Exhibit 10.2


 


PROMISSORY NOTE


(Variable Rate, Revolving Loan)


 


	
  Not
  to Exceed $9,000,000.00

  	
   

  	
  Sioux Falls, South Dakota

  
	
   

  	
   

  	
  September 21, 2007

  



 


FOR VALUE RECEIVED, N0RTHERN LIGHTS ETHANOL, LLC, a South Dakota
Limited Liability Company (“Borrower”), hereby promises to pay to the order of U.S. BANK  NATIONAL
ASSOCIATION, a national banking association (“Lender”, which term shall include
any future holder hereof), at 141 N. Main Avenue, Sioux Falls, South Dakota, or
at such other place as Lender may from time-to-time designate in writing, in
lawful money of the United States of America, the principal sum of Nine Million
& 00/100 Dollars ($9,000,000.00) or so much thereof as may be advanced
hereunder.


 


CALCULATION OF INTEREST. Interest on each advance hereunder shall
accrue at an annual rate equal to 3.00% plus the one-month LIBOR rate quoted by
Lender (LIBOR + 3.00%), which shall be the one-month LIBOR rate in effect two
New York Banking Days prior to the stated monthly reprice date, adjusted for
any reserve requirement and any subsequent costs arising from a change in
government regulation, such rate to be reset monthly on the last day of the
month. The term “New York Banking Day” means any date (other than a Saturday or
Sunday) on which commercial banks are open for business in New York, New York.
Lender’s internal records of applicable interest rates shall be determinative
in the absence of manifest error. If the initial advance under this Note occurs
other than on the first day of the month, the initial one-month LIBOR rate
shall be that one-month LIBOR rate in effect two New York Banking Days prior to
the date of the initial advance, which rate shall be in effect on the remaining
days of the month of the initial advance.


 


PAYMENT OF INTEREST. Payments of all interest accrued hereunder
shall be made on the last day of any month in which any amount is outstanding
hereunder.


 


REVOLVING FEATURE. Borrower may from time to time prior to the
Maturity Date draw, on a revolving basis, the difference of the outstanding
principal amount hereunder and the lesser of (i) the Borrowing Base and (ii)
Nine Million Dollars ($9,000,000.00) (the greater of the two being the “Loan
Maximum”). Lender’s obligation to make any advance under this Promissory Note
is conditioned upon (i) all representations and warranties made by Borrower in
the Loan Agreement remaining true, accurate and complete, (ii) Borrower’s
continued compliance with all other terms and conditions of this Promissory
Note and the Loan Agreement including any preconditions to any advance
hereunder contained in the Loan Agreement, (iii) no Event of Default having
occurred under this Promissory Note, or any other Promissory Note between the
parties hereto, or under any other Loan Document, and (iv) Borrower shall
demonstrate to Lender’s satisfaction that the funds requested to be advanced
shall be used in the operation of Borrower’s ethanol production facility.
Subject to these conditions, Lender shall advance to Borrower hereunder, such
amounts as Borrower may from time-to-time request, not to exceed the total
principal amount at any one time outstanding hereunder of Nine Million Dollars
($9,000,000.00). Such requests for advances hereunder shall be funded the next Business
Day if received by Lender not later than 11:00 a.m. of any Business Day,
subject to Lender requiring additional time to confirm Borrower has satisfied
the conditions of this Note (including the Borrowing Base requirements provided
for below) at the time each such advance is requested and made.


 

















 


PAYMENT IN FULL AT MATURITY. The maturity date of this Note is July 30,
2008 (the “Maturity Date”). The total unpaid principal amount and all interest
thereon and any other amount due hereunder shall be payable on the Maturity
Date. THIS NOTE REQUIRES A BALLOON PAYMENT.


 


PAYMENT DUE ON NON-BUSINESS DAY. In the event any payment due under this Note
is due on a date other than a Business Day (as defined in the Loan Agreement),
such payment shall be due on the Business Day immediately following the day the
payment was otherwise due.


 


PREPAYMENTS. Borrower may prepay this Note in whole or in part at any time, and if
in part from time-to-time, during the entire term of this Note, without penalty
or premium. No prepayment shall reduce the amount of any scheduled payment.


 


MANDATORY PAYMENTS PRIOR TO MATURITY. In the event the amount outstanding hereunder
at any time, including interest and any other amounts, exceeds the amount which
could be borrowed on such date according to the then applicable Borrowing Base
(the “Eligible Balance”), Borrower shall immediately pay to Lender an amount
not less than the difference between such balance and the Eligible Balance.


 


BORROWING BASE. Definitions. As used in this Promissory Note: “Borrowing
Base” means, as of the day for which it is calculated, .75 (75%) of the total
of (i) the fair market value of the outstanding Inventory, (ii)  the Eligible Accounts Receivable, and
(iii) hedging accounts at fair market value; “Inventory” means all Borrower’s
corn, and ethanol, and DDGS Inventory, as determined to Lender’s satisfaction; “Eligible
Accounts Receivable” means Accounts (as defined in the Uniform Commercial Code)
owned by Borrower that were generated by Borrower’s sale of Inventory, minus
Ineligible Accounts; “Ineligible Accounts” means Accounts which either have
been outstanding more than 90 days, or Accounts which otherwise would be
Eligible Accounts Receivable that Lender determines in its discretion should
not so qualify. Eligible Accounts Receivable shall exclude Borrower’s “contra”
accounts and any other obligations or offsets which any of Borrower’s account
obligors may claim against Borrower.


 


Borrower Reports. Each request for an advance hereunder shall
be accompanied by Borrower’s report to Lender evidencing the Borrowing Base as
of the close of the previous Business Day, in a form and containing such
content as Lender shall from time-to-time specify to Borrower, including but
not limited to: reports of the Borrower’s Accounts itemized by age; reports of
the Inventory itemized by type, including its quantity, geographical location,
and information identifying any third party in possession or control thereof
Borrower Report shall also report Eligible Accounts Receivable on a gross
basis, and be itemized as to all offsets that may be claimed by any account
obligor as further set forth in the definition of Eligible Accounts Receivable
above, if at the end of any calendar month any amount is outstanding hereunder,
not later than the 15th day of the following month, Borrower shall provide Lender
a report containing the above information as of the end of such prior month.
Borrower shall also provide Lender such reports at other times specified by
Lender. The request for advances shall be on the form attached hereto as
Exhibit A, unless Lender specifies otherwise.


 


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Reasonable Processes and Controls. Borrower shall maintain reasonable processes
and controls, provide accurate calculation of the Borrowing Base and otherwise
assure compliance with the Lender’s collateral audit program, including
instituting policies requiring its employee marketers to accurately enter each
contract for purchase or sale of Inventory (including other relevant
information as to the status of the contract, including any dispute by the
other party thereto) into Borrower’s accounting system immediately upon entry
into the, contract. Among other information which shall be available to Lender
on a daily basis are the amount, identity, location, telephone number and other
relevant information concerning each account obligor, and the location and
quantity of all Inventory.


 


COMMITMENT FEE. In consideration of Lender’s agreement to
extend the loan evidenced by this Note, Borrower shall pay Lender on the date
of this Note first shown above a commitment fee of Twenty Two Thousand Five
Hundred Dollars ($22,500.00).


 


UNUSED COMMITMENT FEE. Borrower shall pay Lender quarterly, in
arrears, an unused commitment fee. The unused commitment fee shall be paid
October 31, January 31, April 30, and July 31. The unused commitment fee is
equal to one-fourth percent (0.25%) per annum, multiplied by the difference, if
any, of the Loan Maximum minus the average daily outstanding principal balance
due hereunder for such prior quarter.


 


PAYMENTS. All payments under this Note shall be made in immediately available
funds. In the event there is no outstanding Event of Default, all payments made
hereunder shall be credited first to accrued interest, next to unpaid
principal, and next, in such order as Lender may determined in its sole and
absolute discretion, to other fees, charges, or costs and expenses payable by
Borrower under this Note or in connection with any other Loan Document.


 


PREPAYMENTS. Borrower may prepay this Note in Whole or in part at any time, and if
in part from time-to-time, during the entire term of this Note, without penalty
or premium. No prepayment shall reduce the amount of any scheduled payment.


 


COLLATERAL; COORDINATION WITH LOAN AGREEMENT. This Note is within the definition of the “Note”
in the Amended and Restated Loan Agreement dated as of August 28, 2006, as
amended by that Amendment to Amended and Restated Loan Agreement dated
September 21, 2007 (the “Loan Agreement”), and is subject to the additional
terms and conditions set forth in the Loan Agreement and the Loan Documents
referred to therein. This Note is secured by a Security Agreement dated as of
August 28, 2006, and a Mortgage-Collateral Real Estate Mortgage; Security
Agreement, Fixture Filing and Assignment of Rents dated as of the date of this
Note, as well as other collateral described in the Loan Agreement and the other
Loan Documents. Capitalized terms not defined herein shall have the meaning
given such terms in the Loan Agreement.


 


LATE PAYMENT; GRACE PERIOD; DEFAULT; CROSS-DEFAULT. If a payment due hereunder is not made within
ten (10) days after the date when due, Borrower shall pay to Lender a late
payment charge of Five Hundred Dollars ($500.00) to compensate Lender for a
portion of the cost related to handling the overdue payment. Any default under
this Promissory Note, the Security Agreement dated August 28, 2006, or any
Event of Default as defined in the Loan Agreement, shall constitute an “Event
of Default” for purposes of this Note. After any Event of Default, the entire
principal sum evidenced by this


 


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Note,
together with all accrued and unpaid interest, shall, at the option of the
holder hereof, bear interest at the rate per annum (the “Default Rate”) equal
to 3% in excess of the rate of interest per annum which would otherwise be
payable hereunder, and become immediately due and payable without further
notice (except as provided in the Loan Agreement), demand or presentment for
payment, and without any relief whatever from any valuation or appraisement
laws.


 


PAYMENT OF OTHER ITEMS. If Borrower defaults under any of the terms
of this Note, Borrower shall pay all reasonable costs and expenses, including
without limitation attorneys’ fees (including any service tax thereon) and
costs, incurred by Lender in enforcing this Note immediately upon Lender’s
demand, whether or not any action or proceeding is commenced by Lender. Without
limiting the generality of the preceding sentence, such costs and expenses shall
include all attorneys’ fees and costs incurred by Lender in connection with any
federal or state bankruptcy, insolvency, reorganization, or other similar
proceeding by or against Borrower or any surety, guarantor or endorser of this
Note which in any way affects Lender’s exercise of its rights and remedies
under this Note or under the Loan Agreement or any other Loan Document. Maker
hereby stipulates that Lender is a “regulated lender” within the meaning of
SDCL 54-3-13 and other applicable South Dakota statutes.


 


NO OFFSET. No indebtedness evidenced by this Note shall be offset by all or part
of any claim, cause of action, or cross-claim of any kind, whether liquidated
or unliquidated, which Borrower now has or may hereafter acquire or allege to
have acquired against Lender. To the fullest extent permitted by law, Borrower
waives the benefits of any applicable law, regulation, or procedure which
provides, in substance, that where cross demands for money exist between
parties at any point in time when neither demand is barred by the applicable
statute of limitations, and an action is thereafter commenced by one such
party, the other party may assert the defense of payment in that the two
demands are compensated so far as they equal each other, notwithstanding that
an independent action asserting the claim would at the time of filing the
response be barred by the applicable statute of limitations.


 


CERTAIN BORROWER WAIVERS. Borrower waives presentment, protest and
demand, notice of protest, demand and of dishonor and nonpayment of this Note
and any lack of diligence or delays in collection or enforcement of this Note. Borrower
agrees that this Note, or any payment hereunder, may be extended from
time-to-time, and Borrower consents to the release of any party liable for the
obligation evidenced by this Note, the release of any of the security for this
Note, the acceptance of any other security therefore, or any other indulgence
or forbearance whatsoever, all without notice to any party and without
affecting the liability of Borrower.


 


APPLICABLE LAW. This note shall be construed under and
governed by the laws of the State of South Dakota, without giving effect to
conflict of laws or principles thereof, but giving effect to federal laws of
the United States applicable to national banks. Whenever possible, each
provision of this note and any other statement, instrument or transaction
contemplated hereby or relating hereto, shall be interpreted in such manner as
to be effective aid valid under such applicable law, but, if any provision of
this note or any other statement, instrument or transaction contemplated hereby
or relating hereto shall be held to be prohibited or invalid under such
applicable law, such provision shall be ineffective only to the extent of such prohibition
or invalidity, without invalidating the remainder of such


 


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provision
or the remaining provisions of this note or any other statement, instrument or
transaction contemplated hereby or relating hereto.


 


NO WAIVER;  CERTAIN MISCELLANEOUS PROVISIONS. Failure
to exercise any option provided herein shall not constitute a waiver of the
right to exercise the same in the event of any subsequent default. No
modification or waiver by Lender of any of the terms of this Note shall be
valid or binding on Lender unless such modification or waiver is in writing and
signed by Lender. Without limiting the generality of the preceding sentence, no
delay, omission or forbearance by Lender in exercising or enforcing any of its
rights and remedies under this Note shall constitute a waiver of such rights or
remedies. Lender’s rights and remedies under this Note are cumulative with and
in addition to all other legal and equitable rights and remedies Lender may
have in connection with the Loan. The headings of paragraphs of this Note are
for convenience of the parties only and shall not be used in interpreting this
Note. If this Note is lost, stolen, or destroyed, upon Borrower’s receipt of a
reasonably satisfactory indemnification agreement executed by Lender, or if
this Note is mutilated, upon Lender’s surrender of the mutilated Note to
Borrower, Borrower shall execute and deliver to Lender a new promissory note
which is identical in form and content to this Note to replace the lost,
stolen, destroyed or mutilated Note. Time is of the essence in the performance
of each provision of this Note by Borrower. All exhibits hereto are
incorporated herein.


 


AT
THE OPTION OF LENDER, THIS NOTE MAY BE ENFORCED IN ANY FEDERAL COURT OR SOUTH
DAKOTA STATE COURT SITTING IN SIOUX FALLS, SOUTH DAKOTA; AND BORROWER CONSENTS
TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT
VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT BORROWER COMMENCES ANY
ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY  TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM
THE RELATIONSHIP CREATED BY THIS NOTE, LENDER AT ITS OPTION SHALL BE ENTITLED
TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES
ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE
LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.


 


BORROWER
AND LENDER EACH IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR ANY OF THE LOAN
DOCUMENTS (AS DEFINED IN THE LOAN AGREEMENT) OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.


 


IN
WITNESS WHEREOF, Borrower has executed this Note as of the date first above
written.


 


	
   

  	
  NORTHERN LIGHTS ETHANOL, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/
  Delton Strasser

  	
   

  
	
   

  	
                    Delton
  Strasser

  
	
   

  	
  Its:

  	
  President

  
					



 


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