Document:

exv10w17

 

Exhibit 10.17

U.S. Water Services (LOGO)

February 16, 2007

Mr. Ron Scherbring

MinnErgy, LLC

Eyota, MN

Dear Ron:

This document serves as the service agreement between US Water Services and MinnErgy, LLC for the
50 MMgy ethanol plant to be located in Eyota, MN. Signing the service agreement shows the
MinnErgy, LLC’s intent to utilize US Water Services as the water treatment supplier. Signing the
LOI will allow US Water Service to commit to the necessary resources and equipment.

If US Water Services satisfactorily performs the engineering services and analytical support work
required during the design build process as detailed in Appendix A with a value of over $78,000 if
purchased through an outside consulting engineering company, US Water Services will expect to
partner with MinnErgy, LLC for a long term water treatment chemicals and services. Appendix B
shows the standard water treatment services agreement we will present when all the water and
equipment information is known. If US Water Services does not satisfactorily perform the services
detailed in Appendix A, MinnErgy, LLC has no obligation to continue to utilize our services.

We would like a level of commitment from MinnErgy, LLC to show that the intention to utilize US
Water Services as the water treatment company is a valid assumption. US Water Services is
commitment to be competitive with other suppliers of similar services and equipment.

	 	 	 	 	 
	Printed Name

 	 	 
	/s/ Daniel H. Arnold, Chariman 	 	4/11/07 
	Printed Name, Title, Date 	 	 
	 	 	 
	 
	 	 	 
	/s/ Kent K. Herbst 	 	2/16/07 
	Kent K. Herbst 	 	 
	Ethanol Team Leader - USWS 	 	 
	 

 

 

U.S. Water Services (LOGO)

Appendix A

The below services are essential to the design, construction and operation of a new ethanol
plant. These services can take up to 500 engineering hours to complete depending on the complexity
of the water and environmental discharge and capital equipment. The services shall be provided
throughout the scope of the project including but not limited to the detailed listing below. The
value of the services and products supplied as part of this agreement have a market value of
$78,000 if purchased separately from other engineering and environmental services companies. The
valuation of our services are based upon a labor rate of $150.00/engineering hour, plus materials,
equipment and other expenses. As part of this agreement US Water Services agrees to perform the
below services at no charge, of an overall agreement to provide the chemicals and water
treatment equipment for construction and operation.

			
	 	 	 
	Project Feasibility and Conceptual Design Stage
	 	Value $6,500

	•	 	Work with site representatives to identify water source
	 
	•	 	Aid in sampling by sending water sampling kit and/or technical representative
	 
	•	 	Provide laboratory services and test water for contaminants
	 
	•	 	Provide detailed cost analysis of the water source impact on water treatment capital equipment
	 
	•	 	Provide cost analysis of capital water treatment cost versus operational costs to provide best options
	 
	•	 	Evaluate “Return on Investment” options by computer modeling
	 
	•	 	Provide budget guidelines for chemicals, capital water treatment equipment and chemical control and
feed equipment
	 
	•	 	Work with permitting agencies to determine water source impact on discharge
	 
	•	 	Provide water discharge profile to waste permitting agencies
	 
	•	 	Meet with and work with waste permitting agencies to help guide permit through the process

			
	 	 	 
	Detail Engineering Stage
	 	Value $10,500

	•	 	Design/revise chemical feed systems to insure chemical compatibility, safety and control of system
	 
	•	 	Provide drawings of chemical feed system
	 
	•	 	Provide P&ID’s of capital water treatment equipment layout
	 
	•	 	Design operator testing program and make recommendations of test equipment needed
	 
	•	 	Meet with engineering design, installation and site personnel to coordinate all aspects of water
treatment
	 
	•	 	Review water balances for water reuse opportunities.
	 
	•	 	Provide optimum chemistries to reduce operating costs prolong equipment life and meet discharge
limitations.
	 
	•	 	Integrate the water treatment equipment with system operating system to provide monitoring and
control from central point

			
	 	 	 
	Construction Stage
	 	Value $36,000

	•	 	Develop and provide Operation Manuals for equipment, chemicals and control equipment
	 
	•	 	Develop cleaning procedures to boiler and cooling system start up
	 
	•	 	Develop operator training program
	 
	•	 	Develop Legionella Risk Assessment to minimize liability of Legionnaire’s disease
	 
	•	 	Work with installers to optimize the equipment installation
	 
	•	 	Provide all necessary stainless steel chemical totes, level gauges and chemical manifolds
	 
	•	 	Provide on site guidance to contractor to ensure proper installation of water treatment equipment and
systems.

 

 

			
	 	 	 
	Commissioning and Startup Stage
	 	Value $25,000

	•	 	Start up capital water treatment equipment and document conformance to operating specifications
Systems covered: RO, RO CIP, Tower controller, Boiler controller, water works PC
	 
	•	 	Provide products and instructions to assure successful cleaning and pretreatment of equipment
	 
	•	 	Conduct Supervisor and Operator Training
	 
	•	 	Provide 14 days of on-site service by trained service engineer throughout start up period. Time will
start either the weekend before grind and continue for 14 days or it will begin the day of grind and
continue for 14 days.
	 
	•	 	Start up chemical feed systems
	 
	•	 	Test chemistries and control equipment to assure that specifications are meet
	 
	•	 	Confirm and document discharge chemistries meet discharge permits

			
	 	 	 
	Operating Stage (Included in service agreement)
	 	Value $6,500

	•	 	Provide service technician a minimum of monthly or as agree upon with plant
	 
	•	 	Test water systems and equipment performance during service visits
	 
	•	 	Provide written evaluation of equipment operating conditions
	 
	•	 	Plant shut down support (boroscope)
	 
	•	 	Boiler inspections and visual documentation of equipment condition
	 
	•	 	If required, help with environmental permit paperwork.
	 
	•	 	Measure benchmarks for operating equipment such as boilers, RO’s, softeners and cooling systems
	 
	•	 	Provide corrosion prevention data
	 
	•	 	Provide bacteria and Legionella prevention assessment
	 
	•	 	Inspect equipment and document physical condition
	 
	•	 	Provide “Return on Investment” recommendations
	 
	•	 	Provide emergency response to problems
	 
	•	 	Update Operations Manual
	 
	•	 	Provide continuous training program for operators I
	 
	•	 	Make recommendations on capital water treatment equipment
	 
	•	 	Provide laboratory analysis of water systems as needed.to assure program success
	 
	•	 	Provide all “Yeast Friendly”, non sodium based chemicals for boiler systems
	 
	•	 	Provide environmentally acceptable non oxidizing biocide chemicals for cooling system
	 
	•	 	Provide environmentally acceptable scale and corrosion inhibitor
	 
	•	 	Provide site specific scale and fouling operational chemical for reverse osmosis
	 
	•	 	Provide specialty cleaning chemicals for the boiler, tower and reverse osmosis system.
(not included on service agreement)
	 
	•	 	Provide all testing reagents and reagent dispensing equipment
	 
	•	 	Provide quarterly corrosion coupon studies.

 

 

Appendix B

U.S. Water Services Chemical & Services Agreement

XYZ Company

TERM

U.S. Water Services agrees to provide the necessary water treatment chemicals
(reverse osmosis, cooling tower, and boilers) and service program for a period of three years from
the start-up-of the XYZ Company plant, which is expected to be operational
January 1, 2010.

INVESTMENT

Beginning December 1, 2006, XYZ Company agrees to pay U.S. Water Service $XX,XXX per month
for specialty water treatment chemicals, testing reagents, engineering services, environmental
support services, and plant start up assistance. The payments will be made in monthly installments
according to invoices generated by U.S. Water Services, and this amount is based on the nameplate
production of 50 million gallons per year. State and local taxes will be added to each invoice
unless a tax exemption is on file with U.S, Water Services. This agreement will automatically renew
each year. Price increases may be taken on the anniversary date of the contract provided that a
30-day notice of the increase is provided to the MinnErgy, LLC. All testing reagents are listed in
Schedule A-1 and the specialty water treatment chemicals covered under this agreement are listed in
Schedule B-1.

INITIAL ORDER

Not included under the Chemical and Services Agreement are one-time use chemicals and lab
equipment. These items are outlined in Schedule D-1. The amount of these items is estimated to be
$XX,XXX.

NOT TO EXCEED COSTS FOR CHEMICALS

U.S. Water Services agrees to limit the annual chemical cost for the products in Schedule A-1 and
B-1 to a maximum of $XX,XXX, provided the chemicals are applied within the recommended limits
specified by U.S. Water Services. If annual production and water usage are above nameplate design
the MinnErgy, LLC may be billed at a rate of $XX,XXX/1,000,000 gallons additional ethanol
production. Nameplate design and water efficiencies are outlined in Schedule C-1. Operational
variances from the design basis outlined in Schedule C-1 may result in additional charges. Charges
will be reconciled at the end of every quarter. All efficiencies are based on a quarterly average.

TERMINATION

The MinnErgy, LLC or U.S. Water Services may terminate the chemical and service agreement with 30
days written notice. If the MinnErgy, LLC terminates the chemical and service agreement,
outstanding equipment balances owed, if any, and bundled discounts taken must be paid in full prior
to termination. In addition, all remaining opened chemical inventory that is part, of this
agreement, (Schedule B-1) must be purchased prior to termination. U.S. Water owned equipment shall
be returned within 30 days of termination date, If U.S. Water Services terminates the chemical and
service agreement, the MinnErgy, LLC has the choice of continuing to pay equipment installments per
the installment schedule or may pay the outstanding amount in full.

The MinnErgy, LLC and U.S. Water Services agree that the results of any water treatment program
depend on the diligent application of the water treatment program and the proper operation of the
operating equipment. U.S. Water Services will not be responsible for any failure, caused in whole
or part, by the MinnErgy, LLC not implementing or following recommendations made by U.S. Water
Services personnel.

 

 

Under no circumstances shall U.S, Water Services or the MinnErgy, LLC be liable to the other for
incidental or consequential damages.

MinnErgy, LLC:                                                             

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Tax Exempt: Yes       No      	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:	 	 	 	 	 	 	 	Supplier:	 	U.S. Water Services	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	(Signature)	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	By:	 	/s/ Kent K. Herbst	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 	(Printed Name)	 	 	 	 	 	(Signature)	 	 
	 
	 	 	Title: 	 	 	 	 	 	 	 	Kent K. Herbst	 	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	(Printed Name)	 	 
	 
	 

	 	Date:
	 	 	 	 	 	 	 	Title:
	 	Ethanol Team Leader	 	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 

	 	 	 	 	 	 	 	 	 	Date:	 	 	 	 

 

 

Schedule A-1

	 	 	 	 	 
	Test Kits Description	 	# of Units	 	Part No.
	SaniCheck AB
	 	3
	 	854 AN
	Total Alkalinity
	 	1
	 	226 A
	Total Alkalinity
	 	1
	 	226 C
	N/50
	 	4
	 	203 G
	Free Cl2 packets
	 	6
	 	H21055-69
	TDS Soln 3000 umhos
	 	1
	 	117/300F
	High Range Harness Titrating Soln
	 	4
	 	145 G
	Low Range Harness Titrating Soln
	 	2
	 	144 G
	Ca Hard, Buffer soln
	 	1
	 	107 A
	Ca Hard, Buffer soln
	 	1
	 	107 E
	Ca Indicator powder
	 	1
	 	109 B
	Ca Indicator powder
	 	1
	 	109 C
	BaCl solution 30%
	 	1
	 	101 A
	BaCl solution 30%
	 	1
	 	101 C
	Hard, Buffer Soln
	 	1
	 	138 A
	Hard, Buffer Soln
	 	1
	 	138 E
	Hard, Indicator Powder
	 	1
	 	139 B
	Hard, Indicator Powder
	 	1
	 	139 C
	4 Automatic 10 ml Burettos
	 	4
	 	702
	P Indicator
	 	1
	 	168 A
	P Indicator
	 	1
	 	168 C
	Startch Acid/Sulfite Indicator Powder
	 	3
	 	199 B
	Potassium Todido Titrating Soln. N/80
	 	1
	 	175 G
	Polymer Buffer
	 	1
	 	511 C
	Polymer Buffer
	 	2
	 	511 E
	Polymer Titrant
	 	1
	 	512 C
	Polymer Titrant
	 	1
	 	512 E
	Iron Powder Packets 10 ml
	 	3
	 	H21057-69
	25 ml Sample Cells (round)
	 	6
	 	H1730-06
	Powder Pour Spout
	 	3
	 	799
	140 ml casserole
	 	1
	 	738
	Eye Dropper 0.5 and 1.0 ml
	 	4
	 	759
	Graduated Cylinder, Plastic 100 m
	 	1
	 	778

Additional Services

	 	 	 	 	 	 	 	 	 
	Services Description	 	# of Units	Supplier	Start Up
	Corrosion coupon

	 	 	16	 	 	USWS
	 	4*

 

			
	*	 	Corrosion coupons for start up include Copper, Carbon Steel, Stainless Steel and Sealing coupon

 

 

Schedule B-1

	 	 	 	 	 
	System	 	Chemical	 	Use
	Boiler
	 	BWT-103-L Plus
	 	Oxygen Scavenger
	Boiler
	 	Boiler MP
	 	Scale/Corrosion Inhibitor
	Boiler
	 	RLT-35
	 	Condensate Treatment
	Boiler
	 	BWT-200B
	 	Alkalinity Adjustment
	Cooling Tower
	 	CWT-530
	 	Scale/Corrosion Inhibitor
	Cooling Tower
	 	Biotrol 509
	 	Non-Oxidizing Biocide
	Reverse Osmosis
	 	RO-503
	 	RO Antiscalant
	Reverse Osmosis
	 	BWT-104
	 	Chlorine Scavenger
	Reverse Osmosis
	 	ROC-20
	 	RO CIP Chemical
	Reverse Osmosis
	 	ROC-50 Plus
	 	CO CIP Chemical

Chemicals and equipment not specifically listed in Schedule B-1 above are excluded from this
agreement. These include:

	 	•	 	Sulfuric acid
	 
	 	•	 	Chlorine
	 
	 	•	 	Process chemicals

It is the responsibility of the plan to order totes of 12% Sodium Hypochlorite, 66o Baume Sulfuric
Acid, and a pallet of salt prior to start up.

 

 

Schedule C-1

 

 

330 S. Cleveland St.

Cambridge, MN 55008

P: 763 689-3636

F: 763 689-3660

Schedule D-1

	 	 	 	 	 
	Part Number	 	Description	 	Use
	BoilOut
	 	BoilOut
	 	Chemical for Cleaning Boiler
	TowerClean 819
	 	TowerClean 819
	 	Chemical for Cleaning Condenser System
	DR-890
	 	Spectrometer
	 	Digital Testing of System Chemistries
	TDS EP-10
	 	Conductivity Meter
	 	Used to Determine Operating Levels
	717
	 	Auto 10 mL Burettes
	 	Testing Titration Methods
	60060
	 	Casserole
	 	Testing Titration Methods
	770
	 	Graduated Cylinders
	 	Testing Titration Methods
	759
	 	Eye Droppers
	 	Reagent Dosing
	Auto SDI
	 	Auto SDI
	 	Determine RO Feed SDI Level

www.uswaterservices.com

Registered to ISO 9001exv10w18

 

Exhibit 10.18

March 23, 2007

MinnErgy, LLC

Attention: Dan Arnold

PO Box 186

Winona, MN 55987

     Re:   MinnErgy, LLC Ethanol Project

Dear Dan:

     This letter of intent will confirm our discussions regarding the proposed terms and conditions
under which Fagen, Inc. (“Fagen”) will enter into exclusive negotiations with MinnErgy, LLC
(“Owner”) to implement the transaction described in Paragraph 1 below (the
“Transaction”). (Fagen and Owner are referred to herein individually as a “Party”
and collectively as the “Parties”). This letter will constitute a letter of intent between
us (the “Letter of Intent”) if (a) this letter is executed and returned by you within
thirty (30) days of the date hereof, and (b) the Commitment Fee described in Paragraph 5 below is
paid contemporaneously with the delivery of this executed letter.

     The Parties agree to effect the Transaction subject only to the execution and delivery (in
each case in a form satisfactory to Fagen) of a definitive Design-Build Agreement and other
ancillary instruments and agreements (the “Transaction Documents”). The Parties agree that
the Transaction Documents must be executed and delivered by the parties thereto no later than
January 31, 2008 (the “Closing Date”); or this Letter of Intent will terminate in
accordance with Paragraph 11(a) hereof.

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

	 	(a)	 	Fagen agrees to provide Owner with those services as described in this Letter
of Intent which are necessary for Owner to develop a detailed description of a fifty
(50) million gallons per year (“MGY”) dry grind ethanol production facility
located at Eyota, Minnesota (the “Plant”) and to establish a price for which
Fagen would provide design, engineering, procurement of equipment and construction
services for the Plant. The description of the Plant will be sufficiently detailed to
permit an analysis of the Owner’s lump-sum cost to develop the Plant and to develop an
economic pro forma sufficient to determine if the Plant can be financed.
	 
	 	(b)	 	Fagen will also provide Owner with assistance in evaluating, from both a

 

 

MinnErgy, LLC

Letter of Intent

March 2, 2007

Page 2 of 20

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

	 	(c)	 	Fagen will also provide Owner with conceptual design and technical information
required to support Owner’s application for a construction air permit prior to the
commencement of Plant Construction.
	 
	 	(d)	 	If Owner determines that the Plant is economically feasible and desires to
proceed with the development of the Plant, then Owner agrees to enter into a Lump Sum
Design-Build contract with Fagen for the design, procurement of equipment and
construction of the Plant (the “Design-Build Agreement”).
	 
	 	(e)	 	Owner shall offer Fagen the right to invest in the project. Unless otherwise
specifically agreed between Fagen and Owner, such investment shall be offered on the
same terms and conditions as all other investors.
	 
	 	(f)	 	Owner agrees that the Design-Build Agreement will be Fagen’s chosen form of
Design-Build Agreement with terms acceptable to both parties and will contain among
other things, those terms and conditions set forth in the General Terms and Conditions
section of this Letter of Intent.

	2.	 	Contract Price. Owner shall pay Fagen Eighty-three Million Four Hundred Thousand Dollars
($83,400,000.00) (the “Contract Price”) as full consideration to Fagen for complete
performance of the services described in the Design-Build Agreement and all costs incurred in
connection therewith. The Contract Price is based upon Fagen’s standard plant design,
attached hereto as Exhibit A, and shall be subject to adjustments to reflect any deviations
from standard design requested by Owner; provided, however, that all requested deviations from
Fagen’s standard design must be submitted to Fagen by Owner no later than the earlier of: (a)
the date upon which the Phase I engineering is scheduled to be delivered to Owner pursuant to
the Phase I and Phase II Engineering Services Agreement (as such term is defined herein); or
(b) the date upon which the Design-Build Agreement is executed. The Contract Price shall be
subject to the following:

 

 

MinnErgy, LLC

Letter of Intent

March 2, 2007

Page 3 of 20

	 	(a)	 	The Contract Price shall not include any costs related to union labor or
prevailing wage requirements. If any action by Owner, a change in applicable law, or a
governmental authority (as those terms are defined in the Design-Build Agreement)
acting pursuant to a change in applicable law, shall require Fagen to employ union
labor or compensate labor at prevailing wages, the Contract Price shall be adjusted
upwards to include any increased costs, of any kind or nature, associated with such
labor or wages including but not limited to site security and personnel costs. Such
adjustment shall include, but not be limited to, increased labor, subcontractor, and
material and equipment costs resulting from any union or prevailing wage requirement;
provided, however, that if an option is made available to either employ union labor, or
to compensate labor at prevailing wages, such option shall be at Fagen’s sole
discretion and that if such option is executed by Owner without Fagen’s agreement,
Fagen shall have the right to terminate this Letter of Intent or the Design-Build
Agreement, as applicable, and receive compensation pursuant to Paragraph 4(c) hereof or
the terms of the Design-Build Agreement, whichever is applicable.
	 
	 	(b)	 	If the Construction Cost Index published by Engineering News-Record Magazine
(“CCI”) for the month in which a Notice to Proceed is given to Fagen is greater
than 7879.54 (February 2007), the Contract Price shall be increased by a percentage
amount equal to the percentage increase in CCI.
	 
	 	(c)	 	Due to rapidly accelerating costs of certain specialty materials required for
Plant Construction, in addition to any adjustment provided for in Paragraph 2(b)
hereof, Fagen shall also add a surcharge to the Contract Price of one half of one
percent (0.50%) for each calendar month that has passed between February 2007 and the
month in which a valid Notice to Proceed is given to Fagen. Notwithstanding the
foregoing, the aggregate adjustment based on the monthly surcharge in this Paragraph
2(c) shall not exceed a total of five percent (5%). By way of example, if a valid
Notice to Proceed is given six months after February 2007 and the CCI has increased two
percent (2%) over such period of time, the total adjustment to the Contract Price shall
be two percent (2%) in accordance with Paragraph 2(b) plus one half of one percent
(0.50%) for each of the six months from February 2007 to the delivery of a valid Notice
to Proceed in accordance with this paragraph, for a total adjustment of eight percent
(5%). In addition to the preceding example, if a valid Notice to Proceed is given one
year after February 2007 and the CCI has increased two percent (2%) over such period of
time, the total adjustment to the Contract Price shall be two percent (2%) in
accordance with Paragraph 2(b) plus one half of one percent (0.50%) for each month from
February 2007 to the delivery of a valid Notice of Proceed in accordance with this
paragraph capped at a maximum increase of 5%, for a total adjustment of seven percent
(7%).

 

 

MinnErgy, LLC

Letter of Intent

March 2, 2007

Page 4 of 20

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

	 	(a)	 	Fagen will have no responsibility for and will not perform any site preparation
work. Owner’s site responsibilities, in each instance in accordance with applicable
specifications provided by Fagen, will include, but will not be limited to:

	 	i.	 	Obtaining land and legal authority to use the site
for its intended purpose;
	 
	 	ii.	 	site grading including soil stabilization and the
costs connected therewith;
	 
	 	iii.	 	final grading, seeding, and mulching;
	 
	 	iv.	 	site security, including any site fencing;
	 
	 	v.	 	procuring boundary and topographic surveys;
	 
	 	vi.	 	procuring soil borings and geotechnical reports;
	 
	 	vii.	 	obtaining all operating permits, including any
fees, bonding, and required testing;
	 
	 	viii.	 	obtaining storm water runoff permit and erosion
control/land disturbance permit;
	 
	 	ix.	 	obtaining any necessary pollutant elimination
discharge permit;
	 
	 	x.	 	obtaining a natural gas supply and service
agreement and providing all gas piping to the use points, providing
burner tip pressures as specified by Fagen, and supplying a digital
flowmeter;
	 
	 	xi.	 	securing temporary and permanent electrical
service, including all infrastructure design and installation for any
line/service extensions, substation, primary feed and metering system,
and on-site electrical distribution system up to and including the
service transformers;
	 
	 	xii.	 	supplying a water source, storage, and water supply
lines of appropriate quality and quantity;
	 
	 	xiii.	 	paying for a water pre-treatment system, including
any building or structure required to house such system, the cost of
which is not included in the Contract Price, which shall be provided by a
vendor selected by Fagen and designed and constructed by Fagen pursuant
to a separate side-letter agreement executed by Owner and Fagen at
Fagen’s standard time plus material rates during the relevant time period
and at the relevant locale (the “Water Pre-Treatment System Agreement”),
and maintaining and using such system, including the use of all chemicals
specified for the operation of such water pre-treatment system, for the
entirety of the warranty period, it being agreed that failure by Owner to
maintain and properly use the water pre-treatment system for the duration
of the warranty period shall void any and all warranties affected by such
failure.
	 
	 	xiv.	 	providing wastewater discharge piping, septic tank
and drainfield or connect to a municipal system as required for the
sanitary sewer

 

 

MinnErgy, LLC

Letter of Intent

March 2, 2007

Page 5 of 20

	 	 	 	requirements of the Plant;
	 
	 	xv.	 	providing and maintain required ditches and permanent roads;
	 
	 	xvi.	 	constructing, furnishing, and equipping the
administration building;
	 
	 	xvii.	 	providing maintenance and power equipment and
spare parts;
	 
	 	xviii.	 	providing all rail design, engineering, and construction, including any
railroad permits or approvals;
	 
	 	xix.	 	supplying drawings of rail system and
administration building to Fagen; and
	 
	 	xx.	 	paying for the required fire protection system for
the Plant, including any building or structure required to house such
system, the cost of which is not included in the Contract Price, and
which shall be provided by Fagen pursuant to a separate side-letter
agreement executed by Owner and Fagen at Fagen’s standard time plus
material rates during the relevant time period and at the relevant locale
(the “Fire Protection System Agreement”).

	 	(b)	 	Owner will enter into a Phase I and Phase II Engineering Services Agreement
with Fagen Engineering, LLC on Fagen’s standard form, but with terms acceptable to both
parties. (“Phase I and Phase II Engineering Services Agreement”). The Phase I and
Phase II Engineering Services Agreement will provide for commencement of work on the
Phase I and Phase II engineering for the project as set forth therein. The Phase I
engineering shall consist of engineering and design of the Plant site and shall
include: property layout; grading, drainage and erosion control plan drawings; roadway
alignment drawings; culvert cross sections and details; and seeding and landscaping, if
required. The Phase II engineering shall consist of engineering and design of site
work and utilities for the Plant, all within the property line of the Plant, including:
property layout; site grading and drainage drawings; roadway alignment; all utility
layout including fire loop, potable water, well water if applicable, sanitary sewer,
utility water blowdown, and natural gas; geometric layout; site utility piping tables;
tank farm layout; tank farm details; sections and details drawing, if required, and
miscellaneous details drawing, if required. Owner will pay Fagen Engineering, LLC One
Hundred Ten Thousand Dollars ($110,000.00) for such engineering services pursuant to
the terms of that agreement, the full amount of which, upon payment in full, shall be
included in and credited to the Contract Price. Notwithstanding the foregoing
sentence, if a Notice to Proceed is not issued pursuant to the terms of the
Design-Build Agreement, or Financial Closing is not obtained, then Fagen Engineering,
LLC shall keep the full amount paid under the Phase I and Phase II Engineering
Services Agreement as compensation for the services provided thereunder.
	 
	 	(c)	 	Fagen will provide reasonable assistance to Owner in obtaining Owner’s permits,
approvals and licenses. Notwithstanding the foregoing, Owner shall hold

 

 

MinnErgy, LLC

Letter of Intent

March 2, 2007

Page 6 of 20

	 	 	 	harmless Fagen, its officers, directors, employees, and agents, for Owner’s failure
to comply with applicable laws in obtaining or maintaining the required permits.
The denial or revocation of any Owner-obtained permit as a result of Owner’s failure
to comply with applicable laws shall entitle Fagen to an extension of contract times
and an adjustment of Contract Price to the extent affected by such denial or
revocation and to any and all other remedies available pursuant to the Design-Build
Agreement and applicable law.

	 	(d)	 	Owner will provide: surveys describing the property’s boundaries; geotechnical
studies describing subsurface conditions; temporary and permanent easements, zoning and
other requirements and encumbrances to enable Fagen to perform the work; a legal
description of the site; as-built and record drawings of any existing structures;
environmental studies, reports, and statements describing the environmental conditions,
including hazardous conditions at the site.
	 
	 	(e)	 	Owner will be responsible for securing and executing all necessary real estate
agreements to secure the site and is responsible for all costs incurred in obtaining
those agreements.
	 
	 	(f)	 	Fagen may subcontract portions of the work.
	 
	 	(g)	 	Fagen will provide up to two (2) weeks of training for Owner’s employees and,
if applicable, Owner’s Operator’s employees required for the operation and maintenance
of the Plant.
	 
	 	(h)	 	Owner must obtain Financial Closing prior to the issuance of a Notice to
Proceed. Financial Closing shall be deemed occurred when the Loan Documents for the
financing have been executed.
	 
	 	(i)	 	Owner will pay, at Fagen’s standard time plus material rates during the
relevant time period and at the relevant locale, all reasonable costs incurred by
Fagen for frost removal so that winter construction can proceed. Such costs will be in
addition to, and not included in, the Contract Price.
	 
	 	(j)	 	Fagen will utilize certain proprietary property and information of ICM, Inc., a
Kansas corporation (“ICM”), in the design and construction of the project, and
may incorporate proprietary property and information of ICM into the project. Owner’s
use of the proprietary property and information of ICM shall be governed by the terms
and provisions of a license agreement between Owner and ICM which shall be attached as
an exhibit to the Design-Build Agreement. Owner will be responsible for negotiating
any requested changes to the ICM license directly with ICM, not Fagen.

 

 

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	 	(k)	 	All drawings, specifications, calculations, data, notes and other materials and
documents, including electronic data furnished by Fagen to Owner under the Design-Build
Agreement (“Work Product”) will be instruments of service and Fagen will retain
the ownership and property interests therein, including copyrights thereto.
	 
	 	(l)	 	Upon payment in full under the Design-Build Agreement, Fagen will grant Owner a
limited license to the Work Product for use solely in connection with the operation,
maintenance, and repair of the Plant. The limited license will not permit Owner to use
the Work Product in connection with any expansion or enlargement of the Plant, however,
nothing in the limited license granted to Owner is intended to limit Owner’s use of the
Plant’s actual production capability as built.
	 
	 	(m)	 	Work will commence following receipt of Owner’s written valid notice to proceed
(“Notice to Proceed”). The Notice to Proceed cannot be given until (1) Owner
has title to the real estate on which the project will be constructed; (2) the site
work required of Owner is completed; (3) Owner has executed the Water Pre-Treatment
System Agreement and the Fire Protection System Agreement; (4) the air permit(s) and/or
other applicable local, state or federal permits necessary so that construction can
begin have been obtained; (5) Owner has obtained Financial Closing; (6) if applicable,
Owner has executed a sales tax exemption certificate and provided the same to Fagen;
(7) Owner has provided the name of its property/all-risk insurance carrier and the
specific requirements for fire protection; (8) Owner has provided an insurance
certificate or copy of insurance policy demonstrating that Owner has obtained builder’s
risk insurance, and (9) Fagen has provided Owner written notification of its acceptance
of the Notice to Proceed, provided that Fagen shall not be required to accept the
Notice to Proceed prior to April 21, 2008. If Owner has not fulfilled its requirements
for the issuance of a Notice to Proceed as set forth in this Paragraph 3(m) by the date
referenced in item number 9 of this Paragraph, Fagen may, at its sole option, terminate
the Design-Build Agreement, thus releasing Fagen of all obligations.
	 
	 	(n)	 	“Substantial Completion” will be the date on which the Plant
construction has been completed to a point that the Plant is ready to grind the first
batch of corn for producing ethanol and begin operation for its intended use as a fifty
(50) MGY dry grind ethanol production facility. No production capacity is guaranteed
on the Substantial Completion date, but the Plant is largely completed as of that date.
	 
	 	(o)	 	Substantial Completion will occur within Six Hundred and Thirty-Five (635) days
after the date of the Notice to Proceed.

 

 

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	 	(p)	 	Fagen will be entitled to an early completion bonus for each day that
Substantial Completion occurs in advance of Six Hundred and Thirty-Five (635) days
(“Early Completion Bonus”). The Early Completion Bonus shall be capped and
shall not exceed One Million Dollars ($1,000,000). The Early Completion Bonus is
earned for achieving Substantial Completion early, but is not due until the final
payment.
	 
	 	(q)	 	“Final Completion” will be achieved once Owner reasonably determines
that: Substantial Completion has been achieved; any outstanding amounts owed by Fagen
to Owner have been paid; remaining items of work have been completed; clean-up of the
site has been completed; all permits required to have been obtained by Fagen have been
obtained; certain information including an affidavit stating that there are no
outstanding liens, a release from further compensation, consent to final payment, and a
hard copy of the as-built plans (which will remain Work Product) has been provided to
Owner; releases and waivers of all claims and liens from Fagen and subcontractors have
been provided; and the Performance Tests have been successfully completed. Final
Completion will occur no more than ninety (90) days after the actual Substantial
Completion date. The 90-day period between Substantial Completion and Final Completion
will be tied directly to actual Substantial Completion. By way of example, if
Substantial Completion is achieved 10 days early, then the 90-day period to Final
Completion would begin on that earlier date.
	 
	 	(r)	 	Fagen will demonstrate certain performance guarantee criteria through
performance testing performed following Substantial Completion but prior to Final
Completion (“Performance Tests”). Air permit testing shall be done by a third
party contractor retained by Owner.
	 
	 	(s)	 	Owner will take control of the Plant after completion and acceptance of the
Performance Tests. The Performance Tests will be completed by Owner’s personnel under
Fagen’s direction.
	 
	 	(t)	 	Fagen will pay liquidated damages at a daily amount equal to the daily Early
Completion Bonus amount for each day past 90 days after Substantial Completion that
Final Completion is not attained. Fagen’s liability for liquidated damages shall be
capped at and shall not exceed One Million Dollars ($1,000,000).
	 
	 	(u)	 	The aggregate liability of Fagen, its Subcontractors, vendors, suppliers,
agents and employees, to Owner (or any successor thereto or assignee thereof) for any
and all claims and/or liabilities arising out of or relating in any manner to the work
or to Fagen’s performance or non-performance of its obligations under the Design-Build
Agreement, whether based on contract, tort (including negligence), strict liability, or
otherwise, shall not exceed in the aggregate, the Contract Price and shall be reduced,
upon the issuance of each Application for Payment, by

 

 

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	 	 	 	seventy-five percent (75%) of the total value of such Application for Payment;
provided, however, that upon the earlier of Substantial Completion or such point in
time that requests for payment pursuant to the Design-Build Agreement have been made
for ninety percent (90%) of the Contract Price, Fagen’s aggregate liability shall be
limited to the greater of (1) Ten Percent (10%) of the Contract Price or (2) the
amount of insurance coverage available to respond to the claim or liability under
any policy of insurance provided by Fagen under the Design-Build Agreement.

	 	(v)	 	The warranty period for work completed pursuant to the Design-Build Agreement
will extend for one year past Substantial Completion. The Warranty will not apply to
defects caused by abuse, alterations, or failure to maintain the work by persons other
than Fagen or anyone for whose acts Fagen may be liable. The warranty period will be
extended one day for each day that such part of the work repaired under such warranty
is malfunctioning or not in conformance with project requirements provided that Owner
must report such non-conformance or malfunction within seven (7) days of the appearance
of such non-conformance or malfunction.
	 
	 	(w)	 	Owner will pay Fagen a mobilization fee in the amount of Ten Million Dollars
($10,000,000.00) as soon as possible following the execution of the Design-Build
Agreement, and at the latest, at the earlier to occur of financial closing or the
issuance of a Notice to Proceed. Such mobilization fee shall be applied against the
Contract Price.
	 
	 	(x)	 	Fagen will request payment and Owner will pay Fagen in accordance with the
following procedures:

	 	i.	 	On or before the twenty-fifth (25th) day of each
month following the acceptance of Notice to Proceed Fagen will submit to
Owner a request for payment (an “Application for Payment”).
Along with each Application for Payment, except with respect to the first
Application for Payment, Fagen will submit to Owner signed lien waivers
for the work included in the Application for Payment submitted for the
immediately preceding pay period and for which payment has been received.
	 
	 	ii.	 	The Application for Payment will constitute Fagen’s
representation that the work has been performed consistent with the
Transaction Documents and has progressed to the point indicated in the
Application for Payment. No additional documentation will be provided to
Owner in support of the Application for Payment. The work completed at
the site and the comparison of the Application for Payment against the
Schedule of Values shall provide sufficient substantiation to Owner of
the accuracy of the Application for Payment. The Schedule of Values
subdivides the work

 

 

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	 	 	 	into its respective parts, includes values for all items comprising the
work, and serves as the basis for the monthly progress payments.

	 	iii.	 	The Application for Payment may request payment for
equipment and materials not yet incorporated into the project only if
Owner is reasonably satisfied that the materials and equipment are
suitably stored at the site or elsewhere and are protected by suitable
insurance. Upon payment, Owner will receive title to such equipment and
materials.
	 
	 	iv.	 	Owner shall make payment within ten (10) days of
receipt of the Application for Payment. Failure to make such payment
will result in the accrual of interest at a rate of eighteen percent
(18%) per annum commencing five (5) days after the payment is due.
Failure to make such payment, except if due to appropriate withholding of
payment due to a good faith dispute, entitles Fagen to stop work.
	 
	 	v.	 	If Owner wishes to dispute any portion of the
Application for Payment, Owner must notify Fagen in writing within five
(5) days of receipt of the Application for Payment. Such notice must
state the specific amounts Owner intends to withhold, the reasons and
contractual basis for withholding, and the specific measures Fagen must
take to rectify Owner’s concerns. Regardless of a dispute as to a
portion of the Application for Payment, Owner must pay all undisputed
amounts by the payment due date.
	 
	 	vi.	 	Retainage on progress payments made pursuant to the
Design-Build Agreement will be capped at five percent (5%) of the total
price. Owner will retain ten percent (10%) of each payment up to a
maximum of five percent (5%) of the total final Contract Price, as
adjusted purusuant to any change based on the CCI pursuant to paragraph
2(b) herein as well as any monthly percentage increases pursuant to
Paragraph 2(c) herein. Once five percent (5%) of the total price has
been retained, Owner will not retain any additional amounts from
subsequent payments. Owner will release retainage, less the amount equal
to the value of subcontractor lien waivers not yet obtained, upon
completion of the Performance Tests. The release of any retainage by
Owner shall be reduced by an amount equal to one hundred fifty percent
(150%) of any amount required to finish any incomplete items of work.
	 
	 	vii.	 	Upon Final Completion, Fagen will deliver to Owner
a request for final payment. Owner will make the final payment within
thirty (30) days after the receipt of such request. Owner’s failure to
make Final Payment will void any and all warranties, whether express or
implied, provided by Fagen pursuant to the Design-Build Agreement.

	 	(y)	 	Except for hazardous conditions caused by Fagen or anyone for which Fagen is
responsible, Fagen will not be responsible for any hazardous condition encountered at
the site and may stop work in an affected area until such hazardous

 

 

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	 	 	 	condition is removed by Owner.

	 	(z)	 	Fagen will not be responsible for differing site conditions including concealed
or latent physical conditions or subsurface conditions and will be entitled to a price
adjustment to the Contract Price to the extent that its cost and/or time of performance
is adversely impacted by the differing site conditions.
	 
	 	(aa)	 	“Force Majeure Events” shall mean any cause or event beyond the
reasonable control of, and without the fault or negligence of a Party claiming Force
Majeure, including, without limitation, an emergency, floods, earthquakes, hurricanes,
tornadoes, adverse weather conditions not reasonably anticipated or acts of God;
sabotage; vandalism beyond that which could reasonably be prevented by a Party claiming
Force Majeure; terrorism; war; riots; fire; explosion; blockades; insurrection; strike;
slow down or labor disruptions (even if such difficulties could be resolved by
conceding to the demands of a labor group); economic hardship or delay in the delivery
of materials or equipment that is beyond the control of a Party claiming Force Majeure,
and action or failure to take action by any governmental authority after the effective
date of the Design-Build Agreement (including the adoption or change in any rule or
regulation or environmental constraints lawfully imposed by such governmental
authority), but only if such requirements, actions, or failures to act prevent or delay
performance; and inability, despite due diligence, to obtain any licenses, permits, or
approvals required by any governmental authority.
	 
	 	(bb)	 	If Fagen is delayed at any time in the commencement or progress of the work due
to a delay in the delivery of, or unavailability of, essential materials or labor to
the project as a result of a significant industry-wide economic fluctuation or
disruption beyond the control of and without the fault of Fagen or its subcontractors
which is experienced or expected to be experienced by certain markets providing
essential materials, equipment or labor to the project during the performance of the
work and such economic fluctuation or disruption adversely impacts the price,
availability, and delivery timeframes of essential materials and equipment (such event
an “Industry-Wide Disruption”), Fagen shall be entitled to an equitable
extension of the Contract Time on a day-for-day basis equal to such delay. The Owner
and Fagen shall undertake reasonable steps to mitigate the effect of such delays.
Notwithstanding any other provision to the contrary, Fagen shall not be liable to the
Owner for any expenses, losses or damages arising from a delay, or unavailability of,
essential materials or labor to the project as a result of an Industry-Wide Disruption.

	4.	 	Exclusivity, No Solicitation or Negotiations.

	 	(a)	 	During the term of this Letter of Intent, neither Owner, nor its affiliates,

 

 

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	 	 	 	shareholders, members or other equity owners, or their officers, representatives,
agents or employees will solicit or negotiate, directly or indirectly, with any
third party to obtain the services contemplated by this Letter of Intent.

	 	(b)	 	During the term of this Letter of Intent the Owner agrees that Fagen will have
the exclusive right to provide to Owner the services contemplated by the Letter of
Intent. Developer and Owner will not disclose any information related to this Letter of
Intent to a competitor or prospective competitor of Fagen.
	 
	 	(c)	 	Should Owner choose not to develop the project or to develop or pursue a
relationship with a company other than Fagen to provide the preliminary engineering or
design-build services for the project, then Owner will reimburse Fagen for all expenses
Fagen has incurred in connection with the project based upon Fagen’s standard rate
schedule plus all third party costs incurred from the date of this Letter of Intent.
Such expenses include, but are not limited to, labor rates and reimbursable expenses
such as legal charges for document review and preparation, travel expenses,
reproduction costs, long distance phone costs, and postage.
	 
	 	(d)	 	In the event Fagen’s services are terminated by Owner, title to the technical
data, which may include preliminary engineering drawings and layouts and proprietary
process related information, will remain with Fagen and any copies thereof will be
returned to Fagen.
	 
	 	(e)	 	Owner acknowledges that the technical data provided by Fagen under this Letter
of Intent is preliminary and may not be suitable for construction. Owner agrees that
any use of such technical data following termination of Fagen’s services will be at
Owner’s sole risk.

	5.	 	Commitment Fee. Immediately upon the execution of this Letter of Intent, Owner shall owe
Fagen Five Hundred Thousand Dollars ($500,000.00) as a non-refundable commitment fee
(“Commitment Fee”). The Commitment Fee shall be paid according to the following: (i)
immediately upon execution of this Letter of Intent, Owner shall pay Fagen $100,000; and (ii)
on or before August 1, 2007, Owner shall make payment to Fagen of the remaining $400,000. The
Commitment Fee will be credited against the Contract Price upon the occurrence of: (i) the
execution of the Transaction documents; and (ii) timely acceptance of Notice to Proceed
pursuant to the Design-Build Agreement. If Owner chooses not to proceed with the project or
the Transaction Documents are not executed and delivered by the Closing Date or Owner fails to
provide a timely Notice to Proceed pursuant to the Design-Build Agreement, Fagen shall retain
the full amount of the Commitment Fee and Owner shall not be entitled to any refund or credit.
Should Owner fail to pay the Commitment Fee upon execution of this Letter of Intent, this
Letter of Intent shall terminate and Fagen shall have the right to receive compensation
pursuant to Paragraph 4(c) hereof. 

 

 

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

	 	(a)	 	information that, at the time of disclosure hereunder, is in the public domain;
	 
	 	(b)	 	information that, after disclosure hereunder, enters the public domain other
than by breach of this Agreement or the obligation of confidentiality;
	 
	 	(c)	 	information that, prior to disclosure hereunder, was already in the Owner’s
possession, either without limitation on disclosure to others or subsequently becoming
free of such limitation;
	 
	 	(d)	 	information obtained by the Owner from a third party having an independent
right to disclose this information; and
	 
	 	(e)	 	information that is available through discovery by independent research without
use of or access to the confidential information acquired from Fagen.

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

 

 

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	7.	 	Publicity. Neither Owner nor any of its affiliates, shareholders, subcontractors, or vendors
or their officers, representatives, agents and employees will issue any press or publicity
release or otherwise release, distribute, announce, or disseminate any information for
publication concerning the Transaction, the existence of the negotiations among Fagen and
Owner, the participation of Fagen in the Transaction, or any other matter affecting Fagen
hereunder, without the prior written consent of Fagen, which consent may be withheld for any
reason, except where such press or publicity release is required by order of a court or
necessary or appropriate under the rules or regulations of any governmental agency.
	 
	 	 	The Parties will jointly agree on the timing and content of any public disclosure by Owner,
including but not limited to, press releases, relating to Fagen’s involvement in Owner’s
project, and no such disclosure will be made without Fagen’s consent and approval, except as may
be required by applicable law.
	 
	8.	 	Disclaimer of Consequential Damages. In no event will either Fagen or Owner be liable to the
other pursuant to this Letter of Intent, or for activities conducted under this Letter of
Intent, under any theory of recovery for any indirect, special, incidental or consequential
damages (including, without limitation, loss of revenues or profits, loss of use, cost of
replacement, cost of capital and claims of customers, interest charges, or increased costs of
nature whatsoever).
	 
	9.	 	Legal Effect. Although this Letter of Intent does not contain all matters upon which
agreement must be reached in order for the Transaction to be consummated, Fagen and Owner wish
to set forth, prior to the execution of the Transaction Documents, their mutual agreement as
to the material terms and conditions of the Transaction. Each Party agrees to negotiate in
good faith towards entering into the written, definitive and legally binding Transaction
Documents containing, among other terms and conditions, those terms and conditions set forth
in this Letter of Intent including, without limitation, those terms set forth in Paragraphs 2
and 3 hereof; provided, however, that except as specifically identified and set forth herein,
nothing in this Agreement shall be read to promise, guarantee, or otherwise secure on Owner’s
behalf any specific construction start date with respect to the Plant including but not
limited to any pour concrete date, scheduling slots or dates for the delivery of design
packages or to entitle Owner to any rights, privileges, or claims with respect thereto or any
right, privilege, or claim to any place on Fagen’s construction schedule. Notwithstanding the
foregoing, the provisions of this Paragraph and of Paragraphs 1, 4, 5, 6, 7, 8, 11, 12, 14, 17
and 18 hereof are agreed to be legally binding obligations of the Parties upon the execution
and acceptance of this Letter of Intent.
	 
	10.	 	Negotiation of Definitive Agreements. The Transaction Documents will contain reasonable terms
and conditions regarding releases, payment obligations, cooperation as to tax planning and
structuring, other financial matters, legal opinions, confidentiality, limitations of
liability, assignment, breach, dispute resolution, events of default, remedies,
representations,

 

 

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	 	 	warranties, indemnifications and other provisions customary for similar transactions. Time is of
the essence in the performance of this Letter of Intent in all respects.
	 
	11.	 	Termination. This Letter of Intent will terminate on January 31, 2008 unless the basic size
and design of the Plant have been determined and mutually agreed upon, a specific site or
sites have been determined and mutually agreed upon, and at least 10% of the necessary equity
has been raised. This date may be extended upon mutual written agreement of the Parties.
Furthermore, unless otherwise agreed to by the Parties, this Letter of Intent will terminate:

	 	(a)	 	at the option of either Fagen or Owner if the Design-Build Agreement is not
completed and executed by the Closing Date; or
	 
	 	(b)	 	upon the execution and delivery of the Transaction Documents.

	12.	 	Governing Law. This Letter of Intent is governed by, and the Transaction shall be governed
by, and will be construed and interpreted in accordance with the laws of the State of
Minnesota, without regard to any conflicts of law or choice of law rules.
	 
	13.	 	Expenses. Except as set forth in Paragraph 4(c) above, unless otherwise agreed by Fagen and
Owner, each Party will bear its own expenses in connection with the negotiation and execution
of definitive documentation for the transactions contemplated herein.
	 
	14.	 	Indemnification. Each Party will indemnify, defend and hold harmless the other Party and its
respective agents, servants, officers, directors, employees and affiliates from and against
any loss, cost, liability, claim, damage, expense (including reasonable attorneys’ and
consultants’ fees and disbursements), penalty or fine incurred in connection with any claim or
cause of action arising from or in connection with this Letter of Intent to the extent caused
by the negligence, misrepresentation, fraud, fault or misconduct of the indemnifying Party.
	 
	15.	 	Assignability; Binding Effect; Benefit. This Letter of Intent will inure to the benefit of
and be binding upon the Parties and their respective successors and assigns. Nothing in this
Letter of Intent, either expressed or implied, is intended to confer on any person other than
the Parties and their respective successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Letter of Intent. Neither Fagen nor
Owner shall, without the written consent of the other, assign or transfer this Letter of
Intent. Any sale, transfer, or disposition by Owner of over fifty percent (50%) of its assets
or any sale, transfer, or disposition of more than fifty percent (50%) of Owner to any single
entity by one or more entities holding interest in Owner shall be deemed an assignment subject
to this paragraph. Notwithstanding any consent granted by Fagen to any assignment, Owner
shall remain jointly liable for any failure of any assignee to fulfill its obligations under
this Letter of Intent, including but not limited to any payment and confidentiality
obligations established hereunder.

 

 

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	16.	 	Further Action. Each Party agrees to execute and deliver all further instruments, legal
opinions and documents, and take all further action not inconsistent with the provisions of
this Letter of Intent that may be reasonably necessary to complete performance of the Parties’
obligations hereunder and to effectuate the purposes and intent of this Letter of Intent.
	 
	17.	 	Amendments. The Parties agree that this Letter of Intent may be modified only by written
agreement by the Parties.
	 
	18.	 	Integration; Letter of Intent. This Letter of Intent represents the entire understanding
between the Parties in relation to the subject matter hereof, and supersedes any and all
previous agreements, arrangements or discussions between the Parties (whether written or oral)
in respect of the subject matter hereof. No change, amendment or modification of this Letter
of Intent will be valid or binding upon the Parties unless such change, amendment or
modification will be in writing and duly executed by both Parties.
	 
	19.	 	No Representation, Warranties or Covenants. Notwithstanding anything contained
herein to the contrary, Fagen is not making any representation, warranty or covenant of any
kind with respect to any design, engineering or construction scheduling, or with respect to
projections, estimates or budgets heretofore delivered to or made available to Owner of future
revenues, expenses or expenditures, future results of operations (or any component thereof) or
the future business and operations of the Owner, nor any other commitments or assurances
except as may be provided in the Transaction Documents.
	 
	20.	 	Counterparts. This Letter of Intent may be executed in one or more counterpart, each of
which when so executed and delivered will be deemed an original, but all of which taken
together constitute one and the same instrument. Signatures which have been affixed and
transmitted by facsimile or other electronic means will be binding to the same extent as an
original signature, although the Parties contemplate that a fully executed counterpart with
original signatures will be delivered to each Party.

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

 

 

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	 	Yours sincerely,

Fagen, Inc.

 	 
	 	/s/ Ron Fagen
 	 
	 	By:   Roland “Ron” Fagen 	 
	 	Title: President and CEO	 	 
	 

	 	 	 	 	 
	Accepted and agreed to this 28th

day of March, 2007.

MinnErgy, LLC

 	 	 
	/s/ Daniel H. Arnold
 	 	 
	By:     Daniel H. Arnold 	 	 
	Title: Chairman		 	 

 

 

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EXHIBIT A

Standard Scope of Work

Construct a 50 MGY dry mill fuel ethanol plant near Eyota, Minnesota. The plant will grind
approximately 17.9 million bushels of corn per year to produce approximately 50 MGY of denatured
fuel ethanol. The plant will also produce approximately 160,750 tons per year of 11% moisture
dried distillers grains with solubles (DDGS), and approximately 151,250 tons per year of raw carbon
dioxide (CO2) gas.

Delivered corn will be dumped in the receiving building. The receiving building will have two
truck grain receiving bays and a rail receiving bay, including an underground conveyor from the
rail pit to the second truck receiving bay both of which share a common receiving leg. The truck
driver will drive onto the pitless scale located near the administration building, be weighed and
sampled, then drive to the receiving building, dump the grain, then proceed back to the pitless
scale and obtain a final weight ticket from the scale operator. Two independent 15,000 —bu/hr
legs will lift the corn to one of two 250,000 — bushel storage bins. A dust collection system
will be installed on the grain receiving system to limit particulate emissions as described in the
Air Quality Permit application.

Corn is cleaned in a rotary scalper before being milled in two parallel hammermills. Ground corn
will be mixed in a slurry tank, passed through a second, and then routed through a hydroheater and
cook tube following which steam is flashed off in a flash vessel. Cooked mash will continue
through liquefaction tanks and into one of the four fermenters. Simultaneously, propagated yeast
will be added to the mash as the fermenter is filling. After batch fermentation is complete, the
beer will be pumped to the beer well and then to the beer column to vaporize the alcohol from the
mash. CO2 from the fermentation process is vented to atmosphere through a scrubber for reducing
emissions.

Alcohol streams are dehydrated in the rectifier column, the side stripper and the molecular sieve
system. Two hundred proof alcohol is pumped to the tank farm day tank and blended with five
percent natural gasoline as the product is being pumped into one of two 750,000 gallon final
storage tanks. A single 600 gpm truck and single 1,000 gpm rail load out station will be provided.
Tank farm tanks include: one tank for 190 proof storage, one tank for 200 proof storage, one tank
for denaturant storage and two 750,000 gallon tanks for denatured ethanol storage.

Corn mash from the beer stripper is dewatered in the four parallel centrifuges. Wet cake is
conveyed from the centrifuges to the dryer(s) where the water is removed from the cake and the

 

 

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product is dried to 11% moisture. A wet cake pad is located along side the DDGS dryer building to
divert wet cake to the pad when necessary or for limited production of wet cake for sales. Water
in the thin stillage is evaporated and recycled by the Bio-Methanation system. Syrup is added to
the wet cake entering the dryer(s). DDGS is cooled through pneumatic conveying to flat storage in
the DDGS storage building. Shipping is accomplished by scooping and pushing the product with a
front-end loader into an in-floor conveyor system. The DDGS load out pit has capacity for
approximately one semi-trailer load. DDGS is weighed as it is loaded for shipment through a 15,000
bph bulk-weigh system. A truck or rail car can be loaded without repositioning.

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

Steam energy will be provided by a heat recovery steam generator (HRSG) recovering heat from a
thermal oxidizer (TO) and utilizing a high percentage of condensate return.

The TO is a process used to thermally oxidize the exhaust gasses from the Dryers. This process
will be used to reduce VOCs and particulates that are in the dryer exhaust and ensure compliance
with environmental regulations. The energy required to complete thermal oxidization will then be
ducted to a heat recovery steam generator that will produce 100% of the steam requirements of the
ethanol plant. The exhaust gasses after passing through the HRSG will be ducted through stack gas
economizer(s) to recover the majority of energy possible from the exhaust gas stream. After the
economizer(s), the gas stream will be vented to atmosphere through a stack.

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

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

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

Under normal operating circumstances, the plant will not have any wastewater discharges that have
been in contact with corn, corn mash, cleaning system, or contact process water. An

 

 

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March 2, 2007

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ICM/Phoenix Bio-Methanator will reduce the BOD in process water allowing complete reuse within the
plant. The plant will have blowdown discharges from the cooling tower, RO reject, softener reject,
and may have water discharge from any water pre-treatment processes. Owner shall provide on-site
connection to sanitary sewer or septic system.

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

The cooking system requires the use of anhydrous ammonia, and other systems require the use of
sulfuric acid. Therefore, a storage tank for ammonia and a storage tank for acid will be on site
to store reasonable quantities. The ammonia storage requires that plant management implement and
enforce a Process Safety Management (PSM) program. The plant design may require additional
programs to ensure safety and to satisfy regulatory authorities.

NOTE: This Exhibit A is a general description of the Plant’s basic design and operation only. It
is not intended to be the final Project scope or to establish the final specifications. The final
design of the Plant, including equipment incorporated, and equipment specifications will be
reflected in the As Built Plans.

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