Exhibit 10.2

EXPANSION CONSTRUCTION NOTE

$33,000,000.00

 

Sioux Falls, South Dakota

 

 

August 28, 2006

 

FOR VALUE RECEIVED, Northern Lights Ethanol, LLC, a South Dakota limited
liability company (“Borrower”), hereby promises to pay to the order of U.S. Bank
National Association, a national banking association (“Lender”, which term shall
include any future holder hereof), at or at such other place as Lender may from
time to time designate in writing, in lawful money of the United States of
America, the principal sum of Thirty-Three Million and no/100 Dollars
($33,000,000.00) (the “Expansion Loan”) or so much thereof as may be advanced
hereunder, and to pay interest on the outstanding principal balance hereof from
time to time at the rate set forth herein.  This Note is given pursuant to that
Amended and Restated Loan Agreement (the “Amended Loan Agreement”) between
Lender and Borrower dated the same date as this Note.  The Expansion Loan shall
initially be known as the “Expansion Loan” and in the event the Expansion Loan
converts to long term financing, will be known as the “Term Loan” as of the
Conversion Date, as defined in the Amended Loan Agreement.

EXPANSION LOAN.  Borrower will pay the Expansion Loan in accordance with the
following terms and conditions:

1.             Calculation of Interest.  Interest on each Advance hereunder
shall accrue at an annual rate equal to 2.75% plus the one-month LIBOR rate
quoted by Lender (LIBOR + 2.75%), which shall be the one-month LIBOR rate in
effect two New York Banking Days prior to the stated monthly reprice date,
adjusted for any reserve requirement and any subsequent costs arising from a
change in government regulation, such rate to be reset monthly on the last day
of the month.  The term “New York Banking Day” means any date (other than a
Saturday or Sunday) on which commercial banks are open for business in New York,
New York.  Lender’s internal records of applicable interest rates shall be
determinative in the absence of manifest error.  If the initial Advance under
this Note occurs other than on the first day of the month, the initial one-month
LIBOR rate shall be that one-month LIBOR rate in effect two New York Banking
Days prior to the date of the initial advance, which rate shall be in effect on
the remaining days of the month of the initial advance.

2.             Payment Schedule.  Borrower shall make payments of all accrued
interest commencing on the last day of the month in which the First Advance Date
(as defined in the Amended Loan Agreement) falls, and continuing on the last day
of each month thereafter.

3.             Conversion to Term Loan.  In the event the Expansion Loan
qualifies for conversion to the Term Loan under the terms of the Amended Loan
Agreement, the outstanding principal balance of the Expansion Loan and all
accrued interest thereon shall

--------------------------------------------------------------------------------

be convert­ed to the Term Loan on the Conversion Date, as defined in the Amended
Loan Agreement, which shall not be later than August 31, 2007.

4.             Payment of Interest in Full on Conversion Date.  All accrued
interest owed on the Expansion Loan shall be paid in full on the Conversion
Date.  In the event the Loan has not been accelerated under the terms of the
Amended Loan Agreement prior to the Conversion Date, and the Loan does not
qualify for conversion to the Term Loan under the terms of the Amended Loan
Agreement, the Maturity Date of the Loan shall be the Conversion Date, which in
no event will be later than August 31, 2007.

TERM LOAN.  In the event the Loan qualifies for conversion from the Expansion
Loan to the Term Loan under the terms of the Amended Loan Agreement, Borrower
will pay the Term Loan in accordance with the following terms and conditions. 
Borrower acknowledges that any fixed interest rate will increase according to
the term of the Term Loan (the period between the Conversion Date and the
Maturity Date).  In no event will the Maturity Date be later than the seventh
(7th) anniversary of the Conversion Date.

1.             Interest Rate Options; Variable and Fixed.  Borrower shall have
two interest rate options for the Term Loan.  The first option shall be the same
variable rate as provided for the Expansion Loan.  If the variable rate option
is chosen, the interest rate shall continue to be adjusted each time that the
Index changes. The second option is a fixed interest rate which will be
negotiated by the parties prior to the Conversion Date, excluding any fixed
interest rate negotiated as part of an interest rate swap arrangement between
Borrower and Lender.  If the parties negotiate and agree to a fixed interest
rate, such agreement shall be evidenced by Lender and Borrower executing an
amendment to this Note setting forth the fixed interest rate agreed upon by the
parties.  If such an amendment to this Note is not executed prior to the
Conversion Date, the variable rate option shall apply to the Term Loan from and
after the Conversion Date.  Borrower further acknowledges that Lender may be
required to obtain the consent of all participants in the Loan and that Lender
may be unable to agree to a fixed interest rate without the prior consent of
such participants.

2.             Term of Loan.  The Term Loan shall be amortized over a period of
ten (10) years commencing on the Conversion Date.

3.             Payment Schedule for Variable Rate Loan.  In this Note each
“Quarterly Payment Date” shall be May 31, August 31, November 30 and February 28
of each year.  If the variable interest rate option applies to the Term Loan,
Borrower shall make (i) quarterly installments of principal in the amount of
$825,000 each commencing on the first Quarterly Payment Date following the
Conversion Date, and each Quarterly Payment Date thereafter, plus (ii) payments
of all accrued interest commencing on the last day of the month in which the
Conversion Date falls, and continuing on the last day of each month thereafter. 
On each Quarterly Payment Date, borrower shall make both these principal and
interest payments.

2

--------------------------------------------------------------------------------

 

4.             Payment Schedule for Fixed Interest Loan.  If a fixed rate option
applies to the Term Loan, Borrower shall make equal quarterly installments of
amortized principal and interest commencing on the first Quarterly Payment Date
following the Conversion Date, and continuing on the first day of each Quarterly
Payment Date thereafter.  Such quarterly payments shall be sufficient to fully
amortize this Note over the amortization period.

5.             Payment in Full on Maturity Date.  The outstanding principal
balance and all interest accrued thereon and all other amounts due hereunder
shall be paid in all events on the Maturity Date.

TERMS APPLICABLE TO EXPANSION LOAN AND TERM LOAN. The remaining terms of this
Note apply to the Expansion Loan and the Term Loan, if the Loan converts to a
Term Loan:

PAYMENTS DUE ON NON-BUSINESS DAY.  In the event any payment under this Note is
due on a date other than a Business Day (as defined in the Amended Loan
Agreement), such payment shall be due on the Business Day immediately following
the day the payment was otherwise due.

INTEREST COMPUTATION.  Interest shall be calculated on a 365/360 simple basis;
that is, by applying the ratio of the annual interest rate over a year of 360
days, multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding.

COORDINATION WITH AMENDED LOAN AGREEMENT.  This Note is the Expansion
Construction Note referred to in the Amended Loan Agreement, and is subject to
the additional terms and conditions set forth in the Amended Loan Agreement and
the Loan Documents referred to therein.  This Note is secured by a Mortgage,
Security Agreement, Assignment of Leases and Rents and Fixture Financing
Statement of even date herewith on real property located in Grant County, South
Dakota, therein described, as well as other collateral described in the Amended
Loan Agreement and the other Loan Documents.  Capitalized terms not defined
herein shall have the meaning given such terms in the Amended Loan Agreement. 
The headings of paragraphs of this Note are for convenience of the parties only
and shall not be used in interpreting this Note.

LATE PAYMENT; GRACE PERIOD.  If a payment due hereunder is not made within five
days after the date when due, Borrower shall pay to Lender a late payment charge
of Five Hundred Dollars ($500.00) to compensate Lender for a portion of the cost
related to handling the overdue payment.  After an Event of Default, as defined
in the Amended Loan Agreement, then the entire principal sum evidenced by this
Note, together with all accrued and unpaid interest, shall, at the option of the
holder hereof, bear interest at the rate per annum (the “Default Rate”) equal to
3% in excess of the rate of interest per annum which would otherwise be payable
hereunder, and become immediately due and payable without further notice (except
as provided in the Amended Loan Agreement), demand or presentment for payment,
and without any relief whatever from any valuation or appraisement laws. 
Failure to exercise any option provided

3

--------------------------------------------------------------------------------

herein shall not constitute a waiver of the right to exercise the same in the
event of any subsequent default.  Borrower agrees that if, and as often as, this
Note is given to an attorney for collection or to defend or enforce any of
Lender’s rights hereunder, Borrower will pay to Lender Lender’s reasonable
attorneys’ fees together with all court costs, service tax and other expenses
paid by Lender, whether or not any action or proceeding is commenced by the
Lender.

CERTAIN BORROWER WAIVERS.  Borrower waives presentment, protest and demand,
notice of protest, demand and of dishonor and nonpayment of this Note and any
lack of diligence or delays in collection or enforcement of this Note.  Borrower
agrees that this Note, or any payment hereunder, may be extended from time to
time, and Borrower consents to the release of any party liable for the
obligation evidenced by this Note, the release of any of the security for this
Note, the acceptance of any other security therefor, or any other indulgence or
forbearance whatsoever, all without notice to any party and without affecting
the liability of Borrower.

PREPAYMENT; VARIABLE RATE.  So long as (i) a variable interest rate is
applicable to this Loan, and (ii) Borrower has not entered into an interest rate
swap agreement with Lender restricting prepayment, Borrower may prepay this Note
in whole or in part at any time, and if in part from time to time, during the
entire term of this Note, without penalty or premium.  No prepayment shall
suspend any required payments of either principal or interest on this Note or
reduce the amount of any scheduled payment.

PREPAYMENT; FIXED RATE.  If a fixed interest rate is applicable to this Loan
(other than through an interest rate swap arrangement between Lender and
Borrower), there shall be no prepayments of this Note, provided that Lender may
consider requests for its consent with respect to prepayment of this Note,
without incurring an obligation to do so, and Borrower acknowledges that in the
event that such consent is granted, Borrower shall be required to pay Lender,
upon prepayment of all or part of the principal amount before final maturity, an
Indemnity Amount equal to the maximum of:  (a) zero, or (b) that amount,
calculated on any prepayment date, which is derived by subtracting:  (1) the
principal amount of the Note or portion of the Note to be prepaid from (2) the
Net Present Value of the Note or portion of the Note to be prepaid on such date
of prepayment.

“Net Present Value” shall mean the amount which is derived by summing the
present values of each prospective payment of principal and interest which,
without such full or partial prepayment, could otherwise have been received by
Lender over the shorter of the remaining contractual life of the Note or next
repricing date if Lender had instead initially invested the Note proceeds at the
Initial Money Market Rate.  The individual discount rate used to present value
each prospective payment of interest and/or principal shall be the Money Market
Rate at Prepayment for the maturity matching that of each specific payment of
principal and/or interest.

“Initial Money Market Rate” shall mean the rate per annum, determined solely by
Lender, on the first day of the term of this Note or the most recent repricing
date or as mutually agreed upon by Borrower and Lender, as the rate at which
Lender would be able to borrow funds

4

--------------------------------------------------------------------------------

in Money Markets for the amount of this Note and with an interest payment
frequency and principal repayment schedule equal to this Note and for a term as
may be arranged and agreed upon by Borrower and Lender.  Such a rate shall
include FDIC insurance, reserve requirements and other explicit or implicit
costs levied by any regulatory agency.  Borrower acknowledges that Lender is
under no obligation to actually purchase and/or match funds for the Initial
Money Market Rate of this Note.

“Money Market Rate At Prepayment” shall mean that zero-coupon rate, calculated
on the date of prepayment, and determined solely by Lender, as the rate in which
Lender would be able to borrow funds in Money Markets for the prepayment amount
matching the maturity of a specific prospective Note payment or repricing date. 
Such a rate shall include FDIC insurance, reserve requirements and other
explicit or implicit costs levied by any regulatory agency.  A separate Money
Market Rate at Prepayment will be calculated for each prospective interest
and/or principal payment date.

“Money Markets” shall mean one or more wholesale funding mechanisms available to
Lender, including negotiable certificates of deposit, Eurodollar deposits, bank
notes, fed funds, interest rate swaps, or others.

In calculating the amount of such an Indemnity Amount, Lender is hereby
authorized by Borrower to make such assumptions regarding the source of funding,
redeployment of funds and other related matters, as Lender may deem
appropriate.  If Borrower fails to pay any Indemnity Amount when due, the amount
of such Indemnity Amount shall thereafter bear interest until paid at the
Default Rate specified in this Note (computed on the basis of a 360-day year,
actual days elapsed).  Any prepayment of principal shall be accompanied by a
payment of interest accrued to date thereon; and such prepayment shall be
applied to the principal installments in the inverse order of their maturities. 
All partial prepayments shall be in increments of $100,000.00.

PAYMENT OF OTHER ITEMS.  If Borrower defaults under any of the terms of this
Note, Borrower shall pay all reasonable costs and expenses, including without
limitation attorneys’ fees (including any service tax thereon) and costs,
incurred by Lender in enforcing this Note immediately upon Lender’s demand,
whether or not any action or proceeding is commenced by Lender.  Without
limiting the generality of the preceding sentence, such costs and expenses shall
include all attorneys’ fees and costs incurred by Lender in connection with any
federal or state bankruptcy, insolvency, reorganization, or other similar
proceeding by or against Borrower or any surety, guarantor or endorser of this
Note which in any way affects Lender’s exercise of its rights and remedies under
this Note or under the Amended Loan Agreement or any other Loan Document.  Maker
hereby stipulates that Lender is a “regulated lender” within the meaning of SDCL
54-3-13 and other applicable South Dakota statutes.

NO OFFSET.  No indebtedness evidenced by this Note shall be offset by all or
part of any claim, cause of action, or cross-claim of any kind, whether
liquidated or unliquidated, which Borrower now has or may hereafter acquire or
allege to have acquired against Lender.  To the fullest extent permitted by law,
Borrower waives the benefits of any applicable law, regulation, or procedure
which provides, in substance, that where cross demands for money exist between

5

--------------------------------------------------------------------------------

parties at any point in time when neither demand is barred by the applicable
statute of limitations, and an action is thereafter commenced by one such party,
the other party may assert the defense of payment in that the two demands are
compensated so far as they equal each other, notwithstanding that an independent
action asserting the claim would at the time of filing the response be barred by
the applicable statute of limitations.

CERTAIN BORROWER WAIVERS.  Borrower waives presentment, protest and demand,
notice of protest, demand and of dishonor and nonpayment of this Note and any
lack of diligence or delays in collection or enforcement of this Note.  Borrower
agrees that this Note, or any payment hereunder, may be extended from
time-to-time, and Borrower consents to the release of any party liable for the
obligation evidenced by this Note, the release of any of the security for this
Note, the acceptance of any other security therefor, or any other indulgence or
forbearance whatsoever, all without notice to any party and without affecting
the liability of Borrower.

APPLICABLE LAW.  This note shall be construed under and governed by the laws of
the State of south Dakota, without giving effect to conflict of laws or
principles thereof, but giving effect to federal laws of the United States
applicable to national banks.  Whenever possible, each provision of this note
and any other statement, instrument or transaction contemplated hereby or
relating hereto, shall be interpreted in such manner as to be effective and
valid under such applicable law, but, if any provision of this note or any other
statement, instrument or transaction contemplated hereby or relating hereto
shall be held to be prohibited or invalid under such applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this note or any other statement, instrument or
transaction contemplated hereby or relating hereto.

THIS NOTE SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF
SOUTH DAKOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS OR PRINCIPLES THEREOF,
BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO NATIONAL
BANKS.  WHENEVER POSSIBLE, EACH PROVISION OF THIS NOTE AND ANY OTHER STATEMENT,
INSTRUMENT OR TRANSACTION CONTEMPLATED HEREBY OR RELATING HERETO, SHALL BE
INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE AND VALID UNDER SUCH APPLICABLE
LAW, BUT, IF ANY PROVISION OF THIS NOTE OR ANY OTHER STATEMENT, INSTRUMENT OR
TRANSACTION CONTEMPLATED HEREBY OR RELATING HERETO SHALL BE HELD TO BE
PROHIBITED OR INVALID UNDER SUCH APPLICABLE LAW, SUCH PROVISION SHALL BE
INEFFECTIVE ONLY TO THE EXTENT OF SUCH PROHIBITION OR INVALIDITY, WITHOUT
INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE REMAINING PROVISIONS OF THIS
NOTE OR ANY OTHER STATEMENT, INSTRUMENT OR TRANSACTION CONTEMPLATED HEREBY OR
RELATING HERETO.

AT THE OPTION OF LENDER, THIS NOTE MAY BE ENFORCED IN ANY FEDERAL COURT OR SOUTH
DAKOTA CIRCUIT COURT SITTING IN GRANT OR MINNEHAHA COUNTY, SOUTH DAKOTA; AND
BORROWER CONSENTS TO THE

6

--------------------------------------------------------------------------------

JURISDICTION AND VENUE OF ANY SUCH COURTS AND WAIVES ANY ARGUMENT THAT VENUE IN
SUCH FORUMS IS NOT CONVENIENT.  IN THE EVENT BORROWER COMMENCES ANY ACTION IN
ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY
OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS NOTE, LENDER AT ITS OPTION
SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND
VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER
APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.

Borrower and Lender each irrevocably waives any and all right to trial by jury
in any legal proceeding arising out of or relating to this Note or any of the
Loan Documents (as defined in the Amended Loan Agreement) or the transactions
contemplated hereby or thereby.

NORTHERN LIGHTS ETHANOL, LLC

 

 

 

 

 

 

 

By:

/s/

Delton Strasser

 

 

 

Print Name: Delton Strasser

 

 

Its: President

 

7

--------------------------------------------------------------------------------