Exhibit
10.4


 


DISTILLER’S GRAIN
MARKETING AGREEMENT


 


THIS DISTILLER’S GRAIN
MARKETING AGREEMENT (the “Agreement”), is entered
into effective as of   10-11   , 2007, by
Highwater Ethanol LLC, a Minnesota Limited
Liability Corporation (“Seller”) and CHS, A Minnesota Cooperative Corporation (“Buyer”).


 


WITNES
SETH:


 


WHEREAS, Seller desires to sell and Buyer desires to
purchase the Distiller’s Dried Grains with
Solubles (“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 in
Lamberton, Minnesota.


 


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


 


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, WDG and Solubles output from Seller’s plant at Lamberton Minnesota, (hereinafter the “Plant”), 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 Products are 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. The term of this Agreement shall be for one year commencing
as of completion and start-up of production of the Plant. Start-up is
anticipated to be January 1, 2009. Thereafter this agreement shall remain
in effect until 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.


 


5.             DELIVERY AND TITLE.


 


A.     The place of
delivery for all the Products 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 Products 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
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 also
make available the necessary storage for WDG and Solubles which is adequate for Buyer to market such
products. 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 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  Brian Kletscher,
Facsimile number or email to


 


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


 


E.
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.


 


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6.         PRICE
AND PAYMENT


 


A.     Buyer agrees to pay Seller as follows: for
all DDGS removed by Buyer from the
Plant a price equal to ninety eight (98%); for WDG removed by Buyer from the
Plant a price equal to ninety six (96%) of the FOB Plant price actually
received by Buyer from its customers and for
Solubles 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. The
calculation on the minimum fee shall be made with respect to each weekly
payment separately. The results of the calculation
for any given week will not impact the calculation for any other week. 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. 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 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 hereunder 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. Buyer shall
be solely responsible for collection of payment from Buyer’s customers. The
failure of Buyer to collect payment from its
customers shall not reduce or otherwise affect Buyer’s obligation pay for Product (other than with respect to Product
that does not comply with the terms of this Agreement).


 


B.        Within five (5) days following
receipt of certified weight certificates, which certificates shall be
presented to Buyer each Thursday for all 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.


 


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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 and Seller warrants that the Product
shall be fit as a primary animal feed ingredient. Seller agrees and
warrants that the Products produced at its plant and delivered to Buyer shall be accepted in the feed trade under current
industry standards.


 


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

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wet Distillers Grain

  	
   

  	
  13

  	
   

  	
   

  	
   

  	
  5

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  7

  	
   

  	
   

  	
   

  	
  50

  	
   

  	
   

  	
   

  	
  3

  	
   

  



 


The standard for DDGS and WDG
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. Seller
warrants that at the time of loading, the Products will not be adulterated or misbranded within the meaning of the Federal Food, Drug and Cosmetic
Act and that each shipment may lawfully be
introduced into interstate commerce under said Act. 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 mariner 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 


 


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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 deviate 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 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 years.


 


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 


 


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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 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 


 


6

















 


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 (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 


 


7

















 


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.           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.


 


18. 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 Minnesota.


 


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


 


	
   

  	
   

  	
  CHS

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
  /s/ Steve J. Markham

  
	
   

  	
   

  	
  Title

  	
  Merchant

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  HIGHWATER ETHANOL LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
  /s/ Brian Kletscher

  
	
   

  	
   

  	
  Title

  	
  President

  



 


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