EXHIBIT 10.18


 


CERTAIN INFORMATION INDICATED BY [***] HAS BEEN DELETED FROM THIS
EXHIBIT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 24b-2.


 


 


Master Coal Purchase and Sale Agreement 




 


between 

Northern Coal Transportation Company 

and 

Heron Lake BioEnergy, LLC


 





















 


	
   

  	
  Master Coal
  Purchase and Sale Agreement Index

  
	
   

  	
   

  
	
  Article 1.

  	
  General Terms and
  Definitions

  
	
   

  	
   

  
	
  Article 2.

  	
  Term

  
	
   

  	
   

  
	
  Article 3.

  	
  Quantity

  
	
   

  	
   

  
	
  Article 4.

  	
  Delivery and Transportation

  
	
   

  	
   

  
	
  Article 5.

  	
  Coal Quality
  Specifications

  
	
   

  	
   

  
	
  Article 6.

  	
  Sampling and Analysis

  
	
   

  	
   

  
	
  Article 7.

  	
  Weighing

  
	
   

  	
   

  
	
  Article 8.

  	
  Price and Price
  Adjustments

  
	
   

  	
   

  
	
  Article 9.

  	
  Invoices, Payments,
  Netting, Set off, and Credit Ratings

  
	
   

  	
   

  
	
  Article 10.

  	
  Force Majeure

  
	
   

  	
   

  
	
  Article 11.

  	
  Records, Audits, Access

  
	
   

  	
   

  
	
  Article 12.

  	
  Default, Remedies, and
  Termination

  
	
   

  	
   

  
	
  Article 13.

  	
  Notices

  
	
   

  	
   

  
	
  Article 14.

  	
  Cooperation

  
	
   

  	
   

  
	
  Article 15.

  	
  Warranty, Limitation on
  Liability, Duty to Mitigate & Indemnification

  
	
   

  	
   

  
	
  Article 16.

  	
  Limitation on Waiver

  
	
   

  	
   

  
	
  Article 17.

  	
  Confidentiality

  
	
   

  	
   

  
	
  Article 18.

  	
  Entirety, Amendments

  
	
   

  	
   

  
	
  Article 19.

  	
  Successors and Assigns

  
	
   

  	
   

  
	
  Article 20.

  	
  Governing Laws

  
	
   

  	
   

  
	
  Article 21.

  	
  Interpretation

  
	
   

  	
   

  
	
  Article 22.

  	
  Survival

  



 


2





















 


MASTER COAL PURCHASE AND SALE AGREEMENT


 


This MASTER COAL PURCHASE AND SALE AGREEMENT
(“Agreement”) is entered into and is effective as of the 1” day of June, 2007,
between Northern Coal Transportation Company, (“NCTC”), Seller and Heron Lake BioEnergy,
LLC, (“Heron Lake”), Buyer. Both NCTC and Heron Lake may be individually
referred to herein as a “Party” or collectively as “Parties”.


 


RECITALS


 


WHEREAS, each Party is engaged in the sale and/or purchase of Powder
River Basin (“PRB”) Coal or other Coal. The Parties believe it will be mutually
beneficial to set the terms and conditions under which such Coal sales and
purchases may be made between them.


 


IN CONSIDERATION of the mutual covenants and promises set forth
hereafter, the Parties to this Agreement, intending to legally bind themselves,
agree now as follows:


 


ARTICLE I.

GENERAL TERMS AND DEFINITIONS


 


1.01                        The terms of this Agreement shall govern all purchases and
sales of Coal between the Parties (hereinafter “Transactions”) or options thereon
during the term of this Agreement unless the Parties expressly indicate
otherwise. All amendments, modifications, revisions and changes to this
Agreement or any related Transaction or option must be in writing and signed by
both Parties. If the Parties enter into an option concerning the purchase
and/or sale of Coal, the terms and conditions of this Agreement and the
Confirmation Letter shall govern the Transaction once the option has been
exercised.


 


1.02                        For individual Transactions, the Parties shall enter into a
written Confirmation Letter (hereinafter “Confirmation”) that sets forth and
defines the following: the Buyer, the Seller, the price, price adjustments,
quantity, term, quality specifications, mine(s), and any other
Transaction-specific provisions mutually agreed upon by the Parties. All
Confirmations shall be in writing, signed by both Parties. The Parties intend
the provisions of each individual Confirmation and the provisions of this
Agreement be construed as one single integrated agreement and that without a
written Confirmation the Parties would not otherwise enter into a Transaction.
Any inconsistency or conflict between provisions of the individual Confirmation
and provisions of this Agreement shall be resolved in favor of any provisions
of the Confirmation.


 


1.03                        Each of the following terms when used in this Agreement will
have the meaning given to it in this section:


 


a)                                      “Actual Btu”
means the monthly ton-weighted average as-received calorific value (stated in
Btu/lb.).


 


b)                                      “Buyer”
means the Party to a Transaction who is obligated to purchase and receive Coal,
or causes Coal to be received.


 


3





















 


c)                                      “Claim”
means all claims or actions threatened or filed that directly or indirectly
relate to the subject matter of this Agreement, including but not limited to
indemnity, the resulting losses, damages, expenses, reasonable attorneys’ fees
and costs.


 


d)                                      “Coal” means
any and all Coal to be sold by Seller and purchased by Buyer pursuant to the
terms and conditions of this Agreement.


 


e)                                      “Electronic”
means faxes, telegraphs, emails, and all other forms of electronic data
transfer.


 


f)                                        “Standard Btu” means the standard calorific value as set forth in a
Confirmation (stated in Btu/lb.) and is the basis for a price adjustment as
described in Section 9.03.


 


g)                                     “Seller”
means the Party to a Transaction who is obligated to sell and deliver Coal or
causes Coal to be delivered.


 


h)                                     “Ton”
means 2,000 pounds avoirdupois.


 


i)                                        “Loading Provisions” means the terms and conditions of Buyer’s transportation
contracts or excerpts thereof that Seller has reviewed and approved. The
Loading Provisions are further described in Section 4.04 and attached as Exhibit A.


 


ARTICLE II.

TERM


 


2.01                        This Agreement shall begin on the date first set forth above
and shall continue in effect until terminated by either Party upon sixty (60)
days written notice to the other Party, which right of termination shall be
each Party’s absolute right to exercise. Termination of this Agreement under
this Article shall not affect either Party’s rights and obligations with
respect to any Transactions that have been agreed to in writing in a
Confirmation prior to termination.


 


ARTICLE III.

QUANTITY


 


3.01                        Buyer shall be obligated to purchase and pay for, and Seller
shall be obligated to sell and tender for delivery, the amount of Coal agreed
to in a Confirmation, except as may be limited by Article 10 of this
Agreement.


 


ARTICLE IV.

DELIVERY AND TRANSPORTATION


 


4.01                        For each Transaction, Seller agrees to tender to Buyer and
Buyer agrees to accept from Seller the quantity of Coal as provided in the
relevant Confirmation. Seller shall tender the Coal to Buyer in accordance with
reasonable monthly delivery schedules to be submitted by Buyer in accordance with
the Agreement and the Confirmation. Schedules 


 


4





















 


shall be based on a ratable monthly
basis unless otherwise agreed to by both Parties. In addition, Buyer shall
provide Seller with annual schedules. If the Seller objects to a schedule
submitted by Buyer, Seller shall notify Buyer of its objections within fifteen
(15) days of Seller’s receipt of such schedule and the Parties shall work
together in good faith to agree on a reasonable and mutually acceptable schedule.
The mine(s) used to source the Coal supplied under this Agreement shall be
any mine set forth in the Confirmation.


 


ARTICLE V.

COAL QUALITY SPECIFICATIONS; TITLE & RISK OF LOSS


 


If the Parties set forth coal quality specifications in a Confirmation,
the following Sections shall apply with respect to those specifications.


 


5.01                        At the Delivery Point, all tendered Coal shall be raw,
substantially free of magnetic material and other foreign material impurities,
and crushed to a maximum size as set forth in the Confirmation as determined in
accordance with applicable American Society of Testing and Materials (ASTM)
standards.


 


5.02                        If any Shipment of Coal triggers any of the Rejection Limits
specified in the Confirmation for a Transaction (a “Non-Conforming Shipment”),
Buyer shall have the option, within twenty-four (24) hours of Buyer’s receipt
of the quality analysis of the Coal, of either (i) rejecting such
Non-Conforming Shipment prior to unloading the Coal, or, (ii) accepting
the Non-Conforming Shipment and in addition to any quality adjustments outlined
in the Confirmation, reducing the price of Coal for such trainload by $0.50 per
ton. If Buyer fails to timely exercise its rejection rights under this Section as
to a Shipment, Buyer shall be deemed to have waived such rights to reject with
respect to that Shipment only. Buyer’s failure to timely exercise such notice
does not constitute a waiver of its right to any penalty adjustment provided
for herein or in the relevant Confirmation. If Buyer timely rejects the
Non-Conforming Shipment, Seller shall be responsible for promptly transporting
the rejected Coal to an alternative destination determined by Seller and, if
applicable, promptly unloading such Coal. Seller shall reimburse Buyer for all
reasonable costs and expenses associated with the transportation, storage,
handling and removal of the Non-Conforming Shipment. Buyer shall cooperate with
Seller in minimizing Seller’s cost of redirecting the rejected Coal. Seller
shall replace the rejected coal within a reasonable period of time


 


5.03                        The Parties recognize during the performance of a
Transaction, legislative, regulatory bodies or the courts may adopt
environmental laws, rules, and regulations that will make it impossible or
commercially impracticable for Buyer to utilize Coal purchased under this
Agreement. If, as a result of the adoption of such laws, rules, and regulations
or changes in the interpretation or enforcement thereof, Buyer, in good faith,
decides it will be impossible or commercially impracticable for Buyer to
utilize such Coal, Buyer shall promptly notify Seller in writing. After
receiving such notification, Buyer and Seller shall promptly consider whether
corrective actions can be taken in the mining and preparation of the Coal, in the
operation of Buyer’s generating station, or in Seller’s substituting different
source Coal. If in the Parties’ reasonable judgment such actions will make it 


 


5





















 


impossible and commercially
impracticable for Buyer to utilize tendered Coal without violating any
applicable law, regulation, policy, or order, Buyer shall have the right, upon
sixty (60) days notice to Seller, to terminate the Transaction without further
obligation on the part of either Party. Termination shall be the sole remedy of
Buyer and Seller under this section.


 


5.04                        If during the term of this Agreement, Buyer is unable to
handle or burn the coal supplied by Seller satisfactorily, even though the coal
complies with all quality specifications set forth in this Agreement and
applicable Confirmation, and provided that Buyer’s inability to handle or burn
the coal supplied satisfactorily is not caused by any act, omission or fault
attributable to Buyer, then Buyer shall have the following rights if Buyer
provides written notice to Seller promptly upon discovering the unsatisfactory
combustion or handling condition.


 


a)                                      Upon receipt of Buyer’s notice, Buyer and Seller shall meet
as soon as possible in order to determine if Seller’s coal can continue to be
utilized by Buyer. Buyer and Seller shall consult with each other in a good
faith attempt to determine a mutually acceptable solution to the problem, which
solution may include, without limitation, Seller providing alternate sourced
coal or modifications to Buyer’s facilities and/or the operating procedures
required in order to burn Seller’s coal satisfactorily, provided such
modifications and/or operating procedures are physically and economically
reasonable for Buyer to undertake, in Buyer’s sole judgment.


 


b)                                      In the event Buyer and Seller do not reach a mutually
acceptable solution to the problem within sixty (60) days after receipt of
Buyer’s notice, Buyer shall have the right to terminate this Agreement upon
written notice to Seller. Upon termination of this Agreement pursuant to this Section 5.03,
neither Buyer nor Seller shall have any further obligation or liability to each
other under this Agreement, except for Buyer’s obligation to pay for prior
shipments of coal.


 


5.05                        Title to the Coal and all risk of loss shall pass to Buyer
upon unloading all railcars in each unit train at the Delivery Point


 


ARTICLE VI.

SAMPLING AND ANALYSIS


 


6.01                        Seller shall cause, at its expense, the Coal in each unit
train to be sampled and analyzed at the individual mine in accordance with
applicable ASTM standards. Buyer shall have the right, at its own risk and
expense, to have a representative present at any and all times to observe
sampling and analysis procedures. All samples shall be divided into three (3) parts
and put in suitable airtight containers. One part shall be furnished to Buyer
or its designee upon request for its analysis, one part shall be retained for
analysis by Seller or its designee (which analysis shall be the basis for
payment), and the third part shall be retained by Seller or its designee in one
of the aforesaid containers properly sealed and labeled for a period thirty
(30) days after the date of sample collection.


 


6





















 


6.02                        In the event a dispute arises between Buyer and Seller
within thirty (30) days of Seller’s analysis due to a difference between Buyer
and Seller’s short proximate analyses of a sample that exceeds the ASTM
interlab repeatability limits, an independent testing laboratory, mutually
agreeable to Buyer and Seller, will be retained to analyze the third part of
such sample. The Party whose calorific value analysis and/or sulfur analysis is
closest to the independent analysis shall prevail and such Party’s calorific
value analysis and/or sulfur analysis shall govern for the trainload in
question. In such case, the cost of the analysis made by such independent
testing laboratory will be borne by the Party whose calorific value analysis
and/or sulfur analysis is furthest from the independent analysis and therefore,
not used. In the event both Parties’ calorific value analyses and/or sulfur
analyses differ from the independent testing laboratory’s result by the same
amount, the independent testing laboratory’s result shall govern for the
trainload in question and the Parties shall share equally the cost of the
independent testing.


 


ARTICLE VII.

WEIGHING


 


7.01                        Certified commercial scales at Seller’s train loading
facility at each individual mine will determine weights. Scales shall be calibrated
and tested as customary in industry practice with copies of calibration and
testing reports provided to Buyer upon request. If Seller’s scales are not
available to determine the valid net weight of all of the railcars in a unit
train but valid weights are obtained for thirty (30) or more railcars in such
train, the arithmetic average of all of the valid net weights of the thirty or
more railcars in such train shall be used as the net weight for each railcar in
such train for which a valid net weight was not determined by Seller’s scales. If
Seller’s scales are inoperative or fail to determine the valid net weight of at
least thirty (30) railcars in a unit train, the weighted arithmetic average of
the net railcar weights of the previous ten (10) unit trainloads of Coal
shipped to Buyer shall be used as the net weight for each of the unweighed
railcars in such train. The calculation of the weighted arithmetic average net
weight for the previous ten (10) unit trainloads shall exclude all
bad-order railcars, which were not loaded, and any trainload of Coal for which
the net weights were estimated on thirty (30) or more railcars. The Buyer shall
be notified electronically immediately after the above instance occurs.


 


ARTICLE VIII.

PRICE AND PRICE ADJUSTMENTS


 


8.01                        For all Coal delivered under this Agreement, Buyer shall pay
Seller the base price as set forth in the Confirmation.


 


8.02                        Seller shall be solely responsible for all assessments,
fees, costs, expenses, and taxes relating to the mining, production, sale, use,
loading and tender of Coal to Buyer or in any way accruing or levied prior to
transfer of title to the Coal to Buyer and including, without limitation,
severance taxes, royalties, ad valorem, black lung fees; reclamation fees and
other costs, charges and liabilities. The base price Includes reimbursement to
Seller of all environmental, land restoration and regulatory costs, including
without limitation any reclamation costs required under applicable federal,
state or local law as of 


 


7





















 


the date of the Transaction. Buyer
shall be responsible for any sales and/or use tax unless Buyer provides Seller
an appropriate exemption certificate or similar document. The base price shall
be subject to adjustments for changes in existing laws and regulations
(including changes in levies and rates), or new laws or regulations, or changes
in interpretations thereof enacted and in force during the term of sale set
forth in the Confirmation that change Seller’s costs of producing Coal for
delivery pursuant to any Confirmation. Notwithstanding the above, no price
adjustment will occur under this Section until the cumulative effect of
all such changes equals or exceeds $0.05 per ton for any calendar year under a
Transaction. Seller shall use commercially reasonable best efforts to inform
Buyer of any such change as soon as Seller becomes aware of such change and its
effect on the base price of Coal hereunder.


 


8.03                        The base price may also include an adjustment based upon the
calorific value, sulfur content or other qualities of the Coal as the Parties
may mutually agree upon and as set forth in the Confirmation.


 


8.04                        In the event either the railroads or Buyer requires Seller
to put additives in coal, including, without limitation, any dust control
additives, treatments or processes, Seller may invoice Buyer at the reasonable
costs of providing such services, which shall include but not be limited to,
chemical costs, water costs, chemical application, application equipment maintenance
and any royalties payable on the additive application. Any additives used shall
be selected by Seller and will be industry qualified for use in the respective
application.


 


ARTICLE IX.

INVOICES, PAYMENTS, NETTING, SET OFF, AND CREDIT RATINGS


 


9.01                        Based on Seller’s weights, Seller
will invoice Buyer twice a month for all Coal delivered. Invoices for quality
adjustment, as provided in a Transaction, shall be issued monthly, based on
Seller’s analyses. Seller shall clearly indicate Buyer’s applicable purchase
order number on all invoices. Each invoice shall state for each trainload of
Coal: the quantity of Coal delivered, the Actual Btu and SO2, % Na2O in ash
(if set forth in the Confirmation) and the invoice price and any other required
quality adjustment. Invoices shall be mailed or electronically transmitted, as
applicable, to:


 


	
  Invoices to Heron Lake:

  
	
   

  
	
  Heron Lake BioEnergy,
  LLC

  
	
  Attn:Bob Ferguson

  
	
  201 10th Street

  
	
  Heron Lake, MN 56137

  



 


8





















 


	
  Invoices to NCTC:

  
	
   

  
	
  Northern Coal
  Transportation Company 

  
	
  Attn: Revenue
  Accounting

  
	
  505 S. Gillette Avenue

  
	
  Gillette, WY 82716

  
	
   

  
	
  ACH/Wires to NCTC:

  
	
   

  
	
  Northern Coal
  Transportation Company/Rio Tinto Energy America Inc. 

  
	
  Account # 060-00298-13

  
	
  Wells Fargo Bank

  
	
  41 East 100 South

  
	
  Salt Lake City, UT
  84111 

  
	
  ACH ABA # 124000012 

  
	
  Wire ABA # 121000248

  
	
   

  
	
  Payment Detail:

  
	
   

  
	
  To ensure proper
  allocation of payments to appropriate invoice, e-mail invoice numbers and
  amounts to: Doreen.Heuck@riotinto.com or information may be faxed to (307)
  685-6010.

  



 


9.02                        For all invoices, payment will be made within 10 business
days of receipt of that invoice. Amounts shall be paid via electronic means
(i.e., ACH or Federal Reserve wire transfer of funds). The wire transfer of
funds shall be sent to Seller’s bank as indicated on the invoice.


 


9.03                        In the event Buyer in good faith disputes part or all of an
invoice, notice of the disputed portion, with reasons for dispute, must be
given prior to the due date of the invoice and the undisputed portion shall be
paid by the due date. If the disputed portion is determined to have been
properly due and payable, interest on that portion in dispute and which has not
been paid shall accrue from the date that portion was due and payable. If a disputed
portion is paid and is later determined not to have been properly due and
payable, interest will similarly be refunded from the date payment had been
received. Interest shall be paid at one (1) percentage point over the then
current U.S. prime rate as listed in the Money Rates section of The Wall
Street Journal. All invoices will be final and not subject to further
adjustments or correction unless objection to the accuracy thereof is made
prior to the lapse of one (1) year after the termination of the applicable
Transaction.


 


9.04                        If each Party or Party’s affiliate is required to pay an
amount to the other Party in the same invoice period, then such amounts with
respect to each Party may be aggregated and the Parties may discharge their
obligations to pay through netting; in which case, the Party owing the greater
aggregate amount shall pay to the other Party the difference between the
amounts owed.


 


9.05                        Each Party reserves to itself all rights, setoffs,
counterclaims, and other remedies and defenses to the extent not expressly
denied or waived herein which such Party has or may 


 


9





















 


be entitled to arising from or out of
this Agreement. All outstanding Transactions and the obligations to make
payment in connection under this Agreement may be offset against each other,
set off, or recouped therefrom.


 


9.06                        If a Party fails to pay amounts under this Agreement within
10 business days after receipt of invoice, unless such amount is the subject of
a dispute as provided above, or is excused by Article 10, in addition to
the rights and remedies otherwise provided in this Agreement, the aggrieved
Party shall have the right to suspend performance under any or all Transactions
under this Agreement. If such failure to pay continues for an additional 5
business days, the aggrieved Party shall have the right to terminate this
Agreement and all Transactions and shall be entitled to all other rights under
this Agreement.


 


9.07                        Should the creditworthiness or either Party’s ability to
perform become unsatisfactory to the other Party, or if situations develop
where either Party could reasonably conclude that a credit downgrade or
protection under bankruptcy code is imminent, then the failing Party will
provide satisfactory security or assurances.


 


9.08                        If a Party’s or any of its affiliates’ credit falls below
investment grade (BBB- as defined by Standard & Poor’s, Moody’s, or
the equivalent), the failing Party shall provide the non-failing Party with a
mutually agreed upon credit enhancement in the form of, but not limited to,
letters of credit, compressed payment terms or cash on delivery. If the failing
Party does not provide an acceptable credit enhancement within 48 hours of
notice, the non-failing Party shall have the right to suspend shipments and
seek remedies as set forth in this Master Agreement.


 


ARTICLE X.

FORCE MAJEURE


 


10.01                 The term “Force Majeure” as used herein shall mean an act or
event that is not reasonably within the control and is without the fault of the
Party claiming Force Majeure including without limitation, acts of God; acts of
the public enemy; insurrections; terrorism; riots; labor disputes; boycotts;
fires; explosions; floods; breakdowns of or damage to major components or
equipment of Buyer’s generating station, Seller’s mine, or transmission systems
or Buyer’s transportation; embargoes; acts of judicial or military authorities;
acts of governmental authorities; inability to obtain necessary permits,
licenses, and governmental approvals after applying for same with reasonable
diligence; or other causes which prevent the producing, processing, and/or
loading of Coal by Seller, or the receiving, accepting, unloading and/or
utilizing of Coal by Buyer. Force Majeure includes the failure of a Party’s
contractor(s) to furnish labor, services, Coal, materials or equipment in
accordance with its contractual obligations (but solely to the extent such
failure is itself due to Force Majeure).


 


10.02                 If, because of Force Majeure, either Party fails to perform
any of its obligations under this Agreement (other than the obligation of a
Party to pay money), and if such Party shall promptly give to the other Party
written notice of such Force Majeure, then the obligation of the Party giving
such notice shall be suspended to the extent made necessary by such Force
Majeure and during its continuance; provided, the Party giving 


 


10





















 


such notice shall use good faith
efforts to eliminate such Force Majeure, insofar as reasonably possible, with a
minimum of delay. Should the situation of Force Majeure exceed sixty (60)
consecutive days, the Party not affected by the Force Majeure event may, at its
option, terminate the Transaction in whole or in part and neither Party shall
have any further obligation to the other Party; however, each Party shall be
obligated to make any payments which had become due and payable prior to such
termination. Any deficiencies in deliveries of Coal caused by an event of Force
Majeure shall not be made up, except by mutual consent. The affected Party
shall provide suitable proof to the other Party to substantiate any claim made
under this Article 10.


 


10.03                 Both Parties agree significant capital expenditures and
settlement of strikes and lockouts shall be entirely within the discretion of
the Party having the difficulty. The above requirement that any Force Majeure
shall be remedied with all reasonable dispatch shall not require significant
capital expenditure or settlement of strikes and lockouts by acceding to the
demands of the opposing Party when such course is inadvisable in the discretion
of the Party having difficulty.


 


10.04                 The loss of Buyer’s markets or Buyer’s inability to
economically use or resell Coal purchased hereunder, the loss of Seller’s
supply or Seller’s ability to sell Coal to a market at a more advantageous
price, the change in the market price of Coal or price of power, or regulatory
or contractual disallowance of the pass-through of the costs of Coal or other
related costs shall not constitute events of Force Majeure.


 


ARTICLE XI.

RECORDS, AUDITS, ACCESS


 


11.01                 Seller shall maintain books and records relating to the
supply of Coal under this Agreement and the applicable Transaction for a period
of not less than two (2) years after the end of each calendar year for all
Coal tendered during such calendar year.


 


11.02                 Upon reasonable notice and during normal business hours,
Buyer and/or Buyer’s independent auditors shall have the right to inspect
Seller’s books and records relating to all provisions of this Agreement which
include Coal quality, quantity shipped, and price adjustments or as may be
necessary to satisfy inquiries from governmental or regulatory agencies, but
only to the extent necessary to verify the accuracy of any statement, charges
or computations made pursuant to this Agreement and/or a Transaction. Seller
shall make a reasonable effort to facilitate Buyer’s inspection of such records
in Seller’s possession. Buyer and its auditors, to the extent permitted by law
or regulation, shall treat all such information as confidential.


 


ARTICLE XII.

DEFAULT, REMEDIES, AND TERMINATION


 


12.01                 The remedies set forth in this Section 12.01 shall
cover the non-defaulting Party’s remedies for the defaulting Party’s failure to
perform prior to any termination for default that may occur.


 


11





















 


a)             As an alternative to the damages provision below, if the
Parties mutually agree in writing, the non-performing Party may schedule
deliveries or receipts, as the case may be, pursuant to such terms as the
Parties agree in order to discharge some or all of the obligation to pay
damages. In the absence of such agreement, the damages provision of this Article shall
apply.


 


b)             Unless excused by Force Majeure, if Seller fails to deliver
the quantity of Coal in accordance with the applicable Confirmation and this
Agreement, Seller shall pay to Buyer an amount for each ton of Coal of such
deficiency equal to the differential In cost between a reasonably priced supply
of replacement Coal delivered to Buyer’s facilities and the adjusted base price
of the Coal, on an equivalent per mmBtu SO2 adjusted basis; except that if such difference
is negative, then neither Party shall have any obligation to make any
deficiency payment to the other.


 


c)             Unless excused by Force Majeure, if Buyer fails to accept
delivery of the quantity of Coal in accordance with the applicable Confirmation
and this Agreement, Buyer shall pay to Seller an amount for each ton of Coal of
such deficiency equal to (i) the base price agreed to for the specific
Transaction minus the highest reasonable market price on an equivalent per
mmBtu S02 adjusted basis at
which Seller is able, or (ii) would be able, to sell or otherwise dispose
of the Coal at the time of Buyer’s breach; except that if such difference is
negative, then neither Party shall have any obligation to make any deficiency
payment to the other.


 


d)             Buyer and Seller shall be subject to commercially reasonable
good faith obligation to mitigate any damages hereunder.


 


12.02                 The occurrence of any of the following shall constitute an “Event
of Default”;


 


a)             Failure by either Party to pay any amounts due.


 


b)             Either Party materially breaches any contractual obligation
under this Agreement.


 


c)             Either Party (i) makes any general assignment or any
general arrangement for the benefit of creditors, (ii) files a petition or
otherwise commences, authorizes or acquiesces in the commencement of a
proceeding or cause of action under any bankruptcy or similar law for the
protection of creditors or has such a petition involuntarily filed against it
and such petition is not withdrawn or dismissed within thirty (30) days after
such filing, (iii) otherwise becomes bankrupt or insolvent (however
evidenced), or (iv) is unable to pay its debts as they fall due.


 


12.03                 In addition to the non-defaulting Party’s remedies under
this Article, in the Event of Default with respect to a specific Transaction,
the non-defaulting Party shall have the same rights with respect to such
specific Transaction as it has under this Agreement in addition to the right to
exercise all other rights and remedies available under applicable law.


 


12





















 


ARTICLE XIII.

NOTICES


 


13.01                 Except as expressly provided otherwise, any notice, election
or other correspondence required or permitted hereunder shall become effective
upon receipt and, except invoices and payments, shall be deemed to have been
properly given or delivered when made in writing and delivered personally to
the Party to whom directed, or when sent by United States certified mail with
all necessary postage prepaid and a return receipt requested, or by a
nationally recognized overnight delivery service with charges fully prepaid and
addressed to the Party at the below-specified address:


 


	
  Notices to NCTC:

  
	
  Northern Coal
  Transportation Company 

  
	
  c/o Rio Tinto Energy
  America Inc.

  
	
  Attn: Contract
  Administration

  
	
  8051 E. Maplewood Ave.,
  Bldg. 4 

  
	
  Greenwood Village, CO
  80111

  
	
  Phone: (303) 713-5627

  
	
  Fax: (303) 713-5772

  
	
   

  
	
  With a copy to:

  
	
  Rio Tinto Energy
  America Inc. 

  
	
  Attn: Legal Department

  
	
  505 So. Gillette Ave.

  
	
  Gillette, WY 82716

  
	
   

  
	
  Scheduling to NCTC:

  
	
  Northern Coal
  Transportation Company 

  
	
  Attn: Michael Stevermer

  
	
  8051 E. Maplewood Ave.,
  Bldg. 4 

  
	
  Phone: (303) 713-5608

  
	
  Fax: (303) 713-5772

  
	
   

  
	
  Notices to Heron Lake:

  
	
  Heron Lake BioEnergy,
  LLC 

  
	
  201 10th
  Street

  
	
  Heron Lake, MN 56137

  
	
  Attn: Bob Ferguson

  
	
  Phone: (507) 793-0077

  
	
  Fax: (507) 793-0078

  



 


The addresses may be changed upon written notice in the manner provided
above, and no amendment hereof shall be required for a change of address under
this Article 13.


 


13





















 


ARTICLE XIV.

COOPERATION


 


14.01                 Each Party agrees to take all further action that may be
reasonably necessary to perform and to effectuate the purposes and intent of
the Agreement, the Confirmation, and any particular Transaction.


 


ARTICLE XV.

WARRANTY, LIMITATION ON LIABILITY, DUTY TO MITIGATE & INDEMNIFICATION


 


15.01                 In no event shall either Party be liable to the other Party
for incidental, consequential or punitive damages however and wherever arising
out of, or in connection with, this Agreement or any Transaction.


 


15.02                 EXCEPT AS EXPRESSLY WARRANTED HEREIN, IT IS
EXPRESSLY AGREED THAT SELLER MAKES NO WARRANTY EXPRESSED OR IMPLIED AS TO THE
QUALITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE COAL TO BE
DELIVERED UNDER THIS AGREEMENT OR AS TO THE RESULTS TO BE OBTAINED FROM THE USE
OF SUCH COAL. SELLER SHALL NOT BE LIABLE FOR ANY INCIDENTAL, PUNITIVE, OR
CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION LOSS OF PROFITS OR
OVERHEAD, BY VIRTUE OF ITS BREACH OF ANY OF ITS OBLIGATIONS UNDER THE
AGREEMENT. NOTHING IN THIS ARTICLE SHALL BE CONSTRUED AS LIMITING EITHER PARTY’S
RIGHT, SUBJECT TO THE TERMS OF THIS AGREEMENT, TO SEEK DIRECT DAMAGES FOR THE
OTHER PARTY’S BREACH OF ANY OF ITS OBLIGATIONS HEREUNDER.


 


15.03                 Each Party agrees it has a duty to mitigate damages and
covenants. Each Party will use commercially reasonable efforts to minimize any
damages it may incur as a result of the other Party’s performance or
non-performance of the Agreement (except that neither Party shall be required
to enter into a replacement transaction as provided under this Agreement).


 


15.04                 Each Party shall indemnify, defend, and hold the other Party
harmless from and against any and all Claims arising out of or resulting from
the willful acts or negligence of such Party, its agents, and employees.


 


ARTICLE XVI.

LIMITATION ON WAIVER


 


16.01                 No waiver by either Party of any one or more defaults of the
other Party in the performance of this Agreement or any Transaction shall
operate or be construed as a waiver of any future default, or defaults, whether
of a like or different character.


 


14





















 


ARTICLE XVII.

CONFIDENTIALITY


 


17.01                 This Agreement and any Confirmation are deemed confidential.
The Parties shall protect the confidentiality of the terms of this Agreement
and neither this Agreement or any of its terms shall be disclosed to any other
person unless such disclosure is: (i) agreed to in writing by the Parties
prior to release, (ii) required by law, (iii) required by
jurisdictional regulation pursuant to the request of any regulatory authorities
(including, without limitation, state utility commissions or boards, the
Federal Energy Regulatory Commission, the U.S. Securities and Exchange
Commission and tax authorities); to attorneys, auditors, consultants or other
outside experts of the Parties if said individuals are advised of the
confidential nature of the information and said individuals agree to maintain
the confidentiality of the information; or to generating unit co-owner(s).
Where the law requires such disclosure, notice shall be given to the other
Party, and to the extent possible, such notice shall be given in advance of
disclosure.


 


ARTICLE XVIII.

ENTIRETY, AMENDMENTS


 


18.01                 This Agreement constitutes the entire agreement between the
Parties. This Agreement may not be amended except in a written instrument
making reference hereto signed by the Parties.


 


ARTICLE XIX.

SUCCESSORS AND ASSIGNS


 


19.01                 This Agreement shall inure to the benefit of and be binding
upon the Parties hereto and their respective successors and assigns; provided,
however, this Agreement may not be assigned by either Party without the prior
written consent of the other Party, which consent shall not be unreasonably
withheld or delayed.


 


ARTICLE XX.

GOVERNING LAWS


 


20.01                 This Agreement shall be governed by and construed in accordance
with the laws in the State of Wyoming.


 


ARTICLE XXI.

INTERPRETATION


 


21.01                 The Parties acknowledge that each Party and its counsel have
reviewed this Agreement and that the rule of construction to the effect
that any ambiguities are to be resolved against the drafting Party shall not be
employed in the interpretation of this Agreement.


 


15





















 


ARTICLE XXII.

SURVIVAL


 


22.01                 The provisions of Articles 12 through 21 and Article 22
shall survive the termination of this Agreement.


 


IN WITNESS WHEREOF, the Parties have executed this Agreement by their
respective, duly authorized representatives effective as of the date first
written above.


 


 


	
   

  	
   

  
	
  Northern Coal Transportation
  Company

  	
  Heron Lake BioEnergy, LLC

  
	
   

  	
   

  
	
  By:

  	
  /s/ [AUTHORIZED
  SIGNATORY]

  	
   

  	
  By:

  	
  /s/ Robert J. Ferguson

  
	
   

  	
  Jeffrey D. Price 

  	
  Title:

  	
  President Board of
  Governors

  
	
   

  	
  Vice President -
  Marketing, Government 

  Affairs & Communications

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
  3 July 2007

  	
   

  	
  Date:

  	
  13 July 2007

  



 


16





















 


CONFIRMATION LETTER


 


NCTC: N0005-1283


 


	
  Seller:
  

  	
  Northern
  Coal Transportation Company 

  	
   

  	
  Buyer:

  	
  Heron
  Lake BioEnergy, LLC 

  
	
   

  	
  8051
  E. Maplewood Avenue 

  	
   

  	
   

  	
  201
  10th Street 

  
	
   

  	
  Building
  4 

  	
   

  	
   

  	
  Heron
  Lake, MN 56137 

  
	
   

  	
  Greenwood
  Village, Co 80111 

  	
   

  	
   

  
	
   

  	
   

  	
  Attn:

  	
  Bob
  Ferguson 

  
	
  Attn:

  	
  Michael
  Stevermer

  	
   

  	
  Phone:

  	
  (507)
  793-0077 

  
	
  Phone:

  	
  (303)
  713-5608

  	
   

  	
  Fax:
  (507) 793-0078

  
	
  Fax:

  	
  (303)
  713-5772

  	
   

  	
   

  
						



 


This Confirmation
Letter (“Confirmation”) shall confirm the transaction arranged December 20,
2006, between Northern Coal Transportation Company (“NCTC”) and Heron Lake
BioEnergy, LLC (“Heron Lake”) pursuant to the Master Coal Purchase and Sale
Agreement effective June 1, 2007. The terms and conditions of this
transaction are as follows:


 


NCTC to sell and
deliver and Heron Lake to purchase and receive coal from the Spring Creek Mine
located in Big Horn County, Montana. Coal purchased under this Confirmation
Letter is to be used by the Heron Lake Facility only.


 


	
  Transaction Type:

  	
   

  	
  Physical Coal

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Product:

  	
   

  	
  Sub-Bituminous coal; 9350 Btu/Lb. and 0.8 Lbs. SO2/mmBtu

  



 


	
  Base Price:

  	
   

  	
  Calendar Year

  	
   

  	
  Base Price (per ton of coal)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  June 1, 2007 thru May 31, 2008

  	
   

  	
  [***]

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  June 1, 2008 thru May 31, 2009

  	
   

  	
  [***]

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  June 1, 2009 thru May 31, 2010

  	
   

  	
  [***]

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  June 1, 2010 thru May 31, 2011

  	
   

  	
  [***]

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  June 1, 2011 thru May 31, 2012

  	
   

  	
  [***]

  



 






*All rail surcharges,
escalations or any additional charges imposed by the railroads will be passed
through to Buyer; fuel surcharges will be consistent with prevailing STB
guidance.


 


*NCTC will use best
efforts in negotiating any additional charges Imposed by the railroads.


 


Shipment
Period:                June 1, 2007 through May 31, 2012


 


Quantity:                               A minimum of [***] tons per Calendar
Year.


 

















 


	
   

  	
  The
  first Calendar Year of this agreement shall be considered a “Test Year”, in
  which no minimum annual tonnage volume will be applicable. For the remaining
  Calendar Years of the Agreement, Heron Lake shall purchase a minimum of [***]
  tons per Calendar Year, with such minimum subject to adjustment based upon
  the actual amount of coal required by Heron Lake’s facility after the “Test
  Year.”

  
	
   

  	
   

  
	
   

  	
  ·
  Additional tonnage to be mutually agreed upon during the nomination process.

  
	
   

  	
   

  
	
  Delivery  Point:

  	
  FOB
  at Ruebel, Minnesota

  
	
   

  	
   

  
	
  Topsize:

  	
  2” x 0” ASTM or 3” x 0” ASTM

  
	
   

  	
   

  
	
  Quality:

  	
  Coal Quality Specifications

  



 


	
   

  	
   

  	
  Typical

  	
   

  	
  Reject

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Btu/Lb

  	
   

  	
  9,350

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Lbs. SO2/mmBtu

  	
   

  	
  0.8

  	
   

  	
  > 1.00

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Sodium

  	
   

  	
  6.5 to 8.5%

  	
   

  	
  > 8.5%

  



 


	
  Other
  Provisions:

  	
  •

  	
  Nominations for actual tons are due from Heron lake by
  September 1 of each calendar year for the following calendar years tons.

  
	
   

  	
   

  	
   

  
	
   

  	
  •

  	
  Rates are based on a maximum 4 day shipment unloading
  limit after constructive placement; if exceeded, $0.50 per ton will be added
  to the rate for the affected tonnage involved in such shipment.

  
	
   

  	
   

  	
   

  
	
   

  	
  •

  	
  Any costs incurred after constructive placement will be
  the responsibility of Buyer.

  
	
   

  	
   

  	
   

  
	
   

  	
  •

  	
  Coal price for shipments shall be adjusted for
  deviations in Btu/lb from the “typical” specifications noted herein on the
  basis equivalent dollars per million Btu; for instance, the shipment of 9,250
  Btu/lb coal in the first contract year shall result in a coal price of [***].

  



 


IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR, AND EACH
OF THE PARTIES WAIVES THE RIGHT TO SEEK INCIDENTAL, CONSEQUENTIAL, OR PUNITIVE
DAMAGES UNDER THIS AGREEMENT.


 


Please confirm that the terms and conditions stated herein accurately
reflect your understanding of our agreement by signing and returning to
Stephanie Houston at Seller’s address.


 


	
  By: 

  	
  /s/ Robert J. Ferguson

  	
   

  	
  Date: 

  	
  13 July 2007

  	
   

  
	
   

  	
  Heron Lake BioEnergy, LLC

  	
   

  
	
   

  	
   

  
	
  By: 

  	
  /s/ [AUTHORIZED SIGNATORY]

  	
   

  	
  Date: 

  	
  13 July 2007

  	
   

  
	
   

  	
  Northern Coal Transportation
  Company

  	
   

  



 


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