Document:

EXHIBIT
10.40

Grain
Origination Agreement

This Grain Origination
Agreement (this “Agreement”) is
made and entered into this 8th day of November, 2006 by and between Heartland
Grain Fuels, L.P., a Delaware limited partnership (“HGF”),
and South Dakota Wheat Growers Association, a South Dakota cooperative (“SDWG”).

Background

                A.            SDWG owns and operates grain
handling facilities in Huron, South Dakota (the “Huron Elevator”) and Aberdeen, South Dakota (the “Aberdeen Elevator” and, together with the
Huron Elevator, collectively the “Grain
Elevators”), as set forth on Exhibit A.

 

B.            HGF owns and
operates dry mill ethanol and byproduct manufacturing plants and related
facilities in Huron, South Dakota (the “Huron
Plant”) and Aberdeen, South Dakota (the “Aberdeen Plant” and, together with the Huron Plant,
collectively the “Ethanol Plants”).

 

C.            The acquisition of a
steady and reliable supply of corn is integral to the use and operation of the
Ethanol Plants.

D.            In order to
guarantee the use and operation of the Ethanol Plants, HGF and SDWG wish to
enter into this Agreement.

E.             In consideration of
the mutual promises and agreements contained herein, it is hereby agreed as
follows.

Agreement

Article I                Grain Origination

1.1           Grain
Origination and Quality.

(a)                                  Subject
to the limitations set forth in this Article I and Section 2.7, SDWG will use
its best efforts to provide HGF with its daily, monthly, and annual corn  requirement for the
Ethanol Plants as set forth in Section 1.4. 
Corn delivered by SDWG pursuant to this Agreement is intended to be
U.S.D.A. No. 2 shelled yellow corn with no more than 15.5% moisture content,
less than 20 ppb of aflatoxin and mycotoxin levels at or below industry
standards for ethanol plants and feed, be merchantable and not adulterated, and
meet such additional specifications and standards as the parties may establish
from time to time by mutual agreement, including without limitation standards
and specifications related to test weight

    
 

 

                                                (determined
with reference to moisture content), foreign material and mycotoxin and other
toxin levels.

(b)                                 Notwithstanding
Section 1.1(a), in the event of an area-wide weather event that does not permit
SDWG to deliver U.S.D.A. No. 2 shelled yellow corn, the parties will use their
best efforts to mutually agree on representative discount schedules for the
respective crop year and such discount schedule shall be deemed to be the
discounts for such crop year.

1.2           Weighing
and Testing.

(a)                                  SDWG
will be solely responsible for installing and maintaining the (i) grain
transfer systems (the “Grain Systems”)
and certified scales and weighing systems (the “Weighing
Systems”), which will transport and weigh all corn delivered by SDWG
to HGF under this Agreement, and (ii) inline grain sampling systems (the “Sampling Systems”), which will
automatically sample the grain flow on a consistent basis.  The Grain Systems, Weighing Systems and
Sampling Systems will be designed to operate so that HGF’s employees may,
pursuant to SDWG’s instruction,  initiate
the conveyance of corn to the Ethanol Plants without participation by SDWG
employees.  SDWG will be responsible for
the maintenance and accuracy of the Grain Systems, Weighing Systems and
Sampling Systems; provided, that HGF will be responsible for all costs and
expenses incurred by SDWG related to the Grain Systems, Weighing Systems and
Sampling Systems that result from the negligence of HGF or its employees.

(b)                                 The
Weighing Systems will be certified twice annually by SDWG, at the expense of
SDWG, and the results of such certification will be promptly delivered in
writing to HGF.  Additional testing and
certification of the Weighing Systems may be undertaken by HGF at the sole
expense of HGF, except in cases where the Weighing Systems are out of
compliance with applicable standards, in which case SDWG will be responsible
for costs resulting from such additional compliance actions.

(c)                                  HGF
will collect samples from the Sampling Systems at six (6) hour intervals, or
more frequently if mutually agreed to by the parties.  All collected grain samples will be divided
between the parties and labeled with the time and date of the sample.  Except as otherwise provided herein, the
samples will be graded by SDWG at its offices during regularly scheduled work
hours and the results will be communicated to HGF as soon as reasonably
practicable.  During weekends and
holidays, HGF shall be responsible to check the samples and communicate the
results to SDWG as soon as reasonably practicable.  If HGF fails to check the

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                                                samples
and promptly notify SDWG of a Maximum Discount Sample (as defined below), the
maximum amount of corn subject to discounts in Section 1.3 hereof is the corn
sold during the first two Maximum Discount Sample periods.  If a party (the “Non-grading Party”) disagrees with the grade given by the
other party (the “Grading Party”),
then the Non-grading Party may submit the sample to an official grain
inspection agency for independent grading. 
The Non-grading Party will be solely responsible for all costs
associated with obtaining an official grain inspection.  The results of grading determined pursuant to
this Section 1.2(c) will govern the discounts, if any, that are applicable
pursuant to Section 1.3.  For purposes of
this Agreement, a sample of corn that equals or exceeds the maximum percentage
for one or more of the standards set forth in Sections 1.3(a)-(d), or is less
than the minimum weight set forth in Section 1.3(e), shall be referred to
herein as a “Maximum Discount Sample.”

1.3                                 Discount
for failure to meet quality standards. 
If it is determined that corn delivered by SDWG under this Agreement (i)
is a Maximum Discount Sample, (ii) exceeds 20 ppb of aflatoxin, or (iii)
contains mycotoxin at levels greater than industry standard for ethanol and
feed, HGF has the right to reject the corn or impose the discounts set forth
below, and will otherwise have those rights set forth in Section 3.3.  If corn is rejected as a result of the
application of this Section 1.3, SDWG must use its best efforts to deliver
conforming corn to HGF.  Subject to
Section 1.1(b), if HGF accepts corn that is the subject to discount in this
Section 1.3, then the discounts set forth in (a)-(e) below will apply (a “Discount Sample”). Notwithstanding the
foregoing, such discounts will only apply to corn delivered during the period
beginning at the time of the sample immediately preceding a Discount Sample and
ending at the time of the Discount Sample (but in no event will such period
exceed six hours), and in the case when HGF is the Grading Party, only if HGF
has timely delivered the grading results to HGF pursuant to Section 1.2(c):

(a)                                  Broken
kernel F.M.: no discount 15% maximum.

(b)                                 All
other foreign material:

(1)                                  below 2%, no
discount;

(2)                                  2% or more, but less
than 3%, $[*] per bushel discount;

(3)                                  3% or more, but less
than 4%, $[*] per bushel discount; and

(4)                                  maximum percentage of
4%, with a $[*] per bushel discount at 4%, rising $[*] per bushel for each
percentage point above 4%.

* Portions omitted pursuant to a request for
confidential treatment and filed separately with the SEC.

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(c)                                  Damaged
corn:

(1)                                  below 5%, no
discount;

(2)                                  5% or more, but less
than 6%, $[*] per bushel discount;

(3)                                  6% or more, but less
than 7%, $[*] per bushel discount; and

(4)                                   maximum
percentage of 7%, with a $[*] per bushel discount at 7%, rising $[*] per bushel
for each percentage point above 7%.

(d)                                 Moisture:  The permissible moisture level shall be
within [*]% of the moisture level under 
SDWG’s cash-corn purchase policy at the time of delivery, except that
the following discounts shall apply regardless of such moisture level:

(1)                                  Below [*]%, no
discount;

(2)                                  [*]% or more, but
less than [*]%, $[*] per bushel discount; and

(3)                                   maximum
percentage of [*]%, with a $[*] per bushel discount at [*]%, rising $[*] per
bushel for each percentage point above [*]%.

Should the moisture level of corn delivered by SDWG
under this Agreement reach [*]% or more and HGF suffers operational problems at
an Ethanol Plant related to such moisture, SDWG will, upon receipt of notice
from HGF, take immediate action to begin to deliver corn with maximum levels of
moisture of less than [*]%.  If SDWG
delivers corn with moisture levels of [*]% or greater for more than twenty-four
(24) consecutive hours, HGF shall be entitled to the fee described in Section
3.3(a) as if all such preconditions and requirements therein had been met;
provided, that in the case when HGF is the Grading Party, HGF will only be
entitled to such fee if HGF has timely delivered the grading results to SDWG
pursuant to Section 1.2(c) and subject to the limitations in Section 1.2 (c).

(e)           Test weight (per bushel):

(1)           54 lbs and above, no discount;

(2)           52 lbs or more, but less than 54 lbs,
$[*] per pound discount;

(3)           less than 52 lbs and above 49 lbs,
$[*] per pound discount; and

(4)                                  less
than 49 lbs, market discounts.

The parties agree to review the discounts set forth
above on each anniversary date of this Agreement and to modify them accordingly
to conform to industry practice.  If the
parties cannot agree on modifications to the discounts, if any, the matter will
be submitted to arbitration pursuant to Section 8.4.

* Portions omitted pursuant to a request for
confidential treatment and filed separately with the SEC.

 

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If corn delivered to HGF by SDWG  pursuant to this Agreement results in a
Maximum Discount Sample for more than 48 consecutive hours (8 consecutive
regular testing periods) and such deliveries are not due to an area-wide
weather event, then the applicable discounts pursuant to this Section 1.3 shall
double beginning at the time of the first Maximum Discount Sample during such
time period.

1.4                                 Quantity.  No later than 15 calendar days prior to the
end of each calendar quarter, HGF will deliver to SDWG its projected corn
needs, on a per month and per quarter bushel basis, for each of the Ethanol
Plants for the next calendar quarter (such projected bushel requirements are
referred to herein as the “Projections”).
Unless otherwise consented to in writing by SDWG, a Projection for an Ethanol
Plant may not exceed the lesser of (i) the projected requirements for the
Ethanol Plant based on the Ethanol Plant’s anticipated production capacity, and
(ii) the projected requirements for an Ethanol Plant based on the Ethanol Plant’s
production capacity at the time of the Projection.  For purposes of the Projections, the current
and anticipated production capacity of the Huron Plant is 30 MMGY and 50 MMGY,
respectively, and the current and anticipated production capacity of the
Aberdeen Plant is 10 MMGY and 50
MMGY, respectively.  The capacity of an
Ethanol Plant will be deemed to be 50 MMGY upon HGF’s receipt of a “Completion Notice,” which for purposes of
this Agreement means the receipt by HGF of a notice from an independent
examiner stating that expansion of such plant to a production capacity of 50
MMGY is complete and such plant is capable of operating at its maximum
nameplate capacity.  Subject to Section
2.7, HGF agrees that it will purchase a quantity of corn from SDWG, and SDWG
agrees that it will supply a quantity of corn to HGF under this Agreement, in
accordance with the provisions below:

(a)                                  For
each calendar month, HGF will purchase from SDWG at least 50% of its
Projections for the Huron Plant and at least 50% of its Projections for the
Aberdeen Plant, unless otherwise agreed to in writing by both parties.

(b)                                 For
each calendar month and subject to the restrictions in this Section 1.4(b), HGF
may deliver corn (“Third Party Corn”)
purchased from a party other than SDWG and its affiliates to the respective
Grain Elevator in an amount not to exceed 50% of its Projections for the Huron
Plant and 50% of its Projections for the Aberdeen Plant; provided, that HGF
provides SDWG with at least two weeks advance written notice of such
delivery;  provided, further, that HGF
may not have Third Party Corn delivered to a Grain Elevator such that the
quantity of Third Party Corn in the Grain Elevator at any given time during a
month exceeds 15% of Projections for such month.  Notwithstanding the foregoing, HGF and its
affiliates may not purchase Third Party Corn from producers located

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                                                within
SDWG’s Trade Area (defined below).  For
purposes of this Agreement, “SDWG’s Trade Area”
means all counties in which SDWG has facilities and the area within a radius of
twenty five (25) miles from such facility. 
HGF may purchase Third Party Corn from any non-producer as long as such
Third Party Corn is delivered from a commercial facility regardless of the
origin of such Third Party Corn; provided, that HGF shall provide SDWG with
prior notice of the terms of all prospective purchases of Third Party Corn, and
SDWG will have the option to match the quantity, delivery period and delivered
price to the applicable Ethanol Plant. 
If SDWG does not exercise its right in the preceding sentence, then HGF
shall purchase the Third Party Corn under the terms of the prospective
purchase.

(c)                                  SDWG
shall grade any Third Party Corn that it receives under this Agreement.  HGF shall pay SDWG the appropriate discounts,
if any, set forth in Section 1.3 based on the quality of such Third Party Corn;
provided, that if such Third Party Corn fails to satisfy the quality standards
for which HGF may reject SDWG source corn under Section 1.3, SDWG may reject
such Third Party Corn on HGF’s behalf and at HGF’s sole expense.

(d)                                 If
HGF delivers Third Party Corn to SDWG pursuant to this Agreement, SDWG is
deemed to first deliver such Third Party Corn to HGF, prior to delivering corn
sourced by SDWG to HGF.  Notwithstanding
the fact that SDWG is not selling the Third Party Corn to HGF, if corn deemed
to be Third Party Corn under this Section 1.4(d) is delivered by SDWG to HGF
and constitutes a Discount Sample, then SDWG will pay HGF an amount equal to
the value of any such discounts under Section 1.3 as if SDWG had sold such
Third Party Corn to HGF.

1.5                                 Title
and Risk of Loss.  SDWG shall be
responsible for receiving, handling and storing corn for the Ethanol Plants and
the delivery to the Ethanol Plants of the corn required under this Agreement;
provided, that SDWG is not responsible for the delivery or risk of loss with
respect to Third Party Corn until SDWG has received delivery of such Third
Party Corn.  Subject to the foregoing,
title and risk of loss with respect to corn shifts to HGF once the corn leaves
the Weighing Systems and enters HGF’s processing facility.

1.6                                 Warranty
of Ownership.  SDWG warrants to HGF
that all of the corn (other than Third Party Corn) delivered to HGF under this
Agreement will be free and clear of any security interest, lien, penalty,
charge, or encumbrance, governmental or otherwise.

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Article II               Pricing

2.1                                 General.

(a)                                  Subject
to Section 1.3, HGF and SDWG expect to enter into forward and other special
corn pricing arrangements under written contracts customary in the grain
industry with respect to the corn to be purchased by HGF from SDWG under this
Agreement.  The terms of such contracts
will control the pricing of corn hereunder. 
The parties acknowledge that any margin or handling charge will be
included in the price of such corn under such written contracts and the
provisions of Section 2.2 will not apply.

(b)                                 With
respect to corn sold by SDWG to HGF under this Agreement for which a forward or
other special pricing arrangement is not applicable, HGF will pay SDWG a per
bushel price equal to the daily posted nearby delivered bid at the applicable
Grain Elevator, plus the handling charge described in Section 2.2.   Monday’s pricing will include the preceding
Saturday and Sunday purchases.

2.2                                 Handling
Charge.  Subject to Sections 2.1 and
2.5,  for all corn (other than Third
Party Corn) delivered to the Huron Plant and the Aberdeen Plant, HGF will pay
SDWG a handling charge equal to $[*] per bushel and $[*] per bushel,
respectively; provided, that upon HGF’s receipt of a Completion Notice with
respect to the Huron Plant, the handling charge for all corn (other than Third
Party Corn) delivered to the Huron Plant will equal $[*] per bushel.

2.3                                 Elevation
Charge and Excess Storage Fee. 
Subject to Section 2.5,  for all
Third Party Corn delivered to the Huron Plant and the Aberdeen Plant, HGF will
pay SDWG an elevation charge equal to $[*] per bushel and $[*] per bushel,
respectively; provided, that upon HGF’s receipt of a Completion Notice with
respect to the Huron Plant, the elevation charge for all Third Party Corn
delivered to the Huron Plant will equal $[*] per bushel.  If Third Party Corn remains in a Grain
Elevator for a period of time longer than eight days during the months of
January through August, or a period of time longer than three days during the
months of September through December, then HGF will pay an excess storage fee
equal to (i) $[*] per bushel, plus (ii) the per bushel tariff rate in effect at
the applicable Grain Elevator from time to time, with such amount in (ii)
prorated during each month for the actual number of days in excess of the
eight-day and three-day limits, as applicable, that such Third Party Corn
remains in a Graint Elevator.

* Portions omitted pursuant to a request for
confidential treatment and filed separately with the SEC.

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2.4                                 Invoicing
and Payment.  HGF will pay to SDWG
all amounts due under this Agreement pursuant to the following terms:

(a)                                  by
5:00 p.m. on Monday, or if the week begins on a national holiday, the next
business day, SDWG intends to deliver an invoice to HGF for the prior week’s
charges;

(b)                                 HGF
will pay the amount due under such invoice by the later of (i) 5:00 p.m. on the
first Thursday following the week to which such invoice relates, and (ii) 5:00
p.m. on the second business day following receipt of such invoice, by
electronic transfer of immediately available funds to such account or accounts
designed by SDWG; and

(c)                                  any
delinquent payment will accrue interest at an interest rate equal to the SDWG
CoBank weekly operating rate plus 5%, calculated on a daily basis from the
original due date of such payment until SDWG receives such payment.

2.5           Price
Adjustment.

(a)                                  The
fees established under Section 2.2 and 2.3 are based on a present ethanol
production capacity of 50 MMGY at the Aberdeen Plant and 30 MMGY (50 MMGY upon
HGF’s receipt of a Completion Notice) at the Huron Plant.  In connection with the expansion of
production capacity above 50 MMGY at either Ethanol Plant, the parties will
cooperate in good faith to: (i) agree on the impact such expansions will have
on the fees set forth in Sections 2.2 and 2.3 as a result of costs reasonably
incurred by SDWG to meet such additional capacity requirements (e.g. the
addition of new grain elevators, additional scales, other equipment, personnel,
etc.); (ii) to modify such fees accordingly; and (iii) if necessary to allow
SDWG to recover such costs, extend the Term of this Agreement and/or increase
the applicable minimum volumes and fees in Section 3.3(b) and (c).  Notwithstanding the foregoing, in no event
will the fees set forth in Sections 2.2 and 2.3 be less than $[*] for the
Aberdeen Plant and $[*] for the Huron Plant.

(b)                                 Beginning
on the fifth anniversary of this Agreement, and continuing annually thereafter,
the fees provided in Section 2.2 and Section 2.3 of this Agreement will be
adjusted (up or down) to the nearest 1/2 cent per bushel of corn as mutually
agreed to by the parties.  Notwithstanding the foregoing, in
no event will the fees set forth in Sections 2.2 and 2.3 be less than $[*] for
the Huron Plant and $[*] for the Aberdeen Plant.

* Portions omitted pursuant to a request for
confidential treatment and filed separately with the SEC.

 

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2.6                                 Hedging
Assistance.  If mutually beneficial
and at HGF’s request, SDWG will assist HGF in the purchase of corn futures to
lock in the price of corn.  However, SDWG
will not be obligated to purchase corn futures on behalf of HGF.

2.7                               Bid
Pricing Dispute Resolution.

(a)                                   If
at anytime on or after the date that is three months after the date hereof HGF
believes that SDWG is not properly setting bids at the Grain Elevators, then
HGF may provide SDWG written notice of the specific issues that HGF has with
SDWG’s bids (“Bid Pricing Dispute Notice”).

(b)                                  SDWG
will have 30 days from the date that it receives the Bid Pricing Dispute Notice
(“Dispute Notice Response Due Date”) to
provide HGF with a written response to the issues set forth in the Bid Pricing
Dispute Notice (“Dispute Notice Response”).

(c)                                   HGF
will have 15 days from the date that it receives the Dispute Notice Response to
review such response and determine if the issues set forth in the Bid Pricing
Dispute Notice have been resolved.

(d)                                  If
SDWG fails to timely deliver a Dispute Notice Response or if HGF determines and
notifies SDWG in writing that a timely delivered Dispute Notice Response fails
to resolve the issues set forth in such Dispute Notice Response (“Deficient Response”), then 60 days after the Dispute Notice
Response Due Date or the date that SDWG receives a Deficient Response, as
applicable, HGF may, upon prior written notice to SDWG, elect to have the
exclusive power to set the bids at the Grain Elevators for a minimum of 12
months, unless otherwise agreed to by SDWG and subject to the following
conditions:

(i)                                     The
parties agree to meet and make a good faith effort to resolve the issues
identified in the Bid Pricing Dispute Notice. 
If resolution is not reached during such 12-month period, then HGF will
continue setting the bids at the Grain Elevators for additional 90-day periods
until resolution is reached.

(ii)                                  Upon
mutual agreement of the parties, the exclusive power to set bids at the Grain
Elevators will revert back to SDWG and the provisions of this Section 2.7 will
not apply until the provisions of subsections (a)-(d) above have been satisfied
again.

(iii)                               The
rights and obligations under the first sentence of Section 1.1(a) will be
suspended until such time, if at all, that the power to set the

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                                                bids
at the Grain Elevators reverts back to SDWG pursuant to the terms of this
Section 2.7.  The rights and obligations
under 3.3(a)(i) will only apply subject to availability of HGF Corn Inventory
at the Grain Elevators.  It will be the
sole responsibility of HGF to ensure the availability of HGF Corn Inventory at
the Grain Elevators.

(iv)                              The
maximum amount of corn purchased pursuant to bids established by HGF that may
be stored at each Grain Elevator at any given time is equal to 20 days of corn
based upon the respective Ethanol Plant capacity at the time.

(v)                                 Corn
purchased from producers pursuant to a bid established by HGF will be mirrored
by contracts to be issued by SDWG to HGF. 
Corn purchased at the Grain Elevators pursuant to a bid established by
HGF will be deemed to be sold for payment and other purposes under Section
2.1(b) at the time that such corn is in position at the Grain Elevators (“HGF Bid Corn”), computed without discounts to HGF.  HGF Bid Corn and Third Party Corn
(collectively, “HGF Corn Inventory”) may be
commingled in the Grain Elevators with SDWG corn.  SDWG will only be obligated to deliver to an
Ethanol Plant the HGF Corn Inventory located at the respective Grain
Elevator.  If HGF Bid Corn is delivered
by SDWG to HGF and constitutes a Discount Sample, then SDWG will pay HGF an
amount equal to the value of any such discounts under Section 1.3.  Notwithstanding the presence of any HGF Corn
Inventory at any of the Grain Elevators, SDWG will continue to operate and
maintain the Grain Elevators in good faith.

 

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Article III              Term
and Termination

3.1                                 Term.  This Agreement will be effective beginning on
the date hereof and will continue until the tenth anniversary of the date of
this Agreement (together with any renewal period, the “Term”),
unless this Agreement is terminated earlier in accordance with its terms.  This Agreement will be automatically renewed
for successive three year periods unless a party provides written notice of
termination to the other party at least 120 days prior to the end of the
Term.  Except as may be otherwise agreed
to by the parties, the terms and provisions of this Agreement will not change
in connection with any renewal term; provided, that a party may elect to
terminate this Agreement with respect to one Ethanol Plant and renew the term
with respect to the other Ethanol Plant.

3.2                                 Termination.  Except as set forth under Section 3.1 and
3.4, a party under this Agreement will only have the right to terminate this
Agreement upon the occurrence of an Event of Default (as defined in Section 4.1).  Except as otherwise provided below, upon the
occurrence of an Event of Default, the non-defaulting party (as defined in
Section 4.1) will have the right to terminate this Agreement effective
immediately by sending written notice thereof to the defaulting party and to
receive payment from the defaulting party (as defined in Section 4.1) as set
forth in Sections 3.3 and 4.2, and as is otherwise allowed by applicable law
(except that no party will be entitled to consequential damages for any claim
arising under this Agreement).  Notwithstanding the foregoing, a
non-defaulting party will only have the right to terminate this Agreement with
respect to the Ethanol Plant to which the Event of Default relates, except that
SDWG may terminate this Agreement with respect to both Ethanol Plants upon an
Event of Default under Section 4.1(c) regardless of which Ethanol Plant such
Event of Default relates.

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3.3           Failure to Deliver or Accept Corn.

(a)                                  Subject
to Sections 2.7, 3.3(b) and 7.3, in the event (i) SDWG fails to deliver corn to
an Ethanol Plant in such quantities as requested by HGF (subject to Section
1.4) for at least 48 consecutive hours and SDWG does not provide HGF with at
least 24 hours noticeof such
anticipated failure, or (ii) HGF rejects corn pursuant to Section 1.3 and SDWG
fails to provide substitute corn resulting in a production stoppage at an
Ethanol Plant, SDWG will pay to HGF a fee equal to the product of $[*]
multiplied by the daily production capacity (in gallons based on a 365-day
year) of such Ethanol Plant for each day that (i) or (ii) above is applicable,
in addition to any amounts that HGF may otherwise be entitled to under Section
4.2(a).

(b)                                 The
fee in Section 3.3(a) will not be applicable if SDWG fails to deliver corn to
the Ethanol Plants due to a mechanical emergency, which emergency was not
caused by the negligence or other fault of SDWG. SDWG shall give HGF immediate
notice of the nature of such emergency and a reasonable estimate of the
duration such emergency will continue. 
During such emergency, HGF may receive its supply of corn from any other
supplier, including those within SDWG’s Trade Area; provided, that such
emergency was not caused by the negligence or other fault of HGF.  In such a case, the amount of corn received
by HGF shall count towards the bushel requirements contained at Sections 3.3(c)
and 3.3(d).

(c)                                  Notwithstanding
Section 7.3, in the event HGF fails to accept delivery of at least 9,000,000
bushels of corn at the Huron Plant during any 12-month period (the “Minimum Annual Huron Amount”) under this
Agreement, HGF will pay to SDWG a handling charge equal to $[*] per bushel
multiplied by the number of bushels equal to the difference between the Minimum
Annual Huron Amount and the actual number of bushels of corn delivered by SDWG
to the Huron Plant during such 12-month period. 
Upon termination of this Agreement pursuant to Section 3.4 or 4.2(b),
HGF will pay to SDWG a handling charge equal the amount described in the
preceding sentence for the year of termination, plus $[*] per bushel multiplied
by the Minimum Annual Huron Amount for all other years remaining in the
Term.  The per bushel handling charge of
$[*] in this Section 3.3(c) will decrease to $[*] per bushel and the Minimum
Annual Huron Amount will increase to 15,000,000 bushels upon HGF’s receipt of a
Completion Notice with respect to the Huron Plant.  For the purposes of this Agreement, the
12-month period shall begin on the first day of the

* Portions omitted pursuant to a request for
confidential treatment and filed separately with the SEC.

 

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 month
after execution of this Agreement.  Upon
the first and each anniversary thereafter of such date, the 12-month period
shall restart.

(d)                                 On
and after the date that HGF receives a Completion Notice with respect to the
Aberdeen Plant and notwithstanding Section 7.3, in the event HGF fails to
accept delivery of at least 15,000,000 bushels of corn at the Aberdeen Plant
during any 12-month period (the “Minimum Annual Aberdeen
Amount”) under this Agreement, HGF will pay to SDWG a handling
charge equal to $[*] per bushel multiplied by the number of bushels equal to
the difference between the Minimum Annual Aberdeen Amount and the actual number
of bushels of corn delivered by SDWG to the Aberdeen Plant during such 12-month
period.  Upon
termination of this Agreement pursuant to Section 3.4 or 4.2(b), HGF will pay
to SDWG a handling charge equal the amount described in the preceding sentence
for the year of termination, plus $[*] per bushel multiplied by the Minimum
Annual Aberdeen Amount for all other years remaining in the Term.  For the purposes of this Agreement, the
12-month period shall begin on the first day of the month after execution of
this Agreement.  Upon the first and each
anniversary thereafter of such date, the 12-month period shall restart.

(e)                                  Notwithstanding
Section 7.3, in the event HGF fails to take delivery of at least 50% of its
Projections for either Ethanol Plant during any month, HGF will pay to SDWG a
fee equal to $[*] per bushel or $[*] per bushel at the Huron Plant or the
Aberdeen Plant, respectively, multiplied by the number of bushels equal to the
difference between 50% of the Projections for such plant during such month and
the actual number of bushels of corn delivered by SDWG to such plant during
such month.  The per bushel fee of $[*]
in this Section 3.3(e) will decrease to $[*] per bushel upon HGF’s receipt of a
Completion Notice with respect to the Huron Plant.

3.4                                 Suspension of
Operations.  If the operation of an
Ethanol Plant is suspended for any reason (including pursuant to Section 7.3), such as repairs,
modifications, expansions or damage to the Ethanol Plant for at least fifteen
(15) months, SDWG may terminate this Agreement with respect to such Ethanol
Plant by providing HGF with written notice.

* Portions omitted pursuant to a request for
confidential treatment and filed separately with the SEC.

 

 13
 

Article IV              Event of Default; Remedies

4.1                                 Event of Default.  Each of the following will constitute an
event of default (an “Event of Default”)
under this Agreement:

(a)                                  if upon written
notice from the other party (the “non-defaulting party”)
of an alleged breach of any provision of this Agreement, the party receiving
such notice (the “defaulting party”)
fails to undertake reasonable efforts to correct the such default within seven
days after receiving such notice;

(b)                                 the other party files
a voluntary petition in bankruptcy, has filed against it an involuntary
petition in bankruptcy, makes an assignment for the benefit of creditors, has a
trustee or receiver appointed for any or all of its assets, is insolvent or
fails or is unable to pay its debts generally when due, in each case where such
petition, appointment or insolvency is not dismissed, discharged or remedied,
as applicable, within 60 days;

(c)                                  HGF fails to pay any
amount due to SDWG under this Agreement within five days of the due date for
such payment; or

(d)                                 subject
to Sections 3.3(b) and 7.3, SDWG for a period exceeding six consecutive days
(24 consecutive regular testing periods) delivers corn of such quality that it
would give HGF a right of rejection under Section 1.3, or of such quantity that
it does not fulfill its obligations under Section 1.4.

4.2           Remedies.

(a)                                  HGF Remedies.  If an Event of Default occurs under Section
4.1(a), (b) or (d), HGF may in addition to recovering payment of any amounts
under Section 3.3,:

(1)                                  in good faith and
without unreasonable delay, make any reasonable purchase of corn in
substitution of the amount due from SDWG;

(2)                                  seek and receive
injunctive relief or a decree of specific performance;

(3)                                  credit the amount of
damages owed by SDWG to HGF and set off such amount against any amounts owed by
HGF to SDWG;

(4)                                  terminate this
Agreement pursuant to Section 3.2;

(5)                                  exercise the Default
Buyout Option in Section 5.2; and/or

(6)                                  pursue any other
remedy (except for consequential damages) to which it may be entitled in law or
equity for breach of contract.

 14
 

(b)                                 SDWG
Remedies.  If an Event of
Default occurs under Section 4.1(a), (b) or (c), SDWG may, in addition to
recovering payment of any amounts under Section 3.3,:

(1)                                  withhold future
deliveries of corn until such Event of Default is either cured of waived by
SDWG;

(2)                                  recover the payments
(including interest) due from HGF on account thereof;

(3)                                  seek and receive
injunctive relief or a decree of specific performance;

(4)                                  terminate this
Agreement pursuant to Section 3.2; and/or

(5)                                  pursue any other
remedy (except for consequential damages) to which it may be entitled in law or
equity for breach of contract.

4.2                                 Rights
to Withhold Future Deliveries. 
Notwithstanding the foregoing, if HGF properly rejects any corn tendered
for delivery pursuant to the terms of Section 1.3, HGF shall not be liable for
damages and SDWG may not withhold future scheduled deliveries.

Article V               Purchase and Sale of Grain
Elevators or Ethanol Plants

5.1                                 Buyout Option.

(a)                                  Grant.  In the event that, during the term of this
Agreement, SDWG receives a bona fide written offer to sell the Grain Elevators,
or any of them, to a third party, and SDWG intends to accept such offer, SDWG
will first grant to HGF an option (the “Buyout Option”)
to purchase, assume or otherwise acquire the Grain Elevators that SDWG intends
to sell or transfer (other than pursuant to a transaction resulting in the change
of control of SDWG) to a third party (other than an affiliate of SDWG) during
the term of this Agreement.

(b)                                 Terms and
Conditions.  The Buyout Option will be exercisable by
HGF (if at all) on substantially similar terms and conditions as SDWG intends
to sell or transfer the Grain Elevators to a third party; provided, that if the
consideration of such third party offer is other than cash, the purchase price
for the Buyout Option will be the cash equivalent of such consideration.

 15
 

(c)                                  Other Terms.

(1)                                  SDWG will provide
written notice to HGF within three business days of its intention to sell or
transfer a Grain Elevator, including a written copy of the proposed third party
offer and all material information relating to such sale or transfer.

(2)                                  HGF must provide
written notice of its intent to exercise the Buyout Option within 30 days after the date SDWG provides HGF
with notice its intent to sell or transfer a Grain Elevator, and must
consummate the exercise of any Buyout
Option within 30 days thereafter.

(3)                                  Payment of the
purchase price must be made by HGF in full by transfer of immediately available
funds to such account or accounts as SDWG shall communicate to HGF in writing
on consummation of the Buyout Option.

(4)                                  The parties agree to
take such other actions in connection with the exercise of the Buyout Option as are customary and
reasonable for such transactions, including obtaining any required third party
consents and such other written documentation memorializing such transfer.

5.2                                 Default Buyout
Option.

(a)                                  Grant.  Upon the occurrence of an Event of Default
under Section 4.1(a), (b) or (d), HGF will have an option (the “Default Buyout
Option”) to purchase, assume or otherwise acquire the Grain Elevator
to which the Event of Default relates.

(b)                                 Terms and
Conditions.  The Default Buyout Option will be exercisable by
HGF (if at all) at a price equal to the greater of (i) the book value of the
Grain Elevator subject to the Default Buyout Option, or (ii) the appraised
value of such Grain Elevator, including the value of the rights and benefits
under the terms of this Agreement, as determined by an independent appraiser.

 16
 

(c)                                  Other Terms.

(1)                                  HGF must provide SDWG
written notice of its intent to exercise the Default Buyout Option within 30 days after the Event of Default giving
rise to the Default Buyout Option, and must consummate the exercise of any
Default Buyout Option within
30 days thereafter.

(2)                                  Payment of the
purchase price must be made by HGF in full by transfer of immediately available
funds to such account or accounts as SDWG shall communicate to HGF in writing
on consummation of the Default Buyout
Option.

(3)                                    The parties agree
to take such other actions in connection with the exercise of the Default Buyout Option as are customary and
reasonable for such transactions, including obtaining any required third party
consents and such other written documentation memorializing such transfer.

5.3                                 Put Option.

(a)                                  Grant.  If HGF or an affiliate sells or transfers,
directly or indirectly, an Ethanol Plant to a third party (other than an
affiliate of HGF) (a “Buyer”) during
the term of this Agreement, HGF grants to SDWG an option (the “Put Option”) to sell to the Buyer, and to compel the Buyer
to purchase, the Grain Elevator that supplies corn to such Ethanol Plant.

(b)                                 Price.  The price to be paid (the “Exercise Price”) to SDWG by the Buyer upon the exercise of
the Put Option will equal the greater of (i) the book value of the Grain
Elevator subject to the Put Option, or (ii) the appraised value of such Grain
Elevator, including the value of the rights and benefits under the terms of
this Agreement.

(c)                                  Other Terms.

(1)                                  HGF will provide
written notice to SDWG within three business days of the intent to sell or
transfer an Ethanol Plant, including all material information relating to such
sale or transfer.

(2)                                  SDWG must provide
written notice to HGF and the Buyer of its intent to exercise the Put Option
within 30 days after the date HGF provides SDWG with notice of the intent to
sell or transfer an Ethanol Plant, and the Put Option will be consummated at
the closing of the direct or indirect sale or transfer of such Ethanol
Plant(s).

 17
 

(3)                                  Payment of the
Exercise Price must be made by the Buyer in full by transfer of immediately
available funds to such account or accounts as SDWG shall communicate to the
Buyer in writing on consummation of the Put Option.

(4)                                  The parties agree to
take such other actions in connection with the exercise of the Put Option as
are customary and reasonable for such transactions, including obtaining any
required third party consents and such other written documentation
memorializing such transfer.

Article VI              Insurance

6.1                                 Property and Fire
Insurance.  Throughout the term of
this Agreement, SDWG and HGF shall each maintain fire and casualty insurance
coverage on their respective property in the minimum amount as set forth below,
naming the other party as an additional insured thereon, and provide the other
party with a certificate of such insurance.

SDWG                                    $9,000,000
(Aberdeen); $7,000,000 (Huron)

HGF                                        $60,000,000

6.2                                 Liability Insurance.  Throughout the term of this Agreement, SDWG
and HGF shall each maintain the following liability insurance for their
operations, and shall insure that such policies of insurance name the other
party to this agreement as a beneficiary thereunder:

(a)                                  Commercial general
liability insurance that contains broad form contractual liability with a
combined single limit of at least one million dollars ($1,000,000) each
occurrence and an aggregate limit of at least two million dollars ($2,000,000),
subject to reasonable levels of self insurance and deductibles. Coverage must
include, but is not limited to, bodily injury and property damage;

(b)                                 Worker’s compensation
and employer’s liability insurance including coverage for statutory liability
under applicable worker’s compensation laws; and

(c)                                  Any other insurance
required by law and/or deemed necessary by legal counsel for HGF and SDWG.

6.3                                 Review of
Commercial General Liability Insurance. The commercial general liability
insurance required under Section 6.2(a) hereof will be subject to annual review
of the parties.  Any change in coverage
pursuant to the annual review must be mutually agreed upon by both parties.

 18
 

Article VII            Miscellaneous

7.1                                 Corn Merchandising
Strategy. The parties will meet as needed to develop, monitor and revise
HGF’s corn merchandising strategy, including the most efficient and effective
ways to acquire the required quantities and qualities of corn from various
sellers, such as the development of purchase contracts. SDWG will provide to
HGF, upon request, the current position of all open corn contracts for the
Ethanol Plants.

7.2                                 Corn Market
Conditions and Pricing Notices.  SDWG
will regularly provide to HGF’s risk manager the prices and terms being offered
by competing corn purchasers and other market conditions.  SDWG will recommend merchandising strategies
for various time periods.  SDWG and HGF
may enter into long term contracts based upon these strategies.

7.3                                 Force Majeure.  It is understood that unavoidable delays may
result from causes which are reasonably beyond the control of both parties,
including, but not limited to the following: acts of providence, floods,
fortuitous events, unavoidable accidents, riots, drought, and any other unforeseen
acts beyond the reasonable control of either party, and not due to either party’s
negligence, which interferes with the production, loading, transportation,
unloading, or consumption of corn. 
Should the delivery or acceptance of corn be delayed at any time for
such causes, the affected party will immediately notify the other party in
writing of the occurrence.  If because of
force majeure event either HGF or SDWG is unable to carry out its obligation
under this Agreement, except the obligation to pay or expend money for corn
already delivered, then the
obligation of such party will be suspended to the extent made
necessary by such force majeure event and during its continuance; and provided,
that such force majeure event is removed or remedied and damages therefrom
mitigated through good faith and reasonable efforts insofar as possible and
economically practicable with all reasonable dispatch; and provided, further,
that such party will not be excused from tendering partial performance wherever
and whenever possible.

 19
 

7.4                                 Indemnification.

(a)                                  HGF agrees to
indemnify and hold SDWG, its officers, directors, employees, agents and
representatives harmless from and against all claims, liabilities, damages,
losses, costs, or expenses of whatever nature or character (including
reasonable attorneys’ fees) for all injuries or damage of any type to any
person or property, arising out of the performance of any covenant or agreement
to be performed by HGF under this Agreement, arising from the transportation of
Third Party Corn to the Grain Elevators, or arising from HGF’s willful
misconduct, negligence, or the purchase and use of corn delivered by SDWG to
the Ethanol Plants under this Agreement or relating to disposal, discharge,
escape, dispersal, release or saturation of acids, alkalis, toxic chemicals,
liquids, gases, or hazardous substances as defined under Title 34A of the South Dakota Code, by HGF
into the atmosphere, or on, onto, in or into the surface or subsurface soil,
ground water, or surface waters.

(b)                                 Notwithstanding
Section 7.4(a), any pollution, contamination or adverse effects on the
environment that results either during or from the transportation of corn
(other than Third Party Corn) will be the sole responsibility of SDWG. SDWG
agrees to indemnify and hold HGF, its officers, managers, members, employees,
agents and representatives harmless from and against all claims, liabilities,
damages, losses, costs, or expenses of whatever nature or character (including
reasonable attorneys’ fees) for all injuries or damage of any type to any
person or property, arising out of the performance of any covenant or agreement
to be performed by SDWG under this Agreement, or arising from SDWG’s willful
misconduct, negligence, or transportation of corn (other than Third Party Corn)
to SDWG’s facilities.

7.5                                 Additional Plant.  If HGF or its affiliates construct or acquire
an ethanol plant in Oakes, North Dakota, the parties agree to cooperate in good
faith and amend this Agreement (or enter into a new agreement on substantially
similar terms) so that SDWG supplies corn to such plant.

7.6                                 Railcars.  Each party may place railcars on the other
party’s spur tracks located near the Aberdeen Plant without any additional
cost, except as provided in this Section 7.6, so long as such railcars do not
interfere with the other party’s normal operations.  The party placing railcars on the other party’s
spur tracks will be solely responsible for any damages, injuries, or
contamination resulting from its use of other party’s spur tracks.  The cost of normal maintenance and repairs of
spur tracks owned by either party shall be prorated between the parties based
on car usage on such tracks.

 20
 

7.7                               Sublease.  HGF and SDWG are parties to that certain
Lease Agreement dated August 1, 2003, as amended from time to time, related to
SDWG’s lease of property from HGF in connection with the supply of corn to the
Huron Plant (the “Sublease”).   During the Term of this Agreement, HGF shall
not terminate the Sublease.

Article VIII           General Provisions

8.1                                 Entire Agreement.  This Agreement (including the documents and
the instruments referred to herein) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, and are not
intended to confer upon any person other than the parties thereto any rights or
remedies hereunder.  This Agreement
replaces and supercedes in its entirety that certain Restated Grain Supply
Agreement (Huron) dated June 15, 2006, and that certain Grain Supply Agreement
with an initial effective date of February 1, 2002, each between HGF and SDWG,
which agreements no longer have any further force or effect.

8.2                                 Governing Law.  This Agreement shall be governed and
construed in accordance with the laws of the State of South Dakota without
regard to any applicable conflicts of law.

8.3                                 Notice.  All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally, telecopied (which is confirmed) or two business days after being
mailed by registered or certified mail (return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):

(a)                                  if to HGF:

c/o
Advanced BioEnergy

10251 Wayzata Boulevard, Suite 250

Minneapolis, MN 55305

Attention: CEO

Facsimile No.
(763) 226-2725

with a copy to
(that will not constitute notice):

Faegre & Benson LLP

2200 Wells Fargo Center

90 South Seventh Street

Minneapolis, MN 
55402-3901

Attention: 
Peter J. Ekberg

Facsimile No.
(612) 766-1600

 21
 

(b)           if to SDWG:

South Dakota Wheat Growers Association

110 6th Avenue SE

Aberdeen, SD 
57402

Attention:  CEO

Facsimile No.
(605) 225-0859

with a copy to
(that will not constitute notice):

Blackwell Sanders Peper
Martin LLP

4801 Main Street, Suite
1000

Kansas City, MO  64112

Attention:  Jason A. Reschly

Facsimile No.
(816) 983-8080

8.4                                 Dispute Resolution.  If any disputes, claims or controversies of
any kind between the parties arise out of, or in connection with Article I,
Article II or Section 3.3 of this Agreement, or any amendment or breach
thereof, such dispute, claim or controversy will be promptly and exclusively
submitted to the National Grain and Feed Association (“NGFA”) for resolution pursuant
to the NGFA Trade and Arbitration Rules.

8.5                                 Assignment.  Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other party; provided, that either party may assign this
Agreement to an affiliate, without the consent of the other party, SDWG may
assign this Agreement to a third party without the consent of HGF in the event
HGF does not exercise its Buyout Option under Section 5.1, and HGF may assign
this Agreement to a third party without the consent of SDWG in the event SDWG
does not exercise its Put Option under Section 5.3.  Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.

8.6                                 Confidentiality.  The terms of this Agreement and any
non-public information provided to either party pursuant to this Agreement are
confidential and each party (i) will hold, and will cause its employees,
officers, directors, partners, agents, accountants and advisors to hold, all
such information in confidence, unless it is compelled to disclose such
information by judicial or administrative process or by other requirements of
law and (ii) will use, and will cause its employees, officers, directors,
partners, agents, accountants and advisors to use,

 22
 

such information only in connection with the implementation of this
Agreement, and for no other purpose.    In this regard, such information may be
considered “insider information” under the securities laws of the United States
and shall not be shared with others (except as permitted under the preceding
sentence) and shall not be used to buy, sell or otherwise invest in securities
of Advanced BioEnergy, LLC.

8.7                                 Amendment.  This Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties hereto.

8.8                                 Severability.  If any provision of this Agreement is held to
be illegal, invalid or unenforceable under any present or future law or
regulation, and if the rights or obligations of any party hereto under this
Agreement will not be materially and adversely affected thereby, (a) such
provision will be fully severable, (b) this Agreement will be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof, (c) the remaining provisions of this Agreement will
remain in full force and effect and will not be affected by the illegal,
invalid or unenforceable provision or by its severance from this Agreement and
(d) in lieu of such illegal, invalid or unenforceable provision, there will be
added automatically as a part of this Agreement a legal, valid and enforceable
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible.

8.9                                 Waivers.  No omission or delay by either party in
enforcing any right or remedy or in requiring any performance hereunder shall
constitute a waiver of any such right, remedy or required performance, nor
shall it affect the right of either party to enforce such provision
thereafter.  The remedies set forth
herein are cumulative and in addition to all other remedies available hereunder,
at law and in equity.

8.10                           Headings.  The headings contained herein are for
convenience only and shall not be considered in interpreting or construing this
Agreement.

8.11                           Survival of Covenants,
Warranties, Representations and Indemnifications.  All covenants, warranties, representations and
indemnification obligations set forth in this Agreement shall survive the
termination or expiration hereof.

8.12                           Counterparts.  This Agreement may be executed by facsimile
signature in two or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when two or more counterparts
have been signed by each of the parties and delivered to the other parties, it
being understood that all parties need not sign the same counterpart.

[Signature Page Follows]

 23
 

The parties hereto have duly executed this Agreement
as of the date and year first above written.

	
  HEARTLAND GRAIN FUELS, L.P.

  	
   

  	
  SOUTH DAKOTA WHEAT GROWERS ASSOCIATION

  
	
  By: 

  	
  /s/ Rory Troske

  	
   

  	
  By:

  	
  /s/ Dale Locken

  
	
  Printed Name: Rory Troske

  	
   

  	
  Printed Name: Dale Locken

  
	
  Its: Vice President

  	
   

  	
  Its: CEO/Treasurer

  
					

 

 24
 

Exhibit A

Description of Grain Elevators 

(as of
the date of this Agreement)

Description of the Huron Elevator
located at 617 West Park Ave. NW Huron, SD 57350

·                  2- 400,000 bu steel bins

·                  1-200,000 bu steel bin

·                  24 by 30 foot two story office and
probe area

·                  1-12 by 120 foot truck scale

·                  Intersystem hydraulic truck probe

·                  Communication system for truck
routing

·                  Grading equipment for corn

·                  1-1,500,000 bu Lamar center pile tarp
system includes top fill conveyor with black top base

·                  1-1,500,000 bu open center pile
system includes top fill conveyor with black top base

·                  2-20,000 bu per hour receiving legs

·                  2- Receiving pits

·                  Building over receiving pits

·                  20,000 bu per hour conveyors over the
top and under the bottom of the steel tanks

·                  5,000 bu per hour dryer

·                  8,000 bu per dry leg for dryer system

·                  840 ft of conveyor and catwalk system
to deliver grain to ethanol plant

·                  Computer system to control grain flow
to ethanol plant

·                  Dust system on receiving pits

·                  Equipment above is located on 22
acres owned by HGF and leased to SDWG

·                  Weighing
Systems located on property leased by HGF and subleased to SDWG pursuant to the
Sublease

Description of the Aberdeen
Elevator located at 38457 133rd street Aberdeen,
SD 57401-8406

·                  5,000 bu per hour dryer

·                  12,000 bu per hour dry and wet leg
for dryer system

·                  One receiving pit

·                  2-10,000 bu per hour legs in concrete
elevator

·                  1-8,000 bu per hour leg in concrete
elevator

·                  12 by 80 foot scale

·                  Intersystem hydraulic truck probe

·                  1,875,000 bu capacity concrete
elevator with 58 bins includes 10,000 bu per hour top and bottom conveyors

·                  216,000 bu capacity flat storage
butler building with 4,000 bu per hour screw auger to fill building

·                  1,000,000 bu center pile storage area
with overhead conveyor system

·                  20 by 40 foot office attach to
concrete elevator

·                  40 by 100 foot Quonset for storage
and shop

·                  Compu-weigh scale and grain sampler
for ethanol plant

·                  Compu-weigh scale for train load-out

·                  54 car track capacity

·                  2- Diamond screeners 10,000 bu
capacity

·                  1-forestburg cleaner for wheat

·                  1-Ideal drum cleaner for wild oats

·                  Dust collection system

·                  Land
underlying the Aberdeen Elevator

 25Exhibit 4.2

HIGHWATER
ETHANOL, LLC

SUBSCRIPTION AGREEMENT

Limited Liability Company Membership Units

$10,000 per
Unit

Minimum Investment of 1 Unit
($10,000)

1 Unit Increments Thereafter ($10,000)

The undersigned subscriber (“Subscriber”), desiring to
become a member Highwater Ethanol, LLC (“Highwater Ethanol”), a Minnesota
limited liability company, with its principal place of business at 205 S. Main
Street, PO Box 96, Lamberton, Minnesota 56152 hereby subscribes for the
purchase of membership units of Highwater Ethanol, and agrees to pay the
related purchase price, identified below.

A.            SUBSCRIBER
INFORMATION.   Please print your individual or entity name and address.  If we accept your subscription, the units
will be titled in the name of the subscriber as it appears below.  Joint subscribers should provide both
names.  Your name and address will be
recorded exactly as printed below. 
Please provide your home, business and/or mobile telephone number.  If desired, please also provide your e-mail
address.

	
  1.

  	
  Subscriber’s Printed Name

  	
   

  
	
  2.

  	
  Title, if applicable

  	
   

  
	
  3.

  	
  Subscriber’s Address

  	
   

  
	
   

  	
    Street

  	
   

  
	
   

  	
    City,
  State, Zip Code

  	
   

  
	
  4.

  	
  E-mail Address

  	
   

  
	
  5.

  	
  Home Telephone Number

  	
   

  
	
  6.

  	
  Business Telephone Number

  	
   

  
	
  7.

  	
  Mobile Telephone Number

  	
   

  

 

B.            NUMBER OF
UNITS PURCHASED. You
must purchase at least 1 unit.  The
minimum number of units to be sold is 4,500 and the maximum number of units to
be sold in the offering is 6,000.

 

	
  

  	
  unit(s) 

  	
   

  

 

C.            PURCHASE
PRICE.  Indicate the dollar amount of your investment
(minimum investment is $10,000).

	
  1. Total Purchase Price

  ($10,000 per unit multiplied

  by number of units)

  	
  =

  	
  2. 1st Installment

  (10% of Total Purchase Price)

  	
  +

  	
  3. 2nd Installment

  (90% of Total Purchase Price)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  =

  	
  +

  

 

D.            GENERAL INSTRUCTIONS FOR SUBSCRIBERS:

You
should read the Prospectus dated [DATE OF EFFECTIVENESS] (the “Prospectus”)
in its entirety including the exhibits for a complete explanation of an
investment in Highwater Ethanol.

INSTRUCTIONS IF YOU ARE
SUBSCRIBING PRIOR TO THE
COMPANY’S RELEASE OF FUNDS FROM ESCROW:  If you are subscribing prior to the Company’s
release of funds from escrow, you must follow the instructions contained in
paragraphs 1 through 5 below:

1.             Complete
all information required in this Subscription Agreement, and date and sign the
Subscription Agreement on page 6 and the Member Signature Page to our Member
Control Agreement attached to this Subscription Agreement as Exhibit A.

 1
 

2.             Immediately
provide a personal (or business) check for the first installment of ten percent
(10%) of your investment amount.  The
check should be made payable to “Minnwest Bank, Redwood
Falls, MN, escrow agent for Highwater Ethanol, LLC.”  You will determine this amount in box C.2 on
page 1 of this Subscription Agreement.

3.            Execute the Promissory
Note and Security Agreement on page 7 of this Subscription Agreement evidencing
your commitment to pay the remaining ninety percent (90%) due for the
units.  The Promissory Note and Security
Agreement is attached to this Subscription Agreement and grants Highwater
Ethanol, LLC a security interest in your units.

4.             Deliver the original
executed documents referenced in paragraphs 1 and 3 of these instructions,
together with a personal or business check as described in Paragraph 2 of these
instructions to:

Highwater Ethanol, LLC

205 S. Main Street, PO Box 96

Lamberton, Minnesota 56152

5.            Within 20 days of
written notice from Highwater Ethanol that your subscription has been accepted,
you must remit an additional personal (or business) check for the second
installment of ninety percent (90%) of your investment amount made payable to “Minnwest Bank, Redwood Falls, MN, escrow agent for Highwater Ethanol,
LLC” in satisfaction of the Promissory Note and Security
Agreement.  You will determine this
amount in box C.3 on page 1 of this Subscription Agreement.  You must deliver this check to the same
address set forth above in paragraph 4 within twenty (20) days of the date of
Highwater Ethanol’s written notice. If you fail to pay the second installment
pursuant to the Promissory Note and Security Agreement, Highwater Ethanol shall
be entitled to retain your first installment and to seek other damages, as
provided in the Promissory Note and Security Agreement.  This means that if you are unable to pay the
90% balance of your investment amount within 20 days of our notice, you may
have to forfeit the 10% cash deposit.

Your funds will be placed in Highwater Ethanol’s
escrow account at Minnwest Bank, Redwood Falls, MN.  The funds will be released to Highwater
Ethanol or returned to you in accordance with the escrow arrangements described
in the Prospectus.  Highwater Ethanol
may, in its sole discretion, reject or accept any part or all of your
subscription.  If Highwater Ethanol
rejects your subscription, your Subscription Agreement and investment will be
promptly returned to you, plus nominal interest, minus escrow fees.  Highwater Ethanol may not consider the
acceptance or rejection of your subscription until a future date near the end
of this offering.

INSTRUCTIONS IF YOU ARE
SUBSCRIBING AFTER THE
COMPANY’S RELEASE OF FUNDS FROM ESCROW:  If you are subscribing after the Company’s release
of funds from escrow, you must follow the instructions contained in paragraphs
1 through 3 below:

1.             Complete
all information required in this Subscription Agreement, and date and sign the
Subscription Agreement on page 6 and the Member Signature Page to our Member
Control Agreement attached to this Subscription Agreement as Exhibit A.

2.             Immediately
provide your personal (or business) check for the entire amount of your
investment (as determined in box C.1 on page 1) made payable to “Highwater Ethanol, LLC.”

3.             Deliver the original
executed documents referenced in paragraph 1 of these instructions, together
with your personal or business check as described in paragraph 2 to:

Highwater Ethanol, LLC

205 S. Main Street, PO Box 96

Lamberton, Minnesota 56152

If you are
subscribing after we have released funds from escrow and we accept your
investment, your funds will be immediately at-risk as described in the
Prospectus.  Highwater Ethanol may, in its sole discretion, reject or accept any part
or all of your subscription.  If
Highwater Ethanol rejects your subscription, your Subscription Agreement and
investment will be returned to you promptly, plus nominal interest, minus
escrow fees.  Highwater Ethanol may not
consider the acceptance or rejection of your subscription until a future date
near the end of this offering.

You may direct your questions to any of our governors
listed below or to Highwater Ethanol at (507) 752-6160.

 2
 

 

	
  NAME

  	
   

  	
  POSITION

  	
   

  	
  PHONE NUMBER

  
	
  Brian D. Kletscher

  	
   

  	
  President and
  Governor

  	
   

  	
  507-762-3376

  
	
  John Michael Schueller

  	
   

  	
  Vice President
  and Governor

  	
   

  	
  507-342-5621

  
	
  Jason Ray Fink

  	
   

  	
  Treasurer and
  Governor

  	
   

  	
  507-637-4355

  
	
  Timothy James Van Der Wal

  	
   

  	
  Secretary and
  Governor

  	
   

  	
  507-342-5187

  

 

E.             Additional Subscriber Information.  Subscriber, named above, certifies
the following under penalties of perjury:

1.             Form of Ownership.  Check the appropriate box (one only) to
indicate form of ownership. If the subscriber is a Custodian, Corporation,
Partnership or Trust, please provide the additional information requested.

o            Individual

o            Joint Tenants with Right of Survivorship
(Both signatures must appear on page 6.)

o            Corporation, Limited
Liability Company or Partnership (Corporate Resolutions, Operating Agreement or
Partnership Agreement must be enclosed.)

o            Trust

     Trustee’s Name: 

     Trust Date: 

o            Other:
Provide detailed information in the space immediately below.

 

 

2.             Subscriber’s Taxpayer Information.  Check the appropriate box if you are a
non-resident alien, a U.S. Citizen residing outside the United States, and/or
subject to backup withholding.  All
individual subscribers should provide their Social Security Numbers.  Trusts should provide the trust’s taxpayer
identification number.  Custodians should
provide the minor’s Social Security Number. 
Other entities should provide the entity’s taxpayer identification
number.

o            Check box if you are a non-resident alien

o            Check box if you are a U.S. citizen
residing outside of the United States

o            Check
this box if you are subject to backup withholding

Subscriber’s
Social Security No.

Joint
Subscriber’s Social Security No.

Taxpayer Identification
No.

3.             Member Report Address.  If you would like duplicate copies of member
reports sent to an address that is different than the address identified in
section A, please complete this section.

Address:

 

4.             State of Residence.

State of Principal Residence:

State where driver’s license is issued:

State
where resident income taxes are filed:

State(s) in which
you have maintained your principal residence during the past three years:

	
   a.

  	
   b.

  	
   c.

  

 

5.             Suitability Standards and Confidential Investor
Information.  You cannot
invest in Highwater Ethanol unless you meet one of the following suitability tests
(a or b or the heightened standards for Iowa and Kansas investors set forth in
c and d) set forth below.  Please review
the suitability tests and check the box next to the following suitability test
that you meet.  For husbands and wives
purchasing jointly, the tests below will be applied on a joint basis.

 3
 

a.  o      I
(We) have annual income from whatever source of at least $45,000 and a
net worth of at least $45,000, exclusive of home, furnishings and automobiles;
or

b.  o
      I (We) have a net worth of at
least $150,000, exclusive of home, furnishings and automobiles.

c.  o
      I (We) reside in Iowa and I (We) have a net worth of $60,000 (exclusive of
home, auto and furnishings) and annual income of $60,000 or, in the
alternative, a net worth of $150,000 (exclusive of home, auto and furnishings);
or

d.  o
      I (We) reside in Kansas and I (We) have a net worth of $60,000 (exclusive of
home, auto and furnishings) and annual income of $60,000 or, in the
alternative, a net worth of $225,000 (exclusive of home, auto and furnishings).

If you reside in Minnesota please
complete the following request for additional information:

I.              Employment
Information

	
   

  	
  A.

  	
  Name and Address of Employer:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  Nature of Employer’s Business:

  	
   

  
	
   

  	
  C.

  	
  Dates of Employment:

  	
   

  
	
   

  	
  D.

  	
  Current Position or Title and Responsibilities:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  E.

  	
  Age:

  	
   

  
								

 

II.            Educational
Background

	
  SCHOOL

  	
   

  	
  MAJOR

  	
   

  	
  DEGREE(S)

  	
   

  	
  YRS. ATTENDED

  	
   

  
	
     

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
     

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
    

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

III.           Do
you have such knowledge and experience in financial and business matters that
you are capable of evaluating the merits and risks of an investment in the
Company? [Minnesota subscribers should NOT respond to this
question]

o            Yes                                         o            No

IV.           Do you understand the nature of an investment in the Company and the
risks associated with such an investment? [Minnesota
subscribers should NOT respond to this question]

o            Yes                                         o            No

V.            Do you understand that there is no guarantee of any
financial return on this investment and that you run the risk of losing your
entire investment? [Minnesota subscribers
should NOT respond to this question]

o            Yes                                         o            No

 4
 

VI.           This investment provides limited liquidity since
the Units are not freely transferable and the Members have limited rights to
withdraw capital from or to withdraw as Members of the Company, is this an
acceptable limitation on your ownership of Units? [Minnesota
subscribers should NOT respond to this question]

o            Yes                                         o            No

VII.          Do you have adequate means of providing for your current needs and
personal contingencies in view of the fact that this investment provides
limited liquidity? [Minnesota subscribers
should NOT respond to this question]

o            Yes                                         o            No

VIII.        If the investor is not a natural person:

A.            Was the investing entity formed for the purpose of
investing in the Company?

o            Yes                                         o            No

B.            Did the shareholders, partners, members, or
grantors of the investing entity, as the case may be, contribute additional
capital to such entity for the purpose of purchasing Units?

o            Yes                                         o            No

C.            Does the undersigned’s investment in the Company,
together with its interests in all other corporations, partnerships, trusts or
associations represent more than ten percent of the undersigned’s total assets?

o            Yes                                         o            No

IX.           Have you ever invested in securities?

o            Yes                                         o            No

X.            Have you ever invested in investment partnerships,
venture capital funds, or other non-marketable or restricted securities?

o            Yes                                         o            No

XI.           Indicate the frequency of your investments in non-marketable securities:

o  Often                                o  Occasional                                      o  Seldom

Financial
Information

	
  Net worth (exclusive of home, home furnishings
  and automobiles): 

   

  £  Under $50,000 

  £  $50,000 - $250,000 

  £  $250,000 - $500,000 

  £  $500,000 - $1,000,000 

  £  Over $1,000,000

  	
   

  	
  Cash and cash equivalents and liquid securities
  (includes stocks, bonds, government obligations, etc., at fair market value):
  

   

  £  Under $50,000 

  £  $50,000 - $74,999 

  £  $75,000 - $99,999 

  £  Over $100,000

  
	
   

  	
   

  	
   

  
	
  Investments in closely-held companies, personal
  business and/or real estate: 

   

  £  Under $25,000 

  £  $25,000 - $49,999 

  £  $50,000 - $74,999 

  £  Over $75,000

  	
   

  	
  Equity in all real estate, net of mortgages: 

   

  £  Under $50,000 

  £  $50,000 - $74,999 

  £  $75,000 - $99,999 

  £  Over $100,000

  

 

 5
 

 

	
  Other investments: 

   

  £  Under $25,000 

  £  $25,000 - $49,999 

  £  $50,000 - $74,999 

  £  Over $75,000

  	
   

  	
  Annual gross income: 

   

  2003 

  £  Under $100,000 

  £  Over $100,000 

   

  2004 

  £  Under $100,000 

  £  Over $100,000 

   

  2005 

  £  Under $100,000 

  £  Over $100,000

  

 

6.             Subscriber’s Representations and Warranties.  You must read and certify your
representations and warranties by placing your initials where indicated and by
signing and dating this Subscription Agreement. 
Joint subscribers are also required to initial and sign as indicated.

(Initial here)
(Joint initials) By signing below the subscriber represents and warrants to
Highwater Ethanol that he, she or it:

	
  

  	
   

  	
   

  	
   

  	
  a.             has
  received a copy of Highwater Ethanol’s Prospectus dated [DATE OF
  EFFECTIVENESS] and the exhibits thereto or has received notice that this sale
  has been made pursuant to a registration statement in which a final
  prospectus would have been required to have been delivered in the absence of
  Rule 172;

  
	
   

  	
   

  	
   

  

 

	
  

  	
   

  	
   

  	
   

  	
  b.             has
  been informed that the units of Highwater Ethanol are offered and sold in
  reliance upon a federal securities registration; state registrations in
  Florida, Georgia, Illinois, Iowa, Kansas, Louisiana, Minnesota, Missouri,
  South Dakota, and Wisconsin; and exemptions from securities registrations in
  various other states, and understands that the units to be issued pursuant to
  this subscription agreement can only be sold to a person meeting requirements
  of suitability [Minnesota subscribers should NOT initial
  this subsection];

  
	
   

  	
   

  	
   

  

 

	
  

  	
   

  	
   

  	
   

  	
  c.             has
  been informed that the securities purchased pursuant to this Subscription
  Agreement have not been registered under the securities laws of any state
  other than Florida, Georgia, Illinois, Iowa, Kansas, Louisiana, Minnesota,
  Missouri, South Dakota, and Wisconsin and that Highwater Ethanol is relying
  in part upon the representations of the undersigned Subscriber contained
  herein[Minnesota subscribers should NOT initial this
  subsection];

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  d.             has
  been informed that the securities subscribed for have not been approved or
  disapproved by the SEC, or the Florida, Georgia, Illinois, Iowa, Kansas,
  Louisiana, Minnesota, Missouri, South Dakota, and Wisconsin Securities
  Departments or any other regulatory authority, nor has any regulatory
  authority passed upon the accuracy or adequacy of the Prospectus [Minnesota subscribers should NOT initial this subsection];

  
	
   

  	
   

  	
   

  

 

	
  

  	
   

  	
   

  	
   

  	
  e.             intends
  to acquire the units for his/her/its own account without a view to public
  distribution or resale and that he/she/it has no contract, undertaking,
  agreement or arrangement to sell or otherwise transfer or dispose of any
  units or any portion thereof to any other person;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  f.              has
  been informed that there is no present market for Highwater Ethanol’s
  membership units, that the membership units will not trade on an exchange or
  automatic quotation system, that no such market is expected to develop in the
  future and that there are significant restrictions on the transferability of
  the membership units;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  g.             has
  been encouraged to seek the advice of his legal counsel and accountants or
  other financial advisers with respect to investor-specific tax and/or other
  considerations relating to the purchase and ownership of units [Minnesota subscribers should NOT initial this subsection];

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  h.             has
  received a copy of the Highwater Ethanol Member Control Agreement, dated May
  4, 2006, and understands that upon closing the escrow by Highwater Ethanol,
  the subscriber and the membership units will be bound by the provisions of
  the Member Control Agreement which contains, among other things, provisions
  that restrict the transfer of membership units;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  i.              has
  been informed that the units are subject to substantial restrictions on
  transfer under certain tax and securities laws along with restrictions in the
  Highwater Ethanol Member Control Agreement, and agrees that if the membership
  units or any part thereof are sold or distributed in the future, the
  subscriber shall sell or distribute them pursuant to the terms of the Member

  
	
   

  	
   

  	
   

  

 

 6
 

 

	
  

  	
   

  	
   

  	
   

  	
  Control Agreement, and the requirements of the
  Securities Act of 1933, as amended, and applicable tax and securities laws;

  
	
   

  	
   

  	
   

  	
   

  	
  j.              meets
  the suitability test marked in Item E.5 above;

  
	
   

  	
   

  	
   

  	
   

  	
  k.             is
  capable of bearing the economic risk of this investment, including the
  possible total loss of the investment [Minnesota subscribers
  should NOT initial this subsection];

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  l.              has
  been informed that Highwater Ethanol will place a restrictive legend on any
  certificate representing any unit containing substantially the following
  language as the same may be amended by the Governors of Highwater Ethanol in
  their sole discretion:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  THE TRANSFERABILITY OF THE COMPANY UNITS REPRESENTED
  BY THIS DOCUMENT IS RESTRICTED. SUCH UNITS MAY NOT BE SOLD, ASSIGNED, OR TRANSFERRED,
  NOR WILL ANY ASSIGNEE, VENDEE, TRANSFEREE, OR ENDORSEE THEREOF BE RECOGNIZED
  AS HAVING ACQUIRED ANY SUCH UNITS FOR ANY PURPOSES, UNLESS AND TO THE EXTENT
  SUCH SALE, TRANSFER, HYPOTHECATION, OR ASSIGNMENT IS PERMITTED BY, AND IS
  COMPLETED IN STRICT ACCORDANCE WITH, THE TERMS AND CONDITIONS SET FORTH IN
  THE MEMBER CONTROL AGREEMENT AND AGREED TO BY EACH MEMBER.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  THE UNITS REPRESENTED BY THIS CERTIFICATE MAY NOT BE
  SOLD, OFFERED FOR SALE, OR TRANSFERRED IN ABSENCE OF AN EFFECTIVE REGISTRATION
  UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND UNDER APPLICABLE STATE
  SECURITIES LAWS.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  m.            has
  been informed that, to enforce the above legend, Highwater Ethanol may place
  a stop transfer order with its registrar and stock transfer agent (if any)
  covering all certificates representing any of the membership units;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  n.             may
  not transfer or assign this Subscription Agreement, or any of the
  subscriber’s interest herein without the prior written consent of Highwater
  Ethanol;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  o.             has
  written his, her, or its correct taxpayer identification number under Item
  E.2 on this Subscription Agreement;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  p.             is
  not subject to back up withholding either because he, she or it has not been
  notified by the Internal Revenue Service (“IRS”) that he, she or it is
  subject to backup withholding as a result of a failure to report all interest
  or dividends, or the IRS has notified him, her or it that he is no longer
  subject to backup withholding (Note this clause (p) should be crossed out if
  the backup withholding box in Item E.2 is checked);

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  q.             has
  been informed that execution of the attached Promissory Note and Security
  Agreement will allow Highwater Ethanol or its assigns to pursue the obligor
  for payment of the amount due thereon by any legal means, including, but not
  limited to, acquisition of a judgment against the obligor in the event that
  the subscriber defaults on that Promissory Note and Security Agreement; and

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  r.              acknowledges
  that Highwater Ethanol may retain possession of certificates representing
  subscriber’s units to perfect its security interest in those units.

  
	
   

  	
   

  	
   

  
						

 

 7
 

Signature of Subscriber/Joint Subscriber:

	
  Date:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Individuals:

  	
   

  	
  Entities:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name of Individual Subscriber (Please Print)

  	
   

  	
  Name of Entity (Please Print)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Signature of Individual

  	
   

  	
  Print Name and Title of Officer

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name of Joint Individual Subscriber (Please Print)

  	
   

  	
  Signature of Officer

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Signature of Joint Individual Subscriber

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ACCEPTANCE OF SUBSCRIPTION BY
  HIGHWATER ETHANOL, LLC:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Highwater Ethanol, LLC hereby accepts Subscriber’s
  subscription for           units.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dated this         day
  of                                    ,
  200       .

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  HIGHWATER ETHANOL, LLC

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Its:

  	
   

  	
   

  	
   

  	
   

  
									

 

 8
 

PROMISSORY
NOTE AND SECURITY AGREEMENT

	
  Date of Subscription
  Agreement:

  	
                                         

  	
  ,

  	
  200

  	
   

  

 

$10,000 per
Unit

Minimum Investment of 1 Unit
($10,000); Units Sold in 1 Unit Increments Thereafter ($10,000 each)

	
  

  	
  Number of Units Subscribed

  
	
   

  	
   

  
	
   

  	
  Total Purchase Price ($10,000 per unit multiplied by
  number of units subscribed)

  
	
   

  	
   

  
	
    (                          )

  	
  Less Initial Payment (10% of Principal Amount)

  
	
   

  	
   

  
	
   

  	
  Principal Balance

  

 

FOR VALUE RECEIVED, the undersigned hereby promises to
pay to the order of Highwater Ethanol, LLC, a Minnesota limited liability
company (“Highwater Ethanol”), at its principal office located at 205 S. Main
Street, PO Box 96, Lamberton, Minnesota 56152, or at such other place as required by Highwater
Ethanol, the Principal Balance set forth above in one lump sum to be paid
without interest within 20 days following the call of the Highwater Ethanol
Board of Governors, as described in the Subscription Agreement.  In the event the undersigned fails to timely
make any payment owed, the entire balance of any amounts due under this full
recourse Promissory Note and Security Agreement shall be immediately due and
payable in full with interest at the rate of 12% per annum from the due date
and any amounts previously paid in relation to the obligation evidenced by this
Promissory Note and Security Agreement may be forfeited at the discretion of
Highwater Ethanol.

The undersigned agrees to pay to Highwater Ethanol on
demand, all costs and expenses incurred to collect any indebtedness evidenced
by this Promissory Note and Security Agreement, including, without limitation,
reasonable attorneys’ fees.  This
Promissory Note and Security Agreement may not be modified orally and shall in
all respects be governed by, construed, and enforced in accordance with the
laws of the State of Minnesota.

The provisions of this Promissory Note and Security
Agreement shall inure to the benefit of Highwater Ethanol and its successors
and assigns, which expressly reserves the right to pursue the undersigned for
payment of the amount due thereon by any legal means in the event that the
undersigned defaults on obligations provided in this Promissory Note and
Security Agreement.

The undersigned waives presentment, demand for
payment, notice of dishonor, notice of protest, and all other notices or
demands in connection with the delivery, acceptance, performance or default of
this Promissory Note and Security Agreement.

The undersigned grants to Highwater Ethanol, and its
successors and assigns (“Secured Party”), a purchase money security interest in
all of the undersigned’s membership units of Highwater Ethanol now owned or
hereafter acquired. This security interest is granted as non-exclusive
collateral to secure payment and performance on the obligation owed Secured
Party from the undersigned evidenced by this Promissory Note and Security
Agreement. The undersigned further authorizes Secured Party to retain
possession of certificates representing such membership units and to take any
other actions necessary to perfect the security interest granted herein.

	
  Dated:

  	
   

  	
  , 200

  	
   

  	
  .

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  OBLIGOR/DEBTOR:

  	
  JOINT OBLIGOR/DEBTOR:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Printed or Typed Name of Obligor

  	
   

  	
  Printed or Typed Name of Joint Obligor

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  (Signature)

  	
   

  	
   

  	
  (Signature)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Officer Title if Obligor is an Entity

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Address of Obligor

  	
   

  	
   

  	
   

  
										

 

 9

Exhibit A

MEMBER
SIGNATURE PAGE

ADDENDUM TO THE

AMENDED AND RESTATED MEMBER CONTROL AGREEMENT

OF HIGHWATER ETHANOL, LLC

The undersigned does hereby warrant, represent,
covenant and agree that:  (i) the
undersigned, as a condition to becoming a Member in Highwater Ethanol, LLC, has
received a copy of the Amended and Restated Member Control Agreement dated                     ,
and, if applicable, all amendments and modifications thereto; (ii) the
undersigned shall be subject to and comply with all terms and conditions of
such Member Control Agreement in all respects, as if the undersigned had
executed said Member Control Agreement on the original date thereof; and (iii)
the undersigned is and shall be bound by all of the provisions of said Member
Control Agreement from and after the date of execution of this Addendum.

 

	
  Individuals:

  	
  Entities:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name of Individual Member (Please Print)

  	
   

  	
  Name of Entity (Please Print)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature of Individual

  	
   

  	
  Print Name and Title of Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name of Joint Individual Member (Please Print)

  	
   

  	
  Signature of Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature of Joint Individual Member

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Agreed to and accepted on behalf of the

  	
   

  	
   

  
	
  Company and its Members:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  HIGHWATER ETHANOL, LLC

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Its:

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