**EXHIBIT 10.8**

 

**FirstAmendment to Construction Loan Agreement dated August 27, 2002, by and betweenFirst**

**NationalBank of Omaha and Badger State Ethanol, LLC.**

 

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FIRSTAMENDMENT TO CONSTRUCTION LOAN AGREEMENT

 

This First Amendment to Construction Loan Agreementmade as of the 27th day of August, 2002, by and among First NationalBank of Omaha (“BANK”), a national banking association with principal officesin Omaha, Nebraska, and Badger State Ethanol, LLC (“BORROWER”), a Wisconsinlimited liability company.

 

Whereas, BANK and BORROWER executed a written Construction LoanAgreement dated as of August 28, 2001 (the Construction Loan Agreement,together with all amendments thereto is collectively called the “AGREEMENT”).

 

Now, Therefore, in consideration of the AGREEMENT, and their mutualpromises made herein, BANK and BORROWER 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.             Section1, Paragraph 1.4 of the AGREEMENT is hereby amended to read, effectiveimmediately:

 

1.4                                 “BORROWINGBASE” means the lesser of:

A.            $3,500,000.00less the aggregate amount of Letters of Credit issued by BANK and outstandingfor the BORROWER’s account, or

B.            Theaggregate of (i) 75% of BORROWER’s inventory of ethanol, corn, milo or othergrains, and distiller’s dried grain, all at current value on the date reported,plus (ii) 75% of the amount of BORROWER’s Accounts other than State and FederalIncentive Payments aged less than thirty days, and Accounts for State andFederal Incentive Payments aged 120 days or less, excluding any Accounts deemedineligible by BANK.

 

3.             Section2, Paragraphs 2.7 and 2.7.1 are hereby amended to read, effective immediately:

 

2.7                                 REVOLVINGLOAN.            BANK agrees to lend$3,500,000.00 to BORROWER pursuant to this facility.  BANK will credit proceeds of this revolving loan (“REVOLVINGLOAN”) to BORROWER’s deposit account with the BANK, bearing number 22674184.

 

2.7.1                        Subject tothe terms hereof, the BANK will lend the BORROWER, from time to time until the“LOAN TERMINATION DATE” such sums in integral multiples of $10,000.00 as theBORROWER may request by reasonable same day notice to the BANK, received by theBANK not later than 11:00 A.M. of such day, but which shall not exceed in theaggregate principal amount at any one time outstanding, $3,500,000.00 (the“LOAN COMMITMENT”).  The BORROWER mayborrow, repay without

 

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penalty or premium and reborrow hereunder, from thedate of this AGREEMENT until the LOAN TERMINATION DATE, either the full amountof the LOAN COMMITMENT or any lesser sum which is $10,000.00 or an integralmultiple thereof.  It is the intentionof the parties that the outstanding balance of the REVOLVING LOAN shall notexceed the BORROWING BASE, and if at any time said balance exceeds theBORROWING BASE, BORROWER shall forthwith pay BANK sufficient funds to reducethe balance of the REVOLVING LOAN until it is in compliance with thisrequirement.  BANK will also issueLetters of Credit at BORROWER’s request, aggregating no more than $1,000,000.00at any one time.  BORROWER will executeBANK’s standard documentation regarding such Letters of Credit and pay BANK’Susual and customary fees for same.  Theamount of outstanding Letters of Credit will reduce the LOAN COMMITMENT.

 

4.             Section1, Paragraph 1.19 of the AGREEMENT is amended, effective immediately, to read:

 

1.19                           “LOANTERMINATION DATE” means the earliest to occur of the following: (i) as to theCONSTRUCTION NOTE, January 1, 2003, as to the REVOLVING NOTE, August 26, 2003,and the TERM NOTE, January 1, 2008 (ii) the date the OBLIGATIONS areaccelerated pursuant to this AGREEMENT, and (iii) the date BANK receives (a)notice in writing from BORROWER of BORROWER’s election to terminate thisAGREEMENT and (b) indefeasible payment in full of the OBLIGATIONS.

 

5.             TheAGREEMENT identified the concept of a BORROWING BASE CERTIFICATE acceptable toBANK and a form of COMPLIANCE CERTIFICATE. Effective immediately the BORROWING BASE CERTIFICATE shall be in theform of Exhibit 1-E, attached hereto, and the COMPLIANCE CERTIFICATE shall bein the form of Exhibit 1-D, attached hereto.

 

6.             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.

 

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

 

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In witness whereof the parties set their hands as of the date firstwritten above.

 
| First National Bank of Omaha         | Badger State Ethanol, LLC |
|--------------------------------------|---------------------------|
|                                 |                      |
|                                 |                      |
| by                                   | /s/ Brian Thome           |   | by | /s/ Gary L. Kramer |   |
| Brian Thome, Commercial Loan Officer |                      | Gary L. Kramer,  President |   |
|                                      |                           |  |  |  |  |

 

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**EXHIBIT 1-D**

Badger State Ethanol, LLC

 

**CERTIFICATE OF COMPLIANCE**

 
| TO:    | First National Bank of Omaha |
|--------|------------------------------|
|   | 1620 Dodge Street STOP 1050  |
|   | Omaha, Nebraska 68197-1050   |
|   | Attn: Brian Thome            |

 

I ama                    ofBadger State Ethanol, LLC (the “BORROWER”) and under the terms of aCONSTRUCTION LOAN AGREEMENT (the “AGREEMENT”) between the BANK and the BORROWERdated August 28th, 2001, and as it may be amended from time to time,certify that:

 

1.                                       Theattached financial statements of the BORROWER from                    through                          (the“STATEMENT DATE”) are true and correct and have been accurately prepared inaccordance with generally accepted accounting principles (GAAP) appliedconsistently with the BORROWER’s most recent annual financial statement; and

 

2.                                       Ihave read and am familiar with the AGREEMENT and have no knowledge of anexisting EVENT OF DEFAULT under the AGREEMENT or of any event which would,after the lapse of time or the giving of notice, or both, constitute an EVENTOF DEFAULT under the AGREEMENT.

 

The calculations regarding each financial covenant, asof the STATEMENT DATE, and regardless of whether the BORROWER must be incompliance with each covenant as of the STATEMENT DATE, are as follows:

 
| **COVENANT** |   | **AT PRIOR  YEAR-END** |   | **ACTUAL** |   |
|--------------|--------|------------------------|--------|------------|--------|
|         |   |                   |   |       |   |
| NET WORTH    |   | $                      |   |       | $      |   |   |
|              |        |                        |        |            |        |  |  |

 

6.2.2                        TheBORROWER shall maintain a NET WORTH of not less than (i) $20,000,000.00 at alltimes after COMPLETION DATE and (ii) $20,000,000.00 plus an amount each fiscalyear equal to the greater of (a) $250,000.00 or (b) the amount of undistributedearnings during the current fiscal year, at all times subsequent thereto.

 
|                         |   | **REQUIRED** |   | **ACTUAL** |   |
|------------------------------|--------|--------------|--------|------------|--------|
|                         |   |         |   |       |   |
| FIXED CHARGE  COVERAGE RATIO |   | 1.25:1.0     |   | :1.0       |   |

 

6.2.1        The BORROWER shall maintain a FIXEDCHARGE COVERAGE RATIO, measured quarterly, of no less than 1.25 : 1.0, for allperiods following COMPLETION DATE.

 
| CAPITAL  EXPENDITURES (Maximum)                      |   | $      | 500,000   |   | $      |   |   |
|------------------------------------------------------|--------|--------|-----------|--------|--------|--------|--------|
| (Excluding  construction and approved change orders) |   |   |      |   |   |
| WORKING CAPITAL  (Minimum)                           |   | $      | 2,000,000 |   | $      |   |   |

 

6.2.4        BORROWER shall maintain, at all timessubsequent to COMPLETION DATE and measured at fiscal year end, minimum WORKINGCAPITAL of $2,000,000.00.

 

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For the purpose of determining Incentive Pricing changes, the BorrowersINDEBTNESS to NET WORTH Ratio is:
|   |   | :1.00 |   |   |   |
|--------|--------|-------|--------|--------|--------|

 

4.                                       BORROWERhas not made or paid distributions to members of the BORROWER in excess of thePERCENTAGE allowed.  Note thatdistributions are only allowed annually based on previous year’s auditedfinancials.  Calculation of “ProposedDistributions” is required for communication purposes only.  Calculated EXCESS CASH FLOW, allowabledistributions and distributions made in the current fiscal year are:

 

| EXCESS CASH FLOW           |   | $      |   |
|----------------------------|--------|--------|--------|
|                       |   |   |
| Proposed distributions     |   | $      |   |
|                       |   |   |
| Year-to-date distributions |   | $      |   |

 

5.                                       BORROWERhas not incurred any additional INDEBTEDNESS except debt allowed under theAGREEMENT or debt otherwise authorized by BANK approval.

 

6.                                       Therehas been no personnel change to the ethanol plant management that would be inviolation of the AGREEMENT.  ICMMarketing, Inc continues to be the marketer of BORROWER’s Distiller’s Grainproducts. Murex, N.A., Ltd., continues to be the marketer of BORROWER’s ethanolproducts.

 
|   | **Badger  State Ethanol, LLC** |
|--------|--------------------------------|
|   |                           |
|   | By:                            | /s/ Gary L. Kramer |   |
|   |                           |
| Date:  |                           |   | Its: | President |   |
|        |                                |  |  |  |  |

 

 

*For BANK use only:*

 

Rate change based on Incentive Pricing:

 
| Old rate:       |   | New rate: |
|-----------------|--------|-----------|
|            |   |      |
| Effective date: |   |      |
|            |   |      |
| Verified by:    |   |      |

 

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**BadgerState Ethanol, LLC**

 
| First National Bank of Omaha |   |   | Borrowing Base  Certificate |
|------------------------------|--------|--------|-----------------------------|
| ATTN:**  Brian Thome**  |   |   |                        |
| 1620 Dodge St. STOP 1050     |   |   | Report No.                  |
| Omaha, NE   68197-1050  |   |   |                        |
|                         |   |   | Date:                       |

 
| 1.     | Total Accounts  Receivable other than State or Federal Incentive payments                                                        |   | $                      |   |   |   |
|--------|----------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|--------|--------|
|   |                                                                                                                             |   |                   |   |   |   |
| 2.     | *ADD*  Total State and Federal Incentive Payment Accounts Receivable                                                             |   | +                      |   |   |   |
|   |                                                                                                                             |   |                   |   |   |   |
|   | *DEDUCT*  Ineligible Accounts, other than State or Federal Incentive Ineligible  Accounts *(31 days or more from invoice  date)* |   | -                      |   |   |   |
|   |                                                                                                                             |   |                   |   |   |   |
|   | *DEDUCT*  Ineligible State and Federal Incentive Payment Accounts *(121 days or more from invoice date)*                         |   | -                      |   |   |   |
|   |                                                                                                                             |   |                   |   |   |   |
|   | *DEDUCT*  Ineligible Accounts  (as determined by Bank)                                                                           |   | -                      |   |   |   |
|   |                                                                                                                             |   |                   |   |   |   |
|   | Eligible Accounts Receivable                                                                                                     |   | $                      |   |   |   |
|   | *MULTIPLY*by  Borrowing Base Factor                                                                                              |   | X 75%                  |   |   |
|   |                                                                                                                             |   |                   |   |   |
| 3.     | **Accounts Receivable**Loan  Availability                                                                                        |   |                   |   |   |
|   |                                                                                                                             |   |                   |   | $      |   |
| 4.     | Ending Distillers Grain Inventory                                                                                                |   | $                      |   |   |   |
|   |                                                                                                                             |   |                   |   |   |   |
| 5.     | Ending Corn or Milo Inventory                                                                                                    |   | +                      |   |   |
|   |                                                                                                                             |   |                   |   |   |
| 6.     | Ending Ethanol Inventory                                                                                                         |   | +                      |   |   |
|   |                                                                                                                             |   |                   |   |   |
|   | Eligible Inventory (Sum of Lines, 3,4,5)                                                                                         |   | $                      |   |   |   |
|   | *MULTIPLY* by  Borrowing Base Factor                                                                                             |   | X 75%                  |   |   |
|   |                                                                                                                             |   |                   |   |   |
| 7.     | **Inventory** Loan  Availability                                                                                                 |   |                   |   | $      |   |
|   |                                                                                                                             |   |                   |   |   |   |
| 8.     | **TOTAL Borrowing Base**                                                                                                         |   | *ADD*  Lines 3&7   |   | $      |   |
|   |                                                                                                                             |   |                   |   |   |   |
| 9.     | Outstanding Loan Balance                                                                                                         |   | $                      |   |   |   |
|   |                                                                                                                             |   |                   |   |   |   |
| 10.    | Letters of Credit  (not to exceed $1,000,000)                                                                                    |   | $                      |   |   |   |
|   |                                                                                                                             |   |                   |   |   |   |
| 11.    | **Total Outstanding Balance***(not to exceed $3,500,000)*                                                                        |   |                   |   | $      |   |
|   |                                                                                                                             |   |                   |   |   |   |   |
| 12.    | **Margin**                                                                                                                       |   | Line 8 *MINUS* Line 11 |   | $      |   |

 

 

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To induce the First National Bank of Omaha (herein called Bank) to makean advance under the Construction Loan Agreement dated August 28, 2001, betweenthe undersigned and the Bank, and any amendments thereto, the undersignedhereby reaffirms the Bank’s security interest in:  all inventory, whether now owned or hereafter acquired, and theproceeds thereof; and, each and every account whether such right to payment nowexists or hereafter arises, and the proceeds thereof.  The undersigned also certifies that the Borrowing Base asrepresented above is true and correct and that there is no default under the aforementionedAgreement, or on any of the Borrower’s liabilities to the Bank.

 
| *Borrower:*  |   | *Badger State Ethanol, LLC* |
|--------------|--------|-----------------------------|
|         |   |                        |
| *Signature:* |   | /s/ Gary L. Kramer          |   |
| *Title:*     |   | President                   |   |

 

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REVOLVING PROMISSORY NOTE

** **
| Omaha, Nebraska                   | $3,500,000.00                        |
|-----------------------------------|--------------------------------------|
| Note Date:   August 27, 2002 | Maturity Date:  August 26, 2003 |

 

On or before August 26, 2003, Badger State Ethanol,LLC (“BORROWER”) promises to pay to the order of First National Bank of Omaha(“BANK”) at any of its offices in Omaha, Nebraska the principal sum hereof,which shall be Three Million Five Hundred Thousand and no/100($3,500,000.00)  Dollars or so muchthereof as may have been advanced by BANK, under this Note and the loanagreement executed by the BANK and BORROWER dated as of August 28, 2001, as itmay, from time to time, be amended.

 

Interest on the principal balance from time to timeoutstanding will be payable at a rate (the “RATE”) equal to one hundred (100)basis points higher than the BASE RATE in effect from time to time untilmaturity, and six per cent (6%) above the BASE RATE in effect from time to timeafter maturity, whether by acceleration or otherwise.  For purposes hereof, BASE RATE shall mean the rate announced byBANK from time to time as its “National Base Rate”.  Each time the BASE RATE shall change, the RATE shall changecontemporaneously with such change in the BASE RATE.  Interest shall be calculated on the basis of a 360-day year,counting the actual number of days elapsed. Interest on the REVOLVING LOAN shall be payable monthly, commencingSeptember 27, 2002.

 

This note is executed pursuant to a Construction LoanAgreement dated as of August 28, 2001, between BANK and BORROWER (the “LOANAGREEMENT”).  The LOAN AGREEMENTcontains additional terms of this Note, including, but not limited toenumerated events of default, and the granting of liens to secure BORROWER’sperformance.  All capitalized terms nototherwise defined herein shall have the same meanings as set forth in the LOANAGREEMENT.

 

As provided in the LOAN AGREEMENT, upon any suchenumerated default, BANK may accelerate the due date of this Note and declareall obligations set forth herein immediately due and payable, and BANK shallalso have such other remedies as are described in the LOAN AGREEMENT and areprovided by law.  All makers andendorsers hereby waive presentment, demand, protest and notice of dishonor,consent to any number of extensions and renewals for any period without notice;and consent to any substitution, exchange or release of collateral, and to theaddition or releases of any other party primarily or secondarily liable.

 

Executed as of the 27th day of August,2002.

 
| Badger State Ethanol, LLC |
|---------------------------|
|                      |
|                      |
| By                        | /s/ Gary L. Kramer |   |
|                      | Gary L. Kramer,  President |   |

 

 

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