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Letter Of Intent

Letter of Intent

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 This Letter of Intent involves

LIBERTY RENEWABLE FUELS LLC | Auburn Bean and Grain Co | KMA Group, L.L.C.,

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Governing Law: Michigan     Date: 1/19/2007

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Exhibit 10.6


This Letter of Intent reflects the agreement of Liberty Renewable Fuels LLC, a Delaware limited liability company (“ Liberty ” or the “ Buyer ”) to acquire from all shareholders (collectively the “ Seller ”) of Auburn Bean and Grain Co., a Michigan corporation (“ ABGCO ”) all of the capital stock (the “ Purchased Shares ”) of ABGCO, which is in the business of buying, receiving, storing and selling grain and in the business of selling seed, agri-chemicals, fertilizer and the custom application thereof and to further acquire from the KMA Group, L.L.C., a Michigan limited liability company (“KMA”) those parcels of real estate hereinafter more particularly identified. It also reflects the agreement of the Seller to sell the Purchased Shares and KMA to sell the Transferred real estate to Buyer as herein contemplated. The Acquisition by Liberty of the Purchased Shares (the “Acquisition”), when complete, will result in ABGCO becoming a wholly owned subsidiary of the Buyer.

In connection with this Letter of Intent, the following are the points of understanding:



Purchased Shares . Buyer shall purchase from Seller and Seller shall sell to Buyer all of the Purchased Shares, all of which are owned by Seller, free and clear of any liens or encumbrances. KMA shall transfer to Buyer the parcels of real estate identified herein (the “Transferred real estate”).



Purchase Price . The purchase price for all of the Purchased Shares shall be Fourteen million and Two hundred Twenty-Five thousand dollars ($14,225,000) less the indebtedness ABGCO owes to Metropolitan Life at the time of Closing, which debt is to be paid at closing as hereafter set forth and 1,000 units of Class A membership interest in Buyer and the purchase price for the Transferred real estate to be purchased from KMA shall be Three Million Seven Hundred Thousand dollars ($3,700,000), (the “ Units ,” and together with the cash portion of the purchase price, the “ Purchase Price ”). Seller understands that Buyer has not had the opportunity to conduct due diligence of ABGCO, and therefore this Purchase Price is subject to good faith negotiation upon Buyer’s completion of such due diligence. Notwithstanding the fact that Buyer is buying the shares of stock of ABGCO, the Purchase Price is also dependent on ABGCO owning, free and clear any liens, all of the assets used in its business, excepting those obligations incurred in the normal operations of its business (which includes the existing operating line of credit in place as of the date hereof), and that the transferred real estate to be purchased from KMA will be free from all liens and encumbrances. It is understood that the transferred real estate and facilities used or owned by ABGCO and to be purchased from KMA include:




The parcel of land and grain processing, grain storage (approximately 700,000 bushels capacity) and equipment located in the City of Saginaw, Michigan and commonly known as 105 Lyon Street, Saginaw, Michigan, but excluding therefrom the feed warehouse and bean processing portions towards the south end of the property (survey required, common wall to be established.)





The parcel of land and grain processing, grain storage (approximately 1,000,000 bushels capacity), and equipment located in the City of Auburn, Michigan, including the new grain storage (approximately 1,500,000 bushels capacity) structures being built in the adjacent township, and commonly known as 504 North Auburn Road, Auburn, Michigan, but excluding therefrom the navy bean processing plant and associated bin(s) at the east end of the property along the railroad tracks (“Navy Bean Plant”) but including the current ABGCO administrative office located at 315 N Auburn Road, (survey required) (“Administrative Building”).




The parcel of land and agronomy facilities and equipment located at 4640 Seven Mile Road., Monitor Township, Bay County, Bay City, Michigan.




As hereinafter provided, the parcel of land and grain processing, grain storage (approximately 4,900,000 bushels capacity), agronomy facilities and equipment located in Richland Township, Saginaw County, Michigan, and commonly known as 485 South Hemlock, Hemlock, Michigan.




The parcel of land and grain facilities located two blocks to the west of the 485 South Hemlock Road facility on 480 Pine Street, Richland Township, Saginaw County, Hemlock, Michigan.




Warehousing located directly south of the building at 504 Pine.




The parcel of land and grain processing, grain storage (approximately 2,305,000 bushels capacity), agronomy facilities and equipment located in the Village of Oakley, Michigan, and commonly known as 310 West Third, Oakley, Michigan.




The parcel of land and grain processing, grain storage (approximately 2,200,000 bushels capacity) and equipment located in Brady Township, Saginaw County, Michigan and commonly known as 18413 Oakley Rd, Oakley, Michigan.



Purchase Agreement . By the later of completion of due diligence or within forty-five (45) days of Buyer’s execution and delivery of this Letter of Intent but in all events as soon as possible, Buyer will, at Buyer’s expense, deliver to Seller an initial draft of the purchase agreement and appropriate exhibits thereto, which agreement will include, among other items, customary representations, warranties and indemnities of the parties. The Parties hereto will use their best efforts to negotiate and execute the Purchase Agreement as quickly as possible. Without limiting any other provision hereof, the Purchase Agreement shall contain a right of first refusal for the Buyer with respect to the Navy Bean Plant should it ever be sold or leased (but only certain types of leases, as shall be mutually agreed).



Closing. The closing shall on or before July 1, 2007, subject to one extension of up to 120 days therefrom, if reasonably necessary for Buyer to achieve financial closing of the necessary financing.



Upon signing of the Letter of Intent Buyer shall deliver to KMA a nonrefundable deposit of one percent (1%) of the Purchase Price for its property, the same to be




retained by KMA if no Purchase Agreement is signed or applied to the Purchase Price if a Purchase Agreement is signed and the terms therein fulfilled.



Other Matters to Occur at Closing . At the Closing, the following shall occur, in addition to those things set forth as Closing items in the Purchase Agreement: (i)   Buyer will immediately upon transfer to it of the Purchased Shares cause ABGCO to forthwith pay the ABGCO’s indebtedness to Metropolitan Life Insurance Company together with any prepayment penalty required by Metropolitan and the balance of the Purchase Price as herein contemplated. (ii) KMA will also deliver a standard deed for the conveyance of its transferred real estate. Buyer will, upon receipt of the deed(s) deliver to KMA its portion of the Purchase Price for its transferred real estate. Buyer will also receive credit for the one percent (1%) deposit. (iii) Buyer will sign a lease (which will not permit subleasing or assignment) with the entity or entities designated by ABGCO for a 15 year lease of the Administrative Building, at a rental rate of $1.00 per year (such lessee to bear the real estate taxes, insurance and maintenance on such building at its expense). The Closing shall take place on July 1, 2007, and is contingent, among other things, upon Buyer’s (i) completion of its due diligence to its satisfaction, (ii) execution of a Purchase Agreement, and (iii) securing financing commitments to fund Acquisition.



Grain Origination. As a separate agreement between Liberty and ABGCO, a grain origination agreement will apply to all corn delivered after July 1, 2008, and will continue for a period of five (5) years thereafter. The terms of this agreement will be deemed effective upon any sale and closing of the shares identified as “Purchased Shares” to any person, which takes place within 12 months from the date hereof. If no such sale of the Purchased Shares occurs within such 12 month period, then this agreement shall be null and void.




ABGCO will (i) sell to Liberty all the corn ABGCO originates and (ii) receive a fixed handling and storage fee that Liberty will pay to ABGCO, to be 16 cents per bushel handling fee or 2.5 cents per bushel per month storage fee. ABGCO will sell corn to Liberty at the same price ABGCO purchased corn from growers. Liberty will be responsible for setting market prices paid by ABGCO to the growers.




50% of the handling fee payment (.16 per bushel) will be received at the time the grain is received at an ABGCO facility. The remainder of the handling fee will be paid upon shipment of corn.




The storage fee will be paid on a monthly basis with ABGCO to invoice LIberty on the last day of the month and Liberty to pay ABGCO within five business days. The storage fee will be accrued on a daily basis.




ABGCO will be responsible for payment to customers for grain purchases and will invoice Liberty on a weekly basis for all such purchases. Liberty will pay ABCO the invoiced amount within five business days for all invoiced purchases.





All other business practices associated with ABGCO concerning drying, conditioning, overages/shortages, and other grain issues will be accounted for in a manner consistent with ABGCO’s past business practices.




No other term in this Agreement to the contrary withstanding, the provisions of this section as regards grain origination, shall be deemed binding on Liberty and ABGCO.



Additional Facilities; Purchase Price Adjustment. Should ABGCO construct or acquire any additional corn processing-storage facilities prior to the Closing, Buyer will purchase the same from the Seller at its actual cost in addition to the Purchase Price, less all debt incurred in connection with such acquisition, and the said additional facilities shall be added to and become part of the Acquisition.



Due Diligence . Following the execution of this Letter of Intent, Seller will (and will cause its representatives, officers, employees, consultants and advisors, including accountants and legal advisors), provide Buyer and its representatives, officers, employees, consultants and advisors, including accountants and legal advisors, full and free access at all reasonable time and upon reasonable notice to the books, records facilities and other assets of ABGCO, as well as ABGCO’s and officers, directors, employees, consultants and advisors, for meetings and discussions that Buyer reasonably considers necessary or appropriate in connection with its due diligence inquiry with respect to the purchase of the Purchased Shares. A third party not affiliated with either Buyer or Seller or ABGCO, but familiar and well versed with the operation of grain elevators, will be appointed by Buyer, upon acceptance by Seller, to coordinate and complete the due diligence required herein. As soon as practicable following execution of this Letter of Intent, ABGCO will provide to Buyer the information listed on Exhibit A attached hereto. Seller acknowledges that Buyer will be pursuing bank financing for the cash portion of the Purchase Price and that this due diligence, including financial information, is necessary for Buyer to provide to financial institutions to secure financial commitments for the cash portion.



Employment Contracts . After the Closing, Buyer intends to operate ABGCO under the same management. Therefore, at the Closing Buyer shall enter into employment agreements with each of the current employees of ABGCO that are interested in continuing to work for ABGCO. It is Buyer’s expectation that all of the employees whose continued services are deemed material to the on going success of the business of ABGCO will sign such agreements which shall also contain mutually agreeable covenants not to compete. Such employment agreements shall be for a period of 3 years and shall include salaries and benefits (including continuation of normal bonuses based on year-end results) at least equivalent to those being received by such employees on October 25, 2006, including reasonable cost of living increases. Such employment agreements shall also state that the employees shall report to those in the position of management at the facilities where the employee works, who in turn will report to the Board of Liberty. Sellers shall enter into acceptable covenants not to compete.




Company Name . Buyer will receive ownership and rights to use and conduct business under the name “Auburn Bean & Grain Co.”



Right of First Refusal . Should Buyer desire to sell ABGCO at anytime prior to the fifth anniversary of the Closing, Seller shall have first right of refusal to match any bona fide offer for purchase of the same. This Right of First Refusal shall only apply to a sale of ABGCO on a stand alone basis and shall not apply to any sale of Buyer as a whole or any sale of ABGCO in

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