EXHIBIT 10.13


 


DISTILLER’S
GRAIN MARKETING AGREEMENT


 


THIS DISTILLER’S GRAIN MARKETING AGREEMENT (the “Agreement”), is
entered into effective as of October 5th, 2005, by Heron Lake
Bio-energy LLC, a Minnesota Limited Liability Corporation (“Seller”), and Commodity
Specialists Company, a Delaware Corporation (“Buyer”).


 


W I
T N E S S E T H:


 


WHEREAS, Seller desires to sell and Buyer desires to purchase the
Distiller’s Dried Grains with Solubles (“DDGS”), Wet Distillers Grains (“WDG”),
and solubles (“Solubles”) (hereinafter DDGS, WDG and Solubles), are referred to
collectively as the “Products”) output of the ethanol production plant which
Seller owns in Heron Lake, Minnesota; and


 


WHEREAS, Seller and Buyer wish to agree in advance of such sale and
purchase to the price formula, payment, delivery and other terms thereof in
consideration of the mutually promised performance of the other;


 


NOW, THEREFORE, in consideration of the promises and the mutual
covenants and conditions herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
both parties, it is hereby agreed:


 


1.                                       BUYER PERFORMANCE. Buyer agrees to perform the
services that it provides for Seller in a professional and competent manner.


 


2.                                       PURCHASE AND SALE. Seller agrees to sell to Buyer
and Buyer agrees to purchase from Seller the entire bulk feed grade DDGS, WDG
and Solubles output from Seller’s plant at Heron Lake, Minnesota. (hereinafter
the “Plant”), subject to all terms and conditions set forth in this Agreement.
Buyer shall label all Product that is sold by Buyer and shall register all
labels with the states where the Products are sold.


 


3.                                       TRADE RULES. All purchases and sales made
hereunder shall be governed by the Feed Trade Rules of the National Grain
and Feed Association unless otherwise specified. Said Trade Rules, a copy of
which is appended hereto as Exhibit A, shall, to the extent applicable, be
a part of this Agreement as if fully set forth herein.


 


4.                                       TERM. The term of this Agreement
shall be for one year commencing as of completion and start-up of production of
the Plant. Start-up is anticipated to be June 1, 2006. Thereafter this
agreement shall remain in effect until terminated by either party at its
unqualified option by providing the other party hereto not less than 90 days
written notice of its election to terminate this Agreement.


 


5.                                       DELIVERY AND TITLE.


 


A.                                   The place of delivery for all
the Products sold pursuant to this Agreement shall be FOB Plant. Buyer and
Buyer’s agents shall be given access to Seller’s Plant in a manner and at all
times reasonably necessary and convenient for Buyer to take delivery as
provided herein. Buyer shall schedule the loading and shipping of all outbound 


 

















 


Products purchased hereunder which is shipped
by truck or rail. All labor and equipment necessary to load trucks or rail cars
shall be supplied by Seller without charge to Buyer. Seller agrees to handle
the Products in a good and workmanlike manner in accordance with Buyer’s
reasonable requirements and in accordance with normal industry practice. Seller
shall maintain the truck and rail loading facilities in safe operating
condition in accordance with normal industry standards.


 


B.                                     Seller further warrants that
storage space for not less than not less than seven days production of DDGS
shall be reserved for Buyer’s use at the Plant and shall be continuously
available for storage of DDGS purchased by Buyer hereunder at no charge to
Buyer. Seller shall also make available the necessary storage for WDG and
Solubles which is adequate for Buyer to market such products. Seller shall be
responsible at all times for the quantity, quality and condition of any the
Products in storage at the Plant. Seller shall not be responsible for the
quantity, quality and condition of any of the Products stored by Buyer at
locations other than the Plant.


 


C.                                     Buyer shall give to Seller a
schedule of quantities of the Products to be removed by truck and rail with
sufficient advance notice reasonably to allow Seller to provide the required
services. Seller shall provide the labor, equipment and facilities necessary to
meet Buyer’s loading schedule and, except for any consequential or indirect
damages, shall be responsible for Buyer’s actual costs or damages resulting
from Seller’s failure to do so. Buyer shall order and supply trucks and rail
cars as scheduled for truck and rail shipments. All freight charges shall be
the responsibility of Buyer and shall be billed directly to Buyer.


 


D.                                    Buyer shall provide loading orders
as necessary to permit Seller to maintain Seller’s usual production schedule,
provided, however, that Buyer shall not be responsible for failure to schedule
removal of the Products unless Seller shall have provided to Buyer production
schedules as follows: Five (5) days prior to the beginning of each
calendar month during the term hereof, Seller shall provide to Buyer a
tentative schedule for production in the next calendar month. Seller shall
inform Buyer daily of inventory and production status. For purposes of this
paragraph, notification will be sufficient if made bye-mail or facsimile as
follows:


 


If to Buyer, to the attention of Steve Markham, Facsimile number
612-330-9894 or email to smarkham@csc-world.com, and


 


If to Seller, to the attention of                   ,
Facsimile number or email to


 


Or to such other representatives of Buyer and Seller as they may
designate to the other in writing.


 


E.                                      Title, risk of loss and full
shipping responsibility shall pass to Buyer upon loading the Products into
trucks or rail cars and delivering to Buyer of the bill of lading for each such
shipment.


 


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6.                                       PRICE AND PAYMENT


 


A.                                   Buyer agrees to pay Seller as
follows: for all DDGS removed by Buyer from the Plant a price equal to ninety
eight (98%); for WDG removed by Buyer from the Plant a price equal to ninety
six (96%) of the FOB Plant price actually received by Buyer from its customers
and for Solubles a fee of $2.00 per ton. For purposes of this provision, the
FOB Plant price shall be the actual sale price, less all freight costs incurred
by Buyer in delivering the Product to its customer. Buyer agrees that it shall
not sell Product for delivery more than 90 days from the date of entering into
a sale without the consent of Seller. Buyer agrees to use commercially
reasonable efforts to achieve the highest resale price available under
prevailing market conditions. Seller’s sole and exclusive remedy for breach of
Buyer’s obligations hereunder shall be to terminate this Agreement. Buyer shall
collect all applicable state tonnage taxes on Products sold by Buyer and shall
remit to the appropriate governmental agency.


 


B.                                     In the event that Buyer has to
incur out-of-pocket costs in order to sell High Moisure Product, and the fee to
be paid to Buyer is less than such out-of-pocket costs, Seller shall pay Buyer
an amount which is sufficient, when added to the fee earned by Buyer, to repay
Buyer for all of its reasonable out-of-pocket costs. Such payment shall be made
with 30 days from receipt of documentation evidencing the expenses.


 


C.                                     Within ten (10) days
following receipt of certified weight certificates, which certificates shall be
presented to Buyer each Thursday for all DDGS shipments during the preceding
week, Buyer shall pay Seller the full price, determined pursuant to paragraph
6A above, for all properly documented shipments. Buyer agrees to maintain
accurate sales records and to provide such records to Seller upon request.
Seller shall have the option to audit Buyer’s sales invoices at any time during
normal business hours and during the term of this Agreement.


 


D.                                    Within five (5) business
days following the 15th and last day of each month, Buyer shall pay Seller the
full price, determined as provided for above, for all WDG and syrup shipments
made in the first 15 days of the month and the balance of the month, as the
case may be. Weights shall be determined by on-site certified scales Buyer
agrees to maintain accurate sales records and to provide such records to Seller
upon request. Seller shall have the option to audit Buyer’s sales invoices at
any time during normal business hours and during the term of this Agreement.


 


7.                                       QUANTITY AND WEIGHTS.


 


A.                                   It is understood that the output
of the Products shall be determined by Seller’s production schedule and that no
warranty or representation has been made by Seller as to the exact quantities
of Products to be sold pursuant to this Agreement.


 


B.                                     The quantity of Products
delivered to Buyer from Seller’s Plant shall be established by weight
certificates obtained from scale at the Plant which is certified as of the time
of weighing and which complies with all applicable laws, rules and
regulations or in the event that the scale at the Plant is inoperable then at
other scales which are 


 


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certified as of the time of weighing and
which comply with all applicable laws, rules and regulations. The outbound
weight certificates shall be determinative of the quantity of the Products for
which Buyer is obligated to pay pursuant to Section 5.


 


8.                                       QUALITY.


 


A.                                   Seller understands that Buyer
intends to sell the Products purchased from Seller as a primary animal feed
ingredient and that said Products are subject to minimum quality standards for
such use. Seller agrees and warrants that the Products produced at its plant
and delivered to Buyer shall be accepted in the feed trade under current
industry standards.


 


B.                                     Seller warrants that all
Products, unless the parties agree otherwise, sold to Buyer hereunder shall, at
the time of delivery to Buyer, conform to the following minimum quality
standard:


 


	
   

  	
   

  	
  Protein

  	
   

  	
  Fat

  	
   

  	
  Fiber

  	
   

  	
  Moisture

  	
   

  	
  Ash

  	
   

  
	
   

  	
   

  	
  Min

  	
   

  	
  Max

  	
   

  	
  Min

  	
   

  	
  Max

  	
   

  	
  Min

  	
   

  	
  Max

  	
   

  	
  Min

  	
   

  	
  Max

  	
   

  	
  Min

  	
   

  	
  Max

  	
   

  
	
  DDGS

  	
   

  	
  25

  	
   

  	
   

  	
   

  	
  10

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  15

  	
   

  	
   

  	
   

  	
  12

  	
   

  	
   

  	
   

  	
  6

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wet Distillers
  Grain

  	
   

  	
  13

  	
   

  	
   

  	
   

  	
  5

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  7

  	
   

  	
   

  	
   

  	
  50

  	
   

  	
   

  	
   

  	
  3

  	
   

  



 


The standard for DDGS and WDG will be determined on an as is basis
rather than a dry weight basis. Minimum quality standards for Solubles shall be
agreed upon by the parties at a subsequent date.


 


C.                                     Seller warrants that at the time
of loading, the Products will not be adulterated or misbranded within the
meaning of the Federal Food, Drug and Cosmetic Act and that each shipment may
lawfully be introduced into interstate commerce under said Act. Payment of
invoice does not waive Buyer’s rights if goods do not comply with terms or
specifications of this Agreement. Unless otherwise agreed between the parties
to this Agreement, and in addition to other remedies permitted by law, the
Buyer may, without obligation to pay, reject either before or after delivery,
any of the Products which when inspected or used fail in a material way to
conform to this Agreement. Should any of the Products be seized or condemned by
any federal or state department or agency for any reason except noncompliance
by Buyer with applicable federal or state requirements, such seizure or
condemnation shall operate as a rejection by Buyer of the goods seized or
condemned and Buyer shall not be obligated to offer any defense in connection
with the seizure or condemnation. When rejection occurs before or after
delivery, at its option, Buyer may:


 


(1)                                  Dispose of the rejected goods
after first offering Seller a reasonable opportunity of examining and taking
possession thereof, if the condition of the goods reasonably appears to Buyer
to permit such delay in making disposition; or


 


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(2)                                  Dispose of the rejected goods in
any manner directed by Seller which Buyer can accomplish without violation of
applicable laws, rules, regulations or property rights; or


 


(3)                                  If Buyer has no available means
of disposal of rejected goods and Seller fails to direct Buyer to dispose of it
as provided herein, Buyer may return the rejected goods to Seller, upon which
event Buyer’s obligations with respect to said rejected goods shall be deemed
fulfilled. Title and risk of loss shall pass to Seller promptly upon rejection
by Buyer.


 


(4)                                  Seller shall reimburse Buyer for
all costs reasonably incurred by Buyer in storing, transporting, returning and
disposing of the rejected goods. Buyer shall have no obligation to pay Seller
for rejected goods and may deduct reasonable costs and expenses to be
reimbursed by Seller from amounts otherwise owed by Buyer to Seller.


 


(5)                                  If Seller produces Products
which comply with the warranty in Section C above but which do not meet
applicable industry standards, Buyer agrees to purchase such Products for
resale but makes no representation or warranty as to the price at which such
Product can be sold. If the Products deviates so severely from industry
standard as to be unsalable, then it shall be disposed of in the manner
provided for rejected goods in Section C above.


 


D.                                    If Seller knows or reasonably
suspects that any of the Products produced at its Plant are adulterated or
misbranded, or outside of industry quality standards, Seller shall promptly so
notify Buyer so that such Product can be tested before entering interstate
commerce. If Buyer knows or reasonably suspects that any of the Products
produced by Seller at its Plant are adulterated, misbranded or outside of
industry quality standards, then Buyer may obtain independent laboratory tests
of the affected goods. If such goods are tested and found to comply with all
warranties made by Seller herein, then Buyer shall pay all testing costs; and
if the goods are found not to comply with such warranties, Seller will pay all
testing costs.


 


9.             RETENTION OF SAMPLES. Seller will take an origin
sample of DDGS from each truck and rail car before it leaves the Plant using
standard sampling methodology. Seller will label these samples to indicate the
date of shipment and the truck or railcar number involved. Seller will also
retain the samples and labeling information for no less than one year.


 


10.           INSURANCE.


 


A.            Seller warrants to Buyer that
all employees engaged in the removal of the Products from Seller’s Plant shall
be covered as required by law by worker’s compensation and unemployment
compensation insurance.


 


B.            Seller agrees to maintain
throughout every term of this Agreement comprehensive general liability
insurance, including product liability coverage, with combined single limits of
not less than $2,000,000. Seller’s policies of comprehensive 


 


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general liability insurance shall be endorsed
to require at least thirty (30) days advance notice to Buyer prior to the
effective date of any decrease in or cancellation of coverage. Seller shall
cause Buyer to be named as an additional insured on Seller’s insurance policy
and shall provide a certificate of insurance to Buyer to establish the coverage
maintained by Seller not later than fourteen (14) days prior to completion and
start-up of production of the Plant.


 


C.                                     Buyer agrees to carry such
insurance on its vehicles operating on Seller’s property as Seller reasonably
deems appropriate. The parties acknowledge that Buyer may elect to self insure
its vehicles. Upon request, Buyer shall provide certificate of insurance to Seller
to establish the coverage maintained by Buyer.


 


D.                                    Notwithstanding the foregoing,
nothing herein shall be construed to constitute a waiver by either party of
claims, causes of action or other rights which either party may have or
hereafter acquire against the other for damage or injury to its agents,
employees, invitees, property, equipment or inventory, or third party claims
against the other for damage or injury to other persons or the property of
others.


 


11.                                 REPRESENTATIONS AND WARRANTIES


 


A.                                   Seller represents and warrants
that all of the Products delivered to Buyer shall not be adulterated or
misbranded within the meaning of the Federal Food, Drug and Cosmetic Act and
may lawfully be introduced into interstate commerce pursuant to the provisions
of the Act. Seller further warrants that the Products shall fully comply with
any applicable state laws governing quality, naming and labeling of product.
Payment of invoice shall not constitute a waiver by Buyer of Buyer’s rights as
to goods which do not comply with this Agreement or with applicable laws and
regulations.


 


B.                                     Seller represents and warrants
that the Products delivered to Buyer shall be free and clear of liens and
encumbrances.


 


12.                                 EVENTS OF DEFAULT. The occurrence of any of the
following shall be an event of default under this Agreement: (1) failure
of either party to make payment to the other when due; (2) default by
either party in the performance of the covenants and agreements set forth in
this Agreement; (3) if either party shall become insolvent, or make a
general assignment for the benefit of creditors or to an agent authorized to
liquidate any substantial amount of its assets, or be adjudicated bankrupt, or
file a petition in bankruptcy, or apply to a court for the appointment of a receiver
for any of its assets or properties with or without consent, and such receiver
shall not be discharged within sixty (60) days following appointment.


 


13.                                 REMEDIES. Upon the happening of an Event
of Default, the parties hereto shall have all remedies available under
applicable law with respect to a Event of Default by the other party. Without
limiting the foregoing, the parties shall have the following remedies whether
in addition to or as one of the remedies otherwise available to them; (1) to
declare all amounts owed immediately due and payable; and (2) immediately
to terminate this Agreement effective upon receipt by the party in default of
the notice of termination, 


 


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provided, however, the parties shall be
allowed 10 days from the date of receipt of notice of default for to cure any
default. Notwithstanding any other provision of this Agreement, Buyer may
offset against amounts otherwise owed to Seller the price of any product which
fails to conform to any requirements of this Agreement.


 


14.                                 FORCE MAJEURE. Neither Seller nor Buyer will
be liable to the other for any failure or delay in the performance of any
obligation under this Agreement due to events beyond its reasonable control,
including, but not limited to, fire, storm, flood, earthquake, explosion, act
of the public enemy, riots, civil disorders, sabotage, strikes, lockouts, labor
disputes, labor shortages, war stoppages or slowdowns initiated by labor,
transportation embargoes, failure or shortage of materials, acts of God, or
acts or regulations or priorities of the federal, state or local government or
branches or agencies thereof.


 


15.                                 INDEMNIFICATION.


 


A.                                   Seller shall indemnify, defend
and hold Buyer and its officers, directors, employees and agents harmless, from
any and all losses, liabilities, damages, expenses (including reasonable
attorneys’ fees), costs, claims, demands, that Buyer or its officers,
directors, employees or agents may suffer, sustain or become subject to, or as
a result of (i) any misrepresentation or breach of warranty, covenant or
agreement of Seller contained herein or (ii) the Seller’s negligence or
willful misconduct.


 


B.                                     Buyer shall indemnify, defend
and hold Seller and its officer, directors, employees and agents harmless, from
any and all losses, liabilities, damages, expenses (including reasonable
attorneys’ fees), costs, claims, demands, that Seller or its officers,
directors, employees or agents may suffer, sustain or become subject to, or as
a result of (i) any misrepresentation or breach of warranty, covenant or
agreement of Buyer contained herein or (ii) the Buyer’s negligence or
willful misconduct.


 


C.                                     Where such personal injury,
death or loss of or damage to property is the result of negligence on the part
of both Seller and Buyer, each party’s duty of indemnification shall be in
proportion to the percentage of that party’s negligence or faults.


 


D.                                    Seller acknowledges that in
order to maximize the total revenue to be generated through the sale of the
Products, Buyer may take positions by selling Product in anticipation of Seller
providing the Products. Notwithstanding the fact that Seller’s obligation is to
provide Buyer with the output of the Plant the parties acknowledge that Buyer
may suffer losses as a result of positions taken by Buyer if Seller
discontinues operations for any reason whatsoever including Force Majeure.
Therefore, Seller shall indemnify, defend and hold Buyer and its officers,
directors, employees and agents harmless from any and all losses, liabilities,
damages, expenses (including reasonable attorney’s fees), costs, claims,
demands that Buyer or its officers, directors, employees, or agents may suffer,
sustain or become subject to as a result of any sale or purchase of product
taken by Buyer in anticipation of Seller delivering the Products hereunder,
provided Buyer has taken commercially reasonable steps to avoid the loss.
Seller shall not be liable for any loss resulting from Seller discontinuing
operations related to a 


 


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position taken by Buyer for delivery more
than 90 days from the date of entering into a sale without the consent of
Seller.


 


16.                                 GOVERNMENTAL ACTION. The parties recognize that the
value of the Products could change as a result of various governmental
programs, be they foreign or domestic. In the event that a significant value
change of the Products as a result of any such governmental program, Buyer may
request re-negotiation of the contract price for the Products by providing
written notice to Seller. Buyer shall be required to demonstrate that the value
of the Products has significantly changed in the market. Should such a change
take place, the parties agree to negotiate, in good faith, a revised sale price
for the Products. If, after a good faith effort, the parties are unable to
agree on a new price within the 90 day period immediately following notice to
the other party, then in such event and notwithstanding the other provisions
hereof, Buyer may terminate this Agreement upon 90 days prior written notice.


 


17.                                 RELATIONSHIP OF PARTIES. This Agreement creates no
relationship other than that of buyer and seller between the parties hereto.
Specifically, there is no agency, partnership, joint venture or other joint or
mutual enterprise or undertaking created hereby. Nothing contained in this
Agreement authorizes one party to act for or on behalf of the other and neither
party is entitled to commissions from the other.


 


18.                                 MISCELLANEOUS.


 


A.                                   This writing is intended by the
parties as a final expression of their agreement and a complete and exclusive
statement of the terms thereof.


 


B.                                     No course of prior dealings
between the parties and no usage of trade, except where expressly incorporated
by reference, shall be relevant or admissible to supplement, explain, or vary
any of the terms of this Agreement.


 


C.                                     Acceptance of, or acquiescence
in, a course of performance rendered under this or any prior agreement shall
not be relevant or admissible to determine the meaning of this Agreement even
though the accepting or acquiescing party has knowledge of the nature or the
performance and an opportunity to make objection.


 


D.                                    No representations,
understandings or agreements have been made or relied upon in the making of
this Agreement other than as specifically set forth herein.


 


E.                                      This Agreement can only be
modified by a writing signed by all of the parties or their duly authorized
agents.


 


F.                                      The paragraph headings herein
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.


 


G.                                     This Agreement shall be
construed and performed in accordance with the laws of the State of Minnesota.


 


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H.                                    The respective rights,
obligations and liabilities of the parties under this Agreement are not
assignable or delegable without the prior written consent of the other party.


 


	
  I.

  	
  Notice shall be deemed
  to have been given to the party to whom it is addressed ninety-six (96) hours
  after it is deposited in certified U.S. mail, postage prepaid, return receipt
  requested, addressed as follows:

  
	
   

  	
   

  
	
   

  	
  Buyer:

  	
  Commodity Specialists
  Company

  310 Grain Exchange Bldg.

  400 South Fourth Street

  Minneapolis, Minnesota 55415

  ATTN: Steve 1. Markham

  
	
   

  	
   

  	
   

  
	
   

  	
  Seller:

  	
  Heron Lake Bio-energy,
  LLC

  



 


IN WITNESS THEREOF, the parties have caused this Agreement to be
executed the day and year first above written.


 


	
   

  	
  COMMODITY SPECIALISTS COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Philip Lindau

  
	
   

  	
  Title

  	
  Co-President

  
	
   

  	
   

  	
   

  
	
   

  	
  Heron Lake Bio-energy,
  LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Robert J. Ferguson

  
	
   

  	
  Title

  	
  President HLBE

  



 


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