Exhibit 10.4
The Xxxxx Company
Enterprise Plaza, Suite 000
0000 Xxxxx Xxx Xxxxxx
Xxxxxxxx Xxxx, Xxxxxxxx 00000
Fax (000) 000-0000
(000) 000-0000
February 7, 2005
Xx. Xxxx Xxxxxxxx FEDERAL EXPRESS
0000 Xxxxxx Xxx. Telephone: 000-000-0000
Fort Worth, TX 76117
Attention: Xxxxxxx Xxxxx
Re: BEE/7HBF, LLC Tongzhou Venture
("BEE/7HBF Tongzhou Venture")
Dear Xxxx:
This will confirm our agreement last Friday concerning the subject Venture. The
terms of the revised deal are detailed in the Terms Sheet attached hereto as
"Exhibit A.".
Per the discussions at our January 17 meeting we agreed with you that the
payments for your investment will be spread over a six-month period. As a result
of the revised structure, the new payment schedule is set forth in the Terms
Sheet and highlighted in the attached "Exhibit B."
The organizational mechanics of the deal are depicted in the Terms Sheet. Upon
receipt of a signed copy of this Letter Agreement we will form BEE/7HBF, LLC
(the "LLC") which will in turn form the WFOE (once its name has been determined)
that will own the initial mini-plant (Plant #1). Further, the LLC will have the
first right of refusal to participate in all of Xxxxx'x subsequent
fertilizer/composting operations in China until and unless it opts out of a
participation.
If the above meets with your approval, we ask that you please have 7HBF indicate
its acceptance by signing and returning one copy of this Letter Agreement
together with 7HBF's check in the amount of US$62,500 to cover your US$50,000
capital contribution plus the Month 1 cash requirement of US$12,500. Three extra
copies are enclosed for your individual files.
We are excited about the opportunity in China, and are doubly excited to have
you folks as our partner.
Sincerely,
ACCEPTED AND AGREED TO THIS
THE XXXXX COMPANY 11th DAY OF FEBRUARY, 2005
7HBF, Ltd.
/s/ Xxxx Xxx, Xx. By: 7HBF Management Company, Ltd.
General Partner
Xxxx Xxx, Xx., President
/s/ Xxxxxxx X. Xxxxxxxx
HMJr/do By _____________________________
Name: Xxxxxxx X. Xxxxxxxx
Title: Manager
cc: Xxxxxxx X. Xxxxxxxx
Xxxx X. Xxxxxxxx
Exhibit A
Terms Sheet
Xxxxx Environmental Engineering, L.L.C. ("BEE") is seeking the influx of
US$900,000 to fund this project. Following is a summary of the terms of the
proposed arrangement.:
1. BEE, an Oklahoma limited liability company, and 7HBF, Ltd., a Texas limited
partnership ("7HBF"), will form BEE/7HBF, LLC, an Oklahoma limited
liability company (the "LLC").
2. BEE and 7HBF will each contribute US$50,000 in cash to the LLC. Such
contributions will be made to the LLC upon execution of the Letter
Agreement.
3. 7HBF will loan US$850,000 to the LLC in exchange for a 5-year Non-Recourse
Promissory Note (the "Note") at the current Applicable Federal Mid Term
Rate of 3.83%. Advances will be made against the Note in accordance with
the following schedule:
Upon execution of
the Letter Agreement - US$12,500
March 1, 2005 - US$100,000
April 1, 2005 - US$90,000
May 1, 2005 - US$297,500
June 1, 2005 - US$100,000
July 1, 2005 - US$250,000
----------
Total - US$850,000
==========
Interest will be paid on such Note annually.
4. The total investment will be $US950,000, as follows:
7HBF BEE TOTAL
---- --- -----
Contributions to the LLC - US$50,000 US$50,000 US$100,000
Loan to the LLC - US$850,000 - US$850,000
---------- --------- ----------
Total - US$900,000 US$50,000 US$950,000
========== ========= ==========
5. The LLC will use such funds, as required, to fund the ownership and
operation of BEE's initial plant (Plant #1) for the formulation of Organic
Chemical Compound Fertilizer ("OCCF") at a facility located in Tongzhou,
Hebei Province, China. The facility will be controlled and managed by a
Chinese Wholly Foreign Owned Enterprise ("WFOE") company whose name has not
yet been determined.
6. Beijing Xxxxx Sino-American Bio-Tech Engineering Co. Ltd. ("BTEC") will
provide operations oversight, initial management and accounting services to
the WFOE and will receive US$30,000 per month therefor during the life of
the project ("LOP").*
_______________
*If the LLC elects to participate in a second plant (Plant #2), BTEC will
receive an additional US$20,000 per month during the LOP for Plant #2 for
providing such services. Should additional plants be added thereafter, BTEC may
receive additional compensation therefor. It is the intention of the parties
that, so long as the LLC is the sole participant in BEE's OCCF activities (see
7. below), BEE will receive as total compensation for such services (i) the
total amount of BEE's overhead in China plus (ii) such portion of The Xxxxx
Company's ("BRCO") overhead in Oklahoma City as may be reasonably allocated to
the OCCF operations in China (collectively, the "China Overhead"). Such amounts
shall be estimated on a quarterly basis and adjusted annually upon audit. If at
any point the LLC elects to opt out of participation, the China Overhead will be
spread proportionally between the LLC and BRCO's other operations in China.
7. The LLC will have the first right of refusal to participate on the same
basis as in Plant #1 in all subsequent fertilizer/composting operations
undertaken by BRCO and its affiliates in China until and unless it opts out
of a participation.
8. 7HBF will have the sole power to determine when and in what amounts
principal payments will be made on the loan from available LLC funds.
9. The LLC will elect to be a partnership for U.S. tax purposes.
10. BEE and 7HBF will have equal representation on the Board of Managers. The
Board of Managers will elect the Officers of the LLC.
11. Ownership and equity in the LLC shall be shared as follows: BEE - 50%; 7HBF
- 50%
12. An LLC Operating Agreement will be furnished for review and approval
following execution of the Letter Agreement.
Exhibit B
BEE/7HBF Tongzhou Venture
Summary of Cash Flow Through the First Six Months
====================================================================================================================================
Description PRE-OPERATING Year 1 Total
------------------------------------------------------------------- -------------
Mth 1 Mth 2 Mth 3 Mth 4 Mth 5 Mth 6
====================================================================================================================================
Cash Inflows
7HBF Loan $ 12,500 $ 100,000 $ 90,000 $ 297,500 $ 100,000 $ 250,000 $ 850,000
Capital Contribution $ 100,000 $ - $ - $ - $ - $ - $ 100,000
Fixed Asset Loan $ - $ - $ - $ - $ - $ - $ -
Sales Revenue $ - $ - $ - $ - $ - $ - $ -
-----------------------------------------------------------------------------------------------
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Total Inflow $ 112,500 $ 100,000 $ 90,000 $ 297,500 $ 100,000 $ 250,000 $ 950,000
----------------------------------------------------------------------------------------------------------------------
Cash Outflows
Capital Expenditures $ - $ 80,325 $ 49,815 $ 246,165 $ 59,325 $ - $ 435,630
Manufacturer's Credit $ - $ - $ - $ - $ - $ - $ -
Pre-Operating Costs $ 53,179 $ 47,942 $ 47,075 $ 50,568 $ 49,810 $ - $ 248,574
Capital Investment Loan Fee $ - $ - $ - $ - $ - $ - $ -
Cost of Goods Sold $ - $ - $ - $ - $ - $ - $ -
G&A and Other Expenses $ - $ - $ - $ - $ - $ 53,141 $ 53,141
Value Added Tax $ - $ - $ - $ - $ - $ - $ -
Repayment of Manufac. Credit $ - $ - $ - $ - $ - $ - $ -
Repayment of Capital Loan $ - $ - $ - $ - $ - $ - $ -
Repayment of Fixed Assets Loan $ - $ - $ - $ - $ - $ - $ -
$ -
Change in Accounts Payable $ - $ - $ - $ - $ - $ (34,036) $ (34,036)
Change in Interest Payable $ (40) $ (359) $ (648) $ (1,599) $ (1,923) $ (7,282) $ (11,851)
Change in Accrued Payroll $ - $ - $ - $ - $ - $ - $ -
Change in Accounts Receivable $ - $ - $ - $ - $ - $ - $ -
Change in Inventory $ - $ - $ - $ - $ - $ 185,024 $ 185,024
Depreciation & Amortization $ - $ - $ - $ - $ - $ (7,139) $ (7,139)
-----------------------------------------------------------------------------------------------
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Total Outflow $ 53,139 $127,907 $ 96,243 $ 295,134 $ 107,212 $ 189,707 $ 869,342
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Net Cash Flow $ 59,361 $(27,907) $ (6,243) $ 2,366 $ (7,212) $ 60,293 $ 80,658
Beginning Cash Balance $ 112,500 $ 59,361 $ 31,453 $ 25,211 $ 27,577 $ 20,365
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Ending Cash Balance $ 59,361 $ 31,453 $ 25,211 $ 27,577 $ 20,365 $ 80,658
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Note: The numbers presented herewith are estimates. Actual results may vary. Totals may not sum exactly as a result of rounding.
Source: Xxxxx Environmental Engineering, 2005
