Document:

EXHIBIT 10.1
   
 

 

 

 

 

 

CREDIT
AGREEMENT

 

BY AND
BETWEEN

HGF
ACQUISITION, LLC

AND

 

KRUSE INVESTMENT COMPANY, INC

FEBRUARY
12, 2007

 

 

   
 

TABLE OF CONTENTS

	
  ARTICLE I DEFINITIONS 1

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 1.1

  	
   

  	
  Definitions

  	
   

  	
  1

  
	
  Section 1.2

  	
   

  	
  Other Definitional Terms; Rules of Interpretation

  	
   

  	
  4

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY

  	
   

  	
  4

  
	
   

  	
   

  	
   

  
	
  Section 2.1

  	
   

  	
  Advances

  	
   

  	
  4

  
	
  Section 2.2

  	
   

  	
  Procedures for Requesting Advances

  	
   

  	
  5

  
	
  Section 2.3

  	
   

  	
  Interest; Principal; Default Interest Rate; Usury

  	
   

  	
  5

  
	
  Section 2.4

  	
   

  	
  Origination Fee

  	
   

  	
  6

  
	
  Section 2.5

  	
   

  	
  Time for Interest Payments; Computation of Interest
  and Fees

  	
   

  	
  6

  
	
  Section 2.6

  	
   

  	
  Voluntary Prepayment; Termination of the Credit
  Facility by the Borrower

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III CONDITIONS OF LENDING

  	
   

  	
  6

  
	
   

  	
   

  	
   

  
	
  Section 3.1

  	
   

  	
  Conditions Precedent to the Initial Advance

  	
   

  	
  6

  
	
  Section 3.2

  	
   

  	
  Conditions Precedent to All Advances

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV REPRESENTATIONS AND WARRANTIES

  	
   

  	
  7

  
	
   

  	
   

  	
   

  
	
  Section 4.1

  	
   

  	
  Existence and Power

  	
   

  	
  7

  
	
  Section 4.2

  	
   

  	
  Authorization of Borrowing; No Conflict as to Law or
  Agreements

  	
   

  	
  8

  
	
  Section 4.3

  	
   

  	
  Legal Agreements

  	
   

  	
  8

  
	
  Section 4.4

  	
   

  	
  Litigation

  	
   

  	
  8

  
	
  Section 4.5

  	
   

  	
  Taxes

  	
   

  	
  8

  
	
  Section 4.6

  	
   

  	
  Default

  	
   

  	
  8

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V COVENANTS

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 5.1

  	
   

  	
  Compliance with Laws

  	
   

  	
  9

  
	
  Section 5.2

  	
   

  	
  Payment of Taxes and Other Claims

  	
   

  	
  9

  
	
  Section 5.3

  	
   

  	
  Preservation of Existence

  	
   

  	
  9

  
	
  Section 5.4

  	
   

  	
  Sale or Transfer of Assets; Suspension of Business
  Operations

  	
   

  	
  9

  
	
  Section 5.5

  	
   

  	
  Consolidation and Merger; Asset Acquisitions

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI EVENTS OF DEFAULT, RIGHTS AND REMEDIES

  	
   

  	
  10

  
	
   

  	
   

  	
   

  
	
  Section 6.1

  	
   

  	
  Events of Default

  	
   

  	
  10

  
	
  Section 6.2

  	
   

  	
  Rights and Remedies

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII MISCELLANEOUS

  	
   

  	
  12

  
	
   

  	
   

  	
   

  
	
  Section 7.1

  	
   

  	
  No Waiver; Cumulative Remedies; Compliance with Laws

  	
   

  	
  12

  
	
  Section 7.2

  	
   

  	
  Amendments, Etc.

  	
   

  	
  12

  
	
  Section 7.3

  	
   

  	
  Notices; Communication of Confidential Information;
  Requests for Accounting

  	
  12

  
	
  Section 7.4

  	
   

  	
  Further Documents

  	
   

  	
  12

  
	
  Section 7.5

  	
   

  	
  Costs and Expenses

  	
   

  	
  13

  
	
  Section 7.6

  	
   

  	
  Execution in Counterparts; Telefacsimile Execution

  	
   

  	
  13

  
	
  Section 7.7

  	
   

  	
  Binding Effect; Assignment; Complete Agreement;
  Sharing Information

  	
   

  	
  13

  
	
  Section 7.8

  	
   

  	
  Severability of Provisions

  	
   

  	
  13

  
	
  Section 7.9

  	
   

  	
  Headings

  	
   

  	
  13

  
	
  Section 7.10

  	
   

  	
  Governing Law; Jurisdiction, Venue; Waiver of Jury
  Trial

  	
   

  	
  13

  
										

 

	
  EXHIBITS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
   

  	
  Form of Note

  
	
  Exhibit B

  	
   

  	
  Form of Security Agreement

  
	
  Exhibit C

  	
   

  	
  Form of Consent to Security Agreement

  

 

 i

CREDIT AGREEMENT

Dated as of
February 12, 2007

HGF ACQUISITION,
LLC, a Delaware limited liability company (the “Borrower”), and KRUSE INVESTMENT COMPANY, INC, a
California corporation (the “Lender”), hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1
            Definitions.  For all purposes of this Agreement, except as
otherwise expressly provided, the following terms shall have the meanings
assigned to them in this Section or in the Section referenced after
such term:

“Advance” has the
meaning set forth in Section 2.1.

“Affiliate” or “Affiliates”
means any Person controlled by, controlling or under common control with the
Borrower, including any Subsidiary of the Borrower.  For purposes of this definition, “control,”
when used with respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise.

“Agreement” means
this Credit Agreement.

“Availability”
means the amount, if any, by which the Maximum Line Amount exceeds the
outstanding principal balance of the Note.

“Business Day”
means a day on which the Federal Reserve Bank of New York is open for business.

“Commitment” means
the Lender’s commitment to make Advances to the Borrower pursuant to
Article II.

“Consent to
Security Interest” means the Consent to Security Interest executed by Borrower,
Heartland Grain Fuels, L.P., and the other partners of Heartland Grain Fuels,
L.P. substantially in the form of Exhibit C hereto, as the same may be amended
from time to time.

“Constituent
Documents” means with respect to any Person, as applicable, such Person’s
certificate of incorporation, articles of incorporation, by-laws, certificate
of formation, articles of organization, limited liability company agreement,
management agreement, operating agreement, shareholder agreement, partnership
agreement or similar document or agreement governing such Person’s existence,
organization or management or concerning disposition of ownership interests of
such Person or voting rights among such Person’s owners.

“Credit Facility”
means the credit facility under which Advances may be made available to the
Borrower by the Lender under Article II.

“Default” means an
event that, with giving of notice or passage of time or both, would constitute
an Event of Default.

“Default Period”
means any period of time beginning on the date an Event of Default occurs and
ending on the date identified by the Lender in writing as the date that such
Event of Default has been cured or waived.

“Default Rate”
means an annual interest rate in effect during a Default Period or following
the Termination Date, which interest rate shall be equal to 18%.

“Director” means a
director if the Borrower is a corporation, a governor or manager if the
Borrower is a limited liability company, or a general partner if the Borrower
is a partnership.

“Event of Default”
has the meaning set forth in Section 6.1.

“GAAP” means
generally accepted accounting principles, applied on a consistent basis.

“Interest Payment
Date” has the meaning set forth in Section 2.5(a).

“Interest Rate”
means 12% per annum.

“Lien” means any
security interest, mortgage, deed of trust, pledge, lien, charge, encumbrance,
title retention agreement or analogous instrument or device, including the
interest of each lessor under any capitalized lease and the interest of any
bondsman under any payment or performance bond, in, of or on any assets or
properties of a Person, whether now owned or hereafter acquired and whether arising
by agreement or operation of law.

“Loan Documents”
means this Agreement, the Note, the Security Agreement and the Consent to
Security Interest, together with every other agreement, note, document,
contract or instrument to which the Borrower now or hereafter is a party and
that is required by the Lender.

“Material Adverse
Effect” means any of the following:

(i)           A
material adverse effect on the business, operations, results of operations,
prospects, assets, liabilities or financial condition of the Borrower;

(ii)          A
material adverse effect on the ability of the Borrower to perform its
obligations under the Loan Documents;

(iii)         A
material adverse effect on the ability of the Lender to enforce the Obligations
or to realize the intended benefits of the Security Documents, 

 2
 

including a material adverse effect on the validity or enforceability
of any Loan Document, or on the status, existence, perfection, priority or
enforceability of any Lien securing payment or performance of the Obligations;
or

(iv)         Any
claim against the Borrower or overt threat of litigation which if determined
adversely to the Borrower would cause the Borrower to be liable to pay an
amount exceeding $200,000 or would be an event described in clauses (i), (ii)
and (iii) above.

“Maturity Date”
means July 1, 2007.

“Maximum Line
Amount” means $5,000,000.

“Note” means the
Borrower’s promissory note, payable to the order of the Lender in substantially
the form of Exhibit A hereto, as same may be renewed and amended from time
to time, and all replacements thereto.

“Obligations”
means the Note and each and every other debt, liability and obligation of every
type and description which the Borrower may now or at any time hereafter owe to
the Lender, whether such debt, liability or obligation now exists or is
hereafter created or incurred, whether it arises in a transaction involving the
Lender alone or in a transaction involving other creditors of the Borrower, and
whether it is direct or indirect, due or to become due, absolute or contingent,
primary or secondary, liquidated or unliquidated, or sole, joint, several or
joint and several, and including all indebtedness of the Borrower arising under
any Loan Document, whether now in effect or hereafter entered into.

“Officer” means
with respect to the Borrower, an officer if the Borrower is a corporation, a
manager if the Borrower is a limited liability company, or a partner if the
Borrower is a partnership.

“Owner” means with
respect to the Borrower, each Person having legal or beneficial title to an
ownership interest in the Borrower or a right to acquire such an interest.

“Person” means any
individual, corporation, partnership, joint venture, limited liability company,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.

“Security
Agreement” means the Security Agreement executed by Borrower and Lender
substantially in the form of Exhibit B hereto, as the same may be amended from
time to time.

“Subsidiary” means
any corporation of which more than 50% of the outstanding shares of capital
stock having general voting power under ordinary circumstances to elect a
majority of the board of Directors of such corporation, irrespective of whether
or not at the time stock of any other class or classes shall have or might have
voting power by reason of 

 3
 

the happening of any
contingency, is at the time directly or indirectly owned by the Borrower, by
the Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.

“Termination Date”
means the earliest of (i) the Maturity Date, (ii) the date the
Borrower terminates the Credit Facility, or (iii) the date the Lender
demands payment of the Obligations (or the Obligations are automatically
accelerated), following an Event of Default, pursuant to Section 6.2.

Section 1.2
            Other Definitional Terms;
Rules of Interpretation.  The words “hereof”,
“herein” and “hereunder” and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement.  All
accounting terms not otherwise defined herein have the meanings assigned to
them in accordance with GAAP.  References
to Articles, Sections, subsections, Exhibits, Schedules and the like, are to
Articles, Sections and subsections of, or Exhibits or Schedules attached
to, this Agreement unless otherwise expressly provided.  The words “include”, “includes” and “including”
shall be deemed to be followed by the phrase “without limitation”.  Unless the context in which used herein
otherwise clearly requires, “or” has the inclusive meaning represented by the
phrase “and/or”.  Defined terms include
in the singular number the plural and in the plural number the singular.  Reference to any agreement (including the
Loan Documents), document or instrument means such agreement, document or
instrument as amended or modified and in effect from time to time in accordance
with the terms thereof (and, if applicable, in accordance with the terms hereof
and the other Loan Documents), except where otherwise explicitly provided, and
reference to any promissory note includes any promissory note which is an
extension or renewal thereof or a substitute or replacement therefor.  Reference to any law, rule, regulation,
order, decree, requirement, policy, guideline, directive or interpretation
means as amended, modified, codified, replaced or reenacted, in whole or in
part, and in effect on the determination date, including rules and regulations
promulgated thereunder.

ARTICLE II

AMOUNT
AND TERMS OF THE CREDIT FACILITY

Section 2.1
            Advances.  The Lender agrees, subject to the terms and
conditions of this Agreement, to make advances (“Advances”) to the Borrower
from time to time after the later of (a) the date that all of the conditions
set forth in Section 3.1 are satisfied and (b) February 19, 2007 to and until
(but not including) the Termination Date in an amount not in excess of the
Maximum Line Amount.  Notwithstanding the
foregoing, the Lender shall make an Advance on the date hereof in the amount of
$100,000 to permit Borrower to pay the fee required by Section 2.4.  The Lender shall have no obligation to make
an Advance to the extent that the amount of the requested Advance exceeds
Availability.  The proceeds of each
Advance under this Section 2.1 shall be used to make loans to Heartland
Grain Fuels, L.P., pay the fee required by Section 2.4, and to pay transaction
costs and expenses.  Each Advance under
this Section 2.1 shall be in an amount equal to an integral multiple of
$100,000..  Borrower may only request one
Advance in any period of 30 days.  The 

 4
 

Borrower’s obligation to
pay the Advances shall be evidenced by the Note and shall be secured by the
Security Agreement.  The Note shall bear
interest on the unpaid principal amount thereof from the date thereof until
paid as set forth in Section 2.3.

Section 2.2
            Procedures for Requesting
Advances.  The Borrower shall request
each Advance (other than the Advance on the date hereof to pay the fee required
by Section 2.4) at least 18 days prior to the day on which the Advance is to be
made.  Each request that conforms to the
terms of this Agreement shall be effective upon receipt by the Lender.  Such request shall specify the principal
amount of the requested Advance, shall be in writing or by telephone or
telecopy transmission, and shall be confirmed in writing by the Borrower by
(i) an Officer of the Borrower; or (ii) a Person designated as the
Borrower’s agent by an Officer of the Borrower in a writing delivered to the
Lender; or (iii) a Person whom the Lender reasonably believes to be an
Officer of the Borrower or such a designated agent.  Any request for an Advance, whether written
or telephonic, shall be deemed to be a representation by the Borrower that the
conditions set forth in Section 3.2 have been satisfied as of the time of the
request.  Upon fulfillment of the
applicable conditions set forth in Article III, the Lender shall disburse
the proceeds of the requested Advance by crediting the same to the Borrower’s
demand deposit account specified in writing by Borrower from time to time
unless the Lender and the Borrower shall agree in writing to another manner of
disbursement.

Section 2.3
            Interest; Principal;
Default Interest Rate; Usury.

(a)          Interest.  Except as provided in Section 2.3(c),
the principal amount of each Advance shall bear interest at the Interest Rate.

(b)          Principal.
The principal balance of the Note shall be due and payable in full on the
Termination Date, or if such day is not a Business Day, on the next succeeding
Business Day.

(c)          Default
Interest Rate.  At any time during
any Default Period or following the Termination Date, in the Lender’s sole
discretion and without waiving any of its other rights or remedies, the
principal of the Note shall bear interest at the Default Rate or such lesser
rate as the Lender may determine, effective as of the first day of any Default
Period through the last day of such Default Period, or any shorter time period
that the Lender may determine.  The
decision of the Lender to impose a rate that is less than the Default Rate or
to not impose the Default Rate for the entire duration of the Default Period
shall be made by the Lender in its sole discretion and shall not be a waiver of
any of its other rights and remedies, including its right to retroactively
impose the full Default Rate for the entirety of any such Default Period or
following the Termination Date.

(d)          Usury.  In any event no rate change shall be put into
effect which would result in a rate greater than the highest rate permitted by
law.  Notwithstanding anything to the
contrary contained in any Loan Document, all agreements which either now are or
which shall become agreements between the Borrower and the 

 5
 

Lender are hereby limited so that in no contingency or event whatsoever
shall the total liability for payments in the nature of interest, additional
interest and other charges exceed the applicable limits imposed by any
applicable usury laws.  If any payments
in the nature of interest, additional interest and other charges made under any
Loan Document are held to be in excess of the limits imposed by any applicable
usury laws, it is agreed that any such amount held to be in excess shall be
considered payment of principal hereunder, and the indebtedness evidenced
hereby shall be reduced by such amount so that the total liability for payments
in the nature of interest, additional interest and other charges shall not
exceed the applicable limits imposed by any applicable usury laws, in
compliance with the desires of the Borrower and the Lender.  This provision shall never be superseded or
waived and shall control every other provision of the Loan Documents and all
agreements between the Borrower and the Lender, or their successors and
assigns.

Section 2.4
            Origination Fee.  The Borrower shall pay the Lender a fully
earned and non-refundable origination fee of $100,000, due and payable upon the
execution of this Agreement.

Section 2.5
            Time for Interest Payments;
Computation of Interest and Fees.

(a)     Time For Interest Payments.  Accrued and unpaid interest shall be due and
payable on the Termination Date or if such day is not a Business Day, on the
next succeeding Business Day (the “Interest Payment Date”).  Interest will accrue from the date of each
Advance to the Interest Payment Date.

(b)     Computation of Interest and Fees.  Interest accruing on the outstanding
principal balance of the Advances and fees hereunder outstanding from time to
time shall be computed on the basis of actual number of days elapsed in a year
of 360 days.

Section 2.6
            Voluntary Prepayment;
Termination of the Credit Facility by the Borrower.  The Borrower may prepay the Advances in whole
(but not in part) at any time.  The
Borrower may terminate the Credit Facility at any time.  If the Borrower terminates the Credit
Facility, all Obligations shall be immediately due and payable.

ARTICLE III

CONDITIONS
OF LENDING

Section 3.1
            Conditions Precedent to the
Initial Advance.  The Lender’s
obligation to make the initial Advance shall be subject to the condition
precedent that the Lender shall have received all of the following, each
properly executed by the appropriate party and in form and substance
satisfactory to the Lender:

(a)     This Agreement.

(b)     The Note.

 6
 

(c)     The Security Agreement.

(d)     The Consent to Security
Interest.

(e)     A certificate of the Borrower’s Secretary
or Assistant Secretary certifying that attached to such certificate are
(i) the resolutions of the Borrower’s Directors and, if required, Owners,
authorizing the execution, delivery and performance of the Loan Documents,
(ii) true, correct and complete copies of the Borrower’s Constituent
Documents, and (iii) examples of the signatures of the Borrower’s Officers
or agents authorized to execute and deliver the Loan Documents and other
instruments, agreements and certificates, including Advance requests, on the
Borrower’s behalf.

(f)      A current certificate issued by the
Secretary of State of Delaware, certifying that the Borrower is in good
standing in the State of Delaware.

(g)     Payment of the fees due under Section 2.4
and expenses incurred by the Lender through such date and required to be paid
by the Borrower under Section 7.5, including all legal expenses incurred
through the date of this Agreement.

(h)     Such other documents as the Lender in its
reasonable discretion may require.

Section 3.2
            Conditions Precedent to All
Advances.  The Lender’s obligation to
make each Advance shall be subject to the further conditions precedent that:

(a)     the representations and warranties
contained in Article IV are correct on and as of the date of such Advance as
though made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date; and

(b)     no event has occurred and is continuing, or
would result from such Advance which constitutes a Default or an Event of
Default.

ARTICLE IV

REPRESENTATIONS
AND WARRANTIES

The Borrower
represents and warrants to the Lender as follows:

Section 4.1
            Existence and Power.  The Borrower is a limited liability company,
duly organized, validly existing and in good standing under the laws of the
State of Delaware and is duly licensed or qualified to transact business in all
jurisdictions where the character of the property owned or leased or the nature
of the business transacted by it makes such licensing or qualification
necessary.  The Borrower has all
requisite power and authority to conduct its business, to own its properties
and to execute and deliver, and to perform all of its obligations under, the
Loan Documents. 

 

 7

Section 4.2
            Authorization of Borrowing;
No Conflict as to Law or Agreements. 
The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary limited liability company action and do not and
will not (i) require any consent or approval of the Borrower’s Owners;
(ii) require any authorization, consent or approval by, or registration,
declaration or filing with, or notice to, any governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, or any third
party, except such authorization, consent, approval, registration, declaration,
filing or notice as has been obtained, accomplished or given prior to the date
hereof; (iii) violate any provision of any law, rule or regulation or of
any order, writ, injunction or decree presently in effect having applicability
to the Borrower or of the Borrower’s Constituent Documents; (iv) result in
a breach of or constitute a default under any indenture or loan or credit
agreement or any other material agreement, lease or instrument to which the
Borrower is a party or by which it or its properties may be bound or affected;
or (v) result in, or require, the creation or imposition of any Lien
(other than the Lien of the Security Agreement) upon or with respect to any of
the properties now owned or hereafter acquired by the Borrower.

Section 4.3
            Legal Agreements.  This Agreement constitutes and, upon due
execution by the Borrower, the other Loan Documents will constitute the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms, subject to applicable bankruptcy,
reorganization, insolvency, moratorium, and other similar laws affecting
creditors rights generally from time to time in effect and to general
principles of equity.

Section 4.4
            Litigation.  There are no actions, suits or proceedings
pending or, to the Borrower’s knowledge, threatened against or affecting the
Borrower or any of its Affiliates or the properties of the Borrower or any of
its Affiliates before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely to the Borrower or any of its Affiliates, would have a Material
Adverse Effect on the financial condition, properties or operations of the
Borrower or any of its Affiliates.

Section 4.5
            Taxes.  The Borrower and its Affiliates have paid or
caused to be paid to the proper authorities when due all federal, state and
local taxes required to be withheld by each of them.  The Borrower and its Affiliates have filed
all federal, state and local tax returns which to the knowledge of the Officers
of the Borrower or any Affiliate, as the case may be, are required to be filed,
and the Borrower and its Affiliates have paid or caused to be paid to the
respective taxing authorities all taxes as shown on said returns or on any
assessment received by any of them to the extent such taxes have become due.

Section 4.6
            Default.  The Borrower is in compliance with all
provisions of all agreements, instruments, decrees and orders to which it is a
party or by which it or its property is bound or affected, the breach or
default of which could have a Material Adverse Effect.

 8
 

 

ARTICLE V

COVENANTS

So long as the
Obligations shall remain unpaid, or the Credit Facility shall remain
outstanding, the Borrower will comply with the following requirements, unless
the Lender shall otherwise consent in writing:

Section 5.1
            Compliance with Laws.  The Borrower shall (a) comply with the
requirements of applicable laws and regulations, the non-compliance with which
would materially and adversely affect its business or its financial condition
and (b) use and keep its assets, only for lawful purposes, without
violation of any federal, state or local law, statute or ordinance.

Section 5.2
            Payment of Taxes and Other
Claims.  The Borrower will pay or
discharge, when due, (a) all taxes, assessments and governmental charges
levied or imposed upon it or upon its income or profits, upon any properties
belonging to it (including the Collateral, as defined in the Security
Agreement) or upon or against the creation, perfection or continuance of the
Security Interest (as defined in the Security Agreement), prior to the date on
which penalties attach thereto, (b) all federal, state and local taxes
required to be withheld by it, and (c) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a Lien upon any
properties of the Borrower; provided, that the Borrower shall not be required
to pay any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings and for
which proper reserves have been made.

Section 5.3
            Preservation of Existence.  The Borrower will preserve and maintain its
existence and all of its rights, privileges and franchises necessary or
desirable in the normal conduct of its business and shall conduct its business
in an orderly, efficient and regular manner.

Section 5.4
            Sale or Transfer of Assets;
Suspension of Business Operations. 
The Borrower will not sell, lease, assign, transfer or otherwise dispose
of (a) the stock of any Subsidiary, the limited partnership interest in
Heartland Grain Fuels, L.P., or the common stock of Dakota Fuels, Inc. or
(b) all or a substantial part of its assets, (whether in one transaction
or in a series of transactions) to any other Person, and will not liquidate,
dissolve or suspend business operations.

Section 5.5             Consolidation and Merger; Asset
Acquisitions.  The Borrower will not
consolidate with or merge into any Person, or permit any other Person to merge
into it, or acquire (in a transaction analogous in purpose or effect to a
consolidation or merger) all or substantially all the assets of any other
Person; provided that Borrower may acquire additional limited partnership
interests in Heartland Grain Fuels, L.P. and additional common stock in Dakota
Fuels, Inc.

 9
 

ARTICLE VI

EVENTS OF
DEFAULT, RIGHTS AND REMEDIES

Section 6.1
            Events of Default.  “Event of Default”, wherever used herein,
means any one of the following events:

(a)             Default
in the payment of any principal or interest on the loan when it becomes due and
payable;

(b)            Default
in the payment of any fees, costs or expenses to be paid by Borrower under this
Agreement or any other Loan Document and the continuation of such default for
more than 5 Business Days after written notice thereof has been given to the
Borrower by Lender;

(c)             Default
in the performance, or breach, of any covenant or agreement of the Borrower
contained in this Agreement (other than a covenant or agreement a default in
whose performance or whose breach is elsewhere in this Section 6.1 specifically
dealt with) or in any other Loan Document and the continuation of such default
or breach for a period of 30 calendar days after written notice thereof has
been given to the Borrower by Lender;

(d)            The
Borrower shall be or become insolvent, or admit in writing its inability to pay
its debts as they mature, or make an assignment for the benefit of creditors;
or the Borrower shall apply for or consent to the appointment of any receiver,
trustee, or similar officer for it or for all or any substantial part of its
property; or such receiver, trustee or similar officer shall be appointed
without the application or consent of the Borrower; or the Borrower shall
institute (by petition, application, answer, consent or otherwise) any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it under the laws of
any jurisdiction; or any such proceeding shall be instituted (by petition,
application or otherwise) against the Borrower; or any judgment, writ, warrant
of attachment or execution or similar process shall be issued or levied against
a substantial part of the property of the Borrower;

(e)             A
petition shall be filed by or against the Borrower under the United States
Bankruptcy Code naming the Borrower as debtor, and, if such petition is an
involuntary petition filed against the Borrower, such involuntary petition is
not dismissed within 60 days after its filing;

(f)             Any
representation or warranty made by the Borrower in this Agreement, or by the
Borrower (or any of its Officers) in any Loan Document, agreement, certificate,
instrument or financial statement or other statement contemplated by or made or
delivered pursuant to or in connection with this Agreement shall prove to have
been incorrect in any material respect when deemed to be effective;

 10
 

(g)            The
rendering against the Borrower of an arbitration award, final judgment, decree
or order for the payment of money in excess of $500,000 and the continuance of
such arbitration award, judgment, decree or order unsatisfied and in effect for
any period of 30 consecutive days without a stay of execution;

(h)            A
default under any bond, debenture, note or other evidence of indebtedness of
the Borrower for borrowed money exceeding $500,000 in principal amount owed to
any Person other than the Lender, or under any indenture or other instrument
under which any such evidence of indebtedness has been issued or by which it is
governed, and the expiration of the applicable period of grace, if any, specified
in such evidence of indebtedness, indenture or other instrument; or

(i)              The
Borrower shall liquidate, dissolve, terminate or suspend its business
operations or otherwise fail to operate its business in the ordinary course,
merge with another Person unless the Borrower is the surviving entity; or sell
or attempt to sell all or substantially all of its assets, without the Lender’s
prior written consent.

Section 6.2
            Rights and Remedies.  During any Default Period, the Lender may
exercise any or all of the following rights and remedies:

(a)             The
Lender may, by notice to the Borrower, declare the Commitment to be terminated,
whereupon the same shall forthwith terminate;

(b)            The
Lender may, by notice to the Borrower, declare the Obligations to be forthwith
due and payable, whereupon all Obligations shall become and be forthwith due
and payable, without presentment, notice of dishonor, protest or further notice
of any kind, all of which the Borrower hereby expressly waives;

(c)             The
Lender may, without notice to the Borrower and without further action, apply
any and all money owing by the Lender to the Borrower to the payment of the
Obligations;

(d)            The
Lender may exercise and enforce its rights and remedies under the Loan
Documents; and

(e)             The
Lender may exercise any other rights and remedies available to it by law or
agreement.

Notwithstanding
the foregoing, upon the occurrence of an Event of Default described in Section
6.1(d) or (e), the Obligations shall be immediately due and payable
automatically without presentment, demand, protest or notice of any kind.

 11
 

ARTICLE VII

MISCELLANEOUS

Section 7.1
            No Waiver; Cumulative
Remedies; Compliance with Laws.  No
failure or delay by the Lender in exercising any right, power or remedy under
the Loan Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
under the Loan Documents.  The remedies
provided in the Loan Documents are cumulative and not exclusive of any remedies
provided by law.

Section 7.2
            Amendments, Etc.  No amendment, modification, termination or
waiver of any provision of any Loan Document or consent to any departure by the
Borrower therefrom shall be effective unless the same shall be in writing and
signed by the Lender, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.  No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.

Section 7.3
            Notices; Communication of
Confidential Information; Requests for Accounting.  Except as otherwise expressly provided
herein, all notices, requests, demands and other communications provided for
under the Loan Documents shall be in writing and shall be (a) personally
delivered, (b) sent by first class United States mail, (c) sent by
overnight courier of national reputation, (d) transmitted by telecopy, or
(e) sent as electronic mail, in each case delivered or sent to the party
to whom notice is being given to the business address, telecopier number, or e
mail address set forth below next to its signature or, as to each party, at
such other business address, telecopier number, or e mail address as it may
hereafter designate in writing to the other party pursuant to the terms of this
Section.  All such notices, requests,
demands and other communications shall be deemed to be an authenticated record
communicated or given on (a) the date received if personally delivered,
(b) when deposited in the mail if delivered by mail, (c) the date
delivered to the courier if delivered by overnight courier, or (d) the
date of transmission if sent by telecopy or by e mail, except that notices or
requests delivered to the Lender pursuant to any of the provisions of
Article II of this Agreement shall not be effective until received by the
Lender.  All notices, financial information,
or other business records sent by either party to this Agreement may be
transmitted, sent, or otherwise communicated via such medium as the sending
party may deem appropriate and commercially reasonable; provided, however,
that the risk that the confidentiality or privacy of such notices, financial
information, or other business records sent by the Borrower may be compromised
shall be borne exclusively by the Borrower.

Section 7.4
            Further Documents.  The Borrower will from time to time execute,
deliver, endorse and authorize the filing of any and all instruments,
documents, conveyances, assignments, security agreements, financing statements,
control agreements and other agreements and writings that the Lender may
reasonably request in order to secure, protect, perfect or enforce the Lender’s
rights under the Loan Documents (but any failure to request 

 12
 

or assure that the Borrower executes,
delivers, endorses or authorizes the filing of any such item shall not affect
or impair the validity, sufficiency or enforceability of the Loan Documents, regardless
of whether any such item was or was not executed, delivered or endorsed in a
similar context or on a prior occasion).

Section 7.5
            Costs and Expenses.  The Borrower shall pay on demand all costs
and expenses, including reasonable attorneys’ fees, incurred by the Lender in
connection with the Obligations, this Agreement, the Loan Documents, and the
transactions contemplated hereby, including all such costs, expenses and fees
incurred in connection with the negotiation, preparation, execution, amendment,
administration, performance, collection and enforcement of the Obligations and
all such documents and agreements.

Section 7.6
            Execution in Counterparts;
Telefacsimile Execution.  This
Agreement and other Loan Documents may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which counterparts, taken together, shall constitute
but one and the same instrument. 
Delivery of an executed counterpart of this Agreement by telefacsimile
shall be equally as effective as delivery of an original executed counterpart
of this Agreement.  Any party delivering
an executed counterpart of this Agreement by telefacsimile also shall deliver
an original executed counterpart of this Agreement but the failure to deliver
an original executed counterpart shall not affect the validity, enforceability,
and binding effect of this Agreement.

Section 7.7
            Binding Effect; Assignment;
Complete Agreement; Sharing Information. 
The Loan Documents shall be binding upon and inure to the benefit of the
Borrower and the Lender and their respective successors and assigns, except
that the Borrower shall not have the right to assign its rights thereunder or
any interest therein without the Lender’s prior written consent.  To the extent permitted by law, the Borrower
waives and will not assert against any assignee any claims, defenses or
set-offs which the Borrower could assert against the Lender.  This Agreement shall also bind all Persons
who become a party to this Agreement as a borrower.  This Agreement, together with the Loan
Documents, comprises the complete and integrated agreement of the parties on
the subject matter hereof and supersedes all prior agreements, written or oral,
on the subject matter hereof.  To the
extent that any provision of this Agreement contradicts other provisions of the
Loan Documents, this Agreement shall control.

Section 7.8
            Severability of Provisions.  Any provision of this Agreement which is
prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof.

Section 7.9
            Headings.  Article, Section and subsection headings
in this Agreement are included herein for convenience of reference only and
shall not constitute a part of this Agreement for any other purpose.

Section 7.10
          Governing Law; Jurisdiction,
Venue; Waiver of Jury Trial.  The
Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Minnesota.  The parties hereto hereby (i) consent to

 13
 

the personal jurisdiction of the state and
federal courts located in the State of Minnesota in connection with any
controversy related to this Agreement or the other Loan Documents;
(ii) waive any argument that venue in any such forum is not convenient;
(iii) agree that any litigation initiated by the Lender or the Borrower in
connection with this Agreement or the other Loan Documents may be venued in
either the state or federal courts located in the City of Minneapolis,
Minnesota, County of Hennepin, Minnesota; and (iv) agree  that a final judgment in any such suit,
action or proceeding shall be conclusive and may be enforced in other jurisdictions
by suit on the judgment or in any other manner provided by law.  THE BORROWER
AND THE LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR
OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS
AGREEMENT AND THE NOTE OR THE RELATIONSHIPS ESTABLISHED HEREUNDER.

(Signature
Page Follows)

 

 14

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

	
  Kruse Investment Company, Inc. 

  	
   

  	
  KRUSE INVESTMENT
  COMPANY, INC.  

  	
   

  
	
  P.O. Box 1029 

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  31120 West Street 

  	
   

  	
  By:

  	
  /s/ Ejnar Knudsen

  	
   

  
	
  Goshen, CA 93227 

  	
   

  	
   

  	
  Name: 

  	
  Ejnar Kudsen 

  	
   

  
	
  Telecopier: 559-380-2800

  	
   

  	
   

  	
  Title: 

  	
  EVP

  	
   

  
	
  Attention: Mark Labounty

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  e-mail: 

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
    

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  HGF Acquisition  

  	
   

  	
  HGF ACQUISITION, LLC 

  	
   

  
	
  10201 Wayzata Blvd, Suite 250 

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minneapolis, MN 55305 

  	
   

  	
  By:

  	
  /s/ Revis L. Stephenson III

  	
   

  
	
  Telecopier: 763-226-2725 

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
  Attention: Revis L. Stephenson III

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
  e-mail:rstephenson@advancedbioenergy.com

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
									

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Signature
Page to Credit Agreement)

 

Exhibit A
to Credit Agreement

PROMISSORY
NOTE

 

$5,000,000                                                                                                                                                               February
12, 2007

 

                For value received, the undersigned, HGF ACQUISITION,
LLC, a Delaware limited liability company (the “Borrower”), hereby promises to
pay on the Termination Date under the Credit Agreement (defined below), to the
order of KRUSE INVESTMENT COMPANY, INC., a California Corporation (the “Lender”),
at its office in Goshen, California, or at any other place designated at any
time by the holder hereof, in lawful money of the United States of America and
in immediately available funds, the principal sum of Five Million Dollars
($5,000,000) or, if less, the aggregate unpaid principal amount of all Advances
(as defined in the Credit Agreement) made by the Lender to the Borrower under
the Credit Agreement (defined below) together with interest on the outstanding
principal amount hereunder remaining unpaid from time to time, computed on the
basis of the actual number of days elapsed and a 360-day year, from the date
hereof until this Note is fully paid at the rate from time to time in effect
under the Credit Agreement dated the same date as this Note (the “Credit
Agreement”) by and between the Lender and the Borrower.  The outstanding principal hereof and interest
accruing thereon shall be due and payable as provided in the Credit
Agreement.  This Note may be prepaid only
in accordance with the Credit Agreement.

                This Note is issued pursuant,
and is subject, to the Credit Agreement, which provides, among other things,
for acceleration hereof.  This Note is
the Note referred to in the Credit Agreement. 
This Note is secured pursuant to the Security Agreement as therein
defined, and may now or hereafter be secured by one or more other security
agreements, mortgages, deeds of trust, assignments or other instruments or
agreements.

                The Borrower shall pay all costs
of collection, including reasonable attorneys’ fees and legal expenses if this
Note is not paid when due, whether or not legal proceedings are commenced.

                Presentment or other demand for
payment, notice of dishonor and protest are expressly waived.

	
  

  	
  HGF ACQUISITION, LLC

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Its:EXHIBIT 10.2

SECURITY AGREEMENT

(Pledge of Equity
Interests)

This
Agreement is made as of February 12, 2007, between HGF ACQUISITION, LLC,
a Delaware limited liability company (the “Debtor”), and KRUSE INVESTMENT
COMPANY, INC., a California corporation 
(the “Secured Party”).

Pursuant
to a Credit Agreement (as amended, supplemented or otherwise modified from time
to time, the “Credit Agreement”) of even date herewith between the Debtor and
the Secured Party, the Secured Party has agreed to make advances and grant
certain other financial accommodations to the Debtor.

As
a condition to extending credit to the Debtor under the Credit Agreement, the
Secured Party has required the execution and delivery of this Agreement by the
Debtor.

ACCORDINGLY,
in consideration of the mutual covenants contained in the Credit Agreement and
herein, the parties hereby agree as follows:

1.             Definitions.

All
terms defined in the Credit Agreement that are not otherwise defined herein
shall have the meanings given them in the Credit Agreement. In addition, the
following terms have the meanings set forth below:

“Collateral” means the
Equity Interests and all Related Rights, together with all substitutions and
replacements for or in respect of any or all of the foregoing and all proceeds
thereof.

“Equity Interest” means the
equity interests in the Heartland Grain Fuels, L.P. (“HGF”) and Dakota Fuels,
Inc. (“DF”) now held or hereafter acquired by the Debtor, howsoever designated
or evidenced, including but not limited to the Specified Equity Interests.

“Event of Default” has the
meaning specified in Section 5.

“Obligations” means (i) the
Obligations (as defined in the Credit Agreement), and (ii) each and every debt,
liability and obligation of every type and description which the Debtor may now
or at any time hereafter owe to the Secured Party under this Agreement, whether
such debt, liability or obligation now exists or is hereafter created or
incurred and whether it is or may be direct or indirect, due or to become due,
or absolute or contingent.

“Related Economic Rights”
means any and all rights to payment or other economic rights to the extent
arising out of the Equity Interests, including, without limitation, all rights
to and distributions of cash, securities, instruments, other equity interests
or other proceeds or remuneration arising in connection with dividends, equity

interest splits,
recapitalizations or reorganizations whether any or all of the same represent
profits, capital gains, returns of contributed capital, loan proceeds or
otherwise.

“Related Rights” means the
Related Economic Rights, the Related Voting Rights and all other rights,
benefits and privileges of whatever kind or nature to the extent arising out of
the Equity Interests, whether such rights now exist or are hereafter arising.

“Related
Voting Rights” means any and all voting rights related to or arising out of the
Equity Interests.

“Security Interest” has the
meaning specified in Section 2.

“Specified Equity Interests”
means the partnership interests and common stock specifically identified in
Exhibit B.

“Uniform Commercial Code”
means the Uniform Commercial Code as in effect in the State of Minnesota, or
any other state whose laws are held to govern this Agreement.

2.             Security Interest.

The
Debtor hereby grants the Secured Party a security interest (the “Security
Interest”) in the Collateral to secure payment of the Obligations.

3.             Representations, Warranties and Agreements.

The Debtor hereby
represents, warrants and agrees as follows:

(a)            Title.  The Debtor (i) has absolute title to
each of the item of Collateral in existence on the date hereof, including but
not limited to the Specified Equity Interests, free and clear of all security
interests, liens and encumbrances, except the Security Interest, (ii) will
have, at the time the Debtor acquires any rights in Collateral hereafter
arising, absolute title to each such item of Collateral free and clear of all
security interests, liens and encumbrances, except the Security Interest,
(iii) will keep all Collateral free and clear of all security interests,
liens and encumbrances except the Security Interest, and (iv) will defend
the Collateral against all claims or demands of all persons other than the
Secured Party.  The Debtor will not sell
or otherwise dispose of the Collateral or any interest therein without the
prior written consent of the Secured Party.

In
addition to the Specified Equity Interests currently owned by the Debtor as set
forth herein, Debtor has entered into a Partnership Interest and Stock Purchase
Agreement By and Among Advanced BioEnergy, LLC, Debtor, HGF, Heartland
Producers, LLC, South Dakota Wheat Growers Association, and DF dated November
7, 2006 (the “Purchase Agreement”) to acquire all of the remaining equity
interests in HGF and DF, and has deposited the consideration therefore in an
escrow account pending close of the transaction which is contemplated to occur
within 60 days of the date of this Agreement, pending an affirmative vote by
Heartland Producers.

 2
 

(b)            Legal Name; Jurisdiction;
Chief Executive Office; Organizational Identification Number.  Exhibit A hereto sets forth the Debtor’s
correct legal name, jurisdiction of organization, chief executive office and
organizational identification number issued by the jurisdiction of
organization.  The Debtor has only one
state of incorporation or organization. 
The Debtor will not change its name, jurisdiction of organization or
chief executive office without prior written notice to the Secured Party.

(c)            Constituent Documents.  Except for the amendments contemplated by
Section 10.4 of the Purchase Agreement, the Debtor will not consent to any
amendment of HGF’s or DF’s Constituent Documents without the prior written
consent of the Secured Party.

(d)            Evidences of Collateral.  The Debtor will (i) promptly (upon
receipt) deliver to the Secured Party all certificates or instruments
representing or constituting Collateral, if any, and (ii) duly endorse, in
blank, each and every certificate or instrument constituting Collateral, if
any, by signing on said certificate or instrument or by signing a separate
document of assignment or transfer, as required by the Secured Party.  Prior to any of the foregoing deliveries, the
Debtor shall hold all such certificates or instruments, if any, in trust for
the benefit of the Secured Party.

(e)            Additional Collateral.  The Debtor will (i) promptly (upon
receipt) deliver to the Secured Party, in pledge as additional Collateral, all
cash, securities, instruments, other equity interests or other proceeds or
remuneration arising in connection with any dividend, equity interest split,
recapitalization or reorganization in respect of or relating to the Collateral;
provided that so long as no Event of Default has occurred and is continuing,
Debtor may retain all cash distributions, and (ii) duly endorse, in blank,
each and every certificate or instrument, if any, evidencing or constituting
the same by signing on said certificate or instrument or by signing a separate
document of assignment or transfer, as required by the Secured Party.  Prior to any of the foregoing deliveries, the
Debtor shall hold all such certificates and instruments, if any, in trust for
the benefit of the Secured Party.

(f)             Miscellaneous Covenants.
The Debtor will:

(i)                                           Promptly pay all taxes and other governmental
charges levied or assessed upon or against any Collateral or upon or against
the creation, perfection or continuance of the Security Interest.

(ii)                                        If the Secured Party at any time so requests
(whether the request is made before or after the occurrence of an Event of
Default), promptly deliver to the Secured Party any instrument, document or
chattel paper constituting Collateral, duly endorsed or assigned by the Debtor.

(iii)                                     Upon request by the Secured Party, deliver to
the Secured Party all notices, financial statements, reports or other
communications received by the Debtor as an owner or holder of the Collateral.

 3
 

(iv)                                    Pay when due or reimburse the Secured Party
on demand for all costs of collection of any of the Obligations and all other
out-of-pocket expenses (including in each case all reasonable
attorneys’ fees) incurred by the Secured Party in connection with the creation,
perfection, satisfaction, protection, defense or enforcement of the Security
Interest or the creation, continuance, protection, defense or enforcement of
this Agreement or any or all of the Obligations, including expenses incurred in
any litigation or bankruptcy or insolvency proceedings.

(v)                                       Execute, deliver or endorse any and all
instruments, documents, assignments, security agreements and other agreements
and writings which the Secured Party may at any time reasonably request in
order to secure, protect, perfect or enforce the Security Interest and the
Secured Party’s rights under this Agreement.

(vi)                                    Not use or keep any Collateral, or permit it
to be used or kept, for any unlawful purpose or in violation of any federal,
state or local law, statute or ordinance.

 (vii)                              Not amend any financing statement in favor of the Secured Party as
secured party except upon written authorization of the Secured Party.

 (g)           Secured Party’s Right to Take Action. If the Debtor at any
time fails to perform or observe any agreement contained in Section 3(f), and
if such failure continues for a period of 10 calendar days after the Secured
Party gives the Debtor written notice thereof, the Secured Party may (but need
not) perform or observe such agreement on behalf and in the name, place and
stead of the Debtor (or, at the Secured Party’s option, in the Secured Party’s
own name) and may (but need not) take any and all other actions which the
Secured Party may reasonably deem necessary to cure or correct such failure
(including, without limitation, the payment of taxes, the satisfaction of
security interests, liens, or encumbrances, and the endorsement of
instruments); and, except to the extent that the effect of such payment would
be to render any loan or forbearance of money usurious or otherwise illegal
under any applicable law, the Debtor shall thereupon pay the Secured Party on
demand the amount of all moneys expended and all costs and expenses (including
reasonable attorneys’ fees) incurred by the Secured Party in connection with or
as a result of the Secured Party’s performing or observing such agreements or
taking such actions, together with interest thereon from the date expended or
incurred by the Secured Party at the highest rate then applicable to any of the
Obligations. To facilitate the performance or observance by the Secured Party
of such agreements of the Debtor, the Debtor hereby irrevocably appoints (which
appointment is coupled with an interest) the Secured Party, or its delegate, as
the attorney-in-fact of the Debtor with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file, in the name and on behalf of the Debtor, any and all instruments,
documents, financing statements, applications for insurance and other
agreements and writings required to be obtained, executed, delivered or
endorsed by the Debtor under this Section 3.

 4

4.             Rights of Secured Party.

At
any time after an Event of Default, the Secured Party may (i) notify HGF
to remit directly to the Secured Party any and all distributions of cash or
other property on account of any Equity Interest, whether such distributions
are from profits, surplus or a return of capital, (ii) receive all
proceeds of the Equity Interests, and (iii) hold any increase or profits
received from the Equity Interests as additional security for the Obligations
except that any money received from the Collateral may, at the Secured Party’s
option, be applied in reduction of the Obligations in such order of application
as the Secured Party may determine or be remitted to the Debtor. The Debtor
hereby irrevocably authorizes and directs HGF to remit any and all money,
distributions and other property described in this paragraph directly to the
Secured Party in the Secured Party’s name alone.  Such remittances shall continue to be made to
the Secured Party until the Secured Party otherwise notifies HGF in
writing.  To the extent that such
remittances are made directly to the Secured Party, HGF shall have no further
liability to the Debtor for the same.

5.             Events of Default.

Each
of the following occurrences shall constitute an Event of Default under this Agreement:
(a) an Event of Default shall occur under the Credit Agreement;
(b) the Debtor shall fail to pay any or all of the Obligations payable by
the Debtor hereunder when due or (if payable on demand) on demand and the
continuation of such default for a period of 5 Business Days after written
notice thereof has been given to the Debtor by Secured Party; or (c) the
Debtor shall fail to observe or perform any covenant or agreement herein
binding on it and the continuation of such failure for a period of 30 calendar
days after written notice thereof has been given by the Secured Party to the
Debtor.

6.             Remedies upon Event of Default.

Upon
the occurrence of an Event of Default and at any time thereafter, the Secured
Party may exercise any one or more of the following rights and remedies:
(a) exercise and enforce any or all rights and remedies available upon
default to a secured party under the Uniform Commercial Code, including but not
limited to the right to take possession of any tangible Collateral, proceeding
without judicial process or by judicial process (without a prior hearing or
notice thereof, which the Debtor hereby expressly waives), and the right to
sell, lease or otherwise dispose of any or all of the Collateral, and in
connection therewith, the Secured Party may require the Debtor to make any
tangible Collateral available to the Secured Party at a place to be designated
by the Secured Party which is reasonably convenient to both parties, and if
notice to the Debtor of any intended disposition of Collateral or any other
intended action is required by law in a particular instance, such notice shall
be deemed commercially reasonable if given (in the manner specified in Section
7) at least 10 calendar days prior to the date of intended disposition or other
action; (b) exercise all Related Voting Rights; and (c) exercise or
enforce any or all other rights or remedies available to the Secured Party by
law or agreement.  If the Secured Party
sells any Equity Interest in HGF at a foreclosure sale, the purchaser of that
Equity Interest, including the Secured Party, 
shall have the right (but not the obligation) to become a substitute
limited partner in HGF in the place and stead of the Debtor.  To exercise such right, the purchaser,
including the Secured Party shall give written notice to HGF of its election to
become a limited partner in HGF. 
Following such election, the purchaser, including Secured Party,  shall

 5
 

have
the rights and powers and be subject to the obligations, restrictions, and
liabilities of a limited partner under the HGF’s Constituent Documents and all
statutes governing HGF.

7.             Notice.

All
notices and other communications hereunder shall be in writing and shall be
(i)  personally delivered, (ii)  transmitted by registered
mail, postage prepaid, (iii)  sent by Federal Express or similar
expedited delivery service, or (iv)  transmitted by telecopy, in each
case addressed to the party to whom notice is being given at its address as set
forth by its signature below; or at such other address as may hereafter be
designated in writing by that party.  All
such notices or other communications shall be deemed to have been given on
(i)  the date received if delivered personally or by mail, (ii)  the
date of receipt, if delivered by Federal Express or similar expedited delivery
service, or (iii)  the date of transmission if delivered by telecopy
if delivered by telecopy at or prior to 5:00 p.m. on a Business Day (or, if
received after 5:00 p.m. on a Business Day or on a day that is not a Business
Day, on the next Business Day).

8.             Waiver; Cumulative Remedies.

This
Agreement can be waived, modified, amended, terminated or discharged, and the
Security Interest can be released, only explicitly in a writing signed by the
Secured Party. A waiver signed by the Secured Party shall be effective only in
the specific instance and for the specific purpose given. Mere delay or failure
to act shall not preclude the exercise or enforcement of any of the Secured
Party’s rights or remedies. All rights and remedies of the Secured Party shall
be cumulative and may be exercised singularly or concurrently, at the Secured
Party’s option, and the exercise or enforcement of any one such right or remedy
shall neither be a condition to nor bar the exercise or enforcement of any other.

9.             Binding Effect.

This
Agreement has been duly and validly authorized by all necessary action of the
Debtor. This Agreement shall be binding upon and inure to the benefit of the
Debtor and the Secured Party and their respective successors and assigns and
shall take effect when signed by the Debtor and delivered to the Secured Party,
and the Debtor waives notice of the Secured Party’s acceptance hereof.

10.          Governing Law.

This
Agreement shall be governed by the substantive laws (other than conflict laws)
of Minnesota.

11.          Consent to Jurisdiction.

The
Debtor irrevocably (i) agrees that any suit, action or other legal
proceeding arising out of or relating to this Agreement or any other Loan
Document shall be brought in a court of record in Hennepin County in the State
of Minnesota or in the courts of the United States located in such County and
State, (ii) consents to the jurisdiction of each such court in any suit,
action or proceeding, (iii) waives any objection which they may have to
the laying of venue of any such suit, action or proceeding in any such courts
and any claim that any such suit, action or

 6
 

proceeding
has been brought in an inconvenient forum, and (iv) agrees that a final
judgment in any such suit, action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.

12.          Waiver of Jury Trial.

THE
DEBTOR AND THE SECURED PARTY HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL
PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN
TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR
CONNECTED WITH THIS AGREEMENT AND THE OBLIGATIONS OR THE RELATIONSHIPS
ESTABLISHED HEREUNDER.

13.          Severability.

If
any provision or application of this Agreement is held unlawful or
unenforceable in any respect, such illegality or unenforceability shall not
affect other provisions or applications which can be given effect and this
Agreement shall be construed as if the unlawful or unenforceable provision or application
had never been contained herein or prescribed hereby.

14.          Survival.

All
representations and warranties contained in this Agreement shall survive the
execution, delivery and performance of this Agreement and the creation and
payment of the Obligations.

15.          Counterparts.

This
Agreement may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.

 [Signature Page Follows]

 7
 

IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date and year first above written.

	
  Kruse Investment Company, Inc. 

  	
   

  	
  KRUSE INVESTMENT
  COMPANY, INC.  

  	
   

  
	
  P.O. Box 1029 

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  31120 West Street 

  	
   

  	
  By:

  	
  /s/ Ejnar Knudsen

  	
   

  
	
  Goshen, CA 93227 

  	
   

  	
   

  	
  Name: 

  	
  Ejnar Kudsen 

  	
   

  
	
  Telecopier: 559-380-2800

  	
   

  	
   

  	
  Title: 

  	
  EVP

  	
   

  
	
  Attention: Mark Labounty

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  e-mail: 

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
    

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  HGF Acquisition  

  	
   

  	
  HGF ACQUISITION, LLC 

  	
   

  
	
  10201 Wayzata Blvd, Suite 250 

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minneapolis, MN 55305 

  	
   

  	
  By:

  	
  /s/ Revis L. Stephenson III

  	
   

  
	
  Telecopier: 763-226-2725 

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
  Attention: Revis L. Stephenson III

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
  e-mail:rstephenson@advancedbioenergy.com

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
									

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Signature
Page to Security Agreement between Kruse Investment Company, Inc. and HGF
Acquisition, LLC

 

 8

Exhibit A

Debtor Information

	
  Legal Name

  	
   

  	
  Jurisdiction
  of

  Organization

  	
   

  	
  Chief
  Executive Office

  	
   

  	
  Organizational

  Identification 

  Number

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  HGF Acquisition, LLC

  	
   

  	
  Delaware

  	
   

  	
  Minneapolis, MN

  	
   

  	
  4230452

  

 

 

 A-1

Exhibit B

Specified Equity Interests

	
  Type of Interest

  	
   

  	
  Quantity

  
	
   

  	
   

  	
   

  
	
  Uncertificated limited partnership interest in
  Heartland Grain Fuels, L.P., a Delaware limited partnership.

  	
   

  	
  53% of outstanding limited

  partnership interests.

  
	
   

  	
   

  	
   

  
	
  Common Stock in Dakota Fuels, Inc., a Delaware
  corporation

  	
   

  	
   

  
	
   

  	
   

  	
  51% of outstanding Common Stock.

  

 

 B-1

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