EXHIBIT 10.2

 

DISTILLER’S GRAIN MARKETING AGREEMENT

 

THIS DISTILLER’S GRAIN MARKETING AGREEMENT (the “Agreement”), is entered into as
of this 28th day of November, 2005, by Dakota Ethanol LLC, a South Dakota
limited liability company (“Seller”), and Commodity Specialists Company, a
Delaware Corporation (“Buyer”).

 

W I T N E S S E T H:

 

WHEREAS, Seller desires to sell and Buyer desires to purchase the Distiller’s
Dried Grains with Solubles (sometimes referred to as “Product(s)” or “DDGS”)
output of the ethanol production plant which Seller owns in Wentworth, South
Dakota (the “Plant”); and

 

WHEREAS, Seller and Buyer wish to agree in advance of such sale and purchase to
the price formula, payment, delivery and other terms thereof as set forth
herein;

 

NOW, THEREFORE, in consideration of the promises and the mutual covenants and
conditions herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by both parties, it is
hereby agreed:

 

1.             BUYER PERFORMANCE.  Buyer agrees to perform the services that it
provides for Seller in a professional and competent manner.

 

2.             PURCHASE AND SALE. Seller agrees to sell to Buyer and Buyer
agrees to purchase from Seller the entire bulk feed grade DDGS output from
Seller’s plant at Wentworth, South Dakota, subject to all terms and conditions
set forth in this Agreement.  Buyer shall label all product that is sold by
Buyer and shall register all labels with the states where the DDGS is sold.

 

3.             TRADE RULES.  All purchases and sales made hereunder shall be
governed by the Feed Trade Rules of the National Grain and Feed Association
unless otherwise specified.  Said Trade Rules, a copy of which is appended
hereto as Exhibit A, shall, to the extent applicable, be a part of this
Agreement as if fully set forth herein.

 

4.             TERM.

 

A.            The initial term of this Agreement shall be for one (1) year
commencing December 1, 2005 (the “Effective Date”).

 

B.            In the event that during the first year of this Agreement Seller
materially changes the quality of the DDGS produced at the Plant through the
application of new technology and equipment, either Seller or Buyer shall have
the right to terminate this Agreement upon 120 days notice. Notwithstanding such
termination, Seller shall remain

 

--------------------------------------------------------------------------------

 

liable to provide DDGS to Buyer in sufficient quantities, either through the
Plant or buying such product, to honor any sales contract that Buyer may have to
which Seller has consented.

 

C.            This Agreement shall automatically renew for an additional term of
one (1) year unless Seller or Buyer gives notice of non-renewal in writing to
the other party at least one hundred twenty (120) days prior to the end of the
initial term.  The aforementioned renewal provision shall apply in the same
manner for all subsequent expiring renewal terms, and the Agreement shall be
automatically renewed for subsequent one (1) year terms unless written notice of
nonrenewal is provided in the manner provided above.

 

D.            After the initial term, this Agreement may be terminated by either
party at its unqualified option by providing the other party hereto not less
than 120 days written notice of its election to terminate this Agreement.

 

E.             In addition to its option to terminate as provided above, Seller
shall have the option to terminate this Agreement at anytime on thirty (30)
days’ notice in order to join a pooled marketing arrangement (the “Pooled
Marketing Arrangement”)

 

5.             DELIVERY AND TITLE.

 

A.            The place of delivery for all the DDGS sold pursuant to this
Agreement shall be FOB Plant.  Buyer and Buyer’s agents shall be given access to
Seller’s Plant in a manner and at all times reasonably necessary and convenient
for Buyer to take delivery as provided herein.  Buyer shall schedule the loading
and shipping of all outbound DDGS purchased hereunder which is shipped by truck
or rail.  All labor and equipment necessary to load trucks or rail cars shall be
supplied by Seller without charge to Buyer.  Seller agrees to handle the
Products in a good and workmanlike manner in accordance with Buyer’s reasonable
requirements and in accordance with normal industry practice.  Seller shall
maintain the truck and rail loading facilities in safe operating condition in
accordance with normal industry standards.

 

B.            Seller further warrants that storage space for not less than not
less than seven days production of DDGS shall be reserved for Buyer’s use at the
Plant and shall be continuously available for storage of DDGS purchased by Buyer
hereunder at no charge to Buyer.  Seller shall be responsible at all times for
the quantity, quality and condition of any the Products in storage at the Plant.
Seller shall not be responsible for the quantity, quality and condition of any
of the Products stored by Buyer at locations other than the Plant.

 

C.            Buyer shall give to Seller a schedule of quantities of the
Products to be removed by truck and rail with sufficient advance notice
reasonably to allow Seller to provide the required services.  Seller shall
provide the labor, equipment and facilities necessary to meet Buyer’s loading
schedule and, except for any consequential or indirect

 

2

--------------------------------------------------------------------------------

 

damages, shall be responsible for Buyer’s actual costs or damages resulting from
Seller’s failure to do so.  Buyer shall order and supply trucks and rail cars as
scheduled for truck and rail shipments.  All freight charges shall be the
responsibility of Buyer and shall be billed directly to Buyer.

 

D.            Buyer shall provide loading orders as necessary to permit Seller
to maintain Seller’s usual production schedule, provided, however, that Buyer
shall not be responsible for failure to schedule removal of the Products unless
Seller shall have provided to Buyer production schedules as follows: Five
(5) days prior to the beginning of each calendar month during the term hereof,
Seller shall provide to Buyer a tentative schedule for production in the next
calendar month.  Seller shall inform Buyer daily of inventory and production
status. For purposes of this paragraph, notification will be sufficient if made
by e-mail or facsimile as follows:

 

If to Buyer, to the attention of Steve Markham, Facsimile number 612-330-9894 or
email to
smarkham@csc-world.com, and

 

If to Seller, to the attention of Scott A. Mundt, Facsimile number 605-483-2681
or email to smundt@dakotaethanol.com

 

or to such other representatives of Buyer and Seller as they may designate to
the other in writing.

 

Title, risk of loss and full shipping responsibility shall pass to Buyer upon
loading the Products into trucks or rail cars and delivering to Buyer of the
bill of lading for each such shipment.

 

6.             PRICE AND PAYMENT.

 

A.            Buyer agrees to pay Seller for all DDGS removed by Buyer from the
Plant a price equal to ninety eight (98%), with 2% to be retained by Buyer as
its service fee, provided, however, that Buyer’s service fee shall not be less
$1.50 per ton nor shall it exceed $2.00 per ton.  The calculation on the minimum
and maximum fee payable to CSC shall be made with respect to each payment and
will not be carried over to any subsequent payments. By way of illustration, if
the 2% to be retained by CSC for any given week is less than $1.50 per ton, the
fee to be retained by CSC shall then be $1.50 per ton.  If in subsequent weeks
the 2% is greater than $1.50 but less than $2.00, the fee shall be the 2%. 
Conversely, if the 2% for any period exceeds $2.00, the fee shall then be $2.00
per ton. If in subsequent weeks the 2% is less than $2.00 but greater than
$1.50, the fee shall be the 2%.  For purposes of this provision, the FOB Plant
price shall be the actual sale price, less all freight costs incurred by Buyer
in delivering the Product to its customer.

 

B.            Buyer agrees that it shall not sell Product for delivery more than
90 days from the date of entering into a sale without the consent of Seller. 
Buyer agrees to use

 

3

--------------------------------------------------------------------------------

 

commercially reasonable efforts to achieve the highest resale price available
under prevailing market conditions. Seller’s sole and exclusive remedy for
breach of Buyer’s obligations under the preceding sentence shall be to terminate
this Agreement.  Buyer shall collect all applicable state tonnage taxes on
Products sold by Buyer and shall remit to the appropriate governmental agency.

 

C.            Within ten (10) days following receipt of certified weight
certificates, which certificates shall be presented to Buyer each Thursday for
all DDGS shipments during the preceding week, Buyer shall pay Seller the full
price, determined pursuant to paragraph 6A above, for all properly documented
shipments.  Buyer agrees to maintain accurate sales records and to provide such
records to Seller upon request.  Seller shall have the option to audit Buyer’s
sales invoices at any time during normal business hours and during the term of
this Agreement.

 

7.             QUANTITY AND WEIGHTS.

 

A.            It is understood that the output of the Products shall be
determined by Seller’s production schedule and that no warranty or
representation has been made by Seller as to the exact quantities of Products to
be sold pursuant to this Agreement.

 

B.            The quantity of Products delivered to Buyer from Seller’s Plant
shall be established by weight certificates obtained from scale at the Plant
which is certified as of the time of weighing and which complies with all
applicable laws, rules and regulations or in the event that the scale at the
Plant is inoperable then at other scales which are certified as of the time of
weighing and which comply with all applicable laws, rules and regulations. The
outbound weight certificates shall be determinative of the quantity of the
Products for which Buyer is obligated to pay pursuant to Section 5.

 

8.             QUALITY.

 

A.            Seller understands that Buyer intends to sell the Products
purchased from Seller as a primary animal feed ingredient and that said Products
are subject to minimum quality standards for such use.  Seller agrees and
warrants that the Products produced at its plant and delivered to Buyer will
comply with current industry standards in the feed trade.

 

B.            Seller warrants that all Products, unless the parties agree
otherwise, sold to Buyer hereunder shall, at the time of delivery to Buyer,
conform to the following minimum quality standard:

 

 

 

Protein

 

Fat

 

Fiber

 

Moisture

 

Ash

 

 

 

Min

 

Max

 

Min

 

Max

 

Min

 

Max

 

Min

 

Max

 

Min

 

Max

 

DDGS

 

25

 

 

 

10

 

 

 

 

 

15

 

 

 

12

 

 

 

6

 

 

4

--------------------------------------------------------------------------------

 

The standard for DDGS will be determined on an “as is” basis rather than a dry
weight basis. Minimum quality standards for Solubles shall be agreed upon by the
parties at a subsequent date.

 

C.            Payment of invoice does not waive Buyer’s rights if goods do not
comply with terms or specifications of this Agreement.  Unless otherwise agreed
between the parties to this Agreement, and in addition to other remedies
permitted by law, the Buyer may, without obligation to pay, reject either before
or after delivery, any of the Products which when inspected or used fail in a
material way to conform to this Agreement.  Should any of the Products be seized
or condemned by any federal or state department or agency for any reason except
noncompliance by Buyer with applicable federal or state requirements, such
seizure or condemnation shall operate as a rejection by Buyer of the goods
seized or condemned and Buyer shall not be obligated to offer any defense in
connection with the seizure or condemnation. When rejection occurs before or
after delivery, at its option, Buyer may:

 

(1)           Dispose of the rejected goods after first offering Seller a
reasonable opportunity of examining and taking possession thereof, if the
condition of the goods reasonably appears to Buyer to permit such delay in
making disposition; or

 

(2)           Dispose of the rejected goods in any manner directed by Seller
which Buyer can accomplish without violation of applicable laws, rules,
regulations or property rights; or

 

(3)           If Buyer has no available means of disposal of rejected goods and
Seller fails to direct Buyer to dispose of it as provided herein, Buyer may
return the rejected goods to Seller, upon which event Buyer’s obligations with
respect to said rejected goods shall be deemed fulfilled.  Title and risk of
loss shall pass to Seller promptly upon rejection by Buyer.

 

(4)           Seller shall reimburse Buyer for all costs reasonably incurred by
Buyer in storing, transporting, returning and disposing of the rejected goods.
Buyer shall have no obligation to pay Seller for rejected goods and may deduct
reasonable costs and expenses to be reimbursed by Seller from amounts otherwise
owed by Buyer to Seller.

 

(5)           If Seller produces Products which comply with the warranty in
Section C above but which do not meet applicable industry standards, Buyer
agrees to purchase such Products for resale but makes no representation or
warranty as to the price at which such Product can be sold.  If the Products
deviates so severely from industry standard as to be unsalable, then it shall be
disposed of in the manner provided for rejected goods in Section C above.

 

D.            If Seller knows or reasonably suspects that any of the Products
produced at

 

5

--------------------------------------------------------------------------------

 

its Plant are adulterated or misbranded, or outside of industry quality
standards, Seller shall promptly so notify Buyer so that such Product can be
tested before entering interstate commerce.  If Buyer knows or reasonably
suspects that any of the Products produced by Seller at its Plant are
adulterated, misbranded or outside of industry quality standards, then Buyer may
obtain independent laboratory tests of the affected goods. If such goods are
tested and found to comply with all warranties made by Seller herein, then Buyer
shall pay all testing costs; and if the goods are found not to comply with such
warranties, Seller will pay all testing costs.

 

9.             RETENTION OF SAMPLES.  Seller will take an origin sample of DDGS
from each truck and rail car before it leaves the Plant using standard sampling
methodology.  Seller will label these samples to indicate the date of shipment
and the truck or railcar number involved.  Seller will also retain the samples
and labeling information for no less than one year.

 

10.           INSURANCE.

 

A.            Seller warrants to Buyer that all employees engaged in the removal
of the Products from Seller’s Plant shall be covered as required by law by
worker’s compensation and unemployment compensation insurance.

 

B.            Seller agrees to maintain throughout every term of this Agreement
comprehensive general liability insurance, including product liability coverage,
with combined single limits of not less than $2,000,000.  Seller’s policies of
comprehensive general liability insurance shall be endorsed to require at least
thirty (30) days advance notice to Buyer prior to the effective date of any
decrease in or cancellation of coverage.  Seller shall cause Buyer to be named
as an additional insured on Seller’s insurance policy and shall provide a
certificate of insurance to Buyer to establish the coverage maintained by Seller
not later than fourteen (14) days prior to completion and start-up of production
of the Plant.

 

C.            Buyer agrees to carry such insurance on its vehicles operating on
Seller’s property as Seller reasonably deems appropriate.  The parties
acknowledge that Buyer may elect to self insure its vehicles.  Upon request,
Buyer shall provide certificate of insurance to Seller to establish the coverage
maintained by Buyer.

 

D.            Notwithstanding the foregoing, nothing herein shall be construed
to constitute a waiver by either party of claims, causes of action or other
rights which either party may have or hereafter acquire against the other for
damage or injury to its agents, employees, invitees, property, equipment or
inventory, or third party claims against the other for damage or injury to other
persons or the property of others.

 

11.           REPRESENTATIONS AND WARRANTIES.

 

A.            Seller represents and warrants that all of the Products delivered
to Buyer

 

6

--------------------------------------------------------------------------------

 

shall not be adulterated or misbranded within the meaning of the Federal Food,
Drug and Cosmetic Act and may lawfully be introduced into interstate commerce
pursuant to the provisions of the Act.  Seller further warrants that the
Products shall fully comply with any applicable state laws governing quality,
naming and labeling of product.  Payment of invoice shall not constitute a
waiver by Buyer of Buyer’s rights as to goods which do not comply with this
Agreement or with applicable laws and regulations.

 

B.            Seller represents and warrants that the Products delivered to
Buyer shall be free and clear of liens and encumbrances.

 

12.           EVENTS OF DEFAULT.  The occurrence of any of the following shall
be an event of default under this Agreement: (1) failure of either party to make
payment to the other when due; (2) default by either party in the performance of
the covenants and agreements set forth in this Agreement; (3) if either party
shall become insolvent, or make a general assignment for the benefit of
creditors or to an agent authorized to liquidate any substantial amount of its
assets, or be adjudicated bankrupt, or file a petition in bankruptcy, or apply
to a court for the appointment of a receiver for any of its assets or properties
with or without consent, and such receiver shall not be discharged within sixty
(60) days following appointment.

 

13.           REMEDIES.  Upon the happening of an Event of Default, the parties
hereto shall have all remedies available under applicable law with respect to a
Event of Default by the other party.  Without limiting the foregoing, the
parties shall have the following remedies whether in addition to or as one of
the remedies otherwise available to them; (1) to declare all amounts owed
immediately due and payable; and (2) immediately to terminate this Agreement
effective upon receipt by the party in default of the notice of termination,
provided, however, the parties shall be allowed 10 days from the date of receipt
of notice of default for to cure any default. Notwithstanding any other
provision of this Agreement, Buyer may offset against amounts otherwise owed to
Seller the price of any product which fails to conform to any requirements of
this Agreement.

 

14.           FORCE MAJEURE.  Neither Seller nor Buyer will be liable to the
other for any failure or delay in the performance of any obligation under this
Agreement due to events beyond its reasonable control, including, but not
limited to, fire, storm, flood, earthquake, explosion, act of the public enemy,
riots, civil disorders, sabotage, strikes, lockouts, labor disputes, labor
shortages, war stoppages or slowdowns initiated by labor, transportation
embargoes, failure or shortage of materials, acts of God, or acts or regulations
or priorities of the federal, state or local government or branches or agencies
thereof.

 

15.           INDEMNIFICATION.

 

A.            Seller shall indemnify, defend and hold Buyer and its officers,
directors, employees and agents harmless, from any and all losses, liabilities,
damages, expenses (including reasonable attorneys’ fees), costs, claims,
demands, that Buyer or its officers, directors, employees or agents may suffer,
sustain or become subject to, or as a result of

 

7

--------------------------------------------------------------------------------

 

(i) any misrepresentation or breach of warranty, covenant or agreement of Seller
contained herein or (ii) the Seller’s negligence or willful misconduct.

 

B.            Buyer shall indemnify, defend and hold Seller and its officer,
directors, employees and agents harmless, from any and all losses, liabilities,
damages, expenses (including reasonable attorneys’ fees), costs, claims,
demands, that Seller or its officers, directors, employees or agents may suffer,
sustain or become subject to, or as a result of (i) any misrepresentation or
breach of warranty, covenant or agreement of Buyer contained herein or (ii) the
Buyer’s negligence or willful misconduct.

 

C.            Where such personal injury, death or loss of or damage to property
is the result of negligence on the part of both Seller and Buyer, each party’s
duty of indemnification shall be in proportion to the percentage of that party’s
negligence or faults.

 

D.            Seller acknowledges that in order to maximize the total revenue to
be generated through the sale of the Products, Buyer may take positions by
selling Product in anticipation of Seller providing the Products. 
Notwithstanding the fact that Seller’s obligation is to provide Buyer with the
output of the Plant the parties acknowledge that Buyer may suffer losses as a
result of positions taken by Buyer if Seller discontinues operations for any
reason whatsoever including Force Majeure.  Therefore, Seller shall indemnify,
defend and hold Buyer and its officers, directors, employees and agents harmless
from any and all losses, liabilities, damages, expenses (including reasonable
attorney’s fees), costs, claims, demands that Buyer or its officers, directors,
employees, or agents may suffer, sustain or become subject to as a result of any
sale or purchase of product taken by Buyer in anticipation of Seller delivering
the Products hereunder, provided Buyer has taken commercially reasonable steps
to avoid the loss.  Seller shall not be liable for any loss resulting from
Seller discontinuing operations related to a position taken by Buyer for
delivery more than 90 days from the date of entering into a sale without the
consent of Seller .

 

16.           GOVERNMENTAL ACTION.  The parties recognize that the value of the
Products could change as a result of various governmental programs, be they
foreign or domestic.  In the event that a significant value change of the
Products as a result of any such governmental program, Buyer may request
re-negotiation of the contract price for the Products by providing written
notice to Seller.  Buyer shall be required to demonstrate that the value of the
Products has significantly changed in the market.  Should such a change take
place, the parties agree to negotiate, in good faith, a revised sale price for
the Products.  If, after a good faith effort, the parties are unable to agree on
a new price within the 90 day period immediately following notice to the other
party, then in such event and notwithstanding the other provisions hereof, Buyer
may terminate this Agreement upon 90 days prior written notice.

 

17            CAR LEASES.  Seller acknowledges that Buyer has entered into
railcars leases for the purpose of shipping DDGS produced at the Plant, namely
(i) the lease for 50

 

8

--------------------------------------------------------------------------------

 

railcars between Trinity Industries Leasing Company and Buyer dated October 13,
2005 and (ii) the lease for 50 railcars between Chicago Freight Car Leasing Co.
and Buyer dated October 19, 2005 (the “Leases”).  Seller agrees that it shall
fully reimburse Buyer for all payments made by Buyer under the terms of the
leases and shall indemnify Buyer from any and all liability under such leases
including the payment of rent or for damage to any of the cars.  Buyer does
hereby assign the Leases to Seller (and Seller does hereby assume liability
therefor) which assignment shall take effect upon the termination of this
Agreement unless such termination is as a result of it being terminated to
permit Seller to participate in the Pooled Marketing Arrangement in which case
the responsibility with respect to the cars shall be governed by the Pooled
Marketing Agreement.

 

18.           RELATIONSHIP OF PARTIES.  This Agreement creates no relationship
other than that of buyer and seller between the parties hereto.  Specifically,
there is no agency, partnership, joint venture or other joint or mutual
enterprise or undertaking created hereby.  Nothing contained in this Agreement
authorizes one party to act for or on behalf of the other and neither party is
entitled to commissions from the other.

 

19.           MISCELLANEOUS.

 

A.            This writing is intended by the parties as a final expression of
their agreement and a complete and exclusive statement of the terms thereof.

 

B.            No course of prior dealings between the parties and no usage of
trade, except where expressly incorporated by reference, shall be relevant or
admissible to supplement, explain, or vary any of the terms of this Agreement.

 

C.            Acceptance of, or acquiescence in, a course of performance
rendered under this or any prior agreement shall not be relevant or admissible
to determine the meaning of this Agreement even though the accepting or
acquiescing party has knowledge of the nature or the performance and an
opportunity to make objection.

 

D.            No representations, understandings or agreements have been made or
relied upon in the making of this Agreement other than as specifically set forth
herein.

 

E.             This Agreement can only be modified by a writing signed by all of
the parties or their duly authorized agents.

 

F.             The paragraph headings herein are for reference purposes only and
shall not in any way affect the meaning or interpretation of this Agreement.

 

G.            This Agreement shall be construed and performed in accordance with
the laws of the State of South Dakota.

 

H.            The respective rights, obligations and liabilities of the parties
under this Agreement are not assignable or delegable without the prior written
consent of the other

 

9

--------------------------------------------------------------------------------

 

party.

 

I.              Notice shall be deemed to have been given to the party to whom
it is addressed ninety-six (96) hours after it is deposited in certified U.S.
mail, postage prepaid, return receipt requested, addressed as follows:

 

Buyer:

Commodity Specialists Company

 

310 Grain Exchange Bldg.

 

400 South Fourth Street

 

Minneapolis, Minnesota 55415

 

ATTN: Steve J. Markham

 

 

Seller:

Dakota Ethanol LLC

 

P.O. Box 100

 

Wentworth, SD 57075

 

ATTN: Scott A. Mundt

 

IN WITNESS THEREOF, the parties have caused this Agreement to be executed the
day and year first above written.

 

 

COMMODITY SPECIALISTS COMPANY

 

 

 

By:

Phil Lindau, Jr.

 

 

Title: Co-President

 

 

 

 

 

DAKOTA ETHANOL LLC

 

 

 

 

 

BY:

BRIAN WOLDT

 

 

Title: Chairman, Board of Managers

 

10

--------------------------------------------------------------------------------