EXHIBIT 10.4

 

[********] Material has been omitted pursuant to request for confidential
treatment and such material has been filed separately with the Securities and
Exchange Commission.

 

SERVICES AND GUARANTEE AGREEMENT

 

THIS SERVICES AND GUARANTEE AGREEMENT (this “Agreement”), effective as of the
23rd day of June, 2005, is by and between CVP, LLC, a limited liability company
organized and existing under the laws of the State of Wisconsin, (“CVP”), and
BADGER STATE ETHANOL, LLC, a limited liability company duly organized and
existing under the laws of the State of Wisconsin (“BSE”).

 

WITNESSETH

 

WHEREAS, simultaneously with and as a condition hereto, the following agreements
are entered into by the parties hereto: (i) that certain License Agreement
between BSE and CVP (the “License”); (ii) an AIA Document A141-2004 construction
agreement dated the date hereof (the “AIA Agreement”) between AMG/GCI, LLC, an
Iowa limited liability company and BSE; (iii) a Corn Germ Marketing Agreement
dated the date hereof (the “Corn Germ Marketing Agreement”) between Quality
Technology International, Inc., (“QTI”) and BSE; and (iv) a Corn Protein
Concentrate Marketing Agreement dated the date hereof (the “Corn Protein
Concentrate Marketing Agreement”) between QTI and BSE (collectively, with this
Agreement, the “Transaction Documents”);

 

WHEREAS, taken as a whole, the Transaction Documents constitute the design and
buildout of a [********] ethanol facility at BSE’s facility in Monroe, Wisconsin
(the “Project”);

 

WHEREAS, in order to incentive BSE to enter into the Transaction Documents, CVP
has agreed to guarantee the performance of the Project on the standards set
forth herein;

 

NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth,
the parties agree as follows:

 

ARTICLE 1                                Definitions

 

(1.1)                         The defined terms in the License Agreement shall
have the same meanings when used herein and shall apply to this Agreement.

 

(1.2)                         The terms defined in Schedule A attached hereto
shall, for all purposes of this Agreement, have the meanings specified in said
Schedule A.

 

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[********] Material has been omitted pursuant to request for confidential
treatment and such material has been filed separately with the Securities and
Exchange Commission.

 

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ARTICLE 2                                Consideration and Scope of Work

 

(2.1)                         Consideration.  CVP hereby agrees to perform all
of its obligations required by this Agreement and the License (collectively, the
“Core Agreements”).

 

(2.2)                         Description of Work.  CVP shall provide the
engineering and other services required of it as set-forth and described in the
Schedules B and D attached hereto.

 

ARTICLE 3                                Application of Process Guarantees

 

(3.l)                            The Process Guarantees (as defined in
Article 4) shall apply to BSE’s Monroe, Wisconsin facility (the “Plant”) only
when the Project is completed including without limitation, the procurement and
installation of all equipment in accordance with the engineering design
specifications and instructions.

 

(3.2)                         When the Process Guarantees are deemed met and
satisfied as provided in Article 6 or Schedule C, such Process Guarantees shall
no longer apply to the Plant and CVP’S obligations with respect thereto shall be
deemed satisfied in full and shall cease.

 

ARTICLE 4                                Process Guarantee

 

CVP guarantees that during the performance test described in Article 6 (the
“Performance Test”), the Plant will process fresh substrate charge to produce
corn germ, corn fiber, corn protein concentrate, CO2, and “anhydrous alcohol,”
according to the specifications set forth in Schedule C attached hereto (the
“Process Guarantee”).  CVP acknowledges that, during the initial Start-up, the
Plant will temporarily produce HI-PRO DDGS which will have similar
specifications to the DDGS being produced currently by BSE, however, such
temporary production of HI-PRO DDGS is not part of the Process Guarantee or the
Performance Test.  In the event that the Plant does not, during the Performance
Test, meet or exceed the Process Guarantee, then CVP covenants and agrees to
take any reasonable action necessary, at its own expense, to modify or adjust
the Project such that the Process Guarantee is met.  CVP hereby represents and
warrants that the Project as contemplated by the Core Agreements shall not
adversely effect the Plant’s current operations including the production of
ethanol or carbon dioxide (including, without limitation, causing the Plant to
cease operations at any one time for more than 72 hours in aggregate).  As BSE’s
sole and exclusive remedy, should the Plant not meet the Process Guarantee at
the conclusion of the last of the Performance Tests permitted under Article 6
hereof, subject to the parameters set forth in Schedule D hereto, due to
material fault of CVP, CVP shall, within sixty (60) days after the submission by
CVP of the results of such Performance Test as required under Article 6 hereof,
pay to BSE as liquidated damages, at the office of BSE designated on Page 1 of
this Agreement, in lawful money of the United States of America, a sum of money
calculated pursuant to Schedule C.

 

ARTICLE 5                                Start-Up Assistance; Training

 

(5.1)                         Start-up shall occur in accordance with the Master
Schedule approved by BSE.   “Start-up” shall mean the commencement of operations
by the Plant.  CVP shall give at least thirty (30) days notice in writing to BSE
specifying the estimated date of completion of the

 

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Upgrade of the Plant. CVP’S senior technologists shall be in attendance at the
Plant at least two (2) weeks prior to Start-up, as necessary, to inspect the
Plant to determine if the Plant is ready to operate and that the conditions as
set forth in Article 3.1 have been met.

 

(5.2)                         CVP shall use its best efforts to assist BSE in
the start-up of the Plant in order to establish operating conditions, and to
carry out the Performance Test; provided, however, that regardless of the effort
used, the Process Guarantee shall be absolute.  CVP shall supervise and provide
technical and operational training for representatives of BSE with respect to
the operation of the Plant consistent with the Licensed Process to ensure that
such representatives of BSE are fully trained in the operation of the Plant
consistent with the Licensed Process.  CVP’S duty of supervision and training
under this Section is limited to the operation of Plant consistent with the
Licensed Process and does not include, or extend to any other matters, including
but not limited to employee safety, employee conduct or general machine
operation.  CVP’S duty to provide training and supervision shall terminate upon
completion of satisfactory training of BSE’s representatives and the successful
completion of a Performance Test, unless otherwise extended by mutual agreement
of BSE and CVP.  Notwithstanding the above, CVP shall be responsible for
managing, directing and coordinating the Performance Test.

 

(5.3)                         As part of CVP’S training of representatives of
BSE, and prior to the commencing of Start-up operations, CVP shall provide a
Process Operation Manual, as described in Schedule A attached hereto, that will
set-forth the proper operation and maintenance of the Plant consistent with the
Licensed Process.

 

ARTICLE 6                                Performance Test

 

(6.l)                            After the Start-up described in Article 5 and
the Plant having reached nameplate capacity of 52 million gallons per year for a
period of seven (7) consecutive days (as calculated on the basis of a 365 day
year), but not later than ninety (90) days from the later of the date of
completion of the Start-up, CVP shall notify BSE in writing that the Plant is
ready for the Performance Test (the “Performance Test Notification”).

 

(6.2)                         Upon receipt of the Performance Test Notification,
BSE shall have the obligation of calling for the Performance Test by setting a
date for same not less than seven (7) days nor more than thirty (30) days from
the date of the Performance Test Notification.  Delays in the beginning of the
Performance Test caused by other portions of the Plant outside the “Battery
Limits” of the Licensed Process as described on Schedule D attached hereto will
not be deemed to constitute a material cause for a delay of the Performance
Test, unless agreed to by CVP and BSE.

 

(6.3)                         The Performance Test shall be conducted by CVP,
provided that BSE shall cause its representatives to take all reasonable actions
to assist CVP in satisfactorily completing the Performance Test.  The
Performance Test shall be deemed to have been met as soon as the Plant has
satisfied the requirements of the Process Guarantee and Section 6.5.

 

(6.4)                         In the event that the Plant fails a Performance
Test then CVP shall promptly take all actions reasonably necessary to repair the
deficiency which resulted in such failure at its own

 

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expense.  Thereafter, CVP shall reasonably promptly conduct additional
Performance Tests and make additional repairs or modifications as reasonably
necessary and at its own expense until the Plant successfully meets the Process
Guarantee.

 

(6.5)                         Within two (2) business days after completion of
each Performance Test, CVP shall submit to BSE in writing the results thereof. 
If CVP determines that the Process Guarantee has been met, then CVP shall
certify in writing that the Process Guarantee relating to such Performance Test
has been met in all regards (the “Certification”). Such Process Guarantee shall
be deemed to have been met if CVP provides the Certification and if BSE, within
sixty (60) days after receiving the Certification, does not respond in writing
to CVP detailing in what respect, in BSE’S opinion, such Process Guarantee has
not been met.  If BSE notifies CVP that the Process Guarantee, in BSE’s
reasonable judgment, has not been met, then CVP, at its cost and expense, shall
make such corrections as are reasonably necessary to ensure that the Plant
complies with the Process Guarantee.

 

(6.6)                         BSE shall furnish, at no cost to CVP, fresh
substrate charge, yeast culture, enzymes, chemicals, utilities, operating and
maintenance personnel, minor (nonmaterial) maintenance materials and necessary
services, such as adequate laboratory inspection and minor (nonmaterial)
operating supplies as are required for the operation of the Plant in order to
meet the Process Guarantee as herein made. BSE shall be responsible to process
fresh substrate charge at a rate as reasonably required by CVP during the
Performance Test, provided that such rate shall not exceed 100% of daily
capacity (calculated at 52 million gallons of ethanol per year).

 

(6.7)                         Notwithstanding any other provision of the Core
Agreements, CVP covenants and agrees that the Plant shall be fully upgraded and
operational, having successfully passed its Performance Test in accordance with
the Master Schedule approved by BSE, unless otherwise extended by mutual written
agreement of BSE and CVP.

 

ARTICLE 7                                Modifications

 

(7.1)                         Prior to meeting the Process Guarantee, CVP shall
have the right to make such reasonable changes, at its own cost and expense, to
the Project as are required to meet the Process Guarantee with the prior written
consent of BSE (which consent shall not be unreasonably withheld, conditioned or
delayed).  CVP represents that it has the authority to make such changes and
that such changes shall be subject to all representations and warranties stated
in the Core Agreements.  CVP will furnish the necessary design engineering
documentation showing such changes at no charge to BSE.

 

(7.2)                         In order to enable CVP to determine, prior to
making such modifications to the Plant, the nature of the defects in the Plant,
if any, BSE shall, upon reasonable notice and request by CVP, operate the Plant
under commercially reasonable and safe operating conditions as may be reasonably
specified by CVP from time to time during the Performance Test.

 

(7.3)                         In the event BSE fails to operate and maintain the
Plant in substantial accordance with the operation manual provided by CVP, CVP
shall provide written notice of such failure to BSE and BSE shall cure such
failure.  Notwithstanding the above, if the reason that BSE failed

 

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to operate and maintain the Plant in material accordance with the operation
manual provided by CVP is because such operation and maintenance would result in
a material adverse effect on the Plant, then CVP shall modify said operation
manual so that compliance with the operation manual will not result in a
material adverse effect on the Plant.

 

(7.4)                         Except as may otherwise be provided herein, BSE
shall assume all expenses of operation of the Plant, and shall have complete
control of the Plant at all times.

 

ARTICLE 8                                Guarantee

 

(8.1)                         Subject to the limitations in Section 8.2 below,
CVP hereby guarantees the prompt, full and faithful discharge of each and every
obligation, term, condition and agreement of CVP in the Core Agreements.

 

(8.2)                         Notwithstanding any other provision of the
Transaction Documents, including without limitation, the License, in no event
shall CVP’s aggregate liability under the Transaction Documents
exceed[********].  In no event shall CVP be responsible for any punitive,
incidental, consequential, exemplary or lost profits damages.

 

ARTICLE 9                                Security

 

In order to secure CVP’s obligations under this Agreement, CVP agrees as
follows:

 

(9.1)                         Notwithstanding anything to the contrary in the
License, BSE may withhold five percent (5%) of each payment due under the
Technical Information Fee, said retainage to be paid to CVP immediately upon
completion of the Performance Test to the reasonable satisfaction of BSE.

 

(9.2)                         CVP shall cause Centrisys Corporation, AMG, Inc.
and QTI to execute separate limited guarantees in favor of BSE, guaranteeing
CVP’s payment obligations under this Agreement, said limited guarantees to be
limited to no more than [********] each.  Each of said limited guarantees shall
be terminated immediately upon completion of the Performance Test to the
reasonable satisfaction of BSE.

 

ARTICLE 10                         Insurance

 

(10.1)                   CVP agrees, at its expense, to maintain in full force
and effect during the entire time any work is performed at the Plant by CVP or
the employees, agents or subcontractors of either, a policy or policies of
public liability and property damage insurance under which BSE are named as
additional insured.  The policy shall provide that BSE will receive 30 day
written notice of any material change in policy conditions, non-refundable or
cancellation.  The minimum limits of coverage of such policies in the aggregate
shall be Two Million and no/100 Dollars ($2,000,000.00) for injury or death to
any one person, and One Million and no/100 Dollars ($1,000,000.00) with respect
to damage to property.

 

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[********] Material has been omitted pursuant to request for confidential
treatment and such material has been filed separately with the Securities and
Exchange Commission.

 

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ARTICLE 11                         Assignment

 

(11.1)                   This Agreement and the obligations of the parties
hereto shall not be assignable by CVP or BSE subject, however, to the following
exceptions:

 

(11.1.1)          with the prior expressed written consent of the other party;
or

 

(11.1.2)          upon the acquisition by a Person of all or substantially all
of the equity, stock, membership interests or partnership interests, or assets
of CVP or BSE, whether by merger, consolidation, purchase or otherwise, provided
the Plant remains located in Monroe, Wisconsin.

 

(11.2)                   Upon the occurrence of an event described in
Section 11.1.2, the assigning party shall provide prompt written notice to the
other.

 

(11.3)                   All assignees of this Agreement or successors of either
party shall be bound by all the terms and conditions of this Agreement, and
shall enter into a written agreement assuming all of the obligations of the
assigning party under this Agreement.

 

(11.4)                   This Agreement applies to the Plant.  Any other
facility constructed, owned or operated by BSE with respect to which BSE desires
to use the Licensed Process shall require a separate license from CVP prior to
its use of such Licensed Process at such facility, upon terms satisfactory to
CVP.

 

ARTICLE 12                         Applicable Law

 

(12.1)                   This Agreement shall be construed under and governed by
the laws of the State of Wisconsin without regard to the conflict of laws
principals thereof.  The parties irrevocably consent to the sole and exclusive
jurisdiction and venue in the appropriate state or federal court in Wisconsin.

 

ARTICLE 13                         Waiver of Default

 

(13.1)                   Waiver by either party of any default by the other
under the terms of this Agreement shall not be deemed to be a waiver by such
party of any other default by the other, whether similar or dissimilar in
nature. No modifications or waiver of any of the provisions herein contained
shall be binding unless made in writing and signed by authorized representatives
of the parties.

 

ARTICLE 14                         Severability

 

(14.1)                   In the event that any term or provision of this
Agreement is invalidated at any time by rule of law or statutory provision, the
remaining terms and provisions of this Agreement shall remain in full force and
effect and be binding upon both parties hereto.

 

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ARTICLE 15                         Notices

 

(15.1)                   All notices pertaining to this Agreement shall be in
writing and shall be effective at the earliest of the following: (a) when
received; (b) three (3) days after deposit in the U.S. mail, if mailed postpaid
and correctly addressed; or (c) on the date shown on the return receipt, if sent
by registered or certified mail, return receipt requested and the receipt is
signed by or on behalf of the addressee.  Such notices whether to CVP or BSE
shall be sufficient if transmitted by facsimile, delivered in person, or sent by
registered or certified mail. The parties designate the following addresses for
notice purposes:

 

 

 

CVP, LLC

 

 

9586 58th Place

 

 

Kenosha, Wisconsin 53144

 

 

Attn: Mr. Michael Kopper

 

 

Facsimile: (262) 654-6063

 

 

 

With a copy to:

 

AMG, Inc.

 

 

1497 Shoup Mill Rd.

 

 

Dayton, OH 45406

 

 

Attn: Mr. Alberto G. Mendez

 

 

Facsimile: (937) 274-3870

 

 

 

 

 

and

 

 

 

 

 

Quality Technology International, Inc.

 

 

2250 Point Blvd., Suite 322

 

 

Elgin, Illinois 60123

 

 

Attn: Mr. David J. Hammes

 

 

Facsimile: (847) 649-9300

 

 

 

 

 

and

 

 

 

 

 

Centrisys Corporation

 

 

9586 58th Place

 

 

Kenosha, Wisconsin 53144

 

 

Attn:

 

 

Facsimile:

 

 

 

 

 

Badger State Ethanol, LLC

 

 

820 W. 17th Street

 

 

Monroe, WI 53566-0317

 

 

Attn: Dr. Gary Kramer

 

 

Facsimile: (608) 329-3866

 

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ARTICLE 16                         Entire Agreement; Counterparts

 

(16.1)                   This Agreement sets forth the entire agreement of the
parties with respect to the subject matter of this Agreement, and supersedes any
and all previous agreements between the parties with respect hereto, and no
written undertakings given either previously to or simultaneously with the
signing of this Agreement and not expressly made a part hereof shall be admitted
to vary or correct its terms.  The recitals set forth at the beginning of this
License are incorporated into, and an integral part of, this Agreement.  This
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original, and all of which shall constitute one and the same
document.  This Agreement may be executed by facsimile signatures.

 

ARTICLE 17 Dispute Resolution

 

(17.1)                   Mediation.  The parties shall bring any and all
disputes, controversies or claims arising under this Agreement to the attention
of the other without prejudicing their relationship and operations hereunder. 
Appropriate personnel of both parties shall be made available, either by mail,
telephone or personal meeting for the prompt and effective adjustment of any and
all such differences.  In the event the parties are unable to resolve any
dispute, controversy or claim arising under this Agreement between them, the
parties shall, before commencement of arbitration submit the issue to a neutral,
qualified mediator selected by mutual agreement of the CVP and BSE.  Such
dispute shall be submitted to mediation upon one party providing written notice
to the other (“Mediation Notice”).  Such mediation shall be held in a neutral
location between the domiciles of the respective parties as selected by mutual
agreement of the CVP and BSE, and the mediator’s fee shall be paid in equal
shares by the CVP and BSE.  If such dispute is not be successfully resolved
within 30 days of the date of receipt of the Mediation Notice, or such longer
period as mutually agreed in writing by the CVP and BSE, then immediately at the
end of such period the parties hereto shall be entitled to resolve such dispute,
controversy or claim pursuant to Sections 17.2 through 17.5 below.

 

(17.2)                   Arbitration.  In the event that any controversy or
claim arising under this License cannot be resolved by the parties, such
controversy or claim shall be settled by binding arbitration in accordance with
the Commercial Arbitration rules of the American Arbitration Association (except
as specifically modified below), and the judgment upon the award may be entered
in any court having competent jurisdiction thereof.  The prevailing party shall
be entitled to reasonable attorney fees plus the cost and expenses incident to
collection and/or defense from the non-prevailing party.  BSE and CVP shall
mutually agree on a neutral qualified arbitrator within thirty (30) days after
the filing of any notice of arbitration by one against the other.  If BSE and
CVP are not able to agree on a single arbitrator within such thirty (30) day
period, then BSE and CVP shall obtain a list of three (3) neutral arbitrators
from Resolute Systems, Inc. (or, if such company no longer exists, from a
similar company) located in Milwaukee, Wisconsin.  From such list, BSE and CVP
shall each have one alternating strike to determine which arbitrator of the
three shall arbitrate the matter.  The process to narrow the list of three
(3) arbitrators down to one (1) arbitrator shall be facilitated by Resolute
Systems, Inc. (or, if such company no longer exists, from a similar company),
and shall be completed no later than fifteen (15) days after the end of the
thirty (30) day period described above (unless otherwise agreed by BSE and CVP).

 

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The arbitration shall be completed within seventy-five (75) days from when the
arbitrator is selected.”

 

(17.3)                   The arbitration shall be brought in the jurisdiction of
the party against whom relief is sought.

 

(17.4)                   The award of the Arbitrator shall be in writing and
shall set forth each issue considered and the Arbitrator’s findings of fact and
conclusions of law as to each issue considered.

 

(17.5)                   All aspects of the arbitration, including the hearing
and the record of the proceedings, are confidential and shall not be open to the
public, except as may otherwise be appropriate in response to a governmental
agency or legal process.

 

ARTICLE 18                         Force Majeure

 

(18.1)                   Notwithstanding any other provisions to the contrary in
this Agreement, neither party hereto shall be responsible for a default in or
breach of this Agreement which is the result of strike, fire, war, earthquake,
flood, pestilence, riot, act of God, act of government or other cause beyond the
control of the parties, unless performance is not promptly resumed upon
termination of such cause.

 

ARTICLE 19                         Attachments

 

(19.1)                   The following documents are incorporated herein by
reference and made a part hereof:

 

Schedule A                                  Definitions

Schedule B                                    Responsibility Matrix

Schedule C                                    Process and Product Guarantee

Schedule D                                   Specifications of Auxiliaries,
Chemical and Utilities

 

OTHER THAN ANY WARRANTY PROVIDED FOR UNDER THE LICENSE OR THIS AGREEMENT, CVP
MAKES NO OTHER WARRANTIES, EXPRESS OR IMPLIED, AND EXPRESSLY DISCLAIMS ANY OTHER
WARRANTIES, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.

 

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IN WITNESS WHEREOF, the parties have agreed to the foregoing on the 23RD day of
June, 2005.

 

 

BADGER STATE ETHANOL, LLC

CVP, LLC

 

 

 

 

By:

 

/s/ Gary L. Kramer

 

By:

 

/s/ Michael Kopper

 

 

 

Title:

 

President

 

Title:

 

Member

 

 

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SCHEDULES OMITTED

 

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