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EXHIBIT 10.4
CORN PRICE RISK MANAGEMENT AGREEMENT
THIS CORN PRICE RISK MANAGEMENT AGREEMENT is made and entered into as of
the 16th day of November, 2001 by and between Broin Management, LLC, a Minnesota
Limited Liability Company ("Manager") and Northern Lights Ethanol, LLC, a South
Dakota Limited Liability Company ("Company").
WHEREAS, Company owns an ethanol production plant near Milbank, South
Dakota (the "Plant"); and
WHEREAS, Manager is in the business of management and operation of ethanol
production facilities, including the Plant; and
WHEREAS, Company and Manager have engaged the services of Manager to manage
the Plant pursuant to a Management Agreement dated November 2, 2000.
WHEREAS, Company desires to engage the services of Manager to provide corn
price risk management services not addressed by the Management Agreement between
Manager and Company, and Manager desires to provide such additional services on
the terms and conditions hereinafter described.
NOW, THEREFORE, in consideration of mutual covenants contained herein, the
parties agree as follows:
DEFINITIONS
TERMS DEFINED IN THE MANAGEMENT AGREEMENT. The capitalized terms defined in
the Management Agreement dated November 2, 2000 are incorporated herein by
reference.
RIGHTS AND OBLIGATIONS OF MANAGER
GENERAL RIGHTS AND OBLIGATIONS. Manager shall have the responsibility and
authority to take all action necessary or appropriate to engage in hedging and
price risk management relating to corn requirements including, without
limitation, the power and authority to;
(a) Trade corn future, options and other contracts with the intention of
minimizing grain costs and market exposure for any and all ethanol
plants managed by manager and the Broin Enterprises Plant, including
the Plant;
(b) devise and implement strategies for carry protection and basis
protection;
(c) Recommend strategies for flat price protection to each governing board
and enact all flat price strategies approved by the governing board;
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(d) Hire such employees and independent contractors as Manager shall
determine to be reasonably necessary to the foregoing; and
(e) Carry on any other activities necessary to, in connection with, or
incidental to the foregoing.
STORAGE/FORWARD CONTRACT HEDGING. Manager will recommend Storage and
Forward Contract Hedging strategies to the Commodity Manager at the Company. At
no time will these strategies result in the flat pricing of more than 25% of one
year's projected corn usage without the approval of the Board of Governors of
the Company. The Company will establish a futures trading account with the
assistance of the Manager for the purpose of Flat Price/Storage/Forward Contract
Hedging.
FLAT PRICE HEDGING. Manager will recommend flat price strategies to the
Board of Governors for flat price hedging in excess of 25% of one year's
projected corn usage as it deems necessary. The Board of Governors of the
Company or a committee appointed by the Board of Governors will review these
strategies and direct Manager to implement any strategies that are approved.
Manager will promptly enact any Flat Price Hedging strategies directed by the
Company.
INDEPENDENT CONTRACTOR STATUS. Manager in the performance of its duties
under this Agreement shall occupy the position of an independent contractor with
respect to the Company. Nothing contained herein shall be construed as making
the parties hereto partners or joint venturers, nor, except as expressly
provided herein, construed as making Manager an employee of the Company.
REPORTS ISSUED BY MANAGER
The following reports will be issued to the Company by the Manager:
DAILY REPORTS (to Commodity Manager):
- Market Update - Bid sheet
- Market Summary and Commentary
WEEKLY REPORTS (to General Manager):
- Pool Position and Profitability
- DDGS Market Roundup
QUARTERLY REPORTS (to the Board of Directors):
- Quarterly Market & Trading Update
- Quarterly DDGS Update
DUTIES OF COMPANY
Company hereby agrees to cooperate with Manager in the performance of
Manager's duties and responsibilities under this Agreement, to act in good
faith, and to do all reasonable things necessary to aid Manager's performance as
an independent contractor under the terms of this Agreement.
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PRICE RISK MANAGEMENT FEE
PRICE RISK MANAGEMENT FEE. Company shall pay Manager a Price Risk
Management Fee of $50,000.00 per year, payable in quarterly installments of
$12,500.00 due on the first day of each quarter. In the event this Agreement
commences other than on the first date of a quarter, the first quarterly
installment shall be prorated. Fees will commence when trading services are
initiated on behalf of the Company. This fee is subject to modification in the
case of plant expansions or increases in corn usage.
POOLING ARRANGEMENT
Company acknowledges that Manager will be offering these price risk
management services to all of the ethanol facilities Manager manages. A pooling
arrangement shall be implemented whereby Company and other ethanol facilities
managed by Manager will contribute funds for allocation to trading activities
based on the price risk management services. All trade expenses incurred by
Manager in pursuing the foregoing shall be paid out of the pool. Any profits or
losses resulting from the trading activity will be allocated proportionally to
participants based on their proportionate contribution to the pool.
MARGIN MONEY
Initial margin contribution to the pool account will be $63,636. Income
will be distributed as sufficient cash becomes available in the account. In the
case of pool losses, additional margin money will be requested pro-rata from the
plants trading in the pool account. It is anticipated the initial contribution
will be August 1, 2002.
EFFECTIVE DATE; TERM; TERMINATION
EFFECTIVE DATE. This Agreement shall be effective as of the date first set
forth above.
TERM. The terms of this Agreement shall be for a period of one (1) year.
Thirty (30) days prior to the expiration of the one (1) year term, this
Agreement shall be automatically extended for an additional one (1) year term
following the end of the one (1) year term unless either party gives notice of
termination as provided below.
The aforementioned renewal provision shall apply in the same manner for all
subsequent expiring terms. Therefore, every one (1) year this Agreement shall be
either automatically extended or proper notice of termination given by either
party as provided below.
TERMINATION. Either party has the right to terminate this Agreement without
cause by giving written notice to the other party of such termination. Such
written notice of termination shall be given not more than ninety (90) days or
less than thirty (30) days before the last day of each expiration period (i.e.
every year). Upon any such termination, Manager shall have the right to continue
to provide price risk management services until the end of the then-current
year.
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Likewise, upon any such termination, Company shall have the right to Manager's
price risk management services until the end of the then-current year.
LIMITATION OF LIABILITY
Company acknowledges that the corn market is volatile and subject to events
over which Manager and Manager's Price Risk Consultant have no control.
Accordingly, Manager and Manager's Price Risk Consultant will not be held liable
by Company for any losses related to the trading activities of Manager and
Manager's Price Risk Consultant relating to this Agreement so long as Manager
and Manager's Price Risk Consultant have acted in good faith and in a manner
they reasonably believed to be in the best interests of the business of the
Plant. The parties acknowledge that the price risk management services to be
rendered pursuant to this Agreement may affect the profitability of the Plant,
and may accordingly affect the bonuses to be paid to Manager under the terms of
the Management Agreement.
DISPUTE RESOLUTION
In the event of a dispute between Company and Manager relating to the terms
of or performance under this Agreement, the dispute resolution provisions set
forth in the Management Agreement shall govern, and same are incorporated hereby
by reference.
ASSIGNMENT
This Agreement shall be assignable by either party upon mutual written
consent of the parties hereto.
MISCELLANEOUS
HEADINGS. The headings contained herein are for convenience only and are
not intended to define or limit the scope of intent of any provisions of this
Agreement.
GOVERNING LAW. The validity of this Agreement, the construction of its
terms and the interpretation of the rights and duties of the parties hereto
shall be governed by the laws of the State of South Dakota.
NOTICES. Any notice required or permitted herein to be given shall be given
in writing and shall be delivered by United States registered or certified mail,
return receipt requested, to the President of Manager or President of Company,
as the case may be, at the addresses set forth below or such address as Company
or Manager shall provide notice of from time to time during the term of this
Agreement:
Company: Northern Lights Ethanol, LLC
Attention: Del Strasser
RR 2 Box 151
Wilmont, SD 57279
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Manager: Broin Management, LLC
Attention: Mr. Jeffrey S. Broin
2209 East 57th Street North
Sioux Falls, SD 57104
SUCCESSORS. This Agreement shall be binding upon and inure to the benefit
of the respective parties and their permitted assigns and successors in
interest.
WAIVERS. No waiver of any breach of any of the terms or conditions of this
Agreement shall be held to, be a waiver of any other subsequent breach; nor
shall any waiver be valid or binding unless the same shall be in writing and
signed by the party alleged to have granted the waiver.
COUNTERPARTS. This Agreement may be executed in multiple counterparts all
of which shall constitute but one Agreement.
AMENDMENT. This Agreement may be amended with the written consent of
Company and Manager.
ENTIRE AGREEMENT. Except as otherwise described herein, this Agreement is
the entire Agreement between the parties relating to corn price risk management.
Any amendment hereto must be in writing and signed by both parties hereto to
come into full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the 16th day of November, 2001.
COMPANY: MANAGER:
Northern Light Ethanol, LLC Broin Management, LLC
By /s/ Del Strasser By /s/ Jeffrey S. Broin
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Its Chairman - Del Strasser Its Chief Manager - Jeffrey S. Broin
and
/s/ Steve Street ATTEST:
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Its Secretary
ATTEST: By /s/ Larry Ward
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By /s/ Larry Ward
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