Document:

exv10w3

 

Exhibit
10.3

Loan No. RI0218T01

CONSTRUCTION AND TERM LOAN SUPPLEMENT

     THIS SUPPLEMENT to the Master Loan Agreement dated March 24, 2005, (the “MLA”), is entered
into as of March 24, 2005, between FARM CREDIT SERVICES OF AMERICA, FLCA (“Farm Credit”) and
LINCOLNWAY ENERGY, LLC, Nevada, Iowa (the “Company”).

     SECTION 1. The Construction and Term Loan Commitment. On the terms and conditions set
forth in the MLA and this Supplement, Farm Credit agrees to make construction loans to the
Company from time to time during the period set forth below in an aggregate principal amount not
to exceed, at any one time outstanding, $39,000,000.00 (the “Commitment”). Under the Commitment,
amounts borrowed and later repaid may not be reborrowed.

     SECTION 2. Purpose. The purpose of the Commitment is to partially finance the Company’s
construction of a 50 million gallon (annual) dry mill ethanol plant (the “Improvements”)
identified in the plans and specifications provided to and approved by Agent (as that term is
defined in the MLA) pursuant to Section 7(A)(xv) of the MLA (as the same may be amended pursuant
to Section 12(A) herein, the “Plans”), on real property owned by the Company near Nevada, Iowa
(the “Property”), and the Company agrees to utilize the proceeds of the Commitment for that
purpose only.

     SECTION 3. Term. The term of the Commitment shall be from the date hereof, up to and
including June 1, 2006, or such later date as Agent may, in its sole discretion, authorize in
writing.

     SECTION 4. Disbursements of Proceeds.

          (A) Disbursement Procedures.

               (1) Limits on Advances. Agent shall not be required to advance funds: (i) for any category or
line item of acquisition or construction cost an amount greater than the amount specified therefor
in the Project Budget (as defined in Section 7(A)(xv) of the MLA); or (ii) for any services not
yet performed or for materials or goods not yet incorporated into the Improvements or delivered to
and properly stored on the Property. No advance hereunder shall exceed 100% of the aggregate
costs actually paid or currently due and payable and represented by invoices accompanying a
Request for Construction Loan Advance submitted pursuant to Section 9(B)(1) herein less the amount
of retainage (“Retainage”) set out in the construction contract dated December 8, 2004, between
the Company and Fagen, Inc., and other construction contracts of the Company for the Improvements.

               (2) Advance of Retainage. The. Retainage (but in no case greater than the unused
balance of the Commitment allocated for construction) will be advanced by Agent to the Company
pursuant to the conditions set forth in such construction contracts, upon written request by the
Company certifying the satisfaction of such conditions precedent for payment of Retainage.

          (B) Payments to Third Parties. If there is an Event of Default (as defined in the MLA) at
its option and without further authorization from the Company, Agent is authorized to make advances
under the Commitment by paying, directly or jointly with the Company, any person to whom Agent in
good faith determines payment is due and any such advance shall be deemed made as of the
date on which Agent makes such payment and shall be secured under the deed of trust/mortgage
securing the Commitment and any other loan documents securing the Commitment as fully as if made
directly to the Company.

 

 

	 	 	 
	Construction and Term Loan Supplement R10218T01

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	Lincolnway Energy, LLC
	 	 
	Nevada, Iowa
	 	 

     SECTION 5. Interest and Fees.

          (A) Interest. The Company agrees to pay interest on the unpaid principal balance of the
loans in accordance with one or more of the following interest rate options, as selected by the
Company:

               (1) Agent Base Rate. At a rate per annum equal at all times to 45/100 of 1% above the
rate of interest established by Agent from time to time as its Agent Base Rate, which Rate is
intended by Agent to be a reference rate and not its lowest rate. The Agent Base Rate will
change on the date established by Agent as the effective date of any change therein and Agent
agrees to notify the Company of any such change.

               (2) Quoted Rate. At a fixed rate per annum to be quoted by Agent in its sole discretion in
each instance. Under this option, rates may be fixed on such balances and for such periods, as
may be agreeable to Agent in its sole discretion in each instance, provided that: (1) the
minimum fixed period shall be 180 days; (2) .amounts may be fixed in increments of
$500,000.00 or multiples thereof; and (3) the maximum number of fixes in place at any one
time shall be ten (10).

               (3) LIBOR. At a fixed rate per annum equal to “LIBOR” (as hereinafter defined)
plus 3.25%. Under this option: (1) rates may be fixed for “Interest Periods” (as hereinafter
defined) of 6, 9, or 12 months as selected by the Company; (2) amounts may be fixed in
increments of $500,000.00 or multiples thereof; (3) the maximum number of fixes in place at any
one time shall be 10; and (4) rates may only be fixed on a “Banking Day” (as hereinafter defined)
on 3 Banking Days’ prior written notice. For purposes hereof: (a) “LIBOR” shall mean the rate
(rounded upward to the nearest sixteenth and adjusted for reserves required on “Eurocurrency
Liabilities” (as hereinafter defined) for banks subject to “FRB Regulation D” (as herein defined)
or required by any other federal law or regulation) quoted by the British Bankers Association
(the “BBA”) at 11:00 a.m. London time 2 Banking Days before the commencement of the Interest
Period for the offering of U.S. dollar deposits in the London interbank market for the Interest
Period designated by the Company; as published by Bloomberg or another major information vendor
listed on BBA’s official website; (b) “Banking Day” shall mean a day on which Agent is open for
business, dealings in U.S. dollar deposits are being carried out in the London interbank market,
and banks are open for business in New York City and London, England; (c) “Interest Period” shall
mean a period commencing on the date this option is to take effect and ending on the numerically
corresponding day in the month that is 6, 9, or 12 months thereafter, as the case may be;
provided, however, that: (i) in the event such ending day is not a Banking Day, such period shall
be extended to the next Banking Day unless such next Banking Day falls in the next calendar
month, in which case it shall end on the preceding Banking Day; and (ii) if there is no
numerically corresponding day in the month, then such period shall end on the last Banking
.Day in the relevant month; (d) “Eurocurrency Liabilities” shall have meaning as set
forth in “FRB Regulation D”; and (e) “FRB Regulation D” shall mean Regulation D as promulgated by
the Board of Governors of the Federal Reserve System, 12 CFR Part 204, as amended.

The Company shall select the applicable rate option at the time .it requests a
loan hereunder and may, subject to the limitations set forth above, elect to convert balances
bearing interest at the variable rate option to one of the fixed rate options. Upon the
expiration of any fixed rate period, interest shall

 

 

	 	 	 
	Construction and Term Loan Supplement R10218T01

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	Lincolnway Energy, LLC
	 	 
	Nevada, Iowa
	 	 

automatically accrue at the variable rate option unless the amount fixed is repaid or fixed for
an additional period in accordance with the terms hereof. Notwithstanding the foregoing, rates
may not be fixed in such a manner as to cause the Company to have to break any fixed rate
balance in order to pay any installment of principal. All elections provided for herein shall
be made electronically (if applicable), telephonically or in writing and must be received by
Agent not later than 12:00 Noon Company’s local time in order to be considered to have been
received on that day; provided, however, that in the case of LIBOR rate loans, all such
elections must be confirmed in writing upon Agent’s request. Interest shall be calculated on
the actual number of days each loan is outstanding on the basis of a year consisting of 360 days
and shall be payable monthly in arrears by the 20th day of the following month or on such other
day in such month as Agent shall require in a written notice to the Company; provided, however,
in the event the Company elects to fix all or a portion of the indebtedness outstanding under
the LIBOR interest rate option above, at Agent’s option upon written notice to the Company,
interest shall be payable at the maturity of the Interest Period and if the LIBOR interest rate
fix is for a period longer than 3 months, interest on that portion of the indebtedness
outstanding shall be payable quarterly in arrears on each three-month anniversary of the
commencement date of such Interest Period, and at maturity.

          (B). Loan Origination Fee. In consideration of the Commitment, the Company agrees to pay to
Agent a loan origination fee in the amount of $245,000.00 (less all payments already received by
Agent) upon the execution hereof.

     SECTION 6. Promissory Note. The Company promises to repay the loans as follows: (i) in 30
equal, consecutive quarterly installments of $1,250,000.00 with the first such installment due on
December 20, 2006, and the last such installment due on March 20, 2014; and (ii) followed by a
final installment in an amount equal to the remaining unpaid principal balance of the loans on
May 20, 2014. If any installment due date is not a day on which Agent is open for business, then
such installment shall be due and payable on the next day on which Agent is open for business. In
addition to the above, the Company promises to pay interest on the unpaid principal balance
hereof at the times and in accordance with the provisions set forth in Section 5 hereof.

In addition, for each fiscal year end, beginning with the fiscal year ending in 2006, and ending
with the fiscal year ending in 2008, the Company shall also, within, ninety (90) days after the end
of such fiscal year, make a special payment of an amount equal to 75% of the “Free Cash Flow” (as
defined below) of the Company; provided, however, that: (i) if such payment would result in a
covenant default under this Supplement or the MLA, the amount of the payment shall be reduced to an
amount which would not result in a covenant default; (ii) if such payment would result in a
breakage of a fixed interest rate, the applicable broken funding surcharges would still apply; and
(iii) the aggregate of such, payments shall not exceed $7,500,000.00. The term “Free Cash Flow” is
defined as the Company’s annual profit net of taxes, plus the respective fiscal year’s
depreciation and amortization expense, minus allowable capitalized expenditures for fixed
assets during fiscal year 2007 and 2008, allowed distributions to members/owners, and scheduled
term loan payments to Agent and other long-term debt creditors, excluding all principal and
interest payments on the Company’s unsecured indebtedness to Fagen, Inc., which shall not be
deducted for purposes of this calculation. This special payment shall be applied to the principal
installments in the inverse order of their maturity.

     SECTION 7. Prepayment. Subject to the broken funding surcharge provision of the MLA, the
Company may on one Business Day’s prior written notice prepay all or any portion of the loan(s).

 

 

	 	 	 
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and Term Loan Supplement RI0218T01

Lincolnway Energy, LLC

Nevada, Iowa

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Unless otherwise agreed, all prepayments will be applied to principal installments in the inverse
order of their maturity. However, in addition to the foregoing, prepayment of any Loan balance
due to refinancing, or refinancing of any unadvanced Commitment, up to and including December 1,
2007, will result in a 3% prepayment charge in addition to any broken funding surcharges which
may be applicable, based on the amounts prepaid and on the total amount of the
Commitments in effect at such time.

     SECTION
8. Security. Security is set forth in the MLA.

     SECTION 9. Additional Conditions Precedent.

          (A) Initial Advance. Agent’s obligation to make the initial advance is subject to the
satisfaction of each of the following additional conditions precedent on or before the date of
such advance:

               (1) List of Permits. Receipt by Agent of a detailed list of all permits required for both
the construction of the improvements and the operation of the facility setting forth for each
listed permit whether such permit is required for commencement of construction or required for
commencement of operation, and identifying to Agent’s satisfaction whether such permits have been
issued or can reasonably be expected to be issued.

               (2) Construction Permits. Receipt by Agent of evidence of issuance of all permits that are
required to be obtained prior to the commencement of construction of the improvements.

               (3) Engineer’s Certificate. Receipt by Agent of a report of Agent’s retained engineer
(pursuant to the provisions of Section 14(D)) indicating that the current plans and specifications
of the Improvements and the related contracts establish that the finished project will have
adequate natural gas, electricity, water and waste water
treatment to service
the requirements of the project.

          (B) Each Advance. Agent’s obligation to make each advance hereunder, including the initial
advance, is subject to the satisfaction of each of the following additional conditions precedent on
or before the date of such advance:

               (1) Request for Construction Loan Advance. That Agent receives an executed request for
construction loan advance from the Company in the form of Exhibit A attached hereto (the “Request
for Construction Loan Advance”), together with all items called for therein.

               (2) Construction Certificate. If an independent inspector has been employed by Agent pursuant
to Section.14(D), a certificate or report of such inspector to the effect that the
construction of the Improvements to the date thereof has been performed in a good and
workmanlike manner and in accordance with the Plans, stating the estimated total cost of
construction of the Improvements, stating the percentage of in-place construction of the
Improvements, and stating that the remaining non-disbursed portion of the Commitment is
adequate to complete the construction of the Improvements.

 

 

	 	 	 
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and Term Loan Supplement RI0218T01

Lincolnway Energy, LLC

Nevada, Iowa

	 	-5-

     SECTION 10. Representations and Warranties. In addition to the representations and
warranties contained in the MLA, the Company represents and warrants as follows:

          (A) Project Approvals; Consents; Compliance. The Company has obtained all Project Approvals
relating to the construction and operation of the Improvements, except those the Company has
disclosed to Agent in writing. All such Project Approvals heretofore obtained remain in full
force and effect and the Company has no reason to believe that any such Project Approval not
heretofore obtained will not be obtained by the Company in the ordinary course during or
following completion of the construction of the Improvements. To the extent that any Project
Approval may terminate or become void or voidable or terminable, upon any sale, transfer or
other disposition of the Property or the Improvements, including any transfer pursuant to
foreclosure sale under the Mortgage, the Company will cooperate with Agent to obtain any
replacement Project Approvals. No consent, permission, authorization, order, or license of any
governmental authority is necessary in connection with the execution, delivery, performance, or
enforcement of the loan documents to which the Company is a party, except such as have been
obtained and are in full force and effect. The Company is in compliance in all
material respects with all Project Approvals having application to the Property or the
Improvements except as the Company has disclosed to Agent in writing. Without limiting the
foregoing, there are no unpaid or outstanding real estate or other taxes or assessments on or
against the Property or the Improvements or any part thereof (except only real estate taxes not
yet due and payable). The Company has received no notice nor has any knowledge of any pending or
contemplated assessments against the Property or the Improvements which have not been disclosed
to Agent in writing.

          (B) Environmental Compliance. Without limiting the provisions of the MLA, all property owned
or leased by the Company, including, without limitation, the Property and the Improvements, and
all operations conducted by it are in compliance in all material respects with all Laws and all
Project Approvals relating to environmental protection, the failure to comply with which could
have a material adverse effect on the condition, financial or otherwise, operations, properties,
or business of the Company, or on the ability of the Company to perform its obligations under the
loan documents, except as the Company has disclosed to Agent in writing.

          (C) Feasibility. Each of the Project Budget, the Project Schedule and the Disbursement
Schedule is realistic and feasible.

     SECTION 11. Affirmative Covenants. In addition to the affirmative covenants contained in
the MLA, the Company agrees to:

          (A) Reports and Notices. Furnish to Agent:

               (1) Regulatory and Other Notices. Promptly after receipt thereof, copies of any notices or
other communications received from any governmental authority with respect to the Property, the
Improvements, or any matter or proceeding the effect of which could have a material adverse effect
on the condition, financial or otherwise, operations, properties, or business of the Company, or
the ability of the Company to perform its obligations under the loan documents.

               (2) Notice of Nonpayment. Promptly after the filing or receipt thereof, a description of or
a copy of any lien filed by or any notice, whether oral or written, from any laborer,

 

 

	 	 	 
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	Lincolnway Energy, LLC
	 	 
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contractor, subcontractor or materialman to the effect that such laborer, contractor,
subcontractor or materialman has not been paid when due for any labor or materials furnished in
connection with the construction of the Improvements.

               (3) Notice of Suspension of Work. Prompt notice of any suspension in the construction of
the Improvements, regardless of the cause thereof, in excess of ten (10) days and a description
of the cause for such suspension.

          (B) Construction Liens. Pay or cause to be removed, within fifteen (15) days after notice
from Agent, any lien on the Improvements or Property, provided, however, that Company shall have
the right to contest in good faith and with reasonable diligence the validity of any such lien or
claim.

          (C) Identity of Contractors, etc. Furnish to Agent from time to time on request by Agent,
in a form acceptable to Agent, correct lists of all contractors, subcontractors and suppliers of
labor and material supplied in connection with construction of the Improvements and true and
correct copies of all executed contracts, subcontracts and supply contracts. Agent may contact
any contractor, subcontractor or supplier to verify any facts disclosed in the lists and
contracts. All contracts and subcontracts relating to construction of the Improvements must
contain provisions authorizing or not prohibiting the Company to supply to Agent the listed
information and copies of contracts or not otherwise prohibiting any transfers.

          (D) Lien Waivers. Furnish to Agent, at any time and from time to time upon the request of
Agent, lien waivers bearing a then current date and prepared on a form satisfactory to
Agent from such contractor, subcontractor, or supplier as Agent shall designate.

          (E) Operating Permits. Furnish to Agent, unless as otherwise consented to in writing by
Agent, as soon as possible but prior to the commencement of operation of the constructed
facility, evidence of the issuance of all necessary permits for such operation.

     SECTION 12. Negative Covenants. In addition to the negative covenants contained in the MLA,
the Company will not:

          (A) Change Orders. Allow any substantial deviation, addition, extra, or change order to the
Plans, Project Budget or Project Schedule, the cost of which in the aggregate exceeds $100,000.00,
without Agent’s prior written approval. All requests for substantial changes shall be made using
a Change Order Request in the form of Exhibit B attached hereto. Agent will have a reasonable
time to evaluate any requests for its approval of any changes referred to in this covenant, and
will not be required to consider approving any changes unless all other approvals that may be
required have been obtained. Agent may approve or disapprove changes in its discretion.
All contracts and subcontracts relating to the construction of the Improvements must contain
provisions satisfactory to Agent implementing the above provisions of this covenant. Company shall
promptly provide to Agent copies of all change orders that, pursuant to the above
described procedures, did not require Agent’s prior written approval.

          (B) Materials. Purchase or install any materials, equipment, fixtures or articles of personal
property for the Improvements if such shall be covered under any security agreement or other

 

 

	 	 	 
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	Lincolnway Energy, LLC
	 	 
	Nevada, Iowa
	 	 

agreement where the seller reserves or purports to reserve title or the right of removal or
repossession, or the right to consider them personal property after their incorporation in the
Improvements.

     SECTION 13. Casualties.

          (A) Right to Elect To Apply Proceeds. In case of material loss or damage to the Property or
to the Improvements by fire, by a taking by condemnation for public use or the action of any
governmental authority or agency, or the transfer by private sale in lieu thereof either
temporarily or permanently, or. otherwise, if in the sole judgment of Agent there is
reasonable doubt as to Company’s ability to complete construction of the Improvements on or
before May 31, 2006, by reason of such loss or damage or because of delays in making settlements
with governmental agencies or authorities or with insurers, Agent may terminate its obligations
to make advances hereunder and elect to collect, retain and apply to the Commitment all proceeds
of the taking or insurance after deduction of all expense of collection and settlement, including
attorneys’ and adjusters’ fees and charges. In the event such proceeds are insufficient to pay
the Commitment in full, Agent may declare the balance remaining unpaid on the Commitment to be
due and payable forthwith and avail itself on any of the remedies afforded thereby as in any case
of default.

          (B) Election Not To Apply Proceeds. In case Agent does not elect to apply such proceeds to
the Commitment, Company will:

               (1) Settle. Proceed with diligence to make settlement with the governmental agencies or
authorities or the insurers and cause the proceeds of insurance to be paid to Company.

               (2) Resume Construction. Promptly proceed with the resumption of construction of the
Improvements, including the repair of all damage resulting from such fare or other cause and
restoration to its former condition.

          (C) Use of Proceeds. All such proceeds shall be fully used before the disbursement of any
further proceeds of the Commitment.

     SECTION 14. Other Rights of Agent.

          (A) Right To Inspect. Agent or its agent may enter on the Property at any time and inspect
the Improvements. If the construction of the Improvements is not reasonably satisfactory to Agent,
Agent may reasonably and in good faith stop the construction and order its replacement or the
correction thereof or additions thereto, whether or not said unsatisfactory construction has been
incorporated in the Improvements, and withhold all advances hereunder until such construction is
satisfactory to Agent. Such construction shall promptly be made satisfactory to Agent.

          (B) Obligation of Agent. Neither Agent nor any inspector hired pursuant to Subsection (D)
below is obligated to construct or supervise construction of the Improvements. Inspection by
Agent or such inspector thereof is for the sole purpose of protecting Agent’s security and is not
to be construed as a representation that there will be compliance on anyone’s part with the Plans
or that the construction will be free from faulty material or workmanship. Neither Agent nor such
inspector shall be liable to the Company or any other person concerning the quality of
construction of the Improvements or

 

 

	 	 	 
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	 	-8-
	Lincolnway Energy, LLC
	 	 
	Nevada, Iowa
	 	 

the absence therefrom of defects. The Company will make or cause to be made such other
independent inspections as it may desire for its own protection.

          (C) Right To Complete Upon Event of Default. Upon any Event of Default hereunder, Agent may
complete construction of the Improvements, subject to Agent’s right at any time to discontinue
any work without liability, and apply the proceeds of the Commitment to such completion, and may
demand such additional sums from the Company as may be necessary to complete construction, which
sums the Company shall promptly pay to Agent. In connection with any construction of the
Improvements undertaken .by Agent pursuant to this Subsection, Agent may (i) enter
upon the Property; (ii) employ existing contractors, architects, engineers and subcontractors or
terminate them and employ others; (iii) make such addition, changes and corrections in the Plans
as shall, in the judgment of Agent, be necessary or desirable; (iv) take over and use any
personal property, materials, fixtures, machinery, or equipment of the Company to be incorporated
into or used in connection .with the construction or operation of the Improvements;
(v) pay, settle, or compromise all existing or future bills and claims which are or may be liens
against the Property or the Improvements; and (vi) take such other action, as Agent may in its
sole discretion determine, to complete the construction of the Improvements. The Company shall be
liable to Agent for all costs paid or incurred for construction of the Improvements, and all
payments made hereunder shall be deemed advances by Agent, shall be evidenced by the Note and
shall be secured by the Mortgage and any other loan document seaming the Commitment (including
any amounts in excess of the Commitment).

          (D) Right To Employ Independent Engineer. Agent reserves the right to employ an independent
construction engineer, among other things, to review the Project Budget, the Project Schedule and
the Plans, inspect all construction of the Improvements and the periodic progress of the same,
and review all Draw Requests and change orders, the cost therefor to be the sole
responsibility of the Company and shall be paid by the Company upon demand by Agent.

          (E) Indemnification and Hold Harmless. The Company shall indemnify and hold Farm Credit and
Agent harmless from and against all liability, cost or damage arising out of this Agreement or any
other loan document or the transactions contemplated hereby and thereby, including, without
limitation, (i) any alleged or actual violation of any Law or Project Approval relating to the
Property or the Improvements and (ii) any condition of the Property or the Improvements whether
relating to the quality of construction or otherwise and whether Agent elects to complete
construction upon an Event of Default or discontinues or suspends construction pursuant to this
Section 14. Agent .may commence, appear in or defend any such action or proceeding or
any other action or proceeding purporting to affect the rights, duties or liabilities of the
parties hereunder, or the Improvements, or the Property, or the payment of the Commitment, and the
Company agrees to pay all of Agent’s costs and expenses, including its reasonable attorneys’ fees,
in any such actions. The obligations of the Company under this Subsection 14(E) shall survive the
termination of this Agreement. As to any action or inaction taken by Agent hereunder, Agent shall
not be liable for any error of judgment or mistake of fact or law, absent gross negligence or
willful misconduct on its part. The Company’s obligation to indemnify and hold Agent
harmless hereunder will exclude any liability, cost, or damage related to Agent’s breach of this
Agreement or for Agent’s gross negligence or willful misconduct.

     SECTION 15. Notice of Completion. Company irrevocably appoints Agent as Company’s agent to
file of record any notice of completion, cessation of labor or any other notice that Agent deems

 

 

	 	 	 
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	Lincolnway Energy, LLC
	 	 
	Nevada, Iowa
	 	 

necessary to file to protect any of the interests of Agent. Agent, however, shall have no duty
to make such filing.

     SECTION 16. Signs and Publicity. At Farm Credit’s and Agent’s request, Company will allow
Farm Credit and Agent to post signs on the Property at the construction site for the purpose of
identifying Farm Credit and Agent as the “Construction Lenders”. At the request of Farm Credit
and Agent, Company will use its best efforts to identify Farm Credit and Agent as the
construction lenders in publicity concerning the project.

     SECTION 17. Cooperation. Company will cooperate at all times with Agent in bringing about
the timely completion of the Improvements, and Company will resolve all disputes arising during
the work of construction in a manner which will allow work to proceed expeditiously.

     SECTION 18. Events of Default. In addition to the events of default set forth in the MLA,
each of the following shall constitute an “Event of Default” hereunder:

          (A) Cessation of Construction. Any cessation at any time in the construction of the
Improvements for more than thirty (30) consecutive days, except for strikes, acts of God, or
other causes beyond the Company’s control, or any cessation at any time in construction of the
Improvements for more than thirty (30) consecutive days, regardless of the cause.

          (B) Insufficiency of Loan Proceeds. Agent, in its sole discretion shall determine that the
remaining undisbursed portion of the Commitment is or will be insufficient to fully complete the
Improvements in accordance with the Plans.

     SECTION 19. Remedies Upon Default. In addition to the remedies set forth in the MLA, upon
the occurrence of and during the continuance of each and every Event of Default:

          Construction. Agent may (but shall not be obligated to) take over and complete construction of
the Improvements in accordance with plans and specifications approved by Agent with such changes as
Agent may, in its sole discretion, deem appropriate, all at the risk, cost, and expense of the
Company. Agent may assume or reject any contracts entered into by the Company in connection with
the Improvements, and may enter into additional or different contracts for services, labor, and
materials required, in the judgment of Agent, to complete the construction of the Improvements and
may pay, compromise, and settle all claims in connection with the construction of the Improvements.
All sums, including reasonable attorneys’ fees, charges, or fees for supervision and inspection of
the construction, and for any other necessary purpose in the discretion of Agent, expended by Agent
in completing the construction of the Improvements (whether aggregating more or less than the
amount of this Commitment) shall be deemed advances made by Agent to the Company under this
Commitment, and the Company shall be liable to Agent for the repayment of such sums, together with
interest on such amounts from the date of their expenditure at the default rate specified above.
Agent may, in its sole discretion, at any time, abandon work on the construction of the
Improvements after having commenced such work, and may recommence such work at any time, it being
understood that nothing in this Section shall impose any obligation on Agent to either complete or
not to complete the construction of the Improvements. For the purposes of carrying out the
provisions of this Section, the Company irrevocably appoints Agent, its attorney-in-fact, with full
power of substitution, to execute and deliver all such documents, pay and

 

 

	 	 	 
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	Lincolnway Energy, LLC
	 	 
	Nevada, Iowa
	 	 

receive such funds, and take such action as may be necessary, in the judgment of Agent, to complete
the construction of the Improvements.

     IN WITNESS WHEREOF, the parties have caused this Supplement to be executed by their duly
authorized officers as of the date shown above.

	 	 	 	 	 	 	 	 	 	 	 	 	 
	FARM CREDIT SERVICES OF

     AMERICA, FLCA	 	LINCOLNWAY ENERGY, LLC
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	By:	 	/s/ Jeremy Wilhelm	 	 	 	By:	 	/s/ William D. Couser
	 	 	 	 	 	 	 	 	 
	Title:	 	VP	 	 	 	Title:	 	President
	 

	 	 	 	 
	 	 	 	 	 	 	 	 

 

 

EXHIBIT A

REQUEST FOR CONSTRUCTION

LOAN ADVANCE

Request
No.     
                                                                                   
        
      Date:     
                                                        

To: CoBank, ACB

From: Lincolnway Energy, LLC

(Name of Borrower)

	 	 	 	 	 	 	 
	 	Loan Agreement No.

	 RI0218T01	Dated: March 24, 2005	 	 	 
	 	Project Description:
	 	 	 	 	 
	 	 

	 

	 	 
	 	Project Location:
	 	 	 	 	 
	 	 

	 

	 	 
	 	 
	 	 	 	 	 
	 	 	 

In accordance with the terms of the above referenced Loan Agreement, you are hereby authorized
and requested to make a construction advance, as set forth in said Loan Agreement, of the amount
and for the construction items set forth in the request schedule attached hereto as
Schedule “A” and incorporated herein.

The undersigned hereby certify that:

	1.	 	The labor, services and/or materials covered hereby have been performed upon or furnished
to the above referenced project and are accurately described in the supporting
invoices attached to the request schedule;
	 

	2.	 	There have been no changes in the cost breakdown for the project dated                                                             
supplied to Agent, except those approved in writing by Agent;
	 

	3.	 	All construction to date has been substantially performed in accordance with the Plans for
the improvements, and there have been no changes in the Plans except as approved in writing
by Agent;
	 

	4.	 	There have been no material changes in the scope or time of performance of the work of
construction, nor any extra work, labor or materials ordered or contracted for, nor are any
such changes or extras contemplated, except as may be expressly permitted by the Loan
Agreement or as have been approved in writing by Agent;
	 

	5.	 	The payments to be made with the requested funds will pay all bills received to date, less
any required withholds, for labor, materials, equipment and/or services furnished in
connection. with the construction of the Improvements;
	 

	6.	 	All amounts previously advanced by Agent for labor, services, equipment and/or materials for
the above referenced project pursuant to previous Requests for Construction Loan
Disbursement have been paid to the parties entitled thereto in the manner required in the Loan
Agreement; and

 

 

EXHIBIT A

	 	7.	 	All conditions to the advance of Loan funds required herein as set forth in the Loan
Agreement have been fulfilled, and to the actual knowledge of the undersigned, no
Event of Default under the Loan Agreement has occurred and is continuing.

	 	 	 	 	 	 	 
	 	 	BORROWER: Lincolnway Energy, LLC
	 
	 	 	 	 	 	 
	 

	 	By:  
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	ENGINEER:
 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	By:  
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	CONTRACTOR:
 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	By:  
	 	 	 	 	 

We have reviewed the Pay Application Numbered                     and dated                                         . Based on our
conversations with the Contractor and the Owner, our review of the current schedule, and our
site observations, the construction in place is judged to be in general accordance with industry
standards and in general conformity with the approved plans and specifications, proceeding
generally oil schedule, and the request for payment is a reasonable representation of the
materials ordered and the work effort of the Contractor to date.

	 	 	 	 	 	 	 
	 	 	AGENT’ S CONSULTING ENGINEER:	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

	 	 

	 	 	 	 	 
	APPROVED FOR PAYMENT BY AGENT:	 	 
	CoBANK, ACB	 	 
	 
	 	 	 	 
	By
	 	 	 	 
	Date:

	 	 

	 	 
	 

	 	 

	 	 

 

 

SCHEDULE A

to Exhibit A — Request for Construction Loan Advance

Request No.                                                               
              
    
 Date:  
                                                                               

	 	 	 
	To:

	 	CoBank, ACB
	From:

	 	Lincolnway Energy, LLC
	 

	 	(Name of Borrower)

	 	 	 	 	 	 	 
	 

	 	Loan Agreement No. R10218T01
	 	
                                         Dated: March 24, 2005	 	 
	 

	 	Project
Description:  
	 

	 	 	 	 	 	 
	 

	 	Project Location:
 	 
	 

	 	 	 	 

	 	 
	 	 
	 	 
	 	 

Complete the information below regarding this request.

	o	 	Loan advance to be used entirely for Construction Purposes.
	 
	 	 	Amount Requested: $
	 
	 	 	Description of Construction Use:

 

 

EXHIBIT B

CHANGE ORDER REQUEST

	 	 	 	 	 	 	 
	 

	 	Date:	 	 	 	 
	 

	 	 	 	 

	 	 

Request No. CO#                                        

To: CoBank, ACB

From: Lincolnway Energy. LLC

(Name of Borrower)

	 	 	 	 	 	 	 
	 

	 	Loan Agreement No.
	 	RIO218T0I                                         
	 	Dated: March 24, 2005
	 

	 	Project Description:	 	 	 	 
	 	 	 	 	   
	 

	 	Project Location:	 	 	 	 
	 	 	 	 	   

In accordance with the terms of the above referenced Loan Agreement, the undersigned hereby
requests that Agent approve the change orders more particularly described in the schedule attached
hereto as Schedule “A” and incorporated herein.

The undersigned hereby certifies that:

	1.	 	There have been no changes in the Plans and or contracts except those permitted in the Loan
Agreement and/or approved in writing by Agent; and
	 
	2.	 	Copies of the proposed changes to the Plans and/or contracts are attached hereto as Schedule
“B” and that all such documents are complete and fully comply with all applicable permits and
approvals, subject to the written approval of Agent.

	 	 	 	 	 	 	 	 	 	 	 
	BORROWER:	 	 	 	ENGINEER:	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Lincolnway Energy, LLC	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 

CONTRACTOR:

By:                                                                                                     

CHANGE ORDER APPROVED BY AGENT:

CoBANK, ACB

By:                                                                                

Date:exv10w4

 

Exhibit 10.4

Loan No. RI0218T02

CONSTRUCTION AND REVOLVING TERM LOAN SUPPLEMENT

     THIS SUPPLEMENT to the Master Loan Agreement dated March 24, 2005, (the “MLA”), is
entered into as of March 24, 2005, between FARM CREDIT SERVICES OF AMERICA, FLCA, (“Farm Credit”)
and LINCOLNWAY ENERGY, LLC, Nevada, Iowa (the “Company”).

     SECTION 1. The Construction and Revolving Term Loan Commitment. On the terms and
conditions set forth in the MLA and this Supplement, Farm Credit agrees to make loans to the
Company from time to time during the period set forth below in an aggregate principal amount not
to exceed, at any one time outstanding, $10,000,000.00 less the amounts scheduled to be repaid
during the period set forth below in Section 6 (the “Commitment”), Requests for advances which are
for the purpose of paying the costs to construct the ethanol plant described below shall be
accompanied by documentation evidencing such costs. Within the limits of the Commitment, the
Company may borrow, repay and reborrow.

     The Company may, in its sole discretion, elect to permanently reduce the amount of the
Commitment by giving Agent (as that term is defined in the MLA) ten (10) days prior written
notice. Said election shall be made only if the Company is not in default at the time of the
election and will remain in compliance with all financial covenants after such reduction. Any such
reduction shall be treated as an early, voluntary reduction of the Commitment amount and shall not
delay or reduce the amount of any scheduled Commitment reduction under Section 6 hereof (which
reductions shall continue in increments of $2,000,000.00 on the dates determined in accordance
with Section 6), but rather shall result in an earlier expiration of the Commitment and
final maturity of the loans.

     SECTION 2. Purpose. The purpose of the Commitment is to partially finance the Company’s
construction of a 50 million gallon (annual) dry mill ethanol plant, (the “Improvements”)
identified in the plans and specifications provided to and approved by Agent pursuant to Section
7(A)(xv) of the MLA (as the same may be amended pursuant to Section 12(A) herein, the “Plans”), on
real property owned by the Company near Nevada, Iowa (the “Property”) and to provide working
capital to the Company. The Company agrees to utilize the proceeds of the Commitment for these
purposes only.

     SECTION 3. Term. The term .of the Commitment shall be from January 1, 2006, (or,
if requested by Company, such earlier date as Agent may, in its sole discretion, authorize in
writing) up to and including September 1, 2016, or such later date as Agent may, in. its sole
discretion, authorize in writing.

     SECTION 4. Disbursements of Proceeds.

          (A) Disbursement Procedures.

               (1) Limits on -Construction Related Advances. Agent shall not be required to advance
funds: (i) for any category or line item of acquisition or construction cost an amount greater
than the amount specified therefor in the Project Budget (as defined in Section 7(A)(xv) of the
MLA); or (ii) for any services not yet performed or for
materials or goods not yet
incorporated into the Improvements or delivered to and properly stored on the Property. No advance
hereunder shall exceed 100% of the aggregate costs actually paid or currently due and
payable and represented by invoices accompanying a Request for Construction Loan Advance submitted
pursuant to Section 9(A) herein less the amount of retainage (“Retainage”) set out in
.the construction contract dated December 8, 2004,

 

 

	 	 	 
	Construction and Revolving Term Loan Supplement RIO218T02

	 	-2-
	Lincolnway Energy, LLC
	 	 
	Nevada, Iowa
	 	 

between the Company and Fagen, Inc., and other construction contracts of the Company for the
Improvements.

               (2) Advance of Retainage. The Retainage (but in no case greater than the unused balance of
the Commitment allocated for construction) will be advanced by Agent to the Company pursuant to
the conditions set forth in such construction contracts, upon written request by the Company
certifying the satisfaction of such conditions precedent for payment of Retainage.

               (3) Advances for Working Capital Purposes: Company may request advances for pre-production
expenses or working capital purposes at any time upon written verification to Agent of the
purpose of such advance request.

          (B) Payments to Third Parties. If there is an Event of Default (as defined in the MLA) at
its option and without further authorization from the Company, Agent is authorized to make
advances under the Commitment by paying, directly or jointly with the Company, any person to
whom Agent in good faith determines payment is due and any such advance shall be deemed made as
of the date on which Agent makes such payment and shall be secured under the deed of
trust/mortgage securing the Commitment and any other loan documents securing the Commitment as
fully as if made directly to the Company.

     SECTION 5. Interest and Fees.

          (A) Interest. The Company agrees to pay interest on the unpaid principal balance of the
loans in accordance with one or more of the following interest rate options, as selected by the
Company:

               (1) Agent Base Rate. At a rate per annum equal at all times to 45/100 of 1% above the rate
of interest established by Agent from time to time as its Agent Base Rate, which Rate is intended
by Agent to be a reference rate and not its lowest rate. The Agent Base Rate will
change on the date established by Agent as the effective date of any change therein and Agent
agrees to notify the Company of any such change.

               (2) Quoted Rate. At a fixed rate per annum to be quoted by Agent in its sole discretion in
each instance. Under this option, rates may be fixed on such balances and for such periods, as
may be agreeable to Agent in its sole discretion in each instance, provided that: (1) the minimum
fixed period shall be 30 days; (2) amounts may be fixed in increments of $100,000.00 or multiples
thereof; and (3) the maximum number of fixes in place at any one time shall be five (5).

               (3) LIBOR. At a fixed rate per annum equal to “LIBOR” (as hereinafter defined) plus 3.25%.
Under this option: (1) rates may be fixed for “Interest Periods” (as hereinafter defined) of 1,
2, 3, 6, 9, or 12 months as selected by the Company; (2) amounts may be fixed in increments of
$500,000.00 or multiples thereof; (3) the maximum number of fixes in place at any one time shall be
five; and (4) rates may only be fixed on a “Banking Day” (as hereinafter defined) on 3
Banking Days’ prior written notice. For purposes hereof: (a)“LIBOR” shall mean the rate (rounded
upward to the nearest sixteenth and adjusted for reserves required on “Eurocurrency Liabilities”
(as hereinafter defined) for banks subject to  “FRB Regulation D” (as herein defined) or required by any other

 

 

	 	 	 
	Construction and Revolving Term Loan Supplement RI0218T02

	 	-3-
	Lincolnway Energy, LLC
	 	 
	Nevada, Iowa
	 	 

federal law or regulation) quoted by the. British Bankers Association (the “BBA”) at
11:00 a.m. London time 2 Banking Days before the commencement of the Interest Period for the
offering of U.S. dollar deposits in the London interbank market for the Interest Period designated
by the Company; as published by Bloomberg or another major information vendor listed on BBA’s
official website; (b) “Banking Day” shall mean a day on which Agent is open for
business, dealings in U.S. dollar deposits are being carried out in the London interbank market,
and banks are open for business in New York City and London, England; (c) “Interest Period” shall
mean a period commencing on the date this option is to take effect and ending on the numerically
corresponding day in the next calendar month or the month that is 2, 3, 6, 9, or 12 months
thereafter, as the case may be; provided, however, that: (i) in the event such ending day is not a
Banking Day, such period shall be extended to the next Banking Day unless such next Banking Day
falls in the next calendar month, in which case it shall end on the preceding Banking Day; and (ii)
if there is no numerically corresponding day in the month, then such period shall end on the last
Banking Day in the relevant month; (d) “Eurocurrency Liabilities” shall have meaning as set forth
in “FRB Regulation D”; and (e) “FRB Regulation D’’ shall mean Regulation D as promulgated by the
Board of Governors of the Federal Reserve System, 12 CFR Part 204, as amended.

The Company shall select the applicable rate option at the time it requests a loan hereunder and
may, subject to the limitations set forth above, elect to convert balances bearing interest at the
variable rate option to one of the fixed rate options. Upon the expiration of any fixed rate
period, interest shall automatically accrue at the variable rate option unless the amount fixed is
repaid or fixed for an additional period in accordance with the terms hereof: Notwithstanding the
foregoing, rates may not be fixed in such a manner as to cause the Company to have to break any
fixed rate balance in order to pay any installment of principal. All elections provided for herein
shall be made electronically (if applicable), telephonically or in writing and must be received by
Agent not later than 12:00 Noon Company’s local .time in order to be considered to have
been received on that day; provided, however, that in the case of LIBOR rate loans, all such
elections must be confirmed in writing upon Agent’s request. Interest shall be calculated on the
actual number of days each loan is outstanding on the basis of a year consisting of 360 days and
shall be payable monthly in arrears by the 20th day of the following month or on such other day in
such month as Agent shall require in a written notice to the Company; provided, however, in the
event the Company elects to fix all or a portion of the indebtedness outstanding under the LIBOR
interest rate option above, at Agent’ s option upon written notice to the Company, interest shall
be payable at the maturity of the Interest Period and if the LIBOR interest rate fix is for a
period longer than 3 months, interest on that portion of the indebtedness outstanding shall be
payable quarterly in arrears on each three-month anniversary of the commencement date of such
Interest Period, and at maturity.

          (B) Commitment Fee. In consideration of the Commitment, the Company agrees to pay to Agent a
commitment fee on the average daily unused portion of the Commitment (as permanently reduced by the
Company, if applicable, under Section 1 above) at a rate of 1/2 of 1% per annum (calculated on a
.360 day basis), payable monthly in arrears by the 20th day following each month. Such
fee shall be payable for each month (or portion thereof) occurring during the original or any
extended term of the Commitment.

 

 

	 	 	 
	Construction and Revolving Term Loan Supplement RI0218T02

	 	-4-
	Lincolnway Energy, LLC
	 	 
	Nevada, Iowa
	 	 

     SECTION 6. Promissory Note. The Company promises to repay on the dates set forth below,
the outstanding principal, if any, that is in excess of the listed amounts:

	 	 	 	 	 
	Payment Date	 	Reducing Commitment Amount
	 
	September 1, 2014
	 	$	8,000,000.00	 
	March 1, 2015
	 	$	6,000,000.00	 
	September 1, 2015
	 	$	4,000,000.00	 
	March 1, 2016
	 	$	2,000,000.00	 
	September 1, 2016
	 	$	0.00	 

Provided, however, that if Construction and Term Loan Supplement No. R10218T01 dated March 24,
2005, has been repaid prior to its maturity date of May 20, 2014, then repayment for this loan
shall begin on the first day of the month that is six months after the first day of the month
following the repayment of RI0218T01, and reductions in principal as noted above shall occur every
six months thereafter. If any installment due date is not a day on which Agent is open for
business, then such installment shall be due and payable on the next day on which Agent is open for
business. In addition to the above, the Company promises to pay interest on the unpaid principal
balance hereof at the times and in accordance with the provisions set forth in Section 5
hereof.

     SECTION 7. Prepayment. Subject to the broken funding surcharge provision of the MLA,
the Company may on one Business Day’s prior written notice prepay all or any portion of the
loan(s). Unless otherwise agreed, all prepayments will be applied to principal installments in the
inverse order of their maturity. However, in addition to the foregoing, prepayment of any Loan
balance due to refinancing, or refinancing of any unadvanced Commitment, up to and including
December 1, 2007, will result in a 3% prepayment charge in addition to any broken funding
surcharges which may be applicable, based on the amounts prepaid and on the total amount of the
Commitments in effect at such time.

     SECTION 8. Security. Security is set forth in the MLA.

     SECTION 9. Additional Conditions Precedent. Agent’s obligation to make each advance
hereunder, including the initial advance, is subject to the satisfaction of each of the following
additional conditions precedent on or before the date of such advance:

          (A) Request for Loan Advance. That Agent receives an executed request for loan advance from
the Company in the form of Exhibit A attached hereto (the “Request for Loan Advance”), together
with all items called for therein including a designation therein 
if the advance is for construction or working capital purposes.

          (B) Construction Advances. If one of the purposes in a Request for Loan Advance is for
construction, the following additional conditions precedent shall be applicable:

               (1) Construction Certificate. If an independent inspector has been employed by Agent
pursuant to Section 14(D), a certificate or report of such inspector to the effect that the
construction of the Improvements to the date thereof has been performed in a good and workmanlike
manner and in accordance with the Plans, stating the estimated total cost of construction of the
Improvements, stating the percentage of in-place construction of the Improvements, and stating that
the

 

 

	 	 	 
	Construction and Revolving Term Loan Supplement RIO218TO2

	 	-5-
	Lincolnway Energy, LLC
	 	 
	Nevada, Iowa
	 	 

remaining non-disbursed portion of the Commitment is adequate to complete the construction of
the Improvements.

               (2) List of Permits. Receipt by Agent of a detailed list of all permits required for both
the construction of the improvements and the operation of the facility setting forth for each
listed permit whether such permit is required for commencement of construction or required for
commencement of operation, and identifying to Agent’s satisfaction whether such permits have been
issued or can reasonably be expected to be issued. This additional condition shall be required only
with any initial construction advance hereunder.

               (3) Construction Permits. Receipt by Agent of evidence of issuance of all permits that are
required to be obtained prior to the commencement of construction of the improvements. This
additional condition shall be required only with any initial construction advance hereunder.

     SECTION 10. Representations and Warranties. In addition to the representations and
warranties contained in the MLA, the Company represents and warrants as follows:

          (A) Project Approvals; Consents; Compliance. The Company has obtained all Project Approvals
relating to the construction and operation of the Improvements, except those the Company has
disclosed to Agent in writing. All such Project Approvals heretofore obtained remain in full force
and effect and the Company has no reason to believe that any such Project Approval not heretofore
obtained will not be obtained by the Company in the ordinary course during or following completion
of the construction of the Improvements. To the extent that any Project Approval may terminate or
become void or voidable or terminable, upon any sale, transfer or other disposition of the Property
or the Improvements, including any transfer pursuant to foreclosure sale under the Mortgage, the
Company will cooperate with Agent to obtain any replacement Project Approvals. No consent,
permission, authorization, order, or license of any governmental authority is necessary in
connection with the execution, delivery, performance, or enforcement of the loan documents to which
the Company is a party, except such as have been obtained and are in full force and effect. The
Company is in compliance in all material respects with all Project Approvals having application to
the Property or the Improvements except as the Company has disclosed to Agent in writing. Without
limiting the foregoing, there are no unpaid or outstanding’ real estate or other taxes or
assessments on or against the Property or the Improvements or any part thereof (except only real
estate taxes not yet due and payable). The Company has received no notice nor has any knowledge of
any pending or contemplated assessments against the Property or the Improvements which have not
been disclosed to Agent in writing:

          (B) Environmental Compliance. Without limiting the provisions of the MLA, all property owned
or leased by the Company, including, without limitation, the Property and the Improvements, and all
operations conducted by it are in compliance in all material respects with all Laws and all Project
Approvals relating to environmental protection, the failure to comply with which could have a
material adverse effect on the condition, financial or otherwise, operations, properties, or
business of the Company, or on the ability of the Company to perform its obligations under the
loan documents except as the Company has disclosed to Agent in writing.

          (C) Feasibility. Each of the Project Budget, the Project Schedule and the Disbursement
Schedule is realistic and feasible.

 

 

	 	 	 
	Construction and Revolving Term Loan Supplement RI0218T02

	 	-6-
	Lincolnway Energy, LLC
	 	 
	Nevada, Iowa
	 	 

     SECTION 11. Affirmative Covenants. In addition to the affirmative covenants contained in
the MLA, the Company agrees to:

          (A) Reports and Notices. Furnish to Agent:

               (1) Regulatory and Other Notices. Promptly after receipt thereof, copies of any notices or
other communications received from any governmental authority with respect to the Property, the
Improvements, or any matter or proceeding the effect of which could have a material adverse
effect on the condition, financial or otherwise, operations, properties, or business of the
Company, or the ability of the Company to perform its obligations under the loan documents.

               (2) Notice of Nonpayment. Promptly after the filing or receipt thereof, a description of or
a copy of any lien filed .by or any notice, whether oral or written, from any laborer,
contractor, subcontractor or materialman to the effect that such laborer, contractor,
subcontractor or materialman has not been paid when due for any labor or materials furnished in
connection with the construction of the Improvements.

               (3) Notice of Suspension of Work. Prompt notice of any suspension in the construction of
the Improvements, regardless of the cause thereof, in excess of ten (10) days and a description
of the cause for such suspension.

          (B) Construction Liens. Pay or cause to be removed, within fifteen (15) days after notice
from Agent, any lien on the Improvements or Property, provided, however, that Company shall have
the right to contest in good faith and with reasonable diligence the validity of any such lien or
claim.

          (C) Identity of Contractors, etc. Furnish to Agent from time to time on request by Agent, in
a form, acceptable to Agent, correct lists of all contractors, subcontractors and suppliers of
labor and material supplied in connection with construction of the Improvements and true and
correct copies of all executed contracts, subcontracts and supply contracts. Agent may contact any
contractor, subcontractor or supplier to verify any facts disclosed in the lists and contracts. All
contracts and subcontracts relating to construction of the Improvements must contain provisions
authorizing or not prohibiting the Company to supply to Agent the listed information and copies of
contracts or not otherwise prohibiting any transfers.

          (D) Lien Waivers. Furnish to Agent at any time and from time to time upon the request of
Agent lien waivers bearing a then current date and prepared on a form satisfactory to Agent from
such contractor, subcontractor, or supplier as Agent shall designate.

          (E) Operating Permits. Furnish to Agent, unless as otherwise consented to in
writing by Agent, as soon as possible but prior to the commencement of operation of the constructed
facility, evidence of the issuance of all necessary permits for such operation.

 

 

	 	 	 
	Construction and Revolving Term Loan Supplement RI0218T02

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	Lincolnway Energy, LLC
	 	 
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     SECTION 12. Negative Covenants. In addition to the negative covenants contained in the MLA,
the Company will not:

          (A) Change Orders. Allow any substantial deviation, addition, extra, or change order to the
Plans, Project Budget or Project Schedule the cost of which in the aggregate exceeds $100,000.00,
without Agent’s prior written approval. All requests for substantial changes shall be made using a
change Order Request in the form of Exhibit B attached hereto. Agent will have a reasonable time
to evaluate any requests for its approval of any changes referred to in this covenant, and will not
be required to consider approving any changes unless all other approvals that may be required have
been obtained. Agent may approve or disapprove changes in its discretion. All contracts and
subcontracts relating to the construction of the Improvements must contain provisions satisfactory
to Agent implementing the above provisions of this covenant. Company shall promptly provide to
Agent copies of all change orders that, pursuant to the above described procedures, did not require
Agent’s prior written approval.

          (B) Materials. Purchase or install any materials, equipment, fixtures or articles of personal
property for the Improvements if such shall be covered under any security agreement or other
agreement where the seller reserves or purports to reserve title or the right of removal or
repossession, or the right to consider them personal property after their incorporation in the Improvements.

     SECTION 13. Casualties.

          (A) Right To Elect To Apply Proceeds. In case of material loss or damage to the Property or
to the Improvements by fire, by a taking by condemnation for public use or the action of any
governmental authority or agency, or the transfer by private sale in lieu thereof, either
temporarily or permanently, or otherwise, if in the sole judgment of Agent there is reasonable
doubt as to Company’s ability to complete construction of the Improvements on or before May 31,
2006, by reason of such loss or damage or because of delays in making settlements with governmental
agencies or authorities or with insurers, Agent may terminate its obligations to make advances
hereunder and elect to collect, retain and apply to the Commitment all proceeds of the taking or,
insurance after deduction of all expense of collection and settlement, including attorneys’ and
adjusters’ fees and charges. In the event such proceeds are insufficient to pay the Commitment in
full, Agent may declare the balance remaining unpaid on the Commitment to be due and payable
forthwith and avail itself on any of the remedies afforded thereby as in any case of default.

          (B) Election Not To Apply Proceeds. In case Agent does not elect to apply such proceeds to
the Commitment, Company will:

               (1) Settle. Proceed with diligence to make settlement with the governmental agencies or
authorities or the insurers and cause the proceeds of insurance to be paid to Company.

               (2) Resume Construction. Promptly proceed with the resumption of construction of the
improvements, including the repair of all damage resulting from such fire or other cause and
restoration to its former condition.

 

 

	 	 	 
	Construction and Revolving Term Loan Supplement RI0218T02

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	Lincolnway Energy, LLC
	 	 
	Nevada, Iowa
	 	 

          (C) Use of Proceeds. All such proceeds shall be fully used before the disbursement of
any further proceeds of the Commitment.

     SECTION 14. Other Rights of Agent.

          (A) Right To Inspect. Agent or its agent may enter on the Property at any time and inspect
the Improvements. If the construction of the Improvements is not reasonably satisfactory to
Agent, Agent may reasonably and in good faith stop the construction and order its replacement or
the correction thereof or additions thereto whether or not said unsatisfactory construction has
been incorporated in the Improvements, and withhold all advances hereunder until such
construction is satisfactory to Agent. Such construction shall promptly be made satisfactory
to Agent.

          (B) Obligation of Agent. Neither Agent nor any inspector hired pursuant to Subsection (D)
below is obligated to construct or supervise construction of the Improvements. Inspection by
Agent or such inspector thereof is for the sole purpose of protecting Agent’s security and is not
to be construed as a representation that there will be compliance on anyone’s part with the Plans
or that the construction will be free from faulty material or workmanship. Neither Agent nor such
inspector shall be liable to the Company or any other person concerning the quality of
construction of the Improvements or the absence therefrom of defects. The Company will make or
cause to be made such other independent inspections as it may desire for its own protection.

          (C) Right To Complete Upon Event of Default. Upon any Event of Default hereunder, Agent may
complete construction of the Improvements, subject to Agent ‘s right at any time to discontinue
any work without liability, and apply the proceeds of the Commitment to such completion, and may
demand such additional sums from the Company as may be necessary to complete construction, which
sums the Company shall promptly pay to Agent. In connection with any construction of the
Improvements undertaken by Agent pursuant to this Subsection, Agent may (i) enter upon the
property; (ii) employ existing contractors, architects, engineers and subcontractors or terminate
them and employ others; (iii) make such addition, changes and corrections in the Plans as shall,
in the judgment of Agent, be necessary or desirable; (iv) take over and use any personal
property, materials, fixtures, machinery, or equipment of the Company to be incorporated into or
used in connection with he construction or operation of the Improvements; (v) pay, settle, or
compromise all existing or future bills and claims which are or may be liens against the Property
or the Improvements; and (vi) take such other action, as Agent may in its sole discretion
determine, to complete the construction of the Improvements. The Company shall be liable to
Agent for all costs paid or incurred for construction of the Improvements, and all payments made
hereunder shall be deemed advances by Agent, shall be evidenced by the Note and shall be secured
by the Mortgage and any other loan document securing the Commitment (including any amounts in
excess of the Commitment).

          (D) Right To Employ Independent Engineer. Agent reserves the right to employ an
independent construction engineer, among other things, to review the Project Budget, the Project
Schedule and the Plans, inspect all construction of the Improvements and the periodic progress of
the same, and review all Draw Requests and change orders, the cost therefor to be the sole
responsibility of the Company and shall be paid by the Company upon demand by Agent.

 

 

	 	 	 
	Construction and Revolving Term Loan Supplement R10218T02

	 	-9-
	Lincolnway Energy, LLC
	 	 
	Nevada, Iowa
	 	 

          (E) Indemnification and Hold Harmless. The Company shall indemnify and hold Farm Credit
and Agent harmless from and against all liability, cost or damage arising out of this Agreement
or any other loan document or the transactions contemplated hereby and thereby, including,
without limitation, (i) any alleged or actual violation of any Law or Project Approval relating
to the Property or the Improvements and (ii) any condition of the Property or the Improvements
whether relating to the quality of construction or otherwise and whether Agent elects to
complete construction upon an Event of Default or discontinues or suspends construction pursuant
to this Section 14. Agent may commence, appear in or defend any such action or proceeding or
any other action or proceeding purporting to affect the rights, duties or liabilities of the
parties hereunder, or the Improvements, or the Property, or the payment of the Commitment, and
the Company agrees to pay all of Agent’s costs and expenses, including its reasonable attorneys’
fees, in any such actions. The obligations of the Company under this Subsection 14(E) shall
survive the termination of this Agreement. As to any action or inaction taken by Agent
hereunder, Agent shall not be liable for any error of judgment or mistake of fact or law, absent
gross negligence or willful misconduct on its part. The Company’s obligation to indemnify and
hold Agent harmless hereunder will exclude any liability, cost, or damage related to Agent’s
breach of this Agreement or for Agent’s gross negligence or willful misconduct.

     SECTION 15. Notice of Completion. Company irrevocably appoints Agent as Company’s agent
to file of record any notice of completion, cessation of labor or any other notice that Agent
deems necessary to file to protect any of the interests of Agent. Agent, however, shall have no
duty to make such filing.

     SECTION 16. Signs and Publicity. At Farm Credit’s and Agent’s request, Company will allow
Farm Credit and Agent to post signs on the Property at the construction site for the purpose of
identifying Farm Credit and Agent as the “Construction Lenders”. At the request of Farm Credit
and Agent, Company will use its best efforts to identify Farm Credit and Agent as the
construction lenders in publicity concerning the project.

     SECTION 17. Cooperation. Company will cooperate at all times with Agent in bringing about
the timely completion of the Improvements, and Company will resolve all disputes arising during
the work of construction in a manner which will allow work to proceed expeditiously.

     SECTION 18. Events of Default. In addition to the events of default set forth in the
MLA, each of the following shall constitute an “Event of Default” hereunder:

          (A) Cessation of Construction. Any cessation at any time in the construction of the
Improvements for more than thirty (30) consecutive days, except for strikes, acts of God, or
other causes beyond the Company’s control, or any cessation at any time in
construction of the Improvements for more than thirty (30) consecutive days, regardless of the
cause.

          (B) Insufficiency of Loan Proceeds. Agent, in its sole discretion shall determine that the
remaining disbursed portion of the Commitment is or will be insufficient to fully complete the
Improvements in accordance with the Plans.

 

 

	 	 	 
	Construction and Revolving Term Loan Supplement RI0218T02

	 	-10-
	Lincolnway Energy, LLC
	 	 
	Nevada, Iowa
	 	 

     SECTION 19. Remedies Upon Default. In addition to the remedies set forth in the MLA, upon
the occurrence of and during the continuance of each and every Event of Default:

          Construction. Agent may (but shall not be obligated to) take over and complete construction of
the Improvements in accordance with plans and specifications approved by Agent with such changes as
Agent may, in its sole discretion, deem appropriate, all at the risk, cost, and expense of the
Company. Agent may assume or reject any contracts entered into by the Company in connection with
the Improvements, and may enter into additional or different contracts for services, labor, and
materials required, in the judgment of Agent, to complete the construction of the Improvements and
may pay, compromise, and settle all claims in connection with the construction of the Improvements.
All sums, including reasonable attorneys’ fees, charges, or fees for supervision and inspection of
the construction, and for any other necessary purpose in the discretion of Agent, expended by Agent
in completing the construction of the Improvements (whether aggregating more or less than the
amount of this Commitment) shall be deemed advances made by Agent to the Company under this
Commitment, and the Company shall be liable to Agent for the repayment of such sums, together with
interest on such amounts from the date of their expenditure at the default rate specified above.
Agent may, in its sole discretion, at any time, abandon work on the construction of the
Improvements after having commenced such work, and may recommence such work at any time, it being
understood that nothing in this Section shall impose any obligation on Agent to either complete or
not to complete the construction of the Improvements. For the purposes of carrying out the
provisions of this Section, the Company irrevocably appoints Agent, its attorney-in-fact, with full
power of substitution, to execute and deliver all such documents, pay and receive such funds, and
take such action as may be necessary, in the judgment of Agent, to complete the construction of the
Improvements.

     IN WITNESS WHEREOF, the parties have caused this Supplement to be executed by their duly
authorized officers as of the date shown above.

	 	 	 	 	 	 	 	 	 
	 	 	FARM CREDIT SERVICES OF	 	 	 	LINCOLNWAY ENERGY, LLC
	

	 	     AMERICAN, FLCA	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:
/s/ Jeremy Wilhelm

	 	 	 	By: /s/ William D. Couser

	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Title: VP

	 	 	 	Title: President

 

 

EXHIBIT A

REQUEST FOR

LOAN ADVANCE

Request No.                                                             
                    Date:
                                                            

	 	 	 
	To:

	 	CoBank, ACB
	From:

	 	Lincolnway Energy, LLC
	 

	 	 
	 

	 	(Name of Borrower)

	 	 	 	 	 	 	 
	                    Loan Agreement No. RI0218T01	 	 	 	 Dated: March 24, 2005
	                    Project Description:  

	 	 	 
	                    Project
Location:  

	 	 	 
	 
	 	 	 	 	 	 

	 	 
	 	 

In accordance with the terms of the above referenced Loan Agreement, you are hereby authorized
and requested to make a construction and/or working capital advance, as set forth in said Loan
Agreement, of the amount and for the items set forth in the request schedule attached hereto as Schedule “A” and incorporated herein.

1. With respect to construction advances, the undersigned hereby certify that:

	 	A.	 	The labor, services and/or materials covered hereby have been performed upon
or furnished to the above referenced project and are accurately described
in the supporting invoices attached to the request schedule;
	 
	 	B.	 	There have been no changes in the cost breakdown for the project dated
                     supplied to Agent, except those approved in writing by Agent;
	 
	 	C.	 	All construction to date has been substantially performed in accordance with
the Plans for the improvements, and there have been no changes in the Plans except as
approved in writing by Agent;
	 
	 	D.	 	There have been no material changes in the scope or time of performance of the
work of construction, nor any extra work, labor or materials ordered or contracted for,
nor are any such changes or extras contemplated, except as may be expressly permitted
by the Loan Agreement or as have been approved in writing by Agent;
	 
	 	E.	 	The payments to be made with the requested funds will pay all bills received to
date, less any required withholds, for labor, materials, equipment and/or services
furnished in connection with the construction of the Improvements; and
	 
	 	F.	 	All amounts previously advanced by Agent for labor, services, equipment and/or
materials for the above referenced project pursuant to previous Requests for
Construction Loan Disbursement have been paid to the parties entitled thereto in the
manner required in the Loan Agreement.

2. With respect to working capital advances, the undersigned hereby certify that the amount set
forth in Schedule “A” will be utilized for the identified purpose.

 

 

EXHIBIT A

3. With respect to all advances, the undersigned hereby certify that all conditions to the advance
of Loan funds required herein as set forth in the Loan Agreement have been fulfilled, and to the
actual knowledge of the undersigned, no Event of Default under the Loan Agreement has occurred and
is continuing.

	 	 	 	 	 	 	 
	 	 	BORROWER: Lincolnway Energy, LLC
	 
	 	 	 	 	 	 
	 

	 	By:  
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	ENGINEER:
 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	By:
 
	 
	 	 	 	 	 	 
	 	 	CONTRACTOR:	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	By:  
	 	 	 	 	 

We have
reviewed the Pay Application Numbered                      and dated
                    . Based on our
conversations with the Contractor and the Owner, our review of the current schedule, and our site
observations, the construction in place is judged to be in general accordance with industry
standards and in general conformity with the approved plans and specifications, proceeding
generally on schedule, and the request for payment is a reasonable representation of the
materials ordered and the work effort of the Contractor to date.

	 	 	 	 	 	 	 
	 	 	 	 	AGENT’ S CONSULTING ENGINEER:
	 
	 	 	 	 	 	 
	 

	 	 	 	By:	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	APPROVED FOR PAYMENT BY AGENT:	 	 	 	 
	CoBANK, ACB	 	 	 	 
	 
	 	 	 	 	 	 
	By
 
	 	 	 	 
	 

	 	 	 	 	 	 
	Date:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 

 

 

SCHEDULE A

to Exhibit A — Request for Loan Advance

Request No.                                                                                                                          Date:                                                             

	 	 	 	 	 	 	 
	To:	 	CoBank, ACB	 	 
	From:	 	Lincolnway Energy, LLC	 	 
	 	 	(Name of Borrower)	 	 
	 
	 	 	 	 	 	 
	 	 	Loan Agreement No. RI0218T02	 	          Dated: March 24, 2005
	 	 	Project Description:	 	 	 
	 	 	 	 	 
	 	 	Project Location:	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 

	 	 	 

Complete the information below regarding this request.

	o	 	Loan advance to be used entirely for Construction Purposes.
	 
	 	 	Amount Requested: $
	 
	 	 	Description of Construction Use:
	 
	o	 	Loan advance to be used entirely for Working Capital Purposes.
	 
	 	 	Amount Requested: $
	 
	o	 	Loan advance to be used for a combination of Construction and Working Capital Purposes.
	 
	 	 	Amount Requested: $
	 
	 	 	___% of amount listed above to be used for Construction Purposes
	 
	 	 	___% of amount listed above to be used for Working Capital Purposes
	 
	 	 	100% Total
	 
	 	 	Description of Construction Use:

 

 

EXHIBIT B

CHANGE ORDER REQUEST

Date: _________________________________

Request No. CO#

To: CoBank, ACB

From: Lincolnway Energy. LLC

(Name of Borrower)

	 	 	 	 	 	 	 
	 	 	Loan Agreement No. RI0218T0I	 	Dated: March 24, 2005
	 	 	Project Description:	 	 
	 	 	 	 	 
	 	 	Project Location:	 	 
	 	 	 	 	 

In accordance with the terms of the above referenced Loan Agreement, the undersigned hereby
requests that Agent approve the change orders more particularly described in the schedule attached
hereto as Schedule “A” and incorporated herein.

The undersigned hereby certifies that:

	1.	 	There have been no changes in the Plans and or contracts except those permitted in the Loan
Agreement and/or approved in writing by Agent; and
	 
	2.	 	Copies of the proposed changes to the Plans and/or contracts are attached hereto as Schedule
“B” and that all such documents are complete and fully comply with all applicable permits and
approvals, subject to the written approval of Agent.

	 	 	 	 	 	 	 	 	 
	BORROWER:	 	ENGINEER:	 	 
	 
	 	 	 	 	 	 	 	 
	Lincolnway Energy, LLC	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:  

	 	By:	 	 	 	 
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	CONTRACTOR:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:  
	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	CHANGE ORDER APPROVED BY AGENT:	 	 	 	 	 	 
	CoBANK, ACB	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:  
	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	Date:

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