Document:

Exhibit 10.48

 

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

 

CORN SUPPLY AGREEMENT

(HERON LAKE, MINNESOTA)

 

THIS CORN SUPPLY AGREEMENT (the “Agreement”) is dated and made effective as of September 1, 2011, by and between Heron Lake BioEnergy, LLC, a Minnesota limited liability company (“Buyer”), and Gavilon, LLC, a Delaware limited liability company (“Gavilon”) (each of Buyer and Gavilon is a “Party” and together they are collectively referred to as the “Parties”).

 

RECITALS:

 

(a)                                  Buyer desires to have Gavilon originate and supply corn (or assist in originating and supplying corn) required at Buyer’s plant located at Heron Lake, Minnesota (the “Plant”), and to provide related services to Buyer; and

 

(b)                                 Gavilon desires to enter into an agreement with Buyer to originate and supply (or assist in originating and supplying) such products and provide the related services for Buyer.

 

AGREEMENT:

 

NOW THEREFORE, in consideration of the above recitals and the mutual promises and covenants set forth herein, the Parties agree as follows:

 

Article 1
  DEFINITIONS AND INTERPRETATIONS

 

1.1           Definitions.  As used in this Agreement, the following terms have the following meanings:

 

1.1.1                        “Agreement” means this Corn Supply Agreement.

 

1.1.2                        “Business Day” or “Business Days” means the hours from 8:00 a.m. to 5:00 p.m. Central Time excluding Saturdays, Sundays, and scheduled holidays observed by the Chicago Board of Trade, Chicago, Illinois, USA.

 

1.1.3                        “Buyer’s Corn Order(s)” has the meaning given in Section 3.2.1.

 

1.1.4                        “Change in Control” means a change in the ownership of a Party, whereby such change results in any person or group (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934), other than Project Viking, L.L.C. or any affiliates owned or controlled by Ron and Diane Fagen with respect to Buyer, directly or indirectly, having the ability to control the governing body of such Party.

 

1.1.5                        “Claims” has the meaning given in Section 10.2.

 

1.1.6                        “Confidential Information” has the meaning given in Section 9.1.

 

 

1.1.7                        “Confirmed Order” has the meaning given in Section 3.2.2.

 

1.1.8                        “Constructively Placed” or “Constructive Placement” means, with respect to a shipment of Corn by railcar, that such railcar has been deemed constructively placed by the applicable railroad to the Delivery Point.

 

1.1.9                        “Corn” means corn to be sold by Gavilon to Buyer pursuant to the terms of this Agreement and as further described in Section 3.1.

 

1.1.10                  “Corn Buyer(s)” has the meaning given in Section 3.2.

 

1.1.11                  “Delivered Corn Price” means the price in $/bushel for the applicable Corn as established in the applicable Buyer’s Corn Order or Confirmed Order.

 

1.1.12                  “Delivery Point” means the location at the Plant where the Corn is unloaded from railcars or trucks to storage.

 

1.1.13                  “Delivery Schedule” has the meaning given in Exhibit “A”.

 

1.1.14                  “Demurrage” means all costs, damages, penalties and charges resulting from any delay in loading and/or unloading of Corn shipments, including, without limitation, any delay related to any truck or railcar (as applicable) being incapable of timely offloading any shipment of Corn due to mechanical failure or for other reasons.

 

1.1.15                  “Elevator” means, collectively, (i) the grain elevators owned by Lakefield Farmers Elevator, LLC, and located in Lakefield, Minnesota (1,872,000 bushel capacity) and Wilder, Minnesota (920,000 bushel capacity), and (ii) the grain storage facility owned by Buyer and located in Heron Lake, Minnesota (550,000 bushel capacity) which is utilized for temporary grain storage prior to use at the Plant.

 

1.1.16                  “Ethanol and DDG Agreement” has the meaning given in Section 10.1.

 

1.1.17                  “Force Majeure” has the meaning given in Section 11.2.

 

1.1.18                  “Holiday” means New Year’s Day, Good Friday (i.e., Friday before Easter Sunday), Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

 

1.1.19                  “Indemnitee Group” has the meaning given in Section 10.2.

 

1.1.20                  “Indemnitor” has the meaning given in Section 10.2.

 

1.1.21                  “Limited Sale(s)” has the meaning given in Section 3.9.

 

1.1.22                  “Initial Term” has the meaning given in Section 2.1.

 

1.1.23                  “Master Agreement” means the Master Netting, Setoff, Credit and Security Agreement of even date herewith between Buyer and Gavilon.

 

1.1.24                  “NGFA” means the National Grain and Feed Association.

 

1.1.25                  “Plant” has the meaning given in the first recital.

 

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1.1.26                  “Renewal Terms” has the meaning given in Section 2.2.

 

1.1.27                  “Representatives” has the meaning given in Section 9.2.

 

1.1.28                  “Storage Agreement” means that certain Corn Storage Agreement, dated concurrently herewith, by and between Gavilon and Lakefield Farmers Elevator, LLC, a Minnesota limited liability company.

 

1.1.29                  “Supply Fee” has the meaning given in Section 3.3.

 

1.1.30                  “Term” means the Initial Term and any Renewal Terms.

 

1.1.31                  “Third-Party Purchases” has the meaning given in Section 3.1.

 

1.1.32                  “Trade Rules” means the trade rules of the NGFA Trade Rules and Arbitration Rules Booklet, as amended March 5, 2010, and as otherwise amended or restated from time to time.  Any reference to the Trade Rules in this Agreement shall be a reference to the specific portions of the Trade Rules which are applicable to such reference.  By way of example and not limitation, any reference to arbitration in accordance with the terms of the Trade Rules shall be a specific reference to the arbitration provisions of the Trade Rules.

 

1.2           Industry Usage.  Any word, phrase or expression that is not defined in this Agreement and that has a generally accepted meaning in the custom and usage in the corn industry shall have that meaning in this Agreement.

 

Article 2
  TERM

 

2.1           Initial Term. This Agreement shall become effective as of the date hereof and shall remain in effect for two (2) years (the “Initial Term”) unless extended as set forth in Section 2.2.

 

2.2           Renewal Terms.  This Agreement shall automatically extend for successive one (1) year terms (each a “Renewal Term”), unless either (i) at least six (6) months prior to expiration of the Term, Gavilon provides written notice to Buyer that the Agreement shall terminate at the end of the then-current Term, or (ii) at least sixty (60) days prior to expiration of the Term, Buyer provides written notice to Gavilon that the Agreement shall terminate at the end of the then-current Term.

 

Article 3
  CORN SUPPLY TERMS

 

3.1           Supply of Corn.  Except as otherwise provided in this Agreement, Buyer agrees to purchase from Gavilon one-hundred percent (100%) of Buyer’s corn requirements at the Plant, and Gavilon agrees to supply and sell such corn to Buyer, at the Delivered Corn Price and otherwise in accordance with terms and conditions of this Agreement (the “Corn”).  Gavilon may deliver the Corn via railcars or trucks with such shipments not to exceed size units as mutually agreed.  The Parties agree to discuss Corn availability and delivery options, and to reach a mutually-acceptable Delivery Schedule as set forth in Exhibit “A”.

 

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Should Buyer subsequently plan to increase crush volumes at the Plant in excess of the current maximum volume, whether via expansion or otherwise, Buyer shall utilize Gavilon to supply the Corn needed for such increased production, all in accordance with the terms of this Agreement.

 

3.2           Delivered Corn Price; Confirmation Process.  As of the date of this Agreement, the Parties anticipate that Buyer shall utilize its own personnel to originate and supply corn required at the Plant (each a “Corn Buyer” and collectively the “Corn Buyers”); provided, however, in the event that the Corn Buyers are unable to originate and supply enough Corn for the Plant, then Gavilon shall assist in originating and supplying corn.  Buyer acknowledges and agrees that any Corn Buyers shall be employees or subcontractors (as applicable) of Buyer, and Buyer shall maintain all responsibility and liability for paying wages, benefits or other forms of remuneration for such Corn Buyers’ activities.

 

3.2.1                        In the event that Buyer originates and supplies Corn for its Plant, Buyer shall establish the Delivered Corn Price based upon its offer and confirmation process with the seller of the Corn (each a “Buyer’s Corn Order” and collectively the “Buyer’s Corn Orders”); provided, however, the terms and conditions of each Buyer’s Corn Order shall fit within the parameters as set forth on Exhibit “B”.  At least one time per day, Buyer shall provide Gavilon with all Buyer’s Corn Orders for such day, whereby such Orders shall be input into Gavilon’s electronic system for tracking Corn purchases, with any such input process to be mutually agreed upon by the parties.  After receiving the Buyer’s Corn Orders, Gavilon shall send a “confirmation” back to Buyer which reflects (i) the total amount of bushels purchased by Corn Buyer during said day for a specified period (i.e., a specified week, month or quarter), and (ii) the average price for the bushels purchased in each confirmation.  By way of example and not limitation, in the event that there are 50 Buyer’s Corn Orders during any particular day, whereby (i)  25 of such Orders are for delivery during the week of December 5-9, 2011, (ii) 15 of the Orders are for delivery in January  2012, and (iii) 10 of the orders are for delivery anytime during the first quarter of 2012, then Gavilon would provide Buyer with three “confirmations” to reflect in the aggregate the amount of bushels specifically purchased in the 50 Buyers Corn Orders for delivery during the specific week, month and quarter, and the average price per bushel for such purchases.  In the event that the Corn Buyers determine that he/she/they cannot originate and supply enough Corn as needed for the Plant at any time, Buyer shall promptly notify Gavilon and request that Gavilon assist in originating and supplying Corn in accordance with Section 3.2.2 below.  After entering the Buyer’s Corn Orders into Gavilon’s system as described in this Section 3.2.1., Buyer shall have no right to subsequently change any such Buyer’s Corn Orders or sell any of the Corn purchased under such Buyer’s Corn Orders except as set forth in Section 3.9 below.

 

3.2.2                        In the event that Buyer desires to have Gavilon assist in originating and supplying Corn for the Plant, the Delivered Corn Price to Buyer will be established through an “offer” and “confirmation” process between both Parties.  Gavilon will offer market-based (delivered) Corn prices to Buyer and Buyer shall timely confirm the offered price, volume and delivery period to establish each “Confirmed Order”, all as set forth in Exhibit “A”.  To the extent that any terms of any Confirmed Order conflict with the terms of this Agreement, the terms of this Agreement shall govern unless both Parties have specifically expressed their intent in writing to supersede the terms of this Agreement.  Should Buyer reject, or fail to confirm,

 

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the Corn offers on said timely basis, Gavilon will be relieved of any obligation to deliver any such Corn or to procure any substitute Corn should Buyer’s inventory become depleted as a result.

 

3.3           Gavilon Supply Fee.  Buyer shall pay Gavilon a “Supply  Fee” for every bushel of Corn received at the Elevator or Plant by Buyer from a Buyer’s Corn Order or a Confirmed Order.  The Supply Fee shall be based upon the following:

 

3.3.1                        [ * * * ] for every bushel of Corn purchased by Gavilon for Buyer; and

 

3.3.2                        The length of time measured between (i) Gavilon’s purchase of any Corn under Buyer’s Corn Orders which is either stored in, or enroute to or from, the Elevator or the Plant after Gavilon’s payment for such Corn, and (ii) Buyer’s receipt of an invoice for such Corn after title to the Corn passes from Gavilon to Buyer.  [ * * * ].

 

Gavilon will invoice and identify the Supply Fee (i) arising under Section 3.3.1 above on each invoice related to delivery of Corn to Buyer, and (ii) arising under Section 3.3.2 above on each Netting Statement (as defined in the Master Agreement).  Buyer hereby acknowledges that the Supply Fee charged by Gavilon in accordance with the terms of this Section 3.3 has been reduced from Gavilon’s normal fees and charges to other purchasers of Corn, with such discount reflecting, in part, the value of storage services received by Gavilon under the terms of the Storage Agreement.  Buyer further acknowledges and agrees that the benefits it receives from Gavilon under this Agreement, the Master Agreement and any other agreements referenced herein or therein shall constitute fair and adequate consideration for the storage provided by Buyer’s wholly-owned subsidiary Lakefield Farmers Elevator, LLC under the terms of the Storage Agreement.

 

3.4           Buyer’s Failure to Purchase.  In the event that Gavilon is prepared to deliver Corn per the  relevant Buyer’s Corn Order or Confirmed Order, and Buyer fails to take delivery of any such tonnage, and Gavilon, after using commercially reasonable efforts to mitigate any damages, sells such Corn to a substitute buyer, then Buyer shall reimburse Gavilon for (i) the amount, if any, by which the Delivered Corn Price exceeds the price paid by the substitute buyer, plus (ii) reasonable out-of-pocket additional costs incurred by Gavilon due to such substitute sale, including, without limitation, additional leased railcar costs, dead mileage costs for leased railcars, and out-of-pocket costs of selling Corn (Gavilon’s internal costs shall be excluded).  If Gavilon is unable to sell the Corn to a substitute buyer, then Buyer shall reimburse Gavilon for the entire purchase price plus reasonable additional costs, and Gavilon shall sell and redeliver such Corn to Buyer (at Buyer’s expense).  Buyer acknowledges and agrees that Gavilon shall be entitled to the Supply Fee on Corn sales under this Section.  Payment shall be made according to the terms set forth in Article 4 upon Buyer’s receipt of appropriate documentation from Gavilon, including, without limitation, invoices and receipts related to such sale of Corn.  All such additional costs incurred by Gavilon, if any, shall be fully documented by Gavilon and submitted to Buyer as a condition to Buyer’s reimbursement hereunder.  Except to the extent specified in Section 8.2.1, the remedy specified in this Section 3.4 shall be Gavilon’s sole and exclusive remedy in the event that Buyer fails to take delivery of any Corn per the relevant Buyer’s Corn Order or Confirmed Order.

 

3.5           Delivery Shortfall.  If Gavilon fails to make available for purchase the quantity of Corn specified in any Buyer’s Corn Orders, Buyer shall be responsible for addressing any such shortfalls with the seller of such Corn under the Buyer’s Corn Order.  If Buyer is unable to obtain satisfaction from the supplier under the Buyer’s Corn Order, Buyer may request that Gavilon obtain replacement Corn in accordance with Section 3.2.2; provided, however, Buyer shall

 

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maintain responsibility for obtaining any remedies against the original supplier of such Corn as agent of Gavilon or as assignee of Gavilon under the original contract, and Buyer shall be entitled to retain any damages or other amounts obtained against the original supplier.  If requested by Buyer, Gavilon shall provide reasonable assistance to Buyer and provide reasonable documentation in addressing Corn shortfalls arising under Buyer’s Corn Orders.

 

If Gavilon fails to make available for purchase the quantity of Corn specified in any Confirmed Orders or in the event Corn specified in any Confirmed Order is rightfully rejected, and Buyer, using commercially reasonable efforts to mitigate any damage, is unable to obtain a substitute supply of Corn at a price equal to or less than the Delivered Corn Price, as set forth in such specified Confirmed Orders, then Gavilon shall pay Buyer: (i) the amount, if any, by which the Delivered Corn Price is less than the price paid by Buyer for substitute supply, multiplied by the delivery shortfall (Confirmed Order quantity less the amount actually delivered by Gavilon); plus (ii) any reasonable additional costs solely and directly incurred by Buyer to identify a substitute seller.  All such additional costs incurred by Buyer, if any, shall be fully documented by Buyer and submitted to Gavilon as a condition to Gavilon’s payment obligation hereunder.  Except to the extent specified in Section 8.3, the remedy specified in this Section 3.5 shall be Buyer’s sole and exclusive remedy in the event that Gavilon fails to supply the quantity of Corn specified in any Confirmed Order.

 

3.6           Gavilon Responsibilities.  In addition to, and without limiting Gavilon’s other obligations hereunder, Gavilon shall:

 

3.6.1                        Coordinate logistics for delivery of the Corn in accordance with the applicable Delivery Schedule.

 

3.6.2                        Be responsible for all inbound shipment logistics including the management of railcars and truck transportation.

 

3.6.3                        Manage all claims by Gavilon vendors under, and be responsible for such vendors’ compliance with shipments governed by, the various Trade Rules.

 

3.7           Buyer Responsibilities.  In addition to, and without limiting Buyer’s other obligations hereunder, Buyer shall:

 

3.7.1                        Advise Gavilon of Buyer’s annual Corn requirements, and provide Gavilon with timely and accurate forecasts of the amount, as well as the type or grade, of Corn needed pursuant to Exhibit “A”.

 

3.7.2                        Provide timely notice to Gavilon if Buyer desires Gavilon to assist in originating and supplying Corn due to any shortfall in Buyer’s ability to originate and supply Corn to the Plant.

 

3.7.3                        Provide to Gavilon on a daily basis complete and accurate reports and downloads of all related data on Corn (i) delivered to the Plant, (ii) moved from storage at the Plant into the grinders at the Plant, and (iii) sold as a Limited Sale in accordance with Section 3.9 below.

 

3.7.4                        Provide to Gavilon on a daily basis all data related to the Buyer’s Corn Orders, as described in Section 3.2.1.

 

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3.7.5                        Inform Gavilon of all scheduled Plant shutdowns at the time the quarterly Delivery Schedule is submitted by Buyer under Exhibit “A”, Section 1, and as soon as reasonably possible after Buyer becomes aware of the occurrence of any event that may result in an unscheduled Plant shutdown.

 

3.7.6                        Provide a designated individual for daily operational and logistic issues and provide a designated individual for pricing and other contractual issues.

 

3.7.7                        Submit to Gavilon by 10:00 A.M. (Central time) each Monday an inventory report reflecting total Corn inventory.

 

3.7.8                        Make available certain of its employees or subcontractors to serve as Corn Buyers to purchase Corn from producers as necessary to meet the Delivery Schedule for Corn.

 

3.7.9                        Operate the Plant scales where the Corn is received from the delivering parties, for the purpose of receiving, weighing and inputting customer account information related to the delivery and unloading of Corn.  Buyer shall notify Gavilon immediately of any errors, problems or complaints from any third-party relating to the Plant scales, operation of the scales and/or weighing of Corn.  Buyer will maintain properly certified scales in accordance with the Trade Rules and accurately weigh, grade and account for all such incoming Corn.  Buyer shall provide, at least on an annual basis, Gavilon with any certification certificates related to its scales and, in the event that either Buyer or Gavilon reasonably believes that any scales are not working properly, either Party may request that such scales be tested and recertified.

 

3.7.10                  Provide to Gavilon certain annual reports and financial statements of Buyer in accordance with the terms of the Master Agreement.

 

3.8           Trade Rules.  The Parties agree that they are subject to the Trade Rules for purposes of this Agreement; however, the terms of this Agreement shall govern in the event of a conflict with the applicable Trade Rules.  Each Party is responsible for the administration and execution of the Trade Rules with respect to their respective suppliers of Corn.  Buyer agrees to comply with the Trade Rules to the extent applicable to Corn specifications, analysis and discounts, unless otherwise stated herein.

 

3.9           Limited Corn Sales.  Buyer shall have the right to make certain limited Corn sales (each a “Limited Sale”) for purposes of either (i) supplying local users with Corn consistent with Buyer’s past practices or (ii) locking in profits when Buyer’s Corn supplies are adequate to continue operations at the Plant despite the sale of such Corn.  In order to accomplish a Limited Sale, Buyer shall notify Gavilon in writing of its desire to make such Limited Sale and provide Gavilon with information on the terms and conditions of such Limited Sale (the “Sale Notice”).  Gavilon shall review the Sale Notice and, within a reasonable time, provide Buyer with approval of such Limited Sale; provided, however, Gavilon may withhold its consent for Buyer’s request to make any Limited Sale if Gavilon determines, in its sole and reasonable discretion, that such Limited Sale would materially and adversely impact operations at the Plant or have a negative impact on Buyer’s netting payments under the terms of the Master Agreement.  Upon Gavilon’s approval of any Limited Sale, Buyer shall have the right to make such sale in accordance with the terms of the Sale Notice.  If such sale of Corn shall occur from the Elevator(s) located in Lakefield, Minnesota or Wilder, Minnesota, Gavilon shall provide Lakefield Farmers Elevator, LLC with notice that Buyer has the right to sell such Corn in accordance with the terms of the

 

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Sale Notice.  Any Corn sold under the terms of a Sale Notice may be shipped from any Elevator, and Buyer shall provide Gavilon with a report as soon as reasonably practicable stating from which Elevator the Corn will be shipped and specifically note any such shipment in the daily reports provided to Gavilon in accordance with Section 3.7.3.  Upon approval of any Limited Sale, Gavilon shall issue an invoice or confirmation to Buyer for such Corn, whereupon payment by Buyer for such invoice or confirmation, along with a credit to Buyer for the proceeds of such sale, shall be made in accordance with the Master Agreement.

 

3.10         Beginning / Ending Corn Purchase / Sale.  Effective as of the date of this Agreement, Gavilon agrees to purchase all Corn currently owned by Buyer and located in the Elevator (the “Initial Purchase”) for a price per bushel equal to (i) [ * * * ], minus (ii) [ * * * ] per bushel (the “Iniital Purchase Price”).  Gavilon and Buyer shall work in good faith to determine the amount of Corn owned by Buyer in the Elevators as of the effective date of this Agreement, and after agreeing on such amount Gavilon’s payment of the Initial Purchase Price to Buyer for the Initial Purchase shall be due two (2) Business Days later.  Upon any termination of this Agreement at the end of its natural Term (but not due to an event of default), Buyer shall purchase all Corn then owned by Gavilon and located in the Elevator (the “Final Purchase”) for a price per bushel equal to (i) [ * * * ], minus (ii) [ * * * ] per bushel (the “Final Purchase Price”).  Gavilon and Buyer shall work in good faith to determine the amount of Corn owned by Gavilon in the Elevators as of the date of such termination, and after agreeing on such amount Buyer’s payment of the Final Purchase Price to Gavilon for the Final Purchase shall be due two (2) Business Days later.

 

Article 4
  BILLING AND PAYMENT

 

4.1           Corn Billing.  Gavilon shall issue to Buyer, at the time title for Corn passes from Gavilon to Buyer in accordance with Section 12.1 below, an invoice containing the description of delivered products, estimated weight and price, date of shipment, point of origin, and amount payable to Gavilon including the Supply Fee.  By entering into this Agreement, Buyer acknowledges that Gavilon’s method for obtaining a calculation of the amount of Corn delivered into the grinders at the Plant shall require Buyer to provide Gavilon with data reflecting such amounts, all in accordance with Section 3.7.3 above. In an effort to confirm that the amount of Corn remaining in the Elevator at the end of each month is consistent with the data received showing the amount of Corn delivered into the grinders at the Plant and the amount of Corn shipped into or out of the Elevator, Buyer shall provide Gavilon with a measurement of the amount of Corn remaining in the Elevator at the end of each month.  In the event that there is ever a discrepancy between the data regarding the amount of Corn moved into the grinders at the Plant and the amount of Corn remaining in inventory, Buyer and Gavilon shall work in good faith to true-up such amounts and account for the same.  Either Party may request a third-party audit of the Corn located in the Elevators as of the end of any month, with any such audit to be paid for by the requesting Party.  Additionally, Buyer shall provide Gavilon with any audit information it receives each year from the State of Minnesota which, as of the date of this Agreement, occurs two times per year.

 

4.2           Payment.  Subject to the receipt of the invoice and other information required in Section 4.1, payment therefor will be made in accordance with the Master Agreement.

 

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Article 5
  CORN GRADE AND QUALITY SPECIFICATIONS

 

5.1           Corn Quality Specifications. Any Corn purchased by Buyer from Gavilon under a Confirmed Order shall, at the time of delivery by Gavilon to Buyer pursuant to this Agreement, meet the specifications provided in Exhibit “C”.  In the event that any Corn does not meet such specifications at the time of delivery, Buyer shall have the right to reject such Corn.  Except as set forth in the preceding sentence and in Section 5.3, Gavilon makes no warranty, whether expressed, implied, statutory or otherwise, concerning the Corn sold hereunder, and Gavilon expressly disclaims any implied warranty of merchantability or fitness or suitability for a particular purpose.  Buyer assumes all risk and liability resulting from (i) Corn purchased by Corn Buyers under Buyer’s Corn Orders, provided Buyer shall have the right to reject such Corn in the event it does not meet the contract specifications or the specifications established from time to time by Buyer in accordance with Exhibit “C”, whereupon Buyer shall maintain its rights against the supplier in accordance with Section 3.5 above, and (ii) the use and sale of any Corn and products made from any Corn, whether used singly or in combination with other substances or in any process.  There are no oral warranties collateral to or affecting the sale of any Corn from Gavilon to Buyer.

 

5.2           Specification Responsibilities.  Gavilon shall allow Buyer to have the right to inspect, test, weigh and grade any and all Corn deliveries.  Buyer shall have the right to reject any Corn that does not meet specifications, whereupon Buyer shall maintain its rights against Gavilon or any other supplier in accordance with Section 3.5 above.  Should Buyer modify, alter or unload any or all Corn from the delivery vessel (i.e., railcar or truck), the portion of the shipment that is modified, altered or unloaded (other than is necessary for the tests contemplated hereunder) shall be considered accepted without rights of shipment rejection.

 

5.3           Express Warranty Against Liens.  Gavilon represents and warrants that title to all Corn delivered and sold under a Confirmed Order will be free and clear of all liens, security interests and other encumbrances.  Gavilon makes no representations and warranties to title with regard to any Corn delivered and sold under a Buyer’s Corn Order and Buyer shall be solely responsible for ensuring that any Corn purchased under a Buyer’s Corn Order is free and clear of all liens, security interests and other encumbrances.

 

Article 6
  LOGISTICS AND DELIVERY OF CORN

 

6.1           Railroad Coordination. Gavilon will track the estimated time of arrival and placement and release times at origin and destination.  Gavilon will also coordinate unloading schedules in an effort to minimize Demurrage exposure.

 

6.2           Demurrage.  Buyer shall be responsible for any Demurrage that arises with regard to (i) any Corn purchased under a Buyer’s Corn Order and (ii) purchased from Gavilon under a Confirmed Order after the railcar has been Constructively Placed, or the truck has been placed, at the Plant for unloading.  Demurrage shall be calculated in accordance with the rules of the applicable carrier.

 

6.3           Notification of Problems with Delivery.  Gavilon shall promptly inform Buyer of any problem regarding any Corn delivery, including the possible event that Corn is not available for purchase by Gavilon in the quantity or type originally ordered per the relevant Buyer’s Corn Order or Confirmed Order.  Similarly, Buyer shall promptly inform Gavilon of any problems in accepting any Corn delivery.

 

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Article 7
  RISK MANAGEMENT

 

7.1           Monitoring of Corn Positions.  Gavilon will monitor Corn purchases and may (but shall not be required to), from time to time, make suggestions concerning Buyer’s risk management program and the position of its Corn purchases for future physical delivery.  After receiving any Buyer’s Corn Orders or establishing any Confirmed Order, Gavilon shall take the risk of any hedge thereafter made on such Corn by Gavilon.

 

7.2           Market Conditions.  Gavilon will review with Buyer on a daily basis market conditions relating to Corn, existing Corn supply and ownership positions, and forward marketing strategies in an attempt to assist Buyer in lowering its cost of Corn.  It is understood by Buyer that all risk management services must be tied to a valid written purchase contract requiring physical delivery of Corn to Buyer.

 

7.3           No Liability. Buyer recognizes that Gavilon’s monitoring of Corn positions, periodic suggestions (if any), review of market conditions and risk management services are informational and optional, and that the final decisions concerning purchases and risk management strategies, and the implementation of such strategies, will be made by, and is the sole responsibility of, Buyer.  Gavilon is not responsible for any Buyer losses or entitled to any Buyer gains resulting from risk management information supplied by Gavilon.

 

Article 8
  DEFAULT AND TERMINATION

 

8.1           Termination by Mutual Agreement.  This Agreement may be terminated upon mutual written agreement between the Parties.

 

8.2           Termination By Either Party.  Except as otherwise provided in this Agreement, either Party may immediately terminate this Agreement upon written notice to the other Party if:

 

8.2.1                        The other Party defaults on any material term, covenant or condition hereunder and fails to cure such default within thirty (30) days after receiving written notice thereof from the non-defaulting Party;

 

8.2.2                        Such other Party shall (i) become subject to any foreclosure proceeding by such Party’s primary lender or other material creditor(s), or (ii) become insolvent or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors, or such other Party shall file a voluntary petition in bankruptcy, or seek reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Code, Title XI of the United States Code, as amended or recodified from time to time, or under any state or federal law granting relief to debtors;

 

8.2.3                        Such other Party defaults on any payment obligation with such Party’s primary lender or any other material creditor(s), or such other Party has received notice of acceleration or demand for payment from such Party’s primary lender or any other material creditor, and such payment obligation default is not cured or the primary lender or material creditor does not forbear such payment obligation

 

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default, acceleration or demand for payment within ten (10) days following such default or notice;

 

8.2.4                        Such other Party is in default under the Ethanol and DDG Agreement, the Master Agreement or the Storage Agreement  (and such default is not cured within the applicable cure period); or

 

8.2.5                        A Change in Control occurs in such other Party in violation of Section 14.1.

 

8.3           Default for Non-Payment or Non-Delivery.  If either Party:  (i) does not make payment as required under Section 2 of the Master Agreement within ten (10) days following written notice to the defaulting party; or (ii) otherwise fails to post margin or perform its other obligations under the Master Agreement, the non-defaulting party shall have the right to immediately terminate this Agreement.  If Gavilon is responsible for supplying Corn to Buyer in accordance with the terms of Section 3.2.2, and if Gavilon fails to make deliveries in accordance with the terms of Confirmed Orders for a period of ten (10) consecutive days (but excluding any days during which the Plant has been shut down), such action shall be deemed an event of default and Buyer shall have the right to immediately terminate this Agreement upon written notice to Gavilon.  For purposes of calculating such ten (10) day period, each day for which there is no Delivery made (but a Confirmed Order indicates a Delivery should occur), shall be deemed to be a day on which Gavilon has failed to deliver.

 

8.4           Termination for Force Majeure. In the event that Force Majeure shall continue unabated for a period of six (6) months from the date a Party gives notice thereof pursuant to Article 11, either Party hereto shall have the right to terminate this Agreement by furnishing written notice to the other Party no less than thirty (30) days prior to, or after, the expiration of such six (6) month period, with termination effective upon the later of the expiration date of such 6-month period or such 30-day notice.

 

8.5           Rights and Obligations Upon Termination.  Any rights and obligations of Gavilon or Buyer to payments accrued through termination, the obligations of Buyer under Section 3.4 and the obligations of Gavilon under Section 3.5, as well as obligations of the Parties under Buyer’s Corn Orders or Confirmed Orders for the supply of Corn that exist at the time of termination, shall remain in effect following termination of this Agreement.  The above notwithstanding, Gavilon shall have no obligation to supply Corn to Buyer (whether pursuant to outstanding Buyer’s Corn Orders or Confirmed Orders or otherwise) in the event of termination due to Buyer’s nonpayment or failure to post margin.  Upon termination of this Agreement for any reason, each Party shall thereafter be relieved from its respective obligations and have no further liability hereunder, except as set forth in this Section 8.5 and for (i) the confidentiality obligations set forth in Article 9, (ii) the rights and obligations set forth in Article 10 and Article 14, and (iii) matters involving fraud.

 

Article 9
  CONFIDENTIALITY

 

9.1           Confidential Information.  For purposes of this Agreement, the term “Confidential Information” shall mean the terms of this Agreement and any information which is not in the public domain and is disclosed by one Party to the other pursuant to this Agreement and which is in written, graphic, machine readable or other tangible form.  Confidential Information may also include oral information disclosed by one Party to the other pursuant to this Agreement, provided that such information is designated as Confidential Information at the time of disclosure and is reduced to writing by the disclosing Party within a reasonable time (not to exceed ten (10)

 

11

 

days) after its oral disclosure, and the writing is marked in a manner to indicate its confidential nature and delivered to the receiving Party.  Nothing in this Agreement shall be construed to prohibit or limit a receiving Party from disclosing information (a) previously known to it, (b) independently developed by it without use of the disclosing Party’s Confidential Information by those employees or representatives of the disclosing Party that have not had access to such Confidential Information, as can be substantiated by reasonable evidence, (c) acquired by it from a third party which was not, to the receiving Party’s knowledge, under an obligation to the disclosing Party or any third party not to disclose such information, (d) that is or becomes publicly available through no breach by the receiving Party, or (e) to the extent disclosure and filing of such information is required by law or by the rules, regulations or practices of the Securities and Exchange Commission or any exchange or automated quotation system upon which shares of such Party may be listed, quoted or traded.  Prior to filing, the disclosing Party will notify the other Party and cooperate in such a manner intended to minimize or reduce, to the extent permissible under the applicable laws, rules or regulations, the disclosure of the terms of this Agreement.  If a receiving Party receives a subpoena or other validly issued administrative or judicial process demanding Confidential Information of a disclosing Party, the receiving Party must promptly notify the disclosing Party and tender to it the defense of such demand.  Unless the demand has been timely limited, quashed or extended, the receiving Party will thereafter be entitled to comply with that demand to the extent required by law but shall exercise commercially reasonable efforts to obtain an order or other reliable assurance that confidential treatment will be accorded to such Confidential Information.  If requested by the disclosing Party, the receiving Party shall cooperate (at the expense of the disclosing Party) in the defense of such a demand.

 

9.2           Nondisclosure.  Each Party acknowledges that, by reason of this Agreement, its principals, employees, agents, advisors, lenders and other financing sources (collectively, “Representatives”) may become privy to Confidential Information belonging to the other Party.  The receiving Party agrees that it will not, without the prior written consent of the disclosing Party, disclose to any third parties or use for its own benefit any such Confidential Information except in the carrying out of its obligations under this Agreement.  The receiving Party shall inform each of its Representatives of the confidential nature of such Confidential Information and shall be responsible for the compliance by such Representatives with the provisions of this Article 9.  The confidentiality obligations hereunder shall survive any expiration or termination of this Agreement.

 

9.3           Announcements.  Any public statements, press releases and similar announcements concerning the negotiation or consummation of the transactions contemplated hereby, including such statements made by Representatives of the Parties, shall be jointly planned and coordinated by the Parties.  Neither Party shall issue any such statement without the prior review (for which the reviewing Party shall have a minimum of five (5) Business Days) and consent of the other Party, which consent shall not be unreasonably withheld or delayed.  In no event will the terms and conditions of this Agreement be disclosed except to the extent required by applicable law.

 

Article 10
  LIMITATION OF LIABILITY; INDEMNIFICATION; INSURANCE

 

10.1         Limitation of Liability.  Without limiting any express remedies set forth in this Agreement, and except for any acts of willful misconduct or fraud, neither Buyer nor Gavilon will be liable to each other or any third party for any indirect, consequential, punitive, exemplary or special damages, loss of business expectations, lost profits, or business or facility interruption or shut-down costs.  Under no circumstances (other than for willful misconduct or fraud) will either Party be liable to the other for any damages for breach that collectively arise under this

 

12

 

Agreement and the Ethanol and Distiller’s Grain Marketing Agreement, dated concurrently herewith (“Ethanol and DDG Agreement”), and exceed the total amount of $1,000,000; provided, however, that such limitation shall not apply with respect to (a) the payment by Buyer for Corn received hereunder, (b) the obligation of Gavilon to reimburse Buyer for payments in respect of nonconforming or undelivered Corn arising from Confirmed Orders, (c) third-party Claims involving personal injury or property damage asserted under Section 10.2, or (d) damages covered by the insurance specified below.  In the event that damages exceed such limitation, the sole remedy of the damaged Party with respect to such excess damages shall be to terminate this Agreement.

 

10.2         Indemnification.  Each Party (the “Indemnitor”) shall release, defend, indemnify and hold harmless the other Party, its affiliates, its contractors and their respective members, partners, directors, officers, shareholders, managers, employees, agents and representatives (collectively, the “Indemnitee Group”) from and against any and all losses, damages, fines, liens, levies, penalties, claims, demands, causes of action, suits, legal or administrative proceedings, orders, governmental actions and judgments of every kind and character, and any and all costs and expenses (including, without limitation, reasonable attorneys’ fees, reasonable expert witness fees and court costs) related thereto (collectively, “Claims”), which arise out of, result from or relate in any way, directly or indirectly, to (a) a breach of this Agreement by the Indemnitor, or (b) the acts or omissions hereunder of the Indemnitor or its affiliates, contractors and their respective members, partners, directors, officers, shareholders, managers, employees, agents and representatives.

 

The Party claiming indemnification shall give prompt written notice to the Indemnitor of any matter for which the Indemnitor may become liable under this provision.  Said notice shall contain full details of the matter in order to provide the Indemnitor with sufficient information to assess its potential liability and to undertake defense of the Claim.  The indemnified Party shall have the right at all times to participate in the preparation for and conducting of any hearing, trial or other proceeding related to the provisions of this Section, as well as the right to appear on its own behalf at any such hearing, trial or other proceeding.  Any such participation or appearance by the indemnified Party shall be at its sole cost and expense.  The indemnified Party shall cooperate in all reasonable respects with the Indemnitor and its counsel in defending any Claims and shall not take any action that is reasonably likely to be detrimental to such defense.  The Indemnitor shall obtain written approval, which shall not be unreasonably withheld, from the indemnified Party prior to any settlement that may impose obligations or restrictions on the indemnified Party.

 

10.3         Insurance.  Each Party shall, during the term of this Agreement, provide the insurance coverages set forth in Exhibit “D”.

 

Article 11
  FORCE MAJEURE

 

11.1         Force Majeure.  In the event either Party hereto is rendered unable by reason of Force Majeure, as defined in Section 11.2, to carry out its obligations under this Agreement, such Party shall promptly give written notice and reasonably complete particulars of such Force Majeure to the other Party stating the obligation(s) the performance of which are, or are expected to be, delayed or prevented.  The obligations of the notifying Party shall be suspended during and to the extent affected by Force Majeure and such event shall, so far as possible, be remedied with all reasonable dispatch.

 

13

 

1.2           Definition of Force Majeure.  The term “Force Majeure” shall mean any cause not reasonably within the control of the Party claiming suspension and which, by the exercise of due diligence, such Party is unable to prevent or overcome.  Such term shall include, but not be limited to:  (i) acts of God, (ii) strikes, lockouts or acts of the public enemy, (iii) wars, blockades, insurrections, riots, epidemics, acts of terrorism, (iv) transportation shortages, (v) landslides, lightning, earthquakes, fires, storms, floods, washouts, tornadoes, (vi) civil disturbances, and (vii) explosions.  The term “Force Majeure” shall specifically include those events affecting any transporter of Corn acting on behalf of Gavilon hereunder, but shall in all events exclude any price fluctuations in Corn or other economic or commercial changes involving the purchase and sale of Corn or the production of ethanol or co-products therefrom.  Events directly and proximately caused by the gross negligence or willful misconduct of a Party or its affiliates shall in no event constitute Force Majeure.

 

Article 12
  POSSESSION AND TITLE

 

12.1         Title; Risk of Loss.  Title to the Corn shall only pass from Gavilon to Buyer at the time the Corn passes from storage at the Plant (albeit temporary) into the grinders located at the Plant.  Notwithstanding the foregoing provisions of this Section 12.1, risk of loss in the Corn shall pass from Gavilon to Buyer (i) for any Corn stored in the Elevator in accordance with the terms of the Storage Agreement, risk of loss shall pass to Buyer at the time when such Corn is subject to a sale confirmation between the Parties, and (ii) with regard to any Corn which is not stored in the Elevator prior to delivery to the Plant, risk of loss shall only pass from Gavilon to Buyer at the time the rail car is Constructively Placed or, with respect to truck deliveries, at the time the Corn is unloaded from the truck at the Delivery Point.

 

12.2         Liability.  Except for Buyer’s continuing obligations, risk and/or liability for Corn under Buyer’s Corn Orders as set forth in this Agreement, Buyer shall have no responsibility or liability with respect to any Corn deliverable under this Agreement until title and/or risk of loss (as applicable) have transferred as described in Section 12.1.  Gavilon shall have no responsibility or liability with respect to the Corn after title and/or risk of loss (as applicable) transfer to Buyer as described in Section 12.1 or on account of anything which may be done or happen to arise with respect to the Corn after such transfer.

 

Article 13
  NOTICES

 

13.1         Addresses.  Except as specifically otherwise provided herein, any notice or other written matter required or permitted to be given hereunder by one Party to the other Party shall be deemed to be sufficiently given if delivered by hand or by nationally-recognized overnight courier, or sent by U.S. Mail (certified mail return receipt requested), and addressed if to Gavilon, at:

 

	
Gavilon,   LLC
    	
 
    
	
Eleven   ConAgra Drive
    	
 
    
	
Omaha,   NE 68102-5011
    	
 
    
	
Attn:
    	
Legal   Department
    
	
Phone:
    	
(402)   889-4000
    
			

 

14

 

	
And   if to Buyer, at:
    	
 
    
	
 
    	
 
    
	
Heron   Lake BioEnergy, LLC
    	
 
    
	
91246   390th Avenue
    	
 
    
	
Heron   Lake, MN  68301
    	
 
    
	
Attn:
    	
Bob   Ferguson
    
	
Phone:
    	
507-793-0077
    
			

 

13.2         Change of Address.  Each Party shall give notice within thirty (30) days to the other Party, in the manner herein provided, of a change in its address for notice.

 

13.3         Effective Date of Notice.  Any notice or other written matter shall be deemed to have been given and received: if delivered by hand or courier, on the date of delivery; and, if sent by telecopy, on the Business Day following the sending of the notice.

 

Article 14
  MISCELLANEOUS

 

14.1         Assignment.  Neither Party may assign any of its rights or obligations under this Agreement without the prior written consent of the other Party, not to be unreasonably withheld.  A Change in Control of Buyer or Gavilon shall be construed to be an assignment for purposes of this Section.  The above notwithstanding: (i) Gavilon may, without the need for consent from Buyer, (A) transfer, sell, pledge, encumber or assign this Agreement, including the revenues or proceeds hereof, in connection with any financing arrangements, and (B) transfer or assign this Agreement to an affiliate; and (ii) Buyer may, without the need for consent from Gavilon, transfer, sell, pledge, encumber or assign this Agreement, including the revenues or proceeds hereof, in connection with any financing arrangements. In the event the Plant is sold by Buyer, Buyer shall assign this Agreement to the purchaser of the Plant and require the purchaser to assume all of Buyer’s obligations hereunder, provided that such purchaser is reasonably acceptable to Gavilon.  No such assignment shall in any way relieve the assigning Party from liability for full performance hereunder.  It is further agreed that no such assignment shall be permitted unless the Master Agreement and all other agreements referenced therein are similarly assigned in accordance with their terms.

 

14.2         Records.  Each Party will establish and maintain true and accurate books, records and accounts relating to their own transactions under this Agreement with respect to all Corn prices charged, payments made, and types and quantities of Corn delivered hereunder, including calculations of the Supply Fees.  These books, records and accounts will be preserved by the applicable Party for a period of at least one (1) year after the expiration of the term of this Agreement, but in no event longer than seven (7) years from the date of creation.

 

14.3         Audit Rights; Inspection Rights.  Upon five (5) Business Days notice and during normal business hours each Party has the right to audit such books, records and accounts of the other Party to the extent necessary in order to verify the accuracy of any statement, charge, computation or demand made under or pursuant to any provision of this Agreement.  If any material error is discovered in any statement rendered hereunder, such error will be adjusted within seven (7) days from the date of discovery, but no adjustment will be made for errors discovered more than two (2) years after delivery and receipt of such statements.  Any error or discrepancy detected which has led to an overpayment or an underpayment between the Parties shall be corrected by an appropriate balancing payment to the underpaid Party or by a refund by the overpaid Party.  Such balancing payment or refund shall be made on the first

 

15

 

payment date thereafter arising under the Master Agreement.  Gavilon shall also have the right to inspect the Plant and any Corn held in storage by Buyer at any time during normal business hours.  Such inspections may include, but shall not be limited to, Gavilon’s right to inventory the Corn, monitor Buyer’s process for unloading trucks and railcars at the Plant, testing the scales and accuracy thereof, and otherwise reviewing the process and paperwork related to Buyer’s Corn Orders and the input of same into Gavilon’s electronic system for tracking Corn purchases.  Buyer shall reasonably cooperate with Gavilon during any such audits or inspections.

 

14.4         Dispute Resolution.  Except where a different dispute resolution mechanism is specified herein, in the event a dispute arises in connection with the performance or non-performance of this Agreement which the Parties are unable to mutually resolve, the Parties shall submit such matter to arbitration in a neutral geographic location using the arbitration process set forth in the Trade Rules, provided such matter involves commercial aspects of the delivery of Corn and is accepted by the NGFA for resolution; otherwise the Parties shall have available whatever rights or remedies exist at law or equity. The arbitrator(s) shall have no power to award damages inconsistent with this Agreement.  All aspects of the arbitration shall be treated as confidential and judgment on the arbitrator’s award may be entered in any court having jurisdiction.  The expenses of the arbitrator(s) shall be shared equally by the Parties, and each Party shall bear its own legal costs, unless the arbitrators determine that legal costs shall be otherwise assessed.  Nothing contained in any indemnification provision hereunder shall be construed as having any bearing on the award of attorney’s fees under this Section.  The foregoing dispute-resolution process shall in no event be deemed to excuse either Party from continuing to fulfill its respective obligations under, or to prevent or impede either Party from exercising its rights or remedies set forth in, this Agreement.

 

14.5         Inurement. This Agreement will inure to the benefit of and be binding upon the respective successors and permitted assigns of the Parties, and Buyer shall cause the same to be assumed by and to be binding upon any successor owner or operator of the Plant, provided that such successor or assignee is reasonably acceptable to Gavilon.

 

14.6         Entire Agreement. This Agreement and the Exhibits attached hereto, together with the Master Agreement, the Storage Agreement, and the Ethanol and DDG Agreements, constitute the entire agreement between the Parties with respect to the subject matter contained herein and any and all previous agreements, written or oral, express or implied, between the Parties or on their behalf relating to the matters contained herein are hereby terminated and canceled.  In the event of any conflict between the terms of this Agreement and any Buyer’s Corn Order or Confirmed Order, this Agreement shall govern.

 

14.7         Amendments.  There will be no modification of the terms and provisions hereof except by the mutual agreement in writing signed by the Parties.  Any attempt to so modify this Agreement in the absence of such writing signed by the Parties shall be considered void and of no effect.

 

14.8         Governing Law; Venue; Waiver of Jury Trial. The Agreement will be interpreted, construed and enforced in accordance with the procedural, substantive and other laws of the State of Nebraska without giving effect to principles and provisions thereof relating to conflict or choice of law even though one or more of the Parties is now or may do business in or become a resident of a different state.  Subject to Section 14.4, all disputes arising out of this Agreement shall be resolved exclusively by state or federal courts located in Nebraska, and each of the Parties waives any objection that it may have to the bringing of an action in any such court.  Each of the Parties hereby waives its rights to trial by jury and any judicial proceeding involving, directly or indirectly, any matter (whether sounding in tort, contract or otherwise) in any way

 

16

 

arising out of, related to, or connected with this Agreement, the Master Agreement, the Storage Agreement or the Ethanol and DDG Agreement.

 

14.9         Setoff.  In addition to, and without limitation of, any rights hereunder, if Buyer becomes insolvent, however evidenced, or if Buyer defaults and fails to cure the default within the applicable period specified herein, then any and all amounts due and owing by Buyer may be applied by Gavilon toward the payment of amounts due and owing to Buyer.  This right of setoff shall be without prejudice and in addition to any right of setoff, net income, recoupment, a combination of accounts, lien, charge or the right to which Gavilon is at any time otherwise entitled (whether by operation of law, by contract or otherwise).  If an amount is unascertained, Gavilon may reasonably estimate the amount to be setoff.

 

14.10       Cumulative Remedies.  Unless otherwise specifically provided in this Agreement, the rights, powers and remedies of each of the Parties provided in this Agreement are cumulative and the exercise of any right, power or remedy under this Agreement does not affect any other right, power or remedy that may be available to either Party under this Agreement or otherwise at law or in equity.

 

14.11       Faithful Performance and Good Faith.  The Parties shall faithfully perform and discharge their respective obligations in this Agreement and endeavor in good faith to negotiate and settle all matters arising during the performance of this Agreement which are not specifically provided for herein.

 

14.12       No Partnership; Relationship. This Agreement shall not create or be construed to create in any respect a partnership or any agency or joint venture relationship between the Parties.  The relationship of Gavilon and Buyer established by this Agreement is that of independent contractors, and nothing contained in this Agreement shall be construed: to give either Party the power to unilaterally direct and control the day-to-day activities of the other or to be considered an agent of the other; to constitute the Parties as partners, joint venturers, co-owners or otherwise; or to allow either Party to create or assume any obligation on behalf of the other Party for any purpose whatsoever.  Except as otherwise provided herein, nothing contained in this Agreement shall be construed as conferring any right or benefit on a person not a Party to this Agreement.

 

14.13       Costs To Be Borne by Each Party.  Except as otherwise provided herein, Buyer and Gavilon shall pay its own costs and expenses incurred in the negotiation, preparation and execution of this Agreement and of all documents referred to herein.

 

14.14       Counterparts. This Agreement may be executed in multiple counterparts with the same effect as if Buyer and Gavilon had signed the same document and all counterparts will be construed together and constituted as one and the same instrument.  Each counterpart signature may be executed and delivered to the other Party by facsimile machine or electronic transfer, and the signature as so transmitted shall be as binding upon the executing Party as its original signature, without the necessity of the recipient Party to establish original execution or the existence of such original signature or the document to which affixed, all of which shall be deemed waived.

 

14.15       Severability.  Any provision of this Agreement which is or becomes prohibited or unenforceable in any jurisdiction shall not invalidate or impair the remaining provisions of this Agreement, and the remaining terms of this Agreement shall continue in full force and effect or, if allowed by the law of the applicable jurisdiction, it shall be amended so as to most closely

 

17

 

conform to the original intent of this Agreement without the offending provision, and as so amended shall continue in full force and effect.

 

14.16       Forward Contract/Forward Contract Merchants.  The Parties agree that each of them is a forward contract merchant as set forth in 11 U.S.C. §101(26).  The Parties also agree that this Agreement is a forward contract as defined in 11 U.S.C. §101(25).  The payments and transfers described herein shall constitute “Settlement Payments” or “Margin Payments” as set forth in 11 U.S.C. §§ 101(51A) and (38).

 

14.17       Headings; Construction.  The article and section headings used herein are for convenience of reference only and shall not affect the construction or interpretation of this Agreement.  Unless the context of this Agreement otherwise requires, (i) words of any gender shall be deemed to include each other gender; (ii) words using the singular or plural number shall also include the plural or singular number, respectively; and (iii) the terms “hereof,” “herein,” “hereby,” “hereto,” and derivative or similar words shall refer to this entire Agreement.  This Agreement is the product of negotiation by and among the Parties hereto.  This Agreement shall be interpreted and construed neutrally as to all Parties, without any Party deemed to be the drafter of this Agreement.

 

14.18       Waiver.  No delay or omission in the exercise of any right, power or remedy hereunder shall impair such right, power or remedy or be construed to be a waiver of any default or acquiescence therein.

 

14.19       Interpretation.  This Agreement shall not be interpreted against the Party drafting or causing the drafting of this Agreement.  All Parties hereto have participated in the preparation of this Agreement.

 

[The Remainder of This Page Intentionally Left Blank; Signature Page Follows.]

 

18

 

IN WITNESS WHEREOF the Parties have executed this Agreement by their respective proper signing officers as of the date first above written.

 

 

	
Gavilon, LLC
    	
 
    	
Heron   Lake BioEnergy, LLC
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
By:
    	
/s/   John W. Neppl
    	
 
    	
By:
    	
/s/   Robert J. Ferguson
    
	
Name:
    	
John   W. Neppl
    	
 
    	
Name:
    	
Robert   J. Ferguson
    
	
Title:
    	
CFO
    	
 
    	
Title:
    	
CEO
    

 

 

Corn Supply Agreement

(Heron Lake, Minnesota)

Signature Page

 

 

EXHIBIT “A”

 

PLANNING, ORDERING AND DELIVERY OF CORN

 

1.                                       Delivery Schedule.  The Parties shall jointly develop a delivery schedule (the “Delivery Schedule”) which will serve as the formal planning tool for Corn requirements for each quarter and each month of the quarter.  The specific format of the Delivery Schedule will be mutually created by the Parties to accommodate the required information outlined above.

 

If the Delivery Schedule shows that Buyer desires to have Gavilon assist in originating and supplying Corn, then  Gavilon shall review the initial draft of the Delivery Schedule and advise Buyer of market conditions, Corn availability and inventory, transportation and logistics issues within ten (10) Business Days after receipt.  Gavilon shall amend the Delivery Schedule to include planned shipment of Corn in bushels and the expected mode of transport of such Corn.

 

2.                                       Buyer’s Corn Orders.  Buyer shall submit all Buyer’s Corn Orders to Gavilon on a daily  basis, all in a format as mutually agreed upon by the parties.  The Delivery Schedule shall reflect and be further governed by such Buyer’s Corn Orders.  Except as otherwise set forth in the Agreement, Gavilon shall be responsible for coordinating on the delivery of Corn purchases under each Buyer’s Corn Order.

 

3.                                       Confirmed Orders.  In the event that Buyer desires to have Gavilon assist in originating or supplying Corn for the Plant, it is understood that, in all events, pricing of Corn shall be quoted by Gavilon and either accepted or rejected by Buyer.  Price quotations for Corn deliveries shall be submitted to Buyer by Gavilon prior to purchases, substantially in the form of Exhibit “A-1” attached hereto.  It is understood that such quotations shall correlate to the forward-delivered price of the corn as established by [ * * * ], adjusted to reflect deviations from then-current market conditions (either at a premium or discount), as well as [ * * * ].  Buyer shall reject or accept Gavilon’s price quotation within the time period set forth on any written quotations or immediately with respect to any quotations offered via telephone.  Such acceptances shall constitute “Confirmed Orders” and the price in $/bushel thereunder shall be the Delivered Corn Price for the applicable Corn.  The Delivery Schedule shall reflect and be further governed by such Confirmed Orders of Corn.  The Parties understand and agree that either party may record telephone conversations in the ordinary course of their respective businesses for purposes of, among other things, further documenting the quotation and acceptance of Corn prices in order to establish and verify Confirmed Orders.  Gavilon shall be responsible for the sourcing and delivery of each Corn purchase per the Confirmed Orders.

 

4.                                       Delivery Schedule Deviations.  The Parties recognize the need to maintain a degree of flexibility to accommodate unexpected changes in the Plant operating capacity and changing Corn market conditions.  Upon notification by either Party of any substantial deviations to the Delivery Schedule, the Parties agree to work in good faith to jointly resolve any such discovered deviations and correct such deviations within fifteen (15) days following first notification.  For purposes of this Agreement, “substantial deviations” shall mean any increase or decrease in Corn requirements by Buyer in an amount of five percent (5%) or more of Buyer’s previously required Corn for a specified month as set forth in the Delivery Schedule.

 

5.                                       Liability Disclaimer.  Each of the Parties understands and agrees that except for Corn quantity, grade and price quotations confirmed by the Parties in Buyer’s Corn Orders and

 

Exhibit A-1

 

Confirmed Orders pursuant to this Exhibit “A”, the planned production rates, estimated costs, pricing and market information, and all other information furnished by the Parties in the preparation of the Delivery Schedule is for planning and informational purposes only. Neither Party shall be responsible to the other for any actions taken in reliance on such estimates, plans and other information.

 

6.                                       Contact Information.  Each Party shall appoint at least one (1) person to act as the point of contact regarding delivery coordination, preparation of Delivery Schedules, orders and order confirmation and other technical and logistical questions relating to Corn or the delivery thereof.  The respective contact persons shall, unless notified otherwise, be as follows:

 

	
Buyer:
    	
 
    	
Tyronne   Bialis
    
	
 
    	
 
    	
Heron   Lake BioEnergy, LLC
    
	
 
    	
 
    	
91246   390th Avenue
    
	
 
    	
 
    	
Heron   Lake, MN 68301
    
	
 
    	
Phone:
    	
507-793-0077
    
	
 
    	
E-Mail:
    	
tyronneb@heronlakebioenergy.com
    
	
 
    	
 
    	
 
    
	
Gavilon:
    	
 
    	
Matt   Gibson
    
	
 
    	
 
    	
Eleven   ConAgra Drive
    
	
 
    	
 
    	
Omaha,   NE 68102
    
	
 
    	
Phone:
    	
(402)   889-4424
    
	
 
    	
E-Mail:
    	
matt.gibson@gavilon.com
    

 

Exhibit A-2

 

EXHIBIT “A-1”

 

FORM FOR CONFIRMED ORDERS

 

	

    	
 
    	
Gavilon Grain, LLC
    d.b.a. Peavey Company
    	
 
    	
 
    

 

	
 
    	
Our   Number:
    
	
 
    	
PRICED
    
	
 
    	
Contract   Date:
    
	
 
    	
 
    
	
B
    	
Customer No.
    
	
U
    	
Payment Terms:
    
	
Y
    	
Broker:
    
	
E
    	
Broker No.:
    
	
R
    	
Delivery Terms:
    

 

BUYER HEREBY AGREES TO AND CONFIRMS THE PURCHASE OF THE FOLLOWING DESCRIBED COMMODITIES FROM GAVILON GRAIN, LLC (SELLER) SUBJECT TO THE TERMS AND CONDITIONS STATED ON THE FACE AND BACK THEREOF. FAILURE TO ADVISE GAVILON GRAIN, LLC IMMEDIATELY BY WIRE OF ANY DISCREPANCY, OBJECTION TO, OR DISAGREEMENT WITH SUCH TERMS AND CONDITIONS SHALL BE AN ACCEPTANCE THEREOF.

 

	
 
    	
WEIGHTS:
    
	
COMMODITY:
    	
GRADES:
    
	
 
    	
TRANSPORTATION:
    
	
QUANTITY:
    	
REFERENCE:
    
	
 
    	
MARKET REGION:
    

 

	
 
    	
 
    	
Delivery
    	
 
    	
Schedule
    	
 
    	
Futures
    	
 
    	
Futures
    	
 
    	
Basis
    	
 
    	
BU
    	
 
    
	
Status
    	
 
    	
Dates
    	
 
    	
Price
    	
 
    	
Month
    	
 
    	
Price
    	
 
    	
Price
    	
 
    	
Priced
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
Total Contracted BUSHELS
    	
 
    	
 
    	
 
    

 

SELLER OBJECTS TO THE INCLUSION OF ANY DIFFERENT OR ADDITIONAL TERMS PROPOSED BY BUYER. IF PRICE OF GRAIN IS ON A PREMUIM BASIS, CONTRACT TO BE PRICED OR SPREAD PRIOR TO THE LAST TRADING DAY PRECEDING THE FIRST DELIVERY DAY OF THE FUTURES CONTRACT.

 

	
Confirmation   Acknowledged
    	
 
    	
Gavilon   Grain, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Date
    	
 
    	
Date
    
	
PLEASE SIGN ONE COPY AND RETURN TO ABOVE ADDRESS.
    	
 
    	
Original
    

 

 

TERMS AND CONDITIONS

 

Except as modified or limited by the terms and conditions stated herein, the Contract shall be governed by and construed in accordance with the applicable rules and regulations of the exchange. board or association designated on the face hereof, or, if none is designated or Seller is not a member of said exchange, board, or association, then the applicable trade rules of the National Grain and Feed Association in effect on the date hereof, and, to the extent not inconsistent therewith, the applicable provisions of the Uniform Commercial Code.

 

The price does not include any tax, duty, tariff or charge assessed or imposed by any governmental authority. If any such tax, duty, tariff or charge is or shall be assessed or imposed on this transaction or any aspect thereof, the same shall be paid by Buyer.

 

This Contract is made on the basis of freight rates in effect on the date hereof. Any increase in freight rates taking effect before the full performance of the Contract shall be for the account of Buyer unless otherwise adjusted and agreed upon between the parties at the time of the affected shipment.

 

Notwithstanding the right of Seller to cancel this Contract or demand other adequate assurance of performance by Buyer, Seller may, at any time Buyer’s creditworthiness or financial responsibility becomes unsatisfactory in Seller’s sole opinion, (i) require cash payment in advance of or on delivery of remaining quantities under this Contract, and (ii) require that Buyer post a margin payment based on the difference between the Contract price and the market price (as determined by Seller in a commercially reasonable manner) at the time of such demand.

 

In the event that Buyer fails to pay any amounts due hereunder and such failure continues for two (2) business days after Seller’s notice to Buyer of such failure, or Buyer becomes insolvent, or suffers or consents to or applies for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or generally fails to pay its debts as they become due, or makes a general assignment for the benefit of creditors, or files a voluntary petition in bankruptcy, or seeks reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Code, Title 11 of the United States Code, as amended or recodified from time to time, or under any state or federal law granting relief to debtors then Seller may (i) immediately cancel this Contract and all other Contracts between Buyer and Seller. (ii) liquidate such cancelled Contracts in a commercially reasonable manner. and (iii) aggregate such liquidated amounts into a single liquidated settlement amount (the “Settlement Amount”) due to Seller or Buyer, which shall be due and payable two (2) business days after written notice by Seller. In addition, Seller may set-off any amounts owed by Buyer to Seller under any other agreements between the parties against any Settlement Amount owed by Seller to Buyer hereunder.

 

The parties agree that each of them is a forward contract merchant as set forth in 11 U.S.C. Section 101(25). The parties also agree that this Contract and any other commodity contract between the parties are all forward contracts as defined in 11 U.S.C. Section 101(25). The payments and transfers described herein shall constitute “Settlement Payments” or “Margin Payments” as set forth in 11 U.S.C. Sections 101 (51A) and (38).

 

Seller warrants to Buyer that all grain sold and delivered hereunder will be of good, sound, dry and merchantable quality in accordance with the grade specified herein; that it will not be adulterated or misbranded within the meaning of Federal Food. Drug and Cosmetic Act, nor be a commodity which may not, under the provisions of Section 404 or 505 of the Act, be introduced into interstate commerce; that neither any such grain nor the shipment thereof will be in violation of any other federal, state or local law, ordinance or regulation; and all grain sold hereunder will be delivered to Buyer free and clear of any and all liens, encumbrances, or security regulation; and all grain sold hereunder will be delivered to Buyer free and clear of any and all liens, encumbrances, or security interests.

 

EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SELLER MAKES NO WARRANTY, EXPRESS OR IMPLIED, WHETHER ARISING BY STATUTE OR RULE, COURSE OF DEALING OR OTHERWISE, AS TO THE GOODS SOLD HEREUNDER, INCLUDING WITHOUT LIMITATION, THEIR FITNESS FOR ANY PARTICULAR PURPOSE.

 

BUYER ASSUMES ALL RISK AND LIABILITY FOR RESULTS OBTAINED BY THE USE OF THE GOODS COVERED BY THIS CONTRACT, WHETHER USED SINGLY OR IN COMBINATION WITH OTHER PRODUCTS. SELLER SHALL IN NO EVENT BE RESPONSIBLE FOR ANY CONSEQUENTIAL DAMAGES AND BUYER REMEDIES UNDER THIS CONTRACT SHALL BE LIMITED TO REJECTION AND REPLACEMENT OF OR ADJUSTMENT FOR DEFECTIVE GOODS. BUYER’S REMEDIES SHALL IN NO EVENT EXCEED THE PURCHASE PRICE OF THE DEFECTIVE GOODS.

 

Unless otherwise specified, each shipment hereunder will be applied to the oldest open contract between Buyer and Seller.

 

Seller’s performance hereunder, or any delay in such performance, including delivery of the date or dates specified, shall be excused where such failure to perform or delay is attributable to any cause or reason beyond Seller’s control, including without limitation product shortages, labor trouble, governmental regulations, transportation difficulties, civil disturbances, acts of God, or any other causes of the like or different character beyond Seller’s control.

 

Seller’s failure to deliver or perform in accordance with any installment provided for in this Contract shall not constitute a breach as to any other installment or as to the entire Contract.

 

Any change in price or other terms of this Contract caused by governmental regulations will entitle Seller, at its option, to cancel any unshipped portion of the goods covered by this Contract.

 

This Contract is intended by the parties as a final expression of their agreement and is intended also as a complete and exclusive statement of the terms and conditions of their agreement. This Contract is limited to the terms and conditions stated herein, which terms and conditions shall prevail insofar as they might in any way conflict with any terms or conditions of Buyer’s confirmation.

 

There are hereby incorporated herein by reference the respective Equal Opportunity Clauses set forth in 41 C. F. R. para 60-1.4 (a), 41 C.F.R. para. 60-250.4 and 41 C.F.R. para 60-741.4 to extent the incorporation thereof is required by or necessary for compliance with applicable federal laws, regulation or orders. As used in such clauses, “contractor” shall mean the Buyer hereunder.

 

 

EXHIBIT “B”

 

BUYER’S CORN ORDER PARAMETERS

 

1.                                       Each Buyer’s Corn Order shall be placed on a Sales Contract in the form attached hereto as “Exhibit B-1”.

 

2.                                       Each Sales Contract shall contain a minimum of 500 bushels.

 

3.                                       All Corn shall meet the commodity and grade requirements as is acceptable to Buyer.

 

4.                                       Gavilon shall be named as the purchaser of the Corn in the Sales Contract, and title of the Corn shall pass to Gavilon at time of delivery to the Elevator or the Plant, as applicable.

 

5.                                       Each Sales Contract shall be subject to the rules of the National Grain and Feed Association.

 

6.                                       Buyer shall have the right to set the purchase price for the Corn based upon “Flat Price” pricing for up to [ * * * ] ahead, provided that (i) such purchases shall not exceed [ * * * ], (ii) all such purchases shall be promptly reported to Gavilon’s hedge desk to allow for adequate hedging and (iii) the prices being paid are consistent with market prices for Corn which could otherwise be obtained by Gavilon.

 

7.                                       In the event that Buyer desires to purchase Corn more than [ * * * ] in advance on any contract, Buyer shall notify Gavilon of the same and may only enter into such contracts in excess of [ * * * ] upon Gavilon’s prior approval.

 

Buyer acknowledges and agrees that Gavilon shall have the right to limit or suspend any Corn purchased by Buyer’s Corn Orders if Gavilon determines in its reasonable discretion that the prices being paid by Buyer exceed the prices which could otherwise be obtained by Gavilon on the open market by [ * * * ].  Upon any such limitation or suspension of trading on Buyer’s Corn Orders, Gavilon and Buyer shall work in good faith to resolve any such pricing issues.

 

 

EXHIBIT “B-1”

 

FORM OF BUYER’S CORN ORDER

 

Gavilon Grain, LLC

Heron Lake BioEnergy, LLC

 

	
Heron Lake
    	
 
    	
Our Number:
   PRICED
    Contract Date:
    
	
 
    	
 
    	
 
    
	
S
   E
   L
   L
   E
   R
    	
 
    	
Customer   No.
   Payment Terms:
   Broker:
   Broker No.:
   Delivery Terms:
    

 

SELLER AGREES TO AND CONFIRMS THE SALE OF THE FOLLOWING DESCRIBED COMMODITIES TO GAVILON GRAIN, LLC, (BUYER) SUBJECT TO THE TERMS AND CONDITIONS STATED ON THE FACE AND BACK THEREOF. FAILURE TO ADVISE GAVILON GRAIN, LLC IMMEDIATELY BY WIRE OF ANY DISCREPANCY, OBJECTION TO OR DISAGREEMENT WITH SUCH TERMS AND CONDITIONS SHALL BE AN ACCEPTANCE THEREOF. 

 

	

   COMMODITY: #2 YC
    
 QUANTITY:
    	

   YELLOW CORN
    
                                 BU
    	

   15.0%MST
    	
WEIGHTS:
   GRADES:
   TRANSPORTATION:
   REFERENCE:
   MARKET REGION:
    	
DESTINATION
   DESTINATION
   TRUCK
    

 

	
Status
    	
 
    	
Delivery
    Dates
    	
 
    	
Schedule
   Price
    	
 
    	
BU
   Priced
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

	
Buyer’s scale of discounts at time of delivery to   apply.
    	
 
    	
Total Contracted BUSHELS
    	
 
    
	
Rules to apply: NGFA
    	
 
    	
 
    	
 
    
	
Must be less than 20 PPB Aflatoxin to be   applicable
    	
 
    	
 
    	
 
    

 

BUYER OBJECTS TO THE INCLUSION OF ANY DIFFERENT OR ADDITIONAL TERMS PROPOSED BY SELLER, BUYER’S SCHEDULE OF DISCOUNTS TO APPLY. SELLER GUARANTEES GRAIN U.S. GROWN. IF PRICE OF GRAIN IS ON A PREMIUM BASIS, CONTRACT TO BE PRICED OR SPREAD PRIOR TO THE LAST TRADING DAY PRECEDING THE FIRST DELIVERY DAY OF THE FUTURES CONTRACT. 

 

Confirmation Acknowledged Gavilon Grain, LLC

 

	
Date
    	
 
    	
Date
    
	
PLEASE SIGN ONE COPY AND RETURN TO ABOVE ADDRESS.
    	
 
    	
Original
    

 

 

TERMS AND CONDITIONS

 

Except as modified or limited by the terms and conditions stated herein, the Contract shall be governed by and construed in accordance with the applicable rules and regulations of the exchange, board or association designated on the face hereof, or, if none is designated or Seller is not a member of said exchange, board, or association, then the applicable trade rules of the National Grain and Feed Association in effect on the date hereof, and, to the extent not inconsistent therewith, the applicable provisions of the Uniform Commercial Code.

 

Seller warrants to Buyer that all grain sold and delivered hereunder will be of good, sound, dry and merchantable quality in accordance with the grade specified herein; that it will have been grown in the Continental United States unless a non-United States grown clause has been made a part of this Contract and so stated on the face hereof; that it will not be adulterated or misbranded within the meaning of the Federal Food, Drug and Cosmetic Act, nor be a commodity which may not, under the provisions of Section 404 or 505 of the Act, be introduced into interstate commerce; that neither any such grain nor the shipment thereof will be in violation of or subject to penalty, seizure or lien under any other federal, state or local law, ordinance regulation quota or order, and all grain sold hereunder will be delivered to Buyer free and clear of any and all liens, encumbrances, security interests, claims and penalties of any kind and nature.

 

In the event that a party hereto (the “Defaulting Party”) becomes insolvent, or suffers or consents to or applies for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or generally fails to pay its debts as they become due, or makes a general assignment for the benefit of creditors, or files a voluntary petition in bankruptcy, or seeks reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Code, Title 11 of the United States Code, as amended or recodified from time to time, or under any state or federal law granting relief to debtors then the other party (the “Non-defaulting Party”) may (i) immediately cancel this Contract and all other Contracts between the parties hereto, (ii) liquidate such cancelled Contracts in a commercially reasonable manner, and (iii) aggregate such liquidated amounts into a single liquidated settlement amount (the “Settlement Amount”) due, which shall be due and payable two (2) business days after written notice by the Non-defaulting Party. In addition, the Non-defaulting Party may set-off any amounts owed by the Defaulting Party to the Non-defaulting Party under any other agreements between the parties against any Settlement Amount owed by the Non-defaulting Party to the Defaulting Party hereunder.

 

The parties agree that each of them is a forward contract merchant as set forth in 11 U.S.C. Section 101(25). The parties also agree that this Contract and any other commodity contract between the parties are all forward contracts as defined in 11 U.S.C. Section 101(25). The payments and transfers described herein shall constitute “Settlement Payments” or “Margin Payments” as set forth in 11 U.S.C. Sections 101(51A) and (38).

 

Each Party consents to the recording of all telephone conversations between its representative and the representatives of the other Party.

 

This Contract is made on the basis of freight rates in effect on the date hereof. Any increase in freight rates taking effect before the full performance of this Contract shall be for the account of Seller unless otherwise adjusted and agreed upon between the parties at the time of the affected shipment.

 

All shipments of grain hereunder shall be made by Seller to the place of delivery designated herein. Buyer may subsequently designate any reasonable alternate place of delivery to facilitate Seller’s performance of this Contract but shall have no obligation to do so. Any increased shipping charges incurred under this provision shall be for Seller’s account and any reductions in shipping charges shall be for Buyer’s account; provided however, if the designated alternate delivery points are solely for Buyer’s convenience, increase shipping charges shall be for Buyer’s account.

 

Unless otherwise specified, each shipment hereunder will be applied to the oldest open contract between Buyer and Seller.

 

Buyer reserves the right to apply off-grade grain at market difference without first notifying Seller.

 

Buyer’s performance hereunder, or any delay in such performance, including the acceptance of deliveries of grain on the date or dates specified, shall be excused where such failure to perform or delay is attributable to any cause or reason beyond Buyer’s control, including without limitation lack of available storage space, equipment breakdown, labor trouble, governmental regulations, transportation difficulties, embargoes, civil disturbances, acts of God, or any other causes of the like or different character beyond Buyer’s control.

 

This Contract is intended by the parties as a final expression of their agreement and is intended also as a complete and exclusive statement of the terms and conditions of their agreement. This Contract is limited to the terms and conditions stated herein, which terms and conditions shall prevail insofar as they might in any way conflict with any terms or conditions of Seller’s confirmation.

 

There are hereby incorporated herein by reference the respective Equal Opportunity Clauses set forth in 41 C.F.R. para. 60-1.4 (a). 41 C.F.R. para. 60-250.4 and 41 C.F.R. para. 60-741.4 to extent the incorporation thereof is required by or necessary for compliance with applicable federal laws, regulations or orders. As used in such clauses, “contractor” shall mean the Seller hereunder. Unless otherwise exempt, this Purchase Order incorporates by reference the EEO Clause contained in 41 C.F.R. Sections 60-1.4,60-741.5, and 60-250.5.

 

CONTROVERSIES: Controversies and/or other disagreements between Buyer and Seller arising under this Contract shall be settled by arbitration which shall be a condition precedent to any right of legal action that either Buyer or Seller may have against the other party. Any arbitration shall be in accordance with the rules of the National Grain and Feed Association [NGFA]. At the time notice of arbitration is served by either Buyer or Seller upon the other, (i) if either is a member of NGFA, the NGFA Arbitration Committee shall serve as the arbitrator; (ii) if neither is a member of the NGFA, the American Arbitration Association shall serve as the arbitrator.

 

 

EXHIBIT “C”

 

SPECIFICATIONS; TRADE RULES

 

1.             General.  Each Party shall be responsible for the administration of and compliance with all applicable Trade Rules with its suppliers.  The standard of quality, specifications, method of analysis, sampling and adjustment procedures are defined in the Trade Rules and Buyer agrees to the specifications and procedures set forth in the applicable Trade Rules, unless otherwise noted herein.

 

2.             Trade Rules.  Buyer agrees to the standard of quality, specifications, methods of analysis, sampling and adjustment procedures in the applicable Trade Rules, unless otherwise noted herein.

 

3.             Specifications.  The specifications for Corn shall be as provided under the applicable Trade Rules unless agreed to in writing by Buyer and Gavilon.

 

4.             Analysis Methods.  Buyer shall use approved NGFA analysis methods and comply with the sampling procedures per the applicable Trade Rules.

 

5.             Testing.  In the event analysis by Buyer shows that any Corn obtained by Gavilon under Confirmed Orders is out-of-specification or nonconforming according to the applicable Trade Rules, Buyer shall timely notify Gavilon pursuant to the applicable Trade Rules and provide a copy of the test results.  A mutually agreeable laboratory may be used for analysis, if agreement on analysis results cannot be reached, and Buyer and Gavilon will share equally the costs for such third party analysis.  Gavilon is responsible for the final resolution of non-conforming product with its supplier, including filing of quality claims, securing adjustments and/or return of shipment.  In the event an analysis by Buyer shows that any Corn obtained by Buyer under Buyer’s Corn Orders is out-of-specification or non-conforming according to the applicable Trade Rules, Buyer shall be responsible for the final resolution of non-conforming product with its supplier, including filing of quality claims, securing adjustments and/or return of shipment.

 

 

EXHIBIT “D”

 

INSURANCE COVERAGES

 

Each Party shall be required to purchase, maintain and provide proof (via Certificate of Insurance) of the following insurance:

 

Commercial General Liability Insurance - $2 Million Combined Single Limit

Policy shall include coverage for liability resulting from Premises/Operations, Products and Completed Operations, Blanket and Contractual Liability.  Policy shall also include coverage for Broad Form Property Damage, including explosion, collapse and underground hazards.  Such insurance shall be on an occurrence basis.

 

Commercial Automobile Liability Insurance - $1 Million Combined Single Limit

Policy shall include coverage for liability resulting from the operation of all owned, non-owned and hired automobiles.

Such insurance shall be on an occurrence basis.

 

In addition, Buyer shall be required to maintain the following insurance:

 

Workers’ Compensation with statutory limits as required by the State of Minnesota.  Employers liability with limits of $1 million per accident, $1 million disease - each employee, and $1 million policy limits

 

Environmental Pollution Liability Insurance - $2 Million Combined Single Limit

Policy shall include coverage for bodily injury or property damage arising from the transportation, handling, storage, disposal, dumping, processing or treatment of waste.  Such insurance shall be on an occurrence basis.

 

Each Party shall also carry excess or umbrella liability insurance with limits of at least $4,000,000 per occurrence for bodily injury or property damage in excess of the limits afforded for general liability, automobile liability and environmental liability provided above.

 

All required policies of insurance shall be endorsed to provide that the insurance company shall notify the certificate holder at least thirty (30) days prior to the effective date of any cancellation or material change of such policies.  All insurance companies shall have an A.M. Best rating of A- or better.Exhibit 10.49

 

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

 

ETHANOL AND DISTILLER’S GRAINS MARKETING AGREEMENT
 (HERON LAKE, MINNESOTA)

 

THIS ETHANOL AND DISTILLER’S GRAINS MARKETING AGREEMENT (the “Agreement”) is dated and made effective as of September 1, 2011 (the “Commencement Date”), by and between Heron Lake BioEnergy, LLC, a Minnesota limited liability company (“Producer”), and Gavilon, LLC, a Delaware limited liability company (“Gavilon”).

 

RECITALS

 

(a)           Producer will produce ethanol (also referred to herein as the “Ethanol Product”) at its facility located one mile east of Heron Lake, Minnesota on Highway 60 (the “Plant”);

 

(b)           In the process of producing Ethanol Product, Producer will produce dried distiller grains (“DDG Co-Product”) at the Plant;

 

(c)           In the process of producing Ethanol Product, Producer will produce modified wet distiller grains (“WDG Co-Product”) at the Plant;

 

(d)           Gavilon will provide (or assist in providing) Producer with corn for purposes of producing the Ethanol Product, all in accordance with that certain Corn Supply Agreement, dated concurrently herewith, by and between Producer and Gavilon (“Corn Supply Agreement”); and

 

(e)           It is a condition to Producer’s and Gavilon’s obligations to consummate the Corn Supply Agreement that Producer and Gavilon enter into this Agreement.

 

AGREEMENT

 

NOW THEREFORE, in consideration of the above Recitals, which are incorporated herein and made a part hereof, and the mutual promises and covenants set forth herein, and intending to be legally bound, Gavilon and Producer mutually agree as follows:

 

Article 1
 DEFINITIONS

 

1.1                 “Acceptance Deadline”  has the meaning provided for in Section 6.2.1.

 

1.2                 “Actually Placed” or “Actual Placement” means that such railcars have been delivered to and received by Producer at the Plant.

 

1.3                 “Agreement” means this Ethanol and Distiller’s Grains Marketing Agreement and any exhibits or schedules attached hereto as the same may be amended from time to time.

 

1.4                 “Annual Forecast” has the meaning provided for in Section 4.1.1.

 

 

1.5                 “Bankruptcy” has the meaning provided for in Section 13.1.5.

 

1.6                 “Bid” has the meaning provided for in Section 6.2.1.

 

1.7                 “Business Day” or “Business Days” means the hours from 8:00 a.m. to 5:00 p.m. Central Time excluding Saturdays, Sundays, and scheduled holidays observed by the Chicago Board of Trade, Chicago, Illinois, USA.

 

1.8                 “Central Time” means the local time in Omaha, Nebraska at any relevant time, taking into account daylight saving time, if applicable.

 

1.9                 “Change in Control” means a change in the ownership of a Party, whereby such change results in any person or group (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934), other than Project Viking, L.L.C. or any affiliates owned or controlled by Ron and Diane Fagen with respect to Producer, directly or indirectly, having the ability to control the governing body of such Party.

 

1.10               “Claims” has the meaning provided for in Section 12.1.

 

1.11               “Commencement Date” has the meaning provided for in the opening paragraph of this Agreement.

 

1.12               “Confidential Information” has the meaning provided for in Section 10.1.

 

1.13               “Confirmation” has the meaning provided for in Section 6.2.1.

 

1.14               “Constructively Placed” or “Constructive Placement” means either: (i) with respect to a loaded shipment of Product by railcars, that such railcars are located at the Delivery Point in such condition ready for shipment to or if the Producer’s Constructively Placed designation is unavailable, then at such nearby location as determined by the railroad, or (ii) with respect to receipt of railcars for Product loading, that such railcars are located at the Delivery Point or if the Producer’s Constructively Placed designation is unavailable, then at such nearby location as determined by the railroad and within the operating hours specified, in such condition ready for Producer’s use in fulfilling its obligations hereunder.

 

1.15               “Contract Year” means a period of twelve (12) consecutive months with the first Contract Year to begin on the Commencement Date.

 

1.16               “Co-Product” means, collectively, the DDG Co-Product and WDG Co-Product meeting the specifications set forth in Exhibit “B” attached hereto and incorporated by this reference.

 

1.17               “Corn Supply Agreement” has the meaning provided for in the Recitals.

 

1.18               “Cross Default” has the meaning provided for in Section 13.4.

 

1.19               “Damages” has the meaning provided for in Section 12.1.

 

1.20               “DDG Co-Product” has the meaning provided for in the Recitals.

 

1.21               “DDG Co-Product Marketing Fee” has the meaning provided for in Section 6.3.1.

 

2

 

1.22               “Delivery” means the Product has crossed the point between the Terminal output apparatus and the intake apparatus of the respective Transport Carrier.

 

1.23               “Delivery Point” means for Transport Carriers the location(s) at the Terminal or Plant where Transport Carriers are received for loading of Product on the respective Transport Carriers, as follows:

 

1.23.1            The Delivery Point for railcar shipments is the railway’s “Constructively Placed” or “Actually Placed” designation; and

 

1.23.2            The Delivery Point for trucks is the point that the Products are loaded into the truck from the Plant’s loading facility.

 

1.24               “Delivery Schedule” has the meaning provided for in Section 5.3.

 

1.25               “Demurrage” means all costs, damages, penalties and charges resulting from any delay in excess of two (2) business hours in loading of Product shipments, including, without limitation, any delay related to any Transport Carrier, as applicable: (i) being incapable of timely loading any shipment of Product due to mechanical failure or for other reasons, or (ii) delivering any shipment of Product to an incorrect Delivery Point.

 

1.26               “Designated Logistics Individual”  has the meaning provided for in Section 5.2.

 

1.27               “Designated Pricing Individual” has the meaning provided for in Section 6.1.

 

1.28               “DOT” means the United States Department of Transportation.

 

1.29               “Ethanol Product” means the product meeting the Specifications set forth in Exhibit “A” attached hereto and incorporated herein by this reference.

 

1.30               “Ethanol Marketing Fee” has the meaning provided for in Section 6.3.1.

 

1.31               “Event of Default” has the meaning provided for in Section 13.1.

 

1.32               “Fees” has the meaning provided for in Section 6.3.

 

1.33               “Force Majeure” has the meaning provided for in Section 11.2.

 

1.34               “Forward Market Services” has the meaning provided for in Section 9.1.

 

1.35               “Gavilon Service Fee” has the meaning provided for in Section 6.3.1.

 

1.36               “Governing Body” means (i) with regard to Ethanol Product disputes, the American Arbitration Association and (ii) with regard to Co-Product disputes, the National Grain and Feed Association.

 

1.37               “Governing Body Arbitration Rules” means (i) with regard to Ethanol Product disputes, the commercial arbitration rules of the American Arbitration Association and (ii) with regard to Co-Product, the applicable rules of the National Grain and Feed Association Trade Rules and Arbitration Rules Booklet, as amended March 5, 2010, and as otherwise amended or restated from time to time.

 

3

 

1.38               “Initial Term” has the meaning provided for in Section 2.1.

 

1.39               “Invoice”  has the meaning provided for in Section 6.5.1.

 

1.40               “Invoice Date”  has the meaning provided for in Section 6.5.1.

 

1.41               “Logistics” means activities related to or connected with either (i) transporting, storing and otherwise handling Product after Delivery to Gavilon hereunder, or (ii) delivery of Transport Carriers to the Delivery Point for Product loading.

 

1.42               “Master Agreement” shall mean that certain Master Netting, Setoff, Credit and Security Agreement, dated concurrently herewith, by and between Producer and Gavilon.

 

1.43               “Nonconforming Product” has the meaning provided for in Section 4.3.

 

1.44               “Party” shall mean either Producer or Gavilon, as the context requires, and “Parties” shall mean both Producer and Gavilon.

 

1.45               “Plant” has the meaning provided for in the Recitals.

 

1.46               “Product” shall mean, collectively, the Ethanol Product and the Co-Product as defined herein.

 

1.47               “Production Forecast” has the meaning provided in Section 4.1.2.

 

1.48               “Purchase Price” has the meaning provided for in Section 6.2.1.

 

1.49               “Renewal Term” has the meaning specified in Section 2.2.

 

1.50               “Specifications” has the meaning provided in Section 4.2.

 

1.51               “Storage Agreement” means that certain Corn Storage Agreement, dated concurrently herewith, entered into by and between Gavilon and Lakefield Farmers Elevator, LLC, a Minnesota limited liability company, with regard to Gavilon’s use of two grain elevators for storage of corn for the benefit of Producer.

 

1.52               “Storage Costs” means direct or indirect costs incurred by Gavilon or charged by a third-party for storing Product, together with insurance and all other charges incurred to third-parties in connection with such storage, without markup by Gavilon.

 

1.53               “Taxes” has the meaning provided for in Section 6.4.

 

1.54               “Term” has the meaning provided for in Section 2.2.

 

1.55               “Terminal” means the site and facilities of the terminal operator serving the operations of the Plant.

 

1.56               “Transport Carrier” means railcars or trucks.

 

1.57               “Units” means gallons in the case of Ethanol Product and tons in the case of Co-Product.

 

4

 

1.58               “WDG Co-Product” has the meaning provided for in the Recitals.

 

1.59               “WDG Co-Product Marketing Fee” has the meaning provided for in Section 6.3.1.

 

1.60               “Written” or “in writing” conditions will be satisfied by any one of the following: email, mail, or facsimile and addressed to the proper Parties as set forth in Section 15.16, except any written notice required under Sections 13 and 15 shall be done strictly in accordance with Section 15.16.

 

Article 2
  TERM

 

2.1                 Initial Term.  Unless terminated earlier according to its terms, this Agreement shall be in effect for two (2) years beginning on the Commencement Date unless extended as set forth in Section 2.2 (the “Initial Term”).

 

2.2                 Renewal Term.  The Initial Term will automatically be extended for additional one (1) year periods (each, a “Renewal Term”), unless either (i) at least six (6) months prior to expiration of the then-current Term, Gavilon provides written notice to Producer that the Agreement shall terminate at the end of the then-current Term, or (ii) at least sixty (60) days prior to expiration of the then-current Term, Producer provides written notice to Gavilon that the Agreement shall terminate at the end of the then-current Term (collectively, the Initial Term and any Renewal Term are referred to herein as the “Term”).

 

Article 3
  PRODUCT PURCHASE

 

3.1                 Sale/Purchase.   Subject to the Confirmations referenced in Section 6.2 and the other terms and conditions herein, on the Commencement Date and during each Contract Year of the Term, Producer shall sell and make available for Delivery to Gavilon, and Gavilon shall purchase and take Delivery of, one hundred percent (100%) of the Product produced at the Plant.  All Product produced at the Plant shall be subject to the terms of this Agreement.  Producer hereby represents and warrants that, as of the Commencement Date, it shall have no obligation or commitment to any third party with respect to the delivery or sale of Ethanol Product or Co-Product produced at the Plant, and that any and all such obligations and commitments that existed prior to the Commencement Date shall have been terminated or otherwise fulfilled without liability to any Party hereto as of the Commencement Date.  In the event that the Plant produces other byproducts other than Product and for which a market is found to exist after the Commencement Date, Producer agrees to give Gavilon first considerations for marketing such byproducts.  With regard to any such byproducts, Producer and Gavilon agree to negotiate in good faith to reach a new agreement, or an amendment to this Agreement, pursuant to which Producer would sell, and Gavilon would purchase, such byproducts on such economic terms (including marketing fees) as may be agreed upon by the parties.

 

Article 4
  PRODUCT QUANTITY AND QUALITY

 

4.1                 Quantity.  Except as otherwise stated in this Agreement, Producer shall sell its entire output of Product produced at the Plant to Gavilon.  For Product sales and purchase planning purposes, Producer shall provide to Gavilon, in form and substance reasonably

 

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acceptable to Gavilon, its monthly production targets reflected in the then current Annual Forecast and the Production Forecast in accordance with the following:

 

4.1.1              Promptly after the Commencement Date, Producer’s monthly Product production output forecast for the Plant for the Initial Term (the “Annual Forecast”);

 

4.1.2              On or before the first day of each calendar month during the Term, monthly updates of the Annual Forecast in writing, by electronic mail or facsimile (each a “Production Forecast”) concerning operations of the Plant and activities that relate to the output of Product;

 

4.1.3              On or prior to 10:30 am Central Time of each day of operation, the estimated daily Product inventory balances of the Plant, Product production status and Product shipment information in writing or electronically;

 

4.1.4              Promptly after the Commencement Date, and at least forty five (45) days prior to the beginning of each calendar year during the Term, written notice of any then-scheduled Plant shutdowns;

 

4.1.5              Prompt written notice, within twenty four (24) hours, of any event that has resulted or could reasonably be expected to result in an unscheduled Plant shutdown, suspension or significant decrease in the Plant’s production of Product that was not reported or anticipated in the Production Forecasts provided for herein; and

 

4.1.6              Immediately upon request, such other information reasonably requested by Gavilon.

 

The quantity of each Delivery of Product to Gavilon shall be established by origin weight or origin metered volume prior to shipment and certified by Producer as of the time of such weighing or metering.  Producer shall measure either the weight or the volume of the shipments on scales or metering equipment calibrated at least once yearly beginning on the Commencement Date during the Term of this Agreement in accordance with the USDA Grain Inspection, Packers & Stockyard’s Administration’s applicable standards and which provide both gross and net 60° Fahrenheit temperature compensated gallons.  Producer’s scales and metering equipment shall be certified on an annual basis, whereupon Producer shall provide the certification certificate(s) to Gavilon.  In the event that the scale or metering equipment at the Plant is deemed faulty or inoperable, then the quantity of Product shall be established by a replacement scale or replacement metering system(s) which is/are certified as of the time of such weighing or metering and which comply with the terms and conditions of this Agreement and all applicable laws, rules and regulations.  In the event that either Gavilon or Producer reasonably believes that Producer’s scales or metering equipment are not working properly, either Party may request that such scales or metering equipment be tested and re-certified.

 

4.2                 Quality.  Unless otherwise agreed by Gavilon in writing, Producer represents and warrants that the Product produced at the Plant and delivered to Gavilon (i) shall be free and clear of all liens and encumbrances, (ii) shall comply in all material respects with any applicable federal, state, and local laws, regulations and requirements governing quality, naming, and labeling of Product, the specifications of which shall be determined by Producer in its sole discretion, and in the case of Ethanol Product, shall conform to the specifications set forth in Exhibit “A” attached hereto and in the case of Co-Product shall conform with the

 

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specifications set forth on Exhibit “B” (the “Specifications”).  The Specifications shall be deemed modified upon mutual agreement or, without any further action by either of the Parties hereto, from time to time to conform with legally mandated standards currently in existence or as modified or amended.

 

4.2.1              Producer shall provide to Gavilon, on or prior to Delivery of any Product to Gavilon, a certificate representing an analysis of the Product to be sold to Gavilon, certifying and evidencing to the reasonable satisfaction of Gavilon that such Product (i) is free and clear of all liens and encumbrances, (ii) complies in all material respects with any applicable federal, state, and local laws, regulations and requirements governing quality, naming, and labeling of Product, and (iii) conforms to the Specifications.  Producer, at its sole cost and expense, shall provide or cause to be provided all testing and related test equipment, which shall be calibrated at least once every six (6) months during the Term of this Agreement, at or in the vicinity of the Plant to determine, to Gavilon’s satisfaction, that the Product is compliant with the Specifications.  Gavilon or Gavilon’s representative shall have the right to perform, at any time within a reasonable period of time following delivery or receipt by Gavilon’s customers and at Gavilon’s sole expense, tests to determine whether or not the Product is in compliance with the Specifications.  If the Product so tested does not conform to the Specifications, Producer shall reimburse Gavilon its actual costs in conducting such tests.

 

4.2.2              If Producer knows or reasonably suspects that any of the Product produced at the Plant is adulterated or misbranded, or does not conform to any warranty or Specification, Producer shall promptly notify Gavilon to such effect so that such Product can be tested before entering interstate commerce.  If Gavilon knows or reasonably suspects that any of the Product produced by Producer at the Plant is adulterated, misbranded or non-conforming to the Specifications, then Gavilon may obtain independent laboratory tests of the Product in question.  If such Product is tested and found to comply with all warranties and the Specifications made by Producer herein, then Gavilon shall be responsible for all applicable testing costs; and if the Product is found not to conform with such warranties and the Specifications, Producer shall be responsible for all applicable testing costs.

 

4.2.3              Gavilon’s payment for the Product, whether or not in conformance with this Agreement or any applicable Confirmation, does not constitute a waiver by Gavilon of Gavilon’s rights in the event the Product does not comply with the terms of this Agreement.

 

4.2.4              Producer shall, using standard sampling methodology, take an origin sample of the Product from each source denatured ethanol tank before loading onto Transport Carrier for Delivery.  Producer shall label such samples and cross reference them to all Transport Carriers loaded from said tank.  Unless the Parties agree otherwise, Producer shall store such samples at the Plant for testing by Gavilon, at Gavilon’s sole discretion, for a period of two (2) months, at which time Producer may include the sample Product in future shipments to Gavilon.

 

4.2.5              If requested by Gavilon, Producer shall provide all information to Gavilon pursuant to this Section 4.2 in electronic form.

 

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4.3                 Nonconforming Product.  In the event the Product delivered to Gavilon is determined to be nonconforming to the Specifications or otherwise nonconforming in any material respect to any other representation or warranty made by Producer herein (the “Nonconforming Product”), Gavilon shall notify Producer of Gavilon’s rejection (or Gavilon’s customer’s rejection) of such Nonconforming Product in writing within two (2) Business Days of determining that such Product is a Nonconforming Product.  Gavilon shall provide a copy of the certified laboratory report(s) evidencing the nonconformity.  Producer will then direct Gavilon to either (i) sell the Nonconforming Product at a discounted price, or (ii) return the Nonconforming Product to Producer, each at Producer’s sole cost and expense.  Producer shall replace the Nonconforming Product with an acceptable type and/or quality of Product within two (2) Business Days of receipt of written notice that the delivered Product is nonconforming.  In the event Producer is unable to ship the replacement for the Nonconforming Product within said two (2) day period, Gavilon shall have the option in Gavilon’s sole, absolute and unreviewable discretion to return the Nonconforming Product, withhold payment thereof and purchase replacement Product.  Producer will be responsible for the difference in cost between the higher cost replacement Product and the cost of Producer’s Product which is the subject of the confirmed order, and the costs of returning or disposing of any such Nonconforming Product.  Such costs may include, without limitation, reasonably incurred Storage Costs or costs reasonably incurred by Gavilon to return such Nonconforming Product to Producer.  If such Nonconforming Product is sold by Gavilon at a discount, the Purchase Price payable by Gavilon may be reasonably adjusted by Gavilon by the amount of such discount, and payment shall be made according to this Agreement.  In the event that the replacement Product costs less than the cost of Producer’s Product which is the subject of replacement (after taking into consideration all costs to obtain such replacement Product), Producer will receive a credit for any such gain associated with the replacement Product.

 

In the event that any Product is seized or condemned by any federal or state department or agency for any reason except noncompliance by Gavilon with applicable federal or state requirements for shipping the Product, such seizure or condemnation shall operate as a rejection by Gavilon of the goods seized or condemned, whereupon: (i) unless otherwise agreed by Gavilon, Gavilon shall have no responsibility for selling the Nonconforming Product or returning the Nonconforming Product to Producer, and (ii) title and risk of loss to the Product shall immediately pass to Producer.  In the event that any Product is seized or condemned by any federal or state department or agency as set forth in this paragraph, Producer shall be responsible for all costs incurred by Gavilon with regard to handling said Nonconforming Product and Gavilon shall have the right to set off all such amounts in accordance with the terms of the Master Agreement.  In the event that Gavilon is directed to dispose of the Nonconforming Products at the direction of any federal or state department or agency, Gavilon shall coordinate with Producer with regard to the same; provided, however, Gavilon shall ultimately be responsible for determining how to comply with such orders and Producer shall ultimately be responsible for all costs arising therefrom.

 

4.4                 Beginning / Ending Product Purchase / Sale.  Effective as of the date of this Agreement, Gavilon agrees to purchase all Product currently owned by Producer and located at the Plant (the “Initial Purchase”) for a price equal to (i) for Ethanol Product [ * * * ], minus [ * * * ] per gallon, (ii) for DDG Co-Product, the Purchase Price as determined in Section 6.2.1 and (iii) for WDG Co-Product, the Purchase Price as determined in Section 6.2.1 (collectively, the “Initial Purchase Price”).  Gavilon and Producer shall work in good faith to determine the amount of Product owned by Producer at the Plant as of the effective date of this Agreement, and after agreeing on such amount Gavilon’s payment of the Initial Purchase Price to Producer for the Initial Purchase shall be due two (2) Business Days later.  Upon any termination of this Agreement at the end of its natural Term (but not due to an event of default), Gavilon shall sell

 

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any Product then owned by Gavilon and located at the Plant in accordance with the Purchase Price and Confirmation process set forth in Section 6.2.  Gavilon and Producer shall work in good faith to determine the amount of Product owned by Gavilon at the Plant as of the date of such termination, and after agreeing on such amount the final payment for the Product shall be due on the later of (i) within two (2) Business Days after the final sale or (ii) the normal timing for a Payment Date under the Master Agreement.

 

Article 5
  DELIVERY, SCHEDULING AND LOGISTICS

 

5.1                 Delivery.  Delivery of Product hereunder shall take place at the applicable Delivery Point for Product and in accordance with the applicable Confirmation.

 

5.2                 Designated Logistics Individual.  At all times from the Commencement Date until the expiration of the Term, Producer shall designate (and may re-designate from time to time) in writing to Gavilon, a qualified, full-time, individual for daily operational and Logistics issues who shall interact directly with Gavilon relating to such matters and shall have full, binding authority on behalf of Producer for all operational and Logistics matters with respect to the transactions contemplated herein (the “Designated Logistics Individual”).

 

5.3                 Delivery Schedule.  The Parties shall jointly develop a delivery schedule (the “Delivery Schedule”), the format of which will be mutually agreed upon by the Parties, which will serve as the formal planning tool for Logistics purposes.

 

5.4                 Gavilon’s Covenants.  Gavilon shall be responsible for the coordination and management of Logistics which arise after Delivery and for delivery of Transport Carriers to the Delivery Point for Product loading.  Except as otherwise stated herein, Gavilon covenants and agrees to:

 

5.4.1              Secure and maintain all necessary agreements, licenses, documents and contracts related to the transport of the Product from the Delivery Point;

 

5.4.2              Establish, monitor and communicate Logistics-related data to Producer as reasonable to ensure the shipment of Product in accordance with the applicable Delivery Schedule;

 

5.4.3              Except as otherwise expressly provided herein, secure and supply to Producer in connection with Delivery of Products herein all trucks (the owner or lessee of which shall be Gavilon and not Producer), and bear all costs relating to same, and advise Producer on tracking Transport Carriers and applicable respective estimated times of arrival therefore in an effort to reduce Demurrage and other costs;

 

5.4.4              Schedule the loading and shipping of all outbound Product purchased hereunder and shipped by Transport Carrier;

 

5.4.5              Comply in all material respects with all applicable federal, state, and local laws, regulations and requirements regarding the shipment of Product from the Plant including, but not limited to, all DOT requirements relating to the shipment of hazardous materials or otherwise applicable to the shipment of the Product (e.g., proper paperwork, railcars meeting DOT requirements, etc.); and

 

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5.4.6              Provide Producer with such accounting, financial and other information as may be reasonably requested in order for Producer to monitor and assess Gavilon’s credit status during the Term, provided that Gavilon’s obligation to provide such information is contingent on Producer signing a nondisclosure agreement containing terms acceptable to Gavilon in its reasonable discretion.

 

5.5                 Producer’s Covenants.  Producer shall be responsible for the coordination and management of transporting, storing and otherwise handling Product up through completion of Delivery of the Product to Gavilon and, except as otherwise stated herein, Producer covenants and agrees to:

 

5.5.1              Provide a qualified, full-time, Designated Logistics Individual for daily shipping, storage, and such matters up through Delivery;

 

5.5.2              Comply in all material respects with all applicable federal, state, and local laws, regulations and requirements regarding the labeling and shipment of Product applicable to Producer in connection with Delivery of Product at the Plant including, but not limited to, all DOT requirements relating to the labeling and shipment of hazardous materials or otherwise applicable to the labeling and shipment of the Product (e.g., proper paperwork, railcars meeting DOT requirements, etc.);

 

5.5.3              Provide to Gavilon and Gavilon’s representatives access to the Plant in a manner and at all times reasonably necessary and convenient for Gavilon to take Delivery of the Product;

 

5.5.4              Provide all labor, facilities and equipment necessary to load the Transport Carriers and consummate Delivery of the Product at no charge to Gavilon;

 

5.5.5              Handle the Product in a good and workmanlike manner in accordance with all governmental regulations and in accordance with normal industry practice;

 

5.5.6              Maintain all loading facilities at the Terminal in a safe operating condition in accordance with normal industry standards;

 

5.5.7              Prior to Delivery, inspect all applicable Transport Carriers in accordance with industry standards to ensure that the same are free of debris and foreign material that are prohibited under applicable laws or industry standards, free of odor and visually ascertainable contamination, and free of leaks from the Transport Carrier valves, and immediately notify Gavilon upon the discovery of or suspicion of the presence of such items to allow the Parties to coordinate the removal of such contaminants or arrange for substitute transportation equipment; such inspections shall include, but not be limited to, ensuring that the Transport Carriers are free and clear of mammalian protein; and all such inspections shall be documented and reported in accordance with inspection reports and records as mutually agreed upon by the Parties;

 

5.5.8              Use commercially reasonable efforts to load all Transport Carriers to full capacity at the Delivery Point.  In the event that a Transport Carrier is not loaded to full capacity due to Producer’s failure to use such commercially reasonable efforts, Producer shall pay that portion of freight charges allocable

 

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to the unused capacity of the applicable Transport Carrier and shall notify Gavilon within one (1) Business Day of the occurrence of such partial load;

 

5.5.9              Provide, at Producer’s sole cost and expense, storage capacity for a minimum of ten (10) calendar days production of Product (at nameplate capacity) at the Plant, in accordance with industry standards and all applicable state and federal regulations;

 

5.5.10            Provide Gavilon with such accounting, financial and other information as may be reasonably requested in order for Gavilon to monitor and assess Producer’s credit status during the Term, provided that Producer’s obligation to provide such information is contingent on Gavilon signing a nondisclosure agreement containing terms acceptable to Producer in its reasonable discretion; and

 

5.5.11            Provide, at Producer’s full cost and expense, all railcars required or required to meet its obligations hereunder.

 

5.5.12            Provide to Gavilon on a daily basis complete and accurate reports and downloads of all data related to Product (i) currently existing as work in process, (ii) produced and/or stored at the Plant and (iii) shipped from storage at the Plant.

 

5.6                 Producer’s Demurrage Obligations.  Producer shall be responsible for Demurrage and other applicable freight and storage penalties which may accrue during the period commencing after the Transport Carriers are received by Producer (or prevented from being received in accordance with the most recent Production Forecast) for loading of Product onto the respective Transport Carriers and ending when Transport Carriers are loaded and ready for shipment at the Delivery Point, but only to the extent that such penalties arise as a result of Producer’s conduct in its performance under this Agreement, including any Production Forecast errors which result in Gavilon sending Transport Carriers when not needed for Product.

 

5.7                 Notification of Problems with Delivery.  Each Party shall inform the other Party of any problem regarding any Delivery or shipment of Product within one (1) Business Day by facsimile or email, and telephone, after a Party becomes aware of any such problem.  An example of such problem(s) includes, but is not limited to, a difference in the quantity of the Delivery of Product from that quantity set out in the applicable Confirmation.

 

Article 6
  PRICING AND PAYMENTS

 

6.1                 Designated Pricing Individual.  At all times from the Commencement Date until the expiration of the Term, Producer shall designate (and may re-designate from time to time) in writing to Gavilon a qualified, full-time individual to interact directly with Gavilon for all pricing and payment matters who shall have full, binding authority on behalf of Producer for all pricing, billing, and payment matters with respect to the transactions contemplated herein (the “Designated Pricing Individual”).  The Designated Logistics Individual and the Designated Pricing Individual may be the same individual.

 

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6.2                 Confirmation Process.

 

6.2.1              The price for Product sold hereunder (the “Purchase Price”) shall be based on market-price bids from Gavilon’s customers, less (a) all documented costs incurred by Gavilon (excluding Gavilon’s customary costs for operating its business, but including any logistics costs, storage costs and other fees specifically associated with selling the Product) and (b) the Fees as described in Section 6.3.  The Purchase Price for Product sold hereunder will be established through an “offer” and “confirmation” process between both Parties.  Gavilon will offer market-based Product prices to Producer and Producer shall timely confirm the offered price, volume and delivery period to establish each “Confirmation” all as set forth on Exhibit “C” attached hereto.  To the extent that any terms of any Confirmation conflict with the terms of this Agreement, the terms of this Agreement shall govern unless both Parties have specifically expressed their intent in writing to supersede the terms of this Agreement.  Gavilon agrees to use commercially reasonable best efforts to achieve the highest Purchase Price available under prevailing market conditions.

 

6.2.2              Producer shall have the right to establish “flat price” pricing for Ethanol Product and Co-Product for up to [ * * * ] forward on volumes not to exceed the [ * * * ].  Additionally, Producer shall have the right to establish (i) “index pricing” for Ethanol Product for up to [ * * * ] forward and (ii) “flat price” pricing for Ethanol Product and Co-Product for up to [ * * * ] forward, in each case on volumes not to exceed [ * * * ]; provided, however, Producer must [ * * * ].  Any forward sales shall be subject to (i) the offsetting rights outlined in the Master Agreement and (ii) the net mark-to-market balance of the then-existing forward contracts being within the tolerance set by Gavilon’s credit department.  In the event that this Agreement is terminated in accordance with Section 13.5 or Section 13.6 below, all open contracts which comply with the terms of this Section 6.2.2 shall be honored by the Parties (subject to the rights and obligations of the Parties as set forth in Article 13 below).

 

6.2.3              To the extent that Producer obtains a more favorable bid or price quote for the Product (the “Favorable Terms”) from a third-party (but on terms that are otherwise customary and comparable to those set forth herein), Producer shall give oral or written notice to Gavilon of the Favorable Terms, including the Product quantities and specifications.  Gavilon has the right (but not any requirement) to match the Favorable Terms and purchase the Product from Producer.  If Gavilon does not provide oral confirmation (followed by written notice) to Producer of Gavilon’s agreement to purchase Product at the Favorable Terms within a reasonable time after Producer’s notice to Gavilon, the sole remedy of Producer shall be for Producer to directly sell the applicable Product on the Favorable Terms to the third-party.  As of the date of this Agreement, Gavilon and Producer each anticipate that Gavilon shall have the ability to determine whether or not to match the Favorable Terms during (or within ten minutes after) any phone call received from Producer to discuss such Favorable Terms.  If Gavilon elects not to match the Favorable Terms pursuant to this Section 6.2.3, Gavilon shall not receive any Fees on such third-party transaction but shall have the option to provide services for Logistics in regard to the third party transaction at Gavilon’s then-current rates.

 

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6.3                 Fees.  In consideration for Gavilon’s agreement to purchase Product hereunder, and other obligations contained herein, Producer shall deduct from the Purchase Price for all Product sold to Gavilon under this Agreement the following (collectively, the “Fees”):

 

6.3.1              A marketing fee equal to (i) [ * * * ] of the applicable sale price of the Ethanol Product, with a minimum fee of [ * * * ] per gallon and a maximum fee of [ * * * ] per gallon (“Ethanol Marketing Fee”), (ii) [ * * * ] of the applicable sale price for DDG Co-Product, with a minimum fee of [ * * * ] per ton (“DDG Co-Product Marketing Fee”), and (iii) [ * * * ] of the applicable sale price for WDG Co-Product, with a minimum fee of [ * * * ] per ton (“WDG Co-Product Marketing Fee”, and collectively with the Ethanol Marketing Fee and DDG Co-Product Marketing Fee, the “Gavilon Service Fee”).

 

6.3.2              In the event a Gavilon railcar is used to transport Product from the Plant, then Producer shall reimburse Gavilon for the then-applicable lease cost for said railcar computed on the number of days the railcar is utilized by Producer (or a third party transporting Product for Producer in accordance with Section 6.2.3 above).  Any lease fees for Gavilon railcars shall be invoiced by Gavilon and paid by Producer in accordance with Gavilon’s then-current invoice policy.

 

6.4                 Taxes.  Producer shall pay or cause to be paid all valid levies, assessments, duties, rates and taxes (together “Taxes”) on Product sold to Gavilon hereunder that arise prior to, or at the time and as a result of, the sale of such Product to Gavilon.  Gavilon shall pay or cause to be paid all Taxes, including fuel or excise Taxes, on Product that arise after the sale of Product by Producer to Gavilon hereunder.  Any and all state or federal tax, production, investor, or U.S. excise credits, any and all emissions credits, other government incentives or credits or benefits relating to the production of Product or the sale thereof to Gavilon, shall inure solely to the benefit of Producer.

 

6.5                 Billing and Payment.

 

6.5.1              Invoice.  Within one (1) Business Day of Delivery of Product to Gavilon (the “Invoice Date”), Producer will provide an invoice to Gavilon, in writing or electronically, setting forth the net amounts due from Gavilon with respect to such Delivery of Product after deducting the applicable Fees (the “Invoice”).

 

6.5.2              Payment Due.  Subject to the receipt of the invoice described in Section 6.5.1, Gavilon shall issue payment for the net amount due to Producer in accordance with the Master Agreement.

 

Article 7
  REPRESENTATIONS AND WARRANTIES

 

7.1                 Representations, Warranties and Covenants.  Producer and Gavilon each represent, warrant and covenant to the other that:

 

7.1.1              Such Party is duly organized, validly existing, and in good standing under the laws of the state of its formation, has registered as a foreign entity in those jurisdictions where such registration is required, and has the power and authority to own and operate its properties and to carry on its business as now being conducted;

 

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7.1.2              Such Party is duly authorized to execute and deliver this Agreement and any Confirmations, perform the covenants contained herein and therein, to consummate the transactions contemplated hereby, and to execute, deliver and perform all documents and instruments to be executed and delivered by such Party pursuant hereto, and all required action in respect to the foregoing has been taken by such Party;

 

7.1.3              When executed and delivered, this Agreement, any Confirmations, and all of the documents and instruments described herein and therein, will constitute valid and binding obligations of the Parties thereto, enforceable against the Parties, in accordance with their respective terms;

 

7.1.4              The execution and delivery of this Agreement and any Confirmations, and the performance of or compliance with the terms and provisions of this Agreement and any Confirmations will not conflict with, or result in a breach of, a default under, or accelerate any agreement, lease, license, undertaking or any other instrument or obligation of any kind or character to which such Party is a party or by which such Party or the Product may be bound, and will not constitute a default thereunder or result in the declaration or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the Product;

 

7.1.5              Except as set forth in Section 15.2, it (i) has not assigned, transferred, created or permitted to exist any lien or other encumbrance on, or otherwise disposed of, or purported to assign, transfer, create or permit to exist any lien or other encumbrance on, or otherwise dispose of any of its rights to any amounts that may be owed to it under this Agreement to any third-party, and (ii) covenants that, so long as this Agreement is in effect, it will not assign, transfer, create or permit to exist any lien or other encumbrance on, or otherwise dispose of or purport to assign, transfer, create or permit to exist any lien or other encumbrance on, or otherwise dispose of any of its rights to any amounts that may be owed to it under this Agreement, to any third-party;

 

7.1.6              It is not relying upon any representations of the other Party, other than those expressly set forth in (i) this Agreement or any Confirmation issued pursuant thereto, (ii) the Master Agreement, (iii) the Storage Agreement and (iv) the Corn Supply Agreement; and

 

7.1.7              It has entered into this Agreement with a full understanding of the material terms and risks of the same, and it is capable of assuming those risks.

 

Article 8
  POSSESSION AND TITLE

 

8.1                 Title; Risk of Loss.  The Product to be sold by Producer shall be delivered FOB the Delivery Point; provided that (i) title to and possession of the Product meeting the Specifications and delivered according to this Agreement shall transfer from Producer to Gavilon at the point when such Product leaves Producer’s manufacturing process and enters into the storage process, whereby title to and possession of Ethanol Product shall transfer at the point of the Ethanol Product entering Tank No. 8422 and Tank No. 8423 at the Plant and title to and possession of Co-Product shall transfer at the point of the DDG Co-Product reaching flat storage and the WDG Co-Product reaching the modified pad, and (ii) risk of loss or damage to the Product meeting the Specifications and delivered according to this Agreement shall transfer

 

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from Producer to Gavilon at Delivery of the Product.  Until such times as specifically set forth in the prior sentence, Producer shall be deemed to be in control of, and in possession of, and shall have title to and risk of loss of and in the Product.  Notwithstanding anything herein to the contrary, in the case of Product rejected as Nonconforming and returned to Producer pursuant to Section 4.3 by Gavilon, the title and risk of loss to such Product shall pass to Producer promptly upon the written notice of rejection thereof by Gavilon (or Gavilon’s customer) provided to, and received by, Producer.

 

8.2                 Responsibility for Product.  Gavilon shall have no responsibility or liability with respect to any Product delivered under this Agreement until Delivery.  Without prejudice to Gavilon’s right to reject Nonconforming Product as set forth in Section 4.3 and without affecting Producer’s liability for the Delivery of Nonconforming Product, Producer shall have no responsibility or liability with respect to the Product after Delivery or on account of anything which may be done or happen to arise with respect to such Product after such Delivery except as otherwise expressly provided for herein.

 

Article 9
  FORWARD MARKET SERVICES

 

9.1                 Services.  During the Term and for no additional cost to the Producer, Gavilon will (i) review Product positions and current market conditions relating to purchases of Product, (ii) provide basis quotes, index quotes and price quotes for nearby and forward markets on an as needed and requested by Producer basis if available in the market, and (iii) provide Producer with daily mark-to-market position reporting for all fixed price and open positions for the activities at the Plant, each for the purpose of supporting Producer’s risk management policies (the “Forward Market Services”).

 

9.2                 No Liability.  Gavilon and Producer acknowledge that Product markets are volatile and subject to events over which neither Gavilon nor Producer have any control.  Producer acknowledges that (i) any provision of Forward Market Services by Gavilon is provided as a courtesy to Producer at no charge and is for informational purposes only and (ii) any decisions concerning Producer’s risk management strategies and the implementation of such strategies by it, are and will be made solely by Producer and are the sole responsibility of Producer.  Gavilon is not responsible for any losses, liabilities, costs, or expenses incurred by Producer or entitled to any gains of Producer, resulting from any Forward Market Services supplied by Gavilon.  IN NO EVENT SHALL GAVILON OR PRODUCER BE LIABLE TO THE OTHER PARTY FOR ANY DAMAGES OF ANY NATURE, INCLUDING BUT NOT LIMITED TO, INDIRECT, CONSEQUENTIAL, PUNITIVE, OR SPECIAL DAMAGES, LOSS OF BUSINESS EXPECTATIONS OR PROFITS OR BUSINESS INTERRUPTIONS, ARISING IN ANY WAY OUT OF THE PROVISION OF THE FORWARD MARKET SERVICES.

 

Article 10
  CONFIDENTIALITY

 

10.1               Confidential Information.  For purposes of this Agreement, the term “Confidential Information” shall mean any information which is disclosed by one Party to the other pursuant to this Agreement and which is oral, written, graphic, machine readable or other tangible form, whether or not marked or identified as confidential or proprietary.  Confidential Information  shall not include any information which is (a) already known to the recipient, (b) already in the public domain, (c) lawfully disclosed to it by a third party, or (d) legally required to be disclosed by the recipient.

 

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10.2               Producer Nondisclosure.  Producer acknowledges that, by reason of this Agreement, it may become privy to Confidential Information belonging to Gavilon.  With the exception of its investors, legal advisors, financial advisors, accountants and/or lenders, their agents, representatives, or employees (hereinafter “Producer’s Parties”), Producer shall not, without the prior written consent of Gavilon, or except as otherwise required by law, disclose to any third parties or use for Producer’s own benefit any Gavilon Confidential Information, except for the intended use pursuant to this Agreement.  Producer shall inform any of Producer’s Parties and any consented-to third parties to whom Producer intends to disclose Confidential Information of the confidential nature of such Confidential Information and shall ensure that such persons are bound by confidentiality obligations similar to those set forth herein.  The confidentiality obligations hereunder shall survive until the later of any expiration or termination of this Agreement and the Master Agreement for a period of two (2) years thereafter.  Notwithstanding the foregoing, Producer may disclose the provisions of this Agreement to Producer’s Parties provided such parties have agreed in writing to be bound by the confidentiality obligations of this Article 10.

 

10.3               Gavilon Nondisclosure.  Gavilon acknowledges that, by reason of this Agreement, it may become privy to Confidential Information belonging to Producer.  Gavilon shall not, without the prior written consent of Producer, disclose to any third parties any such Confidential Information.  The confidentiality obligations hereunder shall survive any expiration or termination of this Agreement for a period of two (2) years.

 

10.4               Term of Confidentiality Agreement.  The Parties hereby agree that the term of any Confidentiality Agreement previously entered into by and between the Parties, or by the Producer for the benefit of Gavilon, is hereby extended, and shall remain the binding obligation of Producer until the later of (i) the expiration of such Confidentiality Agreement in accordance with its terms, or (ii) two (2) years following the expiration of the Term of this Agreement, and further agree that the provisions of this Article 10 shall supersede over any conflicting provisions contained in such Confidentiality Agreement(s).

 

Article 11
 FORCE MAJEURE

 

11.1               Force Majeure.  In the event either Party hereto is rendered unable by reason of Force Majeure to carry out its obligations under this Agreement, upon such Party giving written notice of such Force Majeure to the other Party as soon as possible after the occurrence of the cause relied on, the obligations of the Party giving such notice, so far as they are affected by Force Majeure, shall (except as otherwise provided in Article 13) be suspended during the continuance of any inability so caused, but for no longer period, and such cause shall, so far as reasonably possible, be remedied with all reasonable dispatch.

 

11.2               Definition of Force Majeure.  The term “Force Majeure,” as used in this Agreement, shall mean any cause not reasonably within the control of the Party claiming suspension and which, by the exercise of commercially reasonable efforts, such Party is unable to prevent or overcome.  Such term shall include, but not be limited to: acts of God, acts of the public enemy (including terrorism), wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, floods, tornadoes, storms, washouts or other inclement weather resulting in a delay of the movement, loading or off-loading of Transport Carriers, or the inability of Producer or Gavilon to sell or resell the Product due to governmental action or embargo, all of which shall be beyond the reasonable control of the Party claiming Force Majeure.  In no event shall Force Majeure include any economic or commercial changes or events affecting the

 

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purchase, sale, transport or production of Product, except to the extent that such economic or commercial changes or events result from any of the foregoing Force Majeure causes.

 

11.3               Sale of Product Upon Gavilon Claim of Force Majeure.  If Gavilon is the Party claiming Force Majeure, Producer may, upon written notice to Gavilon, sell the Product to third-parties during the duration of the Force Majeure event, but only to the extent of Gavilon’s inability to perform or Gavilon’s delay in performance of this Agreement.  The sole remedy of Producer during any Force Majeure event claimed by Gavilon shall be for Producer to directly sell the applicable Product to third parties during the duration of the Force Majeure event.

 

Article 12
 INDEMNITY AND LIMITATIONS ON LIABILITY

 

12.1               Indemnification by Producer.  Except as may be otherwise provided in this Agreement, Producer shall indemnify, defend and hold harmless Gavilon, its affiliates and their respective officers, directors, employees, agents, members, managers, shareholders and representatives from and against any and all claims, liabilities, actions, losses, damages, fines, penalties, costs and expenses including reasonable attorneys’ fees (collectively “Damages”) actually suffered by Gavilon resulting from or arising in connection with claims (x) for personal injury or tangible or real property damages, or (y) by third parties, in either case to the extent arising out of (a) any gross negligence or willful misconduct of Producer or any of its officers, directors, employees, agents, representatives and contractors hereunder; or (b) any breach of this Agreement by Producer (collectively “Claims”).

 

12.2               Indemnification by Gavilon.  Except as may be otherwise provided in this Agreement, Gavilon shall indemnify, defend and hold harmless Producer, its affiliates and their respective officers, directors, employees, agents, members, managers, shareholders and representatives from and against any and all Damages actually suffered by Producer resulting from or arising in connection with claims (x) for personal injury or tangible or real property damages, or (y) by third parties, in either case to the extent arising out of (a) any gross negligence or willful misconduct of Gavilon or any of its officers, directors, employees, agents, representatives and contractors hereunder; or (b) any breach of this Agreement by Gavilon.

 

12.3               Limitation of Liability.  IN NO EVENT SHALL PRODUCER OR GAVILON BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, CONSEQUENTIAL, PUNITIVE, EXEMPLARY, OR SPECIAL DAMAGES, LOSS OF BUSINESS EXPECTATIONS OR LOST PROFITS OR BUSINESS OR PLANT INTERRUPTIONS OR SHUT-DOWN COSTS ARISING IN ANY WAY OUT OF THIS AGREEMENT OR ANY BREACH OF THIS AGREEMENT.  Under no circumstances (other than for willful misconduct or fraud) will either Party be liable to the other for damages for breach that collectively arise under this Agreement, the Storage Agreement and the Corn Supply Agreement and exceed the total amount of  $1,000,000 ; provided, however, that such limitations shall not apply with respect to (a) the payment by Gavilon for Product received hereunder, (b) the obligation of Producer to reimburse Gavilon for payments in respect of Nonconforming Product, (c) third-party claims involving personal injury or property damage asserted under Section 12.1 or 12.2 above, or (d) damages covered by the insurance requirements specified below.  In the event that damages exceed such limitation, the sole remedy of the damaged Party with respect to such excess damages shall be to terminate this Agreement.

 

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Article 13
 DEFAULT AND TERMINATION

 

13.1               Event of Default.  An “Event of Default” shall mean, in addition to the other matters described in this Article 13, with respect to a Party, the occurrence of any of the following events:

 

13.1.1            The failure to make, when due, any payment required pursuant to this Agreement;

 

13.1.2            Any representation or warranty made by such Party herein is false or misleading in any material respect when made or when deemed made;

 

13.1.3            The failure to perform any material covenant, condition, or obligation set forth in this Agreement;

 

13.1.4            Producer’s failure to operate the Plant for a period of thirty (30) consecutive days (unless such shut-down is part of normal maintenance or any Plant upgrades as reflected in an Annual Forecast) or the monthly production of Product is less than seventy-five percent (75%) of the amount previously forecast by Producer;

 

13.1.5            Either party directly or indirectly, including by operation of law, transfers, assigns, sells, or disposes of all or substantially all of its assets or any rights or obligations under this Agreement, without the prior written consent of the other party, which shall not be unreasonably withheld, except to the extent such transfer, assignment, sale or disposition is otherwise specifically permitted by clause (iii) of Section 15.2.1 of this Agreement;

 

13.1.6            Any Party herein shall (i) become subject to any foreclosure proceeding by such Party’s primary lender or other material creditor(s), or (ii) become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; any Party hereunder shall file a voluntary petition in bankruptcy, or seek reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Code, Title 11 of the United States Code, as amended or recodified from time to time, or under any state or federal law granting relief to debtors (collectively “Bankruptcy”); or

 

13.1.7            Any Party herein shall default on any payment obligation with such Party’s primary lender or other material creditor(s), or such other Party has received notice of acceleration or demand for payment from such Party’s primary lender or any other material creditor(s), and such payment obligation default is not cured or the primary lender or material creditor does not forbear such payment obligation default, acceleration or demand for payment within ten (10) days following such default or notice.

 

13.2               Right to Cure.  If an Event of Default is not cured within fifteen (15) days (or two (2) Business Days with respect to clause 13.1.1) after receipt of a notice thereof from the non-defaulting Party, the non-defaulting Party may, at any time after the applicable cure period,

 

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terminate this Agreement by written notice.  Notwithstanding the foregoing provision, no cure period shall apply to Bankruptcy and Producer or Gavilon may, upon the occurrence of Bankruptcy of the other Party, immediately suspend further performance under this Agreement, with or without giving notice of such default or notice of termination.

 

13.3               Non-Waiver of Future Default.  No waiver by either Party of any Event of Default by the other Party in the performance of any of the provisions of this Agreement, the Corn Supply Agreement or Master Agreement will operate or be construed as a waiver of any other or future default or defaults, whether of a like or of a different character.

 

13.4               Cross Default.  The occurrence and continuance of an Event of Default under this Agreement, the Storage Agreement, the Corn Supply Agreement or Master Agreement, now existing or entered into hereafter, shall constitute, at the election of the non-defaulting Party, in its sole, absolute and unreviewable discretion, an Event of Default under this Agreement, the Storage Agreement, the Corn Supply Agreement or Master Agreement, or combination of such agreements (together the “Cross Default”).  A waiver of a Cross Default by the non-defaulting Party pursuant to this Section 13.4 shall not operate or be construed as a waiver of any other Event of Default or Cross Default.

 

13.5               Termination by Mutual Agreement.  This Agreement may be terminated upon mutual written agreement between the Parties.

 

13.6               Termination for Force Majeure.  In the event that Force Majeure shall continue for a period of ninety (90) days from the date the Party claiming relief due to Force Majeure gives the other Party notice thereof, the Party not claiming such relief shall have the right to terminate this Agreement by furnishing written notice to the Party claiming Force Majeure relief, with termination effective upon the expiration date of such ninety (90) day period.  Upon such termination, each Party shall be relieved from its respective obligations, except for obligations for payment of monetary sums which arose prior to the event of Force Majeure and obligations pursuant to Article 10 and Section 13.7 herein.

 

13.7               Rights and Obligations on Termination or Default.  Upon termination of, or default under, this Agreement, whether contained in this Article 13 or otherwise contained in this Agreement:

 

13.7.1            Any rights of Gavilon or Producer to payments accrued through termination of this Agreement shall remain in effect and, unless otherwise specified herein, all payments and monetary obligations of the respective Parties required pursuant to this Agreement shall be made pursuant to this Agreement or the Master Agreement, as applicable.

 

13.7.2            In addition to other remedies available, if Producer defaults in Producer’s obligation to deliver Product under Confirmed Orders, then Gavilon may, but shall not be obligated to, “cover” by purchasing Product from third parties.  Producer shall pay to Gavilon the amount, if any, by which the cost of such third-party Product including all reasonable costs and expenses associated with the purchase of Product from third parties plus a Gavilon Service Fee for such amounts of Product purchased, exceeds the Purchase Price of Product.  Payments due and owing under this Section 13.7.2 shall be made pursuant to this Agreement or the Master Agreement, as applicable.

 

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13.7.3            In addition to other remedies available, if Gavilon defaults in Gavilon’s obligation to purchase Product under any Confirmation, Producer may, but shall not be obligated to, “cover” by selling its Product to third parties.  Gavilon shall pay to Producer the amount, if any, by which the Purchase Price of such Product plus other reasonable costs and expenses associated with Producer’s sale of Product to third parties exceeds the net price to such third party.  Payments due and owing under this Section 13.7.3 shall be made pursuant to this Agreement. In the event that Gavilon fails to purchase all of the Product included in the Production Forecast or otherwise actually produced by Producer, then Producer may sell such Product not purchased by Gavilon to third-parties but only to the extent of Gavilon’s failure to purchase such Product and without any liability to Gavilon hereunder (but subject to either Party’s rights as set forth in Sections 13.1 and 13.2).

 

13.8               Cumulative Rights and Remedies.  The rights and remedies under this Article 13 are cumulative and not exclusive.  Upon default (whether or not an Event of Default) or termination, the non-defaulting Party shall additionally have such other and further rights as may be provided at law or in equity, including all rights of set-off as contained in this Agreement or the Master Agreement, as applicable, and such rights may be exercised in such order and combination as the non-defaulting Party may determine.

 

Article 14
 INSURANCE

 

14.1               Insurance Requirements.  Producer and Gavilon shall be required to purchase, maintain and provide proof (via Certificate of Insurance) of the insurance set forth on Exhibit “D”.

 

Article 15
 MISCELLANEOUS

 

15.1               No Press Releases or Public Announcements.  Except as otherwise mandated by applicable law, no Party may issue, or otherwise permit to be issued, any press release or other public announcement relating to the subject matter or existence of this Agreement without the prior written approval of the other Party, which approval may be withheld in such Party’s sole discretion.  Additionally, the Parties acknowledge that a Confidentiality Agreement, as described in Section 10.4 above, may have been entered into between the Parties relating to the transactions contemplated herein.  For purposes hereof, the Parties agree and acknowledge that the mere existence of this Agreement shall be deemed confidential information, without regard to whether such a Confidentiality Agreement has been entered into, and shall not be disclosed, except as otherwise specifically permitted hereunder, without the prior written consent of Gavilon or Producer, which consent shall not be unreasonably withheld.

 

15.2               Assignment.

 

15.2.1            Neither Party may assign any of its rights or obligations under this Agreement without the prior written consent of the other Party, not to be unreasonably withheld.  A Change in Control of Producer or Gavilon shall be construed to be an assignment for purposes of this Section.  The above notwithstanding: (i) Gavilon may, without the need for consent from Producer, (A) transfer, sell, pledge, encumber or assign this Agreement, including the revenues or proceeds hereof, in connection with any financing arrangements, and

 

20

 

(B) transfer or assign this Agreement to an affiliate; and (ii) Producer may, without the need for consent from Gavilon, transfer, sell, pledge, encumber or assign this Agreement, including the revenues or proceeds hereof, in connection with any financing arrangements. In the event the Plant is sold by Producer, Producer shall assign this Agreement to the purchaser of the Plant and require the purchaser to assume all of Producer’s obligations hereunder, provided that such purchaser is reasonably acceptable to Gavilon.  No such assignment shall in any way relieve the assigning Party from liability for full performance hereunder.  It is further agreed that no such assignment shall be permitted unless the Master Agreement and all other agreements referenced therein are similarly assigned in accordance with their terms.

 

15.2.2            Cumulative Remedies.  Unless otherwise specifically provided in this Agreement, the rights, powers and remedies of each of the Parties provided in this Agreement are cumulative and the exercise of any right, power or remedy under this Agreement does not affect any other right, power or remedy that may be available to either Party under this Agreement or otherwise at law or in equity.

 

15.3               Records.  Producer and Gavilon will each establish and maintain at all times, true and accurate books, records and accounts relating to their own transactions under this Agreement in accordance with generally accepted accounting principles applied consistently from year to year in accordance with good industry practices.  These books, records and accounts will be preserved by the applicable Party for a period of at least one (1) year after the expiration of the term of this Agreement, but in no event longer than seven (7) years from the date of creation.

 

15.4               Audit of Records.  Upon five (5) Business Days notice and during normal business hours, each Party or its designated auditor has the right to inspect or audit the books, records and accounts of the other Party relating solely to the transactions in this Agreement, provided the right to inspect or audit shall be limited to two (2) calendar years following the completion of any delivery of Product.  Each Party’s audit rights as set forth in this Section 15.4 shall survive the termination of this Agreement for a period of two (2) years following such termination.  Any error or discrepancy detected which has led to an overpayment or an underpayment between the Parties shall be corrected by an appropriate balancing payment to the underpaid Party or by a refund by the overpaid Party.  Such balancing payment or refund shall be made on the first payment date thereafter arising under the Master Agreement.

 

15.5               Dispute Resolution.

 

15.5.1            Dispute Notice.  The Parties shall make a diligent, good faith attempt to resolve all disputes before either Party commences arbitration with respect to the subject matter of any dispute.  If the representatives of the Parties are unable to resolve a dispute within forty five (45) days after either Party gives written notice to the other of a dispute, either Party may, by sending a dispute notice to the other Party, submit the dispute to binding arbitration in accordance with the Governing Body Arbitration Rules, except as such Governing Body Arbitration Rules may be modified by this Agreement.

 

15.5.2            Appointment of Arbitrators.  An arbitration committee shall be appointed pursuant to the Governing Body Arbitration Rules unless the Parties otherwise agree to some other method of selecting one or more arbitrators.

 

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15.5.3                                     Location.  The site of the arbitration shall be determined by the Governing Body, unless otherwise agreed by the Parties.

 

15.5.4                                     Diligence; Remedies.  The Parties shall diligently and expeditiously proceed with arbitration.  The arbitrator(s) shall decide the dispute by majority of the arbitrators (if applicable).  The arbitrator(s) shall be instructed to render a written decision within forty five (45) days after the conclusion of the hearing or the filing of such briefs as may be authorized by the arbitrator(s), subject to any reasonable delay due to unforeseen circumstances.  Except to the extent the Parties’ remedies may be limited by the terms of this Agreement, the arbitrator(s) shall be empowered to award any remedy available under the laws of the State of Nebraska including, but not limited to, monetary damages and specific performance.  The arbitrator(s) shall not have the power to amend or add to this Agreement.  The award of the arbitrator(s) shall be in writing with reasons for such award and signed by the arbitrator(s).  Any award rendered shall be final and binding.  Judgment rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

 

15.5.5                                     Waiver of Appellate Review; Enforcement.  The Parties hereby waive any rights to appeal or to the review of such award by any court or tribunal.  The Parties further undertake to carry out without delay the provisions of any arbitral award or decision, and each agrees that any such award or decision may be enforced by any competent tribunal.

 

15.5.6                                     Costs of Arbitration.  The costs of such arbitration shall be determined by and allocated between the Parties by the arbitral tribunal in its award.

 

15.5.7                                     Independent Agreement.  This Section 15.5 constitutes an independent contract between the Parties to, pursuant to the Governing Body Arbitration Rules (except as said Governing Body Arbitration Rules are modified by the express terms of this Agreement), arbitrate all disputes between the Parties related to this Agreement, including, without limitation, disputes regarding the formation of contract(s) and whether either Party is entitled to quasi-contractual or quantum merit recovery from the other Party.

 

15.5.8                                     Continuation of Performance.  Unless otherwise agreed in writing or as otherwise set forth in this Agreement, the Parties shall each continue to perform their respective obligations hereunder during any proceeding by the Parties in accordance with this Section 15.5.

 

15.6                                              Inurement.  This Agreement will inure to the benefit of and be binding upon the respective successors and permitted assigns of the Parties, and Producer shall cause the same to be assumed by and to be binding upon any successor owner or operator of the Plant, provided that such successor or assign is reasonably acceptable to Gavilon.

 

15.7                                              Entire Agreement.  This Agreement, together with the agreements referred to herein as executed pursuant hereto, including the Storage Agreement, Corn Supply Agreement and Master Agreement and any confidentiality or nondisclosure agreements previously executed by the Parties in connection herewith, constitutes the entire Agreement between the Parties with respect to the subject matter contained herein and any and all previous agreements, written or oral, express or implied, between the Parties or on their behalf relating to the matters contained herein shall be given no effect.

 

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15.8                                              Amendments.  There will be no modification of the terms and provisions hereof except by the mutual agreement in writing signed by the Parties.  Any attempt to so modify this Agreement in the absence of such writing signed by the Parties shall be considered void and of no effect.

 

15.9                                              Governing Law.  The Agreement will be interpreted, construed and enforced in accordance with the procedural, substantive and other laws of the State of Nebraska without giving effect to principles and provisions thereof relating to conflict or choice of law even though one or more of the Parties is now or may do business in or become a resident of a different state.  Subject to Section 15.5, all disputes arising out of this Agreement shall be resolved exclusively by state or federal courts located in Omaha, Nebraska, and each of the Parties waives any objection that it may have to bring an action in any such court.

 

15.10                                        Setoff.  In addition to, and without limitation of, any rights hereunder, if Producer becomes insolvent, however evidenced, or upon any Event of Default on the part of Producer, and Producer fails to cure the Event of Default as permitted by Section 13.2 of this Agreement, within the applicable period specified therein, then any and all amounts due and owing by Producer may be applied by Gavilon toward the payment of amounts due and owing to Producer.  This right of setoff shall be without prejudice and in addition to any right of setoff, net income, recoupment, a combination of accounts, lien, charge or the right to which Gavilon is at any time otherwise entitled (whether by operation of law, by contract or otherwise).  If an amount is unascertained, Gavilon may reasonably estimate the amount to be set-off.

 

15.11                                        Forward Contract/Forward Contract Merchants.  The Parties agree that each of them is a forward contract merchant as set forth in 11 U.S.C. §101(26).  The Parties also agree that this Agreement is a forward contract as defined in 11 U.S.C. §101(25).  The payments and transfers described herein shall constitute “Settlement Payments” or “Margin Payments” as set forth in 11 U.S.C. §§101(51A) and (38).

 

15.12                                        Compliance with Laws.  This Agreement and the respective obligations of the Parties hereunder are subject to present and future valid laws and valid orders, rules and regulations of duly constituted authorities having jurisdiction.

 

15.13                                        Furnishing of Information and Further Action.  The Parties will, upon request, provide such additional information and take or obtain such further action as may be reasonably required to allow the Parties to efficiently and effectively carry out their respective obligations hereunder and to determine and enforce individual or collective rights under this Agreement, including but not limited to the execution of a contract for arbitration with the Governing Body.

 

15.14                                        Faithful Performance and Good Faith.  The Parties shall faithfully perform and discharge their respective obligations in this Agreement and endeavor in good faith to negotiate and settle all matters arising during the performance of this Agreement which are not specifically provided for herein.

 

15.15                                        No Partnership; Relationship.  This Agreement shall not create or be construed to create in any respect a partnership or any agency or joint venture relationship between the Parties.  The relationship of Gavilon and Producer established by this Agreement is that of independent contractors, and nothing contained in this Agreement shall be construed: to give either Party the power to unilaterally direct and control the day-to-day activities of the other or to be considered an agent of the other; to constitute the Parties as partners, joint ventures, co-owners or otherwise; or to allow either Party to create or assume any obligation on behalf of the other Party for any purpose whatsoever.  Except as otherwise provided herein, nothing

 

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contained in this Agreement shall be construed as conferring any right or benefit on a person not a Party to this Agreement.

 

15.16                                        Notice Addresses.  Except as specifically otherwise provided herein, any notice or other written matter required or permitted to be given hereunder by one Party to the other Party pursuant to the terms and conditions of this Agreement, shall be deemed to be sufficiently given if delivered by hand or sent by certified mail, nationally recognized delivery service or by fax, and addressed as follows:

 

	
If   to Gavilon:
    	
Gavilon,   LLC

Eleven   ConAgra Drive

Omaha,  NE 68102-5011

Attn:  Senior Director - Renewable Fuels

Fax:  (402) 221-0228

Phone:   (402) 889-4300

E-mail:   Scott.Bunz@gavilon.com

 
    
	
With   a copy to:
    	
Gavilon,   LLC

Eleven   ConAgra Drive, STE 11-160

Omaha,   NE 68102

Fax:   (402) 221-0228

Phone:   (402) 889-4027

Attn:  Legal Department

E-mail:   Kathryn.Murphy@gavilon.com

 
    
	
If   to Producer:
    	
Heron   Lake BioEnergy, LLC

91246   390th Avenue

Heron   Lake, MN 68301

Fax:   (507) 793-0078

Phone:   (507) 793-0077

Attn:  Bob Ferguson

E-mail:   bobf@heronlakebioenergy.com

 
    
	
With   a copy to:
    	
Lindquist &   Vennum PLLP
    4200 IDS Center, 80 S. 8th Street

Minneapolis,   MN 55402

Fax:   (612) 371-3207

Phone:   (612) 963-0600

Attn:  Michael Weaver

E-mail:   mweaver@lindquist.com
    

 

Where this Agreement indicates that notice or information may be provided electronically or by email, such notice or information shall be deemed provided if sent to the email address of such Party indicated above and shall be effective as of the date sent if sent prior to 5:00 p.m. Central Time on a Business Day, otherwise effective as of the next Business Day.  Either Party may give notice to the other Party (in the manner herein provided) of a change in its address for notice.  Any notice or other written matter shall be deemed to have been given and received: if delivered by hand, certified mail or delivery service on the date of delivery or the date delivery is refused; and, if sent by fax before or during normal business hours, on the Business Day of the sending of the notice and the machine-generated evidence of receipt or if after normal business hours,

 

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on the Business Day following the sending of the notice and the machine generated evidence of receipt.

 

15.17                                        Costs to be Borne by Each Party.  Producer and Gavilon shall each pay their own costs and expenses incurred in the negotiation, preparation and execution of this Agreement and of all documents referred to herein.

 

15.18                                        Counterparts.  This Agreement may be executed in multiple counterparts with the same effect as if Producer and Gavilon had signed the same document and all counterparts will be construed together and constituted as one and the same instrument.  Each counterpart signature may be executed and delivered to the other Party by facsimile machine or electronic transfer, and the signature as so transmitted shall be as binding upon the executing Party as its original signature, without the necessity of the recipient Party to establish original execution or the existence of such original signature or the document to which affixed, all of which shall be deemed waived.

 

15.19                                        Severability.  Any provision of this Agreement which is or becomes prohibited or unenforceable in any jurisdiction shall not invalidate or impair the remaining provisions of this Agreement, and the remaining terms of this Agreement shall continue in full force and effect or, if allowed by the law of the applicable jurisdiction, it shall be amended so as to most closely conform to the original intent of this Agreement without the offending provision, and as so amended shall continue in full force and effect.

 

15.20                                        Headings; Interpretations.  The article and section headings used herein are for convenience of reference only and shall not affect the construction or interpretation of this Agreement.  Unless the context of this Agreement otherwise requires, (i) words of any gender shall be deemed to include each other gender; (ii) words using the singular or plural number shall also include the plural or singular number, respectively; and (iii) the terms “hereof,” “herein,” “hereby,” “hereto,” and derivative or similar words shall refer to this entire Agreement.  This Agreement is the product of negotiation by and among the Parties hereto.  This Agreement shall be interpreted and construed neutrally as to all Parties, without any Party deemed to be the drafter of this Agreement.

 

15.21                                        Waiver.  No delay or omission in the exercise of any right, power or remedy hereunder shall impair such right, power or remedy or be construed to be a waiver of any default or acquiescence therein.

 

15.22                                        Interpretation.  This Agreement shall not be interpreted against the Party drafting or causing the drafting of this Agreement.  All Parties hereto have participated in the preparation of this Agreement.  In the event of an inconsistency between or among the following documents entered into by the Parties, the following order of precedent shall govern:

 

15.22.1                               The Master Agreement to the extent specifically referenced herein;

 

15.22.2                               This Agreement; and

 

15.22.3                               A Confirmation, confirmation of purchase and sale transaction, or other document used for the purposes of a Confirmation, including but not limited to, any general terms contained therein.

 

15.23                                        Incorporation of Exhibits/Schedules.  The exhibits and schedules attached hereto form an integral part of this Agreement and are hereby incorporated herein by reference.

 

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[The Remainder of This Page Intentionally Left Blank; Signature Page Follows.]

 

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IN WITNESS WHEREOF the Parties have executed this Agreement by their respective proper signing officers as of the Commencement Date.

 

	
 
    	
GAVILON, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By: 
    	
John W. Neppl
    
	
 
    	
 
    	
 
    
	
 
    	
Its: 
    	
CFO
    
	
 
    	
 
    	
 
    
	
 
    	
Date: 
    	
8/30/11
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
HERON LAKE BIOENERGY, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
Robert J. Ferguson
    
	
 
    	
 
    	
 
    
	
 
    	
Its: 
    	
CEO
    
	
 
    	
 
    	
 
    
	
 
    	
Date: 
    	
August 30, 2011
    

 

Ethanol and Distiller’s Grains Marketing Agreement

Signature Page

 

 

EXHIBIT “A”

 

ETHANOL SPECIFICATIONS

 

	
Specification Points
    	
 
    	
Test Method
    	
 
    	
Shipments
    	
 
    	
Deliveries(1)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Apparent   Proof, 60°F 
    	
 
    	
Hydrometer   
    	
 
    	
Report   
    	
 
    	
 
    
	
Or Density, 60°F
    	
 
    	
ASTM   D-4052
    	
 
    	
Report
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Water,   Volume %, Maximum
    	
 
    	
ASTM   E-203 or E-1064
    	
 
    	
1.24
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Ethanol,   Volume %, Minimum
    	
 
    	
ASTM   D-5501
    	
 
    	
92.1
    	
 
    	
93.0
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Methanol,   Volume%, Maximum
    	
 
    	
ASTM   D-5501
    	
 
    	
0.5
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Sulphur,   ppm (wt/wt), Maximum
    	
 
    	
ASTM   D5453
    	
 
    	
10
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Solvent   Washed Gum, 
    	
 
    	
ASTM   D-381 
    	
 
    	
 
    	
 
    	
 
    
	
mg/100mL
    	
 
    	
Air Jet Method
    	
 
    	
 
    	
 
    	
 
    
	
Maximum
    	
 
    	
 
    	
 
    	
5
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Potential   Sulfate, mass ppm 
    	
 
    	
ASTM   D7319
    	
 
    	
 
    	
 
    	
 
    
	
Maximum
    	
 
    	
 
    	
 
    	
4
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Chloride,   mg/L
    	
 
    	
ASTM   D-512-81
    	
 
    	
 
    	
 
    	
 
    
	
Maximum
    	
 
    	
Procedure C,
    	
 
    	
32
    	
 
    	
 
    
	
 
    	
 
    	
Modified per D-4806
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Copper,   mg/L
    	
 
    	
ASTM   D-1688
    	
 
    	
 
    	
 
    	
 
    
	
Maximum
    	
 
    	
Method A,
    	
 
    	
0.08
    	
 
    	
 
    
	
 
    	
 
    	
Modified per D-4806
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Acidity   (as acetic acid), Mass %
    	
 
    	
ASTM   D-1613
    	
 
    	
 
    	
 
    	
 
    
	
Maximum
    	
 
    	
 
    	
 
    	
0.007
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
pHe
    	
 
    	
ASTM   D-6423
    	
 
    	
 
    	
 
    	
 
    
	
Minimum
    	
 
    	
 
    	
 
    	
6.5
    	
 
    	
 
    
	
Maximum
    	
 
    	
 
    	
 
    	
9.0
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Appearance   @ 60°F
    	
 
    	
Visual   Examination
    	
 
    	
Visibly   free of suspended or precipitated contaminants. Must be clear and bright.
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Denaturant   Content and Type(2)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Volume%
    	
 
    	
 
    	
 
    	
2
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Corrosion   Inhibitor Additive,
    	
 
    	
Minimum   treat rate
    	
 
    	
Vendor
    	
 
    	
Additive
    
	
One of the following is required:
    	
 
    	
20   lbs./1000 bbls.
    	
 
    	
Octel
    	
 
    	
DCI-11
    
	
 
    	
 
    	
20   lbs./1000 bbls.
    	
 
    	
G.   E. Betz
    	
 
    	
Endcor   GCC9711
    
	
 
    	
 
    	
20   lbs./1000 bbls.
    	
 
    	
Petrolite
    	
 
    	
Tolad   3222
    
	
 
    	
 
    	
20   lbs./1000 bbls.
    	
 
    	
Nalco
    	
 
    	
5403
    
	
 
    	
 
    	
20   lbs./1000 bbls.
    	
 
    	
Betz
    	
 
    	
ACN   13
    
	
 
    	
 
    	
20   lbs./1000 bbls.
    	
 
    	
Midcontinental
    	
 
    	
MCC5011E
    
	
 
    	
 
    	
13   lbs./1000 bbls.
    	
 
    	
Midcontinental
    	
 
    	
MCC5011PHE
    
	
 
    	
 
    	
13   lbs./1000 bbls.
    	
 
    	
Petrolite
    	
 
    	
Tolad   3224
    
	
 
    	
 
    	
13   lbs./1000 bbls.
    	
 
    	
US   Water Services
    	
 
    	
Corrpro   654
    
	
 
    	
 
    	
15   lbs./1000 bbls.
    	
 
    	
Nalco
    	
 
    	
5624A
    
	
 
    	
 
    	
13   lbs./1000 bbls.
    	
 
    	
US   Water Services
    	
 
    	
Corrpro   656
    
									

 

(1)  Delivered products meets all applicable requirements at time and place of delivery.

(2)  Only approved denaturants listed in D4806.  The denaturant range must be within the guidelines provided for in IRS Notice 2009.06, which is 1.96% to no more than 2.5%.

 

 

EXHIBIT “B”

 

CO-PRODUCT SPECIFICATIONS

 

Unless otherwise set forth in a specific feed tag or confirmation, all distiller’s grains shall comply with the following specifications, which specifications may be adjusted by Gavilon upon notice to Producer, to include specifications for other distiller’s grains not listed below or to conform to market standards and specifications included in Gavilon’s other marketing agreements for similar products.  In the event of any discrepancy between a specific feed tag or confirmation and a specification set forth in this Exhibit “B”, the specification set forth in the feed tag or confirmation shall be binding.

 

	
 
    	
 
    	
Crude
   Protein
    	
 
    	
Crude
    Fat
    	
 
    	
Crude Fiber
    	
 
    	
Maximum
   Ash
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Min
    	
 
    	
Min
    	
 
    	
Max
    	
 
    	
Max
    	
 
    	
Moisture
    	
 
    
	
Dry Distiller’s Grain 
    	
 
    	
25
    	
%
    	
7.5
    	
%
    	
15
    	
%
    	
5.5
    	
%
    	
12.5%
   Maximum
    	
 
    
	
Modified Wet Distiller’s Grain 
    	
 
    	
11
    	
%
    	
4
    	
%
    	
5.5
    	
%
    	
3
    	
%
    	
60%
   Maximum
    	
 
    

 

 

EXHIBIT “C-1”

 

CONFIRMATION

 

CONFIRMATION OF PURCHASE AND SALE TRANSACTION

 

	
[ADDRESS]
    	
 
    	
[DATE]
    

 

This letter shall confirm the agreement reached on [                        ], 20       between, Gavilon, LLC (“Gavilon”) and Heron Lake BioEnergy, LLC (“Counterparty”) regarding the sale and purchase of                                under the terms and conditions as follows:

 

	
PRODUCER:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
BUYER:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
COMMODITY:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
TYPE   / QUALITY:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
CONTRACT   QUANTITY:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
CONTRACT   PRICE:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
DELIVERY   POINT(S):
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
PERIOD   OF DELIVERY:
    	
 
    	
To
    
	
 
    	
 
    	
 
    
	
OTHER   TERMS:
    	
 
    	
 
    

 

This Confirmation is being provided pursuant to and in accordance with the Ethanol and Distiller’s Grains Marketing Agreement dated as of August         , 2011 (the “Master Agreement”) between Gavilon and Counterparty, and constitutes part of and is subject to all of the terms and provisions of such Master Agreement.  Terms used but not herein defined shall have the meanings ascribed to them in the Master Agreement.

 

Please confirm that the terms stated herein accurately reflect the agreement between you and Gavilon by returning an executed copy of this Confirmation by facsimile to Gavilon.  If you do not execute and return this Confirmation by 5:00 p.m. Central Standard (or Daylight) Time on the second (2nd) Business Day following your receipt hereof, you will be deemed to have accepted and agreed to all of the terms included herein, including the terms and provisions of the Master Agreement.

 

	
“Gavilon”
    	
“Counterparty”
    
	
GAVILON,   LLC
    	
Heron   Lake BioEnergy, LLC
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
Name:
    	
 
    	
 
    	
Name:
    	
 
    
	
Title:
    	
 
    	
 
    	
Title:
    	
 
    
	
Date:
    	
 
    	
 
    	
Date:
    	
 
    

 

 

EXHIBIT “C-2”

 

FORM OF CONFIRMED ORDER

 

	
[Letterhead]
    	
Contract of Purchase
    
	
 
    	
 
    
	
Seller:
    	
Date:
    
	
[SELLER   ADDRESS]
    	
Our   No:
    
	
 
    	
Your   No:
    
	
 
    	
Broker:   Broker No:
    
	
 
    	
Broker   Cont.
    
	
 
    	
 
    
	
Buyer:

 

GAVILON,   LLC-OMAHA

11  CONAGRA DRIVE

OMAHA   NE 68102 Ph#:

(402)889-4371
    	
 
    

 

BUYER AND SELLER HEREBY AGREE TO, AND CONFIRM, THE PURCHASE AND SALE OF THE REFERENCED COMMODITIES, SUBJECT TO THE TERMS AND CONDITIONS STATED BELOW AND ON THE REVERSE SIDE OF THIS CONFIRMATION. FAILURE TO ADVISE GAVILON VIA E-MAIL, FAX, OR OTHER WRITTEN FORM WITHIN FIVE (5) BUSINESS DAYS FOLLOWING YOUR RECEIPT OF THIS CONFIRMATION OF ANY DISCREPANCY, OBJECTION TO, OR DISAGREEMENT WITH THIS CONFIRMATION SHALL RESULT IN THIS CONFIRMATION’S AUTOMATICALLY BEING DEEMED ACCEPTED BY YOU.

 

	
Commodity:
    	
DISTILLER’S   GRAINS
    
	
Quantity:
    	
 
    
	
Shipment:
    	
 
    
	
Price:
    	
 
    
	
Shipping Basis:
    	
 
    
	
Weights To Apply:
    	
 
    
	
Terns:
    	
 
    

 

Remarks:

 

 

 

	
GAVILON,   LLC — OMAHA
    	
 
    	
[SELLER]
    
	
 
    	
 
    	
 
    
	
By
    	
 
    	
 
    	
 
    	
By:
    	
 
    
							

 

NOTE: The lack of a signature shall not prevent a valid and binding agreement from being formed between the parties.

 

The provisions of: (a) the Electronic Signatures in Global and National Commerce Act (“E-Sign”); (b) the Uniform Electronic Transactions Act (“UETA”); and (c) Amended Article 2 of the Uniform Commercial Code relating to electronic contracting (“Amended Article 2”) shall apply to this contract. In the event of a conflict between or among the provisions of any of the foregoing, such conflict shall be resolved as follows: (y) the provisions of E-Sign shall have precedence over those of UETA; and (z) the provisions of UETA shall have precedence over those of Amended Article 2. However, all such provisions shall be reasonably interpreted so as to avoid conflicts between or among them.  Nothing in this provision shall be interpreted or deemed to be a waiver of any other rule of evidence governing the admissibility of an Imaged Document.

 

 

Terms and Conditions

 

1. Whether or not Seller is an active member of any of the following associations, and to the extent not inconsistent with the terms and conditions of this Contract, the rules, regulations and standards of the following associations (the “Associations”) shall apply respectively to each of the commodities governed thereby: the National Grain and Feed Association, the American Fats and Oils Association, the National Oilseed Processors Association, the American Dehydrators Association, the Canadian Oilseed Processors Association, and the National Cottonseed Products Association. If more than one Association purports to govern a given commodity, the rules and regulations of the association appearing later in the list shall apply.

2. Buyer and Seller may be collectively referred to as “the Parties” or individually as “the Party”.

3. Whether or not an active member of any of the Associations referenced in Paragraph I hereof, Seller acknowledges that it understands the provisions of the applicable Association’s rules, regulations and standards, and Seller agrees to be bound thereby. The Parties agree to settle any controversies hereunder by arbitration, that the arbitration rules of the applicable Association shall be the basis of said arbitration or if the applicable Association does not have arbitration rules, then according to the rules of the American Arbitration Association, and that the decision and award determined by such arbitration shall be final and binding upon the Parties.

4. It is agreed that neither Party to this Contract shall delegate the performance of any obligation hereunder nor assign any rights arising hereunder, to any third person without the prior written consent of the other Party.

5. Seller warrants that commodities delivered under this Contract will be free and clear, from and after time of delivery, of any security interest, lien, claim or encumbrance and that Seller has good and merchantable title thereto. Seller agrees that should any lien, security interest or encumbrance be claimed against any commodity sold hereunder, Seller will immediately cause the same to be discharged and terminated; and, will hold Buyer harmless therefrom; and, indemnity Buyer from any costs or losses incurred as a result of such claim.

6. Seller expressly represents and warrants that the commodity or commodities hereby purchased are of the grade indicated, and if none is indicated, that the commodity or commodities are suitable for feeding to poultry and livestock. Seller indemnifies and holds Buyer harmless against any liability, loss, cost, expense or damage related to the failure of any portion of the commodities purchased hereunder to meet Food and Drug Administration or other applicable governmental agency’s rules, regulations and standards for said commodity, as well as the applicable Association’s (as referenced in paragraph I hereof) rules, regulations, and standards for such commodity. Buyer’s payment will not constitute acceptance of a commodity sold hereunder or serve to waive Buyer’s rights to reject the commodity or recover damages should the commodity fail to comply with the terms or specifications of this Contract. Buyer specifically reserves all rights and remedies available to it under the applicable Association’s (referenced in Paragraph I hereof) rules, regulations, and standards; and the Uniform Commercial Code in effect within the jurisdiction under which this Contract is governed, if any of the commodity sold hereunder fails to comply with the warranties, descriptions, and requirements set forth in this Contract, or the applicable Association’s rules, regulations, and standards. In addition to and without waiving any of Buyer’s other remedies hereunder, Buyer may, at its sole option, request that the Seller replace any or all portions of any shipment of commodities hereunder which fails to comply with the terms of this Contract; said replacement shipment to be at Sellers sole cost and expense and occur within seven (7)days of Sellers receipt of Buyer’s notice of the commodity’s non-compliance with this Contract.

7. Buyer expressly reserves the right to cancel this Contract within the meaning of UCC section 2106 based upon the occurrence of any of the following: (a) the insolvency or financial condition of Seller; (b) the appointment for taking possession of any Seller’s assets or any part thereof by any third party, including a trustee, receiver, creditor or other party; (c) the breach of any warranty; or, (d) any other defaults hereunder.

8. This Contract assumes Buyer is purchasing free-flowing commodities. In the event any commodity arrives at its destination and does not freely flow, Buyer reserves the right to reject the shipment. If Buyer rejects the shipment Seller shall be responsible for all transportation, rail, freight and delivery charges.

9. In the event Seller breaches this Contract in any manner, Seller shall be liable to Buyer for any and all damages, including consequential damages, incidental damages, and any lost profits incurred as a result thereof and shall pay Buyers reasonable attorney fees, court costs and expenses incurred in the enforcement of this Contract and any collection activities related thereto.

10. In the event that a party hereto (the “Defaulting Party”) becomes insolvent, or suffers or consents to or applies for the appointment of a receiver, trustee, custodian or liquidator of itself or any obits property, or generally fails to pay its debts as they become due, or makes a general assignment for the benefit of creditors, or files a voluntary petition in bankruptcy, or seeks reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Code, Title II of the United States Code, as amended or recodified from time to time, or under any state or federal law granting relief to debtors then the other party (the ‘‘Non-defaulting Party”) may (i) immediately cancel this Contract and all other Contracts between the parties hereto, (ii) liquidate such cancelled Contracts in a commercially reasonable manner, and (iii) aggregate such liquidated amounts into a single liquidated settlement amount (the “Settlement Amount”) due, which shall be due and payable two (2) business days after written notice by the Non-defaulting Party. In addition, the Non-defaulting Party may set-off any amounts owed by the Defaulting Party to the Non-defaulting Party under any other agreements between the parties against any Settlement Amount owed by the Non-defaulting Party to the Defaulting Party hereunder. The parties agree that each of them is a forward contract merchant as set forth in II U.S.C. Section 101(25). The parties also agree that this Contract and any other commodity contract between the parties are all forward contracts as defined in II U.S.C. Section 101(25). The payments and transfers described herein shall constitute “Settlement Payments” or “Margin Payments” as set forth in II U.S.C. Sections 101(5IA) and (38).

11. Railcars must be loaded to capacity as required by railroad companies. Seller to pay weighing, inspection, trackage, and interest charges, if any. reconsigned rail cars cannot be utilized on this Contract unless consented to by Buyer in writing prior to loading. Buyer reserves the right to change destination offal shipments prior to departure of the railcar from Sellers facility.

12. If confirmation calls for delivery beyond fourteen (14) days from the date of this Contract, Buyer may demand from Seller a margin deposit often percent (10%) of the gross value of this Contract to be considered as margin on equity, and Buyer may demand such further payments from Seller as may be necessary to maintain a deposit on this Contract often percent (10%) of the gross value of this Contract, plus an amount equal to the difference between the contract-price-value and the prevailing market price-value, if the market is above the Contract price. Seller agrees to pay such margin on demand and if not paid, Buyer may exercise the same rights as if Seller had defaulted on this Contract.

13. Each Party consents to the recording of all telephone conversations between its representatives and the representatives of the other Party.

14. Any provision of this Contract which is prohibited or unenforceable in any jurisdiction shall, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.

15. Seller warrants it has read this Contract in its entirety and understands its terms and legal effect. This Contract constitutes the entire understanding between the Parties hereto and no modification or amendment of this Contract shall be valid or binding unless agreed to by both Parties and confirmed by a writing signed by the party to be charged. Seller agrees that the terms hereof are acceptable and that Seller intends to be bound by the terms of this Contract even if said terms differ from or conflict with the terms or conditions contained in Sellers offer, acceptance on form of contract for such purchase.

16. Unless otherwise exempt, this Contract incorporates by reference the EEO Clause contained in 41 C.F.R. Sections 60-1.4, 60-741.5, and 60-250.5.

17. Any original contract and/or transaction confirmation relating to a transaction between the parties may be converted to and saved in electronic format (the “Imaged Document”). Each party waives any objection it may have to the admissibility of such Imaged Document in any judicial, arbitration, mediation, administrative, or other proceeding involving the parties to the extent such objection is based on any rule of evidence that: (a) requires authentication or identification of the Imaged Document; (b) requires an original document; or (c) governs the admissibility of duplicates. In addition, each party acknowledges that Imaged Documents are business records within the meaning of the business records exception to the hearsay rule.

 

 

EXHIBIT “D”

 

INSURANCE COVERAGES

 

Commercial General Liability Insurance - $1,000,000 per occurrence/$2,000,000 aggregate

 

Policy shall include coverage for liability resulting from Premises/Operations, Products and Completed Operations, Blanket and Contractual Liability.  Policy shall also include coverage for Broad Form Property Damage, including explosion, collapse and underground hazards.  Such insurance shall be on an occurrence basis.

 

Environmental Pollution Liability Insurance  - $1,000,000 per occurrence/$2,000,000 aggregate

 

Policy shall include coverage for bodily injury or property damage arising from the handling, storage, processing, discharge or dispersion of pollutants on or about the Producer’s premises.  Such insurance may be on an occurrence basis or claims-made basis.

 

Prior to the initial sale of Product and at all times during the Term of the Agreement, Producer and Gavilon shall carry insurance in accordance with the requirements described above.  These requirements may be satisfied by issuance of separate policies or a combination of policies with umbrella/excess liability policies.

 

Producer and Gavilon shall also carry excess or umbrella liability insurance with limits of at least $4,000,000 per occurrence for bodily injury or property damage in excess of the limits afforded for general liability provided above.

 

Producer shall also carry the following insurance coverages:

 

Workers’ Compensation with statutory limits as required by the State of Minnesota.  Employers liability with limits of $1 million per accident, $1 million disease - each employee and $1 million policy limits

 

All Risk Property insurance coverage for the Product and any Grain (as defined in the Storage Agreement) which is located at the Plant and not part of the Product.  All Grain shall be insured for the full market value and property insurance coverage will include, but not be limited to, perils of wind, fire, lightning, flood, theft and infestation.

 

Producer and Gavilon shall provide notification to the respective party at least thirty (30) days prior to the effective date of any cancellation or change that would affect the insurance requirements described above or put them out of compliance of such policies.  In the event that a Party receives notice that the other Party’s insurance shall be canceled, and in the event that the Party receiving notice does not receive a subsequent Certificate of Insurance showing that the other Party is in compliance with the insurance requirements set forth above, the Party receiving notice shall have the right to either (i) purchase insurance for the defaulting Party and set off all costs for such insurance in accordance with the terms of the Master Agreement, or (ii) terminate this Agreement.

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