EXHIBIT 10.31
BION DAIRY CORPORATION
To: Xxxx XxXxxxxxx, Fair Oaks Dairy Farms
CC: Xxx den Dulk, Fair Oaks Dairy Farms
From: Xxxxxxx Xxxxxxx
Date: June 1, 2006
Re: Fair Oaks Dairy Farms ("FODF") Project Agreement
Structure Outline/Letter Agreement ("LA")
Intent. This memorandum is intended (when executed) to outline the terms and
conditions under which Bion Dairy Corporation ("BD") will construct a
research Bion Treatment System at the Fair Oaks Dairy Farm ("FODF")(based on
the patented and proprietary technology of Bion Environmental Technologies,
Inc ("Bion")) as Stage I of the Project. Thereafter, Stage II of the Project
will proceed under a Joint Venture ("JV") arrangement as outlined hereinafter
and it shall include the integration of Stage I into Stage II on terms and
conditions set forth herein. While it is recognized by FODF and BD that this
Letter Agreement ("LA") will serve as the basis for more extensive
contractual arrangements governing Stage II (and possibly portions of Stage
I) Facility Project, BD and FODF acknowledge that this LA is binding pursuant
to its own terms as to Stage I and sets forth how FODF and BD shall proceed.
Project Overview. The project to be completed herein is phased such that it
will be completed in two stages as follows:
A: Stage I Project:
The Stage I project includes construction of a long term Bion research
facility at FODF ("Stage I System"). The Stage I System will initially be
used to complete testing necessary for development of design criteria for
permitting and construction of the integrated, full-scale Stage II
installation ("Stage II Facility") at FODF. Following testing necessary to
support permitting of the Stage II Facility, the Stage I System (at its
initial location or as relocated adjacent to the Stage II Facility) will be
utilized by Bion for ongoing research and testing of Bion's technology
platform including without limitation testing the waste streams from other
CAFO species. In the event of a biosecurity issue, FODF reserves the right to
suspend any other species testing until the issue can be resolved to their
satisfaction. Stage I project objectives include:
1. Operation of the Bion waste treatment technology on a dairy waste stream
that has been pretreated via anaerobic digestion. The Stage I System will be
operated using effluent each of: a) the Bos plug flow anaerobic digestion
system; and b) the FODF compete mix anaerobic digestion system. The Bos dairy
will be operated using manure bedding while the FODF dairy will use sand
bedding. The objective is to finalize an environmental and economic operating
analysis to determine the operational and economic differences attributable
to the two bedding materials. It is FODFs objective to use sand bedding in
conjunction with the Stage II Facility integrated Bion installation. FODF
has provided Bion and BD with estimated sand removal and water usage levels
and BD anticipates, subject to Stage I test results, that it will be able to
successfully integrate a sand bedding capability into its technology platform
based upon those estimates. See Attachment re water and sand issues.
2. Fine solids generated in the Bion treatment process at the Stage I
System will be tested and processed as samples for potential users (such as
fish food producers and feed providers). Additionally, samples will be
provided to various wholesale and retailers in the organic fertilizer
markets. Fine solids will be produced from both the Bos and FODF waste
streams. Data from the two operating scenarios will be compared to determine
if the solids have different characteristics and different potential market
values.
3. Microfiltration systems will be tested at the Stage I System to develop
design and operational criteria as well as technology economics for the Stage
II Facility. Unit process performance data relative to effluent
characteristics will be assessed to determine the environmental feasibility
of eliminating/reducing lagoon storage in favor of ground or surface water
discharges.
4. Various solids processing equipment and unit processes will be tested to
identify their performance on the Bion waste stream and to develop design and
costing criteria for the integrated, full-scale Stage II Facility.
5. Sampling, testing and analysis protocols will be developed for the
trials completed at the Stage I System utilizing independent third party
reviewers for process performance validation. This process validation
program will be completed in a manner that supports standards-based
permitting of the Stage II Facility.
Simultaneous with construction and operation of the Stage I System as
outlined above, BD and FODF will work on planning and preliminary design of
the integrated, full-scale Stage II Facility. Findings of the Stage I
project investigations will be incorporated into the planning and design
process as the Stage I work progresses and is completed.
The estimated cost of Stage I (system construction and testing operation in
support of Stage II permitting) without any grant funds is $750,000. BD and
FODF agree to provide funds for the net cost on a 50/50 basis; PROVIDED
HOWEVER, FODF's contribution shall be convertible into the common stock of
Bion on the same terms and conditions as Bion's next financing (which is
expected to take place in June), and, therefore, BD and FODF acknowledge that
upon such conversion and receipt of Bion common stock by FODF, BD and Bion
will have paid the entire cost of Stage I.
FODF shall lease the site of the Stage I System (initial site and subsequent
site as relocated adjacent to Stage II Facility)(and easements for access,
ingress, egress, etc.) to BD for $1.00 per year (plus the other valuable
consideration set forth herein) for a lease term ending 3 years from Stage I
System commencement of operation, which lease shall be renewed annually
during the operation of the Stage II Facility. .
B: Stage II Facility:
Stage I will provide the data that will enable the parties to determine Stage
II Facility criteria for:
1. The final site, cost, projected profitability and emission standards for
the integrated Stage II Facility.
2. Final formula for inclusion rate and pricing of wet distillers grain to
be utilized as feed for the dairy herd.
3. The specifications for sand content and composition entering the Bion
system will need to be determined between the parties.
4. Possible addition of beef cattle waste stream to the FODF waste stream.
The Stage II Facility shall be owned and operated by JV (exact entity
structure to be determined) between BD and FODF. The Stage II Facility shall
be sized to treat the entire dairy waste stream including the proposed FODF
expanded herd totaling no less than 20,000 milk cows and shall include
without limitation:
1. Bion waste treatment system;
2. Anaerobic digester;
3. Solids processing (drying and combustion) facilities;
4. Ethanol plant (sized from 20MM GPY to 40+MM GPY); and
5. Such related facilities needed to optimize integration and renewable
energy production and utilization.
FODF shall provide the JV with sufficient acreage (suitable to the specific
needs of the Stage II Facility) at FODF for construction of the Stage II
Facility (including Bion waste system, relocation of Stage I System, ethanol
plant, and other items described above) together with facilities needed to
support all Stage II Facility operations (including transport (rail & road),
utilities, etc. JV will pay FODF a negotiated fair market value price for the
real property needed for the Stage II Facility ("Site"). Costs of
infrastructure on the Site needed for the Stage II Facility will be borne by
the JV.
Upon a final agreement on these items and other design criteria, BD and FODF
agree to proceed with JV on Stage II Facility and each will both contribute,
on an "as-needed" basis, up to 10% of the total Stage II Facility project
cost as equity contributions to JV (with the balance of the financing to be
senior debt and, if required, sub-debt and/or preferred equity). BD will be
the managing partner of JV. BD and FODF will be 50/50 "partners' in all JV
distributions, etc.
JV shall license the technology of Bion and BD for use in the Stage II
Facility on terms consistent with discussion to date.
By execution below, FODF and BD agree fund and commence construction and
operation of the Stage I System and proceed forward toward Stage II Facility
and JV on the terms set forth above.
Fair Oaks Dairy Farm/FODF
By /s/ Xxxx XxXxxxxxx
Xxxx XxXxxxxxx
Bion Dairy Corporation/BD
By /s/ Xxxx X. Xxxxx
Xxxx X. Xxxxx, President 6/19/06
ATTACHMENT A
As part of the Stage II Facility project, FODF will implement water
conservation measures and pre-treat influent waste stream to achieve the
following influent waste loadings:
- Manure Waste: 18 gallons/milk cow-day
- Milk House/Parlor Waste: 17 gallons/milk cow-day
- Bedding: Concrete sand @ 45-lb/cow-day
- No other waste sources have been identified by FODF.
FODF will plan, design, construct, operate and maintain pretreatment
operations (at FODF's cost and expense) necessary to achieve a minimum
removal of 98% of the sand contained in the influent waste stream prior to
the waste stream being discharged to the Stage II Facility's downstream
treatment operations and equipment.
