Document:

Exhibit 10.1

 

PROMISSORY
NOTE

(Amended and
Restated Note)

(Variable
Rate, Revolving Loan)

 

	
  Not to
  Exceed $5,000,000.00

  	
   

  	
  Sioux Falls, South Dakota

  
	
   

  	
   

  	
  March 30, 2005

  

 

FOR VALUE
RECEIVED, NORTHERN LIGHTS ETHANOL, LLC, a South Dakota Limited Liability
Company (“Borrower”), hereby promises to pay to the order of U.S. BANK NATIONAL
ASSOCIATION, a national banking association (“Lender”, which term shall include
any future holder hereof), at 141 N. Main Avenue, Sioux Falls, South Dakota, or
at such other place as Lender may from time-to-time designate in writing, in
lawful money of the United States of America, the principal sum of Five Million &
00/100 Dollars ($5,000,000.00) or so much thereof as may be advanced hereunder,
including all amounts due or incurred by Borrower in accordance with the terms
of the Loan Agreement between Borrower and Lender dated as of July 11,
2001, or due or incurred by Borrower under the terms of any other Loan Document
as defined in such Loan Agreement.

 

AMENDMENT
OF NOTE. This Promissory Note amends and restates that
Promissory Note dated January 1, 2003, in the original principal amount of
$5,000,000.00 which Borrower delivered to Lender pursuant to the Loan Agreement
between Borrower and Lender dated as of January 1, 2003.

 

CALCULATION
AND PAYMENT OF INTEREST. The unpaid principal balance
will bear interest at an annual rate equal to the prime rate announced by
Lender from time-to-time (the “Prime Rate”). 
The interest rate shall be adjusted each time that the Prime Rate
changes. Lender will strive to inform Borrower of each change in the Prime
Rate, but each adjustment in the Prime Rate is effective whether or not Lender
informs Borrower of such change. Payments of all interest accrued hereunder
shall be made June 30, September 30, December 31 and March 31
of each year unless such day is not a Business Day as defined in the Loan
Agreement (in which case the Business Day which immediately follows such thy
shall apply) in which any amount is outstanding under the Note (the “Quarterly
Payment Date”).  The first Quarterly
Payment Date shall be June 30, 2005, and an interest only payment shall be
due that day and each Quarterly Payment Date thereafter until March 31,
2012 (the “Maturity Date”). The Prime Rate applicable on the date of this Note
shall be five and seventy-five hundredths percent (5.75%).  Interest shall be calculated on a 365/360
simple basis; that is, by applying the ratio of the annual interest rate over a
year of 360 days, multiplied by the outstanding principal balance, multiplied
by the actual number of days the principal balance is outstanding.

 

REVOLVING
FEATURE. Borrower may from time-to-time prior to the
Maturity Date draw, on a revolving basis, the difference between the
outstanding principal amount hereunder and Five Million Dollars ($5,000,000.00)
(the “Revolving Loan Maximum”). Lender’s obligation to make any advance under
this Promissory Note is conditioned upon (i) all representations and
warranties made by Borrower in the Loan Agreement remaining true,

 

 

accurate and
complete, (ii) Borrower’s continued compliance with all other terms and
conditions of the Loan Agreement, (iii) no Event of Default having
occurred under this Promissory Note, or any other Promissory Note between the
parties hereto, or under any other Loan Document, (iv) Borrower
demonstrating to Lender’s satisfaction that such funds shall be used in
operations of Borrower’s ethanol production facility and to make distributions
to Borrower’s members, and (v) Borrower delivering to Lender such mortgage(s),
amendment(s) to the Mortgage and/or other documents, and taking such other
actions as Lender shall deem appropriate to secure this Note, and Lender
obtaining such endorsements, riders, modifications and/or updates to the Title
Policy as Lender may deem appropriate in connection with such security. Subject
to these conditions, Lender shall advance to Borrower hereunder, such amounts
as Borrower may from time-to-time request, in multiples of not less than One
Hundred Thousand Dollars ($100,000.00), not to exceed the Revolving Loan
Maximum.  Such requests for advances
hereunder shall be funded the next Business Day if received by Lender not later
than 11:00 a.m. of any Business Day, subject to Lender requiring
additional time to confirm Borrower has satisfied the foregoing conditions at
the time each such advance is requested and made.

 

UNUSED
COMMITMENT FEE. Borrower shall pay Lender in arrears
each Quarterly Payment Date an unused commitment fee equal to three-eighths of
one percent (3/8%) multiplied by the difference, if any, of the Revolving Loan
Maximum minus the average daily outstanding principal balance due hereunder for
such prior quarter.

 

PAYMENT
IN FULL AT MATURITY. The total unpaid principal amount
and all interest thereon and any other amount due hereunder shall be payable on
the Maturity Date. THIS NOTE REQUIRES A BALLOON PAYMENT.

 

PAYMENTS.
All payments under this Note shall be made in immediately available funds. In
the event there is no outstanding Event of Default, all payments made hereunder
shall be credited to amounts due hereunder (including principal, accrued
interest, and late payment charges) in such order as U.S. Bank may elect.

 

PREPAYMENTS.
Borrower may prepay this Note in whole or in part at any time, and if in part
from time-to-time, during the entire term of this Note, without penalty or
premium.  No prepayment shall reduce the
amount of any scheduled payment.

 

COLLATERAL;
COORDINATION WITH LOAN AGREEMENT.  This
Note is within the definition of the “Note” in the Loan Agreement, and is
subject to the additional terms and conditions set forth in the Loan Agreement
and the Loan Documents referred to therein. 
This Note is secured by a Mortgage, Security Agreement, Assignment of
Leases and Rents and Fixture Financing Statement dated as of July 11,
2001, on the Project, as well as other collateral described in the Loan
Agreement and the other Loan Documents. 
This Promissory Note shall further be secured by a collateral real
estate mortgage containing terms acceptable to Lender and which shall provide
Lender a first position mortgage on the Project, subject only to the Mortgage

 

2

 

and the
Permitted Encumbrances.  Capitalized
terms not defined herein shall have the meaning given such terms in the Loan
Agreement.

 

LATE
PAYMENT; GRACE PERIOD.   If a payment due hereunder is not made
within ten (10) days after the date when due, Borrower shall pay to Lender
a late payment charge of Five Hundred Dollars ($500.00) to compensate Lender
for a portion of the cost related to handling the overdue payment. After any
Event of Default, as defined in the Loan Agreement, then the entire principal
sum evidenced by this Note, together with all accrued and unpaid interest,
shall, at the option of the holder hereof, bear interest at the rate per annum
(the “Default Rate”) equal to 3% in excess of the rate of interest per annum
which would otherwise be payable hereunder, and become immediately due and
payable without further notice (except as provided in the Loan Agreement),
demand or presentment for payment, and without any relief whatever from any
valuation or appraisement laws.

 

PAYMENT
OF OTHER ITEMS. If Borrower defaults under any of the
terms of this Note, Borrower shall pay all reasonable costs and expenses,
including without limitation attorneys’ fees (including any service tax
thereon) and costs, incurred by Lender in enforcing this Note immediately upon
Lender’s demand, whether or not any action or proceeding is commenced by
Lender.  Without limiting the generality
of the preceding sentence, such costs and expenses shall include all attorneys’
fees and costs incurred by Lender in connection with any federal or state
bankruptcy, insolvency, reorganization, or other similar proceeding by or
against Borrower or any surety, guarantor or endorser of this Note which in any
way affects Lender’s exercise of its rights and remedies under this Note or
under the Loan Agreement or any other Loan Document. Maker hereby stipulates
that Lender is a “regulated lender” within the meaning of SDCL 54-3-13 and
other applicable South Dakota statutes.

 

NO
OFFSET. No indebtedness evidenced by this Note shall
be offset by all or part of any claim, cause of action, or cross- claim of any
kind, whether liquidated or unliquidated, which Borrower now has or may
hereafter acquire or allege to have acquired against Lender.  To the fullest extent permitted by law,
Borrower waives the benefits of any applicable law, regulation, or procedure
which provides, in substance, that where cross demands for money exist between
parties at any point in time when neither demand is barred by the applicable
statute of limitations, and an action is thereafter commenced by one such
party, the other party may assert the defense of payment in that the two
demands are compensated so far as they equal each other, notwithstanding that
an independent action asserting the claim would at the time of filing the
response be barred by the applicable statute of limitations.

 

CERTAIN
BORROWER WAIVERS. Borrower waives presentment, protest
and demand, notice of protest, demand and of dishonor and nonpayment of this
Note and any lack of diligence or delays in collection or enforcement of this
Note. Borrower agrees that this Note, or any payment hereunder, may be extended
from time-to-time, and Borrower consents to the release of any party liable for
the obligation evidenced by this Note, the release of any of the

 

3

 

security for
this Note, the acceptance of any other security therefore, or any other
indulgence or forbearance whatsoever, all without notice to any party and
without affecting the liability of Borrower.

 

APPLICABLE
LAW.   This note
shall be construed under and governed by the laws of the State of South Dakota,
without giving effect to conflict of laws or principles thereof, but giving
effect to federal laws of the United States applicable to national banks.
Whenever possible, each provision of this note and any other statement,
instrument or transaction contemplated hereby or relating hereto, shall be
interpreted in such manner as to be effective and valid under such applicable
law, but, if any provision of this note or any other statement, instrument or
transaction contemplated hereby or relating hereto shall be held to be
prohibited or invalid under such applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without invalidating
the remainder of such provision or the remaining provisions of this note or any
other statement, instrument or transaction contemplated hereby or relating
hereto.

 

NO
WAIVER; CERTAIN MISCELLANEOUS PROVISIONS. 
Failure to exercise any option provided herein
shall not constitute a waiver of the right to exercise the same in the event of
any subsequent default. No modification or waiver by Lender of any of the terms
of this Note shall be valid or binding on Lender unless such modification or
waiver is in writing and signed by Lender. 
Without limiting the generality of the preceding sentence, no delay,
omission or forbearance by Lender in exercising or enforcing any of its rights
and remedies under this Note shall constitute a waiver of such rights or
remedies. Lender’s rights and remedies under this Note are cumulative with and
in addition to all other legal and equitable rights and remedies which Lender
may have in connection with the Loan. 
The headings of paragraphs of this Note are for convenience of the
parties only and shall not be used in interpreting this Note. If this Note is
lost, stolen, or destroyed, upon Borrower’s receipt of a reasonably
satisfactory indemnification agreement executed by Lender, or if this Note is
mutilated, upon Lender’s surrender of the mutilated Note to Borrower, Borrower
shall execute and deliver to Lender a new promissory note which is identical in
form and content to this Note to replace the lost, stolen, destroyed or
mutilated Note.  Time is of the essence
in the performance of each provision of this Note by Borrower.

 

AT THE OPTION
OF LENDER, THIS NOTE MAY BE ENFORCED IN ANY FEDERAL COURT OR SOUTH DAKOTA
STATE COURT SITTING IN SIOUX FALLS, SOUTH DAKOTA; AND BORROWER CONSENTS TO THE
JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN
SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT BORROWER COMMENCES ANY ACTION IN
ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING
DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS NOTE, LENDER AT
ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE

 

4

 

TRANSFERRED TO ONE OF THE JURISDICTIONS AND
VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER
APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.

 

BORROWER AND
LENDER EACH IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR ANY OF THE LOAN DOCUMENTS
(AS DEFINED IN THE LOAN AGREEMENT) OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.

 

IN WITNESS
WHEREOF, Borrower has executed this Note as of the date first above written.

 

	
   

  	
  NORTHERN LIGHTS ETHANOL,  LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Delton Strasser

  	
   

  
	
   

  	
   

  	
  Delton Strasser

  
	
   

  	
  Its:

  	
  President

  

 

5Exhibit 10.2

 

MANAGEMENT AGREEMENT

 

THIS MANAGEMENT AGREEMENT is
made and entered into this 20th day of April, 2005, by and between Northern
Lights Ethanol, LLC, a South Dakota limited liability company, (the “Company”)
and Broin Management, LLC, a Minnesota limited liability company (“Broin
Management”).

 

RECITALS

 

A.                                   Company owns and operates an ethanol
production facility for the production and marketing of ethanol and ethanol
co-products near Big Stone City, South Dakota.

 

B.                                     Broin Management is in the business of
managing and operating ethanol production facilities and currently manages the
Company’s Ethanol Plant pursuant to that certain Management Agreement dated November 2,
2000, originally executed by Northern Growers Cooperative and Broin Management,
which agreement was later assigned to the Company.

 

C.                                     The term of the November 2, 2000,
Management Agreement expires effective as of June 30, 2005.

 

D.                                    Company desires to engage the services of
Broin Management to continue managing the Company’s operations, including the
Ethanol Plant, and Broin Management desires to provide such services, all in
accordance with the provisions of this Agreement.

 

NOW, THEREFORE, in consideration of the terms and conditions set forth
in this Agreement, Company and Broin Management agree as follows:

 

SECTION 1
DEFINITIONS

 

1.1                                 “Additional
Services” means the additional services described in Section 6.3.

 

1.2                                 “Affiliate” means Broin and Associates, Inc.,
Broin Enterprises, Inc., Ethanol Products, LLC, Jeffrey S. Broin, Robert
L. Broin, Todd R. Broin, or any other present or future company of which 10% or
more of the outstanding securities are owned or controlled by Broin Management
or one or more Affiliates.

 

1.3                                 “Board” means the Board of Managers elected
by the Company’s owners to

 

 

manage Company pursuant to Company’s organization documents.

 

1.4                                 “Commencement Date” means July 1, 2005.

 

1.5                                 “Confidentiality
Agreement” means the Confidentiality and Nondisclosure Agreement dated April 20,
2005, between Company and Broin and Associates, Inc., and/or any
amendment, modification or replacement agreement between Company and Broin and
Associates, Inc., with respect to the protection and disclosure of
Confidential Information.

 

1.6                                 “Confidential Information” means the
Confidential Information as defined in the Confidentiality Agreement.  Confidential Information does not include the
Company’s financial information to the extent that it is required to be
disclosed pursuant to federal securities laws, rules, regulations and orders, and
membership information.

 

1.7                                 “Dakota Gold Marketing Agreement” means the
DDGS Marketing and Services Agreement dated March 8, 2002, between Company
and Broin Enterprises, Inc., d/b/a Dakota Commodities, n/k/a Dakota Gold
Marketing, as amended and/or replaced from time to time by Company and Broin
Enterprises, Inc., d/b/a Dakota Gold Marketing.

 

1.8                                 “Effective Date” means July 1, 2005.

 

1.9                                 “Ethanol Marketing and
Services Agreement” means the Ethanol Marketing and Services Agreement dated March 5,
2002, between Company and Ethanol Products,
LLC, as amended and/or replaced from time to time by Company and Ethanol Products,
LLC.

 

1.10                           “Ethanol Plant” means the ethanol production
facility owned and operated by Company at 48416 - 144th Street, Big Stone City, South Dakota.

 

1.11                           “License Agreement” means
the Licensing Agreement dated November 2, 2000, originally executed by
Broin and Associates, Inc. and Northern Growers Cooperative, which was
assigned to Company, as amended and/or replaced from time to time by Company
and Broin and Associates, Inc.

 

1.12                           “Incentive Management Bonus” means an
incentive management bonus to be paid by Company to Broin Management in an
amount equal to five percent (5%) of Company’s Net Income, as described in Section 5.2.

 

1.13                           “Management Fee” means the management fee to
be paid by Company to Broin Management in the sum of $450,000.00 per year, as
adjusted annually pursuant to Section 5.1.

 

2

 

1.14                           “Net Income” means Company’s net income as
determined under Generally Accepted Accounting Principles applied on a
consistent basis, but determined before any expense is recorded for the
Incentive Management Bonus, and income taxes paid or to be paid by Company to
the United States of America or any State thereof.

 

1.15                           “New Technology” means: (i) new
inventions and discoveries for the construction and operation of the Ethanol
Plant, other than those inventions and discoveries which simplify and enhance
the cook/fermentation process, the manufacture of the Licensed Products and/or
the use of the Licensed Methods;  (ii) technology
in research, development, or testing stage, and technology to be researched,
developed or tested by Licensor subsequent to the date of this Agreement, other
than those which simply enhance the cook/fermentation process; (iii) any
processes, systems, diagrams, information, balances, blueprints,
configurations, manuals, videotapes or any other proprietary rights, patents,
trademarks, copyrights, trade secrets, formulas, research data, know-how,
process control systems, software certifications and specifications and other
technology that is not part of the Technology; (iv) the raw starch
technology subject to Patent Application 10/798226, filed March 10, 2004;
and (v) the corn fractionation technology subject to Patent Application
60/552108, filed March 10, 2004. New Technology shall not include any
portion of the “Licensor’s Technology” defined in, and licensed to Company
under, the License Agreement.

 

1.16                           “New Technology Services” means the
management, technical, and engineering services which may be rendered by Broin
Management and/or its Affiliates pursuant to Section 6.2 for the purpose
of researching, developing, and/or implementing New Technology.

 

1.17                           “Operational Costs” means
all normal and reasonable costs and expenses directly and indirectly associated
with the management and operation of Company, including the Ethanol Plant,
determined by using Generally Accepted Accounting Principles applied on a
consistent basis.  Operational Costs
include, without limitation, administrative and general overhead expenses,
utilities, production inputs, production supplies, transportation costs,
general supplies, raw material acquisitions, insurance premiums, marketing
expenses, repair expenses, maintenance expenses, engineering expenses, data
processing expenses, legal, accounting and audit fees, billing and collection
expenses, expenses of preparing tax returns and reports, taxes, travel
expenses, telephone expenses, salaries of Ethanol Plant employees other than
the general manager and the technical manager (including Company’s share of
social security and Medicare taxes, pension or profit sharing plan
contributions, and the cost of other employee benefits), interest, lease payments,
depreciation, and other incidental business expenses incurred by Company and by
Broin Management directly on behalf of Company in connection with Company’s
business and the operation of the Ethanol Plant, but excluding the expenses
associated with the non-reimbursable services identified in

 

3

 

Section 6.1.

 

1.18                           “Technology” means: (i) all of the “Licensor’s
Technology” defined in the License Agreement; (ii) all processes, systems,
diagrams, information, balances, blueprints, configurations, manuals,
videotapes, proprietary rights, patents, trademarks, copyrights, trade secrets,
formulas, research data, know-how, process control systems, software
configurations and specifications, and other technology required to operate the
Ethanol Plant to manufacture the Licensed Products, and/or use the Licensed
methods with a cook/fermentation process; and (iii) any of the foregoing
directed to the manufacture of the Licensed Products and/or use of the Licensed
Methods using the cook/fermentation process that Licensor may own or gain
rights to license during the term of this Agreement, but not including the New
Technology until so specified in an Addendum.

 

SECTION 2
ENGAGEMENT OF BROIN MANAGEMENT

 

2.1                                  Company’s Exclusive Manager.  On
the terms and subject to the conditions of this Agreement, Company hereby
engages Broin Management as Company’s agent and exclusive manager of Company’s
operations including the operation of the Ethanol Plant.  Broin Management hereby agrees to perform,
either directly or through its subcontractors, including its Affiliates, the
services set forth in this Agreement.

 

2.2                                  Mutual Cooperation. The parties shall cooperate, each with the
other, to maximize the long-term success and profitability of the Company.

 

SECTION 3
BROIN MANAGEMENT’S DUTIES AND AUTHORITY

 

3.1                                 Broin Management’s Duties. Broin Management agrees to cooperate with
Company in the performance of Company’s duties and responsibilities under this
Agreement, to act in good faith, and to do all things reasonably necessary to
operate the Ethanol Plant.  To this end,
Broin Management’s officers, managers and employees agree to perform their
respective duties in a professional and competent manner.

 

3.2                                 Authority. Broin Management shall have the day-to-day management control of
Company, including the Ethanol Plant, and shall have the power and authority,
at Company’s expense, to take all actions necessary or appropriate to operate
Company’s business. Specifically, Broin Management shall have, without
limitation, the power and authority:

 

A.                                   To implement the Board’s policies and
decisions.

 

B.                                     To manage, supervise, and conduct in good
faith the Ethanol Plant’s and Company’s
day-to-day affairs, operations, communications and public relations.

 

4

 

C.                                     To hire, train, and dismiss Company’s
employees, independent contractors, professionals, and consultants.

 

D.                                    To purchase, lease, or otherwise obtain the
right to use for Company’s benefit,
land, buildings, furniture, fixtures, equipment, computer hardware and software, and other tangible and intangible
assets. New purchases of the foregoing in amounts exceeding $100,000.00 for any single item (or an aggregate
of $250,000.00 per year) must be
approved in advance by Company’s Board, which approval shall not be unreasonably withheld. As used in the preceding
sentence, “new purchases” does
not refer to land, buildings, furniture, fixtures, equipment, computer hardware and software, and other
tangible and intangible assets associated
with the initial construction of the Ethanol Plant or associated with future expansions of the Ethanol Plant
approved by the Board. Nor does “new purchases” refer to repairs to or replacements of the buildings,
furniture, fixtures, equipment,
computer hardware and software, and other tangible and intangible assets of the Ethanol Plant. 

 

E.                                      To purchase corn, other ingredients required
to produce ethanol and ethanol co-products, natural gas, electricity, water,
and other energy and utility services.

 

F.                                      To maintain Company’s records and accounts of
operations, receipts, and expenditures, and furnish Company with all necessary
tax reporting information.

 

G.                                     To recommend to the Board, from time to time,
the execution of contracts with Affiliates and other persons for the marketing
of Company’s ethanol and ethanol co-products, and for the design, construction,
repair, improvement, expansion, and operation of the Ethanol Plant.

 

H.                                    To execute all contracts, documents and
instruments of any kind or character which Broin Management, in its reasonable
discretion, shall deem necessary or appropriate to carry out its duties and
responsibilities.

 

I.                                         To establish deposit and investment accounts,
deposit cash receipts, invest cash receipts, and disburse the same.

 

J.                                        To
purchase for Company, at Company’s expense, liability, hazard, and other
insurance policies.

 

3.3                                 Powers Reserved by
Company. Broin Management shall not have the power and authority to take
the following actions, which actions are reserved to Company:

 

5

 

A.                                   To amend or modify Company’s organizational
documents.

 

B.                                     To approve on Company’s behalf contracts with
Broin Management and/or its Affiliates.

 

C.                                     To borrow money and pledge, mortgage, or
assign, and grant security interests in, Company’s assets.

 

D.                                    To declare and make dividend, partnership,
and other distributions to Company’s owners.

 

E.                                      To approve the
purchase of land, buildings, furniture, fixtures, equipment, and other tangible
and intangible assets, except that Broin Management shall also have the power
and authority to do the foregoing to the extent set forth in Section 3.2
D.

 

F.                                      To approve such other actions as are
presented to Company for decision at the request of Broin Management.

 

3.4                                 Other Contracts with Broin Management and
Affiliates. Broin
Management, its Affiliates and their respective officers, directors, managers,
members, and shareholders shall be entitled to do the following with the Board’s
approval:

 

A.                                   Contract with Company or the Ethanol Plant.

 

B.                                     Enter into transactions with Company,
including the purchase or sale of goods, supplies, equipment, or services of
any kind whatsoever.

 

C.                                     Loan money to Company.

 

SECTION 4
COMPANY’S DUTIES

 

4.1                                 Company’s Duties.
Company agrees to cooperate with Broin Management in the performance of Broin
Management’s duties and responsibilities under this Agreement, to act in good
faith, and to do all things reasonably necessary to aid Broin Management’s
performance as an independent contractor under the terms of this
Agreement.  To this end, Company’s
officers, managers and employees agree to perform their respective duties in a
professional and competent manner.

 

SECTION 5
FEES, BONUSES, AND EXPENSES

 

5.1                                 Management Fee. Company shall pay to Broin Management the
Management Fee of $450,000.00 per year, as defined in Section 1.13,
payable in equal

 

6

 

monthly installments due on the first day of each month.  The first monthly Management Fee payment
shall begin on the Commencement Date, as defined in Section 1.4. If the
Commencement Date is a date other than the first day of the month, then the
first monthly Management Fee payment shall be prorated for that portion of the
month from the Commencement Date to the last day of the month.  Subsequent monthly Management Fee payments
shall be due and payable on the first day of each month following the
Commencement Date.  The Management Fee
shall be adjusted annually for inflation on March 1st of each
year based on the Consumer Price Index, All Urban Consumers (CPIU) U.S. City Average (All Items Category) with a
standard reference base period of 1982-84 = 100, or as subsequently updated
(the “CPI”). The Management Fee shall be calculated for each subsequent year by
first determining the percentage increase in the CPI from the previous twelve
(12) month period for which the CPI information has been published.  The percentage increase in the CPI for the
previous twelve (12) month period shall then be multiplied by the Management
Fee in effect for the previous twelve (12) month period and added to the
Management Fee in effect during the previous twelve (12) month period.  The percentage increase in the Management Fee
for any given year shall not exceed seven percent (7%).

 

5.2                                 Incentive Management Bonus. In addition to the Management Fee, Company
shall pay to Broin Management quarterly the Incentive Management Bonus. The
Incentive Management Bonus shall be due and payable within forty-five (45) days
of the end of each of Company’s first three (3) fiscal quarters. Following
Company’s fourth (4th) fiscal quarter, a final payment shall be made within
thirty (30) days following the completion of the audit of Company’s financial
records.  The final payment shall be
adjusted such that, when added to the Incentive Management Bonus payments made
following the first three (3) quarters, the total Incentive Management
Bonus for the entire fiscal year shall equal five percent (5%) of Company’s
audited annual Net Income. If the Incentive Management Bonus payments made
following the first three (3) fiscal quarters exceed five percent (5%) of Company’s audited annual Net
Income, Broin Management shall return to Company within thirty (30) days
following completion of the audit of Company’s financial records, the amount of
the overpayment.

 

5.3                                 Reimbursement of
Operational Costs. All expenses reasonably incurred by Broin Management on
behalf of Company and the Ethanol Plant shall constitute Operational Costs. Subject
to Section 6, all Operational Costs shall be borne by Company.  To the extent Broin Management pays Company’s
Operational Costs, Company shall reimburse Broin Management within fifteen (15)
days of receipt of an expense report from Broin Management. All Operational
Costs for which reimbursement is requested shall be reasonable in amount and
incurred in furtherance of Company’s business.

 

7

 

SECTION 6 ADDITIONAL SERVICES

 

6.1                                 Non-Reimbursable Services. Broin Management, either directly or
through its Affiliates, shall provide to Company certain management, technical,
and engineering services to maintain the Ethanol Plant’s operations pursuant to
the License Agreement dated November 2, 2000, utilizing the cook/fermentation
process, without reimbursement for the expenses directly incurred in connection
therewith, other than travel expenses. Examples of services to be rendered
without reimbursement, except for travel expenses, include the following:

 

A.                                   The full-time services of an ethanol plant
general manager and an ethanol plant technical manager, including their
salaries and benefits.

 

B.                                     Ongoing process consulting services by Broin
and Associates, Inc. with respect to the Technology licensed under the
License Agreement.

 

C.                                     Ongoing engineering services by Broin and
Associates, Inc. with respect to the Technology licensed under the License
Agreement.

 

D.                                    Ongoing distributive control systems services
by Broin and Associates, Inc. with respect to the Technology licensed
under the License Agreement.

 

E.                                      Ongoing operations assistance by Broin and
Associates, Inc. with respect to the Technology licensed under the License
Agreement.

 

F.                                      Ongoing microbiology consulting services by
Broin and Associates, Inc. with respect to the Technology licensed under
the License Agreement.

 

G.                                     Access to selected group pricing for inputs
to the production process if and to the extent available.

 

H.                                    Ongoing Technology enhancements and updates
by Broin and Associates, Inc., with respect to the Technology licensed
under the License Agreement.

 

I.                                         Benchmarking of the Ethanol Plant’s
performance as against the performance of other ethanol plants managed by Broin
Management in a similar market.  This
information will not identify the other plants but will indicate where the
Ethanol Plant and Company stand in relation to the other Broin Management
managed plants.

 

6.2                                 New Technology Services. Broin Management and/or its Affiliates may
make available to Company from time to time, but shall not be obligated to do
so, the New Technology Services, as defined in Section 1.16. The
management, technical and

 

8

 

engineering services described in Section 6.1 are separate and
distinct from the New Technology Services. 
If Broin Management and/or its Affiliates offer to provide to Company
the New Technology Services and Company accepts such services, the agreement of
the parties, including any fees associated therewith, shall be negotiated,
reduced to writing, and confirmed in a separate Technology and Patent Rights
License Agreement (the “New Technology Agreement”) and one or more Addendums to
the New Technology Agreement to be executed by the parties.

 

6.3                                 Additional Services Under Separate Contracts. Broin Management, for the benefit of
Company, may have access to commodity hedging services, finished product
pricing services, finished product marketing services, finished product
research and development services, and other services related to the production
of ethanol and ethanol co-products (the “Additional Services”).  Broin Management and/or its Affiliates may
make available to Company the Additional Services. If Broin Management and/or
its Affiliates offer to provide to Company the Additional Services and Company
accepts such services, the agreement of the parties, including any fees
associated therewith, shall be negotiated, reduced to writing, and confirmed in
a new contract to be executed by the parties.

 

SECTION 7
DUTIES OF GENERAL MANAGER

 

7.1                                 Initial Responsibilities. Broin Management shall provide to Company
the full-time services of an ethanol plant general manager.  The general manager’s responsibilities shall
be determined and modified from time to time in Broin Management’s reasonable
discretion and shall initially include the following:

 

A.                                   To oversee all of Company’s business
operations, including, but not limited to, plant operations, purchasing
operations, marketing operations, personnel, and any and all other matters
relating to Company’s operations.

 

B.                                     To timely report to Broin Management and
Company on a schedule determined by the Company’s Board financial
information and operational information pursuant to policies established by
Broin Management and Company.

 

C.                                     To direct Company communications and public
relations, and to foster a positive Company image and relationships with city,
community, county, state, and national officials, representatives, residents,
and other persons.

 

D.                                    To adopt, implement, and administer Company’s
compensation and benefits packages in effect from time to time.

 

E.                                      To be knowledgeable of all relevant
activities of the state legislature and United States Congress, to encourage
the retention and/or expansion of current

 

9

 

incentives available to the ethanol industry, and to promote any state
or federal legislative effort as directed by Broin Management.

 

F.                                      To purchase on Company’s behalf capital
assets and services up to the maximum limit for which the general manager has
authority to purchase as determined by Broin Management from time to time.

 

G.                                     To recommend Company’s purchase of capital
assets and services in excess of the maximum limit for which the general
manager is authorized to purchase, as determined by Broin Management from time
to time.

 

H.                                    To sign checks, withdraw funds, and deposit
funds with Company’s financial institutions.

 

I.                                         To oversee grain and other raw materials
purchases, ethanol marketing and sales activities, and ethanol co-product
marketing and sales activities.

 

J.                                        To assume those additional responsibilities
assigned by Broin Management from time to time and carry out the directives of
Broin Management, and to implement policies adopted by the Company’s Board.

 

SECTION 8
DUTIES OF TECHNICAL MANAGER

 

8.1                                 Initial Responsibilities. Broin Management shall provide the
full-time services of an ethanol plant technical manager.  The technical manager’s responsibilities
shall be determined and modified from time to time in Broin Management’s
reasonable discretion.

 

SECTION 9
EQUIPMENT AND PROPERTY

 

9.1                                 Company-Owned Property. The ownership of all property and
equipment, and replacements thereof, purchased or paid for by Company, shall
remain with Company and shall not be removed from the Ethanol Plant, except in
the ordinary course of business, without Company’s prior written approval.  Broin Management shall have the use of all
Company-owned property and equipment during the term of this Agreement for the
purpose of managing Company’s operations and the Ethanol Plant.

 

9.2                                 Additional Property. Broin Management and/or its Affiliates may,
from time to time, install in the Ethanol Plant such other machinery,
equipment, software, and other property owned and paid for by Broin Management
and/or its Affiliates.  The property
owned by Broin Management or its Affiliates shall be listed and such list shall
be provided to the Board annually. The Broin Management machinery, equipment,
software, and other property may be attached or affixed to Company’s property.
All such

 

10

 

machinery, equipment, software, and other property purchased by Broin
Management and/or its Affiliates and not paid for by Company shall remain the
sole property of Broin Management and/or its Affiliates.

 

Upon termination of this Agreement, Broin Management and/or its
Affiliates shall give Company the opportunity to purchase any such Broin
Management machinery, equipment, software and other property as is necessary to
the normal day-to-day operation of the Ethanol Plant. The purchase price shall
be the fair market value of the Broin Management machinery, equipment, software
or other property. The parties shall negotiate the purchase price. If they are
unable to agree upon the purchase price, the purchase price shall be determined
by appraisal by an independent appraiser with knowledge and experience in
appraising the type of property involved. 
Once the purchase price is determined, Company shall either purchase the
property for cash or give Broin Management and/or its Affiliates notice that
Company declines to purchase the property. 
If Company does not purchase the property, then Broin Management and/or
its Affiliates shall remove the Broin Management machinery, equipment,
software, and other property and repair any damage caused by such removal.

 

Broin Management shall not, upon termination of this Agreement, remove
any machinery, equipment, software, or other property that would result in the
Ethanol Plant becoming non-operational.

 

SECTION 10
CONFIDENTIAL INFORMATION

 

10.1                           Confidential Information.
Broin Management and Company hereby acknowledge and agree that all written,
electronic or other documentation provided by Broin Management to Company is
part of the Confidential Information, and is subject to the terms and
conditions of the Confidentiality Agreement. 
Upon termination of this Agreement, all Confidential Information in the
possession of Company shall be removed from Company’s possession and returned
to Broin Management, and Company shall retain no written, electronic or other
forms of documentation with respect to the Confidential Information.

 

10.2                           Protection of Confidential Information. Company agrees to protect the Confidential
Information, or any part thereof, from disclosure pursuant to the terms and
conditions of the Confidentiality Agreement.

 

10.3                           Ownership of Confidential Information. Company agrees and acknowledges that the
Confidential Information is proprietary to and is the sole, exclusive and
confidential property of Broin Management and/or its Affiliates, and that Broin
Management and/or its Affiliates expressly maintain all rights to the
Confidential Information including, but not limited to, copyrights, patent,
trademark and trade secret protection as provided in the Confidentiality
Agreement and by federal and state law.

 

11

 

Nothing contained in this Agreement shall be construed as granting or
employing any transfer to Company of any right in or to the Confidential
Information beyond the specific rights granted in the Confidentiality
Agreement.

 

SECTION 11
COMMENCEMENT DATE, TERM, AND TERMINATION

 

11.1                           Commencement Date. This Agreement shall be effective as of the
Effective Date, as defined in Section 1.8. However, Broin Management’s
management and operational duties, and Company’s payment obligations, shall not
commence until the Commencement Date, as defined in Section 1.4.

 

11.2                           Term. This Agreement shall be for a term of five (5) years commencing July 1,
2005, and terminating June 30, 2010.

 

11.3                           Termination by Company.
Except as provided in Section 11.5, Company may terminate this Agreement
only for “cause.”  “Cause” shall be
defined as (i) Broin Management’s fraud, embezzlement, or other illegal
conduct; (ii) Broin Management’s substandard performance as compared to
other similarly-sized ethanol plants in the region not managed by Broin
Management with such substandard performance lasting for a period of twelve
(12) consecutive months; and/or (iii) Broin Management’s breach of the
terms and conditions of this Agreement. In the event that Company terminates
this Agreement for “cause” as defined in subparagraph (i) above, Company
shall give Broin Management written notice of termination, and in said event
this Agreement shall terminate upon Broin Management’s receipt of said
notice.  If Company terminates this
Agreement for “cause” as defined in subparagraph (ii) above, Company shall
first give Broin Management written notice that Broin Management’s performance
as compared to other similarly-sized ethanol plants in the region not managed
by Broin Management has been substandard for a period of twelve (12)
consecutive months, in which event Broin Management shall have one hundred and
eighty (180) days within which to correct its performance.  In the event that Broin Management fails to
correct its performance within the one hundred and eighty (180) day period,
this Agreement shall terminate without farther notice.  If Company terminates this Agreement for “cause”
as defined in subparagraph (iii) above, Company shall first give Broin
Management written notice that Broin Management has breached the terms and
conditions of this Agreement, stating therein the defaults occurring, in which
event Broin Management shall have thirty (30) days within which to correct its
performance.  In the event that Broin
Management fails to correct its performance within the thirty (30) day period,
this Agreement shall terminate without further notice.

 

11.4                           Termination by Broin Management. Broin Management may terminate this
Agreement only for “cause.” “Cause” shall be defined as (i) Company’s
failure to keep confidential the Confidential Information; (ii) termination
of the Ethanol Marketing Agreement and the Dakota Gold Marketing Agreement,
with cause by any party to said

 

12

 

contract or without cause by Company, and without the replacement of
the contract with an Affiliate, or the expiration of any of the foregoing
contracts without the replacement of the contract with an Affiliate; (iii) Company’s
failure to timely pay to Broin Management all Management Fees, Incentive
Management Bonuses, and/or Operational Costs; and/or (iv) Company’s breach
of the terms and conditions of this Agreement. 
If Broin Management gives notice of termination of this Agreement for “cause”
as defined in subparagraphs (i) and (ii) above, Broin Management
shall give Company written notice of termination, in which event this Agreement
shall terminate on the sixtieth (60th)  day following the date of Company’s receipt
of written notice of termination. In the event that Broin Management terminates
this Agreement for “cause” as defined in subparagraph (iii), Broin Management
shall give Company written notice of termination, and Company shall have thirty
(30) days within which to cure the default. 
If Company does not cure the default within the thirty (30) day period,
this Agreement shall terminate without further notice.

 

11.5                           Termination By Company and/or Broin
Management.  Either Company or Broin Management may
terminate this Agreement upon thirty (30) days prior written notice to the
other party, upon the occurrence of any of the following: (i) the
destruction of the Ethanol Plant and Company’s decision to not rebuild the
Ethanol Plant; (ii) the issuance and enforcement by a government agency of
an order that the Ethanol Plant shall cease operations without said order
having been vacated or lifted for a period of one hundred eighty (180) days; or
(iii) the Company ceases Ethanol Plant operations for a period of one
hundred eighty (180) days based on the reasonable business determination of the
Board.

 

11.6                           Payment of Fees. In
the event of termination by either Broin Management or Company, Company shall
pay to Broin Management all Management Fees and Incentive Management Bonuses
earned through the date of termination, and shall reimburse Broin Management
for all Operational Costs reasonably incurred by Broin Management through the
date of termination.

 

SECTION 12
COVENANT NOT TO HIRE BROIN EMPLOYEES

 

12.1                           Prohibition Against Hiring. 
Company, its officers, directors, members, managers, subsidiaries,
affiliates, successors, assigns, agents, and contractors, including any
replacement manager or management company, shall not hire the general manager
or the technical manager provided to the Ethanol Plant by Broin Management or
any other employee of Broin Management or its Affiliates, without the express
written consent of Broin Management or the Affiliate with whom the person was
employed.  This prohibition shall begin
as of the date of this Agreement and shall continue for a period of two (2) years
following the date of termination of this Agreement. This covenant shall be
expressly included as a term of any agreement executed by Company under which
Company retains a replacement manager or management company.

 

13

 

SECTION 13
ASSIGNMENT

 

13.1                           Prohibition of Assignment. This Agreement shall not be assignable by
either party without the prior written consent of the non-assigning party which
consent shall not be unreasonably withheld.

 

SECTION 14
INDEMNIFICATION AND LIMITATION OF LIABILITY

 

14.1                           Limitation of Liability. To the fullest extent permitted by law and
except as otherwise set forth below, Broin Management shall not be liable to
Company or its members for damages arising from an act or omission made by
Broin Management in its management of Company and the Ethanol Plant; provided,
however, this Section shall not eliminate or limit the liability of Broin
Management to the extent Broin Management is found liable for an act or
omission not in good faith, that involves Broin Management’s negligence,
intentional misconduct, and/or a known violation of the law.

 

14.2                           Indemnity By Company.
Company shall indemnify, hold harmless, and defend Broin Management, and its
officers, directors, employees, and agents from and against any and all
third-party claims, actions, damages, liabilities, and expenses, attorneys’ and
other professional fees, and costs, including but not limited to any of the
foregoing arising with respect to the loss of life, personal injury, and/or
damage to third parties, arising from or out of Broin Management’s services
provided under the terms and conditions of this Agreement, except that Company
shall not be obligated to indemnify, hold harmless, and defend Broin Management
from (i) negligence or willful and wanton acts of Broin Management and its
officers, directors, employees, and agents; (ii) any acts beyond the scope
of Broin Management’s services to be rendered under the terms and conditions of
this Agreement; and (iii) any violation of law, regulation, ordinance,
and/or court orders arising from the negligence or willful and wanton acts of
Broin Management and its officers, directors, employees, and agents.

 

14.3                           Indemnity by Broin Management. Broin Management shall indemnify, hold
harmless, and defend Company, and its officers, directors, employees, and
agents from and against any and all third-party claims, actions, damages,
liabilities, expenses, attorneys’ and other professional fees, and costs,
including any of the foregoing with respect to the loss of life, personal
injury, and/or damage to property of third parties, arising from or out of (i) the
negligence or willful and wanton misconduct of Broin Management and its
officers, directors, employees, and agents; (ii) any act beyond the scope
of Broin Management’s services to be rendered under the terms and conditions of
this Agreement; and (iii) any violation of laws, regulations, ordinances,
and/or court orders arising from the negligence or willful and wanton acts of
Broin Management and its officers, directors, employees, and agents.

 

14

 

SECTION 15
INSURANCE

 

15.1                           Company’s Insurance. Company shall carry and maintain at its
expense the following insurance policies:

 

A.                                   A general commercial liability insurance
policy to afford protection with limits of not less than $1,000,000.00 with
respect to personal injury or death of any one person, $1,000,000.00 with
respect to the personal injury or death occurring or resulting from one
occurrence, and $2,000,000.00 general aggregate.

 

B.                                     An all-risk property and casualty insurance
policy, written at full insurable value and with replacement cost endorsement,
covering Company’s buildings, improvements, equipment, and personal property.

 

C.                                     An umbrella policy
to afford protection with a limit of not less than $5,000,000.00.

 

D.                                    Workers’ compensation insurance required by
applicable law.

 

E.                                      Business automobile liability and collision
insurance with a combined single limit of not less than $1,000,000.00.

 

15.2                           Broin Management’s Insurance. Broin Management shall carry and maintain
at its expense the following insurance policies:

 

A.                                   A commercial liability insurance policy to
afford protection with limits of not less than $1,000,000.00 with respect to
personal injury or death of any one person, $1,000,000.00 with respect to the
personal injury or death occurring or resulting from one occurrence, and
$2,000,000.00 general aggregate.

 

B.                                     In the event that property is owned by Broin
Management and/or its Affiliates and kept at the Ethanol Plant, an all-risk
property and casualty insurance policy, written at full insurable value and
with replacement cost endorsement, covering Broin Management’s and/or its
Affiliates’ property.

 

C.                                     An umbrella policy
to afford protection with a limit of not less than $5,000,000.00.

 

D.                                    Workers’ compensation insurance required by
applicable law.

 

E.                                      Business automobile liability and collision
insurance with the combined single limit of not less than $1,000,000.00.

 

15

 

15.3                           Policy Requirements. The company or companies writing any
insurance policies required to be carried or maintained pursuant to this
Agreement shall be with a company or companies which shall be licensed to do
business in the States in which the parties are organized or incorporated.  The commercial general liability insurance
policies of Company and Broin Management shall name the other party as a named
insured. All policies shall contain a provision by which the insurer agrees
that such policy shall not be canceled except after thirty (30) days’ written
notice to the other party.  A certificate
of insurance shall be provided to each party upon request.

 

15.4                           Waiver of Subrogation Claims.  To
the extent covered by all risk property and casualty insurance, neither Company
nor Broin Management shall be liable to the other party for any loss or damage
to any building, improvement, equipment, or other tangible property owned by
the other, including but not limited to lost rents, income, and profits, even
though such loss or damage might have been occasioned by the negligence of such
party, its employees, agents, or contractors.

 

SECTION 16
MISCELLANEOUS

 

16.1                           No Partnership or Joint Venture. Broin Management, in the performance of its
duties under this Agreement, is an independent contractor. Nothing contained in
this Agreement shall constitute or be construed to be or create a partnership
or joint venture between Company and Broin Management, their successors, and
permitted assigns.

 

16.2                           Additional Documents. Each party shall execute, acknowledge,
and/or verify and deliver to the other party any and all documents from time to
time that the parties may consider appropriate to carry out the purposes and
intent of this Agreement.

 

16.3                           Governing Law. The validity, construction, interpretation
and enforcement of this Agreement shall be governed by the laws of the state in
which the Ethanol Plant is located, without giving effect to conflicts of laws
or principles thereof.

 

16.4                           Intentionally Omitted.

 

16.5                           Severability. In the event that any term, condition, or
provision of this Agreement is held to be invalid by any court of competent
jurisdiction, such holding shall not invalidate or make unenforceable any other
term, condition, or provision of this Agreement. The remaining terms,
conditions, and provisions shall be fully severable, and shall be construed and
enforced as if such invalid term, condition, or provision had never been
inserted in this Agreement initially.

 

16.6                           Entire Agreement. This Agreement and the Confidentiality
Agreement, and any attachments thereto, constitute the entire agreement and
understanding of the parties and supercedes all prior agreements and
understandings, whether oral or written. No

 

16

 

modifications or claimed waiver of any of the provisions of the
foregoing shall be valid unless in writing and signed by the duly authorized
representative against whom such modification or waiver is sought to be
enforced.

 

16.7                           Headings. The headings used in this Agreement are for convenience only and do
not constitute matters to be construed in interpretation of this Agreement.

 

16.8                           Waivers. No failure by any party to insist upon strict compliance with any
term of this Agreement shall constitute a waiver of the party’s right to insist
upon strict compliance with such term in the future.

 

16.9                           Taxes. Company shall be solely responsible for all taxes and charges, now or
hereafter imposed by any federal, state, municipal, or other taxing authority,
by reason of this Agreement or its performance, including, without limitation,
sales and use taxes, but excluding income taxes imposed upon the taxable income
of Broin Management. Company shall reimburse Broin Management for any taxes and
charges, other than income taxes, imposed on Broin Management by reason of this
Agreement or Broin Management’s management of Company and the Ethanol Plant.

 

16.10                     Notices. Any notice
required or permitted herein to be given shall be given in writing and shall be
delivered by United States registered or certified mail, return receipt
requested, at the addresses set forth below or such address as the parties
shall provide notice of from time to time during the term of this Agreement:

 

To Company:

 

Northern Lights Ethanol, LLC

Post Office Box 356

Big Stone City, SD 57216

Attention: President

 

To Broin Management:

 

Broin Management, LLC

2209 East 57th Street North

Sioux Falls, SD 57104

Attention: President

 

16.11                     Acceptance. This Agreement shall be effective only after acceptance of its terms
by Broin Management at its home office in Sioux Falls, South Dakota. No duties,
liabilities, or detriment shall be incurred by either party until the time of
acceptance. Notwithstanding any negotiations, representations, or agreements
made or entered into prior or contemporaneously with this Agreement, any
variance with the terms of this

 

17

 

Agreement, or any variance with the terms of any subsequent agreement
entered into by and between the parties, whether oral or written, shall be
effective only after acceptance of said terms as provided for in this Section 16.12.

 

16.12                     Counterparts. This Agreement may be executed in any
number of counterparts with the same effect as if all parties had signed the
same document. All counterparts shall be construed together and constitute the
same document.

 

[Signature Page Follows]

 

18

 

	
  COMPANY:

  	
  BROIN
  MANAGEMENT, LLC

  
	
   

  	
   

  
	
  NORTHERN
  LIGHTS ETHANOL, LLC

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Delton Strasser

  	
   

  	
  By:

  	
  /s/
  Jeff Broin

  	
   

  
	
   

  	
   

  
	
  Its:
  President

  	
  Its:
  CEO

  
						

 

19

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