EXHIBIT 10.23

 

 

Shared Savings Contract
Minnesota

 

THIS ENERGY SERVICES AGREEMENT (hereinafter, “Agreement”) is made and entered into as of the 16th day of November, 2007, by and between, Interstate Power and Light Company (IPL), an Alliant Energy company, a Iowa corporation having its principal offices at ▇▇▇ ▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ (hereinafter, “Utility”), and Heron Lake BioEnergy LLC, a Minnesota corporation having its principal offices at Heron Lake, MN (hereinafter, “Client”), relating to property owned by Client at ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ (hereinafter, “Premises”, which are more particularly described in Part I of Schedule A attached hereto),

 

IT IS AGREED AS FOLLOWS:

 

Section 1. Purposes of Agreement

 

The purposes of this Agreement and the actions of the parties in pursuit thereof are:

 

A.           To accurately identify and agree upon certain baseline information concerning the energy consumption characteristics of the Premises (hereinafter, “Baseline Energy Consumption”);

 

B.             To designate certain equipment (hereinafter, “Equipment”) which, when installed on the Premises in lieu of Equipment presently used by Client, is estimated by Utility to reduce Client’s annual energy consumption below Baseline Energy Consumption (“Energy Savings”) thereby providing an estimated level of savings to Client; and

 

C.             To set forth the obligation of the Utility to fund the acquisition and installation of the Equipment in exchange for the promise by Client to share a portion of the value of the Energy Savings (“Shared Savings”) with Utility by paying such amount to Utility along with payment of Client’s regular ▇▇▇▇ for utility service.

 

Section 2. Baseline Energy Consumption

 

Client and Utility have to their mutual satisfaction analyzed the historic and present operating practices of Client (hereinafter, “Baseline Operating Practices”) and the corresponding energy consumption characteristics of the Premises and agree that the Baseline Energy Consumption on all (or a specified portion, as the case may be) of the Premises for the purposes of this Agreement shall be as set forth in Part II of Schedule A. The parties intend that such Baseline Energy Consumption shall be conclusive and, except for material error or misrepresentation with respect to the Baseline Operating Practices, each hereby waives any objections to same, whether now existing or hereafter arising.

 

Section 3. Equipment Purchase, Installation, Operation and Maintenance

 

Within a reasonable period of time after the execution of this Agreement:

 

A.           Client shall purchase the Equipment specified in Part I of Schedule B hereof and shall arrange for installation of the Equipment at the Premises.

 

B.             Client will invoice Utility for the cost of purchasing and installing the Equipment. The invoice will be substantiated with copies of the applicable vendor/contractor invoices. Utility will reimburse Client after inspection and approval of the Equipment by Utility. Client shall indemnify and hold harmless Utility from and against any and all claims, costs, damages, or expenses incurred as a result of any personal injury or property damage arising out of the acts or omissions of Client or Client’s contractors, subcontractors, employees, agents or representatives in the installation and operation of the Equipment.

 

 

C.             Client shall be responsible for obtaining all governmental permits, consents, and authorizations necessary for installation of the Equipment, and Utility shall use its best efforts to assist Client in obtaining such permits, consents and authorizations.

 

As part of the initial installation and continuing thereafter, Client shall provide Utility with mutually satisfactory access to the Premises for the inspection of the Equipment, and with free and reasonable access to lights, heat, power, water, and the like necessary for such inspection and any associated submetering.

 

Client shall have exclusive responsibility for the operation and maintenance of the Equipment in accordance with all manufacturer specifications and recommendations and with such additional standards and procedures as may be set forth in Part II of Schedule B. All costs and expenses incurred in connection with the operation and maintenance of the Equipment shall be the sole responsibility of Client. Client shall be solely responsible for enforcing any manufacturer’s warranties which accompany the Equipment and shall enforce such warranties on its own or upon Utility’s request.

 

Section 4. Risk of Loss

 

Client hereby assumes all risks of loss or damage to the Equipment while such Equipment is in their care, custody or control. Client shall notify Utility within 10 days of any loss or damage to the Equipment and shall keep Utility informed of all developments regarding insurance rights and recoveries. Should the Equipment be deemed a total loss or Client decides not to complete repairs, Client shall pay to Utility the Termination Value specified in Schedule C hereto.

 

Section 5. Insurance

 

The Client shall provide, maintain, and pay for commercial general liability insurance with limits of at least $1,000,000 per occurrence so as to comply with Section 14. Indemnification. Client shall also provide, maintain, and pay for all risk property insurance with a minimum limit of the Termination Value of this Agreement as specified in Schedule C hereto. In the event of any loss or damage to the Equipment, the proceeds of insurance covering the Equipment shall be applied toward the replacement, restoration, or repair of the Equipment in accordance with Section 4. Risk of Loss. This insurance must be in effect from the time that the first item of Equipment is delivered to the Client until the end of the term. Each policy must contain the insurer’s agreement to give thirty (30) days written notice to Utility before cancellation or non-renewal of the required insurance. The Client agrees to provide certificates of insurance as evidence of the required coverage to Utility. Failure of Utility to enforce the minimum insurance requirements listed above shall not relieve Client of responsibility for maintaining these coverages.

 

Section 6. Disclaimer of Warranties

 

UTILITY MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLlED, CONCERNING THE CONDITION OR PERFORMANCE OF THE EQUIPMENT, AND SPECIFICALLY DISCLAIMS ANY AND ALL SUCH REPRESENTATIONS AND WARRANTIES, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

 

Section 7. Commencement Date and Term

 

The “Commencement Date” shall be the first day of the first Billing Period beginning after the Utility reimburses the Client as provided in Section 3. The “Term” of this Agreement shall begin on the date set forth on page one hereof and shall run continuously from such date (unless this Agreement shall have been terminated by the parties at an earlier date pursuant to the terms hereof) until the 5 year anniversary of the Commencement Date. “Billing Period” shall mean any period of approximately one month’s duration coincident with the normal billing cycle between Utility and Client, and “Annual Billing Period” shall mean a series of twelve (12) consecutive Billing Periods, the first of which shall begin with the Billing Period which first begins on or after the Commencement Date.

 

Section 8. Compensation and Billing

 

Client agrees to pay Utility an amount equal to: (i) $29,774.91 in each Billing Period from period 1 to period 13, (ii) $29,599.91 in each period after period 14, all occurring during the Term of this Agreement following the Commencement Date, for a total of 60 billing periods and (iii) the amount of $140,000 at the end of the 13th Billing Period. The foregoing amounts (the “Shared Savings”) reflect a sharing by Client of the value of the Energy Savings

 

 

estimated to be realized from the operation and use of the Equipment at the Premises as outlined In Schedule D with the present energy charge In effect under Utility’s applicable Rate Schedule. The foregoing amounts (the “Bright Ideas” labeled on ▇▇▇▇) shall appear as a separate line item on Client’s ▇▇▇▇ from Utility during each Billing Period, and shall be payable by Client upon the same terms and conditions as are applicable to the normal utility ▇▇▇▇. The foregoing amounts shall not vary due to change in Utility’s rates, returns, or charges authorized by the Public Service Commission of Minnesota. The foregoing amounts are based upon an estimated cost for purchase and installation of the Equipment and will be modified by amendment to this Agreement to reflect the actual cost of such purchase and installation upon completion thereof.

 

Section 9. Conditions Beyond Control of Utility

 

If Utility shall be unable to carry out any of its obligations under this Agreement due to events beyond its control, including, without limitation, acts of God, governmental or judicial authority, insurrections, riots, labor disputes, labor or material shortages, fires, explosions, or floods, this Agreement shall remain in effect but Utility’s obligations shall be suspended until the uncontrollable event terminates.

 

Section 10. Remedies Upon Default by Client

 

A.           Utility’s Remedies. In the event Client fails to pay Utility its compensation when due, or any other Event of Default by Client occurs (defined as a failure by Client to timely perform any of its obligations under the Agreement), Utility may, without an election of remedies:

 

1.               disconnect all electric service to the Premises in accordance with the rules and regulations of the Utility as approved by the Public Service Commission of Minnesota and in effect at the time of breach; and

 

2.               declare the Termination Value specified in Schedule C immediately due and payable from Client and exercise all remedies available at law or at equity or other appropriate proceedings Including bringing an action or actions from time to time for recovery of amounts due and unpaid by Client, and/or for damages which shall include all costs and expenses reasonably incurred in exercise of its remedy (including reasonable attorney’s fees), and/or for specific performance; or

 

3.               without recourse to legal process, terminate this Agreement by delivery of a notice declaring termination, whereupon Utility may enter the Premises and dismantle and/or remove the Equipment from the Premises, without liability in any suit, action or other proceeding to Client or Lessor of Premises, if any, on account of such actions.

 

B.             Liquidated Damages. In the event Utility terminates this Agreement due to an Event of Default, at Utility’s request Client shall pay to Utility, as liquidated damages, the Termination Value set forth in Schedule C, plus all costs and expenses reasonably incurred in exercise of its remedy, including reasonable attorney’s fees.

 

C.             Termination. Utility may terminate this Agreement and declare the Termination Value specified in Schedule C immediately due and payable should:

 

1.               Client cease use of the Equipment or the conduct of commercial operations at the premises; or

 

2.               Any creditor of Client commence legal proceedings against Client involving any debt or obligation of Client for which the Equipment is pledged as collateral; or

 

3.               Client commence or have commenced against it any proceedings in bankruptcy, receivership, or insolvency, or make any assignment for the benefit of its creditors; or

 

4.               Client cease to take or receive electric and/or natural gas service from Utility.

 

 

Section 11. Remedies Upon Default by Utility

 

In the event of material default by Utility, Client shall have the following remedy:

 

A.           Terminate this Agreement by delivery of a Notice declaring termination, and paying the Termination Value indicated in Schedule C (less the cost of any future maintenance and energy related services included therein, as agreed to by the parties), whereupon Utility shall have no further rights, obligations or claims under this Agreement.

 

Client may terminate this Agreement by paying the Termination Value indicated in Schedule C.

 

Section 12. Arbitration

 

Except as otherwise provided herein, any dispute, controversy or claim arising out of or in connection with or relating to this Agreement, upon the request of either Client or Utility, shall be submitted to and settled by arbitration at the locality where the Premises are situated in conformance with rules of the American Arbitration Association then in effect. Any award rendered shall be final and conclusive upon the parties and a judgment thereon may be entered in a court of any forum, state or federal, having jurisdiction. The expenses of the arbitration shall be borne equally by the parties to the arbitration, provided that each party shall pay for and bear the cost of its own experts, evidence and counsel. This Section 12 does not apply and shall not limit Utility’s rights to seek redress in any forum in the event Utility seeks to invoke any of the provisions of Section 10 herein.

 

Section 13. Assignment

 

Utility may (a) transfer or assign all or any part of its rights and obligations herein to any party, (b) pledge its rights hereunder to its creditors, or (c) utilize contractors and subcontractors, provided that any assignee or transferee agrees to honor the terms of this Agreement. Unless otherwise approved in writing Client may not transfer or assign this Agreement and its rights and obligations herein. If such assignment is permitted, Client shall condition assignment on assignee assuming in writing all of Client’s rights and Obligations under this Agreement.

 

Section 14. Indemnification

 

Client agrees to indemnify, defend and hold Utility harmless from any and all claims, actions, costs, expenses, damages and liabilities, including reasonable attorney’s fees, and claims of third parties arising out of, connected with or resulting from Client’s operation, installation, use, maintenance or repair of the Equipment, or from the negligence or misconduct of its employees or other agents in connection with their activities within the scope of this Agreement. However, Client shall not be obligated to indemnify Utility against claims, damages, expenses or liabilities solely to the extent such claims, damages, expenses or liabilities directly result from the negligence or willful misconduct of Utility or its employees or agents. The duty to indemnify will continue in full force and effect notwithstanding the expiration or early termination of this Agreement with respect to any claims based on facts or conditions which occurred prior to termination.

 

Section 15. Security Agreement

 

To secure payment of: (i) 140,000 U.S. dollars of Shared Savings due from Client to Utility, Client pledges to Utility and grants to Utility a security interest in the Equipment. Client shall timely execute a Uniform Commercial Code financing statement relating to said Equipment to be filed by Utility in such manner and in such places as Utility may elect, and (ii) 1,710,000 U.S. dollars of Shared Savings due from Client to Utility, Client agrees to deposit the sum of 1,710,000 U.S. dollars Into an Escrow Account with Farmers State Bank of Hartland (or any other Bank acceptable to Utility) acting as Escrow Agent, and to sign an Escrow Agreement supporting such Escrow Account. Utility shall release such security interest and the balance of funds in the Escrow Account following payment in full of the Shared Savings.

 

Section 16. Miscellaneous

 

A.           This Agreement shall be governed by and interpreted pursuant to the laws of the state of Minnesota, without regard to its conflict of laws’ provisions.

 

 

B.             The attached escrow agreement is incorporated into this contract. No waiver, alteration, consent or modification of any of the provisions of this Agreement shall be binding unless in writing and signed by a duly authorized representative of all parties hereto bound.

 

IN WITNESS WHEREOF and intending to be legally bound, the parties hereto subscribe their names to this instrument on the date first above written.

 

ATTEST:		Interstate Power and Light Company
		By:
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇		/s/ ▇▇▇ ▇▇▇▇▇▇▇
ATTEST:		Heron Lake BioEnergy, LLC
		By:
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇		/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇

 

 

SCHEDULE A

 

Heron Lake BioEnergy

 

DESCRIPTION OF PREMISES

 

PART I
DESCRIPTION

 

PART II
ENERGY CONSUMPTION CHARACTERISTICS

 

Floor area of facility: 100,000 s.f.

 

 

		Period #1		Period #2
		* to *		* to *
Electric
Average Demand (kW)		6,000		0
Interrupt Demand (kW)		0		0
On-Peak Energy (kWh)		20,000,000		0
Off-Peak Energy (kWh)		25,000,000		0
Natural Gas
Energy (Therms)		0		0
Other Fuels
Other Fuel 1		0		0
Other Fuel 2		0		0
Facility Operation
Hours of Operation		8,760		0
Heating Degree Days		0		0
% Occupancy		100		0
Production (Units/Year)		50,000,000		0
Production (Units/Year)		0		0
Production (Units/Year)		0		0

Comments:

 

 

SCHEDULE B

 

PART I
EQUIPMENT

 

 

Item Description		Manufacturer		Model Number		Quantity
1      Distribution Transformer						1

 

PART II
ADDITIONAL STANDARDS AND PROCEDURES

 

 

SCHEDULE C

 

Amortization Schedule Based on:

i. Periodic payments of $29,774.91 for period 1-13, plus extra payment of $140,000 for period 13 and; ii. Periodic payments of $29,599.91 for periods 14-60.

 

Payment		Billing		Termination			Payment		Billing		Termination			Payment		Billing		Termination
Dates		Period		Value			Dates		Period		Value			Dates		Period		Value
Beg-		0		$	1,850,000.00
12/30/2007
1/31/2007		1		$	1,822,537.59		9/30/2009		21		$	1,126,023.14		5/31/2011		41		$	555,429.38
2/30/2007		2		$	1,795,040.85		10/31/2009		22		$	1,097,830.77		6/28/2011		42		$	526,523.75
3/31/2007		3		$	1,767,509.75		11/31/2009		23		$	1,069,603.15		7/31/2011		43		$	497,582.00
4/31/2008		4		$	1,739,944.23		12/30/2009		24		$	1,041,340.24		8/30/2011		44		$	468,604.07
5/29/2008		5		$	1,712,344.25		1/31/2009		25		$	1,013,042.01		9/31/2011		45		$	439,589.92
6/31/2008		6		$	1,684,709.77		2/30/2009		26		$	984,708.40		10/30/2011		46		$	410,539.49
7/30/2008		7		$	1,657,040.75		3/31/2009		27		$	956,339.38		11/31/2011		47		$	381,452.76
8/31/2008		8		$	1,629,337,14		4/31/2010		28		$	927,934.89		12/31/2011		48		$	352,329.67
9/30/2008		9		$	1,601,598.90		5/28/2010		29		$	899,494.90		1/30/2011		49		$	323,170.17
10/31/2008		10		$	1,573,825.99		6/31/2010		30		$	871,019.36		2/31/2011		50		$	293,974.23
11/31/2008		11		$	1,546,018.37		7/30/2010		31		$	842,508.23		3/30/2011		51		$	264,741.79
12/30/2008		12		$	1,518,175.98		8/31/2010		32		$	813,961.46		4/31/2011		52		$	236,472.80
1/31/2008		13		$	1,350,298.79		9/30/2010		33		$	785,379.00		5/31/2012		53		$	206,167.24
2/30/2008		14		$	1,322,386.76		10/31/2010		34		$	756,760.81		6/29/2012		54		$	176,826.04
3/31/2008		15		$	1,294,439.83		11/31/2010		35		$	728,106.86		7/31/2012		55		$	147,446.16
4/31/2009		16		$	1,266,457.97		12/30/2010		36		$	699,417.08		8/30/2012		66		$	118,030.56
5/28/2009		17		$	1,238,441.14		1/31/2010		37		$	670,691.44		9/31/2012		57		$	88,578.19
6/31/2009		18		$	1,210,389.28		2/30/2010		38		$	641,929.90		10/30/2012		68		$	59,089.00
7/30/2009		19		$	1,182,302.36		3/31/2010		39		$	613,132.40		11/31/2012		59		$	29,562.95
8/31/2009		20		$	1,154,180.33		4/31/2011		40		$	584,298.91		12/31/2012		60		$	0.00

 

 

SCHEDULE D

 

Heron Lake BioEnergy

 

Termination Values

 

This project includes the following projects:

 

		▇▇▇▇ kW		KWh		Therms		Dollars (Energy)
Project		Annual Savings		Annual Savings		Annual Savings		Annual Savings			Project Cost ($)
New Plant Construction		800		4,500,000				$ 321,181.00			$ 1,850,000.00
TOTAL		800		4,500,000		0		$	321,181.00		$	1,850,000.00