EXHIBIT 10.4
OPERATING AND MANAGEMENT AGREEMENT
THIS OPERATING AND MANAGEMENT AGREEMENT ("Agreement") is made effective as
of the 9 day of July, 2004, by and between GLACIAL LAKES ENERGY, LLC, a South
Dakota limited liability company ("Manager"), and GRANITE FALLS COMMUNITY
ETHANOL PLANT, LLC, a Minnesota limited liability company ("Owner").
Background Statements
Owner and the Manager (as a Member of Owner) have entered into certain
agreements, of even date herewith, which will provide for sufficient capital to
construct and thereafter operate a 40 million gallon per year dry mill ethanol
plant on property owned by Owner (the "Facility"). Owner desires to contract
with Manager for operating and management services for the Facility. Manager
desires to provide these services having provided similar services in the
construction and operation of such facilities in the past. This Agreement sets
forth the responsibilities of the parties with respect to the Facility and its
operation and management.
Statement of Agreement
NOW THEREFORE, in consideration of the mutual promises set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE 1
Duties of Manager
During the term of this Agreement Owner hereby grants to Manager, subject
to the terms and conditions hereof, the sole right and authority to supervise
and direct the management and operation of the Facility. Manager hereby accepts
such responsibility and agrees, subject to the supervision and direction of
Owner's Board of Governors, to perform all services necessary for the
construction, equipping, start up and thereafter operation of the Facility in
accordance with highest industry standards. Manager's duties shall include, but
not be limited to the following:
(a) Maintenance and Operation. Upon completion of construction, to
direct the maintenance and operation of the Facility. In connection therewith:
i. Manager shall, at all times, do all things necessary to obtain
permits and licenses required for the construction and/or
operation of the Facility. Thereafter Manager shall continuous
ensure compliance with all regulatory matters to which the
Facility or its operations may be subject.
ii. Manager shall, at all times, hire, promote, discharge and
supervise the work of all employees necessary to operate the
Facility, and arrange for payment of all employee wages,
salaries and benefits as established from time to time by
Owner. Notwithstanding, the parties understand and agree that
all employees shall, except for the CEO/General Manager, the
Commodities Manager, and the Environmental, Health and Safety
Manager, and the Chief Finance Officer (the "CFO") be
employees of Owner.
iii. Manager shall direct all audit and accounting functions with
respect to the Facility and its operation and, in connection
therewith, shall upon approval of Owners Board secure the
services, at competitive rates, of accountants, auditors,
lawyers or other professionals as reasonably necessary to
carry out such functions.
iv. Subject to the limitations and policies as established, from
time to time by Owner's Board of Governors, Manager shall
direct contracting for purchase or sale of goods and
services, for the purchase of equipment and fixtures, to
arrange for necessary repairs, renewals, additions and/or
improvements to the Facility, all in such amounts as may be
within Owner's budget and/or as may authorized by the Board of
Governors from time to time. It is understood and agreed by
the parties that, except as otherwise provided by the Board of
Governors, Manager will not enter into any agreement or
commitment to utilize the credit of Owner or to borrow money
in the name of the Owner unless approved in writing in advance
by Owner, except for purchase of goods and services and other
items on credit as are in the ordinary course and are
customary and consistent with the day to day operation of
Owner.
v.
(a) Managers shall collect income and pay expenses of Owner
in accordance with the terms set forth herein and as
provided, from time to time by Owners Board of
Governors.
(b) Manager shall deposit in banking institution or
institutions as may be designated from time to time by
Owner, as soon as possible after collection, all monies
or other income received by Manager in operation of the
Facility and disburse and pay from the same, on behalf
of and in the name of Owner, such amounts and at such a
time as required to be disbursed or paid pursuant to
this Agreement. The parties agree that Owner shall
approve any proposed appointee of Manager as a person
designated as one authorized to withdraw funds from any
such account. Such person shall be insured by a Fidelity
Bond or insurance policy in a form as approved by Owner.
(c) In connection with all income collected and deposited,
Manager shall segregate funds necessary for paying
ordinary and necessary expenses into a working capital
account which shall not, without Owner's advance
consent, have a balance in excess of $100,000. Funds in
excess of such amount shall be held on deposit or in
investments as determined, from time to time by Owner.
(d) With respect to disbursements, Manager shall cause to be
paid all obligations incurred in the ordinary course in
the operation and management of the Facility from the
working capital account. Payment for expense outside of
the ordinary course of business shall require Owner's
advance written consent.
vi. Manager shall prepare, for approval by Owner, an annual budget
prior to each 12 months operation of the Facility. Said budget
shall contain all anticipated expenses, both ordinary and
extraordinary for the coming year. Manager shall report on a
monthly basis the results of actual operation as compared to
the Annual Budget. Payment of any unbudgeted items, or items
exceeding the budgeted allowance shall require Owner's advance
consent.
vii. Manager shall direct all grain purchasing and risk management
with respect to the same, and as may be necessary to operate
the Facility in accordance with reasonable business practices
and in accordance with any agreements or contracts entered
into by Owner with respect to the same.
viii. Manager shall direct the marketing of all product produced at
the Facility and use Manager's best efforts to secure the
highest rate of return for Owner and its members.
ix. Manager shall recommend to Owner and shall assist Owner in
procuring and keeping in force such property, public liability
and workman's' compensation insurance and such other insurance
for risk and causality as are customarily insured against with
respect to
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operations similar to that of the Facility and in such an
amounts and on such terms as may be customary in the industry.
x. Manager shall maintain books and records in accordance with
GAAP, and shall cause to be prepared and delivered to Owner
regular financial and operational reports as directed by Owner
from time to time and which shall include a monthly profit and
loss statement, annual balance sheet and related statement of
profit and loss for each fiscal year together with statement
showing assets employed in the operation of the Facility and
liabilities incurred in connection therewith.
xi. Manager shall direct the preparation of all tax returns, SEC
and other filings which may be required of Owner and arrange
for payment of all taxes, fees, licenses and assessments
related to the Facility and its operations. In addition,
Manager shall arrange and give proper notice of annual
meetings of Owner.
xii. Manager shall attend all meetings, prepare such reports, and
shall otherwise manage, supervise and conduct the day-to-day
affairs of the Company, including, without limitation, the
daily operations of financial management, government reports,
board and member reports, tax reporting and filing,
maintenance and service of the plant, (subject to Article
I(a)(iii) above) hiring of legal counsel and auditors and
accountants, public relations, buying and selling goods and
services and all other things necessary and desirable for the
operation of the plant, and as may be requested from time to
time by Owner. At all times Managers shall follow policies and
procedures as may, from time to time, be announced by Owner's
Board of Governors.
xiii. To hire and dismiss such employees of the Owner and
independent contractors as the Manager shall deem reasonably
necessary to the operation of the facility.
xiv. Within the scope of Owner's Board authorization to purchase or
otherwise obtain the right to use equipment, supplies,
hardware and software technology associated with the facility.
xv. Under the direction of Owner's Board, to institute, prosecute,
defend, settle, compromise and dismiss lawsuits or other
judicial or administrative proceedings brought on or in behalf
of, or against, the Owner, the Members or the Manager in
connection with activities arising out of or incidental to
this Agreement, and to engage counsel or others in connection
therewith.
xvi. To carry on any other activities necessary to, in connection
with, or incidental to any of the foregoing or the day-to-day
operations of the Owner.
xvii. Manager shall perform start-up and operational monitoring and
reporting; review physical performance compared to plan and
compared to vendor guarantees; and certification of issues
surrounding completion as defined in Credit and other
Agreements (close out).
xviii. Owner's Board shall, promptly upon execution hereof and upon
this Agreement becoming effective announce, in advance, to
Manager its policies and procedures as related to the duties
of Manager as described above; and shall thereafter review
the same, at least annually with Manager. Manager shall be
entitled to rely on the policies and procedures of Owner
until such time as Owner's Board advises Manager, in writing,
of a change with respect to the same. Further, in
establishing its policies and procedures Owner's Board shall
give due consideration to the format and effectiveness of
Manager's existing operational authority for other ethanol
plants managed by it.
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(b) Indemnity of Manager. Except for Wrongful Conduct (as defined below)
by Manager, Owner will indemnify, defend and hold Manager harmless from and
against any and all costs, liabilities, losses, and expenses (and reasonable
attorney's fees and other legal costs) resulting from any claim, suit, action,
or proceeding brought by any third party against Manager arising out of or
related to this Agreement. Further, except for Wrongful Conduct, Owner shall
have no cause of action against Manager for Manager's actions and conduct under
the terms of the Agreement. The term "Wrongful Conduct" used herein shall be
defined as any and all acts or conduct by Manager which: (1) is willful, wanton,
intentional, knowing, reckless, or grossly negligent misconduct; (2) constitutes
self dealing and/or gives rise to improper profit on the part of Manager in
breach of fiduciary duty or duty of loyalty that Manager owes to Owner
hereunder; or (3) in nature, violates any state or federal criminal law unless
Manager reasonably believes, at the time of such act or conduct, that such act
or conduct will not violate the same, or has no reasonable cause to believe the
conduct unlawful. In the event of any third party claim against Manager, Manager
shall give Owner notice of any third party claims against Manager and Owner may,
at its option, take over the defense of such claim at its own expense.
(c) Damages. In the event Manager earns or acquires improper profit in
breach of fiduciary duty or duty of loyalty that Manager owes to Owner
hereunder, Owner is entitled to, in addition to any other remedies that Owner
may have under applicable law and equity, the maximum amount of such improper
profit plus interest at the maximum rate applicable under applicable law.
ARTICLE 2
Right to Replace Manager
2.1 Material Breach. Upon a material breach of the Agreement by Manager, Owner
shall have the right to replace Manager as operator during the Term by
terminating this Agreement under Article 6 hereof, after notice of such breach
of Manager.
(a) A material breach of this Agreement by Manager shall mean: (i)
Managers failure to comply with applicable laws or regulations; (ii) Managers
breach of a material term of this Agreement, or (iii) any and all acts or
conduct by Manager which is willful, wanton, intentional, knowing, reckless, or
grossly negligent misconduct, or which constitutes self dealing and/or gives
rise to improper profit on the part of Manager in breach of fiduciary duty or
duty of loyalty that Manager owes to Granite Falls hereunder.
(b) Notwithstanding any other terms to the contrary hereof or of any
other agreement between the parties, in the event Owner replaces Manager for
cause pursuant to the terms and conditions hereof, neither Manager nor any
individual member, employee, agent of Manager, notwithstanding as a Governor or
Owner, may participate in the vote that may result in the replacement of Manager
or termination of this Agreement, or otherwise exercise voting power, right, or
privilege granted to Manager or to such individual hereunder or elsewhere in
connection with such replacement or termination. Such decision to terminate
shall require the affirmative vote of seventy-five percent (75%) of the
remaining Governors.
ARTICLE 3
Fees and Expenses
3.1 Fee. (A) Upon commencement of the term of this Agreement, Manager shall
receive, for its compensation for the services rendered hereunder, $35,000.00
per month. (B) In addition, Manager shall receive additional compensation in the
amount of 3% of net income, payable annually. For purposes of this net income
calculation, gifts received by the Owner, grants, government payments or
subsidies, tax credits (such as Jobz) and the like shall be excluded.
3.2 Terms of Payment. Each month, Manager shall deliver to Owner an invoice
indicating the sum due Manager from Owner for the operating and management
services provided to Owner during the previous month, which invoice shall be
paid within 10 days. The fee based upon net income shall be paid within 20 days
of completion of the Owner's fiscal year and annual audit.
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3.3 Inflationary Adjustment. Upon the three year anniversary of the
commencement of the term of this Agreement, the monthly fee of $35,000 shall be
adjusted to correspond to changes in the Consumer Price Index from the date of
this Agreement to the date of the three year anniversary of the contract term.
ARTICLE 4
Relationship of Parties
4.1 Services Provided by Manager. At all times during the Term, Manager and
its employees shall be considered independent contractors with respect to Owner.
Any person engaged by Manager to perform services at the facility shall do so
solely as servant or agent of Manager. Manager shall pay all salaries and fringe
benefits, withhold payroll taxes, and make any other payments normally made to,
or for the benefit of such persons. Manager shall provide all appropriate
payroll administration services with respect to such persons.
4.2 Services Provided by Owner. At all times during the Term, Owner and its
employees shall be considered independent contractors with respect to Manager.
Any person engaged by Owner to perform services at the facility shall do so
solely as servant, agent or employee of Owner. Owner shall pay all salaries and
fringe benefits, withhold payroll taxes, and make any other payments normally
made to, or for the benefit of such persons. Owner shall provide all payroll
administration services with respect to such persons.
4.3 The Independent Contractors to be Provided by Manager. It is intended that
Manager will provide the following independent contractors: CEO/General Manager,
CFO, Commodities Manager to monitor/handle grain procurement and grain risk and
Environment, Health and Safety Manager. These individuals will not be full-time,
but shall divide time between Watertown and Granite Falls. Manager shall also
provide the part-time services of a CFO to provide oversight on financial
records and reports, an employee to provide assistance to the Plant Manager to
be hired by Owner, and an employee to provide assistance to the Maintenance
Manager hired by Owner. All other persons will be employees of the Owner, except
for services that may be provided by independent contractors (other than
Manager) on a case by case basis. All other persons will be employees of the
Owner, except for services that may be provided by independent contractors
(other than Manager) on a case by case basis.
4.4 Insurance. Manager, at its own cost and expense, during the full term of
this Agreement, shall carry and maintain Workers' Compensation insurance at
statutory limits and Employer's Liability Insurance and General Commercial
Liability Insurance with a limit of not less than $500,000 [sic], $1,000,000,
respectively, $2,000,000 aggregate [sic]. Evidence of such insurance shall be
furnished to Owner upon written request therefore.
ARTICLE 5
Confidentiality
Each party will treat as confidential all information designated by the
other party in writing as confidential which is not otherwise lawfully known to
it or already in the public domain, shall not disclose such information to any
third party (except its attorneys, accountants or other advisors (who shall be
similarly bound by this Confidentiality Clause), or unless such disclosure is
required by law) without the prior written consent of the other party, shall
return such information promptly to the other party upon request, and shall keep
such information confidential both during and following the expiration of the
Term of this Agreement.
ARTICLE 6
Termination of Agreement
6.1 Termination. Anything in this Agreement to the contrary notwithstanding,
this Agreement may be terminated prior to the end of the Term set forth in
Article 11 hereof upon any of the following events:
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(a) By mutual written consent of Manager and Owner;
(b) Upon written notice from either party to the other if such other
party is subject to proceedings under any law relating to bankruptcy, or the
relief of debtors, other than an involuntary petition in bankruptcy which is
dissolved within sixty (60) days after the commencement thereof.
(c) As provided at Article 2 hereof.
(d) Upon written notice from either party to the other party if the
other party has failed to make any payment due hereunder which is not reasonably
in dispute within twenty (20) days after delivery of written notice that such
amount is past due; or
(e) Upon written notice from either party to the other if such other
party has breached any material term of this Agreement that is not excused by
Force Majeure and such other party does not commence curative action with
reasonable diligence to cure the breach as soon as practicable within twenty
(20) days following the delivery of written notice to such other party
specifying such breach.
(f) Upon the dissolution or liquidation of either party or the inability
of either party to carry on its business.
6.2 Effect of Termination. Upon termination of this Agreement for any reason,
all obligations of the parties hereunder shall terminate, except confidentiality
obligations hereunder, and the obligations which may become due and payable in
respect to any services provided pursuant to this Agreement prior to
termination. Nothing in this Section 6.2 shall affect the right of either party
to bring an action against the other party for a breach occurring prior to the
termination or for a wrongful termination, and to recover damages resulting
therefrom. No failure or delay on the part of the parties hereto to exercise any
right, power or privilege hereunder shall operate as a waiver, nor shall any
single or partial exercise of any right, power or privilege preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege.
ARTICLE 7
Force Majeure
Except as otherwise provided herein, the performance of a party shall be
excused due to Force Majeure, including any event, action or circumstance which
is beyond the reasonable control of the party claiming Force Majeure and
adversely and directly renders the performance of the party impossible in whole
or in part. In the event a party is responsible for an action, event, or
circumstance pursuant to this Agreement, then such action, event, or
circumstance shall be deemed beyond the reasonable control of the other party,
by such other party, except as otherwise provided herein. Where such
impossibility of performance is in part due to Force Majeure, the said party
shall not be relieved of the performance of that party which is not so rendered
impossible. Any party prevented from performing due to an event of Force Majeure
shall be obligated to use all reasonable efforts to remedy such condition as
soon as reasonably possible. Either party may terminate this Agreement upon not
less than thirty (30) days prior written notice if an event of Force Majeure has
occurred that will prevent either party from performing its obligations
hereunder for more than ninety (90) days.
ARTICLE 8
Notices
All notices pertaining to this Agreement shall be given in writing to the
representatives indicated below (or as may otherwise be designated in writing by
either party) delivered personally or sent by express or certified mail, postage
prepaid, or faxed with a hard copy mailed at the following addresses:
Owner: P.O. Box 216, Granite Falls, MN 56241
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Granite Falls Community Ethanol Plant, LLC
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Manager: P.O. Box 933, Watertown, SD 57201
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Glacial Lakes Energy, LLC
ARTICLE 9
Entire Agreement; Amendments
9.1 Entire Agreement. Except as otherwise agreed to in a writing signed by
both parties, represent the entire agreement between the parties concerning
provisions of operating and maintenance service for the Ethanol Plant and
supersedes all prior negotiations and representations whether written or oral.
9.2 Amendment. This Agreement may be amended or modified only by a written
instrument signed by the respective authorized representatives of the parties.
ARTICLE 10
Term of Agreement
10.1 Initial Term. The term of this Agreement shall commence six months prior
to the estimated start-up date of the facility and shall continue until the
fifth anniversary thereof.
10.2 Renewal Term. Thereafter, this Agreement shall be automatically renewed
for successive periods of one (1) year each, provided, however, that this
Agreement may be terminated by either party upon one-hundred eighty (180) days
written notice prior to the beginning of any such renewal period.
ARTICLE 11
Miscellaneous
11.1 Severability. If any provision of this Agreement or any remedy provided
herein is found to be invalid, illegal, or unenforceable in part or in whole
under any applicable law, such provision or remedy, or portion thereof, shall be
inapplicable and deemed omitted from this Agreement, but the remaining
provisions shall continue in full force and effect.
11.2 Counterparts. Any number of counterparts to this Agreement may be executed
and each shall have the same force and effect as the original.
11.3 Governing Law. This agreement shall be governed by and interpreted under
the laws of the State of Minnesota.
11.4 Successors and Assigns. This Agreement shall not be assigned by either
party without the prior written consent of the other party, which consent shall
not be unreasonably withheld. This Agreement shall be binding upon and shall
inure to the benefit of the parties' successors and assigns.
11.5 Inspection of Records. Upon reasonable prior notice, each party shall
allow the other to inspect the records supporting the calculations determined
under this Agreement (which relate to the performance of this Agreement) which
may be required by law or this Agreement to be maintained by either party. Where
and when reasonable to do so, either party may install its own temporary or
permanent measuring device at its own expense to verify any measurement made by
the other party pursuant to this Agreement.
11.6 Arbitration. Any controversy or claim arising out of or relating to this
Agreement or the breach thereof shall be settled by arbitration in Yellow
Medicine County, Minnesota in accordance with the rules then existing of the
American Arbitration Association, and judgment upon the award rendered may be
entered in any court having jurisdiction thereof. The arbitrator or arbitrators
under this provision shall decide who shall pay the expenses of
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arbitration. Any decision made by an arbitrator or arbitrators under this
provision shall be enforceable as final and binding as if it were a final
decision or decree of a court of competent jurisdiction.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first above written.
Owner: Manager:
GRANITE FALLS COMMUNITY ETHANOL GLACIAL LAKES ENERGY, LLC
PLANT, LLC
By: /s/ Jon T. Anderson
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Printed Name: Jon T. Anderson
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By: /s/ Paul Enstad Title: President
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Printed Name: Paul Enstad
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Title: Chairman
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