Document:

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                                                                    EXHIBIT 10.6

                                OPTION AGREEMENT

1.      GRANT OF OPTION. For and in consideration of the sum of Ten Thousand and
00/100ths Dollars ($10,000.00) (the "OPTION FEE"), the receipt of which is
hereby acknowledged, HENRY A. KNETSCH, JR, TRUSTEE UNDER TRUST AGREEMENT DATED
7/21/1988 (the "SELLER"), hereby grants to ILLINOIS RIVER ENERGY, LLC, a
Delaware limited liability company (the "BUYER"), the exclusive right and option
to purchase, on the terms set forth in this Agreement, the real property
located, South of I-88 Interstate and North of Steward Road in Dement Township,
Ogle County, Illinois, bearing Parcel Number 25-32-100-007 and tax code number
00446, with approximate legal description of: all that part of the West 1/2 of
NW 1/4 of Sect 32, Twp 40N R 2, E. of TPM lying located South of I-88 Interstate
and North of Steward Road in Dement Township, Ogle County, Illinois ,containing
approximately 48.11 acres m.o.l. and graphically depicted on Exhibit A attached
hereto, with the final legal description and acreage to be determined upon
completion of the Survey (as defined in paragraph 7 below), together with all
improvements located thereon and all easements and rights benefiting or
appurtenant thereto (collectively, the "PROPERTY").

                2.     PURCHASE PRICE. In the event Buyer elects to exercise the
Option, the purchase price of the Property ("PURCHASE PRICE") shall be A FORMULA
PRICE BASED ON ACREAGE: the product of (i) the number of acres comprising the
Property rounded to the nearest one-hundredth of an acre (1/100th) of an acre
(as determined by the Survey) and (ii) $14,500.00 per acre, which Purchase Price
shall be payable in the manner provided in paragraph 5 below., and (iii) a lump
sum payment of ten (10) times the year 2002 rents for billboard located on
subject property.

                3.     TERM OF OPTION. This Option shall commence as of the date
the last party signs the Option (the "EFFECTIVE DATE") and shall continue to and
including next subsequent 365 days (the "OPTION PERIOD").

                4.     EXERCISE OF OPTION. This Option, including any extension
thereto, may be exercised by Buyer giving written notice to the Seller at the
address set forth below either personally, or by certified or registered mail,
postage prepaid, return receipt requested, or by reputable overnight courier for
next business day delivery. The written notice shall be deemed to be properly
served if sent in this manner at any time prior to the expiration of the term of
this Option.

                       Henry A. Knetsch, Jr.
                       3106 Reynolds Road
                       Steward, IL 60553

Whether Buyer elects to exercise the Option shall be within the sole and
absolute discretion of Buyer.

                5.     CONSUMMATION OF SALE. If this Option is exercised, the
sale shall be consummated by the Seller, at the time of closing, delivering to
the Buyer a duly executed trustee's deed in recordable form (the "DEED") subject
only to the following:

                (a)  Building and zoning laws, ordinances, state and federal
                     regulations;
                (b)  Restrictions of record relating to the use of the Property
                     without effective forfeiture provisions not adversely
                     affecting Buyer's proposed use of the Property for the
                     construction and operation of up to a one hundred million
                     gallon per year ethanol plant (the "PROPOSED USE");
                (c)  Utility and drainage easements not adversely affecting the
                     Buyer's Proposed Use;
                (d)  Rights of tenant in possession under cash farm lease and
                     billboard sign location lease, and
                (e)  All other matters shown in the Commitment which Buyer has
                     elected to waive,

and by the Buyer, at the time of closing, paying to Seller the Purchase Price in
immediately available funds less a credit for the Option Fee(s).

                6.     TITLE. Within twenty (20) days after the Effective Date,
Seller will at Seller's expense, deliver to the Buyer a commitment for an
owner's policy of title insurance issued subsequent to the Effective Date (the
"COMMITMENT") by a reputable, national title insurance company approved by Buyer
and licensed to do business in the State of Illinois (the "TITLE COMPANY") and
insuring the Property for the full amount of the Purchase Price. The Commitment
shall disclose that Seller has good and marketable title to the Property free
and clear of all liens and encumbrances except those exceptions that will be
removed by Seller at or prior to closing. Seller shall

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pay the later date of commitment and premium for the owner's title insurance
policy (the "TITLE POLICY") at the closing.

                7.     SURVEY. Buyer shall at Buyer's expense, obtain an ALTA
survey of the Property ("SURVEY") prepared by a registered land surveyor and
acceptable to the Title Company for purposes of removing the standard exceptions
from the Title Policy and showing all boundary lines, easements, restrictions
and encroachments on the Property and containing a recordable legal description
for the Property. The Survey shall also certify as to the number of acres
comprising the Property rounded to the nearest one hundredth (1/100th) of an
acre.

                8.     MAINTENANCE OF TITLE AND PROPERTY. During the term of
this Option, Seller shall not sell, agree to sell, convey, or otherwise encumber
the Property, or any part thereof, or do, or permit to be done, or fail to do,
any act or deed to diminish or encumber the title to the Property or Seller's
ability to perform its obligations hereunder or otherwise adversely affecting
the Buyer's Proposed Use.

                9.     APPLICATION OF OPTION FEE(S). In the event Buyer
exercises its Option to purchase the Property, and the sale is consummated, the
Option Fee(s) shall be credited and applied to the Purchase Price at the time of
closing. If the Buyer fails to exercise its Option, the Buyer shall forfeit the
Option Fee(s), and Seller, as its sole and exclusive remedy, may retain the
Option Fee as a payment for the Option, Seller shall hold the title to the
Property free and clear of all interests and claims of Buyer, and neither party
will have any further rights or obligations under this Option.

                10.    REAL ESTATE TAXES AND OTHER PRORATIONS; CLOSING COSTS. In
the event Buyer exercises this Option, all real estate taxes due and payable
during the year in which the closing occurs shall be paid by Seller. Real estate
taxes becoming a lien during the year in which the closing occurs shall be
prorated on a calendar year basis between Seller and Buyer as of the date of
closing. Seller agrees to pay all assessments and levies upon the Property
becoming due and payable or assessed at or before the closing. Any rentals or
other income from the Property shall be prorated between Seller and Buyer as of
the date of closing.

        Seller shall pay any real estate transfer tax and any gross income tax
payable as a result of the conveyance of the Property contemplated hereby. The
closing fee of the Title Company shall be shared equally by the parties. Buyer
shall pay the recording fee for the Deed. Each party shall be responsible for
its own attorneys' fees.

                11.    CLOSING. If the Buyer exercises this Option, the closing
shall be held at a time and place mutually agreed to by the parties; provided,
however, that the closing shall take place no later than thirty (30) days after
the date of the notice to exercise the Option. At the closing, the parties agree
to execute a closing statement evidencing the transaction and setting forth the
prorations and closing costs for the transaction and to execute such other
documents as are customarily signed by sellers and buyers of real estate, for
example, but not by way of limitation, title affidavits, property transfer
affidavits and documents required by the Title Company.

                12.    POSSESSION. Seller shall deliver possession of the
Property to Buyer immediately following the closing.

                13.    CONDITION OF THE PROPERTY. Prior to the date of closing
and the Buyer's possession of the Property, Seller shall remove all of its
personal property and effects from the Property. The Property shall be delivered
to Buyer free of all debris and other materials.

                14.    ACCESS TO PROPERTY. Upon twenty-four (24) hours'
advance verbal or written notice to Seller, Buyer and Buyer's representatives
shall be allowed access to the Property during the term of this Option,
without charge and at all reasonable times, for the purposes of Buyer's
inspection, investigation, surveys, tests, studies, environmental
assessments, baseline environmental assessments, and environmental or other
testing of the Property, which testing and investigation may include, without
limitation, soil and groundwater testing and engineering analysis, as Buyer
may deem necessary in its sole discretion to determine the suitability of the
Property for Buyer's Proposed Use. Buyer shall indemnify, defend and hold
Seller harmless from and against any and all claims, demands, liabilities,
costs, expenses, penalties, damages and losses, including, but not limited
to, reasonable attorney fees, resulting from any injuries to persons or
damage to property which occur as a result of Buyer or its representatives
going upon the Property. Buyer shall pay Seller for verifiable crop damage
resulting from Buyer's above mentioned on site activities during 2002 growing
season based on acreage formula: the product of

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(i) the number of acres comprising the Property rounded to the nearest
one-hundredth of an acre (1/100th) of an acre (as determined by the Survey)
and (ii) $425.00 per acre, which shall be payable at the end of Option in
event Option is not exercised or at closing in event Option is exercised.

                15.    PHASE ONE; ENVIRONMENTAL LIABILITY. Within forty-five
(45) days after the Effective Date, Seller shall deliver to Buyer a complete
history of farm chemicals (whether or not deemed "hazardous chemical" under
Community Right to Know Act [42 USC Section 11021(e)(5)], waste management,
water runoff from adjacent areas and complete questions contained in Section
IV of IRPTA disclosure document, for a phase one environmental assessment for
the Property prepared by a qualified environmental contractor approved by
Buyer, which shall be prepared at Buyer's cost.

                Buyer shall have no liability or responsibility for any
environmental contamination on the Property unless caused by Buyer. Buyer
shall not assume any liability or responsibility of Seller for environmental
conditions and Hazardous Substances present on, in or under the Property at
the time of closing. Seller shall indemnify, defend and hold Buyer harmless
from and against any and all claims, demands, liabilities, costs, expenses,
penalties, damages and losses, including, but not limited to, reasonable
attorney fees, resulting from any environmental conditions and Hazardous
Substances present on, in or under the Property at the time of closing;
provided, however, that, Buyer's testing and investigation costs on the
Property incurred prior to the date of closing shall be excluded from the
foregoing Seller's indemnity.

        As used herein and in paragraph 17 below, the term "HAZARDOUS
SUBSTANCES" shall have the same meaning as set forth in 42 U.S.C. Sec. 9601
and any other federal or state statute, regulation or law applicable to any
hazardous or toxic waste. The term "Hazardous Substance" shall also include
asbestos, PCBs, petroleum products, pesticides, herbicides, fertilizers and
other agricultural chemicals, urea formaldehyde and related substances.

                16.    SELLER COOPERATION. Seller shall cooperate, during the
term of this Option, after exercise of the Option and following the closing,
at no out-of-pocket cost to Seller and no charge by Seller to Buyer, in
Buyer's attempts to obtain all governmental approvals necessary in Buyer's
judgment for Buyer's Proposed Use of the Property, including without
limitation zoning, permits and other approvals, and shall execute
applications and other documents necessary to apply for and obtain such
approvals.

                17.    REPRESENTATIONS.

        (a)  Seller represents and warrants that Seller has and will have the
             full right, power and authority to enter into this Option and to
             perform its obligations hereunder. Buyer represents and warrants
             that Buyer has and will have the full right, power and authority
             to enter into this Option and to perform its obligations hereunder.
        (b)  Seller represents and warrants that to the best of its knowledge
             and belief, Seller has not used the Property for the storage or
             disposal of any Hazardous Substance, and that Seller has no
             knowledge or belief that any other person has so used the
             Property, including Seller not being aware that dumping by
             members of the public has occurred from time to time upon the
             Property.
        (c)  Seller represents and warrants that Seller is not a "foreign
             person," "foreign partnership," "foreign trust", or "foreign
             estate", as those terms are defined in Section 1445 of the
             Internal Revenue Code.
        (d)  Seller represents and warrants that no assessments for public
             improvements which remain unpaid have been made against the
             Property and Seller has no notice or knowledge of any planned or
             contemplated public improvements which may result in special
             assessments against the Property.
        (e)  Seller represents and warrants that to the best of Seller's
             knowledge and belief, there are no wells or above ground or
             underground tanks located in, on or under the Property, except
             for water-well, properly capped and closed, and septic tank from
             razed farmhouse.
        (f)  Seller represents and warrants that there is no action,
             litigation, investigation, condemnation or proceeding of any
             kind pending or to the best of Seller's knowledge and belief,
             threatened against Seller involving all or any part of the
             Property.
        (g)  Seller represents and warrants that the Property is vacant and
             unoccupied, excluding above mentioned leases for billboard and
             crop land.

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If the Option is exercised, the representations and warranties set forth in this
paragraph 17 shall be deemed to be renewed and restated at and as of the closing
and shall survive the closing.

                18.    COMPUTATION OF TIME. All periods of time referred to in
this Option shall include all Saturdays, Sundays and state or national holidays;
provided, however that if the date or last day to perform any act or give any
notice with respect to this Option shall fall on a Saturday, Sunday, or state or
national holiday, such act or notice shall be timely performed if given on the
next succeeding day which is not a Saturday, Sunday, state or national holiday.
If a notice is given by mail or by reputable overnight courier for next business
day delivery, such notice shall be deemed to have been given on the day on which
it is sent.

                19.    SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Option shall not affect the other provisions
hereof, and this Option shall be construed in all respects as if such invalid or
unenforceable provision were omitted.

                20.    MODIFICATIONS. Any modification of this Option between
the parties relating in any way to this Option, shall not be binding upon either
party unless the same shall be in writing and signed by an authorized
representative of each of the respective parties.

                21.    ENTIRE AGREEMENT. This Option constitutes the entire
agreement among the parties, and contains all the agreements among the parties
with respect to the subject matter hereof. This Option supersedes any and all
other agreements, either oral or in writing, among the parties hereto with
respect to the subject matter hereof.

                22.    BINDING EFFECT. This Option shall be binding upon and
shall inure to the benefit of the successors in interest, heirs, personal
representatives and assigns of the respective parties hereto.

                23.    ASSIGNMENT. Buyer shall have the right to assign this
Option.

                24.    AGREEMENT TO SURVIVE CLOSING. Except to the extent
altered by the documents signed at closing, the agreement of the parties with
respect to the matters addressed in this Option shall surviving the closing.

                25.    GOVERNING LAW. This Option shall be governed by and
construed in accordance with the laws of the State of Illinois applicable to
contracts made and performed in Illinois.

                26.    BROKERS. Seller shall be responsible for all brokerage
commissions.

                27.    MEMORANDUM. A Memorandum of this Option Agreement shall
be executed by the parties and recorded at Buyer's option and cost.

                28.    CONFIDENTIALLY NONDISCLOSURE. The attached
Confidentially Nondisclosure Agreement, duly executed by the parties, is made a
part hereof.

                [the rest of this page left blank intentionally]

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        IN WITNESS WHEREOF, the parties have entered into this Option on the
date and year indicated below.

                                   SELLER:

                                   HENRY A. KNETSCH, JR,
                                   TRUSTEE UNDER TRUST AGREEMENT DATED 7/21/1988

Dated  JULY 2, 2002                By:  /s/ Henry A. Knetsch, Jr., Trustee
                                      ----------------------------------------
                                            Henry A. Knetsch, Jr., trustee

                                   BUYER:

                                   ILLINOIS RIVER ENERGY, LLC

Dated  JULY 5, 2002                By:  /s/ Floyd Schultz
                                      ----------------------------------------
                                            Floyd Schultz, President

Dated  JULY 5, 2002                By:  /s/ Greg Marshall
                                      ----------------------------------------
                                            Greg Marshall, Secretary

Prepared by:
Tupy & Tupy, Ltd.
Attorneys At Law
303 E. Hillcrest
DeKalb, IL 6011

                                        5
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                     CONFIDENTIALITY NONDISCLOSURE AGREEMENT

        This Agreement is entered into as of this 5 day of July, 2002, by and
between Illinois River Energy, LLC ("Buyer" and/or "IRE"), a Delaware limited
liability company with its principal place of business at 4000 North Division,
Morris, Illinois 60450 and Henry A. Knetsch, Jr. , a widower ("Seller") with a
principal place of business located at 3106 Reynolds Road, Steward, Illinois,
60553

        WHEREAS, Seller and Buyer have entered into discussions and negotiations
for an Option Agreement, or are contemporaneously executing an Option Agreement,
dated July 5, 2002 for real property located South of I-88 Interstate and North
of Steward Road in Dement Township, Rochelle, Illinois, bearing Parcel Number
25-32-100-007 and tax code number 00446, approximate legal description of: all
that part of the West 1/2 of NW 1/4 of Sect 32, Twp 40N R 2, E. of TPM lying
located South of I-88 Interstate and North of Steward Road in Dement Township,
Ogle County, Illinois ,containing approximately 48.11 acres m.o.l. and
heretofore and Seller has acquired or will be acquiring information concerning
IRE's business activities to develop, construct, own and operate a 40 million
gallon dry mill ethanol plant (the "Ethanol Project") in the northern Illinois
area (hereinafter referred to as the "Authorized Purpose"), and said
information, which includes the terms of any Option Agreement and consideration
paid or to be paid pursuant to said Option Agreement, is information that IRE
deems proprietary and confidential;

        WHEREAS, IRE wishes to protect its confidential information against any
unauthorized use and any unauthorized or uncontrolled disclosure.

        NOW THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which, is hereby acknowledged, IRE and Seller agree as follows:

A.      As used throughout this Agreement, the term "Confidential Information"
        means: (a) the terms of the Option Agreement and consideration paid or
        to be paid pursuant to said Option Agreement, and (b) information not
        generally known to third parties and which is proprietary to IRE
        including information about IRE's Ethanol Project which includes
        information relating to product strategies, financing strategies,
        organizational strategies, site location strategies, permitting
        strategies, design/build and other contract discussions and strategies,
        technical know-how, trade secret information, financial information,
        plant specifications, prospective investor lists and strategies, pricing
        policies, operational methods, marketing information including without
        limitation strategy, sales, finance and business systems and techniques,
        business plans, and other business affairs of IRE relating to the
        Ethanol Project. All information of IRE that is disclosed to Seller or
        which Seller obtains access, whether originated by Seller or by the
        Discloser or others, shall be presumed to be Confidential Information.

B.      It is understood that unauthorized disclosure or use, whether
        intentional or unintentional, of any of the Confidential Information
        would be detrimental to IRE. Accordingly, Seller agrees:

        1.  Not to disclose to any third party the terms of said Option
            Agreement, or consideration paid or to be paid pursuant to said
            Option Agreement, or the object and scope of the discussions between
            the parties prior to execution of said Option Agreement, except as
            required by law or as may be necessary to enforce the terms hereof.

        2.  Not to use any of the Confidential Information for any purpose other
            than for or in connection with the Authorized Purpose.

                                        1
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        3.  To maintain all of the Confidential Information in confidence and
            not to disclose any portion of the Confidential Information to any
            person or entity not authorized hereunder without the prior written
            consent of IRE.

        4.  That any dissemination of Confidential Information shall be only in
            connection with the Authorized Purpose, and shall be only to the
            employees, agents or affiliates of Seller who have a need to know
            said Confidential Information in order for Seller to carry out
            proper purposes and responsibilities related to Seller's discussions
            with IRE and the Authorized Purpose and who have been advised of the
            confidential nature of such information. Further, that Seller shall
            cause such employees, agents and affiliates who have access to the
            Confidential Information to comply with the terms and provisions of
            this Agreement in the same manner as each party is bound hereby,
            with Seller remaining responsible for the actions and disclosures of
            such representatives.

        5.  That, whether exercised or not, upon termination of said Option
            Agreement between the parties or upon IRE's request, all records,
            any compositions, articles, documents and other items which contain,
            disclose and/or embody any Confidential Information (including,
            without limitation, all copies, reproductions, summaries and notes
            of the contents thereof), regardless of the person causing the same
            to be in such form, shall be returned to IRE or destroyed by Seller,
            and Seller will certify that the provisions of this paragraph have
            been complied with.

C.      The obligations pursuant to Section B above shall not apply to
        information which:

        1.  Is or becomes a part of the public domain through no act or omission
            of Seller;

        2.  Shall be made available to Seller on a non-confidential basis by a
            third party having a right to do so;

        3.  Is disclosed by order of a court of competent jurisdiction; or

        4.  IRE authorizes, in writing, for release.

D.      In the event that Seller or its representatives receives a request to
        disclose all or any part of the Confidential Information under the terms
        of a valid and effective subpoena or order issued by a court of
        competent jurisdiction or by a governmental body, the receiving party
        agrees to:

        1.  Immediately notify IRE of the existence, terms and circumstances
            surrounding such a request, so that is may seek an appropriate
            protective order and/or waive Seller's compliance with the
            provisions of this Agreement; and

        2.  If disclosure of such Confidential Information is required in the
            opinion of Seller's counsel, to the extent possible cooperate with
            IRE in obtaining reliable assurances that confidential treatment
            will be accorded to the disclosed Confidential Information.

E.      The parties hereto acknowledge that the Confidential Information is the
        property of IRE and the disclosure of the Confidential Information to
        Seller does not convey any right, title or license in the Confidential
        Information to Seller. Seller shall not appropriate the Confidential
        Information to its own use or to the use of any third party and shall
        only use the Confidential Information for the exclusive benefit of IRE
        except to the extent otherwise authorized in writing by IRE.

F.      It is further understood and agreed that no failure or delay by IRE in
        exercising any right, power or privilege hereunder shall operate as a
        waiver thereof, nor shall any single or partial exercise

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        thereof preclude any other or further exercise thereof or the exercise
        of any right, power or privilege hereunder.

G.      The termination of the discussions or relationship or Option Agreement
        between the parties shall not relieve Seller or its employees, agents or
        affiliates of the obligations of nonuse or nondisclosure hereunder or
        the obligation to return or destroy certain materials.

H.      The parties agree that money damages would not be sufficient remedy for
        any breach of this Agreement, and the non-breaching party shall be
        entitled to enforce this Agreement by injunctive and other available
        relief, including without limitation specific performance.

I.      This Agreement shall be governed by, construed, and interpreted in
        accordance with the substantive laws of the State of Delaware. Whenever
        possible, each provision of this Agreement shall be interpreted in such
        manner as to be effective and valid under applicable law, but if any
        provision hereof shall be prohibited by or invalid under applicable law,
        such provision shall be ineffective to the extent of such prohibition or
        invalidity, without invalidating the remainder of such provision or the
        remaining provisions of this Agreement. All obligations of the receiving
        party and rights of the disclosing party expressed herein shall be in
        addition to, and not in limitation of, those provided by applicable law.
        This Agreement may be modified or waived only by a separate writing by
        Seller and IRE expressly so modifying or waiving such. This Agreement
        may be executed in any number of counterparts, each of which shall be an
        original, but all of which together shall constitute one instrument.
        References to IRE and Seller shall be deemed to include each of their
        affiliates, if any. Any disputes arising out of this Agreement shall be
        venued in federal or state district court in the City of Chicago, State
        of Illinois, and each party hereby consents to the jurisdiction of such
        court. This Agreement shall be binding upon the parties hereto and their
        successors and assigns.

        IN WITNESS WHEREOF, the parties acknowledge their agreement to the
foregoing as of the date first set forth above by execution of the Agreement by
their respective authorized representatives.

BUYER;                                        SELLER:
ILLINOIS RIVER ENERGY, LLC                    HENRY A. KNETSCH, JR

  /s/ Floyd Schultz                             /s/ Henry A. Knetsch, Jr.
---------------------------------             --------------------------------
By (signature)                                By (signature)

  Floyd Schultz                               Henry A. Knetsch, Jr.
---------------------------------             --------------------------------
Name of Signatory                             Name of Signatory

  President                                     Trustee
---------------------------------             --------------------------------
Title                                           Title

  July 5, 2002                                  July 2, 2002
---------------------------------             --------------------------------
Date                                          Date

Prepared by:
Tupy & Tupy, Ltd.
Attorneys At Law
303 E. Hillcrest
DeKalb, IL 60115

                                        3
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Prepared by
And Return to:

Tupy & Tupy, Ltd.
Attorneys At Law
303 E. Hillcrest
DeKalb, IL 60115

================================================================================
                              MEMORANDUM OF OPTION

Notice is Given That on the 5th day of July, 2002,

                   HENRY A. KNETSCH, JR. a widower
                   3106 Reynolds Road
                   Steward, Illinois, 60553

and

                   ILLINOIS RIVER ENERGY, LLC, ("the Buyer")
                   400 N. Division Street
                   Morris, IL 60450
                            Attn: Vince McCabe

executed an Agreement for the exclusive right and option to purchase, on the
terms set forth in said Agreement, the real property located South of I-88
Interstate and North of Steward Road in Dement Township, Ogle County, Illinois,
bearing Parcel Number 25-32-100-007 and tax code number 00446, with approximate
legal description of: all that part of the West 1/2 of NW 1/4 of Sect 32, Twp
40N R 2, E. of TPM lying located, South of I-88 InterstaTe and North of Steward
Road in Dement Township, Ogle County, Illinois ,containing approximately 48.11
acres m.o.l. and graphically depicted on Exhibit A attached hereto,

Any and All persons making inquiries or having interests in or to said land are
hereby directed to contact the Buyer at above address.

In Witness Whereof, the parties have executed this Memorandum on the day and
year first above written.

                                     SELLER:

                                     HENRY A. KNETSCH, JR.

                                      /s/ Henry A. Knetsch, Jr.
                                     --------------------------------
                                            Henry A. Knetsch, Jr.

                                     BUYER:

                                     ILLINOIS RIVER ENERGY, LLC

<Page>

Dated JULY 5, 2002                   By: /s/ Floyd Schultz
                                        --------------------------------------
                                             Floyd Schultz, President

Dated JULY 5, 2002                   By: /s/ Greg Marshall
                                        --------------------------------------
                                             Greg Marshall, Secretary

STATE OF ILLINOIS)
COUNTY OF DEKALB)
I, the undersigned Notary Public in, and for said County and State aforesaid, Do
Hereby Certify that Floyd Schultz, holding the office of President and Gregg
Marshall, holding the office of Secretary, personally known to me to be the same
persons whose names are subscribed to the foregoing instrument, as such
President and Secretary, respectively, appeared before me this day in person and
acknowledged that they signed, sealed and delivered the said instrument as their
free and voluntary act, and as the free and voluntary act of said limited
liability company, for the uses and purposes therein set forth, and said
Secretary did also then and there acknowledge that he/ she as custodian of the
corporate seal of said limited liability company did affix the said corporate
seal of said limited liability company to said instrument as his/ her own free
and voluntary act, and as the free and voluntary act of said limited liability
company for the uses and purposes therein set forth. Given under my hand and
notarial seal this 5th day of July, 2002

                                     /s/ Janis M. Tupy                 [SEAL]
                                   ------------------------------------
                                             [signature]
                                     Janis M. Tupy
                                   ------------------------------------
                                             [print name]
[stamp]                            my commission expires: 6-30-2006
                                                         --------------

STATE OF ILLINOIS)
COUNTY OF OGLE)
I, the undersigned Notary Public in, and for said County and State aforesaid, Do
Hereby Certify that
                          HENRY A. KNETSCH, JR., a widower
personally known to me to be the same persons whose names are subscribed to the
foregoing instrument, appeared before me this day in person and acknowledged
that he signed, sealed and delivered the said instrument as his free and
voluntary act, for the uses and purposes therein set forth, including the
release and wavier of the right of homestead.
Given under my hand and notarial seal this 2nd day of July, 2002

                                     /s/ Nancy A. Flynn                [SEAL]
                                   ------------------------------------
                                             [signature]
                                     Nancy A. Flynn
                                   ------------------------------------
                                             [print name]
[stamp]                            my commission expires: 9-25-2005
                                                         --------------

<Page>

               [INSERT 1-PAGE DIAGRAM (NOT IN ELECTRONIC FORMAT)]<Page>

                                                                    EXHIBIT 10.7

                                OPTION AGREEMENT

               1.     GRANT OF OPTION. For and in consideration of the sum of
Ten Thousand and 00/100ths Dollars ($10,000.00) (the "OPTION FEE"), the receipt
of which is hereby acknowledged, NOGGLE FAMILY LIMITED PARTNERSHIP (the
"SELLER"), hereby grants to ILLINOIS RIVER ENERGY, LLC, a Delaware limited
liability company (the "BUYER"), the exclusive right and option to purchase, on
the terms set forth in this Agreement, the real property located East of Caron
Road, South of I-88 Interstate and North of Steward Road in Dement Township,
Ogle County, Illinois, bearing Parcel Number 25-31-200-006 and tax code number
00443, with approximate legal description of: Part of the East 1/2 of NE 1/4 of
Sect 31, Twp 40N R 2, E. of TPM lying located East of Caron Road, South of I-88
Interstate and North of Steward Road in Dement Township, Ogle County, Illinois
,containing approximately 38.02 acres m.o.l. and graphically depicted on Exhibit
A attached hereto, with the final legal description and acreage to be determined
upon completion of the Survey (as defined in paragraph 7 below), together with
all improvements located thereon and all easements and rights benefiting or
appurtenant thereto (collectively, the "PROPERTY"). The property is not subject
to a homestead exemption, is not improved, but may be under cultivation.

               2.     PURCHASE PRICE. In the event Buyer elects to exercise the
Option, the purchase price of the Property ("PURCHASE PRICE") shall be A FORMULA
PRICE BASED ON GROSS ACREAGE: the product of (i) the number of gross acres
comprising the Property rounded to the nearest one-hundredth of an acre
(1/100th) of an acre (as determined by the Survey) and (ii) $20,000.00 per acre,
which Purchase Price shall be payable in the manner provided in paragraph 5
below.

               3.     TERM OF OPTION. This Option shall commence as of the date
the last party signs the Option (the "EFFECTIVE DATE") and shall continue to and
including the next subsequent 365 days (the "OPTION PERIOD" ).

               4.     EXERCISE OF OPTION. This Option, including any extension
thereto, may be exercised by Buyer giving written notice to the Seller at the
address set forth below either personally, or by certified or registered mail,
postage prepaid, return receipt requested, or by reputable overnight courier for
next business day delivery. The written notice shall be deemed to be properly
served if sent in this manner at any time prior to the expiration of the term of
this Option.

<Table>
               <S>                                              <C>
               Noggle Family Limited Partnership                Goldsmith, Thelin, Dieckson & Brown
               25862 West Hafen Richter Road,                   2000 W. Galena,  Suite 200
               Plainfield, Illinois, 60544                      Aurora, IL  60506
               (630) 898-1726 (voice)                           (630) 859-3300 (voice)
               (630) 898-7107 (fax)                             (630) 859-3375 (fax)
</Table>

Whether Buyer elects to exercise the Option shall be within the sole and
absolute discretion of Buyer.

               5.     CONSUMMATION OF SALE. If this Option is exercised, the
sale shall be consummated by the Seller, at the time of closing, delivering to
the Buyer a duly executed warranty deed in recordable form (the "DEED") subject
only to the following:

               (a) Building and zoning laws, ordinances, state and federal
                   regulations;
               (b) Restrictions of record relating to the use of the Property
                   without effective forfeiture provisions not adversely
                   affecting Buyer's proposed use of the Property for the
                   construction and operation of up to a one hundred million
                   gallon per year ethanol plant (the "PROPOSED USE");
               (c) Utility and drainage easements not adversely affecting the
                   Buyer's Proposed Use; and
               (d) All other matters shown in the Commitment which Buyer has
                   elected to waive,
               (e) Title exceptions pertaining to liens or encumbrances of a
                   definite or ascertainable amount which may be removed by the
                   payment of money at the time of closing and which the Seller
                   may so remove at that time by using the funds to be paid upon
                   the delivery of the deed (all of which are herein referred to
                   as the permitted exceptions).
and by the Buyer, at the time of closing, paying to Seller the Purchase Price in
immediately available funds less a credit for the Option Fee(s).

                                        1
<Page>

               6.     TITLE. Within twenty (20) days after the Effective Date,
Seller will at Seller's expense, deliver to the Buyer a commitment for an
owner's policy of title insurance issued subsequent to the Effective Date (the
"COMMITMENT") by a reputable, national title insurance company approved by Buyer
and licensed to do business in the State of Illinois (the "TITLE COMPANY") and
insuring the Property for the full amount of the Purchase Price. The Commitment
shall disclose that Seller has good and marketable title to the Property free
and clear of all liens and encumbrances except those exceptions that will be
removed by Seller at or prior to closing. Seller shall pay the later date of
commitment and premium for the owner's title insurance policy (the "TITLE
POLICY") at the closing.

               7.     SURVEY. Buyer shall at Buyer's expense, obtain an ALTA
survey of the Property ("Survey") prepared by a registered land surveyor and
acceptable to the Title Company for purposes of removing the standard exceptions
from the Title Policy and showing all boundary lines, easements, restrictions
and encroachments on the Property and containing a recordable legal description
for the Property. The Survey shall also certify as to the number of acres
comprising the Property rounded to the nearest one hundredth (1/100th) of an
acre.

               8.     MAINTENANCE OF TITLE AND PROPERTY. During the term of this
Option, Seller shall not sell, agree to sell, convey, or otherwise encumber the
Property, or any part thereof, or do, or permit to be done, or fail to do, any
act or deed to diminish or encumber the title to the Property or Seller's
ability to perform its obligations hereunder or otherwise adversely affecting
the Buyer's Proposed Use.

               9.     APPLICATION OF OPTION FEE(S). In the event Buyer exercises
its Option to purchase the Property, and the sale is consummated, the Option
Fee(s) shall be credited and applied to the Purchase Price at the time of
closing. If the Buyer fails to exercise its Option, the Buyer shall forfeit the
Option Fee(s), and Seller, as its sole and exclusive remedy, may retain the
Option Fee as a payment for the Option, Seller shall hold the title to the
Property free and clear of all interests and claims of Buyer, and neither party
will have any further rights or obligations under this Option.

               10.    REAL ESTATE TAXES AND OTHER PRORATIONS; CLOSING COSTS. In
the event Buyer exercises this Option, all real estate taxes due and payable
during the year in which the closing occurs shall be paid by Seller. Real estate
taxes becoming a lien during the year in which the closing occurs shall be
prorated on a calendar year basis between Seller and Buyer as of the date of
closing. Seller agrees to pay all assessments and levies upon the Property
becoming due and payable or assessed at or before the closing. Any rentals or
other income from the Property shall be prorated between Seller and Buyer as of
the date of closing.

        Seller shall pay any real estate transfer tax and any gross income tax
payable as a result of the conveyance of the Property contemplated hereby. The
closing fee of the Title Company shall be shared equally by the parties. Buyer
shall pay the recording fee for the Deed. Each party shall be responsible for
its own attorneys' fees.

               11.    CLOSING. If the Buyer exercises this Option, the closing
shall be held at a time and place mutually agreed to by the parties; provided,
however, that the closing shall take place no later than thirty (30) days after
the date of the notice to exercise the Option. At the closing, the parties agree
to execute a closing statement evidencing the transaction and setting forth the
prorations and closing costs for the transaction and to execute such other
documents as are customarily signed by sellers and buyers of real estate, for
example, but not by way of limitation, title affidavits, property transfer
affidavits and documents required by the Title Company.

               12.    POSSESSION. Seller shall deliver possession of the
Property to Buyer immediately following the closing.

               13.    CONDITION OF THE PROPERTY. Prior to the date of closing
and the Buyer's possession of the Property, Seller shall remove all of its
personal property and effects from the Property. The Property shall be delivered
to Buyer free of all debris and other materials.

               14.    ACCESS TO PROPERTY. Upon seventy-two (72) hours' advance
verbal or written notice to Seller, Buyer and Buyer's representatives shall be
allowed access to the Property during the term of this Option, without charge
and at all reasonable times, for the purposes of Buyer's inspection,
investigation, surveys, tests, studies, environmental assessments, baseline
environmental assessments, and environmental or other testing of the Property,
which testing and investigation may include, without limitation, soil and
groundwater testing and

                                        2
<Page>

engineering analysis, as Buyer may deem necessary in its sole discretion to
determine the suitability of the Property for Buyer's Proposed Use. Buyer shall
indemnify, defend and hold Seller harmless from and against any and all claims,
demands, liabilities, costs, expenses, penalties, damages and losses, including,
but not limited to, reasonable attorney fees, resulting from any injuries to
persons or damage to property which occur as a result of Buyer or its
representatives going upon the Property, and provide copies of contractor's
certificates of insurance, naming Seller as additional insured, for work done on
site. Buyer shall pay Seller for verifiable crop damage resulting from Buyer's
above mentioned on site activities during 2002 growing season based on acreage:
the product of (i) the number of acres comprising the Property rounded to the
nearest one-hundredth of an acre (1/100th) of an acre (as determined by the
Survey) and (ii) $425.00 per acre, which shall be payable at the end of Option
in event Option is not exercised or at closing in event Option is exercised.

               15.    PHASE ONE; ENVIRONMENTAL LIABILITY. Within forty-five (45)
days after the Effective Date, Seller shall deliver to Buyer a complete history
of farm chemicals (whether or not deemed "hazardous chemical" under Community
Right to Know Act [42 USC Section 11021(e)(5)], waste management, water runoff
from adjacent areas and complete questions contained in Section IV of IRPTA
disclosure document, for a phase one environmental assessment for the Property
prepared by a qualified environmental contractor approved by Buyer, which shall
be prepared at Buyer's cost.

               Buyer shall have no liability or responsibility for any
environmental contamination on the Property unless caused by Buyer. Buyer shall
not assume any liability or responsibility of Seller for environmental
conditions and Hazardous Substances present on, in or under the Property at the
time of closing. Seller shall indemnify, defend and hold Buyer harmless from and
against any and all claims, demands, liabilities, costs, expenses, penalties,
damages and losses, including, but not limited to, reasonable attorney fees,
resulting from any environmental conditions and Hazardous Substances present on,
in or under the Property at the time of closing; provided, however, that,
Buyer's testing and investigation costs on the Property incurred prior to the
date of closing shall be excluded from the foregoing Seller's indemnity.

        As used herein and in paragraph 17 below, the term "HAZARDOUS
SUBSTANCES" shall have the same meaning as set forth in 42 U.S.C. Sec. 9601 and
any other federal or state statute, regulation or law applicable to any
hazardous or toxic waste. The term "Hazardous Substance" shall also include
asbestos, PCBs, petroleum products, pesticides, herbicides, fertilizers and
other agricultural chemicals, urea formaldehyde and related substances.

               16.    SELLER COOPERATION. Seller shall cooperate, during the
term of this Option, after exercise of the Option and following the closing, at
no out-of-pocket cost to Seller and no charge by Seller to Buyer, in Buyer's
attempts to obtain all governmental approvals necessary in Buyer's judgment for
Buyer's Proposed Use of the Property, including without limitation zoning,
permits and other approvals, and shall execute applications and other documents
necessary to apply for and obtain such approvals.

               17.    REPRESENTATIONS.

        (a)    Seller represents and warrants that Seller has and will have the
               full right, power and authority to enter into this Option and to
               perform its obligations hereunder. Buyer represents and warrants
               that Buyer has and will have the full right, power and authority
               to enter into this Option and to perform its obligations
               hereunder.
        (b)    Seller represents and warrants that to the best of its knowledge
               and belief, Seller has not used the Property for the storage or
               disposal of any Hazardous Substance, and that Seller has no
               knowledge or belief that any other person has so used the
               Property, including Seller not being aware that dumping by
               members of the public has occurred from time to time upon the
               Property.
        (c)    Seller represents and warrants that Seller is not a "foreign
               person," "foreign partnership," "foreign trust", or "foreign
               estate", as those terms are defined in Section 1445 of the
               Internal Revenue Code.
        (d)    Seller represents and warrants that no assessments for public
               improvements which remain unpaid have been made against the
               Property and Seller has no notice or knowledge of any planned or
               contemplated public improvements which may result in special
               assessments against the Property.
        (e)    Seller represents and warrants that to the best of Seller's
               knowledge and belief, there are no wells or above ground or
               underground tanks located in, on or under the Property.

                                        3
<Page>

        (f)    Seller represents and warrants that there is no action,
               litigation, investigation, condemnation or proceeding of any kind
               pending or to the best of Seller's knowledge and belief,
               threatened against Seller involving all or any part of the
               Property.
        (g)    Seller represents and warrants that the Property is vacant and
               unoccupied.

If the Option is exercised, the representations and warranties set forth in this
paragraph 17 shall be deemed to be renewed and restated at and as of the closing
and shall survive the closing.

               18.    COMPUTATION OF TIME. All periods of time referred to in
this Option shall include all Saturdays, Sundays and state or national holidays;
provided, however that if the date or last day to perform any act or give any
notice with respect to this Option shall fall on a Saturday, Sunday, or state or
national holiday, such act or notice shall be timely performed if given on the
next succeeding day which is not a Saturday, Sunday, state or national holiday.
If a notice is given by mail or by reputable overnight courier for next business
day delivery, such notice shall be deemed to have been given on the day on which
it is sent.

               19.    SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Option shall not affect the other provisions
hereof, and this Option shall be construed in all respects as if such invalid or
unenforceable provision were omitted.

               20.    MODIFICATIONS. Any modification of this Option between the
parties relating in any way to this Option, shall not be binding upon either
party unless the same shall be in writing and signed by an authorized
representative of each of the respective parties.

               21.    ENTIRE AGREEMENT. This Option constitutes the entire
agreement among the parties, and contains all the agreements among the parties
with respect to the subject matter hereof. This Option supersedes any and all
other agreements, either oral or in writing, among the parties hereto with
respect to the subject matter hereof.

               22.    BINDING EFFECT. This Option shall be binding upon and
shall inure to the benefit of the successors in interest, heirs, personal
representatives and assigns of the respective parties hereto.

               23.    ASSIGNMENT. Buyer shall have the right to assign this
Option.

               24.    AGREEMENT TO SURVIVE CLOSING. Except to the extent altered
by the documents signed at closing, the agreement of the parties with respect to
the matters addressed in this Option shall surviving the closing.

               25.    GOVERNING LAW. This Option shall be governed by and
construed in accordance with the laws of the State of Illinois applicable to
contracts made and performed in Illinois.

               26.    BROKERS. Seller shall be responsible for all brokerage
commissions.

               27.    MEMORANDUM. A Memorandum of this Option Agreement shall be
executed by the parties and recorded at Buyer's option and cost.

               28.    CONFIDENTIALLY NONDISCLOSURE.. The attached Confidentially
Nondisclosure Agreement, duly executed by the parties, is made a part hereof.

               29.    COPIES. Buyer agrees to provide copies of survey, soil
test, Phase I test performed on property.

                [the rest of this page left blank intentionally]

                                        4
<Page>

        IN WITNESS WHEREOF, the parties have entered into this Option on the
date and year indicated below.

                                           SELLER:
                                           NOGGLE FAMILY LIMITED PARTNERSHIP

Dated  7-3 , 2002                          By:  /s/ Robert Noggle
                                              ----------------------------------
                                           Its: GP
                                               ---------------------------------

                                           By:
                                              --------------------------------
                                           Its:
                                               ------------------------

                                           BUYER:

                                           ILLINOIS RIVER ENERGY, LLC

Dated  JULY 5, 2002                        By:  /s/ Floyd Schultz
                                              ----------------------------------
                                                    Floyd Schultz, President

Dated  JULY 5, 2002                        By:  /s/ Greg Marshall
                                              ----------------------------------
                                                    Greg Marshall, Secretary

  Prepared by:
Tupy & Tupy, Ltd.
Attorneys At Law
303 E. Hillcrest
DeKalb, IL 60115

                                        5
<Page>

                     CONFIDENTIALITY NONDISCLOSURE AGREEMENT

        This Agreement is entered into as of this 5th day of July, 2002, by and
between Illinois River Energy, LLC ("Buyer" and/or "IRE"), a Delaware limited
liability company with its principal place of business at 4000 North Division,
Morris, Illinois 60450 and Noggle Family Limited Partnership ("Seller") with a
principal place of business located at 25862 West Hafen Richter Road,
Plainfield, Illinois, 60544

        WHEREAS, Seller and Buyer have entered into discussions and negotiations
for an Option Agreement, or are contemporaneously executing an Option Agreement,
dated July 5 for real property located East of Caron Road, South of I-88
Interstate and North of Steward Road in Dement Township, Rochelle, Illinois,
bearing Parcel Number 25-31-200-006 and tax code number 00443, approximate legal
description of: Part of the East 1/2 of NE 1/4 of Sect 31, Twp 40N R 2, E. of
TPM lying located East of Caron Road, South of I-88 Interstate and North of
Steward Road in Dement Township, Ogle County, Illinois ,containing approximately
38.02 acres m.o.l. and heretofore and Seller has acquired or will be acquiring
information concerning IRE's business activities to develop, construct, own and
operate a 40 million gallon dry mill ethanol plant (the "Ethanol Project") in
the northern Illinois area (hereinafter referred to as the "Authorized
Purpose"), and said information, which includes the terms of any Option
Agreement and consideration paid or to be paid pursuant to said Option
Agreement, is information that IRE deems proprietary and confidential;

        WHEREAS, IRE wishes to protect its confidential information against any
unauthorized use and any unauthorized or uncontrolled disclosure.

        NOW THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which, is hereby acknowledged, IRE and Seller agree as follows:

A.      As used throughout this Agreement, the term "Confidential Information"
        means: (a) the terms of the Option Agreement and consideration paid or
        to be paid pursuant to said Option Agreement, and (b) information not
        generally known to third parties and which is proprietary to IRE
        including information about IRE's Ethanol Project which includes
        information relating to product strategies, financing strategies,
        organizational strategies, site location strategies, permitting
        strategies, design/build and other contract discussions and strategies,
        technical know-how, trade secret information, financial information,
        plant specifications, prospective investor lists and strategies, pricing
        policies, operational methods, marketing information including without
        limitation strategy, sales, finance and business systems and techniques,
        business plans, and other business affairs of IRE relating to the
        Ethanol Project. All information of IRE that is disclosed to Seller or
        which Seller obtains access, whether originated by Seller or by the
        Discloser or others, shall be presumed to be Confidential Information.

B.      It is understood that unauthorized disclosure or use, whether
        intentional or unintentional, of any of the Confidential Information
        would be detrimental to IRE. Accordingly, Seller agrees:

        1.  Not to disclose to any third party the terms of said Option
            Agreement, or consideration paid or to be paid pursuant to said
            Option Agreement, or the object and scope of the discussions between
            the parties prior to execution of said Option Agreement, except as
            required by law or as may be necessary to enforce the terms hereof.

        2.  Not to use any of the Confidential Information for any purpose other
            than for or in connection with the Authorized Purpose.

                                        1
<Page>

        3.  To maintain all of the Confidential Information in confidence and
            not to disclose any portion of the Confidential Information to any
            person or entity not authorized hereunder without the prior written
            consent of IRE.

        4.  That any dissemination of Confidential Information shall be only in
            connection with the Authorized Purpose, and shall be only to the
            employees, agents or affiliates of Seller who have a need to know
            said Confidential Information in order for Seller to carry out
            proper purposes and responsibilities related to Seller's discussions
            with IRE and the Authorized Purpose and who have been advised of the
            confidential nature of such information. Further, that Seller shall
            cause such employees, agents and affiliates who have access to the
            Confidential Information to comply with the terms and provisions of
            this Agreement in the same manner as each party is bound hereby,
            with Seller remaining responsible for the actions and disclosures of
            such representatives.

        5.  That, whether exercised or not, upon termination of said Option
            Agreement between the parties or upon IRE's request, all records,
            any compositions, articles, documents and other items which contain,
            disclose and/or embody any Confidential Information (including,
            without limitation, all copies, reproductions, summaries and notes
            of the contents thereof), regardless of the person causing the same
            to be in such form, shall be returned to IRE or destroyed by Seller,
            and Seller will certify that the provisions of this paragraph have
            been complied with.

C.      The obligations pursuant to Section B above shall not apply to
        information which:

        1.  Is or becomes a part of the public domain through no act or omission
            of Seller;

        2.  Shall be made available to Seller on a non-confidential basis by a
            third party having a right to do so;

        3.  Is disclosed by order of a court of competent jurisdiction; or

        4.  IRE authorizes, in writing, for release.

D.      In the event that Seller or its representatives receives a request to
        disclose all or any part of the Confidential Information under the terms
        of a valid and effective subpoena or order issued by a court of
        competent jurisdiction or by a governmental body, the receiving party
        agrees to:

        1.  Immediately notify IRE of the existence, terms and circumstances
            surrounding such a request, so that is may seek an appropriate
            protective order and/or waive Seller's compliance with the
            provisions of this Agreement; and

        2.  If disclosure of such Confidential Information is required in the
            opinion of Seller's counsel, to the extent possible cooperate with
            IRE in obtaining reliable assurances that confidential treatment
            will be accorded to the disclosed Confidential Information.

E.      The parties hereto acknowledge that the Confidential Information is the
        property of IRE and the disclosure of the Confidential Information to
        Seller does not convey any right, title or license in the Confidential
        Information to Seller. Seller shall not appropriate the Confidential
        Information to its own use or to the use of any third party and shall
        only use the Confidential Information for the exclusive benefit of IRE
        except to the extent otherwise authorized in writing by IRE.

F.      It is further understood and agreed that no failure or delay by IRE in
        exercising any right, power or privilege hereunder shall operate as a
        waiver thereof, nor shall any single or partial exercise

                                        2
<Page>

        thereof preclude any other or further exercise thereof or the exercise
        of any right, power or privilege hereunder.

G.      The termination of the discussions or relationship or Option Agreement
        between the parties shall not relieve Seller or its employees, agents or
        affiliates of the obligations of nonuse or nondisclosure hereunder or
        the obligation to return or destroy certain materials.

H.      The parties agree that money damages would not be sufficient remedy for
        any breach of this Agreement, and the non-breaching party shall be
        entitled to enforce this Agreement by injunctive and other available
        relief, including without limitation specific performance.

I.      This Agreement shall be governed by, construed, and interpreted in
        accordance with the substantive laws of the State of Delaware. Whenever
        possible, each provision of this Agreement shall be interpreted in such
        manner as to be effective and valid under applicable law, but if any
        provision hereof shall be prohibited by or invalid under applicable law,
        such provision shall be ineffective to the extent of such prohibition or
        invalidity, without invalidating the remainder of such provision or the
        remaining provisions of this Agreement. All obligations of the receiving
        party and rights of the disclosing party expressed herein shall be in
        addition to, and not in limitation of, those provided by applicable law.
        This Agreement may be modified or waived only by a separate writing by
        Seller and IRE expressly so modifying or waiving such. This Agreement
        may be executed in any number of counterparts, each of which shall be an
        original, but all of which together shall constitute one instrument.
        References to IRE and Seller shall be deemed to include each of their
        affiliates, if any. Any disputes arising out of this Agreement shall be
        venued in federal or state district court in the City of Chicago, State
        of Illinois, and each party hereby consents to the jurisdiction of such
        court. This Agreement shall be binding upon the parties hereto and their
        successors and assigns.

        IN WITNESS WHEREOF, the parties acknowledge their agreement to the
foregoing as of the date first set forth above by execution of the Agreement by
their respective authorized representatives.

BUYER;                                       SELLER:
ILLINOIS RIVER ENERGY, LLC                   NOGGLE FAMILY LIMITED PARTNERSHIP

  /s/ Floyd Schultz                            /s/ Robert Noggle
------------------------------------         -----------------------------------
By (signature)                               By (signature)

   Floyd Schultz                                Robert Noggle
------------------------------------         -----------------------------------
Name of Signatory                            Name of Signatory

   President                                    GP
------------------------------------         -----------------------------------
Title                                        Title

   July 5, 2002                                 7-3-02
------------------------------------         -----------------------------------
Date                                         Date

Prepared by:
Tupy & Tupy, Ltd.
Attorneys At Law
303 E. Hillcrest
DeKalb, IL 60115

                                        3
<Page>

Prepared by
And Return to:

Tupy & Tupy, Ltd.
Attorneys At Law
303 E. Hillcrest
DeKalb, IL 60115

================================================================================
                              MEMORANDUM OF OPTION

Notice is Given That on the 5th day of July, 2002,

                  NOGGLE FAMILY LIMITED PARTNERSHIP (the "Seller"),
                  25862 West Hafen Richter Road,
                  Plainfield, Illinois, 60544
and
                  ILLINOIS RIVER ENERGY, LLC, ("the Buyer")
                  400 N. Division Street
                  Morris, IL 60450
                           Attn: Vince McCabe

executed an Agreement for the exclusive right and option to purchase, on the
terms set forth in said Agreement, the real property located East of Caron Road,
South of I-88 Interstate and North of Steward Road in Dement Township, Ogle
County, Illinois, bearing Parcel Number 25-31-200-006 and tax code number 00443,
with approximate legal description of: Part of the East 1/2 of NE 1/4 of Sect
31, Twp 40N R 2, E. of TPM lying located East of Caron Road, South of I-88
Interstate and North of Steward Road in Dement Township, Ogle County, Illinois,
containing approximately 38.02 acres m.o.l. and graphically depicted on Exhibit
A attached hereto,

Any and All persons making inquiries or having interests in or to said land are
hereby directed to contact the Buyer at above address.

In Witness Whereof, the parties have executed this Memorandum on the day and
year first above written.

                                   SELLER:

                                   NOGGLE FAMILY LIMITED PARTNERSHIP

                                   By:  /s/ Robert Noggle
                                      ----------------------------------

                                   Its: GP
                                       ---------------------------------

                                   By:
                                      ------------------------------

                                   Its:
                                       ------------------------

<Page>

                                   BUYER:

                                   ILLINOIS RIVER ENERGY, LLC

Dated JULY 5, 2002                 By:  /s/ Floyd Schultz
                                      ----------------------------------
                                            Floyd Schultz, President

Dated JULY 5, 2002                 By:  /s/ Greg Marshall
                                      ----------------------------------
                                            Greg Marshall, Secretary

STATE OF ILLINOIS)
COUNTY OF DEKALB)
I, the undersigned Notary Public in, and for said County and State aforesaid, Do
Hereby Certify that Floyd Schultz, holding the office of President and Gregg
Marshall, holding the office of Secretary, personally known to me to be the same
persons whose names are subscribed to the foregoing instrument, as such
President and Secretary, respectively, appeared before me this day in person and
acknowledged that they signed, sealed and delivered the said instrument as their
free and voluntary act, and as the free and voluntary act of said limited
liability company, for the uses and purposes therein set forth, and said
Secretary did also then and there acknowledge that he/ she as custodian of the
corporate seal of said limited liability company did affix the said corporate
seal of said limited liability company to said instrument as his/ her own free
and voluntary act, and as the free and voluntary act of said limited liability
company for the uses and purposes therein set forth. Given under my hand and
notarial seal this 5th day of July, 2002

                                     /s/ Janis M. Tupy                  [SEAL]
                                   -------------------------------------
                                             [signature]
                                     Janis M. Tupy
                                   -------------------------------------
                                             [print name]
[stamp]                            my commission expires: 6-30-2006
                                                         ---------------

STATE OF ILLINOIS)
COUNTY OF DEKALB)
I, the undersigned Notary Public in, and for said County and State aforesaid, Do
Hereby Certify that
         Robert Noggle, General Partner
personally known to me to be the same persons whose names are subscribed to the
foregoing instrument, appeared before me this day in person and acknowledged
that they signed, sealed and delivered the said instrument as their free and
voluntary act, for the uses and purposes therein set forth, including the
release and wavier of the right of homestead.
Given under my hand and notarial seal this 5th day of July, 2002

                                     /s/ Janis M. Tupy                  [SEAL]
                                   -------------------------------------
                                             [signature]
                                     Janis M. Tupy
                                   -------------------------------------
                                             [print name]
[stamp]                            my commission expires: 6-30-2006
                                                         ---------------

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