SUBSEQUENT EVENTS

12 Months Ended

Dec. 31, 2014

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

20 SUBSEQUENT EVENTS

(a) Notes payable

On January 8, 2015, the Company issued a promissory note to Strategic IR, Inc. for $25,000 advanced to the Company, maturing on January 7, 2016 (subject to further extension) and bearing interest at 8% per annum. The promissory note may be repaid at anytime by the Company without premium or penalty.

On January 22, 2015, the Company issued a promissory note to Strategic IR, Inc. for a further $25,000 advanced to the Company, maturing on January 21, 2016 (subject to further extension) and bearing interest at 8% per annum. The promissory note may be repaid at anytime by the Company without premium or penalty.

On January 29, 2015, the Company issued an unsecured convertible note to Irina Galikhanova in exchange for $75,000 in cash. The note is convertible into common stock of the Company and bears interest at the rate of 8% per annum, which interest was payable in cash or common stock, at the election of the holder, and matures on February 1, 2016. The conversion price, as well as the formula for determining the number of shares needed to repay the note and any interest thereon is 58% of the average of the lowest closing price for any three trading days during the last ten day trading period prior to conversion or payment of interest. The holder could only convert the note following the expiration of 180 days from the date of issuance, January 29, 2015. The holder was not entitled to any conversion right that would result in the holder owning more than 9.99% of the Company’s common stock. This note could be prepaid by the Company from the date of issuance to 180 days after issuance date at a prepayment penalty of 110% of the balance outstanding, including interest thereon.

On February 6, 2015, Laurus Investments AG, the remaining holder of our long-term notes was issued 639,432 Common shares upon conversion of the note of $12,789, inclusive of interest thereon, at a conversion price of $0.02 per share.

Upon the issuance of the Series C Convertible Preferred Stock disclosed in (b) below, the Company repaid the following notes on February 20, 2015:

(i) the two notes payable to Strategic IR, issued on January 8 and January 21,2015, with a face value of $25,000 each was repaid for a total of $50,395, inclusive of interest thereon;

(ii) the unsecured promissory note issued to Irina Galikhanova on January 29, 2015 with a face value of $75,000 was repaid for $75,362, inclusive of interest thereon, the early settlement penalty was waived by the note holder;

(iii) the unsecured promissory note issued to LG Capital Funding, LLC of $107,000 was repaid for $125,677, inclusive of interest, original issue discounts and early settlement penalty accrued thereon, refer note 9 above.

(iv) the unsecured promissory note issued to KBM Worldwide, Inc., on December 10, 2014 with a face value of $84,000 was repaid for $102,107, inclusive of interest, fees and an early settlement penalty accrued thereon, refer note 9 above.

(v) the note payable to JAZ-CEH Holdings, LLC issued on October 21, 2013 was repaid for $115,590, including interest thereon, refer note 8 above.

(b) Series C Convertible Preferred Stock Issuance

On February 19, 2015, we entered into a Series C Preferred Stock Purchase Agreement (the “Purchase Agreement”) with Ervington Investment Limited, an entity organized under the laws of the Republic of Cyprus whose ultimate beneficial owner is Roman Abramovich (“Ervington”), and closed the first tranche of a private placement offering under the Purchase Agreement, raising $5,000,000 in gross proceeds from the sale of 1,525,424 shares of our Series C Preferred Stock (“Series C Preferred Stock”) at a purchase price of $3.277777778 per share. We have agreed to use the net proceeds of the offering for research and development, commercialization of new products, sales and marketing, repayment of debt, accounts payable and administrative expenses. The Purchase Agreement also provides, subject to the conditions set forth therein, for the sale by us to Ervington of an additional 2,974,576 shares of Series C Preferred Stock for an additional gross proceeds to us of $9,750,000. The proceeds of the second closing are to be used by us for the acquisition, enhancement and maintenance of an oil field for deployment of our Plasma Pulse Technology.

In connection with the Purchase Agreement, we also entered into an Investors’ Rights Agreement with Ervington (the “Investors’ Rights Agreement”). The Investors’ Rights’ Agreement provides that the Holders (as defined in the Investors’ Rights Agreement) of a majority of the outstanding Registerable Securities (defined therein as the shares of common stock and Series A-1 Convertible Preferred Stock (“Series A-1 Preferred Stock”) issued pursuant to the Secondary Stock Purchase Agreement (as defined below), the shares of Series C Preferred Stock issued pursuant to the Purchase Agreement and any common stock issued as dividends thereon or in exchange for such) are entitled to demand registration rights under certain circumstances and piggyback registration rights. In addition, the Investors’ Rights Agreement provides that Ervington (or its assignee) has the right to designate a person to be appointed as our Chief Executive Officer, a board observer right if a representative of Ervington or its affiliate is not a member of our board of directors and certain consultation rights if a representative of Ervington or its affiliate is not a member of our board of directors so long as it holds a majority of the Registerable Securities and at least 36,000,000 shares of our common stock on an “as converted” basis. Ervington and its affiliates also have a right of first refusal to acquire their pro rata share of any New Securities (as defined in the Investors’ Rights Agreement) which we propose to issue and sell.

In connection with the Purchase Agreement, Ervington also entered into a stock purchase agreement (the “Secondary Purchase Agreement”) with certain of our stockholders (the “Selling Stockholders”), pursuant to which the Selling Stockholders sold to Ervington an aggregate of 7,624,990 shares of our common stock and 2,437,500 shares of our Series A-1 Preferred Stock (representing 24,375,000 shares of our common stock on an as converted basis) at a purchase price of $.001 per share. The Secondary Purchase Agreement also provides that the Selling Stockholders will sell to Ervington at the second closing or subsequent closings under the Purchase Agreement in the aggregate an additional 56,677,477 shares of our common stock and 700,000 shares of our Series A-1 Preferred Stock (representing 7,000,000 shares of our common stock on an as converted basis).

We also entered into a Stockholders Agreement with the Selling Stockholders and Ervington (the “Stockholders Agreement”) providing that until a Change of Control Transaction (as defined in the Stockholders Agreement), each person a party thereto shall vote all of such person’s shares of our common stock in favor of the designees appointed by Ervington and two additional directors appointed by two of the Selling Stockholders and Ervington agreed to vote its shares in favor of the two designees appointed by the two Selling Stockholders provided that the certain Selling Stockholders continue to own a certain threshold number of shares of our common stock or preferred stock convertible into our common stock. In addition, the Selling Stockholders granted Ervington certain drag along rights in the event of a Change of Control Transaction (as defined in the Stockholders Agreement) and Ervington and its affiliates were granted certain rights of first refusal.

(b) Series C Convertible Preferred Stock Issuance (continued)

In accordance with the terms of the Series C Preferred Stock Certificate of Designations (the “Series C Certificate of Designations”), Ervington appointed Ivan Persiyanov to serve as a director, holding two votes. In addition, James Fuller, Mark Kalow and Dan Steffens resigned from the Board of Directors effective upon the closing.

In addition, as a condition to the consummation of the Purchase Agreement, we filed a Certificate of Designations to our Certificate of Incorporation with the Secretary of State of the State of Delaware setting forth the rights, preferences and privileges of the Series C Preferred Stock, our Bylaws were amended and restated and we entered into an Indemnification Agreement with Ivan Persiyanov.

The terms attached to the Series C Preferred Stock (“Series C Share”) are summarized below:

Conversion

Subject to adjustment for stock splits, stock dividends, reorganizations and recapitalizations and similar transactions, each Series C Share is currently convertible at the option of the holder into 26.67 shares of common stock.

Company Redemption

The Series C Shares are not subject to redemption by the Company.

Voting Rights

Generally, holders of Series C Shares will, on an as-converted basis, vote together with the common stock as a single class.  

Upon the issuance of at least 1,500,000 shares of Series C Preferred Stock the holders of the Series C Preferred Stock, as a class, are entitled to elect either two directors holding one vote or one director holding two votes. Upon the issuance of an aggregate of 4,500,000 shares of Series C Preferred Stock, the holders of the Series C Preferred Stock are entitled to elect either three directors holding one vote each, one director holding three votes or two directors with one director holding two votes and another director holding one vote.

Dividends

The Series C Shares accrue dividends at the rate per annum equal to 4% of the stated price (which initially is $3.277777778) payable annually in arrears on December 31 of each year in preference and priority to any payment of any dividend on our common stock, or any other class of preferred stock.

Liquidation Preference

In the event of our liquidation, dissolution or winding up and other liquidation events (as defined in the Series C Certificate of Designations), holders of Series C Shares are entitled to receive from proceeds remaining after distribution to our creditors and prior to the distribution to holders of common stock or any other class of preferred stock the (x) stated value (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) held by such holder and (y) all accrued but unpaid dividends on such shares.

Anti Dilution 

The Series C Shares are entitled to certain weighted average anti-dilution protection as specified in the Series C Certificate of Designations.

(b) Series C Convertible Preferred Stock Issuance (continued)

No Circumvention

The approval by holders of a majority of the Series C Shares, voting separately as a class, will be required for the following:

(i) merger, sale of substantially all of our assets or our recapitalization, reorganization, liquidation, dissolution or winding up;

(ii) redemption or acquisition of shares of our common stock other than in limited circumstances;

(iii) declaration or payment of a dividend or distribution with respect to our capital stock;

(iv) making any loan or advance;

(v) amending our Certificate of Incorporation or Bylaws;

(vi) authorizing or creating any new class or series of equity security;

(vii) increasing the number of authorized shares for issuance under any existing stock or option plan;

(viii) materially changing the nature of the business

(ix) incurring any indebtedness;

(x) engaging in or making investments not authorized by our board of directors;

(xi) acquiring or divesting a material amount of assets;

(xii) selling, assigning, licensing, pledging or encumbering our material technology or intellectual property;

(xiii) entering into any corporate strategic relationship involving payment, contribution or assignment by us or to us of any assets.

(c) Employment Agreements

On February 4, 2015, we entered into an Amended and Restated Employment Agreement with John Huemoeller II that superseded the Company’s prior Employment Agreement with Mr. Huemoeller that was previously entered into on December 5, 2014. Refer note 18 above.

In accordance with ASC 855-10, the Company has analyzed its operations subsequent to December 31, 2014 to the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements other than as set forth above.