Document:

EXHIBIT 10.3

 

SUBSCRIPTION SUPPLEMENT AGREEMENT

 

This Subscription Supplement Agreement (this “Agreement”) is made and entered into as of July 31, 2013 (the “Effective Date”), by and among Heron Lake BioEnergy, LLC (the “Company”), Granite Falls Energy, LLC, a Minnesota limited liability company (“GFE”) and Project Viking, L.L.C., a Minnesota limited liability company (“Project Viking”) (each of the Company, GFE and Project Viking, a “Party” to this Agreement, and collectively, the “Parties”).

 

RECITALS

 

WHEREAS, on the Effective Date, Project Viking subscribed for 8,075,000 Class A capital units and 15,000,000 Class B capital units of the Company (collectively, the “Purchased Units”), at a purchase price of $0.30 per capital unit, upon the terms and conditions set forth in a Subscription Agreement of even date herewith (the “Viking Subscription Agreement”), for a total purchase price for the Purchased Units of $6,922,500.00;

 

WHEREAS, immediately following execution and delivery of the Viking Subscription Agreement to the Company, acceptance by the Company, and delivery by wire transfer of the total purchase price for the Units by Project Viking, GFE acquired and fully-paid for 100% of the membership interests of Project Viking (including all governance rights and financial rights) from Roland J. Fagen and Diane K. Fagen pursuant to a Membership Interest Purchase Agreement of even date herewith, said acquisition effective on the Effective Date;

 

WHEREAS, to supplement the Viking Subscription Agreement, the Parties desire to make certain representations and warranties to one another as provided in this Agreement;

 

WHEREAS, the Company, GFE and Project Viking have reached agreement with respect to the appointment of governors to the Company’s Board of Governors (the “Board”), the voting of any Class A Units or Class B Units including the Purchase Units (collectively, the “Units”) held by Project Viking on certain matters, and certain other governance matters, as provided in this Agreement;

 

WHEREAS, the Company is also offering a maximum of $12 million in aggregate principal amount of promissory notes (the “Offering”) titled “7.25% Secured Subordinated Notes due 2018” (the “Notes”) pursuant to the terms of that certain Confidential Disclosure Statement dated June 11, 2013, as supplemented on June 21, 2013 (the “Disclosure Statement”);

 

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto, intending to be legally bound hereby, agree as follows:

 

1.                                      Governance Agreements.  The Company, Project Viking, GFE each agree as follows:

 

a.                                      The Company acknowledges and agrees that following the issuance of the Purchased Units to Project Viking on the Effective Date, Project Viking owns

 

1

 

***24,080,949*** Class A Units of the Company and ***15,000,000*** Class B Units of the Company, for a total of ***39,080,949*** Units of the Company, which number of Units held by Project Viking constitutes a majority of the Units outstanding as of the Effective Date.

 

b.                                      As of the close of business on the Effective Date, under Section 5.3(a)(iv) of the Member Control Agreement of the Company as amended through August 30, 2011 (the “Member Control Agreement”), a copy of which was attached to the Disclosure Statement as Appendix B, Project Viking is entitled to appoint five (5) governors to the Board.

 

c.                                       One of the five (5) elected governors currently serving on the Board of Governors of the Company shall resign from the Board, effective as of the close of business on the Effective Date.  The written resignation shall be made in writing and shall be delivered to the acting President of the Board on August 1, 2013, and said resignation shall not require acceptance of resignation to make it effective.  The elected governor who resigns shall serve as an alternate to the remaining four (4) elected governors.

 

d.                                      Project Viking hereby provides written notice to the Board and the Company that Kenton Johnson and Steve Core are removed from the Board, effective as of close of business on the Effective Date.  Project Viking hereby appoints the following five (5) governors to the Board pursuant to Section 5.3(a)(iv) of the Member Control Agreement, effective as of the close of business on the Effective Date:  Paul Enstad, Rodney Wilkison, Dean Buesing, Marten Goulet, and Shannon Johnson.  Project Viking hereby appoints Leslie Bergquist and David Thompson to serve as alternates to the five (5) Project Viking appointed governors.

 

e.                                       Alternates will receive notice of all Board meetings and all information provided the Board.  Alternates shall be entitled to attend all meeting of the Board.  Alternates shall not be entitled to vote at Board meetings, provided that alternates may participate in Board meetings, and provided further that alternates shall serve as replacement governors and shall be entitled to vote at any Board meeting at which the appointed governor or elected governor for which the alternate is serving as alternate is absent.

 

f.                                        Project Viking shall cause each governor it has a right to appoint under Section 5.3(a)(iv) to vote in favor of the Specified Amendments and in favor of such matters as are necessary to call a meeting of the members as soon as practicable following the Effective Date to consider the Specified Amendments and provide a Board recommendation to vote in favor of the Specified Amendments.  The term “Specified Amendments” shall mean (i) an amendment to Section 5.1(c) of the Member Control Agreement to add those actions identified in Section 5.1(d)(i)-(iv) of the Member Control Agreement to the actions, agreements, instruments or items specified in Section 5.1(c) that require the affirmative vote of at least two-thirds of the voting power of the governors in office, (ii) an amendment to Section 5.1(k) of the Member Control Agreement to add provisions consistent with this Agreement relating to alternates acting

 

2

 

in the place and stead of absentee governors, and (iii) and amendment to Section 6.2(a) to delete the last sentence thereof.

 

g.                                       At any meeting, and at every adjournment or postponement thereof, with respect to outstanding Units owned beneficially or of record by Project Viking, Project Viking shall: (i) appear at such meeting or otherwise cause such Units to be counted as present thereat for purposes of establishing a quorum; (ii) vote or cause to be voted such Units in favor of the Specified Amendments and any action required in furtherance thereof; and (iii) vote or cause to be voted, or execute consents in respect of, such Units against any proposal, action or transaction presented to the members of the Company (regardless of any recommendation of the Board) or in respect of which vote or consent of Project Viking is requested or sought (A) that could reasonably be expected to prevent or materially impede or delay the effectiveness of the Specified Amendments (including any proposal to amend Section 5.1(c) of the Member Control Agreement in a manner other than the Specified Amendments), (B) to change in any manner the voting rights of the Units or the appointment rights of Members or their Affiliates, or (C) to alter or amend in any manner Section 5.6 or Section 5.8 with respect to contracts or transactions between the Company and Governors or their Affiliates.

 

h.                                      Until the approval of the Specified Amendments by members, Project Viking shall cause each governor it has a right to appoint under Section 5.3(a)(iv) to vote in favor of any action identified in Section 5.1(d)(i)-(iv) of the Member Control Agreement only if at least one elected governor then serving on the Board also votes in favor of such action.

 

i.                                          Project Viking hereby covenants and agrees that, except for actions taken in furtherance of this Agreement, Project Viking (i) has not entered, and shall not enter at any time while this Agreement remains in effect, into any voting agreement or voting trust with respect to the Units owned beneficially or of record by Project Viking or its Affiliates; and (ii) has not granted, and shall not grant at any time while this Agreement remains in effect, a proxy, consent or power of attorney with respect to the Units owned beneficially or of record by Project Viking or its Affiliates that is inconsistent with Project Viking or its appoint governors obligations under this Agreement.  During the term of this Agreement, Project Viking shall not take any action that would in any way restrict, limit or interfere with the performance of Project Viking’s obligations hereunder or the effectiveness of the Specified Amendments as contemplated hereby on a timely basis.

 

j.                                         GFE shall cause Project Viking to act in compliance with its covenants and obligations under this Agreement and the Viking Subscription Agreement.

 

2.                                      Company Representations and Warranties. The Company represents and warrants to Project Viking that:

 

a.                                      The Company is authorized to issue 80,000,000 capital units, of which 65,000,000 capital units are designated as Class A Units and 15,000,000 capital units are designated Class B Units.  Immediately prior to the Effective Date, 38,622,107 Class A

 

3

 

Units are issued and outstanding and no Class B Units are issued and outstanding.  Following completion of the Offering and the issuance of the Purchased Units to Project Viking pursuant to the Viking Subscription Agreement, and assuming Project Viking elects to convert its Interim Subordinated Note in the amount of $102,000.00 to capital units, Project Viking shall own, on a fully diluted basis, a majority of the issued and outstanding capital units of the Company.

 

b.                                      The Company has placed no increased minimum ownership requirements or other membership restrictions on the holders of Class B Units.

 

c.                                       Other than the Viking Subscription Agreement, there are no outstanding subscriptions, options, warrants, calls, contracts, demands, commitments, convertible securities or other agreements or arrangements of any character or nature whatever under which the Company is obligated to issue any securities of any kind representing an ownership interest in the Company, except for subscriptions for approximately $6,650,000 in principal amount of Notes (“Member and Non-Member Subscriptions”) currently held in escrow, $1,407,000 in principal amount of Interim Subordinated Notes (as defined in the Disclosure Statement) to be exchanged for an equal principal amount of Notes, and the Units issuable upon conversion of the Notes.  With respect to Member and Non-Member Subscriptions currently held in escrow or subscriptions for Notes subsequently received by the Company, the Company shall accept no more than $3,670,500 of  such subscriptions.  For the sake of clarity, such maximum amount does not include the principal amount of the Interim Subordinated Notes or any exchange for Notes therefor.

 

d.                                      Within ten (10) days following the Effective Date, the Company will initiate a confirmation/re-subscription process with all Member and Non-Member Subscriptions and holders of the Interim Subordinated Notes by: (i) providing such persons and the other members of the Company a supplement to the Disclosure Statement that describes (1) the change of ownership of Project Viking and its material terms, (2) the Viking Subscription Agreement, (3) the material terms of this Agreement including exhibits, (4) updated AgStar information, and (5) such other material information determined by the Company; and (ii) allowing such persons to (1) confirm / re-subscribe their subscription or Interim Subordinated Notes for Notes pursuant to the terms of the Offering under the Disclosure Statement, as supplemented or amended, or (2) elect to convert the principal amount of their subscription or Interim Subordinated Notes into a subscription for capital units, at the rate of $0.30 per unit.  The subscription payments of such persons (other than the holders of the Interim Subordinated Notes, who shall not have the right to rescind their obligation to exchange the Interim Subordinated Notes for Notes under the Offering or capital units) who do not affirmatively confirm / re-subscribe their subscription by the end of the confirmation / re-subscription period (which shall be no later than August 31) shall be returned promptly to the subscriber from escrow without interest or deduction.

 

e.                                       At the end of the confirmation / re-subscription period, the Company will accept all confirmed / re-subscribed subscriptions in the Offering for Notes or capital units in the original order in which the subscription was received, on a first-come, first-

 

4

 

served basis, to purchase $3,670,500 in principal amount of Notes or capital units, such that the Company shall issue a maximum of $5,077,500 in principal amount of Notes or capital units (at $0.30 per unit) in the Offering, including the Notes exchanged for the $1,407,00 in Interim Subordinated Notes, but excluding the Purchased Units issued to Project Viking pursuant to the Viking Subscription Agreement.  If the principal amount of confirmed / re-subscribed subscriptions of Member and Non-Member Subscriptions is less than $3,670,500, the Company shall continue to offer Notes pursuant to the terms of the Offering in the Disclosure Statement (as supplemented or amended).  The Company shall not issue more than $5,077,500 in principal amount of Notes or capital units (at $0.30 per unit) in the Offering, including the Notes exchanged for the $1,407,000 in Interim Subordinated Notes.

 

f.                                        Neither the offer nor the issuance or sale of the Purchased Units or the Notes constitutes an event, under any anti-dilution provisions of any securities issued or issuable by the Company or any agreements with respect to the issuance of securities by the Company, which will either increase the number of Units issuable pursuant to such provisions or decrease the consideration per Units to be received by the Company pursuant to such provisions.  No holder of any security of the Company is entitled to any preemptive or similar rights to purchase any securities of the Company, except as provided in the Notes.

 

g.                                       The Company has no outstanding or contingent obligations to repurchase or redeem any of its securities from holders thereof except for the exchange of Interim Subordinated Notes for Notes.  The Company is not a party or subject to any agreement or understanding, and to the knowledge of the Company, there is no agreement or understanding, that effects or relates to transfers, voting or the giving of written consents with respect to any security of the Company, or by any member of the Board, except for the Member Control Agreement and this Agreement.

 

h.                                      All corporate action necessary to the issuance and delivery of the Purchased Units to Project Viking has been taken by the Company or will be taken by the Company on or prior to the Effective Date. When (i) the terms of the Notes have been established in accordance with the Indenture in the form attached as Appendix E to the Disclosure Statement, (ii) the Indenture has been validly executed and delivered by the Company and the trustee thereunder and (iii) the Notes have been executed, issued, delivered and authenticated in accordance with the terms of the Indenture and the applicable subscription agreement against the receipt of requisite consideration therefor provided for therein, the Notes will constitute legal, valid and binding obligations of the Company, except as enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws generally affecting the rights of creditors and subject to general equity principles.  With respect to the Units issuable upon conversion of the Notes, when the Units have been issued and delivered in accordance with the terms of the Note, such Units will be validly issued, fully paid and non-assessable.

 

i.                                          The execution, delivery and performance of this Agreement has been duly authorized and approved by proper corporate action of the Company, and does not

 

5

 

contravene the Articles of Organization or Member Control Agreement of the Company or any law or contractual restriction binding on or affecting the Company.

 

j.                                         As of the date hereof, the Company does not have any liabilities, obligations or commitments, except for liabilities, obligations or commitments which (i) are described in, set forth or referenced in the periodic reports and schedules filed by the Company with the SEC (including all exhibits and financial statements and financial statement schedules attached thereto or included therewith) or the unaudited financial statements that are referred to or referenced in Section 2.a. of the Viking Subscription Agreement, (ii) fully-covered by insurance, except for reasonable deductibles or self-insured retention levels, (iii) incurred in the ordinary course of business consistent with past practices, (iv) are described in, set forth or referenced in the Disclosure Statement, as supplemented or amended, including all appendices, (v) arise under this Agreement or the Viking Subscription Agreement, (vi) individually or in the aggregate would not have a material adverse effect on the business, property, operations or financial condition of the Company, or (vii) which have otherwise been disclosed to GFE or its representatives.

 

k.                                      As of the date hereof, the Company is in compliance in all material respects with all applicable laws the violation of which would have a material adverse effect on the Company and its business as currently conducted.  As of the date hereof, the Company has all material licenses and permits required by law or otherwise necessary for the proper operation of its business as currently conducted, and all of such licenses and permits are in full force and effect.

 

l.                                          Since the date of the Disclosure Statement, the Company’s ethanol plant has operated in the ordinary course of business consistent with past practice and its nameplate capacity, ordinary wear and tear excepted.

 

m.                                  Notwithstanding anything herein or in the Viking Subscription Agreement to the contrary, except for the due authorization and approval representation and warranty made by the Company under Section 2.h. hereof, no warranty or representation is made regarding any shareholder or member claim asserting breach of fiduciary duty by the Board or its governors or violation of the Member Control Agreement or applicable law in connection with the Offering or the Viking Subscription Agreement or this Agreement or the absence thereof.

 

3.                                      Representations of GFE and Project Viking.

 

a.                                      GFE and Project Viking each represent and warrant to the Company that as of the Effective Date, GFE has acquired and fully-paid for 100% of the membership interests of Project Viking, GFE has sole voting and dispositive power over all of the Units and Interim Subordinated Notes held by Project Viking, with no limitations, qualification or restrictions on such rights imposed by Roland J. Fagen, Diane K. Fagen or any other person as a result of the sale and transfer to GFE from Roland J. Fagen and Diane K. Fagen of 100% of the membership interests in Project Viking.

 

6

 

b.                                      In consideration of the Company’s offer to sell and sale and issuance of the Purchased Units to Project Viking, GFE hereby represents and warrants and covenants to the Company each of the representations, warranties and covenants set forth in Sections 2, 3, 5, 6, 7, 8 and 10 of the Viking Subscription Agreement, including without limitation that GFE has received and carefully read the Disclosure Statement and appendices thereto.

 

c.                                       GFE represents and warrants to the Company that the execution, delivery and performance of this Agreement has been duly authorized and approved by proper corporate action of GFE, and does not contravene GFE’s organizational documents or any law or contractual restriction binding on or affecting GFE.

 

d.                                      Project Viking represents and warrants to the Company that the execution, delivery and performance of the Viking Subscription Agreement and this Agreement has been duly authorized and approved by proper corporate action of Project Viking, and does not contravene Project Viking’s organizational documents or any law or contractual obligation or restriction binding on or affecting Project Viking.

 

4.                                      Management Agreement. GFE and the Company agree to execute and enter into the Management Services Agreement attached hereto as Exhibit A, effective as of the Effective Date.

 

5.                                      Agrinatural Gas, LLC .  GFE, the Company, and Project Viking each agree to execute and deliver the Voting Agreement to Waive Purchase Option in the form attached hereto as Exhibit B.

 

6.                                      Specific Performance. Each Party acknowledges and agrees that irreparable injury to the other Parties hereto would occur in the event any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached and that such injury may not be adequately compensable by the remedies available at law (including the payment of money damages).  It is accordingly agreed that each Party (the “Moving Party”) shall each be entitled to specific enforcement of, and injunctive relief to prevent any violation of, the terms hereof, without the requirement to post bond or other security, and no other Party hereto will take action, directly or indirectly, in opposition to the Moving Party seeking such relief on the grounds that any other remedy or relief is available at law or in equity.  Each of the Parties hereto irrevocably agrees that any legal action or proceeding with respect to this Agreement for specific performance or for recognition and enforcement of any judgment in respect of this Agreement shall be brought and determined exclusively in the state or federal court of Minnesota and any state or federal appellate court therefrom within the State of Minnesota or the Eighth Judicial Circuit.  Each of the Parties hereto hereby irrevocably submits, with regard to any such action or proceeding for itself and in respect of its property, generally and unconditionally, to the personal jurisdiction of the aforesaid courts and agrees that it will not bring any such action in any court other than the aforesaid courts.  Each of the Parties hereto hereby irrevocably waives, and agrees not to assert in any such action or proceeding, (a) any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason, (b) any claim that it or its property is exempt or immune from jurisdiction of any such court or from any such legal process commenced in such courts (whether through service of notice, attachment prior to judgment,

 

7

 

attachment in aid of execution of judgment, execution of judgment or otherwise) and (c) to the fullest extent permitted by applicable legal requirements, any claim that (i) the suit, action or proceeding in such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper or (iii) such action may not be enforced in or by such courts.  This Section 6 is not the exclusive remedy for any violation of this Agreement.

 

7.                                      Severability.  If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated.  It is hereby stipulated and declared to be the intention of the Parties that the Parties would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, void or unenforceable.  In addition, the Parties agree to use their best efforts to agree upon and substitute a valid and enforceable term, provision, covenant or restriction for any of such that is held invalid, void or enforceable by a court of competent jurisdiction.

 

8.                                      Governing Law.  This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Minnesota without reference to the conflict of laws principles thereof.  Notwithstanding any provision of the Member Control Agreement to the contrary, and except for actions brought under Section 6 of this Agreement, the Parties agree to resolve disputes arising out of or relating to this Agreement or the Viking Subscription Agreement pursuant to this Section 8.  If any dispute arises out of or relates to this Agreement or the Viking Subscription Agreement, the parties agree first to try in good faith to settle the dispute by mediation under the Commercial Mediation Rules of the American Arbitration Association, before resorting to arbitration. Thereafter, any remaining unresolved controversy or claim arising out of or relating to this Agreement or the Viking Subscription Agreement, or the performance or breach thereof, shall be settled by binding arbitration pursuant to the Commercial Arbitration Rules of the American Arbitration Association; PROVIDED, that this Section 8 shall not require use of the American Arbitration Association (only that such Rules as modified by this Section 8 shall be followed).  The arbitration shall be conducted in the State of Minnesota.  Any award rendered shall be final and conclusive upon the parties and a judgment thereon may be entered in any court having competent jurisdiction.  The cost and expense of the arbitrator and location costs shall be borne equally by the parties to the dispute. All other costs and expenses, including reasonable attorney’s fees and expert’s fees, of all parties incurred in any dispute which is determined and/or settled by arbitration pursuant to this Section 8 shall be borne by the party incurring such cost and expense.

 

9.                                      Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the Parties and delivered to the other Parties (including by means of electronic delivery or facsimile).

 

10.                               Entire Agreement; Amendment and Waiver; Successors and Assigns; Third Party Beneficiaries.  This Agreement contains the entire understanding of the Parties hereto with respect to its subject matter.  There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings between the Parties other than those expressly set forth

 

8

 

herein.  No modifications of this Agreement can be made except in writing signed by an authorized representative of each the Company, GFE and Project Viking.  No failure on the part of any Party to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such Party preclude any other or further exercise thereof or the exercise of any other right, power or remedy.  All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law.  The terms and conditions of this Agreement shall be binding upon, inure to the benefit of, and be enforceable by the Parties hereto and their respective successors, heirs, executors, legal representatives, and permitted assigns.  No Party shall assign this Agreement or any rights or obligations hereunder without, with respect to Project Viking or GFE, the prior written consent of the Company, and with respect to the Company, the prior written consent of Project Viking and GFE.  This Agreement is solely for the benefit of the Parties hereto and is not enforceable by any other persons.

 

 

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized signatories of the Parties as of the date hereof.

 

	
 
    	
HERON LAKE BIOENERGY, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ Robert Ferguson
    
	
 
    	
 
    	
 
    
	
 
    	
Its:
    	
CEO
    
	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
Robert J. Ferguson
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
GRANITE FALLS ENERGY, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
By: 
    	
/s/ Paul Enstad
    
	
 
    	
 
    	
 
    
	
 
    	
Its: 
    	
Chairman
    
	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
Paul Enstad
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
PROJECT VIKING, L.L.C.
    
	
 
    	
 
    	
 
    
	
 
    	
By: 
    	
/s/ Paul Enstad
    
	
 
    	
 
    	
 
    
	
 
    	
Its: 
    	
President
    
	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
Paul Enstad
    

 

9EXHIBIT 10.4

 

MANAGEMENT SERVICES AGREEMENT

(INDEPENDENT CONTRACTOR AGREEMENT)

 

This MANAGEMENT SERVICES AGREEMENT (“Agreement”) is made and entered into to be effective as of the 31st day of July, 2013, by and between Granite Falls Energy, LLC, a Minnesota Limited Liability Company (“GFE”) and Heron Lake BioEnergy, LLC, a Minnesota Limited Liability Company (“Heron”) and is as follows:

 

RECITALS

 

1.                                      WHEREAS, GFE currently owns and operates an ethanol facility; and Heron currently owns and operates an ethanol facility; and

 

2.                                      WHEREAS, Heron desires to obtain management services; and

 

3.                                      WHEREAS, each requires terms and conditions as necessary to protect each company’s confidential/proprietary/trade secret information; and such terms and conditions as will cause all management employees to respect the separate interests and objectives of each company; and

 

4.                                      WHEREAS, the parties have had discussions regarding such management services, have reached agreement as to the same, and wish to put their understandings and agreements in writing.

 

NOW, THEREFORE, for good and valuable consideration, the parties agree as follows:

 

1.                                      MANAGEMENT SERVICES.  GFE shall provide management services to Heron with respect to the following job descriptions and titles:

 

a.                                     Positions Provided by GFE to Heron.  GFE shall provide to Heron the following management services, to-wit:

 

i.                                          Chief Executive Officer (CEO);

 

ii.                                       Chief Financial Officer (CFO); and

 

iii.                                    Commodity Risk Manager.

 

b.                                      Time Commitment.

 

i.                                             Each person providing services shall devote such time as is reasonably necessary to perform the services for Heron.

 

 

ii.                                       Each person shall use their best efforts when performing work for Heron.

 

iii.                                       Approximate hours worked per week by each position shall be disclosed at semi-annual meetings and reported to Heron no less than semi-annually.

 

c.                                       Reporting and Organization.  Each person filling one of the above described positions shall report as follows:

 

i.                                                The CEO shall report directly to the Heron Board of Directors.

 

ii.                                             The Heron Board of Directors reserves the right to require, from time to time, any of the above named persons to do such work or make such reports directly to or for the Heron Board.

 

iii.                                          The CEO shall be solely responsible for hiring and firing of persons providing the management services as described herein.

 

iv.                                         Nothing herein is intended to create an employment contract, or guaranty of employment, or a guaranty of employment for any length of time to any person.  Each person providing management services hereunder shall, at all times, remain the employee of GFE designated to provide services as stated herein.

 

2.                                     TERM AND TERMINATION.  The initial term of this Agreement, subject to the remaining terms and conditions hereof, shall be for three years from the effective date as stated in the preamble hereof.  With respect to the term and termination hereof:

 

a.                                      Evergreen.  At the expiration of the initial term, this Agreement shall continue from year to year under its then existing conditions unless and until a party hereto gives the other no less than ninety (90) days written notice of termination prior to expiration of the initial term or of the one year extension then in effect.

 

b.                                      Termination for Cause.  Notwithstanding the foregoing, this Agreement may be terminated for cause, as follows:

 

i.                                             If a party seeks to terminate this Agreement for cause, it shall deliver to the other party written notice of termination; which notice shall describe the basis for determining cause exists; and which notice shall provide 30 days notice and opportunity to cure.

 

2

 

In the event that basis for determining cause has not been cured to the reasonable satisfaction of the party giving notice within 30 days, then the party may deliver notice that this Agreement has been terminated.

 

ii.                                          Cause means:

 

A.                                 A material breach of this Agreement.  Material breach shall be:  a failure of a party (to include failure of the person being provided by a party) to comply with applicable laws or regulations; a willful breach by a party (to include a person being provided by a party) of a term of this Agreement; or acts or conduct by a party (to include a person being provided by a party) which demonstrates intentional misconduct, reckless misconduct or grossly negligent misconduct.

 

B.                                 A deadlock in the management of Heron.  Deadlock shall be the occurrence of disagreements between the Board of Heron which, in the opinion of the GFE Board, has impaired the ability of the management team to carry out the policies and/or procedures as directed by one or both Boards of Directors.

 

c.                                       Return of Confidential Information.  Upon termination each party shall return to the other all of the other’s Confidential Information that may be in possession of the returning party.

 

d.                                      Surviving Obligations.  Payment of any reimbursement obligations which have accrued and are unpaid as of the date of termination, together with the obligations of the parties as set forth at Sections 4 — 7 hereof, shall survive termination hereof.  In all other respects the obligations of the parties to each other shall cease upon termination hereof.

 

3.                                      REIMBURSEMENT.  The parties intend and agree that compensation by Heron to GFE shall occur as follows:

 

a.                                         Compensation.  GFE shall be responsible for and shall directly pay salary, wages, and/or benefits to the persons providing the management services hereunder.

 

b.                                         Payment for Management Services.  Heron shall pay GFE Thirty-five Thousand and no/100 Dollars ($35,000.00) per month for the first year for the management services provided hereunder.  For years two and three, Heron shall pay GFE one-half (1/2) of the total salary, bonuses, and other +expenses and costs (including all benefits and tax contributions) incurred by GFE for the three management positions described at paragraph 1(a).

 

3

 

Such will be paid on an estimated monthly basis with a “true up” occurring as soon as possible at the end of each fiscal year of GFE.

 

c.                                          Reimbursement of Costs.  Any costs incurred in providing the management services, outside the scope of normal duties and activities, shall be reimbursed by Heron to GFE at reasonable and customary rates of reimbursement.  (Such to include, but not be limited to, mileage, hotel rooms, etc.)

 

d.                                         Payment.  Payment by Heron to GFE for all amounts due GFE, shall occur on the 10th day of each month.  Payments for any partial month(s) of services shall be prorated.

 

4.                                     SEPARATE RIGHTS AND RESPONSIBILITIES OF GFE AND HERON.  The parties agree that to the following reservation of their separate rights and statement of their separate responsibilities, to-wit:

 

a.                                             Separate Authority.  Nothing herein shall be construed as a grant of authority by GFE as to Heron, or by Heron as to GFE, to make any management or other business decision for the other; or to exercise or seek to exercise a controlling influence over any management policies of the other.

 

b.                                             Preserve Competition.  GFE and Heron acknowledge that they are competing business entities with different ownership.  The CEO and CFO shall be advised by GFE to observe all laws related to price and/or competition in carrying out this Agreement; and to implement such processes to ensure ongoing compliance with such laws by all employees providing management services hereunder.

 

c.                                              Insurance.  During the term hereof each party shall maintain Workers’ Compensation Insurance at statutory limits; as well as comprehensive liability insurance for all injuries or property damage which may occur on account of services performed hereunder — with such insurance having mutually acceptable terms and limits; with each party being named as an additional insured of the other (except regarding the Worker’s Compensation policy whereby each party shall add the Alternate Employer endorsement to the respective Worker’s Compensation policy naming the other party as the Alternate Employer); with such policies having an endorsement of no cancellation without notice to both parties hereto; and said policies having a Waiver of Subrogation on all policies, including the property, where allowed by law.

 

5                                          CONFIDENTIALITY AND COMPETITION COVENANTS.  With respect to confidentiality and competition covenants, the parties agree:

 

4

 

a.                                            Confidentiality.  With respect to confidentiality:

 

i.                                                Each person providing management services hereunder shall protect from unauthorized disclosure — either to third parties (with respect to management services), or to GFE or Heron as the case may be (with respect to information that is beyond the scope of management service) — information which GFE and/or Heron consider non-public, confidential, or proprietary in nature.  Such non-public, confidential, and/or proprietary information (collectively “Confidential Information”) may include, without limitation, customer lists, contracts, planning and financial information, business plans and strategies, marketing plans, development plans, technical and business information, customer information, pricing information, sales information, any formulas/devices/methods/techniques, or other information which has independent economic value because of not being generally known, and which GFE or Heron, as the case may be, has protected through reasonable efforts regarding maintenance of secrecy.

 

ii.                                             The parties agree that Confidential Information shall not include: information that, at the time of disclosure hereunder, is in the public domain; information that, after disclosure hereunder, enters the public domain other than by breach of this Agreement or the obligation of confidentiality stated herein; information that, prior to disclosure hereunder, was already in a party’s possession, either without limitation on disclosure to others or subsequently becoming free of such limitation; information obtained by either party from a third party having an independent right to disclose the information; information that is available through discovery by independent research without use of or access to the confidential information acquired from the other party; information disclosed upon the order of a court or other authorized governmental entity, or pursuant to other legal requirements — provided that prior to such disclosure, the disclosing party shall first timely inform the other party of such disclosure request so that the other party may seek a protective or equivalent order for non-disclosure — and provided that the disclosing party shall limit any such disclosure to the greatest extent permitted by law.

 

iii.                                          The persons performing services pursuant to this Agreement shall sign Confidentiality Agreements binding each such person to the confidentiality obligations set forth above.

 

b.                                      No Solicitation.  GFE hereby warrants to Heron and Heron hereby warrants to GFE that each shall not, directly or indirectly, either for itself

 

5

 

or for any other person, firm or corporation solicit for employment, retain or employ any present employee of the other party, or request, induce or advise any employee to leave the employ of or cease affiliation with the other party.

 

c.                                      The provisions as set forth in this Section 5 shall survive termination of this Agreement for a period of three (3) years.

 

6.                                      INDEMNIFICATION.  From and after the date hereof, and except as otherwise provided for herein:

 

a.                                             GFE Indemnification of Heron.  GFE shall indemnify, defend and hold harmless Heron against:  (i) all losses, claims, damages, costs, expenses, liabilities or judgments or amounts that are paid in settlement of or in connection with any claim, action, suit, proceeding or investigation to the extent the same is caused in whole or in part by GFE, (ii) or, on account of a breach of GFE’s obligations hereunder.

 

b.                                             Heron Indemnification of GFE.  Heron shall indemnify, defend and hold harmless GFE against:  (i) all losses, claims, damages, costs, expenses, liabilities or judgments or amounts that are paid in settlement of or in connection with any claim, action, suit, proceeding or investigation to the extent the same is caused in whole or in part by Heron, (ii) or, on account of a breach of Heron’s obligations hereunder.

 

c.                                              Limitations on Indemnification Obligation.  Neither Heron nor GFE shall be required to indemnify the other for any direct claim by the other that it has suffered consequential damages or lost profits; nor shall the requirement to indemnify extend to consequential damages or lost profits claimed by a third party and which — but for this Section 6(c) — would be included in the indemnification obligations listed at Sections 6(a) and 6(b) above.

 

d.                                             Survival of Obligations.  The provisions of this Section 6 shall survive the termination of this Agreement.

 

7.                                      DISPUTE RESOLUTION.  Any controversy, claim or dispute arising out of or relating to this Agreement or the breach hereof, including a dispute arising out of the negotiation, formation and execution of this Agreement, and the interpretation of this Agreement, shall be resolved as follows:

 

a.                                      Meet and Confer.  The Dispute Resolution Team (“DRT”) of GFE shall meet and confer — in person — with the DRT of Heron to discuss the controversy, claim or dispute in an attempt to resolve differences and reach

 

6

 

agreement.  Each party may elect to be represented by counsel or other professional advisors at such meeting.  The meeting shall occur as soon as reasonably possible, but no later than ten (10) days from a written notice by a party to the other the dispute, and the request for a meeting of the Boards.

 

b.                                      Mediation.  If the controversy, claim or dispute is not resolved by a face-to-face meeting of the respective DRTs, then the DRTs shall meet with a neutral mediator in an attempt to reach a mediated settlement.  The mediator shall be jointly agreed to by the parties and if they cannot agree, the court for Lyon County, Minnesota, shall be petitioned and shall appoint the mediator.  Such mediation shall occur within twenty-one (21) business days of when the mediator is selected.

 

c.                                       Arbitration.  If the controversy is not resolved by mediation, then the controversy shall be resolved by resort to binding arbitration conducted pursuant to Minnesota Statutes and subject to the following additional requirements:

 

i.                                                Arbitration and proceeds related thereto shall be venued in Lyon County, Minnesota.  The District Court in and for Lyon County, Minnesota shall have jurisdiction to direct the arbitration process; and to preserve the status quo of the parties during the pondery of arbitration.

 

ii.                                             The arbitration shall proceed as a private arbitration, without involvement of the American Arbitration Association, but otherwise pursuant to the then existing Rules of the American Arbitration Association applicable to commercial disputes.

 

iii.                                          Each DRT shall pick an arbitrator and the two arbitrators shall pick a neutral third arbitrator.

 

iv.                                         The arbitration shall occur within sixty (60) days of the appointment of the final arbitrator.

 

v.                                            The determination of the arbitrators shall be final and binding and each party waives the right to appeal any such decision. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof.  The arbitrators shall decide who shall pay the costs and expenses associated with arbitration.  Each party shall pay their own attorneys’ fees related to the arbitration.

 

d.                                      Role of DRT.  The Dispute Resolution Team of each party shall consist of that party’s then existing Committee of Disinterested Persons together with that party’s Executive Committee.  Each party’s DRT shall represent it

 

7

 

during the dispute resolution proceedings; and the DRT shall make recommendations for final decisions regarding dispute resolution to its Board.  The final decision on such recommendation shall, however, be reserved to and made by the respective Boards of the parties.

 

8.                                      FORCE MAJEURE.  The performance of a party may be excused upon the occurrence of a Force Majeure event.  A Force Majeure event shall be fire, flood, storm, act of God, governmental action or intervention, or other circumstance which is beyond the reasonable control of the party claiming the event and which renders the performance of this Agreement by a party hereto impossible.  A party affected by a Force Majeure event shall not be relieved of performance unless such party has used reasonable efforts to remedy the conditions giving rise to such event; and unless and until such party has given written notice of the occurrence of such event.  Either party may terminate this Agreement upon not less than thirty (30) days prior written notice if the Force Majeure event has been continuously in existence for a period of ninety (90) days.

 

9.                                      MISCELLANEOUS.

 

a.                                             Independent Contractors.  At all times during this Agreement, GFE and its employees shall be deemed independent contractors.  Nothing herein shall be construed to create a partnership, joint venture, agency, or any other form of business relationship between GFE and Heron.  GFE and Heron acknowledge that their Agreement is strictly contractual in nature.

 

b.                                             Further Assurance.  Each party agrees to execute and deliver all further instruments, legal opinions and documents, and take all further action not inconsistent with the provisions of this Agreement that may be reasonably necessary to complete performance of a party’s obligations hereunder and to effectuate the purposes and intent of this Agreement.

 

c.                                              Notice.  Any and all notices provided for herein shall be given in writing by registered or certified mail, postage prepaid, which shall be addressed by either party and delivered to the other at its then existing registered office — with the initial address for notice being as follows:

 

	
 
    	
 
    
	
 
    	
 
    
	
i.   If To GFE: 

 
    	
Granite   Falls Energy, LLC 

Attn:   Chairman of the Board of Directors 
    
	
 
    	
Address:   
    	
15045   Hwy. 23 SE 
    
	
 
    	
 
    	
P.   O. Box 216 
    
	
 
    	
 
    	
Granite   Falls, MN 56241-0216 
    
	
 
    	
 
    
	
 
    	
 
    
	
ii.   If To Heron:
    	
 
    
	
 
    	
Heron   Lake BioEnergy, LLC 
    

 

8

 

	
 
    	
Attn:   Chairman of the Board of Directors 
    
	
 
    	
Address:
    	
91246   390th Avenue 
    
	
 
    	
 
    	
Heron   Lake, MN 56137
    

 

d.                                      Binding Effect.  This Agreement shall be binding upon the successors, legal representatives and assigns of the parties hereto, all of whom, regardless of the number of intervening transfers, shall be bound in the same manner as the parties hereto.

 

e.                                       No Assignment.  This Agreement shall not be assigned by either party except upon the written consent of the other party.  Nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies under or by reason of this Agreement.

 

f.                                        Integration and Amendment.  This Agreement supersedes and takes precedence over any previous agreement entered into between the parties hereto, whether written or oral, regarding the matters covered herein.  This Agreement sets forth the entire understanding of the parties and may not be amended, altered or modified except by written agreement between the parties.

 

g.                                    Severability.  Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement, or affecting the validity or unenforceability of any of the other terms of this Agreement in any other jurisdiction.  In the event a term or provision is invalid or unenforceable, a Court or Arbitrators (as the case may be) are granted the authority to construe, interpret, or modify this Agreement in a manner which is intended to remedy such invalidity or unenforceability while giving effect, to the greatest extent possible, to all remaining terms and provisions hereof.

 

h.                                      No Waiver. Any waiver of any of terms and/or conditions of this Agreement by a party shall not be construed to be a general waiver of such terms and/or conditions; and no waiver shall be effective absent the written agreement of the parties.

 

i.                                          Counter Parts.  This Agreement may be executed in one or more counterparts, all of which, taken together, shall be deemed one and the same Agreement.  Facsimile or electronic signatures shall be deemed original signatures for all purposes.

 

9

 

j.                                         Captions.  The captions herein are inserted for the convenience of reference only                                                and shall be ignored in the construction or interpretation hereof.

 

k.                                      Governing Law.  This Agreement shall be construed, interpreted and enforced in accordance with the laws of the State of Minnesota.

 

IN WITNESS WHEREOF, each party hereto has executed this Agreement effective as of the date first above written.

 

	
 
    	
GRANITE   FALLS ENERGY, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Paul Enstad 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Its:
    	
Chairman   
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
HERON   LAKE BIOENERGY, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Robert Ferguson 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Its:
    	
CEO
    
					

 

10

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00221-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00221-of-00352.parquet"}]]