SETTLEMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 10th day of
December, 2004 by and among:
MAGELLAN AEROSPACE LIMITED, a corporation incorporated under
the laws of the Province of Ontario, Canada ("Magellan")
OF THE FIRST PART
And
DYNAMOTIVE ENERGY SYSTEMS CORPORATION, a corporation
incorporated under the laws of the Province of British
Columbia ( "DynaMotive")
OF THE SECOND PART
And
XXXX XXXXX BIOOIL CO-GENERATION LP, a limited liability
partnership created under the Limited Partnership Act,
Ontario ("Xxxx Xxxxx") by its general partner, DynaMotive
Canada Inc.
OF THE THIRD PART
WHEREAS, pursuant to an Agreement of Purchase and Sale
dated as of December 17, 2003 by and among the Xxxx Xxxxx, DynaMotive and
Magellan, as amended by a letter agreement dated December 22, 2003 (the
"PSA"), Magellan sold to Xxxx Xxxxx an OGT 2500 power generation unit (the
"Equipment");
AND WHEREAS, the purchase price of the Equipment remains
outstanding;
AND WHEREAS Magellan and Xxxx Xxxxx have entered into a
security agreement (the "Security Agreement") dated December 10, 2004
providing for security (the "Security") in respect of the Equipment listed in
Schedule "A" to the Security Agreement and the assets listed in Schedule "B"
(the "Balance of Plant") to the Security Agreement, as such term is defined
in the PSA;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein, the parties hereto agree as follows:
ARTICLE 1
The Lease
1.1 Xxxx Xxxxx will use best efforts to enter into a lease with Equisol
Capital Corporation ("Equisol") in respect of the Equipment and Balance of
Plant (together, the "Power Island") for a principal amount of $3,644,000
Cdn. (the "Lease").
1.2 The Lease will include the following provisions:
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(a) Xxxx Xxxxx will make a payment of $500,000 Cdn. to Equisol (the
"Payment") concurrently with the receipt by DynaMotive of equity financing
(the "Financing") proposed to be in the amount of $12,000,000 Cdn. as part of
DynaMotive's intended offering of shares and concurrent listing of its shares
on the Toronto Stock Exchange in 2005. Upon completion of the Financing,
DynaMotive agrees to advance $500,000 Cdn to Xxxx Xxxxx to enable Xxxx Xxxxx
to make the Payment.
(b) Upon receipt of the Payment, Magellan's Security on the Balance of
Plant only under the Security Agreement shall be reduced by the amount of the
Payment and DynaMotive will have a first priority security interest on the
Balance of Plant only in the amount of the Payment.
ARTICLE 2
MARKETING AGREEMENTS
2.1 Magellan and DynaMotive will enter into a marketing cooperation
agreement which will set out the terms and conditions pursuant to which, they
will market each other's services and products (the "Marketing Cooperation
Agreement").
2.2 Magellan will use commercially reasonable efforts to negotiate and
sign a Remarketing Agreement with Equisol which Remarketing Agreement will
provide that Magellan will find a "home" for the Power Island in the event
there is a default under the Lease (a "Lease Default"). This "home" could be
another biofuel unit or a conversion to a cogeneration unit. The third party
acquiring the Power Island must be acceptable to Equisol, acting reasonably.
2.3 In the event of Lease Default, Magellan will maintain its interest in
the Power Island and be able to remove and sell, in addition to the
Equipment, up to $1.4 million Cdn. value in respect of Balance of Plant,
subject to any first priority interest of Dynamotive on the Balance of Plant
under section 1.2(b) of this Agreement.
ARTICLE 3
WARRANTS/CONVERTIBLE DEBENTURES
3.1 On execution of this Agreement, DynaMotive, will issue 500,000
warrants to Magellan exercisable into fully-paid and non-assessable shares of
DynaMotive ("Shares") at the option of Magellan at a price of $0.49 USD per
share at any time after the date of execution of the Marketing Cooperation
Agreement and expiring December 31, 2006.
3.2 On execution of this Agreement, Magellan, (the "Debenture Holder")
will enter into an agreement with DynaMotive whereby DynaMotive shall issue a
five year convertible debenture (the "Debenture") to the Debenture Holder.
The principal amount of this Debenture is $1,000,000 Cdn. (the "Principal
Amount") for a 5-year term. DynaMotive shall be required to pay the unpaid
balance of the Principal Amount of the Debenture on the fifth anniversary of
its issue (the "Maturity Date"). The Debenture Holder shall have the option
to convert all or a portion of the Debenture into fully-paid and non-
assessable Shares of DynaMotive for the Conversion Price, as hereinafter
defined, at any time or times prior to the Maturity Date with an associated
reduction in the outstanding Principal Amount equal to the number of Shares
issued on each conversion (the "Conversion Date") times their conversion
price as calculated in the following paragraph.. e.
The conversion parameters are: 20 day average TSX or NASD.Otcbb
closing price prior to the Conversion Date at a price not less than $0.40 USD
and a price not more than $0.60 USD ("Conversion Price"). Conversion shall
be at the Debenture Holder's option. In addition, DynaMotive will issue
warrants to the Debenture Holder at a rate of 0.5 warrant per Share issued on
the Conversion Date at an exercise price of 5% above market on the Conversion
Date. The warrants shall be exercisable into Shares at such time as
determined by the holder of the warrant prior to the Maturity Date. The form
of warrant will be substantially the same as the warrant issued under
section 3.1 hereof except for the term and exercise price.
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DynaMotive at its option may prepay the Principal Amount in
whole or in part at any time or from time to time
For example:
Total conversion share calculation:
Conversion if at 40 cents USD: Underlying shares = 2,083,333
shares plus 0.5 warrant per common share.
The consideration for the issue of the Debenture shall be
cancellation of the $1,000,000 Cdn receivables owing by Xxxx Xxxxx to
Magellan to December 31, 2004 (as set out on Exhibit 1 to this Agreement).
The receivables shall include, without limitation, Magellan's carrying costs
and management costs.
ARTICLE 4
WAIVER OF DEFAULT
4.1 No consent or waiver, express or implied, by any party to this
Agreement with respect to any breach or default by any other party hereunder
shall be deemed or construed to be a consent or waiver with respect to any
other breach or default by such party of the same provision or any other
provision of this Agreement. Failure on the part of any party to complain of
any act or failure to act of any other party or to declare such party in
default shall not be deemed or constitute a waiver by such party of any
rights hereunder.
ARTICLE 5
AMENDMENT
5.1 This Agreement shall not be altered, modified or changed except by a
written amendment executed by all of the parties hereto.
ARTICLE 6
SEVERABILITY
6.1 In the event any provision of this Agreement is held to be illegal,
invalid or un-enforceable to any extent, the legality, validity and
enforceability of the remainder of this Agreement shall not be affected
thereby and shall remain in full force and effect and shall be enforced to
the greatest extent permitted by law.
ARTICLE 7
BINDING AGREEMENT
7.1 The provisions of this Agreement shall be binding upon, and inure to
the benefit of the parties hereto and their respective heirs, personal
representatives, successors and permitted assigns.
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ARTICLE 8
HEADINGS
8.1 The headings of the articles and sections of this Agreement are for
convenience only and shall not be considered in construing or interpreting
any of the terms or provisions hereof.
ARTICLE 9
WORD MEANINGS
9.1 The words such as "herein", "hereinafter", "hereof', and "hereunder"
refer to this Agreement as a whole and not merely to a subdivision in which
such words appear unless the context otherwise requires. The singular shall
include the plural, and vice versa, unless the context otherwise requires.
ARTICLE 10
ENTIRE AGREEMENT
10.1 This Agreement and the other agreements referred to herein contain
the entire agreement between the parties and supersede all prior writings or
agreements with respect to the subject matter hereof.
ARTICLE 11
ARBITRATION
11.1 The parties will attempt in good faith to resolve any controversy,
question, claim or other dispute arising out of or relating to this
Agreement, (a "Dispute") by arranging a meeting of the chief executive
officers, or other designated senior officers, of each party within fifteen
(15) days of one party requesting the meeting in order to discuss and settle
the Dispute.
11.2 If the Dispute cannot be settled within a period of thirty (30) days
after the meeting referred to in section 11.1 or if the meeting has not been
held within thirty (30) days after one party has requested the meeting, or
such longer period as agreed to in writing by the parties, either party may
refer the Dispute to be conclusively settled by arbitration in accordance
with section 11.3 below.
11.3 Any dispute hereunder shall be settled by arbitration in Mississauga,
Ontario by one arbitrator in accordance with the terms of the Arbitration
Act, Ontario. The parties consent to the jurisdiction of the Courts of the
Province of Ontario for all purposes in connection with arbitration. The
award entered by the arbitrator shall be final and binding on all parties to
arbitration. Each party shall bear its respective arbitration expenses and
shall each pay its pro rata portion of the arbitrator's charges and expenses.
11.4 All applicable statutes of limitation and defences based upon the
passage of time will be suspended while the procedures set forth in this
Article 11 are pending.
ARTICLE 12
NON DISCLOSURE
12.1 Each of the parties hereto for itself and on behalf of its affiliates
agrees to keep the provisions of this Agreement and all schedules, appendices
and exhibits hereto in confidence except such information that may be
required to be disclosed to Equisol and pursuant to the requirements of
applicable law and shall not publish or otherwise disclose the same at any
time without the prior written consent of all the other parties hereto.
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ARTICLE 13
GOVERNING LAW
13.1 This Agreement shall be construed according to and governed by the
laws of the Province of Ontario, Canada.
ARTICLE 14
NOTICES
14.1 Any notice, communication, payment, or demand required or permitted
to be given or made by this Agreement will be sufficiently given or made for
all purposes if delivered personally to the party or to an officer of the
party to whom it is directed or if sent by ordinary first class mail within
Canada, postage prepaid, or by facsimile, addressed as follows:
if to the DynaMotive:
DynaMotive Energy Systems Corporation
000-0000 Xxxx 00xx Xxxxxx
Xxxxxxxxx, XX
X0X 0X0
Attention: President
Facsimile: (000) 000-0000
if to Magellan
Magellan Aerospace Limited
0000 Xxxxx Xxxx Xxxx
Xxxxxxxxxxx, Xxxxxxx X0X 0X0
Attention: Vice President, Corporate Strategy
Facsimile: (000) 000 0000
if to Xxxx Xxxxx
Xxxx Xxxxx BioOil Co-Generation Limited Partnership
C/O DynaMotive Canada Inc.
000-0000 Xxxx 00xx Xxxxxx
Xxxxxxxxx, XX
X0X 0X0
Attention: President
Facsimile: (000) 000-0000
14.2 Except as provided in paragraph 14.3, a document sent by mail will be
deemed to be received on the fourth business day after the day on which it is
mailed, addressed as provided in paragraph 14.1 and sent by facsimile will be
deemed to be received on the business day after it is sent.
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14.3 In the event of any disruption, strike or interruption in the
Canadian postal service after mailing and before the receipt or deemed
receipt of a document, the document will be deemed to have been received on
the sixth business day following full resumption of postal service.
14.4 Any party may change his address by giving written notice of the
change to the other parties.
ARTICLE 15
MISCELLANEOUS
15.1 This Agreement may be executed in any number of counterparts and by
facsimile copies with the same effect as if all parties to this Agreement had
signed the same document and all counterparts and facsimile copies will be
construed together and will constitute one and the same instrument.
15.2 Time is expressly declared to be of the essence of this Agreement.
Any extension of time hereunder shall not be deemed to be or to operate in
law as a waiver on the part of that party granting the extension that time is
no longer of the essence.
15.3 Each party will execute and deliver such further agreements and
documents and do such further acts and things as any other party hereto
reasonably requests to evidence, carry out or give full force and effect to
the intent of this Agreement.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to
be duly executed as of the date first written above.
MAGELLAN AEROSPACE LIMITED
By: /s/
-------------------------------
Its:
DYNAMOTIVE ENERGY SYSTEMS CORPORATION
By: /s/ Xxxxxx Xxxxxxxx
-------------------------------
Its: President and CEO
XXXX XXXXX BIOOIL CO-GENERATION LIMITED
PARTNERSHIP, BY ITS GENERAL PARTNER,
DYNAMOTIVE CANADA INC.
By: /s/ Xxxxxx Xxxxxxxx
-------------------------------
Its: President
EXHIBIT 1
Receivables
Canadian $
Inv. I-8553 June 6, 2004 299,382.79
P.O. 01567 October 15, 2004 50,000.00
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Current balance including P.O.s 349,382.79
Allowance for additional work by Western Mechanical 250,000.00
Invoices to be submitted for Magellan carrying costs
Magellan consulting services and management time
Actual and planned to December 31, 2004: Inv. G-30137 400,617.21
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TOTAL $1,000,000.00
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