**EXHIBIT 10.9**

** **

**Second Amendment to Construction Loan Agreement dated January1, 2003, by and between First**

**National Bank of Omaha and Badger State Ethanol, LLC.**

 

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**SECOND AMENDMENT TO CONSTRUCTION LOAN AGREEMENT**

 

This SecondAmendment to Construction Loan Agreement made as of the 1st day ofJanuary, 2003, by and among First National Bank of Omaha (“BANK”), a nationalbanking association with principal offices in Omaha, Nebraska, and Badger StateEthanol, LLC (“BORROWER”), a Wisconsin limited liability company.

 

Whereas, BANK and BORROWERexecuted a written Construction Loan Agreement dated as of August 28, 2001 (theConstruction Loan Agreement, together with all amendments thereto iscollectively called the “AGREEMENT”).

 

Now, Therefore, inconsideration of the AGREEMENT, and their mutual promises made herein, BANK andBORROWER agree as follows:

 

1.                                       Termswhich are typed herein as all capitalized words and are not defined hereinshall have the same meanings as when described in the AGREEMENT.

 

2.                                       Asof the date hereof, construction of the PROJECT has almost been accomplished,with the exception of emissions testing and certification of same by ICM, Inc.in form reasonably acceptable to BANK, final retainage (resolution of impactscales, grain storage requirements, blacktop, proof of extended warranty onchiller, final ethanol storage tank approval, and all other unresolved itemsrelated to the punch-list dated December 18, 2002), balance of Fagen contract(i.e. general conditions, processing piping and values, insulation, andelectrical), and change orders (i.e. site soil issues, epoxy paint, ceramictile for*control room, lab, plant offices,etc.,*vapor recovery system, natural gas reroute, well expense,concrete, winter expense, primary switch gear, and catalytic converter)(jointly and severally, the “REMAINING ITEMS”).

 

3.                                       BORROWERagrees to diligently work to complete the REMAINING ITEMS, and requests BANK toadvance the sum of $1,038,914.88 of the CONSTRUCTION LOAN to fund suchwork.  BANK agrees to advance suchamount, and to deposit the same in an account at BANK for the benefit ofBORROWER.  BANK will disburse funds fromsuch account to pay for the REMAINING ITEMS as described in the AGREEMENT.  On completion of the REMAINING ITEMS, theremaining funds in such account shall be paid to BORROWER.  If the described amount is insufficient, forany reason, to complete the REMAINING ITEMS, BORROWER shall pay such additionalcosts as are necessary to complete the REMAINING ITEMS no later than June 30,2003.

 

4.                                       Section1, Paragraph 1.19 of the AGREEMENT is hereby amended and restated, effectiveimmediately, to read:

 

1.19                           “LOANTERMINATION DATE” means the earliest to occur of the following: (i) as to theREVOLVING NOTE, August 26, 2003, as to the TERM NOTE 1, January 1, 2008, and asto the TERM NOTE 2, January 1, 2008, and as to the TERM NOTE 3, January 1, 2008(ii) the date the OBLIGATIONS are accelerated pursuant to this AGREEMENT, and(iii)

 

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the date BANKreceives (a) notice in writing from BORROWER of BORROWER’s election toterminate this AGREEMENT and (b) indefeasible payment in full of theOBLIGATIONS.

 

5.                                       Section1, Paragraph 1.32 of the AGREEMENT is hereby amended and restated, effectiveimmediately, to read:

 

1.32                           “WORKINGCAPITAL” means current assets (less investments in or other amounts due fromany member, employee or any person or entity related to or affiliated with theBORROWER and prepayments) less current liabilities (less any portion of such currentliabilities that constitute debt that is expressly subordinated to the BANK ina writing acceptable to the BANK) plus the amount available to BORROWER fordrawing under TERM NOTE 3

 

6.                                       Section6, Paragraph 6.2.3 of the AGREEMENT is hereby amended and restated, effectiveimmediately, to read:

 

6.2.3                        TheBORROWER shall determine, at each fiscal year end, the amount of its EXCESSCASH FLOW for said fiscal year, and within one hundred twenty days followingsuch fiscal year end, pay twenty percent (20%) of such sum to BANK, to beapplied pro rata to the principal amount of TERM NOTE 2 and TERM NOTE 1, andafter TERM NOTE 2 is repaid, pro rata to TERM NOTE 3 and TERM NOTE 1.  Such annual payment shall not release BORROWERfrom making any payment of principal or interest otherwise required by thisAGREEMENT.

 

7.                                       Byexecution hereof, the parties agree that the initial principal amount of theTERM LOAN shall be $30,600,000.00, the proceeds of which will retire theCONSTRUCTION LOAN.  Said TERM LOAN willbe paid by BORROWER’s execution and delivery of three new notes, called TERMNOTE 1, TERM NOTE 2, and TERM NOTE 3, in the forms attached hereto as Exhibits1, 2, and 3, respectively, and are by this reference made a part hereof.

 

8.                                       BORROWERand BANK have agreed to allow BORROWER to fix the interest rate of 6.528% as tothe TERM NOTE 1 as of this date, which the parties agree satisfies theBORROWER’s requirements to fix the interest rate on one-half of such TERM NOTEas set forth in paragraph 2.6 of the AGREEMENT.   In the event that the BORROWER pre-pays part or all of its fixedrate debt, except as required by the AGREEMENT, the BORROWER shall pay BANK thebreakage fees shown in the Exhibit attached hereto as marked Exhibit 4, whichBANK shall apportion among its participants.

 

9.                                       Onthe first day of each calendar quarter, commencing April 1, 2003, BORROWERshall pay $526,033.10 to the BANK which will be allocated to TERM NOTE 1.

 

10.                                 Onthe first day of each calendar quarter, commencing April 1, 2003, BORROWER shallpay $495,806.31 to BANK which shall be allocated as follows:

 

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a.          firstto accrued interest on TERM NOTE 3 until paid in full;

b.         next,the remaining balance of such payment shall be applied to accrued interest onTERM NOTE 2 until paid in full;

c.          next,the remaining balance of such payment shall be applied to principal on TERMNOTE 2 until paid in full;

d.         last,the remaining balance (if any) of such payment shall be applied to principal onTERM NOTE 3.  All unpaid principal andaccrued interest shall be due and payable on January 1, 2008, if not soonerpaid.

 

11.                                 BORROWERcertifies by its execution hereof that the representations and warranties setforth in Section 5 of the AGREEMENT are true as of this date, and that no EVENTOF DEFAULT under the AGREEMENT, and no event which, with the giving of noticeor passage of time or both, would become such an EVENT OF DEFAULT, has occurredas of this date.

 

12.                                 Exceptas amended hereby the parties ratify and confirm as binding upon them all ofthe terms of the AGREEMENT.

 

In witness whereof the partiesset their hands as of the date first written above.

 
| First  National Bank of Omaha | Badger State  Ethanol, LLC             |
|-------------------------------|----------------------------------------|
|                          |                                   |
|                          |                                   |
| by                            | /s/ Brian D.  Thome                    |   | by | /s/ Gary L.  Kramer |   |
|                          | Brian D.  Thome, Second Vice President |   | Gary L.  Kramer, President |
|                               |                                        |  |  |  |  |

 

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Exhibit 1

TERM NOTE 1 (Fixed Rate)

 
| Note Date:      | January 1,  2003 | $15,300,000.00 |
|-----------------|------------------|----------------|
| Maturity  Date: | January 1,  2008 |           |

 

**FORVALUE RECEIVED**, BADGER STATE ETHANOL, LLC, a Wisconsinlimited liability company (“BORROWER”) promises to pay, on or before theMaturity Date shown above, to the order of First National Bank of Omaha(“BANK”), at its principal office or such other address as BANK or holder maydesignate from time to time, the principal sum of Fifteen Million Three HundredThousand and No/100 Dollars ($15,300,000.00), or the amount shown on the BANK’srecords to be outstanding, plus interest (calculated on the basis of actualdays elapsed in a 360-day year) accruing each day on the unpaid principalbalance at the annual interest rates defined below.  Absent manifest error, the BANK’s records shall be conclusiveevidence of the principal and accrued interest owing hereunder.

 

This promissory note isexecuted pursuant to a Construction Loan Agreement (“CONSTRUCTION LOANAGREEMENT”) between BORROWER and BANK dated as of August 28, 2001, (theConstruction Loan Agreement, together with all amendments thereto is called the“AGREEMENT”).  All capitalized terms nototherwise defined in this note shall have the meanings provided in theAGREEMENT.

 

**INTERESTACCRUAL.**Interest on the principal amount outstandingshall accrue at a rate of 6.528% per annum. Interest shall be calculated on the basis of a 360-day year, countingthe actual number of days elapsed.

 

**REPAYMENTTERMS**. BORROWER will pay 19 quarterly paymentsintended to amortize interest and principal, commencing April 1, 2003, in theamount of $526,033.10.  Any remainingprincipal balance, plus any accrued but unpaid interest, shall be fully due andpayable on Maturity Date.

 

**PREPAYMENT.**The BORROWER may prepay this promissory note in fullor in part at any time.  Provided,however, a condition of any prepayment is that a breakage fee, in the amount setforth on Exhibit 4 to the Second Amendment to the Agreement, shall be paid toBANK.  Each prepayment may be applied ininverse order of maturity or as the BANK in its sole discretion may deemappropriate.  Such prepayment shall notexcuse the BORROWER from making subsequent payments each quarter until theindebtedness is paid in full.

 

**ADDITIONALTERMS AND CONDITIONS.**The AGREEMENT, and anyamendments or substitutions, contains additional terms and conditions,including default and acceleration provisions, which are incorporated into thispromissory note by reference.  TheBORROWER agrees to pay all costs of collection, including reasonable attorneysfees and legal expenses incurred by the BANK if this promissory note is notpaid as provided above.  This promissorynote shall be governed by the substantive laws of the State of Nebraska.

 

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**WAIVEROF PRESENTMENT AND NOTICE OF DISHONOR. **BORROWERand any other person who signs, guarantees or endorses this promissory note, tothe extent allowed by law, hereby waives presentment, demand for payment,notice of dishonor, protest, and any notice relating to the acceleration of thematurity of this promissory note.

 
|                | **BADGER STATE ETHANOL, LLC** |
|---------------------|-------------------------------|
|                |                          |
|                |                          |
|                | By:                           | /s/ Gary L.  Kramer |   |
|                |                          |
|                |                          |
| STATE OF  Wisconsin | )                             |   |
|                | ) ss.                         |   |
| COUNTY OF  Green    | )                             |   |

 

On this 19thday of December, 2002, before me, the undersigned, a Notary Public, personallyappeared Gary Kramer, the President of Badger State Ethanol, LLC, on behalf ofsaid entity, who executed the foregoing instrument, and acknowledged that heexecuted the same as his voluntary act and deed.

 

 
|   | /s/ Notary  Signature |   |
|--------|-----------------------|--------|
|   | Notary  Public        |

 

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Exhibit 2

TERM NOTE 2 (Variable Rate)

 
| Note Date:      | January 1,  2003 | $10,300,000.00 |
|-----------------|------------------|----------------|
| Maturity  Date: | January 1,  2008 |           |

 

**FORVALUE RECEIVED**, BADGER STATE ETHANOL, LLC, a Wisconsinlimited liability company (“BORROWER”) promises to pay, on or before theMaturity Date shown above, to the order of First National Bank of Omaha(“BANK”), at its principal office or such other address as BANK or holder maydesignate from time to time, the principal sum of Ten million Three HundredThousand and No/100 Dollars ($10,300,000.00), or the amount shown on the BANK’srecords to be outstanding, plus interest (calculated on the basis of actualdays elapsed in a 360-day year) accruing each day on the unpaid principalbalance at the annual interest rates defined below.  Absent manifest error, the BANK’s records shall be conclusiveevidence of the principal and accrued interest owing hereunder.

 

This promissory note isexecuted pursuant to a Construction Loan Agreement (“CONSTRUCTION LOANAGREEMENT”) between BORROWER and BANK dated as of August 28, 2001, (theConstruction Loan Agreement, together with all amendments thereto is called the“AGREEMENT”).  All capitalized terms nototherwise defined in this note shall have the meanings provided in theAGREEMENT.

 

**INTERESTACCRUAL. **Intereston the principal amount outstanding shall accrue at a rate (the “RATE”) equalto one hundred basis points in excess of the BASE RATE in effect from time totime until maturity, and six per cent (6%) above the BASE RATE in effect fromtime to time after maturity, whether by acceleration or otherwise.  For purposes hereof, BASE RATE shall meanthe rate published as the “prime rate” in the Midwestern Edition of the *Wall Street Journal.*

 

Each time the BASE RATE shallchange, the RATE shall change contemporaneously with such change in the BASERATE.  Interest shall be calculated onthe basis of a 360-day year, counting the actual number of days elapsed.

 

**INCENTIVEPRICING.** The interest rate applicable to the TERM LOANare subject to reduction after a date six months subsequent to CONSTRUCTIONCOMPLETION DATE, based on the business results of BORROWER.  In the event that BORROWER maintains thefollowing ratios, measured monthly, the interest rates will be reducedaccordingly:

 

| **If  INDEBTEDNESS to NET WORTH  is less than:** |   | **Interest will be:**           |
|--------------------------------------------------|--------|---------------------------------|
|                                             |   |                            |
| 1.25 : 1.00                                      |   | BASE RATE  plus 75 basis points |
| 1.00 : 1.00                                      |   | BASE RATE  plus 50 basis        |
| 0.75 : 1.00                                      |   | BASE RATE  plus 25 basis points |

 

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**REPAYMENTTERMS.**BORROWER will pay equal quarterly payments of$495,806.31, as described in the AGREEMENT, which will applied to this Note andan additional Note, in the manner described in the AGREEMENT.  Such quarterly payments shall remain in saidamount without regard to any reduction or variance in interest rate accrualduring the term hereof.  Any remainingprincipal balance, plus any accrued but unpaid interest, shall be fully due andpayable on January 1, 2008, if not sooner paid.

 

**PREPAYMENT.**The BORROWER may prepay this promissory note in fullor in part at any time.  Each prepaymentmay be applied in inverse order of maturity or as the BANK in its solediscretion may deem appropriate.  Suchprepayment shall not excuse the BORROWER from making subsequent payments eachquarter until the indebtedness is paid in full.

 

**ADDITIONALTERMS AND CONDITIONS.**The AGREEMENT, and anyamendments or substitutions, contains additional terms and conditions,including default and acceleration provisions, which are incorporated into thispromissory note by reference.  TheBORROWER agrees to pay all costs of collection, including reasonable attorneysfees and legal expenses incurred by the BANK if this promissory note is notpaid as provided above.  This promissorynote shall be governed by the substantive laws of the State of Nebraska.

 

**WAIVEROF PRESENTMENT AND NOTICE OF DISHONOR.**BORROWER andany other person who signs, guarantees or endorses this promissory note, to theextent allowed by law, hereby waives presentment, demand for payment, notice ofdishonor, protest, and any notice relating to the acceleration of the maturityof this promissory note.

 
|   | **BADGER STATE ETHANOL, LLC** |
|--------|-------------------------------|
|   |                          |
|   |                          |
|   | By:                           | /s/ Gary L.  Kramer |   |

 

(notaryacknowledgement on next page)

 

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| STATE OF  Wisconsin | )     |   |
|---------------------|-------|--------|
|                | ) ss. |   |
| COUNTY OF  Green    | )     |   |

 

On this 18thday of December, 2002, before me, the undersigned, a Notary Public, personallyappeared Gary Kramer, the President of Badger State Ethanol, LLC, on behalf ofsaid entity, who executed the foregoing instrument, and acknowledged that heexecuted the same as his voluntary act and deed.

 

 
|   | /s/ Notary  Signature |   |
|--------|-----------------------|--------|
|   | Notary Public         |   |

 

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Exhibit 3

TERM NOTE 3 (Reducing Revolver)

 
| Note Date:      | January 1,  2003 | $5,000,000.00 |
|-----------------|------------------|---------------|
| Maturity  Date: | January 1,  2008 |          |

 

**FORVALUE RECEIVED,** BADGER STATE ETHANOL, LLC, a Wisconsinlimited liability company (“BORROWER”) promises to pay, on or before theMaturity Date shown above, to the order of First National Bank of Omaha(“BANK”), at its principal office or such other address as BANK or holder maydesignate from time to time, the principal sum of Five Million and No/100Dollars ($5,000,000.00), or the amount shown on the BANK’s records to beoutstanding, plus interest (calculated on the basis of actual days elapsed in a360-day year) accruing each day on the unpaid principal balance at the annualinterest rates defined below.  Absentmanifest error, the BANK’s records shall be conclusive evidence of theprincipal and accrued interest owing hereunder.

 

This promissory note is executedpursuant to a Construction Loan Agreement (“CONSTRUCTION LOAN AGREEMENT”)between BORROWER and BANK dated as of August 28, 2001, (the Construction LoanAgreement, together with all amendments thereto is called the “AGREEMENT”).  All capitalized terms not otherwise definedin this note shall have the meanings provided in the AGREEMENT.

 

**INTERESTACCRUAL.**Interest on the principal amount outstandingshall accrue at a rate (the “RATE”) equal to one hundred basis points in excessof the BASE RATE in effect from time to time until maturity, and six per cent(6%) above the BASE RATE in effect from time to time after maturity, whether byacceleration or otherwise.  For purposeshereof, BASE RATE shall mean the rate published as the “prime rate” in theMidwestern Edition of the *Wall StreetJournal.*

 

Each time the BASE RATE shallchange, the RATE shall change contemporaneously with such change in the BASERATE.  Interest shall be calculated onthe basis of a 360-day year, counting the actual number of days elapsed.

 

**REVOLVINGFEATURE.**The BORROWER may reborrow, on a revolvingbasis, that principal amount repaid on this promissory note which remains at avariable interest rate. BORROWER will pay BANK an unused commitment fee ofthree-eighths of one percent (3/8%) assessed quarterly in arrears against theunused portion of the note amount. Pursuant to this revolving loan feature the BANK will lend the BORROWER,from time to time until maturity of this note such sums in integral multiplesof $10,000.00 as the BORROWER may request by reasonable same day notice to theBANK, received by the BANK not later than 11:00 A.M. of such day, but whichshall not exceed in the aggregate principal amount at any one time outstanding,$5,000,000.00.  The BORROWER may borrow,repay and reborrow hereunder, from the date of this AGREEMENT until thematurity of this note, said amount or any lesser sum which is $10,000.00 or anintegral multiple thereof.

 

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Following repayment of TERMNOTE 2, when regular quarterly principal payments are applied to this note, theamount available to be borrowed under the revolving loan feature will becorrespondingly reduced, so that the maximum amount outstanding under thispromissory note will decrease accordingly.

 

**INCENTIVEPRICING.**The interest rate applicable to the TERM LOANare subject to reduction after a date six months subsequent to CONSTRUCTIONCOMPLETION DATE, based on the business results of BORROWER.  In the event that BORROWER maintains the followingratios, measured monthly, the interest rates will be reduced accordingly:

 

| **If  INDEBTEDNESS to NET WORTH  is less than:** |   | **Interest will be:**           |
|--------------------------------------------------|--------|---------------------------------|
|                                             |   |                            |
| 1.25 : 1.00                                      |   | BASE RATE  plus 75 basis points |
| 1.00 : 1.00                                      |   | BASE RATE  plus 50 basis        |
| 0.75 : 1.00                                      |   | BASE RATE plus  25 basis points |

 

**REPAYMENTTERMS. **BORROWERwill pay equal quarterly payments of $495,806.31, as described in theAGREEMENT, which will be applied to this Note and an additional Note, in themanner described in the AGREEMENT.  Suchquarterly payments shall remain in said amount without regard to any reductionor variance in interest rate accrual during the term hereof.  Any remaining principal balance, plus anyaccrued but unpaid interest, shall be fully due and payable on January 1, 2008,if not sooner paid.

 

**PREPAYMENT.**The BORROWER may prepay this promissory note in fullor in part at any time.  Each prepaymentmay be applied in inverse order of maturity or as the BANK in its solediscretion may deem appropriate.  Suchprepayment shall not excuse the BORROWER from making subsequent payments eachquarter until the indebtedness is paid in full.

 

**ADDITIONALTERMS AND CONDITIONS. **TheAGREEMENT, and any amendments or substitutions, contains additional terms andconditions, including default and acceleration provisions, which areincorporated into this promissory note by reference.  The BORROWER agrees to pay all costs of collection, includingreasonable attorneys fees and legal expenses incurred by the BANK if this promissorynote is not paid as provided above. This promissory note shall be governed by the substantive laws of theState of Nebraska.

 

**WAIVEROF PRESENTMENT AND NOTICE OF DISHONOR. **BORROWERand any other person who signs, guarantees or endorses this promissory note, tothe extent allowed by law, hereby waives presentment, demand for payment,notice of dishonor, protest, and any notice relating to the acceleration of thematurity of this promissory note.

 
|   | **BADGER STATE ETHANOL, LLC** |
|--------|-------------------------------|

 

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| By: | /s/ Gary L. Kramer |
|-----|--------------------|

 

 

 
| STATE OF  |   | Wisconsin | )    |
|-----------|--------|-----------|------|
|      |   |      | )ss. |
| COUNTY OF |   | Green     | )    |
|           |        |           |      |  |  |

 

                Onthis 18th day of December, 2002, before me, the undersigned, a Notary Public,personally appeared Gary Kramer, the President of Badger State Ethanol, LLC, onbehalf of said entity, who executed the foregoing instrument, and acknowledgedthat he executed the same as his voluntary act and deed.

 

 
| /s/ Notary  Signature |
|-----------------------|
| Notary  Public        |

 

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** **

**Exhibit 4**

 

BreakageFees

(excludesany pre-payment required by theExcess Cash Flow Recapture covenants asRequired by the AGREEMENT)

 

| **1.** |   | **AgStar  Financial Services, ACA ($6,500,052.00 in fixed rate funding)**              |
|--------|--------|----------------------------------------------------------------------------------------|
|   |   | Breakage Fee                                                                           |
|   |   | 1.25% if rate is broken in  the first 12 months following note date, 1.00% thereafter. |
|   |   |                                                                                   |
| **2.** |   | **Home  Federal Bank ($1,499,706.00 in fixed rate funding)**                           |
|   |   | Breakage Fee                                                                           |
|   |   | SEE ATTACHED FEDERAL HOME  LOAN BANK OF DES MOINES -  PREPAYMENT FEE CALCULATIONS      |
|   |   |                                                                                   |
| **3.** |   | **Badgerland  Farm Credit Services ($2,500,020.00) in fixed rate funding)**            |
|   |   | Breakage Fee = none                                                                    |
|   |   |                                                                                   |
| **4.** |   | **Amcore  Bank NA ($1,000,620.00 in fixed rate funding)**                              |
|   |   | Breakage Fee = none                                                                    |
|   |   |                                                                                   |
| **5.** |   | **Farm  Credit Services/Greenstone ($1,649,646.00 in fixed rate funding)**             |
|   |   | Breakage Fee                                                                           |
|   |   | 1.25% if rate is broken in  the first 12 months following note date, 1.00% thereafter. |
|   |   |                                                                                   |
| **6.** |   | **First  National Bank of Omaha ($2,149,956.00 in fixed rate funding)**                |
|   |   | Breakage Fee                                                                           |
|   |   | SEE ATTACHED FEDERAL HOME  LOAN BANK OF DES MOINES -  PREPAYMENT FEE CALCULATIONS      |