interpretation or
construction of any provision of this Agreement.
13.11 Interpretation. In
the event any claim is made by any Member relating to any conflict, omission or
ambiguity in this Agreement, no presumption or burden of proof or persuasion
shall be implied by virtue of the fact that this Agreement was prepared by or at
the request of a particular Member or that Member’s counsel.
13.12 Severability. If
any provision of this Agreement or the application of that provision to any
person or circumstance shall be held invalid, the remainder of this Agreement or
the application of that provision to persons or circumstances other than those
to which it is held invalid shall not be affected.
13.13 Multiple
Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
IN
WITNESS WHEREOF, all of the Members and the Manager of GCE MEXICO I, LLC, a
Delaware limited liability company, have executed this Agreement, effective as
of the date first written above.
“Members”
|
|
GLOBAL
CLEAN ENERGY HOLDINGS, INC.
|
|
By:
|
|
|
Richard
Palmer, President and CEO
|
|
|
|
STEWART A. RESNICK,
AS TRUSTEE OF THE STEWART AND LYNDA RESNICK REVOCABLE TRUST, DATED DECEMBER
27, 1988, AS AMENDED
|
|
|
LYNDA RAE RESNICK,
AS TRUSTEE OF THE STEWART AND LYNDA RESNICK REVOCABLE TRUST, DATED DECEMBER
27, 1988, AS AMENDED
|
|
|
SELIM
ZILKHA, AS TRUSTEE OF THE SELIM K. ZILKHA TRUST
|
|
|
MICHAEL
ZILKHA, AS TRUSTEE OF THE DMZ 2000
TRUST
|
|
MICHAEL
ZILKHA, AS TRUSTEE OF THE LLZ 2000 TRUST
|
|
|
NADIA
Z. WELLISZ, AS TRUSTEE OF THE JW 2000 TRUST
|
|
|
NADIA
Z. WELLISZ, AS TRUSTEE OF THE DW 2000 TRUST
|
|
“Manager”
|
|
GLOBAL
CLEAN ENERGY HOLDINGS, INC.
|
|
|
By:
|
|
|
Richard
Palmer, President and
CEO
|
EXHIBIT
A
CAPITAL
CONTRIBUTIONS, ADDRESSES AND PERCENTAGE INTERESTS
OF
MEMBERS AS OF
April
23, 2008
Preferred
Members:
Preferred Member’s
Name
|
|
Preferred Member’s
Address
|
|
Preferred
Member’s
Capital
Contribution
Obligation
|
|
|
Preferred
Units
|
|
|
Preferred
Percentage
|
|
Stewart
Resnick and Lynda Resnick as trustees of the Stewart and Lynda Resnick
Revocable Trust dated December 27, 1988 as amended
|
|
11444
West Olympic Boulevard, 10th
Floor
Los
Angeles, CA 90064
|
|
$ |
1,116,312 |
|
|
|
500 |
|
|
|
50 |
% |
Selim
Zilkha, as trustee of the Selim K. Zilkha Trust
|
|
750
Lausanne Road, Los Angeles, CA 90077
|
|
$ |
1,116,312 |
|
|
|
500 |
|
|
|
50 |
% |
Common
Members:
Common
Member’s Name
|
|
Common
Member’s Address
|
|
Common
Member’s
Capital
Contribution
Obligation
|
|
|
Common
Units
|
|
|
Percentage
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
Clean Energy Holdings, Inc.
11444
W. Olympic Blvd. 10th
Floor
Los
Angeles, CA 90064
|
|
6033
W. Century Blvd.
Suite
1090
Los
Angeles, CA 90045
|
|
$ |
0 |
|
|
|
500 |
|
|
|
50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stewart
Resnick and Lynda Resnick as trustees of the Stewart and Lynda Resnick
Revocable Trust dated December 27, 1988 as amended
|
|
11444
West Olympic Boulevard, 10th
Floor
Los
Angeles, CA 90064
|
|
$ |
0 |
|
|
|
250 |
|
|
|
25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Zilkha, as trustee of the LLZ 2000 Trust,
|
|
750
Lausanne Road, Los Angeles, CA 90077
|
|
$ |
0 |
|
|
|
62.5 |
|
|
|
6.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nadia
Z. Wellisz, as trustee of the JW 2000 Trust
|
|
750
Lausanne Road, Los Angeles, CA 90077
|
|
$ |
0 |
|
|
|
62.5 |
|
|
|
6.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nadia
Z. Wellisz, as trustee of the DW 2000 Trust
|
|
750
Lausanne Road, Los Angeles, CA 90077
|
|
$ |
0 |
|
|
|
62.5 |
|
|
|
6.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Zilkha, as trustee of the DMZ 2000 Trust
|
|
750
Lausanne Road, Los Angeles, CA 90077
|
|
$ |
0 |
|
|
|
62.5 |
|
|
|
6.25 |
% |
Exhibit
B
EXHIBIT
B
BUDGET
Exhibit
B
EXHIBIT
C
FORM
OF PROMISSORY NOTE
Exhibit
B
EXHIBIT
D
FORM
OF MORTGAGE
Exhibit
B
EXHIBIT
E
FORM
OF CONSENT
The
undersigned acknowledges as follows:
a. The
undersigned has read the foregoing Limited Liability Company Agreement (the
“Agreement”), understands the contents of the Agreement, and is aware that by
the provisions of the Agreement, the undersigned’s spouse or registered domestic
partner agrees to certain restrictions and requirements relating to the sale or
other transfer of his/her Membership Interest in the Company, including the
undersigned’s community property or other ownership interest therein (if any)
and any interest of the undersigned pursuant to the non-marital laws of contract
or palimony. THE UNDERSIGNED HAS HAD THE RIGHT TO CONSULT WITH
COUNSEL OF HIS OR HER CHOOSING IN CONNECTION WITH THIS CONSENT AND HE OR SHE HAS
HAD AMPLE OPPORTUNITY TO DO SO. IF THE UNDERSIGNED HAS NOT CONSULTED
WITH COUNSEL IN CONNECTION HEREWITH, THE UNDERSIGNED HAS KNOWINGLY AND WILLINGLY
ELECTED NOT TO DO SO.
b. The
undersigned (i) consents to any such restrictions and requirements, (ii) agrees
to be bound by the Agreement and join therein to the extent (if any) that his or
her agreement and/or joinder may be necessary, (iii) agrees that the
undersigned’s spouse or registered domestic partner shall have the sole and
exclusive management power with respect to the Membership Interest subject to
the Agreement, (iii) agrees that the undersigned will not effect or attempt to
effect any sale or other transfer of such Membership Interest, or of any
interest therein, (iv) agrees that the undersigned will take no action at any
time to hinder the operation of the Agreement on such Membership Interest,
including the undersigned’s community property or other ownership interest
therein (if any) and any interest of the undersigned pursuant to the non-marital
laws of contract or palimony, and (v) agrees that the undersigned’s spouse or
registered domestic partner may join in any future amendment or modification
without any further signature, acknowledgement, agreement, or consent on the
part of the undersigned.
c. Should
the spouse or the registered domestic partner of the undersigned die and
bequeath to the undersigned any interest in the Membership Interest covered by
the Agreement in such a manner that no probate is required with respect thereto,
or should the applicable probate laws relating to the community property or
other ownership interest (if any) of the undersigned or any interest of the
undersigned pursuant to the non-marital laws of contract or palimony in such
Membership Interest provide, upon the death of the undersigned’s spouse or
registered domestic partner, as the case may be, that the undersigned is
entitled to a portion of the Membership Interest without such portion being
subject to probate, or should the undersigned acquire any interest in the
Membership Interest during the undersigned’s spouse’s or registered domestic
partner’s life by reason of any agreement, court order, judgment or decree, or
for any other reason whatsoever, then the undersigned further agrees that the
undersigned shall perform all of the obligations of the undersigned’s spouse or
registered domestic partner, as the case may be, imposed
thereunder.
d. The
undersigned shall perform any further acts and execute and deliver any further
documents or procure any court orders which may be reasonably necessary to carry
out the provisions of this Consent.
|
|
|
Name:
|
|
,
|
Spouse
or Registered Domestic
|
Partner
of
|
|
|
Exhibit
B
LIMITED
LIABILITY COMPANY AGREEMENT
OF
GCE
MEXICO I, LLC
A
DELAWARE LIMITED LIABILITY COMPANY
THE
SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 NOR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES
LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED
AFTER SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS QUALIFIED AND REGISTERED
UNDER APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR UNLESS, IN THE OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY, SUCH QUALIFICATION AND REGISTRATION IS NOT
REQUIRED. ANY TRANSFER OF THE SECURITIES REPRESENTED BY THIS
AGREEMENT IS FURTHER SUBJECT TO OTHER RESTRICTIONS, THE TERMS AND CONDITIONS
WHICH ARE SET FORTH IN THIS AGREEMENT.