Document:

Exhibit 10.3

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT, dated as of January 30, 2006, between GOLDEN GRAIN ENERGY,
LLC, an Iowa limited liability company (“Borrower”), and HOME FEDERAL SAVINGS BANK (“Lender”).

 

WHEREAS, Borrower has entered into a Credit Agreement dated as of the date
hereof (as amended and in effect from time to time, the “Credit Agreement”)
with Lender, pursuant to which Lender, subject to the terms and conditions
contained therein, is to make loans to Borrower; and

 

WHEREAS, it is a condition precedent to Lender’s making any loans to
Borrower under the Credit Agreement that Borrower execute and deliver to Lender
a security agreement in substantially the form hereof; and

 

WHEREAS, Borrower wishes to grant security interests in favor of Lender 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, Borrower and Lender agree as follows:

 

1.                                      Definitions. All capitalized terms which are not defined herein shall have the
respective meanings provided for in the Credit Agreement. The term “State” as used herein
means the State of Minnesota. All terms defined in Article 9 of the Uniform Commercial
Code of the State and used herein shall have the same meanings as specified
therein. The term “Event
of Default” as used herein means any Event of Default described
or listed in the Credit Agreement, including the failure of Borrower to pay or
perform any of the Obligations as and when due to be paid or performed
under the terms of the Credit Agreement.

 

2.                                      Grant of Security Interest. Borrower
hereby grants to Lender, to secure the payment and performance in full of all
of the Obligations, a security interest in, and pledges and assigns to Lender,
the following properties, assets and rights of Borrower, wherever located,
whether now owned or hereafter acquired or arising, and all proceeds (including
casualty insurance proceeds) and products thereof (all of the same being
hereinafter called the “Collateral”):
all personal and fixture property of every kind and nature including without
limitation all goods (including inventory, equipment and any accessions
thereto), instruments (including notes), documents, accounts (including
health-care-insurance receivables), chattel paper (whether tangible or
electronic), deposit accounts, letter-of-credit rights (whether or not the
letter of credit is evidenced by a writing), commercial tort claims, securities
and all other investment property, supporting obligations, any other contract
rights or rights to the payment of money (including without limitation all
United States Department of Agriculture payments and

 

 

Commodity Credit Corporation payments such as
payments related to the bioenergy program described at 7 C.F.R. Part 1424),
including without limitation all management contracts, supply contracts,
off-take contracts, all railroad, trucking and other transportation contracts,
and all power contracts, insurance claims and proceeds, tort claims, and all
general intangibles including, without limitation, all payment intangibles,
patents, patent applications, trademarks, trademark applications, trade names,
copyrights, copyright applications, software, engineering drawings, service marks,
customer lists, goodwill, and all licenses, permits, agreements of any kind or
nature pursuant to which Borrower possesses, uses or has authority to possess
or use property (whether tangible or intangible) of others or others possess,
use or have authority to possess or use property (whether tangible or
intangible) of Borrower, and all recorded data of any kind or nature,
regardless of the medium of recording including, without limitation, all
software, writings, plans, specifications and schematics. Lender acknowledges
that the attachment of its security interest in any commercial tort claim as
original collateral is subject to Borrower’s compliance with Section 4.07.

 

3.                                      Authorization to File Financing Statements. Borrower hereby irrevocably
authorizes Lender at any time and from time to time to file in any Uniform Commercial
Code jurisdiction any initial financing statements and amendments thereto that (a) indicate
the Collateral (i) as all assets of Borrower or words of similar effect,
regardless of whether any particular asset comprised in the Collateral falls
within the scope of Article 9 of the Uniform Commercial Code of the
State or such jurisdiction, or (ii) as being of an equal or lesser scope
or with greater detail, and (b) contain any other information required by Article 9
of the Uniform Commercial Code of the State or any other state for the
sufficiency or filing office acceptance of any financing statement or
amendment, including (i) whether Borrower is an organization, the type of
organization and any organization identification number issued to Borrower 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. Borrower
agrees to furnish any such information to Lender promptly upon request. Borrower
also ratifies its authorization for Lender 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.
Further to insure the attachment, perfection and first priority of, and the
ability of Lender to enforce, Lender’s security interest in the Collateral,
Borrower agrees, in each case at Borrower’s own expense, to take the following
actions with respect to the following Collateral:

 

4.01.                     Notes and Tangible Chattel Paper. If Borrower at any time holds or acquires any notes or tangible
chattel paper, Borrower will forthwith endorse, assign and deliver the same to
Lender, accompanied by such instruments of transfer or assignment duly executed
in blank as Lender may from time to time specify.

 

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4.02.                     Deposit Accounts. For each deposit account that Borrower at any time opens or
maintains, Borrower shall, at Lender’s request and option, pursuant to an
agreement in form and substance satisfactory to Lender, either (a) cause
the depositary bank to agree to comply at any time with instructions from
Lender to such depositary bank directing the disposition of funds from time to
time credited to such deposit account, without further consent of Borrower, or (b) arrange
for Lender to become the customer of the depositary bank with respect to the
deposit account, with Borrower being permitted, only with the consent of
Lender, to exercise rights to withdraw funds from such deposit account. The
provisions of this paragraph shall not apply to (i) any deposit account
for which Borrower, the depositary bank and Lender have entered into a cash
collateral agreement specially negotiated among Borrower, the depositary bank
and Lender for the specific purpose set forth therein, (ii) deposit
accounts for which Lender is the depositary and (iii) deposit accounts
specially and exclusively used for payroll, payroll taxes and other employee
wage and benefit payments to or for the benefit of Borrower’s salaried
employees.

 

4.03.                     Investment Property. If Borrower at any time holds or acquires any certificated securities,
Borrower will forthwith endorse, assign and deliver the same to Lender,
accompanied by such instruments of transfer or assignment duly executed in
blank as Lender may from time to time specify. If any securities now or
hereafter acquired by Borrower are uncertificated and are issued to Borrower or
its nominee directly by the issuer thereof, Borrower will immediately notify
Lender thereof and, at Lender’s request and option, pursuant to an agreement in
form and substance satisfactory to Lender, either (a) cause the
issuer to agree to comply with instructions from Lender as to such securities,
without further consent of Borrower or such nominee, or (b) arrange for
Lender to become the registered owner of the securities. If any securities,
whether certificated or uncertificated, or other investment property now or
hereafter acquired by Borrower are held by Borrower or its nominee through a
securities intermediary or commodity intermediary, Borrower will immediately
notify Lender thereof and, at Lender’s request and option, pursuant to an
agreement in form and substance satisfactory to Lender, 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 Lender 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 Lender to such
commodity intermediary, in each case without further consent of Borrower or
such nominee, or (ii) in the case of financial assets or other investment
property held through a securities intermediary, arrange for Lender to become
the entitlement holder with respect to such investment property, with Borrower
being permitted, only with the consent of Lender, to exercise rights to
withdraw or otherwise deal with such investment property. The provisions of
this paragraph shall not apply to any financial assets credited to a securities
account for which Lender is the securities intermediary.

 

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4.04.                     Collateral in the Possession of a Bailee. If any goods are at any time in the
possession of a bailee, Borrower will promptly notify Lender thereof and, if
requested by Lender, will promptly obtain an acknowledgment from the bailee, in
form and substance satisfactory to Lender, that the bailee holds such
Collateral for the benefit of Lender and will act upon the instructions of
Lender, without the further consent of Borrower.

 

4.05.                     Electronic Chattel Paper and Transferable Records.  If Borrower 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, or in Section 16 of the
Uniform Electronic Transactions Act as in effect in any relevant
jurisdiction, Borrower will promptly notify Lender thereof and, at the request
of Lender, will take such action as Lender may reasonably request to vest
control in Lender, 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. Lender
agrees with Borrower that Lender will arrange, pursuant to procedures
satisfactory to Lender and so long as such procedures will not result in Lender’s
loss of control, for Borrower 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 Borrower with respect to such electronic chattel
paper or transferable record.

 

4.06.                     Letter-of-Credit Rights. If Borrower is at any time a beneficiary under a letter of credit
now or hereafter issued in favor of Borrower, Borrower will promptly notify
Lender thereof and, at the request and option of Lender, Borrower will,
pursuant to an agreement in form and substance satisfactory to Lender,
either (i) arrange for the issuer and any confirmer of such letter of
credit to consent to an assignment to Lender of the proceeds of any drawing
under the letter of credit or (ii) arrange for Lender to become the
transferee beneficiary of the letter of credit.

 

4.07                        Commercial Tort Claims. If Borrower at any time holds or acquires a commercial tort claim,
Borrower will immediately notify Lender in a writing signed by Borrower of the
brief details thereof and grant to Lender in such writing a security interest
therein and in the proceeds thereof, all upon the terms of this Agreement, with
such writing to be in form and substance satisfactory to Lender.

 

4.08                        Other Actions as to any and all Collateral. Borrower further agrees to take any
other action reasonably requested by Lender to insure the attachment,
perfection

 

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and first priority of, and the ability of
Lender to enforce, Lender’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, (b) causing Lender’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 Lender to
enforce, Lender’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 Lender to enforce, Lender’s security
interest in such Collateral, (d) obtaining governmental and other third
party consents and approvals, 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 Lender and (f) taking all actions required by any earlier versions of
the Uniform Commercial Code or by other law, as applicable in any relevant
Uniform Commercial Code jurisdiction, or by other law as applicable in any
foreign jurisdiction.

 

5.                                      Relation to Other Security Documents. The provisions of this Agreement supplement the provisions of any
real estate mortgage or deed of trust granted by Borrower to Lender and
securing the payment or performance of any of the Obligations. Nothing
contained in any such real estate mortgage or deed of trust derogates from any
of the rights or remedies of Lender hereunder.

 

6.                                      Representations and Warranties Concerning Borrower’s Legal Status. Borrower represents and warrants to
Lender as follows: (a) Borrower’s exact legal name is that indicated on
the signature page hereof, (b) Borrower is a limited liability
company organized under the laws of the State of Iowa, (c) Borrower’s
organizational identification number is 263439, (d) Borrower’s tax payer
identification number is 02-0575361 and (e) Borrower’s place of business,
chief executive office, as well as mailing address is 1822 43rd
Street SW, Mason City, Iowa 50401.

 

7.                                      Covenants Concerning Borrower’s Legal Status.  Borrower covenants with Lender as
follows:  (a) without providing at
least 30 days prior written notice to Lender, Borrower 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
Borrower does not have an organizational identification number and later
obtains one, Borrower shall forthwith notify Lender of such organizational
identification number, and (c) Borrower will not change its type of
organization, jurisdiction of organization or other legal structure.

 

8.                                      Representations and Warranties Concerning
Collateral, Etc. Borrower
further represents and warrants to Lender as follows:  (a) Borrower is the owner of the Collateral,
free from any adverse lien, security interest or other encumbrance, except for
the security interest created by this Agreement and other liens permitted by
the Credit Agreement, (b) to the extent that any of the Collateral
constitutes, or is the proceeds of, “farm products” as defined in

 

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Section 9-102(a)(34) of the Uniform Commercial
Code of the State or any other relevant state, Borrower has taken all required
acts to ensure that Lender’s security interest in such Collateral is first and
prior, (c) none of the account debtors or other persons obligated on any
of the Collateral is a governmental authority subject to the Federal Assignment
of Claims Act or like federal, state or local statute or rule in respect
of such Collateral, (d) Borrower holds no commercial tort claim except as
set forth on Schedule 8(d) and (e) Borrower 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. Borrower further covenants with Lender as follows:  (a) the Collateral, to the extent not
delivered to Lender pursuant to Section 4, will be kept at those
locations listed on Schedule 9(a) and Borrower will not remove
the Collateral from such locations, without providing at least 30 days prior
written notice to Lender, except for Collateral sold or used in the ordinary
course of business, (b) except for the security interest herein granted
and liens permitted by the Credit Agreement, Borrower will be the owner of the
Collateral free from any lien, security interest or other encumbrance, and
Borrower will defend the same against all claims and demands of all persons at
any time claiming the same or any interests therein adverse to Lender, (c) Borrower
will not pledge, mortgage or create, or suffer to exist a security interest in
the Collateral in favor of any person other than Lender except for liens
permitted by the Credit Agreement, (d) Borrower 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) Borrower will permit Lender, or its
designee, to inspect the Collateral at any reasonable time, wherever located, (f) Borrower
will pay promptly when due all taxes, assessments, governmental charges and
levies upon the Collateral or incurred in connection with the use or operation
of such Collateral or incurred in connection with this Agreement unless
contested in good faith and Borrower has adequately reserved for the contested
taxes, assessments, penalties or other charges, (g) Borrower will 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, and (h) Borrower
will not sell or otherwise dispose, or offer to sell or otherwise dispose, of
the Collateral or any interest therein except for (i) sales of inventory
and licenses of general intangibles in the ordinary course of business and (ii) sales
or other dispositions of obsolescent items of equipment in the ordinary course
of business consistent with past practices and permitted by the Credit
Agreement.

 

10.                               Insurance.

 

10.01.              Maintenance of Insurance. Borrower will maintain with financially sound and reputable
insurers insurance with respect to its properties and business against such
casualties and contingencies as shall be in accordance with general practices
of businesses engaged in similar activities in similar geographic areas. Such
insurance shall be in such minimum amounts that Borrower will not be deemed a
co-insurer under

 

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applicable insurance laws, regulations and
policies and otherwise shall be in such amounts, contain such terms, be in such
forms and be for such periods as may be reasonably satisfactory to Lender.
In addition, all such insurance shall be payable to Lender as loss payee under
a standard loss payee clause. Without limiting the foregoing, Borrower will (i) keep
all of its physical property insured with casualty or physical hazard insurance
on an “all risks” basis, with electronic data processing coverage, with a full
replacement cost endorsement and in an amount equal to 100% of the full
replacement cost of such property, (ii) maintain all such workers’
compensation or similar insurance as may be required by law and (iii) maintain,
in amounts and with deductibles equal to those generally maintained by
businesses engaged in similar activities in similar geographic areas, general
public liability insurance against claims of bodily injury, death or property
damage occurring, on, in or about the properties of Borrower; business
interruption insurance; and product liability insurance.

 

10.02.              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 a prior interest in the property covered thereby, (i) so long
as no Default or Event of Default has occurred and is continuing and to the
extent that the amount of such proceeds is less than $200,000, be disbursed to
Borrower for direct application by Borrower solely to the repair or replacement
of Borrower’s property so damaged or destroyed and (ii) in all other
circumstances, be held by Lender as cash collateral for the Obligations. Lender
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
Lender may reasonably prescribe, for direct application by Borrower solely
to the repair or replacement of Borrower’s property so damaged or destroyed, or
Lender may apply all or any part of such proceeds to the Obligations
with the Commitments (if not then terminated) being reduced by the amount so
applied to the Obligations.

 

10.03.              Notice of Cancellation, etc. All policies of insurance will provide for at least 30 days prior
written cancellation notice to Lender. In the event of failure by Borrower to
provide and maintain insurance as herein provided, Lender may, at its option,
provide such insurance and charge the amount thereof to Borrower. Borrower will
furnish Lender with certificates of insurance and copies policies evidencing
compliance with the foregoing insurance provision.

 

11.                               Collateral Protection Expenses; Preservation of Collateral.

 

11.01.              Expenses Incurred by Lender. In its discretion, Lender may discharge taxes and other
encumbrances at any time levied or placed on any of the Collateral, make
repairs thereto and pay any necessary filing fees or, if the debtor fails to do
so, insurance premiums. Borrower agrees to reimburse Lender on demand for any
and all expenditures so made. Lender has no obligation to Borrower to make any
such expenditures, and the making thereof will not relieve Borrower of any
default.

 

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11.02.              Lender’s Obligations and Duties. Anything herein to the contrary notwithstanding, Borrower will
remain liable under each contract or agreement comprised in the Collateral to
be observed or performed by Borrower thereunder. Lender shall not have any
obligation or liability under any such contract or agreement by reason of or
arising out of this Agreement or the receipt by Lender of any payment relating
to any of the Collateral, nor shall Lender be obligated in any manner to perform any
of the obligations of Borrower under or pursuant to any such contract or
agreement, to make inquiry as to the nature or sufficiency of any payment
received by Lender 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 Lender or to which
Lender may be entitled at any time or times. Lender’s sole duty 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, is to deal with such Collateral in the same
manner as Lender deals with similar property for its own account.

 

12.                               Securities and Deposits. Lender may at any time 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. Upon
the occurrence of a Default or Event of Default, Lender may 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 Lender to Borrower may at any time be applied to
or set off against any of the Obligations then due and owing.

 

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

 

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14.                               Power of Attorney.

 

14.01.              Appointment and Powers of Lender. Borrower hereby irrevocably constitutes and appoints Lender 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 Borrower or in Lender’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
desirable to accomplish the purposes of this Agreement and, without limiting
the generality of the foregoing, hereby gives said attorneys the power and
right, on behalf of Borrower, without notice to or assent by Borrower, to do
the following:

 

(a)                                  upon the occurrence and during the continuance of an Event of
Default beyond the applicable cure period, if any, generally to sell, transfer,
pledge, make any agreement with respect to or otherwise 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 Lender were the
absolute owner thereof for all purposes, and to do at Borrower’s expense, at
any time, or from time to time, all acts and things which Lender deems
necessary to protect, preserve or realize upon the Collateral and Lender’s
security interest therein, in order to effect the intent of this Agreement, all
as fully and effectively as Borrower might do, including, without limitation, (i) the
filing and prosecuting of registration and transfer applications with the
appropriate federal or local agencies or authorities with respect to trademarks,
copyrights and patentable inventions and processes, (ii) upon written
notice to Borrower, the exercise of voting rights with respect to voting
securities, which rights may be exercised, if Lender so elects, with a
view to causing the liquidation in a commercially reasonable manner 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 Borrower’s authorization given in Section 3
is not sufficient, to file such financing statements with respect hereto, with
or without Borrower’s signature, or a photocopy of this Agreement in
substitution for a financing statement, as Lender may deem appropriate and
to execute and/or file in Borrower’s name such financing statements and
amendments thereto and continuation statements which may require Borrower’s
signature.

 

14.02.              Ratification by Borrower. To the extent permitted by law, Borrower hereby ratifies all that
said attorneys lawfully do or cause to be done at any time by virtue of this
Agreement. This power of attorney is a power coupled with an interest and is
irrevocable.

 

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14.03.              No Duty on Lender. The powers conferred on Lender hereunder are solely to protect its
interests in the Collateral and do not impose any duty upon it to exercise any
such powers. Lender will 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 Borrower
for any act or failure to act, except for Lender’s own gross negligence or
willful misconduct.

 

15.                               Remedies. If an Event of Default has occurred and continues beyond the
applicable cure period, if any, Lender may, without notice to or demand upon
Borrower, declare this Agreement to be in default, and Lender shall thereafter
have in any jurisdiction in which enforcement hereof is sought, in addition to
all other rights and remedies, the rights and remedies of a secured party under
the Uniform Commercial Code of the State or of any jurisdiction in which
Collateral is located, including, without limitation, the right to take
possession of the Collateral, and for that purpose Lender may, so far as
Borrower can give authority therefor, enter upon any premises on which the
Collateral may be situated and remove the same therefrom. Lender may in
its discretion require Borrower to assemble all or any part of the
Collateral at such location or locations within the jurisdictions of Borrower’s
principal office(s) or at such other locations as Lender 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, Lender will
give to Borrower at least 10 Business 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. Borrower hereby
acknowledges that 10 Business Days prior written notice of such sale or sales
is reasonable notice. In addition, Borrower waives any and all rights that it may have
to a judicial hearing in advance of the enforcement of any of Lender’s rights
hereunder, including, without limitation, its right following an Event of
Default to take immediate possession of the Collateral and to exercise its
rights with respect thereto.

 

16.                               Standards for Exercising Remedies. To the extent that applicable law imposes duties on Lender to
exercise remedies in a commercially reasonable manner, Borrower acknowledges
and agrees that it is not commercially unreasonable for Lender (a) to fail
to incur expenses reasonably deemed significant by Lender to prepare Collateral
for disposition or otherwise 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 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 Borrower, 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

 

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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 disposition warranties, (k) to purchase
insurance or credit enhancements to insure Lender against risks of loss,
collection or disposition of Collateral or to provide to Lender a guaranteed
return from the collection or disposition of Collateral, or (l) to the extent
deemed appropriate by Lender, to obtain the services of other brokers,
investment bankers, consultants and other professionals to assist Lender in the
collection or disposition of any of the Collateral. Borrower acknowledges that
the purpose of this Section 16 is to provide non-exhaustive indications of
what actions or omissions by Lender would not be commercially unreasonable in
Lender’s exercise of remedies against the Collateral and that other actions or
omissions by Lender shall not be deemed commercially unreasonable 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 Borrower or to impose any duties on
Lender 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 Lender, etc. Lender
shall not be deemed to have waived any of its rights upon or under the
Obligations or the Collateral unless such waiver shall be in writing and signed
by Lender. No delay or omission on the part of Lender in exercising any
right shall operate as a waiver of such right or any other right. A waiver on
any one occasion will not be construed as a bar to or waiver of any right on
any future occasion. All rights and remedies of Lender with respect to the
Obligations or the Collateral, whether evidenced hereby or by any other
instrument or papers, will be cumulative and may be exercised singularly,
alternatively, successively or concurrently at such time or at such times as Lender
deems expedient.

 

18.                               Suretyship Waivers by Borrower. Borrower 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, Borrower 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
Lender may deem advisable. Lender will have no duty as to the collection
or protection of the Collateral or any income thereon, nor as to the
preservation of rights against prior parties, nor as to the preservation of any
rights pertaining thereto beyond the safe custody thereof as set forth in Section 11.02.
Borrower further waives any and all other suretyship defenses.

 

19.                               Marshaling. Lender will not be required to marshal any present or future
collateral security (including but not limited to this Agreement and the
Collateral) for, or other assurances of payment of, the Obligations or any of
them or to resort to such collateral security

 

11

 

or other assurances of payment in any
particular order, and all of its rights hereunder and in respect of such
collateral security and other assurances of payment are cumulative and in
addition to all other rights, however existing or arising. To the extent that
it lawfully may, Borrower 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 Lender’s rights 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,
Borrower hereby irrevocably waives the benefits of all such laws.

 

20.                               Proceeds of Dispositions; Expenses. Borrower will pay to Lender on demand any and all expenses,
including reasonable attorneys’ fees and disbursements, incurred or paid by
Lender in protecting, preserving or enforcing Lender’s rights 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 of the
Obligations or Collateral shall, to the extent actually received in cash, be
applied to the payment of the Obligations in such order or preference as Lender
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 Borrower, and Borrower shall remain
liable for any deficiency in the payment of the Obligations.

 

21.                               Overdue Amounts. Until paid, all amounts due and payable by Borrower hereunder are 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 Credit Agreement.

 

22.                               Governing Law; Consent to Jurisdiction.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE. Borrower agrees that any suit for
the enforcement of this Agreement 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. Borrower 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 PARTIES WAIVE THEIR RIGHT TO A JURY TRIAL WITH RESPECT TO ANY
ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT,
ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF ANY SUCH RIGHTS OR
OBLIGATIONS. Except as prohibited by law, Borrower 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. Borrower (i) certifies that
neither Lender nor any representative, agent or attorney of Lender has
represented, expressly or otherwise, that Lender would not, in the event of
litigation, seek to

 

12

 

enforce the foregoing waivers and (ii) acknowledges
that, in entering into the Credit Agreement and the other loan documents to
which Lender is a party, Lender 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 are binding upon Borrower
and its respective successors and assigns, and will inure to the benefit of
Lender and its successors and assigns. If any term of this Agreement is 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. Borrower acknowledges receipt of a copy of this Agreement.

 

[Signature Page to Follow]

 

13

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed
by their respective authorized officers as of the day and year first above
written.

 

	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  GOLDEN GRAIN
  ENERGY, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Walter Wendland

  
	
   

  	
  Name:

  	
  Walter Wendland

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  HOME FEDERAL SAVINGS BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Eric Oftedahl

  
	
   

  	
  Name:

  	
  Eric Oftedahl

  
	
   

  	
  Title:

  	
  Vice President

  
				

 

[SIGNATURE
PAGE FOR SECURITY AGREEMENT]

 

 

Schedule 8(d)

 

Tort Claims

 

None

 

 

Schedule 9(a)

 

Location of
Collateral

 

1822 43rd
Street, Mason City, Iowa 50401Exhibit
10.4

 

When recorded return to:

 

Mark C. Dietzen, Esq.

LINDQUIST & VENNUM P.L.L.P.

4200 IDS Center

80 South Eighth Street

Minneapolis, Minnesota 55402-2205

 

NOTICE:  This Mortgage
secures credit in the amount of $3,975,000. 
Loans and advances up to the amount, together with interest, are senior
to indebtedness to other creditors under subsequently, recorded or filed
mortgages and liens.

 

This mortgage encumbers both real and
personal property, contains an after-acquired property clause and secures present
and future loans and advances.

 

FUTURE ADVANCE MORTGAGE

AND

SECURITY AGREEMENT

AND

FIXTURE FINANCING STATEMENT

AND

ASSIGNMENT OF LEASES AND RENTS

 

MORTGAGE – COLLATERAL REAL ESTATE MORTGAGE

 

THIS INDENTURE (the “Mortgage”), made and
given this 30th day of January, 2006, by Golden Grain Energy, LLC, an Iowa
limited liability company (“Borrower”), whose address is 1822 43rd
Street SW, Mason City, Iowa 50401, to Home Federal Savings Bank, a federal
savings bank (“Lender”), whose address is 1016 Civic Center Drive N.W.,
Rochester, Minnesota 55903.

 

PRELIMINARY RECITALS:

 

A.            The Borrower is the owner
in fee simple of certain real property more fully described on Exhibit A
attached hereto (the “Land”).

 

B.            Pursuant to a certain
Credit Agreement between the Borrower and Lender dated of even date herewith (“Credit
Agreement”) the Lender has agreed to make a loan secured by this Mortgage to
the Borrower in the amount of up to Three Million Nine Hundred Seventy-Five
Thousand and no/100 Dollars ($3,975,000.00) (“Loan”).

 

 

C.            The Credit Agreement
provides that Lender may, in its sole discretion, in addition to any other
authority to make loans and advances to Borrower, including protective
advances, make additional loans to Borrower, make additional credit facilities
available to Borrower, or renew, extend, or increase any credit facility.  No amendment to this Mortgage will be
required to the extent the aggregate principal amount outstanding under the
Note (including any amount outstanding under any future loan or credit
facility) does not exceed $3,975,000.

 

D.            The Loan is evidenced by
a promissory note executed and delivered by the Borrower to the Lender in the
aggregate principal sum of Three Million Nine Hundred Seventy-five Thousand and
no/100 Dollars ($3,975,000.00) (the “Note”).

 

E.             The Note bears interest
at a per annum rate of interest all as more fully set forth in the Note (“Interest
Rate”) except that during the period of and continuance of a default under the
Note or Credit Agreement or an Event of Default under this Mortgage, the Note
shall bear interest at a per annum rate of interest of 200 basis points (2.0%)
greater than the Interest Rate whether or not the Lender has exercised its
option to accelerate the maturity of the Note and declare the entire unpaid
Indebtedness Secured Hereby due and payable as more fully set forth in the Note
(“Default Rate”).

 

F.             As a requirement to
making the Loan the Lender requires among other things that the Borrower
execute and deliver this Mortgage on the fee simple title to the Land and the
building, buildings and other improvements located and/or to be constructed
upon the Land.

 

G.            The Note is payable in
installments with a final payment of principal and interest due not later than
January 30, 2007 (the “Maturity Date”).

 

H.            As used herein, the term “Note
Rate” shall mean the rate of interest then in effect on the Note whether the
Interest Rate or Default Rate, as the case may be.

 

I.              The Borrower is
executing and delivering this Mortgage for the purpose of subjecting and
subordinating all of its right, title and interest in and to the Premises (as
defined below) to the lien of this Mortgage. 
It is expressly understood and agreed by acceptance of this Mortgage by
the Lender that the Borrower has executed this Mortgage for the purpose of
mortgaging, granting, bargaining, selling and conveying to the Lender and
granting to the Lender a security interest in all of its right, title and
interest in the Premises as security for the performance of the obligations
which are secured hereby.

 

NOW, THEREFORE, in consideration of the debt
hereinafter described and the sum of One and 00/100 Dollars ($1.00) to Borrower
in hand paid by Lender, the receipt whereof is hereby acknowledged, Borrower
does hereby GRANT, BARGAIN, SELL, CONVEY AND CONFIRM, MORTGAGE AND WARRANT unto
Lender, its successors and assigns, AND GRANTS TO LENDER A SECURITY INTEREST IN
all of the following properties now or hereafter owned by the Borrower and
hereinafter set forth (all of the following being hereafter collectively
referred to as the “Premises”), in order to secure the payment of the Note, and
all additional sums advanced to or on behalf of the Borrower or its successors
by Lender, whether required or discretionary, such additional sums being
evidenced by note(s) to be executed by the 

 

2

 

Borrower in the future or otherwise, and all
renewals, amendments, modifications and replacements of said note(s), all sums
advanced thereon and all sums repaid and then readvanced thereon, whether
required or discretionary, together with all interest, late charges and other
amounts due under the note(s), provided that the principal amount of the loan
advances hereunder under all note(s) shall not exceed at any one time a maximum
of Three Million Nine Hundred Seventy-five Thousand and no/100 Dollars
($3,975,000.00):

 

A

LAND

 

All right, title and interest in the tracts
or parcels of real property lying and being in the County of Cerro Gordo, State
of Iowa, all as more fully described in Exhibit A attached hereto
and made a part hereof, together with all the estates and rights in and to the
real property and in and to lands lying in streets, alleys and roads adjoining
the real property and all buildings, structures, improvements, fixtures and
annexations, access rights, easements, rights of way or use, servitudes,
licenses, tenements, hereditaments and appurtenances now or hereafter belonging
or pertaining to the real property, and all water, mineral and oil rights now
or hereafter belonging or pertaining to the Land and all proceeds and products
derived therefrom whether now owned, leased or hereafter acquired.

 

B

BUILDINGS

 

All buildings and improvements now or
hereafter built, erected on, or existing on the Land.

 

C

PERSONAL
PROPERTY

 

All buildings, improvements, personal
property, fixtures, fittings and furnishings, now or hereafter attached to,
located at, or placed in the improvements on the Land described herein
including, without limitation all machinery, fittings, fixtures, apparatus,
equipment or articles used to supply heating, gas, electricity, air
conditioning, water, light, waste disposal, power, refrigeration, ventilation,
and fire and sprinkler protection; all maintenance supplies and repair
equipment; all draperies, carpeting, floor coverings, screens, storm windows
and window coverings, blinds, awnings, shrubbery and plants; all elevators,
escalators and shafts, motors, machinery, fittings and supplies necessary for
their use; all building materials and supplies now or hereafter delivered to
the Premises (it being understood that the enumeration of any specific articles
of property shall in no way be held to exclude any items of property not
specifically enumerated), as well as renewals, replacements, proceeds,
additions, accessories, increases, parts, fittings, insurance payments, awards
and substitutes thereof, together with all interest of Borrower in any such
items hereafter acquired, as well as the Borrower’s interest in any lease, or
conditional sales agreement under which the same is acquired, all of which
personal property mentioned herein shall be deemed fixtures and accessory to
the freehold and a part of the realty and not severable in whole or in part
without material injury to the Premises.

 

3

 

D

RENTS,
INCOME, LEASES AND PROFITS

 

All rents, income, contract rights, leases
and profits now due or which may hereafter become due under or by virtue of any
lease, sublease, license or agreement, whether written or verbal, for the use
or occupancy of the Premises or any part thereof together with all tenant
security deposits.

 

E

INSURANCE
PROCEEDS

 

All awards, payments, proceeds now or
hereafter payable under any policy of insurance insuring the Premises including
but not limited to the proceeds of casualty insurance, title insurance,
business interruption/rents insurance or other insurance maintained with
respect to the Premises.

 

F

JUDGMENTS
AND AWARDS

 

All awards, compensation and settlements in
lieu thereof made as a result of the taking by power of eminent domain of the
whole or any part of the Premises, including any awards for damages sustained
to the Premises, for a temporary taking, change of grade of streets or taking
of access.

 

G

INTANGIBLES

 

All contracts, licenses, permits, management
records, files, consents, governmental approvals and intangibles used, useful
or required in the ownership and management of the Premises together with all
soil reports, building permits, variances, licenses, utility permits and other
permits and agreements relating to the construction or equipping of the
improvements on the Premises, or the operation or maintenance of the Premises,
including, without limitation, all warranties and contract rights.

 

H

PLANS
AND SPECIFICATIONS

 

All plans and specifications, all surveys,
site plans, working drawings and papers, relating to the Premises, including
without limitation, all architectural and site plans prepared.

 

I

BUILDING
SUPPLIES

 

All building supplies and materials ordered or
purchased for use in connection with the equipping of the improvements on the
Premises.

 

4

 

J

SERVICE
AGREEMENTS

 

All rights and interests of Borrower in and
under any and all service and other agreements relating to the operation,
maintenance, and repair of the Premises or the buildings and improvements
thereon.

 

It is specifically understood that the
enumeration of any specific articles of property shall not exclude or be held
to exclude any items of property not specifically mentioned.  All of the Premises hereinabove described,
real, personal and mixed, whether affixed or annexed or not, and all rights
hereby conveyed and secured are intended to be as a unit and are hereby
understood and agreed and declared to be appropriated to the use of the
Premises, and shall for the purposes of this Mortgage be deemed to be part of
the Premises and conveyed and secured hereby.

 

TO HAVE AND TO HOLD THE SAME, together with
the possession and right of possession of the Premises, unto the Lender, its
successors and assigns, forever.

 

PROVIDED NEVERTHELESS, that if the Borrower,
its successors or assigns, shall:

 

i)              pay to the Lender all
amounts owing under the Note and the Loan Documents (as defined in the Credit
Agreement) according to the terms thereof, the terms and conditions of which
are incorporated herein by reference and made a part hereof, together with any
extensions or renewals thereof, due and payable with interest thereon at the
Note Rate, the balance of said principal sum together with interest thereon
being due and payable in any event on the Maturity Date; and

 

ii)             pay to the Lender, its
successors or assigns, at the times demanded and with interest thereon at the
Note Rate, all sums advanced (a) in protecting the lien of this Mortgage, (b)
in payment of taxes on the Premises, (c) in payment of insurance premiums
covering improvements thereon, (d) in payment of principal and interest on
prior liens, in payment of expenses and attorney’s fees herein provided for and
(e) all sums advanced for any other purpose authorized herein; and

 

iii)            keep and perform all of
the covenants and agreements herein contained; and

 

iv)           keep and perform all of
the terms and conditions of any instrument given as collateral for the Loan;
and

 

v)            keep and perform all of
the terms and conditions of the Credit Agreement;

 

then this Mortgage shall become null and
void, and shall be released at Borrower’s expense.  The Note, all such sums and all such
obligations, together with interest thereon, are herein collectively referred
to as the “Indebtedness Secured Hereby”.

 

5

 

AND IT IS FURTHER COVENANTED AND AGREED AS
FOLLOWS:

 

1.

GENERAL
COVENANTS, AGREEMENTS, WARRANTIES

 

1.1           Payment of Indebtedness:  Observance of Covenants.  Borrower shall duly and
punctually pay each and every installment of principal and interest on the Note
and all other Indebtedness Secured Hereby, as and when the same shall become
due, and shall duly and punctually perform and observe all of the covenants,
agreements and provisions contained herein, in the Note and any other
instrument given as security for the payment of the Note.

 

1.2           Maintenance:  Repairs.  Borrower shall not abandon the Premises,
shall keep and

maintain the Premises in good condition,
repair and operating condition, normal wear and tear excluded, free from any
waste or misuse, and shall promptly repair or restore any buildings,
improvements or structures now or hereafter on the Premises which may become damaged
or destroyed to their condition prior to any such damage or destruction.  Borrower further agrees that excepting the
requirements imposed upon it under the Credit Agreement to complete the
improvements as defined therein it will not expand any improvements on the
Premises, erect any new improvements or make any material alterations in any
improvements which shall alter the basic structure, adversely affect the market
value or change the existing architectural character of the Premises, nor
remove or demolish any improvements without suitable replacement thereof, and
shall complete within a reasonable time any buildings now or at any time in the
process of remodeling on the Premises; provided nothing herein shall preclude
Borrower from constructing improvements necessary or desirable to the use of
the Premises for Borrower’s business purposes which are non-structural in
nature and which do not constitute material alterations to the Premises or
affect the nature of use, structure or utility of the Premises or decrease the
market value of the Premises.

 

1.3           Compliance with Laws. Borrower shall comply with all requirements of law, municipal
ordinances and regulations affecting the Premises, shall comply with all
private restrictions and covenants affecting the Premises and shall not
acquiesce in or seek any rezoning classification affecting the Premises.

 

1.4           Payment of Operating Costs: Prior Mortgages and Liens.  Borrower shall pay all
operating costs and expenses of the Premises, shall keep the Premises free from
levy, attachment, mechanics’, materialmen’s and other liens (“Liens”) and shall
pay when due all indebtedness which may be secured by mortgage, lien or charge
on the Premises.

 

1.5           Payment of Impositions.  Borrower shall pay when due (or with respect
to real estate taxes, prior to becoming delinquent) and in any event before any
penalty attaches all taxes, assessments, governmental charges, water charges,
sewer charges, and other fees, taxes, charges and assessments of every kind and
nature whatsoever assessed or charged against or constituting a lien on the
Premises or any interest therein (“Impositions”) and will upon demand furnish
to the Lender proof of the payment of any such Impositions.  In the event of a court decree or an
enactment after the date hereof by any legislative authority of any law
imposing upon a mortgagee the payment of the whole or any part of the
Impositions herein required to be paid by

 

6

 

the Borrower, or changing in any way the laws
relating to the taxation of mortgages or debts secured by mortgages or a lender’s
interest in the Premises, so as to impose such Imposition on the Lender or on
the interest of the Lender in the Premises, then, in any such event, Borrower
shall bear and pay the full amount of such Imposition, provided that if for any
reason payment by Borrower of any such Imposition would be unlawful, or if the
payment thereof would constitute usury or render the Indebtedness Secured
Hereby wholly or partially usurious, Lender, at its option, may declare the
whole sum secured by this Mortgage with interest thereon to be immediately due
and payable, without prepayment premium, or Lender, at its option, may pay that
amount or portion of such Imposition as renders the Indebtedness Secured Hereby
unlawful or usurious, in which event Borrower shall concurrently therewith pay
the remaining lawful and non-usurious portion or balance of said Imposition.

 

1.6           Contest of Impositions, Liens and Levies.  Borrower shall not be
required to pay, discharge or remove any Imposition or any Lien so long as the
Borrower shall in good faith contest the same or the validity thereof by
appropriate legal proceedings which shall operate to prevent the collection of
the Lien or Imposition so contested and the sale of the Premises, or any part
thereof, to satisfy the same, provided that the Borrower shall, prior to the
date such Lien or Imposition is due and payable, have given such reasonable
security as may be demanded by the Lender to insure such payments plus interest
or penalties thereon, and prevent any sale or forfeiture of the Premises by
reason of such nonpayment.  Any such
contest shall be prosecuted with due diligence and the Borrower shall promptly after
final determination thereof pay the amount of any such Lien or Imposition so
determined, together with all interest and penalties which may be payable in
connection therewith.  Notwithstanding
these provisions Borrower shall (and if Borrower shall fail so to do, Lender,
may but shall not be required to) pay any such Lien or Imposition
notwithstanding such contest if in the reasonable opinion of the Lender, the
Premises shall be in jeopardy or in danger of being forfeited or foreclosed.

 

1.7           Protection of Security.  Borrower shall promptly notify Lender of and
appear in and defend any suit, action or proceeding that affects the Premises
or the rights or interest of Lender hereunder and the Lender may elect to
appear in or defend any such action or proceeding.  Borrower agrees to indemnify and reimburse
Lender from any and all loss, damage, expense or cost arising out of or
incurred in connection with any such suit, action or proceeding, including
costs of evidence of title and reasonable attorney’s fees and such amounts
together with interest thereon at the Note Rate shall become additional “Indebtedness
Secured Hereby” and shall become immediately due and payable.

 

1.8           Annual Statements.  Borrower shall furnish to the Lender the
financial statements, and such other information, as may be required by the
Credit Agreement.

 

1.9           Additional Assurances.  Borrower agrees upon reasonable request by
the Lender to execute and deliver such further instruments, deeds and
assurances including financing statements under the Uniform Commercial Code and
will do such further acts as may be necessary or proper to carry out more
effectively the purposes of this Mortgage and without limiting the foregoing,
to make subject to the lien hereof any property agreed to be subjected hereto
or covered by the granting clause hereof, or intended so to be.  Borrower agrees to pay any recording fees,
filing fees, taxes, or other charges arising out of or incident to the filing
or

 

7

 

recording of this Mortgage, such further
assurances and instruments and the issuance and delivery of the Note.

 

1.10         Title. 
Borrower is the lawful owner of and has a good and marketable fee simple
title to the Premises and will warrant and defend its title to the same free of
all liens and encumbrances, other than the Permitted Encumbrances set forth on
attached Exhibit B and has good right and lawful authority to
grant, bargain, sell, convey, mortgage and grant a security interest in the
Premises as provided herein.

 

1.11         Credit Agreement.  This Mortgage is the Mortgage referred to in
and is also given as security for the due and punctual performance, observance
and payment by the Borrower of the terms and conditions set forth in the Credit
Agreement, the terms and conditions of which are incorporated herein by
reference.  In addition to its remedies
hereunder, the Lender may, but shall not be required to, avail itself of any or
all of the rights and remedies available to it under the Credit Agreement, and
any sums expended by the Lender in availing itself of such rights and remedies
shall bear interest thereon at the rate specified in the Credit Agreement and
shall be so much additional Indebtedness Secured Hereby, and shall be payable
to the Lender immediately upon demand; provided that, no such payment by the
Lender shall be considered as waiving the event of default.

 

2.

UNIFORM
COMMERCIAL CODE SECURITY AGREEMENT

 

2.1           Security Agreement.  This Mortgage shall constitute a security
agreement as defined in the Uniform Commercial Code (“Code”) of Minnesota in
the items described in the Granting Clauses of this Mortgage (“Collateral”).  Any Collateral installed in or used in the
Premises are to be used by the Borrower solely for Borrower’s business purposes
or as the equipment and fixtures leased or furnished by the Borrower, as
landlord, to tenants of the Premises and such Collateral will be kept at the
buildings on the Premises and will not be removed therefrom other than in the
ordinary course of business without the consent of the Lender and may be affixed
to such buildings but will not be affixed to any other real estate.  The remedies of the Lender hereunder are
cumulative and separate, and the exercise of any one or more of the remedies
provided for herein or under the Uniform Commercial Code shall not be construed
as a waiver of any of the other rights of the Lender including having any
Collateral deemed part of the realty upon any foreclosure thereof.  If notice to any party of the intended
disposition of the Collateral is required by law in a particular instance, such
notice shall be deemed commercially reasonable if given at least ten (10) days
prior to such intended disposition and may be given by advertisement in a
newspaper accepted for legal publications either separately or as part of a
notice given to foreclose the real property or may be given by private notice
if such parties are known to Lender. 
Neither the grant of a security interest pursuant to this Mortgage nor
the filing of a financing statement pursuant to the Code shall ever impair the
stated intention of this Mortgage that all Collateral comprising the Premises
and at all times and for all purposes and in all proceedings both legal or
equitable shall be regarded as part of the real property conveyed and secured
hereunder irrespective of whether such item is physically attached to the real
property or any such item is referred to or reflected in a financing
statement.  Borrower grants Lender the
right to prepare and file all financing statements that may from time 

 

8

 

to time be required by Lender to establish,
perfect and continue the priority of Lender’s security interest in the
Collateral and shall pay all expenses incurred by Lender in connection with the
renewal or extensions of any financing statements executed in connection with
the Premises; and shall give advance written notice of any proposed change in
Borrower’s name, identity or structure and will execute and deliver to Lender
prior to or concurrently with such change all additional financing statements
that Lender may require to establish and perfect the priority of Lender’s
security interest.

 

2.2           Maintenance of Property.  Subject to the provisions of this section, in
any instance where Borrower in its sound discretion determines that any
Collateral subject to a security interest under this Mortgage has become
inadequate, obsolete, worn out, unsuitable, undesirable or unnecessary for the
operation of the Premises, Borrower may, at its expense, remove and dispose of
it and substitute and install other items not necessarily having the same
function, provided, that such removal and substitution shall not impair the
operating utility and unity of the Premises. 
All substituted items shall become a part of the Premises and subject to
the lien of the Mortgage.  Any amounts
received or allowed Borrower upon the sale or other disposition of the removed
items of Collateral shall be applied first against the cost of acquisition and
installation of the substituted items. 
Nothing herein contained shall be construed to prevent any tenant from
removing from the Premises trade fixtures, furniture and equipment installed by
the tenant and removable by the tenant under its terms of the lease, on the
condition, however, that the tenant shall at its own cost and expense, repair
any and all damages to the Premises resulting from or caused by the removal
thereof.

 

2.3           Fixture Filing.  THIS MORTGAGE SHALL BE EFFECTIVE AS A
FINANCING STATEMENT FILED AS A FIXTURE FILING WITH RESPECT TO ALL GOODS
CONSTITUTING A PART OF THE COLLATERAL WHICH ARE OR ARE TO BECOME FIXTURES
RELATED TO THE PREMISES.  FOR PURPOSES OF
THE UNIFORM COMMERCIAL CODE THE FOLLOWING INFORMATION IS FURNISHED:

 

(a)           The name and address of the Debtor and record owner of the real
estate described in this instrument is:

 

Golden Grain
Energy, LLC

1822 43rd
Street SW

Mason City,
Iowa 50401

 

(b)           Debtor’s Federal Tax ID
No.  02-0575361

 

(c)           The name and address of the Secured Party is:

 

Home Federal
Savings Bank

1016 Civic
Center Drive N.W.

P.O. Box 6947

Rochester,
Minnesota 55903

 

9

 

(d)           Information concerning the
security interest evidenced by this instrument may be obtained from the Secured
Party at its address above.

 

(e)           This document covers goods which are or are to become fixtures.

 

3.

INSURANCE
AND ESCROWS

 

3.1           Insurance.  Borrower shall obtain, pay for and keep in
full force and effect during the term of this Mortgage at its sole cost and
expense the following policies of insurance:

 

(a)           all risk/open perils
special form property insurance with extended coverages including any building
contents, sprinkler coverage, Ordinance of Law coverage (including demolition
cost, loss to undamaged portions of any buildings and increased cost of
construction) with limits of 100% replacement cost and with no co-insurance
provision or if the insurance carrier requires, co-insurance provisions with an
agreed amount endorsement in amount acceptable to Lender;

 

(b)           insurance against loss or
damage from (i) leakage of sprinkler systems and (ii) explosion of steam
boilers, air conditioning equipment, high pressure piping, machinery and
equipment, pressure vessels or similar apparatus now or hereafter installed in
any improvements on the Premises and including broad form boiler and machinery
insurance (without exclusion for explosion) covering all boilers or other
pressure vessels, machinery and equipment (including electrical equipment,
sprinkler systems, heating and air conditioning equipment, refrigeration equipment
and piping) located in, on or about the Premises and any improvements thereon
in an amount at least equal to the full replacement cost of such equipment and
the building or buildings housing the same;

 

(c)           flood insurance if any
part of the Premises now (or subsequently determined to be) is located in an
area identified by the Federal Emergency Management Agency as an area having
special flood hazards and in which flood insurance has been made available
under the National Flood Insurance Act of 1968 (and amendment or successor act
thereto) in an amount at least equal to the lesser of the full replacement cost
of all buildings and equipment on the Premises, the outstanding principal
amount of the Note or the maximum limits of coverage available with respect to
the buildings and equipment under said Act;

 

(d)           Rents Loss or Business
Interruption insurance covering risk of loss due to the occurrence of any
hazards insured against under the required fire and extended coverage insurance
in an amount equal to one (1) year’s loss of income as such income may change
from time to time due to changes in income from the Premises;

 

(e)           commercial general public
liability insurance (including product liability, completed operations,
contractual liability, host liquor liability, broad form

 

10

 

property damage, and personal injuries,
including death resulting therefrom) and with single limit coverage for
personal and bodily injury and property damage of at least $5,000,000.00 for
each occurrence; and

 

(f)            such other coverages
appropriate to the Premises, its location and use as Lender may from time to
time require such as earthquake, mine subsidence, sinkhole, personal property
supplemental liability, or coverages of other property - specific risks.

 

Such insurance policies shall be written on
forms and with insurance companies satisfactory to Lender, shall be in amounts
sufficient to prevent the Borrower from becoming a co-insurer of any loss
thereunder, and shall bear a satisfactory mortgagee clause in favor of the
Lender with loss proceeds under any such policies to be made payable to the
Lender.  Blanket policies must include
limits by property location.  All
required policies of insurance or acceptable certificates thereof together with
evidence of the payment of current premiums therefor shall be delivered to and
be held by the Lender.  The Borrower
shall, within thirty (30) days prior to the expiration of any such policy,
deliver other original policies or certificates of the insurer evidencing the
renewal of such insurance together with evidence of the payment of current
premiums therefor.  In the event of a
foreclosure of this Mortgage or any acquisition of the Premises by the Lender
all such policies and any proceeds payable therefrom, whether payable before or
after a foreclosure sale, or during the period of redemption, if any, shall
become the absolute property of the Lender to be utilized at its
discretion.  In the event of foreclosure
or the failure to obtain and keep any required insurance the Borrower empowers
the Lender to effect the above insurance upon the Premises at Borrower’s
expense and for the benefit of the Lender in the amounts and types aforesaid
for a period of time covering the time of redemption from foreclosure sale, and
if necessary therefor, to cancel any or all existing insurance policies.  Borrower agrees to pay Lender such fees as
may be permitted under applicable law for the costs incurred by Lender in determining,
from time to time, whether the Premises are located within an area having
special flood hazards.  Such fees shall
include the fees charged by any organization providing for such services.

 

3.2           Escrows.  Upon demand, Borrower shall deposit with the
Lender, or at Lender’s request, with its servicing agent, on the first day of
each and every month hereafter as a deposit to pay the costs of taxes,
assessments and insurance premiums next due (“Charges”):

 

(a)           Initially a sum such that
the amounts to be deposited pursuant to (b) next and such initial sum shall
equal the estimated Charges for the next due payment; and

 

(b)           Thereafter an amount equal
to one-twelfth (1/12th) of the estimated annual Charges due on the Premises.

 

Lender will, upon the presentation to the
Lender by the Borrower of the bills therefor, pay the Charges from such
deposits or will upon presentation of receipted bills therefor, reimburse the
Borrower for such payments made by the Borrower.  In the event the deposits on hand shall not be
sufficient to pay all of the estimated Charges when the same shall become due
from time to time, or the prior deposits shall be less than the currently
estimated monthly amounts, then the

 

11

 

Borrower shall pay to the Lender on demand
any amount necessary to make up the deficiency. 
The excess of any such deposits shall be credited to subsequent payments
to be made for such items.  If a default
or an event of default shall occur under the terms of this Mortgage the Lender
may, at its option, without being required so to do, apply any deposits on hand
to the Indebtedness Secured Hereby, in such order and manner as the Lender may
elect.  When the Indebtedness Secured
Hereby has been fully paid any remaining deposits shall be returned to the
Borrower as its interest may appear.  All
deposits are hereby pledged as additional security for the Indebtedness Secured
Hereby, shall be held for the purposes for which made as herein provided, may
be held by Lender or its servicing agent and may be commingled with other funds
of the Lender, or its servicing agent, shall be held without any allowance of
interest thereon and shall not be subject to the decision or control of the
Borrower.  Neither Lender nor its
servicing agent shall be liable for any act or omission made or taken in good
faith.  In making any payments, Lender or
its servicing agent may rely on any statement, bill or estimate procured from
or issued by the payee without inquiry into the validity or accuracy of the
same.  If the taxes shown in the tax
statement shall be levied on property more extensive than the Premises, then
the amounts escrowed shall be based on the entire tax bill and Borrower shall
have no right to require an apportionment and Lender or its servicing agent may
pay the entire tax bill notwithstanding that such taxes pertain in part to
other property and the Lender shall be under no duty to seek a tax division or
apportionment of the tax bill.

 

4.

APPLICATION
OF INSURANCE AND AWARDS

 

4.l            Damage or Destruction of the Premises.  Borrower shall give the Lender prompt notice
of any damage to or destruction of the Premises and in case of loss covered by
policies of insurance the Lender is hereby authorized at its option to settle
and adjust any claim arising out of such policies and collect and receipt for
the proceeds payable therefrom; provided, that the Borrower may itself adjust
and collect for any losses arising out of a single occurrence aggregating not
in excess of Two Hundred Thousand and 00/100 ($200,000.00) Dollars.  Any expense incurred by the Lender in the
adjustment and collection of insurance proceeds (including the cost of any
independent appraisal of the loss or damage on behalf of Lender) shall be
reimbursed to the Lender first out of any proceeds.  The proceeds or any part thereof shall be
applied to reduction of the Indebtedness Secured Hereby then most remotely to
be paid, whether due or not, without the application of any prepayment premium,
or to the restoration or repair of the Premises, the choice of application to be
solely at the discretion of Lender.

 

4.2           Condemnation.  Borrower shall give the Lender prompt notice
of any actual or threatened condemnation or eminent domain proceedings
affecting the Premises and hereby assigns, transfers, and sets over to the
Lender the entire proceeds of any award or claim for damages or settlement in
lieu thereof for all or any part of the Premises taken or damaged under such
eminent domain or condemnation proceedings, the Lender being hereby authorized
to intervene in any such action and to collect and receive from the condemning
authorities and give proper receipts and acquittances for such proceeds.  Borrower will not enter into any agreements
with the condemning authority permitting or consenting to the taking of the
Premises or agreeing to a settlement unless prior written consent of Lender is
obtained.  Any expenses incurred by the
Lender in intervening in such action or collecting such proceeds, including
reasonable attorney’s

 

12

 

fees, shall be reimbursed to the Lender first
out of the proceeds.  The proceeds or any
part thereof shall be applied upon or in reduction of the Indebtedness Secured
Hereby then most remotely to be paid, whether due or not, without the
application of any prepayment premium, or to the restoration or repair of the
Premises, the choice of application to be solely at the discretion of Lender.

 

4.3           Disbursement of Insurance and Condemnation Proceeds.  Any restoration or repair
shall be done under the supervision of an architect acceptable to Lender and
pursuant to plans and specifications approved by the Lender.  In any case where Lender may elect to apply
the proceeds to repair or restoration or permit the Borrower to so apply the
proceeds they shall be held by Lender for such purposes and will from time to
time be disbursed by Lender to defray the costs of such restoration or repair
under such safeguards and controls as Lender may establish to assure completion
in accordance with the approved plans and specifications and free of liens or
claims.  Borrower shall on demand deposit
with Lender any sums necessary to make up any deficits between the actual cost
of the work and the proceeds and provide such lien waivers and completion bonds
as Lender may reasonably require.  Any
surplus which may remain after payment of all costs of restoration or repair
may at the option of the Lender be applied on account of the Indebtedness
Secured Hereby then most remotely to be paid, whether due or not, without
application of any prepayment premium or shall be returned to Borrower as its
interest may appear, the choice of application to be solely at the discretion
of Lender.

 

5.

LEASES
AND RENTS

 

5.1           Borrower to Comply with Leases.  Borrower will, at its own cost and expense:

 

(a)           Provide the Lender copies
of all lease(s) of the Premises (whenever the term “lease” is used herein in
the context where Borrower is the lessor/sublessor, the term “lease” includes
any sublease);

 

(b)           Faithfully abide by,
perform and discharge each and every obligation, covenant and agreement under
any lease(s) to be performed by the lessor/sublessor thereunder;

 

(c)           Enforce or secure the
performance of each and every material obligation, covenant, condition and
agreement of said lease(s) by the tenants thereunder to be performed;

 

(d)           Not borrow against, pledge
or further assign any rents due under said lease(s);

 

(e)           Not permit the prepayment
of any rents for more than the next accruing installment of Rents, nor
anticipate, discount, compromise, forgive or waive any Rents;

 

(f)            Not consent to a
subordination of any lease(s) to any party other than Lender and then only if
specifically required by the Lender; and

 

13

 

(g)           Not permit any tenant to
assign or sublet its interest in its lease unless required to do so by the
terms of its lease.

 

5.2           Lender’s Right to Perform Under Leases.  Should the Borrower fail to perform, comply
with or discharge any obligations of Borrower under any lease or should the
Lender become aware of or be notified by any tenant under any lease of a
failure on the part of Borrower to so perform, comply with or discharge its
obligations under said lease, Lender may, but shall not be obligated to, and
without further demand upon the Borrower, and without waiving or releasing
Borrower from any obligation in this Mortgage contained, remedy such failure,
and the Borrower agrees to repay upon demand all sums incurred by the Lender in
remedying any such failure together with interest at the then rate in effect on
the Note.  All such sums, together with
interest as aforesaid shall become so much additional Indebtedness Secured
Hereby, but no such advance shall be deemed to relieve the Borrower from any
default hereunder.

 

5.3           Assignment of Leases and Rents.  To further secure the Indebtedness Secured
Hereby the Borrower does hereby sell, assign and transfer unto Lender all of
the leases, rents, income and profits now due and which may hereafter become
due under or by virtue of any lease, whether written or verbal, or any
agreement for the use or occupancy of the Premises, it being the intention of
this Mortgage to establish an absolute and present transfer and assignment of
all such leases and agreements and all of the rents, income and profits from
the Premises unto the Lender and not just additional security, and the Borrower
does hereby appoint irrevocably the Lender its true and lawful attorney in its
name and stead, which appointment is coupled with an interest, to collect all
of said rents, income and profits; provided, Lender grants the Borrower the
privilege, revocable, to collect and retain such rents, income, and profits
unless and until an Event of Default exists under this Mortgage.  Upon an Event of Default and whether before
or after the institution of legal proceedings to sell the Premises or to
foreclose the lien hereof or before or after sale of the Premises or during any
period of redemption the Lender, and without regard to waste, adequacy of the
security or solvency of the Borrower or existence or waiver of any deficiency,
may revoke the licenses granted Borrower hereunder and may, at its option,
without notice:

 

(a)           in person or by agent,
with or without taking possession of or entering the Premises, with or without
bringing any action or proceeding, give, or require Borrower to give, notice to
any or all tenants under any lease authorizing and directing the tenant to pay
such rents and profits to Lender; collect all of the rents, income and profits;
enforce the payment thereof and exercise all of the rights of the landlord
under any lease and all of the rights of Lender hereunder; may enter upon, take
possession of, manage and operate said Premises, or any part thereof, may
cancel, enforce or modify any leases, and fix or modify rents, and do any acts
which the Lender deems proper to protect the security hereof with or without
taking possession of said Premises; or

 

(b)           apply for the appointment
of a receiver in accordance with the statutes and law made and provided for,
which receivership Borrower hereby consents to, who shall collect the rents,
profits and all other income of any kind; manage the

 

14

 

Premises so as to prevent waste; execute
leases within or beyond the period of receivership, and apply the rents,
profits and income in the following order:

 

(i)            to payment of all
reasonable fees of any receiver appointed hereunder,

 

(ii)           to application of tenant’s
security deposits as may be required by law,

 

(iii)          to payment when due of prior
or current real estate taxes or special assessments with respect to the
Premises or, if the Mortgage so requires, to the periodic escrow for payment of
the taxes or special assessments then due,

 

(iv)          to payment when due of
premiums for insurance of the type required by the Mortgage or, if the Mortgage
so requires, to the periodic escrow for the payment of premiums then due,

 

(v)           to payment of all expenses
for normal maintenance of the Premises,

 

(vi)          if received prior to a
foreclosure sale to the Indebtedness Secured Hereby; provided, if the Premises
shall be foreclosed and sold pursuant to a foreclosure sale, then during the
period of redemption from such foreclosure sale:

 

(aa)         If the Lender is the
purchaser at the foreclosure sale, the rents shall be paid to the Lender to be
applied to the costs of operating the property and/or to the unpaid judgment,
and if the Premises be redeemed by the Borrower or any other party entitled to
redeem, the rents which had been applied to the judgment would be applied as a
credit against the redemption price provided, if the Premises not be redeemed,
any remaining excess rents to belong to the Lender, whether or not a deficiency
exists; or

 

(bb)         If the Lender is not the
purchaser at the foreclosure sale, the rents shall be paid to the Lender to be
applied to the costs of operating the property and/or to pay the Lender, to the
extent of any deficiency remaining after the sale, and the balance, if any, to
the Purchaser to be applied as a credit against the redemption price provided,
if the Premises not be redeemed any remaining excess rents shall be paid to the
purchaser.

 

The entering upon and taking possession of
the Premises, the collection of such rents and profits and the application
thereof as aforesaid shall not cure or waive any defaults under this Mortgage
nor in any way operate to prevent the Lender from pursuing any other remedy
which it may now or hereafter have under the terms of this Mortgage nor shall
it in any way be deemed to constitute the Lender a mortgagee-in-possession.  The rights and powers of the Lender hereunder
shall remain in full force and effect both prior to and after any foreclosure
of the Mortgage and 

 

15

 

any sale pursuant thereto and until expiration
of the period of redemption from said sale, regardless of whether a deficiency
remains from said sale.  The purchaser at
any foreclosure sale, including the Lender, shall have the right, at any time
and without limitation, to advance money to any receiver appointed hereunder to
pay any part or all of the items which the receiver would otherwise be
authorized to pay if cash were available from the Premises and the sum so
advanced, with interest at the rate then in effect in the Note, or if the Note has
been extinguished, at the highest rate set forth in the Note, shall be a part
of the sum required to be paid to redeem from any foreclosure sale.  The rights hereunder shall in no way be
dependent upon and shall apply without regard to whether the Premises are in
danger of being lost, materially injured or damaged or whether the Premises are
adequate to discharge the Indebtedness Secured Hereby.  The rights contained herein are in addition
to and shall be cumulative with the rights given in any separate instrument, if
any, assigning any leases, rents and profits of the Premises and shall not
amend or modify the rights in any such separate agreement.

 

5.4           Present Assignment and License.  The assignment of the rents and leases
contained herein is a perfected, absolute and present assignment of the rents
and lease(s), provided the Lender grants to the Borrower a revocable license
to:

 

(a)           collect, but not prior to
accrual, the rents, and to retain, use and enjoy the same; and

 

(b)           take “in the ordinary
course of business” Leasing Actions (as defined below) provided prompt
notification is given to the Lender of any such Leasing Action.

 

As used herein the term “in the ordinary
course of business” means acting as a prudent and responsible landlord would
under similar circumstances with due regard for the maintenance of the income
stream provided by the lease(s).  As used
herein the term “Leasing Actions” shall mean all of the following rights of the
Borrower:

 

(i)            the right to waive,
excuse, condone or in any manner release or discharge the tenants of or from
the obligations, covenants, conditions and agreements by any tenant to be
performed under the lease(s);

 

(ii)           the right to terminate any lease(s);

 

(iii)          the right to amend or
modify any lease(s) or alter the obligations of the parties thereunder without
the consent of the Lender;

 

(iv)          the right to accept a
surrender of any lease(s) prior to its expiration date; and

 

(v)           the right to exercise the
remedies of the landlord under the lease(s) by reason of any default by the
tenant(s) thereunder.

 

The Lender at its sole election may revoke
any such licenses granted to Borrower upon the occurrence of a Event of
Default.  In the event this Mortgage is
foreclosed, Borrower agrees to

 

16

 

immediately forfeit, surrender and deliver to
Lender all rights of possession of the Premises and shall deliver to Lender all
rents and profits accruing from the Premises

 

6.

RIGHTS
OF LENDER

 

6.1           Right to Cure Default.  If the Borrower shall fail to comply with any
of the covenants or obligations of this Mortgage, the Lender may, but shall not
be obligated to, without further notice to Borrower, and without waiving or
releasing Borrower from any obligation in this Mortgage contained, remedy such
failure, and the Borrower agrees to repay upon demand all sums incurred by the
Lender in remedying any such failure together with interest at the then rate in
effect on the Note.  All such sums,
together with interest as aforesaid shall become so much additional
Indebtedness Secured Hereby, but no such advance shall be deemed to relieve the
Borrower from any failure hereunder.

 

6.2           No Claim Against the Lender.  Nothing contained in this Mortgage shall
constitute any consent or request by the Lender, express or implied, for the
performance of any labor or services or for the furnishing of any materials or
other property in respect of the Premises or any part thereof, nor as giving
the Borrower or any party in interest with Borrower any right, power or
authority to contract for or permit the performance of any labor or services or
the furnishing of any materials or other property in such fashion as would
create any personal liability against the Lender in respect thereof or would
permit the making of any claim that any lien based on the performance of such
labor or services or the furnishing of any such materials or other property is
prior to the lien of this Mortgage.

 

6.3           Inspection.  Borrower will permit the Lender’s authorized
representatives to enter the Premises at reasonable times for the purpose of
inspecting the same; provided the Lender shall have no duty to make such
inspections and shall not incur any liability or obligation for making or not
making any such inspections.

 

6.4           Waivers; Releases;  Resort to
Other Security, Etc.  Without affecting the liability of any party
liable for payment of any Indebtedness Secured Hereby or performance of any
obligation contained herein, and without affecting the rights of the Lender
with respect to any security not expressly released in writing, the Lender may,
at any time, and without notice to or the consent of the Borrower or any party
in interest with the Premises or the Note:

 

(a)           release any person liable
for payment of all or any part of the Indebtedness Secured Hereby or for
performance of any obligation herein;

 

(b)           make any agreement
extending the time or otherwise altering the terms of payment of all or any
part of the Indebtedness Secured Hereby or modifying or waiving any obligation,
or subordinating, modifying or otherwise dealing with the lien or charge
hereof;

 

(c)           accept any additional
security;

 

17

 

(d)           release or otherwise deal
with any property, real or personal, including any or all of the Premises,
including making partial releases of the Premises; or

 

(e)           resort to any security
agreements, pledges, contracts of guarantee, assignments of rents and leases or
other securities, and exhaust any one or more of said securities and the
security hereunder, either concurrently or independently and in such order as
it may determine.

 

6.5           Waiver of Appraisement, Homestead, Marshaling.  Borrower hereby waives to
the full extent lawfully allowed the benefit of any homestead, appraisement,
evaluation, stay and extension laws now or hereinafter in force.  Borrower hereby waives any rights available
with respect to marshaling of assets so as to require the separate sales of any
portions of the Premises, or so as to require Lender to exhaust its remedies
against a specific portion of the Premises before proceeding against other
portions of the Premises, or so as to require Lender to exhaust its remedies
against the Premises or any other real property or personal property securing
the Note (whether located in the State of Iowa or any other state) before
proceeding against the Premises or any such other real property or personal
property securing the Note.  Borrower
does hereby expressly consent to and authorize the sale of the Premises or any
part thereof as a single unit or parcel. 
Borrower also hereby waives any and all rights of reinstatement and
redemption from sale under any order or decree of foreclosure pursuant to
rights herein granted, on behalf of Borrower, and each and every person
acquiring any interest in, or title to the Premises described herein subsequent
to the date of this Mortgage, and on behalf of all other persons to the extent
permitted by applicable law.  Borrower
specifically consents to Lender’s foreclosure of this Mortgage and of any other
mortgages, deeds of trust, and instruments securing the Note, by judicial
action in one or more courts, or by any other manner provided by law, including
foreclosure without redemption and nonjudicial foreclosure, and such
foreclosures may occur simultaneously or in any order that Lender may determine
in its sole discretion.

 

6.6           Business Loan Representation.  Borrower represents and warrants to Lender
that the Indebtedness evidenced by the Note is a business loan transacted
solely for the purpose of carrying on the business of Borrower and not a
consumer transaction and that the Premises do not constitute the homestead of
Borrower.

 

7.

EVENTS
OF DEFAULT AND REMEDIES

 

7.1           Events of Default.  It shall be an event of default (“Event of
Default”) under this Mortgage upon the happening of any of the following:

 

(a)           failure to make any
payment on the Note whether principal, interest, premium or late charge, when
and as the same becomes due (whether at the stated maturity or at a date fixed
for any installment payment or any accelerated payment date or otherwise) and
such failure shall continue for a period of ten (10) days; or

 

(b)           a “Default” as defined
therein shall occur under the Credit Agreement or Note and shall not have been
cured within the time permitted therein to cure; or

 

18

 

(c)           failure to pay, perform or
comply with when due any other Indebtedness Secured Hereby and such failure
shall continue for a period of ten (10) days after notice thereof to the Borrower;
or

 

(d)           failure to comply with or
perform any of the other terms, conditions or covenants of this Mortgage and
such failure shall continue for a period of thirty (30) days after notice
thereof to Borrower; provided, if the same is not susceptible of cure within
said time limits and the same may be cured within a reasonable period of time
thereafter the time period shall be extended for such additional time as is
reasonably necessary to effectuate such cure provided such curative action is
promptly taken in good faith and diligently prosecuted to completion and the
security afforded hereby and the interest of the Lender is not in jeopardy or
be subject to forfeiture; or

 

(e)           Borrower shall fail to pay
its debts as they become due, make an assignment for the benefit of its
creditors, or shall admit in writing its inability to pay its debts as they
become due, or shall file a petition under any chapter of the Federal
Bankruptcy Code or any similar law, state or federal, now or hereafter
existing, or shall become “insolvent” as that term is generally defined under
the Federal Bankruptcy Code, or shall in any involuntary bankruptcy case
commenced against it file an answer admitting insolvency or inability to pay
its debts as they become due, or shall fail to obtain a dismissal of such case
within sixty (60) days after its commencement or convert the case from one
chapter of the Federal Bankruptcy Code to another chapter, or be the subject of
an order for relief in such bankruptcy case, or be adjudged a bankrupt or
insolvent, or shall have a custodian, trustee or receiver appointed for, or
have any court take jurisdiction of its property, or any part thereof, in any
proceeding for the purpose of reorganization, arrangement, dissolution or
liquidation, and such custodian, trustee or receiver shall not be discharged,
or such jurisdiction shall not be relinquished, vacated or stayed within sixty
(60) days of the appointment; or

 

(f)            an event of default shall
occur under any other instrument issued by Borrower in connection with the
Credit Agreement or Note and shall not have been cured within the time
permitted therein to cure; or

 

(g)           a judgment, writ or
warrant of attachment or execution, or similar process shall be entered and
become a lien or be issued or levied against the Premises and shall not be
released or fully bonded within forty-five (45) days after its entry, issue or
levy; or

 

(h)           any representation or
warranty made by Borrower herein, in the Credit Agreement or in any other
instrument issued by Borrower in connection therewith shall be false,
materially breached or dishonored; or

 

19

 

(i)            the Borrower shall be
dissolved, liquidated or wound up or shall fail to maintain its existence as a
going concern in good standing.

 

7.2           Lender’s Right to Accelerate.  If an Event of Default shall occur the Lender
may declare the entire unpaid principal balance of the Note together with all
other Indebtedness Secured Hereby to be immediately due and payable and
thereupon all such unpaid principal balance of the Note together with all
secured interest thereon at the Default Rate and all other Indebtedness Secured
Hereby shall be and become immediately due and payable.

 

7.3           Remedies of Lender and
Right to Foreclose.  Upon the occurrence of an Event of Default,
Borrower hereby authorizes and fully empowers Lender to foreclose this Mortgage
by action by judicial proceedings with or without redemption or non-judicial
proceedings, or obtain any other remedy permitted by applicable law.  Lender shall be entitled to collect all
expenses incurred in pursuing the remedies provided in this paragraph 7.3,
including but not limited to attorneys’ fees and costs of title evidence.

 

At any foreclosure sale, Lender shall sell the Premises in one or more
parcels and in any order Lender determines. 
Lender or its designee may purchase the Premises at any foreclosure
sale, crediting against the purchase price the amount of its judgment and costs
paid.  The proceeds of the sale shall be
applied in the following order: 
(a) to all expenses of the sale, including, but not limited to,
attorneys’ fees; (b) to all sums secured by this Mortgage; and
(c) any excess to the clerk of the court subject to the order of the
court.

 

In the event of the foreclosure of this Mortgage by judicial
proceedings providing for redemption and a subsequent sheriff’s sale of the
Property, the period of 180 days for redemption from said sale provided by
Section 628.28 of the Code of Iowa shall be reduced to 90 days, provided
Mortgagee waives in said foreclosure proceedings any rights to a deficiency
judgment against Mortgagor which may arise out of the foreclosure
proceedings.  The period of redemption
shall be reduced to 60 days if:  the
Court finds affirmatively that the Property has been abandoned by Mortgagor and
those persons personally liable under this Mortgage at the time of such
foreclosure, and Mortgagee in such action files an election to waive any
deficiency judgment against Mortgagor or its successors in interest in such
action.  Nothing in this paragraph shall
be deemed as a waiver of the right of Mortgagee to seek non-judicial
foreclosure proceedings or foreclosure without redemption or any other
foreclosure procedures as provided by the statutes of the State of Iowa, as
amended from time to time.

 

No remedy granted or conferred by this Mortgage is intended to be
exclusive of any other remedy or remedies and each and every remedy shall be
cumulative and shall be in addition to every remedy given hereunder or now or
hereafter existing at law or in equity or by statute.  No delay or
omission of Lender to exercise any right or power accruing upon an Event of
Default shall impair any such right or power or shall be construed to be a
waiver of any such Event of Default or any acquiescence therein and every
right, power and remedy given by this Mortgage or now or hereafter existing at
law or in equity or by statute may be exercised from time to time and as often
as may be deemed expedient by the Lender.

 

20

 

7.4           Receiver.  If an Event of Default shall occur, the
Lender shall be entitled as a matter of right without notice and without giving
bond and without regard to the solvency or insolvency of the Borrower, or waste
of the Premises or adequacy of the security of the Premises, to apply for the
appointment of a Receiver, or the existence or waiver of any deficiency who
shall have all the rights, powers and remedies as provided by such statute and
who shall apply the rents, income and profits as provided by statute and
thereafter to all expenses for maintenance of the Premises and to the costs and
expenses of the receivership, including reasonable attorneys fees and to the
repayment of the Indebtedness Secured Hereby and who shall in addition to the
rights, powers and remedies as provided herein and by statute have such rights,
powers and remedies as provided in such Assignment of Rents and who shall apply
the rents, income and profits as provided therein.

 

7.5           Rights Under Uniform Commercial Code.  In addition to the rights available to a
mortgagee of real property Lender shall also have all the rights, remedies and
recourse available to a secured party under the Uniform Commercial Code
including the right to proceed under the provisions of the Uniform Commercial
Code governing default as to any property which is subject to the security
interest created by the Mortgage or to proceed as to such personal property in
accordance with the procedures and remedies available pursuant to a foreclosure
of real estate.

 

7.6           Due on Sale or Mortgaging, Etc.  In the event of a Transfer (as defined below)
without the written consent of the Lender being first obtained, whether
voluntarily, involuntarily, or by operation of law, then at the sole option of
the Lender, the Lender may upon notice to the Borrower declare the entire
Principal Balance together with accrued interest, due and payable in full.  Any such payment shall be subject to the
requirements, if any, in the Note providing for the payment of a prepayment
premium in the event of a non-permitted Transfer.  A consent by the Lender as to any one
Transfer shall not be deemed to be a waiver of the right to require consent to
a future Transfer.  As used herein, the
term “Transfer” shall include any sale, pledge, assignment, Mortgage,
encumbrance, security interest, consensual lien, hypothecation, transfer or
divesture or otherwise of or in i) the Borrower’s legal or equitable
interest in the Premises or ii) the Borrower, either directly or indirectly,
including an interest taken as security; whether or not of record and whether
or not for consideration shall be deemed a Transfer; provided, however, a
transfer(s) of less than a majority of the outstanding membership interests
(units) of Borrower in any transaction or series of related transactions shall
not be considered a Transfer for purposes of this Section 7.6.

 

7.7           Rights Cumulative.  Each right, power or remedy herein conferred
upon the Lender is cumulative and in addition to every other right, power or
remedy, express or implied, now or hereafter arising, available to Lender, at
law or in equity, or under any other agreement, and each and every right, power
and remedy herein set forth or otherwise so existing may be exercised from time
to time as often and in such order as may be deemed expedient by the Lender and
shall not be a waiver of the right to exercise at any time thereafter any other
right, power or remedy.  No delay or
omission by the Lender in the exercise of any right, power or remedy arising
hereunder or arising otherwise shall impair any such right, power or remedy or
the right of the Lender to resort thereto at a later date or be construed to be
a waiver of any default or event of default under this Mortgage or the Note.

 

21

 

7.8           Right to Discontinue Proceedings.  In the event Lender shall have proceeded to
invoke any right, remedy or recourse permitted under this Mortgage and shall
thereafter elect to discontinue or abandon the same for any reason, Lender
shall have the unqualified right to do so and in such event Borrower and Lender
shall be restored to their former positions with respect to the Indebtedness
Secured Hereby.  This Mortgage, the
Premises and all rights, remedies and recourse of the Lender shall continue as
if the same had not been invoked.

 

7.9           Acknowledgment of Waiver of Hearing Before Sale.  Borrower understands and
agrees that if any Event of Default is made under the terms of this Mortgage,
Lender has the right, inter alia,
to foreclose this Mortgage. Borrower further understands that in the event of
such Event of Default the Lender may also elect its rights under the Uniform
Commercial Code and take possession of the Personal Property (as defined in
this Mortgage) and dispose of the same by sale or otherwise in one or more
parcels provided that at least ten (10) days’ prior notice of such disposition
must be given, all as provided for by the Uniform Commercial Code, as hereafter
amended or by any similar or replacement statute hereafter enacted.

 

8.

HAZARDOUS
MATERIALS

 

8.1           Definitions.  As used herein, the following definition
shall apply:

 

(a)           “Hazardous Substance”
shall mean any hazardous or toxic material, substance or waste, pollutant or
contaminant which is regulated under any statute, law, ordinance, rate or
regulation of any local, state, regional or Federal authority having
jurisdiction over the property of the Borrower, or its use, including but not
limited to any material, substance or waste which is (a) defined as a hazardous
substance under any Environmental Laws; (b) a petroleum hydrocarbon, including
crude oil or any fraction thereof and all petroleum products; (c)
polychlorinated biphenyls; (d) lead; (e) urea formaldehyde; (f) asbestos; (g)
flammable explosives; (h) infectious materials; (i) radioactive materials; or
(j) defined or regulated as a hazardous substance or hazardous waste under any
rules or regulations promulgated under any of the foregoing Environmental Laws.

 

(b)           “Environmental Laws” shall
mean any international, federal, state or local statute, law, regulation,
order, consent, decree, judgment, permit, license, code, covenant, deed
restriction, common law, treaty, convention, ordinance or other requirement
relating to public health, safety or the environment, including, without
limitation, those relating to releases, discharges or emissions to air, water,
land or groundwater, to the withdrawal or use of groundwater, to the use and
handling of polychlorinated biphenyls or asbestos, to the disposal, treatment,
storage or management of hazardous or solid waste, or Hazardous Substances or
crude oil, or any fraction thereof, or to exposure to toxic or hazardous
materials to the handling, transportation, discharge or release of gaseous or
liquid Hazardous Substances and any regulation, order, notice or demand issued
pursuant to such law, statute or ordinance, in each case applicable to the
property of the Borrower or its affiliates, if any, including without
limitation the following:  the

 

22

 

Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986, the Solid Waste Disposal Act, as amended by
the Resource Conservation and Recovery Act of 1976 and the Hazardous and Solid
Waste Amendments of 1984, the Hazardous Materials Transportation Act, as
amended, the Federal Water Pollution Control Act, as amended by the Clean Water
Act of 1976, the Safe Drinking Water Act, the Clean Air Act, as amended, the
Toxic Substances Control Act of 1976, the Occupational Safety and Health Act of
1977, as amended, the Emergency Planning and Community Right-to-Know Act of
1986, the National Environmental Policy Act of 1975, the Oil Pollution Act of
1990, and any similar or implementing state law, and any state statute and any
further amendments to these laws providing for financial responsibility for
cleanup or other actions with respect to the release or threatened release of
Hazardous Substances or crude oil, or any fraction thereof and all rules and
regulations promulgated thereunder.

 

8.2           Covenants of Borrower.  Borrower hereby covenants to Lender that
Borrower shall (a) comply and shall cause all occupants of the Premises to
comply with all federal, state and local laws, rules, regulations and orders
with respect to the discharge, generation, removal, transportation, storage and
handling of Hazardous Substances; (b) remove any Hazardous Substances
released into the environment immediately upon discovery of same, in accordance
with applicable laws, ordinances and orders of governmental authorities having
jurisdiction thereof; (c) pay or cause to be paid all costs associated
with such removal; (d) prevent the migration of Hazardous Substances from
or through the Premises onto or under other properties; (e) keep the
Premises free of any lien imposed pursuant to any state or federal law, rule,
regulation or order in connection with the existence of Hazardous Substances on
the Premises; (f) not install or permit to be incorporated into any
improvements in the Premises or to exist in or on the Premises any asbestos,
asbestos-containing materials, area formaldehyde insulation or any other
chemical or substance which has been determined to be a hazard to health and
environment, except for substances, including Hazardous Substances, which are
stored, used or sold in the ordinary course of Borrower’s business and are
commonplace in the industry; (g) not cause or permit to exist, as a result
of an intentional or unintentional act or omission on the part of Borrower or
any occupant of the Premises, a releasing, spilling, leaking, pumping,
emitting, pouring, emptying or dumping of any Hazardous Substances onto the
Premises or into water or other lands; and (h) give all notifications and
prepare all reports required by Environmental Laws or any other law with
respect to Hazardous Substances existing on, released from or emitted from the
Premises.

 

8.3           Representations of Borrower.  The Borrower represents that (i) the
Premises has been and is free from contamination by Hazardous Substances but
including neither (A) immaterial quantities of automotive motor oil leaked
inadvertently from vehicles in the ordinary course of the operation of the Premises
and cleaned up in accordance with reasonable property management procedures and
any applicable law nor (B) immaterial quantities of substances customarily
and prudently used in the cleaning and maintenance of the Premises in
accordance with any applicable law, (ii) no release of any such Hazardous
Substance has occurred on or about the Premises, (iii) that the Premises
currently complies, and will comply

 

23

 

based on its anticipated use, with all
current Environmental Laws, (iv) that, in connection with the operation
and use of the Premises, all necessary notices have been filed and all required
permits, licenses and other authorizations have been obtained, including those
relating to the generation, treatment, storage, disposal or use of Hazardous
Substances, (v) that there is no present, past or threatened
investigation, inquiry or proceeding relating to the environmental condition
of, or to events on or about, the Premises, and (vi) there are no underground
storage tanks currently existing and to the extent such underground storage
tanks are existing they are registered under the required Environmental Laws
and do not contain any leakages, and (vii) Borrower has not received any
summons, citation, directive, letter or other communication, written or oral,
from any local, state or federal governmental agency concerning (A) the
existence of Hazardous Substances on the Premises or in the immediate vicinity,
(B) the releasing, spilling, leaking, pumping, pouring, emitting,
emptying, or dumping of Hazardous Substances onto the Premises or into water or
other lands or (C) violation of Environmental Laws.

 

8.4           Environmental Indemnification, The
Borrower indemnifies and holds harmless the Lender, its officers, directors, employees,
agents, contractors, subcontractors, licensees, invitees, successors and
assigns (“Indemnified Parties”) from and against any and all claims, losses,
liabilities (including without limitation strict liability), suits,
obligations, fines, damages, judgments, injuries, administrative orders,
consent agreements and orders, penalties, actions, causes of action, charges,
costs and expenses, including without limitation attorneys’ fees and
consultants’ fees (i) arising out of the inclusion in the Premises of
Hazardous Substances or the presence on, the release from, the generation,
manufacture, refining, treatment, storage, handling or disposal on, in or from
the Premises of any Hazardous Substances, or any underground or above ground
storage tanks containing Hazardous Substances and the cost of removal and
remediation of the foregoing, or (ii) arising out of the transportation,
discharge or removal from the Premises of any Hazardous Substance, or
(iii) arising out of the inclusion in any product manufactured on the
Premises of a Hazardous Substance; or (iv) arising out of the failure to
perform the removal or abatement of or to institute a safe, effective and
environmentally approved control plan for any Hazardous Substance or the
replacement or removal of any soil, water, surface water, or ground water
containing Hazardous Substance in accordance with Environmental Laws; or
(v) arising out of the existence of any environmental lien against the
Premises pursuant to any Environmental Laws; or (vi) arising out of any
violation or claim of violation of Environmental Laws with respect to the
Premises; or (vii) arising out of any breach of any of the representations
and covenants contained herein relating to Hazardous Substances and
Environmental Laws (collectively the “Indemnified Loss”).  Borrower shall bear, pay and discharge such
Indemnified Loss as and when the same becomes due and payable.

 

8.5           Run with Land.  These covenants, representations, warranties
and indemnities shall be deemed continuing covenants, representations,
warranties and indemnities running with the Land for the benefit of the Lender,
and any successors and assigns of the Lender, including any purchaser at a
mortgage foreclosure sale, any transferee of the title of the Lender or any
subsequent purchaser at a foreclosure sale, and any subsequent owner of the
Premises claiming through or under the title of Lender and shall survive any
foreclosure of this Mortgage and any acquisition of title of Lender.  The amount of all such indemnified loss,
damage, expense or cost, shall bear interest thereon at the Default Rate
interest and shall become so much additional

 

24

 

Indebtedness Secured Hereby and shall become
immediately due and payable in full on demand of the Lender, its successors or
assigns.  The indemnification contained
herein shall be a personal monetary obligation of the Borrower notwithstanding
any provisions of this Mortgage to the contrary that limit or exculp the
personal liability of the Borrower and/or require the Lender to look solely to
the security of the Premises.

 

9.

MISCELLANEOUS

 

9.1           Release of Mortgage.  When all Indebtedness Secured Hereby has been
paid, this Mortgage and all assignments herein contained shall be void and this
Mortgage shall be released by the Lender at the cost and expense of the
Borrower, otherwise to remain in full force and effect.

 

9.2           Choice of Law.  Notwithstanding the place of execution of
this instrument, the parties to this instrument have contracted for Minnesota
law to govern this instrument and it is agreed that this instrument is made
pursuant to and shall be construed and governed by the laws of the State of
Minnesota without regard to the principles of conflicts of law.  However, to the extent necessary for Lender
to pursue remedies, Iowa law shall govern and apply.

 

9.3           Successors and Assigns.  This Mortgage and each and every covenant,
agreement and other provision hereof shall be binding upon the Borrower and its
successor and assigns including without limitation each and every from time to
time the owner of the Premises or any other person having an interest therein,
shall ran with the land and shall inure to the benefit of the Lender and its
successor and assigns.  As used herein
the words “successors and assigns” shall also be deemed to include the heirs,
representatives, administrator and executors of any natural person who is or
becomes a party to this Mortgage.  In the
event that the ownership of the Premises becomes vested in a person or persons
other than the Borrower, the Lender shall not have any obligation to deal with
such successor or successor in interest unless such transfer is permitted by
this Mortgage and then only upon being notified in writing of such change of
ownership.  Upon such notification, the
Lender may thereafter deal with such successor in place of Borrower without any
obligation to thereafter deal with Borrower and without waiving any liability
of Borrower hereunder or under the Note. 
No change of ownership of the Premises shall in any way operate to
release or discharge the liability of the Borrower hereunder unless such
release or discharge is expressly agreed to in writing by the Lender.

 

9.4           Unenforceability of Certain Clauses.  The unenforceability or invalidity of any
provisions hereof shall not render any other provision or provisions herein
contained unenforceable or invalid.

 

9.5           Captions and Headings.  The captions and headings of the various
sections of this Mortgage are for convenience only and are not to be construed
as confining or limiting in any way the scope or intent of the provisions
hereof.  Whenever the context requires or
permits the singular shall include the plural, the plural shall include the
singular and the masculine, feminine and neuter shall be freely
interchangeable.

 

25

 

9.6           Savings Clause.  It is expressly stipulated and agreed to be
the intent of Borrower, and Lender at all times to comply with applicable state
law or applicable United States federal law (to the extent that it permits the
Lender to contract for, charge, take, reserve, or receive a greater amount of
interest than under state law) and that this section shall control every other
covenant and agreement in the Note, this Mortgage and any other loan documents
delivered in connection with this instrument (“Loan Documents”).  If the applicable law is ever judicially
interpreted so as to render usurious any amount called for under the Note, this
Mortgage or under any of the other Loan Documents, or contracted for, charged,
taken, reserved, or received with respect to the indebtedness by the Note (“Indebtedness”),
or if the Lender’s exercise of the option to accelerate the maturity of the
Note, or if any prepayment by Borrower results in Borrower having paid any
interest in excess of that permitted by applicable law, then it is Borrower’s
and Lender’s express intent that all excess amounts theretofore collected by
Lender shall be credited on the principal balance of the Note and all other
Indebtedness (or, if the Note and all other indebtedness have been or would
thereby be paid in full, refunded to Borrower), and the provisions of the Note
and this Mortgage and the other Loan Documents immediately be deemed reformed
and the amounts thereafter collectible hereunder and thereunder reduced,
without the necessity of the execution of any new documents, so as to comply
with the applicable law, but so as to permit the recovery of the fullest amount
otherwise called for hereunder or thereunder. 
All sums paid or agreed to be paid to Lender for the use, forbearance,
or detention of the Indebtedness shall, to the extent permitted by applicable
law, be amortized, prorated, allocated, and spread throughout the full stated
term of the Indebtedness until payment in full so that the rate or amount of
interest on account of the Indebtedness does not exceed the maximum lawful rate
from time to time in effect and applicable to the Indebtedness for so long as
the Indebtedness is outstanding. 
Notwithstanding anything to the contrary contained herein or in any of
the other Loan Documents, it is not the intention of the Lender to accelerate
the maturity of any interest that is not secured by this Mortgage at the time
of such acceleration or to collect unearned interest at the time of such
acceleration.

 

9.7           Notices.  Any notices and other communications
permitted or required by the provisions of this Mortgage (except for telephonic
notices expressly permitted) shall be in writing and shall be deemed to have
been properly given or served by depositing the same with the United States
Postal Service, or any official successor thereto, designated as Certified
Mail, Return Receipt Requested, bearing adequate postage, or deposited with
reputable private courier or overnight delivery service, and addressed as
hereinafter provided.  Each such notice
shall be effective upon being deposited as aforesaid.  The time period within which a response to any
such notice must be given, however, shall commence to run from the date of
receipt of the notice by the addressee thereof. 
Rejection or other refusal to accept or the inability to deliver because
of changed address of which no notice was given shall be deemed to be receipt
of the notice sent.  By giving to the
other party hereto at least ten (10) days’ notice thereof, either party hereto
shall have the right from time to time to change its address and shall have the
right to specify as its address any other address within the United States of
America.

 

26

 

Each notice to Lender shall be addressed as
follows:

 

Home
Federal Savings Bank

1016
Civic Center Drive N.W.

P.O.
Box 6947

Rochester,
Minnesota 55903

 

Each
notice to Borrower shall be addressed as follows:

Golden Grain Energy, LLC

Attn: 
Walter Wendland

1822 43rd Street SW

Mason City, Iowa 50401

 

With a copy to:

 

Bill Hanigan, Esq.

Brown, Winick, Graves, Gross, Baskerville

and Schoenebaum, P.L.C.

666 Grand Avenue, Suite 2000

Des Moines, Iowa 50309

 

9.8           Amendment.  Amendment to, waiver of, or modification of
any provision of this Mortgage must be made in writing.  No oral waiver, amendment, or modification
may be implied.

 

9.9           Use of Premises.  During the entire term of the Note and this
Mortgage, Borrower agrees not to convert the Premises to any use other than the
primary use as a dry milling ethanol plant. 
Any other use of the Premises shall constitute an Event of Default.

 

9.10         Priority of Future Advances.  Any advance or further agreement made between
Lender and Borrower pursuant to this Mortgage shall be superior to the rights
of the holder of any intervening lien or encumbrance.  This Mortgage secures all future advances by
Lender to Borrower and all future obligations of Borrower to Lender pursuant to
the Note up to and including the stated principal indebtedness of
$3,975,000.00.

 

9.11         Entire Agreement.  The parties acknowledge that the written
terms of the Note, this Mortgage, and the other documents issued in connection
with the Loan, accurately reflect the mutual understanding of Borrower and
Lender, as to all matters addressed therein, and Borrower further represents
and warrants that there are no other agreements or understandings, written or
oral, which exist between Borrower and Lender relating to the matters addressed
in said documents.

 

9.12         Lender’s Expense.  Should Lender make any payments hereunder or
under the Note or under any other loan document, or incur any liability, loss
or damage under or by reason of this Mortgage, the Note or any other loan
document, or in the defense of any claims or 

 

27

 

demands, the amount thereof, and all costs
and expenses, including all filing, recording, and title fees and any other
expenses relating to the Indebtedness Secured Hereby, including without
limitation filing fees for UCC continuation statements and any expense
involving modification thereto, attorneys’ fees, and any and all costs and
expenses incurred in connection with making, performing, or collecting the
Indebtedness or exercising any of Lender’s rights under the Note, this Mortgage
or any other loan document, including attorneys’ fees, the cost of appraisals
and the cost of any environmental inspections in connection therewith, and all
claims for brokerage and finder’s fees which may be made in connection with the
making of the loan, together with interest thereon, at the Default Rate, shall
become part of the Indebtedness Secured Hereby and shall be secured by this
Mortgage and the other loan document and Borrower hereby agrees to reimburse
Lender therefor immediately upon demand. 
Such sums, costs and expenses shall be, until so paid, part of the
Indebtedness Secured Hereby and Lender shall be entitled, to the extent
permitted by law, to receive and retain the full amount of the Indebtedness
Secured Hereby in any action for redemption by Borrower, for an accounting for
the proceeds of a foreclosure sale or of insurance proceeds or for
apportionment of an eminent domain damage award.

 

9.13         Lender’s Right to Counsel.  If Lender retains
attorneys to enforce any of the terms hereof or the Note or of any other loan
Document or because of the breach by Borrower of any of the terms hereof or
other Loan Document, or for the recovery of any Indebtedness Secured Hereby,
Borrower shall pay to Lender attorneys’ fees and all costs and expenses,
whether or not an action is actually commenced and the right to such attorneys’
fees and all costs and expenses shall be deemed to have accrued on the date
such attorneys are retained, shall include fees and costs in connection with
litigation, arbitration, mediation, bankruptcy and/or administrative
proceedings, and shall be enforceable whether or not such action is prosecuted
to judgment and shall include all appeals. 
Attorneys’ fee and expenses shall for purposes of this Mortgage include
all paralegal, electronic research, legal specialists and all other costs in
connection with that performance of Lender’s attorneys.

 

If Lender is, by reason of being the holder
of this Mortgage, made a party defendant in any litigation concerning this
Mortgage or the Premises or any part thereof or therein, or the construction,
maintenance, operation or the occupancy or use thereof by Borrower, then
Borrower shall indemnify, defend and hold Lender harmless from and against all
liability by reason of said litigation, including attorneys’ fees and all costs
and expenses incurred by Lender in any such litigation or other proceedings,
whether or not any such litigation or other proceedings is prosecuted to
judgment or other determination.

 

9.14         Other Representations and Warranties.  All statements contained in any loan
application, certificate or other instrument delivered by or on behalf of
Borrower to Lender or Lender’s representatives in connection with the Indebtedness
Secured Hereby shall constitute representations and warranties made by Borrower
hereunder.  Such representation and
warranties made hereunder and thereunder shall survive the delivery of this
Mortgage, and any misrepresentations thereunder shall be deemed as
misrepresentations hereunder.

 

9.15         Time of the Essence.  Borrower agrees that time is of the essence
with respect to all of the covenants, agreements and representations under this
Mortgage.

 

28

 

9.16         Survival of Representations, Warranties and Covenants.  All representations
covenants and warranties contained herein, or in any of the other Loan
Documents shall survive the delivery of the Note, this Mortgage and all other
Loan Documents and the provisions hereof shall continue to inure to the benefit
of Lender, its successors and assigns.

 

9.17         Waiver of Jury Trial.  No party to this Mortgage or any assignee,
successor, heir or personal representative of a party shall seek a jury trial
in any lawsuit, proceeding, counterclaim, or any other litigation proceedings
based upon or arising out of this Mortgage, any related agreement or
instrument, any other collateral for the Indebtedness or the dealings or the
relationship between or among the parties, or any of them.  No party will seek to consolidate any such
action, in which a jury trial has been waived, with any other action in which a
jury trial cannot or has not been waived. 
The provisions of this paragraph have been fully discussed by the
parties hereto, and these provisions shall be subject to no exceptions.  No party has in any way agreed with or
represented to any other party that the provisions of this paragraph will not
be fully enforced in all instances.

 

9.18         Minimum Requirement.  Borrower recognizes that the requirements
imposed upon Borrower hereunder, including, without limitation, insurance
requirements, are minimum requirements as determined by Lender and do not
constitute a representation that the requirements are complete or adequate.  Borrower understands that it is Borrower’s
duty and responsibility to act prudently and responsibly at all times for
Borrower’s protection and for the protection of the Premises.

 

[Signature
Page Follows]

 

29

 

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.

 

IN WITNESS WHEREOF, the Borrower has caused
these presents to be executed as of the date first above written.

 

	
   

  	
  GOLDEN GRAIN ENERGY, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ 

  	
    Walter
  Wendland

  	
   

  
	
   

  	
   

  	
   

  	
  Walter Wendland

  
	
   

  	
   

  	
  Its:

  	
    President

  
	
   

  	
   

  
	
   

  	
  Tax Identification No. 02-0575361

  

 

	
  STATE OF IOWA

  	
  )

  
	
   

  	
  )ss:

  
	
  COUNTY OF

  	
  Cerro Gordo

  	
  )

  
			

 

 

On this 25 day of January,
2006, before me, a Notary Public in and for the said State, personally appeared
Walter Wendland, to me personally known, who being by me duly sworn did say
that that person is the President of said limited liability company, that said
instrument was signed on behalf of the said limited liability company by
authority of its managers/members and the said Walter Wendland acknowledged the
execution of said instrument to be the voluntary act and deed of said limited
liability company by it voluntarily executed.

 

	
   

  	
      /s/ Christy
  Marchand

  
	
   

  	
  Notary Public in and for said State.

  

 

[Stamped:    CHRISTY
MARCHAND

Commission Number 709988

My Comm. Exp.  5-15-07 ]

 

 

[SIGNATURE PAGE FOR MORTGAGE]

 

 

HFSB Loan No. 3095

 

 

EXHIBIT A

 

Legal Description

 

Tract 1 :

 

Lot One (1) of Golden Grain
Energy First Subdivision, an Official Plat, now included in and forming a part
of Cerro Gordo County, Iowa.

 

Tract 2

 

That part of the North Half
(N1/2) of Section Twenty (20), Township Ninety-six (96) North, Range Twenty
(20) West of the 5th P.M., Cerro Gordo County, Iowa, described as follows:

 

Commencing at the Southwest
corner of the Northeast Quarter (NE 1/4) of said Section 20; thence North 89
degrees 47 minutes 35 seconds West (assumed bearing) along the South line of
the Northwest Quarter (NW 1/4) of said Section 20 a distance of 65.91 feet to
the Easterly railroad right-of-way line; thence North 00 degrees 16 minutes 08
seconds East along said Easterly right-of-way line 229.00 feet to the point of
beginning; thence continuing North 00 degrees 16 minutes 08 seconds East along
said Easterly right-of-way line 450.00 feet; thence South 89 degrees 47 minutes
35 seconds East 66.12 feet to the East line of the Northwest Quarter (NW 1/4)
of said Section 20, thence South 89 degrees 45 minutes 24 seconds East 833.88
feet; thence South 00 degrees 16 minutes 08 seconds West 450.00 feet to a point
229.00 feet North of the South line of the Northeast Quarter (NE 1/4) of said
Section 20; thence North 89 degrees 45 minutes 24 seconds West parallel with
said South line 834.02 feet to the East line of the Northwest Quarter (NW 1/4)
of said Section 20; thence North 89 degrees 47 minutes 35 seconds West parallel
with the South line of the Northwest Quarter (NW 1/4) of said Section 20 a
distance of 65.98 feet to the point of beginning.

 

Tract 3

 

That part of the Northwest
Quarter (NW 1/4) of Section Twenty-nine (29), Township Ninety-six (96) North,
Range Twenty (20) West of the 5th P.M., Cerro Gordo County, Iowa, described as
follows:  Commencing at the North Quarter
(N1/4) corner of said Section 29; thence North 89 degrees 57 minutes 54 seconds
West (assumed bearing) along the North line of the Northwest Quarter (NW 1/4)
of said Section 29 a distance of 37.38 feet to the point of beginning; thence
South 06 degrees 45 minutes 09 seconds West 258.77 feet to the Easterly
railroad right-of-way line; thence North 00 degrees 19 minutes 05 seconds East
along said Easterly right-of-way line 257.00 feet to the North line of said
Northwest Quarter (NW 1/4); thence South 89 degrees 57 minutes 54 seconds East
along said North line 29.00 feet to the point of beginning.

 

Note:      Parcel designations are for convenience of
reference only and do not constitute an integral part of the legal description.

 

A-1

 

EXHIBIT B

 

Permitted Encumbrances

 

1.             Mortgage dated January
16, 2004, filed January 16, 2004, as Document No. 2004-591 executed by Golden
Grain Energy, LLC in favor of Home Federal Savings Bank, as amended by First
Amendment dated January 30, 2006, filed                ,
2006 as Document No.                   .

 

B-1

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