**Exhibit10.4**

 

DISTILLER’S GRAINMARKETING AGREEMENT

 

THIS DISTILLER’S GRAINMARKETING AGREEMENT (the “Agreement”), is enteredinto effective as of   10-11   , 2007, byHighwater Ethanol LLC, a Minnesota LimitedLiability Corporation (“Seller”) and CHS, A Minnesota Cooperative Corporation (“Buyer”).

 

WITNESSETH:

 

WHEREAS, Seller desires to sell and Buyer desires topurchase the Distiller’s Dried Grains withSolubles (“DDGS”), Wet Distillers Grains (“WDG”), and solubles (“Solubles”)(hereinafter DDGS, WDG and Solubles), are referred to collectively as the“Products”) output of the ethanol production plant which Seller owns inLamberton, Minnesota.

 

WHEREAS, Seller and Buyer wishto agree in advance of such sale and purchase to the price formula, payment, delivery and other terms thereof inconsideration of the mutually promised performance of theother;

 

NOW, THEREFORE, inconsideration of the promises and the mutual covenants and conditions hereincontained, and for other good and valuable consideration, the receipt and sufficiency of whichare hereby acknowledged by both parties, it is hereby agreed:

 

1.             BUYER PERFORMANCE. Buyeragrees to perform the services that it provides for Seller in a professionaland competent manner.

 

2.             PURCHASE AND SALE. Selleragrees to sell to Buyer and Buyer agrees to purchase from Seller the entirebulk feed grade DDGS, WDG and Solubles output from Seller’s plant at Lamberton Minnesota, (hereinafter the “Plant”), subject to allterms and conditions set forth in thisAgreement. Buyer shall label all Product that is sold by Buyer and shallregister all labels with the states where the Products are sold.

 

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

 

4.             TERM. The term of this Agreement shall be for one year commencingas of completion and start-up of production of the Plant. Start-up isanticipated to be January 1, 2009. Thereafter this agreement shall remainin effect until terminated by either party at its unqualified option byproviding the other party hereto not less than 120 days written notice of itselection to terminate this Agreement.

 

5.             DELIVERY AND TITLE.

 

A.     The place ofdelivery for all the Products sold pursuant to this Agreement shallbe 

 

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FOBPlant. 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 totake delivery as provided herein. Buyer shall schedule the loading and shippingof all outbound Products purchased hereunderwhich is shipped by truck or rail. All labor and equipment necessary to load trucks or rail cars shall be supplied by Seller without charge toBuyer. Seller agrees to handle the Products ina good and workmanlike manner in accordance with Buyer’sreasonable requirements and in accordance with normal industry practice. Sellershall maintain the truck and rail loadingfacilities in safe operating condition in accordance with normalindustry standards.

 

B.         Seller further warrants that storage space for not less thanseven days production of DDGS shall bereserved for Buyer’s use at the Plant and shall be continuously available for storage of DDGSpurchased by Buyer hereunder at no charge to Buyer. Seller shall alsomake available the necessary storage for WDG and Solubles which is adequate for Buyer to market suchproducts. 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 atlocations other than the Plant.

 

C.        Buyer shall give to Seller a schedule of quantities of theProducts to be removed by truck and railwith sufficient advance notice reasonably to allow Seller to provide therequired services. Seller shall provide the labor, equipment and facilities necessary to meet Buyer’s loading schedule and,except for any consequential or indirect damages, shall be responsible forBuyer’s actual costs or damages resulting from Seller’s failure to do so. Buyer shall order and supplytrucks and rail cars as scheduled for truck and rail shipments. Allfreight charges shall be the responsibility of Buyer and shall be billeddirectly to Buyer.

 

D.      Buyer shall provide loading orders asnecessary to permit Seller to maintain Seller’susual production schedule, provided, however, that Buyer shall not beresponsible for failure to schedule removalof the Products unless Seller shall have provided to Buyer production schedules as follows: Five (5) days prior to thebeginning of each calendar month during the termhereof, Seller shall provide to Buyer a tentative schedule for production inthe next calendar month. Seller shall inform Buyer daily of inventory and production status. For purposes of this paragraph, notification will besufficient 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 theattention ofBrian Kletscher,Facsimile number or email to

 

Or to such other representatives of Buyer andSeller as they may designate to the other in writing.

 

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

 

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6.         PRICEAND PAYMENT

 

A.     Buyer agrees to pay Seller as follows: forall DDGS removed by Buyer from thePlant a price equal to ninety eight (98%); for WDG removed by Buyer from thePlant a price equal to ninety six (96%) of the FOB Plant price actuallyreceived by Buyer from its customers and forSolubles a fee of $2.00 per ton. In no event shall the fee to Buyer for DDGS and WDG be less than $1.50 per ton. Thecalculation on the minimum fee shall be made with respect to each weeklypayment separately. The results of the calculationfor any given week will not impact the calculation for any other week. For purposes of this provision, the FOB Plant priceshall be the actual sale price, less all freight costs incurred by Buyer indelivering the Product to its customer. Buyer agrees that it shall not sell Product for delivery morethan 90 days from the date of entering into a sale without the consent of Seller. Buyer agrees to use commerciallyreasonable efforts to achieve the highest resale price available underprevailing market conditions. Seller’s soleand exclusive remedy for breach of Buyer’s obligations hereunder shall be to terminate this Agreement. Buyer shall collect allapplicable state tonnage taxes on Productssold by Buyer and shall remit to the appropriate governmental agency. Buyer shallbe solely responsible for collection of payment from Buyer’s customers. Thefailure of Buyer to collect payment from itscustomers shall not reduce or otherwise affect Buyer’s obligation pay for Product (other than with respect to Productthat does not comply with the terms of this Agreement).

 

B.        Within five (5) days followingreceipt of certified weight certificates, which certificates shall bepresented to Buyer each Thursday for all shipments during the preceding week, Buyer shall pay Seller the fullprice, determined pursuant to paragraph 6A above, for all properly documented shipments. Buyer agrees to maintainaccurate sales records and to providesuch records to Seller upon request. Seller shall have the option to audit Buyer’s sales invoices at any timeduring normal business hours and during the term of this Agreement.

 

7.         QUANTITYAND WEIGHTS.

 

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

 

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

 

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8.             QUALITY.

 

A.            Seller understands that Buyer intends to sell theProducts purchased from Seller as a primary animal feedingredient and that said Products are subject to minimum quality standards for such use and Seller warrants that the Productshall be fit as a primary animal feed ingredient. Seller agrees andwarrants that the Products produced at its plant and delivered to Buyer shall be accepted in the feed trade under currentindustry standards.

 

B.            Sellerwarrants that all Products, unless the parties agree otherwise, sold to Buyer hereunder shall, at the time of delivery toBuyer, 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 |   |
|                 |       |        |       |    |       |      |       |         |       |    |       |   |   |   |   |   |   |   |   |   |   |
| Wet Distillers Grain |       | 13          |       |    |       | 5         |       |         |       |    |       | 7 |   |   |   | 50 |   |   |   | 3 |   |

 

The standard for DDGS and WDGwill be determined on an as is basis ratherthan a dry weight basis. Minimum quality standards for Solubles shall be agreedupon by the parties at a subsequent date.

 

C. Sellerwarrants that at the time of loading, the Products will not be adulterated or misbranded within the meaning of the Federal Food, Drug and CosmeticAct and that each shipment may lawfully beintroduced into interstate commerce under said Act. Payment of invoice does notwaive Buyer’s rights if goods do not comply with terms or specifications of this Agreement. Unless otherwiseagreed between the parties to this Agreement, and in addition to other remediespermitted by law, the Buyer may, without obligation to pay, reject eitherbefore or after delivery, any of the Products which when inspected or used failin a material way to conform to this Agreement. Should any of the Products be seized or condemned by any federal orstate department or agency for any reason except noncompliance by Buyerwith applicable federal or state requirements, such seizure or condemnation shall operate as a rejection by Buyer ofthe goods seized or condemned andBuyer shall not be obligated to offer any defense in connection with the seizureor condemnation. When rejection occurs before or after delivery, at its option,Buyer may:

 

(1)           Dispose of the rejected goods after first offering Sellera reasonable opportunity of examining andtaking possession thereof, if the condition of the goods reasonablyappears to Buyer to permit such delay in making disposition; or

 

(2)           Dispose of the rejected goodsin any mariner directed by Seller which Buyer can accomplish without violationof applicable laws, rules, regulations or property rights; or

 

(3)           If Buyer has no available meansof disposal of rejected goods and Seller fails to direct Buyer to dispose of itas provided herein, Buyer may return the rejected goods to Seller, upon whichevent Buyer’s obligations with respect to said rejected goods 

 

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shall be deemed fulfilled. Title and risk of lossshall pass to Seller promptly upon rejection by Buyer.

 

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

 

(5) If Seller producesProducts which comply with the warranty in Section C above butwhich do not meet applicable industry standards, Buyer agrees to purchase such Products for resale but makes norepresentation or warranty as to the price at which such Product can besold. If the Products deviate so severely from industry standard as to be unsalable, then it shall be disposed of in themanner provided for rejected goods in Section C above.

 

D. If Seller knows orreasonably suspects that any of the Products produced at its Plant areadulterated or misbranded, or outside of industry quality standards, Sellershall promptly so notify Buyer so that such Product can be tested beforeentering interstate commerce. If Buyer knows or reasonably suspects that any ofthe Products produced by Seller at its Plant areadulterated, 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 complywith all warranties made by Seller herein, then Buyer shall pay all testing costs; and if the goods are found not tocomply with such warranties, Seller will pay all testing costs.

 

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

 

10.        INSURANCE.

 

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

 

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

 

C.        Buyeragrees to carry such insurance on its vehicles operating on Seller’s property as Seller reasonably deems appropriate. The parties acknowledge thatBuyer may elect to self 

 

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insure its vehicles. Uponrequest, Buyer shall provide certificate of insurance to Seller toestablish the coverage maintained by Buyer.

 

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

 

11.           REPRESENTATIONSAND WARRANTIES

 

A.             Seller represents and warrants thatall of the Products delivered to Buyer shallnot be adulterated or misbranded within the meaning of the Federal Food, Drugand Cosmetic Act and may lawfully be introduced intointerstate commerce pursuant to the provisionsof the Act. Seller further warrants that the Products shall fully comply with any applicable state laws governing quality, naming and labeling ofproduct. Payment of invoice shall not constitute a waiver by Buyer of Buyer’srights as to goods which do not comply with this Agreementor with applicable laws and regulations.

 

B.            Sellerrepresents and warrants that the Products delivered to Buyer shall be free and clearof liens and encumbrances.

 

12.        EVENTS OF DEFAULT. The occurrence of any of thefollowing shall be an event of default under thisAgreement: (1) failureof either party to make payment to the otherwhen due; (2) default by either party in the performance of the covenantsand agreements set forth in this Agreement; (3) ifeither party shall become insolvent, or make a general assignment for thebenefit of creditors or to an agent authorized to liquidate any substantial amount of its assets, or be adjudicatedbankrupt, or file a petition inbankruptcy, or apply to a court for the appointment of a receiver for any ofits assets or properties with or without consent, and such receivershall not be discharged within sixty (60) days following appointment.

 

13.           REMEDIES. Upon the happeningof an Event of Default, the parties hereto shall have all remedies availableunder applicable law with respect to a Event of Default by the other party. Withoutlimiting the foregoing, the parties shall have the following remedies whetherin addition to or as one of the remediesotherwise available to them; (1) to declare all amounts owed immediately due and payable; and (2) immediatelyto 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 receiptof notice of default for to cure any default. Notwithstandingany other provision of this Agreement, Buyer may offset against amounts otherwise owed to Seller the price of any productwhich fails to conform to any requirements of this Agreement.

 

14.           FORCE MAJEURE. Neither Sellernor Buyer will be liable to the other for any failure or delay in theperformance of any obligation under this Agreement due to events beyond its reasonable control, including, but notlimited to, fire, storm, flood, earthquake, explosion, act of 

 

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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, actsof God, or acts or regulations or priorities of the federal, state orlocal government or branches or agencies thereof.

 

15.             INDEMNIFICATION.

 

A.             Sellershall indemnify, defend and hold Buyer and its officers, directors, employees andagents harmless, from any and all losses, liabilities, damages, expenses(including reasonable attorneys’ fees), costs, claims, demands, that Buyer orits officers, directors, employees or agentsmay suffer, sustain or become subject to, or as a result of (i) any misrepresentation or breach ofwarranty, covenant or agreement of Seller contained herein or (ii) theSeller’s negligence or willful misconduct.

 

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

 

C. Wheresuch personal injury, death or loss of or damage to property is the result ofnegligence on the part of both Seller and Buyer, each party’s duty of indemnification shall be in proportion to thepercentage 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 byselling Product in anticipation of Seller providing the Products.Notwithstanding the fact that Seller’s obligationis to provide Buyer with the output of the Plant the parties acknowledge that Buyer may suffer losses as a result of positionstaken by Buyer if Seller discontinues operations for any reasonwhatsoever 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 maysuffer, sustain or become subject to as a result of any sale or purchase of product taken by Buyer in anticipation of Sellerdelivering the Products hereunder, providedBuyer has taken commercially reasonable steps to avoid the loss. Seller shall not be liable for any loss resulting from Sellerdiscontinuing operations related to a positiontaken by Buyer for delivery more than 90 days from the date of entering into a salewithout the consent of Seller.

 

16.           GOVERNMENTAL ACTION. The partiesrecognize that the value of the Productscould change as a result of various governmental programs, be they foreign or domestic. In the event that a significant value change of the Products asa result of 

 

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any such governmental program,Buyer may request re-negotiation of the contract price for the Products byproviding written notice to Seller. Buyer shall be required to demonstrate that the value of the Products has significantly changed inthe market. Should such a change take place,the parties agree to negotiate, in good faith, a revised sale price forthe Products. If, after a good faith effort, the parties are unable to agree ona new price within the 90 day periodimmediately following notice to the other party, then in such event andnotwithstanding the other provisions hereof, Buyer may terminate this Agreementupon 90 days prior written notice.

 

17.           RELATIONSHIP OF PARTIES. ThisAgreement creates no relationship other thanthat of buyer and seller between the parties hereto. Specifically, there is noagency, partnership, joint venture or other joint or mutual enterprise orundertaking created hereby. Nothingcontained in this Agreement authorizes one party to act for or on behalf of theother and neither party is entitled to commissions from the other.

 

18. MISCELLANEOUS.

 

A.     This writingis intended by the parties as a final expression of their agreement and a completeand exclusive statement of the terms thereof.

 

B.    No course ofprior dealings between the parties and no usage of trade, except where expresslyincorporated 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 todetermine the meaning of this Agreement even thoughthe accepting or acquiescing party has knowledge of the nature or theperformance and an opportunity to make objection.

 

D.            No representations, understandings or agreements havebeen made or relied upon in the making of this Agreement other than asspecifically set forth herein.

 

E.             This Agreement can only be modifiedby a writing signed by all of the parties or their duly authorizedagents.

 

F.             The paragraph headings herein arefor reference purposes only and shall not in any way affect the meaningor interpretation of this Agreement.

 

G.            This Agreement shall beconstrued and performed in accordance with the laws of the State of Minnesota.

 

H.            The respective rights,obligations and liabilities of the parties under this Agreement are notassignable or delegable without the prior written consent of the other party.

 

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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: CHS

5500 cenex drive

Inver Grove Heights,MN

55077-1733

 

ATTN: Steve J. Markham

 

Seller:

 

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IN WITNESS THEREOF, the partieshave caused this Agreement to be executed the day and year first abovewritten.

 
|   |   | CHS                   |
|--------|--------|-----------------------|
|   |   |                  |   |   |
|   |   | By                    | /s/ Steve J. Markham |
|   |   | Title                 | Merchant |
|   |   |                  |   |
|   |   |                  |   |   |
|   |   | HIGHWATER ETHANOL LLC |
|   |   |                  |   |   |
|   |   | By                    | /s/ Brian Kletscher |
|   |   | Title                 | President |

 

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