Document:

EXHIBIT 10.13

 

DISTILLER’S
GRAIN MARKETING AGREEMENT

 

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

 

W I
T N E S S E T H:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

5.                                       DELIVERY AND TITLE.

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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6.                                       PRICE AND PAYMENT

 

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

 

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

 

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

 

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

 

7.                                       QUANTITY AND WEIGHTS.

 

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

 

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

 

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

 

8.                                       QUALITY.

 

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

 

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

 

	
   

  	
   

  	
  Protein

  	
   

  	
  Fat

  	
   

  	
  Fiber

  	
   

  	
  Moisture

  	
   

  	
  Ash

  	
   

  
	
   

  	
   

  	
  Min

  	
   

  	
  Max

  	
   

  	
  Min

  	
   

  	
  Max

  	
   

  	
  Min

  	
   

  	
  Max

  	
   

  	
  Min

  	
   

  	
  Max

  	
   

  	
  Min

  	
   

  	
  Max

  	
   

  
	
  DDGS

  	
   

  	
  25

  	
   

  	
   

  	
   

  	
  10

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  15

  	
   

  	
   

  	
   

  	
  12

  	
   

  	
   

  	
   

  	
  6

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wet Distillers
  Grain

  	
   

  	
  13

  	
   

  	
   

  	
   

  	
  5

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  7

  	
   

  	
   

  	
   

  	
  50

  	
   

  	
   

  	
   

  	
  3

  	
   

  

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

10.           INSURANCE.

 

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

 

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

 

5

 

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

 

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

 

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

 

11.                                 REPRESENTATIONS AND WARRANTIES

 

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

 

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

 

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

 

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

 

6

 

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

 

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

 

15.                                 INDEMNIFICATION.

 

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

 

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

 

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

 

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

 

7

 

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

 

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

 

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

 

18.                                 MISCELLANEOUS.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

8

 

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

 

	
  I.

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

  
	
   

  	
   

  
	
   

  	
  Buyer:

  	
  Commodity Specialists
  Company

  310 Grain Exchange Bldg.

  400 South Fourth Street

  Minneapolis, Minnesota 55415

  ATTN: Steve 1. Markham

  
	
   

  	
   

  	
   

  
	
   

  	
  Seller:

  	
  Heron Lake Bio-energy,
  LLC

  

 

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

 

	
   

  	
  COMMODITY SPECIALISTS COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Philip Lindau

  
	
   

  	
  Title

  	
  Co-President

  
	
   

  	
   

  	
   

  
	
   

  	
  Heron Lake Bio-energy,
  LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Robert J. Ferguson

  
	
   

  	
  Title

  	
  President HLBE

  

 

9EXHIBIT 10.14

 

RPMG

Renewable Products Marketing Group

 

ETHANOL FUEL

MARKETING AGREEMENT

 

 

ETHANOL FUEL MARKETING AGREEMENT

 

THIS AGREEMENT,
entered into this 7th day of August, 2006, by and between RENEWABLE PRODUCTS
MARKETING GROUP, L.L.C., hereinafter referred to as “RENEWABLE PRODUCTS”; and
HERON LAKE BIOENERGY, LLC, a Minnesota Limited Liability Company, hereinafter
referred to as “HERON LAKE BIOENERGY.”

 

WITNESSETH:

 

WHEREAS, Renewable
Products is a limited liability company formed for the purpose of marketing
ethanol for its members and others, and,

 

WHEREAS, HERON LAKE
BIOENERGY is an L.L.C., intending to construct a plant in Heron Lake, Minnesota
for the production of fuel grade ethanol, and,

 

WHEREAS, the parties
have agreed that, for the duration of this marketing agreement, the sale and
marketing of all of the ethanol produced by HERON LAKE BIOENERGY should be
undertaken by Renewable Products.

 

NOW, THEREFORE, In
consideration of the mutual covenants and promises herein contained, the
parties hereto agree as follows:

 

1.                                      Exclusive
Marketing Representative.  That if
HERON LAKE BIOENERGY constructs a facility for the production of fuel grade
ethanol, Renewable Products shall be the sole marketing representative for the
entire production of said facility subject to all the terms and conditions of
this agreement.

 

2.                                      Plant
Construction/Ethanol Specifications. 
That HERON LAKE BIOENERGY promises and agrees to proceed, with due
diligence, toward the planning, financing and construction of a facility for
the production of fuel grade ethanol with a capacity of approximately 50
million gallons per year, which fuel grade ethanol will be at least 199.50
proof (undenatured anhydrous), and conform to the specifications described in
A.S.T.M. 4806 and such other specifications that may be, from time-to-time,
promulgated by the industry for E-Grade denatured fuel ethanol.  HERON LAKE BIOENERGY contemplates that said
facility is 

 

2

 

anticipated to be in production by May 2007, and will make every
good faith effort to begin production by that time.

 

3.                                      Rail and Truck
Loading Facilities.  That the
facility to be constructed and operated by HERON LAKE BIOENERGY, as aforesaid,
shall include reasonable and convenient railcar and tank truck access at the
facility of a size and design appropriate to handle production of approximately
50 million gallons of ethanol per year. 
All such railcar and tank truck loading facilities shall meet all
industry and governmental safety standards and shall be capable of delivering a
minimum of 800 gallons of product per minute to railcars and/or tank
trucks.  HERON LAKE BIOENERGY will be
solely responsible for all demurrage charges for railcars in service for its
use.  HERON LAKE BIOENERGY shall provide
personnel reasonably needed to load trucks or rail cars at its facility in a
timely manner.

 

4.                                      Storage
Capacity.  That the facility to be
constructed and operated by HERON LAKE BIOENERGY as aforesaid shall have
sufficient storage capacity for not less than 10 days ethanol production.

 

5.                                      Best Efforts
to Market.  That since Renewable
Products shall have the exclusive right to market all the fuel grade ethanol
produced by HERON LAKE BIOENERGY during the term of this agreement, Renewable
Products promises and agrees to use its best good faith efforts to market all
such fuel grade ethanol; provided, however, that Renewable Products’ obligation
hereunder shall be excused in case of fire, flood, other natural calamity,
labor dispute or any adverse governmental statute, regulations or decree
(including any court order or decree).

 

6.                                      Risk of Loss.  That Renewable Products will be responsible
for the marketing (subject to the terms of this agreement) of all such fuel
grade ethanol produced by HERON LAKE BIOENERGY, from the time the common
carrier accepts responsibility for the product at HERON LAKE BIOENERGY’s
facility in either a railcar and/or tank truck. 
In addition, Renewable Products shall bear the risk of loss for all such
product that has been accepted for shipment by the common carrier and, in the
event of a loss, shall pay HERON LAKE BIOENERGY for all such product in
accordance with the terms of this agreement as if the product had been received
and accepted by the buyer.

 

7.                                      Specific
Marketing Tasks.  Renewable Products
shall be solely responsible for the marketing, sale and delivery of all the
production from HERON 

 

3

 

LAKE BIOENERGY’s facility during the term of this agreement, including,
but not limited to:

 

·                  Scheduling all
shipments of ethanol produced at the Heron Lake facility;

·                  Related freight
and transportation services, as may be needed for shipment of said production
on a timely basis;

·                  Obtaining
sufficient railcar, tank trucks and other transport as may be needed to handle
said production;

·                  Negotiating the
rates and tariffs to be charged for delivery of such production to the
customer;

·                  Promoting and
advertising the sale of fuel grade ethanol as appropriate;

·                  Ascertaining
that such production is delivered where contracted and intended;

·                  Handling all
purchase agreements with consumers and any complaints in connection therewith;
and

·                  Collecting all
accounts and undertaking any legal collection procedures as may be necessary.

·                  Invoicing all
ethanol marketed, receiving payments from customers, paying all transportation
charges when necessary;

·                  Implementing and
monitoring on-going program to conduct carrier audits and handling carrier
selection and dispatching, freight rate bundling and distribution optimization,
and all insurance matters relating to product that is shipped from the Heron
Lake facility to the customer; and

·                  All transaction
processing including all ethanol licensing, monitoring and state compliance
reporting, state surety bonding, tax collection, remittance and reporting,
purchase and sales acknowledgements, late payment collections, and electronic
funds transfer services.

 

8.                                      Negotiation of
Ethanol Price.  That Renewable
Products will use reasonable efforts to obtain the best price for all fuel
grade ethanol sold by it pursuant to the terms of this agreement.

 

9.                                      Compensation/Pooling.
HERON LAKE BIOENERGY will pay Renewable Products $.01 (one cent) per gallon for
each gallon of ethanol sold by Renewable Products for the account 

 

4

 

of HERON LAKE BIOENERGY. 
Renewable Products shall have the right to deduct this fee from payments
due HERON LAKE BIOENERGY as described in paragraph 10.  The members of Renewable Products market
their ethanol as a pool.  It is the
intent of Renewable Products to treat the production of HERON LAKE BIOENERGY in
a similar manner in the future.  The
parties hereto agree that, upon request in writing, either party may require
the other to make available its books and records, at reasonable intervals, in
order to audit those books and records and to account for all dealings,
transactions and sums relevant to this Agreement.

 

10.                               Accounts
Receivable/Rail Car Leases/Termination of Contract.  It will be the responsibility of Renewable
Products to do all billing in regard to the sale of ethanol, to collect all
receivables and to be responsible for any bad accounts.  RENEWABLE PRODUCTS shall make payment to
HERON LAKE BIOENERGY within 10 days after taking delivery of product into
common carrier truck or into railcar. 
All risks associated with accounts receivables shall be borne by
Renewable Products.  Renewable Products
will lease approximately 125 railcars to be used by HERON LAKE BIOENERGY.  A separate payment for leased railcars is not
applicable as HERON LAKE BIOENERGY’s production of fuel grade is part of the
RENEWABLE PRODUCTS marketing pool.  If
this contract is terminated, by non-renewal or otherwise, the lease for the
rail cars leased by Renewable Products for the transport of HERON LAKE
BIOENERGY’s ethanol will be assigned to HERON LAKE BIOENERGY, who will be
obligated to the terms and conditions of said lease.  Renewable Products shall provide HERON LAKE
BIOENERGY the opportunity to review and approve of the terms and conditions of
any such rail car lease before Renewable Products first executes the same.  The parties understand that the assignment of
the lease is subject to the approval of the lessor of the rail cars.

 

11.                               No “Take or Pay.”  The parties agree that this is not a “take or
pay contract” and that Renewable Products’ liability is limited to ethanol
passing custody at HERON LAKE BIOENERGY’s facility.

 

12.                               Term.  The term of this agreement shall commence on
the first day of the month that HERON LAKE BIOENERGY initially ships ethanol
and shall continue for a period of at least 24 months, but will terminate at
the end of the first traditional ethanol marketing contract period; end of March or
end of September which ever occurs first after the 24 month period.  This
Agreement shall be automatically extended for an additional one (1) year
term following the end of the 

 

5

 

initial
term unless either party gives written notice of non-extension not less than
ninety (90) days before the end of the current expiration date.

 

13.                               Licenses and Permits.  At all times from the commencement of this
contract, HERON LAKE BIOENERGY will have all of the licenses and permits
necessary to operate its production facilities.

 

14.                               Expected Volume.  During the term of this agreement, or any
renewals thereof, HERON LAKE BIOENERGY agrees to have Renewable Products market
all of the ethanol produced by HERON LAKE BIOENERGY it at its production
facility.  The average monthly volume of
ethanol produced by HERON LAKE BIOENERGY is estimated to be approximately
4,166,666 gallons.

 

15.                               Estimated 12-Month
Volume.  As of the effective date of
this agreement, HERON LAKE BIOENERGY will provide Renewable Products with HERON
LAKE BIOENERGY’s best estimate of its anticipated monthly ethanol production
for the next twelve (12) months, to assist Renewable Products in developing
appropriate marketing strategies for the ethanol to be produced by HERON LAKE
BIOENERGY.

 

16.                               Updated Monthly Volume
Estimates.  On or before the first
day of each month, HERON LAKE BIOENERGY will provide Renewable Products with
its updated best estimate of HERON LAKE BIOENERGY’s anticipated monthly ethanol
production for the next twelve (12) months, so that Renewable Products will
have ethanol production estimates from HERON LAKE BIOENERGY twelve (12) months
into the future during the entire time that this agreement is in effect.

 

17.                               Good and Marketable
Title.  HERON LAKE BIOENERGY
represents that it will have good and marketable title to all of the ethanol
marketed for it by Renewable Products and that said ethanol will be free and
clear of all liens and encumbrances.

 

18.                               Establishment of
Price and Other Sale Terms.  When
Renewable Products sells the ethanol marketed pursuant to the terms of this
agreement to its customers, the parties understand and agree that the ethanol
sales prices and all other terms and conditions of ethanol sales to customers
under this agreement will be established by Renewable Products.  Renewable Products may make these decisions,
without the need of obtaining consent from HERON LAKE BIOENERGY.  Notwithstanding the foregoing, Renewable
Products agrees to use 

 

6

 

its best efforts to communicate with HERON LAKE BIOENERGY the terms and
conditions of ethanol sales.

 

19.                               Independent
Contractor.  Nothing contained in
this agreement will make Renewable Products the agent of HERON LAKE BIOENERGY
for any purpose whatsoever.  Renewable
Products and its employees shall be deemed to be independent contractors, with
full control over the manner and method of performance of the services they
will be providing on behalf of HERON LAKE BIOENERGY under this agreement.

 

20.                               Separate Entities.  The parties hereto are separate entities and
nothing in this agreement or otherwise shall be construed to create any rights
or liabilities of either party to this agreement with regard to any rights,
privileges, duties or liabilities of any other party to this agreement.

 

21.                               Working Relationship.  Because the parties hereto have not done
business together in the past in the manner described in this agreement, they
have not yet attempted to develop efficient and effective procedures related to
ordering, delivering ethanol and shipping ethanol and, therefore, agree to work
together promptly and in good faith to develop effective and efficient policies
and procedures to cover these matters.

 

22.                               Ethanol Shortage/Open
Market Purchase.  Notwithstanding any
force majeure provision herein to the contrary, if HERON LAKE BIOENERGY is
unable to deliver its estimated monthly ethanol production and if as a
consequence of the non-delivery and in order to meet its sale obligation to
third parties, Renewable Products may purchase ethanol in the market place to
meet its delivery obligations.  If it
does so, and as a result thereof incurs a financial loss, HERON LAKE BIOENERGY
will reimburse Renewable Products for any such loss.  Under such circumstances, if Renewable
Products realizes a financial gain, it will pay such gain to HERON LAKE
BIOENERGY.

 

23.                               Testing of Samples.  At the request of Renewable Products, HERON
LAKE BIOENERGY agrees to provide Renewable Products with samples of its ethanol
produced at its production facility so that it may be tested for product
quality on a regular basis.

 

24.                               Insurance.  During the entire term of this agreement,
HERON LAKE BIOENERGY will maintain insurance coverage that is standard, in the
reasonable 

 

7

 

opinion of Renewable Products, for a company of its type and size that
is engaged in the production and selling of ethanol.  At a minimum, HERON LAKE BIOENERGY’s
insurance coverage must include:

 

a.                                       Comprehensive
general product and public liability insurance, naming Renewable Products as an
additional named insured, with liability limits of at least $5 million in the
aggregate.

 

b.                                       Property
and casualty insurance adequately insuring its production facilities and its
other assets against theft, damage and destruction on a replacement cost basis.

 

c.                                       Renewable
Products as a named insured under the comprehensive general product and public
liability insurance policy and the property and casualty insurance policy.

 

d.                                       Workers’
compensation insurance to the extent required by law.

 

HERON LAKE BIOENERGY will not change its insurance coverage during the
term of this agreement, except to increase it or enhance it, without the prior
written consent of Renewable Products.

 

25.                               Indemnifications
and Hold Harmless— HERON LAKE BIOENERGY. 
If a third party makes a claim against Renewable Products or any person
or organization related to it as the result of the actions or omissions of
HERON LAKE BIOENERGY or any person or organization related to HERON LAKE
BIOENERGY including, but not limited to, claims relating to the quality of
ethanol produced by HERON LAKE BIOENERGY, then HERON LAKE BIOENERGY agrees to
indemnify Renewable Products and its related persons and organizations and to
hold them harmless from any liabilities, damages, costs and/or expenses,
including costs of litigation and reasonable attorneys fees which they incur as
a result of any claims, arising solely from the marketing of HERON LAKE
BIOENERGY’s ethanol under this Agreement, made against them by third parties.

 

26.                               Indemnifications
and Hold Harmless—Renewable Products. 
The indemnification obligations of the parties under this agreement will
be mutual and Renewable Products, therefore, makes the same commitment to
indemnify HERON LAKE BIOENERGY and its related persons or organizations that 

 

8

 

HERON LAKE BIOENERGY has made to Renewable Products in the preceding
paragraph.

 

27.                               Survival of
Terms/Dispute Resolution.  All
representations, warranties and agreements made in connection with this
agreement will survive the termination of this agreement.  The parties will, therefore, be able to
pursue claims related to those representations, warranties and agreements after
the termination of this agreement, unless those claims are barred by the
applicable statute of limitations. 
Similarly, any claims that the parties have against each other that
arise out of actions or omissions that take place while this agreement is in
effect will survive the termination of this agreement.  This means that the parties may pursue those
claims even after the termination of this agreement, unless applicable statutes
of limitation bar those claims.  The
parties agree that, should a dispute between them arise in connection with this
agreement, the parties will complete, in good faith, a mediation session prior
to the filing of any action in any court. 
Such mediation session shall occur at a place that is mutually
agreeable, and shall be conducted by a mediator to be selected by mutual
agreement of the parties.

 

28.                               Choice
of Law.  The parties agree that this
agreement will be governed by, interpreted under and enforced in accordance
with Minnesota law.

 

29.                               Assignment.  Neither party may assign its rights or
obligations under this agreement without the written consent of the other
party, which consent will not be unreasonably withheld.

 

30.                               Entire
Agreement.  This Agreement
constitutes the entire agreement between the parties covering everything agreed
upon or understood in the transaction. 
There are no oral promises, conditions, representations, understandings,
interpretations, or terms of any kind as conditions or inducements to the
execution hereof or in effect between Buyer and Seller, except as expressed in
this Agreement.  No change or addition
shall be made to this Agreement except by a written document signed by all
parties hereto.

 

31.                               Execution of
Counterparts.  This Agreement may be
executed by the parties on any number of separate counterparts, and by each
party on separate counterparts, each of such counterparts being deemed by the
parties to be an original instrument; and all of such counterparts, taken
together, shall be deemed to constitute one and the same instrument.

 

9

 

32.                               Duplicate Counterpart
Includes Facsimile.  The parties
specifically agree and acknowledge that a duplicate hereof shall include, but
not be limited to, a counterpart produced by virtue of a facsimile (“fax”)
machine.

 

33.                               Binding Effect.  This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and there respective heirs,
personal representatives, successors and assigns.

 

34.                               Termination.  The agreement may be terminated if either
party engages in an uncured breach. 
After receiving written notice, the breaching party will have 30 days to
cure the breach.  If the breaching party
does not cure the breach in the required time, the agreement will terminate 30
days later.

 

35.       Confidential Information.  The parties acknowledge that they
will be exchanging information about their businesses under this Agreement
which is confidential and proprietary, and the parties agree to handle that
confidential and proprietary information in the manner described in this Section 35.

 

(a)                                  Definition of Confidential
Information.  For
purposes of this Agreement, the term “Confidential Information” means
information related to the business operations of HERON LAKE BIOENERGY or RENEWABLE PRODUCTS that meets all of the
following criteria:

 

(i)    
The information must not be generally known to the public, and must not be a
part of the public domain.

 

(ii)    The
information must belong to the party claiming it is confidential, and must be
in that party’s possession.

 

 (iii)   The information must have
been protected and safeguarded by the party claiming it is confidential by
measures that were reasonable under the circumstances before the information
was disclosed to the other party.

 

(iv)   
Written information must be clearly designated in writing as “Confidential
Information” by the party claiming it is confidential before it is disclosed to
the other party, except that all information about costs and 

 

10

 

prices will always be
considered Confidential Information under this Agreement, without the need for
specifically designating it as such.

 

(v)    
Verbal Confidential Information which is disclosed to the other party must be
summarized in writing, designated in writing as “Confidential Information,” and
transmitted to the other party within ten (10) days of the verbal
disclosure.

 

(b)     Limitations on the Use of Confidential Information.  Each
party agrees that it will not use any Confidential Information that it obtains
about the other party for any purpose, other than to perform its obligations
under this Agreement.

 

(c)     The Duty not to Disclose Confidential Information.  The
parties agree that they will not disclose any Confidential information about
each other to any person or organization, other than their respective legal
counsel and accountants, without first getting written consent to do so from
the other party.  Notwithstanding the foregoing, if a party or anyone to
whom such party transmits Confidential Information in accordance with this
Agreement is requested or required (by deposition, interrogatories, requests
for information or documents in legal proceedings, subpoenas, civil
investigative demand or similar process, SEC filings or administrative
proceedings) in connection with any proceeding, to disclose any Confidential
Information, such party will give the disclosing party prompt written notice of
such request or requirement so that the disclosing party may seek an
appropriate protective order or other remedy and/or waive compliance with the
provisions of this Agreement, and the receiving party will cooperate with the
disclosing party to obtain such protective order.  The fees and costs of
obtaining such protective order, including payment of reasonable attorney’s
fees, shall be paid for by the disclosing party.  If such protective order
or other remedy is not obtained or the disclosing party waives compliance with
the relevant provisions of this Agreement, the receiving party (or such other
persons to whom such request is directed) will furnish only that portion of the
Confidential Information which, in the opinion of legal counsel, is legally
required to be disclosed, and upon the disclosing party’s request, use
commercially reasonable efforts to obtain 

 

11

 

assurances that the
confidential treatment will be accorded to such information.  This will be
the case both while this Agreement is in effect and for a period of five (5) years
after it has been terminated.

 

(d)     The Duty to Notify the Other Party in Cases of
Improper Use or Disclosure.  Each party agrees to
immediately notify the other party if either party becomes aware of any
improper use of or any improper disclosure of the Confidential Information of
the other party at any time while this Agreement is in effect, and for a period
of five (5) years after it has been terminated.

 

(e)     Protection of the Confidential Information.  Each
party agrees to develop effective procedures for protecting the Confidential
Information that it obtains from the other party, and to implement those
procedures with the same degree of care that it uses in protecting its own
Confidential Information.

 

(f)     Return of the Confidential Information.  Immediately
upon the termination of this Agreement, each party agrees to return to the
other party all of the other party’s Confidential Information that is in its
possession or under its control.”

 

(g)                         Disclosure in SEC Filings. Notwithstanding any other provision
contained in this agreement, RENEWABLE PRODUCTS acknowledges and agrees that the
disclosure of this agreement and the transactions contemplated hereby by HERON
LAKE BIOENERGY (i) on a Form 8-K or other report filed with the
Securities and Exchange Commission at any time after the date hereof, or (ii) in
a customary press release or on a customary analyst call, will not be violation
of this Section 35. HERON LAKE BIOENERGY will cooperate with any
reasonable requests of RENEWABLE PRODUCTS to request confidential treatment
concerning sensitive/confidential items.

 

36.                               Force
Majeure.  Neither party shall be
liable for any failure or delay by such party in performing its obligations
under this agreement if such failure or delay is due to causes beyond its
reasonable control including, without limitation, fires, floods, storms and
other acts of God, governmental acts, acts of terrorism, labor strikes,
lockouts or other 

 

12

 

disturbances,
war, riot, failure of processing equipment, or difficulties in procuring labor
or materials.

 

37.                               Notices.  Any notice or other communication required or
permitted hereunder shall be in writing and shall be considered delivered in
all respects when it has been delivered by hand or mailed by first class mail
postage prepaid, addressed as follows:

 

	
   

  	
  TO:

  	
  Renewable Products Marketing Group, L.L.C.

  	
   

  
	
   

  	
   

  	
  809 East Main Street

  	
   

  
	
   

  	
   

  	
  Suite 2

  	
   

  
	
   

  	
   

  	
  Belle Plaine, MN 56011

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  TO:

  	
  HERON LAKE BIOENERGY, LLC

  	
   

  
	
   

  	
   

  	
  91246 390th Ave.

  	
   

  
	
   

  	
   

  	
  Heron Lake, MN 56137

  	
   

  

 

IN WITNESS WHEREOF,
the parties hereto have set their hands the day and year first written above.

 

	
   

  	
  RENEWABLE
  PRODUCTS

  MARKETING GROUP, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ C. Stephen Bleyl

  	
   

  
	
   

  	
   

  	
  Its CEO

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  HERON LAKE BIOENERGY, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Robert J. Ferguson

  	
   

  
	
   

  	
   

  	
  Its President

  	
   

  

 

13

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