EXIT
FINANCING

    TERM
SHEET

    FOR

    


    OTTER
TAIL AG ENTERPRISES, LLC,

    AS DEBTOR
IN POSSESSION

    IN
BANKRUPTCY CASE NO. 09-61250

    UNITED
STATES BANKRUPTCY COURT, DISTRICT OF MINNESOTA

    


    AGSTAR
FINANCIAL SERVICES, PCA, (“AgStar”) as the administrative
agent for the banks to be determined (the “Banks”) hereby provides OTTER
TAIL AG ENTERPRISES, LLC, a Minnesota limited liability company (the “Debtor”), with the following
proposal for the exit financing pursuant to the terms of a plan of
reorganization which is acceptable to AgStar and the Banks.  THIS
PROPOSAL IS NOT A COMMITMENT TO LEND, but does evidence our sincere interest in
providing the financing required by the Debtor upon its emergence from the
pending Chapter 11 case.

    


    Reference
is made herein to the following AgStar Prepetition Loan Agreements
(collectively, the “AgStar
Prepetition Loan Agreements”):

    


    
      	  	
              a. 

            	
              Master
      Loan Agreement dated March 28,
2007;

            


    

    


    
      	
               
      

            	
              b.

            	
              First
      Supplement to the Master Loan Agreement dated as of March 28,
      2007;

            


    

    


    
      	
               
      

            	
              c.

            	
              Amended
      and Restated Master Loan Agreement dated as of June 23,
    2008;

            


    

    


    
      	
               
      

            	
              d.

            	
              Amended
      and Restated Second Supplement to the Master Loan Agreement dated as of
      June 23, 2008; and

            


    

    


    
      	
               
      

            	
              e.

            	
              Second
      Amended and Restated Third Supplement to the Master Loan Agreement (the
      “Prepetition
      RLOC”) dated as of June 23,
2008.

            


    

    


    Unless
otherwise expressly defined herein, capitalized terms used herein shall have the
same meaning ascribed to them in the AgStar Prepetition Loan
Agreements.  Terms and conditions of the exit financing proposal are
as follows:

    


    
      	
              Debtor:

            	
              Otter
      Tail Ag Enterprises, LLC, a Minnesota limited liability company, as Debtor
      in Possession in its Chapter 11 case in the United States Bankruptcy
      Court, District of Minnesota (the “Debtor’s Chapter 11
      Case”).

               

            
	
              Lender:

            	
              AgStar
      Financial Services, PCA, as administrative agent for the
      Banks.

               

            
	
              Credit
      Facilities:

            	
              A
      term loan, representing the unpaid balance of the existing term note in
      addition to the unpaid balance of the term revolving note, not to exceed
      the original combined amount of $35,000,000.00 (the “Term
    Loan”).

            
	 
      	 
      
	 
      	
              A
      364-day revolving credit facility in an amount not to exceed the lesser of
      (a) 75% of Eligible Accounts and Eligible Inventory or
      (b)  $4,000,000.00 (the “Revolving
      Loan”).

            


    


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    

    


    
      	 
      	
              The
      Term Loan and the Revolving Loan are hereinafter referred to as the “Loans.”

            
	 
      	 
      
	
              Closing
      Date:

            	
              A
      date not later than 10 Business Days following the entry of a confirmation
      order (the “Confirmation
      Order”) confirming the Debtor’s plan of reorganization (the “Plan”).

               

            
	
              Purposes:

            	
              The
      Loans contemplated by this term sheet may be used by the Debtor for (a)
      working capital purposes, (b) payment of professional and United States
      Trustee fees as set forth in the Plan; (c) payment of any amounts
      necessary to obtain the release of subordinate liens and security
      interests in any of the Collateral in an amount acceptable to AgStar in
      its sole discretion; and (d) such other purposes as may be acceptable to
      AgStar in its sole discretion.

               

            
	
              Maturity
      Dates:

            	
              The
      Term Loan will mature on June 1, 2013.

               

              The
      Revolving Loan will mature 364 days following the effective date of the
      Plan.

               

            
	
              Interest:

            	
              The
      outstanding principal amount of the Term Loan shall bear interest at a
      fixed rate equal to 6.5% per annum through May 31, 2013, provided,
      however, that such rate will be adjusted to reflect any changes in the
      three-year U.S. Treasury bond rate of interest between the date of this
      term sheet and the effective date of the Plan.

               

              Accrued
      interest on the Term Loan will be paid in arrears monthly on the first day
      of the first three (3) calendar months following the effective date of the
      Plan.

               

              The
      outstanding principal amount of the Revolving Loan shall bear interest at
      a fixed rate equal to 6.5% per annum through May 31,
      2013,  provided, however, that such rate will be adjusted to
      reflect any changes in the three-year U.S. Treasury bond rate of interest
      between the date of this term sheet and the effective date of the
      Plan.

               

              Accrued
      interest on the Revolving Loan will be paid in arrears monthly on the
      first day of each calendar month beginning with the first calendar month
      following the effective date of the Plan.

               

              The
      default rate of interest will be 2.00% higher than the rate otherwise
      payable.

               

            
	
              Amortization:

            	
              The
      Term Loan will be payable in (i) a special principal payment of $3,150,000
      on the first day of the first calendar month following the effective date
      of the Plan and (ii) the balance of the Term Loan in equal monthly
      installments of principal and interest sufficient to fully amortize the
      Term Loan over 10 years from the effective date of the Plan, beginning
      with the first day of the fourth calendar month following the effective
      date of the Plan.

            


    


    
      
         


      

      
        2

        
          

        

      

      
         


      

    

    


    
      	 
      	
              The
      Revolving Loan will be payable in full on its applicable maturity
      date.

            
	 
      	 
      
	
              Security:

            	
              The
      Term Loan and the Revolving Loan will be secured by a first priority
      perfected security interest in all of the real and personal property of
      the Debtor, whether now owned or hereafter acquired (the “Collateral”), subject
      only to such other liens and encumbrances as may be acceptable to
      AgStar.

               

            
	
              Accrued
      Default Interest:

            	
              All
      default interest provided by the AgStar Prepetition Loan Agreements will
      be deferred until June 1, 2013.  Provided the Debtor does not
      default in the performance of its obligations under the Loan Documents,
      the Loan Documents will provide that such default interest will be waived
      by AgStar on June 1, 2013.

               

            
	
              Plan
      of Reorganization:

            	
              The
      Debtor shall file the Plan, which must be acceptable to AgStar and MMCDC
      New Markets Tax Fund (“NMF” and collectively
      with AgStar, the “Prepetition Lenders”),
      on or before February 28, 2010 (the “Plan
Date”).

               

              At
      a minimum, the Plan shall not be deemed acceptable to the Prepetition
      Lenders unless:

               

              ·      The
      Plan provides for and treats the Prepetition Lenders as  fully
      secured creditors;

               

              ·      The
      Plan provides for the financing set forth in this Term Sheet;

               

              ·      The
      Confirmation Order and the Plan provide that the assets of Debtor will be
      free from any and all subordinate mortgages, liens, and encumbrances,
      including any lessor’s interests, except as may be accepted by the
      Prepetition Lenders.

               

            
	
              Conditions
      Precedent To Closing:

            	
              Entry
      of the Confirmation Order confirming the Plan which is satisfactory to
      AgStar on or before May 1, 2010;

               

            
	 
      	
              Execution
      and delivery of an amended and restated Credit Agreement together with
      such other notes, mortgages, security agreements, control agreements,
      documents, and agreements as may be required by AgStar satisfactory to
      AgStar and the Banks (collectively the “Loan Documents”) which
      Loan Documents will contain representations; warranties; affirmative,
      negative and financial covenants (including, but not limited to,
      limitations on acquisitions, additional debt, bonuses, distributions,
      change in control, change in senior management, capital expenditures,
      disposition of assets and other covenants deemed appropriate by AgStar and
      the Banks); events of default; and remedies acceptable to AgStar and the
      Banks;

               

            
	 
      	
              AgStar’s
      receipt of subscription letters, acceptable to AgStar (collectively, the
      “Subscription
      Letters”), (a) in an amount not less than $6,000,000.00 on or
      before January 15, 2010; and (b) in an aggregate amount not less than
      $12,000,000.00 on or before the Plan
Date

            


    


    
      
         


      

      
        3

        
          

        

      

      
         


      

    

    


    
      	 
      	
              Confirmation
      of equity contributions pursuant to the Subscription Letters to the
      reorganized Debtor of at least $12,000,000;

               

            
	 
      	
              Payment
      to AgStar of an amount sufficient to reduce the outstanding principal
      balance of the Prepetition RLOC to an amount not greater than
      $4,000,000;

               

            
	 
      	
              Delivery
      of a risk management plan reasonably acceptable to AgStar including a
      designated risk management officer;

               

            
	 
      	
              Compliance
      with all conditions precedent required by NMF including payment of all
      interest and default charges due;

               

            
	 
      	
              If
      not expressly provided in the Confirmation Order, execution of an
      agreement with U.S. Bank, as Indenture Trustee (the “Trustee”), and Otter
      Tail County (the “County”) regarding the
      resolution of the outstanding bond debt and the release of all liens,
      security interests or lessor interests in any of the assets of the Debtor;
      and

               

            
	 
      	
              Compliance
      with all conditions precedent set forth in the Loan
Documents.

               

            
	
              Sale
      of Ethanol Facility:

            	
              If
      no Plan acceptable to the Prepetition Lenders is filed by the Plan Date,
      the Debtor shall file, within ten (10) Business Days thereafter, a motion
      to sell the Debtor’s assets, including the ethanol production facility,
      free and clear of interests, liens, encumbrances and claims pursuant to
      Bankruptcy Code § 363(b) and (f).  Such motion must be
      accompanied by sales procedures acceptable to AgStar, including that any
      such sale shall close not later than May 1, 2010.

               

              Within
      ten (10) Business Days of filing such motion, the Debtor shall engage a
      financial advisor (the “Financial Advisor”)
      reasonably acceptable to the Prepetition Lenders to manage the sale of the
      ethanol facility.

               

            
	
              Expenses:

            	
              The
      Debtor shall reimburse AgStar for all reasonable costs and expenses,
      including legal fees, consultant fees, appraisal fees, financial advisor
      fees, and other similar fees, costs and expenses in connection with the
      negotiation, documentation, execution, syndication and delivery of the
      Loans and the Debtor’s Chapter 11 Case.  AgStar shall be
      authorized to advance from the Loans an amount equal to such costs and
      expenses.

            


    

    


    The
above term sheet is subject to the consent and approval of the
Banks.


    
      
         


      

      
        4

        
          

        

      

      
         


      

    

    


    If not
acted on, these terms will expire on January 15, 2010, at 5:00 p.m.
(CST).  Please return a signed copy of this letter to evidence your
acceptance of the terms and conditions contained in this Term
Sheet.

    


    
      
        
          
            	
                    Sincerely,

                  
	 
      
	
                    AGSTAR
      FINANCIAL SERVICES, PCA,

                  
	 
      
	
                    /s/ Ron
Monson

                  


          

        

      

    

    
      
        	
                By: 

              	
                Ron Monson

              
	
                Its:

              	
                VP

              


      

    


    
      
         


      

      
        5

        
          

        

      

      
         


      

    


    SIGNATURE
PAGE TO

    EXIT
FINANCING

    TERM
SHEET

    FOR

    


    OTTER
TAIL AG ENTERPRISES, LLC,

    AS DEBTOR
IN POSSESSION

    IN
BANKRUPTCY CASE NO. 09-61250

    UNITED
STATES BANKRUPTCY COURT, DISTRICT OF MINNESOTA

    


    This Term
Sheet is accepted this 15th
day

    of
January 2010 by:

    


    DEBTOR:

    


    OTTER
TAIL AG ENTERPRISES, LLC

    a
Minnesota limited liability company

    


    
      
        	
                By
      

              	
                /s/ Anthony J Hicks

              
	
                 Name:
      Anthony J Hicks

              
	
                 Title:
      Chief Executive Officer

              


      

    


    
      
         


      

      
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