RISK MANAGEMENT AGREEMENT FOR GRAIN PROCUREMENT AND BYPRODUCT MARKETING
Exhibit 10.34
Futures Brokerage & Consulting
00000 Xxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Local (000) 000-0000
Toll Free (000) 000-0000
00000 Xxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Local (000) 000-0000
Toll Free (000) 000-0000
Xxxx Xxxxxxx & Associates
FOR
GRAIN PROCUREMENT AND BYPRODUCT MARKETING
This Risk Management Agreement (the Agreement”) is entered into this 16th
day of July, 2007 by and between Xxxx Xxxxxxx & Associates, an Introducing Broker for
Iowa Grain Company (“JS&A”), and Cardinal Ethanol, LLC (“Cardinal”).
WHEREAS Cardinal Ethanol is developing an ethanol plant near Harrisville, Indiana (the
“Ethanol Plant”);
WHEREAS JS&A is in the business of providing risk management services related to commodities;
WHEREAS Cardinal Ethanol and JS&A desire that JS&A provide certain risk management services to
Cardinal Ethanol upon the terms as set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties agree as
follows:
1. Risk Management Services. JS&A will provide risk management and related services
pertaining to grain hedging, grain pricing information, aid in purchase of grain, and assistance in
risk management as it pertains to ethanol and other by-products as set forth on Exhibit A attached
hereto and incorporated by reference. JS& A understands and acknowledges that the primary intent
of engaging its professional services is for the benefit of Cardinal Ethanol.
2. Designation of Authorized Representative. In connection with the services provided
by JS&A, the parties may agree to enter into certain hedging or other futures agreements and
transactions from time to time. All such transactions shall be executed upon specific approval and
direction by a client representative. Cardinal Ethanol will designate, by resolution, those persons
who will have authority to make risk management decisions on behalf of Cardinal Ethanol when
dealing with JS&A.
3. Commencement of Services; Fees. JS&A’s services shall commence upon execution of
this Agreement. In exchange for the services, a fee of $2500.00 per month will be charged.
Provided however, that the monthly fee shall not begin to accrue more than 90 days prior to start
up of the Ethanol Plant. In addition, no fees shall be due and owing from Cardinal Ethanol to JS&A
until the Ethanol Plant is in operation. It is also understood that payment for these services is
dependant upon JS&A being the clearing broker for Cardinal Ethanol at a rate of $15.00 per contract
plus clearing and exchange fees.
4. Independent Contractor. JS&A is an independent contractor providing services to
Cardinal Ethanol. No employment relationship, partnership, or joint venture is intended, nor shall
any such relationship be deemed created hereby. Each party shall be solely and exclusively
responsible for its own expenses and costs of performance. Cardinal Ethanol acknowledges that JS&A
provides similar services to its competing firms and this agreement shall not abridge those
services in any way.
5. Confidentiality.
(a) As used in this Agreement, “Confidential Information” means any information, technical
data, or know-how (including, but not limited to, information relating to research,
products, software, services, development, inventions, processes, engineering, marketing,
techniques, customers, pricing, internal procedures, business and marketing plans or
strategies, finances, employees and business opportunities) disclosed by one party to the
other in any form whatsoever (including, but not limited to, in writing, in machine
readable or other tangible form, orally or visually): (i) that has been marked as
confidential; (ii) the confidential nature of which has been made known by the disclosing
party to the recipient, in writing or orally, and if orally, with specific written
notification to the recipient of such oral disclosure within three days thereafter; or
(iii) that due to its character, nature, or method of transmittal, a reasonable person
under like circumstances would treat as confidential. The parties each agree to keep in
confidence and prevent disclosure to any person outside its respective organization, or any
person within its organization not having a reasonable need to know, all Confidential
Information.
(b) Information shall not be deemed to be Confidential Information to the extent that it
is: (i) in the public domain at the time of disclosure or is subsequently made available by
the disclosing party to the general public without restriction; (ii) known to the receiving
party at the time of disclosure without restrictions on its use or independently developed
by the receiving party and there is adequate documentation to demonstrate either condition;
or (iii) used or disclosed with the prior written approval of the disclosing party.
(c) The receiving party may disclose the other party’s Confidential Information pursuant to
a statutory or regulatory requirement or a court order; provided, however, that (i) the
receiving party will notify the other party of the obligation to make such disclosure in
advance of the disclosure in order that the other party will have reasonable opportunity to
object to such disclosure; and (ii) the receiving party requests confidential treatment of
such disclosed Confidential Information.
(d) The receiving party’s obligations under this Agreement with respect to Confidential
Information that it has received shall continue for a period of two years after the
expiration or termination of this Agreement.
(e) Nothing in this Agreement is intended to restrict or prevent Cardinal Ethanol from
disclosing the terms hereof to pursuant to any disclosures necessary to comply with certain
statutory and regulatory requirements of the Securities and Exchange Commission and state
securities regulators, or disclosures made to credit analysts, rating agencies, bond
insurers, and prospective lenders and investors. Nothing in this Agreement is intended to
limit or restrict JS&A’s ability to respond to regulatory requests or third party audit
requests as required by the Commodity Exchange Act and the rules and regulations of the
Commodity Futures Trading Commission.
This provision shall survive the termination or expiration of this Agreement.
6. Licenses, Bonds, and Insurance. JS&A and Cardinal Ethanol shall maintain during
the term of the Agreement all necessary state and federal licenses, bonds, and insurance required
for the conducting its business in accordance with applicable state and/or federal laws and
regulations.
7. Indemnification; Attorney Fees. JS&A will indemnify and hold the other and its
directors, officers, employees, and agents harmless from losses, claims, liability, damages or
expense, including attorney fees and other litigation expenses, suffered as a result of gross
negligence, willful misconduct, misrepresentation or breach of a warranty, covenant or agreement
between the parties. This provision shall survive the termination or expiration of this Agreement.
8. Term; Termination. This agreement shall remain in effect for one year and continue
on a month to month basis thereafter. This Agreement may be terminated by either party for any
reason upon written notice even during the initial one year period. Upon termination of this
Agreement, JS&A will have no further rights under the terms of the Agreement other than to any fees
for service to which its may be entitled through the date of termination.
9. Notice. Any notice permitted or required hereunder shall be in writing, signed by a
duly authorized officer of the party giving such notice, and shall either be hand delivered, sent
by recognized overnight delivery service, or mailed to the designated representatives of the other
parties. If mailed, notice shall be sent by certified, first-class, return receipt requested mail
to the address shown below, or any other address subsequently specified by notice from one party to
the other. All notices and other communications hereunder shall be deemed given upon the earlier of
(i) delivery thereof if by hand, or (ii) upon receipt if sent by mail (registered or certified,
postage prepaid, return receipt requested), or (iii) on the next business day after deposit if sent
by a recognized overnight delivery service to the to the appropriate party at the address below:
| Xxxx Xxxxxxx & Associates | ||
0 XXXX Xxxxxx, Xxxxx 000
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00000 Xxxxx Forest | |
X.X. Xxx 000
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Xxx Xxxxxxx, XX 00000 | |
Xxxxxxxxxx, XX 00000 |
10. Validity. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law. In case any one or
more of the provisions contained herein shall, for any reason, be held to be invalid, illegal, or
unenforceable in any respect, such provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality, or unenforceability without invalidating the remainder of
such invalid, illegal, or unenforceable provision or provisions or any other provisions hereof,
unless such a construction would be unreasonable.
11. Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of Indiana without regard to the conflicts-of-laws rules thereof.
12. Counterparts. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute one and the same
agreement, and shall become binding when one or more counterparts have been signed by each of the
parties.
13. Entire Agreement. This Agreement embodies the entire agreement and understanding
of the parties with respect to the subject matter contained herein. There are no other agreements,
representations, warranties, or covenants other than those expressly set forth, or referred to,
herein. This Agreement supersedes all prior agreements and understandings among the parties with
respect to such subject matter. The provisions of this Agreement shall in no way eliminate, amend
or otherwise alter any of the provisions of the Iowa Grain Company Customer Agreement and
accompanying documents in the new account application packet.
14. Assignment. This Agreement shall be binding upon and inure to the benefit of the
parties and the successors and assigns. No party may assign this Agreement without the express
consent of the other parties except that (i) no such consent shall be required in connection with a
sale, merger, or any acquisition of the entire business of any party; (ii) JS&W expressly consents
that Cardinal Ethanol’s rights and other interests hereunder may be pledged or assigned as security
in connection with financing for the Ethanol Plant.
Xxxx Xxxxxxx & Associates
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Cardinal Ethanol, LLC | |
/s/ Xxx Xxxxxx
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/s/ Xxxxxxx X. Xxxxxxx | |
By: Xxx Xxxxxx
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By: Xxxxxxx Xxxxxxx | |
President
|
General Manager | |
Title: President
|
Title | |
7-9-07
|
July 16, 2007 | |
Date |
Exhibit A
JS&A will work with Cardinal Ethanol providing advice regarding the hedging of grains, milling
by-product owned or expected to be owned by it and Ethanol, in order to reduce the price risk of
such ownership, and provide information related to the hedged position to respond to all management
requirements.
JS&A will provide, with the assistance of Cardinal Ethanol management, a complete written Risk
Management policy or plan to help guide or assist Cardinal Ethanol at certain intervals over the
course of this Agreement, and particularly during the period before the plant commences operations.
JS&A will provide both current and future grain pricing information to Cardinal Ethanol. JS&A will
on an ongoing basis bring recommendations, of trades to be executed, to Cardinal Ethanol’s
designated personnel as to the cash corn and or futures and options positions to be established.
Following Cardinal Ethanol’s approval of and agreement, JS&A will execute the necessary futures and
options to the best of its ability. JS&A will continue to advise as to any adjustments that need
to be made to this position and execute them following Cardinal Ethanol’s approval.
JS&A will also be available and provide the necessary counsel to Cardinal Ethanol’s risk committee
and or board as to the rational for the proposed position, its risk parameters and an estimate of
the capital required.
JS&A does not view risk management in a processing environment to be a function of picking the
highs and lows of individual commodity prices at a given point in time. But rather as an ongoing
function comprised of formulating a studied opinion of price based upon historical perspectives of
the current Supply and demand factors and then employing that opinion in a system of “Asset
Management” based on processing margins and profitability.
Tools employed to accomplish this include but are not limited to JS&A’s analysis and projection of
futures highs and lows, regional grain S/D’s specific to Cardinal Ethanol’s location, regional
basis histories relating back to the S/D’s and the employment of a Risk Management Matrix that
enables JS&A to build a history of processing margins for the individual facility, evaluate
projected forward margins by individual components: corn, by-products, and ethanol, and also track
and evaluate the corn by-product spread. This information is employed to evaluate current margins
and develop an opinion as to future margins and when to lock margin in. JS&A, through its
resources, will make available daily and monthly reports detailing the trades associated with this
Agreement.
The basic tools for risk management are forward cash contracts, buying and selling futures
contracts and buying and selling put and call options. All of these can be employed.
In addition JS&A will make available its proprietary resources for price forecasting, regional
S/D’s, basis analysis and margin management and analysis.
Additionally, JS&A will instruct all relevant personnel as to its use.
Upon Cardinal Ethanol’s recommendation JS&A will manage the execution of the necessary positions
and continually advise Cardinal Ethanol management of any necessary adjustments.
JS&A will provide a Level Two PRX Complete Grain Market and Grain Transportation Outlook which is
the complete PRX service (excluding customer reports). Also provided is paid attendance for up to
two people to a maximum of three PRX seminars throughout the year.
