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EXHIBIT 10.8
NOTE
$31,100,000.00 Milbank, South Dakota
July 11, 2001
FOR VALUE RECEIVED, Northern Lights Ethanol, LLC, a South Dakota limited
liability company ("Borrower"), hereby promises to pay to the order of U.S. Bank
National Association, a national banking association ("Lender", which term shall
include any future holder hereof), at or at such other place as Lender may from
time to time designate in writing, in lawful money of the United States of
America, the principal sum of Thirty-One Million One Hundred Thousand and no/100
Dollars ($31,100,000.00) (the "Loan") or so much thereof as may be advanced
hereunder and to pay interest on the outstanding principal balance hereof from
time to time at the rate set forth herein. The Loan shall initially be known as
the "Construction Loan" and in the event the Construction Loan converts to long
term financing, will be known as the "Term Loan" as of the Conversion Date, as
defined in the Loan Agreement. This Note is given pursuant to that Loan
Agreement between Lender and Borrower dated the same date as this Note.
CONSTRUCTION LOAN. Borrower will pay the Construction Loan in accordance
with the following terms and conditions:
1. The Construction Loan shall bear interest from the date of each Advance,
as defined in the Loan Agreement, at an annual rate equal to one percent
(1%) plus the prime rate announced by Lender (the "Index"). The interest
rate shall be adjusted each time the index changes. Lender will strive to
inform Borrower of each change in the Index, but each adjustment in the
Index is effective whether or not Lender informs Borrower of such change.
Payments of all interest accrued hereunder shall be made June 1, September
1, December 1, and March 1 of each year unless such day is not a Business
Day as defined in the Loan Agreement (in which case the Business Day which
immediately follows such day shall apply) in which any amount Advanced
under the Construction Loan is outstanding (the "Quarterly Payment Date").
Interest only payments shall be due beginning the first Quarterly Payment
Date following the First Advance Date, as defined in the Loan Agreement,
and on each Quarterly Payment Date thereafter.
2. In the event the Construction Loan qualifies for conversion to the Term
Loan under the terms of the Loan Agreement, the outstanding principal
balance of the Construction Loan and all accrued interest thereon shall be
converted to the Term Loan on the Conversion Date, as defined in the Loan
Agreement, which shall not be later than December 31, 2002.
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3. All accrued interest owed on the Construction Loan shall be paid in full
on the Conversion Date. In the event the Loan has not been accelerated
under the terms of the Loan Agreement prior to the Conversion Date, and the
Loan does not qualify for conversion to the Term Loan under the terms of
the Loan Agreement, the Maturity Date of the Loan shall be the Conversion
Date.
TERM LOAN. In the event the Loan qualifies for conversion from the
Construction Loan to the Term Loan under the terms of the Loan Agreement,
Borrower will pay the Term Loan in accordance with the following terms and
conditions. Borrower acknowledges that any fixed interest rate will increase
according to the term of the Term Loan (the period between the Conversion Date
and the Maturity Date). In no event will the Maturity Date be later than the
seventh (7th) anniversary of the Conversion Date.
1. Borrower shall have two interest rate options for the Term Loan. The
first option shall be the same variable rate as provided for the
Construction Loan. If the variable rate option is chosen, the interest rate
shall continue to be adjusted each time that the Index changes. The second
option is a fixed interest rate which will be negotiated by the parties
prior to the Conversion Date. If the parties negotiate and agree to a fixed
interest rate, such agreement shall be evidenced by Lender and Borrower
executing an amendment to this Note setting forth the fixed interest rate
agreed upon by the parties. If such an amendment to this Note is not
executed prior to the Conversion Date, the variable rate option shall apply
to the Term Loan from and after the Conversion Date. Borrower further
acknowledges that Lender may be required to obtain the consent of all
participants in the Loan and that Lender may be unable to agree to a fixed
interest rate without the prior consent of all banks participating in the
Loan.
2. The Term Loan shall be amortized over a period of one hundred twenty
(120) months commencing on the Conversion Date..
3. If the variable interest rate option applies to the Term Loan, Borrower
shall make equal quarterly installments of principal and interest
commencing on the first Quarterly Payment Date following the Conversion
Date, and continuing on the first day of each Quarterly Payment Date
thereafter. As of January 1, 2004, and each January 1 thereafter, the
quarterly installment of principal and interest shall be adjusted so as to
amortize the then remaining outstanding principal balance over the
remaining life of the Term Loan.
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4. If a fixed rate option applies to the Term Loan, Borrower shall make
equal quarterly installments of principal and interest commencing on the
first Quarterly Payment Date following the Conversion Date, and continuing
on the first day of each Quarterly Payment Date thereafter.
5. The outstanding principal balance and all interest due thereon shall be
paid in all events on the Maturity Date.
TERMS APPLICABLE TO CONSTRUCTION LOAN AND TERM LOAN. The remaining terms of
this Note apply to the Construction Loan and the Term Loan, if the Loan converts
to a Term Loan:
INTEREST COMPUTATION. Interest shall be calculated on a 365/360 simple
basis; that is, by applying the ratio of the annual interest rate over a year of
360 days, multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal balance is outstanding.
COORDINATION WITH LOAN AGREEMENT. This Note is the Note referred to in the
Loan Agreement, and is subject to the additional terms and conditions set forth
in the Loan Agreement and the Loan Documents referred to therein. This Note is
secured by a Mortgage, Security Agreement, Assignment of Leases and Rents and
Fixture Financing Statement of even date herewith on real property located in
Grant County, South Dakota, therein described, as well as other collateral
described in the Loan Agreement and the other Loan Documents. Capitalized terms
not defined herein shall have the meaning given such terms in the Loan
Agreement.
LATE PAYMENT; GRACE PERIOD. If a payment due hereunder is not made within
five days after the date when due, Borrower shall pay to Lender a late payment
charge of Five Hundred Dollars ($500.00) to compensate Lender for a portion of
the cost related to handling the overdue payment. After an Event of Default, as
defined in the Loan Agreement, then the entire principal sum evidenced by this
Note, together with all accrued and unpaid interest, shall, at the option of the
holder hereof, bear interest at the rate per annum (the "Default Rate") equal to
3% in excess of the rate of interest per annum which would otherwise be payable
hereunder, and become immediately due and payable without further notice (except
as provided in the Loan Agreement), demand or presentment for payment, and
without any relief whatever from any valuation or appraisement laws. Failure to
exercise any option provided herein shall not constitute a waiver of the right
to exercise the same in the event of any subsequent default. Borrower agrees
that if, and as often as, this Note is given to an attorney for collection or to
defend
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or enforce any of Lender's rights hereunder, Borrower will pay to the Lender
Lender's reasonable attorneys' fees together with all court costs, service tax
and other expenses paid by Lender, whether or not any action or proceeding is
commenced by the Lender.
CERTAIN BORROWER WAIVERS. Borrower waives presentment, protest and demand,
notice of protest, demand and of dishonor and nonpayment of this Note and any
lack of diligence or delays in collection or enforcement of this Note. Borrower
agrees that this Note, or any payment hereunder, may be extended from time to
time, and Borrower consents to the release of any party liable for the
obligation evidenced by this Note, the release of any of the security for this
Note, the acceptance of any other security therefor, or any other indulgence or
forbearance whatsoever, all without notice to any party and without affecting
the liability of Borrower.
PREPAYMENT; VARIABLE RATE. So long as a variable interest rate is
applicable to this Loan, Borrower may prepay this Note in whole or in part at
any time, and if in part from time to time, during the entire term of this Note,
without penalty or premium. No prepayment shall suspend any required payments of
either principal or interest on this Note or reduce the amount of any scheduled
payment.
PREPAYMENT; FIXED RATE. If a fixed interest rate is applicable to this
Loan, there shall be no prepayments of this Note, provided that Lender may
consider requests for its consent with respect to prepayment of this Note,
without incurring an obligation to do so, and Borrower acknowledges that in the
event that such consent is granted, Borrower shall be required to pay Lender,
upon prepayment of all or part of the principal amount before final maturity, a
Prepayment Fee equal to the maximum of (a) zero, or (b) that amount, calculated
on any prepayment date, which is derived by subtracting: (1) the principal
amount of the Note or portion of the Note to be prepaid from (2) the Net Present
Value of the Note or portion of the Note to be prepaid on such date of
prepayment.
"NET PRESENT VALUE" shall mean the amount which is derived by summing the
present values of each prospective payment of principal and interest which,
without such full or partial prepayment, could otherwise have been received by
Lender over the shorter of the remaining contractual life of the Note or next
repricing date if Lender had instead initially invested the Note proceeds at the
Initial Money Market Rate. The individual discount rate used to present value
each prospective payment of interest and/or principal shall be the Money Market
Rate at Prepayment for the maturity matching that of each specific payment of
principal and/or interest.
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"INITIAL MONEY MARKET RATE" shall mean the rate per annum, determined solely by
Lender, on the Conversion Date, or the most recent re-pricing date occurring
thereafter, or as mutually agreed upon by Borrower and Lender, as the rate at
which Lender would be able to borrow funds in Money Markets for the amount of
this Note and with an interest payment frequency and principal repayment
schedule equal to this Note and for a term as may be arranged and agreed upon by
Borrower and Lender. Such a rate shall include FDIC insurance, reserve
requirements and other explicit or implicit costs levied by any regulatory
agency. Borrower acknowledges that the Lender is under no obligation to actually
purchase and/or match funds for the Initial Money Market Rate of this Note.
"MONEY MARKET RATE AT PREPAYMENT" shall mean that zero-coupon rate,
calculated on the date of prepayment, and determined solely by Lender, as the
rate in which Lender would be able to borrow funds in Money Markets for the
prepayment amount matching the maturity of a specific prospective Note payment
or repricing date. Such a rate shall include FDIC insurance, reserve
requirements and other explicit or implicit costs levied by any regulatory
agency. A separate Money Market Rate at Prepayment will be calculated for each
prospective interest and/or principal payment date.
"MONEY MARKETS" shall mean one or more wholesale funding mechanisms
available to Lender, including negotiable certificates of deposit, eurodollar
deposits, bank notes, fed funds, interest rate swaps, or others.
In calculating the amount of such a prepayment fee, Lender is hereby
authorized by Borrower to make such assumptions regarding the source of funding,
redeployment of funds and other related matters, as the Lender may deem
appropriate. If Borrower fails to pay any Prepayment Fee when due, the amount of
such Prepayment Fee shall thereafter bear interest until paid at the Default
Rate specified in this Note (computed on the basis of a 360-day year, actual
days elapsed). Any prepayment of principal shall be accompanied by a payment of
interest accrued to date thereon; and said prepayment shall be applied to the
principal installments in the inverse order of their maturities. Any prepayment
shall be in an amount equal to the lessor of $100,000.00 or the remaining entire
principal balance of the Loan.
MANDATORY PREPAYMENTS. In the event the Construction Loan converts to the
Term Loan, the Borrower shall make mandatory prepayments of the principal amount
of the Loan as mandated by the Borrower's excess cash flow from time-to-time, as
provided for in Schedule V of the Loan Agreement.
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MODIFICATIONS; TIME OF ESSENCE. No modification or waiver by the Lender of
any of the terms of this Note shall be valid or binding on the Lender unless
such modification or waiver is in writing and signed by the Lender. Without
limited the generality of the preceding sentence, no delay, omission or
forbearance by the Lender in exercising or enforcing any of its rights and
remedies under this Note shall constitute a waiver of such rights or remedies.
The Lender's rights and remedies under this Note are cumulative with and in
addition to all other legal equitable rights and remedies which the Lender may
have in connection with the Loan. The headings to sections of this Note are for
convenient reference only and shall not be used in interpreting this Note. No
indebtedness evidenced by this Note shall be offset by all or part of any claim,
cause of action, or cross-claim of any kind whether liquidated or unliquidated,
which Borrower now has or may hereafter acquire to allege to have acquired
against the Lender.
THIS NOTE SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF
SOUTH DAKOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS OR PRINCIPLES THEREOF,
BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO NATIONAL
BANKS. WHENEVER POSSIBLE, EACH PROVISION OF THIS NOTE AND ANY OTHER STATEMENT,
INSTRUMENT OR TRANSACTION CONTEMPLATED HEREBY OR RELATING HERETO, SHALL BE
INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE AND VALID UNDER SUCH APPLICABLE
LAW, BUT, IF ANY PROVISION OF THIS NOTE OR ANY OTHER STATEMENT, INSTRUMENT OR
TRANSACTION CONTEMPLATED HEREBY OR RELATING HERETO SHALL BE HELD TO BE
PROHIBITED OR INVALID UNDER SUCH APPLICABLE LAW, SUCH PROVISION SHALL BE
INEFFECTIVE ONLY TO THE EXTENT OF SUCH PROHIBITION OR INVALIDITY, WITHOUT
INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE REMAINING PROVISIONS OF THIS
NOTE OR ANY OTHER STATEMENT, INSTRUMENT OR TRANSACTION CONTEMPLATED HEREBY OR
RELATING HERETO.
AT THE OPTION OF LENDER, THIS NOTE MAY BE ENFORCED IN ANY FEDERAL COURT OR
SOUTH DAKOTA CIRCUIT COURT SITTING IN GRANT OR MINNEHAHA COUNTY, SOUTH DAKOTA;
AND BORROWER CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES
ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT BORROWER
COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT
THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS
NOTE, LENDER AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE
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TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH
TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE
DISMISSED WITHOUT PREJUDICE.
Borrower and Lender each irrevocably waives any and all right to trial by
jury in any legal proceeding arising out of or relating to this Note or any of
the Loan Documents (as defined in the Loan Agreement) or the transactions
contemplated hereby or thereby.
NORTHERN LIGHTS ETHANOL, LLC
By: /s/ Delton Strasser
-----------------------------
Print Name: Delton Strasser
Its: Chairman of the Board
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See "Prepared by and Recording Information" on last page hereof
MORTGAGE, SECURITY AGREEMENT,
ASSIGNMENT OF LEASES AND RENTS
AND FIXTURE FINANCING STATEMENT
(CONSTRUCTION MORTGAGE)
This Mortgage, Security Agreement, Assignment of Leases and Rents and
Fixture Financing Statement (this "Mortgage") is made as of July 11, 2001, by
Northern Lights Ethanol, LLC, a South Dakota limited liability company
("Borrower"), having its principal offices at Milbank, South Dakota, in favor of
U.S. Bank National Association, a national banking association ("Lender"),
having its principal offices at 141 North Main Avenue, Sioux Falls, South
Dakota.
R E C I T A L S:
A. Lender has lent, or conditionally agreed to lend, to Borrower the
principal sum of Thirty-One Million One Hundred Thousand and no/100 Dollars
($31,100,000.00) (the "Loan"), to be repaid with interest thereon, as evidenced
by Borrower's Note (the "Note", which term shall include any amendment,
modification, supplement, extension, renewal, replacement or restatement
thereof), which Loan is the subject of a Loan Agreement between Borrower and
Lender (the "Loan Agreement", which term shall include any amendment,
modification, supplement, extension, renewal, replacement or restatement
thereof). The Note, the Loan Agreement and any other Loan Document (as defined
in the Loan Agreement) are each dated the same date as this Mortgage, are hereby
incorporated by reference, and, together with this Mortgage, as any of the same
may be amended, modified, supplemented, extended, renewed, replaced or restated,
are sometimes collectively referred to as the "Loan Documents".
B. The obligations secured by this Mortgage (the "Obligations") are as
follows:
(i) the principal amount of $31,100,000.00 or so much thereof as may be
advanced by Lender under the Note and pursuant to the Loan Agreement; plus
(ii) interest on the amount advanced and unrepaid, at the interest rate or
rates provided in the Note; plus
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(iii) all other amounts payable by Borrower and all other agreements of
Borrower under the Loan Documents as the same now exist or may hereafter be
amended.
(iv) all of Borrower's other obligations of performance under the Loan
Agreement and the other Loan Documents.
C. The Obligations shall mature on or before December 31, 2009 (the
"Maturity Date").
D. The maximum principal indebtedness secured hereby is Thirty-One Million
One Hundred Thousand and no/100 Dollars ($31,100,000.00), plus amounts which may
be advanced by Lender in protection of the Mortgaged Property or this Mortgage.
E. Borrower holds a leasehold interest in land described in Exhibit A under
the terms and conditions of a Big Stone Plant Property Lease with Big
Stone-Grant Development and Transportation, L.L.C., dated April 18, 2001 (the
"Big Stone Plant Property Lease"), which Lease has been filed for record in the
Office of the Register of Deeds, Grant County, South Dakota, on September 14,
2001, and recorded in Book 223 of Misc. on page 704, as Document Number 199861.
F. Borrower holds ingress and egress easements rights on certain land and
railroad spur lines identified in Exhibit A under the terms and conditions of an
access and rail agreement dated April 18, 2001, granted by Otter Tail
Corporation, f/k/a Otter Tail Power Company; Montana-Dakota Utilities Co., a
division of MDU Resources Group, Inc., f/k/a Montana-Dakota Utilities Co.; and
Northwestern Public Service, a division of NorthWestern Corporation, f/k/a
Northwestern Public Service Company (collectively the "Big Stone Plant
Co-Owners") (the "Access and Rail Agreement").
NOW, THEREFORE, Borrower, in consideration of Lender making the Loan, and
to secure the Loan and payment and performance of the Obligations, hereby
grants, bargains, sells, conveys and mortgages to Lender, its successors and
assigns, forever, with power of sale, and grants to Lender, its successors and
assigns, a security interest in, the following, all of which is called the
"Mortgaged Property":
A. LAND AND IMPROVEMENTS
Borrower's leasehold interest in and to the land described in the Big Stone
Plant Property Lease and the Borrower's easement rights and other rights in and
to the land described in
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the Access and Rail Agreement and all hereditaments, easements and appurtenances
thereto, whether now existing or hereafter acquired by Borrower (collectively
the "Land"), and all improvements and structures thereon, whether presently or
in the future placed or located thereon (the "Improvements"); and
B. FIXTURES AND PERSONAL PROPERTY
All fixtures (the "Fixtures"), and all machinery, equipment and personal
property (collectively the "Personal Property") now or hereafter located on, in
or under the Land and the Improvements, or usable in connection with the Land or
the Improvements, and which are owned by Borrower or in which Borrower has an
interest, including any construction and building materials stored on and to be
included in the Improvements, plus any repairs, replacements and betterments to
any of the foregoing and the proceeds and products thereof; and
C. LEASES AND RENTS
All rights of Borrower with respect to tenants or occupants now or
hereafter occupying any part of the Land or the Improvements, if any, including
all leases and licenses and rights in connection therewith, whether oral or
written (collectively the "Leases"), and all rents, income, both from services
and occupation, royalties, revenues and payments, including prepayments and
security deposits (collectively the "Rents"), which are now or hereafter due or
to be paid in connection with the Land, the Improvements, the Fixtures or the
Personal Property; and
D. GENERAL INTANGIBLES
All general intangibles of Borrower which relate to any of the Land, the
Improvements, the Fixtures, the Personal Property, the Leases or the Rents,
including proceeds of insurance and condemnation or conveyance of the Land and
the Improvements, accounts, trade names, contract rights, accounts receivable
and bank accounts; and
E. AFTER ACQUIRED PROPERTY AND PROCEEDS
All after acquired property similar to the property herein described and
conveyed which may be subsequently acquired by Borrower and used in connection
with the Land, the Improvements, the Fixtures, the Personal Property and other
property; and all cash and non-cash proceeds and products of all of the
foregoing property.
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TO HAVE AND TO HOLD the same, and all estate therein, together with all the
rights, privileges and appurtenances thereunto belonging, to the use and benefit
of Lender, its successors and assigns, forever.
PROVIDED NEVERTHELESS, should Borrower pay and perform all the Obligations,
then these presents will be of no further force and effect, and this Mortgage
shall be satisfied by Lender, at the expense of Borrower.
This Mortgage also constitutes a security agreement within the meaning of
the Uniform Commercial Code as in effect in the State of South Dakota (the
"UCC"), with respect to all property described herein as to which a security
interest may be granted and/or perfected pursuant to the UCC, and is intended to
afford Lender, to the fullest extent allowed by law, the rights and remedies of
a secured party under the UCC.
BORROWER FURTHER agrees as follows:
ARTICLE I
AGREEMENTS
Section 1.1 PERFORMANCE OF OBLIGATIONS; INCORPORATION BY REFERENCE.
Borrower shall pay and perform the Obligations. Time is of the essence hereof.
All of the covenants, obligations, agreements, warranties and representations of
Borrower contained in the Loan Agreement and the other Loan Documents and all of
the terms and provisions thereof, are hereby incorporated herein and made a part
hereof by reference as if fully set forth herein.
Section 1.2 FURTHER ASSURANCES. If Lender requests, Borrower shall sign and
deliver and cause to be recorded as Lender shall direct any further mortgages,
instruments of further assurance, certificates and other documents as Lender
reasonably may consider necessary or desirable in order to perfect, continue and
preserve the Obligations and Lender's rights, title, estate, liens and interests
under the Loan Documents. Borrower further agrees to pay to Lender, upon demand,
all costs and expenses incurred by Lender in connection with the preparation,
execution, recording, filing and refining of any such documents, including
attorneys' fees and title insurance costs.
Section 1.3 SALE, TRANSFER, ENCUMBRANCE. If Borrower sells, conveys,
transfers or otherwise disposes of, or encumbers, any part of its interest in
the Mortgaged Property,
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whether voluntarily, involuntarily or by operation of law, without the prior
written consent of Lender, Lender shall have the option to declare the
Obligations immediately due and payable without notice. Included within the
foregoing actions requiring prior written consent of Lender are: (a) sale by
deed or contract for deed; (b) mortgaging or granting a lien on the Mortgaged
Property; and (c) a transfer which changes the persons in control of Borrower or
which transfers more than 25% of the beneficial interest in Borrower, except for
transfers to Affiliates as defined in the Loan Agreement; and (d) Borrower's
entry into a Lease. Borrower shall give notice of any proposed action to Lender
at least thirty (30) days prior to taking such action. Borrower shall pay all
costs and expenses incurred by Lender in evaluating any such action. Lender may
condition such consent upon modification of the Loan Documents or payment of
fees. No such action shall relieve Borrower from liability for the Obligations.
The consent by Lender to any action shall not constitute a waiver of the
necessity of such consent to any subsequent action.
Section 1.4 INSURANCE. Borrower shall obtain, maintain and keep in full
force and effect (and upon request of Lender shall furnish to Lender copies of)
policies of insurance as described in, and meeting the requirements set forth
in, Exhibit B attached hereto, and upon request of Lender shall furnish to
Lender proof of payment of all premiums for such insurance. At least ten (10)
days prior to the termination of any such coverage, Borrower shall provide
Lender with evidence satisfactory to Lender that such coverage will be renewed
or replaced upon termination with insurance that complies with the provisions of
this Section. Borrower, at its sole cost and expense, from time to time when
Lender shall so request, will provide Lender with evidence, in a form acceptable
to Lender, of the full insurable replacement cost of the Mortgaged Property. All
property (including boiler and machinery) and liability insurance policies
maintained by Borrower pursuant to this Section shall (i) include effective
waivers by the insurer of all claims for insurance premiums against Lender, and
(ii) provide that any losses shall be payable notwithstanding (a) any act of
negligence by Borrower or Lender, (b) any foreclosure or other proceedings or
notice of foreclosure sale relating to the Mortgaged Property, or (c) any
release from liability or waiver of subrogation rights granted by the insured.
All insurance policies maintained by Borrower pursuant to the foregoing
provisions shall respond on a primary basis relative to any other insurance
carried by Lender in the event of loss. Insurance terms not otherwise defined
herein shall be interpreted consistent with insurance industry usage.
Section 1.5 TAXES, LIENS AND CLAIMS, UTILITIES. Except as otherwise
provided in the Loan Agreement, Borrower, at least give (5) days before any
penalty attaches thereto, shall pay and discharge, or cause to be paid and
discharged, all taxes, assessments and
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governmental charges and levies (collectively "Impositions") imposed upon or
against the Mortgaged Property or the Rents, or upon or against the Obligations,
or upon or against the interest of Lender in the Mortgaged Property or the
Obligations, except Impositions measured by the income of Lender. Borrower shall
provide evidence of such payment at Lender's request. Except as otherwise
provided in the Loan Agreement, Borrower shall keep the Mortgaged Property free
and clear of all liens, encumbrances, easements, covenants, conditions,
restrictions and reservations (collectively "Liens") except those listed on
Exhibit A attached hereto (the "Permitted Encumbrances"). Borrower shall pay or
cause to be paid when due all charges or fees for utilities and services
supplied to the Mortgaged Property. Notwithstanding anything to the contrary
contained in this Section, Borrower shall not be required to pay or discharge
any Imposition or Lien so long as Borrower shall in good faith, and after giving
notice to Lender, contest the same by appropriate legal proceedings. If Borrower
contests any Imposition or Lien against the Mortgaged Property, Borrower shall
provide such security to Lender as Lender shall reasonably require against loss
or impairment of Borrower's ownership of or Lender's lien on the Mortgaged
Property and shall in any event pay such Imposition or Lien before loss or
impairment occurs.
Section 1.6 ESCROW PAYMENTS. If requested by Lender, Borrower shall deposit
with Lender monthly on the same date as payments are due under the Note the
amount reasonably estimated by Lender to be necessary to enable Lender to pay,
at least five (5) days before they become due, all Impositions against the
Mortgaged Property and the premiums upon all insurance required hereby to be
maintained with respect to the Mortgaged Property. All funds so deposited shall
secure the Obligations. Such deposits shall be held by Lender, or its nominee,
in a non-interest bearing account and may be commingled with other funds. Such
deposits shall be used to pay such Impositions and insurance premiums when due.
Any excess sums so deposited shall be retained by Lender and shall be applied to
pay said items in the future, unless the Obligations have been paid and
performed in full, in which case all excess sums so paid shall be refunded to
Borrower. Upon the occurrence of an Event of Default, Lender may apply any funds
in said account against the Obligations in such order as Lender may determine.
Section 1.7 MAINTENANCE AND REPAIR, COMPLIANCE WITH LAWS. Borrower shall
cause the Mortgaged Property to be operated, maintained and repaired in safe and
good repair, working order and condition, reasonable wear and tear excepted;
shall not commit or permit waste thereof; except as provided in any Loan
Document, shall not remove, demolish or substantially alter the design or
structural character of any Improvements without the prior written consent of
Lender; shall complete or cause to be completed forthwith any Improvements which
are now or may hereafter be under construction upon
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the Land; shall comply or cause compliance with all laws, statutes, ordinances
and codes, and governmental rules, regulations and requirements, applicable to
the Mortgaged Property or the manner of using or operating the same, and with
any covenants, conditions, restrictions and reservations affecting the title to
the Mortgaged Property, and with the terms of all insurance policies relating to
the Mortgaged Property; and shall obtain and maintain in full force and effect
all consents, permits and licenses necessary for the use and operation of the
Mortgaged Property.
Section 1.8 LEASES UNDER WHICH BORROWER IS LANDLORD.
(a) Borrower shall not enter into, modify, amend, cancel or terminate any
Leases without Lender's prior written consent, and shall furnish to Lender, upon
execution, a complete and fully executed copy of each of the Leases.
(b) Borrower shall, at its cost and expense, perform each obligation to be
performed by Borrower under each of the Leases; not borrow against, pledge or
further assign any rents or other payments due thereunder; not permit the
prepayment of any rents or other payments due for more than thirty (30) days in
advance; and not permit any Tenant to assign its Lease or sublet the premises
covered by its Lease, unless required to do so by the terms thereof and then
only if such assignment does not work to relieve the Tenant of any liability for
performance of its obligations thereunder.
(c) If any Tenant shall default under its Lease, Borrower shall, in the
ordinary course of business, exercise sound business judgment with respect to
such default, but may discount, compromise, forgive or waive claims or discharge
the Tenant from its obligations under the Lease or terminate or accept a
surrender of the Lease.
(d) If Borrower fails to perform any obligations of Borrower under any
Leases or if Lender becomes aware of or is notified by any Tenant of a failure
on the part of Borrower to so perform, Lender may, but shall not be obligated
to, without waiving or releasing Borrower from any obligation in this Agreement
or any of the other Loan Documents, remedy such failure, and Borrower agrees to
repay upon demand all sums incurred by Lender in remedying any such failure,
together with interest thereon from the date incurred at the Default Rate (as
defined in the Note).
(e) For purposes of this Section, the defined terms shall have the meanings
provided in this Mortgage, including the following defined terms:
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(i) "LEASE": Any lease or other document or agreement, written or oral,
permitting any Person, other than Borrower, to use or occupy any part of
the Mortgaged Property.
(ii) "TENANT": Any Person, other than Borrower, using or occupying any part
of the Mortgaged Property pursuant to a Lease.
(f) Nothing in this Section 1.8 constitutes consent by Lender to Borrower
entering into any Lease, and it is acknowledged that Borrower's entry into a
Lease without the Lender's prior written consent is a violation of Section 3.1
of this Agreement.
Section 1.9 INDEMNITY. Borrower shall indemnify Lender and its directors,
officers, agents and employees (collectively the "Indemnified Parties") against,
and hold the Indemnified Parties harmless from, all losses, damages, suits,
claims, judgments, penalties, fines, liabilities, costs and expenses by reason
of, or on account of, or in connection with the construction, reconstruction or
alteration of the Mortgaged Property, or any accident, injury, death or damage
to any person or property occurring in, on or about the Mortgaged Property or
any street, drive, sidewalk, curb or passageway adjacent thereto. The indemnity
contained in this Section shall include costs of defense of any such claim
asserted against an Indemnified Party, including attorneys' fees. The indemnity
contained in this Section shall survive payment and performance of the
Obligations and satisfaction and release of this Mortgage and any foreclosure
thereof or acquisition of title by deed in lieu of foreclosure.
Section 1.10 BIG STONE PROPERTY LEASE; ACCESS RAIL AGREEMENT
(a) Borrower shall not modify, amend, cancel or terminate the Big Stone
Plant Property Lease or the Access Rail Agreement without the Lender's prior
written consent.
(b) Borrower shall, at its cost and expense, timely perform each obligation
to be performed by Borrower under the Big Stone Plant Property Lease and the
Access and Rail Agreement.
(c) If Borrower fails to timely perform any obligations of Borrower under
the Big Stone Plant Property Lease, the Access and Rail Agreement or if Lender
becomes aware of or is notified by Big Stone-Grant Industrial Development and
Transportation, L.L.C., the Big Stone Plant Co-Owners or any other party or a
failure on the part of Borrower to so perform, Lender may, but shall not be
obligated to, without waiving or releasing Borrower from any obligation in this
Agreement or any of the other Loan
<Page>
Documents, remedy such failure, and Borrower agrees to repay upon demand all
sums incurred by Lender in remedying any such failure, together with interest
thereon from the date incurred at the Default Rate (as defined in the Note).
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties:
Section 2.1 OWNERSHIP, LIENS, COMPLIANCE WITH LAWS. Borrower owns the
Mortgaged Property free from all Liens, except the Permitted Encumbrances. All
applicable zoning, environmental, land use, subdivision, building, fire, safety
and health laws, statutes, ordinances, codes, rules, regulations and
requirements affecting the Mortgaged Property permit the current use and
occupancy thereof, and Borrower has obtained all consents, permits and licenses
required for such use. Borrower has examined and is familiar with all applicable
covenants, conditions, restrictions and reservations, and with all applicable
laws, statutes, ordinances, codes and governmental rules, regulations and
requirements affecting the Mortgaged Property, and the Mortgaged Property
complies with all of the foregoing.
Section 2.2 USE. The Mortgaged Property is not homestead property nor is it
agricultural property or in agricultural use.
Section 2.3 UTILITIES, SERVICES. The Mortgaged Property is serviced by all
necessary public utilities, and all such utilities are operational and have
sufficient capacity.
Section 2.4 ACCESS AGREEMENT. The Access and Rail Agreement is in full
force and effect, and has not been amended, modified, terminated or cancelled,
and there is no default by Borrower thereunder, nor any statement of facts or
circumstances which, with the giving of notice or the lapse of time or both,
would constitute a default by Borrower thereunder or entitle the Big Stone Plant
Co-Owners to terminate the Access and Rail Agreement; nor has Borrower received
or given any notice of default or termination.
Section 2.5 BIG STONE PLANT PROPERTY LEASE. The Lease is in full force and
effect, and has not been amended, modified, terminated or cancelled, and there
is no default by Borrower thereunder, nor any statement of facts or
circumstances which, with the giving of notice or the lapse of time or both,
would constitute a default by Borrower thereunder
<Page>
or entitle Big Stone-Grant Industrial Development and Transportation, L.L.C. to
terminate the Big Stone Plant Property Lease, nor has Borrower received or given
any notice of default or termination. Borrower has provided Lender a true and
correct copy of the Big Stone Property Lease and the Access Rail Agreement.
ARTICLE III
CASUALTY; CONDEMNATION
Section 3.1 CASUALTY, REPAIR PROOF OF LOSS. If any portion of the Mortgaged
Property shall be damaged or destroyed by any cause (a "Casualty"), Borrower
shall:
(a) give immediate notice to the Lender; and
(b) promptly commence and diligently pursue to completion (in
accordance with plans and specifications approved by Lender) the
restoration, repair and rebuilding of the Mortgaged Property as nearly
as possible to its value, condition and character immediately prior to
the Casualty; and
(c) if the Casualty is covered by insurance, immediately make proof of loss
and collect all insurance proceeds, all such proceeds to be payable to
Lender or as Lender shall direct. If an Event of Default shall be in
existence, or if Borrower shall fail to provide notice to Lender of filing
proof of loss, or if Borrower shall not be diligently proceeding, in
Lender's reasonable opinion, to collect such insurance proceeds, then
Lender may, but is not obligated to, make proof of loss, and is authorized,
but is not obligated, to settle any claim with respect thereto, and to
collect the proceeds thereof. Borrower shall not accept any settlement of
an insurance claim, the result of which shall be a payment which is
$100,000.00 or more less than the full amount of the claim, without the
prior written consent of Lender.
Section 3.2 USE OF INSURANCE PROCEEDS. Lender shall make the net insurance
proceeds received by it (after reimbursement of Lender's out-of pocket costs of
collecting and disbursing the same) available to Borrower to pay the cost of
restoration, repair and rebuilding of the Mortgaged Property, subject to the
following conditions:
(a) There shall be no Event of Default in existence at the time of any
disbursement of the insurance proceeds.
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(b) Lender shall have determined, in its reasonable discretion, that the
cost of restoration, repair and rebuilding is and will be equal to or less
than the amount of insurance proceeds and other funds deposited by Borrower
with Lender.
(c) Lender shall have determined, in its reasonable discretion, that the
restoration, repair and rebuilding can be completed in accordance with
plans and specifications approved by Lender (such approval not to be
unreasonably withheld), in accordance with codes and ordinances and in
accordance with the terms, and within the time requirements in order to
prevent termination, of the Big Stone Plant Property Lease, the Access and
Rail Agreement or any other Lease, and in any event not less than six (6)
months prior to the Maturity Date.
(d) All funds shall be disbursed, at Lender's option, in accordance with
Lender's customary disbursement procedures for construction loans.
(e) The Casualty shall have occurred more than twelve (12) months prior to
the Maturity Date.
If any of these conditions shall not be satisfied, then Lender shall have the
right to use the insurance proceeds to prepay the Loan in accordance with the
Note. If any insurance proceeds shall remain after completion of the
restoration, repair and rebuilding of the Mortgaged Property, they shall be
disbursed to Borrower, or at the Lender's discretion, used to prepay the Loan in
accordance with the Note.
Section 3.3 CONDEMNATION. If any portion of the Mortgaged Property shall be
taken, condemned or acquired pursuant to exercise of the power of eminent domain
or threat thereof (a "Condemnation"), Borrower shall:
(a) give immediate notice thereof to Lender, and send a copy of each
document received by Borrower in connection with the Condemnation to Lender
promptly after receipt; and
(b) diligently pursue any negotiation and prosecute any proceeding in
connection with the Condemnation at Borrower's expense. If an Event of
Default shall be in existence, or if Borrower, in Lender's reasonable
opinion, shall not be diligently negotiating or prosecuting the claim,
Lender is authorized, but not required, to negotiate and prosecute the
claim and appear at any hearing for itself and on behalf of Borrower and to
compromise or settle all compensation for the
<Page>
Condemnation. Lender shall not be liable to Borrower for any failure by
Lender to collect or to exercise diligence in collecting any such
compensation. Borrower shall not compromise or settle any claim resulting
from the Condemnation if such settlement shall result in payment of One
Hundred Thousand and No/100 Dollars ($100,000.00) or more less than
Lender's reasonable estimate of the damages therefrom. All awards shall be
paid to Lender.
Section 3.4 USE OF CONDEMNATION PROCEEDS. Lender shall make the net
proceeds of any Condemnation received by it (after reimbursement of Lender's
out-of-pocket costs of collecting and disbursing the same) available to Borrower
for restoration, repair and rebuilding of the Mortgaged Property, subject to the
following conditions:
(a) There shall be no Event of Default in existence at the time of any
disbursement of the condemnation proceeds.
(b) Lender shall have determined, in its reasonable discretion, that the
cost of restoration, repair and rebuilding is and will be equal to or less
than the amount of condemnation proceeds and other funds deposited by
Borrower with Lender.
(c) Lender shall have determined, in its reasonable discretion, that the
restoration, repair and rebuilding can be completed in accordance with
plans and specifications approved by Lender (such approval not to be
unreasonably withheld), in accordance with codes and ordinances and in
accordance with the terms, and within the time requirements in order to
prevent termination, of the Big Stone Plant Property Lease, the Access and
Rail Agreement or any other Lease, and in any event not less than six (6)
months prior to the Maturity Date.
(d) All funds shall be disbursed, at Lender's option, in accordance with
Lender's customary disbursement procedures for construction loans.
(e) The Condemnation shall have occurred more than twelve (12) months prior
to the Maturity Date.
If any of these conditions shall not be satisfied, then Lender shall have the
right to use the condemnation proceeds to prepay the Loan in accordance with the
Note. If any condemnation proceeds shall remain after completion of the
restoration, repair and rebuilding of the Mortgaged Property, they shall be
disbursed to Borrower, or at Lender's discretion, used to prepay the Loan in
accordance with the Note.
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ARTICLE IV
DEFAULTS AND REMEDIES
Section 4.1 EVENTS OF DEFAULT. An Event of Default, as defined in the Loan
Agreement, shall constitute an Event of Default hereunder.
Section 4.2 REMEDIES. Upon the occurrence of an Event of Default described
in the Loan Agreement, and upon the expiration of the applicable cure period
stated therein, if any, all of the Obligations shall be accelerated and become
immediately due and payable without notice or declaration to Borrower. The
Obligations shall be due and payable without presentment, demand or further
notice of any kind. Lender shall have the right to proceed to protect and
enforce its rights by one or more of the following remedies:
(a) LENDER SHALL HAVE THE RIGHT TO BRING SUIT either for damages,
for specific performance of any agreement contained in any Loan Document,
for the foreclosure of this Mortgage, or for the enforcement of any other
appropriate legal or equitable remedy.
(b) LENDER SHALL HAVE THE RIGHT TO SELL THE MORTGAGED PROPERTY AT PUBLIC
AUCTION AND CONVEY THE SAME TO THE PURCHASER IN FEE SIMPLE, as provided by
law, Borrower to remain liable for any deficiency. Said sale may be as one
tract or otherwise, at the sole option of Lender. In the event of any sale
of the Mortgaged Property pursuant to any judgment or decree of any court
or at public auction or otherwise in connection with the enforcement of any
of the terms of this Mortgage, Lender, its successors or assigns, may
become the purchaser, and for the purpose of making settlement for or
payment of the purchase price, shall be entitled to deliver over and use
the Note and any claims for interest accrued and unpaid thereon, together
with all other sums, with interest, advanced or secured hereby and unpaid
hereunder, in order that there may be credited as paid on the purchase
price the total amount of the Obligations then due, including principal and
interest on the Note and all other sums, with interest, advanced or secured
hereby and unpaid hereunder or under any of the other Loan Documents.
(c) LENDER SHALL HAVE THE RIGHT TO OBTAIN THE APPOINTMENT OF A RECEIVER at
any time after the occurrence of an Event of Default. Lender may apply for
the appointment of a receiver to the circuit court for the county where the
Mortgaged Property or any part thereof is located, by an
<Page>
action separate from any foreclosure of this Mortgage pursuant to SDCL
Chap. 21-21, or as a part of the foreclosure action under SDCL Chap. 21-47
or SDCL Chap. 21-48 (it being agreed that the existence of a foreclosure
pursuant to SDCL Chapter 21-47 or SDCL Chap. 21-48 is not a prerequisite to
any action for a receiver hereunder). Lender shall be entitled to the
appointment of a receiver without regard to waste, adequacy of the security
or solvency of Borrower. The receiver, who shall be an experienced property
manager, shall collect (until the Obligations are fully paid and satisfied
and, in the case of a foreclosure sale, during the entire redemption
period) the Rents, and shall manage the Mortgaged Property, execute Leases
within or beyond the period of the receivership if approved by the court
and apply all rents, profits and other income collected by him in the
following order:
(i) to the payment of all reasonable fees of the receiver, if any,
approved by the court;
(ii) to the repayment of tenant security deposits, with interest
thereon;
(iii) to the payment when due of delinquent or current real estate
taxes or special assessments with respect to the Mortgaged Property,
or the periodic escrow for the payment of the same;
(iv) to the payment when due of premiums for insurance of the type
required by this Mortgage, or the periodic escrow for the payment of
the same;
(v) to the payment of all expenses for normal maintenance of the
Mortgaged Property; and
(vi) the balance to Lender (a) if received prior to the commencement
of a foreclosure, to be applied to the Obligations, in such order as
Lender may elect and (b) if received after the commencement of a
foreclosure, to be applied to the amount required to be paid to
effect a reinstatement prior to foreclosure sale, or, after a
foreclosure sale to any deficiency and thereafter to the amount
required to be paid to effect a redemption, with any excess to be
paid to Borrower. Provided, that if this Mortgage is not reinstated
nor the Mortgaged Property redeemed as provided by applicable law,
the entire amount paid to Lender pursuant hereto shall be the
property of Lender
<Page>
together with all or any part of the Mortgaged Property acquired
through foreclosure.
Lender shall have the right, at any time and without limitation, to advance
money to the receiver to pay any part or all of the items which the
receiver should otherwise pay if cash were available from the Mortgaged
Property and sums so advanced, with interest at the Default Rate set forth
in the Note, shall be secured hereby, or if advanced during the period of
redemption shall be part of the sum required to be paid to redeem from the
sale.
(d) LENDER SHALL HAVE THE RIGHT TO COLLECT THE RENTS from the Mortgaged
Property and apply the same in the manner hereinbefore provided with
respect to a receiver. For that purpose, Lender may enter and take
possession of the Mortgaged Property and manage and operate the same and
take any action which, in Lender's judgment, is necessary or proper to
collect the Rents and to conserve the value of the Mortgaged Property.
Lender may also take possession of, and for these purposes use, any and all
of the Personal Property. The expense (including any receiver's fees,
attorneys' fees, costs and agent's compensation) incurred pursuant to the
powers herein contained shall be secured by this Mortgage. Lender shall not
be liable to account to Borrower for any action taken pursuant hereto other
than to account for any Rents actually received by Lender. Enforcement
hereof shall not cause Lender to be deemed a mortgagee in possession unless
Lender elects in writing to be a mortgagee IN possession.
(e) LENDER SHALL HAVE THE RIGHT TO ENTER AND TAKE POSSESSION of the
Mortgaged Property and manage and operate the same in conformity with all
applicable laws and take any action which, in Lender's judgment, is
necessary or proper to conserve the value of the Mortgaged Property.
(f) LENDER SHALL HAVE ALL OF THE RIGHTS AND REMEDIES PROVIDED IN THE
UNIFORM COMMERCIAL CODE including the right to proceed under the Uniform
Commercial Code provisions governing default as to any Personal Property
separately from the real estate included within the Mortgaged Property, or
to proceed as to all of the Mortgaged Property in accordance with its
rights and remedies in respect of said real estate. If Lender should elect
to proceed separately as to such Personal Property, Borrower agrees to make
such Personal Property available to Lender at a place or places acceptable
to Lender, and if any notification of intended disposition of any of such
Personal Property is required by law, such notification shall be deemed
reasonably and
<Page>
properly given if given at least ten (10) days before such disposition in
the manner hereinafter provided.
(g) LENDER SHALL HAVE THE RIGHT TO FILE PROOF OF CLAIM and other documents
as may be necessary or advisable in order to have its claims allowed in any
receivership, insolvency, bankruptcy, reorganization, arrangement,
adjustment, composition or other judicial proceedings affecting Borrower,
its creditors or its property, for the entire amount due and payable by
Borrower in respect of the Obligations at the date of the institution of
such proceedings, and for any additional amounts which may become due and
payable by Borrower after such date.
Each remedy herein specifically given shall be in addition to every other right
now or hereafter given or existing at law or in equity, and each and every right
may be exercised from time to time and as often and in such order as may be
deemed expedient by Lender and the exercise or the beginning of the exercise of
one right shall not be deemed a waiver of the right to exercise at the same time
or thereafter any other right. Lender shall have all rights and remedies
available under the law in effect now and/or at the time such rights and
remedies are sought to be enforced, whether or not they are available under the
law in effect on the date hereof.
Section 4.3 EXPENSES OF EXERCISING RIGHTS, POWERS AND REMEDIES. The
reasonable expenses (including any receiver's fees, attorneys' fees, appraisers'
fees, environmental engineers' and/or consultants' fees, costs incurred for
documentary and expert evidence, stenographers' charges, publication costs,
costs (which may be estimated as to items to be expended after entry of the
decree of foreclosure) of procuring all abstracts of title, continuations of
abstracts of title, title searches and examinations, title insurance policies
and commitments and extensions therefor, Torrens duplicate certificates of
title, UCC and chattel lien searches, and similar data and assurances with
respect to title as Lender may deem reasonably necessary either to prosecute any
foreclosure action or to evidence to bidders at any sale which may be had
pursuant to any foreclosure decree the true condition of the title to or the
value of the Mortgaged Property, and agent's compensation) incurred by Lender
after the occurrence of any Event of Default and/or in pursuing the rights,
powers and remedies contained in this Mortgage shall be immediately due and
payable by Borrower, with interest thereon from the date incurred at the Default
Rate set forth in the Note, and shall be added to the indebtedness secured by
this Mortgage.
<Page>
Section 4.4 RESTORATION OF POSITION. In case Lender shall have proceeded to
enforce any right under this Mortgage by foreclosure, sale, entry or otherwise,
and such proceedings shall have been discontinued or abandoned for any reason or
shall have been determined adversely, then, and in every such case, Borrower and
Lender shall be restored to their former positions and rights hereunder with
respect to the Mortgaged Property subject to the lien hereof.
Section 4.5 MARSHALING. Borrower, for itself and on behalf of all persons,
parties and entities which may claim under Borrower, hereby waives all
requirements of law relating to the marshalling of assets, if any, which would
be applicable in connection with the enforcement by Lender of its remedies for
an Event of Default hereunder, absent this waiver. Lender shall not be required
to sell or realize upon any portion of the Mortgaged Property before selling or
realizing upon any other portion thereof.
Section 4.6 WAIVERS. No waiver of any provision hereof shall be implied
from the conduct of the parties. Any such waiver must be in writing and must be
signed by the party against which such waiver is sought to be enforced. The
waiver or release of any breach of the provisions set forth herein to be kept
and performed shall not be a waiver or release of any preceding or subsequent
breach of the same or any other provision. No receipt of partial payment after
acceleration of any of the Obligations shall waive the acceleration. No payment
by Borrower or receipt by Lender of a lesser amount than the full amount secured
hereby shall be deemed to be other than on account of the sums due and payable
hereunder, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment be deemed an accord and satisfaction, and
Lender may accept any check or payment without prejudice to Lender's right to
recover the balance of such sums or to pursue any other remedy provided in this
Mortgage. The consent by Lender to any matter or event requiring such consent
shall not constitute a waiver of the necessity for such consent to any
subsequent matter or event.
Section 4.7 LENDER'S RIGHT TO CURE DEFAULTS. If Borrower shall fail to
comply with any of the terms of the Loan Documents with respect to the procuring
of insurance, the payment of taxes, assessments and other charges, the keeping
of the Mortgaged Property in repair, or any other term contained herein or in
any of the other Loan Documents, Lender may make advances to perform the same
without releasing Borrower from any of the Obligations. Borrower agrees to repay
upon demand all sums so advanced and all sums expended by Lender in connection
with such performance, including without limitation attorneys' fees, with
interest at the Default Rate set forth in the Note from the dates such advances
are made, and all sums so advanced and/or expenses incurred, with interest,
shall be secured hereby, but no such advance and/or incurring of expense by
<Page>
Lender, shall be deemed to relieve Borrower from any default hereunder or under
any of the other Loan Documents, or to release Borrower from any of the
Obligations.
Section 4.8 SUITS AND PROCEEDINGS. Lender shall have the power and
authority, upon prior notice to Borrower, to institute and maintain any suits
and proceedings as Lender may deem advisable to (i) prevent any impairment of
the Mortgaged Property by any act which may be unlawful or by any violation of
this Mortgage, (ii) preserve or protect its interest in the Mortgaged Property,
or (iii) restrain the enforcement of or compliance with any legislation or other
governmental enactment, rule or order that may be unconstitutional or otherwise
invalid, if, in the sole opinion of Lender, the enforcement of or compliance
with such enactment, rule or order might impair the security hereunder or be
prejudicial to Lender's interest.
ARTICLE V
MISCELLANEOUS
Section 5.1 BINDING EFFECT, SURVIVAL; NUMBER; GENDER. This Mortgage shall
be binding on and inure to the benefit of the parties hereto, and their
respective heirs, legal representatives, successors and assigns. All agreements,
representations and warranties contained herein or otherwise heretofore made by
Borrower to Lender shall survive the execution, delivery and foreclosure hereof.
The singular of all terms used herein shall include the plural, the plural shall
include the singular, and the use of any gender herein shall include all other
genders, where the context so requires or permits.
Section 5.2 SEVERABILITY. The unenforceability or invalidity of any
provision of this Mortgage as to any person or circumstance shall not render
that provision unenforceable or invalid as to any other person or circumstance.
Section 5.3 NOTICES. Any notice or other communication to any party in
connection with this Mortgage shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
below, or at such other address as such party shall have specified to the other
party hereto in writing. All periods of notice shall be measured from the date
of delivery thereof if manually delivered, from the date of sending thereof if
sent by telegram, telex or facsimile transmission, from the first Business Day
(as defined in the Loan Agreement) after the date of sending if sent by
overnight courier, or from four days after the date of mailing if mailed.
Notices shall be
<Page>
given to or made upon the respective parties hereto at their respective
addresses set forth below:
If to Borrower: Northern Lights Ethanol, LLC
Post Office Box 225
Milbank, South Dakota 57252
Attention: Chairman of the Board
Telecopy No.: (605) 432-6951
If to Lender: U.S. Bank National Association
141 North Main Avenue
Post Office Box 5308
Sioux Falls, South Dakota 57117
Attention: Carl D. Wynja
Telecopy No.: (605) 333-3825
Either party may change its address for notices by a notice given not less than
five (5) Business Days prior to the effective date of the change.
Section 5.4 APPLICABLE LAW. This Mortgage and the other Loan Documents
shall be construed and enforceable in accordance with, and be governed by, the
laws of the State of South Dakota, without giving effect to conflict of laws or
principles thereof, but giving effect to federal laws of the United States
applicable to national banks. Whenever possible, each provision of this Mortgage
and any other statement, instrument or transaction contemplated hereby or
relating hereto, shall be interpreted in such manner as to be effective and
valid under such applicable law, but, if any provision of this Mortgage or any
other statement, instrument or transaction contemplated hereby or relating
hereto shall be held to be prohibited or invalid under such applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Mortgage or any other statement, instrument or
transaction contemplated hereby or relating hereto.
Section 5.5 WAIVER OF JURY TRIAL. Borrower and Lender each irrevocably
waives any and all right to trial by jury in any legal proceeding arising out of
or relating to this Mortgage or any of the other Loan Documents or the
transactions contemplated hereby or thereby.
<Page>
Section 5.6 EFFECT. This Mortgage is in addition and not in substitution
for any other guarantees, covenants, obligations or other rights now or
hereafter held by Lender from any other person or entity in connection with the
Obligations.
Section 5.7 ASSIGNABILITY. Lender shall have the right to assign this
Mortgage, in whole or in part, or sell participation interests herein, to any
person obtaining an interest in the Obligations.
Section 5.8 HEADINGS. Headings of the Sections of this Mortgage are
inserted for convenience only and shall not be deemed to constitute a part
hereof.
Section 5.9 FIXTURE FILING. This instrument shall be deemed to be a Fixture
Filing within the meaning of the South Dakota Uniform Commercial Code, and for
such purpose, the following information is given:
(a) Name and address of Debtor:
Northern Lights Ethanol, LLC
Post Office Box 225
Milbank, South Dakota 57252
Federal Tax I.D. No.: 46-0460145
(b) Name and address of Secured Party:
U.S. Bank National Association
141 North Main Avenue
Post Office Box 5308
Sioux Falls, South Dakota 57117
(c) Description of the types (or items) of property covered: by this
Fixture Filing: See granting clause on pages 2 and 3 hereof.
(d) Description of real estate to which the collateral is attached or upon
which it is or will be located: See Exhibit A hereto.
<Page>
Section 5.10 CONSTRUCTION MORTGAGE. This Mortgage is a Construction
Mortgage within the meaning of SDCL Section 547A-9-334(h), and secures an
obligation incurred for the construction of improvements on land, including
acquisition cost of the land.
Some of the above-described collateral is or is to become fixtures upon the
above-described real estate, and this Fixture Filing is to be filed for record
in the public real estate records.
IN WITNESS WHEREOF, Borrower has executed this Mortgage as of the date
first written above.
NORTHERN LIGHTS ETHANOL, LLC
By: /s/ Delton Strasser
----------------------------
Name: Delton Strasser
Title: Chairman of the Board
STATE OF SOUTH DAKOTA )
: SS
COUNTY OF MINNEHAHA )
On this the 11th day of July, 2001, before me the undersigned officer,
personally appeared Delton Strasser, who acknowledged himself to be the Chairman
of the Board of Northern Lights Ethanol, LLC, a limited liability company, and
that he, as such Chairman of the Board, being authorized so to do, executed the
foregoing instrument for the purposes therein contained, by signing the name of
the limited liability company by himself Chairman of the Board.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Rosalie Kinonen
--------------------------------
Notary Public - South Dakota
My Commission Expires: 7-20-04
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Document Prepared By:
Jim Wiederrich
Woods, Fuller, Shultz & Smith P.C.
300 South Phillips Avenue, Suite 300
Sioux Falls, SD 57104-6392
Telephone: (605) 336-3890
After recording return to:
Carl D. Wynja, Senior Vice President
Commercial and Business Banking
US Bank
141 North Main
Sioux Falls, SD 57104
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EXHIBIT A
LEGAL DESCRIPTION (Granting Clause A)
The Borrower holds a leasehold interest in the following described Land
under the terms and conditions of the Big Stone Power Plant Lease dated April
18, 2001:
Parcel A in the Southwest Quarter (SW 1/4) of Section Twelve (12), Township
One Hundred Twenty-One (121) North, Range Forty-Seven (47) West of the Fifth
Principal Meridian, Grant County, South Dakota, according to the recorded plat
thereof.
Parcel B in the Southeast Quarter (SE 1/4) of Section Eleven (11), Township
One Hundred Twenty-One (121) North, Range Forty-Seven (47) West of the Fifth
Principal Meridian, Grant County, South Dakota, according to the recorded plat
thereof.
The Borrower holds an ingress and egress easement rights on certain land
and railroad spur lines identified in the Access and Rail Agreement dated April
18, 2001, granted by Otter Tail Corporation, f/k/a Otter Tail Power Company;
Montana-Dakota Utilities Co., a division of MDU Resources Group, Inc., f/k/a
Montana-Dakota Utilities Co.; Northwestern Public Service, a division of
NorthWestern Corporation, f/k/a Northwestern Public Service Company and Northern
Lights Ethanol, LLC:
The Southeast Quarter (SE 1/4) of Section Eleven (11), Township One Hundred
Twenty-One North (121), Range Forth-Seven (47), West of the Fifth Principal
Meridian, Grant County, South Dakota;
The Southwest Quarter (SW 1/4) of Section Twelve (12), Township One Hundred
Twenty-One North (121), Range Forty-Seven (47) West of the Fifth Principal
Meridian, Grant County, South Dakota;
The Northeast Quarter (NE 1/4) and the Northwest Quarter (NW 1/4) of
Section Thirteen (13), Township One Hundred Twenty-One (121) North, Range
Forty-Seven (47) West of the Fifth Principal Meridian, Grant County, South
Dakota; and
The Northwest Quarter (NW 1/4), the Northeast Quarter (NE 1/4) and that
portion of the Southeast Quarter (SE 1/4) lying North of the Burlington Northern
Sante Fe Main line Railroad Right of Way in Section Eighteen (18), Township One
Hundred Twenty-One (121) North, Range Forty-Six (46) West of the Fifth Principal
Meridian, Grant County, South Dakota.
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EXHIBIT B
(Insurance Requirements)
I. PROPERTY INSURANCE
As to Improvements while under construction:
An ORIGINAL (or evidence acceptable to Lender of) Builder's Risk
"All-Risk", Completed Value (Non-Reporting) Form POLICY naming Borrower as
an insured, and covering the interests of all contractors (of all tiers) in
the Project, reflecting coverage of 100% of the insurable replacement cost,
and written by a carrier approved by Lender with a current A.M. Best
Company rating of at least A:VII (which is authorized to do business in the
State of South Dakota), that includes:
Lender's Loss Payable Endorsement naming U.S. Bank National Association as
Mortgagee 30-day notice to Lender in the event of cancellation or
non-renewal by either party or material adverse change Replacement Cost
Measure of Recovery Coverage for Foundations, Off-site (Unscheduled and
Temporary Locations), Transit, Testing, Flood, Earthquake, Collapse, and
Boiler and Machinery/Mechanical and Electrical Breakdown, in such amounts
as Lender and Borrower mutually agree is appropriate Coverage for indirect
loss exposures (customarily referred to as "soft cost" exposures),
"Contingent Liability from Operation of Building Laws" coverage,
"Demolition Costs" coverage, "Increased Cost of Construction" coverage,
with such additional limits for such coverages as Lender may reasonably
require Policy to permit partial occupancy No insurer subrogation action or
recovery against any party whose interests are covered under the policy
Deductible not to exceed $25,000 Coverage to become effective upon the date
that concrete is first poured, or the start of any shipment of materials,
machinery or equipment to the site, whichever is earlier, and to remain in
effect until replaced by the permanent All Risk Property Insurance
described below, or until such other time as may be mutually agreed upon by
Lender and Borrower
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As to completed Improvements:
An ORIGINAL (or evidence acceptable to Lender of) Special Form (or
so-called All Risk) Hazard Insurance POLICY naming Borrower as an insured,
reflecting coverage of 100% of the replacement cost, and written by a
carrier approved by Lender with a current A.M. Best Company rating of at
least A:VII (which is authorized to do business in the State of South
Dakota), that includes:
-- Lender's Loss Payable Endorsement naming U.S. Bank National
Association as Mortgagee
-- 30-day notice to Lender in the event of cancellation or
non-renewal by either party or material adverse change
-- Replacement Cost Measure or Recovery
-- Stipulated Value/Agreed Amount Endorsement (No Coinsurance)
-- Boiler and Machinery Coverage (including business income, extra
expense coverage)
One (1) year's business interruption, leasehold interest and/or rent
loss insurance in an amount acceptable to Lender
Extra expense coverage in an amount acceptable to Lender
"Contingent Liability from Operation of Building Laws" coverage,
"Demolition Costs" coverage, "Increased Cost of Construction"
coverage, and "Increased Time to Rebuild" Coverage, with such
additional limits for such coverages as Lender may reasonably require
Deductible not to exceed $25,000
II. LIABILITY INSURANCE
An ORIGINAL (or evidence acceptable to Lender of) Commercial General
Liability Insurance POLICY (Insurance Services Offices policy form title)
naming Borrower as an insured, providing coverage on an "occurrence" rather
than a "claims made" basis, and written by a carrier approved by Lender
with a current A.M. Best Company rating of at least A:VII (which is
authorized to do business in the State of South Dakota), that includes:
Combined general liability policy limit of at least $2,000,000.00
each occurrence, applying to liability for Bodily Injury, Personal
Injury and Property Damage, which combined limit may be satisfied by
the limit afforded under the Commercial General Liability Policy, or
by such Policy in combination with the limits afforded by an Umbrella
or Excess Liability
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Policy (or policies); provided, that the coverage afforded under any
such Umbrella or Excess Liability Policy is at least as broad in all
material respects as that afforded by the underlying Commercial
General Liability Policy Coverage for Bodily Injury, Property Damage,
Personal Injury, Contractual Liability, Independent Contractors and
Products-Completed Operations Liability Automobile Liability
insurance covering liability for Bodily Injury and Property Damage
arising out of the ownership, use, maintenance or operation of all
owned, nonowned and hired automobiles and other motor vehicles
utilized by Borrower in connection with the Project, which coverage
may be provided under a separate policy Deductible not to exceed
$25,000 Additional Insured Endorsement naming U.S. Bank National
Association and a Severability of Interest provision 30-day notice to
Lender in the event of cancellation or non-renewal by either party or
material adverse change
III. WORKER'S COMPENSATION
An ORIGINAL CERTIFICATE of Worker's Compensation coverage in the statutory
amount, naming Borrower as an insured, written by a carrier approved by
Lender, at such time as Borrower has employees.
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EXHIBIT C
PERMITTED ENCUMBRANCES
1. An easement for the purpose of granting the right to have a Pollution
Control Project located on the subject property and to have ingress and egress
on and over such lands, as set forth in Easement Agreement between
Montana-Dakota Utilities, Northwestern Public Service Company, and Otter Tail
Power Company and Grant County, South Dakota, dated February 1, 1974, and
recorded in Miscellaneous Record 159, page 169, on 2/6/74 as Document Number
149365.
2. A non-exclusive easement for the purpose of granting the right to have
transmission lines located on the subject property and to have ingress to and
egress from said lines, as set forth in Easement Agreement between
Montana-Dakota Utilities, Northwestern Public Service Company, and Otter Tail
Power Company and Cooperative Power Association, dated July 1, 1976, and
recorded in Miscellaneous Record 161, page 845, on 8/6/76 as Document Number
154178.
3. Any rights claimed as set forth in Bill of Sale and Assignment of
Easements between Otter Tail Power Company and Cooperative Power Association,
dated July 1, 1976, and recorded in Miscellaneous Record 161, page 855, on
8/6/76 as Document Number 154179.
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SECURITY AGREEMENT
This Security Agreement is entered into between NORTHERN LIGHTS ETHANOL,
LLC, a South Dakota limited liability company, as grantor and obligor (the
"Borrower"), and U.S. BANK NATIONAL ASSOCIATION (the "Secured Party"), and is
made effective this 11th date of July, 2001, and is executed and delivered by
Borrower to Secured Party pursuant to that Loan Agreement between Borrower and
Secured Party dated as of July 11, 2001 (the "Loan Agreement"):
GRANT OF SECURITY INTEREST. To secure the Secured Obligations as defined
below, the Borrower grants the Secured Party a security interest in the
following described personal property (hereinafter the "Collateral"):
All right, title and interest of Borrower in and to all of Borrower's
assets and properties of all kinds and descriptions, wherever the same may
now or hereafter be located, now existing and/or owned or hereafter arising
and/or acquired or in which Borrower has or hereafter may acquire an
interest (to the extent of such interest), including, without limitation,
all of the following:
All accounts (as defined in the UCC), now owned or hereafter created or
acquired by Borrower including, without limitation, all of the following
now owned or hereafter created or acquired by Borrower: (a) accounts
receivable, contract rights, book debts, notes, drafts and other
obligations or indebtedness owing to Borrower arising from the sale, lease
or exchange of goods or other property and/or the performance of services;
(b) Borrower's rights in, to and under all purchase orders for goods,
services or other property; (c) Borrower's rights to any goods, services or
other property represented by any of the foregoing (including returned or
repossessed goods and unpaid sellers' rights of rescission, replevin,
reclamation and rights to stoppage in transit); (d) monies due to or to
become due to Borrower under all contracts for the sale, lease or exchange
of goods or other property and/or the performance of services (whether or
not yet earned by performance on the part of Borrower); (e) health-care
insurance receivables; (f) insurance receivables for lost inventory and
business interruption; and (g) proceeds of any of the foregoing and all
collateral security and guaranties of any kind given by any person or
entity with respect to any of the foregoing;
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All inventory (as defined in the UCC), now owned or hereafter acquired by
Borrower, wherever located, including, without limitation, products
intended for sale, rent, lease or other disposition and other materials and
supplies (including packaging and shipping materials) used or consumed, or
held for use or consumption, in the sale thereof and goods which are
returned to or repossessed by Borrower;
All general intangibles (as defined in the UCC) now owned or hereafter
acquired by Borrower, including, without limitation, all right, title and
interest of Borrower in and to: (a) all agreements, leases (including
purchase options with respect thereto), licenses and contracts (including
all rights under the agreements pursuant to which Borrower acquired or
hereafter acquires any subsidiary, division or operating entity and all
documents, instruments, agreements and understandings relating thereto) to
which Borrower is or may become a party; (b) all obligations or
indebtedness owing to Borrower (other than accounts described above) from
whatever source arising; (c) all tax refunds and rights to receive tax
refunds; (d) all patents and patent applications, trademarks and trademark
applications or registrations, copyrights and copyright applications or
registrations, trade names, corporate names, company names, business names,
fictitious business names, trade styles, service marks, logos and other
business identifiers and other intellectual property; (e) all rights to
refunds or indemnification (including, without limitation, all amounts
refunded or paid to Borrower as a result of such amounts being deemed
voidable transfers in any insolvency or bankruptcy proceeding),
contribution and subrogation; (f) all causes of action, choses in action
and judgments; and (g) all trade secrets, know how, corporate and other
business records and other confidential information relating to the
business of Borrower; the prices which Borrower obtains for its services or
at which it sells merchandise; estimating and cost procedures; profit
margins; policies and procedures pertaining to the sale of products and
services; information concerning suppliers of Borrower; and information
concerning the manner of operation, business plans, projections, and all
other information of any kind or character, whether or not reduced in
writing, with respect to the conduct by Borrower of its business not
generally known by the public; (h) all payment intangibles; (i) all
software; (j) all websites; (k) all partnership and limited liability
partnership interests; and (l) all membership interests in limited
liability companies;
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All documents (as defined in the UCC) or other receipts covering,
evidencing or representing goods now owned or hereafter acquired by
Borrower;
All instruments (as defined in the UCC) (including, but not limited to,
promissory notes, drafts, bills of exchange and trade acceptances), chattel
paper (as defined in the UCC) (whether tangible or electronic) and
letter-of-credit rights (whether or not the letter of credit is evidenced
by a writing), now owned or hereafter acquired by Borrower;
All equipment (as defined in the UCC) now owned or hereafter acquired by
Borrower including, without limitation, all machinery, apparatus,
furniture, fixtures, tools, attachments, materials, storage and handling
equipment, and all parts thereof and all additions and accessions thereto
and replacements therefor;
All of the following now owned or hereafter acquired by Borrower: plant
fixtures, business or trade fixtures, other fixtures and storage office
facilities, wherever located and all additions and accessions thereto and
replacements therefor;
All deposit accounts (as defined in the UCC) of Borrower maintained with
any bank or financial institution;
All monies, reserves and property of Borrower now or at any time or times
hereafter in the possession or under the control of the Secured Party or
any bailee of the Secured Party;
All building and construction materials before and after incorporated into
any improvement, including but not limited to, all other items not
considered a part of the real property legally described as follows:
Parcel A in the Southwest Quarter (SW 1/4) of Section Twelve (12),
Township One Hundred Twenty-One (121) North, Range Forty-Seven (47)
West of the Fifth Principal Meridian, Grant County, South Dakota,
according to the recorded plat thereof.
Parcel B in the Southeast Quarter (SE 1/4) of Section Eleven (11),
Township One Hundred Twenty-One (121) North, Range Forty-Seven (47)
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West of the Fifth Principal Meridian, Grant County, South Dakota,
according to the recorded plat thereof.
All contracts, plans, specifications, construction documents and records of
any kind relating to the Borrower's properties;
All books, records, blueprints, ledger cards, files, correspondence,
computer programs, tapes, disks and related data processing software that
at any time evidence or contain information relating to any of the property
described above or are otherwise necessary or helpful in the collection
thereof or realization thereon;
All investment property (as defined in the UCC);
All supporting obligations (as defined in the UCC); and
All products and proceeds of, and all other profits, rentals or receipts,
in whatever form, arising from the collection, sale, lease, exchange,
assignment, licensing or other disposition of, or realization upon, any
property described above or the proceeds thereof, including, without
limitation, all claims of Borrower against third parties for loss of,
damage to or destruction of, or for proceeds payable under, or unearned
premiums with respect to, policies of insurance with respect to any
property described above or business interruption, and any condemnation or
requisition payments with respect to any property described above, and any
condemnation or requisition payments with respect to any property described
above, in each case whether now existing or hereafter arising.
The Collateral shall include (i) all substitutions and replacements for and
proceeds of any and all of the foregoing property, and in the case of all
tangible Collateral, all accessions, accessories, attachments, parts, equipment
and repairs now or hereafter attached or affixed to or used in connection with
any such goods and (ii) all warehouse receipts, bills of lading and other
documents of title now or hereafter covering such goods. All references to "UCC"
in this Security Agreement shall mean the Uniform Commercial Code as adopted in
South Dakota.
OBLIGATIONS SECURED. This security interest secures the payment and
performance of (i) all of the Borrower's obligations under the Loan Agreement
and each Loan Document references therein, and (ii) each and every debt,
liability and obligation of
<Page>
every type and description which the Borrower may now or at any time owe to the
Secured Party, whether now existing or hereafter arising, direct or indirect,
due or to become due, absolute or contingent, primary or secondary, liquidated
or unliquidated, joint, several, or joint and several.
This security interest also secures all extensions, renewals, modifications
and replacements of the above described obligations. Such obligations are
hereinafter collectively referred to as the "Secured Obligations".
BORROWER'S REPRESENTATIONS AND WARRANTIES AND FURTHER AGREEMENTS. Borrower
warrants, represents and agrees that:
1. If part of the Collateral now constitutes, or as and when acquired by
Borrower will constitute, inventory or equipment (as those terms are defined in
the uniform Commercial Code as adopted in South Dakota) such collateral is or
will be kept at the offices of Northern Lights Ethanol, LLC, which has a post
office address of Post Office 225, Milbank, South Dakota 57252 will not be
removed from such location or locations (except for transfers between Borrower's
locations in the ordinary course of business) unless, prior to any such removal,
Borrower has given written notice to the Secured Party of the location or
locations to which the Borrower desires to remove the same, and the Secured
Party has given its written consent to such removal. If any of the locations
where Borrower now or hereafter keeps the Collateral are leased by the Borrower,
the Borrower shall at Secured Party's request, obtain a Landlord's waiver in a
form satisfactory to Secured Party. All of the Borrower's inventory and
equipment shall, if so provided above, constitute Collateral, even if located at
a location not set forth above.
2. Borrower is incorporated in the State of South Dakota. Borrower's
principal place of business has a post office address of Post Office Box 225,
Milbank, South Dakota 57252. Borrower will notify the Secured Party in writing
of any change in Borrower's location. The Borrower's Internal Revenue Service
Taxpayer Identification Number is 46-0460145, and the Borrower shall use such
number as its exclusive Internal Revenue Service Taxpayer Identification Number
until all of its Obligations under this Agreement are satisfied in full. The
Borrower will not change its name as incorporated, without the Secured Party's
prior written consent, which may be conditioned upon the Borrower signing
amendments to UCC-1s or other documents as the Secured Party may require.
Borrower is not engaged in and will not engage in farming or growing crops.
<Page>
3. Borrower has or will acquire title to and will at all times keep the
Collateral free of all liens and encumbrances, except the security interest
created hereby and has full power and authority to execute this Security
Agreement, to perform Borrower's obligations hereunder and to subject the
Collateral to the security interest created hereby. Borrower will pay all fees,
assessments, charges or taxes arising with respect to the Collateral. There is
no encumbrance or security interest with respect to all or any part of the
Collateral. All costs of keeping the Collateral free of encumbrances and
security interests prohibited by this Agreement and of removing same if they
should arise shall be the obligation of the Borrower, and such obligation shall
be part of the Secured Obligations.
4. Each right to payment and each instrument, document, chattel paper and
other agreement constituting or evidencing Collateral is (or will be when
arising or issued) a valid, genuine and legally enforceable obligation, subject
to no defense, set-off or counterclaim (other than those arising in the ordinary
course of business) of the account debtor or other obligor named therein or in
Borrower's records pertaining thereto as being obligated to pay such obligation.
Borrower will not agree to any material modification, amendment or cancellation
of any such obligation without Secured Party's prior written consent, and will
not subordinate any such right to payment to claims of other creditors of such
account debtor or other obligor.
5. Borrower will at any time or times hereafter execute such financing
statements and other documents and instruments and perform such acts as the
Secured Party may from time to time request to establish, maintain, perfect and
enforce a valid security interest in the Collateral, and will pay all costs of
filing and recording. Borrower irrevocably authorizes the Secured Party at any
time and from time to time to file in any Uniform Commercial Code jurisdiction
any initial financing statements and amendments thereto that (a) indicate the
Collateral (i) as all assets of the Borrower or words of similar effect,
regardless of whether any particular asset comprised in the Collateral falls
within the scope of Article 9 of the Uniform Commercial Code of the State or
such jurisdiction, or (ii) as being of an equal or lesser scope or with greater
detail, and (b) contain any other information required by part 5 of Article 9 of
the Uniform Commercial Code of the State for the sufficiency or filing office
acceptance of any financing statement or amendment, including (i) whether the
Borrower is an organization, the type of organization and any organization
identification number issued to the Borrower and, (ii) in the case of a
financing statement, filed as a fixture filing or indicating Collateral as
as-extracted collateral or timber to be cut, a sufficient description of real
property to which the Collateral relates. The Borrower agrees to furnish any
such information to the Secured Party promptly. In the event the Borrower owns
any right in a commercial tort claim (as
<Page>
defined by the UCC), Borrower shall so inform Secured Party and will sign any
additional documentation granting Secured Party a security interest therein as
Secured Party may require.
6. Borrower will maintain business interruption insurance and keep all
tangible Collateral and all lands, plants, buildings and other property now or
hereafter owned or used in connection with its business in good condition,
normal depreciation excepted, and insured against loss or damage by fire
(including so-called extended coverage), theft, physical damage, and against
such other risks, including without limitation public liability, in such
amounts, with such insurers and upon such terms as Secured Party may reasonably
require. Borrower will include Secured Party as an additional insured and obtain
loss payable indorsements on applicable insurance policies in favor of Borrower
and Secured Party as their interests may appear and at Secured Party's request
will deposit the insurance policies with Secured Party. Borrower shall cause
each insurer to agree, by Policy indorsement or by issuance of a Certificate of
Insurance or by independent instrument furnished to Secured Party, that such
insurer will give 30 days' written notice to Secured Party before such policy
will be altered or canceled. Borrower irrevocably appoints Secured Party as
Borrower's attorney in fact to make claim for, to negotiate settlement of
claims, to receive payment for and to execute and endorse any documents, checks
or other instruments in payment for loss, theft, or damage under any insurance
policy covering the Collateral.
7. Borrower will promptly notify Secured Party of any loss or material
damage to any Collateral or of any adverse change, known to Borrower, in the
prospect of payment of any sums due on or under any instrument, chattel paper,
account or general intangible constituting Collateral.
8. Upon Secured Party's request (whether a Default as hereinafter defined,
has occurred) Borrower will promptly deliver to Secured Party any instrument,
document or chattel paper constituting Collateral.
9. Upon Default by Borrower in performance of its obligation hereunder,
Secured Party shall have the authority, but shall not be obligated to: (i)
effect such insurance and necessary repairs and pay the premiums therefor and
the costs thereof; and (ii) pay and discharge any fees, assessments, charges,
taxes, liens and encumbrances on the Collateral. All sums so advanced or paid by
the Secured Party shall be payable by Borrower on demand with interest at the
highest rate then charged on the Secured Obligations (but not exceeding the
maximum rate allowed by law) and shall be a part of the Secured Obligations.
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10. Borrower will not sell, lease or otherwise dispose of the Collateral
other than in the ordinary course of its business at prices constituting the
then fair market value thereof.
11. The Secured Party shall have the authority (whether or not a Default
has occurred) but shall not be obligated to: (a) notify any or all account
debtors and obligors on instruments constituting Collateral of the existence of
the Secured Party's security interest and if a Default has occurred to pay or
remit all sums due or to become due directly to the Secured Party or its
nominee; (b) place on any chattel paper received as proceeds or otherwise
constituting Collateral, a notation or legend showing the Secured Party's
security interest; (c) if a Default has occurred, in the name of the Borrower or
otherwise, to demand, collect, receive and receipt for, compound, compromise,
settle, prosecute and discontinue any suits or proceedings in respect of any or
all of the Collateral; (d) if a Default has occurred, take any action which the
Secured Party may deem necessary or desirable in order to realize on the
Collateral, including, without limitation, the power to perform any contract, to
indorse in the name of Borrower any checks, drafts, notes or other instruments
or documents received in payment of or on account of the Collateral; (e) to
place upon Borrower's books and records relating to the accounts and general
intangibles covered by the security interest granted hereby a notation or legend
stating that such account or general intangible is subject to a security
interest held by the Secured Party; and (f) after any Default, to enter upon and
into and take possession of all or such part(s) of the properties of Borrower,
including lands, plants, buildings, machinery, equipment and other property as
may be necessary or appropriate in the judgment of the Secured Party to permit
or enable the Secured Party to manufacture, produce, process, store or sell or
complete the manufacture, production, processing, storing or sale of all or any
part of the Collateral, as the Secured Party may elect, and to use and operate
said properties for said purposes and for such length of time as the Secured
Party may deem necessary or appropriate for said purposes without the payment of
any compensation to Borrower thereof.
12. Borrower will, if a Default has occurred and upon receipt of request
from Secured Party, notify all account debtors and other obligors of the
existence of the Secured Party's security interest and direct such account
debtors and other obligors to pay or remit all sums due or to become due
directly to the Secured Party or its nominee. Borrower will hold all of the
proceeds of any collections and all returned and repossessed goods thereafter
received by Borrower in trust for the Secured Party, and will not commingle the
same with any other funds or property of the Borrower, and will deliver the same
forthwith to the Secured Party at its request.
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13. Borrower will keep accurate books, records and accounts with respect to
the Collateral, and with respect to the general business of Borrower, and will
make the same available to the Secured Party at its request for examination and
inspection; and will make and render to the Secured Party such reports,
accountings and statements as the Secured Party from time to time may request
with respect to the Collateral; and will permit any authorized representative of
the Secured Party to examine and inspect during normal business hours, any and
all premises where the Collateral is or may be kept or located.
14. The occurrence of any of the events identified as a "Default" or "Event
of Default" under the Loan Agreement will constitute a Default hereunder.
15. Whenever a Default shall exist, the Secured Party may, at its option
and without demand or notice, except to the extent notice is required under the
Loan Agreement, declare all or any part of the Secured Obligations immediately
due and payable, and the Secured Party may exercise, in addition to the rights
and remedies granted hereby, all rights and remedies of a secured party under
the Uniform Commercial Code or any other applicable law. The Secured Party shall
be entitled to recover its attorneys' fees, service tax thereon, and all costs
incurred by such attorneys, to the extent permitted by law.
16. Borrower agrees, in the event of Default, to make the Collateral
available to the Secured Party at a place or places to be designated by the
Secured Party, which is reasonably convenient to both parties, and to pay all
costs of the Secured Party, including reasonable attorneys' fees, service tax
thereon, and all costs incurred by such attorneys, in the collection of any of
the Secured Obligations and the enforcement of any of the Secured Party's
rights. If any notification of intended disposition of any of the Collateral is
required by law, such notification shall be deemed properly given if mailed a
reasonable time before such disposition, postage prepaid, addressed to the
Borrower at the address shown above. Secured Party's duty of care with respect
to Collateral in its possession shall be deemed fulfilled if Secured Party
exercises reasonable care in physically safekeeping such Collateral or, in the
case of Collateral in the custody or possession of a bailee or other third
person, exercises reasonable care in the selection of the bailee or other third
person, and Secured Party need not otherwise preserve, protect, insure or care
for any Collateral. Secured Party shall not be obligated to preserve any rights
Borrower may have against prior parties, to realize on the Collateral at all or
in any particular manner or order, or to apply any cash proceeds of Collateral
in any particular order of application. No delay or failure by the Secured Party
in the exercise of any right or remedy shall constitute a waiver thereof, and no
single or partial exercise by the
<Page>
Secured Party of any right or remedy shall preclude other or further exercise
thereof or the exercise of any other right or remedy.
17. This Agreement is governed by the laws of the State of South Dakota
without regard to its conflict of law provisions.
Dated this 11th day of July, 2001.
BORROWER:
NORTHERN LIGHTS ETHANOL, LLC
By: /s/ Delton Strasser
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Its: Chairman of the Board
STATE OF SOUTH DAKOTA )
: SS
COUNTY OF GRANT )
On this the 11th day of July, 2001, before me personally appeared Delton
Strasser, known to me to be the Chairman of the Board of Northern Lights
Ethanol, LLC, a limited liability company, and the he that he, as such Chairman
of the Board, being authorized so to do, executed the foregoing instrument, for
the purposes therein contained, by signing the name of the limited liability
company by himself as Chairman of the Board.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Rosalie Kinonen
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Notary Public - South Dakota
My Commission Expires: 7-20-04