Exhibit 10.4
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT is made and entered into this 7th day of
October, 2001 by and between Dakota Ethanol, L.L.C., a South Dakota limited
liability company (the "Company") and Broin Management, LLC, a Minnesota limited
liability company ("Managing Company").
WHEREAS, the Company intends to construct an ethanol production
facility in Lake County, South Dakota (the "Plant"); and
WHEREAS, the Managing Company is in the business of management and
operation of ethanol production facilities such as the Plant; and
WHEREAS, the Company desires to engage the services of the Managing
Company to manage the Plant and the Managing Company desires to provide such
services on the terms and conditions hereinafter described.
NOW, THEREFORE, in consideration of mutual covenants contained herein,
the parties agree as follows:
DEFINITIONS
AFFILIATE. The tenor Affiliate shall mean a person, association,
co-partnership, partnership, limited liability company, corporation or joint
stock company or trust (hereinafter "Person") that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with another Person. Control shall be defined as (i) ownership of
a majority of the voting power of all classes of voting stock or (ii) ownership
of a majority of the beneficial interests in income and capital of an entity
other than a corporation.
NET INCOME. The term "Net Income" shall mean Operational Revenues minus
Operational Costs as determined using Generally Accepted Accounting Principles
applied on a consistent basis before income taxes.
OPERATIONAL COSTS. The term "Operational Costs" shall mean all those
normal and reasonable costs and expenses directly and indirectly associated with
the daily operation of the Plant. These expenses may include, without
limitation, administrative and general overhead expenses, the Management Fee,
utilities, production inputs, supplies, transportation, general supplies, raw
material acquisitions, insurance premiums, marketing expenses, repair expenses,
maintenance expenses, engineering expenses, data processing expenses, legal,
accounting and audit fees, billing expenses, expenses of preparing tax returns
and reports, taxes, travel, telephone, salaries of Plant employees other than
the Plant General Manager (including social security and Medicare, relief,
pensions, and other benefits), interest and other incidental business expenses
incurred by the Managing Company directly on behalf of the Plant in connection
with the business of the Plant. Any reasonable and necessary expenses incurred
by the Managing Company on behalf of the Plant at the Managing Company's initial
expense shall be characterized as Operational Costs
and reimbursed. All Operational Costs are the direct or indirect obligation of
the Company and ultimately paid by the Company.
OPERATIONAL REVENUES. The term "Operational Revenues" shall mean all
revenues from the operation of the Plant, including but not limited to sales of
ethanol, byproducts and ancillary operations.
PLANT. The term "Plant" shall mean the ethanol production facility to
be constructed by the Company in Lake County, South Dakota, consisting of the
physical plant and equipment used for ethanol production and the recovery of
byproducts.
DUTIES, RIGHTS AND OBLIGATIONS OF MANAGING COMPANY
GENERAL DUTIES, RIGHTS AND OBLIGATIONS. It is the duty of the Managing
Company to cooperate with the Company and act in a manner to maximize the long
term success and profitability of the Company. To this end the Managing Company
agrees to perform in a professional and competent manner. The Managing Company
shall have the day-to-day management control of the business of the Plant and
shall have the responsibility and authority to take all actions necessary or
appropriate to accomplish the purposes of the Plant including, without
limitation, the power and authority:
(a) To manage, supervise and conduct in good faith the day-to-day
affairs of the Plant.
(b) To hire such employees and independent contractors as the Managing
Company shall determine to be reasonably necessary to the operations of the
Plant, including, if the Managing Company so determines, any present Managing
Company Affiliate or any present employee of any Managing Company Affiliate.
(c) To purchase or otherwise obtain the right to use equipment,
supplies, hardware and software technology associated with the Plant, except
that new purchases in amounts exceeding $25,000.00 must be approved in advance
by the Company, which approval shall not be unreasonably withheld. As used in
the preceding sentence, "new purchases" does not refer to equipment, supplies,
hardware and software technology associated with the initial construction of the
Plant or associated with future expansions of the Plant approved by the Company
nor does it refer to repairs to or replacements of the equipment, supplies,
hardware and software technology associated with the initial Plant or the
expanded Plant.
(d) To maintain adequate records and accounts of all operations and
expenditures relating to the operations of the Plant.
(e) To execute all instruments of any kind or character which the
Managing Company in its discretion shall deem necessary or appropriate to carry
out its duties and responsibilities.
(f) To establish bank accounts, collect customer payments, disburse
cash and make other payments.
(g) To obtain liability and other insurance to protect the Plant
properties and assets.
(h) 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 Plant.
(i) To maintain, at the expense of the Company, adequate records and
accounts of all operations and expenditures and furnish the Company with annual
statements of account as of the end of each fiscal year, together with all
necessary tax reporting information.
EXPENSES CONSTITUTE OPERATIONAL COSTS. All expenses incurred by the
Managing Company in accomplishing the foregoing duties shall constitute
Operational Costs.
MANAGING COMPANY AFFILIATES. Neither the Managing Company nor any
Managing Company Affiliate nor any of their respective officers, directors, or
shareholders shall be prohibited from contracting with the Plant, nor shall such
parties be prevented from entering into any transactions to sell to or purchase
from the Plant any goods, supplies, equipment, or services of any kind
whatsoever, or to loan money, on terms not less favorable than those available
pursuant to transactions negotiated on an arm's length basis by non-affiliated
persons or entities. There must be notification to and approval by the Board of
Governors of the Company before the Company can do any business with a Managing
Company Affiliate.
INDEPENDENT CONTRACTOR STATUS. The Managing Company in the performance
of its duties under this Agreement shall occupy the position of an independent
contractor with respect to the Company. Nothing contained herein shall be
construed as making the parties hereto partners or joint venturers, nor, except
as expressly provided herein, construed as making the Managing Company an
employee of the Company.
DUTIES OF COMPANY
The Company hereby agrees to cooperate with the Managing Company in the
performance of the Managing Company's duties and responsibilities under this
Agreement, to act in good faith, and to do all reasonable things necessary to
aid the Managing Company's performance as an independent contractor under the
terms of this Agreement.
MANAGEMENT FEE; TRIMESTER/ANNUAL, INCENTIVE BONUS; EXPENSES
MANAGEMENT FEE. The Company shall pay the Managing Company a management
fee of $250,000.00 per year (the "Management Fee"), payable in monthly
installments of $20,833.33 due on the first day of each month. The "Management
Fee" shall be adjusted annually for inflation on March 1st based on the Consumer
Price Index, All Urban Consumers (CPI-U), U.S. City Average (All Items Category)
with a standard reference base period of 1982-84 =100 (The "CPI"). The
Management Fee shall be calculated for each subsequent year by first determining
the percentage change in the CPI from the previous year. The percentage change
in the CPI for the previous year shall then be multiplied by the Management Fee
in effect for the prior year and added to the Management Fee in effect during
the prior year. The percentage increase in the Management Fee for any given year
shall not exceed ten percent (10%).
TRIMESTER/ANNUAL INCENTIVE BONUS (HEREINAFTER REFERRED TO AS "INCENTIVE
BONUS"). As an incentive to the Managing Company to achieve high profitability,
to promote collection of those revenues billed and to encourage quality and
efficiency of operation, the Company shall pay to the Managing Company, in
addition to the Management Fee, five percent (5%) of the Trimester Net Income of
the Plant before income taxes in each of the first two trimesters of the fiscal
year. Such payments are due and payable within forty-five (45) days of the end
of each fiscal trimester. In the final trimester of each fiscal year, a final
payment will be made following the annual audit and within one hundred five
(105) days of the end of the fiscal year. This final payment, when added to the
trimester Incentive Bonus payments, will adjust the Annual Incentive Bonus to
equal five percent (5%) of the Audited Annual Net Income of the Plant before
income taxes for the fiscal year.
REIMBURSEMENT FOR OPERATIONAL COSTS. Other than as provided in the
following paragraph of this Agreement, all Operational Costs incurred by the
Plant or the Managing Company in pursuing the business of the Plant shall be
paid by the Company and characterized as Operational Costs. To the extent funds
are expended by the Managing Company which are to be reimbursed to it, the
Company shall reimburse the Managing Company within fifteen (15) days of receipt
of an expense report from the Managing Company.
NON-REIMBURSABLE EXPENSES. The Managing Company shall provide the
following services to the Plant without reimbursement for the expenses directly
incurred in connection therewith, other than travel expenses:
(a) The full time services of a qualified Plant General Manager, *Whose
salary and benefits shall be paid by the Managing Company without reimbursement;
(b) Ongoing process consulting by Broin and Associates, Inc., a
Managing Company Affiliate;
(c) Ongoing engineering services by Broin and Associates, Inc. with the
exception of equipment changes or expansions;
(d) Ongoing DCS system assistance by Broin and Associates, Inc.;
(e) Ongoing periodic DCS system/operations monitoring via modem by
Broin and Associates, Inc.;
(f) Ongoing new technology updates by Broin and Associates, Inc.;
(g) Ongoing operations assistance by Broin and Associates, Inc.;
(h) Ongoing microbiology assistance by Broin and Associates, Inc.;
(i) Access to any group pricing for inputs to the production process
that are available; and
(j) Access to a qualified grain xxxxxx to assist in minimizing raw
material and maximizing finished product pricing (available under separate
contract).
DUTIES OF GENERAL MANAGER
The Managing Company will provide the full time services of a qualified
Plant General Manager. The Plant General Manager's responsibilities include the
following:
(a) To oversee all business operations, Plant operations, purchasing
operations, marketing operations, personnel operations, and any and all other
items relating to Plant operations and profitability;
(b) Timely reporting of financial information and operational
information to the Managing Company;
(c) To maintain a positive company image and relationship in the city,
community, county, state and nation;
(d) To administer the wage and benefit package recommended by the
Managing Company and approved by the Company's Board of Governors;
(e) To ensure that all city, county, state and federal rules and
regulations are being met. This would include but not be limited to: air quality
regulations, storm water discharge regulations, BATE regulations, OSHA
regulations, state fuel regulations, state feed regulations, and any and all
other regulations pertaining to Plant operations;
(f) To observe all activities of the state and federal legislature and
work diligently to retain all current incentives available to the ethanol
industry. To work with any state or federal legislative effort that is positive
to the ethanol industry;
(g) To approve all plant purchases involving new items and sign all
checks and review all invoices on a timely basis. Raw material and replacement
purchases may be handled by individual departments;
(h) To oversee grain purchasing, ethanol marketing and distillers feed
marketing departments and to ensure best pricing scenarios for all products;
(i) To insure that all raw product costs are minimized and that all
finished product revenues are maximized; and
(j) To report to the Managing Company and Board of Governors on a
regular basis.
EQUIPMENT AND PROPERTY
EQUIPMENT. The Company shall cause all of the equipment initially
installed in the Plant to remain with the Plant for the duration of this
Agreement.
COMPANY-OWNED PROPERTY. The ownership of all Company-owned
nonexpendable property and equipment shall remain with the Company and shall not
be removed from the Plant, except in the ordinary course of business, without
the Company's prior written approval. The Managing Company shall have the use of
all Company-owned equipment during the term of this Agreement.
ADDITIONAL AND REPLACEMENT EQUIPMENT. The Managing Company may, from
time to time during the term of this Agreement install machinery, equipment, and
other property in the Plant, which may be attached or affixed to property. All
such machinery, equipment and other personal property purchased by the Managing
Company and not paid for from Operational Revenues shall remain the sole
property of the Managing Company. Upon termination of this Agreement, the
Managing Company shall remove its machinery, equipment and other personal
property and repair any damage caused by said removal.
PROPRIETARY INFORMATION
The Managing Company and its Managing Company Affiliates have
furnished, or will furnish, to the Company information, including but not
limited to, specifications, photocopies, magnetic tapes, drawings, sketches,
models, samples, tools, technical information, data, know-how, customer and
market information, financial reports, precontractual negotiations, engineering
studies, consultants' studies, options for site purchases, and relationships
established with experts, consultants and governmental agencies (all hereinafter
designated as "Proprietary Information") for the purpose of enabling the Plant
to be constructed and operated. Subject to the Company's Licensing Agreement and
right to use the Proprietary Information solely for the Company's purposes, the
Proprietary Information is and shall remain the Managing Company's and/or its
Managing Company Affiliates' property to use as it sees fit in its sole
discretion.
EFFECTIVE DATE; TERM; TERMINATION
EFFECTIVE DATE. This Agreement shall be effective upon execution, but
the Managing Company's management and operational duties and Company's payment
obligations shall not commence until five (5) months prior to the projected
start of Plant operations, as determined by the Company. The Company shall
provide written notice of commencement to the Managing Company thirty (30) days
prior to the commencement of the Managing Company's management and operational
duties.
TERM. The Company hereby contracts with the Managing Company
exclusively and the Managing Company hereby accepts responsibility as the
Managing Company and operator of the Plant as defined herein. The term of this
Agreement shall continue until January 1, 2006.
This Agreement shall be automatically extended for an additional five
(5) year term following the end of the initial term unless either party gives
notice of termination by giving written notice within ninety (90) days of the
last day of the contract term.
The aforementioned renewal provision shall apply in the same manner for
all subsequent expiring terms. Therefore, every five (5) years this Agreement
shall be either automatically extended or proper notice of termination given by
either party as provided.
TERMINATION FOR CAUSE. Either party has the right to terminate this
Agreement for cause by giving written notice to the other party of such
termination, and this Agreement will be terminated immediately after such
notice. Either party may give notice of termination for cause without first
resorting to the dispute resolution process described below. As relates to
termination for cause by the Company, "for cause" means the Managing Company's
failure or refusal to perform under this Agreement or willful misconduct,
embezzlement, or other illegal or unethical acts by the Managing Company. As
relates to termination for cause by the Managing Company, "for cause" means the
Company's failure or refusal to pay Management Fees or Trimester/Annual
Incentive Bonuses when due.
COVENANT NOT TO HIRE PLAN GENERAL MANAGER
In the event of the termination of this Agreement, the Company and any
replacement manager shall not hire the Plant General Manager who was provided by
the Managing Company without the written consent of the Managing Company for
three (3) years subsequent to the date of termination. This covenant shall be
expressly included as a term of any agreement retaining a replacement manager.
DISPUTE RESOLUTION
In the event of a dispute between the Company and the Managing Company
relating to the terms of or performance under this Agreement, either party may,
by written notice to the other party, call for mediation of the issue before a
mediator to be agreed upon by the parties. In the event of a dispute between the
parties arising out of or relating to the Agreement that is not resolved by
mediation, either party may, either with or without first attempting to resolve
the dispute by mediation, by written notice to the other party, call for
arbitration of the issue before a single arbitrator agreed upon by the parties.
In the event a single arbitrator cannot be agreed upon, each party shall appoint
a third party representative from a list provided by the American Arbitration
Association (not a principal of a party) and the two representatives thus
selected by the parties shall select a third arbitrator. The arbitrators shall
meet as expeditiously as possible to resolve the dispute, and a majority
decision of the arbitrators shall be controlling. While each party is free to
select an arbitrator of its own choosing from the list provided by the American
Arbitration Association, either party by written notice to the other may require
that all arbitrators chosen have sufficient expertise in the subject matter of
the arbitration that they would qualify as "expert witnesses" in a judicial
proceeding. The arbitration proceeding shall be held in Lake County, South
Dakota, or some other location mutually acceptable to the parties. The
arbitrators shall issue a written opinion setting forth their findings of fact,
conclusions of law and decision. The arbitrators' decision may be reduced to
judgment in a court of law. The arbitrators so chosen shall conduct the
arbitration in accordance with the Rules of the American Arbitration Association
as applicable in the State of South Dakota. The arbitrators shall be governed,
in their determinations hereunder, by the intention of the parties as evidenced
by the terms of this Agreement. After signing this Agreement, each party
understands that it will not be able to bring a lawsuit concerning any dispute
that may arise that is covered by this arbitration provision, unless it involves
a question of constitutional law or civil rights. Instead, each party agrees to
submit disputes to binding impartial arbitration as provided herein.
ASSIGNMENT
This Agreement shall be assignable by either party upon mutual written
consent of the parties hereto.
INSURANCE
THE COMPANY'S INSURANCE. The Company shall carry and maintain at its
expense the following insurance policies:
a. A commercial liability insurance policy to afford protection with
limits for each occurrence of not less than $1,000,000.00 with respect to
personal injury or death of any one person, $1,000,000.00 with respect to the
personal injury or death occurring or resulting from one occurrence, and
$2,000,000.00 general aggregate.
b. An all-risk property and casualty insurance policy, written at full
insurable value and with replacement cost endorsement, covering the Company's
buildings, improvements, equipment and personal property.
c. An umbrella policy to afford protection with a limit of not less
than $5,000,000.00.
d. Workers' compensation insurance required by South Dakota law.
e. Automobile liability and collision insurance with a combined single
limit of not less than $1,000,000.00.
THE MANAGING COMPANY'S INSURANCE. The Managing Company shall carry and
maintain at its expense the following insurance policies:
a. A commercial liability insurance policy to afford protection with
limits for each occurrence of not less than $1,000,000.00 with respect to
personal injury or death of any one person, $1,000,000.00 with respect to the
personal injury or death occurring or resulting from one occurrence, and
$2,000,000.00 general aggregate.
b. In the event that property is owned by Managing Company, an all-risk
property and casualty insurance policy, written at full insurable value and with
replacement cost endorsement, covering the Managing Company's personal property.
c. An umbrella policy to afford protection with a limit of not less
than $5,000,000.00.
d. Workers' compensation insurance required by South Dakota law.
e. In the event that autos are owned by Managing Company, automobile
liability and collision insurance with the combined single limit of not less
than $1,000,000.00.
f. Non-owned automobile liability insurance in the amount of
$1,000,000.00.
POLICY REQUIREMENTS. The company or companies writing any insurance
required to be carried or maintained pursuant to this Agreement shall be with a
company or companies which shall be licensed to do business in the State of
South Dakota. The Managing Company's commercial general liability insurance
shall name the Company as an additional insured. All policies shall contain a
provision by which the insurer agrees that such policy shall not be canceled
except after thirty (30) days' written notice to the other party. A Certificate
of Insurance shall be provided to each party upon request.
WAIVER OF CLAIMS. Neither the Company nor the Managing Company shall be
liable to the other party for any loss or damage to any building, improvement or
other tangible property owned by the other, including but not limited to lost
rents, income and profits, even though such loss or damage might have been
occasioned by the negligence of such party, its employees, agents or
contractors.
MISCELLANEOUS
HEADINGS. The headings contained herein are for convenience only and
are not intended to define or limit the scope of intent of any provisions of
this Agreement.
GOVERNING LAW. The validity of this Agreement, the construction of its
terms and the interpretation of the rights and duties of the parties hereto
shall be governed by the laws of the State of South Dakota.
NOTICES. Any notice required or permitted herein to be given shall be
given in writing and shall be delivered by United States registered or certified
mail, return receipt requested, to the President of the Managing Company or
Chairman of the Company, as the case may be, at the addresses set forth below or
such address as the Company or Managing Company shall provide notice of from
time to time during the term of this Agreement:
Company: Dakota Ethanol, L.L.C.
c/o Lake Area Corn Processors Cooperative
Attention: Xxxxx Xxxxxxx
Xxxx Xxxxxx Xxx 000
Xxxxxxxxx, XX 00000
Managing Company: Broin Management, LLC
Attention: Xxxxxxx X. Xxxxx
00000 Xxxxxxxxxx Xxx
Xxxxx Xxxxx, XX 00000
SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the respective parties and their permitted assigns and successors in
interest.
SEVERABILITY. Should any term or provision hereof be deemed invalid,
void, or unenforceable either in its entirety or in a particular application,
the remainder of this Agreement shall nonetheless remain in full force and
effect and, if the subject term or provision is deemed to be invalid, void or
unenforceable only with respect to a particular application, such term or
provision shall remain in full force and effect with respect to all other
applications.
INDEMNITY BY THE COMPANY. The Company shall indemnify, hold harmless
and defend the Managing Company, and its officers, directors, employees and
agents from and against any and all claims, actions, damages, liabilities and
expenses, including but not limited to, attorneys' and other professional fees,
in connection with loss of life, personal injury and/or damage to property of
third parties, arising from or out of the Managing Company's services provided
under the terms and conditions of this Agreement, except that the Company shall
not indemnify, hold harmless and defend the Managing Company from (i) the
negligent or intentional acts of the Managing Company and its officers,
directors, employees and agents, (ii) any act beyond the scope of the Managing
Company's services to be rendered under the terms and conditions of this
Agreement, and (iii) any violation of laws, regulations, ordinances and/or court
orders.
INDEMNITY BY THE MANAGING COMPANY. The Managing Company shall
indemnify, hold harmless and defend the Company, and its governors, employees
and agents from and against any and all claims, actions, damages, liabilities
and expenses, including, but not limited to, attorneys' and other professional
fees, in connection with loss of life, personal injury and/or damage to property
of third parties arising from or out of (i) the negligent or intentional acts of
the Managing Company and its officers, directors, employees and agents, (ii) any
act beyond the scope of the Managing Company's services to be rendered under the
terms and conditions of this Agreement, and (iii) any violation of laws,
regulations, ordinances and/or court orders.
WAIVERS. No waiver of any breach of any of the terms or conditions of
this Agreement shall be held to, be a waiver of any other subsequent breach; nor
shall any waiver be valid or binding unless the same shall be in writing and
signed by the party alleged to have granted the waiver.
COUNTERPARTS. This Agreement may be executed in multiple counterparts
all of which shall constitute but one Agreement.
AMENDMENT. This Agreement may be amended with the written consent of
the Company and the Managing Company.
NO ASSIGNMENT. The Managing Company shall not without the prior written
consent of the Company assign, transfer or subcontract any rights or obligations
of the Managing Company under this Agreement. If the shareholders of the
Managing Company sell, assign or transfer a controlling interest in the Managing
Company, or if the Managing Company sells substantially all of its assets, the
Company shall have the right to terminate this Agreement without liability to
the Managing Company.
ENTIRE AGREEMENT. This Agreement is the entire Agreement between the
parties. Any amendment hereto must be in writing and signed by both parties
hereto to come into full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 7th day of October, 2001.
COMPANY: MANAGING COMPANY:
Dakota Ethanol, L.L.C. Broin Management, LLC
By /s/ Xxxxxxx Xxx Xxxxxx By /s/ Xxxxxxx X. Xxxxx
----------------------------------- ------------------------
Its Chairman - Xxxxxxx Xxx Xxxxxx Xxxxxxx X. Xxxxx
Its Chief Manager
and
By /s/ Xxxxx X. Xxxxx
-----------------------------------
Its Secretary - Xxxxx X. Xxxxx
