Document:

Exhibit
10.21

 

MASTER
NETTING, SETOFF, CREDIT AND SECURITY AGREEMENT

BETWEEN

NOVA BIOFUELS OKLAHOMA LLC

AND

CONAGRA TRADE GROUP, INC.

THIS MASTER NETTING, SETOFF, CREDIT AND SECURITY
AGREEMENT (the “Master Agreement”) is made effective as of July 26, 2006, by
and between NOVA BIOFUELS OKLAHOMA LLC,
a Delaware limited liability company (“Nova”), and CONAGRA TRADE GROUP, INC., a Delaware corporation (“CTG”).

RECITALS:

A.            Nova and CTG are
parties to a certain Feedstock Agreement (“Feedstock Agreement”) and a certain
Biodiesel Sale and Purchase Agreement (“Biodiesel Agreement”), each of even
date herewith (collectively, the “Supply Agreements”).

B.            The Supply Agreements
require each party to make payment to, and to perform various supply and other
obligations for, the other party.

C.            Each party desires to
have the right to setoff, net, liquidate and terminate the transactions under
the Supply Agreements in accordance with the terms hereof, and this Master
Agreement is entered into in reliance on the parties’ agreement that this
Master Agreement, the Supply Agreements, and the transactions thereunder form a
single integrated agreement.

D.            The parties further
desire to set forth and establish certain credit and security obligations required
in connection with the Supply Agreements.

AGREEMENT:

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

1.             Definitions.  Except as defined herein or on Exhibit 1,
all capitalized terms shall have the meanings given to them in the Supply
Agreements.

2.             Netting of Payments.  Any amounts as to which a party has tendered
an invoice to the other pursuant to the Supply Agreements shall be due and
payable on the 15th day of the month of Delivery (for Deliveries
occurring during days 1-13 of such month) and on the second day of the month
following the month of Delivery (for Deliveries taking place after the 13th day of the prior month) (each a “Payment Date”).

At least two (2) business days before each Payment
Date, CTG shall provide Nova with a netting statement that identifies the
parties’ respective purchase and payment obligations under the Supply
Agreements during the applicable payment period, and the difference (the “Net
Settlement”) that results by netting the total amount each party owes to the
other party.  Nova shall notify CTG
within one (1) business day of receiving said netting statement of any
revisions it requests be made to such netting statement; provided, however,
that Nova’s failure to request

 

any revisions or
correction to a netting statement shall not be construed as a waiver of any
right to dispute same.  The Net
Settlement shall be paid by the party owing the greater amount.  Payment shall be made via wire transfer of
immediately available funds to the other party on the Payment Date.

If any portion of the Net Settlement remains subject
to dispute as of a Payment Date, the disputed amount shall nonetheless be paid
and then resolved pursuant to the terms of the applicable Supply
Agreement.  Any refund or additional
amounts owed shall be promptly paid upon resolution of the dispute.

If the Payment Date falls on a Saturday or bank
holiday other than a Monday, payment shall be made on the preceding banking
day.  If the Payment Date falls on a
Sunday or Monday bank holiday, payment shall be made on the succeeding banking
day.

3.             Credit and Security Requirements.

3.1           Initial Letters of Credit.

3.1.1        Startup
L/C.  Should Nova elect
not to pay cash in advance for the Startup Inventory, Nova shall, at the time
it places orders for the Startup Inventory, provide CTG with a Letter of Credit
(the “Startup L/C”) in an amount equal to the then-current market value of the
Startup Inventory.  If provided, the Startup
L/C shall remain in effect until payment has been received on the entire Startup
Inventory.

3.1.2        Standby
L/C.  Nova shall provide
CTG with a Letter of Credit (the “Standby L/C” in the amount of $[*] at the
time payment is made for the Startup Inventory. 
It is understood that an additional $[*] L/C would be needed to cover
forward contracts extending 91-180 days from confirmation.  The Standby L/C shall remain in effect during
the term of this Agreement; however every two (2) years the parties shall meet
and review Nova’s credit history with CTG and consider in good faith the
possibility of (a) reducing the value of, or (b) eliminating, the Standby L/C.

3.1.3        Terms;
Combined L/C.  The Startup
L/C, if any, and the Standby L/C shall each allow payment thereunder by
presentation of a letter signed by a senior officer of CTG to the issuing bank
which certifies (i) that Nova has failed to make payment in accordance with
Section 2, and (ii) the amount of such non-payment that is due and owing.  The Standby L/C shall be immediately restored
to $[*] if any such payments are made thereunder.  The Startup L/C (if any) and the Standby L/C
may, at Nova’s option, be combined into a single Letter of Credit that
satisfies the requirements of this Section and Sections 3.1.1 and 3.1.2.

*       Portions
omitted pursuant to a request for confidential treatment and filed seperately
with the Securities and Exchange Commission

3.2           Credit Requirements.  If at any time and from time to time during
the Initial Term or Renewal Term (and notwithstanding whether or not an event
of default has occurred under the Supply Agreements) a party’s (the “Secured
Party”) Exposure, as determined by the Valuation Agent, exceeds the Threshold
Amount applicable to the other party (the “Pledgor”) then a “Delivery Amount”
shall be deemed to exist.  Upon receipt
of written notice of the existence of an Exposure, which notice shall include
documentation in support of the Exposure calculation, the Pledgor shall deliver
Margin to the Secured Party in an amount equal to the Delivery Amount, subject
to the Margin rounding provisions in Section 3.3 of this Master

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Agreement.  Such Delivery Amount
shall be due by 5:00 p.m. on the business day following the Pledgor’s receipt
of the Secured Party’s request for such Delivery Amount if such request is
received by 12:00 p.m.  If such request
is received after 12:00 p.m., then such Delivery Amount shall be due by 5:00
p.m. on the second business day following the Pledgor’s receipt of such demand.

At any time before payment of the Delivery Amount is
due, the Pledgor may notify the Valuation Agent of any disputed amounts in the
Exposure calculation.  Pledgor shall in
any event timely pay, in accordance with the preceding paragraph, the entire Delivery
Amount, subject to adjustment for any amounts disputed by Pledgor and accepted
by the Valuation Agent.  Any amounts that
remain in dispute shall, within twenty four (24) hours after the Pledgor’s
dispute notice, be resolved between the parties in good faith using independent,
third-party prices as follows:

·              three
(3) such prices will be presented by CTG when available, and the middle such
price will be used; or

·              if
only two (2) such prices are available, the average of those prices will be
used.

On any business day (but no more frequently than
weekly with respect to any Letter of Credit or daily with respect to cash), the
Pledgor, at its sole cost, may request that the amount of Margin held by the
Secured Party be reduced by the amount (the “Return Amount”) by which the
Margin previously delivered by the Pledgor exceeds (i) the amount corresponding
to the Secured Party’s Exposure (as determined by the Valuation Agent but
subject to correction as provided in the foregoing provisions of this Section
3.2), minus (ii) the Pledgor’s Threshold Amount.  Any Return Amount shall:  (i) be rounded as provided herein, and (ii)
be delivered to the Pledgor within two (2) business days of the Pledgor’s
request therefor.

3.3           Rounding.  Any Delivery Amount shall be rounded upwards
to the next whole multiple of $10,000 and any Return Amount shall be rounded
downward to the next whole multiple of $10,000 unless the Return Amount is zero
or less, in which case the Return Amount shall be rounded to zero.

3.4           Security Interest.  Each party, as the Pledgor, hereby pledges
and grants to the other party, as the Secured Party, as security for its
obligations under this Master Agreement, a first priority continuing security
interest in all Margin transferred to or received by the Secured Party
hereunder (collectively, the “Posted Margin”). 
Upon the transfer by the Secured Party to the Pledgor of any Posted
Margin, the security interest granted hereunder in that amount of Posted Margin
will be released immediately and, to the extent possible, without any further
action by either party.  Upon demand made
by the Secured Party, the Pledgor shall execute, deliver, file and record a
financing statement and take any other action that may be reasonably necessary
or desirable and reasonably requested by the Secured Party to create, preserve,
perfect or validate any security interest granted hereunder, to enable the
Secured Party to exercise or enforce its rights hereunder with respect to
Posted Margin or to effect or document a release of a security interest in
Posted Margin.  The Pledgor will promptly
give notice to the Secured Party of, and defend against, any suit, action,
proceeding or lien that involves Posted Margin transferred by the Pledgor or
that could adversely affect the security interest granted by it hereunder.

The Secured Party will exercise reasonable care to
assure the safe custody of all Posted Margin, exercising at least the same
degree of care as it would exercise with respect to its own property.  Except as specified in the preceding
sentence, the Secured Party will have no duty

 3
 

 

with respect to Posted
Margin, including, without limitation, any duty to collect any distributions,
or to enforce or preserve any rights pertaining thereto.  The Secured Party will be entitled to hold Posted
Margin or, at its option, to appoint a custodian to hold such Posted Margin on
its behalf, subject to the following conditions:  (i) the Secured Party is not a defaulting
party, (ii) Margin is held only in the continental United States, and (iii) the
long-term unsubordinated unsecured debt of the custodian is rated at least “A”
by S&P or at least “A2” by Moody’s. 
The Secured Party will be liable for the acts or omissions of its
custodian to the same extent that the Secured Party would be liable hereunder
for its own acts or omissions.

3.5           Representations, Warranties and Covenants.  Each of Nova and CTG represent, warrant and
covenant to the other that:

(a)           Except
as set forth in Section 3.4, it has not assigned, transferred, created or
permitted to exist any lien or other encumbrance on, or otherwise disposed of,
or purported to assign, transfer, create or permit to exist any lien or other
encumbrance on, or otherwise dispose of, the Posted Margin or any of its rights
to any amounts that may be owed to it under the Supply Agreements, to any third
party, and covenants that, so long as this Master Agreement is in effect, it
will not assign, transfer, create or permit to exist any lien or other
encumbrance on, or otherwise dispose of or purport to assign, transfer, create
or permit to exist any lien or other encumbrance on, or otherwise dispose of,
the Posted Margin or any of its rights to any amounts that may be owed to it
under the Supply Agreements, to any third party;

(b)           It
is not relying upon any representations of the other party other than those
expressly set forth in this Master Agreement, the Supply Agreements or any
confirmation issued pursuant thereto;

(c)           It
has entered into this Master Agreement with a full understanding of the
material terms and risks of the same, and it is capable of assuming those
risks.

3.6           Interest on Margin.  Assuming no event of default has occurred as
set forth in Section 4.1 with respect to the Pledgor, and to the extent a
Delivery Amount would not be created or increased as a result of such payment,
the Secured Party will transfer to the Pledgor, by no later than the tenth (10th) day of each month, the
interest amount, calculated at LIBOR, attributable to any cash Margin posted by
the Pledgor during the time such Margin is held by the Secured Party during the
previous month, as calculated by the Valuation Agent.  Any such interest amount or portion thereof
which is not transferred to the Pledgor pursuant to this Section 3.6 will constitute
Posted Margin and will be subject to the security interest granted under
Section 3.4 of this Master Agreement.

4.             Close-out/Remedies/Settlement.

4.1           Right to Close-Out Transactions/Remedies.

Upon the occurrence of an event of default or
termination event as set forth in Sections 8.2 or 8.3 of the Feedstock
Agreement or Sections 12.2 or 12.3 of the Biodiesel Agreement (and after the
expiration of any cure periods therein, as applicable), or upon a default of
any obligation under this Master Agreement, the non-defaulting party shall
immediately have the right to close out (i.e. accelerate, terminate, liquidate
and cancel) all (but not less than all) the transactions under the Supply
Agreements, other than those which are commercially impracticable or illegal to
terminate, by providing written notice to the defaulting party, except

 4
 

 

that no notice shall be
required for the close-out of any transaction that has been closed out by its
own terms prior to the delivery of such notice.

If an above-described event of default or termination event
under a Supply Agreement shall continue following expiration of an applicable
cure period, the non-defaulting party shall have the right to: (i) withhold any
payments and/or suspend performance for transactions under the Supply
Agreements, provided, however, that the right to suspend payment and/or
performance under transactions shall be limited to a single fourteen (14) day
period, unless the non-defaulting party has provided notice to the defaulting
party specifying an early termination date (in which event suspension of
payment and performance may continue until such date); (ii) exercise rights of
setoff, netting, recoupment and otherwise pursuant to the terms of this Master
Agreement; (iii) retain, draw on, liquidate and apply any Margin delivered by
the defaulting party against amounts owed to the non-defaulting party; and (iv)
give notice to the defaulting party specifying the relevant event of default
and that the non-defaulting party is exercising its rights pursuant to this
Master Agreement by declaring the defaulting party in default under the Supply
Agreements and all transactions thereunder, and designating a day, no earlier
than the day such notice is effective and no later than twenty (20) days after
such notice is effective, as the close-out date for all such transactions.  The non-defaulting party’s exercise of rights
pursuant to the terms hereof shall be without prejudice to any other or further
exercise of rights or remedies which the non-defaulting party may possess,
including, but not limited to, maintaining an action for breach of contract.

4.2           Determination and Settlement of Settlement
Amounts.

As of the close-out date specified by the
non-defaulting party: (i) all the transactions under the Supply Agreements
shall be closed out (or, to the extent that in the commercially reasonable
judgment of the non-defaulting party it is commercially impractical or illegal
to close out certain of such transactions, such transactions shall instead be
closed out on the date or dates determined by the non-defaulting party
occurring as soon after the close-out date as is reasonably practicable),
subject to the rights of setoff, recoupment, and otherwise as may be provided
for herein or at law; provided, however, that if an obligation is
unascertainable, the non-defaulting party may, acting in a commercially
reasonable manner, estimate the amount of such obligation and setoff or recoup
in respect of the estimate, subject to accounting to the defaulting party when
the obligation is ascertained; and (ii) the non-defaulting party shall
calculate the Settlement Amount for each terminated transaction or group of
terminated transactions and determine the Settlement Amount with respect to
each of the Supply Agreements.

Promptly after determination of the Final Net Settlement
Amount, the non-defaulting party shall determine the single amount (if any)
payable by one party hereunder and provide the defaulting party with a
statement showing (in commercially reasonable detail) the calculation of the
Final Net Settlement Amount.  The Final
Net Settlement Amount shall be payable by the party from whom such payment is
due on the second (2nd) business day after which the statement is provided by
the non-defaulting party.  If all or any
portion of the Final Net Settlement Amount is not paid on or before such date,
then the unpaid amount shall bear interest at a rate equal to LIBOR plus 2% per
annum.

4.3           Setoff.  In the event the Final Net Settlement Amount
is payable to the defaulting party, the non-defaulting party may, at its option
and without prior notice to the defaulting party, set off the Final Net
Settlement Amount or any part thereof against any payment obligation of, as
well as other amounts (whether for Claims or otherwise) that are reasonably
quantifiable and owed by, the defaulting party under any agreements,
instruments or undertakings by the parties including, but not limited to, any
amounts owing under the Supply Agreements. 
This right of

 5
 

 

setoff shall be without prejudice and in
addition to any right of setoff, combination of accounts, lien, charge or other
right to which the non-defaulting party is at any time otherwise entitled
(whether by operation of law, by contract or otherwise).  If an amount is unascertained, the non-defaulting
party may reasonably estimate the amount to be setoff.

4.4           Termination Due to Force Majeure.  The close-out rights available to the
non-defaulting party under Sections 4.1 and 4.2 shall also be available to the
party that terminates either of the Supply Agreements due to Force Majeure.

5.             Miscellaneous.

5.1           Term.  This Master Agreement shall continue in
effect until the Supply Agreements have been terminated and all amounts owing
thereunder shall have been fully and indefeasibly paid.

5.2           Assignment.  Neither party may assign this Master 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.

5.3           Notices.  Any written notices required hereunder shall
be given in accordance with the terms of the Supply Agreements.

5.4           Inurement.  This Master Agreement will inure to the
benefit of and be binding upon the respective successors and permitted assigns
of the parties.

5.5           Entire Agreement.  This Master Agreement and the Supply
Agreements (including Confirmed Orders issued pursuant thereto), constitute 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.  In the event of any conflict between the
terms of this Master Agreement and either of the Supply Agreements, this Master
Agreement shall govern.

5.6           Governing Law; Venue.  This Master Agreement will be interpreted,
construed and enforced in accordance with the procedures, substantive and other
laws of the State of Oklahoma 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 the dispute
resolution provisions in the Supply Agreements, all disputes arising out of
this Master Agreement shall be resolved exclusively by state or federal courts
located in Oklahoma, and each of the parties waives any objection that it may
have to the bringing of an action in any such court.

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

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

 6
 

 

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

5.10         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.

5.11         Time.  Except for purposes of determining LIBOR, all
times described herein will be local time in Omaha, Nebraska.

IN WITNESS WHEREOF, the parties have each executed
this Master Agreement on the date first above written.

	
  NOVA BIOFUELS OKLAHOMA LLC, a

  Delaware limited liability company

  	
   

  	
  CONAGRA TRADE GROUP, INC., a

  Delaware corporation

  
	
   

  	
   

  	
   

  
	
  By:

  	
  Kenneth T. Hern

  	
   

  	
   

  	
  By:

  	
  M.P. Hygin

  	
   

  
	
  Its:

  	
  CEO

  	
   

  	
   

  	
  Its:

  	
  Executive Vice
  President

  	
   

  

 

 7
 

 

EXHIBIT 1

DEFINITIONS

For purposes of this Master Agreement:

“Exposure” means
an amount equal to the amount that would result from closing-out each
then-existing transaction for the purchase or sale of biodiesel or feedstock
under the Supply Agreements and calculating the Gain or Loss, if any, for each
such transaction, and aggregating or netting such amounts, without duplication,
against any or all other amounts owing under the Supply Agreements to a single
liquidated settlement payment; provided that the Exposure shall be deemed to be
zero whenever the above calculation yields a number less than zero.

 “Final Net
Settlement Amount” means the sum of the Settlement Amounts, provided that (i)
in the event the sum of the Settlement Amounts is positive, it shall be reduced
by any amount received by the non-defaulting party (if any) to the extent the
non-defaulting party shall exercise its rights to apply Margin delivered by the
defaulting party; or (ii) in the event the sum of the Settlement Amounts is
negative, it shall be added to the value of any Margin held by the non-defaulting
party.  If the Final Net Settlement
Amount is a positive amount, then such amount shall be owed by the defaulting
party to the non-defaulting party; and if the Final Net Settlement Amount is a
negative amount, then the absolute value of such amount shall be owed by the
non-defaulting party to the defaulting party, subject to the rights of the
non-defaulting party to setoff, recoup, withhold or suspend payment as set
forth in this Master Agreement or at law.

“Gains” means, with respect to any transaction or
group of transactions, an amount determined by the non-defaulting party in a
commercially reasonable manner and expressed as a negative number equal to the
present value as of the close-out date (discounted at the rate determined in a
commercially reasonable manner by the non-defaulting party for the period
between the close-out date and the date on which amounts under the transaction
or group of transactions would have otherwise been due as determined by the
non-defaulting party in any commercially reasonable manner, if appropriate) of
the economic benefit (exclusive of costs and expenses) to the non-defaulting
party, if any, resulting from the termination of such transaction or group of
transactions pursuant to this Master Agreement. 
Nothing herein shall require the non-defaulting party to enter into a
replacement transaction in order to determine its Gains.

“Letter of Credit” means an irrevocable,
non-transferable standby letter of credit, issued by a major U.S. commercial
bank, and in a form, reasonably acceptable to the Secured Party.

“LIBOR” means the per annum rate of interest equal to
the London Interbank Offered Rate for overnight deposits at 11:00 a.m. (London
time), from time to time in effect, as reported on Telerate.

 “Losses” means,
with respect to any transaction or group of transactions, an amount determined
by the non-defaulting party in a commercially reasonable manner and expressed
as a positive number equal to the present value as of the close-out date
(discounted at the rate determined in a commercially reasonable manner by the
non-defaulting party for the period between the close-out date and the date on
which amounts under the transaction or group of transactions would have
otherwise been due as determined by the non-defaulting party in any
commercially reasonable manner, if appropriate) of the economic loss (exclusive
of costs and expenses), to the non-defaulting party, if any, resulting from the
termination of such transaction

 8
 

 

or group of transactions
pursuant to this Master Agreement. 
Nothing herein shall require the non-defaulting party to enter into a
replacement transaction in order to determine its Losses.

“Margin” means:

(i)            With
respect to CTG:  (a) cash, or (b) Letter
of Credit; and

(ii)           With respect to
Nova:  (a) cash, or (b) Letter of Credit
(excluding the Startup L/C and the Standby L/C).

“Settlement Amount” means, with respect to a
terminated transaction or group of terminated transactions: (i) the sum of (a) “Losses”
or “Gains,” as applicable, plus (b) without duplication of any amounts included
in the foregoing, reasonable costs and expenses incurred by the non-defaulting
party directly related to the administration of such terminated transaction or
group of terminated transactions; plus (c) without duplication of any amounts
included in the foregoing, any unpaid amounts owed by the defaulting party to
the non-defaulting party with respect to such terminated transaction or group
of terminated transactions less (ii) without duplication of any amounts
included in the foregoing, any unpaid amounts owed by the non-defaulting party
to the defaulting party with respect to such terminated transaction or group of
terminated transactions.  Each Settlement
Amount may be either a positive amount (if owed to the non-defaulting party) or
a negative amount (if owed to the defaulting party).

  “Startup
Inventory” means the amount of Feedstock that would normally be needed during
the first ten (10) days of the Startup Period.

“Threshold Amount” means:

(i)            With
respect to CTG, $10,000,000; and

(ii)           With respect to Nova,
$0,

provided, however, that if an event of default has
occurred and is continuing with respect to a party, then such party’s Threshold
Amount shall be $0; provided, further, that CTG and Nova shall meet every two
(2) years to review and evaluate Nova’s credit history and to negotiate in good
faith any adjustment to Nova’s Threshold Amount.

“Valuation Agent” means CTG or, if an event of default
has occurred and is continuing with respect to CTG, Nova or a mutually-agreed
third party.

 9Exhibit
10. 26

Summary of Changes to Compensation of Certain
Executive Officers

On July
31, 2006, the Compensation Committee amended the vesting conditions of the
non-qualified stock options previously awarded to Leon van Kraayenburg, Vice
President of Finance of the Company, on June 17, 2006, to provide for continued
vesting regardless of a termination of Continuous Service and that such options
will accelerate and vest upon a termination of employment.  In addition, the Committee increased the
salary of Russell D. Sammons, the Company’s Vice President of Operations,
Richard Talley, President of the Company’s operating subsidiary, Biosource
America, Inc., and Leon van Kraayenburg to $125,000 per year.

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