COMMITTED TO INNOVATION & COMMUNITY by VERVE MEDIA Group

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1 “Committed to Innovation and Community”

Dear Prospective Investor, biofuels America, Inc. d/b/a BFA Energy Solutions (“the Company) is an innovative company dedicated to bringing advanced alternative energy technologies and solutions to market. We have identified unique opportunities in the lignin and cellulosic ethanol markets. Our mission is simple. To maximize shareholder value and to increase profitability. As a major component of the New Energy Economy our goal is to develop bio-refinery infrastructure assets to produce cellulosic ethanol, lignin and other related bio-chemicals. Just as important, is our goal to become a stakeholder in the communities in which we operate. We are “Committed to Innovation and Community.” Respectfully,

Jackie Joyner Kersee Vice President Investor Relations

2 “Committed to Innovation and Community”

Table of Contents Section A: Executive Summary Corporate Information ………………………………………………………………. Mission and Vision ………………………………………………………………….. Location ……………………………………………………………………………… Availability of Workforce …………………………………………………………… Existing Ethanol Plant on Site ……………………………………………………….. Process Technology …………………………………………………………………. Biomass Feedstock Supply & Delivery Systems …………………………………….. Primary Output ………………………………………………………………………. Our Economic Analysis ……………………………………………………………… National Export Initiative …………………………………………………………….. Energy requirements …………………………………………………………………. Transportation ……………………………………………………………………….. Project Permitting …………………………………………………………………….. Project Construction …………………………………………………………………… Environmental Issues …………………………………………………………………. Community Concerns ………………………………………………………………….

9 10 10 11 11 16 17 18 23 25 27 27 29 29 30 32

Section B: Economic Feasibility Location ……………………………………………………………………………….. Infrastructure ………………………………………………………………………….. Feedstock Source Management ……………………………………………………….. Impact on Existing Manufacturing Plants …………………………………………….. Economic Impact ………………………………………………………………………. Renewable Fuels Standard ……………………………………………………………..

35 35 37 38 41 42

Section C: Management and Organization Organization ……………………………………………………………………………. Board of Directors ……………………………………………………………………… Continuity and Adequacy of Management ……………………………………………... Executive Team ………………………………………………………………………… Strategic Relationships ………………………………………………………………….

47 47 51 53 63

Section D: Market Feasibility Determinations Market Analysis ………………………………………………………………………… Financing Obstacles …………………………………………………………………… Sales Objectives ………………………………………………………………………… Market and Budget Results …………………………………………………………….. Situation Analysis ………………………………………………………………………. Competition ……………………………………………………………………………..

67 68 69 69 74 75 3

“Committed to Innovation and Community”

Section E: Technical Feasibility Determinations Background of Advance Technology Invention ……………………………………… Kraft Pulping Processes Disadvantages ………………………………………………. PLET Process Advantages ……………………………………………………………. PLET Production Process …………………………………………………………….. PLET Pilot Plant ……………………………………………………………………… Design & Engineering ………………………………………………………………… Timing of Major Component Replacement & Rebuild …………………………….

88 92 92 93 103 108 114

Section F: Financial Feasibility Determinations Reliability of Financial Projections and Assumptions ………………………………… Financial Assumptions and Elements of Development Costs …………………………. Ability to Achieve Projected Income and Cash Flow …………………………………. Availability of Short Term Credit ……………………………………………………… Adequacy of Raw Materials and Supplies …………………………………………….. Sensitivity Analysis ………………………………………………………………….. Feedstock Costs ………………………………………………………………………… Energy Costs …………………………………………………………………………… Risks Related to Project ………………………………………………………………… Borrower Financing Plan ……………………………………………………………….. Source of Funds ………………………………………………………………………… Exit Strategy ……………………………………………………………………………. Tax Issues ……………………………………………………………………………….

117 119 120 122 125 125 127 127 128 132 133 136 137

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List of Table, Images & Figures Tables Table # 1: Table # 2: Table # 3: Table # 4: Table # 5: Table # 6: Table # 7: Table # 8: Table # 9: Table # 10: Table # 11: Table # 12: Table # 13: Table # 14: Table # 15: Table # 16: Table # 17: Table # 18: Table # 19: Table # 20: Table # 21: Table # 22: Table # 19: Table # 20: Table # 21: Table # 22: Table # 23:

Corporate Ownership ........................................................ Marion County, TN Available Workforce & Related Dem. Property Building Schedule .............................................. bfA Project Revenues ....................................................... Equity Drive Schedule ...................................................... Energy Use ........................................................................ Site Logistics Data ............................................................ Construction Permitting Timeline ..................................... Completed Pre-Development Work .................................. Existing Manufacturing Consumption ............................... Project Corporate Income Tax Expense ............................ Job Creation & Econ. Value of Cellulosic Feedstock Prod. bfA Project Revenues .......................................................... Annual Marketing Budget ................................................ Energy Industry Magazines ............................................... Customer Sales Agreements .............................................. Tankage Requirements Per Day of Processing in US Gallons Daily Requirement for Chemicals & Water ……………… Production Output for 36T Input of Feedstock/Day ............ Energy Balance; Based on Processing 36T Sawdust Daily Mass Balance; Based on Processing 36T Sawdust Daily.... Project Financial Statements ……………………………… Summary of Sensitivities …………………………………. Feedstock Costs …………………………………………… Energy & Replacement Costs …………………………….. Product/Co-Product ……………………………………….. Political Support for Project Tennessee ……………………

Arial Map of Jasper, Tennessee ................................................ Arial Map of Jasper, TN Plant .................................................. Jasper, TN, Plant ....................................................................... Arial of Existing Manufacturers ............................................... PLET Pilot Plant Photo # 1 ....................................................... PLET Pilot Plant Photo # 2 ....................................................... PLET Pilot Plant Photo # 3 ....................................................... PLET Pilot Plant Photo # 4 ....................................................... PLET Pilot Plant Photo # 5 ....................................................... PLET Pilot Plant Photo # 6 ........................................................ PLET Pilot Plant Photo # 7 ........................................................

47 49 50 77 125 125 126 126 127 127 128

27 27 28 29 30 37 40 43 46 69 70 74 75 98 100 101 102 103 117 126 127 128 128 139

Images Image # 1: Image # 2: Image # 3: Image # 4: Image # 5: Image # 6: Image # 7: Image # 8: Image # 9: Image # 10: Image # 11:

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Image # 12: Image # 13: Image # 14: Image # 15: Image # 16: Image # 17:

PLET Pilot Plant Photo #8 ........................................................ PLET Pilot Plant Photo # 9 ......................................................... Impregnation Tank Assembly ..................................................... Lignin Pre-Treatment Plant Assembly ....................................... LP1 Isometric .............................................................................. LP1 Side view ...............................................................................

128 129 287 288 289 290

Figures Figure # 1: Figure # 2: Figure # 3: Figure # 4:

PLET Production Process Flowchart ............................................. 57 U.S. Production of Advanced Biofuels Under RFS ...................... 80 PLET Process Flow Chart ............................................................. 116 PLET Process Flow Chart ................................................................. 117

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Section A: Executive Summary The growing concern over our nation’s increasing need for energy, in the form of electricity, liquid fuels and bio-chemicals and the federal government’s mandate of renewable fuel standards coupled with governmental financial incentives has created a burgeoning need for renewable energy solutions. Biofuels America Inc. d/b/a BFA Energy Solutions, a Tennessee corporation (―BFA Energy‖ or the ―Company‖) was founded in 2008 to take advantage of these opportunities in the renewable energy sector. To fulfill this increasing demand for energy, The Company plans to develop a fleet of biorefineries across the United States in opportunistic states. The Company’s first project located in Jasper Tennessee is called ―Project Tennessee.‖ Project Tennessee will cost approximately $112 million and will create 50 permanent ―green jobs‖ and roughly 150 temporary jobs during construction. Total year one sales are conservatively projected at $ 117,006,245.00 Project Tennessee involves the acquisition of a closed grain ethanol facility and retrofitting that facility into a Combined Heat and Power (―CHP‖) biorefinery. Project Tennessee will use an advanced patented process by Pure Lignin Environmental Technology, Ltd, (―PLET‖) of Kelowna, B.C., Canada licensed to the Company. Using the licensed technology from PLET, the Company will convert wood wastes and urban trash (pre-sorted municipal solid waste) into cellulosic ethanol and other valuable biochemicals such as lignin and will also combust some of the lignin to produce electricity. From 1995 to 2007, total U.S. electricity consumption increased by 24% even while the price of electricity also rose by 32.5%. From 1990 to 2008 the U.S. consumption of petroleum rose 36.5% even though the price of oil also increased over the same time period by 117%. The U.S. Department of Energy, Energy Information Administration predicts that U.S. electricity consumption will continue to rise by 26% from 2007 through 2030, notwithstanding pending improvements in energy efficiency. In the early 2000s, several start-up companies developed corn-based and soybean-based ethanol plants in order to produce ethanol. U.S. policy favored the development of these liquid fuel producers through a series of excise tax credits. When world agricultural prices spiked in mid2008, many first generation ethanol producers found that they could not acquire feedstock in the form of corn or soybeans at prices that made ethanol profitable. As a result, many first generation ethanol producers failed or halted their operations. In addition, the apparent competition of ethanol producers for edible products like corn and soybeans produced a political backlash that has tended to disfavor ethanol production based on grains. In spite of this backlash, the federal government instituted the Renewable Fuels Standard (―RFS‖). The RFS is a provision of the US Energy Policy Act of 2005 that mandated 7.5 billion gallons of renewable fuels by 2012. United States currently produces 5 billion gallons of ethanol. In addition, the ―Food Conservation and Energy Act of 2008‖ mandated that producers of cellulosic ethanol or ethanol produced from non-food sources are entitled to a $1.01 subsidy for every gallon of cellulosic ethanol produced. 7 “Committed to Innovation and Community”

According to the U.S. National Center for Environmental Research, the U.S. produces some 26 million tons of lignin each year but as to the quality they find that: ‖Despite the judicious schemes devised for fractionating and derivatizing the lignin preparations employed by the traditional Kraft Pulping process which is the current technology in use, the optimum lignin contents in these polymeric materials have typically fallen in a range of 25 to 40%. Even in this low grade form of Lignin is a highly consumed product with a large number of uses. The value of Lignin per ton is normally twice that of pulp even in such low quality. Our test results to date, furnished by Pure Lignin Environmental Technology, Ltd. (―PLET‖) our technology provider, have shown that as a by-product of making cellulose, we can produce an 83% pure lignin that contains 17% impurities, the purest lignin produced in the world. The Company believes that with a simple washing process the lignin can reach a purity level between 95% and 99%. Unlike many that have tried and failed in the past, this technology actually provides a cost effective way to produce ―pure lignin‖, which can then be used to produce 100% biodegradable plastics as well as many other food grade and biodegradable products. Lignin has many uses and is a widely used commodity that is in high demand, The Company foresees itself creating and improving many lignin based products and making a great impact on not only the pulp and lignin markets but many markets in the U.S. and around the world. Current lignin prices range from $200 to $3,000 per Ton. The Company’s financial model estimates that it will sell its LMW lignin for $500 per Ton and its high molecular weight (―HMW‖) Lignin for $1,700 per Ton. The company estimates year one lignin sales of $81,600,000.00. The high price of foreign oil and our nation’s dependence on it coupled with our country’s policy commitment to energy security and combating climate change, presents an immense opportunity for developers of bio-refineries to produce electricity, liquid fuels and bio-chemicals. The Company’s production model, utilizes readily-available and inexpensive inputs to produce marketable, high-value outputs. PLET’s advanced, patented, revolutionary, green, biotechnology produces three separate, economically profitable products: commercial grade cellulose, pure lignin and Sweet liquor (sugars, hemicellulose). It combines a unique blend of chemicals and low-pressure steam in a closed-loop process which emits no emissions or pollution. The process can utilize any vegetation as its source including waste-wood, Pine beetlekilled trees, sugar cane, grasses, husks etc. The plants will be much more profitable than traditional methods with costs to build and operate considerably lower than conventional processes and more revenue streams. The company will produce 15 million gallons per year (―MMGY‖) of cellulosic ethanol, 93,000 Tons of lignin and 15 Megawatts (―MW‖) of electricity annually. The electricity that the Company will produce and sell is generated by the combustion of some of the LMW lignin that it produces in the refining process. Relying on an engineering study from an experienced renewable energy consulting firm, the Company estimates that its implementation of the PLET production process should produce more than enough LMW lignin to produce 15 MW of electricity per year. Of that power, the Company would expect to use about 1 MW of as combined heat and power in its own operations, leaving 14MW available for sale. Project Tennessee is surrounded by hundreds of miles of largely uninhabited forestland. The Company commissioned a study in 2009 from Ward Consulting Services, Inc. on the availability of wood and wood waste feedstock from the area surrounding Project Tennessee. The Ward 8 “Committed to Innovation and Community”

Consulting study focused on available wood and wood waste within a 75 mile radius of the Project Tennessee site to minimize transportation costs and concluded that the $30 to $45 per ton price estimate was sustainable at an annual rate of consumption of 400,000 tons. In addition to the Ward Consulting study, the Company has entered into a requirements delivery contract with The Price Company, Inc. to purchase the Company’s requirements of wood and wood waste at a price of $45 per ton for up to 400,000 tons per year (including transportation to the Company’s site). The Company will be able to acquire the feedstock for its operations at costs that are a small fraction of those paid by first-generation producers for corn and soybeans. By utilizing a lower-cost feedstock than the first-generation producers, the Company will produce ethanol at a lower cost, with a higher and more sustainable profit margin. At an average sales price of $1.83 (as of 5/25/10) per gallon, the company expects year one revenue from ethanol sales to be $ 27,450,000. On May 20, 2009, the Company entered into an Ethanol Sales and Marketing Agreement with CHS. Under the agreement CHS will purchase all of the ethanol that the plant produces. Under the Agreement CHS is obligated to market and sell to commercial purchasers all of the ethanol produced by the Company. The Company’s sales of ethanol will be priced based upon the purchaser bearing the cost of shipment from the Company’s location and the Company will pay CHS a marketing commission equal to 1.25% of the actual price paid by the purchase but not less than $0.015 per gallon. CHS is a diversified global agriculture and energy company in the Fortune 200 (NASDAQ: CHSCP) with over 75 years in the energy industry and over 25 years of experience in ethanol marketing that had 2008 revenues of $32.2 billion with net income of $803 million. The excess electricity produced will be sold to one or more electric utilities under a long term power purchase agreement (or ―PPA‖). The Company expects to negotiate a power purchase agreement with TVA, or with one of TVA’s distributors in the area of Project Tennessee, that takes advantage of the premium provided by TVA for renewable energy. The Company has a preliminary letter of intent with Veolia Energy will to design, operate and maintain the CHP power plant at its site. Veoila Energy is a division of Veolia Environment, a French multinational company with 2007 revenues of $48 billion. Veolia Environment is the world leader and benchmark player in environmental services. Veolia Environment is a 150 year old company with operations on every continent and approximately 300,000 employees. Veolia Energy has extensive experience in designing, building, operating and maintaining energy projects and refineries. The Company has received a Letter of Intent in which Veolia Energy ―would support [the Company] in securing the Power Purchase Agreement (“PPA”)” The Company has engaged the firm of E3 Energy Partners to manage the project from planning phase, through engineering and construction phases, to completion and implementation. E3 Energy Partners is a global leader in chemical engineering, process scale-up, detailed design and project oversight for renewable energy solutions. With 25 years of experience, E3 Energy Partners is one of the most highly respected project engineering firms in the country. It blends fiscal management, problem analysis, engineering, and a disciplined work measurement into its overall project control process. While E3 Energy Partners has considerable experience in all types of industrial projects, it has created a special niche in retrofitting existing facilities with new technology, rather than construction of new facilities. 9 “Committed to Innovation and Community”

Corporate Information The Company is a Tennessee C – corporation that was incorporated on May 8, 2008. Its registered agent is W. E. ―Pete‖ Reeves. The Company has 1,000 shares of common stock outstanding and 500 shares issued. The corporate shares are held as follows: Table # 1 Corporate Ownership

221 East Dale Avenue Springfield, IL 62703 815 E. H. Crump Blvd. Memphis, TN 38126 17 St. Christopher Lane Cahokia, IL 62203 1734 South 7th Street Springfield, IL 62703 217 South Paul Springfield, IL 62703 1614 Saddle Lane South Haven, MS 8921 Timber Trail Cove Cordova, TN 38018

(901) 832-1144

OWNERSHIP SHARES 75

(901) 832-0082

(217) 481-1767

(217) 753-9000

(217) 202-2270

(901) 577-1658

(901) 486-3917

P.O. Box 18692 Saint Louis, MO 137 Fava Drive Greenville, MS 38701 5296 Villa de Rey Memphis, TN 38116 1630 East Moffat Springfield, IL 62703 1436 East Washington Springfield, IL 62703

(731) 443-6205

(662) 820-2732

(901) 210-3664

(217) 801-8146

(217) 361-2271

Joyce Nash

1901 East Pine Springfield, IL 62703

(217) 502-5237

Karen Wooldridge

1238 North Van Dyke Decatur, IL 62522 815 E. H. Crump Blvd. Memphis, TN 38126 1601 South 14th Street Springfield, IL 62703

(217) 619-3855

(901) 577-1658

(217) 361-2271

100

500

SHARE HOLDER Pete Reeves Cole Porter Malcolm Xavier Beal The Camara Group Gabriele Reeves c/o Natasha Crider Kaye Ammer Bob Pitman

Abdul Zarif Brian Walters Terrance Jamison Brad Jones Joyce Flagg

Biofuels AMERICA, INC. Robert Johnson TOTAL

ADDRESS

PHONE #

% OWNERSHIP

The Company is licensed (License #: 110002800) in Memphis, Shelby County, Tennessee.

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Mission & Vision Mission Statement The mission of biofuels AMERICA, INC. is to be a globally competitive corporation by creating value for our shareholders from natural resources to become a premiere producer of cellulosic ethanol and other biochemicals. Vision Statement A boundary less learning organization engaged in diverse fuel production enhancing the quality of life of our shareholders, employees and customers.

Source: Southeast Industrial Development Association

11 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

Availability of Workforce Between Marion County and adjacent Hamilton County, there is an indigenous population base of more than 500,000. Marion County is rural, with a population density of slightly more than 50 per square mile. Hamilton County contains both rural and urban areas, with a population density of more than 500 per square mile. Once Project Tennessee becomes operational, the operation will provide competitive wages and comprehensive employee benefits designed to attract a stable, long-term workforce. Table # 2 Marion County, TN Available Workforce & Related Demographics

DESCRIPTION Labor Force Unemployment Unemployment Rate Property Tax (Per $100 Value) Ratio of Assessment Residential Industrial Personal (equipment Inventory) Raw Materials Only Sales Tax (County) Sales Tax (State) Income Tax Personal Excise (Corporate) Franchise Tax

DATA 13,100 750 5.7% $2.08 25% 40% 30% 2.25% 7.0% None 6.0% on interest and Dividends 6.5% of net earnings .25 per $100 of Capital

Existing Ethanol Plant Already On-site The site already has a closed corn ethanol plant situated on the property. This facility will be reengineered to accommodate the proprietary technology the Company will utilize to produce cellulosic ethanol, bio-chemicals and electricity from biomass. The property includes the following assets and attributes: 1.

Existing Ethanol Refinery - A fully constructed ethanol refinery, with nine (9) riveted steel and concrete silos for a total storage capacity of 539,000 bushels of source material.

35 Usable Acres - The property consists of 35 acres are functionally usable by the plant. 12 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

Clean Phase I Environmental Assessment - It is clean of any hazardous wastes or spillages. A Phase-One environmental site assessment was conducted in May 2005 by QORE, Inc. (Project #05-3099E) which documented the site’s environmental cleanliness.

River Access - The property is situated within 5 miles of the Tennessee River, which provides barge access to the Gulf of Mexico via the Tennessee Tombigbee Waterway.

Rail Access - The site has direct rail access to interstate carriers. A dual spur run of 0.75 miles has been brought onto the property, connecting the plant to mainline rail systems.

Highway Access - It is less than 2 miles from Interstate-24, with direct access via paved secondary highway for incoming and outgoing truck transport.

Utility Connections - The facility is already equipped with water, electricity, and natural gas.

Industrial Improvements - Additional heavy industrial improvements have been made to the property which will reduce construction time and production start-up by at least 12 months.

Image #2 Arial Map of Jasper, TN Plant

Source: Henry B. Glascock Company, Site Appraisal, 2/7/08

These improvements include: 13 “Committed to Innovation and Community”

1. 2. 3. 4. 5. 6. 7. 8.

Maintenance facilities, administrative offices, and weigh station building; Ten (10) 350,000-gallon carbon steel slope bottom storage tanks; Silo elevators; Three (3) metal petroleum containers; Railroad spur with siding and turnout; Railroad car scale; Two (2) truck scales; and Loading docks and crane ways

Image #3 Jasper, TN Plant

Source: Henry B. Glascock Company, Site Appraisal, 2/7/08 The existing corn-based ethanol plant on the site of Project Tennessee.

The improvements described to follow are situated on tax map and parcel 132-62 and they are to the north of the L&N Railroad property that bisects that tract. This approximate 25-acre industrial complex is improved with 18 permanent structures and many ancillary improvements. The following table illustrates the type of structure and its approximate building area.

Table # 3 Property Building Schedule BUILDING # DESCRIPTION SQ. FT. Building #1 Guard Shack 84 Building #2 Main Office 9,600 Building #3 Service Garage 6,300 Building #4 Small Warehouse 5,360 Building #5 Small Fire Bldg. 256 Building #6 General Maint. Bldg. 18,480 Building #7 Engineering Bldg. (Laboratory) 4,000 Building #8 Refrigeration Bldg 496 Building #9 Loading Bay 2,400 Building # 10 Operational Facility for Silo 19,680 Building # 11 Office-Main Silo Area 2,800 Building # 12 Grain Loading Facility 7,360 Building # 13 Operation Facility 12.600 Building # 14 Portion of Operation Facility 1,500 Building # 15 Pump Bldg. 1,032 Building # 16 Acid C3,600ontainment Facility â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

The following narrative description is for the subject structures that are considered to be substantial as opposed to those that have minimal value. 1.

Main Office: This structure is a 9,600 square foot single story Class B office structure having dimensions of 80 feet by 120 feet. The exterior walls are decorative concrete block and the structure has a metal facade along the roofline. The roof structure is flat, being bar joist and metal deck with built-up composition cover. Again, the structure is situated on a concrete pad that is a minimum of 18 inches thick. The interior finish is typical in that wall partitioning is drywall and ceilings consist of suspended mineral fiber. The entire structure is sprinklered and all interior partitioning is steel stud. Additionally, the structure has super adequate electrical service as evidenced by the attached photos. The HVAC systems are super adequate in that the normal requirement of approximately 12 tons of heating and cooling capacity was upgrade to 50 tons. Other interior improvements include suspended floor systems for computer rooms, conference rooms, offices, restrooms, etc. The structure is in average to good condition and maintenance has occurred with the most recent previous and present ownership.

Car Dox Buildings: This area is to the west of the previous structure. These buildings (two) were originally constructed to be utilized in conjunction with the ethanol production facility. Following the failure of that occupancy, they were subsequently occupied as a dry ice production plant, hence, the designation ―Car Dox‖ area. The Car Dox service garage is a typical steel frame metal clad structure having dimensions of 40 feet by 70 feet. Interior partitioning within this structure is concrete block, however. The structure is heavy by service garage standards and it has a drive through bay for the servicing of semi-tractor trailers. It is has two overhead garage doors and it is in average but serviceable condition. The main Car Dox structure is also of steel frame metal clad design. The main portion of this structure has dimensions of 80 feet by 60 feet. Also, there is a metal offset portion, which has dimensions of 20 feet by 28 feet. The total building area is 5,360 square feet. The structure has high ceiling heights (in excess of 20 feet) and it is in average but serviceable condition. It also has a loading dock at truck bed level. Overall Maintenance Building: This is a heavy duty steel frame metal clad structure that was originally intended for the maintenance of all equipment related to the production of ethanol. It has an approximate 18-foot service ceiling height and a good portion of the structure is finished in Class ―C‖ offices and machine shop and personnel areas. Interior partitioning is concrete block and extremely heavy steel. The attached photos of the interior of this structure illustrates that it was originally designed to carry heavy crane ways for machine maintenance purposes. Areas partitioned in steel are on 24-inch centers. The structure is completely lighted and is sprinklered.

Engineering Building: This is a concrete block structure having dimensions of 40 feet by 100 feet that was to be utilized, basically, as a laboratory. It is a wood joist and wood deck roofed structure with a flat, built-up composition roof cover. 15 “Committed to Innovation and Community”

It is situated on a concrete pad within the containment area. It is basically unfinished on the inside, accepting suspended mineral fiber ceilings but it heavy duty utility service including electrical and plumbing similar to the main office. It is in fair condition and would require conversion to a use other than an engineering building. 4.

Operational Facility for Silo Storage: This structure is within the containment area of the main facility. It is located adjacent to the concrete silos (to be described later) and it is a two-story steel framed metal clad construction. However, it must be noted that frame members within this structure are on 24inch centers and the building is of extremely heavy construction. The structure has exterior dimensions of 120 feet by 82 feet and it is a two-story design. Grain Loading Facility: This concrete and steel structure houses the aforementioned steel grain silos. It was designed for the delivery of product into semi-tractor truck trailers. The structural framework has exterior dimensions of 40 feet by 184 feet and it would be classified as very heavy industrial construction. Again, as the photos illustrate, it facilitates five 100-foot tall, 51,000-bushel grain silos constructed of riveted steel.

Operation Facility: This structure housed the main operation for the ethanol plant. It is a specialized industrial structure with extremely limited conversion potential. This is an industry specific structure of much higher than standard construction materials. As the photos of the structure in its construction phase (dated photos) illustrates, very few buildings exhibit this degree of heavy construction. It is primarily of steel frame construction on very narrow centers and it is a three-story design. The building area is approximately 12,600 square feet. Also part of this structure is an additional elevated building consisting of approximately 1,500 square feet that is of similar construction. Access to this portion of the building is gained by way of catwalks.

Acid Containment Facility: Situated within the expanded containment, this structure is also of steel frame metal clad construction. It was designed for the housing of and containment of hazardous chemicals (never actually put to use) and as with the previous structure is extremely specialized in design. It is also of extremely heavy construction and conversion potential is nonexistent. It is a single story structure having exterior dimensions of 70 feet by 60 feet with a lower level open area. The remainder of the improvements are either smaller structures such as truck scales and guard stations or the aforementioned concrete silos. These silos are 120 feet tall and they were constructed of solid concrete. Each silo has the capacity for 71,000 bushels of grain. Obviously, structures of this nature are extremely limited in utility for alternative uses. However, the cost new of this specialized structure is very high. Equipment remaining with these structures include the grain elevators that have electric motors in the 400 horse power range.

Again, the property is also improved with a railroad spur with siding, a railroad spur turnout, detention ponds, evaporation pit, fencing, roads, rail and truck scales, etc. 16 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

The existing assets on the site of Project Tennessee, in combination with the ready availability of low-cost feedstock and the ability of the Pure Lignin to transform those feed stocks into ethanol, biochemicals and electricity create a compelling value proposition, especially in comparison to other cellulosic ethanol projects that have project development costs of three or more times greater than Project Tennessee. Process Technology

The PLET production process involves the following steps:

STEP 1: The biomass is ground into small chips or sawdust using commercial grinding machines. Grinding the biomass into small chips or particles makes it easier for the chemical solution to soak into (or ―impregnate‖) the biomass in the next step. STEP 2: The biomass is soaked or impregnated with a solution of nitric acid and ammonium hydroxide for a period of time, generally two to twenty hours. The soak time depends upon the type of biomass involved and the size of the biomass particles, with softer biomass (such as grasses) requiring less time than harder forms of biomass (such as hardwood trees). This acid solution breaks down the cellulose in the biomass and separate the constituent parts. STEP 3: The wood and acid solution is heated to a temperature above the solution’s boiling point, but below the temperature at which the lignin would be destroyed by heat. The solution is also agitated with a mixing device to ensure thorough heating and dispersion of the liquid. Most of the acid solution evaporates and is condensed and recycled for re-use in the production process. STEP 4: The remaining material (which is now called a ―catalyzed biomass‖) is moved to a digester tank into which is added a caustic alkaline mixture (generally, sodium hydroxide (NaOH). The mixture is then heated and agitated to produce black liquor and wood pulp. STEP 5: The mixture is strained and removed from the digester to a press device where the mixture is separated into black liquor and wood pulp. The wood pulp (or cellulose) is then removed and stored for commercial sale. STEP 6: The black liquor is moved to a precipitation tank where it is cooled, agitated and treated with another acid solution. The resulting precipitate is lignin and the remaining fluid is an acidified hemi-cellulose (or sweet liquor) solution, consisting of C5 and C6 sugars. STEP 7: The lignin is removed from the solution through a staining and filtration process and then removed for storage and commercial sale. The sweet liquor is also stored in a storage tank and may either be commercially sold or fermented into ethanol for commercial sale. As a result of the PLET process, woody biomass is converted into three primary outputs: 1.

Cellulose (Wood Pulp); 17 “Committed to Innovation and Community”

Lignin; and

Hemi – Cellulose (Sweet Liquor)

Each of these outputs can either be sold commercially or further refined or processed into other value-added products(See Figure #1). The Company’s production of fuels and chemicals from waste biomass yields significant benefits, including environmental, social and economic impacts. In addition to providing new local jobs, The Company’s ethanol bio refinery platform produces significant economic value from what is otherwise considered waste, and also contributes to the goal of reducing air pollution and harmful contaminants from the burning of conventional fossil fuels. Biomass Feedstock Supply and Delivery Systems The primary input in the Company’s production process is biomass feedstock. Acceptable types of feedstock include wood, wood waste, woody biomass and municipal solid waste (MSW). Although a longer-term source of feedstock may include municipal solid waste, the problems of transporting, storing and sorting MSW (i.e., sorting the incoming MSW into biodegradable and non-biodegradable categories) is problematic and the Company’s plans have not included MSW in its financial model. Project Tennessee located is in the eastern part of the state in a rural area that is surrounded by hundreds of miles of largely uninhabited forestland. The Company commissioned a study in 2009 from Ward Consulting Services, Inc. on the availability of wood and wood waste feedstock from the area surrounding Project Tennessee. The study concluded that ―establishment of a 400,000 ton facility in the Jasper area is doable at costs ranging from $30 to $45 per ton delivered and based upon a mix heavily weighted toward hardwood round wood.” The Ward Consulting study focused on available wood and wood waste within a 75 mile radius of the Project Tennessee site to minimize transportation costs and concluded that the $30 to $45 per ton price estimate was sustainable at an annual rate of consumption of 400,000 tons. The Company’s production model for achieving 30 MGY of annual ethanol production would require slightly less than 400,000 tons (roughly 357,000) and the Company’s financial model has conservatively taken $45 per ton as its cost value. In addition to the Ward Consulting study, the Company has entered into a requirements delivery contract with The Price Company, Inc. to purchase the Company’s requirements of wood and wood waste at a price of $45 per ton for up to 400,000 tons per year (including transportation to the Company’s site). Although the Company is not obligated to purchase at this price (and is free to identify lower-cost providers) the Company has contractually assured itself of a sufficient supply of feedstock at a price that is enumerated in its financial model. Other Inputs Other inputs required for the Company’s production process include sulfuric acid and lime. Both are standard industrial products that are readily available on the market. The sulfuric acid is the primary input from the de-crystallization and hydrolysis processes that separate the lignin from 18 “Committed to Innovation and Community”

the cellulose prior to fermentation. The lime is used to neutralize any residual acid in the hydrolate (fermentable sugar) solution, precipitating gypsum and other by products and clarifying the hydrolate for fermentation into ethanol. The Company’s financial model assumes a price of $80 per ton for sulfuric acid and $376 per ton for lime. Primary Outputs The Company’s CHP Biorefinery will have three outputs from the Hydrolic Catalytic Reactor Process (―CRP‖) which include (1) cellulosic ethanol, (2) valuable biochemicals, including lignin; and (3) electricity, from the combustion of lignin. The Company’s production model aims to produce 15 million gallons of ethanol in the first year of production. In subsequent years the Company plans to increase production until reaching 30 million gallons per year in its third year. The company will be able to increase production by accepting increasing quantities of feedstock, perhaps including MSW from surrounding populated areas. The Company’s financial model has priced its ethanol production conservatively at $1.83 per gallon. Since January 2008 prices for ethanol have range from a high of nearly $3.00 to a brief low only slightly under $1.50. The average price during this time period is roughly $2.00 and since October 2008 (in the midst of the global financial crisis when the prices of most commodities plummeted) the price of ethanol has generally stayed above $1.75 per gallon. Consequently, the Company believes that its model value of $1.83 per gallon is conservative. The Company will produce several valuable biochemicals from its acid hydrolysis process including lignin. Lignin is a biochemical that is utilized in industrial glues and can be adapted for use in building supplies, including particle board and plywood and related applications. The price of lignin can vary greatly from $200 per ton to $3,000 per ton. The Company has conservatively modeled its revenues using a value of $200 per ton – the low value in the range. Based upon the Company’s target production of 15 MGY of ethanol, the Company would expect to produce approximately 48,000 tons of lignin with a market value of $81,600,000. If the Company can derive higher-value lignin from its production process, the actual market value could be substantially higher than this forecast. The Company will also produce carbon dioxide gas that will be sequestered and stored in a pressurized tank as part of the fermentation process. The production of each 100,000 gallons of ethanol will also produce roughly 317 tons of carbon dioxide gas. The Company’s financial model assumes the sale of CO2 at $14 per ton. The Company’s electricity production will be used for the Company’s own productive purposes and excess electricity will be sold to one or more electric utilities under a long term power purchase agreement (or ―PPA‖). The Tennessee Valley Authority (―TVA‖), one of the country’s largest electric utilities, encourages the development and retail sale of electricity from renewable power through its ―Green Switch‖ program. Through the Green Switch program, which the TVA regularly advertises and promotes, residential and consumer customers are encouraged to 19 “Committed to Innovation and Community”

purchase ―green power‖ from the TVA which the TVA, in turn, has either purchased or produced from qualified renewable energy sources. According to the U.S. Department of Energy’s Green

Figure # 1 PLET Production Process Flowchart

PLET Production Process Flow Chart Biomass Feedstock (Wood, Grass, MSW, etc.)

Condensa te

Acid Wash

Condens ate

REACTOR

CELLULOSE (WOOD PULP)

Alkaline Wash

Condens ate

Acid

PRECIPITATION TANK

DIGESTER

LIGNIN

HEMI-CELLULOSE (SWEET LIQUOR)

Source: http://www.purelignin.com

20 “Committed to Innovation and Community”

Power Network program1, the TVA offers providers of green power a premium of $2.67/kWh for qualified renewable energy. The Company expects to negotiate a power purchase agreement with TVA, or with one of TVAâ&#x20AC;&#x2122;s distributors in the area of Project Tennessee, that takes advantage of the premium provided by TVA for renewable energy. While the price to be paid in a power purchase agreement is subject to negotiation, the Company has conservatively used $0.06/kWh as the price in its financial forecast. Our Products Our bio-refineries will produce the following: 1.

Ethanol; and

Lignin;

Ethanol: The Company will produce cellulosic ethanol from the catalyzed biomass in the PLET process.. The catalyzed biomass is moved to a digester tank into which is added a caustic alkaline mixture (generally, sodium hydroxide (NaOH). The mixture is then heated and agitated to produce black liquor and wood pulp. The mixture is strained and removed from the digester to a press device where the mixture is separated into black liquor and wood pulp. The wood pulp (or cellulose) is then removed and stored for commercial sale. The black liquor is moved to a precipitation tank where it is cooled, agitated and treated with another acid solution. The resulting precipitate is lignin and the remaining fluid is an acidified hemi-cellulose (or sweet liquor) solution, consisting of C5 and C6 sugars. The lignin is removed from the solution through a staining and filtration process and then removed for storage and commercial sale. The sweet liquor is also stored in a storage tank and may either be commercially sold or fermented into cellulosic ethanol for commercial sale. A total of 15MMGY will be produced in year #1, 20MMGY in year #2 and 30 MMGY in year #3 and all subsequent years. Lignin: Sources: Lignin is derived from woody biomass and is the glue that holds plant fibers together and gives them their support. There are many different types of lignin depending on the biomass species and the method of recovering the lignin. In general, lignin can be divided into two categories, sulfonated lignins, and non-sulfonated lignins. Only sulfonated lignins are currently commercially available.

21 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

Products from Lignin: Some uses of lignin are:   

Power, fuel and syngas (generally near-term opportunities) Macromolecules (generally medium-term opportunities) Aromatics and miscellaneous monomers (long-term opportunities) Of these three, power generation is the most common use of lignin, with other applications including; Dispersants in high performance cement applications, water treatment formulations and textile dyes

Producers: Nearly all pulping/papermaking plants produce some form of lignin as a byproduct. The most common form of the lignin produced is lignosulfates formed by the Kraft pulping process. The lignin produced from these processes is almost exclusively burned for energy, and is not extracted or sold commercially. Consumers: Only a few companies are converting lignin into other products, these include:  

Borregaard LignoTech (Specialty Chemicals); EnviroTech (Dust Suppression & Traction Aids)

Price: Mead Westvaco is currently producing twenty-five different types of lignin, ranging in price from $0.25 to $2.25 per pound. Lignin prices worldwide currently vary from $200 to $3,000 per metric ton for sulfated lignin. In general, the price of the lignin is very dependent on the quality of the lignin, and the market need it can meet. A high quality lignin that can be used as a phenol substitute for resin adhesives in the board industry can get prices up to $3,000 per metric ton. Analysis: There is a fairly strong market need for lignin that can replace phenolic resins in the plywood, OSB, and chipboard industry; however there are currently very few sources for lignin of this quality. Other opportunities may also exist for lignin as a precursor for vanillin. Most vanillin is benzene based, however, high oil prices have driven up these vanillin prices, increasing the demand for wood-based vanillin. For lower grade lignin the best market value is probably still in its value as a fuel. In summary, the lignin market is still quite undeveloped, but can present good opportunities for producers of high value lignin. 22 “Committed to Innovation and Community”

Feedstock The primary input in the Company’s production process is biomass feedstock. Acceptable types of feedstock include wood, wood waste, woody biomass and municipal solid waste (MSW). Although a longer-term source of feedstock may include municipal solid waste, the problems of transporting, storing and sorting MSW (i.e., sorting the incoming MSW into biodegradable and non-biodegradable categories) is problematic and the Company’s plans have not included MSW in its financial model. Project Tennessee is located in the Southeastern part of the country and the Southeastern part of the state in a rural area that is surrounded by hundreds of miles of largely uninhabited forestland. The Company commissioned a study in 2009 from Ward Consulting Services, Inc. on the availability of wood and wood waste feedstock from the area surrounding Project Tennessee. The study concluded that ―establishment of a 400,000 ton facility in the Jasper area is doable at costs ranging from $30 to $45 per ton delivered and based upon a mix heavily weighted toward hardwood round wood.” The Ward Consulting study focused on available wood and wood waste within a 75 mile radius of the Project Tennessee site to minimize transportation costs and concluded that the $30 to $45 per ton price estimate was sustainable at an annual rate of consumption of 400,000 tons. The Company’s production model for achieving 30 MGY of annual ethanol production would require slightly less than 400,000 tons (roughly 357,000) and the Company’s financial model has conservatively taken $45 per ton as its cost value. In addition to the Ward Consulting study, the Company has entered into a requirements delivery contract with The Price Company, Inc. to purchase the Company’s requirements of wood and wood waste at a price of $45 per ton for up to 400,000 tons per year (including transportation to the Company’s site). Although the Company is not obligated to purchase at this price (and is free to identify lower-cost providers) the Company has contractually assured itself of a sufficient supply of feedstock at a price that is encompassed by its financial model. In addition, the ―USDA recognized that different regions of the country have a comparative advantage to the type of feed stocks that can be produced and utilized in biofuel production. By leveraging the availability of these regional resources, diversification of biofuel production will be a national solution to reducing the Nation’s dependence on oil, much of which is imported. These regions were determined based upon the prevalence of potential crop and woody biomass feed stocks adapted to different ecological regions of the county, their yields, and current producer interest. USDA estimated 4 the following regional biofuel contributions to the RFS2 advanced biofuel goal of at least 21 billion gallons a year by 2022: 1.

Southeast -

49.8%;

Northeast -

2.0%;

Central –Eastern:

43.3%;

Northwest -

4.6%; and

Western -

20.3%. 23 “Committed to Innovation and Community”

This [the Southeast] region could produce 10.5 billion gallons of advanced biofuels per year, at 263 biorefineries producing 40 million gallons by year, costing $320 million per biorefinery. This will take an $83.8 billion cumulative investment, to build the 263 biorefineries with an average capacity of 40 million gallons. USDA estimated that a significant amount of volume, up to 50%, of the advanced biofuels, could come from this region because it has the most robust growing season in the United States that supports the highest gallons-per-USDA Biofuels Strategic Production Report June 23, 2010”

Other Inputs Other inputs required for the Company’s production process include sulfuric acid and lime. Both are standard industrial products that are readily available on the market. The sulfuric acid is the primary input from the de-crystallization and hydrolysis processes that separate the lignin from the cellulose prior to fermentation. The lime is used to neutralize any residual acid in the hydro late (fermentable sugar) solution, precipitating gypsum and other by products and clarifying the hydro late for fermentation into ethanol. The Company’s financial model assumes a price of $80 per ton for sulfuric acid and $376 per ton for lime. Our Economic Analysis: Both the U.S. Department of Agriculture (―USDA‖) and the U.S. Department of Energy (―DOE‖) have loan guarantee programs that would be applicable for Project Tennessee. The USDA’s Biorefinery Assistance Program (Section 9003) , authorized by the Food, Conservation, and Energy Act of 2008, is designed to promote the development of new and emerging technologies for the production of advanced biofuels. The Biorefinery Assistance Program provides loan guarantees for the development, construction and retrofitting of viable commercial-scale biorefineries producing advanced biofuels. The maximum loan guarantee is $250 million per project subject to the availability of funds. The purpose of this program is to provide guaranteed loans for the development and construction of commercial-scale biorefineries or for the retrofitting of existing facilities using eligible technology for the development of advanced biofuels. The maximum guaranteed loan is $250 million. There is no minimum amount. The project has to be located in a rural area (50,000 or less population and not in an urbanized area) and has to be for either 1.) The development and construction of commercialscale biorefineries using eligible technology, or 2. ) The retrofitting of existing facilities, including, but not limited to, wood products facilities and sugar mills, with eligible technology. Interest rates are negotiated between the lender and the applicant. The term of the loan cannot exceed 20 years or 85% of the useful life of the project. The loan guarantee is 80% for loans equal to or less than $8o million, 70% for loans in excess of $80 million up to $125 million and 65% for loans greater than $125 million. The Company is currently preparing its application to submit to the USDA before the June 31, 2010 application deadline. The Energy Policy Act of 2005 (EPAct05) authorizes the U.S. Department of Energy to issue loan guarantees to eligible projects that "avoid, reduce, or sequester air pollutants or anthropogenic emissions of greenhouse gases" and "employ new or significantly improved 24 “Committed to Innovation and Community”

technologies as compared to technologies in service in the United States at the time the guarantee is issued". Title XVII of EPAct05 provides the basis of DOE's program. This title provides broad authority for DOE to guarantee loans that support early commercial use of advanced technologies, if "there is reasonable prospect of repayment of the principal and interest on the obligation by the borrower." Loan guarantees will be another tool that DOE will use to promote commercial use of innovative technologies. This tool is targeted at early commercial use only, not energy research, development, and demonstration programs. The DOE loan guarantee has an open application process. In addition, Project Tennessee will qualify for several federal tax credits that will be capable of being monetized to support repayments to investors or the repayment of debt financing. The American Recovery and Reinvestment Act of 2009 (the ―Recovery Act‖) created two types of tax credits applicable to the production of electric power from renewable sources. First, the Recovery Act established ―production‖ tax credits (―PAC‖) of between 1 cent and 2.1 cents per kilowatt hour (kWh) of electricity produced. Second, the Recovery Act allows developers of renewable energy facilities to obtain an ―investment‖ tax credit (the ―ITC‖) of up to 30% of the cost of developing renewable energy facilities. (The investment tax credit is subject to several limitations and requirements, including that construction on the facility commence before December 31, 2010 and that the facility be placed in service before December 31, 2011). The PAC and the ITC are exclusive. A developer of a renewable energy facility may take the 30% ITC or the PAC for each kilowatt hour of power produced, but it cannot take advantage of both programs. In addition, a project developer who elects to take the ITC may also elect to obtain a cash grant from the U.S. Treasury for the full amount of the ITC, subject to construction commencement dates and placed-in-service dates pursuant to Section 1603 of the Recovery Act. The Company would be able to utilize the ITC with respect to the biomass generator that will produce electricity from burning LMW lignin. That credit would be worth 30% of the cost of the qualifying equipment purchased for electricity production or $4,500,000.00 and would qualify for the Section 1603 Treasury grant that would provide the Company with a cash payment for the amount of the tax credit after the facility is placed in service. If properly structured, the Company could leverage the investment tax credit to repay a portion of its construction financing. The Company has had several meetings with the local economic development authority and has received assurances that the authority would be willing to back a bond offering for $20,000,000.00 of the cost of Project Tennessee. In 2008, the Company received a commitment letter from a bond underwriter, committing to underwrite industrial revenue bonds for Project Tennessee, and the underwriter has encouraged continued negotiations as the Company moves through the Industrial Revenue Bond Application process.. National Export Initiative President Obama's National Export Initiative (NEI), is a key part of his strategy to get America's economy growing strongly again. With the NEI, American businesses that want to export are going to have a more vigorous partner in the US government. The NEI is an extremely ambitious effort that aims to double American exports over the next five years and support 2 million jobs 25 “Committed to Innovation and Community”

here at home. And it is unprecedented. There have, of course, been previous endeavors by the U.S. government to elevate the importance of exports. But what sets this effort apart is that this is the first time the United States will have a government-wide export-promotion strategy with focused attention from the president and his cabinet. This initiative was designed with one overriding goal in mind: to get people back to work in jobs that provide security, dignity and a sense of hope for the future. For much of this last decade, America's economic growth was built on a speculative mania that enriched a select few while leaving many Americans out in the cold. Since 2000, most families have seen their wages stagnate or decline, while the necessities of life like health care and tuition skyrocketed. The NEI will help build a stronger economic foundation and allow us to return to the type of sustainable growth that not long ago , helped build the strongest middle class in history. From the advent of the phone, to the automobile to new drug therapies and the Internet, America's strength has always led been our businesses ability to create and sell products and services that help others around the world lead healthier, wealthier and more productive lives. The NEI is fundamentally focused on three things: 1.

Expand the US government's export promotion efforts in all its forms - Many American companies don't export, or export less than they should, because they simply don't have the resources to identify promising new markets or the neces sary contacts in foreign countries. The National Export Initiative will funnel $132 million to the Department of Commerce’s International Trade Admin istration (ITA), and the US Department of Agriculture to educate U.S. farmers and businesses about opportunities overseas and directly connect them with new customers.

Improve access to credit, especially for small- and medium-sized businesses that want to export.

Increase the government's focus on knocking down barriers that prevent U.S. companies from getting open and fair access to foreign markets.

The National Export Initiative is one more step in this administration's singular focus on one goal: making sure every American who wants a job can find one. The Company has projected exports to be a major source of revenues and will be an ardent participant in the NEI. The Company’s projected revenues are as follows:

26 “Committed to Innovation and Community”

Table #4 bfA Projected Revenues biofuels AMERICA, INC. Project Tennessee Five Year Pro-Forma As of June 1, 2010

YEAR # 1

YEAR # 2

YEAR #3

YEAR # 4

YEAR # 5

TOTAL

15mmgy

20mmgy

30mmgy

Ethanol

$ 27,450,000.00

$ 36,600,000.00

$ 54,900,000.00

228,750,000.00

Lignin

$ 81,600,000.00

$ 102,000,000.00

$ 127,500,000.00

$ 159,375,000.00

$ 199,218,750.00

669,693,750.00

Electricity

9,945,306.00

$ 12,431,632.00

$ 15,539,540.00

$ 19,424,425.00

65,297,148.00

TOTAL REVENUES

$ 117,006,245.00

$ 148,545,306.00

$ 194,831,632.00

$ 229,814,540.00

$ 273,543,175.00

963,740,898.00

REVENUES:

7,956,245.00

The above numbers are based on an increased production level in the amount of ethanol to be produced. Our plant has the capacity to produce 100 MMGPY of ethanol. As Table #2 stipulates, we will operate the plant at 15% of production capacity in Year # 1 producing 15 MMGPY of ethanol. In Year # 2, we will operate the plant at 20% capacity producing 20 MMGPY of ethanol. In Year # 3, we will operate the plant at 30% percent capacity producing 30 MMGPY of ethanol. Ethanol projections are based on sales prices of $1.83 per gallon for years numbers one through five. Ethanol revenues assume a ten (25%) increase per year. See Financial Statement #4: Income Statement Thirty Year Pro Forma. The Company’s exit strategy is either to do an Initial Public Offering (―IPO‖) or to be merged/acquired with a larger entity within five years. The IPO or merger/acquisition will occur after four stages of equity drives from its Private Placement Memorandums (―PPMs‖) in order to raise development , start-up and expansion capital. The Company’s projected Equity Drive Schedule is as follows: Table #5 Equity Drive Schedule STAGE

PROJECTED DATE Start-Up November 2011 Early Stage February 2013 Exit March 2015

PROJECTED CAPITAL RAISED $ 112,247,912.00 To Be Determined To Be Determined

27 “Committed to Innovation and Community”

In year number five, the Company is projected to have $ 273,543,175.00 in total annual sales with Net Income Before Taxes (after debt service) in the amount of $ 121,697,756.00. Annual combined sales for years 1-5 are projected to be $ 963,740,898.00 with total combined Net Income Before Taxes (after debt service) for years 1-5 estimated at $ 404,366,778.00. Energy Requirements The energy requirements for ethanol production have improved markedly during the past decade due to a variety of technology and plant design improvements. The energy needed to produce a gallon of ethanol has decreased nearly 50 percent over the past fifteen years and that trend is likely to continue as process technology improves. According to E3 Energy Partners, the Company’s consulting engineers, the bio-refinery proposed by the Company will have the following energy requirements: Table # 6 Energy Usage UTILITY TYPE USAGE Steam 250,000 lb/hr of 6000 psig Natural Gas 2,900 therms/hr (4,600 scfm of gas flow) Fresh Water 530 gpm Sewer 500 gpm Electrical Power 6,000 kw Electrical Energy 4,300 MWh per month

Utilities provided to the subject property include electricity, which is provided by Sequatchie Valley Electric, natural gas, sewer and water (all by way of the city of Jasper). Police and fire protection are also provided by the city of Jasper. Transportation The cost of transportation is important to plant input costs and marketing costs. Depending on proximity of the plant to population centers, marketing costs may be based on a variety of transportation modes. Ethanol has historically been shipped to markets via truck, rail and barge. The location of the plant should take into consideration the modes of transportation by which the bulk of finished products will move to market. Rail access is often viewed as an essential requirement for large scale ethanol plants.

28 “Committed to Innovation and Community”

Table # 7 Site Logistics Data SITE LOCATION Jasper, TN

ON SITE RAIL Sequatchie Valley Railroad

NAVIGABLE WATERWAY Tennessee Rive Port of Nickajack Channel Depth 9’

INTERSTATE I – 24, I-59, I75

AIR FREIGHT 0

Slay Industries will provide transportation services for the Company transporting its finished product to various sellers both domestic and international. Slay Industries is a diverse, St. Louisbased group of transportation and distribution companies with revenues in excess of $125 million per year. Slay provides its customers with value-added, quality services and an emphasis on safety. Slay has over 800 team members and is uniquely suited by size and location to meet the varied and complex needs of its customers, helping them address the economic and environmental issues facing their companies in today's changing world marketplace. From general rail, barge and truck logistics to special product warehousing, Slay Industries helps its clients to maximize profitability. (www.slay.com) Water Requirements Water quality, quantity and infrastructure for handling water treatment are important factors in site selection. The water requirements factor into capital cost of the plant, operating costs and permit issues that will become important when the plant is constructed. During the past decade, new process technology has reduced the volume of process water required in ethanol plants and has minimized the water discharge volume. An understanding of specific water use and discharge requirements is useful during the site selection process. Table # 6 shows the projected water usage per site. With regard to marketing costs, an initial market assessment conducted by RSI Consultants identified primary markets for the plant. Zoning The property is zoned for heavy industrial use. The I-1 designation permits the present development and it is compatible with occupancies and trends in the immediate area. The property has level topographic features and it offers a good deal of industrial development potential.

29 “Committed to Innovation and Community”

Project Permitting The Company has entered into an Engagement Letter with Aqua-Terra Environmental Solutions, Ltd (―Aqua-Terra‖) of St. Louis, MO to act as its environmental consultant. Based upon initial conversations with the Tennessee Department of Environment and Conservation (―TDEC‖) the Company does not anticipate any problems of obtaining the necessary air and water Construction and Operating Permit (See Table #3; Construction & Permitting Timeline).

Project Construction: We have projected a construction time of eighteen (18) months. The total development costs are $ 112,247,912.00. E3 Energy Partners, Inc. with offices in Seattle, Washington, tackle design and construction needs both regionally and nationally. The company was established in 1991 providing high quality engineering, consulting and project services to industry and utilities. In addition, they readily maintain field offices for projects that require that extra support and attention to quality. The company is well versed in bio refining projects both domestically and internationally. They currently have several traditional ethanol projects in development as well as a couple of cellulose to ethanol projects. The company provided process design/construction services on America's Largest Biodiesel Plant, Imperium, which is a 100 MMGPY facility in Grays Harbor, Washington. The plant construction timeline is as follows: Table # 8 Construction Permitting Timeline Description Close on Seed Financing Close on Equity Financing

Projected Date 11/2011 11/2011

Submit TDEC Construction Permit Application Obtain TDEC Construction Permit Close of Equity Debt Financing Begin Retrofit Complete Retrofit QA / Test Production Submit TDEC Operating Permit Application Obtain TDEC Operating Permit Begin Full Production

8/2011 10/2011 11/2011 11/2011 7/2012 10/2012 10/2012 11/2012 12/2012

30 “Committed to Innovation and Community”

Market Issues With crude prices hovering at all time highs, the need for alternative fuels also would seem to be just as high. As Table #3 illustrates, these record crude oil prices have resulted in an overall continued rise in gasoline and diesel fuel prices. According to the Energy Information Administration’s Annual Energy Outlook 2007 (―AEO2007‖), ethanol use increases rapidly from current levels. Ethanol blended into gasoline is projected to account for 4.3 percent of the total gasoline pool by volume in 2007, 7.5 percent in 2012, and 7.6 percent in 2030. As a result, gasoline demand increases more rapidly in terms of fuel volume (but not in terms of energy content) than it would in the absence of ethanol blending. Overall, gasoline consumption is projected to increase by 32 percent on an energy basis, and by 34 percent on a volume basis, from 2007 to 2030. Ethanol demand is driven primarily by federal and state Clean Air Act requirements mandating the use of oxygenates in winter gasoline to lower carbon monoxide emissions. However, it can be debated that the ethanol market has saturated or will reach a peak in the near future. The price of ethanol has slid by 30 percent in recent months and now stands at about $1.69 a gallon on the Chicago Board of Trade. At the same time the price of corn, ethanol’s current chief feed stock, remains high squeezing margins. High feed stock prices coupled with soaring construction costs have swelled operational expenses. Ethanol pricing is impacted by variables such as corn prices, MTBE prices, gasoline prices, and clean air act regulations. In the last five years, wholesale delivered prices to western ethanol markets have ranged between $1.18 and $1.55 per gallon. Given the seasonal nature of the demand, winter prices tend to be significantly higher than summer prices. And the prospects of a glut loom. U.S. ethanol demand now is less than 7 billion gallons but the nation’s ethanol capacity by next year (2008) could reach 12.4 billion gallons. According to Eitan Bernstein, an energy analyst at Virginia based Freidman, Billings, Ramsey and Co. that imbalance will hold down prices possibly through 2008. The slowdown isn’t likely to affect build outs already under way and those with financing in place. But it raises questions of whether the fuel additive touted by President Bush and lawmakers as a way to cut the nation’s dependence on foreign crude has been over hyped. However, according to Monte Shaw of the Renewable Fuels Association, ―for such a young industry, people sure want to write its obituary all the time. I just find it humorous because it’s completely nonsensical if you look at the economics of the industry, if you look at the public policy and the socio-economic concerns that are driving the industry. It’s definitely headed forward full throttle.‖ Environmental Issues The potential environmental effects of operating a commercial-scale Ligno cellulosic ethanol plant include both the on-site and off-site impacts surrounding the production facility. Cellulose biomass material will be generated from private timber/milling companies within at least a 75mile radius of the ethanol facility. Ward Consulting Services' Feedstock Supply and Delivery Systems report (April 2009) predicts an available and sustainable, annual supply of 400,000 tons per year. 31 “Committed to Innovation and Community”

The typical environmental concerns that arise from timber harvest and biomass harvest activities include the effects of roads and landings, riparian zone and water quality impacts, fuel loadings and arrangements, wildlife disturbances, and changes in suitability of wildlife habitats. Generically, these can be grouped into soil, water and wildlife impacts. Monitoring the results of biomass harvest will be critical to the overall success of the biomass removal program, which are the sole responsibility of the contracted feed stock supplier. The Company will also mandate an active and comprehensive monitoring program at various temporal and landscape scales in accordance with the rules and regulations of the USDA Forest Service. The Companyâ&#x20AC;&#x2122;s bio-refineries are subject to various federal, state and local environmental laws and regulations, including those relating to discharges into the air, water and ground; the generation, storage, handling, use, transportation and disposal of hazardous materials; and the health and safety of our employees. These laws and regulations require us to obtain and comply with numerous environmental permits to construct and operate our ethanol plants. They can also require expensive pollution control equipment or operational changes to limit actual or potential impacts to the environment. A violation of these laws, regulations or permit conditions can result in substantial fines, natural resource damage, criminal sanctions, permit revocations and/or facility shutdowns which could have a material adverse effect on our operations. There is a risk of liability for the investigation and cleanup of environmental contamination at each of the properties that we own or operate and at off-site locations where we arranged for the disposal of hazardous substances. If these substances have been or are disposed of or released at sites that undergo investigation and/or remediation by regulatory agencies, we may be responsible under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) or other environmental laws for all or part of the costs of investigation and/or remediation and for damage to natural resources. We may also be subject to related claims by private parties alleging property damage and personal injury due to exposure to hazardous or other materials at or from these properties. Some of these matters may require us to expend significant amounts for investigation and/or cleanup or other costs which could have a material impact on our business. In addition, new laws, new interpretations of existing laws, increased governmental enforcement of environmental laws or other developments could require us to make additional significant expenditures or modify our operations. Continued government and public emphasis on environmental issues could result in increased future investments for environmental controls at our ongoing operations. Present and future environmental laws and regulations (and related interpretations) applicable to our operations, more vigorous enforcement policies and discovery of currently unknown conditions may require substantial capital and other expenditures. For example, our air emissions are subject to the federal Clean Air Act, the federal Clean Air Act Amendments of 1990 and similar state and local laws and associated regulations. The U.S. Environmental Protection Agency (EPA) has promulgated National Emissions Standards for Hazardous Air Pollutants (NESHAP), under the federal Clean Air Act that could apply to facilities that we own or operate if the emissions of hazardous air pollutants exceed certain thresholds. If a facility we operate is authorized to emit hazardous air pollutants above the threshold level, then we are required to comply with the NESHAP related to our manufacturing process and would be required to come into compliance 32 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

with another NESHAP applicable to boilers and process heaters by September 13, 2007. New or expanded facilities would be required to comply with both standards upon startup if they exceed the hazardous air pollutant threshold. In addition to costs for achieving and maintaining compliance with these laws, more stringent standards may also limit our operating flexibility. Likewise, federal and state environmental authorities have recently been investigating alleged excess volatile organic compounds and other air emissions from certain U.S. ethanol plants. Because other domestic ethanol manufacturers will have similar restrictions, however, we believe that compliance with more stringent air emission control or other environmental laws and regulations is not likely to materially affect our competitive position. In addition, to construct and operate our ethanol plants, we will need to obtain and comply with a number of permit requirements. As a condition to granting necessary permits, regulators could make demands that increase our costs of construction and operations, in which case we could be forced to obtain additional debt or equity capital. Community Concerns It is the Companyâ&#x20AC;&#x2122;s objective to minimize potential problems for the community and area residents. Factors that can have an impact on residents living in proximity to the plant may include: 1.

Prevailing wind direction. Plant odors can will be controlled with a variety of pollution and odor control equipment but most ethanol plants emit an little odor or odors. Odors moving away from area residents will reduce potential complaints.

Traffic. Most plants generate an increase in traffic flow in the area around the plant. Increased truck traffic may raise concerns about safety or wear on local roads and bridges. Proper traffic planning and scheduling can minimize these concerns. The Company will work aggressively with local and state jurisdictions to ensure proper ingress and egress on and off the site.

Dust. Increased traffic especially on gravel roads located near the plant may raise concerns about air quality and visibility during certain driving conditions. Dust control is an area covered by pollution control agencies. Dust from any plant source, including traffic, is considered particulate matter (PM). PM controls are included in plant permit applications and must be approved by the state air pollution control agency.

Infrastructure. In many cases ethanol plants can be integrated into water and waste treatment systems operated by a community. These community services can generate fees for the community, thereby increasing revenue required to amortize the community system. In other cases, the plant may propose to provide revenue for an expanded system that can be shared with the community. The Company either currently has or will have the necessary infrastructure in place.

Fire Safety. Plant safety coordinators deal with a wide range of safety and emergency preparedness issues. Good communication between the safety manager and local fire safety officials will help to ensure that plans are in place 33 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

for dealing with potential fire and safety issues. The Company will develop and maintain a Hazardous Materials Plan (―HAZMAT‖) with each state’s Fire Marshall. 6.

Plant emissions. Best available control technology, typically the ―newest and best‖ emission control technology, is generally required by state and local regulatory officials. Emission control requirements for ethanol plants are discussed in the Permits section of this publication.

Noise pollution. Plant generated noise can be a source of complaints if a plant is located near residential areas. Site buffers will be included in the site design to minimize any potential problems.

Plant site lighting. Plant lighting will be carefully considered so light pollution complaints are minimized. This is an issue during construction and operation of a facility but potential problems will be minimized with proper planning of plant design.

The Company will work closely with community officials to help facilitate the pace of project development as well as the degree to which each community will support a Cellulose to Ethanol plant. Awareness of the need for good community relations and communications will help The Company maximize mutual benefits and minimize community concerns. Socioeconomic Issues The socioeconomic report, prepared by RSI Consultants, reviewed the local, regional and statewide implications of building and operating a forest biomass to ethanol manufacturing facility at all the Company’s specified sites in Tennessee, Mississippi and Illinois. The report first sets the current socioeconomic context in this natural resource dependent area. It then reviews the effect of an ethanol plant on employment, personal incomes, state and local taxes, construction jobs, and local infrastructure (particularly roads, schools and utilities). Each plant will create at least 50 direct jobs at the plant. The furnishing of forest biomass feedstock to these plants would employ 63-100 additional employees per site to gather, process and transport the cellulose material to the plant. These 91-128 direct jobs would be augmented by an additional 93-122 indirect or multiplier jobs per site. One 32 million gallon per year ethanol plant would thus generate between 184-250 total jobs. Corporate Sustainability It is our policy to directly impact the communities in which we serve. Traditionally, ethanol plants contribute between $15 -$18 million to their communities in which they are located. The Company will continue with this tradition. Our specific community responsibilities to our local stakeholders will be the following:

34 “Committed to Innovation and Community”

Local Resident Scholarship Program: The Company will establish a scholar ship program for local high school residents in the communities in which we op erate. These students will be eligible for four year scholarships to a college or uni versity in their respective states. Eligibility for these scholarships will be based on merit. However, it is the objective of our corporate strategy to increase the number of minorities and women within the alternative energy industry, as such, students in these demographic segments will be given priority when looking at eligibility criteria.

Environmental Impact: It is the corporate policy of The Company to uphold our responsibilities as stewards of the environment. Given this objective we will be steadfast in maintaining our policy of respecting a “Balance With Nature.” Specific programs entail the following: a.

Local School (K-12) Environmental Education;

Forestry Tree Planting Program;

Urban Tree Planting Program; and

Participation in Al Gore’s Alliance for Climate Protection

The Company believes that not only do we have a corporate responsibility but they also have a moral responsibility to adhere to our responsibilities as stewards for the environment.

35 “Committed to Innovation and Community”

Section B:

Economic Feasibility Determinations

Location Project Tennessee is located in the township of Jasper in Marion County, Tennessee. Marion County is situated in the southeastern part of the state, and is considered a part of the Chattanooga, TN-GA Metropolitan Statistical Area. Jasper is approximately 18 miles west of Chattanooga, TN, which has an estimated population of 518,000. Jasper is approximately 120 miles northwest from Atlanta, Georgia and approximately 145 miles northeast of Birmingham, Alabama. The site’s physical address is 1570 Industrial Blvd., Jasper, Tennessee 37347. The Company has an option to purchase the land from Renewable Fuels, LLC, the current owners of the property. The property was sold as part of 225 acres along the Tennessee River. The former Tennol ethanol plant, lying fallow for 20 years, was purchased in February 2009 for $2.6 million by a group of investors for a Knoxville-based company. Renewable Fuels LLC of Knoxville bought the plant and property from Community Bank on Feb. 17, 2009. Renewable Fuels is in the alternative fuels business, but investors say they have no immediate plans to revive the ethanol operation. The $72 million plant was built in 1984 by Tennol Energy. The company was projected eventually to produce about 25 million gallons of corn-based fuel a year, but production never got off the ground and the plant went bankrupt in 1988. In 1994, AG Processing Inc. of Omaha, Neb., bought it for $10.5 million from the U.S. Department of Energy, according to newspaper accounts. Community Bank acquired the property in a later bankruptcy. The site is about five miles from the Port of Nickajack on the Tennessee River. It has rail access and is near Interstates 24, 59 and 75, . "We're very excited about this thing," he said. "I've tried to get local people to buy that property and subdivide it into 5- or 10-acre tracts so we could make it one of the best industrial parks anywhere in the Southeast." Now that the purchase has been made, Mr. Moss said he'll seek to add that property to Marion County's foreign trade zone territory. Beth Jones, executive director of the Southeast Tennessee Development District, said the site has been waiting for "an investor with vision." "It's been sitting there as an asset for a long, long time," she said. "It hasn't been owned by anybody with local control or local interests. It lends itself to revitalization and reuse." To date, the following has been performed on the site:

36 “Committed to Innovation and Community”

Table # 9 Completed Pre-development Work DESCRIPTION CONSULTANT DATE Phase I Environmental Assessment QORE, Inc. May 10, 2005 Ethanol Plant Capital Cost of Magnitude Estimate Harris Group, Inc. August 9, 2006 Complete Appraisal of Industrial Property Henry B. Glascock Co. February 7, 2008

The Phase I Environmental Site Assessment (the ―Assessment‖) was conducted on this site on May 10, 2005 by QORE, INC. (Project # 05-3099E). The Assessment revealed an environmentally clean site. From a structural perspective, a Plant Feasibility Study (the ―Study‖) was conducted on August 9, 2006 by Harris Group, Inc. The study stated; The order of magnitude estimate prepared for this study anticipates total installed costs of $69 million (+ $28 million) on the basis of a 50 MMGPY plant. This estimate does not include a barge loading facility and the connecting conveyor…The estimate includes a credit of $11.3 million representing the “as-is” value of the site improvements, buildings, and processing equipment at the current facility. The existing administration, maintenance and lab buildings are large enough to accommodate plant operations to 100 MMGPY. There appears to be ample area around the existing silos to construct additional silos if plant capacity is expanded to 100 MMGPY. It generally appears that structures are in good condition. However, refurbishment work will be required to make the existing structures …usable for the new process.

The industrial property appraisal; performed by Henry B. Glascock (State Certified General Real Estate Appraiser, TN #: CG1269; GA #: 2069) of Henry G. Glascock & Company. The appraisal report valued the entire 225 acre site at $20,400,000.00. The Company will purchase the site from the current owners for $7,000,000.00. Availability of Workforce Between Marion County and adjacent Hamilton County, there is an indigenous population base of more than 500,000. Marion County is rural, with a population density of slightly more than 50 per square mile. Hamilton County contains both rural and urban areas, with a population density of more than 500 per square mile. Once Project Tennessee becomes operational, the operation will provide competitive wages and comprehensive employee benefits designed to attract a stable, long-term workforce.

37 “Committed to Innovation and Community”

Infrastructure The infrastructure developed to service the original proposed occupancy was originally designed to withstand a magnitude five earthquake on the Richter Scale. As such, all buried water lines are encased in concrete and are of solid copper construction. All copper electric lines are also encased in poured concrete and, according to the owner, consist of an approximate weight of 20 tons. These electric lines are placed in conduit. Miscellaneous site improvements include detention ponds, evaporation pits, fencing, roadways, parking lot lights, parking lots, etc. What is extraordinary by heavy industrial standards is the fact that the majority of these improvements are situated on a concrete ―bowl‖ designed to contain accidental chemical spills. This extensive site work consists of a massive amount of solid reinforced concrete that is four feet thick in areas. All building concrete pads are a minimum of 18 inches in thickness. All plumbing lines and electrical lines are solid copper. Feedstock Source Management Perhaps the greatest benefit to our advanced bioenergy technology is “Feedstock Optionality.”Feedstock Optionality gives the Company the ability to utilize various feed stocks as raw material in our production process. The PLET process can utilize any vegetation as its source including: a. Wood Wastes; b.

Pine Beetle-Killed Trees;

Sugar Cane (bagasse);

Grasses (switch grass, mascanthus etc.);

Husks (i.e. corn Stover, citrus peels, etc.); and

Municipal Solid Waste (i.e. construction debris, urban trash etc.)

Feedstock optionality also gives the Company the ability to utilize various vendors as source providers in order to maximize cost effectiveness of the project. The Company is a strong believer that to purchase source material from just one provider would eventually lead to price overruns in the cost of feedstock. The Company currently has an agreement with The Price Companies to supply 400,000 tons per year of wood waste to the facility at a cost of $45 per ton. The Company has also explored and negotiated with other source providers of wood waste and urban trash (pre-sorted municipal solid waste). As the feedstock provider The Price Companies have individual contracts with various lumber companies to sell their waste products. As such, The Price Companies are responsible for feedstock collection and transportation to the facility. Feedstock Transportation to the facility 38 “Committed to Innovation and Community”

will be done initially by truck and rail car (the site has its own spur onto Norfolk Southern Railroad. Delivered costs will be the result of already established cost structures, increased demand pressure on stumpage and increased freight due to potentially longer haul distances; i.e., hauling wood past the Stevenson mill and away from the Rome and Calhoun mills and higher harvesting costs. Based on the findings outlined above delivered costs should fall within the $30 to $40 per ton range including round wood deliveries and residual sources. The ability to successfully provide fiber to a new facility is also contingent upon the Company’s competitive stance within the drain area. If competitive advantage accrues to the region’s pulp and paper mills then opportunities outside the 75 mile drain will have to be considered and evaluations made as to their viability. However, if the Company can establish a competitive advantage at costs similar to their competitors then they will be successful in acquiring their fiber needs from within the 75 mile drain. In summary, establishment of a 400K ton facility in the Jasper area is doable at costs ranging from $30 to $45 per ton delivered and based upon a mix heavily weighted toward hardwood round wood. Failure to establish a competitive advantage could result in higher costs due to procuring fiber from further distances and outside the normal 75 mile drain radius; therefore, establishing this competitive advantage will be critical for the Company’s long term success. The Company is directly responsible for: a.

Pre-Treatment - The feedstock is soaked or impregnated with a solution of nitric acid and ammonium hydroxide for a period of time, generally two to twenty hours. The soak time depends upon the type of biomass involved and the size of the biomass particles, with softer biomass (such as grasses) requiring less time than harder forms of biomass (such as hardwood trees). This acid solution breaks down the cellulose in the biomass and separate the constituent parts. After pre-treatment the source is heated in the Digester.

Storage – The site has a two acre area to be used as the Source Arrival Area (―SAA‖). The SAA will be next to the Feedstock Chipping Area (―FCA‖) and the Feedstock Conveyor System. (―FSS‖). The SAA will include a shelter area. Feedstock will be unloaded onto the ground within the shelter area. Excess feedstock will be stock outdoors.

Impact on Existing Manufacturing Plants The project will have no potential impact on existing manufacturing plants and other facilities that use similar feedstock if the proposed biofuel production technology is adopted. Competition for pulpwood resource in the Jasper, TN area consists of 3 major pulp and paper mills and one Oriented Strand Board producer. Table’s 7 below identify the competitors, their location and distance from Jasper, followed by an estimate of their annual consumption of round wood and chip fiber. 39 “Committed to Innovation and Community”

Table # 10 Existing Manufacturing Consumption COMPANY

TYPE

LOCATION

MILES TO METRIC TONS JASPER CONSUMED Arbitibi/Bowater Pulp & Paper Calhoun, TN 71 2,800 Temple/Inland Pulp & Paper Rome, GA 100 3,100 Smurfit/Stone Pulp & Paper Stevenson, AL 23 1,270 Huber Engr. OSB Spring City, TN 81 500 Wood

The competitors draining wood from the Jasper area and surrounding counties consume a mix of softwood and hardwood with ranges from 100% hardwood by the Stevenson mill to approximately 87% softwood by the mill at Rome, GA. The satellite image immediately below identifies Jasper, TN and the general location of competing mills that would impact the drain area for a new consuming facility. An approximated 75 mile drain radius is indicated around each facility. Concluding that the Jasper, TN area presents an acceptable opportunity to support a new facility relies upon a number of critical issues. Among these are: 1.

The presence of adequate resource;

Fiber availability’

Acceptable delivered costs; and

Competitive stance of the proposed facility

Based on Forest Service resource data, sufficient fiber exists within a 75 mile drain radius to adequately support a 400K ton facility; although the supply will consist almost entirely of hardwood fiber. Some 24MM tons of hardwood growing stock is present in the drain and is sufficient alone to supply the annual fiber needs of the Company’s proposed facility. The region’s pine fiber is in a relatively poor state of growth with demand high, growing stock low and the resulting growth/drain ratio of concern at 0.61. In contrast, the hardwood growth versus removals ratio is excellent at 2.12.

40 “Committed to Innovation and Community”

Image # 4 Arial of Existing Manufacturers

Huber

Calhoun

Stevenson

Rome

Source: Ward Consulting Services, Inc.; Wood Resource Evaluation - Jasper, TN for Biofuels of America, Inc.

Therefore, it appears obvious that hardwood pulpwood; complemented by residual sawmill materials; i.e., chips, bark and sawdust will provide the fiber needed by a Jasper facility. Fiber availability, particularly hardwood in the piedmont and mountain terrain is always somewhat problematic; driven by issues of public perception, acceptance of harvesting, alternative land uses, and esthetics and logistics concerns. Delivery cost for fiber originating in mountainous terrain will be more expensive than traditional operations due to road construction, harvesting and freight costs. Procuring hardwood fiber has historically been more expensive than softwood due to a number of factors which include expanded wood drains based on availability of the material, landowner harvesting plans (i.e., a preponderance of partial cuts – reducing available volumes) and harvesting costs. The proximity to Chattanooga will present problems unless there are ways around the city that would be advantageous to trucking; otherwise, some of the drain area to the east that would normally be available to the Jasper area will be more expensive and difficult to access. This will force a reordering of the traditional circular drain to seek out fiber outside the 75 mile radius, in all likelihood to the north and northwest of Jasper. 41 “Committed to Innovation and Community”

Availability and resulting cost of fiber is also very much impacted by the region’s established competitors and a new facility’s competitive stance in relation to those already in place. Based on the average annual removals of total fiber; both softwood and hardwood, within the 75 mile drain, the Company’s anticipated impact is not major. Adding 400K tons of annual consumption will result in only an 8% increase in annual removals within the drain area. The impact is somewhat higher when considering hardwood only but it is probable that a reasonable volume of softwood will inevitably find its way into the Company’s fiber stream, assuming costs for the softwood are not prohibitive. It is also significant to note that excess growth over removals of hardwood within the drain area is 2.87MM tons annually making the 400M tons of added removals of marginal impact. Assuming that only 50 to 60% of the excess hardwood growth may be made available due to a litany of factors there is still an excess over the Company’s demand of some 400K tons annually. Economic Impact The impact of ethanol production and use goes far beyond Rural America. Virtually every sector of the U.S. economy benefits from the rapidly expanding ethanol industry. From the technology sector which provides software for sophisticated plant operations, to the manufacturing sector, which provides plant components, ethanol production stimulates economic activity. Economists continue to measure the impact of ethanol production at the local and national level. A variety of econometric models are used to calculate this rapidly expanding business activity. This publication examines a variety of ways in which the ethanol industry affects the U.S. economy and local communities. As this largely Midwestern industry expands across the continent, these economic impacts are projected to have a never expanding effect from coast to coast. Historically, the combination of groundbreaking discoveries and subsequent commercialization has preceded periods of prolonged economic expansion. For example, the Industrial Revolution in Great Britain was launched by a confluence of new technologies with commercial potential, such as the steam engine. Later, the internal combustion engine and electric power revolutionized America. More recently, William Shockley's transistor and Jack Kilby's microchip laid the foundation for the Information Age. All these eras of discovery and applied research were followed by strong economic growth. Benchmark discoveries and innovations such as steam power, electricity and the microchip always garner the most attention. But it's usually not until the technology is harnessed and products are mass produced that we see economic consequences. As a result of the commercialization of the Company’s advanced biofuel technology, Project Tennessee will cost approximately $112 million and will create 50 permanent ―green jobs‖ and roughly 150 temporary jobs during construction. The project will not directly impact the tax base of Marion County, TN because the project will be granted a property tax abatement for ten years by the Marion County Industrial Development Board. From tax perspective, Tennessee limits its state income taxes to only dividends and interest income. It has a flat corporate tax rate of 6.5%. Based upon this tax rate, the Company is projected to contribute a total of $37,136,657.00 in corporate taxes to the state (See Table #8; Projected Corporate Income Tax Expense) 42 “Committed to Innovation and Community”

Table # 11 Projected Corporate Income Tax Expense FY #

Projected Projected Net Income Before Tax Corporate Tax Expense $ 76,878,134.00 $ 4,997,078.00 $ 84,165,757.00 $ 5,470,774.00 $ 107,787,131.00 $ 7,006,163.00 $ 133,816,530.00 $ 8,698,074.00 $ 168,686,287.00 $ 10,964,608.00 $ 37,136,697.00

Year #1 Year #2 Year #3 Year #4 Year #5 Total

Project Tennessee would also have a ―Ripple Effect‖ or indirect impact on the region. Still a relative newcomer to the economy, biotechnology is already having a positive indirect influence on economic activity. Ernst & Young estimates that biotechnology has an employment multiplier of 2.9. In other words, each job created in biotech generates an additional 2.9 jobs, resulting from biotech firms' purchases and consumer spending of biotech employees. With the multiplier effect, biotech's total impact on employment comes in at more than 437,000 jobs. based upon this assumption, Project Tennessee would create a total of 145 permanent jobs (50 jobs created x 2.9 = 145) Ernst & Young gives biotech a 2.3 revenue multiplier, increasing the total impact on revenues from biotechnology to $46.5 billion. The personal income multiplier is estimated to be 2, which results in a $28.8 billion total impact on personal income from the industry. Renewable Fuels Standard The U.S. Renewable Fuel Standard (RFS) for transportation fuels sets minimum levels of renewable fuels that must be blended into gasoline and other transportation fuels from 2006 to 2022. Specific requirements for blending advanced biofuels,** including cellulosic biofuels and biomass-based biodiesel, begin at 0.6 billion gallons per year in 2009 and rise to 21 billion gallons in 2022. The RFS levels for advanced biofuels production will drive the creation of a major new industry, creating a foundation for future technology development and commercial growth. To estimate the economic implications of the emergence of this new industry, bio-era conducted a meta-analysis of nearly two dozen studies of economic impacts of biofuels production, developed a model to analyze economic output and job creation, and applied this model to analyze the economic impact of increasing U.S. advanced biofuel production to 21 billion gallons per year by 2022.

43 “Committed to Innovation and Community”

Figure #2 U.S. Production of Advanced Biofuels under RFS

Source: U.S. Economic Impact of Advanced Biofuels Production; Perspectives to 2030, February 2009

This analysis yielded the following conclusions: 1.

Direct job creation from advanced biofuels production could reach 29,000 by 2012, rising to 94,000 by 2016 and 190,000 by 2022. Total job creation, accounting for economic multiplier effects, could reach 123,000 in 2012, 383,000 in 2016, and 807,000 by 2022.

Investments in advanced biofuels processing plants alone would reach $3.2 billion in 2012, rising to $8.5 billion in 2016, and $12.2 billion by 2022. Cumulative investment in new processing facilities between 2009 and 2022 would total more than $95 billion.

Direct economic output from the advanced biofuels industry, including capital investment, research and development, technology royalties, processing operations, feedstock production and biofuels distribution, is estimated to rise to $5.5 billion in 2012, reaching $17.4 billion in 2016, and $37 billion by 2022.

44 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

Taking into consideration the indirect and induced economic effects resulting from direct expenditures in advanced biofuels production, the total economic output effect for the U.S. economy is estimated to be $20.2 billion in 2012, $64.2 billion in 2016, and $148.7 billion in 2022.

Advanced biofuels production under the RFS scenario could reduce U.S. petroleum imports by approximately $5.5 billion in 2012, $23 billion in 2016, and nearly $70 billion by 2022.

The cumulative total of avoided petroleum imports over the period 2010–2022 would exceed $350 billion. The bio-era model was also used to assess the economic implications of a scenario in which total U.S. biofuels production grows to 60 billion gallons by 2030, with 15 billion gallons of conventional biofuels production and 45 billion gallons of advanced biofuels production. This analysis concludes that: 1.

Approximately 400,000 jobs would be directly created in the advanced biofuels industry, with total employment creation in the U.S. economy totaling 1.9 million jobs.

Direct economic output from advanced biofuels production would rise to $113 billion by 2030. The total economic output effect would be $300 billion.

Biomass feed stocks in this scenario could be provided by a mix of agricultural and forest wastes and dedicated energy crops, providing a total of 470 million dry tons of biomass by 2030 using existing crop and forest land.

The average cost of advanced biofuel production at the plant-gate in 2030 would be $1.88 including all operating costs, overhead, and capital recovery.

Cellulosic Feedstock Production Lignocellulosic feed stocks for advanced biofuels production are likely to come from a wide variety of sources, including crop wastes, forest residues, urban wood waste, and dedicated energy crops. Various analyses have been undertaken to create scenarios for biomass supply to meet U.S. advanced biofuels production requirements. For example, a recent study funded by the U.S. Biomass Research and Development Initiative (BRDI) created detailed scenarios of possible feedstock supplies to 2022 from cropland and forestland biomass, mill residues, and municipal solid waste. The economic, geographic, and environmental implications of these different feedstock supply scenarios could diverge significantly. But it is too early to be able to accurately predict the combination of feedstock supplies that is likely to evolve to support the U.S. biofuels industry in the future. To estimate economic impacts and job creation, at least to a first order approximation, we adopt a simplifying assumption that all cellulosic feedstock for advanced biofuels production is supplied from dedicated energy crops. We assume an average price of $55 per dry ton for biomass supplied to processing facilities beginning in 2009, falling to $50 per ton after 2013 as 45 “Committed to Innovation and Community”

agricultural practices, yields, and harvesting processes improve. By comparison, a recent study by the Biomass Research and Development Initiative (2008) estimated total feedstock production costs, including harvest costs, for short-rotation woody crops to be $39–58 per dry ton. We assume 5.6 full-time equivalent (FTE) new jobs created in feedstock seed production, energy crop production, harvesting, transportation and storage for every 1,000 acres of dedicated energy crops cultivated. Based on these assumptions, farm sector employment related to feedstock production, harvesting, and transportation would increase to 88,000 by 2022, while the total value of feedstock produced would exceed $11 billion in that year (See Table #9; Job Creation & Economic Value of Cellulosic Feedstock Production)

Table # 12 Job Creation & Economic Value of Cellulosic Feedstock Production Year Tons of bio Mass per Acre (t/acre) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

7 8 8 9 9 10 10 11 11 12 12 13 13 14

Gallons biofuels Per ton feed Stock (gal/ton) 77 78 80 81 83 84 85 87 88 89 91 92 94 95

Dollars per Ton feedstock ($/bdt) 55 55 55 55 50 50 50 50 50 50 50 50 50 50

Total feedstock Jobs at RFS levels (thousands) 6.2 9.0 11.7 16.0 20.4 25.8 35.3 43.5 50.6 58.1 64.7 70.5 80.0 88.4

Value of feedstock Produced (billion dollars) 0.4 0.7 0.9 1.4 1.7 2.2 3.2 4.2 5.1 6.1 7.2 8.1 9.6 11.1

Source: U.S. Economic Impact of Advanced Biofuels Production; Perspectives to 2030, February 2009

Performance Plants, Inc. The Company has been in negotiations with Performance Plants, Inc. to license its advanced technology that would allow it to grow its own bioenergy crops. Performance Plants Inc. is a global leader in agricultural and biofuel technology development. Performance Plants’ patented technologies weatherproof food and non-food biofuel crops through periods of drought and heat stress resulting in more abundant, consistent and cost-effective harvests for farmers, and feedstock suppliers. Performance Plants has licensed its breakthrough Yield Protection Technology(R) to some of the world's leading seed companies such as Syngenta, Stine, RiceTec 46 “Committed to Innovation and Community”

and Scotts Miracle Gro. Headquartered in Kingston, Ontario, the privately-held company has research and development facilities in Kingston, Saskatoon, and Waterloo, New York. PPI has discovered a family of technologies called Enhanced Conversion Technology (ECT) that alter plant cell walls to significantly improve their conversion into biofuels. This Canadian based firm is actively growing non-food biofuel crops to replace coal at Lafarge Canada Inc.'s cement plant in Bath, ON. PPI and Lafarge have a multi-year agreement to develop and grow clean energy biomass. The Company is anticipating entering into co-operative agreements with local farmers who would be interested in growing bioenergy crops. The Company will lease 300 acres from a local group in Web, Mississippi so that it can plant its first yield in Spring 2011. The build-out of a new advanced biofuels industry to meet the requirements of the Renewable Fuel Standard through 2022 will entail the development and commercialization of new technology, the investment of nearly $95 billion in new processing plants, and the direct creation of nearly 200,000 new jobs. In addition, the growth of this new industry will reduce the nation’s dependence on imported oil, potentially reducing oil imports by as much as $70 billion per year by 2022. Finally, the growth of the advanced biofuels industry will provide stimulus to the ongoing development of advanced biotechnology tools and platforms for production of energy, chemicals, and materials. Achieving advanced biofuels production of 45 billion gallons by 2030 would bring even greater economic and employment benefits. Together with the anticipated 15 billion gallons of conventional biofuels production capacity, this would bring total U.S. biofuels production to 60 billion gallons, enough to supply 22 percent of projected U.S. gasoline consumption. Total job creation in this scenario, including indirect and induced jobs, reaches nearly 1.4 million jobs by 2030.

47 “Committed to Innovation and Community”

Section C:

Management and Organization

Organization Biofuels America Inc. d/b/a BFA Energy Solutions, a Tennessee corporation (―BFA Energy‖ or the ―Company‖) was founded in 2008 to take advantage of opportunities in the renewable energy and biofuels sector made possible by the rising cost of oil and the unprecedented wave of federal and state financial incentives for new projects in these industries. The Company plans to develop several renewable energy facilities at opportunistic locations across the United States, but is submitting this application for funding assistance for its first project in Jasper, Tennessee known as ―Project Tennessee‖. The Company’s founder and primary shareholder, Pete Reeves, has recruited a number of early investors and experienced investors to serve on the Company’s Board of Directors. Mr. Reeves has deferred recruiting a management team, pending the Company securing financing. Board of Directors The Company has assembled a diverse Board of Directors who bring a unique combination of experiences and expertise to the organization. The Board of Directors include the following: 1.

Chairman, W.E. “Pete” Reeves - Mr. Reeves founded the Company to take advantage of the country’s need for energy and the market opportunity for cellulosic ethanol and biochemicals. Mr. Reeves has a broad background in alternative energy, urban development and project management. Mr. Reeves is a results-driven professional with a solid, verifiable career track for successfully advancing entities in both the public and private sectors through start up ventures, municipalities and high growth cycles. He is known for exceptional resource development, business development, grant / proposal writing and delivering record breaking revenue and profit goals. Mr. Reeves developed Power Principles which are both performance based successful achievement programs. In addition, Mr. Reeves, background includes: a.

Proven flexibility to manage wide scope of contracting work.

Proven ability to develop and implement long term and short term strategic plans.

Proven operations manager capable of meeting and exceeding planned P&L and sales goals.

Directly responsible for project development/management for EnviRes, LLC’s HyMelt Coal Gasification Plant in East St. Louis, Illinois. HyMelt® is a new gasification process, codeveloped by EnviRes, a Kentucky limited liability company, with 48 “Committed to Innovation and Community”

Marathon Ashland Petroleum (MAP); and is projected to become a breakthrough technology by producing separate streams of highpurity hydrogen and CO-rich synthesis gas from feed stocks of coal and/or refinery bottoms (such as petroleum coke)--at less cost than other methods, and with important environmental benefits. Mr. Reeves was directly responsible for project development/management and obtaining $31 million (i.e. grants, loans, tax exempt bonds, tax increment financing etc.) of the $58 million EnviRes, LLC HyMelt Coal Gasification Plant in East St. Louis, Illinois. Mr. Reeves was directly responsible for taking the project to groundbreaking. e.

Performed site selection assistance for Entropic, a $12 million renewable energy project, which produces synthetic coal from solid wastes in East St. Louis, Illinois.

Performed site selection and resource development for Ansar Development Corporation for a $35 million wind turbine farm near Muskogee, Oklahoma.

Proven proficiency in project overview for residential, commercial, industrial, mixed use, and browns-field reuse.

Government Liaison with local, state and federal legislatures for various projects in Illinois, Tennessee, Kentucky and Mississippi.

Ability to navigate through EPA permitting processes.

Mr. Reeves has participated in numerous civic and community economic development initiatives including but not limited to; Co-Founder Springfield Minority Business Council (1992); City of Springfield, Illinois Enterprise Community Steering Committee (1993); Co-Founder Greater Springfield African American Chamber of Commerce (1994); City of Bullhead City, Arizona Economic Development Council (1997); United Way of Central Illinois, Inc. Community Care (Funds Distribution) Panel Volunteer (2000); City of Springfield, Illinois Housing Alliance (2000); and the City of East St. Louis, Illinois Waterfront Development Committee (2001-2002); City of Springfield, Illinois Mayor’s Taskforce on Homelessness (2003-Present) In 1993, Mr. Reeves was honored by Illinois Times Newspaper as African American Entrepreneur of the Year. In 2002, he was most recently honored by Governor Paul Patton of Kentucky as a Kentucky Colonel, the highest designation bestowed by the State. Previous Kentucky Colonels include Winston Churchill, Tiger Woods and Muhammad Ali to name a few. He earned his B.A. in Legal Studies at the University of Illinois in 1990. He served as an intern to Alan Whitehead, U.K. Minister for the Environment in 49 “Committed to Innovation and Community”

London in 2002, contributing to a comparative study of U.S. and U.K. urban and economic development strategies. He has worked as a planning director for the City of East St. Louis, Illinois, developing community revitalization strategies and managing several redevelopment projects and for the State of Illinois Environmental Protection Agency. In 2002 he founded Regeneration Strategies International, a consulting firm focused on assisting clients with various economic development projects. As the Chairman of the Board of Directors, Mr. Reeves will have the following responsibilities. a.

Preside over board or executive committee; Supply vision and imagination at the highest level (working closely with CEO and COO)

Take chair at general meetings, within which: to ensure orderly conduct; fair and appropriate opportunity for all to contribute; suitable time allocation per item; determining order of agenda; directing discussion towards consensus; clarifying and summing up actions and policies;

Act as the organization's representative in its dealings with the outside world;

Play a leading part in determining composition of board and subcommittees, so as to achieve harmony and effectiveness;

Take decisions as delegated by the board and where required chair board meetings;

Execute the responsibilities of a company director according to lawful and ethical standards;

Board Member, James M. Plautz, - Mr. Plautz is the founder and owner of Ethanol Productions, LLC, a designer and developer of corn-based ethanol plants using the McCrabb no-cook, vapor process system. He is also the founder and owner of two financing companies that provide construction financing and equipment leasing. Mr. Plautz earned his B.A. from the University of Wisconsin. He was employed by Price Waterhouse for eight years, rising to the level of senior manager, before joining Blount International, Inc. (NYSE: BLT) as a corporate MIS director. Board Member ,Grady Chronister, - Mr. Chronister is the President of Lincoln Land Oil and Chronister Oil. Lincoln companies. Lincoln Land Oil owns and operates the Qik-n-EZ (www.qiknez.com) gasoline stations in the State of 50 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

Illinois. The first Qik-n-EZ opened in 1967 by Grady and Linda Chronister. The business today flourishes, continuing to carry its family minded principles with a focus on quality employees and outstanding customer service. The full-service convenience stores are home for fast, convenient products and services at a great price. As the most recognized convenience store brand in Central Illinois, the stores provide a family friendly environment where customers can quickly get everyday products that are easy on their pocket book. Chronister Oil Company has been a trusted supply source for fuel distribution for over 40 years. Chronister Oil Company has a state-of-the-art on premise blending system and are a certified blender of record. They provide an extensive supply of fuels and bio-fuels so, whether customers need traditional fuel or BioFuel capabilities in ethanol blends and biodiesel Chronister Oil Company can get them what they need, when they need it. Chronister Oil Company pride itself on its environmentally conscious curriculum and service its customers' green requirements. 4.

Board Member, Dan Parker, - Mr. Parker is a principal at E3 Energy Partners, LLC., (www.e3energypartners.com) a renewable energy engineering and consulting firm. Prior to joining E3 Energy Partners he was the chief executive officer of Parker, Messana and Associates, Inc., a chemical and engineering consulting firm. Mr. Parker has worked as a research engineer or research chemist at several large corporations, including Beloit Corporation, Neutrogena Corporation and Fluor Daniel International. He has more than twenty years of experience in project management for industrial and utility plant construction and retrofitting. He has managed large teams of engineers and construction professionals to meet project deadlines and cost targets. Mr. Parker earned his B.S. in Chemistry in 1977 and his B.S. in Electrical Engineering in 1985. He is a member of the Project Management Institute and a licensed electrical engineer in the states of Washington, Idaho, Oregon and Montana. He is a co-inventor of two patents and has authored numerous technical papers in the field of biofuels and bioenergy.

Board Member, Taylor Pensoneau, - Mr. Pensoneau was the Executive Director of the Illinois Coal Association (www.ilcoalassn.com)for over ten years until he retired in 2002. The Illinois Coal Association is the professional trade organization responsible for the promotion of Illinois coal, a natural resource found in great abundance in Illinois. Of all the states, Illinois has the largest reported bituminous coal resources with almost 25% of our nation's reserves. To carry out its mission, the Springfield- based Association represents the coal industry in the state in governmental affairs, in public relations and in related matters. The Association's member companies produce 100 percent of the coal mined in Illinois. Mr. Pensoneau began his career as a political correspondent for the St. Louis PostDispatch where he worked for twelve years. He is the author of several books, 51 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

including two works of historical non-fiction that were awarded the Illinois State Historical Society’s Certificate of Excellence. 6.

Board Member, Walter Farr - Mr. Farr is the founder of the Farr Group of Companies which has developed a number of edible oil processing and biodiesel technologies. Mr. Farr earned his B.S. in Chemistry from Mississippi State University in 1960 and worked as a chemist with several companies, including Wesson ConAgra, Archer Daniels Midland, Kraft General Foods and DeSmet Ballestra. Since founding the Farr Group of Companies in 2003, Mr. Farr has participated in the development of oil processing and biofuel plants here in the US and abroad. He participated in the development of facilities in Owensboro, Kentucky; Pine Bluff, Arkansas; Alexandria, Egypt; Monterrey, Mexico and Kingston, Jamaica. Mr. Farr brings to the Company several decades of deep experience in the biofuels and chemical processing industries.

Board Member, Pat Marucco - Mr. Marucco is an accomplished entrepreneur, having built several companies over the past 20 years, including Spring Mortgage Company and Reserve Capital Corporation. He founded and ran a retail grocery store from 1978 to 1989 and also served as the Village Clerk of Stonington, Illinois from 1975 to 1992. He earned his B.A. in Education from Illinois State University.

Continuity and Adequacy of Management The Company is a biotechnology organization whose management has unparalleled experience combining comprehensive capabilities across various industries with diverse business functions. Management is positioning the Company as a global entity producing and supplying bioproducts to industrial customers here in the U.S. and abroad. Management understands and have embraced the Company’s mission to be a globally competitive corporation by creating value for its shareholders from natural resources to become a premiere producer of cellulosic ethanol and other biochemicals. Using the industry knowledge, capabilities and technology expertise of its strategic partners, management is forging a new path for its stakeholders and the nation as a whole. The Company’s management has identified new business and technology trends and developed a energy solution to help its prospective customers around the world to: 1.

Enter new markets (i.e. TECNARO Gmbh (www.arbofrom.org)utilizing the Company’s lignin to continue its advance into the bio-plastics industry ;

Increase revenues in existing markets (i.e. By entering into an Ethanol Sales and Marketing Agreement with CHS, Inc., (www.chsinc.com) a leading ethanol marketer, with a diverse range of major buyers nationwide, to purchase all the ethanol that the Company produces ; thus enhancing CHS, Inc.’s revenues); 52 “Committed to Innovation and Community”

Improve operational performance (i.e. By entering into the proposed Power Purchase Agreement with Sequatchie Valley Electric Co-operative who will sell the power at a premium to its customers who purchase green power thus improving their customers bottom line);

Among the many strengths that distinguishes the Company’s management in the marketplace are our: 1.

Proven industry expertise;

Diverse and evolving products offerings;

Expertise in business operations;

Dedication to technology innovation and implementation, including its future research and development capabilities;

5. 6.

Commitment to the long-term development of its employees; and Proven and experienced management team.

Management’s believes that the following core values of the Company will shape the culture and define the character of its company, guiding how they behave and make decisions: 1.

One Global Network - Mobilizing the power of teaming to deliver consistently exceptional products to its customers anywhere in the world.

Integrity - Inspiring trust by taking responsibility, acting ethically, and encouraging honest and open debate;

Stewardship: Building a heritage for future generations, acting with an owner mentality, developing people everywhere they are, and meeting its commitments to all internal and external stakeholders;

Best People: Attracting and developing the best talent for its business, stretching its people and developing a "can do" attitude;

Client Value Creation: Improving its customers' business performance, creating long-term, win-win relationships and focusing on executing excellence; and

Respect for the Individual: Valuing diversity, ensuring an interesting and inclusive environment.

53 “Committed to Innovation and Community”

Executive Team During the 1960's, an approach to structuring executive roles and work emerged in the United States that can be called the C.E.O./ C.O.O. model. This structure typically includes a Board Chairman serving as the Chief Executive Officer and a President serving as Chief Operating officer who reports to the C.E.O. It also includes a number of executives who report to the C.O.O. and are each responsible for the operations of a particular unit. Work is allocated so that the C.E.O. is responsible for strategic issues, external relations and overall corporate governance, while the C.O.O. has primary responsibility for running internal operations. The C.O.O. might meet regularly with those who directly report to him/her, but the role of each of the individual executives is to manage his/her own piece of the organization consistent with the strategies and direction from the top. Although the specific roles and assignments varied from company to company, by the 1960's this "two-person" structure became the dominant form of organizing major United States corporations at the executive level. The Company is structured in this manner except that the President and C.O.O. are two different individuals. The Company’s President is Cole Porter. The Company currently does not have a C.O.O. but is expected to fill this position and all other vacant Executive Team member positions prior to construction. Figure # 5 shows the Company’s organizational structure. The Company’s Executive Team is as follows: 1.

Chief Executive Officer, W.E. “Pete” Reeves – See description in Board of Directors section above. As CEO, President Mr. Reeves will have the following responsibilities to the organization: a.

Identify, develop and direct the implementation of business strategy (depending on the situation some criteria may already exist or be established by the organization's chairman, owner(s)/shareholders);

Plan and direct the organization's activities to achieve stated/agreed targets and standards for financial and trading performance, quality, culture and legislative adherence;

Recruit, select and develop executive team members;

Direct functions and performance via the executive team;

Maintain and develop organizational culture, values and reputation in its markets and with all staff, customers, suppliers, partners and regulatory/official bodies;

Report to shareholders/parent board on organizational plans and performance; 54 “Committed to Innovation and Community”

Cole Porter, President - Mr. Porter is the acting President of Biofuels America, working with Mr. Reeves on executing the Companyâ&#x20AC;&#x2122;s business strategy to develop Project Tennessee. Since 1982 Mr. Porter has been the owner and President of MCR Incorporated (http://www.mcrincorporated.com) ., a designer and manufacturer of gaming equipment. Mr. Porter brings a unique competence to the organization. He has been very active within the political community within the Memphis Tennessee area and the state as a whole.

Chief Financial Officer, - The Chief Financial Officer position, which reports directly to the CEO, is currently a vacant position within the organization. However, this position will have the following requirements and responsibilities: a.

Business and financial strategy and planning, monitoring, management and reporting, including management and development of policies, systems, processes and personnel involved;

Reporting and accounting as per regulatory and legal requirements including taxation, dividends, annual report and accounts; c.

Management of strategy for and liaison with stock market, business press and business analysts community;

Financial staff management, motivation, training, recruitment and selection;

Contributing to strategic planning and development as a member of executive team, and probably keeping and distributing notes and records, reports to executive and management team;

Other areas of potential responsibility: company insurance, import/export administration, licensing, contracts and agreements, legal areas and activities, corporate level negotiations (e.g. premises, plant, trading, acquisitions and divestments, disposals), major supplier/customer/partner relationships, regulatory bodies relationships and strategies, approvals and accreditations;

Also include environmental responsibilities, (the environmental function/manager reports to CFO).

55 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

Figure # 5 Organizational Chart

BOARD CHAIRMAN PETE REEVES

BOARD MEMBER TAYLOR PENSONNAEU

BOARD MEMBER JAMES PLAUTZ

CHIEF FIN. OFFICER TO BE HIRED

CHIEF OPER. OFFICER TO BE HIRED

BOARD MEMBER TO PAT MAROCCO

BOARD MEMBER

BOARD MEMBER DAN PARKER

GRADY CHRONISTER

PETE REEVES/ C.E.O

V.P. DEV.

COLE PORTER/PRES.

BOB PITTMAN

V.P. INVEST REL

EXECUTIVE ASSISTANT KAYE AMMER

JACKIE JOYNER

V.P. R & D V.P. HUMAN RESOURCES

V.P. SALES MIKE HOOK

V.P. PROCUREMENT BRAD JONES

TO BE HIRED

ACCOUNTING SUPERVISOR TO BE HIRED

OPERATIONS TO BE HIRED

RECEIVABLES MANAGER TO BE HIRED

SUPPORT STAFF SUPERVISOR TO BE HIRED

MAINTENANCE TO BE HIRED

TECHNICAL TO BE HIRED

Source: biofuels AMERICA, INC.

56 “Committed to Innovation and Community”

Chief Operating Officer, To Be Hired - The Chief Operating Officer position, which reports directly to the CEO, is currently a vacant position within the organization. However, this position will have the following requirements and responsibilities: a.

Plan, develop and implement strategy for operational management and development so as to meet agreed organizational performance plans within agreed budgets and timescales (covering relevant areas of operation â&#x20AC;&#x201C; e.g. manufacturing, distribution, administration, whatever falls within remit according to organization's structure);

Establish and maintain appropriate systems for measuring necessary aspects of operational management and development;

Monitor, measure and report on operational issues, opportunities and development plans and achievements within agreed formats and timescales;

Manage and develop direct reporting staff;

Manage and control departmental expenditure within agreed budgets;

Liaise with other functional/departmental managers so as to understand all necessary aspects and needs of operational development, and to ensure they are fully informed of operational objectives, purposes and achievements;

Maintain awareness and knowledge of contemporary operational development theory and methods and provide suitable interpretation to directors, managers and staff within the organization;

Contribute to the evaluation and development of operational strategy and performance in co-optation with the executive team;

Ensure activities meet with and integrate with organizational requirements for quality management, health and safety, legal stipulations, environmental policies and general duty of care.

V.P. Sales & Marketing, Mike Hook - The V.P. Sales Marketing position, which reports directly to the CEO, is held by Mike Hook. However, this position will have the following requirements and responsibilities: a.

Plan and implement marketing strategy, including advertising and PR;

Plan and implement sales and customer retention and development; 57 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

Plan and manage sales and marketing resources according to agreed budgets;

Contribute to formulation of policy and strategy;

Recruit, manage, train and motivate direct reporting staff according to company procedures, policy and employment law;

Maintain administration and relevant reporting and planning systems;

Manage relevant reporting of management and financial information for the sales and marketing departments;

Select and manage external agencies;

Manage R&D and NPD and new business development;

Maintain and develop corporate image and reputation, and protect and develop the company's brands via suitable PR activities and intellectual property management; and

Plan and manage internal communications and awareness of corporate direction, mission, aims and activities.

V.P. Human Resources, To Be Hired - The V.P. Human Resources position, which reports directly to the CEO, is currently a vacant position within the organization. However, this position will have the following requirements and responsibilities: a.

Plan, develop and implement strategy for HR management and development (including recruitment and selection policy/practices, discipline, grievance, counseling, pay and conditions, contracts, training and development, succession planning, morale and motivation, culture and attitudinal development, performance appraisals and quality management issues - add others if relevant);

Establish and maintain appropriate systems for measuring necessary aspects of HR development;

Monitor, measure and report on HR issues, opportunities and development plans and achievements within agreed formats and timescales;

Manage and develop direct reporting staff;

Manage and control departmental expenditure within agreed budgets;

58 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

Liaise with other functional/departmental managers so as to understand all necessary aspects and needs of HR development, and to ensure they are fully informed of HR objectives, purposes and achievements;

Maintain awareness and knowledge of contemporary HR development theory and methods and provide suitable interpretation to directors, managers and staff within the organization;

Contribute to the evaluation and development of HR strategy and performance in co-operation with the executive team; and

Ensure activities meet with and integrate with organizational requirements for quality management, health and safety, legal stipulations, environmental policies and general duty of care;

V.P. Procurement, Brad Jones - The V.P. Procurement position reports directly to the CEO. This position has the following requirements and responsibilities: a.

Prepares and issues formal solicitations including Invitations for Bid, Requests for Proposals, and Requests for Qualifications and Experience as per the Corporate Procurement Policy and Plan;

Evaluates responses to solicitations based on vendor qualifications, price and conformance requirements;

Develops and manages annual contracts for a wide variety of supplies, services, consultants and capital equipment, including analysis, evaluation and approval of contractor change orders, contract amendments, monitors and evaluates contractor performance, contract renewals and addressing vendor/contractor deficiencies;

Writes memoranda to the CEO recommending contract awards and attends Executive Team meetings as required to answer questions;

Conducts public pre bid/proposal conferences and public solicitation openings and serves as chairperson/facilitator for evaluation meetings and requesting Best and Final Offers;

Serves as a commodity and service specialist and information resource to user departments, other government entities and the public to interpret, explain, and makes decisions regarding procurement law and department policies;

Researches and advises user departments on market trends, new product and service developments and alternative source selections;

59 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

Uses eRequester computer software to manage the placement of orders for the Company;

Conducts procurement process for all development projects for the Company;

Oversees legal requirements in procurement of construction;

Issues addenda to solicitations and amendments to contracts as required;

Meets with vendors and provide guidance on how to do business with the Company;

Interviews consultants to determine selection;

Reviews requisitions for conformance with applicable law;

Prepares contract administration documents including contract expiration notices, contract summaries, reviews Vendor Deficiency Reports, host post award meetings, and conducts contract user surveys as applicable;

Initiates industry best practice surveys;

Performs all work duties and activities in accordance with Company policies and procedures;

V.P. Administrative Services, Kaye Ammer - Ms. Ammer is the acting Vice President of Administrative Services. She is heading the Company’s administrative department and serving as corporate secretary. She currently has the primary responsibility for assisting the CEO and President and interfacing with the Board of Directors and senior management on substantially all of the Company’s administrative and communication affairs. a.

Develops, coordinates, analyzes and monitors programs, projects, contracts, grants, overtime limits, funds, budgets and/or budget projections applicable to the work unit;

Prepares, processes and reviews written documents pertaining to Company projects (i.e., correspondence, personnel action requests, requisitions, travel requests and claims, requests for proposals, leases, contracts, funding requests, bid specifications, requests for reimbursement, billing statements, etc.) to ensure compliance with applicable laws, policies and procedures; 60 “Committed to Innovation and Community”

Researches, gathers, summarizes and analyzes data to provide accurate information for briefs, reports, contracts, grant proposals, correspondence and presentations; to develop, evaluate and project program goals and/or strategic plans; and to develop and propose recommendations.

Tracks time-sensitive events and assignments to ensure timely completion;

Supervise clerical and administrative support personnel and the functions of the work unit, which includes: interviewing prospective employees; providing and/or recommending training; coordinating, scheduling and assigning work product; establishing performance measures, goals, objectives and priorities; evaluating work performance; providing feedback, direction and guidance; keeping personnel abreast of new or revised information; answering questions; and recommending and/or implementing personnel actions;

Maintains various records in compliance with applicable retention schedules.

Develops, reviews and reconciles program reports (e.g., budgetary, financial, statistical, performance, etc.);

. Develops and maintains automated systems to update and track information;

Reports information to management regarding project status and program issues (e.g., balances, funding, administrative issues, etc.) and/or presents recommendations related to the work unit;

Participates in and conducts research projects, audits and/or inspections to provide information, make recommendations and procedural changes, and ensure compliance;

Resolves procedural and administrative problems and/or contract discrepancies, and answers questions regarding programs, projects, funds, budgets and/or budget projections pertaining to work unit;

Prepares graphic presentations (e.g., matrices, charts, graphs, spreadsheets, tables, and time lines) to improve information presentation and comprehension;

Conducts needs assessments (e.g., program, equipment, staff, etc.) to determine current and future needs, and to provide recommendations;

Researches, analyzes, interprets and reviews regulations, laws, policies and procedures applicable to program assignment to determine conflicts 61 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

and ensure compliance;

Reviews research papers, analytical reports, programs and/or data trends to develop innovative approaches to problem solving and program evaluations, and to make recommendations;

May coordinate, direct and review the work of others, internal and/or external, in order to ensure that assigned tasks are completed accurately and in a timely manner;

Initiates, develops and evaluates program proposals/needs to obtain required products, services and/or additional funding;

Develops, plans, conducts and attends meetings, conferences, seminars and other events to exchange information and/or address needs and concerns;

V.P. of Business Development, Bob Pittman - Mr. Pittman is the acting Vice President of Business Development, heading the Company’s efforts to develop relationships with customers and suppliers. Mr. Pittman has served as the regional sales director for a medical supply company for nearly than twenty years. a.

Serve as a key member of the executive team that sets the company’s strategic direction;

Spearhead business development initiatives that are consistent with the company’s overall strategy;

Manage multiple business initiatives in a start-up environment;

Revenue generation and strategic partnerships development and management;

Build and manage a business development team;

Manage complex contract negotiation and work with legal counsel as required;

Win early customers with limited support; and

Be the driving force in the development of the work ethic, culture and values of the sales and business development group. Through personal example, establish the style and approach which will characterize the Company’s dealings with the marketplace. 62 “Committed to Innovation and Community”

10.

11.

V.P. Investor Relations - The V.P. Investor Relations is held by former Olympian Jackie Joyner Kersee reports directly to the CEO, Mrs. Kersee will have the following requirements and responsibilities: a.

Use communication, project management, and financial skills to assist in the development of financial communication materials and processes to communicate with the investment community.

Assist in preparation of quarterly earnings materials as well as an analysis of key earnings drivers and issues to be addressed;

Create presentations and other communication materials for industry conferences or other events.

Remain current with all pertinent business developments for clients and their peers; recommend and monitor changes in disclosures and or requirements.

Assist in coordinating details and logistics for events including investor conferences, non-deal road shows, company-sponsored investor days.

Monitor investor base and develop target investor list;

V.P. Research & Development, To Be Hired – The V.P. Research & Development position, which reports directly to the CEO, is currently a vacant position within the organization. However, this position, which will require a PhD. in Chemistry or related science, will have the following requirements and responsibilities: a.

Provides oversight leadership on projects related to technology know-how development and new product development, ensuring that such projects are completed according to agreed upon schedules.

Develops and maintains knowledge of Industry / Market / Customer / Technology trends and uses this information to identify and capture technology project opportunities.

Works with Sales team to develop relationships with customers, engages customers in project activities as appropriate in order to facilitate customer’s adoption/implementation of company’s product technologies.

Works with cross-functional teams, including Sales, Customer Care, Quality Control and Production to provide customers with best of class products and services.

Has administrative oversight responsibility for Technology R&D and 63 “Committed to Innovation and Community”

Product Development staff, and is responsible for team and individual goal setting, employee evaluations, and for making recommendations regarding employee compensation and career development.

Other Executive Positions As previously stated, the Company has deferred other executive hires pending funding and expects to collaborate with its Series A investors on appropriate candidates for roles as Chief Operating Officer, Chief Financial Officer, Comptroller and other key functions. Strategic Relationships A strategic relationship is a formal alliance between two commercial enterprises, usually formalized by one or more business contracts but falls short of forming a legal partnership or, agency, or corporate affiliate relationship. Typically two companies form a strategic partnership when each possesses one or more business assets that will help the other but that it does not wish to develop internally. One common strategic relationship involves one company providing engineering, manufacturing or product development services, partnering with a smaller, entrepreneurial firm or inventor to create a specialized new product. Typically, the larger firm supplies capital, and the necessary product development, marketing, manufacturing, and distribution capabilities, while the smaller firm supplies specialized technical or creative expertise. Another common strategic relationship involves a supplier / manufacturer partnering with a distributor or wholesale consumer. Rather than approach the transactions between the companies as a simple link in the product or service supply chain, the two companies form a closer relationship where they mutually participate in advertising, marketing, branding, product development, and other business functions. As examples, would be the Company’s strategic relationship with its technology provider PLET. There can be many advantages to creating strategic relationships. As Robert M. Grant (2008, p. 44) states in his book Contemporary Strategy Analysis, "For complete strategies, as opposed to individual projects, creating option value means positioning the firm such that a wide array of opportunities become available". Firms taking advantage of strategic partnerships can utilize other company's strengths to make both firms stronger in the long run. The Company has formed strategic relationships with the following: 1.

Pure Lignin Technologies (“PLET”)/ Technology Provider - Pure Lignin’s patented, revolutionary, green, bio-technology produces three separate, economically profitable products: commercial grade cellulose, pure lignin and Sweet liquor (sugars, hemicellulose). It combines a unique blend of chemicals and low-pressure steam in a closed-loop process which emits no emissions or pollution. The process can utilize any vegetation as its source including wastewood, Pine beetle-killed trees, sugar cane, grasses, husks etc. With costs to build 64 “Committed to Innovation and Community”

and operate considerably lower than conventional processes, and more revenue streams the plants will be much more profitable than traditional methods. 2.

Veolia Energy / Contractor and Operator - The Company has a preliminary letter of intent with Veolia Energy will to design, operate and maintain its CHP Biorefinery in eastern Tennessee. Veoila Energy is a division of Veolia Environment, a French multi-national company with 2007 revenues of $48 services. Veolia Environment is a 150 year old company with operations on every continent and approximately 300,000 employees. Veolia Energy has extensive experience in designing, building, operating and maintaining energy projects and refineries.

E3 Energy Partners, LLC / Project Engineering - The Company expects to engage the firm of E3 Energy Partners to manage the project from planning phase, through engineering and construction phases, to completion and implementation. E3 Energy Partners is a global leader in chemical engineering, process scale-up, detailed design and project oversight for renewable energy solutions. With 25 years of experience, E3 Energy Partners is one of the most highly respected project engineering firms in the country. It blends fiscal management, problem analysis, engineering, and a disciplined work measurement into its overall project control process. While E3 Energy Partners has considerable experience in all types of industrial projects, it has created a special niche in retrofitting existing facilities with new technology, rather than construction of new facilities. Its reputation has been built from developing engineering solutions within the constraints of a retrofit project. This expertise is particularly apropos for Project Tennessee. Principals of the firm have already provided much useful guidance to the Company in the development of this project. E3 Energy Partners is the former Parker Messana Consulting Engineers of Seattle, Washington and Dan Parker, one of the Company’s Board members, is a partner in the firm.

. 4.

CHS, Inc. / Ethanol Sales and Marketing - On May 20, 2009, the Company entered into an Ethanol Sales and Marketing Agreement with CHS. Under the agreement CHS will purchase all of the ethanol that the plant produces. Under the Agreement CHS is obligated to market and sell to commercial purchasers all of the ethanol produced by the Company. The Company’s sales of ethanol will be priced based upon the purchaser bearing the cost of shipment from the Company’s location and the Company will pay CHS a marketing commission equal to 1.25% of the actual price paid by the purchase but not less than $0.015 per gallon. CHS is a diversified global agriculture and energy company in the Fortune 200 (NASDAQ: CHSCP) with over 75 years in the energy industry and over 25 years of experience in ethanol marketing. It is the largest distributor of E-85 in the United States. CHS is both an owner and an operator of refineries, pipelines and 65 “Committed to Innovation and Community”

terminals. CHS had 2008 revenues of $32.2 billion with net income of $803 million. 5.

Christianson & Associates PLLP / Accountants - The Company has arranged for the engagement of Christianson & Associates PLLP, a certified public accounting and consulting firm located in Minnesota to provide accounting services. Christianson specializes in agri-businesses, and currently provides professional services to 40 ethanol plants now in operation or under development.

Taylor English Duma LLP / Attorneys - The Company is represented by Taylor English Duma LLP, a law firm of 70 lawyers headquartered in Atlanta, Georgia, recently recognized by the Atlanta Business Chronicle as one of the top 25 firms in the city. Jonathan B. Wilson serves as the firm’s primary contact with the Company. Wilson is a Phi Beta Kappa graduate of the College of William and Mary (1988) and an honors graduate of the George Washington University Law School (1991). Wilson is the founding chair of the Renewable Energy Committee of the American Bar Association Public Utility Section. The Company also utilizes the tax expertise of Greg Sanderson, a tax attorney who has provided advice in tax credit transactions for more than 20 years. Attorneys at the firm have been engaged as counsel in more than 100 tax credit monetization transactions.

Gryphin Company, Inc. - was founded in 1984 to conduct coatings research for both the industrial and military markets. The focus of that research were the resins and polymers used in coatings and castings. In 1994, Gryphin purchased the assets of the Gilbert Spruance Company, including the 11 building, 2-acre site it presently occupies, along with the manufacturing equipment and processes essential for the manufacture and distribution of paint and allied products. Since that time, Gryphin has been engaged in the manufacture of coatings for metal and wood. Gryphin's present product range includes industrial coatings such as epoxy tank coatings, anti-skid coatings, corrosion protection coatings in addition to wood finishing coatings such as stains, fillers, sanding sealers, lacquers, polyurethane, polyesters and conversion varnishes. The line also includes architectural grade paints and home decor products manufactured under the Heritage Village brand name. On April 14, 2011, the Company signed a Lignin Sales Agreement with Gryphin in which Gryphin will purchase of the lignin that the Company produces.

66 “Committed to Innovation and Community”

Section D:

Market Feasibility Determinations

Market Analysis In the early 2000s, several start-up companies developed corn-based and soybean-based ethanol plants in order to produce ethanol. U.S. policy favored the development of these liquid fuel producers through a series of excise tax credits. When world agricultural prices spiked in mid2008, many first generation ethanol producers found that they could not acquire feedstock in the form of corn or soybeans at prices that made ethanol profitable. As a result, many first generation ethanol producers failed or halted their operations. In addition, the apparent competition of ethanol producers for edible products like corn and soybeans produced a political backlash that has tended to disfavor ethanol production based on grains. In spite of this backlash, the federal government instituted the Renewable Fuels Standard (―RFS‖). The RFS is a provision of the US Energy Policy Act of 2005 that mandated 7.5 billion gallons of renewable fuels by 2012. United States currently produces 5 billion gallons of ethanol. In addition, the ―Food Conservation and Energy Act of 2008‖ mandated that producers of cellulosic ethanol or ethanol produced from non-food sources are entitled to a $1.01 subsidy for every gallon of cellulosic ethanol produced. ―For the past few decades, the federal government has increasingly made the development of renewable biofuels a priority for advancing the nation’s energy and economic security, and, more recently, for advancing environmental and climate security. In the 1980s and 1990s, the primary political reasons for developing domestic, renewable biofuels were to promote energy security and increase crop prices for farmers. However, the first big boost to the biofuels industry in the 2000s arose from efforts to protect urban air quality. Gasoline refiners were scrambling to find a substitute for methyl tertiary butyl ether (MTBE), a fuel additive that was used to help reduce smog from tailpipe emissions. MTBE was found to be posing a toxic threat to many urban water supplies. It was banned by several states. Corn ethanol was the most readily available substitute. Demand grew rapidly, more than doubling between 2002 and 2005, from 1.8 billion gallons per year to 3.8 billion gallons (U.S. Energy Information Administration (USEIA), 2009). At the same time, public concern about increasing U.S. dependence oil imports grew in the aftermath of the attacks of September 11, 2001. Increasing production of domestic renewable fuels was proposed as a way to enhance national security and prevent future conflicts over oil. In the Energy Policy Act of 2005 (―EPACT‖) Congress enacted the first Renewable Fuel Standard (―RFS‖), mandating further increases in renewable fuels production, and authorized other programs to increase biofuels production, distribution, and consumption. The threat of global climate change was also of growing national concern. Many in the environmental community came to believe that substituting low carbon, next generation, cellulosic biofuels for petroleum based fuels could help mitigate climate change. Building the market and infrastructure for first generation corn ethanol could create the necessary bridge to the more environmentally benign and climate-friendly, next generation biofuels, which were still being developed. Thus, a political convergence developed by the end of 2007 -- one policy to address three compelling public concerns: energy security, economic development, and climate change mitigation. These priorities were codified in the second Renewable Fuel Standard (RFS2) in the Energy Independence and Security Act of 2007 (―EISA‖)." 67 “Committed to Innovation and Community”

Financial Summary and Marketing Budget Financial Outlook The Company is a pre-income entity. As such, there are no historical financials by which to base past sales projections. The Company’s future revenue is projected in its Five Year Pro-Forma. Based upon our Pro-formas The Company is projecting a 25% increase in sales per year. This increase will be based upon the following: 

The growing concern over our nation’s increasing need for energy, in the form of electricity, liquid fuels and bio-chemicals and the federal government’s mandate of renewable fuel standards coupled with governmental financial incentives has created a burgeoning need for renewable energy solutions.



The U.S. Department of Energy, Energy Information Administration predicts that U.S. electricity consumption will continue to rise by 26% from 2007 through 2030, notwithstanding pending improvements in energy efficiency.



the ―Food Conservation and Energy Act of 2008‖ mandated that producers of cellulosic ethanol or ethanol produced from non-food sources are entitled to a $1.01 subsidy for every gallon of cellulosic ethanol produced.



The Company’s production model, utilizes readily-available and inexpensive inputs to produce marketable, high-value outputs.

 

Project Tennessee will use an advanced patented process by Pure Lignin Environmental Technology, Ltd, (―PLET‖) of Kelowna, B.C., Canada licensed to the Company.

Projected Sales are as follows:

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Table # 13 bfA Projected Revenues biofuels AMERICA, INC. Project Tennessee Five Year Pro-Forma As of June 1, 2010

YEAR # 1

YEAR # 2

YEAR #3

YEAR # 4

YEAR # 5

TOTAL

15mmgy

20mmgy

30mmgy

Ethanol

$ 27,450,000.00

$ 36,600,000.00

$ 54,900,000.00

228,750,000.00

Lignin

$ 81,600,000.00

$ 102,000,000.00

$ 127,500,000.00

$ 159,375,000.00

$ 199,218,750.00

669,693,750.00

Electricity

9,945,306.00

$ 12,431,632.00

$ 15,539,540.00

$ 19,424,425.00

65,297,148.00

TOTAL REVENUES

$ 117,006,245.00

$ 148,545,306.00

$ 194,831,632.00

$ 229,814,540.00

$ 273,543,175.00

963,740,898.00

REVENUES:

7,956,245.00

In order to reach the above financial projections, the Company will require additional human and capital resources. First Year sales projections are based upon a full employment and the availability of construction funding and working capital. Sales Objectives 1.

Achieve annual sales of $ 273,543,175.00 by year #5;

Report annualized profits of $168,686,287.00 by year #5;

Hire a talented Business Development team; and

Increase Exports on an annual basis.

Marketing Budget and Results The Company does not have a separate line item enumerating a marketing budget within its Pro-forma. The marketing budget in the amount of $250,000 annually for a five year period is included within the line item entitled “Overhead.” Our annual advertising budget is as follows:

69 “Committed to Innovation and Community”

Table # 14 Annual Marketing Budget DESCRIPTION

AMOUNT

Trade Shows

$125,000.00

Print Media

60,000.00

Public Relations

50,000.00

Miscellaneous

15,000.00

Total

$ 250,000.00

Trade Shows The marketing budget was determined by estimating the current costs of advertising in various media. More funds were allocated to Trade Shows because this venue would be the primary forum to sell the Company’s products and technologies. Deciding which trade shows to attend (i.e. National Fuel Ethanol Conference, 7th Renewable Energy Finance Forum - Wall Street etc.) can be a difficult decision when emotions enter the decision process. It seems that every show has a strong advocate trying to convince an organization to attend.

Statements such as, ―all our customers will be there‖, ―the market will think we have disappeared if we don’t attend‖, ―the trade publications won’t think we are a serious player‖, and ―this is the largest show in our biggest market segment‖ are a reflection of feeling, not fact. Conversely, with very tight budgets and demand to show ROI, deciding which show to attend can prove to be just as difficult. While establishing better goals and metrics is a usual course of action to prove marketing return, trade shows can be particularly challenging. To ensure the show success the Company will set up quantitative and qualitative metrics prior to deciding to exhibit. It will establish goals such as the number leads, number of customer meetings, and the number of brand impressions it will mitigate emotional decision making. Driving to Trade Show ROI To measure Return on Investment (―ROI‖) it is important to fully capture the costs and benefits of a show. The Company will use some metrics that can be used to demonstrate the benefit of a show. Three metrics in particular are the calculation of Advertising Equivalence, cost savings from customer meetings, and monetizing brand impressions with speaking engagements. It will use a standard template that includes the elements listed below Trade Show Costs Event Sponsorships/Exhibition 1. Exhibit costs; 70 “Committed to Innovation and Community”

2. Speaker costs; 3. Sponsorships; and 4. Individual registrations Transportation 1. Booth / Equipment Shipping costs; and 2. Other Transportation Travel 1. Number of attendees x the average cost per day x the number of days Promotional gifts/collateral 1. 2. 3. 4.

Promotional gifts; Printer materials; Other promotional items (pre-show mailers, etc.); and Graphics /Banners / Signs.

Resource Costs (Time x salary) 1. 2. 3. 4. 5.

Attendees; Creative services costs (agency, writers, designers, etc.); Show planner; Marketing manager; and Product manager;

Customer Meetings 1. Meeting room; 2. Food and beverage; and 3. Marketing materials. Show benefits included both quantitative and qualitative measures: Leads 1. 2. 3. 4. 5. 6.

Number of leads; Total revenue resulting from closed leads; Increased Brand Awareness and Reputation; Estimate impressions (total attendees at show that see sponsorship of a general session); Booth traffic impressions (Track for a period of time and then extrapolate); and Brand survey results (taken at the booth).

Customer Relationship Development and Savings 71 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

1. Number of customer meetings; 2. Savings from travel to individual customers (number of meetings x number of staff x travel costs â&#x20AC;&#x201C; total cost of travel to individual meetings). Market Research Insight 1. Number of research surveys completed; 2. Document and key learning from customers at the show; and 3. Competitive information gathered When using criteria such as the above, the Company will be able to add the total costs and the total benefits and ultimately be able to calculate the shows ROI (benefits-expenses/expense). The Print Media Regardless of economic times and growth of Internet, The Company believes that advertising through print media brings a definite competitive advantage. The bottom line leaves nothing to imagination. If a company chooses not to communicate with customers when it enters the market, then the result is that the prospective buyer will not even consider what that company offers. This is a fundamental truth in print media advertising. Print media comprises of newspapers and magazines. 1.

Newspaper Advertising Overview - Paid-circulation newspapers have been a popular advertising medium for many years. Most local businesses use newspapers to advertise their goods and services, so do the big industrial giants. That is why almost every community is known to have its own newspaper. Most ads are cheap and low cost. The downside is that there are over 1,600 paidcirculation daily newspapers in the U.S. In addition, there are thousands of additional local weekly papers. That is why the Company will do more magazine advertising because it has more scope.

Magazine Advertising Overview - There are about 160,000 magazines published in the world. The large number of these magazines is somewhat misleading as it does not bring that many revenues. However, there is still a great deal of respect and demand for this traditional form of media advertising. For the advertiser, there are many great advantages of print media advertising. The main fact is that they can target a specific audience. This is in spite of the fact that magazines have lesser coverage as compared to national newspapers.

Advantages of print media advertising include: 1.

Specific Target Audience - In print media, the advantage of catering to specific target audience opens up countless opportunities to enhance sales figures. A 72 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

fashion magazine would highlight cosmetic products and fashion accessories. At the same time, a sports magazine would display sports related ads to cater to its readers. There is no wastage of resources as ads get to reach the target audience. 2.

Loyal Readerships - In the print media industry, readership is mostly long standing and loyal.

Special Ad Positioning - A major advantage in magazine advertising is that an advertiser can request special ad positioning. This means you can ask that your ad is placed in a specific page or within a column article. This will bring greater visibility to the brand. This is also commercially more effective as potential buyers would notice it. It is a different matter if you don’t want to specify where your ad should appear.

Credibility- Over a period of years, magazines create a vast pool of loyal readers who feel safe in its very credible environment. The interactive element may be less when you compare it with the aggressive online advertising. But the key factor is credibility that print media continues to reign over. It explains why magazines are known as potential promotional vehicles. It adds improved quality branding that adds great value to your range of products.

Long Life Span - Compared to websites or national newspapers, magazines enjoy the longest life span. There are some magazines that are treasured across decades like valuable references. The National Geographic is such an example as its content is never redundant.

High Reach Prospective - Another advantage is that magazines have a high reach prospective. This is because magazines get passed from family to friends to customers to colleagues and so on.

7. Glossy Ads - Unlike newspaper advertising, magazine advertising gives great scope to glossy ads. These are usually trend setting and eye catching. The best thing is that everybody loves to look again and again at glossy ads. So maximum visibility is again reiterated through magazine advertising. That is why it is stated often that consistent advertising ensures a cumulative effect. The more familiar buyers are with a brand, the more likely they would buy it. That is why print media advertising will never be out of fashion. The Company will advertise in the following magazines’

73 “Committed to Innovation and Community”

Table # 15 Energy Industry Magazines MAGAZINE TITLE Ethanol Producer Magazine

CIRCULATION/MONTH 5,000 Pass along rate: 1.5 Total: 7,500 EnergyBiz Magazine 90,00 monthly visitors Energycentral.com 650,000 impressions Biomass Magazine 5,000 Pass along rate: 1.5 Total: 7,500 Renewable Energy World Magazine 30 million impressions Renewablenergyworld.com e-Newsletter: 800,000 times per month

Public Relations The Company’s Public Relations budget will be utilized to pay the costs of the following: 1.

Press Release Coverage (Number picked up by trade publications);

Speaking engagements (Number and survey results showing interest);

Ad Equivalency (Cost for a full page advertisement / the amount of coverage space in an article); and

Press meetings/ new relationships developed.

Situation Analysis Customers The Company identified several customers to solicit for each of its products. Existing customers include: 1.

CHS, Inc. - The Company has entered into a master Ethanol Sales and Marketing Agreement CHS, Inc. (―CHS‖). Pursuant to the Agreement CHS will purchase all of the ethanol that the Company produces at current daily spot prices.

TECNARO GmbH - Since lignin is one of its main raw materials, TECNARO always interested in new sources. We will send them a small testing amount (around 300 - 400g) and a MSDS. This will be enough for their testing labs. TECNARO has agreed to keep the Company informed about the testing results and the possibility to join their manufacturing process. TECNARO and the Company will then go into detail concerning terms of delivery, prices, quantities, etc. The Company anticipates send the sample product via its technology 74 “Committed to Innovation and Community”

provider PLET on or before August 1, 2010 and anticipates having an Off-Take Agreement on or before December 1, 2010. 3.

Sequatchie Valley Electric Cooperative - Sequatchie Valley Electric Cooperative (―SVEC‖) was incorporated on July 31, 1939, by a group of community leaders who could foresee the benefits of an electric utility owned by and responsive to the people who were to receive electricity from it. Now seventy years later, the cooperative is providing electrical service to over 35,000 different homes and businesses. The Company has been negotiating with SVEC through Veolia Energy, its power facility builder and operator, to obtain a Power Purchase Agreement. Table # 16 Customers Sales Agreements

COMPANY

CONTACT

ADDRESS

PHONE, FAX, EMAIL

CHS, Inc.

David Belseth

5500 Cenex Dr Inver Grove, MN 550787

Gryphin Company, Inc. Sequatchie Valley Electric Cooperative

Nick Nehez

3501 Richmond St. Philadelphia, PA 19134 512 South Cedar Avenue South Pittsburg, TN 37380

Phone: 651-355-8534 Fax: 888-488-7366 Email: david.belseth@chsinc.com Phone: 215-426-5976 Fax: +49 (0) 7062/91789-08 Email: nick@gryphin.com Phone: 423-837-8605 Fax: 423-837-9836 Email: mpartin@svalleyec.com

Michael Partin

PRODUCT SOLD Ethanol

CONTRACT/OFFTAKE, PPA Off Take

DATE SIGNED May 20, 2009

Lignin

Off-Take

To Be Signed

Electricity

PPA

To Be Signed

The Company anticipates patenting new processes and new technologies to enhance the cost effectiveness and efficiency of its own and licensed processes. To this effect, it has established a Business Development Department responsible for the solicitation and engagement of new customers for its products and processes. Competition There are several domestic and international producers of lignin. The Company’s direct competitors include but are not limited to: 1.

Borregaard LignoTech - Borregaard LignoTech has 11 production units globally and local sales representation on all continents. As Table # 9 shows, Borregaard LignoTech control 51% of the market in Europe, Africa and the Middle East , 25.5% in the Americas and 23.5% in the Asia-Pacific. These market shares make Borregaard LignoTech the world’s leading producer of lignin based products. (www.borregaard.com)

EnviroTech Services, Inc. - Colorado based EnviroTech Services, Inc. is a leading provider of value-added and environmentally friendly Dust Control and Road Stabilization products. EnviroTech also sells a wide variety of de-icing and 75 “Committed to Innovation and Community”

anti-icing products. Lignosulfonates for dust control and road stabilization available from EnviroTech are: Lignosulfonate (RTU) Blended Products include ; ET 820, ET 550, ET 730 and ET 370With plant locations in Kersey/Denver and Glenwood Springs, Colorado, as well as Post Falls, Idaho and Muscatine/Rudd, Iowa, EnviroTech is a major provider of Ligno-sulfonate products.(www.envirotechservices.com) 3.

Tembec - Tembec is a leading integrated forest products company, with extensive operations in North America and France. With sales of approximately $3.5 billion and some 9,000 employees, it operates 50 market pulp, paper and wood product manufacturing units, and produces silvichemicals from by-products of its pulping process and specialty chemicals. Tembec markets its products worldwide and has sales offices in Canada, the United States, the United Kingdom, Switzerland, China, Korea, Japan, and Chile. The Company also manages 40 million acres of forest land in accordance with sustainable development principles and has committed to obtaining Forest Stewardship Council (FSC) certification for all forests under its care. Tembec is a pioneer and leader in the sulfite pulp sector. The Company offers its customers a single-source solution for all their lignin needs. Tembec manages the forest, harvests the fiber, processes the pulp, and produces the lignosulfonates. The Lignin Division manufactures a complete line of ARBOTM lignosulfonates. (www.arborform.de)

Analysis: There is currently a growing strongly established market for lignin and lignin products. A very few companies are supplying lignin based specialty chemicals that mostly are substitutes for petroleum based chemicals. The value of these chemicals is based on the value of the chemical they are replacing. There is a fairly strong market need for lignin that can replace phenolic resins in the plywood, OSB, and chipboard industry, however there is currently very few sources for lignin of this quality. Other opportunities may also exist for lignin as a precursor for vanillin. Most vanillin is benzene based, however, high oil prices have driven up these vanillin prices, increasing the demand for wood-based vanillin. For lower grade lignin the best market value is probably still in its value as a fuel. In summary, the lignin market is still developing, but WILL present excellent opportunities for producers of high value lignin. Cellulose to Ethanol Commercialized Plant Competition

Range Fuels - Range Fuels Inc. plans to build the nation's first commercial cellulosic ethanol plant in Soperton, Ga., has won a commercial permit from the state. On March 3, 2010 Range Fuels, Inc. announced that it had received a loan note guarantee from the U.S. Department of Agriculture and closed its related 76 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

$80 million bond issuance. The proceeds from the $80 million bond will be used to partially finance the first two phases of construction of Range Fuels’ first commercial cellulosic biofuels plant using renewable and sustainable supplies of non-food biomass near Soperton, Georgia. The first phase is scheduled to be mechanically complete this month, with production scheduled to commence in the second quarter of this year. Range Fuels believes its plant will be able to produce more than 100 million gallons of ethanol a year from wood chips from un-merchantable Georgia pine trees and forest residues. Wood waste from the state's millions of acres of indigenous Georgia pine trees will be the main source of biomass for the ethanol production. While most domestic ethanol production requires corn as a feedstock, Range Fuels' proprietary technology transforms products such as agricultural wastes, grasses, cornstalks and wood waste, as well as hog manure, municipal garbage, sawdust and paper pulp, into ethanol through a thermal conversion process. On April 1, 2008 Range Fuels Inc. announced that it had completed an oversubscribed Series B round of private financing greater than $100 million. Range Fuels will focus the new funds on completing the construction of the first phase of its commercial cellulosic ethanol plant located near the town of Soperton, Georgia. Kholsa Ventures has helped finance the entity. http://www.rangefuels.com 2.

Qteros - Amherst, Massachusetts based Qteros has secured a major investor. Qteros’s technology platform is based around the ―Q Microbe,‖ a unique naturally occurring bacteria discovered in the New England soil by University of Massachusetts microbiologist Susan Leshine. Because this bacteria can convert cellulose from a number of feed stocks, it has a significant commercial feasibility, which has attracted VeraSun Energy Corp., one of the nation’s leading ethanol producers. VeraSun is one of many companies teaming up in the race to produce cellulosic ethanol, following partnerships between Celunol Corp. and Diversa Corp., Poet and Novozymes, Abengoa BioEnergy and Dyadic and the national Renewable Energy Laboratory and Chevron to name a few. www.qteros.com

Mascoma Corporation - Mascoma Corporation was founded with private capital. The managers of these funds continue to believe that the time has come to commercialize the production of cellulosic ethanol as an alternative to fossil fuels. Since its founding, Mascoma has aggressively pursued the development of Consolidated Bioprocessing (CBP) technology across a range of cellulosic feed stocks. This technology offers potentially high values of return on energy investment and low production costs. During an August 2005 meeting at Lake Mascoma in New Hampshire between Mascoma’s co-founders Prof. Charles Wyman and Robert Johnson, Prof. Wyman proposed the concept for what is today Mascoma Corporation. The addition of co-founder Prof. Lee Lynd and a portfolio of licensed technologies from Dartmouth College completed the foundation for the new company to leverage advanced technologies for biological conversion of cellulosic biomass to ethanol. 77 “Committed to Innovation and Community”

Mascoma closed on its initial funding of $4MM in early 2006 from Khosla Ventures and Flagship Ventures, with subsequent venture capital funding of $35MM, including a Series B round led by General Catalyst Partners, with participation from Kleiner Perkins Caufield & Byers, Vantage Point Venture Partners, Atlas Venture, Pinnacle Ventures, Khosla Ventures, and Flagship Ventures. Mascoma subsequently received a $14.8MM grant from the State of New York for the establishment of a demonstration plant. Today Mascoma is a leader in cellulosic ethanol technology development and establishment of industry-leading cellulosic ethanol production facilities. www.mascoma.com 4.

Verenium - In 1995 Verenium, then Celunol, secured an exclusive license to commercialize proprietary cellulosic ethanol technology developed at the University of Florida. Working with the University and other academic and industry sources, including Dartmouth, Auburn, the University of Colorado, and the University of California at Davis, Verenium has continued to develop its unique technology to release the full sugar potential of cellulosic biomass. Today, Verenium continues as an R&D leader in the cellulosic ethanol field. It operates a laboratory at the Sid Martin Biotechnology Development Incubator of the University of Florida, as well as a research laboratory at its pilot plant in Jennings, Louisiana. Verenium operates a pilot cellulosic ethanol facility located on a 140-acre company owned site located in Jennings, Louisiana. Opened in 1999, the facility was capable of CF hemicellulose fermentations. During 2006 the company completed extensive upgrades on the pilot facility, enabling it to conduct combined C5 and C6 fermentations. The Jennings pilot facility is capable of processing approximately two tons of biomass per day into ethanol. It is operated as an R&D facility to improve the company’s process technology and to validate the company’s process on a wide variety of biomass feed stocks. Preparations are being made for Verenium’s first commercial-scale facilities, which are expected to produce 36 million gallons of ethanol per year. With the optimization of Verenium’s pilot and demo plants, the commercial plant development program is underway. Currently, a variety of sites are being explored for plant development in Florida, Louisiana, and Texas. Verenium's first commercial project will be built through its joint venture company with BP, Vercipia Biofuels, in Highlands County, Florida. Vercipia expects to break ground on the project in 2010 and begin producing commercial cellulosic ethanol in 2012. The plant is projected to cost $300 million. www.verenium.com

Conoco Phillips & Archer Daniels Midland - Conoco Phillips and Archer Daniels Midland Company have announced that they have agreed to collaborate on the development of renewable transportation fuels from biomass. The alliance will research and seek to commercialize two components of a next-generation biofuel production process: 78 “Committed to Innovation and Community”

The conversion of biomass from crops, wood or switch grass into biocrude, a non-fossil substance that can be processed into fuel; and

The refining of biocrude to produce transportation fuel.

―ConocoPhillips believes that the development of next-generation biofuels is a critical step in the diversification of our nation’s energy sources,‖ said Jim Mulva, chairman and chief executive officer, ConocoPhillips. ―We are hopeful that this collaboration will provide innovative technology toward the large-scale production of biofuels that can be moved efficiently and affordably through existing infrastructure.‖ Patricia Woertz, chairman and chief executive officer, ADM, added, ―As we advance our global bioenergy interests, this alliance with Conoco Phillips represents an important next step. Innovative collaboration like this will identify and bring to market feasible, economic and sustainable nextgeneration biofuels.‖ www.conocophillips.com 6.

Poet - Already one of the top ethanol producers of traditional corn ethanol, Poet plans to add 3.5 billion gallons of cellulosic ethanol by 2022, said Jeff Broin, CEO, on April 21, 2010 at the National Press Club in Washington, D.C. That’s more than 20 percent of the cellulosic ethanol mandated by the renewable fuels standard. To reach that, Poet will add 1 billion gallons of cellulosic ethanol production from corn stover to its existing ethanol plants. Current production numbers show Poet is producing 1.4 billion gallons at 26 corn ethanol plants in the U.S. ―Our model that co-locates grain and cellulose plants takes biomass from the same acres and gets us to the commercialization of cellulosic ethanol faster,‖ Broin said. ―It also makes both ethanol processes more efficient, significantly reducing greenhouse gas emissions for corn ethanol, and maximizing the use of the corn plant.‖ The company also plans to license the technology to other corn ethanol plants for an additional 1.4 billion gallons. The final 1.1 billion gallons of cellulosic ethanol will come from cellulosic ethanol produced from other feed stocks, either by Poet or through joint ventures. ―We are looking primarily at other waste products: ag residues such as wheat straw and rice hulls, wood chips, paper waste and municipal solid waste,‖ he said. ―With much of the work on corn stover nearing completion in our labs, we will soon turn to studying these other feed stocks.‖ By the end of August, the company plans to have completed installation of an improved pre-treatment system at its Scotland, S.D., pilot plant. The $2 million addition will help scale the 20,000 gallon a year facility to commercial size. This is all part of the company’s quest to cut costs to reach its goal of $2 per gallon — competitive with gasoline prices but more expensive than the costs of producing first-generation ethanol. 79 “Committed to Innovation and Community”

The company’s first commercial cellulosic ethanol plant will be co-located with Poet’s corn-to-ethanol plant located in Emmetsburg, Iowa. Called Project Liberty, the 25 MMgy plant will produce ethanol from corncobs. ―We filed an application with the DOE this morning and need to have a favorable ruling from them this calendar year,‖ Broin said. ―If we get that favorable ruling, we told the DOE that we will start construction by the end of this year, which puts us on track to start up the facility in early 2012.‖ Broin added that the 3.5 billion gallon number could increase as Poet builds additional grain ethanol plants. ―With dramatically expanding corn yields predicted by the USDA and seed bio-tech companies, in the near future this country will be awash in corn just as it has been for most of my lifetime,‖ he said. ―Those rising yields will lead to additional surplus corn that will enable expansion of corn-based ethanol production and more cellulose as well.‖ In order for cellulosic ethanol to become a reality, Broin said, policy makers must allow ethanol more access to the market and put in place the long-term stable policies needed to attract investors. ―Make no mistake, cellulosic ethanol presents a tremendous opportunity for our nation,‖ he said. ―Congress has set a target of 16 billion gallons of cellulosic ethanol by 2022. This is a lofty goal, but it is achievable.‖ On April 28, 2010, President Barack Obama said ethanol is an important part of a clean energy future and a strong rural economy during a visit to POET Biorefining in Macon, Mo. The President took a tour of the plant and talked with POET CEO Jeff Broin and other POET team members before speaking to the press about ethanol and the jobs the industry continues to provide for rural America. "There shouldn't be any doubt that renewable, homegrown fuels are a key part of our strategy for a clean energy future -- a future of new industries, new jobs in towns like Macon, and new independence," President Barack Obama, April 28, 2010 By 2011, ten cellulosic ethanol plants are expected to be online with a name plate capacity of about 35 million gallons per year. By 2011, another dozen plants may be online, adding another 125 million gallons per year in name plate production capacity (Ethanol Across America, 2009). Poet announced that it had reduced the cost of producing cellulosic ethanol from corn cobs to $2.35 per gallon at its pilot plant in South Dakota, down from $4.13 per gallon and approaching its $2.00 per gallon goal for commercialization. In December, fifteen major airlines announced an agreement with Rentech and AltAir biofuel producers to procure hundreds of millions of gallons of ―drop-in‖ jet biofuel and biodiesel in the coming decade (Air Transport Association, 2009).

Other cellulosic ethanol competitor companies in the industry: 1.

Abengoa - Constructing the world's first commercial scale cellulosic ethanol biorefinery in Babilafuente (Salamanca), Spain using some components from 80 “Committed to Innovation and Community”

SunOpta. Commissioning is expected to start in the summer of 2007. In 2006 Q4, a partnership was announced with Dyadic. Later this year, Abengoa plans to start conversion of a corn-based ethanol plant they own in York, Neb., into a bio-mass ethanol facility, which would initially use small grain straw and corn stover as the bio-mass feedstock. (www.abegoa.com) 2.

Alico - In early 2007 the Dept of Energy announced it would award the company up to $33 million. The proposed plant will be in LaBelle (Hendry County), Florida. The plant will produce 13.9 million gallons of ethanol a year and 6,255 kilowatts of electric power, as well as 8.8 tons of hydrogen and 50 tons of ammonia per day. For feedstock, the plant will use 770 tons per day of yard, wood, and vegetative wastes and eventually energy cane. (www.alicoinc.com)

Archer Daniels Midland - ADM is aggressively studying how to produce cellulosic ethanol out of parts of the corn kernal that are traditionally not used for ethanol. ADM's new CEO Patricia Woertz (formerly the head of petroleum refining at Chevron) was quoted in March of 2007 saying: "We believe this process would boost our production of ethanol by 15% without requiring an additional ear of corn. Cellulosic applications such as this, on existing feed stocks, may be as little as 2 years away." (www.admworld.com)

American Process, Inc. - Inventor of AVAP technology which will be used at the Flambeau River Biorefinery project in Park Falls, WI. It will be the first modern U.S. based pulp mill biorefinery to produce cellulosic ethanol from spent pulping liquor. Project engineering has commenced with a production of ethanol that was expected to begin as early as 2009. (www.americanprocess.com)

BRI Energy - Developed a process that uses gasification, fermentation and distillation to produce ethanol and electricity from a wide array of carbon-based wastes. (www.brienergy.com)

Ceres - Privately-held plant biotech company utilizing genomics technologies to develop energy crops, such as switch grass, for cellulosic ethanol. (www.ceresinc.com)

Colusa - Though its stock is not for the faint of heart, the company is highly regarded by industry peers. Colusa has already harvested the rice straw which it expects to convert to ethanol when its California bio-refinery comes online. (www.colusabiomass.com)

DuPont - Partnering with Broin to bring cost-effective ethanol derived from corn stover to market. A pilot cellulosic ethanol production program is planned for South Dakota later in 2007. (www.dupont.com)

Dyadic - Spent over a decade of R&D in the design and development of enzymes for the increasingly efficient extraction of sugars from biomass.(www.dyadic.com) 81 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

10.

Globex - Developing supercritical fluid (SCF) which will be used along with enzymatic hydrolysis for the production of cellulosic ethanol. (www.globexgreenenergy.com)

11.

Green Star Products, Inc. - Developed a waterless continuous flow process reactor system which will be used in upcoming cellulose ethanol plants planned for North Carolina and the Northwest. (www.greenstarusa.com)

12.

Iogen Corp. - Operates a demonstration scale facility to convert biomass to cellulose ethanol using enzymatic hydrolysis technology. Full scale commercial facilities are being planned. It is very likely they will annouce plans for an Idaho plant that will make ethanol from wheat straw. (www.iogen.com)

13.

Lignol Energy Corporation - A western Canadian company, Lignol plans to build biorefineries for ethanol and co-products produced from Canadian forests. The Company has acquired and modified a solvent based pre-treatment technology originally developed by a subsidiary of General Electric (―GE‖). Lignol also acquired the original GE pilot plant that is now being integrated with recently developed process capabilities to convert cellulose to ethanol. (www.lignol.ca)

14.

Nova Fuels (maker of Novahol) - Develops biomass-to-fuel conversion facilities (that use gasification technology) with joint venture partners (www.novafuels.com)

15.

Novozymes - Developing enzymes that can convert cellulose into simple sugars, for fermentation into fuel ethanol. Has had collaboration/partnerships with Abengoa and Broin. (www.novozymes.com)

16.

Pure Energy - Developed a two-stage dilute acid hydrolysis technology process which will be used in the forthcoming Green Star Products, Inc projects. (www.pure-energy.com)

17.

SunOpta - Built the first cellulosic ethanol plant 20 years ago, in France. Has four cellulosic ethanol projects which are or will be operational using SunOpta's technology and equipment to produce ethanol from cellulosic biomass. (www.sunopta.com)

18.

Virgin Fuels - In September 2006, Sir Richard Branson pledged an estimated $3 billion to fight global warming. A large chunk of that is expected to be invested in cellulosic ethanol research and production. (www.virgin.com)

19.

Xethanol - Recently announced aggressive plans for its new Blue Ridge Xethanol company to begin producing cellulose ethanol in Spring Hope, NC using acid hydrolysis. (www.xethanol.com) 82 “Committed to Innovation and Community”

Risks Related to Advance Biofuel Industry 1.

Rebound in Corn Ethanol Industry - By the fall of 2009, however, the corn ethanol industry began to rebound. Petroleum prices rose from below $40 per barrel to more than $70. Petroleum companies and other bargain hunters started buying and reopening shuttered ethanol plants. Valero suddenly became one of the biggest ethanol producers in the country. Other major oil companies such as Exxon announced significant new investments in advanced biofuels research and development. Poet announced it was moving ahead to secure financing to build an ethanol pipeline from South Dakota to New Jersey. The corn ethanol industry returned to profitability. The Obama administration gave the advanced biofuels industry a boost, as well, accelerating research, development, demonstration, and deployment as part of its overall goal to promote renewable energy, create jobs, and reduce GHG emissions. Congress and the administration provided hundreds of millions of dollars in grants and loan guarantees for advanced biofuels development through the American Recovery and Reinvestment Act of 2009 (―ARRA‖) and through accelerated implementation of the 2008 farm bill energy programs. For example, in May[2009], the Department of Energy (DOE) announced that almost $800 million of ARRA funds would be allocated to advanced biofuels programs. In addition, more than $300 million in ARRA funding was allocated through the DOE’s Clean Cities Program to expand E85 refueling infrastructure (USDOE, EERE, 2009).

Biofuels Industry Remains Uncertain - Yet despite the beginning of a rebound in 2009, the advanced biofuels industry is still sputtering and its future remains uncertain. The industry is not expected to come close to meeting the original 2010 RFS2 cellulosic fuel production mandate of 100 million gallons. (In February, the EPA reduced the mandate to 6.5 million gallons.) Biodiesel producers continue to struggle, producing at only about 15 percent of name plate capacity, with many plants still shuttered. The $1 per gallon biodiesel expired at the end of 2009. A study prepared for the National Biodiesel Board (NBB) predicts as many as 23,000 layoffs may be forthcoming as more plants are shuttered (Urbanchuk, 2009).

Uncertain Feedstock Availability and Technologies - The availability of feed stocks and conversion technologies for advanced biofuels remains uncertain. a.

Farmers and foresters are risk averse. They are hesitant to plant new crops, invest in new technologies, or shift to new production practices when the markets for biomass production are so uncertain. The biorefineries have not been built yet. Significant hurdles remain concerning how to sustainably produce, harvest, store and transport the massive amounts of biomass that advanced biofuel refineries will need. 83 “Committed to Innovation and Community”

Without feedstock producers, advanced biofuel producers are unable to secure the long term, low cost feedstock contracts that they need to secure financing.

Advanced biofuels producers still face significant technological hurdles to develop economically competitive energy conversion processes at the commercial scale. To be competitive, production costs need to come down well below $2 per gallon. Although corn ethanol is more or less competitive (depending on the price of oil), few other advanced biofuels are close yet.

Feed stocks and conversion technologies for advanced biofuels vary greatly among different states, regions, and ecosystems. One feedstock and one conversion process will not necessarily fit all. Each state and region has its own unique set of conditions to overcome on the path to commercializing its own feed stocks and conversion processes.

The market for advanced biofuels is uncertain - Global petroleum prices remain volatile. In 2008, prices plunged from a record high of more than $140 per barrel to below $40. The potential for future petroleum price volatility remains a threat to the commercial viability of advanced biofuels. Although much progress has been made to reduce the cost of producing advanced biofuels, most still cannot compete without substantial government subsidies or mandates at December 2009 petroleum prices ($70 to $75 per barrel). a.

Many consumers are not sold on biofuels. Much more needs to be done to convince the public about the consumer value of using biofuels, to assure consumers that biofuels are safe to use in their vehicles, and to educate the public about the important energy security, economic development, and environmental benefits of using biofuels.

Fuel distributors are hesitating to install expensive E85 and biodiesel fuel tanks and pumps, uncertain that it will be profitable. Relatively few vehicles on the road are equipped to use E85 so far, and there are relatively few gas stations that sell E85, biodiesel, or other advanced biofuels.

Ethanol production is approaching a blend wall – market saturation at current fuel blending and consumption rates. The RFS2 mandates total biofuels production in 2010 of 13 billion gallons. Most of that will be ethanol. At the current E10 blend rate set by the EPA, with the increasing fuel efficiency of vehicles, and with the relatively small number of E85 fuel pumps and flex fuel vehicles on the road, ethanol market saturation is expected to occur by about 2012 at about 15-17 billion gallons of annual production. If nothing changes, there will not be a market for building additional ethanol production capacity of any kind – corn or cellulosic. 84 “Committed to Innovation and Community”

The federal regulatory environment is uncertain - The biofuels industry has asked the EPA to increase the ethanol blend ratio from ten percent to 15 percent so as to expand the market for biofuels and move the blend wall. Small engine manufacturers and boat owners are mounting strong opposition out of concern that it might harm engines and engine performance. Petroleum fuel distributors and auto manufacturers do not want to be held liable in the event that higher ethanol blend rates are found to damage engines. The EPA and DOE have so far found no evidence that a higher blend rate will harm emissions control equipment or engines, but EPA has delayed its decision until mid-2010 in order to complete further testing with DOE. a.

Many federal biofuels incentives – such as the $1 per gallon producer tax credit for biodiesel which expired at the end of 2009 – are enacted for only relatively short terms. Renewal is often uncertain politically. Short term policies like this do little to provide the long term certainty that investors and the biofuels industry need to make investment decisions that play out over a decade or more.

In its definition of renewable biomass, the RFS2 excludes from eligibility most biomass feed stocks from federal lands, much of the woody biomass from private forests, and much of the biogenic matter in municipal solid waste and construction and demolition debris. This makes it difficult for many states to develop biofuels industries to their full potential. Congress is likely to revisit this in the months ahead.

On Capitol Hill, the debate over the future of biofuels has widened, leading in 2009 to political brinksmanship over climate and energy legislation. Many members of Congress are calling for the RFS2 to be amended – to expand the definition of renewable biomass and to postpone for further study the issue of indirect land use change in the GHG lifecycle analysis of biofuels. After much debate, the House voted in June to delay for five years the implementation of the life cycle assessments of GHG emissions due to indirect land use change pending further study as part of its climate and energy bill (H.R. 2454). This debate is still ahead in the Senate.‖

As a consequence of these unresolved technological, economic, political, and regulatory issues, financing for advanced biofuels is uncertain. Even in times when credit markets are functioning properly, the advanced biofuels industry would have difficulty finding financing, with its unproven new technologies, undeveloped feedstock supply chains, uncertain markets, and uncertain regulatory future. However, with today’s frozen credit markets, risk-averse lenders are even less willing to finance this kind of enterprise. Reducing these uncertainties will be the critical challenge for the biofuels industry and state and federal governments in 2010 and beyond.” (Developing an Advanced Biofuels Industry: State Policy Options for Lean and Uncertain Times; Environmental and Energy Study Institute, February 16, 2010)

85 “Committed to Innovation and Community”

As with any business venture there are problems and risks associated with it. The Company has identified some possible problem areas that, without proper attention could slow progress with short and long term plans for the future and jeopardize our goals.

86 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

Section E:

Technical Feasibility Determinations

Project Tennessee involves the acquisition of a closed grain ethanol facility and retrofitting that facility into a Combined Heat and Power (―CHP‖) biorefinery. Project Tennessee will use an advanced patented process by Pure Lignin Environmental Technology, Ltd, (―PLET‖) of Kelowna, B.C., Canada licensed to the Company. Using the licensed technology from PLET, the Company will convert wood wastes and urban trash (pre-sorted municipal solid waste) into cellulosic ethanol and other valuable biochemicals such as lignin and will also combust some of the lignin to produce electricity. Abstract A continuous and batch system to produce cellulose, native lignin and unicellular protein from any form of vegetation in a closed process. The biomass is mixed in the impregnate solution of nitric acid and/or ammonium hydroxide and water. After a period of time at room temperature and atmospheric pressure the chemical solution is recycled. The biomass is moved to the reactor and heated. Evaporated impregnate is recovered via absorption tower and recycled back to chemical solution. The biomass is moved to an alkaline solution, then cooled to separate pulp from black liquor. The black liquor is pumped to a separation tank and is treated to precipitate lignin. The solution is filtered to separate sweet liquor and lignin. The lignin is dried and the sweet liquor is fermented to produce unicellular protein. What is claimed is: 1.

A method for producing pulp and lignin from lignocellulosic material, the pulp comprising cellulose, the method comprising: contacting the lignocellulosic material with an aqueous acid solution to impregnate the lignocellulosic material, the aqueous acid solution comprising from about 10% to about 40% by weight of the acid and further comprising ammonium hydroxide; heating the lignocellulosic material to a temperature that is at or above the boiling point of the aqueous acid solution to distill off the aqueous acid solution, without substantially degrading the cellulose or lignin in the lignocellulosic material; contacting the lignocellulosic material with an aqueous alkaline solution under heat to solubilize lignin in the alkaline solution, leaving a black liquor; removing the pulp from the black liquor; adding sufficient acid to the black liquor to precipitate the lignin; and removing the lignin from the liquor.

A method for processing lignocellulosic material, comprising: an impregnation step, wherein said lignocellulosic material is soaked in an impregnate solution comprising at least 10 weight percent of nitric acid and further comprising ammonium hydroxide; a first recycling step, wherein said impregnate solution is drained, filtered, strengthened and recycled to said impregnation step; a catalytic reaction step wherein said soaked lignocellulosic material is agitated in a catalytic reaction chamber and heated to a temperature above the vaporization point of said impregnate solution, thereby producing vaporized impregnate solution and a biomass; a second recycling step wherein said vaporized 87 “Committed to Innovation and Community”

impregnate solution is condensed and recycled to said saturation step; a digestion step wherein said biomass is agitated in a digester in the presence of black iron and an alkaline solution to produce pulp and a full strength black liquor; a processing step wherein said pulp is drained, washed and dried thereby producing dried pulp and dilute black liquor; a third recycling step wherein said dilute black liquor is recycled to said digestion step; a separation step wherein said full strength black liquor is cooled and agitated in the presence of an acid solution, thereby producing sweet liquor and precipitating natural form lignin; a filtration step wherein said sweet liquor is filtered to remove said natural form lignin; and a fermentation step wherein said sweet liquor is added to bacteria in a fermentation tank, thereby producing a unicellular protein as a fermentation product. 3.

The method of claim 2 wherein said impregnate solution comprises 10 to 30% acid by weight.

The method of claim 2 wherein said impregnate solution comprises 10-30% ammonium by weight.

The method of claim 3 wherein said impregnate solution comprises 10 to 30% ammonium by weight.

Background of Advanced Technology Invention Prior art processes for treating lignocellulosic material often require high temperatures and pressures to ensure the chemical reactions proceed at a sufficient rate. As a result, special pressure vessels and specialized equipment is necessary to withstand the harsh conditions. This makes processing facilities very expensive to outfit and maintain, as well as being expensive to operate, with high energy demands. In addition, strong chemicals are generally required to produce the desired oxidation or reduction reaction. The chemicals attack the equipment as well as the lignocellulosic material, again increasing maintenance costs for the facility. Once used, the chemicals must be disposed of, creating potential environmental hazards and pollution. Even water used during the treatment process can become contaminated and require careful handling to prevent pollution and environmental damage. Fresh chemicals must then be purchased to replace those lost during the treatment process. Most processing facilities, despite the expensive, sophisticated equipment in place, can only be used to process a limited selection of plant material. Different plant materials require different processing conditions and chemicals, and occasionally different processing methods, meaning other plant materials cannot be processed without a complete re-tooling of the process line, if at all. It is preferable to be able to process many types of vegetation without the need to re-tool or change the facility equipment. It is therefore an object of the invention to provide a process for treating lignocellulosic material which overcomes the above limitations and provides other desirable features. This and other objects of the invention will be appreciated by reference to the summary of the invention and to the detailed description of the preferred embodiment that follow. 88 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

Summary of Advanced Technology Invention The invention is a continuous and batch system to produce cellulose, native lignin and unicellular protein from any form of vegetation in a closed process. The hydrolytic Catalytic Reactor Process (CRP) produces commercial grade pulp and separates sweet liquor (sugars and hemi cellulose) from native form lignin--a natural lignin not altered by high temperatures or processing. The sweet liquor is further converted to a unicellular protein which can be converted to many different products. The process's waters and the catalytic chemicals are recycled. The crux of the CRP process is the acid catalyzed hydrolysis of impregnated wood chips. The acid catalyst effects the partial de-polymerization of the lignin matrix in the chemical reactor with subsequent distillation, condensation and recovery of the acid catalyst and recovery of native-form lignin. Much of the prior art in the field uses reduction/oxidation chemical reaction mechanisms. This basic difference in reaction mechanism allows for significant advantages of the CRP process. For example, the vegetation is impregnated in a solution of nitric acid and/or ammonium hydroxide and water. After a period of time at room temperature and atmospheric pressure the chemical solution is recycled. The biomass is then moved to a catalytic reactor and heated. Evaporated impregnate is recovered via an absorption tower and is recycled back to chemical solution. The biomass is moved to an alkaline solution before being cooled to separate pulp from black liquor. The pulp may be processed as desired to produce saleable products. Black liquor is pumped to separation tank and is treated to precipitate lignin. The solution is filtered to separate sweet liquor and lignin. The lignin is dried and the sweet liquor is fermented to produce unicellular protein. The process can utilize any species of plant including hardwoods, softwoods, shrubs, grain species, grasses etc. The process can utilize sawdust as the sole starting material (something that cannot be done commercially or specifically stated in patents examined to date). The quality and quantity of lignin produced dictates the reaction conditions throughout the process. A distinct advantage is the elimination of "dry" raw materials. Indeed, green starting material can be utilized and is even preferred for the acid catalyzed hydrolysis of the native lignin polymer depending on the quantity of pulp, lignin and sweet liquor required. The CRP pulping process does not require added pressure at any stage nor temperature ranges anywhere near those of traditional Kraft pulping processes. Basically, all temperatures at various stages of the process are below 90.degree. C. and no external pressure is added to the reaction system. The CRP pulping process is a closed system where virtually all chemicals used are recovered for reuse. Water used in the pulping process is recovered in saleable by-products, filtered for reuse or vented as steam. The vented steam could be used in providing energy for the pulping process thereby eliminating even this small loss of water and a potential energy source. The recovery of catalytic chemicals eliminates the need for high chemical cost during each cycle of the pulping process. A small amount of chemicals are needed to bring back to strength each recovered chemical before being re-introduced into the process. The recovery of chemicals does not require external 89 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

energy expense to achieve this (unlike current recovery stages in Kraft mills). By using this novel process the following benefits are achieved: 1.

Wet starting materials can be used--it is not necessary to dry the chips as the water is essential to the hydrolysis;

Hydrolysis uses low temperatures, low pressures and little energy input;

Weak acids and bases are used, minimizing raw material costs and degradation of final products;

The acid catalysts are distilled and recycled allowing closed cycles;

The chemical reactor pulping process is essentially pollution free;

The chemical reactor pulping process gives a high yield of native Klason lignin;

The chemical reactor pulp yield of alpha cellulose is high;

The sweet liquor after precipitation is suitable for fermentation of unicellular protein;

The chemical reactor process is scalable with suitable mixer designs and when combined with the projected operating cost gives a return on construction investment of less than 2 years; AND

10.

The chemical reactor process is highly efficient with costs half that of typical Kraft mills.

This results in the use of radically lower concentrations of acids and bases during the impregnation and digestion stages as well as significantly lower temperatures. Since the CRP pulping process is a closed system with virtually zero discharge of chemicals or water into the environment, a mill utilizing this process will easily meet and exceed current environmental standards. Bearing this in mind, a pollutant-free-pulp mill could also garner tremendous profit potential under an EPA carbon dioxide pollution credit system. The ability to process a wide variety of vegetation without any re-tooling gives flexibility in pulp production. Currently, mills are designed to produce specific pulp types and utilize specific wood species as raw materials. Furthermore, most mills require chips meeting stringent quality specifications. These limitations are avoided by the invention. The economic viability of the CRP pulp process may be realized in the sale of pulp alone. Other benefits are potential EPA credits and the production of native lignin products and of unicellular protein for sale to others. It is noted that unicellular protein from a vegetative source would be free of any BSE pathogens and would be the preferred feed for cattle and other livestock animals presently raised for human consumption. In one aspect, the invention is a method for producing pulp and lignin from lignocellulosic 90 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

material, the pulp comprising cellulose, the method comprising contacting the lignocellulosic material with an aqueous acid solution to impregnate the lignocellulosic material, the aqueous acid solution comprising from about 10% to about 40% by weight of the acid; heating the lignocellulosic material in two stages, the first heating stage being carried out for a period of time which is sufficient to depolymerize lignin within the lignocellolosic material without substantially degrading the cellulose or lignin in the lignocellulosic material, the second heating stage being carried out at or above the boiling point of the acid to distill off the acid; contacting the lignocellulosic material with an aqueous alkaline solution under heat to solubilize lignin in the alkaline solution, leaving a black liquor; removing the pulp from the black liquor; adding sufficient acid to the black liquor to precipitate the lignin; and removing the lignin from the liquor. In another aspect, the invention is a method for processing lignocellulosic material, comprising an impregnation step wherein the lignocellulosic material is soaked in an impregnate solution; a first recycling step wherein the impregnate solution is drained, filtered, strengthened and recycled to the impregnation step; a catalytic reaction step wherein the soaked lignocellulosic material is agitated in a catalytic reaction chamber and heated to a temperature above the vaporization point of the impregnate solution, thereby producing vaporized impregnate solution and lignin; a second recycling step wherein the vaporized impregnate solution is condensed and recycled to the saturation step; a digestion step wherein the lignin is agitated in a digester in the presence of black iron and an alkaline solution to produce pulp and a full strength black liquor; a processing step wherein the pulp is drained, washed and dried thereby producing dried pulp and dilute black liquor; a third recycling step wherein the dilute black liquor is recycled to the digestion step; a separation step wherein the full strength black liquor is cooled and agitated in the presence of an acid solution, thereby producing sweet liquor and precipitating natural form lignin; a filtration step wherein the sweet liquor is filtered to remove the natural form lignin; and a fermentation step wherein the sweet liquor is added to bacteria in a fermentation tank, thereby producing a unicellular protein as a fermentation product. The impregnate may be a nitric acid solution, or an ammonium hydroxide solution. In another aspect, the invention is an apparatus for processing lignocellulosic material, the apparatus comprising an impregnation infeed to feed lignocellulosic material and impregnate solution into an impregnation tank, the impregnation tank comprising an impregnation outfeed; a catalytic reaction chamber connected to the impregnation tank through the impregnation outfeed, the catalytic reaction chamber comprising a first agitator and a catalytic outfeed; a digester unit connected to the catalytic reaction chamber through the catalytic outfeed, the digester unit comprising a second agitator mechanism and a digester outfeed; a lignin separator connected to the digester unit through the digester outfeed, the lignin separator comprising a third agitator mechanism and a separator outfeed; and a fermentation tank connected to the lignin separator through the separator outfeed. In a further aspect, the impregnation tank may comprise a recycling outfeed for recycling the impregnate solution and returning it to the impregnation tank. In yet a further aspect, the digester unit may comprise an impregnate condensation unit for recycling said impregnate solution and returning it to said impregnation tank. In a further aspect, the invention is a unicellular protein produced using the above apparatus or the above method. In yet a further aspect, the invention is a natural form lignin produced using the above apparatus or the above method. 91 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

The foregoing was intended as a broad summary only and of only some of the aspects of the invention. It was not intended to define the limits or requirements of the invention. Other aspects of the invention will be appreciated by reference to the detailed description of the preferred embodiment and to the claims.

Kraft Pulping Processes Disadvantages: 1.

Prior processes for treating ligno-cellulosic material require high temperature and pressures to ensure the chemical reactions proceed at a sufficient rate;

As a result, special pressure vessels and specialized equipment is necessary to withstand the harsh conditions;

This makes these traditional facilities very expensive to build, operate and main tain with high energy demands;

In addition, strong chemicals are generally required to produce the desired oxida tion or reduction reaction;

The chemicals attack the equipment as well as the ligno-cellulosic material, again, increasing maintenance costs for the facility;

Once used, the chemicals must be disposed of, creating potential environmental hazards and pollution;

Even water used during the treatment process can become contaminated and require careful handling to prevent pollution and environmental damage;

Fresh chemicals must then be purchased to replace those lost during the treatment process;

Can only be used to process a limited selection of plant material; and

10.

Other plant materials cannot be processed without a complete re-tooling of the process line, if at all.

PLET Process Advantages: 1.

The technology is called a Hydrolytic Catalytic Reactor Process (―CRP‖), a continuous and batch system to produce cellulose, lignin and hemi-cellulose;

The Hydrolytic Catalytic Reactor Process (―CRP‖) water and the catalytic chemi cals are recycled;

92 “Committed to Innovation and Community”

The crux of the CRP process is the “acid catalyzed hydrolysis of impregnated wood chips;”

The acid catalyst effects the partial de-polymerization of the lignin matrix in the chemical reactor with subsequent distillation, condensation and recovery of the acid catalyst and recovery of lignin;

Most traditional processes uses reduction/oxidation chemical reaction mechanisms;

This basic difference in reaction mechanism allows for significant advantages of the CRP process;

A distinct advantage is the elimination of ―dry‖ raw materials. Green starting material can be utilized. It is not necessary to dry the chips as the water is essential to the hydrolysis;

Hydrolysis uses low temperatures (below 90 degrees C), low pressures and little energy input;

Weak acids and bases are used, minimizing raw material costs and degradation of final product;

10.

The acid catalysts are distilled and recycled allowing closed cycles;

11.

THE CRP PROCESS IS ESSENTIALLY POLLUTION FREE;

12.

The CRP Process gives a high yield of cellulose and lignin;

13.

The CRP Process is highly efficient with costs half that of typical Kraft mills.

PLET Production Process The PLET production process involves the following steps: STEP 1: The biomass is ground into small chips or sawdust using commercial grinding machines. Grinding the biomass into small chips or particles makes it easier for the chemical solution to soak into (or ―impregnate‖) the biomass in the next step. STEP 2: The biomass is soaked or impregnated with a solution of nitric acid and ammonium hydroxide for a period of time, generally two to twenty hours. The soak time depends upon the type of biomass involved and the size of the biomass particles, with softer biomass (such as grasses) requiring less time than harder forms of biomass (such as hardwood trees). This acid solution breaks down the cellulose in the biomass and separate the constituent parts.

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STEP 3: The wood and acid solution is heated to a temperature above the solution’s boiling point, but below the temperature at which the lignin would be destroyed by heat. The solution is also agitated with a mixing device to ensure thorough heating and dispersion of the liquid. Most of the acid solution evaporates and is condensed and recycled for re-use in the production process. STEP 4: The remaining material (which is now called a ―catalyzed biomass‖) is moved to a digester tank into which is added a caustic alkaline mixture (generally, sodium hydroxide (NaOH). The mixture is then heated and agitated to produce black liquor and wood pulp. STEP 5: The mixture is strained and removed from the digester to a press device where the mixture is separated into black liquor and wood pulp. The wood pulp (or cellulose) is then removed and stored for commercial sale. STEP 6: The black liquor is moved to a precipitation tank where it is cooled, agitated and treated with another acid solution. The resulting precipitate is lignin and the remaining fluid is an acidified hemi-cellulose (or sweet liquor) solution, consisting of C5 and C6 sugars. STEP 7: The lignin is removed from the solution through a staining and filtration process and then removed for storage and commercial sale. The sweet liquor is also stored in a storage tank and may either be commercially sold or fermented into ethanol for commercial sale. As a result of the PLET process, woody biomass is converted into three primary outputs:

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Figure # 3 PLET Process Flow Chart

Source: Pure Lignin Environmental Technologies, Ltd.

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Figure # 4 PLET Process Flow Chart Source: Pure Lignin Environmental Technologies, Ltd.

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Cellulose (Wood Pulp); 2.

Lignin; and

Hemi – Cellulose (Sweet Liquor)

Each of these outputs can either be sold commercially or further refined or processed into other value-added products.

Plant Requirements for 36 Ton Processing Plant The following information on Tank sizes an d other equipment size requirements are estimates as per PLET and will require engineering to verify the exact requirements for the equipment. The 36 Ton Processing Plant includes three processes per day. Tank Storage Containment Requirements Storage of acids and caustic solutions will require ventilation controls and vapor control not being released to the atmosphere and will require spillage containment tankage of 110% of the volume of each storage and processing tank. In the case of the reaction tanks (tanks containing the finished by-products) it may be easiest to develop the plant floor in that area, which will be the containment area with either a vacuum cleanup system or pumping system to other containment tanks. Tankage Requirements: Per Day of Processing Fresh Water Storage – For development of First Impregnation Solution – 30,000 gallons (estimated once every 6 months) This water can be used for washing the cellulose and then place in the Reaction solution tank for use in the next Reaction process. All of the reaction solutions become part of the Cellulose, lignin and sweet liquor. Fresh water tankage size will depend on the water supply. If from a high volume supply line or from a high volume well, then this would limit the size of storage tanks. Acid and Caustic Storage Tanks Sizes In the simplest terms a B-Train (as related to the road transport or trucking industry) consists of two trailers linked together by a fifth wheel, and are up to 26 m (85 ft) long. The fifth wheel coupling is located at the rear of the lead, or first trailer and is mounted on a "tail" section commonly located immediately above the lead trailer axles. In North America this area of the lead trailer is often referred to as the "bridge". The twin trailer assembly is hooked up to a tractor unit via the tractor unit's fifth wheel in the customary manner.

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Table # 17 Tankage Requirements: Per Day of Processing in US gallons Type of Tank

# of Tanks

# Us Gallons

Impregnation Solution Tanks

7,000

Reaction Solution Tanks

7,000

Cellulose Wash tank

5,300

Lignin/Black Liquor Tanks Lignin/Sweet Liquor Separation Tanks Lignin Storage Tanks Sweet Liquor Storage Tanks

2 2

1,200 1,200

2 2

10,000 19,000

Approx. B-Train Holding Capacity

Cooler System Required

Description

(2) Batch size per tank. Re-use top off solution. (2) Batch size per tank. Includes water and caustic Storage of wash water to be used in Reaction Solution. (4) Batch size per tank (4) Batch size per tank Yes

(20) Batches per tank (20) Batches per tank

Process Production 1.

Price for ―36T‖ Reactor = $1.6M US (FOB: Kelowna, B.C., Canada);

Estimated Cost of Non-Recurring Hardware = $ .8M US. These costs do not include shipping, insurance, duties, taxes, permits, facilities or the costs to build and assemble the plant. They also do not include the cost for conveying the sawdust to the reactor, or for drying and packaging the output products once produced;

Pumping systems for loading to tanker trucks not included on the Lignin or the Sweet Liquor Storage Tanks;

Cellulose Production Belt Presses – 24 Hour Production, 36,000 lbs.;

Hourly Production: 1,500 lbs/hour;

Lignin/Sweet Liquor Separation Belt Press, 24 Hour Production, 40,500 lbs.;

Hourly Production: 1,700 lbs/hour;

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PLET Specified: (6) Reaction tanks – 6’ X 10’ with frame work;

Impregnation Tanks: 10’ x 10’ with frame work and tank bottom augers; and

10.

Other equipment not included: a.

Spray Driers for Lignin;

Fermenting Tanks for the Sweet Liquor;

Scales & Loading; and

Wood Chip Storage Tanks

Table # 18 Daily Requirements for Chemicals and Water Description Requirement Estimated Cost/L Water 250,000 L $ 0.002 Nitric Acid 3,000 L .60 Ammonia 2,500 L .60 NaOH 6,500 L .55 Sulphuric Acid 3,500 L .20 Total Daily Costs

Daily Cost $ 500.00 $ 1,800.00 $ 1,500.00 $ 3,575.00 $ 700.00 $ 8,075.00

Assumptions: 1.

The plant will be operating for 11 months each year (334 days);

There will be non-recurring costs for setting up the chemicals on day one and for ―cleaning‖ the system each 6 months thereafter but these costs have been amortized over the daily cost estimates;

These relate to an impregnation solution of 10%, which can be utilized for a 50% green/50% dead pine wood sawdust; and

Estimated costs from chemicals were given to us in ―delivered‖ costs in Canadian funds. Depending on the scale up of the plant and the quantities ordered, we believe that there are significant savings in these costs estimates. The prices are very dependent on shipping distance and mode (i.e. rail car, truck etc.) of transportation. These costs relate to a 36 Ton (Metric Ton) per day of operation. A metric ton is 1000 KG or approximately 2,200 pounds (1.1 US Tons). hence daily input per 36 Ton Reactor is 79,200 pounds per day.

Specifications of Acids: 99 “Committed to Innovation and Community”

Nitric Acid – 56% and 67% per dry metric ton;

Ammonia – aqua;

Sulphuric Acid – 96% regent ret; and

Caustic Soda – LIQ 50% - MEM (Wet).

Table # 19 Production Out Put for 36T Input of Feedstock/ Day Product Produced

% Output Per Ton 45% 19% 36%

Cellulose Lignin HemiCellulose

# Tons Produced Per Day 16.2 6.8 13

# Tons Produced Per Month 486 204 390

# Tons Produced Per Year 5,410.80 2,271.20 4,342.00

Sales Price Per Ton $ 550.00/T $ 1,700.00/T $ 300.00/T

Plant Production 1.

Operates with 4 shifts, 24 hours/day, 7 days/week;

Single operation (1 36T Reactor) can be set up in a building 20m x 20m (20meters = 65.616 feet) Including some space for an office and reasonable storage. If you add in the holding area for a week’s worth of bio-input, we estimate that the total facility would occupy about 1 acre. This greatly depends on access and egress roads;

Utilities consumption per Ton of raw material = $18 US per Ton; and

Percentage of Water for wet Ton = 18% average.

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Table # 20 Energy Balance; Based on Processing 36T Sawdust Daily

Source: Pure Lignin Environmental Technologies, Ltd.

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Table # 21 Mass Balance; Based on Processing 36T Sawdust Daily

Source: Pure Lignin Environmental Technologies, Ltd.

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PLET Pilot Plant Over the past 10 years PLET has had several independent tests performed confirming the quality of its products. Initial testing on many different types of biomass was performed at the Technological Institute in Durango, Mexico and also at Econotech Labs in Vancouver, British Columbia. Positive results were consistent with all types of vegetation. Since building the 2nd generation pilot plant two years ago, at least 5 other companies have tested PLET's products in their own specific applications, also with positive results. Last year further independent testing was performed on the products from our second-generation pilot plant by Paprican (Forestry division) at University of British Columbia, Vancouver B.C. As expected, most of the results were positive. However, some of the testing they did was based on their experience with traditional style Kraft Pulping Process. They were not familiar with the CRP process and the unique aspects of PLET products, and did not have the equipment necessary to fully analyze all aspects and properties. Hence, their report was incomplete in a number of areas. Several years ago PLET had a pessimist/optimist review done on their business model by an internationally recognized accounting firm, resulting in a very positive economic forecast. Their recently updated costing model, including operational and construction budgets, continue to show a very lucrative business model. 1.

To date, PLET has performed over 40 separate test runs of 100 kg. biomass input each, in the 2nd generation plant, producing at least 800 kg. of lignin;

Time and money have been their only limitations;

Laboratory testing has been performed on about 45-50 of the different types of vegetation in the world, all of which produced a high quality lignin, although yields vary depending upon the different types of biomass, i.e.: there is more lignin in hard wood than in soft wood; and

PLET is currently negotiating several different licensing agreements globally and expects to have a commercial facility (either one of its own or one that is constructed by a licensee) up and operating within the next 10 - 12 months.

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Image # 5 PLET Pilot Plant Photo #1

Chips cooking off in reaction vessel

For the second year in a row PLET will receive $100,000 funding from the Canadian government under NRC-IRAP (National Research Council - Industrial Research Assistance Program). Image # 6 PLET Pilot Plant Photo #2

1st pressed pulp & washed lignin

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Image #7 PLET Pilot Plant Photo #3

Lignin in drum filter

Image #8 PLET Pilot Plant Photo #4

Pulp after spin cycle – Lignin black liquor removal

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Image #9 PLET Pilot Plant Photo #5

Imp tank with knife gate

Image #10 PLET Pilot Plant Photo #6

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Pressed out cellulose cake

Image #11 PLET Pilot Plant Photo #7

Lignin-Sweet Liquor Separation

Image #12 PLET Pilot Plant Photo #8

#1 Side view of reaction vessel

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Image #13 PLET Pilot Plant Photo #9

View of pulp press with reaction vessel

Design and Engineering As previously stated E3 Energy Partners will provide engineering services for the project. The Company believes E3 Energy Partners qualifications and reputation as a premiere engineering firm with domestic and international clients provides the project with the authoritative evidence that its advanced biofuels refinery will be designed and engineered so as to meet its intended purposes,. will ensure public safety and will comply with applicable laws, regulations, agreements, permits, codes and standards. Lignin Pre-Treatment Process Monitoring Equipment The Lignin Pre-Treatment process licensed to the Company by PLET will be off the shelf equipment and will be computer monitored on most everything including alarm systems on the instrumentations as required There will be some of the monitoring on the following: 1.

pH;

Temperature;

High / low tank levels;

Spill and/or leak alarms on all acid - caustic transfer flow lines and in the spill containment areas where the tank storage areas are.

Processing time controls for impregnation;

Cook and reaction cook times;

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Load cell controls for the impregnation tanks for weight measurement

Pump and filter flow controls; and

HVAC controls for monitoring the air quality inside the building and outside.

The design will be subject to each state of Tennessee regulations. Some of the off the shelf equipment will have individual monitoring and control systems on them, such as the belt presses, lignin/sweet liquor separation disk separators, which will then be tied into the main control computer.

Designed specifications are as follows:

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Image #14 Impregnation Tank Assembly

Source: Pure Lignin Environmental Technologies, Ltd.

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Image # 15 Lignin Pre-Treatment Plant Assembly

Source: Pure Lignin Environmental Technologies, Ltd.

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Image #16 LP1 Isometric

Source: Pure Lignin Environmental Technologies, Ltd.

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Image #17 LP1 Side view

Source: Pure Lignin Environmental Technologies, Ltd.

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Timing of Major Component Replacement or Rebuild All of the major structural components will be designed based upon PLET specifications. The structural for each Impregnation Tank and Reaction Vessel have been designed in modular design, so that it becomes almost "plug in and operate" set up. All of the structural components are standard steel mill supply, so there will not be a problem with purchasing the equipment. Unless a major type of equipment hits the structure, there should not be a requirement to replace any of the structure. The conveyor systems are set up in 20' units and drop in place on the structure. The conveyors are all set up so that they are serviced from the outside of the structure system. The plant will be supplied with an extra Reaction Vessel and Maintenance Rack, so that if there is a major maintenance requirement, it can be unplugged from electrical and supply lines and lifted out of it structure. Afterwards, the stand by Reaction Vessel is put into its place. The Reaction Vessel requiring repairs, is then placed into the Maintenance Rack for repairs. That allows for minimum down time of the production line. PLET estimates a short repair time (one hour for the 36T Reactor) to pull a Reaction Chamber and place the stand by unit into its place and reconnect the electrical and flow lines. PLET does not expect that there will be much replacement maintenance on the Reaction Vessels. The repaired Reaction Vessel then becomes the stand by unit. The Costs and Labor Associated with Maintenance of Equipment The Company has estimated a maintenance expense of $1,700,000.00 for year one. PLET suggests that it would be similar to other types of processing plants. The tanks and conveyors are of 304 stainless steel construction. The Reaction Vessel is the only unit with many moving parts and those are limited to the bottom bearing and the mid support bearings for the auger and wiper blades. The motors on the Reaction Vessel, auger on the impregnation tank and the augers on the conveyors are all direct drive, variable speed, so there are no drive chains to require maintenance. The plant would operate 24/7 and it expects a full employee force to operate the entire facility.

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Section F:

Financial Feasibility Determinations

The accompanying financial projections and assumptions present fairly, in all material respects, the future financial position of The Company as of May 1, 2011 and the projected results of its operations and its cash flows for each of the thirty years of the useful life of the plant. These financial statements are the responsibility of the Company’s management. Planning is a dynamic process. As new data are derived, market circumstances evolve and direct experience is acquired within the target market, revisions will become necessary as dictated by the essence of successful planning. Until that time arrives, the Company’s financials provide insight into the efficacy of business prospects as predictors of potential and profitability. See Table # 1; Project Financial Statements. The following financials have been derived from recognized government and industry sources. All calculations have been derived according to General Accepted Accounting Principles (―GAAP‖) assuming an accrual basis. These financials have also been prepared utilizing conservative estimates; thus, are not designed to be either optimistic nor pessimistic. The business scenario that management derived from these data indicate adequate potential to justify the Company’s entry into the cellulosic ethanol, lignin and electrical power markets proposed within this application for funding assistance. GAAP are varied but based on a few basic principles that must be upheld by all GAAP rules. These principles include consistency, relevance, reliability, and comparability. Consistency means that all information should be gathered and presented the same across all periods. For example, a company cannot change the way they account for inventory from one period to another without noting it in the financial statements and having a valid reason for the change. Relevance means that the information presented in financial statements (and other public statements) should be appropriate and assist a person evaluating the statements to make educated guesses regarding the future financial state of a company. Reliability means simply that the information presented in financial statements is reliable and verifiable by an independent party. Basically a company must confirm that if an independent auditor were to base their reports off of the same information that they would come up with the same results. Following this GAAP also means that the company is representing a clear picture of what really happened, is happening or will happen with their company. Comparability is one of the most important GAAP categories and one of the main reasons having something similar to GAAP is necessary. By ensuring comparability, a company’s financial statements and other documentation can be compared to similar businesses within its industry. The importance of this principle cannot be overstated, as without comparability investors would be unable to discern differences between companies within an industry to benchmark how a company is doing compared to its peers.

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Table # 22 Project Financial Statements STATEMENT # Financial Statement #1 Financial Statement #2 Financial Statement #3 Financial Statement #4 Financial Statement #5 Financial Statement #6 Financial Statement #7 Financial Statement #8 Financial Statement #9

DESCRIPTION Total Development Costs Budget Project Cost Summary Sources and Uses of Funds Statement Income Statement Thirty Year Pro forma Notes to Income Statement Thirty Year Pro forma Three Year Projected Balance Sheet Thirty Year Cash Flow Statement Elements of Development Costs Procurement Expense Schedule

Generally accepted accounting principles (GAAP) ensures that all companies are on a level playing field and that the information they present is consistent, relevant, reliable, and comparable. Reliability of Financial Projections and Assumptions Financial Projections In order to insure the reliability of its financial projections and assumptions, the Company sought the expert advice of various individuals on its development team to develop the data necessary to prepare its financials. All financial projections were performed by management with the assistance of the following: a.

E3 Energy Partners – Provided capital cost projections based upon the following: i.

Industry Plant and Equipment calculations;

ii.

Process engineering and construction cost estimates;

iii.

Industry Analysis of the Lignin and Furfural markets;

Pure Lignin Environmental Technologies, Ltd. – Provided detailed cost analysis of the raw material/chemical inputs, reactor costs and output yields;

Regeneration Strategies International, Inc. – Provided research on Cellulosic and biomass industry and feedstock sourcing. In addition, prepared Development Costs Budgets; and

Taylor English Duma LLP – Provided revised financial statements for the Company’s Confidential Information Memorandum. 116 “Committed to Innovation and Community”

Financial statements cannot be useful if they are based on unreliable and inaccurate recordings of transactions. There is no greater example of the garbage in, garbage out principle than financial statement preparation. The problem is that financial statement users cannot usually assess the presence of garbage simply by reading the statements. The statements may look fine, but in reality be riddled with inaccuracies. Christianson & Associates, PLLP The two main sources of financial statement inaccuracy are deliberate dishonesty and incompetence. There are two principle ways to combat these problems. The first method is to regularly hire an outside accounting firm to audit the financial statements. In an audit, the outside accountant tests reported account balances for accuracy. As importantly, the auditor tests to see that the accounting principles used in recording transactions are in conformity with GAAP and applied on a consistent basis. Despite some notorious recent audit failures involving large corporations, the auditing process, in most cases, provides a reasonable safeguard against fraudulent and inaccurate financial reporting. The second method used to prevent fraudulent and inaccurate financial reporting is the adoption of adequate internal controls. Internal controls are the policies and procedures that a business can take to safeguard its assets, insure accuracy of financial reporting, and prevent fraud. These methods are not mutually exclusive. In the best of all worlds, firms would have both good internal controls and regular audits. The Company will utilize Christianson & Associates, PLLP, (―the Accountants‖) as its CPA firm to provide accounting and asset management services. a.

Accounting Services – The Accountants, in accordance with attestation standards established by the American Institute of Certified Public Accountants, from information management provides, will compile monthly balance sheets and related statement of operations, cash flows and summaries of significant assumptions and accounting policies. On an annual basis, the Accountants will audit and review the financial statements and, accordingly will not express an opinion or any other form of assurance on them.

Asset Management Services – The Accountants will provide monthly accounting services and maintain all cash disbursements and other asset management services. In addition, the Accountants will compile, from information the Company provides, the financial statements of the Company on a monthly basis for the period in which they are engaged. They will also compare the cash expenditures to the Company’s construction budget and report variances and compliance with other specified requirements. A compilation is limited to presenting in the form of financial statements information that is the representation of management.

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In-house Bookkeeping As stated earlier, The second method used to prevent fraudulent and inaccurate financial reporting

is the adoption of adequate internal controls. The Company will hire two in house bookkeepers to adequately handle disbursements, receipts and payables. This information will be submitted on a monthly basis to the Accountants so that they will be able to adequately prepare the Company’s monthly, quarterly and annual financial statements as well as performing annual audits of Company financials. Financial Assumptions & Elements of Development Cost An assumption is a statement that is presumed to be true without concrete evidence to support it. In the business world, assumptions are used in a wide variety of situations to enable companies to plan and make decisions in the face of uncertainty. Perhaps the most common use of assumptions is in the accounting function, which uses assumptions to facilitate financial measurement and reporting. In developing Project Tennessee, the Company has made many assumptions about future financial performance. These assumptions were based on a number of factors. The following financial statements give detailed description of the assumptions made by the Company: 1.

Financial Statement # 5: Notes to Income Statement Thirty Year Pro forma;

Financial Statement # 9: Elements of Development Costs.

Cost Accounting System Assessment Cost accounting is an approach to evaluating the overall costs that are associated with conducting business. Generally based on standard accounting practices, cost accounting is one of the tools that managers utilize to determine what type and how much expenses is involved with maintaining the current business model. At the same time, the principles of cost accounting can also be utilized to project changes to these costs in the event that specific changes are implemented. The Company will implement adequate cost accounting measures to enhance productivity and maximize profitability. The Company will utilize Pavilion Technologies model based software and its Value First™ customer engagement methodology. A division of Rockwell Automation, Inc., Over the past eighteen years, Pavilion Technologies has become the leading global supplier of model-based software that improves manufacturing processes. Their customers achieve enhanced profitability through gains in process productivity and efficiency. Based on the most powerful predictive modeling software in the industry, Pavilion8- powered solutions facilitate quick response to market demands, continuous reduction of costs, consistent achievement of quality targets, and enhanced air quality. With a commitment to delivering the highest ROI in the industry, their Value First customer engagement methodology delivers predictable results. In recognition of the company’s commitment to unparalleled customer value, Frost & Sullivan honored Pavilion Technologies with the 2006 Emerging Company of the Year Award. Each year 118 “Committed to Innovation and Community”

Frost & Sullivan presents the award to a company that has demonstrated excellence in operations. The award credits the modern Pavilion8 software platform and Value-First backed industry solutions for allowing manufacturers to make better profit-impacting decisions. Citing Pavilion’s outstanding management, exceptional customer service, and positive economic impact for customers and local communities, the award underscores Pavilion’s exceptional financial growth. Pavilion Technologies was founded in 1991, leveraging intellectual capital from DuPont, Eastman Chemical, and the Microelectronics and Computer Technology Corporation (MCC) to apply neural network modeling to industrial applications. Since that time, Pavilion has advanced the field of industrial control with more than 144 patents covering modeling, predictive analytics, process control, optimization, and expert systems. Every day, teams of the brightest researchers, mathematicians, software developers, and engineering experts collaborate to produce software solutions that achieve their customers’ most critical business objectives. 1.

Pavilion Biofuels Solution - Pavilion Technologies is a leader in providing control and optimization solutions to the biofuels industry. Major biofuels companies have employed Pavilion solutions to optimize their production process while reducing environmental impact. Their patented technology has helped manufacturers increase yields, reduce operating costs, and remain compliant to environmental regulations.

Biofuels Industry Challenges - The biofuels industry is experiencing cyclical economic conditions that have been rewarding at times and challenging at others due to market fluctuations. Today the industry is faced with limited product demands, recovery from a peak season of corn commodity pricing and an oversupply of installed capacity to meet current fuel ethanol demand. Although these recent conditions have challenged biofuel producers, the industry had benefited from several years of peak profitability and continues to benefit from modern, well-designed, highly-efficient, integrated processing equipment.

Pavilion Biofuels Solution - Manufacturers continually strive to remain competitive by implementing best practices to reduce costs and optimize operations with existing assets. The foundation of biofuel production is based on traditional agricultural and green legacies. Therefore, environmental stewardship as a responsible producer within farming communities, while focusing on sustainability, continues to be an operational imperative. The key to maintaining a competitive edge is to constantly look for operational improvements, execute projects rapidly with limited operational disruptions and achieve sustained value.

Pavilion provides key benefits through innovative software applications, allowing customers to achieve faster time-to-value results and greater lifetime ROI value than alternative solutions. Ability to Achieve Projected Income & Cash Flow The growing concern over our nation’s increasing need for energy, in the form of electricity, liquid fuels and bio-chemicals and the federal government’s mandate of renewable fuel standards 119 “Committed to Innovation and Community”

coupled with governmental financial incentives has created a burgeoning need for renewable energy solutions. The Company is uniquely positioned to take advantage of this need for energy. The Company’s ability to achieve projected income and cash flow will be based upon the following: 1.

Maintaining a Healthy Balance Sheet - The balance sheet is essentially a picture of how a firm is doing at any given point in time. Rather than being over a range of time, like the income statement and other financial statements, the balance sheet represents a single moment in the company’s history. The balance sheet functionally shows the accounting equation is in balance for that company, and shows how much of the firm’s assets are equity or liability-related. Below is Financial Statement #6: Three Year Projected Balance Sheet. The projected Balance Sheet shows a healthy steady growth over the first three years of operation. The Company believes based upon its Projected Income Statement , that its Balance Sheet will continue to show growth throughout the useful life of the facility.

Management Expertise - The Company’s CEO and its tow of its five Board of Directors have direct experience in the alternative fuels industry. The Company understands that that success of an operation is based upon having seasoned executives with a depth of knowledge, experience and has a track record of successful strategy development and execution with multi-million dollar companies. To find talented executives the Company has engaged The Carter Group, LLC. www.thecartergroup.com. Established in 1994, The Carter Group has successfully provided professional search services for 16 years, recruiting leadership teams and corporate governance for many of the world’s most prominent companies. Their unique process methodology has developed for them a broad-based reputation for adding talented management that can bring brands to the top of their respective segments. As industry specialists, they are vested in the ultimate success of each executive manager or board member they place. The Company expects to hire its CFO and COO through the Carter Group.

Proven Advanced Technology – The Company believes that having a proven, patented advanced technology will help it to achieve projected income and cash flow. The Company’s production model, utilizes readily-available and inexpensive inputs to produce marketable, high-value outputs. PLET’s advanced, patented, revolutionary, green, bio-technology produces three separate, economically profitable products: commercial grade cellulose, pure lignin and Sweet liquor (sugars, hemicellulose). It combines a unique blend of chemicals and low-pressure steam in a closed-loop process which emits no emissions or pollution. The process can utilize any vegetation as its source including wastewood, Pine beetle-killed trees, sugar cane, grasses, husks etc. The facility will be much more profitable than traditional methods with costs to build and operate considerably lower than conventional processes and more revenue streams.

Continued Solid Growth in Revenues –The Company believes that continued growth from its diverse revenue streams in the cellulosic ethanol, lignin and 120 “Committed to Innovation and Community”

electricity markets as shown below will be the bases behind the it achieving its projected income and cash flows. a.

Ethanol Sales - In the early 2000s, several start-up companies developed corn-based and soybean-based ethanol plants in order to produce ethanol. U.S. policy favored the development of these liquid fuel producers through a series of excise tax credits. When world agricultural prices spiked in mid-2008, many first generation ethanol producers found that they could not acquire feedstock in the form of corn or soybeans at prices that made ethanol profitable. As a result, many first generation ethanol producers failed or halted their operations. In addition, the apparent competition of ethanol producers for edible products like corn and soybeans produced a political backlash that has tended to disfavor ethanol production based on grains. In spite of this backlash, the federal government instituted the Renewable Fuels Standard (―RFS‖). The RFS is a provision of the US Energy Policy Act of 2005 that mandated 7.5 billion gallons of renewable fuels by 2012. United States currently produces 5 billion gallons of ethanol. In addition, the ―Food Conservation and Energy Act of 2008‖ mandated that producers of cellulosic ethanol or ethanol produced from non-food sources are entitled to a $1.01 subsidy for every gallon of cellulosic ethanol produced. The Company is projecting to receive $15,150,000.00 from Year #1 production of 15MMGY of cellulosic ethanol and $20,200,000.00 from Year #2 production of 20MMGY of cellulosic ethanol. The Company’s Income Statement stops the ethanol subsidy of $1.01 per gallon in year two because it expires in December 31, 2012. The Company’s Income Statement does not assume the re-instatement of the subsidy once it expires. It should be noted that without the subsidy the Company still predicts a positive income from operations of $41,120,208.00 in Year #1 and $45,211,676.00 in Year #2.

Lignin Sales - According to the U.S. National Center for Environmental Research, the U.S. produces some 26 million tons of lignin each year but as to the quality they find that: ‖Despite the judicious schemes devised for fractionating and derivatizing the lignin preparations employed by the traditional Kraft Pulping process which is the current technology in use, the optimum lignin contents in these polymeric materials have typically fallen in a range of 25 to 40%. Even in this low grade form of Lignin is a highly consumed product with a large number of uses. The value of Lignin per ton is normally twice that of pulp even in such low quality. Our test results to date, furnished by PLET our technology provider, have shown that as a by-product of making cellulose, we can produce an 83% pure lignin that contains 17% impurities, the purest lignin produced in the world. The Company believes that with a simple washing process the lignin can reach a purity level between 95% and 99%. Current lignin 121 “Committed to Innovation and Community”

prices range from $200 to $3,000 per Ton. The Company’s financial model estimates that it will sell its LMW lignin for $500 per Ton and its high molecular weight (―HMW‖) Lignin for $1,700 per Ton. The company estimates Year # 1 lignin sales of $81,600,000.00. c.

Electricity Sales - From 1995 to 2007, total U.S. electricity consumption increased by 24% even while the price of electricity also rose by 32.5%. From 1990 to 2008 the U.S. consumption of petroleum rose 36.5% even though the price of oil also increased over the same time period by 117%. The U.S. Department of Energy, Energy Information Administration predicts that U.S. electricity consumption will continue to rise by 26% from 2007 through 2030, notwithstanding pending improvements in energy efficiency. Based upon the Company’s Income Statement it is projecting electricity sales in Year #1 of $ 7,956,245.00 and $5,141,602,022 by Year #30 (the useful life of the plant) with a total of $25,676,185,200 over the facility’s useful life.

Continued Government Support of the Biofuels Industry – On a local, state and federal level the continued offering of economic development incentives to developers of bio refineries are a major component to ensuring that the Company achieves its projected income and cash flows. Without the credit enhancement of such federal programs and the Biorefinery Assistance Program and DOE’s Loan Guarantee program, the development of advanced biofuels would be stagnated; thus, the mandates of the Renewable Fuels Standard would be unattainable.

Availability of Short Term Credit Regardless of a company’s industry or financial condition, access to short-term credit is critical to normal operations. For some companies, short-term credit serves as a source of liquidity that allows them to manage through periods of cash flow shortfalls resulting from seasonal or cyclical business slowdowns or payment imbalances. In other cases, short-term credit provides a safety net that gives companies the confidence to use cash on hand to build new plants, invest in productivity-enhancing equipment, pursue strategic acquisitions, or expand their workforce. Without confidence in their ability to draw on credit lines and other sources of short-term credit, companies would be less willing to deploy their cash in longer-term investments that are beneficial to the company, its stakeholders, and the economy as a whole. As a result of the Great Recession, a number of events have increasingly shaken the stability of and confidence in financial markets. In 2007, growing concern about defaults on subprime mortgages and declining home prices rattled capital markets. Many lenders and other financial entities that invested in the structured products related to subprime mortgages took significant write-downs, impairing their capital positions and raising fears about their ability to extend credit. More recently, the government takeover of Fannie Mae and Freddie Mac, the bankruptcy of Lehman Brothers, and the government rescue of AIG, have exacerbated the difficulties in the 122 “Committed to Innovation and Community”

credit markets. Banks have significantly reduced the number of new credit facilities they are originating, and some are attempting to pull out of or reduce their participation in existing commitments. As of this writing the U.S. economy is struggling to come out of the Great Recession. According to the U.S. Bureau of Labor Statistics the national unemployment rate is 9.7 percent. Today, traditional financial institutions are reluctant to issue short term credit, especially to start organizations such as the Company. Understanding that even in the best economies, companies must have access to short term credit for their survival, the Company will utilize the following to meet seasonal business costs: 1.

Trade Credit - is an arrangement to buy goods or services on account, that is, without making immediate cash payment . For many businesses, trade credit is an essential tool for financing growth. Trade credit is the credit extended to a company by suppliers who let the company buy now and pay later. Trade Credit provides one of the most flexible sources of short-term financing available to the firm. It is a primary source of spontaneous, or on-demand financing - arise spontaneously with the firmâ&#x20AC;&#x2122;s purchases. However, effective use of trade credit requires intelligent planning to avoid unnecessary costs through forfeiture of cash discounts or the incurring of delinquency penalties. The Company will take full advantage of trade that is available without additional cost in order to reduce its need for capital from other sources.

Asset Backed Lending - In the simplest meaning, asset-based lending is any kind of lending secured by an asset. This means, if the loan is not repaid, the asset is taken. In this sense, a mortgage is an example of an asset-backed loan. More commonly however, the phrase is used to describe lending to business and large corporations using assets not normally used in other loans. Typically, these loans are tied to inventory, accounts receivable, machinery and equipment, but they can also include exotic things like the value of pharmacy script files, a trademark, or whole assets of intellectual property. An asset based business line of credit is usually designed for the same purpose as a normal business line of credit - to allow the company to bridge itself between the timing of cash flows of payments it receives and expenses. The primary timing issue involves what are known as accounts receivables - the delay between selling something to a customer and receiving payment for it. A non asset based line of credit will have a credit limit set on account opening by the accounts receivables size, to ensure that it is used for the correct purpose. An asset based line of credit however, will generally have a revolving credit limit that fluctuates based on the actual accounts receivables balances that the company has on an ongoing basis. This requires the lender to monitor and audit the company to evaluate the accounts receivables size, but also allows for larger limit lines of credits, and can allow companies to borrow that normally would not be able to. Generally, terms stipulating seizure of collateral in the event of default allow the lender to profitably collect the money owed to the company should the company 123 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

default on its obligations to the lender. Two types of asset backed lending includes factoring and pledging accounts receivables. By maintaining a strong balance sheet, the Company anticipates to use its assets, when necessary, to obtain the capital necessary to meet its obligations. 3.

Accrued wages and taxes - Because most businesses pay their employees only periodically, accrued wages = a loan from their employees. Firms generally make quarterly income tax payments, - accrued taxes = a loan from government (indirectly). These sources of financing rise and fall spontaneously with the level of firm sales. The Company will utilize this form of short term credit only as a last resort to other sources of short term credit discussed above.

Adequacy of Raw Materials and Supplies The Company believes that the numbers that it has obtained for raw materials for the project are in sync with industry averages. As stated earlier, the company utilized the expert advice of Dan Parker of E# Energy Partners, its process engineer, who has developed large biorefineries throughout the world as well as data from PLET its technology provider. In addition, the Company contacted various chemical producers and suppliers throughout the country to obtain quotes for the following raw materials: 1.

Nitrogen;

Ammonia;

Sodium Hydroxide; and

Sulfuric Acid etc.

The numbers outlined in the various financial statements for its raw materials are based upon the Company’s best estimate. The adequacy of the wood wastes raw material is based upon the Company’s agreement with The Price Companies who has agreed to supply the Company with up to 400,000 tons per year of wood waste at a cost of $45 per ton. Sensitivity Analysis The sensitivity of project profitability (as measured by IRR) to the following critical variables was also evaluated: 1. 2. 3. 4. 5. 6.

Ethanol plant size; Delivered feedstock cost; Feedstock composition (% moisture); Ethanol selling price; Owner equity; Ethanol facility capital cost; 124 “Committed to Innovation and Community”

7. 8.

Annual manufacturing cost; and Annual direct labor cost.

Sensitivity analyses were performed for the PLET Hydrolytic Catalytic Reactor Process (―CRP‖) at the Jasper, TN site only because this site and process has a high IRR. Again, owner equity was assumed to be 42.18% with 7.25% interest on the remaining debt. The results are summarized in Table # __ below. The IRR is most sensitive to feedstock cost and owner equity. Ethanol plant size, annual manufacturing cost, ethanol selling price, ethanol facility capital cost, and feedstock composition all display moderate sensitivities. A 30% change in direct labor cost has relatively little effect on the IRR. A graph of the IRR versus feedstock cost for the PLET technology at the Jasper, TN site follows (Figure 2). Table # 23. Summary of Sensitivities SENSITIVITY VARIABLE & RANK HIGH TO LOW 1. Delivered Feed Stock

SENSITIVITY RANGE

CORRESPONDING IRR RANGE

$45 - $0 per BDT feedstock

2. Owner Equity

43% - 5%

3. Ethanol Plant Size

5 – 30 MMGY

4. Annual Manufacturing Costs

+/- 20% of Manufacturing Cost

5. Ethanol Selling Price

$1.50 - $1.88/ Gallon

6. Ethanol Facility Capital Cost

+/- 30% of Capital Cost

7. Feedstock Composition

50% moisture

8. Annual Direct Labor Cost

+/- of Direct Labor Cost

1% to 44% (43%) 11% to 50% (39%) 0% - 31% (31%) 9% to 38% (29%) 11% to 36% (25%) 17% to 37% (20%) 14% to 34% (20%) 23% to 28% (5%)

Environmental Issues Off-Site Environmental Impacts The potential environmental effects of operating a commercial-scale biomass-to-ethanol plant include both the on-site and off-site impacts surrounding the production facility. The on-site environmental impacts (as well as local community impacts) are discussed in the site- specific evaluations conducted by Regeneration Strategies Internal, Inc. (―RSI‖) feasibility study conducted in July 2008. The RSI study reviewed various environmental and infrastructure factors at the three study sites in Southeastern Tennessee and the Mississippi Delta region. 125 “Committed to Innovation and Community”

Cellulose biomass material will be generated from both public and private forest lands within at least a 75-mile radius of the facility. Ward Consulting Services, Inc. Feedstock Supply and Delivery Systems report (April 2009) predicts an available and sustainable, annual supply of 400,000 Bone Dry Tons (BDT), dependent upon site. Sources of biomass will be timber harvesting by-products, certain lumber mill residues as well as forest fuels reduction treatments. Environmental reviews and public participation processes that are prerequisites for authorizing biomass harvest differ between land ownership types. On private timberlands, the Tennessee Department of Environment and Conservation govern timber harvest practices. Biomass harvest activities on National Forest System lands must be subjected to National Environmental Policy Act (NEPA) reviews and public participation processes of the U.S. Forest Service. Projects on federal lands must also have the environmental review conducted within the current regional or national context, which must take into account the "latest science." The typical kinds of environmental concerns that arise from timber harvest and biomass harvest activities include the effects of roads and landings, riparian zone and water quality impacts, fuel loadings and arrangements, wildlife disturbances, and changes in suitability of wildlife habitats. Generically, these can be grouped into soil, water and wildlife impacts. Feedstock costs Feedstock costs for Project Tennessee in Year #1 are as follows: Table # 24 Feedstock Costs FEEDSTOCK

YEAR #1

Ann. Prod. Units

Cost/Unit

Annual Cost/

Cost/Gal.

Revenue

Produced

Raw Materials Wood Chips

$ 8,032,500.00

178,000.00

tons

45.00

$ 8,032,500.00

2.52

Nitrogen

$ 1,164,240.00

3,528,000.00

ccf

0.33

$ 1,164,240.00

0.04

Ammonia

$ 2,940,000.00

1,050,000.00

gal

2.80

$ 2,940,000.00

0.10

Sodium Hydroxide

332,500.00

1,750,000.00

0.19

332,500.00

0.01

Sulfuric Acid

63,000.00

1,260,000.00

0.05

63,000.00

0.00

Other Raw Materials

$ 2,547,568.00

Total Feedstock Costs

$ 15,079,808.00

Energy Costs Energy Cost for Project Tennessee in Year #1 are as follows:

126 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

Table # 25 Energy & Replacement Costs Wastewater

$ 8,820,000.00

0.59

Filter Resin

161,875.00

252,000,000.00 875.00

gallons ton

$185,000.00

0.35

161,875.00

0.01

Other (Filter Media, etc.)

393,750.00

175,000.00

2.25

393,750.00

0.03

Electricity

$ 6,450,000.00

51,600,000.00

kwh

0.13

$ 6,450,000.00

0.43

Natural Gas

$ 23,507,400.00

24,360,000.00

Water

685,471.00

Filters

Ion Exchange Resin Chiller Refrigerant

53,880.00

Carbon Filter

Ethanol Dryer Substrate

Misc. (Gaskets, Bearing etc.)

therms

0.97

$ 23,507,400.00

1.57

35,701.00

ccf

1.90

685,471.00

0.05

112,275.00

4,500.00

$ 24,950.00

112,275.00

0.01

$ 1,640,500.00

85,000.00

$ 19,300.00

$ 1,640,500.00

0.11

6,000.00

$ 8,980.00

53,880.00

0.00

28,000.00

800.00

$ 35,000.00

28,000.00

0.00

85,000.00

6,800.00

$ 12,500.00

85,000.00

0.01

450,000.00

1.00

lot

$ 450,000.00

450,000.00

0.03

Periodic Major Replacements

Total Energy & Replacement Costs

$ 42,388,151.00

Product and co-product prices for Project Tennessee in Year #1 are as follows: Table # 22 Product/Co-Product Prices REVENUES:

YEAR #1

Ann. Prod. Units

Ethanol

$ 27,450,000.00

10,000,000.00

Lignin

$ 81,600,000.00

48,000.00

Electricity

Total Revenues/Cost Products Sold

$117,006,245.00

7,956,245.00

Cost/Unit

Annual Cost/

Cost/Gal.

Revenue

Produced

gal

1.83

$ 27,450,000.00

1.83

ton

$ 1,700.00

$ 81,600,000.00

1,700.00

1,701.83

$ $ 1,701.83

7,956,245.00

$117,006,245.00

Risks Related to the Project All business ventures have inherent risks associated with it. The Company has identified some possible problem areas that, without proper attention could slow progress with short and long term plans for the future and jeopardize its goals. Environmental Risks The Company may be adversely affected by environmental, health and safety laws, regulations and liabilities. It will become subject to various federal, state and local environmental laws and regulations, including those relating to the discharge of materials into the air, water and ground, the generation, storage, handling, use, transportation and disposal of hazardous materials, and the health and safety of our employees. In particular, each ethanol plant the Company intends to operate will be subject to environmental regulation by the state in which the plant is located and by the EPA. These laws, regulations and permits can often require expensive pollution control equipment or operational changes to limit actual or potential impacts on the environment. A 127 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

violation of these laws and regulations or permit conditions can result in substantial fines, natural resource damages, criminal sanctions, permit revocations and/or facility shutdowns. In addition, to construct and operate its biorefineries, it will need to obtain and comply with a number of permit requirements. As a condition to granting necessary permits, regulators could make demands that increase its costs of construction and operations, in which case it could be forced to obtain additional debt or equity capital. Permit conditions could also restrict or limit the extent of its operations. The Company cannot assure that it will be able to obtain and comply with all necessary permits to construct its ethanol plants. Failure to obtain and comply with all applicable permits and licenses could halt its construction and could subject it to future claims. Environmental issues, such as contamination and compliance with applicable environmental standards could arise at any time during the construction and operation of its biorefineries. If this occurs, it would require the Company to spend significant resources to remedy the issues and may delay or prevent construction or operation of its biorefineries. This would significantly increase the cost of these projects. It may be liable for the investigation and cleanup of environmental contamination at each of the properties that it owns or operates and at off-site locations where it arranges for the disposal of hazardous substances. If these substances have been or are disposed of or released at sites that undergo investigation and/or remediation by regulatory agencies, it may be responsible under the CERCLA or other environmental laws for all or part of the costs of investigation and/or remediation, and for damages to natural resources. The Company may also be subject to related claims by private parties, including its employees and property owners or residents near its plants, alleging property damage and personal injury due to exposure to hazardous or other materials at or from those plants. Additionally, employees, property owners or residents near its biorefineries could object to the air emissions or water discharges from its facilities. Ethanol production has been known to produce an unpleasant odor. Environmental and public nuisance claims or toxic tort claims could be brought against the Company as a result of this odor or our other releases to the air or water. Some of these matters may require us to expend significant resources for investigation, cleanup, installation of control technologies or other compliancerelated items, or other costs. In addition, new laws, new interpretations of existing laws, increased governmental enforcement of environmental laws or other developments could require it to make additional significant expenditures. Continued government and public emphasis on environmental issues can be expected to result in increased future investments for environmental controls at its production facilities. The hazards and risks associated with producing and transporting its products (such as fires, natural disasters, explosions, and abnormal pressures and blowouts) may also result in personal injury claims by third parties or damage to property owned by the Company or by thirdparties. As protection against operating hazards, it intends to maintain insurance coverage against some, but not all, potential losses. However, it could sustain losses for uninsurable or uninsured events, or in amounts in excess of existing insurance coverage. Events that result in significant personal injury to third-parties or damage to property owned by it or third-parties or other losses that are not fully covered by insurance could have a material adverse effect on its business, results of operations and financial condition.

128 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

Management Risks The Company’s management’s time and attention will be divided among its biorefineries, and will be part of one common management strategy. Its business model calls for it to form whollyowned business entities to own each of its biorefineries, which will be managed by a centralized management team. The demands on its management’s time from one plant may, from time to time, compete with the time and attention required for the operation of other plants. This division of its management’s time and attention among its plants may make it difficult for it to realize the maximum return from any one plant. Further, to reduce expenses and create efficiencies, the Company intends to manage each of its plants in a similar manner. This common management strategy may also result in difficulties in achieving the maximum return from any one plant. If its common management strategy is not successful or if it is not able to address the unique challenges of each plant, the impact of this arrangement likely will be spread among all of its plants, resulting in greater potential harm to its business than if each plant were operated independently. Technological Risks Technological advances could significantly decrease the cost of producing ethanol or lignin resulting in the production of higher-quality ethanol, and if the Company is unable to adopt or incorporate technological advances into its operations, its proposed plants could become uncompetitive or obsolete. The Company expects that technological advances in the processes and procedures for processing ethanol and lignin will continue to occur. It is possible that those advances could make the processes and procedures that it intends to utilize at its ethanol plants less efficient or obsolete, or cause the ethanol it produces to be of a lesser quality. These advances could also allow its competitors to produce ethanol and lignin at a lower cost. If it is unable to adopt or incorporate technological advances, its ethanol, lignin and electricity production methods and processes could be less efficient than those of its competitors, which could cause its plants to become uncompetitive. Ethanol production methods are also constantly advancing. The current trend in ethanol production research is to develop an efficient method of producing ethanol from cellulose-based biomass such as agricultural waste, forest residue and municipal solid waste. This trend is driven by the fact that cellulose based biomass is generally cheaper than corn and producing ethanol from cellulose-based biomass would create opportunities to produce ethanol in areas that are unable to grow corn. Another trend in ethanol production research is to produce ethanol through a chemical or thermal process, rather than a fermentation process, thereby significantly increasing the ethanol yield per pound of feedstock. If it is unable to adopt or incorporate these advances into its operations, its cost of producing ethanol could be significantly higher than those of its competitors, which could make its plants obsolete. Modifying its plants to use the new inputs and technologies will likely require material investment. In addition, alternative fuels, additives and oxygenates are continually under development. Alternative fuel additives that can replace ethanol may be developed, which may decrease the demand for ethanol. It is also possible that technological advances in engine and exhaust system design and performance could reduce the use of oxygenates, which would lower the demand for ethanol and its business, results of operations and financial condition may be materially adversely affected.

129 “Committed to Innovation and Community”

Financing Risks The Companyâ&#x20AC;&#x2122;s future debt financing agreements may contain restrictive covenants that limit distributions and impose restrictions on the operation of its business. Its failure, or the failure of any of its subsidiaries, to comply with applicable debt financing covenants and agreements could have a material adverse effect on its business, results of operations and financial condition. It will need a significant amount of additional debt financing to complete its projects and operate its plants following construction, but it may not be able to obtain additional debt financing on acceptable terms or at all. The use of debt financing makes it more difficult for it to operate because it must make principal and interest payments on the indebtedness and abide by covenants contained in its debt financing agreements. The level of its debt may have important implications on its operations, including, among other things: 1.

Limiting its ability to obtain additional debt or equity financing;

Making it vulnerable to increases in prevailing interest rates;

Placing the Company at a competitive disadvantage because it may be substantially more leveraged than some of its competitors;

Subjecting all or substantially all of its assets to liens, which means that there may be no assets left for shareholders in the event of a liquidation;

Limiting its ability to adjust to changing market conditions, which could make it more vulnerable to a downturn in the general economic conditions of its business; and

Limiting its ability to make business and operational decisions regarding its business and our subsidiaries, including, among other things, limiting its ability to pay dividends to its shareholders, make capital improvements, sell or purchase assets or engage in transactions it deems to be appropriate and in its best interest.

The terms of its existing debt financing agreements contain, and any future debt financing agreement it enters into may contain, financial, maintenance, organizational, operational and other restrictive covenants. If it is unable to comply with these covenants or service its debt, it may lose control of its business and be forced to reduce or delay planned capital expenditures, sell assets, restructure its indebtedness or submit to foreclosure proceedings, all of which could result in a material adverse effect upon its business, results of operations and financial condition. Its debt arrangements may also include subordinated debt, which may contain even more restrictions and be on less favorable terms than its senior debt. To secure subordinated debt, it may have to give the lender warrants, put rights, conversion rights, the right to take control of its business in the event of a default or other rights and benefits as the lender may require. The Company may secure its debt financing directly or through the wholly-owned subsidiary entities it have established to operate each of its plants. Regardless of the structure, its debt financing arrangements will contain various covenants and agreements and may contain cross-acceleration and cross-default provisions. Under these provisions, a default or acceleration of one debt 130 â&#x20AC;&#x153;Committed to Innovation and Communityâ&#x20AC;?

agreement will result in the default and acceleration of its other debt agreements (regardless of whether it were in compliance with the terms of such other debt agreements), providing the lenders under such other debt agreements has the right to accelerate the obligations due under such other debt agreements. Accordingly, a default, whether by the Company or any of its subsidiaries, could result in all of its outstanding debt becoming immediately due and payable. The application of cross-acceleration or cross-default provisions means that its compliance, and its subsidiaries’ compliance, with applicable debt covenants and agreements will be interdependent and one default (including a default by one of its subsidiaries) could have a material adverse effect on its business, results of operations and financial condition. Stock Risks After the inception of its Initial Public Offering (―IPO‖), the market price of its common stock may be volatile. Securities markets worldwide experience significant price and volume fluctuations, in response to general economic and market conditions and their effect on various industries. This market volatility could cause the price of the Company’s common stock to decline significantly without regard to its operating performance. In addition, the market price of its common stock could decline significantly if its future operating results fail to meet or exceed the expectations of public market analysts and investors. The volatility in our stock price could be based on various factors, including: 1.

Actual or anticipated fluctuations in its operating results;

Actual or anticipated changes in its growth rates or its competitors’ growth rates;

Conditions in its industry generally;

Conditions in the financial markets in general or changes in general economic conditions such as the Great Recession;

Its ability to raise additional capital; and

Changes in market prices for ethanol, lignin, and its raw materials, such as wood wastes or natural gas.

Some view risks and opportunities as different sides of the same coin. The Company is of the ideology that with risks come opportunities for success. Borrower Financing Plan The Company’s financing plan which is part of its overall business strategy is to develop its projects utilizing the traditional economic development model of Public Private Partnerships (―PPP‖). A PPP is a contractual agreement between a public agency (federal, state or local) and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility. In addition to those sharing of resources, each party shares in the risks and rewards potentials in the delivery of the service and/or facility. 131 “Committed to Innovation and Community”

Sectors where PPPs have been useful include: 1.

Transportation;

Water/Wastewater;

Urban/Rural Development;

4. 5. 6.

Energy; Financial Management; and Schools

Successful PPPs balance the strength of both sectors . There are six critical components of any successful PPP. While there is not a set formula or an absolute foolproof technique in crafting a successful PPP, each of these keys is involved in varying degrees. 1.

Statutory and Political Environment - A successful partnership can result only if there is commitment from "the top". The most senior public officials must be willing to be actively involved in supporting the concept of PPPs and taking a leadership role in the development of each given partnership. A well-informed political leader can play a critical role in minimizing misperceptions about the value to the public of an effectively developed partnership. Equally important, there should be a statutory foundation for the implementation of each partnership.

Public Sector’s Organized Structure - Once a partnership has been established, the public-sector must remain actively involved in the project or program. Ongoing monitoring of the performance of the partnership is important in assuring its success. This monitoring should be done on a daily, weekly, monthly or quarterly basis for different aspects of each partnership (the frequency is often defined in the business plan and/or contract).

Detailed Business Plan (Contract) – A company must know what to expect of the partnership beforehand. A carefully developed plan will substantially increase the probability of success of the partnership. This plan most often will take the form of an extensive, detailed contract, clearly describing the responsibilities of both the public and private partners. In addition to attempting to foresee areas of respective responsibilities, a good plan or contract will include a clearly defined method of dispute resolution (because not all contingencies can be foreseen).

Guaranteed Revenue Stream - While the private partner may provide the initial funding for capital improvements, there must be a means of repayment of this investment over the long term of the partnership. The income stream can be generated by a variety and combination of sources (fees, tolls, shadow tolls, tax increment financing, or a wide range of additional options), but must be assured for the length of the partnership. 132 “Committed to Innovation and Community”

Stakeholder Support - More people will be affected by a partnership than just the public officials and the private-sector partner. Affected employees, the portions of the public receiving the service, the press, appropriate labor unions and relevant interest groups will all have opinions, and frequently significant misconceptions about a partnership and its value to all the public. It is important to communicate openly and candidly with these stakeholders to minimize potential resistance to establishing a partnership.

Pick Your Partner Carefully - The "lowest bid" is not always the best choice for selecting a partner. The "best value" in a partner is critical in a long-term relationship that is central to a successful partnership. A candidate's experience in the specific area of partnerships being considered is an important factor in identifying the right partner.

As stated above, one of the main factors of managing for a successful PPP is that political leadership by the leading political figure must be in place. For Project Tennessee, the Company has established a working relationship with the Honorable Mayor Howell Moss, County Mayor of Marion County Tennessee. Through Mayor Moss’ leadership, the County has committed to allocating $20,000,000.00 in Industrial Development Bonds, through its Industrial Development Board. In addition, the Company’s project has Letters of Support from the following: Table # 27 Political Support for Project Tennessee NAME

OFFICE HELD

Honorable Ronald Ramsey Honorable Zach Wamp

Lt. Governor, State of Tennessee U.S. Congressman Third District of Tennessee

Brent Bailey

25 X 25 America’s Energy Future

DATE OF LETTER 12/30/09 2/17/10

12/22/09

CONTACT INFO. One Legislative Plaza Phone:(615) 741-4524 Federal Courthouse Ste. 126 900 Georgia Ave. (423) 756-2342 www.25x25.org info@25x25.org

Sources of Funds In this ever changing economic environment companies must use creative financing sources in order to bring their project(s) to fruition. As per Financial Statement #3 Sources and Uses of Funds Statement, Company will utilize the following sources of funds:

Series A Financing - The Company sought an initial round of $1.5 million in Series A financing which could be accomplished through common equity, convertible preferred equity or convertible debt. This initial round of investment will be used to secure the 28 acre site where Project Tennessee is located and to pay the advisors and consultants required to pursue the full financing that Project Tennessee needs. If necessary, the Company would be willing to consider a hybrid approach in which the seed investor obtained a collateral interest in the 28 acre site until the Company was fully financed for the complete project cost. 133 “Committed to Innovation and Community”

Industrial Development Bonds - The Company has had several meetings with the local economic development authority and has received assurances that the authority would be willing to back a bond offering for $20,000,000.00 of the cost of Project Tennessee. On September 10, 2008, the Company received a Financial Commitment Letter (―FCL‖) for Morgan Keegan (www.morgankeegan.com) to purchase for their own account or the account of other the $20,000,000.00 in bonds that the Company is applying for from the Marion County Industrial Development Board. The Company has been informed by Morgan Keegan that the FCL had expired both that they would explore the re-issuance of the FCL upon the financial commitment of the Company’s other sources of funds for Project Tennessee. The USDA’s Biorefinery Assistance Program (Section 9003) , authorized by the Food, Conservation, and Energy Act of 2008, is designed to promote the development of new and emerging technologies for the production of advanced biofuels. The Biorefinery Assistance Program provides loan guarantees for the development, construction and retrofitting of viable commercial-scale biorefineries producing advanced biofuels. The maximum loan guarantee is $250 million per project subject to the availability of funds. The purpose of this program is to provide guaranteed loans for the development and construction of commercial-scale biorefineries or for the retrofitting of existing facilities using eligible technology for the development of advanced biofuels. The maximum guaranteed loan is $250 million. There is no minimum amount. The project has to be located in a rural area (50,000 or less population and not in an urbanized area) and has to be for either 1.) The development and construction of commercial-scale biorefineries using eligible technology, or 2. ) The retrofitting of existing facilities, including, but not limited to, wood products facilities and sugar mills, with eligible technology. Interest rates are negotiated between the lender and the loan guarantee is 80% for loans equal to or less than $8o million, 70% for loans in excess of $80 million up to $125 million and 65% for loans greater than $125 million. The Company with the assistance of Charter Bank in Lagrange, GA will submit its application to the USDA for the FY 2010 Section 9003 funding round. The application for assistance, which is due August 24, 2010, is in the amount of $44,899,164.00.

USDA Biorefinery Assistance Program -

Investment Tax Credit - Project Tennessee will qualify for several federal tax credits that will be capable of being monetized to support repayments to investors or the repayment of debt financing. The American Recovery and Reinvestment Act of 2009 (the ―Recovery Act‖) created two types of tax credits applicable to the production of electric power from renewable sources. First, the Recovery Act established ―production‖ tax credits (―PTC‖) of between 1 cent and 2.1 cents per kilowatt hour (kWh) of electricity produced. Second, the Recovery Act allows developers of renewable energy facilities to obtain an ―investment‖ tax credit (the ―ITC‖) of up to 30% of 134 “Committed to Innovation and Community”

the cost of developing renewable energy facilities. (The investment tax credit is subject to several limitations and requirements, including that construction on the facility commence before December 31, 2010 and that the facility be placed in service before December 31, 2011). The PTC and the ITC are exclusive. A developer of a renewable energy facility may take the 30% ITC or the PTC for each kilowatt hour of power produced, but it cannot take advantage of both programs. In addition, a project developer who elects to take the ITC may also elect to obtain a cash grant from the U.S. Treasury for the full amount of the ITC, subject to construction commencement dates and placed-in-service dates pursuant to Section 1603 of the Recovery Act. The Company would be able to utilize the ITC with respect to the biomass generator that will produce electricity from burning LMW lignin. That credit would be worth 30% of the cost of the qualifying equipment purchased for electricity production or $4,500,000.00 and would qualify for the Section 1603 Treasury grant that would provide the Company with a cash payment for the amount of the tax credit after the facility is placed in service. If properly structured, the Company could leverage the investment tax credit to repay a portion of its construction financing. 7.

Equity Investors – The Company will issue a Private Placement Memorandum (―PPM‖) in the fourth quarter of 2010 and will raise money from investors through an Initial Public Offering (―IPO‖) after five years of plant operation. In both of these, securities are sold to investors who will then have a stake in the company. The Securities and Exchange Commission (―SEC‖) requires that all companies listing themselves through an IPO to file a prospectus. Companies raising money through private placements, on the other hand, are not required to register with the SEC. The equivalent of a prospectus for a private placement is the private placement memorandum (PPM). Much like a prospectus describes the securities being offered by a publicly traded company, a private placement memorandum provides material information about the company and the securities being offered to potential investors. These are sometimes distributed by the underwriter or brokerages and are also known as "offering memorandums" or "offering circulars." Almost all PPMs contain a company history and a description of the company's business. This helps provide context for potential investors who are trying to gauge the venture's market viability and profitability. This often includes information such as founding dates, significant milestones and information about parents and subsidiaries. Financial statements include disclosures about a company's cash flow, their balance sheets, their debts and liabilities and their assets and other financial information. This is useful for investors who want to assess the company's fiscal health; if a company goes bankrupt, investors can potentially lose all of their investment. One of the key selling points of an offering is the management. As such, most PPMs contain biographies of the officers and directors of the company. This includes information about compensation, other directorships and their past achievements and affiliations. 135 “Committed to Innovation and Community”

This is useful for establishing a track record and identifying potential conflicts of interest. An important aspect of PPMs is the disclosures section. Before purchasing securities, most investors will perform extensive due diligence and background checks on the company which should reveal litigation and other legal matters involving the company. By disclosing them upfront, the offering company can protect themselves from accusations of misrepresentation as well as have an opportunity to explain the status and liabilities connected to the lawsuits. Companies can also disclose any regulatory disciplinary actions. Private placements may typically consist of stocks, shares of common stock or preferred stock or other forms of membership interests, warrants or promissory notes (including convertible promissory notes), and purchasers are often institutional investors such as banks, insurance companies or pension funds and qualified investors. To be a qualified investor, generally an individual needs to have a net worth of at least $1,500,000 exclusive of home or an annual income of at least $200,000 for the immediately preceding two years. The Company’s investment counsel Mr. Jonathan Wilson with the law firm of Taylor, English Duma, PLLP (www.taylorenglish.com) will be preparing its PPM. The PPM will be in the amount of $19,442,476 plus all fees and expenses of preparing and offering the PPM. The Company may have more than one PPM offering to meet its funding objectives. 8.

Ethanol Subsidy - The ―Food Conservation and Energy Act of 2008‖ mandated that producers of cellulosic ethanol or ethanol produced from non-food sources are entitled to a $1.01 subsidy for every gallon of cellulosic ethanol produced. The Company is projected to produce 15MMGY in FY #1 and 20MMGY in FY #2 which would result in a subsidy of $15,150,000.00 and $20,200,000.00, respectively. Although these two amount are enumerated in the Company’s Financial Statement # 4; Income Statement Thirty Year Pro forma, the Company has not include these funds in its Sources and Uses of Funds Statement. These subsidies are to be received after production and will not become a part of the Company’s overall funding for construction and permanent financing.

Exit Strategy The Company’s exit strategy is either to do an Initial Public Offering (―IPO‖) or to be merged/acquired with a larger entity within five years. The IPO or merger/acquisition will occur after four stages of equity drives from its Private Placement Memorandums (―PPMs‖) in order to raise development , start-up and expansion capital. The Company’s first PPM is projected to occur in the fourth quarter of 2010. In year number five, the Company is projected to have $ 273,543,175.00 in total annual sales with Net Income Before Taxes (after debt service) in the amount of $ 56,270,208.00.00. Annual combined sales for years 1-5 are 136 “Committed to Innovation and Community”

projected to be $ 963,740,898.00 with total combined Net Income Before Taxes (after debt service) for years 1-5 estimated at $ 404,366,778.

Operational Units The Company currently has one operational unit. Upon the receipt of permanent financing it will explore the option of creating another operational unit to operate and manage Project Tennessee. Tax Issues In today’s economic environment businesses have to be aware of every economic development and tax incentive available in order to ensure its profitability. To assist this industry, various tax credits and other incentives are made available by the U.S. government for the production, blending and/or sale of ethanol and ethanol blends. As a new entity entering the biofuels industry, the Company anticipates the following tax issues. 1.

Cellulosic Biofuel Producer Tax Credit - A cellulosic biofuel producer that is registered with the IRS may be eligible for a tax incentive in the amount of up to $1.01 per gallon of cellulosic biofuel that is: sold and used by the purchaser in the purchaser’s trade or business to produce a cellulosic biofuel mixture; sold and used by the purchaser as a fuel in trade or business; sold at retail for use as a motor vehicle fuel; used by the producer in a trade or business to produce a cellulosic biofuel mixture; or used by the producer as a fuel in a trade or business. If the cellulosic biofuel also qualifies for alcohol fuel tax credits, the credit amount is reduced to $0.46 per gallon for biofuel that is ethanol and $0.41 per gallon if the biofuel is not ethanol. Cellulosic biofuel is defined as liquid fuel produced from any lignocellulosic or hemicellulosic matter that is available on a renewable basis, and meets the U.S. Environmental Protection Agency fuel and fuel additive registration requirements. Alcohol with a proof of less than 150 is not considered cellulosic biofuel. The incentive is allowed as a credit against the producer’s income tax liability. Under current law, only qualified fuel produced in the U.S. between January 1, 2009, and December 31, 2012, for use in the U.S. may be eligible. Section 40(b)(6)(E) of the IRS Code provides that cellulosic biofuel means any liquid fuel (other than low-proof alcohol) which: a.

Is produced from any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis;

Meets the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act (42 U.S.C. 7545);

For purposes of paragraph (b)(1) of this section, low-proof alcohol is any alcohol with a proof of less than 150. The determination of the proof of any alcohol shall be made without regard to any added denaturants; 137 “Committed to Innovation and Community”

Registration--(1) In general. Section 40(b)(6)(G) of the Code provides that the cellulosic biofuel credit under § 40 is not allowed with respect to any taxpayer unless the taxpayer is registered with the Secretary as a producer of cellulosic biofuel under Section 4101;

Application for Registration. Taxpayers shall apply for registration as a producer of cellulosic biofuel on Form 637, Application for Registration (For Certain Excise Tax Activities), in accordance with the instructions for that form. As provided in § 48.4101-1(a)(2) of the Manufacturers and Retailers Excise Tax Regulations, a person is registered under Section 4101 only if the Service has issued a registration letter to the person;

Requirements. The Service will register an applicant as a producer of cellulosic biofuel only if the Service: i.

Determines that the applicant is a producer of cellulosic biofuel or is likely to become a producer of cellulosic biofuel within a reasonable time after being registered under Section 4101; and

ii.

Is satisfied with the filing, deposit, payment, reporting, and claim history for all federal taxes of the applicant and any related person.

As previously stated, the Company’s Financial Statement # 4; Income Statement Thirty Year Pro Forma enumerates the Cellulosic Ethanol Producer Tax Credit in the amount of $15,150,000 for Year #1 and $20,000,000.00 for Year #2. The Company does not include the tax credit beyond the current expiration date of December 31, 2012. The Company anticipates filling IRS Form 637, Application for Registration (For Certain Excise Tax Activities), on or before September 1, 2010 to register as a cellulosic biofuels producer. 2.

Special Depreciation Allowance for Cellulosic Biofuel Plant Property In addition, a company may take a depreciation deduction of the adjusted basis of a new cellulosic biofuel plant in the year it is put in service. Any portion of the cost financed through tax-exempt bonds is exempted from the depreciation allowance. Before amendment by P.L. 110-343, the accelerated depreciation applied only to cellulosic ethanol plants that break down cellulose through enzymatic processes – the amended provision applies to all cellulosic biofuel plants. The credit is available to any cellulosic ethanol plant acquired after December 20, 2006, and placed in service before January 1, 2013. The Company anticipates receiving $20,000,000 in Industrial Revenue Bonds; however, those bonds are not tax exempt. The depreciation allowance would reduce the Company’s tax liability. As such, the Company is still exploring the option and availability of tax exempt bonds as a funding source for Project Tennessee. 138 “Committed to Innovation and Community”

In addition to the above, the Company anticipates utilizing the Workforce Investment Tax Credit, Enterprise Zone Tax Incentives and other tax incentives that its CPA firm deems appropriate and necessary.

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Media Contact: Kaye Ammer Vice President of Administrative Services Phone: 901-577-1658 Fax: 901-577-1659 Email: kaye@biofuelsamericainc.com For information, visit www.biofuelsamericainc.com

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