Document:

Exhibit 10.3

	
  FAGEN

  	
  501 West Hwy. 212, P.O
  Box 159

  
	
   

  	
  Granite Falls, MN 56241

  
	
  INC.

  	
  www.fageninc.com

  	
   

  	
  320-564-3324

  
				

 

Civil – Mechanical – Electrical
Contractors

August 24, 2006

Mr. Ernest D. Moody

Illini Bio-Energy, LLC

3600 Wabash Avenue,
Suite C

Springfield, IL
62711

Re:      Illini
Bio-Energy, LLC Ethanol Project

Dear Mr. Moody:

This letter of
intent will confirm our discussions regarding the proposed terms and conditions
under which Fagen, Inc. (“Fagen”) will enter into exclusive negotiations
with Illini Bio-Energy, LLC (“Owner”) to implement the transaction
described in Paragraph 1 below (the “Transaction”).  (Fagen and Owner are referred to herein
individually as a “Party” and collectively as the “Parties”).  This letter, if executed and returned by you
within thirty (30) days of the date hereof will constitute a letter of intent
between us (the “Letter of Intent”).

Fagen and Owner
entered into letters of intent dated July 6, 2004 and February 16, 2006, for
the Transaction (the “Initial Letters of Intent”).  Fagen and Owner have agreed to replace the
Initial Letters of Intent with this Letter of Intent.  This Letter of Intent supersedes and replaces
the Initial Letters of Intent in their entirety.

The Parties agree
to effect the Transaction subject only to the execution and delivery (in each
case in a form satisfactory to Fagen) of a definitive Design-Build Agreement
and other ancillary instruments and agreements (the “Transaction Documents”).  The Transaction Documents will be executed
and delivered by the parties thereto no later than December 31, 2008 (the “Closing
Date”); provided that the Transaction Documents
may, if agreed to by the Parties, provide for extensions necessary to secure
any consents and approvals of persons (other than affiliates of the Parties) on
terms reasonable to the Parties.

1.               The Transaction.  The
Parties agree that the Transaction will consist of the following:

(a)                                  Fagen agrees to provide Owner with those
services as described in this Letter of Intent which are necessary for Owner to
develop a detailed description of a one hundred (100) million gallons per year
(“MGY”) natural gas-fired dry grind ethanol production facility (steam
driven dryer system, RTO, and package boilers) located in central Illinois (the
“Plant”) and to establish a price for which Fagen

would provide design, engineering, procurement of equipment and
construction services for the Plant.  The
description of the Plant will be sufficiently detailed to permit an analysis of
the Owner’s lump-sum cost to develop the Plant and to develop an economic pro
forma sufficient to determine if the Plant can be financed.

(b)                                 Fagen
will also provide Owner with assistance in evaluating, from both a technical
and business perspective, Owner’s organizational options, the appropriate
location of the Plant, and business plan development.  Fagen will assume no risk or liability of
representation or advice to Owner by assisting in evaluating the above and all
decisions made regarding feasibility, financing, and business risks are the
Owner’s sole responsibility and liability. 
Owner acknowledges that Fagen has no control over cost of labor,
materials, equipment, or services furnished by others, over other contractors’
methods of determining prices, or other competitive bidding or market
conditions. Fagen’s estimates of project construction cost will be made on the
basis of its experience and qualifications and will represent Fagen’s best
judgment as experienced and qualified professionals familiar with the construction
industry.  Fagen does not guarantee that
proposals, bids, or actual construction cost will not vary from its estimates
of project cost and Owner acknowledges the same.

(c)                                  Fagen
will also provide Owner with conceptual design and technical information
required to support Owner’s application for a construction air permit prior to
the commencement of Plant Construction.

(d)                                 If Owner determines
that the Plant is economically feasible and desires to proceed with the
development of the Plant, then Owner agrees
to enter into a Lump Sum Design-Build contract with Fagen for the design,
procurement of equipment and construction of the Plant (the “Design-Build
Agreement”).

(e)                                  Owner shall offer Fagen the right to invest
in the project.  Unless otherwise
specifically agreed between Fagen and Owner, such investment shall be offered
on the same terms and conditions as all other investors.

(f)                                    Owner agrees that the Design-Build Agreement
will be Fagen’s chosen form of Design-Build Agreement, and will contain among
other things, those terms and conditions set forth in the General Terms and
Conditions section of this Letter of Intent.

2.               Contract Price.  Owner
shall pay Fagen One Hundred Twenty-four Million Five Hundred Fifty-five
Thousand Four Hundred Eighty-four Dollars ($124,555,484.00) (the “Contract
Price”) as full consideration to Fagen for full and complete performance of
the services described in the Design-Build Agreement and all costs incurred in
connection therewith.

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(a)                                  The
Contract Price includes additional scope items to allow the facility to switch
to an alternative steam energy source, i.e. coal, if
such becomes feasible.  The cost for
these additional items is Eleven Million One Hundred Thirty-eight Thousand Nine
Hundred Eight Dollars ($11,138,908.00).

(b)                                 The
Contract Price shall not include any costs related to union labor or prevailing
wage requirements.  If any action by
Owner, a change in Applicable Law, or a Governmental Authority (as those terms
are defined in the Design-Build Agreement) acting pursuant to a change in
Applicable Law, shall require Fagen 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.  Such adjustment shall include, but not be
limited to, increased labor, subcontractor, and material and equipment costs
resulting from any union or prevailing wage requirement; provided, however,
that if an option is made available to either employ union labor, or to
compensate labor at prevailing wages, such option shall be at Fagen’s sole
discretion and that if such option is executed by Owner without Fagen’s
agreement, Fagen shall have the right to terminate this Letter of Intent or the
Design-Build Agreement, as applicable, and receive compensation pursuant to
Paragraph 4(c) hereof or the terms of the Design-Build Agreement, whichever is
applicable.

(c)                                  If
the Construction Cost Index published by Engineering News-Record Magazine (“CCI”)
for the month in which a Notice to Proceed is given to Fagen is greater than
7695.40 (April 2006), the Contract Price shall be adjusted to reflect such
increase.

3.               General Terms and Conditions.  The consummation of the Transaction will be
subject to the Design-Build Agreement containing the following conditions:

(a)                                  Fagen
will have no responsibility for and will not perform any site preparation
work.  Owner’s site responsibilities will
include, but will not be limited to:

	
  

  	
  i.

  	
   

  	
  Obtaining land
  and legal authority to use the site for its intended purpose;

  
	
   

  	
  ii.

  	
   

  	
  site grading
  including soil stabilization and the costs connected therewith;

  
	
   

  	
  iii.

  	
   

  	
  final grading,
  seeding, and mulching;

  
	
   

  	
  iv.

  	
   

  	
  site security,
  including any site fencing;

  
	
   

  	
  v.

  	
   

  	
  procuring boundary
  and topographic surveys;

  
	
   

  	
  vi.

  	
   

  	
  procuring soil
  borings and geotechnical reports;

  
	
   

  	
  vii.

  	
   

  	
  obtaining all
  operating permits, including any fees, bonding, and required testing;

  
	
   

  	
  viii.

  	
   

  	
  obtaining storm
  water runoff permit;

  
	
   

  	
  ix.

  	
   

  	
  obtaining any
  necessary pollutant elimination discharge permit;

  
	
   

  	
  x.

  	
   

  	
  obtaining a
  natural gas supply and service agreement and providing all gas

  

 

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  piping to the use points, providing burner tip
  pressures as specified by Fagen, and supplying a digital flowmeter;

  
	
   

  	
  xi.

  	
   

  	
  securing
  temporary and permanent electrical service, including all infrastructure
  design and installation for any line/service extensions, substation, primary
  feed and metering system, and on-site electrical distribution system up to
  and including the service transformers but Fagen shall pay energy demand and
  usage charges up to Substantial Completion;

  
	
   

  	
  xii.

  	
   

  	
  supplying a
  water source, storage, and water supply lines of appropriate quality and
  quantity;

  
	
   

  	
  xiii.

  	
   

  	
  paying for a
  water pre-treatment system should the project require such a system
  (procurement and installation by Fagen);

  
	
   

  	
  xiv.

  	
   

  	
  providing
  wastewater discharge piping, septic tank and drainfield or connect to a
  municipal system as required for the sanitary sewer requirements of the
  Plant;

  
	
   

  	
  xv.

  	
   

  	
  providing and
  maintain required ditches and permanent roads but Fagen will maintain
  aggregate construction roads during construction of the Plant;

  
	
   

  	
  xvi.

  	
   

  	
  constructing,
  furnishing, and equipping the administration building;

  
	
   

  	
  xvii.

  	
   

  	
  providing
  maintenance and power equipment and spare parts;

  
	
   

  	
  xviii.

  	
   

  	
  providing all
  rail design, engineering, and construction, including any railroad permits or
  approvals;

  
	
   

  	
  xix.

  	
   

  	
  supplying
  drawings of rail system and administration building to Fagen; and

  
	
   

  	
  xx.

  	
   

  	
  paying for the required fire protection system for
  the Plant (procurement and installation by Fagen).

  

 

(b)                                 Owner will enter into a Phase I and Phase II
Engineering Services Agreement with Fagen Engineering, LLC.  The Phase I and Phase II Engineering Services
Agreement will provide for commencement of 
work on the Phase I and Phase II engineering for the project as set
forth therein.  The Phase I engineering
shall consist of engineering and design of the Plant site and shall include:
property layout; grading, drainage and erosion control plan drawings; roadway
alignment drawings; culvert cross sections and details; and seeding and
landscaping, if required.  The Phase II
engineering shall consist of engineering and design of site work and utilities
for the Plant, all within the property line of the Plant, including: property
layout; site grading and drainage drawings; roadway alignment; all utility
layout including fire loop, potable water, well water if applicable, sanitary
sewer, utility water blowdown, and natural gas; geometric layout; site utility
piping tables; tank farm layout; tank farm details; sections and details
drawing, if required, and miscellaneous details drawing, if required.  Owner will pay Fagen Engineering, LLC Ninety-two
Thousand Five Hundred Dollars ($92,500.00) for such engineering services
pursuant to the terms of that agreement, the full amount of which shall be
included in and credited to the Contract Price. 
Notwithstanding

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the
foregoing sentence, if a Notice to Proceed is not issued pursuant to the terms
of the Design-Build Agreement, or Financial Closing is not obtained, then Fagen
Engineering, LLC  shall keep the full
amount paid under the Phase I and Phase II Engineering Services Agreement as
compensation for the services provided thereunder.

(c)                                  Fagen
will provide reasonable assistance to Owner in preparing and obtaining Owner’s
permits, approvals and licenses.

(d)                                 Owner
will provide:  surveys describing the
property’s boundaries; geotechnical studies describing subsurface conditions;
temporary and permanent easements, zoning and other requirements and
encumbrances to enable Fagen to perform the work; a legal description of the
site; as-built and record drawings of any existing structures; environmental studies,
reports, and statements describing the environmental conditions, including
hazardous conditions at the site.

(e)                                  Owner
will be responsible for securing and executing all necessary real estate
agreements to secure the site and is responsible for all costs incurred in
obtaining those agreements.

(f)                                    Fagen
may subcontract portions of the work; provided, however, that Fagen will assume
responsibility to Owner for the proper performance of the work of
subcontractors and any acts and omissions in connection with such performance
and will coordinate the activities of all of Fagen’s subcontractors.  If Owner performs other work on the Plant or
at the site with separate contractors under Owner’s control, Fagen agrees to
reasonably cooperate and coordinate its activities with those separate
contractors so that the Plant can be completed in an orderly and coordinated
manner without unreasonable disruption.

(g)                                 Fagen
will provide two (2) weeks of training for all of Owner’s employees and, if
applicable, Owner’s Operator’s employees required for the operation and
maintenance of the Plant.

(h)                                 Owner
must obtain Financial Closing prior to the issuance of a Notice to Proceed.

(i)                                     Owner
will pay all reasonable costs incurred by Fagen for frost removal so that
winter construction can proceed.  Such
costs will be in addition to, and not included in, the lump sum price.

(j)                                     All
drawings, specifications, calculations, data, notes and other materials and
documents, including electronic data furnished by Fagen to Owner under the
Design-Build Agreement (“Work Product”) will be instruments of service
and Fagen will retain the ownership and property interests therein, including

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copyrights thereto.

(k)                                  Upon
payment in full under the Design-Build Agreement, Fagen will grant Owner a limited
license to the Work Product for use in connection with the operation,
maintenance, and repair of the Plant including the interconnection of, but not
design of, any future expansions to the Plant. 
The limited license will not permit Owner to modify the Plant in any way
that would increase the distillation, dehydration or evaporation capacity of
the Plant.  Fagen will acknowledge and
agree that the limited license to use the Work Product granted thereby shall provide
Owner sufficient rights in and to the Work Product as shall be necessary for
Owner to operate and maintain the Plant and shall include any Pass Through
Warranties in connection therewith.

(l)                                     Work
will commence following receipt of Owner’s written valid notice to proceed (“Notice
to Proceed”).  The Notice to Proceed
cannot be given until (1) the Owner has title to the real estate on which the
project will be constructed; (2) the site work required of Owner is completed;
(3) the air permit(s) and/or other applicable local, state or federal permits
necessary for construction to begin have been obtained; (4) Owner has obtained
Financial Closing; (5) if applicable, Owner executes a sales tax exemption
certificate and provides to Fagen; (6) Owner provides the name of its
property/all-risk insurance carrier and the specific requirements for fire
protection; (7) Owner has provided an insurance certificate or copy of
insurance policy demonstrating that Owner has obtained builder’s risk
insurance; and (8) Fagen has provided Owner written notification of its
acceptance of the Notice to Proceed.  If
Notice to Proceed is not issued within one hundred and eighty (180) days of the
effective date of the Design-Build Agreement, that agreement shall terminate,
thus releasing Fagen of all obligations. Owner and Fagen will mutually agree
that time is of the essence with respect to the dates and times set forth in
the Contract Documents.

(m)                               “Substantial
Completion” will be the date on which the Plant construction has been
completed to a point that the Plant is ready to grind the first batch of corn
for producing ethanol and begin operation for its intended use as a one hundred
(100) MGY dry grind ethanol production facility.  No production capacity is guaranteed on the
Substantial Completion date, but the Plant is largely completed as of that
date.

(n)                                 Substantial
Completion will occur within Five Hundred and Forty-Five (545) days after the
date of the Notice to Proceed.

(o)                                 Fagen
will be entitled to an early completion bonus of Twenty Thousand Dollars
($20,000.00) for each day that Substantial Completion occurs in advance of Five
Hundred and Forty-Five (545) days (“Early Completion Bonus”) up to a

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maximum Early Completion
Bonus of One Million Dollars ($1,000,000.00). 
The Early Completion Bonus is earned for achieving Substantial
Completion early, but is not due until the final payment.

(p)                                 “Final
Completion” will be achieved once Owner reasonably determines that:
Substantial Completion has been achieved; any outstanding amounts owed by Fagen
to Owner have been paid; remaining items of work have been completed; clean-up
of the site has been completed; all permits required to have been obtained by
Fagen have been obtained; certain information including an affidavit stating
that there are no outstanding liens, claims, or obligations, a release from
further compensation, consent to final payment, and a hard copy of the as-built
plans (which will remain Work Product) has been provided to Owner; releases and
waivers of all claims and liens from Fagen and subcontractors have been
provided; and the Performance Tests have been successfully completed.  Final Completion will occur no more than
ninety (90) days after the actual Substantial Completion date.  The 90-day period between Substantial
Completion and Final Completion will be tied directly to actual Substantial
Completion.  By way of example, if
Substantial Completion is achieved 10 days early, then the 90-day period to
Final Completion would begin on that earlier date.

(q)                                 Fagen
will demonstrate certain performance guarantee criteria through performance
testing performed following Substantial Completion but prior to Final
Completion (“Performance Tests”). 
Air permit testing shall be done by a third party contractor retained by
Owner.

(r)                                    Owner
will take control of the Plant after completion and acceptance of the
Performance Tests.  The Performance Tests
will be completed by Owner’s personnel under Fagen’s direction.

(s)                                  Fagen
will pay liquidated damages at a daily amount equal to the daily Early
Completion Bonus amount for each day past 90 days after Substantial Completion
that Final Completion is not attained. 
Fagen’s liability for liquidated damages shall be capped at and shall
not exceed One Million Dollars ($1,000,000.00).

(t)                                    The aggregate liability of Fagen, its Subcontractors,
vendors, suppliers, agents and employees, 
to Owner (or any successor thereto or assignee thereof) for any and all
claims and/or liabilities arising out of or relating in any manner to the work
or to Fagen’s performance or non-performance of its obligations under the
Design-Build Agreement, whether based on contract, tort (including negligence),
strict liability, or otherwise, shall not exceed in the aggregate, as
follows:  (A) the Contract Price, reduced
upon the issuance of each application for payment by the total value of each
such application for payment until the time that the aggregate liability
thereunder is limited to Fifty Percent (50%) of the Contract Price; and (B)

 7
 

upon Fagen demonstrating
the performance guarantee criteria, Fagen’s aggregate liability shall be
limited to the greater of (1) ten percent (10%) of the Contract Price or (2)
the amount of insurance coverage available to respond to the claim or liability
under any policy of insurance provided by Fagen under the Design-Build
Agreement.  This limitation of liability
shall not apply to claims or liabilities arising out of Fagen’s unilateral
abandonment of or withdrawal from the Design-Build Agreement.

(u)                                 The
warranty period for work completed pursuant to the Design-Build Agreement will
extend for one year past Substantial Completion.  The Warranty will not apply to defects caused
by abuse, alterations, or failure to maintain the work by persons other than
Fagen or anyone for whose acts Fagen may be liable.  The warranty period will be extended one day
for each day that such part of the work repaired or replaced under such
warranty is malfunctioning or not in conformance with project requirements
provided that Owner must report such non-conformance or malfunction within
seven (7) days of the appearance of such non-conformance or malfunction.  The one-year period referenced above applies
only to Fagen’s obligation to correct nonconforming Work and is not intended to
constitute a period of limitations for any other rights or remedies Owner may
have regarding Fagen’s other obligations under the Transaction Documents.

Fagen shall,
within seven (7) Days of receipt of written notice from Owner that the Work is
not in conformance with the Transaction Documents, take meaningful steps to commence
correction of such nonconforming Work, including the correction, removal or
replacement of the nonconforming Work and correction or replacement of any Work
damaged by such nonconforming Work.  If
Fagen fails to commence the necessary steps within such seven (7) Day period or
fails to continue to perform such steps through completion, Owner, in addition
to any other remedies provided under the Transaction Documents, may provide
Fagen with written notice that Owner will commence or assume correction of such
nonconforming Work and repair of such damaged Work with its own resources.  If, following such written notice, Owner
performs such corrective and repair Work, Fagen shall be responsible for all
reasonable costs incurred by Owner in performing the correction.  If the nonconforming Work creates an
emergency requiring an immediate response, the seven (7) Day periods identified
herein shall be inapplicable and Fagen shall immediately correct, remove or
replace the nonconforming Work.

(v)                                 As
part of the Contract Price, Owner will pay Fagen a mobilization fee in the
amount of Eight Million Dollars ($8,000,000.00), subject to retainage as
provided for in the Design-Build Agreement, as soon as possible following the
execution of the Design-Build Agreement, and at the latest, at the earlier to
occur of financial closing or the issuance of a Notice to Proceed.

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(w)                               Fagen
will request payment and Owner will pay Fagen in accordance with the following
procedures:

i.                  Fagen will
submit to Owner a request for payment (an “Application for Payment”) on
or before the twenty-fifth (25th) day of each month following the acceptance of
Notice to Proceed.  Along with each
Application for Payment, Fagen will submit to Owner signed lien waivers for the
work included in the Application for Payment submitted for the immediately
preceding pay period and for which payment has been received.

ii.               The Application for
Payment will constitute Fagen’s representation that the work has been performed
consistent with the Transaction Documents and has progressed to the point
indicated in the Application for Payment. 
No additional documentation will be provided to Owner in support of the
Application for Payment.  The work
completed at the site and the comparison of the Application for Payment against
the Schedule of Values shall provide sufficient substantiation to Owner of the
accuracy of the Application for Payment. 
The Schedule of Values subdivides the work into its respective parts,
includes values for all items comprising the work, and serves as the basis for
the monthly progress payments.

iii.            The Application for
Payment may request payment for equipment and materials not yet incorporated
into the project only if Owner is satisfied that the materials and equipment
are suitably stored at the site or elsewhere and are protected by suitable
insurance.  Upon payment, Owner will
receive title to such equipment and materials free of liens and encumbrances,
except for liens of the lenders and other liens and encumbrances permitted
under the financing documents.

iv.           Owner shall make
payment within ten (10) days of receipt of the Application for Payment.  Failure to make such payment will result in
the accrual of interest at a rate of eighteen percent (18%) per annum
commencing five (5) days after the payment is due.  Failure to make such payment, except if due
to appropriate withholding of payment due to a good faith dispute, entitles
Fagen to stop work.

v.              If Owner wishes to
dispute any portion of the Application for Payment, Owner must notify Fagen in
writing at least five (5) days prior to the date payment is due.  Such notice must state the specific amounts
Owner intends to withhold, the reasons and contractual basis for withholding,
and the specific measures Fagen must take to rectify Owner’s concerns.  Regardless of a dispute as to a portion of
the Application for Payment, Owner must pay all undisputed amounts by the
payment due date.

vi.           Retainage on progress
payments made pursuant to the Design-Build Agreement will be capped at five
percent (5%) of the total price.  Owner

 9
 

will retain ten percent
(10%) of each payment up to a maximum of five percent (5%) of the total
Contract Price.  Once five percent (5%)
of the total price has been retained, Owner will not retain any additional
amounts from subsequent payments.  Owner
will release retainage, less the amount equal to the value of subcontractor
lien waivers not yet obtained, upon completion of the Performance Tests.

vii.        Upon Final Completion,
Fagen will deliver to Owner a request for final payment.  Owner will make the final payment within
thirty (30) days after the receipt of such request.  Owner’s failure to make Final Payment, except
where the failure to make Final Payment is a result of a valid dispute pursuant
to the terms of the Design-Build Agreement, will void any and all warranties,
whether express or implied, provided by Fagen 
pursuant to the Agreement.

(x)                                   Fagen
will not be responsible for any hazardous condition encountered at the site and
may stop work in an affected area until such hazardous condition is removed by
Owner.

(y)                                 Fagen
will not be responsible for differing site conditions including concealed or
latent physical conditions or subsurface conditions and will be entitled to a
price adjustment to the Contract Price to the extent that its cost and/or time
of performance is adversely impacted by the differing site conditions.

(z)                                   “Force
Majeure Events” shall mean any cause or event beyond the reasonable control
of, and without the fault or negligence of a Party claiming Force Majeure,
including, without limitation, an emergency, floods, earthquakes, hurricanes,
tornadoes, adverse weather conditions not reasonably anticipated or acts of
God; sabotage; vandalism beyond that which could reasonably be prevented by a
Party claiming Force Majeure; terrorism; war; riots; fire; explosion;
blockades; insurrection; strike; slow down or labor disruptions (even if such
difficulties could be resolved by conceding to the demands of a labor group);
economic hardship or delay in the delivery of materials or equipment that is
beyond the control of a Party claiming Force Majeure, and action or failure to
take action by any governmental authority after the effective date of the
Design-Build Agreement (including the adoption or change in any rule or regulation
or environmental constraints lawfully imposed by such governmental authority),
but only if such requirements, actions, or failures to act prevent or delay
performance; and inability, despite due diligence, to obtain any licenses,
permits, or approvals required by any governmental authority.

(aa)                            If
Fagen is delayed at any time in the commencement or progress of the work due to
a delay in the delivery of, or unavailability of, essential materials or labor
to the project as a result of a significant industry-wide economic fluctuation
or

 10
 

disruption beyond the control of and without the fault
of Fagen or its subcontractors which is experienced or expected to be
experienced by certain markets providing essential materials, equipment or
labor to the project during the performance of the work and such economic
fluctuation or disruption adversely impacts 
the price, availability, and delivery timeframes of essential materials
and equipment  (such event an “Industry-Wide
Disruption”), Fagen shall be entitled to an equitable extension of the
Contract Time on a day-for-day basis equal to such delay.  The Owner and Fagen shall undertake
reasonable steps to mitigate the effect of such delays.  Notwithstanding any other provision to the
contrary, Fagen shall not be liable to the Owner for any expenses, losses or
damages arising from a delay, or unavailability of, essential materials or
labor to the project as a result of an Industry-Wide Disruption.

(bb)                          The
Transaction Documents shall be binding upon, shall inure to the benefit of, and
may be performed by, the successors and permitted assigns of the Parties,
except that neither Fagen nor Owner shall, without the written consent of the
other, assign or transfer this Agreement or any of the Transactions Documents.  Fagen’s subcontracting portions of the work
in accordance with the Transaction Documents shall not be deemed to be an
assignment of this Agreement.  Owner may
assign all of its rights and obligations under the Transaction Documents to its
lenders or lenders’ agent as collateral security in connection with Owner
obtaining or arranging any financing for the Project; provided, however, Owner
shall deliver, at least ten (10) Days prior to any such assignment, to Fagen
(i) written notice of such assignment and (ii) a copy of the instrument of
assignment in form and substance reasonably acceptable to Fagen.  The lenders or lenders’ agent may assign the
Transaction Documents or their rights under the Transactions Documents,
including without limitation in connection with any foreclosure or other
enforcement of their security interest. 
Fagen shall execute, if requested, a consent to assignment for the
benefit of the lenders and/or the lenders’ Agent in form and substance
reasonably acceptable to Design-Builder, which form shall be attached as an
exhibit to the Design-Build Agreement, provided that with respect to any such
assignments such assignee demonstrates to Fagen’s satisfaction that it has the
capability to fulfill Owner’s obligations under the Transaction Documents.

(cc)                            The
Transaction will be governed by the laws of the State of Minnesota.

4.               Exclusivity, No Solicitation or Negotiations.

(a)                                  Neither
Owner, nor its affiliates, shareholders, members or other equity owners, or
their officers, representatives, agents or employees will solicit or negotiate,
directly or indirectly, with any third party to obtain the services
contemplated by this Letter of Intent.

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(b)                                 During
the term of this Letter of Intent the Owner agrees that Fagen will have the
exclusive right to provide to Owner the services contemplated by the Letter of
Intent. Developer and Owner will not disclose any information related to this
Letter of Intent to a competitor or prospective competitor of Fagen.

(c)                                  Should Owner choose not to develop the project
or to develop or pursue a relationship with a company other than Fagen to
provide the preliminary engineering or design-build services for the project,
then Owner will reimburse Fagen for all expenses Fagen has incurred in
connection with the project based upon Fagen’s standard rate schedule
plus all third party costs incurred from the date of the Initial Letter of
Intent dated July 6, 2004.  Such expenses
include, but are not limited to, labor rates and reimbursable expenses such as
legal charges for document review and preparation, travel expenses,
reproduction costs, long distance phone costs, and postage.

(d)                                 In the event Fagen’s services are terminated
by Owner, title to the technical data, which may include preliminary
engineering drawings and layouts and proprietary process related information
will remain with Fagen and any copies thereof, will be returned to Fagen.

(e)                                  Owner acknowledges that the technical data
provided by Fagen under this Letter of Intent is preliminary and may not be
suitable for construction.  Owner agrees
that any use of such technical data following termination of Fagen’s services
will be at Owner’s sole risk.

5.               Reserved.

6.               Confidentiality.  Owner and Fagen will hold in confidence and
will use only for the purposes of completing the Transaction any and all
confidential information disclosed to it (“Recipient”) except that Owner may
disclose confidential information to its lenders, lenders’ agents, prospective
investors, advisors and/or consultants as may be reasonably necessary to enable
them to advise Owner on the Transaction, provided that any party to whom
confidential information is disclosed is informed of the existence of this
confidentiality obligation and agree to be obligated to keep such information
confidential.  The term “confidential
information” will mean (i) any and all information concerning the
Transaction, including that Fagen and Owner are negotiating the consummation of
the Transaction, and (ii) all information which Recipient, directly or
indirectly, may acquire from the disclosing party, but confidential information
will not include information falling into any of the following categories:

(a)                                  information
that, at the time of disclosure hereunder, is in the public domain;

(b)                                 information
that, after disclosure hereunder, enters the public domain other than

 12
 

by breach of this
Agreement or the obligation of confidentiality;

(c)                                  information
that, prior to disclosure hereunder, was already in Recipient’s possession,
either without limitation on disclosure to others or subsequently becoming free
of such limitation;

(d)                                 information
obtained by Recipient from a third party having an independent right to
disclose this information; and

(e)                                  information
that is available through discovery by independent research without use of or
access to the confidential information acquired from the disclosing party.

Recipient’s
obligation to maintain confidential information in confidence will be deemed
performed if Recipient observes with respect thereto the same safeguards and
precautions which Recipient observes with respect to its own confidential
information of the same or similar kind. 
It will not be deemed to be a breach of the obligation to maintain
confidential information in confidence if confidential information is disclosed
upon the order of a court or other authorized governmental entity, or pursuant
to other legal requirements.  However, if
Recipient is required to file the Transaction Documents or a portion thereof
with a governmental entity, it agrees that it will not do so without first
informing the disclosing party of the requirement and seeking confidential
treatment of the Transaction Documents prior to filing the documents or a
portion thereof.  Recipient’s
confidentiality obligations under this section shall survive the expiration or
termination of this Letter of Intent and shall be a legally binding obligation
of Recipient for five (5) years following the later to occur of termination of
this Letter of Intent or completion of the Plant contemplated by the Transaction
Documents.

7.               Publicity. 
Neither Owner nor any of its affiliates, shareholders, subcontractors,
or vendors or their officers, representatives, agents and employees will issue
any press or publicity release or otherwise release, distribute, announce, or
disseminate any information for publication concerning the Transaction, the
existence of the negotiations among Fagen and Owner, the participation of Fagen
in the Transaction, or any other matter affecting Fagen hereunder, without the
prior written consent of Fagen, which consent may not unreasonably be withheld,
except where such press or publicity release is required by order of a court or
necessary or appropriate under the rules or regulations of any governmental
agency.

The Parties will
jointly agree on the timing and content of any public disclosure by Owner,
including but not limited to, press releases, relating to Fagen’s involvement
in Owner’s project, and no such disclosure
will be made without Fagen’s consent and approval, except as may be required by
applicable law.  Notwithstanding the
above, Fagen acknowledges that Owner has filed a registration statement with
the Securities and Exchange Commission and agrees to Owner’s amendment of the
registration statement to include information regarding this Letter of Intent
and Fagen’s involvement with Owner and the Plant; provided, however,

 13
 

that prior to such
amendment or any other similar filing, Owner shall first inform Fagen of the
requirement and shall seek confidential treatment of the Transaction Documents
as requested by Fagen prior to filing the documents or a portion thereof.

8.               Disclaimer of Consequential Damages.  In no event will either Fagen or Owner be
liable to the other pursuant to this Letter of Intent, or for activities
conducted under this Letter of Intent, under any theory of recovery for any
indirect, special, incidental or consequential damages (including, without
limitation, loss of revenues or profits, loss of use, cost of replacement, cost
of capital and claims of customers, interest charges, or increased costs of
nature whatsoever).

9.               Legal Effect.  Although
this Letter of Intent does not contain all matters upon which agreement must be
reached in order for the Transaction to be consummated, Fagen and Owner wish to
set forth, prior to the execution of the Transaction Documents, their mutual
agreement as to the material terms and conditions of the Transaction.  Each Party agrees to negotiate in good faith
towards entering into the written, definitive and legally binding Transaction
Documents containing, among other terms and conditions, those terms and
conditions set forth in this Letter of Intent including, without limitation,
those terms set forth in Paragraphs 2 and 3 hereof.  Notwithstanding the foregoing, the provisions
of this Paragraph and of Paragraphs 1, 4, 6, 7, 8, 11, 12, 14, 17, and 18  hereof are agreed to be legally binding
obligations of the Parties upon the execution and acceptance of this Letter of
Intent.

10.         Negotiation of Definitive Agreements. The
Transaction Documents will contain reasonable terms and conditions regarding
releases, payment obligations, cooperation as to tax planning and structuring,
other financial matters, legal opinions, confidentiality, limitations of
liability, assignment, breach, dispute resolution, events of default, remedies,
representations, warranties, indemnifications and other provisions customary
for similar transactions. Time is of the essence in the performance of this
Letter of Intent in all respects.

11.         Termination.  This Letter of Intent will terminate on
December 31, 2007, unless the basic size and design of the Plant have been
determined and mutually agreed upon, a specific site or sites have been
determined and mutually agreed upon, and at least 10% of the necessary equity has
been raised. This date may be extended upon mutual written agreement of the
Parties.  Furthermore, unless otherwise
agreed to by the Parties, this Letter of Intent will terminate:

(a)                                  at
the option of either Fagen or Owner if the Design-Build Agreement is not
completed and executed by the Closing Date; or

(b)                                 upon
the execution and delivery of the Transaction Documents.

12.   Governing Law.  This Letter of Intent is governed
by, and will be construed and interpreted

 14
 

in accordance with
the laws of the State of Minnesota, without regard to any conflicts of law or
choice of law rules.

13.         Expenses. 
Except as set forth in Paragraph 4(c) above, unless otherwise agreed by
Fagen and Owner, each Party will bear its own expenses in connection with the
negotiation and execution of definitive documentation for the transactions
contemplated herein.

14.         Indemnification.  Each Party will indemnify, defend and hold
harmless the other Party and its respective agents, servants, officers,
directors, employees and affiliates from and against any loss, cost, liability,
claim, damage, expense (including reasonable attorneys’ and consultants’ fees
and disbursements), penalty or fine incurred in connection with any claim or
cause of action arising from or in connection with this Letter of Intent to the
extent caused by the negligence, misrepresentation, fraud, fault or misconduct
of the indemnifying Party.

15.         Assignability; Binding Effect; Benefit.  This
Letter of Intent will inure to
the benefit of and be binding upon the Parties and their respective successors
and assigns.  Nothing in this Letter
of Intent, either expressed or implied,
is intended to confer on any person other than the Parties and their respective
successors and permitted assigns, any rights, remedies, obligations or
liabilities under or by reason of this Letter of Intent.  Neither Fagen nor Owner shall, without the
written consent of the other, assign or transfer this Letter of Intent.  Any sale, transfer, or disposition of more
than fifty percent (50%) of Owner to any single entity by one or more entities
holding interest in Owner shall be deemed an assignment subject to this
paragraph.  Notwithstanding any consent
granted by Fagen to assignment, Owner shall remain jointly liable for any
failure of any assignee to fulfill its obligations under this Letter of Intent,
including but not limited to any payment and confidentiality obligations
established hereunder.

16.         Further Action. Each Party agrees to execute and deliver all
further instruments, legal opinions and documents, and take all further action
not inconsistent with the provisions of this Letter of Intent that may be
reasonably necessary to complete performance of the Parties’ obligations
hereunder and to effectuate the purposes and intent of this Letter of Intent.

17.         Amendments.  The Parties agree that this Letter of Intent
may be modified only by written agreement by the Parties.

18.         Integration; Letter of Intent.  This Letter of Intent represents the entire
understanding between the Parties in relation to the subject matter hereof, and
supersedes any and all previous agreements, arrangements or discussions between
the Parties (whether written or oral) in respect of the subject matter hereof,
including the Initial Letters of Intent. 
No change, amendment or modification of this Letter of Intent will be
valid or binding upon the Parties unless such change, amendment or modification
will be in writing and duly executed by both Parties.

 15
 

19.         No Representation,
Warranties   or Covenants.  Notwithstanding anything contained herein to the contrary, Fagen is not
making any representation, warranty or covenant of any kind with respect to any
design, engineering or construction scheduling, or with respect to projections,
estimates or budgets heretofore delivered to or made available to Owner of
future revenues, expenses or expenditures, future results of operations (or any
component thereof) or the future business and operations of the Owner, nor any
other commitments or assurances except as may be provided in the Transaction
Documents.

20.         Counterparts.  This Letter of Intent may be executed in one
or more counterpart, each of which when so executed and delivered will be
deemed an original, but all of which taken together constitute one and the same
instrument.  Signatures which have been
affixed and transmitted by facsimile or other electronic means will be binding
to the same extent as an original signature, although the Parties contemplate
that a fully executed counterpart with original signatures will be delivered to
each Party.

If the foregoing
terms accurately reflect your understanding of our discussions and are
acceptable to you, please sign and return the enclosed counterpart of this
Letter of Intent to the undersigned.

	
   

  	
  Yours sincerely,

  
	
   

  	
   

  
	
   

  	
  Fagen, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /S/ MATT SEDERSTROM

  	
   

  
	
   

  	
  By:      Matt
  Sederstrom

  
	
   

  	
  Title:   Vice President

  

 

Accepted and agreed to this 24th

day of August
2006.

	
  Illini Bio-Energy, LLC

  
	
   

  
	
   

  
	
  /S/ ERNEST D. MOODY

  	
   

  
	
  By:

  
	
  Title: Chairman

  

 

 16Exhibit 10.13

THIS
WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (1) REGISTRATION IN COMPLIANCE WITH
SUCH ACT AND SUCH STATE LAWS OR (2) AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS NOT
REQUIRED.

WARRANT

To Purchase Class
A Units

ILLINI
BIO-ENERGY, LLC

                                   ,
2005

THIS CERTIFIES THAT, for good
and valuable consideration, the receipt of which is hereby acknowledged,                                                      
or its lawful assignee (the “Holder”) is entitled to subscribe for and purchase
from Illini Bio-Energy, LLC, an Illinois limited liability company (the “Company”),
                                                     
of the Class A Units of the Company pursuant to the terms and subject to the
conditions hereof.  The Class A Units
that may be acquired upon exercise of this Warrant are referred to herein as
the “Warrant Units.”  As used herein, the
term “Holder” means the Holder, any party who acquires all or part of this
Warrant as a registered transferee of the Holder, or any record holder or
holders of the Warrant Units issued upon exercise, whether in whole or in part,
of the Warrant.

This Warrant is
subject to the following provisions, terms and conditions:

1.                                       Exercise
and Term.

(a)           The right to purchase the Warrant
Units at the Warrant Exercise Price shall be exercisable at any time from and
after the date on which the 50 million gallon per year dry mill, fuel-grade
ethanol production facility that the Company proposes to construct (the “Facility”)
begins operating at its nameplate capacity, as certified by the design-build
firm that the Company
engages to construct the Facility, and continue for a period of five (5) years
following such date (the “Exercise Period”), after which date all such rights
shall terminate.

(b)           The rights represented by this
Warrant may be exercised by the Holder hereof, in whole or in part (but not as
to a fractional units), by written notice of the Holder’s irrevocable election
to exercise the purchase right represented by such Warrant (in the form
attached hereto) delivered to the Company ten (10) days prior to the intended
date of exercise at its principal offices prior to the expiration of this
Warrant along with or preceded by (i) a certified or bank cashier’s check in
payment of the Warrant Exercise Price for such Units, and (ii) the surrender of
this Warrant.

2.             Warrant Exercise Price.  The Warrant Units shall be exercisable at a
price of One Dollar and no cents ($1.00) per unit (the “Warrant Exercise Price”).

 

3.             Issuance of
Securities.  The Company agrees that
the Warrant Units purchased hereby shall be and are deemed to be issued to the
record holder hereof as of the close of business on the date on which this
Warrant shall have been surrendered and the payment made for such Warrant Units
as aforesaid.  Within a reasonable time,
not exceeding ten (10) days after the rights represented by this Warrant shall
have been so exercised, and, unless this Warrant has expired, a new Warrant
representing the number of Warrant Units, if any, with respect to which this
Warrant shall not then have been exercised shall also be delivered to the
holder hereof.

4.             Status as
Accredited Investor.  The Holder
represents and warrants to the Company that as of the date of this Warrant,
Holder is an ‘accredited investor’ as that term is defined under Rule 501 of
Regulation D of the Securities Act of 1933, as amended, and Holder understands
that the Company is relying upon this representation in connection with the
issuance of this Warrant to Holder.

5.             Covenants of
Company.  The Company agrees that all
Warrant Units which may be issued upon the exercise of the rights represented
by this Warrant will, upon issuance, be duly authorized and issued, fully paid
and nonassessable.  The Company further
agrees that during the period within which the rights represented by this
Warrant may be exercised, in the event this Warrant is exercised, the Company
will have authorized, and reserved for the purpose of issue or transfer upon
exercise of the subscription rights evidenced by this Warrant, a sufficient
number of such Warrant Units, to provide for the exercise of the rights
represented by this Warrant.

6.             Anti-dilution
Adjustments.  The above provisions
are, however, subject to the following:

(a)           In case the Company
shall at any time hereafter subdivide or combine its outstanding Class A Units,
the Warrant Exercise Price, in effect immediately prior to the subdivision or
combination shall forthwith be proportionately increased, in the case of combination,
or decreased, in the case of subdivision, and each Warrant Unit purchasable
upon exercise of the Warrant shall be changed to the number determined by
dividing the then current Warrant Exercise Price by the exercise price as
adjusted after the subdivision or combination.

(b)           If any merger, capital
reorganization or reclassification of the outstanding capital stock of the
Company, or consolidation or merger of the Company with another entity, or the
sale of all or substantially all of its assets to another entity shall be
effected in such a way that holders of the Company’s Class A Units shall be
entitled to receive securities or assets with respect to or in exchange for
their Class A Units (an “Exchange Event”), then, from and after such Exchange Event,
the Warrant will be exercisable, upon the terms and conditions specified in
this Warrant, for an amount of such securities or assets to which a holder of
the number of Class A Units purchasable upon exercise of the Warrant at the
time of such Exchange Event would have been entitled to receive upon such
Exchange Event.  Appropriate provisions
will be made with respect to the rights and interests of the Holder to ensure
that the provisions of this Warrant (including without limitation the
provisions to adjust the Warrant Exercise Price and the number of Class A Units
purchasable upon the exercise of this Warrant) will be applicable, as nearly as
may be, in relation to any such securities or assets deliverable upon the
exercise of this Warrant after an Exchange Event.  The Company will not effect any Exchange
Event unless, prior to the consummation thereof, the successor or purchasing
corporation (if other than the Company) with respect to such Exchange Event,
assumes by written instrument executed and delivered to the Holder at the
address of such Holder as shown on the books of the Company, the obligation to
deliver to such Holder such securities or assets as, in accordance with the
foregoing provisions, such Holder may be entitled to purchase.

 2
 

 

(c)           Upon any adjustment of
the Warrant Exercise Price in accordance with this Section 6, then and in
each such case, the Company shall give written notice thereof, by first class
mail, postage prepaid, addressed to the registered Holder of this Warrant at the
address of such Holder as shown on the books of the Company, which notice shall
state the Warrant Exercise Price resulting from such adjustment and the
increase or decrease, if any, in the number of Class A Units purchasable at
such price upon the exercise of this Warrant, setting forth in reasonable
detail the method of calculation and the facts upon which such calculation is
based.

7.             No Voting Rights.  This Warrant shall not entitle the holder
hereof to any voting rights or other rights as a unitholder of the Company.

8.             Transfer of
Warrant or Resale.  The holder
acknowledges that it has obtained this Warrant for investment and not with the
intention of making any resale or distribution. 
The holder further acknowledges (a) that neither this Warrant nor any of
the securities obtainable under it have been registered under the Securities
Act of 1933, as amended, or any state securities statutes, and (b) that neither
this Warrant nor any securities obtained under it may be transferred without
such registration or an opinion of legal counsel acceptable to the Company that
such transfer may be made without registration.

9.             Successors and
Assigns.  This Warrant shall inure to
the benefit of and be binding upon the successors and permitted assigns of the
parties hereto.  The Holder of this
Warrant may assign any of its rights under this Warrant to his or her heirs to
the extent permitted by this Warrant and applicable law (including, without
limitation, federal and state securities laws and regulations).

10.           Governing Law.  This Warrant shall be governed by and
construed in accordance with the laws of the State of Illinois, without regard
to the principles of conflicts of law thereof.

IN
WITNESS WHEREOF, Illini Bio-Energy, LLC has caused this
Warrant to be signed by its duly authorized officer.

	
  

  	
  ILLINI BIO-ENERGY, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Its:

  	
   

  
				

 

 3
 

 

WARRANT EXERCISE

(To
be signed only upon exercise of Warrant)

The undersigned,
the Holder of a Warrant to purchase Class A Units of Illini Bio-Energy, LLC,
hereby irrevocably elects to exercise the purchase right represented by such
Warrant for, and to purchase thereunder,                        
of the Class A Units to which such Warrant relates and herewith makes payment
of $                       
therefor in cash or by check and requests that the certificates for such Class
A Units be issued in the name of, and be delivered to                                                        ,
whose address is set forth below the signature of the undersigned.  This Warrant Exercise form is accompanied by
the original Warrant, which is hereby surrendered to the extent necessary to
effect the exercise.

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
  (Signature)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (Print Name)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (Address)

  
	
   

  	
   

  
	
   

  	
   

  

 

 4

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