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**EXHIBIT 10.9**

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**MANAGEMENT AND OPERATIONAL SERVICES AGREEMENT**

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This Management and Operational ServicesAgreement (“Agreement”) is made and entered into as of the 14th dayof March, 2008, by and between REG Services Group, LLC, a limited liabilitycompany organized and existing under the laws of the state of Iowa, withoffices at Ames, Iowa (“REG Services”), REG Marketing & LogisticsGroup, LLC, a limited liability company organized and existing under the lawsof the state of Iowa, with offices at Ames, Iowa (“REG Marketing”), andBlackhawk Biofuels, LLC, a limited liability company organized and existingunder the laws of the state of Delaware, with offices at 22 South ChicagoAvenue, Freeport, Illinois 61032 (“Blackhawk Biofuels”).

 

RECITALS: A biodiesel production facility is currently under construction byBiofuels Company of America, LLC (“BCA”) in Freeport, Illinois (“BiodieselFacility”).  Blackhawk Biofuels intendsto purchase substantially all of the assets of BCA and will own the BiodieselFacility pursuant to that certain Asset Purchase Agreement of even dateherewith by and between Blackhawk Biofuels, Bunge North America, Inc., aNew York Corporation (“Bunge”), BCA, Renewable Energy Group, Inc. (“REG”),and Biodiesel Investment Group, LLC (the “Purchase Agreement”).  Blackhawk Biofuels and REG Services havediscussed the general terms and conditions under which REG Services wouldprovide start-up management and operational services to Blackhawk Biofuels withrespect to the Biodiesel Facility, which the parties wish to reduce to thiswriting.  This Agreement amends, restatesand is hereby substituted for that Management and Operational ServicesAgreement originally made and entered into as of August 4, 2006, betweenWest Central Cooperative and Blackhawk Biofuels, as assigned to and assumed byREG October 26, 2006, and as revised by the First Amendment to Managementand Operational Services Agreement made and entered into as of the 15th day ofDecember, 2007, by and between REG, REG Services, REG Marketing, and BlackhawkBiofuels.

 

IT IS THEREFORE AGREED by and between theparties as follows:

 

1.                                       General Scope.  Subject to the terms of this Agreement, andin consideration of the fee for such services to be paid by Blackhawk Biofuelsas set out herein, REG Services will provide for the overall management of theBiodiesel Facility, place a general manager and an operations manager at theBiodiesel Facility, acquire feed stocks and the basic chemicals necessary forthe operation of the Biodiesel Facility, perform the administrative, sales andmarketing functions for the Biodiesel Facility, and fulfill the remainingpersonnel needs of the Biodiesel Facility by the leasing of employees toBlackhawk Biofuels.  In fulfilling itsduties and obligations hereunder, REG Services shall cooperate with BlackhawkBiofuels and act in a manner to maximize the long-term success andprofitability of Blackhawk Biofuels.

 

2.                                       Responsibilitiesof REG Services.  Under thisAgreement, REG Services agrees to provide the following:

 

A.                                   General Manager.  REG Services will provide a General Managerto implement and oversee the business plan for the Biodiesel Facility, anddirect, promote and coordinate the staff, personnel and plant operations.  The General Manager will be 

 

 

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an employee of REG Services,but will be assigned to carry out the responsibilities of General Manager atthe Biodiesel Facility.  Included amongthe specific duties to be accomplished by the General Manager are:

 

·                                          To utilizetheir ongoing best efforts to successfully and profitably manage the BiodieselFacility in Blackhawk Biofuels’ best interests;

·                                          Development ofan annual budget for presentation to and approval of Blackhawk Biofuels’ Boardof Managers (or other board of governance (“Board”));

·                                          Attend meetingsof the Board and provide information upon its request;

·                                          Insure that allraw product costs are minimized and that all finished product revenues aremaximized;

·                                          Work withBlackhawk Biofuels’ Board to formulate Blackhawk Biofuels’ mission and goals;

·                                          Work towardsachievement of such mission and goals;

·                                          Assist withregulatory affairs monitoring and compliance;

·                                          Hire, terminateand replace Biodiesel Facility personnel as necessary;

·                                          Management ofgovernmental relations, including USDA’s biodiesel programs; and

·                                          Such otherduties as may be agreed between REG Services and Blackhawk Biofuels.

 

The General Manager will report to suchofficer of REG Services as REG Services shall from time to time designate.  All employee compensation and employeebenefits associated with the position of General Manager will be paid by REGServices.

 

B.                                     OperationsManager.  REG Services will provide anOperations Manager to oversee the operation of the Biodiesel Facility.  The Operations Manager will be an employee ofREG Services, but will be assigned to carry out the responsibilities ofOperations Manager at the Biodiesel Facility. Included among the specificduties to be accomplished by the Operations Manager are:

 

·                                          Planning andscheduling biodiesel production to meet customer needs and marketing goals;

·                                          Monitor andimprove quality control;

·                                          Overseefacility and equipment maintenance;

·                                          Assist withbudgeting and the monitoring of labor and other expenses in the operation;

·                                          Implementprocessing changes and new technologies as they evolve, and plan for newprojects relating to biodiesel production; and

·                                          Such otherduties as may be agreed to between REG Services and Blackhawk Biofuels.

 

 

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The Operations Manager will report to theGeneral Manager.  All employeecompensation and employee benefits associated with the position of OperationsManager will be paid by REG Services.

 

C.                                     Feed StocksProcurement.  REG Serviceswill be responsible for arranging the purchase of soybean oil, together withother feed stocks as may be needed in the future.  REG Services will procure all feed stocksnecessary for production at the Biodiesel Facility; and will:

 

·                                          Provideanalysis and audit of feed stock suppliers;

·                                          Purchase feedstocks at competitive prices meeting specifications and in adequate quantitiesto fill the production schedule of the Biodiesel Facility;

·                                          Negotiate fordiscounts where obtainable on feed stocks;

·                                          Arrange fortransportation, logistics, and scheduling of feed stock deliveries; and

·                                          Provideanalysis and audit of bulk transportation providers.

 

D.                                    Chemical InputsProcurement.  REGServices will be responsible for purchasing methanol, sodium methylate,hydrochloric acid, and caustic soda, together with such other chemical inputsas may be needed in the future.  REGServices will procure all basic chemical inputs necessary for production at theBiodiesel Facility; and will:

 

·                                          Perform due diligencerequirements for investigation of suppliers of the chemical inputs;

·                                          Provideanalysis and audit of chemical suppliers;

·                                          Purchasechemical inputs at competitive prices meeting specifications for use in theBiodiesel Facility;

·                                          Negotiate fordiscounts where obtainable on chemicals;

·                                          Procureadequate chemical inputs to meet production schedules for the BiodieselFacility;

·                                          Provideanalysis and audit of bulk transportation suppliers; and

·                                          Arrange fortransportation, logistics, and scheduling services for chemical inputdeliveries by suppliers.

 

E.                                      AdministrativeServices.  REGServices shall provide administrative services to support the operation of theBiodiesel Facility, agreeing to provide assistance within the following areasas more fully described on Exhibit A hereto (and at REG Services’ expenseexcept for those materials and items noted on such Exhibit A):

 

·                                          Accounting

·                                          Human Resources

·                                          InformationTechnology

·                                          InsuranceAdministration

 

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·                                          Payroll

·                                          Communications

 

F.                                      Sales andMarketing.  REGServices will utilize its best efforts as Blackhawk Biofuels’ salerepresentative to market all biodiesel, glycerin and fatty acids produced atthe Biodiesel Facility (“Products”) at the Product Prices (as definedbelow).  With respect to such services,REG Services agrees to provide:

 

·                                          Market analysisof biodiesel supply and demand, utilizing non-proprietary, public information;

·                                          Opportunitiesfor participation in a trade association to access additional historical dataregarding prices, costs, and other analysis, contributed and disseminated tomembers on an aggregated basis;

·                                          Enhanced accessto biodiesel markets with REG Services’ established distribution channels andtransportation at pass through costs;

·                                          Analysis andaudit of biodiesel customers desiring to purchase Blackhawk Biofuels Product,including credit analysis;

·                                          Marketingspecialists to serve as Blackhawk Biofuels’ representatives to identifypotential customers and attain and establish sales opportunities for theProducts at the prices and terms as established by Blackhawk Biofuels;

·                                          Arrangementsfor transportation, logistics, and scheduling of biodiesel shipments;

·                                          Whereadvantageous, arrange for leased tankers for rail shipments;

·                                          Analyze andaudit bulk transportation providers;

·                                          Overseereconciliation of shipments, invoicing and payments on a weekly basis; and

·                                          Provideinvoicing and accounts receivable management for biodiesel shipments.

 

G.                                     Provision ofLeased Employees.  In additionto furnishing the above services, REG Services shall lease to BlackhawkBiofuels at Blackhawk Biofuels’ expense those employees as are necessary tofill the remaining personnel needs to operate the Biodiesel Facility.  Based upon the Biodiesel Facility andoperation planned as of the execution of this Agreement, the lease will coverthe listing of job descriptions as set out on Exhibit B hereto, but theemployees being leased and their job descriptions will be changed from time totime by the General Manager as necessary to best operate the BiodieselFacility.

 

H.                                    Information forthe Board.  REGServices shall provide Blackhawk Biofuels access to and make available allinformation regarding Blackhawk Biofuels performance, including but not limitedto all financial, and production information, in addition to any informationBlackhawk Biofuels board may need to perform its duties.

 

 

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I.                                         Capital Costs.  REG Services shall provide to the Board ofManagers of Blackhawk Biofuels for board approval any capital costs it deemsnecessary prior to incurring said costs.

 

J.                                        EmployeeDismissal.  Shoulddismissal of an employee whether leased, or the General Manager or OperationsManager become necessary, REG Services will make its best effort to use otherstaff including staff of other facilities it manages to continue operations ofBlackhawk Biofuels.  Appropriatedismissal will not be delayed by staffing concerns.

 

3.                                       Compensationfor Services.  Inconsideration of the services to be rendered during the term of this Agreement:

 

A.                                   Monthly Fee.  Blackhawk Biofuels shall initially pay to REGServices, on a monthly basis:

 

(i)                                     Commencing withthe month during which substantial completion of the animal fat phase isachieved, or when the Biodiesel Facility begins production of biodiesel fromsoy oil (or from other feed stocks), which ever shall occur first, a flat feeof $75,000.00  to be paid regardless ofthe gallons of biodiesel produced from the Biodiesel Facility (“Flat Fee”) (thefirst month prorated for the fraction of the month after such event occurs);and

 

(ii)                                  A fee equal to4.25¢ per gallon of biodiesel produced from the Biodiesel Facility during themonth for which the fee is computed (the rate per gallon herein the “FeeRate”).  For purposes of this Agreement,determination of the biodiesel produced from the Biodiesel Facility for a monthshall be based upon a compilation of the daily production reports for theBiodiesel Facility for such month, and references to a “gallon” shall be to theU.S. liquid measure of capacity, 231 cubic inches, corrected to 60 degreesFahrenheit.

 

The Flat Fee and the payment amount resultingfrom the computation utilizing the Fee Rate and the gallons of biodieselproduced in a month are referred to herein collectively as the “Monthly Fee.”

 

The Flat Rate and Fee Rateshall be adjusted for the month following the third anniversary of theBiodiesel Facility first producing Product for sale (“First Production Month”),and annually for such month thereafter, according to the movement in theConsumer Price Index for all-urban consumers, U.S. City Average, All Itemspublished by the Department of Labor (the “CPI”) in the following manner.  The CPI for the Twenty-fifth Production Monthshall be used as the denominator and the CPI for the month preceding the monthfor which the adjusted Flat Rate and Fee Rate are being computed shall be usedas the numerator.  This fraction shall bemultiplied by $75,000.00, with the resulting amount being the new FlatFee.  Such fraction shall then be used tomultiply times 

 

 

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the initial 4.25¢ Fee Rate,resulting in the new Fee Rate.  The newFlat Rate and new Fee Rate shall then be used to compute the Monthly Fee fortwelve (12) months beginning with the month for which the adjusted Flat Fee andFee Rate were computed, except that in no event shall the adjusted Flat Fee andthe Fee Rate be less than the $75,000.00 Flat Fee and the 4.25¢ Fee Rate as setout above.  The Flat Fee and the Fee Ratefor each subsequent year of the term shall be adjusted in a similar manner,with the CPI for the First Production Month being used as the denominator andthe CPI for the month preceding the month for which the adjusted Flat Fee andFee Rate are being computed being used as the numerator, and such fractionbeing multiplied by the respective $75,000.00 Flat Rate and the initial 4.25¢Fee Rate, such adjusted Flat Fee and Fee Rate in no event to be less than the$75,000.00 Flat Fee and the 4.25¢ Fee Rate as set out above.  If CPI information is not yet available whenpayment of the Monthly Fee is due, the Monthly Fee shall be paid based upon theFlat Rate and the Fee Rate in effect prior to adjustment, the parties agreeingupon receipt of the CPI information and calculation of the adjusted Flat Rateand Fee Rate to make any necessary adjustment in payment so that the correctMonthly Fees have been paid.  If theDepartment of Labor’s method of computing the CPI is substantially modified orceases, the parties agree to adopt another measure of the cost of living forthese purposes.

 

B.                                     Net Income Bonus.  As an incentive to REG Services, and asadditional compensation for the services being rendered, Blackhawk Biofuelsagrees to pay a bonus to REG Services on a yearly basis equal to six percent(6%) of the Net Income of Blackhawk Biofuels’ Biodiesel Facility (“Net IncomeBonus), as determined hereafter.  Forpurposes of this Agreement, Blackhawk Biofuels’ “Net Income” shall be the netincome for its fiscal year before any deduction or allowance for federal or stateincome taxes, determined in accordance with generally accepted accountingprinciples applied on a consistent basis by the independent CPA firm engaged byBlackhawk Biofuels, and then adjusted as necessary to: (i) include thereceipt of government payments such as under the federal excise tax creditprogram or similar federal or state payments; (ii) exclude any gains orlosses realized on the sale or disposition of capital assets; (iii) adjustdepreciation to utilize Internal Revenue Service Class lives depreciatedon a straight line, mid-month basis (with no bonus depreciation, Section 179expense (election to expense certain depreciable assets) or any other method ofaccelerated depreciation, first year write-off or expensing to be taken), and (iv) excludeany reduction for the Net Income Bonus paid or accrued to REG Services as aresult of this subsection, and (v) exclude any income from grant programsBlackhawk Biofuels may receive from state and federal programs.  For any partial fiscal year for BlackhawkBiofuels occurring during the term of this Agreement, REG Services shallreceive a Net Income Bonus, if any, computed for that period of the fiscal yearin which REG Services provides services hereunder.

 

C.                                     Testing andStart-Up Fees.  In order toprepare for and perform production testing of the Biodiesel Facility beingconstructed by Fagen, Inc. with equipment from DeSmet Ballestra NorthAmerica, Inc. and to ready the Biodiesel Facility to begin 

 

 

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full-scale productionoperations as a biodiesel production plant capable of utilizing soy oilfeedstocks (“Testing and Start-Up Services”), REG Services has been performingand agrees to perform the remaining Testing and Start-Up Services required byBlackhawk Biofuels and its Biodiesel Facility. Blackhawk Biofuels agrees to pay additional compensation for the Testingand Start-Up Services to REG Services in the amount of $483,000.  Recognizing that a significant portion of theTesting and Start-Up Services have already been provided by REG Services, uponclosing of the Purchase Agreement, REG Services shall issue an invoice toBlackhawk Biofuels for that portion of Testing and Start-Up Services performedprior to closing, Blackhawk Biofuels agreeing to pay such invoice within ten (10) daysafter receipt.  Thereafter, REG Servicesshall bill Blackhawk Biofuels on a monthly basis for Testing and Start-UpServices performed during such month, such to be paid by Blackhawk Biofuelswithin ten (10) days of receipt of such invoice, such performance of servicesand payment therefor to continue until the total fee of $483,000 has been paidby Blackhawk Biofuels to REG Services. Blackhawk Biofuels understands and agrees that similar services may berequired for testing and start up of upgrades planned for by BlackhawkBiofuels, including addition of animal fats processing capabilities, thecompensation for which will be provided for in separate agreements.

 

D.                                    Payment. The MonthlyFee shall be due on the tenth (10th) of the month following the month for whichsuch fees are computed and payable.  TheNet Income Bonus shall be paid within ten (10) days after BlackhawkBiofuels’ Board accepts the audit report for the fiscal year for which such NetIncome Bonus is computed, except that if the Net Income Bonus is not paidwithin three (3) months of the close of Blackhawk Biofuels’ fiscal yearbecause the audit has not been received (or within three (3) months of theend of the term of this Agreement in the event of the computation of an IncomeBonus for a partial fiscal year), Blackhawk Biofuels shall compute and pay anestimated Net Income Bonus (if any is due) based on its internal figures on orbefore the end of such three (3) month period, the parties agreeing uponreceipt of the audited figures to make any necessary adjustment in suchestimated payment so that the correct Net Income Bonus has been paid.

 

E.                                      DirectMarketing.  REGServices agrees to let Blackhawk Biofuels direct market up to 4% of annualproduction.  Blackhawk Biofuels willsupply on an annual basis the proposed sales schedule for this direct-marketedProduct.  The Fee Rate to REG Services onthis direct-marketed Product shall be limited to an initial rate of 3¢ pergallon, and adjusted thereafter as outlined in Section 3(A) above.

 

F.                                      AdditionalCompensation.  Theforegoing compensation would be for the normal scope of responsibilities to beperformed by REG Services for the benefit of Blackhawk Biofuels with respect tothe Biodiesel Facility.  In the event REGServices is required to perform services beyond the scope of this Agreement,and REG Services is willing to perform such additional services, the partiesshall agree upon the tasks to be undertaken, the time frame for theirperformance, and 

 

 

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how REG Services shall becompensated for such additional responsibilities.  Additionally, if in order to increase revenueopportunities, constrain costs or otherwise enhance services for network plantssuch as Blackhawk Biofuels (and without limiting the generality thereofincluding assuring necessary feedstocks or other supplies, storage ortransportation or obtaining more favorable pricing therefore), REG Servicesincurs liability by entering into long term commitments or otherwiseguarantying contractual performances which benefit Blackhawk Biofuels, REGServices shall be entitled to additional reasonable compensation to be agreedupon by the parties, commensurate with the risks undertaken and/or servicesmade available.

 

4.                                       Responsibilitiesof Blackhawk Biofuels. Concurrent with performance of the obligations of REG Services aspreviously set out in this Agreement, Blackhawk Biofuels understands andrecognizes that upon completion of the Biodiesel Facility, it shall be theobligation of Blackhawk Biofuels to:

 

A.                                   Establish aBoard of Managers or similar group to provide governance of Blackhawk Biofuels,and input and guidance to the General Manager regarding the Biodiesel Facility,and to take action upon recommendations of the General Manager, and approve forimplementation reasonable suggestions of the General Manager.  Not withstanding anything to the contrary inthis agreement, Blackhawk Biofuels Board of Managers is the final authority inregards to this Agreement and all areas of Biodiesel Facility not included inthis Agreement.

 

B.                                     Confer with REGServices on a monthly basis (or more often as needed) to discuss and establishthe price for which REG Services is to sell the Product for Blackhawk Biofuels.

 

C.                                     Provide thenames of several persons who would be authorized on Blackhawk Biofuels’ behalfto establish Product Prices, approve special prices, agree to the handling ofoff-grade Product, and approve the write off of accounts receivable, andfurther to notify REG Services of any changes in such designees (such designeesto be reasonably available for contact by REG Services, and able to respond ina timely fashion).

 

D.                                    Provide fundsfor:

 

(i)                                     Purchase,installation and maintenance of software, hardware, and related equipment,together with utilities and related charges, in order to accomplish thenecessary communication of voice and data between the parties, and conductBlackhawk Biofuels’ business at and operate the Biodiesel Facility.

 

(ii)                                  The cost ofacquisition and implementation of newly evolving technologies (and includingthose developed by REG Services or its affiliates) at the Biodiesel Facility,which have been approved by the 

 

 

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Board.  If technologies are purchased from  REG Services or its affiliates, BlackhawkBiofuels’ cost will not exceed REG Services’ cost plus 10%.

 

(iii)                               Offices,  computers, cell phones, and other facilities,services and support for the personnel needed to operate the Biodiesel Facility(and including the General Manager and Operations Manager) and appropriate forthe performance of their duties for Blackhawk Biofuels.  REG Services to supply an estimated annualbudget of these items for Blackhawk Biofuels’ approval.

 

(iv)                              Payment orreimbursement for reasonable travel and other similar out of pocket expensesincurred in furtherance of the business of Blackhawk Biofuels and infulfillment of the duties of the personnel needed to operate the BiodieselFacility (and including the General Manager and Operations Manager), uponsubmission and substantiation of such expenses as may be required for tax orauditing purposes.

 

(v)                                 Payment of thecosts of legal counsel and outside auditors as may be determined necessary bythe Board, and including for the examination of financial records, preparationof income tax returns for Blackhawk Biofuels and related reports to its ownersand third parties, securities filings, and similar reports.

 

(vi)                              In general, thepurchase and delivery of all feed stocks, chemical and other inputs, all staffand personnel costs (other than those of the General Manager and OperationsManager) necessary to operate the Biodiesel Facility, and all other expenses ofdoing business at the Biodiesel Facility not specifically being assumed by REGServices as a part of the furnishing of services hereunder, as well as allrequired capital expenditures to maintain the Biodiesel Facility in a conditioncapable of producing Product acceptable to the market place.

 

E.                                      To makeavailable for, and allow access to Biodiesel Facility for the purpose of:

 

(i)                                     Training ofemployees of REG Services or its affiliates or customers.

 

(ii)                                  Tours forcustomers of REG Services or its affiliates.

 

F.                                      Perform suchother tasks and duties as have been separately set out hereunder and agreed toby Blackhawk Biofuels.

 

5.                                       OtherOperational Understandings & Agreements:

 

A.                                   Risk ManagementProgram.  After review by BlackhawkBiofuels’ Board of Managers, with sufficient information to make decision andlender concurrence, Blackhawk Biofuels agrees to negotiate with REG Services toadopt the risk management program agreeable to both parties, which supports theprocurement of feed stocks and chemical inputs hereunder (“Risk ManagementProgram”).  

 

 

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The objective of the programis to manage the commodity price risk resulting from fluctuating prices of feedstock (oils and fats), chemicalinputs (methanol and catalysts), and the finished Products (biodiesel and glycerin)due to changing market conditions.  Underthe Risk Management Program, REG Services will utilize the Chicago Board ofTrade, New York Mercantile Exchange, and other exchanges as warranted toestablish an account or accounts in Blackhawk Biofuels’ name, and acquireinstruments as necessary to implement risk management strategies.  Such account(s) and instruments would befunded by Blackhawk Biofuels and managed by REG Services, with all resultinggains and losses from the purchase and sale transactions of any futures contracts,options, and cash instruments associated with the Risk Management Program toflow to the benefit of or be borne by Blackhawk Biofuels.  If approved, Blackhawk Biofuels agrees toadopt such resolutions and execute such agreements as are reasonably necessaryto implement the Risk Management Program, and pay transactional costs incurredto carry out such program.

 

B.                                     PlantInformation Program.  In itsmanagement of the Biodiesel Facility, REG Services shall utilize a softwareprogram (“PI System”) interfacing with the computer control system running theBiodiesel Facility, making available production data for operations,engineering, sales, marketing, logistics and management to better make informeddecisions with respect to production processes. During the term of this Agreement, the PI System will also allow for REGServices’ remote access to information on the operation of the BiodieselFacility to provide for data collection, monitoring, benchmarking and troubleshooting, all to better aid performance for Blackhawk Biofuels.

 

C.                                     Product Pricing.  On at least a monthly basis (or more often asneeded), REG Services shall identify and provide publicly available marketinginformation to Blackhawk Biofuels with respect to Products.  Information supplied will be in written formand relayed at least three (3) business days prior to when a decision isrequired.  Blackhawk Biofuels willestablish the Product prices for REG Services to use in selling Products(“Product Prices”), based upon market place conditions.  Any change in Product Prices shall beeffective for Product sales made beginning the seventh (7th) calendar day afterREG Services’ receipt of notice of new Product Prices, except for quotationsstill open and extended prior to the change in the Product Prices, or unlessotherwise agreed to by the parties (Blackhawk Biofuels and REG Services tohonor all pre-existing contracts and agreements with respect to price).  All Product sales by REG Services asBlackhawk Biofuels’ sales agent shall be at or above the Product Prices then ineffect, unless written consent is received from Blackhawk Biofuels for specialprices due to volume commitments, Blackhawk Biofuels storage constraints, orother reasons approved by Blackhawk Biofuels. REG Services specifically states that it will not sell the Product atprices less than the Product Prices without Blackhawk Biofuels’ prior writtenapproval, and that if REG Services is able to sell Products at prices above theProduct Prices, Blackhawk Biofuels would nonetheless receive all proceeds ofany such sales.  REG Services will in any

 

 

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event use its best efforts,as Blackhawk Biofuels’ sales agent, to maximize the sales revenues received byBlackhawk Biofuels.

 

D.                                    Off-SiteStorage.  In order to maximize profitpotential, and including taking advantage of regional marketing opportunities,there will be times in the marketing of Product that REG Services willrecommend the storage of Blackhawk Biofuels’ Product in third partylocations.  In such cases REG Serviceswill provide data to evaluate the cost effectiveness of storage in order forBlackhawk Biofuels’ Board of Managers to make decision in a timely manner.  In such case, Blackhawk Biofuels agrees thatit will be responsible for transportation costs for its Product to the storagefacility, in and out charges, such Product’s prorated share of storage, andother related expense.

 

E.                                      Product Sales,Handling of Proceeds.  It isexpected that sales of Products will be made in REG Services’ name.  REG Services shall take title to the Productwhen loaded for delivery FOB the Biodiesel Facility, unless otherwiseagreed.  REG Services will carry Propertyin Transit insurance for all Product in shipment.  If while Product is in transit a claim wereto occur the proceeds from settlement would be due the title holder at the timeof the loss event.  REG Services will payover to Blackhawk Biofuels all Product proceeds received from sales of BlackhawkBiofuels Products.  REG Services shallremit by electronic transfer to Blackhawk Biofuels by the close of businesseach Wednesday all such proceeds received during the previous seven (7) days.  This payment schedule will be re-evaluated ifEFT payments for biodiesel produced by Blackhawk Biofuels received by REGServices exceeds 50% of the total payments being received for Product fromBlackhawk Biofuels.

 

F.                                      Off-GradeProduct.  In the event off-grade Productis produced at the Biodiesel Facility that is not marketable at the ProductPrices then in effect, REG Services will nonetheless use its best efforts tosell such Product for Blackhawk Biofuels at the highest prices reasonablyobtainable.  With respect to biodiesel,and for purposes of this Agreement, off-grade Product shall include biodieselwhich fails to meet the specifications contained in ASTM D6751 as it may beamended or modified (or such other standards for biodiesel as may in the futuredevelop in the biodiesel industry) or if for any other reason a customerreasonably rejects biodiesel.  Withrespect to Products other than biodiesel, for purposes of this Agreement,off-grade Product shall include Product which fails to meet specificationsmutually agreed upon by the parties, or if for any other reason a customerreasonably rejects such Product.  In theevent off-grade Product is sold, REG Services shall work to minimize any lossto Blackhawk Biofuels for returned Product, cost of cover, and relatedexpenses.  REG Services shall adviseBlackhawk Biofuels of Product complaints, and shall not accept the return of,or make any allowance with respect to any Product, without Blackhawk Biofuels’prior written approval.  REG Services andBlackhawk Biofuels shall work together to determine the resolution of customercomplaints and off-grade Product sales. Blackhawk Biofuels shall pay for anycosts associated with resolution of customer complaints or returned Product,including freight costs, cover, and 

 

 

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related expenses, unlesssuch Product deficiencies were caused by the negligence or willful misconductof REG Services, in which event REG Services will be responsible for suchcosts.  Except where caused by REGServices’ negligence or willful misconduct, Blackhawk Biofuels agrees to indemnifyREG Services from any loss, claim or damage (including reasonable attorneyfees) incurred as a result of the sale of off-grade Product.

 

G.                                     Credit Risk.  REG Services agrees to manage the accountsreceivable and work to minimize bad debt losses.  REG Services shall pursue all reasonableefforts at collecting accounts, Blackhawk Biofuels agreeing to pay for thirdparty collection costs including attorney fees (“Collection Costs”) except asmay be subsequently shared as set out hereafter.  The write off of accounts receivable shall beas mutually agreed by the parties. Blackhawk Biofuels understands that losses on accounts receivable due tobad debt up to one-half per cent of Product sales will be borne entirely byBlackhawk Biofuels as a cost of doing business. REG Services agrees to share losses equally with Blackhawk Biofuels withrespect to accounts receivable for Product sales (including Collection Costs)to the extent that the total of such losses (not previously shared by theparties) incurred from the commencement of the term of this Agreement to thedate of computation of such losses exceed one half of one percent of BlackhawkBiofuels’ total sales made under this Agreement for the same period.  Should Blackhawk Biofuels desire REG Servicesto sell Product to buyers not approved by REG Services, REG Services shall makesuch sale in Blackhawk Biofuels’ name, and provide normal invoicing and billingservices.  However, any risk of receiptor collection of such sale shall remain with Blackhawk Biofuels, and shall notbe included in the total of losses which might be shared by the parties as setout above.

 

H.                                    LeasedEmployees.   During theterm of this Agreement, REG Services and Blackhawk Biofuels agree that REGServices shall lease to Blackhawk Biofuels those of its employees identified ineach monthly report prepared by REG Services (each a “Leased Employee,” hereincollectively the “Leased Employees”), and filling operational needs at theBiodiesel Facility.  Such monthly reportswill indicate an effective date for each employee.  The arrangement with respect to such LeasedEmployees shall be upon the following terms:

 

(i)                                     The LeasedEmployees assigned to perform the services contemplated by this Agreement areor will be and shall remain common law employees of REG Services.  REG Services hereby assumes responsibilityfor all administrative and personnel matters for Leased Employees relating totheir services provided to Blackhawk Biofuels including, but not limited to,compliance with all laws and regulations affecting employees.  REG Services is responsible for all labornegotiations, grievances and collective bargaining agreements regarding theLeased Employees.

 

(ii)                                  REG Serviceshas sole responsibility for determining the rate of pay, hours and other termsand conditions of employment of the Leased Employees. 

 

 

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REG Services has soleresponsibility for providing compensation and benefits to the Leased Employees,including without limitation: wages, withholding and remitting all federal,state and local payroll taxes, and payments for wages, vacation and paid orunpaid time off as required by state and federal law.  On an annual basis estimated payroll expensesper employee for the subsequent year will be represented to Blackhawk Biofuels’Board of Managers for budgeting purposes and review and approval.

 

(iii)                               REG Servicesbears sole responsibility for statutory insurance for the Leased Employees, forFICA, unemployment, and workers’ compensation in accordance with applicablestatutory requirements and limits.  Withrespect to the Leased Employees regarding their services to Blackhawk Biofuels,REG Services has sole responsibility for complying with the state and federalemployment laws, wage and hour laws, civil rights laws, including but notlimited to defamation, invasion of privacy, negligence, emotional distress,improper discharge (based on contract, common law, or statute, including anyfederal, state or local statute or ordinance prohibiting discrimination orretaliation in employment), alleged violation of the United StatesConstitution, Title VII of the Civil Rights Act, 42 U.S.C. § 2000 etseq.,the Americans with Disabilities Act, 42 U.S.C. §12101 etseq.,the Employment Retirement Income Security Act of 1976, 29 U.S.C. § 1001 etseq., any claim for discrimination, harassment or retaliation based onsex, race, color, creed, religion, age, national origin, or any other protectedstatus under state, federal or local law, the Immigration Reform and ControlAct, providing non-obligatory fringe benefit programs for Leased Employees, andcomplying with COBRA or state continuation coverage rights for qualified LeasedEmployees and dependents. REG Services shall be responsible for obtaining andmaintaining all prehire and applicant documentation and other employmentrecords for the Leased Employees, in accordance with state and federallaw.  If Leased Employees are required tobe licensed or to act under the supervision of a licensed person or entity, REGServices shall be solely responsible for verifying such licensure or providingsuch required supervision.

 

(iv)                              BlackhawkBiofuels shall reimburse REG Services for costs associated with the servicesbeing provided by such Leased Employees to Blackhawk Biofuels (“Cost ofServices”) in the manner set forth in this paragraph. On a monthly basis, REGServices shall submit to Blackhawk Biofuels an invoice detailing the Cost ofServices attributable to the Leased Employees for such month.  Within ten (10) days of receipt of suchinvoice, Blackhawk Biofuels shall remit payment in full to REG Services.  The Cost of Services paid or incurred by REGServices shall be based on the wages, payroll taxes, government mandated costs,including workers’ compensation, benefit costs, expenses charged to REGServices on a per employee basis, and any other costs mutually agreed upon asbeing 

 

 

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appropriate forreimbursement, which REG Services paid to or incurred on behalf of the LeasedEmployees for the payment period covered by the statement.

 

(v)                                 All work andservices shall be performed by Leased Employees at the Biodiesel Facilityunless otherwise agreed.  REG Servicesshall comply with any requirements of Blackhawk Biofuels with respect toconfidential information and shall institute procedures, including obtainingconfidentiality agreements from its Leased Employees, as requested by BlackhawkBiofuels.

 

(vi)                              REG Servicesshall have the ultimate authority and control over hiring, evaluating,supervising, disciplining and termination of all Leased Employees.  The General Manager shall retain and exercisesupervisory responsibilities with respect to the Leased Employees, including withoutlimitation, their day-to-day control and supervision, performance reviews andevaluations, and hiring and firing.

 

(vii)                           REG Servicesshall accept Blackhawk Biofuels’ reasonable recommendations regarding thediscontinuation of services of any particular Leased Employee. BlackhawkBiofuels shall not be responsible for any financial obligation of REG Servicesto a Leased Employee accruing after such discontinuation becomes effective, byreason of the services performed pursuant to this Agreement. Any LeasedEmployee that ceases to provide the services covered by this Agreement shall nolonger be a Leased Employee, but will remain an employee of REG Servicessubject to retention or termination as REG Services may determine in its solediscretion.

 

(viii)                        In performingthe services hereunder, REG Services shall see to the Leased Employees usingtheir best efforts to perform their duties for the benefit of BlackhawkBiofuels, and with such care as an ordinarily prudent person in a like positionwould use under similar circumstances.

 

I.                                         Software toOperate Plant Equipment.  Upontermination of this Agreement, REG Services agrees to transfer REG Services’operational rights to Blackhawk Biofuels in the necessary software (or assistBlackhawk Biofuels in obtaining any necessary licensing arrangements forsoftware from third parties) to operate the equipment in the BiodieselFacility.  Blackhawk Biofuels understandsthis shall not include the PI System, or administrative or accounting softwaredeveloped or utilized by REG Services.

 

J.                                        Access toBiodiesel Facility.  BlackhawkBiofuels agrees during the term of this Agreement to provide access to theBiodiesel Facility by REG Services for purposes of training employees regardingthe operation of biodiesel plants and equipment, and to provide for tours byprospective customers of REG Services, 

 

 

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subject to reasonableadvance notice to allow for appropriate scheduling and to minimize disruptionto the Biodiesel Facility’s production.

 

K.                                    Product Sales,Financing Assistance.  In theevent Blackhawk Biofuels reaches a point in which it does not have unusedcapacity available on a line of credit or working capital credit facility, anddesires to make use of the following, then in addition to Section 5E ofthe Agreement, for a period of two (2) years after substantial completionof the Facility, Blackhawk Biofuels may elect the following terms:

 

(i)                                     Sales ofFinished Inventory where there is a known third party buyer will be made in REGMarketing’s name.  REG Marketing shalltake title to the Finished Inventory where there is a known buyer when loadedfor delivery FOB the Biodiesel Facility, unless otherwise agreed.  REG Marketing will carry Property in Transitinsurance for all Finished Inventory where there is a known third party buyerin shipment.  If while Finished Inventorywhere there is a known third party buyer is in transit a claim were to occurthe proceeds from settlement would be due the title holder at the time of theloss event.

 

(ii)                                  REG Marketingshall remit by electronic transfer to Blackhawk Biofuels by the close ofbusiness each Wednesday funds in an amount equal to the following:  (a) the amount of Finished Inventorywhere there is a known third party buyer sales made during Sunday throughSaturday of the preceding week, less (b) a discount fee that reflects theCost of Capital (as defined hereafter) incurred as a result of making paymentfor such Finished Inventory where there is a known third party buyer salesbefore collecting proceeds from ultimate customers, and less (c) anyamounts then due from Blackhawk to REG Services or REG Marketing or any oftheir Affiliates pursuant to this Agreement which REG Marketing elects todeduct.  The amount of the discount feeunder (b) above will be based on REG Service’s Cost of Capital, and theexpected average period of time elapsing between the time of payment by REGMarketing to Blackhawk Biofuels and collection of proceeds by REG Marketingfrom ultimate customers for the respective preceding week’s sales.

 

After two (2) years from the substantialcompletion of the Facility, Section 5E of the original Agreement shall bethe only alternative available to Blackhawk Biofuels.

 

Provided that all obligations under this Section 5Kowing by Blackhawk Biofuels hereunder are fully satisfied through the date oftermination, Blackhawk Biofuels shall have the right to terminate the creditarrangements, covenants and agreements under Section 5K upon writtennotice to REG Services and REG Marketing.

 

 

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Forpurposes of this Agreement, “Cost of Capital” shall be a variable interest rateadjusted daily equal to the cost of equity and short term debt capital for REGServices or REG Marketing, based upon the weighted average of the components ofequity and debt used by REG Services or by REG Marketing (whichever isapplicable) to provide trade credit to Blackhawk Biofuels.  The charge for credit extended from equityshall be equal to 15% on an annual basis. The charge for credit extended from debt shall be equal to the highestinterest rate paid by REG Services or REG Marketing for short term debt plus105 basis points on an annual basis.

 

L.                                      Designation ofManager.  In consideration of the creditto be extended to Blackhawk Biofuels as outlined above, and in consideration ofthe management and operational services to be provided hereunder by REGServices, during the term of the Agreement and including any extensions orrenewals thereof, REG Services shall have the right to designate one (1) memberof Blackhawk Biofuels’ Board of Managers with full voting rights as providedfor under Blackhawk Biofuels’ Amended and Restated Limited Liability CompanyAgreement (“LLC Agreement”), REG Services to have such further rights to removesuch designee, and to designate successor(s) thereto for such period oftime.  Blackhawk Biofuels agrees to placeREG Services’ designee upon the Board of Managers upon closing of the PurchaseAgreement.

 

M.                                 Release ofLiability.  Bysignature hereto, Blackhawk Biofuels hereby confirms that neither West CentralCooperative nor REG have any further liability or responsibility forperformance under the Management and Operational Services Agreement dated August 4,2006, or the First Amendment to Management and Operational Services Agreement datedDecember 15, 2007, both of said agreements being replaced and substitutedfor by this Agreement. The parties understand that while REG Services shallremain liable for their performance, the obligations as set out under Section 5C,D, E, F and G of the Agreement will be performed by REG Marketing.

 

6.                                       Term ofAgreement.  ThisAgreement is effective as of the date of its execution by the parties (withservices to commence by REG Services hereunder at such time or times asappropriate based upon construction progress of the Biodiesel Facility), andshall remain in force for five (5) years after the end of the first monthin which the Biodiesel Facility is producing Product for sale (subject to earlytermination due to default as set out hereafter).  This Agreement shall continue after theinitial term unless and until one party gives written notice of termination tothe other of a proposed termination date at least twenty-four (24) months inadvance of a proposed termination date. The initial term or any subsequent term may also be modified upon themutual written consent of the parties.

 

7.                                       Confidentiality.  Blackhawk Biofuels agrees that in theperformance of this Agreement, Blackhawk Biofuels may receive or otherwiselearn of certain items of information that are non-public, proprietary, orconfidential to REG Services or to parties with whom REG Services has enteredinto contractual relationships (herein “Confidential Information” with respectto REG Services), to include but not be limited to information 

 

 

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concerning REG Services’ operations, processes, methods and accumulatedexperience incidental to the processing, sale and distribution of Products, andincluding supplier and customer lists, the disclosure of which to third partieswould be injurious to REG Services or to parties with whom REG Services hasentered into contractual relationships. REG Services agrees that in the performance of this Agreement, REGServices will receive financial information including the results of BlackhawkBiofuels’ operations, and may otherwise learn of certain items of informationthat are non-public, proprietary, or secret to Blackhawk Biofuels or to partieswith whom Blackhawk Biofuels has entered into contractual relationships (herein“Confidential Information” with respect to Blackhawk Biofuels), the disclosureof which to third parties would be injurious to Blackhawk Biofuels or toparties with whom Blackhawk Biofuels has entered into contractual relationships.  Each party as recipient (the “Recipient”)agrees not to use the Confidential Information of the other party (the“Provider”) for any purpose other than as required to perform this Agreement.  Recipient agrees to disclose the ConfidentialInformation of the Provider only to such directors, officers, employees,affiliates, consultants, agents, and third parties (“Representatives”) as arerequired to allow Recipient to perform under this Agreement, who are firstinformed of the restrictions upon use of the Confidential Information and whoagree to keep such information confidential and who agree to be bound by theterms of these confidentiality provisions to the same extent as if they wereparties hereto.  Recipient will beresponsible for any breach of these confidentiality provisions by any of itsRepresentatives and agrees to take all reasonable measures to restrain itsRepresentatives from prohibited or unauthorized disclosure or use of theConfidential Information.  Recipientagrees that the actual or threatened disclosure of the Confidential Informationwould cause the Provider immediate and irreparable harm, which may not beadequately compensated by money damages. Accordingly, in the event of a breach of these confidentialityprovisions by Recipient or its Representatives, the Recipient specificallyagrees, that in addition to all other remedies available at law or in equity,the Provider shall be entitled to equitable relief, including an injunction tolimit or prevent such actual or threatened disclosure, together with recoveryof costs of litigation from Recipient as a result of breach, includingreasonable attorney fees.  Theseobligations of confidentiality shall not apply to any information which: (a) wasknown to Recipient or was in the public domain prior to disclosure hereunder;or (b) becomes known to the public from a source other than Recipient; or (c) isdisclosed to Recipient by a third party having a legal right to make suchdisclosure.

 

Inthe management and operation of the Biodiesel Facility, REG Services willdirect the General Manager, Operations Manager, and Leased Employees (as suchterm is defined herein) to hold competitively sensitive information ofBlackhawk Biofuels confidential and not disclose such information to REG Servicesand its other employees without the consent of Blackhawk Biofuels.

 

Theparties acknowledge that in order to comply with certain statutory orregulatory requirements, this Agreement may need to be disclosed to theSecurities Exchange Commission, state securities bureaus or other regulators,and agree to allow such disclosure upon receipt of appropriate request.

 

 

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8.                                       IntellectualProperty Rights. Blackhawk Biofuels shall have no right under theAgreement to make use of any brand names trademarked by REG Services or any ofits affiliates, nor any of the intellectual properties or know-how developed byREG Services or any of its affiliates in conjunction with the operation ofplants similar to the Biodiesel Facility, or to use any of the intellectualproperties and know-how of REG Services or any of its affiliates other thanpursuant to such separate licensing arrangements as may be entered into by theparties (if any), but the parties expressly agree that no such rights are beingconveyed by virtue of the execution or performance of this Agreement.

 

9.                                       Non-Solicitationof Employees.  Each partyagrees that neither party (nor any affiliate, successor or permitted assignthereof) shall solicit for employment or consulting an employee of the otherwhile such employment by the other continues, and for a period of three (3) yearsthereafter.  This clause does not applyto Leased Employees of Blackhawk Biofuels should this Agreement be terminated.

 

10.                                 Access to Booksand Records.  ThisAgreement provides for the payment by Blackhawk Biofuels to REG Services of asum dependent upon the amount of production of biodiesel at the BiodieselFacility, and the Net Income of Blackhawk Biofuels’ Biodiesel Facility.  For that reason Blackhawk Biofuels agrees tomake available its books and records for inspection and copying which arereasonably necessary for purposes of providing information with respect tobiodiesel production, and verifying the computation of the Net Income Bonus, tothe extent not already available to REG Services in performance of its dutieshereunder.  REG Services agrees to treatinformation received under such access rights as Confidential Information withrespect to Blackhawk Biofuels.

 

ThisAgreement provides for reimbursement by Blackhawk Biofuels of various expensesof REG Services, including with respect to the cost of providing LeasedEmployees hereunder.  For that reason REGServices agrees to make available those portions of its books and records forinspection and copying which are reasonably necessary for purposes of verifyingappropriate amounts of reimbursement, and REG Services’ compliance with itsobligations set forth hereunder. Blackhawk Biofuels agrees to treat information received under suchaccess rights as Confidential Information with respect to REG Services.

 

Theexpense of any such inspection or audit shall be borne by the party making suchinspection, unless the need for a material correction to payment is revealed,in which case the reasonable expense of such inspection or audit shall be borneby the party whose books and records are being audited.

 

11.                                 Force Majeure.  Neither party hereto shall be liable for anydelay arising from circumstances beyond its control including (but not limitedto) acts of God, riot or civil commotion, industrial dispute, fire, flood,drought, shortage of material or labor or act of government, terrorist acts,war, or sabotage, provided that the party seeking to be excused shall makeevery reasonable effort to minimize the delay resulting therefrom, and shallgive prompt written notice of the force majeure event to the other party.  The obligations of the party giving notice,so far as they are affected by the force majeure event, will be suspendedduring, but not longer than, the continuance of the force majeure event.  The 

 

 

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affected party must act with commercially reasonable diligence toresume performance and notify the other party that the force majeure event nolonger affects its ability to perform under the Agreement.

 

12.                                 Arbitration.  Should any controversy, claim, dispute ordifference arise between the parties hereunder, out of or relating to thisAgreement, including, without limitation, its formation, validity, bindingeffect, interpretation, performance, breach or termination, then each and everysuch controversy, claim, dispute or difference shall be submitted and settledby arbitration in accordance with the Commercial Arbitration Rules then ineffect of the American Arbitration Association, and shall be conducted in DesMoines, Iowa.  Judgment upon the awardrendered by the arbitrator or arbitrators may be entered in any court ofcompetent jurisdiction.

 

13.                                 IndependentStatus.  Subject to the terms andconditions of this Agreement, REG Services is authorized to perform servicesfor Blackhawk Biofuels as set out in the Agreement as an independent contractorand as an agent with such authority as is necessary to carry out the servicesherein provided.  Nothing in thisAgreement or in the course of dealing by the parties shall be construed toconstitute Blackhawk Biofuels and REG Services as partners, joint venturors, oras guarantors for one another or as authorizing either party to obligate theother in any manner except as is necessary for REG Services to fulfill theservices provided for hereunder.

 

14.                                 EarlyTermination. Notwithstanding the provisions of Section 6 hereof, this Agreementmay be terminated in accordance with the following provisions:

 

A.                                   A party heretomay (but is not required to) terminate this Agreement if the other partybreaches any provision of this Agreement and fails to remedy such breach withinthirty (30) days after delivery of written notice from the non-breaching partydescribing the alleged breach and the proposed remedy.  However, if the breach is non-payment byBlackhawk Biofuels under Section 3, or REG Services of proceeds of saleunder Section 5(E), the cure period shall be ten (10) days afterdelivery of written notice by the non-breaching party.

 

B.                                     Either partyhereto may terminate this Agreement effective immediately upon delivery ofwritten notice to the other party, if the other party (i) is unable to payits debts as they mature or admits in writing its inability to pay its debts asthey mature, (ii) makes a general assignment for the benefit of itscreditors, (iii) files a voluntary petition for bankruptcy, or (iv) appliesfor the appointment of a receiver or trustee for all or substantially all ofits assets or permits the appointment of any such receiver or trustee who isnot discharged within a period of sixty (60) days after such appointment.

 

C.                                     Notwithstandingany termination of this Agreement, the obligations and rights of the partieswhich have accrued as of the time of such termination shall survive.

 

D.                                    Withoutlimiting the generality thereof, if termination is due to a breach by a party(the “Breaching Party”), then the Breaching Party shall indemnify the otherparty

 

 

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(the “Non-Breaching Party”) against any loss, claim or damages(including reasonable attorney fees) resulting from such breach or termination,and shall pay the costs of satisfying any obligations arranged by theNon-Breaching Party on behalf of the Breaching Party prior to such termination,including commitments for raw materials, transportation, sales, and hedgingtransactions.

 

15.                                 Indemnification.  The parties shall have the followingindemnification/hold harmless rights and obligations hereunder:

 

A.                                   REG Servicesshall indemnify, defend and hold Blackhawk Biofuels and its officers, directorsand employees (each an “Indemnitee”) harmless from and against all liabilities,obligations, claims damages, penalties, causes of action, costs and expenses(including, without limitation, attorneys’ fees and expenses) imposed upon,incurred by or asserted against the Indemnitee that are caused by, areattributable to, result from or arise out of (i) acts of gross negligenceor willful misconduct by REG Services, its employees or agents, (ii) REGServices’ breach of any provision of this Agreement; (iii) REG Services’failure to meet its obligations to or perform any acts required under itsagreements with any third party, (iv) the relationship between the REGServices and any of its employees, agents, and servants, whether underindustrial accident laws, workers’ compensation laws or any other lawsapplicable to employers and employees. The provisions of this paragraph shall survive the termination of thisAgreement.

 

B.                                     BlackhawkBiofuels shall indemnify, defend and hold REG Services and its officers,directors and employees (each an “Indemnitee”) harmless from and against allliabilities, obligations, claims damages, penalties, causes of action, costsand expenses (including, without limitation, attorneys’ fees and expenses)imposed upon, incurred by or asserted against the Indemnitee that are causedby, are attributable to, result from or arise out of (i) acts of grossnegligence or willful misconduct by Blackhawk Biofuels, its employees oragents, (ii) Blackhawk Biofuels’ breach of any provision of thisAgreement; (iii) Blackhawk Biofuels’ failure to meet its obligations to orperform any acts required under its agreements with any third party, (iv) therelationship between the Blackhawk Biofuels and any of its employees, agents,and servants, whether under industrial accident laws, workers’ compensationlaws or any other laws applicable to employers and employees.  The provisions of this paragraph shallsurvive the termination of this Agreement.

 

16.                                 Remedies in theEvent of Default.  Where theBreaching Party commits a material breach of this Agreement, and: (a) ifexcept as set out herein such material breach continues beyond the allowable cureperiod after the receipt of written demand for cure of such breach by theNon-Breaching Party as set out in Section 14 hereof ; or (b) if suchmaterial breach cannot be cured within such period and the Breaching Party doesnot within such cure period start to cure the breach and thereafter proceeddiligently with the cure thereof, then the Non-Breaching Party may terminatethis Agreement and may recover its money damages caused by such material breach(including arbitration fees, court costs, litigation expenses, and reasonableattorney fees) on written notice and demand to the Breaching 

 

 

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Party for payment.  Such paymentshall be without prejudice to any other right or remedy that the Non-BreachingParty may have against the Breaching Party under this Agreement, at law or inequity, including injunctive relief and rights of specific performance.

 

17.                                 Representationsand Warranties.  As amaterial inducement to the other party to enter into this Agreement and withthe understanding that the other party shall be relying thereon in consummatingthe transaction contemplated hereunder, each party hereby represents andwarrants to the other party as follows:

 

A.                                   Authorization.  The execution of this Agreement has been dulyauthorized by the appropriate owners and board of governance as may be requiredfor such party to proceed.

 

B.                                     Standing.  Such party is duly organized, validlyexisting and in good standing under the laws of the state of formation and suchother states as may be required for this transaction, and has all requisitepower and authority to consummate the transactions contemplated hereunder.

 

C.                                     Consents.  No approval or consent is needed from anythird party with respect to the performance of obligations hereunder by suchparty.

 

D.                                    Breaches.  The execution, delivery and performance ofthis Agreement and the consummation of the transactions contemplated hereby donot and shall not result in any material breach of any terms or conditions ofany mortgage, agreement or contract or obligation entered in to by such party(or in the case of Blackhawk Biofuels by which the Biodiesel Facility isbound), nor, to the best of such party’s knowledge, shall they violate anystatute, regulation, judgment or decree of any court in which such party may bebound (or in the case of Blackhawk Biofuels by which the Biodiesel Facility maybe subject).

 

E.                                      Litigation.  There is no action, suit or proceedingpending, or to the best of such party’s knowledge, threatened against suchparty which might prevent or delay such party’s performance of its obligationshereunder.

 

F.                                      Ownership andOperation. Blackhawk Biofuels (by its duly authorizedrepresentative signing below) further represents and warrants that it will bethe owner of the Biodiesel Facility upon completion of its construction.

 

18.                                 Notices.  All notices required or desired to be givenunder this Agreement must be given in writing, and shall be sent by registeredor certified mail, return receipt requested, or by courier service, addressedto the parties at their addresses set forth below, or such other addresses asmay subsequently be designated in writing by such party:

 
| To  Blackhawk Biofuels: | Blackhawk  Biofuels, LLC |
|-------------------------|--------------------------|
|                    | 22  South Chicago Avenue |
|                    | Freeport,  IL 61032      |
|                    | Attention:  Ronald Mapes |
|                    |                     |

 

 

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| With  copy to:     | Lindquist &  Vennum PLLP                               |
|--------------------|-----------------------------------------------------------------|
|               | 4200  IDS Center                                                |
|               | 80  South 8th Street                                            |
|               | Minneapolis,  MN 55402-2274                                     |
|               | Office:  612-372-3955                                           |
|               | Fax:  612-371-3207                                              |
|               | Attention:  Joe Thompson                                        |
|               |                                                            |
| To  REG Services : | REG  Services Group, LLC                                        |
|               | 416  South Bell Avenue                                          |
|               | Ames,  IA 50010                                                 |
|               | Attention:  Nile Ramsbottom                                     |
|               |                                                            |
| With  copy to:     | Wilcox,  Polking, Gerken, Schwarzkopf & Copeland, P.C. |
|               | 115  East Lincolnway, Suite 200                            |
|               | Jefferson,  IA 50129                                            |
|               | Attn:  John A. Gerken                                           |

 

Anynotice or other communications made shall be deemed to have been given whenreceived or refused.  A party may changeits address for notice by giving notice of such address as provided in thisSection.

 

19.                                 Annual Reviewof Agreement.  ThisAgreement will be reviewed annually by the parties, as they determine the bestprocedures for accomplishing such services, define their roles, and react tochanges in the industry.  Any changes tothe Agreement shall require the mutual written consent of Blackhawk Biofuelsand REG Services.

 

20.                           Miscellaneous.

 

A.                                   Benefits.  This Agreement shall bind and benefit theparties and their permitted successors and assigns.

 

B.                                     Assignment.  Neither party may assign any of its rights inor delegate any of its duties under this Agreement without the prior writtenconsent of the other party. Notwithstanding the foregoing, a party (“Assignor”) may without the needfor consent from the other party assign any or all of its rights, duties andobligations under this Agreement to another entity, or to such party’saffiliate or successor (collectively herein “Assignee”), if such Assigneeexpressly assumes all obligations not otherwise remaining with Assignorhereunder, and Assignor nonetheless remains responsible hereunder.

 

C.                                     Governing Law.  Iowa law shall govern the construction andenforcement of this Agreement.

 

D.                                    EntireAgreement; Amendment.  ThisAgreement contains the entire agreement of the parties with respect to thesubject matter and supersedes all prior oral or 

 

 

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written agreements and understandings. This Agreement may not be amended or modified except in writing signedby both parties.

 

E.                                      Execution andDelivery.  ThisAgreement may be executed in counterparts and delivered by facsimile, which,taken together, shall be considered one instrument and deemed an original.

 

F.                                      No Inferencefrom Drafting.  The partiesboth acknowledge that they have been represented by counsel, and that thisAgreement has resulted from extended negotiations between the parties.  No inference in favor of or against any partyshall be drawn from the fact that such party has drafted any portion of thisAgreement.

 

G.                                     Waiver.  The waiver by either party of a breach of anyprovision of this Agreement will not constitute or be construed as a waiver ofany future breach of any provision of this Agreement.

 

H.                                    Survival.  The provisions of Sections 7, 8, 9, 10 and 12of this Agreement shall indefinitely survive the expiration and termination ofthis Agreement.

 

I.                                         Covenant ofFurther Cooperation.  Each of theparties agrees to execute and deliver such further documents and to cooperatein such manner as may be necessary to implement and give effect to theprovisions contained herein.

 

J.                                        Enforcement andInterpretation.  It is thedesire and intent of the parties hereto that this Agreement be enforced to thefullest extent possible under the laws and public policies of the state ofIowa.  Accordingly, if any particularprovision of this Agreement is adjudicated to be invalid or unenforceable, suchportion shall be deleted, and such deletion shall apply only to such provisionwith the remainder of the Agreement remaining valid and enforceable, to beconstrued in conformity with the parties’ initial intent.  Further, to the extent any provision hereofis deemed unenforceable by virtue of its scope or terms with respect togeographical area or length of time, but may be enforceable by limitationsthereon, the parties agree that this Agreement shall remain enforceable to thefullest extent possible after the application of such limitations.

 

[Signature page follows]

 

 

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                IN WITNESS WHEREOF the partieshave signed this Management and Operational Services Agreement effective as ofthe above written date.

 
| REG  SERVICES GROUP LLC                       |
|-----------------------------------------------|
|                                          |
| By                                            | /S/  Nile Ramsbottom |
|                                          | Nile  Ramsbottom, President |
|                                          |   |
|                                          |   |
| REG MARKETING & LOGISTICS GROUP, LLC |
|                                          |
| By                                            | /S/  Nile Ramsbottom |
|                                          | Nile  Ramsbottom, President |
|                                          |   |
|                                          |   |
| BLACKHAWK  BIOFUELS, LLC                      |
|                                          |
| By                                            | /S/  Ronald Mapes |
|                                          | Ronald  Mapes, Chairman |

 

 

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**Exhibit A to**

**Management and Operational Services Agreement (“Agreement”)**

**REG Services and Blackhawk Biofuels**

 

**Listing of Administrative Services to be Provided**

 

                Pursuant to the Agreement towhich this is attached, and as a part of the services it will performthereunder, REG Services will provide to Blackhawk Biofuels the administrativeservices as set out hereafter.  Such serviceswill be included at no additional cost to Blackhawk Biofuels other than thecompensation set out under Section 3 of the Agreement, unless otherwisenoted hereafter or separately in the Agreement.

 

Accounting:

$                                          FinancialStatements

$                                          General LedgerMaintenance

$                                          Cash Management

$                                          CustomerStatements

$                                          AccountsReceivable

$                                          AccountsPayable

$                                          BankReconciliation

$                                          Depreciation

$                                          AuditPreparation

$                                          External Audit(providing assistance to external auditors, the expense of the external auditorto be paid by Blackhawk Biofuels)

 

HumanResources:

$                                          Hiring

$                                          Training, JobDescriptions, Government Reporting with respect to personnel

$                                          Employee handbook, policies/procedures

$                                          Workers Comp

 

InformationTechnology:

$                                          AS400Software/Application Maintenance (REG Services to be reimbursed by BlackhawkBiofuels for REG Services’ costs (including employee expenses) for preparationof any special requested applications.)

$                                          Telephone/NetworkServices (Blackhawk Biofuels to reimburse REG Services for the cost of allequipment required and utility expenses incurred.)

$                                          Backup forNetwork

$                                          Backup forAS400 Files

$                                          Web SiteHosting

 

 

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InsuranceAdministration:

$                                          Compile InitialInsurance Specifications

$                                          SolicitCoverage Bids

$                                          ReviewBids/Coverage Issues

$                                          Select Carriersto be Utilized (Cost of Coverage to be paid by Blackhawk Biofuels)

$                                          Review Policies

$                                          CompileInsurance Summaries

$                                          COI setup dbasereview

$                                          Certificate ofInsurance Follow up

$                                          Claim ReportingProcedure

$                                          Claims Tracking

$                                          Claims Review

$                                          Claim reportingFollow up

$                                          Answer CoverageQuestions

 

Communications:

$                                          Press Releases

$                                          Writing forWebsite

$                                          Media Relations

$                                          Publicity forAnnual Meeting

$                                          Newsletters(Blackhawk Biofuels to reimburse REG Services for supply costs, postage ifapplicable, and any outside printing services utilized.)

 

 

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**Exhibit B**

**Listing of Job Descriptions to be Filled by Leased Employees**

 

**Referenced at Section 2(G) of the Agreement**

 

                A list will be developed of theexpected numbers and job descriptions of personnel needed to fill remainingtasks to be accomplished at the “Blackhawk Biofuels” Biodiesel Facility, whowill be hired by REG Services, but reimbursed for all costs related thereto byBlackhawk Biofuels.  The numbers anddescriptions are dependent upon the size of the operation at the BlackhawkBiofuels Biodiesel Facility as finally designed.

 

                For clarification purposes, thesalary and benefit costs of the General Manager and Operations Manager arebeing borne by REG Services and not passed thru to Blackhawk Biofuels.

 

 

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