EXHIBIT 10.2
 
 
 
 
 
 
OPERATING AGREEMENT
 
OF
 
ETHANEX SOUTHERN ILLINOIS, LLC

 

DATED: September 20, 2006

 
 

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TABLE OF CONTENTS

 

       
Page
         
ARTICLE I.
   
FORMATION
     
1
1.1
 
Organization
 
1
1.2
 
Agreement; Effect of Inconsistencies with Act
 
1
1.3
 
Name
 
2
1.4
 
Term
 
2
1.5
 
Registered Agent and Office
 
2
1.6
 
Principal Office
 
2
ARTICLE II.
 
NATURE OF BUSINESS
 
2
2.1
     
2
ARTICLE III.
 
NAME AND ADDRESS OF INITIAL MEMBERS
 
2
3.1
     
2
ARTICLE IV.
 
MANAGEMENT
 
2
4.1
 
Management-General
 
2
4.2
 
Management Powers and Responsibilities
 
3
4.3
 
Other Activities by Manager and Members
 
4
4.4
 
Reserved Powers
 
4
4.5
 
President/CEO
 
6
4.6
 
Liability for Certain Acts
 
7
4.7
 
Resignation
 
7
4.8
 
Removal
 
7
4.9
 
Compensation of Manager
 
8
ARTICLE V.
 
BOARD OF DIRECTORS
 
8
5.1
 
Number and Tenure
 
8
5.2
 
Chairman of the Board
 
8
5.3
 
Meetings
 
8
5.4
 
Telephone Meetings
 
8
5.5
 
Action by Written Consent
 
8
5.6
 
Minutes of Meetings
 
8
5.7
 
Business Plan
 
9

 
 
 

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ARTICLE VI.
 
RIGHTS AND DUTIES OF THE MEMBERS
 
9
6.1
 
Liability of Members
 
9
6.2
 
Indemnification
 
9
6.3
 
Business Opportunities
 
9
6.4
 
Company Books
 
10
6.5
 
Voting
 
10
6.6
 
Priority and Return of Capital
 
10
6.7
 
Pledge Restriction
 
10
ARTICLE VII.
 
CONTRIBUTIONS
 
10
7.1
 
Initial Contributions
 
10
7.2
 
Additional Capital Contributions
 
10
7.3
 
Capital Accounts
 
11
ARTICLE VIII.
 
ACCOUNTING METHOD, ALLOCATIONS, DISTRIBUTIONS
 
12
8.1
 
Method of Accounting
 
12
8.2
 
Allocations
 
12
8.3
 
Distributions
 
12
8.4
 
Special Allocations
 
13
ARTICLE IX.
 
RECORDS, TAX MATTERS, BANKING
 
14
9.1
 
Books and Records
 
14
9.2
 
Tax Matters
 
15
9.3
 
Bank Accounts
 
15
ARTICLE X.
 
SECURITIES LAWS MATTERS
 
15
10.1
 
Representations
 
15
10.2
 
Compliance with Securities Laws and Other State and Federal Law
 
16
ARTICLE XI.
 
ADMISSION OF ADDITIONAL MEMBERS AND MEMBERSHIP INTEREST TRANSFERS
 
16
11.1
 
Admission of Additional Members
 
16
11.2
 
Disposition
 
16
11.3
 
General Restrictions on Transfers
 
17
11.4
 
Right of First Refusal
 
17
11.5
 
Failure to Fully Exercise Options; Co-Sale
 
18
11.6
 
Drag Along Rights
 
19
11.7
 
Termination of Transfer Restrictions
 
19
11.8
 
Insolvency
 
19

 
 
 

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ARTICLE XII.
 
DISSOLUTION AND WINDING UP
 
20
12.1
 
Dissolution
 
20
12.2
 
Effect of Dissolution
 
20
12.3
 
Distribution of Assets on Dissolution
 
21
12.4
 
Winding Up and Articles of Dissolution
 
21
ARTICLE XIII.
 
PROTECTION OF CONFIDENTIAL INFORMATION
 
21
13.1
 
Protection of Confidential Information
 
21
13.2
 
Exceptions
 
21
13.3
 
Use of Confidential Information
 
21
13.4
 
Return of Confidential Information
 
21
13.5
 
Access to Confidential Information
 
22
13.6
 
Proprietary Nature of Information
 
22
13.7
 
Company-Developed Technology
 
22
ARTICLE XIV.
 
AMENDMENT
 
23
14.1
     
23
ARTICLE XV.
 
MISCELLANEOUS PROVISIONS
 
23
15.1
 
Entire Agreement
 
23
15.2
 
Rights of Creditors and Third Parties under Operating Agreement
 
23
15.3
 
Notices
 
23
15.4
 
Execution of Additional Instruments
 
23
15.5
 
Construction
 
23
15.6
 
Headings
 
23
15.7
 
Waivers
 
23
15.8
 
Rights and Remedies Cumulative
 
23
15.9
 
Severability
 
24
15.10
 
Heirs, Successors and Assigns
 
24
15.11
 
Counterparts
 
24
ARTICLE XVI.
 
DEFINITIONS
 
24
16.1
     
24
EXHIBIT A
 
ETHANEX SOUTHERN ILLINOIS, LLC IDENTIFICATION OF SPECIFIC ITEMS
 
29
EXHIBIT B
 
ETHANEX SOUTHERN ILLINOIS, LLC INITIAL CAPITAL CONTRIBUTIONS
 
30
EXHIBIT C
 
ETHANEX SOUTHERN ILLINOIS, LLC CERTIFICATION OF MEMBERSHIP INTEREST
 
31

 
 
 

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OPERATING AGREEMENT
OF
ETHANEX SOUTHERN ILLINOIS, LLC
 
THIS OPERATING AGREEMENT (the “Agreement”), dated this 20th day of September
2006, is adopted by and between all Members listed in Exhibit A to this
Agreement, and Ethanex Southern Illinois, LLC, an Illinois limited liability
company (the “Company”).
 
ARTICLE I. FORMATION
 
1.1  Organization. The Members have organized the Company as an Illinois limited
liability company pursuant to the provisions of the Act.
 
THE MEMBERSHIP INTEREST OF ANY MEMBER IN THE COMPANY IS SUBJECT TO THE
RESTRICTIONS ON TRANSFER AND OTHER TERMS AND CONDITIONS SET FORTH IN ARTICLE XI
OF THIS AGREEMENT. THE MEMBERSHIP INTERESTS HAVE BEEN ACQUIRED BY THE MEMBERS
FOR INVESTMENT ONLY AND HAVE NOT BEEN REGISTERED UNDER ANY STATE SECURITIES LAWS
OR UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED. NEITHER THE
MEMBERSHIP INTERESTS NOR ANY PART THEREOF MAY BE OFFERED FOR SALE, PLEDGED,
HYPOTHECATED, SOLD, ASSIGNED OR TRANSFERRED AT ANY TIME EXCEPT IN COMPLIANCE
WITH THE TERMS AND CONDITIONS OF ARTICLE XI OF THIS AGREEMENT.
 
1.2  Agreement; Effect of Inconsistencies with Act. For and in consideration of
the mutual covenants herein contained and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Members and the Company hereby agree to the terms and conditions of this
Agreement, as it may from time to time be amended according to its terms. It is
the express intention of the parties that this Agreement shall be the sole
source of agreement of the parties, and, except to the extent a provision of
this Agreement expressly incorporates federal income tax rules by reference to
sections of the Code or Regulations or is expressly prohibited or ineffective
under the Act, this Agreement shall govern, even when inconsistent with, or
different than, the provisions of the Act or any other law or rule. To the
extent any provision of this Agreement is prohibited or ineffective under the
Act, this Agreement shall be considered amended to the smallest degree possible
in order to make the Agreement effective under the Act. In the event the Act is
subsequently amended or interpreted in such a way to make any provision of this
Agreement that was formerly invalid valid, such provision shall be considered to
be valid from the effective date of such interpretation or amendment. The
Members shall be entitled to rely on the provisions of this Agreement, and the
Members shall not be liable to the Company for any action or refusal to act
taken in good faith reliance on the terms of this Agreement. The Members hereby
agree that the duties and obligations imposed on the Members as such shall be
those set forth in this Agreement, which is intended to govern the relationship
between the Company and the Members, notwithstanding any provision of the Act or
common law to the contrary.
 
 
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1.3  Name. The name of the Company shall be as set forth in Exhibit A and all
business of the Company shall be conducted under that name with such variations
and changes as the Members deem necessary, but in any case, only to the extent
permitted by applicable law.
 
1.4  Term. The term of the Company shall be perpetual and shall not expire
except in accordance with the provisions of Article XI of this Agreement and in
accordance with the Act.
 
1.5  Registered Agent and Office. The Company’s registered agent and the
registered office shall be as set forth in Exhibit A. The Members may, from time
to time, change the registered agent or office through appropriate filings with
the Illinois Secretary of State. In the event the registered agent ceases to act
as such for any reason or the registered office shall change, the Members shall
promptly designate a replacement registered agent or file a notice of change of
address as the case may be. If the Members shall fail to designate a replacement
registered agent or change of address of the registered office, a Member shall
automatically become the registered agent and the registered office of the
Company shall be located at the Member’s address.
 
1.6  Principal Office. The principal office of the Company shall be located as
set forth in Exhibit A. The Company may locate its places of business and
registered office at any other place or places, as the Members may from time to
time deem advisable.
 
ARTICLE II. NATURE OF BUSINESS
 
2.1  The principal business of the Company is the construction and operation of
an ethanol facility, as well as the manufacture, distribution, and sale of
ethanol and ethanol-based products, and to engage in and take any necessary or
ancillary action or conduct any lawful business concerning or related thereto.
In addition, the Company may undertake and conduct any business activity that is
authorized by the Act that the Members may from time to time deem to be in the
best interest of the Company. The Company shall have all of the powers permitted
by law.
 
ARTICLE III. NAME AND ADDRESS OF INITIAL MEMBERS
 
3.1  The names, addresses and federal identification numbers of the initial
Members are as set forth in Exhibit A.
 
ARTICLE IV. MANAGEMENT
 
4.1  Management-General. The overall business and affairs of the Company shall
be managed by the Manager, working under direction and authority of the Board of
Directors (the “Board”). Except for situations or matters in which the approval
of the Members is expressly required by this Operating Agreement or the
non-waiveable provisions of the Act, the Manager shall manage and control the
business affairs and properties of the Company, make all decisions regarding
those matters, and perform any and all other acts or activities customary or
incident to the management of the Company’s business. The Manager shall act in
good faith and in a manner that the Manager reasonably believes to be in the
best interests of the Company and its Members. The Manager may delegate to any
Person such powers and responsibilities as the Manager may deem appropriate for
the efficient operation of the business of the Company.
 
 
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4.2  Management Powers and Responsibilities. Without limiting the generality of
Section 4.1, but subject to the provisions of Section 4.4, and any other
limitations in this Agreement, the Manager shall have the power and authority,
on behalf of the Company:
 
(a)  to open accounts in the name of the Company with banks and other financial
institutions, and designate and remove from time to time, at the discretion of
the Manager, all signatories on such bank accounts;
 
(b)  to execute on behalf of the Company all instruments and documents
including, without limitation, checks, drafts, notes and other negotiable
instruments, mortgages or deeds of trust, security agreements, financing
statements, documents providing for the acquisition, mortgage or disposition of
the Company’s Property, assignments, bills of sale, leases and any other
instruments or documents necessary to conduct the business of the Company;
 
(c)  to collect and receive all revenue, income and profits derived from the
operation of the Company’s business, and to disperse Company funds for Company
purposes to those Persons entitled to receive the same in accordance with this
Agreement;
 
(d)  within the ordinary course of the Company’s business, to acquire, manage,
hold, lease sell, exchange and otherwise dispose of real, personal or mixed
Property, or interests therein, upon such terms and conditions as the Manager
deems to be in the best interest of the Company;
 
(e)  to pay, on behalf of the Company, any organizational expenses incurred in
the organization of the Company;
 
(f)  to make all reasonable and necessary expenditures with respect to the
Property of the Company as the Manager deems to be in the best interest of the
Company;
 
(g)  to invest any Company funds temporarily in time deposits, short-term
governmental obligations, commercial paper or other investments;
 
(h)  to pay all taxes, licenses or assessments of whatever kind or nature
imposed upon or against the Company, and for such purposes to file such returns
and do all such other acts or things as may be deemed necessary or advisable by
the Manager;
 
(i)  to purchase commercial general liability insurance and such other insurance
coverage as the Board shall determine to be necessary or desirable to insure the
Members or to protect the Company’s assets;
 
(j)  to employ, engage or contract with Persons in the operation and management
of the Company’s business;
 
(k)  to employ accountants, legal counsel, consultants or other experts to
perform services for the Company and to compensate them from Company funds;
 
 
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(l)  to institute, prosecute, defend, settle, compromise and dismiss claims,
lawsuits or other judicial or administrative proceedings, involving an amount in
controversy of less than $50,000, brought by or on behalf of, or against the
Company or the Members in connection with activities arising out of, or
connected with, or incidental to this Agreement or the business of the Company;
provided, however, that the Manager shall provide to the Board each calendar
quarter or more often as requested by any Member, a description of any claim,
lawsuit or judicial or administrative proceeding where the amount in controversy
exceeds $10,000; and provided further that any Member may notify the Manager of
a strategic interest in any claim, lawsuit or proceeding involving an amount in
controversy of less than $50,000, in which case the institution, prosecution,
defense, settlement, compromise or dismissal of the claim, lawsuit or proceeding
and the engagement of legal counsel in connection therewith shall be subject to
Section 4.6 below; and
 
(m)  to do and perform all other acts as may be necessary or appropriate to the
conduct of the Company’s business.
 
4.3  Other Activities by Manager and Members. The duty of the Manager and
Members to act on behalf of the Company shall be non-exclusive. The Manager
shall not be required to devote full-time attention to the business of the
Company and may have other business interests and may engage in other activities
in addition to those relating to the Company provided that the Manager will
manage and operate the business of the Company separately from the Manager’s
other business interests. Neither the Company nor any Member shall have any
right, by virtue of this Agreement, to share or participate in such other
investments or other activities of the Manager or Members or to the income or
proceeds derived therefrom.
 
4.4  Reserved Powers. Notwithstanding any other provision of this Agreement, the
Manager shall have no authority to and shall not cause or commit the Company to
do any of the following without the express written consent of all Members
holding at least eighty-five percent (85%) of the Membership Interests of the
Company:
 
(a)  make annual capital expenditures which are not contemplated in the
applicable Business Plan and which are in excess of $100,000 in the aggregate
for any Fiscal Year;
 
(b)  enter into any agreement relating to merger, amalgamation, consolidation,
reconstruction, demerger, joint venture, or acquisition of shares, debt,
Membership Interests or assets of another Person;
 
(c)  engage in any new business that is outside the scope or mandate of the
Company as set forth in Section 2.1, or establish, construct or close any plant
or trading facilities or introduce any new product line or service offering,
except to the extent contemplated in the applicable Business Plan;
 
(d)  dispose of, whether by sale, disposition or otherwise, all or a portion
(which is material to the Company’s business or execution and implementation of
the Business Plan) of the Company’s business and/or assets other than pursuant
to arm’s length sales in the ordinary course of business;
 
 
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(e)  enter into any contract or written agreement:
 
(i)  involving an amount to be paid by the Company over the life of the contract
which is anticipated to be in excess of $100,000, other than any contract
relating directly to the sale of products or the purchase of raw materials;
 
(ii)  outside of the ordinary course of the business of the Company;
 
(iii)  relating to the sale of products which is not contemplated in the
applicable Business Plan; or
 
(iv)  relating to the purchase of raw materials which is not contemplated in the
applicable Business Plan;
 
(f)  lend any funds of the Company (other than normal trade credit) to any
Person, guaranty the obligations of another Person, indemnify another Person
except in the ordinary course of business, or become a surety for the
obligations of any Person;
 
(g)  mortgage, pledge, grant a security interest in, or otherwise encumber
Property of the Company;
 
(h)  incur or refinance any indebtedness for money borrowed by the Company,
whether secured or unsecured and including any indebtedness for money borrowed
from a Member;
 
(i)  incur any liability or make any single expenditure or series of related
expenditures in an amount exceeding $100,000 in the aggregate in any Fiscal
Year, except as contemplated in the applicable Business Plan;
 
(j)  amend, modify or revoke this Agreement or any other organizational or
governing documents of the Company, any Related Agreement, or the Business Plan;
 
(k)  redeem any Membership Interests, incorporate or issue any securities in the
Company, establish any subsidiary company, or invest in another Person;
 
(l)  change the Company’s name;
 
(m)  authorize the Company to make an assignment for the benefit of creditors,
file a petition in bankruptcy, or consent to the appointment of a receiver for
the Company or its assets;
 
(n)  institute, prosecute, defend, settle, compromise or dismiss any claim,
lawsuit, or judicial or administrative proceeding involving an amount in
controversy in excess of $50,000 brought by or on behalf of, or against, the
Company or the Members in connection with activities arising out of, or
connected with or incidental to this Agreement or the business of the Company;
 
(o)  substantially reduce, increase or otherwise modify the Company’s insurance
program;
 
(p)  determine, establish or substantially modify the Company’s accounting
policies or practices;
 
 
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(q)  except as provided in the Related Agreements, acquire, license, sell,
transfer, or otherwise grant or dispose of any right or interest to or from any
Person of any rights in intellectual property, patents, trademarks, know-how and
other technology;
 
(r)  change the compensation or benefits payable or to become payable to any
present or former employee, sales person, consultant or agent, or to which such
Persons are or may become entitled, outside the ordinary course of the Company’s
business, except for such changes as may be required by any law, regulation,
ordinance or decree;
 
(s)  change any management or other similar fees or royalties or other similar
payments paid or payable to a Member;
 
(t)  admit any Person to the Company as a Member, or determine the terms and
conditions of such admission;
 
(u)  voluntarily dissolve, wind-up or liquidate the Company;
 
(v)  do any act that is unrelated to the purpose of the Company or that
otherwise contravenes any provision of this Agreement; or
 
(w)  take any action or execute any instrument which, by another express
provision of this Agreement, requires the approval of the Members or the Board.
 
4.5  President/CEO. Subject to the approval of the Board, the Manager shall have
the right to appoint a President/CEO of the Company who shall be a full time
employee of and compensated by the Company. The initial President/CEO shall be
determined at the first meeting of the Board of Directors, who shall serve in
such capacity until resignation or removal by action of a majority of the Board.
The President/CEO shall report to the Manager and shall supervise, administer
and manage the day-to-day business affairs of the Company. Notwithstanding the
foregoing, and subject to the limitations set forth in Section 4.4, the
President/CEO shall:
 
(a)  effectuate this Agreement and the regulations and decisions of the Members
and the Board of Directors;
 
(b)  direct and supervise the day-to-day operations of the Company;
 
(c)  within parameters set by a majority vote of the Board, establish such
charges for services and products of the Company as may be necessary to provide
adequate income for the efficient operation of the Company;
 
(d)  within the budget established by the Board, set and adjust wages and rates
of pay for all personnel of the Company and shall appoint, hire and dismiss all
personnel and regulate their hours of work;
 
(e)  set and adjust reimbursable rates and costs to be paid to the Members by
the Company when such Member or its staff is engaged in Company business;
 
 
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(f)  keep the Board, the Manager, and Members advised in all matters pertaining
to the day-to-day operations of the Company, the services rendered, the products
provided, operating income and expenses, the financial position of the Company,
and, to this end, the President/CEO shall prepare and submit a report to the
Board at each regular meeting and at other times as may be directed by the
Board;
 
(g)  within parameters set by the Manager, execute on behalf of the Company all
instruments and documents, including checks, drafts, notes and other negotiable
instruments and deposit the same into bank accounts approved by the Manager;
 
(h)  specifically refer all issues of a legal nature that arise in the operation
of the Company’s business immediately to legal counsel approved by the Board, so
as not to compromise the position of the Company, Members or Board;
 
(i)  refer all claims potentially covered by the Company’s insurance policies so
as to not jeopardize insurance coverage on any such claims; and
 
(j)  do and perform all other authorized acts as may be approved by the Board
and as are necessary or appropriate to the conduct of the Company’s business.
 
4.6  Liability for Certain Acts. The Manager shall exercise its business
judgment in managing the business, operations and affairs of the Company. Unless
fraud, deceit, gross negligence, willful or wanton misconduct, a wrongful taking
by the Manager, or a breach of the Manager’s fiduciary duty, shall be proved by
a non-appealable court order, judgment, decree or decision, the Manager shall
not be liable or obligated to the Company or Members for any mistake of fact or
judgment or for the doing of any act or the failure to do any act by the Manager
in conducting the business, operations and affairs of the Company, which may
cause or result in any loss or damage to the Company or its Members. The Manager
does not, in any way, guarantee the return of the Members’ Capital Contributions
or a profit for the Members from the operations of the Company. The Manager
shall not be responsible to any Members because of a loss of their investments
or a loss in operations, unless the loss shall have been the result of fraud,
deceit, gross negligence, willful or wanton misconduct, a wrongful taking by the
Manager, or a breach of the Manager’s fiduciary duty, provided as set forth in
this Section 4.6. The Manager shall incur no liability to the Company or to any
of the Members as a result of engaging in any other business or venture.
 
4.7  Resignation. The Manager and the President/CEO of the Company may resign at
any time by giving written notice to the Board. The resignation of the Manager
or President/CEO shall take effect upon receipt of notice thereof or at such
later time as shall be specified in such notice; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective. The resignation of a Manager who is also a Member shall not affect
the Manager’s rights as a Member and shall not constitute a withdrawal of the
Member.
 
4.8  Removal. The Manager may be removed at any time by the affirmative vote of
the Members holding no less than eighty-five percent (85%) of the Membership
Interests of the Company. The President/CEO may be removed at any time upon the
majority vote of the Board. The removal of the Manager who is also a Member
shall not affect the Manager’s rights as a Member and shall not constitute a
withdrawal of the Member.
 
 
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4.9  Compensation of Manager. The Manager shall be reimbursed all reasonable
expenses incurred in managing the Company and may be entitled to reasonable
compensation, in an amount to be determined from time to time by the affirmative
vote of the Members holding a majority of the Membership Interests.
 
ARTICLE V. BOARD OF DIRECTORS
 
5.1  Number and Tenure. The Board shall initially consist of five (5) persons
(each a “Director”): two (2) of whom shall be representatives of Ethanex, two
(2) of whom shall be representatives of Star, and one (1) who shall be appointed
by Ethanex and Star, jointly. Decisions of the Board shall be made majority
vote, with each member of the Board exercising one vote. In order to constitute
a quorum, at lease one representative of each Member must be present during
Board meetings. The total number of Directors on the Board may be increased or
decreased by the unanimous vote of the Members. Each Director shall hold office
until his successor shall have been appointed by the applicable Member(s).
Directors need not be residents of the State of Illinois.
 
5.2  Chairman of the Board. One of the Directors serving on the Board shall
serve as Chairperson of the Board. The Chairperson of the Board also shall serve
as the Manager of the Company. The initial Chairperson of the Board shall be
appointed by Ethanex. The Chairperson shall preside over all Board meetings. In
the event of a deadlock concerning an issue to be resolved by the Board, the
Chairperson shall cast the deciding vote.
 
5.3  Meetings. The Board shall meet on a quarterly basis, or more often as
necessary, at a time and place to be determined by the Members. Any Member, in
its discretion, may call for a meeting of the Board upon ten (10) business days
prior written Notice.
 
5.4  Telephone Meetings. Board representatives may participate in Board meetings
by means of telephone conference or similar communications equipment, and such
participation in a telephone conference shall constitute presence in person at
such meeting.
 
5.5  Action by Written Consent. Any action required or permitted to be taken by
the Board, either at a meeting or otherwise, may be taken without a meeting
provided that all representatives consent thereto in writing and the writing or
writings are filed with the minutes of proceedings of the Board; and provided
further that written notice of the action to be taken by written consent will be
given to all Members at least forty-eight (48) hours prior to the intended
effectiveness of any such action.
 
5.6  Minutes of Meetings. The decisions and resolutions of the Board will be
reported in minutes, which will state the date, time and place of the meeting
(or the date of the written consent in lieu of a meeting), the Board members
present at a meeting, the resolutions put to a vote (or the subject of a written
consent) and the results of such voting (or written consent). The minutes will
be entered in a minute book kept at the principal office of the Company and a
copy of the minutes will be provided to each Member.
 
 
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5.7  Business Plan. After soliciting input from the Members, the President/CEO
shall prepare and submit to the Board (no later than October 1 of each year) for
approval by unanimous vote of the Board an annual business plan (the “Business
Plan”) for the succeeding year consistent with the purpose of the Company as set
forth in Section 2.1. The Board shall review the draft Business Plan and offer
any revisions thereto as promptly as commercially practicable after receipt and
in any event prior to December 1. At a minimum, the Business Plan shall contain:
 
(i)  the estimated receipts and expenditures (capital, operating and other) of
the Company in sufficient detail to provide an estimate of cash flow, capital
proceeds and other financial requirements of the Company for such year;
 
(ii)  information concerning the strategic direction of the Company;
 
(iii)  strategic and tactical marketing plans and initiatives;
 
(iv)  plans and initiatives to solicit new customers and accounts, and to retain
existing customers and accounts;
 
(v)  information on an overall Company basis respecting material proposed
changes to the Company’s employee salaries, benefits and policies; and
 
(vi)  such other information or other matters necessary or desirable in order to
inform the Board of the Company’s business and to enable the Board to make an
informed decision with respect to approval of such Business Plan.
 
After the final Business Plan has been approved by unanimous vote of the Board,
the Manager shall implement the Business Plan. If the Board is not able to agree
on a Business Plan for any year, then, until such time as the Board agrees on
the Business Plan for such year, the Business Plan for the previous year shall
continue to apply to the business and affairs of the Company.
 
ARTICLE VI. RIGHTS AND DUTIES OF THE MEMBERS
 
6.1  Liability of Members. Each Member’s liability shall be limited as set forth
in the Act and other applicable law. A Member will not personally be liable for
any debts or losses of the Company beyond the Member’s respective Capital
Contributions, except as otherwise provided herein or required by law.
 
6.2  Indemnification. The Company shall indemnify the Members, and their
respective agents for all costs, losses, liabilities, and damages paid or
accrued in connection with the business of the Company, to the fullest extent
provided or allowed by the laws of the State of Illinois. In addition, upon
written request, the Company may advance costs of defense of any legal
proceeding to the Members or any other agent, prior to the conclusion of the
matter and as such costs are incurred.
 
6.3  Business Opportunities. The initial Members acknowledge that the Company is
not intended to be the exclusive vehicle for either party to participate in the
ethanol industry. To the extent the initial Members can pursue, engage in or
invest in other business opportunities relating to the manufacture, distribution
and sale of ethanol and ethanol-based products and corn and corn-based products
without a breach of their respective obligations to the Company under this
Agreement and any Related Agreement, they are free to do so.
 
 
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6.4  Company Books. In accordance with Section 9.1 herein, the Manager shall
maintain and preserve, during the term of the Company and for three (3) years
after dissolution, all accounts, books and relevant Company records. Upon
reasonable request, each Member shall have the right, during ordinary business
hours, to inspect and copy such Company documents at the requesting Member’s
expense.
 
6.5  Voting. Except as otherwise provided in this Agreement, each Member shall
have one vote for each one percent of the Member’s Membership Interest
outstanding. Therefore, the total individual votes for all Members available to
be cast at any one time will be one hundred (100). A majority vote consisting of
over 50% will be required.
 
6.6  Priority and Return of Capital. Except as may be expressly provided
elsewhere in this Agreement, no Member shall have priority over any other
Member, either as to the return of Capital Contributions or as to Net Profits,
Net Losses or Distributions; provided, however, that this Section 6.6 shall not
apply to operating and other loans (as distinguished from Capital Contributions
and Member loans) which a Member has made to the Company or to another Member.
 
6.7  Pledge Restriction. Each Member agrees that no Member shall be permitted to
pledge their Membership Interest as collateral for any loan or financial
obligation without the vote or consent of holders of eighty-five percent (85%)
of the Membership Interests in the Company.
 
ARTICLE VII. CONTRIBUTIONS
 
7.1  Initial Contributions. The initial Members shall make the Initial Capital
Contributions described on Exhibit B at the time and on the terms specified on
Exhibit B and shall perform that Member’s Commitment. The value of the Initial
Capital Contributions shall be as set forth on Exhibit B. No interest shall
accrue on any Initial Capital Contribution and the Members shall not have the
right to withdraw or be repaid any Initial Capital Contribution except as
provided in this Agreement.
 
7.2  Additional Capital Contributions.
 
(a)  No Member shall be responsible for, or obligated to provide for, capital
requirements and expenses of the Company in excess of their Initial Capital
Contribution.
 
 
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(b)  Upon the vote of Members holding eighty-five percent (85%) of the
Membership Interests of the Company, the Manager may request Additional Capital
Contributions from each Member by way of written notice stating the amount of
additional funds required, the purpose therefore, and the date upon which
Additional Capital Contributions may be made by each Member. Each Member shall
have the right to make their pro rata share of the Additional Capital
Contribution in accordance with their Membership Interest at the time specified
in such notice. If any Member does not make the full amount of their share of a
requested Additional Capital Contribution within ten (10) days after the
expiration of the time specified in such notice, the Manager shall send a
written notice to each Member specifying the amount not contributed (the
“Non-Contribution Notice”). Each Member shall have the right to make the
Additional Capital Contribution requested from the non-contributing Member on a
pro rata basis in accordance with their Membership Interests or as they
otherwise agree by sending a written notice to the Manager within (5) days of
the Member’s receipt of the Non-Contribution Notice indicating the Member’s
interest to contribute a portion of the non-contributing Member’s Additional
Capital Contribution. (the “Portion Notice”). The value of the Membership
Interest for the Additional Capital Contribution made by a Member shall be based
on the lower of the Company’s Net Book Value or its fair market value as
reasonably determined by the Board in its sole discretion immediately preceding
the Additional Capital Contribution. If the Board determines that the Company
needs additional funds, but determines not to request Additional Capital
Contributions, the Board may cause the Company to borrow such funds from any
Person, including any Member, upon such terms and conditions as may be agreed to
at the time. No such loan to the Company from a Member shall be deemed to
constitute a Capital Contribution to the Company and shall not increase the
Capital Account of the Member making the loan.
 
7.3  Capital Accounts.
 
(a)  A separate Capital Account will be maintained for each Member. Each
Member’s Capital Account will be increased by (1) the amount of money
contributed by such Member to the Company, including Additional Capital
Contributions; (2) the value, as agreed by the Board, of Property contributed by
such Member to the Company (net of liabilities secured by such contributed
Property that the Company is considered to assume or take subject to under
Section 752 of the Code); and (3) the amount of Net Profits allocated to such
Member. Each Member’s Capital Account will be decreased by (1) the amount of
money distributed to such Member by the Company; (2) the value, agreed by the
Board, of Property distributed to such Member by the Company (net of liabilities
secured by such distributed Property that such Member is considered to assume or
take subject to under Section 752 of the Code); and (3) the amount of Net Losses
allocated to such Member.
 
(b)  In the event of a permitted sale or exchange of a Membership Interest in
the Company pursuant to the terms of this Agreement, the Capital Account of the
transferor shall become the Capital Account of the transferee to the extent it
relates to the transferred Membership Interest.
 
(c)  The manner in which Capital Accounts are to be maintained pursuant to this
Section 7.3 is intended to comply with the requirements of Code Section 704(b)
and the Regulations promulgated thereunder and this Agreement shall be
considered amended to the smallest degree possible in order to comply with Code
Section 704(b) and the regulations thereunder.
 
(d)  Upon liquidation of the Company (or any Member’s Membership Interest),
liquidating distributions shall be made pursuant to Section 8.3(c). Liquidation
proceeds will be paid as reasonably determined by the Manager.
 
 
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ARTICLE VIII. ACCOUNTING METHOD, ALLOCATIONS, DISTRIBUTIONS
 
8.1  Method of Accounting. The Net Profits and/or Net Losses of the Company
shall be determined in accordance with accounting principles applied on a
consistent basis under the method of accounting as set forth in Exhibit A.
 
8.2  Allocations.
 
(a)  Net Profits and credits earned by the Company for each Fiscal Year
attributable to the operations of the Company shall be allocated to the Members
in accordance with the Membership Interest identified in Exhibit C and shall be
credited to each Member’s Capital Account (exclusive of credits) in accordance
with the following:
 
(i)  First, if the Capital Account of any Member has a negative balance, Net
Profits shall be credited to each Member having a negative Capital Account
balance in an amount equal to the negative Capital Account balance, in the ratio
that the Member’s negative Capital Account balance bears to the aggregate
negative Capital Account balances of the Members having negative Capital Account
balances;
 
(ii)  Second, if previous cumulative Net Losses have been incurred, Net Profits
will be allocated pro rata in proportion to the amount of cumulative Net Losses
allocated to each Member; and
 
(iii)  Thereafter, to all Members pro rata in proportion to their relative
Membership Interest in effect as of the effective date of the allocation, except
that for any Fiscal Year which has any changes in the Membership Interests, the
allocation will be calculated using the per share per day method as provided for
in the Code.
 
(b)  After giving effect to the allocations provided for in the provisions of
this Agreement covering special allocations and curative losses, all Net Losses
of the Company for each Fiscal Year shall be allocated first to the Members in
an amount equal to the Net Profits previously credited to the Members (and not
previously reduced by this Section) and second to all Members and shall be
charged to the Members’ Capital Accounts pro rata in proportion to their
relative Membership Interest in effect as of the effective date of the
allocation, except that for any Fiscal Year which has any changes in the
Membership Interests, the allocation will be calculated using the per share per
day method as provided for in the Code. Notwithstanding the foregoing, in no
event shall any such loss be allocated to a Member, to the extent that it would
result in such Member having a negative Capital Account balance, if any other
Member has a positive Capital Account balance. The foregoing reallocation of
losses to a Member with a positive Capital Account balance shall remain in
effect only until all Members have Capital Account balances of zero. If all
Members have Capital Account balances of zero and any Member has made a loan to
the Company which remains outstanding at the end of any Fiscal Year, net losses
shall be allocated first, on a pro rata basis, to each Member whose loan remains
outstanding up to the aggregate amount of the loan balance.

 
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8.3  Distributions.
 
(a)  Except as provided in Section 8.3(d) and except as required in Section
8.3(a)(iii), distributions of Distributable Cash attributable to operations of
the Company shall be made at such time as determined by the Board and which is
not, in the reasonable opinion of the Board, necessary to conduct the Company’s
business. Except as expressly provided herein, no Member shall have priority
over any other Member, either as to distributions or the return of Capital
Contributions other than what is provided by this Section 8.3. All amounts
withheld pursuant to the Code or any provisions of state or local tax law with
respect to any payment or distribution to the Members from the Company shall be
treated as amounts distributed to the relevant Member or Members pursuant to
this Section 8.3. All distributions of Distributable Cash attributable to
operations of the Company shall be made as follows, unless otherwise agreed to
by the Members:
 
(i)  First, if cumulative Net Profits from inception of the Company exist at the
end of any calendar year, to the Members, in proportion to their Membership
Interests;
 
(ii)  Second, to all Members pro rata to the amount of Net Profits allocated to
the Members per Section 8.2 net of the distribution made in Section 8.3(a)(i);
 
(iii)  Third, to all Members pro rata in proportion to the sums of their
respective Initial Capital Contributions and any Additional Capital
Contributions, until the full amount of all Initial and Additional Capital
Contributions shall have been returned to all Members; and
 
(iv)  Thereafter, to all Members pro rata in proportion to the relative
Membership Interest they hold, in effect as of the effective date of the
distribution.
 
(b)  Except as expressly provided in Section 8.3(a) or as a result of the
application of Section 8.4, no distributions which are disproportionate to a
Member’s Membership Interest are permitted without the approval of Members
holding eighty-five percent (85%) of the Membership Interests, and then, only
after the Members take into consideration the potential future impact on
Sections 8.2 and 8.3 and concluding their consideration with a written summary
of the Members’ decision.
 
(c)  In the event of the liquidation of the Company, distributions to Members
shall be made, after the allocations described in Section 8.2 and to the extent
such distributions were not previously made pursuant to Section 8.3(a), on a pro
rata basis to all Members based on the Membership Interest they hold, in effect
as of the effective date of the distribution.
 
(d)  No distribution shall be declared and paid unless, after the distribution
is made, the book value of the assets of the Company is in excess of all
liabilities of the Company, except liabilities to Members on account of their
contributions. For any kind of distribution, a Member, irrespective of the
nature of their Capital Contribution, has the right to demand and receive only
cash as compared to demanding the distribution of any specific asset of the
Company.
 
 
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8.4  Special Allocations.
 
(a)  Except as otherwise provided in this Agreement, special allocations will be
made as permitted and/or required by the Code.
 
(b)  Items of income, gain, loss, deduction, credit and tax preference for state
and local income tax purposes shall be allocated to and among the Members in a
manner consistent with the allocation of such items for federal income tax
purposes in accordance with the foregoing provisions of this Article VIII.
 
ARTICLE IX.   RECORDS, TAX MATTERS, BANKING
 
9.1  Books and Records. The Manager, at the expense of the Company, shall
maintain the following books and records at the principal office or at the
offices of the Company’s attorneys:
 
(a)  A list of the full name and address of each Member, both past and present;
 
(b)  A copy of the Articles of Organization for the Company, and all amendments
thereto;
 
(c)  Copies of the currently effective Agreement and all amendments thereto,
copies of any prior Agreement no longer in effect, and copies of any writings
permitted or required with respect to a Member’s obligation to contribute cash,
Property, or services;
 
(d)  Copies of the Company’s federal, state and local income tax returns and
reports (or the portions of the returns of others showing the taxable income
deductions, gain, loss, and credits of the Company), if any, for the three most
recent years;
 
(e)  Copies of the financial statements of the Company, if any for the three (3)
most recent years;
 
(f)  Minutes of every meeting of the Board or the Members;
 
(g)  Any written consents obtained from Members or the Board for actions taken
by the President/CEO or actions taken by the Members or the Board of Managers
without a meeting; and
 
(h)  If not set forth in this Agreement, a writing or other data compilation
from which information can be obtained through retrieval devices into a
reasonably usable form setting forth the following:
 
(i)  The amount of cash and a description and statement of the agreed value of
the other Property or services contributed by the Members and which the Members
have agreed to contribute;
 
(i)  The times at which or events on the happening of which any additional
Commitments agreed to be made by the Members are to be made;
 
(ii)  Any right of a Member to receive, or of the Company to make, distributions
to a Member which include a return of all or any part of the Member’s Capital
Contribution or distributions in kind; and
 
(iii)  Any events upon the happening of which the Company is to be dissolved and
its affairs wound up.
 
 
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9.2  Tax Matters. The Manager shall cause the accountants for the Company to
prepare and timely file all tax returns required to be filed by the Company
pursuant to the Code and all other tax returns deemed necessary and required in
each jurisdiction in which the Company does business. The Manager shall instruct
the Company’s accountants to prepare and deliver all necessary tax returns and
information to each Member within ninety (90) days following the end of each
year. The Manager is hereby designated as the Tax Matters Partner as defined in
Section 6231 of the Code and shall be authorized and required to represent the
Company in connection with all examinations of the Company’s affairs by tax
authorities, including resulting administrative and judicial proceedings, and to
expend Company funds for professional services and costs associated therewith.
The Tax Matters Partner and each Member shall use their reasonable efforts to
comply with the responsibilities outlined in the Code (and regulations
promulgated thereunder), and in doing so shall incur no liability to each other.
 
9.3  Bank Accounts. All funds of the Company shall be deposited in the name of
the Company in an account or accounts maintained with such bank or banks
selected by the Manager. Checks shall be drawn upon the Company account or
accounts only for the purposes of the Company and shall be signed by authorized
Persons on behalf of the Company.
 
ARTICLE X.   SECURITIES LAWS MATTERS
 
10.1  Representations. Each Member, by executing this Agreement, hereby
represents and warrants to the Company and to each Member that such Member:
 
(a)  Is aware that the acquisition of their Membership Interest in the Company
has not been registered under the Securities Act of 1933, as amended, or
registered or qualified under the securities laws of any state;
 
(b)  Is acquiring the Membership Interest in their own name and solely for their
own account (or for a trust account if a trustee) and not for the account of any
other person;
 
(c)  Is acquiring their Membership Interest for the purpose of investment only,
and not with a view to or for sale in connection with any distribution of such
Membership Interest;
 
(d)  Understands that any Disposition of their Membership Interest is limited by
this Agreement and in any event may not be effected unless the Disposition is
registered and qualified under applicable securities laws, or is eligible for an
exemption from registration and qualification, and, except as expressly provided
otherwise herein, that no understanding has been made with regard to registering
or qualifying such Membership Interest in the future;
 
(e)  Understands that any certificate or other document which evidences their
Membership Interest in the Company may bear one or more restrictive legends
stating that the Membership Interest evidenced therein has not been registered
under the Securities Act of 1933, as amended or qualified under any securities
laws;
 
 
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(f)  Is capable of evaluating, through their own knowledge and experience in
financial and business matters, the merits and risks of this investment and of
protecting their own interest in connection with this investment;
 
(g)  Is able to bear the economic risk of the loss of their Membership Interest;
 
(h)  Has not seen or received any advertisement or general solicitation with
respect to the sale of the Membership Interest;
 
(i)  Acknowledges that the Company has given him the opportunity to obtain any
information and ask questions concerning the Company, Membership Interest in the
Company, and their investment, and to the extent that he or she availed himself
or herself of that opportunity, he or she has received from the Company
satisfactory information and answers; and
 
(j)  Acknowledges that the Company and each Member are relying on the foregoing
representations.
 
10.2  Compliance with Securities Laws and Other State and Federal Law.
Notwithstanding the other provisions of this Article X, no Member may transfer
their Membership Interest in the Company unless such Member provides to the
remaining Members such evidence and assurances as the remaining Members, may
reasonably request, including but not limited to an opinion of counsel
satisfactory to the Members that the transfer of such Membership Interest:
 
(a)  Shall not cause a termination of the Company under any applicable federal
or state law;
 
(b)  Shall not violate any applicable state or federal securities laws; and
 
(c)  Shall be accomplished in compliance with the registration requirements of
all applicable state and federal securities law or pursuant to an applicable
exemption there from, and that all such filings or other actions necessary to
effect any such transaction have been undertaken or will have been undertaken
prior to, or concurrent with, the transfer.
 
ARTICLE XI.   ADMISSION OF ADDITIONAL MEMBERS AND MEMBERSHIP INTEREST TRANSFERS
 
11.1  Admission of Additional Members. The Members, by unanimous vote may admit
Additional Members and determine the Capital Contributions and/or Commitments
and the corresponding allocated Membership Interest of such Additional Members.
As a condition of admission, any Additional Member shall agree to be subject to
all the terms and conditions of this Agreement by signing the original Agreement
maintained by the Company.
 
11.2  Disposition. The Membership Interest of any Member is transferable either
voluntarily or by operation of law, subject to the provisions of this Article
XI. Upon a transfer of a Member’s Membership Interest in compliance with this
Article XI, the transferee shall be admitted as an Additional Member without
further action at the time the transfer is completed, subject to the condition
of admission required by Section 11.1.
 
 
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11.3  General Restrictions on Transfers.
 
(a)  Except as otherwise provided in this Agreement, no Member may, without the
written consent of all Members, Dispose of a Membership Interest in the Company.
For purposes of this Agreement, a transfer of a Membership Interest in the
Company shall include any Disposition of all or a portion of a Membership
Interest in the Company. Any purported Disposition or gift of all or a portion
of a Membership Interest made in violation of this Agreement shall be void as
against the Company and the other Member, and the transferring or gifting Member
shall indemnify and hold the Company and the other Member harmless from and
against any and all loss, damage or expense (including, without limitation, tax
liabilities or loss of tax benefits) incurred or suffered by the Company or
other Member and arising directly or indirectly as a result of any Disposition
or gift, or purported Disposition or gift, in violation of this Article XI.
 
(b)  Notwithstanding anything in this Agreement to the contrary, a Disposition
shall be void if, in the opinion of counsel to the Company, the Disposition
would:
 
(i)  Cause a termination of the Company under any applicable federal or state
law or deemed termination of the Company under any applicable federal or state
income tax law; or
 
(ii)  Not be accomplished in compliance with the registration requirements of
all applicable state and federal securities laws or pursuant to an applicable
exemption there from.
 
11.4  Right of First Refusal.
 
(a)  In the event that a Member (“Selling Member”) desires to Dispose of all
(but not less than all) of its Membership Interest (the “Offered Interest”) to
any Person other than a current Member (the “Offeror”), the proposed Disposition
shall not be permitted unless the Selling Member shall afford the Company and
the other Members a right of first refusal pursuant to this Section 11.4.
 
(b)  Before Disposing of its Offered Interest in the Company, the Selling Member
must provide to the Company and other Members at least thirty (30) days (the
“Notice Period”) prior written notice (the “Disposition Notice”) of its
intention to Dispose the Offered Interest. In the Disposition Notice, the
Selling Member shall specify: (i) the price at which the Offered Interest is
proposed to be sold or transferred (the “Offering Price”), which may not consist
of consideration other than cash and/or promissory notes, (ii) the portion of
their Membership Interest to be sold, (iii) the identity of the proposed Offeror
or transferee, and (iv) any other material terms of the proposed Disposition.
 
(c)  The Manager may elect, on behalf of the Company, within the first five (5)
days of the Notice Period, to purchase the Offered Interest to be disposed of by
the Selling Member at the Offering Price. The terms and conditions of the
purchase by the Company shall be the terms and conditions of the proposed
Disposition as set forth in the Disposition Notice. If the Company elects not to
purchase the Offered Interest, the Company shall notify each non-selling Member.
The notice shall state that the Company did not exercise its option to purchase
the Offered Interest.
 
 
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(d)  If the Company elects not to purchase the Offered Interest, the Offered
Interest, may be purchased by the non-selling Member on the same terms and at
the same price available to the Company. The non-selling Member must give
written notice to the Disposing Selling Member of the exercise of their option
to purchase the Offered Interest before the expiration of the Notice Period.
Alternatively, each non-selling Member may within the same 30-day period, notify
the Manager of its desire to participate in the sale of that Member’s Membership
Interest on the terms set forth in the Disposition Notice.
 
(e)  If neither the Company nor the non-selling Member shall have elected to
purchase the entire Offered Interest covered by the Disposition Notice as
provided in the foregoing subsections of this Section 11.4, the Selling Member
may sell to Persons other than the Company and the non-selling Member, provided
that any Disposition must be made on the terms and conditions and to the party
specified in the Disposition Notice.
 
(f)  Unless otherwise agreed, the closing of any sale of a Membership Interest
shall take place at the Company’s principal office. Once transferred, the
Membership Interest shall be subject to all of the terms and conditions of this
Agreement, and any third party purchaser shall agree to be bound by the terms
and conditions of the Agreement as a condition concurrent with the transfer of
the Membership Interest by signing the original Agreement maintained by the
Company.
 
11.5  Failure to Fully Exercise Options; Co-Sale.
 
(a)  If the Company and the non-selling Members do not exercise their options to
purchase the Offered Interest within the period described in this Agreement (the
“Option Period”), then all options of the Company and the non-selling Members to
purchase the Offered Interest, whether exercised or not, shall terminate, but
each Member which has, pursuant to Section 11.4, expressed a desire to sell its
Membership Interests in the transaction (a “Participating Member”), shall be
entitled to do so pursuant to this Section. The Company shall promptly, on
expiration of the Option Period, notify the Selling Member of the Participating
Members wishing to sell. The Selling Member shall use commercially reasonable
efforts to interest the Offeror in purchasing, in addition to the Offered
Interest, the Membership Interests of the Participating Members. If the Offeror
does not wish to purchase, in addition to the Offered Interest, the Membership
Interests made available by the Participating Members, then each Participating
Member and the Selling Member shall be entitled to sell, at the price and on the
terms and conditions set forth in the Disposition Notice, a portion of the
Membership Interests being sold to the Offeror, in the same proportion as such
Selling Member or Participating Member’s ownership of Membership Interests bears
to the aggregate Membership Interests owned by the Selling Member and the
Participating Members. The transaction contemplated by the Disposition Notice
shall be consummated not later than sixty (60) days after the expiration of the
Option Period.
 
 
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(b)  The proceeds of any sale made by the Selling Member without compliance with
the provisions of this Section 11.5 shall be deemed to be held in constructive
trust in such amount as would have been due the Participating Members if the
Selling Member had complied with this Agreement.
 
11.6  Drag Along Rights.
 
(a)  In the event that an offer is made to all the Members of the Company which
provides for the acquisition (either by way of a purchase, amalgamation,
arrangement, corporate reorganization or other means of a merger or acquisition)
by a Qualified Offeror (as defined below), of all (but not less than all) of the
then outstanding Membership Interests upon the same terms and conditions
(including price, if applicable) to all the Members; and the third party offer
has been irrevocably accepted by Members in respect of not less than sixty-six
and two thirds percent (66 2/3%) of the then issued and outstanding Membership
Interests held by all Members, then any Member who has not accepted the offer
(an “Objecting Member”) shall, subject to the provisions of this Section 11.6,
be deemed to have done so upon being notified by such Qualified Offeror of the
names of Members who have irrevocably accepted such offer and the number of
Membership Interests in respect of which they have accepted the offer, provided
that any Selling Member who has accepted such third party offer in respect of
its Membership Interests has first complied with Section 11.4 of this Agreement.
For purposes hereof, a “Qualified Offeror” shall be deemed a Person which (a)
has no affiliation with, is not directly or indirectly materially owned or
controlled by, does not directly or indirectly materially own or control, and
has no interlocking directors with, a Member; (b) is not a material customer,
supplier, distributor or creditor of or to a Member or an Affiliate thereof; and
(c) has not engaged, is not currently engaged, and to such Member’s knowledge
has no present intention to engage, in any material transaction with a Member
within one year before or after the date such offer is made.
 
11.7  Termination of Transfer Restrictions. This restrictions on the transfer of
Membership Interests set forth in this Article XI shall terminate upon the
earlier of the following events:
 
(a)  The sale of all or substantially all of the assets or business of the
Company, by merger, sale of assets or otherwise (except a merger or
consolidation in which the holders of Membership Interests of the Company
immediately prior to such merger or consolidation continue to hold immediately
following such merger or consolidation at least 80% by voting power of the
Membership Interests of the surviving corporation); or
 
(b)  The closing of the Company’s IPO.
 
11.8  Insolvency. Upon the insolvency, as hereinafter defined, of any Member,
the Company, or if the Company declines, any Member on a pro rata basis may,
within ninety (90) days after such insolvency, elect to purchase the Membership
Interest of the insolvent Member. The purchase price shall be the reasonable
fair market value of the Company, as determined by the Board in their sole
discretion, multiplied by the Membership Interest to be purchased, and adjusted
for usual and customary discounts for lack of marketability and minority
interest. Any liabilities or indebtedness of the insolvent Member to the Company
or any other Member shall be paid by the insolvent Member at the closing. A
Member shall be deemed to have become insolvent for purposes of this Section
11.8 if any of the following events shall occur:
 
 
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(a)  Said Member shall file a voluntary petition in bankruptcy or shall be
adjudicated a bankrupt or insolvent, or shall file any petition or answer
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief for himself under the present or any future
federal bankruptcy act or any other present or future applicable federal, state
or other statute or law relating to bankruptcy, insolvency or other relief for
debtors, or shall seek or consent to or acquiesce in the appointment of any
trustee, receiver, conservator or liquidator of said Member or of all or any
substantial part of their properties or their Membership Interest in the Company
(the phrase “acquiesce in the appointment” being deemed to include, without
limitation, failure to file a petition or motion to vacate or to discharge any
order, judgment or decree providing for such appointment within ten (10) days
after such appointment); or
 
(b)  A court of competent jurisdiction shall enter an order, judgment or decree
approving a petition filed against said Member seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under the present or future applicable federal, state or other statute or
law relating to bankruptcy, insolvency or other relief for debtors, and said
Member shall acquiesce in the entry of such order, judgment or decree (the
phrase “acquiesce in the appointment” being deemed to include, without
limitation, failure to file a petition or motion to vacate or to discharge any
order, judgment or decree within ten (10) days after the entry of such order,
judgment or decree), or such order, judgment or decree shall remain unvacated
and unstayed for an aggregate of ninety (90) days (whether or not consecutive)
from the date of entry thereof, or any trustee, receiver, conservator or
liquidator of said Member or all or any substantial part of their Property or
their Membership Interest in said Company shall be appointed without the consent
or acquiescence of said Member or such appointment shall remain unvacated and
unstayed for an aggregate of ninety (90) days (whether or not consecutive); or
 
(c)  Said Member shall admit in writing of their inability to pay their debts as
they mature; or
 
(d)  Said Member shall give notice to any governmental body of insolvency or
pending insolvency; or
 
(e)  Said Member shall make an assignment of their pro rata share of the assets
and profits of the Company for the benefit of creditors or take any other
similar action for the protection or benefit of creditors.
 
ARTICLE XII. DISSOLUTION AND WINDING UP
 
12.1  Dissolution. The Company shall be dissolved and its affairs wound up at
such time as the Members may determine.
 
12.2  Effect of Dissolution. Upon dissolution, the Company shall cease carrying
on its normal business operations. However, the Company will not be terminated
until the winding up of the affairs of the Company is completed and the Articles
of Dissolution have been filed with the Illinois Secretary of State in
accordance with the Act.
 
 
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12.3  Distribution of Assets on Dissolution. Upon the winding up of the Company,
the Company Property shall be distributed:
 
(a)  To creditors, including any Member if it is a creditor, to the extent
permitted by law, in satisfaction of Company liabilities;
 
(b)  To all the Members, considering that such distribution may be in cash or
Property or partly in both, as determined by the Members.
 
12.4  Winding Up and Articles of Dissolution. The winding up of the Company
shall be completed when all debts, liabilities, and obligations of the Company
have been paid and discharged or reasonably adequate provision therefore has
been made, and all of the remaining Property and assets of the Company have been
distributed to the Members. Upon the completion of winding up of the Company,
Articles of Dissolution shall be executed and filed with the Illinois Secretary
of State in accordance with the Act.
 
ARTICLE XIII. PROTECTION OF CONFIDENTIAL INFORMATION
 
13.1  Protection of Confidential Information. Without the express prior written
approval of all Members, each Member agrees to hold in strict confidence and not
to disclose to any Person any Confidential Information (whether during the term
of the Company or after termination of the Member’s association with the
Company).
 
13.2  Exceptions. Notwithstanding the limitation in Section 13.1 above, no
Member shall be deemed to be in breach of this Article XIII if it discloses
Confidential Information (a) in the course of any legal or regulatory proceeding
pursuant to a lawful demand or if such disclosure is otherwise required by law;
provided, that if a Member receives such demand or otherwise believes it is
compelled by law to disclose Confidential Information sought by such demand or
requirement, such Member shall give notice to the Company and all other Members
so as to afford the Company and/or the other Member(s) an opportunity to contest
the demand or legal requirement, or (b) to a prospective purchaser that requires
such Confidential Information in order to evaluate whether or not to acquire a
Membership Interest pursuant to the terms of this Agreement; provided, that such
prospective purchaser is obligated by a confidentiality agreement with terms
concerning the disclosure and use of Confidential Information at least as
restrictive as those herein, and such Member obtains the prior written consent
of the other Member, which consent shall not be unreasonably withheld or
delayed.
 
13.3  Use of Confidential Information. Each Member agrees to use Confidential
Information to perform its obligations and functions under this Agreement only
and for no other purposes. Notwithstanding the foregoing, information that is
developed or otherwise in the possession of a Member and subsequently
transmitted or contributed by such Member to the Company shall (unless otherwise
agreed by such Member) continue to be the Property of such Member and may
(unless otherwise agreed by such Member) continue to be used by such Member in
the conduct of its business.
 
13.4  Return of Confidential Information. At the dissolution of the Company or
earlier termination of a Member’s Membership Interest, (a) any Confidential
Information that has been received or acquired will remain subject to the terms
of this Article XIII for a period of seven (7) years, and (b) any documents
containing Confidential Information shall either be destroyed by the Receiving
Party or returned to the Company or the Disclosing Party, upon request.
 
 
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13.5  Access to Confidential Information. Each Member shall use its reasonable
best efforts to restrict access to the Confidential Information within its
organization only to those employees, officers and directors, and advisors
(“Recipients”) who have a clear need to know the same for the purpose of this
Agreement and operation of the Company, provided that the Receiving Party
advises the Recipients of their obligations under this Article XIII and
guarantees the adherence of such Recipients to the terms of this Article XIII.
 
13.6  Proprietary Nature of Information. Any and all Confidential Information
disclosed is proprietary and the Disclosing Party reserves full rights to the
Confidential Information, remains the sole owner of the Confidential Information
and does not assign to the Receiving Party any rights to the Confidential
Information.
 
13.7  Company-Developed Technology.
 
(a)  It is not intended by the parties hereto that the Company create, develop
or discover technology at any time during the term of this Agreement. The
Members agree, however, that in the event the Company, independently or in
combination with a Member, conceives of any new idea, invention or discovery,
excluding any Improvement on Technology licensed to the Company, (“Company
Intellectual Property”) shall be owned by the Company and the Members shall
cooperate and do those things as may be required to vest in the Company as its
sole Property all its Company Intellectual Property.
 
(b)  Each Member shall disclose promptly and fully to the Company all
inventions, improvements or discoveries made, conceived, developed, or first
reduced to practice by the Member, either solely or in collaboration with
others, during the period of the Member’s association with the Company in any
capacity that relate to:
 
(i)  Any products, research or business of the Company or to tasks assigned to
the Member by or on behalf of the Company;
 
(ii)  Any process, method, apparatus or article useful in connection with the
manufacture or development of such products;
 
(iii)  Anything done on the time or with the facilities of the Company; or
 
(iv)  Any invention and discovery that relates directly or indirectly to the
present or prospective business of the Company.
 
(c)  Each Member shall assist and cooperate (at the expense of the Company) with
the Company in any controversy or legal or administrative proceedings involving
or relation to Company Intellectual Property or the registration or protections
that might be issued.
 
 
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ARTICLE XIV. AMENDMENT
 
14.1  This Agreement may be amended or modified from time to time only by a
written instrument adopted and executed by the Members. No Member shall have any
vested rights in this Agreement, which may not be modified through an amendment
to this Agreement.
 
ARTICLE XV. MISCELLANEOUS PROVISIONS
 
15.1  Entire Agreement. This Agreement represents the entire agreement between
the Members and the Company.
 
15.2  Rights of Creditors and Third Parties under Operating Agreement. This
Agreement is entered into between the Company and the Members for the exclusive
benefit of the Company, its Members, and their successors and assignees. This
Agreement is expressly not intended for the benefit of any creditor of the
Company or any other Person. Except and only to the extent provided by
applicable statute, no such creditor or third party shall have any rights under
this Agreement or any agreement between the Company and the Members with respect
to any Capital Contribution or otherwise.
 
15.3  Notices. Any and all notices, designations, consents, offers, acceptances,
or any other communication provided for herein shall be shall be in writing and
shall be considered effective when delivered, if by personal delivery, upon
receipt, if sent by FAX, which FAX has been telephonically confirmed, between
the hours of 9:00 a.m. and 5:00 p.m. local time of the recipient, on a business
day, upon delivery, or if not, at 9:00 a.m., local time on the next business
day, or upon first attempted delivery after mailing by certified mail, return
receipt requested, postage prepaid, addressed to the Member’s and/or Company’s
address as it appears in the Company’s records, as appropriate.
 
15.4  Execution of Additional Instruments. Each Member hereby agrees to execute
such other and further statements of interest and holdings, designations, powers
of attorney and other instruments necessary to comply with any laws, rules or
regulations.
 
15.5  Construction. Whenever the singular number is used in this Agreement and
when required by the context, the same shall include the plural, and the
masculine gender shall include the feminine and neuter genders and vice versa.
 
15.6  Headings. The headings in this Agreement are inserted for convenience only
and are in no way intended to describe, interpret, define, or limit the scope,
extent or intent of this Agreement or any provision hereof.
 
15.7  Waivers. The failure of any party to seek redress for violation of or to
insist upon the strict performance of any covenant or condition of this
Agreement shall not prevent a subsequent act, which would have originally
constituted a violation, from having the effect of an original violation.
 
15.8  Rights and Remedies Cumulative. The rights and remedies provided by this
Agreement are cumulative and the use of any one right or remedy by any party
shall not preclude or waive the right to use any or all other remedies. Said
rights and remedies are given in addition to any other rights and parties may
have by law, statute, ordinance or otherwise.
 
 
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15.9  Severability. If any provision of this Agreement or the application
thereof to any person or circumstance shall be invalid, illegal or unenforceable
to any extent, the remainder of this Agreement and the application thereof shall
not be affected and shall be enforceable to the fullest extent permitted by law.
 
15.10     Heirs, Successors and Assigns. Each and all of the covenants, terms,
provisions and agreements herein contained shall be binding upon and inure to
the benefit of the parties hereto and, to the extent permitted by this
Agreement, their respective heirs, legal representatives, successors and
assigns.
 
15.11     Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same instrument.
 
ARTICLE XVI. DEFINITIONS
 
16.1  For purposes of this Agreement, unless the context clearly indicates
otherwise, the following terms shall have the following meanings:
 
(a)  “Act” means the Illinois Limited Liability Company Act and all amendments
to the Act.
 
(b)  “Additional Capital Contributions” means contributions made based on the
Manager’s determination that additional funds are required for operation of the
Company, including capital expenditures and debt service.
 
(c)  “Additional Member” means a Member other than the initial Members listed in
Exhibit A who has acquired a Membership Interest in the Company.
 
(d)  “Affiliate” means any corporation or other entity which controls, is
controlled by, or is under common control with a Party. A corporation or other
entity shall be regarded as in control of another corporation or entity if it
owns or directly or indirectly controls more than fifty percent (50%) of the
voting stock or other ownership interest of the other corporation or entity, or
if it possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of the corporation or other entity or
the power to elect or appoint more than fifty percent (50%) of the members of
the governing body of the corporation or other entity.
 
(e)  “Agreement” means this Operating Agreement including all amendments adopted
in accordance with this Operating Agreement and the Act.
 
(f)  “Articles” or “Articles of Organization” means the Articles of Organization
of the Company as properly adopted and amended from time to time by the Members
and filed with the Illinois Secretary of State.
 
(g)  “Board” or “Board of Directors” means the board established pursuant to
Section 5.1 of this Agreement.
 
 
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(h)  “Business Plan” means the business plan of the Company to be prepared by
the Manager under the direction of and subject to the approval of the Board as
described in Section 5.7 of this Agreement.
 
(i)  “Capital Account” means as of any given date, the Capital Contribution to
the Company by a Member as adjusted up to the date in question.
 
(j)  “Capital Contribution” means a Member’s Initial Capital Contribution as
provided in Section 7.1 of this Agreement and any Additional Capital
Contribution made by any Member as provided in Section 7.2 of this Agreement. .
 
(k)  “Code” means the Internal Revenue Code of 1986 as amended from time to
time. All references here to section of the Code shall include any corresponding
provision or provisions of succeeding law.
 
(l)  “Commitment” means the obligation of a Member to make a Capital
Contribution in the future.
 
(m)  “Company Property” means any Property owned by the Company.
 
(n)  “Confidential Information” means, without limitation, any and all
information, technical knowledge, know-how, business plans, pricing strategies,
market designs, trade secrets, product specification, product compositions,
data, drawings, sketches, flow sheets, manufacturing processes, quality control
specification, communications of a sensitive or private nature relating to or
useful in connection with the design, construction and/or operation of any of
the Members’ facilities or business, and information that may be learned or
acquired during a due diligence examination of a Member and its books, records
and other assets or during any negotiation or discussion concerning the subject
of this Agreement.
 
(o)  “Contribution” means any contribution of Property made by or on behalf of a
Member as consideration for a Membership Interest.
 
(p)  “Disposition” or “Dispose” means as it relates to the Membership Interest
of any Member, any sale, assignment, transfer, exchange, mortgage, pledge,
grant, hypothecation, or other transfer, absolute or as security or encumbrance
(including dispositions by operation of law).
 
(q)  “Distributable Cash” means all cash, revenues and funds received by the
Company from Company operations, less the sum of the following to the extent
paid or set aside by the Company: (i) all principal and interest payments on
indebtedness of the Company and all other sums paid to lenders; (ii) all cash
expenditures incurred incident to the normal operation of the Company’s
business; (iii) such cash Reserves as the Members deem reasonably necessary to
the proper operation of the Company’s business; and (iv) such amounts as may be
required to satisfy conditions imposed by lenders or other creditors.
 
(r)  “Distribution” means a transfer of Property to a Member on account of a
Membership Interest as described in Article VIII.
 
 
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(s)  “Effective Date” means the date of the Joint Venture Agreement, unless
otherwise agreed in writing by the initial Members.
 
(t)  “Ethanex” means Ethanex Energy, Inc., a Nevada corporation.
 
(u)  “Fiscal Year” means the calendar year ending on December 31 of any year.
 
(v)  “Initial Capital Contribution” means the Capital Contribution agreed to be
made by the Members as described in Section 7.1.
 
(w)  “IPO” means the initial firm-commitment underwritten public offering of
Membership Interests, or equity securities into which such Member Interests are
converted or for which such Membership Interests are exchanged, pursuant to an
effective registration statement under the United States Securities Act of 1933,
as amended, or pursuant to the foreign equivalent thereof, resulting in the
Company, or the successor entity to the Company as the case may be, becoming
listed on a public securities exchange.
 
(x)  “Manager” means the person described in Section 4.1 or any other person or
entity that succeeds him in that capacity. The initial Manager shall be the
person identified on Exhibit A to this Agreement. References to the Manager as
him, her, it, itself, or other like references shall also, where the context so
requires, be deemed to include the masculine or feminine reference, as the case
may be.
 
(y)  “Member” means the Members executing this Agreement, any transferee of a
Member, or any Additional Member. At any time there is more than one Member, the
term “Member” shall mean all Members, and any action that may be taken under
this Agreement by the Members may be taken by any Member, provided that any
dispute with respect to any action shall be decided by the Members holding
eighty-five percent (85%) of the Membership Interests of the Company.
 
(z)  “Membership” means all of the rights of Members including the right to
share in Net Profits, Net Losses and Distributions and the right to participate
in certain management decisions of the Company as identified in this Agreement.
 
(aa)  “Membership Interest” means the term used to indicate a Member’s ownership
percentage of the Company. The initial Membership Interest of each Member is set
forth on Exhibit B and Exhibit C hereof.
 
(bb)  “Net Book Value” means at any point in time, the sum of all the assets and
liabilities of the Company as recorded in the general ledger.
 
(cc)  “Net Losses” means for each Fiscal Year, the losses and deductions of the
Company determined in accordance with accounting principles consistently applied
from year to year employed under the method of accounting identified in the
Agreement, and as reported, separately or in the aggregate, as appropriate, on
the Company’s information tax return filed for federal income tax purposes, plus
any expenditures described in the Code.
 
 
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(dd)  “Net Profits” means for each Fiscal Year, the income and gains of the
Company determined in accordance with accounting principles consistently applied
from year to year employed under the method of accounting identified in the
Agreement, and as reported, separately or in the aggregate, as appropriate, on
the Company’s information tax return filed for federal income tax purposes, plus
any income described in the Code.
 
(ee)  “Person” means an individual, trust, estate, firm, corporation,
partnership, limited liability company, association or other legal entity.
 
(ff)  “President/CEO” means the President and Chief Executive Officer of the
Company to be appointed by the Manager under the direction and approval of the
Board as described in Section 4.5 of this Agreement.
 
(gg)  “Property” means any property, real or personal, tangible or intangible
(including goodwill), including money and any legal or equitable interest in
such property, but excluding services and promises to perform services in the
future.
 
(hh)  “Related Agreement” means (i) the Joint Venture Agreement dated September
17, 2006, and the following agreements each to be dated and deemed effective as
of the Effective Date: (ii) the Contribution Agreement between Star and the
Company, and (iii) the Assignment Agreement between Ethanex and the Company.
 
(ii)  “Regulations” means the regulation promulgated or issued by the Treasury
Department under the Code.
 
(jj)  “Reserves” means funds set aside or amounts allocated during such period
to reserves which shall be maintained in amounts deemed sufficient by the
Manager for working capital, to pay taxes, insurance, debt service or other
costs or expenses incident to the ownership or operation of the Company’s
business or as may be required to satisfy conditions imposed by lenders or other
creditors.
 
(kk)  “Star” means Star Ethanol, LLC, an Illinois limited liability company.
 
(ll)  “Tax Matters Partner” means the Person designated to be the Tax Matters
Partner in accordance with Section 9.2 of this Agreement.
 

(SIGNATURE PAGE FOLLOWS)
 
 
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IN WITNESS WHEREOF, this Operating Agreement of Ethanex Southern Illinois, LLC
has been signed and is effective as of September 20, 2006.
 
 
COMPANY:
 
Ethanex Southern Illinois, LLC, an Illinois limited  liability company
 
By: /s/ Bryan Sherbacow_________
Bryan Sherbacow, Manager
 

MEMBERS:
 
/s/ Ronald J. Gerino______________
Star Ethanol, LLC    
By: Ronald J. Gerino, Manager
 
/s/ Albert Knapp_________________
Ethanex Energy, Inc.
By: Albert Knapp,
President and CEO
 
 
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