Document:

Exhibit 10.5

 

FEEDSTOCK AGREEMENT

BETWEEN

NOVA BIOFUELS SENECA, LLC

AND

LIPID LOGISTICS, LLC

This Feedstock Agreement (the “Agreement”) is made
effective as of June 26, 2006 (the “Effective Date”), by and between NOVA BIOFUELS SENECA,
LLC, a Delaware Limited Liability Company having its offices at 2777
Allen Parkway, Suite 800, Houston, TX  77019,
(“Buyer”), and LIPID LOGISTICS, LLC an Illinois Limited
Liability Company, (“LIPID”) (each of Buyer and LIPID is a “Party” and together
they are collectively referred to as the “Parties”).

RECITALS

WHEREAS, Buyer
desires to have LIPID originate and supply certain feedstock required for
biodiesel production at Buyer’s plant to be located at 614 Shipyard Road,
Seneca, IL 61360 (the “Plant”), and to provide related services to Buyer; and

WHEREAS, LIPID
desires to enter into an agreement with Buyer to originate and supply such
products and provide the related services for Buyer;

NOW THEREFORE, in
consideration of these premises and the mutual promises and covenants set forth
herein, LIPID and Buyer mutually agree as follows:

ARTICLE 1

DEFINITIONS

As used in this
Agreement, the following terms have the following meanings:

1.1                                 “Adjustments”
has the meaning given in Exhibit “B”.

1.2                                 “Agreement” means this
Feedstock Supply Agreement.

1.3                                 “AFOA” means the
American Fats and Oils Association.

1.4                                 “Alternate Feedstock
Losses” has the meaning given in Exhibit “D”.

1.5                                 “Alternate
Specifications” has the meaning given in Section 5.1.

1.6                                 “Benchmark Price” has the meaning given in Exhibit
“B”. 

1.1                                 “Claims”
has the meaning given in Section 10.2.

1.7                                 “Confidential Information” has the meaning given in
Section 9.1.

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1.8                                 “Confirmed Order” has the meaning given in Section
3.2.

1.9                                 “Constructively
Placed” or “Constructive Placement” means, with respect to a shipment of
Feedstock by railcar, that such railcar has been deemed constructively placed
by the applicable railroad.

1.10                           “COPA” means the Canadian Oilseed Processors
Association.

1.11                           Delivered Feedstock Price” means the price in $/pounds
for the applicable Feedstock as established in the applicable Confirmed Order.

1.12                           “Delivery” has the meaning given in Section 12.1.

1.13                           “Delivery Point” means the locations at the Plant
where shipments of Feedstock are physically received from barges or trucks,
respectively.  More specifically, the Delivery
Point for trucks is 614 Shipyard Road, Seneca, IL 61360, and the Delivery Point for barge shipments is Lamb’s
Seneca Terminal, Seneca, IL.

1.14                           “Demurrage” means all costs, damages, penalties and charges
resulting from any delay in loading and/or unloading of Feedstock shipments, including,
without limitation, any delay related to any truck, rail car, or barge, as
applicable: (i) being incapable of timely offloading any shipment of Feedstock due to mechanical failure or for
other reasons, and (ii) delivering any shipment of Feedstock to an incorrect location.

1.15                            “Feedstock” means animal fats, vegetable oils,
and/or their derivatives as they are found to be acceptable for biodiesel
production by both Parties.

1.16                           “FOSFA” means the Federation
of Oils, Seeds and Fats Associations.

1.17                           “Force Majeure” has the meaning given in Section 11.2.

1.18                           “Francis-Mustoe & Company Daily Market Sheet” means a published sheet
daily on www.francis-mustoe.com under “daily
markets”.

1.19                           “Holiday” means a day on
which the majority of national banks in Chicago, Illinois are not open for
business.

1.20                           “Indemnitee
Group” has the meaning given in Section 10.2.

1.21                           “Indemnitor”
has the meaning given in Section 10.2.

1.22                           “Initial Term” has the meaning given in Section 2.1.

1.23                           “Jacobsen” means the published sheet found at www.thejacobsen.com (select, “Market News, Animal, Fats & Oils
Bulletin”).

1.24                           “Minimum Purchase Obligation”
has the meaning given in Section 3.6

1.25                           Normal Operating Hours” has
the meaning given in Section 6.2.

1.26                           “NOPA” means the National Oilseed Processors Association.

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1.27                           “Order Month” means the calendar month in which a
shipment of Feedstock is ordered for delivery. 
For example, for May delivery, May shall be the Order Month.

1.28                           “Plant” has the meaning given in the first recital.

1.29                            “PORAM” means the Palm Oil Refiners Association of
Malaysia.

1.30                           “Renewal Terms” has the meaning given in Section 2.2.

1.31                            “Representatives” has the meaning given in Section
9.2.

1.32                           “Service Fee” has the meaning given in Section 3.5.

1.33                           “Start-up
Period” means the period beginning on the date the Plant commences biodiesel
production and ending at the end of the first month in which (a) the Plant has
produced biodiesel in excess of eighty percent (80%) of its design capacity, or
(b) the six-month anniversary of the first date on which biodiesel production
began, whichever comes first.

1.34                           “Trade Rules” means the applicable trade rules of
AFOA, COPA, FOSFA, NOPA, and PORAM, all as set forth in greater detail at Exhibit
“E”, which trade rules shall apply only to the limited extent expressly
provided herein, but not otherwise.

1.35                           “USDA” means the United States Department of
Agriculture.

1.36                           “USDA Bluesheet” is a published sheet found daily and
updated daily by 3:30CST at http://www.am.usda.gov/mnreports/NW_LS442.TXT.

1.37                           Industry Usage.  Any
word, phrase or expression that is not defined in this Agreement and that has a
generally accepted meaning in the custom and usage in the Feedstock industry
shall have that meaning in this Agreement.

1.38                           Currency.  All
references to “dollars” or “$” in this Agreement shall be references to amounts
expressed in United States currency.  All
calculations of monetary sums shall be made in U.S. currency.

1.39                           CPI  the “Consumers
Price Index for Urban Wage Earners and Clerical Workers (Revised Series Based
on 1972-3 Consumer Expenditure Survey, U.S. All Items (1967 = 100))” as
published by the Bureau of Labor Statistics, U.S. Department of Labor.

ARTICLE 2

TERM

2.1                                 Initial Term. This Agreement shall become effective as of the
date signed by Buyer and LIPID and shall extend until the later of (a) ten (10)
years from the date of Buyer’s first purchase of Feedstock from LIPID; or (b) May
1, 2018 unless extended either by mutual
agreement of the Parties or due to Force Majeure pursuant to Section 11.1 (the “Initial
Term”). Either Party shall have the right on fifteen (15) days prior written
notice to the other Party to terminate this Agreement if production of
biodiesel does not commence at the Plant by May 1, 2008 unless such date is
extended by mutual agreement of the Parties or due to Force Majeure pursuant to
Section 11.1.  Upon any such termination
no Party shall have any liability to the other Party with respect to this
Agreement or the

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transactions contemplated hereby, except in
respect to confidentiality obligations under Article 9.

2.2                                 Renewal Terms. The Parties may, by written mutual agreement,
extend this Agreement for successive five (5) year terms (each a “Renewal Term”),
provided, however, that such extension agreement shall have been
executed by the Parties no later than six (6) months prior to the end of the
current term.

ARTICLE 3

FEEDSTOCK SUPPLY
TERMS

3.1                                 Supply of Feedstock. Except as otherwise provided in this Agreement, Buyer
agrees to purchase one-hundred percent (100%) of Buyer’s Feedstock requirements
for biodiesel production at the Plant from LIPID and LIPID agrees to supply
such Feedstock to Buyer, at the Delivered Feedstock Price.  LIPID may deliver the Feedstock via rail
cars, tanker trucks, or barge with such shipments not to exceed size units as
mutually agreed.  Both Parties agree to
discuss the Feedstock availability options, delivery options, and agree to
reach a mutually agreeable delivery schedule as set forth in Exhibit “A”.

3.2                                 Delivered Feedstock Price.  The
Delivered Feedstock Price to Buyer, and the planning, ordering, delivery and
inventory management of Feedstock, shall be governed by the provisions of Exhibit
“A” attached hereto.  Should Buyer
reject, or fail to confirm, a Feedstock offer on a timely basis, LIPID will be
relieved of any obligation to deliver any such Feedstock and to procure any
substitute Feedstock should Buyer’s inventory be depleted in the absence of the
declined Feedstock  or otherwise as a
result of Buyer’s failure to order. 
Buyer shall have the option to establish an automated order confirmation
process for orders of a given quality specification and price upon notification
in writing from Buyer to LIPID.  LIPID
shall utilize said automated process in conformance with the reasonable
instructions of Buyer.

3.3                                 Benchmark Prices.  The “Benchmark
Price” for each Feedstock is the weekly average of the relevant published market
price for the week in which the applicable Feedstock is shipped to the Plant.

3.3.1        Source of
Market Price. The “Source of Market Price” for the published market price
for each Feedstock is set forth in Exhibit “B”.  The Parties agree to utilize these sources
for the applicable Feedstock market price.

3.3.2        Adjustments.  The “Adjustments” to the published price for
each Feedstock are set forth in Exhibit “B”.  LIPID shall calculate these Adjustments based
upon the differential between the market used and cost of moving the feedstock
to the Plant  (e.g. white grease bought
F.O.B.on the Missouri River Price, delivered to the Plant).  The Parties agree to utilize the Adjustments
in Exhibit “B” for the first calendar year of operation, and to review
such Adjustments annually thereafter. In addition, if based on weighted monthly
averages the Benchmark Price is less than the Delivered Feedstock Price for two
(2) consecutive months, the parties shall meet in order to review the reasons
for this difference and determine whether to revise the Adjustments.  In the event that, following any such review,
the Parties are unable to agree to any revisions to the Adjustments, then the
matter shall be resolved according to the provisions of Section 14.4.

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3.3.3        Changes
to Exhibit “B”.  Neither the formula
for calculating the Benchmark Price, nor the source of published market prices
or the Adjustments thereto in respect of any Feedstock, shall be changed
without the written consent of the Parties. 
In the event that (a) Buyer may require the addition of a Feedstock,
which is not materially represented in Exhibit “B”, (b) new improved
sources for market quotations become available, (c) any of the sources for the
published market prices set forth in Exhibit “B” becomes temporarily or
permanently unavailable, (d) LIPID receives new adjustment value data, (e)
adjustments arising from changes in published market freight and/or fuel
surcharges, or (f) changes occur in industry regulations, either Party may
propose changes to the applicable portions of Exhibit “B”.  Upon written approval of both Parties the
contents of Exhibit ”B” may be formally amended.  If following a review of any such events, the
Parties are unable to agree to any revisions to Exhibit “B”, then the
matter shall be resolved according to the provisions of Section 14.4.

3.4                                 LIPID Service Fee.  Buyer
shall pay LIPID a Service Fee of one quarter cent for
every pound ($0.0025/lb.) of Feedstock
supplied by LIPID and accepted and received at the Plant by Buyer (or for the Minimum
Purchase Obligation, whichever is greater); provided, however, that LIPID shall
promptly refund to Buyer any Service Fees received from Buyer in connection
with any volumes which are subsequently determined to be nonconforming and
rejected in accordance with the provisions of Section 5.3.  Such Service Fee payable hereunder shall be
increased to one half cent per pound ($.005/lb.) of substitute Feedstock that
(i) meets Alternate Specifications and (ii) is available at a price of at least
$.01/lb. below then-current market price for the referenced Feedstock. LIPID
will invoice and identify this charge as a Service Fee along with the Feedstock
product invoice.  On the second
anniversary of the Effective Date and every anniversary thereafter, the Service
Fees are subject to an increase or decrease, as the case may be, equivalent to
the percentage change in the CPI over the preceding 12 months; provided,
however, that the Service Fee shall not be adjusted to values less than the
fixed values provided by the foregoing provisions of this Section 3.4.  Unless this Agreement is terminated by both
parties pursuant to Section 8.1 or by Buyer under Section 8.2, Buyer shall in
all other events be obligated to pay the Service Fee, based on the Minimum
Purchase Obligation, that would have otherwise been owed had the Agreement
continued for the balance of the Initial Term or then-current Renewal Term.

3.5                                 Buyer’s Minimum Purchase Obligation.  Except
as otherwise provided in this Agreement, Buyer shall purchase from LIPID no
less than twenty five million (25,000,000) gallons of Feedstock per each year of this Agreement, with
the first such year commencing on the date of initial
production of biodiesel at the Plant (the “Minimum Purchase Obligation”).  Each month during the Start-up Period, the
Minimum Purchase Obligation shall be reduced prorata based on the amount that
the actual monthly Plant production bears to the monthly design capacity for
the Plant.  Any Feedstock purchases exceeding the Minimum Purchase Obligation in any
one contract year shall not be applied to reach the Minimum Purchase Obligation
in any future year.

3.6                                 Buyer’s Failure to Purchase.  In the event
that LIPID is prepared to deliver the Feedstock per the relevant
Confirmed Order, and Buyer fails to take delivery of any such tonnage and
LIPID, after using commercially reasonable efforts, sells such Feedstock to a
substitute buyer, then Buyer shall reimburse LIPID for the amount, if any, by
which the Delivered Feedstock Price exceeds the price paid by the substitute
buyer, plus reasonable additional costs incurred by LIPID due to such
substitute sale, including, without limitation, additional leased car costs,
dead mileage costs for leased cars, and out-of-pocket costs of selling
Feedstock.  If LIPID is unable to sell
the Feedstock to a

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substitute buyer then Buyer shall reimburse LIPID for the entire
purchase price plus reasonable additional costs, and LIPID shall redeliver such
Feedstock to Buyer (at Buyer’s expense). 
LIPID shall in any event be entitled to the Service Fee on Feedstock
sales under this Section.  Payment shall
be made according to the terms set forth in Section 4 upon Buyer’s receipt of
appropriate documentation from LIPID, including, without limitation, invoices
and receipts related to such sale of Feedstock. 
All such additional costs incurred by LIPID, if any, shall be fully
documented by LIPID and submitted to Buyer as a condition to Buyer’s
reimbursement hereunder.

3.7                                 LIPID Delivery Obligation. 
Except as otherwise provided in this Agreement, and subject to
sufficient orders being accepted by Buyer, LIPID shall deliver one hundred
percent (100%) of Buyer’s requirements of Feedstock, at the Plant per each year of this Agreement in accordance with
the applicable Delivery Schedule (as such term is defined in Exhibit “A”).  In the event
that LIPID is unable to deliver such quantities of Feedstock as are
provided in the applicable Delivery
Schedule, LIPID shall promptly notify
Buyer and work together with Buyer to agree on a written mitigation plan,
the purpose of which will be identify alternative Feedstock supplies and
establish a Delivery Schedule therefore.  In the event that the Parties are
unable to reach agreement on a mitigation plan the provisions of Section 14.4
shall apply.  In the event LIPID does not
deliver the quantities according to the applicable Confirmed Orders, then the
provisions of Exhibit “D” shall apply. 
The remedies set forth in Exhibit “D” shall be Buyer’s sole and
exclusive remedy in the event of LIPID’s failure to deliver pursuant to
Confirmed Orders.

3.8                                 Responsibilities.  In addition
to, and without limiting LIPID’s other obligations hereunder, LIPID shall:

(a)                                  Establish, monitor and communicate logistics to
ensure the Feedstock is shipped in accordance with the applicable Delivery
Schedule.

(b)                                 Be responsible for all inbound shipment logistics
including the management of tank rail cars and barge shipments, and truck
transportation.

(c)                                  Manage
all claims by LIPID vendors under, and be responsible for such vendors’
compliance with shipments governed by, the various Trade Rules (see Exhibit ”E”).

(d)                                 Exercise the same degree of effort and care in
sourcing Feedstock market prices favorable to Buyer (subject to Buyer’s credit
limitations) that it does in sourcing commodity products for its own account.

(e)                                  Comply
with all applicable Delivery Schedules.

(f)                                    Manage
all aspects of the supply of Feedstock hereunder in such manner so as to
minimize any Demurrage borne Buyer.

3.9                                 Buyer Responsibilities.  In addition
to, and without limiting Buyer’s other obligations hereunder, Buyer
shall:

(a)                                  Advise LIPID of Buyer’s annual Feedstock requirements
plan.

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(b)                                 Provide LIPID with timely and accurate forecasts of
the amount of Feedstock needed, including monthly and quarterly forecast
estimates pursuant to Exhibit ”A”.

(c)                                  Provide LIPID with timely and accurate forecasts of
the type or grade of Feedstock needed pursuant to Exhibit “A”.

(d)                                 Inform LIPID of all scheduled Plant shutdowns at
least 45 days prior to the beginning of each fiscal year of Buyer, and within
48 hours after Buyer becomes aware of the occurrence of any event that may
result in an unscheduled Plant shutdown.

(e)                                  Provide a designated individual for daily operational
and logistic issues and provide a designated individual for pricing and other
contractual issues.

(f)                                    Submit to LIPID by 9:00 A.M. each day an inventory
report reflecting total Feedstock inventory or give LIPID secure internet
access to the Buyer’s computer-based inventory management system.

3.10                           Trade Rules.  The Parties
agree that they are subject to the Trade Rules for purposes of this Agreement;
however, the terms of this Agreement shall govern in the event of a conflict
with the applicable Trade Rules.  LIPID
is responsible for the administration and execution of Trade Rules with respect
to suppliers of Feedstock.  Buyer agrees
to comply with the Trade Rules to the extent applicable to Feedstock
specifications, analysis and discounts, unless otherwise stated herein.

ARTICLE 4

BILLING AND PAYMENT

4.1                                 Feedstock Billing.  LIPID shall
issue to Buyer, at the time of acceptance of each offer for sale and shipment
of Feedstock, a data form containing the description of shipped products, estimated
weight and price, date of shipment, and point of origin.  Buyer shall confirm the actual weight and
quality of each shipment upon Delivery and shall provide such confirmation to
LIPID immediately thereafter.  Based upon
the actual amount and quality of Feedstock confirmed by Buyer, LIPID will
invoice Buyer including the Service Fee.. 
Each such invoice will set forth in reasonable detail the calculation of
the Delivered Feedstock Price and be properly documented and substantiated.

4.2                                 Payment.  Subject to the receipt of the
invoice and other information required in Section 4.1, Buyer shall issue
payment by electronic transfer: (i) in the case of a rail shipment, five (5)
calendar days after notification to Buyer that the railcars have reached
Constructive Placement, or as negotiated by LIPID and confirmed by Buyer, and
(ii) in the case of a truck shipment, no later than three (3) calendar days
after notification to Buyer of the arrival of the truck shipment at the
Plant.  Barge payments will be made with
timed letters of credit pursuant to the terms of the confirmed order.  The original bill of lading will be mailed,
at the address in Section 13.1, on the same day that payment is made.

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ARTICLE 5
FEEDSTOCK GRADE AND QUALITY SPECIFICATIONS

5.1                                 Feedstock Quality Specifications. The Feedstock supplied by LIPID to Buyer pursuant to
this Agreement shall meet the specifications provided in Exhibit ”C”,
or such alternate specifications as may be agreed between the parties from time
to time (“Alternate Specifications”). 
Except as set forth in the preceding sentence and in Section 5.4, LIPID makes
no warranty whether expressed, implied, statutory or otherwise, concerning the
Feedstock sold hereunder, and LIPID
expressly disclaims any implied warranty of merchantability or fitness or
suitability for a particular purpose.

5.2                                 Specification Responsibilities.  LIPID
shall (a) provide origin weights or first available railroad weight for all
railcar shipments and (b) allow Buyer to have the right to inspect, test,
weigh, and grade any and all Deliveries. 
Should Buyer modify, alter, or unload any or all of Feedstock from the delivery vessel (i.e. rail
car, truck, or barge), the portion of the shipment that is modified, altered or
unloaded (other than is necessary for the tests contemplated hereunder) shall
be considered accepted without rights of shipment rejection.

5.3                                 Nonconforming Feedstock.  Feedstock
delivered to the Plant that does not meet specification (or Alternate
Specifications, if applicable) as determined by Buyer or by an independent
laboratory as provided for within the applicable Trade Rules, prior to
unloading, will either be rejected by Buyer or discounted in accordance with
the applicable Trade Rules or in an amount otherwise mutually acceptable to the
Parties.  If such nonconforming
Feedstock is not discountable pursuant to the applicable Trade Rules, LIPID may
replace the delivered Feedstock with an acceptable type and/or quality of
Feedstock within fifteen (15) days of receipt of written notice that the
delivered Feedstock is nonconforming.  LIPID
will be responsible for all costs of replacing or disposing of any such
nonconforming Feedstock, including any damages and costs (subject to Section
10.1) incurred by Buyer as a result of the nonconforming Feedstock and/or any
delay in obtaining conforming Feedstock from LIPID.  Such costs may include, without limitation,
any costs reasonably incurred by Buyer to store or transfer such nonconforming
Feedstock.  In the event LIPID cannot
replace the non-conforming Feedstock within the fifteen (15) day period, Buyer
may refuse to make payment for the delivered Feedstock and purchase replacement
Feedstock in accordance with the provisions of Exhibit “D”; however, if
Buyer has already paid for such nonconforming Feedstock, it shall be entitled
to a full refund of all amounts paid to LIPID in respect thereto, including,
without limitation, any related Service Fee.

Notwithstanding the foregoing,
Buyer, at its sole discretion, may direct LIPID to purchase Feedstock based on
Alternate Specifications, and the purchase and use of such alternate Feedstock
shall not affect any of the other rights Buyer may have under this Agreement
and any of the obligations LIPID may have under this Agreement for other
deliveries of nonconforming Feedstock.  LIPID’s
purchase of Feedstock meeting Alternate Specifications shall count towards
Buyer’s Minimum Purchase Obligation.

5.4                                 Express Warranty Against Liens.  LIPID
represents and warrants that title to all Feedstock delivered and sold
hereunder will be good and marketable, free and clear of all liens, security
interests, other encumbrances, or adverse claims of any kind.

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ARTICLE 6

LOGISTICS AND DELIVERY OF FEEDSTOCK

6.1                                 Railroad Coordination. LIPID will track the estimated time of arrival and
placement and release times at origin and destination.  LIPID will also coordinate unloading
schedules to avoid or minimize Demurrage exposure.

6.2                                 Demurrage. 
Buyer will be responsible for
Demurrage: (a) in the case of railcars, ninety six (96) hours after the
time at which the railcar is Constructively Placed at the Plant; (b) in the
case of trucks, (i) two (2) hours after the time at which the truck arrives at
the Plant provided that such arrival is between the hours of 6 AM and 6 PM,
Monday through Sunday excluding Holidays (“Normal Operating Hours”); or (ii) if
the arrival is outside Normal Operating Hours, then twelve (12) hours after
arrival; and (c) in the case of barges, forty-eight (48) hours after arrival of
barges at the Delivery Point or as otherwise set forth in the applicable
contract.  Thereafter Demurrage shall be
charged to Buyer per running hour, at the prevailing rate established by the
carrier, Saturdays, Sundays and Holidays included.  Free time shall be counted from the time the
barge line, or its representative, gives notice of Buyer, or Buyer representative,
that the barge is ready for delivery. 
Demurrage will be based on then-current market rates; however, the Demurrage
rate for railcars will initially be calculated as follows: $50 for the first
four (4) days following the ninety six (96) hours of free time and $70 per day
for the following days.  It is understood
that the foregoing Demurrage rates may be modified from time to time in order
to reflect overall market changes in the railroad or railcar-lease industries
as may be evidenced by written agreements or other industry-specific
publications.

6.3                                 Notification of Problems with Delivery.  LIPID
shall inform Buyer of any problem regarding any Delivery, without delay, by fax
and telephone after LIPID becomes aware of any such problem.  An example of this includes, but is not
limited to, the possible event that one or more ordered Feedstock are not
available to purchase by LIPID from the market in the quantity originally
ordered per the relevant Delivery Schedule. 
In a like manner, Buyer shall inform LIPID of any problems in taking any
Delivery.

ARTICLE 7

RISK MANAGEMENT

7.1                                 Monitoring of Feedstock Positions.  LIPID will
monitor Feedstock purchases and may, from time to time, make suggestions
concerning Buyer’s risk management program and the position of its Feedstock
purchases for future physical delivery.

7.2                                 Market Conditions.  LIPID will
review with Buyer on a monthly basis market conditions relating to Feedstock,
existing Feedstock supply and ownership positions, and forward marketing
strategies in an attempt to assist Buyer in lowering its cost of
Feedstock.  It is understood by Buyer
that all risk management services must be tied to a valid written purchase
contract requiring physical delivery of Feedstock to Buyer.

7.3                                 No Liability. Buyer recognizes that LIPID’s monitoring of Feedstock
positions, periodic suggestions, review of market conditions and risk
management services are informational and optional, and the final decisions
concerning purchases and risk management strategies, and the implementation of
such strategies, will be made by, and is the sole responsibility of,
Buyer.  LIPID is not responsible for any
Buyer losses or entitled to any Buyer gains resulting from risk management
information and market conditions review supplied by LIPID.

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ARTICLE 8

DEFAULT AND TERMINATION

8.1                                 Termination by Mutual Agreement.  This
Agreement may be terminated upon mutual written agreement between the Parties.

8.2                                 Termination By Either Party.  Except as
otherwise provided in this Agreement, either Party may terminate this Agreement
upon written notice to the other Party if:

(a)                                  The other Party defaults on any material term,
covenant or condition hereunder and fails to cure such default within thirty
(30) days after receiving written notice thereof from the non-defaulting Party
to either (i) cure such default, or (ii) if such default cannot reasonably be
cured within thirty (30) days, to exercise diligent efforts to achieve cure
within no later than ninety (90) days from said notice.

(b)                                 Such other Party becomes the subject of any
bankruptcy, insolvency or similar proceedings.

8.3                                 Termination for Non-Payment. 
If either Party does not make payment or
delivery hereunder, the non-defaulting Party may terminate this Agreement upon
ten (10) days written notice to the defaulting Party; provided that in the
event of a payment default the defaulting Party shall have [thirty (30)] days
following receipt of such written notice to cure of such failure.

8.4                                 Termination for Force Majeure. In the event that Force Majeure shall, following the
initial production of biodiesel at the Plant, continue unabated for a period of
six (6) months from the date a Party gives notice of Force Majeure in
accordance with the provisions of Article 11, either Party hereto shall
have the right to terminate this Agreement by furnishing written notice to the
other no less than thirty (30) days prior to the expiration of such six (6)
month period, with termination effective only upon the expiration date of such
six (6) month period. Upon such termination, each Party shall be relieved from
its respective obligations, except for obligations for payment of monetary sums
which arose prior to the event of Force Majeure and the confidentiality
provisions set forth in Article 9, and the rights and obligations set forth in
Article 10 and Article 14.

8.5                                 Rights and Obligations on Termination.  Any rights and
obligations of LIPID or Buyer to payments accrued through termination, the
obligations of Buyer under Section 3.5, as well as obligations of the Parties
under Confirmed Orders for the supply of Feedstock to Buyer that exist at the
time of termination, shall remain in effect notwithstanding any termination of
this Agreement.  The above
notwithstanding, (a) LIPID shall have no obligation to supply Feedstock to
Buyer (whether pursuant to outstanding Confirmed Orders or otherwise) upon
termination pursuant to Section 8.3; and (b) Buyer shall have no obligation,
subject to Confirmed Orders as set forth in the first sentence of this
Section 8.5, to accept or pay for shipments of Feedstock if Buyer
terminates this Agreement pursuant to Section 8.2.  Upon termination of this Agreement for any
reason, each Party shall thereafter be relieved from its respective obligations
and have no further liability hereunder, except as set forth in this Section
8.5 and (i) for payment of monetary sums which become payable prior to
termination, (ii) for obligations under the confidentiality obligations set
forth in Article 9, (iii) the rights and obligations set forth in Section 10.2
and Article 14, and (iv) matters involving fraud.

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8.6                                 Non-Waiver of Future Default.  No waiver by either Party of any default by
the other Party in the performance of any of the provisions of this Agreement
will operate or be construed as a waiver of any other or future default or
defaults, whether of a like or of a different character.

ARTICLE 9

CONFIDENTIALITY

9.1                                 Confidential Information.  For
purposes of this Agreement, the term “Confidential Information” shall mean the pricing
terms of this Agreement, LIPID’s sources of Feedstock sold hereunder, and any
information which is not in the public domain and is disclosed by one Party to
the other pursuant to this Agreement and which is in written, graphic, machine
readable or other tangible form. 
Confidential Information may also include oral information disclosed by
one Party to the other pursuant to this Agreement, provided that such
information is designated as Confidential Information at the time of disclosure
and is reduced to writing by the disclosing Party within a reasonable time (not
to exceed ten (10) days) after its oral disclosure, and the writing is marked
in a manner to indicate its confidential nature and delivered to the receiving
Party.  Nothing in this Agreement
shall be construed to prohibit or limit a receiving Party from disclosing information, (including ideas, concepts, know-how,
techniques, and methodologies) (a) previously known to it, (b) independently developed by it without use of
the disclosing Party’s Confidential Information by those employees or
representatives of the disclosing Party that have not had access to such
Confidential Information, as can be substantiated by reasonable evidence, (c)
acquired by it from a third party which was not, to the receiving Party’s
knowledge, under an obligation to the disclosing Party or any third party not
to disclose such information, (d) that is or becomes publicly available through
no breach by the receiving Party of this
Agreement, (e) to the extent disclosure of such information is required by law
or by  the rules, regulations or
practices of the Securities and Exchange Commission or any exchange or
automated quotation system upon which shares of such Party may be listed,
quoted or traded, or (f) to its Representatives, as hereinafter defined.  If a receiving Party receives a subpoena or
other validly issued administrative or judicial process demanding Confidential
Information of a disclosing Party, the receiving Party must promptly notify the
disclosing Party and tender to it the defense of such demand.  Unless the demand has been timely limited,
quashed or extended, the receiving Party will thereafter be entitled to comply
with that demand to the extent required by law but shall exercise commercially
reasonable efforts to obtain an order or other reliable assurance that
confidential treatment will be accorded to such Confidential Information.  If requested by the disclosing Party, the
receiving Party shall cooperate (at the expense of the disclosing Party) in the
defense of such a demand.

9.2                                 Buyer Nondisclosure.  Buyer
acknowledges that, by reason of this Agreement, it and its principals,
employees, agents, advisors, representatives, consultants, advisors and
affiliates (collectively, “Representatives”) may become privy to Confidential
Information belonging to LIPID. Buyer agrees that it will not, without the
prior written consent of LIPID, disclose to any third parties or use for its
own benefit any such Confidential Information except in the carrying out of its
obligations under this Agreement.  Buyer
shall inform any of its Representatives to whom Buyer intends to disclose
Confidential Information of the confidential nature of such Confidential
Information and shall require such persons to be bound by the provisions of
Article 9 of this Agreement.  Buyer may

 11
 

 

disclose Confidential Information to potential lenders or financing
sources in connection with Buyer’s efforts to secure debt or equity financing
arrangements, so long as the party receiving said information is bound by a
confidentiality agreement substantially similar to this Article 9.  The confidentiality obligations hereunder
shall survive any expiration or termination of this Agreement.

9.3                                 LIPID Nondisclosure. LIPID acknowledges that, by reason of this Agreement,
it and its Representatives may become privy to Confidential Information
belonging to Buyer.  LIPID agrees that it
will not, without the prior written consent of Buyer, disclose to any third
parties or use for its own benefit any such Confidential Information except in
the carrying out of its obligations under this Agreement.  LIPID shall inform any of its Representatives
to whom LIPID intends to disclose Confidential Information of the confidential
nature of such Confidential Information and shall require such persons to be
bound by the provisions of Article 9 of this Agreement.  The confidentiality obligations hereunder
shall survive any expiration or termination of this Agreement.

9.4                                 Announcements. 
Any public statements, press releases, and similar
announcements concerning the negotiation or consummation of the transactions
contemplated hereby, including such statements made by Representatives of the
Parties, shall be jointly planned and coordinated by the Parties.  Neither
Party shall issue any such statement absent the consent of the other Party,
which consent shall not be unreasonably withheld or delayed.

ARTICLE 10

LIMITATION OF LIABILITY; INDEMNIFICATION; INSURANCE

10.1                           Limitation of Liability.  Without
limiting any express remedies set forth in this Agreement, and except for any
acts of willful misconduct or fraud, neither Buyer nor LIPID will be liable to
each other or any third party for any indirect, consequential, punitive,
exemplary or special damages, loss of business expectations, lost profits,
business interruptions, or any damage to third parties arising out of this
Agreement or any breach of this Agreement.

10.2                           Indemnification.  Each Party
(the “Indemnitor”) shall release, defend, indemnify and hold harmless the other
Party, its affiliates, its contractors, and their respective members,
partners, directors, officers, shareholders, managers, employees, agents,
representatives and insurers (collectively, the “Indemnitee Group”) from and
against any and all losses, damages, fines, liens, levies, penalties, claims,
demands, causes of action, suits, legal or administrative proceedings, orders,
governmental actions and judgments of every kind and character, and any and all
costs and expenses (including, without limitation, reasonable attorneys’ fees,
reasonable expert witness fees, and court costs) related thereto (collectively,
“Claims”) asserted by any person or entity against any member(s) of the
Indemnitee Group on account of, incident to, in connection with, arising out
of, resulting from or related in any way, directly or indirectly, to this
Agreement, which Claims allege bodily injury to or death of persons included
within the Indemnitee Group, or damage to or loss of property of the Indemnitee
Group, resulting from the gross negligence or willful acts or omissions of the
Indemnitor or its affiliates, its contractors, and their respective members,
partners, directors, officers, shareholders, managers, employees, agents,
representatives and insurers.

The Party claiming indemnification shall give
prompt written notice to the Indemnitor of any matter for which the Indemnitor
may become liable under this provision. 
Said notice

 12
 

 

shall contain full details of the matter in
order to provide the Indemnitor with sufficient information to assess its
potential liability and to undertake defense of the claim.  The indemnified Party shall have the right at
all times to participate in the preparation for and conducting of any hearing,
trial or other proceeding related to the provisions of this Article, as well as
the right to appear on its own behalf at any such hearing, trial or other
proceeding.  Any such participation or
appearance by the indemnified Party shall be at its sole cost and expense.  The indemnified Party shall cooperate in all
reasonable respects with the Indemnitor and its counsel in defending any claims
and shall not take any action that is reasonably likely to be detrimental to
such defense.  The Indemnitor shall
obtain written approval from the indemnified Party prior to any settlement that
may impose obligations or restrictions on the indemnified Party.

10.3                           Insurance.  Each Party
shall, during the term of this Agreement, provide the insurance coverages set
forth in Exhibit “F”.

ARTICLE 11

FORCE MAJEURE

11.1                           Force Majeure.  In
the event either Party hereto is rendered unable by reason of Force Majeure, as
defined in Section 11.2, to carry out its obligations under this Agreement,
such Party shall give written notice and reasonably complete particulars of
such Force Majeure to the other Party stating the obligation(s) the
performance of which are, or are expected to be, delayed or prevented, as soon as possible after the occurrence of the
event.  The obligations of the Party
giving such notice shall be suspended during and to the extent affected by
Force Majeure and such event shall, so far as possible, be remedied with all
reasonable dispatch. In the event LIPID declares Force Majeure, Buyer
may contract with other parties for the supply of Feedstock until LIPID can
resume delivery.  The Initial Term shall
be extended, up to a maximum total of one (1) year (subject to Section 8.4),
for the period(s) during which a Party’s obligations are suspended hereunder by
Force Majeure.

11.2                           Definition of Force Majeure.   The
term “Force Majeure”, as used in this Agreement, shall mean any cause not
reasonably within the control of the Party claiming suspension and which, by
the exercise of due diligence, such Party is unable to prevent or
overcome.  Such term shall include, but
not be limited to:  (i) acts of God, (ii)
strikes, lockouts or acts of the public enemy, (iii) wars, blockades,
insurrections, riots, epidemics, acts of terrorism, (iv) transportation
shortages (v) landslides, lightning, earthquakes, fires, storms, floods,
washouts, (vi) civil disturbances, and (vii) explosions.  The term “Force Majeure” shall specifically
include those events affecting any transporter of Feedstock acting on behalf of
LIPID hereunder, but shall in all events exclude any price fluctuations in
Feedstock or other economic or commercial changes involving the purchase and
sale of Feedstock or the production of Biodiesel therefrom. Events directly and
proximately caused by the gross negligence or willful misconduct of a Party or
its affiliates shall in no event constitute Force Majeure.

ARTICLE
12

POSSESSION AND TITLE

12.1                           Delivery; Risk of Loss. 
Delivery shall be deemed to occur when (i) the railcar is Constructively
Placed, and (ii) trucks, barges and ocean-going vessels reach their respective
Delivery Point.  Title to and risk of
loss in the Feedstock shall only pass
from LIPID to Buyer at the time the Feedstock crosses the flange of such
transport vessel.

 13
 

 

Until such
time, LIPID shall be deemed to be in control of and in possession of and shall
have title to and risk of loss in the Feedstock.

12.2                           Liability.  Buyer
shall have no responsibility or liability with respect to any Feedstock deliverable under this Agreement
until title and risk of loss transfer as described in Section 12.1.  Without prejudice to Section 5.3, LIPID shall
have no responsibility or liability with respect to the Feedstock after title and risk of loss transfer
as described in Section 12.1 or on account of anything which may be done or
happen to arise with respect to such Feedstock
after such transfer.

ARTICLE 13

NOTICES

13.1                           Addresses.  Except as specifically otherwise provided
herein, any notice or other written matter required or permitted to be given
hereunder by one Party to the other Party shall be deemed to be sufficiently
given if delivered by hand or sent by telecopy, and addressed if to LIPID, at:

	
  Lipid Logisitics

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fax:

  	
   

  	
   

  	
   

  	
   

  
	
  Email:

  	
   

  	
   

  	
   

  	
   

  
	
  Attn:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  And if to Buyer, at:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Nova Biofuels Seneca, LLC

  	
   

  	
   

  
	
  Nova Energy Holding, Inc.

  	
   

  	
   

  
	
  2777 Allen Parkway, Suite 800

  	
   

  	
   

  
	
  Houston, TX 77019

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Fax:

  	
  (713) 782-1965

  	
   

  	
   

  
	
  Email:

  	
   

  	
   

  
	
  Attn:

  	
  JD McGraw

  	
   

  	
   

  	
   

  
								

 

13.2                           Change of Address.  Either Party
shall give notice within thirty (30) days to the other Party, in the manner
herein provided, of a change in its address for notice.

13.3                           Effective Date of Notice.  Any notice
or other written matter shall be deemed to have been given and received: if
delivered by hand, on the date of delivery; and, if sent by telecopy, on the
business day following the sending of the notice.

 14
 

 

ARTICLE 14

MISCELLANEOUS

14.1                           Assignment.  Neither Party may assign this
Agreement in whole or in part or any of its rights or obligations hereunder,
without the prior written consent of the other Party, which consent may not be
unreasonably withheld or delayed, except that Buyer may assign its rights (subject
to its obligations) in this Agreement to any third party in connection with
debt or equity financing arrangements entered for the benefit of Buyer and/or
its affiliates.

14.2                           Records.  Each Party will establish and
maintain at all times, true and accurate books, records and accounts relating
to their own transactions in this Agreement in material accordance with United
States generally accepted accounting principles applied consistently from year
to year consistent with good industry practices, distinguishable from all other
books and records, in respect of all prices paid, payments, statements charges
and computations made pursuant to this Agreement and will preserve these books,
records and accounts for a period of at least two years after the expiration of
the term of this Agreement.

14.3                           Audit Rights. Upon five (5) business days notice and during normal
business hours each Party has the right to audit such books, records and
accounts of the other Party to the extent necessary in order to verify the
accuracy of any statement, charge, computation or demand made under or pursuant
to any provision of this Agreement.  If
any material error is discovered in any statement rendered hereunder, such
error will be adjusted within seven (7) days from the date of discovery, but no
adjustment will be made for errors discovered more than two years after
delivery and receipt of such statements. 
Any error or discrepancy detected which has led to an overpayment
or an underpayment between the Parties shall be corrected by a balancing
payment to the Party that received the underpayment or by a refund by the Party
that received the overpayment in each case to the extent of such underpayment
or overpayment as applicable.  Such
balancing payment or refund shall be made no later than five (5) days from the
date of the adjustment of the underlying error.

14.4                           Dispute Resolution.  Except where a different dispute
resolution mechanism is specified herein, in the
event a dispute arises in connection with the performance or non-performance of
this Agreement, either Party has the right to notify the other Party in
writing of the substance of such dispute. 
The Party receiving such notice must respond in writing within thirty
(30) days of receipt of such notice and either (a) provide evidence that the
matter has been resolved, or (b) provide an explanation of why it believes that
its performance is in accordance with the terms of this Agreement and specify
three (3) dates, all of which must be within thirty (30) days from the date of
its response, for a meeting to resolve the dispute.  The notifying Party will then select one (1)
of the three (3) dates, and a dispute resolution meeting will be held.  If the Parties cannot, in good faith
discussions, resolve their dispute at such meeting, either Party may request
that the dispute be submitted to senior executives representing each Party who
are authorized to resolve such dispute, respectively.  If said dispute cannot be settled within
thirty (30) days after the initial request for a senior executive level
meeting, the Parties shall submit such matter
to AFOA arbitration in a neutral geographic location using AFOA Trade Rules
then in force as a guideline for negotiations, provided such matter involves
commercial aspects of the delivery of Feedstock and is accepted by the AFOA for
resolution; otherwise the Parties shall have available whatever rights or
remedies exist at law or equity. The arbitrator(s) shall have no power to award
damages inconsistent with

 15
 

 

this Agreement.  All aspects of
the arbitration shall be treated as confidential and judgment on the arbitrator’s
award may be entered in any court having jurisdiction.  The expenses of the arbitrator(s) shall be
shared equally by the Parties, and each Party shall bear its own legal costs,
unless the arbitrators determine that legal costs shall be otherwise
assessed.  Nothing contained in any
indemnification provision hereunder shall be construed as having any bearing on
the award of attorney’s fees under this Section.  The foregoing dispute-resolution process
shall in no event be deemed to excuse either Party from continuing to fulfill
its respective obligations under, or to prevent or impede either Party from
exercising its rights or remedies set forth in, this Agreement.

14.5                           Inurement. This Agreement will inure to the benefit of and be binding upon the
respective successors and permitted assigns of the Parties.

14.6                           Entire Agreement. This Agreement and the Exhibits attached hereto and
made a part hereof constitutes the entire agreement between the Parties with
respect to the subject matter contained herein and any and all previous
agreements, written or oral, express or implied, between the Parties or on
their behalf relating to the matters contained herein are hereby terminated and
canceled.

14.7                           Amendments.  There will be
no modification of the terms and provisions hereof except by the mutual
agreement in writing signed by the Parties.

14.8                           Governing Law; Venue. The Agreement will be interpreted, construed and
enforced in accordance with the procedural, substantive and other laws of the
State of Illinois without giving effect to principles and provisions thereof
relating to conflict or choice of law even though one or more of the Parties is
now or may do business in or become a resident of a different state.  Subject to Section 14.4, all disputes arising out of
this Agreement shall be resolved exclusively by state or federal courts located
in Illinois, and each of the parties waives any objection that it may have to
the bringing of an action in any such court.

14.9                           Compliance with Laws. This Agreement and the respective obligations of the
Parties hereunder are subject to present and future valid laws and valid
orders, rules and regulations of duly constituted authorities having
jurisdiction.

14.10                     Furnishing of Information. The Parties will, upon request, provide such
additional information as may be reasonably required to allow the Parties to
efficiently and effectively carry out their respective obligations hereunder
and to determine and enforce individual or collective rights under this
Agreement.

14.11                     Cumulative Remedies.  Unless
otherwise specifically provided in this Agreement, the rights, powers, and
remedies of each of the Parties provided in this Agreement are cumulative and
the exercise of any right, power or remedy under this Agreement does not affect
any other right, power or remedy that may be available to either Party under
this Agreement or otherwise at law or in equity.

14.12                     No Partnership. This Agreement shall not create or be construed to
create in any respect a partnership or any agency or joint venture relationship
between the Parties.

14.13                     Costs To Be Borne by Each Party.  Except as
otherwise provided herein, Buyer and LIPID shall pay its own costs and expenses
incurred in the negotiation, preparation and execution of this Agreement and of
all documents referred to herein.

 16
 

 

14.14                     Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if Buyer and LIPID had signed the same
document and all counterparts will be construed together and constituted as one
and the same instrument.

14.15                     Severability. Any provision of this Agreement which is or becomes
prohibited or unenforceable in any jurisdiction shall not invalidate or impair
the remaining provisions of this Agreement, and the remaining terms of this
Agreement shall continue in full force and effect.

14.16                     Setoff.  In addition to, and without
limitation of, any rights of either Party hereunder  if either of Buyer or LIPID becomes insolvent,
however evidenced, or any default occurs and the defaulting Party has failed to
cure the default within the period specified in Section 8.2(a), then any and
all amounts due and owing by such insolvent or defaulting Party under this
Agreement may be applied by the other Party toward the payment of amounts due
and owing to such insolvent or defaulting Party under this Agreement.

14.17                     Headings; Interpretations.  The
article and section headings used herein are for convenience of reference only
and shall not affect the construction or interpretation of this Agreement.  Unless the context of this Agreement
otherwise requires, (i) words of any gender shall be deemed to include each
other gender; (ii) words using the singular or plural number shall also include
the plural or singular number, respectively; and (iii) the terms “hereof,” “herein,”
“hereby,” “hereto,” and derivative or similar words shall refer to this entire
Agreement.  This Agreement is the product
of negotiation by and among the Parties hereto. 
This Agreement shall be interpreted and constructed neutrally as to all
Parties, without any Party deemed to be the drafter of this Agreement.

14.18                     Waiver.  No delay or omission in the
exercise of any right, power, or remedy hereunder shall impair such right, power,
or remedy or be construed to be a waiver of any default or acquiescence
therein.

IN WITNESS WHEREOF the Parties have executed this Agreement by their
respective proper signing officers as of the date first above written.

 

	
  LIPID LOGISTICS, LLC

  	
   

  	
  NOVA BIOFUELS SENECA, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  	
  Date:

  	
   

  	
   

  
									

 17
 

 

EXHIBIT
“A”

PLANNING, ORDERING, DELIVERY, AND INVENTORY MANAGEMENT OF FEEDSTOCK

PROCEDURES

[

Procedures
for procurement of Feedstock and delivery of Feedstock to the Plant are set
forth to clarify the planning, ordering, delivery, and inventory management
work processes.

1.             Planning Procedures.  The Parties shall mutually communicate
certain market, operational and logistics information and data as set forth
herein to effectively plan Feedstock supply chain requirements for the Plant.

1.1           Delivery Schedule.  The Parties shall jointly develop a delivery
schedule (the “Delivery Schedule”) which will serve as the formal planning tool
for Feedstock requirements for each quarter and each month of the quarter.  The initial draft of each Delivery Schedule
shall be submitted by Buyer to LIPID no later than ten (10) business days prior
to the end of each calendar quarter.  The
Delivery Schedule shall pertain to the second subsequent quarter of Feedstock
delivery requirements (e.g., the Delivery Schedule submitted prior to the end
of the quarter ending December 31 will cover the quarter beginning April 1 and
ending June 30).  The use of the Delivery
Schedules shall commence for the first calendar quarter in which the start-up
of the Plant and/or the first delivery of Feedstock are forecasted.  The initial draft of the Delivery Schedule
shall be a three (3) month daily forecast and shall include:

·                                          Submission Date.

·                                          Production plan with estimated consumption of
Feedstock..

·                                          Estimated start-of-quarter inventory of Feedstock
in pounds.

·                                          Comments regarding operations, scheduled shutdowns,
and other comments relating to market, logistics, and inventory management.

·                                          Should any changes be expected for the subsequent
three (3) calendar quarters, Buyer shall endeavor to communicate this in text
together with the above information. 
Such changes could include: production rates per month, types and
quantities of Feedstock required for delivery, and a list of special
operational and supply considerations.

The
specific format of the Delivery Schedule will be created with mutual consent of
both Parties to accommodate the required information outlined above.

LIPID
shall review the initial draft of the Delivery Schedule and advise Buyer of
market conditions, Feedstock availability of supply, inventory management, and
transportation and logistics issues within ten (10) business days.  LIPID shall amend the Delivery Schedule to
include.

·                                          Planned shipment per Feedstock in pounds and the
expected mode of transport of this Feedstock.

 18
 

 

2.             Order Confirmation.

2.1        Confirmed Orders.  It is understood that, in all events, pricing
of Feedstock shall be quoted by LIPID and either accepted or rejected by
Buyer.  Price quotations for Feedstock
deliveries shall be submitted to Buyer by LIPID prior to purchases.  The Parties understand and agree that
telephone conversations are recorded by LIPID and may be recorded by Buyer in
the ordinary course of their respective businesses for purposes of, among other
things, further documenting the quotation and acceptance of Feedstock prices in
order to establish and verify Confirmed Orders. LIPID shall be responsible for
ordering, purchasing, and delivery for each 
Feedstock purchase per the Confirmed Orders.  Quotations and acceptance and rejection of
LIPID offers shall be executed utilizing the automated order confirmation
process provided by Section 3.2.

2.2           Delivery
Schedule Monthly Plan Deviations.  The
Parties recognize the need to maintain a degree of flexibility to accommodate
the Start-up Period of the Plant,
unexpected changes in the Plant operating capacity, and changing Feedstock
market conditions.  Upon notification by
either Party of any substantial deviations to the Delivery Schedule, the
Parties agree to work in good faith to jointly resolve any such discovered
deviations and correct such deviations within fifteen (15) days following first
notification.

2.3           Liability Disclaimer.  Each of the Parties understands and agrees
that except for Feedstock quantity, grade, and price quotations confirmed by
the Parties in Confirmed Orders pursuant to this Exhibit “A”, the planned
production rates, estimated costs, pricing and market information, and all other
information furnished by the Parties in the preparation of the Delivery
Schedule is for planning and informational purposes only. Neither Party shall
be responsible to the other for any actions taken in reliance on such
estimates, plans and other information.

 19
 

 

EXHIBIT “B”

BENCHMARK PRICING

“Benchmark Price” for each Feedstock is the weekly
average of the relevant published market price for the week in which the
applicable Feedstock is shipped to the Plant, plus Adjustments (as hereinafter
defined).

1.             Source
of Market Price. The “Source of Market Price” for the published market price
for each Feedstock is set forth in Table 3.3-1 [to be inserted].  The Parties agree to utilize these sources
for the applicable Feedstock market price.

2.             Adjustments.  The “Adjustments” to the published price for
each Feedstock are set forth in Table 3.3-1. 
LIPID shall calculate these adjustment costs on an annual basis and
shall provide Buyer the values and basis for calculations of these values for
approval annually.  The Parties agree to
utilize the Adjustments in Table 3.3-1 for the first calendar year of
operation, and to review such Adjustments annually thereafter. In the event
that, following such annual review, the Parties are unable to agree to any
revisions to the Adjustments, then the matter shall be resolved according to
the provisions of Section 12.4.

3.             Changes
to Table.  Neither the formula for
calculating the Benchmark Price, nor the source of published market prices or
the Adjustments thereto in respect of any Feedstock, shall be changed without
the written consent of the Parties.  In
the event that (a) Buyer may require the addition of a Feedstock, which is not
materially represented in Table 3.3-1, (b) new improved sources for market
quotations become available, (c) any of the sources for the published market
prices set forth in Table 3.3-1 becomes temporarily or permanently unavailable,
(d) LIPID receives new adjustment value data, (e) adjustments arising from
changes in published market freight and/or fuel surcharges, or (f) changes
occur in industry regulations, either Party may propose changes to the
applicable portions of Table 3.3-1.  Upon
approval of both Parties the contents of Table 3.3-1 may be formally amended.  If following a review of any such events, the
Parties are unable to agree to any revisions to Table 3.3-1, then the matter
shall be resolved according to the provisions of Section 12.4.

.4.            Example Calculation for Benchmark Pricing.  The following example is provided only as a
clarification for the calculation of Benchmark Price.  If LIPID shipped [Palm Oleine] to Buyer on
Dec-28-06, the Benchmark Price would be equal to the weekly weighted average
(Dec-22-06 to Dec-28-06) market price in $/pound [(assume $0.220/pound)]
reported by [the Trade News Service] plus the Adjustment of [$0.0125/pound]
from Table 3.3-1.  The Benchmark Price
for this example is [$0.2325/pound].

5.  LIPID will provide a weekly,
monthly, and yearly report listing the average quoted Delivered Feedstock Price
for each order of Feedstock purchased by Buyer for the period of the report
along with the actual price paid for each order of Feedstock for that same
period.  Such report shall delineate
Feedstock by type and specific market quote.

 20

 

EXHIBIT “C”

FEEDSTOCK
SPECIFICATIONS

1.    Trade Rules.  The Trade Rules of AFOA, COPA, FOSFA, NOPA,
and PORAM shall apply to each Feedstock
as described in Exhibit “E”.  This
includes standard of quality, specifications, methods of analysis, sampling and
adjustment procedures referenced in the applicable sections of the Trade Rules
in Exhibit “E”.

2.    SPECIFICATIONS.  BOTH PARTIES AGREE THAT THE SPECIFICATIONS
APPLIED TO FEEDSTOCK HEREUNDER SHALL BE GOVERNED BY THE SPECIFICATIONS PROVIDED
BY THE TRADE RULES. 

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EXHIBIT “D”

DAMAGES FOR DEFICIENCY IN
FEEDSTOCK DELIVERY

1.       Alternate
Feedstock Losses.  In the
event of LIPID’s failure to deliver pursuant to Confirmed Orders, Buyer may
seek and secure alternate feedstock deliveries from suppliers other than
LIPID.  The securing of alternate
feedstocks on an emergency spot basis may require Buyer to purchase Feedstock
at premium market prices for a period of time. 
Buyer will incur additional feedstock costs due to the premium market
prices and LIPID shall be responsible to Buyer for such losses, according to
the following formula:

Alternate
Feedstock Losses = (Actual Delivered Feedstock Price - Applicable Price) x
Alternate Feedstock Purchased

Where:

Alternate
Feedstock Losses are in $.

Actual
Delivered Feedstock Price from third-party suppliers is supported directly by
Invoices, i.e., Delivered Price in $/pound.

Alternate
Feedstock Purchased is the actual quantity purchased from third-party
suppliers.

Applicable
Price is the Delivered Feedstock Price as agreed in the Confirmed Order.

Alternative
Feedstock Losses shall also include reasonable additional costs solely and
directly incurred by Buyer in locating an alternate supplier for Feedstock,
provided such costs are fully documented by Buyer.

Buyer
shall invoice LIPID for the Alternate Feedstock Losses per the above equation
upon each alternate Feedstock purchase. 
If the Actual Delivered alternate supplier Feedstock Price is equal to
or less than the Applicable Price, no Alternate Feedstock Loss for such
purchase shall be assessed to LIPID for damages.

2.    Lack of Feedstock Losses.  In the event Buyer is unable to procure
Alternative Feedstocks and Feedstock inventories have been depleted, Buyer may
shutdown the Plant.

LIPID
shall, due to its failure to deliver Feedstock, reimburse Buyer for the per day
Fixed Cost Losses, up to a maximum of twenty (20) days, until LIPID delivers 5
operating days worth of Feedstock to restart the plant.

Buyer shall calculate a
daily fixed cost from Buyer’s audited statements of fixed costs for the
previous 12 months.  Buyer will invoice
LIPID for the number of days the plant is shutdown times the daily fixed cost.

Fixed Costs for the Plant
include all costs for operation of the Plant, which are independent of
production rates, and include all costs for labor, maintenance, materials and
supplies, land lease, fixed terminal fees, property taxes and insurance,
administration, Plant overhead, capital depreciation, and interest expenses.

 22
 

 

3.  LIPID Damages.  Buyer shall invoice LIPID for all Alternate
Feedstock Losses and Lack of Feedstock Losses as  calculated per the equation(s) above.  LIPID shall reimburse Buyer for such losses
within fifteen (15) days of receipt of invoice.

 23

 

EXHIBIT “E”

TRADE RULES

[Table to be completed which lists
the Feedstock and the applicable portions of the Trade Rules.]

 

EXHIBIT “F”

INSURANCE
COVERAGES

Each Party shall be required to purchase, maintain and provide proof (via
Certificate of Insurance) of the following insurance:

Commercial General Liability Insurance - $2 Million Combined Single Limit

Policy shall include coverage for liability resulting from
Premises/Operations, Products and Completed Operations, Blanket and Contractual
Liability.

For Buyer only; policy shall also included coverage for Broad Form Property
Damage, including explosion, collapse and underground hazards.

Such insurance shall be on an occurrence basis.

Environmental
Pollution Liability Insurance - $2 Million Combined Single Limit

For
Buyer only; policy shall include coverage for bodily injury or property damage
arising from the transportation, handling, storage, disposal, dumping,
processing or treatment of waste.

In addition, Buyer shall be required to maintain the following insurance:

Commercial Automobile Liability Insurance - $1 Million Combined Single
Limit

Policy shall include coverage for liability resulting from the operation of
all owned, non-owned and hired automobiles.

Such insurance shall be on an occurrence basis.

All required policies of insurance
shall be endorsed to provide that the insurance company shall notify the
certificate holder at least thirty (30) days prior to the effective date of any
cancellation or material change of such policies.Exhibit 10.6

 

SUBSCRIPTION AGREEMENT

This
Subscription Agreement (this “Agreement”) is
made on [June 23], 2006 by and between KBI ENERGY LLC, a ILLINOIS corporation
(the “Purchaser”), and Nova Holdings Seneca
LLC, a Delaware limited liability company (the “Company”).
Capitalized terms used but not defined in this Agreement shall have the meaning
set forth in the Limited Liability Company Agreement of the Company (as amended
from time to time, the “LLC Agreement”).

RECITAL

The
Company desires to sell and issue to the Purchaser, and the Purchaser desires
to buy from the Company, Economic Units of the Company (the “Units”), on the terms and subject to the conditions
contained herein.

AGREEMENT

NOW,
THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties and subject to the conditions contained herein,
the Purchaser and the Company hereby agree as follows:

1.             Subscription for and Purchase of
Units. The Company agrees to sell and issue to the Purchaser, and the
Purchaser agrees to buy from the Company, the number and type of Units
described in Schedule I attached hereto for the aggregate capital contribution
described in Schedule I (the “Capital Contribution”).

2.             Closing. The closing (the “Closing”) of the purchase and sale of the Units contemplated
hereby shall take place on [July 12], 2006 or on such other date (any such
date, the “Closing Date”) as may be mutually
agreeable to the Company and the Purchaser. At the Closing, the Purchaser shall
pay to the Company, via wire transfer of immediately available funds, an amount
equal to the Capital Contribution. As soon as practicable after receipt of such
payment, the Company shall cause an amendment to Schedule I to the LLC
Agreement to be executed and delivered to reflect the issuance of the Units
pursuant to this Agreement.

3.             Representations and Warranties
of the Company. The Company hereby represents and warrants to the Purchaser
as follows:

(a)           Organization and Authorization.
The Company is duly formed and is validly existing as a limited liability
company in good standing under the laws of the State of Delaware with the
limited liability company power and authority to execute, deliver and perform
this Agreement, to own its properties and carry on its business in the manner
in which such business is now being conducted. This Agreement has been duly
executed and delivered by the Company, has been effectively authorized by all
necessary action, limited liability company or otherwise, by the Company and
constitutes a legal, valid and binding obligation of the Company enforceable in
accordance with its terms.

(b)           Capitalization. Immediately after
the consummation of the

 

transactions
contemplated hereby, there will be 9,125 Voting Units and [800/405] Economic
Units issued and outstanding and no other Additional Interests outstanding.
There are no existing preemptive rights, outstanding subscriptions, options,
rights, warrants, convertible or exchangeable securities, calls, rights of
exchange, plans or other agreements, commitments or claims or other similar
rights relating to any Membership Interest or Economic Interest of the Company
of any character providing for the transfer, purchase, issuance or sale of any
Membership Interest or Economic Interest of the Company of any class, other
than as contemplated by this Agreement or the LLC Agreement as amended to date.

(c)           No Conflicts. The issuance of
the Units by the Company does not and will not result in any violation of, or
conflict with, any term of the certificate of formation or LLC Agreement of the
Company or any other instrument to which the Company is bound or any law or
regulation applicable to the Company.

(d)           Required Filings and Consents.
The execution and delivery of this Agreement by the Company does not, and the
performance by the Company of its obligations hereunder and the consummation of
the transactions contemplated hereby will not, require any consent, approval,
authorization or permit of, or filing by the Company with or notification by
the Company to, any governmental or regulatory authority.

(e)           No Finder. Neither of the
Company nor any person acting on behalf of the Company has agreed to pay to any
broker, finder, investment banker or any other person, a brokerage,
finder’s or other fee or commission in connection with this Agreement or any
matter related hereto, nor has any broker, finder, investment banker or any other person taken any action on which a
claim for any such payment could be based. To the extent that the foregoing
representation and warranty is inaccurate, the Company shall be responsible for
paying any and all fees, commissions or other compensation to which any such
party is entitled or claims on account of the transactions contemplated hereby.

4.             Representations and Warranties
of the Purchaser. The Purchaser hereby represents and warrants to the
Company as follows:

(a)           Organization and Authorization.
The Purchaser is duly organized and is validly existing as a corporation in
good standing under the laws of the State of Delaware with the corporate power
and authority to execute, deliver and perform this Agreement, to own its
properties and carry on its business in the manner in which such business is now being conducted. This
Agreement has been duly executed and delivered by the Purchaser, has been effectively
authorized by all necessary action, corporate or otherwise, by the Purchaser
and constitutes a legal, valid and binding obligation of the Purchaser
enforceable in accordance with its terms.

(b)           No Conflicts. The investment
by the Purchaser in the Units does not and will not result in any violation of,
or conflict with, any term of the charter, bylaws or other governing documents
of the Purchaser or any other instrument to which the Purchaser is bound or any
law or regulation applicable to the Purchaser.

 

(c)           Required Filings and Consents.
The execution and delivery of this Agreement by the Purchaser does not, and the
performance by the Purchaser of its obligations hereunder and the consummation
of the transactions contemplated hereby will not, require any consent,
approval, authorization or permit of, or filing by the Purchaser with or notification
by the Purchaser to, any governmental or regulatory authority.

(d)           No Finder. Neither of the
Purchaser nor any person acting on behalf of the Purchaser has agreed to pay to
any broker, finder, investment banker or any other person, a brokerage, finder’s
or other fee or commission in connection with this Agreement or any matter
related hereto, nor has any broker, finder, investment banker or any other
person taken any action on which a claim for any such payment could be based. To
the extent that the foregoing representation and warranty is inaccurate, the
Purchaser shall be responsible for paying any and all fees, commissions or
other compensation to which any such party is entitled or claims on account of
the transactions contemplated hereby.

(e)           Acquisition of Units for
Investment. The Purchaser is an “accredited investor” as defined by the
Securities Act of 1933, as amended (the “Securities Act”);
is familiar with the existing or proposed business, financial condition,
properties, operations and prospects of the Company: it has asked such
questions, and conducted such due diligence, concerning such matters and
concerning its acquisition of Units as it has desired to ask and conduct, and
all such questions have been answered to its full satisfaction; it has such
knowledge and experience in financial and business matters that it is capable
of evaluating the merits and risks of an investment in the Company; it understands
that owning Units involves various risks, including the restrictions on
Disposition of Interests set forth in Article 3 of the LLC Agreement, the
prohibition of withdrawal set forth in Section 7.3 of the LLC Agreement, the
lack of any public market for Units, the risk of owning the Units for an indefinite
period of time and the risk of losing the entire investment in the Company; it
is able to bear the economic risk of such investment; it is acquiring its Units
for investment, solely for its own beneficial account and not with a view to or
any present intention of directly or indirectly selling, transferring, offering
to sell or transfer, participating in any distribution or otherwise
disposing of all or a portion of its Units; it acknowledges that the Units have
not been registered under the
Securities Act, or any other applicable federal or state securities laws, and
that the Company has no intention, and has no obligation, to register or to
obtain an exemption from registration for the Units or to take action so as to
permit sales pursuant to the Securities Act (including Rules 144 and 144A
thereunder).

(f)            Representations and Warranties in
LLC Agreement. The Purchaser hereby makes the representations and
warranties set forth in Section 4.1 of the LLC Agreement as if set forth in
their entirety in this Agreement to the extent that such representations and
warranties are not inconsistent with the representations and warranties
contained in this Agreement.

5.             Acknowledgments and Agreements
of the Purchaser. The Purchaser acknowledges and agrees that:

 

(a)           The Company may place a legend in
substantially the following form on the Amendment to the LLC Agreement
reflecting the issuance of the Units:

The interests evidenced by this Amendment and the LLC Agreement have
not been registered under the Securities Act of 1933, as amended, or the
securities act of any state, have been acquired for investment, and may not be
sold, or otherwise disposed of, or offered for sale unless registration
statements under such acts with respect to such interests are then in effect or
exemptions from the registration requirements of such acts are then applicable
to such offer or sale, and unless the provisions of the LLC Agreement are
satisfied.

(b)           Neither the U.S. Securities and
Exchange Commission nor any state securities commission has approved the Units
offered or passed upon or endorsed the merits of the sale thereof.

(c)           The Units are subject to the terms
and conditions of the LLC Agreement, as it may be amended from time to time,
including that Economic Units have no voting rights with respect to the
business and affairs of the Company or the election of its Managers.

(d)           (i) The Company may issue and sell
Additional Interests, including additional Voting Units or Economic Units to
other prospective investors, which may cause the Purchaser and other Members or
Economic Interest Holders of the Company to experience dilution of their
respective percentage ownership of the Company, (ii) the Company may determine
that it is necessary to incur indebtedness to finance its operations, which
could restrict the Company’s operations, and (iii) there can be no assurance
that additional equity or debt financing will not be required, and if so
required, that it will be available on terms favorable to the Company, if at
all.

6.             Conditions to Closing by the
Company. Each and every obligation of the Company under this Agreement to
be performed on or before the Closing Date shall be subject to the satisfaction,
on or before the Closing Date, of each of the following conditions, unless
otherwise waived in writing by the Company.

(a)           The representations and warranties of
the Purchaser contained herein shall be true, accurate and correct at and as of
the Closing Date.

(b)           The Purchaser shall have performed,
and complied with and fulfilled in all material respects, all agreements,
obligations and conditions required by this Agreement to be performed, complied
with or fulfilled by the Purchaser on or prior to the Closing Date.

7.            Notices. All notices and
other communications given or made under this Agreement shall be in writing in
the English language and shall be deemed to have been properly given or made if:
(a) personally handed to an authorized representative of the Person to whom
given; (b) sent by postage prepaid, registered (return receipt requested) mail
(airmail, if international) or internationally renowned overnight delivery
service; or (c) transmitted by facsimile with confirmation of receipt. All
notices, requests and consents to be sent to the Purchaser must be sent to or
made at the address given for such

 

Purchaser
on Schedule 1 attached hereto or such other address as such Purchaser may
specify by notice to the Company. Any notice, request or consent to the Company
must be given to the Company at the address of the principal place of business
of the Company set forth in accordance with Section 2.3 of the LLC Agreement.
Whenever any notice is required to be given by law, the Certificate of
Formation or this Agreement, a written waiver thereof, signed by the Person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to the giving of such notice.

8.             Governing Law; Severability.
This Agreement, including all matters related to
its validity, enforceability, construction, interpretation and performance, is
governed and controlled by the laws of the state of Delaware, excluding any conflict
of laws rule or principle thereof that would apply any other law. In
the event of a direct conflict between the provisions of this Agreement and (a)
any provision of the LLC Agreement, (b) any provision of the Certificate of
Formation or (c) any mandatory provision of the Act, the applicable provisions
of the LLC Agreement, the Certificate of Formation or the Act shall control. If
any provision of this Agreement or the application thereof to any Person or
circumstance is held invalid, illegal or unenforceable to any extent, the
remainder of this Agreement and the application of that provision to other Persons
or circumstances is not affected thereby and that provision shall be enforced
to the greatest extent permitted
by law or a provision that is legal, valid and enforceable shall be substituted
therefor.

9.             Binding Effect. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, executors, administrators, legal representatives,
successors and assigns where permitted by this Agreement.

10.           Counterparts. This Agreement
may be executed in any number of counterparts and each of such
counterparts shall for all purposes be deemed to be an original.

11.           Construction. Words of any
gender used in this Agreement shall be held and construed to include any other
gender, and words in the singular number shall be held to include the plural,
unless the context otherwise requires.

12.           Entire Agreement. This
Agreement constitutes the entire agreement of the Purchaser relating to the
Company and supersedes any prior understandings or written or oral agreements
between the parties concerning the written subject matter hereof.

13.           Effect of Waiver or Consent. A
waiver or consent, express or implied, of or to any breach or default by any
Person in the performance by that Person of his obligations with respect to the
Company is not a consent or waiver of or to any other breach or default in the
performance by that Person of the same or any other obligations of that Person
with respect to the Company. Failure on the part of a Person to complain of any
act of any Person or to declare any Person in default with respect to the
Company, irrespective of how long that failure continues, does not constitute a
waiver by that Person of his rights with respect to that default until the
applicable statute of limitations period has run.

 

Dallas Neil

Vice President

SCHEDULE 1

PURCHASER

	
   

  	
   

  	
   

  	
   

  	
  Capital

  	
   

  	
   

  	
   

  	
  Type of

  
	
  Name

  	
   

  	
  Address

  	
   

  	
  Contribution

  	
   

  	
  Units

  	
   

  	
  Units

  
	
  KBI ENERGY, LLC

  	
   

  	
  1528 MOUND ROAD

  JOLIET, IL 60436

  	
   

  	
  [$4,000,000/

  	
   

  	
  [800/

  	
   

  	
  Economic

  

 

 

 

14.           Execution of Additional
Instruments; Further Assurances. The Purchaser hereby agrees to execute
such other and further statements of interest and holdings, designations and
other instruments necessary to comply with any laws, rules or regulations. In
connection with this Agreement and the transactions contemplated hereby, the
Purchaser shall execute and deliver any additional documents and instruments
and perform any additional acts that may be necessary or appropriate to
effectuate and perform the provisions of this Agreement and those transactions.

15.           Headings. The headings in this
Agreement are inserted for convenience only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of this
Agreement or any provision hereof.

16.           Rights and Remedies Cumulative.
The rights and remedies provided by this Agreement are cumulative and the use
of any one right or remedy by any party shall not preclude or waive the right
to use any other remedy. Said rights and remedies are given in addition to any
other legal rights the parties may have.

17.           Assignment. This Agreement and
all the provisions hereof shall be binding and shall inure to the benefit of
the parties hereto and their respective successors and assigns, whether
expressed or not, but neither this Agreement nor any of the rights, interests,
duties or obligations hereunder may be assigned by either party hereto without
the prior written consent of the other party.

[SIGNATURES ON NEXT PAGES]

IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day
and year first above written.

 

	
   

  	
  PURCHASER:

  
	
   

  	
   

  
	
   

  	
  KBI Energy, LLC

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David J. Kaluzny
  II

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  DAVID J. KALUZNY
  II

  	
   

  
	
   

  	
  Title:

  	
  PRES.

  KBI ENERGY, LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  NOVA HOLDINGS
  SENECA LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dallas Neil

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  DALLAS NEIL

  	
   

  
	
   

  	
   

  	
  VICE PRESIDENT

  	
   

  
	
   

  	
   

  	
  NOVA HOLDING
  SENECA, LLC

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