EXHIBIT 10.3
CLARIFICATION AGREEMENT
This Clarification Agreement is made effective this __ day of February,
2011 by, between and among Xxxxxx Xxxxxxx ('K') and Xxxxxxx Farms ('KF')
(collectively K and KF are 'Xxxxxxx') and Bion Environmental Technologies,
Inc. ('B') and Bion PA 1, LLC ('LLC') (collectively B and LLC are
'Bion')(and, collectively Xxxxxxx and Bion are the 'Parties'), to clarify and
amend the provisions of all of the prior written agreements among the
Parties ('Prior Agreements'), each of which Prior Agreements (including the
Lease) remains in full force and effect except to the extent that any term of
any part of the Prior Agreements differs from the terms set forth in this
Clarification Agreement. In the event of any conflict or difference in the
terms set forth in this Clarification Agreement and any part of the Prior
Agreements, the terms of this Clarification Agreement shall control and shall
be followed.
NOW THEREFORE, in consideration of the mutual covenants, promises and
conditions set forth in this Clarification Agreement and the Prior Agreements
(collectively this Clarification Agreement and the Prior Agreements as
modified and amended by this Clarification Agreement are the 'Agreement'),
the Parties do hereby agree as follows:
1) Any deadlines earlier than December 31, 2011 set forth in the
Prior Agreements, including without limitation the deadline to achieve
agreement with the Pennsylvania Department of Environmental Protection
('DEP') regarding the nutrient credit protocols related to Xxxxxxx'x poultry
litter and the 'renewable energy facilities' ('REF') as discussed in the
Prior Agreements are extended to December 31, 2011.
2) The following terms shall be defined as follows:
a. LLC and the dairy system under construction by Bion at Xxxxxxx'x
Mannheim Dairy are the 'KF#1 System' or 'KF#1'.
b. The poultry facilities, including REF (in whatever form and at
whatever location) and any entity in which REF is developed and/or operated,
as governed by Prior Agreements shall be referenced as KF#2;
c. All of the Nutrient Reduction Credits and any other credits
and/or other things of value generated (now and in the future) from KF#1,
KF#2 and/or any other activities related to Bion's treatment and/or handling
of Xxxxxxx'x livestock waste are the 'Credits';
d. Collectively LLC, KF#1, KF#2 and Credits are the 'Assets'.
3) Bion and Xxxxxxx agree that they will each place 100% of the
entire interests in the 'Assets 'and activities as defined above into a new
LLC ('NEW LLC'); and
x. Xxxxxxx shall have the option to purchase an Equity Interest in
NEW LLC ('Equity Interest') for $1.00 on any date through December 31, 2013
('KF Option') which Equity Interest shall entitle Xxxxxxx to participation in
Distributable Net Cash Flow of New LLC (defined below).
b. Upon exercise of the KF Option, payments to Xxxxxxx for its
poultry litter will terminate, but such litter provided subsequent to
exercise shall be valued in accordance with the formula utilized prior to
exercise of KF Option ("Litter Value") as set forth at Exhibit A hereto.
Ownership distributions (after exercise of Xxxxxxx Option) from the New LLC
to Xxxxxxx or any additional member (as to its Equity Interest) and to Bion
(as to its interest) shall be subordinated to Bion's right to be reimbursed
for its investment in the Assets and New LLC ('Bion Investment') until
Xxxxxxx'x Litter Value shall equal 25% of the unreimbursed Bion Investment.
Subsequent to this milestone, such ownership distributions shall continue to
be subordinated to reimbursements of the remaining portion of "Bion
Investment" investment and "Litter Value", which reimbursements shall be made
proportionately. Once the "Bion Investment" and Xxxxxxx "Litter Value have
been reimbursed, distributions may be made according to Sharing Terms (as
defined in paragraph 3.c. below).
x. Xxxxxxx'x Equity Interest shall entitle Xxxxxxx to participate
in distribution of Distributable Net Cash Flow (after exercise of Xxxxxxx
Option and recoupment of Bion's investment in the Assets and New LLC), which
shall be determined after a reasonable reserve of working/operating capital
needs has been set aside by the Manager of New LLC, with such distributions
based on the terms of the existing sharing agreements for dairy and poultry
set forth in the Prior Agreements (as modified by the October 25, 2008
agreement related to the New Poultry Barns)('Sharing Terms'); and New LLC
will distribute such Distributable Net Cash Flow annually from the combined
operations of New LLC (and its subsidiaries) based upon the percentage of
credits (and net revenues therefrom) that Xxxxxxx dairy and poultry waste
streams, respectively, generated during each business year.
d. Bion will be the operating principal ('Manager') of New LLC (and
its subsidiaries). KF will be granted 1 seat on the Board of New LLC out of
3 upon exercise of Xxxxxxx Option.
e. It is not possible to accurately predict at the present time how
the dairy coarse solids and poultry will be combusted initially and on a long
term basis as there could be one or multiple transactions with one or
multiple partners over various time frames which transactions could
potentially include processing litter from facilities other than Xxxxxxx to
achieve sufficient scale to economically justify such investment. As a
result, Bion, as manager of New LLC, shall use its commercially reasonable
best efforts to negotiate such transaction(s) on behalf of New LLC in a
manner which endeavors to insure that New LLC's (and, therefore, Xxxxxxx'x)
interest in the expanded REF revenue stream appropriately reflects New LLC's
contributions to the venture and Bion acknowledges its fiduciary obligations
to Xxxxxxx and New LLC in the context of such negotiations; and
f. All economic return to Xxxxxxx (except for payment for poultry
litter prior to exercise of Xxxxxxx option as discussed herein and in Exhibit
A hereto) from the activities discussed in this Clarification Agreement and
the Prior Agreements will be through exercise of KF Option and its
participation in New LLC, provided, however, this provision shall be
construed to mean that Xxxxxxx will receive its net share of the Net
Distributable Income from Nutrient Credits generated by the New Poultry
Barn's technology (as described in the October 25, 2008 agreement) through
its Ownership Interest in New LLC as set forth herein upon exercise of the KF
Option.
4) As to payment/credit of Litter Value to Xxxxxxx for its poultry
litter as set forth in the Prior Agreements and above) and, Xxxxxxx and Bion
agree that:
a. The formula for calculation of such payments shall be adjusted to
insure that it equitable reflects all of Xxxxxxx'x costs related to
processing the poultry litter for the fertilizer market;
b. Such payments shall terminate upon exercise of the KF Option set
forth above, and
5)
a. In the event of any dispute between Xxxxxxx and Bion over any
provision of this Agreement (including the Prior Agreements), Xxxxxxx and
Bion agree that if they cannot resolve such dispute in 60 days (from written
notice), such dispute shall be subject to resolution through binding
arbitration (in Pennsylvania), which arbitration shall be by a mutually
agreeable arbitrator (if the parties cannot agree on a mutual acceptable
arbitrator, each shall nominate an independent third party and such third
parties shall chose an arbitrator without consultation with Xxxxxxx and Bion
which arbitrator shall be deemed to be mutually acceptable). The parties
shall split the costs related to such arbitration.
b. All other provisions of the Prior Agreements remain unchanged and in
full effect except to the extent that such provisions contradict the intent
and/or performance of the terms set forth above or prevent or hinder the
carrying out of the terms set forth above.
c. The Parties expressly acknowledge and agree that they each understand
that it is likely that Xxxxxxx and Bion shall each be required to execute
and/or amend one or more agreements with the DEP and/or other regulatory
authorities (collectively 'DEP Agreements') in connection with issuance of
the DEP permit(s) for the Bion System and/or REF (each as defined above and
in the Prior Agreements) and Xxxxxxx and Bion each hereby agree that they
will cooperate in the negotiation and execution of such DEP Agreements as the
DEP and/or other regulatory authorities shall require related to permitting,
construction and/or operation of the System. This paragraph should not be
construed to mean that Xxxxxxx will be required to assume any liability or
modify its operations without reasonable compensation.
Bion Environmental Technologies, Inc.
By:/s/ Xxxx X. Xxxxx
Xxxx X. Xxxxx, President
Bion PA 1 LLC
By:/s/ Xxxx X. Xxxxx
Xxxx X. Xxxxx, Manager
'Xxxxxxx'
By:/s/ Xxxxxx Xxxxxxx
Xxxxxx Xxxxxxx, individually and as
controlling shareholder/partner of all
entities defined as Xxxxxxx and/or
Xxxxxxx Farms herein, including without
limitation, Xxxx X. Xxxxxxx & Sons, a
partnership, all of which shall be bound
by the signature above.
