Management Agreement

EXHIBIT 10.11


MANAGEMENT AGREEMENT*


THIS MANAGEMENT AGREEMENT is made and entered into this 12th day of November, 2004, by and between East Kansas Agri-Energy, LLC, a Kansas limited liability company ("OWNER") and UNITED BIO ENERGY MANAGEMENT, LLC, a Kansas limited liability company ("MANAGER").


WHEREAS, OWNER intends to own and operate an ethanol production facility located in or near Garnett, Kansas (the "Plant");


WHEREAS, MANAGER is in the business of managing and operating ethanol production facilities such as the Plant; and


WHEREAS, OWNER desires to engage MANAGER as its managing agent at the Plant, and MANAGER desires to accept such engagement upon all of the terms and conditions hereinafter described.


NOW, THEREFORE, in consideration of mutual covenants contained herein, the parties agree as follows:


1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings:


(a) "ACCOUNTS" shall mean the account(s) established in accordance with paragraph 12.


(b) "AGREEMENT" and the words "herein", "hereof", "hereby" "hereunder", and words of similar import shall refer to this Management Agreement as a whole and not to any particular provision unless expressly so limited.


(c) "DAY", "QUARTER" and "YEAR" shall refer to a calendar day, quarter and year, respectively, unless expressly provided otherwise.


(d) "EFFECTIVE DATE" shall mean the date on which MANAGER hires the General Manager to provide the services described herein, which date shall not be earlier than January 1, 2005.


(e) "GENERAL MANAGER" shall mean that Person who is employed by MANAGER, from time to time, to act as the General Manager of the Plant and perform the duties set forth in paragraph 13.


(f) "INCENTIVE BONUS" shall mean the amounts payable by OWNER to MANAGER under paragraph 9.


*Portions of this Exhibit are omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.


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(g) "MANAGEMENT FEE" shall mean the amounts payable by OWNER to MANAGER under paragraph 8.


(h) "MANAGER" shall mean United Bio Energy Management, LLC, a Kansas limited liability company.


(i) "NET INCOME" shall mean the amount (if any) by which Operational Revenues exceed Operational Costs, as determined using Generally Accepted Accounting Principles applied on a consistent basis, as agreed to by and between OWNER and MANAGER.


(j) "OPERATIONAL COSTS" shall mean all normal and reasonable costs and expenses directly and indirectly associated with the daily operation of the Plant including, without limitation, administration costs, the Management Fee, legal and accounting, interest expense, book depreciation (not tax) and amortization (as determined by an independent accounting firm approved by the parties), utilities, production inputs, supplies, transportation, employee salaries and benefits, maintenance, general supplies, raw material acquisitions, and equipment maintenance. All Operational Costs are the direct obligation of the OWNER and ultimately are to be paid by the OWNER. Operational Costs do not include those expenses to be borne by MANAGER and not reimbursed by the terms of this Agreement. Operational Costs do not include the Incentive Bonus to be paid by OWNER to MANAGER, nor do they include costs incurred for capital expenditures, including, but not limited to, purchases of equipment, hardware or software technology, or expansion of the Plant, or any other costs or expenses incurred that are associated, directly or indirectly, with items not included in the definition of Operational Revenues.


(k) "OPERATIONAL REVENUES" shall mean all revenues from the operation of the Plant. Operational Revenues shall not include any revenues from the sale of the entire Plant, or any land adjacent thereto, or payments from the federal, state and local government made directly to OWNER.


(l) "OWNER" shall have the meaning set forth above.


(m) "PERSON" shall mean any individual, corporation, partnership, limited liability company, trust or other legal entity.


(n) "PLANT" shall have the meaning set forth above and shall include the physical plant and equipment used for production of the Products.


(o) "PLANT CONTROLLER" shall mean that Person who is employed by OWNER, from time to time, to act as the primary accountant of the Plant.


(p) "PRODUCTS" shall mean all items produced at the Plant including, without limitation, ethanol and distillers grains.


(q) "PROPRIETARY INFORMATION" shall have the meaning set forth in paragraph 14.


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2. ENGAGEMENT OF MANAGER. OWNER hereby engages and designates MANAGER, and MANAGER hereby accepts such engagement and designation, on the terms and conditions hereinafter set forth, as OWNER's managing agent to direct, supervise, operate, maintain and manage the Plant.


3. DUTIES OF MANAGER. MANAGER is hereby authorized and directed by OWNER to do all of the following and agrees, in each case on behalf of and at the expense of OWNER, to:


(a) supervise and direct the general operations of the Plant and operate it efficiently and effectively;


(b) hire, pay, supervise and discharge all employees necessary to properly maintain and operate the Plant in accordance with OWNER's terms and conditions of employment, provided, however, that MANAGER shall obtain the approval of OWNER prior to reassigning or terminating the Plant Controller, which approval shall not be unreasonably withheld, and cause to be prepared and timely filed and paid all necessary returns, forms and payments in connection with unemployment insurance, withholding, social security and other like benefits and taxes, all such employees to be employees of OWNER and not of MANAGER (notwithstanding the above, OWNER shall retain the right to unilaterally terminate the services of the Plant Controller);


(c) prepare or cause to be prepared for review and approval of OWNER an annual operating budget setting forth the anticipated income and expenses for the Plant for the ensuing year, a comparison of such budget to the income and expenses of the preceding and current years, and any required explanations with respect thereto;


(d) set up and keep in good order separate, accurate and adequate accounting records to be maintained for OWNER, and maintain orderly files containing income records, insurance policies, leases and subleases, correspondence, receipted bills and vouchers, and all other documents pertaining to the Plant or the operation thereof, and prepare or cause to be prepared for OWNER monthly and annual statements of account as of the end of each month and year, all in accordance with paragraph 28;


(e) check all bills received for services, work and supplies ordered in connection with maintaining and operating the Plant and pay, with OWNER's funds, or cause to be paid all such expenses, mortgage interest and amortization, ground rent, water charges, sewer rent, assessments, real estate taxes, and other taxes assessed against the Plant as and when the same shall become due and payable;


(f) establish and maintain the Accounts; collect payments from customers of the Plant and take any and all actions MANAGER deems necessary or desirable to collect such payments; deposit such payments into, and withdraw or disburse such amounts from, the Accounts; all in accordance with paragraph 12.


(g) comply with all covenants of OWNER under the terms of any mortgage loan


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affecting the Plant, subject to OWNER's duties in paragraph 6(a);


(h) cause to be effected and maintained on the Plant the insurance referred to in paragraph 29;


(i) notify OWNER and applicable insurance carriers of policies under paragraph 29 of any serious bodily injury (including death) to any Person and any substantial property damage, or claims as to either, that MANAGER has knowledge of or should have knowledge of, and deliver to OWNER any legal process received by it which affects or may affect OWNER or the Plant;


(j) contract for and cause the purchase of all services, grains, supplies and other materials necessary for the Plant to produce the Products and contract for and cause the marketing and sale of the Products; provided, however, MANAGER shall not contract with an affiliate of MANAGER for any of the items stated in this paragraph 3(j), without the prior approval of OWNER;


(k) contract for electricity, natural gas, water, waste water, fuel oil, rubbish and snow removal, vermin extermination and such other services or such of them as MANAGER deems necessary or advisable, provided, however, MANAGER shall not contract for electricity, natural gas, water and waste water without the prior approval of OWNER;


(l) contract for and cause the Plant and all fixtures, furnishings, equipment, supplies, tools, and other materials and facilities thereof to be maintained in good order and condition; to cause all routine repairs, replacements and alterations to be made thereto; and to purchase such items MANAGER deems necessary or desirable for the operation and maintenance of the Plant; provided, however, that MANAGER shall not contract for any particular item involving an expenditure in excess of $15,000, other than budgeted items, without the prior approval of OWNER except in circumstances which MANAGER reasonably believes constitutes an emergency requiring immediate action for the preservation or safety of the Plant or its occupants or to avoid the suspension of any necessary service;


(m) use its best efforts to cause the Plant and its operations to comply with all applicable laws and regulations;


(n) act in compliance with OWNER's Operating Agreement and other governing documents provided that (i) MANAGER has actual knowledge of OWNER's Operating Agreement and other governing documents, and any amendments thereto, and (ii) the terms of this Agreement shall not altered or amended by any of the terms of OWNER's Operating Agreement and other governing documents and any amendments thereto;


(o) reasonably cooperate with OWNER and its attorneys and accountants in making any disclosures required by the Securities Act of 1933 and the Securities Exchange Act of 1934 or any other securities laws;


(p) recommend and, subject to the approval of OWNER, cause all such acts and


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things to be done in or about the Plant as shall be necessary to comply with any and all orders or violations affecting the Plant placed thereon by any federal, state or municipal authority having jurisdiction thereover, subject to OWNER's duties in paragraph 6(a);


(q) cooperate with OWNER's accountants in regard to the preparation and filing on behalf of OWNER of any income or other tax return; and


(r) provide benchmarking services to OWNER as described on EXHIBIT A attached hereto.


4. AUTHORITY OF MANAGER. OWNER authorizes MANAGER, for OWNER's account and on its behalf, to enter into contracts and perform any act or do anything MANAGER deems necessary or desirable in order to carry out MANAGER's duties under this Agreement, and everything done by MANAGER under the provisions of this Agreement shall be done as agent of OWNER.


5. LIMITATIONS ON AUTHORITY OF MANAGER. Notwithstanding any other provision in this Agreement to the contrary, MANAGER shall have no authority to engage or discharge any accountants, auditors or attorneys without the written consent of OWNER. Further, MANAGER shall have no authority to pay to itself the Incentive Bonus until MANAGER and OWNER approve the financial statements for the applicable quarter, in accordance with paragraph 9 below. Unless otherwise authorized by OWNER and except as provided in paragraphs 3 and 4, MANAGER shall have no authority regarding any matter not provided for under this Agreement.


6. DUTIES OF OWNER. OWNER shall act in good faith and do all things reasonably requested by MANAGER to aid and assist MANAGER in the performance of its duties under this Agreement including, without limitation, to provide:


(a) an accurate and complete copy of any and all contracts and other obligatory instruments of OWNER necessary for MANAGER to perform its duties under this Agreement;


(b) a comprehensive written semi-annual review and evaluation of MANAGER's performance hereunder, within thirty (30) days after the end of the second and fourth fiscal quarters of each year; and


(c) such executive office space, furniture, telephone, computer, printer and other office equipment, including high speed internet services, for the General Manager as may be reasonably agreed to by MANAGER and OWNER.


7. INDEPENDENT CONTRACTOR. MANAGER shall perform its duties under this Agreement as an independent contractor. Nothing contained herein shall be construed as creating a partnership or joint venture, nor construed as making MANAGER an employee of OWNER. MANAGER shall have no right or power to act for OWNER other than as contemplated in this Agreement or otherwise expressly authorized by OWNER.


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8. MANAGEMENT FEE. OWNER shall pay to MANAGER an annual management fee of $250,000.00 payable at a monthly rate of $20,833.33, which shall be due and payable in advance on the 1st day of each month during the term of this Agreement. If the Effective Date of this Agreement is on a day other than the first day of a calendar month or ends on a day other than the last day of a calendar month, then the Management Fee will be appropriately prorated by MANAGER based on the actual number of calendar days in such month.


9. INCENTIVE BONUS. In addition to the Management Fee, OWNER shall pay to MANAGER an annual Incentive Bonus based on [*] for each year during the term of this Agreement or, in the event the term of this Agreement includes a part of a year, such partial year. The Incentive Bonus shall be due and payable in quarterly installments. The amount of the Incentive Bonus payable to the MANAGER for the first, second and third quarters of each year shall be calculated under Table 1 below and shall be due and payable within thirty (30) days after the end of each quarter or, if later, approval of the monthly financial statements for that quarter by MANAGER and OWNER; provided, however, that in no event shall the quarterly installment of the Incentive Bonus be made more than sixty (60) days after the end of such quarter. The amount of Incentive Bonus payable to MANAGER for the final quarter of each year shall equal the amount calculated under Table 2 below less the aggregate amount of the Incentive Bonus paid to MANAGER for the prior quarters in such year. In no event shall the annual aggregate amount of the Incentive Bonus paid to MANAGER for any year exceed $[*]. In the event the aggregate amount of Incentive Bonus paid to MANAGER for the prior quarters of any year exceeds the amount calculated under Table 2 for the final quarter of such year, MANAGER shall refund the amount of such excess to OWNER. The payment or refund, as the case may be, for the final quarter of each year shall be made within thirty (30) days after the annual audit for such year; provided, however, that in no event shall the final payment or refund of the Incentive Bonus be made more than one hundred twenty (120) days after the end of such year.


Table 1


[*]


Table 2


[*]


The calculation for the quarterly payment of the Incentive Bonus under Table 1 above shall be based on [*] for the applicable quarter. The calculation for the final payment or refund of the Incentive Bonus under Table 2 above shall be [*] for the applicable year. In the event the term of this Agreement is terminated prior to the end of any year, the [*] for such year shall be determined through the date of termination and the Incentive Bonus for the quarter which includes such date of termination shall be calculated as if such quarter was the final quarter for such year (i.e., the amount calculated under Table 2 above less the aggregate amount of the Incentive Bonus paid to MANAGER for the prior quarters in such year).


*Portion omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.


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As an example, if [*] for the first quarter of the year is $[*], the Incentive Bonus payable to MANAGER for that quarter under Table 1 above would be $[*] (i.e., [*] of $[*] [$[*] less $[*]]). If [*] for the second quarter of the year is $[*], the Incentive Bonus payable to MANAGER for that quarter under Table 1 above would ...