Document:

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 

 

 

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

  	
   

  

 

 

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. McGrawExhibit 10.3

 

September 28, 2007

 

Jefferies & Company, Inc.

520 Madison Ave.

New York, New York 10022

 

Ladies and
Gentlemen:

 

On the terms set forth in the Master
Securities Loan Agreement dated as of September 28, 2007 (the “Loan Agreement”),
between the undersigned and Jefferies & Company, Inc. (“Jefferies”), and
for other good and valuable consideration, the receipt of which is hereby
acknowledged, notwithstanding any other agreement, the undersigned has agreed
to lend or re-lend, in case the loan is terminated, to Jefferies up to 4.5
million shares (as such number of shares may be reduced based upon assignments
permitted by the last paragraph hereof, the “Borrowed Shares”) of common stock
of Nova Biosource Fuels, Inc., a Nevada corporation (the “Issuer”), owned
beneficially and of record by the undersigned. The undersigned hereby agrees
not to dispose of or encumber or otherwise impair in any fashion at any time,
the availability of such Borrowed Shares during the Availability Period. The “Availability
Period” shall mean (i) the period commencing on the date hereof and ending on September
28, 2012. The undersigned also will use commercially reasonable efforts to
cooperate with the Issuer to assure that the Form S-3 registration statement
relating to the Borrowed Shares is available and effective for the loan of the
Borrowed Shares during the Availability Period.

 

Notwithstanding any of the covenants or
agreements set forth herein, in no event shall any such covenants or
agreements: (1) prohibit the undersigned from selling or otherwise disposing of
any or all of the Borrowed Shares in a “Change of Control Transaction” (as such
term is defined herein) or (2) affect or be deemed to affect the rights and
obligations of the undersigned as a director or officer of the Issuer
(including relating to any Board of Director vote), or the right of the
undersigned or any affiliate thereof to vote any shares of common stock of the
Issuer owned thereby, in favor of any Change of Control Transaction (provided
that if any affiliate of the undersigned acquires the Borrowed Shares pursuant
to a transaction described in the first bullet point below, such affiliate
shall assume the obligations hereunder) or on any other matter in the sole
discretion of the undersigned or any such affiliate, provided, however, that
the rights of the undersigned or any affiliate thereof set forth in this
sentence do not alter the undersigned’s or any such affiliate’s obligation to
loan to Jefferies, and not to dispose of, any new or different security 

 

 

exchanged for
the Borrowed Shares in connection with a recapitalization, merger,
consolidation, stock purchase or other corporate action.

 

For purposes of this letter, a “Change of
Control Transaction” means:

 

•                  the
acquisition by any “person” or group under Section 13(d)(3) of the Exchange Act
(collectively, “Person”) unaffiliated with the undersigned or affiliates (as
defined in the Securities Act of 1933, as amended) of the undersigned of
beneficial ownership, directly or indirectly, through a purchase, merger, or
other acquisition transaction or series of transactions, of shares of the
Issuer’s capital stock entitling such Person to exercise more than 50% of the
total voting power of all shares of the Issuer’s capital stock entitling the
holders thereof to vote generally in elections of directors, or

 

•                  any
consolidation of the Issuer with, or merger of the Issuer into, any other
Person, any merger of another Person into the Issuer, or any sale or transfer
of all or substantially all of the Issuer’s assets to another Person, other
than a merger or sale of assets that (x) is effected solely to change the
Issuer’s jurisdiction of incorporation and results in a reclassification,
conversion, or exchange of outstanding shares of common stock solely into
shares of common stock, or (y) does not have the result that the Issuer’s
shareholders immediately before such transaction beneficially own, directly or
indirectly, immediately following such transaction, less than 50% of the
combined total voting power of all shares of capital stock of the Person
resulting from such transaction entitling the holders thereof to vote generally
in elections of directors.

 

This Letter and the Loan Agreement shall
terminate in the event that: (i) the Issuer has redeemed all of its issued and
outstanding 10 Convertible Senior Secured Notes due 2012 (the “Notes”) in
accordance with the terms of the indenture governing the Notes, or (ii)  all of the issued and outstanding Notes have
been converted by the holders thereof into common stock in accordance with the
terms of the indenture governing the Notes.

 

	
   

  	
  KENNETH T. HERN

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Kenneth T. Hern

  	
   

  

 

 

September 28, 2007

 

Jefferies & Company, Inc.

520 Madison Ave.

New York, New York 10022

 

Ladies and
Gentlemen:

 

On the terms set forth in the Master
Securities Loan Agreement dated as of September 28, 2007 (the “Loan Agreement”),
between the undersigned and Jefferies & Company, Inc. (“Jefferies”), and
for other good and valuable consideration, the receipt of which is hereby
acknowledged, notwithstanding any other agreement, the undersigned has agreed
to lend or re-lend, in case the loan is terminated, to Jefferies up to 3.5
million shares (as such number of shares may be reduced based upon assignments
permitted by the last paragraph hereof, the “Borrowed Shares”) of common stock
of Nova Biosource Fuels, Inc., a Nevada corporation (the “Issuer”), owned
beneficially and of record by the undersigned. The undersigned hereby agrees
not to dispose of or encumber or otherwise impair in any fashion at any time,
the availability of such Borrowed Shares during the Availability Period. The “Availability
Period” shall mean (i) the period commencing on the date hereof and ending on
September 28, 2012. The undersigned also will use commercially reasonable
efforts to cooperate with the Issuer to assure that the Form S-3 registration
statement relating to the Borrowed Shares is available and effective for the
loan of the Borrowed Shares during the Availability Period.

 

Notwithstanding any of the covenants or
agreements set forth herein, in no event shall any such covenants or
agreements: (1) prohibit the undersigned from selling or otherwise disposing of
any or all of the Borrowed Shares in a “Change of Control Transaction” (as such
term is defined herein) or (2) affect or be deemed to affect the rights and
obligations of the undersigned as a director or officer of the Issuer
(including relating to any Board of Director vote), or the right of the
undersigned or any affiliate thereof to vote any shares of common stock of the
Issuer owned thereby, in favor of any Change of Control Transaction (provided
that if any affiliate of the undersigned acquires the Borrowed Shares pursuant
to a transaction described in the first bullet point below, such affiliate shall
assume the obligations hereunder) or on any other matter in the sole discretion
of the undersigned or any such affiliate, provided, however, that the rights of
the undersigned or any affiliate thereof set forth in this sentence do not
alter the undersigned’s or any such affiliate’s obligation to loan to
Jefferies, and not to dispose of, any new or different security 

 

 

exchanged for
the Borrowed Shares in connection with a recapitalization, merger,
consolidation, stock purchase or other corporate action.

 

For purposes of this letter, a “Change of
Control Transaction” means:

 

•                  the
acquisition by any “person” or group under Section 13(d)(3) of the Exchange Act
(collectively, “Person”) unaffiliated with the undersigned or affiliates (as
defined in the Securities Act of 1933, as amended) of the undersigned of
beneficial ownership, directly or indirectly, through a purchase, merger, or
other acquisition transaction or series of transactions, of shares of the
Issuer’s capital stock entitling such Person to exercise more than 50% of the
total voting power of all shares of the Issuer’s capital stock entitling the
holders thereof to vote generally in elections of directors, or

 

•                  any
consolidation of the Issuer with, or merger of the Issuer into, any other
Person, any merger of another Person into the Issuer, or any sale or transfer
of all or substantially all of the Issuer’s assets to another Person, other
than a merger or sale of assets that (x) is effected solely to change the
Issuer’s jurisdiction of incorporation and results in a reclassification,
conversion, or exchange of outstanding shares of common stock solely into
shares of common stock, or (y) does not have the result that the Issuer’s
shareholders immediately before such transaction beneficially own, directly or
indirectly, immediately following such transaction, less than 50% of the
combined total voting power of all shares of capital stock of the Person
resulting from such transaction entitling the holders thereof to vote generally
in elections of directors.

 

This Letter and the Loan Agreement shall
terminate in the event that: (i) the Issuer has redeemed all of its issued and
outstanding 10 Convertible Senior Secured Notes due 2012 (the “Notes”) in
accordance with the terms of the indenture governing the Notes, or (ii)  all of the issued and outstanding Notes have
been converted by the holders thereof into common stock in accordance with the
terms of the indenture governing the Notes.

 

	
   

  	
  J.D. MCGRAW

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ J.D. McGraw

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