EXHIBIT 10.12


 


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.


 





 


Standard Form of Agreement Between


Owner and Design-Builder - Lump Sum


 


This document has important legal
consequences. Consultation with


an attorney is recommended with
respect to its completion or modification.


 


This AGREEMENT is made as
of the 28th day of September in the year of 2005, by and between the
following parties, for services in connection with the Project identified
below.


 


OWNER:


(Name
and address)


 


Heron Lake
BioEnergy, LLC


201 10th
Street


PO Box 198


Heron Lake, MN
56137


 


DESIGN-BUILDER:


(Name
and address)


 


Fagen, Inc.


501 W. Highway 212


P. O. Box 159


Granite Falls, MN
56241


 


PROJECT:


(Include
Project name and location


as
it will appear in the Contract


Documents)


 


50 MGY Coal-fired
Dry Grind Ethanol Plant


 


In consideration
of the mutual covenants and obligations contained herein, Owner and
Design-Builder agree as set forth herein.


 

















 


Article 1


 


Scope of Work


 


1.1          Design-Builder shall
perform all design and construction services, and provide all material,
equipment, tools and labor, necessary to complete the Work described in and
reasonably inferable from the Contract Documents.


 


Article 2


 


Contract Documents


 


2.1          The Contract Documents
are comprised of the following:


 


.1             All written modifications, amendments and
change orders to this Agreement issued in accordance with DBIA Document
No. 535, Standard Form of General
Conditions of Contract Between Owner and Design-Builder (1998
Edition) (“General Conditions of Contract”);


 


.2             This Agreement, including all exhibits and
attachments, executed by Owner and Design-Builder, said Exhibits being:


 


Exhibit A - Performance
Guarantee Criteria – (2) Pages;


Exhibit B - General Project
Scope - (3) Pages;


Exhibit C –Owner’s
Responsibilities - (7) Pages;


Exhibit D – License of
Proprietary Property of ICM, Inc. – (6) Pages;


Exhibit E – Start-up Services
to be Provided to Owner (1) Page;


Exhibit F – Project Schedule;


Exhibit G – Letter Agreement
between Owner and Design-Builder;


Exhibit H – Letter Agreement #2
between Owner and Design-Builder.


 


.3             Written
Supplementary Conditions, consisting of three pages, to the General Conditions
of Contract;


 


.4             The General
Conditions of Contract;


 


.5             Preliminary Construction Documents
prepared by Design-Builder; and


 


.6             The following other documents, if
any:  N/A


 


Article 3


 


Interpretation and Intent


 


3.1          The Contract
Documents are intended to permit the parties to complete the Work and all
obligations required by the Contract Documents within the Contract
Time(s) for the Contract Price. The Contract Documents are intended to be
complementary and interpreted in harmony so as to avoid conflict, with words
and phrases interpreted in a manner consistent with construction and design
industry standards. In the event 


 


2

















 


of any
inconsistency, conflict, or ambiguity between or among the Contract Documents,
the Contract Documents shall take precedence in the order in which they are
listed in Section 2.1 hereof.


 


3.2          Terms, words and phrases
used in the Contract Documents, including this Agreement, shall have the meanings
given them in the Supplementary Conditions and General Conditions of Contract.


 


3.3          The Contract Documents
form the entire agreement between Owner and Design-Builder and by incorporation
herein are as fully binding on the parties as if repeated herein. The Contract
Documents supercede any prior letters of intent between the parties, and such
letters of intent are now null and void. No oral representations or other
agreements have been made by the parties except as specifically stated in the
Contract Documents.


 


Article 4


 


Ownership of Work Product


 


4.1          Work Product. All
drawings, specifications and other documents and electronic data furnished by
Design-Builder to Owner under this Agreement (“Work Product”) are deemed to be
instruments of service and Design-Builder shall retain the ownership and
property interests therein, including the copyrights thereto.


 


4.2          Owner’s Limited License
Upon Payment in Full. Upon Owner’s payment in full for all Work performed
under the Contract Documents, Design-Builder shall vest in Owner a limited
license to use the Work Product in connection with Owner’s occupancy and repair
of the Project and Design-Builder shall provide Owner with a copy of the “as
built” plans, conditioned on Owner’s express understanding that its use of the
Work Product and its acceptance of the “as built” plans is at Owner’s sole risk
and without liability or legal exposure to Design-Builder or anyone working by
or through Design-Builder, including Design Consultants of any tier
(collectively the “Indemnified Parties”), provided, however, that any
performance guarantees and warranties (of equipment or otherwise) shall remain
in effect according to the terms of this Agreement. Owner shall be entitled to
use the Work Product for the purpose relating to this Project, but shall not be
entitled to use the Work Product on any other projects, including expansion of
this Project. The limited license to use the Work Product granted herein by
Design-Builder to Owner shall be governed by and construed in accordance with
the same terms and provisions contained in the License Agreement between Owner
and ICM, attached hereto as Exhibit D and incorporated herein by reference
thereto, except (i) references in such License Agreement to ICM and
Proprietary Property shall refer to Design-Builder and Work Product,
respectively, (ii) the laws of the State of Minnesota shall govern such
limited license, and (iii) the arbitration provisions contained in
Article 10 of the General Conditions shall apply to any breach or
threatened breach of Owner’s duties or obligations under such limited license
other than Design-Builder shall have the right to seek injunctive relief in a
court of competent jurisdiction against Owner or its Representatives for any
such breach or threatened breach. Design-Builder is utilizing certain
proprietary property and information of ICM, Inc., a Kansas corporation
(“ICM”), in the design and construction of the Project, and Design-Builder may
incorporate proprietary property and information of ICM into the Work Product.
Owner’s use of the proprietary property and information of ICM shall be
governed by the terms and provisions of the License Agreement between Owner and
ICM, attached hereto as Exhibit D, to be executed by such parties in
connection with the execution of this Agreement. The preceding last three
sentences of this paragraph also apply to Articles 4.3 and 4.4 below.


 


4.3          Owner’s Limited License Upon Owner’s Termination for
Convenience or Design-Builder’s Election to Terminate. If Owner
terminates the Project for its convenience as set forth in Article 8
hereof, or if Design-Builder elects to terminate this Agreement in accordance
with Section 11.4 of the General Conditions of Contract, Design-Builder
shall, then upon Owner’s payment in full of the amounts due Design-Builder
under the Contract Documents, vest in Owner a limited license to use the Work
Product to complete the Project and subsequently occupy and repair the Project,
subject to the following:


 


3

















 


.1             Use of the Work Product is at Owner’s sole
risk without liability or legal exposure to any Indemnified Party; provided,
however, that any “pass through” warranties regarding equipment or express
warranties regarding equipment provided by this Agreement shall remain in
effect according to their terms; and


 


.2             If the termination for convenience is by
Owner or if Design-Builder elects to terminate this Agreement in accordance
with Section 11.4 of the General Conditions of Contract, then Owner agrees
to pay Design-Builder the additional sum of One Million Dollars ($1,000,000.00)
as compensation for the limited right to use the Work Product (completed “as
is” on the date of termination) in accordance with this Article 4.


 


4.4          Owner’s Limited License Upon Design-Builder’s Default.
If this Agreement is terminated due to Design-Builder’s default
pursuant to Section 11.2 of the General Conditions of Contract and
(i) it is determined that Design-Builder was in default and
(ii) Owner has fully satisfied all of its obligations under the Contract
Documents through the time of Design-Builder’s default, then Design-Builder
shall grant Owner a limited license to use the Work Product in connection with
Owner’s completion and occupancy and repair of the Project. This limited
license is conditioned on Owner’s express understanding that its use of the
Work Product is at Owner’s sole risk and without liability or legal exposure to
any Indemnified Party; provided, however, that any “pass through” warranties
regarding equipment or express warranties regarding equipment provided by this
Agreement shall remain in effect according to their terms. This limited license
would grant Owner the ability to repair the Project at Owner’s discretion.


 


4.5          Owner’s Indemnification for Use of Work Product. If
Owner uses the Work Product under any of the circumstances identified in this
Article 4, Owner shall defend, indemnify and hold harmless the Indemnified
Parties from and against any and all claims, damages, liabilities, losses and
expenses, including attorneys’ fees, arising out of or resulting from the use
of the Work Product; provided, however, that any “pass through” warranties
regarding equipment or express warranties regarding equipment provided by this
Agreement shall remain in effect according to their terms.


 


Article 5


 


Contract Time


 


5.1          Date of Commencement. The Work shall
commence within five (5) days of Design-Builder’s receipt of Owner’s
written Notice to Proceed (“Date of Commencement”) unless the parties mutually
agree otherwise in writing. The parties agree that a valid Owner’s Notice to
Proceed cannot be given until: 1) Owner has title to the real estate on which
the project will be constructed; 2) a Letter of Commitment for all necessary
financing to construct the project is received; 3) the Phase I and Phase II
site work required of Owner, as described in Exhibit ”C” is completed
along with Phase II redline drawings; however, Design-Builder will consider
accepting Owner’s Notice to Proceed after the site is graded and the road/laydown
is completed and rocked; 4)  the air
permit(s) and/or other applicable local, state or federal permits
necessary so that construction can begin, have been obtained; 5) it appears
reasonable that financial close on the Letter of Commitment will occur within
sixty (60) days of the issuance of said Notice to Proceed; and 6) Owner shall
execute a sales tax exemption certificate and provide to Design-Builder.
Design-Builder must receive a valid Owner’s Notice to Proceed within 270 days
of the signing of this Agreement; otherwise, the Contract Price referred to in
Section 6.1 is subject to a price increase.


 


5.2          Substantial Completion and Final Completion


 


4

















 


5.2.1       Substantial Completion
of the entire Work shall be achieved no later than four hundred eighty-five
(485) calendar days after the Date of Commencement. However, any delays caused
by the modification of Owner’s construction air emission permit as referenced
in Section 11, are hereby specifically excluded from the 485 calendar days
specified in this section.


 


5.2.2       Interim milestones and/or
Substantial Completion of identified portions of the Work shall be achieved as
described in Exhibit F. The Scheduled Substantial Completion date will
likewise be extended a corresponding amount of days for each day Owner exceeds
the deliverable timeframes referred to in Exhibit F.


 


5.2.3       Final Completion of the
Work or identified portions of the Work shall be achieved as expeditiously as reasonably
practicable, but not later than sixty (60) days following issuance of the
Certificate of Substantial Completion.


 


5.2.4       All of the dates set forth
in this Article 5 (“Contract Time(s)”) shall be subject to adjustment in
accordance with the General Conditions of Contract. Specifically, if delays in
the Contract Time occur because of delay in the delivery of materials or
equipment that is beyond the control of Design-Builder, the Contract Time will
be adjusted, without penalty to Design-Builder, pursuant to Sections 8.2.1 and
8.2.2 of the General Conditions of Contract.


 


5.3          Time is of the Essence. Owner
and Design-Builder mutually agree that time is of the essence with respect to
the dates and times set forth in the Contract Documents.


 


5.4          Early Completion Bonus.


 


5.4.1       If Substantial Completion
is attained within 470 days after the Date of Commencement, Owner shall pay
Design-Builder at the time of Final Payment under Section 7.3  hereof an early completion bonus of
$10,000.00 per day, for each day that Substantial Completion occurred in
advance of said 470 days.


 


5.4.2       In all events, payment
of said bonus, if applicable, at the time of Final Payment is subject to
release of funds by senior lender. If senior lender does not allow release of
funds at the time of Final Payment to pay said early completion bonus in full,
any unpaid balance shall be converted to an unsecured Promissory Note payable
by Owner to Design-Builder, accruing interest at ten percent (10%), as such
rate may change from time to time. On each anniversary of the Note, any unpaid
accrued interest shall be converted to principal and shall accrue interest as
principal thereafter. Owner shall pay said Promissory Note as soon as allowed
by senior lender; in any event, the Note, plus accrued interest, shall be paid
in full before Owner pays or makes any distributions to or for the benefit of
its owners (shareholders, members, partners, etc.). All payments shall be
applied first to accrued interest and then to principal.


 


5.5          Liquidated Damages.


 


5.5.1       Design-Builder
understands that if Substantial Completion is not attained by the Scheduled
Substantial Completion Date, Owner will suffer damages which are difficult to
determine and accurately specify. Design-Builder agrees that if Substantial
Completion is not attained within 500 days after the Date of Commencement due
to unexcused delay (delay due to the modification of the construction air
emission permit, as referenced in Article 11 and Exhibit G, is
specifically considered an excused delay and is therefore not subject to the
calculation of liquidated damages), Designer-Builder shall pay Owner Twenty
Thousand Dollars ($20,000.00) as liquidated damages for each day that
Substantial Completion extends beyond 500 days. Owner, at its discretion, may
elect to offset any such liquidated damages from any retainage or any amounts
owed by Owner to Design Builder. The liquidated damages provided herein shall
be in lieu of all 


 


5

















 


liability for any
and all extra costs, losses, expenses, claims, penalties and any other damages,
whether special or consequential, and of whatsoever nature incurred by Owner
which are occasioned by any delay in achieving Substantial Completion.


 


5.5.2       Design-Builder’s total
aggregate liability for liquidated damages under section 5.5.1, for failure to
meet the performance and emission warranties under Article 11, and for
liability under Exhibit H, shall be capped at and shall not exceed $10.0
Million.


 


Article 6


 


Contract Price


 


6.1          Contract Price. Owner shall pay
Design-Builder in accordance with Article 6 of the General Conditions of
Contract the sum of Seventy-six million, six hundred eighty-six thousand three
hundred eighty-two and 00/100 Dollars ($76,686,382.00) (“Contract Price”),
subject to adjustments made in accordance with the General Conditions of
Contract. The Contract Price assumes the use of Wyoming/Montana-sourced coal as
the energy source as further described in Exhibit C and referred to in
Exhibit A. Owner acknowledges that it has taken no action which would
impose a union labor or prevailing wage requirement on Design-Builder, Owner or
the Project. The Parties acknowledge and agree that if after the date hereof, a
change in Applicable Law or a Governmental Authority acting pursuant to a change
in Applicable Law shall require Design-Builder to employ union labor or
compensate labor at prevailing wages, the Contract Price shall be adjusted
upwards to include any increased costs associated with such labor or wages.
Unless otherwise provided in the Contract Documents, the Contract Price is
deemed to include all sales, use, consumer and other taxes mandated by
applicable Legal Requirements. If Owner directs Design Builder to claim an
exemption from such taxes for all or part of the Work (over and above what is
generally available under capital equipment exemptions etc), then, subject to
Section 7.2 of the General Conditions of Contract, Owner and
Design-Builder will enter into a Change Order (pursuant to Article 9 of
the General Conditions of Contract) to adjust the Contract Price to pass along
any such savings to Owner.


 


6.2          Markups for Changes. The
parties agree that changes shall not occur pursuant to Sections 9.4.1.3 or
9.4.1.4 of the General Conditions of Contract, but may occur pursuant to the
other provisions therein.


 


Article 7


 


Procedure for Payment


 


7.0          Payment at Financial
Close. As part of the Contract Price, Owner shall pay Design-Builder Five
Million Dollars ($5,000,000) as soon as allowed by its organizational
documents, the Escrow Agreement and any other relevant agreements or laws as a
mobilization fee. Provided, however, that said payment, if not made earlier,
shall be paid at Financial Close. Financial Close is defined as Owner executing
final loan documents obtaining all necessary financing to construct the project
and funds are available to pay disbursements. Said Five Million ($5,000,000)
Dollar payment shall be subject to the retainage as provided by
Article 7.2.1.


 


6

















 


7.1          Progress Payments


 


7.1.1       Design-Builder shall
submit to Owner on the twenty-fifth ( 25th ) day of each month,
beginning with the first month after the Date of Commencement, Design-Builder’s
Application for Payment in accordance with Article 6 of the General Conditions
of Contract.


 


7.1.2       Owner shall make
payment within ten (10) days after Owner’s receipt of each properly
submitted and accurate Application for Payment in accordance with
Article 6 of the General Conditions of Contract, but in each case less the
total of payments previously made, and less amounts properly withheld under
Section 6.3 of the General Conditions of Contract.


 


7.2          Retainage on Progress Payments


 


7.2.1       Owner will retain ten
percent ( 10%) of each payment provided, however, that when fifty percent (50%)
of the Work ($38,343,191.00 aggregate payment) has been completed by
Design-Builder, Owner will not retain any additional amounts from
Design-Builder’s subsequent payments, unless there is less than $3,834,319.10
total retainage. Owner will also reasonably consider reducing retainage for
Subcontractors completing their work early in the Project.


 


7.2.2       Upon Substantial Completion
of the entire Work or, if applicable, any portion of the Work, pursuant to
Section 6.6 of the General Conditions of Contract, Owner shall release to
Design-Builder all retained amounts relating, as applicable, to the entire Work
or completed portion of the Work, less an amount equal to the reasonable value
of all remaining or incomplete items of Work as noted in the Certificate of
Substantial Completion, provided that such payment shall only be made if
Design-Builder has met the Performance Guarantee Criteria listed in
Exhibit A.


 


7.3          Final Payment. Design-Builder
shall submit its Final Application for Payment to Owner in accordance with
Section 6.7 of the General Conditions of Contract. Owner shall make
payment on Design-Builder’s properly submitted and accurate Final Application
for Payment within thirty (30) days after Owner’s receipt of the Final
Application for Payment, provided that Design-Builder has satisfied the
requirements for final payment set forth in Section 6.7.2 of the General
Conditions of Contract and Design-Builder has met the Performance Guarantee
Criteria listed in Exhibit A.


 


7.4          Interest. Payments which are due and unpaid
by Owner to Design-Builder, whether progress payments or final payment, shall
bear interest commencing five (5) days after payment is due at the rate of
eighteen percent (18%) per annum.


 


7.5          Record Keeping and
Finance Controls. With respect to changes in the Work performed on a cost
basis by Design-Builder pursuant to the Contract Documents, Design-Builder
shall keep full and detailed accounts and exercise such controls as may be
necessary for proper financial management, using accounting and control systems
in accordance with generally accepted accounting principles and as may be
provided in the Contract Documents. During the performance of the Work and for
a period of three (3) years after Final Payment, Owner and Owner’s accountants
shall be afforded access from time to time, upon reasonable notice, to
Design-Builder’s records, books, correspondence, receipts, subcontracts,
purchase orders, vouchers, memoranda and other data relating to changes in the
Work performed on a cost basis in accordance with the Contract Documents, all
of which Design-Builder shall preserve for a period of three (3) years
after Final Payment.


 


7

















 


Article 8


 


Termination for Convenience


 


8.1          Upon ten (10) days’
written notice to Design-Builder, Owner may, for its convenience and without
cause, elect to terminate this Agreement. In such event, Owner shall pay
Design-Builder for the following:


 


.1             All Work executed, and for proven loss,
cost or expense in connection with the Work;


 


.2             The reasonable costs and expenses
attributable to such termination, including demobilization costs and amounts
due in settlement of terminated contracts with Subcontractors and Design
Consultants; and


 


.3             Overhead and profit margin in the amount
of fifteen percent ( 15 %) on the sum of items .1 and .2 above, except that
overhead and profit shall not be due regarding amounts due in settlement of
terminated contracts with subcontractors and design consultants.


 


8.2          In addition to the
amounts set forth in Section 8.1 above, Design-Builder shall be entitled
to receive all retainage withheld by Owner.


 


8.3          If Owner terminates this
Agreement pursuant to Section 8.1 above and proceeds to design and
construct the Project through its employees, agents or third parties, Owner’s
rights to use the Work Product shall be as set forth in Section 4.3
hereof.


 


Article 9


 


Representatives of the Parties


 


9.1          Owner’s Representatives


 


9.1.1       Owner designates the
individual listed below as its Senior Representative (“Owner’s Senior
Representative”), which individual has the authority and responsibility for
avoiding and resolving disputes under Section 10.2.3 of the General
Conditions of Contract:  (Identify individual’s name, title, address and
telephone numbers)


 


TBD


 


9.1.2       Owner designates the
individual listed below as its Owner’s Representative, which individual has the
authority and responsibility set forth in Section 3.4 of the General
Conditions of Contract:  (Identify individual’s name, title, address and telephone
numbers)


 


TBD


 


9.2          Design-Builder’s
Representatives


 


9.2.1       Design-Builder designates
the individual listed below as its Senior Representative (“Design-Builder’s
Senior Representative”), which individual has the authority and responsibility
for avoiding and resolving disputes under Section 10.2.3 of the General
Conditions of Contract:  (Identify individual’s name, title, address and
telephone numbers)


 


8

















 


Roland “Ron” Fagen, CEO and President


501 W. Highway 212


P.O. Box 159


Granite Falls, MN 56241


Telephone:  (320) 564-3324


 


9.2.2       Design-Builder
designates the individual listed below as its Design-Builder’s Representative,
which individual has the authority and responsibility set forth in
Section 2.1.1 of the General Conditions of Contract:  (Identify
individual’s name, title, address and telephone numbers)


 


Aaron Fagen


Chief Operating Officer


501 W. Highway 212, PO Box 159


Granite Falls, MN 56241


Telephone:  (320) 564-3324


 


Article 10


 


Bonds and Insurance


 


10.1        Insurance. Design-Builder
shall procure in accordance with Article 5 of the General Conditions of
Contract the following insurance coverage: A certificate of insurance will be
provided prior to starting construction. Policy limits shall be as follows:


 


	
  Commercial
  General Liability:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  General
  Aggregate

  	
   

  	
  $

  	
  2,000,000

  	
   

  
	
  Products-Comp/Op
  AGG

  	
   

  	
  $

  	
  2,000,000

  	
   

  
	
  Personal &
  Adv Injury

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  Each Occurrence

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  Fire Damage (Any
  one fire)

  	
   

  	
  $

  	
  50,000

  	
   

  
	
  Med Exp (Any one
  person)

  	
   

  	
  $

  	
  5,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Automobile
  Liability:

  	
   

  	
   

  	
   

  
	
  Combined Single
  Limit

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Excess Liability
  – Umbrella Form

  	
   

  	
   

  	
   

  
	
  Each Occurrence

  	
   

  	
  $

  	
  20,000,000

  	
   

  
	
  Aggregate

  	
   

  	
  $

  	
  20,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Workers
  Compensation and Employers’ Liability: 

  	
   

  	
   

  	
   

  
	
  Statutory Limits:

  	
   

  	
   

  	
   

  
	
  Each Accident

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  Disease-Policy
  Limit

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  Disease-Each
  Employee

  	
   

  	
  $

  	
  1,000,000

  	
   

  



 


9

















 


	
  Contractor’s
  Professional Liability Coverage:

  	
   

  	
   

  	
   

  
	
  Per Claim

  	
   

  	
  $

  	
  5,000,000

  	
   

  
	
  Aggregate

  	
   

  	
  $

  	
  5,000,000

  	
   

  



 


Owner shall provide the following within 10 days of Design-Builder’s
receipt of Owner’s Notice to Proceed:


 


·              Owner shall obtain a
builder’s risk policy naming Owner as the insured, with Design-Builder as
additional insured, in an amount not less than the Contract Price.


·              Owner shall also
obtain Boiler and Machinery Insurance protecting Owner, Design-Builder, Design
Consultants, Subcontracts and Subcontractors.


·              In addition, Owner
shall obtain terrorism coverage as described by the Terrorism Risk Insurance
Act of 2002.


 


Article 11


 


Other Provisions


 


11.1        Other provisions, if any,
are as follows:


 


·      Performance Guarantee:  The Design-Builder guarantees the Criteria
listed in Exhibit A. If there is a performance shortfall, Design-Builder
will pay all design and construction costs associated with making the necessary
corrections. Design-Builder retains the right to use its sole discretion in
determining the method to remedy any performance related issues.


 


·      If Owner, for whatever
reason, prevents Design-Builder from demonstrating the Performance     Guarantee Criteria within 30 days of
Design-Builder’s notice that the Project is ready for Performance Testing,
Design-Builder is thereby deemed to have fulfilled all of its Performance Guarantee
obligations listed in Exhibit A.


 


·      Price Guarantee:  The Design-Builder guarantees the Contract
Price for the Work delineated by the Contract Documents. Any and all price
increases would require, in addition to Owner’s approval, the approval of
Owner’s senior lender.


 


·      Winter Construction:  Owner shall have no responsibility for any
winter construction related activities including, but not limited to, special
material costs, sheltering, heating, and equipment rental, except that Owner
shall pay all the reasonable costs incurred for frost removal including, but
not limited to, equipment costs, equipment rental costs, and associated labor
costs so that winter construction can proceed.


 


·      Design-Builder shall obtain
or cooperate in obtaining a performance bond if such a bond is requested by
Owner. If the bond is obtained by Design-Builder, Owner shall pay
Design-Builder for the cost of the bond, plus pay Design-Builder a fee of 7.5%,
said fee calculated by multiplying 7.5% on the cost of the bond. If purchased
by Owner, Owner shall pay all costs of obtaining the bond.


 


·      Design-Builder warrants that
within six (6) months following the date of Substantial Completion, the
atmospheric emissions of the ethanol plant, taken as a whole, when operating at
nameplate capacity meeting all performance guarantee criteria listed in
Exhibit A (including but not limited to the drying of all DDGS to produce
11% moisture DDGS), shall meet the requirements of a “synthetic minor source”
of air pollutants (1) as currently 


 


10

















 


prescribed, as of the date hereof, by the State of Minnesota Pollution
Control Agency and (2) as necessary to maintain its designation and status
as a “synthetic minor source” for purposes of the federal Clean Air Act and
associated regulations adopted by the U.S. Environmental Protection Agency as
currently prescribed as of the date hereof. Verification shall be provided by a
written report from Design-Builder. If this warranty is not met, Design-Builder
will pay all design, engineering, equipment, labor and construction costs
associated with making the necessary corrections in order to meet the warranty,
subject to Exhibit G. Design-Builder retains the right to use its sole
discretion in determining the method to remedy the warranty related issues,
subject to commercial reasonableness.


 


·      Owner acknowledges that
Owner’s current air emission permit may require modifications prior to
Design-Builder being able to construct certain process equipment and emission
control devices. Construction or Equipment ordering delays due to such
modification are the responsibility and expense of Owner as follows:
(1) Owner shall be solely responsible for its own costs and expenses
incurred by such delay, including attorneys fees; (2) Owner will issue
Design-Builder a Change Order (pursuant to Article 9 of the General
Conditions of Contract) for the time adjustment(s) necessitated by such
delay and to reimburse Design-Builder for price increases on equipment (at
cost) or increases in subcontractor costs necessitated by such delay. If such
delay would require Design-Builder to demobilize and remobilize, Design-Builder
and Owner will share in such costs under an agreed-upon in good faith Change
Order issued pursuant to Article 9 of the General Conditions of Contract


 


·      To the fullest extent
permitted by law, Owner hereby agrees to indemnify, defend and hold harmless
Design-Builder, Design Consultants, Subcontractors, anyone employed directly or
indirectly for any of them, and their officers, directors, employees and
agents, from and against any and all claims, losses, damages, liabilities and
expenses incurred as a result of third party claims or actions brought against
such indemnified party (other than claims or actions brought by any such indemnified
party), including attorneys’ fees and expenses, arising out of or resulting
from such modification to Owner’s current air emission permit.


 


·      Subject to
Section 10.5.2 of the General Conditions of Contract, Owner agrees that
Design-Builder shall not be liable for any consequential losses or damages
resulting Owner’s requirement to modify its existing construction air emission
permit, whether arising in contract, warranty, tort (including negligence),
strict liability or otherwise, including but not limited to losses of use,
profits, business, reputation or financing.


 


In executing this
Agreement, Design-Builder represents that it has the necessary financial
resources to fulfill its obligations under this Agreement and has the necessary
corporate approvals to execute this Agreement and perform the services
described herein. Owner represents that it has the necessary organizational
approvals to execute this Agreement; that Owner is seeking financing for the
project and that Owner agrees to keep Design-Builder informed of Owner’s
progress in obtaining commitments for and closing on such financing.


 


	
  OWNER:

  	
   

  	
  DESIGN-BUILDER:

  
	
   

  	
   

  	
   

  
	
  Heron Lake
  BioEnergy, LLC

  	
   

  	
  Fagen, Inc.

  
	
  (Name
  of Owner)

  	
   

  	
  (Name
  of Design-Builder)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
  (Signature)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Roland “Ron”
  Fagen

  



 


11

















 


	
  (Printed
  Name)

  	
   

  	
  (Printed
  Name)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CEO and
  President

  
	
  (Title)

  	
   

  	
  (Title)

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
  Date:

  



 


12
















 


EXHIBIT A


 


Performance Guarantee
Criteria


 


Table 1


 


	
  Criteria

  	
   

  	
  Specification

  	
   

  	
  Testing Statement

  	
   

  	
  Documentation

  
	
  Plant Capacity –
  fuel grade ethanol

  	
   

  	
  Operate at a
  rate of 50 million gallons per year of denatured fuel grade ethanol meeting
  the specifications of ASTM 4806 based on 353 days of operation per calendar
  year and 4.76% denaturant.

  	
   

  	
  Seven day
  performance test

  	
   

  	
  Production
  records and a written report by Design-Builder.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dried Distillers
  Grains with Solubles (DDGS)

  	
   

  	
  Dry all DDGS to
  produce 11% moisture DDGS

  	
   

  	
  Seven day
  performance test

  	
   

  	
  Production
  records and written analysis by Design-Builder.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Corn to Ethanol
  Conversion ratio; [***]

  	
   

  	
  Not be less than
  2.80 denatured gallons of ethanol per bushel (56#) of corn

  	
   

  	
  As determined by
  meter readings during a seven day performance test.

  	
   

  	
  Production
  records and written analysis by Design-Builder.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Electrical
  Energy (guarantee subject to adjustment per Exhibit G).

  	
   

  	
  0.95 kWh per
  denatured gallon of fuel grade ethanol [***]

  	
   

  	
  As determined by
  meter readings during a seven day performance test.

  	
   

  	
  Production
  records and written analysis by Design-Builder.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Coal (Powder
  River Coal Company’s North Antelope Mine, located in Gillette, Cambell
  County, Wyoming).

  	
   

  	
  Shall not exceed
  37,000 Btu per denatured gallon of fuel grade ethanol. (This Performance
  Criteria relates to production of ethanol and excludes any energy usage that
  may occur for drying corn.)

  	
   

  	
  As determined by
  meter readings during a seven day performance test.

  	
   

  	
  Production
  records and written analysis by Design-Builder.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Process Water
  Discharge

  	
   

  	
  Zero gallons
  under normal operations

  	
   

  	
  Process
  discharge meter

  	
   

  	
  Control System
  reports

  



 


DISCLAIMER:  Owner’s failure to materially
comply with the operating procedures issued by ICM, Inc./Fagen, Inc.
shall void all performance guaranties and warranties set forth in this
Design-Build Agreement.


 


Owner understands that
the startup of the plant requires resources and cooperation of the Owner,
vendors and other suppliers to the project. 
Design-Builder disclaims any liability and Owner indemnifies
Design-Builder for non-attainment of the Performance Guarantee Criteria
directly or indirectly caused by material non-performance or negligence of
third parties not retained by Design-Builder. 
Owner should expect the plant to experience more downtime with
coal-fired equipment than natural gas fired equipment, provided the attainment
of the Plant Capacity Specification Guarantee shall still be met.


 

















 


EXHIBIT
B


 


General Project Scope


 


Construct a 50 million-gallon per year (MGY) coal-fired ethanol plant
near Heron Lake, Minnesota.  The plant
will grind approximately 17.9 million bushels per year to produce approximately
50 MGY year of fuel grade ethanol denatured with five percent gasoline.  The plant will also produce approximately
160,750 tons per year of 11% moisture dried distillers grains with solubles
(DDGS), and approximately 151,250 tons per year of raw carbon dioxide (CO2)
gas.


 


Delivered
corn will be dumped in the receiving building. 
The receiving building will have two truck grain receiving bays and a
rail receiving bay, including an underground conveyor from the rail pit to the
second truck receiving bay both of which share a common receiving leg.  Said receiving building shall have sufficient
height to accommodate end-dump trailers. 
There will be two 14’ x 100’ scales for the truck drivers to drive onto
for weigh-in and weigh-out located near the administration building.  The trucks will be weighed and sampled, then
drive to the receiving building, dump the grain, then proceed to the second
scale and obtain a final weight ticket from the scale operator.  The trucks will not be required to move
during the unloading process in the receiving building.  Maximum truck dump time is ten minutes.  Two independent 15,000-bushel legs will lift
the corn to one of two 250,000 — bushel concrete storage bins or corn day
bin.  A dust collection system will be
installed on the grain receiving system to limit particulate emissions as
described in the Air Quality Permit application.


 


Ground
corn will be mixed in a slurry tank, routed through a pressure vessel and steam
flashed off in a flash vessel.  Cooked
mash will continue through liquefaction tanks and into one of the fermenters.  Simultaneously, propagated yeast will be
added to the mash as the fermenter is filling. 
After batch fermentation is complete, the beer will be pumped to the
beer well and then to the beer column to vaporize the alcohol from the mash.


 


Alcohol
streams are purified in the rectifier column and the side stripper, and
dehydrated in the molecular sieve system. 
Two hundred proof alcohol is pumped to the tank farm day tank and
blended with five percent natural gasoline as the product is being pumped into
one of two 1,200,000 gallon final storage tanks.  One loading facility for truck and two
loading facilities for rail cars will be provided and are supplied by three
loadout pumps rated at 3600 gallons per minute. 
The loading facility is sized to allow loading of 75 car unit trains of
ethanol.  Emissions from the rail and
truck loading is controlled by a flare. 
Tank farm tanks include:  one tank
for 190 proof storage, one tank for 200 proof storage, one tank for denaturant
storage and two 1,200,000 gallon tanks for denatured ethanol storage.


 


Corn
mash from the beer column is dewatered in the centrifuge(s).  The solids, called wet cake are conveyed to
the dryer system. The liquid, called thin stillage is routed to the evaporators
where moisture is removed.  The wet cake
and syrup are routed to the steam tube drying system.  The exhaust from the steam tube drying system
will be routed as combustion air to the coal combustor.


 


A
modified wet or wet cake pad is located along side the DDGS dryer building to
divert modified wet or wet cake to the pad when necessary such as start up or
for limited production of modified wet or wet cake for sales.  DDGS is pneumatically conveyed to flat
storage in the DDGS storage building. 
DDGS is transferred to the bulk storage silo with the in-floor conveyor
system.  The bulk storage silo has a
capacity of approximately 4,000 tons of DDGS. 
An approximately 225 ton per hour capacity unloader is used to transfer
the 


 

















 


DDGS
from the DDGS bulk storage silo through the approximately 10,600 bushel per
hour capacity bulk weigh system and into railcars or trucks via telescopic
spouts.  The system will simultaneously
load two railcars with DDGS.


 


Steam
will be generated in a waste heat boiler driven by the flue gases from the coal
combustor.  Since the dryer exhaust is
routed to the coal combustor for combustion air, the coal combustor destroys
VOCs and acts like a Thermal Oxidizer. 
The combustion air is routed in such fashion that it also fluidizes a
sand bed in which the coal is introduced to combust.  The combustor requires natural gas or propane
for start up.  To achieve emission
constraints, limestone will be metered in with the coal to react with
sulfur.  The layout of the combustor, boiler,
and economizer are intended to provide drop out points for fly ash.  The final item in the layout before the
induced draft fan is a dust collector. 
All ash exiting the system will exit as fly ash.  Both fly ash and limestone silos are
included.  The fly ash and limestone
silos have nominal storage capacities of seven days.


 


Coal,
received by truck delivery, will be stored in two silos with a combined storage
capacity of seven days.  At the outlet of
each coal silo, coal will be sized (3/4” minus) and limestone added before
being routed to the coal feeder bunkers. 
The coal combustor will also utilize anhydrous ammonia for NOx emission
reduction.  A CEMS (Continuous emission
monitoring system) is included.


 


Fresh
water for the boilers, cooking, cooling tower and other processes will be
obtained from the Owner supplied water pretreatment system.  Boiler water conditioned in regenerative
softeners will be pumped through a deaerator scrubber and into a deaerator
tank.  Appropriate boiler chemicals will
be added as preheated water is sent to the boiler.


 


The
process will be cooled by circulating water through heat exchangers, a chiller,
and a cooling tower.


 


The
design includes a compressed air system consisting of air compressor(s), a
receiver tank, pre-filter, coalescing filter, and double air dryer(s).


 


The
design also incorporates the use of a clean-in-place (CIP) system for cleaning
cook, fermentation, distillation, evaporation, centrifuges, and other
systems.  Fifty percent caustic soda is
received by truck and stored in a tank.


 


Under
normal operating circumstances, the plant will not have any wastewater
discharges that have been in contact with corn, corn mash, cleaning system, or
contact process water.  An ICM/Phoenix
Bio-Methanator will reduce the BOD in process water allowing complete reuse
within the plant.  The plant will have
blowdown discharges from the cooling tower and may have water discharge from
any water pre-treatment processes.  Owner
shall provide on-site connection to sanitary sewer or septic system.


 


Most
plant processes are computer controlled by a Siemens/Moore APACS distributed
control system with graphical user interface and three workstations.  The process control room control console will
have dual monitors to facilitate operator interface between two graphics
screens at the same time.  Additional
programmable logic controllers (PLCs) will control certain process
equipment.  Design Builder provides lab
equipment.


 


The
cooking system requires the use of anhydrous ammonia, and other systems require
the use of sulfuric acid.  Therefore, a
storage tank for ammonia and a storage tank for acid will be on site to provide
the quantities necessary.  The ammonia
storage requires that plant 


 

















 


management
implement and enforce a Process Safety Management (PSM) program.  The plant design may require additional
programs to ensure safety and to satisfy regulatory authorities.


 


NOTE:  Exhibit B
is a general description of the plant’s basic operation.  Not all equipment and equipment sizes quoted
may be used on every plant.  Site
specific equipment and equipment sizes will be determined during each plant’s
final design.


 

















 


EXHIBIT C


 


Owner’s
Responsibilities


 


The
Owner shall perform and provide the permits, authorizations, services and
construction as specifically described hereafter:


 


1)              Land and Grading – Owner
shall provide a site near or in Heron Lake, MN. Owner shall obtain all legal
authority to use the site for its intended purpose and perform technical due
diligence to allow Design-Builder to perform including, but not limited to,
proper zoning approvals, building permits, elevation restrictions, soil tests,
and water tests. The site shall be rough graded per Design-Builder
specifications and be +/- three inches of final grade including the rough
grading for Site roadways.  The site
soils shall be modified as required to provide a minimum allowable soil bearing
pressure as described in Table 1.


 


Other items to be provided by the Owner include, but are not limited
to, the following: initial site survey (boundary and topographic) as required
by the Design-Builder, layout of the property corners including two
construction benchmarks, Soil Borings and subsequent Geotechnical Report
describing recommendation for Roads, foundations and if required, soil
stabilization/remediation, land disturbance permit, erosion control permit,
site grading as described above with minimum soil standards, placement of
erosion control measures, plant access road from a county, state or federal
road designed to meet local county road standards, plant storm and sanitary
sewers, fire water system with hydrants and plant water main branches taken
from the system to be within five feet of the designated building locations,
all tanks, motors and other equipment associated with or necessary to operate
the fire water loop and associated systems, plant roads as specified and
designed for the permanent elevations and effective depth, “construction”
grading plan as drawn (including site retention pond), plant water well and
associated permit(s).  Owner shall also
provide the final grading, seeding and mulching, and site fencing at the site.


 


Owner is encouraged to obtain preliminary designs/information and
estimates of the cost of performing all Owner required permits and services as
stated in this Exhibit C. 
Specifically, the cost of the fire water systems (including associated
fire water pumps, required tank, building (if required), sprinklers, and all
other equipment and materials associated with the fire water delivery systems)
is estimated being in excess of $1,000,000. 
The requirements of each state and the decisions of each Owner will
increase or decrease the actual cost.


 


The Owner’s required activities related to site preparation for
construction are to be divided into Phase I and Phase II activities as
described below:


 


Deliverables by Owner  prior to start of Phase 1
Civil Design:


 


Procure Boundary &
Topographic Survey (to one foot contours)


Procure Soil Borings and Geotechnical Report
with recommendations (at Design-Builder’s requested locations and depth)


 


Phase 1 (Deliverable Site):


 


Design-Builder provides engineering services
to develop these items:


 


1.               Final Plant Layout with FFE and Top of Road
Elevations


 

















 


2.               Final Cut/Fill Quantity Calculations


3.               Grading and Erosion Control Plan


4.               Clear & Grubbing Plan - graded to
+/- 3” of subgrade


Subgrade is defined as 1’ below proposed
Building FFE and Administration Building FFE and 20” to 30” (based on rail
designer input) below top of rail for the rail spurs.  Subgrade for the in-plant roads will be
determined upon recommendations from the geotechnical engineer (12” to 24”
below final top of road)


 


*Owner shall prepare site according to
Design-Builder’s engineering plans for the above items.


 


Plant Access Road and all
in-plant roads (which will act as base for final roadway system)


Soil Stabilization


Site Grading


Replacement Fill


Construction Layout (parking, laydown, access
areas, temp. drainage and temp. facilities)


Storm Water Drainage & Detention


 


Phase 2 Site Work (Final
Civil Design Plans):


 


Design-Builder provides engineering services
to develop these items:


Site Utilities (Within
Property Line):


 


1. Sanitary Sewer System


2. Potable Water Supply and
Distribution


3. Process Water Supply and
Distribution


4. Gas Supply and
Distribution


5. Fire Loop and Fire
Protection System


6. Site Electric


7. Site Natural Gas/Propane


 


Wells and Well Pumps (supply of sufficient
quantity for construction activities)


Minimum 3 Phase, 480 Volt,
1,000 KVA Electrical Power Available for Construction at two locations (at
Design-Builder’s requested location)


 


Design/Builder shall be reimbursed on a “Time & Material”
basis for any management of these Owner requirements and any design engineering
requested by the Owner not otherwise required to be provided by Design-Builder
pursuant to this Agreement.


 


2)              Permits - Owner
shall obtain all Operating Permits including, but not limited to, air quality
permits, in a timely manner to allow startup of the plant as designed by
Design-Builder.  Owner shall obtain all
testing and site inspections required to secure the necessary operating
permits.


 


3)              Storm Water Runoff Permit – Owner shall obtain the construction storm – water runoff permit,
permanent storm-water runoff permit, and the erosion control/land disturbance
permit.


 

















 


4)              Minnesota Pollutant Elimination Discharge Permit – Owner shall obtain a permit to discharge
cooling tower water and reverse osmosis (“R.O.”) reject water and any other
waste water directly to a designated waterway or other location Owner shall
supply the discharge piping to transport to the designated waterway or other
location.


 


5)              Natural Gas, Propane, Coal Supply and Ash Disposal Agreements – Owner shall procure and supply a supply of
natural gas or propane for the preheat and start up of the coal combustor.  For the coal combustor, two separate gas
burners will require natural gas or propane: 
the underbed air preheater rated for 20 mmbtu/hr and the overfire air
preheater rated for 50 mmbtu/hr. 
Consumption will start at approximately 30 % of the total rating and be
ramped up to maximum over a nominal 8 hr period, depending on the starting
temperature.  Minimum demand will be 21
mm btu/hr and ramp up to a maximum of 70 mm btu/hr.  Owner shall provide all natural gas and/or
propane piping to the use points and supply meters, regulators, and vaporizers
to provide burner tip pressures as specified by Design-Builder.  Owner shall also supply a digital flowmeter
on-site with appropriate output for monitoring by the plant’s computer control
system.


 


The coal combustor design will be based on
typical analysis of coal provided by owner, which to date is from the Powder
River Coal Company’s North Antelope mine located in Gillette, Cambell County,
Wyoming.  Planned emission control is to
mix limestone with the coal, as the sulfur content is .24%.  The as received heat value is 8,800 btu/lb,
and the expected consumption will be 300 tons/day at the 50 mm gpy production
rate.  Procurement and supply of coal and
limestone will be the responsibility of the owner.


 


Ash is noted to be 5.3%, so a nominal 18
tons/day of ash will need to be removed from the site each day.  All ash is removed from the system as fly
ash.  Disposal will be at owner’s
responsibility.


 


6)              Electrical Service – (1) The
Owner is responsible to secure continuous service from an energy supplier to
serve the facility.  The service from the
energy supplier shall be of sufficient size to provide at a minimum 10 MW of
electrical capacity to the site.  (2) The
Owner is responsible for procurement, installation and maintenance of the site
distribution system, including but not limited to the required substation and
all associated distribution lines, switchgear, sectional cabinets, distribution
transformers, transformer pads, etc.  An
on-site primary digital meter is also to be supplied for monitoring of
electrical usage and demand.  This meter
must have the capability to be monitored via a telephone line or other
electrical signal.  (3) The
responsibility of the Design-Builder starts at the secondary electrical
terminals of the site distribution system transformers that have been installed
by Owner (i.e., the 480 volt terminals for the process building transformers;
the 480 volt terminals for the energy center transformers; the 480 volt
terminals for the grains transformer; the 480 volt terminals for the pumphouse
transformer; and the 4160 volt terminals for the chiller transformer; and the
4160 volt terminals of the thermal oxidizer transformer).  (4) The site distribution system
requirements, layout, and meters are to be determined jointly by the Owner, the
Design-Builder and the energy supplier.


 


Design-Builder will be providing soft start motor
controllers for all motors greater than 150 horsepower and where demanded by
process requirements.  Owner is
encouraged to discuss with its electrical service supplier whether additional
soft start motor 


 

















 


controllers are advisable for this facility and such can
be added, with any increased cost being an Owner’s cost.


 


Design-Builder will provide
power factor correction to 0.92 lagging at plant nameplate capacity.  Owner is encouraged to discuss with its
electrical service supplier any requirements for power factor correction above
0.92 lagging.  Additional power factor
correction can be added with any increased cost being an Owner’s cost.


 


7)              Water Supply and Service Agreement – Owner shall supply on-site process wells or other water source capable
of providing a quantity of water which includes process water, R.O. feed water,
cooling tower make-up water, of a quality which will allow discharges to comply
with NPDES limits.  Owner should consider
providing a redundant supply source. 
Design-Builder shall provide the standard zeolite water softener
system.  Any increased costs incurred for
another water treatment system if water does not meet the quality requirements
shall be the responsibility of the Owner. 
Owner will supply one process fresh water supply line terminating within
five (5) feet of the point of entry designated by Design-Builder, one
potable supply line terminating within five (5) feet of the process
building at a point of entry designated by Design-Builder, and one potable
supply line to the administration building at a point of entry designated by
administration building contractor.


 


Owner is advised that most projects require a water pre-treatment
system.  Such system is an Owner’s cost
and Owner is advised that the purchase and installation cost of such water
pre-treatment system may exceed $2,000,000. 
Owner is also advised that such systems may be leased if Owner desires
to avoid the costs of owning such a system.


 


8)              Wastewater Discharge System, Permits and/or Service Agreement – Owner shall provide the discharge piping,
septic tank and drainfield system or connect to municipal system as required
for the sanitary sewer requirements of the Plant.  These provisions shall comply with all
federal, state, and local regulations, including any permitting issues.


 


9)              Roads and Utilities –
Owner shall provide and maintain the ditches and permanent roads, including the
gravel, pavement or concrete, with the roads passing standard compaction
tests.  (Design-Builder will maintain
aggregate construction roads during construction of the Plant and will return
to original pre-construction condition prior to Owner completing final grade and
surfacing.)


 


Except as otherwise specifically stated herein the Owner shall install
all utilities so that they are within five (5) feet of the designated
building/structure locations.


 


10)        Administration Building
– The administration building – one story free standing, office computer
system, telephone system, office copier and fax machine and office furniture
and any other office equipment and personal property for the administration
building shall be the sole and absolute cost and responsibility of Owner and
Design-Builder shall have no responsibility in regards thereto.


 


11)        Maintenance and Power Equipment – The maintenance and power equipment as described in Table 2 and any
other maintenance and power equipment as required by 


 

















 


the plant or desired by
Owner shall be the sole and absolute cost and responsibility of Owner and
Design-Builder shall have no responsibility in regards thereto.


 


12)        Railroads – Owner is
responsible for any costs associated with the railroads including, but not
limited to, all rail design and engineering and construction and Design-Builder
shall have no responsibility in regards thereto.


 


13)        Drawings – Owner
shall supply drawings to Design-Builder of items supplied under items 10) and
12) and also supply Phase II redline drawings.


 


14) Fire
Protection System – Fire protection system requirements vary by
governmental requirements per location and by insurance carrier
requirements.  Owner is responsible to
provide the required fire protection system for the Plant.  This may include storage tanks, pumps,
underground fire water mains, fire hydrants, foam or water monitor valves,
sprinkler systems, smoke and heat detection, deluge systems, or other
provisions as required by governmental codes or Owner’s insurance carrier’s
fire protection criteria.  Design-Builder
will provide assistance to the Owner on a “Time & Material” basis for
design and/or construction of the Fire Protection Systems required for the
plant.


 


Table 1 Minimum Soil Bearing Pressure – Responsibility of Owner


 


	
  Description

  	
   

  	
  Required Allowable Soil Bearing Pressure

  (pounds per square foot)

  	
   

  
	
  Grain Storage
  Silos

  	
   

  	
  8,000

  	
   

  
	
  Cook Water Tank

  	
   

  	
  3,500

  	
   

  
	
  Methanator Feed
  Tank

  	
   

  	
  3,500

  	
   

  
	
  Liquifaction
  Tank #1

  	
   

  	
  3,500

  	
   

  
	
  Liquifaction
  Tank #2

  	
   

  	
  3,500

  	
   

  
	
  Coal Combustor

  	
   

  	
  4,000

  	
   

  
	
  Coal Surge Silo
  #1

  	
   

  	
  6,000

  	
   

  
	
  Coal Surge Silo #2

  	
   

  	
  6,000

  	
   

  
	
  Boiler

  	
   

  	
  4,000

  	
   

  
	
  Dust Collector

  	
   

  	
  3,500

  	
   

  
	
  Fermentation
  Tank #1

  	
   

  	
  4,000

  	
   

  
	
  Fermentation
  Tank #2

  	
   

  	
  4,000

  	
   

  
	
  Fermentation
  Tank #3

  	
   

  	
  4,000

  	
   

  
	
  Fermentation
  Tank #4

  	
   

  	
  4,000

  	
   

  
	
  Beerwell

  	
   

  	
  4,000

  	
   

  
	
  Whole Stillage
  Tank

  	
   

  	
  3,500

  	
   

  
	
  Thin Stillage
  Tank

  	
   

  	
  3,500

  	
   

  
	
  Syrup Tank

  	
   

  	
  3,500

  	
   

  
	
  190 Proof Day
  Tank

  	
   

  	
  3,000

  	
   

  
	
  200 Proof Day
  Tank

  	
   

  	
  3,000

  	
   

  
	
  Denaturant Tank

  	
   

  	
  3,000

  	
   

  
	
  Fire Water Tank

  	
   

  	
  3,000

  	
   

  
	
  Denatured
  Ethanol Tank #1

  	
   

  	
  4,000

  	
   

  
	
  Denatured
  Ethanol Tank #2

  	
   

  	
  4,000

  	
   

  
	
  All Other Areas

  	
   

  	
  3,000

  	
   

  



 

















 


Table 2 Maintenance and
Power Equipment – Responsibility of Owner


 


	
  Description

  	
   

  	
  Additional Description

  
	
  Spare Parts

  	
   

  	
  Spare parts

  Parts bins
 Misc. materials, supplies and
  equipment

  
	
   

  	
   

  	
   

  
	
  Shop supplies and 

  equipment

  	
   

  	
  One shop welder  

  One portable gas welder
  
 One plasma torch  
 One acetylene torch

  One set of power tools  
 Two sets of hand tools with tool
  boxes  
 Carts and dollies  
 Hoists (except centrifuge overhead
  crane)  
 Shop tables  
 Maintenance office
  furnishings & supplies  
 Fire Extinguishers  
 Reference books  
 Safety manuals  
 Safety cabinets & supplies,
  etc.

  
	
   

  	
   

  	
   

  
	
  Rolling stock

  	
   

  	
  Used 1 1⁄2 yard front end loader  

  New Skid loader  
 Used Fork lift  
 Used Scissors lift, 30 foot  
 Used Pickup truck  
 Track Mobile

  



 
















 


EXHIBIT
D


 


LICENSE AGREEMENT


 


THIS LICENSE AGREEMENT (this “License Agreement”) is entered into and made effective as of the
            day of
                                            ,
2005 (“Effective Date”) by and between Heron Lake BioEnergy, LLC, a
limited liability company (“OWNER”), and ICM, Inc., a Kansas corporation
(“ICM”).


 


WHEREAS, OWNER has entered
into that certain Design-Build Lump Sum Contract dated September 28, 2005
(the “Contract”) with Fagen, Inc., a Minnesota corporation (“Fagen”),
under which Fagen is to design and construct a 50 million gallon per year
ethanol plant for OWNER to be located in or near Heron Lake, Minnesota (the
“Plant”);


 


WHEREAS, ICM has granted
Fagen the right to use certain proprietary technology and information of ICM in
the design and construction of the Plant; and


 


WHEREAS, OWNER desires from
ICM, and ICM desires to grant to OWNER, a license to use such proprietary
technology and information in connection with OWNER’s ownership and operation
of the Plant, all upon the terms and conditions set forth herein;


 


NOW, THEREFORE, the parties,
in consideration of the foregoing premises and the mutual promises contained
herein and for other good and valuable consideration, receipt of which is
hereby acknowledged, agree as follows:


 


1.               ICM grants to OWNER a limited license to use
the Proprietary Property (hereinafter defined) solely in connection with the
design, construction, operation, maintenance and repair of the Plant, subject
to the limitations provided herein (the “Purpose”).  In the event OWNER fails to pay to Fagen all
amounts due and owing Fagen under the Contract or the Contract is terminated
for any reason prior to the substantial completion of the Plant, ICM may
terminate the limited license granted to OWNER herein upon written notice to
OWNER.


 


2.               The “Proprietary Property” means, without
limitation, documents, Operating Procedures (hereinafter defined), materials
and other information that are furnished by ICM to OWNER, whether directly or
indirectly through Fagen, in connection with the Purpose including, without
limitation, the design, arrangement, configuration, and specifications of
(i) the combinations of distillation, evaporation, and alcohol dehydration
equipment (including, but not limited to, pumps, vessels, tanks, heat
exchangers, piping, valves and associated electronic control equipment) and all
documents supporting those combinations; (ii) the combination of the
distillers grain drying (DGD), and heat recovery steam generation (HRSG)
equipment (including, but not limited to, pumps, vessels, tanks, heat
exchangers, piping and associated electronic control equipment) and all
documents supporting those combinations; and (iii) the computer system,
known as the distributed control system (DCS and/or PLC) (including, but not
limited to, the software configuration, programming, parameters, set points,
alarm points, ranges, graphical interface, and system hardware connections) and
all documents supporting that system.  


 

















 


The “Operating Procedures” means, without limitation, the process
equipment and specifications manuals, standards of quality, service protocols,
data collection methods, construction specifications, training methods,
engineering standards and any other information prescribed by ICM from time to
time concerning the Purpose.  Proprietary
Property shall not include any information or materials that OWNER can
demonstrate by written documentation: 
(i) was lawfully in the possession of OWNER prior to disclosure by
ICM; (ii) was in the public domain prior to disclosure by ICM;
(iii) was disclosed to OWNER by a third party other than Fagen having the
legal right to possess and disclose such information or materials; or
(iv) after disclosure by ICM comes into the public domain through no fault
of OWNER or its directors, officers, employees, agents, contractors,
consultants or other representatives (hereinafter collectively referred to as
“Representatives”).  Information and
materials shall not be deemed to be in the public domain merely because such information
is embraced by more general disclosures in the public domain, and any
combination of features shall not be deemed to be within the foregoing
exceptions merely because individual features are in the public domain if the
combination itself and its principles of operation are not in the public
domain.


 


3.               OWNER shall not use the Proprietary Property
for any purpose other than the Purpose. 
OWNER shall not use the Proprietary Property in connection with any
expansion or enlargement of the Plant.


 


4.               OWNER’s failure to materially comply with the
Operating Procedures shall void all guarantees, representations and warranties,
whether expressed or implied, if any, that were given by ICM to OWNER, directly
or indirectly through Fagen, concerning the performance of the Plant that ICM
reasonably determines are materially affected by OWNER’s failure to materially
comply with such Operating Procedures. 
OWNER agrees to indemnify, defend and hold harmless ICM, Fagen and their
respective Representatives from any and all losses, damages and expenses
including, without limitation, reasonable attorneys’ fees resulting from,
relating to or arising out of (a) Owner’s or its Representatives’ failure
to materially comply with the Operating Procedures  or (b) negligent or unauthorized use of
the Proprietary Property.


 


5.               Any and all modifications to the Proprietary
Property by OWNER or its Representatives shall be the property of ICM.  OWNER shall promptly notify ICM of any such
modification and OWNER agrees to assign all right, title and interest in such
modification to ICM; provided, however, OWNER shall retain the right, at no
cost, to use such modification in connection with the Purpose.


 


6.               ICM has the exclusive right and interest in
and to the Proprietary Property and the goodwill associated therewith.  OWNER will not, directly or indirectly,
contest ICM’s ownership of the Proprietary Property.  OWNER’s use of the Proprietary Property does
not give OWNER any ownership interest or other interest in or to the Proprietary
Property except for the limited license granted to OWNER herein.


 


7.               OWNER shall pay no license fee or royalty to
ICM for OWNER’s use of the Proprietary Property pursuant to the limited license
granted to OWNER, the consideration for this limited license is included in the
amounts payable by OWNER to Fagen for the construction of the Plant under the
Contract.


 


8.               OWNER may not assign the limited license
granted herein, in whole or in part, 


 

















 


without the prior written consent of ICM, which will not be unreasonably
withheld or delayed.  Prior to any
assignment, OWNER shall obtain from such assignee a written instrument, in form
and substance reasonably acceptable to ICM, agreeing to be bound by all the
terms and provisions of this License Agreement. 
Any assignment of this License Agreement shall not release OWNER from
(i) its duties and obligations hereunder concerning the disclosure and use
of the Proprietary Property by OWNER or its Representatives, or
(ii) damages to ICM resulting from, or arising out of, a breach of such
duties or obligations by OWNER or its Representatives.  ICM may assign its right, title and interest
in the Proprietary Property, in whole or part, subject to the limited license
granted herein.


 


9.               The Proprietary Property is confidential and
proprietary.  OWNER shall keep the
Proprietary Property confidential and shall use all reasonable efforts to
maintain the Proprietary Property as secret and confidential for the sole use
of OWNER and its Representatives for the Purpose.  OWNER shall retain all Proprietary Property
at its principal place of business and/or the Plant.  OWNER shall not at any time without ICM’s
prior written consent, copy, duplicate, record, or otherwise reproduce the
Proprietary Property, in whole or in part, or otherwise make the same available
to any unauthorized person provided, OWNER shall be permitted to copy,
duplicate or otherwise reproduce the Proprietary Property in whole or in part
in connection with the Purpose so long as all such copies, duplicates or reproductions
are kept at its principal place of business and/or the Plant and are treated
the same as any other Proprietary Property. 
OWNER shall not disclose the Proprietary Property except to its
Representatives who are directly involved with the Purpose, and even then only
to such extent as is necessary and essential for such Representative’s
involvement.  OWNER shall inform such
Representatives of the confidential and proprietary nature of such information
and, if requested by ICM, OWNER shall obtain from such Representative a written
instrument, in form and substance reasonably acceptable to ICM, agreeing to be
bound by all of the terms and provisions of this License Agreement relating to
the disclosure and use of the Proprietary Property.  OWNER shall make all reasonable efforts to
safeguard the Proprietary Property from disclosure by its Representatives to
anyone other than permitted hereby.  In
the event that OWNER or its Representatives are required by law to disclose the
Proprietary Property, OWNER shall provide ICM with prompt written notice of
same so that ICM may seek a protective order or other appropriate remedy.  In the event that such protective order or
other appropriate remedy is not obtained, OWNER or its Representatives will
furnish only that portion of the Proprietary Property which in the reasonable
opinion of its or their legal counsel is legally required and will exercise its
reasonable efforts to obtain reliable assurance that the Proprietary Property
so disclosed will be accorded confidential treatment.


 


10.         OWNER agrees to indemnify ICM for any and all
damages (including, without limitation, reasonable attorneys’ fees) arising out
of or resulting from any unauthorized disclosure or use of the Proprietary
Property by OWNER or its Representatives. 
OWNER agrees that ICM would be irreparably damaged by reason of a
violation of the provisions contained herein and that any remedy at law for a
breach of such provisions would be inadequate. 
Therefore, ICM shall be entitled to seek injunctive or other equitable
relief in a court of competent jurisdiction against OWNER or its
Representatives for any unauthorized disclosure or use of the Proprietary
Property without the necessity of proving actual monetary loss or posting any
bond.  It is expressly understood that 


 

















 


the remedy described herein shall not be the
exclusive remedy of ICM for any breach of such covenants, and ICM shall be
entitled to seek such other relief or remedy, at law or in equity, to which it
may be entitled as a consequence of any breach of such duties or obligations.


 


11.         The duties and obligations of OWNER under
this License Agreement, and all provisions relating to the enforcement of such
duties and obligations shall survive and remain in full force and effect
notwithstanding any termination or expiration of the Contract or the license
granted herein under paragraph 1 or 12.


 


12.         ICM may terminate the limited license granted
to OWNER herein upon written notice to OWNER if OWNER willfully or wantonly
(a) uses the Proprietary Property for any purpose, or (b) discloses
the Proprietary Property to anyone, in each case other than permitted
herein.  Upon termination of the license
under paragraph 1 or this paragraph 12, OWNER shall cease using the Proprietary
Property for any purpose (including the Purpose) and, upon request by ICM,
shall promptly return to ICM all documents or other materials in OWNER’s or its
Representatives’ possession that contain Proprietary Property.


 


13.         The laws of the State of Kansas, United
States of America, shall govern the validity of the provisions contained
herein, the construction of such provisions, and the interpretation of the
rights and duties of the parties.  Any
legal action brought to enforce or construe the provisions of this License
Agreement shall be brought in the federal or state courts located in Wichita,
Kansas, and the parties agree to and hereby submit to the exclusive
jurisdiction of such courts and agree that they will not invoke the doctrine of
forum non conveniens or other similar defenses in any such action brought in
such courts.  In the event the Plant is
located in, or OWNER is organized under the laws of, a country other than the
United States of America, OWNER hereby specifically agrees that any injunctive
or other equitable relief granted by a court located in the State of Kansas,
United States of America, or any award by a court located in the State of
Kansas, shall be specifically enforceable as a foreign judgment in the country
in which the Plant is located, OWNER is organized or both, as the case may be,
and agrees not to contest the validity of such relief or award in such foreign
jurisdiction, regardless of whether the laws of such foreign jurisdiction would
otherwise authorize such injunctive or other equitable relief, or award.  OWNER agrees that the aggregate recovery of
OWNER (and everyone claiming by or through OWNER), as a whole, under this
License Agreement and the Contract against ICM and ICM’s Representatives,
collectively, shall not exceed the amount paid by Fagen to ICM for the issuance
of this License Agreement in connection with the Contract.


 


14.         OWNER hereby agrees to waive all claims against ICM and ICM’s
Representatives for any consequential damages that may arise out of or relate
to this License Agreement, the Contract or the Proprietary Property whether
arising in contract, warranty, tort (including negligence), strict liability or
otherwise, including but not limited to losses of use, profits, business,
reputation or financing.  OWNER further
agrees that the aggregate recovery of OWNER and Fagen (and everyone claiming by
or through OWNER and Fagen), as a whole, against ICM and ICM’s 


 

















 


Representatives, collectively, for any and all claims that arise out
of, relate to or result from this License Agreement, the Proprietary Property
or the Contract, whether arising in contract, warranty, tort (including
negligence), strict liability or otherwise, shall not exceed the amount paid by
Fagen to ICM in connection with the OWNER’s project under the Contract.


 


15.
The terms and conditions of this License Agreement constitute the entire
agreement between the parties with respect to the subject matter hereof and
supersede any prior understandings, agreements or representations by or between
the parties, written or oral.  Any
rule of construction to the effect that any ambiguity is to be resolved
against the drafting party shall not be applicable in the interpretation of
this License Agreement.  This License
Agreement may not be modified or amended at any time without the written
consent of the parties.


 


16. All notices, requests, demands, reports, statements or other
communications (herein referred to collectively as “Notices”) required to be
given hereunder or relating to this License Agreement shall be in writing and shall
be deemed to have been duly given if transmitted by personal delivery or mailed
by certified mail, return receipt requested, postage prepaid, to the address of
the party as set forth below.  Any such
Notice shall be deemed to be delivered and received as of the date so
delivered, if delivered personally, or as of the third business day following
the day sent, if sent by certified mail. 
Any party may, at any time, designate a different address to which
Notices shall be directed by providing written notice in the manner set forth
in this paragraph.


 


17. In the event that any of the terms, conditions, covenants or
agreements contained in this License Agreement, or the application of any
thereof, shall be held by a court of competent jurisdiction to be invalid,
illegal or unenforceable, such term, condition, covenant or agreement shall be
deemed void ab initio and shall be deemed severed from this License
Agreement.  In such event, and except if
such determination by a court of competent jurisdiction materially changes the
rights, benefits and obligations of the parties under this License Agreement,
the remaining provisions of this License Agreement shall remain unchanged
unaffected and unimpaired thereby and, to the extent possible, such remaining
provisions shall be construed such that the purpose of this License Agreement
and the intent of the parties can be achieved in a lawful manner.


 


18.  The duties and obligations
herein contained shall bind, and the benefits and advantages shall inure to,
the respective successors and permitted assigns of the parties hereto.


 


19. The waiver by any party hereto of the breach of any term, covenant,
agreement or condition herein contained shall not be deemed a waiver of any
subsequent breach of the same or any other term, covenant, agreement or
condition herein, nor shall any custom, practice or course of dealings arising
among the parties hereto in the administration hereof be construed as a waiver
or diminution of the right of any party hereto to insist upon the strict performance
by any other party of the terms, covenants, agreement and conditions herein
contained.


 


20. In this License Agreement, where applicable, (i) references to
the singular shall include the plural and references to the plural shall
include the singular, and (ii) references to the male, female, or neuter
gender shall include references to all other 


 

















 


such genders where the context so requires.


 


IN WITNESS WHEREOF, the parties hereto have executed this License
Agreement, the Effective Date of which is indicated on page 1 of this
License Agreement.


 


	
  OWNER:

  	
   

  	
  ICM:

  
	
   

  	
   

  	
   

  
	
  Heron Lake BioEnergy, LLC

  	
   

  	
  ICM, Inc.

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
  By:

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
  Date Signed:

  	
   

  	
  Date Signed:

  
	
   

  	
   

  	
   

  
	
  Address for giving notices:

  	
   

  	
  Address for giving notices:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  301 N First Street  

  Colwich, KS 67030

  



 

















 


EXHIBIT E


 


START-UP SERVICES TO BE PROVIDED TO OWNER


 


Start-up services will be
provided to Owner as follows: Electrical and instrumentation checkout,  and approximately two (2) weeks of
on-site training at the US Energy Partners Plant (USEP) in Russell, Kansas, or
other location, such to be provided for project Owner employees, including
operators, laboratory personnel, general, plant and maintenance managers.  (Other personnel of the project Owner can be
provided such on-site training by separate agreement and as time is
available.)  All trainer and costs
associated with the trainer, including labor and all training materials will be
provided to Owner without cost.  The
Owner will be responsible for all travel and related expenses of its employees
and the project Owner will pay all wages for its personnel during the training
and will cover all other expenses related to the on-site training.  Said training services will include training
on computers, lab procedures, field operating procedures, and overall plant
section performance expectations.  Two
persons shall be provided to lead the Owner during the initialization and
start-up of the plant.  The Owner will
provide all other personnel and pay all other costs related to start-up of the
plant.  Personnel will be maintained
on-site by Design-Builder or a subcontractor until all performance testing is
complete and accepted by the Owner, unless the Owner fails to execute or allow
performance testing within 30 days after receiving a written request from
Design-Builder or its subcontractor to begin performance testing or the work on
the project work is substantially stopped for any reason for a period of 30
days or more.  Design-Builder or its subcontractor
will provide an additional one month on-site support after Substantial
Completion start-up of the plant and from date of Substantial Completion
start-up will provide six (6) months of off-site technical and operating
procedure support by telephone, computer modem, the Internet and email.


 


Design-Builder shall deliver
to Owner all manuals, instructions or other written materials that it receives
from equipment manufacturers and suppliers/vendors of equipment.


 

















 


EXHIBIT
F


 


Work
Schedule


 


	
  OWNER’S RESPONSIBILITIES

  	
   

  	
  NUMBER
  OF DAYS TO BE

  COMPLETED AFTER

  NOTICE TO PROCEED

  
	
  Notice
  to Proceed

  	
   

  	
  0

  
	
  Obtain
  Builder’s Risk policy in the amount of the Contract Price, obtain Boiler and
  Machinery Insurance, and obtain Terrorism Coverage per TRIA

  	
   

  	
  [***]

  
	
  Storm
  Water Permits Complete

  	
   

  	
  [***]

  
	
  Natural
  Gas/Propane Supply Agreements Complete

  	
   

  	
  [***]

  
	
  Water
  Supply and Service Agreements Complete

  	
   

  	
  [***]

  
	
  Risk
  Insurance Provider Selected/Fire Protection Requirements Known

  	
   

  	
  [***]

  
	
  NPDES
  Discharge Point Selected

  	
   

  	
  [***]

  
	
  Electrical
  Service

  	
   

  	
  [***]

  
	
  Water
  Pre-Treatment System Design Complete

  	
   

  	
  [***]

  
	
  Wastewater
  Discharge System Complete

  	
   

  	
  [***]

  
	
  Operating
  Permits Complete

  	
   

  	
  [***]

  
	
  Discharge
  Permits Complete

  	
   

  	
  [***]

  
	
  Pumphouse/Water
  Pre-treatment System Complete

  	
   

  	
  [***]

  
	
  Fire
  Protection System Complete

  	
   

  	
  [***]

  
	
  Administration
  Building Complete

  	
   

  	
  [***]

  
	
  Paving
  (Plant Roads) Complete

  	
   

  	
  [***]

  
	
  Rail
  Spur Complete

  	
   

  	
  [***]

  
	
  Employees
  Hired and Ready for Training

  	
   

  	
  [***]

  
	
  Natural
  Gas Pipeline Complete

  	
   

  	
  [***]

  



 


	
  DESIGN-BUILDER’S
  RESPONSIBILITIES

  	
   

  	
  NUMBER
  OF DAYS TO BE

  COMPLETED AFTER

  NOTICE TO PROCEED

  
	
  Substantial
  Completion

  	
   

  	
  485

  
	
  Final
  Completion

  	
   

  	
  545

  



 

















 


EXHIBIT
G


 


Letter Agreement


to the


Design-Build Lump Sum Agreement


by and between


Heron Lake BioEnergy, LLC (OWNER)


and


Fagen, Inc. (DESIGN-BUILDER)


Dated September 28, 2005


 


The
parties have agreed to the following additions to the above-referenced
Agreement:


 


In
the event design, engineering, equipment, labor and construction costs (the
“Costs”) are required in order for [***] to be reduced to Owner’s air permit
limit, then, as to the amount of such Costs, Owner and Design-Builder agree as
follows:


 


(1)          Design-Builder shall be responsible for [***] to reduce the [***] to
[***].  Owner and Design-Builder agree
[***] in the responsibility for the Costs required to reduce the [***] from [***]
to Owner’s permit limit, such that each party shall be responsible for [***] of
those Costs;


 


(2)          The amount of that portion of [***] required to reduce the [***] from
[***] to Owner’s permit limits shall be calculated based on the actual cost of
materials and labor plus burden, in addition to any additional jobsite overhead
costs, incurred by Design-Builder, with no mark-up applied;


 


(3)          Owner’s [***] of the Costs under the second sentence of paragraph 1
above will be made at the time and subject to the conditions as provided for in
Section 5.4.2 of the Lump Sum Contract regarding payment of any early
completion bonus, such that Design-Builder will pay [***] of the Costs at the
time they are incurred and due and owing, and Owner will pay its [***]share to
Design-Builder at the time and in accordance with the payment terms and
conditions described in Section 5.4.2. 
As to priority between any early completion bonus payment and payment of
Owners [***] share of costs hereunder, Design-Builder shall be reimbursed its
[***] share of costs first.


 


(4)          If the additional work required by this Exhibit G requires
additional equipment to [***] from [***] to Owner’s permit limits, then the
electrical performance guarantees as provided in Exhibit A shall be
subject to commercial reasonable adjustment.


 


This
Agreement shall hereafter constitute part of the Contract Documents.  All other terms and conditions of the
Contract Documents shall remain in full force and effect, except as
specifically modified by this Agreement.


 


This
Agreement is hereby entered into and effective between the parties as of the
28th day of September, 2005.


 


IN WITNESS WHEREOF, the
undersigned have entered into and agreed to the foregoing Exhibit G-
Letter Agreement- to the Design-Build Agreement as of the date first set forth
above.


 

















 


	
  OWNER:

  	
   

  	
   

  	
  DESIGN-BUILDER:

  
	
  HERON
  LAKE BIOENERGY, LLC

  	
   

  	
   

  	
  FAGEN,
  INC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
  Authorized
  Representative

  	
   

  	
   

  	
  Authorized
  Representative

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  
								



 

















 


EXHIBIT
H


 


Letter Agreement No. 2


to the


Design-Build Lump Sum Agreement


by and between


Heron Lake BioEnergy, LLC (OWNER)


and


Fagen, Inc. (DESIGN-BUILDER)


Dated September 28, 2005


 


The
parties have agreed to the following additions to the above-referenced
Agreement:


 


In the event the design, engineering, equipment,
labor and construction costs required in order for Design-Builder to meet its
Performance and Emission Guarantees set forth in Article 11 of the
Agreement would exceed 10 million dollars (based on supporting documentation
provided to Owner), then Owner and Design-Builder agree as follows:


 


(5)          Owner
will consider and accept a commercially reasonable proposal presented by
Design-Builder to design and construct a 50 or 100 MGY Gas-fired Dry Grind
Ethanol Plant in lieu of the 50 MGY Coal-fired Dry Grind Ethanol Plant
described in the Agreement, and the contract price of such ethanol plant shall
be $56,619,000 (for 50 mgy) or $98,000,000 (for 100 mgy), as the case may be;


 


(6)          In
consideration of Owner accepting the foregoing proposal, Design-Builder shall
be responsible for and agrees to pay [***] of the construction costs of the gas
plant including the costs to bring the natural gas line to the site, less the
amount of any costs (if any) incurred and paid by Design-Builder in trying to
meet its performance and emission guaranty under Article 11 of the
Agreement;


 


(7)          In
consideration of Owner accepting the foregoing proposal, Design-Builder will
pay for [***] of Owner during the period from when the decision to switch to
gas is made to when Owner can deliver a valid notice to proceed to
Design-Builder on the gas-fired ethanol plant (which notice shall require among
other items that all financing for such plant be secured and available for
construction and that Owner have an issued air permit for the gas plant);


 


(8)          In
consideration of Owner accepting the foregoing proposal, Design-Builder hereby
agrees to indemnify, defend and hold harmless Owner, its consultants,
subcontractors, anyone employed directly or indirectly for any of them, and
their officers, directors, employees and agents (including Owner’s legal
counsel), from and against any and all claims, losses, damages, liabilities and
expenses incurred as a result of third party claims or actions brought against
such indemnified party (other than claims or actions brought by any such
indemnified party against another indemnified party), including attorneys’ fees
and expenses, arising out of or resulting from this Agreement or the switch to
a natural-gas fired ethanol plant;


 


(9)          Design-Builder’s
total aggregate liability for liquidated damages under section 5.5.1 of the
Design-Build Lump Sum Agreement, for failure to meet the 


 

















 




performance and emission
warranties under Article 11 of the Design-Build Lump Sum Agreement, and
for liability under this Exhibit H, shall be capped at and shall not exceed
$10.0 Million.




 


This
Agreement shall hereafter constitute part of the Contract Documents.  All other terms and conditions of the
Contract Documents shall remain in full force and effect, except as
specifically modified by this Agreement.


 


This
Agreement is hereby entered into and effective between the parties as of the
28th day of September, 2005.


 


This
Agreement shall be considered drafted equally by both parties hereto, and shall
not be construed for or against either party.


 


IN
WITNESS WHEREOF, the undersigned have entered into and agreed to the foregoing
Agreement as of September 29, 2005.


 


 


	
  OWNER:

  	
   

  	
   

  	
  DESIGN-BUILDER:

  
	
  HERON
  LAKE BIOENERGY, LLC

  	
   

  	
   

  	
  FAGEN,
  INC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
  Authorized
  Representative

  	
   

  	
   

  	
  Authorized
  Representative

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title: