Document:

Exhibit 10.6

 

Prepared by and Return to:

 

Faegre & Benson LLP

2200 Wells Fargo Center

90 South Seventh Street

Minneapolis, MN 
55402

 

 

                                                                       [Space
Above This Line For Recording Data]                                                                       

 

MORTGAGE, SECURITY AGREEMENT,

ASSIGNMENT OF LEASES AND RENTS

AND FIXTURE FINANCING STATEMENT

 

THIS MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF
LEASES AND RENTS AND FIXTURE FINANCING STATEMENT (“Mortgage”) is made as of April 1,
2008, by HIGHWATER ETHANOL, LLC, a Minnesota limited liability company (“Mortgagor”),
whose address is 205 North Main Street, P.O. Box 356, Lamberton, Minnesota
56152, in favor of U.S. BANK NATIONAL ASSOCIATION, a National Banking
Association, in its capacity as the Trustee under the Indenture (as herein
defined) (“Mortgagee”), whose address is 60 Livingston Avenue, EP-MN-WS3C, St.
Paul, Minnesota 55107.

 

This Mortgage shall secure the original principal
amount of Fifteen Million One Hundred Eighty Thousand Dollars and No/100ths
($15,180,000) which amount constitutes the “Initial Amount of the Debt” within
the meaning of Minnesota Statutes, Section 287.03 and this Mortgage is
further intended to secure the “Obligations” as hereinafter defined.

 

RECITALS

 

A.                                   Mortgagor
is indebted to Mortgagee pursuant to the terms of (i) that certain Lease
Agreement, dated as of April 1, 2008, and executed by and between the City
of Lamberton, Minnesota (the “City”) and Mortgagee, as the same may from time
to time be amended, 

 

 

modified, extended,
renewed, refinanced or restated (the “Bond Lease”), the City’s interest in
which has been assigned to the Mortgagee pursuant to a Trust Indenture, dated
as of April 1, 2008 (the “Indenture”); (ii) the Guaranty Agreement,
dated as of April 1, 2008, by and between the Mortgagor and the Mortgagee
(the “Guaranty” and, together with the Bond Lease and the Indenture, the “Bond
Documents”); and (iii) the Solid Waste Facilities Revenue Bonds, Series 2008A
(Highwater Ethanol, LLC Project), as the same may from time to time be amended,
modified, extended, renewed, refinanced or restated (the “Bonds”) in addition
to any additional Bonds that may be issued under the Bond Lease and Indenture.

 

B.                                     This Mortgage allows for future advances, but
the amount of any advance is not currently known. The Mortgagee is aware of
Minnesota Statutes Section 287.05, subdivision 5, and intends to comply
with the requirements contained therein.

 

C.                                     The
Bonds are payable and to be performed in accordance with the terms of the Bond
Lease and the other Bond Documents, with the entire unpaid balance of the Bonds
to mature and be due and payable in full not later than December 1, 2022
(the “Maturity Date”), unless extended by Mortgagor and Mortgagee.

 

D.                                    Mortgagor
has agreed to mortgage the Mortgaged Property (as herein defined) to Mortgagee
to secure the Bonds and the Obligations (as defined below).

 

To secure the performance of the covenants and
commitments of the Mortgagor to the Mortgagee and of the City to the Mortgagee,
its successors and assigns, and the payment to the Mortgagee, its successors
and assigns, of (i) the Initial Amount of the Debt, as evidenced by the
Bond Lease and the Bonds, in the principal sum of $15,180,000.00, the balance
of the Bonds being due and payable on or before their maturity date; unless
sooner prepaid or called for prior redemption as provided in the Bonds, (ii) the
Bond Lease, (iii) the Bonds, (iv) the Indenture, and (v) all
existing and future debts, notes, guaranties, and other obligations and
liabilities of Mortgagor and City to Mortgagee of whatever nature or amount, as
the same may be from time to time amended, modified, extended, renewed,
refinanced or restated on any terms whatsoever, including increases in
interest, including without limitation, amounts owed to Mortgagee, (v) for
and to secure the payment to the Mortgagee, its successors and assigns, at the
times demanded and with interest thereon at the same rate(s) specified in
the Indenture and the Bond Lease of all sums advanced in protecting the lien of
this Mortgage; (a) in payment of taxes on the “Mortgaged Property” (as
hereinafter defined); (b) in payment of insurance premiums covering all
improvements thereon; (c) in payment of principal and interest on prior
liens; (d) in payment of expenses and attorneys’ fees herein provided for
and all sums advanced for any other purpose authorized herein or authorized by
law (the Bonds, the Bond Lease and all such sums advanced thereunder, together
with interest thereon, being collectively referred to herein as the “Obligations”);
and (e) in consideration of the sum of $1.00 paid by the Mortgagee to the
Mortgagor and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Mortgagor hereby irrevocably
and unconditionally BARGAINS, CONVEYS, MORTGAGES AND WARRANTS to Mortgagee, its
successors and assigns, forever, with right of entry and possession and with
POWER OF SALE to foreclose by advertisement under applicable Minnesota law, and
grants to Mortgagee, its successors and assigns, a mortgage and security
interest in the land and any buildings, plants, facilities or 

 

2

 

improvements of any kind
(collectively, “Improvements”), now existing or hereafter constructed or placed
thereon, described in Exhibit A attached hereto and all mineral
rights, hereditaments, easements and appurtenances thereto (collectively the “Land”),
along with all the following, all of which together with the Land is called the
“Mortgaged Property” in this Mortgage:

 

(a)                                  All
and singular the tenements, hereditaments, servitudes, easements,
appurtenances, passages, rights of ingress and egress, licenses, permits,
development rights, rights of use or occupancy, waters, water courses, all of
Mortgagor’s rights and interests under federal, state and local laws to all
water and rights, permits or licenses to use or discharge water, release
emissions into the air, riparian rights, mineral rights, sewer rights, rights
in trade names, licenses, permits and contracts, and all other rights,
liberties and privileges of any kind or character in any way now or hereafter
appertaining, relating or applicable to the Land or any Improvements thereon, including
but not limited to, homestead and any other claim at law or in equity as well
as any after-acquired title, franchise or license and the reversion and
reversions and remainder and remainders thereof;

 

(b)                                 The
land lying within any street, alley, avenue, roadway or right-of-way open or
proposed or hereafter vacated in front of or adjoining the Land; and all right,
title and interest, if any, of Mortgagor in and to any strips and gores
adjoining or used in connection with the Land;

 

(c)                                  All
agreements, ground leases, leases, including, but not limited to, that certain
Bond Lease, grants of easements or rights-of-way, permits, declarations of
easements, conditions or restrictions, disposition and development agreements,
planned unit development agreements, plats, subdivision plans, permits and
approvals, and all other documents affecting the Land and/or Improvements;

 

(d)                                 All
right, title and interest of Mortgagor in any and all buildings and
improvements of every kind and description now or hereafter erected or placed
on the said Land and all materials intended for construction, reconstruction,
alteration and repairs of such buildings and improvements now or hereafter
erected thereon, all of which materials shall be deemed to be included within
the Mortgaged Property immediately upon the delivery thereof to the Mortgaged
Property or upon any earlier acquisition thereof by Mortgagor, and all fixtures
now or hereafter owned by Mortgagor and attached to or contained in and used or
acquired for use in connection with the Mortgaged Property including, but not
limited to, all heating, lighting, refrigerating, ventilating,
air-conditioning, air-cooling, fire extinguishing, plumbing, cleaning,
telephone, communications and power equipment, systems and apparatus; and all
elevators, switchboards, motors, pumps, screens, awnings, floor coverings, cabinets, partitions, conduits, ducts and compressors; and
all cranes and craneways, oil storage, sprinkler/fire protection and water
service equipment; and also including any of such property stored on the Land
or Improvements or in warehouses and intended to be used in connection with or
incorporated into the Land or Improvements or for the pursuit of any other
activity in which Mortgagor may be engaged on the Land or Improvements, and
including without limitation all tools, cabinets, awnings, window shades,
venetian blinds, 

 

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drapes
and drapery rods and brackets, screens, carpeting and other window and floor
coverings, decorative fixtures, plants, cleaning apparatus, and cleaning
equipment, refrigeration equipment, generators, cables, telecommunication
cables, antennas and systems, computers, software, books, supplies, kitchen
equipment, appliances, tractors, lawn mowers, ground sweepers and tools,
together with all substitutions, accessions, repairs, additions and
replacements to any of the foregoing and all other items of furniture,
furnishings, equipment and personal property owned by Mortgagor used or useful
in the operation of the Mortgaged Property, including, but not limited to, such
equipment and personal property used in the production of ethanol and the
treatment and storage thereof and in any byproducts; and all renewals or
replacements of all of the aforesaid property owned by Mortgagor or articles in
substitution therefor, whether or not the same are or shall be attached to said
buildings or improvements in any manner; it being mutually agreed, intended and
declared that all the aforesaid property owned by Mortgagor and placed by it on
the Land or Improvements or used or acquired for use in connection with the
operation or maintenance of the Mortgaged Property shall, so far as permitted
by law, be deemed to form a part and parcel of the Land and for the purpose of
this Mortgage to be Land and covered by this Mortgage, and as to any of the
property aforesaid which does not form a part and parcel of the Land or does
not constitute a “fixture” (as such term is defined in the UCC, defined below)
this Mortgage is hereby deemed to be, as well, a security agreement under the
UCC for the purpose of creating hereby a security interest in such property
which Mortgagor hereby grants to Mortgagee as secured party, and all inventory,
office supplies, machinery, apparatus, systems and equipment used or useful in
the production of ethanol at the Mortgaged Property, all as now owned or
hereafter acquired by Mortgagor;

 

(e)                                  All
leases of the Land or Improvements or any part thereof, including the Bond
Lease, whether now existing or hereafter entered into (the “Leases”), and all
right, title and interest of Mortgagor thereunder, including rents, cash and
security deposits under any such Leases and all guaranties of any Tenant’s
obligations under any such Leases or other similar supports of a Tenant’s
obligations under a Lease;

 

(f)                                    Any
and all awards, payments or insurance proceeds, including interest and unearned
premiums thereon, and the right to receive the same, which may be paid or
payable with respect to the Land or Improvements or other properties described
above as a result of: (1) the exercise of the right of eminent domain or
action in lieu thereof; or (2) the alteration of the grade of any street;
or (3) any fire, casualty, accident, damage or other injury to or decrease
in the value of the Land or Improvements or other properties described above,
to the extent of all amounts which may be secured by this Mortgage at the date
of receipt of any such award or payment by Mortgagor or Mortgagee, and of the
reasonable counsel fees, costs and disbursements incurred by Mortgagor or
Mortgagee in connection with the collection of such award, payment or proceeds.
Mortgagor agrees to execute and deliver, from time to time, such further
instruments as may be requested by Mortgagee to confirm such assignment to
Mortgagee of any such award, payment or proceeds;

 

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(g)                                 All
licenses, permits (including, but not limited to, building permits),
authorizations, certificates, variances, consents, approvals and other permits
or licenses now or hereafter acquired pertaining to the Land or any
Improvements thereon or which relate to the construction of the Improvements
and/or the use, occupancy, development, leasing, operation or servicing of the
Land, including, but not limited to air and water discharge permits,
environmental permits and licenses required for the production, storage and/or
transport of ethanol and its byproducts, above ground storage tank licenses and
permits, and all estate, right, title and interest of Mortgagor in, to, under
or derived from all present or future development, construction, operation or
use of the Land or any improvements thereon;

 

(h)                                 All
intangible personal property relating to the Land and/or Improvements, business
records, trade names, trademarks, service marks, logos, claims for refunds or
rebates of taxes, tax abatements, tax credits, money, deposit accounts,
accounts and general and payment intangibles, and all books, records, computer
records, electronic data and reports relating to the Mortgaged Property or
necessary and useful for Mortgagor to enforce Mortgagee’s rights and remedies
in this Mortgage;

 

(i)                                     Any
and all water and water rights, minerals, oil, gas, or any rights thereto;

 

(j)                                     Together
with all plans, drawings and specifications relating to the Mortgaged Property
and the construction of the Improvements, all permits, consents, approvals,
licenses, authorizations and other rights granted by, given by or obtained from
any governmental entity with respect to the Mortgaged Property; and all other
interests of every kind and character that Mortgagor now has or at any time
hereafter acquires in and to the Mortgaged Property;

 

(k)                                  All
studies, tests, investigations, and reports of any kind relating to the soils
or conditions of the soils of the Land and the suitability of the soils for the
construction of the Improvements, all mechanical or structural studies, grading
plans, drainage studies, and plans and other similar studies, plans, drawings,
or reports of any nature relating to the construction of the Improvements;

 

(l)                                     All
management contracts, service contracts, operating agreements, variances and
permits relating to the Land and/or Improvements;

 

(m)                               All
after-acquired title to or remainder or reversion of any of the foregoing, all
and any proceeds of any of the foregoing, all and any additions, accessions and
extensions to, improvements of and substitutions and replacements of any of the
foregoing and all additional lands, estates, interests, rights, or other property
acquired by Mortgagor after the date of this Mortgage, all without need for any
additional mortgage, assignment, pledge, or conveyance to Mortgagee but
Mortgagor will execute and deliver to Mortgagee upon Mortgagee’s request any
documents or instruments to further effect or evidence the foregoing; and

 

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(n)                                 Together
with the right in the case of foreclosure hereunder of the encumbered property
for Mortgagee to take and use the name by which the buildings and all other
improvements situated on the Land are commonly known and the right to manage
and operate the said buildings under any such name and variants thereof, and
all right to take any action or file any papers or process in any court of
competent jurisdiction which may, in the opinion of Mortgagee, be necessary to
preserve, protect or enforce the rights of Mortgagee in the Mortgaged Property;

 

Subject only to the Permitted Encumbrances (as herein
defined) and to secure payment of the Obligations.

 

The
parties intend the definition of Mortgaged Property to be broadly construed and
in the case of doubt as to whether a particular item is to be included in the
definition of Mortgaged Property, the doubt shall be resolved in favor of
inclusion.

 

TO HAVE AND TO HOLD the same, and all estate therein,
together with all the rights, privileges and appurtenances thereunto belonging,
to the use and benefit of Mortgagee, its successors and assigns, forever.

 

PROVIDED NEVERTHELESS, should the Obligations be paid and
performed, then these presents will be of no further force and effect, and this
Mortgage shall be satisfied by Mortgagee, at the expense of Mortgagor and in
accordance with applicable Minnesota law.

 

This Mortgage also constitutes a security agreement within
the meaning of the Uniform Commercial Code as in effect in the State of
Minnesota (the “UCC”), with respect to all property described herein as to
which a security interest may be granted and/or perfected pursuant to the UCC,
and is intended to afford Mortgagee, to the fullest extent allowed by law, the
rights and remedies of a secured party under the UCC.

 

MORTGAGOR FURTHER agrees as follows:

 

ARTICLE
1.

 

AGREEMENTS

 

Section 1.1                          Performance
of Obligations; Incorporation by Reference. Mortgagor shall pay and perform
the Obligations when due. Time is of the essence hereof. All of the covenants,
obligations, agreements, warranties and representations of Mortgagor contained
in this Mortgage, the Bond Lease and the other Bond Documents and all of the
terms and provisions thereof, are hereby incorporated herein and made a part
hereof by reference as if fully set forth herein.

 

Section 1.2                          Further
Assurances. If Mortgagee requests, Mortgagor shall sign and deliver and
cause to be recorded as Mortgagee shall direct any further mortgages,
amendments of or supplements to this Mortgage, instruments of further
assurance, certificates and other documents with respect to the Mortgaged
Property as Mortgagee reasonably may consider necessary or desirable, and shall
do such acts reasonably required by Mortgagee, in order to 

 

6

 

attach, perfect,
continue and preserve the Obligations and Mortgagee’s rights, title, estate,
liens and interests under the Bond Documents. Mortgagor further agrees to pay
to Mortgagee, upon demand, all costs and expenses incurred by Mortgagee in
connection with the preparation, execution, recording, filing and refiling of
any such documents, including reasonable attorneys’ fees.

 

Section 1.3                          Sale,
Transfer, Encumbrance. If Mortgagor sells, conveys, transfers or otherwise
disposes of, or encumbers, any part of its interest (legal or beneficial) in
the Mortgaged Property, whether directly or indirectly, voluntarily,
involuntarily or by operation of law (except for Permitted Encumbrances) except
as permitted by the Bond Lease, without the prior written consent of Mortgagee,
Mortgagee shall have the option to declare the Obligations immediately due and
payable immediately upon notice. Included within the foregoing actions
requiring prior written consent of Mortgagee are: (a) sale of the
Mortgaged Property by deed or contract for deed; (b) mortgaging or
granting a lien on the Mortgaged Property; and (c) except for the issuance
of membership interests of Mortgagor in connection with the current registered
public offering of Mortgagor, a change of control in 50% or more of the equity
interest or voting power or control of Mortgagor. Mortgagor shall give notice
of any proposed action effecting any of the foregoing to Mortgagee for
Mortgagee’s consent at least thirty (30) days prior to taking such action. Mortgagor
shall pay all reasonable costs and expenses incurred by Mortgagee in evaluating
any such action. Mortgagee may condition its consent upon reasonable modification
of the Bond Documents or payment of reasonable fees. No such action shall
relieve Mortgagor from liability for the Obligations as set forth herein. The
consent by Mortgagee to any action shall not constitute a waiver of the
necessity of such consent to any subsequent action.

 

Section 1.4                          Insurance.
Mortgagor shall obtain, maintain and keep in full force and effect and shall
furnish to Mortgagee copies of policies of insurance as described in, and
meeting the requirements set forth in, the Bond Lease. At least ten (10) days
prior to the termination of any such coverage, Mortgagor shall provide
Mortgagee with evidence satisfactory to Mortgagee that such coverage will be
renewed or replaced upon termination with insurance that complies with the provisions
of this Section and the Bond Lease. Mortgagor, at its sole cost and
expense, from time to time when Mortgagee shall so request, will provide
Mortgagee with evidence, in a form acceptable to Mortgagee, of the full
insurable replacement cost of the Mortgaged Property. All property and
liability insurance policies maintained by Mortgagor pursuant to this Section and
the Bond Lease shall (i) include effective waivers by the insurer of all
claims for insurance premiums against Mortgagee, and (ii) provide that any
losses shall be payable notwithstanding (a) any act of negligence by
Mortgagor or Mortgagee, (b) any foreclosure or other proceedings or notice
of foreclosure sale relating to the Mortgaged Property, or (c) any release
from liability or waiver of subrogation rights granted by the insured. In
addition, all policies of casualty insurance shall contain standard
noncontributory mortgagee loss payable clauses to Mortgagee, and the
comprehensive general liability and other liability policies required in the
Bond Lease, including environmental or pollution policies if so required, shall
name Mortgagee as an additional insured.

 

Section 1.5                          Taxes,
Liens and Claims, Utilities. Mortgagor shall pay and discharge when due, or
cause to be paid and discharged when due, all taxes, assessments and
governmental charges and levies (collectively “Impositions”) imposed upon or
against the Mortgaged Property 

 

7

 

or the Rents, or
upon or against the Obligations, or upon or against the interest of Mortgagee
in the Mortgaged Property or the Obligations, except Impositions measured by
the income of Mortgagee. Mortgagor shall provide evidence of such payment at
Mortgagee’s request. Mortgagor shall keep the Mortgaged Property free and clear
of all liens (including, but not limited to, mechanics’ liens), encumbrances,
easements, covenants, conditions, restrictions and reservations (collectively “Liens”)
except those set forth in Exhibit B attached hereto and made a part
hereof (the “Permitted Encumbrances”). Mortgagor shall pay or cause to be paid
when due all charges or fees for utilities and services supplied to the
Mortgaged Property. Notwithstanding anything to the contrary contained in this
Section, Mortgagor shall not be required to pay or discharge any Imposition or
Lien other than a mechanics’ lien so long as Mortgagor shall in good faith, and
after giving notice to Mortgagee, contest the same by appropriate legal
proceedings. If Mortgagor contests any Imposition or Lien against the Mortgaged
Property, Mortgagor shall provide such security to Mortgagee as Mortgagee shall
reasonably require against loss or impairment of Mortgagor’s ownership of or
Mortgagee’s lien on the Mortgaged Property and shall in any event pay such
Imposition or Lien before loss or impairment occurs.

 

Section 1.6                          Escrow
Payments. If requested by Mortgagee after the occurrence of an Event of
Default, Mortgagor shall deposit with Mortgagee monthly on the first day of
each month the amount reasonably estimated by Mortgagee to be necessary to
enable Mortgagee to pay, at least five (5) days before they become due,
all Impositions against the Mortgaged Property and the premiums upon all
insurance required hereby to be maintained with respect to the Mortgaged Property.
All funds so deposited shall secure the Obligations. Any such deposits shall be
held by Mortgagee, or its nominee, in a non-interest bearing account and may be
commingled with other funds. Such deposits shall be used to pay such
Impositions and insurance premiums when due. Any excess sums so deposited shall
be retained by Mortgagee and shall be applied to pay said items in the future,
unless the Obligations have been paid and performed in full, in which case all
excess sums so paid shall be refunded to Mortgagor. Upon the occurrence of an
Event of Default, Mortgagee may apply any funds in said account against the
Obligations in such order as Mortgagee may determine in Mortgagee’s sole
discretion.

 

Section 1.7                          Maintenance
and Repair; Compliance with Laws. Mortgagor shall cause the Mortgaged
Property to be operated, maintained and repaired in safe and good repair,
working order and condition, reasonable wear and tear excepted; shall not
commit or permit waste thereof; except as provided in any Bond Document, shall
not remove, demolish or substantially alter the design or structural character
of any Improvements without the prior written consent of Mortgagee; shall
complete or cause to be completed forthwith any Improvements which are now or
may hereafter be under construction upon the Land; shall materially comply or
cause material compliance with all laws, statutes, ordinances and codes, and
governmental rules, regulations, requirements and permits and licenses,
applicable to the Mortgaged Property or the manner of using or operating the
same, and with any covenants, conditions, restrictions and reservations
affecting the title to the Mortgaged Property, and with the terms of all
insurance policies relating to the Mortgaged Property; and shall obtain and maintain
in full force and effect all consents, permits and licenses necessary for the
use and operation of the Mortgaged Property in Mortgagor’s business. Mortgagor
shall obtain and maintain in full force and effect all certificates, licenses,
permits and approvals that are required by law or necessary for the
construction of the Improvements or the use, occupancy or operation of the
Project. Mortgagor 

 

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shall promptly
notify Mortgagee in writing of the receipt by Mortgagor of any notice relating
to the violation or allegation or claim of violation of any applicable laws,
licenses or permits and of the commencement or threatened commencement of any
proceedings or investigations which relate to compliance with applicable laws,
permits or licenses. Subject to the provisions of this Mortgage with respect to
insurance proceeds and condemnation awards, Mortgagor shall promptly repair,
restore and rebuild any Improvements now or hereafter on the Mortgaged Property
which may become damaged or destroyed, such Improvements to be of at least
equal value and quality and of substantially the same character as prior to
such damage or destruction.

 

Section 1.8                          Leases.

 

(a)                       Notwithstanding
anything to the contrary herein, Mortgagor shall not enter into any Lease
without Mortgagee’s prior written consent, and shall furnish to Mortgagee, upon
execution, a complete and fully executed copy of each Lease. Mortgagor shall
provide Mortgagee with a copy of each proposed Lease requiring the consent of
Mortgagee and with any information requested by Mortgagee regarding the
proposed Tenant thereunder. Mortgagee may declare each Lease to be prior or
subordinate to this Mortgage, at Mortgagee’s option.

 

(b)                      Mortgagor
shall, at its cost and expense, perform each obligation to be performed by the
landlord under each Lease; not borrow against, pledge or further assign any
rents or other payments due thereunder; not permit the prepayment of any rents
or other payments due for more than one (1) month in advance; and not
permit any Tenant to assign its Lease or sublet the premises covered by its
Lease, unless required to do so by the terms thereof and then only if such
assignment does not work to relieve the Tenant of any liability for performance
of its obligations thereunder.

 

(c)                       If any
Tenant shall default under its Lease, Mortgagor shall, in the ordinary course
of business, exercise sound business judgment with respect to such default, but
may not discount, compromise, forgive or waive claims or discharge the Tenant
from its obligations under the Lease or terminate or accept a surrender of the
Lease without the prior written consent of Mortgagee.

 

(d)                      If Mortgagor
fails to perform any obligations of Mortgagor under any Lease or if Mortgagee
becomes aware of or is notified by any Tenant of a failure on the part of
Mortgagor to so perform, Mortgagee may, but shall not be obligated to, without
waiving or releasing Mortgagor from any Obligation, remedy such failure, and
Mortgagor agrees to repay upon demand all sums incurred by Mortgagee in
remedying any such failure, together with interest thereon from the date
incurred at an annual rate equal to nine and one half percent (9.5%) in excess
of the one month LIBOR Rate (as set forth and defined in the Bond Lease).

 

(e)                       For
purposes of this Mortgage, the following terms shall have the following
meanings:

 

(i)                             “Lease”:  Any lease, occupancy agreement or other
document or agreement, written or oral, permitting any Person to use or occupy
any part of the Mortgaged Property.

 

9

 

(ii)                          “Person”:  Any natural person, corporation, partnership,
limited partnership, limited liability company, joint venture, firm,
association, trust, unincorporated organization, government or governmental
agency or political subdivision or any other entity, whether acting in an
individual, fiduciary or other capacity.

 

(iii)                       “Tenant”:  Any person or party using or occupying any
part of the Mortgaged Property pursuant to a Lease.

 

Section 1.9                          Indemnity.
Mortgagor shall reimburse, indemnify and defend Mortgagee and its participants
and their respective directors, officers, attorneys, agents and employees
(collectively the “Indemnified Parties”) against, and hold the Indemnified
Parties harmless from, all losses, damages, suits, claims, judgments,
penalties, fines, liabilities, costs and expenses by reason of, or on account
of, or in connection with the construction, reconstruction or alteration of the
Mortgaged Property during Mortgagor’s ownership thereof, the use and operation
of Mortgagor’s business on the Land, Mortgagor’s failure to operate Mortgagor’s
business on the Mortgaged Property in compliance with all applicable laws and
permits and licenses, Mortgagor’s breach of Mortgagor’s obligations under this
Mortgage, the Bond Lease or any other Bond Document, or any accident, injury,
death or damage to any person or property occurring in, on or about the
Mortgaged Property during Mortgagor’s ownership thereof, or any street, drive,
sidewalk, curb or passageway adjacent thereto, except to the extent that the
same results from the willful misconduct or gross negligence of the person or
party seeking indemnification. The indemnity contained in this Section shall
include costs of defense of any such claim asserted against an Indemnified
Party, including reasonable attorneys’ fees. The indemnity contained in this Section shall
survive payment and performance of the Obligations and satisfaction and release
of this Mortgage and any foreclosure thereof or acquisition of title by deed in
lieu of foreclosure. Notwithstanding the foregoing, Mortgagor’s liability
hereunder shall terminate at such time as a private or governmental plaintiff
is barred by the applicable statute of limitations from bringing a claim for
the actions giving rise to Mortgagee’s claim for indemnification hereunder.

 

Section 1.10                    Assignment
of Leases and Rents.

 

(a)                       As
additional security for the indebtedness secured by this Mortgage, Mortgagor
does hereby bargain, sell, assign, transfer and set over unto Mortgagee all
Leases and all the rents, fees, issues, profits, revenues, royalties and other
income of any kind (“Rents”) which, whether before or after foreclosure, or
during the full statutory period of redemption, if any, shall accrue and be
owing for the use or occupation of the Mortgaged Property or any part thereof. So
long as no Event of Default exists under this Mortgage, Mortgagor shall have a
revocable license to collect, but not more than one (1) month in advance
under any Lease, all Rents earned prior to default. This Mortgage constitutes
an absolute, irrevocable, currently effective assignment of Rents and profits. Mortgagor
hereby appoints Mortgagee as Mortgagor’s true and lawful attorney-in-fact with
full power of substitution to demand, collect and receive any and all Rents
which may be or become due and payable by Tenants after the occurrence of any
Event of Default, which appointment is coupled with an interest and is
irrevocable. Mortgagee may, at its discretion, file any claim or take any
action to collect and enforce the 

 

10

 

payment of Rents,
either in Mortgagee’s name or Mortgagor’s name or otherwise. Tenants are hereby
expressly authorized and directed by Mortgagor to pay to Mortgagee all Rents
upon Mortgagee’s demand, and such Tenants are hereby expressly relieved of any
and all duty, obligation or liability to Mortgagor in respect of any Rents so
paid to Mortgagee.

 

(b)                      If, at any
time after an Event of Default hereunder, in the sole discretion of Mortgagee,
a receivership may be necessary to protect the Mortgaged Property or its Rents,
whether before or after maturity of any Loan and whether before or at the time
of or after the institution of suit to collect such indebtedness, or to enforce
this Mortgage, Mortgagee, as a matter of strict right and regardless of the
value of the Mortgaged Property or the amounts due hereunder or secured hereby,
or of the solvency of any party bound for the payment of such indebtedness,
shall have the right to the appointment of a receiver to take charge of,
manage, preserve, protect, rent and operate the Mortgaged Property, to collect
the Rents thereof, to make all necessary and needful repairs, and to pay all
Impositions against the Mortgaged Property and all premiums for insurance
thereon, and to do such other acts as may by such court be authorized and
directed, and after payment of the expenses of the receivership and the
management of the Mortgaged Property, to apply the net proceeds of such
receivership in reduction of the Obligations and indebtedness secured hereby or
in such other manner as the said court shall direct notwithstanding the fact
that the amount owing thereon may not then be due and payable or the said
Obligations and indebtedness is otherwise adequately secured. Such receivership
shall, at the option of Mortgagee, continue until full payment of all sums
hereby secured or until title to the Mortgaged Property shall have passed by
sale under this Mortgage, or until terminated by the court.

 

(c)                       The
reasonable costs and expenses (including any receiver’s fees and reasonable
attorneys’ fees) incurred by Mortgagee pursuant to the powers herein contained
shall be reimbursed by Mortgagor to Mortgagee on demand as promptly as
practicable, shall be secured hereby and shall bear interest from the date
incurred at an annual rate equal to nine and one-half percent (9.5%) in excess
of the one month LIBOR Rate (as set forth in the Bond Lease). Unless otherwise
required by the court, Mortgagee shall not be liable to account to Mortgagor
for any action taken pursuant hereto, other than to account for any Rents,
fees, issues, revenues, profits or proceeds actually received by Mortgagee.

 

ARTICLE 2.

 

REPRESENTATIONS AND WARRANTIES

 

Mortgagor represents and warrants to Mortgagor and
covenants with Mortgagor as follows:

 

Section 2.1                          Ownership,
Liens, Compliance with Laws. Except for Permitted Encumbrances and the
liens permitted by the Bond Lease, Mortgagor owns the Mortgaged Property free
from all Liens, except the Permitted Encumbrances and has good and marketable
leasehold interest in the Equipment leased under the Bond Lease. To the best of
Mortgagor’s knowledge, all applicable zoning, environmental, land use,
subdivision, building, fire, safety and health laws, statutes, ordinances,
codes, rules, regulations and requirements affecting the Mortgaged Property
permit the current use and occupancy thereof and Mortgagor’s intended use 

 

11

 

and occupancy of
the Mortgaged Property upon substantial completion of the Project, and
Mortgagor has obtained all consents, permits and licenses required for such use
and intended use. Mortgagor has examined and is familiar with all applicable
covenants, conditions, restrictions and reservations, and with all applicable
laws, statutes, ordinances, codes and governmental rules, regulations and
requirements affecting the Mortgaged Property, and to the best of Mortgagor’s
knowledge, the Mortgaged Property complies in all material respects with all of
the foregoing.

 

Section 2.2                          Use.
The Mortgaged Property is not homestead property, a single or up to a five
family dwelling, nor is it agricultural property or in agricultural use. The
construction, use and occupancy of the Project complies and will comply with
all requirements of law and any Permitted Encumbrance. No portion of any
Improvements (other than parking and driveway areas if permitted by the
applicable easement) will be/are constructed over areas subject to easements. Neither
the zoning nor any of the right to construct or to use any Improvements will
be/is to any extent dependent upon or related to any real estate other than the
Land; and all approvals, licenses, permits, certifications, filings and other
actions required by law with respect to the construction, use, occupancy and
operation of the Mortgaged Property, have been or will be received.

 

Section 2.3                          Utilities;
Services. The Mortgaged Property is serviced by all necessary public
utilities, including, but not limited to, water, electricity, natural gas,
telephone, storm sewer and sanitary sewer, and all such utilities are
operational and have sufficient capacity. There is no contract or agreement
providing for services to or maintenance of the Mortgaged Property which cannot
be cancelled upon 30 days’ or less notice. The Mortgaged Property has access to
all public streets and railroad spurs and tracks, and is benefited by all
necessary easements, to allow the operation of the Mortgaged Property by
Mortgagor as an ethanol plant in the ordinary course of business and in a
prudent manner.

 

Section 2.4                          Construction
of the Improvements. Mortgagor has, or prior to commencement of
construction of any Improvements will have, received all requisite building
permits and approvals, all approvals and consents to the Plans and without
limiting the generality of the foregoing, complied with all requirements of law
applicable to the construction of the Project. Mortgagor shall promptly
complete all Improvements in a good and workmanlike manner in accordance with
the Plans approved by Mortgagee and Mortgagor shall promptly pay when due all
bills and costs for labor, services, utilities and materials, and Mortgagor
shall keep the Mortgaged Property free from any liens or encumbrances of any
nature except for this Mortgage and the Permitted Exceptions and the liens and
encumbrances permitted by the Bond Lease.

 

Section 2.5                          Business Purpose. Mortgagor hereby represents, or if
applicable Mortgagor has been advised by its beneficiaries, that the proceeds
of the loan secured by this Mortgage will be used for the purposes specified in
the Bond Lease and that the principal obligation secured hereby constitutes a “business
loan” to be used for the purposes provided for in the Bond Documents.

 

12

 

Section 2.6                          Antiterrorism Regulations. Neither
the Mortgagor, any affiliate of the Mortgagor, nor any person owning an
interest in either of the foregoing is a “Specially Designated National” or a “Blocked
Person” as those terms are defined in the Office of Foreign Asset Control
Regulations, 31 C.F.R. Part 500.

 

Section 2.7                          Prohibited
Person Compliance. Mortgagor warrants, represents, and covenants that
neither Mortgagor, any guarantor, nor any of their respective affiliated
entities is or will be an entity or person (i) that is listed in the Annex
to or is otherwise subject to the provisions of Executive Order 13,224, issued
on September 24, 2001 (EO13224); (ii) whose name appears on the United
States Treasury Department’s Office of Foreign Assets Control’s (OFAC) most
current list of “Specially Designated National and Blocked Persons,” (which
list may be published from time to time in various mediums including, but not
limited to, the OFAC Web site,
www.treas.gov/ofac/t11sdn.pdf); (iii) who commits, threatens to
commit, or supports “terrorism,” as that term is defined in EO13224; or (iv) who
is otherwise affiliated with any entity or person listed above (any and all
parties or persons described in subparts i - iv are herein referred to as a
Prohibited Person).  Mortgagor covenants and agrees that neither
Mortgagor, nor any guarantor nor any of their respective affiliated entities,
will knowingly (i) conduct any business, nor engage in any transaction or
dealing, with any Prohibited Person, including but not limited to the making or
receiving of any contribution of funds, goods, or services to or for the
benefit of a Prohibited Person; or (ii) engage in or conspire to engage in
any transaction that evades or avoids, has the purpose of evading or avoiding,
or attempts to violate any of the prohibitions set forth in EO13,224. 
Mortgagor further covenants and agrees to deliver (from time to time) to
Mortgagee any such certification or other evidence as may be requested by
Mortgagee in its sole and absolute discretion, confirming that, to the best of
Mortgagor’s knowledge, (i) neither Mortgagor nor any guarantor is a
Prohibited Person and (ii) neither Mortgagor nor any guarantor has engaged
in any business, transaction, or dealings with a Prohibited Person, including
but not limited to the making or receiving of any contribution of funds, goods,
or services to or for the benefit of a Prohibited Person.

 

ARTICLE 3.

 

CASUALTY; CONDEMNATION

 

Section 3.1                          Casualty,
Repair, Proof of Loss. If any portion of the Mortgaged Property shall be
damaged or destroyed by any cause (a “Casualty”), Mortgagor shall, subject to Section 3.2
below:

 

(a)                      give notice
to the Mortgagee as promptly as practicable;

 

(b)                     unless the
Mortgagee has withheld Casualty proceeds during the twelve (12) months prior to
the maturity date of the Bonds and insurance proceeds and other funds are not
available to Mortgagor, promptly commence and diligently pursue to completion
(in accordance with plans and specifications approved by Mortgagee) the
restoration, repair and rebuilding of the Mortgaged Property at least as nearly
as possible to its value, condition and character immediately prior to the
Casualty; and

 

13

 

(c)                      if the
Casualty is covered by insurance, immediately make proof of loss and to the
extent permitted by this Mortgage, collect all insurance proceeds, all such
proceeds to be payable to Mortgagee or as Mortgagee shall direct. If an Event
of Default shall be in existence, or if Mortgagor shall fail to provide notice
to Mortgagee of filing proof of loss, or if Mortgagor shall not be diligently
proceeding, in Mortgagee’s reasonable opinion, to collect such insurance
proceeds, then Mortgagee may, but is not obligated to, make proof of loss, and
is authorized, but is not obligated, to settle any claim with respect thereto,
and to collect the proceeds thereof.

 

Section 3.2                          Use
of Insurance Proceeds. Mortgagee shall make the net insurance proceeds
received by it (after reimbursement of Mortgagee’s reasonable out-of pocket
costs of collecting and disbursing the same) available to Mortgagor to pay the
cost of restoration, repair and rebuilding of the Mortgaged Property, subject
to all of the following conditions precedent:

 

(a)                     There shall
be no Event of Default in existence at the time of any disbursement of the
insurance proceeds;

 

(b)                    Mortgagee
shall have determined, in its reasonable discretion, that the cost of
restoration, repair and rebuilding is and will be equal to or less than the
amount of insurance proceeds and other funds deposited by Mortgagor with
Mortgagee for restoration and repair of the Mortgaged Property;

 

(c)                     Mortgagee
shall have determined, in its reasonable discretion, that the restoration,
repair and rebuilding can be completed in accordance with plans and
specifications approved by Mortgagee (such approval not to be unreasonably
withheld), and in accordance with applicable laws, codes, regulations and
ordinances;

 

(d)                    All funds
shall be disbursed, at Mortgagee’s option, in accordance with Mortgagee’s
customary disbursement procedures for construction loans;

 

(e)                     The Casualty
results in damage of $500,000.00 or less; and

 

(f)                       The
restoration, repair and rebuilding of the Mortgaged Property can be completed
within nine (9) months following the date of the Casualty, or such
additional period of time as Mortgagee, in its reasonable discretion, shall
permit.

 

If any of these conditions shall not be satisfied,
then Mortgagee shall have the right to either use the insurance proceeds to
prepay the Obligations or make such proceeds available for restoration, repair
and rebuilding of the Mortgaged Property. If any insurance proceeds shall
remain after completion of the restoration, repair and rebuilding of the
Mortgaged Property, they shall be disbursed to Mortgagor, or the Person legally
entitled thereto, or at the Mortgagee’s discretion, used to prepay the
Obligations.

 

In the event such insurance proceeds are made
available for restoration and repair by the Mortgagee, Mortgagor shall pay all
costs incurred by Mortgagee in connection with the application of such
insurance proceeds (including but not limited to reasonable costs incurred by 

 

14

 

Mortgagee, and a title company or agent approved by
Mortgagee in overseeing the disbursement of such insurance proceeds), and the
Improvements shall be restored or rebuilt so as to be of at least equal value
and substantially the same character as prior to such damage or destruction.

 

Section 3.3                          Condemnation.
If any portion of the Mortgaged Property shall be taken, condemned or acquired
pursuant to exercise of the power of eminent domain or threat thereof (a “Condemnation”),
Mortgagor shall:

 

(a)                     give notice
thereof to Mortgagee as promptly as practicable, and send a copy of each
document received by Mortgagor in connection with the Condemnation to Mortgagee
promptly after receipt; and

 

(b)                    diligently
pursue any negotiation and prosecute any proceeding in connection with the
Condemnation at Mortgagor’s expense. If an Event of Default shall be in
existence, or if Mortgagor, in Mortgagee’s reasonable opinion, shall not be
diligently negotiating or prosecuting the claim, Mortgagee is authorized, but
not required, to negotiate and prosecute the claim and appear at any hearing
for itself and on behalf of Mortgagor and to compromise or settle all
compensation for the Condemnation. Mortgagee shall not be liable to Mortgagor
for any failure by Mortgagee to collect or to exercise diligence in collecting
any such compensation. Mortgagor shall not compromise or settle any claim
resulting from the Condemnation if such settlement shall result in payment of
more than $10,000 less than Mortgagee’s reasonable estimate of the damages
therefrom. All awards shall be paid to Mortgagee.

 

Section 3.4                          Use
of Condemnation Proceeds. Mortgagee shall make the net proceeds of any
Condemnation received by it (after reimbursement of Mortgagee’s out-of-pocket
costs of collecting and disbursing the same) available to Mortgagor for
restoration, repair and rebuilding of the Mortgaged Property, subject to all of
the following conditions precedent:

 

(a)                     There shall
be no Event of Default in existence at the time of any disbursement of the condemnation
proceeds;

 

(b)                    Mortgagee
shall have determined, in its reasonable discretion, that the cost of
restoration, repair and rebuilding is and will be equal to or less than the
amount of condemnation proceeds and other funds deposited by Mortgagor with
Mortgagee;

 

(c)                     Mortgagee
shall have determined, in its reasonable discretion, that the restoration,
repair and rebuilding can be completed in accordance with plans and
specifications approved by Mortgagee (such approval not to be unreasonably
withheld), in accordance with applicable laws, codes, regulations and
ordinances and in accordance with the terms, and within the time requirements
in order to prevent termination of any Lease;

 

(d)                    All funds
shall be disbursed, at Mortgagee’s option, in accordance with Mortgagee’s
customary disbursement procedures for construction loans;

 

(e)                     The
condemnation or taking causes damage of $500,000.00 or less or requires
restoration which costs less than $500,000.00; and

 

15

 

(f)                       The
restoration, repair and rebuilding of the Mortgaged Property can be completed
within nine (9) months of the date of the taking, or such additional
period of time as Mortgagee, in its reasonable discretion, shall permit.

 

If any of these conditions shall not be satisfied,
then Mortgagee shall have the right to either use the condemnation award
proceeds to prepay the Obligations or make such proceeds available for
restoration, repair and rebuilding of the Mortgaged Property. If any
condemnation proceeds shall remain after completion of the restoration, repair
and rebuilding of the Mortgaged Property, they shall be disbursed to Mortgagor,
or to the Person legally entitled thereto, or at Mortgagee’s discretion, used
to prepay the Obligations.

 

ARTICLE 4.

 

DEFAULTS AND REMEDIES

 

Section 4.1                          Events
of Default. An Event of Default, as defined in the Bond Lease or any other
Bond Document, shall constitute an Event of Default hereunder. In addition,
Mortgagor’s failure to perform, observe or comply with its obligations in this
Mortgage or the Bond Lease shall be an Event of Default, and the occurrence of
any Event of Default under the the Bond Lease or the termination of the Bond
Lease shall be an Event of Default.

 

Section 4.2                          Remedies.
After the occurrence and continuance of an Event of Default, Mortgagee shall be
entitled to invoke any and all of the rights and remedies described below, in
addition to all other rights and remedies available to Mortgagee under any Bond
Document or available at law or in equity. All of such rights and remedies
shall be cumulative, and the exercise of any one or more of them shall not
constitute an election of remedies.

 

(a)                     Acceleration.
Mortgagee may declare any or all of the Obligations to be due and payable
immediately. If, while any insurance proceeds or condemnation awards are being
held by Mortgagee to reimburse Mortgagor for the cost of rebuilding or
restoration of buildings or improvements on the Mortgaged Property, Mortgagee
shall accelerate the Obligations, then and in such event, Mortgagee shall be
entitled to apply all such insurance proceeds and condemnation awards then held
by it in reduction of the Obligations and any excess held by it over the amount
of Obligations then due hereunder shall be returned to Mortgagor or the Persons
legally entitled thereto without interest.

 

(b)                    Receiver.
Mortgagee shall have the right to obtain a receiver in accordance with
applicable law at any time after an Event of Default which is continuing,
whether or not an action for foreclosure has been commenced. Any court having
jurisdiction shall, at the request of Mortgagee following an Event of Default
which is continuing, appoint a receiver to take immediate possession of the
Mortgaged Property and to rent or operate the same as he may deem best for the
interest of all parties concerned, and unless otherwise required by the court,
such receiver shall be liable to account to the Mortgagor only for the net
profits, after application of rents, issues and profits upon the costs and expenses
of the receivership and upon the Obligations.

 

16

 

Mortgagee shall have the right, at any time to advance
money to the receiver to pay any part or all of the items which the receiver
should otherwise pay if cash were available from the Mortgaged Property and
sums so advanced, with interest at an annual rate equal to nine and one-half
percent (9.5%) in excess of the one month LIBOR Rate shall be secured hereby,
or if advanced during the period of redemption shall be a part of the sum
required to be paid to redeem from the sale.

 

(c)                                  Entry.
To the extent allowed by applicable law, Mortgagee, in person, by agent or by
court-appointed receiver, may enter, take possession of, manage and operate all
or any part of the Mortgaged Property, and may also do any and all other things
in connection with those actions that Mortgagee may in its sole discretion
consider necessary and appropriate to protect the security of this Mortgage. Such
other things may include:  taking and
possessing all of Mortgagor’s or the then owner’s books and records; entering
into, enforcing, modifying or canceling leases on such terms and conditions as
Mortgagee may consider proper; obtaining and evicting tenants; fixing or
modifying Rents; collection and receiving any payment of money owing to
Mortgagee; terminating management agreements, contracts or agents/managers
responsible for the operation and/or property management of the Mortgaged
Property; completing any unfinished construction; and/or contracting for and
making repairs and alterations. If Mortgagee so requests, Mortgagor shall
assemble all of the Mortgaged Property that has been removed from the Land and
make all of it available to Mortgagee at the site of the Land. Mortgagor hereby
irrevocably constitutes and appoints Mortgagee as Mortgagor’s attorney-in-fact
to perform such acts and execute such documents as Mortgagee in its sole
discretion may consider to be appropriate in connection with taking these
measures, including endorsement of Mortgagor’s name on any instruments, such
appointment being coupled with an interest and irrevocable.

 

(d)                                 Cure;
Protection of Security. Mortgagee may cure any breach or default of
Mortgagor, and if it chooses to do so in connection with any such cure,
Mortgagee may also enter the Mortgaged Property and/or do any and all other
things which it may in its sole reasonable discretion consider necessary and
appropriate to protect the security of this Mortgage. Any reasonable amounts
expended by Mortgagee under this Section 4.2(d) shall be secured by
this Mortgage and shall be payable upon demand and shall accrue interest at a
variable per annum rate equal to nine and one-half percent (9.5%) in excess of
the one month LIBOR Rate until paid in full.

 

(e)                                  Uniform
Commercial Code Remedies. Mortgagee may exercise any or all of the remedies
granted to a secured party under the UCC.

 

(f)                                    Foreclosure;
Lawsuits. Mortgagee or its nominee may institute such mortgage foreclosure
actions provided for by Minnesota law in accordance with applicable law,
including a foreclosure by action or a foreclosure by advertisement, and may
bid and become the purchaser of all or any part of the Mortgaged Property at
any foreclosure or other sale hereunder, and the amount of Mortgagee’s
successful bid shall be credited on the Obligations. Mortgagee hereby
specifically grants to Mortgagee a power of sale to exercise a foreclosure by
advertisement in accordance with Minnesota law. Without limiting the foregoing,
Mortgagee may proceed by a suit or suits in law or equity, whether for specific
performance of any covenant 

 

17

 

or agreement herein contained or contained in any of
the other Bond Documents, or in aid of the execution of any power herein or
therein granted, or for any foreclosure under the judgment or decree of any
court of competent jurisdiction, or for damages, or to collect the indebtedness
secured hereby, or for the enforcement of any other appropriate legal,
equitable, statutory or contractual remedy.

 

(g)                                 Other
Remedies. Mortgagee may exercise all rights and remedies contained in any
other instrument, document, agreement or other writing heretofore, concurrently
or in the future executed by Mortgagor or any other Person or entity in favor
of Mortgagee in connection with the Obligations or any part thereof, without
prejudice to the right of Mortgagee thereafter to enforce any appropriate
remedy against Mortgagor. Mortgagee shall have the right to pursue all remedies
afforded to a Mortgagee under applicable law, and shall have the benefit of all
of the provisions of such applicable law, including all amendments thereto
which may become effective from time to time after the date hereof. In the
event any provision of such statutes which is specifically referred to herein
may be repealed, as allowed under applicable law, Mortgagee shall have the
benefit of such provision as most recently existing prior to such repeal, as
though the same were incorporated herein by express reference.

 

(h)                                 Personal
Mortgaged Property. Mortgagee shall have the discretionary right to cause
some or all of the Mortgaged Property, which constitutes personal property, to
be sold or otherwise disposed of in any combination and in any manner permitted
by applicable law. To the extent allowed by applicable law, Mortgagee may elect
to treat as personal property any Mortgaged Property which is intangible or
which can be severed from the Land or Improvements without causing structural
damage. If it chooses to do so, Mortgagee may dispose of any personal property,
in any manner permitted by Article 9 of the UCC, including any public or
private sale, or in any manner permitted by any other applicable law or may
proceed under the power of sale granted above.

 

(i)                                     Single
or Multiple Foreclosure Sales. If the Mortgaged Property consists of more
than one lot, parcel or item of Mortgaged Property, Mortgagee may, in
accordance with applicable law:

 

(i)                  designate the
order in which the lots, parcels and/or items shall be sold or disposed of or
offered for sale or disposition; and

 

(ii)               elect to dispose of
the lots, parcels and/or items through a single consolidated sale or
disposition to be held or made under or in connection with judicial
proceedings, or by virtue of a judgment and decree of foreclosure and sale, or
pursuant to the power of sale contained herein; or through two or more such
sales or dispositions; or in any other manner Mortgagee may deem to be in its
best interests (any foreclosure sale or disposition as permitted by the terms
hereof is sometimes referred to herein as a “Foreclosure Sale”; and any two or
more such sales, “Foreclosure Sales”).

 

If it
chooses to have more than one Foreclosure Sale, Mortgagee at its option may
cause the Foreclosure Sales to be held simultaneously or successively, on the
same day, or on such different days and at such different times and in such
order as it may deem to be in its best 

 

18

 

interests.
No Foreclosure Sale shall terminate or affect the liens of this Mortgage on any
part of the Mortgaged Property which has not been sold, until the Obligations
have been paid in full.

 

Section 4.3                            Expenses of Exercising
Rights Powers and Remedies. The reasonable expenses (including any receiver’s
fees, reasonable attorneys’ fees, appraisers’ fees, environmental engineers’
and/or consultants’ fees, auctioneer’s fees and costs, costs incurred for
documentary and expert evidence, stenographers’ charges, publication costs,
costs (which may be estimated as to items to be expended after entry of the
decree of foreclosure) of procuring all abstracts of title, continuations of
abstracts of title, title searches and examinations, UCC and chattel lien
searches, and similar data and assurances with respect to title as Mortgagee
may deem reasonably necessary either to prosecute any foreclosure action or to evidence
to bidders at any sale which may be had pursuant to any foreclosure decree the
true condition of the title to or the value of the Mortgaged Property) incurred
by Mortgagee after the occurrence and continuance of any Event of Default
and/or in pursuing the rights, powers and remedies contained in this Mortgage
shall be immediately due and payable by Mortgagor, with interest thereon from
the date incurred at an annual rate equal to nine and one-half percent (9.5%)
in excess of the one month LIBOR Rate and shall be added to the indebtedness
secured by this Mortgage.

 

Section 4.4                            Restoration of Position.
In case Mortgagee shall have proceeded to enforce any right under this Mortgage
by foreclosure, sale, entry or otherwise, and such proceedings shall have been
discontinued or abandoned for any reason, then, and in every such case,
Mortgagor and Mortgagee shall be restored to their former positions and rights
hereunder with respect to the Mortgaged Property subject to the lien hereof,
except as might otherwise be determined by a final order of a court of
competent jurisdiction.

 

Section 4.5                            Marshalling. Mortgagor,
for itself and on behalf of all Persons which may claim under Mortgagor, hereby
waives all requirements of law relating to the marshalling of assets, if any,
which would be applicable in connection with the enforcement by Mortgagee of
its remedies for an Event of Default hereunder, absent this waiver. Mortgagee
shall not be required to sell or realize upon any portion of the Mortgaged
Property before selling or realizing upon any other portion thereof.

 

Section 4.6                            Waivers. No waiver
of any provision hereof shall be implied from the conduct of the parties. Any
such waiver must be in writing and must be signed by the party against which
such waiver is sought to be enforced. The waiver or release of any breach of
the provisions set forth herein to be kept and performed shall not be a waiver
or release of any preceding or subsequent breach of the same or any other
provision. No receipt of partial payment after acceleration of the Obligations
shall waive the acceleration. No payment by Mortgagor or receipt by Mortgagee
of a lesser amount than the full amount secured hereby shall be deemed to be
other than on account of the sums due and payable hereunder, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment be deemed an accord and satisfaction, and Mortgagee may accept any
check or payment without prejudice to Mortgagee’s right to recover the balance
of such sums or to pursue any other remedy provided in this Mortgage. The
consent by Mortgagee to any matter or event requiring such 

 

19

 

consent shall not constitute a waiver of the necessity
for such consent to any subsequent matter or event.

 

Section 4.7                            Mortgagee’s Right to
Cure Defaults. If Mortgagor shall fail to comply with any of the terms of
this Mortgage with respect to the procuring of insurance, the payment of taxes,
assessments and other charges, the keeping of the Mortgaged Property in repair,
or any other term contained herein and such failure shall continue for a period
of ten (10) days after notice of such failure from Mortgagee, Mortgagee
may make advances to perform the same without releasing any of the Obligations.
Mortgagor agrees to repay upon demand all sums so advanced and all sums
expended by Mortgagee in connection with such performance, including without
limitation reasonable attorneys’ fees, with interest at an annual rate equal to
nine and one-half percent (9.5%) in excess of the one month LIBOR Rate from the
dates such advances are made until paid in full, and all sums so advanced
and/or expenses incurred, with interest, shall be secured hereby, but no such
advance and/or incurring of expense by Mortgagee, shall be deemed to relieve
Mortgagor from any default hereunder, or to release any of the Obligations.

 

Section 4.8                            Collateral Protection.
Unless the Mortgagor provides the
Mortgagee with evidence of the insurance coverage required by this Mortgage or
any of the other Bond Documents, Mortgagee may purchase insurance at the
Mortgagor’s expense to protect Mortgagee’s interests in the Mortgaged Property
for the Obligations.  This insurance may, but need not protect the
Mortgagor’s interests.  The coverage the Mortgagee purchases may not pay
any claim that the Mortgagor makes or any claim that is made against the
Mortgagor in connection with the Mortgaged Property or any other collateral for
the Obligations.  The Mortgagor may later cancel any insurance purchased
by Mortgagee but only after providing Mortgagee with evidence that the
Mortgagor has obtained insurance as required by this Mortgage or any of the
other Bond Documents.  If Mortgagee purchases insurance for the Mortgaged
Property for the Obligations, the Mortgagor will be responsible for the costs
of that insurance, including interest and any other charges that Mortgagee may
lawfully impose in connection with the placement of the insurance, until the
effective date of the cancellation or expiration of the insurance.  The
costs of the insurance may be added to the total outstanding Obligations. 
The costs of the insurance obtained by Mortgagee may be more than the cost of
insurance that the Mortgagor may be able to obtain on its own.

 

Section 4.9                            Suits and Proceedings.
Mortgagee shall have the power and authority, upon prior notice to Mortgagor,
to institute and maintain any suits and proceedings as Mortgagee may deem
advisable to (i) prevent any impairment of the Mortgaged Property by any
act which may be unlawful or by any violation of this Mortgage, (ii) preserve
or protect its interest in the Mortgaged Property, or (iii) restrain the
enforcement of or compliance with any legislation or other governmental
enactment, rule or order that may be unconstitutional or otherwise
invalid, if, in the sole opinion of Mortgagee, the enforcement of or compliance
with such enactment, rule or order might impair the security hereunder or
be prejudicial to Mortgagee’s interest.

 

20

 

ARTICLE 5.

 

MISCELLANEOUS

 

Section 5.1                            Binding Effect;
Survival; Number; Gender. This Mortgage shall be binding on and inure to
the benefit of the parties hereto, and their respective heirs, legal
representatives, successors and assigns. All agreements, representations and
warranties contained herein or otherwise heretofore made by Mortgagor to
Mortgagee shall survive the execution and delivery hereof. The singular of all
terms used herein shall include the plural, the plural shall include the
singular, and the use of any gender herein shall include all other genders,
where the context so requires or permits.

 

Section 5.2                            Severability. The
unenforceability or invalidity of any provision of this Mortgage as to any
person or circumstance shall not render that provision unenforceable or invalid
as to any other person or circumstance.

 

Section 5.3                            Notices. Any notice
or other communication to any party in connection with this Mortgage shall be
in writing and shall be sent by manual delivery, facsimile transmission,
overnight courier or United States mail (postage prepaid) addressed to such
party at the address specified below, or at such other address as such party
shall have specified to the other party hereto in writing. All periods of notice
shall be measured from the date of delivery thereof if manually delivered, from
the date of sending thereof if sent by facsimile transmission, from the first
business day after the date of sending if sent by overnight courier, or from
four (4) days after the date of mailing if mailed. Notices shall be given
to or made upon the respective parties hereto at their respective addresses set
forth below:

 

	
   

  	
  If to Mortgagee:

  	
  U.S. Bank National Association

  
	
   

  	
   

  	
  60 Livingston Avenue, 3rd Floor

  
	
   

  	
   

  	
  Mail Station: EP-MN-WS3C

  
	
   

  	
   

  	
  St. Paul, Minnesota 55107

  
	
   

  	
   

  	
  Fax No.: (651) 495-8097

  
	
   

  	
   

  	
   

  
	
   

  	
  If to Mortgagor:

  	
  Highwater Ethanol, LLC

  
	
   

  	
   

  	
  205 North Main Street

  
	
   

  	
   

  	
  P.O. Box 356

  
	
   

  	
   

  	
  Lamberton, Minnesota 56162

  
	
   

  	
   

  	
  Attn: Brian D. Kletscher

  
	
   

  	
   

  	
  Fax No.: (507) 762-3376

  

 

Either
party may change its address for notices by a notice given pursuant to this
Section.

 

Section 5.4                            Applicable Law. This
Mortgage shall be construed and enforceable in accordance with, and be governed
by, the laws of the State of Minnesota, without giving effect to conflict of
laws or principles thereof.

 

Section 5.5                            Waiver of Reinstatement
and Other Rights. Mortgagor acknowledges that the transaction of which this
Mortgage is a part is a transaction which does not include either real estate
used in agricultural production as defined in Minnesota law, is more than 10
acres in size and is not residential real estate and is not improved with a
residential dwelling consisting of less 

 

21

 

than 5
units, and to the full extent permitted by law, hereby voluntarily and
knowingly waives its rights to reinstatement and redemption as allowed under
Minnesota law or if a wavier is not available agrees to the shortest redemption
and/or reinstatement period allowed under Minnesota law, and to the full extent
permitted by law, waives the benefits of all present and future valuation,
appraisement, homestead, exemption, stay, extension or redemption, right to
notice of election to accelerate the Obligations, and moratorium laws under any
state or federal law, and acknowledges that mandatory mediation under Minnesota
law is not available or applicable.

 

Section 5.6                            Waiver of Jury Trial.
Mortgagor and Mortgagee each irrevocably waives any and all right to trial by
jury in any legal proceeding arising out of or relating to this Mortgage or the
transactions contemplated hereby.

 

Section 5.7                            Effect. This
Mortgage is in addition and not in substitution for any other guarantees,
covenants, obligations or other rights now or hereafter held by Mortgagee from
any other person or entity in connection with the Obligations.

 

Section 5.8                            Assignability. Mortgagee
shall have the right to assign this Mortgage, in whole or in part, to a
successor Trustee pursuant to the terms of the Indenture.

 

Section 5.9                            Headings. Headings
of the Sections of this Mortgage are inserted for convenience only and shall
not be deemed to constitute a part hereof.

 

Section 5.10                      Fixture Filing. This
instrument shall be deemed to be a Fixture Filing within the meaning of the
UCC, and for such purpose, the following information is given:

 

	
   

  	
  (a)

  	
  Name and address of
  Debtor:

  	
   

  	
  Highwater Ethanol, LLC

  205 North Main Street

  P.O. Box 356

  Lamberton, Minnesota 56152

  USA

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  Type of Organization:

  	
   

  	
  Limited liability
  company

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (c)

  	
  Jurisdiction of
  Organization:

  	
   

  	
  Minnesota

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (d)

  	
  Organizational I.D.
  No.:

  	
   

  	
  1825789-2

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (e)

  	
  Name and address of
  Secured Party:

  	
   

  	
  U.S. Bank National
  Association

  60 Livingston Avenue, 3rd Floor

  Mail Station: EP-MN-WS3C

  St. Paul, Minnesota 55107

  USA

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (f)

  	
  Description of the
  collateral:

  	
   

  	
  See granting clause
  above

  

 

22

 

	
   

  	
  (g)

  	
  Description of real
  estate to which the collateral is attached or upon which it is or will be
  located:

  	
   

  	
  See Exhibit A
  hereto.

  

 

Some
of the above-described collateral is or is to become fixtures upon the
above-described real estate, and this Fixture Filing is to be filed for record
in the public real estate records. Mortgagor is the owner of the Land and
Improvements.

 

Section 5.11                      Estoppel Certificate. At
any time and from time to time, within ten (10) Business Days after
receipt from Mortgagee of a written request therefor, Mortgagor shall prepare,
execute and deliver to Mortgagee, and/or any other party which Mortgagee may
designate, an estoppel certificate stating: 
(a) the amount of the unpaid principal balance and accrued interest
secured by this Mortgage on the date thereof; (b) the date upon which the
last payment secured by this Mortgage was made and the date the next payment
secured by this Mortgage is due; and (c) that the provisions of the Bond
Lease, this Mortgage and the other Bond Documents described in said request
have not been materially amended or changed in any manner, that there are no
material defaults or Events of Default then existing under the terms of the
Bond Lease, this Mortgage or the other Bond Documents described in said
request, and that Mortgagor has no defenses, claims or offsets against full
enforcement hereof and thereof according to the terms hereof and thereof, or
listing and describing any such amendments, changes, defaults, events of
default, defenses, claims or offsets which do exist.

 

Section 5.12                      Definitions. Capitalized
terms not otherwise defined in this Mortgage shall have the meaning given to
such terms in the Bond Lease or the Indenture.

 

ARTICLE 6.

 

ENVIRONMENTAL

 

Section 6.1                            Environmental Matters;
Notice; Indemnity. Mortgagor covenants and agrees as follows:

 

(a)                        For
purposes of this Mortgage, the following definitions shall apply:

 

(i)                            The
term “Environmental Law” means and includes any federal, state or local law,
statute, regulation or ordinance pertaining to health, industrial hygiene or
the environmental or ecological conditions on, under or about the Mortgaged
Property, including without limitation each of the following (and their
respective successor provisions): the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. sections 9601 et
seq. (“CERCLA”); the Resource Conservation and Recovery Act of 1976, as
amended, 42 U.S.C. sections 6901 et seq. (“RCRA”); the Federal Hazardous
Materials Transportation Act, as amended, 49 U.S.C. sections 1801 et seq.;
the Toxic Substance Control Act, as amended, 15 U.S.C. sections 2601 et seq.;
the Clean Air Act, as amended, 42 U.S.C. sections 1857 et seq.; the
Federal Water Pollution Control Act, as amended, 33 U.S.C. sections 1251 et
seq.; and the rules, regulations and ordinances of the U.S. Environmental
Protection 

 

23

 

Agency and of all other
federal, state, county and municipal agencies, boards, commissions and other
governmental bodies and officers having jurisdiction over the Mortgaged
Property or the use or operation of the Mortgaged Property.

 

(ii)                         The term “Hazardous
Substance” means and includes: (1) those substances included within the
definitions of “hazardous substances”, “hazardous materials, hazardous waste”, “pollutants”,
“toxic substances” or “solid waste” in any Environmental Law; (2) those
substances listed in the U.S. Department of Transportation Table or amendments
thereto (49 CFR 172.101) or by the U.S. Environmental Protection Agency (or any
successor agency) as hazardous substances (40 CFR Part 302 and any
amendments thereto); (3) those other substances, materials and wastes
which are or become, regulated under any applicable federal, state or local
law, regulation or ordinance or by any federal, state or local governmental
agency, board, commission or other governmental body, or which are or become
classified as hazardous or toxic by any such law, regulation or ordinance; and (4) any
material, waste or substance which is any of the following: (A) asbestos; (B) polychlorinated
biphenyl; (C) designated or listed as a “hazardous substance” pursuant to
section 311 or section 307 of the Clean Water Act (33 U.S.C. sections 1251 et
); (D) explosive; (E) radioactive; (F) a petroleum product;
or (G) infectious waste. Notwithstanding anything to the contrary herein,
the term “Hazardous Substance” shall not include commercially sold products
otherwise within the definition of the term “Hazardous Substance”, but (X) which
are used or disposed of by Mortgagor or used or sold by tenants of the
Mortgaged Property in the ordinary course of their respective businesses, (Y) the
presence of which product is not prohibited by applicable Environmental Law,
and (Z) the use and disposal of which are in all respects in accordance
with applicable Environmental Law.

 

(iii)                      The term “Enforcement
or Remedial Action” means and includes any action taken by any person or entity
in an attempt or asserted attempt to enforce, to achieve compliance with, or to
collect or impose assessments, penalties, fines, or other sanctions provided
by, any Environmental Law.

 

(iv)                     The term “Environmental
Liability” means and includes any claim, demand, obligation, cause of action,
accusation, allegation, order, violation, damage (including consequential
damage), injury, judgment, assessment, penalty, fine, cost of Enforcement or
Remedial Action, or any other cost or expense whatsoever, including actual,
reasonable attorneys’ fees and disbursements, resulting from or arising out of
the violation or alleged violation of any Environmental Law, any Enforcement or
Remedial Action, or any alleged exposure of any person or property to any
Hazardous Substance.

 

(b)                       Mortgagor,
its successors and assigns, after reasonable inquiry, covenants, warrants and
represents that, to the best of its knowledge, except as disclosed writing to
Mortgagee:

 

(i)                            No
Hazardous Substances have been or shall be discharged, disbursed, released,
stored, treated, generated, disposed of, or allowed to escape or migrate, or
shall threaten to be injected, emptied, poured, leached, or spilled on or from
the Mortgaged Property.

 

24

 

(ii)                         No
asbestos or asbestos-containing materials have been or will be installed, used,
incorporated into, placed on, or disposed of on the Mortgaged Property.

 

(iii)                      No
polychlorinated biphenyls (“PCBs”) are or will be located on or in the
Mortgaged Property, in the form of electrical transformers, fluorescent light
fixtures with ballasts, cooling oils, or any other device.

 

(iv)                     No
investigation, administrative order, consent order and agreement, litigation,
settlement, lien or encumbrance with respect to Hazardous Substances is
proposed, threatened, anticipated or in existence with respect to the Mortgaged
Property.

 

(v)                        The
Mortgaged Property and Mortgagor’s operations at the Mortgaged Property are in
compliance with all applicable Environmental Laws including without limitation
any, state and local statutes, laws and regulations and all permits and
licenses issued for the operation of the Mortgaged Property. No notice has been
served on Mortgagor, or any subsidiary of Mortgagor, from any entity,
government body, or individual claiming any violation of any law, regulation,
ordinance or code, or requiring compliance with any law, regulation, ordinance
or code, or demanding payment or contribution for environmental damage or
injury to natural resources. Copies of any such notices received subsequent to
the date hereof shall be forwarded to Mortgagee within three (3) days of
their receipt.

 

(vi)                     Mortgagor has
no knowledge of the release or threat of release of any Hazardous Substances
from any property adjoining or in the immediate vicinity of the Mortgaged
Property.

 

(vii)                  No portion of
the Mortgaged Property is a wetland or other water of the United States subject
to jurisdiction under Section 404 of the Clean Water Act (33 U.S.C. §
1344) or any comparable state statute or local ordinance or regulation defining
or protecting wetlands or other special aquatic areas.

 

(viii)               There are no
concentrations of radon or other radioactive gases or materials in any
buildings or structures on the Mortgaged Property that exceed background
ambient air levels.

 

(ix)                       To the best
of Mortgagor’s knowledge, there have been no complaints of illness or sickness
alleged to result from conditions inside any buildings or structures on the Mortgaged
Property.

 

(c)                        Mortgagor
will give prompt written notice to Mortgagee of:

 

(i)                            any
proceeding, known investigation or inquiry commenced by any governmental
authority with respect to the presence of any Hazardous Substance on, under or
about the Mortgaged Property or the migration thereof to or from adjoining
property;

 

25

 

(ii)                         all
claims made or threatened by any individual or entity against Mortgagor or the
Mortgaged Property relating to any loss or injury allegedly resulting from any
Hazardous Substance;

 

(iii)                      the
discovery by Mortgagor of any occurrence or condition on any real property
adjoining or in the vicinity of the Mortgaged Property which might cause the
Mortgaged Property or any part thereof to be subject to any restriction on the
ownership, occupancy, transferability or use of the Mortgaged Property under
any Environmental Law; and

 

(iv)                     any notice
from any governmental authority alleging or claiming the violation of or
non-compliance with any permit or license relating to Mortgagor’s operations on
the Mortgaged Property, or the revocation, or threatened revocation, of any
such permit or license relating or necessary to the operation of the Mortgagor’s
business on the Mortgaged Property.

 

(d)                       Mortgagee
shall have the right and privilege to: (i) join in and participate in, as
a party if it so elects, any one or more legal proceedings or actions initiated
with respect to the Mortgaged Property; and to (ii) have all costs and
expenses thereof (including without limitation Mortgagee’s reasonable attorneys’
fees and costs) paid by Mortgagor. In addition, Mortgagee and any other Person
designated by Mortgagee, shall have the right, but not the obligation, to enter
upon the Mortgaged Property at any reasonable time to assess any and all
aspects of the environmental condition of the Mortgaged Property and its use,
including, but not limited to, conducting any environmental assessment or audit
(the scope of which shall be determined by Mortgagee in its sole discretion)
and taking samples of air, soil, groundwater or other water, building
materials, and conducting invasive testing. Mortgagor shall cooperate with and
provide access to Mortgagee or any Person designated by Mortgagee.

 

(e)                        Mortgagor
agrees to protect, defend, reimburse, indemnify and hold harmless Mortgagee,
its directors, officers, employees, agents, contractors, sub-contractors,
licensees, invitees, participants, successors and assigns, from and against any
Environmental Liability and any and all claims, demands, judgments,
settlements, damages, actions, causes of action, injuries, administrative
orders, consent agreements and orders, liabilities, losses, penalties, costs,
including but not limited to any cleanup costs, remediation costs and response
costs, and all expenses of any kind whatsoever including reasonable attorneys’
fees and expenses, including but not limited to those arising out of loss of
life, injury to persons, property or business or damage to natural resources in
connection with the activities of Mortgagor, or parties in a contractual
relationship with Mortgagor, and any of them, the foregoing being collectively
referred to as “Claims”, which:

 

(i)                            arise
out of the actual, alleged or threatened migration, spill, leaching, pouring,
emptying, injection, discharge, dispersal, release, storage, treatment,
generation, disposal or escape of any Hazardous Substances onto or from the
Mortgaged Property; or

 

(ii)                         actually
or allegedly arise out of, in connection with the Mortgaged Property, the use,
specification or inclusion of any product, material or process containing 

 

26

 

Hazardous Substances, the
failure to detect the existence or proportion of Hazardous Substances in the
soil, air, surface water or ground water, or the performance of or failure to
perform the abatement of any Hazardous Substances source or the replacement or
removal of any soil, water, surface water or ground water containing any
Hazardous Substances; or

 

(iii)                      arise out of
the breach of any covenant, warranty or representation contained in any
statement or other information given by Mortgagor to Mortgagee relating to
environmental matters; or

 

(iv)                     arise out of
any Enforcement or Remedial Action or any judicial or administrative action
brought pursuant to any Environmental Law; or

 

(v)                        The
violation of or non-compliance with any permits or licenses required in
connection with the operation of the Project.

 

Mortgagor, its successors
and assigns, shall bear, pay and discharge when and as the same become due and
payable, any and all such judgments or claims for damages, penalties or
otherwise against Mortgagee described in this subparagraph (e), shall hold
Mortgagee harmless for those judgments or claims, and shall assume the burden
and expense of defending all suits, administrative proceedings, and
negotiations of any description with any and all persons, political
subdivisions or government agencies arising out of any of the occurrences set
forth in this subparagraph (e).

 

Mortgagor’s
indemnifications and representations made herein shall survive any termination
or expiration of the documents evidencing or securing the Bond and/or the
repayment of the indebtedness evidenced by the Bonds, including, but not
limited  to, any foreclosure on this Mortgage
or acceptance of a deed in lieu of foreclosure. Without limiting the generality
of the foregoing, Mortgagor’s indemnifications and representations shall extend
to Hazardous Substances which first originate on the Mortgaged Property
subsequent to Mortgagee’s succession to title by virtue of a foreclosure or
acceptance of a deed in lieu of foreclosure, excepting only such Claims which
arise out of actions taken by Mortgagee, or by those contracting with
Mortgagee, its successors or assigns, subsequent to Mortgagee, its successors
or assigns, becoming owner of the Mortgaged Property. Notwithstanding the
foregoing, Mortgagor’s liability hereunder shall terminate at such time as a
private or governmental plaintiff is barred by the applicable statute of
limitations from bringing a claim for the actions giving rise to Mortgagee’s
claim for indemnification hereunder.

 

(f)                          If any
investigation, site monitoring, containment, cleanup, removal, restoration or
other remedial work of any kind or nature (the “Remedial Work”) is reasonably
desirable (in the case of an operation and maintenance program or similar
monitoring or preventative programs) or necessary, both as determined by an
independent environmental consultant selected by Mortgagee under any applicable
federal, state or local law, regulation or ordinance, or under any judicial or
administrative order or judgment, or by any governmental person, board,
commission or agency, because of or in connection with the current or future
presence, suspected presence, release or suspected release of a Hazardous
Substance into the air, soil, groundwater, or surface water at, on, about,
under or within the Mortgaged Property or any 

 

27

 

portion thereof,
Mortgagor shall within thirty (30) days after written demand by Mortgagee for
the performance (or within such shorter time as may be required under
applicable law, regulation, ordinance, order or agreement), commence and
thereafter diligently prosecute to completion all such Remedial Work to the
extent required by law. All Remedial Work shall be performed by contractors
approved in advance by Mortgagee (which approval in each case shall not be
unreasonably withheld or delayed) and under the supervision of a consulting
engineer approved in advance by Mortgagee. All costs and expenses of such
Remedial Work (including without limitation the reasonable fees and expenses of
Mortgagee’s counsel) incurred in connection with monitoring or review of the
Remedial Work shall be paid by Mortgagor. If Mortgagor shall fail or neglect to
timely commence or cause to be commenced, or shall fail to diligently prosecute
to completion, such Remedial Work, Mortgagee may (but shall not be required to)
cause such Remedial Work to be performed; and all costs and expenses thereof,
or incurred in connection therewith (including, without limitation, the
reasonable fees and expenses of Mortgagee’s counsel), shall be paid by
Mortgagor to Mortgagee forthwith after demand and shall be a part of the
Indebtedness.

 

ARTICLE 7.

 

LEASES

 

Section 7.1                                     With respect to
the Bond Lease, Mortgagor covenants and agrees as follows:

 

(a)                                  Compliance.
Mortgagor agrees: (i) to perform all obligations of the tenant under the
Bond Lease and any statute, ordinance, rule or regulation relating
thereto; (ii) not to cause or permit any breach of the Bond Lease; and (iii) to
enforce the obligations of the landlord under the Bond Lease to the end that
Mortgagor may enjoy all the rights granted to Mortgagor under the Bond Lease. Mortgagor
shall keep and maintain the Bond Lease in full force and effect. If Mortgagor
shall receive forbearance from the landlord or otherwise shall be excused from
full and timely performance of any of its obligations under the Bond Lease, the
same shall not postpone, excuse, diminish or otherwise affect the obligations
of Mortgagor under this Section.

 

(b)                                 Curing
Defaults. If Mortgagor shall default under the Bond Lease, or if Mortgagee
shall receive notice of any default under the Bond Lease, Mortgagee may, at its
option but without any obligation to do so, take any action necessary or
desirable to cure any such default, Mortgagee being authorized to enter upon
the Land or leased premises for such purposes with or without notice and without
becoming a mortgagee in possession. Mortgagor shall, immediately on demand, pay
to Mortgagee all costs of Mortgagee incurred in curing any such default,
together with interest on such costs from the date of expenditure until said
sums have been paid, at the rate of the one month LIBOR Rate plus nine and one
half percent (9.5%).

 

(c)                                  No
Modification or Termination without Mortgagee Consent. Mortgagor shall not
cause, join in, or suffer to occur any actual or purported modification,
amendment, surrender, or termination of the Bond Lease, in each case without
the prior written consent of Mortgagee. Any attempted or purported
modification, amendment, surrender or termination of 

 

28

 

the
Bond Lease without Mortgagee’s prior written consent shall be null and void and
of no force or effect.

 

(d)                                 Notice
to Mortgagee. Mortgagor agrees to give prompt notice to Mortgagee of any
default by any party under the Bond Lease (which shall include, but not be
limited to, copies of any default notices sent to the landlord thereunder or
received by Mortgagor), to give prompt notice (which notice shall include a
copy of any notice received or delivered by Mortgagor) to Mortgagee of any
litigation or arbitration with respect to the Bond Lease, including any action
or proceeding to terminate the Bond Lease or recover the Equipment under the
Bond Lease, and to furnish to Mortgagee all information that it may reasonably
request concerning the performance by Mortgagor of Mortgagor’s obligations
under the Bond Lease.

 

(e)                                  Conflicting
Obligations. Mortgagor agrees that the provisions hereof shall be deemed to
be obligations of Mortgagor in addition to Mortgagor’s obligations as tenant
with respect to similar matters contained in the Bond Lease; provided, however,
the inclusion herein of any obligations relating to similar matters as to which
Mortgagor is obligated under the Bond Lease shall not restrict or limit
Mortgagor’s obligations to perform promptly all of its obligations as tenant under
the Bond Lease, and nothing in this Mortgage shall be construed as requiring
Mortgagor or Mortgagee to take or omit to take any action which would cause a
default under the Bond Lease.

 

(f)                                    No
Merger; Acquisition of Fee Estate. Mortgagor agrees that, so long as this
Mortgage is in effect, there shall be no merger of the Bond Lease, nor of the
leasehold estate or other estate created thereby, with the fee estate in the
land or Equipment underlying the Bond Lease by reason of the fact that the Bond
Lease, or the leasehold estate or other estate created thereby, may be held
directly or indirectly by or for the account of any person or entity who or
which also holds the fee estate in the Land or the land or Equipment underlying
the Bond Lease. If Mortgagor acquires the fee title or any other estate, title
or interest in such Equipment, this Mortgage and the Security Agreement shall
attach to and be a lien upon the fee title or such other estate so acquired,
and such fee title or other estate shall, without further assignment, mortgage
or conveyance, become and remain subject to the lien of and covered by this
Mortgage and the security interest created by the Security Agreement. Mortgagor
shall notify Mortgagee of any such acquisition by Mortgagor and, on written
request by Mortgagee, shall cause to be executed and recorded all such
documents and instruments as may in the reasonable opinion of Mortgagee be
required to carry out the intent and meaning hereof.

 

(g)                                 New
Lease for Benefit of Mortgagee. Mortgagor agrees that if the Bond Lease is
for any reason whatsoever terminated prior to the expiration of its term and,
if pursuant to any provision of the Bond Lease or otherwise, Mortgagee or its
designee shall acquire from the landlord thereunder a new lease or other
agreement for the use of the premises or Equipment leased thereunder, Mortgagor
shall have no right, title or interest in or to such new lease or other
agreement or the estate created thereby.

 

(h)                                 Consents;
Exercise of Options and Other Rights. Mortgagor shall not make any election
or give any consent or approval as tenant under the Bond Lease without
obtaining Mortgagee’s prior written consent thereto, except that Mortgagor
agrees that, so long 

 

29

 

as this
Mortgage is in effect, Mortgagor shall timely exercise all renewal and
extension options under the Bond Lease and comply with all conditions precedent
to the exercise thereof. All rights of Mortgagor under the Bond Lease,
including, without limitation, all renewal and extension options, shall be
exercisable by Mortgagee.

 

(i)                                     Estoppel
Certificates. Mortgagor agrees that, from time to time upon the written
request of Mortgagee, Mortgagor shall deliver to Mortgagee estoppel
certificates from the landlord under the Bond Lease respectively in form and
substance acceptable to Mortgagee.

 

(j)                                     Proceedings
Related to the Bond Lease. Mortgagor shall not commence any action or
proceeding against the landlord under the Bond Lease or affecting or
potentially affecting the Bond Lease or Mortgagor’s or Mortgagee’s interest
therein or in the underlying land, wells and Equipment without the prior
written consent of Mortgagee. Mortgagor shall notify Mortgagee in writing
immediately if any action or proceeding shall be commenced between such
landlord and Mortgagor or if any action or proceeding affects or potentially
affects the Bond Lease or Mortgagor’s or Mortgagee’s interest therein or in the
underlying land, wells or Equipment (including, without limitation, any case commenced
by or against any such landlord under the Bankruptcy Code). Mortgagee shall
have the option, exercisable upon notice from Mortgagee to Mortgagor, to
conduct and control any such action or proceeding with counsel of Mortgagee’s
choice. Mortgagee may proceed in its own name or in the name of Mortgagor in
such action or proceeding, and Mortgagor shall cooperate with Mortgagee, comply
with the instructions of Mortgagee (which may include withdrawal or exclusion
of Mortgagor from such action or proceeding) and execute any and all powers,
authorizations, consents or other documents required by Mortgagee in connection
therewith. Mortgagor shall indemnify and hold harmless Mortgagee for, from and
against any and all claims, costs, expenses, attorneys’ fees, losses and
damages suffered or incurred by Mortgagee in or as a consequence of any such
action or proceeding. Mortgagor shall pay or reimburse Mortgagee immediately
upon demand for any and all of the same, together with interest on any such
expenditures by Mortgagee at the rate of interest equal to the one month LIBOR
Rate plus nine and one half percent (9.5%).

 

(k)                                  Power
of Attorney for Bankruptcy Matters. Mortgagor hereby appoints Mortgagee as
its attorney in fact to act on behalf of Mortgagor in connection with all
matters relating to or arising out of the assumption or rejection of the Bond
Lease, in which the other party to such lease is a debtor in a case under the
Bankruptcy Code. This grant of power of attorney is present, unconditional,
irrevocable, durable and coupled with an interest. Mortgagor shall not permit
the termination or rejection of the Bond Lease by exercise of rights under the
Bankruptcy Code or otherwise without the prior written consent of Mortgagee,
which consent may be withheld, conditioned or delayed for any reason in
Mortgagee’s sole and absolute discretion. Mortgagor acknowledges that since the
Bond Lease is a primary part of the security for the Obligations, it is not
anticipated that Mortgagee would consent to termination or rejection of the
Bond Lease. In addition, in any proceeding under the Bankruptcy Code where
Mortgagor is the debtor, to the extent permitted by law, Mortgagor shall not
attempt to reject or terminate the Bond Lease without the prior written consent
of Mortgagee, but shall, if requested by Mortgagee, assign the Bond Lease to
Mortgagee and in such event Mortgagee may assume such leases in its discretion,
or Mortgagor shall allow Mortgagee time to enter into a new lease with 

 

30

 

the
landlord under the Bond Lease. In no event shall Mortgagee be obligated to
assume the Bond Lease.

 

[SIGNATURE PAGE FOLLOWS]

 

31

 

IN WITNESS WHEREOF, Mortgagor has executed and
delivered this Mortgage as of the date first written above.

 

IMPORTANT:  READ BEFORE SIGNING. THE TERMS OF THIS
AGREEMENT SHOULD BE READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE
ENFORCEABLE. NO OTHER TERMS OR ORAL PROMISES NOT CONTAINED IN THIS WRITTEN
CONTRACT MAY BE LEGALLY ENFORCED. YOU MAY CHANGE THE TERMS OF THIS
AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT.

 

	
   

  	
  MORTGAGOR:

  
	
   

  	
   

  
	
   

  	
  HIGHWATER
  ETHANOL, LLC, a Minnesota

  limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
       /s/
  Brian D. Kletscher

  
	
   

  	
  Name:
  Brian D. Kletscher

  
	
   

  	
  Title:
  President

  

 

32

 

CERTIFICATE OF
ACKNOWLEDGMENT

 

	
  STATE OF SOUTH DAKOTA

  	
  )

  	
   

  
	
   

  	
  ) ss.

  	
   

  
	
  COUNTY OF Minnehaha

  	
  )

  	
   

  

 

 

Before me, a Notary Public in and for said County and
State, personally appeared Brian D. Kletscher, known to me to be the President
of Highwater Ethanol, LLC, a Minnesota limited liability company, and
acknowledged the execution of the foregoing Mortgage, Security Agreement,
Assignment of Leases and Rents and Fixture Financing Statement for and on
behalf of such limited liability company.

 

	
   

  	
  /s/
  Vicki Blake

  
	
   

  	
  Notary Public-Signature

  
	
   

  	
   

  
	
   

  	
  Vicki
  Blake

  
	
   

  	
  Notary Public-Printed
  Name

  
	
   

  	
   

  
	
   

  	
  Date: April 24,
  2008

  
	
  My commission expires:

  
	
   

  
	
  2/10/12

  	
   

  	
   

  
	
   

  
	
  My County of Residence: Minnehaha County,
  South Dakota

  
			

 

33

 

EXHIBIT A

 

LEGAL DESCRIPTION

 

PARCEL
I (PROJECT SITE)

 

TRACT
A:  That part of the Southwest Quarter of
Section 21, Township 109 North, Range 37 West, Redwood County, Minnesota,
lying north of the northerly right-of-way line of the Dakota Minnesota &
Eastern Railroad.

 

Excepting
therefrom that part of said Tract A which lies northwesterly of “Line 1”
described below, southerly of a line run parallel with and distant 50 feet
southerly of “Line 2” described below, and easterly of the easterly
right-of-way line of Township Road T-190, as now located and established, said
exception containing 0.20 acres more or less.

 

“Line
1”:  Beginning at the intersection of the
easterly right-of-way line of said township road with a line run parallel with
and distant 180 feet southerly of “Line 2” described below; thence
northeasterly to a point distant 50 feet southerly (measured at right angles)
of a point on said “Line 2”, distant 167.4 feet easterly of its point of
beginning, and there terminating.

 

“Line
2”:  Beginning at a point on the west
line of the Northwest Quarter of Section 21, distant 1.0 foot north of the
southwest corner thereof; thence run northeasterly at an angle of 92 degrees 05
minutes 00 seconds (as measured from south to east) from said west line of
1521.8 feet; thence deflect to the right at an angle of 01 degree 03 minutes 00
seconds for 1100 feet and there terminating.

 

Also
Excepting that part of said Tract A hereinbefore described, which lies within a
distance of 35 feet southerly of a line run parallel with and distant 50 feet
southerly of the following described line: 
Beginning at a point on “Line 2” hereinbefore described, distant 484.4
feet westerly of its point of termination; thence easterly on said “Line 2” for
484.4 feet and there terminating; said exception containing 0.37 acres more or
less.

 

Subject
to Township Road right-of-way over the westerly 33 feet of said Southwest
Quarter, also subject to Trunk Highway 14 right-of-way.

 

AND
ALSO

 

PARCEL
II (PROJECT SITE)

 

All
that part of the Southeast Quarter of Section 21, Township 109 North,
Range 37 West, Redwood County, Minnesota, lying north of the northerly
right-of-way line of the Dakota Minnesota & Eastern Railroad, subject
to Highway 14 right-of-way.

 

 

Excepting
therefrom that part of said Southeast Quarter which lies within a distance of
35 feet southerly of the following described line:  Beginning at a point on the westerly boundary
of said Southeast Quarter, distant 40 feet southerly of the northwest corner
thereof; thence run easterly for 345.6 feet along a line that intersects the
easterly boundary of the Southeast Quarter of said Section 21, distant
64.4 feet southerly of the northeast corner thereof and there terminating.

 

Also
Excepting therefrom that part of the Northeast Quarter of the Southeast Quarter
of Section 21, Township 109 North, Range 37 West, Redwood County,
Minnesota, described as follows: 
Commencing at the northeast corner of said Southeast Quarter; thence
southerly on a Minnesota State Plane Grid Azimuth from north of 181 degrees 50
minutes 35 seconds along the east line of said Southeast Quarter 102.21 feet;
thence westerly 270 degrees 48 minutes 42 seconds azimuth 665.31 feet to the
point of beginning; thence continue westerly 270 degrees 48 minutes 42 seconds
azimuth 400.00 feet; thence southerly 180 degrees 48 minutes 42 seconds azimuth
200.00 feet; thence easterly 90 degrees 48 minutes 42 seconds azimuth 400.00
feet; thence northerly 00 degrees 48 minutes 42 seconds azimuth 200.00 feet to
the point of beginning.

 

Containing
0.27 acres, more or less.

 

AND
ALSO

 

PARCEL
III (LAMBERTON ECONOMIC DEVELOPMENT AUTHORITY PARCEL)

 

That
part of the South Half (S1⁄2) of Section Twenty-two (22), Township One
Hundred Nine (109) North, Range Thirty-seven (37) West, Redwood County,
Minnesota, lying northerly of the northerly right-of-way line of the Dakota
Minnesota & Eastern Railroad, and southerly of the following described
line:  Commencing at a point on the west
line of the Southwest Quarter (SW1⁄4) of said Section Twenty-two (22) where
said line intersects the northerly right-of-way line of the Dakota Minnesota
and Eastern Railroad, said right-of-way line being 50 feet northerly of and
parallel with the center line of the tracks; thence northerly along said west
line on an assumed azimuth of 01 degrees 50 minutes 35 seconds 145.69 feet to
the point of beginning of the line to be described; thence easterly 84 degrees
21 minutes 14 seconds azimuth 388.43 feet; thence 85 degrees 21 minutes 11
seconds azimuth 900.66 feet; thence easterly 83 degrees 46 minutes 16 seconds
azimuth 896.53 feet; thence easterly 81 degrees 30 minutes 37 seconds azimuth
193.47 feet; thence easterly 78 degrees 15 minutes 04 seconds 396.89 feet;
thence easterly 80 degrees 37 minutes 13 seconds 299.78 feet; thence easterly
77 degrees 40 minutes 49 seconds 199.61 feet; thence easterly 80 degrees 37
minutes 44 seconds azimuth 200.67 feet; thence easterly 77 degrees 47 minutes
42 seconds azimuth 316.70 feet to the southerly right-of-way line of Trunk
Highway No. 14; thence easterly 90 degrees 48 minutes 42 seconds azimuth
along said southerly right-of-way line 619.24 feet to its intersection with
said northerly right-of-way line of said Dakota Minnesota and Eastern Railroad
and there terminating.

 

 

AND
ALSO

 

PARCEL
IV (ERICKSON WELL SITE PARCEL)

 

The
East 2040.20 feet of the North 128.10 feet of the Northwest Quarter of Section 14,
Township 108 North, Range 37 West, Cottonwood County, Minnesota. Said tract
subject to a 33.00 foot township road right-of-way easement. Said tract contains
6.00 acres more or less, including 1.55 acres of township road right-of-way.

 

AND
ALSO

 

PARCEL
V (GEIS WELL SITE PARCEL)

 

The
East 1188.00 feet of the South 220.00 feet of the Southeast Quarter of the
Southwest Quarter of Section 29, Township 109 North, Range 37 West,
Redwood County, Minnesota. Said tract subject to a 33.00 foot township road
right-of-way easement. Said tract contains 6.00 acres more or less, containing
0.90 acres of township road right-of-way.

 

 

EXHIBIT B

 

PERMITTED ENCUMBRANCES

 

	
  1.

  	
   

  	
  The
  FNBO Mortgage

  
	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  Right
  of Way Easement dated February 5, 1987, filed March 3, 1987 in Book
  111 Misc., page 331

  
	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  Right
  of Way Easement dated August 5, 1987, filed August 11, 1987, in
  Book 113 Misc., Page 453 as partially released by that certain Partial
  Release of Right of Way Easement dated April 22, 2008

  
	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  Application
  for Re-zoning Permit#3-06RZ, filed September 21, 2006 as Document
  No. 321762

  
	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  Application
  for Re-zoning Permit#15-06, filed September 21, 2006 as Document No. 321764

  
	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  Tiling
  and Drainage Agreement dated March 5, 2007, filed March 13, 2007 as
  Document No. 323436Exhibit 10.7

 

SECURITY
AGREEMENT

 

This Security Agreement (“Agreement”), dated as of April 1, 2008,
is between HIGHWATER ETHANOL, LLC, a Minnesota limited liability company (the “Debtor”),
and U.S. BANK NATIONAL ASSOCIATION, a national banking association (in its
capacity as Trustee under the Indenture, the “Secured Party”).

 

WHEREAS, the Debtor has entered into a Lease Agreement with the City of
Lamberton, Minnesota (the “City”), dated of even date with this Agreement (as
amended, restated and in effect from time to time, the “Bond Lease”), the City’s
interest in which has been assigned to the Secured Party pursuant to a Trust
Indenture, dated as of April 1, 2008 (the “Indenture”) pursuant to which
the City has issued its Solid Waste Facilities Revenue Bonds, Series 2008A
(Highwater Ethanol, LLC Project) (the “Bonds”) in the original aggregate amount
of $15,180,000; and

 

WHEREAS, it is a condition precedent to the execution and delivery of
the Obligations as defined herein that the Debtor execute and deliver to the
Secured Party a security agreement in substantially the form hereof; and

 

WHEREAS, the Debtor wishes to grant a security interest in favor of the
Secured Party, as Trustee for the Bonds, as herein provided.

 

NOW, THEREFORE, in consideration of the promises contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:

 

1.                                       Definitions.  All capitalized terms used herein without
definitions shall have the respective meanings provided therefor in the Bond
Lease.  The term “State,” as used herein,
means the State of Minnesota.  All terms
defined in the Uniform Commercial Code of the State and used herein shall have
the same definitions herein as specified therein.  However, if a term is defined in Article 9
of the Uniform Commercial Code of the State differently than in another Article of
the Uniform Commercial Code of the State, the term has the meaning specified in
Article 9.  The term “Bond Documents”
means the Bond Lease, the Indenture and the Bonds.  The term “Obligations,” as used herein, means
all of the indebtedness, obligations and liabilities of the Debtor to the City
and Secured Party under the Bond Lease and the other Bond Documents, of every
kind, nature or description, individually or collectively, whether direct or
indirect, joint or several, absolute or contingent, primary or secondary, due
or to become due, now existing or hereafter arising, whether provided for under
or in respect of the Bond Lease or otherwise or under any promissory notes or
other instruments or agreements executed and delivered pursuant thereto or in
connection therewith or this Agreement or otherwise and any overdrafts or other
deposit account liabilities of the Debtor to the Secured Party, and the term “Event
of Default,” as used herein, means the failure of the Debtor to pay or perform
any of the Obligations as and when due to be paid or performed under the terms
of the Bond Lease and the other Bond Documents and 

 

1

 

shall also have the
meaning given to such term in the Bond Lease or any other Bond Document.

 

2.                                       Grant
of Security Interest.  The Debtor
hereby grants to the Secured Party, to secure the payment and performance in
full of all of the Obligations, a first priority security interest in and so
pledges and assigns to the Secured Party, in all goods, property and assets of
the Debtor, including, but not limited to the following goods, property, assets
and rights of the Debtor, wherever located, whether now owned or hereafter
acquired or arising, and all proceeds and products thereof (all of the same
being hereinafter called the “Collateral”):

 

2.1.                              All
personal and fixture property of every kind and nature including, without
limitation, all goods, equipment, inventory, grain, grain inventory, furniture
and fixtures, all of every kind and nature (including any accessions,
additions, improvements, attachments and accessories thereto and products and
proceeds thereof, and all operating manuals, service records, maintenance logs
and warranties applicable thereto), and including all inventory, including, but
not limited to, all corn, grain, ethanol and DDGS inventory, in which the
Debtor has an interest in mass or a joint or other interest or right of any
kind.

 

2.2.                              All
instruments (including promissory notes, notes receivable and supporting
obligations), documents, negotiable and non-negotiable documents of title,
negotiable and non-negotiable warehouse receipts, bills of lading, transit
receipts or other documents of title, however denominated (collectively, “Warehouse
Receipts”), and the goods underlying or relating to Warehouse Receipts,
including, but not limited to, the Debtor’s present and future rights to take
possession and delivery of goods underlying or relating to any Warehouse
Receipt.

 

2.3.                              All
accounts, all of the Debtor’s rights to goods represented by or securing any
accounts, all proceeds from the disposition or collection of accounts, all of
the Debtor’s rights as an unpaid vendor, including the right to reclaim goods,
the right to stop goods in transit and the right to replevy goods, and all
guaranties, letters of credit and other supports to the payment of accounts,
chattel paper (whether tangible or electronic), deposit accounts (whether
maintained with the Secured Party or other financial institutions),
certificates of deposit (whether negotiable or non-negotiable),
letter-of-credit rights (whether or not the letter of credit is evidenced by a
writing), supporting obligations, any other contract rights or rights to the
payment of money, insurance claims and proceeds, trademarks, service marks,
copyrights, patents and other intellectual property rights and all of the
Debtor’s rights therein or thereto, software, general intangibles (including
all payment intangibles), all payments and rights to payments whether or not
earned by performance including, but not limited to, accounts and payments from
the USDA Commodity Credit Corporation Bioenergy Program and other similar
programs, price support payments, subsidy payments, guaranty payments, payments
in kind, deficiency payments, letters of entitlements, storage payments,
emergency assistance, diversion payments, production flexibility contracts,
contract reserve payments, grain insurance fund claim rights, grain 

 

2

 

insurance fund
proceeds and all similar programs of any and every kind, whether federal, state
or local, and any other rights to payment under or from any preexisting,
current or future federal, state or local government program, and the products
and proceeds of all the foregoing.

 

2.4.                              All
farm products, including, but not limited to, all poultry and livestock and
their young, together with all products and replacements for such poultry and
livestock; all crops, annual or perennial, and all products of such crops; and
all grain, feed, seed, fertilizer, chemicals, medicines, and other supplies
used or produced in the Debtor’s operations or sold as inventory, and the
products and proceeds and rights to payments associated with all or any of the
foregoing.

 

2.5.                              All
books, records, ledger sheets or cards, reports, invoices, purchase orders,
customer lists, mailing lists, files, correspondence, computer programs, tapes,
disks and other documents or data processing software that at any time relates
to any of the foregoing or are otherwise necessary or helpful in realizing on
or collecting on any Collateral.

 

2.6.                              All
investment property, securities, securities accounts (including, but not
limited to, all accounts maintained with First National Capital Markets, Inc.)
and the securities entitlements, securities and investment property contained
therein, all hedging accounts and all commodity and securities entitlements,
investment property, commodities and other rights associated with such hedging
accounts, and all commodity accounts and all the commodities, securities and
investment property contained therein.

 

2.7.                              All
commercial tort claims now existing or hereafter arising.  The Secured Party acknowledges that the
attachment of its security interest in any additional commercial tort claim as
original collateral is subject to the Debtor’s compliance with Section 4.7
below.

 

3.                                       Authorization
to File Financing Statements.  The
Debtor hereby irrevocably authorizes the Secured Party at any time and from
time to time to file in any filing office in any Uniform Commercial Code
jurisdiction any initial financing statements and amendments thereto that (a) indicate
and describe the Collateral, including, but not limited to, descriptions of the
Collateral as all assets of the Debtor, or words of similar effect, and (b) provide
any other information required by part 5 of Article 9 of the Uniform
Commercial Code of the State, or such other jurisdiction, for the sufficiency
or filing office acceptance of any financing statement or amendment, including (i) whether
the Debtor is an organization, the type of organization and any organizational
identification number issued to the Debtor and, (ii) in the case of a
financing statement filed as a fixture filing or indicating Collateral as
as-extracted collateral or timber to be cut, a sufficient description of real
property to which the Collateral relates. 
The Debtor agrees to furnish any such information to the Secured Party
promptly upon the Secured Party’s request. 
In addition, the Debtor hereby authorizes the Secured Party to file all
effective financing statements pursuant to 7 U.S.C. Section 1631, 

 

3

 

and amendments to
effective statements, describing the Collateral in any offices as the Secured
Party, in its sole discretion, may determine. 
If requested by the Secured Party, the Debtor will provide the Secured
Party with a list of the buyers, commission merchants and selling agents to or
through whom the Debtor may sell farm products or grain and a list of all
elevators, warehousemen or others where the Debtor stores corn.  The Debtor authorizes the Secured Party to
notify all such buyers, commission merchants, selling agents, elevators,
warehousemen or any other person, of the Secured Party’s security interest in
the Debtor’s farm products, corn or grain unless prohibited by law.  The Debtor also ratifies its authorization
for the Secured Party to have filed in any Uniform Commercial Code jurisdiction
any like initial financing statements or amendments thereto if filed prior to
the date hereof.

 

4.                                       Other
Actions.  To further the attachment,
perfection and first priority of, and the ability of the Secured Party to
enforce, the Secured Party’s security interest in the Collateral, and without
limitation on the Debtor’s other obligations in this Agreement, the Debtor
agrees, in each case at the Debtor’s expense, to take the following actions
with respect to the following Collateral:

 

4.1.                              Promissory
Notes, Instruments and Tangible Chattel Paper.  If the Debtor shall at any time hold or
acquire any instruments, promissory notes or tangible chattel paper, the Debtor
shall, upon request of the Secured Party, forthwith endorse, assign and deliver
the same to the Secured Party, accompanied by such instruments of transfer or
assignment duly executed in blank as the Secured Party may from time to time
specify. The Debtor will not deliver possession of, endorse or assign any
instruments, promissory notes or tangible chattel paper to any person or entity
other than the Secured Party.

 

4.2.                              Deposit
Accounts.  For each deposit account
that the Debtor at any time opens or maintains, the Debtor shall, at the
Secured Party’s request and option, pursuant to an agreement in form and
substance satisfactory to the Secured Party, either (a) cause the
depositary bank to comply at any time with instructions from the Secured Party
to such depositary bank directing the disposition of funds from time to time
credited to such deposit account, without further consent of the Debtor, or (b) arrange
for the Secured Party to become the customer of the depositary bank with
respect to the deposit account, with the Debtor being permitted, only with the
consent of the Secured Party, to exercise rights to withdraw funds from such
deposit account.  The Secured Party
agrees with the Debtor that the Secured Party shall not give any such instructions
or withhold any withdrawal rights from the Debtor, unless an Event of Default
has occurred and is continuing, or would occur, if effect were given to any
withdrawal not otherwise permitted by the Bond Documents.  The provisions of this paragraph shall not
apply to (i) any deposit account for which the Debtor, the depositary bank
and the Secured Party have entered into a cash collateral agreement specially
negotiated among the Debtor, the depositary bank and the Secured Party for the
specific purpose set forth therein, (ii) a deposit account for which the
Secured Party is the depositary bank and is in automatic control, and (iii) deposit
accounts 

 

4

 

specially and
exclusively used for payroll, payroll taxes and other employee wage and benefit
payments to or for the benefit of the Debtor’s salaried employees.

 

4.3.                              Investment
Property.  If the Debtor shall at any
time hold or acquire any certificated securities, the Debtor shall forthwith
endorse, assign and deliver the same to the Secured Party, accompanied by such
instruments of transfer or assignment duly executed in blank as the Secured
Party may from time to time specify.  If
any securities now or hereafter acquired by the Debtor are uncertificated and
are issued to the Debtor or its nominee directly by the issuer thereof, the
Debtor shall immediately notify the Secured Party thereof and, at the Secured
Party’s request and option, pursuant to an agreement in form and substance
satisfactory to the Secured Party, either (a) cause the issuer to agree to
comply with instructions from the Secured Party as to such securities, without
further consent of the Debtor or such nominee, or (b) arrange for the
Secured Party to become the registered owner of the securities.  If any commodity interests or securities,
whether certificated or uncertificated, or other investment property now or
hereafter acquired by the Debtor are held by the Debtor or its nominee through
a securities intermediary or commodity intermediary, the Debtor shall
immediately notify the Secured Party thereof and, at the Secured Party’s
request and option, pursuant to an agreement in form and substance satisfactory
to the Secured Party, either (i) cause such securities intermediary or (as
the case may be) commodity intermediary to agree to comply with entitlement
orders or other instructions from the Secured Party to such securities
intermediary as to such securities or other investment property, or (as the
case may be) to apply any value distributed on account of any commodity
contract as directed by the Secured Party to such commodity intermediary, in
each case without further consent of the Debtor or such nominee, or (ii) in
the case of financial assets or other investment property held through a
securities intermediary, arrange for the Secured Party to become the
entitlement holder with respect to such investment property, with the Debtor
being permitted, only with the consent of the Secured Party, to exercise rights
to withdraw or otherwise deal with such investment property.  The Secured Party agrees with the Debtor that
the Secured Party shall not give any such entitlement orders or instructions or
directions to any such issuer, securities intermediary or commodity
intermediary, and shall not withhold its consent to the exercise of any
withdrawal or dealing rights by the Debtor, unless an Event of Default has
occurred and is continuing, or, after giving effect to any such investment and
withdrawal rights not otherwise permitted by the Bond Documents, would occur.

 

4.4.                              Collateral
in the Possession of a Bailee.  If
any Collateral is at any time in the possession of a bailee, warehouseman or
elevator, the Debtor shall promptly notify the Secured Party thereof and, at
the Secured Party’s request and option, shall promptly obtain an acknowledgement
from the bailee, warehouseman or elevator, in form and substance satisfactory
to the Secured Party, that the bailee, warehouseman or elevator holds such
Collateral for the benefit of the Secured Party, and that such bailee,
warehouseman or elevator agrees to comply, without further consent of the
Debtor, with instructions from the Secured Party as to such Collateral,
including, but 

 

5

 

not limited to, the delivery of such Collateral to the Secured Party or
as the Secured Party directs, or the payment of the sale proceeds of such
Collateral to the Secured Party, or as the Secured Party directs.  The Secured Party agrees with the Debtor that
the Secured Party shall not give any such instructions unless an Event of
Default has occurred and is continuing or would occur after taking into account
any action by the Debtor with respect to the bailee, warehouseman or elevator.

 

4.5.                              Electronic
Chattel Paper and Transferable Records. 
If the Debtor at any time holds or acquires an interest in any
electronic chattel paper or any “transferable record,” as that term is defined
in Section 201 of the federal Electronic Signatures in Global and National
Commerce Act (as hereafter amended), or in Section 16 of the Uniform
Electronic Transactions Act as in effect in any relevant jurisdiction, the
Debtor shall promptly notify the Secured Party thereof and, at the request and
option of the Secured Party, shall take such action as the Secured Party may
reasonably request to vest in the Secured Party control, under Section 9-105
of the Uniform Commercial Code, of such electronic chattel paper or control
under Section 201 of the federal Electronic Signatures in Global and
National Commerce Act or, as the case may be, Section 16 of the Uniform
Electronic Transactions Act, as so in effect in such jurisdiction, of such
transferable record.  The Secured Party
agrees with the Debtor that the Secured Party will arrange, pursuant to
procedures satisfactory to the Secured Party and so long as such procedures
will not result in the Secured Party’s loss of control, for the Debtor to make
alterations to the electronic chattel paper or transferable record permitted
under UCC Section 9-105 or, as the case may be, Section 201 of the
federal Electronic Signatures in Global and National Commerce Act or Section 16
of the Uniform Electronic Transactions Act for a party in control to make
without loss of control, unless an Event of Default has occurred and is
continuing or would occur after taking into account any action by the Debtor
with respect to such electronic chattel paper or transferable record.

 

4.6.                              Letter-of-Credit
Rights.  If the Debtor is at any time
a beneficiary under a letter of credit, the Debtor shall promptly notify the
Secured Party thereof and, at the request and option of the Secured Party, the
Debtor shall, pursuant to an agreement in form and substance satisfactory to
the Secured Party, either (i) arrange for the issuer and any confirmer or
other nominated person of such letter of credit to consent to an assignment to
the Secured Party of the proceeds of the letter of credit, or (ii) arrange
for the Secured Party to become the transferee beneficiary of the letter of
credit, with the Secured Party agreeing, in each case, that the proceeds of the
letter to credit are to be applied to the Obligations in such order and
priority as the Secured Party.

 

4.7                                 Commercial
Tort Claims.  If the Debtor shall at
any time hold or acquire a commercial tort claim, the Debtor shall immediately
notify the Secured Party in a writing signed by the Debtor of the particulars
thereof and grant to the Secured Party in such writing a security interest
therein and in the proceeds thereof, 

 

6

 

all upon the terms of this Agreement, with such writing to be in form
and substance satisfactory to the Secured Party.

 

4.8                                 Other
Actions as to Any and All Collateral. 
The Debtor further agrees, at the request and option of the Secured
Party, to take any and all other actions the Secured Party may determine to be
necessary or useful for the attachment, perfection and first priority of, and
the ability of the Secured Party to enforce, the Secured Party’s security
interest in any and all of the Collateral, including, without limitation, (a) executing,
delivering and, where appropriate, filing financing statements and amendments
relating thereto under the Uniform Commercial Code, to the extent, if any, that
the Debtor’s signature thereon is required therefor, (b) causing the Secured
Party’s name to be noted as secured party on any certificate of title for a
titled good if such notation is a condition to attachment, perfection or
priority of, or ability of the Secured Party to enforce, the Secured Party’s
security interest in such Collateral, (c) complying with any provision of
any statute, regulation or treaty of the United States as to any Collateral if
compliance with such provision is a condition to attachment, perfection or
priority of, or ability of the Secured Party to enforce, the Secured Party’s
security interest in such Collateral, (d) obtaining governmental and other
third party waivers, consents and approvals in form and substance satisfactory
to Secured Party, including, without limitation, any consent of any licensor,
lessor or other person obligated on Collateral, (e) obtaining waivers from
mortgagees and landlords in form and substance satisfactory to the Secured
Party and (f) taking all actions under any earlier versions of the Uniform
Commercial Code or under any other law, as reasonably determined by the Secured
Party to be applicable in any relevant Uniform Commercial Code or other
jurisdiction, including any foreign jurisdiction.

 

4.9.                              Warehouse
Receipts.

 

(a)                                  The
Debtor has delivered or will deliver to the Secured Party any and all
documents, instruments and writings in any way relating to the Warehouse
Receipts or in any way relating to the property evidenced thereby.  As long as this Agreement remains in effect,
the Debtor shall immediately deliver to the Secured Party any and all future
documents, instruments, or other writings applicable or in any way relating to
the foregoing in the Debtor’s possession. 
In the event that the Debtor is unable to deliver original Warehouse
Receipts, and such other documents, to the Secured Party at the time this
Agreement is executed, as required above, the Debtor agrees to deliver
immediately such Warehouse Receipts to the Secured Party upon issuance of the
same.

 

(b)                                 The
Debtor further agrees that the Secured Party shall have the right at any time,
and from time to time, whether or not one or more Events of Default exist under
the Bond Lease, to demand that the Debtor immediately deliver to the Secured
Party any and all Warehouse Receipts held in the Debtor’s possession or control
for or representing all or any part of the 

 

7

 

Collateral that is then or may thereafter be issued in
the name of the Debtor.  The Debtor
unconditionally agrees to deliver such Warehouse Receipts to the Secured Party
on demand.

 

(c)                                  In
addition to Warehouse Receipts, the Secured Party may require the Debtor from
time to time, one or more times, to deliver to the Secured Party such lists,
descriptions and designations of any applicable Collateral not represented by
Warehouse Receipts as the Secured Party may require to identify the nature,
extent and location of the same.

 

(d)                                 The
Debtor represents and warrants to the Secured Party that all of the Debtor’s
grain at any time, and from time to time, represented by Warehouse Receipts or
included in any list, description or designation referred to above, will at all
times be owned by the Debtor free and clear of all liens, encumbrances and
security interests of any kind whatsoever, excepting only the security interest
of the Secured Party pursuant hereto.

 

(e)                                  As
long as no Event of Default exists, the Debtor may sell or use in its
operations the property released by the Secured Party from or under Warehouse
Receipts, as well as the Debtor’s property not represented by Warehouse
Receipts, in carrying on the Debtor’s business in the ordinary course,
substantially in the same manner as now conducted; but a sale in the ordinary
course of business shall not include any transfer or sale in satisfaction,
partial or complete, of a debt owed by the Debtor.

 

4.10.                        Farm
Products.  After the occurrence of an
Event of Default, the Debtor shall not store, transfer or consign any farm
products without the prior written consent of the Secured Party.  The Debtor shall not store, transfer or
consign any farm products without first obtaining a written acknowledgment from
any person to whom physical possession of any such farm products are delivered (a) of
the Secured Party’s security interest in such farm products, (b) that it
holds possession of such farm products for the Secured Party’s benefit, (c) that
it will not issue negotiable documents with respect to such farm products and (d) that
it agrees to follow the Secured Party’s instructions as to disposition of farm
products upon its receipt of such instructions. 
The Debtor will comply with the provisions of all federal, state or
local government programs, agreements and contracts to which the Debtor is a
party.

 

4.11.                        Proceeds.  The Debtor shall transfer all proceeds of all
Collateral into the Debtor’s main operating account established and maintained
by the Debtor with the Secured Party, or in such other deposit account as
required by the Secured Party.  The
Debtor shall not grant any other person or entity a security interest, lien or
other encumbrance in or on such deposit account.

 

5.                                       Relation
to Other Security Documents.  The
provisions of this Agreement supplement the provisions of the Bond Lease,
Mortgage and other Bond Documents.  

 

8

 

Nothing contained
in the Bond Lease, Mortgage or other Bond Documents shall derogate from any of
the rights or remedies of the Secured Party hereunder.

 

6.                                       Representations
and Warranties Concerning Debtor’s Legal Status.  The Debtor represents and warrants to the
Secured Party as follows: (a) the Debtor’s exact legal name is that
indicated on the first page and on the signature page hereof, (b) the
Debtor is an organization of the type, and is organized in the jurisdiction set
forth on the first page of this Agreement, (c) the Debtor’s tax
identification number is 20-4798531 and the Debtor’s organizational
identification number is
                                  
or if left blank, then the Debtor has none, and (d) each of the Debtor’s
places of business and, if more than one, its chief executive office, as well
as the Debtor’s mailing address, if different, are listed in Schedule A
attached to this Agreement and incorporated herein by reference.

 

7.                                       Covenants
Concerning Debtor’s Legal Status. 
The Debtor covenants with the Secured Party as follows: (a) the
Debtor will not change its name, its place of business or, if more than one,
chief executive office, or its mailing address or organizational identification
number if it has one, (b) if the Debtor does not have an organizational
identification number and later obtains one, the Debtor shall forthwith notify
the Secured Party of such organizational identification number, and (c) the
Debtor will not change its type of organization, jurisdiction of organization
or other legal structure.

 

8.                                       Representations
and Warranties Concerning Collateral, Etc. 
The Debtor further represents and warrants to the Secured Party as
follows: (a) the Debtor is the owner of the Collateral, free from any
right or claim or any person or any adverse lien, security interest or other
encumbrance, except for the security interest created by this Agreement and
other liens permitted by the Bond Lease, (b) except as disclosed to the
Secured Party, none of the account debtors or other persons obligated on any of
the Collateral is a governmental authority covered by the Federal Assignment of
Claims Act or like federal, state or local statute or rule in respect of
such Collateral, (c) the Debtor holds no commercial tort claim except as
indicated on Schedule A attached to this Agreement, and (d) the Debtor has
at all times operated its business in compliance with all applicable provisions
of the federal Fair Labor Standards Act, as amended, and with all applicable
provisions of federal, state and local statutes and ordinances dealing with the
control, shipment, storage or disposal of hazardous materials or substances.

 

9.                                       Covenants
Concerning Collateral, Etc.  The
Debtor further covenants with the Secured Party as follows: (a) the
Collateral, to the extent not delivered to the Secured Party pursuant to Section 4,
will be kept at those locations listed on Schedule A and the Debtor will not
move any Collateral to any location not shown in Schedule A without providing
at least thirty (30) days prior written notice to the Secured Party, which
notice shall include the new location, (b) except for the security
interest herein granted and liens permitted by the Bond Lease, the Debtor shall
be the owner of the Collateral free from any right or claim of any other
person, lien, security interest or other encumbrance, and the Debtor shall
defend the same against all claims and demands of all persons at any time
claiming the same or any interests therein adverse to the Secured Party, (c) the
Debtor shall not pledge, mortgage or 

 

9

 

create, or suffer
to exist any right of any person in or claim by any person to the Collateral,
or any security interest, lien or encumbrance in the Collateral in favor of any
person, other than the Secured Party except for liens permitted by the Bond
Lease, (d) the Debtor will keep the Collateral in good order and repair
and will not use the same in violation of law or any policy of insurance
thereon, (e) the Debtor will permit the Secured Party, or its designee, to
inspect and audit the Collateral at any reasonable time, wherever located,
according to the terms of the Bond Lease, (f) the Debtor will pay promptly
when due all taxes, assessments, governmental charges and levies upon the
Collateral according to the terms of the Bond Lease or incurred in connection
with the use or operation of such Collateral or incurred in connection with
this Agreement, (g) the Debtor will continue to operate, its business in
compliance with all applicable provisions of the federal Fair Labor Standards
Act, as amended, and with all applicable provisions of federal, state and local
statutes and ordinances dealing with the control, shipment, storage or disposal
of hazardous materials or substances, (h) the Debtor will apply for all
subsidies, price support payments, guaranty payments and other payments of any
kind available to the Debtor under any federal, state or local governmental
program relating to the use of corn to produce ethanol, the production of
ethanol, the sale of ethanol and any other activities of the Debtor, will file
for all tax credits and deductions available for any of the foregoing, and will
take no action, or omit to take any action, which would preclude or jeopardize
in any manner the Debtor’s ability to participate in any such payments,
programs, tax credits or deductions and (i) the Debtor will not the Debtor
will not discount, factor, sell or otherwise dispose, or offer to sell or
otherwise dispose, of any of the Collateral, including, but not limited to,
instruments, general intangibles, tangible or electronic chattel paper,
promissory notes and/or accounts, or any interest therein except for (i) sales
and leases of inventory in the ordinary course of business and (ii) so
long as no Event of Default has occurred and is continuing, sales or other
dispositions of obsolescent items of equipment consistent with past practices;
provided, however, that permitted sales under this Section are also
permitted under the Bond Lease.  In the event
that such sales are not permitted under the Bond Lease, then such sales are
also not permitted hereunder.  In
addition, the Debtor will only store grain owned by the Debtor not evidenced by
a Warehouse Receipt in facilities owned by the Debtor at locations set forth on
Schedule A.

 

10.                                 Insurance.

 

10.1.                        Maintenance of Insurance.  The Debtor will maintain the insurance
required in the Bond Lease.  All such
insurance covering the Collateral shall be payable to the Secured Party as loss
payee under a “standard” or “New York” loss payee clause.

 

10.2.                        Insurance Proceeds.  The proceeds of any casualty insurance in
respect of any casualty loss of any of the Collateral shall, subject to the
rights, if any, of other parties with an interest having priority in the
property covered thereby, (i) so long as no Event of Default has occurred
and is continuing, the damaged Collateral can be economically repaired or
replaced in the sole discretion of the Secured Party and the casualty loss is
$250,000 or less and the conditions precedent in the Bond Lease with 

 

10

 

respect to the disbursement of insurance proceeds to the Debtor have
been satisfied, be disbursed to the Debtor for direct application by the Debtor
solely to the repair or replacement of the Debtor’s property so damaged or
destroyed, and (ii) in all other circumstances, be held by the Secured
Party as cash collateral for the Obligations. 
Subject to the foregoing, the Secured Party may, at its sole option,
disburse from time to time all or any part of such proceeds so held as cash
collateral, upon such terms and conditions as the Secured Party may reasonably
prescribe, for direct application by the Debtor solely to the repair or
replacement of the Debtor’s property so damaged or destroyed, or the Secured
Party may apply all or any part of such proceeds to the Obligations with the
amount of the Loans, as described in the Bond Lease (if not then terminated)
being reduced by the amount so applied to the Obligations.

 

10.3.                        Continuation of Insurance.  All policies of insurance shall provide for
at least 20 days prior written cancellation notice to the Secured Party.  In the event of failure by the Debtor to
provide and maintain insurance as herein provided, the Secured Party may, at
its option, provide such insurance and charge the amount thereof to the Debtor,
subject to the terms of the Bond Lease. 
The Debtor shall furnish the Secured Party with certificates of
insurance and policies evidencing compliance with the foregoing insurance
provision.

 

11.                                 Collateral
Protection Expenses; Preservation of Collateral.

 

11.1.                        Expenses Incurred by Secured
Party.  In the Secured Party’s
discretion, if the Debtor fails to do so, the Secured Party may discharge taxes
and other encumbrances at any time levied or placed on any of the Collateral,
maintain any of the Collateral, make repairs thereto and pay any necessary
filing fees or insurance premiums.  The
Debtor agrees to reimburse the Secured Party on demand for all expenditures so
made.  The Secured Party shall have no
obligation to the Debtor to make any such expenditures, nor shall the making
thereof be construed as the waiver or cure of any Event of Default.

 

11.2.                        Secured
Party’s Obligations and Duties. 
Anything herein to the contrary notwithstanding, the Debtor shall remain
obligated and liable under each contract or agreement comprised in the
Collateral to be observed or performed by the Debtor thereunder.  Neither the Secured Party nor any other
Lender shall have any obligation or liability under any such contract or
agreement by reason of or arising out of this Agreement or the receipt by the
Secured Party of any payment relating to any of the Collateral, nor shall the
Secured Party or any other Lender be obligated in any manner to perform any of
the obligations of the Debtor under or pursuant to any such contract or
agreement, to make inquiry as to the nature or sufficiency of any payment
received by the Secured Party in respect of the Collateral or as to the
sufficiency of any performance by any party under any such contract or
agreement, to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to the Secured Party or to which the Secured Party may be entitled at
any time or times.  The Secured Party’s
sole duty 

 

11

 

with
respect to the custody, safe keeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the Uniform
Commercial Code of the State or otherwise, shall be to deal with such
Collateral in the same manner as the Secured Party deals with similar property
for its own account.

 

12.                                 Securities
and Deposits.  The Secured Party may
at any time following and during the continuance of an Event of Default, at its
option, transfer to itself or any nominee any securities constituting
Collateral, receive any income thereon and hold such income as additional
Collateral or apply it to the Obligations. 
Whether or not any Obligations are due, the Secured Party may following
and during the continuance of an Event of Default demand, sue for, collect, or
make any settlement or compromise which it deems desirable with respect to the
Collateral. Regardless of the adequacy of Collateral or any other security for
the Obligations, any deposits or other sums at any time credited by or due from
the Secured Party to the Debtor may at any time be applied to or set off
against any of the Obligations.

 

13.                                 Notification
to Account Debtors and Other Persons Obligated on Collateral.  If an Event of Default shall have occurred
and be continuing, the Debtor shall, at the request and option of the Secured
Party, notify account debtors and other persons obligated on any of the Collateral
of the security interest of the Secured Party in any account, chattel paper,
general intangible, instrument or other Collateral and that payment thereof is
to be made directly to the Secured Party or to any financial institution
designated by the Secured Party as the Secured Party’s agent therefor, and the
Secured Party may itself, if an Event of Default shall have occurred and be
continuing, without notice to or demand upon the Debtor, so notify account
debtors and other persons obligated on Collateral.  After the making of such a request or the
giving of any such notification, the Debtor shall hold any proceeds of
collection of accounts, chattel paper, general intangibles, instruments and
other Collateral received by the Debtor as trustee for the Secured Party
without commingling the same with other funds of the Debtor and shall turn the
same over to the Secured Party in the identical form received, together with
any necessary endorsements or assignments. 
The Secured Party shall apply the proceeds of collection of accounts,
chattel paper, general intangibles, instruments and other Collateral received
by the Secured Party to the Obligations, such proceeds to be immediately
credited after final payment in cash or other immediately available funds of the
items giving rise to them.

 

14.                                 Power
of Attorney.

 

14.1.                        Appointment and Powers of
Secured Party.  The Debtor hereby
irrevocably constitutes and appoints the Secured Party and any officer or agent
thereof, with full power of substitution, as its true and lawful
attorneys-in-fact with full irrevocable power and authority in the place and
stead of the Debtor or in the Secured Party’s own name, for the purpose of
carrying out the terms of this Agreement, to take any and all appropriate
action and to execute any and all documents and instruments that may be
necessary or useful to accomplish the purposes of this Agreement and, without
limiting the generality of the foregoing, 

 

12

 

hereby gives said attorneys the power and right, on behalf of the
Debtor, without notice to or assent by the Debtor, to do the following:

 

(a)                                  upon
the occurrence and during the continuance of an Event of Default, generally to
sell, transfer, pledge, make any agreement with respect to or otherwise dispose
of or deal with any of the Collateral in such manner as is consistent with the
Uniform Commercial Code of the State and as fully and completely as though the
Secured Party were the absolute owner thereof for all purposes, and to do, at the
Debtor’s expense, at any time, or from time to time, all acts and things which
the Secured Party deems necessary or useful to protect, preserve or realize
upon the Collateral and the Secured Party’s security interest therein, in order
to effect the intent of this Agreement, all at least as fully and effectively
as the Debtor might do, including, without limitation, (i) the filing and
prosecuting of registration and transfer applications with the appropriate
federal, state, local or other agencies or authorities with respect to
trademarks, copyrights and patentable inventions and processes, (ii) upon
written notice to the Debtor, the exercise of voting rights with respect to
voting securities, which rights may be exercised, if the Secured Party so
elects, with a view to causing the liquidation of assets of the issuer of any
such securities, and (iii) the execution, delivery and recording, in
connection with any sale or other disposition of any Collateral, of the
endorsements, assignments or other instruments of conveyance or transfer with
respect to such Collateral; and

 

(b)                                 to
the extent that the Debtor’s authorization given in Section 3 is not
sufficient, to file such financing statements with respect hereto, with or
without the Debtor’s signature, or a photocopy of this Agreement in
substitution for a financing statement, as the Secured Party may deem
appropriate and to execute in the Debtor’s name such financing statements and
amendments thereto and continuation statements which may require the Debtor’s signature.

 

14.2.                        Ratification by Debtor.  To the extent permitted by law, the Debtor
hereby ratifies all that said attorneys shall lawfully do or cause to be done
by virtue hereof.  This power of attorney
is a power coupled with an interest and is irrevocable.

 

14.3.                        No Duty on Secured Party.  The powers conferred on the Secured Party
hereunder are solely to protect its interests in the Collateral and shall not
impose any duty upon it to exercise any such powers.  The Secured Party shall be accountable only
for the amounts that it actually receives as a result of the exercise of such
powers, and neither it nor any of its officers, directors, employees or agents
shall be responsible to the Debtor for any act or failure to act, except for
the Secured Party’s own gross negligence or willful misconduct.

 

13

 

15.                                 Rights
and Remedies.  If an Event of Default
shall have occurred and be continuing beyond any applicable grace or notice and
cure period provided for in the Bond Lease, the Secured Party, without any
other notice to or demand upon the Debtor have in any jurisdiction in which
enforcement hereof is sought, in addition to all other rights and remedies,
whether conferred in the Bond Lease or at law or in equity, the rights and
remedies of a secured party under the Uniform Commercial Code of the State and
any additional rights and remedies which may be provided to a secured party in
any jurisdiction in which Collateral is located, including, without limitation,
the right to take possession of the Collateral, and for that purpose the
Secured Party may, so far as the Debtor can give authority therefor, enter upon
any premises on which the Collateral may be situated and remove the same
therefrom.  The Secured Party may in its
discretion require the Debtor to assemble all or any part of the Collateral at
such location or locations within the jurisdiction(s) of the Debtor’s
principal office(s) or at such other locations as the Secured Party may
reasonably designate.  Unless the
Collateral is perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market, the Secured Party shall give to
the Debtor at least ten (10) days prior written notice of the time and
place of any public sale of Collateral or of the time after which any private
sale or any other intended disposition is to be made.  The Debtor hereby acknowledges that ten (10) days
prior written notice of such sale or sales shall be reasonable notice.  In addition, the Debtor waives any and all
rights that it may have to a judicial hearing in advance of the enforcement of
any of the Secured Party’s rights and remedies hereunder, including, without
limitation, its right following an Event of Default to take immediate
possession of the Collateral and to exercise its rights and remedies with
respect thereto.

 

16.                                 Standards
for Exercising Rights and Remedies. 
To the extent that applicable law imposes duties on the Secured Party to
exercise remedies in a commercially reasonable manner, the Debtor acknowledges
and agrees that it is not commercially unreasonable for the Secured Party (a) to
fail to incur expenses reasonably deemed significant by the Secured Party to
prepare Collateral for disposition or otherwise to fail to complete raw
material or work in process into finished goods or other finished products for
disposition, (b) to fail to obtain third party consents for access to
Collateral to be disposed of, or to obtain or, if not required by other law, to
fail to obtain governmental or third party consents for the collection or
disposition of Collateral to be collected or disposed of, (c) to fail to
exercise collection remedies against account debtors or other persons obligated
on Collateral or to fail to remove liens or encumbrances on or any adverse
claims against Collateral, (d) to exercise collection remedies against account
debtors and other persons obligated on Collateral directly or through the use
of collection agencies and other collection specialists, (e) to advertise
dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (f) to
contact other persons, whether or not in the same business as the Debtor, for
expressions of interest in acquiring all or any portion of the Collateral, (g) to
hire one or more professional auctioneers to assist in the disposition of
Collateral, whether or not the collateral is of a specialized nature, (h) to
dispose of Collateral by utilizing Internet sites that provide for the auction
of assets of the types included in the Collateral or that have the reasonable
capability of doing so, or that match buyers and sellers of assets, (i) to
dispose of assets in wholesale rather than retail markets, (j) to disclaim

 

14

 

disposition
warranties, (k) to purchase insurance or credit enhancements to insure the
Secured Party against risks of loss, collection or disposition of Collateral or
to provide to the Secured Party a guaranteed return from the collection or
disposition of Collateral, or (l) to the extent deemed appropriate by the
Secured Party, to obtain the services of other brokers, investment bankers,
consultants and other professionals to assist the Secured Party in the
collection or disposition of any of the Collateral.  The Debtor acknowledges that the purpose of
this Section 16 is to provide non-exhaustive indications of what actions
or omissions by the Secured Party would fulfill the Secured Party’s duties
under the Uniform Commercial Code or other law of the State or any other
relevant jurisdiction in the Secured Party’s exercise of remedies against the
Collateral and that other actions or omissions by the Secured Party shall not
be deemed to fail to fulfill such duties solely on account of not being
indicated in this Section 16. 
Without limitation upon the foregoing, nothing contained in this Section 16
shall be construed to grant any rights to the Debtor or to impose any duties on
the Secured Party that would not have been granted or imposed by this Agreement
or by applicable law in the absence of this Section 16.

 

17.                                 No
Waiver by Secured Party, Etc.  The
Secured Party shall not be deemed to have waived any of its rights or remedies
in respect of the Obligations or the Collateral unless such waiver shall be in
writing and signed by the Secured Party. 
No delay or omission on the part of the Secured Party in exercising any
right or remedy shall operate as a waiver of such right or remedy or any other
right or remedy.  A waiver on any one
occasion shall not be construed as a bar to or waiver of any right or remedy on
any future occasion.  All rights and
remedies of the Secured Party with respect to the Obligations or the
Collateral, whether evidenced hereby or by any other instrument or papers,
shall be cumulative and may be exercised singularly, alternatively,
successively or concurrently at such time or at such times as the Secured Party
deems expedient.

 

18.                                 Suretyship
Waivers by Debtor.  The Debtor waives
demand, notice, protest, notice of acceptance of this Agreement, notice of
loans made, credit extended, Collateral received or delivered or other action
taken in reliance hereon and all other demands and notices of any
description.  With respect to both the
Obligations and the Collateral, the Debtor assents to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of or failure to perfect any security
interest in any Collateral, to the addition or release of any party or person
primarily or secondarily liable, to the acceptance of partial payment thereon
and the settlement, compromising or adjusting of any thereof, all in such
manner and at such time or times as the Secured Party may deem advisable.  The Secured Party shall have no duty as to
the collection or protection of the Collateral or any income therefrom, the
preservation of rights against prior parties, or the preservation of any rights
pertaining thereto beyond the safe custody thereof as set forth in Section 11.2.  The Debtor further waives any and all other
suretyship defenses.

 

19.                                 Marshalling.  The Secured Party shall not be required to
marshal any present or future collateral security (including but not limited to
the Collateral) for, or other assurances of payment of, the Obligations or any
of them or to resort to such collateral 

 

15

 

security or other
assurances of payment in any particular order, and all of its rights and
remedies hereunder and in respect of such collateral security and other
assurances of payment shall be cumulative and in addition to all other rights
and remedies, however existing or arising. 
To the extent that it lawfully may, the Debtor hereby agrees that it
will not invoke any law relating to the marshalling of collateral which might
cause delay in or impede the enforcement of the Secured Party’s rights and
remedies under this Agreement or under any other instrument creating or
evidencing any of the Obligations or under which any of the Obligations is
outstanding or by which any of the Obligations is secured or payment thereof is
otherwise assured, and, to the extent that it lawfully may, the Debtor hereby
irrevocably waives the benefits of all such laws.

 

20.                                 Proceeds
of Dispositions; Expenses.  The
Debtor shall pay to the Secured Party on demand any and all expenses, including
reasonable attorneys’ fees and disbursements, incurred or paid by the Secured
Party in protecting, preserving or enforcing the Secured Party’s rights and
remedies under or in respect of any of the Obligations or any of the
Collateral. After deducting all of said expenses, the residue of any proceeds
of collection or sale or other disposition of the Collateral shall, to the
extent actually received in cash, be applied to the payment of the Obligations
in such order or preference as the Secured Party may determine, proper
allowance and provision being made for any Obligations not then due.  Upon the final payment and satisfaction in
full of all of the Obligations and after making any payments required by Sections
9-608(a)(1)(C) or 9-615(a)(3) of the Uniform Commercial Code of the
State, any excess shall be returned to the Debtor.  In the absence of final payment and
satisfaction in full of all of the Obligations, the Debtor shall remain liable
for any deficiency.

 

21.                                 Overdue
Amounts.  Until paid, all amounts due
and payable by the Debtor hereunder shall be a debt secured by the Collateral
and shall bear, whether before or after judgment, interest at the rate of
interest for overdue principal set forth in the Bond Lease.

 

22.                                 Governing
Law; Consent to Jurisdiction.  THIS
AGREEMENT IS INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
MINNESOTA.  The Debtor agrees that any
action or claim arising out of, or any dispute in connection with, this
Agreement, any rights, remedies, obligations, or duties hereunder, or the
performance or enforcement hereof or thereof, may be brought in the courts of
the State or any federal court sitting therein and consents to the non-exclusive
jurisdiction of such court and to service of process in any such suit being
made upon the Debtor by mail at the address specified in the notice provision
of the Bond Lease.  The Debtor hereby
waives any objection that it may now or hereafter have to the venue of any such
suit or any such court or that such suit is brought in an inconvenient court.

 

23.                                 Waiver
of Jury Trial.  THE DEBTOR WAIVES ITS
RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY
DISPUTE IN CONNECTION WITH THIS AGREEMENT, ANY RIGHTS, REMEDIES, OBLIGATIONS,
OR DUTIES HEREUNDER, OR THE PERFORMANCE OR 

 

16

 

ENFORCEMENT HEREOF
OR THEREOF.  Except as prohibited by law,
the Debtor waives any right which it may have to claim or recover in any
litigation referred to in the preceding sentence any special, exemplary,
punitive or consequential damages or any damages other than, or in addition to,
actual damages. The Debtor (i) certifies that neither the Secured Party
nor any representative, agent or attorney of the Secured Party has represented,
expressly or otherwise, that the Secured Party would not, in the event of
litigation, seek to enforce the foregoing waivers or other waivers contained in
this Agreement, and (ii) acknowledges that, in entering into the Bond
Lease and the other Bond Documents to which the Secured Party is a party, the
Secured Party is relying upon, among other things, the waivers and
certifications contained in this Section 23.

 

24.                                 Miscellaneous.  The headings of each section of this
Agreement are for convenience only and shall not define or limit the provisions
thereof. This Agreement and all rights and obligations hereunder shall be
binding upon the Debtor and its respective successors and assigns, and shall
inure to the benefit of the Secured Party and its successors and assigns.  If any term of this Agreement shall be held
to be invalid, illegal or unenforceable, the validity of all other terms hereof
shall in no way be affected thereby, and this Agreement shall be construed and
be enforceable as if such invalid, illegal or unenforceable term had not been
included herein. The Debtor acknowledges receipt of a copy of this Agreement.

 

17

 

IN WITNESS WHEREOF, intending to be legally bound, the
Debtor has caused this Agreement to be duly executed as of the date first above
written.

 

	
   

  	
  HIGHWATER
  ETHANOL, LLC, a Minnesota

  limited liability company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Brian Kletscher

  
	
   

  	
   

  	
  President

  

 

 

CERTIFICATE OF ACKNOWLEDGMENT

 

	
  STATE OF South
  Dakota

  	
  )

  
	
   

  	
  ) ss.

  
	
  COUNTY OF
  Minnehaha

  	
  )

  

 

Before me, the undersigned, a Notary Public in and for
the county aforesaid, on this 24th day of April, 2008, personally
appeared Brian D. Kletscher, to me known personally, and who, being by me duly
sworn, deposes and says that he is the President of Highwater Ethanol, LLC, and
that said instrument was signed on behalf of said limited liability company by
authority of its President, and said President acknowledged said instrument to
be the free act and deed of said limited liability company.

 

 

	
   

  	
  /s/ Vicki Blake

  
	
   

  	
  Notary Public

  

 

 

	
  My commission
  expires:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  2/10/12

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  My County of
  Residence is:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Minnehaha

  	
   

  	
   

  

 

S-1

 

	
   

  	
  Accepted:

  
	
   

  	
   

  
	
   

  	
  U.S. BANK
  NATIONAL ASSOCIATION, a

  national banking association,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Christine Robinette

  
	
   

  	
   

  	
  Its Vice
  President

  

 

S-2

 

SCHEDULE
A

 

Locations/Commercial
Tort Claims

 

	
  I.

  	
   

  	
  Debtor Location:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  205 N. Main
  Street, PO Box 96

  
	
   

  	
   

  	
  Lamberton, MN
  56152

  
	
   

  	
   

  	
   

  
	
  II.

  	
   

  	
  Commercial Tort
  Claims:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  None

  

 

A-1

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00143-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00143-of-00352.parquet"}]]