**Exhibit 3.5**

 

**FOURTH AMENDED AND RESTATED**

 

**OPERATING AGREEMENT**

 

**OF**

 

**GREAT PLAINS ETHANOL, LLC**

 

 

**February 17, 2005**

 

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**TABLE OF CONTENTS**

 
| **ARTICLE 1  DEFINITIONS**  |                                                                                       |
|----------------------------------|--------------------------------------------------------------------------------------------|
| 1.1                              | “Act”                                                                            |   |
| 1.2                              | “Affiliate”                                                                      |   |
| 1.3                              | “Articles”                                                                       |   |
| 1.4                              | “Board of Managers”                                                              |   |
| 1.5                              | “Bankrupt  Member”                                                               |   |
| 1.6                              | “Capital  Contribution”                                                          |   |
| 1.7                              | “Capital  Unit” or “Unit”                                              |   |
| 1.8                              | “Capital Unit  Transfer System”                                                  |   |
| 1.9                              | “Class A  Members”                                                               |   |
| 1.10                             | “Class B  Members”                                                               |   |
| 1.11                             | “Class C Members”                                                                |   |
| 1.12                             | “Class D Members”                                                                |   |
| 1.13                             | “Code”                                                                           |   |
| 1.14                             | “Committed Capital”                                                              |   |
| 1.15                             | “Company”                                                                        |   |
| 1.16                             | “Dispose,” “Disposing,”  or “Disposition”                    |   |
| 1.17                             | “Escrow  Account”                                                                |   |
| 1.18                             | “Manager”                                                                        |   |
| 1.19                             | “Managing  Member”                                                               |   |
| 1.20                             | “Member”                                                                         |   |
| 1.21                             | “Net Cash  from Operations”                                                      |   |
| 1.22                             | “Offering”                                                                       |   |
| 1.23                             | “Offering  Proceeds”                                                             |   |
| 1.24                             | “Ownership  Percentage”                                                          |   |
| 1.25                             | “Person”                                                                         |   |
| 1.26                             | “Proceeding”                                                                     |   |
| 1.27                             | “Trimester”                                                                      |   |
|                             |                                                                                       |   |
| **ARTICLE 2  ORGANIZATION** |                                                                                       |
| 2.1                              | Formation                                                                                  |   |
| 2.2                              | Name                                                                                       |   |
| 2.3                              | Registered Office; Registered  Agent, Principal Office in the United States; Other Offices |   |
| 2.4                              | Purpose                                                                                    |   |
| 2.5                              | Foreign Qualification                                                                      |   |
| 2.6                              | Term                                                                                       |   |
| 2.7                              | Mergers and Exchanges                                                                      |   |
| 2.8                              | No State-Law Partnership                                                                   |   |
| 2.9                              | Fiscal  Year                                                                               |   |
| ** **                       | ** **                                                                                 | ** ** |
| **ARTICLE 3  MEMBERS**      |                                                                                       |
| 3.1                              | Members                                                                                    |   |
| 3.2                              | Representations and  Warranties                                                            |   |
| 3.3                              | Admission of Additional  Members                                                           |   |
| 3.4                              | Interests in a Member                                                                      |   |
| 3.5                              | Information                                                                                |   |
| 3.6                              | Liabilities  to Third Parties                                                              |   |

 

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| 3.7                                               | Withdrawal                                                                                          |   |
|---------------------------------------------------|-----------------------------------------------------------------------------------------------------|--------|
| 3.8                                               | Lack  of Authority                                                                                  |   |
| 3.9                                               | Classes and Voting                                                                                  |   |
| 3.10                                              | Place and Manner of  Meeting                                                                        |   |
| 3.11                                              | Conduct of Meetings                                                                                 |   |
| 3.12                                              | Annual  Meeting                                                                                     |   |
| 3.13                                              | Special Meetings                                                                                    |   |
| 3.14                                              | Notice                                                                                              |   |
| 3.15                                              | Quorum of  Members                                                                                  |   |
| 3.16                                              | Voting of Capital Units  by Company                                                                 |   |
| 3.17                                              | Closing Record Books and  Fixing Record Date                                                        |   |
| 3.18                                              | Fixing Record  Dates for Ballots by Mail                                                            |   |
| 3.19                                              | Proxies                                                                                             |   |
|                                              |                                                                                                |   |
| **ARTICLE 4  DISPOSITION OF CAPITAL UNITS**  |                                                                                                |
| 4.1                                               | General  Restrictions on the Disposition of Capital Units                                           |   |
| 4.2                                               | Tax  Elections                                                                                      |   |
| 4.3                                               | Redemption                                                                                          |   |
| 4.4                                               | Disposition  by Broin Investments II, LLC; Right of First Refusal                                   |   |
| 4.5                                               | Fair  Market Value                                                                                  |   |
|                                              |                                                                                                |   |
| **ARTICLE 5  CAPITAL CONTRIBUTIONS**         |                                                                                                |
| 5.1                                               | Class A Capital  Units                                                                              |   |
| 5.2                                               | Class B Capital Units                                                                               |   |
| 5.3                                               | Class C Capital Units                                                                               |   |
| 5.4                                               | Class D Capital Units                                                                               |   |
| 5.5                                               | Additional Capital Units                                                                            |   |
| 5.6                                               | Return of Contributions                                                                             |   |
| 5.7                                               | Advances by Members                                                                                 |   |
| 5.8                                               | Capital  Accounts                                                                                   |   |
|                                              |                                                                                                |   |
| **ARTICLE 6  ALLOCATIONS AND DISTRIBUTIONS** |                                                                                                |
| 6.1                                               | Allocations and  Distributions                                                                      |   |
| 6.2                                               | Distributions  of Net Cash from Operations                                                          |   |
| 6.3                                               | Allocations of  Income, Gain, Loss, Deductions, and Credits                                         |   |
| 6.4                                               | Allocation  of Gain or Loss Upon the Sale of All or Substantially All of the Company’s  Assets |   |
| 6.5                                               | Regulatory  Allocations and Allocation Limitations                                                  |   |
| 6.6                                               | Proration of Allocations                                                                            |   |
| 6.7                                               | Consent to Allocation                                                                               |   |
| 6.8                                               | Distributions in Kind                                                                               |   |
| 6.9                                               | Right to Distributions                                                                              |   |
| 6.10                                              | Limitation on  Distributions                                                                        |   |
|                                              |                                                                                                |   |
| **ARTICLE 7  OFFICERS**                      |                                                                                                |
| 7.1                                               | Number of Officers                                                                                  |   |
| 7.2                                               | Appointment and Term  of Office                                                                     |   |
| 7.3                                               | Removal of Officers                                                                                 |   |
| 7.4                                               | The Chief Executive  Officer                                                                        |   |

 

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| 7.5                                                           | The Chief Financial  Officer                                                          |   |
|---------------------------------------------------------------|---------------------------------------------------------------------------------------|--------|
| 7.6                                                           | The  President                                                                        |   |
| 7.7                                                           | The Vice-Presidents                                                                   |   |
| 7.8                                                           | The  Secretary                                                                        |   |
| 7.9                                                           | Assistant Secretaries                                                                 |   |
| 7.10                                                          | Designation of  Tax Matters Partner                                                   |   |
| 7.11                                                          | Duties of Tax  Matters Partner                                                        |   |
| 7.12                                                          | Authority of Tax  Matters Partner                                                     |   |
| 7.13                                                          | Expenses of Tax  Matters Partner                                                      |   |
| 7.14                                                          | Compensation                                                                          |   |
|                                                          |                                                                                  |   |
| **ARTICLE 8  MANAGEMENT**                                |                                                                                  |
| 8.1                                                           | Management by Board  of Managers                                                      |   |
| 8.2                                                           | Actions by  Managers; Committees; Delegation of Authority and Duties                  |   |
| 8.3                                                           | Registration  and Transfer of Securities                                              |   |
| 8.4                                                           | Number and Term of Office                                                             |   |
| 8.5                                                           | Death or Disability  of Managers                                                      |   |
| 8.6                                                           | Removal                                                                               |   |
| 8.7                                                           | Resignations                                                                          |   |
| 8.8                                                           | Vacancies                                                                             |   |
| 8.9                                                           | Place and Manner of  Meetings                                                         |   |
| 8.10                                                          | First  Meeting                                                                        |   |
| 8.11                                                          | Regular  Meeting of Board of Managers                                                 |   |
| 8.12                                                          | Special  Meeting of Board of Managers                                                 |   |
| 8.13                                                          | Notice of  Board of Managers’ Meetings                                           |   |
| 8.14                                                          | Action Without Meeting                                                                |   |
| 8.15                                                          | Quorum; Majority Vote                                                                 |   |
| 8.16                                                          | Approval  or Ratification of Acts or Contracts                                        |   |
| 8.17                                                          | Interested  Managers, Officers and Members                                            |   |
| 8.18                                                          | Expenses of the Company                                                               |   |
| 8.19                                                          | Procedure                                                                             |   |
| 8.20                                                          | Compensation                                                                          |   |
|                                                          |                                                                                  |   |
| **ARTICLE 9  MANAGING MEMBER**                           |                                                                                  |
| 9.1                                                           | Managing  Member                                                                      |   |
| 9.2                                                           | Rights  and Obligations of the Managing Member                                        |   |
| 9.3                                                           | Management  Fee and Technical Manager Fee; Trimester/Annual Incentive Bonus; Expenses |   |
| 9.4                                                           | Dispute Resolution                                                                    |   |
| 9.5                                                           | Bonus  Payments                                                                       |   |
| 9.6                                                           | Guaranteed Payment                                                                    |   |
| 9.7                                                           | Additional  Services Available Under Separate Contracts and Fee Structures            |   |
| 9.8                                                           | Proprietary Information                                                               |   |
|                                                          |                                                                                  |   |
| **ARTICLE 10  INDEMNIFICATION AND LIABILITY TO COMPANY** |                                                                                  |
| 10.1                                                          | Indemnification                                                                       |   |
| 10.2                                                          | Liability to Company                                                                  |   |
| 10.3                                                          | Prospective  Amendment of Liability and Indemnity                                     |   |
| 10.4                                                          | Non-Exclusive  Liability and Indemnity                                                |   |

 

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| **ARTICLE 11  CAPITAL UNIT CERTIFICATES**   |                                                     |
|--------------------------------------------------|----------------------------------------------------------|
| 11.1                                             | Certificates For  Membership                             |   |
| 11.2                                             | Transfer of Certificates                                 |   |
| 11.3                                             | Loss or  Destruction of Certificates                     |   |
| 11.4                                             | Certificate Regulations                                  |   |
| 11.5                                             | Transfer of Membership                                   |   |
| 11.6                                             | Legends                                                  |   |
|                                             |                                                     |   |
| **ARTICLE 12  BANKRUPTCY OF A MEMBER**      |                                                     |
|                                             |                                                     |   |
| **ARTICLE 13  DISSOLUTION**                 |                                                     |
| 13.1                                             | Dissolution and  Winding-Up                              |   |
| 13.2                                             | Continuation                                             |   |
|                                             |                                                     |   |
| **ARTICLE 14  LIQUIDATION AND TERMINATION** |                                                     |
| 14.1                                             | Liquidation and  Termination                             |   |
| 14.2                                             | Application  and Distribution of Proceeds on Liquidation |   |
| 14.3                                             | Deficit Capital  Account Balances                        |   |
| 14.4                                             | Articles of Dissolution                                  |   |
|                                             |                                                     |   |
| **ARTICLE 15  GENERAL PROVISIONS**          |                                                     |
| 15.1                                             | Books and Records                                        |   |
| 15.2                                             | Headings                                                 |   |
| 15.3                                             | Construction and  Severability                           |   |
| 15.4                                             | Effect of Waiver or  Consent                             |   |
| 15.5                                             | Binding  Effect                                          |   |
| 15.6                                             | Governing  Law/Jurisdiction                              |   |
| 15.7                                             | Further Assurances                                       |   |
| 15.8                                             | Notice  to Members of Provisions of This Agreement       |   |
| 15.9                                             | Counterparts                                             |   |
| 15.10                                            | Conflicting Provisions                                   |   |

 

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**FOURTH AMENDED AND RESTATED**

**OPERATINGAGREEMENT**

**OF**

**GREATPLAINS ETHANOL, LLC**

 

This Fourth Amended andRestated Operating Agreement of GREAT PLAINS ETHANOL, LLC, is hereby adoptedand entered into effective as of the 17th day of February, 2005, forgood and valuable consideration, by the Members (as defined below).  This Fourth Amended and Restated OperatingAgreement amends and restates in its entirety that certain Third Amended andRestated Operating Agreement dated July 22, 2003 by and among the Members.

 

**ARTICLE 1**

**DEFINITIONS**

 

As used in this OperatingAgreement, the following terms have the following meanings:

 

1.1                                 “Act”means the South Dakota Limited Liability Company Act and any successor statute,as amended from time to time.

 

1.2                                 “Affiliate”of any Person shall mean any other Person, directly or indirectly, controlling,controlled by, or under common control with, such Person; or if such Person isa partnership, any general partner of such Person or a Person controlling anysuch general partner.  For purposes ofthis definition, “control” (including “controlled by” and “under common controlwith”) shall mean the power, directly or indirectly, to direct or cause thedirection of the management and policies of such Person whether through theownership of voting securities, by contract or otherwise.

 

1.3                                 “Articles”means the Articles of Organization filed with the Secretary of State of SouthDakota on December 20, 2000, by which GREAT PLAINS ETHANOL, LLC wasorganized as a South Dakota limited liability company under and pursuant to theAct.

 

1.4                                 “Boardof Managers” means the Managers acting as a group with the powers setforth in the Articles and this Operating Agreement.

 

1.5                                 “BankruptMember” means (except to the extent that the Board of Managers determineotherwise) any Member (a) that makes a general assignment for the benefit ofcreditors; (b) files a voluntary bankruptcy petition under Chapter 7 of theUnited States Bankruptcy Code; (c) files a petition or answer seeking for theMember a liquidation, dissolution, or similar relief under any law; (d) filesan answer or other pleading admitting or failing to contest the materialallegations of a petition filed against the Member in a proceeding of the typedescribed in subclauses (a) through (c); (e) seeks, consents to, or acquiescesin the appointment of a trustee, receiver, or liquidator of the Member’s or ofall or any substantial part of the Member’s properties; or (f) against which aninvoluntary petition has been filed and a proceeding seeking relief underChapter 7 of the United States Bankruptcy Code, liquidation, dissolution, orsimilar relief under any law has been commenced and 90 days have expired withoutdismissal thereof or with respect to which, without the Member’s consent oracquiescence, a trustee,

 

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receiver,or liquidator of the Member or of all or any substantial part of the Member’sproperties has been appointed and 90 days have expired without the appointmenthaving been vacated or stayed, or 90 days have expired after the date ofexpiration of a stay, if the appointment has not previously been vacated.

 

1.6                                 “CapitalContribution” means any actual contribution by a Member to the capitalof the Company through the purchase of Capital Units (but does not includesubscribed for, but unpaid Capital Units).

 

1.7                                 “CapitalUnit” or “Unit” means Capital Units of the Company with the rights andprivileges set forth in this Operating Agreement, including Class A, Class B,Class C and Class D Capital Units, and any other Class of Capital Units as maybe approved and adopted by the Board of Managers.

 

1.8                                 “Capital Unit TransferSystem” means the procedures set forth in Article 4 of theOperating Agreement governing all Dispositions of Capital Units.

 

1.9                                 “ClassA  Members” means holders of Class A CapitalUnits who have executed and agreed to be bound by this Operating Agreement.

 

1.10                           “ClassB Members” means holders of Class B Capital Units who have executed andagreed to be bound by this Operating Agreement.

 

1.11                           “Class CMembers” means holders of Class C Capital Units who have executed and agreed tobe bound by this Operating Agreement.

 

1.12                           “Class DMembers” means holders of Class D Capital Units who have executed and agreed tobe bound by this Operating Agreement.

 

1.13                           “Code”means the Internal Revenue Code of 1986 and any successor statute, as amendedfrom time to time.

 

1.14                           “CommittedCapital” means the purchase price of the Capital Units subscribed for by aMember in the Offering pursuant to a subscription agreement that has beenaccepted by the Company, regardless of whether such purchase price has beenfully paid.

 

1.15                           “Company”means GREAT PLAINS ETHANOL, LLC, a manager-managed South Dakota limitedliability company.

 

1.16                           “Dispose,”“Disposing,” or “Disposition” means sale, assignment, transfer, gift, exchange,or other disposition of one or more Capital Units, whether voluntary orinvoluntary, but not the mortgage, pledge, or grant of a security interesttherein.

 

1.17                           “EscrowAccount” means the Company’s escrow account at Dakota Heritage StateBank into which the Capital Contributions from the sale of Class A, Class B andClass C Capital Units will be deposited until subscriptions are received for atleast $11.55 million and the

 

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otherconditions to the Offering are satisfied, or until such Capital Contributionsare returned to the investors if said minimum amount is not committed.

 

1.18                           “Manager”means any natural Person who is a member of the Board of Managers of theCompany, whether initially named in the Articles or later elected as providedin this Operating Agreement.

 

1.19                           “ManagingMember” means Broin Management, LLC, a Minnesota limited liability company, orany successor appointed by the Board of Managers.

 

1.20                           “Member”means any Person who holds one or more Capital Units and has executed thisOperating Agreement, whether initially admitted as of the date of thisOperating Agreement or later admitted to the Company as a Member as provided inthis Operating Agreement.  Unless thecontext otherwise requires, the term “Member” shall include any Member’srepresentative in event of the death, incapacity, or liquidation of theMember.  Except as specifically statedotherwise, “Members” refers to all Class A, Class B, Class C and Class DMembers.

 

1.21                           “NetCash from Operations” means the gross cash proceeds from the Company’soperations, sales, and other dispositions of assets, including but not limitedto investment assets, (but not including sales and other dispositions of all orsubstantially all of the assets of the Company), less the portion thereof usedto pay, or set aside for, the established reserves for all the Company’sexpenses, debt payments, capital improvements, replacements and contingencies,all as determined by the Board of Managers. Net Cash from Operations shall not be reduced by depreciation,amortization, cost recovery deductions, or similar allowances, but shall beincreased by any reduction of reserves previously established, but notexpended, as authorized by the Board of Managers.

 

1.22                           “Offering”means the offer and sale of the Company’s Class A and Class C Capital Units,pursuant to a registration statement to be filed with the Securities andExchange Commission, not to exceed an aggregate of 4,460 Capital Units to becompleted not later than March 15, 2002.

 

1.23                           “OfferingProceeds” means the Capital Contributions received from the sale of the Class Aand Class C Capital Units pursuant to the Offering.

 

1.24                           “OwnershipPercentage” with respect to any Member means the percentage of ownership of aMember determined by taking the total Capital Units held by such Member dividedby the aggregate total number of issued and outstanding Capital Units.

 

1.25                           “Person”includes an individual, partnership, limited partnership, limited liabilitycompany, foreign limited liability company, trust, estate, corporation, foreigncorporation, cooperative, custodian, trustee, executor, administrator, nomineeor entity in a representative capacity.

 

1.26                           “Proceeding”means any threatened, pending or completed action, suit or proceeding, whethercivil, criminal, administrative, arbitrative or investigative.

 

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1.27                           “Trimester”means any of the four-month periods ending on April 30, August 31, December 31,which shall be the periods set by the Board of Managers for delivery of corn tothe Company’s ethanol plant and may be used for other administrative matters.

 

Other terms definedherein have the meanings so given them.

 

**ARTICLE 2**

**ORGANIZATION**

 

2.1                                 Formation.The Company has been organized as a South Dakota limited liability company bythe filing of Articles under and pursuant to the Act and the issuance of acertificate of organization for the Company by the Secretary of State of SouthDakota.

 

2.2                                 Name.The name of the Company is GREAT PLAINS ETHANOL, LLC and all Company businessmust be conducted in that name or such other names that comply with applicablelaw as the Board of Managers may select from time to time.

 

2.3                                 Registered Office;Registered Agent, Principal Office in the United States; Other Offices.  The registered office of the Company requiredby the Act to be maintained in the State of South Dakota shall be the office ofthe initial registered agent named in the Articles or such other office (whichneed not be a place of business of the Company) as the Board of Managers maydesignate from time to time in the manner provided by law.  The registered agent of the Company in theState of South Dakota shall be the initial registered agent named in theArticles or such other Person or Persons as the Board of Managers may designatefrom time to time in the manner provided by law.  The principal office of the Company in theUnited States shall be at such place as the Board of Managers may designatefrom time to time, which need not be in the State of South Dakota, and theCompany shall maintain records there as required by the Act and shall keep thestreet address of such principal office at the registered office of the Companyin the State of South Dakota.  TheCompany may have such other offices as the Board of Managers may designate fromtime to time.

 

2.4                                 Purpose.  The purpose of the Company is to produce andmarket ethanol and ethanol co-products and any other purpose allowed underSouth Dakota law.

 

2.5                                 ForeignQualification.  Prior to theCompany’s conducting business in any jurisdiction other than South Dakota, theBoard of Managers shall cause the Company to comply, to the extent proceduresare available and those matters are reasonably within the control of the Boardof Managers, with all requirements necessary to qualify the Company as a foreignlimited liability company in that jurisdiction. At the request of the Board of Managers, the Company’s Officers (asspecified in Article 7) shall execute, acknowledge, swear to, and deliverall certificates and other instruments conforming with this Operating Agreementthat are necessary or appropriate to qualify, continue, and terminate theCompany as a foreign limited liability company in all such jurisdictions inwhich the Company may conduct business.

 

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2.6                                 Term.The Company commenced its existence on the date the Secretary of State of SouthDakota issued a certificate of organization for the Company and shall continuein existence until dissolved.

 

2.7                                 Mergers andExchanges.  The Company may bea party to (a) a merger, (b) a consolidation, or (c) an exchange oracquisition, subject to the requirements of this Operating Agreement.  Consent to any such merger, consolidation,exchange or acquisition shall be by vote of the Members as set out in Article 3.

 

2.8                                 No State-Law Partnership. The Members intend that the Company not be a partnership (including,without limitation, a limited partnership) or joint venture, and that no Memberbe a partner or joint venturer of any other Member,for any purposes other than federal income and state income tax purposes, andthis Operating Agreement may not be construed to suggest otherwise.

 

2.9                                 FiscalYear.  The Company’s fiscalyear shall end on December 31 of each year or such other date as the Boardof Managers shall determine.

 

**ARTICLE 3**

**MEMBERS**

 

3.1                                 Members.

 

(a)                                  Theinitial Members of the Company are the Persons executing this OperatingAgreement as of the date of this Operating Agreement as Class D Members, eachof whom shall be admitted to the Company as a Class D Member effectivecontemporaneously with the execution by such Person of this OperatingAgreement.

 

(b)                                 AdditionalPersons will not be admitted as Members of the Company unless and untilsubscriptions have been received for the purchase of at least 2,310 CapitalUnits, which shall be the minimum number of Capital Unitsoffered in the Offering, and all other conditions to the Offering have beensatisfied.  The Board of Managers willhave the option to accept subscriptions in the Offering for up to 4,460 CapitalUnits until March 15, 2002.  TheBoard of Managers shall have the discretion to terminate the Offering at anytime.  Total Committed Capital raised inthe Offering will be no less than $11,550,000.00 and no greater than$22,300,000.00.  A Person who subscribesfor Capital Units in the Offering will not be admitted as a Member unless anduntil: (i) such Person has submitted a completed subscription agreement,including a counterpart signature agreeing to be bound by this OperatingAgreement, (ii) such Person has submitted full payment of the purchase pricefor the number of Capital Units subscribed for in the subscription agreement,or such Person has submitted payment of no less than 10% of such purchase priceand delivered a promissory note in form and substance satisfactory to theCompany for the balance of such purchase price, (iii) the Board of Managershas, in writing, admitted such Person as a Member by countersigning such Person’ssubscription agreement, and (iv) such Person has submitted a completed CornDelivery Agreement, if such Person is purchasing Class A Capital Units.

 

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(c)                                  Afterthe termination of the Offering, a Person may become a Member by acquiring oneor more Capital Units (i) directly from the Company or (ii) from a Member in aDisposition in compliance with the provisions of this Operating Agreement.

 

(d)                                 AnyPerson who satisfies the requirements of this Operating Agreement may be aMember unless the Person lacks capacity apart from the Act.

 

3.2                                 Representations andWarranties.  Each Memberrepresents and warrants to the Company and each other Member that:

 

(a)                                  if that Member is a corporation, it is duly organized,validly existing and in good standing under the laws of the state of itsincorporation and is duly qualified and in good standing as a foreigncorporation in the jurisdiction of its principal place of business (if notincorporated therein);

 

(b)                                 ifthat Member is a limited liability company, it is duly organized, validlyexisting, and (if applicable) in good standing under the laws of the state ofits organization and is duly qualified and (if applicable) in good standing asa foreign limited liability company in the jurisdiction of its principal placeof business (if not organized therein);

 

(c)                                  ifthat Member is a partnership, trust, or other entity, it is duly formed,validly existing, and (if applicable) in good standing under the laws of thestate of its formation, and if required by law is duly qualified to do businessand (if applicable) in good standing in the jurisdiction of its principal placeof business (if not formed therein), and the representations and warranties inclause (a), (b) or (c), as applicable, are true and correct with respect toeach partner (other than limited partners), trustee, or other member thereof;

 

(d)                                 thatthe Member has full corporate, limited liability company, partnership, trust,or other applicable power and authority to execute and agree to this OperatingAgreement and to perform its obligations hereunder and all necessary actions bythe board of directors, shareholders, managers, members, partners, trustees,beneficiaries, or other Persons necessary for the due authorization, execution,delivery, and performance of this Operating Agreement by that Member have beenduly taken;

 

(e)                                  that the Member has duly executed and delivered thisOperating Agreement; and

 

(f)                                    thatthe Member’s authorization, execution, delivery, and performance of thisOperating Agreement does not conflict with any other agreement or arrangementto which that Member is a party or by which it is bound.

 

3.3                                 Admission ofAdditional Members.  NoPerson shall become a Member without the approval of the Board ofManagers.  The Board of Managers mayrefuse to admit any Person as a Member in its sole discretion.  Additional Persons may be admitted to theCompany in the discretion of the Board of Managers.  Any such admission also must comply with therequirements described elsewhere in this Operating Agreement and will be effectiveonly after such Person has executed and delivered to the Company a subscriptionagreement or other

 

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writtendocument including such Person’s: (a) address for notices, (b) agreementto be bound by this Operating Agreement, and (c) representation andwarranty that the representations and warranties required of all Members inthis Operating Agreement are true and correct with respect to such Person.  If the Person is to be a Class A Member, the Person must also submit an executed CornDelivery Agreement.  The provisions ofthis section shall apply to any Person who acquires Capital Units directlyfrom the Company or through a Disposition by a Member.

 

3.4                                 Interests in aMember.  A Member that is nota natural person may not cause or permit an interest, direct or indirect, initself to be Disposed of in violation of the Securities Act of 1933, asamended, or such that, after the Disposition, (a) the Company would beconsidered to have terminated within the meaning of Section 708 of theCode or (b) without the consent of the Board of Managers, that Member shallcease to be controlled by substantially the same Persons who control it as ofthe date of its admission to the Company. On any breach of this Section 3.4, the Company shall have theoption to redeem, and on exercise of that option the breaching Member shallsurrender, the breaching Member’s Capital Units in accordance with Section 4.3of this Operating Agreement.

 

3.5                                 Information.

 

(a)                                  Inaddition to the other rights specifically set forth in this OperatingAgreement, each Member is entitled to all information to which that Member isentitled to have access pursuant to the Act under the circumstances and subjectto the conditions therein stated.  TheMembers agree, however, that, except as otherwise provided by law, the Board ofManagers from time to time may determine, due to contractual obligations,business concerns, or other considerations, that certain information regardingthe business, affairs, properties, and financial condition of the Companyshould be kept confidential and not provided to some or all other Members, andthat it is not just or reasonable for those Members or their assignees orrepresentatives to examine or copy any such confidential information.

 

(b)                                 TheMembers acknowledge that from time to time, they may receive information fromor regarding the Company in the nature of trade secrets or that otherwise isconfidential, the release of which may be damaging to the Company or Personswith whom it does business.  Each Membershall hold in strict confidence any information it receives regarding theCompany that is identified as being confidential (and if that information isprovided in writing, that is so marked) and may not disclose it to any Personother than another Member, except for disclosures (i) compelled by law (but theMember must notify the Board of Managers promptly of any request for thatinformation before disclosing it, if practicable), (ii) to advisers orrepresentatives of the Member or Persons who have acquired that Member’sCapital Units through a Disposition as permitted by this Operating Agreement,but only if the recipients have agreed to be bound by the provisions of thissection, or (iii) of information that the Member also has received from asource independent of the Company that the Member reasonably believes obtainedthat information without breach of any obligation of confidentiality.  The Members acknowledge that a breach of theprovisions of this section may cause irreparable injury to the Company forwhich monetary damages are inadequate, difficult to compute, or both.  Accordingly, the Members agree that theprovisions of this section may be enforced by specific performance.

 

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3.6                                 Liabilitiesto Third Parties. Except as otherwise expressly agreed in writing, no Member shall beliable for the debts, obligations or liabilities of the Company, includingunder a judgment, decree or order of a court.

 

3.7                                 Withdrawal.A Member does not have the right or power to withdraw from the Company as aMember, except as set forth in this Operating Agreement.

 

3.8                                 Lackof Authority.  No Member,other than the Managing Member or a Member acting in his or her capacity as anofficer of the Board of Managers or as an officer of the Company, has theauthority or power to act for or on behalf of the Company, to do any act thatwould be binding on the Company, or to incur any expenditures on behalf of theCompany, except with the prior consent of the Board of Managers.  The Managing Member has the authority setforth in Article 9 of this Operating Agreement.

 

3.9                                 Classes and Voting.  Unless the Articles state to the contrary oras provided by this Operating Agreement, or anyamendment hereto, there shall be four classes of Members.  There shall be Class AMembers, Class B Members, Class C Members, and Class D Members.  The Board of Managers may establishadditional classes or groups of one or more Members.

 

(a)                                  *Class A Members**Class A Members*.  Class AMembers shall be entitled to vote on all matters coming to a vote of the ClassA Members.  Each Class AMember may cast only one vote on each matter brought to a vote of the Class AMembers, regardless of the number of Class A capital units owned.  On all matters voted upon by the Class AMembers, the affirmative vote of the majority of the Class A Members voting onthe matter at hand shall be the act of the Class A Members, except that theelection of individuals serving on the Board of Managers for purposes of Section 3.9(e)shall be determined by a vote of the plurality of the Class A Members voting onthe matter at hand.

 

(b)                                 *Class B Members*.  Class B Members shall be entitled to vote onall matters coming to a vote of the Class B Members.  Each Class B Member may cast one vote foreach Class B Capital Unit held by the Class B Member on each matter brought toa vote of the Class B Members.  On allmatters to be voted upon by the Class B Members, the affirmative vote of theholders of a majority of the Class B Capital Units shall be the affirmative actof the Class B Members.

 

(c)                                  *Class C Members*. Class C Members shall be entitled to vote on all matters coming to avote of the Class C Members.  Each ClassC Member may cast one vote for each Class C Capital Unit held by the Class CMember on each matter brought to vote of the Class C Members.  On all matters voted upon by the Class CMembers, the affirmative vote of the majority of the Class C Capital Unitsvoting on the matter at hand shall be the act of the Class C Members, exceptthat the election of individuals serving on the Board of Managers for purposesof Section 3.9(e) shall be determined by a vote of the plurality of theClass C Members voting on the matter at hand.

 

(d)                                 *Class D Members*.  Class D Members shall be entitled to vote onall matters coming to a vote of the Class D Members.  Each Class D Member may cast one vote foreach Class D Capital Unit held by the Class D Member on each matter brought toa vote of the

 

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Class D Members.  On all matters to be voted upon by the ClassD Members, the affirmative vote of the holders of a majority of the Class DCapital Units shall be the act of the Class D Members.

 

(e)                                  *Voting by Classes*. Members shall only be entitled to vote onthe following matters: (i) the merger or consolidation of the Companywith another business entity or the exchange of interests in the Company forinterests in another company; (ii) sale, lease, exchange or other dispositionof substantially all of the Company’s assets; and (iii) voluntary dissolutionof the Company. Any matter identified in terms (i) through (iii) of the precedingsentence must receive the affirmative vote of each Class of outstanding CapitalUnits voting at the matter at hand to be the act of the Members of the Company.The Members of each Class shall vote separately for the election and removal ofrepresentatives on the Board of Managers for their respective Classes as setforth in section 8.4 and 8.6 of this Operating Agreement.

 

3.10                           Placeand Manner of Meeting.  Allmeetings of the Members shall be held at such time and place, within or withoutthe State of South Dakota, as shall be stated in the notice of the meeting orin a duly executed waiver of notice thereof. Presence in person, or by proxy or written ballot, shall constituteparticipation in a meeting, except where a person participates in the meetingfor the express purpose of objecting to the transaction of any business on theground that the meeting is not lawfully called or convened.

 

3.11                           Conduct of Meetings.  All meetings of the Members shall be presidedover by the President.  All meetings ofthe Members shall be conducted in general accordance with the most recentedition of Roberts’ Rules of Order, or such other rules and proceduresas may be determined by the Board of Managers in its discretion.

 

3.12                           AnnualMeeting.  The annual meetingof the Members for the transaction of all business which may come before themeeting shall be held on a date determined by the Board of Managers.  Failure to hold the annual meeting at thedesignated time shall not be grounds for dissolution of the Company.

 

3.13                           SpecialMeetings.  Special meetings ofthe Members may be called at any time by the President, the Board of Managersor by the Secretary upon the request of the holders of at least 10% of theCapital Units of any Class entitled to be voted at such meeting.  Such request shall state the purpose or purposesof such meeting and the matters proposed to be acted on at the special meeting.

 

3.14                           Notice.  Written or printed notice stating the place,day and hour of the meeting and, in case of a special meeting, the purpose orpurposes for which the meeting is called, shall be delivered not less than 10nor more than 60 days before the date of the meeting either personally or bymail, by or at the direction of the President, the Secretary or the Board ofManagers calling the meeting, to each Member entitled to vote at the meeting.  If mailed, such notice shall be deemed to bedelivered when deposited in the United States mail addressed to the Member atthe Member’s address as it appears on the records of the Company, with postagethereon prepaid.

 

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(a)                                  Ifa purpose of any Member meeting is to consider any of the following matters,the notice must state such purpose:

 

(i)                                     a plan of merger, consolidation, or exchange;

 

(ii)                                  the sale, lease, exchange or other disposition of all, orsubstantially all, of the Company’s assets;

 

(iii)                               the voluntary dissolution of the Company; or

 

(iv)                              the removal of any representative on the Board of Managers.

 

(b)                                 Thenotice for any Member meeting relating to any of the purposes listed in (a)above must be accompanied by respectively a copy or summary of the respective:

 

(i)                                     planof merger, consolidation or exchange;

 

(ii)                                  the transaction description for the proposed sale, lease,exchange or other disposition of all, or substantially all, of the Company’sassets;

 

(iii)                               the plan of liquidation; or

 

(iv)                              identification of the Manager or Managers whose removal issought.

 

3.15                           Quorumof Members.  Tenpercent of the Class A Members, Class B Membersrepresenting 10% of the outstanding Class B Capital Units, and Class C Membersrepresenting 10% of the outstanding Class C Capital Units, represented inperson, by proxy, or by written ballot, shall constitute a quorum at a meetingof the Members.  The Members present at aduly organized meeting at which a quorum is present may transact business untiladjournment, notwithstanding the departure or withdrawal of enough Members toleave less than a quorum.

 

3.16                           Voting of Capital Units byCompany.  A Capital Unit owned byanother limited liability company, corporation, or other legal entity, themajority of which is owned or controlled by this Company, and a Capital Unitheld by this Company in a fiduciary capacity, shall not be voted, directly orindirectly, at any meeting, and shall not be counted in determining the totalCapital Units of a Class at any given time.

 

3.17                           Closing Record Books andFixing Record Date.  For the purposeof determining Members entitled to notice of or to vote at any meeting ofMembers or any adjournment thereof or in order to make a determination ofMembers for any other proper purpose, the Board of Managers may provide thatthe record books shall be closed for a stated period not exceeding 10days.  If the record books shall beclosed for the purpose of determining Members entitled to notice of or to voteat a meeting of Members, such books shall be closed for a period not exceeding10 days immediately preceding such meeting. In lieu of closing the record books, the Board of Managers may fix inadvance a date as the record date for any such determination of Members, suchdate in any case to be not more than 60 days and in the case of a meeting of

 

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Members, not less than 10days prior to the date of which the particular action requiring suchdetermination of Members is to be taken. If the record books are not closed and no record date is fixed for thedetermination of Members entitled to notice of or to vote at a meeting ofMembers, the date on which notice of the meeting is mailed, as the case may be,shall be the record date for such determination of Members.  When a determination of Members entitled tovote at any meeting of Members has been made as provided in this section, suchdetermination shall apply to any adjournment thereof, except where thedetermination has been made through the closing of record books and the statedperiod of closing has expired.

 

3.18                           Fixing Record Dates forBallots by Mail. Unless a record date shall have previously been fixed or determinedherein, whenever action by Members is proposed to be taken by written ballotwithout attendance being required at a meeting of Members, the Board ofManagers may fix a record date for purposes of determining Members entitled tovote by ballot on the action, which record date shall be set by the Board ofManagers not more than 60 days prior to the deadline for returning ballots tothe Company.  If no record date has beenfixed by the Board of Managers, the record date for determining Membersentitled to vote by written ballot without requiring attendance at a meeting ofMembers shall be at the close of business on the tenth day preceding themailing of the written ballots to the Members.

 

3.19                           Proxies.  At all meetings of Members, a Member may voteby proxy executed in writing by the Member or by his duly authorizedattorney-in-fact, except with respect to the election of representatives to theBoard of Managers for which Members shall be required to vote in person or aspermitted by the Board of Managers by mail-in ballot.  Such proxy shall be filed with the Secretaryof the Company before or at the time of the meeting.  A proxy shall be considered filed with theCompany when received by the Company at its executive offices, unless laterrevoked.  No proxy shall be valid aftereleven months from the date of its execution, unless otherwise provided in theproxy.

 

# **ARTICLE 4**

# **DISPOSITION OF CAPITAL UNITS**

# ** **

4.1                                 GeneralRestrictions on the Disposition of Capital Units.

 

(a)                                  NoDisposition of Capital Units shall be valid except as specifically provided inthis Article 4.  To be valid, aDeposition must be approved by the Board of Managers and comply with theCompany’s Capital Units Transfer System as adopted or approved by the Board ofManagers, as it may be amended from time t time, and it is the intent of thisOperating Agreement that:  (i) the taxstatus of this Company be the same as for a partnership, (ii) this Companypreserve its partnership tax status by complying with Section 1.7704-1, etseq., and any amendments thereto, and (iii) to the extent possible, thisOperating Agreement shall be read and interpreted to prohibit the freetransferability of Capital Units.  Anyattempted Disposition by a Person of Capital Units or any other interest orright, or any part thereof, in or in respect of the Company, other than inaccordance with this Article 4 and the Capital Units Transfer System shallbe, and is hereby declared, null and void *abinitio.*

 

(b)                                 TheBoard of Managers shall not approve, and the Company shall not recognize forany purpose, any purported Disposition of a Capital Unit unless and until theother

 

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applicable provisions ofthis Article 4 have been satisfied, all conditions have been satisfiedunder the Capital Units Transfer System, and the Company has received acompleted transfer request in the form adopted by the Board of Managers, orsuch other written document (i) executed by both the Member effecting theDisposition (or such Member’s representative if the transfer is on account ofthe death, incapacity, or liquidation of the Member effecting the Disposition,)and the Person acquiring the Capital Unit in the proposed Disposition; (ii)setting forth the number of Capital Units of each Class subject to theDisposition; and (iii) containing a representation and warranty that theDisposition was made in accordance with all applicable laws and regulations(including all applicable federal and state securities laws).  If the Person acquiring the Capital Units inthe Disposition is not a Member, then such Person must also comply with Section 3.3of this Operating Agreement.  If theCapital Units subject to the Disposition are Class ACapital Units then the Person acquiring the Class A Capital Units in theDisposition must also execute and submit to the Company a Corn DeliveryAgreement in accordance with this Operating Agreement.  Dispositions of Capital Units, and theresulting admissions of new Members, if applicable, are effective as of thefirst day of the Trimester immediately following the Trimester in which suchmatters are approved by the Board of Managers. Upon the effectiveness of a Disposition of all or a portion of a Member’sCapital Units, the Company shall transfer all, or the respective proportion ofthe capital account of the Member effecting the Disposition to the Member whohas acquired the Capital Units.  Nopartial Capital Units may be subject to a Disposition.  If a Person becomes the beneficial holder ofCapital Units but has not been accepted as a Member (for example, upon a Member’sdeath or if the Board of Managers refuses to accept such Person as a Member),such Person shall receive the allocations of income, gain, losses, deductions,credits, and distributions in accordance with Article 6 of this OperatingAgreement until such time as the Person becomes a Member or until such Person’sCapital Units are redeemed in accordance with Section 4.6 of thisOperating Agreement.  Such Person shallhave no voting rights until such time as the Person becomes a Member andcomplies with this Section 4.1.

 

(c)                                  TheBoard of Managers will not approve any Disposition unless (i) either (A) theDisposition is registered under the Securities Act of 1933, as amended, and anyapplicable state securities laws or (B) the Company has determined that theDisposition is exempt from registration under those laws; and (ii) the Companyhas determined that the Disposition, when added to the total of all otherDispositions within the preceding 12 months, would not result in the Companybeing considered to have terminated within the meaning of the Code or losingits partnership status and being taxed as a C corporation within the meaning ofthe Code.

 

(d)                                 TheMember effecting a Disposition and any Person admitted to the Company inconnection therewith shall pay, or reimburse the Company for, all costsincurred by the Company in connection with the Disposition or admission on orbefore the thirtieth day after the receipt by that Person of the Company’sinvoice for the amount due.  If paymentis not made by the date due, the Person owing that amount shall pay interest onthe unpaid amount from the date due until paid at the legal rate of interestallowed under South Dakota law.

 

4.2                                 TaxElections.  In the event of aDisposition of all or part of the Capital Units of any Member, the Company, inthe sole discretion of the Board of Managers, may elect pursuant to

 

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Section 754 of theCode (or any successor provisions) to adjust the basis of the assets of theCompany.

 

4.3                                 Redemption.  The Company shall have the right to redeemthe Capital Units of a Member or a Person who beneficially holds Capital Unitsupon any of the following occurrences:

 

(a)                                  Anattempt to Dispose of the Capital Units in a mannernot in conformity with this Operating Agreement.

 

(b)                                 The failure of a Person who becomes the beneficial holder of Capital Unitsto comply with Section 4.1 of this Operating Agreement and become a Memberwithin a 12-month period following the date that the Person became a beneficialholder of the Capital Units.

 

(c)                                  Breach of the Member’s Corn Delivery Agreement with respect to suchCapital Units and failure to cure such breach subsequent to the giving ofwritten notice by the Company as provided therein.

 

(d)                                 The Member becomes a Bankrupt Member and the Company is not able to sellits Capital Units within 240 days through the Capital Units Transfer System.

 

If theCompany exercises its right to redeem a Member’s or Person’s Capital Unitspursuant to any of the above, upon receipt of such Member’s or Person’s CapitalUnit certificate, the Company shall pay to such Member or Person 10% of theprice at which such Capital Units were originally offered for sale by theCompany.  In addition, the Company shallhave the right to redeem a Member’s Capital Units upon breach of the Member’sobligation to pay any outstanding balance of its Committed Capital pursuant tosuch Member’s promissory note with respect to payment for such Capital Unitsand to retain all amounts of such Member’s previously Contributed Capital asliquidated damages.  Upon redemption, anyCorn Delivery Agreement or promissory note of such Member relating to suchCapital Units shall become null and void. Nothing in this section shall be interpreted to limit or prevent theCompany from seeking any legal or equitable relief that would otherwise beavailable to the Company.

 

4.4                                 Disposition byBroin Investments II, LLC; Right of First Refusal.  Broin Investments II, LLC, shall beprohibited from Disposing of all or a portion of its Class B Capital Unitsissued in the Offering, other than to an Affiliate of Broin Investments II,LLC, without first offering the Class B Capital Units to the Company at fairmarket value, as defined in Section 4.5. If Broin Investments desires to Dispose of all or a portion of its ClassB Capital Units, it shall give the Company written notice of such desire.  If, within 30 days of the notice, the Companyhas not elected in writing to purchase such Class B Capital Units, BroinInvestments may Dispose of its Class B Capital Unitsto a third party in accordance with Section 4.1 and the Board of Managersshall not unreasonably withhold its consent thereto.

 

4.5                                 FairMarket Value.  The fair marketvalue of Broin Investments II, LLC’s Class B Capital Units for purposes of theCompany’s option to purchase provided for under Section 4.4 of thisOperating Agreement, shall be determined in accordance with the provisions ofthis Section 4.5.  The Company andBroin Investments II, LLC shall first try in good faith to

 

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determinethe fair market value by mutual agreement. Such efforts to reach agreement shall be commenced within 10 days fromthe date of the Company’s receipt of the notice of intended Disposition.  Such efforts may be terminated at any time byeither party.  If the parties have notreached a determination of the fair market value by mutual agreement within 20days following the Company’s receipt of the notice of intended Disposition,then the fair market value shall be determined by appraisal as provided in thisSection 4.5.  Within 10 daysfollowing the failure or refusal to reach a mutual agreement as set forthabove, the parties shall each appoint an appraiser to appraisethe Class B Capital Units that are the subject of the Disposition and eachparty shall pay the cost of its respective appraisal.  If the fair market values of the Class BCapital Units, as determined by the two appraisers, are within 10% of the lowerof the two values, then the two values shall be averaged with the result beingthe fair market value and variable price of the Class B Capital Units.  If the appraised values arenot within 10% of the lower of the two values, then the two appraisers shallchoose a third appraiser, with the cost of the third appraisal to be splitequally by the parties.  Theagreement of two of the three appraisers, shall be thefair market value and purchase price of the Class B Capital Units.  If at least two of the appraisers cannotagree on the appraised value, then the three appraised values shall be addedtogether and divided by three with the result to be the fair market value andpurchase price of the Class B Capital Units. The appraisers shall be duly qualified and have experience or backgroundin the ethanol industry.  The closing ofthe purchase of the Class B Capital Units by the Company shall be completedwithin 20 days following the determination of the purchase price.  If the Company declines or fails to givetimely notice of the election to purchase the Class B Capital Units, or if theCompany fails to timely close the purchase, Broin Investments II, LLC shall beentitled to Dispose of its Class B Capital Units to a third party, but suchsale must comply with Section 4.1.

 

**ARTICLE 5**

**CAPITALCONTRIBUTIONS**

 

5.1                                 ClassA Capital Units.

 

(a)                                  *Sale of Class A Units in the Offering*.  In the Offering, Class ACapital Units will be offered for sale to producers only at a price of$5,000.00 per Unit, with a minimum purchase of two Class A Capital Units.  Additional Class ACapital Units may be purchased, but no partial Class A Capital Units may bepurchased.  For the purposes of theOffering, a “producer” is a person engaged in the production of agriculturalproducts, including a tenant of land used for production of the product, alandlord of land who receives rent based upon the amount of farm production orcash rent, an agricultural cooperative association, and a privately owned grainelevator company.  The total equityraised in the Offering from the sale of Class ACapital Units, when combined with the equity raised from the sale of Class CCapital Units, shall not exceed $22,300,000.00.

 

(b)                                 *Purchase of Class A Units inthe Offering*.  Upon theexecution of a subscription agreement for Class A Capital Units, a Persondesiring to purchase Class A Capital Units must submit (i) 10% of the totalpurchase price of such Person’s subscription amount to the Company, whichamount shall be deposited into the Company’s Escrow Account for the Offeringand (ii) an executed promissory note in the amount of the remaining 90% balanceof such Person’s subscription amount. Payment of amounts due under the promissory note shall be subject to thecall of the Board of Managers.  CommittedCapital due under the promissory note

 

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mustbe contributed within 30 days from the date of call.  In the event of any Class A Member’s failureto contribute its Capital Commitment when due, the Company shall have the rightto redeem such Member’s Class A Capital Units as provided in Section 4.3,in addition to any remedies otherwise provided by law.

 

(c)                                  *Disposition of Class A Units following the Offering*.  After completion of the Offering, Class A Members may Dispose of outstanding Class A Capital Unitsto producers or non-producers, subject to the other requirements of thisOperating Agreement.

 

(d)                                 *Corn Delivery Requirement*.  To be admitted as a Class AMember, whether purchasing Class A Capital Units in the Offering or through a Dispositionfrom a Member, a Person must sign a Corn Delivery Agreement in a form approvedby the Board of Managers from time to time, in addition to fulfilling all othermembership criteria set forth in Section 3.3.

 

5.2                                 Class B CapitalUnits.

 

(a)                                  *Private Sale of Class B Units*.  The Company has offered to sell and BroinInvestments II, LLC has agreed to purchase 200 Class B Capital Units at a priceof $5,000.00 per Unit in a private placement separate from the Offering.  No additional Class B Capital Units may bepurchased and no partial Class B Capital Units may be purchased.  The total equity raised from the private saleof Class B Capital Units shall be $1,000,000.00.

 

(b)                                 *Purchase of Class B Units*.  The completion of the Offering is contingentupon the purchase by Broin Investments II, LLC, of the 200 Class B CapitalUnits specified in the preceding paragraph. Upon the execution of a subscription agreement for Class B CapitalUnits, Broin Investments II, LLC, must submit (i) 10% of the total purchase priceof its subscription amount ($100,000.00) to the Company, which amount shall bedeposited into the Company’s Escrow Account for the Offering and (ii) anexecuted promissory note in the amount of the remaining 90% balance of itssubscription amount ($900,000.00). Payment of amounts due under Broin Investment’s promissory note for itsClass B Capital Units shall be subject to the last call of the Board ofManagers, only after call has been made for all outstanding Committed Capitalof Class A and Class C Members. Committed Capital due under Broin InvestmentsII, LLC’s promissory note for its Class B Capital Units must be contributedwithin 30 days from the date of call.  Inthe event of Broin Investment’s failure to contribute its Capital Commitmentwhen due, the Company shall have the right to redeem Broin Investment’s Class BCapital Units as provided in Section 4.3, in addition to any remediesotherwise provided by law.

 

(c)                                  *Disposition of Class B Units*.  Class B Members may Disposeof outstanding Class B Capital Units to any Person, subject to the otherrequirements of this Operating Agreement, including, without limitation, Section 4.7in the case of Broin Investments II, LLC.

 

(d)                                 *No Corn Delivery Requirement*.  There is no corn delivery requirement forClass B Members.

 

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5.3                                 Class C CapitalUnits.

 

(a)                                  *Sale of Class C Units in the Offering*.  In the Offering, the Company shall offer tosell Class C Capital Units at a price of $5,000.00 per Unit with a minimumpurchase of 10 Class C Capital Units. Additional Class C Capital Units may be purchased, but no partial ClassC Capital Units may be purchased.  AnyPerson may purchase Class C Capital Units, including, but not limited to,purchasers of Class A and Class B Capital Units, producers and non-producers;provided that, for the first 75 days of the Offering, Class C Capital Unitsshall only be offered to purchasers of Class A and Class B Capital Units, withthe following maximum limits on purchases during such 75 day period only: (i)total aggregate investment by one Person in Class A and Class C Capital Unitscannot exceed $1,000,000.00, and (ii) total aggregate investment by BroinInvestments II, LLC and its Affiliates in Class B and Class C Capital Unitscannot exceed $4,200,000.00, including the private sales described in Sections5.2(a) and 5.3(e) of this Operating Agreement. The total equity raised in theOffering from the sale of Class C Capital Units, when combined with the equityraised from the sale of Class A Capital Units, shallnot exceed $22,300,000.00

 

(b)                                 *Purchase of Class C Units in the Offering*.  Upon the execution of a subscriptionagreement for Class C Capital Units, a Person desiring to purchase Class CCapital Units must submit (i) 10% of the total purchase price of such Person’ssubscription amount to the Company, which amount shall be deposited into theCompany’s Escrow Account for the Offering and (ii) an executed promissory notein the amount of the remaining 90% balance of such Person’s subscriptionamount.  Payment of amounts due under thepromissory note shall be subject to the call of the Board of Managers.  Committed Capital due under the promissorynote must be contributed within 30 days from the date of call.  In the event of any Class C Member’s failureto contribute its Capital Commitment when due, the Company shall have the rightto redeem such Member’s Class C Capital Units as provided in Section 4.3,in addition to any remedies otherwise provided by law.

 

(c)                                  *Disposition of Class C Units following the Offering*.  After completion of the Offering, Class CMembers may Dispose of outstanding Class C CapitalUnits to any Person, subject to the other requirements of this OperatingAgreement.

 

(d)                                 *No Corn Delivery Requirement*.  There is no corn delivery requirement forClass C Members.

 

(e)                                  *Private Sale of Class C Units.*  The Company has offered to sell, and BroinManagement, LLC has agreed to purchase, 40 Class C Capital Units at a price of$5,000 per Unit in a private placement separate from the Offering.  The purchase and sale of Class C CapitalUnits described this paragraph shall be on substantially the same terms as setforth in Sections 5.3(a)-(d) above.

 

5.4                                 Class D CapitalUnits.  Class D Capital Unitsshall be offered for sale at a price of $100.00 per Unit to each member of theinitial Board of Managers named in the Company’s Articles of Organization andto the Company’s initial Managing Member, Broin Management, LLC.  Upon completion of the Offering, each Class DCapital Unit shall be automatically converted into the right to receive oneClass C Capital Unit.  Upon completion ofthe Offering, each Class D Member shall tender and exchange its Class D CapitalUnit Certificate for a Class C

 

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Capital UnitCertificate.  The total equity raisedfrom the sale of Class D Capital Units shall not exceed $1,600.00.

 

5.5                                 Additional CapitalUnits.  Additional CapitalUnits may be created and issued to new Members or to existing Members on suchterms and conditions as the Board of Managers may determine at the time ofadmission, and may include for the creation of different classes or groups ofMembers, represented by different classes of Capital Units, which Capital Unitsmay have different rights, powers, and duties. If the Board of Managers creates additional Capital Units, the Board ofManagers must specify the terms of admission or issuance, including the amountof Committed Capital proposed to be raised from the issuance of such CapitalUnits. Members of the Company shall not have a preemptive right to acquireadditional, newly created Capital Units of the Company.

 

5.6                                 Return ofContributions.  A Member isnot entitled to the return of any part of its Capital Contribution or to be paidinterest in respect of either its capital account or its CapitalContribution.  A Capital Contribution isnot a liability of the Company or of any Member.  Members will not be required to contribute orto lend any cash or property to the Company to enable the Company to return anyMember’s Capital Contribution.

 

5.7                                 Advances by Members.  If the Company does not have sufficient cashto pay its obligations, and the Company does not raise additional capitalpursuant to Section 5.5 hereof, any Member(s) that may agree to do so withthe consent of the Board of Managers, as appropriate, may advance all or partof the needed funds to or on behalf of the Company.  An advance described in this Section constitutesa loan from the Member to the Company, bears interest at the rate negotiatedwith the Board of Managers from the date of the advance until the date ofpayment and is not a Capital Contribution.

 

5.8                                 CapitalAccounts.  A capital accountshall be established and maintained for each Member pursuant to the requirementsof applicable federal income tax regulations. Each Member’s capital account shall be increased and decreased asfollows:

 

(a)                                  EachMember’s capital account shall be increased by (i) the amount of the initialCapital Contribution made by the Member, (ii) the amount of any additionalCapital Contributions made by the Member, and (iii) any income and gainsallocated to the Member pursuant to Article 6.

 

(b)                                 EachMember’s Capital Account shall be decreased by (i) any deductions and lossesallocated to the Member pursuant to Article 6, and (ii) the amount of anydistributions by the Company to the Member as of the time of the distribution.

 

A Member that has morethan one Capital Unit shall have a single capital account that reflects all itsCapital Units, regardless of the Class of Capital Units owned by that Memberand regardless of the time or manner in which those Capital Units wereacquired.  Upon the Disposition of aCapital Unit, that portion of the capital account of the Member effecting theDisposition that is attributable to the Capital Unit subject to the Dispositionshall carry over to the Person acquiring such Capital Unit.

 

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**ARTICLE 6**

**ALLOCATIONSAND DISTRIBUTIONS**

 

6.1                                 Allocations andDistributions.  Except as maybe required by section 704 (b) and (c) of the Code and the applicableTreasury Regulations, all items of income, gain, loss, deduction, and credit ofthe Company shall be allocated among the Members, and distributions shall bemade, in accordance with this Article 6.

 

6.2                                 Distributions ofNet Cash from Operations. Distributions of Net Cash from Operations, if any, for any fiscal year,will be made on not less than an annual basis with a minimum of 20% to bedistributed so long as the Net Cash from Operations is in excess of $500,000.00for such year and provided that any such distribution does not violate or causethe Company to default under any the terms of any of the Company’s creditfacilities or debt instruments. Additional distributions, if any, may be made as the Board of Managersshall determine in its sole discretion. Distributions shall be made to all Members ratably in proportion totheir Ownership Percentages.

 

6.3                                 Allocations ofIncome, Gain, Loss, Deductions, and Credits.  All items of income, gain, loss, deductions,and credits for a fiscal year shall be allocated to the Members ratably inproportion to their Ownership Percentages.

 

6.4                                 Allocation of Gainor Loss Upon the Sale of All orSubstantially All of the Company’s Assets.

 

(a)                                  *Allocation of Gain**. *Any income or gain from the saleor exchange of all or substantially all of the Company’s assets shall beallocated, first, to those Members with capital account balances less than theamounts of their respective Capital Contributions that have not previously beendistributed, that amount of income or gain, if any, necessary to increase theircapital account balances to the amount of their Capital Contributions notpreviously distributed; provided, that a special allocation of gain shall bemade to the holders of those Class C Capital Units which were issued upon theconversion of Class D Capital Units in an amount sufficient to equalize thecapital account balances of all Class C Members holding the same number ofClass C Capital Units; and thereafter, the remaining income or gain, ifany, shall be allocated to the Members, ratably in proportion to theirOwnership Percentages.

 

(b)                                 *Allocation of Loss**. *Any loss from the sale or exchangeof all or substantially all of the Company’s assets shall be allocated, first,so as to equalize the capital account balances of all Members holding the samenumber of Capital Units, and thereafter, the remaining losses shall beallocated to the Members, ratably in proportion to their Ownership Percentages.

 

6.5                                 RegulatoryAllocations and Allocation Limitations.  Notwithstanding the preceding provisions forallocating income, gains, losses, deductions and credits, the followinglimitations, regulatory allocations and contingent reallocations are intendedto comply with applicable income tax Treasury Regulations under Section 704(b)of the Code and shall be so construed when applied.

 

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(a)                                  *Minimum Gain Chargeback*.  Notwithstanding any other provision of this Section 6.5,if there is a net decrease in Partnership Minimum Gain during any Companyfiscal year, each Member shall be specially allocated items of Company incomeand gain for such year (and, if necessary, for subsequent years) in accordancewith Section 1.704-2(f)(1) of the Treasury Regulations in an amount equalto such Member’s share of the net decrease in Partnership Minimum Gain(determined in accordance with Section 1.704-2(g)(2) of the TreasuryRegulations).  This Section 6.5(A)is intended to comply with the minimum gain chargeback requirement in theTreasury Regulations and shall be interpreted consistently therewith.

 

(b)                                 *Partner Minimum Gain* Chargeback.  Except as otherwise provided in Section 1.704-2(i)(4)of the Treasury Regulations, notwithstanding any other provision of this Section 6.5,if there is a net decrease in Partner Nonrecourse Debt Minimum Gainattributable to a Partner Nonrecourse Debt during any Company fiscal year, eachMember who has a share of the Partner Nonrecourse Debt Minimum Gainattributable to such Partner Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5)of the Treasury Regulations, shall be specially allocated items of Companyincome and gain for such year (and, if necessary, for subsequent years) in anamount equal to such Member’s share of the net decrease in Partner NonrecourseDebt Minimum Gain attributable to such Partner Nonrecourse Debt, determined inaccordance with Section 1.704-2(i)(4) of the Treasury Regulations.  Allocations pursuant to the previous sentenceshall be made in proportion to the respective amounts required to be allocatedto each Member pursuant thereto.  Theitems to be so allocated shall be determined in accordance with Sections1.704-2(i)(4) and 1.704-2(j)(2) of the TreasuryRegulations. This Section 6.5(b) is intended to comply with the minimumgain chargeback requirements in Section 1.704-2(i)(4)of the Treasury Regulations and shall be interpreted consistently therewith.

 

(c)                                  *Qualified Income Offset*.  In the event a deficit balance in a Member’scapital account in excess of the sum of (i) the amount such Member is obligatedto restore or contribute to the Company pursuant to any provision of thisOperating Agreement and (ii) the amount such Member is deemed to be obligatedto contribute pursuant to the penultimate sentences of Section 1.704-2(g)(1)(ii)and 1.704-2(i)(5) of the Treasury Regulations, is caused or increased because aMember receives an adjustment, allocation, or distribution described in Section 1.704-1(b)(2)(ii)(d)of the Treasury Regulations, such Member will be allocated items of Companyincome and gain in an amount and manner sufficient to eliminate such deficitbalance or such increase in the deficit balance, as quickly as possible, to theextent required in the Treasury Regulations. This Section 6.5(c) is intended, and shall be so construed, toprovide a “qualified income offset” within the meaning of Section 1.704-1(b)(2)(ii)(d)of the Treasury Regulations.

 

(d)                                 *Gross Income Allocations*.  In the event that a deficit balance in aMember’s Capital Account at the end of any fiscal year is in excess of the sumof (i) the amount such Member is obligated to restore or contribute to theCompany under this Operating Agreement and (ii) the amount such Member isdeemed to be obligated to restore pursuant to the penultimate sentences ofTreasury Regulations §§ 1.704-2(g)(1)(ii) and 1.704-2(i)(5), the Membershall be specially allocated items of Company income and gain in the amount ofsuch excess as quickly as possible, provided that an allocation pursuant tothis Section 6.5(d) shall be made only if and to the extent that theMember would have a deficit balance in its Capital Account in excess of suchsum after all other allocations provided for in this Section have beenmade as if Section 6.5(c) and this Section 6.5(d) were not in thisOperating Agreement.

 

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(e)                                  *Nonrecourse Deductions*.  Nonrecourse Deductions shall be speciallyallocated to the Members in proportion to the allocation of Losses under Section 6.3.

 

(f)                                    *Partner Nonrecourse Deductions*.  Any Partner Nonrecourse Deductions for anyfiscal year shall be specially allocated to the Member who bears the economicrisk of loss with respect to the Partner Nonrecourse Debt to which such PartnerNonrecourse Deductions are attributable in accordance with Section 1.704-2(i)(1)of the Treasury Regulations.

 

(g)                                 *Members’ Shares of Excess Nonrecourse*Debt.  The Members’ shares of excessPartnership Nonrecourse Debt within the meaning of Section 1.752-3(a)(3)of the Treasury Regulations shall be determined in accordance with the mannerin which it is reasonably expected that the deductions attributable to suchPartnership Nonrecourse Debt will be allocated.

 

(h)                                 *Curative Allocations*.  The allocations set forth in subsections (a),(b), (d), and (d) (the “Regulatory Allocations”) are intended to comply withcertain requirements of the Treasury Regulations under Section 704(b).  Notwithstanding any other provision of this Article 6(other than the Regulatory Allocations), the Regulatory Allocations shall betaken into account in allocating other items of income, gain or loss among theMembers so that, to the extent possible, the net amount of allocations of such itemsof income, gain or loss and the Regulatory Allocations to each Member shall beequal to the net amount that would have been allocated to such Member if theRegulatory Allocations had not occurred. For this purpose, future Regulatory Allocations under Section 6.5(a)and (b) shall be taken into account that, although not yet made, are likely tooffset other Regulatory Allocations made under Section 6.5(f) and (g).

 

6.6                                 Proration ofAllocations.  All income,gains, losses, deductions and credits for a fiscal year allocable with respectto any Members whose Capital Units may have been transferred, forfeited,reduced or changed during such year should be allocated based upon the varyinginterests of the Members throughout the year. The precise manner in which such allocations are made shall bedetermined by the Board of Managers in its sole discretion and shall be amanner of allocation, including an interim closing of the books, permitted tobe used for federal income tax purposes.

 

6.7                                 Consent to Allocation.  Each Member expressly consents to the methodsprovided herein for allocation of the Company’s income, gains, losses,deductions and credits.

 

6.8                                 Distributions inKind.  Except as provided bythis Operating Agreement, a Member, regardless of the form of the Member’sCapital Contribution, may not demand or receive a distribution from thisCompany in any form other than cash.

 

6.9                                 Right toDistributions.  A Member who is entitled to receive a distribution that has notbeen paid by the Company when due has the status of, and is entitled to allremedies available to, a creditor of the Company with respect to suchdistribution.

 

6.10                           Limitation onDistributions.

 

(a)                                  Notwithstandinganything to the contrary in this Operating Agreement, the Company may not makea distribution to its Members to the extent that, immediately after giving

 

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effect to thedistribution, all liabilities of the Company, other than liabilities to Memberswith respect to their interests and liabilities for which the recourse ofcreditors is limited to specified property of the Company, exceed the fairvalue of the Company’s assets, except that the fair value of property that issubject to a liability for which recourse of creditors is limited shall beincluded in the Company’s assets only to the extent that the fair value of thatproperty exceeds that liability, or otherwise in violation of the Act.

 

(b)                                 AMember who receives a distribution that is not permitted under this OperatingAgreement has no liability to return the distribution unless the Member knewthat the distribution was prohibited under the terms of this OperatingAgreement or the Act.

 

**ARTICLE 7**

**OFFICERS**

 

7.1                                 Numberof Officers.  The officers ofthe Board of Managers shall be a president, one or more vice-presidents, and asecretary, each of whom shall be appointed by the Board of Managers. Theofficers of the Company shall be a Chief Executive Officer and Chief FinancialOfficer. An officer of the Board of Managers shall be a member of the Board ofManagers.  Such other officers andassistant officers as may be deemed necessary, including any vice-presidents,may be appointed by the Board of Managers. If specifically authorized by the Board of Managers, an officer mayappoint one or more officers or assistant officers from the Board ofManagers.  The same individual maysimultaneously hold more than one office on the Board of Managers.

 

7.2                                 Appointment andTerm of Office.  The officersof the Board of Managers shall be appointed by the Board of Managers for a termas determined by the Board of Managers. If no term is specified, they shall hold office until the first meetingof the Board of Managers held after the next annual meeting of Members.  If the appointment of officers shall not bemade at such meeting, such appointment shall be made as soon thereafter as isconvenient.  Each officer shall holdoffice until the officer’s successor shall have been duly appointed, until theofficer’s death, or until the officer shall resign or shall have been removedin the manner provided in Section 7.3. The designation of a specified term does not grant to the officer anycontract rights.  The Board of Managerscan remove the officer at any time prior to the termination of such term, andthe officer shall be employed “at will,” unless otherwise provided by a signedcontract with the Company.

 

7.3                                 Removalof Officers.  Any officer oragent of the Board of Managers may be removed by the Board of Managers at anytime, with or without cause. Subsequent to the completion of the Offering, theManaging Member may remove the Chief Executive Officer and Chief FinancialOfficer at any time, with or without cause. Prior to the completion of the Offering, the Board of Managers mayremove the Chief Executive Officer and Chief Financial Officer at any time,with or without cause.  Any such removalshall be without prejudice to the contract rights, if any, of the person soremoved.  Appointment of an officer oragent shall not of itself create contract rights.

 

7.4                                 The Chief ExecutiveOfficer.  The Chief ExecutiveOfficer shall be the principal executive officer of the Company.  Until completion of the Offering, the Boardof Managers shall

 

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selectthe Chief Executive Officer.  Subsequentto the completion of the Offering, the Chief Executive Officer shall beselected by the Managing Member.  TheChief Executive Officer may sign, with the Secretary or any other properofficer of the Board of Managers or of the Company authorized by the Board ofManagers, deeds, mortgages, bonds, contracts, debt instruments or otherinstruments, which the Board of Managers and/or Managing Member have authorizedto be executed, except in cases where the signing and execution thereof shallbe expressly delegated by the Board of Managers or by this Operating Agreementto some other officer or agent of the Company, or shall be required by law tobe otherwise signed or executed; and in general shall perform all dutiesincident to the office of Chief Executive Officer and such other duties as maybe prescribed by the Board of Managers until completion of the Offering andthereafter by the Managing Member from time to time.

 

7.5                                 The Chief FinancialOfficer.  The Chief FinancialOfficer shall be the principal financial and accounting officer of the Company,and may be the same person as the Chief Executive Officer.  Until completion of the Offering, the Boardof Managers shall select the Chief Financial Officer.  Subsequent to the completion of the Offering,the Chief Financial Officer shall be selected by the Managing Member.  The Chief Financial Officer shall:

 

(a)                                  Havecharge and custody of and be responsible for all funds and securities of theCompany;

 

(b)                                 Receiveand give receipts for moneys due and payable to the Company from any sourcewhatsoever, and deposit all such moneys in the name of the Company in suchbanks, trust companies, or other depositaries as shall be selected by the Boardof Managers; and

 

(c)                                  Ingeneral, perform all of the duties incident to the office of Chief FinancialOfficer and such other duties as from time to time may be assigned to the ChiefFinancial Officer by the Board of Managers until completion of the Offering andthereafter by the Managing Member.  Ifrequired by the Board of Managers, the Chief Financial Officer shall give abond for the faithful discharge of the Chief Financial Officer’s duties in suchsum and with such surety or sureties as the Board of Managers shall determine.

 

7.6                                 ThePresident.  The Presidentshall be the presiding officer of the Board of Managers.  The President shall, when present, preside atall meetings of the Members and of the Board of Managers.  The President may sign, with the Secretary orany other proper officer of the Board of Managers or of the Company authorizedby the Board of Managers, certificates for Capital Units of the Company and ingeneral shall perform all duties incident to the office of President and suchother duties as may be prescribed by the Board of Managers from time to time.

 

7.7                                 TheVice-Presidents.  Ifappointed, in the absence of the President or in the event of the President’sdeath, inability or refusal to act, the Vice-President, or in the event therebe more than one Vice-President, the Vice-Presidents in the order designated atthe time of their election, or in the absence of any designation, then in theorder of their appointment, shall

 

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performthe duties of the President, and when so acting, shall have all the powers ofand be subject to all the restrictions upon the President.  If there is no Vice-President, then anymember of the Board of Managers shall perform such duties of the President.  Any Vice-President may sign, with the Secretaryor an Assistant Secretary, certificates for shares of the Company the issuanceof which have been authorized by resolution of the Board of Managers; and shallperform such other duties as from time to time may be assigned to theVice-President by the President or by the Board of Managers.

 

7.8                                 TheSecretary.  The Secretaryshall:

 

(a)                                  Keepthe minutes of the proceedings of the Members and of the Board of Managers inone or more books provided for that purpose;

 

(b)                                 Seethat all notices are duly given in accordance with the provisions of thisOperating Agreement or as required by law;

 

(c)                                  Bethe custodian of the Company records and of any seal of the Company and ifthere is a seal of the Company, see that it is affixed to all documents theexecution of which on behalf of the Company under its seal is duly authorized;

 

(d)                                 Whenrequested or required, authenticate any records of the Company;

 

(e)                                  Keepa register of the mailing address of each Member which shall be furnished tothe Secretary by such Member;

 

(f)                                    Signwith the President, or a Vice-President, certificates for Capital Units of theCompany, the issuance of which shall have been authorized by resolution of theBoard of Managers;

 

(g)                                 Havegeneral charge of the Capital Units transfer books of the Company; and

 

(h)                                 Ingeneral, perform all duties incident to the office of Secretary and such otherduties as from time to time may be assigned to the Secretary by the Presidentor by the Board of Managers.

 

7.9                                 AssistantSecretaries.  The AssistantSecretaries, when authorized by the Board of Managers, may sign with thePresident or a Vice-President, certificates for Capital Units of the Companythe issuance of which shall have been authorized by a resolution of the Boardof Managers.  The Assistant Secretaries,in general, shall perform such duties as shall be assigned to the Secretary, orby the President or the Board of Managers.

 

7.10                           Designation of TaxMatters Partner.  Providedthat the Managing Member owns Capital Units, the Managing Member, is designatedas the Tax Matters Partner of the Company, as provided in the TreasuryRegulations pursuant to Section 6231 of the Code.  Each Member, by the execution of thisAgreement consents to such designation of the Tax Matters Partner and agrees to

 

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execute,certify, acknowledge, deliver, swear to, file and record at the appropriatepublic offices such documents as may be necessary or appropriate to evidencesuch consent.  If at any time there is noManaging Member, or if the Managing Member no longer owns Capital Units, theBoard of Managers shall designate a Manager who owns Capital Units as the TaxMatters Partner of the Company.

 

7.11                           Duties of Tax MattersPartner.

 

(a)                                  TheTax Matters Partner shall register the Company as a “tax shelter” with theInternal Revenue Service if such registration is required and shall provide thetax shelter registration number to each Member.

 

(b)                                 Tothe extent and in the manner provided by applicable law and regulations, the TaxMatters Partner shall furnish the name, address, profit’s interest, andtaxpayer identification number of each Member to the Secretary of the Treasuryor his delegate (for the purposes of Sections 7.12 and 7.13 only, the “Secretary”).

 

(c)                                  Tothe extent and in the manner provided by applicable law and regulations, theTax Matters Partner shall keep each Member informed of the administrative andjudicial proceedings for the adjustment at the Company level of any itemrequired to be taken into account by a Member for income tax purposes (suchadministrative proceeding referred to hereinafter as a “tax audit” and suchjudicial proceeding referred to hereinafter as “judicial review”).

 

(d)                                 Ifthe Tax Matters Partner, on behalf of the Company, receives a notice withrespect to a tax audit from the Secretary of the Internal Revenue Service, theTax Matters Partner shall forward a copy of such notice to the Members who holdor held an interest in the profits or losses of the Company in the taxable yearto which the notice relates as required by law.

 

7.12                           Authority of Tax MattersPartner.  The Tax MattersPartner is hereby authorized, but not required:

 

(a)                                  Toenter into any settlement with the Internal Revenue Service or the Secretary ofthe Internal Revenue Service with respect to any tax audit or judicial review,in which agreement the Tax Matters Partner may expressly state that suchagreement shall bind the other Members, except that such settlement agreementshall not bind any Member who (within the time prescribed pursuant to the Codeand Treasury Regulations thereunder) files a statement with the Secretary ofthe Internal Revenue Service providing that the Tax Matters Partner shall nothave the authority to enter into a settlement agreement on behalf of suchMember;

 

(b)                                 Inthe event that a notice of a final administrative adjustment at the Companylevel of any item required to be taken into account by a Member for taxpurposes (a “final” adjustment”) is mailed to the Tax Matters Partner, to seekjudicial review of such final adjustment, including the filing of a petitionfor readjustment with the Tax Court, the District Court of the United Statesfor the district in which the Company’s principal place of business is located,or the United States Court of Claims;

 

(c)                                  Tointervene in any action brought by any other Member for judicial review

 

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of afinal adjustment;

 

(d)                                 Tofile a request for an administrative adjustment with the Secretary at any timeand, if any part of such request is not allowed by the Secretary, to file apetition for judicial review with respect to such request;

 

(e)                                  Toenter into an agreement with the Internal Revenue Service to extend the periodfor assessing any tax which is attributable to any item required to be takeninto account by a Member for tax purposes, or an item affected by such item;

 

(f)                                    Totake any other action on behalf of the Members or the Company in connectionwith any administrative or judicial tax proceeding to the extent permitted byapplicable law or regulations; and

 

(g)                                 Toretain attorneys and accountants on an as-needed basis under such terms andconditions as determined solely by the Tax Matters Partner.

 

7.13                           Expenses of Tax MattersPartner.  The Company shall indemnifyand reimburse the Tax Matters Partner for all expenses, including legal andaccounting fees, claims, liabilities, losses and damages incurred in connectionwith any administrative or judicial proceeding with respect to the taxliability of the Members.  The payment ofall such expenses shall be made before any distributions are made of Net Cashfrom Operations, or any discretionary reserves are set aside by the Board ofManagers.  The taking of any action andthe incurring of any expense by the Tax Matters Partner in connection with anysuch proceeding, except to the extent required by law, is a matter in the solediscretion of the Tax Matters Partner and the provisions on limitations ofliability of Managing Member and indemnification set forth in Article 10of this Agreement shall be fully applicable to the Tax Matters Partner in hiscapacity as such.

 

7.14                           Compensation.  The salaries and terms of employment of theofficers of the Company shall be fixed from time to time by the Board ofManagers until the completion of the Offering and thereafter by the ManagingMember.  Officers of the Board ofManagers shall not receive any salary or other compensation for their servicesas officers of the Board of Managers, unless otherwise determined by the Boardof Managers.  Officers who are Members ofthe Company shall receive the same membership benefits that all other Membersreceive.  Officers may be reimbursed forreasonable expenses incurred in carrying out their duties as officers.

 

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**ARTICLE 8**

**MANAGEMENT**

 

8.1                                 Managementby Board of Managers.

 

(a)                                  Exceptfor situations in which the approval of the Members is required by thisOperating Agreement or by nonwaivable provisions of the Act and, except forthose powers delegated to the Managing Member, and subject to the provisions ofSection 8.2, the powers of the Company shall be exercised by or under theauthority of, and the business and affairs of the Company shall be managedunder the direction of the Board of Managers; and the Board of Managers maymake all decisions and take all actions for the Company not otherwise providedfor in this Operating Agreement, including, without limitation, the following:

 

(i)                                     Todirect and oversee the Managing Member in its implementation of the decisionsof the Board of Managers.

 

(ii)                                  Todirect the expenditure of the capital and profits of the Company in furtheranceof the Company’s purposes.

 

(iii)                               Todirect the investment of Company funds in any manner deemed appropriate orconvenient by the Board of Managers to be in the best interests of the Company.

 

(iv)                              Toenter into operating agreements, joint participation, joint ventures, andpartnerships with others with respect to the ethanol plant and any other assetsof the Company, containing such terms, provisions and conditions as the Boardof Managers shall approve.

 

(v)                                 Tocause the Company to borrow money from banks and other lending institutions forany Company purpose and in connection therewith to mortgage, grant a securityinterest in or hypothecate all of the assets of the Company.

 

(vi)                              Tosell, dispose, abandon, trade or exchange (but not a sale, disposition,abandonment, trade, or exchange of all or any substantial portion of theCompany’s assets) of the Company, upon such terms and conditions and for suchconsideration as the Board of Managers deems appropriate.

 

(vii)                           Toenter into agreements and contracts with any Member or an Affiliate of anyMember, including the Managing Member and any Affiliate of the Managing Member,and to give receipts, releases and discharges with respect to all of theforegoing and any matters incident thereto as the Board of Managers may deemadvisable or appropriate; provided, however, that any such agreement orcontract shall be on terms as favorable to the Company as could be obtainedfrom any third party.

 

(viii)                        To makedistributions in accordance with and subject to the limitations set forth in Article 6of this Operating Agreement.

 

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(ix)                                Toamend the terms and provisions of this Operating Agreement.

 

(b)                                 Allacts of the Board of Managers will be by majority vote of the disinterestedManagers except for the following:

 

(i)                                     Changesin the corn delivery process, pricing and Corn Delivery Agreement shall requirethe affirmative vote of the Class B representative of the Board of Managers andthe vote of all but one of the other members of the Board of Managers.

 

(ii)                                  Exceptas set forth in (iv) below, amendments to this Operating Agreement and/or theArticles shall require the vote of the Class B representative of the Board ofManagers and the vote of all but one of the other members of the Board ofManagers.

 

(iii)                               Theauthorization of the sale of additional Capital Units shall require the vote ofthe Class B representative of the Board of Managers and the vote of all but oneof the other members of the Board of Managers.

 

(iv)                              Amendmentsto the sections of this Operating Agreement dealing with the rights,responsibilities and compensation of the Managing Member shall require theconsent of the Managing Member and the vote of all but one of the total Class Aand Class C representatives on the Board of Managers.

 

(v)                                 Removalof the Managing Member pursuant to Section 9.1, and appointment of a replacementManaging Member shall require the vote of all but one of the Class A and ClassC representatives on the Board of Managers.

 

(vi)                              Theauthorization of any borrowing of money by the Company shall require the voteof the Class B representative of the Board of Managers and the vote of all buttwo of the other members of the Board of Managers.

 

(c)                                  Notwithstandingthe provisions of Section 8.1(a), the Board of Managers may not cause theCompany to take any action set forth in Section 3.9(e), without firstobtaining the required approval of each Class of Members.

 

(d)                                 Forthe purposes of this Operating Agreement, a disinterested Manager shall be aManager who does not have a material financial interest in any contract oragreement to be approved by the Board of Managers.  A Manager who has a material financialinterest in any contract or agreement shall not vote on such contract oragreement.  A Manager’s interest in aCorn Delivery Agreement shall not be deemed to be a material financialinterest.  If a Manager is an Affiliateor relative of a party with respect to which the Board of Managers intends toact, such Manager shall be deemed to be interested.

 

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8.2                                 Actionsby Managers; Committees; Delegation of Authority and Duties.

 

(a)                                  Inmanaging the business and affairs of the Company and in exercising its powers,the Board of Managers shall act (i) collectively through meetings and writtenconsents consistent with or as may be provided or limited in other provisionsof this Operating Agreement; (ii) through committees pursuant to Section 8.2(b);and (iii) through Managers and officers to whom authority and duties have beendelegated pursuant to Section 8.2(c).

 

(b)                                 TheBoard of Managers may, from time to time, designate one or more committees,each of which shall be comprised of one or more members of the Board ofManagers, one or more members of the Company, and/or one or more non-members ofthe Board of Managers or of the Company. Any such committee, to the extent provided in such resolution shall haveand may exercise such authority as is designated by the Board of Managers,subject to limitations set forth in the Act. At every meeting of such committee, unless otherwise provided by theBoard of Managers, the presence of a majority of all the committee membersshall constitute a quorum, and the affirmative vote of the majority of thecommittee members present shall be necessary for the adoption of any resolutionor recommendation of any action.  The Boardof Managers may dissolve any committee at any time.

 

(c)                                  AnyPerson dealing with the Company, other than a Member, may rely on the authorityof the Managing Member, any officer of the Company or any officer of the Boardof Managers in taking any action in the name of the Company without inquiryinto the provisions of this Operating Agreement or compliance herewith,regardless of whether that action actually is taken in accordance with theprovisions of this Operating Agreement.

 

8.3                                 Registration andTransfer of Securities. Securities and other property owned by the Company shall be registeredin the Company’s name, in a nominee name, in any such case for the benefit ofthe Company.  Any transfer agent calledupon to transfer any securities to or from the name of the Company or suchother names shall be entitled to rely on instructions or assignments signed byan officer of the Company, an officer of the Managing Member, or by any agentor custodian so authorized by the Board of Managers, on its behalf, withoutinquiry as to the authority of the person signing such instructions orassignments or as to the validity of any transfer to or from the name of theCompany.  At the time of transfer, anytransfer agent is entitled to assume, unless it has actual knowledge to thecontrary:

 

(a)                                  that the Company is still in existence;

 

(b)                                 thatthis Operating Agreement is in full force and effect and has not been amended,unless the transfer agent has received written notice to the contrary; and

 

(c)                                  that the person so signing is authorized to sign on behalfof the Company.

 

8.4                                 Number and Term ofOffice.

 

(a)                                  Thenumber of initial Managers of the Company shall be set at 15 until such time asthe Members hold a special meeting (“Special Member Meeting”) to be held duringthe first quarter of the calendar year 2003 for the purpose of electing a Boardof Managers in accordance with Section 8.4(b).  Each initial Manager shall hold office untilthe Special Member

 

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Meeting unless suchManager resigns, dies, or becomes disabled. An initial Manager may not be replaced or removed.

 

(b)                                 Aperson does not need to be a Member to be elected to the Board ofManagers.  Each Manager, other than theinitial Managers, shall hold office for a term of three years or until removed,except that at the first Special Member Meeting, the Managers shall be electedto staggered one, two and three year terms under a process determined by theBoard of Managers.  One-third, or asclose to said fraction as possible, of the Managers elected the first SpecialMember Meeting shall be elected for a one-year term; one-third for a two-yearterm, and one-third for a three-year term, divided as evenly as possible amongthe various Classes of representatives.  Thereafter,approximately one-third of the Managers shall be elected to three-year terms ateach annual meeting of the Members.  Theelection process shall be determined by the Board of Managers in advance of theannual election.  Following the firstSpecial Member Meeting, the Board of Managers shall consist of seven or nineManagers.  The Board of Managers shallconsist of seven members if not more than 20% of the Capital Units outstandingare Class C Capital Units.  The Board ofManagers shall consist of nine Members if at least 20% of the Capital Unitsoutstanding are Class C Capital Units.  Amajority of the members of the Board of Managers shall always be elected by theClass A Members. The Class B Members will elect one person to the Board of Managers.  The Class C Members will elect from zero tothree members to the Board of Managers based upon the following percentages ofequity raised from the sale of Class C Capital Units:

 

Percentage of TotalEquity Raised

 
| **Raised  Through Sales of Class C Units** | ** ** | **Class A** | ** ** | **Class B** | ** ** | **Class C** | ** ** | **Total**  |
|--------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|------------|
| ** **                                 | ** ** | ** **  | ** ** | ** **  | ** ** | ** **  | ** ** | ** ** |
|    0-10%                    |       | 6           |       | 1           |       | 0           |       | 7          |
|                                       |       |        |       |        |       |        |       |       |
| Greater than 10% but  less than 20%        |       | 5           |       | 1           |       | 1           |       | 7          |
|                                       |       |        |       |        |       |        |       |       |
| At least 20% but less  than 30%            |       | 6           |       | 1           |       | 2           |       | 9          |
|                                       |       |        |       |        |       |        |       |       |
| At least 30%                               |       | 5           |       | 1           |       | 3           |       | 9          |

 

If a Manager’s termexpires, the Manager shall continue to serve until the Manager’s successorshall have been elected and qualified, or until there is a decrease in thenumber of Managers.  If a Manager isappointed to complete an unexpired term, that portion of the unexpired termserved shall not be counted when calculating the Manager’s length of service.

 

8.5                                 Death or Disabilityof Managers.  Upon the deathor disability of a Manager, the resulting vacancy on the Board of Managers maybe filled in accordance with Section 8.8. “Disabled” or “disability” shall mean the inability to perform thefunctions and duties of one’s position for a period of six months or greater.

 

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8.6                                 Removal.  Managers may be removed for any reason at anyspecial meeting of Members by the affirmative vote of the majority of theMembers of the Class voting at thematter at hand which such Manager represents (as set forth in Section 3.9).  The notice calling such meeting shall givenotice of the intention to act upon such matter, and if the notice so provides,the vacancy caused by such removal may be filled at such meeting by vote of theMembers of the appropriate Class represented at such meeting.

 

8.7                                 Resignations.Any Manager may resign at any time.  Suchresignation shall be made in writing and shall take effect at the timespecified therein, or, if no time be specified then at the time of its receiptby the President or Secretary.  Theacceptance of a resignation shall not be necessary to make it effective, unlessexpressly so provided in the resignation.

 

8.8                                 Vacancies.  Any vacancy occurring in the Class A andClass C representatives to the Board of Managers (other than by reason of anincrease in the number of Managers) may be filled by appointment through theaffirmative vote of a majority of the remaining Managers, though less than aquorum of the Managers, provided that the person appointed to fill such vacancyis a Member of the Class in which the vacancy occurred.  A Manager appointed by the Board of Managersto fill a vacancy shall serve until the next annual meeting or special meetingof Members held for the purpose of electing Managers, at which time, theMembers of the Class in which the vacancy occurred shall elect a new Manager toserve for the remainder of the original unexpired term of the vacatedposition.  Any vacancy occurring in theClass B representative to the Board of Managers shall be filled by the electionof the Class B Members within 30 days following the occurrence of thevacancy.  Any Manager position to befilled by reason of an increase in the number of members on the Board ofManagers shall be filled by election at an annual meeting or at a specialmeeting of Members called for that purpose.

 

8.9                                 Place and Manner ofMeetings.  Meetings of theBoard of Managers, regular or special, may be held either within or without theState of South Dakota.  Managers mayparticipate in such meetings by means of conference telephone or similarcommunications equipment by means of which all persons participating in themeeting can hear each other, and participation in a meeting as provided hereinshall constitute presence in person at such meeting, except where a personparticipates in the meeting for the express purpose of objecting to thetransaction of any business on the ground that the meeting is not lawfullycalled or convened.

 

8.10                           FirstMeeting.  The first meeting ofthe newly elected Managers shall be held without further notice within 60 daysfollowing the annual meeting of the Members, and at the same place, unless byunanimous consent of the Board of Managers then elected and serving, such timeor place shall be changed.

 

8.11                           Regular Meeting of Boardof Managers.  A regularmeeting of the Board of Managers may be held at such time as shall be determinedfrom time to time by resolution of the Board of Managers.

 

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8.12                           Special Meeting of Boardof Managers.  The Secretaryshall call a special meeting of the Board of Managers whenever requested to doso by the President, by 30% of any of the Managers representing a specificClass, by the Chief Executive Officer, or by the Managing Member.  Such special meeting shall be held at thetime specified in the notice of the meeting. Neither the business to be transacted at, nor the purpose of, anyspecial meeting need be specified in a notice or waiver of notice.

 

8.13                           Notice of Board ofManagers’ Meetings.  Allspecial meetings of the Board of Managers shall be held upon two 2 days’written or oral notice stating the date, place and hour of meeting delivered toeach Manager either personally or by facsimile transmission, upon seven days’written notice by mail, or at the direction of the President, the Secretary,the Managing Member, Chief Executive Officer or Managers calling the meeting.

 

8.14                           Action WithoutMeeting.  Any action requiredby the Act to be taken at a meeting of the Board of Managers, or any actionwhich may be taken at a meeting of the Board of Managers, may be taken withouta meeting if a consent in writing, setting forth the action so taken, shall besigned by the same number of Managers which would have been necessary toapprove such action if a meeting had been held. Such consent shall have the same force and effect as if adopted at aduly called meeting of the Board of Managers.

 

8.15                           Quorum; Majority Vote.  At all meetings of the Board of Managers, 5persons of a 7-person Board or 6 persons of a 9-person Board of Managers, shallconstitute a quorum for the transaction of business.  The act of a majority of the Managers presentat any meeting at which a quorum is present shall be the act of the Board ofManagers unless the act of a greater number, or theact of Managers elected by certain Classes is required by this OperatingAgreement.  If a quorum shall not bepresent at any meeting of the Board of Managers, the Managers present thereatmay adjourn the meeting from time to time, without notice other thanannouncement at the meeting, until a quorum is present.

 

8.16                           Approval or Ratificationof Acts or Contracts. The Board of Managers in its discretion maysubmit any act or contract for approval or ratification at any annual meetingof the Members, or at any special meeting of the Members called for the purposeof considering any such act or contract, and any act or contract that shall beapproved or be ratified by the Members shall be as valid and as binding uponthe Company and upon all the Members as if it shall have been approved orratified by every Member of the Company.

 

8.17                           Interested Managers,Officers and Members.  Nocontract or transaction between the Company and one or more of its Managers,the Managing Member, officers, or Members, or any of their Affiliates, orbetween the Company and any other limited liability company, corporation,partnership, association, or other organization in which one or more of itsManagers, the Managing Member, officers or Members are managers or officers orhave a financial interest, shall be void or voidable solely for this reason orsolely because the Person is present at or participates in the meeting of theBoard of Managers or of a committee formed by the Board of Managers whichauthorizes the contract or transaction. Subject to 8.1(d), only disinterested Managers may vote on anyparticular matter or issue.

 

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8.18                           Expenses of the Company.

 

(a)                                  *General and Administrative Expenses. *All expenses of the Company shallbe billed to and paid by the Company. The Managers may be reimbursed for the actual cost of goods and servicesused for or by the Company.  The Managersmay be reimbursed for the administrative services necessary to the prudentoperation of the Company; provided, the reimbursement shall be the lower of theManager’s actual cost or the amount the Company would be required to paypersons other than Affiliates for comparable administrative services in thesame geographic location; and provided, further, that such costs are reasonablyallocated to the Company on the basis of assets, revenues, time records orother method conforming with generally accepted accounting principles.  No reimbursement shall be permitted forservices for which the Manager is entitled to compensation by way of a separatefee.

 

(b)                                 *Organizational and Offering Expenses. *Organization expenses incurred inconnection with the formation of the Company and all expenses in connectionwith the Offering will be charged to and borne by the Company.  To the extent any such organization and offeringexpenses have been paid by the Board of Managers, the Board of Managers will bereimbursed in a like amount by the Company. Notwithstanding any other provision hereof, the Company will pay andbear directly all legal, accounting and auditing expenses of the Company,taxes, if any, payable by the Company, interest costs of the Company, custodialfees, and extraordinary expenses, including for litigation.

 

8.19                           Procedure.The Board of Managers shall keep regular minutes of its proceedings.  The minutes shall be placed in the minutebook of the Company.

 

8.20                           Compensation.  The initial members of the Board of Managersshall receive no per diem or other compensation for attending meetings. A perdiem fee or other compensation for attending meetings and serving as a Managermay be set by the Board of Managers following completion of the Offering.Managers who are Members of the Company shall receive the same membershipbenefits that all other Members receive. Managers may be reimbursed for reasonable expenses incurred in carryingout their duties as Managers.

 

**ARTICLE 9**

**MANAGINGMEMBER**

 

9.1                                 ManagingMember.  The Board of Managersshall have the authority to appoint a Managing Member who will act for, and onbehalf of, the Company.  The initialManaging Member shall be Broin Management, LLC. The Managing Member may be terminated only for cause, pursuant to theprocedure provided for in Section 8.1(b)(v), andwhich shall be defined as:  (a) illegalconduct, (b) unethical conduct, (c) substandard performance as compared toother ethanol plants in the region not managed by Broin Management, LLC withsuch substandard performance lasting for a period of two consecutive years, or(d) the sale, change of control, or dissolution of Broin Management, LLC.

 

9.2                                 Rights andObligations of the Managing Member.  The Managing Member shall have the day-to-daymanagement control of the business of the Company and shall have theresponsibility and authority, at the Company’s expense, to take all actionsnecessary or

 

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appropriateto accomplish the purposes of the Company including, without limitation, thepower and authority:

 

(a)                                  Toimplement the decisions of the Board of Managers made in accordance with Section 8.1of this Operating Agreement.

 

(b)                                 Tomanage, supervise and conduct the day-to-day affairs of the Company and theethanol plant.

 

(c)                                  Tohire and dismiss such employees and independent contractors as the ManagingMember shall determine to be reasonably necessary to the operation of theethanol plant, including, if the Managing Member so determines, any presentAffiliate of the Managing Member or any present employee of any Affiliate ofthe Managing Member Affiliate.

 

(d)                                 Topurchase or otherwise obtain the right to use equipment, supplies, hardware andsoftware technology associated with the ethanol plant, except that newpurchases in amounts exceeding $150,000.00 must be approved in advance by theBoard of Managers, which approval shall not be unreasonably withheld.  As used in the preceding sentence, “new purchases”does not refer to equipment, supplies, hardware and software technologyassociated with the initial construction of the ethanol plant or associatedwith future expansions of the ethanol plant approved by the Board of Managers,nor does it refer to repairs to or replacements of the equipment, supplies,hardware and software technology associated with the ethanol plant or theexpanded ethanol plant.

 

(e)                                  Tomaintain, at the expense of the Company, adequate records and accounts of alloperations and expenditures and furnish the Members with annual statements ofaccounts as of the end of each calendar year, together with all necessary taxreporting information.

 

(f)                                    Toenter into agreements with Managing Member Affiliates for the marketing of theCompany’s products and for the design and construction of the ethanol plant, inaccordance with the requirements of this Agreement and with the approval of theBoard of Managers; provided, however, that any such agreement or contract shallbe on terms as favorable to the Company as could be obtained from any thirdparty for comparable services.

 

(g)                                 Toexecute all instruments or contracts of any kind or character which theManaging Member in its discretion shall deem necessary or appropriate to carryout its duties and responsibilities.

 

(h)                                 Toestablish bank accounts, collect customer payments,and other cash receipts, invest excess cash, disburse cash and make otherpayments.

 

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(i)                                     Tocarry on any other activities necessary to, in connection with, or incidentalto any of the foregoing or the day-to-day operations of the Company or theethanol plant.

 

(j)                                     Toappoint and remove a Chief Executive Officer and a Chief Financial Officer, whomay be the same individual, to fulfill the day-to-dayfunctions of said positions following completion of the Offering.

 

(k)                                  Tocause the Company to make or revoke elections provided for under the Code,including specifically the elections referred to in Section 754 thereofand Section 4.2 hereof.

 

(l)                                     Topurchase, at the expense of the Company, liability and other insurancecontracts.

 

9.3                                 Management Fee andTechnical Manager Fee; Trimester/Annual Incentive Bonus; Expenses.

 

(a)                                  *Management Fee and Technical Manager Fee*.  Commencing no more than nine months prior tothe operation of the ethanol plant, the Company shall pay the Managing Member amanagement fee of $250,000.00 per year (the “Management Fee”), payable in equalmonthly installments due on the first day of each month.  The Management Fee shall be adjusted annuallyfor inflation on March 1st of each year based on the ConsumerPrice Index, All Urban Consumers (CPI-U) U.S. City Average (All Items Category)with a standard reference base period of 1982-84 = 100, or as subsequentlyupdated (the “CPI”).  The Management Feeshall be calculated for each subsequent year by first determining thepercentage increase in the CPI from the previous year.  The percentage increase in the CPI for theprevious year shall then be multiplied by the Management Fee in effect for theprior year and added to the Management Fee in effect during the prioryear.  Notwithstanding the above, theannual increase in the Management Fee cannot be greater than 10% of theprevious Management Fee.

 

The Managing Member shallhave the right to hire a Technical Manager who will be an employee of theManaging Member to oversee the technology operations for the Company.  The Technical Manager’s salary, benefits andother expenses shall be paid by the Managing Member and fully reimbursed by theCompany.  The initial monthly fee will bebased upon the Technical Manager’s base salary times a factor of 140% to coverthe employee salary, related employer payroll taxes, employee benefits, andrelated employer administrative costs. Additional fees will include bonus payments to the Technical Managertimes a factor of 140%, interviewing and related travel costs, hiring andemployee placement related costs (including reimbursement for any employmentagency fees), moving expenses, and/or temporary living expenses at cost,business travel and related expenses at cost, if not paid directly by the plantand other related costs not paid directly by the plant.

 

The reimbursement for theTechnical Manager’s fees shall be paid in addition to the management feesdefined in Section 9.3(a) and addition to the Incentive Bonuses defined inSection 9.3(b).

 

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(b)                                 *Trimester/Annual Incentive Bonus.*  As an incentive to the Managing Member toachieve high profitability, to promote collection of those revenues billed andto encourage quality and efficiency of operation, the Company shall pay to theManaging Member, in addition to the Management Fee, 4% of the Trimester netincome of the ethanol plant before income taxes in each of the first twoTrimesters of the fiscal year (the “Incentive Bonus”).  Such payments are due and payable within 45days of the end of each fiscal Trimester. In the final Trimester of each fiscal year, a final payment will be madefollowing the annual audit and within 105 days of the end of the fiscalyear.  This final payment, when added tothe Trimester Incentive Bonus payments, will adjust the annual Incentive Bonusto equal 4% of the audited annual net income of the ethanol plant before incometaxes and before deduction of any Incentive Bonus payments for the fiscalyear.  However, if there is anoverpayment for the first two Trimesters, the Managing Member must repay theoverage.

 

(c)                                  *Reimbursement for Operational Costs*.  Other than as provided in Section 9.3(d),all operational costs incurred by the ethanol plant or the Managing Member inpursuing the business of the ethanol plant shall be paid by the Company andcharacterized as operational costs.  Tothe extent funds are expended by the Managing Member which are to be reimbursedto it, the Company shall reimburse the Managing Member within 15 days ofreceipt of an expense report from the Managing Member.  All funds for which reimbursement arerequested shall have been reasonable in amount and incurred in furtherance ofthe Company’s business.

 

(d)                                 *Non-Reimbursable Expenses*.  The Managing Member shall provide thefollowing services to the ethanol plant without reimbursement for the expensesdirectly incurred in connection therewith, other than travel expenses, or ifnoted to the contrary:

 

(i)            the full time services of a qualified ethanol plant generalmanager, whose salary and benefits shall be paid by the Managing Member withoutreimbursement;

 

(ii)           ongoing process consulting by Broin and Associates, Inc., aManaging Member Affiliate;

 

(iii)          ongoing engineering services by Broin and Associates, Inc.,with the exception of equipment changes or expansions;

 

(iv)          ongoing Distributive Control System assistance by Broin andAssociates, Inc.;

 

(v)           ongoing periodic Distributive Control System/operationsmonitoring via modem by Broin and Associates, Inc.;

 

(vi)          ongoing new technology updates by Broin and Associates,Inc.;

 

(vii)         ongoing operations assistance by Broin and Associates, Inc.;

 

(viii)        ongoing microbiology assistance by Broin and Associates,Inc.; and

 

(ix)           access to any group pricing for inputs to the productionprocess that are available.

 

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9.4                                 DisputeResolution.  In the event of adispute between the Company and the Managing Member relating to the terms of orperformance under this Operating Agreement, either party may, by written noticeto the other party, call for mediation of the issue before a mediator to beagreed upon by the parties.  In the eventof a dispute between the parties arising out of or relating to the Agreementthat is not resolved by mediation, without first attempting to resolve thedispute by mediation, either party may by written notice to the other party,call for arbitration of the issue before a single arbitrator agreed upon by theparties.  In the event a singlearbitrator cannot be agreed upon, each party shall appoint an arbitrator from alist provided by the American Arbitration Association (but not a principal of aparty) and the two arbitrators thus selected by the parties shall select athird arbitrator.  The arbitrators shallmeet as expeditiously as possible to resolve the dispute, and a majority decisionof the arbitrators shall be controlling. While each party is free to select an arbitrator of its own choosingfrom the list provided by the American Arbitration Association, either party bywritten notice to the other may require that all arbitrators chosen havesufficient expertise in the subject matter of the arbitration that they wouldqualify as “expert witnesses” in a judicial proceeding.  The arbitration proceeding shall be held inMinnehaha County, South Dakota, or some other location mutually acceptable tothe parties.  The arbitrators shall issuea written opinion setting forth their findings of fact, conclusions of law anddecision.  The arbitrators’ decision maybe reduced to judgment in a court of law. The arbitrators so chosen shall conduct the arbitration in accordancewith the Rules of the American Arbitration Association as applicable in theState of South Dakota.  The arbitratorsshall be governed, in their determinations hereunder, by the intention of theparties as evidenced by the terms of this Operating Agreement.  The Board of Managers and the Managing Membereach understand that they will not be able to bring a lawsuit concerning anydispute that may arise that is covered by this arbitration provision, unless itinvolves a question of constitutional law or civil rights.  Instead, each party agrees to submit disputesto binding impartial arbitration as provided herein and to be bound by thearbitrator’s decision.

 

9.5                                 BonusPayments.  Upon completion ofthe Offering, the Company shall pay to the Managing Member a payment of$200,000.00 for preparation of the business plan and other items needed toidentify the feasibility of the plant.

 

9.6                                 GuaranteedPayment.  The above ManagementFees and Technical Manager Fees in Section 9.3(a), the Incentive Bonus in Section 9.3(b)and the Bonus Payment in Section 9.5 will be treated as a “guaranteedpayment” to the Managing Member under Section 707(c) of the Code.

 

9.7                                 Additional ServicesAvailable Under Separate Contracts and Fee Structures.  The Company shall have access to commodityhedging services, finished product pricing services and finished productmarketing service to assist in minimizing raw materials expenses and maximizingfinished product sales.  These servicesare available through Managing Member Affiliates or independent contractorsunder separate contracts and fee structures, which shall be approved by theBoard of Managers as set forth herein.

 

9.8                                 ProprietaryInformation.  The ManagingMember and its Affiliates have furnished, or will furnish, to the Companyinformation, including but not limited to, specifications, photocopies,magnetic tapes, drawings, sketches, models, samples, tools, technicalinformation, data, know-how, customer and market information, financialreports, precontractual negotiations, engineering studies, consultants’studies, options for site purchases, and relationships established

 

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withexperts, consultants and governmental agencies (all hereinafter designated as “ProprietaryInformation”) for the purpose of enabling the Company to construct and operatean ethanol plant in accordance with Section 2.4.  Subject to the Company’s License Agreementwith the Managing Member and/or its Affiliates and its right to use theProprietary Information solely for Company purposes, the ProprietaryInformation is and shall remain the Managing Member’s and/or its Affiliates’property to use as it sees fit in its sole discretion.  Information that is in the public domain isnot subject to this provision.

 

9.9                                 Covenant Not toHire General Manager and/or Technical Manager.  In the event of the termination of theManaging Member under any circumstances, the Board of Managers, Company, andany replacement managing member or outside management firm shall not hire theGeneral Manager and/or Technical Manager who were provided by the ManagingMember without the written consent of the Managing Member for three (3) yearssubsequent to the date of termination. This covenant shall be expressly included as a term of any agreementretaining a replacement Managing Member or an outside managing firm.

 

# **ARTICLE 10**

# **INDEMNIFICATION ANDLIABILITY TO COMPANY**

# ** **

10.1                           Indemnification.The Company shall indemnify an officer, Member, Manager, the Managing Member,former Member, a former officer, a former Manager or a former Managing Memberof the Company against expenses actually and reasonably incurred by said personin connection with the defense of an action, suit or proceeding, civil orcriminal, in which said person is made a party by reason of being or havingbeen such officer, Member, Manager or Managing Member, except in relation tomatters as to which such Person may be adjudged in the action, suit orproceeding to be liable to the Company or its Members under Section 10.2.

 

10.2                           Liability to Company.  To the full extent permitted by South Dakotalaw, no officer, Member, Manager or the Managing Member shall be liable to theCompany or its Members for monetary damages for an act or omission in suchMember’s or Manager’s capacity as an officer, Member, Manager or the ManagingMember of the Company, except that this Article does not eliminate orlimit the liability of an officer Member, Manager or the Managing Member to theextent the officer, Member, Manager or the Managing Member is found liable for:

 

(a)                                  a breach of the duty of loyalty to the Company or itsMembers;

 

(b)                                 anact or omission not in good faith that constitutes a breach of duty to theCompany or its Members or an act or omission that involves gross negligence,intentional misconduct or a known violation of the law;

 

(c)                                  atransaction from which the officer, Member, Manager or the Managing Memberreceived an improper benefit whether or not the benefit resulted from an actiontaken within the scope of the officer’s, Member’s, Manager’s or the ManagingMember’s office; or

 

(d)                                 an act or omission for which the liability of an officer,Member, Manager or Managing Member is expressly provided for by applicablestatute.

 

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10.3                           Prospective Amendment ofLiability and Indemnity. Any repeal or amendment of this Article by the Board of Managers ofthe Company shall be prospective only and shall not adversely affect any rightof an officer, Member, Manager or Managing Member to indemnification or anylimitation on the liability of an officer, Member, Manager or the ManagingMember of the Company existing at the time of such repeal or amendment.

 

10.4                           Non-Exclusive Liabilityand Indemnity. The provisions of this Article 10 shallnot be deemed exclusive of any other rights or limitations of liability orindemnity to which an officer, Member, Manager or the Managing Member may beentitled under any other provision of this Operating Agreement, or pursuant toany contract or agreement, the Act or otherwise.

 

**ARTICLE 11**

**CAPITALUNIT CERTIFICATES**

 

11.1                           Certificates For Membership. Certificates representing Capital Units of the Company shall be in suchform as shall be determined by the Board of Managers. Such certificates shallbe signed by the President or the Vice President and by the Secretary orassistant Secretary.  All certificatesfor Membership shall be consecutively numbered or otherwise identified.  The name and address of the person to whomthe certificate has been issued shall be entered on the Capital Units transferbooks of the Company.  All certificatessurrendered to the Company for transfer shall be canceled and no newcertificates shall be issued until the former certificate shall have been surrenderedor canceled.

 

11.2                           Transfer of Certificates.  Transfer of certificates of the Company shallbe made pursuant to this Operating Agreement only on the transfer books of theCompany by the holder of record thereof or by the holder’s legalrepresentative, who shall furnish proper evidence of authority to transfer, orby the Member’s attorney thereunto authorized by the power of attorney dulyexecuted and filed with the Secretary of the Company, and on surrender forcancellation of the certificate.  ThePerson in whose name the Certificate stands on the books of the Company shallbe deemed by the Company to be the owner thereof for all purposes.

 

11.3                           Loss or Destruction ofCertificates. In case of loss or destruction of any certificate,another certificate may be issued in its place upon proof of such loss ordestruction, and upon giving a satisfactory bond of indemnity to the Companyand to the transfer agent and registrar, if any, of such certificate, in suchsum as the Board of Managers may provide.

 

11.4                           Certificate Regulations.  The Board of Managers shall have the powerand authority to make such further rules and regulations not inconsistent withthe statutes of the State of South Dakota as they may deem expedient concerningthe issue, transfer, conversion and registration of certificates of theCompany, including the appointment or designation of one or more transferagents and one or more registrars.  TheCompany may act as its own transfer agent and registrar.

 

11.5                           Transfer of Membership.  Membership shall not be transferred except withthe approval and consent of the Board of Managers and in accordance with theCapital Units Transfer System.

 

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11.6                           Legends.  The Board of Mangers may provide for theplacement of legends on Capital Unit certificates to indicate restrictions ontransfer, corn delivery obligations, or other restrictions or obligationscontained herein.

 

**ARTICLE 12**

**BANKRUPTCYOF A MEMBER**

 

Subject to this Article 12,if any Member becomes a Bankrupt Member, the Bankrupt Member’s Capital Unitsshall be offered for sale through the Capital Units Transfer System, and ifsuch a sale is not completed within 240 days after the Member becomes aBankrupt Member, the Company shall have the option, exercisable by notice fromthe Company to the Bankrupt Member (or its representative) at any time afterexpiration of the 240 day period, to redeem and cancel the Bankrupt Member’sCapital Units at a purchase price equal to 10% of the original issue price orthe lowest amount which may be approved by the Bankruptcy Court.  The payment to be made to the Bankrupt Memberor its representative pursuant to this Article 12 is in completeliquidation and satisfaction of all the rights and interest of the BankruptMember and its representative (and of all Persons claiming by, through, orunder the Bankrupt Member and its representative) and in respect of theCompany, including, without limitation, any Capital Units, any rights inspecific Company property, and any rights against the Company and (insofar asthe affairs of the Company are concerned) against the Members, and constitutesa compromise to which all Members have agreed.

 

**ARTICLE 13**

**DISSOLUTION**

 

13.1**                          **Dissolutionand Winding-Up.  The Companyshall dissolve and its affairs shall be wound up on the first to occur of thefollowing:

 

(a)                                  the consent of all Classes with at least a majority vote ofthe Members of each Class (as set forth in Section 3.9);

 

(b)                                 anevent that makes it unlawful for all or substantially all of the business ofthe Company to be continued, but any cure of illegality within 90 days afternotice to the Company of the event is effective retroactively to the date ofthe event for purposes of this section;

 

(c)                                  on application by a Member or a dissociated Member, uponentry of a judicial decree that:

 

(i)                                     the economic purpose of the Company is likely to beunreasonably frustrated;

 

(ii)                                  it is not otherwise reasonably practicable to carry on theCompany’s business in conformity with the Articles and this OperatingAgreement; or

 

(iii)                               the Managers or Members in control of the Company haveacted, are acting, or will act in a manner that is illegal, oppressive,fraudulent, or unfairly prejudicial to the petitioning Member.

 

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13.2**                          **Continuation.  Except upon application and receipt of ajudicial decree as provided in Section 13.1(c), no Member may dissociatefrom the Company.  The death, expulsion,bankruptcy or dissolution of a Member, or the occurrence of any other eventthat terminates the continued membership of a Member in the Company, shall notcause a dissolution of the Company.

 

**ARTICLE 14**

**LIQUIDATIONAND TERMINATION**

 

14.1                           Liquidationand Termination.  Ondissolution of the Company, the Board of Managers shall proceed diligently to windup the affairs of the Company and make any final distribution as provided inthis Operating Agreement and the Act. The costs of liquidation shall be borne as a Company expense.  Liquidation proceeds, if any, shall first beused to pay the Company’s obligations and liabilities.

 

14.2                           Application andDistribution of Proceeds on Liquidation.  Upon an event of liquidation, the business ofthe Company shall be wound up, the Board of Managers shall take full account ofthe Company’s assets and liabilities, and all assets shall be liquidated aspromptly as is consistent with obtaining the fair value thereof.  If any assets are not sold, gain or lossshall be allocated to the Members in accordance with Article 6 as if suchassets had been sold at their fair market value at the time of theliquidation.  If any assets aredistributed to a Member, rather than sold, the distribution shall be treated asa distribution equal to the fair market value of the asset at the time of theliquidation.  The assets of the Companyshall be applied and distributed in the following order of priority:

 

(a)                                  to the payment of all debts and liabilities of the Company,including all fees due the Members and Affiliates, and including any loans oradvances that may have been made by the Members to the Company, in the order ofpriority as provided by law;

 

(b)                                 to the establishment of any reserves deemed necessary by theBoard of Managers or the Person winding up the affairs of the Company for anycontingent liabilities or obligations of the Company;

 

(c)                                  tothe Members ratably in proportion to the credit balances in their respectivecapital accounts in an amount equal to the aggregate credit balances in thecapital accounts after and including all allocations to the Members under Article 6,including the allocation of any income, gain or loss from the sale, exchange orother disposition (including a deemed sale pursuant to this Section 14.2)of the Company’s assets.

 

14.3                           Deficit Capital AccountBalances.  Notwithstandinganything to the contrary contained in this Operating Agreement, andnotwithstanding any custom or rule of law to the contrary, to the extent thatthe deficit, if any, in the capital account of any Member results from or isattributable to deductions and losses of the Company (including non-cash itemssuch as depreciation), or distributions of money pursuant to this OperatingAgreement to all Members in proportion to their respective OwnershipPercentages, upon dissolution of the Company such deficit shall not be an assetof the Company and such Members shall not be obligated to contribute suchamount to the Company to bring the balance of such Member’s capital account tozero.

 

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14.4                           Articles of Dissolution.  On completion of the distribution of Companyassets as provided herein, the Company is terminated, and the Board of Managersshall file Articles of Dissolution with the Secretary of State of South Dakotaand take such other actions as may be necessary to terminate the Company.

 

**ARTICLE 15**

**GENERALPROVISIONS**

 

15.1                           Booksand Records.  The Companyshall maintain those books and records as provided by the Act and as it maydeem necessary or desirable.  All booksand records provided for by the Act shall be open to inspection of the Membersfrom time to time and to the extent expressly provided by the Act, and nototherwise.

 

15.2                           Headings.  The headings used in this Operating Agreementhave been inserted for convenience only and do not constitute matter to beconstrued in interpretation of this Operating Agreement.

 

15.3                           Construction andSeverability.  Whenever thecontext so requires, the gender of all words used in this Operating Agreementincludes the masculine, feminine, and neuter, and the singular shall includethe plural, and conversely.  Allreferences to Articles and Sections refer to articles and sections of thisOperating Agreement, and all references to Exhibits, if any, are to Exhibitsattached hereto, if any, each of which is made a part hereof for allpurposes.  If any portion of thisOperating Agreement shall be invalid or inoperative, then, so far as isreasonable and possible:

 

(a)                                  Theremainder of this Operating Agreement shall be considered valid and operative;and

 

(b)                                 Effectshall be given to the intent manifested by the portion held invalid orinoperative.

 

15.4                           Effect of Waiver orConsent.  A waiver or consent,express or implied, to or of any breach or default by any Person in theperformance by that Person of its obligations with respect to the Company is nota consent or waiver to or of any other breach or default in the performance bythat Person of the same or any other obligations of that Person with respect tothe Company.  Failure on the part of aPerson to complain of any act of any Person or to declare any Person in defaultwith respect to the Company, irrespective of how long that failure continues,does not constitute a waiver by that Person of its rights with respect to thatdefault until the applicable statute-of-limitations period has run.

 

15.5                           BindingEffect.  Subject to therestrictions on Dispositions set forth in this Operating Agreement, thisOperating Agreement is binding on and inures to the benefit of the Members andtheir respective heirs, legal representatives, successors, and assigns.

 

15.6                           GoverningLaw/Jurisdiction.  THISAGREEMENT HAS BEEN EXECUTED IN SOUTH DAKOTA AND SHALL BE GOVERNED BY AND SHALLBE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF SOUTH DAKOTA.  THE MEMBERS

 

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CONSENT TO THEJURISDICTION OF THE COURTS OF THE STATE OF SOUTH DAKOTA AND AGREE THAT ANYACTION ARISING OUT OF OR TO ENFORCE THIS AGREEMENT MUST BE BROUGHT ANDMAINTAINED IN SOUTH DAKOTA.

 

15.7                           Further Assurances.  In connection with this Operating Agreementand the transactions contemplated hereby, each Member shall execute and deliverany additional documents and instruments and perform any additional acts thatmay be necessary or appropriate to effectuate and perform the provisions ofthis Operating Agreement and those transactions.

 

15.8                           Noticeto Members of Provisions of This Agreement.  By becoming a Member, each Memberacknowledges that it has actual notice of (a) all of the provisions of thisOperating Agreement, including, without limitation, the restrictions on theDisposition of Capital Units set forth in Article 4, and (b) all of theprovisions of the Articles.  Each Memberagrees that this Operating Agreement constitutes adequate notice of all suchprovisions, and each Member waives any requirement that any further noticethereunder be given.

 

15.9                           Counterparts.  This Operating Agreement may be executed inany number of counterparts with the same effect as if all signing parties hadsigned the same document.  Allcounterparts shall be construed together and constitute the same instrument.

 

15.10                     Conflicting Provisions.  To the extent that one or more provisions ofthis Operating Agreement appear to be in conflict with one another, then theBoard of Managers shall have the right to choose which of the conflictingprovisions are to be enforced.  Widelatitude is given to the Board of Managers in interpreting the provisions ofthis Operating Agreement to accomplish the purposes and objectives of theCompany, and the Board of Managers may apply this Operating Agreement in such amanner as to be in the best interest of the Company, in its sole discretion,even if such interpretation or choice of conflicting provisions to enforce isdetrimental to one or more Members.

 

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