EXHIBIT 10.5
ETHANOL MARKETING AND SERVICES AGREEMENT
This Agreement is made and entered into this 5th day of March, 2002 by and
between Northern Lights, (hereinafter referred to as Owner), and Ethanol
Products, LLC having an address of 000 Xxxxx, Xxxxxxx, Xxxxxx 00000 (hereinafter
referred to as Marketer).
RECITALS:
A) The Owner would like to utilize the services of a Marketer to market
fuel grade ethanol (hereinafter referred to as Ethanol) from its plant
to be sited in South Dakota.
B) Marketer is in the business of marketing Ethanol in the United States.
C) The parties entered into an Ethanol Marketing and Services Agreement
(Agreement) dated November 2, 2000 and desire to modify the terms and
conditions as set forth below.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements set forth herein, the parties agree as follows:
1. MARKETING RIGHTS. Owner gives Marketer exclusive rights to market all
Ethanol produced from its ethanol plant in South Dakota.
2. TERM OF AGREEMENT. The term of this Agreement shall be five (5) years,
beginning from the date fuel grade ethanol production commences at the
facility. This Agreement renews automatically for additional five (5)
year periods, at the end of the initial period and at the end of any
subsequent five (5) year renewal period, unless terminated by either
party. Either party may terminate this agreement at the end of the
initial period or at the end of any five (5) year renewal period by
giving to the other party ninety (90) days' written notice of
termination prior to the end of the then current period. Within
fifteen (15) days of receipt of written notice of termination by
either party, Marketer will provide Owner with a quantity per month of
Ethanol for up to one (1) year from termination that will be needed to
fulfill sales contracts in existence at the time of termination and
copies of said contracts. Owner agrees that all such existing
contracts disclosed in the fifteen (15) day period will be fulfilled,
and that the terms of this Agreement will remain in effect for all
such Ethanol.
3. MARKETING SERVICES PROVIDED. Marketer will provide to Owner the
following marketing services:
a. MARKETING. Marketer will affect the sale of Owner's Ethanol at
competitive market prices.
b. SCHEDULING AND DISTRIBUTION. Marketer will be responsible for
scheduling all shipments of Owner's Ethanol. Marketer will
provide to Owner a shipping order, and Owner will provide a
combined shipping schedule as stated in Section 8 below.
c. LEASED STORAGE. If it is deemed necessary by Marketer to market
Owner's Ethanol through storage facilities, Owner will pay all
lease and throughput cost associated with such leases.
d. FREIGHT. When necessary to market Owner's Ethanol, Marketer will
arrange for all freight and transportation services, including
rail equipment, for shipment of Owner's Ethanol. Owner will pay
all freight and transportation service costs.
e. CUSTOMER CREDITWORTHINESS. Marketer will make reasonable efforts
to review the creditworthiness of Owner's Ethanol customers. As
deemed necessary at Marketer's discretion, Marketer will obtain
at its expense Credit Bureau reports or Xxxx and Bradstreet
reports for customers of Owner. Marketer will then recommend to
Owner which, if any, accounts Marketer believes should be
rejected. Owner will have the right to request and review the
rejection recommendations and/or reports and notify Marketer in
writing of any customers in addition to the recommendations of
Marketer that should be rejected or accepted by Owner. Marketer
will not sell Ethanol to any customer rejected by Owner or
Marketer.
f. ACCOUNTS RECEIVABLE. Marketer will make reasonable efforts to
collect any past due accounts. However, Marketer shall not be
required to initiate litigation to collect delinquent accounts.
Marketer is authorized to turn over to collection agencies a
delinquent account unless Owner determines that it will assume
responsibility for collecting the account. Any collection agency
fees resulting from the collections process will be borne by
Owner. All accounts receivable losses arising from the marketing
of Ethanol are the sole responsibility of Owner, however, there
will be no marketing fee paid to Marketer on these receivable
losses.
g. TITLE TO AND RISK OF LOSS. Title to and risk of loss shall pass
from Owner directly to Owner's customer according to the
provisions of each sales transaction.
h. TRANSACTION PROCESSING. Marketer will be responsible for
invoicing all ethanol marketed, receiving payments from
customers, and paying freight and/or storage when necessary.
Owner will be
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responsible for furnishing Marketer a report by 10:00 a.m. each
workday of the previous day's shipments. Marketer will send to
the customers invoices the same day as the report is received.
i. REMITTANCE OF PAYMENT. Each week a payment will be made to Owner
for all Ethanol invoiced thirteen to nineteen (13-19) days prior
to said date that has been paid by Owner's customer. This payment
will be adjusted for all freight, transportation service, and
storage cost as described above in this Section and the Fees
stated in Section 5 of this Agreement, and when applicable, an
adjustment for value-added as stated in Section 7 below.
4. ADMINISTRATIVE SERVICES PROVIDED. Marketer will provide to Owner the
following Administrative Services:
a. DISTRIBUTION SERVICES. Marketer will be responsible for an
on-going program to conduct carrier audits and will be
responsible for carrier selection and dispatching, freight rate
bundling and distribution optimization.
b. TRANSACTION PROCESSING. Marketer will be responsible for ethanol
licensing, monitoring and state compliance reporting, state
surety bonding, tax collection, remittance and reporting,
purchase and sale acknowledgments, late payment collections, and
electronic funds transfer services.
c. INVENTORY MANAGEMENT. Marketer will be responsible for monitoring
future ethanol stock levels projected for Owner's plant to
facilitate the marketing program established by Marketer.
d. PROPRIETARY SOFTWARE. Marketer will install and maintain a
proprietary software system to handle linked transaction
processing and necessary data access to ethanol marketing and
sales information.
e. DENATURANT SUPPLY. Marketer has the exclusive right to supply
denaturant to Owner's Ethanol plant in South Dakota subject to
terms, conditions, and pricing as mutually agreed to by Marketer
and Owner.
5. MARKETING AND ADMINISTRATIVE SERVICE FEE. The Marketing and
Administrative Service Fee will be $0.0065/gallon of denatured Ethanol
as produced by the Ethanol Plant.
6. MARKETER'S PURCHASE OF ETHANOL. Marketer may purchase for its own
account all or a portion of Owner's Ethanol at a price to be agreed
upon by the parties at the time of the purchase.
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7. VALUE-ADDED OPPORTUNITIES. Marketer and Owner mutually recognize
that on occasion Marketer will be able to develop a sale opportunity
for Owner's ethanol that is above the market value for sales
typically completed on a spot market or contract rollover basis (a
"value-added transaction"). Examples of value-added transactions
include the building of new markets, time exchanges, location
exchanges, rack pricing, and negotiation of spread differentials.
The parties acknowledge that new value-added opportunities not yet
known to the parties are expected to be developed by Marketer in the
future. Owner and Marketer acknowledge that for value-added
opportunities, the Marketing Fee is insufficient to compensate
Marketer for additional income and profits generated for Owner.
Therefore, Owner and Marketer agree to share the additional margin
generated from value-added transactions at the ratio of 50% for
Owner and 50% for Marketer. The additional margin will be calculated
based on the difference in the sales price of the value-added
opportunity at Owner's production facility (net of transportation
cost) and the sales price of a typical market transaction (net of
transportation cost) for a similar time period.
In order to facilitate the completion of value-added opportunities,
which occur and disappear quickly within the market, Owner agrees to
identify representatives of Owner with authority to approve
value-added transactions. Marketer will upon identification of a
value-added opportunity present to any one of Owner's
representatives the value-added opportunity, including the details
of said transaction, for consideration. Owner has complete and sole
discretion to accept or reject the value-added opportunity. If
agreed upon by Owner's representative, Marketer will confirm in
writing to Owner's representative the agreement of the parties
regarding the value-added opportunity. In this case, Marketer shall
complete the value-added transaction in accordance with the
agreement of the parties. If Owner's representative declines to
participate in the value-added opportunity, then Marketer will not
complete the value-added opportunity for Owner's account.
8. REPORTING. Marketer will provide Owner with the following reports on a
schedule described below during the term of this Agreement:
Shipping Orders - Daily
Market Information - Weekly
Sales Summary - Monthly
Owner will provide Marketer with the following reports on a schedule
described below during the term of this Agreement:
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Daily Production - Daily
Combined Shipping Schedule - Daily
In addition to the aforementioned reports, Owner will timely inform
Marketer of daily inventories, plant shutdowns, daily production
projections, and any other information requested by Marketer in which
to perform under this Agreement.
9. DISCONTINUATION OF PRODUCTION. In the event that Owner wishes to
discontinue or reduce the production of Ethanol, Owner will notify
Marketer one (1) year in advance of Owner's decision so that all
contract commitments made by Marketer for Owner may be met. If less
than one (1) year notice of discontinuance or reduction of production
is provided to Marketer, or if unforeseen circumstances cause Owner to
cease or reduce production at its plant, Owner grants to Marketer the
power to buy in Ethanol short falls for the account of the Owner on
any unfilled contracts, and that any associated losses will be
reimbursed by Owner to Marketer.
10. LIABILITY. Owner recognizes that Marketer will be performing its
duties hereunder as an undisclosed agent for and on behalf of Owner.
Nevertheless, any and all liability related to the Ethanol, including
but not limited to Ethanol quality and condition, the timely delivery
of Ethanol, and the handling, transportation, storage and release of
Ethanol into the environment, shall remain the sole responsibility of
Owner, except to the extent provided in Section 12.
11. INDEMNIFICATION OF MARKETER. Owner shall indemnify, hold harmless and
defend Marketer, and its officers, directors, employees and agents
from and against any and all claims, actions, damages, liabilities and
expenses, including but not limited to, attorney's and other
professional fees, in connection with loss of life, personal injury
and/or damage to property of third parties, arising from or out of
Marketer's services provided under the terms and conditions of this
Agreement, and for Owner's breach of this Agreement, the quality and
condition of the Ethanol, the breach of any warranty or representation
regarding the quality and condition of the Ethanol, the failure of the
Owner to timely deliver Ethanol, and the handling, transportation,
storage and release of Ethanol into the environment, except that Owner
shall not indemnify, hold harmless and defend Marketer from (i) the
negligent or intentional acts of Marketer and its officers, directors,
employees and agents, (ii) any act beyond the scope of the Marketer's
services to be rendered under the terms and conditions of this
Agreement, (iii) any violation of laws, regulations, ordinances and/or
court orders by Marketer.
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12. INDEMNIFICATION OF OWNER. Marketer shall indemnify, hold harmless and
defend Owner, and its officers, employees and agents from and against
any and all claims, actions, damages, liabilities and expenses,
including, but not limited to, attorneys' and other professional fees,
in connection with Marketer's breach of this agreement and, in
connection with loss of life, personal injury and/or damage to
property of third parties arising from or out of (i) the negligent or
intentional acts of Marketer and its officers, directors, employees
and agents, (ii) any act beyond the scope of Marketer's services to be
rendered under the terms and conditions of this Agreement, and (iii)
any violation of laws, regulations, ordinances and/or court orders by
Marketer.
13. INSURANCE. Marketer will furnish Owner with an insurance certificate
verifying that Marketer has liability insurance of $5MM.
14. ENTIRE AGREEMENT AND AMENDMENT. This Agreement contains the entire
Ethanol Marketing Agreement between the parties. No oral statements,
representations or prior written matter not contained in this
agreement shall have any effect regarding products marketing. This
Agreement shall not be amended or modified in any manner except by a
writing executed by both parties.
15. CONFIDENTIAL NATURE OF AGREEMENT. Marketer and Owner agree to keep all
sales, prices, inventory positions, and the details of this Agreement
strictly confidential.
16. ASSIGNMENT. This Agreement shall not be assigned by either party,
except to an affiliate controlled by or in control of said party,
without the written consent of the other party.
17. GOVERNING LAW. This Agreement shall be governed, construed and
enforced under the laws of the State of South Dakota.
18. FORCE MAJEURE. Marketer shall not be liable to Owner for its failure
to deliver services hereunder, and Owner shall not be liable to
Marketer for its failure to produce ethanol, when such failure shall
be due to the failure of processing equipment, fires, floods, storms,
weather conditions, strikes, lock outs, other industrial disturbance,
riots, legal interference, governmental action or regulation, acts of
terrorism, acts of God or public enemy, or, without limitation by
enumeration, any other cause beyond Marketer's or Owner's reasonable
control; provided Marketer or Owner shall promptly and diligently take
such action as may be necessary and
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practicable under the then existing circumstances to remove the cause
of failure and resume delivery of services or ethanol. The party
seeking to invoke this provision shall provide notice within 48 hours
or such other time as is reasonable under the circumstances. The party
shall further notify the other party as to the time when the force
majeure condition is no longer in effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date and
year first above written.
Northern Lights (Owner)
By /s/ Xxxxxx Xxxxxxxx
--------------------------------------
Its President
Ethanol Products, LLC (Marketer)
By /s/ Xxxxxx Xxxxxx
--------------------------------------
Its President
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