Exhibit 10.20




	
   

  
	
  MASTER LOAN AGREEMENT

  
	
   

  
	
  by and among

  
	
   

  
	
  OTTER TAIL AG ENTERPRISES, LLC,

  
	
  a Minnesota limited liability company

  
	
   

  
	
   

  
	
  and

  
	
   

  
	
   

  
	
  AGSTAR FINANCIAL SERVICES, PCA

  
	
   

  
	
   

  
	
  dated

  
	
  as of

  
	
  March 28,2007

  






 

















 


	
  TABLE OF CONTENTS

  	
   

  
	
   

  	
   

  
	
   

  	
  Page

  
	
   

  	
   

  
	
  ARTICLE
  I.     DEFINITIONS AND ACCOUNTING MATTERS

  	
  4

  
	
  Section 1.01 Certain Defined Terms

  	
  4

  
	
  Section 1.02 Accounting Matters

  	
  15

  
	
  Section 1.03 Construction

  	
  15

  
	
   

  	
   

  
	
  ARTICLE
  II.    AMOUNTS AND TERMS OF THE TERM LOANS

  	
  15

  
	
  Section 2.01 Supplements

  	
  15

  
	
  Section 2.02 Construction Loan

  	
  16

  
	
  Section 2.03 Term Revolving Loan

  	
  16

  
	
  Section 2.04 Revolving Line of Credit Loan

  	
  16

  
	
  Section 2.05 Conversion of Construction Loan
  Into Term Loan

  	
  16

  
	
  Section 2.06 Letters of Credit
  Procedures/Fees/Reimbursement

  	
  17

  
	
  Section 2.07 Adjustments to Interest Rate

  	
  19

  
	
  Section 2.08 Default Interest

  	
  19

  
	
  Section 2.09 Late Charge

  	
  20

  
	
  Section 2.10 Prepayment of Loans

  	
  20

  
	
  Section 2.11 Changes in Law Rendering Certain
  LIBOR Rate Loans Unlawful

  	
  20

  
	
  Section 2.12 Payments and Computations

  	
  20

  
	
  Section 2.13 Maximum Amount Limitation

  	
  21

  
	
  Section 2.14 Lender Records

  	
  22

  
	
  Section 2.15 Loan Payments

  	
  22

  
	
  Section 2.16 Compensation

  	
  22

  
	
  Section 2.17 Excess Cash Flow

  	
  23

  
	
   

  	
   

  
	
  ARTICLE
  III     CONDITIONS PRECEDENT

  	
  23

  
	
  Section 3.01 Conditions Precedent to Funding

  	
  23

  
	
   

  	
   

  
	
  ARTICLE
  IV.    REPRESENTATIONS AND WARRANTIES

  	
  27

  
	
  Section 4.01 Representations and Warranties
  of the Borrower

  	
  27

  
	
   

  	
   

  
	
  ARTICLE
  V.    COVENANTS OF THE BORROWER

  	
  31

  
	
  Section 5.01 Affirmative Covenants

  	
  31

  
	
  Section 5.02 Negative Covenants

  	
  40

  
	
   

  	
   

  
	
  ARTICLE
  VI.    EVENTS OF DEFAULT AND REMEDIES

  	
  43

  
	
  Section 6.01 Events of Default

  	
  43

  
	
  Section 6.02 Remedies

  	
  46

  
	
  Section 6.03 Remedies Cumulative

  	
  47

  



 


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  ARTICLE
  VII.     MISCELLANEOUS

  	
  48

  
	
  Section 7.01 Amendements, etc

  	
  48

  
	
  Section 7.02 Notices, etc.

  	
  48

  
	
  Section 7.03 No Waiver; Remedies

  	
  49

  
	
  Section 7.04 Costs, Expenses and Taxes

  	
  49

  
	
  Section 7.05 Right of Set-off

  	
  49

  
	
  Section 7.06 Severability of Provisions

  	
  50

  
	
  Section 7.07 Binding Effect; Successors and
  Assigns; Participations

  	
  50

  
	
  Section 7.08 Consent to Jurisdiction

  	
  51

  
	
  Section 7.09 Governing Law

  	
  51

  
	
  Section 7.10 Execution in Counterparts

  	
  51

  
	
  Section 7.11 Survival

  	
  51

  
	
  Section 7.12 Waiver of Jury Trial

  	
  51

  
	
  Section 7.13 Entire Agreement

  	
  51

  



 


	
  LIST OF SCHEDULES AND EXHIBITS

  
	
   

  	
   

  
	
  Schedule
  3.01(d)

  	
  Real
  Property

  
	
  Schedule
  4.01(a)

  	
  Description
  of Certain Transactions Related to the Borrower’s Stock

  
	
  Schedule
  4.01(f)

  	
  Description
  of Certain Threatened Actions, etc.

  
	
  Schedule
  4.01 (k)

  	
  Location
  of Inventory and Farm Products; Third Parties in Possession; Crops

  
	
  Schedule
  4.01(1)

  	
  Office
  Locations; Fictitious Names; Etc.

  
	
  Schedule
  4.01 (p)

  	
  Intellectual
  Property

  
	
  Schedule
  4.01 (t)

  	
  Environmental
  Compliance

  
	
  Schedule
  5.01 (o)

  	
  Management

  
	
  Schedule
  5.02(a)

  	
  Description
  of Certain Liens, Lease Obligations, etc.

  
	
  Schedule
  5.02(k)

  	
  Transactions
  with Affiliates

  
	
   

  	
   

  
	
  Exhibit A

  	
  Compliance
  Certificate

  
	
  Exhibit B

  	
  Project
  Sources and Uses Statement

  
	
  Exhibit C

  	
  Form of
  Opinion Letter

  
	
  Exhibit D

  	
  Form of
  Letter of Credit

  



 


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MASTER LOAN
AGREEMENT


 


THIS MASTER
LOAN AGREEMENT (this “Agreement”),
dated as of March 28, 2007 between AGSTAR FINANCIAL SERVICES, PCA, (the “Lender”) and OTTER TAIL AG ENTERPRISES, LLC, Minnesota limited liability
company (the “Borrower”).


 


RECITALS


 


A.           The Borrower has requested the Lender
extend to the Borrower various credit facilities for the purposes of acquiring,
constructing, equipping and furnishing of an ethanol production facility to be
located in Otter Tail County, Minnesota (the “Project”).


 


B.           Lender has agreed to make
such loans to the Borrower, and in order to reduce the amount of paperwork
associated therewith, Lender and the Borrower would like to enter into a master
loan agreement.


 


AGREEMENT


 


NOW,
THEREFORE, in consideration of the foregoing, intending to be
legally bound hereby, and in consideration of Lender making one or more loans
to the Borrower, Lender and the Borrower agree as follows:


 


ARTICLE I.


DEFINITIONS
AND ACCOUNTING MATTERS


 


Section 1.01. Certain Defined Terms. All capitalized terms used in this
Agreement and in the Supplements shall have the following meanings. Terms not
otherwise defined in this Agreement shall have the meanings attributed to such
terms in the Uniform Commercial Code, as amended from time to time. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.


 


“Advances” means the Loans or Letters of
Credit provided the Borrower pursuant to this Agreement and the Supplements to
this Agreement.


 


“Affiliate” means, as to any Person, any
other Person: (a) that directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common control with,
such Person; (b) that directly or indirectly beneficially owns or holds
ten percent (10%) or more of any class of voting membership interests (units)
of such Person; or (c) ten percent (10%) or more of the voting membership
interests (units) of which is directly or indirectly beneficially owned or held
by the Person in question. The term “control” means the possession, directly or
indirectly, of the power to direct or cause direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract, or otherwise; provided, however, in
no event shall the Lender or any Bank be deemed an Affiliate of the Borrower or
any of their subsidiaries.


 


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“Agreement” means this Agreement, as this
Agreement may be amended, modified or supplemented from time to time, together
with all exhibits and schedules attached to or made a part of this Agreement
from time to time.


 


“Allowed Distributions” has the meaning
specified in Section 5.02(b).


 


“Borrower” means Otter Tail Ag Enterprises,
LLC, a Minnesota limited liability company.


 


“Borrower’s Equity” means funds equal to the
greater of (i) 35.4% of Project Costs or (ii) $44,600,000.00.


 


“Business Day” means any day other than a
Saturday, Sunday, or other day on which commercial banks are authorized to
close under the Laws of the State of Minnesota, or are in fact closed in, the
state where the Lender’s Office is located and, if such day relates to any
LIBOR Rate, means any such day on which dealings in dollar deposits are
conducted by and between banks in the applicable offshore dollar interbank
market.


 


“Capital Expenditures” means, for any period,
the sum of all amounts that would, in accordance with generally accepted
accounting principles consistently applied, be included as additions to
property, plant and equipment on a statement of cash flows for the Borrower
during such period, with respect to: (a) the acquisition, construction,
improvement, replacement or betterment of land, buildings, machinery, equipment
or of any other fixed assets or leaseholds; or (b) other capital
expenditures and other uses recorded as capital expenditures having
substantially the same effect.


 


“Closing Date” means March 28, 2007.


 


“CERCLA” means the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended.


 


“Collateral” means and includes, without
limitation, all property and assets granted as collateral security for the
Loans or other indebtedness, in favor of the Lender, whether real or personal
property, whether granted directly or indirectly, whether granted now or in the
future, and whether granted in the form of a security interest, mortgage,
assignment of rents, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor’s lien, equipment trust, conditional sale, trust receipt,
lien, charge, lien or title retention contract, lease or consignment intended
as a security device, or any other security or lien interest whatsoever;
whether created by law, contract or otherwise.


 


“Commitment” means the respective amounts
committed to by Lender under this Agreement, the Supplements and the Notes.


 


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“Completion Date” means the earlier of (i) the
first day of the seventeenth (17th) month after the Closing Date, or
(ii) the date a Completion Certificate is issued for the Project executed
by the Borrower, Prime Contractor and Inspecting Engineer.


 


“Completion Certificate” means a certificate
in form and substance reasonably acceptable to Lender, executed by the
Borrower, Prime Contractor and Inspecting Engineer stating that the Project is
completed and that the processing equipment and fixtures are fully operational,
and that the Plant has successfully completed performance testing and performs,
with permanent equipment, at 100% of the performance guarantees.


 


“Compliance Certificate” means a certificate
of the Chief Executive Office, Chief Financial Officer, or any other officer
reasonably acceptable to the Lender, of the Borrower, substantially in the form
attached hereto as Exhibit A, setting forth the calculations of current
financial covenants and stating: (a) the Financial Statements are true and
correct and, other than the unaudited interim financial statements, have been
prepared in accordance with generally accepted accounting principles
consistently applied; (b) whether they have knowledge of the occurrence of
any Event of Default under this Agreement, and if so, stating in reasonable
detail the facts with respect thereto; and (c) reaffirm and ratify the
representations and warranties, as of the date of the certificate, contained in
this Agreement.


 


“Construction Advance” means any Advance for
the payment of Project Costs.


 


“Construction Contracts” means any and all
material contracts, written or oral, between the Borrower and any Contractor
and any subcontractor and between any of the foregoing and any other person or
entity relating in any way to the construction of the Project, including the
performing of labor or the furnishing of standard or specially fabricated
materials in connection therewith.


 


“Construction Loan” means the loan from the
Lender to the Borrower in the amount of $35,000,000.00 and pursuant to the
terms and conditions provided for in this Agreement and in the First Supplement
to this Agreement.


 


“Construction Note” means that certain
promissory note of even date herewith executed and delivered to the Lender by
the Borrower in the amount of $35,000,000.00 and pursuant to the terms and
conditions provided for in this Agreement and the First Supplement to this
Agreement.


 


“Contractor” means and includes any person or
entity, including, without limitation, the Prime Contractor, engaged to work on
or to furnish labor, materials or supplies for the Project.


 


“Conversion Date” means 60 days after the
Completion Date.


 


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“Current Portion of Long Term Debt” means
that portion of Funded Debt payable within one year from the date of such
determination, determined in accordance with generally accepted accounting
principles, consistently applied.


 


“Debt” means: (A) indebtedness for
borrowed money or for the deferred purchase price of property or services; (B) obligations
as lessee under leases which shall have been or should be, in accordance with
generally accepted accounting principles, recorded as capital leases; (C) obligations
under direct or indirect guaranties in respect of, and obligations (contingent
or otherwise) to purchase or otherwise acquire, or otherwise to assure a
creditor against loss in respect of, indebtedness or obligations of others of
the kinds referred to in clause (A) or (B) above or (E) through (G) below;
(D) liabilities in respect of unfunded vested benefits under plans covered
by Title IV of ERISA; (E) indebtedness in respect of mandatory redemption
or mandatory dividend rights on equity interests but excluding dividends
payable solely in additional equity interests; (F) all obligations of a
Person, contingent or otherwise, for the payment of money under any noncompete,
consulting or similar agreement entered into with the seller of a company or
its assets or any other similar arrangements providing for the deferred payment
of the purchase price for an acquisition permitted hereby or an acquisition
consummated prior to the date hereof; and (G) all obligations of a Person
under any Hedging Agreement.


 


“Default Rate” means the lesser of: (a) the
Maximum Rate; or (b) the rate per annum which shall from day-to-day be
equal to two percent (2%) in excess of the then applicable rate of interest
under any Supplement or Note.


 


“Disbursing Account” means a deposit account
established by the Lender for purposes of making all Advances under the
Disbursing Agreement.


 


“Disbursing Agent” means First Minnesota
Title & Abstract, LLC, a Minnesota limited liability company, its
successors and assigns.


 


“Disbursing Agreement” means the Disbursing
Agreement, of even date herewith, executed by the Disbursing Agent, the
Borrower, and the Lender, as the same may be from time to time amended,
modified, or supplemented from time to time.


 


“Distribution” means any dividend,
distribution, payment, or transfer of property by the Borrower to any member of
the Borrower, including Allowed Distributions, Reinvestment Distributions and
Excess Distributions.


 


“Environmental Laws” means all the laws
listed in the definition of “Hazardous Substance and any other local, state, or
federal law or regulation governing the material and disposal or release of
Hazardous Substance.


 


“EBITDA” means for any period, the total of
the following each calculated without duplication for the Borrower for such
period: (i) net income from operations; plus (ii) any


 


7

















 


provision for (or less any benefit from) income
taxes included in determining such net income; plus (iii) Interest Expense
deducted in determining such net income; plus (iv) amortization and
depreciation expense deducted in determining such net income.


 


“ERISA” means the Employee Retirement Income
Security Act of 1974.


 


“Events of Default” has the meaning specified
in Section 6.01.


 


“Excess Cash Flow” means EBITDA, less the sum
of: (i) required payments in respect of Funded Debt; (ii) Maintenance
Capital Expenditures; and (iii) Allowed Distributions.


 


“Excess Cash Flow Payment” has the meaning
specified in Section 2.17.


 


“Excess Distributions” shall have the meaning
specified in Section 5.02(b).


 


“Extraordinary Items” means items which are
material and significantly different from the Borrower’s typical business
activities, determined in accordance with generally accepted accounting
principles, consistently applied.


 


“Fixed Charge Coverage Ratio” means the ratio
of (EBITDA +/- Extraordinary Items) divided by the sum of Current Portion of
Long Term Debt + Interest Expense+Distributions + Maintenance Capital
Expenditures).


 


“Fixed Rate Loan” means that portion of the
unpaid principal balance of the Construction Loan that is converted to a Term
Loan and will accrue interest at a fixed rate of interest pursuant to Section 2.05.


 


“Food Security Act” means the Food Security
Act of 1985, 7 U.S.C. § 1631, as amended, and the regulations promulgated
thereunder.


 


“Funded Debt” means the principal amount of
all Debt of the Borrower having a final maturity of more than one year from the
date of origin thereof (or which is renewable or extendible at the option of
the obligor for a period or periods more than one year from the date of origin)
excluding, however, the principal amount due under any Term Revolving Note or
any other line of credit used by Borrower for working capital purposes, all
determined in accordance with generally accepted accounting principles,
consistently applied for the period in question.


 


“GAAP” means generally accepted accounting
principles, consistently applied.


 


“Governmental Authority” means and includes
any and all courts, boards, agencies, commissions, offices, or authorities of
any nature whatsoever for any governmental unit (federal, state, county,
district, municipality, city, or otherwise) whether now or hereafter in
existence.


 


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“Hazardous Substance” means any element,
substance, compound, mixture, waste, material, pollutant or contaminant
(including, without limitation, asbestos, any petroleum or petroleum derived
waste or products, and raw materials that include hazardous constituents); to
the extent the foregoing items are included under or regulated by any federal,
state or local law, rule or regulation pertaining to environmental
matters, as now or hereafter enacted or amended, including, without limitation,
the Federal Comprehensive Environmental Response, Compensation and Liability
Act of 1980; the Federal Resource Conservation and Recovery Act; the Federal
Superfund Amendments and Reauthorization Act of 1986; the Federal Toxic
Substances Control Act; the Federal Hazardous Material Transportation Act; the
Federal Clean Air Act; the Federal Water Pollution Control Act; together with
any other federal, state or local super lien or other statutes, rules or
regulations, as now or hereafter amended in any way pertaining to clean-up;
disclosure; water pollution control; air pollution control; regulation of solid
waste; hazardous waste management; storage tanks; regulation of environmentally
sensitive areas; regulation of drinking water; use of ground water, surface
waters and wetlands; hazardous and toxic substance reporting; environmental
preservation or control; indoor air quality issues, including asbestos, radon
and tobacco smoke; and any other laws, including case law, which might be
deemed or referred to as environmental common law (all such laws, rules and
regulations being referred to collectively as “Environmental
Laws”) and any other substances now or hereafter deemed hazardous or
toxic, including but not limited to, mold and other contaminants, regardless of
whether the same are regulated under any Environmental Law


 


“Income Taxes” means the applicable state,
local or federal tax on the net income of the Borrower.


 


“Inspecting Engineer” means BBI, Inc., a
Colorado corporation, and its successors and permitted assigns.


 


“Intellectual Property” has the meaning
specified in Section 4.01(p).


 


“Interest Expense” means for any period, the
total interest expense of the Borrower calculated on a consolidated basis.


 


“Interest Period” means the period commencing
on the date of an Advance and ending on the numerically corresponding day in
the first calendar month thereafter, except that each such Interest Period
which commences on the last Business Day of a calendar month (or on any day for
which there is no numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last Business Day of the appropriate
subsequent calendar month. Notwithstanding the foregoing: (a) each
Interest Period which would otherwise end on a day which is not a Business Day
shall end on the next succeeding Business Day or if such succeeding Business
Day falls in the next succeeding calendar month, on the next preceding Business
Day; (b) any Interest Period which would otherwise extend beyond the


 


9

















 


Maturity Date shall end on the Maturity Date; and (c) no
Interest Period shall have a duration of less than one (1) month.


 


“Inventory” means all of the Borrower’s
inventory, as such term is defined in the UCC, whether now owned or hereafter
acquired, whether consisting of whole goods, spare parts or components,
supplies or materials, whether acquired, held or furnished for sale, for lease
or under service contracts or for manufacture or processing, and wherever
located.


 


“Joint Collateral” means all of the Company’s
(i) real property, including all buildings and improvements located
thereon; (ii) Equipment; (iii) Fixtures; (iv) Letter-of-Credit
Rights; and (v) software, whether now existing or hereafter acquired, and
the proceeds and products thereof.


 


“Lender” means AgStar Financial Services,
PCA, and its successors and assigns.


 


“Letters of Credit” means the Construction
Letters of Credit and the Revolving Letters of Credit issued by Lender pursuant
to the terms and conditions of this Agreement and Supplements.


 


“Letter of Credit Liabilities” means, at
anytime, the aggregate maximum amount available to be drawn under all
outstanding Letters of Credit (in each case, determined without regard to
whether any conditions to drawing could then be met) and all unreimbursed
drawings under Letters of Credit.


 


“LIBOR Rate” (London Interbank Offered Rate)
means the rate (rounded upward to the nearest sixteenth and adjusted for
reserves required on Eurocurrency Liabilities (as hereinafter defined) for
banks subject to FRB Regulation D (as hereinafter defined) or required by any
other federal law or regulation), quoted by the British Bankers Association
(the “BBA”) at 11:00 a.m.
London time two Banking Days (as hereinafter defined) before the commencement
of the Interest Period for the offering of U.S. Dollar deposits in the London
interbank market for an Interest Period of one month, as published by Bloomberg
or another major information vendor listed on BBA’s official website. “Banking Day” shall mean a day on which
Lender is open for business, dealings in U.S. Dollar deposits are being carried
out in the London interbank market, and banks are open for business in New York
City and London, England. “Eurocurrency
Liabilities” has the meaning as set forth in FRB Regulation D. “FRB Regulation D” means Regulation D as
promulgated by the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 204,
as amended from time to time.


 


“Loan and Carrying Charges” means all
commitment fees to the Lender, brokerage fees, standby fees, interest charges,
service fees, attorneys’ fees, contractors’ fees, developers’ fees, funding
fees, title insurance fees and charges, recording fees, registration taxes,
real estate taxes, special assessments, insurance premiums, and utility charges
incurred by the Borrower in the construction of the Project and issuance of the
Notes, all costs incurred in


 


10

















 


acquisition of the Real Property and any other costs
incurred in the development of the Project.


 


“Loan Documents” means this Agreement, any
and all Supplements to this Agreement, the Notes, Letters of Credit, the
Security Agreement, the Mortgage and all other agreements, documents,
instruments, and certificates of the Borrower delivered to, or in favor of, the
Lender under this Agreement or in connection herewith or therewith, including,
without limitation, all agreements, documents, instruments, and certificates
delivered in connection with the extension of Advances by the Lender.


 


“Loan Obligations” means all obligations,
indebtedness, and liabilities of the Borrower to the Lender, including the
Reimbursement Obligations, arising pursuant to any of the Loan Documents,
whether now existing or hereafter arising, whether direct, indirect, related,
unrelated, fixed, contingent, liquidated, unliquidated, joint, several, or
joint and several, including, without limitation, the obligation of the
Borrower to repay the Advances, interest on the Advances, and all fees, costs,
and expenses (including, without limitation, reasonable attorneys’ fees and
expenses) provided for in the Loan Documents.


 


“Loan/Loans” means and includes the
Construction Loan, the Term Loan, the Term Revolving Loan, the Revolving Line
of Credit Loan and any other financial accommodations extended to the Borrower
by the Lender pursuant to the terms of this Agreement and any Supplements.


 


“Long Term Debt” means indebtedness that
matures more than one year after the date of determination thereof.


 


“Long Term Marketing Agreement” means any
contract, agreement or understanding of the Borrower having a term of one year
or more after the date of determination thereof relating to the sale of any raw
materials, inventory, products or by-products of the Borrower.


 


“Maintenance Capital Expenditures” means all
Capital Expenditures made in the ordinary course of business to maintain
existing business operations of the Borrower in any fiscal year, determined in
accordance with generally accepted accounting principles, consistently applied.


 


“Material Adverse Effect” means any set of
circumstances or events which: (i) has or could reasonably be expected to
have any material adverse effect upon the validity or enforceability of any
Loan Documents or any material term or condition contained therein; (ii) is
or could reasonably be expected to be material and adverse to the condition
(financial or otherwise), business assets, operations, or property of the
Borrower; or (iii) materially impairs or could reasonably be expected to
materially impair the ability of the Borrower to perform the obligations under
the Loan Documents.


 


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“Material Contract” means (i) any
contract or any other agreement, written or oral, or any of the Borrower or its
Subsidiaries involving monetary liability of or to any such person in an amount
in excess of $500,000.00 per annum; and (ii) any other contract or
agreement, written or oral, of the Borrower or any of its Subsidiaries the
failure to comply with which could reasonably be expected to have a Material
Adverse Effect on the Borrower or its Subsidiaries; provided, however, that any
contract or agreement which is terminable by a party other than the Borrower or
its Subsidiaries without cause upon notice of 90 days or less shall not be
considered a Material Contract.


 


“Maturity Date” means the fifth anniversary
of the Conversion Date.


 


“Maximum Excess Cash Flow Payment” has the
meaning specified in Section 2.17.


 


“Maximum Rate” means the maximum nonusurious
interest rate, if any, at any time, or from time to time, that may be
contracted for, taken, reserved, charged or received under applicable state or
federal laws.


 


“Mortgage” means that certain Mortgage of
even date herewith, as amended, modified or supplemented from time to time,
pursuant to which a mortgage interest shall be granted by the Borrower to the
Lender in the Real Property to secure payment to the Lender of the Loan
Obligations.


 


“Net Income” means net income as determined
in accordance with GAAP.


 


“Note/Notes” means and includes the
Construction Note, Term Revolving Note, Revolving Line of Credit Note and all
other promissory notes executed and delivered to the Lender by the Borrower
pursuant to the terms of this Agreement and any Supplements as the same may be
amended, modified, supplemented, extended or restated from time to time.


 


“Ordinary Trade Payable Dispute” means trade
accounts payable, in an aggregate amount not in excess of $100,000.00 with
respect to the Borrower, and with respect to which: (a) there exists a bona
fide dispute between Borrower and the vendor; (b) the Borrower is
contesting the same in good faith by appropriate proceedings; and (c) the
Borrower has established appropriate reserves on its financial statements.


 


“Parity Lien” means the lien of MMCDC New
Market Fund II, LLC in the Joint Collateral.


 


“Permitted Liens” shall have the meaning
ascribed to the term in Section 5.02.


 


“Person” means any individual, corporation,
business trust, association, company, partnership, joint venture, governmental
authority, or other entity.


 


“Personal Property” means all equipment,
fixtures, improvements, building supplies and materials and other personal
property now or hereafter attached to, located in, placed in or


 


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necessary to the use of the improvements on the Real
Property including, but without being limited to, all machinery, fixtures,
equipment, furnishings, and appliances, as well as all renewals, replacements,
additions, and substitutes thereof, and all products and proceeds thereof, and
including without limitation all inventory, farm products, accounts,
instruments, chattel paper, other rights to payment, money, deposit accounts,
commodity accounts, investment property, insurance proceeds and general
intangibles of the Borrower, whether now owned or hereafter acquired.


 


“Plans and Specifications” means the final
plans and specifications for the construction of the Project, to be prepared by
the Prime Contractor, and approved by the Lender, and all amendments and
modifications and supplements thereof approved by Lender.


 


“Prime Contractor” means Harris Mechanical
Contracting Company, a Minnesota corporation, and its successors and permitted
assigns.


 


“Project” means any and all buildings, structures,
fixtures, and other improvements made to the Real Property and other uses
identified in the Project Sources and Uses Statement as part of the acquisition
and construction of ethanol production facility in Otter Tail County,
Minnesota, for which the Loans to Borrower are being made hereunder.


 


“Project Costs” means the total of all costs
of acquiring the Real Property and constructing the Project as identified in
the Project Sources and Uses Statement, together with all Loan and Carrying
Charges.


 


“Project Sources and Uses Statement” means
the statement attached hereto as Exhibit B which identifies the sources
and uses of monies in a total amount of $ 126,000,000.00 related to the
Project.


 


“Real Property” means that real property
located in Otter Tail County, Minnesota, owned by the Borrower, upon which the
Project is to be constructed and which is described in Schedule 3.01(d).


 


“Reimbursement Obligation” means the
obligation of the Borrower to reimburse the Lender for any demand for payment
or drawing under a Letter of Credit.


 


“Reinvestment Distributions” shall have the
meaning ascribed to the term in Section 5.02(b).


 


“Related Documents” means and includes
without limitation all promissory notes, credit agreements, loan agreements,
supplements, guaranties, security agreements, mortgages, deeds of trust,
assignments and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the indebtedness.


 


13

















 


“Revolving Loans” means the Revolving Line of
Credit Loan and the Term Revolving Loan and any other revolving loan provided
by the Lender to the Borrower pursuant to the terms and conditions provided for
in this Agreement and in any revolving loan supplement.


 


“Revolving Line of Credit Loan” means that
line of credit from the Lender to the Borrower in the amount of $4,000,000.00
and pursuant to the terms and conditions provided for in this Agreement and the
Third Supplement to the Agreement.


 


“Revolving Line of Credit Note” means that
certain promissory note to be executed and delivered to the Lender by the
Borrower on the Conversion Date pursuant to the terms and conditions provided
for in this Agreement and the Third Supplement to this Agreement.


 


“Revolving Line of Credit Loan Maturity Date”
means the maturity date set forth in the Third Supplement to this Agreement.


 


“SARA” means the Superfund Amendment and
Reauthorizations Act of 1986, as amended.


 


“Security Agreement” means and includes,
without limitation, any agreements, promises, covenants, arrangements,
understandings, or other agreements, whether created by law, contract, or
otherwise, which evidence, govern, represent, or create a Security Interest, as
the same has been and may hereafter be amended or otherwise modified.


 


“Security Interest” means and includes
without limitation any type of collateral security, whether in the form of a
lien, charge, mortgage, assignment of rents, deed of trust, assignment, pledge,
chattel mortgage, chattel trust, factor’s lien, equipment trust, conditional
sale, trust receipt, lien or title retention contract, lease or consignment
intended as a security device, or any other security or lien interest
whatsoever, whether created by law, contract, or otherwise.


 


“Subordinated Debt” means all indebtedness
owed to U.S. Bank, National Association, as Trustee for the owners of the
$20,000,000.00 Otter Tail County, Minnesota, Subordinate Exempt Facility
Revenue Bonds, its successors and assigns, and all indebtedness owed to Otter
Tail County under the abatement bonds.


 


“Supplement” has the meaning set forth in Section 2.01
of this Agreement.


 


“Tangible Net Worth” means the excess of
total assets over total liabilities, total assets and total liabilities each to
be determined in accordance with generally accepted accounting principles
consistent with those applied in the preparation of the financial statements
referred to in Section 5.01(c) for the Borrower, excluding, however,
from the determination of total assets: (i) goodwill, organizational
expenses, research and development expenses, trademarks, trade names,
copyrights, patents, patent applications, licenses and rights in any thereof,
and other similar intangibles; (ii) treasury stock; (iii) securities
which are not readily marketable; (iv) cash held in a sinking or other
analogous fund established for the purpose of


 


14

















 


redemption, retirement or prepayment of capital
stock; (v) any write-up in the book value of any asset resulting from a
revaluation thereof subsequent to the Closing Date; (vi) amortized
start-up costs; and (vii) any items not included in clauses (i) through
(vi) above which are treated as intangibles in conformity with generally
accepted accounting principles.


 


“Tangible Owner’s Equity” means the Tangible
Net Worth plus Subordinated Debt divided by total assets, measured annually at
the end of each fiscal year, and expressed as a percentage.


 


“Term Loan” means any amortizing loan with a
maturity of greater than one year provided by the Lender to the Borrower
pursuant to the terms and conditions of this Agreement and the First Supplement
to this Agreement.


 


“Term Revolving Loan” means that certain loan
from the Lender to the Borrower in the amount of $6,000,000.00 and pursuant to
the terms and conditions provided for in this Agreement and the Second
Supplement.


 


“Term Revolving Note” means that certain
promissory note to be executed and delivered to the Lender by the Borrower on
the Conversion Date pursuant to the terms and conditions provided for in this
Agreement and the Second Supplement to this Agreement.


 


“Working Capital” means current assets of the
Borrower less the sum of (i) current liabilities of the Borrower (ii) plus
any unused balance of the Term Revolving Loan as determined in accordance with
GAAP.


 


Section 1.02. Accounting Matters. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, except as otherwise
stated herein. To enable the ready and consistent determination of compliance
by the Borrower with its obligations under this Agreement, the Borrower will
not change the manner in which either the last day of its fiscal year or the
last days of the first three fiscal quarters of its fiscal years is calculated.


 


Section 1.03. Construction. Wherever herein the singular number is used,
the same shall include the plural where appropriate, and words of any gender
shall include each other gender where appropriate. The headings, captions or
arrangements used in any of the Loan Documents are, unless specified otherwise,
for convenience only and shall not be deemed to limit, amplify or modify the
terms of the Loan Documents, nor affect the meaning thereof.


 


ARTICLE II 


AMOUNTS AND
TERMS OF THE LOANS


 


Section 2.01. Supplements. In the event the Borrower desires to borrow
from Lender and Lender is willing to lend to the Borrower, or in the event
Lender and Borrower desire to consolidate any existing loans hereunder, the
parties, Lender and Borrower, will enter into a supplement to this Agreement
(each supplement, as it may be amended, modified, supplemented, extended or
restated


 


15

















 


from
time to time, a “Supplement” and,
collectively, the “Supplements”).  Each
Supplement will set forth Lender’s commitment to make a Loan to the Borrower,
the amount of the Loan(s), the purpose of the Loan(s), the interest rate or
rate options applicable to the Loan(s), the repayment terms of the Loan(s), and
any other terms and conditions applicable to the Loan(s). Each Supplement will
also be accompanied by a Note of the Borrower setting forth the Borrower’s
obligation to make payments of interest on the unpaid principal balance of the
Loan(s), and fees and premiums, if any, and to repay the principal balance of
the Loan(s). Each Loan will be governed by the terms and conditions contained
in this Agreement and in the Note and the Supplement relating to that Loan.


 


Section 2.02. Construction Loan. Subject to the terms and conditions of
this Agreement and in reliance upon the representations and warranties set
forth in this Agreement, the Lender has agreed to lend to Borrower and Borrower
has agreed to borrow from Lender an amount not to exceed $35,000,000.00 for
Project Costs. Such amount shall be loaned by Lender pursuant to the terms and
conditions set forth in this Agreement and the First Supplement to this
Agreement.


 


Section 2.03. Term Revolving Loan. Subject to the terms and conditions
of this Agreement and in reliance upon the representations and warranties set
forth in this Agreement, the Lender has agreed to lend to Borrower and Borrower
has agreed to borrow from Lender, as of the Conversion Date and from time to
time thereafter, on a revolving basis an amount not to exceed $6,000,000.00.
Such amount shall be loaned by Lender pursuant to the terms and conditions set
forth in this Agreement and the Second Supplement to this Agreement. Pursuant
to the terms and conditions in this Agreement, the Lender may extend additional
term Revolving Loans to the Borrower. Any such future term Revolving Loans
shall be provided by Lender pursuant to the terms and conditions of a future
term Revolving Loan Supplement.


 


Section 2.04 Revolving Line of Credit Loan. Subject to the terms and
conditions of this Agreement and in reliance upon the representations and
warranties set forth in this Agreement, the Lender has agreed to lend to
Borrower and Borrower has agreed to borrow from Lender, as of the Conversion
Date and from time to time thereafter, on a revolving basis an amount not to
exceed $4,000,000.00. Such amount shall be loaned by Lender pursuant to the
terms and conditions set forth in this Agreement and the Third Supplement to
this Agreement. Pursuant to the terms and conditions in this Agreement, the
Lender may extend additional Revolving Loans to the Borrower. Any such future
Revolving Loans shall be provided by Lender pursuant to the terms and
conditions of a future term Revolving Loan Supplement.


 


Section 2.05. Conversion of Construction Loan Into Term Loan and Term Revolving Loan.
The Lender agrees to convert the Construction Loan into a Term Loan and
Term Revolving Loan on the Conversion Date, provided all of the terms,
conditions, warranties, representations, and covenants of the Borrower set
forth in this Agreement, the First Supplement and the Second Supplement are
satisfied. Any such amount shall be provided by Lender pursuant to the terms
and conditions set forth in this Agreement, the First Supplement and the Second
Supplement to this Agreement setting forth the terms and conditions of such
Term Loan and Term Revolving Loan, provided,
however, that (i) all unpaid principal and all accrued interest
on the Term Loan and the Term Revolving Loan shall be due and payable on the
Maturity Date and (ii) the Borrower shall have


 


16

















 


the right to convert part or an amount not to exceed fifty percent
(50%) of the outstanding principal balance of the Term Loan into a Fixed Rate
Loan without fee, which shall bear interest at a rate equal to 275 basis points
in excess of a known fixed rate benchmark rate in effect on the Conversion
Date, or another rate as agreed upon by the Lender and Borrower. Should the
Borrower elect such fixed rate option, such rate of interest shall not be
subject to any adjustments under Section 2.07 of this Agreement.


 


Section 2.06. Letter of Credit Procedures / Fees / Reimbursement.  All Letters of Credit that are issued
under this Agreement and any supplements to this Agreement are subject to the
following:


 


(a)                 Letter of Credit Request Procedure. The
Borrower shall give the Lender irrevocable prior notice (effective upon
receipt) on or before 3:00 P.M. (Minneapolis, Minnesota time) on the
Business Day three Business Days prior to the date of the requested issuance of
a Letter of Credit specifying the requested amount, expiry date and issuance
date of each Letter of Credit to be issued and the nature of the transactions
to be supported thereby. Any such notice received after 3:00 P.M.
(Minneapolis, Minnesota time) on a Business Day shall be deemed to have been
received and be effective on the next Business Day. Each Letter of Credit shall
be substantially in the form of Exhibit D, have an expiration date that
occurs on or before the Termination Date, shall be payable in U.S. dollars,
must be satisfactory in form and substance to the Lender, and shall be issued
pursuant to such documentation as the Lender may require, including, without
limitation, the Lender’s standard form letter of credit request and
reimbursement agreement; provided that, in
the event of any conflict between the terms of such agreement and the other
Loan Documents, the terms of the other Loan Documents shall control.


 


(b)                Letter of Credit Fees. The Borrower
shall pay to the Lender for (i) all fees, costs, and expenses of the
Lender arising in connection with any Letter of Credit, including the Lender’s
customary fees for amendments, transfers, and drawings on Letters of Credit;
and (ii) on the date of the issuance of the Letter of Credit, and at the
anniversary date of issuance of such Letter of Credit, an issuance fee equal to
250 basis points, on an annualized basis, of the maximum amount available to be
drawn under the Letter of Credit.


 


(c)                 Funding of Drawings. Upon receipt from
the beneficiary of any Letter of Credit of any demand for payment or other
drawing under such Letter of Credit, the Issuer shall promptly notify the
Borrower as to the amount to be paid as a result of such demand or drawing and
the respective payment date. Any notice pursuant to the forgoing sentence shall
specify the amount to be paid as a result of such demand or drawing and the
respective payment date.


 


(e)                 Reimbursements. After receipt of the
notice delivered pursuant to clause (c) of this Section 2.06 with
respect to a Letter of Credit, the Borrower shall be irrevocably and
unconditionally obligated to reimburse the Lender for any amounts paid by the
Lender upon any demand for payment or drawing under the applicable Letter of
Credit, without presentment, demand, protest, or other formalities of any kind
other than the notice required by clause (c) of this Section 2.06.
Such reimbursement shall occur no later than 3:00 P.M. (Minneapolis,
Minnesota


 


17

















 


time) on the date of payment under the applicable Letter of Credit if
the notice under clause (c) of this Section 2.06 is received by 2:00 P.M.
(Minneapolis, Minnesota time) on such date or by 11:00 A.M. (Minneapolis,
Minnesota time) on the next Business Day, if such notice is received after 2:00 P.M.
(Minneapolis, Minnesota time). All payments on the Reimbursement Obligations
(including any interest earned thereon) shall be made to the Lender for the
account of the Lender in U.S. dollars and in immediately available funds,
without set-off, deduction, or counterclaim.


 


(f)           Reimbursement Obligations
Absolute. The Reimbursement Obligations of the Borrower under
this Agreement shall be absolute, unconditional, and irrevocable, and shall be
performed strictly in accordance with the terms of the Loan Documents under all
circumstances whatsoever and the Borrower hereby waives any defense to the
payment of the Reimbursement Obligations based on any circumstance whatsoever,
including, without limitation, in any case, the following circumstances: (i) any
lack of validity or enforceability of any Letter of Credit or any other Loan
Document; (ii) any amendment or waiver of or any consent to departure from
any Loan Document; (iii) the existence of any claim, set-off, counterclaim,
defense, or other rights which any Borrower or any other Person may have at any
time against any beneficiary of any Letter of Credit, the Lender or any other
Person, whether in connection with any Loan Document or any unrelated
transaction; (iv) any statement, draft, or other documentation presented
under any Letter of Credit proving to be forged, fraudulent, invalid, or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect whatsoever; (v) payment by the Lender under any Letter of
Credit against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit; or (vi) any other circumstance
whatsoever, whether or not similar to any of the foregoing; provided that Reimbursement Obligations
with respect to a Letter of Credit may be subject to avoidance by a Borrower if
the Borrower proves in a final non-appealable judgment that it was damaged and
that such damage arose directly from the Lender’s willful misconduct or gross
negligence in determining whether the documentation presented under the Letter
of Credit in question complied with the terms thereof.


 


(g)          Issuer Responsibility.
Borrower assumes all risks of the acts or omissions of any beneficiary of any
Letter of Credit with respect to its use of such Letter of Credit. Neither the
Lender, nor any of its respective officers or directors shall have any
responsibility or liability to the Borrower or any other Person for: (a) the
failure of any draft to bear any reference or adequate reference to any Letter
of Credit, or the failure of any documents to accompany any draft at
negotiation, or the failure of any Person to surrender or to take up any Letter
of Credit or to send documents apart from drafts as required by the terms of any
Letter of Credit, or the failure of any Person to note the amount of any
instrument on any Letter of Credit, each of which requirements, if contained in
any Letter of Credit itself, it is agreed may be waived by the Lender; (b) errors,
omissions, interruptions, or delays in transmission or delivery of any
messages; (c) the validity, sufficiency, or genuineness of any draft or
other document, or any endorsement(s) thereon, even if any such draft,
document or endorsement should in fact prove to be in any and all respects
invalid, insufficient, fraudulent, or forged or any statement therein is untrue
or inaccurate in any respect; (d) the payment by the Lender to the
beneficiary of any Letter of Credit against presentation of any draft or other
document that does not comply with the terms of the Letter of Credit; or (e) any
other circumstance whatsoever in making or failing to make any payment under a
Letter of Credit. The


 


18

















 


Lender may accept documents that appear on their face to be in order,
without responsibility for further investigation, regardless of any notice or
information to the contrary.


 


Section 2.07. Adjustments to Interest Rate. Notwithstanding any other
provision of this Agreement, the Supplements, the Notes, or the Related
Documents, after the Conversion Date, the rate of interest under any Loan which
bears interest on a variable rate, shall be adjusted according to the following
schedule should the Tangible Owner’s Equity of the Borrower, achieve the levels
set forth below:


 


	
  Tangible
  Owner’s Equity

  	
   

  	
  Interest Rate

  
	
   

  	
   

  	
   

  
	
  Less
  than or equal to 60.00%

  	
   

  	
  Applicable
  LIBOR Rate plus 295 basis points

  
	
   

  	
   

  	
   

  
	
  Greater
  than 60.00%

  	
   

  	
  Applicable
  LIBOR Rate plus 265 basis points

  
	
   

  	
   

  	
   

  



 


Upon delivery of the fiscal year end audited financial statements
pursuant to Section 5.01(c)(i) beginning with the first fiscal year
end after the Conversion Date, the rate of interest shall automatically be
adjusted in accordance with the Tangible Owner’s Equity set forth therein and
the rates set forth above. Such automatic adjustment to the rate of interest
shall take effect as of the first Business Day of the month following the month
in which the Lender received the fiscal year end audited financial statements
and related Compliance Certificate. The term “Adjustment
Date” shall mean each such Business Day when such rates, margins or
fees change pursuant to the immediately prior sentence or the next following
sentence. If the Borrower fails to deliver such Compliance Certificate which so
sets forth the Tangible Owner’s Equity within the period of time required by Section 5.01(c)(iii) hereof
or if any Event of Default occurs, the rate of interest shall automatically be
adjusted to a rate equal to the applicable LIBOR Rate plus 295 basis points,
such automatic adjustments: (a) to take effect as of the first Business
Day after the last day on which the Borrower were required to deliver the
applicable Compliance Certificate in accordance with Section 5.01(c)(iii) hereof
or in the case of an Event of Default, on the date the written notice is given
to the Borrower; and (b) to remain in effect until subsequently adjusted
in accordance herewith upon the delivery of such Compliance Certificate or, in
the case of an Event of Default, when such Event of Default has been cured to
the satisfaction of the Lender.


 


Section 2.08. Default Interest. In addition to the rights and remedies
set forth in this Agreement and notwithstanding any Note: (i) if the
Borrower fails to make any payment to Lender when due, then upon the expiration
of any applicable grace or cure period, at Lender’s option in each instance,
such obligation or payment shall bear interest from the date due to the date
paid at 2% per annum in excess of the rate of interest that would otherwise be
applicable to such obligation or payment; (ii) upon the occurrence and
during the continuance of an Event of Default beyond any applicable cure
period, if any, at Lender’s option in each instance, the unpaid balances of the
Loans shall bear interest from the date of the Event of Default or such later
date as Lender shall elect at 2% per annum in excess of the rate(s) of
interest that would otherwise be in effect on the Loans under the


 


19

















 


terms of the applicable Note; (iii) after the maturity of any
Loan, whether by reason of acceleration or otherwise, the unpaid principal
balance of the Loan (including without limitation, principal, interest, fees
and expenses) shall automatically bear interest at 2% per annum in excess of
the rate of interest that would otherwise be in effect on the Loan under the
terms of the applicable Note. Interest payable at the Default Rate shall be
payable from time to time on demand or, if not sooner demanded, on the last day
of each calendar month.


 


Section 2.09. Late
Charge. If any payment of principal or interest due under the
Supplements or the Notes is not paid within ten (10) days of the due date
thereof, the Borrower shall, in addition to such amount, pay a late charge equal
to five percent (5%) of the amount of such payment.


 


Section 2.10. Prepayment
of Loans. The Borrower may, at anytime and from time to time,
upon 60 days advance written notice to the Lender, prepay the outstanding
amount of the Loans in whole or in part with accrued interest to the date of
such prepayment on the amount prepaid, without penalty or premium, except as
and to the extent specifically provided in this Section 2.10. In the event
the Construction Loan, Term Loan or Term Revolving Loan is prepaid, from the
Closing Date through the first twenty-four (24) months after the Conversion
Date, the Borrower shall pay a prepayment fee equal to the following specified
percentage of the amount of principal prepaid:


 


	
  Closing Date to Conversion Date

  	
   

  	
  3.00

  	
  %

  
	
  Months 1 – 12 after
  Conversion Date

  	
   

  	
  2.00

  	
  %

  
	
  Months 13 – 24 after
  Conversion Date

  	
   

  	
  1.00

  	
  %

  



 


Notwithstanding the foregoing, no prepayment fee shall be required if
such prepayment is made pursuant to Section 2.17 of this Agreement. Any
prepayment does not otherwise affect Borrower’s obligation to pay any fees due
under this Agreement. In addition, in the event any Loan is converted to a
Fixed Rate Loan, the Borrower shall pay the prepayment fee applicable to that
fixed interest rate, if any.


 


Section 2.11.   Changes in Law Rendering
Certain LIBOR Rate Loans Unlawful. In the event that any change
in any applicable law (including the adoption of any new applicable law) or any
change in the interpretation of any applicable law by any judicial,
governmental or other regulatory body charged with the interpretation,
implementation or administration thereof, should make it (or in the good-faith
judgment of the Lender should raise a substantial question as to whether it is)
unlawful for the Lender to make, maintain or fund LIBOR Rate Loans, then: (a) the
Lender shall promptly notify each of the other parties hereto; and (b) the
obligation of the Lender to make LIBOR rate loans of such type shall, upon the
effectiveness of such event, be suspended for the duration of such
unlawfulness. During the period of any suspension, Lender shall make loans to
Borrower that are deemed lawful and that as closely as possible reflect the
terms of this Agreement.


 


20
















 


Section 2.10.        Prepayment of Computations.


 


(a)           Method of Payment. Except as otherwise
expressly provided herein, all payments of principal, interest, and other
amounts to be made by the Borrower under the Loan Documents shall be made to
the Lender in U.S. dollars and in immediately available funds, without set-off,
deduction, or counterclaim, not later than 2:00 P.M. (Minneapolis,
Minnesota time) on the date on which such payment shall become due (each such
payment made after such time on such due date to be deemed to have been made on
the next succeeding Business Day). The Borrower shall, at the time of making
each such payment, specify to the Lender the sums payable under the Loan
Documents to which such payment is to be applied and in the event that the Borrower
fails to so specify or if an Event of Default exists, the Lender may apply such
payment and any proceeds of any Collateral to the Loan Obligations in such
order and manner as it may elect in its sole discretion.


 


(b)          Application of Funds. Lender may apply
all payments received by it to the Loan Obligations in such order and manner as
Lender may elect in its sole discretion; provided that any payments received
from any guarantor or from any disposition of any collateral provided by such
guarantor shall only be applied against obligations guaranteed by such
guarantor.


 


(c)           Payments on a Non-Business Day. Whenever
any payment under any Loan Document shall be stated to be due on a day that is
not a Business Day, such payment may be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of the payment of interest and fees, as the case may be.


 


(d)          Proceeds of Collateral. All proceeds
received by the Lender from the sale or other liquidation of the Collateral
when an Event of Default exists shall first be applied as payment of the
accrued and unpaid fees and expenses of the Lender hereunder, including,
without limitation, under Section 7.04 and then to all other unpaid or
unreimbursed Loan Obligations (including reasonable attorneys’ fees and
expenses) owing to the Lender and then any remaining amount of such proceeds
shall be applied to the unpaid amounts of Loan Obligations, until all the Loan
Obligations have been paid and satisfied in full or cash collateralized. After
all the Loan Obligations (including without limitation, all contingent Loan
Obligations) have been paid and satisfied in full, all Commitments terminated
and all other obligations of the Lender to the Borrower otherwise satisfied,
any remaining proceeds of Collateral shall be delivered to the Person entitled
thereto as directed by the Borrower or as otherwise determined by applicable
law or applicable court order.


 


(e)           Computations. Except as expressly
provided otherwise herein, all computations of interest and fees shall be made
on the basis of actual number of days lapsed over a year of 365 days, as
appropriate. Interest shall accrue from and include the date of borrowing, but
exclude the date of payment.


 


Section 2.13.         Maximum Amount Limitation.
Anything in this Agreement, any Supplement, any Note, or the other Loan
Documents to the contrary notwithstanding, Borrower shall not be required to
pay unearned interest on any Note or any of the Loan Obligations, or ever be
required to pay interest on any Note or any of the Loan Obligations at a rate
in excess of the Maximum Rate, if any. If the effective rate of interest which
would otherwise be payable under this Agreement, any Note or any of the other
Loan Documents would exceed the Maximum Rate, if any,


 


21

















 


then the rate of interest which would otherwise be contracted for,
charged, or received under this Agreement, any Note or any of the other Loan
Documents shall be reduced to the Maximum Rate, if any. If any unearned
interest or discount or property that is deemed to constitute interest
(including, without limitation, to the extent that any of the fees payable by
Borrower for the Loan Obligations to the Lender under this Agreement, any
Supplement, any Note, or any of the other Loan Documents are deemed to
constitute interest) is contracted for, charged, or received in excess of the
Maximum Rate, if any, then such interest in excess of the Maximum Rate shall be
deemed a mistake and canceled, shall not be collected or collectible, and if
paid nonetheless, shall, at the option of the holder of such Note, be either
refunded to the Borrower, or credited on the principal of such Note. It is
further agreed that, without limitation of the foregoing and to the extent
permitted by applicable law, all calculations of the rate of interest or
discount contracted for, charged or received by the Lender under its Note, or
under any of the Loan Documents, that are made for the purpose of determining
whether such rate exceeds the Maximum Rate applicable to the Lender, if any,
shall be made, to the extent permitted by applicable laws (now or hereafter
enacted), by amortizing, prorating and spreading during the period of the full
terms of the Advances evidenced by the Notes, and any renewals thereof all
interest at any time contracted for, charged or received by Lender in
connection therewith. This Section 2.13 shall control every other
provision of all agreements among the parties to this Agreement pertaining to
the transactions contemplated by or contained in the Loan Documents, and the
terms of this Section 2.13 shall be deemed to be incorporated in every
Loan Document and communication related thereto.


 


Section 2.14. Lender
Records. All advances and all payments or prepayments made
thereunder on account of principal or interest may be evidenced by the Lender
in accordance with its usual practice in an account or accounts evidencing such
advances and all payments or prepayments thereunder from time to time and the
amounts of principal and interest payable and paid from time to time
thereunder; in any legal action or proceeding in respect of the Notes, the
entries made in such account or accounts shall be prima facie evidence
of the existence and amounts of all advances and all payments or prepayments
made thereunder on account of principal or interest. Lender shall provide
monthly statements of such entries to Borrower for the purpose of confirming
the accuracy of such entries.


 


Section 2.15. Loan
Payments. During the continuance of an Event of Default, the
Lender may deduct any obligations due or any other amounts due and payable by
the Borrower under the Loan Documents from any Deposit Accounts maintained with
the Lender.


 


Section 2.16.  Compensation.
Upon the request of the Lender, the Borrower shall pay to the Lender such
amount or amounts as shall be sufficient (in the reasonable opinion of the
Lender) to compensate it for any loss, cost, or expense (excluding loss of
anticipated profits incurred by it) as a result of: (i) any payment,
prepayment, or conversion of a LIBOR rate loan for any reason on a date other
than the last day of the Interest Period for such Loan; or (ii) any
failure by the Borrower for any reason (including, without limitation, the failure
of any condition precedent specified in Section 3.01 to be satisfied) to
borrow, extend, or prepay a LIBOR rate loan on the date for such borrowing,
extension, or prepayment specified in the relevant notice of borrowing,
extension or prepayment under this Agreement.


 


22

















 


Such indemnification may include any amount equal to
the excess, if any, of: (a) the amount of interest which would have
accrued on the amount so prepaid, or not so borrowed, converted or extended,
for the period from the date of such prepayment or of such failure to borrower,
convert or extend to the last day of the applicable Interest Period (or in the
case of a failure to borrow, convert or extend, the Interest Period that would
have commenced on the date of such failure) in each case at the applicable rate
of interest for such loan as provided for herein; over (b) the amount of
interest (as reasonably determined by the Lender) which would have accrued to
the Lender on such amount by placing such amount on deposit for a comparable
period with leading banks in the interbank LIBOR market. The covenants of the
Borrower set forth in this Section 2.16 shall survive the repayment of the
Loans and other obligations under the Loan Documents hereunder.


 


Section 2.17 Excess Cash Flow.
In addition to all other payments of principal and interest required under this
Agreement, the Supplements and the Notes, at the end of the Borrower’s first
fiscal year following the Conversion Date, and continuing each fiscal year
thereafter until the Maturity Date, the Borrower shall remit to Lender, an
amount equal to 55% of the Borrower’s Excess Cash Flow, calculated based upon
that fiscal year’s audited financial statements, on or before 90 days after the
end of each fiscal year of the Borrower (the “Excess Cash
Flow Payment”), provided however,
that the total Excess Cash Flow Payments required hereunder shall
not exceed $2,000,000.00 in any fiscal year (the “Maximum
Excess Cash Flow Payment”). The Excess Cash Flow Payment shall be
applied by the Lender to the reduction of the outstanding principal balance of
the Term Loan. Any Excess Cash Flow Payment or any other payment from Excess
Cash Flow shall not constitute a prepayment with respect to which a prepayment
fee under Section 2.10 of this Agreement is required to be paid.
Notwithstanding the foregoing, the total of all Excess Cash Flow Payments shall
not exceed an aggregate amount of $8,000,000.00 during the term of this
Agreement.


 


ARTICLE III.


CONDITIONS PRECEDENT


 


Section 3.01. Conditions
Precedent to Funding. The obligations of the Lender to make any
Advance, are subject to the conditions precedent that the Lender shall have
received the following, in form and substance satisfactory to the Lender:


 


(a)       This Agreement, duly executed by the Borrower and the Lender;


 


(b)       The Supplements, duly executed by the Borrower and the Lender;


 


(c)       The Construction Note, the Term Revolving Note and the
Revolving Line of Credit Note duly executed by the Borrower;


 


(d)       The Mortgage, fully executed and notarized, to secure the
Loans encumbering on a shared first lien basis the fee interest and/or
leasehold interest of the Borrower in the Real Property and the fixtures
thereon described in Schedule 3.01(d);


 


23

















 


(e)            A Security
Agreement duly executed by the Borrower and in a form as provided by the Lender
by which security agreement the Lender is granted a security interest by the
Borrower in the Collateral;


 


(f)             An
Environmental Indemnity Agreement, fully executed by the Borrower and in a form
as provided by the Lender;


 


(g)            A copy of the
Construction Contract(s) and a complete set of the Plans and Specifications,
together with copies of all permits and government approvals relating to the
construction and use of the Project;


 


(h)            An assignment
of contract for each of the Construction Contracts and the Plans and
Specifications, duly executed by the Borrower and pursuant to which the
Borrower shall have assigned to the Lender all of the Borrower’s right, title
and interest in and to each such Construction Contract, and which assignment
shall have been consented to and certified in writing by the other party(ies)
to each such Construction Contract;


 


(i)             Copies of all
Material Contracts between Borrower and third parties used in the normal
operations of Borrower, including but not limited to management agreements,
marketing agreements, and corn delivery agreements;


 


(j)             Assignments of
the Material Contracts between Borrower, duly executed by the Borrower and
pursuant to which the Borrower shall have assigned to the Lender all of the
Borrower’s right, title and interest in and to each such contracts, and which
assignment shall have been consented to and certified in writing by the other
party(ies) to each such contract;


 


(k)            Financing
Statements in form and content satisfactory to the Lender and in proper form
under the Uniform Commercial Code of all jurisdictions as may be necessary or,
in the opinion of the Lender, desirable to perfect the security interests
created by the Security Agreement;


 


(1)            Copies of UCC,
tax and judgment lien search reports listing all financing statements and other
encumbrances which name the Borrower and which are filed in the jurisdictions
in which the Borrower is located, organized or maintains collateral, together
with copies of such financing statements (none of which, except for the Parity
Lien and Permitted Liens, shall cover the collateral purported to be covered by
the Security Agreement);


 


(m)           Evidence that
all other actions necessary or, in the opinion of the Lender, desirable to
enable the Lender to perfect and protect the Security Interests created or
contemplated by the Loan Documents have been taken;


 


(n)            An ALTA
mortgagee title insurance policy issued by a title insurance company acceptable
to Lender, with respect to the Real Property, assuring the Lender that the
Mortgage creates a valid and enforceable encumbrance on the Real Property, free
and clear of all defects and encumbrances except Permitted Liens and
containing: (i) a comprehensive endorsement (ALTA form 9); (ii) a
zoning endorsement (ALTA form 3.1) specifying an ethanol production facility as
a


 


24

















 


permitted use for all of the parcels included in the Real Property; and
(iii) a restrictions, encroachments, minerals-owners endorsement (ALTA Form 9.2)
and (iv) such endorsements as the Lender shall reasonably require. All
such title insurance policies shall be in form and substance reasonably satisfactory
to the Lender and shall provide for affirmative insurance and such reinsurance
as the Lender may reasonably request, all of the foregoing in form and
substance reasonably satisfactory to the Lender;


 


(o)            Maps or plats
of the Real Property certified to the Lender and the title insurance company
issuing the policy referred to in Subsection 3.01(m) (the “Title Insurance Company”) in a manner
reasonably satisfactory to each of the Lender and the Title Insurance Company,
dated a date reasonably satisfactory to each of the Lender and the Title
Insurance Company by an independent professional licensed land surveyor, which
maps or plats and the surveys on which they are based shall be sufficient to
delete any standard printed survey exception contained in the applicable title
policy and be made in accordance with the Minimum Standard Detail Requirements
for Land Title Surveys jointly established and adopted by the American Land
Title Association and the American Congress on Surveying and Mapping in 1992,
and, without limiting the generality of the foregoing, there shall be surveyed
and shown on such maps, plats or surveys the following: (i) the locations
on such sites of all the buildings, structures and other improvements and the
established building setback lines; (ii) the lines of streets abutting the
sites and width thereof; (iii) all access and other easements appurtenant
to the sites necessary to use the sites; (iv) all roadways, paths,
driveways, easements, encroachments and overhanging projections and similar
encumbrances affecting the site, whether recorded, apparent from a physical
inspection of the sites or otherwise known to the surveyor; (v) any
encroachments on any adjoining property by the building structures and
improvements on the sites; and (vi) if the site is described as being on a
filed map, a legend relating the survey to said map;


 


(p)            Evidence as to:
(i) whether any portion of the Real Property is in an area designated by
the Federal Emergency Management Agency as having special flood or mud slide
hazards (a “Flood Hazard Property”);  and
(ii) if any portion of the Real Property is a Flood Hazard Property: (A) whether
the community in which such Real Property is located is participating in the
National Flood Insurance Program; (B)the Borrower’s written acknowledgment of
receipt of written notification from the Lender (1) as to the fact that
such Real Property is a Flood Hazard Property and (2) as to whether the
community in which each such Flood Hazard Property is located is participating
in the National Flood Insurance Program; and (C) copies of insurance
policies or certificates of insurance of the Borrower evidencing flood
insurance satisfactory to the Lender and naming the Lender as sole loss payee
on behalf of the Lender;


 


(q)            Evidence reasonably
satisfactory to the Lender that the Real Property and the contemplated use of
the Real Property, are in compliance in all material respects with all
applicable zoning laws or ordinances and all applicable Environmental Laws,
including, but not limited to all concentrated animal feedlot operations rules and
regulations, erosion control ordinances, storm drainage control laws, doing
business and/or licensing laws, zoning laws (the evidence submitted as to
zoning should include the zoning designation made for the Real Property, the
permitted uses of the Real Property under such zoning designation and zoning
requirements as to parking, lot size, ingress, egress and building setbacks)
and laws regarding access and facilities for disabled persons including,


 


25

















 


but not limited to, the Federal Architectural Barriers Act, the Fair
Housing Amendments Act of 1988, the Rehabilitation Act of 1973 and the
Americans with Disabilities Act of 1990;


 


(r)             A
certificate of the secretary of the Borrower together with true and correct
copies of the following: (i) the Articles of Organization of the Borrower,
including all amendments thereto, certified by the Office of the Secretary of
State of the state of its incorporation and dated within 30 days prior to the
date hereof; (ii) the Operating Agreement of the Borrower, including all
amendments thereto; (iii) the resolutions of the Board of Governors of the
Borrower authorizing the execution, delivery and performance of this Agreement,
the other Loan Documents, and all documentation executed and delivered in
connection therewith to which the Borrower is a party; (iv) certificates
of the appropriate government officials of the state of organization of the
Borrower as to its existence and good standing, and due qualification to do
business in such state, dated within 30 days prior to the date hereof; and (v) the
names of the officers of the Borrower authorized to sign this Agreement and the
other Loan Documents to be executed by each corporate Borrower, together with a
sample of the true signature of each such officer;


 


(s)            Legal
opinion of Pemberton, Sorlie, Rufer & Kershner, PLLP, legal counsel
for the Borrower, substantially in the form attached hereto as Exhibit C;


 


(t)             An
intercreditor and subordination agreement between the Lender and any holder of
Subordinated Debt as to the priority of the Lender’s Security Interests in the
Collateral, rights to payment following an Event of Default, and as to such
other matters as reasonably requested by the Lender.


 


(u)            Evidence
that the costs and expenses (including, without limitation, reasonable attorney’s
fees) referred to in Section 7.04, to the extent incurred and invoiced,
shall have been paid in full;


 


(v)            The
results of the Lender’s inspection of the Collateral, and the Lender’s receipt
of an appraisal of the Collateral acceptable to Lender in its sole discretion;


 


(w)           Satisfactory
review by the Lender of any pending litigation relating to the Borrower;


 


(x)             A
Phase I Environmental Assessment in form and substance reasonably acceptable to
the Lender;


 


(y)            The
Borrower shall have ordered the Prime Contractor and other Contractors to begin
construction of the Project, and construction shall have commenced;


 


(z)             A
schedule, certified by Borrower as accurate and complete, setting forth: (i) the
necessary licenses, permits and consents required by applicable federal, state,
and local governmental entities required for the lawful construction and
operation of the Project; and (ii) the deadlines to obtain such licenses,
permits and consents so that the Completion Date occurs as scheduled;


 


26

















 


(aa)          Lender shall
have received in form and substance reasonably acceptable to Lender, an
agreement with an Inspecting Engineer of recognized standing and acceptable to
Lender, by which agreement such Inspecting Engineer agrees to assist Lender in
its inspection of the Project during construction, review and approve requests
for Advances on the Construction Loan on behalf of Lender, and provide such
additional services as Lender may reasonably require at the sole expense of
Borrower;


 


(bb)          The Borrower
shall have provided evidence of commitment to the Lender of its Borrower’s
Equity to the Project;


 


(cc)          A Commodity
Account Control Agreement for all commodity accounts kept and maintained by the
Borrower;


 


(dd)          A Deposit
Account Control Agreement for all Deposit Accounts kept and maintained by the
Borrower;


 


(ee)          Evidence that
the insurance required by the Loan Documents has been obtained by the Borrower;


 


(ff)            An assignment
of the Borrower’s business interruption insurance policy, duly executed by the
Borrower and pursuant to which the Borrower shall have assigned to the Lender
all of the Borrower’s right, title and interest in and to its business
interruption insurance policy, and which assignment shall have been consented
to and certified in writing by the other party(ies) to the insurance policy;


 


(gg)          The Borrower
shall have provided to Lender evidence of ownership indicating that at least
50% of the voting equity of the Borrower is held by eligible borrowers; and,


 


(hh)          The Borrower
shall have provided to Lender a Collateral Assignment of Interest in Lease
Agreement in that certain Lease Agreement by and between Borrower and Otter
Tail County, Minnesota, relating to the equipment which comprises the solid
waste facility to be located on the Real Property.


 


ARTICLE IV.


REPRESENTATIONS
AND WARRANTIES


 


Section 4.01      Representations
and Warranties of the Borrower. The Borrower represents and
warrants as follows:


 


(a)        Borrower. The Borrower is a limited
liability company duly organized and validly existing and in good standing
under the laws of the State of Minnesota and is qualified to do business in all
jurisdictions in which the nature of its business makes such qualification
necessary and where failure to so qualify would have a Material Adverse Effect
on its respective financial condition or operations. The Borrower has the power
and authority to own and operate its assets and


 


27

















 


to carry on its business and to execute, deliver,
and perform its obligations under the Loan Documents to which it is or may
become a party. There are no outstanding subscriptions, options, warrants,
calls, or rights (including preemptive rights) to acquire, except as may be set
forth in the Operating and Member Control Agreement of Borrower, and no
outstanding securities or instruments convertible into, membership interests
(units) of the Borrower, except for those transactions set forth on Schedule
4.01(a);


 


(b)             The
Loan Documents. The execution, delivery and performance by the
Borrower of the Loan Documents are within the Borrower’s powers, have been duly
authorized by all necessary action, do not contravene: (i) the articles of
organization or operating agreements of the Borrower; or (ii) any law or
any contractual restriction binding on or affecting the Borrower, and do not
result in or require the creation of any lien, security interest or other
charge or encumbrance (other than pursuant to the terms thereof) upon or with
respect to any of its properties;


 


(c)             Governmental
Approvals. No consent, permission, authorization, order or
license of any Governmental Authority or of any party to any agreement to which
the Borrower is a party or by which it or any of its property may be bound or
affected, is necessary in connection with the construction of the Project, the
execution, delivery, performance or enforcement of the Loan Documents or the
creation and perfection of the liens and security interest granted thereby,
except as such have been obtained and are in full force and effect or which are
required in connection with the exercise of remedies hereunder and except as
such that are not required for the construction of the Project;


 


(d)             Enforceability.
This Agreement is, and each other Loan Document to which the Borrower is a
party when delivered will be, legal, valid and binding obligations of the
Borrower enforceable against the Borrower in accordance with their respective
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the enforcement of
creditor’s rights generally and by general principles of equity;


 


(e)             Financial
Condition and Operations. The balance sheet of the Borrower, as
of September 30, 2006, and, with respect to the period ended September 30,
2006, the related statement of cash flow of the Borrower for the fiscal period then
ended, copies of which have been furnished to the Lender, fairly present in all
material respects the financial condition of the Borrower as at such date, and
the results of the operations of the Borrower for the period ended on such
dates and since September 30, 2006, there has been no material adverse
change in such condition or operations;


 


(f)              Litigation.
Except as described on Schedule 4.01 (f), there is no pending or threatened
action or proceeding affecting the Borrower or any of the transactions
contemplated hereby before any court, governmental agency or arbitrator, which
may materially adversely affect the financial condition or operations of the
Borrower. As of the Closing Date, there are no outstanding judgments against
the Borrower;


 


28

















 


(g)            Use of Proceeds of Advances, etc. (i) No
proceeds of the Loans will be used to acquire any security in any transaction
which is subject to Sections 13 and 14 of the Securities Exchange Act of 1934
(provided, however, that this provision shall not prohibit Borrower from
investing in certain value added cooperatives for the purposes of carrying out
its overall business operations); (ii) the Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U issued by the Board of Governors of
the Federal Reserve System); and (iii) no proceeds of the Loans will be
used to purchase or carry any margin stock or to extend credit to others for
the purpose of purchasing or carrying any margin stock;


 


(h)             Liens.
Except as created by the Loan Documents or in connection with the Subordinated
Debt, and not including the Parity Lien or the Permitted Liens, there is no
lien, security interest or other charge or encumbrance, and no other type of
preferential arrangement, upon or with respect to any of the properties or
income of the Borrower, which secures Debt of any Person, except as described
in Schedule 5.02(a);


 


(i)              Taxes.
The Borrower has filed or caused to be filed all federal, state and local tax
returns that are required to be filed and has paid all other taxes,
assessments, and governmental charges or levies upon it and its property,
income, profits and assets which are due and payable, except where the payment
of such tax, assessment, government charge or levy is being contested in good
faith and by appropriate proceedings and adequate reserves in compliance with
GAAP have been set aside on the Borrower’s books therefore;


 


(j)              Solvency.
As of and from and after the date of this Agreement, the Borrower: (i) owns
and will own assets the fair saleable value of which are: (A) greater than
the total amount of liabilities (including contingent liabilities); and (B) greater
than the amount that will be required to pay the probable liabilities of its
then existing debts as they become absolute and matured considering all
financing alternatives and potential asset sales reasonably available to it; (ii) has
capital that is not unreasonably small in relation to its business as presently
conducted or any contemplated or undertaken transaction; and (iii) does
not intend to incur and does not believe that it will incur debts beyond its
ability to pay such debts as they become due;


 


(k)             Location
of Inventory and Farm Products; Third Parties in Possession; Crops.
The Borrower’s inventory and farm products pledged as collateral under the
Security Agreement are located at the places (or, as applicable, jurisdictions)
specified in Schedule 4.01(k) for the Borrower, except to the extent any such
inventory and farm products are in transit. Schedule 4.01(k) correctly
identifies, as of the date hereof, the landlords or mortgagees, if any, of each
of its locations identified in Schedule 4.01(k) currently leased or owned
by the Borrower. Except for the Persons identified on Schedule 4.01(k), no
Person other than the Borrower and the Lender has possession of any of the
Collateral. Except as described in above, none of its Collateral has been
located in any location within the past four months other than as set forth on
Schedule 4.01(k) for the Borrower;


 


29

















 


(1)             Office Locations; Fictitious
Names; Predecessor Companies; Tax I.D. Number. The Borrower’s
chief place of business, its chief executive office, and its jurisdiction of
organization is located at the place identified for the Borrower on Schedule
4.01(1). Within the last four months it has not had any other chief place of
business, chief executive office, or jurisdiction of organization. Schedule 4.01(1) also
sets forth all other places where the Borrower keeps its books and records and
all other locations where the Borrower has a place of business. The Borrower
does not do business nor has the Borrower done business during the period since
its organization under any trade-name or fictitious business name. The Borrower’s
United States Federal Income Tax ID Number and state organizational
identification number are identified on Schedule 4.01(1);


 


(m)            Title to Properties. The Borrower has such title or
leasehold interest in and to the Real Property owned or leased by it as is
necessary or desirable to the conduct of its business and valid and legal title
or leasehold interest in and to all of its Personal Property, including those
reflected on the financial statements of the Borrower previously delivered to
Lender, except those which have been disposed of by the Borrower subsequent to
the date of such delivered financial statements which dispositions have been in
the ordinary course of business or as otherwise expressly permitted hereunder;


 


(n)             Disclosure.
All material factual information furnished by or on behalf of the Borrower in
writing to the Lender (including, without limitation, all factual information
contained in the Loan Documents) for purposes of or in connection with this
Agreement, the other Loan Documents or any transaction contemplated herein or
therein is, and all other such factual information hereafter furnished by or on
behalf of the Borrower to the Lender, will be true and accurate in all material
respects on the date as of which such information is dated or certified and not
incomplete by omitting to state any fact necessary to make such information not
misleading in any material respect at such time in light of the circumstances
under which such information was provided;


 


(o)             Operation of Business. The Borrower
possesses all licenses, permits, franchises, patents, copyrights, trademarks,
and tradenames, or rights thereto, necessary to conduct its business
substantially as now conducted and will obtain all such licenses, permits,
franchises, patents, copyrights, trademarks, and tradenames, or rights thereto
necessary to conduct its business as presently proposed to be conducted except
those that the failure to so possess could not reasonably be expected to have a
Material Adverse Effect on its financial condition or operations, and the
Borrower is not in violation of any valid rights of others with respect to any
of the foregoing except violations that could not reasonably be expected to have
such a Material Adverse Effect;


 


(p)             Intellectual Property. The Borrower
owns, or has the legal right to use, all patents, trademarks, tradenames,
copyrights, technology, know-how and processes necessary for it to conduct its
business as currently conducted and will own or obtain the legal right to use
all patents, trademarks, tradenames, copyrights, technology, know-how and
processes necessary for it to conduct its business as currently conducted
(collectively the “Intellectual Property”), except
for those the failure to own or have such legal right to use could not
reasonably be expected to have a Material Adverse Effect. As of the Closing Date,
set forth in Schedule 4.01 is a list of all Intellectual


 


30

















 


Property registered with the United States Copyright
Office or the United States Patent and Trademark Office and owned by the
Borrower or that the Borrower has the right to use. To the knowledge of
Borrower, except as provided in Schedule 4.01(p), no claim has been asserted
and is pending by any Person challenging or questioning the use of any such
Intellectual Property or the validity or effectiveness of any such Intellectual
Property, nor does the Borrower know of any such claim, and, to the knowledge of
the Borrower, the use of such Intellectual Property by the Borrower does not
infringe on the rights of any Person, except for such claims and infringements
that, in the aggregate, could not reasonably be expected to have a Material
Adverse Effect;


 


(q)             Employee Benefit Plans. The
Borrower is in compliance in all material respects with the applicable
provisions of the Employee Retirement Income Security Act of 1974, as amended,
and the regulations and published interpretations thereunder, the failure, to comply
with which could have a Material Adverse Effect on the Borrower;


 


(r)              Investment Company Act. The
Borrower is not required to be registered as an “investment company” within the
meaning of the Investment Company Act of 1940, as amended;


 


(s)             Compliance with Laws. The Borrower
is in compliance in all material respects with all laws, rules, regulations,
ordinances, codes, orders, and the like, the failure to comply with which could
have a Material Adverse Effect on the Borrower;


 


(t)              Environmental Compliance. Borrower,
except as set forth in Schedule 4.01(t), is in material compliance with all
applicable Environmental Laws; and


 


(u)             Material Change. The Borrower has
performed all of its material obligations, other than those obligations for
which performance is not yet due, under all Material Contracts and, to the
knowledge of the Borrower, each other party thereto is in compliance with each
such Material Contract. Each such Material Contract is in full force and effect
in accordance with the terms thereof.  The
Borrower has made available a true and complete copy of each such Material
Contract for inspection by Lender.


 


ARTICLE V. 


COVENANTS OF THE BORROWER


 


Section 5.01.           Affirmative Covenants. So long as
any Loan Obligations remain unpaid or the Lender shall have any commitment
hereunder, the Borrower shall, unless the Lender shall otherwise consent in
advance in writing:


 


(a)             Compliance with Laws, etc. Comply
in all material respects with all applicable laws, rules, regulations and
orders, such compliance to include, without limitation, (i) all applicable
zoning and land use laws; (ii) all employee benefit and Environmental
Laws, and (iii) paying before the same become delinquent all taxes,
assessments and governmental charges imposed upon it or upon its property
except to the extent contested in good faith;


 


31

















 


(b)             Visitation Rights; Field Examination.
At any reasonable time and from time to time, permit the Lender or
representatives, to (i) examine and make copies of and abstracts from the
records and books of account of the Borrower, and (ii) enter onto the
property of the Borrower to conduct unannounced field examinations and
collateral inspections, with such frequency as Lender in its sole reasonable discretion
may deem appropriate, and (iii) discuss the affairs, finances, and
accounts of the Borrower with any of Borrower’s officers or directors. Borrower
consents to and authorizes Lender to enter onto the property of Borrower for
purposes of conducting the examinations, inspections and discussions provided
above. Lender and its authorized representatives shall follow all safety
procedures and protocols of Borrower, as well as any confidentiality and
non-disclosure procedures and protocols of Borrower or to which the Borrower or
the property are subject, during any inspection and Lender shall take all
necessary actions to ensure that such inspections shall not interfere with the
operations of the Borrower at the property. Upon and during the occurrence of
an Event of Default or in the event that there are deemed by the Lender to be
any material inconsistencies and/or material noncompliance with respect to any
financial or other reporting on the part of the Borrower, any and all visits
and inspections deemed necessary or desirable on account of such Event of
Default, inconsistency and/or noncompliance shall be at the expense of the
Borrower.  In addition to the foregoing,
at any reasonable time and from time to time, the Borrower also shall permit
the Lender or representatives thereof, at the expense of the Lender, to examine
and make copies of and abstracts from the records and books of account of, and
visit the properties of, the Borrower, and to discuss the affairs, finances and
accounts of the Borrower with any of its respective officers or directors;


 


(c)             Reporting Requirements. Furnish to
the Lender:


 


(i)            As soon as
available, but in no event later than 90 days after the end of each fiscal year
of the Borrower occurring during the term hereof, annual consolidated financial
statements of the Borrower, prepared in accordance with GAAP consistently
applied and in a format that demonstrates any accounting or formatting change
that may be required by the various jurisdictions in which the business of the
Borrower is conducted (to the extent not inconsistent with GAAP). Such
financial statements shall: (i) be audited by independent certified public
accountants selected by the Borrower and acceptable to Lender; (ii) be
accompanied by a report of such accountants containing an certified opinion,
without qualification, thereon reasonably acceptable to Lender; (iii) be
prepared in reasonable detail, and in comparative form; and (iv) include a
balance sheet, a statement of income, a statement of stockholders’, members’ or
partner’s equity, a statement of cash flows, and all notes and schedules
relating thereto and any management letter.


 


(ii)           Beginning with the
first (1st) month following the Completion Date, as soon as
available and in any event within 30 days after the end of each month, balance
sheets of the Borrower as of the end of such month and statement of income of
the Borrower for the period commencing at the end of the previous fiscal year
and ending with the end of such month, prepared in accordance with GAA in all
material respects and certified by an authorized officer of the Borrower;


 


 


32

















 


(iii)             As soon as available but in no event later than 30 days
after the end of each of the first three fiscal quarters of each fiscal year of
the Borrower occurring during the term hereof, unaudited quarterly consolidated
financial statements of the Borrower, in each case prepared in accordance with
GAAP in all material respects consistently applied (except for the omission of
footnotes and for the effect of normal year-end audit adjustments) and in a
format that demonstrates any accounting or formatting change that may be
required by various jurisdictions in which the business of the Borrower is
conducted (to the extent not inconsistent with GAAP). Each of such financial
statements shall (i) be prepared in reasonable detail and in comparative
form, including a comparison of actual performance to the budget for such
quarter and year-to-date, delivered to Lender under Subsection 5.01(c)(vi) below,
and (ii) include a balance sheet, a statement of income for such quarter
and for the period year-to-date, and such other quarterly statements as Lender
may specifically request which quarterly statements shall include any and all
supplements thereto. Such quarterly statements shall be certified by an
authorized officer of the Borrower, and be accompanied by a Compliance
Certificate which: (A) states that no Event of Default, and no event or
condition that but for the passage of time, the giving of notice or both would
constitute an Event of Default, has occurred or is in existence; and (B) shows
in detail satisfactory to the Lender the calculation of, and the Borrower’
compliance with, each of the covenants contained in Sections 5.01(d), 5.01(e),
5.01(f), and 5.01(g);


 


(iv)             promptly
upon the Lender’s request therefor, copies of all reports and notices which the
Borrower or any of its subsidiaries files under ERISA with the Internal Revenue
Service or the Pension Benefit Guaranty Corporation or the U.S. Department of
Labor or which the Borrower or any its subsidiary receives from such
Corporation;


 


(v)              notwithstanding
the foregoing Section 5.01(c)(iv), provide to Lender within 30 days after
it becomes aware of the occurrence of any Reportable Event (as defined in Section 4043
of ERISA) applicable to the Borrower or any of its Subsidiaries, a statement
describing such Reportable Event and the actions it proposes to take in
response to such Reportable Event;


 


(vi)             by
December 1 of each fiscal year of the Borrower, an annual (with monthly
break out) operating and capital assets budget of the Borrower for the
immediately succeeding fiscal year containing, among other things, pro forma
financial statements and forecasts for all planned lines of business;


 


(vii)            as
soon as available but in any event not more than 30 days after the end of each
month, production reports for the immediately preceding calendar month setting
forth corn inputs, ethanol output, DDGS, and natural gas usage, together with such
additional production information as requested by Lender;


 


(viii)           promptly,
upon the occurrence of an Event of Default or an event or condition that but
for the passage of time or the giving of notice or both would constitute an
Event of Default, notice of such Event of Default or event;


 


33

















 


(ix)             promptly after
the receipt thereof, a copy of any management letters or written reports
submitted to the Borrower by its independent certified public accountants with
respect to the business, financial condition or operation of the Borrower;


 


(x)              promptly after
the receipt thereof, a copy of any notice of default under any Long-Term
Marketing Agreement;


 


(xi)             promptly after
transmittal or filing thereof by the Borrower, copies of all proxy statements,
notices and reports as it shall send to its members and copies of all
registration statements (without exhibits) and all reports which it files with
the Securities and Exchange Commission (or any governmental body or agency
succeeding to the functions of the Securities and Exchange Commission), and
promptly after the receipt thereof by the Borrower, copies of all management
letters or similar documents submitted to the Borrower by independent certified
public accountants in connection with each annual and any interim audit of the
accounts of the Borrower or of the Borrower and any of its Subsidiaries.


 


(xii)            such other
information respecting the condition or operations, financial or otherwise, of
the Borrower or any of its respective subsidiaries as the Lender may from time
to time reasonably request;


 


(xiii)           promptly after
the commencement thereof, notice of the commencement of all actions, suits, or
proceedings before any court, arbitrator, or government department, commission,
board, bureau, agency, or instrumentality affecting the Borrower or any of its
subsidiaries which, if determined adversely, could have a Material Adverse
Effect on any of the Borrower or its subsidiaries;


 


(xiv)           without
limiting the provisions of Section 5.01(c)(xiii) above, promptly after
receipt thereof, notice of the receipt of all pleadings, orders, complaints,
indictments, or any other communication alleging a condition that may require
the Borrower or any of its subsidiaries to undertake or to contribute to a
cleanup or other response under all laws relating to environmental protection,
or which seek penalties, damages, injunctive relief, or criminal sanctions
related to alleged violations of such laws, or which claim personal injury or
property damage to any person as a result of environmental factors or
conditions;


 


(xx)             promptly after
filing, receipt or becoming aware thereof, copies of any filings or
communications sent to and notices or other communications received by the
Borrower or any of its subsidiaries from any Governmental Authority, including,
without limitation, the Securities and Exchange Commission, the FCC, the PUC,
or any other state utility commission relating to any material noncompliance by
the Borrower or any of its subsidiaries with any laws or with respect to any
matter or proceeding the effect of which, if adversely determined, could have a
Material Adverse Effect on any of the Borrower of its subsidiaries;


 


(xxi)            promptly after
becoming aware thereof, notice of any matter which has had or could have a
Material Adverse Effect on the Borrower or its subsidiaries.


 


34

















 


(d)            Working Capital. Achieve Working
Capital of at least $5,000,000.00 at the Completion Date, and achieve and
maintain Working Capital of $7,000,000.00 no later than twelve (12) months
after the Completion Date, and continually thereafter;


 


(e)             Tangible Net Worth. On the
Completion Date, the Borrower’s Tangible Net Worth shall be not less than
$43,000,000.00. At the end of the first fiscal year after the Completion Date,
and continually thereafter, measured at the end of each fiscal year, the
Borrower shall achieve and maintain Tangible Net Worth in an amount equal to
the lesser of: (i) the Borrower’s Tangible Net Worth at the end of the
immediately preceding fiscal year plus $1,000,000.00; or (ii) the Borrower’s
Tangible Net Worth at the end of the immediately preceding fiscal year plus the
Borrower’s retained earnings at the end of the current fiscal year;


 


(f)             Tangible Owner’s Equity. Achieve
and maintain Tangible Owner’s Equity of at least 55% beginning at the end of
the 12th month following the Completion Date, and annually
thereafter.


 


(g)            Fixed Charge Coverage Ratio.
Maintain a Fixed Charge Coverage Ratio of not less than 1.15 to 1.00, measured
initially at the end of the 12th month following the Completion Date
and maintained and measured at the end of each fiscal year thereafter.


 


(h)             Liens. There shall be no lien, security
interest or other charge or encumbrance, and no other type of preferential
arrangement, upon or with respect to any of the properties or income of the
Borrower, which secures Debt of any Person, except for the security interests
of the Security Agreement or except as described in Schedule 5.02(a) and
Permitted Liens;


 


(i)              Landlord Waivers. Obtain and
furnish to the Lender as soon as available, waivers, acknowledgments and
consents, duly executed by each: (i) real property owner or landlord
having an interest in any of the real estate leased by the Borrower or in which
any Collateral of the Borrower is located or to be located (and if no
Collateral of Borrower is located at a parcel of property not owned or leased
by a Borrower, no such waivers, acknowledgments or consents will be required);


 


(j)              Insurance. Maintain insurance with
financially sound and reputable insurance companies in such amounts and
covering such risks as are usually carried by entities engaged in similar
businesses and owning similar properties in the same general areas in which the
Borrower operates, and make such increases in the type of amount or coverage as
Lender may reasonably request, provided that in any event the Borrower will
maintain and cause each of its subsidiaries to maintain workers’ compensation
insurance, property insurance and comprehensive general liability insurance
reasonably satisfactory to the Lender. The Borrower shall maintain, at a
minimum, directors and officers liability insurance, commercial liability
insurance, business interruption insurance, builder’s risk insurance, and
general commercial property insurance. All such policies insuring any
collateral for the Borrower’s obligations to Lender shall have lender or
mortgagee loss payable clauses or endorsements in form and substance reasonably
acceptable to


 


35

















 


Lender. Each insurance policy covering Collateral shall be in
compliance with the requirements of the Security Agreement in all material
respects;


 


(k)             Property and Insurance Maintenance.
Maintain and preserve all of its property and each and every part and parcel
thereof that is necessary to or useful in the proper conduct of its business in
good repair, working order, and condition, ordinary wear and tear excepted, and
in compliance with all applicable laws, and make all alterations, replacements,
and improvements thereto as may from time to time be necessary in order to
ensure that its properties remain in good working order and condition and
compliance. The Borrower agrees that upon the occurrence and continuing
existence of an Event of Default, at Lender’s request, which request may not be
made more than once a year, the Borrower will furnish to Lender a report on the
condition of the Borrower’s and any of its subsidiaries’ property prepared by a
professional engineer satisfactory to Lender;


 


(1)             Keeping Books and Records. Maintain
and cause each of its subsidiaries to, maintain proper books of record and
account in which full, true, and correct entries in conformity with generally
accepted accounting principles shall be made of all dealings and transactions
in relation to its business and activities;


 


(m)            Food Security Act Compliance. If
the Borrower acquires any Collateral which may have constituted farm products
in the possession of the seller or supplier thereof, such Borrower shall, at
its own expense, use commercially reasonable efforts to take such steps to
insure that all Liens (except the liens granted pursuant hereto) in such
acquired Collateral are terminated or released, including, without limitation,
in the case of such farm products produced in a state which has established a
Central Filing System (as defined in the Food Security Act), registering with
the Secretary of State of such state (or such other party or office designated
by such state) and otherwise take such reasonable actions necessary, as
prescribed by the Food Security Act, to purchase farm products free of liens
(except the liens granted pursuant hereto); provided, however, that such
Borrower may contest and need not obtain the release or termination of any lien
asserted by any creditor of any seller of such farm products, so long as it
shall be contesting the same by proper proceedings and maintain appropriate
accruals and reserves therefor in accordance with the generally accepted
accounting principles. Upon the Lender’s request made, the Borrower agrees to
forward to the Lender promptly after receipt copies of all notices of liens and
master lists of Effective Financing Statements delivered to the Borrower pursuant
to the Food Security Act, which notices and/or lists pertain to any of the
Collateral. Upon the Lender’s request, the Borrower agrees to provide the
Lender with the names of Persons who supply the Borrower with such farm
products and such other information as the Lender may reasonably request with
respect to such Persons;


 


(n)            Warehouse Receipts   If any warehouse receipt or receipts in the
nature of a warehouse receipt is issued in respect of any portion of the
Collateral, then the Borrower: (i) will not permit such warehouse receipt
or receipts in the nature thereof to be “negotiable” as such term is used in Article 7
of the Uniform Commercial Code; and (ii) will deliver all such receipts to
the Lender (or a Person designated by the Lender) within five (5) days of
the Lender’s request and from time to time thereafter. If no Event of Default
exists, the Lender agrees to deliver to such Borrower


 


36

















 


any receipt so held by the Lender upon such Borrower’s request in
connection with such sale or other disposition of the underlying inventory, if
such disposition is in ordinary course of such Borrower’s business;


 


(o)       Management of Borrower. The Chief
Executive Officer and Plant Manager of the Borrower shall be maintained as set
forth on Schedule 5.01 (o) hereto, unless the Borrower shall provide
Lender with written notice within ten (10) Business Days after of any such
change.


 


(p)       Compliance with Other Agreements. Borrower will perform in all material
respects all obligations and abide in all material respects by all covenants
and agreements contained in the following agreements: (i) any and all Long
Term Marketing Agreements; and (ii) any other Material Contracts.


 


(q)       Deposit Accounts. Borrower shall
maintain all of it’s Deposit Accounts at all times during the term of this
Agreement solely with financial organizations that will enter into Deposit
Account Control Agreements acceptable to the Lender.


 


(r)        Additional Assurance. Make, execute and deliver to Lender such promissory notes,
mortgages, deeds of trust, financing statements, control agreements,
instruments, documents and other agreements as Lender or its counsel may
reasonably request to evidence and secure the Loans and to perfect all Security
Interests; and


 


(s)        Construction of Project. Borrower
shall:


 


(i)               diligently proceed with
construction of the Project in accordance with the Plans and Specifications and
in accordance with all applicable laws and ordinance and will complete the
Project on or before the Completion Date;


 


(ii)              use the proceeds of all Advances
solely to pay the Project Costs as specified in the Project Sources and Uses
Statement;


 


(iii)             use its reasonable efforts to
require the Contractor(s) to comply with all rules, regulations, ordinances and
laws relating to work on the Project;


 


(iv)             obtain the Lender’s prior written
approval of any change in the Plans and Specifications for the Project approved
by the Lender which might materially adversely affect the value of the Lender’s
security, and has a cost of $50,000.00 or greater. The Lender will have a
reasonable time to evaluate any requests for its approval of any changes
referred to in this paragraph. The Lender may approve or disapprove changes in
its discretion, subject to the foregoing provisions of this Section 5.01(r)(iv).
If it reasonably appears to the Lender that any change may increase the Project
Costs, the Lender may require the Borrower to deposit additional funds with the
Lender pursuant to the provisions of this Agreement in an amount sufficient to
cover the increased costs as a condition to giving its approval;


 


37

















 


(v)              comply
with and keep in effect all necessary permits and approvals obtained from any
Governmental Authority relating to the lawful construction of the Project. The
Borrower will comply with all applicable existing and future laws, regulations,
orders, and requirements of any Governmental Authority, judicial, or legal
authorities having jurisdiction over the Real Property or Project, and with all
recorded restrictions affecting the Real Property;


 


(vi)             furnish
to the Lender from time to time on request by the Lender, in a form reasonably
acceptable to the Lender, correct lists of all contractors and subcontractors
employed in connection with construction of the Project and true and correct
copies of all executed contracts and subcontracts. The Lender may contact any
contractor or subcontractor to verify any facts disclosed in the lists,
Borrower must consent to the disclosure of such information by the contractors
and subcontractors to Lender or its agents upon Lender’s request, and Borrower
must assist Lender or its agents in obtaining such information upon Lender’s
request;


 


(vii)            upon
completion of the Project, deliver to the Lender an “as-built” survey of the
Real Property which: (a) sets forth the location and exterior lines and
egress and other improvements completed on the Real Property and demonstrates
compliance with all applicable setback requirements; (b) demonstrates that
the Project is entirely within the exterior boundaries of the Real Property and
any building restriction lines and does not encroach upon any easements or
rights-of-way; and (c) contains such other information as the Lender may reasonably
request;


 


(viii)           not
purchase any materials, equipment, fixtures, or articles of personal property
placed in the Project prior to the Conversion Date under any security agreement
or other agreement where the seller reserves or purports to reserve title or
the right of removal or repossession, or the right to consider them personal
property after their incorporation in the work of construction, unless
authorized by the Lender in writing;


 


(ix)             provide
the Lender and its representatives with access to the Real Property and the
Project at any reasonable time and upon reasonable notice to enter the Real
Property and inspect the work or construction and all materials, plans,
specifications, and other matters relating to the construction. The Lender will
also have the right to, at any reasonable time and upon reasonable notice,
examine, copy, and audit the books, records, accounting data, and other
documents of the Borrower and its contractors relating to the Real Property or
construction of the Project;


 


(x)              pay
and discharge all claims and liens for labor done and materials and services
furnished in connection with the construction of the Project. The Borrower will
have the right to contest in good faith any claim or lien, provided that it
does so diligently and without prejudice to the Lender or the ability to obtain
title insurance in the manner required by this Agreement and the Disbursing
Agreement. Upon the Lender’s request, the Borrower will promptly provide a
bond, cash deposit, or other security reasonably satisfactory to the Lender to
protect the Lender’s interest and security should the contest be unsuccessful;


 


38

















 


(xi)             at
the Lender’s request and expense, post signs on the Real Property for the
purpose of identifying the Lender as the “Lender.” At the request of the
Lender, or the participating local community banks, the Borrower will use its
reasonable efforts to identify the Lender as the lender in publicity concerning
the Project;


 


(xii)            maintain
in force until full payment of the builder’s risk insurance in such amounts,
form, risk coverage, deductibles, insurer, loss payable and cancellation
provisions as reasonably required by the Lender. The Lender’s approval,
however, will not be a representation of the solvency of any insurer or the
sufficiency of any amount of insurance;


 


(xiii)           cooperate
at all times with the Lender in bringing about the timely completion of the
Project, and resolve all disputes arising during the work of construction in a
manner which will allow work to proceed expeditiously. With respect to such
disputes, the Borrower will have the right to contest in good faith claims
resulting in disputes, provided that it does so diligently and without
prejudice to the Lender. Upon the Lender’s request, the Borrower will promptly
provide a bond, cash deposit, or other security reasonably satisfactory to the
Lender to protect the Lender’s interest and security should the contest be
unsuccessful;


 


(xiv)           pay
the Lender’s and the Disbursing Agent’s reasonable out-of-pocket costs and
expenses incurred in connection with the making or disbursement of the Loans or
in the exercise of any of its rights or remedies under this Agreement,
including but not limited to title insurance and escrow charges, disbursing
agent fees, recording charges, and mortgage taxes, reasonable legal fees and
disbursements, and reasonable fees and costs for services which are not
customarily performed by the Lender’s salaried employees and are not
specifically covered by the fees charged to originate the Loan, if any. The
provision of this paragraph will survive the termination of this Agreement, the
Supplements and the repayment of the Loans;


 


(xv)            keep
true and correct financial books and records on a cash basis for the
construction of the Project and maintain adequate reserves for all
contingencies. If required by the Lender, the Borrower will submit to the
Lender at such times as it reasonably requires (which will in no event be more
often than monthly) a statement which accurately shows the application of all
funds expended to date for construction of the Project and the source of those
funds as well as the Borrower’s reasonable estimate of the funds needed to
complete the Project and the source of those funds. The Borrower will promptly
supply the Lender with any financial statements or other information concerning
its affairs and properties as the Lender may reasonably request, and will
promptly notify the Lender of any material adverse change in its financial condition
or in the physical condition of the Property or Project;


 


(xvi)           comply
with the requirements of any commitment or agreement entered into by Borrower
with any Governmental Authority to assist the construction or financing of the
Real Property and/or Project and with the terms of all applicable laws,
regulations, and requirements governing such assistance;


 


39

















 


(xvii)          indemnify
and hold the Lender harmless from and against all liabilities, claims, damages,
reasonable costs, and reasonable expenses (including but not limited to
reasonable legal fees and disbursements) arising out of or resulting from any
defective workmanship or materials occurring in the construction of the Project.
Upon demand by the Lender, the Borrower will defend any action or proceeding
brought against the Lender alleging any defective workmanship or materials, or
the Lender may elect to conduct its own defense at the reasonable expense of
the Borrower. The provisions of this paragraph will survive the termination of
this Agreement, the Supplements and the repayment of the Loans;


 


(xviii)         obtain
and deliver to the Lender copies of all necessary occupancy certificates
relating to the Project.


 


Section 5.02.        Negative Covenants.
So long as any of the Loan Obligations remain unpaid or the Lender shall have
any commitment hereunder, the Borrower will not, without the prior written
consent of the Lender:


 


(a)          Liens, etc. Create or suffer to
exist, or permit any of its subsidiaries to create or suffer to exist, any
lien, security interest or other charge or encumbrance, or any other type of
preferential arrangement, upon or with respect to any of its properties,
whether now owned or hereafter acquired, or assign, or permit any of its subsidiaries
to assign, any right to receive income, in each case to secure any Debt (as
defined below) of any Person, other than “Permitted Liens”:


 


(i)               those
described on Schedule 5.02(a) hereto and renewals and extensions on the
same or substantially the same terms and conditions and at no increase in the
debt or obligation; or


 


(ii)              liens
or security interests which are subject to an intercreditor and subordination
agreement in form and substance reasonably acceptable to Lender in Lender’s
sole discretion; or


 


(iii)             the
liens or security interests of the Lender in the Security Agreement, Mortgage
or otherwise; or


 


(iv)             liens
(other than liens relating to environmental liabilities or ERISA) for taxes,
assessments, or other governmental charges that are not more than 30 days
overdue or, if the execution thereof is stayed, which are being contested in
good faith by appropriate proceedings diligently pursued and for which adequate
reserves have been established; or


 


(v)              after
the Conversion Date, liens of warehousemen, carriers, landlords, mechanics,
materialmen, or other similar statutory or common law liens securing
obligations that are not yet due and are incurred in the ordinary course of
business or, if the execution thereof is stayed, which are being contested in
good faith by appropriate proceedings diligently pursued and for which adequate
reserves have been established in accordance with generally accepted accounting
principles; or


 


40

















 


(vi)             liens
resulting from good faith deposits to secure payments of workmen’s compensation
unemployment insurance, or other social security programs or to secure the
performance of tenders, leases, statutory obligations, surety, customs and
appeal bonds, bids or contracts (other than for payment of Debt); or


 


(vii)            any
attachment or judgment lien not constituting an Event of Default; or


 


(viii)           liens
arising from filing UCC financing statements regarding leases not prohibited by
this Agreement; or


 


(ix)             customary
offset rights of brokers and deposit banks arising under the terms of
securities account agreements and deposit agreements; or


 


(x)              any
real estate easements and easements, covenants and encumbrances that
customarily do not affect the marketable title to real estate or materially
impair its use; or


 


(xi)             liens
for purchase money security interest in equipment and vehicles or any other
property acquired or held in the ordinary course of business not to exceed an
aggregate amount of $100,000.00.


 


(b)           Distributions, etc. Declare or pay any
dividends, purchase or otherwise acquire for value any of its membership
interests (units) now or hereafter outstanding, or make any distribution of
assets to its stockholders, members or general partners as such, or permit any
of its subsidiaries to purchase or otherwise acquire for value any stock,
membership interest or partnership interest of the Borrower, provided, however,
the Borrower may: (i) declare and pay dividends or distributions payable
in membership interests (units); (ii) purchase or otherwise acquire shares
of the membership interests (units) of the Borrower with the proceeds received
from the issuance of new membership interests (units); (iii) pay
redemptions, dividends or distributions in an amount not to exceed, in the
aggregate, 40% of the Borrower’s immediately preceding fiscal year’s Net Income
(“Allowed
Distributions”);  (iv) pay
dividends or distributions which are immediately reinvested in the Borrower (“Reinvestment
Distributions”);  (v) complete
the transactions reflected on Schedule 4.01(a) and (vi) after payment
of the Excess Cash Flow Payment required by Section 2.17, if any, pay
additional distributions in an amount reasonably acceptable to Lender (“Excess  Distributions”), provided,
however, that immediately prior to the proposed payment of any
dividends or distributions permitted by this Section 5.02(b), or after
giving effect thereto, no Default or Event of Default shall exist; or


 


(c)           Capital Expenditures. Except for costs
identified in the Project Costs and Uses Statement, make any investment in
fixed assets in the aggregate amount in excess of $500,000.00 during any fiscal
year during the term of this Agreement; or


 


41
















 


(d)          Consolidation, Merger, Dissolution,
Etc. Directly or indirectly, merge or consolidate with
any other Person or permit any other Person to merge into or with or
consolidate with the Borrower or any of its subsidiaries; or


 


(e)           Indebtedness, etc. Create, incur,
assume or suffer to exist any Debt or other indebtedness, liabilities or
obligations, whether matured or unmatured, liquidated or unliquidated, direct
or contingent, joint or several, in excess of $50,000.00 in the aggregate
annually except: (i) the liabilities of the Borrower to the Lender
hereunder; (ii) trade accounts payable and accrued liabilities (other than
Debt) arising in the ordinary course of the Borrower’s business;
(iii) subordinated debt; and (iv) the liabilities of the Borrower
described on Schedule 5.02(a), (iv) contracts or agreements other than
Material Contracts arising in the ordinary course of the Borrower’s business;
or


 


(f)           Organization; Name; Chief Executive Office.
Change its state of organization, name or the location of its chief
executive office except that the principal office shall be moved to the plant
site when construction of the administration office is substantially complete;
or


 


(g)          Loans. Guaranties, etc. Make any loans
or advances to (whether in cash, in-kind, or otherwise) any Person, or directly
or indirectly guaranty or otherwise assure a creditor against loss in respect
of any indebtedness, obligations or liabilities (contingent or otherwise) of
any Person; or


 


(h)          Subsidiaries; Affiliates. Form or
otherwise acquire any subsidiary or affiliated business, or acquire the assets
of or acquire any equity or ownership interest in any Person, unless such
subsidiary, affiliate or Person executes and delivers to the Lender: (i) a
guaranty of all of the Loan Obligations, in form and substance acceptable to
the Lender in its sole discretion; (ii) security agreements in form
substantially similar to the Security Agreement; and (iii) such other
documents and amendments to this Agreement and the other Loan Documents as the
Lender shall reasonably require; or


 


(i)            Transfer of Assets. Except as may be
permitted in this Agreement or other Loan Documents, sell, lease, assign,
transfer, or otherwise voluntarily dispose of any of its assets, or permit any
of its subsidiaries to sell, lease, assign, transfer, or otherwise voluntarily
dispose of any of its assets except: (i) dispositions of inventory in the
ordinary course of business; and (ii) dispositions of: (A) obsolete
or worn out equipment; (B) equipment or real property not necessary for
the operation of its business; or (C) equipment or real property which is
replaced with property of equivalent or greater value as the property which is
disposed;


 


(j)            Lines of Business. Engage in any line or lines of business
activity other than the production, distribution, marketing and sale of ethanol
and related by products;


 


(k)           Transactions with Affiliates. Directly
or indirectly enter into or permit to exist any transaction (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate or with any director, officer or employee of the
Borrower or any Affiliate, except (i) transactions listed on Schedule
5.02(k), (ii) transactions in the ordinary course of


 


42

















 


and
pursuant to the reasonable requirements of the business of the Borrower or any
of its subsidiaries and upon fair and reasonable terms which are fully
disclosed to Lender and are no less favorable to the Borrower or such subsidiary
than would be obtained in a comparable arm’s length transaction with a person
or entity that is not an Affiliate, and (iii) payment of compensation to
directors, officers and employees in the ordinary course of business for
services actually rendered in their capacities as directors, officers and
employees, provided such compensation is reasonable and comparable with
compensation paid by companies of like nature and similarly situated;


 


(1)                               Management Fees and Compensation. Except for
those transactions permitted in Subdivision (k) directly preceding,
directly or indirectly pay any management, consulting or other similar fees to
any person, except legal or consulting fees paid to persons or entities that
are not Affiliates of the Borrower or its subsidiaries for services actually
rendered and in amounts typically paid by entities engaged in the Borrower’s or
such subsidiary’s business; or


 


(m)                            Amendments to Organizational Documents. Amend its operating agreement, member control
agreement or any other organizational documents in any material respect.


 


ARTICLE VI.


EVENTS OF
DEFAULT AND REMEDIES


 


Section 6.01.                    Events of Default.  Each of the following events
shall be an “Event of Default”:


 


(a)                               The Borrower
shall fail to pay any installments of principal or interest, fees, expenses,
charges or other amounts payable hereunder or under the other Loan Documents or
to make any deposit of funds required under this Agreement when due or within
five (5) days of its due date; or


 


(b)                             Any
representation or warranty made by the Borrower, or any of its officers or
directors under or in connection with any Loan Document shall prove to have
been incorrect in any material respect when made; or


 


(c)                              The Borrower
shall fail to perform or observe any term, covenant or agreement contained in
Sections 5.01(d), (e), (f) or (g) or take any action as prohibited by
Section 5.02; or


 


(d)                             The Borrower
shall fail to deliver the financial statements or Compliance Certificate under Section 5.01(c) within
5 days of the date due; or


 


(e)                              The Borrower
shall fail to perform or observe any term, covenant or agreement contained in
any Loan Document (other than those listed in clauses (a) through (b) of
this Section 6.01) on its part to be performed or observed (other than the
covenants to pay the Loan Obligations) and any such failure shall remain
unremedied for thirty (30) days after written notice


 


43

















 


thereof shall have been given to the Borrower by the Lender, provided,
however, that no Event of Default shall be deemed to exist if, within said
thirty (30) day period, Borrower have commenced appropriate action to remedy
such failure and shall diligently and continuously pursue such action until
such cure is completed, unless such cure is or cannot be completed within
thirty (30) days after written notice shall have been given; or


 


(f)                                  The Borrower
shall fail to pay any indebtedness in an amount in excess of $250,000.00
(either in any individual case or in the aggregate) excluding indebtedness evidenced
by the Notes and excluding Ordinary Trade Payable Disputes, or any interest or
premium thereon, when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such indebtedness; or any other default under any agreement or
instrument relating to any such indebtedness, or any other event, shall occur
and shall continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such default or event is to
accelerate, or to permit the acceleration of, the maturity of such indebtedness
(excluding Ordinary Trade Payable Disputes); or any such indebtedness shall be
declared to be due and payable, or required to be prepaid (other than by a
regularly scheduled required prepayment), prior to the stated maturity thereof
(excluding Ordinary Trade Payable Disputes); or


 


(g)                               The Borrower
shall generally not pay its debts as such debts become due, or shall admit in
writing its inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be instituted
by or against the Borrower seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee or other
similar official for it or for any substantial part of its property, and, in
the case of any such proceeding instituted against it (but not instituted by
it) either such proceeding shall remain undismissed or unstayed for a period of
sixty (60) days or any of the actions sought in such proceeding (including,
without limitation, the entry of an order for relief against it or the
appointment of a receiver, trustee, custodian or other similar official for it
or for any substantial part of its property) shall occur; or the Borrower shall
take any corporate action to authorize any of the actions set forth above in
this subsection; or


 


(h)                             Any one or more
uninsured judgment(s) or order(s) for the payment of money in excess
of $100,000.00 in the aggregate shall be rendered against the Borrower and
either: (i) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order; or (ii) there shall be any period of
10 consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; or


 


(i)                                 Any provision
of any Loan Document shall for any reason cease to be valid and binding on the
Borrower or the Borrower shall so state in writing; or


 


44

















 


(j)                                 The Mortgage or
the Security Agreement shall for any reason, except to the extent permitted by
the terms thereof, cease to create a valid lien, encumbrance or security
interest in any of the property purported to be covered thereby; or


 


(k)                              The termination
of any Long Term Marketing Agreement prior to its stated expiration date,
unless such Long Term Marketing Agreement is replaced by another Long Term
Marketing Agreement acceptable to the Lender, within sixty (60) days of the
termination of such Long Term Marketing Agreement; or


 


(1)                              The Borrower
shall dissolve, merge, consolidate with other Persons, or suspend or
discontinue doing business; or


 


(m)                           Construction of
the Project is halted or abandoned prior to completion for any period of thirty
(30) consecutive days for any cause which is not beyond the reasonable control
of the Borrower, its contractors and subcontractors; or


 


(n)                             The construction
of the Project shall be delayed for any reason and for such period that, in the
reasonable judgment of the Lender, the Project will not be completed by the
Completion Date. If such delay is curable and if Borrower has not been given a
notice of a similar breach within the preceding twelve (12) months, it may be
cured (and no Event of Default will have occurred) if Borrower cures the
failure within thirty (30) days, which shall include advancing the progress of
the Project to the point that, in the reasonable judgment of the Lender, the
Project will be completed by the Completion Date; or


 


(o)                             Any event,
change or condition not referred to elsewhere in this Section 6.01 should
occur which results in a Material Adverse Effect on the Borrower, any
subsidiary or any guarantor of the Borrower’s obligations hereunder; or


 


(p)                             Any guarantee,
suretyship, subordination agreement, maintenance agreement, or other agreement
furnished in connection with the Borrower’s obligations hereunder and under any
Note shall, at any time, cease to be in full force and effect, or shall be
revoked or declared null and void, or the validity or enforceability thereof
shall be contested by the guarantor, surety or other maker thereof, or the
Guarantor shall deny any further liability or obligations thereunder, or shall
fail to perform its obligations thereunder, or any representation or warranty
set forth therein shall be breached, or the Guarantor shall breach or be in
default under the terms of any other agreement with Lender (including any loan
agreement or security agreement); or


 


(q)                             The loss,
suspension or revocation of, or failure to renew, any material franchise,
license, certificate, permit, authorization, approval or the like now held or
hereafter acquired by the Borrower or any of its subsidiaries, if such loss,
suspension, revocation or failure to renew could reasonably be expected to have
a Material Adverse Effect on the Borrower or (ii) any regulatory or
Governmental Authority replaces the management of the Borrower or any of its
subsidiaries or assumes control over the Borrower or such subsidiary; or


 


45

















 


(r)                                The Borrower
should breach or be in default under a Material Contract in any material
respect, including any material breach or default, or any termination shall
have occurred, or any other event which would permit any party other than the
Borrower to cause a termination, or any Material Contract shall have ceased for
any reason to be in full force and effect prior to its stated or optional
expiration date, and any such failure shall remain unremedied for thirty (30)
days after written notice thereof shall have been given to the Borrower by the
Lender, provided, however, that no Event of Default shall be deemed to exist if,
within said thirty (30) day period, Borrower has commenced appropriate action
to remedy such failure and shall diligently and continuously pursue such action
until such cure is completed, unless such cure is or cannot be completed within
thirty (30) days after written notice shall have been given; or


 


(s)                              The Borrower
should terminate, change, amend or restate, without the Lender’s prior consent
any Material Contract, or any material Construction Contract, except as may be
otherwise permitted by this Agreement or other Loan Document.


 


Section 6.02.   Remedies. Upon the occurrence of an
Event of Default and at any time while such Event of Default is continuing, the
Lender:


 


(a)                               may accelerate
the due date of the unpaid principal balance of the Notes, all accrued but
unpaid interest thereon and all other amounts payable under this Agreement
making such amounts immediately due and payable, whereupon the Notes, all such
interest and all such amounts shall become and be forthwith immediately due and
payable, without presentment, notice of intent to accelerate or notice of
acceleration, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Borrower; provided,
however, that in the event of an actual or deemed entry of an order
for relief with respect to any of the Borrower under the Federal Bankruptcy
Code, the Notes, all such interest and all such amounts shall automatically
become due and payable, without presentment, demand, protest or any notice of
any kind, all of which are hereby expressly waived by the Borrower;


 


(b)                              may withhold or
direct the Disbursing Agent to withhold any one or more Advances in its
discretion, and terminate the Lender’s obligations, if any, under this
Agreement to make any Advances whereupon the commitment and obligations of the
Lender to extend credit or to make Advances hereunder shall terminate, and no
disbursement of Loan funds by the Lender will cure any default of the Borrower,
unless the Lender agrees otherwise in writing;


 


(c)                               may, by notice
to the Borrower, obtain the appointment of a receiver to take possession of all
Collateral of the Borrower, including, but not limited to all personal
property, including all fixtures and equipment leased, occupied or used by any
of the Borrower. Borrower hereby irrevocably consents to the appointment of
such receiver and agrees to cooperate and assist any such receiver as
reasonably requested to facilitate the transfer of possession of the Collateral
to such receiver and to provide such receiver access to all books, records,
information and documents as requested by such receiver;


 


46

















 


(d)                              in its
discretion, enter the Real Property and take any and all actions necessary in
its judgment to complete construction of the Project, including but not limited
to making changes in Plans and Specifications, work or materials, and entering
into, modifying, or terminating any contractual arrangements, subject to the
Lender’s right at any time to discontinue any work without liability. If the
Lender elects to complete the Project, it will not assume any liability to the
Borrower or any other person for completing the Project or for the manner or
quality of construction of the Project, and the Borrower expressly waives any such
liability. The Borrower irrevocably appoints the Lender as its
attorney-in-fact, with full power of substitution, to complete the Project in
the Borrower’s name, or the Lender may elect to complete construction in its
own name. In any event, all sums expended by the Lender in completing
construction will be considered to have been disbursed to the Borrower and will
be secured by the Mortgage and any other instruments or documents securing the
Loans, and any such sums that cause the principal amount of the Loans to exceed
the face amount of the Notes will be considered to be an additional loan to the
Borrower bearing interest at the rate provided in the Notes and will be secured
by the Mortgage and any other instrument or documents securing the Loans. The Lender
will not have any obligation under the Plans and Specifications prepared for
the Project, any studies, data, and drawings with respect thereto prepared by
or for Borrower, or the contracts and agreements relating to the Plans and
Specifications, or the aforesaid studies, data, and drawings, or to the
construction of the Project unless it expressly hereafter agrees in writing.
The Lender will have the right to exercise any rights of the Borrower under
those contracts and agreements or with respect to such Plans and
Specifications, studies, data, and drawings upon any default by the Borrower
under this Agreement, and shall have such other rights and remedies with
respect thereto as are afforded a secured creditor under applicable law; and


 


(e)                               may, by notice
to the Borrower, require the Borrower to pledge to the Lender as security for
the Loan Obligations an amount in immediately available funds equal to the then
outstanding Letter of Credit Liabilities, such funds to be held in an interest
bearing cash collateral account at the Lender without any right of withdrawal
by the Borrower; provided, however, that
in the event of an actual or deemed entry of an order for relief with respect
to the Borrower or any of its subsidiaries under the Federal Bankruptcy Code,
the Borrower shall, without notice, pledge to the Lender as security for the
Loan Obligations an amount in immediately available funds equal to the then
outstanding Letter of Credit Liabilities, such funds to be held in such an
interest bearing cash collateral account at the Lender; and


 


(f)                                 may exercise
all other rights and remedies afforded to the Lender under the Loan Documents
or by applicable law or equity.


 


Section 6.03.                     Remedies Cumulative. Each and every
power or remedy herein specifically given shall be in addition to every other
power or remedy, existing or implied, given now or hereafter existing at law or
in equity, and each and every power and remedy herein specifically given or
otherwise so existing may be exercised from time to time and as often and in
such order as may be deemed expedient by Lender, and the exercise or the
beginning of the exercise of one power or remedy shall not be deemed a waiver
of the right to exercise at the same time or thereafter any other power or
remedy. No delay or omission of Lender in the exercise of any right or power
accruing


 


47

















 


hereunder shall impair any such right or power or be construed to be a
waiver of any default or acquiescence therein.


 


ARTICLE
VII.


MISCELLANEOUS


 


Sectio n 7.01.                   Amendments, etc. No amendment or
waiver of any provision of any Loan Document to which the Borrower is a party,
nor any consent to any departure by the Borrower therefrom, shall in any event
be effective unless the same shall be agreed or consented to by the Lender and
the Borrower, and each such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.


 


Section 7.02.                       Notices,  etc. All notices and
other communications provided for under any Loan Document shall be in writing
and mailed, faxed, or delivered at the addresses set forth below, or at such
other address as such party may specify by written notice to the other parties
hereto:


 


	
   

  	
  If
  to the Borrower:

  	
   

  	
  Otter
  Tail Ag Enterprises, LLC

  
	
   

  	
   

  	
   

  	
  1220
  North Tower Road

  
	
   

  	
   

  	
   

  	
  Suite 201

  
	
   

  	
   

  	
   

  	
  Fergus
  Falls, MN 56537

  
	
   

  	
   

  	
   

  	
  Attn:
  Chief Executive Officer and President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  With
  a copy to:

  	
   

  	
  Pemberton,
  Sorlie, Rufer & Kershner, PLLP

  
	
   

  	
   

  	
   

  	
  110
  North Mill Street

  
	
   

  	
   

  	
   

  	
  P.O. Box
  866

  
	
   

  	
   

  	
   

  	
  Fergus
  Falls, MN 56538-0866

  
	
   

  	
   

  	
   

  	
  Attn:
  Kent Mattson

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  If
  to the Lender:

  	
   

  	
  AgStar
  Financial Services, PCA

  
	
   

  	
   

  	
   

  	
  1921
  Premier Drive

  
	
   

  	
   

  	
   

  	
  P.O. Box
  4249

  
	
   

  	
   

  	
   

  	
  Mankato,
  MN 56002-4249

  
	
   

  	
   

  	
   

  	
  Attn:
  Ronnie G. Monson

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  With
  copies to:

  	
   

  	
  Gray
  Plant Mooty Mooty & Bennett, P.A.

  
	
   

  	
   

  	
   

  	
  1010
  West St. Germain

  
	
   

  	
   

  	
   

  	
  Suite 600

  
	
   

  	
   

  	
   

  	
  St.
  Cloud, MN 56301

  
	
   

  	
   

  	
   

  	
  Attn:
  Phillip L. Kunkel

  
						



 


All such notices and communications shall have been duly given and
shall be effective: (a) when delivered; (b) when transmitted via
facsimile to the number set forth above; (c) the Business Day following
the day on which the same has been delivered prepaid (or pursuant to an invoice


 


48

















 


arrangement) to a reputable national overnight air courier service; or (d) the
third Business Day following the day on which the same is sent by certified or
registered mail, postage prepaid. Any confirmation sent by the Lender to the
Borrower of any borrowing under this Agreement shall, in the absence of
manifest error, be conclusive and binding for all purposes.


 


Section 7.03.                   No  Waiver; Remedies. No failure on the part of the Lender to exercise,
and no delay in exercising, any right under any Loan Document shall operate as
a waiver thereof; nor shall any single or partial exercise of any right under
any Loan Document preclude any other or further exercise thereof or the
exercise of any other right. The remedies provided in the Loan Documents are
cumulative and not exclusive of any remedies provided by law.


 


Section 7.04.                   Costs,
Expenses and Taxes.


 


(a)                               The Borrower
agrees, jointly and severally, to pay on demand all reasonable costs and
expenses in connection with the preparation, execution, delivery, filing,
recording and administration of the Loan Documents and the other documents to
be delivered under the Loan Documents, including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel for the Lender (who may
be in-house counsel), and local counsel who may be retained by said counsel,
with respect thereto and with respect to advising the Lender as to its
respective rights and responsibilities under the Loan Documents, and all costs
and expenses (including reasonable counsel fees and expenses) for the Lender in
connection with the filing of the Financing Statements and the enforcement of
the Loan Documents and the other documents to be delivered under the Loan
Documents, including, without limitation, in the context of any bankruptcy
proceedings. In addition, the Borrower agrees to pay on demand the expenses
described in Section 5.01(b). In addition, the Borrower shall pay any and
all stamp and other taxes and fees payable or determined to be payable in
connection with the execution, delivery, filing and recording of the Loan
Documents and the other documents to be delivered under the Loan Documents, and
agrees to save the Lender harmless from and against any and all liabilities
with respect to or resulting from any delay in paying or omission to pay such
taxes and fees.


 


(b)                              If, due to
payments made by the Borrower pursuant to Section 2.10 or due to
acceleration of the maturity of the Advances pursuant to Section 6.01 or
due to any other reason, the Lender receives payments of principal of any Loan
other than on the last day of an Interest Period relating thereto, the Borrower
shall pay to the Lender on demand any amounts required to compensate the Lender
for any additional losses, costs or expenses which it may incur as a result of
such payment, including, without limitation, any loss (including loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by the Lender to fund or
maintain such Loan.


 


Section 7.05.                   Right of Set-off. The Lender is hereby authorized at any time and from
time to time; to the fullest extent permitted by law, upon the continuing
occurrence of an Event of Default to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by the Lender to or for the credit or the
account of the Borrower against any and all of the Loan Obligations,
irrespective of whether or not


 


49

















 


the Lender shall have made any demand under such Loan Document and
although deposits, indebtedness or such obligations may be unmatured or
contingent. The Lender agrees promptly to notify the Borrower after any such
set-off and application, provided that the failure to give such notice shall
not affect the validity of such set-off and application. The rights of the
Lender under this Section 7.05 are in addition to other rights and
remedies (including, without limitation, other rights of set-off) which the
Lender may have.


 


Section 7.06.                   Severability
of Provisions. Any provision of this
Agreement or of any other Loan Document which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining provisions
hereof or thereof or affecting the validity or enforceability of such provision
in any other jurisdiction.


 


Section 7.07.                   Binding
Effect; Successors and Assigns; Participations.


 


(a)                               This Agreement
shall be binding upon and inure to the benefit of the Borrower, the Lender and
their respective successors and assigns, except that the Borrower shall not
have the right to assign or otherwise transfer its rights hereunder or any
interest herein without the prior written consent of the Lender. Upon the request
of Borrower, Lender shall provide copies of all invoices for costs and expenses
to be reimbursed by Borrower under this Agreement or under any of the Loan
Documents.


 


(b)                              Borrower agrees
and consents to Lender’s sale or transfer, whether now or later, of one or more
participation interests in the Loans to one or more purchasers, whether related
or unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating to
the Loans, and Borrower hereby waives any rights to privacy it may have with
respect to such matters; provided, however, that any information received by
any such purchaser or potential purchaser under this provision which concerns
the personal, financial or other affairs of the Borrower shall be received and
kept by the purchaser or potential purchaser in full confidence and will not be
revealed to any other persons, firms or organizations nor used for any purpose
whatsoever other than for determining whether or not to participate in the
Loans and in accord with the rights of Lender if a participation interest is
acquired. Borrower additionally waives any and all notices of sale of participation
interests, as well as all notices of any repurchase of such participation
interest. Borrower also agrees that the purchasers of any such participation
interests will be considered as the absolute owners of such interests in the
Loans and will have all the rights granted under the participation agreement or
agreements governing the sale of such participation interests. Borrower further
waives all rights of offset or counterclaim that it may have now or later
against Lender or against any purchaser of such a participation interest
arising out of or by virtue of the participation and unconditionally agrees
that either Lender or such purchaser may enforce Borrower’s obligation under
the Loans irrespective of the failure or insolvency of any holder of any
interests in the Loans. Borrower further agrees that the purchaser of any such
participation interests may enforce its interests irrespective of any personal
claims or defenses that Borrower may have against Lender.


 


50

















 


Section 7.08.                   Consent to Jurisdiction.


 


(a)                               The Borrower
hereby irrevocably submits to the jurisdiction of any Minnesota state court or
federal court over any action or proceeding arising out of or relating to this
Agreement, the Note and any instrument, agreement or document related hereto or
thereto, and the Borrower hereby irrevocably agrees that all claims in respect
of such action or proceeding may be heard and determined in such Minnesota
state court or federal court. The Borrower hereby irrevocably waives, to the
fullest extent it may effectively do so, the defense of an inconvenient forum
to the maintenance of such action or proceeding. The Borrower irrevocably
consents to the service of copies of the summons and complaint and any other
process which may be served in any such action or proceeding by the mailing of
copies of such process to Borrower at its address specified in Section 7.02.
The Borrower agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.


 


(b)                              Nothing in this
Section 7.08 shall affect the right of the Lender to serve legal process
in any other manner permitted by law or affect the right of the Lender to bring
any action or proceeding against the Borrower or its property in the courts of
other jurisdictions.


 


Section 7.09.                   Governing
Law. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF MINNESOTA.


 


Section 7.10.                   Execution in Counterparts. This Agreement
may be executed in any number of counterparts and on telecopy counterparts,
each of which when so executed shall be deemed to be an original and all of
which when taken together shall constitute but one and the same agreement.


 


Section 7.11.                   Survival. All covenants,
agreements, representations and warranties made by the Borrower in the Loan
Documents and in the certificates or other instruments delivered in connection
with or pursuant to this Agreement or any other Loan Document shall be
considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of the Loan Documents and the making of any
Advances and issuance of any Letters of Credit, regardless of any investigation
made by any such other party or on its behalf and notwithstanding that Lender
may have had notice or knowledge of any Event of Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as any Loan Obligations are
outstanding and unpaid and so long as the Lender has any unexpired commitments
under this Agreement or the Loan Documents. The expense reimbursement,
additional cost, capital adequacy and indemnification provisions of this
Agreement shall survive and remain in full force and effect regardless of the
consummation of the transactions contemplated hereby, the repayment of the Loan
Obligations or the termination of this Agreement or any provision hereof.


 


Section 7.12.                   WAIVER OF JURY TRIAL. THE
BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVE ALL RIGHTS TO TRIAL BY JURY IN
ANY ACTION,


 


51

















 


PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING
TO ANY LOAN DOCUMENT TO WHICH IT IS A PARTY OR ANY INSTRUMENT OR DOCUMENT
DELIVERED THEREUNDER.


 


Section 7.13.                               Entire
Agreement. THIS AGREEMENT, THENOTES,
AND THE OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE
AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS,
AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR
VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR
DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG
THE PARTIES THERETO.


 


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


 


{SIGNATURE PAGE TO FOLLOW}


 


52

















 


SIGNATURE PAGE FOR


MASTER LOAN AGREEMENT


BY AND BETWEEN


OTTER TAIL AG ENTERPRISES, LLC.


AND


AGSTAR FINANCIAL SERVICES, PCA


DATED: March 28, 2007


 


BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
MASTER LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS
DATED AS OF THE DATE FIRST ABOVE STATED.


 


	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  OTTER TAIL AG ENTERPRISES, LLC

  
	
   

  	
  a
  Minnesota limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/  Jerry Larson

  	
   

  
	
   

  	
  By:  Jerry Larson 

    Its: President

  
	
   

  	
   

  
	
   

  	
  LENDER:

  
	
   

  	
  AGSTAR FINANCIAL SERVICES, PCA,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/  Ron
  Monson

  	
   

  
	
   

  	
  By:  Ron Monson 

    Its: Vice President

  
				



 


53

















 


EXHIBIT A 


COMPLIANCE
CERTIFICATE


 


TO:                        AgStar Financial Services,
PCA, Agent (the “Lender”)


 


Pursuant to that certain Master Loan
Agreement dated March 28, 2007, by and between Otter Tail Ag Enterprises,
LLC, a Minnesota limited liability company (the “Borrower”),  and the Lender, and any amendments
thereto and extensions thereof (the “Loan
Agreement”), the
undersigned hereby represents, warrants and certifies to the Lender as follows:


 


1.                                     The financial
statement(s) attached hereto are complete and correct in all material
respects and fairly present the financial condition of the Borrower as of the
date of said financial statement(s) and the result of its business
operations for the period covered thereby;


 


2.                                     Repeats and
reaffirms to the Lender each and all of the representations and warranties made
by the Borrower in the Loan Agreement and the agreements referred to therein or
related thereto, and represents and warrants to the Lender that each and all of
said warranties and representations are true and correct as of the date hereof,
except as disclosed in writing to the Lender;


 


3.                                     No Event of
Default (as that term is defined in the Loan Agreement), and no event which
with the giving of notice or the passage of time or both would constitute an
Event of Default, has occurred and is continuing as of the date hereof; and


 


4.                                     All the
calculations set forth below are made pursuant to the terms of the Loan
Agreement and are true and accurate as of the date of the attached financial
statements:


 


1.                                     Section 5.01(d) – Working Capital.


(tested annually)


 


(a)                                  Required
Working Capital (@ Completion Date $5,000,000.00)


(twelve months after Completion Date $7,000,000.00, annually
thereafter)


 


	
  (a)

  	
  Current Assets

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (b)

  	
  Current Liabilities

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Line
  (a) less line (b)

  	
   

  	
   

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  In
  Compliance

  	
   

  	
   

  	
  Yes
  o

  	
   

  	
  No
  o

  
							



 


 


54

















 


2.                                    Section 5.01(e) –
Tangible Net Worth.


(tested annually)


 


	
  (a)

  	
  Required
  Tangible Net Worth($43,000,000.00 at Completion Date)

  	
   

  	
   

  
	
   

  	
  (annually
  thereafter, increases based on covenant)

  	
   

  
	
   

  	
   

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  
	
  (b)

  	
  Actual
  Tangible Net Worth

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (1) 

  	
  Total Assets

  	
   

  	
  $

  
	
   

  	
  (2) 

  	
  Less Intangible Assets
  (per definition)

  	
   

  	
  $

  
	
   

  	
  (3) 

  	
  Total Tangible Assets

  	
   

  	
  $

  
	
   

  	
  (4) 

  	
  Total Liabilities

  	
   

  	
  $

  
	
   

  	
  (5) 

  	
  Tangible Net Worth

  	
   

  	
  $

  
	
   

  	
  (line
  (4) minus line (5))

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  In
  Compliance

  	
   

  	
  Yes
  o

  	
   

  	
  No
  o

  
										



 


3.                                    Section 5.01(f) –
Owner Equity Ratio


(55% twelve months after the Completion Date and annually thereafter)


 


	
  (a)

  	
  Tangible
  Net Worth

  	
  $

  
	
  (b)

  	
  Subordinated
  Debt

  	
  $

  
	
  (c)

  	
  Total
  of Lines (a) and (b)

  	
  $

  
	
  (d)

  	
  Total
  Assets

  	
  $

  
	
  (e)

  	
  Owner
  Equity Ratio

  	
   

  
	
   

  	
  (line
  (c) divided by line (d))

  	
   

  	
  %

  
	
   

  	
   

  	
   

  
	
  In
  Compliance

  	
  Yes
  o

  	
   

  	
  No
  o

  
						



 


4.                                    Section 5.01(g) –
Fixed Charge Ratio


(tested annually beginning
twelve months after the Completion Date, and maintained and measured at the end
of each fiscal year thereafter.)


 


	
  (a)

  	
  EBITDA

  	
   

  	
  $

  
	
  (b)

  	
  Extraordinary Items

  	
   

  	
  $

  
	
  (c)

  	
  Numerator (sum of lines
  (a) and (b))

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  
	
  (d)

  	
  Current Portion of Long
  Term Debt

  	
   

  	
  $

  
	
  (e)

  	
  Interest Expense

  	
   

  	
  $

  
	
  (f)

  	
  Distributions

  	
   

  	
  $

  
	
  (g)

  	
  Maintenance Capital
  Expenditures

  	
   

  	
  $

  



 


55

















 


	
  (h)

  	
  Denominator
  (sum of lines (d) through (g))

  	
  $

  
	
   

  	
   

  	
   

  
	
  Ratio
  of line (c) to (i)

  	
   

  	
   

  	
  to
  1.00

  
	
   

  	
   

  	
   

  
	
  Required
  Ratio of 1.15 to 1.00

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  In
  Compliance

  	
   

  	
  Yes
  o

  	
   

  	
  No
  o

  
							



 


56

















 


IN WITNESS WHEREOF, the undersigned has
signed and delivered this Certificate to the Lender as of the           day
of                        ,          .


 


 


 


 


	
   

  	
  BORROWER:  

  
	
   

  	
   

  
	
   

  	
  OTTER TAIL AG ENTERPRISES, LLC,  

  
	
   

  	
  a
  Minnesota limited liability company 

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
    Its

  	
   

  	
   

  



 


57

















 


EXHIBIT B


PROJECT
SOURCE AND USE STATEMENT


As of 3-23-07


 


Sources


 


	
  Equity

  	
   

  	
  $

  	
  44,602,500.

  
	
  Ag Star

  	
   

  	
  $

  	
  35,000,000.

  
	
  NMTC

  	
   

  	
  $

  	
  19,175,000.

  
	
  Oppenheimer (Waste Disposal Bond)

  	
   

  	
  $

  	
  20,000,000.

  
	
  Ottertail County Bond (County Bond)

  	
   

  	
  $

  	
  6,305,000.

  
	
  Other (Interest, Grants, Contributions, Etc.) 

  	
   

  	
  $

  	
  1,775,470.

  
	
   

  	
   

  	
   

  
	
  Total Sources

  	
   

  	
  $

  	
  126,857,970.

  



 


Uses


 


	
  Plant Construction Cost

  	
   

  	
  $

  	
  106,196,923.

  
	
  Site Cost

  	
   

  	
  $

  	
  4,931,000.

  
	
  Natural Gas Construction

  	
   

  	
  $

  	
  550,000.

  
	
  Rail Road

  	
   

  	
  $

  	
  1,447,908.

  
	
  Water Supply

  	
   

  	
  $

  	
  304,000.

  
	
  Financing Cost

  	
   

  	
  $

  	
  1,650,780.

  
	
  Pre Production Cost/Start Up

  	
   

  	
  $

  	
  976,625.

  
	
  Working Capital and Inventory

  	
   

  	
  $

  	
  6,550,000.

  
	
  Organizational Costs

  	
   

  	
  $

  	
  1,674,307.

  
	
   

  	
   

  	
   

  	
   

  
	
  Total Uses

  	
   

  	
  $

  	
  126,857,970.

  



 


58
















 


EXHIBIT C

FORM OF OPINION LETTER


 


March    ,
2007


 


AgStar Financial Services, PCA 

1921 Premier Drive  

P.O. Box 4249 

Mankato, MN 56002-4249


 


Re:     Master Loan Agreement Dated March 28,
2007 by and between Otter Tail Ag Enterprises, LLC and AgStar Financial
Services, PCA


 


Ladies and Gentlemen:


 


We have acted as counsel to Otter Tail Ag Enterprises, LLC, a Minnesota
limited liability company (the “Company”), in
connection with the negotiation of the Master Loan Agreement (the “Loan Agreement”) by and between the
Company and AgStar Financial Services, PCA (the “Lender” or “you”) dated
as of the date hereof and the consummation of the transactions described
therein. This letter is furnished to satisfy a condition set forth in Section 3.01
(r) of the Loan Agreement. All capitalized terms used in this letter that
are not otherwise defined herein have the meanings assigned to them in the Loan
Agreement unless the context requires otherwise.


 


In our capacity as counsel to the Company,
and for purposes of this opinion, we have examined the following documents:


 


	
   

  	
  (i)

  	
   

  	
  the Loan Agreement;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (ii)

  	
   

  	
  the First Supplement to the Loan Agreement;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (iii)

  	
   

  	
  the Second Supplement to the Loan Agreement;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (iv)

  	
   

  	
  the Third Supplement to the Loan Agreement;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (v)

  	
   

  	
  the Construction Note;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (vi)

  	
   

  	
  the Term Revolving Note;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (vii)

  	
   

  	
  the Revolving Line of Credit Note;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (viii)

  	
   

  	
  the Security Agreement;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (ix)

  	
   

  	
  the Mortgage;

  



 


59

















 


	
   

  	
  (x)

  	
   

  	
  the Disbursing Agreement;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (xi)

  	
   

  	
  the Articles of Organization and Operating
  Agreement and Member Control Agreement, as amended, of the Company;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (xii)

  	
   

  	
  the records of proceedings and actions of the members and Board of
  Governors of the Company with respect to the transactions between you and the
  Company contemplated by the Loan Agreement;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (xiii)

  	
   

  	
  such other documents, agreements and materials as we have deemed
  necessary and appropriate to render the opinions set forth in this letter,
  subject to the limitations, assumptions and qualifications noted below.

  



 


The documents listed as items (i) through
(x) above are dated as of the first date written above and are
collectively referred to herein as the “Loan Documents.” In addition, we have
examined and relied upon representations and warranties as to matters of fact
(other than facts constituting conclusions of law) contained in and made
pursuant to the Loan Documents.


 


In addition, we have examined such other
resolutions, documents, certificates and records and have made such
investigations of law and fact as we have deemed necessary or appropriate to
enable us to render the opinions expressed herein.


 


In reaching the opinions set forth below, we
have assumed, and have not independently verified, the genuineness of all
signatures on all documents, the legal capacity and competency for all purposes
relevant hereto of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to the authentic originals of all
documents submitted to us as copies, the correctness, completeness and accuracy
of all facts set forth in all representations, warranties and certificates
referred to or identified in this opinion, and that there are no documents,
agreements or understandings to which the Lender is a party between the Lender,
on the one hand, and the Company on the other hand, other than the Loan
Documents, which would have an effect on the opinions set forth below. In
examining documents executed by parties other than the Company, we have assumed
that such parties had the requisite power, right and authority (corporate or
otherwise) to execute, deliver and perform all of their respective obligations
thereunder and have also assumed the due authorization by all requisite
corporate action and execution and delivery of such documents by such parties,
and the validity, legality and binding effect of those documents on those
parties. As to questions of fact material to our opinions, we have relied upon
the representations and warranties made in the Loan Documents and upon
certificates of officers or other representatives of the Company and of public
officials (“Certificates”). We have not
independently or through third parties verified such representations and
warranties or Certificates, or made any independent investigation as to the
existence of agreements, instruments or other documents, orders, judgments or
decrees by which the Company or any of its properties or assets may be bound.


 


In basing the opinions and other matters set
forth herein on phrases such as “best of our knowledge,” “our knowledge,” or “known
to us,” such phrases signify that, in the course of our representation of the
Company in matters with respect to which we have been engaged by the Company to
give


 


60

















 


substantive attention as counsel, no
information has come to our attention that would give us actual conscious
knowledge that any such opinion or other matters are not accurate or that any
of the foregoing Certificates and other matters on which we have relied are not
accurate and complete. Except as otherwise stated herein, we have undertaken no
independent investigation or verification of such matters. The phrases “best of
our knowledge,” “our knowledge,” “known to us” and similar language used herein
are intended to be limited to the knowledge of the lawyers currently employed
by our firm who have performed substantive legal services related to the Loan
Documents and have specific knowledge of the substance of this opinion.


 


Based on our review of the foregoing, and
subject to the assumptions, qualifications and limitations set forth herein, it
is our opinion that:


 


1.            The Company is a limited liability
company duly organized, validly existing, and in good standing under the laws
of the State of Minnesota.


 


2.            The Company has the power to enter
into and perform its obligations under the Loan Documents.


 


3.            The Company has taken all necessary
company action to authorize the execution, delivery, and performance by the Company
of the Loan Documents, and the consummation by the Company of the transactions
set forth in the Loan Documents.


 


4.            The Loan Documents have been duly
and validly executed and delivered by the Company and constitute legal, valid,
binding, and enforceable obligations of the Company.


 


5.            The execution and delivery by the
Company of the Loan Documents do not, and the consummation by the Company of
the transactions contemplated by the Loan Documents and the compliance by the
Company with the provisions of the Loan Documents do not, (a) conflict
with or result in a breach of any provision of the Company’s Articles of
Organization, or Operating Agreement and Member Control Agreement, (b) to
our knowledge, conflict with or result in a material violation of any applicable
state or federal law or regulation, (c) to our knowledge, conflict with
any order, judgment, or decree to which the Company is a party or subject or by
which any of its properties or assets are bound, or (d) to our knowledge,
conflict with any Material Contract to which the Company is a party or by which
the Company or any of its properties or assets are bound.


 


6.            To our knowledge, except as
expressly disclosed in the Loan Documents, there are no actions, suits or
proceedings pending or threatened in writing against or affecting the Company
before any court or arbitrator or by or before any administrative agency or
government authority, which, if adversely determined, would constitute a
material adverse effect on the Company provided, however, this letter may be
construed to have given a guarantee that any judgment or judgments rendered
against the Company in one or more of these proceedings for which there is
insurance coverage would not exceed such policy limits or might not fall
outside the risks covered by such insurance.


 


61

















 


The foregoing opinions are subject to the
following qualifications (in addition to the qualifications, exceptions,
limitations and assumptions specified above):


 


A.           Our opinions as they relate to the legality, validity,
binding effect and/or enforceability of the Loan Documents are subject to the
limitations that might result from bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent or preferential transfer, fraudulent
conveyance, and other state and federal laws relating to or affecting the
rights or remedies of creditors generally, now or hereafter, in effect.


 


B.           Our opinions as they relate to the legality, validity,
binding effect and/or enforceability of the Loan Documents are subject to the
qualification that the availability of the remedies of specific performance or
injunctive relief, or any other equitable remedy, is subject to the discretion
of the court before which a proceeding therefor may be brought, equitable
defenses and the application of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law),
including without limitation, concepts of materiality, reasonableness, good
faith, fair dealing and other similar doctrines affecting the enforcement of agreements
generally.


 


C.           Except as expressly stated herein, no
opinion is expressed or implied as to the truth, accuracy or completeness of
any of the representations, warranties or other statements of the Company or
any other person contained in any of the Loan Documents or in any exhibit,
schedule or attachment thereto.


 


D.           We express or imply no opinion as to
what actions the parties to the Loan Documents are required to or may take or
fail to take on or after the date hereof which, if taken or not taken, would
affect or impair the legality, validity, binding effect and/or enforceability
of the Loan Documents or the rights and remedies of the parties thereunder.


 


E.            With respect to the legality,
validity, binding effect and enforceability of the remedies available to the
Lender under the Uniform Commercial Code in force in the State of Minnesota (“UCC”),
we have assumed that the Lender will enforce such remedies in accordance with
the UCC and under such circumstances and in a manner in which it is
commercially reasonable to do so. In addition, because a claimant bears the
burden of proof required to support its claim, our opinion assumes that you
will undertake the effort and expense necessary to present your claims in the prosecution
of any remedy accorded you under the Loan Documents.


 


F.            We express or imply no opinion as to
the creation, attachment, perfection or priority of any security interest,
mortgage or other lien which the Lender may claim in any real or personal property
of the Company under any of the Loan Documents or otherwise.


 


G.           Our opinions as they relate to the
legality, validity, binding effect and/or enforceability of the Loan Documents
are subject to the limitations arising from state and federal court decisions
involving statutes, public policy and/or principles of equity holding that (i) purported
waivers of notice, remedies (or the delay in, omission of, or enforcement
thereof) or the benefits of


 


62

















 


statutory provisions or constitutional or
common law rights and broadly or vaguely stated provisions waiving rights or
waivers of unknown future rights or duties imposed by law are or may be void or
unenforceable, (ii) under certain circumstances, provisions declaring that
the failure to exercise or delay in exercising rights or remedies will not
operate as a waiver of any such right or remedy are invalid, (iii) provisions
declaring that the documents may only be amended or waived in writing may be
unenforceable to the extent that an oral agreement or an implied agreement by
trade practice or course of conduct has been created modifying one or more
provisions of the Loan Documents, (iv) the enforcement of public policy is
of a paramount public interest which may prohibit enforcement of certain
contractual provisions; (v) the indemnification and exculpation provisions
of the Loan Documents may be unenforceable to the extent that the enforcement
of such provisions is determined to be against public policy; and (vi) certain
other provisions in the Loan Documents, including, without limitation,
self-help provisions, provisions that purport to establish evidentiary
standards, provisions requiring the payment of a late payment or repayment
charge, fee, reinvestment charge, premium or penalty, however denominated, are
or may be unenforceable in whole or in part.


 


H.            Since it is necessary for the Lender
to elect its proper remedy in certain instances, no opinion is expressed or implied
that any cumulative remedy provision contained in any of the Loan Documents is
valid or enforceable.


 


I.             No opinion is expressed or implied
as to the legality, validity, binding effect or enforceability of (i) any
power of attorney granted to the Lender in any of the Loan Documents, or (ii) any
document, certificate, agreement or instrument executed or delivered by the
Lender pursuant thereto.


 


J.             In giving this opinion, we advise
you that a Minnesota court may not strictly enforce certain covenants contained
in the Loan Documents or allow acceleration of the maturity of the indebtedness
evidenced by the Notes if it concludes that such enforcement or acceleration
would be unreasonable under the then existing circumstances. We do believe,
however, that subject to the limitations expressed elsewhere in this opinion,
enforcement or acceleration would be available if an Event of Default occurs as
a result of a material breach of a material covenant contained in the Loan
Documents.


 


K.             Certain
rights, remedies, waivers and indemnities contained in the Loan Documents, in
addition to those specifically enumerated above, may be limited or rendered
ineffective by applicable Minnesota laws or judicial decisions governing such
provisions, but such laws and judicial decisions do not render the Loan
Documents invalid as a whole, and there exist, in the Loan Documents or
pursuant to applicable law, legally adequate remedies for a realization of the
principal benefits intended to be provided by the Loan Documents.


 


In addition to
the qualifications set forth above, the opinions set forth herein are also
subject to the following qualifications:


 


L.              We
are members of the Bar of the State of Minnesota. The opinions expressed herein
are limited to matters of Minnesota and federal law in effect as of the date of
this letter. We express


 


63

















 


no opinion with respect to the laws of any
other jurisdiction, or laws created or amended hereafter. For purposes of this
opinion we have assumed that the internal laws (as opposed to the choice of law
rules) of the State of Minnesota and applicable federal law would apply and
have rendered our opinion on that basis. To the extent that the law of another
jurisdiction applies, we have assumed that the law of that jurisdiction would
be the same as Minnesota law. We render no opinion as to the enforceability of
any choice of law provision.


 


M.           We express no opinion with respect to
title to any property, nor do we express any opinion with respect to the
existence of encumbrances upon any property or the attachment, validity,
perfection or priority of any liens or security interests.


 


N.             Except as explicitly addressed in the numbered opinions
above, no opinion is expressed herein as to any of the topics listed under Section 19
“Specific Legal Issues” of the Third-Party Legal Opinion Report, published in
1991 by the Section of Business Law of the American Bar Association.


 


This opinion is limited to the specific legal
issues addressed herein, this opinion shall be strictly and narrowly construed,
and no opinion is implied or may be inferred beyond the matters expressly set
forth herein. Our opinion is rendered to you solely for your benefit in
connection with consummation of the transactions set forth in the Loan
Documents and may not be quoted in whole or in part, filed publicly or
delivered to, or relied upon by any other person without our prior written
consent. Our opinion is based upon the state of facts and the law existing and
in effect on the date hereof, and we assume no obligation to revise, supplement
or update this opinion in any respect at any time subsequent to the date hereof
in order to account for any change in the law (whether or not hereinafter
enacted or adopted) or future facts, events or circumstances affecting any of
the transactions contemplated by any of the Loan Documents.


 


	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  Pemberton, Sorlie, Rufer, and Kershner, PLLP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: Kent D. Mattson, for the Firm

  



 


64

















 


EXHIBIT D 


 


FORM OF LETTER OF CREDIT


 


IRREVOCABLE STANDBY 


 


LETTER OF CREDIT NO.              


 


	
  (Date)

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  (Beneficiary)

  	
   

  



 


Ladies and Gentlemen:


 


At the request of Otter Tail Ag
Enterprises, LLC,                                  ,              ,
MN        , we hereby establish our
Irrevocable Standby Letter of Credit in your favor in the amount of $                               U.S.
dollars. 


 


We undertake that drawings
under this Letter of Credit will be honored upon presentation of your draft
drawn on              ,
and the original of this Letter of Credit prior to the expiration date set
forth herein. All drafts submitted to                  must indicate the number and date of
this credit.


 


This Letter of Credit expires
on                                           .


 


Except as expressly stated herein, this undertaking is not subject to
any conditions or qualification. The obligation of                           ,
under this Letter of Credit shall be the individual obligation
of                        ,
and in no way contingent upon reimbursement with respect thereto.


 


This credit is subject to the Uniform Customs
and Practice for Documentary Credits, 1993 Version, of the International
Chamber of Commerce or any successor publication.


 


Sincerely,


 


65

















 


Schedule
3.01(d) 

Real Property


 


LEGAL
DESCRIPTION


 


All that part of the Wl/2 of Section 20,
Township 133 North, Range 43 West of the Fifth Principal Meridian, situate in
the County of Otter Tail and the State of Minnesota, lying South of the
Railroad Right-of-Way, EXCEPT the following described tracts of land:


 


1.                                   The
tract described as follows: That part of the SW1/4 of Section 20, Township
133, Range 43, described as follows: Commencing at the Southwest corner of said
Section 20; thence on an assumed bearing of East along the South line of
said Section 20 a distance of 312.35 feet to the point of beginning of the
land to be described; thence North 00°08’29” East a distance of 318.00 feet;
thence on a bearing of East a distance of 180.00 feet; thence South 00°08’29”
West a distance of 318.00 feet to said South line of Section 20; thence on
a bearing West along said South line of Section 20, a distance of 180.00
feet to the point of beginning.


 


2.                                   All
that part of the following-described tract: The El/2 of Wl/2 of Section 20,
Township 133, Range 43, except railroad right of way; which lies Easterly of a
line run parallel with and distant 100.00 feet westerly of the
following-described line: Beginning at a point on the North line of said Section 20,
distant 99.15 feet East of the North Quarter corner thereof; thence run
southerly to a point on the South line of said Section 20, 96.10 feet East
of the South Quarter corner thereof, and there terminating; together with all
that part of the above-described tract adjoining and westerly of the
above-described strip and easterly of the following-described line: From a
point on the above-described line, distant 1,077.80 feet North of the South
line of said Section 20, run westerly at right angles with said
above-described line for 100.0 feet to the point of beginning of the line to be
described; thence run southwesterly to a point which is distant 110.0 feet
westerly (measured at right angles) from a point on the above-described line,
distant 977.80 feet North of the South line of Section 20 (when measured
along the above-described line); thence run southerly and parallel with said
above-described line to the northeasterly boundary line of the railroad running
in a southeasterly and northwesterly direction over and across the
above-described tract; in addition to the existing highway; together with all
right of access, being the right of ingress to and egress from all that portion
of the above-described tract, not acquired herein, to Trunk Highway No. 392.


 


66

















 


Schedule
4.01(a) 

Description of Certain Transactions Related to the Borrowers’ Units


 


Provided the
Company’s Plant Manager meets the standard requirements of qualifying to be a
member of the Company, as a one-time signing bonus, he will receive a profit’s
interest on 5,000 Class A member units of the Company at a zero basis,
with ownership of said units to vest at 20% per year as follows (the “Vesting
Dates”), provided the Plant Manager remains employed with the Company on any
Vesting Date.:


 


January 1, 2007 – 1,000 Units Vest

January 1, 2008 – 1,000 Units Vest

January 1, 2009 – 1,000 Units Vest 

January 1, 2010 – 1,000 Units Vest 

January 1, 2011 – 1,000 Units Vest


 


Provided the Company’s CEO
meets the standard requirements of qualifying to be a member of the Company, as
a one-time signing bonus, he will receive a profit’s interest on 12,500 Class A
member units of the Company at a zero basis, with ownership of said units to
vest at 20% per year as follows (the “Vesting Dates”), provided the CEO remains
employed with the Company on any Vesting Date.:    :


 


January 1, 2007 – 2,500 Units Vest 

January 1, 2008 – 2,500 Units Vest 

January 1, 2009 – 2,500 Units Vest 

January 1, 2010 – 2,500 Units Vest 

January 1, 2011 – 2,500 Units Vest


 


The Prime
Contractor agreed to reduce its construction contract price by $500,000 in
exchange for 250,000 Class A units of the Company valued at $2 per unit.
The Company will hold the right of first refusal for repurchase. The agreement
is reflected in the current pricing under the Prime Contractor’s contract.


 


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Schedule 4.01(f)

Description of Certain Threatened Actions, etc.


 


None.


 


68

















 


Schedule
4.01(k)

Location of Inventory and Farm Products; Third Parties in Possession; Crops


 


Borrower’s Inventory and Farm Products, except as in transit, will be
stored primarily at is chief place of business and operations located on the
Real Estate. Borrower’s inventory of purchased corn may be stored from time to
time at third-party storage facilities pursuant to the Company’s corn
procurement agreement with CHS Inc., including:


 


CHS Inc. New Horizons, Fergus Falls

22327 138th Avenue

Fergus Falls, MN 56537

(French)


 


Wheaton-Dumont Coop Elevator 

1115 Broadway

Wheaton, MN 56295


 


Wheaton-Dumont Coop Elevator 

HCR 1 Box 170

Tenney, MN 56583-9404


 


*Use the address and contact information for the main office in Wheaton.


 


CHS Inc., Agri-Service Center 

PO Box 39 

Callaway, MN 56521


 


CHS Inc., Prairie Lakes Coop 

PO Box 248 

Glenwood, MN 56334


 


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Schedule
4.01(I)

Office Locations; Fictitious Names; Etc.


 




	
  Temporary Offices

  	
   

  	
  1220 North Tower Road

  
	
   

  	
   

  	
  Suite 201

  
	
   

  	
   

  	
  Fergus Falls, MN 56537

  
	
   

  	
   

  	
   

  
	
  Plant Site

  	
   

  	
  24096 170th Avenue,

  
	
   

  	
   

  	
  Fergus Falls, MN 56537

  
	
   

  	
   

  	
   

  
	
  No Fictitious Names

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EIN

  	
   

  	
  41-2171784

  
	
   

  	
   

  	
   

  
	
  State Organizational Number

  	
   

  	
  1211144-2

  






 


70

















 


Schedule
4.01(p) 

Intellectual Property


 


None.


 


71

















 


Schedule
4.01(t)

Environmental Compliance


 


No known exceptions.


 


72

















 


Schedule
5.01(o) 

Management


 


The current management of the Borrower is as follows:


 


President: Jerry Larson


Plant Manager: Gunner Greene


Chief Executive Officer: Kelly Longtin


 


73

















 


Schedule
5.02(a) 

Description of Certain Liens, Lease Obligations, etc.


 


None, except for protective UCC filings of KID Leasing for computer
hardware and software and printer and related equipment leased to the Company.


 


74

















 


Schedule
5.02(k) 

Transactions with Affiliates


 


Corn Procurement Contract and Arrangements
with CHS Inc. (Member of Company)


 


Electric Power Purchase Contract and
Arrangements with Ottertail Power Corporation (Member of Company)


 


75