**Exhibit 10.5**

 

**CONSTRUCTION LOAN AGREEMENT**

 

This Construction Loan Agreement (the “AGREEMENT”) is dated as of the25 day of July, 2002, and is by and between LSCP, L.P., an Iowa limitedpartnership (“BORROWER”) and FIRST NATIONAL BANK OF OMAHA (“BANK”), a nationalbanking association established at Omaha, Nebraska.

 

WHEREAS, the BORROWER has requested the BANK to lend to BORROWER up tothe sum of Thirty One Million Four Hundred Sixty-Five Thousand and noone-hundredths ($31,465,000.00) Dollars (the “CONSTRUCTION LOAN”), for thepurpose of partially funding the cost of construction for an ethanol plant onthe real estate described in Exhibit A (the “PROPERTY”), together with a ThreeMillion Five Hundred Thousand ($3,500,000.00) Dollar revolving line of credit (“REVOLVINGLOAN”).

 

WHEREAS, the BANK is willing to provide such credit facilities toBORROWER upon the terms and conditions herein set forth.

 

SECTION 1 Definitions.

 

1.1                                 “ASSIGNMENTOF DESIGN/BUILD CONTRACT” means the assignment of the agreement (“DESIGN/BUILDCONTRACT”) between the BORROWER and Fagen, Inc. (the “GENERAL CONTRACTOR”) forpreparation of PLANS and construction of the PROJECT in accordance with PLANStherein described, by which the BORROWER assigns, as additional security forrepayment of the OBLIGATIONS, the BORROWER’s interest in the DESIGN/BUILDCONTRACT in a form acceptable to the BANK in the exercise of its reasonablediscretion.

 

1.2                                 “ASSIGNMENTOF RENTS” means the assignment of rents and leases as to the PROPERTY betweenBORROWER, as assignor, and the BANK, as assignee, as security for payment ofthe CONSTRUCTION NOTE in a form acceptable to the BANK.

 

1.3                                 “BANKINGDAY” means a day on which the BANK is open for substantially all of itsbusiness.

 

1.4                                 “BORROWINGBASE” means the lesser of:

A.                                   $3,500,000.00or

B.                                     Theaggregate of (i) 75% of BORROWER’s inventory of corn and distiller’s driedgrain, all at current value on the date reported, plus (ii) 75% of the amountof BORROWER’s Ethanol Accounts aged thirty days or less, and 75% of the amountof BORROWER’s Federal Incentive Payment Accounts aged less than 120 days,excluding any Accounts reasonably deemed ineligible by BANK, plus (iii) 75% ofBORROWER’s Ethanol Inventory, valued at the lower of cost or market.

 

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1.5                                 “CLOSING”shall mean the date on which the BANK receives this AGREEMENT, executed by theBORROWER, together with the CONSTRUCTION NOTE and the REVOLVING NOTE.

 

1.6                                 “CONSTRUCTIONLOAN TERMINATION DATE” means the earlier of (i) the date which is twelve monthssubsequent to CLOSING, (ii) the COMPLETION DATE, or (iii) such earlier dateupon which the BANK’s commitment to make disbursements under the CONSTRUCTIONLOAN is terminated.

 

1.7                                 “COMPLETIONDATE” means the earlier of June 1, 2003, or the date the BANK determinesfollowing a proper inspection and in the exercise of BANK’s reasonablediscretion, that the PROJECT has been completed in accordance with the PLANS.

 

1.8                                 “CONSTRUCTIONNOTE” means the promissory note of the BORROWER in the form of Exhibit Bevidencing borrowings under the CONSTRUCTION LOAN of up to a maximum amount ofThirty One Million Four Hundred Sixty-five Thousand ($31,465,000.00) Dollars.

 

1.9                                 “DEBTSERVICE” means any principal and interest expense attributable to INDEBTEDNESS.

 

1.10                           “DRAWREQUEST” means forms acceptable to the BANK to be submitted to the BANK byBORROWER when a disbursement is requested under the CONSTRUCTION NOTE.

 

1.11                           “EBITDACASH FLOW” means Earnings Before Interest, Taxes, Depreciation andAmortization, all experienced during the applicable reporting period.

 

1.12                           “EVENTOF DEFAULT” has the meaning provided for in Section 7 of this AGREEMENT.

 

1.13                           “EXCESSCASH FLOW” means EBITDA CASH FLOW, less payments made on OBLIGATIONS orSUBORDINATED DEBT, and less state and federal incentive payments, andauthorized capital expenditures, all experienced during the applicablereporting period.

 

1.14                           “FIXEDCHARGE COVERAGE RATIO” means the ratio derived when comparing EBITDA CASH FLOW,less capital expenditures, dividends and taxes to BORROWER’s payments on theprincipal and interest of the OBLIGATIONS and SUBORDINATED DEBT made during theapplicable reporting period.

 

1.15                           “GAAP”means generally accepted accounting principles, applied on a basis consistentwith the accounting principles applied in the preparation of the annualfinancial statements of the BORROWER referred to in the Financial ConditionSection of this AGREEMENT. All accounting terms not otherwise defined inthis AGREEMENT have the meaning assigned to them in accordance with GAAP.

 

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1.16                           “INDEBTEDNESS”means all indebtedness for borrowed money including long-term debt, and capitalleases.

 

1.17                           “INDEPENDENTINSPECTOR” means the firm which will be retained by BANK, at BORROWER’s cost,which cost shall not exceed $50,000.00, to conduct on site inspections of thework-in-progress on the PROJECT, and to issue periodic reports to BANK as tothe progress of construction and adherence to the PLANS. The BANK’s selectionof the INDEPENDENT INSPECTOR shall be subject to BORROWER’s approval, whichapproval will not be unreasonably withheld.

 

1.18                           “LOANDOCUMENTS” means this AGREEMENT and each document referred to in Section 4of this AGREEMENT.

 

1.19                           “LOANTERMINATION DATE” means the earliest to occur of the following: (i) as to theCONSTRUCTION NOTE, June 1, 2003, as to the REVOLVING NOTE, a date 364 daysafter initial funding of such NOTE, and the TERM NOTE, a date which is fiveyears subsequent to COMPLETION DATE (ii) the date the OBLIGATIONS are acceleratedpursuant to this AGREEMENT, and (iii) the date BANK receives (a) notice inwriting from BORROWER of BORROWER’s election to terminate this AGREEMENT and(b) indefeasible payment in full of the OBLIGATIONS.

 

1.20                           “MARKETINGCONTRACT” means that written contract dated as of February 19, 2002between BORROWER and Minnesota Corn Processors, L.L.C., by which the latteragreed to provide marketing services to BORROWER for BORROWER’s ethanolproduct, as well as the written contract dated as of June 19, 2002 betweenBORROWER and Commodity Specialists Co. by which the latter agreed to providemarketing services as to BORROWER’s distillers dried grains (“DDGs”).

 

1.21                           “MORTGAGE”means the mortgage between the BORROWER as mortgagor and the BANK as mortgagee,creating a first lien on the PROPERTY and a security interest in all of thepersonal property located thereon as security for payment of the OBLIGATIONS.

 

1.22                           “NETWORTH” means total assets less total liabilities and less the following typesof assets: (1) leasehold improvements; (2) receivables and other investments inor amounts due from any partner, employee or other person or entity related toor affiliated with the BORROWER; (3) goodwill, patents, copyrights, mailinglists, trade names, trademarks, servicing rights, organizational and franchisecosts, bond underwriting costs and other like assets properly classified asintangible, and (4) treasury stock or treasury partnership units. NET WORTHshall not include any debt due to BORROWER not acceptable to BANK in theexercise of its reasonable discretion, but shall include SUBORDINATED DEBT.

 

1.23                           “OBLIGATIONS”means the obligation of the BORROWER:

 

(A)                              Topay the principal of, and interest on, the CONSTRUCTION NOTE, the TERM

 

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NOTE and the REVOLVING NOTE in accordance with the terms thereof and tosatisfy all of its other liabilities to the BANK, whether hereunder orotherwise, whether now existing or hereafter incurred, matured or unmatured,direct or contingent, joint or several, including any extensions,modifications, renewals thereof, and substitutions therefore and including, butnot limited to, any obligations under letter of credit agreements;

 

(B)                                Torepay to the BANK all amounts advanced by the BANK hereunder or otherwise onbehalf of the BORROWER, including, but without limitation, advances forprincipal or interest payments to prior secured parties, mortgagees, orlicensers, or taxes, levies, insurance, rent, or repairs to, or maintenance or storageof, any of the real or personal property securing BORROWER’s payment andperformance of this AGREEMENT; and

 

(C)                                Toreimburse the BANK, on demand, for the BANK’s reasonable and necessary out ofpocket expenses and costs, including the reasonable fees and expenses of itscounsel, in connection with the preparation, administration, amendment,modification, or enforcement of this AGREEMENT and the LOAN DOCUMENTS requiredhereunder, including, without limitation, any proceeding brought or threatened,to enforce payment of any of the OBLIGATIONS referred to in the foregoingsub-paragraphs (A) and (B).

 

1.24                           “PERMIT”or “PERMITS” means any license or permit, and all licenses or permits, requiredunder any environmental law or regulation required to construct and operate thefacility on the PROPERTY after completion of the PROJECT at its operationalcapacity, including without limitation the following:

 

(a)                                  anair emissions permit, which PERMIT will allow the BORROWER after COMPLETIONDATE to operate the ethanol plant on the PROPERTY after construction of thePROJECT at maximum capacity.

 

(b)                                 Allpermits required in connection with the construction and operation of all aboveground storage tanks included in the PLANS for the ethanol plant.

 

(c)                                  ANational Pollution Discharge Elimination System Construction Permit for anystorm water that is discharged during construction and after construction ofthe PROJECT.

 

1.25                           “PLANS”means the plans and specifications prepared by ICM, Inc. on behalf of theGENERAL CONTRACTOR for the PROJECT and identified to this AGREEMENT by theGENERAL CONTRACTOR, the BORROWER and the BANK.

 

1.26                           “PROJECT”means the design and construction of an ethanol plant, together with allnecessary and appropriate fixtures, equipment, attachments, and accessories, asdescribed in the PLANS, to be constructed on the PROPERTY.

 

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1.27                           “REVOLVINGNOTE” means that promissory note of BORROWER to BANK evidencing the revolvingcredit facility described in Section 2.7 of this AGREEMENT, its renewals,modifications and extensions.

 

1.28                           “SECURITYAGREEMENT” means the SECURITY AGREEMENT between the BORROWER, as debtor, andthe BANK, as secured party, creating a first security interest in allBORROWER’s assets, including general intangibles, securing the OBLIGATIONS.

 

1.29                           “SUBCONTRACTOR”means any person who contracts with the GENERAL CONTRACTOR or BORROWER toperform any work or supply any of the materials or equipment necessary tocomplete the PROJECT.

 

1.30                           “SUBORDINATEDDEBT” means INDEBTEDNESS of BORROWER to entities other than BANK that has beensubordinated, in form acceptable to BANK, to the OBLIGATIONS.

 

1.31                           “TERMNOTE” means that promissory note of BORROWER to BANK which evidences permanentfinancing to pay the CONSTRUCTION NOTE as described in Sections 2.5 and 2.6 ofthis AGREEMENT, its renewals, modifications and extensions.

 

1.32                           “WORKINGCAPITAL” means current assets (less investments in or other amounts due fromany partner, employee or any person or entity related to or affiliated with theBORROWER and prepayments) less current liabilities (less any portion of suchcurrent liabilities that constitute debt that is expressly subordinated to theBANK in a writing acceptable to the BANK, in the exercise of its reasonablediscretion).

 

SECTION 2 Amount and Terms of the LOANS.

 

2.1                                 CONSTRUCTIONLOAN.  The BANK agrees, on the termsand subject to the conditions hereinafter set forth, to make, from time to timeduring the period from the date of execution of this AGREEMENT to and includingthe CONSTRUCTION LOAN TERMINATION DATE disbursements to the BORROWER in anaggregate principal amount not to exceed the amount of the CONSTRUCTION LOANfor the sole purpose of paying approved construction costs of the PROJECT. If,prior to the COMPLETION DATE, there is paid to BANK a third party payment (agrant payment, for example), which is applied to the CONSTRUCTION LOAN, BANKwill advance such amount, or a lesser sum, as in BANK’s reasonable discretionis necessary to complete the PROJECT. Approved construction costs are costsactually incurred in connection with the construction of the PROJECT, whichshall include but not be limited to costs of permits, licenses, labor,supplies, materials, services, equipment, insurance premiums, real estate taxesand interest on disbursements, and operating costs of the ethanol plant.Construction costs shall include costs in an aggregate of $100,000.00 payableto Fagen, Inc. for “time and material” as specified in Exhibit D § 1 of theDESIGN/BUILD CONTRACT unless it is specifically set forth on the Total ProjectCost Statement provided for in 4.1.8 of this AGREEMENT. Construction costs donot include the cost

 

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associated with termination under §11.4 of the General Conditions ofContract to the DESIGN/BUILD CONTRACT.

 

2.2                                 TheCONSTRUCTION NOTE.  The obligationof the BORROWER to repay the CONSTRUCTION LOAN shall be evidenced by theCONSTRUCTION NOTE. Notwithstanding any provisions of the CONSTRUCTION NOTE,interest shall be payable at the rate provided therein only on such portions ofthe CONSTRUCTION LOAN proceeds as actually have been disbursed pursuant to thisAGREEMENT.

 

2.3                                 Intereston the CONSTRUCTION NOTE.  Intereston the principal amount outstanding on the CONSTRUCTION LOAN shall accrue, forthe period through and including the COMPLETION DATE, at a rate (the “RATE”)one hundred (100) basis points above the BASE RATE in effect from time to timeuntil maturity, and six per cent (6%) above the BASE RATE in effect from timeto time after maturity, whether by acceleration or otherwise. For purposeshereof, BASE RATE shall mean the rate announced by BANK from time to time andpublished monthly as its “National Base Rate”.

 

Each time the BASE RATE shall change, the RATE shall changecontemporaneously with such change in the BASE RATE. Interest shall becalculated on the basis of a 360-day year, counting the actual number of dayselapsed.

 

2.4                                 Repaymentof the CONSTRUCTION NOTE.  Interestonly shall be payable quarterly on the CONSTRUCTION NOTE. All outstandingprincipal and accrued but unpaid interest shall be payable on the LOANTERMINATION DATE.

 

2.5                                 TERMLOAN.  On COMPLETION DATE, theCONSTRUCTION LOAN shall be paid in full by a new term loan (“TERM LOAN”),evidenced by the TERM NOTE. Principal and interest shall be payable quarterlyon the TERM NOTE in an amount sufficient, as determined by the BANK, toamortize the amount outstanding on the CONSTRUCTION NOTE at the applicableinterest rate over a ten (10) year period commencing from the COMPLETION DATE.The balance will be due and payable on LOAN TERMINATION DATE.

 

2.6                                 Intereston the TERM NOTE.  Interest on theprincipal amount outstanding on the TERM LOAN shall accrue, for the periodthrough and including its maturity, at a rate (the “RATE”) one hundred (100)basis points above the BASE RATE in effect from time to time until maturity,and six per cent (6%) above the BASE RATE in effect from time to time aftermaturity, whether by acceleration or otherwise. Not later than ninety (90) daysfollowing COMPLETION DATE, BORROWER shall accept a fixed interest rate optionon no less than fifty (50%) per cent of the outstanding balance of the TERMNOTE, and enter into a matched funding contract acceptable to BANK (forexample, an interest rate swap agreement) with a term of no less than threeyears, and an interest spread of 250 basis points. One source of such matchedfunding contract that is mutually acceptable to BANK and BORROWER is that usedby the Federal Home Loan Bank Board, Topeka, Kansas. In the event any of theTERM NOTE amount bears interest at such a fixed rate, any

 

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prepayment shall be applied first to the principal accruing interest ata variable rate, and thereafter applied to principal accruing interest at thefixed rate. For purposes hereof, BASE RATE shall mean the rate announced byBANK from time to time as its “National Base Rate”. Prepayment penalties, asprovided in the matched funding contract, will apply as necessary to compensateBANK for breakage of contracted interest rates on the fixed portion of the TERMNOTE balance. In addition, a prepayment fee of 1.00% of the principal prepaidwill apply if the TERM LOAN is prepaid in its entirety during the first threeyears, based on the outstanding amount at such date. However, notwithstandingthe foregoing, BANK agrees that BORROWER may obtain additional SUBORDINATEDDEBT, to reduce the OBLIGATIONS, which reduction will not result in prepaymentpenalties as long as such reduction occurs prior to the time at which BORROWERcontracts for its matched funding contract.

 

Each time the BASE RATE shall change, the RATE shall changecontemporaneously with such change in the BASE RATE. Interest shall becalculated on the basis of a 360-day year, counting the actual number of dayselapsed.

 

2.7                                 REVOLVINGLOAN.  BANK agrees to lend$3,500,000.00 to BORROWER pursuant to this facility. As a part of thisfacility, BANK will issue its letters of credit at BORROWER’s request, onBORROWER’s account, pursuant to the BANK’s customary policies and with itsstandardized documents; provided that the aggregate amount of such letters ofcredit shall not exceed $1,000,000.00 at any time outstanding. BANK will creditproceeds of this revolving loan (“REVOLVING LOAN”) to BORROWER’s depositaccount with the BANK, bearing number 22674210.

 

2.7.1                        Subjectto the terms hereof, the BANK will lend the BORROWER, from time to time untilthe “LOAN TERMINATION DATE” such sums in integral multiples of $10,000.00 asthe BORROWER may request by reasonable same day notice to the BANK, received bythe BANK not later than 11:00 A.M. of such day, but which shall not exceed inthe aggregate principal amount at any one time outstanding, $3,500,000.00, lessthe aggregate amounts of any issued and outstanding letters of credit issued byBANK at the request of and on the account of BORROWER (the “LOAN COMMITMENT”).The BORROWER may borrow, repay without penalty or premium and reborrowhereunder, from the date of this AGREEMENT until the LOAN TERMINATION DATE,either the full amount of the LOAN COMMITMENT or any lesser sum which is$10,000.00 or an integral multiple thereof. It is the intention of the partiesthat the outstanding balance of the REVOLVING LOAN shall not exceed theBORROWING BASE, as required in section 6.1.9, and if at any time saidbalance exceeds the BORROWING BASE, BORROWER shall forthwith pay BANKsufficient funds to reduce the balance of the REVOLVING LOAN until it is incompliance with this requirement.

 

2.8                                 THEREVOLVING NOTE.  The LOAN COMMITMENTshall be evidenced by a REVOLVING NOTE having stated maturity on the LOANTERMINATION DATE, in the form attached hereto as Exhibit C.

 

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2.9                                 INTERESTON THE REVOLVING NOTE.  Interest onthe principal balance of the REVOLVING LOAN from time to time outstanding willbe payable at a rate (the “RATE”) equal to fifty (50) basis points higher thanthe BASE RATE in effect from time to time until maturity, and six per cent (6%)above the BASE RATE in effect from time to time after maturity, whether byacceleration or otherwise. For purposes hereof, BASE RATE shall mean the rateannounced by BANK from time to time as its “National Base Rate”. Each time theBASE RATE shall change, the RATE shall change contemporaneously with suchchange in the BASE RATE. Interest shall be calculated on the basis of a 360-dayyear, counting the actual number of days elapsed. Interest on the REVOLVING LOANshall be payable monthly.

 

2.10                           Payments.  All principal, interest and fees due underthis AGREEMENT, the CONSTRUCTION NOTE, the REVOLVING NOTE, the TERM NOTE andthe LOAN DOCUMENTS shall be paid in immediately available funds as contractedin this AGREEMENT and no later than the payment due date set forth in themonthly statement mailed to the BORROWER by the BANK. Should a payment come dueon a day other than a BANKING DAY, then the payment shall be made no later thanthe next BANKING DAY and interest shall continue to accrue during the extendedperiod.

 

2.11                           Fees.  At CLOSING, the BORROWER shall pay to theBANK a due diligence and negotiation fee in the sum of $100,000.00, which feeBORROWER agrees and acknowledges has been earned by BANK as of the executionhereof as the result of BANK’s efforts to acquire participating lenders. AtCLOSING, the BORROWER shall pay to the BANK a commitment fee of $314,650.00,which fee BORROWER agrees and acknowledges has been earned by BANK. AtCOMPLETION DATE, and on each annual anniversary of COMPLETION DATE for fiveyears subsequent to COMPLETION DATE, the BORROWER shall pay to the BANK anAnnual Servicing Fee of $50,000.00, which fee BORROWER agrees and acknowledgeshas been earned by BANK; provided, however, an Annual Servicing Fee shall notbe due and payable on the LOAN TERMINATION DATE. BORROWER agrees to pay BANK anunused commitment fee equal to 12.5 basis points of the average unused portionof the REVOLVING LOAN, calculated and payable on a quarterly basis in arrears;provided, however, the unused commitment fee shall not apply and be payable bythe BORROWER until such time as the BORROWER has requested, and the BANK hasdeposited, the initial advance of the REVOLVING LOAN into the BORROWER’sdeposit account with BANK.

 

2.12                           Appraisal.  If the BANK is required by any governmententity with regulatory authority over the BANK the BANK may, at BORROWER’sexpense, order an appraisal of the PROPERTY. If such appraisal shows that theoutstanding CONSTRUCTION LOAN amount at that time exceeds the value of thePROPERTY as determined by the appraisal then the BORROWER shall, within thirty(30) days of notice by the BANK and without penalty or premium, pay thedifference between the outstanding CONSTRUCTION LOAN amount and the appraisedvalue amount of the PROJECT and PROPERTY as determined by such appraisal, andno further advances shall be made on the

 

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CONSTRUCTION LOAN thereafter until such time as the appraised value ofthe PROJECT and PROPERTY exceeds the CONSTRUCTION LOAN amount.

 

2.13                           IncentivePricing.  The interest rateapplicable to the TERM LOAN and the REVOLVING LOAN is subject to reductioncommencing six months subsequent to COMPLETION DATE, based on the businessresults of BORROWER. In the event that BORROWER maintains the following ratios,measured monthly, the interest rate will be reduced accordingly:

 
| **If INDEBTEDNESS to NET WORTH  is less than:** |   | **Interest  will be:**         |   |
|-------------------------------------------------|--------|--------------------------------|--------|
|                                            |   |                           |   |
| 1.30 : 1.00                                     |   | BASE RATE plus 75 basis points |   |
| 1.10 : 1.00                                     |   | BASE RATE plus 50 basis points |   |
|  .90  : 1.00                               |   | BASE RATE plus 25 basis points |   |
|  .70  : 1.00                               |   | BASE RATE                      |   |

 

SECTION 3 Disbursement Procedures.

 

3.1                                 Submissionof DRAW REQUESTS.  Whenever theBORROWER desires a disbursement under the CONSTRUCTION LOAN, which shall be nomore often than three times a month, unless BANK agrees otherwise, the BORROWERshall submit to the BANK a DRAW REQUEST, duly executed on behalf of theBORROWER setting forth the information requested therein. Each DRAW REQUESTshall be delivered to the BANK at least five (5) days before the date thedisbursement is desired.

 

3.2                                 Amountof DRAW REQUEST.  Each DRAW REQUESTshall be limited to amounts equal to (i) the total of costs actually incurredand paid or owing by the BORROWER to the date of such DRAW REQUEST for workperformed or materials incorporated in the PROJECT as described in the PLANS,plus (ii) the cost of materials and equipment not incorporated in the PROJECT,but delivered to and suitably stored at the PROJECT site, plus (iii)prepayments for equipment when prepayment is required by the manufacturer orsupplier; less, (iv) prior disbursements for such costs and from theCONSTRUCTION LOAN or BORROWER’s WORKING CAPITAL for such costs. Notwithstandinganything herein to the contrary, no disbursements for materials stored at thePROJECT site will be made by the BANK unless the BORROWER shall advise the BANKof its intention to store materials prior to their delivery, and providesuitable security for such storage.

 

3.3                                 OtherDocuments.  At the time ofsubmission of each DRAW REQUEST, the BORROWER shall submit or cause to besubmitted to the BANK the following:

 

3.3.1.                     Awritten lien waiver from the GENERAL CONTRACTOR and each SUBCONTRACTOR for workdone and materials supplied by it which were paid for pursuant to the nextpreceding DRAW REQUEST with copies of all invoices supporting the DRAW REQUEST.

 

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3.3.2.                     Adocument from the BORROWER and GENERAL CONTRACTOR, and if applicable, theINDEPENDENT INSPECTOR requesting and/or approving payment of the relevant DRAWREQUEST.

 

3.3.3.                     Suchother supporting evidence as may be reasonably requested by the BANK tosubstantiate all payments which are to be made out of the relevant DRAW REQUESTand/or to substantiate all payments then made with respect to the PROJECT.

 

3.4                                 CostOver Runs.  The BORROWER agrees thatall cost over runs on the PROJECT shall be paid solely by the BORROWER and thatthe BORROWER shall deliver additional funds to the BANK in accordance withSection 3.6 of this AGREEMENT to pay any cost over runs on the PROJECT.

 

3.5                                 Makingthe Disbursements.  If on the date aDRAW REQUEST is received by BANK, the BORROWER has performed all of itsagreements and complied with all requirements therefore to be performed orcomplied with hereunder including satisfaction of all applicable conditionsprecedent contained in Section 4 of this AGREEMENT and the BANK hasreceived a current report from the INDEPENDENT INSPECTOR documenting compliancewith the PLANS for those portions of the PROJECT indicated as completed in theDRAW REQUEST and otherwise confirming the acceptability of the PROJECT workrepresented by the DRAW REQUEST; the BANK shall pay to the BORROWER the amountof the requested disbursement. Each disbursement disbursed to the BORROWERunder the CONSTRUCTION LOAN shall bear interest at the rate provided in theCONSTRUCTION NOTE evidencing the disbursement from the date such disbursementis so disbursed to the BORROWER or deposited into BORROWER’s account.

 

3.6                                 Depositof Funds by the BORROWER.  If theBANK shall at any time in good faith determine that the undisbursed amount ofthe CONSTRUCTION LOAN is less than the amount required to pay all costs andexpenses of any kind which reasonably may be anticipated in connection with thecompletion of the PROJECT after application of all funds received from theBORROWER’s equity and shall thereupon send written notice thereof to theBORROWER specifying the amount required to be deposited by the BORROWER withthe BANK to provide sufficient funds to complete the PROJECT, the BORROWERagrees that it will, within thirty (30) calendar days of receipt of any suchnotice, deposit with the BANK, the amount of funds specified in the BANK’snotice. The BORROWER agrees that any such funds deposited with the BANK may bedisbursed before any further disbursement of CONSTRUCTION LOAN proceeds fromthe BANK, to pay any and all costs and expenses of any kind in connection withcompletion of the PROJECT.

 

3.7                                 DisbursementsWithout Receipt of DRAW REQUEST. Notwithstanding anything herein to the contrary, the BANK shall have theirrevocable right at any time and from time to time to apply funds which itagrees to disburse hereunder to pay interest on the CONSTRUCTION NOTE as andwhen such interest becomes due, and to pay any and all of the expenses of BANKrelated to the PROJECT and the CONSTRUCTION LOAN, all without receipt of a DRAWREQUEST.

 

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3.8                                 MiscellaneousProcedures.  BANK may establishadditional procedures regarding disbursements as are reasonable to assure theproceeds of the CONSTRUCTION LOAN are paid only to those persons and entitiesentitled to the same, and that the liens securing the OBLIGATIONS are in allcases first and paramount liens on the PROPERTY.

 

3.9                                 Appointmentof INDEPENDENT INSPECTOR.  No DRAWREQUEST shall be honored after commencement of construction unless BORROWER hasconsented to the appointment of an INDEPENDENT INSPECTOR.

 

SECTION 4 Conditions of Lending.

 

4.1                                 ConditionsPrecedent to the Initial Disbursement. The obligation of the BANK to make its initial disbursement under theCONSTRUCTION LOAN is subject to the condition precedent that the BORROWER shallbe in compliance with the conditions set forth in Section 4.2 of thisAGREEMENT and to the further condition precedent that the BANK shall havereceived on or before the CLOSING all of the following, each dated (unlessotherwise indicated) such day, in form and substance satisfactory to the BANK:

 

4.1.1                        TheCONSTRUCTION NOTE, duly executed on behalf of the BORROWER.

 

4.1.2                        TheMORTGAGE duly executed on behalf of the BORROWER.

 

4.1.3                        TheASSIGNMENT OF RENTS, duly executed on behalf of the BORROWER.

 

4.1.4                        TheSECURITY AGREEMENT, duly executed on behalf of the BORROWER.

 

4.1.5                        Afinancing statement or statements sufficient when filed to perfect the securityinterests granted under the MORTGAGE, the ASSIGNMENT OF RENTS, the SECURITYAGREEMENT, and the ASSIGNMENT OF DESIGN/BUILD CONTRACT, to the extent suchsecurity interests are capable of being perfected by filing.

 

4.1.6                        Acopy of the PLANS, certified by ICM, Inc., Fagen, Inc., and the BORROWER.

 

4.1.7                        Theassignment of the DESIGN/BUILD CONTRACT, duly executed by the BORROWER andconsented to by the GENERAL CONTRACTOR and a copy of the DESIGN/BUILD CONTRACT,together with the General Conditions of Contract referred to therein.

 

4.1.8                        Atotal project cost statement on the PROJECT duly executed by the BORROWER andthe GENERAL CONTRACTOR, setting forth the anticipated total cost of thePROJECT’s completion.

 

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4.1.9                        An**ALTA (American Land Title Association) Survey**of the PROPERTY, prepared at the BORROWER’s expense, currentlycertified by a licensed, registered surveyor and incorporating the legaldescription of the PROPERTY, showing the location of all points and linesreferred to in the legal description, the location of any existingimprovements, the proposed location of the PROJECT (including parking) as beingwithin the exterior boundaries of the PROPERTY and in compliance with allapplicable building set-back requirements, and the location of all utilitiesand the location of all easements and encroachments onto or from the PROPERTYthat are visible on the PROPERTY, known to the surveyor preparing the survey orof record, identifying easements of record by recording data, and currentlycertified by the surveyor that there are no such easements or encroachments uponthe PROPERTY except as shown on the survey.

 

4.1.10                  Anas built appraisal based upon the PLANS to be performed by Natwick AssociatesAppraisal Services which shows the as-completed value of the PROPERTY andPROJECT addressed to and otherwise acceptable to BANK.

 

4.1.11                  Atitle binder, issued by AgStar Financial Services, (the “TITLE COMPANY”) atBORROWER’s expense, constituting a commitment by the TITLE COMPANY to issue amortgagee’s title policy in favor of the BANK as mortgagee under the MORTGAGE,that will be free from all standard exceptions, including mechanics’ liens andall other exceptions not previously approved by the BANK and that will insurethe MORTGAGE to be a valid first lien on the PROPERTY.

 

4.1.12                  Asoil report on the PROPERTY certified by a registered engineer includingstructural design recommendations in form and substance satisfactory to theBANK. Such report shall include soil borings and geo-technical analyses.

 

4.1.13                  APhase I Environmental Report of the PROPERTY in form and content satisfactoryto the BANK.

 

4.1.14                  AFlood Hazard Determination Form for the PROPERTY, confirming whether or not theparcel is in a flood hazard area and whether or not flood insurance must beobtained.

 

4.1.15                  Copiesof all PERMITS from the applicable regulatory agencies from whom a permit orlicense is required.

 

4.1.16                  Copiesof documents from the appropriate state, federal, city or county authorityhaving jurisdiction over the PROPERTY and the PROJECT that provide to thereasonable satisfaction of the BANK that the PROJECT when constructed inaccordance with the PLANS will comply in all material respects with allapplicable ordinances, zoning, subdivision, platting, environmental and landuse requirements, without special variance or exception, and such otherevidence as the BANK shall reasonably request to establish that the PROJECT andthe contemplated use thereof are permitted by and comply with all

 

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applicable use or other restrictions and requirements in priorconveyances, zoning ordinances, environmental laws and regulations, water sheddistrict regulations and all other applicable laws or regulations, andgovernmental authorities having jurisdiction over the PROJECT. BORROWER is notrequired to obtain advance confirmation from any governmental body that thePROJECT will comply with such ordinances, regulations and requirements.

 

4.1.17                  Copiesof the policy of property/casualty insurance and comprehensive generalliability insurance and a certificate of the worker’s compensation insurancerequired under Section 6.3 of this AGREEMENT, with all such insurance infull force and effect and approved by the BANK, in the exercise of itsreasonable discretion, and naming BANK as an additional named insured, togetherwith appropriate flood insurance, if the PROPERTY is in a flood hazard area.Notwithstanding the foregoing, BORROWER is not required to obtain worker’scompensation insurance until required by Iowa law.

 

4.1.18                  Asigned opinion of counsel for the BORROWER, addressed to the BANK, opiningthat: 1) the BORROWER is duly organized and in good standing in the state ofIowa; 2) the BORROWER is qualified in each state in which it does business andis legally required to be qualified; 3) the BORROWER has the power to executeand deliver the LOAN DOCUMENTS and to borrow money and perform in accordancewith the terms of the LOAN DOCUMENTS; 4) to the counsel’s knowledge, allactions and consents by BORROWER necessary to the validity of the LOANDOCUMENTS have been obtained; 5) the LOAN DOCUMENTS have been duly signed andare the valid and binding obligation of the BORROWER and enforceable inaccordance with their terms; and 6) to the best of counsel’s knowledge, theLOAN DOCUMENTS and the transactions contemplated there under do not conflictwith any provision of the operating agreement of BORROWER or any agreementbinding upon the BORROWER or its properties.

 

4.1.19                  ACertificate of Authority executed by such person or persons authorized by theBORROWER’s organizational documents and/or agreements to do so, certifying theincumbency and signatures of the managers or other persons authorized toexecute the LOAN DOCUMENTS, and authorizing the execution of the LOAN DOCUMENTSand performance in accordance with their terms.

 

4.1.20                  Arecently certified copy of the BORROWER’s Limited Partnership Agreement, andany amendments, if applicable.

 

4.1.21                  Arecently certified copy of the BORROWER’s Certificate of Limited Partnershipand any amendments, if applicable.

 

4.1.22                  Acertificate of good standing for the BORROWER from the office of the IowaSecretary of State.

 

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4.1.23                  Proofof injection of equity capital into BORROWER of no less than $18,000,000.00 byBORROWER’s partners, which may include SUBORDINATED DEBT.

 

4.1.24                  Acopy of the MARKETING CONTRACT(s), together with an assignment in favor of BANKin form satisfactory to BANK.

 

4.1.25                  Acopy of any existing contracts for BORROWER’s natural gas, electricity andwater service.

 

4.1.26                  BORROWERshall provide a copy of its contract with F.C. Stone, L.L.C. to provide riskmanagement services associated with BORROWER’s purchase of grain, together withan assignment in favor of BANK in form satisfactory to BANK as soon as it isexecuted.

 

4.1.27                  Proofof the existence of a completion bond for the PROJECT, in form satisfactory toBANK, including BANK as an additional beneficiary.

 

4.1.28                  Acopy of BORROWER’s contract with U.S. Energy Services.

 

4.1.29                  Acopy of BORROWER’s loan documents representing all SUBORDINATED DEBT.

 

4.1.30                  (Reserved)

 

4.1.31                  (Reserved)

 

4.1.32                  (Reserved)

 

4.1.33                  BORROWERshall provide an assignment, in form reasonably satisfactory to BANK, of allwarranties existing at CLOSING and after CLOSING, which have been issued orwill be issued to BORROWER by subcontractors and material suppliers to thePROJECT.

 

4.1.34                  Acopy of the lease for the land south of the railroad line on the PROPERTYtogether with an assignment and attornment agreement in favor of BANK, in formreasonably satisfactory to BANK.

 

4.2                                 ConditionsPrecedent to All Disbursements.  Theobligation of the BANK to make each disbursement under the CONSTRUCTION LOAN(including the initial disbursement) shall be subject to the further conditionsprecedent that on the date of such disbursement:

 

4.2.1                        Therepresentations and warranties contained in Section 5 of this AGREEMENTare correct on and as of the date of such disbursement as though made on and asof such date, except to the extent that such representations and warrantiesrelate solely to an earlier date.

 

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4.2.2                        Noevent has occurred and is continuing, or would result from such disbursement,which constitutes an EVENT OF DEFAULT.

 

4.2.3                        Nodetermination shall have been made by the BANK that the undisbursed amount ofthe CONSTRUCTION LOAN is less than the amount required to pay all costs andexpenses of any kind which reasonably may be anticipated in connection with thecompletion of the PROJECT; or, if such a determination has been made and noticethereof sent to the BORROWER in accordance with this AGREEMENT, the BORROWERshall have deposited the necessary funds with the BANK in accordance with theSection 3.6 of this AGREEMENT.

 

4.2.4                        Thedisbursement requirements of Section 3 of this AGREEMENT have beensatisfied.

 

4.2.5                        Ifrequired by the BANK, the BANK shall be furnished with a statement from theBORROWER and the GENERAL CONTRACTOR, in form and substance satisfactory to theBANK, in the exercise of its reasonable discretion, setting forth the names,addresses and amounts due or to become due, as well as the amounts previouslypaid, to every SUBCONTRACTOR.

 

4.2.6                        NoPERMIT necessary for the construction of the PROJECT shall have been revoked orthe issuance thereof subjected to challenge before any court or othergovernmental authority having or asserting jurisdiction as to the PROJECT.

 

4.2.7                        Theparties intend that the CONSTRUCTION LOAN is available to fund the lesser ofsixty (60%) percent of the total cost of the PROJECT, as set forth in the finalversion of the Sources and Uses of Funds document furnished to BANK by BORROWERprior to Closing, or $31,465,000.00. No advances or disbursements under theCONSTRUCTION LOAN shall exceed such levels, unless BANK consents in writing tothe same.

 

4.3                                 ConditionsPrecedent to the Final Disbursements. The obligation of the BANK to make the final disbursement shall besubject to the condition precedent that the BORROWER shall be in compliancewith all conditions set forth in Sections 4.1 and 4.2 of this AGREEMENT and,further, that the following conditions shall have been satisfied prior to theCOMPLETION DATE:

 

4.3.1                        ThePROJECT has been completed in accordance with the PLANS and the BANK shall havereceived a certificate of completion from the GENERAL CONTRACTOR, certifyingthat (i) work on the PROJECT has been completed in accordance with the PLANSand all labor, services, materials and supplies used in such work have beenpaid for and (ii) the completed PROJECT conforms with all applicable zoning,land use planning, building and environmental laws and regulations of thegovernmental authorities having jurisdiction over the PROJECT.

 

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4.3.2                        TheBANK has received satisfactory evidence that all work requiring inspection bymunicipal or other governmental authorities having jurisdiction has been dulyinspected and approved by such authorities and by the rating or inspectionorganization, bureau, corporation or office having jurisdiction.

 

4.3.3                        TheBANK shall have received a lien waiver from each SUBCONTRACTOR and the GENERALCONTRACTOR for all work done and for all materials furnished by it for thePROJECT.

 

4.3.4                        TheBANK has received an itemized list from BORROWER of all equipment and fixtureswhich are at that time subject to BANK’s security interest.

 

4.4                                 NoWaiver.  The making of anydisbursement under the CONSTRUCTION LOAN prior to fulfillment of any conditionthereto shall not be construed as a wavier of such condition, and the BANKreserves the right to require fulfillment of any and all such conditions priorto making any subsequent disbursements under the CONSTRUCTION LOAN.

 

SECTION 5 Representations and Warranties.

 

To induce the BANK to enter into this AGREEMENT, the BORROWER makes thefollowing representations and warranties and agrees that each DRAW REQUESTconstitutes a reaffirmation of these representations and warranties:

 

5.1                                 Existenceand Power.  The BORROWER is alimited partnership duly formed and in good standing under the laws of theState of Iowa. The BORROWER has accomplished all necessary actions required bya limited partnership under applicable law to own the PROPERTY and constructthe PROJECT, and to execute and deliver, and to perform all of its obligationsunder the LOAN DOCUMENTS.

 

5.2                                 Authorizationof Borrowing; No Conflict as to Law or Other Agreements.  The execution, delivery and performance bythe BORROWER of the LOAN DOCUMENTS and the borrowings from time to timehereunder have been duly authorized by all necessary partnership actions of theBORROWER and do not and will not (a) require any material consent or approval,or authorization, by any governmental department, commission, board, bureau,agency or instrumentality, domestic or foreign, (b) violate, in any materialrespect, any provision of any law, rule or regulation or of any order, writ,injunction or decree presently in effect having applicability to the BORROWER,or violate any provision of the limited partnership agreement of the BORROWER,(c) result in a breach of or constitute a default beyond any applicable cureperiod under any indenture or loan or credit agreement or any other agreement,lease or instrument to which the BORROWER is a party or by which it or its propertiesmay be bound or affected, or (d) result in, or require, the creation orimposition of any mortgage, deed of trust, pledge, lien, security interest orother charge or encumbrance of any nature to or with any other creditor of theBORROWER, in the aggregate

 

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exceeding $100,000.00, upon or with respect to any of the propertiesnow owned or hereafter acquired by the BORROWER.

 

5.3                                 LegalAgreements.  The LOAN DOCUMENTSconstitute the legal, valid and binding obligations of the BORROWER enforceableagainst the BORROWER in accordance with their respective terms.

 

5.4                                 Licenseand Permits.  The BORROWER has allnecessary PERMITS required for construction and operation of the PROJECT exceptthose which cannot be obtained until completion of the PROJECT.

 

5.5                                 Constructionof the PROJECT.  The PROJECT will beconstructed in material compliance with the PLANS; except for the pipelineservicing the PROJECT which will be will be primarily on the property north of thePROPERTY and will be subject to an easement benefiting BORROWER, the PROJECTwill be constructed entirely on the PROPERTY; and will not encroach upon oroverhang any easement or right-of-way on land not constituting part of thePROPERTY. The PROJECT, both during construction and on COMPLETION DATE, and thecontemplated use thereof, will not violate in any material respect, anyapplicable zoning or use statute, ordinance, building code, rule or regulation,or any covenant or agreement of record. The BORROWER agrees that it willfurnish from time to time such satisfactory evidence with respect thereto asmay be required by the BANK.

 

5.6                                 Titleto the PROPERTY.  The BORROWER hasgood and marketable fee simple title to the PROPERTY, subject to the limitationsdescribed in 4.1.11, above.

 

5.7                                 FinancialCondition.  The BORROWER hasfurnished to the BANK its compiled cash flow projection of the BORROWER for theinitial three years of operation, which were contained in BORROWER’s businessplan dated May 10, 2002, as amended May 13, 2002. This financialstatement fairly presents the projected financial condition of the BORROWER onthe dates thereof, and was prepared in accordance with GAAP. There has been nomaterial adverse change in the operations, properties or condition (financialor otherwise) of the BORROWER since the date of the financial statementreferred to above and no additional borrowings have been made by the BORROWERother than the borrowing contemplated hereby or approved by the BANK. Theabove-referenced financial statement or any certificate or statement furnishedto the BANK by or on behalf of the BORROWER in connection with the transactionscontemplated hereby, and the representations and warranties in this AGREEMENT,do not contain any untrue statements of a material fact or omit to state amaterial fact necessary in order to make the statements contained therein orherein not misleading. To the best of the knowledge of the BORROWER, there isno fact which materially adversely affects or in the future (so far as theBORROWER can now foresee) may materially adversely affect the operation orprospects or condition (financial or other) of the BORROWER or its propertiesor assets, which has not been set forth herein or in a certificate or statementfurnished to the BANK by the BORROWER.

 

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5.8                                 Litigation.  There are no actions, suits or proceedingspending or, to the knowledge of the BORROWER, threatened against or affectingthe BORROWER or the properties of the BORROWER before any court or governmentaldepartment, commission, board, bureau, agency or instrumentality, domestic orforeign, which, if determined adversely to the BORROWER, would have a materialadverse effect on the financial condition, properties, or operations of theBORROWER.

 

5.9                                 Taxes.  The BORROWER has paid or caused to be paidto the proper authorities when due all federal, state and local taxes,including taxes on the PROPERTY, required to be paid or withheld by it. TheBORROWER has filed all federal, state and local tax returns which to theknowledge of the BORROWER are required to be filed, and the BORROWER has paidor caused to be paid to the respective taxing authorities all taxes as shown onsaid returns or on any assessment received by it to the extent such taxes havebecome due.

 

5.10                           NoDefault.  There is no event whichis, or with notice or the lapse of time would be, an EVENT OF DEFAULT underthis AGREEMENT.

 

5.11                           ERISA.  The BORROWER is in compliance in allmaterial respects with the Employee Retirement Income Security Act of 1974, asamended, and has received no notice to the contrary from the Internal RevenueService, the Department of Labor, the Pension Benefit Guaranty Corporation orany other governmental entity or notice of any claims or pending claims underERISA.

 

5.12                           EnvironmentalMatters.  Except as set forth in thePhase I Environmental Report referenced in Section 4.1 of this AGREEMENT:1) the BORROWER is in compliance in all material respects with all health and environmentallaws applicable to the BORROWER and its operations and knows of no conditionsor circumstances that could materially interfere with such compliance in thefuture; 2) except for PERMITS that cannot be obtained until completion of thePROJECT, the BORROWER has obtained all PERMITS, and approvals required by lawfor the operation of its business; and 3) the BORROWER has not identified any“recognized environmental conditions,” as that term is defined by the AmericanSociety for Testing and Materials in its standards for environmental duediligence, which could subject the BORROWER to enforcement action if brought tothe attention of appropriate governmental authorities.

 

5.13                           NecessaryUtilities, Etc.  BORROWER has madesuitable arrangements so that the PROJECT has all necessary electrical, gas,water, and sewer facilities in place for the proper construction and operationof its ethanol plant. BORROWER has made adequate provision for all storagefacilities, equipment and product supplies, including corn, as specified by itsengineers for the maximum output and operation of the plant.

 

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SECTION 6 Additional Covenants of the BORROWER.

 

6.1                                 FinancialInformation and Reporting.  Exceptas otherwise stated in this AGREEMENT, all financial information provided tothe BANK shall be compiled using GAAP consistently applied. During the timeperiod that any amounts are outstanding under the CONSTRUCTION NOTE or thisAGREEMENT or the LOAN DOCUMENTS, unless the BANK shall otherwise agree inwriting:

 

6.1.1                        AnnualFinancial Statements. BORROWER shall provide the BANK within 120 days of theBORROWER’s fiscal year end, the BORROWER’s consolidated, annual financialstatements. The statements must be audited with an unqualified opinion by acertified public accountant reasonably acceptable to the BANK, with suchopinion directed both to BORROWER and to BANK, and must be accompanied by acertificate of such accountants stating whether, in conducting their audit,they have become aware of any event of default under this AGREEMENT, or of anyevent which would, after the lapse of time or the giving of notice, or both,constitute an EVENT OF DEFAULT, specifying the nature and duration of thedefault. Such audit statement shall be accompanied by the accountants’calculations of BORROWER’s compliance with the covenants contained inSection 6.2 of this AGREEMENT as of the said fiscal year end.

 

6.1.2                        TheBORROWER will furnish to the BANK within 30 days after the end of each calendarmonth, consolidated financial statements of the BORROWER for such period andyear to date all in reasonable detail.

 

6.1.3                        BORROWERwill deliver to BANK each quarter, within thirty days of each calendar quarterend, a certificate in the form of Exhibit D that has been signed by an officeror manager of BORROWER, which: 1) certifies that the statements required bysection 6.1.1 and 6.1.2 have been accurately prepared in accordance withGAAP applied consistently; 2) certifies that the manager has no knowledge ofany EVENT OF DEFAULT under this AGREEMENT or the LOAN DOCUMENTS, or of anyevent which would, after the lapse of time or the giving of notice, or both,constitute an event of default under this AGREEMENT or the LOAN DOCUMENTS.

 

6.1.4                        BORROWERwill deliver to BANK each month, within thirty days of each month end, amonthly Production Report, in form acceptable to BANK, reporting for such monthBORROWER’s Input and Output amounts of Corn Usage, Natural Gas Usage, DDGsOutput, Ethanol Output, and if applicable, CO2 Output.

 

6.1.5                        BORROWERshall immediately notify BANK of the existence of any EVENT OF DEFAULT.

 

6.1.6                        BORROWERshall authorize all federal, state and municipal authorities to furnish reportsof examinations, records and other information relating to the condition andaffairs of

 

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the BORROWER and its ethanol plant, and any information from reports,returns, files and records by such authorities regarding BORROWER upon requestto the BANK.

 

6.1.7                        TheBORROWER will give the BANK prompt written notice of any material violation asto any environmental matter by the BORROWER and, of the commencement of anyjudicial or administrative proceeding relating to health, safety orenvironmental matters (i) in which an adverse determination or result couldresult in the revocation of or have a material adverse effect on any PERMITSheld by the BORROWER which are material to the operations of the BORROWER, and(ii) which will or threatens to impose a material liability on the BORROWER toany person or party or which will require a material expenditure by theBORROWER to cure any alleged problem or violation.

 

6.1.8                        TheBORROWER will give immediate notice to the BANK of (i) any litigation orproceeding in which it is a party if an adverse decision therein would requireit to pay more than $100,000.00 or deliver assets the value of which exceedssuch sum (whether or not the claim is considered to be covered by insurance);and (ii) the institution of any other suit or proceeding involving it thatmight materially and adversely affect its operations, financial condition,property, or business prospects.

 

6.1.9                        BORROWERshall provide monthly borrowing base certificates in the form of Exhibit E,calculating advance rates under the REVOLVING LOAN pursuant to the BORROWINGBASE beginning the fourth month following COMPLETION DATE.

 

6.1.10                  TheBORROWER will provide the BANK, no later than thirty (30) days prior toCOMPLETION DATE, proof of retention by BORROWER of a plant manager withprevious experience managing an ethanol plant.

 

6.1.11                  TheBORROWER will provide the BANK with such other information as it may reasonablyrequest.

 

6.2                                 FinancialCovenants.  At all times that anyamounts are outstanding under the CONSTRUCTION NOTE, the TERM NOTE, or thisAGREEMENT or the LOAN DOCUMENTS, unless the BANK shall otherwise agree inwriting, the BORROWER agrees to comply with the financial covenants describedbelow, which shall be calculated using GAAP consistently applied, except asthey may be otherwise modified by the capitalized definitions:

 

6.2.1                        TheBORROWER shall maintain a FIXED CHARGE COVERAGE RATIO, measured quarterly, ofno less than 1.25 : 1.0, for all periods following COMPLETION DATE.

 

6.2.2                        TheBORROWER shall maintain a NET WORTH of not less than (i) $19,000,000.00 at alltimes after COMPLETION DATE and (ii) $19,000,000.00 plus an amount each fiscal

 

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year equal to the greater of (a) $250,000.00 or (b) the amount ofundistributed earnings during the current fiscal year, at all times subsequentthereto.

 

6.2.3                        TheBORROWER shall determine, at each fiscal year end, the amount of its EXCESSCASH FLOW for said fiscal year, and within one hundred twenty days following suchfiscal year end, pay twenty percent (20%) of such sum to BANK, to be applied tothe principal amount of the CONSTRUCTION LOAN or the TERM LOAN, as applicable.Such annual payment shall not release BORROWER from making any payment ofprincipal or interest otherwise required by the CONSTRUCTION NOTE or TERM NOTE.No payment of EXCESS CASH FLOW shall be the cause of a payment to BANK forinterest rate breakage fees or otherwise result in any prepayment penalty.

 

6.2.4                        BORROWERshall maintain, at all times subsequent to COMPLETION DATE and measured atfiscal year end, minimum WORKING CAPITAL of $1,000,000.00 during the first yearof operations, measured beginning at the end of the third month followingCOMPLETION DATE, minimum WORKING CAPITAL of $1,500,000 during months thirteen(13) through twenty-four (24) following COMPLETION DATE, and minimum WORKINGCAPITAL of $2,000,000.00 thereafter.

 

6.3                                 AffirmativeCovenants.  During the time periodthat any amounts are outstanding under the CONSTRUCTION NOTE, TERM NOTE,REVOLVING NOTE, this AGREEMENT or the LOAN DOCUMENTS, unless the BANK shallotherwise agree in writing the BORROWER shall:

 

6.3.1                        Diligentlyproceed with construction of the PROJECT according to the PLANS and inaccordance with all applicable laws and ordinances, and complete the PROJECT bythe COMPLETION DATE.

 

6.3.2                        Usethe proceeds of each of the disbursements under the CONSTRUCTION LOAN solelyfor the purposes set forth in this AGREEMENT.

 

6.3.3                        Useits best efforts to require the GENERAL CONTRACTOR and each SUBCONTRACTOR tocomply with all rules, regulations, ordinances and laws bearing on its conductof work on the PROJECT.

 

6.3.4                        Provideand maintain at all times during the process of building the PROJECT and, fromtime to time at the request of the BANK, furnish the BANK with proof of paymentof premiums on:

 

(i)                                     Builders’Risk completed value form insurance insuring the PROJECT against all risks,including flood, earthquake, and mechanical and electrical breakdown includingtesting to the full value of the PROJECT (subject to reasonable loss deductibleprovisions). The BANK’s interest shall be protected by naming the BANK asadditional named insured;

 

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(ii)                                  CommercialGeneral Liability insurance (including products and completed operations,operations of subcontractors, and contractual liability insurance) with limitsreasonably acceptable to BANK;

 

(iii)                               Worker’scompensation insurance, with statutory limits, and Employer’s Liabilitycoverage with a $500,000.00 limit.

 

(iv)                              Businessautomobile liability insurance insuring all vehicles on the site, includinghired and non-owned liability.

 

(v)                                 Environmentalcoverage shall be provided for clean-up and removal once the Project becomesoperational, but only insofar as it is required by BANK.

 

The policies of insurance required pursuant to clauses (i) and (ii)above shall be in form and content satisfactory to the BANK and shall be placedwith financially sound and reputable insurers. The policy of insurance referredto in clause (i) above shall contain an agreement of the insurer to give notless than thirty (30) days’ advance written notice to the BANK in the event ofcancellation of such policy or change affecting the coverage there under.Acceptance of insurance policies referred to in clauses (i) and (ii) aboveshall not bar the BANK from requiring additional insurance which it reasonablydeems necessary.

 

6.3.5                        Assignto BANK, in form acceptable to BANK, all equipment and systems warrantiesrelating to the PROJECT, together with all contracts for natural gas,electricity, water and other utilities, as the same are obtained by BORROWERfollowing CLOSING.

 

6.3.6                        Maintainaccurate and complete books, accounts and records pertaining to the PROPERTYand the PROJECT and its ongoing and continuing operations in form and substancereasonably satisfactory to the BANK. The BORROWER will permit the BANK, actingby and through its officers and employees, to examine upon reasonable noticeall books, records, contracts, plans, drawings, PERMITS, bills and statementsof account pertaining to the PROJECT and to inspect upon reasonable notice allbooks and records pertaining to its operations and to make extracts there fromand copies thereof.

 

6.3.7                        Causeto be paid to the proper authorities when due all federal, state and localtaxes, including taxes on the PROPERTY, required to be paid or withheld by itexcept those which the BORROWER is contesting in good faith and with respect towhich adequate reserves have been set aside.

 

6.3.8                        Allowthe BANK and its participants upon reasonable notice to conduct suchinspections of the PROJECT and BORROWER’s personal property subject to theBANK’s security interest as the BANK may deem necessary for the protection ofthe BANK’s interest.

 

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Provided, however, such inspections shall occur during regular businesshours, or such other time as the BORROWER and BANK may agree, and shall notunreasonably interfere with BORROWER’s business operations. Any suchinspections shall be made and any certificates issued are solely for thebenefit and protection of the BANK, and the BORROWER shall not be entitled torely thereon.

 

6.3.9                        Makeall repairs, renewals or replacements necessary to keep its plant, propertiesand equipment in good working condition.

 

6.3.10                  Complyin all material respects with all laws applicable to its form of organization,business, and the ownership of its property.

 

6.3.11                  Maintainand preserve all PERMITS, licenses, rights, privileges, charters and franchisesthat it is required to hold to construct and operate the PROJECT.

 

6.3.12                  Observeand comply with all laws, rules, regulations and orders of any government orgovernment agency relating to health, safety, pollution, hazardous materials orother environmental matters to the extent non-compliance could result in amaterial liability or otherwise have a material adverse effect on the BORROWER.

 

6.3.13                  Maintainall depository accounts (including those accounts containing BORROWER’s equitycapital) at BANK, other than local operating accounts approved by BANK.

 

6.3.14                  Payto BANK, for application to the OBLIGATIONS, in addition to regularly scheduledpayments of principal and interest, all state and federal incentive payments,less any amounts not to exceed 60% of such incentive payments which may be usedby BORROWER to make distributions to its partners. This 60% distribution shallbe based on the lesser of the previous fiscal year’s earnings or the total ofall previous fiscal year’s state and federal incentive payments. Provided,however, the payments required by paragraph 6.2.3, above, and this paragraph6.3.14, shall in no event exceed in the aggregate Three Million ($3,000,000.00)Dollars in any fiscal year.

 

6.4                                 NegativeCovenants.  During the time periodthat any amounts are outstanding under the CONSTRUCTION NOTE or this AGREEMENTor the LOAN DOCUMENTS, unless the BANK shall otherwise agree in writing theBORROWER shall not:

 

6.4.1                        Permitany security interest or mortgage or lien on the PROPERTY or PROJECT or otherreal or personal property BORROWER owns now or in the future, or assign anyinterest that it may have in any assets or subordinate any rights that it mayhave in any assets now or in the future, except: (i) liens, assignments, orsubordinations in favor of the BANK; (ii) liens, assignments, or subordinationsoutstanding on the date of this AGREEMENT and disclosed in advance to the BANKin writing and approved by the BANK; (iii) liens for taxes

 

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or assessments or other governmental charges not delinquent or whichthe BORROWER is contesting in good faith; (iv) liens which secure purchasemoney indebtedness allowed under this AGREEMENT; (v) liens that are imposed bylaw for obligations for labor or materials not overdue for more than 120 days,such as mechanics’, materialmen’s, carriers’, landlords’, and warehousemen’sliens, or liens, pledges, or deposits under workers’ compensation, unemploymentinsurance, Social Security, or similar legislation.

 

6.4.2                        Agreeor consent to any changes in the PLANS, any changes in the terms and provisionsof the DESIGN/BUILD CONTRACT or any of the contracts specifically identified inSection 4 of this AGREEMENT, or, following execution of this AGREEMENT, toany one change order in an amount exceeding $50,000.00, or all change orderswhen combined exceeding $100,000.00.

 

6.4.3                        Incorporatein the PROJECT any materials, fixtures or property which are subject to theclaims of any other person, whether pursuant to conditional sales contract,security agreement, lease, mortgage.

 

6.4.4                        Lease,sell, transfer, convey, assign, or otherwise transfer all or any part of theinterest of the BORROWER in the PROJECT or the PROPERTY.

 

6.4.5                        Permit,cause or suffer any material change in the management of its general partner orany change, direct or indirect, of its capital ownership.

 

6.4.6                        Causeor suffer any change in its general plant manager without BANK’s approval,which will not unreasonably be withheld.

 

6.4.7                        Engagein any line of business materially different from that presently engaged in bythe BORROWER.

 

6.4.8                        Exceptfor an election to become a limited liability limited partnership, change itslegal form of organization.

 

6.4.9                        Makeany material changes in its accounting procedures for tax or other purposes.

 

6.4.10                  Incurany INDEBTEDNESS except: (1) debt arising under this or another agreement withthe BANK; (ii) trade credit incurred in the ordinary course of business; (iii)indebtedness in existence on the date of this AGREEMENT and disclosed inadvance to the BANK in writing, and (iv) indebtedness set forth on Exhibit6.4.10, attached hereto and by this reference made a part hereof. BORROWERshall not borrow other than pursuant to this AGREEMENT, without permission ofthe BANK.

 

6.4.11                  Consolidate,or merge or pool or syndicate or otherwise combine with any other entity, orgive any preferential treatment, make any advance, directly or indirectly, byway of

 

24

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loan, gift, bonus, or otherwise, to any entity directly or indirectlycontrolling or affiliated with or controlled by BORROWER, or any other entity,or to any partner or employee of BORROWER, or of any such entity.

 

6.4.12                  Make,or commit to make, capital expenditures (including the total amount of anycapital leases, but excluding BANK approved plant construction) in an aggregateamount exceeding $500,000.00 in any single fiscal year.

 

6.4.13                  Makeor pay, without the written consent of BANK, which written consent will not beunreasonably withheld, in any fiscal year, distributions to partners of theBORROWER in excess of 65% of the previous fiscal year’s net income excludingstate or federal incentive payments, or which would result in the BORROWER atthe time of such distribution not being in compliance with any of the covenantsset forth in this AGREEMENT after payment of such distribution. The foregoingrestriction shall not limit the distributions of state and federal incentivepayments to partners of BORROWER pursuant to the terms of Section 6.3.14.Any such distributions shall be made only once per fiscal year, and only afterreceipt by BANK of BORROWER’s annual audited financial statements andcompliance statements as required herein, and if no EVENT OF DEFAULT hasoccurred or is continuing. BANK and BORROWER agree to negotiate, on an annualbasis, the potential change of such limitation.

 

6.4.14                  Assume,guarantee, endorse or otherwise becoming contingently liable for anyobligations of any other person, except for those guaranties outstanding at thetime of execution of this AGREEMENT and disclosed to the BANK in writing.

 

6.4.15                  Makesales to or purchases from any affiliate of the BORROWER or extend creditormake payments for services rendered by any affiliate of the BORROWER, exceptunder the MARKETING CONTRACT, unless such sales or purchases are made or suchservices are rendered in the ordinary course of business and on terms andconditions at least as favorable to the BORROWER as the terms and conditionswhich would apply in a similar transaction with a person or party not anaffiliate of the BORROWER.

 

6.4.16                  Sellor dispose of all or substantially all its assets.

 

SECTION 7 EVENTS OF DEFAULT, Rights and Remedies.

 

7.1                                 EVENTSOF DEFAULT. Each of the following shall be an EVENT OF DEFAULT and give theBANK the right to exercise its remedies under this AGREEMENT:

 

7.1.1                        TheBORROWER shall fail to pay when due any OBLIGATIONS or any other installment ofprincipal or interest or fee payable to BANK.

 

7.1.2                        TheBORROWER shall fail to observe or perform any other obligation to be

 

25

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observed or performed by it hereunder or under any of the LOANDOCUMENTS.

 

7.1.3                        TheBORROWER shall fail to pay any INDEBTEDNESS due any third persons, and suchfailure shall continue beyond any applicable grace period, or the BORROWERshall suffer to exist any other default under any material agreement bindingthe BORROWER, and such default shall continue beyond any applicable graceperiod.

 

7.1.4                        Anyfinancial statement, representation, warranty, or certificate made or furnishedby or with respect to the BORROWER to the BANK in connection with thisAGREEMENT, or as an inducement to the BANK to enter into this AGREEMENT, or inany separate statement or document to be delivered to the BANK hereunder, shallbe materially false, incorrect, or incomplete when made.

 

7.1.5                        TheBORROWER shall admit its inability to pay its debts as they mature or shall makean assignment for the benefit of itself or any of its creditors.

 

7.1.6                        Proceedingsin bankruptcy, or for reorganization of the BORROWER, or for the readjustmentof debt under the Bankruptcy Code, as amended, or any part thereof, or underany other laws, whether state or federal, for the relief of debtors, now orhereafter existing, shall be commenced against or by the BORROWER and, exceptwith respect to any such proceedings instituted by the BORROWER, shall not bedischarged within sixty (60) days of their commencement.

 

7.1.7                        Areceiver or trustee shall be appointed for the BORROWER or for any substantialpart of its respective assets, or any proceedings shall be instituted for thedissolution or the full or partial liquidation of the BORROWER, and except withrespect to any such appointments requested or instituted by the BORROWER, suchreceiver or trustee shall not be discharged within sixty (60) days of hisappointment, and except with respect to any such proceedings instituted by theBORROWER, such proceedings shall not be discharged within sixty (60) days oftheir commencement, or the BORROWER shall discontinue business or materiallychange the nature of its business.

 

7.1.8                        TheBORROWER shall suffer final judgments for payment of money aggregating inexcess of $100,000.00 which are not covered, without reservation, by insuranceor shall not discharge the same within a period of thirty (30) days unless,pending further proceedings, execution has not been commenced or, if commenced,has been effectively stayed.

 

7.1.9                        Ajudgment creditor of the BORROWER shall obtain possession of any of BANK’scollateral by any means, including (without implied limitation) levy,distraint, replevin, or self-help.

 

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7.1.10                  Theconstruction of the PROJECT is abandoned or shall be unreasonably delayed or bediscontinued for a period of fifteen (15) consecutive calendar days, in eachinstance for reasons other than acts of God, fire, storm, strikes, blackouts,labor difficulties, riots, inability to obtain materials, equipment or labor,governmental restrictions or any similar cause over which the BORROWER isunable to exercise control.

 

7.1.11                  TheBORROWER at any time prior to the completion of the PROJECT, shall delay constructionor suffer construction to be delayed for any period of time, for any reasonwhatsoever, so that the completion of the PROJECT cannot be accomplished, inthe reasonable judgment of the BANK, by the COMPLETION DATE.

 

7.1.12                  ThePROJECT is materially damaged or destroyed by fire or other casualty and theloss, in the reasonable judgment of the BANK, is not adequately covered byinsurance actually collected or in the process of collection.

 

7.1.13                  Fagen,Inc. shall cease to be the GENERAL CONTRACTOR and BORROWER has not replaced theGENERAL CONTRACTOR, within thirty (30) days following the termination of thesame to the satisfaction of BANK, which BANK approval shall not be unreasonablywithheld.

 

7.1.14                  MinnesotaCorn Processors, LLC, or Commodity Specialists Co., or their permittedassignees shall cease to be the marketing agents of BORROWER as to sale of itsproducts, and BORROWER has not within thirty (30) days following termination ofeither hired a replacement to the BANK’s satisfaction, which BANK approval willnot be unreasonably withheld.

 

7.2                                 Rightsand Remedies.  Upon the occurrenceof an EVENT OF DEFAULT and at any time thereafter, the BANK may refrain frommaking any further disbursements hereunder (but the BANK may make disbursementsafter the occurrence of such an EVENT OF DEFAULT without thereby waiving itsrights and remedies hereunder), and upon the occurrence of an EVENT OF DEFAULTor at any time thereafter, the BANK may exercise any or all of the followingrights and remedies:

 

7.2.1                        TheBANK may declare the CONSTRUCTION LOAN to be terminated, whereupon the sameshall forthwith terminate.

 

7.2.2                        TheBANK may declare the entire unpaid principal amount of the CONSTRUCTION NOTEthen outstanding, all interest accrued and unpaid thereon, and all otheramounts payable under this AGREEMENT to be forthwith due and payable, whereuponthe CONSTRUCTION NOTE, all such accrued interest and all such amounts shallbecome and be forthwith due and payable, without presentment, demand, protestor further notice of any kind, all of which are hereby expressly waived by theBORROWER.

 

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7.2.3                        TheBANK may exercise and enforce its rights and remedies under any or all of theLOAN DOCUMENTS.

 

7.2.4                        TheBANK may enter upon the PROPERTY, if allowed under applicable law, and takepossession thereof, together with the PROJECT then in the course ofconstruction, and proceed either in its own name or in the name of theBORROWER, as the attorney-in-fact of the BORROWER (which authority is coupledwith an interest and is irrevocable by the BORROWER) to complete or cause to becompleted the PROJECT, at the cost and expense of the BORROWER. If the BANKelects to complete or cause to be completed the PROJECT, it may do so accordingto the PLANS or according to such changes, alterations or modifications in andto the PLANS as the BANK may deem reasonable and appropriate; and the BANK mayenforce or cancel all contracts let by the BORROWER relating to construction ofthe project, and/or let other contracts which in the BANK’s sole judgment mayseem advisable; and the BORROWER shall forthwith turn over and duly assign tothe BANK, as the BANK may from time to time require, contracts not alreadyassigned to the BANK relating to construction of the PROJECT, blueprints, shopdrawings, bonds, building permits, bills and statements of accounts pertainingto the PROJECT, whether paid or not, and any other instruments or records inthe possession of the BORROWER pertaining to the PROJECT. The BORROWER shall beliable under this AGREEMENT to pay to the BANK, on demand, any amount oramounts reasonably expended by the BANK in so completing the PROJECT, togetherwith any reasonable costs, charges, or expenses incident thereto or resulting therefrom, all of which shall be secured by the LOAN DOCUMENTS. In the event that aproceeding is instituted against the BORROWER for recovery and reimbursement ofany moneys expended by the BANK in connection with the completion of thePROJECT, a statement of such expenditures, verified by the affidavit of anofficer of the BANK, shall be prima facie evidence of the amounts so expendedand of the propriety of the necessity for such expenditures; and the burden ofproving to the contrary shall be upon the BORROWER. The BANK shall have theright to apply any funds which it agrees to disburse hereunder to bring aboutthe completion of the PROJECT and to pay the costs thereof; and if such moneyso agreed to be disbursed is insufficient, in the sole judgment of the BANK, tocomplete the PROJECT, the BORROWER agrees to promptly deliver and pay to theBANK such sum or sums of money as the BANK may from time to time demand for thepurpose of completing the PROJECT or of paying any liability, charge or expensewhich may have been incurred or assumed by the BANK under or in performance ofthis AGREEMENT, or for the purpose of completing the PROJECT. It is expresslyunderstood and agreed that in no event shall the BANK be obligated, or liablein any way to complete the PROJECT or to pay for the costs of constructionthereof beyond the amount of the CONSTRUCTION LOAN.

 

7.2.5                        TheBANK may exercise any other rights and remedies available to it by law oragreement.

 

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SECTION 8 Miscellaneous.

 

8.1                                 Inspections.  The BORROWER and the GENERAL CONTRACTORshall be responsible for making inspections of the PROJECT during the course ofconstruction and shall determine to their own satisfaction that the work doneor materials supplied by the GENERAL CONTRACTOR or any SUBCONTRACTOR to whompayment is to be made out of each disbursement has been properly done orsupplied in accordance with the DESIGN/BUILD CONTRACT. If any work done ormaterials supplied by the GENERAL CONTRACTOR or any SUBCONTRACTOR are notsatisfactory to the BORROWER and/or its GENERAL CONTRACTOR and the same is notremedied within fifteen days of the discovery thereof, the BORROWER willimmediately notify the BANK in writing of such fact. It is expressly understoodand agreed that the BANK and any party designated by the BANK may conduct suchinspections of the PROJECT, subject to the limitations expressed in thisAGREEMENT, as BANK may deem necessary for the protection of the BANK’sinterest, and that any inspections which may be made of the PROJECT by the BANKwill be made, solely for the benefit and protection of the BANK, and that theBORROWER will not rely thereon.

 

8.2                                 Indemnificationby the BORROWER.  The BORROWER shallbear all loss, expense (including reasonable attorneys’ fees) and damage inconnection with, and agrees to indemnify and hold harmless the BANK, itsagents, servants and employees from, all claims, demands and judgments made orrecovered against the BANK, its agents, servants and employees, because ofbodily injuries, including death at any time resulting there from, and/orbecause of damages to property (including loss of use) from any causewhatsoever, arising out of, incidental to, or in connection with theconstruction of the PROJECT, whether or not due to any act of omission orcommission, including negligence of the BORROWER or the GENERAL CONTRACTOR orof his or their employees, servants or agents, other than gross negligence orwillful misconduct of BANK or its agents. The BORROWER’s liability hereundershall not be limited to the extent of insurance carried by or provided by theBORROWER or subject to any exclusions from coverage in any insurance policy.The obligations of the BORROWER under this Section shall survive thepayment of the CONSTRUCTION NOTE.

 

8.3                                 NoWaiver; Cumulative Remedies.  Nofailure or delay on the part of the BANK in exercising any right, power orremedy under the LOAN DOCUMENTS shall operate as a waiver thereof; nor shallany single or partial exercise of any such right, power or remedy preclude anyother or further exercise thereof or the exercise of any other right, power orremedy under the LOAN DOCUMENTS. The remedies provided in the LOAN DOCUMENTSare cumulative and not exclusive of any remedies provided by law.

 

8.4                                 Amendments,Etc.  No amendment, modification,termination or waiver of any provision of any of the LOAN DOCUMENTS or consentto any departure by the BORROWER there from shall be effective unless the sameshall be in writing and signed by the BANK and the BORROWER, and then suchwaiver or consent shall be effective only in the specific instance and for thespecific purpose for which given. No notice to or demand on the BORROWER in anycase shall entitle the BORROWER to any other or further notice or demand insimilar or other circumstances.

 

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8.7                                 Addressesfor Notices, Etc.  Except asotherwise expressly provided herein, all notices, requests, demands and othercommunications provided for under the LOAN DOCUMENTS shall be in writing andmailed or delivered to the applicable party at its address indicated below:

 
| If to the BORROWER: | LSCP, L.P. (d/b/a Little Sioux Corn Processors, L.P.)  4808 F Avenue  Marcus, Iowa 50135  Attn:  Daryl J. Haack |
|---------------------|----------------------------------------------------------------------------------------------------------------------|
|                |                                                                                                                 |
|                |                                                                                                                 |
| If to the BANK:     | First National Bank of Omaha  1620 Dodge St. STOP 1050  Omaha, NE 68197-1050  Attention:  Brian Thome           |

 

or, as to each party, at such other address as shall be designated bysuch party in a written notice to the other party complying as to delivery withthe terms of this Section. All such notices, requests, demands and othercommunications shall, when mailed, be effective when deposited in the mails,addressed as aforesaid, except that notices or requests to the BANK pursuant toany of the provisions hereunder shall not be effective until received by theBANK.

 

8.8                                 Timeof Essence.  Time is of the essencein the performance of this AGREEMENT.

 

8.9                                 Executionin Counterparts.  The LOAN DOCUMENTSmay be executed in any number of counterparts, each of which when so executedand delivered shall be deemed to be an original and all of which counterpartsof each instrument or agreement, taken together, shall constitute but one andthe same instrument.

 

8.10                           BindingEffect, Assignment.  The LOANDOCUMENTS shall be binding upon and inure to the benefit of the BORROWER andthe BANK and their respective successors and assigns, except that the BORROWERshall not have the right to assign its rights there under or any interesttherein without the prior written consent of the BANK.

 

8.11                           GoverningLaw.  The LOAN DOCUMENTS shall begoverned by, and construed in accordance with, the laws of the State ofNebraska.

 

8.12                           Severabilityof Provisions.  Any provision ofthis AGREEMENT which is prohibited or unenforceable shall be ineffective to theextent of such prohibition or unenforceability without invalidating theremaining provisions hereof.

 

8.13                           Headings.  Section headings in this AGREEMENT areincluded herein for convenience of reference only and shall not constitute apart of this AGREEMENT for any other purpose.

 

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8.14                           Integration.  This AGREEMENT supersedes, replaces andterminates any prior oral offers, negotiations, understandings or agreementsand any commitment letters or similar writings relating to any of the matterscontemplated herein.

 

8.15                           Participations.  Notwithstanding any other provision of thisAGREEMENT, the BORROWER understands that the BANK may enter into participationagreements with other lenders whereby the BANK will allocate a certainpercentage of the CONSTRUCTION LOAN to them. The BORROWER specifically permitsand authorizes the BANK to exchange financial information about the BORROWERwith actual or potential participants. The BORROWER acknowledges that, for theconvenience of all parties, this AGREEMENT is being entered into with the BANKonly and that its obligations under this AGREEMENT are undertaken for thebenefit of, and as an inducement to, each of the Participating Lenders as wellas the BANK, and the BORROWER hereby grants to each of the ParticipatingLenders to the extent of its participation in the CONSTRUCTION LOAN, the rightto set off deposit accounts maintained by the BORROWER with such BANK. TheBORROWER understands that the terms of such participation agreements with anyof the participants will limit the BANK’s rights to amend, waive or modify theterms and conditions of this AGREEMENT without the express written consent ofall or a designated percentage of such participants.

 

IN WITNESS WHEREOF, the parties hereto have caused this AGREEMENT to beexecuted by their respective officers or managers thereunto duly authorized, asof the date first above written.

 
| **LSCP, L.P.**                                               |                      | **First National Bank of Omaha**     |
|--------------------------------------------------------------|---------------------------|--------------------------------------|
| by Little Sioux Corn Processors, L.L.C.  Its general partner |
|                                                         |
|                                                         |
| By:                                                          | /s/ Daryl J. Haack        |                                 | By: |   /s/ Brian Thome |   |
|                                                         | Daryl J. Haack, President | Brian Thome, Commercial Loan Officer |
|                                                         |
|                                                         |
| STATE OF Iowa                                                | )                         |
|                                                         | ) ss.                     |
| COUNTY OF Cherokee                                           | )                         |
|                                                              |                           |                                      |  |  |  |  |  |  |

 

On this 25 day of July 2002, before me, the undersigned, a NotaryPublic, personally appeared Daryl J. Haack, the president of Little Sioux CornProcessors, L.L.C., on behalf of said entity as general partner of LSCP, L.P.,who executed the foregoing instrument, and acknowledged that he executed thesame as his voluntary act and deed.

 

 
|   |   /s/ Judith A. Letsche |   |
|--------|------------------------------|--------|
| [SEAL] | Notary Public                |

 

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**EXHIBIT A**

 

LSCP, L.P.Real Estate Description

 

TRACT I

 

A tract of land located in theN1/2 NE1/4, Sec. 2, T92N, R42W, Cherokee County,Iowa, described as follows: Commencing at the NE corner of the NE1/4 of saidSec. 2; thence South 00°00’00” East, 1124.77 feet along the East line of theNE1/4 of said Sec. 2 to a point on the South right-of-way line of the Chicago,Central and Pacific Railroad Company and the point of beginning; thencecontinuing South 00°00’00” East, 305.35 feet along said East line to the SEcorner of the NE1/4 NE1/4 of said Sec. 2; thence South 89°39’28” West, 2647.27feet along the South line of the N1/2 NE1/4 to the SW corner of the NW1/4 NE1/4 ofsaid Sec. 2; thence North 00°12’41” West, 887.37 feet along the West line ofthe NE1/4 of said Sec. 2 to a point on the South right-of-way line of theChicago, Central and Pacific Railroad Company; thence South 77°56’30” East,along said South right-of-way line, a distance of 2710.30 feet to the point ofbeginning.

 

AND

 

TRACT II

 

A tract of land located in the N1/2NE1/4, Sec. 2, T92N, R42W, Cherokee County, Iowa, described as follows:Commencing at the NE Corner of the NE1/4 of said Sec. 2; thence South 00°00’00”East, 305.33 feet along the East line of the NE1/4 of said Sec. 2, to the pointof beginning; thence continuing South 00°00’00” East 717.18 feet along saidEast line to a point on the North right-of-way line of the Chicago, Central& Pacific Railroad Company; thence North 77°56’30” West, 2710.68 feet alongthe North right-of-way line of the Chicago, Central & Pacific RailroadCompany to a point on the West line of the NE1/4 of said Sec. 2; thence North 00°12’41”West, 409.15 feet along the West line of the NE1/4 to the NW Corner of the NE1/4 of said Sec. 2; thence North 88°59’00” East, 2352.75 feet along the Northline of the NEl/4 of said Sec. 2; thence South 00°00’00” East, 300.00 feet;thence North 90°00’00” East, 300.00 feet to the point of beginning.

 

NOTE: The East line of the NE1/4 of Sec. 2 is assumed to bear due Northand South.

 

Subject to existing highways, easements, and right-of-way of record.

 

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**EXHIBIT B**

Construction Note

 
| Note  Date:                      ,  2002 | $31,465,000.00 |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|----------------|
| Maturity  Date:                ,  2003                                 |           |

 

**FOR VALUE RECEIVED,**LSCP,L.P., an Iowa limited partnership (“BORROWER”) promises to pay to the order ofFirst National Bank of Omaha (“BANK”), at its principal office or such otheraddress as BANK or holder may designate from time to time, the principal sum ofThirty One Million Four Hundred Sixty-five Thousand and No/100 Dollars($31,465,000.00), or the amount shown on the BANK’s records to be outstanding,plus interest (calculated on the basis of actual days elapsed in a 360-dayyear) accruing each day on the unpaid principal balance at the annual interestrates defined below. Absent manifest error, the BANK’s records shall be conclusiveevidence of the principal and accrued interest owing hereunder.

 

This promissory note is executed pursuant to a Construction LoanAgreement (“CONSTRUCTION LOAN AGREEMENT”) between BORROWER and BANK dated as of               ,2002. All capitalized terms not otherwise defined in this note shall have themeanings provided in the CONSTRUCTION LOAN AGREEMENT.

 

**INTEREST****ACCRUAL.**Interest on the principal amountoutstanding on the CONSTRUCTION LOAN shall accrue, for the period through andincluding the COMPLETION DATE, at a rate (the “RATE”) one hundred (100) basispoints above the BASE RATE in effect from time to time until maturity, and sixper cent (6%) above the BASE RATE in effect from time to time after maturity,whether by acceleration or otherwise. For purposes hereof, BASE RATE shall meanthe rate announced by BANK from time to time and published monthly as its“National Base Rate”.

 

Each time the BASE RATE shall change, the RATE shall changecontemporaneously with such change in the BASE RATE. Interest shall becalculated on the basis of a 360-day year, counting the actual number of dayselapsed.

 

**REPAYMENT TERMS.**UntilLOAN TERMINATION DATE, interest only shall be payable on the 1st dayof each calendar quarter, commencing October 1, 2002. On LOAN TERMINATIONDATE, all principal and accrued interest are due and payable. The LOANAGREEMENT describes the TERM NOTE that may be used by BORROWER to pay thispromissory note.

 

**PREPAYMENT.**TheBORROWER may prepay this CONSTRUCTION NOTE in full or in part at any time. Suchprepayment shall not excuse the BORROWER from making subsequent payments eachquarter until the indebtedness is paid in full.

 

**ADDITIONAL TERMS AND CONDITIONS.**TheLOAN AGREEMENT, and any amendments or substitutions, contains additional termsand conditions, including default and acceleration provisions, which areincorporated into this CONSTRUCTION NOTE by reference. The

 

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BORROWER agrees to pay all costs of collection, including reasonableattorneys fees and legal expenses incurred by the BANK if this CONSTRUCTIONNOTE is not paid as provided above. This CONSTRUCTION NOTE shall be governed bythe substantive laws of the State of Nebraska.

 

**WAIVER OF PRESENTMENT AND NOTICE OF DISHONOR.**BORROWER and any other person who signs, guarantees orendorses this CONSTRUCTION NOTE, to the extent allowed by law, hereby waivespresentment, demand for payment, notice of dishonor, protest, and any noticerelating to the acceleration of the maturity of this CONSTRUCTION NOTE.

 
|   | **LSCP, L.P. an Iowa Limited Partnership** |
|--------|--------------------------------------------|
|   | by Little Sioux Corn Processors, L.L.C.,   |
|   | Its general partner                        |
|   |                                       |
|   |                                       |
|   | By:                                        |   |   |
|   |                                       | Daryl J. Haack, President |
|        |                                            |  |  |  |

 

 
| STATE OF  | )                |
|-----------|------------------|
|      | )  ss. |
| COUNTY OF | )                |

 

On this       dayof                ,2002, before me, the undersigned, a Notary Public, personally appeared Daryl J.Haack, the President of Little Sioux Corn Processors, L.L.C., general partnerof **LSCP, L.P.,**an Iowa limitedpartnership, on behalf of said entity, who executed the foregoing instrument,and acknowledged that he executed the same as his voluntary act and deed.

 

 
|   |          |   |
|--------|---------------|--------|
|   | Notary Public |

 

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**EXHIBIT C**REVOLVING PROMISSORY NOTE

 
| Omaha, Nebraska | $3,500,000.00                                                                                                                                                                   |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Note Date:      |                             ,  2002 | Maturity Date: | , 2003 |
|                 |                                                                                                                                                                                 |  |  |

 

On or before                     ,2003, LSCP, L.P. (“BORROWER”) promises to pay to the order of First NationalBank of Omaha (“BANK”) at any of its offices in Omaha, Nebraska the principalsum hereof, which shall be Three Million Five Hundred Thousand and no/100($3,500,000.00) Dollars or so much thereof as may have been advanced by BANKand shown on the records of the BANK to be outstanding, under this Note and theloan agreement executed by the BANK and BORROWER dated asof                     ,2002, as it may, from time to time, be amended. Interest on the principal balancefrom time to time outstanding will be payable at a rate (the “RATE”) equal toone hundred (100) basis points higher than the BASE RATE in effect from time totime until maturity, and six per cent (6%) above the BASE RATE in effect fromtime to time after maturity, whether by acceleration or otherwise. For purposeshereof, BASE RATE shall mean the rate announced by BANK from time to time asits “National Base Rate”. Each time the BASE RATE shall change, the RATE shallchange contemporaneously with such change in the BASE RATE. Interest shall becalculated on the basis of a 360-day year, counting the actual number of dayselapsed. Interest on the REVOLVING LOAN shall be payable monthly.

This note is executed pursuant to a Construction Loan Agreement datedasof                     ,2002, between BANK and BORROWER (the “LOAN AGREEMENT”). The LOAN AGREEMENTcontains additional terms of this Note, including, but not limited toenumerated events of default, and the granting of liens to secure BORROWER’s performance.All capitalized terms not otherwise defined herein shall have the same meaningsas set forth in the LOAN AGREEMENT.

As provided in the LOAN AGREEMENT, upon any such enumerated default,BANK may accelerate the due date of this Note and declare all obligations setforth herein immediately due and payable, and BANK shall also have such otherremedies as are described in the LOAN AGREEMENT and are provided by law. Allmakers and endorsers hereby waive presentment, demand, protest and notice ofdishonor, consent to any number of extensions and renewals for any periodwithout notice; and consent to any substitution, exchange or release ofcollateral, and to the addition or releases of any other party primarily orsecondarily liable.

 

Executed as of the          dayof                     ,2002.

 
|   | **LSCP, L.P. an Iowa Limited Partnership** |
|--------|--------------------------------------------|
|   | by Little Sioux Corn Processors, L.L.C.,   |
|   | Its general partner                        |
|   |                                       |
|   |                                       |
|   | By:                                        |   |   |
|   |                                       | Daryl J. Haack, President |
|        |                                            |  |  |  |

 

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**EXHIBIT D**

LSCP, L.P.

 

**CERTIFICATE OF COMPLIANCE**

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

 

Iama                 ofLSCP, L.P. (the “BORROWER”) and under the terms of a CONSTRUCTION LOANAGREEMENT (the “AGREEMENT”) between the BANK and the BORROWER dated               ,and as it may be amended from time to time, certify that:

 

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

 

2.                                       I have read andam familiar with the AGREEMENT and have no knowledge of an existing EVENT OFDEFAULT under the AGREEMENT or of any event which would, after the lapse oftime or the giving of notice, or both, constitute an EVENT OF DEFAULT under theAGREEMENT.

 

Thecalculations regarding each financial covenant, as of the STATEMENT DATE, andregardless of whether the BORROWER must be in compliance with each covenant asof the STATEMENT DATE, are as follows:

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

 

•           Covenant requires aninitial NET WORTH of not less than $19,000,000.00, and is required to increaseannually thereafter by an amount equal to the greater of (i) $250,000.00 perfiscal year, or (ii) the amount of undistributed earnings during the currentyear.

 
|                                                                                 |   | **REQUIRED** |       | **ACTUAL**                                                           |       |
|--------------------------------------------------------------------------------------|--------|--------------|------------|----------------------------------------------------------------------|------------|
|                                                                                 |   |         |       |                                                                 |       |
| FIXED CHARGE COVERAGE RATIO                                                          |   | 1.25:1.0     | ** ** | **          :**1.0 | ** ** |
|                                                                                 |   |         |       |                                                                 |       |
| CAPITAL  EXPENDITURES (Maximum)  (Excluding construction and approved change orders) |   | $            | 500,000    |                                                                 | $          |                       |   |
|                                                                                 |   |         |       |                                                                 |       |
| WORKING CAPITAL (Minimum)                                                            |   | $            | 1,000,000  |                                                                 | $          |                       |   |

 

•                                          Covenant requires minimum WORKING CAPITAL of $1,000,000.00 during the first year of operations, measured beginning at the end of the third month following COMPLETION DATE, minimum WORKING CAPITAL of $1,500,000 during months thirteen(13) through twenty-four (24) following COMPLETIONDATE, and minimum WORKING CAPITAL of $2,000,000 thereafter.

 

1

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3.                                       For the purposeof determining Incentive Pricing changes, the Borrowers INDEBTNESS to NETWORTHRatio is

 

               :1.00

 

4.                                       BORROWER has notmade or paid distributions to members of the BORROWER in excess of thePERCENTAGE allowed. Note that distributions are only allowed annually based onprevious year’s audited financials. Calculation of “Proposed Distributions” isrequired for communication purposes only. Calculated EXCESS CASH FLOW,allowable distributions and distributions made in the current fiscal year are:

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

 

5.                                       BORROWER has notincurred any additional INDEBTEDNESS except debt allowed under the AGREEMENT ordebt otherwise authorized by BANK approval.

 

6.                                       There has beenno personnel change to the ethanol plant management that would be in violationof the AGREEMENT.  Commodity SpecialistsCorporation (CSC) continues to be the marketer of BORROWER’s Distiller’s Grainproducts.  Minnesota Corn Processors Cooperative(MCP) continues to be the marketer of BORROWER’s ethanol products.  F.C. Stone, L.L.C. continues to provide riskmanagement services for BORROWER’s purchases of grain.

 

 
|   | **LSCP, L.P.** |
|--------|----------------|
|   |           |
|   | By:            |   |   |
| Date:  |           |   |   |
|   | Its:           |   |   |
|        |                |  |  |  |  |  |

 
| *For BANK use only:*                                                                                                                                                                                                                                                                                                                                                |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                |
| Rate  change based on Incentive Pricing:                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                |
| Old  rate:                                                                                                                                                                                                                                                                          | New  rate:                 |
|                                                                                                                                                                                                                                                                                                                                                                |
| Effective  date:                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                |
| Verified  by:                                                          |

 

2

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**EXHIBIT E**

 

**LSCP, L.P.**

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

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

 

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**EXHIBIT E**

 

To induce the First National Bank of Omaha (herein called Bank) to makean advance under the Construction Loan Agreement dated July 25, 2002,between the undersigned and the Bank, and any amendments thereto, the undersignedhereby reaffirms the Bank’s security interest in: all inventory, whether nowowned or hereafter acquired, and the proceeds thereof; and, each and everyaccount whether such right to payment now exists or hereafter arises, and theproceeds thereof.  The undersigned alsocertifies that the Borrowing Base as represented above is true and correct andthat there is no default under the aforementioned Agreement, or on any of theBorrower’s liabilities to the Bank.

* *
|   | *Borrower:***LSCP, L.P.** |
|--------|---------------------------|
|   |                      |
|   | *Signature:*              |   |   |
|   |                      |   |   |
|   | *Title:*                  |   |   |

 

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**EXHIBIT 6.4.10**

 

Additional Permitted Indebtedness

 
| 1. |   | Iowa Corn Promotion Board, up to $50,000.00         |
|----|--------|-----------------------------------------------------|
| 2. |   | Fagen, Inc., up to $1,250,000.00                    |
| 3. |   | Farmers State Bank, Marcus, IA, up to $1,000,000.00 |

 

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