Consortium Master Agreement
Execution Copy
Consortium Master Agreement
THIS AGREEMENT is dated effective February 11, 2004.
AMONG:
DYNAMOTIVE ENERGY SYSTEMS CORPORATION, a
British Columbia corporation
("Dynamotive")
AND:
ERIE FLOORING & WOOD PRODUCTS, an Ontario
partnership
("Erie")
AND:
MAGELLAN AEROSPACE LIMITED, an Ontario corporation
("Orenda")
AND:
ONTARIO POWER GENERATION INC., an Ontario
corporation
("OPG")
AND:
WEST LORNE BIOOIL CO-GENERATION LIMITED
PARTERSHIP, an Ontario limited partnership
("LP")
THIS CONSORTIUM MASTER AGREEMENT sets out and describes the
contributions to be made and the other rights and obligations of the
parties in connection with the establishment of a proposed 100 TPD
pyrolysis plant with 2.5 MW electric power co-generation at the Erie
plant located at West Lorne, Ontario (the "Project"). This Consortium
Master Agreement by itself (without the executed Ancillary Agreements
described below) is intended to serve as an overall description of the
business arrangements involving the parties and the Project. This
Consortium Master Agreement does not create any rights or obligations
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on the parties and sets out and describes the various Ancillary
Agreements that will be negotiated, and if satisfactory signed by the
applicable parties thereto and which will implement the Project.
1. Limited Partnership as Project Entity
1.1 The Project shall be funded, constructed and operated by the West
Lorne BioOil Co-Generation Limited Partnership (the "LP") formed under
the laws of Ontario on September 12, 2003. The General Partner of the
LP is Dynamotive Canada Inc., a wholly owned subsidiary of Dynamotive
(the "General Partner"). The form of limited partnership agreement
(the "LP Agreement") is attached hereto as Schedule C. The LP shall
have two classes of limited partnership units viz. Class A Units which
are issuable for $100 each and which have priority on liquidation for
their subscription price and a priority on any income and cash
distributions until a 10% return is achieved. The LP shall have Class
B Units issuable in the event the Project is successfully commissioned
and which shall participate in income from the Project after the Class
A Units have achieved the defined preferred return. The LP may issue
up to $4.99 million in Class A Units (49,900) and up to 30,000 Class B
Units for commissioning-contingent nominal consideration. The LP
Agreement shall not be amended without the consent of Sustainable
Development Technology Canada ("SDTC") until any relevant required
terms or conditions of the SDTC Contribution Agreement (Ancillary
Agreement L) have been met.
2. Capital Contributions, Other Agreements of the Parties
2.1 The parties to the LP Agreement shall each respectively make or
have the right to make, as the case may be, the following contributions
to the capital of the LP as loans or equity and in addition thereto
shall enter into the Ancillary Agreements with or on behalf of the LP
or in connection with the Project:
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Contribution
Amount or Value Type Agreement
-----------------------------------------
(a) Orenda contribution
and Ancillary Agreements:
(i) Cash $1,000 equity - 10 Class C
A Units
(ii) supply and install $3.644 sale of equipment D
2.5 MW turbine million and services
(iii) supervise installation indefinite sale of equipment D
of power island and and services
Project servicing
(iv) Turbine Loan or indefinite 7 year loan or E
loan guarantee loan guarantee
(v) guarantee project indefinite Agreement
completion
(vi) Right to Class B indefinite C
Units
-----------
Subtotal $3.645 million
Summary Terms: In consideration of the $1,000 cash contribution Orenda
shall receive 10 Class A Units. The installation of the turbine and
power island and ancillary services shall be effected on commercial
terms, but Orenda shall provide or arrange a 7-year loan for the
Turbine and Orenda shall have a first charge on the Turbine and shall
only have recourse to the Turbine. The turbine loan shall bear
interest at the rate of approximately 7.5% per annum, compounded
annually, with the first equal blended interest and principal payment
due one month after Commissioning of the Project and such blended
monthly payments continuing until the turbine loan is paid off no later
than 7 years after Commissioning. The LP may prepay the loan at any
time without penalty. Further, Orenda will guarantee, on a best
commercial efforts basis, to see that the Project completes
Commissioning. Orenda shall, upon Commissioning of the Project,
receive 6,000 Class B Units for nominal consideration.
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Contribution
Amount or Value Type Agreement
-----------------------------------------
(b) Erie Ancillary Agreements:
(i) supply project feed N/A N/A H
stock pursuant to the
Wood Supply Agreement
(ii) lease site to LP pursuant N/A N/A F
to the Lease
(iii) provide manpower N/A N/A G
pursuant to Provision
of Operators and Steam
Agreement
(iv) purchase co-generation N/A N/A I
power pursuant to
Power Purchase
Agreement
Summary Terms: In consideration of the entering info of the Lease
(Ancillary Agreement F) and the Wood Supply Agreement (Ancillary
Agreement H), Erie shall have the right to purchase electricity from
the Project for its own use on the terms and conditions of the Power
Purchase Agreement (Ancillary Agreement I); Eric shall provide
personnel to operate the BioOil Plant and Turbine and in consideration
shall also have the right to use the steam produced from the Project
pursuant to the Provision of Operators and Steam Agreement (Ancillary
Agreement G).
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Contribution
Amount or Value Type Agreement
-----------------------------------------
(c) Dynamotive contribution
and Ancillary Agreements:
(i) Cash $1,000 10 Class A C
Units
(ii) Engineering and $299,000 Loan A
procurement and
project management
services
(iii) supply and install $3.7 Loan B
pyrolysis reactor, million
feed stock handling, (approx. $2.7
tanks and all other million on
required equipment advanced to
and services date)
(iv) guarantee project indefinite Agreement
completion
(v) technology license indefinite Agreement K
(vi) SDTC rights assignment indefinite Agreement L
------------
Subtotal $4.0 million
Summary Terms: In consideration of the $1,000 cash contribution
Dynamotive shall receive 10 Class A Units. Dynamotive shall generally
manage the LP and the overall establishment of the Project and may make
its cash contributions either by cash advance to the LP or by the
payment of third party suppliers on behalf of the LP. Dynamotive has
expended (loaned) approximately for the LP $2.7 million as of the date
hereof (the "Dynamotive Advance"). All Dynamotive contributions shall
be deemed to be a loan to the LP ranking in priority immediately behind
Orenda and which will be to a maximum of $4 million and be repaid by
the sale of Class A Units. The LP may prepay the loans at any time
after its first fiscal year-end without penalty. Dynamotive will
license its technology to the LP for the Project at zero cost.
Dynamotive will also provide a completion guarantee to a maximum of
$1.3 million in addition to the $2.7 million deemed loan. Further,
Dynamotive will guarantee, on a best commercial efforts basis, to see
that the Project completes Commissioning and to ensure that the BioOil
plant achieves its Commissioning rate of a minimum of 75% of rated
capacity for 5 out of 5 days. Any cost over and above the Project
budget of $12,547,170 (detailed in Schedule 1) required to reach
Commissioning of the BioOil plant shall be borne by Dynamotive. The
benefit of any SDTC contribution shall be shared by the Limited
Partners. Dynamotive shall receive 22,500 Class B Units for nominal
consideration upon Project Commissioning.
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Contribution
Amount or Value Type Agreement
-----------------------------------------
(d) OPG contribution and
Ancillary Agreements:
(i) electric power indefinite Agreement J
purchase, RFR
(ii) cash ($200,000 $200,000 - 2000 - 20,000 C
firm, $2,000,000 Class A Units
$1,800,000
optional)
----------
Subtotal (minimum) $200,000
Summary Terms: In consideration of the cash contribution (which was
paid to Dynamotive in June, 2003 and forms part of the Dynamotive
Advance) OPG shall be entitled to receive 2,000 LP Units from those
allocated to Dynamotive and OPG may purchase a further 18,000 Class A
Units from the LP until Project Commissioning plus six months. OPG
shall receive 1,500 Class B Units for nominal consideration upon
Project Commissioning.
3. Project and LP Management
3.1 The Project shall be managed by the General Partner, which shall
coordinate activities between the parties and shall, to the extent
possible, enter into all agreements on behalf of the Project. The
General Partner shall have a board of directors (the "Board")
consisting of five persons, three of whom shall be Dynamotive nominees
and each of Erie and Orenda have the right to one director nominee.
The rights of the Limited Partners and the General Partner shall be as
set forth in the LP Agreement (Ancillary Agreement C). The Board may
be expanded to seven persons, with the two additional directors being
one from Dynamotive and one from OPG upon resolution of the five
initial directors.
4. Effect of this Agreement
4.1 This Consortium Master Agreement is intended to serve as an
overall summary of the agreement amongst the parties and the LP
involving the Project and does not create any rights or obligations.
This Agreement is deemed to be made in Ontario and shall be construed
in accordance with the laws of the Province of Ontario and the federal
laws of Canada applicable therein.
4.2 The parties hereto may execute this Agreement in two or more
counterparts, all of which taken together shall constitute one and the
same instrument and each of which shall be deemed an original
instrument as against any party who has signed it.
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IN WITNESS WHEREOF this Agreement has been executed by the parties
hereto on the day and year above written.
DYNAMOTIVE ENERGY SYSTEMS
CORPORATION
Per: /s/
--------------------------
Authorized Signatory
MAGELLAN AEROSPACE LIMITED
Per: /s/
--------------------------
Authorized Signatory
ONTARIO POWER GENERATION INC.
Per: /s/
--------------------------
Authorized Signatory
ERIE FLOORING AND WOOD PRODUCTS by its partners,
Gordonna Enterprises Limited, All Fair Investment and Enterprises
Limited, I. And I. Investment and Enterprises Limited, H & R
Developments, by its partners, Batise Investments Limited, Marmelock
Investments Limited and Umiak Investments Limited.
By: All Fair Investment and Enterprises Limited
Per: /s/
--------------------------
Andrew Pastor
WEST LORNE BIOOIL CO-GENERATION
Limited Partnership, by its general partner,
DYNAMOTIVE CANADA INC.
Per: /s/
--------------------------
Name:
Title:
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Schedule 1
Project Budget
Budgeting for Construction of 100TPD Demo Plant -
Updated to Nov. 17, 2003
Exchange Rate
US$1 = CDN$ 1.31
Budgetary Control
------------------------------------------------
Forecast
Over/(Under)
Eqpt Committed Uncommitted Budget
No. Description Budget Costs Costs Variance
- -- ----------- ------ ----- ----- --------
C$ C$ C$
(A) Estimated Engineering &
Construction Costs
01 Feed Preparation 547,000 254,524 149,000 (143,476)
02 Feed Transport 108,000 0 108,000 0
03 Feed System 489,000 62,713 319,000 (107,287)
04 Reactor 783,000 0 944,000 161,000
05 Combustion 60,000 0 100,000 40,000
06 Char System 529,000 67,519 324,444 (137,037)
07 BioOil Separation 746,000 30,260 696,000 ( 19,740)
08 Recycle Gas System 210,000 0 230,000 20,000
09 BioOil Storage 97,000 0 215,000 118,000
10 Cooling Water 197,000 0 241,000 43,000
11 Power Island 3,965,000 3,644,000 380,000 59,000
12 HRSG 399,000 0 310,000 ( 89,000)
13 Electrical 1,404,000 0 1,479,000 75,000
Equipment and
Instrumentation
14 Spark / 130,000 0 130,000 0
Fire Protection
15 Site & Services 45,000 6,694 30,000 ( 8,306)
16 Building 71,000 0 252,000 181,000
and Structures
17 Concrete & 339,000 0 327,000 ( 12,000)
Foundation & Slabs
18 Project 1,065,000 374,555 688,895 ( 1,550)
Management, Engineering
& Office
19 N2 Generation 55,000 0 55,000 0
20 Ramsey deposit, 365,000 300,000 46,000 ( 19,000)
other
------------------------------------------------
Total Est'd Costs 11,604,000 4,740,265 7,024,339 160,604
Before Dev.
Engineering & Contingency
Project developmental 546,161 346,261 39,300 (160,600)
engineering (UMA, Harper)
Contingency 397,009 0 397,005 (4)
--------------------------------------------------
Total Estimated 12,547,170 5,086,526 7,460,644 (0)
Engineering &
Construction Costs