Exhibit
10.11


 


Prepared
by and Return to:


James
M. Pfeffer


Stinson
Morrison Hecker LLP


1299
Farnam St., Suite 1500


Omaha,
Nebraska 68102


 


 


                                                        
[Space Above This Line For Recording Data]


 


CONSTRUCTION LOAN MORTGAGE, SECURITY AGREEMENT,

ASSIGNMENT OF LEASES AND RENTS

AND FIXTURE FINANCING STATEMENT


 


THIS CONSTRUCTION LOAN MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF
LEASES AND RENTS AND FIXTURE FINANCING STATEMENT (“Mortgage”) is made as of April 24,
2008, by HIGHWATER ETHANOL, LLC,  a
Minnesota limited liability company (“Mortgagor”), whose address is 205 North
Main Street, P.O. Box 96, Lamberton, Minnesota 56152, in favor of FIRST
NATIONAL BANK OF OMAHA, a National Banking Association, in its capacity as the
Administrative Agent and Collateral Agent for the Banks under the Loan
Agreement (as herein defined) (“Mortgagee”), whose address is 1620 Dodge
Street, Stop 1050, Omaha, Nebraska 68197-1050.


 


RECITALS


 


A.                                   Mortgagor, Mortgagee and the Banks have
entered into that certain Construction Loan Agreement dated of even date
herewith (as the same may be modified, amended or restated from time to time,
the “Loan Agreement”), pursuant to which the Banks have extended to Mortgagor (i) a
Construction Loan in the maximum principal amount of $50,400,000.00 evidenced
by Construction Notes of even date herewith executed by Mortgagor in favor of
the Banks, (ii) a revolving line of credit in the maximum principal amount
of $5,000,000.00 


 

















 


evidenced by Revolving Promissory Notes of even date
herewith executed by Mortgagor in favor of Banks, (iii) a promissory note
of even date herewith supporting the issuance, for the account of Mortgagor, of
letters of credit up to a maximum amount outstanding of $5,600,000.00 and (iv) Swap
Contracts with an additional exposure to Mortgagee, with the Construction Notes
available to be permanently financed by the Fixed Rate Notes, Variable Rate
Notes and Long Term Revolving Notes all as more fully described in the Loan
Agreement.  The foregoing financial
accommodations and credit facilities shall be collectively referred to in this
Mortgage as the “Loans”.  The total
principal amount secured by this Mortgage is 64,402,000.00, or so much thereof
as may have been advanced and/or readvanced now or in the future at variable
and/or fixed rates of interest to or for the benefit of the Mortgagor and
remains unpaid from time to time, plus the amount of any protective advances
made by Mortgagee as provided for in this Mortgage or any other Loan Document.


 


B.                                     The Loans are payable and to be performed
in accordance with the terms of the notes evidencing the same, the Loan
Agreement and the other Loan Documents, with the entire unpaid balance of the
Loans to mature and be due and payable in full not later than March 1,
2015 (the “Maturity Date”), unless extended by Mortgagor and Mortgagee.


 


C.                                     Mortgagor has agreed to mortgage the
Mortgaged Property (as herein defined) to Mortgagee to secure the Loans and the
Obligations (as defined below).


 


D.                                    The obligations secured by this Mortgage
(the “Obligations”) are as follows:


 


(i)                                     the Loans, including without limitation,
future advances made by Mortgagee to Mortgagor, Mortgagor’s obligations in
respect of the due and punctual payment of principal and interest on the Loans
when and as due, whether by acceleration or otherwise and all fees, expenses,
indemnities, reimbursements, guaranties and other obligations of Mortgagor
under the Loans, Loan Agreement and the other Loan Documents, in all cases
whether now existing or hereafter arising or incurred;


 


(ii)                                  all other amounts payable by Mortgagor
under the Loans, Loan Agreement or other Loan Documents as the same now exist
or may hereafter be amended; and


 


(iii)                               all obligations of Mortgagor under this
Mortgage, including, but not limited to, any protective advances advanced by
Mortgagee under this Mortgage to pay taxes, assessments, insurance premiums and
other costs to protect and preserve the Mortgaged Property and the lien and
security interest created by this Mortgage, plus interest thereon.


 


The Obligations include, and this Mortgage secures, future obligations
and advances under the Loans and protective advances made under this Mortgage
or the Loan Documents and future modifications, extensions and renewals of the
Loans and Obligations secured by this Mortgage. 
The total amount of obligations and advances secured by this Mortgage
may decrease or increase from time to time, but at no time shall the total
principal amount of obligations and 


 


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advances secured hereby, not including sums expended
or incurred for the reasonable protection of the security interest hereby
created in the Mortgaged Property, exceed the sum of 64,402,000.00.


 


NOW, THEREFORE, Mortgagor, in consideration of the Banks advancing the
Loans and making such funds available to Mortgagor, the sum of Ten Dollars
($10) in hand paid, and to secure the payment and performance of the
Obligations, hereby irrevocably and unconditionally BARGAINS, CONVEYS, MORTGAGES
AND WARRANTS to Mortgagee, its successors and assigns, forever, with right of
entry and possession and with POWER OF SALE to foreclose by advertisement under
applicable Minnesota law, and grants to Mortgagee, its successors and assigns,
a mortgage and security interest in the land and any buildings, plants,
facilities or improvements of any kind (collectively, “Improvements”), now
existing or hereafter constructed or placed thereon, described in Exhibit A
attached hereto and all mineral rights, hereditaments, easements and
appurtenances thereto (collectively the “Land”), along with all the following,
all of which together with the Land is called the “Mortgaged Property” in this
Mortgage:


 


(a)                                  All and singular the tenements,
hereditaments, servitudes, easements, appurtenances, passages, rights of
ingress and egress, licenses, permits, development rights, rights of use or
occupancy, waters, water courses, all of Mortgagor’s rights and interests under
federal, state and local laws to all water and rights, permits or licenses to
use or discharge water, release emissions into the air, riparian rights,
mineral rights, sewer rights, rights in trade names, licenses, permits and
contracts, and all other rights, liberties and privileges of any kind or
character in any way now or hereafter appertaining, relating or applicable to
the Land or any Improvements thereon, including but not limited to, homestead
and any other claim at law or in equity as well as any after-acquired title,
franchise or license and the reversion and reversions and remainder and
remainders thereof;


 


(b)                                 The land lying within any street, alley,
avenue, roadway or right-of-way open or proposed or hereafter vacated in front
of or adjoining the Land; and all right, title and interest, if any, of
Mortgagor in and to any strips and gores adjoining or used in connection with
the Land;


 


(c)                                  All agreements, ground leases, leases,
including, but not limited to, the Bond Lease, grants of easements or
rights-of-way, permits, declarations of easements, conditions or restrictions,
disposition and development agreements, planned unit development agreements,
plats, subdivision plans, permits and approvals, and all other documents
affecting the Land and/or Improvements;


 


(d)                                 All right, title and interest of Mortgagor
in any and all buildings and improvements of every kind and description now or
hereafter erected or placed on the said Land and all materials intended for
construction, reconstruction, alteration and repairs of such buildings and
improvements now or hereafter erected thereon, all of which materials shall be
deemed to be included within the Mortgaged Property immediately upon the
delivery thereof to the Mortgaged Property or upon any earlier 


 


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acquisition thereof by
Mortgagor, and all fixtures now or hereafter owned by Mortgagor and attached to
or contained in and used or acquired for use in connection with the Mortgaged
Property including, but not limited to, all heating, lighting, refrigerating,
ventilating, air-conditioning, air-cooling, fire extinguishing, plumbing,
cleaning, telephone, communications and power equipment, systems and apparatus;
and all elevators, switchboards, motors, pumps, screens, awnings, floor
coverings, cabinets, partitions, conduits, ducts
and compressors; and all cranes and craneways, oil storage, sprinkler/fire
protection and water service equipment; and also including any of such property
stored on the Land or Improvements or in warehouses and intended to be used in
connection with or incorporated into the Land or Improvements or for the
pursuit of any other activity in which Mortgagor may be engaged on the Land or
Improvements, and including without limitation all tools, cabinets, awnings,
window shades, venetian blinds, drapes and drapery rods and brackets, screens,
carpeting and other window and floor coverings, decorative fixtures, plants,
cleaning apparatus, and cleaning equipment, refrigeration equipment,
generators, cables, telecommunication cables, antennas and systems, computers,
software, books, supplies, kitchen equipment, appliances, tractors, lawn
mowers, ground sweepers and tools, together with all substitutions, accessions,
repairs, additions and replacements to any of the foregoing and all other items
of furniture, furnishings, equipment and personal property owned by Mortgagor
used or useful in the operation of the Mortgaged Property, including, but not
limited to, such equipment and personal property used in the production of
ethanol and the treatment and storage thereof and in any byproducts; and all
renewals or replacements of all of the aforesaid property owned by Mortgagor or
articles in substitution therefor, whether or not the same are or shall be
attached to said buildings or improvements in any manner; it being mutually
agreed, intended and declared that all the aforesaid property owned by
Mortgagor and placed by it on the Land or Improvements or used or acquired for
use in connection with the operation or maintenance of the Mortgaged Property
shall, so far as permitted by law, be deemed to form a part and parcel of the
Land and for the purpose of this Mortgage to be Land and covered by this
Mortgage, and as to any of the property aforesaid which does not form a part
and parcel of the Land or does not constitute a “fixture” (as such term is
defined in the UCC, defined below) this Mortgage is hereby deemed to be, as
well, a security agreement under the UCC for the purpose of creating hereby a
security interest in such property which Mortgagor hereby grants to Mortgagee
as secured party, and all inventory, office supplies, machinery, apparatus,
systems and equipment used or useful in the production of ethanol at the
Mortgaged Property, all as now owned or hereafter acquired by Mortgagor;


 


(e)                                  All leases of the Land or Improvements or
any part thereof, whether now existing or hereafter entered into (the “Leases”),
and all right, title and interest of Mortgagor thereunder, including rents,
cash and security deposits under any such Leases and all guaranties of any
Tenant’s obligations under any such Leases or other similar supports of a
Tenant’s obligations under a Lease;


 


(f)                                    Any and all awards, payments or insurance
proceeds, including interest and unearned premiums thereon, and the right to
receive the same, which may be paid or 


 


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payable with respect to
the Land or Improvements or other properties described above as a result of: (1) the
exercise of the right of eminent domain or action in lieu thereof; or (2) the
alteration of the grade of any street; or (3) any fire, casualty,
accident, damage or other injury to or decrease in the value of the Land or
Improvements or other properties described above, to the extent of all amounts
which may be secured by this Mortgage at the date of receipt of any such award
or payment by Mortgagor or Mortgagee, and of the reasonable counsel fees, costs
and disbursements incurred by Mortgagor or Mortgagee in connection with the
collection of such award, payment or proceeds. 
Mortgagor agrees to execute and deliver, from time to time, such further
instruments as may be requested by Mortgagee to confirm such assignment to
Mortgagee of any such award, payment or proceeds;


 


(g)                                 All licenses, permits (including, but not
limited to, building permits), authorizations, certificates, variances,
consents, approvals and other permits or licenses now or hereafter acquired
pertaining to the Land or any Improvements thereon or which relate to the
construction of the Improvements and/or the use, occupancy, development,
leasing, operation or servicing of the Land, including, but not limited to air
and water discharge permits, environmental permits and licenses required for
the production, storage and/or transport of ethanol and its byproducts, above
ground storage tank licenses and permits, and all estate, right, title and
interest of Mortgagor in, to, under or derived from all present or future
development, construction, operation or use of the Land or any improvements
thereon;


 


(h)                                 All intangible personal property relating
to the Land and/or Improvements, business records, trade names, trademarks,
service marks, logos, claims for refunds or rebates of taxes, tax abatements,
tax credits, money, deposit accounts, accounts and general and payment intangibles,
and all books, records, computer records, electronic data and reports relating
to the Mortgaged Property or necessary and useful for Mortgagor to enforce
Mortgagee’s rights and remedies in this Mortgage;


 


(i)                                     Any and all water and water rights, minerals,
oil, gas, or any rights thereto;


 


(j)                                     Together with all plans, drawings and
specifications relating to the Mortgaged Property and the construction of the
Improvements, all permits, consents, approvals, licenses, authorizations and
other rights granted by, given by or obtained from any governmental entity with
respect to the Mortgaged Property; and all other interests of every kind and
character that Mortgagor now has or at any time hereafter acquires in and to
the Mortgaged Property;


 


(k)                                  All studies, tests, investigations, and
reports of any kind relating to the soils or conditions of the soils of the
Land and the suitability of the soils for the construction of the Improvements,
all mechanical or structural studies, grading plans, drainage studies, and
plans and other similar studies, plans, drawings, or reports of any nature
relating to the construction of the Improvements;


 


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(l)                                     All management contracts, service
contracts, operating agreements, variances and permits relating to the Land
and/or Improvements;


 


(m)                               That certain Lease Agreement dated April 1,
2008, between Mortgagor and the Bond Issuer (the “Bond Lease”) and all
extensions and modifications thereof and all rights of Mortgagor thereunder;


 


(n)                                 All after-acquired title to or remainder
or reversion of any of the foregoing, all and any proceeds of any of the
foregoing, all and any additions, accessions and extensions to, improvements of
and substitutions and replacements of any of the foregoing and all additional
lands, estates, interests, rights, or other property acquired by Mortgagor
after the date of this Mortgage, all without need for any additional mortgage,
assignment, pledge, or conveyance to Mortgagee but Mortgagor will execute and deliver
to Mortgagee upon Mortgagee’s request any documents or instruments to further
effect or evidence the foregoing; and


 


(o)                                 Together with the right in the case of
foreclosure hereunder of the encumbered property for Mortgagee to take and use
the name by which the buildings and all other improvements situated on the Land
are commonly known and the right to manage and operate the said buildings under
any such name and variants thereof, and all right to take any action or file
any papers or process in any court of competent jurisdiction which may, in the
opinion of Mortgagee, be necessary to preserve, protect or enforce the rights
of Mortgagee in the Mortgaged Property;


 


Subject
only to the Permitted Encumbrances (as herein defined) and to secure payment of
the Obligations.


 


The parties intend the
definition of Mortgaged Property to be broadly construed and in the case of
doubt as to whether a particular item is to be included in the definition of
Mortgaged Property, the doubt shall be resolved in favor of inclusion.


 


TO HAVE AND TO HOLD the same, and all estate therein, together with all
the rights, privileges and appurtenances thereunto belonging, to the use and
benefit of Mortgagee, its successors and assigns, forever.


 


PROVIDED NEVERTHELESS, should the Obligations be paid and performed,
then these presents will be of no further force and effect, and this Mortgage
shall be satisfied by Mortgagee, at the expense of Mortgagor and in accordance
with applicable Minnesota law.


 


This Mortgage also constitutes a security agreement within the meaning
of the Uniform Commercial Code as in effect in the State of Minnesota (the “UCC”),
with respect to all property described herein as to which a security interest
may be granted and/or perfected pursuant to the UCC, and is intended to afford
Mortgagee, to the fullest extent allowed by law, the rights and remedies of a
secured party under the UCC.


 


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MORTGAGOR FURTHER agrees as follows:


 


ARTICLE 1.


 


AGREEMENTS


 


Section 1.1                            Performance of Obligations; Incorporation by Reference. 
Mortgagor shall pay and perform the Obligations when due.  Time is of the essence hereof.  All of the covenants, obligations,
agreements, warranties and representations of Mortgagor contained in this Agreement,
the Loan Agreement and the other Loan Documents and all of the terms and
provisions thereof, are hereby incorporated herein and made a part hereof by
reference as if fully set forth herein.


 


Section 1.2                            Further Assurances.  If Mortgagee
requests, Mortgagor shall sign and deliver and cause to be recorded as
Mortgagee shall direct any further mortgages, amendments of or supplements to
this Mortgage, instruments of further assurance, certificates and other
documents with respect to the Mortgaged Property as Mortgagee reasonably may
consider necessary or desirable, and shall do such acts reasonably required by
Mortgagee, in order to attach, perfect, continue and preserve the Obligations
and Mortgagee’s rights, title, estate, liens and interests under the Loan
Documents.  Mortgagor further agrees to
pay to Mortgagee, upon demand, all costs and expenses incurred by Mortgagee in
connection with the preparation, execution, recording, filing and refiling of
any such documents, including reasonable attorneys’ fees.


 


Section 1.3                            Sale, Transfer, Encumbrance. 
If Mortgagor sells, conveys, transfers or otherwise disposes of, or
encumbers, any part of its interest (legal or beneficial) in the Mortgaged
Property, whether directly or indirectly, voluntarily, involuntarily or by
operation of law (except for Permitted Encumbrances) except as permitted by the
Loan Agreement, without the prior written consent of Mortgagee, Mortgagee shall
have the option to declare the Obligations immediately due and payable
immediately upon notice.  Included within
the foregoing actions requiring prior written consent of Mortgagee are: (a) sale
of the Mortgaged Property by deed or contract for deed; (b) mortgaging or
granting a lien on the Mortgaged Property; and (c) except for the issuance
of membership interests of Mortgagor in connection with the current registered
public offering of Mortgagor, a change of control in 50% or more of the equity
interest or voting power or control of Mortgagor.  Mortgagor shall give notice of any proposed action
effecting any of the foregoing to Mortgagee for Mortgagee’s consent at least
thirty (30) days prior to taking such action. 
Mortgagor shall pay all reasonable costs and expenses incurred by
Mortgagee in evaluating any such action. 
Mortgagee may condition its consent upon reasonable modification of the
Loan Documents or payment of reasonable fees. 
No such action shall relieve Mortgagor from liability for the
Obligations as set forth herein.  The
consent by Mortgagee to any action shall not constitute a waiver of the
necessity of such consent to any subsequent action.


 


Section 1.4                            Insurance.  Mortgagor
shall obtain, maintain and keep in full force and effect and shall furnish to
Mortgagee copies of policies of insurance as described in, and meeting 


 


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the
requirements set forth in, the Loan Agreement. 
At least ten (10) days prior to the termination of any such
coverage, Mortgagor shall provide Mortgagee with evidence satisfactory to
Mortgagee that such coverage will be renewed or replaced upon termination with
insurance that complies with the provisions of this Section and the Loan
Agreement.  Mortgagor, at its sole cost
and expense, from time to time when Mortgagee shall so reasonably request, will
provide Mortgagee with evidence, in a form acceptable to Mortgagee, of the full
insurable replacement cost of the Mortgaged Property.  All property and liability insurance policies
maintained by Mortgagor pursuant to this Section and the Loan Agreement
shall (i) include effective waivers by the insurer of all claims for
insurance premiums against Mortgagee, and (ii) provide that any losses
shall be payable notwithstanding (a) any act of negligence by Mortgagor or
Mortgagee, (b) any foreclosure or other proceedings or notice of
foreclosure sale relating to the Mortgaged Property, or (c) any release
from liability or waiver of subrogation rights granted by the insured.  In addition, all policies of casualty
insurance shall contain standard noncontributory mortgagee loss payable clauses
to Mortgagee, and the comprehensive general liability and other liability
policies required in the Loan Agreement, including environmental or pollution
policies if so required, shall name Mortgagee as an additional insured.


 


Section 1.5                            Taxes, Liens and Claims, Utilities. 
Mortgagor shall pay and discharge when due, or cause to be paid and
discharged when due, all taxes, assessments and governmental charges and levies
(collectively “Impositions”) imposed upon or against the Mortgaged Property or
the Rents, or upon or against the Obligations, or upon or against the interest
of Mortgagee in the Mortgaged Property or the Obligations, except Impositions
measured by the income of Mortgagee. 
Mortgagor shall provide evidence of such payment at Mortgagee’s
request.  Mortgagor shall keep the
Mortgaged Property free and clear of all liens (including, but not limited to,
mechanics’ liens), encumbrances, easements, covenants, conditions, restrictions
and reservations (collectively “Liens”) except those set forth in Exhibit B
attached hereto and made a part hereof (the “Permitted Encumbrances”).  Mortgagor shall pay or cause to be paid when
due all charges or fees for utilities and services supplied to the Mortgaged
Property.  Notwithstanding anything to
the contrary contained in this Section, Mortgagor shall not be required to pay
or discharge any Imposition or Lien other than a mechanics’ lien so long as
Mortgagor shall in good faith, and after giving notice to Mortgagee, contest
the same by appropriate legal proceedings. 
If Mortgagor contests any Imposition or Lien against the Mortgaged
Property, Mortgagor shall provide such security to Mortgagee as Mortgagee shall
reasonably require against loss or impairment of Mortgagor’s ownership of or
Mortgagee’s lien on the Mortgaged Property and shall in any event pay such
Imposition or Lien before loss or impairment occurs.


 


Section 1.6                            Escrow Payments.  If requested
by Mortgagee after the occurrence of an Event of Default, Mortgagor shall
deposit with Mortgagee monthly on the first day of each month the amount
reasonably estimated by Mortgagee to be necessary to enable Mortgagee to pay,
at least five (5) days before they become due, all Impositions against the
Mortgaged Property and the premiums upon all insurance required hereby to be
maintained with respect to the Mortgaged Property.  All funds so deposited shall secure the
Obligations.  Any such deposits shall be
held by Mortgagee, or its nominee, in a non-interest bearing account and may be
commingled with other funds.  Such
deposits shall be used to pay such Impositions and insurance premiums when
due.  Any excess sums so deposited shall
be retained by Mortgagee 


 


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and
shall be applied to pay said items in the future, unless the Obligations have
been paid and performed in full, in which case all excess sums so paid shall be
refunded to Mortgagor.  Upon the
occurrence of an Event of Default, Mortgagee may apply any funds in said
account against the Obligations in such order as Mortgagee may determine in
Mortgagee’s sole discretion.


 


Section 1.7                                      Maintenance and Repair; Compliance with Laws. 
Mortgagor shall cause the Mortgaged Property to be operated, maintained
and repaired in safe and good repair, working order and condition, reasonable
wear and tear excepted; shall not commit or permit waste thereof; except as
provided in any Loan Document, shall not remove, demolish or substantially
alter the design or structural character of any Improvements without the prior
written consent of Mortgagee; shall complete or cause to be completed forthwith
any Improvements which are now or may hereafter be under construction upon the
Land; shall materially comply or cause material compliance with all laws,
statutes, ordinances and codes, and governmental rules, regulations,
requirements and permits and licenses, applicable to the Mortgaged Property or
the manner of using or operating the same, and with any covenants, conditions,
restrictions and reservations affecting the title to the Mortgaged Property,
and with the terms of all insurance policies relating to the Mortgaged
Property; and shall obtain and maintain in full force and effect all consents,
permits and licenses necessary for the use and operation of the Mortgaged Property
in Mortgagor’s business.  Mortgagor shall
obtain and maintain in full force and effect all certificates, licenses,
permits and approvals that are required by law or necessary for the
construction of the Improvements or the use, occupancy or operation of the
Project. Mortgagor shall promptly notify Mortgagee in writing of the receipt by
Mortgagor of any notice relating to the violation or allegation or claim of
violation of any applicable laws, licenses or permits and of the commencement
or threatened commencement of any proceedings or investigations which relate to
compliance with applicable laws, permits or licenses.  Subject to the provisions of this Mortgage
with respect to insurance proceeds and condemnation awards, Mortgagor shall
promptly repair, restore and rebuild any Improvements now or hereafter on the
Mortgaged Property which may become damaged or destroyed, such Improvements to
be of at least equal value and quality and of substantially the same character
as prior to such damage or destruction.


 


Section 1.8                                      Leases.


 


(a)                                  Notwithstanding anything to the contrary
herein, Mortgagor shall not enter into any Lease without Mortgagee’s prior
written consent, and shall furnish to Mortgagee, upon execution, a complete and
fully executed copy of each Lease. 
Mortgagor shall provide Mortgagee with a copy of each proposed Lease
requiring the consent of Mortgagee and with any information requested by
Mortgagee regarding the proposed Tenant thereunder.  Mortgagee may declare each Lease to be prior
or subordinate to this Mortgage, at Mortgagee’s option.


 


(b)                                 Mortgagor shall, at its cost and expense,
perform each obligation to be performed by the landlord under each Lease; not
borrow against, pledge or further assign any rents or other payments due
thereunder; not permit the prepayment of any rents or other payments due for
more than one (1) month in advance; and not permit any Tenant to assign
its Lease or sublet the premises covered by its Lease, unless required to do so
by the terms thereof 


 


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and
then only if such assignment does not work to relieve the Tenant of any
liability for performance of its obligations thereunder.


 


(c)                                  If any Tenant shall default under its
Lease, Mortgagor shall, in the ordinary course of business, exercise sound
business judgment with respect to such default, but may not discount,
compromise, forgive or waive claims or discharge the Tenant from its
obligations under the Lease or terminate or accept a surrender of the Lease
without the prior written consent of Mortgagee.


 


(d)                                 If Mortgagor fails to perform any
obligations of Mortgagor under any Lease or if Mortgagee becomes aware of or is
notified by any Tenant of a failure on the part of Mortgagor to so perform,
Mortgagee may, but shall not be obligated to, without waiving or releasing
Mortgagor from any Obligation, remedy such failure, and Mortgagor agrees to
repay upon demand all sums incurred by Mortgagee in remedying any such failure,
together with interest thereon from the date incurred at an annual rate equal
to nine and one half percent (9.5%) in excess of the one month LIBOR Rate (as
set forth and defined in the Loan Agreement).


 


(e)                                  For purposes of this Mortgage, the
following terms shall have the following meanings:


 


(i)                                     “Lease”:  Any lease, occupancy agreement or other
document or agreement, written or oral, permitting any Person to use or occupy
any part of the Mortgaged Property.


 


(ii)                                  “Person”:  Any natural person, corporation, partnership,
limited partnership, limited liability company, joint venture, firm,
association, trust, unincorporated organization, government or governmental
agency or political subdivision or any other entity, whether acting in an
individual, fiduciary or other capacity.


 


(iii)                               “Tenant”: 
Any person or party using or occupying any part of the Mortgaged
Property pursuant to a Lease.


 


Section 1.9                            Indemnity.  Mortgagor
shall reimburse, indemnify and defend Mortgagee and its participants and their
respective directors, officers, attorneys, agents and employees (collectively
the “Indemnified Parties”) against, and hold the Indemnified Parties harmless
from, all losses, damages, suits, claims, judgments, penalties, fines,
liabilities, costs and expenses by reason of, or on account of, or in
connection with the construction, reconstruction or alteration of the Mortgaged
Property during Mortgagor’s ownership thereof, the use and operation of
Mortgagor’s business on the Land, Mortgagor’s failure to operate Mortgagor’s
business on the Mortgaged Property in compliance with all applicable laws and
permits and licenses, Mortgagor’s breach of Mortgagor’s obligations under this
Mortgage, the Loan Agreement or any other Loan Document, or any accident,
injury, death or damage to any person or property occurring in, on or about the
Mortgaged Property during Mortgagor’s ownership thereof, or any street, drive,
sidewalk, curb or passageway adjacent thereto, except to the extent that the
same results from the willful misconduct or gross negligence of the person or
party seeking 


 


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indemnification.  The indemnity contained in this Section shall
include costs of defense of any such claim asserted against an Indemnified
Party, including reasonable attorneys’ fees. 
The indemnity contained in this Section shall survive payment and
performance of the Obligations and satisfaction and release of this Mortgage
and any foreclosure thereof or acquisition of title by deed in lieu of
foreclosure.  Notwithstanding the
foregoing, Mortgagor’s liability hereunder shall terminate at such time as a
private or governmental plaintiff is barred by the applicable statute of
limitations from bringing a claim for the actions giving rise to Mortgagee’s
claim for indemnification hereunder.


 


Section 1.10                      Assignment of Leases and Rents.


 


(a)                                  As additional security for the
indebtedness secured by this Mortgage, Mortgagor does hereby bargain, sell,
assign, transfer and set over unto Mortgagee all Leases and all the rents,
fees, issues, profits, revenues, royalties and other income of any kind (“Rents”)
which, whether before or after foreclosure, or during the full statutory period
of redemption, if any, shall accrue and be owing for the use or occupation of
the Mortgaged Property or any part thereof. 
So long as no Event of Default exists under this Mortgage, Mortgagor
shall have a revocable license to collect, but not more than one (1) month
in advance under any Lease, all Rents earned prior to default.  This Mortgage constitutes an absolute,
irrevocable, currently effective assignment of Rents and profits.  Mortgagor hereby appoints Mortgagee as
Mortgagor’s true and lawful attorney-in-fact with full power of substitution to
demand, collect and receive any and all Rents which may be or become due and
payable by Tenants after the occurrence of any Event of Default, which
appointment is coupled with an interest and is irrevocable.  Mortgagee may, at its discretion, file any
claim or take any action to collect and enforce the payment of Rents, either in
Mortgagee’s name or Mortgagor’s name or otherwise.  Tenants are hereby expressly authorized and
directed by Mortgagor to pay to Mortgagee all Rents upon Mortgagee’s demand,
and such Tenants are hereby expressly relieved of any and all duty, obligation
or liability to Mortgagor in respect of any Rents so paid to Mortgagee.


 


(b)                                 If, at any time after an Event of Default
hereunder, in the sole discretion of Mortgagee, a receivership may be necessary
to protect the Mortgaged Property or its Rents, whether before or after
maturity of any Loan and whether before or at the time of or after the
institution of suit to collect such indebtedness, or to enforce this Mortgage,
Mortgagee, as a matter of strict right and regardless of the value of the
Mortgaged Property or the amounts due hereunder or secured hereby, or of the
solvency of any party bound for the payment of such indebtedness, shall have
the right to the appointment of a receiver to take charge of, manage, preserve,
protect, rent and operate the Mortgaged Property, to collect the Rents thereof,
to make all necessary and needful repairs, and to pay all Impositions against
the Mortgaged Property and all premiums for insurance thereon, and to do such
other acts as may by such court be authorized and directed, and after payment
of the expenses of the receivership and the management of the Mortgaged
Property, to apply the net proceeds of such receivership in reduction of the
Obligations and indebtedness secured hereby or in such other manner as the said
court shall direct notwithstanding the fact that the amount owing thereon may
not then be due and payable or the said Obligations and indebtedness is
otherwise adequately secured.  Such
receivership shall, at the option of Mortgagee, continue until full payment of
all sums hereby 


 


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secured
or until title to the Mortgaged Property shall have passed by sale under this
Mortgage, or until terminated by the court.


 


(c)                                  The reasonable costs and expenses
(including any receiver’s fees and reasonable attorneys’ fees) incurred by
Mortgagee pursuant to the powers herein contained shall be reimbursed by
Mortgagor to Mortgagee on demand as promptly as practicable, shall be secured
hereby and shall bear interest from the date incurred at an annual rate equal
to nine and one-half percent (9.5%) in excess of the one month LIBOR Rate (as
set forth in the Loan Agreement).  Unless
otherwise required by the court, Mortgagee shall not be liable to account to Mortgagor
for any action taken pursuant hereto, other than to account for any Rents,
fees, issues, revenues, profits or proceeds actually received by Mortgagee.


 


ARTICLE 2.


 


REPRESENTATIONS
AND WARRANTIES


 


Mortgagor represents and warrants to Mortgagor and
covenants with Mortgagor as follows:


 


Section 2.1                            Ownership, Liens, Compliance with Laws. 
Except for Permitted Encumbrances and the liens permitted by the Loan
Agreement, Mortgagor owns the Mortgaged Property free from all Liens and has
good and marketable fee simple title to the Mortgaged Property and good and
marketable leasehold interest in the Equipment leased under the Bond
Lease.  To the best of Mortgagor’s
knowledge, all applicable zoning, environmental, land use, subdivision,
building, fire, safety and health laws, statutes, ordinances, codes, rules,
regulations and requirements affecting the Mortgaged Property permit the
current use and occupancy thereof and Mortgagor’s intended use and occupancy of
the Mortgaged Property upon substantial completion of the Project, and
Mortgagor has obtained all consents, permits and licenses required for such use
and intended use.  Mortgagor has examined
and is familiar with all applicable covenants, conditions, restrictions and
reservations, and with all applicable laws, statutes, ordinances, codes and governmental
rules, regulations and requirements affecting the Mortgaged Property, and to
the best of Mortgagor’s knowledge, the Mortgaged Property complies in all
material respects with all of the foregoing.


 


Section 2.2                            Use.  The Mortgaged
Property is not homestead property, a single or up to a five family dwelling,
nor is it agricultural property or in agricultural use.  The construction, use and occupancy of the
Project complies and will comply with all requirements of law and any Permitted
Encumbrance.  No portion of any
Improvements (other than parking and driveway areas if permitted by the
applicable easement) will be/are constructed over areas subject to
easements.  Neither the zoning nor any of
the right to construct or to use any Improvements will be/is to any extent
dependent upon or related to any real estate other than the Land; and all
approvals, licenses, permits, certifications, filings and other actions
required by law with respect to the construction, use, occupancy and operation
of the Mortgaged Property, have been or will be received.


 


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Section 2.3                                      Utilities;
Services.  The Mortgaged Property is
serviced by all necessary public utilities, including, but not limited to,
water, electricity, natural gas, telephone, storm sewer and sanitary sewer, and
all such utilities are operational and have sufficient capacity.  There is no contract or agreement providing
for services to or maintenance of the Mortgaged Property which cannot be
cancelled upon 30 days’ or less notice. 
The Mortgaged Property has access to all public streets and railroad spurs
and tracks, and is benefited by all necessary easements, to allow the operation
of the Mortgaged Property by Mortgagor as an ethanol plant in the ordinary
course of business and in a prudent manner.


 


Section 2.4                                      Construction
of the Improvements. Mortgagor has, or prior to commencement of
construction of any Improvements will have, received all requisite building
permits and approvals, all approvals and consents to the Plans and without
limiting the generality of the foregoing, complied with all requirements of law
applicable to the construction of the Project. 
Mortgagor shall promptly complete all Improvements in a good and
workmanlike manner in accordance with the Plans approved by Mortgagee and
Mortgagor shall promptly pay when due all bills and costs for labor, services,
utilities and materials, and Mortgagor shall keep the Mortgaged Property free
from any liens or encumbrances of any nature except for this Mortgage and the
Permitted Exceptions and the liens and encumbrances permitted by the Loan Agreement.


 


Section 2.5                                      Business Purpose. 
Mortgagor hereby represents, or if applicable Mortgagor has been advised
by its beneficiaries, that the proceeds of the loan secured by this Mortgage
will be used for the purposes specified in the Loan Agreement and that the
principal obligation secured hereby constitutes a “business loan” to be used
for the purposes provided for in the Loan Documents.


 


Section 2.6                                      Antiterrorism Regulations.  Neither the Mortgagor, any affiliate of the
Mortgagor, nor any person owning an interest in either of the foregoing is a “Specially
Designated National” or a “Blocked Person” as those terms are defined in the
Office of Foreign Asset Control Regulations, 31 C.F.R. Part 500.


 


Section 2.7                                      Prohibited
Person Compliance.  Mortgagor warrants,
represents, and covenants that neither Mortgagor, any guarantor, nor any of
their respective affiliated entities is or will be an entity or person (i) that
is listed in the Annex to or is otherwise subject to the provisions of
Executive Order 13,224, issued on September 24, 2001 (EO13224); (ii) whose
name appears on the United States Treasury Department’s Office of Foreign
Assets Control’s (OFAC) most current list of “Specially Designated National and
Blocked Persons,” (which list may be published from time to time in various
mediums including, but not limited to, the OFAC Web site, www.treas.gov/ofac/t11sdn.pdf); (iii) who commits,
threatens to commit, or supports “terrorism,” as that term is defined in
EO13224; or (iv) who is otherwise affiliated with any entity or person
listed above (any and all parties or persons described in subparts i - iv are
herein referred to as a Prohibited Person).  Mortgagor covenants and
agrees that neither Mortgagor, nor any guarantor nor any of their respective
affiliated entities, will knowingly (i) conduct any business, nor engage
in any transaction or dealing, with any Prohibited Person, including but not
limited to the making or receiving of any contribution of funds, goods, or
services to or for the 


 


13

















 


benefit
of a Prohibited Person; or (ii) engage in or conspire to engage in any
transaction that evades or avoids, has the purpose of evading or avoiding, or
attempts to violate any of the prohibitions set forth in EO13,224. 
Mortgagor further covenants and agrees to deliver (from time to time) to
Mortgagee any such certification or other evidence as may be requested by
Mortgagee in its sole and absolute discretion, confirming that, to the best of
Mortgagor’s knowledge, (i) neither Mortgagor nor any guarantor is a
Prohibited Person and (ii) neither Mortgagor nor any guarantor has engaged
in any business, transaction, or dealings with a Prohibited Person, including
but not limited to the making or receiving of any contribution of funds, goods,
or services to or for the benefit of a Prohibited Person.


 


ARTICLE 3.


 


CASUALTY;
CONDEMNATION


 


Section 3.1                                      Casualty,
Repair, Proof of Loss.  If any
portion of the Mortgaged Property shall be damaged or destroyed by any cause (a
“Casualty”), Mortgagor shall, subject to Section 3.2 below:


 


(a)                                  give
notice to the Mortgagee as promptly as practicable; and


 


(b)                                 unless
the Mortgagee has withheld Casualty proceeds during the twelve (12) months
prior to the latest maturity date of the Loans and insurance proceeds and other
funds are not available to Mortgagor, promptly commence and diligently pursue
to completion (in accordance with plans and specifications approved by
Mortgagee) the restoration, repair and rebuilding of the Mortgaged Property at
least as nearly as possible to its value, condition and character immediately
prior to the Casualty; and


 


(c)                                  if
the Casualty is covered by insurance, immediately make proof of loss and to the
extent permitted by this Mortgage, collect all insurance proceeds, all such
proceeds to be payable to Mortgagee or as Mortgagee shall direct.  If an Event of Default shall be in existence,
or if Mortgagor shall fail to provide notice to Mortgagee of filing proof of
loss, or if Mortgagor shall not be diligently proceeding, in Mortgagee’s
reasonable opinion, to collect such insurance proceeds, then Mortgagee may, but
is not obligated to, make proof of loss, and is authorized, but is not
obligated, to settle any claim with respect thereto, and to collect the
proceeds thereof.


 


Section 3.2                                      Use of
Insurance Proceeds.  Mortgagee shall
make the net insurance proceeds received by it (after reimbursement of
Mortgagee’s reasonable out-of pocket costs of collecting and disbursing the
same) available to Mortgagor to pay the cost of restoration, repair and
rebuilding of the Mortgaged Property, subject to all of the following
conditions precedent:


 


(a)                                  There
shall be no Event of Default in existence at the time of any disbursement of
the insurance proceeds;


 


(b)                                 Mortgagee
shall have determined, in its reasonable discretion, that the cost of
restoration, repair and rebuilding is and will be equal to or less than the
amount of insurance 


 


14

















 


proceeds
and other funds deposited by Mortgagor with Mortgagee for restoration and
repair of the Mortgaged Property;


 


(c)                                  Mortgagee
shall have determined, in its reasonable discretion, that the restoration,
repair and rebuilding can be completed in accordance with plans and
specifications approved by Mortgagee (such approval not to be unreasonably
withheld), and in accordance with applicable laws, codes, regulations and
ordinances;


 


(d)                                 All
funds shall be disbursed, at Mortgagee’s option, in accordance with Mortgagee’s
customary disbursement procedures for construction loans;


 


(e)                                  The
Casualty results in damage of $500,000.00 or less; and


 


(f)                                    The
restoration, repair and rebuilding of the Mortgaged Property can be completed
within nine (9) months following the date of the Casualty, or such
additional period of time as Mortgagee, in its reasonable discretion, shall
permit.


 


If any
of these conditions shall not be satisfied, then Mortgagee shall have the right
to either use the insurance proceeds to prepay the Obligations or make such
proceeds available for restoration, repair and rebuilding of the Mortgaged
Property.  If any insurance proceeds
shall remain after completion of the restoration, repair and rebuilding of the
Mortgaged Property, they shall be disbursed to Mortgagor, or the Person legally
entitled thereto, or at the Mortgagee’s discretion, used to prepay the
Obligations.


 


In the event such insurance proceeds are made
available for restoration and repair by the Mortgagee, Mortgagor shall pay all
costs incurred by Mortgagee in connection with the application of such
insurance proceeds (including but not limited to reasonable costs incurred by
Mortgagee, and a title company or agent approved by Mortgagee in overseeing the
disbursement of such insurance proceeds), and the Improvements shall be restored
or rebuilt so as to be of at least equal value and substantially the same
character as prior to such damage or destruction.


 


Section 3.3                                      Condemnation.  If any portion of the Mortgaged Property
shall be taken, condemned or acquired pursuant to exercise of the power of
eminent domain or threat thereof (a “Condemnation”), Mortgagor shall:


 


(a)                                  give
notice thereof to Mortgagee as promptly as practicable, and send a copy of each
document received by Mortgagor in connection with the Condemnation to Mortgagee
promptly after receipt; and


 


(b)                                 diligently
pursue any negotiation and prosecute any proceeding in connection with the
Condemnation at Mortgagor’s expense.  If
an Event of Default shall be in existence, or if Mortgagor, in Mortgagee’s
reasonable opinion, shall not be diligently negotiating or prosecuting the
claim, Mortgagee is authorized, but not required, to negotiate and prosecute
the claim and appear at any hearing for itself and on behalf of Mortgagor and
to compromise or settle all compensation for the Condemnation.  Mortgagee shall not be liable to Mortgagor
for 


 


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any
failure by Mortgagee to collect or to exercise diligence in collecting any such
compensation. Mortgagor shall not compromise or settle any claim resulting from
the Condemnation if such settlement shall result in payment of more than
$10,000 less than Mortgagee’s reasonable estimate of the damages
therefrom.  All awards shall be paid to
Mortgagee.


 


Section 3.4                                      Use of
Condemnation Proceeds.  Mortgagee
shall make the net proceeds of any Condemnation received by it (after
reimbursement of Mortgagee’s out-of-pocket costs of collecting and disbursing
the same) available to Mortgagor for restoration, repair and rebuilding of the
Mortgaged Property, subject to all of the following conditions precedent:


 


(a)                                  There
shall be no Event of Default in existence at the time of any disbursement of
the condemnation proceeds;


 


(b)                                 Mortgagee
shall have determined, in its reasonable discretion, that the cost of
restoration, repair and rebuilding is and will be equal to or less than the
amount of condemnation proceeds and other funds deposited by Mortgagor with
Mortgagee;


 


(c)                                  Mortgagee
shall have determined, in its reasonable discretion, that the restoration, repair
and rebuilding can be completed in accordance with plans and specifications
approved by Mortgagee (such approval not to be unreasonably withheld), in
accordance with applicable laws, codes, regulations and ordinances and in
accordance with the terms, and within the time requirements in order to prevent
termination of any Lease;


 


(d)                                 All
funds shall be disbursed, at Mortgagee’s option, in accordance with Mortgagee’s
customary disbursement procedures for construction loans; and


 


(e)                                  The
condemnation or taking causes damage of $500,000.00 or less or requires
restoration which costs less than $500,000.00; and


 


(f)                                    The
restoration, repair and rebuilding of the Mortgaged Property can be completed
within nine (9) months of the date of the taking, or such additional
period of time as Mortgagee, in its reasonable discretion, shall permit.


 


If any
of these conditions shall not be satisfied, then Mortgagee shall have the right
to either use the condemnation award proceeds to prepay the Obligations or make
such proceeds available for restoration, repair and rebuilding of the Mortgaged
Property.  If any condemnation proceeds
shall remain after completion of the restoration, repair and rebuilding of the
Mortgaged Property, they shall be disbursed to Mortgagor, or to the Person
legally entitled thereto, or at Mortgagee’s discretion, used to prepay the
Obligations.


 


ARTICLE 4.


 


DEFAULTS AND REMEDIES


 


Section 4.1                                      Events
of Default.  An Event of Default, as
defined in the Loan Agreement or any other Loan Document, shall constitute an
Event of Default hereunder.  In 


 


16

















 


addition,
Mortgagor’s failure to perform, observe or comply with its obligations in this
Mortgage or the Bond Lease shall be an Event of Default, and the occurrence of
any Event of Default under the Bond Lease or the termination of the Bond Lease
shall be an Event of Default.


 


Section 4.2                                      Remedies.  Subject to any applicable grace and/or notice
and cure periods, after the occurrence and continuance of an Event of Default,
Mortgagee shall be entitled to invoke any and all of the rights and remedies
described below, in addition to all other rights and remedies available to
Mortgagee under any Loan Document or available at law or in equity.  All of such rights and remedies shall be
cumulative, and the exercise of any one or more of them shall not constitute an
election of remedies.


 


(a)                                  Acceleration.  Mortgagee may declare any or all of the
Obligations to be due and payable immediately. 
In addition, Mortgagee shall have no further obligation to make any
Advances under any Loan.  If, while any
insurance proceeds or condemnation awards are being held by Mortgagee to
reimburse Mortgagor for the cost of rebuilding or restoration of buildings or
improvements on the Mortgaged Property, Mortgagee shall accelerate the
Obligations, then and in such event, Mortgagee shall be entitled to apply all
such insurance proceeds and condemnation awards then held by it in reduction of
the Obligations and any excess held by it over the amount of Obligations then
due hereunder shall be returned to Mortgagor or the Persons legally entitled
thereto without interest.


 


(b)                                 Receiver.  Mortgagee shall have the right to obtain a
receiver in accordance with applicable law at any time after an Event of
Default which is continuing, whether or not an action for foreclosure has been
commenced.  Any court having jurisdiction
shall, at the request of Mortgagee following an Event of Default which is
continuing, appoint a receiver to take immediate possession of the Mortgaged
Property and to rent or operate the same as he may deem best for the interest
of all parties concerned, and unless otherwise required by the court, such
receiver shall be liable to account to the Mortgagor only for the net profits,
after application of rents, issues and profits upon the costs and expenses of
the receivership and upon the Obligations.


 


Mortgagee shall have the right, at any time to advance money to the
receiver to pay any part or all of the items which the receiver should
otherwise pay if cash were available from the Mortgaged Property and sums so
advanced, with interest at an annual rate equal to nine and one-half percent
(9.5%) in excess of the one month LIBOR Rate shall be secured hereby, or if
advanced during the period of redemption shall be a part of the sum required to
be paid to redeem from the sale.


 


(c)                                  Entry.  To the extent allowed by applicable law,
Mortgagee, in person, by agent or by court-appointed receiver, may enter, take
possession of, manage and operate all or any part of the Mortgaged Property,
and may also do any and all other things in connection with those actions that
Mortgagee may in its sole discretion consider necessary and appropriate to
protect the security of this Mortgage. 
Such other things may include: 
taking and possessing all of Mortgagor’s or the then owner’s books and
records; entering into, enforcing, modifying or canceling leases on such terms
and conditions as Mortgagee may consider proper; obtaining and 


 


17

















 


evicting tenants; fixing or modifying Rents;
collection and receiving any payment of money owing to Mortgagee; terminating
management agreements, contracts or agents/managers responsible for the
operation and/or property management of the Mortgaged Property; completing any
unfinished construction; and/or contracting for and making repairs and
alterations.  If Mortgagee so requests,
Mortgagor shall assemble all of the Mortgaged Property that has been removed
from the Land and make all of it available to Mortgagee at the site of the
Land.  Mortgagor hereby irrevocably
constitutes and appoints Mortgagee as Mortgagor’s attorney-in-fact to perform
such acts and execute such documents as Mortgagee in its sole discretion may
consider to be appropriate in connection with taking these measures, including
endorsement of Mortgagor’s name on any instruments, such appointment being
coupled with an interest and irrevocable.


 


(d)                                 Cure;
Protection of Security.   Mortgagee
may cure any breach or default of Mortgagor, and if it chooses to do so in
connection with any such cure, Mortgagee may also enter the Mortgaged Property
and/or do any and all other things which it may in its sole reasonable
discretion consider necessary and appropriate to protect the security of this
Mortgage. Any reasonable amounts expended by Mortgagee under this Section 4.2(d) shall
be secured by this Mortgage and shall be payable upon demand and shall accrue
interest at a variable per annum rate equal to nine and one-half percent (9.5%)
in excess of the one month LIBOR Rate until paid in full.


 


(e)                                  Uniform
Commercial Code Remedies.  Mortgagee
may exercise any or all of the remedies granted to a secured party under the
UCC.


 


(f)                                    Foreclosure;
Lawsuits.  Mortgagee or its nominee
may institute such mortgage foreclosure actions provided for by Minnesota law
in accordance with applicable law, including a foreclosure by action or a
foreclosure by advertisement, and may bid and become the purchaser of all or
any part of the Mortgaged Property at any foreclosure or other sale hereunder,
and the amount of Mortgagee’s successful bid shall be credited on the
Obligations.  Mortgagee hereby
specifically grants to Mortgagee a power of sale to exercise a foreclosure by
advertisement in accordance with Minnesota law. 
Without limiting the foregoing, Mortgagee may proceed by a suit or suits
in law or equity, whether for specific performance of any covenant or agreement
herein contained or contained in any of the other Loan Documents, or in aid of
the execution of any power herein or therein granted, or for any foreclosure
under the judgment or decree of any court of competent jurisdiction, or for
damages, or to collect the indebtedness secured hereby, or for the enforcement
of any other appropriate legal, equitable, statutory or contractual remedy.


 


(g)                                 Other
Remedies.  Mortgagee may exercise all
rights and remedies contained in any other instrument, document, agreement or
other writing heretofore, concurrently or in the future executed by Mortgagor
in favor of Mortgagee in connection with the Obligations or any part thereof,
without prejudice to the right of Mortgagee thereafter to enforce any
appropriate remedy against Mortgagor. 
Mortgagee shall have the right to pursue all remedies afforded to a
Mortgagee under applicable law, and shall have the benefit of all of the
provisions of such applicable law, including all amendments thereto which may
become effective from time 


 


18

















 


to time after the date hereof.  In the event any provision of such statutes
which is specifically referred to herein may be repealed, as allowed under
applicable law, Mortgagee shall have the benefit of such provision as most
recently existing prior to such repeal, as though the same were incorporated
herein by express reference.


 


(h)                                 Personal
Mortgaged Property.  Mortgagee shall
have the discretionary right to cause some or all of the Mortgaged Property,
which constitutes personal property, to be sold or otherwise disposed of in any
combination and in any manner permitted by applicable law.  To the extent allowed by applicable law,
Mortgagee may elect to treat as personal property any Mortgaged Property which
is intangible or which can be severed from the Land or Improvements without causing
structural damage.  If it chooses to do
so, Mortgagee may dispose of any personal property, in any manner permitted by Article 9
of the UCC, including any public or private sale, or in any manner permitted by
any other applicable law or may proceed under the power of sale granted above.


 


(i)                                     Single
or Multiple Foreclosure Sales.  If
the Mortgaged Property consists of more than one lot, parcel or item of
Mortgaged Property, Mortgagee may, in accordance with applicable law:


 


(i)                                     designate
the order in which the lots, parcels and/or items shall be sold or disposed of
or offered for sale or disposition; and


 


(ii)                                  elect
to dispose of the lots, parcels and/or items through a single consolidated sale
or disposition to be held or made under or in connection with judicial
proceedings, or by virtue of a judgment and decree of foreclosure and sale, or
pursuant to the power of sale contained herein; or through two or more such
sales or dispositions; or in any other manner Mortgagee may deem to be in its
best interests (any foreclosure sale or disposition as permitted by the terms
hereof is sometimes referred to herein as a “Foreclosure Sale”; and any two or
more such sales, “Foreclosure Sales”).


 


If it
chooses to have more than one Foreclosure Sale, Mortgagee at its option may
cause the Foreclosure Sales to be held simultaneously or successively, on the
same day, or on such different days and at such different times and in such
order as it may deem to be in its best interests.  No Foreclosure Sale shall terminate or affect
the liens of this Mortgage on any part of the Mortgaged Property which has not
been sold, until the Obligations have been paid in full.


 


Section 4.3                                      Expenses
of Exercising Rights Powers and Remedies. 
The reasonable expenses (including any receiver’s fees, reasonable
attorneys’ fees, appraisers’ fees, environmental engineers’ and/or consultants’
fees, auctioneer’s fees and costs, costs incurred for documentary and expert
evidence, stenographers’ charges, publication costs, costs (which may be estimated
as to items to be expended after entry of the decree of foreclosure) of
procuring all abstracts of title, continuations of abstracts of title, title
searches and examinations, UCC and chattel lien searches, and similar data and
assurances with respect to title as Mortgagee may deem reasonably necessary
either to prosecute any foreclosure action or to evidence to bidders at any
sale which may be had pursuant to any foreclosure decree the true condition of
the title to or 


 


19

















 


the value of the Mortgaged Property) incurred by
Mortgagee after the occurrence and continuance of any Event of Default and/or
in pursuing the rights, powers and remedies contained in this Mortgage shall be
immediately due and payable by Mortgagor, with interest thereon from the date
incurred at an annual rate equal to nine and one-half percent (9.5%) in excess
of the one month LIBOR Rate and shall be added to the indebtedness secured by
this Mortgage.


 


Section 4.4                                      Restoration
of Position.  In case Mortgagee shall
have proceeded to enforce any right under this Mortgage by foreclosure, sale,
entry or otherwise, and such proceedings shall have been discontinued or
abandoned for any reason, then, and in every such case, Mortgagor and Mortgagee
shall be restored to their former positions and rights hereunder with respect
to the Mortgaged Property subject to the lien hereof, except as might otherwise
be determined by a final order of a court of competent jurisdiction.


 


Section 4.5                                      Marshalling.  Mortgagor, for itself and on behalf of all
Persons which may claim under Mortgagor, hereby waives all requirements of law
relating to the marshalling of assets, if any, which would be applicable in
connection with the enforcement by Mortgagee of its remedies for an Event of
Default hereunder, absent this waiver. 
Mortgagee shall not be required to sell or realize upon any portion of
the Mortgaged Property before selling or realizing upon any other portion
thereof.


 


Section 4.6                                      Waivers.  No waiver of any provision hereof shall be
implied from the conduct of the parties. 
Any such waiver must be in writing and must be signed by the party
against which such waiver is sought to be enforced.  The waiver or release of any breach of the
provisions set forth herein to be kept and performed shall not be a waiver or
release of any preceding or subsequent breach of the same or any other
provision.  No receipt of partial payment
after acceleration of the Obligations shall waive the acceleration.  No payment by Mortgagor or receipt by
Mortgagee of a lesser amount than the full amount secured hereby shall be
deemed to be other than on account of the sums due and payable hereunder, nor
shall any endorsement or statement on any check or any letter accompanying any
check or payment be deemed an accord and satisfaction, and Mortgagee may accept
any check or payment without prejudice to Mortgagee’s right to recover the
balance of such sums or to pursue any other remedy provided in this
Mortgage.  The consent by Mortgagee to
any matter or event requiring such consent shall not constitute a waiver of the
necessity for such consent to any subsequent matter or event.


 


Section 4.7                                      Mortgagee’s
Right to Cure Defaults.  If Mortgagor
shall fail to comply with any of the terms of this Mortgage with respect to the
procuring of insurance, the payment of taxes, assessments and other charges,
the keeping of the Mortgaged Property in repair, or any other term contained
herein and such failure shall continue for a period of ten (10) days after
notice of such failure from Mortgagee, Mortgagee may make advances to perform
the same without releasing any of the Obligations.  Mortgagor agrees to repay upon demand all
sums so advanced and all sums expended by Mortgagee in connection with such
performance, including without limitation reasonable attorneys’ fees, with
interest at an annual rate equal to nine and one-half percent (9.5%) in excess
of the one month LIBOR Rate from the dates such advances 


 


20

















 


are made until paid in full, and all sums so advanced
and/or expenses incurred, with interest, shall be secured hereby, but no such
advance and/or incurring of expense by Mortgagee, shall be deemed to relieve
Mortgagor from any default hereunder, or to release any of the Obligations.


 


Section 4.8                                      Collateral
Protection.  Unless the Mortgagor provides the Mortgagee with evidence of the
insurance coverage required by this Mortgage or any of the other Loan
Documents, Mortgagee may purchase insurance at the Mortgagor’s expense to
protect Mortgagee’s interests in the Mortgaged Property for the
Obligations.  This insurance may, but need not protect the Mortgagor’s
interests.  The coverage the Mortgagee purchases may not pay any claim
that the Mortgagor makes or any claim that is made against the Mortgagor in
connection with the Mortgaged Property or any other collateral for the
Obligations.  The Mortgagor may later cancel any insurance purchased by
Mortgagee but only after providing Mortgagee with evidence that the Mortgagor
has obtained insurance as required by this Mortgage or any of the other Loan
Documents.  If Mortgagee purchases insurance for the Mortgaged Property
for the Obligations, the Mortgagor will be responsible for the costs of that
insurance, including interest and any other charges that Mortgagee may lawfully
impose in connection with the placement of the insurance, until the effective
date of the cancellation or expiration of the insurance.  The costs of the
insurance may be added to the total outstanding Obligations.  The costs of
the insurance obtained by Mortgagee may be more than the cost of insurance that
the Mortgagor may be able to obtain on its own.


 


Section 4.9                                      Suits
and Proceedings.  Mortgagee shall
have the power and authority, upon prior notice to Mortgagor, to institute and
maintain any suits and proceedings as Mortgagee may deem advisable to (i) prevent
any impairment of the Mortgaged Property by any act which may be unlawful or by
any violation of this Mortgage, (ii) preserve or protect its interest in
the Mortgaged Property, or (iii) restrain the enforcement of or compliance
with any legislation or other governmental enactment, rule or order that
may be unconstitutional or otherwise invalid, if, in the sole opinion of
Mortgagee, the enforcement of or compliance with such enactment, rule or
order might impair the security hereunder or be prejudicial to Mortgagee’s
interest.


 


ARTICLE 5.


 


MISCELLANEOUS


 


Section 5.1                                      Binding
Effect; Survival; Number; Gender. 
This Mortgage shall be binding on and inure to the benefit of the
parties hereto, and their respective heirs, legal representatives, successors
and assigns.  All agreements,
representations and warranties contained herein or otherwise heretofore made by
Mortgagor to Mortgagee shall survive the execution and delivery hereof.  The singular of all terms used herein shall
include the plural, the plural shall include the singular, and the use of any
gender herein shall include all other genders, where the context so requires or
permits.


 


Section 5.2                                      Severability.  The unenforceability or invalidity of any
provision of this Mortgage as to any person or circumstance shall not render
that provision unenforceable or invalid as to any other person or circumstance.


 


21

















 


Section 5.3                                      Notices.  Any notice or other communication to any
party in connection with this Mortgage shall be in writing and shall be sent by
manual delivery, facsimile transmission, overnight courier or United States
mail (postage prepaid) addressed to such party at the address specified below,
or at such other address as such party shall have specified to the other party
hereto in writing.  All periods of notice
shall be measured from the date of delivery thereof if manually delivered, from
the date of sending thereof if sent by facsimile transmission, from the first
business day after the date of sending if sent by overnight courier, or from
four (4) days after the date of mailing if mailed.  Notices shall be given to or made upon the
respective parties hereto at their respective addresses set forth below:


 


If to
Mortgagee:                                                         First
National Bank of Omaha

1620 Dodge Street, Stop 1050

Omaha, Nebraska  68197-1050

Attn:  Jeremy Reineke 

Fax No.: (402) 633-3519


 


If to
Mortgagor:                                                          Highwater
Ethanol, LLC


205 North Main Street


P.O. Box 96


Lamberton, Minnesota  56162


Attn:  Brian
Kletscher, President

Fax No.:  (507) 752-6162


 


Either
party may change its address for notices by a notice given pursuant to this
Section.


 


Section 5.4                                      Applicable Law.  This Mortgage shall be construed and
enforceable in accordance with, and be governed by, the laws of the State of
Minnesota, without giving effect to conflict of laws or principles thereof.


 


Section 5.5                                      Waiver of
Reinstatement and Other Rights. 
Mortgagor acknowledges that the transaction of which this Mortgage is a
part is a transaction which does not include either real estate used in
agricultural production as defined in Minnesota law, is more than 10 acres in
size and is not residential real estate and is not improved with a residential
dwelling consisting of less than 5 units, and to the full extent permitted by
law, hereby voluntarily and knowingly waives its rights to reinstatement and
redemption as allowed under Minnesota law or if a wavier is not available
agrees to the shortest redemption and/or reinstatement period allowed under
Minnesota law, and to the full extent permitted by law, waives the benefits of
all present and future valuation, appraisement, homestead, exemption, stay,
extension or redemption, right to notice of election to accelerate the
Obligations, and moratorium laws under any state or federal law, and
acknowledges that mandatory mediation under Minnesota law is not available or
applicable.


 


Section 5.6                                      Waiver of Jury
Trial.  Mortgagor and Mortgagee each
irrevocably waives any and all right to trial by jury in any legal proceeding
arising out of or relating to this Mortgage or the transactions contemplated
hereby.


 


22

















 


Section 5.7                                      Effect.  This Mortgage is in addition and not in
substitution for any other guarantees, covenants, obligations or other rights
now or hereafter held by Mortgagee from any other person or entity in
connection with the Obligations.


 


Section 5.8                                      Assignability.  Mortgagee shall have the right to assign this
Mortgage, in whole or in part, or sell participation interests herein, to any
Person obtaining an interest in the Loans.


 


Section 5.9                                      Headings.  Headings of the Sections of this Mortgage are
inserted for convenience only and shall not be deemed to constitute a part
hereof.


 


Section 5.10                                Fixture Filing.  This instrument shall be deemed to be a
Fixture Filing within the meaning of the UCC, and for such purpose, the
following information is given:


 


	
  (a)

  	
   

  	
  Name and address of Debtor:

  	
   

  	
  Highwater Ethanol, LLC 

  205 North Main Street 

  P.O. Box 96 

  Lamberton, Minnesota 56152 

  USA

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (b)

  	
   

  	
  Type of Organization:

  	
   

  	
  Limited liability
  company

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (c)

  	
   

  	
  Jurisdiction of
  Organization:

  	
   

  	
  Minnesota

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (d)

  	
   

  	
  Organizational I.D.
  No.:

  	
   

  	
  1825789-2

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (e)

  	
   

  	
  Name and address of
  Secured Party:

  	
   

  	
  First National Bank of
  Omaha 

  1620 Dodge Street, Stop 1050 

  Omaha, Nebraska 68197-1050 

  USA

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (f)

  	
   

  	
  Description of the
  collateral:

  	
   

  	
  See granting clause
  above

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (g)

  	
   

  	
  Description of real
  estate to which the collateral is attached or upon which it is or will be
  located:

  	
   

  	
  See Exhibit A
  hereto.

  



 


Some
of the above-described collateral is or is to become fixtures upon the
above-described real estate, and this Fixture Filing is to be filed for record
in the public real estate records. Mortgagor is the owner of the Land and
Improvements.


 


23
















 


Section 5.11           Estoppel
Certificate.  At any time and from
time to time, within ten (10) Business Days after receipt from Mortgagee
of a written request therefor, Mortgagor shall prepare, execute and deliver to
Mortgagee, and/or any other party which Mortgagee may designate, an estoppel
certificate stating:  (a) the amount
of the unpaid principal balance and accrued interest secured by this Mortgage
on the date thereof; (b) the date upon which the last payment secured by
this Mortgage was made and the date the next payment secured by this Mortgage
is due; and (c) that the provisions of the Loan Agreement, this Mortgage
and the other Loan Documents described in said request have not been materially
amended or changed in any manner, that there are no material defaults or Events
of Default then existing under the terms of the Loan Agreement, this Mortgage
or the other Loan Documents described in said request, and that Mortgagor has
no defenses, claims or offsets against full enforcement hereof and thereof
according to the terms hereof and thereof, or listing and describing any such
amendments, changes, defaults, events of default, defenses, claims or offsets
which do exist.


 


Section 5.12           Definitions.  Capitalized terms not otherwise defined in
this Mortgage shall have the meaning given to such terms in the Loan Agreement.


 


ARTICLE 6.


 


ENVIRONMENTAL


 


Section 6.1             Environmental
Matters; Notice; Indemnity.  Mortgagor covenants and agrees as
follows:


 


(a)           For purposes of this Mortgage, the
following definitions shall apply:


 


(i)            The term “Environmental Law” means
and includes any federal, state or local law, statute, regulation or ordinance
pertaining to health, industrial hygiene or the environmental or ecological
conditions on, under or about the Mortgaged Property, including without
limitation each of the following (and their respective successor provisions):
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. sections 9601 et seq. (“CERCLA”); the
Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. sections
6901 et seq. (“RCRA”); the Federal Hazardous Materials Transportation
Act, as amended, 49 U.S.C. sections 1801 et seq.; the Toxic Substance
Control Act, as amended, 15 U.S.C. sections 2601 et seq.; the Clean Air
Act, as amended, 42 U.S.C. sections 1857 et seq.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. sections 1251 et seq.; and
the rules, regulations and ordinances of the U.S. Environmental Protection
Agency and of all other federal, state, county and municipal agencies, boards,
commissions and other governmental bodies and officers having jurisdiction over
the Mortgaged Property or the use or operation of the Mortgaged Property.


 


(ii)           The term “Hazardous Substance” means
and includes: (1) those substances included within the definitions of “hazardous
substances”, “hazardous materials, hazardous waste”, “pollutants”, “toxic
substances” or “solid waste” in any Environmental Law; (2) those
substances listed in the U.S. Department of Transportation Table or amendments
thereto (49 CFR 172.101) or by the U.S. Environmental Protection Agency (or any
successor


 


24

















 


agency) as hazardous
substances (40 CFR Part 302 and any amendments thereto); (3) those
other substances, materials and wastes which are or become, regulated under any
applicable federal, state or local law, regulation or ordinance or by any
federal, state or local governmental agency, board, commission or other
governmental body, or which are or become classified as hazardous or toxic by
any such law, regulation or ordinance; and (4) any material, waste or
substance which is any of the following: (A) asbestos; (B) polychlorinated
biphenyl; (C) designated or listed as a “hazardous substance” pursuant to
section 311 or section 307 of the Clean Water Act (33 U.S.C. sections 1251 et
); (D) explosive; (E) radioactive; (F) a petroleum product;
or (G) infectious waste. Notwithstanding anything to the contrary herein,
the term “Hazardous Substance” shall not include commercially sold products
otherwise within the definition of the term “Hazardous Substance”, but (X) which
are used or disposed of by Mortgagor or used or sold by tenants of the
Mortgaged Property in the ordinary course of their respective businesses, (Y) the
presence of which product is not prohibited by applicable Environmental Law,
and (Z) the use and disposal of which are in all respects in accordance
with applicable Environmental Law.


 


(iii)          The term “Enforcement or Remedial
Action” means and includes any action taken by any person or entity in an
attempt or asserted attempt to enforce, to achieve compliance with, or to
collect or impose assessments, penalties, fines, or other sanctions provided
by, any Environmental Law.


 


(iv)          The term “Environmental Liability”
means and includes any claim, demand, obligation, cause of action, accusation,
allegation, order, violation, damage (including consequential damage), injury,
judgment, assessment, penalty, fine, cost of Enforcement or Remedial Action, or
any other cost or expense whatsoever, including actual, reasonable attorneys’
fees and disbursements, resulting from or arising out of the violation or
alleged violation of any Environmental Law, any Enforcement or Remedial Action,
or any alleged exposure of any person or property to any Hazardous Substance.


 


(b)           Mortgagor, its successors and
assigns, after reasonable inquiry, covenants, warrants and represents that, to
the best of its knowledge, except as disclosed in writing to Mortgagee:


 


(i)            No Hazardous Substances have been or
shall be discharged, disbursed, released, stored, treated, generated, disposed
of, or allowed to escape or migrate, or shall threaten to be injected, emptied,
poured, leached, or spilled on or from the Mortgaged Property.


 


(ii)           No asbestos or asbestos-containing
materials have been or will be installed, used, incorporated into, placed on,
or disposed of on the Mortgaged Property.


 


(iii)          No polychlorinated biphenyls (“PCBs”)
are or will be located on or in the Mortgaged Property, in the form of
electrical transformers, fluorescent light fixtures with ballasts, cooling
oils, or any other device.


 


25

















 


(iv)          No investigation, administrative
order, consent order and agreement, litigation, settlement, lien or encumbrance
with respect to Hazardous Substances is proposed, threatened, anticipated or in
existence with respect to the Mortgaged Property.


 


(v)           The Mortgaged Property and Mortgagor’s
operations at the Mortgaged Property are in compliance with all applicable
Environmental Laws including without limitation any, state and local statutes,
laws and regulations and all permits and licenses issued for the operation of
the Mortgaged Property. No notice has been served on Mortgagor, or any
subsidiary of Mortgagor, from any entity, government body, or individual
claiming any violation of any law, regulation, ordinance or code, or requiring
compliance with any law, regulation, ordinance or code, or demanding payment or
contribution for environmental damage or injury to natural resources. Copies of
any such notices received subsequent to the date hereof shall be forwarded to
Mortgagee within three (3) days of their receipt.


 


(vi)          Mortgagor has no knowledge of the
release or threat of release of any Hazardous Substances from any property
adjoining or in the immediate vicinity of the Mortgaged Property.


 


(vii)         No portion of the Mortgaged Property is
a wetland or other water of the United States subject to jurisdiction under Section 404
of the Clean Water Act (33 U.S.C. § 1344) or any comparable state statute or
local ordinance or regulation defining or protecting wetlands or other special
aquatic areas.


 


(viii)        There are no concentrations of radon or
other radioactive gases or materials in any buildings or structures on the
Mortgaged Property that exceed background ambient air levels.


 


(ix)           To the best of Mortgagor’s knowledge,
there have been no complaints of illness or sickness alleged to result from
conditions inside any buildings or structures on the Mortgaged Property.


 


(c)           Mortgagor will give prompt written
notice to Mortgagee of:


 


(i)            any proceeding, known investigation
or inquiry commenced by any governmental authority with respect to the presence
of any Hazardous Substance on, under or about the Mortgaged Property or the
migration thereof to or from adjoining property;


 


(ii)           all claims made or threatened by any
individual or entity against Mortgagor or the Mortgaged Property relating to
any loss or injury allegedly resulting from any Hazardous Substance;


 


(iii)          the discovery by Mortgagor of any
occurrence or condition on any real property adjoining or in the vicinity of
the Mortgaged Property which might cause the Mortgaged Property or any part
thereof to be subject to any restriction on the ownership,


 


26

















 


occupancy,
transferability or use of the Mortgaged Property under any Environmental Law;
and


 


(iv)          any notice from any governmental
authority alleging or claiming the violation of or non-compliance with any
permit or license relating to Mortgagor’s operations on the Mortgaged Property,
or the revocation, or threatened revocation, of any such permit or license
relating or necessary to the operation of the Mortgagor’s business on the
Mortgaged Property.


 


(d)           Mortgagee shall have the right and
privilege to: (i) join in and participate in, as a party if it so elects,
any one or more legal proceedings or actions initiated with respect to the
Mortgaged Property; and to (ii) have all costs and expenses thereof
(including without limitation Mortgagee’s reasonable attorneys’ fees and costs)
paid by Mortgagor. In addition, Mortgagee and any other Person designated by
Mortgagee, shall have the right, but not the obligation, to enter upon the
Mortgaged Property at any reasonable time to assess any and all aspects of the
environmental condition of the Mortgaged Property and its use, including, but
not limited to, conducting any environmental assessment or audit (the scope of
which shall be determined by Mortgagee in its sole discretion) and taking
samples of air, soil, groundwater or other water, building materials, and
conducting invasive testing. Mortgagor shall cooperate with and provide access
to Mortgagee or any Person designated by Mortgagee.


 


(e)           Mortgagor agrees to protect, defend,
reimburse, indemnify and hold harmless Mortgagee, its directors, officers,
employees, agents, contractors, sub-contractors, licensees, invitees,
participants, successors and assigns, from and against any Environmental
Liability and any and all claims, demands, judgments, settlements, damages,
actions, causes of action, injuries, administrative orders, consent agreements
and orders, liabilities, losses, penalties, costs, including but not limited to
any cleanup costs, remediation costs and response costs, and all expenses of
any kind whatsoever including reasonable attorneys’ fees and expenses,
including but not limited to those arising out of loss of life, injury to
persons, property or business or damage to natural resources in connection with
the activities of Mortgagor, or parties in a contractual relationship with
Mortgagor, and any of them, the foregoing being collectively referred to as “Claims”,
which:


 


(i)            arise out of the actual, alleged or
threatened migration, spill, leaching, pouring, emptying, injection, discharge,
dispersal, release, storage, treatment, generation, disposal or escape of any
Hazardous Substances onto or from the Mortgaged Property; or


 


(ii)           actually or allegedly arise out of,
in connection with the Mortgaged Property, the use, specification or inclusion
of any product, material or process containing Hazardous Substances, the
failure to detect the existence or proportion of Hazardous Substances in the
soil, air, surface water or ground water, or the performance of or failure to
perform the abatement of any Hazardous Substances source or the replacement or
removal of any soil, water, surface water or ground water containing any
Hazardous Substances; or


 


27

















 


(iii)          arise out of the breach of any
covenant, warranty or representation contained in any statement or other
information given by Mortgagor to Mortgagee relating to environmental matters;
or


 


(iv)          arise out of any Enforcement or
Remedial Action or any judicial or administrative action brought against
Mortgagor with respect to the Mortgaged Property pursuant to any Environmental
Law; or


 


(v)           The violation of or non-compliance
with any permits or licenses required in connection with the operation of the
Project.


 


Mortgagor, its successors
and assigns, shall bear, pay and discharge when and as the same become due and
payable, any and all such judgments or claims for damages, penalties or
otherwise against Mortgagee described in this subparagraph (e), shall hold
Mortgagee harmless for those judgments or claims, and shall assume the burden
and expense of defending all suits, administrative proceedings, and
negotiations of any description with any and all persons, political
subdivisions or government agencies arising out of any of the occurrences set
forth in this subparagraph (e).


 


Mortgagor’s
indemnifications and representations made herein shall survive any termination
or expiration of the documents evidencing or securing the Loans and/or the repayment
of the indebtedness evidenced by the Loans, including, but not limited  to, any foreclosure on this Mortgage or acceptance of a
deed in lieu of foreclosure. 
Notwithstanding the foregoing, Mortgagor’s liability hereunder shall
terminate at such time as a private or governmental plaintiff is barred by the
applicable statute of limitations from bringing a claim for the actions giving
rise to Mortgagee’s claim for indemnification hereunder.


 


(f)            If any investigation, site
monitoring, containment, cleanup, removal, restoration or other remedial work
of any kind or nature (the “Remedial Work”) is reasonably necessary (in the
case of an operation and maintenance program or similar monitoring or
preventative programs), as determined by an independent environmental
consultant selected by Mortgagee under any applicable federal, state or local
law, regulation or ordinance, or under any judicial or administrative order or
judgment, or by any governmental person, board, commission or agency, because
of or in connection with the current or future presence, suspected presence,
release or suspected release of a Hazardous Substance into the air, soil,
groundwater, or surface water at, on, about, under or within the Mortgaged
Property or any portion thereof, Mortgagor shall within thirty (30) days after
written demand by Mortgagee for the performance (or within such shorter time as
may be required under applicable law, regulation, ordinance, order or
agreement), commence and thereafter diligently prosecute to completion all such
Remedial Work to the extent required by law. All Remedial Work shall be
performed by contractors approved in advance by Mortgagee (which approval in
each case shall not be unreasonably withheld or delayed) and under the
supervision of a consulting engineer approved in advance by Mortgagee. All
costs and expenses of such Remedial Work (including without limitation the
reasonable fees and expenses of Mortgagee’s counsel) incurred in connection
with monitoring or review of the Remedial Work shall be paid by Mortgagor.  If Mortgagor shall fail or neglect to timely


 


28

















 


commence or cause to be
commenced, or shall fail to diligently prosecute to completion, such Remedial
Work, Mortgagee may (but shall not be required to) cause such Remedial Work to
be performed; and all costs and expenses thereof, or incurred in connection
therewith (including, without limitation, the reasonable fees and expenses of
Mortgagee’s counsel), shall be paid by Mortgagor to Mortgagee forthwith after
demand and shall be a part of the Indebtedness.


 


ARTICLE 7.


 


LEASES


 


Section 7.1             With
respect to the Bond Lease, Mortgagor covenants and agrees as follows:


 


(a).          Compliance.  Mortgagor agrees: (i) to perform all
obligations of the tenant under the Bond Lease and any statute, ordinance, rule or
regulation relating thereto; (ii) not to cause or permit any tenant breach
of the Bond Lease; and (iii) to enforce the obligations of the landlord
under the Bond Lease to the end that Mortgagor may enjoy all the rights granted
to Mortgagor under the Bond Lease. 
Mortgagor shall keep and maintain the Bond Lease in full force and
effect.  If Mortgagor shall receive
forbearance from the landlord or otherwise shall be excused from full and
timely performance of any of its obligations under the Bond Lease, the same
shall not postpone, excuse, diminish or otherwise affect the obligations of
Mortgagor under this Section.


 


(b).          Curing
Defaults.  If Mortgagor shall default
under the Bond Lease, or if Mortgagee shall receive notice of any default under
the Bond Lease, Mortgagee may, at its option but without any obligation to do
so, take any action necessary or desirable to cure any such default, Mortgagee
being authorized to enter upon the Land or leased premises for such purposes
with or without notice and without becoming a mortgagee in possession.  Mortgagor shall, immediately on demand, pay
to Mortgagee all costs of Mortgagee incurred in curing any such default, together
with interest on such costs from the date of expenditure until said sums have
been paid, at the rate of the one month LIBOR Rate plus nine and one half
percent (9.5%).


 


(c).          No
Modification or Termination without Mortgagee Consent.  Mortgagor shall not cause, join in, or suffer
to occur any actual or purported modification, amendment, surrender, or
termination of the Bond Lease, in each case without the prior written consent
of Mortgagee.  Any attempted or purported
modification, amendment, surrender or termination of the Bond Lease without Mortgagee’s
prior written consent shall be null and void and of no force or effect.


 


(d).          Notice
to Mortgagee.  Mortgagor agrees to
give prompt notice to Mortgagee of any default by any party under the Bond
Lease (which shall include, but not be limited to, copies of any default
notices sent to the landlords thereunder or received by Mortgagor), to give
prompt notice (which notice shall include a copy of any notice received or
delivered by Mortgagor) to Mortgagee of any litigation or arbitration with
respect to the Bond Lease, including any action or proceeding to terminate the
Bond Lease or recover the Equipment under the Bond Lease, and to furnish to
Mortgagee all information that it may reasonably request concerning the
performance by Mortgagor of Mortgagor’s obligations under the Bond Lease.


 


29

















 


(e).          Conflicting
Obligations.  Mortgagor agrees that
the provisions hereof shall be deemed to be obligations of Mortgagor in
addition to Mortgagor’s obligations as tenant with respect to similar matters
contained in the Bond Lease; provided, however, the inclusion herein of any
obligations relating to similar matters as to which Mortgagor is obligated
under the Bond Lease shall not restrict or limit Mortgagor’s obligations to
perform promptly all of its obligations as tenant under the Bond Lease, and
nothing in this Mortgage shall be construed as requiring Mortgagor or Mortgagee
to take or omit to take any action which would cause a default under the Bond
Lease.


 


(f).           No
Merger; Acquisition of Fee Estate. 
Mortgagor agrees that, so long as this Mortgage is in effect, there
shall be no merger of the Bond Lease, nor of the leasehold estate or other
estate created thereby, with the fee estate in the Equipment underlying the
Bond Lease by reason of the fact that the Bond Lease, or the leasehold estate
or other estate created thereby, may be held directly or indirectly by or for
the account of any person or entity who or which also holds the fee estate in
the Land or the Equipment underlying the Bond Lease.  If Mortgagor acquires the fee title or any
other estate, title or interest in such Equipment, this Mortgage and the
Security Agreement shall attach to and be a lien upon the fee title or such
other estate so acquired, and such fee title or other estate shall, without
further assignment, mortgage or conveyance, become and remain subject to the
lien of and covered by this Mortgage and the security interest created by the
Security Agreement.  Mortgagor shall
notify Mortgagee of any such acquisition by Mortgagor and, on written request
by Mortgagee, shall cause to be executed and recorded all such documents and
instruments as may in the reasonable opinion of Mortgagee be required to carry
out the intent and meaning hereof.


 


(g).          New
Lease for Benefit of Mortgagee. 
Mortgagor agrees that if the Bond Lease is for any reason whatsoever
terminated prior to the expiration of its term and, if pursuant to any
provision of the Bond Lease or otherwise, Mortgagee or its designee shall acquire
from the landlord thereunder a new lease or other agreement for the use of the
premises or Equipment leased thereunder, Mortgagor shall have no right, title
or interest in or to such new lease or other agreement or the estate created
thereby.


 


(h).          Consents;
Exercise of Options and Other Rights. 
Mortgagor shall not make any election or give any consent or approval as
tenant under the Bond Lease without obtaining Mortgagee’s prior written consent
thereto.  All rights of Mortgagor under
the Bond Lease, including, without limitation, all renewal and extension
options, shall be exercisable by Mortgagee.


 


(i).           Estoppel
Certificates.  Mortgagor agrees that,
from time to time upon the written request of Mortgagee, Mortgagor shall make
commercially reasonable efforts to deliver to Mortgagee estoppel certificates
from the landlord under the Bond Lease respectively in form and substance
acceptable to Mortgagee.


 


(j).           Proceedings
Related to the Bond Lease.  Mortgagor
shall not commence any action or proceeding against the landlord under the Bond
Lease or affecting or potentially


 


30

















 


affecting
the Bond Lease or Mortgagor’s or Mortgagee’s interest therein or in the
underlying Equipment without the prior written consent of Mortgagee, which
consent shall not be unreasonably withheld. 
Mortgagor shall notify Mortgagee in writing immediately if any action or
proceeding shall be commenced between such landlord and Mortgagor or if any action
or proceeding affects or potentially affects the Bond Lease or Mortgagor’s or
Mortgagee’s interest therein or in the underlying Equipment (including, without
limitation, any case commenced by or against such landlord under the Bankruptcy
Code).  Mortgagee shall have the option,
exercisable upon notice from Mortgagee to Mortgagor, to conduct and control any
such action or proceeding with counsel of Mortgagee’s choice.  Mortgagee may proceed in its own name or in
the name of Mortgagor in such action or proceeding, and Mortgagor shall
cooperate with Mortgagee, comply with the instructions of Mortgagee (which may
include withdrawal or exclusion of Mortgagor from such action or proceeding)
and execute any and all powers, authorizations, consents or other documents
required by Mortgagee in connection therewith. 
Mortgagor shall indemnify and hold harmless Mortgagee for, from and
against any and all claims, costs, expenses, attorneys’ fees, losses and
damages suffered or incurred by Mortgagee in or as a consequence of any such
action or proceeding.  Mortgagor shall
pay or reimburse Mortgagee immediately upon demand for any and all of the same,
together with interest on any such expenditures by Mortgagee at the rate of
interest equal to the one month LIBOR Rate plus nine and one half percent
(9.5%).


 


(k).          Power
of Attorney for Bankruptcy Matters. 
Mortgagor hereby appoints Mortgagee as its attorney in fact to act on
behalf of Mortgagor in connection with all matters relating to or arising out
of the assumption or rejection of the Bond Lease, in which the other party to
such lease is a debtor in a case under the Bankruptcy Code.  This grant of power of attorney is present,
unconditional, irrevocable, durable and coupled with an interest.  Mortgagor shall not permit the termination or
rejection of the Bond Lease by exercise of rights under the Bankruptcy Code or
otherwise without the prior written consent of Mortgagee, which consent may be
withheld, conditioned or delayed for any reason in Mortgagee’s sole and
absolute discretion.   Mortgagor
acknowledges that since the Bond Lease is a primary part of the security for
the Obligations, it is not anticipated that Mortgagee would consent to
termination or rejection of the Bond Lease. 
In addition, in any proceeding under the Bankruptcy Code where Mortgagor
is the debtor, to the extent permitted by law, Mortgagor shall not attempt to
reject or terminate the Bond Lease without the prior written consent of
Mortgagee, but shall, if requested by Mortgagee, assign the Bond Lease to
Mortgagee and in such event Mortgagee may assume such leases in its discretion,
or Mortgagor shall allow Mortgagee time to enter into a new lease with the
landlord under the Bond Lease.  In no
event shall Mortgagee be obligated to assume the Bond Lease.


 


[SIGNATURE PAGE FOLLOWS]


 


31

















 


IN WITNESS WHEREOF, Mortgagor has executed and
delivered this Mortgage as of the date first written above.


 


IMPORTANT:  READ BEFORE SIGNING.  THE TERMS OF THIS AGREEMENT SHOULD BE READ
CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE.  NO OTHER TERMS OR ORAL PROMISES NOT CONTAINED
IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED.  YOU MAY CHANGE THE TERMS OF THIS
AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT.


 


	
   

  	
  MORTGAGOR:

  
	
   

  	
   

  
	
   

  	
  HIGHWATER
  ETHANOL, LLC, a Minnesota

  limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Brian Kletscher

  
	
   

  	
  Name:
  Brian Kletscher

  
	
   

  	
  Title:
  President

  



 


32

















 


CERTIFICATE OF
ACKNOWLEDGMENT


 


	
  STATE OF SOUTH DAKOTA

  	
  )

  
	
   

  	
  ) ss.

  
	
  COUNTY OF 

  	
  Minnehaha

  	
   

  	
  )

  
				



 


Before me, a Notary Public in and for said County and
State, personally appeared Brian Kletscher, known to me to be the President of
Highwater Ethanol, LLC, a Minnesota limited liability company, and acknowledged
the execution of the foregoing Construction Loan Mortgage, Security Agreement,
Assignment of Leases and Rents and Fixture Financing Statement for and on
behalf of such limited liability company.


 


	
   

  	
  /s/
  Vicki Blake

  
	
   

  	
  Notary Public-Signature

  
	
   

  	
   

  
	
   

  	
  Vicki
  Blake

  
	
   

  	
  Notary Public-Printed
  Name

  
	
   

  	
   

  
	
   

  	
  Date: April 24,
  2008

  



My commission expires:


 


	
  2/10/12

  	
   

  



 


My County of
Residence:     Minnehaha   County,
South Dakota


 


33
















 


EXHIBIT A


 


LEGAL DESCRIPTION


 


PARCEL
I (PROJECT SITE)


 


TRACT
A:  That part of the Southwest Quarter of
Section 21, Township 109 North, Range 37 West, Redwood County, Minnesota,
lying north of the northerly right-of-way line of the Dakota Minnesota &
Eastern Railroad.


 


Excepting
therefrom that part of said Tract A which lies northwesterly of “Line 1”
described below, southerly of a line run parallel with and distant 50 feet
southerly of “Line 2” described below, and easterly of the easterly
right-of-way line of Township Road T-190, as now located and established, said
exception containing 0.20 acres more or less.


 


“Line
1”:  Beginning at the intersection of the
easterly right-of-way line of said township road with a line run parallel with
and distant 180 feet southerly of “Line 2” described below; thence
northeasterly to a point distant 50 feet southerly (measured at right angles)
of a point on said “Line 2”, distant 167.4 feet easterly of its point of
beginning, and there terminating.


 


“Line
2”:  Beginning at a point on the west
line of the Northwest Quarter of Section 21, distant 1.0 foot north of the
southwest corner thereof; thence run northeasterly at an angle of 92 degrees 05
minutes 00 seconds (as measured from south to east) from said west line of 1521.8
feet; thence deflect to the right at an angle of 01 degree 03 minutes 00
seconds for 1100 feet and there terminating.


 


Also
Excepting that part of said Tract A hereinbefore described, which lies within a
distance of 35 feet southerly of a line run parallel with and distant 50 feet
southerly of the following described line: 
Beginning at a point on “Line 2” hereinbefore described, distant 484.4
feet westerly of its point of termination; thence easterly on said “Line 2” for
484.4 feet and there terminating; said exception containing 0.37 acres more or
less.


 


Subject
to Township Road right-of-way over the westerly 33 feet of said Southwest
Quarter, also subject to Trunk Highway 14 right-of-way.


 


AND
ALSO


 


PARCEL
II (PROJECT SITE)


 


All
that part of the Southeast Quarter of Section 21, Township 109 North,
Range 37 West, Redwood County, Minnesota, lying north of the northerly
right-of-way line of the Dakota Minnesota & Eastern Railroad, subject
to Highway 14 right-of-way.


 

















 


Excepting
therefrom that part of said Southeast Quarter which lies within a distance of
35 feet southerly of the following described line:  Beginning at a point on the westerly boundary
of said Southeast Quarter, distant 40 feet southerly of the northwest corner
thereof; thence run easterly for 345.6 feet along a line that intersects the
easterly boundary of the Southeast Quarter of said Section 21, distant
64.4 feet southerly of the northeast corner thereof and there terminating.


 


Also
Excepting therefrom that part of the Northeast Quarter of the Southeast Quarter
of Section 21, Township 109 North, Range 37 West, Redwood County,
Minnesota, described as follows: 
Commencing at the northeast corner of said Southeast Quarter; thence
southerly on a Minnesota State Plane Grid Azimuth from north of 181 degrees 50
minutes 35 seconds along the east line of said Southeast Quarter 102.21 feet;
thence westerly 270 degrees 48 minutes 42 seconds azimuth 665.31 feet to the
point of beginning; thence continue westerly 270 degrees 48 minutes 42 seconds
azimuth 400.00 feet; thence southerly 180 degrees 48 minutes 42 seconds azimuth
200.00 feet; thence easterly 90 degrees 48 minutes 42 seconds azimuth 400.00
feet; thence northerly 00 degrees 48 minutes 42 seconds azimuth 200.00 feet to
the point of beginning.


 


Containing
0.27 acres, more or less.


 


AND
ALSO


 


PARCEL
III (LAMBERTON ECONOMIC DEVELOPMENT AUTHORITY PARCEL)


 


That
part of the South Half (S1⁄2) of Section Twenty-two (22), Township One
Hundred Nine (109) North, Range Thirty-seven (37) West, Redwood County, Minnesota,
lying northerly of the northerly right-of-way line of the Dakota Minnesota &
Eastern Railroad, and southerly of the following described line:  Commencing at a point on the west line of the
Southwest Quarter (SW1⁄4) of said Section Twenty-two (22) where said line
intersects the northerly right-of-way line of the Dakota Minnesota and Eastern
Railroad, said right-of-way line being 50 feet northerly of and parallel with
the center line of the tracks; thence northerly along said west line on an
assumed azimuth of 01 degrees 50 minutes 35 seconds 145.69 feet to the point of
beginning of the line to be described; thence easterly 84 degrees 21 minutes 14
seconds azimuth 388.43 feet; thence 85 degrees 21 minutes 11 seconds azimuth
900.66 feet; thence easterly 83 degrees 46 minutes 16 seconds azimuth 896.53
feet; thence easterly 81 degrees 30 minutes 37 seconds azimuth 193.47 feet;
thence easterly 78 degrees 15 minutes 04 seconds 396.89 feet; thence easterly
80 degrees 37 minutes 13 seconds 299.78 feet; thence easterly 77 degrees 40
minutes 49 seconds 199.61 feet; thence easterly 80 degrees 37 minutes 44
seconds azimuth 200.67 feet; thence easterly 77 degrees 47 minutes 42 seconds
azimuth 316.70 feet to the southerly right-of-way line of Trunk Highway No. 14;
thence easterly 90 degrees 48 minutes 42 seconds azimuth along said southerly
right-of-way line 619.24 feet to its intersection with said northerly
right-of-way line of said Dakota Minnesota and Eastern Railroad and there
terminating.


 

















 


AND
ALSO


 


PARCEL
IV (ERICKSON WELL SITE PARCEL)


 


The
East 2040.20 feet of the North 128.10 feet of the Northwest Quarter of Section 14,
Township 108 North, Range 37 West, Cottonwood County, Minnesota.  Said tract subject to a 33.00 foot township
road right-of-way easement.  Said tract
contains 6.00 acres more or less, including 1.55 acres of township road
right-of-way.


 


AND
ALSO


 


PARCEL
V (GEIS WELL SITE PARCEL)


 


The
East 1188.00 feet of the South 220.00 feet of the Southeast Quarter of the
Southwest Quarter of Section 29, Township 109 North, Range 37 West,
Redwood County, Minnesota.  Said tract
subject to a 33.00 foot township road right-of-way easement.  Said tract contains 6.00 acres more or less,
containing 0.90 acres of township road right-of-way.


 

















 


EXHIBIT B


 


PERMITTED ENCUMBRANCES


 


	
  1.

  	
   

  	
  The
  Bond Mortgage

  
	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  Right
  of Way Easement dated February 5, 1987, filed March 3, 1987 in Book
  111 Misc., page 331

  
	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  Right
  of Way Easement dated August 5, 1987, filed August 11, 1987, in
  Book 113 Misc., Page 453 as partially released by that certain Partial
  Release of Right of Way Easement dated April 22, 2008

  
	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  Application
  for Re-zoning Permit#3-06RZ, filed September 21, 2006 as Document
  No. 321762

  
	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  Application
  for Re-zoning Permit#15-06, filed September 21, 2006 as Document
  No. 321764

  
	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  Tiling
  and Drainage Agreement dated March 5, 2007, filed March 13, 2007 as
  Document No. 323436