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2008-266ORDINANCE NO. ~p AN ORDINANCE OF THE CITY OF DENTON, TEXAS APPROVING, AND AUTHORIZING THE CITY MANAGER TO EXECUTE, A PROPOSED COMPROMISE SETTLEMENT AGREEMENT ("AGREEMENT") BETWEEN THE CITY OF DENTON, BIODIESEL INDUSTRIES, INC., AND BIODIESEL INDUSTRIES OF GREATER DALLAS FORT WORTH LLC, REGARDING CIVIL ACTION NO. 4:08-CV-173 IN THE U.S. DISTRICT COURT FOR THE EASTERN DISTRICT OF TEXAS, SHERMAN DIVISION; AND DECLARING AN EFFECTIVE DATE. THE COUNCIL OF THE CITY OF DENTON HEREBY ORDAINS: SECTION 1. The City Council hereby approves the proposed Compromise Settlement Agreement between the City of Denton and Biodiesel Industries, Inc. and Biodiesel Industries of Greater Dallas Fort Worth, LLC, regarding Civil Action No. 4:08-CV-173, currently pending in the U.S. District Court for the Eastern District of Texas, Sherman Division, substantially in the form of the attached Compromise Settlement Agreement. SECTION 2. The City Manager, or his designee, and the City's Attorneys are hereby authorized to act on the City's behalf in approving and executing any and all documents, and to take other actions necessary to finalize the settlement. SECTION 3. This ordinance shall become effective immediately upon its passage and approval. PASSED AND APPROVED this the day of , 2008. A~-BbPRR(JGHS, MAYOR ATTEST: JENNTIFER WALTERS, CITY SECRETARY BY: UNN%,A _ I 1 (A Y Y n ^ 7 APPROVED AS~-TO LEGAL FORM: ANITA BURGESS; C-ITY A-TTORNEY B sAour documents\ordin=ccs\08%iodiese1 settki nt ordimnce.doc L. I IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF TEXAS SHERMAN DIVISION CITY OF DENTON, TEXAS, § PLAINTIFF § vs. § BIODIESEL INDUSTRIES, INC., § and § BIODIESEL INDUSTRIES OF § GREATER DALLAS FORT WORTH § LLC, § DEFENDANTS § CIVIL ACTION NO. 4:08-cv-173 COMPROMISE SETTLEMENT AGREEMENT BACKGROUND Plaintiff seeks money damages and other relief based on incidents alleged in the Lawsuit. The Parties desire to enter into this Agreement with the intention that Plaintiff file a motion for a dismissal without prejudice of the Lawsuit after Defendants execute a Promissory Note in favor of Plaintiff in the amount of $650,000 to be paid in full within the 180-day time period stated in the Promissory Note. If Defendants fully comply with the requirements of this Agreement and do not default on their joint-and-several obligations under the Promissory Note, then all disputes between the parties regarding the Lease shall be resolved by the execution of mutual releases. In consideration of the mutual promises and obligations set forth in this Agreement, the Parties agree as follows: AGREEMENT Definitions "Agreement" means this Compromise Settlement Agreement. 2. "Court" means the United States District Court, Eastern District, Sherman Division. 3. "Defendants" mean Biodiesel Industries, Inc. and Biodiesel Industries of Greater Dallas Fort Worth LLC COMPROMISE SETTLEMENT AGREEMENT PAGE 1 OF 13 4. "Defendants and Affiliates" mean Biodiesel Industries, Inc. and Biodiesel Industries of Greater Dallas Fort Worth LLC and their respective past, present and future officials, officers, shareholders, principals, employees, independent contractors, agents, attorneys, legal representatives, predecessors, successors, assigns and insurers. 5. "Lawsuit" means Civil Action No. 4:08-cv-173 filed in the Sherman Division of the Eastern District of Texas United States District Court. 6. "Lease" means that certain Equipment Sale, Lease, and License Agreement that: a. has a cover page titled "EQUIPMENT SALE, LEASE, AND LICENSE AGREEMENT" dated March 23, 2004; b. is 30 pages in length including said cover page, followed by 27 numbered pages including EXHIBIT A, EXHIBIT B and EXHIBIT C, and also includes two numbered pages consisting of a document titled "AMENDMENT TO EQUIPMENT SALE, LEASE, AND LICENSE AGREEMENT"; and c. is attached to this Agreement as Exhibit 1. 7. "MPU" means the modular processing unit at the Site consisting of the following component parts: (1) two 1,500 gallon reactors with hot water heating coils and plumbing composed of 304 stainless, with circulation pumps and level sensors; (2) one, 300 gallon tank for mixing alcohol and catalyst and plumbing, composed of 304 stainless, with circulation pump; (3) two CINC V- 10 centrifuges and plumbing configured with the reactors to separate biodiesel, glycerin and water; (4) two drying columns with plumbing designed to remove water from biodiesel; (5) one filter system designed to remove particulates and water from biodiesel; (6) one distillation system designed to remove alcohol from glycerin, composed of stainless steel; (7) one control panel designed to control all electrical functions of the above equipment, with an emergency cut off switch on the panel and on the processing equipment, with said panel being mounted in a remote control room separated from the above-described equipment; and (8) any parts, improvements, components or materials that have been modified or replaced on the MPU and the parts or components that modified or replaced same. 8. "Parties" mean Plaintiff and Defendants. 9. "Plaintiff" means the City of Denton. COMPROMISE SETTLEMENT AGREEMENT PAGE 2 OF 13 10. "Plaintiff and Affiliates" mean the City of Denton and its respective past, present and future officials, officers, shareholders, principals, employees, independent contractors, agents, attorneys, legal representatives, predecessors, successors, assigns, and insurers. 11. "Promissory Note" means the written, fully-executed, joint-and-several obligation of Defendants as further described in paragraph 14 of this Agreement, the form of which is attached to this Agreement as Exhibit 2. 12. "Site" means the area located within the City of Denton's landfill site that contains the equipment and other property used in the operations of the biodiesel plant as referenced in paragraph 4.5 of the Lease. Settlement Payment and Promissory Note 13. In consideration for Plaintiffs promise to file a motion to dismiss the Lawsuit without prejudice, to temporarily abate filing suit against Defendants as described in more detail in this Agreement and for Plaintiff's other promises and obligations as set forth in this Agreement, Defendants must pay $650,000-referred to as the "Settlement Payment"-in the form of a cashier's check or certified check made payable to "City of Denton" or another form of payment acceptable to Plaintiff in the amount of $650,000 and must deliver said Settlement Payment to the Plaintiff's place of delivery for notices set forth in this Agreement on or before the expiration of time to make the payment under the Promissory Note. 14. The obligation to make the Settlement Payment shall be further reduced to a written Promissory Note, which Defendants must execute in favor of Plaintiff and in which Defendants shall have the joint and several obligation to pay Plaintiff the amount of the Settlement Payment within the time period stated in the Promissory Note. Said Promissory Note shall be fully executed by Defendants on or before 10 days after the effective date of this Agreement in the form attached to this Agreement as Exhibit 2. Dismissal of Lawsuit Without Prejudice 15. Plaintiff agrees that it will file with the Court-within 10 days of its receipt of: (1) the Promissory Note fully executed by Defendants; and (2) the instruments required to be provided to Plaintiff by Defendants under paragraph 21 of this Agreement-a motion to dismiss the Lawsuit without prejudice to the refilling of same. 16. Plaintiff further agrees that it will forego and be restrained by this Agreement from filing suit against the Defendants and Affiliates on the basis of the same COMPROMISE SETTLEMENT AGREEMENT PAGE 3 OF 13 or similar facts and causes of action that are set forth in the Lawsuit unless and until either of the Defendants commits a material breach of this Agreement and, in the case of a curable breach, fails to cure such breach within the time limits set forth in paragraph 29 of this Agreement. Ownership and Use of MPU 17. The Parties Agree that-as a result of Plaintiff's prior purchase of the MPU under the Lease-Plaintiff is the full and rightful owner of the MPU. Defendants agree to not assert any rights that would interfere in any way with the full ownership and use of the MPU under any circumstances unless and until Biodiesel Industries, Inc. becomes entitled to ownership of the MPU under this Agreement by timely making the Settlement Payment in accordance with this Agreement and the Promissory Note, except that Defendants may seek specific performance of Plaintiff's obligations under paragraph 19 of this Agreement. 18. Provided that the Defendants timely pay or cause to be paid to Plaintiff the full Settlement Payment in accordance with the terms of this Agreement and the Promissory Note, and do not materially breach this Agreement without curing said breach within the time limits set forth in paragraph 29 of this Agreement, all right, title, and ownership interest held by Plaintiff in the MPU shall be granted to Biodiesel Industries, Inc. in the form of a bill of sale to be executed by Plaintiff within 10 business days of its receipt of the timely-made Settlement Payment. 19. Unless and until Defendants materially breach this Agreement or the Promissory Note, Plaintiff may not sell, lease or place any new encumbrance on the MPU. 20. If Defendants do not timely make the Settlement Payment in accordance with the terms of this Agreement and the Promissory Note, or Defendants otherwise materially breach this Agreement and fail to cure such breach within the time period set forth in paragraph 29 of this Agreement if any cure is available therein, then, and not by way of limitation: (1) Plaintiff shall retain its full ownership interest in the MPU; (2) Defendants are deemed to have granted Plaintiff an unrestricted, permanent, and irrevocable license to use the MPU-in combination with any other equipment, improvements, technology, proprietary rights, proprietary information or anything else-for any purpose whatsoever, notwithstanding any prior agreement or license to the contrary; (3) Defendants are deemed to have granted Plaintiff an unrestricted, permanent, and irrevocable license to produce and sell or otherwise use biodiesel fuel in any market, territory or other geographical region, notwithstanding any prior agreement or license to the contrary; (4) COMPROMISE SETTLEMENT AGREEMENT PAGE 4 OF 13 Defendants will thereafter not assert in any suit or other legal proceeding- and will indemnify and hold harmless Plaintiff and Affiliates from-any claims arising out of or in any way related to the Lease; (5) Plaintiff may reinitiate suit against one or both Defendants or other responsible parties for claims including without limitation any or all of the claims brought under the Lawsuit and for breach of this Agreement or the Promissory Note, without any limitation on any recovery that Plaintiff may prove itself entitled under applicable law; (6) in the event of litigation Defendants may assert-although Plaintiff does not concede that Defendants are entitled to-the right to purchase the MPU from Plaintiff under the Lease terms; and (7) in the event of default Defendants may remove all equipment from the Site with the exception of the MPU and any other items over which Plaintiff has ownership or maintains a possessory interest. Release of Security Interest in the MPU 21. Within 10 business days after the execution of this Agreement, Defendants must obtain, properly file with the appropriate authorities, and provide to Plaintiff true and correct copies of fully executed, valid releases or partial releases of and from any and all existing UCC Financing Statements, liens, security interests and any other encumbrances ("Liens") that provide United Commercial Bank in San Fransisco, CA or any lender, creditor or other third party any right to seek any collateral owned or controlled by either Defendant or any of their affiliates, such that said releases or partial releases shall validly modify and sufficiently clarify such Liens to expressly exempt the MPU from any collateral, property or other rights pledged under any such Lien. For a release or partial release to be validly modified or sufficiently clarified, the Lien must be fully extinguished by the release, or, at a minimum, a partial release must legally alter the Lien, must be legally binding on the lender or creditor, and must set forth at a minimum-in bold face, underlined typeset- the following statement or a substantially similar statement to ensure the result that the MPU be expressly exempted from any collateral or security pledged under the Lien: "Notwithstanding any contrary Provision of the instrument that is amended or modified herewith, it is expressly agreed and understood that a certain piece of equipment that is-as of the date of the execution hereof-owned, controlled or in the possession of the City of Denton, Texas, and further defined hereinafter as an `MPU' is not included within the collateral or security that is pledged under or that is the subject of said instrument. Said MPU is defined as: (1) Two, 1,500 gallon reactors with hot water heating coils and plumbing composed of 304 stainless, with circulation Bumps and level sensors: (2) one, 300 gallon tank for mixing alcohol and catalyst and plumbing, composed of COMPROMISE SETTLEMENT AGREEMENT PAGE 5 OF 13 304 stainless, with circulation pump; (3) two CINC V-10 centrifuges and plumbing configured with the reactors to separate biodiesel, glycerin and water; (4) two drying columns with plumbing designed to remove water from biodiesel; (5) one filter system designed to remove particulates and water from biodiesel; (6) one distillation system designed to remove alcohol from glycerin, composed of stainless steel: (7) one control panel designed to control all electrical functions of the above equipment, with an emergency cut off switch on the panel and on the processing equipment, with said panel being mounted in a remote control room separated from the above-described equipment; and (8) any parts, improvements, components or materials that have been modified or replaced at any time to the MPU and the parts or components that modified or replaced same." Site and Property Security 22. The Parties acknowledge and agree that as of the date of this Agreement, Plaintiff and Affiliates adequately maintained the Site and all equipment and other property located thereon, and Defendants agree that they have not and shall not assert or pursue any claim whatsoever that Plaintiff or Plaintiff and Affiliates have caused or allowed any damage or deterioration of any of the equipment or other property currently located on or at the Site at any time before Defendants execute this Agreement. 23. The Parties further acknowledge and agree that to maintain proper security at the Site, which is located on City-owned property, it was necessary and prudent that the Plaintiff take adequate steps-and Plaintiff has taken adequate steps-to secure the Site, including erecting a fence with a locked gate around the Site. 24. Defendants agree that at least until after the expiration of the 180-day time period set forth in the Promissory Note, Defendants may not remove any equipment or other property from the Site without obtaining prior written permission from the City of Denton City Attorney's office. 25. The Parties acknowledge and agree that under no circumstances shall this Agreement be interpreted to create a bailment between the. Parties with respect to the equipment or other property located on or at the Site and Defendants waive and will not assert or pursue any rights and remedies at common law or under statute to pursue any action against Plaintiff or Plaintiff and Affiliates with respect to the security or condition of the equipment or property located on or at the Site. COMPROMISE SETTLEMENT AGREEMENT PAGE 6 OF 13 26. The Parties acknowledge and agree that from time to time Defendants may need to access the Site in order to allow inspection by persons who may be interested in proposing a business transaction relating to the Site. Plaintiff will make its best efforts to accommodate such Site inspections, provided that Defendants provide notice at least two business days in advance of any Site inspection by contacting the City of Denton City Attorney's office and receiving confirmed scheduling for a Site inspection from said office. Defendants agree not to make any attempt to access the Site unless and until such confirmation is received. Material Breach 27. This Agreement shall be considered to have been materially breached by Plaintiff if Plaintiff fails to properly discharge its obligations-if and when the time for discharge of such obligations has expired-under the following paragraphs of this Agreement: 15, 16 or 19. 28. This Agreement shall be considered to have been materially breached by Defendants if either of them fail to properly discharge their obligations-if and when the time for discharge of such obligations has expired-under the following paragraphs of this Agreement: 13, 14, 17, 21, 22, 24, 25 or 26. Limited Opportunity to Cure Breach 29. If a material breach of this Agreement can reasonably be cured by the breaching party, then such cure must be fully accomplished within 30 days after the breaching party receives written notice from the nonbreaching party describing with specificity the material breach. The curing of any material breach shall include sending written notice to the nonbreaching party within five business days of the date that the cure has been fully effectuated and said notice must include a specific description and clear proof of said cure. Notwithstanding anything to the contrary in this paragraph or elsewhere in this Agreement, a breach of Defendants' joint and several obligation to make the Settlement Payment within the time period required under the Promissory Note is a material breach of this Agreement that cannot be cured, and for which Plaintiff is not obligated to give any type notice. The Promissory Note may be sued upon separate and apart from any provision of this Agreement. Remedies for Uncured Material Breach 30. A material breach that remains uncured after 30 days written notice is sent by the non-breaching party-setting forth with specificity a description of the breach-excuses the nonbreaching party from the performance of its COMPROMISE SETTLEMENT AGREEMENT PAGE 7 OF 13 obligations under this Agreement and entitles the nonbreaching party to seek all remedies available at law or in equity. Mutual Release of Liability 31. Provided that the Defendants timely pay or cause to be paid to Plaintiff the full Settlement Payment in accordance with the terms of this Agreement and the .Promissory Note, and do not materially breach this Agreement without curing said breach within the time limits set forth in paragraph 29 of this Agreement, then within 20 business days after Plaintiff's receipt of the full amount of the Settlement Payment, the Parties shall execute a mutual release in form and substance mutually agreeable to the Parties that shall result in: (1) the termination of the Lease and all rights and obligations thereunder to the extent the Lease has not already been terminated; (2) the termination of this Agreement, excepting any provisions that expressly survive this Agreement; and (3) a mutual release among the Parties from all past, present and future claims, counterclaims, proceedings, demands, lawsuits, actions and causes of action-whether arising in contract, tort, equity or any other theory of law and whether known or unknown-relating in any way to the incidents alleged or which could have been alleged in the Lawsuit. Mediation Requirement Rescinded 32. Section 17.15 of the Lease contains a requirement that in the case of a dispute, cooperation and meetings of the parties, and potentially mediation, are required to attempt to resolve the dispute. 33. The Parties understand and agree that they have met in person and exchanged numerous communications as part of efforts to resolve the disputes between them and that there is no longer a necessity to require the parties to proceed with a mediation or other type of alternate dispute resolution (°ADR"). Therefore, Section 17.15 of the Lease is rescinded in its entirety and is null and void. 34. Further, any other agreement, requirement or understanding in place before the execution by the Parties of this Agreement relating to mediation or other type of ADR is hereby rescinded, null, and void and there is no longer any mandatory mediation or other ADR requirement relating to disputes between the Parties. 35. The Parties further state the express intention that should there be an uncured material breach under the Promissory Note or other breach of this Agreement, the Parties are not required to participate in mediation or other ADR process before bringing suit in a court of law or equity and that the COMPROMISE SETTLEMENT AGREEMENT PAGE 8 OF 13 foregoing provisions that eliminate any requirement to mediate or proceed with any other ADR shall survive this Agreement or its termination. Waiver 36. If Defendants do not timely make the Settlement Payment in accordance with the terms of this Agreement and the Promissory Note, or Defendants otherwise materially breach this Agreement and fail to cure such breach within the time period set forth in paragraph 29 of this Agreement, then Defendants expressly agree: a. to waive and not assert in any legal proceeding any defense of limitations, laches, res judicata, or any other claim-preclusion defense under the law of any jurisdiction that may otherwise prevent Plaintiff from bringing any claims that it may have had or which may accrue against Defendants that arise under, grow out of or are in any way related to the Lease, this Agreement or the Promissory Note; b. to waive presentment of claim and any other notice requirement or prerequisite to remedies available under Texas Civil Practice & Remedies Code § 38.001, et seq. Confidentiality 37. Defendants agree to keep the terms of this Agreement confidential, except as may be necessary to inform legal or accounting professionals, or lending institutions. Governing Law and Venue 38. In the case that any dispute should arise regarding this Agreement or any of its provisions, the Parties agree that its terms and provisions are to be construed solely in accordance with the laws of the State of Texas, and that any lawsuit which involves this Agreement, the Lease or the Promissory Note (directly or indirectly), may only be filed and litigated in -a court of competent jurisdiction in Denton County, Texas, or the United States District Court for the Eastern District of Texas, Sherman Division. Additional Documents 39. The Parties agree to cooperate fully and execute any and all supplementary documents and to take all additional actions which may be necessary or appropriate to give full force and effect to the basic terms and intent of this Agreement. COMPROMISE SETTLEMENT AGREEMENT PAGE 9 OF 13 Entire Agreement, Successors in Interest and Conflict of Agreements 40. This Agreement contains the entire agreement and understanding between the Parties, is contractual and not mere recital, and shall be binding upon and inure to the benefit of the Parties. To the extent of any conflict between this Agreement and the Lease, this Agreement shall govern. Advice of Counsel 41. The Parties have had the assistance and advice of independent legal counsel throughout the negotiations leading to this Agreement, and they have read this Agreement and consulted with their respective counsel regarding the meaning and effect of this Agreement. The Agreement has been jointly drafted and is not to be more strictly construed against one party than another. Execution and Effective Date 42. To fully execute this Agreement, each Party must affix the signature of its agent who has authority to fully bind the Party to this Agreement and the affixing of the agent's signature must be witnessed and acknowledged by a Notary Public. This Agreement shall become effective on the date that the Parties fully execute same. In the event that the Parties do not fully execute this Agreement on the same date, then the effective date is the date on which the last party to execute has fully executed this Agreement. Notice 43. Any notices or other items required to be delivered to a party under this Agreement must be delivered via certified U.S. mail, return receipt requested, overnight delivery by Federal Express, UPS or DHL, or facsimile to the address or facsimile number of the respective Parties as listed below, or to an alternative address or facsimile number if a Party chooses to designate an alternative place of delivery provided that such designation is in writing and delivered in accordance with this section. a. Place of delivery for the City of Denton: Attn: City Attorney City of Denton 215 E. McKinney St Denton, TX 76201 Fax: 940-382-7923 COMPROMISE SETTLEMENT AGREEMENT PAGE 10 OF 13 b. Place of delivery for Biodiesel Industries, Inc.: Michael Cassady Biodiesel Industries, Inc. Biodiesel Industries of Greater Dallas Fort Worth LLC PO Box 3323 Danville, CA 94526 Fax: 925-743-1970 c. Place of delivery for Biodiesel Industries of Greater Dallas Fort Worth LLC: Michael Cassady Biodiesel Industries, Inc. Biodiesel Industries of Greater Dallas Fort Worth LLC PO Box 3323 Danville, CA 94526 Fax: 925-743-1970 Miscellaneous 44. Notwithstanding anything in this Agreement, Plaintiff does not concede that the Lease was not validly terminated as a result of Defendants' alleged breach of same. Modifications 45. This Agreement cannot be changed or terminated unless by its own terms or by a subsequent agreement in writing that is personally signed by all the Parties. Invalid provisions 46. If any part of this Agreement is for any reason found to be invalid, illegal, or unenforceable, all other parts nevertheless remain valid, legal and enforceable. Headings 47. The headings to the provisions of this Agreement are solely for the convenience of reference and are not to be construed as terms of this Agreement. COMPROMISE SETTLEMENT AGREEMENT PAGE 11 OF 13 No Other Representations 48. Other than the written representations made in this Agreement, there are no other representations related to this Agreement and the Parties do not rely on any other representations, oral or written, in executing this Agreement. ACKNOWLEDGEMENTS: CITY O DEN eorge . Campbell, ;City Manager On Behalf of the City of Denton, Texas Date of Signature: BEFORE ME, the undersigned authority, on this day personally appeared George C. Campbell, on behalf of the City of Denton, Texas, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that: "My name is George C. Campbell. I have read the foregoing instrument, and I fully understand its content. I represent it to be a fact that the statements contained therein are true and correct, and that I have signed the same freely and voluntarily, and execute the same for the purposes and consideration therein expressed and none other." ACKNOWLEDGED AND SWORN TO BEFORE ME THIS THE DAY OF 2008. ,r•~~!!'a~'•. JENNIFER K. WAITERS Notary Public, State of Texes My Commission Expires December 19, 2010 f N ryPu c - tate of Texas - REMAINDER OF PAGE INTENTIONALLY LEFT BLANK - COMPROMISE SETTLEMENT AGREEMENT PAGE 12 OF 13 BIODIESEL INDUSTRIES, INC. /Y 4e-22i:- Date of Signature: /G aio -6s- By: Russell T. Teall, III, its President BIODIESEL INDUSTRIES OF GREATER DALLAS FORT WORTH LLC ~ti~'~~✓ ~ Date of Signature: By: Russell T. Teall, III, its President CALIFORNIA ACKNOWLEDGMENT State of California County of Santa Barbara On 6G` WeX 2-4 - 2LD O before mega WW A a r f -P l(-A . 40tw'd (pL personally appeared Russell T. Teall, III, who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacities, and that by his signatures on the instrument the person, or the entities upon behalf of which the person acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my and Off I seal. LAU REN E. WARFIELD E Commisslon # 1746027 Signatur (Seal) Notary San a Barbara c unry 9 ► 20.2011 COMPROMISE SETTLEMENT AGREEMENT PAGE 13 OF 13 EQUIPMENT SALE, LEASE, AND LICENSE AGREEMENT BIODIESEL INDUSTRIES, INC., BIODIESEL INDUSTRIES OF DENTION And THE CITY OF DENTON, TEXAS March,;O, 2004 Exhibit 1 EQUIPMENT SALE, LEASE, AND LICENSE AGREEMENT PARTIES TIM EQUIPMENT SALE, LEASE, AND LICENSE AGREEMENT (the "Agreement") is entered into effective as of the _ day of February, 2004, by and between BIODIESEL INDUSTRIES, INC., a Delaware corporation ("BioD"); BIODItSEL INDUSTRIES OF DENTON ("Affiliate"), a subsidiary of BioD, and, the CITY OF DENTON, TEXAS, a home rule municipal corporation ("City"). BioD, Affiliate, and City are sometimes referred to collectively herein as the "Parties", and each individually as a "Party". II RECITALS 2.1 BioD is engaged in the business of producing, supplying, and marketing biodiesel and biodiesel production facilities on a global scale. 2.2 BioD is also in the business of manufacturing for sale modular production units which produce biodiesel. 2.3 City owns and operates a municipal landfill and waste collection system, which would be suitable for a biodiesel production facility. 2.4 The Parties desire to enter into an Agreement to, among other things, establish, encourage and support a business enterprise for the development of a biodiesel production facility, and the production of biodiesel in Denton, Texas which will employ people locally, utilize local resources, and produce a clean, renewable source of energy. 2.5 Affiliate is currently a wholly owned subsidiary of BioD which will maintain totally separate books and records for accounting purposes, which may be under the management and control of a separate board of directors, which may have additional or different shareholders, which may establish itself as an independent business structure, and which will undertake the objectives of this Agreement as set forth herein. 2.6 To accomplish these purposes, BioD will sell and license biodiesel production equipment to City, and City will lease said equipment to Affiliate for rent based upon a percentage of net profits. SAOur Do6ment \Connactsb4U3iodiae1030304-Final.doc 2.7 NOW, TBEIREFORE, in consideration of the promises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows: III CERTAIN DEFINITIONS The following capitalized terms shall have the respective meanings specified in this Article M. Other terms defined elsewhere herein shall have meanings so given them. The terms defined in this Article III include the plural as well as the singular. 3.1 Affiliate. "Affiliate" is currently a wholly owned subsidiary of Biodiesel Industries, Inc. a Delaware corporation which shall be registered to do business in the State of Texas. 3.2 City. "City" is the City of Denton, Texas, a home rule municipal corporation. 3.3 Customer. "Customer" shall mean persons or companies to whom Affiliate sells, or will in the future sell, Biodiesel exclusively for use within the Territory, and under no circumstances for shipment outside of the Territory. 3.4 Disclosing Party. "Disclosing Party" shall mean the Party that discloses its Proprietary Information to the other Party. 3.5 GA .P. "GAAP" shall mean the generally accepted accounting principles of the Financial Accounting Standards Board, consistently applied, as amended from time-to-time. 3.6 Improvements. "Improvements" shall mean any updates, upgrades, improvements, new versions and releases, enhancements or replacements of the Technology, as applicable. 3.7 Licensed Marks. "Licensed Marks" shall mean all trademarks, trade names, logos, and marks currently belonging to BioD and which may in the future be adopted for use by BioD or its Affiliates. It is expressly agreed that the appearance and/or style of the Licensed Marks may change from time-to-time in BioD's sole discretion. 3.8 Marketing Expenses. "Marketing Expenses" shall mean all costs and expenses arising from and related to marketing, promotional and advertising activities, including advertisement placement and advertisement creation for the production and sale of biodiesel, as well as employee salaries for employees whose employment responsibilities involve marketing biodiesel. SAOur Documenls\Conlracls104\BiodimcIO30304-Final.doe 2 3.9 Most Favored Nation Basis, . "Most Favored Nation Basis" shall mean that the Affiliate will offer to and provide to the City the price or terns for the sale and purchase of biodiesel provided to any other customer in the Territory. 3.10 Proprietary Information. "Proprietary Information" of a Disclosing Party shall mean the following, to the extent previously, currently or subsequently disclosed to the Receiving Party, hereunder or otherwise; information relating to products or technology of the Disclosing Party or the properties, composition, structure, use or processing thereof, or systems therefore, or to the Disclosing Party': business (including, without limitation, computer programs, code, schematics, data, know-how, processes, ideas, inventions (whether patentable or not), names and expertise of employees and consultants, all information relating to customers and customer transactions and other technical, business, financial, customer and product development plans, forecasts, strategies and information). In particular, but without limitation, Proprietary Rights, Technology, and Improvements shall be considered Proprietary Information. 3.11 Proprietary Rights. "Proprietary Rights" shall mean patent rights, copyrights, trade secret rights, and similar proprietary intellectual property rights. 3.12 Purchase :Price. "Purchase Price" shall mean the amount to be paid by City to BioD hereunder for the purchase of the MPU, as further reflected in Section 4.2, below. 3.13 Receiving Party. "Receiving Party" shall mean the Party hereto that receives Proprietary Information of the other Party, 3.14 Technology. "Technology" shall mean those processes, techniques and equipment relied upon for the production and distribution of biodiesel, including the collection, use and processing of feedstocks :for making biodiesel. 3.15 Territory. "Territory" shall mean the Greater Dallas/Fort Worth Metroplex which consists of Denton, Collin, Dallas, Cooke, Grayson, Ellis, Erath, Hood, Hunt, Johnson, Navarro, Palo Pinto, Parker, Somerville, Tarrant, Wise, Rockwall and Kaufman counties. IV SALE AND LEASE OF EQUIPMENT 4,1 Description of Equipment. Execution of this Agreement shall constitute the obligation of City to acquire a modular production unit from BioD (the "MPU"), the exact specifications and details of which are described in greater detail on Exhibit A, attached hereto and incorporated herein by reference. 4.2 Purchase Price. In consideration for the purchase of the MPU, City shall pay to BioD the sum of SIX HUNDRED AND FIFTY THOUSAND DOLLARS ($650,000). 4.3 Payment :Provisions. SADur Documents%Contracts\041Biodiese1030304-Final.doc 4.3. 1. Payment Schedule. Payment of the Purchase Price shall be made in installments as follows: (l) $150,000 upon the signing of this Agreement which is payment for the license fee, (2) $150,000 within 45 days of signing this agreement, (3) $150,000 upon the completion of the MPU, and (4) $100,000 upon delivery of the MPU to the site at the City's landfill, and (5) $100,000 upon completion of installation by BioD and Final Acceptance by City. City shall have the right to inspect the progress of construction of the equipment prior to eacli payment, with Final Acceptance conditioned upon BioD demonstrating that the MPU has been installed and is operational Delays in payment of the first three payments may extend the delivery date and completion of installation time set forth in section 4.4.2 but only to the extent of such delay. To secure the delivery and completion of the installation of the MP-U, upon the signing of this Agreement BioD will deliver to the'City an irrevocable letter of credit in the amount of $500,000 and in substantially the same form as the letter of credit attached hereto and made a part _ meof.as U?MW9.1!._The.letter_of,c>edit shail_be from.a fed_grally.insured. bank having offices in Dallas, Texas to where drafts on the letter of credit may be drawn. The letter of credit shall be for a period of six months, except that BioD shall substitute a letter of credit no later then 30 days prior to its expiration for an additional six month period should the schedule set forth in 4.4,2 be delayed. Upon the completion of the installation of the MPU and the City's Final Acceptance of the MPU, the letter of credit will be released. As an alternative to the letter of credit, BioD may elect to have City issue a Purchase Order, with payments 2-4 as set forth above due upon delivery of the MPU to the landfill site at Denton. In such case payment 5 will be made asset forth above upon completion of the installation of the MPU by BioD and Final Acceptance by the City. Any additional costs directly associated with the Letter of Credit or similar financing arrangements drawn upon the Purchase Order shall be borne by City as they are incurred. 4.3.2. Sales and Use Taxes. The City as a tax exempt governmental entity is exempt from sales and use taxes. 4.3.3. Place of Payments. City shall tender payment of the Purchase Price to BioD at such place as BioD shall designate in writing-to City. However the place where the sale of the MPU is deemed to have occurred is Denton County, Texas. 4*.4 Delivery. 4.4.1. General Terms. Delivery of the MPU shall be to the location designated by City at the City's landfill, at the expense of BioD which shall be in addition to the Purchase Price. 4.4.2. Schedule. Delivery of the MPU shall be made within four months of the receipt of the first payment due hereunder. Completion of the installation of the MPU shall be within one month thereafter. 4.5 Lease. City agrees to lease to Affiliate for a period of twenty years, with two options for ten year renewals by Affiliate, the MPU and a site for operations at its landfill for rent equal to 49% of net operating profits generated from the first and second MPU's, paid on a quarterly basis. Affiliate agrees to maintain adequate books and records subject to inspection by SAOur DocumentslContractsW40iodiese1030304-rinal.doc City upon reasonable notice and conforming to GAAP. City shall have the right to appoint one member of a three person managing board of Affiliate and shall have the right to attend and participate in all board meetings of Affiliate. Should the number of the board members increase the City will be entitled to appoint additional board members so that a ratio one to three of City appointed board members will be maintained. Net operating profits shall be defined as gross revenues from the sale of biodiesel and glycerin, minus any expenses including reasonable salaries, raw materials, utilities, maintenance, transportation, insurance, professional fees, marketing, taxes and court ordered payments or fines. Any taxes, fees or charges levied by the City against Affiliate shall be deducted wholly from City's share of net operating profits. In no event shall City be liable for any debts or obligations incurred by Affiliate. 4.6 Warranties. 4.6.1. Limited Warranty The Parties hereby expressly agree that there are no warranties on the MPU which extend beyond the general warrant that the Technology and Equipment are suitable for the intended purpose of producing biodiesel meeting ASTM 6751 standards. BioD does not warrant that the MPU or the Technology shall be free from defects or errors that do not compromise the ability of the MPU to meet its intended purpose. Rather, BioD warrants that the nature and extent of defects and errors shall not exceed industry standards, and that warranties provided by vendors of individual components of the MPU shall be extended to City and Affiliate. BioD agrees to use reasonable efforts to promptly conrct any errors that disable the MPU or the Technology. This warranty shall not apply in the event City, Affiliate or any other party, with or without the consent of Affiliate, makes or permits any alteration of the MPU or the Technology, or any part thereof, by any party other than BioD. 4.6.2. Disclaimer. Except as provided in Section 4.6.1 above and Article IX below, BioD hereby expressly disclaims any warranty, express or implied, including the warranty of merchantability or a warranty that the MPU can be used, or is fit for any particular purpose other than producing biodiesel. City hereby purchases and accepts the MPU, and Affiliate hereby leases and accepts the MPU, solely on the basis of the warranties expressed herein and Section 4.6.1. and Article IX. 4.7 Damages. 4.7.1. City's and Affiliate's Remedies. City's and Affiliate's exclusive remedy for claims arising under this Agreement shall be for actual damages, injunctive relief, specific performance and/or declaratory judgment relief. In no event will BioD be liable for lost profits or other consequential or incidental damages. Notwithstanding the foregoing, should BioD be in default under this Agreement or the City is enjoined from using the MPU or Technology due to a patent infringement suit, or the like, which results in the City's inability to receive a minimum of 300,000 gallons of biodiesel fuel annually as contemplated by this Agreement, then BioD shall be required to provide sufficient biodiesel fuel to the City to meet this minimum at the same purchase price provided for in Subsection 4.9 (f) of this Agreement regardless of the actual cost to BioD to provide such biodiesel fuel. S:\Our Documents\Contrac4s\04\Biodiaa1030304-Final.doe 4.7.2. BioD's Remedies. Failure of City to pay the Purchase Price when due shall give BioD the unlimited right, without liability, to take possession of the MPU, and to have all of the remedies of a secured party under the Uniform Commercial Code of the State of Texas. Should Affiliate fail to make the lease payments to the City when due, or otherwise default under the lease, the City will give Affiliate and BioD at least 30 days written notice of such default, during which Affiliate or BioD shall have an opportunity to cure. 4.8 Related Obligations of BioD. In addition to all other obligations hereunder regarding the sale of the MPU, BioD shall, at its sole cost and expense, also be obligated as follows: (a) provide consulting services to assist Affiliate with the design of its plans for appropriate site preparations; (b) provide commissioning of the MPU so as to ensure that the MPU is fully operational; (c) offer to sell to City a second MPU for operation in conjunction with the first MPU at a price of $390,000, and subject to the same lease terms to Affiliate contained herein; and, (d) provide initial training to designated Affiliate personnel for the initial operation of the MPU; and (e) provide in conjunction with the Affiliate, the installation of the MPU and make it operational so that it is satisfactorily using the Technology. 4.9 Related Obligations of Affiliate. In addition to all other obligations hereunder regarding the purchase of the MPU, Affiliate shall, at its sole cost and expense, also be obligated as follows: (a) at its sole cost and expense, provide all necessary and appropriate site preparations for the MPU, any additional improvements needed for a second MPU, and all expenses associated with a third MPU; (b) obtain any and all necessary construction and operating permits; and (c) pay all Marketing Expenses in order to satisfy its obligations under this Agreement, which shall include providing a "link" on the Affiliate website to the BioD website. (d) maintain adequate insurance to cover loss, damage or theft of the MPU and site improvements, liabilities for injuries sustained during as a result of its activities, product liability insurance, directors and officers insurance, and with all policies indicating BioD and City as additional insured parties and meeting the City's insurance requirements contained in Exhibit C attached hereto and incorporated herein by reference. (e) provide all necessary employees and personnel and other maintenance and operational costs and expenses necessary to operate and maintain the MPU, Technology and related equipment and activities to meet the goals and purposes of this Agreement. (f) sell to City a minimum of 300,000 gallons of biodiesel annually on a Most Favored Nation Basis during the term of the Lease at a purchase price not to exceed $1.30 per gallon until the completion of five years or the City receives $650,000 worth of lease payments from the Affiliate as provided in Section 4.5 whichever occurs latter. Thereafter ( SAWT Documents\Contrects104%Biodicset0303o4-final.doc the purchase price for the biodiesel will have an annual adjustment based upon the consumer price index for the Dallas Fort Worth Area. 4.10 Related Obligations of City. In addition to all other obligations hereunder regarding the purchase of the MPU, City shall, at its sole cost and expense, also be obligated.as follows: (a) at*its sole cost and expense, provide a mutually agreeable site for the MPU at its landfill site, with suitable access to utilities, and transit for personnel and vehicles necessary for the operation of one MPU initially, and for up to two additional MPU's at the same site; (b) assist with all necessary construction and operating permits; (c) purchase a minimum of 300,000 gallons of biodiesel annually on a Most Favored Nation Basis" during the term of the Lease at a purchase price not to exceed $1.30 per gallon until the completion of five years, or the City receives $650,000 worth of lease payments from the Affiliate as provided in Section 4.5 whichever occurs latter. Thereafter the purchase price for the biodiesel will have an annual adjustment based upon the consumer price index for the Dallas Fort Worth Area. V LICENSE 5.1 Grant. Subject to all the terms and limitations of this Agreement, BioD hereby grants to City, and by extension to Affiliate, a perpetual, non-transferable, non-sublicensable license (the "License") to use the Technology and the associated Proprietary Rights solely for the purpose of producing, marketing, promoting, and otherwise using biodiesel in the Territory, and only so long as City and Affiliate are in full compliance with this Agreement and the Agreement has not expired or been terminated. The License is exclusive only in the Territory and no rights to use the Technology or any associated Proprietary Rights are granted by BioD outside of the Territory. Biodiesel produced hereunder by City or Affiliate will not be marketed or provided directly or indirectly by City or Affiliate to any party which is not a Customer intending to use the biodiesel inside of the Territory. Any marketing by City or Affiliate to Customers outside the Territory shall be done solely in cooperation with BioD (and with BioD's prior written consent in each instance, which may be withheld in its sole discretion), and shall be in compliance with all applicable laws. City and Affiliate and its employees, directors; shareholders and officers, agree not to compete with BioD by producing, marketing or distributing biodiesel outside of the Territory without the express written consent of BioD. 5.2 License to Licensed Marks. Subject to all the terms and limitations of this Agreement, the License shall also expressly include the grant hereunder by BioD to City and Affiliate of a perpetual, non-transferable, non-sublicensable license to use the Licensed Marks in the Territory solely in connection with the marketing, promotion, and supply of biodiesel. The foregoing grant is exclusive only in the Territory. Said use of the Licensed Marks shall be sufficiently different to distinguish it geographically from BioD's Licensed marks. S AOur DocumentslContmckW4\Biodiesc1030304-Final.doc 1 5.3 Retained Rights. BioD shall retain and own all right, title and interest in and to the Technology, Licenses Marks, and all Proprietary Rights. Any and all Improvements, extensions of the Technology, and all related additions and items shall be the sole and exclusive property of BioD, even if developed, perfected, or otherwise derived through the sole effort and expense of City or Affiliate. VI ROYALTIES There shall be no royalty payments due to BioD by City as part of this Agreement. VII ADDITIONAL RIGHTS AND OBLIGATIONS OF AFFILIATE In addition to all other rights and obligations of Affiliate hereunder, Affiliate also hereby agrees as follows: 7.1 Duties. Affiliate shall, among other things: t t (a) produce, promote market, sell, advertise, and otherwise exploit biodiesel within the Territory, subject to and in satisfaction of the Minimum Standards; (b) comply with all applicable laws, and, at all times, to conduct its activities under this Agreement in a lawful manner; and (c) use the Licensed Marks in accordance with this Agreement. 7.2 Minimum Standards. Affiliate shall satisfy the minimum standards for marketing, customer service, operational reliability, performance, and technological development. Such minimum standards also include the standards, functional, and performance requirements for the MPU. 7.3 Regulatory Approval. Affiliate shall ensure that the MPU and the production of biodiesel by the MPU satisfies all applicable regulatory standards and requirements in the Territory, and that it will diligently pursue the necessary regulatory approvals for the operation of the MPU and the provision of biodiesel in the Territory. 7.4 Reverse )engineering. Affiliate and City agree not to disassemble, decompile, or otherwise reverse engineer the MPU or otherwise attempt to derive processes underlying the Technology, or, except as contemplated by this Agreement, copy, reproduce or modify the ' Technology, or allow others to do any of the foregoing, without the express written consent of BioD. l SAOur Doe-un=ts\Contracts\04\Biodiest1030304•Finat.doe 8 7.5 Exclusive Right in Territory. So long as City and Affiliate are not in breach of this Agreement, then (i) the License granted hereunder shall be exclusive to City and Affiliate within the Territory, and (ii) BioD shall not sell another MPU to be located within the Territory. 7.6 Required Changes and Maintenance. Affiliate shall make any changes and/or corrections in or to the MPU as may be reasonably required by BiOD to prevent an erosion of the functionality or productivity of the MPU. Affiliate shall also maintain the quality standards prescribed by BioD. All such necessary changes and actions shall be at the sole cost and expense of Affiliate. 7.7 Promotional Materials. Affiliate shall have the right to create and distribute promotional and marketing literature and materials for biodiesel, using the Licensed Marks and materials and content provided by BioD. Affiliate shall furnish to BioD, at no expense to BioD, samples of all literature and materials containing the Licensed Marks that it distributes or intends to distribute prior to any distribution thereof. BioD shall control the quality'of all promotional and marketing literature and materials bearing the Licensed Marks and Affiliate's use of the Licensed Marks. Such quality control must be necessary, in BioD's reasonable determination, to the preservation of BioD's interest in the Licensed Marks, the "look and feel" and value propositions associated with the Licensed Marks, and other similar quality related standards. If BioD believes that the Licensed Marks are being used by Affiliate in a manner likely to diminish BioD's rights in or protection of the Licensed Marks, Affiliate agrees; at its sole cost and expense, to make whatever changes and/or corrections BioD deems necessary to protect the Licensed Marks. 7.8 Protection of Reputation. Affiliate agrees that it shall not engage, participate or otherwise become involved in any activity or course of action that diminishes and/or tarnishes the image and/or reputation of City, BioD or any Licensed Mark. 7.9 Inspection Rights. City and BioD shall have the right to inspect the operations and facilities of Affiliate during normal business hours upon reasonable prior notice, to the extent reasonably necessary to ensure that BioD's and City's quality standards have been and are being met by Affiliate. Affiliate shall provide BioD and City with monthly reports (no later than ten (10) days after the- end of each calendar month) no more detailed than the internal reports of Affiliate, taking into account BioUs advice when formulating the internal format of Affiliate, for BioD to evaluate the operational efficiency and controls of Affiliate, and to obtain reasonably detailed financial information. VIII ADDITIONAL RIGHTS AND OBLIGATIONS OF BIODIR SEL In addition to all other rights and obligations of BioD hereunder, BioD also hereby agrees as follows; SAOur DocumenulContracls%04%Biodiese1030304-Finnl.doe t. 8.1 Marketing and Technical Support. BioD shall provide a reasonable amount of continuing marketing and technical support of Affiliate, although such matters shall remain the primary responsibility of Affiliate. 8.2 Additional Support. BioD shall provide a reasonable amount of regulatory and operational compliance and customer service support, although such maters shall remain the primary responsibility of Affiliate. 8.3 Additional Quality Standards. In addition to the Minimum Standards, BioD shall . also establish reasonable quality standards for the operation of the MPU, which will need to be satisfied by Affiliate. 8.4 Protection of Affiliate's Rights. BioD shall not itself, and shall not permit any other person except Affiliate or City, and shall use reasonable efforts so that no other person except Affiliate or City can, directly or indirectly (i) use the Licensed Marks or Technology in the Territory, or (ii) use or license any part of the Technology in the Territory, whether or not in association with the Licensed Marks, for the benefit of any person other than Affiliate or City. 8.5 Intent as to Intellectual Property. BioD shall provide to Affiliate and City, as soon as reasonably practicable after the Effective Date of this Agreement, Technology in a form which would be reasonably necessary for Affiliate to produce biodiesel from the MPU. All Improvements to the Technology will only be required to be provided by BioD to Affiliate within a reasonable time after BioD makes the same available for distribution to its others affiliates, and Affiliate shall have no less priority in this regard than other affiliates with similar licenses. The Parties shall use their best efforts to work together to implement the Technology so that Affiliate may launch the MPU as soon as possible. IX REPRESENTATIONS AND WARRANTIES OF BIODIESEL AND AFFILIATE BioD and Affiliate hereby represent and warrant to City that: 9.1 Organization. BioD is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware, and Affiliate is currently a wholly owned subsidiary of BioD. 9.2 Authorization. 9.2.1 Operation of Business. BioD has the requisite corporate power and authority and all requisite licenses, permits and franchises necessary to own and operate its properties and to carry on its business as now being conducted and to provide the equipment and services provided for in this Agreement. SAOur Documents)Contracts\04\Biodiese1030304-Final.doc 10 .1 1 9.2.2 Execution of Agreement. BioD has the requisite corporate power and authority to enter into and carry out the terns and conditions of this Agreement, as well as all transactions contemplated hereunder. All corporate proceedings have been taken and all corporate authorizations have been secured which are necessary to authorize the execution, delivery and performance by BioD of this Agreement. This Agreement has been duly and validly executed and delivered by BioD and. constitutes the valid and binding obligations of BioD, enforceable in accordance with the respective terms. 9.3 Effect of Agreement. As of the Effective Date, the consummation by BioD of the transactions herein contemplated, including the execution, delivery and consummation of this Agreement, will comply with all applicable law and will not-, (a) Violate any judgment, order, writ or decree of any court or administrative body applicable to BioD or any of its assets; or (b) Result in the breach of, constitute a default under, constitute an event which with notice or lapse of time, or both, would become a default under, or result in the creation of any lien, security interest; charge or encumbrance upon any of the assets or other properties of BioD under any agreement, commitment, contract (written or oral) Or other instrument to which BioD is a party, or by which any of the assets or other properties of BioD are bound or affected. 9.4 Consent. There are no (i) non-governmental third parties and (ii) governmental or regulatory entities in the United States who are entitled to any notice of the transaction, licenses and services contemplated hereunder or whose consent is required to be obtained by Bi6D for the consummation of the transactions contemplated hereunder. 9.5 Title and Ownership. To the best of its knowledge, BioD is the sole and rightful owner of all right, title and interest in and to the Technology and the Licensed Marks and all related Proprietary Rights therein and it has the unrestricted right to market, license and exploit the Technology and the Licensed Marks. 9.6 Absence of Adverse Claims. To the best of its knowledge, no claims have been made in respect of the Technology or Licensed Marks and no demands of any third party have been made pertaining to them, and no proceedings have been instituted or are pending or threatened that challenge the rights of BioD in respect thereof. 9,7 Services. All services to be rendered by BioD hereunder will be provided by BioD in a professional, diligent and timely manner using staff knowledgeable and suitably qualified for the performance of the respective tasks for which they are responsible and it will use reasonable efforts to ensure that the quality and reliability of its Services are no less favorable to Affiliate than the equivalent services provided by it for its own purposes or for its other licensees. 9.8 Competitive Advantage. BioD shall use reasonable efforts to remain competitive and to continually improve and upgrade its Technology, systems, and facilities. SAOur Decuments\Contracts\04\Biodiesc1030304-Final.doc 11 X REPRESENTATIONS AND WARRANTIES OF CITY City hereby represents and warrants to Biodiesel and Affiliate that: 10.1 Orgardzation. City is a home rule municipal corporation organized under the laws of the State of Texas. 10.2 Authorization. 10.2.1 Operations. City has the requisite municipal power and authority and all requisite licenses, permits and franchises necessary to own and operate its properties and to carry on its activities as now being conducted and as provided for in this Agreement. 10.2.2 Execution of Agreement. City has the requisite municipal power and authority to enter into and carry out the terms and conditions of this Agreement, as well as all transactions contemplated hereunder. All municipal proceedings have been taken and all municipal authorizations have been secured which are necessary to authorize the execution, delivery and performance by City of this Agreement. This Agreement has been duly and validly executed and delivered by City and constitutes the valid and binding obligations of City, enforceable in accordance with the respective terms. 10.3 Effect of Agreement. As of the Effective Date, the consummation by City of the transactions herein contemplated, including the execution, delivery and consummation of this Agreement, will comply with all applicable law and will not: (a) Violate any judgment, order, writ or decree of any court or administrative body applicable to City or any of its assets; or (b) Result in the breach of, constitute a default under, constitute an event which with notice or lapse of time, or both, would become a default under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the assets or other properties of City under any agreement, commitment, contract (written or oral) or other instrument to which City is a party, or by which any of the assets or other properties of City are bound or affected. 10.4 Fairness of Fees. Any and all fees, costs, and expenses to be paid hereunder by City are fair and reasonable, and the result of arm's length, good faith negotiations by and between the Parties. 10.5 Loyalty. City does not currently, and will not during the term of this Agreement, represent or promote any services or products that intentionally divert business away from the business of BioD, the MPU, or the biodiesel to be produced by the MPU. SAOur DoeumentslContracls104XBiodiue1030304-Final.doc 12 XI REPRESENTATIONS AND WARRANTIES OF AFFILIATE Affiliate hereby represents and warrants to BioD and City that: 11.1 Organization. Affiliate is currently a wholly owned subsidiary of NOD and is a Texas corporation in good standing. 11.2 Autborization. 11.2.1 Operations. Affiliate has the requisite power and authority and all requisite licenses, permits and franchises necessary to own and operate its properties and to carry on its activities as now being conducted and as provided for in this Agreement and the Lease. 11.2.2 Execution of Agreement. Affiliate has the requisite power and authorit y to enter into and carry out the terms and conditions of this Agreement and the Lease, as well as all transactions contemplated hereunder. All proceedings have been taken and all authorizations have been secured which are necessary to authorize the execution, delivery and performance by Affiliate of this Agreement and the Lease. This Agreement has been duly and validly executed and delivered by Affiliate and constitutes the valid and binding obligations of Affiliate, enforceable in accordance with the respective terms. 11.3 Effect of Agreement. As of the Effective Date, the consummation by Affiliate of the transactions herein contemplated, including the execution, delivery and consummation of this Agreement, will comply with all applicable law and will not: (a) Violate any judgment, order, writ or decree of any court or administrative body applicable to Affiliate or any of its assets; or (b) Result in the breach of, constitute a default under, constitute an event which with notice or lapse of time, or both, would become a- default under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the assets or other properties of Affiliate under any agreement, commitment, contract (written or oral) or other instrument to which Affiliate is a party, or by which any of the assets or other properties of Affiliate are bound or affected. 11.4 Fairness of Fees. Any and all fees, costs, rent payments and expenses to be paid hereunder by Affiliate are fair and reasonable, and the result of arm's length, good faith negotiations by and between the Parties. 11.5 Loyalty. Affiliate does not currently, and will not during the term of this Agreement, represent or promote any services or products that intentionally divert business away from the business of BioD, the MPU, or the biodiesel to be produced by the MPU. S:\Our Documents\Contrac4sV4\Biodiese1030304-Final.doc 13 r• XII CONFIDENTIALITY 12.1 Proprietary Information of BioD. During the period this Agreement and Lease are in effect and at all times after their termination, City, Affiliate and its employees, and agents shall, to the extent permitted by law, maintain the confidentiality of the Proprietary Information of BioD and not sell, license, publish, display, distribute, disclose or otherwise make available this information to any third party or use such information except as authorized by this Agreement. City and Affiliate shall not disclose any such Proprietary Information of BioD to persons not an employee of City or Affiliate without the prior written consent of BioD. Notwithstanding the foregoing, the Parties understand and agree that the City as a governmental entity must comply with the Texas Public Information Act, being Chapter 552 of the Texas Government Code (the "Open Records Act") and the confidentiality requirements contained herein are subject to the Open Records Act. 12.2 Proprietary Information of Affiliate. During the period this Agreement is in effect and at all times after its termination, BioD and its employees, and agents shall maintain the confidentiality of-the Proprietary Information of Affiliate and City and not sell, license, publish, display, distribute, disclose or otherwise make available this information to any third party or use such information except as authorized by this Agreement. BioD shall not disclose any such Proprietary Information of Affiliate or City to persons not an employee of BioD without the prior written consent of Affiliate or City. 12.3 Lack of Adequate Remedy. The Receiving Party acknowledges and agrees that due to the unique nature of the Disclosing Party's Proprietary Information, there can be no adequate remedy at law for any breach of its obligations hereunder, that any such breach may allow the Receiving Party or third parties to unfairly compete with the Disclosing Party resulting in irreparable harm to the Disclosing Party, and therefore, that upon any such breach or any threat thereof, the Disclosing Party shall be entitled to appropriate equitable relief in addition to whatever remedies it might have at law and to be indemnified by the Receiving Party from any loss or harm, including, without limitation, lost profits and attorney's fees, in connection with any breach or enforcement of the Receiving Party's obligations hereunder or the unauthorized use or release of any such Proprietary Information. The Receiving Party will notify the Disclosing Party in writing immediately upon the occurrence of any such unauthorized release or other breach. Any breach of this Section 12-3 will constitute a material breach of this Agreement. XLU INDEMNIFICATION AND LIABILITY 13.1 Indemnification by Affiliate. Affiliate shall indemnify, defend and hold City and BioD, and their affiliates, directors, officers, employees, shareholders, and each of their successors and assigns, harmless from and against any and all claims, liabilities, demands, causes of action, damages, loss and expenses, including, without limitation, personal injury, including s:lour Docu=nts\Conlracts\04~Biodiuelo30304-Final.doc 14 death, and property damage and reasonable attorneys', fees and costs of suit arising out of or in connection with: (a) Any breach of this Agreement by Affiliate; (b) The conduct of the business of Affiliate; and (c) The negligent act or omission of Affiliate. 13.2 Indemnification by BioD. BioD shall indemnify, defend and hold City, Affiliate, and their affiliates, directors, officers, employees, shareholders, and each of their successors and assigns, harmless from and against any and all claims, liabilities, demands, causes of action, damages, loss and expenses, including, without limitation, personal injury, including death, and property damage and reasonable attorneys' fees and costs of suit arising out of or in connection with: (a) Any breach of this Agreement by BioD; (b) Infringement of United States, copyright, trademark, or patent laws by the Technology, MPU or Licensed Marks; (c) The conduct of the business of BioD, not otherwise in violation of this Agreement; and (d) The negligent act or omission of BioD. 13.3 No Consequential Damages, Except as provided in Section 4.7.1 of this Agreement, BioD shall not be liable to City or Affiliate for indirect, special, incidental, exemplary or consequential damages (including, without limitation, lost profits) related to this Agreement or resulting from Affiliate's use or inability to use the MPU or the Technology, arising from any cause of action whatsoever, including contract, warranty, strict liability, or negligence, even if BioD has been notified of the possibility of such damages. 13.4 Force Ma_ieure. None of the Parties shall be in default or otherwise liable for any delay in or failure of performance under this Agreement if such delay or failure arises by any reason beyond their reasonable control, including any act of God, any acts of the common enemy or terrorism, the elements, earthquakes, floods, fires, epidemics, riots, failures or delay in transportation or communications, or any act or failure to act by another Party or such other Party's employees, or agents. However, lack of funds shall not be deemed to be a reason beyond a Party's reasonable control. The Parties will promptly inform and consult with each other as to any of the above causes, which in their judgment may or could be the cause of a delay in the performance of this Agreement. SAOur DocumcnlslConlraas\04N8iodiese1030304-Final.doe \ 15 XIV STATUS OF THE PARTIES The relationship of the Parties is purely that of a contractual nature, which is formulated under this Agreement. Under no circumstances are the Parties to be deemed partners, joint venturers, co-owners, or the like. Affiliate is not and shall not be deemed to be a franchisee of BioD, and similarly, under no circumstances shall BioD be deemed a franchisor in relation to Affiliate. Each Party shall be responsible for the operation of its respective sole and separate business, including'the payment of its own costs and expenses incurred in connection therewith. XV TERM AND TERMINATION 15.1 1ffective Date. This Agreement, the Lease and the License granted hereunder shall take effect upon the date first referenced in Article I, above. 15.2 Tenn. This Agreement shall continue in full force and effect from the Effective Date for a term of twenty years, with two options for ten year renewals by City, unless terminated I_ as provided for hereunder. 15.3 Terrniuation. This Agreement shall terminate upon thirty (30) days prior written notice from one Party (the "Acting Party") to the other (die "Breaching Party") alleging an "Event of Default" (as defined below), provided that the Breaching Party does not cease and cure the conduct constituting "for cause" prior to the expiration of such thirty (30) day period. For purposes of this Agreement, the terra "Event of Default" shall include the following: (a) Breach of a material provision of this Agreement; (b) The repeated failure to render full and proper services as required by the terms of this Agreement; (c) Termination or suspension of business; (d) Initiation, either voluntary or involuntary, of a bankruptcy or insolvency or assignment for the benefit of creditors proceeding under Federal or state statute; (e) Determination of insolvency or becoming subject to direct control by a trustee, receiver or similar authority; or (f) Liquidation, voluntarily or otherwise. A termination of the Agreement shall also act as a termination of the Lease. SAOur Documents\Contraus104\BiodimcID30304•Final.doc 16 } f 15.4 Notice. The notice required under Section 15.3, above (the "Termination Notice"), must identify in detail the Event of Default. If the Event of Default remains uncured for thirty (30) days, the Acting Party may terminate this Agreement, the Lease and the License granted herein by delivering to the defaulting party a subsequent written notice which merely identifies the effective date of the termination (the "Subsequent Notice"). 15.5 Disputes as to Event of Default. If the Disputing Party disputes the Event of Default, except in the case of an emergency, the Parties agree to enter into mediation to attempt to resolve the dispute. 15.6 Option to Acquire and Sell MPU. Upon termination of this Agreement, for any reason; BioD and City each shall have the right, to be exercised within sixty (60) days after the date of termination of this Agreement, to have BioD acquire the MPUs for a purchase price equal to eighty peramt (80%) of the Purchase Price actually paid by City. Additionally, whether or not this option is exercised, each Party shall promptly return to the other any and all Proprietary Information of the other currently in its possession, or alternatively, deliver to the other a certification, in writing signed by an officer of that Party under penalty of perjury, that all Proprietary Information of the other has been deleted or destroyed, and its use discontinued. M NOTICES All notices, requests, demands and other communications required or permitted to be given hereunder shall be effected pursuant to Section 17.13, below, as follows: If to BioD or Affiliate: Mr. Russell T. Teall, III BIODIESEL INDUSTRIES, INC. 435 1/2 El Su•!no Road Santa Barbara, California 93110 Fax No. $d`~-'i~tv-a19 If to Ci City Manager City of Denton City Hall 215 E. McKumey Denton, Texas 79201 Fax No. 940.349.8596 SAOur Documentsl(.ontracts\04\Biodiese1030304•Final.doc 17 With a copy to: Keith A. Rosenbaum, Esq. SPECTRUM LAW GROUP, LLP 1900 Main Street Suite 125 Irvine, California 92614 Fax No. 17.1 Executed Counterparts. This Agreement may be executed in any - number of original, fax or copied counterparts, and all counterparts shall be considered together as one agreement. A faxed or copied counterpart shall have the same force and effect as an original signed counterpart. Each of the Parties hereby expressly forever waives any and all rights to raise the use of a fax machine to deliver a signature, or the fact that any signature or agreement or instrument was transmitted or cornmunicated through the use of a fax machine, as a defense to the formation of a contract. 17.2 Successors and Assigns. Except as expressly provided in this Agreement, each and all of the covenants, terms, provisions, conditions and agreements herein contained shall be binding upon and shall inure to the benefit of the successors and assigns of the Parties hereto. 17.3 Article and Section Headings. The article and section headings used in this Agreement are inserted for convenience and identification only and are not to be used in any manner to interpret this Agreement. 17.4 Seyerability. Each and every provision of this Agreement is severable and independent of any other term or provision of this Agreement. If any term or provision hereof is held void or invalid for any reason by a court of competent jurisdiction, such invalidity shall not affect the remainder of this Agreement. 17.5 Governing Law. This Agreement shall be governed by the laws of the State of Texas, without giving effect to any choice or conflict of law provision or rule (whether of the State of Texas or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Texas. If any court action is necessary to enforce the terms and conditions of this Agreement, the Parties hereby agree that a court of competent jurisdiction in Denton County, Texas or the Federal District Court for the Eastern District of Texas shall be the sole jurisdiction and venue for the bringing of such action. This Agreement is fully performable in Denton County, Texas. 17.6 Entire Agreement. This Agreement, and all references herein, contains the entire understanding among the Parties hereto and supersedes any and all prior written or oral agreements, understandings, and negotiations between them respecting the subject matter contained herein. Notwithstanding the foregoing, the City and Affiliate reserve the right to enter into such other agreements as may be necessary, if any, for the Lease. 17.7 Additional Documentation, The Parties hereto agree to execute, acknowledge and cause to be filed and recorded, if necessary, any and all documents, amendments, notices and certificates which may be necessary or convenient under the laws of the State of Texas. Mur Documents'Contracts\D4\Biodiesc1030304-Final.doe 18 17.8 Attorney's Fees. If any legal action (including arbitration) is necessary to enforce the terms and conditions of this Agreement, the prevailing Party shall be entitled to costs and reasonable attorney's fees. 17.9 Amendment. This Agreement may be amended or modified only by a writing signed by all Parties. 17.10 Remedies. 17. Specific Performance. The Parties hereby declare that it is impossible to measure in money the damages which will result from a failure to perform any of the obligations under this Agreement. Therefore, each Party waives the claim or defense that an adequate remedy at law exists in any action or proceeding brought to enforce the provisions hereof. 17.10.2 Cumulative. The remedies of the Parties under this Agreement are cumulative and shall not exclude any other remedies to which any person may be lawfully entitled. 17.11 Waiver. No failure by any Party to insist on the strict performance of any covenant, duty, agreement, or condition of this Agreement or to exercise any right or remedy on a breach shall constitute a waiver of any such breach or of any other covenant, duty, agreement, or condition. 17.12 Assignability. This Agreement is not assignable by either Party without the expressed written consent of all Parties, except as expressly set forth herein. 17.13 Notices. All notices, requests and demands hereunder shall be in writing and delivered by hand, by facsimile transmission, by mail, by telegram or by recognized commercial over-night delivery service (such as Federal Express, UPS or DHL), and shall be deemed given (a) if by hand delivery, upon such delivery; (b) if by facsimile transmission, upon telephone confirmation of receipt of same; (c) if by mail, forty-eight (48) hours after deposit in the United States mail, first class, registered or certified mail, postage prepaid; (d) if by telegram, upon telephone confirmation of receipt of same; or (e) if by recognized commmercial over-night delivery service, upon such delivery. 17.14 Time. All Parties agree that time is of the essence as to this Agreement, 17.15 Disputes. With regard to all disputes other than those that require immediate action due to an emergency, the Parties agree to cooperate and meet in order to resolve any disputes or controversies arising under this Agreement. Should they be unable to do so, except in the case of art emergency, the Parties agree to mediate such disputes with a third party mediator mutually agreed upon by the Parties. 17.16 Provision Not Construed Against Party Drafting Agreement. This Agreement is the result of negotiations by and between the Parties, and each Party has had the opportunity to be represented by independent legal counsel of its choice. This Agreement is the product of the work and efforts of all Parties, and shall be deemed to have been drafted by all Parties.' In the event of a SAOur Documems%Contmctsb4%BiodiescIO30304•final.doc 19 dispute, no Party hereto shall be entitled to claim that any provision should be construed against any other Party by reason of the fact that it was drafted by one particular Party. 17.17 Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof as if set out in full herein. 17.18 Consents, Approvals and Discretion. Except as herein expressly provided to the contrary, whenever this Agreement requires consent or approval to be given by a Party, or a Party must or may exercise discretion, the Parties agree that such consent or approval shall not be unreasonably withheld, conditioned, or delayed, and such discretion shall be reasonably exercised. 17.19 No Third Party Beneficiaries. This Agreement has been entered into solely by and between BioD, City, and Affiliate, solely for their benefit. There is no intent by any of the Parties to create or establish a third party beneficiary to this Agreement, and no such third party shall have any right to enforce any right, claim, or cause of action created or established under this Agreement. 17.20 Best Efforts. The Parties shall use and exercise their best efforts, taking all reasonable, ordinary and necessary measures to ensure an orderly and smooth relationship under this Agreement, and further agree to work together and negotiate in good faith to resolve any differences or problems which may arise in the future. 17.21 Definitional Provisions. For purposes of this Agreement, (i) those words, names, or terms which are specifically defined herein shall have the meaning specifically ascribed to them; (ii) wherever from the context it appears appropriate, each term stated either in the singular or plural shall include the singular and plural; (iii) wherever from the context it appears appropriate, the masculine, feminine, or neuter gender, shall each include the others; (iv) the words "hereof", "herein", "hereunder", and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole, and not to any particular provision of this Agreement; (v) all references to designated "Articles", "Sections", and to other subdivisions are to the designated Articles, Sections, and other subdivisions of this Agreement as originally executed; (vi) all references to "Dollars" or I" shall be construed as being United States dollars; (vii) the term "including" is not limiting and means "including without limitation"; and, (viii) all references to all statutes, statutory provisions, regulations, or similar administrative provisions shall be construed as a reference to such statute, statutory provision, regulation, or similar administrative provision as in force at the date of this Agreement and as may be subsequently amended. EXECUTION IN WITNESS WHEREOF, this Agreement has been duly executed by the Parties, and shall be effective as of and on the date set forth in Article I of this Agreement. SA0ur Documents)Contracts\04\Bi"diesel0]0304-Final.doc 20 } BIODIESEL INDUSTRIES, INC., a Delaware corporation BY: C NAME: 11~~s>lrx~~ TITLE: (II~I°SIC~Pq~ CITY OF DENTON, TEXAS B Y~ 'ge MICHAEL A. COND City Manager ATTEST: JENNIFER WALTERS, CITY SECRETARY B APPROVED AS TO FORM HERBERT L. 7OUTYTY ATTORNEY BY: to rdt (~ti,c(I i D' ~ 'Uwr-Ya_ P A l~[6 1:7"rL -o12 h ACS a subsidiary of Biodiesel Industries BY: NAME: f~jd, ! feu C I TITLE: ~R~StPvt.~ SAOur Docurmnts%Contracts\04kBiodiest1030304-Fin8l.doc 21 ACKNOWLEDGMENTS STATE OF CALIFORNIA COUNTY OF ' V C--'J-1 0R-/k T is instrument is acknowledged before me, on this III-\ day of M0.04 2004 by V SSN ll l e_al l , of the Biodiesel Industries, Inc, a Delaware corporation, on behalf of said corporation. .t Lw MLEND RA KumAR Commisslon # Notary Public - Calllornia Ventura Counly Com m. Expires Apr 29, 2007 STATE OF TEXAS COUNTY OF DENTON Notary Public in and for the State of California This instrument is acknowledged before me, on thisg3Aalday of AU&k 2004 by Michael A. Conduff, City Manager of the City of Denton, Texas, on behalf of 6id city. JANE E, RICHARDSON LfG Notary Public, Stele 0f Texas ((/i My Commission Expires Notg~ y Public in and for the State of Texas e;,„~' June 27, Zoos STATE OF C*hff~&~ Je,E4s COUNTY OF S i ePJ&,j VI. This instnunent is acknowledged before me, on this 2 .~L day of (1r) f , 2004 by t yza l( 77ea. /l , f- of the B' , a subsidiary of Biodiesel Industries, Inc., on behalf of said corporation. (31ooitse I in dus4n;es e) C7,w4k& &.1114.s Fv&1,v,d~,1, 1- C- C're'K4. ) Q I alLl' X W2~z pme~ Notary Public in and f the State of Teo s IS DIANE LYNN PRESLEY NOTARY PUUX suirl OF Tt7IAS `a"'~ Comm. Dy.05413-2008 SAOur Documents)Contracts\041Biodiese1030304-Final.doc 22 EXHIBIT A MPU The specifications and description of the Modular Production Equipment as referred to in Section 4.1 of this Agreement is as follows. (1) Two, 1,500 gallon reactors with hot water heating coils and plumbing composed of 304 stainless, with circulation pumps and level sensors meeting applicable electrical standards for handling flammable liquids. (2) One, 300 gallon tank for mixing alcohol and catalyst and plumbing, composed of 304 stainless, with circulation pump meeting applicable electrical standards for handling flammable liquids. (3) Two, CINC V-10 centrifuges and plumbing configured with the reactors to separate biodiesel, glycerin and water, and installed to meet applicable electrical standards for handling flammable liquids. (4) Two, drying columns and plumbing designed to remove water from biodiesel. (5) One filter system designed to remove particulates and water from biodiesel. (6) One distillation system designed to remove alcohol from glycerin, composed of stainless steel and and installed to meet applicable electrical standards for handling flammable liquids. (7) One control panels designed to control all electrical functions of the above equipment, with an emergency cut off switch on the panel and on the processing equipment. Panel to be mounted in a remote control room separated from the above described equipment. Mur DocumentalContracts104\Biodiesc1D30304-Final.doc 23 EXHIBIT B LETTER OF CREDIT NAME OF BANK: DATE: IRREVOCABLE STANDBY LETTER OF CREDIT NUMBER: BENEFICIARY THE CITY OF DENTON, TEXAS C/O CITY MANAGER CITY OF DENTON CITY HALL 215 E. MCKINNEY DENTON, TEXAS 76201 APPLICANT BIODIESEL INDUSTRIES, INC. 435 1/2 EL SUENO ROAD SANTA BARBARA, CALIFORNIA 93110 ATTN: RUSSELL T. TEALL, III j AMOUNT USD 500,000.00 FIVE HUNDRED THOUSAND AND NO1100'S US DOLLARS EXPIRATION 2004 AT BANK OF DALLAS, TEXAS WE HEREBY ISSUE OUR IRREVOCABLE STANDBY LETTER OF CREDIT NUMBER , IN FAVOR OF THE CITY OF DENTON, TEXAS, AS BENEFICIARY BY ORDER AND FOR THE ACCOUNT OF BIODIESEL INDUSTRIES, INC. AVAILABLE FOR PAYMENT AT SIGHT AT THE COUNTERS OF BANK OF , N.A. FOR U.S. $500,000.00 (FIVE HUNDRED THOUSAND U.S. DOLLARS) AGAINST ANY ONE OF THE FOLLOWING DOCUMENTATION REQUIREMENTS: 1). A STATEMENT SIGNED BY A PURPORTED OFFICER OF BENEFICIARY STATING "BIODIESEL INDUSTRIES, INC. HAS NOT PERFORMED IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE EQUIPMENT SALE, LEASE, AND LICENSE AGREEMENT DATED 2004 BETWEEN THE CITY OF DENTON AND BIODIESEL INDUSTRIES, INC.", OR 2) A STATEMENT SIGNED BY A PURPORTED OFFICER OF BENEFICIARY STATING `BIODIESEL INDUSTIES, INC. HAS FAILED TO DELIVER A REPLACEMENT LETTER OF S:0ul DocumentslConhacts\04\BiodiaclD3D304-Final.doc 24 CREDIT SATISFACTORY TO BENEFICIARY PRIOR TO THE THIRTIETH DAY PRIOR TO THE STATED EXPIRATION DATE OF LETTER OF CREDIT NUMBER OR SPECIAL INSTRUCTIONS: 1) PARTIAL AND MULTIPLE DRAWINGS ARE PERMITTED. 2) DOCUMENTS MUST BE PRESENTED AT OUR COUNTERS LOCATED AT , DALLAS, TEXAS 75202 NO LATER THAN , 2004. 3) ALL COSTS RELATED TO DRAWINGS UNDER THIS LETTER OF CREDITNUMBER SHALL BE CHARGED TO THE ACCOUNT OF THE APPLICANT. WE HEREBY ENGAGE WITH YOU THAT ALL DOCUMENTS PRESENTED IN COMPLIANCE WITH THE TERMS OF THIS CREDIT WILL BE DULY HONORED IF DRAWN AND PRESENTED FOR PAYMENT ON OR BEFORE THE EXPIRATION DATE OF THIS LETTER OF CREDIT. IF YOU REQUIRE ANY ASSISTANCE OR HAVE ANY QUESTIONS REGARDING THIS TRANSACTION, PLEASE CALL 800- AUTHORIZED SIGNATURE S:Wur DocumentskConhncts'04\Biodiest1030304-rinal.doc 25 EXHIBIT C INSURANCE REQUIREMENTS Affiliate shall, during the term of this agreement and any extension thereof, maintain adequate insurance coverage as follows; In General. All policies of insurance provided shall be issued by insurance companies qualified to do business in the State of Texas and either (1) listed on the U.S. Department of the Treasury's Listing of Approved Sureties (Department Circular 570) (as amended), or (2) having a current rating of "A-" or better in the most current available A.M. Best Co., Inc.'s, Best's Insurance Reports, Property and Casualty Edition. Except in the case of workers' compensation insurance, City and BioD, and their respective officers and employees shall be included as an additional named insureds on all insurance policies. Affiliate shall cause copies of certificates of insurance to be furnished to City and BioD concurrently with or prior to conducting construction-related site inspections, surveys, etc. associated with this agreement. The certificates shall name City and BioD as the certificate holders and as an additional named insured (except in the case of workers' compensation insurance). If requested, Affiliate shall also cause copies of the insurance policies required by this agreement to be provided to City and BioD. 2. Workers' Compensation Insurance. Affiliate shall obtain and maintain during the tern of this agreement and any extension thereof workers' compensation insurance with statutory limits as required by laws and regulations for all of Affiliates's employees employed at the Project. Comprehensive Public Liability and Property Damage Liability Insurance. Affiliate shall secure and maintain during the term of this agreement and any extension thereof a commercial general public liability and property damage liability insurance policy. The policy shall protect City and BioD, and their respective officers and employees from claims for damages for personal injury, including accidental death, and from claims for property damage which may arise from Affiliates's operations under this agreement, whether any such operation be by the Affiliate or by anyone directly or indirectly employed by Affiliate. The minimum amounts of such insurance shall be not less than $1,000,000 for each occurrence, and $3,000,000 general aggregate, and $2,000,000 products/completed operations aggregate.. Such policy(ies) shall provide coverage for liability resulting from premises/operations, products/completed operations, independent contractors and contractual liability. 4. Automobile Public Liability Insurance. Affiliate shall secure and maintain during the term of this agreement and any extension thereof comprehensive automobile public liability insurance with limits not less than $1,000,000 per occurrence, covering owned, hired, and non-owned automobiles and mobile equipment. SAOur Docurmnis%Coiitracis104~Biodiese1030304-Final.doc 26 5. Environmental Impairment Liability Insurance. Affiliate shall secure and maintain j during the term of this agreement and any extension thereof Environmental Impairment Liability insurance with limits not less than $1,000,000 per occurrence, covering liability and cleanup costs associated with discharges or releases of chemicals or other forms of pollution. 6. Property Insurance. Affiliate shall secure and maintain during the tern of this agreement and any extension thereof Property Insurance on an All-Risk basis, providing for 100% of the replacement cost of all associated buildings and equipment. SAOur Documents\Contr2cU~04%iodiesel070104-Final.doe 27 AMENDMENT TO EQUIPMENT, SALE, LEASE, AND LICENSE AGREEMENT This Amendment to Equipment, Sale, Lease, and License Agreement (the "Amenchnent") is entered into effective as of the 23`d day of March, 2004, by and between Biodiesel Industries, Inc ("BioD") and the City of Denton, Texas ("City"). WHEREAS, BioD and the City have entered into that certain Equipment, Sale, Lease, and License Agreement dated March 23, 2004 (the "Agreement"); and WHEREAS, the Agreement contemplates that BioD will establish a wholly owned subsidiary Texas corporation to enter into the Agreement as the Affiliate, as snore particularly defined in the Agreement; and WHEREAS, the parties to the Agreement are entering into this Amendment to allow BioD to assume the rights and obligations of the Affiliate under the Agreement until such time as the Affiliate has been incorporated and signs the Agreement; NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and in the Agreement, and for other good and valuable consideration, ( the receipt and sufficiency of which are hereby acknowledged, BioD and City hereby agree as follows: 1. BioD herby assumes and is responsible for all of the rights and obligations of the Affiliate under the Agreement until such time as the Affiliate is duly incorporated as a Texas corporation and signs the Agreement. BioD shall immediately become licensed to do business in Texas if it has not already done so, and shall immediately provide City with written evidence of same. 2. All other terms and conditions of the Agreement shall remain in full force and effect. BIODIESEL INDUSTRIES, INC. A Delaware corporation BY: R&,'YYA6e Russell Teal[ President Pa uP. I l j CITY XAS BY: Michael A. Conduff City Manager OFJENNIFER WALTERS, CITY SECRETARY B A 16) APPROVED AS TO FORM HERBERT L. PR Y, CITY ATTORNEY B Y: PR VP. IV PROMISSORY NOTE Amount: $650,000 Date: day of 2008 Place: Denton, Texas FOR VALUE RECEIVED, Biodiesel Industries, Inc. and Biodiesel Industries of Greater Dallas Fort Worth LLC (collectively, "Makers"), promise--~ointly and severally-to pay to the City of Denton ("Holder"), at 215 E. McKinney St., Denton, TX 76201 or such other place as the Holder may designate in writing, the principal sum of $650,000 together with interest thereon computed at the rate of 6% per annum on the unpaid principal balance owing from time to time and charged on actual days that this Promissory Note ("Note") is outstanding. The principal and interest hereunder shall be payable in one installment of $650,000 due on April 30, 2009. Makers may prepay this Note at any time without penalty. Makers waive presentment, demand, notice, protest and all other notices in connection with the delivery, acceptance, default or enforcement of this Note. Makers, jointly and severally, authorize any attorney to appear in any court of record of Texas, or any other state in the United States, on default in any payment of any installment due on this instrument, to waive the issuing and service of process, to admit the maturity of this instrument by acceleration or otherwise, and to confess judgment against Makers in favor of Holder for the amount remaining to be paid on this instrument, together with costs of suit and reasonable attorney fees, and to release all errors and waive all right of appeal and stay of execution. No judgment or judgments against less than all of the Makers shall be a bar to a subsequent judgment or judgments against any one or more of the Makers against whom judgment has not been obtained on this instrument. The obligations assumed by the Makers under this Note are joint and several. The interpretation, construction and enforcement of this Note shall be governed by the laws of the State of Texas. If any provision(s) or portion(s) thereof in this Note is found by any court to be unenforceable or to violate any law or juridical decision, or if such court should declare such portion(s) or provision(s) to be illegal, invalid, unlawful, void or unenforceable as written, then it is the intent of all parties hereto that such portion(s) or provision(s) shall be given force to the fullest possible extent that it is legal, valid and enforceable and that the remainder of this Note shall be construed as if such illegal, invalid, unlawful, void or unenforceable portion(s) or provision(s) was not contained therein and that the rights, obligations and interests of the Makers and Holder thereof, under the remainder of this Note shall continue in full force and effect. IN WITNESS WHEREOF, Makers have caused this Note to be executed as of the date set forth above, and as authorized in accordance with the duly and regularly adopted and existing resolution of the Boards of Directors of the Makers. - REMAINDER OF PAGE INTENTIONALLY LEFT BLANK- Promissory Note - p. 1 of 2 Exhibit 2 MAKERS: BIODIESEL INDUSTRIES, INC. By: Russell T. Teall, III, its President Date of Signature: BIODIESEL INDUSTRIES OF GREATER DALLAS FORT WORTH LLC By: Russell T. Teall, III, its President Date of Signature: CALIFORNIA ACKNOWLEDGMENT State of California County of Santa Barbara On before me, personally appeared Russell T. Teall. III, who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacities, and that by his signatures on the instrument the person, or the entities upon behalf of which the person acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature (Seal) Promissory Note - p. 2 of 2 PROMISSORY NOTE Amount: $650,000 Date: day of OC>4 h k- 2008 Place: Denton, Texas FOR VALUE RECEIVED, Biodiesel Industries, Inc. and Biodiesel Industries of Greater Dallas Fort Worth LLC (collectively, "Makers"), promise-jointly and severally-to pay to the City of Denton ("Holder"), at 215 E. McKinney St., Denton, TX 76201 or such other place as the Holder may designate in writing, the principal sum of $650,000 together with interest thereon computed at the rate of 6% per annum on the unpaid principal balance owing from time to time and charged on actual days that this Promissory Note ("Note") is outstanding. The principal and interest hereunder shall be payable in one installment of $650,000 due on April 30, 2009. Makers may prepay this Note at any time without penalty. Makers waive presentment, demand, notice, protest and all other notices in connection with the delivery, acceptance, default or enforcement of this Note. Makers, jointly and severally, authorize any attorney to appear in any court of record of Texas, or any other state in the United States, on default in any payment of any installment due on this instrument, to waive the issuing and service of process, to admit the maturity of this instrument by acceleration or otherwise, and to confess judgment against Makers in favor of Holder for the amount remaining to be paid on this instrument, together with costs of suit and reasonable attorney fees, and to release all errors and waive all right of appeal and stay of execution. No judgment or judgments against less than all of the Makers shall be a bar to a subsequent judgment or judgments against any one or more of the Makers against whom judgment has not been obtained on this instrument. The obligations assumed by the Makers under this Note are joint and several. The interpretation, construction and enforcement of this Note shall be governed by the laws of the State of Texas. If any provision(s) or portion(s) thereof in this Note is found by any court to be unenforceable or to violate any law or juridical decision, or if such court should declare such portion(s) or provision(s) to be illegal, invalid, unlawful, void or unenforceable as written, then it is the intent of all parties hereto that such portion(s) or provision(s) shall be given force to the fullest possible extent that it is legal, valid and enforceable and that the remainder of this Note shall be construed as if such illegal, invalid, unlawful, void or unenforceable portion(s) or provision(s) was not contained therein and that the rights, obligations and interests of the Makers and Holder thereof, under the remainder of this Note shall continue in full force and effect. IN WITNESS WHEREOF, Makers have caused this Note to be executed as of the date set forth above, and as authorized in accordance with the duly and regularly adopted and existing resolution of the Boards of Directors of the Makers. - REMAINDER OF PAGE INTENTIONALLY LEFT BLANK - Promissory Note - p. 1 of 2 MAKERS: BIODIESEL INDUSTRIES, INC. Date of Signature: By: Russell T. Teall, III, its President BIO IESEL INDUSTRIES OF GREATER DALLAS FORT WORTH LLC Date of Signature: By: Russell T. Teall, III, its President CALIFORNIA ACKNOWLEDGMENT State of California County of Santa Barbara On 000MY 2((' Z 00K before me, J-MuKea Wit -c4 d • i,30,(a-bk--e personally appeared Russell T. Teall. III, who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacities, and that by his signatures on the instrument the person, or the entities upon behalf of which the person acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS h d and offici al. LAUREN E. WARFIELD CommIS31on # 1746027 Signature' (Seal) Notary Public - California J Santa Barbara County Comm 20.2011 Promissory Note - p. 2 of 2