Document:

Exhibit 10.3

PROMISSORY NOTE

(Amended and
Restated Note)

(Variable Rate, Revolving Loan)

	
  Not to Exceed $8,000,000.00

  	
   

  	
  Sioux Falls, South
  Dakota

  
	
   

  	
   

  	
  August 28, 2006

  

 

FOR VALUE RECEIVED, NORTHERN LIGHTS ETHANOL, LLC, a South
Dakota Limited Liability Company (“Borrower”), hereby promises to pay to the
order of U.S. BANK NATIONAL ASSOCIATION,
a national banking association (“Lender”, which term shall include any future
holder hereof), at 141 N. Main Avenue, Sioux Falls, South Dakota, or at such
other place as Lender may from time-to-time designate in writing, in lawful
money of the United States of America, the principal sum of Eight Million &
00/100 Dollars ($8,000,000.00) or so much thereof as may be advanced hereunder,
including all amounts due or incurred by Borrower in accordance with the terms
of the Amended and Restated Loan Agreement between Borrower and Lender dated as
of August 28, 2006 (the “Amended Loan Agreement”), or due or incurred by
Borrower under the terms of any other Loan Document as defined in such Amended
Loan Agreement.

AMENDMENT OF NOTE. 
This Promissory Note amends and restates that Promissory Note dated
March 30, 2005, in an original principal amount not to exceed $5,000,000.00 and
that Promissory Note dated March 30, 2005, in an original principal amount not
to exceed $3,000,000.00, each of which Borrower delivered to Lender pursuant to
the Loan Agreement between Borrower and Lender which has been amended and
restated by the Amended Loan Agreement.

CALCULATION AND PAYMENT OF INTEREST. The unpaid
principal balance will bear interest at an annual rate equal to the prime rate
announced by Lender from time-to-time (the “Prime Rate”).  The interest rate shall be adjusted each time
that the Prime Rate changes.  Lender will
strive to inform Borrower of each change in the Prime Rate, but each adjustment
in the Prime Rate is effective whether or not Lender informs Borrower of such
change. Payments of all interest accrued hereunder shall be made June 30,
September 30, December 31 and March 31 of each year unless such day is not a
Business Day as defined in the Amended Loan Agreement (in which case the
Business Day which immediately follows such day shall apply) in which any
amount is outstanding under the Note (the “Quarterly Payment Date”).  The first Quarterly Payment Date shall be
September 30, 2006, and an interest only payment shall be due that day and each
Quarterly Payment Date thereafter until August 31, 2014 (the “Maturity Date”).  The Prime Rate applicable on the date of this
Note shall be Eight and One Quarter percent (8.25%).  Interest shall be calculated on a 365/360
simple basis; that is, by applying the ratio of the annual interest rate over a
year of 360 days, multiplied by the outstanding principal balance, multiplied
by the actual number of days the principal balance is outstanding.

REVOLVING FEATURE. 
Borrower may from time-to-time prior to the Maturity Date draw, on a
revolving basis, the difference between the outstanding principal amount

 

hereunder and Eight Million Dollars ($8,000,000.00)
(the “Revolving Loan Maximum”).  Lender’s
obligation to make any advance under this Promissory Note is conditioned upon
(i) all representations and warranties made by Borrower in the Amended Loan
Agreement remaining true, accurate and complete, (ii) Borrower’s continued
compliance with all other terms and conditions of the Amended Loan Agreement,
(iii) no Event of Default having occurred under this Promissory Note, or any
other Promissory Note between the parties hereto, or under any other Loan
Document, (iv) Borrower demonstrating to Lender’s satisfaction that such funds
shall be used in operations of Borrower’s ethanol production facility and to
make distributions to Borrower’s members, and (v) Borrower delivering to Lender
such mortgage(s), amendment(s) to the Mortgage and/or other documents, and
taking such other actions as Lender shall deem appropriate to secure this Note,
and Lender obtaining such endorsements, riders, modifications and/or updates to
the Title Policy as Lender may deem appropriate in connection with such
security.  Subject to these conditions,
Lender shall advance to Borrower hereunder, such amounts as Borrower may from
time-to-time request, not to exceed the Revolving Loan Maximum. Such requests
for advances hereunder shall be funded the next Business Day if received by
Lender not later than 11:00 a.m. of any Business Day, subject to Lender
requiring additional time to confirm Borrower has satisfied the foregoing
conditions at the time each such advance is requested and made.

UNUSED COMMITMENT FEE.  Borrower shall pay Lender in arrears each
Quarterly Payment Date an unused commitment fee equal to three-eighths of one
percent (.0375%) multiplied by the difference, if any, of the Revolving Loan
Maximum minus the average daily outstanding principal balance due hereunder for
such prior quarter.

PAYMENT IN FULL AT MATURITY.  The total unpaid principal amount and all
interest thereon and any other amount due hereunder shall be payable on the
Maturity Date.  THIS NOTE REQUIRES A
BALLOON PAYMENT.

PAYMENTS.  All
payments under this Note shall be made in immediately available funds.  In the event there is no outstanding Event of
Default, all payments made hereunder shall be credited to amounts due hereunder
(including principal, accrued interest, and late payment charges) in such order
as U.S. Bank may elect.

PREPAYMENTS. 
Borrower may prepay this Note in whole or in part at any time, and if in
part from time-to-time, during the entire term of this Note, without penalty or
premium.  No prepayment shall reduce the
amount of any scheduled payment.

COLLATERAL; COORDINATION WITH AMENDED  LOAN AGREEMENT.  This
Note is within the definition of the “Note” in the Amended Loan Agreement, and
is subject to the additional terms and conditions set forth in the Amended Loan
Agreement and the Loan Documents referred to therein.  This Note is secured by a Mortgage, Security
Agreement, Assignment of Leases and Rents and Fixture Financing Statement dated
the same date as this Note, on the Project, as well as other collateral
described in the Amended Loan Agreement and the other Loan Documents. This
Promissory Note shall further be secured by a Mortgage -

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Collateral Real Estate Mortgage; Security Agreement,
Fixture Filing and Assignment of Rents, as amended, dated as of December 31,
2002, containing terms acceptable to Lender and which shall provide Lender a
first position mortgage on the Project, subject only to the Mortgage and the
Permitted Encumbrances.  Capitalized
terms not defined herein shall have the meaning given such terms in the Amended
Loan Agreement.

LATE PAYMENT; GRACE PERIOD.  If a payment due hereunder is not made within
ten (10) days after the date when due, Borrower shall pay to Lender a late
payment charge of Five Hundred Dollars ($500.00) to compensate Lender for a
portion of the cost related to handling the overdue payment.  After any Event of Default, as defined in the
Amended Loan Agreement, then the entire principal sum evidenced by this Note,
together with all accrued and unpaid interest, shall, at the option of the
holder hereof, bear interest at the rate per annum (the “Default Rate”) equal
to 3% in excess of the rate of interest per annum which would otherwise be
payable hereunder, and become immediately due and payable without further
notice (except as provided in the Amended Loan Agreement), demand or
presentment for payment, and without any relief whatever from any valuation or
appraisement laws.

PAYMENT OF OTHER ITEMS.  If Borrower defaults under any of the terms
of this Note, Borrower shall pay all reasonable costs and expenses, including
without limitation attorneys’ fees (including any service tax thereon) and
costs, incurred by Lender in enforcing this Note immediately upon Lender’s
demand, whether or not any action or proceeding is commenced by Lender.  Without limiting the generality of the
preceding sentence, such costs and expenses shall include all attorneys’ fees
and costs incurred by Lender in connection with any federal or state
bankruptcy, insolvency, reorganization, or other similar proceeding by or
against Borrower or any surety, guarantor or endorser of this Note which in any
way affects Lender’s exercise of its rights and remedies under this Note or
under the Amended Loan Agreement or any other Loan Document.  Maker hereby stipulates that Lender is a “regulated
lender” within the meaning of SDCL 54-3-13 and other applicable South Dakota
statutes.

NO OFFSET.  No indebtedness evidenced by this Note shall
be offset by all or part of any claim, cause of action, or cross-claim of any
kind, whether liquidated or unliquidated, which Borrower now has or may
hereafter acquire or allege to have acquired against Lender.  To the fullest extent permitted by law,
Borrower waives the benefits of any applicable law, regulation, or procedure
which provides, in substance, that where cross demands for money exist between
parties at any point in time when neither demand is barred by the applicable
statute of limitations, and an action is thereafter commenced by one such party,
the other party may assert the defense of payment in that the two demands are
compensated so far as they equal each other, notwithstanding that an
independent action asserting the claim would at the time of filing the response
be barred by the applicable statute of limitations.

CERTAIN
BORROWER WAIVERS. 
Borrower waives presentment, protest and demand, notice of protest,
demand and of dishonor and nonpayment of this Note and any lack of diligence or
delays in collection or enforcement of this Note.  Borrower agrees that this Note, or any
payment hereunder, may be extended from time-to-time, and Borrower consents to
the release of any party liable for the obligation evidenced by this Note, the
release of any of the

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security for this Note, the acceptance of any other
security therefor, or any other indulgence or forbearance whatsoever, all
without notice to any party and without affecting the liability of Borrower.

APPLICABLE LAW. 
This note shall be construed under and governed by the laws of the State
of south Dakota, without giving effect to conflict of laws or principles
thereof, but giving effect to federal laws of the United States applicable to
national banks.  Whenever possible, each
provision of this note and any other statement, instrument or transaction
contemplated hereby or relating hereto, shall be interpreted in such manner as
to be effective and valid under such applicable law, but, if any provision of
this note or any other statement, instrument or transaction contemplated hereby
or relating hereto shall be held to be prohibited or invalid under such
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this note or any other statement, instrument or
transaction contemplated hereby or relating hereto.

NO
WAIVER; CERTAIN MISCELLANEOUS PROVISIONS. Failure to exercise
any option provided herein shall not constitute a waiver of the right to
exercise the same in the event of any subsequent default. No modification or
waiver by Lender of any of the terms of this Note shall be valid or binding on
Lender unless such modification or waiver is in writing and signed by
Lender.  Without limiting the generality
of the preceding sentence, no delay, omission or forbearance by Lender in
exercising or enforcing any of its rights and remedies under this Note shall
constitute a waiver of such rights or remedies. Lender’s rights and remedies
under this Note are cumulative with and in addition to all other legal and
equitable rights and remedies which Lender may have in connection with the
Loan.   The headings of paragraphs of
this Note are for convenience of the parties only and shall not be used in
interpreting this Note.  If this Note is
lost, stolen, or destroyed, upon Borrower’s receipt of a reasonably
satisfactory indemnification agreement executed by Lender, or if this Note is
mutilated, upon Lender’s surrender of the mutilated Note to Borrower, Borrower
shall execute and deliver to Lender a new promissory note which is identical in
form and content to this Note to replace the lost, stolen, destroyed or
mutilated Note. Time is of the essence in the performance of each provision of
this Note by Borrower.

AT THE OPTION OF LENDER,
THIS NOTE MAY BE ENFORCED IN ANY FEDERAL COURT OR SOUTH DAKOTA STATE COURT
SITTING IN SIOUX FALLS, SOUTH DAKOTA; AND BORROWER CONSENTS TO THE JURISDICTION
AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS
IS NOT CONVENIENT.  IN THE EVENT BORROWER
COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR
CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY
THIS NOTE, LENDER AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED
TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER
CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED
WITHOUT PREJUDICE.

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BORROWER AND LENDER EACH
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS NOTE OR ANY OF THE LOAN DOCUMENTS (AS
DEFINED IN THE AMENDED LOAN AGREEMENT) OR THE TRANSACTIONS CONTEMPLATED HEREBY
OR THEREBY.

IN WITNESS WHEREOF,
Borrower has executed this Note as of the date first above written.

	
   

  	
   

  	
  northern lights
  ethanol, llc

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/

  	
  Delton Strasser

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Delton Strasser

  
	
   

  	
   

  	
  Its:

  	
   

  	
  President

  

 

 5Exhibit 10.4

This document prepared by

and after recording return to:

Scott Perrenoud

CADWELL SANFORD DEIBERT & GARRY, LLP

200 East 10th Street, Suite 200

Sioux Falls, South Dakota  57104

Telephone:  605-336-0828

MORTGAGE, SECURITY AGREEMENT,

ASSIGNMENT OF LEASES AND RENTS

AND FIXTURE FINANCING STATEMENT

(CONSTRUCTION
MORTGAGE)

This
Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture
Financing Statement (this “Mortgage”) is made as of August 28, 2006, by
Northern Lights Ethanol, LLC, a South Dakota limited liability company (“Borrower”),
having its principal offices at Big Stone City, South Dakota, in favor of U.S.
Bank National Association, a national banking association (“Lender”), having
its principal offices at 141 North Main Avenue, Sioux Falls, South Dakota.

R E C I T A L S:

A.            Lender has lent, or conditionally
agreed to lend, to Borrower the principal sum of Thirty Three Million and
no/100 Dollars ($33,000,000.00) (the “Expansion Loan”), to be repaid with
interest thereon, as evidenced by Borrower’s Expansion Construction Note (the “Note”,
which term shall include any amendment, modification, supplement, extension,
renewal, replacement or restatement thereof), which Expansion Loan is the
subject of a Amended and Restated Loan Agreement between Borrower and Lender
(the “Loan Agreement”, which term shall include any amendment, modification,
supplement, extension, renewal, replacement or restatement thereof).  The Note, the Loan Agreement and any other
Loan Document (as defined in the Loan Agreement) each dated the same date as
this Mortgage, are hereby incorporated by reference, and, together with this
Mortgage, as any of the same may be amended, modified, supplemented, extended,
renewed, replaced or restated, are sometimes collectively referred to herein as
the “Loan Documents”.

B.            The obligations secured by this
Mortgage (the “Obligations”) are as follows:

(i)            the
principal amount of $33,000,000.00 or so much thereof as may be advanced by
Lender under the Note and pursuant to the Loan Agreement; plus

 

(ii)           interest
on the amount advanced and unrepaid, at the interest rate or rates provided in
the Note; plus

(iii)          all
other amounts payable by Borrower and all other agreements of Borrower under
the Loan Documents as the same now exist or may hereafter be amended;

(iv)          all
of Borrower’s other obligations of performance under the Loan Agreement and the
other Loan Documents;

(v)           all
Borrower’s other obligations of payment and performance secured by the Prior
Mortgages, including the “Secured Obligations,” as defined by the Collateral
Real Estate Mortgage (the “Second Mortgage”) and the “Obligations,” as defined
in the First Mortgage (as such Mortgages are defined below); and

(vi)          all
debts, liabilities and obligations of the Borrower to Lender under any interest
rate swap, cap, collar or floor transaction entered into under any ISDA Master
Agreement or other agreement evidencing an interest rate swap, cap, collar or
floor transaction arrangement between Borrower and Lender, whether presently or
in the future existing, including any Schedule and Confirmation entered into
thereunder, all as amended, modified, supplemented or amended from
time-to-time.

C.            The Obligations shall mature on or
before August 31, 2014 (the “Maturity Date”).

D.            The maximum principal indebtedness
secured hereby is Thirty Three Million and no/100 Dollars ($33,000,000.00),
plus the amount of that Obligation described in Recital B(vi), plus amounts
which may be advanced by Lender in protection of the Mortgaged Property or this
Mortgage.

E.             Borrower holds a leasehold interest
in land described in Exhibit A under the terms and conditions of a Big Stone
Plant Property Lease with Big Stone-Grant Development and Transportation,
L.L.C., dated April 18, 2001 (the “Big Stone Plant Property Lease”), which
Lease has been filed for record in the Office of the Register of Deeds, Grant
County, South Dakota, on September 14, 2001, and recorded in Book 223 of Misc.
on page 704, as Document Number 199861.

F.             Borrower holds ingress and egress easements
rights on certain land and railroad spur lines identified in Exhibit A under
the terms and conditions of an access and rail agreement dated April 18, 2001,
granted by Otter Tail Corporation, f/k/a Otter Tail Power Company;
Montana-Dakota Utilities Co., a division of MDU Resources Group, Inc., f/k/a
Montana-Dakota Utilities Co.; and Northwestern Public Service, a division of
NorthWestern Corporation, f/k/a Northwestern Public Service Company
(collectively the “Big Stone Plant Co-Owners”) (the “Access and Rail Agreement”).

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G.            Borrower earlier granted Lender a
Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture
Financing Statement evidencing a loan in the principal amount of Thirty One
Million One Hundred Thousand Dollars ($31,100,000.00) from Lender to Borrower,
filed for record with the Register of Deeds of Grant County, South Dakota, on
September 14, 2001, at 1:25 P.M. and recorded in Book 260 at Page 178 (the “First
Mortgage”).

H.            Borrower earlier granted Lender an
additional Mortgage-Collateral Real Estate Mortgage; Security Agreement,
Fixture Filing and Assignment of Rents, as amended, filed for record with the
Register of Deeds of Grant County, South Dakota, on January 9, 2003, at 1:10
P.M., and recorded in Book 278 at Page 953 (the $31,100,000.00 Mortgage
referenced above, and such Collateral Real Estate Mortgage are sometimes
referred to herein as “the Prior Mortgages”).

NOW,
THEREFORE, Borrower, in consideration of Lender making the Expansion Loan, and
to secure the Expansion Loan and payment and performance of the Obligations,
hereby grants, bargains, sells, conveys and mortgages to Lender, its successors
and assigns, forever, with power of sale, and grants to Lender, its successors
and assigns, a security interest in, the following, all of which is called the “Mortgaged
Property”:

A.  LAND AND IMPROVEMENTS

Borrower’s
leasehold interest in and to the land described in the Big Stone Plant Property
Lease and the Borrower’s easement rights and other rights in and to the land described
in the Access and Rail Agreement and all hereditaments, easements and
appurtenances thereto, whether now existing or hereafter acquired by Borrower
(collectively the “Land”), and all improvements and structures thereon, whether
presently or in the future placed or located thereon (the “Improvements”); and

B.  FIXTURES AND PERSONAL PROPERTY

All
fixtures (the “Fixtures”), and all machinery, equipment and personal property
(collectively the “Personal Property”) now or hereafter located on, in or under
the Land and the Improvements, or usable in connection with the Land or the
Improvements, and which are owned by Borrower or in which Borrower has an
interest, including any construction and building materials stored on and to be
included in the Improvements, plus any repairs, replacements and betterments to
any of the foregoing and the proceeds and products thereof; and

C.  LEASES AND RENTS

All
rights of Borrower with respect to tenants or occupants now or hereafter
occupying any part of the Land or the Improvements, if any, including all
leases and licenses and rights in

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connection
therewith, whether oral or written (collectively the “Leases”), and all rents,
income, both from services and occupation, royalties, revenues and payments,
including prepayments and security deposits (collectively the “Rents”), which
are now or hereafter due or to be paid in connection with the Land, the
Improvements, the Fixtures or the Personal Property; and

D.  GENERAL INTANGIBLES

All
general intangibles of Borrower which relate to any of the Land, the
Improvements, the Fixtures, the Personal Property, the Leases or the Rents,
including proceeds of insurance and condemnation or conveyance of the Land and
the Improvements, accounts, trade names, contract rights, accounts receivable
and bank accounts; and

E.  AFTER ACQUIRED PROPERTY AND PROCEEDS

All
after acquired property similar to the property herein described and conveyed
which may be subsequently acquired by Borrower and used in connection with the
Land, the Improvements, the Fixtures, the Personal Property and other property;
and all cash and non-cash proceeds and products of all of the foregoing
property.

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

PROVIDED
NEVERTHELESS, should Borrower pay and perform all the Obligations, then these
presents will be of no further force and effect, and this Mortgage shall be
satisfied by Lender, at the expense of Borrower.

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

BORROWER
FURTHER agrees as follows:

ARTICLE I

AGREEMENTS

Section
1.1  Performance of Obligations;
Incorporation by Reference.  Borrower
shall pay and perform the Obligations. 
Time is of the essence hereof. 
All of the covenants, obligations, agreements, warranties and
representations of Borrower contained in the Loan Agreement and

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the other Loan
Documents and all of the terms and provisions thereof, are hereby incorporated
herein and made a part hereof by reference as if fully set forth herein.

Section
1.2  Further Assurances.  If Lender requests, Borrower shall sign and
deliver and cause to be recorded as Lender shall direct any further mortgages,
instruments of further assurance, certificates and other documents as Lender
reasonably may consider necessary or desirable in order to perfect, continue
and preserve the Obligations and Lender’s rights, title, estate, liens and
interests under the Loan Documents. 
Borrower further agrees to pay to Lender, upon demand, all costs and
expenses incurred by Lender in connection with the preparation, execution, recording,
filing and refining of any such documents, including attorneys’ fees and title
insurance costs.

Section
1.3  Sale, Transfer, Encumbrance.  If Borrower sells, conveys, transfers or
otherwise disposes of, or encumbers, any part of its interest in the Mortgaged
Property, whether voluntarily, involuntarily or by operation of law, without
the prior written consent of Lender, Lender shall have the option to declare
the Obligations immediately due and payable without notice.  Included within the foregoing actions
requiring prior written consent of Lender are: (a) sale by deed or contract for
deed; (b) mortgaging or granting a lien on the Mortgaged Property; (c) a
transfer which changes the persons in control of Borrower or which transfers
more than 25% of the beneficial interest in Borrower, except for transfers to
Affiliates as defined in the Loan Agreement; and (d) Borrower’s entry into a
Lease.  Borrower shall give notice of any
proposed action to Lender at least thirty (30) days prior to taking such
action.  Borrower shall pay all costs and
expenses incurred by Lender in evaluating any such action.  Lender may condition such consent upon
modification of the Loan Documents or payment of fees.  No such action shall relieve Borrower from
liability for the Obligations.  The
consent by Lender to any action shall not constitute a waiver of the necessity
of such consent to any subsequent action.

Section
1.4  Insurance.  Borrower shall obtain, maintain and keep in
full force and effect (and upon request of Lender shall furnish to Lender
copies of) policies of insurance as described in, and meeting the requirements
set forth in, Exhibit B attached hereto, and upon request of Lender shall
furnish to Lender proof of payment of all premiums for such insurance.  At least ten (10) days prior to the
termination of any such coverage, Borrower shall provide Lender with evidence
satisfactory to Lender that such coverage will be renewed or replaced upon
termination with insurance that complies with the provisions of this Section.  Borrower, at its sole cost and expense, from
time to time when Lender shall so request, will provide Lender with evidence,
in a form acceptable to Lender, of the full insurable replacement cost of the
Mortgaged Property.  All property
(including boiler and machinery) and liability insurance policies maintained by
Borrower pursuant to this Section shall (i) include effective waivers by the
insurer of all claims for insurance premiums against Lender, and (ii) provide
that any losses shall be payable notwithstanding (a) any act of negligence by
Borrower or Lender, (b) any foreclosure or other proceedings or notice of
foreclosure sale relating to the Mortgaged Property, or (c) any release from
liability or waiver of subrogation rights granted by the insured.  All insurance policies

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maintained by
Borrower pursuant to the foregoing provisions shall respond on a primary basis
relative to any other insurance carried by Lender in the event of loss.  Insurance terms not otherwise defined herein
shall be interpreted consistent with insurance industry usage.

Section
1.5  Taxes, Liens and Claims,
Utilities.  Except as otherwise
provided in the Loan Agreement, Borrower, at least (5) days before any penalty
attaches thereto, shall pay and discharge, or cause to be paid and discharged,
all taxes, assessments and governmental charges and levies (collectively “Impositions”)
imposed upon or against the Mortgaged Property or the Rents, or upon or against
the Obligations, or upon or against the interest of Lender in the Mortgaged
Property or the Obligations, except Impositions measured by the income of
Lender.  Borrower shall provide evidence
of such payment at Lender’s request. 
Except as otherwise provided in the Loan Agreement, Borrower shall keep
the Mortgaged Property free and clear of all liens, encumbrances, easements,
covenants, conditions, restrictions and reservations (collectively “Liens”)
except those of the Prior Mortgages and those listed on Exhibit A attached
hereto (the “Permitted Encumbrances”). 
Borrower shall pay or cause to be paid when due all charges or fees for
utilities and services supplied to the Mortgaged Property.  Notwithstanding anything to the contrary
contained in this Section, Borrower shall not be required to pay or discharge
any Imposition or Lien so long as Borrower shall in good faith, and after
giving notice to Lender, contest the same by appropriate legal
proceedings.  If Borrower contests any
Imposition or Lien against the Mortgaged Property, Borrower shall provide such
security to Lender as Lender shall reasonably require against loss or
impairment of Borrower’s ownership of or Lender’s lien on the Mortgaged
Property and shall in any event pay such Imposition or Lien before loss or
impairment occurs.

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

Section
1.7  Maintenance and Repair,
Compliance with Laws.  Borrower shall
cause the Mortgaged Property to be operated, maintained and repaired in safe
and good repair, working order and condition, reasonable wear and tear excepted;
shall not commit or permit waste thereof; except as provided in any Loan
Document, shall not remove, demolish or substantially alter the design or
structural character of any Improvements without the prior written consent of

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Lender; shall
complete or cause to be completed forthwith any Improvements which are now or
may hereafter be under construction upon the Land; shall comply or cause
compliance with all laws, statutes, ordinances and codes, and governmental
rules, regulations and requirements, applicable to the Mortgaged Property or
the manner of using or operating the same, and with any covenants, conditions,
restrictions and reservations affecting the title to the Mortgaged Property,
and with the terms of all insurance policies relating to the Mortgaged
Property; and shall obtain and maintain in full force and effect all consents,
permits and licenses necessary for the use and operation of the Mortgaged
Property.

Section
1.8  Leases Under which Borrower is
Landlord.  

(a)           Borrower shall not enter into,
modify, amend, cancel or terminate any Leases without Lender’s prior written
consent, and shall furnish to Lender, upon execution, a complete and fully
executed copy of each of the Leases.

(b)           Borrower shall, at its cost and
expense, perform each obligation to be performed by Borrower under each of the
Leases; not borrow against, pledge or further assign any rents or other
payments due thereunder; not permit the prepayment of any rents or other
payments due for more than thirty (30) days in advance; and not permit any
Tenant to assign its Lease or sublet the premises covered by its Lease, unless
required to do so by the terms thereof and then only if such assignment does
not work to relieve the Tenant of any liability for performance of its obligations
thereunder.

(c)           If any Tenant shall default under its
Lease, Borrower shall, in the ordinary course of business, exercise sound
business judgment with respect to such default, but may discount, compromise,
forgive or waive claims or discharge the Tenant from its obligations under the
Lease or terminate or accept a surrender of the Lease.

(d)           If Borrower fails to perform any
obligations of Borrower under any Leases or if Lender becomes aware of or is
notified by any Tenant of a failure on the part of Borrower to so perform,
Lender may, but shall not be obligated to, without waiving or releasing
Borrower from any obligation in this Agreement or any of the other Loan
Documents, remedy such failure, and Borrower agrees to repay upon demand all
sums incurred by Lender in remedying any such failure, together with interest
thereon from the date incurred at the Default Rate (as defined in the Note).

(e)           For purposes of this Section, the
defined terms shall have the meanings provided in this Mortgage, including the
following defined terms:

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

 7
 

(ii)           “Tenant”:  Any Person, other than Borrower, using or occupying
any part of the Mortgaged Property pursuant to a Lease.

(f)            Nothing in this Section 1.8
constitutes consent by Lender to Borrower entering into any Lease, and it is
acknowledged that Borrower’s entry into a Lease without the Lender’s prior
written consent is a violation of Section 1.3 of this Agreement.

Section
1.9  Indemnity. Borrower shall
indemnify Lender and its directors, officers, agents and employees
(collectively the “Indemnified Parties”) against, and hold the Indemnified
Parties harmless from, all losses, damages, suits, claims, judgments,
penalties, fines, liabilities, costs and expenses by reason of, or on account
of, or in connection with the construction, reconstruction or alteration of the
Mortgaged Property, or any accident, injury, death or damage to any person or
property occurring in, on or about the Mortgaged Property or any street, drive,
sidewalk, curb or passageway adjacent thereto. 
The indemnity contained in this Section shall include costs of defense
of any such claim asserted against an Indemnified Party, including attorneys’
fees.  The indemnity contained in this
Section shall survive payment and performance of the Obligations and
satisfaction and release of this Mortgage and any foreclosure thereof or
acquisition of title by deed in lieu of foreclosure.

Section
1.10  Big Stone Plant Property Lease;
Access and Rail Agreement.

(a)           Borrower shall not modify, amend,
cancel or terminate the Big Stone Plant Property Lease or the Access and Rail
Agreement without Lender’s prior written consent.

(b)           Borrower shall, at its cost and
expense, timely perform each obligation to be performed by Borrower under the
Big Stone Plant Property Lease and the Access and Rail Agreement.

(c)           If Borrower fails to timely perform
any obligations of Borrower under the Big Stone Plant Property Lease, the
Access and Rail Agreement or if Lender becomes aware of or is notified by Big
Stone-Grant Industrial Development and Transportation, L.L.C., the Big Stone
Plant Co-Owners or any other party of a failure on the part of Borrower to so
perform, Lender may, but shall not be obligated to, without waiving or
releasing Borrower from any obligation in this Agreement or any of the other
Loan Documents, remedy such failure, and Borrower agrees to repay upon demand all
sums incurred by Lender in remedying any such failure, together with interest
thereon from the date incurred at the Default Rate (as defined in the Note).

ARTICLE
II

REPRESENTATIONS
AND WARRANTIES

Borrower
makes the following representations and warranties:

 8
 

 

Section
2.1  Ownership, Liens, Compliance with
Laws.  Borrower owns the Mortgaged
Property free from all Liens, except those of the Prior Mortgages and the
Permitted Encumbrances.  All applicable
zoning, environmental, land use, subdivision, building, fire, safety and health
laws, statutes, ordinances, codes, rules, regulations and requirements
affecting the Mortgaged Property permit the current use and occupancy thereof,
and Borrower has obtained all consents, permits and licenses required for such
use.  Borrower has examined and is
familiar with all applicable covenants, conditions, restrictions and
reservations, and with all applicable laws, statutes, ordinances, codes and
governmental rules, regulations and requirements affecting the Mortgaged Property,
and the Mortgaged Property complies with all of the foregoing.

Section
2.2  Use.  The Mortgaged Property is not homestead
property nor is it agricultural property or in agricultural use.

Section
2.3  Utilities, Services.  The Mortgaged Property is serviced by all
necessary public utilities, and all such utilities are operational and have
sufficient capacity.

Section
2.4 Access Agreement.  The Access
and Rail Agreement is in full force and effect, and has not been amended,
modified, terminated or cancelled, and there is no default by Borrower
thereunder, nor any statement of facts or circumstances which, with the giving
of notice or the lapse of time or both, would constitute a default by Borrower
thereunder or entitle the Big Stone Plant Co-Owners to terminate the Access and
Rail Agreement; nor has Borrower received or given any notice of default or
termination.

Section
2.5 Big Stone Plant Property Lease. 
The Lease is in full force and effect, and has not been amended,
modified, terminated or cancelled, and there is no default by Borrower
thereunder, nor any statement of facts or circumstances which, with the giving
of notice or the lapse of time or both, would constitute a default by Borrower
thereunder or entitle Big Stone-Grant Industrial Development and
Transportation, L.L.C. to terminate the Big Stone Plant Property Lease, nor has
Borrower received or given any notice of default or termination.  Borrower has provided Lender a true and
correct copy of the Big Stone Plant Property Lease and the Access and Rail
Agreement.

ARTICLE
III

CASUALTY;
CONDEMNATION

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

(a)           give
immediate notice to the Lender; and

 9
 

 

(b)           promptly
commence and diligently pursue to completion (in accordance with plans and
specifications approved by Lender) the restoration, repair and rebuilding of
the Mortgaged Property as nearly as possible to its value, condition and
character immediately prior to the Casualty; and

(c)           if
the Casualty is covered by insurance, immediately make proof of loss and
collect all insurance proceeds, all such proceeds to be payable to Lender or as
Lender shall direct.  If an Event of
Default shall be in existence, or if Borrower shall fail to provide notice to
Lender of filing proof of loss, or if Borrower shall not be diligently
proceeding, in Lender’s reasonable opinion, to collect such insurance proceeds,
then Lender may, but is not obligated to, make proof of loss, and is
authorized, but is not obligated, to settle any claim with respect thereto, and
to collect the proceeds thereof. 
Borrower shall not accept any settlement of an insurance claim, the
result of which shall be a payment which is $100,000.00 or more less than the full amount of the
claim, without the prior written consent of Lender.

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

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

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

(c)           Lender
shall have determined, in its reasonable discretion, that the restoration,
repair and rebuilding can be completed in accordance with plans and
specifications approved by Lender (such approval not to be unreasonably
withheld), in accordance with codes and ordinances and in accordance with the
terms, and within the time requirements in order to prevent termination, of the
Big Stone Plant Property Lease, the Access and Rail Agreement or any other
Lease, and in any event not less than six (6) months prior to the Maturity
Date.

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

(e)           The
Casualty shall have occurred more than twelve (12) months prior to the Maturity
Date.

 10
 

 

If any of these
conditions shall not be satisfied, then Lender shall have the right to use the
insurance proceeds to prepay the Expansion Loan in accordance with the
Note.  If any insurance proceeds shall
remain after completion of the restoration, repair and rebuilding of the
Mortgaged Property, they shall be disbursed to Borrower, or at the Lender’s
discretion, used to prepay the Expansion Loan in accordance with the Note.

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

(a)           give
immediate notice thereof to Lender, and send a copy of each document received
by Borrower in connection with the Condemnation to Lender promptly after
receipt; and

(b)           diligently
pursue any negotiation and prosecute any proceeding in connection with the
Condemnation at Borrower’s expense.  If
an Event of Default shall be in existence, or if Borrower, in Lender’s
reasonable opinion, shall not be diligently negotiating or prosecuting the
claim, Lender is authorized, but not required, to negotiate and prosecute the
claim and appear at any hearing for itself and on behalf of Borrower and to
compromise or settle all compensation for the Condemnation.  Lender shall not be liable to Borrower for
any failure by Lender to collect or to exercise diligence in collecting any
such compensation.  Borrower shall not
compromise or settle any claim resulting from the Condemnation if such
settlement shall result in payment of One
Hundred Thousand and No/100 Dollars ($100,000.00) or more less than Lender’s
reasonable estimate of the damages therefrom. 
All awards shall be paid to Lender.

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

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

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

(c)           Lender
shall have determined, in its reasonable discretion, that the restoration,
repair and rebuilding can be completed in accordance with plans and
specifications approved by Lender (such approval not to be unreasonably
withheld), in accordance with codes and ordinances and in accordance with the
terms, and within the time requirements

 11
 

in order to prevent termination, of the Big Stone
Plant Property Lease, the Access and Rail Agreement or any other Lease, and in
any event not less than six (6) months prior to the Maturity Date.

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

(e)           The
Condemnation shall have occurred more than twelve (12) months prior to the
Maturity Date.

If any of these
conditions shall not be satisfied, then Lender shall have the right to use the
condemnation proceeds to prepay the Expansion Loan in accordance with the
Note.  If any condemnation proceeds shall
remain after completion of the restoration, repair and rebuilding of the
Mortgaged Property, they shall be disbursed to Borrower, or at Lender’s discretion,
used to prepay the Expansion Loan in accordance with the Note.

ARTICLE
IV

DEFAULTS
AND REMEDIES

Section
4.1  Events of Default.  An Event of Default, as defined in the Loan
Agreement, shall constitute an Event of Default hereunder.

Section
4.2  Remedies.  Upon the occurrence of an Event of Default
described in the Loan Agreement, and upon the expiration of the applicable cure
period stated therein, if any, all of the Obligations shall be accelerated and
become immediately due and payable without notice or declaration to
Borrower.  The Obligations shall be due
and payable without presentment, demand or further notice of any kind.  Lender shall have the right to proceed to
protect and enforce its rights by one or more of the following remedies:

(a)           LENDER
SHALL HAVE THE RIGHT TO BRING SUIT either for damages, for specific performance
of any agreement contained in any Loan Document, for the foreclosure of this
Mortgage, or for the enforcement of any other appropriate legal or equitable
remedy.

(b)           LENDER
SHALL HAVE THE RIGHT TO SELL THE MORTGAGED PROPERTY AT PUBLIC AUCTION AND
CONVEY THE SAME TO THE PURCHASER IN FEE SIMPLE, as provided by law, Borrower to
remain liable for any deficiency.  Said
sale may be as one tract or otherwise, at the sole option of Lender.  In the event of any sale of the Mortgaged
Property pursuant to any judgment or decree of any court or at public auction
or otherwise in connection with the enforcement of any of the terms of this
Mortgage, Lender, its successors or assigns, may become the purchaser,

 12
 

and for the purpose of making settlement for or
payment of the purchase price, shall be entitled to deliver over and use the
Note and any claims for interest accrued and unpaid thereon, together with all
other sums, with interest, advanced or secured hereby and unpaid hereunder, in
order that there may be credited as paid on the purchase price the total amount
of the Obligations then due, including principal and interest on the Note and
all other sums, with interest, advanced or secured hereby and unpaid hereunder
or under any of the other Loan Documents.

(c)           LENDER
SHALL HAVE THE RIGHT TO OBTAIN THE APPOINTMENT OF A RECEIVER at any time after
the occurrence of an Event of Default. 
Lender may apply for the appointment of a receiver to the circuit court
for the county where the Mortgaged Property or any part thereof is located, by
an action separate from any foreclosure of this Mortgage pursuant to SDCL Chap.
21-21, or as a part of the foreclosure action under SDCL Chap. 21-47 or SDCL
Chap. 21-48 (it being agreed that the existence of a foreclosure pursuant to
SDCL Chapter 21-47 or SDCL Chap. 21-48 is not a prerequisite to any action for
a receiver hereunder).  Lender shall be
entitled to the appointment of a receiver without regard to waste, adequacy of
the security or solvency of Borrower. 
The receiver, who shall be an experienced property manager, shall
collect (until the Obligations are fully paid and satisfied and, in the case of
a foreclosure sale, during the entire redemption period) the Rents, and shall
manage the Mortgaged Property, execute Leases within or beyond the period of
the receivership if approved by the court and apply all rents, profits and
other income collected by him in the following order:

(i)            to
the payment of all reasonable fees of the receiver, if any, approved by the
court;

(ii)           to
the repayment of tenant security deposits, with interest thereon;

(iii)          to
the payment when due of delinquent or current real estate taxes or special
assessments with respect to the Mortgaged Property, or the periodic escrow for
the payment of the same;

(iv)          to
the payment when due of premiums for insurance of the type required by this
Mortgage, or the periodic escrow for the payment of the same;

(v)           to
the payment of all expenses for normal maintenance of the Mortgaged Property;
and

(vi)          the
balance to Lender (a) if received prior to the commencement of a foreclosure,
to be applied to the Obligations, in such order as Lender may elect and (b) if
received after the commencement of a foreclosure, to be applied to the amount
required to be paid to effect a reinstatement prior to foreclosure sale, or,

 13
 

after a foreclosure sale to any deficiency and
thereafter to the amount required to be paid to effect a redemption, with any
excess to be paid to Borrower.  Provided,
that if this Mortgage is not reinstated nor the Mortgaged Property redeemed as
provided by applicable law, the entire amount paid to Lender pursuant hereto
shall be the property of Lender together with all or any part of the Mortgaged
Property acquired through foreclosure.

Lender shall have the right, at any time and without
limitation, to advance money to the receiver to pay any part or all of the
items which the receiver should otherwise pay if cash were available from the
Mortgaged Property and sums so advanced, with interest at the Default Rate set
forth in the Note, shall be secured hereby, or if advanced during the period of
redemption shall be part of the sum required to be paid to redeem from the
sale.

(d)           LENDER
SHALL HAVE THE RIGHT TO COLLECT THE RENTS from the Mortgaged Property and apply
the same in the manner hereinbefore provided with respect to a receiver.  For that purpose, Lender may enter and take
possession of the Mortgaged Property and manage and operate the same and take
any action which, in Lender’s judgment, is necessary or proper to collect the
Rents and to conserve the value of the Mortgaged Property.  Lender may also take possession of, and for
these purposes use, any and all of the Personal Property.  The expense (including any receiver’s fees,
attorneys’ fees, costs and agent’s compensation) incurred pursuant to the
powers herein contained shall be secured by this Mortgage.  Lender shall not be liable to account to
Borrower for any action taken pursuant hereto other than to account for any
Rents actually received by Lender. 
Enforcement hereof shall not cause Lender to be deemed a mortgagee in
possession unless Lender elects in writing to be a mortgagee in possession.

(e)           LENDER
SHALL HAVE THE RIGHT TO ENTER AND TAKE POSSESSION of the Mortgaged Property and
manage and operate the same in conformity with all applicable laws and take any
action which, in Lender’s judgment, is necessary or proper to conserve the
value of the Mortgaged Property.

(f)            LENDER
SHALL HAVE ALL OF THE RIGHTS AND REMEDIES PROVIDED IN THE UNIFORM COMMERCIAL
CODE including the right to proceed under the Uniform Commercial Code
provisions governing default as to any Personal Property separately from the
real estate included within the Mortgaged Property, or to proceed as to all of
the Mortgaged Property in accordance with its rights and remedies in respect of
said real estate.  If Lender should elect
to proceed separately as to such Personal Property, Borrower agrees to make
such Personal Property available to Lender at a place or places acceptable to
Lender, and if any notification of intended disposition of any of such Personal
Property is required by law, such notification shall be deemed reasonably and
properly given if given at least ten (10) days before such disposition in the
manner hereinafter provided.

 14
 

(g)           LENDER
SHALL HAVE THE RIGHT TO FILE PROOF OF CLAIM and other documents as may be
necessary or advisable in order to have its claims allowed in any receivership,
insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceedings affecting Borrower, its creditors or its property,
for the entire amount due and payable by Borrower in respect of the Obligations
at the date of the institution of such proceedings, and for any additional
amounts which may become due and payable by Borrower after such date.

Each remedy herein
specifically given shall be in addition to every other right now or hereafter
given or existing at law or in equity, and each and every right may be
exercised from time to time and as often and in such order as may be deemed
expedient by Lender and the exercise or the beginning of the exercise of one
right shall not be deemed a waiver of the right to exercise at the same time or
thereafter any other right.  Lender shall
have all rights and remedies available under the law in effect now and/or at
the time such rights and remedies are sought to be enforced, whether or not
they are available under the law in effect on the date hereof.

Section
4.3  Expenses of Exercising Rights,
Powers and Remedies.  The reasonable
expenses (including any receiver’s fees, attorneys’ fees, appraisers’ fees,
environmental engineers’ and/or consultants’ fees, costs incurred for
documentary and expert evidence, stenographers’ charges, publication costs,
costs (which may be estimated as to items to be expended after entry of the
decree of foreclosure) of procuring all abstracts of title, continuations of
abstracts of title, title searches and examinations, title insurance policies
and commitments and extensions therefor, Torrens duplicate certificates of
title, UCC and chattel lien searches, and similar data and assurances with
respect to title as Lender may deem reasonably necessary either to prosecute
any foreclosure action or to evidence to bidders at any sale which may be had
pursuant to any foreclosure decree the true condition of the title to or the
value of the Mortgaged Property, and agent’s compensation) incurred by Lender
after the occurrence of any Event of Default and/or in pursuing the rights,
powers and remedies contained in this Mortgage shall be immediately due and
payable by Borrower, with interest thereon from the date incurred at the
Default Rate set forth in the Note, and shall be added to the indebtedness
secured by this Mortgage.

Section
4.4  Restoration of Position.  In case Lender shall have proceeded to
enforce any right under this Mortgage by foreclosure, sale, entry or otherwise,
and such proceedings shall have been discontinued or abandoned for any reason
or shall have been determined adversely, then, and in every such case, Borrower
and Lender shall be restored to their former positions and rights hereunder
with respect to the Mortgaged Property subject to the lien hereof.

Section
4.5  Marshaling.  Borrower, for itself and on behalf of all
persons, parties and entities which may claim under Borrower, hereby waives all
requirements of law relating to the marshalling of assets, if any, which would
be applicable in connection with the enforcement by Lender of its remedies for
an Event of Default hereunder, absent this waiver.  Lender shall not be

 15
 

required to sell
or realize upon any portion of the Mortgaged Property before selling or
realizing upon any other portion thereof.

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

Section
4.7  Lender’s Right to Cure Defaults.  If Borrower shall fail to comply with any of
the terms of the Loan Documents with respect to the procuring of insurance, the
payment of taxes, assessments and other charges, the keeping of the Mortgaged
Property in repair, or any other term contained herein or in any of the other
Loan Documents, Lender may make advances to perform the same without releasing
Borrower from any of the Obligations. 
Borrower agrees to repay upon demand all sums so advanced and all sums
expended by Lender in connection with such performance, including without
limitation attorneys’ fees, with interest at the Default Rate set forth in the
Note from the dates such advances are made, and all sums so advanced and/or
expenses incurred, with interest, shall be secured hereby, but no such advance
and/or incurring of expense by Lender, shall be deemed to relieve Borrower from
any default hereunder or under any of the other Loan Documents, or to release
Borrower from any of the Obligations.

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

 16
 

 

ARTICLE V

MISCELLANEOUS

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

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

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

	
  If to Borrower:

  	
   

  	
  Northern Lights Ethanol, LLC

  
	
   

  	
   

  	
  48416 144th
  Street

  
	
   

  	
   

  	
  Post Office Box
  356

  
	
   

  	
   

  	
  Big Stone City,
  South Dakota 57216

  
	
   

  	
   

  	
  Attention:
  Delton Strasser, President

  
	
   

  	
   

  	
  Telecopy No.:
  (605) 862-7904

  
	
   

  	
   

  	
   

  
	
  If to Lender:

  	
   

  	
  U.S. Bank National Association

  
	
   

  	
   

  	
  141 North Main
  Avenue

  
	
   

  	
   

  	
  Post Office Box
  5308

  
	
   

  	
   

  	
  Sioux Falls,
  South Dakota 57117

  
	
   

  	
   

  	
  Attention: Carl
  A. Johnson, Assistant Vice President

  
	
   

  	
   

  	
  Telecopy No.:
  (605) 333-3825

  

 

 17
 

 

Either party may
change its address for notices by a notice given not less than five (5)
Business Days prior to the effective date of the change.

Section
5.4  Applicable Law.  This Mortgage and the other Loan Documents
shall be construed and enforceable in accordance with, and be governed by, the
laws of the State of South Dakota, without giving effect to conflict of laws or
principles thereof, but giving effect to federal laws of the United States
applicable to national banks.  Whenever
possible, each provision of this Mortgage and any other statement, instrument
or transaction contemplated hereby or relating hereto, shall be interpreted in
such manner as to be effective and valid under such applicable law, but, if any
provision of this Mortgage or any other statement, instrument or transaction
contemplated hereby or relating hereto shall be held to be prohibited or
invalid under such applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Mortgage or any other
statement, instrument or transaction contemplated hereby or relating hereto.

Section
5.5  Waiver of Jury Trial.  Borrower and Lender each irrevocably waives
any and all right to trial by jury in any legal proceeding arising out of or
relating to this Mortgage or any of the other Loan Documents or the
transactions contemplated hereby or thereby.

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

Section
5.7  Assignability.  Lender shall have the right to assign this
Mortgage, in whole or in part, or sell participation interests herein, to any
person obtaining an interest in the Obligations.

Section
5.8  Headings; Recitals.  Headings of the Sections of this Mortgage are
inserted for convenience only and shall not be deemed to constitute a part
hereof.  The Recitals at the outset of
this Mortgage are incorporated herein as substantive provisions.

Section
5.9  Fixture Filing.  This instrument shall be deemed to be a
Fixture Filing within the meaning of the South Dakota Uniform Commercial Code, and
for such purpose, the following information is given:

(a)           Name and address of
Debtor:

Northern Lights Ethanol,
LLC

48416 144th Street

Post Office Box 356

Big Stone City, South Dakota 57216

Federal Tax I.D. No.: 46-0460145

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(b)           Name and address of
Secured Party:

U.S. Bank National
Association

141 North Main Avenue

Post Office Box 5308

Sioux Falls, South
Dakota 57117

(c)           Description
of the types (or items) of property covered: by this Fixture Filing:  All Debtor’s fixtures and personal property
as further set forth in granting clauses on pages 2 and 3 hereof.

(d)           Description
of real estate to which the collateral is attached or upon which it is or will
be located:  See Exhibit A hereto.

Section
5.10  Construction Mortgage.  This Mortgage is a Construction Mortgage
within the meaning of SDCL § 547A-9-334(h), and secures an obligation incurred
for the construction of improvements on land, including acquisition cost of the
land.

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

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

	
  

  	
  NORTHERN LIGHTS ETHANOL, LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/

  	
  Delton Strasser

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Delton Strasser

  
	
   

  	
   

  	
   

  	
  Title:   President

  
							

 

The Company has no seal.

 19
 

 

	
  STATE OF SOUTH DAKOTA

  	
   

  	
  )

  
	
   

  	
   

  	
  : SS

  
	
  COUNTY OF
  MINNEHAHA

  	
   

  	
  )

  

 

On
this the 28th day of August, 2006, before me the undersigned officer,
personally appeared Delton Strasser, who acknowledged himself to be the
President of Northern Lights Ethanol, LLC, a limited liability company, and
that he, as President, being authorized so to do, executed the foregoing
instrument for the purposes therein contained, by signing the name of the
limited liability company by himself as President.

IN WITNESS
WHEREOF, I hereunto set my hand and official seal.

 

	
  

  	
   

  	
   

  
	
   

  	
  Notary Public -
  South Dakota

  

 

My Commission Expires:

 20
 

 

EXHIBIT A

(Legal Description of Land)

Section 11:

(1) Parcel B in the SE1/4
of Section 11, Township 121 North, Range 47 West of the 5th P.M., Grant County, South Dakota; and (2)
nonexclusive easement over, upon and across that portion of access road located
in said SE1/4, as depicted on
Exhibit C attached, for driveway and ingress and egress purposes.

Section 12:

(1) Parcel A in the SW1/4
of Section 12, Township 121 North, Range 47 West of the 5th P.M., Grant County, South Dakota; and (2)
nonexclusive easement over, upon and across that portion of access road located
in said SW1/4, as depicted on Exhibit C attached, for driveway and ingress and
egress purposes; and (3) a portion of Easement No. 1 for Northern Lights
Railroad Spurline area in the SW1/4 of said Section 12, as depicted on Exhibit
A attached; and (4) Easement No. 1 for Steam Pipe Rack and Fireline in the
SW1/4 of said Section 12, as depicted on Exhibit D; and (5) Easement No. 2 for
RO-Water and Process Waste Water Line in the SW1/4 of said Section 12, as
depicted on Exhibit E; and (6) Easement No. 4 for Meter Pit Location and Water
Line in the S1/2 of said Section 12, as depicted on Exhibit G.

Section 13:

(1) A portion of Easement
No.1 for Northern Lights Railroad Spurline area in the NW1/4 of Section 13,
Township 121 North, Range 47 West of the 5th P.M., Grant County, South Dakota, as depicted
on Exhibit A attached; and (2) Easement No. 2 for Northern Lights maintenance
road area in said NW1/4, as also depicted on Exhibit A attached; and (3) a
nonexclusive easement for all rail access to Big Stone Plant co-owner’s
railroad spurline in the N1/2, as depicted on Exhibit B attached; and (4)
Easement No. 3 for Sanitary Sewer Line in the NW1/4 of said Section 13, as
depicted on Exhibit F.

Section 18:

A portion of a
nonexclusive easement for rail access to Big Stone Plant co-owners’ railroad
spurline, as depicted on Exhibit B attached, on the following described parcels
in Section 18, Township 121 North, Range 46 West of the 5th P.M., Grant County, South Dakota:

(1) SE1/4SWl/4, except
Burlington Northern Santa Fe railroad right-of-way; and the W1/2SE1/4 lying
northerly of the present right-of way of Chicago, Milwaukee, St. Paul and
Pacific Railway Company; and that part of Outlot 47 (which is also described as
the NE1/4SE1/4, except Outlot 48), and including the abandoned right-of-way of
the Chicago, Milwaukee, St. Paul and Pacific Railroad Company, all in Section
18, Township 121 North, Range 46 West of the 5th P.M., Grant County, South Dakota, according to
plat thereof on file and of record in the office of the Register of Deeds of
said county and state.

 21
 

(2) Sl/2NW1/4; and the
N1/2SW1/4, except railroad right-of-way; and except Hay’s Outlot located in the
NW1/4SW1/4 and the SW1/4NW1/4; and except a metes and bounds tract of land
described as follows: Commencing at the southwest corner of the NW1/4SW1/4,
thence North 45 rods, thence East 16 rods, thence South 45 rods, thence West 16
rods to the place of beginning (now known as Lots 1,2, and 3, Replat of Lot C
in NW1/4SW1/4 of 18-121-46), according to plat thereof on file and of record in
the office of the Register of Deeds of said county and state.

(3) N1/2NW114, except township road deeded at Deed
Record 58, page 561, in Section 18, Township 121 North, Range 46 West of the 5th P.M., Grant County, South Dakota.  (Copy of Deed Record 58, page 561 attached)

(4) The West 1613 feet of
that part of the NE1/4 lying South of the highway known as the Yellowstone
Trail, passing in an easterly direction through said quarter section, except
the West 500 feet of the South 403 feet of the North 2351 feet of the
SW1/4NE1/4; and except that part deeded for cemetery purposes to St. Charles
Catholic Church, but including the abandoned railroad right-of-way of the
Chicago, Milwaukee, St. Paul and Pacific Railway Co., all in Section 18,
Township 121 North, Range 46 West of the 5th P.M., Grant County, South Dakota, according to
plat thereof on file and of record in the office of the Register of Deeds of
said county and state.

(5) NE 1/4 lying North of
the highway known as the Yellowstone Trail, except the Cheese Company Outlot,
in Section 18, Township 121 North, Range 46 West of the 5th P.M., Grant County, South Dakota, according to
plat thereof on file and of record in the office of the Register of Deeds of
said county and state.

Section 7:

Easement No. 4 for meter
pit location and water line in the S1/2 of Section 7, Township 121 North, Range
6 West of the 5th P.M., Grant County, South Dakota, as depicted on Exhibit G.

SOMETIMES MORE GENERALLY
DESCRIBED AS:

Parcel A in the
Southwest Quarter (SW 1/4) of Section Twelve (12), Township One Hundred
Twenty-One (121) North, Range Forty-Seven (47) West of the Fifth Principal
Meridian, Grant County, South Dakota, according to the recorded plat thereof.

Parcel B in the
Southeast Quarter (SE 1/4) of Section Eleven (11), Township One Hundred
Twenty-One (121) North, Range Forty-Seven (47) West of the Fifth Principal
Meridian, Grant County, South Dakota, according to the recorded plat thereof

The Borrower holds
an ingress and egress easement rights on certain land and railroad spur lines
identified in the Access and Rail Agreement dated April 18, 2001, granted by
Otter Tail Corporation, f/k/a Otter Tail Power Company; Montana-Dakota
Utilities Co., a division of MDU Resources Group, Inc., f/k/a Montana-Dakota
Utilities Co.;

 22
 

Northwestern Public
Service, a division of NorthWestern Corporation, f/k/a Northwestern Public
Service Company and Northern Lights Ethanol, LLC:

The Southeast
Quarter (SE 1/4) of Section Eleven (11), Township One Hundred Twenty-One North
(121), Range Forth-Seven (47), West of the Fifth Principal Meridian, Grant
County, South Dakota;

The Southwest
Quarter (SW 1/4) of Section Twelve (12), Township One Hundred Twenty-One North
(121), Range Forty-Seven (47) West of the Fifth Principal Meridian, Grant
County, South Dakota;

The Northeast
Quarter (NE 1/4) and the Northwest Quarter (NW 1/4) of Section Thirteen (13),
Township One Hundred Twenty-One (121) North, Range Forty-Seven (47) West of the
Fifth Principal Meridian, Grant County, South Dakota; and

The Northwest
Quarter (NW 1/4), the Northeast Quarter (NE 1/4) and that portion of the
Southeast Quarter (SE 1/4) lying North of the Burlington Northern Sante Fe Main
line railroad Right of Way in Section Eighteen (18), Township One Hundred
Twenty-One (121) North, Range Forty-Six (46) West of the Fifth Principal
Meridian, Grant County, South Dakota.

 

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EXHIBIT B

(Insurance
Requirements)

I.                                         PROPERTY
INSURANCE

As to Improvements while under construction:

An ORIGINAL (or evidence acceptable to Lender of)
Builder’s Risk “All-Risk”, Completed Value (Non-Reporting) Form POLICY naming
Borrower as an insured, and covering the interests of all contractors (of all
tiers) in the Project, reflecting coverage of 100% of the insurable replacement
cost, and written by a carrier approved by Lender with a current A.M. Best
Company rating of at least A:VII (which is authorized to do business in the
State of South Dakota), that includes:

Lender’s Loss Payable
Endorsement naming U.S. Bank National Association as Mortgagee

30-day notice to Lender
in the event of cancellation or non-renewal by either party or material adverse
change

Replacement Cost Measure
of Recovery

Coverage for Foundations,
Off-site (Unscheduled and Temporary

Locations), Transit,
Testing, Flood, Earthquake, Collapse, and Boiler and

Machinery/Mechanical and
Electrical Breakdown, in such amounts as Lender and

Borrower mutually agree
is appropriate

Coverage for indirect
loss exposures (customarily referred to as “soft cost” exposures), “Contingent
Liability from Operation of Building Laws” coverage, “Demolition Costs”
coverage, “Increased Cost of Construction” coverage, with such additional
limits for such coverages as Lender may reasonably require

Policy to permit partial
occupancy

No insurer subrogation
action or recovery against any party whose interests are covered under the
policy

Deductible not to exceed $25,000

Coverage to become
effective upon the date that concrete is first poured, or the start of any
shipment of materials, machinery or equipment to the site, whichever is
earlier, and to remain in effect until replaced by the permanent All Risk
Property Insurance described below, or until such other time as may be mutually
agreed upon by Lender and Borrower

 24
 

 

As to completed Improvements:

An ORIGINAL (or evidence acceptable to Lender of)
Special Form (or so-called All Risk) Hazard Insurance POLICY naming Borrower as
an insured, reflecting coverage of 100% of the replacement cost, and written by
a carrier approved by Lender with a current A.M. Best Company rating of at
least A:VII (which is authorized to do business in the State of South Dakota),
that includes:

·                                          Lender’s
Loss Payable Endorsement naming U.S. Bank National Association as Mortgagee

·                                          30-day
notice to Lender in the event of cancellation or non-renewal by either party or
material adverse change

·                                          Replacement
Cost Measure or Recovery

·                                          Stipulated
Value/Agreed Amount Endorsement (No Coinsurance)

·                                          Boiler
and Machinery Coverage (including business income, extra expense coverage)

One (1) year’s business interruption, leasehold
interest and/or rent loss insurance in an amount acceptable to Lender

Extra expense coverage in an amount acceptable to
Lender

“Contingent Liability from Operation of Building Laws”
coverage, “Demolition Costs” coverage, “Increased Cost of Construction”
coverage, and “Increased Time to Rebuild” Coverage, with such additional limits
for such coverages as Lender may reasonably require

Deductible not to exceed $25,000

II.                                     LIABILITY
INSURANCE

An ORIGINAL (or evidence acceptable to Lender of)
Commercial General Liability Insurance POLICY (Insurance Services Offices
policy form title) naming Borrower as an insured, providing coverage on an “occurrence”
rather than a “claims made” basis, and written by a carrier approved by Lender
with a current A.M. Best Company rating of at least A:VII (which is authorized
to do business in the State of South Dakota), that includes:

Combined general liability policy limit of at least
$2,000,000.00 each occurrence, applying to liability for Bodily Injury,
Personal Injury and Property Damage, which combined limit may be satisfied by
the limit afforded under the Commercial General Liability Policy, or by such
Policy in combination with the limits afforded by an Umbrella or Excess
Liability Policy (or policies); provided, that the coverage afforded under any
such Umbrella or Excess Liability Policy is at least as broad in all material
respects as that afforded by the underlying Commercial General Liability Policy

 25
 

 

Coverage for Bodily Injury, Property Damage, Personal
Injury, Contractual Liability, Independent Contractors and Products-Completed
Operations Liability

Automobile Liability insurance covering liability for
Bodily Injury and Property Damage arising out of the ownership, use,
maintenance or operation of all owned, nonowned and hired automobiles and other
motor vehicles utilized by Borrower in connection with the Project, which
coverage may be provided under a separate policy

Deductible not to exceed $25,000

Additional Insured Endorsement naming U.S. Bank
National Association and a Severability of Interest provision

30-day notice to Lender in the event of cancellation
or non-renewal by either party or material adverse change

III.                                 WORKER’S
COMPENSATION

An ORIGINAL CERTIFICATE of Worker’s Compensation
coverage in the statutory amount, naming Borrower as an insured, written by a
carrier approved by Lender, at such time as Borrower has employees.

 26
 

 

EXHIBIT C

Permitted
Encumbrances

1.             An easement for the purpose of
granting the right to have a Pollution Control Project located on the subject
property and to have ingress and egress on and over such lands, as set forth in
Easement Agreement between Montana-Dakota Utilities, Northwestern Public
Service Company, and Otter Tail Power Company and Grant County, South Dakota,
dated February 1, 1974, and recorded in Miscellaneous Record 159, page 169, on
2/6/74 as Document Number 149365.

2.             A non-exclusive easement for the
purpose of granting the right to have transmission lines located on the subject
property and to have ingress to and egress from said lines, as set forth in
Easement Agreement between Montana-Dakota Utilities, Northwestern Public
Service Company, and Otter Tail Power Company and Cooperative Power
Association, dated July 1, 1976, and recorded in Miscellaneous Record 161, page
845, on 8/6/76 as Document Number 154178.

3.             Any rights claimed as set forth in
Bill of Sale and Assignment of Easements between Otter Tail Power Company and
Cooperative Power Association, dated July 1, 1976, and recorded in
Miscellaneous Record 161, page 855, on 8/6/76 as Document Number 154179.

 27

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