**Exhibit10.16**

** **

*** Portions omitted pursuant to a request forconfidential treatment and filed separately with the Securities and ExchangeCommission.**

 

DISTILLER’S GRAINMARKETING AGREEMENT

 

THIS DISTILLER’SGRAIN MARKETING AGREEMENT (the “Agreement”), is entered into effective as of October 1,2007, by United Wisconsin Grain Producers LLC, a Wisconsin Limited LiabilityCompany (“Seller”), and CHS Inc., a Minnesota cooperative corporation (“Buyer”).

 

W I T N E S S E TH:

 

WHEREAS, Sellerdesires to sell and Buyer desires to purchase the Distiller’s Dried Grains withSolubles (“DDGS”) output of the ethanol production plant which Seller owns inFriesland, Wisconsin which is to be shipped by rail;

 

WHEREAS, Sellerdesires to be responsible for the sale of all Wet Distillers Grains withsolubles (“WDG”) and solubles (“Solubles”) and all DDGS that is not to beshipped by rail: and

 

WHEREAS, Sellerand Buyer wish to agree in advance of such sale and purchase to the priceformula, payment, delivery and other terms thereof in consideration of themutually promised performance of the other.

 

NOW, THEREFORE, inconsideration of the promises and the mutual covenants and conditions hereincontained, and for other good and valuable consideration, the receipt andsufficiency of which are hereby acknowledged by both parties, it is herebyagreed:

 

1.             BUYER PERFORMANCE.  Buyer agrees to perform the services that itprovides 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 theDDGS produced by Seller’s plant at Friesland, Wisconsin (hereinafter the “Plant”)that the parties agree (in their discretion) are to be shipped by rail, subjectto all terms and conditions set forth in this Agreement.  Buyer shall label, as required by applicablelaw, all DDGS that are sold by Buyer and shall register all labels with thestates where the DDGS are sold by Buyer hereunder.  Seller is under no obligation to sell DDGS toBuyer by rail or otherwise, provided Seller shall not sell DDGS by rail to anyparty other than Buyer (subject to this Agreement).  Buyer agrees to provide Seller DDGS railquotes on a regular basis and as requested by Seller.

 

3.             TRADE RULES.  Except as otherwise set forth in this Agreement,all purchases and sales made hereunder shall be governed by the then currentFeed Trade Rules of the National Grain and Feed Association (the “TradeRules”); provided, however, that in theevent of any conflict or inconsistency between any term or provision of theTrade 

 

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Rules and any term or condition of this Agreement, this Agreementshall govern and control to the full extent of such conflict or inconsistency.

 

4.             TERM.  This agreement shall remain in effect untilterminated by either party at its unqualified option by providing the otherparty hereto not less than 90 days written notice of its election to terminatethis Agreement.

 

5.             DELIVERY AND TITLE.

 

A.   Theplace of delivery for all the DDGS sold pursuant to this Agreement shall be FOBthe Plant.  Buyer and Buyer’s agentsshall be given access to only those areas of Seller’s Plant as are reasonablynecessary for the taking of delivery of the DDGs.  Buyer shall coordinate the delivery of railcars to the Plant, and the loading of all outbound DDGS purchased hereunderwhich are shipped by rail by the Seller. All labor and equipment necessary to load rail cars shall be supplied bySeller without charge to Buyer.  Selleragrees to handle the DDGS in a good and workmanlike manner in accordance withBuyer’s reasonable requirements and in accordance with normal industrypractice.  Seller shall maintain the railloading facilities in safe operating condition in accordance with normalindustry standards.

 

B.   Sellershall be responsible at all times for the quantity, quality and condition ofthe DDGS in storage at the Plant.

 

C.   Buyershall give to Seller a schedule of quantities of the DDGS to be removed by railwith sufficient advance notice reasonably to allow Seller to provide therequired services.  Seller shall providethe labor, equipment and facilities necessary to meet Buyer’s loading scheduleand, 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 supply rail cars asscheduled for rail shipments.  Allfreight charges shall be the responsibility of Buyer and shall be billeddirectly to Buyer.

 

D.   Buyershall provide loading orders as necessary to timely remove the quantities ofDDGS that the parties have agreed are to be shipped by rail and that Seller hassold to Buyer in the time frames set forth in the applicable purchaseorder.  Seller shall provide to Buyer anestimated production schedules as follows: five (5) days prior to the beginning of each calendar month duringthe term hereof, Seller shall provide to Buyer an estimated schedule forproduction in the next calendar month that is to shipped by rail. Seller acknowledgesthat Buyer will be attempting to resell quantities of DDGS purchased fromSeller based upon the production schedule of quantities of DDGS to be shippedby rail and Seller will use its commercially reasonable efforts to not changethe quantities available to Buyer as stated in such production schedule withoutBuyer’s written consent.  For purposes ofthis paragraph, notification will be sufficient if made by e-mail or facsimileas follows:

 

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If to Buyer, tothe attention of Steve Markham, Facsimile number                           or e-mail to steve.markham@chsinc.com, and

 

If to Seller, tothe attention of                                                                                           .  Or to such other representatives of Buyer andSeller as they may designate to the other in writing.

 

E.  Title, risk of loss and full shippingresponsibility shall pass to Buyer upon loading the DDGS into rail cars andBuyer’s receipt of written notice (the “Railcar Loading Notice”) from Sellerthat such DDGS have been loaded and are available for billing; provided thatthe Railcar Loading Notice for such DDGS is delivered to Buyer before 3:00 p.m.Central Standard Time on the day that such DDGS is loaded  If the Railcar Loading Notice for any DDGS isdelivered to Buyer on or after 3:00 Central Standard Time on the day that suchDDGS is loaded, title, risk of loss and full shipping responsibility shall passto Buyer as of the commencement of the next business day.

 

6.             PRICE AND PAYMENT

 

A. [*]

 

B. [*]

 

7.             QUANTITY ANDWEIGHTS.

 

A. It isunderstood that the output of the DDGS shall be determined by Seller’sproduction schedule and that no warranty or representation has been made bySeller as to the exact quantities of DDGS to be sold pursuant to thisAgreement.

 

B.  The quantity of DDGS delivered to Buyer fromSeller’s Plant shall be established by Seller’s official railroad weights whichshall be certified as of the time of weighing and which comply with all applicablelaws, rules and regulations, or in the event that such weights areinoperable then at other scales which are certified as of the time of weighingand which comply with all applicable laws, rules and regulations. Theoutbound weight certificates shall be determinative of the quantity of the DDGSfor which Buyer is obligated to pay pursuant to this Agreement.

 

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* Portion omittedpursuant to a request for confidential treatment and filed separately with theSecurities and Exchange Commission.

 

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8.             QUALITY.

 

A.  Seller understands that Buyer intends to sellthe DDGS purchased from Seller as a primary animal feed ingredient and thatsaid DDGS is subject to minimum quality standards for such use.  Seller agrees and warrants that the Productsproduced at its plant and delivered to Buyer shall be accepted in the feedtrade under current industry standards.

 

B.  Seller warrants that all DDGS, unless theparties agree otherwise, sold to Buyer hereunder shall, at the time of deliveryto 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 |   |

 

The standard forDDGS will be determined on an as is basis per original sample rather than a dryweight basis.

 

C.  Seller warrants that at the time of loading,the DDGS will be merchantable, will not be adulterated or misbranded within themeaning of the Federal Food, Drug and Cosmetic Act and that each shipment maylawfully be introduced into interstate commerce under said Act.  Payment of invoice does not waive Buyer’srights if goods do not comply with terms or specifications of thisAgreement.  Unless otherwise agreedbetween 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 DDGS which when inspected or used fail ina material way to conform to this Agreement; provided, however, (i) thatsuch failure shall not be caused by Buyer, its ultimate customer or some thirdparty after the delivery of such DDGS to Buyer, and (ii) that Buyerprovide written notice of rejection of such DDGS to Seller promptly, but in anyevent within 48 hours of unloading of such DDGS by the ultimate customer orsuch DDGS shall be deemed to be accepted by Buyer.

 

Should any of theDDGS be seized or condemned by any federal or state department or agency forany reason except noncompliance by Buyer with applicable federal or staterequirements or the failure of Buyer to comply with any term of this Agreement(a “Governmental Seizure”), such Governmental Seizure shall operate as arejection by Buyer of the goods seized or condemned and Buyer shall not beobligated to offer any defense in connection with the seizure orcondemnation.  However, in such event,Buyer shall promptly notify Seller of the Governmental Seizure, and in anyevent within 12 hours of Buyer receiving notice of the GovernmentalSeizure.  Buyer shall reasonablycooperate with Seller upon request, but at Seller’s cost and expense, indefending against or otherwise contesting the Governmental Seizure.

 

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If any DDGS are validlyrejected by Buyer in accordance with this Section (the “Rejected Goods”),Buyer will, in the following order:

 

(1)  OfferSeller a reasonable opportunity of examining and taking possession thereof, inSeller’s discretion and at Seller’s cost and expense, provided that Sellertakes action promptly to make such examination and take possession thereof; or

 

(2)  Disposeof the Rejected Goods in any manner directed by Seller which Buyer canaccomplish without violation of applicable laws, rules, regulations or propertyrights; or

 

(3)  IfBuyer has no available means of disposal of Rejected Goods and Seller fails todirect Buyer to dispose of it as provided herein, Buyer may return the RejectedGoods to Seller, upon which event Buyer’s obligations with respect to saidRejected Goods shall be deemed fulfilled.

 

Seller shallreimburse Buyer for all costs reasonably incurred by Buyer in storing,transporting, returning and disposing of the Rejected Goods. Buyer shall haveno obligation to pay Seller for Rejected Goods and may deduct reasonable costsand expenses to be reimbursed by Seller from amounts otherwise owed by Buyer toSeller.

 

If Seller producesDDGS which comply with the warranty in Section 8C above but which do notmeet applicable industry standards, Buyer agrees to purchase such DDGS forresale but makes no representation or warranty as to the price at which suchDDGS can be sold.  If the DDGS deviate soseverely from industry standard as to be unsalable, then it shall be disposedof in the manner provided for Rejected Goods in Section 8C above.

 

Title and risk ofloss of Rejected Goods shall pass to Seller promptly upon valid rejection byBuyer.

 

D.  If Seller knows that any of the DDGS producedat its Plant are adulterated or misbranded, or outside of industry qualitystandards, Seller shall promptly so notify Buyer so that such DDGS can betested before entering interstate commerce. If Buyer knows  that any of theDDGS produced by Seller at its Plant are adulterated, misbranded or outside ofindustry quality standards, then Buyer may obtain independent laboratory testsof the affected goods. If such goods are tested and found to comply with allwarranties made by Seller herein, then Buyer shall pay all testing costs; andif the goods are found not to comply with such warranties, Seller will pay alltesting costs.

 

9.     RETENTION OF SAMPLES;DISPUTES.  Seller will take an originsample of Products from each truck and rail car before it leaves the Plantusing standard sampling methodology. Seller will label these samples to indicate the date of shipment and thetruck or railcar number involved. Seller will also retain the samples and labeling

 

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information for noless than one year.

 

In the event ofany dispute regarding the grade or quality of any DDGS sold by Seller to Buyer,samples of such DDGS shall be sent to an independent third party inspectormutually approved by Buyer and Seller. The decision of such third party inspector regarding such grade orquality shall be binding upon the parties hereto.  Testing fees charged by such third partyinspector shall be paid by Seller unless it is determined that Buyer’s (or itscustomer’s) analysis was not accurate and the DDGS met the grade and qualitystandards required hereunder, in which case such inspection fees shall be paidby Buyer.

 

10.           INSURANCE.

 

A.  Seller warrants to Buyer that all employeesengaged in the removal of the DDGS from Seller’s plant shall be covered byworker’s compensation and unemployment compensation insurance, to the extentrequired by law.  Seller agrees tomaintain throughout every term of this Agreement comprehensive generalliability insurance, including product liability coverage, with combined singlelimits of not less than $2,000,000.  Seller’spolicies of comprehensive general liability insurance shall be endorsed torequire Seller’s insurer endeavor to provide at least thirty (30) days advancenotice to Buyer prior to the effective date of any decrease in or cancellationof coverage.  Seller shall cause Buyer tobe named as an additional insured on Seller’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.

 

B.  Buyer agrees to carry such insurance on itsvehicles operating on Seller’s property as Seller reasonably deemsappropriate.  The parties acknowledgethat Buyer may elect to self insure its vehicles.  Upon request, Buyer shall provide certificateof insurance to Seller to establish the coverage maintained by Buyer.

 

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

 

11.           REPRESENTATIONS ANDWARRANTIES

 

A.  Seller represents and warrants that the DDGSdelivered to Buyer shall be free and clear of liens and encumbrances.

 

12.           EVENTS OF DEFAULT.  The occurrence of any of the following shallbe an event of default under this Agreement (“Event of Default”):  (1) failure of either party to makepayment to the other when due; (2) default by either party in theperformance of the covenants 

 

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and agreements set forth in this Agreement; (3) if either partyshall become insolvent, or make a general assignment for the benefit ofcreditors or to an agent authorized to liquidate any substantial amount of itsassets, or be adjudicated bankrupt, or file a petition in bankruptcy, or applyto a court for the appointment of a receiver for any of its assets orproperties with or without consent, and such receiver shall not be dischargedwithin sixty (60) days following appointment.

 

13.           REMEDIES.  Upon the happening of an Event of Default, theparties hereto shall have all remedies and rights available in applicable law,equity or otherwise with respect to an Event of Default by the otherparty.  Without limiting the foregoing,the parties shall have the following remedies whether in addition to or as oneof the remedies otherwise available to them; (1) to declare all amountsowed immediately due and payable; and (2) immediately to terminate thisAgreement effective upon receipt by the party in default of the notice oftermination, provided, however, the parties shall be allowed 10 days from thedate of receipt of notice of default for to cure any default. Notwithstandingany other provision of this Agreement, Buyer may offset against amountsotherwise owed to Seller the price of any Rejected Goods.

 

14.           FORCE MAJEURE.  Neither Seller nor Buyer will be liable tothe other for any failure or delay in the performance of any obligation underthis Agreement due to events beyond its reasonable control, including, but notlimited to, fire, storm, flood, earthquake, explosion, act of the public enemy,riots, civil disorders, sabotage, strikes, lockouts, labor disputes, laborshortages, war stoppages or slowdowns initiated by labor, transportationembargoes, failure or shortage of materials, acts of God, or acts orregulations or priorities of the federal, state or local government or branchesor agencies thereof.

 

15.           INDEMNIFICATION.

 

A.            Seller shallindemnify, 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 agents may suffer, sustain or becomesubject 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 and hold Seller and its officer, directors, employees and agentsharmless, from any and all losses, liabilities, damages, expenses (includingreasonable attorneys’ fees), costs, claims, demands, that Seller or itsofficers, directors, employees or agents may suffer, sustain or become subjectto, or as a result of (i) any misrepresentation or breach of warranty,covenant or agreement of Buyer contained herein or (ii) the Buyer’snegligence or willful misconduct.

 

C.            Notwithstanding theabove, where such personal injury, death or loss of or damage to property isthe result of negligence on the part of both Seller and Buyer, each party’sduty of indemnification shall be in proportion to the percentage of that party’snegligence or faults.

 

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16.           RELATIONSHIP OFPARTIES.  This Agreement creates norelationship other than that of buyer and seller between the partieshereto.  Specifically, there is noagency, partnership, joint venture or other joint or mutual enterpriseorundertaking 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.

 

17.           MISCELLANEOUS.

 

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

 

B.            No course of priordealings 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 acquiescencein, a course of performance rendered under this or any prior agreement shallnot be relevant or admissible to determine the meaning of this Agreement eventhough the accepting or acquiescing party has knowledge of the nature or theperformance and an opportunity to make objection.

 

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

 

E              This Agreement canonly be modified by a writing signed by all of the parties or their dulyauthorized agents.

 

F.             The paragraphheadings herein are for reference purposes only and shall not in any way affectthe meaning or interpretation of this Agreement.

 

G.            This Agreement shallbe construed and performed in accordance with the laws of the State ofWisconsin.

 

H.            All claims, disputes,controversies and other matters arising out of this Agreement shall be resolvedby binding arbitration in accordance with the Arbitration Rules of theNational Grain and Feed Association or such other governing rules as maybe agreed to by the parties.  Thearbitration will be conducted in St. Paul, Minnesota by an arbitrator selectedby mutual agreement of the parties.  Ifthe parties are unable to agree upon an arbitrator, the arbitration will beconducted by a panel of three arbitrators, one arbitrator selected by eachparty and the third arbitrator selected by arbitrators chosen by the partieshereto.  The decision of any two of thethree arbitrators will be the decision of the entire panel.  The costs of arbitration, includingreasonable attorneys’ fees, shall be borne as assessed by the arbitrators.  The decision from the arbitration shall bereduced to writing and shall be binding on the parties.  Judgment upon the award(s) rendered bythe arbitrator(s) may be entered and execution had in any court ofcompetent jurisdiction or 

 

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application may be made to such court for a judicialacceptance of the award and an order of enforcement.  In arbitration, all privileges under stateand federal law, including attorney client and work product privileges, shallbe preserved and protected to the same extent that such privileges would beprotected in a federal court in the United States proceeding applying theinternal law of the State of Wisconsin (without reference to the law ofconflicts of any jurisdiction).

 

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

 

J.             Notice shall bedeemed 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, returnreceipt requested, addressed as follows:

 
|   | Buyer:  | CHS, Inc.                        |
|--------|---------|---------------------------------------|
|   |    | Attn: Steve J. Markham                |
|   |    | 5500 Cenex Drive                      |
|   |    | Inver Grove Heights, MN 55077         |
|   |    |                                  |
|   | Seller: | United Wisconsin Grain Producers, LLC |
|   |    | c/o Dan Wegner                        |
|   |    | W1231 Tessmann Drive                  |
|   |    | Friesland, WI 53935                   |

 

 

K.            This Agreementrepresents the entire agreement between the parties regarding the subjectmatter hereof and supersedes the previous agreement dated               ,2004 between the parties.

 

L.             Each of the partieshereto agrees and acknowledges that time is of the essence in the performanceof their obligations hereunder.

 

[Signature Page Follows]

 

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IN WITNESSTHEREOF, the parties have caused this Agreement to be executed the day and yearfirst above written.

 
|   | CHS, Inc.                         |   |
|--------|----------------------------------------|--------|
|   |                                   |   |
|   | By                                     |   | /s/ Steve  Markham |
|   | Its:                                   |   | Merchant |
|   |                                   |   |
|   |                                   |   |
|   | United Wisconsin  Grain Producers, LLC |   |
|   |                                   |   |
|   | By                                     |   | /s/ Jeff  Robertson |
|   | Title                                  |   | CEO |
|        |                                        |        |  |  |  |

 

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