Limited Liability Company Agreement

Exhibit 10.16


Gibson Dunn & Crutcher LLP

Execution Version


LIMITED LIABILITY COMPANY AGREEMENT OF


D&W RAILROAD, LLC


DATED AS OF DECEMBER 20, 2005


TABLE OF CONTENTS

SECTION 1. ORGANIZATION


1

1.01


Continuation


1

1.02


Name and Principal Place of Business.


2

1.03


Term


2

1.04


Registered Agent and Registered Office


2

1.05


Purpose


2


SECTION 2. MEMBERS


2

2.01


Members


2

2.02


Limitation on Liability


3


SECTION 3. CONTRIBUTIONS


3

3.01


Capital Contributions


3

3.02


Additional Capital Contribution Default under Section 3.01(b)(i)


5

3.03


Additional Capital Contribution Default under Section 3.01(b)(ii)


5

3.04


Membership Interest Modifications


5

3.05


Capital Accounts


6


SECTION 4. MEMBERSHIP INTERESTS


7

4.01


Membership Interests


7

4.02


Membership Interest Adjustments


7


SECTION 5. MANAGEMENT


7

5.01


Control


7

5.02


Joint Management


7

5.03


Budget


7

5.04


General Manager


8


SECTION 6. OPERATIONS


8

6.01


Carrier Service


8

6.02


D&W Operating Agreements


8

6.03


Service Failures


8

6.04


Third-Party Service Costs


9

6.05


IANR O&M Agreement Restriction


9


SECTION 7. IMPROVEMENTS AND MAINTENANCE


9

7.01


Immediate System Upgrades


9

7.02


Future Capital Improvement Projects


9

7.03


Maintenance Costs for Hawkeye and Transco


10

7.04


Third-Party Maintenance Costs


11

7.05


Union Pacific Trackage Rights Maintenance Costs


11


SECTION 8. RAIL TRANSPORTATION RATES AND TRACKAGE RIGHTS FEES


11

8.01


Rail Transportation Rates


11

8.02


UP Trackage Rights Fees


11


i


SECTION 9. OTHER OPERATING EXPENSES


12

9.01


Insurance


12

9.02


General Operating Expenses


12


SECTION 10. ALLOCATIONS AND TAX MATTERS


12

10.01


Allocations


12

10.02


Special Allocations


14

10.03


Curative Allocations


15

10.04


Tax Allocations


15

10.05


Tax Decisions


16


SECTION 11. DISTRIBUTIONS


16

11.01


Annual Distribution


16

11.02


Liabilities


17

11.03


Derailment Costs and Damages Under UP Agreement


18


SECTION 12. TRANSFERABILITY OF INTERESTS


18

12.01


Transfer of Interest


18

12.02


Tag-Along Rights


18


SECTION 13. FURTHER CONSIDERATION AND TRANSFERS TO TRANSCO


19

13.01


Payments to Transco.


19

13.02


Transfer of Certain D&W Yard Trackage


19

13.03


Hawkeye Railcar Maintenance Preference


19


SECTION 14. RECORDS AND ACCOUNTING


20

14.01


Records and Accounting


20

14.02


Fiscal Year


20


SECTION 15. ARBITRATION


20

15.01


Selection of Single Arbitrator


20

15.02


Three Arbitrator Panel


20

15.03


Arbitration Procedure and Binding Decision


21


SECTION 16. ADVERSE IMPACT


21


SECTION 17. CONFIDENTIALITY


22


SECTION 18. WARRANTIES AND REPRESENTATIONS


22

18.01


Transco


22

18.02


Hawkeye


28


SECTION 19. TAX PROCEDURES AND INDEMNIFICATION


28

19.01


Tax Returns


28

19.02


Taxes and Other Payments


29


ii


19.03


Indemnification of Hawkeye


29

19.04


Post-Closing Taxes


29

19.05


Apportionment


29

19.06


Tax Sharing Arrangements


30


SECTION 20. WAIVERS AND REMEDIES


30


SECTION 21. DEFAULT AND CURES


31


SECTION 22. ENTIRE AGREEMENT, SEVERABILITY AND CONSTRUCTION


31

22.01


Entire Agreement


31

22.02


Severability


31

22.03


Construction of Agreement and Terms


31


SECTION 23. NOTICES


31


SECTION 24. DISSOLUTION AND TERMINATION


32

24.01


Dissolution


32

24.02


Termination


33

24.03


Liquidating Member


34

24.04


Claims of the Members


34


SECTION 25. MISCELLANEOUS


34

25.01


Effective Date


34

25.02


Counterparts; Headings


34

25.03


Amendment


34

25.04


Binding Effect


34

25.05


Governing Law


34

SCHEDULE 18.01(b)

SCHEDULE 18.01(c)

SCHEDULE 18.01(h)

SCHEDULE 18.01(i)

SCHEDULE 18.01(j)

EXHIBIT A - DESCRIPTION OF IMMEDIATE SYSTEM UPGRADES

EXHIBIT B - DESCRIPTION OF D&W RAILROAD LINES

EXHIBIT C - MAP DESCRIBING THE RAIL LINES BEING TRANSFERRED TO TRANSCO

EXHIBIT D - SECTION 3.02 CALCULATION

EXHIBIT E - INITIAL BUDGET


iii


LIMITED LIABILITY COMPANY AGREEMENT

This Limited Liability Company Agreement (this " Agreement" ) is made as of the 20 day of December, 2005, by and between Transco Railway Products Inc. (" Transco" ), a Delaware corporation, Hawkeye Renewables, LLC, a Delaware limited liability company (" Hawkeye" , and together with Transco, the " Members" ) and D&W Railroad, LLC, a Delaware limited liability company (the " Company" or " D&W" ).

RECITALS

WHEREAS , on December 16, 2005, pursuant to Section 266 of the Delaware General Corporation Law (the " DGCL" ) and Section 18-214 of the Delaware Limited Liability Company Act (as amended, the " Delaware Act" ), the Company was converted (the " Conversion" ) from a Delaware corporation to a Delaware limited liability company pursuant to a Certificate of Conversion (the " Certificate of Conversion" ) and a Certificate of Formation (the " Certificate of Formation" ), each dated as of December 15, 2005, and filed with the Secretary of State of Delaware on December 16, 2005;

WHEREAS , Transco was the sole shareholder of the Company prior to its conversion into a limited liability company, and Transco is the sole member of the Company following the Conversion;

WHEREAS , Transco and Hawkeye desire that Hawkeye become a member of the Company in accordance with the terms contained herein;

WHEREAS , D&W owns approximately 51.95 miles of rail line and trackage (including incidental trackage rights) between Dewar, Iowa and Oelwein, Iowa, including all facilities thereon and appurtenances thereto (collectively the " Line" ); and

WHEREAS , Transco and Hawkeye desire to set forth herein certain agreements and arrangements with respect to the governance and operation of the Company and improvements of the Line, including track upgrades to accommodate the rail freight transportation needs of an ethanol production plant owned by Hawkeye located at Fairbank, Iowa (the " Fairbank Plant" ).

NOW, THEREFORE , in consideration of the premises, covenants, and considerations set out herein, the parties hereto agree as follows:

SECTION 1. ORGANIZATION 1.01 Continuation . The Company was converted to a limited liability company under the Delaware Act by the filing of the Certificate of Conversion and the Certificate of Formation. The Members hereby agree to continue the Company as a limited liability company under the Delaware Act, upon the terms and subject to the conditions set forth in this Agreement. The General Manager (as hereinafter defined) is hereby authorized to file and record any amendments to the Certificate of Formation and such other documents as may be reasonably

required or appropriate under the Delaware Act or the laws of any other jurisdiction in which the Company may conduct business or own property. 1.02 Name and Principal Place of Business . (a) The name of the Company is D&W Railroad, LLC. The Management Committee (as hereinafter defined) may change the name of the Company or adopt such trade or fictitious names for use by the Company as the Management Committee may from time to time determine. All business of the Company shall be conducted under such name, and title to all property of the Company shall be held in such name. (b) The principal place of business and office of the Company shall be located at the offices of Transco, or at such other place or places as the Management Committee may from time to time designate. 1.03 Term . The term of the Company commenced on December 16, 2005, the date of the filing of the Certificate of Conversion and the Certificate of Formation pursuant to the Delaware Act, and shall have perpetual duration, unless sooner terminated pursuant to the provisions of this Agreement. 1.04 Registered Agent and Registered Office . The name of the Company' s registered agent for service of process shall be The Corporation Trust Company, and the address of the Company' s registered agent and the address of the Company' s registered office in the State of Delaware shall be Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. Such agent and such office may be changed from time to time by the Management Committee with written notice to all Members. 1.05 Purpose . The purpose of the Company shall be to own, manage, maintain and operate (or cause the maintenance and operation of) the Line and to conduct all activities reasonably necessary or desirable to accomplish the foregoing purposes. SECTION 2. MEMBERS 2.01 Members . (a) Effective as of the date of this Agreement, the Members of the Company shall be Hawkeye and Transco. Except as expressly permitted by this Agreement, no other person shall be admitted as a Member of the Company, and no additional Membership Interest (as hereinafter defined) in the Company shall be issued, without the approval of all of the Members. (b) The Members, in the exercise of their duties hereunder as Members, shall have those fiduciary duties towards the Company and the other Members, if any, as are set forth in the Delaware Act or other applicable Delaware law. 2


2.02 Limitation on Liability . Except as otherwise expressly provided in the Delaware Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Member shall be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Member of the Company. Except as otherwise expressly provided in the Delaware Act, the liability of each Member shall be limited to the amount of capital contributions required to be made by such Member in accordance with the provisions of this Agreement, but only when and to the extent the same shall become due pursuant to the provisions of this Agreement. SECTION 3. CONTRIBUTIONS 3.01 Capital Contributions . (a) Initial Contributions . (i) As of the date hereof, Hawkeye has made the necessary capital contributions, totaling $1,740,998, to pay for the costs of the Immediate System Upgrades (as hereinafter defined) as described on Exhibit A (the " Description of Immediate System Upgrades" ). All such contributions made in accordance with the Description of Immediate System upgrades shall be credited to the Capital Account (as hereinafter defined) of Hawkeye pursuant to Section 3.05 hereof. (ii) For income tax purposes, the conversion of the Company into a limited liability company shall be treated as a contribution by Transco of the assets of D&W Railroad, Inc. (the " Transferred Assets" ) to D&W Railroad, LLC. The initial Asset Value (as hereinafter defined) of the Transferred Assets is set forth on Exhibit A. As of the date of this Agreement, Transco shall be deemed to have made an initial capital contribution equal to $1,200,000. Accordingly, based upon the provisions of Section 3.01(a)(i) and (ii), as of the date of this Agreement, Transco and Hawkeye shall be deemed to have made the initial capital contributions set forth on Exhibit A. (b) Subsequent Capital Contributions . (i) The Members will make additional capital contributions to fund any capital improvements approved by the Management Committee to or maintenance on the Line, in accordance with Section 7 of this Agreement. (ii) The Members will also make additional capital contributions to fund other operating expenses pursuant to this Agreement in accordance with Section 9. (c) Asset Value .

3


(i) " Asset Value" means, with respect to any asset, the asset' s adjusted basis for federal income tax purposes, except as follows: (1) The initial Asset Value of any asset (other than money) contributed by a Member to the Company shall be the gross fair market value of such asset as (A) set forth on Exhibit A or (B) if such asset is not listed on Exhibit A, as agreed to by all of the Members (which agreement shall not be unreasonably withheld by any Member); (2) The Asset Values of all Company assets shall be adjusted to equal their respective gross fair market values as determined by agreement among all of the Members (which agreement shall not be unreasonably withheld by any Member) as of the following times: (a) the acquisition of an additional interest in the Company by any new or existing Member, including the grant of a profits interest in the Company; (b) the distribution by the Company to a Member of more than a de minimis amount of property in respect of an interest in the Company; or (c) the liquidation of the Company within the meaning of Section 1.704-1(b)(2)(ii)(g) of the regulations (the " Regulations" ) promulgated by the U.S. Treasury Department pursuant to the Internal Revenue Code of 1986, as amended (the " Code" ); provided , however , that adjustments pursuant to clauses (a) and (b) above shall be made only if all of the Members agree that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company (which agreement shall not be unreasonably withheld by any Member); and (3) The Asset Value of any Company asset distributed to any Member shall be the gross fair market value of such asset on the date of distribution, as determined by agreement among all the Members (which agreement shall not be unreasonably withheld by any Member). If the Asset Value of an asset has been determined or adjusted pursuant to subparagraph (1) or (2) above, such Asset Value shall thereafter be adjusted by the Depreciation (as hereinafter defined) taken into account with respect to such asset.

(ii) " Depreciation" means, for each fiscal year or other period, an amount equal to the depreciation, amortization or other cost recovery deduction allowable for federal income tax purposes with respect to an asset for such fiscal year or other period; provided , however , that if the Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such fiscal year or other period, Depreciation shall be an amount that bears the same ratio to such beginning Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction with respect to such asset for such fiscal year or other period bears to such beginning adjusted tax basis; provided , further , that, if the federal income tax depreciation, amortization or other cost recovery deduction for such fiscal year or other period is zero, Depreciation shall be determined with reference to such beginning Asset Value using any reasonable method selected by the Members. 4 3.02 Additional Capital Contribution Default under Section 3.01(b)(i) . If any Member fails to timely make the capital contributions (or any portions thereof) (the " Non-Contributing Party" ) required by Section 3.01(b)(i) hereof, then any other Member may make such capital contribution (the " Contributing Party" ). Upon such contribution by the Contributing Party, the Contributing Party' s Membership Interest shall be increased, and the Non-Contributing Party' s Membership Interest shall be decreased, to equal the percentage equivalent of the quotient determined by dividing (1) the sum of (i) 100% of the aggregate capital contributions (excluding Substituted Capital Contributions (as defined below)) then and theretofore made by the Member to the Company, plus (ii) 100% of the Substituted Capital Contributions then and theretofore made by such Member to the Company by (2) 100% of the aggregate capital contributions (including without limitation Substituted Capital Contributions) then and theretofore made by all of the Members to the Company. As used herein, the term " Substituted Capital Contribution" shall mean an additional capital contribution made by a Member pursuant to Section 3.01(b)(i) hereof equal to the capital contribution that the Non-Contributing Party failed to make. An example of the operation of such calculation is set forth on Exhibit D attached hereto. 3.03 Additional Capital Contribution Default under Section 3.01(b)(ii) . If any Member fails to make a capital contribution pursuant to Section 3.01(b)(ii), but not Section 3.01(b)(i) (the " Defaulting Member" ), then the non-Defaulting Member (the " Non-Defaulting Member" ) may elect to satisfy the Defaulting Member' s payment obligation (the " Default Amount" ), following which the Defaulting Member shall be obligated to reimburse the Non-Defaulting Member within fifteen (15) days of payment by the Non-Defaulting Member of the Default Amount, with interest at a rate per annum equal to fifteen percent (15%), from and including the date of funding (the " Funding Date" ) by the Non-Defaulting Member to the date of repayment in full of the Default Amount, including interest thereon. If the Defaulting Member fails to pay the Default Amount, including accrued interest thereon, and the Default Amount, combined with any and all then outstanding other Default Amounts, exceeds $100,000 for a period of ninety (90) days, the Non-Defaulting Member shall have the right to obtain bona fide offers containing commercially reasonable terms and conditions from any third party (a " Buyer" ) to purchase or otherwise acquire all of the Defaulting Member' s Membership Interest (the " Acquisition" ) and after obtaining an acceptable offer, the Non-Defaulting Member shall promptly deliver a notice to the Defaulting Member, which notice shall state (i) the identity of the Buyer and (ii) the terms and conditions offered by the Buyer, including the consideration to be paid for the Membership Interest. The Defaulting Member shall execute any purchase agreements and any other related documents as may be reasonably required by the parties in such Acquisition in order to carry out the terms and provisions of such Acquisition. The proceeds from the Acquisition shall be applied to the outstanding Default Amounts and any remaining amount shall be paid to the Defaulting Member. To the extent the proceeds are not sufficient to repay the Default Amount, the Non-Defaulting Member shall pay the deficiency, to the extent such Non-Defaulting Member has not previously paid such amount, and the Membership Interest of the Non-Defaulting Member shall be increased pro rata (and the Membership Interest of the Buyer shall be decreased pro rata) to the percentage that the unpaid Default Amount bears to the total amount of capital contributions paid to D&W by the Members as of the date on which the increase is made. 3.04 Membership Interest Modifications . No Member' s Membership Interest shall change in connection with capital contributions made by the Members hereunder, except as set forth in Sections 3.02 and 3.03. 5

3.05 Capital Accounts . A separate capital account (" Capital Account" ) will be maintained for each Member in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv). Consistent therewith, the Capital Account of each Member will be determined and adjusted as follows: (a) Each Member' s Capital Account will be credited with: (i) Any contributions of cash made by such Member to the capital of the Company plus the Asset Value of any property contributed by such Member (including the deemed contribution on the Conversion of the Company) to the capital of the Company (net of any liabilities to which such property is subject or which are assumed by the Company); (ii) The Member' s distributive share of Net Profit (as hereinafter defined) and any items in the nature of income or gain specially allocated to such Member pursuant to Section 10; and (iii) Any other increases required by Treasury Regulation Section 1.704-1(b)(2)(iv). (b) Each Member' s Capital Account will be debited with: (i) Any distributions of cash made by the Company to such Member plus the Asset Value of any property distributed in kind to such Member (net of any liabilities to which such property is subject or which are assumed by such Member); (ii) The Member' s distributive share of Net Loss (as hereinafter defined) and any items in the nature of expenses or losses specially allocated to such Member pursuant to Section 10; and (iii) Any other decreases required by Treasury Regulation Section 1.704-1(b)(2)(iv). (c) The initial Capital Account balance of each Member is set forth in Schedule 3.05. The provisions of this Section 3.05 and any other provisions of this Agreement relating to the maintenance of Capital Accounts have been included in this Agreement to comply with Section 704(b) of the Code and the Regulations promulgated thereunder and will be interpreted and applied in a manner consistent with those provisions, provided that nothing in this sentence shall be deemed to alter the provisions herein pertaining to distributions (including but not limited to liquidating distributions) by the Company.

6

SECTION 4. MEMBERSHIP INTERESTS 4.01 Membership Interests . Subject to Section 4.02, each Member' s ownership interest in D&W (" Membership Interest" ) is : (a) Transco: 36.48%. (b) Hawkeye: 63.52%. 4.02 Membership Interest Adjustments . The Membership Interests set forth in Section 4.01 are subject to adjustment pursuant to Sections 3.02 and 3.03 of this Agreement and upon the admission of a new Member in accordance with this Agreement. SECTION 5. MANAGEMENT 5.01 Control . D&W shall be managed by a management committee composed of two Members, one appointed by Transco and one appointed by Hawkeye (the " Management Committee" ). Any decision taken by the Management Committee shall be made by unanimous decision. 5.02 Joint Management . The Management Committee shall manage D&W and shall have the authority to appoint a general manager (the " General Manager" ) and any other individuals, as necessary, to act on behalf of D&W in carrying out the day-to-day management responsibilities. The Management Committee shall meet at least once each calendar quarter, in person or telephonically. 5.03 Budget . A budget (the " Budget" ) for the Company shall be prepared and submitted annually by the Management Committee to Hawkeye and Transco for approval at least sixty (60) calendar days prior to the end of each fiscal year with respect to the following fiscal year. The Members agree that they have acknowledged and approved the current year' s budget attached hereto as Exhibit E. If at the beginning of any fiscal year the Budget for such upcoming year or any item or portion thereof shall not have been approved by both Hawkeye and Transco, then: (a) Any items or portions of the Budget and amounts of expenses provided therein which have been so approved shall become operative immediately and the General Manager shall be entitled to expend funds in accordance with those operative portions; (b) With respect to the Budget, the General Manager shall be entitled to, and shall, expend with respect of noncapital, recurring expenses in any month of the then-current fiscal year, an amount equal to the budgeted amount for the corresponding month of the immediately preceding fiscal year, as set forth on the immediately preceding fiscal year Budget, after giving effect to any dispositions or other material changes to the Company property during the prior or current fiscal year; provided , however , that if any contract approved by the 7 Management Committee or entered into pursuant to the provisions hereof provides for an automatic increase in costs thereunder after the beginning of the then current fiscal year, then the General Manager shall be entitled to expend the amount of such increase; and (c) The General Manager shall be entitled to, and shall, expend funds in respect of debt service on the Company' s financing (including the expense of curing any defaults thereunder), utilities, real estate taxes and assessments, emergency repairs, or other expenditures which the Management Committee reasonably determines are necessary for the continued ordinary operation of the Company property, including, without limitation, uninsured losses or deductibles, operating shortfalls, repairs, additions or modifications to comply with applicable laws or insurance requirements, insurance premiums for insurance policies approved by the Management Committee, and any final orders, judgments, or other proceedings and all costs and expenses related thereto, regardless of whether such expenditures exceed the amounts provided for in the applicable Budget for the preceding fiscal year. 5.04 General Manager . The General Manager shall be responsible for the day-to-day management of D&W, and shall have the authority to take actions as authorized by the Management Committee or as provided for in the Budget approved by the Management Committee. The General Manager shall be appointed annually by the Management Committee and can be removed at any time by the Management Committee for any reason. The General Manager may be an employee of either Member or an affiliate thereof. The General Manager shall not be entitled to any compensation from D&W on account of the performance of the duties specified in this Section 5. The initial General Manager shall be Steve Masters. SECTION 6. OPERATIONS 6.01 Carrier Service . D&W shall continue to be operated as a common carrier railroad, consistent with the rights and obligations of a rail carrier subject to the jurisdiction of the Surface Transportation Board, the Federal Railroad Administration, and other railroad governing bodies, over the entirety of the Line as described in Exhibit B attached hereto as amended from time to time by the ...