Exhibit 10.1


 


Execution Copy


 


FORBEARANCE
AGREEMENT


 


THIS FORBEARANCE AGREEMENT (the “Agreement”) is made as of this 20th day
of March, 2009 (the “Effective Date”), between OTTER TAIL AG ENTERPRISES, LLC,
a Minnesota limited liability company (“Borrower”) and AGSTAR FINANCIAL
SERVICES, PCA, a United States instrumentality (“Lender”).


 


RECITALS


 


A.                                    The Borrower is indebted to Lender under the
following promissory notes (collectively, the “Notes”):


 


(i)                           A Construction and Term Note dated March 28,
2007 in the original principal amount of $35,000,000.00 (“Note One”);


 


(ii)                        An Amended and Restated Term Revolving Note
dated June 23, 2008 in the original principal amount of $6,000,000.00 (“Note
Two”);


 


(iii)                     An Amended and Restated Revolving Line of
Credit Note dated June 23, 2008 in the original principal amount of
$6,000,000.00 (“Note Three”), Note Three matures and is due and payable in full
on March 30, 2009.


 


B.                                    The Borrower’s
obligations to the Lender are further evidenced by an Amended and Restated
Master Loan Agreement dated as of June 23, 2008; a First Supplement to the
Master Loan Agreement (Construction and Term Loan) dated as of March 28, 2007
(the “First Supplement”); an Amended and Restated Second Supplement to the
Master Loan Agreement (Term Revolving Loan) dated as of June 23, 2008 (the “Second
Supplement”); and a Second Amended and Restated Third Supplement to the Master
Loan Agreement (Revolving Line of Credit Loan) dated as of June 23, 2008 (the “Third
Supplement”) between Borrower and Lender (collectively, the “Loan Agreement”).


 


C.                                    The loans evidenced
by the Notes and the Loan Agreement (the “Loans”) were made by Lender to
Borrower for the purpose of constructing and operating an ethanol production facility
in or near Fergus Falls, Minnesota (the “Project”).


 


D.                                    As collateral for
the Notes, the Borrower has granted to Lender (among other things):


 


(i)                           a
Mortgage, Security Agreement and Assignment of Rents and Leases dated March 28,
2007 and recorded in the Office of the County Recorder of Otter Tail County on March
30, 2007, as Instrument No. 1016602 and as amended and restated by that certain
Amended and Restated Mortgage, Security Agreement and Assignment of Rents and
Leases dated June 23, 2008, and recorded in the Office of the County Recorder
of Otter Tail County on June 27, 2008, as Instrument No. 1041045 (collectively,
the 


 

















 


“Mortgage”) under which Lender has a lien in certain real property in
Otter Tail County, Minnesota, as further described in the Mortgage (the “Real
Property”);


 


(ii)                        security
interests in all of the assets of the Borrower, including without limitation,
inventory, chattel paper, accounts, equipment, general intangibles, deposit
accounts, and commodity accounts, (collectively, the “Collateral”) pursuant to
the provisions of a Security Agreement dated March 28, 2007 (the “Security
Agreement”); and


 


(iii)                    collateral
assignments of all material contracts related to the Project, including,
without limitation, construction agreements, ethanol and distillers grains
marketing agreements; and grain procurement contracts (collectively, the “Assignments”).


 


E.                                      The Loan Agreement, the Notes, the Mortgage,
the Security Agreement, the Assignments and all other documents evidencing the
obligations of the Borrower under the Loans are referred to in this Agreement
as the “Loan Documents.”


 


F.                                      The Loans were part of a series of finance
arrangements the Borrower entered into to finance the Project, and as a result,
Lender entered into an Intercreditor Agreement dated as of March 28, 2007,
which is currently represented by an Amended and Restated Intercreditor
Agreement dated as of June 4, 2008, between Lender and other of Borrower’s
financing sources (the “ICA”).


 


G.                                    The Borrower has failed to (i) make the
payments due on February 1, 2009 and March 1, 2009, and (ii) maintain an
adequate borrowing base to support the advances under Note Three. As a result
of the Borrower’s defaults, Lender has the option to declare the Notes
fully and immediately due and payable without defense or right of setoff.


 


H.                                    As
a result of these defaults, the Borrower has requested that the Lender forbear
from i) declaring the Notes fully and immediately due and payable, ii) from
exercising its enforcement and collection rights, and iii) from undertaking or
allowing certain matters pursuant to the ICA and allow the Borrower an
opportunity to restructure the indebtedness owed Lender.


 


I.                                         In
consideration of the facts set forth in these Recitals, which the parties agree
are true and correct, and in consideration for entering into this Agreement,
the Lender is willing to grant such forbearance upon the terms and conditions
set forth in this Agreement.


 


NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the parties hereto agree as follows:


 


1.                                      Acknowledgment
of Default.   The Borrower
acknowledges due execution and delivery of the Loan Agreement, Notes, Mortgage
and Security Agreement and acknowledges that the same are valid and enforceable
by the Lender against the Borrower in accordance with their terms.  The Borrower acknowledges that it is in
default under the Loan Documents


 


 


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2.                                      Acknowledgment
of Debt.  The Borrower
acknowledges that, as a result of the defaults of the Borrower, Lender has the
option to declare that the indebtedness evidenced by the Notes is, absent the
provision of this Agreement, due and payable without any claims, defenses,
counterclaims, offsets, and/or cross-complaints, or demands of any kind or nature
whatsoever.  The Borrower further
acknowledges that the principal balance and accrued and unpaid interest owed on
each of the Notes as of March 13, 2009, is as follows:


 


	
  Note

  	
   

  	
  Outstanding

  Principal Balance

  as of March 13,

  2009

  	
   

  	
  Accrued Interest

  as of March 13,

  2009

  	
   

  	
  Late Charges as

  of March 13, 2009

  	
   

  	
  Total

  Principal,

  Interest, and

  Late Charges

  as of March

  13, 2009

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Term Note

  	
   

  	
  $

  	
  28,806,137.30

  	
   

  	
  $

  	
  217,135.25

  	
   

  	
  $

  	
  64,069.08

  	
   

  	
  $

  	
  29,087,341.63

  	
   

  
	
  Term Revolving Note

  	
   

  	
  $

  	
  6,000,000.00

  	
   

  	
  $

  	
  45,421.52

  	
   

  	
  $

  	
  13,150.40

  	
   

  	
  $

  	
  6,058,571.92

  	
   

  
	
  Revolving Line of Credit Note

  	
   

  	
  $

  	
  6,000,000.00

  	
   

  	
  $

  	
  45,421.53

  	
   

  	
  $

  	
  13,150.40

  	
   

  	
  $

  	
  6,058,571.93

  	
   

  
	
  TOTAL

  	
   

  	
  $

  	
  40,806,137.30

  	
   

  	
  $

  	
  307,978.30

  	
   

  	
  $

  	
  90,369.88

  	
   

  	
  $

  	
  41,204,485.48

  	
   

  



 


In addition to said principal and interest balances, the Lender has
incurred, and will continue to incur, costs and legal expenses as a result of
the Borrower’s defaults under the Loan Documents which amounts are, in
accordance with the terms of the Loan Documents, due and payable by the
Borrower.


 


3.                                      Forbearance
Period.  Beginning on February 1, 2009, and
ending on the earlier of an Event of Default (as defined below) or April 30,
2009 (the “Forbearance Period”), provided that the Conditions Precedent set
forth below have first been satisfied and Borrower complies with the terms of
this Agreement, the Lender agrees (i) it will not declare a default under the
Loan Documents or enforce any remedies available to it under the Loan Documents
or applicable law on account of the Borrower’s defaults; (ii) it will not consent
to the undertaking of any Remedial Action by NMF, the County, or the Trustee
(as such terms are defined in the ICA), nor will Lender provide any notice of
default and/or acceleration pursuant to Section 4 or Section 7.1 of the ICA; (iii)
that the Borrowing Base shall be deemed to have been increased to the lesser of
$6,000,000 or the sum of 100% of the Borrower’s Eligible Accounts Receivable
and 100% of Borrower’s Eligible Inventory; (iv) that the passing of the
maturity date of Note Three without payment in full on such date shall not be
an Event of Default during the Forbearance Period;  and (v) failure to comply with the financial
covenants set forth in Sections 5.01(d), (e), (f) and (g) of the Loan Agreement
will be excused.  Notwithstanding any of
the terms of this Agreement, Lender may provide Borrower with a distressed loan
notice pursuant to regulations of the Farm Credit Administration (the “Distressed
Loan Notice”).


 


4.                                      Conditions
Precedent.  As conditions
precedent to the Lender’s and forbearance, as set forth in the preceding
paragraph, the following agreements, documents, and other items


 


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shall have
been executed and/or delivered to the Lender, and the following events shall
have occurred:


 


a.                                       Execution and
Delivery of Agreement.  The Borrower
shall have executed and delivered to the Lender this Agreement and any other
documents and agreements ancillary or incident hereto.


 


b.                                      Other
Documentation.  The Borrower shall
have obtained and delivered to the Lender any and all further documentation
reasonably requested by the Lender.


 


c.                                       Title Insurer
Approval.  This Forbearance Agreement
has been reviewed by First Minnesota Title and Abstract, LLC and Lawyers Title
Insurance Corporation and AgStar has received approval of the forbearance and
assurances of the continued full effectiveness of the lenders title insurance
coverage extended to Lender thereunder.


 


5.                                      Payment of Interest, Late Fees and Principal During
Forbearance Period.  Interest shall continue to accrue on the
unpaid principal balance of the Notes at the rates provided in the Loan
Documents.  All unpaid principal, accrued
interest (including, as applicable, interest at the Default Rate specified in
the Loan Documents), late fees, and all costs and expenses incurred by Lender
in connection with the Loans, including, without limitation, reasonable
attorneys’ fees, shall be deferred but shall otherwise be paid in full on or
before May 1, 2009.   Interest at the
Default Rate shall be deferred until the end of the Forbearance Period,
provided that if the Borrower satisfies all of the obligations of this
Agreement in compliance with this Agreement, the Lender agrees to reduce the
interest rate retroactive February 1, 2009, to the rate that would otherwise
have been in effect on the Loans from time to time but for the application of
the Default Rate.


 


6.                                      Other Obligations During Forbearance Period. 
During, and with respect to the obligation set forth in paragraph c,
below, during and after the Forbearance Period, the Borrower shall:


 


a.                                       Deliver the Borrowing Base Certificate
required by Section 14 of the Third Supplement within 10 days after the end of
each calendar month;


 


b.                                      Deliver all reports required by Sections
5.01(c)(ii) and (vii) of the Loan Agreement within 20 days after the end of
each calendar month; and


 


c.                                       Use its best efforts to complete its pending
equity offering on or before May 31, 2009, or such other date as mutually
agreed upon by the Borrower and the Lender, upon review of the Borrower’s
bi-weekly report to Lender on such offering and such other documents and
reports as requested by the Lender regarding the same.


 


7.                                      Management
Review.  Lender shall, in its
sole discretion but at the sole expense of Borrower, retain an independent
management and operations consultant to conduct a complete review of Borrower’s
risk management, marketing, operations and financial systems and


 


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procedures.  The Borrower shall
be permitted an opportunity to provide Lender with suggestions as to the scope
of operations review, and have the opportunity to provide feedback on
consultants proposed to be engaged; provided that Lender shall retain the sole
discretion to direct the scope of review and select the consultant(s).  Such consultant shall provide Lender with a
written report summarizing its findings and recommendations on or before April 15,
2009.   Borrower shall cooperate and
assist any such consultant selected by Lender, including, but not limited to
permitting access to its facilities and
offices and to the books, records and reports related to the operation of the
Borrower’s business, wherever located.


 


8.                                      Other
Terms.


 


(a)                        Management of Business.  The
Borrower acknowledges that it is the obligation of Borrower, acting through its
duly authorized representatives, to manage the ongoing business of the Borrower
and that Lender has not participated in or directed any of the management of
the Borrower.


 


(b)                       Inspection.  The Borrower agrees that Lender
and/or its agents, employees and representatives may conduct such on-site
inspections regarding the Project as they may, in its sole discretion, deem
appropriate, subject to the Borrower’s ordinary and usual practices concerning
confidentiality and trade secrets.


 


(c)                        Disclosure to Other Lenders.  The
Borrower hereby authorizes and agrees Lender may disclose the terms of this
Agreement, as well as the Distressed Loan Notice, to MMCDC New Markets Fund II,
LLC, U.S. Bank, National Association and Otter Tail County.


 


9.                                      Events
of Default.  For purposes of this
Agreement, “Event of Default” means (a) any Events of Default under the Loan
Documents first occurring after the Effective Date, or at any prior date but
regarding which the Lender did not have actual knowledge (excluding Events of
Default relating to the matters for which forbearance is provided hereunder),
or (b) the occurrence of any one or more of the following:


 


(a)                                  Payment
Defaults.  Borrower shall fail to
pay, when due, any amounts required to be paid hereunder, including any amounts
owed on the expiration of the Forbearance Period.


 


(b)                                 Nonmonetary
Defaults. Borrower shall fail to observe or perform any covenant,
condition, or agreement to be observed or performed by them under this
Agreement for a period of five (5) days after written notice, specifying such
default and requesting that it be remedied.


 


(c)                                  Bankruptcy.  Any party to this Agreement shall file a
petition in bankruptcy or for reorganization or for an arrangement pursuant to
any present or future state or federal bankruptcy law or under any similar
federal or state law, or shall have an order for relief pursuant to 11 U.S.C. §
303 entered in any such proceeding brought by any other creditor, or shall make
a general assignment for the benefit of their creditors.


 


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(d)                                 Creditor
Proceedings.  The commencement of
foreclosure or other proceeding to obtain possession of the Real Property
and/or the Collateral, whether by judicial proceeding, self help, repossession,
garnishment, execution or any other method, by any creditor of the Borrower.


 


(e)                                  Protective
Advance.  The Lender makes a
protective advance under this Agreement or the Loan Documents.


 


10.                               Remedies.  Upon the occurrence of an Event of Default (i)
the entire unpaid balance of the Loans, including all unpaid principal, accrued
interest, default charges and costs and expenses incurred by Lender in
connection with the Loans, including attorney fees shall be immediately due and
payable by Borrower, (ii) the Forbearance Period shall, at the option of
Lender, terminate and Lender may, in its sole discretion, and without further
demand or notice to Borrower, protect and enforce all of its legal, contractual
and equitable rights and remedies under the Loan Documents or this Agreement, (iii)
the Lender may apply all amounts that Borrower has on deposit with the Lender,
including, without limitation, all escrowed funds, to the payment of the
outstanding principal balance, accrued interest, default charges, and the costs
and expenses of collection, including attorneys’ fees, in such order as Lender
may deem appropriate, and (iv) the Lender may seek, and Borrower shall not
object to, the appointment of a receiver for the Real Property and the Collateral.  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 hereunder
shall impair any such right or power or be construed to be a waiver of any
default or acquiescence therein.


 


11.                               Waiver
and Release.  To the extent any
claims or defenses may exist, Borrower, on behalf of themselves and their
respective successors and assigns, hereby forever and irrevocably release
Lender and its officers, representatives, agents, attorneys, employees,
predecessors, successors, and assigns, from any and all such claims and
defenses, whether known or unknown arising out of any acts or omissions
occurring prior to the date of this Agreement (including without limitation,
those relating to late fees currently outstanding or previously paid), provided
that Borrower does not waive any rights afforded it hereunder.


 


12.                               Effect
of Agreement.  Except as
expressly provided in this Agreement, the Loan Agreement, the Notes, the
Mortgage and the Security Agreement remain in full force and effect in
accordance with their respective terms, and this Agreement shall not be
construed to: (i) impair the validity, perfection or priority of any security
interest or lien securing the Loans; (ii) waive or impair any rights, powers or
remedies of the Lender under the Loan Agreement, the Notes, the Mortgage or the
Security Agreement; or (iii) constitute an agreement by the Lender or require
it to extend the Forbearance Period, or grant additional forbearance periods.


 


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13.                               Representations
and Warranties.  The Borrower
represents and warrants to AgStar and Lender as follows:


 


13.1         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 to carry
on its business and to execute, deliver, and perform its obligations under the
Loan Documents and this Agreement.


 


13.2         Execution.  The execution, delivery and performance by
the Borrower of the this Agreement is within the Borrower’s powers, has been
duly authorized by all necessary action, does 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 does not result in or require the
creation of any lien, security interest or other charge or encumbrance (other
than pursuant to the terms of the Loan Documents) upon or with respect to any
of its respective properties.


 


13.3         Enforceability.  This Agreement is, and each of the Loan
Document to which the Borrower is a party are, or 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.


 


13.4         Litigation.  Except as specifically disclosed in writing
to the Lender, 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 date of this Agreement, there are
no outstanding judgments against the Borrower.


 


14.                               Miscellaneous.


 


14.1         Recitals
Incorporated.  The Recitals set forth
at the beginning of this Agreement are deemed incorporated herein, and the
parties hereto represent they are true, accurate and correct.


 


14.2         Governing
Law.  This Agreement shall be
governed by and construed in accordance with the laws of the State of
Minnesota.


 


14.3         Severability.  If any provision of this Agreement shall be
invalid, illegal or otherwise unenforceable, such provision shall be severable
from the remainder of such agreement and the validity, legality and
enforceability of the remaining provisions shall not be adversely affected or
impaired thereby and shall remain in full force and effect.


 


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14.4         Counterparts.  This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each
of the parties and delivered to the other parties.


 


14.5         Entire
Agreement.  This Agreement and the
Loan Documents set forth the entire agreement between the parties pertaining to
the transactions contemplated by this Agreement.  This Agreement may be amended or modified
only by a written instrument signed by the party against which enforcement is
sought.


 


14.6         Revival.  If the incurring of any debt or any payments
of money or transfers of property made to the Lender by or on behalf of the
Borrower contemplated by this Agreement or the Loan Documents (collectively,
the “Transfer”) should for any reason subsequently be declared to be “voidable”
or “avoidable” within the meaning of any state or federal law relating to
creditor’s rights, including , without limitation, as fraudulent transfers,
preferences or otherwise voidable or recoverable payments of money or transfers
of property, in whole or in part, for any reason under the Bankruptcy Code or
any other federal or state law, and Lender is required to repay or restore any
Transfer, or the amount of any portion thereof, or upon the advice of its
counsel is advised to do so, then, as to any such amount repaid or restored
(including reasonable costs, expenses and attorneys’ fees of the Lender related
thereto), the liability of the Borrower shall automatically be revived,
reinstated and restored and shall exist as though such Transfer had never been
made.


 


IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
duly executed and delivered as of the date and year first above written.


 


 


	
  AGSTAR
  FINANCIAL SERVICES, PCA,

  	
   

  	
  OTTER TAIL AG ENTERPRISES, LLC,

  
	
  a United States instrumentality,

  	
   

  	
  a Minnesota limited
  liability company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By 

  	
  /s/ Ron Monson

  	
   

  	
  By 

  	
  /s/ Anthony Hicks

  
	
   

  	
  Ron Monson

  	
   

  	
   

  	
  Anthony Hicks

  
	
   

  	
  Its: Vice President

  	
   

  	
   

  	
  Its: Chief Executive
  Officer

  



 


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