EXHIBIT 10.10
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Toronto, February 14th, 2007
VIA E MAIL ONLY
Mr. Steven W. Hawkes
Managing Director
Energen Development Ltd.
7 Haining Road,
Kingston 5, Jamaica
RE: Kingston Biofuels Ethanol Project - Equity Investment
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Dear Mr. Hawkes,
The letter confirms our mutual intentions with respect to the potential
transaction described herein between Northern Ethanol Investments Inc., a
Province of Ontario corporation, or a wholly owned subsidiary thereto
("Investor") and Energen Development Ltd ("Principals") concerning the Investors
possible cash equity investment in Kingston Biofuels Facility (`Project") owned
by the Principals.
Relevant thereto, following are the general terms of our agreement, which are
subject to execution of a Definitive Agreement by and between the parties
hereto:
1. Terms
a. Investment Consideration $6,500,000 USD
b. Equity Participation for Investment Consideration
i. Investor 70%
ii. Principals (anti dilutive share position) 30%
c. Board Seats TBD
d. Sources of Funding (approximate)
i. Total Project Cost for Phase 1 Ethanol is $25,000,000 USD
1. Land Acquisition TBD (based on
fair market appraisal)
2. Senior Debt $18,500,000
3. Cash Equity $6,500,000 (includes
working capital)
ii. The land acquisition is being funded by one of the Principals.
The land will be divided into a minimum of 3 parcels of land
(each with their own title) to support the 3 Phases of
development for the 26 acre site.
1. Each parcel will have a right of way to shared
infrastructure including the docking facilities.
2. Parcel Size
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a. Ethanol Plant (Phase 1)
This parcel of land will be of a size to support an
Ethanol facility as described in Phase 1 with the
ability to expand to support production up to 240
MGY. The Principals will in turn hold a 10 year
mortgage on the property based on a fair market
appraisal at an interest rate that is consistent with
a transaction of this nature. Monthly payments of
interest only will commence once the definitive
agreement has been signed with full principal and
interest payments occurring when the plant is
operational.
b. Biodiesel Plant (Phase 2)
The size of this parcel will be based on the need to
support at a minimum a 30 MGY biodiesel plant.
Investor has first right of refusal to participate in
the equity portion of this Phase.
c. Co-Generation facility (Phase 3)
The size of this parcel of land will be determined
based on the capacity of the generating requirements.
e. Investor has first right of refusal on the equity investment for the
biodiesel facility - Phase 2, under the same equity participation
percentages outlined in this LOI.
f. A current appraisal of the land with full property description will be
provided before the exclusive period (described below) expires. In
addition, a copy of the purchase agreement showing the actual land
purchase amount and title will be provided with the appraisal.
g. Investor will provide the Principals with current financials
supporting the Investors ability to fund this investment.
h. A letter of intent or conditional terms sheet covering the senior debt
will be provided as part of due diligence prior to this transaction
closing.
i. It is mutually agreed that the initial site planning and development
will incorporate the necessary infrastructure to support the
facilities ability to produce 120 MGY either initially or in two 60
MGY phases.
j. The Principals will provide evidence acceptable to the Investor of the
injection of $964,287 USD as seed money by the Principals. This
injection can be in the form of cash or debt reduction on the land
purchase amount amortized over the 10 year term or a combination of
the two.
k. The Definitive Agreement will need to incorporate the terms of
dividend distribution to the shareholders.
l. The Definitive Agreement will need to incorporate a clause for
determining project valuation in the event that either party wants to
buy the other party out of their equity position.
2. Description of Project
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a. The Principals
i. Energen Developments Ltd (EDL) was founded in April 2004, as a
special purpose vehicle for the development of energy projects.
EDL is the project development company that consists of
principals from Gibson Energy Ltd (Deryck Gibson & Steven Hawkes)
and Peter Horn; alongside partner companies that are joining EDL
presently.
ii. The Principals have extensive business experience in the Jamaican
energy industry, including project development, project and
construction management, plant engineering and the operation and
maintenance of power plants and biomass projects.
iii. The Government of Jamaica and the Ministry of Energy have
recently set a national priority on increasing ethanol and
biodiesel production. They have set a target for the construction
of a new 60 Million gallon per year (MGY) ethanol dehydration
plant by the end of 2007 to supplement a similar sized facility
that they are already operating or under construction.
iv. The Government has indicated a preference that the private sector
engages in this opportunity directly. Otherwise, the Government
will build the project itself via the state-owned Petroleum
Corporation of Jamaica (Petrojam). EDL has assembled a
highly-qualified project consortium with the necessary resources
and experience to meet this mandate and build the facility. EDL
has met with the Minister of Energy, the Honorable Philip
Paulwell, and has his strong and active support, amongst other
industry and government leaders that have formed a positive
consensus for the EDL proposal.
b. The Project
i. The Project is a new production plant to be located in Kingston,
Jamaica, to produce ethanol and biodiesel for local and export
sales markets. The total cost of both projects will be
approximately $42 million USD. The Ethanol Dehydration Plant will
be built first at a total cost of $32 million USD with
commissioning in 2007.
1. Phase 1
a. Phase 1 of the Project will be a 60 MGY (227 Million
Litre) ethanol dehydration plant. The Project will
procure hydrous ethanol and dehydrate it to meet
specifications for use in a fuel grade ethanol
(anhydrous ethanol). The feedstock will initially
originate from Brazil, but it is anticipated that some
portion will be supplied locally in the near future.
b. The Project has agreements supporting a fix priced EPC
contract from Dedini Brazil's leading ethanol
technology and Construction Company.
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c. Off-take and Feedstock agreements are in place in LOI
form until equity funding at which point they will
become firm contracts.
2. Phase 2
a. Phase 2 will incorporate a 30 MGY (113 Million Litre)
biodiesel plant. EDL will procure crude palm oil and
use an ethanol-based transesterification process to
produce biodiesel. The feedstock will initially
originate from Malaysia and Honduras/Central America.
The facility cost will be $10 million as a turn-key
facility. This is not part of this investment
consideration.
3. The Site Location
a. The general location of the project is strategic and
advantageous with respect to feedstock supplies, the
U.S. ethanol market, the USA/Caribbean trade agreements
and the emerging Biofuels and renewable energy
Industries in Jamaica and the Caribbean.
b. The Project has secured the lead bid and is providing
supporting bid documentation to secure the Texaco
Eastern Terminal site from Chevron. The site is as
follow:
i. 26 acre property with existing dock facilities,
warehouse and office space and access to highways
ii. Dock Facilities will be certified
iii. The bid for the property is approximately
$7,000,000 USD.
c. The targeted closing on the above property is February
25th, 2007.
3. Due Diligence Review
a. Promptly following the execution of this Letter of Intent, the
Principals will allow the Investor to complete our examination of the
Projects financial projections, business plans, contracts - Fixed
Price EPC, Feedstock and Ethanol Off-take agreements etc, business
correspondence, senior debt commitments and other legal documents and
generally to complete due diligence. Any information obtained by the
Investor as a result thereof will be maintained by the Investor in
confidence. The parties will cooperate to complete due diligence
expeditiously.
4. Definitive Agreement
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a. All of the terms and conditions of the proposed transaction would be
stated in the Investment Commitment, to be negotiated, agreed and
executed by the Investor and Principals. Neither party intends to be
bound by any oral or written statements or correspondence concerning
the Investment Commitment arising during the course of due diligence,
not withstanding that the same may be expressed in terms signifying a
partial, preliminary or interim agreement between parties.
5. Timing
a. The Investor and the Principals would use all reasonable efforts to
complete the due diligence within 45 days of the signing on this
agreement provided that no circumstances arise that would require
additional time. The Investor and the Principals will conduct a
financial close within 10-business days of the completion of the due
diligence, which will include having funds available for Project use.
6. Expenses
a. The Investor and Principals will be responsible for and pay their own
respective expenses incident to this Letter of Intent, the Investment
Commitment contemplated hereby and thereby.
7. Exclusive Rights
a. In order to induce the Investor to commit the resources, forego other
potential opportunities, and incur the legal, accounting and
incidental expenses necessary to properly evaluate the possibility of
investing in the Project described above, and to finalize the terms
of, and consummate, the transaction contemplated hereby, the
Principals agree that up until the financial close, your affiliates,
and your and their respective officers, directors, employees and
agents shall not initiate, solicit, encourage, directly or indirectly,
or accept any offer or proposal, regarding the possible investment by
any person other than the Investor including, without limitation, by
way of a purchase of shares, purchase of assets or merger, of all or
any substantial part of your equity securities or assets, and shall
not (other than in the ordinary course of business as heretofore
conducted) provide any confidential information regarding your assets
or business to any person other than the Investor and our
representatives.
8. Binding Obligation
a. Except for the agreements set forth in Sections 5, 6, and 7 hereof,
this letter is not intended as a contract or to create any enforceable
rights or obligations whatsoever on the part of either party. No
obligations on the
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part of either party with respect to the matters covered hereby (other
than as set forth in Paragraphs 6, 7, 8 and 9 hereof) shall exist
unless and until a written agreement, satisfactory in form and
substance to both parties, has been approved by their respective
boards of directors and executed by officers specifically authorized
to do so, and then only in accordance with the terms and conditions of
such Investment Commitment agreement.
9. Miscellaneous
a. This letter shall be governed by the substantive laws of the Province
of Ontario, Canada without regard to conflict of law principles. This
letter constitutes the entire understanding and agreement between
parties hereto and their affiliate's with respect to its subject
matter, and supersedes all prior or contemporaneous agreements,
representations, warranties and understandings of such parties hereto.
This letter may be amended only by written agreement, signed by the
parties to be bound by the amendment. Evidence shall be inadmissible
to show agreement by and between such parties to any term or condition
contrary to or in addition to the terms and conditions contained in
this letter. This letter shall be construed according to its fair
meaning and not strictly for or against either party.
If the foregoing terms and conditions are acceptable, please acknowledge by
signing and returning a copy to my attention.
Very truly yours,
Northern Ethanol Investments Inc.
By: s/Gordon Laschinger
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Gordon Laschinger - President
ACCEPTED AND AGREED
Energen Developments Ltd.
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By: s/Steven W. Hawkes
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Steven W. Hawkes
Managing Director
CC: Rob McGill - The Pinnacle Group
Jay Chapler - Northern Ethanol Investments Inc.
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