ETHANOL AND DISTILLERS GRAINS MARKETING AGREEMENT (HERON LAKE, MINNESOTA)

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.

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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.

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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.

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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.