JOB OPPORTUNITY BUILDING ZONE BUSINESS SUBSIDY AGREEMENT

EXHIBIT 10.17

JOB OPPORTUNITY BUILDING ZONE
BUSINESS SUBSIDY AGREEMENT

     This Agreement is made on September 20, 2004, (the “Approval Date”), by and between the City of Granite Falls, Minnesota, a Minnesota municipal corporation and statutory city, (the “City”); and Granite Falls Energy, a Minnesota limited liability company and a trade or business organized and operating under the laws of the State of Minnesota (the “Qualified Business”). In order to satisfy the provisions of the Job Opportunity Building Zone Law (Minnesota Statutes, Sections 469.310 through 469.320) and the Business Subsidy Law (Minnesota Statutes, Sections 116J.993 through 116J.995), the City and the Qualified Business acknowledge and agree as follows:

     Whereas, the Qualified Business is the owner of the real property located at 15045 Highway 23 S.E. in the City of Granite Falls, Chippewa and Yellow Medicine Counties, Minnesota, as described in Exhibit A (the “Property”);

     Whereas, the Property is located within a designated Job Opportunity Building Zone, as described in the Granite Falls Community Ethanol Plant Zone Application; and is currently comprised of vacant land;

     Whereas, the Qualified Business has been identified by the Subzone Administrator as a non-retail, non-commercial new trade or business start-up within the Subzone;

     Whereas, the Qualified Business began business operations in the subzone on August 15, 2004 when it commence site preparation of the Property;

     Whereas, the Qualified Business agrees to satisfy the provisions of the business subsidy reporting requirements under the Business Subsidy Law and as required by Minnesota Statutes, Section 469.320 Subd. 1 identified in Article II of this Agreement.

ARTICLE I

DEFINITIONS

     Section 1.1. “Agreement” means this Job Opportunity Building Zone Business Subsidy Agreement by and between the City and the Qualified Business.

     Section 1.2. “Approval Date” means the date on which the last party to this Agreement whose signature is required, signs the agreement as indicated in the first paragraph of this Agreement; and after which a Qualified Business is deemed approved by the City.

     Section 1.3. “Benefit Date” is the date after which tax benefits shall begin to accrue to the Qualified Business; for purposes of this Agreement, August 15, 2004.

     Section 1.4. “Business Subsidy” means tax exemptions or tax credits available to the Qualified Business located in the Zone as provided in Section 2.1, and/or any state or local government agency grant, contribution of personal property, real property, infrastructure, the

principal amount of a loan at rates below those commercially available to the recipient, any reduction or deferral of any tax or any fee, any guarantee of any payment under any loan, lease, or other obligation, or any preferential use of government facilities given to a business, and as defined by the Business Subsidy statute.

     Section 1.5. “Business Subsidy Law” means Minnesota Statutes, Sections 116J.993 through 116J.995.

     Section 1.6. “Business Subsidy Report” means the annual report required to comply with Minnesota Statutes, Section 116J.994, Subd. 7(b).

     Section 1.7. “Capital Investment” means any investment that is defined as depreciable for purposes of the U.S. Internal Revenue Service.

     Section 1.8. “City” means the City of Granite Falls, Minnesota which is also a “Grantor” as defined in Minnesota Statutes, Section 116J.993, Subd. 4.

     Section 1.9. “Construction Plans” means the plans, specifications, drawings and related documents of the construction work to be performed by the Qualified Business on the Project and the Property and the plans (a) shall be as detailed as the plans, specifications drawings and related documents which are submitted to the building inspector of the City, and (b) shall include at least the following: (1) site plan; (2) foundation plan; (3) basement plans, if any; (4) floor plan for each floor; (5) cross sections of each (length and width); (6) elevations (all sides); (7) grading and drainage; and (8) landscape;

     Section 1.10. “DEED” means Minnesota Department of Employment and Economic Development.

     Section 1.11. “Job Zone Term” shall mean January 1, 2004 through December 31, 2015.

     Section 1.12. “JOBZ” means Job Opportunity Building Zone as defined in Minnesota Statutes, Section 469.310.

     Section 1.13. “JOBZ Law” means Minnesota Statutes, Sections 469.310 through 469.320.

     Section 1.14. “Person” includes an individual, corporation, partnership, limited liability company, association, or any other entity.

     Section 1.15. “Project” means the approximately 40,000,000 gallon per year dry mill ethanol production plant to be constructed by the Qualified Business on the Property.

     Section 1.16. “Property” means the parcel or parcels located within the Subzone, as modified, on which the Qualified Business is or will be operating, excluding any building footprint of a business operating in the Subzone prior to January 1, 2004; and as identified in Exhibit A.

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     Section 1.17. “Qualified Business” means, generally, a person that carries on a trade or business at a place of business located within a Job Opportunity Building Zone as referenced in Minnesota Statutes, Section 469.310 Subd. 11; and, for purposes of this Agreement, means Granite Falls Energy

     Section 1.18. “Recipient” means any business entity that receives a business subsidy as defined by Minnesota Statutes, Section 116J.993, and that has signed a Business Subsidy Agreement with a “Grantor” as defined in Minnesota Statutes, Section 116J.993, Subd. 4.

     Section 1.19. “Relocation Agreement” means a binding written agreement between a relocating qualified business and the commissioner of DEED pledging that the qualified business will either:

          (1) increase full-time for full-time equivalent employment in the first full year of operation within the job opportunity building zone by at least 20 percent and maintains that level of employment for the Job Zone Term, or

          (2) make a Capital Investment on the property equivalent to 10% of the gross revenues of operation that was relocated in the immediately preceding taxable year;

     and provides for repayment of all tax benefits if the requirements of (a) or (b) are not met.

     Section 1.20. “Subzone” means the parcel or parcel of land designated by the Commissioner of Employment and Economic Development within the Zone within the boundaries of the City of Granite Falls to receive certain tax credits and exemptions specified under Minnesota Statutes, Sections 469.310 through 469.320.

     Section 1.21. “Subzone Administrator” means the Community Development Director or such other person who has been designated by the City to administer the Subzone.

     Section 1.22. “Unavoidable Delays” means delays, outside the control of the party claiming its occurrence, which are the direct result of strikes, other labor troubles, unusually severe or prolonged bad weather, acts of God, fire or other casualty to the Project, litigation commenced by third parties which, by injunction or other similar judicial action or by the exercise of reasonable discretion, directly results in delays, or acts of any federal, state or local governmental unit (other than the City) which directly result in delays.

     Section 1.23. “Zone” means, generally, a Job Opportunity Building Zone or an Agricultural Processing Facility Zone designated by the commissioner of Employment and Economic Development under Minnesota Statutes, Section 469.314; and, for purposes of this Agreement, the Granite Falls Community Ethanol Plant Zone.

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ARTICLE II

BUSINESS SUBSIDY REQUIREMENTS

     Whereas, compliance with provisions of the Minnesota Business Subsidy Law requires the following and the parties agree that:

     Section 2.1. The Business Subsidy shall include all tax exemptions, job credits or other business subsidies provided from January 1, 2004 until the last date of the Job Zone Term, including but not limited to:

          (a) Exemption from individual income taxes as provided under Minnesota Statutes, Section 469.316, provided to the individuals operating and having made a qualifying investment in the Qualified Business; and

          (b) Exemption from corporate franchise taxes as provided under Minnesota Statutes, Section 469.317; and

          (c) Exemption from the state sales and use tax and any local sales and use taxes on qualifying purchases as provided in Minnesota Statutes, Section 297A.68, subdivision 37; and

          (d) Exemption from the state sales tax on motor vehicles and any local sales tax on motor vehicles as provided under Minnesota Statutes, Section 297B.03; and

          (e) Exemption from the property tax as provided in Minnesota Statutes, Section 272.02, subdivision 64; and

          (f) Exemption from the wind energy production tax under Minnesota Statutes, Section 272.029, subdivision 7; and

          (g) The jobs credit allowed under Minnesota Statutes, Section 469.318.

     Section 2.2. Other business subsidies provided to the Qualified Business, as described in the Business Subsidy statute at Minnesota Statutes, Sections 116J.993 through 116J.995, shall be identified, including the amounts and type of subsidy provided, specifically:

          (a) A no interest loan provided by the City or its Economic Development Authority in the aggregate principal amount of $500,000.

          (b) A three 3% low interest loan provided by the City, its Economic Development Authority or other governmental entity or entities in the aggregate principal amount of $100,000.

          (c) A 5% interest West Minnesota Revolving Loan Fund loan provided by the Upper Minnesota Valley Regional Development Commission in the aggregate principal amount of $110,000.

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     Section 2.3. The public purposes for the Business Subsidy agreed to by the parties hereto shall include, but not be limited to:

          (a) The enhancement of economic growth and diversity;

          (b) The retention of jobs and high quality job growth; and

          (c) Stabilizing the community by putting vacant land to use.

     Section 2.4. The measurable, specific, and tangible goals for the Business Subsidy shall include:

          (a) In accordance with the Business Subsidy Law, the Qualified Business shall create at least 10 new full-time equivalent positions within the Subzone boundaries at an average wage of at least $10.00 per hour within fourteen months of the Benefit Date and at least 10 additional new full-time equivalent positions within the Subzone boundaries at an average wage of at least $10.00 per hour within two years of the Benefit Date for a total of 20 full-time equivalent jobs within two years of the Benefit Date.

          (b) In addition, the Qualified Business shall create at least 10 additional new full-time equivalent positions within the Subzone boundaries at an average wage of at least $10.00 per hour within three years of the Benefit Date for a total of 30 full-time equivalent jobs within three years of the Benefit Date.

     Section 2.5. The City has adopted, after holding a properly noticed public hearing, a Business Subsidy Policy identifying the criteria that a Recipient must meet in order to be eligible to receive a Business Subsidy as required by Minnesota Statutes, Section 116J.994, Subd. 2. The City has submitted a copy of the criteria to the Department of Employment and Economic Development along with the first annual report.

     Section 2.6. A properly noticed public hearing was held by the City’s Economic Development Authority on the Business Subsidy by the City on September 15, 2004 as required by Minnesota Statutes, Section 116J.994, Subd. 5.

     Section 2.7. If the goals set forth in Section 2.4(a) (the “Goals”) are not met or the Qualified Business ceases operations on the Property during the Job Zone Term, the Qualified Business agrees to repay the amount of the total tax reduction pursuant to Section 2.1(a) through (f) and any refund under pursuant to Section 2.1(g) in excess of tax liability, received during the two years immediately before it ceased to operate in the Zone to the Minnesota Department of Revenue or Chippewa County (in the case of property or county sales tax reductions) or the City of Granite Falls (in the case of city sales tax reductions), as required by Minnesota Statutes, Section 469.319.

     Section 2.8. If the Goals set forth in Section 2.4(a) are not met, the Qualified Business agrees to repay all or a part of the Business Subsidy (including but not limited to the total tax reduction and any refund in excess of tax liability) to the City, plus interest (“Interest”) set at the implicit price deflator defined in Minnesota Statutes, Section 275.70, Subd. 2, accruing from and after the Benefit Date, compounded semiannually. If the Goals are met in part, the Qualified

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Business will repay a portion of the Business Subsidy (plus Interest) determined by multiplying the Business Subsidy by a fraction, the numerator of which is the number of jobs in the Goals which were not created at the wage level set forth above and the denominator of which is 20 (i.e. number of jobs set forth in Section 2.4(a)), as required by Minnesota Statutes, Section 116J.994, Subd. 6; provided, however, the City agrees that if Section 469.319 of the JOBZ Law is subsequently interpreted by the Commissioner of Revenue or a court of competent jurisdiction or amended by the legislature in a manner that would indicate that Section 469.319 of the JOBZ Law supercedes Section 116J.994, Subd. 6 of the Business Subsidy Law, the City will waive the repayment provisions of this Section 2.8.

     Section 2.9. The Qualified Business shall continue operations on the Property for at least twelve (12) years after the Benefit Date.

     Section 2.10. The Qualified Business agrees to (i) report its progress on achieving the Goals to the City until the later of the date the Goals are met or the end of the JOBZ term, or, if the Goals are not met, until the date the Business Subsidy is repaid, (ii) include in the report the information required in Minnesota Statutes, Section 116J.994, Subd. 7 on forms developed by DEED, and (iii) send completed reports to the City. The Qualified Business agrees to file these reports no later than March 1 of each year commencing March 1, 2005, and within 30 days after the deadline for meeting the Goals. The City agrees that if it does not receive the reports, it will mail the Qualified Business a warning within one week of the required filing date. If within 14 days of the post marked date of the warning the reports are not made, the Qualified Business agrees to pay to the City a penalty of $100 for each subsequent day until the report is filed up to a maximum of $1,000, as required in Minnesota Statutes, Section 116J.994, Subd. 7.

     Section 2.11. The City will provide the Qualified Business with all of the local tax benefits and property tax benefits permitted under Minnesota Statutes, Section 469.315.

     Section 2.12. The Qualified Business receiving sales tax exemptions provided under Minnesota Statutes, Section 297A.68, subdivision 37(b) and (c) and (d) shall comply with prevailing wages requirements under Minnesota Statutes, Section 116J.871 to the extent projects were not bid prior to May 2004.

     Section 2.13. During the Job Zone Term, the Qualified Business shall not s