LETTER
OF INTENT


 


[______________],
2014


 


BETWEEN


 


[______________]


 


And


 


ZEECOL
LIMITED, 57 A Nayland Street


Sumner
8081 Christchurch, New Zealand


 


Introduction


 


The
parties, following a series of preliminary meetings, have agreed to record their stated intentions to build and develop an Anaerobic
Digester on the property of [_______________], on the following terms and conditions.


 


Anaerobic
Digester


 


Zeecol
shall construct an Anaerobic Digester consisting of at least six tanks of 140,000 litres each, or equivalent, capable of handling
the manure and effluent for not less than 1,200 head of dairy cattle, along with associated stall wastes and dairy shed wastes
without adverse discharges to the environment but subject in all cases to compliance with all regulatory regimes relating to the
construction maintenance and operation of the said plant by Zeecol.


 




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Zeecol
shall also provide all other ancillary gear deemed to be required for said digester installation.


 


 
The said Digester shall produce:


 


Effluent
water suitable for direct irrigation, along with


 


Organic
soil amendment made from Digestate suitable for direct application; and


 


Electricity,
suitable for use throughout your dairy farm;


 


Liquid
methane suitable for use in equipment built to use such fuel;


 


Heating
suitable for use where such heating is required;


 


Cooling
suitable for use where cooling is required -


 


based
on successful financing of an off-take contract for the said Digester products.


 


Both
parties agree to use their best endeavours to complete the construction of the plant on site, adhering to the timeframes stipulated
in this agreement.


 


Bioreactor



 


Zeecol
shall construct a micro-algae bioreactor consisting of an algae bioreactor used for cultivating algae to fix CO2 to
produce biomass. Specifically, this algae bioreactor will take all water discharges and liquid effluents from the associated anaerobic
digester to grow algae that is then used to;


 


produce
fuels such as biodiesel and bioethanol,


 


generate
animal feed, and


 


reduce
pollutants such as NOx and CO2 in flue gases.


 




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Fundamentally,
this kind of bioreactor is based on the photosynthetic reaction which is performed by the clorophyll-containing algae using dissolved
carbon dioxide and sunlight energy. The carbon dioxide is dispersed into the reactor fluid to make it accessible for the algae.
The bioreactor is made out of transparent tubing. This tubular reactor consists of transparent tubes connected together to a pipe
system. The algae-suspended fluid circulates in this tubing. The tubes are generally made out of transparent plastics with a coating
of borosilicate glass to avoid formation of bio-films. The constant circulation kept up by a pump provides for the introduction
of gas to take place throughout the length of tube system. This way of introducing gas avoids the problem of deficiency of carbon
dioxide and avoids high concentrations of oxygen during circulation, providing improved efficiency.


 


Zeecol
shall also provide all other ancillary gear deemed to be required for said bioreactor installation.


 


The
said Bioractor shall produce:


 


Effluent
water suitable for direct use by the dairy, along with


 


Organic
soil amendment made from algae solids suitable for direct application; and


 


High
protein feed from algae suitable for approved use for dairy cattle


 


Liquid
fuels made from algae oils suitable for use in equipment built to use such fuel;


 


-
based on successful financing of an off-take contract for the said algae products.


 


Both
parties agree to use their best endeavours to complete the construction of the plant on site, adhering to the timeframes stipulated
in this agreement.


 




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Conditions
to be met prior to construction:


 


Zeecol
and [_____________] shall mutually agree to the precise location of the plant and produce a detailed construction plan
both mutually agree to abide by following detailed engineering studies peformed by Zeecol engineers.


 


The
equipment shall comprise an area of not more than 1,500m2 for the mechanical systems and no more than 1/100th the area
needed for an equivalent grassland to feed 1,200 head of cattle, while seeking to use as little land as possible, with the understanding
that as little as 1/400th the area needed for an equivalent grassland to feed 1,200 head of cattle may suffice.


 


Parking
and vehicle movements to and from the plan shall also be defined on the plan. The plan shall also define any construction zone
used for the development of the plant. At all times during both construction and operation, the plant shall not interfere with
the daily operations of the dairy farm in any way – and more particularly:


 


Shall
seek to take all effluent and not prescribe any conditions of supply as to the quality and quantity of the effluent;


 


Shall
not change the delivery times when the herd home is swept into the trough from which effluent is delivered to Zeecol;


 




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Shall
not prescribe minimum or maximum cow numbers below a minimum of 1,200 cows or in any way influence the feed mix at the herd
home, -


 


–
provided that [_____________] shall not, other than for reasons of non-compliance or emergency, unreasonably interfere
with, reduce or cut off the delivery of effluent to the plant to a degree that would unduly prejudice the effective and efficient
operation of the plant


 


Zeecol
shall contribute to the upkeep of all common areas including turning bays, driveways.


 


During
construction and operation Zeecol shall separately meter its electricity and pay a proportionate share of supply water and other
inputs to the plant at market rates, applied as credits against [_____________] purchases. 


 


The
parties shall mutually agree on the terms and conditions for any licence to operate on the Pannetts site, but such licence shall
include:


 


Right
of notice


 


The
grounds upon which notice is given, which shall include


 


compliance
with regulatory requirements,


 


adherence
to the non-interference requirements in relation to the dairying operation,


 


suitability
of the effluent water and its contaminant loadings for irrigation.


 




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A
nominal fee for the licence area;


 


The
extent of the breach provisions subject to notice;


 


Any
stipulations with respect to traffic and traffic flows;


 


A
requirement to keep the property in the same standard of tidiness and to remove all rubbish from the site;


 


A
requirement to fence off the Anaerobic Digester in a fencing material mutually agreed by Zeecol and [_____________];


 


A
requirement to comply with all regulatory requirements and as set out below.


 


Resource
Consent requirements


 


Within
two months of the date of this agreement Zeecol shall determine which resource consents will be required for the lawful operation
of the site. Zeecol shall prepare any consent applications to the [_____________] District Council and the Canterbury Regional
Council within a further two months of the date of the agreement. [_____________] shall be entitled to read and approve
of the consent applications and make such stipulated amendments to the applications prior to lodgment. Subject to the above, [_____________]
shall provide neighbors’ consent forms to Zeecol and shall not be permitted to submit in opposition to any applications
and shall sign and consent forms as owner of the land.


 




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Health,
Hygiene and Safety


 


Within
two months of the date of this agreement or such further period as mutually agreed, Zeecol shall provide a written health and
safety plan for the construction and operation of the plant.


 


The
parties acknowledge that the health and well being of the owners of [_____________] and its stock are of paramount importance
and any breach of the health and safety plan shall be an immediate breach of the lease or licence to operate on the site.


 


Should
any of the stock suffer sickness or ill-health, which may be attributable in whole or in part to plant operation, then Pannetts
shall give notice for rectification and if not so rectified within 30 days shall be an immediate breach of the terms.


 


Insurance


 


Zeecol
shall maintain in the name of [_____________] Dairies an insurance policy for Public liability and Statutory Liability
cover from the same insurance company used by Pannets in the amount of $5,000,000 to cover public liability issues and statutory
responsibilities associated with the operation of the plant.


 


Odour
Issues


 


The
plan shall demarcate an agreed odour boundary for the plant. The parties recognise that the construction of the plant is in a
rural zone and that from time to time odour may be experienced directly adjacent to the plant. The odour boundary, however, is
the point at which Zeecol shall manage the plant so that there is no detectable odour emanating from the plant.


 




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Malfunction/Accident
Protocol


 


Within
two months of the date of this agreement, Zeecol shall establish an Accident Management Plan. Such plan shall prescribe set timeframes
for the notification of any breach and the timeframes for rectification.


 


It
is recognized that [_____________] currently holds effluent discharge consents for the on farm disposal of effluent and
it shall be a critical part of the accident management plan to advise [_____________] in a timely manner so that effluent
treatment can switch to on farm treatment and disposal.


 


The
plan shall require reporting on the methods to address any future issues raised by the accident or malfunction.


 


Storage


 


The
parties acknowledge that [_____________] currently has no storage option and it expressly does not wish to develop effluent
storage. Accordingly any storage must be wholly within the Zeecol site and no material may be stored which is not being treated
by Zeecol in fully bunded and sealed systems, to prevent any escape of contaminant that is either unlawful or contrary to the
terms of this letter of intent


 


Zeecol
shall define the storage areas for the soil amendment product which [_____________] agree may be sold from the site. Zeecol
shall define the storage volumes for soil amendment.


 




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Breadth
of Agreement


 


It
is agreed between the parties that the arrangements between them apply to the taking and treatment /processing of effluent from
the [_____________] property. To the extent that the plant operates successfully on that level the parties may mutually
agree to extend the agreement to allow the provision of other material to be processed through the site – but that this
will be subject to a separate agreement which will determine such issue as price, rebate, quality and age of material to be brought
onto the site and other issues not foreseen at the time of this agreement.


 


Off-Take
Contract 


 


The
Off-Take Contract shall incorporate the following:


 


Commodities:


 


To
sell via off-take contract to [_____________] Dairies Ltd.


 


Electricity



 


200
kilowatts peak output, based on actual purchases


 


20%
discount from prevailing cost


 


Plus
any levies, taxes, or fees.


 




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Soil
Amendment (Fertilizers)


 


Fertilizer
purchases


 


20%
discount from prevailing cost


 


Plus
any levies, taxes or fees.


 


Vehicle
and Transportation fuels


 


Based
on LNG, Biodiesel, Bioethanol purchases,


 


Suitable
for use in vehicles converted to use LNG, Biodiesel, 


 


Bioethanol.


 


20%
discount from prevailing cost as reported by AA


 


Plus
any levies, taxes or fees.


 


Including
GST and


 


$0.53524
- National Land Transport Fund


 


$0.09900
- ACC Motor Vehicle Account


 


$0.00660
- Local Authorities Fuel Tax


 


$0.00045
- Petroleum Monitoring Levy


 


Heating
And Cooling 


 


Based
on electricity and gas purchases


 


Less
20% discount plus applicable fees, levies and taxes.


 




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Feed



 


Based
on feed purchases less 20% discount plus applicable Fees, levies and taxes.


 


To
Purchase From Pannetts Dairies Ltd 


 


Manure



 


A
minimum of $36,000 per year for all the manure collected and $30 per head for any herd larger than 1,200 head. Above this minimum
the value of the effluent provided to Zeecol by [_____________] Dairies will be a figure arrived at by a formula agreed
to by both parties for all manure collected.


 


Property
Rental 


 


To
construct and operate said Digester and Bioreactor on [_____________] Dairies land, including right of access for approved
personnel shall be granted in consideration of payment of 2% of all sales in excess of sales to [_____________] Dairies
Less applicable fees, levies and taxes.


 


Public
Relations And Media Fees 


 


Based
on the use of [_____________] Dairies in subsequent PR & Media campaigns, less applicable fees levies and taxes. This
shall be no less than $2,000 per day per person and shall include hotel and travel costs when applicable. This shall not include
training or review spent by [_____________] Dairies personnel related to normal Digester and Bioreactor operations.


 




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Location


 


The
location of the Digester and Bioreactor shall be on [_____________] Dairies land in Ashburton or thereabouts and shall
be constructed and operated by approved vendors meeting all legal requirements for the construction and operation of said Digester
and Bioreactor and all its component parts.


 


Delivery
Time


 


The
delivery time shall be within one year of receipt of all approvals for construction and financing of said Digester and Bioreactor.


 


Maintenance
and Operation


 


The
maintenance and operation of the Digester and Bioreactor shall be paid for by Zeecol Limited who will maintain a continuous automated
surveillance and control system in place. Vendors shall maintain a performance bond along with all relevant insurance required
for said facility.


 


Term
of Agreement


 


The
term of agreement shall be twenty (20) years with rights of renewal under similar terms thereafter.


 




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Estimated
Value of Services


 


2015-2034
assuming a 4% rise in costs each year shall likely have a value of $1,366,624 per year in 2015 rising to an estimated $2,994,441
per year in 2034 totalling no more than $43,112,020 over the term, with actual costs depending on actual purchases and market
rates.


 


2015
estimate (actual cost will depend on actual use)


 


$
206,800 Fertilizer


 


$
156,000 Electricity


 


$
93,000 Fuel


 


$1,252,480
Feed


 


$1,708,280
Sub-total 


 


($
341,656) 20% Discount


 


$1,366,624
Annual Cost 2015 (estimate) 


 


Option
Payment: $252,000 - credited at $50,400 per year against the first five years of operations.


 


Loan
Conversion: Deposit plus discounts are convertible to loan


 


at
8% discount 7 year term valued at $3,606,429 credit line or equivalent.


 


Next
Steps


 


Acceptance
of this Letter of Intent by [_____________] Dairies Ltd and payment of the option called for Zeecol Limited will then:


 


Arrange
for travel of approved vendors to perform a site visit to [_____________] Dairies to perform a detailed analysis; and complete
a detailed engineering plan which will then be submitted for approval to all relevant regulatory authorities and bodies;


 




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Provide
engineering and other support until final approvals are received;


 


Develop
Relevant Off-take contracts which will then be signed between parties;


 


Arrange
financing in accordance with financial approval of the offtake contract;


 


Commence
Construction


 


After
completion of construction implement training and support.


 


Startup
and Operate Digester and Bioreactor.


 


This
is all expected to be completed within the next fifteen to eighteen months after acceptance with construction to occur within
six to nine months after acceptance. All reasonable efforts will be made to reduce these times to a minimum.


 


	By	ZEECOL
    LIMITED	 	Accepted
    by: 
	 	 	 	 
	 	 	 	 
	 	William
    H. Mook, CEO Zeecol Limited 	 	 
	 	 	 	 
	By		 	Accepted by:
	 	 	 	 
	 	 	 	 







 




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