Exhibit 10.2

 

September 28, 2007

 

Mr. Kenneth T. Hern
c/o Nova Biosource Fuels, Inc.
360 North Sam Houston Parkway East, Suite 630
Houston, Texas 77060

 

Dear Sir:

 

This letter agreement will confirm the understandings between Nova Biosource
Fuels, Inc. (“Nova”) and you, as a stockholder of Nova, in connection with
Nova’s private placement of up to $55.0 million of 10% Convertible Senior
Secured Notes due 2012 (the “Notes”), which closed on September 28, 2007. Prior
to the offering, Jefferies & Company, Inc. (“Jefferies”), the placement agent
for the Notes, advised Nova that, to successfully market the offering, buyers of
convertible securities must be able to borrow shares of Nova common stock on
customary terms in order to hedge purchases of the Notes. Based on the existing
public float of Nova’s stock, there was not a sufficient number of shares
available in the market to borrow on customary terms. Accordingly, Jefferies
stated to Nova that the proposed investors in the Notes would only proceed with
the private placement if you, as a significant stockholder of Nova, agreed for a
period until September 28, 2012 (the “Availability Period”), to permit Jefferies
to borrow up to 4,500,000 shares of Nova common stock as needed. On September
28, 2007, in order to facilitate Nova’s placement of the Notes, you and your
affiliates agreed with Jefferies not to dispose of the 4,500,000 shares during
the Availability Period and to make the shares available for borrowing by
Jefferies during that period. You will receive from Jefferies only a minimal
spread of approximately 25 basis points on any shares actually borrowed.

 

In order to appropriately compensate you and your affiliates for agreeing to
lend the shares and accepting the resulting liquidity risk, you and Nova have
agreed as follows:

 

(i)            Promptly following the date hereof, Nova will use all reasonable
efforts to file and keep in effect a Registration Statement on Form S-3 or other
applicable form to register the resale under the Securities Act of 1933 the
shares of Nova common stock subject to the stock loan arrangement.

 

(ii)           Upon effectiveness of the Registration Statement, you will enter
into the Master Share Loan Agreement with Jefferies, in substantially the form
presented to you, and to perform your obligations thereunder and under the
letter agreement between Jefferies and you entered into contemporaneously
herewith.

 

(iii)          During the Availability Period, you will not dispose of or
encumber or otherwise impair in any fashion, at any time, the availability of up
to 4,500,000 shares and to make such shares available for borrowing by Jefferies
pursuant to the Master Share Lending Agreement.

 

Nova represents to you that (i) Nova has the requisite corporate power and
authority to enter into and perform its obligations under this letter agreement;
(ii) this letter agreement has been approved by the Audit Committee of Nova’s
Board of Directors; and (iii) any necessary

 

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exceptions or waivers under Nova’s Code of Ethics and Business Conduct have been
obtained in order to permit Nova to enter into and perform this letter
agreement, including any assignment hereof.

 

This letter agreement contains all the understandings between Nova and you
pertaining to the matters referred to herein, and supercedes all undertakings
and agreements, whether oral or in writing, previously entered into by Nova and
you with respect hereto. No provision of this letter agreement may be amended or
waived unless such amendment or waiver is agreed to in writing signed by you and
a duly authorized officer of Nova. No waiver by Nova or you of any breach by the
other party hereto of any condition or provision of this letter agreement to be
performed by such other party shall be deemed a waiver of a similar or
dissimilar condition or provision at the same time, any prior time or any
subsequent time. If any provision of this letter agreement or the application of
any such provision to any party or circumstances shall be determined by any
court of competent jurisdiction to be invalid and unenforceable to any extent,
the remainder of this letter agreement or the application of such provision to
such person or circumstances other than those to which it is so determined to be
invalid and unenforceable, shall not be affected thereby, and each provision
hereof shall be validated and shall be enforced to the fullest extent permitted
by law. This letter agreement will be governed by and construed in accordance
with the laws of the State of New York. This letter agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

 

Please indicate your agreement with the foregoing by signing this letter
agreement in the space provided below.

 

 

 

Very truly yours,

 

 

 

 

 

Nova Biosource Fuels, Inc.

 

 

 

By:

/s/ J.D. McGraw

 

 

 

Name: J.D. McGraw

 

 

Title: President

 

The foregoing letter agreement

is consented and agreed to as of

date first written above.

 

/s/ Kenneth T. Hern

 

 

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September 28, 2007

 

Mr. J.D. McGraw
c/o Nova Biosource Fuels, Inc.
360 North Sam Houston Parkway East, Suite 630
Houston, Texas 77060

 

Dear Sir:

 

This letter agreement will confirm the understandings between Nova Biosource
Fuels, Inc. (“Nova”) and you, as a stockholder of Nova, in connection with
Nova’s private placement of up to $55.0 million of 10% Convertible Senior
Secured Notes due 2012 (the “Notes”), which closed on September 28, 2007. Prior
to the offering, Jefferies & Company, Inc. (“Jefferies”), the placement agent
for the Notes, advised Nova that, to successfully market the offering, buyers of
convertible securities must be able to borrow shares of Nova common stock on
customary terms in order to hedge purchases of the Notes. Based on the existing
public float of Nova’s stock, there was not a sufficient number of shares
available in the market to borrow on customary terms. Accordingly, Jefferies
stated to Nova that the proposed investors in the Notes would only proceed with
the private placement if you, as a significant stockholder of Nova, agreed for a
period until September 28, 2012 (the “Availability Period”), to permit Jefferies
to borrow up to 3,500,000 shares of Nova common stock as needed. On September
28, 2007, in order to facilitate Nova’s placement of the Notes, you and your
affiliates agreed with Jefferies not to dispose of the 3,500,000 shares during
the Availability Period and to make the shares available for borrowing by
Jefferies during that period. You will receive from Jefferies only a minimal
spread of approximately 25 basis points on any shares actually borrowed.

 

In order to appropriately compensate you and your affiliates for agreeing to
lend the shares and accepting the resulting liquidity risk, you and Nova have
agreed as follows:

 

(i)            Promptly following the date hereof, Nova will use all reasonable
efforts to file and keep in effect a Registration Statement on Form S-3 or other
applicable form to register the resale under the Securities Act of 1933 the
shares of Nova common stock subject to the stock loan arrangement.

 

(ii)           Upon effectiveness of the Registration Statement, you will enter
into the Master Share Loan Agreement with Jefferies, in substantially the form
presented to you, and to perform your obligations thereunder and under the
letter agreement between Jefferies and you entered into contemporaneously
herewith.

 

(iii)          During the Availability Period, you will not dispose of or
encumber or otherwise impair in any fashion, at any time, the availability of up
to 3,500,000 shares and to make such shares available for borrowing by Jefferies
pursuant to the Master Share Lending Agreement.

 

Nova represents to you that (i) Nova has the requisite corporate power and
authority to enter into and perform its obligations under this letter agreement;
(ii) this letter agreement has been approved by the Audit Committee of Nova’s
Board of Directors; and (iii) any necessary

 

--------------------------------------------------------------------------------

 

exceptions or waivers under Nova’s Code of Ethics and Business Conduct have been
obtained in order to permit Nova to enter into and perform this letter
agreement, including any assignment hereof.

 

This letter agreement contains all the understandings between Nova and you
pertaining to the matters referred to herein, and supercedes all undertakings
and agreements, whether oral or in writing, previously entered into by Nova and
you with respect hereto. No provision of this letter agreement may be amended or
waived unless such amendment or waiver is agreed to in writing signed by you and
a duly authorized officer of Nova. No waiver by Nova or you of any breach by the
other party hereto of any condition or provision of this letter agreement to be
performed by such other party shall be deemed a waiver of a similar or
dissimilar condition or provision at the same time, any prior time or any
subsequent time. If any provision of this letter agreement or the application of
any such provision to any party or circumstances shall be determined by any
court of competent jurisdiction to be invalid and unenforceable to any extent,
the remainder of this letter agreement or the application of such provision to
such person or circumstances other than those to which it is so determined to be
invalid and unenforceable, shall not be affected thereby, and each provision
hereof shall be validated and shall be enforced to the fullest extent permitted
by law. This letter agreement will be governed by and construed in accordance
with the laws of the State of New York. This letter agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

 

Please indicate your agreement with the foregoing by signing this letter
agreement in the space provided below.

 

 

Very truly yours,

 

 

 

 

 

Nova Biosource Fuels, Inc.

 

 

 

 

 

 

By:

/s/ Kenneth T. Hern

 

 

 

Name: Kenneth T. Hern

 

 

Title: Chairman and CEO

 

The foregoing letter agreement

is consented and agreed to as of

date first written above.

 

/s/ J.D. McGraw

 

 

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