**Exhibit10.16**

 

**CONSTRUCTIONAND REVOLVING LOAN AGREEMENT**

 

by and among

 

**UNITEDWISCONSIN GRAIN PRODUCERS, LLC**

 

 

and

 

 

**AGSTARFINANCIAL SERVICES, PCA**

 

 

dated

as of

February 26, 2004

 

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**TABLEOF CONTENTS**

 
| ARTICLE I.   DEFINITIONS  AND ACCOUNTING MATTERS   |              |
|------------------------------------------------------------------------|-------------------|
|                                                                   | Section 1.01 | Certain Defined Terms |   |
|                                                                   | Section 1.02 | Accounting Matters |   |
|                                                                   | Section 1.03 | Construction |   |
|                                                                   |              |   |   |
| ARTICLE II.   AMOUNTS  AND TERMS OF THE TERM LOANS |              |
|                                                                   | Section 2.01 | Construction Loan. |   |
|                                                                   | Section 2.02 | Disbursement of Construction Loan |   |
|                                                                   | Section 2.03 | Conversion of Construction Loan Into Term Loan |   |
|                                                                   | Section 2.04 | Revolving  Loan |   |
|                                                                   | Section 2.05 | Making the Revolving Advances |   |
|                                                                   | Section 2.06 | Adjustments to Interest Rate |   |
|                                                                   | Section 2.07 | Commitment/Participating/Servicing Fees |   |
|                                                                   | Section 2.08 | Default  Interest. |   |
|                                                                   | Section 2.09 | Prepayment of Term Loan |   |
|                                                                   | Section 2.10 | Changes in Law Rendering Certain LIBOR Rate  Loans Unlawful |   |
|                                                                   | Section 2.11 | Payments and Computations |   |
|                                                                   | Section 2.12 | Maximum Amount Limitation |   |
|                                                                   | Section 2.13 | Lender  Records |   |
|                                                                   | Section 2.14 | Loan  Payments |   |
|                                                                   | Section 2.15 | Purchase of Equity Interests in AgStar  Financial Services, PCA |   |
|                                                                   | Section 2.16 | Compensation |   |
|                                                                   |              |   |
| ARTICLE III   CONDITIONS  PRECEDENT                |              |
|                                                                   | Section 3.01 | Conditions Precedent to Funding |   |
|                                                                   |              |   |
| ARTICLE IV.   REPRESENTATIONS  AND WARRANTIES      |              |
|                                                                   | Section 4.01 | Representations  and Warranties of the Borrower |   |
|                                                                   |              |   |
| ARTICLE V.   COVENANTS  OF THE BORROWER            |              |
|                                                                   | Section 5.01 | Affirmative Covenants |   |
|                                                                   | Section 5.02 | Negative  Covenants |   |
|                                                                   |              |   |
| ARTICLE VI.   EVENTS  OF DEFAULT AND REMEDIES      |              |
|                                                                   | Section 6.01 | Events  of Default |   |
|                                                                   | Section 6.02 | Remedies |   |
|                                                                   | Section 6.03 | Remedies  Cumulative |   |

 

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| ARTICLE VII.   MISCELLANEOUS |              |
|--------------------------------------------------|-------------------|
|                                             | Section 7.01 | Amendments, etc |   |
|                                             | Section 7.02 | Notices, etc |   |
|                                             | Section 7.03 | No  Waiver; Remedies |   |
|                                             | Section 7.04 | Costs,  Expenses and Taxes. |   |
|                                             | Section 7.05 | Right  of Set-off |   |
|                                             | Section 7.06 | Severability  of Provisions |   |
|                                             | Section 7.07 | Binding  Effect; Successors and Assigns; Participations. |   |
|                                             | Section 7.08 | Consent  to Jurisdiction. |   |
|                                             | Section 7.09 | Governing  Law |   |
|                                             | Section 7.10 | Execution  in Counterparts |   |
|                                             | Section 7.11 | Survival |   |
|                                             | Section 7.12 | Waiver  of Jury Trial |   |
|                                             | Section 7.13 | Entire  Agreement |   |

 

**LISTOF SCHEDULES AND EXHIBITS**

 
| Schedule 3.01(c) | 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(j) | Location of Inventory and Farm Products; Third Parties in Possession;  Crops |   |
| Schedule 4.01(k) | Office Locations; Fictitious Names; Etc.                                     |   |
| Schedule 4.01(n) | Intellectual Property                                                        |   |
| Schedule 4.01(p) | Environmental Compliance                                                     |   |
| Schedule 5.01(n) | Management                                                                   |   |
| Schedule 5.02(a) | Description of Certain Liens, Lease Obligations, etc.                        |   |
| Schedule 5.02(f) | Loans; Guaranties                                                            |   |
|                  |                                                                         |   |
|                  |                                                                         |   |
| Exhibit A             | Compliance Certificate                                                       |   |
| Exhibit B             | Project Sources and Uses Statement                                           |   |
| Exhibit C             | Sworn Construction Statement                                                 |   |
| Exhibit D             | Form of Opinion Letter                                                       |   |

 

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**CONSTRUCTIONAND**

**REVOLVINGLOAN AGREEMENT**

 

THIS Construction and Revolving Loan Agreement between UNITED WISCONSINGRAIN PRODUCERS, LLC, a Wisconsin limited liability company (the “Borrower”),and AGSTAR FINANCIAL SERVICES, PCA, a United States instrumentality (the“Lender”) is made and executed this 26th day of February, 2004.

 

**RECITALS**

 

A.                                   TheBorrower has requested the Lender extend to the Borrower a construction loan inthe amount of $33,024,200.00, for the purposes of acquiring, constructing,equipping and furnishing of an ethanol production facility to be located nearFriesland, Columbia County, Wisconsin (the “Project”).

 

B.                                     TheBorrower has also requested the Lender extend to the Borrower a revolving loanin the amount of $4,000,000.00 for operating capital and cash managementpurposes following the Completion Date of the Project.

 

C.                                     TheLender is willing to extend such financing to the Borrower upon the terms andsubject to the conditions set forth in this Agreement.

 

**AGREEMENT**

 

IN CONSIDERATION of the foregoing premises and the mutual covenantscontained in this Construction and Term Loan Agreement and for other good andvaluable consideration, the receipt and sufficiency of which are hereby acknowledgedby the Borrower, the parties agree as follows:

 

**ARTICLE I****.**

**DEFINITIONSAND ACCOUNTING MATTERS**

 

Section 1.01.                             **CertainDefined Terms**.  As usedin this Agreement, the following terms shall have the following meanings.  Terms not otherwise defined in thisAgreement shall have the meanings attributed to such terms in the UniformCommercial Code, as amended from time to time. All references to dollar amounts shall mean amounts in lawful money ofthe United States of America.

 

“Accounts” means all of the Borrower’s“Accounts”, as such term is defined in the UCC, including, without limitation,the aggregate unpaid obligations of customers and other account debtors toBorrower arising out of the sale or lease of goods or rendition of services byBorrower on an open account or deferred payment basis.

 

“Advances” means the loans made underSections 2.01 and 2.02.

 

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“Affiliate” means, as to any Person,any other Person:  (a) thatdirectly or indirectly, through one or more intermediaries, controls or iscontrolled by, or is under common control with, such Person; (b) thatdirectly or indirectly beneficially owns or holds five percent (5%) or more ofany class of voting stock of such Person; or (c) five percent (5%) or moreof the voting stock of which is directly or indirectly beneficially owned orheld by the Person in question.  Theterm “control” means the possession, directly or indirectly, of the power todirect or cause direction of the management and policies of a Person, whetherthrough the ownership of voting securities, by contract, or otherwise; *provided,however*, in no event shall the Lender or any Bank be deemed anAffiliate of the Borrower or any of their subsidiaries.

 

“Agreement” means this Construction andRevolving Loan Agreement, as this Construction and Revolving Loan Agreement maybe amended or modified from time to time, together with all exhibits andschedules attached to this Construction and Revolving Loan Agreement from timeto time.

 

“Borrower” means United Wisconsin GrainProducers, LLC, a Wisconsin limited liability company.

 

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

 

“Capital Expenditures” means, for anyperiod, the sum of all amounts that would, in accordance with generallyaccepted accounting principles consistently applied, be included as additionsto property, plant and equipment on a statement of cash flows for the Borrowerduring such period, with respect to: (a) the acquisition, construction, improvement, replacement orbetterment of land, buildings, machinery, equipment or of any other fixedassets or leaseholds; or (b) other capital expenditures and other uses recordedas capital expenditures having substantially the same effect.

 

“Cash Equity” means funds of at least45% of Project Costs, currently estimated to be $27,019,800.00, made up of thefollowing amounts:  (i) members’equity of at least $23,781,500.00; (ii) various grants of at least $800,000.00;and (iii) subordinated debt from Fagen, Inc., of not more than $2,438,300.00.

 

“Closing Date” means February 26,2004.

 

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

 

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“Collateral” means and includes, withoutlimitation, all property and assets granted as collateral security for theLoans or Indebtedness, whether real or personal property, whether granteddirectly or indirectly, whether granted now or in the future, and whethergranted in the form of a security interest, mortgage, assignment of rents, deedof trust, assignment, pledge, chattel mortgage, chattel trust, factor’s lien,equipment trust, conditional sale, trust receipt, lien, charge, lien or titleretention contract, lease or consignment intended as a security device, or anyother security or lien interest whatsoever, whether created by law, contract orotherwise.

 

“Commitment” means the respective amountscommitted to by Lender under the Construction Note and Revolving Note, as eachis defined herein.

 

“Commitment fee” shall have themeaning specified in Section 2.07.

 

“Completion Date” means the earlier ofJuly 1, 2005, or the date a Completion Certificate is issued for theProject executed by the Borrower, General Contractor and Inspecting Engineer,whichever shall first occur.

 

“Completion Certificate” means acertificate executed by the Borrower, General Contractor and InspectingEngineer stating that the Project is completed and that the ethanol productionfacility is completely operational.

 

“Compliance Certificate” means acertificate of the Treasurer, or any other officer acceptable to the Lender, ofthe Borrower, in the form attached hereto as Exhibit A, setting forth thecalculations of current financial covenants and stating:  (a) the Financial Statements are true andcorrect and have been prepared in accordance with generally accepted accountingprinciples consistently applied; (b) whether they have knowledge of theoccurrence of any Event of Default under this Agreement, and if so, stating inreasonable detail the facts with respect thereto; and (c) reaffirm and ratifythe representations and warranties, as of the date of the certificate, containedin this Agreement.

 

“Construction Completion Bond” means abond, in form and substance satisfactory to the Lender, issued by a bondingcompany acceptable to the Lender, in an amount and for a period of timenecessary to complete the Project pursuant to the Plans and Specifications, andincluding such endorsements as Lender may require.

 

“Construction Contracts”  means any and all contracts, written ororal, between the Borrower and any Contractor and any subcontractor and betweenany of the foregoing and any other person or entity relating in any way to theconstruction of the Project, including the performing of labor or thefurnishing of standard or specially fabricated materials in connectiontherewith.

 

“Construction Loan” means the loanfrom the Lender to the Borrower in the amount of $33,024,200.00 and pursuant tothe terms and conditions provided for in Section 2.01, below.

 

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“Construction Note” means that certainpromissory note of even date herewith executed and delivered to the Lender bythe Borrower in the amount of $33,024,200.00.

 

“Contractor” means and includes anyperson or entity, including the General Contractor, engaged to work on or tofurnish materials or supplies for the Project.

 

“Conversion Date” means the CompletionDate.

 

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

 

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

 

“Default Rate” has the meaningspecified in Section 2.08.

 

“Disbursing Agent”  means Lender, its successors and assigns.

 

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

 

“Disbursement Expiration Date” meansthe date sixty (60) days subsequent to the Completion Date, unless extended inwriting by the Lender and the Borrower for an additional, quantified term.

 

“Distribution” means any dividend,distribution, payment, or transfer of property to any member of the Borrower.

 

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“Draw Request” means a request for anadvance against the Revolving Note, or the Construction Note prior to theConversion Date, submitted by the Borrower to the Lender and the DisbursingAgent, in accordance with the terms and conditions of the Disbursing Agreement.

 

“Environmental Laws” means all lawsand regulations relating to environmental, health, safety and land use mattersapplicable to any property.

 

“EBITDA” means for any period, thetotal of the following each calculated without duplication for the Borrower forsuch period:  (i) net income fromoperations; plus (ii) any provision for (or less any benefit from) incometaxes included in determining such net income; plus (iii) Interest Expensededucted in determining such net income; plus (iv) amortization anddepreciation expense deducted in determining such net income.

 

“ERISA” means the Employee RetirementIncome Security Act of 1974.

 

“Events of Default” has the meaningspecified in Section 6.01.

 

“Excess Cash Flow” means EBITDA, lessthe sum of:  (i) required payments inrespect of Funded Debt; (ii) Incentive Payments; and (iii) Maintenance CapitalExpenditures.

 

“Extraordinary Items” means itemswhich are material and significantly different from the Borrower’s typicalbusiness activities, determined in accordance with generally acceptedaccounting principles, consistently applied.

 

“Facility Fee” shall have the meaningspecified in Section 2.07.

 

“Fixed Charge Coverage Ratio” meansthe ratio of (EBITDA +/- Extraordinary Items) divided by the sum of CurrentPortion of Long Term Debt + Distributions + Tax Distributions + MaintenanceCapital Expenditures).

 

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

 

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

 

“General Contractor” means Fagen,Inc., a Minnesota corporation, and its successors and assigns.

 

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“Governmental Authority” means andincludes any and all courts, boards, agencies, commissions, offices, orauthorities of any nature whatsoever for any governmental unit (federal, state,county, district, municipal, city, or otherwise) whether now or hereafter inexistence.

 

“Grantor” means and includes each andall of the persons or entities granting a Security Interest in any Collateralfor the Indebtedness, including without limitation the Borrower.

 

“Imputed Operating Leases” means thesum of future minimum rental commitments owed under non-cancelable operatingleases.

 

“Incentive Payments” means any and allfederal or state governmental subsidies, payments, transfers or other benefits,whether now or hereafter established, received by the Borrower in any fiscalyear.

 

“Incentive Payment Recapture” means anamount equal to all Incentive Payments less an amount equal to 50% of suchIncentive Payments.

 

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

 

“Inspecting Engineer” means BBIInternational, a Colorado corporation, and its successors and permittedassigns.

 

“Intellectual Property” has themeaning specified in Section 4.01(n).

 

“Interest Bearing Debt” means any Debtof the Borrower that accrues interest.

 

“Interest Expense” means for anyperiod, the total interest expense of the Borrower calculated on a consolidatedbasis.

 

“Interest Period” means the periodcommencing on the date of an Advance and ending on the numericallycorresponding day in the first, second, third, sixth or twelfth calendar monththereafter, except that each such Interest Period which commences on the lastBusiness Day of a calendar month (or on any day for which there is nonumerically corresponding day in the appropriate subsequent calendar month)shall end on the last Business Day of the appropriate subsequent calendarmonth.  Notwithstanding theforegoing:  (a) each InterestPeriod which would otherwise end on a day which is not a Business Day shall endon the next succeeding Business Day or if such succeeding Business Day falls inthe next succeeding calendar month, on the next preceding Business Day;(b) any Interest Period which would otherwise extend beyond the MaturityDate shall end on the Maturity Date; and (c) no Interest Period shall havea duration of less than one (1) month.

 

“Inventory” means all of theBorrower’s inventory, as such term is defined in the UCC, whether now owned orhereafter acquired, whether consisting of whole goods, spare parts or 

 

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components, supplies or materials, whetheracquired, held or furnished for sale, for lease or under service contracts orfor manufacture or processing, and wherever located.

 

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

 

“LIBOR Rate” (London Interbank Offered Rate) shall mean the London interbank offered rate perannum for one-month deposits in United States dollars, as determined by theBritish Banker’s Association average of interbank offered rates for UnitedStates dollar deposits in the London market based on quotations at 16 majorbanks, as published in the “Money Rates” Section of the *Wall StreetJournal* as of the applicable determination date; provided, ifLender determines that the foregoing source is unavailable for the applicableInterest Period, Lender shall determine LIBOR based on a new index which isbased on comparable information.

 

“Loan and Carrying Charges” means allcommitment fees to the Lender, brokerage fees, standby fees, interest charges,service fees, attorneys’ fees, contractors’ fees, developers’ fees, fundingfees, title insurance fees and charges, recording fees, registration taxes,real estate taxes, special assessments, insurance premiums, utility chargesincurred by the Borrower in the construction of the Project and issuance of theNotes, all costs incurred in acquisition of the Real Property and any othercosts incurred in the development of the Project.

 

“Loan Documents” means this Agreement,the Notes, the Security Agreement, the Mortgage and all other agreements,documents, instruments, and certificates of the Borrower delivered to, or infavor of, the Lender under this Agreement or in connection herewith ortherewith, including, without limitation, all agreements, documents,instruments, certificates and delivered in connection with the extension ofAdvances by the Lender.

 

“Loan Obligations” means allobligations, indebtedness, and liabilities of the Borrower to the Lenderarising pursuant to any of the Loan Documents, whether now existing orhereafter 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 theAdvances, interest on the Advances, and all fees, costs, and expenses(including attorneys’ fees and expenses) provided for in the Loan Documents.

 

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

 

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

 

“Maintenance Capital Expenditures”means all Capital Expenditures made in the ordinary course of business tomaintain existing business operations of the Borrower in any fiscal 

 

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year, determined in accordance with generallyaccepted accounting principles, consistently applied.

 

“Make Whole Amount” means any amountsin addition to outstanding principal and interest payable under the Notes orthis Agreement in the event of a prepayment thereof.

 

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

 

“Maturity Date” means the fifth  (5th) anniversary of theConversion Date.

 

“Maximum Rate” means the rate setforth in Section 2.01(c).

 

“Monthly Payment Date” means the firstday of each calendar month.

 

“Mortgage” means that certain Mortgageof even date herewith, pursuant to which a mortgage interest shall be given bythe Borrower to the Lender in the Real Property to secure payment to the Lenderof the Loan Obligations.

 

“Net Worth” means the excess of totalassets over total liabilities, total assets and total liabilities each to bedetermined in accordance with generally accepted accounting principlesconsistent with those applied in the preparation of the financial statementsreferred to in Section 4.01(e) for the Borrower.

 

“Net Income” means income after alloperating expenses including salaries and bonuses.

 

“Note/Notes” means and includes theConstruction Note and the Revolving Note evidencing the loans being madehereunder.

 

“Ordinary Trade Payable Dispute” meanstrade accounts payable, in an aggregate amount not in excess of $100,000 withrespect to the Borrower, with respect to which:  (a) there exists a bonafide dispute betweenBorrower and the vendor; (b) the Borrower is contesting the same in goodfaith by appropriate proceedings; and (c) the Borrower has establishedappropriate reserves on its financial statements.

 

“Outstanding Credit” means, at anytime of determination, the aggregate amount of Advances then outstanding.

 

“Outstanding Revolving Advances” meansthe total Outstanding Credit under the Revolving Note.

 

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“Owner Equity Ratio” means TangibleNet Worth divided by total assets, measured annually at the end of each fiscalyear.

 

“Participation Fee” shall have themeaning specified in Section 2.07.

 

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

 

“Personal Property” means allbuildings, structures, equipment, fixtures, improvements, building supplies andmaterials and personal property now or hereafter attached to, located in,placed in or necessary to the use of the improvements on the Real Propertyincluding, 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 includingwithout limitation all accounts, instruments, chattel paper, other rights topayment, money, deposit accounts, insurance proceeds and general intangibles ofthe Borrower, whether now owned or hereafter acquired.

 

“Plans and Specifications” means thefinal plans and specifications for the construction of the Project, to beprepared by the General Contractor, and approved by the Lender, and all amendmentsand modifications thereof approved by Lender.

 

“Project” means any and all buildings,structures, fixtures, and other improvements made to the Real Property andother uses identified in the Project Sources and Uses Statement as part of theacquisition and construction of an ethanol production facility in Friesland,Wisconsin, for which the Loans to Borrower are being made hereunder.

 

“Project Costs” means the total of allcosts of acquiring the Real Property and constructing the Project as identifiedin the Project Sources and Uses Statement, together with all Loan and CarryingCharges.

 

“Project Sources and Uses Statement”means the statement attached hereto as Exhibit B which identifies the sourcesand uses of monies in a total amount of $60,044,000.00 related to the Project.

 

“Real Property” means that realproperty located in the County of Columbia, State of Wisconsin, owned by theBorrower, upon which the Project is to be constructed and which is described inSchedule 3.01(c).

 

“Related Documents” means and includeswithout limitation all promissory notes, credit agreements, loan agreements,guaranties, security agreements, mortgages, deeds of trust, assignments and allother instruments, agreements and documents, whether now or hereafter existing,executed in connection with the Indebtedness.

 

“Request for Advance” has the meaning specified inSection 2.05(a).

 

“Revolving Advance” means an advance under the Revolving Note.

 

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“Revolving Loan” means the loan fromthe Lender to the Borrower in the amount of $4,000,000.00 and pursuant to theterms and conditions provided for in Sections 2.02 and 2.05, below.

 

“Revolving Note” means that certainpromissory note to be executed and delivered to the Lender by the Borrower onthe Conversion Date in the amount of $4,000,000.00.

 

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

 

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

 

“Security Interest” means and includeswithout limitation any type of collateral security, whether in the form of alien, 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 intendedas a security device, or any other security or lien interest whatsoever,whether created by law, contract, or otherwise.

 

“Subordinated Debt” means all Debtheld by:  (i) Fagen, Inc., or itsaffiliates; (ii) tax increment financing; and (iii) debt owed the State ofWisconsin or its agencies.

 

“Sworn Construction Statement” means asworn construction statement, sworn to by the Borrower and the GeneralContractor, and of a form and substance acceptable to the Lender, a sample ofwhich is attached hereto as Exhibit C.

 

“Tangible Net Worth” means the excessof total assets over total liabilities except Subordinated Debt, total assetsand total liabilities each to be determined in accordance with generallyaccepted accounting principles consistent with those applied in the preparationof the financial statements referred to in Section 5.01(c) for theBorrower, 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 othersimilar intangibles; (ii) treasury stock; (iii) securities which are not readilymarketable; (iv) cash held in a sinking or other analogous fundestablished for the purpose of redemption, retirement or prepayment of capitalstock or Debt; (v) any write-up in the book value of any asset resultingfrom a revaluation thereof subsequent to the Closing Date; (vi) amortizedstart-up costs; and (vii) any items not included in clauses (i)through (vi) above which are treated as intangibles in conformity withgenerally accepted accounting principles.

 

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“Tax Distributions” has the meaningspecified in Section 5.02(b).

 

“Term Loan” means the loan from theLender to the Borrower in the amount and pursuant to the terms and conditionsprovided for in Sections 2.01(e) and 2.04, below.

 

“Title Insurance” means a lender’stitle insurance policy, in form and substance satisfactory to the Lender andcontaining no exceptions (printed or otherwise) which are unacceptable toLender, issued by a title insurer acceptable to the Lender, in the face amountof the Note, insuring that Lender has a first and prior lien on the RealProperty and containing such endorsements as Lender may require.

 

“Unused Commitment Fee” shall have themeaning specified in Section 2.04(c).

 

“Working Capital” means current assetsof the Borrower less current liabilities of the Borrower.

 

Section 1.02.                             **AccountingMatters**.  All accountingterms not specifically defined herein shall be construed in accordance withgenerally accepted accounting principles consistently applied, except as otherwisestated herein.  To enable the ready andconsistent determination of compliance by the Borrower with its obligationsunder this Agreement, the Borrower will not change the manner in which eitherthe last day of its fiscal year or the last days of the first three fiscalquarters 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 gendershall include each other gender where appropriate.  The headings, captions or arrangements used in any of the LoanDocuments are, unless specified otherwise, for convenience only and shall notbe deemed to limit, amplify or modify the terms of the Loan Documents, noraffect the meaning thereof.

 

**ARTICLE II**

**AMOUNTSAND TERMS OF THE TERM LOANS**

 

Section 2.01.                             **ConstructionLoan**.

 

(a)                                  **Construction Loan**.  Subject to the terms and conditions of thisAgreement and in reliance upon the representations and warranties set forth inthis Agreement, the Lender agrees to lend to Borrower and Borrower agrees toborrow from Lender the lesser of the following: (i) $33,024,200.00; or (ii) 55%of the Project Costs.  Said amount shallbe loaned pursuant to the terms and conditions set forth in this Agreement.

 

(b)                                 **Advances****.**  The Construction Loan shall befunded by Advances on the Construction Note to be used for the construction ofthe Project.

 

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(c)                                  **Interest Rate**.  Subject to the provisions of Section 2.06 and 2.08, theConstruction Loan shall bear interest at a rate equal to the LIBOR Rate plus375 basis points.  The computation ofinterest, amortization, maturity and other terms and conditions of theConstruction Loan shall be as provided in the Construction Note, provided,however, in no event shall the applicable rate exceed the maximum nonusuriousinterest rate, if any, that at any time, or from time to time, may becontracted for, taken, reserved, charged, or received under applicable state orfederal laws (the “Maximum Rate”).

 

(d)                                 **Construction Loan Term**.  The Construction Loan term shall run for a period beginning onthe date of this Agreement and ending on the Conversion Date.  On the Conversion Date, the ConstructionLoan shall become fully due and payable, except for that part, if any, of theConstruction Loan which is converted into a Term Loan pursuant to the terms ofthis Agreement.

 

(e)                                  **Conversion to Term Loan**.  The Lender agrees to convert the Construction Loan into a TermLoan, provided all of the terms, conditions, warranties, representations, andcovenants of the Borrower set forth in his Agreement are satisfied. Thecomputation of interest, amortization, maturity and other terms and conditionsof the Term Loan, upon conversion, shall be as provided in the ConstructionNote.

 

Section 2.02.                             **Disbursement of Construction Loan**.

 

(a)                                  **Deposit Account**.  Disbursements of the Construction Loan willbe made by the Lender in the manner provided in the Disbursing Agreement.  Subject to Section 2.02(b) below, alldisbursements will be made by wire transferring such funds to the depositaccount of the Disbursing Agent in the amount of each Draw Request which isapproved pursuant to the Disbursing Agreement. All Construction Loan funds will be considered to have been advanced toand received by the Borrower upon, and interest on such funds will be payableby the Borrower from and after, their deposit in such deposit account.

 

(b)                                 **Lender’s Application of Loan Proceeds**.   Notwithstanding the provisions ofSection 2.02(a), above, the Lender may elect, upon ten (10) days’ noticeto the Borrower, to use the Construction Loan funds to pay, as and when due,any Construction Loan fees owing to Lender, interest on the Construction Loan,release charges under prior mortgages on the Property, and legal fees anddisbursements of the Lender’s attorneys which are payable by the Borrower,unless Borrower causes such amount(s) to be paid within said ten (10)days.  Such payments may be made, at theoption of the Lender, by debiting or charging the Construction Loan funds inthe amount of such payments.

 

(c)                                  **Cost Information**.  All disbursements will be based upon adetailed breakdown of the Project Costs. The Sworn Construction Statement, as approved by the Lender, is attachedas Exhibit C to this Agreement.  In theevent that the Borrower becomes aware of any change in the approved ProjectCosts, which would increase the total cost in excess of $25,000.00 above theamount shown on the attached Sworn Construction Statement, the Borrower shallimmediately notify the Lender in writing and promptly submit to the Lender forits approval a 

 

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revised Sworn Construction Statement. No further disbursements need be made by the Disbursing Agent unless anduntil the revised Sworn Construction Statement is approved.  The Lender reserves the right to approve ordisapprove any revised Sworn Construction Statement in its reasonablediscretion.

 

(d)                                 **Loan in Balance, Deposit of Funds byBorrower**.  The Borrowershall keep the Loan in balance as provided in this Section.  If the Lender at any time reasonablydetermines that the amount of the undisbursed Loan proceeds will not besufficient fully to pay for all costs required to complete the construction of theProject in accordance with the approved Plans and Specifications and for allProject Costs to be incurred by the Borrower, whether such deficiency isattributable to changes in the work of construction or in the Plans andSpecifications or to any other cause, the Lender may make written demand on theBorrower to deposit in an escrow fund to be established with the Lender anamount equal to the amount of the shortage reasonably determined by the Lender.The Borrower shall then deposit the required funds with the Lender within ten(10) days after the date of the Lender’s written demand.  No further disbursements shall be made bythe Disbursing Agent until those funds are deposited by the Borrower in theescrow fund.  Whenever the Lender hasany such funds on deposit in such escrow fund, it shall make all futureadvances for Project Costs from the escrow fund before making any furtheradvances under the Loan.

 

(e)                                  **Additional Security**.  The Borrower irrevocably assigns to theLender and grants to the Lender a security interest in, as additional securityfor the performance of the Borrower’s obligations under this Agreement and theRelated Documents, its interest in all funds held by the Disbursing Agent,whether or not disbursed, all funds deposited by the Borrower with the Lenderunder this Agreement, all governmental permits obtained for the lawfulconstruction of the Project, and all reserves, deferred payments, deposits,refunds, cost savings, and payments of any kind relating to the construction ofthe Project.  Upon any default of theBorrower, the Lender may use any of the foregoing for any purpose for which theBorrower could have used them under this Agreement or with respect to theconstruction or financing of the Project. The Lender will also have all other rights and remedies as to any of theforegoing which are provided under applicable law or in equity.

 

(f)                                    **ConditionsPrecedent to All Advances**. The Lender’s obligation to make each Advance under the Construction Noteshall be subject to the terms, conditions and covenants set forth in thisAgreement, including, without limitation, the following further conditionsprecedent:

 

(i)                                     Loan in Balance.  The Loan is in balance, as required by theprovisions of Section 2.03(d), above;

 

(ii)                                  Draw Request.  The Borrower has submitted to the Lender andthe Disbursing Agent a Draw Request for each such Advance, which such DrawRequest shall comply with the requirements contained in this Agreement and theDisbursing Agreement;

 

(iii)                               Compliance WithDisbursing Agreement.  All of theterms and conditions of the Disbursing Agreement have been satisfied withrespect to each such Advance;

 

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(iv)                              Government Action.  No license, permit, permission or authoritynecessary for the construction of the Project has been revoked or challenged byor before any Governmental Authority;

 

(v)                                 Sworn ConstructionStatement. If required by the Lender, the Borrower shall furnish to theLender an updated Sworn Construction Statement setting forth the Contractor(s)providing services or materials with respect to specific portions of theconstruction of the Project and setting forth the amounts actually incurred andpaid, or to be incurred, in completing construction of the Project.  Such updated Sworn Construction Statementshall be sworn to by the Borrower and the General Contractor to be a true,complete and accurate account of all costs actually incurred and an accurateestimate of all costs to be incurred in the future;

 

(vi)                              No Defaults.  The Borrower is not in default under theterms of this Agreement, the Related Documents or any other agreement to whichthe Borrower is a party and which relates to the construction or operation ofthe Project;

 

(vii)                           Construction CompletionBond.  The Borrower has caused abonding company to issue a Construction Completion Bond;

 

(viii)                        Marketing Agreements. The Borrower has executed marketingagreements for all ethanol and DDGS to be produced at the Project and providedLender with collateral assignments of all such agreements in form and contentwhich is satisfactory to Lender and its counsel and acknowledged by thenon-Borrower party to all such agreements;

 

(ix)                                Deposit of Cash Equity. The Borrower has deposited all Cash Equity with the Disbursing Agent,except that monies expended by Borrower to cover costs of the Project prior tothe Closing Date and grant monies paid directly to a municipality to covercosts of the Project need not be deposited into the Disbursing Account.

 

(g)                                 **Suspensionof Construction****. **If the Lender in reasonably good faith determinesthat any work or materials do not conform to the approved Plans andSpecifications or sound building practice, or otherwise departs from any of therequirements of this Agreement, the Lender may require the work to be stoppedand withhold disbursements until the matter is corrected.  In such event, the Borrower will promptlycorrect the work to the Lender’s satisfaction. Provided Lender’s actions were reasonable, in good faith, and the workor materials did not conform to the approved Plans and Specifications or soundbuilding practice, no such action by the Lender will affect the Borrower’sobligation to complete the Project on or before the Completion Date.

 

(h)                                 **Inspections.**  The Borrower and the Inspecting Engineer shall be responsible formaking inspections of the Project during the course of construction and shalldetermine to their own satisfaction that the work done or materials supplied bythe Contractors to whom payment is to be made out of each Advance has beenproperly done or supplied in accordance with the applicable contracts with suchContractors.  If any work done ormaterials supplied by a Contractor are not 

 

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satisfactory to the Borrower or the Inspecting Engineer, the Borrowerwill immediately notify the Lender in writing of such fact.  It is expressly understood and agreed thatthe Lender or its authorized representative may conduct such inspections of theProject as it may deem necessary for the protection of the Lender’s interest,and, specifically, an architectural or engineering firm acceptable to theLender may, at the option of the Lender and at the expense of the Borrower,conduct such periodic inspections of the Project, prepare such written progressreports during the period of construction, prepare such written reports uponcompletion of the Project and sign such Draw Requests, as the Lender mayrequest, provided that no inspection shall unreasonably delay progress on theProject.  Any inspections which may bemade of the Project by the Lender or its representative will be made, and allcertificates issued by the Lender’s representative will be issued, solely forthe benefit and protection of the Lender, and that Borrower will not relythereon.  The Lender is under no duty tosupervise or inspect construction or examine any books and records.  Any inspection or examination by the Lenderis for the sole purpose of protecting the Lender’s security and preserving theLender’s rights under this Agreement. No default of the Borrower will be waived by any inspection by theLender.  In no event will any inspectionby the Lender be a representation that there has been or will be compliancewith the Plans or Specifications or that the construction is free fromdefective materials or workmanship.

 

(i)                                     **No Waiver**.  Any waiver by the Lender of any condition ofdisbursement must be expressly made in writing.  The making of a disbursement prior to fulfillment of one or moreconditions thereof shall not be construed as a waiver of such conditions, andthe Lender reserves the right to require their fulfillment prior to making anysubsequent disbursements.

 

Section 2.03.**                             Conversionof Construction Loan Into Term Loan. ** Pursuant to the terms andconditions contained in this Agreement, the Construction Loan may be convertedinto a Permanent Loan.

 

(a)                                  **Conditions Precedent**.  In addition to the terms and conditions ofdisbursement set forth in this Agreement and as incorporated from the DisbursingAgreement, the Lender shall not be obligated to convert any part of theConstruction Loan into a Term Loan unless and until:

 

(i)                                     Amount of TermLoan.  The maximum amount of theConstruction Loan which is converted to a Term Loan shall be the lesser of thefollowing:  (A) $29,024,200.00; or (B)55% of the Project Costs less $4,000,000.00;

 

(ii)                                  ConstructionLoan Exceeds Term Loan.  Inthe event that the amount of the Construction Loan advanced by Lender exceedsthe amount of the Term Loan to be made by the Lender, including as a result ofthe appraisal required above, the Borrower shall immediately repay the amountof the Construction Loan which is not being converted into a Term Loan; and

 

(iii)                               Facility Fee.  The Borrower shall have paid Lender the FacilityFee which is due pursuant to Section 2.07.

 

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(b)                                 **Incentive Payment Recapture/Excess Cash Flow. **Following the Conversion Date, and inaddition to all other payments of principal and interest required under thisAgreement or the Notes, the Borrower shall annually remit to Lender an amountequal to the sum of:  (i) 20% of theBorrower’s Excess Cash Flow; and (ii) the Borrower’s Incentive PaymentRecapture on or before January 31st of the succeeding fiscalyear.

 

(c)                                  **Conversionto Fixed Rate Loan**.  On the Conversion Date, the Borrower shallhave the right to convert all or any part of the Construction Loan into a FixedRate Loan, with the consent of the Lender, which shall bear interest at a rateequal to an agreed upon known funding source, such as the 5-year federal homeloan base rate, plus the existing base point spread which Borrower is currentlyat.

 

Section 2.04.                             **RevolvingLoan.**

 

(a)                                  **Revolving Loan**.  The Lender agrees, on the terms andconditions set forth in this Agreement, to extend credit to the Borrower fromtime to time during the period from the Conversion Date through and includingthe Maturity Date by making loans to the Borrower on a revolving basis fromtime to time.

 

(b)                                 **Interest Rate**.  Subject to the provisions of Section 2.06 and 2.08, theRevolving Loan shall bear interest at a rate equal to the LIBOR Rate plus 375basis points.  The computation ofinterest, amortization, maturity and other terms and conditions of theRevolving Loan shall be as provided in the Revolving Note, provided, however,in no event shall the applicable rate exceed the Maximum Rate.

 

(c)                                  **Unused Commitment****Fee**.  In addition to the commitment fee payable onthe Closing Date, Borrower agrees to pay to the Lender an Unused Commitment Feeon the average daily unused portion of such Lender’s Commitment under theRevolving Loan from the Conversion Date until the Maturity Date at the rate of0.50% per annum, payable in arrears in quarterly installments payable on thefirst day of each third month after the Conversion Date.

 

Section 2.05.                             **Makingthe Revolving Advances.**

 

(a)                                  **Revolving Advances**.  Each Revolving Advance shall be made, onnotice from the Borrower (a “**Request for Advance**”) to the Lenderdelivered before 12:00 Noon (Minneapolis, Minnesota time) on a BusinessDay which is at least three (3) Business Days prior to the date of suchRevolving Advance specifying the amount of such Revolving Advance, providedthat, no Revolving Advance shall be made while an Event of Default exists or ifthe interest rate for such LIBOR Rate Accounts would exceed the MaximumRate.  Any Request for Advanceapplicable to a Revolving Advance received after 12:00 Noon (Minneapolis,Minnesota time) shall be deemed to have been received and be effective on thenext Business Day.  The amount sorequested from the Lender shall, subject to the terms and conditions of thisAgreement, be made available to the Borrower by:  (i) depositing the same, in same day funds, in an account ofthe Borrower; or (ii) wire transferring such funds to a Person or Personsdesignated by the Borrower in writing.

 

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(b)                                 **Requests for Advances Irrevocable**.  Each Request for Advance shall beirrevocable and binding on the Borrower and the Borrower shall indemnify theLender against any loss or expense it may incur as a result of any failure toborrow any Advance after a Request for Advance (including any failure resultingfrom the failure to fulfill on or before the date specified for such Advancethe applicable conditions set forth in Article III of this Agreement),including, without limitation, any loss (including loss of anticipated profits)or expense incurred by reason of the liquidation or reemployment of deposits orother funds acquired by the Lender to fund such Advance when such Advance, as aresult of such failure, is not made on such date.

 

(c)                                  **Minimum Amounts**.  Each Revolving Advance shall be in a minimumamount equal to $50,000.00.

 

(d)                                 **Use of Proceeds**.  The proceeds of the Revolving Advances shallbe used by the Borrower to finance its working capital requirements in theordinary course of business and to fund Project Costs.

 

Section 2.06.                             **Adjustments to Interest Rate**.    Notwithstanding any other provision of thisAgreement or the Related Documents, the rate of interest under the Term Loan orthe Revolving Loan shall vary according to the following schedule shouldthe Owner’s Equity in the Borrower achieve the levels set forth below:

 
| **Owner’s Equity** |   | **Interest Rate**                            |
|-------------------------|--------|----------------------------------------------|
|                    |   |                                         |
| 40.00%—49.99%      |   | Applicable  LIBOR Rate plus 375 basis points |
|                    |   |                                         |
| 50.00%—54.99%      |   | Applicable  LIBOR Rate plus 325 basis points |
|                    |   |                                         |
| Greater  Than 55.00%    |   | Applicable  LIBOR Rate plus 275 basis points |

 

Upon delivery of the monthly financialstatements and the Compliance Certificate pursuant to Section 5.01(c)(iii)for each month that corresponds with each month end, the rate of interest forany month shall automatically be adjusted in accordance with the Owner’s Equityset forth therein and the rates set forth above.  Such automatic adjustment to the rate of interest shall takeeffect as of the first Business Day of the month in which the Lender receivedthe related Compliance Certificate.  Theterm “**AdjustmentDate**” shall mean each such Business Day when such rates, margins orfees change pursuant to the immediately prior sentence or the next followingsentence.  If the Borrower fails todeliver such Compliance Certificate which so sets forth the Owner’s Equitywithin the period of time required by Section 5.01(c)(iii) hereof or ifany Event of Default occurs, the rate of interest shall automatically beadjusted to a rate equal to the applicable LIBOR Rate plus 375 basis points,such automatic adjustments:  (a) totake effect as of the first Business Day after the last day on which 

 

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the Borrower were required to deliver theapplicable Compliance Certificate in accordance with Section 5.01(c)(ii)hereof or in the case of an Event of Default, on the date the written notice isgiven to the Borrower; and (b) to remain in effect until subsequentlyadjusted in accordance herewith upon the delivery of such ComplianceCertificate or, in the case of an Event of Default, when such Event of Defaulthas been cured to the satisfaction of the Lender.

 

Section 2.07.                             **Commitment/Participation/FacilityFees**.  The Borroweragrees to pay to the Lender on the Closing Date:  (i) a Commitment Fee of $80,000.00; and (ii) a Participation Feeof  $247,681.50.  In addition, the Borrower shall pay toLender on or before the Conversion Date, and on each anniversary of theConversion Date through the fourth anniversary, an annual Facility Fee of$40,000.00.

 

Section 2.08.                             **DefaultInterest**.  Upon theoccurrence of an Event of Default, all past due principal and, to the extentpermitted by applicable law, interest, fees, and other amounts owing hereunder,shall bear interest, from the date of such Event of Default until the date theLender, in writing, acknowledge that such Event of Default is waived or curedor all Loan Obligations are paid in full, at the Default Rate.  The term “**Default Rate**”, as usedherein, means the lesser of: (a) the Maximum Rate (which shall mean the maximum nonusuriousinterest rate, if any, at any time, or from time to time, that may becontracted for, taken, reserved, charged or received under applicable state orfederal laws); or (b) the rate per annum which shall from day-to-day beequal to two percent (2%) in excess of the then applicable rate of interest.  Interest payable at the Default Rate shallbe payable from time to time on demand or, if not sooner demanded, on the lastday of each calendar month.

 

Section 2.09.                             **Prepaymentof Term Loan.               **TheBorrower may, by notice to the Lender, prepay the outstanding amount of theTerm Loan in whole or in part with accrued interest to the date of suchprepayment on the amount prepaid, without penalty or premium, except asprovided in this Section 2.09.  Inthe event the Term Loan is prepaid, in whole or in part, within three (3) yearsfollowing the date of this Agreement, the Borrower shall pay a prepayment feeequal to the following specified percentage of the amount of principal prepaid:

 
| Months 1-12  |   | 3.00 | % |
|--------------|--------|------|---|
| Months 13-24 |   | 2.00 | % |
| Months 25-36 |   | 1.00 | % |

 

Notwithstanding the foregoing, no prepaymentfee shall be required if such prepayment is made pursuant toSection 2.03(b) of this Agreement.

 

Section 2.10.                             **Changesin Law Rendering Certain LIBOR Rate Loans Unlawful**.  In the event that any change in anyapplicable law (including the adoption of any new applicable law) or any changein the interpretation of any applicable law by any judicial, governmental orother regulatory body charged with the interpretation, implementation oradministration thereof, should make it (or in the good-faith judgment of theLender should raise a substantial question as to whether it is) unlawful forthe Lender to make, maintain or fund LIBOR Rate Loans, then:  (a) the Lender 

 

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shall promptly notify each of the otherparties hereto; and (b) the obligation of the Lender to make LIBOR rateloans of such type shall, upon the effectiveness of such event, be suspendedfor the duration of such unlawfulness.  Duringthe period of any suspension, Lender shall make loans to Borrower that aredeemed lawful and that as closely as possible reflect the terms of thisAgreement.

 

Section 2.11.                             **Paymentsand Computations**.

 

(a)                                  **Method of Payment**.  Except as otherwise expressly providedherein, all payments of principal, interest, and other amounts to be made bythe Borrower under the Loan Documents shall be made to the Lender in U.S.dollars and in immediately available funds, without set-off, deduction, orcounterclaim, not later than 2:00 P.M. (Minneapolis, Minnesota time) onthe date on which such payment shall become due (each such payment made aftersuch time on such due date to be deemed to have been made on the nextsucceeding Business Day).  The Borrowershall, at the time of making each such payment, specify to the Lender the sumspayable under the Loan Documents to which such payment is to be applied and inthe event that the Borrower fail to so specify or if an Event of Defaultexists, the Lender may apply such payment and any proceeds of any Collateral tothe Loan Obligations in such order and manner as it may elect in its solediscretion, subject to Section 2.11(c).

 

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

 

(c)                                  **Proceeds of Collateral**.  All proceeds received by the Lender from thesale or other liquidation of the Collateral when an Event of Default existsshall first be applied as payment of the accrued and unpaid fees and expensesof the Lender hereunder, including, without limitation, under Section 7.04and then to all other unpaid or unreimbursed Loan Obligations (includingreasonable attorneys’ fees and expenses) owing to the Lender and then anyremaining amount of such proceeds shall be applied to the unpaid amounts ofLoan Obligations, until all the Loan Obligations have been paid and satisfiedin full or cash collateralized.  Afterall the Loan Obligations (including without limitation, all contingent LoanObligations) have been paid and satisfied in full, all Commitments terminatedand all other obligations of the Lender to the Borrower otherwise satisfied,any proceeds of Collateral shall be delivered to the Person entitled thereto asdirected by the Borrower or as otherwise determined by applicable law orapplicable court order.

 

(d)                                 **Computations**.  Except as expressly provided otherwiseherein, all computations of interest and fees shall be made on the basis ofactual number of days lapsed over a year of 365 or 366 days, asappropriate.  Interest shall accrue fromand include the date of borrowing, but exclude the date of payment.

 

Section 2.12.                             **MaximumAmount Limitation**. Anything in this Agreement or the other Loan Documents to the contrarynotwithstanding, Borrower shall not be required to pay unearned interest on anyNote or any of the Loan Obligations, or ever be required to pay interest on anyNote 

 

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or any of the Loan Obligations at a rate inexcess of the Maximum Rate, if any.  Ifthe effective rate of interest which would otherwise be payable under thisAgreement, any Note or any of the other Loan Documents would exceed the MaximumRate, if any, then the rate of interest which would otherwise be contractedfor, charged, or received under this Agreement, any Note or any of the otherLoan Documents shall be reduced to the Maximum Rate, if any.  If any unearned interest or discount orproperty that is deemed to constitute interest (including, without limitation,to the extent that any of the fees payable by Borrower for the Loan Obligationsto the Lender under this Agreement, any Note, or any of the other LoanDocuments are deemed to constitute interest) is contracted for, charged, orreceived in excess of the Maximum Rate, if any, then such interest in excess ofthe Maximum Rate shall be deemed a mistake and canceled, shall not be collectedor collectible, and if paid nonetheless, shall, at the option of the holder ofsuch Note, be either refunded to the Borrower, or credited on the principal ofsuch Note.  It is further agreed that,without limitation of the foregoing and to the extent permitted by applicablelaw, 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 LoanDocuments, that are made for the purpose of determining whether such rateexceeds the Maximum Rate applicable to the Lender, if any, shall be made, tothe extent permitted by applicable laws (now or hereafter enacted), byamortizing, prorating and spreading during the period of the full terms of theAdvances evidenced by the Notes, and any renewals thereof all interest at anytime contracted for, charged or received by Lender in connectiontherewith.  This Section 2.12 shallcontrol every other provision of all agreements among the parties to thisAgreement pertaining to the transactions contemplated by or contained in theLoan Documents, and the terms of this Section 2.12 shall be deemed to beincorporated in every Loan Document and communication related thereto.

 

Section 2.13.                             **LenderRecords**.  All advances andall payments or prepayments made thereunder on account of principal or interestmay be evidenced by the Lender in accordance with its usual practice in anaccount or accounts evidencing such advances and all payments or prepaymentsthereunder from time to time and the amounts of principal and interest payableand paid from time to time thereunder; in any legal action or proceeding inrespect of the Notes, the entries made in such account or accounts shall be primafacie evidence of the existence and amounts of all advances and allpayments or prepayments made thereunder on account of principal orinterest.  Lender shall provide monthlystatements of such entries to Borrower for the purpose of confirming the accuracyof such entries.

 

Section 2.14.                             **Loan Payments**.  The Lender may deduct any obligations due orany other amounts due and payable by the Borrower under the Loan Documents fromany accounts maintained with the Lender.

 

Section 2.15.                             **Purchaseof Equity Interests in AgStar Financial Services, PCA**.  Besides (and not in lieu of) the otheramounts payable by Borrower under this Agreement, Borrower shall purchase$1,000.00 of equity interests in AgStar Financial Services, PCA.  The purchase price for the equity interestsshall be payable in full on or prior to the date hereof.  Such purchases of equity interests shallcomply with AgStar Financial Services, PCA’s respective by-laws and capitalplans applicable to borrowers generally. Borrower hereby acknowledge receipt of the following information and materialspertaining to AgStar Financial Services, PCA prior to the execution of this 

 

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Agreement: (i) copies of the by-laws ofAgStar Financial Services, PCA; (ii) a written description of the terms and conditionsunder which the equity interests are issued; (iii) a copy of the most recentannual reports of AgStar Financial Services, PCA; and (iv) if more recent thanthe latest annual reports, the latest quarterly reports of AgStar FinancialServices, PCA.  AgStar FinancialServices, PCA shall possess a statutory security interest in its equityinterests.  AgStar Financial Services,PCA reserves the right to sell participations on a non-patronage basis.

 

Borrower acknowledges and agrees that:  (a) only the portions of the Loans providedto Borrower by AgStar Financial Services, PCA are entitled to patronagedistributions in accordance with the bylaws of AgStar Financial Services, PCAand its practices and procedures; and (b) any patronage or similar payments towhich Borrower is entitled as a result of its ownership of the equity interestsin AgStar Financial Services, PCA will not be based on any of the Loans notbelonging to AgStar Financial Services, PCA or in which AgStar FinancialServices, PCA has granted a participation interest at any time.

 

Section 2.16.                             **Compensation. **Upon the request of the Lender, theBorrower 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 resultof: (i) any payment, prepayment, or conversion of a LIBOR rate loan for anyreason 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, withoutlimitation, the failure of any condition precedent specified inSection 3.01 to be satisfied) to borrow, extend, or prepay a LIBOR rateloan on the date for such borrowing, extension, or prepayment specified in therelevant notice of borrowing, extension or prepayment under this Agreement.

 

Such indemnification may include any amountequal to the excess, if any, of:  (a)the amount of interest which would have accrued on the amount so prepaid, ornot so borrowed, converted or extended, for the period from the date of suchprepayment or of such failure to borrower, convert or extend to the last day ofthe applicable Interest Period (or in the case of a failure to borrow, convertor extend, the Interest Period that would have commenced on the date of suchfailure) in each case at the applicable rate of interest for such loan asprovided for herein; over (b) the amount of interest (as reasonably determinedby the Lender) which would have accrued to the Lender on such amount by placingsuch amount on deposit for a comparable period with leading banks in theinterbank LIBOR market. The covenants of the Borrower set forth in thisSection 2.16 shall survive the repayment of the Loans and otherobligations under the Loan Documents hereunder.

 

**ARTICLE III.**

**CONDITIONSPRECEDENT**

 

Section 3.01.                             **ConditionsPrecedent to Funding**. The effectiveness of this Agreement and obligations of the Lender tofund the Loans are subject to the condition precedent that the Lender shallhave received the following, in form and substance satisfactory to the Lender:

 

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

 

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(b)                                 The Notes, dulyexecuted by the Borrower;

 

(c)                                  The Mortgage, fullyexecuted and notarized, to secure the Loans encumbering on a first Lien basisthe fee interest and/or leasehold interest of the Borrower in the Real Propertyand the fixtures thereon described in Schedule 3.01(c);

 

(d)                                 A Security Agreementduly executed by the Borrower and in a form as provided by the Lender by whichsecurity agreement the Lender is granted a security interest by the Borrower inthe Collateral;

 

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

 

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

 

(g)                                 Copiesof all other agreements between Borrower and third parties used in the normaloperations of Borrower, including but not limited to management agreements,marketing agreements, and corn delivery agreements;

 

(h)                                 Assignmentsof the contracts between Borrower and third parties identified above, dulyexecuted by the Borrower and pursuant to which the Borrower shall have assignedto the Lender all of the Borrower’s right, title and interest in and to eachsuch contracts, and which assignment shall have been consented to and certifiedin writing by the other party(ies) to each such contract;

 

(i)                                     FinancingStatements in form and content satisfactory to the Lender and in proper formunder the Uniform Commercial Code of all jurisdictions as may be necessary or,in the opinion of the Lender, desirable to perfect the security interestscreated by the Security Agreement;

 

(j)                                     Copies of UCC, taxand judgment lien search reports listing all financing statements and otherencumbrances which name the Borrower (under its present name and any previousname) and which are filed in the jurisdictions in which the Borrower islocated, organized or maintains collateral, together with copies of suchfinancing statements (none of which shall cover the collateral purported to becovered by the Security Agreement);

 

(k)                                  Evidence that allother actions necessary or, in the opinion of the Lender, desirable to enablethe Lender to perfect and protect the security interests created by theSecurity Agreement have been taken;

 

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(l)                                     An ALTA mortgageetitle insurance policy issued by a title insurance company acceptable toLender, with respect to the Real Property, assuring the Lender that theMortgage creates a valid and enforceable encumbrance on the Real Property, freeand clear of all defects and encumbrances except Permitted Liens andcontaining:  (i) a comprehensiveendorsement (ALTA form 9); (ii) a zoning endorsement (ALTA form 3.1) specifyingan ethanol production facility as a permitted use for all of the parcelsincluded in the Real Property; and (iii) such endorsements as the Lender shallreasonably require.  All such titleinsurance policies shall be in form and substance reasonably satisfactory tothe Lender and shall provide for affirmative insurance and such reinsurance asthe Lender may reasonably request, all of the foregoing in form and substancereasonably satisfactory to the Lender;

 

(m)                               Maps or plats of theReal Property certified to the Lender and the title insurance company issuingthe policy referred to in Subsection 3.01(k) (the “Title InsuranceCompany”) in a manner reasonably satisfactory to each of the Lender and theTitle Insurance Company, dated a date reasonably satisfactory to each of theLender and the Title Insurance Company by an independent professional licensedland surveyor, which maps or plats and the surveys on which they are basedshall be sufficient to delete any standard printed survey exception containedin the applicable title policy and be made in accordance with the MinimumStandard Detail Requirements for Land Title Surveys jointly established andadopted by the American Land Title Association and the American Congress onSurveying and Mapping in 1992, and, without limiting the generality of theforegoing, there shall be surveyed and shown on such maps, plats or surveys thefollowing:  (i) the locations onsuch sites of all the buildings, structures and other improvements and theestablished building setback lines; (ii) the lines of streets abutting thesites and width thereof; (iii) all access and other easements appurtenantto the sites necessary to use the sites; (iv) all roadways, paths,driveways, easements, encroachments and overhanging projections and similarencumbrances affecting the site, whether recorded, apparent from a physicalinspection of the sites or otherwise known to the surveyor; (v) anyencroachments on any adjoining property by the building structures andimprovements on the sites; and (vi) if the site is described as being on afiled map, a legend relating the survey to said map;

 

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

 

#### **(o)**                                 Evidence reasonably satisfactory to the Lender that the Real Propertyand the contemplated use of the Real Property, are in compliance in allmaterial respects with all applicable Laws including without limitation healthand Environmental Laws, including, but not limited to all concentrated animalfeedlot operations rules and regulations, erosion control ordinances, storm

 

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#### **drainage control laws, doing business and/orlicensing laws, zoning laws (the evidence submitted as to zoning should includethe zoning designation made for the Real Property, the permitted uses of theReal Property under such zoning designation and zoning requirements as toparking, lot size, ingress, egress and building setbacks) and laws regardingaccess and facilities for disabled persons including, but not limited to, theFederal Architectural Barriers Act, the Fair Housing Amendments Act of 1988,the Rehabilitation Act of 1973 and the Americans with Disabilities Act of 1990;**

 

(p)                                 A certificate of thesecretary of the Borrower together with true and correct copies of thefollowing:  (i) the Articles ofOrganization of the Borrower, including all amendments thereto, certified bythe Department of Financial Institutions of the state of its incorporation anddated within 30 days prior to the date hereof; (ii) the OperatingAgreement of the Borrower, including all amendments thereto; (iii) theresolutions of the Board of Directors of the Borrower authorizing the execution,delivery and performance of this Agreement, the other Loan Documents, and alldocumentation executed and delivered in connection therewith to which theBorrower is a party; (iv) certificates of the appropriate governmentofficials of the state of organization of the Borrower as to its existence andgood standing, and certificates of the appropriate government officials in eachstate where each corporate Borrower does business and where failure to qualifyas a foreign corporation would have a material adverse effect on the businessand financial condition of the Borrower, as to its good standing and duequalification to do business in such state, each dated within 30 days prior tothe date hereof; and (v) the names of the officers of the Borrowerauthorized to sign this Agreement and the other Loan Documents to be executedby each corporate Borrower, together with a sample of the true signature ofeach such officer;

 

(q)                                 Favorable opinion ofBrown, Winick, Graves, Gross, Baskerville and Schoenebaum, legal counsel for theBorrower, in the form attached hereto as “Exhibit D”;

 

(r)                                    The Commitment Fee,Participation Fee, and Facility Fee due pursuant to Section 2.07 have beenpaid;

 

(s)                                  An IntercreditorAgreement between the Lender and Fagen, Inc. as to the priority of the Lender’ssecurity interests in the Collateral, rights to payment following an Event ofDefault, and as to such other matters as requested by the Lender.  Such Intercreditor Agreement shall, amongother things, provide that in the event Lender does not receive requiredprincipal reduction from Borrower, or Borrower does not meet all loancovenants, no payments are to be made on subordinated debt by Borrower toFagen, Inc.  Instead, any such missedpayments shall be added to the end of the amortization schedule for thesubordinated debt owed to Fagen Inc. Further providing that the subordinated debt from Fagen, Inc. may bereduced in the event Borrower injects cash of a like amount into the Company;

 

(t)                                    Evidence that thecosts and expenses (including, without limitation, attorney’s fees) referred toin Section 7.04, to the extent incurred and invoiced, shall have been paidin full;

 

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

 

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(v)                                 Satisfactory review bythe Lender of any pending litigation relating to the Borrower;

 

(w)                               A Phase I EnvironmentalAssessment in form and substance acceptable to the Lender;

 

(x)                                   The Borrower shallhave provided to Lender a corn logistics study from PRX prior to the ClosingDate;

 

(y)                                 The Borrower shallhave ordered the General Contractor to begin construction of the Project, andconstruction shall have commenced;

 

(z)                                   Aschedule, certified by Borrower as accurate and complete, setting forth:  (i) the necessary licenses, permits andconsents required by applicable federal, state, and local governmental entitiesrequired for the lawful construction and operation of the Project; and (ii) thedeadlines to obtain such licenses, permits and consents so that the CompletionDate occurs as scheduled;

 

(aa)                            Lendershall have received in form and substance acceptable to Lender, an agreementwith an Inspecting Engineer of recognized standing and acceptable to Lender, bywhich agreement such Inspecting Engineer agrees to assist Lender in itsinspection of the Project during construction, review and approve Draw Requestson behalf of Lender, and provide such additional services as Lender mayreasonably require at the sole expense of Borrower;

 

(bb)                          TheBorrower shall have provided commitment to the Lender of its Cash Equity.  Notwithstanding the foregoing, should theBorrower’s members’ equity be in excess of $23,781,500.00 at Closing Date, therequired subordinated debt shall be reduced by an amount equal to the amount ofsuch members’ equity in excess of $23,781,500.00;

 

(cc)                            The Borrower has caused abonding company to issue a Construction Completion Bond;

 

(dd)                          TheBorrower shall have provided to Lender evidence of ownership indicating that atleast 50% of the owners of Borrower are eligible borrowers;

 

(ee)                            TheBorrower shall notify Lender of any changes in plant management or any decisionto excuse management;

 

**ARTICLE IV.**

**REPRESENTATIONSAND WARRANTIES**

 

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

 

(a)                                  **Borrower**.  The Borrower is a limited liability companyduly organized and validly existing and in good standing under the laws of theState of Wisconsin and is qualified to do 

 

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business in all jurisdictions in which thenature of its business makes such qualification necessary and where failure toso qualify would have a Material Adverse Effect on its financial condition oroperations.  The Borrower has the powerand authority to execute, deliver, and perform its obligations under the LoanDocuments to which it is or may become a party. The Borrower has had nosubsidiaries.  There are no outstandingsubscriptions, options, warrants, calls, or rights (including preemptiverights) to acquire, and no outstanding securities or instruments convertibleinto, membership interests (units) of the Borrower, except for thosetransactions set forth on Schedule 4.01(a);

 

(b)                                 **The Loan Documents**.  The execution, delivery and performance bythe Borrower of the Loan Document are within the Borrower’s powers, have beenduly authorized by all necessary action, do not contravene:  (i) the Borrower’s articles oroperating agreements; or (ii) any law or any contractual restrictionbinding on or affecting the Borrower, and do not result in or require thecreation of any lien, security interest or other charge or encumbrance (otherthan pursuant to the terms thereof) upon or with respect to any of itsproperties;

 

(c)                                  **Governmental Approvals**.  No authorization or approval or other actionby, and no notice to or filing with, any governmental authority or regulatorybody is required for the due execution, delivery and performance by theBorrower of any Loan Documents, except for such approvals and consents whichhave been made or obtained;

 

(d)                                 **Enforceability**.  This Agreement is, and each other LoanDocument to which the Borrower is a party when delivered will be, legal, validand binding obligations of the Borrower enforceable against the Borrower inaccordance with their respective terms, except as may be limited by applicablebankruptcy, insolvency, reorganization, moratorium, or similar laws affectingthe enforcement of creditor’s rights generally and by general principles of equity;

 

(e)                                  **Financial Condition and Operations**.  The balance sheets of the Borrower as ofDecember 31, 2003, and the related statements of income and, with respectto the period ended December 31, 2003, the related statement of cash flowof the Borrower for the fiscal period then ended, copies of which have beenfurnished to the Lender, fairly present in all material respects the financialcondition of the Borrower as at such date and the results of the operations ofthe Borrower for the period ended on such dates, all in accordance withgenerally accepted accounting principles consistently applied, and sinceDecember 31, 2003, there has been no material adverse change in suchcondition or operations;

 

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

 

(g)                                 **Use of Proceeds of Advances, etc**.  (i) No proceeds of the Loans will beused to acquire any security in any transaction which is subject toSections 13 and 14 of the Securities 

 

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Exchange Act of 1934 (provided, however, thatthis provision shall not prohibit Borrower from investing in certain valueadded cooperatives for the purposes of carrying out their overall businessoperations); (ii) the Borrower is not engaged in the business of extendingcredit for the purpose of purchasing or carrying margin stock (within themeaning of Regulation U issued by the Board of Governors of the FederalReserve System); and (iii) no proceeds of the Loans will be used topurchase or carry any margin stock or to extend credit to others for thepurpose of purchasing or carrying any margin stock;

 

(h)                                 **Liens**.  There is no lien, security interest or othercharge or encumbrance, and no other type of preferential arrangement, upon orwith respect to any of the properties or income of the Borrower, which securesDebt of any Person, except as described in Schedule 5.02(a);

 

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

 

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

 

(k)                                  **Office Locations; Fictitious Names;Predecessor Companies; Tax I.D. Number**.  The Borrower’s chief place of business, itschief executive office, and its jurisdiction of organization is located at theplace identified for the Borrower on Schedule 4.01(k).  Within the last four months it has not hadany other chief place of business, chief executive office, or jurisdiction oforganization.  Schedule 4.01 (k)also sets forth all other places where the Borrower keeps its books and recordsand all other locations where the Borrower has a place of business.  The Borrower does not do business nor hasthe Borrower done business during the past five (5) years under anytrade-name or fictitious business name except as disclosed onSchedule 4.01(k). Schedule 4.01(k) sets forth an accurate list of all names of allpredecessor companies of the Borrower including the names of any entities itacquired (by stock purchase, asset purchase, merger or otherwise) and the chiefplace of business and chief executive office of each such predecessorcompany.  For purposes of the foregoing,a “predecessor company” shall mean any Person whose assets or equity interestsare 

 

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acquired by the Borrower or who was mergedwith or into the Borrower within the last four months prior to the datehereof.  The Borrower’s United StatesFederal Income Tax I.D. Number and state organizational identification numberis identified on Schedule 4.01(k);

 

(l)                                     **Disclosure**.  All factual information furnished by or onbehalf of the Borrower in writing to the Lender (including, without limitation,all factual information contained in the Loan Documents) for purposes of or inconnection with this Agreement, the other Loan Documents or any transactioncontemplated herein or therein is, and all other such factual informationhereafter furnished by or on behalf of the Borrower to the Lender, will be trueand accurate in all material respects on the date as of which such informationis dated or certified and not incomplete by omitting to state any factnecessary to make such information not misleading in any material respect atsuch time in light of the circumstances under which such information wasprovided;

 

(m)                               **Operation of Business**.  The Borrower possesses all licenses,permits, franchises, patents, copyrights, trademarks, and tradenames, or rightsthereto, necessary to conduct its business substantially as now conducted andwill obtain all such licenses, permits, franchises, patents, copyrights,trademarks, and tradenames, or rights thereto necessary to conduct its businessas presently proposed to be conducted except those that the failure to sopossess could not reasonably be expected to have a Material Adverse Effect onits financial condition or operations, and the Borrower is not in violation ofany valid rights of others with respect to any of the foregoing exceptviolations that could not reasonably be expected to have such a MaterialAdverse Effect;

 

(n)                                 **Intellectual Property**.    The Borrower owns, or has the legal rightto use, all patents, trademarks, tradenames, copyrights, technology, know-howand processes (the “**Intellectual Property**”) necessary for it toconduct its business as currently conducted except for those the failure to ownor have such legal right to use could not reasonably be expected to have aMaterial Adverse Effect.  As of theClosing Date, set forth in Schedule 4.01(n) is a list of all IntellectualProperty registered with the United States Copyright Office or the UnitedStates Patent and Trademark Office and owed by the Borrower or that theBorrower has the right to use.  Exceptas provided in Schedule 4.01(n), no claim has been asserted and is pendingby any Person challenging or questioning the use of any such IntellectualProperty or the validity or effectiveness of any such Intellectual Property,nor does the Borrower know of any such claim, and, to the knowledge of theBorrower, the use of such Intellectual Property by the Borrower does notinfringe on the rights of any Person, except for such claims and infringementsthat, in the aggregate, could not reasonably be expected to have a MaterialAdverse Effect;

 

(o)                                 **Investment Company Act**.  The Borrower is not required to be registeredas an “investment company” within the meaning of the Investment Company Act of1940, as amended; and

 

(p)                                 **Environmental Compliance**.  The Borrower,except as set forth in Schedule 4.01(p), is in material compliance withall applicable Environmental Laws.

 

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**ARTICLE V****.**

**COVENANTSOF THE BORROWER**

 

Section 5.01.                             **Affirmative Covenants**.  Solong as any Loan Obligations remain unpaid or the Lender shall have anycommitment hereunder, the Borrower will, unless the Lender shall otherwiseconsent in advance in writing:

 

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

 

(b)                                 **Visitation Rights; Field Examination**.  At any reasonable time and from time totime, permit the Lender or representatives thereof to examine and make copiesof and abstracts from the records and books of account of, and visit theproperties of, and conduct unannounced field examinations and collateralinspections at least annually of the Borrower and to discuss the affairs,finances and accounts of the Borrower with any of its officers or directors, *provided,however*, upon and during the occurrence of an Event of Default or inthe event that there are deemed by the Lender to be any materialinconsistencies and/or material noncompliance with respect to any financial orother reporting on the part of the Borrower, any and all visits and inspectionsdeemed necessary or desirable on account of such Event of Default,inconsistency and/or noncompliance shall be at the expense of theBorrower.  In addition to the foregoing,at any reasonable time and from time to time, the Borrower also shall permitthe Lender or representatives thereof, at the expense of the Lender, to examineand make copies of and abstracts from the records and books of account of, andvisit the properties of, the Borrower, and to discuss the affairs, finances andaccounts of the Borrower with any of their respective officers or directors;

 

(c)                                  **Reporting Requirements**.  Furnish to the Lender:

 

(i)                                     Beginning withBorrower’s fiscal year ending December 31, 2005, as soon as available andin any event within 120 days after the end of each fiscal year of theBorrower, a copy of the audited financial statements (including balance sheet,statements of income and cash flows, all accompanying notes thereto and anymanagement letter), for such year for the Borrower, certified, withoutqualification, in an opinion acceptable to the Lender by independent publicaccountants acceptable to the Lender;

 

(ii)                                  Beginning with thefirst (1st) month following the Completion Date, as soon asavailable 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 ofincome of the Borrower for the period commencing at the end of the previousfiscal year and ending with the end of such month, certified by an authorizedofficer of the Borrower;

 

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(iii)                               Beginning with firstfiscal quarter end following the Completion Date, and continuing with everyfiscal quarter, as soon as available and in any event within 30 days afterthe end of each fiscal quarter, balance sheets of the Borrower as of the end ofsuch month and statement of income of the Borrower for the period commencing atthe end of the previous fiscal year and ending with the end of such fiscalquarter, certified by an authorized officer of the Borrower, together with aCompliance Certificate which: (A) states that no Event of Default, and noevent or condition that but for the passage of time, the giving of notice orboth 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 theBorrower’ compliance with, each of the covenants contained inSections 5.01(d), 5.01(e), 5.01(f), and 5.01(g);

 

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

 

(v)                                 by November 1 ofeach fiscal year of the Borrower, an annual (with monthly break out) operatingplan and budget of the Borrower for the immediately succeeding fiscal yearcontaining, among other things, pro forma financial statements and forecasts forall planned lines of business;

 

(vi)                              as soon as available butin any event not more than 30 days after the end of each month, productionreports for the immediately preceding calendar month setting forth

corn inputs, ethanol output, DDGS output,natural gas usage and CO2 output, together with such additional productioninformation as requested by Lender;

 

(vii)                           promptly, upon theoccurrence of an Event of Default or an event or condition that but for thepassage of time or the giving of notice or both would constitute an Event ofDefault, notice of such Event of Default or event;

 

(viii)                        promptly after the receiptthereof, a copy of any management letters or written reports submitted to theBorrower by its independent certified public accountants with respect to thebusiness, financial condition or operation of the Borrower;

 

(ix)                                promptly after thereceipt thereof, a copy of any notice of default under any Long-Term MarketingAgreement; and

 

(x)                                   such otherinformation respecting the condition or operations, financial or otherwise, ofthe Borrower or any of their respective subsidiaries as the Lender may fromtime to time reasonably request;

 

(d)                                 **Working Capital**.  Achieve and maintain Working Capital of atleast $ 3.0 million at the end of the 12th month following theCompletion Date.  Achieve and maintainWorking 

 

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Capital of at least $ 4.0 million at the endof the 24th month following the Completion Date.  Thereafter, continually maintain WorkingCapital of at least $ 4.0 million;

 

(e)                                  **Tangible Net Worth**.  On the Completion Date, the Borrower’sTangible Net Worth shall be not less than $24,000,000.00.  After the Completion Date, the Borrowershall maintain Tangible Net Worth, measured annually, in an amount equal to thelesser of:  (i) the Borrower’s TangibleNet Worth for the immediately preceding fiscal year plus $500,000.00; or (ii)$24,000,000.00 plus the Borrower’s retained earnings at the end of the currentfiscal year;

 

(f)                                    **Owner Equity Ratio. **Maintain at all times during the term ofthis Agreement, an Owner Equity Ratio of at least 0.50, beginning at the end ofthe 36th month following the Completion Date and measured annuallythereafter;

 

(g)                                 **Fixed Charge Coverage Ratio**.  Maintain a Fixed Charge Coverage Ratio ofnot less than 1.25 to 1.00, measured initially at the end of the 12thmonth following the Completion Date and at the end or each quarter thereafterbased on a rolling four quarters average and maintained continually thereafter;

 

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

 

(i)                                     **Landlordand Mortgagee Waivers**. Obtain and furnish to the Lender as soon as available, waivers,acknowledgments and consents, duly executed by each:  (i) real property owner, landlord and mortgagee having aninterest in any of the premises owned or leased by the Borrower or in which anyCollateral of the Borrower is located or to be located (and if no Collateral ofBorrower is located at a parcel of property notowned or leased by a Borrower,no such waivers, acknowledgments or consents will be required); and(ii) each third party holding any Collateral, all in form and substanceacceptable to the Lender, except as otherwise agreed to by the Lender;

 

(j)                                     **Insurance**.  Maintain insurance with financially soundand reputable insurance companies in such amounts and covering such risks asare usually carried by entities engaged in similar businesses and owningsimilar properties in the same general areas in which the Borrower operate,provided that in any event the Borrower will maintain and cause each of itssubsidiaries to maintain workers’ compensation insurance, property insuranceand comprehensive general liability insurance reasonably satisfactory to theLender.  Each insurance policy coveringCollateral shall be in compliance with the requirements of the SecurityAgreement;

 

(k)                                  **Keeping Books and Records**.  Maintain and cause each of its subsidiariesto, maintain proper books of record and account in which full, true, and correctentries in conformity with generally accepted accounting principles shall bemade of all dealings and transactions in relation to its business andactivities;

 

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(l)                                     **FoodSecurity Act Compliance**. If the Borrower acquires any Collateral which may have constituted farmproducts in the possession of the seller or supplier thereof, such Borrowershall, at its own expense, use its best efforts to take such steps to insurethat all Liens (except the liens granted pursuant hereto) in such acquiredCollateral are terminated or released, including, without limitation, in thecase of such farm products produced in a state which has established a CentralFiling System (as defined in the Food Security Act), registering with theSecretary of State of such state (or such other party or office designated bysuch state) and otherwise take such reasonable actions necessary, as prescribedby the Food Security Act, to purchase farm products free of liens (except theliens granted pursuant hereto); provided, however, that such Borrower maycontest and need not obtain the release or termination of any lien asserted byany creditor of any seller of such farm products, so long as it shall becontesting the same by proper proceedings and maintain appropriate accruals andreserves therefor in accordance with the generally accepted accountingprinciples.  Upon the Lender’s requestmade, the Borrower agrees to forward to the Lender promptly after receiptcopies of all notices of liens and master lists of Effective FinancingStatements delivered to the Borrower pursuant to the Food Security Act, whichnotices and/or lists pertain to any of the Collateral.  Upon the Lender’s request, the Borrower agreesto provide the Lender with the names of Persons who supply the Borrower withsuch farm products and such other information as the Lender may reasonablyrequest with respect to such Persons;

 

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

sale or other disposition of the underlyinginventory, if such disposition is in ordinary course of such Borrower’sbusiness;

 

(n)                                 **Management****of Borrower**.  Management of the Borrower shall bemaintained as set forth on Schedule 5.01(n) hereto, unless otherwiseapproved in Lender’s reasonable discretion;

 

(o)                                 **Annual Facility Fee. **Borrower shall pay to Lender on orbefore the Conversion Date, and on each anniversary of the Conversion Datethrough the fourth anniversary, an annual Facility Fee of $40,000.00 asprovided in Section 2.07;

 

(p)                                 **Construction of Project. **Borrower shall:

 

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

 

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(ii)                                  use the proceeds ofall Advances solely to pay the Project Costs as specified in the ProjectSources and Uses Statement;

 

(iii)                               use its best efforts torequire the Contractor(s) to comply with all rules, regulations, ordinances andlaws relating to work on the Project;

 

(iv)                              obtain theLender’s prior written approval of any change in the Plans and Specificationsfor the Project approved by the Lender which might materially adversely affectthe value of the Lender’s security, and has a cost of $25,000.00 orgreater.  The Lender will have a reasonabletime to evaluate any requests for its approval of any changes referred to inthis paragraph. The Lender may approve or disapprove changes in its discretion,subject to the foregoing provisions of this Section 5.01(p)(iv).  If it reasonably appears to the Lender thatany change may increase the Project Costs, the Lender may require the Borrowerto deposit additional funds with the Lender pursuant to the provisions of thisAgreement in an amount sufficient to cover the increased costs as a conditionto giving its approval;

 

(v)                                 comply with and keep ineffect all necessary permits and approvals obtained from any GovernmentalAuthority relating to the lawful construction of the Project.  The Borrower will comply with all applicableexisting and future laws, regulations, orders, and requirements of anyGovernmental Authority, judicial, or legal authorities having jurisdiction overthe Real Property or Project, and with all recorded restrictions affecting theReal Property;

 

(vi)                              furnish to the Lenderfrom time to time on request by the Lender, in a form acceptable to the Lender,correct lists of all contractors and subcontractors employed in connection withconstruction of the Project and true and correct copies of all executedcontracts and subcontracts.  The Lendermay contact any contractor or subcontractor to verify any facts disclosed inthe lists, Borrower must consent to the disclosure of such information by thecontractors and subcontractors to Lender or its agents upon Lender’s request,and Borrower must assist Lender or its agents in obtaining such informationupon Lender’s request;

 

(vii)                           upon completion of thebuilding foundation of the Project, deliver to the Lender an “as-built” surveyof the Real Property which:  (a) setsforth the location and exterior lines and egress and other improvementscompleted on the Real Property and demonstrates compliance with all applicablesetback requirements; (b) demonstrates that the Project is entirely within theexterior boundaries of the Real Property and any building restriction lines anddoes not encroach upon any easements or rights-of-way; and (c) contains suchother information as the Lender may reasonably request;

 

(viii)                        not purchase any materials,equipment, fixtures, or articles of personal property placed in the Projectprior to the Conversion Date under any security agreement or other agreementwhere the seller reserves or purports to reserve title or the right of removalor repossession, or the right to consider them personal property after theirincorporation in the work of construction, unless authorized by the Lender inwriting;

 

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

 

(x)                                   pay and dischargeall claims and liens for labor done and materials and services furnished in connectionwith the construction of the Project. The Borrower will have the right to contest in good faith any claim orlien, provided that it does so diligently and without prejudice to the Lenderor the ability to obtain title insurance in the manner required by thisAgreement 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 toprotect the Lender’s interest and security should the contest be unsuccessful;

 

(xi)                                at the Lender’s requestand expense, post signs on the Real Property for the purpose of identifying theLender as the “Lender.”  At the requestof the Lender, or the participating local community banks, the Borrower willuse its best efforts to identify the Lender as the lender in publicityconcerning the Project;

 

(xii)                             maintain in force untilfull payment of the Loan all insurance required by law, public liabilityinsurance, and property insurance.  Thepolicies must be approved by the Lender as to amounts, form, risk coverage,deductibles, insurer, and loss payable and cancellation provision.  The Lender’s approval, however, will not bea representation of the solvency of any insurer or the sufficiency of anyamount of insurance;

 

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

 

(xiv)                         pay the Lender’s and theDisbursing Agent’s out-of-pocket costs and expenses incurred in connection withthe making or disbursement of the Loans or in the exercise of any of its rightsor remedies under this Agreement, including but not limited to title insuranceand escrow charges, disbursing agent fees, recording charges, and mortgagetaxes, reasonable legal fees and disbursements, and reasonable fees and costsfor services which are not customarily performed by the Lender’s salariedemployees and are not specifically covered by the fees charged to originate theLoan, if any.  The provision of thisparagraph will survive the termination of this Agreement and the repayment ofthe Loan;

 

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

 

(xvi)                         comply with the requirementsof any commitment or agreement entered into by Borrower with any GovernmentalAuthority to assist the construction or financing of the Real Property and/orProject and with the terms of all applicable laws, regulations, and requirementsgoverning such assistance;

 

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

 

(xviii)                   obtain and deliver to the Lender copiesof all necessary occupancy certificates relating to the Project; and

 

(xix)         causea bonding company to issue a Construction Completion Bond.

 

Section 5.02.                             **NegativeCovenants**.  So long asany of the Loan Obligations remain unpaid or the Lender shall have anycommitment hereunder, the Borrower will not, without the prior written consentof 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 ofpreferential arrangement, upon or with respect to any of its properties,whether now owned or hereafter acquired, or assign, or permit any of itssubsidiaries to assign, any right to receive income, in each case to secure anyDebt (as defined below) of any Person, other than:

 

(i)                                     those described onSchedule 5.02(a) hereto and renewals and extensions on the same orsubstantially the same terms and conditions and at no increase in the debt orobligation; or

 

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(ii)                                  liens or securityinterests which are subject to an intercreditor agreement in form and substanceacceptable to Lender in Lender’s sole discretion; or

 

(iii)                               the liens or securityinterests of the Security Agreement; or

 

(iv)                              liens (other than liensrelating to environmental liabilities or ERISA) for taxes, assessments, orother governmental charges that are not more than 30 days overdue or, ifthe execution thereof is stayed, which are being contested in good faith byappropriate proceedings diligently pursued and for which adequate reserves havebeen established; or

 

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

 

(vi)                              liens resulting from goodfaith deposits to secure payments of workmen’s compensation unemploymentinsurance, or other social security programs or to secure the performance oftenders, leases, statutory obligations, surety, customs and appeal bonds, bidsor contracts (other than for payment of Debt); or

 

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

 

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

 

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

 

(x)                                   any real estateeasements and easements, covenants and encumbrances that customarily do notaffect the marketable title to real estate or materially impair its use; or

 

(b)                                 **Dividends, etc**.  Declareor pay any dividends, purchase or otherwise acquire for value any of itsmembership interests (units) now or hereafter outstanding, or make anydistribution of assets to its stockholders, members or general partners assuch, or permit any of its subsidiaries to purchase or otherwise acquire forvalue any stock, membership interest or partnership interest of the Borrower, provided,however, the Borrower may:  (i) declareand pay dividends and 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 membershipinterests (units); (iii) so long as the Borrower first provides such supportingdocumentation as the Lender may request with respect to any fiscal year of theBorrower, the Borrower may pay aggregate cash dividends/distributions, duringsuch fiscal year in an amount not to exceed the amount necessary for themembers of the Borrower to pay their Income Taxes on such 

 

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member’s allocable share of the taxableincome of the Borrower for such taxable year or fiscal year, as applicable (“**TaxDistributions**”); (iv) pay redemptions, dividends or distributions inan amount not to exceed, in the aggregate, 65% of the Borrower’s Net Incomeless Incentive Payments for the immediately preceding fiscal year (**“AllowedDividends**”); (v) pay dividends or distributions which areimmediately reinvested in the Borrower (“**Reinvestment Dividends**”) provided, however,that immediately prior to the proposed payment of any such dividends ordistributions, or after giving effect thereto, no Default or Event of Defaultshall exist; and (vi) complete the transactions reflected onSchedule 4.01(a); or

 

(c)                                  **Capital Expenditures.**  Except for costs identified in the ProjectCosts and Uses Statement, make any investment in fixed assets in the aggregateamount of $500,000 during any fiscal year during the term of this Agreement; or

 

(d)                                 **Consolidation,Merger, Dissolution, Etc.**  Directly or indirectly,merge or consolidate with any other Person or permit any other Person to mergeinto or with or consolidate with the Borrower; or

 

(e)                                  **Indebtedness, etc**.  Create, incur, assume or suffer to exist anyDebt or other indebtedness, liabilities or obligations, whether matured orunmatured, liquidated or unliquidated, direct or contingent, joint or several,except:  (i) the liabilities of theBorrower to the Lender hereunder; (ii) trade accounts payable and accruedliabilities (other than Debt) arising in the ordinary course of the Borrower’sbusiness; (iii) Subordinated Debt; and (iv) the liabilities of theBorrower described on Schedule 5.02(a); or

 

(f)                                    **Organization;Name; Chief Executive Office**. Change its state of organization, name or the location of its chiefexecutive office without the prior written consent of the Lender, except thatthe principal office shall be moved to the plant site when construction of theadministration office is substantially complete; or

 

(g)                                                                                 **Loans, Guaranties, etc**.  Makeany loans or advances to (whether in cash, in-kind, or otherwise) any Person,or directly or indirectly guaranty or otherwise assure a creditor against lossin respect of any indebtedness, obligations or liabilities (contingent orotherwise) 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 anyPerson, unless such subsidiary, affiliate or Person executes and delivers tothe Lender:  (i) a guaranty of all of theLoan Obligations, in form and substance acceptable to the Lender in its solediscretion; (ii) security agreements in form substantially similar to the tothe Security Agreement; and (iii) such other documents and amendments to thisAgreement and the other Loan Documents as the Lender shall require; or

 

(i)                                     **Transferof Assets**.  Sell, lease,assign, transfer, or otherwise voluntarily dispose of any of its assets, orpermit any of its subsidiaries to sell, lease, assign, transfer, or 

 

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otherwise voluntarily dispose of any of itsassets except:  (i) dispositions ofinventory in the ordinary course of business; and (ii) dispositions of:(A) obsolete or worn out equipment; (B) equipment or real propertynot necessary for the operation of its business; or (C) equipment or realproperty which is replaced with property of equivalent or greater value as theproperty which is disposed; or

 

(j)                                     **Lines ofBusiness. **Engage in anyline or lines of business activity other than the production of ethanol andDDGS.

 

**ARTICLE VI****.**

**EVENTSOF DEFAULT AND REMEDIES**

 

Section 6.01.                             **Events ofDefault**.  Each of thefollowing events shall be an “**Event of Default**”:

 

(a)                                  The Borrower shallfail to pay any installments of principal or interest, fees, expenses, chargesor other amounts payable hereunder or under the other Loan Documents or to makeany deposit of funds required under this Agreement when due; or

 

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

 

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

 

(d)                                 The Borrower shallfail to deliver the financial statements or Compliance Certificate underSection 5.01(c) within 5 days of the date due; or

 

(e)                                  The Borrower shallfail to perform or observe any term, covenant or agreement contained in anyLoan Document (other than those listed in clauses (a) through (d) ofthis Section 6.01) on its part to be performed or observed (other than thecovenants to pay the Loan Obligations) and any such failure shall remainunremedied for ten (10) days after written notice thereof shall have beengiven to the Borrower by the Lender, provided, however, that no Event ofDefault shall be deemed to exist if, within said ten (10) day period, Borrowerhave commenced appropriate action to remedy such failure and shall diligentlyand continuously pursue such action until such cure is completed, unless suchcure is or cannot be completed within thirty (30) days after written noticeshall have been given; or

 

(f)                                    The Borrower shallfail to pay any indebtedness in an amount in excess of $50,000.00 (either inany individual case or in the aggregate) excluding indebtedness evidenced bythe Notes and excluding Ordinary Trade Payable Disputes, or any interest orpremium thereon, when due (whether by scheduled maturity, required prepayment,acceleration, demand or otherwise) and such failure shall continue after theapplicable grace period, if any, specified in the agreement or 

 

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instrument relating to such indebtedness; orany other default under any agreement or instrument relating to any suchindebtedness, or any other event, shall occur and shall continue after theapplicable grace period, if any, specified in such agreement or instrument, ifthe effect of such default or event is to accelerate, or to permit theacceleration of, the maturity of such indebtedness (excluding Ordinary TradePayable Disputes); or any such indebtedness shall be declared to be due andpayable, or required to be prepaid (other than by a regularly scheduledrequired prepayment), prior to the stated maturity thereof (excluding OrdinaryTrade Payable Disputes); or

 

(g)                                 The Borrower shallgenerally not pay its debts as such debts become due, or shall admit in writingits inability to pay its debts generally, or shall make a general assignmentfor the benefit of creditors; or any proceeding shall be instituted by oragainst the Borrower seeking to adjudicate it a bankrupt or insolvent, orseeking liquidation, winding up, reorganization, arrangement, adjustment,protection, relief, or composition of it or its debts under any law relating tobankruptcy, insolvency or reorganization or relief of debtors, or seeking theentry of an order for relief or the appointment of a receiver, trustee or othersimilar official for it or for any substantial part of its property, and, inthe case of any such proceeding instituted against it (but not instituted byit) either such proceeding shall remain undismissed or unstayed for a period of30 days or any of the actions sought in such proceeding (including, withoutlimitation, the entry of an order for relief against it or the appointment of areceiver, trustee, custodian or other similar official for it or for anysubstantial part of its property) shall occur; or the Borrower shall take anycorporate action to authorize any of the actions set forth above in thissubsection; or

 

(h)                                 Any one or morejudgment(s) or order(s) for the payment of money in excess of $50,000.00 in theaggregate shall be rendered against the Borrower and either:  (i) enforcement proceedings shall havebeen commenced by any creditor upon such judgment or order; or (ii) thereshall be any period of 10 consecutive days during which a stay of enforcementof such judgment or order, by reason of a pending appeal or otherwise, shallnot be in effect; or

 

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

 

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

 

(k)                                  The termination ofany Long Term Marketing Agreement prior to its stated expiration date, unlesssuch Long Term Marketing Agreement is replaced by another Long Term MarketingAgreement acceptable to the Lender, within thirty (30) days of the terminationof such Long Term Marketing Agreement; or

 

(l)                                     The Borrower dissolves,suspends, or discontinues doing business; or

 

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

 

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

 

Section 6.02.                             **Remedies**.  Upon the occurrence of an Event of Default,the Lender:

 

(a)                                  may, by notice to theBorrower, declare the Notes, all interest thereon and all other amounts payableunder this Agreement to be forthwith due and payable, whereupon the Notes, allsuch interest and all such amounts shall become and be forthwith due andpayable, without presentment, notice of intent to accelerate or notice ofacceleration, demand, protest or further notice of any kind, all of which arehereby expressly waived by the Borrower; *provided, however*, that in the event of anactual or deemed entry of an order for relief with respect to any of theBorrower or any of its subsidiaries under the Federal Bankruptcy Code, theNotes, all such interest and all such amounts shall automatically become dueand 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 directthe Disbursing Agent to withhold any one or more Advances in itsdiscretion,  and terminate the Lender’sobligations, if any, under this Agreement to make any Advances whereupon thecommitment and obligations of the Lender to extend credit or to make Advanceshereunder shall terminate, and no disbursement of Loan funds by the Lender willcure any default of the Borrower, unless the Lender agrees otherwise inwriting;

 

(c)                                  may, by notice to theBorrower, obtain the appointment of a receiver to take possession of allCollateral of the Borrower, including, but not limited to all personalproperty, including all fixtures and equipment leased, occupied or used by anyof the Borrower.  Borrower herebyirrevocably consent to the appointment of such receiver and agree to cooperateand assist any such receiver as reasonably requested to facilitate the transferof possession of the Collateral to such receiver and to provide such receiveraccess to all books, records, information and documents as requested by suchreceiver;

 

(d)                                 in its discretion,enter the Real Property and take any and all actions necessary in its judgmentto complete construction of the Project, including but not limited to makingchanges in Plans and Specifications, work or materials, and entering into,modifying, or terminating any contractual arrangements, subject to the Lender’sright at any time to discontinue any work without liability.  If the Lender elects to complete theProject, it will not assume any liability to the Borrower or any other personfor completing the Project or for the manner or quality of construction of the 

 

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Project, and the Borrower expressly waivesany such liability.  The Borrowerirrevocably appoints the Lender as its attorney-in-fact, with full power ofsubstitution, to complete the Project in the Borrower’s name, or the Lender mayelect to complete construction in its own name.  In any event, all sums expended by the Lender in completingconstruction will be considered to have been disbursed to the Borrower and willbe 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 theface amount of the Notes will be considered to be an additional loan to theBorrower bearing interest at the rate provided in the Notes and will be securedby the Mortgage and any other instrument or documents securing the Loans.  The Lender will not have any obligationunder the Plans and Specifications prepared for the Project, any studies, data,and drawings with respect thereto prepared by or for Borrower, or the contractsand agreements relating to the Plans and Specifications, or the aforesaidstudies, data, and drawings, or to the construction of the Project unless itexpressly hereafter agrees in writing. The Lender will have the right to exercise any rights of the Borrowerunder those contracts and agreements or with respect to such Plans andSpecifications, studies, data, and drawings upon any default by the Borrowerunder this Agreement, and shall have such other rights and remedies withrespect thereto as are afforded a secured creditor under applicable law; and

 

(e)                                  may exercise allother rights and remedies afforded to the Lender under the Loan Documents or byapplicable law or equity.

 

Section 6.03.          **RemediesCumulative.**  Each andevery power or remedy herein specifically given shall be in addition to everyother power or remedy, existing or implied, given now or hereafter existing atlaw or in equity, and each and every power and remedy herein specifically givenor otherwise so existing may be exercised from time to time and as often and insuch order as may be deemed expedient by Lender, and the exercise or thebeginning of the exercise of one power or remedy shall not be deemed a waiverof 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 accruinghereunder shall impair any such right or power or be construed to be a waiverof any default or acquiescence therein.

 

**ARTICLE VII****.**

**MISCELLANEOUS**

 

Section 7.01.                             **Amendments, etc**.  Noamendment or waiver of any provision of any Loan Document to which the Borroweris a party, nor any consent to any departure by the Borrower therefrom, shallin any event be effective unless the same shall be agreed or consented to bythe Lender and the Borrower, and each such waiver or consent shall be effectiveonly in the specific instance and for the specific purpose for which given.

 

Section 7.02.                             **Notices, etc**.  All notices and othercommunications provided for under any Loan Document shall be in writing andmailed, faxed, or delivered at the addresses set forth below, or at such otheraddress as such party may specify by written notice to the other partieshereto:

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| If to the Borrower: |   | United Wisconsin Grain Producers, LLC

100 Richland Street

P.O. Box 247

Friesland, WI  53935

Telephone:  (920) 348-5016

Fax:  (920) 348-5009

Attention:  President |
|---------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |   |                                                                                                                                                                                        |
| With a copy to:     |   | Thomas D. Johnson

Brown, Winick, Graves, Gross, Baskerville  and Schoenebaum, P.L.C.

666 Grand Avenue, Suite 2000

Des Moines, IA  50309

Fax:  (515) 242-2488                  |
|                |   |                                                                                                                                                                                        |
| If  to the Lender:  |   | AgStar Financial Services, PCA

1921 Premier Drive

P.O. Box 4249

Mankato, MN 56002-4249

Telephone: (507) 386-4242

Facsimile: (507) 344-5088

Attention: Mark Schmidt                    |
|                |   |                                                                                                                                                                                        |
| With copy to:       |   | Phillip L. Kunkel

Gray Plant Mooty

1010 West St. Germain, Suite 600

St. Cloud, MN  56301

Facsimile: (320) 252-4482                                                                 |

 

All such notices and communications shallhave been duly given and shall be effective: (a) when delivered; (b) when transmitted via facsimile to the number setforth above; (c) the Business Day following the day on which the same has beendelivered prepaid (or pursuant to an invoice arrangement) to a reputablenational overnight air courier service; or (d) the third Business Day followingthe day on which the same is sent by certified or registered mail, postageprepaid.   Any

confirmation sent by the Lender to theBorrower of any borrowing under this Agreement shall, in the absence ofmanifest error, be conclusive and binding for all purposes

 

Section 7.03.                             **NoWaiver; Remedies**.  Nofailure on the part of the Lender to exercise, and no delay in exercising, anyright under any Loan Document shall operate as a waiver thereof; nor shall anysingle or partial exercise of any right under any Loan Document preclude anyother or further exercise thereof or the exercise of any other right.  The remedies provided in the Loan Documentsare cumulative and not exclusive of any remedies provided by law.

 

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Section 7.04.                             **Costs,Expenses and Taxes.**

 

(a)                                  The Borrower agrees,jointly and severally, to pay on demand all costs and expenses in connectionwith the preparation, execution, delivery, filing, recording and administrationof the Loan Documents and the other documents to be delivered under the LoanDocuments, including, without limitation, the reasonable fees and out-of-pocketexpenses of counsel for the Lender (who may be in-house counsel), and localcounsel who may be retained by said counsel, with respect thereto and withrespect to advising the Lender as to its respective rights and responsibilitiesunder the Loan Documents, and all costs and expenses (including reasonablecounsel fees and expenses) for the Lender in connection with the filing of theFinancing Statements and the enforcement of the Loan Documents and the otherdocuments to be delivered under the Loan Documents, including, withoutlimitation, in the context of any bankruptcy proceedings.  In addition, the Borrower agrees to pay ondemand the expenses described in Section 5.01(b).  In addition, the Borrower shall pay any andall stamp and other taxes and fees payable or determined to be payable inconnection with the execution, delivery, filing and recording of the LoanDocuments and the other documents to be delivered under the Loan Documents, andagrees to save the Lender harmless from and against any and all liabilitieswith respect to or resulting from any delay in paying or omission to pay suchtaxes and fees.

 

(b)                                 If, due to paymentsmade by the Borrower pursuant to Section 2.06 or due to acceleration ofthe maturity of the Advances pursuant to Section 6.01 or due to any otherreason, the Lender receives payments of principal of any Loan other than on thelast day of an Interest Period relating thereto, the Borrower shall pay to theLender on demand any amounts required to compensate the Lender for anyadditional losses, costs or expenses which it may incur as a result of suchpayment, including, without limitation, any loss (including loss of anticipatedprofits), cost or expense incurred by reason of the liquidation or reemploymentof deposits or other funds acquired by the Lender to fund or maintain suchLoan.

 

Section 7.05.                             **Right ofSet-off**.  The Lender ishereby authorized at any time and from time to time, to the fullest extentpermitted by law, to set off and apply any and all deposits (general orspecial, time or demand, provisional or final) at any time held and otherindebtedness at any time owing by the Lender to or for the credit or theaccount of the Borrower against any and all of the Loan Obligations,irrespective of whether or not the Lender shall have made any demand under suchLoan Document and although deposits, indebtedness or such obligations may beunmatured or contingent.  The Lenderagrees 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 ofsuch set-off and application.  Therights of the Lender under this Section are in addition to other rightsand remedies (including, without limitation, other rights of set-off) which theLender may have.

 

Section 7.06.                             **Severabilityof Provisions**.  Anyprovision of this Agreement or of any other Loan Document which is prohibitedor unenforceable in any jurisdiction shall, as to such jurisdiction, beineffective to the extent of such prohibition or unenforceability withoutinvalidating the remaining provisions hereof or thereof or affecting thevalidity or unenforceability of such provision in any other jurisdiction.

 

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Section 7.07.                             **BindingEffect; Successors and Assigns; Participations**.

 

(a)                                  This Agreement shallbe binding upon and inure to the benefit of the Borrower, the Lender and theirrespective successors and assigns, except that the Borrower shall not have theright to assign or otherwise transfer its rights hereunder or any interestherein without the prior written consent of the Lenders.  Upon the request of Borrower, Lender shallprovide copies of all invoices for costs and expenses to be reimbursed byBorrower under this Agreement or under any of the Loan Documents.

 

(b)                                 Borrower agrees andconsents to Lender’s sale or transfer, whether now or later, of one or moreparticipation interests in the Loans to one or more purchasers, whether relatedor unrelated to Lender.  Lender mayprovide, without any limitation whatsoever, to any one or more purchasers, orpotential purchasers, any information or knowledge Lender may have aboutBorrower or about any other matter relating to the Loans, and Borrower herebywaives any rights to privacy it may have with respect to such matters;provided, however, that any information received by any such purchaser or potentialpurchaser under this provision which concerns the personal, financial or otheraffairs of the Borrower shall be received and kept by the purchaser orpotential purchaser in full confidence and will not be revealed to any otherpersons, firms or organizations nor used for any purpose whatsoever other thanfor determining whether or not to participate in the Loans and in accord withthe rights of Lender if a participation interest is acquired.  Borrower additionally waives any and allnotices of sale of participation interests, as well as all notices of anyrepurchase of such participation interest. Borrower also agrees that the purchasers of any such participationinterests will be considered as the absolute owners of such interests in theLoans and will have all the rights granted under the participation agreement oragreements governing the sale of such participation interests.  Borrower further waives all rights of offsetor counterclaim that it may have now or later against Lender or against any purchaserof such a participation interest arising out of or by virtue of theparticipation and unconditionally agrees that either Lender or such purchasermay enforce Borrower’s obligation under the Loans irrespective of the failureor insolvency of any holder of any interests in the Loans.  Borrower further agrees that the purchaserof any such participation interests may enforce its interests irrespective ofany personal claims or defenses that Borrower may have against Lender.

 

Section 7.08.                             **Consentto Jurisdiction**.

 

(a)                                  The Borrower herebyirrevocably submits to the jurisdiction of any Wisconsin State court sitting inColumbia County, Wisconsin, or any Federal court sitting in the EasternDistrict of Wisconsin, in any action or proceeding arising out of or relatingto this Agreement or any of the other Loan Documents to which it is a party,and the Borrower hereby irrevocably agrees that all claims in respect of suchaction or proceeding may be heard and determined in such Wisconsni State courtor in such Federal court.  The Borrowerhereby irrevocably waives, to the fullest extent it may effectively do so, thedefense of an inconvenient forum to the maintenance of such action orproceeding.  The Borrower irrevocablyconsents to the service of copies of the summons and complaint and any otherprocess which may be served in any such action or proceeding by the 

 

44

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mailing of copies of such process to Borrowerat its address specified in Section 7.02. The Borrower agrees that a final judgment in any such action orproceeding shall be conclusive and may be enforced in other jurisdictions bysuit on the judgment or in any other manner provided by law.

 

(b)                                 Nothing in thisSection 7.08 shall affect the right of the Lender to serve legal processin any other manner permitted by law or affect the right of the Lender to bringany action or proceeding against the Borrower or its property in the courts ofother jurisdictions.

 

Section 7.09.                             **GoverningLaw**.  THIS AGREEMENT ANDTHE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNALLAWS OF THE STATE OF MINNESOTA.

 

Section 7.10.                             **Executionin Counterparts**.  ThisAgreement may be executed in any number of counterparts and on telecopycounterparts, each of which when so executed shall be deemed to be an originaland all of which when taken together shall constitute but one and the sameagreement.

 

Section 7.11.                             **Survival**.  All covenants, agreements, representationsand warranties made by the Borrower in the Loan Documents and in thecertificates or other instruments delivered in connection with or pursuant tothis Agreement or any other Loan Document shall be considered to have beenrelied upon by the other parties hereto and shall survive the execution anddelivery of the Loan Documents and the making of any Advances, regardless ofany investigation made by any such other party or on its behalf andnotwithstanding that Lender may have had notice or knowledge of any Event ofDefault or incorrect representation or warranty at the time any credit isextended hereunder, and shall continue in full force and effect as long as anyLoan Obligations are outstanding and unpaid and so long as the Lender has anyunexpired commitments under this Agreement or the Loan Documents.  The expense reimbursement, additional cost,capital adequacy and indemnification provisions of this Agreement shall surviveand remain in full force and effect regardless of the consummation of thetransactions contemplated hereby, the repayment of the Loan Obligations or thetermination of this Agreement or any provision hereof.

 

Section 7.12.                             **WAIVER OFJURY TRIAL.  THE BORROWER ANDTHE LENDER HEREBY IRREVOCABLY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION,PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT TOWHICH IT IS A PARTY OR ANY INSTRUMENT OR DOCUMENT DELIVERED THEREUNDER.**

 

Section 7.13.                             **EntireAgreement**.  THISAGREEMENT, THE NOTES, AND THE OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODYTHE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALLPRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHERWRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BECONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENTORAL AGREEMENTS OR DISCUSSIONS OF 

 

45

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THE PARTIES HERETO.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES THERETO.

 

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

 

**BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THISCONSTRUCTION AND REVOLVING LOAN AGREEMENT, AND BORROWER AGREES TO ITSTERMS.  THIS AGREEMENT IS DATED AS OFTHE DATE FIRST ABOVE STATED.**

 

**[SIGNATUREPAGE ON FOLLOWING PAGE]**

 

46

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SIGNATURE PAGE TO:

CONSTRUCTION AND REVOLVING LOAN AGREEMENT

by and among

UNITED WISCONSIN GRAIN PRODUCERS, LLC

and

AGSTAR FINANCIAL SERVICES, PCA

 

 
| **BORROWER:**                                                                  |   | **LENDER:**                                                     |
|--------------------------------------------------------------------------------|--------|-----------------------------------------------------------------|
|                                                                           |   |                                                            |
| UNITED WISCONSIN GRAIN  PRODUCERS, LLC, a Wisconsin limited  liability company |   | AGSTAR FINANCIAL SERVICES, PCA  a United States instrumentality |
|                                                                           |   |                                                            |
|                                                                           |   | /s/ Mark Schmidt                                                |   |
| /s/ Kevin Roche                                                                |   |                                                            | By Mark Schmidt |
| By Kevin Roche                                                                 |   | Its Vice President                                              |
| Its President                                                                  |   |                                                            |
|                                                                                |        |                                                                 |  |  |

 

47

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**EXHIBITA**

**COMPLIANCE CERTIFICATE**

 

TO:                            AGSTAR FINANCIAL SERVICES, PCA (the “Lender”)

 

Pursuantto that certain Construction and Revolving Loan Agreement dated                          ,2004, by and between UNITED WISCONSIN GRAIN PRODUCERS, LLC, a Wisconsincorporation (the “Borrower”), and the Lender, and any amendments thereto andextensions thereof (the “Loan Agreement”), the undersigned hereby represents,warrants and certifies to the Lender as follows:

 

1.                                       The financial statement(s) attached heretoare complete and correct in all material respects and fairly present thefinancial 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 andall of the representations and warranties made by the Borrower in the LoanAgreement and the agreements referred to therein or related thereto, andrepresents and warrants to the Lender that each and all of said warranties andrepresentations are true and correct as of the date hereof;

 

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

 

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

 
| 1.                      |   | Section 5.01(d)  – Working Capital.                   |   |                                                 |   |   |   |
|-------------------------|--------|-----------------------------------------------------------------|--------|------------------------------------------------------|--------|--------|--------|
|                    |   | (tested  annually)                                              |   |                                                 |   |   |   |
|                    |   |                                                            |   |                                                 |   |   |   |
| (a)                     |   | Current  Assets                                                 |   |                                                 |   | $      |   |
| (b)                     |   | Current  Liabilities                                            |   |                                                 |   | $      |   |
|                    |   |                                                            |   |                                                 |   |   |   |
| Line  (a) less line (b) |   |                                                            |   | $                                                    |   |
|                    |   |                                                            |   |                                                 |   |   |   |
| In  Compliance          |   | Yes                     |   | No           |   |
|                    |   |                                                            |   |                                                 |   |   |   |
| 2.                      |   | Section 5.01(e)  – Tangible Net Worth.                |   |                                                 |   |   |   |
|                    |   | (tested  annually)                                              |   |                                                 |   |   |   |
|                    |   |                                                            |   |                                                 |   |   |   |
| (a)                     |   | Required  Tangible Net Worth                                    |   |                                                 |   |   |   |
|                    |   |                                                            |   |                                                 |   |   |   |
|                    |   | Required  Tangible Net Worth                                    |   |                                                 |   | $      |   |
|                    |   | ($24,000,000  plus lesser of retained  earnings or $500,000.00) |   |                                                 |   |   |   |

 

48

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| (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           |   | No           |   |
|                            |   |                                                  |   |                                                 |   |                                         |   |
| 3.                              |   | Section 5.01(f)  – Owner Equity Ratio       |   |                                                 |   |                                         |   |
|                            |   | (tested  annually)                                    |   |                                                 |   |                                         |   |
|                            |   |                                                  |   |                                                 |   |                                         |   |
| (a)                             |   | Tangible  Net Worth                                   |   |                                                 |   | $                                            |   |
| (b)                             |   | Total  Assets                                         |   |                                                 |   | $                                            |   |
| (c)                             |   | Owner  Equity Ratio                                   |   |                                                 |   |                                         |   |
|                            |   | (ratio  of line (b) to (c))                           |   |                                                 |   |        to 1.00 |   |
|                            |   |                                                  |   |                                                 |   |                                         |   |
|                            |   | Required  Ratio of 0.50 to 1.00                       |   |                                                 |   |                                         |   |
|                            |   |                                                  |   |                                                 |   |                                         |   |
| In  Compliance                  |   | Yes           |   | No           |   |
|                            |   |                                                  |   |                                                 |   |                                         |   |
| 4.                              |   | Section 5.01(g)  – Fixed Charge Ratio       |   |                                                 |   |                                         |   |
|                            |   |                                                  |   |                                                 |   |                                         |   |
| (a)                             |   | EBITDA                                                |   |                                                 |   | $                                            |   |
| (b)                             |   | Extraordinary  Items                                  |   |                                                 |   |                                         |   |
|                            |   |                                                  |   |                                                 |   | $                                            |   |
| (c)                             |   | Numerator  (sum of lines (a) and (b))                 |   |                                                 |   | $                                            |   |
| (d)                             |   | Current  Portion of Long Term Debt                    |   |                                                 |   | $                                            |   |
| (e)                             |   | Dividends                                             |   |                                                 |   | $                                            |   |
| (f)                             |   | Tax  Distributions                                    |   |                                                 |   | $                                            |   |
| (g)                             |   | Maintenance  Capital Expenditures                     |   |                                                 |   | $                                            |   |
| (h)                             |   | Denominator  (sum of lines (d) through (h))           |   |                                                 |   | $                                            |   |
|                            |   |                                                  |   |                                                 |   |                                         |   |
| Ratio  of line (c) to (h)       |   |                                                  |   |        to 1.00         |   |
|                            |   |                                                  |   |                                                 |   |                                         |   |
| Required  Ratio of 1.25 to 1.00 |   |                                                  |   |                                                 |   |
|                            |   |                                                  |   |                                                 |   |                                         |   |
| In  Compliance                  |   | Yes           |   | No           |   |

 

49

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

 
| **BORROWER:**                          |   |
|----------------------------------------|--------|
|                                   |   |
| UNITED  WISCONSIN GRAIN PRODUCERS, LLC |
| a  Wisconsin limited liability company |
|                                   |   |
|                                   |   |
| By                                     |   |   |
| Its                                    |   |   |
|                                        |        |  |  |

 

50

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**EXHIBIT B**

**PROJECT SOURCE AND USE STATEMENT**

 

Identify the sources and uses of monies in a total amount of$60,044,000.00 related to the project:

 

51

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**United Wisconsin Grain Producers, LLC**

 
|   |   |                                    |   | **Budget**   |             | **Committed  2/10/2004** |       | **Estimated  Final** |       | **Variance**     |           |
|--------|--------|-----------------------------------------|--------|--------------|------------------|--------------------------|------------|----------------------|------------|------------------|----------------|
|   |   | **SOURCES OF FUNDS**                    |   |         |             |                     |       |                 |       |             |           |
| 2300   |   | Construction Loan                       |   | 29,024,200   |             | —                   |       | 29,024,200           |       | —           |           |
| 2301   |   | Revolving Loan                          |   | 4,000,000    |             | —                   |       | 4,000,000            |       | —           |           |
| 3400   |   | Membership Units                        |   | 25,559,541   |             | 25,400,000               |       | 27,500,000           |       | 1,940,459        |           |
| 3405   |   | Seedstock                               |   | 552,500      |             | 552,500                  |       | 552,500              |       | —           |           |
| 4925   |   | Pioneer Donation                        |   | 1,000        |             | 1,000                    |       | 1,000                |       | —           |           |
| 4930   |   | Other Donations                         |   | 4,900        |             | 4,900                    |       | 4,900                |       | —           |           |
| 4900   |   | Grant Revenue                           |   | 881,000      |             | —                   |       | 881,000              |       | —           |           |
|   |   | Block Grant                             |   | 271,000      |             | —                   |       | 271,000              |       | —           |           |
|   |   | TEA Grant                               |   | 160,000      |             | —                   |       | 160,000              |       | —           |           |
|   |   | USDA VADG Grant                         |   | 450,000      |             | —                   |       | 450,000              |       | —           |           |
| 4901   |   | Department of Commerce Grant            |   | 9,750        |             | 9,750                    |       | 9,750                |       | —           |           |
| 4910   |   | Interest Income                         |   | 5,084        |             | 5,084                    |       | 5,084                |       | —           |           |
| 4920   |   | Other Income                            |   | 6,025        |             | 6,025                    |       | 6,025                |       | —           |           |
|   |   | **TOTAL SOURCES**                       |   | **$**        | **60,044,000**   | ** **               | **$**      | **25,979,259**       | ** ** | **$**            | **62,865,459** | ** ** | **$** | **1,940,459** | ** ** |
|   |   |                                    |   |         |             |                     |       |                 |       |             |           |
|   |   | **USES OF FUNDS**                       |   |         |             |                     |       |                 |       |             |           |
|   |   |                                    |   |         |             |                     |       |                 |       |             |           |
|   |   | **PLANT CONSTRUCTION COSTS**            |   |         |             |                     |       |                 |       |             |           |
| 9000   |   | Fagen Construction Contract             |   | 45,607,000   |             | 4,869,216                |       | 45,665,000           |       | 58,000           |           |
|   |   | Grain Handling Facilities               |   | 4,892,000    |             | —                   |       |                 |       |             |           |
|   |   | Cooking Facilities                      |   | 3,956,000    |             | —                   |       |                 |       |             |           |
|   |   | Fermentation Facilities                 |   | 5,387,000    |             | —                   |       |                 |       |             |           |
|   |   | Distillation Facilities                 |   | 5,147,000    |             | —                   |       |                 |       |             |           |
|   |   | Liquid/Solids Separation Facilities     |   | 3,628,000    |             | —                   |       |                 |       |             |           |
|   |   | Evaporation Facilities                  |   | 4,355,000    |             | —                   |       |                 |       |             |           |
|   |   | Dryer Facilities                        |   | 5,225,000    |             | —                   |       |                 |       |             |           |
|   |   | Product Storage Facilities              |   | 2,935,000    |             | —                   |       |                 |       |             |           |
|   |   | Plant Utilities                         |   | 4,280,000    |             | —                   |       |                 |       |             |           |
|   |   | TO2                                     |   | 275,000      |             | —                   |       |                 |       |             |           |
|   |   | General Plant Facilities & Services |   | 5,495,000    |             | —                   |       |                 |       |             |           |
|   |   | Early Completion Bonus                  |   | 32,000       |             | —                   |       |                 |       |             |           |
|   |   |                                    |   | **$**        | **45,607,000**   |                     | **$**      | **4,869,216**        | ** ** | **$**            | **45,665,000** | ** ** | **$** | **58,000** | ** ** |
|   |   |                                    |   |         |             |                     |       |                 |       |             |           |
|   |   | **ADMINISTRATION  BUILDING**            |   |         |             |                     |       |                 |       |             |           |
| 2290   |   | Capitalized Copier Lease                |   | 10,000       |             | 3,861                    |       | 10,000               |       | —           |           |
| 8710   |   | Office Equipment                        |   | 50,000       |             | 8,338                    |       | 50,000               |       | —           |           |
| 8711   |   | Office Furniture                        |   | 40,000       |             | —                   |       | 40,000               |       | —           |           |
| 8712   |   | Office Computers/Network                |   | 55,000       |             | —                   |       | 55,000               |       | —           |           |
| 8713   |   | Office Computers/Software               |   | 85,000       |             | —                   |       | 85,000               |       | —           |           |
| 8410   |   | Admin Building/Asset                    |   | 300,000      |             | 8,506                    |       | 300,000              |       | —           |           |
|   |   |                                    |   | **$**        | **540,000**      |                     | **$**      | **22,172**           | ** ** | **$**            | **540,000**    | ** ** | **—** | ** ** |
|   |   |                                    |   |         |             |                     |       |                 |       |             |           |
|   |   | **RAILROAD**                            |   |         |             |                     |       |                 |       |             |           |
| 8205   |   | Rail Switches Mainline                  |   | 300,000.00   |             | —                   |       | 300,000.00           |       |             |           |
|   |   | Mainline Turnouts                       |   |         |             |                     |       |                 |       |             |           |
| 8210   |   | Rail Spur Development                   |   | 1,261,928.50 |             | —                   |       | 1,261,928.50         |       | —           |           |
|   |   | Yard Turnouts                           |   | 320,000.00   |             |                     |       |                 |       |             |           |
|   |   | Track Construction                      |   | 606,580.00   |             |                     |       |                 |       |             |           |
|   |   | Sub Ballast                             |   | 96,000.00    |             |                     |       |                 |       |             |           |
|   |   | Miscellaneous                           |   | 97,355.00    |             |                     |       |                 |       |             |           |
|   |   | Contingency                             |   | 141,993.50   |             |                     |       |                 |       |             |           |
|   |   |                                    |   | **$**        | **1,561,928.50** |                     | **—** | ** **           | **$**      | **1,561,928.50** | ** **     |   | ** ** |
|   |   |                                    |   |         |             |                     |       |                 |       |             |           |
|   |   | **OTHER PLANT  EQUIPMENT**              |   |         |             |                     |       |                 |       |             |           |
| 8700   |   | Grain Test Equipment                    |   | 30,000       |             | —                   |       | 30,000               |       | —           |           |
| 8720   |   | RO Water System                         |   | 200,000      |             | —                   |       | 200,000              |       | —           |           |
| 8715   |   | Shop Equipment                          |   | 25,000       |             | —                   |       | 25,000               |       | —           |           |
| 8750   |   | Process Area Equipment                  |   | 10,000       |             | —                   |       | 10,000               |       | —           |           |
| 8751   |   | Grading Office                          |   | 55,000       |             | —                   |       | 55,000               |       | —           |           |
| 8752   |   | System Automation                       |   | 36,000       |             | —                   |       | 36,000               |       | —           |           |
|   |   |                                    |   | **$**        | **356,000**      |                     | **—** | ** **           | **$**      | **356,000**      | ** **     | **—** | ** ** |

 

52

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|   |   |                                       |   | **Budget** |          | **Committed  2/10/2004** |       | **Estimated  Final** |       | **Variance**  |          |
|--------|--------|--------------------------------------------|--------|------------|---------------|--------------------------|------------|----------------------|------------|---------------|---------------|
|   |   | **ROLLING STOCK**                          |   |       |          |                     |       |                 |       |          |          |
|   |   | 40 Rail Cars (DDGS) (Lease)                |   | 20,000.00  |          | —                   |       | 20,000.00            |       |          |          |
|   |   | Pickup                                     |   | 14,000.00  |          | —                   |       | 14,000.00            |       |          |          |
|   |   | 2 Loaders (Lease)                          |   | 12,000.00  |          | —                   |       | 12,000.00            |       |          |          |
|   |   | Scissor Lift                               |   | 4,500.00   |          | —                   |       | 4,500.00             |       |          |          |
|   |   | Fork Lift                                  |   | 5,500.00   |          | —                   |       | 5,500.00             |       |          |          |
|   |   | Trackmobile (Lease)                        |   | 7,000.00   |          | —                   |       | 7,000.00             |       |          |          |
|   |   |                                       |   | **$**      | **63,000.00** |                     | **—** | ** **           | **$**      | **63,000.00** | ** **    |   | ** ** |
|   |   |                                       |   |       |          |                     |       |                 |       |          |          |
|   |   | **SITE COSTS**                             |   |       |          |                     |       |                 |       |          |          |
| 8400   |   | Land                                       |   | 1,000,000  |          | 710,411                  |       | 1,000,000            |       | —        |          |
| 8402   |   | Land Surveying-CIP                         |   | 20,000     |          | —                   |       | 20,000               |       | —        |          |
| 8445   |   | Site Testing/Engineering                   |   | 15,000     |          | 10,186                   |       | 15,000               |       | —        |          |
| 8500   |   | Site/Land Improvements                     |   | 650,000    |          | 407,228                  |       | 650,000              |       | —        |          |
| 8501   |   | Paving and Cement                          |   | 250,000    |          | —                   |       | 250,000              |       | —        |          |
| 8502   |   | County Road Improvements                   |   | 100,000    |          | —                   |       | 100,000              |       | —        |          |
| 8460   |   | Security                                   |   | 20,000     |          | —                   |       | 20,000               |       | —        |          |
| 8482   |   | Site Utilities/Gas                         |   | 40,000     |          | —                   |       | 40,000               |       | —        |          |
| 8483   |   | Site Utilities/Electric                    |   | 250,000    |          | 68,662                   |       | 250,000              |       | —        |          |
| 8484   |   | Site Utilities/Sanitary                    |   | 50,000     |          | —                   |       | 50,000               |       | —        |          |
| 8481   |   | Site Utilities/Water and Drains            |   | 170,000    |          | —                   |       | 170,000              |       | —        |          |
| 8455   |   | Water Wells                                |   | 90,000     |          | 37,218                   |       | 90,000               |       | —        |          |
| 8451   |   | Permitting-CIP                             |   | 25,000     |          | 2,985                    |       | 25,000               |       | —        |          |
| 8725   |   | Fire Protection                            |   | 520,000    |          | —                   |       | 520,000              |       | —        |          |
|   |   | Freshwater Tank                            |   | —     |          |                     |       |                 |       |          |          |
|   |   | Fire Pump                                  |   | —     |          |                     |       |                 |       |          |          |
|   |   | Sprinklers                                 |   | —     |          |                     |       |                 |       |          |          |
|   |   | Site Miscellaneous                         |   | 10,000     |          | 2,024                    |       | 10,000               |       | —        |          |
|   |   |                                       |   | **$**      | **3,210,000** |                     | **$**      | **1,238,712**        | ** ** | **$**         | **3,210,000** | ** ** | **—** | ** ** |
|   |   |                                       |   |       |          |                     |       |                 |       |          |          |
|   |   | **OTHER BUILDING COSTS**                   |   |       |          |                     |       |                 |       |          |          |
| 8440   |   | Insurance-Builders Risk (14 months)        |   | 138,000    |          | 118,000                  |       | 138,000              |       | —        |          |
| 8760   |   | Construction Bond                          |   | 306,000    |          | 308,895                  |       | 308,895              |       | 2,895         |          |
|   |   |                                       |   | **$**      | **444,000**   |                     | **$**      | **426,895**          | ** ** | **$**         | **446,895**   | ** ** | **$** | **2,895** | ** ** |
|   |   |                                       |   |       |          |                     |       |                 |       |          |          |
|   |   | **INVENTORY-WORKING  CAPITAL**             |   |       |          |                     |       |                 |       |          |          |
| 8010   |   | Inventory – Corn                      |   | 2,500,000  |          | —                   |       | 2,500,000            |       | —        |          |
| 8030   |   | Inventory – Ethanol & DDGS        |   | 1,505,000  |          | —                   |       | 1,505,000            |       | —        |          |
| 8040   |   | Inventory – Process Supplies/Chemical |   | 97,000     |          | —                   |       | 97,000               |       | —        |          |
| 8050   |   | Corn Hedging                               |   | 500,000    |          | —                   |       | 500,000              |       | —        |          |
| 8060   |   | Spare Parts                                |   | 200,000    |          | —                   |       | 200,000              |       | —        |          |
|   |   |                                       |   | **$**      | **4,802,000** |                     | **—** | ** **           | **$**      | **4,802,000** | ** **    | **—** | ** ** |
|        |        |                                            |        |            |               |                          |            |                      |            |               |               |  |  |  |  |

 

53

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|   |   | **ENTITY ORGANIZATION**             |   |    |           |    |   |           |   |   |           |
|--------|--------|-------------------------------------|--------|---------|----------------|---------|--------|----------------|--------|--------|----------------|
|   |   | Legal &  Filings                |   | 10,554  |           | 10,554  |   | 10,554         |   | — |           |
| 5025   |   | Business  Plan                      |   | 14,548  |           | 14,548  |   | 14,548         |   | — |           |
|   |   | Consulting/Others  – 3rd Party |   | 28,580  |           | 28,580  |   | 28,580         |   | — |           |
|   |   | Advertising  and Meetings           |   | 5,089   |           | 5,089   |   | 5,089          |   | — | ** **     |
|   |   |                                |   | **$**   | **58,771**     |    | **$**  | **58,711**     |   | **$**  | **58,711**     |   | **—** |   |
|   |   |                                |   |    |           |    |   |           |   |   |           |
|   |   | **FINANCING  COSTS**                |   |    |           |    |   |           |   |   |           |
|   |   | **Direct Bank Fees**                |   | 350,500 |           | 20,500  |   | 350,500        |   | — |           |
|   |   | **Indirect Bank Fees**              |   | 60,300  |           | —  |   | 60,300         |   | — |           |
|   |   | **Annual Fees**                     |   | 40,000  |           | —  |   | 40,000         |   | — |           |
|   |   | **Capital Interest**                |   | 420,000 |           | 994     |   | 420,000        |   | — |           |
|   |   |                                |   | **$**   | **870,800**    |    | **$**  | **21,493.65**  |   | **$**  | **870,800**    |   |   |   |
|   |   |                                |   |    |           |    |   |           |   |   |           |
|   |   | **COST  OF RAISING CAPITAL**        |   |    |           |    |   |           |   |   |           |
| 3900   |   | **Costs of Raising Capital**        |   | 2,356   |           | 2,356   |   | 2,356          |   | — |           |
| 3910   |   | **Printing**                        |   | 1,941   |           | 1,942   |   | 1,942          |   | — |           |
| 3930   |   | **Legal**                           |   | 17,041  |           | 17,041  |   | 17,041         |   | — |           |
| 3940   |   | **Accounting**                      |   | 2,255   |           | 2,255   |   | 2,255          |   | — |           |
| 1615   |   | **Deferred Offering Costs**         |   | 258,758 |           | 258,758 |   | 258,758        |   | — |           |
| 1620   |   | **Deferred Land Options**           |   | 13,000  |           | 13,000  |   | 13,000         |   | — |           |
| 5360   |   | **Advertising and Meetings**        |   | 94,999  |           | 94,927  |   | 94,999         |   | — |           |
|   |   |                                |   | **$**   | **390,351**    |    | **$**  | **390,279**    |   | **$**  | **390,351**    |   | **—** |   |
|   |   | **EQUITY  CLOSING**                 |   |    |           |    |   |           |   |   |           |
|   |   | **Startup Costs and Interest**      |   | 12,155  |           | 12,155  |   | 12,155         |   | — |           |
|   |   | **Administration Labor**            |   | 27,567  |           | 27,567  |   | 27,567         |   | — |           |
|   |   | **Consulting Services**             |   | 311,439 |           | 311,439 |   | 311,439        |   | — |           |
|   |   | **Accounting and Legal**            |   | 78,223  |           | 78,223  |   | 78,223         |   | — |           |
|   |   | **Miscellaneous**                   |   | 6,566   |           | 6,566   |   | 6,566          |   | — |           |
|   |   | **Permitting**                      |   | 90,956  |           | 90,956  |   | 90,956         |   | — |           |
| 5335   |   | **Expired Land Costs**              |   | 8,713   |           | 8,713   |   | 8,713          |   | — |           |
| 5336   |   | **Option Expense**                  |   | 2,500   |           | 2,500   |   | 2,500          |   | — |           |
| 5370   |   | **Travel**                          |   | 2,191   |           | 2,191   |   | 2,191          |   | — |           |
|   |   |                                |   | **$**   | **540,309.46** |    | **$**  | **540,309.46** |   | **$**  | **540,309.46** |   | **—** |   |

 

54

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|   |   | **PRE-OPERATING  COSTS**            |   |        |             |   |   |           |   |   |             |
|--------|--------|-------------------------------------|--------|-------------|------------------|--------|--------|----------------|--------|--------|------------------|
| 6000   |   | **Office Supplies**                 |   | 45,000      |             | 20,803 |   | 45,000         |   | — |             |
| 6020   |   | **Telephone**                       |   | 16,000      |             | 8,357  |   | 16,000         |   | — |             |
| 6030   |   | **Conference Telephone Calls**      |   | 1,000       |             | 301    |   | 1,000          |   | — |             |
| 6040   |   | **Cell Phone Service**              |   | 3,000       |             | 230    |   | 3,000          |   | — |             |
| 6050   |   | **Internet Service**                |   | 1,200       |             | 259    |   | 1,200          |   | — |             |
| 6060   |   | **Postage**                         |   | 20,000      |             | 12,513 |   | 20,000         |   | — |             |
| 6061   |   | **Courier Services**                |   | —      |             | — |   | —         |   | — |             |
| 6070   |   | **Contract labor**                  |   | 295         |             | 295    |   | 295            |   | — |             |
| 6071   |   | **IT Maintenance**                  |   | 2,000       |             | 127    |   | 2,000          |   | — |             |
| 6080   |   | **Office Rent**                     |   | 8,800       |             | 7,200  |   | 8,800          |   | — |             |
| 6081   |   | **Site Trailer**                    |   | 3,000       |             | — |   | 3,000          |   | — |             |
| 6090   |   | **Reimbursements**                  |   | 556         |             | 556    |   | 556            |   | — |             |
| 6101   |   | **Utilities/Water**                 |   | 4,000       |             | — |   | 4,000          |   | — |             |
| 6102   |   | **Utilities/Gas**                   |   | 8,500       |             | 6,000  |   | 8,500          |   | — |             |
| 6103   |   | **Utilities/Electric**              |   | 2,000       |             | — |   | 2,000          |   | — |             |
| 6104   |   | **Utilities/Waste Disposal**        |   | 300         |             | — |   | 300            |   | — |             |
| 6190   |   | **Directors’ Fees**            |   | 132,200     |             | 73,726 |   | 132,200        |   | — |             |
| 6200   |   | **Directors’ Meeting Expense** |   | 10,729      |             | 8,752  |   | 10,729         |   | — |             |
| 6210   |   | **Director Travel Expense**         |   | 11,288      |             | 9,328  |   | 11,288         |   | — |             |
| 6211   |   | **Employee Travel Expense**         |   | 4,000       |             | 122    |   | 4,000          |   | — |             |
| 6220   |   | **SEC Expenses**                    |   | 10,000      |             | — |   | 10,000         |   | — |             |
| 6221   |   | **BATF Bond**                       |   | 20,000      |             | — |   | 20,000         |   | — |             |
| 6230   |   | **Payroll Tax Expense**             |   | 20,000      |             | 4,715  |   | 20,000         |   | — |             |
| 6240   |   | **401K Expense**                    |   | —      |             | — |   | —         |   | — |             |
| 6310   |   | **Admin Labor**                     |   | 50,000      |             | 22,134 |   | 50,000         |   | — |             |
| 6315   |   | **Production Labor**                |   | 350,000     |             | — |   | 350,000        |   | — |             |
| 6360   |   | **Advertising and Meetings**        |   | 3,500       |             | 1,361  |   | 3,500          |   | — |             |
| 6370   |   | **Project Manager Travel**          |   | 15,000      |             | 4,799  |   | 15,000         |   | — |             |
| 6380   |   | **Project Manager**                 |   | 150,000     |             | 25,000 |   | 150,000        |   | — |             |
| 6400   |   | **Accounting Fees**                 |   | 5,938       |             | 5,938  |   | 5,938          |   | — |             |
| 6401   |   | **Accounting/General**              |   | 35,000      |             | 9,960  |   | 35,000         |   | — |             |
| 6402   |   | **Accounting/SEC**                  |   | 20,000      |             | 5,211  |   | 20,000         |   | — |             |
| 6410   |   | **Legal**                           |   | 9,744       |             | 9,744  |   | 9,744          |   | — |             |
| 6411   |   | **Legal/SEC**                       |   | 10,000      |             | 2,985  |   | 10,000         |   | — |             |
| 6412   |   | **Legal/Claims**                    |   | 7,000       |             | 5,731  |   | 7,000          |   | — |             |
| 6413   |   | **Legal/Operating**                 |   | 50,00       |             | 13,172 |   | 50,000         |   | — |             |
| 6420   |   | **Consulting Fees**                 |   | 80,000      |             | 61,996 |   | 80,000         |   | — |             |
| 6421   |   | **Grant Administration**            |   | 18,000      |             | 11,597 |   | 18,000         |   | — |             |
| 6600   |   | **Bank Charges**                    |   | 15,000      |             | 8,260  |   | 15,000         |   | — |             |
| 6620   |   | **Miscellaneous Expense**           |   | 2,500       |             | (215)  |   | 2,500          |   | — |             |
| 6630   |   | **Donations**                       |   | 1,000       |             | 133    |   | 1,000          |   | — |             |
| 6640   |   | **Dues/Subscriptions**              |   | 4,200       |             | 1,300  |   | 4,200          |   | — |             |
| 6650   |   | **Insurance-Operations**            |   | 20,000      |             | 671    |   | 20,000         |   | — |             |
| 6660   |   | **Insurance-D&O**               |   | 16,912      |             | 16,912 |   | 16,912         |   | — |             |
| 6700   |   | **Property Taxes**                  |   | 1,000       |             | 723    |   | 1,000          |   | — |             |
|   |   |                                |   | **$**       | **1,188,660.45** |   | **$**  | **360,714.81** |   | **$**  | **1,188,660.45** |   | **—** |   |
|   |   |                                |   |        |             |   |   |           |   |   |             |
|   |   | **TOTAL  USES**                     |   | **$**       | **59,632,820**   |   | **$**  | **7,928,562**  |   | **$**  | **59,693,715**   |   | **$** | **1,879,564** |   |
|   |   | **Construction Contingency**        |   | **411,180** |             |   |   |           |   |   |             |
|   |   |                                |   | **$**       | **60,044,000**   |   |   |           |   |   |             |   |
|        |        |                                     |        |             |                  |        |        |                |        |        |                  |  |  |  |  |

 

55

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**EXHIBIT C**

**SWORN CONSTRUCTION STATEMENT**

 

56

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Certification of Project Cost Statement

 

Attached hereto, and by this reference made apart hereof, is a statement of the anticipated costs of construction of theFriesland, Wisconsin ethanol plant to be constructed for United Wisconsin GrainProducers, LLC, subject to change orders approved hereafter.

 

Dated as of the ninth day of February, 2004.

 

 
| United Wisconsin Grain Producers, LLC | Fagen, Inc. |
|---------------------------------------|-------------|
|                                  |        |
|                                  |        |
| By:                                   | /s/         |   | By: | /s/ |   |
|                                  |        | Jennifer A. Johnson, CFO |
|                                       |             |  |  |  |  |

 

57

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**Schedule of Values for:**

**United Wisconsin Grain Producers**

 

**Friesland, Wisconsin**

 

 
|   |   | **Description**              |       |      |           |
|--------|--------|------------------------------|------------|-----------|----------------|
|   |   |                         |       |      |           |
| 1.     |   | MOBILIZATION                 |       | $         | 3,000,000      |   |
| 2.     |   | ENGINEERING                  |       | 3,150,000 |           |
| 3.     |   | GENERAL CONDITIONS           |       | 2,700,000 |           |
| 4.     |   | SITE WORK                    |       | 250,000   |           |
| 5.     |   | CONCRETE                     |       | 3,600,000 |           |
| 6.     |   | MASONRY                      |       | 150,000   |           |
| 7.     |   | STRUCTURAL STEEL/MISC.METAL  |       | 2,000,000 |           |
| 8.     |   | LUMBER/CARPENTRY/FINISHES    |       | 50,000    |           |
| 9.     |   | GIRTS/SIDING & ROOF DECK |       | 425,000   |           |
| 10.    |   | DOORS & WINDOWS          |       | 50,000    |           |
| 11.    |   | PAINT                        |       | 200,000   |           |
| 12.    |   | GRAIN HANDLING SYSTEM        |       | 3,750,000 |           |
| 13.    |   | DDG STORAGE BUILDING         |       | 500,000   |           |
| 14.    |   | DRYER SYSTEM                 |       | 3,500,000 |           |
| 15.    |   | FIELD ERECTED TANKS          |       | 3,255,000 |           |
| 16.    |   | PROCESS TANKS & VESSELS  |       | 3,000,000 |           |
| 17.    |   | THERMAL OXIDIZER             |       | 2,000,000 |           |
| 18.    |   | MIXERS                       |       | 400,000   |           |
| 19.    |   | PUMPS                        |       | 650,000   |           |
| 20.    |   | HEAT EXCHANGERS              |       | 955,000   |           |
| 21.    |   | SIEVE BOTTLES & BEADS    |       | 325,000   |           |
| 22.    |   | CHILLER                      |       | 200,000   |           |
| 23.    |   | CENTRIFUGES                  |       | 1,800,000 |           |
| 24.    |   | AIR COMPRESSORS              |       | 80,000    |           |
| 25.    |   | METHANATORS                  |       | 450,000   |           |
| 26.    |   | COOLING TOWER                |       | 340,000   |           |
| 27.    |   | ETHANOL LOADOUT              |       | 120,000   |           |
| 28.    |   | VAPOR FLARE SYSTEM           |       | 100,000   |           |
| 29.    |   | PROCESS PIPING & VALVES  |       | 3,125,000 |           |
| 30.    |   | INSULATION                   |       | 600,000   |           |
| 31.    |   | PLUMBING & HVAC          |       | 350,000   |           |
| 32.    |   | ELECTRICAL                   |       | 3,750,000 |           |
| 33.    |   | START-UP                     |       | 500,000   |           |
| 34.    |   | DEMOBILIZATION               |       | 250,000   |           |
|   |   |                         | ** ** | **$**     | **45,575,000** | ** ** |

 

58

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**Schedule 5.01(n)**

**Management**

 

Borrower is currently managed by itsPresident with oversight by the Board of Directors.

 

59

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**Schedule 5.02(a)**

**Description of Certain Liens, LeaseObligations, etc.**

 

None.

 

60

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**Schedule 5.02(f)**

**Loans;Guaranties**

 

None.

 

61

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**EXHIBIT D**

**FORM OF OPINION LETTER**

 

62

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**Brown,Winick, Graves, Gross,**

**Baskervilleand Schoenebaum, P.L.C.**

ATTORNEYS ATLAW

 
| 666  GRAND AVENUE, SUITE 2000

DES  MOINES, IOWA 50309-2510

 

TELEPHONE:         (515) 242-2400

FACSIMILE:            (515) 283-0231

 

 

URL:  www.ialawyers.com

 

 

Offices  in:

West Des Moines, Iowa

Pella, Iowa

Washington, D.C. |   | Richard  W. Baskerville

Bruce  Graves

Steven  C. Schoenebaum

Harold  N. Schneebeck

Paul  D. Hietbrink

William  C. Brown

Richard  K. Updegraff

Jill  Thompson Hansen

Paul  E. Carey

Douglas  E. Gross

John  D. Hunter

James  H. Gilliam

Robert  D. Andeweg

Alice  Eastman Helle

Michael  R. Blaser

Thomas  D. Johnson

Charles  J. Krogmeier |   | Christopher  R. Sackett

Sean  P. Moore

Stuart  I. Feldstein

Nancy  S. Boyd

James  L. Pray

Brenton  D. Soderstrum

Michael  D. Treinen

Scott  L. Long

Ronni  F. Begleiter

Miranda  L. Hughes

Duane  P. Hagerty

Kelly  D. Hamborg

William  E. Hanigan

Mary  A. Ericson

Barbara  B. Burnett

Michael  J. Green

Michael  A. Dee |   | Deborah  J. Schmudlach

Danielle  K. Dixon

Brian  P. Rickert

Valerie  D. Bandstra

Alexander  M. Johnson

James  S. Niblock

Ann  Holden Kendell

Rebecca  A. Brommel

Kelly  K. Helwig

Mark  E. Roth

Tina  R. Thompson

Brian  M. Green

Dustin  D. Smith

Adam  W. Jones

Catherine  C. Cownie |   | Patents  and Trademarks

G.  Brian Pingel

Camille  L. Urban

 

 

Washington,  D.C. Office

Brian  Kennedy

 

 

Of  Counsel:

Marvin  Winick

 

 

Walter  R. Brown (1921-2000) |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

February 26, 2004

 

Agstar Financial Services, PCA

1921 Premier Drive

P.O. Box 4249

Mankato, MN 56002-4249

 

**Re:**                             **Construction and Revolving Loan Agreement by andbetween United Wisconsin Grain Producers, LLC and Agstar Financial Services,PCA**

 

Ladies and Gentlemen:

 

We have acted as special counsel for United Wisconsin Grain Producers,LLC, a Wisconsin limited liability company (the “Borrower”), in connection withthat certain construction financing by Agstar Financial Services, PCA (the“Lender”) to Borrower for the purpose of enabling Borrower to construct anethanol plant in Columbia County, Wisconsin. We have been requested by Borrower to render certain opinions to you inconnection with the aforementioned financing transaction.  For purposes of rendering these opinions, wehave examined the following documents (the “Loan Documents”):

 

(a)                                  Construction andRevolving Loan Agreement (the “Loan Agreement”) between the Borrower and theLender, dated as of the date hereof, pursuant to which the Lender has agreed toextend construction, term and revolving credit facilities to the Borrower inthe aggregate amount of $33,024,200;

 

(b)                                 Promissory Note, datedas of the date hereof, payable by Borrower to the order of Lender in anoriginal principal amount equal to $33,024,200;

 

(c)                                  Revolving Note, datedas of the date hereof, payable by Borrower to the order of the lender in anoriginal principal amount equal to $4,000,000;

 

(d)                                 Mortgage, dated as ofthe date hereof, by Borrower, as mortgagor, to Lender, as mortgagee;

 

63

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(e)                                  Security Agreement,dated as of the date hereof, by the Borrower in favor of Lender;

 

## **(f)**                                    Disbursing Agreement, dated as of the datehereof, by and among the Borrower, Lender and Old Republic National TitleInsurance Company;

 

 

(g)                                 Assignment ofDesign-Build Contract, dated as of the date hereof, by and between Borrower andLender; and

 

(h)                                 Uniform CommercialCode Financing Statements naming the Lender as secured party.

 

This opinion is rendered pursuant to Section 3.01(q) of the LoanAgreement.  All capitalized terms usedin this opinion letter but not defined herein shall have the meanings given tothem in the Loan Agreement.

 

# **In rendering these opinions, we have reviewed the Articlesof Organization and Operating Agreement of Borrower.  We have also examined originals or copies, certified or otherwiseidentified to our satisfaction, of such documents, records, certificates of publicofficials and other instruments and have conducted such other investigations offact and law as we have deemed necessary or advisable for purposes of thisopinion.**

 

Based upon and subject to the foregoing, it is our opinion that:

 

1.                                       TheBorrower is a limited liability company, duly organized, validly existing andin good standing under the laws of the State of Wisconsin, and is duly licensedor qualified to transact business in all jurisdictions where the character ofthe property owned or leased or the nature of the business transacted by itmakes such licensing or qualification necessary, except to the extent that thefailure to be so licensed or qualified would not, in the aggregate, have amaterial adverse effect on the Borrower. The Borrower has the power and authority to conduct its business and toown its properties.

 

# **2.**                                       TheBorrower has the limited liability company power and authority to execute,deliver and perform its obligations under the Loan Documents and has taken allnecessary limited liability company action to authorize the execution, deliveryand performance of the Loan Documents to which it is a party.

 

3.                                       Theexecution, delivery and performance of the Loan Documents, and the performanceby the Borrower of its obligations thereunder, do not and will not violate orconflict with any law applicable to Borrower or the Operating Agreement of theBorrower and, to our knowledge, do not violate or conflict with, or cause anydefault or event of default to occur under, any agreement presently bindingupon the Borrower.

 

64

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4.                                       TheLoan Documents have been duly executed and delivered by the Borrower (exceptfor UCC-1 Financing Statements which are not executed by Borrower) andconstitute the legal and binding obligation of the Borrower, enforceableagainst the Borrower in accordance with their respective terms except that (a)such enforcement may be subject to bankruptcy, insolvency, reorganization,moratorium or other similar laws now or hereafter in effect relating tocreditor’s rights, (b) the remedy of specific performance and injunctive reliefmay be subject to equitable defenses and to the discretion of the court beforewhich any proceeding therefore may be brought, (c) an implied covenant of goodfaith and fair dealing may be imposed, and (d) as hereinafter specifically setforth.  In expressing our opinionsherein regarding enforceability of the Loan Documents, we assume Lender will atall relevant times act in good faith and in a commercially reasonable manner inenforcing its rights and remedies under the Loan Documents and will not at anyrelevant time be in material breach of its obligations under the LoanDocuments.

 

5.                                       Toour knowledge, except as disclosed in the Loan Agreement, no litigation orgovernmental proceedings are pending or are threatened against the Borrower andno judgment or order of any court or administrative agency is outstandingagainst the Borrower, with respect to any Loan Document or any transactionscontemplated thereby, or which, if adversely determined, would reasonably beexpected to have a material adverse effect on Borrower.

 

# **The foregoing opinions are based in part upon and subjectto the assumptions, limitations, qualifications and exceptions set forth below:**

 

# **(a)**                                  Weexpress no opinion regarding the enforceability or legal effect of computinginterest based upon a 360-day year.

 

(b)                                 Theenforceability of the Loan Documents is subject to general principles ofequity.  Accordingly, certain remediesset forth in the Loan Documents may be subject to equitable defenses and to thediscretion of the court and may require further notices and actions to be takenby the Lender prior to availing itself of such rights and remedies.

 

(c)                                  Weexpress no opinion with respect to the validity and enforceability of anyprovisions of the Loan Documents: (i) purporting to provide forindemnification, exoneration or limitation of liability of a party for itsaction or inaction, or for liability due to its own fault; (ii) statingthat the failure to exercise or delay in exercising rights will not operate asa waiver of a right or remedy; (iii) relating to choice of law matters orconsent to jurisdiction; (iv) waiving statutes of limitation or jury trials;(v) purporting to waive any requirement of reasonable or diligent performanceor other care on Lender’s part with respect to the recognition or preservationof Borrower’s rights to or interest in any property subject to any securityinterest of lien granted thereby; (vi) providing that delays will not operateas a waiver, (vii) attempting to modify or waive any requirements of commercialreasonableness or notice arising under applicable state or federal laws or thedue process clause of the United States Constitution, or (viii) purporting toratify any action the Lender may take without specifying the standards for suchaction.  We also express no opinionregarding the validity

 

65

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or enforceability of the Loan Documents against any parties other thanthe Borrower.

 

(d)                                 Certainremedies, waivers and other provisions of the Loan Documents may beunenforceable or limited by applicable law, however, such law does not renderthe Loan Documents invalid as a whole or substantially prevent or impair thepractical realization of the benefits intended by the Loan Documents.

 

(e)                                  Weexpress no opinion as to zoning, subdivision or similar matters, the complianceof the mortgage property with building codes, municipal ordinances,restrictions or environmental laws, the title to or ownership of any propertyof the Borrower, the sufficiency or accuracy of the description of anycollateral referred to in the Loan Documents, or the priority of any liens orsecurity interest purported to be created by the Loan Documents.

 

(f)                                    Weexpress no opinion as to the validity or enforceability of any documents whichwe have not examined, but which might be referenced or incorporated as a matterof law in a document which we have examined.

 

# **(g)**                                 We aremembers of the bar of the State of Iowa and the State of Wisconsin only and donot hold ourselves out as experts on the law of any other state.  Consequently, we have made no independentreview of the laws of any jurisdiction other than the State of Wisconsin and weexpress no opinion as to the laws of any jurisdiction other than the laws ofthe State of Wisconsin and the federal laws of the United States ofAmerica.  Our opinions are based uponthe assumption (but not our conclusion) that the laws of the State of Wisconsinare or would be applicable to such matters.

 

(h)                                 Weexpress no opinion as to the enforceability of the choice of law provisionscontained in the Loan Documents that state that they are to be governed by thelaws of the State of Minnesota, nor assuming such provisions would beenforceable under the choice of law principles of the State of Minnesota or theState of Wisconsin, do we state any opinion as to the enforceability of theLoan Documents under the internal laws of the State of Minnesota.  Notwithstanding the foregoing, you haverequested us to review the Loan Documents and provide you with the opinions setforth above assuming, solely for the purposes of these opinions, that theinternal laws of the State of Wisconsin would govern them.  If the Loan Documents were to be governed bythe internal laws of the State of Wisconsin, our opinions would be as set forthherein.  We note that if a court ofcompetent jurisdiction determines one of more of the Loan Documents to beunenforceable under the laws of the State of Minnesota, then such Loan Documentsmay not be enforceable by Wisconsin courts under the applicable Wisconsinconflict of law provisions.

 

# **(i)**                                     Inrendering the opinions expressed above, we have assumed: (1) the dueauthorization, execution and delivery of the Loan Documents by the Lender, (2)the binding effect of such Loan Documents on the Lender, (3) the enforceabilityof such Loan Documents against the Lender, (4) the terms and conditions of theLoan as reflected in the Loan Documents have not been amended, modified orsupplemented by any other agreement or

 

66

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understanding of the parties or waiver of any material provisions ofthe Loan Documents, (5) there has not been any mutual mistake of fact ormisunderstanding, fraud, duress or undue influence, and (6) Lender and anyagent acting for Lender in connection with the transaction have acted in goodfaith, and complied with the requirement of fair dealing and conscionability,and without notice of any defense against enforcement of any rights created by,or adverse claim to any property or security interest transferred or created aspart of the transaction.

 

# **(j)**                                     Inrendering the opinions express above, we advise you that we have not conducted,nor do we undertake to conduct, any independent review or investigation of, norare we expressing any opinion concerning, the accuracy of the representations,warranties and statements made by the Borrower or the partners, directors,officers and employees of the Borrower or anyone else.  However, we have discussed withrepresentatives of the Borrower the representations, warranties andcertifications of the Borrower set forth and contained in the Loan Documentsand, in the course of such discussions, we became aware of no facts orcircumstances which would cause us to believe that any of such warranties,representations or certifications are untrue, incorrect or misleading in anymaterial respect

 

(k)                                  Asto any matters of fact material to the opinions expressed above, we have reliedupon the truth, accuracy and completeness of the representations, warrantiesand certifications made by the Borrower in the Loan Documents.

 

(l)                                     Whenused herein, the term “our knowledge” shall mean that we have no actualknowledge of facts which are contrary to the opinion rendered, without havingundertaken independent investigation or verification of any such facts, andshall be limited to our reliance upon an Officer’s Certificate executed by anofficer of the Borrower, attached hereto and incorporated herein by this reference,and the actual present knowledge of the attorneys in our firm who have devotedsubstantive attention to the transaction contemplated by the Loan Documents andnot the knowledge of the firm generally.

 

# **(m)**                               Inrendering all of the opinions set forth above, we have assumed the genuinenessof all signatures, and have further assumed the genuineness, completeness andauthenticity of all documents submitted to us as originals and the conformitywith genuine, complete and authentic originals of all documents submitted to usas copies.

 

# **(n)**                                 All ofour opinions set forth above are based upon existing law, all of which issubject to change prospectively and retroactively.  All of our opinions set forth above are based on the facts andthe Loan Documents as they exist on the date of this letter, and we undertakeno obligation to update such opinions as to future changes of law or fact.

 

# **(o)**                                 Thisopinion letter is limited to the matters stated in it and no opinion is to beimplied or inferred beyond the matters expressly stated in it.

 

(p)                                 Inrendering the opinions expressed above, we have not examined title to any ofthe Borrower’s properties and express no opinion with respect to title or thepriority of any

 

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lien or security interest arising under the Loan Documents.

 

(q)                                 Weexpress no opinion as to the solvency of the Borrower as of the date of thisopinion letter, and to the extent that any opinion herein is reliant on suchBorrower being solvent, such opinion is limited accordingly.

 

This opinion has been rendered solely for the benefit of the Lenderunder the terms of the Loan Agreement and the transactions contemplated therebyand may not be used, circulated, quoted, relied upon or otherwise referred to forany other purpose without our prior written consent, nor may it be relied uponby any other party without our prior written consent; provided, however, andsubject to the foregoing sentence, this opinion may be delivered to yourloan participants, regulators, accountants, attorneys and other professionaladvisers and may be used in connection with any legal or regulatory proceedingrelating to the subject matter of this opinion.

 

This opinion constitutes the entire opinion regarding the subjectmatter hereof and supersedes all prior opinions regarding such subject matter.

 
|   | Sincerely,                                                          |
|--------|---------------------------------------------------------------------|
|   |                                                                |
|   | BROWN, WINICK, GRAVES, GROSS,  BASKERVILLE & SCHOENBAUM, P.L.C. |
|   |                                                                |
|   |                                                                |
|   | By:                                                                 |   |
|   |                                                                | Christopher R. Sackett |

 

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**OFFICER’S CERTIFICATE**

 

The undersigned, Kevin M. Roche, being the President of UnitedWisconsin Grain Producers, LLC (the “Company”), a Wisconsin limited liabilitycompany, having personal knowledge as to the assets, business, and affairs ofUnited Wisconsin Grain Producers, LLC hereby certifies to and for the benefitof Brown, Winick, Graves, Gross, Baskerville & Schoenebaum, P.L.C. (the“Law Firm”), as follows:

 

1.               United Wisconsin Grain Producers, LLChas provided to the Law Firm copies of its Articles of Organization andOperating Agreement (attached hereto as Exhibit A), including all amendmentsthereto, all as in effect as of the date hereof.

 

2.               Neither the execution of the LoanDocuments, nor the consummation of the transactions contemplated in the LoanDocuments constitutes a default under or a violation or breach of (i) theCompany’s Articles of Organization; (ii) the Company’s Operating Agreement, or(iii) any other material agreement affecting the Company or its assets.

 

3.               There are no consents or approvals otherthan the approval of the Board of Directors necessary for the approval andperformance of the Loan Documents.

 

4.               On February 19, 2004, a meeting ofthe Board of Directors of United Wisconsin Grain Producers, LLC was held forthe purpose of authorizing the loan transaction and giving the President, VicePresident, Secretary and Treasurer, acting either alone or collectively theauthority to execute loan documents on behalf of the Company. Oral notice ofthe meeting was given on February 5, 2004 at the Company’s previousmeeting of the Board of Directors and the Company also mailed written notice tothe board members on February 12, 2004.

 

5.               The Company’s Board of Directorsapproved, by written resolution, the authorization of the loan transaction andthe authorization of the President, Vice President, Treasurer, and Secretary,acting alone or collectively, to execute any and all documents necessary toeffectuate the loan transaction.

 

6.               Each of the warranties andrepresentations made by or on behalf of the Company in the Loan Documents istrue, accurate and complete.

 

7.               No consent, approval, or authorizationof, or registration or filing with, any Person (including without limitation,any Governmental Authority) is required in connection with the execution,delivery, or performance of the Loan Documents by the Company, other than suchconsents, authorizations or filings which have been made or obtained.

 

8.               The Company has executed and deliveredthe Loan Documents to which it is a party, and the Loan Documents constitutelegal, valid and binding obligations of the Company.

 

9.               No litigation, investigations orproceedings of or before any Governmental Authority are pending or threatenedby or against the Company or any of its respective properties or

 

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revenues, existing or future (a) with respect to any Loan Document orany of the transactions contemplated thereby, or (b) which, if adverselydetermined, would reasonably be expected to have a Material Adverse Effect onthe Company.

 

10.         I have reviewed the opinion letter datedFebruary 26, 2004 prepared by the Law Firm in connection with theconstruction financing by AgStar Financial Services, PCA and there is no factor circumstance that would render it inaccurate, untrue, or incorrect.

 

Terms not otherwise defined herein shall have the meanings assigned tosuch terms in the Opinion Letter. The undersigned hereby acknowledges andagrees that the Law Firm is relying upon this Officer’s Certificate in providingthe Opinion Letter.

 

Dated as of February 26, 2004.

 

 
|   |                                                             |   |
|--------|------------------------------------------------------------------|--------|
|   | Kevin M. Roche, President  United Wisconsin Grain Producers, LLC |

 

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**Schedule 3.01(c)**

**RealProperty**

 

Lot 1 of Certified Survey Map No. 4050, recorded in the Columbia CountyRegister of Deeds Office, In Volume 28 of Certified Survey Maps, page 44, asDocument No. 697073, in the Town of Randolph, Columbia County, Wisconsin,EXCEPT land described in Volume 187 of Deeds, page 374.

 

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**Schedule 4.01 (a)**

**Description of Certain Transactions Relatedto the Borrowers’ Stock**

 

The following Subscription Agreements have been entered into, butpayment has not been received:

 
| **NAME**            |   | **NUMBER OF UNITS** |   | **PURCHASE PRICE** |   |
|---------------------|--------|---------------------|--------|--------------------|--------|
| Lyle E. Wendorf     |   | 50                  |   | $                  | 50,000 |   |
| Jacob Griswold      |   | 15                  |   | $                  | 15,000 |   |
| Jeanine L. Griswold |   | 65                  |   | $                  | 65,000 |   |

 

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**Schedule 4.01(f)**

**Description of Certain Threatened Actions,etc.**

 

Kevin Fry v. United Wisconsin Grain Producers,Case No. CI-03-103 Antelope County, Nebraska.

 

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**Schedule 4.01(j)****Location of Inventory and Farm Products; ThirdParties in Possession; Crops**

 

Borrower’s inventory and farm products pledged as collateral under theSecurity Agreement are located at:

None

 

Landlords or mortgages of the locations identified above currentlyleased or owned by Borrower:

None

 

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**Schedule 4.01(k)**

**Office Locations; Fictitious Names; Etc.**

 

**Office of United Wisconsin:**

100 Richland Street

Friesland, WI 53935

 

**Plant Address:**

W 1231 Tessman Road

Cambria, WI 53923

 

**Jurisdiction of Organization:**

Wisconsin

 

**Trade or Fictitious Names:**

None

 

**Federal ID Number:**39-2032455

 

**Wisconsin ID Number:**654859-8

 

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**Schedule 4.01(n)**

**IntellectualProperty**

 

76

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**UNITED STATESDEPARTMENT OF COMMERCE**

 

**Tom Johnson**

 

-----Original Message-----**From:** United Wisconsin GrainProducers [mailto:mail@uwgp.com]**Sent:** Thursday, January 29,2004 11:43 AM**To:** johnson@ialawyers.com**Subject:** FW: TRADEMARK APPLICATIONNO. 78205275 - UWGP UNITED WISCONSIN GRAIN PRODUCERS, L ETC. - N/A

 

Tom,

 

FYI.......about our trademark

-----Original Message-----**From:** Kevin Roche[mailto:Roche@uwgp.com]**Sent:** Tuesday, August 19,2003 3:58 PM**To:** Bill Hanigan**Cc:** United Wisconsin GrainProducers**Subject:** Fw: TRADEMARK APPLICATIONNO. 78205275 - UWGP UNITED WISCONSIN GRAIN PRODUCERS, L ETC. - N/A

 

Bill,

 

Doyou have anyone in your office who deals in trademarks?

 

KevinRoche

 

----- Original Message -----

**From:**ECom112

**To:** roche@uwgp.com

**Sent:** Monday, July 21, 2003 2:05 PM

**Subject:** TRADEMARK APPLICATION NO. 78205275 - UWGPUNITED WISCONSIN GRAIN PRODUCERS, L ETC. - N/A

 

**UNITEDSTATES PATENT AND TRADEMARK OFFICE**

** **
| **SERIAL NO**:  78/205275**APPLICANT**: United Wisconsin  Grain Producers, LLC                                                                                                                                                               |   |                                                                                                              |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                         |   |                                                                                                              |
| **CORRESPONDENT ADDRESS**:

United Wisconsin Grain Producers, LLC  PO Box 247  Friesland WI USA 53935-0247                                                                                                                                   |   | **RETURN ADDRESS**:Commissioner for Trademarks 2900 Crystal Drive Arlington, VA 22202-3514  **ecom112@uspto.gov** |
|                                                                                                                                                                                                                                         |   |                                                                                                              |
| **MARK**:                               UWGP UNITED WISCONSIN  GRAIN PRODUCERS, L ETC. |   |                                                                                                              |
|                                                                                                                                                                                                                                         |   |                                                                                                              |
| **CORRESPONDENT’S  REFERENCE/DOCKET NO**:         N/A

**CORRESPONDENT EMAIL ADDRESS**:                                                                                                         |   | Please provide in all  correspondence:                                                                            |

 

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**OFFICE ACTION**

 
| roche@uwgp.com |   | 1.                 Filing date,  serial number, mark and applicant’s name.

 

2.                 Date of this  Office Action. 

 

3.                 Examining  Attorney’s name and Law Office number. 

 

4.                 Your telephone  number and e-mail address. |
|----------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

**TO AVOIDABANDONMENT, WE MUST RECEIVE A PROPER RESPONSE TO THIS OFFICE ACTION WITHIN 6MONTHS OF OUR MAILING OR E-MAILING DATE**.

 

Serial Number 78/205275

 

The assigned examining attorney has reviewed the referenced applicationand determined the following.

 

**Search Results**

The examining attorney has searched the Office records and has found nosimilar registered or pending mark which would bar registration under TrademarkAct Section 2(d), 15 U.S.C. §1052(d). TMEP §704.02.

 

However, the applicant must address the following to enable furtherprosecution of this file.

 

**Recitation ofServices**

The application identifies services that may be classified in more thanone international class.  However,Office records indicate that the applicant has only paid for one class.Therefore, the applicant must either: (1) restrict the application to the number of class(es) covered by thefee already paid, or (2) pay the required fee for each additionalclass(es).  37 C.F.R. §2.86(a)(2); TMEP§§810.01, 1401.04, 1401.04(b) and 1403.01.

 

Effective January 1, 2003, the fee for filing a trademarkapplication is $335 for each class. This applies to classes added to pending applications as well as to newapplications

 

78

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filed on or after that date.  37C.F.R. §2.6(a)(1).

 

The recitation of services is also unacceptable because applicantincluded the wording “ethanol sales” . “Sales” are not considered services within the meaning of the TrademarkAct.  That is, unlike services, “sales”are not activities rendered for the benefit of others. The only beneficiary ofthe actual sale is the proprietor of the store or owner of the goods since, presumably,the owner or proprietor makes a profit from that commercial transaction. Theactivities of a retail establishment that do provide a benefit to others arethose that surround the sale.

 

The applicant should delete “ethanol sales” and may adopt the followingrecitation, if accurate:  Distributorshipsfeaturing ethanol in Int. Class 35; and

 

Ethanol production services in Int. Class 40.

 

For additional guidance, the applicant may wish to consult theAcceptable Identification of Goods and Services Manual for the United StatesTrademark Office which may be found athttp://www.uspto.gov/web/offices/tac/doc/gsmanual/.

** **

Please note that, while an application may be amended to clarify orlimit the identification, additions to the identification are notpermitted.  37 C.F.R. §2.71(a); TMEP§1402.06.  Therefore, the applicant maynot amend to include any services that are not within the scope of the servicesrecited in the present identification.

 

# **Multiple ClassProsecution**

If the applicant prosecutes this application as a combined, ormultiple-class, application, the applicant must comply with each of thefollowing.

 

(1)  The applicant must list theservices by international class with the classes listed in ascending numericalorder.  TMEP §1403.01.

 

(2)  The applicant must submit afiling fee for each international class of goods/services not covered by thefee already paid.  37 C.F.R. §§2.6(a)(1)and 2.86(a); TMEP §§810.01 and 1403.01. Effective January 1, 2003, the fee for filing a trademarkapplication is $335 for each class. This applies to classes added to pending applications as well as to newapplications filed on or after that date.

 

**Disclaimer Required**

Further, the applicant must disclaim the descriptive wording “WISCONSINGRAIN PRODUCERS, LLC” apart from the mark as shown. Trademark Act Section 6,15 U.S.C. §1056; TMEP §§1213 and 1213.03(a). This wording is descriptive because it is merely descriptive or andprimarily geographically descriptive as used

 

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in connection with the identified services.

 

Terms such as “Corporation,” “Inc.” and “LLC.” must be disclaimedbecause they merely indicate the nature of the applicant’s entity and are notsource indicators.  *See In re Packaging Specialists, Inc.*,221 USPQ 917 (TTAB 1984); *In re Martin’s Famous Pastry Shoppe, Inc.*,221 USPQ 364 (TTAB 1984) *aff’d on other grounds*, 748 F.2d 1565, 223USPQ 1289 (Fed. Cir. 1984); TMEP §1213.03(d).

 

A disclaimer does *not* remove the disclaimed matter from themark.  It is simply a statement that theapplicant does not claim exclusive rights in the disclaimed wording or designapart from the mark as shown in the drawing.

 

The computerized printing format for the *Trademark Official Gazette*requires a standard form for a disclaimer. TMEP §1213.08(a)(i).  A properlyworded disclaimer should read as follows:

 

No claim is made to the exclusive right to use WISCONSIN GRAINPRODUCERS LLC apart from the mark as shown.

 

*See In re OwatonnaTool Co.*, 231 USPQ 493 (Comm’r Pats. 1983).

 

# **Drawing Not Accepted**

Finally, the drawing is not acceptable because the design featureincludes gray shading/stippling and overtones. Therefore, it will not reproduce satisfactorily.  The applicant must submit a new drawingshowing the mark clearly and conforming to 37 C.F.R. §2.52.  TMEP §807.07(a).

 

The requirements for a special-form drawing are as follows:

 

(1) The drawing must appear in black and white; no color is permitted.

 

(2)  Every line and letter mustbe black and clear.

 

(3)  The use of gray to indicateshading is unacceptable.

 

(4)  The lining must not be toofine or too close together.

 

(5)  The preferred size of thearea in which the mark is displayed is 21⁄2 inches (6.1 cm.) high and 21⁄2 inches(6.1 cm.) wide.  It should not be largerthan 4 inches (10.3 cm.) high or 4 inches (10.3 cm.) wide.

 

(6)  If the reduction of themark to the required size renders any details illegible, the applicant mayinsert a statement in the application to describe the mark and these details.

 

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37 C.F.R. §2.52; TMEP §§807.01(b) and 807.07(a).  The Office will enforce these drawingrequirements strictly.

 

The Office prefers that the drawing be depicted on a separate sheet ofsmooth, nonshiny, white paper 8 to 81⁄2 inches (20.3 to 21.6 cm.) wide and 11inches (27.9 cm.) long, and that the sheet contain a heading listing, onseparate lines, the applicant’s complete name; the applicant’s address; thegoods or services recited in the application; and, if the application is filedunder Section 1(a) of the Act, the dates of first use of the mark and offirst use of the mark in commerce; or, if the application is filed underSection 44(d), the priority filing date of the foreign application.  37 C.F.R. §2.52(b); TMEP §§807.01(a),807.01(b), 807.01(c) and 807.07(a).

 

A description of color in the design feature of the mark is included inthe application.  This is acceptable IFthe applicant is claiming color as a feature of the mark.  If the applicant does not consider color tobe a feature of the mark, the applicant should not submit a description of thecolor and where it appears in the mark.

 

### ***Response***

No set form is required for response to this Office action.  The applicant must respond to each pointraised.  The applicant should simply setforth the required changes or statements and request that the Office enterthem.  The applicant must sign theresponse.  If the applicant respondselectronically, the response *must*besigned *electronically*; e.g. thesignatory must enter any combination of alpha/numeric characters that has beenspecifically adopted to serve the function of the signature; preceded andfollowed by the forward slash symbol (/). See 64 CFR 33056, 33062 (June 21, 1999).

 

### ***Additional Assistance***

The following authorities govern the processing of trademark andservice mark applications:  TheTrademark Act, 15 U.S.C. §§1051 *et seq*., the Trademark Rules of Practice,37 C.F.R. Part 2, and the *Trademark Manual of Examining Procedure*(TMEP).  The applicant may find an electronic versionof the TMEP by visiting http://www.uspto.gov/web/offices/tac/tmep/.

 

Due to the technicalities involved in the federal trademark applicationand for specific legal advice regarding the successful prosecutionthereof,  the applicant may wish to hirea trademark attorney.  The Patent andTrademark Office cannot aid in the selection of an attorney.

 

The status of this application may be checked by calling 703/305-8747or by visiting our website as listed below.

 

General questions about registering federal trademarks may be answeredby calling 703/308-9000 (Trademark Assistance Center).

 

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/kbp/

Kimberly Boulware Perry

Attorney, US Patent & Trademark Office

phone: 703-308-9112 x251; fax: 703-746-8112

ecom112@uspto.gov [FORMAL RESPONSES]

kimberly.perry@uspto.gov [QUESTIONS]

 

**How to respond to this Office Action:**

** **

**To respond formally using the Office’sTrademark Electronic Application System (TEAS), visit**http://www.uspto.gov/teas/index.htmlandfollow the instructions.

** **

**To respond formally via E-mail, visit**http://www.uspto.gov/web/trademarks/tmelecresp.htm and follow theinstructions.

** **

**To respond formally via regular mail, yourresponse should be sent to the mailing Return Address listed above and includethe serial number, law office and examining attorney’s name on the upper rightcorner of each page of your response.**

** **

To check the status ofyour application at any time, visit the Office’s Trademark Applications andRegistrations Retrieval (TARR) system at**http://tarr.uspto.gov/**

 

For general and otheruseful information about trademarks, you are encouraged to visit the Office’sweb site at **http://www.uspto.gov/main/trademarks.htm**

 

**FORINQUIRIES OR QUESTIONS ABOUT THIS OFFICE ACTION, PLEASE CONTACT THE ASSIGNEDEXAMINING ATTORNEY.**

 

82

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**Tom Johnson**

 

From: United Wisconsin Grain Producers[mailto:uwgp@centurytel.net]

Sent: Thursday, January 29, 2004 11:44AM

To: johnson@ialawyers.com

Subject: FW: Received your TrademarkApplication

 

 

fyi.....trademark information

 

-----Original Message-----

From: Kevin Roche[mailto:Roche@powerweb.net]

Sent: Tuesday, January 21, 2003 8:28AM

To: Bob Lange; Robert Miller; Paul Casper-uwgp

Subject: Fw: Received your TrademarkApplication

 

 

----- Original Message -----

From: <PrinTEAS@uspto.gov>

To: <roche@uwgp.com>

Cc: <teas@uspto.gov>;<e-receipt@teas1.uspto.gov>

Sent: Tuesday, January 21, 2003 8:21AM

Subject: Received your TrademarkApplication

 

 

>

> <MARK> DESIGN IMAGE

>

> We have received your application andassigned serial number ‘78205275’ toyour submission. The summary of theapplication data below serves as your official filing receipt. Forelectronically-submitted applications, the USPTO will no longer mail a paperfiling receipt.  If the USPTO laterdeterminesthat no filing date was justified, your submission will be returned,and your filing fee will be refunded. You could then, if possible, cure the deficiency, and re-filethe application.

>

> If you determine that you made anerror in the information you entered,you may file a preliminary amendmentelectronically, stating your proposed correction, athttp://eteas.uspto.gov/V2.0/pa200/WIZARD.htm.

> NOTE: You cannot file a PreliminaryAmendment until at least 15 days afterinitial filing of the application.Prior to that time, the serial number will not appear in the USPTOdatabase (even though the number was assigned at the time of filing), preventingthe uploading of new data.

>

> The examining attorney will determinewhether the change proposed in theamendment is permissible, within thenormal course of his or her review of the application.  Please note that not all errors may becorrected; for example, if you submitted the wrong mark or the incorrect goodsand/or services,if the proposed correction would be considered a material alterationto your original filing, this will NOT be accepted. Unfortunately,your only recourse in that event is to re-file - your fee would NOTbe refunded.  Once you submit anapplication, either electronically or through the mail, we will not cancel thefiling or refund 

 

83

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your fee, unless the application fails tosatisfy minimum filingrequirements. The fee is a processing fee,which we do not refund even if we cannot issue a registration after oursubstantive review.

>

> In approximately 4-5 months, you willhear from the assigned examining attorney.

>

> NOTE: If you have a question, commentor technical concern about yourspecific application or TEAS ingeneral, please send that question to PrinTEAS@uspto.gov. NOTE: To checkstatus information, please use either http://tarr.uspto.gov, or call703-305-8747 (M-F, 6:30 a.m. to 12 midnight, EST). However, do NOT attempt tocheck status until at least 45 days after submission, to allow sufficient timefor our databases to be updated.

>

>

>

> The applicant, United Wisconsin GrainProducers, LLC, residing at PO Box247,  Friesland, WI USA 53935-0247, requests registration of thetrademark/servicemark shown on the drawing page in the United States Patent andTrademark Office on the Principal Register established by the Act of July 5,1946 (15 U.S.C. Section 1051 et seq.), as amended.

>

> * Classification and Listing ofGoods/Services:

>

>

> The applicant has a bona fide intentionto use or use through theapplicant’s related company or licensee themark in commerce on or in connection with the identified goods and/orservices. (15 U.S.C. Section 1051(b)).

>

>                                         InternationalClass 004: Ethanol Production, Ethanol Sales

>

> *Additonal Statement

>

> “The mark consists of A circle arounda kernel of corn.  The top part ofcircleincludes the colors of orange and yellow. The bottom part of circle includes the colors of green and black..”

>

>

> “We issued a news release of our newlogo in the local papers on January 4, 2003”

>

>

> * Fees

>

> A fee payment in the amount of $335will be submitted with theapplication, representing payment for 1class(es).

>

> *Declaration Signature

>

> Signature:/Kevin Roche/ Date:01/21/2003

> Signatory’s Name: Kevin Roche

> Signatory’s Position: President

 

84

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>

>==============================================================

>

>

>

> ===================TEAS XMLAPPLICATION=======================

> <?xml version = ‘1.0’ encoding =‘ISO-8859-1’?>

> <uspto-tm-documentdocument-type=“app” description=“Base Application Form”

system-creator=“eteas” version=“2.0”version-date=“2002-06-17”

copyright=“Copyright 1999-2002 UnitedStates Patent and Trademark Office”>

> <trademark-case-files>

> <trademark-case-file>

> <case-file-header>

><serial-number>78205275</serial-number>

> <mark action-code=“create”version=“new”>

> <design-mark>

> <file-name

image-type=“pjpeg”>6411840191-21091541441-UWGP_Logo_gray.jpg</file-name>

> </design-mark>

> </mark>

><filing-date>20030121</filing-date>

> </case-file-header>

> <base-application-form>

> <goods-services>

> <goods-service action-code=“create”version=“new”>

><sequence-number>1</sequence-number>

><class-code>004</class-code>

> <description-text>EthanolProduction, Ethanol Sales</description-text>

><filing-basis-current-1b-in>Y</filing-basis-current-1b-in>

> </goods-service>

> </goods-services>

> <case-file-statements>

> <case-file-statementaction-code=“create” version=“new”>

> <type-code>DM</type-code>

> <text>The mark consists of Acircle around a kernel of corn.  The toppart of circle includes the colors of orange and yellow.  The bottom part of circle includes thecolors of green and black..</text>

> </case-file-statement>

> <case-file-statementaction-code=“create” version=“new”>

> <type-code>UK</type-code>

> <text>We issued a news releaseof our new logo in the local papers on January 4, 2003</text>

> </case-file-statement>

> </case-file-statements>

> <case-file-owners>

> <case-file-owneraction-code=“create” version=“new”>

><legal-entity-type-code>10</legal-entity-type-code>

> <name>United Wisconsin GrainProducers, LLC</name>

> <street>PO Box247</street>

> <city>Friesland</city>

> <state>WI</state>

> <postal-code>53935-0247</postal-code>

><country-name>USA</country-name>

> <emailauthorized=“y”>roche@uwgp.com</email>

><phone>920-348-5016</phone>

> <fax>920-348-5009</fax>

><state-organized>Wisconsin</state-organized>

> </case-file-owner>

 

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> </case-file-owners>

> <signatures>

> <signature action-code=“create”version=“new”>

><signature-type>D</signature-type>

><signature-entry-number>1</signature-entry-number>

> <signature-name>/KevinRoche/</signature-name>

> <signatory-date>20030121</signatory-date>

> <signatory-name>KevinRoche</signatory-name>

><signatory-position>President</signatory-position>

> </signature>

> </signatures>

> <fee-types>

> <fee-type action-code=“create”version=“new”>

> <fee-code>7001</fee-code>

><number-of-classes>1</number-of-classes>

><number-of-classes-paid>1</number-of-classes-paid>

><subtotal-amount>335</subtotal-amount>

> </fee-type>

><total-amount>335</total-amount>

> </fee-types>

> <payment>

><ram-sale-number>973</ram-sale-number>

><ram-accounting-date>20030121</ram-accounting-date>

> </payment>

> </base-application-form>

> <correspondence-form>

><source-form>app</source-form>

> <correspondences>

> <correspondenceaction-code=“create” version=“new”>

> <type-code>c</type-code>

> <new-address>

> <name>United Wisconsin GrainProducers, LLC</name>

> <firm-name/>

> <street>PO Box247</street>

> <city>Friesland</city>

> <state>WI</state>

><postal-code>53935-0247</postal-code>

><country-name>USA</country-name>

> <email authorized=“y”>roche@uwgp.com</email>

> </new-address>

> </correspondence>

> </correspondences>

> </correspondence-form>

> </trademark-case-file>

> </trademark-case-files>

> <filing>

><filing-identifier>20030121092139638018-78205275</filing-identifier>

> <xml-create-date>2003012109:15:28</xml-create-date>

> <submit-date>Tue Jan 21 09:21:39EST 2003</submit-date>

>

<teas-stamp>USPTO/BAS-6411840191-20030121092139638018-78205275-2002a8c35a9fe295ee31ffb929c9e2b1119-RAM-973-20030121091528808038</teas-stamp>

> <filing-description>Trademark/ServiceMark Application, Principal

Register, withDeclaration</filing-description>

><reply-email>roche@uwgp.com</reply-email>

> </filing>

> </uspto-tm-document>

>

> TEAS support team

> Tue Jan 21 09:21:39 EST 2003

 

86

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> 

> STAMP:

USPTO/BAS-6411840191-20030121092139638018-78205275-2002a8c35a9fe295ee31ffb92

9c9e2b1119-RAM-973-20030121091528808038

>

 

87

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88

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**Schedule 4.01(p)**

**Environmental Compliance**

 

The Borrower is in material compliance with all environmental lawsexcept:

 

None except any previously disclosed in the Phase I report previouslyprovided.

 

89

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