EXHIBIT 10.18
MANAGEMENT AND OPERATIONAL
SERVICES AGREEMENT
This Management and Operational Services
Agreement (“Agreement”) is made and entered into as of
the 9th day of May, 2008, by and between REG Services Group, LLC, a
limited liability company organized and existing under the laws of
the state of Iowa, with offices at Ames, Iowa (“REG
Services”), REG Marketing & Logistics Group, LLC, a
limited liability company organized and existing under the laws of
the state of Iowa, with offices at Ames, Iowa (“REG
Marketing”), and Blackhawk Biofuels, LLC, a limited liability
company organized and existing under the laws of the state of
Delaware, with offices at 22 South Chicago Avenue, Freeport,
Illinois 61032 (“Blackhawk Biofuels”).
RECITALS: A biodiesel production facility
is currently under construction by Biofuels Company of America, LLC
(“BCA”) in Danville, Illinois (“Biodiesel
Facility”). Blackhawk Biofuels intends to purchase
substantially all of the assets of BCA and will own the Biodiesel
Facility pursuant to that certain Asset Purchase Agreement of even
date herewith by and between Blackhawk Biofuels, Bunge North
America, Inc., a New York Corporation (“Bunge”),
BCA, Renewable Energy Group, Inc. (“REG”), and
Biodiesel Investment Group, LLC (the “Purchase
Agreement”). Blackhawk Biofuels and REG Services have
discussed the general terms and conditions under which REG Services
would provide start-up management and operational services to
Blackhawk Biofuels with respect to the Biodiesel Facility, which
the parties wish to reduce to this writing. This Agreement amends,
restates and is hereby substituted for that Management and
Operational Services Agreement originally made and entered into as
of August 4, 2006, between West Central Cooperative and
Blackhawk Biofuels, as assigned to and assumed by REG
October 26, 2006, and as revised by the First Amendment to
Management and Operational Services Agreement made and entered into
as of the 15th day of December, 2007, by and between REG, REG
Services, REG Marketing, and Blackhawk Biofuels.
IT
IS THEREFORE AGREED by and between the parties as
follows:
1.
General Scope . Subject to the terms of this Agreement, and
in consideration of the fee for such services to be paid by
Blackhawk Biofuels as set out herein, REG Services will provide for
the overall management of the Biodiesel Facility, place a general
manager and an operations manager at the Biodiesel Facility,
acquire feed stocks and the basic chemicals necessary for the
operation of the Biodiesel Facility, perform the administrative,
sales and marketing functions for the Biodiesel Facility, and
fulfill the remaining personnel needs of the Biodiesel Facility by
the leasing of employees to Blackhawk Biofuels. In fulfilling its
duties and obligations hereunder, REG Services shall cooperate with
Blackhawk Biofuels and act in a manner to maximize the long-term
success and profitability of Blackhawk Biofuels.
2.
Responsibilities of REG Services . Under this Agreement, REG
Services agrees to provide the following:
A.
General Manager . REG Services will provide a General
Manager to implement and oversee the business plan for the
Biodiesel Facility, and direct, promote and coordinate the staff,
personnel and plant operations. The General Manager will be
an
employee of REG Services, but will be assigned to carry out the
responsibilities of General Manager at the Biodiesel Facility.
Included among the specific duties to be accomplished by the
General Manager are:
·
To utilize their ongoing best efforts to successfully and
profitably manage the Biodiesel Facility in Blackhawk
Biofuels’ best interests;
·
Development of an annual budget for presentation to and approval of
Blackhawk Biofuels’ Board of Managers (or other board of
governance (“Board”));
·
Attend meetings of the Board and provide information upon its
request;
·
Insure that all raw product costs are minimized and that all
finished product revenues are maximized;
·
Work with Blackhawk Biofuels’ Board to formulate Blackhawk
Biofuels’ mission and goals;
·
Work towards achievement of such mission and goals;
·
Assist with regulatory affairs monitoring and compliance;
·
Hire, terminate and replace Biodiesel Facility personnel as
necessary;
·
Management of governmental relations, including USDA’s
biodiesel programs; and
·
Such other duties as may be agreed between REG Services and
Blackhawk Biofuels.
The
General Manager will report to such officer of REG Services as REG
Services shall from time to time designate. All employee
compensation and employee benefits associated with the position of
General Manager will be paid by REG Services.
B.
Operations Manager . REG Services will provide an Operations
Manager to oversee the operation of the Biodiesel Facility. The
Operations Manager will be an employee of REG Services, but will be
assigned to carry out the responsibilities of Operations Manager at
the Biodiesel Facility. Included among the specific duties to be
accomplished by the Operations Manager are:
·
Planning and scheduling biodiesel production to meet customer needs
and marketing goals;
·
Monitor and improve quality control;
·
Oversee facility and equipment maintenance;
·
Assist with budgeting and the monitoring of labor and other
expenses in the operation;
·
Implement processing changes and new technologies as they evolve,
and plan for new projects relating to biodiesel production; and
·
Such other duties as may be agreed to between REG Services and
Blackhawk Biofuels.
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The
Operations Manager will report to the General Manager. All employee
compensation and employee benefits associated with the position of
Operations Manager will be paid by REG Services.
C.
Feed Stocks Procurement . REG Services will be responsible
for arranging the purchase of soybean oil, together with other feed
stocks as may be needed in the future. REG Services will procure
all feed stocks necessary for production at the Biodiesel Facility;
and will:
·
Provide analysis and audit of feed stock suppliers;
·
Purchase feed stocks at competitive prices meeting specifications
and in adequate quantities to fill the production schedule of the
Biodiesel Facility;
·
Negotiate for discounts where obtainable on feed stocks;
·
Arrange for transportation, logistics, and scheduling of feed stock
deliveries; and
·
Provide analysis and audit of bulk transportation providers.
D.
Chemical Inputs Procurement . REG Services will be
responsible for purchasing methanol, sodium methylate, hydrochloric
acid, and caustic soda, together with such other chemical inputs as
may be needed in the future. REG Services will procure all basic
chemical inputs necessary for production at the Biodiesel Facility;
and will:
·
Perform due diligence requirements for investigation of suppliers
of the chemical inputs;
·
Provide analysis and audit of chemical suppliers;
·
Purchase chemical inputs at competitive prices meeting
specifications for use in the Biodiesel Facility;
·
Negotiate for discounts where obtainable on chemicals;
·
Procure adequate chemical inputs to meet production schedules for
the Biodiesel Facility;
·
Provide analysis and audit of bulk transportation suppliers;
and
·
Arrange for transportation, logistics, and scheduling services for
chemical input deliveries by suppliers.
E.
Administrative Services . REG Services shall provide
administrative services to support the operation of the Biodiesel
Facility, agreeing to provide assistance within the following areas
as more fully described on Exhibit A hereto (and at REG
Services’ expense except for those materials and items noted
on such Exhibit A):
·
Accounting
·
Human Resources
·
Information Technology
·
Insurance Administration
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·
Payroll
·
Communications
F.
Sales and Marketing . REG Services will utilize its best
efforts as Blackhawk Biofuels’ sale representative to market
all biodiesel, glycerin and fatty acids produced at the Biodiesel
Facility (“Products”) at the Product Prices (as defined
below). With respect to such services, REG Services agrees to
provide:
·
Market analysis of biodiesel supply and demand, utilizing
non-proprietary, public information;
·
Opportunities for participation in a trade association to access
additional historical data regarding prices, costs, and other
analysis, contributed and disseminated to members on an aggregated
basis;
·
Enhanced access to biodiesel markets with REG Services’
established distribution channels and transportation at pass
through costs;
·
Analysis and audit of biodiesel customers desiring to purchase
Blackhawk Biofuels Product, including credit analysis;
·
Marketing specialists to serve as Blackhawk Biofuels’
representatives to identify potential customers and attain and
establish sales opportunities for the Products at the prices and
terms as established by Blackhawk Biofuels;
·
Arrangements for transportation, logistics, and scheduling of
biodiesel shipments;
·
Where advantageous, arrange for leased tankers for rail
shipments;
·
Analyze and audit bulk transportation providers;
·
Oversee reconciliation of shipments, invoicing and payments on a
weekly basis; and
·
Provide invoicing and accounts receivable management for biodiesel
shipments.
G.
Provision of Leased Employees . In addition to furnishing
the above services, REG Services shall lease to Blackhawk Biofuels
at Blackhawk Biofuels’ expense those employees as are
necessary to fill the remaining personnel needs to operate the
Biodiesel Facility. Based upon the Biodiesel Facility and operation
planned as of the execution of this Agreement, the lease will cover
the listing of job descriptions as set out on Exhibit B
hereto, but the employees being leased and their job descriptions
will be changed from time to time by the General Manager as
necessary to best operate the Biodiesel Facility.
H.
Information for the Board . REG Services shall provide
Blackhawk Biofuels access to and make available all information
regarding Blackhawk Biofuels performance, including but not limited
to all financial, and production information, in addition to any
information Blackhawk Biofuels board may need to perform its
duties.
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I.
Capital Costs . REG Services shall provide to the Board of
Managers of Blackhawk Biofuels for board approval any capital costs
it deems necessary prior to incurring said costs.
J.
Employee Dismissal . Should dismissal of an employee whether
leased, or the General Manager or Operations Manager become
necessary, REG Services will make its best effort to use other
staff including staff of other facilities it manages to continue
operations of Blackhawk Biofuels. Appropriate dismissal will not be
delayed by staffing concerns.
3.
Compensation for Services . In consideration of the services
to be rendered during the term of this Agreement:
A.
Monthly Fee . Blackhawk Biofuels shall initially pay to REG
Services, on a monthly basis:
(i)
Commencing with the month during which substantial completion of
the animal fat phase is achieved, or when the Biodiesel Facility
begins production of biodiesel from soy oil (or from other feed
stocks), which ever shall occur first, a flat fee of
$75,000.00 to be paid regardless of the gallons of biodiesel
produced from the Biodiesel Facility (“Flat Fee”) (the
first month prorated for the fraction of the month after such event
occurs); and
(ii)
A fee equal to 4.25¢ per gallon of biodiesel produced from the
Biodiesel Facility during the month for which the fee is computed
(the rate per gallon herein the “Fee Rate”). For
purposes of this Agreement, determination of the biodiesel produced
from the Biodiesel Facility for a month shall be based upon a
compilation of the daily production reports for the Biodiesel
Facility for such month, and references to a “gallon”
shall be to the U.S. liquid measure of capacity, 231 cubic inches,
corrected to 60 degrees Fahrenheit.
The
Flat Fee and the payment amount resulting from the computation
utilizing the Fee Rate and the gallons of biodiesel produced in a
month are referred to herein collectively as the “Monthly
Fee.”
The
Flat Rate and Fee Rate shall be adjusted for the month following
the third anniversary of the Biodiesel Facility first producing
Product for sale (“First Production Month”), and
annually for such month thereafter, according to the movement in
the Consumer Price Index for all-urban consumers, U.S. City
Average, All Items published by the Department of Labor (the
“CPI”) in the following manner. The CPI for the
Twenty-fifth Production Month shall be used as the denominator and
the CPI for the month preceding the month for which the adjusted
Flat Rate and Fee Rate are being computed shall be used as the
numerator. This fraction shall be multiplied by $75,000.00, with
the resulting amount being the new Flat Fee. Such fraction shall
then be used to multiply times
5
the
initial 4.25¢ Fee Rate, resulting in the new Fee Rate. The new
Flat Rate and new Fee Rate shall then be used to compute the
Monthly Fee for twelve (12) months beginning with the month for
which the adjusted Flat Fee and Fee Rate were computed, except that
in no event shall the adjusted Flat Fee and the Fee Rate be less
than the $75,000.00 Flat Fee and the 4.25¢ Fee Rate as set out
above. The Flat Fee and the Fee Rate for each subsequent year of
the term shall be adjusted in a similar manner, with the CPI for
the First Production Month being used as the denominator and the
CPI for the month preceding the month for which the adjusted Flat
Fee and Fee Rate are being computed being used as the numerator,
and such fraction being multiplied by the respective $75,000.00
Flat Rate and the initial 4.25¢ Fee Rate, such adjusted Flat
Fee and Fee Rate in no event to be less than the $75,000.00 Flat
Fee and the 4.25¢ Fee Rate as set out above. If CPI
information is not yet available when payment of the Monthly Fee is
due, the Monthly Fee shall be paid based upon the Flat Rate and the
Fee Rate in effect prior to adjustment, the parties agreeing upon
receipt of the CPI information and calculation of the adjusted Flat
Rate and Fee Rate to make any necessary adjustment in payment so
that the correct Monthly Fees have been paid. If the Department of
Labor’s method of computing the CPI is substantially modified
or ceases, the parties agree to adopt another measure of the cost
of living for these purposes.
B.
Net Income Bonus . As an incentive to REG Services, and as
additional compensation for the services being rendered, Blackhawk
Biofuels agrees to pay a bonus to REG Services on a yearly basis
equal to six percent (6%) of the Net Income of Blackhawk
Biofuels’ Biodiesel Facility (“Net Income Bonus), as
determined hereafter. For purposes of this Agreement, Blackhawk
Biofuels’ “Net Income” shall be the net income
for its fiscal year before any deduction or allowance for federal
or state income taxes, determined in accordance with generally
accepted accounting principles applied on a consistent basis by the
independent CPA firm engaged by Blackhawk Biofuels, and then
adjusted as necessary to: (i) include the receipt of
government payments such as under the federal excise tax credit
program or similar federal or state payments; (ii) exclude any
gains or losses realized on the sale or disposition of capital
assets; (iii) adjust depreciation to utilize Internal Revenue
Service Class lives depreciated on a straight line, mid-month
basis (with no bonus depreciation, Section 179 expense
(election to expense certain depreciable assets) or any other
method of accelerated depreciation, first year write-off or
expensing to be taken), and (iv) exclude any reduction for the
Net Income Bonus paid or accrued to REG Services as a result of
this subsection, and (v) exclude any income from grant
programs Blackhawk Biofuels may receive from state and federal
programs. For any partial fiscal year for Blackhawk Biofuels
occurring during the term of this Agreement, REG Services shall
receive a Net Income Bonus, if any, computed for that period of the
fiscal year in which REG Services provides services hereunder.
C.
Testing and Start-Up Fees . In order to prepare for and
perform production testing of the Biodiesel Facility being
constructed by Fagen, Inc. with equipment from DeSmet
Ballestra North America, Inc. and to ready the Biodiesel
Facility to begin
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full-scale production operations as a biodiesel
production plant capable of utilizing soy oil feedstocks
(“Testing and Start-Up Services”), REG Services has
been performing and agrees to perform the remaining Testing and
Start-Up Services required by Blackhawk Biofuels and its Biodiesel
Facility. Blackhawk Biofuels agrees to pay additional compensation
for the Testing and Start-Up Services to REG Services in the amount
of $483,000. Recognizing that a significant portion of the Testing
and Start-Up Services have already been provided by REG Services,
upon closing of the Purchase Agreement, REG Services shall issue an
invoice to Blackhawk Biofuels for that portion of Testing and
Start-Up Services performed prior to closing, Blackhawk Biofuels
agreeing to pay such invoice within ten (10) days after
receipt. Thereafter, REG Services shall bill Blackhawk Biofuels on
a monthly basis for Testing and Start-Up Services performed during
such month, such to be paid by Blackhawk Biofuels within ten
(10) days of receipt of such invoice, such performance of
services and payment therefor to continue until the total fee of
$483,000 has been paid by Blackhawk Biofuels to REG Services.
Blackhawk Biofuels understands and agrees that similar services may
be required for testing and start up of upgrades planned for by
Blackhawk Biofuels, including addition of animal fats processing
capabilities, the compensation for which will be provided for in
separate agreements.
D.
Payment . The Monthly Fee shall be due on the tenth (10th)
of the month following the month for which such fees are computed
and payable. The Net Income Bonus shall be paid within ten
(10) days after Blackhawk Biofuels’ Board accepts the
audit report for the fiscal year for which such Net Income Bonus is
computed, except that if the Net Income Bonus is not paid within
three (3) months of the close of Blackhawk Biofuels’
fiscal year because the audit has not been received (or within
three (3) months of the end of the term of this Agreement in
the event of the computation of an Income Bonus for a partial
fiscal year), Blackhawk Biofuels shall compute and pay an estimated
Net Income Bonus (if any is due) based on its internal figures on
or before the end of such three (3) month period, the parties
agreeing upon receipt of the audited figures to make any necessary
adjustment in such estimated payment so that the correct Net Income
Bonus has been paid.
E.
Direct Marketing . REG Services agrees to let Blackhawk
Biofuels direct market up to 4% of annual production. Blackhawk
Biofuels will supply on an annual basis the proposed sales schedule
for this direct-marketed Product. The Fee Rate to REG Services on
this direct-marketed Product shall be limited to an initial rate of
3¢ per gallon, and adjusted thereafter as outlined in
Section 3(A) above.
F.
Additional Compensation . The foregoing compensation would
be for the normal scope of responsibilities to be performed by REG
Services for the benefit of Blackhawk Biofuels with respect to the
Biodiesel Facility. In the event REG Services is required to
perform services beyond the scope of this Agreement, and REG
Services is willing to perform such additional services, the
parties shall agree upon the tasks to be undertaken, the time frame
for their performance, and
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how
REG Services shall be compensated for such additional
responsibilities. Additionally, if in order to increase revenue
opportunities, constrain costs or otherwise enhance services for
network plants such as Blackhawk Biofuels (and without limiting the
generality thereof including assuring necessary feedstocks or other
supplies, storage or transportation or obtaining more favorable
pricing therefore), REG Services incurs liability by entering into
long term commitments or otherwise guarantying contractual
performances which benefit Blackhawk Biofuels, REG Services shall
be entitled to additional reasonable compensation to be agreed upon
by the parties, commensurate with the risks undertaken and/or
services made available.
4.
Responsibilities of Blackhawk Biofuels . Concurrent with
performance of the obligations of REG Services as previously set
out in this Agreement, Blackhawk Biofuels understands and
recognizes that upon completion of the Biodiesel Facility, it shall
be the obligation of Blackhawk Biofuels to:
A.
Establish a Board of Managers or similar group to provide
governance of Blackhawk Biofuels, and input and guidance to the
General Manager regarding the Biodiesel Facility, and to take
action upon recommendations of the General Manager, and approve for
implementation reasonable suggestions of the General Manager. Not
withstanding anything to the contrary in this agreement, Blackhawk
Biofuels Board of Managers is the final authority in regards to
this Agreement and all areas of Biodiesel Facility not included in
this Agreement.
B.
Confer with REG Services on a monthly basis (or more often as
needed) to discuss and establish the price for which REG Services
is to sell the Product for Blackhawk Biofuels.
C.
Provide the names of several persons who would be authorized on
Blackhawk Biofuels’ behalf to establish Product Prices,
approve special prices, agree to the handling of off-grade Product,
and approve the write off of accounts receivable, and further to
notify REG Services of any changes in such designees (such
designees to be reasonably available for contact by REG Services,
and able to respond in a timely fashion).
D.
Provide funds for:
(i)
Purchase, installation and maintenance of software, hardware, and
related equipment, together with utilities and related charges, in
order to accomplish the necessary communication of voice and data
between the parties, and conduct Blackhawk Biofuels’ business
at and operate the Biodiesel Facility.
(ii)
The cost of acquisition and implementation of newly evolving
technologies (and including those developed by REG Services or its
affiliates) at the Biodiesel Facility, which have been approved by
the
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Board. If technologies are purchased from
REG Services or its affiliates, Blackhawk Biofuels’ cost will
not exceed REG Services’ cost plus 10%.
(iii)
Offices, computers, cell phones, and other facilities,
services and support for the personnel needed to operate the
Biodiesel Facility (and including the General Manager and
Operations Manager) and appropriate for the performance of their
duties for Blackhawk Biofuels. REG Services to supply an estimated
annual budget of these items for Blackhawk Biofuels’
approval.
(iv)
Payment or reimbursement for reasonable travel and other similar
out of pocket expenses incurred in furtherance of the business of
Blackhawk Biofuels and in fulfillment of the duties of the
personnel needed to operate the Biodiesel Facility (and including
the General Manager and Operations Manager), upon submission and
substantiation of such expenses as may be required for tax or
auditing purposes.
(v)
Payment of the costs of legal counsel and outside auditors as may
be determined necessary by the Board, and including for the
examination of financial records, preparation of income tax returns
for Blackhawk Biofuels and related reports to its owners and third
parties, securities filings, and similar reports.
(vi)
In general, the purchase and delivery of all feed stocks, chemical
and other inputs, all staff and personnel costs (other than those
of the General Manager and Operations Manager) necessary to operate
the Biodiesel Facility, and all other expenses of doing business at
the Biodiesel Facility not specifically being assumed by REG
Services as a part of the furnishing of services hereunder, as well
as all required capital expenditures to maintain the Biodiesel
Facility in a condition capable of producing Product acceptable to
the market place.
E.
To make available for, and allow access to Biodiesel Facility for
the purpose of:
(i)
Training of employees of REG Services or its affiliates or
customers.
(ii)
Tours for customers of REG Services or its affiliates.
F.
Perform such other tasks and duties as have been separately set out
hereunder and agreed to by Blackhawk Biofuels.
5.
Other Operational Understandings & Agreements :
A.
Risk Management Program . After review by Blackhawk
Biofuels’ Board of Managers, with sufficient information to
make decision and lender concurrence, Blackhawk Biofuels agrees to
negotiate with REG Services to adopt the risk management program
agreeable to both parties, which supports the procurement of feed
stocks and chemical inputs hereunder (“Risk Management
Program”).
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The
objective of the program is to manage the commodity price
risk resulting from fluctuating prices of feedstock (oils and
fats), chemical inputs (methanol and catalysts), and the finished
Products (biodiesel and glycerin) due to changing market
conditions. Under the Risk Management Program, REG Services will
utilize the Chicago Board of Trade, New York Mercantile Exchange,
and other exchanges as warranted to establish an account or
accounts in Blackhawk Biofuels’ name, and acquire instruments
as necessary to implement risk management strategies. Such
account(s) and instruments would be funded by Blackhawk
Biofuels and managed by REG Services, with all resulting gains and
losses from the purchase and sale transactions of any futures
contracts, options, and cash instruments associated with the Risk
Management Program to flow to the benefit of or be borne by
Blackhawk Biofuels. If approved, Blackhawk Biofuels agrees to adopt
such resolutions and execute such agreements as are reasonably
necessary to implement the Risk Management Program, and pay
transactional costs incurred to carry out such program.
B.
Plant Information Program . In its management of the
Biodiesel Facility, REG Services shall utilize a software program
(“PI System”) interfacing with the computer control
system running the Biodiesel Facility, making available production
data for operations, engineering, sales, marketing, logistics and
management to better make informed decisions with respect to
production processes. During the term of this Agreement, the PI
System will also allow for REG Services’ remote access to
information on the operation of the Biodiesel Facility to provide
for data collection, monitoring, benchmarking and trouble shooting,
all to better aid performance for Blackhawk Biofuels.
C.
Product Pricing . On at least a monthly basis (or more often
as needed), REG Services shall identify and provide publicly
available marketing information to Blackhawk Biofuels with respect
to Products. Information supplied will be in written form and
relayed at least three (3) business days prior to when a
decision is required. Blackhawk Biofuels will establish the Product
prices for REG Services to use in selling Products (“Product
Prices”), based upon market place conditions. Any change in
Product Prices shall be effective for Product sales made beginning
the seventh (7th) calendar day after REG Services’ receipt of
notice of new Product Prices, except for quotations still open and
extended prior to the change in the Product Prices, or unless
otherwise agreed to by the parties (Blackhawk Biofuels and REG
Services to honor all pre-existing contracts and agreements with
respect to price). All Product sales by REG Services as Blackhawk
Biofuels’ sales agent shall be at or above the Product Prices
then in effect, unless written consent is received from Blackhawk
Biofuels for special prices due to volume commitments, Blackhawk
Biofuels storage constraints, or other reasons approved by
Blackhawk Biofuels. REG Services specifically states that it will
not sell the Product at prices less t
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