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Cargill / Asalliances Biofuels, - Form of Cargill Direct Corn Futures Advisory Agreement
Exhibit 10.14
Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [*]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
EXECUTION COPY FORM OF CARGILL DIRECT
CORN FUTURES ADVISORY AGREEMENT
This Form of Agreement is made and entered into as of the day of , 2006, by and between CARGILL COMMODITY SERVICES INC., a Delaware corporation, doing business as CARGILL DIRECT (the " Advisor" or " CARGILL DIRECT" ), and , a Delaware limited liability company (the " Client" ).
WITNESSETH:
WHEREAS , CARGILL DIRECT is a commodity trading advisor registered with the Commodity Futures Trading Commission (" CFTC" ) and a member of National Futures Association; WHEREAS , pursuant to Regulation 4.31 of the CFTC under the Commodity Exchange Act, as amended, CARGILL DIRECT has heretofore delivered to Client a Disclosure Document dated September 20, 2005 (the " Disclosure Document" );
WHEREAS , Client has reviewed and understands the Disclosure Document and is, by execution and delivery of this Agreement, delivering to CARGILL DIRECT acknowledgment of Client' s receipt thereof, in accordance with Regulation 4.31(b) of the CFTC; WHEREAS , Client intends to construct, own and operate a commercial facility at that will produce denatured fuel-grade ethanol (as such plant may be expanded or upgraded according to the terms of Corn Supply Agreement, the " Ethanol Facility" ), which Ethanol Facility is anticipated to produce approximately 100 million gallons per year; and
WHEREAS , Client desires to obtain the benefit of CARGILL DIRECT' s knowledge and experience by retaining the Advisor to provide advisory services as described herein in connection with corn feed stock procurement by Client for operation of the Ethanol Facility (the " Advisory Program" );
WHEREAS , CARGILL DIRECT desires to provide such advisory services, upon the terms and conditions set forth in the Disclosure Document and herein, it being understood and agreed that the terms on which any futures brokerage services are performed in connection with such advice, through a Managed Account or otherwise, shall be established by the customer agreement between Client and the futures commission merchant (" Broker" ) selected by Client;
NOW, THEREFORE , in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Master Agreement . The Parties have executed a Master Services Agreement of even date herewith (as amended from time to time, the " Master Agreement" ). The terms and conditions of the Master Agreement are hereby incorporated herein by reference. To the extent any provision of the Master Agreement conflicts with any provision contained herein, the provision contained herein will control. Terms capitalized but not defined in this Agreement shall have the meanings ascribed to them by the Master Agreement.
2. Advisory Services . Client hereby retains CARGILL DIRECT to provide futures advisory services. These services will include:
(a) Hedging Strategy and Budget . CARGILL DIRECT, together with the Client, has developed a customized corn procurement and hedging strategy and budget for the Client which includes risk management tools such as futures transactions, swaps, futures options, futures and futures option derivatives, also known as over-the-counter transactions (" OTC Transactions" ) and/or combinations thereof (" Risk Management Transactions" ), and which covers an annual operational period as specified therein. The hedging strategy and budget will be reviewed and updated by mutual agreement of the Parties at least sixty (60) days prior to the expected Start-Up Date for the Ethanol Facility, and thereafter on an annual basis at the times specified therein. The approved strategy and budget, as so updated, is referred to in this Agreement as the " Risk Management Plan" . CARGILL DIRECT will use its market knowledge and trading expertise with the goal of achieving as low a price as possible for the Client' s corn feed stock while adhering to the limitations described in this Agreement and in the Risk Management Plan in effect from time to time. (b) Deliverables . CARGILL DIRECT will:
Implement the customized hedging strategy according to the agreed budget and the Risk Management Plan if effect from time to time
Provide weekly market consultation by telephone on US/World corn markets
Assist in developing FY budgets for CBOT futures values
Provide monthly financial statements in a form and content mutually agreed upon by the Parties Provide fundamental and technical analysis of market conditions as requested by the Client Meet with the Client quarterly to evaluate performance
Meet with the Client annually to evaluate performance and establish the following year' s budget and to agree on appropriate updates for the Risk Management Plan
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(c) Risk Management Advisory Services . CARGILL DIRECT will manage Client' s Advisory Program by designing and executing on risk management strategies on Client' s behalf intended to reduce Client' s exposure to volatility in corn prices. Specifically, CARGILL DIRECT will place futures and futures options trades for Client' s account (without Client consultation, except to the extent such consultation is required by the Risk Management Plan) within the parameters specified in the Risk Management Plan and in a manner consistent with the principles established in the Risk Management Plan, as contemplated and authorized by the Power of Attorney document of even date herewith, attached and hereby incorporated into this Agreement by this reference as Exhibit A . 3. Term of Agreement; Early Termination . (a) The term of this Agreement shall be an initial period of ten (10) years commencing on the Start-Up Date (the " Initial Term" ), subject however to early termination pursuant to Section 3(b), Section 3(c), or Section 11 hereof. At the request of either Party, during the six-month period prior to the end of the fifth (5
th ) year of the Initial Term, the Parties shall meet and review the terms and conditions of this Agreement and the compensation paid to CARGILL DIRECT hereunder, and, if necessary or appropriate in the opinion of either Party, enter into good faith discussions regarding potential modifications as necessary or appropriate to ensure that this Agreement is fair and equitable to both Parties. It is understood and agreed, however, that even if the Parties are unable to agree on any modifications, this Agreement will nevertheless remain in effect for the remainder of the Initial Term. (b) Client will have the right to terminate this Agreement prior to the end of the Initial Term, if the " Cargill Hedge Price" (as defined in Section 3(c)) for each month in any six (6) consecutive calendar month period during the Initial Term exceeds by more than seven and one-half percent (7.5%) the average of the " Target Corn Price" (as defined in Section 3(c)) calculated for each of those calendar months. In the event Client desires to terminate this Agreement pursuant to this paragraph, Client shall provide written notice of termination to CARGILL DIRECT within sixty (60) days after the end of the 6-month period giving rise to the termination right, and the written notice of termination shall specify a termination date no earlier than fifteen (15) days after the date of the termination notice. As promptly as practicable after any such termination, all outstanding risk management transactions between the two parties shall be financially settled as of the termination date pursuant to the terms of the agreements governing those transactions, and such termination shall not relieve Client of its obligation to pay to CARGILL DIRECT any amounts due CES under this Agreement.
(c) CARGILL DIRECT may terminate this Agreement prior to the end of the Initial Term under the circumstances and in the manner provided in Section 3 of the Master Agreement.
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FORM OF CARGILL CORN FUTURES ADVISORY AGREEMENT 4. Compensation . As compensation for the advisory services to be performed by CARGILL DIRECT, Client agrees to pay CARGILL DIRECT:
(a) Flat Fee . A base monthly fee of $[*] per bushel per calendar month based on the projected number of bushels of corn hedged, as set forth in the Risk Management Plan in effect for the month, which shall be due and payable within five (5) days of the end of each calendar month (" Flat Fee" ). (b) Performance Incentive . If the average of the Cargill Hedge Prices for each Shipment Period during each Usage Year during the term of this Agreement is lower than the average of the Target Corn Prices for such Usage Year, the Client also agrees to pay CARGILL DIRECT a performance incentive equal to [*] percent ([*]%) of the Net Annual Gains for such year. CARGILL DIRECT will provide Client with an invoice for the Performance Incentive within 30 days after the end of every Usage Year during the term of this Agreement, and payment must be made within 30 days after receipt of the invoice (provided that, if Client disputes any part of the Performance Incentive invoice, as provided in Section 7 of the Master Agreement, Client shall pay only the undisputed portion of this invoice until such time as the dispute is resolved). All terms used in this Paragraph 4(B) are defined below.
(c) Definitions : i. Cargill Hedge Price is the final futures buying price achieved by CARGILL DIRECT for corn to be delivered during the applicable Shipment Period taking into account all gains and losses from hedging the same during the Pricing Period through its hedging for Client' s account.
The Client will maintain trading accounts for the purpose of determining the Cargill Hedge Prices and will provide discretionary authority to CARGILL DIRECT to enter trades on the Client' s behalf, subject to the parameters contained in this Agreement and in the Risk Management Plan in effect from time to time. CARGILL DIRECT will assume that Client' s corn usage (" Projected Corn Usage" ) is 2.967 million bushels per calendar month when hedging, except as otherwise provided in the Risk Management Plan in effect from time to time. In the event that Client' s actual corn usage is significantly different (greater than 10%), the Client will communicate changes within 5 business days of first notice or knowledge of such difference. In such event, CARGILL DIRECT will make every reasonable effort to minimize the economic impact on the Client' s position. The Parties agree that trades made to accommodate Client' s adjustment to the Projected Corn Usage will not be taken into account in the calculation of the Performance Incentive for the Shipment Periods for which Cargill already has taken a hedge position. ii. Target Corn Price for any Shipment Period is (A) the average of the daily closing CBOT futures corn price for the Shipment Period during the 3 month period directly preceding the first day of the first month of the Shipment Period (the " average price" ), or, at Client' s option, (B) the highest of such daily closing CBOT futures corn prices falling in the bottom one-third (1/3) of the daily closing prices for the 3-month period preceding the Shipment Period (the " bottom 1/3 price" ). Shipment Period means a calendar month. Client may for any * Certain confidential information on this page has been omitted and filed separately with the Securities and Exchange Commission.
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calendar year select application of the average price or the bottom 1/3 price by notifying CARGILL DIRECT of its selection at least thirty (30) days prior to the beginning of the calendar year.
iii. Pricing Period is the period during which the Projected Corn Usage for the applicable Shipment Period will be hedged in Client' s account and shall run from the effective date of this Agreement through the CBOT close on the last trading day of the calendar month preceding the first day of the applicable Shipment Period.
iv. Usage Year is a calendar year or any other twelve month period as mutually agreed by the Parties.
v. Net Annual Gains for any Usage Year is the amount by which the average of the Target Corn Prices for that Usage Year exceeds the average of the Cargill Hedge Prices for that Usage Year.
(d) Payment. All Compensation due shall be payable to CARGILL DIRECT at:
CARGILL DIRECT
c/o Cargill, Inc. Attn: Clayton Weiby
15407 McGinty Road West, MS #20 Wayzata, MN 55391-2399
(e) Brokerage Fees . CARGILL DIRECT will receive no compensation for brokerage fees. All trades shall be executed through an introducing broker other than CARGILL DIRECT. 5. Standard of Liability; Risk of Loss . Client represents and warrants that it understands the risks involved with the Advisory Program, including, without limitation, the risks set forth on the Risk Disclosure Statement, attached hereto as Exhibit B ; the possibility that an entire investment may be lost and that liability could exceed the assets in Client' s brokerage account; the fact that such brokerage account will be subject to brokerage commissions regardless of whether profits are earned; that even if best efforts are used to close out all positions in the account at a particular time, there is no assurance that any such open positions will be closed out without incurring additional losses; and that fees for CARGILL DIRECT advisory services will be charged regardless of whether the Advisory Program as a whole is successful. The Advisor makes no guarantee that its Advisory Program will result in a profit or will not result in a loss for Client. CARGILL DIRECT, its principals, officers, employees, agents and affiliates shall not be liable, responsible or accountable in damages or otherwise to Client, its successors or assigns, except for willful misconduct or bad faith on the part of CARGILL DIRECT, or any breach by CARGILL DIRECT of its obligation to effect transactions only within the parameters specified in the Risk Management Plan as specified in Section 2(c), or a breach of CARGILL DIRECT' s agreements specified in Section 6. Other than in such circumstances, all advice provided to Client pursuant to the Advisory Program, is at Client' s risk, and Client shall be solely liable therefore. Client is willing and financially able to sustain such
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losses should they occur. CARGILL DIRECT shall not be liable to Client for the loss of any margin deposits or other Client funds or property that is the direct or indirect result of the bankruptcy, insolvency, liquidation, receivership, custodianship or assignment for the benefit of creditors of any bank, clearing or other broker, exchange, clearing organization or similar entity, or of any grain elevator or other storage facility.
6. Advisory Services to Various Clients. Client understands that CARGILL DIRECT may advise a variety of clients with differing degrees of risk tolerance. It is understood that such variation may result in substantial differences between the results achieved by Client and the results achieved by other clients advised by CARGILL DIRECT. CARGILL DIRECT hereby agrees that under no circumstances will it knowingly recommend or use strategies for Client that are inferior to strategies recommended or used for any other similarly situated client advised by CARGILL DIRECT, nor will it knowingly or deliberately favor any client advised by CARGILL DIRECT over Client in any way or manner.
7. Confidentiality. CARGILL DIRECT agrees to respect and protect the confidentiality of information pertaining to the Client. Client agrees to respect and protect the confidentiality of CARGILL DIRECT' s strategies to the fullest extent practicable. Client shall (1) limit access to and knowledge of CARGILL DIRECT' s advice, positions, trades and trading methods to those with a reasonable need to know, (2) prevent others under its control from knowingly duplicating in other accounts the positions and trades recommended to Client, and (3) shall not duplicate, reprint or resell any of the advice or the printed material provided to Client by CARGILL DIRECT. Notwithstanding the foregoing, Client and CARGILL DIRECT acknowledge and agree that (a) Client may provide such information to any wholly-owned Affiliate which owns or operates an ethanol production facility, for which Cargill and the Affiliate have entered into agreements similar in nature to the Goods and Services Agreements, provided that such Affiliate agrees to be bound by the terms hereof or otherwise agree to maintain the confidential nature of such information, and provided further that Client may no longer provide such information to the owner of such ethanol production facility after the owner is no longer wholly-owned by the Client, (b) Cli...
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