Exhibit 10.3


 


SECURITY AGREEMENT


 


THIS SECURITY AGREEMENT, dated as of January 30, 2006, between GOLDEN GRAIN ENERGY,
LLC, an Iowa limited liability company (“Borrower”), and HOME FEDERAL SAVINGS BANK (“Lender”).


 


WHEREAS, Borrower has entered into a Credit Agreement dated as of the date
hereof (as amended and in effect from time to time, the “Credit Agreement”)
with Lender, pursuant to which Lender, subject to the terms and conditions
contained therein, is to make loans to Borrower; and


 


WHEREAS, it is a condition precedent to Lender’s making any loans to
Borrower under the Credit Agreement that Borrower execute and deliver to Lender
a security agreement in substantially the form hereof; and


 


WHEREAS, Borrower wishes to grant security interests in favor of Lender as
herein provided;


 


NOW, THEREFORE, in consideration of the promises contained herein and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrower and Lender agree as follows:


 


1.                                      Definitions. All capitalized terms which are not defined herein shall have the
respective meanings provided for in the Credit Agreement. The term “State” as used herein
means the State of Minnesota. All terms defined in Article 9 of the Uniform Commercial
Code of the State and used herein shall have the same meanings as specified
therein. The term “Event
of Default” as used herein means any Event of Default described
or listed in the Credit Agreement, including the failure of Borrower to pay or
perform any of the Obligations as and when due to be paid or performed
under the terms of the Credit Agreement.


 


2.                                      Grant of Security Interest. Borrower
hereby grants to Lender, to secure the payment and performance in full of all
of the Obligations, a security interest in, and pledges and assigns to Lender,
the following properties, assets and rights of Borrower, wherever located,
whether now owned or hereafter acquired or arising, and all proceeds (including
casualty insurance proceeds) and products thereof (all of the same being
hereinafter called the “Collateral”):
all personal and fixture property of every kind and nature including without
limitation all goods (including inventory, equipment and any accessions
thereto), instruments (including notes), documents, accounts (including
health-care-insurance receivables), chattel paper (whether tangible or
electronic), deposit accounts, letter-of-credit rights (whether or not the
letter of credit is evidenced by a writing), commercial tort claims, securities
and all other investment property, supporting obligations, any other contract
rights or rights to the payment of money (including without limitation all
United States Department of Agriculture payments and


 

















 


Commodity Credit Corporation payments such as
payments related to the bioenergy program described at 7 C.F.R. Part 1424),
including without limitation all management contracts, supply contracts,
off-take contracts, all railroad, trucking and other transportation contracts,
and all power contracts, insurance claims and proceeds, tort claims, and all
general intangibles including, without limitation, all payment intangibles,
patents, patent applications, trademarks, trademark applications, trade names,
copyrights, copyright applications, software, engineering drawings, service marks,
customer lists, goodwill, and all licenses, permits, agreements of any kind or
nature pursuant to which Borrower possesses, uses or has authority to possess
or use property (whether tangible or intangible) of others or others possess,
use or have authority to possess or use property (whether tangible or
intangible) of Borrower, and all recorded data of any kind or nature,
regardless of the medium of recording including, without limitation, all
software, writings, plans, specifications and schematics. Lender acknowledges
that the attachment of its security interest in any commercial tort claim as
original collateral is subject to Borrower’s compliance with Section 4.07.


 


3.                                      Authorization to File Financing Statements. Borrower hereby irrevocably
authorizes Lender at any time and from time to time to file in any Uniform Commercial
Code jurisdiction any initial financing statements and amendments thereto that (a) indicate
the Collateral (i) as all assets of Borrower or words of similar effect,
regardless of whether any particular asset comprised in the Collateral falls
within the scope of Article 9 of the Uniform Commercial Code of the
State or such jurisdiction, or (ii) as being of an equal or lesser scope
or with greater detail, and (b) contain any other information required by Article 9
of the Uniform Commercial Code of the State or any other state for the
sufficiency or filing office acceptance of any financing statement or
amendment, including (i) whether Borrower is an organization, the type of
organization and any organization identification number issued to Borrower and,
(ii) in the case of a financing statement filed as a fixture filing or
indicating Collateral as as-extracted collateral or timber to be cut, a
sufficient description of real property to which the Collateral relates. Borrower
agrees to furnish any such information to Lender promptly upon request. Borrower
also ratifies its authorization for Lender to have filed in any Uniform Commercial
Code jurisdiction any like initial financing statements or amendments thereto
if filed prior to the date hereof.


 


4.                                      Other Actions.
Further to insure the attachment, perfection and first priority of, and the
ability of Lender to enforce, Lender’s security interest in the Collateral,
Borrower agrees, in each case at Borrower’s own expense, to take the following
actions with respect to the following Collateral:


 


4.01.                     Notes and Tangible Chattel Paper. If Borrower at any time holds or acquires any notes or tangible
chattel paper, Borrower will forthwith endorse, assign and deliver the same to
Lender, accompanied by such instruments of transfer or assignment duly executed
in blank as Lender may from time to time specify.


 


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4.02.                     Deposit Accounts. For each deposit account that Borrower at any time opens or
maintains, Borrower shall, at Lender’s request and option, pursuant to an
agreement in form and substance satisfactory to Lender, either (a) cause
the depositary bank to agree to comply at any time with instructions from
Lender to such depositary bank directing the disposition of funds from time to
time credited to such deposit account, without further consent of Borrower, or (b) arrange
for Lender to become the customer of the depositary bank with respect to the
deposit account, with Borrower being permitted, only with the consent of
Lender, to exercise rights to withdraw funds from such deposit account. The
provisions of this paragraph shall not apply to (i) any deposit account
for which Borrower, the depositary bank and Lender have entered into a cash
collateral agreement specially negotiated among Borrower, the depositary bank
and Lender for the specific purpose set forth therein, (ii) deposit
accounts for which Lender is the depositary and (iii) deposit accounts
specially and exclusively used for payroll, payroll taxes and other employee
wage and benefit payments to or for the benefit of Borrower’s salaried
employees.


 


4.03.                     Investment Property. If Borrower at any time holds or acquires any certificated securities,
Borrower will forthwith endorse, assign and deliver the same to Lender,
accompanied by such instruments of transfer or assignment duly executed in
blank as Lender may from time to time specify. If any securities now or
hereafter acquired by Borrower are uncertificated and are issued to Borrower or
its nominee directly by the issuer thereof, Borrower will immediately notify
Lender thereof and, at Lender’s request and option, pursuant to an agreement in
form and substance satisfactory to Lender, either (a) cause the
issuer to agree to comply with instructions from Lender as to such securities,
without further consent of Borrower or such nominee, or (b) arrange for
Lender to become the registered owner of the securities. If any securities,
whether certificated or uncertificated, or other investment property now or
hereafter acquired by Borrower are held by Borrower or its nominee through a
securities intermediary or commodity intermediary, Borrower will immediately
notify Lender thereof and, at Lender’s request and option, pursuant to an
agreement in form and substance satisfactory to Lender, either (i) cause
such securities intermediary or (as the case may be) commodity
intermediary to agree to comply with entitlement orders or other instructions
from Lender to such securities intermediary as to such securities or other
investment property, or (as the case may be) to apply any value
distributed on account of any commodity contract as directed by Lender to such
commodity intermediary, in each case without further consent of Borrower or
such nominee, or (ii) in the case of financial assets or other investment
property held through a securities intermediary, arrange for Lender to become
the entitlement holder with respect to such investment property, with Borrower
being permitted, only with the consent of Lender, to exercise rights to
withdraw or otherwise deal with such investment property. The provisions of
this paragraph shall not apply to any financial assets credited to a securities
account for which Lender is the securities intermediary.


 


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4.04.                     Collateral in the Possession of a Bailee. If any goods are at any time in the
possession of a bailee, Borrower will promptly notify Lender thereof and, if
requested by Lender, will promptly obtain an acknowledgment from the bailee, in
form and substance satisfactory to Lender, that the bailee holds such
Collateral for the benefit of Lender and will act upon the instructions of
Lender, without the further consent of Borrower.


 


4.05.                     Electronic Chattel Paper and Transferable Records.  If Borrower at any time
holds or acquires an interest in any electronic chattel paper or any “transferable
record,” as that term is defined in Section 201 of the Federal Electronic
Signatures in Global and National Commerce Act, or in Section 16 of the
Uniform Electronic Transactions Act as in effect in any relevant
jurisdiction, Borrower will promptly notify Lender thereof and, at the request
of Lender, will take such action as Lender may reasonably request to vest
control in Lender, under Section 9-105 of the Uniform Commercial
Code, of such electronic chattel paper or control under Section 201 of the
Federal Electronic Signatures in Global and National Commerce Act or, as the
case may be, Section 16 of the Uniform Electronic Transactions
Act, as so in effect in such jurisdiction, of such transferable record. Lender
agrees with Borrower that Lender will arrange, pursuant to procedures
satisfactory to Lender and so long as such procedures will not result in Lender’s
loss of control, for Borrower to make alterations to the electronic chattel
paper or transferable record permitted under UCC Section 9-105 or, as the
case may be, Section 201 of the Federal Electronic Signatures in
Global and National Commerce Act or Section 16 of the Uniform Electronic
Transactions Act for a party in control to make without loss of control, unless
an Event of Default has occurred and is continuing or would occur after taking
into account any action by Borrower with respect to such electronic chattel
paper or transferable record.


 


4.06.                     Letter-of-Credit Rights. If Borrower is at any time a beneficiary under a letter of credit
now or hereafter issued in favor of Borrower, Borrower will promptly notify
Lender thereof and, at the request and option of Lender, Borrower will,
pursuant to an agreement in form and substance satisfactory to Lender,
either (i) arrange for the issuer and any confirmer of such letter of
credit to consent to an assignment to Lender of the proceeds of any drawing
under the letter of credit or (ii) arrange for Lender to become the
transferee beneficiary of the letter of credit.


 


4.07                        Commercial Tort Claims. If Borrower at any time holds or acquires a commercial tort claim,
Borrower will immediately notify Lender in a writing signed by Borrower of the
brief details thereof and grant to Lender in such writing a security interest
therein and in the proceeds thereof, all upon the terms of this Agreement, with
such writing to be in form and substance satisfactory to Lender.


 


4.08                        Other Actions as to any and all Collateral. Borrower further agrees to take any
other action reasonably requested by Lender to insure the attachment,
perfection


 


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and first priority of, and the ability of
Lender to enforce, Lender’s security interest in any and all of the Collateral
including, without limitation, (a) executing, delivering and, where
appropriate, filing financing statements and amendments relating thereto under
the Uniform Commercial Code, (b) causing Lender’s name to be noted as
secured party on any certificate of title for a titled good if such notation is
a condition to attachment, perfection or priority of, or ability of Lender to
enforce, Lender’s security interest in such Collateral, (c) complying with
any provision of any statute, regulation or treaty of the United States as to
any Collateral if compliance with such provision is a condition to attachment,
perfection or priority of, or ability of Lender to enforce, Lender’s security
interest in such Collateral, (d) obtaining governmental and other third
party consents and approvals, including without limitation any consent of any
licensor, lessor or other person obligated on Collateral, (e) obtaining
waivers from mortgagees and landlords in form and substance satisfactory
to Lender and (f) taking all actions required by any earlier versions of
the Uniform Commercial Code or by other law, as applicable in any relevant
Uniform Commercial Code jurisdiction, or by other law as applicable in any
foreign jurisdiction.


 


5.                                      Relation to Other Security Documents. The provisions of this Agreement supplement the provisions of any
real estate mortgage or deed of trust granted by Borrower to Lender and
securing the payment or performance of any of the Obligations. Nothing
contained in any such real estate mortgage or deed of trust derogates from any
of the rights or remedies of Lender hereunder.


 


6.                                      Representations and Warranties Concerning Borrower’s Legal Status. Borrower represents and warrants to
Lender as follows: (a) Borrower’s exact legal name is that indicated on
the signature page hereof, (b) Borrower is a limited liability
company organized under the laws of the State of Iowa, (c) Borrower’s
organizational identification number is 263439, (d) Borrower’s tax payer
identification number is 02-0575361 and (e) Borrower’s place of business,
chief executive office, as well as mailing address is 1822 43rd
Street SW, Mason City, Iowa 50401.


 


7.                                      Covenants Concerning Borrower’s Legal Status.  Borrower covenants with Lender as
follows:  (a) without providing at
least 30 days prior written notice to Lender, Borrower will not change its
name, its place of business or, if more than one, chief executive office, or
its mailing address or organizational identification number if it has one, (b) if
Borrower does not have an organizational identification number and later
obtains one, Borrower shall forthwith notify Lender of such organizational
identification number, and (c) Borrower will not change its type of
organization, jurisdiction of organization or other legal structure.


 


8.                                      Representations and Warranties Concerning
Collateral, Etc. Borrower
further represents and warrants to Lender as follows:  (a) Borrower is the owner of the Collateral,
free from any adverse lien, security interest or other encumbrance, except for
the security interest created by this Agreement and other liens permitted by
the Credit Agreement, (b) to the extent that any of the Collateral
constitutes, or is the proceeds of, “farm products” as defined in


 


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Section 9-102(a)(34) of the Uniform Commercial
Code of the State or any other relevant state, Borrower has taken all required
acts to ensure that Lender’s security interest in such Collateral is first and
prior, (c) none of the account debtors or other persons obligated on any
of the Collateral is a governmental authority subject to the Federal Assignment
of Claims Act or like federal, state or local statute or rule in respect
of such Collateral, (d) Borrower holds no commercial tort claim except as
set forth on Schedule 8(d) and (e) Borrower has at all
times operated its business in compliance with all applicable provisions of the
federal Fair Labor Standards Act, as amended, and with all applicable
provisions of federal, state and local statutes and ordinances dealing with the
control, shipment, storage or disposal of hazardous materials or substances.


 


9.                                      Covenants Concerning Collateral, Etc. Borrower further covenants with Lender as follows:  (a) the Collateral, to the extent not
delivered to Lender pursuant to Section 4, will be kept at those
locations listed on Schedule 9(a) and Borrower will not remove
the Collateral from such locations, without providing at least 30 days prior
written notice to Lender, except for Collateral sold or used in the ordinary
course of business, (b) except for the security interest herein granted
and liens permitted by the Credit Agreement, Borrower will be the owner of the
Collateral free from any lien, security interest or other encumbrance, and
Borrower will defend the same against all claims and demands of all persons at
any time claiming the same or any interests therein adverse to Lender, (c) Borrower
will not pledge, mortgage or create, or suffer to exist a security interest in
the Collateral in favor of any person other than Lender except for liens
permitted by the Credit Agreement, (d) Borrower will keep the Collateral
in good order and repair and will not use the same in violation of law or any
policy of insurance thereon, (e) Borrower will permit Lender, or its
designee, to inspect the Collateral at any reasonable time, wherever located, (f) Borrower
will pay promptly when due all taxes, assessments, governmental charges and
levies upon the Collateral or incurred in connection with the use or operation
of such Collateral or incurred in connection with this Agreement unless
contested in good faith and Borrower has adequately reserved for the contested
taxes, assessments, penalties or other charges, (g) Borrower will operate
its business in compliance with all applicable provisions of the federal Fair
Labor Standards Act, as amended, and with all applicable provisions of federal,
state and local statutes and ordinances dealing with the control, shipment,
storage or disposal of hazardous materials or substances, and (h) Borrower
will not sell or otherwise dispose, or offer to sell or otherwise dispose, of
the Collateral or any interest therein except for (i) sales of inventory
and licenses of general intangibles in the ordinary course of business and (ii) sales
or other dispositions of obsolescent items of equipment in the ordinary course
of business consistent with past practices and permitted by the Credit
Agreement.


 


10.                               Insurance.


 


10.01.              Maintenance of Insurance. Borrower will maintain with financially sound and reputable
insurers insurance with respect to its properties and business against such
casualties and contingencies as shall be in accordance with general practices
of businesses engaged in similar activities in similar geographic areas. Such
insurance shall be in such minimum amounts that Borrower will not be deemed a
co-insurer under


 


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applicable insurance laws, regulations and
policies and otherwise shall be in such amounts, contain such terms, be in such
forms and be for such periods as may be reasonably satisfactory to Lender.
In addition, all such insurance shall be payable to Lender as loss payee under
a standard loss payee clause. Without limiting the foregoing, Borrower will (i) keep
all of its physical property insured with casualty or physical hazard insurance
on an “all risks” basis, with electronic data processing coverage, with a full
replacement cost endorsement and in an amount equal to 100% of the full
replacement cost of such property, (ii) maintain all such workers’
compensation or similar insurance as may be required by law and (iii) maintain,
in amounts and with deductibles equal to those generally maintained by
businesses engaged in similar activities in similar geographic areas, general
public liability insurance against claims of bodily injury, death or property
damage occurring, on, in or about the properties of Borrower; business
interruption insurance; and product liability insurance.


 


10.02.              Insurance Proceeds. The proceeds of any casualty insurance in respect of any casualty
loss of any of the Collateral shall, subject to the rights, if any, of other
parties with a prior interest in the property covered thereby, (i) so long
as no Default or Event of Default has occurred and is continuing and to the
extent that the amount of such proceeds is less than $200,000, be disbursed to
Borrower for direct application by Borrower solely to the repair or replacement
of Borrower’s property so damaged or destroyed and (ii) in all other
circumstances, be held by Lender as cash collateral for the Obligations. Lender
may, at its sole option, disburse from time to time all or any part of
such proceeds so held as cash collateral, upon such terms and conditions as
Lender may reasonably prescribe, for direct application by Borrower solely
to the repair or replacement of Borrower’s property so damaged or destroyed, or
Lender may apply all or any part of such proceeds to the Obligations
with the Commitments (if not then terminated) being reduced by the amount so
applied to the Obligations.


 


10.03.              Notice of Cancellation, etc. All policies of insurance will provide for at least 30 days prior
written cancellation notice to Lender. In the event of failure by Borrower to
provide and maintain insurance as herein provided, Lender may, at its option,
provide such insurance and charge the amount thereof to Borrower. Borrower will
furnish Lender with certificates of insurance and copies policies evidencing
compliance with the foregoing insurance provision.


 


11.                               Collateral Protection Expenses; Preservation of Collateral.


 


11.01.              Expenses Incurred by Lender. In its discretion, Lender may discharge taxes and other
encumbrances at any time levied or placed on any of the Collateral, make
repairs thereto and pay any necessary filing fees or, if the debtor fails to do
so, insurance premiums. Borrower agrees to reimburse Lender on demand for any
and all expenditures so made. Lender has no obligation to Borrower to make any
such expenditures, and the making thereof will not relieve Borrower of any
default.


 


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11.02.              Lender’s Obligations and Duties. Anything herein to the contrary notwithstanding, Borrower will
remain liable under each contract or agreement comprised in the Collateral to
be observed or performed by Borrower thereunder. Lender shall not have any
obligation or liability under any such contract or agreement by reason of or
arising out of this Agreement or the receipt by Lender of any payment relating
to any of the Collateral, nor shall Lender be obligated in any manner to perform any
of the obligations of Borrower under or pursuant to any such contract or
agreement, to make inquiry as to the nature or sufficiency of any payment
received by Lender in respect of the Collateral or as to the sufficiency of any
performance by any party under any such contract or agreement, to present or
file any claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to Lender or to which
Lender may be entitled at any time or times. Lender’s sole duty with
respect to the custody, safe keeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the Uniform Commercial
Code of the State or otherwise, is to deal with such Collateral in the same
manner as Lender deals with similar property for its own account.


 


12.                               Securities and Deposits. Lender may at any time at its option, transfer to itself or
any nominee any securities constituting Collateral, receive any income thereon
and hold such income as additional Collateral or apply it to the Obligations. Upon
the occurrence of a Default or Event of Default, Lender may demand, sue
for, collect, or make any settlement or compromise which it deems desirable
with respect to the Collateral. Regardless of the adequacy of Collateral or any
other security for the Obligations, any deposits or other sums at any time
credited by or due from Lender to Borrower may at any time be applied to
or set off against any of the Obligations then due and owing.


 


13.                               Notification to Account Debtors and Other Persons Obligated on
Collateral.    If a Default or an Event of Default has
occurred and is continuing, Borrower will, at the request of Lender, notify
account debtors and other persons obligated on any of the Collateral of the
security interest of Lender in any account, chattel paper, general intangible,
instrument or other Collateral and that payment thereof is to be made directly
to Lender or to any financial institution designated by Lender as Lender’s
agent therefor, and Lender may itself, if a Default or an Event of Default
has occurred and is continuing beyond the applicable cure period, if any,
without notice to or demand upon Borrower, so notify account debtors and other
persons obligated on Collateral. After the making of such a request or the
giving of any such notification, Borrower will hold any proceeds of collection
of accounts, chattel paper, general intangibles, instruments and other
Collateral received by Borrower as trustee for Lender without commingling the
same with other funds of Borrower and will turn the same over to Lender in the
identical form received, together with any necessary endorsements or
assignments. Lender will apply the proceeds of collection of accounts, chattel
paper, general intangibles, instruments and other Collateral received by Lender
to the Obligations, such proceeds to be immediately entered after final payment
in cash or other immediately available funds of the items giving rise to them.


 


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14.                               Power of Attorney.


 


14.01.              Appointment and Powers of Lender. Borrower hereby irrevocably constitutes and appoints Lender and any
officer or agent thereof, with full power of substitution, as its true and
lawful attorneys-in-fact with full irrevocable power and authority in the place
and stead of Borrower or in Lender’s own name, for the purpose of carrying out
the terms of this Agreement, to take any and all appropriate action and to
execute any and all documents and instruments that may be necessary or
desirable to accomplish the purposes of this Agreement and, without limiting
the generality of the foregoing, hereby gives said attorneys the power and
right, on behalf of Borrower, without notice to or assent by Borrower, to do
the following:


 


(a)                                  upon the occurrence and during the continuance of an Event of
Default beyond the applicable cure period, if any, generally to sell, transfer,
pledge, make any agreement with respect to or otherwise deal with any of the
Collateral in such manner as is consistent with the Uniform Commercial
Code of the State and as fully and completely as though Lender were the
absolute owner thereof for all purposes, and to do at Borrower’s expense, at
any time, or from time to time, all acts and things which Lender deems
necessary to protect, preserve or realize upon the Collateral and Lender’s
security interest therein, in order to effect the intent of this Agreement, all
as fully and effectively as Borrower might do, including, without limitation, (i) the
filing and prosecuting of registration and transfer applications with the
appropriate federal or local agencies or authorities with respect to trademarks,
copyrights and patentable inventions and processes, (ii) upon written
notice to Borrower, the exercise of voting rights with respect to voting
securities, which rights may be exercised, if Lender so elects, with a
view to causing the liquidation in a commercially reasonable manner of assets
of the issuer of any such securities and (iii) the execution, delivery and
recording, in connection with any sale or other disposition of any Collateral,
of the endorsements, assignments or other instruments of conveyance or transfer
with respect to such Collateral; and


 


(b)                                 to the extent that Borrower’s authorization given in Section 3
is not sufficient, to file such financing statements with respect hereto, with
or without Borrower’s signature, or a photocopy of this Agreement in
substitution for a financing statement, as Lender may deem appropriate and
to execute and/or file in Borrower’s name such financing statements and
amendments thereto and continuation statements which may require Borrower’s
signature.


 


14.02.              Ratification by Borrower. To the extent permitted by law, Borrower hereby ratifies all that
said attorneys lawfully do or cause to be done at any time by virtue of this
Agreement. This power of attorney is a power coupled with an interest and is
irrevocable.


 


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14.03.              No Duty on Lender. The powers conferred on Lender hereunder are solely to protect its
interests in the Collateral and do not impose any duty upon it to exercise any
such powers. Lender will be accountable only for the amounts that it actually
receives as a result of the exercise of such powers and neither it nor any of
its officers, directors, employees or agents shall be responsible to Borrower
for any act or failure to act, except for Lender’s own gross negligence or
willful misconduct.


 


15.                               Remedies. If an Event of Default has occurred and continues beyond the
applicable cure period, if any, Lender may, without notice to or demand upon
Borrower, declare this Agreement to be in default, and Lender shall thereafter
have in any jurisdiction in which enforcement hereof is sought, in addition to
all other rights and remedies, the rights and remedies of a secured party under
the Uniform Commercial Code of the State or of any jurisdiction in which
Collateral is located, including, without limitation, the right to take
possession of the Collateral, and for that purpose Lender may, so far as
Borrower can give authority therefor, enter upon any premises on which the
Collateral may be situated and remove the same therefrom. Lender may in
its discretion require Borrower to assemble all or any part of the
Collateral at such location or locations within the jurisdictions of Borrower’s
principal office(s) or at such other locations as Lender may reasonably
designate. Unless the Collateral is perishable or threatens to decline speedily
in value or is of a type customarily sold on a recognized market, Lender will
give to Borrower at least 10 Business Days prior written notice of the time and
place of any public sale of Collateral or of the time after which any private
sale or any other intended disposition is to be made. Borrower hereby
acknowledges that 10 Business Days prior written notice of such sale or sales
is reasonable notice. In addition, Borrower waives any and all rights that it may have
to a judicial hearing in advance of the enforcement of any of Lender’s rights
hereunder, including, without limitation, its right following an Event of
Default to take immediate possession of the Collateral and to exercise its
rights with respect thereto.


 


16.                               Standards for Exercising Remedies. To the extent that applicable law imposes duties on Lender to
exercise remedies in a commercially reasonable manner, Borrower acknowledges
and agrees that it is not commercially unreasonable for Lender (a) to fail
to incur expenses reasonably deemed significant by Lender to prepare Collateral
for disposition or otherwise to complete raw material or work in process into
finished goods or other finished products for disposition, (b) to fail to
obtain third party consents for access to Collateral to be disposed of, or to
obtain or, if not required by other law, to fail to obtain governmental or
third party consents for the collection or disposition of Collateral to be
collected or disposed of, (c) to fail to exercise collection remedies
against account debtors or other persons obligated on Collateral or to remove
liens or encumbrances on or any adverse claims against Collateral, (d) to
exercise collection remedies against account debtors and other persons
obligated on Collateral directly or through the use of collection agencies and
other collection specialists, (e) to advertise dispositions of Collateral
through publications or media of general circulation, whether or not the Collateral
is of a specialized nature, (f) to contact other persons, whether or not
in the same business as Borrower, for expressions of interest in acquiring all
or any portion of the Collateral, (g) to hire one or more professional
auctioneers to assist in the disposition of Collateral, whether


 


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or not the collateral is of a specialized
nature, (h) to dispose of Collateral by utilizing Internet sites that
provide for the auction of assets of the types included in the Collateral or
that have the reasonable capability of doing so, or that match buyers and
sellers of assets, (i) to dispose of assets in wholesale rather than
retail markets, (j) to disclaim disposition warranties, (k) to purchase
insurance or credit enhancements to insure Lender against risks of loss,
collection or disposition of Collateral or to provide to Lender a guaranteed
return from the collection or disposition of Collateral, or (l) to the extent
deemed appropriate by Lender, to obtain the services of other brokers,
investment bankers, consultants and other professionals to assist Lender in the
collection or disposition of any of the Collateral. Borrower acknowledges that
the purpose of this Section 16 is to provide non-exhaustive indications of
what actions or omissions by Lender would not be commercially unreasonable in
Lender’s exercise of remedies against the Collateral and that other actions or
omissions by Lender shall not be deemed commercially unreasonable solely on
account of not being indicated in this Section 16. Without
limitation upon the foregoing, nothing contained in this Section 16
shall be construed to grant any rights to Borrower or to impose any duties on
Lender that would not have been granted or imposed by this Agreement or by
applicable law in the absence of this Section 16.


 


17.                               No Waiver by Lender, etc. Lender
shall not be deemed to have waived any of its rights upon or under the
Obligations or the Collateral unless such waiver shall be in writing and signed
by Lender. No delay or omission on the part of Lender in exercising any
right shall operate as a waiver of such right or any other right. A waiver on
any one occasion will not be construed as a bar to or waiver of any right on
any future occasion. All rights and remedies of Lender with respect to the
Obligations or the Collateral, whether evidenced hereby or by any other
instrument or papers, will be cumulative and may be exercised singularly,
alternatively, successively or concurrently at such time or at such times as Lender
deems expedient.


 


18.                               Suretyship Waivers by Borrower. Borrower waives demand, notice, protest, notice of acceptance of
this Agreement, notice of loans made, credit extended, Collateral received or
delivered or other action taken in reliance hereon and all other demands and
notices of any description. With respect to both the Obligations and the
Collateral, Borrower assents to any extension or postponement of the time of
payment or any other indulgence, to any substitution, exchange or release of or
failure to perfect any security interest in any Collateral, to the addition or
release of any party or person primarily or secondarily liable, to the
acceptance of partial payment thereon and the settlement, compromising or
adjusting of any thereof, all in such manner and at such time or times as
Lender may deem advisable. Lender will have no duty as to the collection
or protection of the Collateral or any income thereon, nor as to the
preservation of rights against prior parties, nor as to the preservation of any
rights pertaining thereto beyond the safe custody thereof as set forth in Section 11.02.
Borrower further waives any and all other suretyship defenses.


 


19.                               Marshaling. Lender will not be required to marshal any present or future
collateral security (including but not limited to this Agreement and the
Collateral) for, or other assurances of payment of, the Obligations or any of
them or to resort to such collateral security


 


11

















 


or other assurances of payment in any
particular order, and all of its rights hereunder and in respect of such
collateral security and other assurances of payment are cumulative and in
addition to all other rights, however existing or arising. To the extent that
it lawfully may, Borrower hereby agrees that it will not invoke any law
relating to the marshalling of collateral which might cause delay in or impede
the enforcement of Lender’s rights under this Agreement or under any other
instrument creating or evidencing any of the Obligations or under which any of
the Obligations is outstanding or by which any of the Obligations is secured or
payment thereof is otherwise assured, and, to the extent that it lawfully may,
Borrower hereby irrevocably waives the benefits of all such laws.


 


20.                               Proceeds of Dispositions; Expenses. Borrower will pay to Lender on demand any and all expenses,
including reasonable attorneys’ fees and disbursements, incurred or paid by
Lender in protecting, preserving or enforcing Lender’s rights under or in
respect of any of the Obligations or any of the Collateral. After deducting all
of said expenses, the residue of any proceeds of collection or sale of the
Obligations or Collateral shall, to the extent actually received in cash, be
applied to the payment of the Obligations in such order or preference as Lender
may determine, proper allowance and provision being made for any
Obligations not then due. Upon the final payment and satisfaction in full of
all of the Obligations and after making any payments required by Sections
9-608(a)(1)(C) or 9-615(a)(3) of the Uniform Commercial Code of
the State, any excess shall be returned to Borrower, and Borrower shall remain
liable for any deficiency in the payment of the Obligations.


 


21.                               Overdue Amounts. Until paid, all amounts due and payable by Borrower hereunder are a
debt secured by the Collateral and shall bear, whether before or after
judgment, interest at the rate of interest for overdue principal set forth in
the Credit Agreement.


 


22.                               Governing Law; Consent to Jurisdiction.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE. Borrower agrees that any suit for
the enforcement of this Agreement may be brought in the courts of the
State or any federal court sitting therein and consents to the non-exclusive
jurisdiction of such court. Borrower hereby waives any objection that it may now
or hereafter have to the venue of any such suit or any such court or that such
suit is brought in an inconvenient court.


 


23.                               Waiver of Jury Trial. THE PARTIES WAIVE THEIR RIGHT TO A JURY TRIAL WITH RESPECT TO ANY
ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT,
ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF ANY SUCH RIGHTS OR
OBLIGATIONS. Except as prohibited by law, Borrower waives any right which it may have
to claim or recover in any litigation referred to in the preceding sentence any
special, exemplary, punitive or consequential damages or any damages other
than, or in addition to, actual damages. Borrower (i) certifies that
neither Lender nor any representative, agent or attorney of Lender has
represented, expressly or otherwise, that Lender would not, in the event of
litigation, seek to


 


12

















 


enforce the foregoing waivers and (ii) acknowledges
that, in entering into the Credit Agreement and the other loan documents to
which Lender is a party, Lender is relying upon, among other things, the
waivers and certifications contained in this Section 23.


 


24.          Miscellaneous. The headings of each section of this Agreement are for
convenience only and shall not define or limit the provisions thereof. This
Agreement and all rights and obligations hereunder are binding upon Borrower
and its respective successors and assigns, and will inure to the benefit of
Lender and its successors and assigns. If any term of this Agreement is held to
be invalid, illegal or unenforceable, the validity of all other terms hereof
shall in no way be affected thereby, and this Agreement shall be construed and
be enforceable as if such invalid, illegal or unenforceable term had not been
included herein. Borrower acknowledges receipt of a copy of this Agreement.


 


[Signature Page to Follow]


 


13

















 


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed
by their respective authorized officers as of the day and year first above
written.


 


	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  GOLDEN GRAIN
  ENERGY, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Walter Wendland

  
	
   

  	
  Name:

  	
  Walter Wendland

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  HOME FEDERAL SAVINGS BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Eric Oftedahl

  
	
   

  	
  Name:

  	
  Eric Oftedahl

  
	
   

  	
  Title:

  	
  Vice President

  
				



 


[SIGNATURE
PAGE FOR SECURITY AGREEMENT]


 

















 


Schedule 8(d)


 


Tort Claims


 


None


 

















 


Schedule 9(a)


 


Location of
Collateral


 


1822 43rd
Street, Mason City, Iowa 50401