10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ýAnnual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the fiscal year ended September 30, 2006

OR

o        Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

COMMISSION FILE NUMBER 0001229899

LITTLE SIOUX CORN PROCESSORS, L.L.C.
(Exact name of registrant as specified in its charter)

Iowa	42-1510421
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4808 F Avenue, Marcus, Iowa 51035

(Address of principal executive offices)

(712) 376-2800

(Registrant’s Issuer’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act: Membership Units

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o  Yes    x  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  o Yes    x  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x  Yes    o  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 Indicate by check mark whether the registrant is a large accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer  o Accelerated Filer  o Non-Accelerated Filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o  Yes     x  No

The aggregate market value of the membership units held by non-affiliate of the registrant at March 31, 2006, was $33,845,500.  There is no established public trading market for our membership units.  The aggregate market value was computed by reference to the last sales price of certain membership units sold through the registrant’s qualified online matching service during the registrant’s most recently completed second fiscal quarter.

As of the date of this filing, there are 10,941 membership units of the registrant outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Pursuant to General Instruction G (3), we omit Part III, Items 10, 11, 12, 13, and 14 and incorporate such items by reference to an amendment to this Annual Report on Form 10-K or to a definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Annual Report (September 30, 2006).

INDEX

	Page No.
PART I.
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 2. DESCRIPTION OF PROPERTY
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR MEMBERSHIP UNITS AND RELATED MEMBER MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
ITEM 9A. CONTROLS AND PROCEDURES.
ITEM 9B. OTHER INFORMATION.
PART III
PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
SIGNATURES

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CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains historical information, as well as forward-looking statements.  These forward-looking statements include any statements that involve known and unknown risks and relate to future events and our expectations regarding future performance or conditions.  Words such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “future,” “intend,” “could,” “hope,” “predict,” “target,” “potential,” or “continue” or the negative of these terms or other similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements.  These forward-looking statements, and others we make from time to time, are subject to a number of risks and uncertainties. Many factors could cause actual results to differ materially from those projected in forward-looking statements, including the risks described in Part IA of this Annual report.  While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include, but are not limited to:

·Projected growth, overcapacity or contraction in the ethanol market in which we operate;

·Fluctuations in the price and market for ethanol and distillers grains;

·Changes in plant production capacity, variations in actual ethanol and distillers grains production from expectations or technical difficulties in operating the plant;

·Availability and costs of products and raw materials, particularly corn and natural gas;

·Changes in our business strategy, capital improvements or development plans for expanding, maintaining or contracting our presence in the market in which we operate;

·Costs of construction and equipment;

·Changes in interest rates and the availability of credit to support capital improvements, development, expansion and operations;

·Our ability to market and our reliance on third parties to market our products;

·Our ability to distinguish ourselves from our current and future competition;

·Changes to infrastructure, including

-expansion of rail capacity,

-increases in truck fleets capable of transporting ethanol within localized markets,

-additional storage facilities for ethanol, expansion of refining and blending facilities to handle ethanol,

-growth in service stations equipped to handle ethanol fuels, and

-growth in the fleet of FFVs capable of using E85 fuel;

·Changes in or elimination of governmental laws, tariffs, trade or other controls or enforcement practices such as:

-national, state or local energy policy;

-federal ethanol tax incentives;

-legislation mandating the use of ethanol or other oxygenate additives;

-state and federal regulation restricting or banning the use of MTBE; or

-environmental laws and regulations that apply to our plant operations and their enforcement;

·Increased competition in the ethanol and oil industries;

·Fluctuations in US oil consumption and petroleum prices;

·Changes in general economic conditions or the occurrence of certain events causing an economic impact in the agriculture, oil or automobile industries;

·Anticipated trends in our financial condition and results of operations

·The availability and adequacy of our cash flow to meet our requirements, including the repayment of debt;

·Our liability resulting from litigation;

·Our ability to retain key employees and maintain labor relations;

·Changes and advances in ethanol production technology; and

·Competition from alternative fuels and alternative fuel additives.

The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf.  We do not undertake any duty to update forward-looking statements after the date they are made or to conform them to actual results or to changes in circumstances or expectations. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.  We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report.  You should read this report and the documents that we reference in this report and have filed as exhibits, completely and with the understanding that our actual future results may be materially different from what we currently expect.  We qualify all of our forward-looking statements by these cautionary statements.

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PART I.

ITEM 1.BUSINESS.

Overview

Little Sioux Corn Processors, LLC (“Little Sioux”) owns and manages a 60.15% interest in its subsidiary, LSCP, LLLP (“LSCP”).  Little Sioux’s business primarily consists of owning and managing its interest in LSCP.   LSCP owns and operates an ethanol manufacturing plant located near Marcus, Iowa in Cherokee County in northwest Iowa (the “Plant”).  (Little Sioux and LSCP are referred to collectively in this report as “we,” “our,” or “us.”)

Fuel grade ethanol is our primary product, accounting for the majority of our revenue.  We also sell distillers grains and corn oil, co-products of the ethanol manufacturing process.  In fiscal year 2006, the Plant processed approximately 19.1 million bushels of corn into approximately 53.2 million gallons of ethanol, 244,000 tons of distillers grains and 4.0 million pounds of corn oil.  In fiscal year 2007, we anticipate that the Plant will produce approximately 55.0 million gallons of ethanol, 241,000 tons of distillers grains, and 14.2 million pounds of corn oil from approximately 19.6 million bushels of corn.  However, there is no guarantee that we will be able to operate at these levels.

General Development of Business since October 1, 2005

Little Sioux was formed as an Iowa limited liability company on September 28, 2000.  On March 6, 2002, we purchased the sole general partnership interest in LSCP, LP, an Iowa limited partnership.  On June 26, 2003, LSCP, LP elected to become an Iowa limited liability limited partnership and its legal name was changed to LSCP, LLLP.  Our general partnership interest in LSCP represents 60.15% of the ownership interests of LSCP and substantially all of our assets.  The remaining minority interests owned by various limited partners.  As general partner of LSCP, we manage and control the affairs of LSCP and the Plant.

Construction of the Plant was substantially completed and operations commenced in April 2003.  In July 2005, an expansion of the Plant’s ethanol production capacity was completed, increasing the Plant’s annual name-plate production capacity from 40 million gallons per year to 52 million gallons per year.

Two new developments are planned for the plant in 2007.  In May 2006, construction was commenced at the Plant in order to expand our existing grain handling facilities and remodel our grain silos.   Expansion of the grain handling facilities is expected to be completed in May 2007 with remodeling of the grain silos completed in September 2007.  Both construction projects are designed and will be built by McCormick Construction Company, Inc.

In October 2006, additional construction was commended to expand the Plant’s production capacity from a 52 million gallon per year to a 92 million gallon name-plate production capacity.   We expect that this expansion will nearly double our operating revenue and operating efficiencies and increase the Plant’s corn usage from approximately 18.3 million to approximately 35 million bushels annually.  The expansion will be designed and built by Fagen Inc., the company that designed and built the Plant.  Construction of the Plant expansion is expected to be completed in late 2007 or early 2008.  However, there is no assurance or guarantee that construction will stay on schedule or that we will be able to operate at expanded production by our anticipated completion date.  Additional information regarding our construction projects and Plant expansion may be found at “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Plant Operations and Expansion.”

In addition, we also continue to study the feasibility of developing and constructing an ethanol plant just south of Akron, Iowa in Plymouth County, or participating in the Akron plant project in some capacity.  Additional information regarding development of a second ethanol plant may be found at “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Plant Operations and Expansion.”

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Available Information

The public may read and copy materials we file with the Securities and Exchange Commission at the SEC’s Public Reference Room at 100 F Street NE, Washington, D.C., 20549.  Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.  In addition, the SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.  Reports we file electronically with the SEC may be obtained at www.sec.gov.

In addition, information about us is also available at our website at www.littlesiouxcornprocessors.com, and under the link “SEC Compliance,” visitors to our site may access, free of charge, the reports we have filed with the Securities and Exchange Commission.  These reports are made available on our website as soon as reasonably practicable after we electronically file such materials with, or furnish such materials to, the Securities and Exchange Commission. The contents of our website are not incorporated by reference in this Annual Report on Form 10-K.

Financial Information

Please refer to “Item 8 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information about our revenues, profit and loss measurements and total assets.  Our consolidated financial statements and supplementary data are included beginning at page F-1 of this Report.

Principal Products and Their Markets

The principal products we produce at our plant are fuel grade ethanol, distillers grains and corn oil.

Ethanol

Ethanol is ethyl alcohol, a fuel component made primarily from corn and various other grains.   However, according to the Renewable Fuels Association, approximately 85 percent of ethanol in the United States today is produced from corn, and approximately 90 percent of ethanol is produced from a corn and other input mix. Corn produces large quantities of carbohydrates, which convert into glucose more easily than most other kinds of biomass. The Renewable Fuels Association estimates current domestic ethanol production at approximately 5.28 billion gallons as of December 2006.

An ethanol plant is essentially a fermentation plant.  Ground corn and water are mixed with enzymes and yeast to produce a substance called “beer,” which contains about 10% alcohol and 90% water.  The “beer” is boiled to separate the water, resulting in ethyl alcohol, which is then dehydrated to increase the alcohol content.  This product is then mixed with a certified denaturant to make the product unfit for human consumption and commercially saleable.

Ethanol can be used as: (i) an octane enhancer in fuels; (ii) an oxygenated fuel additive for the purpose of reducing ozone and carbon monoxide vehicle emissions; and (iii) a non-petroleum-based gasoline substitute.  Approximately 95% of all ethanol is used in its primary form for blending with unleaded gasoline and other fuel products.  Used as a fuel oxygenate, ethanol provides a means to control carbon monoxide emissions in large metropolitan areas.  The principal purchasers of ethanol are petroleum terminals in the continental United States.

For our fiscal years ended September 30, 2006, 2005 and 2004, revenues from sales of ethanol were approximately 89%, 86% and 86% of total revenues respectively.

Distillers Grains

A principal co-product of the ethanol production process is distillers grains, a high protein, high-energy animal feed supplement primarily marketed to the dairy and beef industry.  Distillers grains contain by-pass protein that is superior to other protein supplements such as cottonseed meal and soybean meal.  By-pass proteins are more digestible to the animal, thus generating greater lactation in milk cows and greater weight gain in beef cattle.  The dry

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mill ethanol processing used by the Plant results in two forms of distiller grains: Distillers Modified Wet Grains (“DMWS”) and Distillers Dried Grains with Solubles (“DDGS”). DMWS is processed corn mash that has been dried to approximately 50% moisture.  DMWS have a shelf life of approximately ten days and are often sold to nearby markets.  DDGS is processed corn mash that has been dried to 10% to 12% moisture.  DDGS has an almost indefinite shelf life and may be sold and shipped to any market regardless of its vicinity to an ethanol plant.  At our plant, the composition of the distillers grains we produce is approximately 57% DMGS and 43% DDGS.

For our fiscal years ended September 30, 2006, 2005 and 2004 revenues from sales of distillers grains were approximately 9%, 12% and 14% of total revenues, respectively.

Corn Oil

Corn oil can be produced as a co-product of ethanol production by installing equipment to separate the oil from the distillers grains during the production process.  In October 2005, we completed installation of this equipment and we began producing corn oil.  Prior to installation of the corn oil segregation unit, the corn oil had been sold as an energy component of our distillers grains.

Corn oil in its raw form can be used as livestock feed, as a fuel under certain operating conditions, refined into bio-diesel fuel, or refined for human consumption.  We intend to initially market the unrefined corn oil to the animal feed and bio-diesel markets to assure that quality specifications can be maintained.  In the long term, the corn oil co-product could be marketed for human consumption.  Specific details regarding market penetration into human food are unknown at this time since corn oil extraction in a dry mill situation such as ours has not yet been proven, nor has its suitability for human consumption been determined.

For our fiscal year ended September 30, 2006, revenues from sales of corn oil were approximately 0.5% of total revenues. There were no corn oil sales in fiscal 2005.

Marketing and Distribution of Principal Products

Our ethanol plant is located near Marcus, Iowa in Cherokee County, in the northwestern section of Iowa.  We selected the Marcus site because of its location to existing grain production, accessibility to road and rail transportation and its proximity to major population centers such as Minneapolis, Minnesota; Omaha, Nebraska; and Chicago, Illinois.  Our Plant is served by the Canadian National Railroad Company.

We sell and market the ethanol, distillers grains and corn oil produced at the plant through normal and established markets, including local, regional and national markets.  We have entered into a marketing agreement with a third party marketer for our ethanol.  Whether or not ethanol produced by our Plant is sold in local markets will depend on decisions made by our marketer.  Local ethanol markets may be limited and must be evaluated on a case-by-case basis. We have also entered into a third party marketing agreement for our distillers grains; however, we market the bulk of our distillers grains locally.  Although local ethanol, distillers grains and corn oil markets will be the easiest to service, they may be oversold, particularly in Iowa.  Oversold markets depress ethanol, distillers grains and corn oil prices.

Ethanol

We have a marketing agreement with Archer Daniels Midland Company (“ADM”) for the purposes of marketing and distributing all of the ethanol we produce at the Plant. Pursuant to our ethanol marketing agreement with ADM, the price ADM pays us for our ethanol is calculated by averaging the price ADM receives for all the ethanol it sells originating from (i) our plant, (ii) ADM’s plant in Marshall, Minnesota and (iii) ADM’s plant in Columbus, Nebraska.  In exchange for ADM’s marketing, sales, storage and transportation services, we pay ADM a fixed price per gallon of ethanol sold.  The initial term of the

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marketing agreement with ADM expires in April 2007 but the agreement is automatically renewed for successive one-year periods at the end of the initial term unless the parties agree otherwise.

Distillers Grains

We have a marketing agreement with Commodity Specialist Company (“CSC”), a Delaware corporation, for the purpose of marketing and selling all the distillers grains we produce, except distillers grains we produce and sell directly to local farmers.  For our distillers grains marketed and sold by CSC, we receive a percentage of the selling price actually received by CSC receives from its customers.    Through the marketing of CSC and our relationships with local farmers, we are not dependent upon one or a limited number of customers for our distillers grains sales.

In fiscal 2006, we marketed and sold the bulk of our distillers grains locally, primarily to nearby livestock producers, with the remaining approximately 10% of the distillers grains produced at the plant marketed and sold by CSC all over the continental United States.  As additional ethanol plants begin production excess capacity could result in the local markets.  If excess capacity in the local distillers grains markets occurs, we may be forced to dry more of our distillers grains for marketing by CSC rather than directly selling in the local markets.  As a result, our natural gas costs will likely increase due to increased drying and our profits may decrease.

Corn Oil

We market and sell our corn oil directly to regional wholesalers.  Presently, the end use of our corn oil is in the livestock industry. In the long term, our corn oil could be marketed for human consumption; however, market penetration as human food is unknown at this time as corn oil extraction in dry milling is relatively new and suitability for human consumption has not yet been determined.  Because of our ability to market our corn oil directly to regional wholesalers, we are not dependent upon one or a limited number of customers for our corn oil sales.

Dependence on One or a Few Major Customers

We are substantially dependent upon ADM for the purchase, marketing and distribution of our ethanol. ADM purchases 100% of the ethanol produced at the Plant, all of which is marketed and distributed to its customers.  Therefore, we are highly dependent on ADM for the successful marketing of our products.  As a large ethanol producer, ADM is also a source of competition.   In the event that our relationship with ADM is interrupted or terminated for any reason, we believe that another entity to market the ethanol could be located.  However, any interruption or termination of this relationship could temporarily disrupt the sale of ethanol and adversely affect our business and operations.

Seasonal Factors in Business

In an effort to improve air quality in regions where carbon monoxide and ozone are a problem, the Federal Oxygen Program of the Clean Air Act requires the sale of oxygenated motor fuels during the winter months in certain major metropolitan areas to reduce carbon monoxide pollution.  Gasoline that is blended with ethanol has a higher oxygen content than gasoline that does not contain ethanol.  As a result, we expect fairly light seasonality with respect to our gross profit margins on our ethanol allowing us to, potentially, be able to sell our ethanol at a slight premium during the mandated oxygenate period.  Conversely, we expect our average sales price for fuel grade ethanol during the summer, when fuel grade ethanol is primarily used as an octane enhancer or a fuel supply extender, to be a little lower.

Financial Information about Geographic Areas

All of our operations are domiciled in the United States.  All of the products sold to our customers for fiscal years 2006, 2005 and 2004 were produced in the United States and all of our long-lived assets are domiciled in the United States.

Sources and Availability of Raw Materials

Corn Feedstock Supply

The major raw material required for our ethanol plant to produce ethanol, distillers grain and corn oil is corn.  To operate at a name-plate capacity of 52 million gallons, the Plant requires a supply of approximately 18 to 19 million bushels of corn annually.  Following completion of our second plant expansion, the Plant’s new name-

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plate capacity will require the supply of approximately 34 to 36 million bushels of corn annually.  We have obtained a grain dealers license and have established our own grain sourcing staff to acquire the corn we need.  We have also identified a number of grain dealers as potential sources of grain in northwestern Iowa for additional corn delivery.  The grain required for operation of the Plant is readily available through our own grain sourcing staff, which purchases the corn directly from local producers or from secondary markets.  During the fiscal year ending September 30, 2006, we purchased approximately $5,739,000 in corn from some of the Company’s members who are local grain producers.

Currently, we do not anticipate difficulty securing sufficient grain to operate the Plant.  As of November 9, 2006, the United States Department of Agriculture’s National Agricultural Statistics Service projected the 2006 national corn production at approximately 10.7 billion bushels, which would be the third largest corn crop on record, and Iowa production at 2.0 billion bushels.  However, we expect that the increased demand of corn resulting from additional ethanol plants will lead to greater competition for corn in our geographic area, which we expect will lead to higher corn prices.  The USDA recently stated in their report entitled “World Agricultural Supply and Demand Estimates” (December 11, 2006), that U.S. corn prices could increase to as much as $3.30 per bushel or more.  While our surrounding area produces a significant amount of corn, our profitability may be negatively impacted if long-term corn prices remain high.

Natural Gas

Natural gas is also an important input to our manufacturing process.  We estimate that our current natural gas usage is approximately 110,000 million British thermal units (“MMBTU”) per month.  Following completion of our second expansion, we anticipate that our natural gas usage will increase to approximately 200,000 million British thermal units (“MMBTU”) per month.  We use natural gas to dry our distillers grains products to moisture contents at which they can be stored for long periods and transported greater distances, so that we can market them to broader livestock markets, including poultry and swine markets in the continental United States.  We contract with various natural gas vendors to supply the natural gas necessary to operate the plant. FC Stone assists us with sourcing natural gas through various vendors, which we believe to be more cost-efficient than using an exclusive supplier.

Federal Ethanol Supports

Various federal and state laws, regulations, and programs have led to an increasing use of ethanol in fuel, including subsidies, tax credits, policies and other forms of financial incentives.  Some of these laws provide economic incentives to produce and blend ethanol and others mandate the use of ethanol.

The most recent ethanol supports are contained in the Energy Policy Act of 2005. Most notably, the Act creates a 7.5 billion gallon renewable fuels standard (RFS). The RFS requires refiners, importers and blenders (“obligated parties”) to show that a required volume of renewable fuel is used in the nation’s fuel supply.  The RFS began at 4 billion gallons in 2006 and will increase to 7.5 billion gallons by 2012. The RFS for 2007 is 4.7 billion gallons.  The RFS is a national flexible program that does not require that any renewable fuels be used in any particular area or state, allowing refiners to use renewable fuel blends in those areas where it is most cost-effective. According to the RFA, the RFS program is expected to lead to about $6 billion in new investment in ethanol plants across the country. An increase in the number of new plants will bring an increase in the supply of ethanol. Thus, while this bill may cause ethanol prices to increase in the short term due to additional demand, future supply could outweigh the demand for

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ethanol in the future.  This would have a negative impact on our earnings.

On December 30, 2005, the EPA published an interim Direct Final Rule in the Federal Register imposing a 2.78% default provision (equating to 4 billion gallons of renewable fuel) of the RFS.  The Direct Final Rule applies a collective compliance approach, meaning no refiner individually has to meet the standard, but that the industry as a whole will have to blend at least 2.78% renewable fuels into gasoline during 2006.  Any shortfall in meeting this requirement would be added to the 4.7 billion gallon RFS requirement for 2007.  There are no other consequences for failure to collectively meet the 2006 standard.  Although there is not a requirement for individual parties to demonstrate compliance in 2006, the EPA found that increases in ethanol production and projections for future demand indicate that the 2006 volume is likely to be met and that more than 4 billion gallons of ethanol and biodiesel will be blended in 2006.  An EPA brief explaining this action can be viewed on the EPA website located in the renewable fuels section.

                On September 7, 2006, the EPA published proposed final rules implementing the RFS program.  The RFS program will apply in 2007 prospectively from the effective date of the final rule.  The RFS for 2007 is 3.71% or 4.7 billion gallons of renewable fuel.  The RFS must be met by refiners, blenders, and importers (obligated parties).  Compliance with the RFS program will be shown through the acquisition of unique Renewable Identification Numbers (RINs) assigned by the producer to every batch of renewable fuel produced.  The RIN shows that a certain volume of renewable fuel was produced.  Obligated parties must acquire sufficient RINs to demonstrate compliance with their performance obligation.  In addition, RINs can be traded and a recordkeeping and electronic reporting system for all parties that have RINs ensures the integrity of the RIN pool.

                RINs are valid for compliance purposes for the calendar year in which they were generated, or the following calendar year.  No more than 20% of the current year obligation could be satisfied using  RINs from the previous year.  An obligated party may carry a deficit over from one year into the next if it cannot generate or purchase sufficient RINs to meet its renewable volume obligation.  However, deficits cannot be carried over from one year into the next.

                The RFS system will be enforced through a system of registration, record keeping and reporting requirements for obligated parties, renewable fuels producers (RIN generators), as well as any party that procures or trades RINs either as part of their renewable fuels purchases or separately.  Any person who violates any prohibition or requirement of the RFS program may be subject to civil penalties for each day of each violation.  For example, under the proposed rule, a failure to acquire sufficient RINs to meet a party’s renewable fuels obligation would constitute a separate day of violation for each day the violation occurred during the annual averaging period.  The enforcement provisions are necessary to ensure the RFS program goals are not compromised by illegal conduct in the creation and transfer of RINs.

Historically, ethanol sales have also been favorably affected by the Clean Air Act amendments of 1990, particularly the Federal Oxygen Program which became effective November 1, 1992. The Federal Oxygen Program requires the sale of oxygenated motor fuels during the winter months in certain major metropolitan areas to reduce carbon monoxide pollution. Ethanol use has increased due to a second Clean Air Act program, the Reformulated Gasoline Program. This program became effective January 1, 1995, and requires the sale of reformulated gasoline in nine major urban areas to reduce pollutants, including those that contribute to ground level ozone, better known as smog.

The two major oxygenates added to reformulated gasoline pursuant to these programs are Methyl Tertiary Butyl Ether (“MTBE”) and ethanol, however MTBE has caused groundwater contamination and has been banned from use by many states. The Energy Policy Act of 2005 did not impose a national ban of MTBE but it also did not include liability protection for manufacturers of MTBE. We expect the failure to include liability protection for manufacturers of MTBE to result in refiners and blenders using ethanol as an oxygenate rather than MTBE to satisfy the reformulated gasoline oxygenate requirement. While this may create increased demand in the short-term, we do not expect this to have a long term impact on the demand for ethanol as the Act repeals the Clean Air Act’s 2% oxygenate requirement for reformulated gasoline immediately in California and 270 days after enactment elsewhere.

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However, the Act did not repeal the 2.7% oxygenate requirement for carbon monoxide nonattainment areas which are required to use oxygenated fuels in the winter months. While we expect ethanol to be the oxygenate of choice in these areas, there is no assurance that ethanol will in fact be used.

The use of ethanol as an alternative fuel source has been aided by federal tax policy, which directly benefits gasoline refiners and blenders, and increases demand for ethanol. On October 22, 2004, President Bush signed H.R. 4520, which contained the Volumetric Ethanol Excise Tax Credit (“VEETC”) and amended the federal excise tax structure effective as of January 1, 2005. Prior to VEETC, ethanol-blended fuel was taxed at a lower rate than regular gasoline (13.2 cents on a 10% blend). Under VEETC, the ethanol excise tax exemption has been eliminated, thereby allowing the full federal excise tax of 18.4 cents per gallon of gasoline to be collected on all gasoline and allocated to the highway trust fund. We expect the highway trust fund to add approximately $1.4 billion to the highway trust fund revenue annually. In place of the exemption, the bill creates a new volumetric ethanol excise tax credit of 5.1 cents per gallon of ethanol blended at 10%. Refiners and gasoline blenders apply for this credit on the same tax form as before only it is a credit from general revenue, not the highway trust fund. Based on volume, the VEETC is expected to allow much greater refinery flexibility in blending ethanol since it makes the tax credit available on all ethanol blended with all gasoline, diesel and ethyl tertiary butyl ether (“ETBE”), including ethanol in E-85 and the E-20 in Minnesota. The VEETC is scheduled to expire on December 31, 2010.

The Energy Policy Act of 2005 expands who qualifies for the small ethanol producer tax credit. Historically, small ethanol producers were allowed a 10-cents-per-gallon production income tax credit on up to 15 million gallons of production annually. The size of the plant eligible for the tax credit was limited to 30 million gallons. Under the Energy Policy Act of 2005 the size limitation on the production capacity for small ethanol producers increases from 30 million to 60 million gallons. The credit can be taken on the first 15 million gallons of production. The tax credit is capped at $1.5 million per year per producer. The small ethanol producer tax credit is set to expire December 31, 2010. However, upon completion of the expansion of the plant, we do not anticipate qualifying for this tax credit as our anticipated annual production capacity of 92 million gallons will exceed the size limitation.

In addition, the Energy Policy Act of 2005 creates a new tax credit that permits taxpayers to claim a 30% credit (up to $30,000) for the cost of installing clean-fuel vehicle refueling equipment, such as an E85 fuel pump, to be used in a trade or business of the taxpayer or installed at the principal residence of the taxpayer. Under the provision, clean fuels are any fuel of at least 85% of the volume of which consists of ethanol, natural gas, compressed natural gas, liquefied natural gas, liquefied petroleum gas, and hydrogen and any mixture of diesel fuel and biodiesel containing at least 20% biodiesel. The provision is effective for equipment placed in service after December 31, 2005 and before December 31, 2010. While it is unclear how this credit will affect the demand for ethanol in the short term, we expect it will help raise consumer awareness of alternative sources of fuel and could positively impact future demand for ethanol.

Other Factors Affecting Demand and Supply

In addition to government supports that encourage production and the use of ethanol, demand for ethanol may increase as a result of increased consumption of E85 fuel.  E85 fuel is a blend of 70% to 85% ethanol and gasoline.  According to the Energy Information Administration, E85 consumption is projected to increase from a national total of 11 million gallons in 2003 to 47 million gallons in 2025. The demand for E85 is largely driven by flexible fuel vehicle penetration of the US vehicle fleet, the retail price of E85 compared to regular gasoline and the availability of E85 at retail stations.  In the U.S., there are currently about 6 million flexible fuel vehicles capable of operating on E85 and automakers have indicated plans to produce an estimated 2 million more flexible fuel vehicles per year.  In addition, Ford and General Motors have recently begun national campaigns to promote ethanol and flexible fuel vehicles.  Because flexible fuel vehicles can operate on both ethanol and gasoline, if the price of regular gasoline falls below E85, demand for E85 will decrease as well. In addition, gasoline stations offering E85 are relatively scarce. As of October 2006, just over 940 of the country’s 170,000 gas stations offered E85 as an alternative to ordinary gasoline (National Ethanol Vehicle Coalition, October 6, 2006). The Energy Policy Act of 2005 established a tax credit of 30% for infrastructure and equipment to dispense E85.  This tax credit became effective in 2006 and is expected to encourage more retailers to offer E85 as an alternative to regular gasoline. The tax credit, unless renewed, will expire December 31, 2010.

On October 5, 2006, Underwriters Laboratories (“UL”) suspended authorization for manufacturers to use UL Markings on components for fuel-dispensing devices that specifically reference compatibility with alcohol-

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blended fuels that contain greater than 15% ethanol.  Published studies on ethanol indicate that, in higher concentrations, it may have significantly enhanced corrosive effects versus traditional gasoline.  While there have been no documented reports of corrosion for UL Listed or Recognized components used with E85, Underwriters Laboratories is suspending authorization to use the UL Mark on components used in dispensing devices that will dispense any alcohol-blended fuels containing over 15% alcohol until updated certification requirements are established and the effected components have been found to comply with them.  The lack of a UL seal for filling station pumps carrying E85 means that some of these stations may be violating fire codes, and that new stations intending to install E85 systems may need waivers from local or state fire marshals.  It is the decision of each authority having jurisdiction as to whether existing E85 dispensing equipment is allowed to remain in service or is taken out of service until additional supporting information is received.  Underwriters Laboratories has not set a deadline for creating standards that could lead to certification, which could result in the closure of some existing E85 fueling stations and delay in opening others.

Our Competition

We will be in direct competition with numerous other ethanol producers, many of whom have greater resources than we do. We also expect that additional ethanol producers will continue to enter the market if the demand for ethanol continues to increase.  Ethanol is a commodity product, like corn, which means our ethanol plant competes with other ethanol producers on the basis of price and, to a lesser extent, delivery service.  We believe we compete favorably with other ethanol producers due to our proximity to ample grain supplies and multiple modes of transportation.  In addition, we believe our plant’s location offers an advantage over other ethanol producers in that it has ready access by rail to growing ethanol markets, which reduces our cost of sales.

According to the Renewable Fuels Association, the ethanol industry has grown to approximately 109 production facilities in the United States with current estimates current domestic ethanol production at approximately 5.28 billion gallons as of December 2006.  As reported by the Iowa Renewable Fuels Association, excluding our Plant, Iowa currently has 24 ethanol plants with the capacity to produce nearly 1.6 billion gallons annually.  In addition, there are 9 ethanol plants under construction or expansion in Iowa that will add over 600 million gallons of annual capacity.  There are also numerous other producer and privately owned ethanol plants planned and operating throughout the Midwest and elsewhere in the United States.  The largest ethanol producers include Abengoa Bioenergy Corp., ADM, ASAlliances Biofuels, LLC, Aventine Renewable Energy, Inc., Cargill, Inc., The Andersons, US Bio Energy and VeraSun Energy Corporation, all of which are each capable of producing more ethanol than we expect to produce.  ADM, our ethanol marketer, is currently the largest ethanol producer in the U.S. and controls a significant portion of the ethanol market.

The following table identifies most of the ethanol producers in the United States along with their production capacities.

COMPANY	LOCATION	FEEDSTOCK	Current Capacity (mgy)	Under Construction/ Expansions (mgy)
Abengoa Bioenergy Corp.	York, NE	Corn/milo	55
	Colwich, KS		25
	Portales, NM		30
	Ravenna, NE			88
Aberdeen Energy*	Mina, SD	Corn		100
Absolute Energy, LLC*	St. Ansgar, IA	Corn		100
ACE Ethanol, LLC	Stanley, WI	Corn	41
Adkins Energy, LLC*	Lena, IL	Corn	40
Advanced Bioenergy	Fairmont, NE	Corn		100
AGP*	Hastings, NE	Corn	52
Agra Resources Coop. d.b.a. EXOL*	Albert Lea, MN	Corn	40	8
Agri-Energy, LLC*	Luverne, MN	Corn	21

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Alchem Ltd. LLLP	Grafton, ND	Corn	10.5
Al-Corn Clean Fuel*	Claremont, MN	Corn	35	15
Amaizing Energy, LLC*	Denison, IA	Corn	40
Archer Daniels Midland	Decatur, IL	Corn	1,070	275
	Cedar Rapids, IA	Corn
	Clinton, IA	Corn
	Columbus, NE	Corn
	Marshall, MN	Corn
	Peoria, IL	Corn
	Wallhalla, ND	Corn/barley
Arkalon Energy, LLC	Liberal, KS	Corn		110
ASAlliances Biofuels, LLC	Albion, NE	Corn		100
	Linden, IN	Corn		100
	Bloomingburg, OH	Corn		100
Aventine Renewable Energy, LLC	Pekin, IL	Corn	100	57
	Aurora, NE	Corn	50
Badger State Ethanol, LLC*	Monroe, WI	Corn	48
Big River Resources, LLC*	West Burlington, IA	Corn	52
Blue Flint Ethanol	Underwood, ND	Corn		50
Bonanza Energy, LLC	Garden City, KS	Corn/milo		55
Broin Enterprises, Inc.*	Scotland, SD	Corn	11
Bushmills Ethanol, Inc.*	Atwater, MN	Corn	40
Cardinal Ethanol	Harrisville, IN	Corn		100
Cargill, Inc.	Blair, NE	Corn	85
	Eddyville, IA	Corn	35
Cascade Grain	Clatskanie, OR	Corn		108
Center Ethanol Company	Sauget, IL	Corn		54
Central Indiana Ethanol, LLC	Marion, IN	Corn		40
Central MN Ethanol Coop*	Little Falls, MN	Corn	21.5
Central Wisconsin Alcohol	Plover, WI	Seed corn	4
Chief Ethanol	Hastings, NE	Corn	62
Chippewa Valley Ethanol Co.*	Benson, MN	Corn	45
Commonwealth Agri-Energy, LLC*	Hopkinsville, KY	Corn	33
Corn, LP*	Goldfield, IA	Corn	50
Cornhusker Energy Lexington, LLC	Lexington, NE	Corn	40
Corn Plus, LLP*	Winnebago, MN	Corn	44
Dakota Ethanol, LLC*	Wentworth, SD	Corn	50
DENCO, LLC	Morris, MN	Corn	21.5
E3 Biofuels	Mead, NE	Corn		24
East Kansas Agri-Energy, LLC*	Garnett, KS	Corn	35
ESE Alcohol Inc.	Leoti, KS	Seed corn	1.5
Ethanol2000, LLP*	Bingham Lake, MN	Corn	32
Frontier Ethanol, LLC	Gowrie, IA	Corn	60
Front Range Energy, LLC	Windsor, CO	Corn	40
Glacial Lakes Energy, LLC*	Watertown, SD	Corn	50	50
Global Ethanol/Midwest Grain Processors	Lakota, IA	Corn	95

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	Riga, MI	Corn		57
Golden Cheese Company of California*	Corona, CA	Cheese whey	5
Golden Grain Energy, LLC*	Mason City, IA	Corn	60	50
Golden Triangle Energy, LLC*	Craig, MO	Corn	20
Grain Processing Corp.	Muscatine, IA	Corn	20
Granite Falls Energy, LLC*	Granite Falls, MN	Corn	52
Great Plains Ethanol, LLC*	Chancellor, SD	Corn	50
Green Plains Renewable Energy	Shenandoah, IA	Corn		50
	Superior, IA	Corn		50
Hawkeye Renewables, LLC	Iowa Falls, IA	Corn	105
	Fairbank, IA	Corn	115
Heartland Corn Products*	Winthrop, MN	Corn	35
Heartland Grain Fuels, LP*	Aberdeen, SD	Corn	9
	Huron, SD	Corn	12	18
Heron Lake BioEnergy, LLC	Heron Lake, MN	Corn		50
Holt County Ethanol	O’Neill, NE	Corn		100
Horizon Ethanol, LLC	Jewell, IA	Corn	60
Husker Ag, LLC*	Plainview, NE	Corn	26.5
Illinois River Energy, LLC	Rochelle, IL	Corn		50
Indiana Bio-Energy	Bluffton, IN	Corn		101
Iowa Ethanol, LLC*	Hanlontown, IA	Corn	50
Iroquois Bio-Energy Company, LLC	Rensselaer, IN	Corn		40
James Valley Ethanol, LLC	Groton, SD	Corn	50
KAAPA Ethanol, LLC*	Minden, NE	Corn	40
Land O’ Lakes*	Melrose, MN	Cheese whey	2.6
Levelland/Hockley County Ethanol, LLC	Levelland, TX	Corn		40
Lincolnland Agri-Energy, LLC*	Palestine, IL	Corn	48
Lincolnway Energy, LLC*	Nevada, IA	Corn	50
Liquid Resources of Ohio	Medina, OH	Waste Beverage	3
Little Sioux Corn Processors, LP*	Marcus, IA	Corn	52
Merrick & Company	Golden, CO	Waste beer	3
MGP Ingredients, Inc.	Pekin, IL	Corn/wheat starch	78
	Atchison, KS
Michigan Ethanol, LLC	Caro, MI	Corn	50
Mid America Agri Products/Wheatland	Madrid, NE	Corn		44
Mid-Missouri Energy, Inc.*	Malta Bend, MO	Corn	45
Midwest Renewable Energy, LLC	Sutherland, NE	Corn	25
Millennium Ethanol	Marion, SD	Corn		100
Minnesota Energy*	Buffalo Lake, MN	Corn	18
Missouri Ethanol	Laddonia, MO	Corn	45
Missouri Valley Renewable Energy, LLC*	Meckling, SD	Corn		60
NEDAK Ethanol	Atkinson, NE	Corn		44
New Energy Corp.	South Bend, IN	Corn	102
North Country Ethanol, LLC*	Rosholt, SD	Corn	20
Northeast Biofuels	Volney, NY	Corn		114
Northeast Missouri Grain, LLC*	Macon, MO	Corn	45

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Northern Lights Ethanol, LLC*	Big Stone City, SD	Corn	50
Northstar Ethanol, LLC	Lake Crystal, MN	Corn	52
Northwest Renewable, LLC	Longview, WA	Corn		55
Otter Creek Ethanol, LLC*	Ashton, IA	Corn	55
Otter Tail Ag Enterprises	Fergus Falls, MN	Corn		57.5
Pacific Ethanol	Madera, CA	Corn	35
	Boardman, OR	Corn		35
Panda Energy	Hereford, TX	Corn/milo		100
Panhandle Energies of Dumas, LP	Dumas, TX	Corn/Grain Sorghum		30
Parallel Products	Louisville, KY	Beverage waste	5.4
	R. Cucamonga, CA
Patriot Renewable Fuels, LLC	Annawan, IL	Corn		100
Permeate Refining	Hopkinton, IA	Sugars & starches	1.5
Phoenix Biofuels	Goshen, CA	Corn	25
Pinal Energy, LLC	Maricopa, AZ	Corn		55
Pine Lake Corn Processors, LLC*	Steamboat Rock, IA	Corn	20
Pinnacle Ethanol, LLC	Corning, IA	Corn		60
Prairie Ethanol, LLC	Loomis, SD	Corn	60
Prairie Horizon Agri-Energy, LLC	Phillipsburg, KS	Corn	40
Premier Ethanol	Portland, IN	Corn		60
Pro-Corn, LLC*	Preston, MN	Corn	42
Quad-County Corn Processors*	Galva, IA	Corn	27
Red Trail Energy, LLC	Richardton, ND	Corn		50
Redfield Energy, LLC *	Redfield, SD	Corn		50
Reeve Agri-Energy	Garden City, KS	Corn/milo	12
Renew Energy	Jefferson Junction, WI	Corn		130
Siouxland Energy & Livestock Coop*	Sioux Center, IA	Corn	25	40
Siouxland Ethanol, LLC	Jackson, NE	Corn		50
Sioux River Ethanol, LLC*	Hudson, SD	Corn	50
Southwest Iowa Renewable Energy, LLC *	Council Bluffs, IA	Corn		110
Sterling Ethanol, LLC	Sterling, CO	Corn	42
Summit Ethanol	Leipsic, OH	Corn		60
Tall Corn Ethanol, LLC*	Coon Rapids, IA	Corn	49
Tate & Lyle	Loudon, TN	Corn	67	38
	Ft. Dodge, IA	Corn		105
The Andersons Albion Ethanol LLC	Albion, MI	Corn	55
The Andersons Clymers Ethanol, LLC	Clymers, IN	Corn		110
The Andersons Marathon Ethanol, LLC	Greenville, OH	Corn		110
Trenton Agri Products, LLC	Trenton, NE	Corn	40
United WI Grain Producers, LLC*	Friesland, WI	Corn	49
US Bio Albert City	Albert City, IA	Corn		100
US Bio Woodbury	Woodbury, MI	Corn	45
US Bio Hankinson	Hankinson, ND	Corn		100
US Bio Ord	Ord, NE			50
US Bio Platte Valley	Central City , NE		100
US Bio Dyersville	Dyersville, IA			100

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U.S. Energy Partners, LLC (White Energy)	Russell, KS	Milo/wheat starch	48
Utica Energy, LLC	Oshkosh, WI	Corn	48
VeraSun Energy Corporation	Aurora, SD	Corn	230	330
	Ft. Dodge, IA	Corn
	Charles City, IA	Corn
	Welcome, MN	Corn
	Hartely, IA	Corn
Voyager Ethanol, LLC*	Emmetsburg, IA	Corn	52
Western Plains Energy, LLC*	Campus, KS	Corn	45
Western Wisconsin Renewable Energy, LLC*	Boyceville, WI	Corn	40
White Energy	Hereford, TX	Corn/Milo		100
Wind Gap Farms	Baconton, GA	Brewery waste	0.4	0
Renova Energy	Torrington, WY	Corn	5
Xethanol BioFuels, LLC	Blairstown, IA	Corn	5	35
Yuma Ethanol	Yuma, CO	Corn		40
Total Current Capacity at 109 ethanol biorefineries			5,281.4
Total Under Construction (57)/Expansions (8)				4,857.5
Total Capacity			10,138.9
* locally-owned		Renewable Fuels Association Last Updated December 13, 2006

Competition from Alternative Ethanol Production Methods

Alternative ethanol production methods are continually under development. New ethanol products or methods of ethanol production developed by larger and better-financed competitors could provide them competitive advantages and harm our business.

Most ethanol is currently produced from corn and other raw grains, such as milo or sorghum - especially in the Midwest. The current trend in ethanol production research is to develop an efficient method of producing ethanol from cellulose-based biomass, such as agricultural waste, forest residue, municipal solid waste, and energy crops. This trend is driven by the fact that cellulose-based biomass is generally cheaper than corn, and producing ethanol from cellulose-based biomass would create opportunities to produce ethanol in areas which are unable to grow corn. Additionally, the enzymes used to produce cellulose-based ethanol have recently become less expensive.   Furthermore, the Department of Energy and the President have recently announced support for the development of cellulose-based ethanol, including a $160 million Department of Energy program for pilot plants producing cellulose-based ethanol.  Several large companies, including Iogen Corporation, Abengoa, Royal Dutch Shell Group, Goldman Sachs Group, Dupont and Archer Daniels Midland, have all indicated that they are interested in research and development in this area.  In addition, Xethanol Corporation has stated plans to convert a six million gallon per year plant in Blairstown, Iowa to implement cellulose-based ethanol technologies after 2007.  Broin Companies has also announced plans to expand Voyager Ethanol in Emmetsburg, Iowa to include cellulose to ethanol commercial production.

Although current technology is not sufficiently efficient to be competitive on a large-scale, a recent report by the U.S. Department of Energy entitled “Outlook for Biomass Ethanol Production and Demand” indicates that new conversion technologies may be developed in the future. If an efficient method of collecting biomass for ethanol production and producing ethanol from cellulose-based biomass is developed, we may not be able to compete effectively. We do not believe it will be cost-effective to convert the Plant into a plant which will use cellulose-based biomass to produce ethanol.  As a result, it is possible we could be unable to produce ethanol as cost-effectively as cellulose-based producers.

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Competition with Ethanol Imported from Other Countries

Ethanol production is also expanding internationally.  Brazil has long been the world’s largest producer and exporter of ethanol; however, since 2005, US ethanol production slightly exceeded Brazilian production. Ethanol is produced more cheaply in Brazil than in the United States because of the use of sugarcane, a less expensive raw material alternative to corn. However, in 1980, Congress imposed a tariff on foreign produced ethanol to make it more expensive than domestic supplies derived from corn.  This tariff was designed to protect the benefits of the federal tax subsidies for United States farmers.  In December 2006, legislation was passed in both the U.S. House of Representatives and U.S. Senate to extend the $0.54 per gallon tariff beyond its current expiration in December 2007 through 208. We do not know the extent to which the volume of imports would increase or the effect on U.S. prices for ethanol if the tariff is not renewed.

Ethanol imports from 24 countries in Central America and the Caribbean Islands are exempted from this tariff under the Caribbean Basin Initiative. Under the terms of the Caribbean Basin Initiative, exports from member nations are capped at 7.0% of the total United States production from the previous per year (with additional exemptions from ethanol produced from feedstock in the Caribbean region over the 7.0% limit). However, as total production in the United States grows, the amount of ethanol produced from the Caribbean region and sold in the United States will also grow, which could impact our ability to sell ethanol.

Competition from Alternative Fuels

Our Plant also competes with producers of other gasoline additives having similar octane and oxygenate values as ethanol, such as producers of MTBE, a petrochemical derived from methanol that costs less to produce than ethanol.  Although currently the subject of several state bans, many major oil companies can produce MTBE and because it is petroleum-based, its use is strongly supported by major oil companies.

Alternative fuels, gasoline oxygenates and alternative ethanol production methods are also continually under development by ethanol and oil companies with far greater resources. The major oil companies have significantly greater resources than we have to develop alternative products and to influence legislation and public perception of MTBE and ethanol.  New ethanol products or methods of ethanol production developed by larger and better-financed competitors could provide them competitive advantages and harm our business.

A number of automotive, industrial and power generation manufacturers are developing alternative clean power systems using fuel cells or clean burning gaseous fuels.  Like ethanol, the emerging fuel cell industry offers a technological option to address increasing worldwide energy costs, the long-term availability of petroleum reserves and environmental concerns.  Fuel cells have emerged as a potential alternative to certain existing power sources because of their higher efficiency, reduced noise and lower emissions. Fuel cell industry participants are currently targeting the transportation, stationary power and portable power markets in order to decrease fuel costs, lessen dependence on crude oil and reduce harmful emissions.  If the fuel cell and hydrogen industries continue to expand and gain broad acceptance and hydrogen becomes readily available to consumers for motor vehicle use, we may not be able to compete effectively.  This additional competition could reduce the demand for ethanol, which would negatively impact our profitability.

Distillers Grains Competition

Ethanol plants in the Midwest produce the majority of distillers grains and primarily compete with other ethanol producers in the production and sales of distillers grains.  According to the Renewable Fuels Association approximately 9 million metric tons of distillers grains were produced by ethanol plants in 2005.  With the exception of our distillers grains that are marketed nationally by CSC, we took advantage of our proximity to local livestock producers by marketing the bulk of our distillers grains locally in 2006.  However, the amount of distillers grains produced is expected to increase significantly as the number of ethanol plants increase which will increase competition in the distillers grains market in our area.  As a result, we may be forced to dry more of our distillers grains for marketing by CSC rather than directly selling in the local markets if excess capacity in the local markets occurs.  In addition, our distillers grains compete with other livestock feed products such as soybean meal, corn gluten feed, dry brewers grain and mill feeds.

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Research and Development

We do not conduct any research and development activities associated with the development of new technologies for use in producing ethanol, distillers grains or corn oil.

Costs and Effects of Compliance with Environmental Laws

We are subject to extensive air, water and other environmental regulations and we have been required to obtain a number of environmental permits to construct and operate the plant.  We have obtained all of the necessary permits to operate the Plant including, air pollution construction permits, a pollutant discharge elimination system general permit, storm water discharge permits, a water withdrawal permit, and an alcohol fuel producer’s permit.  In addition, we have completed a spill prevention control and countermeasures plan.  In addition, prior to the anticipated start date of construction for our Plant expansion, we were required to obtain a Title V emissions permit prior.  In September 2006, we received our Title V permit and we commenced construction of the Plant expansion in October 2006.  Although we have been successful in obtaining all of the permits currently required, any retroactive change in environmental regulations, either at the federal or state level, could require us to obtain additional or new permits or spend considerable resources on complying with such regulations.

We are subject to ongoing environmental regulations and testing.  The plant passed emissions testing in December 2003 and we received renewed operating permits in April 2004.  Final permitting was granted by the regulatory agency in November 2005.  We are required by federal regulations to conduct a Relative Accuracy Test Audit (RATA) once per 12-month period.  We passed the RATA testing in February 2006.  In 2006, our costs of environmental compliance were approximately $78,000.

We are subject to oversight activities by the EPA.  There is always a risk that the EPA may enforce certain rules and regulations differently than Iowa’s environmental administrators.  Iowa or EPA rules are subject to change, and any such changes could result in greater regulatory burdens on plant operations.  We could also be subject to environmental or nuisance claims from adjacent property owners or residents in the area arising from possible foul smells or other air or water discharges from the plant.  Such claims may result in an adverse result in court if we are deemed to engage in a nuisance that substantially impairs the fair use and enjoyment of real estate.

The government’s regulation of the environment changes constantly.  It is possible that more stringent federal or state environmental rules or regulations could be adopted, which could increase our operating costs and expenses.  It also is possible that federal or state environmental rules or regulations could be adopted that could have an adverse effect on the use of ethanol.  For example, changes in the environmental regulations regarding the required oxygen content of automobile emissions could have an adverse effect on the ethanol industry.  Furthermore, plant operations likely will be governed by the Occupational Safety and Health Administration (“OSHA”).  OSHA regulations may change such that the costs of the operation of the plant may increase.  Any of these regulatory factors may result in higher costs or other materially adverse conditions affecting our operations, cash flows and financial performance.

Employees

As of September 30, 2006, we had a total of 35 full-time employees.  We have 28 full-time employees in ethanol production operations and 7 full-time employees in general management and administration.  As the expansion of the Plant progresses, we anticipate hiring approximately 10 additional employees.

ITEM 1A.RISK FACTORS.

You should carefully read and consider the risks and uncertainties below and the other information contained in this report.  The risks and uncertainties described below are not the only ones we may face.  The following risks, together with additional risks and uncertainties not currently known to us or that we currently deem immaterial could impair our financial condition and results of operation.

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Risks Relating to Our Business

We have a limited operating history and our business may not be as successful as we anticipate.  We began our business in 2000 and commenced production of ethanol at our plant in April 2003.  Accordingly, we have a limited operating history from which you can evaluate our business and prospects.  Our operating results could fluctuate significantly in the future as a result of a variety of factors, including those discussed through out these risk factors.  Many of these factors are outside our control.  As a result of these factors, our operating results may not be indicative of future operating results and you should not rely on them as indications of our future performance.  In addition, our prospects must be considered in light of the risks and uncertainties encountered by an early-stage company and in rapidly evolving markets, such as the ethanol market, where supply and demand may change significantly in a short amount of time.  Some of these risks relate to our potential inability to:

·effectively manage our business and operations;

·recruit and retain key personnel;

·successfully maintain our low-cost structure as we expand the scale of our business;

·manage rapid growth in personnel and operations;

·develop new products that complement our existing business; and

·successfully address the other risks described throughout this prospectus.

If we cannot successfully address these risks, our business, future results of operations and financial condition may be materially adversely affected, and we may continue to incur operating losses in the future.

Our business is not diversified.  Our success depends largely upon our ability to profitably operate our ethanol plant.  We do not have any other lines of business or other sources of revenue if we are unable to operate our ethanol plant and manufacture ethanol, distillers grains and corn oil.  If economic or political factors adversely affect the market for ethanol, we have no other line of business to fall back on if the ethanol business declines. Our business would also be significantly harmed if its ethanol plant could not operate at full capacity for any extended period of time.

Our financial performance is significantly dependent on corn and natural gas prices and generally we cannot pass on increases in input prices to our customers.  Our results of operations and financial condition are significantly affected by the cost and supply of corn and natural gas. Changes in the price and supply of corn and natural gas are subject to and determined by market forces over which we have no control

                Ethanol production requires substantial amounts of corn. Corn, as with most other crops, is affected by weather, disease and other environmental conditions.  The price of corn is also influenced by general economic, market and government factors.  These factors include weather conditions, farmer planting decisions, domestic and foreign government farm programs and policies, global demand and supply and quality.  Changes in the price of corn can significantly affect our business. Generally, higher corn prices will produce lower profit margins and, therefore, represent unfavorable market conditions.  This is especially true if market conditions do not allow us to pass along increased corn costs to our customers.  The price of corn has fluctuated significantly in the past and may fluctuate significantly in the future.   If a period of high corn prices were to be sustained for some time, such pricing may reduce our ability to generate revenues because of the higher cost of operating and may make ethanol uneconomical to use in fuel markets.  We cannot offer any assurance that we will be able to offset any increase in the price of corn by increasing the price of our products.  If we cannot offset increases in the price of corn, our financial performance may be materially and adversely affected.

Natural gas has recently been available only at prices exceeding historical averages.  These prices are increasing our costs of production.  The prices for and availability of natural gas are subject to volatile market conditions.  These market conditions often are affected by factors beyond our control such as higher prices as a result of colder than average weather conditions, overall economic conditions and foreign and domestic governmental regulations and relations.  Significant disruptions in the supply of natural gas could impair our ability to manufacture ethanol for our customers.  Furthermore, increases in natural gas prices or changes in our natural gas costs relative to natural gas costs paid by competitors may adversely affect our results of operations and financial condition.

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We seek to minimize the risks from fluctuations in the prices of corn and natural gas through the use of hedging instruments.  However, these hedging transactions also involve risks to our business.  See “Risks Relating to Our Business - We engage in hedging transaction which involve risks that can harm our business.”

The spread between ethanol and corn prices can vary significantly and we do not expect the spread to remain at recent high levels.  Corn costs significantly impact our cost of goods sold.  Our gross margins are principally dependent upon the spread between ethanol and corn prices.  Recently, the spread between ethanol and corn prices has been at historically high level, due in large part to high oil prices.  However, this spread has reduced as corn prices have increased dramatically since August 2006.  Any further reduction in the spread between ethanol and corn prices, whether as a result of higher corn prices or lower ethanol prices, would adversely affect our results of operations and financial condition.

Our revenues will be greatly affected by the price at which we can sell our ethanol and distillers grains. These prices can be volatile as a result of a number of factors. These factors include the overall supply and demand, the price of gasoline, level of government support, and the availability and price of competing products. For instance, the price of ethanol tends to increase as the price of gasoline increases, and the price of ethanol tends to decrease as the price of gasoline decreases. Any lowering of gasoline prices will likely also lead to lower prices for ethanol, which may decrease our ethanol sales and reduce revenues.

The price of ethanol has recently been much higher than its 10-year average. We do not expect these prices to be sustainable as supply from new and existing ethanol plants increases to meet increased demand. Increased production of ethanol may lead to lower prices. The increased production of ethanol could have other adverse effects. For example, the increased production could lead to increased supplies of co-products from the production of ethanol, such as distillers grains. Those increased supplies could outpace demand, which would lead to lower prices for those co-products. Also, the increased production of ethanol could result in increased demand for corn. This could result in higher prices for corn and corn production creating lower profits.  There can be no assurance as to the price of ethanol or distillers grains in the future. Any downward changes in the price of ethanol and/or distillers grains may result in less income which would decrease our revenues and profitability.

We sell all of the ethanol we produce to ADM in accordance with an ethanol marketing agreement.  ADM, a significant competitor of ours, is the sole buyer of all of our ethanol and we rely heavily on its marketing efforts to successfully sell our product.  Because ADM sells ethanol for itself and a number of other producers, we have limited control over its sales efforts.  Our financial performance is dependent upon the financial health of ADM, as a significant portion of our accounts receivable are attributable to ADM.  If ADM breaches the ethanol marketing agreement or is not in the financial position to purchase all of the ethanol we produce, we could experience a material loss and we may not have any readily available means to sell our ethanol and our financial performance will be adversely and materially affected.  If our agreement with ADM terminates, we may seek other arrangements to sell our ethanol, including selling our own product, but we give no assurance that our sales efforts would achieve results comparable to those achieved by ADM.

We engage in hedging transactions which involve risks that can harm our business.  We are exposed to market risk from changes in commodity prices.  Exposure to commodity price risk results from our dependence on corn and natural gas in the ethanol production process.  We seek to minimize the risks from fluctuations in the prices of corn and natural gas through the use of hedging instruments.  The effectiveness of our hedging strategies is dependent upon, the cost of corn and natural gas and our ability to sell sufficient products to use all of the corn and natural gas for which we have futures contracts.  There is no assurance that our hedging activities will successfully reduce the risk caused by price fluctuation which may leave us vulnerable to high corn and natural prices. Alternatively, we may choose not to engage in hedging transactions in the future.  As a result, our results of operations and financial conditions may also be adversely affected during periods in which corn and/or natural gas prices increase.

Hedging activities themselves can result in costs because price movements in corn and natural gas contracts are highly volatile and are influenced by many factors that are beyond our control.  There are several variables that could affect the extent to which our derivative instruments are impacted by price fluctuations in the cost of corn or

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natural gas.  However, it is likely that commodity cash prices will have the greatest impact on the derivatives instruments with delivery dates nearest the current cash price.  We may incur such costs and they may be significant.

Operational difficulties at our Plant could negatively impact our sales volumes and could cause us to incur substantial losses.  Our operations are subject to labor disruptions, unscheduled downtime and other operational hazards inherent in our industry, such as equipment failures, fires, explosions, abnormal pressures, blowouts, pipeline ruptures, transportation accidents and natural disasters.  Some of these operational hazards may cause personal injury or loss of life, severe damage to or destruction of property and equipment or environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties.  Our insurance may not be adequate to fully cover the potential operational hazards described above or we may not be able to renew this insurance on commercially reasonable terms or at all.

Moreover, our Plant may not operate as planned or expected. Our Plant has a specified nameplate capacity which represents the production capacity specified in the applicable design-build agreement.  We recently entered into an agreement with Fagen, Inc. to expand our name-plate capacity to 92 million gallons per year.  We expect Fagen, Inc. to test the capacity of the Plant following completion of the expansion.  But based on our prior experience, we generally expect our Plant to produce in excess of its nameplate capacity.  The operation of our Plant is and will be, however, subject to various uncertainties relating to our ability to implement the necessary process improvements required to achieve these increased production capacities. As a result, our Plant may not produce ethanol and distillers grains at the levels we expect.  In the event our Plant does not run at its nameplate or our increased expected capacity levels, our business, results of operations and financial condition may be materially adversely affected.

Disruptions to infrastructure, or in the supply of fuel, natural gas or water, could materially and adversely affect our business. Our business depends on the continuing availability of rail, road, port, storage and distribution infrastructure. Any disruptions in this infrastructure network, whether caused by labor difficulties, earthquakes, storms, other natural disasters or human error or malfeasance or other reasons, could have a material adverse effect on our business.  We rely upon third-parties to maintain the rail lines from our plants to the national rail network, and any failure on their part to maintain the lines could impede our delivery of products, impose additional costs on us and could have a material adverse effect on our business, results of operations and financial condition.

Our business also depends on the continuing availability of raw materials, including fuel and natural gas. The production of ethanol, from the planting of corn to the distribution of ethanol to refiners, is highly energy-intensive.  Significant amounts of fuel and natural gas are required for the growing, fertilizing and harvesting of corn, as well as for the fermentation, distillation and transportation of ethanol and the drying of distillers grains.  A serious disruption in supplies of fuel or natural gas, or significant increases in the prices of fuel or natural gas, could significantly reduce the availability of raw materials at our Plant, increase our production costs and could have a material adverse effect on our business, results of operations and financial condition.

Our Plant also requires a significant and uninterrupted supply of water of suitable quality to operate.  If there is an interruption in the supply of water for any reason, we may be required to halt production at our Plant. If production is halted at our Plant for an extended period of time, it could have a material adverse effect on our business, results of operations and financial condition.

Competition for qualified personnel in the ethanol industry is intense and we may not be able to hire and retain qualified personnel to operate our Plant.  Our success depends in part on our ability to attract and retain competent personnel, which can be challenging in a rural community. For the operation of our Plant, we have hired qualified managers, engineers, operations and other personnel.  Competition for both managers and plant employees in the ethanol industry is intense, and we may not be able to maintain qualified personnel.  If we are unable to maintain productive and competent personnel or hire qualified replacement personnel, our operations may be adversely affected, the amount of ethanol we produce may decrease and we may not be able to efficiently operate our Plant and execute our business strategy.

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Technological advances could significantly decrease the cost of producing ethanol or result in the production of higher-quality ethanol, and if we are unable to adopt or incorporate technological advances into our operations, our Plant could become uncompetitive or obsolete. We expect that technological advances in the processes and procedures for processing ethanol will continue to occur.  It is possible that those advances could make the processes and procedures that we utilize at our Plant less efficient or obsolete, or cause the ethanol we produce to be of a lesser quality.  Advances and changes in the technology of ethanol production are expected to occur.  Such advances and changes may make the ethanol production technology installed in our plant less desirable or obsolete.  These advances could also allow our competitors to produce ethanol at a lower cost than us.  If we are unable to adopt or incorporate technological advances, our ethanol production methods and processes could be less efficient than our competitors, which could cause our Plant to become uncompetitive or completely obsolete.  If our competitors develop, obtain or license technology that is superior to ours or that makes our technology obsolete, we may be required to incur significant costs to enhance or acquire new technology so that our ethanol production remains competitive.  Alternatively, we may be required to seek third-party licenses, which could also result in significant expenditures.  We cannot guarantee or assure you that third-party licenses will be available or, once obtained, will continue to be available on commercially reasonable terms, if at all.  These costs could negatively impact our financial performance by increasing our operating costs and reducing our net income.

Ethanol production methods are also constantly advancing. Most ethanol is currently produced from corn and other raw grains, such as milo or sorghum - especially in the Midwest.   However, the current trend in ethanol production research is to develop an efficient method of producing ethanol from cellulose-based biomass such as agricultural waste, forest residue and municipal solid waste. This trend is driven by the fact that cellulose-based biomass is generally cheaper than corn and producing ethanol from cellulose-based biomass would create opportunities to produce ethanol in areas that are unable to grow corn. Another trend in ethanol production research is to produce ethanol through a chemical process rather than a fermentation process, thereby significantly increasing the ethanol yield per pound of feedstock. Although current technology does not allow these production methods to be competitive, new technologies may develop that would allow these methods to become viable means of ethanol production in the future. If we are unable to adopt or incorporate these advances into our operations, our cost of producing ethanol could be significantly higher than those of our competitors, which could make our Plant obsolete.

In addition, alternative fuels, additives and oxygenates are continually under development. Alternative fuel additives that can replace ethanol may be developed, which may decrease the demand for ethanol.  It is also possible that technological advances in engine and exhaust system design and performance could reduce the use of oxygenates, which would lower the demand for ethanol and our business, results of operations and financial condition may be materially adversely affected.

Risks Related to Our Expansion Strategy

We give no assurances that we will be able to implement our expansion strategy as planned or at all.  We are currently constructing an expansion of our current production capacity of 52 million gallons annually to 92 million gallons annually.  The cost of the expansion is expected to be approximately $73,000,000, which will be financed using both a portion of our cash and additional debt to fully capitalize the expansion.  The use of cash to finance these expenditures could impact our ability to make future distributions to our members.  We executed a debt financing commitment letter to finance this construction with our current lender, First National Bank of Omaha, however, we have not executed definitive loan documents for this financing.  If we are unable to complete negotiation and execute definitive loan document with First National Bank of Omaha for any reason, we may be forced to abandon our expansion plans.

There is no assurance that the expansion will reduce our operating costs or increase our operating income.  Our expansion projections are based upon our historical operating costs and historical revenues and there is no guarantee or assurance that our past financial performance can accurately predict future results especially in connection with expansion.  In addition, the expansion may cost more and may present additional challenges and risks that negatively impact our future financial performance.

In addition to our Plant expansion, we are studying the feasibility of developing and constructing a new ethanol plant near Akron, Iowa in Plymouth County, or participating in the Akron plant project some capacity.   Such participation may take the form of a partnership or joint venture or minority investment.  Partnerships and joint ventures typically involve

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restrictions on actions that the partnership or joint venture may take without the approval of the partners. As a minority investor, we may not have any control over the actions of the business.  However, we have not yet determined how or if we will pursue the opportunities presented by the Akron plant and there is no assurance that if we determine to pursue the Akron plant that we will be successful.

Development of the Akron plant or participation in some capacity will involve numerous risks, any of which could harm our business, including but not limited to:

·difficulties in obtaining sufficient financing for the Akron plant;

·difficulties in obtaining the numerous regulatory approvals and permits required to construct and operate the Akron plant;

·difficulties in obtaining engineering and construction contracts for the design and construction of the Akron plant;

·difficulties in integrating the operations, technologies, products, existing contracts, accounting processes and personnel of the Akron plant and realizing the anticipated synergies of the combined businesses;

·diversion of financial and management resources from existing operations;

·the price we pay or other resources that we devote may exceed the value we realize, or the value we could have realized if we had allocated the purchase price or other resources to another opportunity; and

·potential loss of key employees, customers and strategic alliances from either our current business or the new business venture.

The failure to successfully evaluate and otherwise adequately address the risks associated with development of the Akron Plant could have a material adverse effect on our business, results of operations and financial condition.

If the Plant expansion costs more than we expect, the expansion may be unprofitable.  The total cost of the expansion project is estimated to be $73,000,000, of which we will pay Fagen, Inc. $47,860,000 pursuant to our design-build agreement with Fagen, Inc. for the design and construction of this expansion, subject to any mutually agreed-upon adjustments made in accordance with the general conditions of the agreement and subject to a credit for any amounts previously paid to Fagen Engineering, LLC for engineering performed pursuant to the Phase I and Phase II Engineering Services Agreement. There is no assurance that there will not be design changes or cost overruns associated with the expansion of the plant. In addition, shortages of steel could affect the final cost and final completion date of the project.  Any significant increase in the estimated construction cost of the expansion may make the expansion too expensive to complete or unprofitable to operate because our revenue stream may not be able to adequately support the increased cost and expense attributable to increased construction costs.

Construction delays could increase our costs.  Construction of the expansion began in October 2006 and is expected to be completed in the latter part of 2007 or early 2008; however, construction projects often involve construction delays due to weather conditions, or other events that delay the construction schedule. In addition, Fagen, Inc.’s involvement in the construction of a number of other plants while constructing our plant could cause delays in our construction schedule. Also, any changes in interest rates or the credit environment or any changes in political administrations at the federal, state or local level that result in policy change towards ethanol, could also cause construction and operation delays. If it takes longer to construct the expansion than we anticipate, it may substantially increase our costs, which could have a material adverse effect on our results of operations and financial condition.

Defects in Plant expansion construction could impair our ability to produce ethanol and its co-products.  There is no assurance that defects in materials and/or workmanship in the plant expansion will not occur.  Under the terms of the design-build agreement with Fagen, Inc., Fagen, Inc. warrants that the material and equipment furnished to build the plant will be new, of good quality, and free from material defects in material or workmanship at the time of delivery.  Though the expansion design-build agreement requires Fagen, Inc. to correct all defects in material or workmanship for a period of one year after substantial completion of the expansion, material defects in material or workmanship may still occur.  Such defects could significantly impair operations of the plant or cause us to interrupt

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or discontinue the plant’s operation. Interrupting or discontinuing plant operations could materially affect our ability to generate sufficient cash flow to cover our costs and force us to terminate our business.

Risks Related to Ethanol Industry

Overcapacity within the ethanol industry could cause an oversupply of ethanol and a decline in ethanol prices.  Excess capacity in the ethanol industry would have an adverse impact on our results of operations, cash flows and general financial condition.  Excess capacity may also result or intensify from increases in production capacity coupled with insufficient demand.  If the demand for ethanol does not grow at the same pace as increases in supply, we would expect the price for ethanol to decline.  If excess capacity in the ethanol industry occurs, the market price of ethanol may decline to a level that is inadequate to generate sufficient cash flow to cover our costs.

We expect to operate in a competitive industry and compete with larger, better financed entities which could impact our ability to operate profitably.There is significant competition among ethanol producers with numerous producer and privately owned ethanol plants planned and operating throughout the United States.  The number of ethanol plants being developed and constructed in the United States continues to increase at a rapid pace. The recent passage of the Energy Policy Act of 2005 included a renewable fuels mandate that we expect will further increase the number of domestic ethanol production facilities.  The largest ethanol producers include Abengoa Bioenergy Corp., ADM, Aventine Renewable Energy, Inc., Cargill, Inc., The Andersons, US Bio Energy and VeraSun Energy Corporation, all of which are each capable of producing more ethanol than we expect to produce.  In 2005, ADM announced its plan to add approximately 500 million gallons per year of additional ethanol production capacity in the United States.  ADM is currently the largest ethanol producer in the U.S. and controls a significant portion of the ethanol market. ADM’s plan to produce an additional 500 million gallons of ethanol per year will strengthen its position in the ethanol industry and cause a significant increase in domestic ethanol supply.  If the demand for ethanol does not grow at the same pace as increases in supply, we expect that lower prices for ethanol will result which may adversely affect our ability to generate profits and our financial condition.

Our ethanol plant also competes with producers of other gasoline additives made from raw materials other than corn having similar octane and oxygenate values as ethanol, such as producers of methyl tertiary butyl ether (MTBE). MTBE is a petrochemical derived from methanol which generally costs less to produce than ethanol. Many major oil companies produce MTBE and strongly favor its use because it is petroleum-based. Alternative fuels, gasoline oxygenates and alternative ethanol production methods are also continually under development. The major oil companies have significantly greater resources than we have to market MTBE, to develop alternative products, and to influence legislation and public perception of MTBE and ethanol. These companies also have significant resources to begin production of ethanol should they choose to do so.

Competition from the advancement of alternative fuels may lessen the demand for ethanol.  Alternative fuels, gasoline oxygenates and ethanol production methods are continually under development. A number of automotive, industrial and power generation manufacturers are developing alternative clean power systems using fuel cells or clean burning gaseous fuels. Like ethanol, the emerging fuel cell industry offers a technological option to address increasing worldwide energy costs, the long-term availability of petroleum reserves and environmental concerns. Fuel cells have emerged as a potential alternative to certain existing power sources because of their higher efficiency, reduced noise and lower emissions. Fuel cell industry participants are currently targeting the transportation, stationary power and portable power markets in order to decrease fuel costs, lessen dependence on crude oil and reduce harmful emissions. If the fuel cell and hydrogen industries continue to expand and gain broad acceptance, and hydrogen becomes readily available to consumers for motor vehicle use, we may not be able to compete effectively. This additional competition could reduce the demand for ethanol, resulting in lower ethanol prices that might adversely affect our results of operations and financial condition.

Certain countries can export ethanol to the United States duty-free, which may undermine the ethanol production industry in the United States.  Imported ethanol is generally subject to a $0.54 per gallon tariff and a 2.5% ad valorem tax that was designed to offset the $0.51 per gallon ethanol subsidy available under the federal excise tax incentive program for refineries that blend ethanol in their fuel. There is a special exemption from the tariff for ethanol imported from 24 countries in Central America and the Caribbean islands which is limited to a total of 7.0% of United States production per year. In December 2006, legislation was passed by the U.S. House of Representatives and U.S. Senate to extend the $0.54 per gallon tariff beyond its current expiration in December

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2007 through 2008. We do not know the extent to which the volume of imports would increase if the tariff is not renewed.

In addition the North America Free Trade Agreement countries, Canada and Mexico, are exempt from duty.  Imports from the exempted countries have increased in recent years and are expected to increase further as a result of new plants under development. In particular, the ethanol industry has expressed concern with respect to a new plant under development by Cargill, Inc., the fifth largest ethanol producer in the United States, in El Salvador that would take the water out of Brazilian ethanol and then ship the dehydrated ethanol from El Salvador to the United States duty-free. Brazil is currently the world’s second largest producer and largest exporter of ethanol. In Brazil, ethanol is produced primarily from sugarcane, which is also used to produce food-grade sugar.  Since production costs for ethanol in Brazil are estimated to be significantly less than what they are in the United States, the import of the Brazilian ethanol duty-free through El Salvador or another country exempted from the tariff may negatively impact the demand for domestic ethanol and the price at which we sell our ethanol.

Consumer resistance to the use of ethanol based on the belief that ethanol is expensive, adds to air pollution, harms engines and takes more energy to produce that it contributes may affect the demand for ethanol.  Certain individuals believe that use of ethanol will have a negative impact on gasoline prices at the pump. Many also believe that ethanol adds to air pollution and harms car and truck engines. Still other consumers believe that the process of producing ethanol actually uses more fossil energy, such as oil and natural gas, than the amount of ethanol that is produced. These consumer beliefs could potentially be wide-spread. If consumers choose not to buy ethanol, it would affect the demand for the ethanol we produce which could lower demand for our product and negatively affect our profitability and financial condition.

The expansion of domestic ethanol production in combination with state bans on MTBE and/or state renewable fuels standards may place strains on related infrastructure such that our ethanol cannot be marketed and shipped to blending terminals that would otherwise provide us the best cost advantages.  If the volume of ethanol shipments continues to increase and blenders switch from MTBE to ethanol, there may be weaknesses in infrastructure such that our ethanol cannot reach its target markets. Substantial development of infrastructure by persons and entities outside our control will be required for our operations, and the ethanol industry generally, to grow.  Areas requiring expansion include, but are not limited to:

·additional rail capacity to meet the expanding volume of ethanol shipments;

·additional storage facilities for ethanol;

·increases in truck fleets capable of transporting ethanol within localized markets;

·expansion of and/or improvements to refining and blending facilities to handle ethanol instead of MTBE;

·growth in the fleet of flexible fuel vehicles capable of using E85 fuel.

The expansion of the above infrastructure may not occur on a timely basis, if at all, our operations could be adversely affected by infrastructure disruptions.  In addition, lack of or delay in infrastructure expansion may result in an oversupply of ethanol on the market, which could depress ethanol prices and negatively impact our financial performance.

Risks Related to Regulation and Governmental Action

A change in government policies favorable to ethanol may cause demand for ethanol to decline. Growth and demand for ethanol may be driven primarily by federal and state government policies, such as state laws banning MTBE and the national renewable fuels standard. The continuation of these policies is uncertain, which means that demand for ethanol may decline if these policies change or are discontinued. A decline in the demand for ethanol is likely to cause lower ethanol prices which in turn will negatively affect our results of operations, financial condition and cash flows.

Loss of or ineligibility for favorable tax benefits for ethanol production could hinder our ability to operate at a profit and reduce the value of your investment in us. The ethanol industry and our business are assisted by various federal ethanol tax incentives, including those included in the Energy Policy Act of 2005. The provision of the Energy Policy Act of 2005 likely to have the greatest impact on the ethanol industry is the creation

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of a 7.5 billion gallon Renewable Fuels Standard (RFS). The RFS will begin at 4 billion gallons in 2006, 4.7 billion gallons in 2007, increasing to 7.5 billion gallons by 2012. The RFS helps support a market for ethanol that might disappear without this incentive. The elimination or reduction of tax incentives to the ethanol industry could reduce the market for ethanol, which could reduce prices and our revenues by making it more costly or difficult for us to produce and sell ethanol. If the federal tax incentives are eliminated or sharply curtailed, we believe that a decreased demand for ethanol will result, which could depress ethanol prices and negatively impact our financial performance.

Another important provision involves an expansion in the definition of who qualifies as a small ethanol producer. Historically, small ethanol producers were allowed a 10-cents per gallon production income tax credit on up to 15 million gallons of production annually. The size of the plant eligible for the tax credit was limited to 30 million gallons. Under the Energy Policy Act of 2005 the size limitation on the production capacity for small ethanol producers increases from 30 million to 60 million gallons. However, upon completion of the plant expansion, we do not anticipate qualifying for this tax credit as our anticipated annual production of 92 million gallons will exceed the size limitation.

Changes in environmental regulations or violations of the regulations could be expensive and reduce our profitability.  We are subject to extensive air, water and other environmental laws and regulations.  In addition some of these laws require our plant to operate under a number of environmental permits. These laws, regulations and permits can often require expensive pollution control equipment or operation changes to limit actual or potential impacts to the environment.  A violation of these laws and regulations or permit conditions can result in substantial fines, damages, criminal sanctions, permit revocations and/or plant shutdowns.  We do not assure you that we have been, are or will be at all times in complete compliance with these laws, regulations or permits or that we have had or have all permits required to operate our business.  We do not assure you that we will not be subject to legal actions brought by environmental advocacy groups and other parties for actual or alleged violations of environmental laws or our permits.  Additionally, any changes in environmental laws and regulations, both at the federal and state level, could require us to invest or spend considerable resources in order to comply with future environmental regulations. The expense of compliance could be significant enough to reduce our profitability and negatively affect our financial condition.

ITEM 2.PROPERTIES.

We own the general partnership interest in LSCP, which owns the Plant.  The Plant is located on an approximately 80-acre rural site that is located approximately two miles east of the City of Marcus, Iowa and approximately one mile north of Iowa State Highway 3.  The plant’s address is 4808 F Avenue, Marcus, Iowa 51035.  The plant grinds approximately 18 million to 19 million bushels of corn per year to produce approximately 52 million gallons of ethanol.  The original construction of the plant was completed in 2003 and consists of the following buildings:

·A processing building, which contains processing equipment, laboratories, control room and offices;

·A grain receiving and shipping building, which contains a control room and 1st and 2nd level mezzanine;

·A mechanical building, which contains maintenance offices, storage and a welding shop; and

·An administrative building, along with furniture and fixtures, office equipment and computer and telephone systems.

The plant includes a fermenter walkway, gas dryer, evaporator and storage facilities for ethanol and distiller grains.  The site also contains improvements such as rail tracks and a rail spur, landscaping, drainage systems and paved access roads.

In July 2005, we completed an expansion to the plant which enabled us to increase our ethanol production from 40 million to 52 million gallons per year.  This plant expansion included an additional fermenter, slurry tank, additional water treatment equipment, liquefaction tank, molecular sieves and additions to the process building, which will accommodate the additional fermenter and shop area.  We also installed additional drier controls and maintenance system software in fiscal year 2005.

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In addition in October 2005, we completed the installation of a corn oil segregation unit which separates corn oil from the distillers grains during the ethanol production process.  In May 2006, we commenced expansion of our grain handling facilities and remodeling of our existing grain silos.  On August 1, 2006, we purchased approximately eight acres of land west of the Marcus plant along the north side of the railroad tracks to accommodate the Plant expansion.  In October 2006, we commenced construction of a second expansion of the Plant’s production capacity which will enable us to increase our ethanol production to 92 million gallons per year by adding 40 million gallons annually.

All of our tangible and intangible property, real and personal, serves as the collateral for the debt financing with First National Bank of Omaha, which is described below under “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Indebtedness.”

ITEM 3.LEGAL PROCEEDINGS.

From time to time in the ordinary course of business, we or LSCP may be named as a defendant in legal proceedings related to various issues, including without limitation, workers’ compensation claims, tort claims, or contractual disputes.  We are not currently involved in any material legal proceedings, directly or indirectly, and we are not aware of any claims pending or threatened against us or any of the directors that could result in the commencement of legal proceedings.

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

We did not submit any matter to a vote of our unit holders through the solicitation of proxies or otherwise during the fourth quarter of 2006.

PART II

ITEM 5.MARKET FOR MEMBERSHIP UNITS AND RELATED MEMBER MATTERS AND ISSUER PURCHASES OF MEMBERSHIP UNITS.

Market Information

There is no established trading market for our membership units.

However, we have established a Unit Trading Bulletin Board, a private online matching service, in order to facilitate trading among our members. The Unit Trading Bulletin Board has been designed to comply with federal tax laws and IRS regulations establishing a “qualified matching service,” as well as state and federal securities laws. Our Unit Trading Bulletin Board consists of an electronic bulletin board that provides a list of interested buyers with a list of interested sellers, along with their non-firm price quotes. The Unit Trading Bulletin Board does not automatically affect matches between potential sellers and buyers and it is the sole responsibility of sellers and buyers to contact each other to make a determination as to whether an agreement to transfer units may be reached. We do not become involved in any purchase or sale negotiations arising from our Unit Trading Bulletin Board and have no role in effecting the transactions beyond approval, as required under our operating agreement, and the issuance of new certificates. We do not give advice regarding the merits or shortcomings of any particular transaction. We do not receive, transfer or hold funds or securities as an incident of operating the Unit Trading Bulletin Board. We do not receive any compensation for creating or maintaining the Unit Trading Bulletin Board. In advertising our qualified matching service, we do not characterize Little Sioux as being a broker or dealer or an exchange. We do not use the Unit Trading Bulletin Board to offer to buy or sell securities other than in compliance with the securities laws, including any applicable registration requirements.

There are detailed timelines that must be followed under the Unit Trading Bulletin Board Rules and Procedures with respect to offers and sales of membership units. All transactions must comply with the Unit Trading Bulletin Board Rules, our operating agreement, and are subject to approval by our board of directors. The Unit Trading Bulletin Board Rules are available on our website, www.littlesiouxcornprocessors.com.

The following table contains historical information by quarter for the past two years regarding the trading of units:

Quarter	Low Price		High Price		Average Price		# of Units Traded
July 1 – Sept 30 2006	$	6,500	$	6,500	$	6,500	8
Apr 1 – June 30 2006	$	3,600	$	6,355	$	5,253	25
Jan 1 – March 31 2006	$	3,250	$	3,250	$	3,250	10
Oct 1 – Dec 31 2005	$	2,250	$	2,250	$	2,250	10
July 1 – Sept 30 2005	$	2,500	$	2,500	$	2,500	25
Apr 1 – June 30 2005	$	2,300	$	2,500	$	2,476	68
Jan 1 – March 31 2005	$	—	$	—	$	—	—
Oct 1 – Dec 31 2004	$	1,375	$	1,375	$	1,375	5

As a limited liability company, Little Sioux is required to restrict the transfers of its membership units in order to preserve its partnership tax status. Our membership units may not be traded on any established securities market or readily trade on a secondary market (or the substantial equivalent thereof). All transfers are subject to a determination that the transfer will not cause Little Sioux to be deemed a publicly traded partnership.

Unit Holders

As of the date of filing of this report, the Company had 10,941 Class A membership units issued and outstanding and a total of 689 Class A membership unit holders.  There is no other class of membership unit issued or outstanding.

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Distributions

Distributions are payable at the discretion of our board of directors, subject to the provisions of the Iowa Limited Liability Company Act and our operating agreement. Distributions to our unit holders are also subject to certain loan covenants and restrictions that require us to make additional loan payments based on excess cash flow.  These loan covenants and restrictions are described in greater detail under “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Indebtedness.” LSCP may distribute a portion of the net profits generated from plant operations to it owners.  As an owner of LSCP, we receive distributions in proportion to our equity ownership in LSCP.  We may distribute a portion of our net profits received from LSCP to our unit holders in proportion to the number of units held by each unit holder.  A unit holder’s distribution is determined by dividing the number of units owned by such unit holder by the total number of units outstanding.  Our unit holders are entitled to receive distributions of cash or property if and when a distribution is declared by our board of directors.  Our Class A directors have complete discretion over the timing and amount of distributions to our unit holders, however, our operating agreement requires the Class A directors to endeavor to make cash distributions at such times and in such amounts as will permit our unit holders to satisfy their income tax liability in a timely fashion.  However, there can be no assurance as to the ability of Little Sioux to declare or pay distributions in the future or that past distributions (described below) will be indicative of future distributions.

2006 Distributions

On January 17, 2006 our Board of Directors, acting as general partner of LSCP, approved a total cash distribution of $15,361,000 from LSCP to all limited partners of record as of January 17, 2006.  At January 17, 2006, we owned 60.1539% of the limited partnership units of LSCP.  Accordingly, Little Sioux received a cash distribution of $9,240,240. The distribution was made in February 2006.  On January 18, 2006, our Board of Directors approved a cash distribution of $842.34 per membership unit or a total of approximately $9,216,042 to Little Sioux’s unit holders of record as of January 17, 2006.

2005 Distributions

On January 18, 2005 our Board of Directors, acting as general partner of the Partnership, approved a total cash distribution of $4,000,000 from the Partnership to all limited partners of record as of January 18, 2005.  At January 18, 2005, we owned 60.1539% of the limited partnership units of the Partnership.  Accordingly the Company received a cash distribution of $2,406,156. The distribution was made in February 2005.  On January 18, 2005, our Board of Directors approved a cash distribution of $219.92 per membership unit or a total of approximately $2,406,144 to the Company’s unit holders of record as of January 18, 2005.

On March 15, 2005 our Board of Directors, acting as general partner of the Partnership, approved a total cash distribution of $3,000,000 from the Partnership to all limited partners of record as of March 15, 2005.  As a holder of 60.1539% of the limited partnership units of the Partnership, we received a cash distribution of $1,804,617.  On the same day, we approved a cash distribution of $159.96 per membership unit or a total of approximately $1,750,122 to the Company’s unit holders of record as of March 15, 2005.

On September 20, 2005 our Board of Directors, acting as general partner of the Partnership, approved a cash distribution of $1,581,000 from the Partnership to all limited partners of record as of September 20, 2005.  As a holder of 60.1539% of the limited partnership units of the Partnership, we received a cash distribution of $951,033.  On September 20, 2005, our Board of Directors approved a cash distribution of $78.24 per membership unit or a total of approximately $856,023 to the Company’s unit holders of record as of September 20, 2005.

ITEM 6.SELECTED FINANCIAL DATA.

The following table sets forth selected consolidated financial data of Little Sioux Corn Processors, LLC and our subsidiary, LSCP, LLLP for the periods indicated. The audited financial statements included in Item 8 of this report have been audited by our independent auditors, Boulay, Heutmaker, Zibell & Co., P.L.L.P.

Statement of Operations Data:	2006		2005		2004		2003(1)
Revenues	$	113,785,666	$	95,881,420	$	85,540,934	$	31,814,299
Cost of Goods Sold	$	73,678,035	$	65,257,086	$	74,649,569	$	27,462,227

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Gross Margin	$	40,107,631		$	30,624,334		$	10,891,365	$	4,352,072
Selling, General and Administrative Expenses	$	3,001,254		$	2,634,802		$	2,733,993	$	2,660,909
Operating Income	$	37,106,377		$	27,989,532		$	8,157,372	$	1,691,163
Other Income (Expense)	$	(118,637	)	$	(4,469,066	)	$	5,360,140	$	5,300,716
Net Income Before Minority Interest	$	36,987,740		$	23,520,466		$	13,517,512	$	6,991,879
Minority Interest in Subsidiary Income	$	14,775,906		$	9,421,765		$	5,663,681	$	2,920,676
Net Income	$	22,211,834		$	14,098,701		$	7,853,831	$	4,071,203
Average Units Outstanding	10,941			10,941			10,941		10,941
Net Income Per Unit	$	2,030.15		$	1,288.61		$	717.83	$	372.11
Distributions Per Unit	$	842.34		$	458.12		$	103.86	$	-

Balance Sheet Data:	2006		2005		2004		2003(1)
Cash & Equivalents	$	10,133,691	$	14,135,954	$	3,907,380	$	536,483
Current Assets	$	39,374,286	$	26,748,278	$	11,946,926	$	8,048,340
Property & Equipment	$	51,747,859	$	50,128,437	$	47,536,127	$	48,797,341
Total Assets	$	91,556,615	$	77,162,356	$	59,828,204	$	57,308,872
Current Liabilities	$	6,023,396	$	10,692,316	$	4,966,448	$	4,951,852
Long Term Debt	$	13,504,582	$	16,092,315	$	19,572,989	$	28,157,443
Minority Interest	$	28,864,721	$	20,209,574	$	14,207,003	$	10,052,753
Members’ Equity	$	43,163,916	$	30,168,151	$	21,081,764	$	14,146,824
Book Value Per Unit	$	3,945.15	$	2,757.35	$	1,926.86	$	1,293.01

(1)Fiscal year 2003 represents only a partial year of operations, as the ethanol plant commenced production in April 2003.

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

Except for the historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties.  We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report.  Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the risks described in “Item 1A - Risk Factors” and elsewhere in this annual report.  Our discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes and with the understanding that our actual future results may be materially different from what we currently expect.

Overview

As general partner, we manage the business and day-to-day operations of the Partnership’s 52 million gallon per year ethanol plant in northwest Iowa.  In July 2005, we completed the expansion of our plant from an ethanol production capacity of 40 million gallons per year to 52 million gallons per year.  In October 2006, we commenced construction of a second expansion of the Plant’s production capacity which will enable us to increase our ethanol production to 92 million gallons per year by adding 40 million gallons annually.  We expect the

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increased capacity will increase our operating income as a result of increasing revenue and operating efficiencies.  However, we can not provide any guarantee that this second expansion will reduce our operating costs or increase our operating income.

Our revenues are derived from the sale and distribution of our ethanol and distillers grains throughout the continental United States.  Corn is supplied to us primarily from local agricultural producers and from purchases of corn on the open market. After processing the corn, ethanol is sold to ADM, which subsequently markets and sells the ethanol to gasoline blenders and refineries located throughout the continental United States.  The price that we receive from the sale of ethanol to ADM is based upon the price that ADM receives from the sale to its customers, minus a marketing fee. Except distillers grains we sell directly to local farmers, our distillers grains are sold through Commodity Specialist Company which markets and sells the product to livestock feeders.  For our distillers grains, we receive a percentage of the selling price actually received by CSC in marketing the distillers grains to its customers.  We market and sell our corn oil to regional wholesalers.  Presently, the end use of our corn oil is in the livestock industry.  In the long term, our corn oil could be marketed for human consumption; however, the feasibility of market penetration as human food is unknown at this time as corn oil extraction in dry milling is relatively new and suitability for human consumption has not yet been determined.

We are subject to industry-wide factors that affect our operating income and cost of production.  Our operating results are largely driven by the prices at which we sell ethanol, distillers grain and corn oil and the costs related to their production.  Historically, the price of ethanol tends to fluctuate in the same direction as the price of unleaded gasoline and other petroleum products.  Surplus ethanol supplies also tend to put downward price pressure on ethanol.  In addition, the price of ethanol is generally influenced by factors such as general economic conditions, the weather, and government policies and programs.  The price of distillers grains is generally influenced by supply and demand, the price of substitute livestock feed, such as corn and soybean meal, and other animal feed proteins.  Surplus grain supplies also tend to put downward price pressure on distillers grains.  In addition, our revenues are also impacted by such factors as our dependence on one or a few major customers who market and distribute our products; the intensely competitive nature of our industry; possible legislation at the federal, state, and/or local level; changes in federal ethanol tax incentives.

Our two largest costs of production are corn and natural gas.  The cost of corn is affected primarily by supply and demand factors such as crop production, carryout, exports, government policies and programs, risk management and weather, much of which we have no control.  Natural gas prices fluctuate with the energy complex in general.  Over the last few years, natural gas prices have trended higher than average and it appears prices will continue to trend higher due to the high price of alternative fuels such as fuel oil.  Our costs of production are affected by the cost of complying with the extensive environmental laws that regulate our industry.

Results of Operations

Comparison of Fiscal Years  Ended September 30, 2006 and 2005.

The following table shows the results of our operations and the percentage of revenues, cost of goods sold, operating expenses and other items to total revenues in our consolidated statements of operations for the fiscal years ended September 30, 2006 and 2005:

	2006			2005
Income Statement Data	Amount		%	Amount		%
Revenues	$	113,785,666	100.0	$	95,881,420	100.0
Cost of Goods Sold	$	73,678,035	64.8	$	65,257,086	68.1
Gross Margin	$	40,107,631	35.2	$	30,624,334	31.9
Operating Expenses	$	3,001,254	2.6	$	2,634,802	2.7
Operating Income	$	37,106,377	32.6	$	27,989,532	29.2

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Other Income (Expense)	$	(118,637	)	(0.1	)	$	(4,469,066	)	(4.7	)
Net Income Before Minority Interest	$	36,987,740		32.5		$	23,520,466		24.5
Minority Interest in Subsidiary Income	$	14,775,906		13.0		$	9,421,765		9.8
Net Income	$	22,211,834		19.5		$	14,098,701		14.7

Revenues

The increase in revenues from fiscal year 2006 compared to fiscal year 2005 is due primarily to an increase in the price we received for our ethanol.  Net gallons of denatured ethanol sold in fiscal 2006 increased approximately 8% over fiscal 2005.  The average per gallon price we received for our ethanol sold for 2006 increased approximately 14% compared to the twelve months ended September 30, 2005.  Sales of co-products decreased by approximately 4% in 2006 compared to co-products sales in 2005 due to a reduction in the average selling price for these co-products.

Due to a number of factors, including the higher price of petroleum gasoline and seasonal demand, ethanol prices remained high during fiscal 2006.  We believe the favorable prices are primarily due to high demand for ethanol, created by a number of factors, including the declining use of MTBE as an oxygenate, the high price of gasoline, which encourages voluntary blending, and the growing recognition of ethanol as an alternative energy source.  However, ethanol prices began to trend lower during September 2006 and the fourth calendar quarter of 2006 due to a number of factors, including the lower price of petroleum gasoline and a drop in seasonal demand.  We believe this trend will continue into 2007 until peak driving season begins in the summer.  While ethanol prices were lower late in the fourth quarter of 2006 than at end of our fiscal year quarter, they are still higher than the historical average.  However, we cannot guarantee that the price of ethanol will not significantly decrease due to factors beyond our control.

With respect to distillers grains, we believe that prices will remain at or near their currently low and stable levels due to the increasing number of ethanol production facilities commencing operations.  We expect revenues from the sale of distiller grains should remain relatively consistent with 2006.

Cost of Goods Sold

Our cost of goods sold as a percentage of revenues were 64.8% and 68.1% for the twelve months ended September 30, 2006 and 2005, respectively.  The decrease in our cost of goods sold as a percentage of revenues from period to period is primarily due to the increase in revenue during a stable corn market.  Revenues increased approximately 18.7% for the twelve months ended September 30, 2006 compared to the twelve months ended September 30, 2005, however our corn costs increased only approximately 6.3% for this same time period.  This benefit was partially offset by our increased natural gas costs.  For the twelve months ended September 30, 2006, our natural gas costs increased approximately 88.4% compared to the twelve months ended September 30, 2006.  However, the impact of the increased natural gas costs is less than the impact of adverse changes to ethanol prices and corn costs.

Corn costs significantly impact our cost of goods sold.  As of November 9, 2006, United States Department of Agriculture’s National Agricultural Statistics Service projected the 2006 national corn production at approximately 10.7 billion bushels, which would be the third largest corn crop on record, and Iowa production at 2.0 billion bushels.  However, despite the large 2006 corn crop, corn prices have increased sharply since August 2006.  Additionally, due to increased exposure of ethanol, corn is now being viewed as an “energy commodity” as opposed to strictly a “grain commodity,” contributing to the upward pressure on corn prices.  A recent USDA report entitled “World Agricultural Supply and Demand Estimates” (December 11, 2006), states that U.S. corn prices could increase in year 2007 to as much as $3.30 per bushel or more. We expect corn prices to remain at historically high price levels well into 2007, which could significantly impact our cost of goods sold.

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Natural gas has recently been available only at prices exceeding historical averages. Historically, natural gas prices in the $5/mmbtu range were considered high.   These prices are increasing our costs of production.  Though natural gas prices have decreased somewhat during the fourth calendar quarter of 2006, we expect natural gas prices to remain high or elevated given the unpredictable market situation.  This could increase our gas costs substantially, which will increase our cost of goods sold and may cause our net income to decrease.

The increase in our cost of goods sold was impacted by changes in the fair value of our derivative instruments.  Our cost of goods sold includes a gain of $1,311,000 for fiscal year 2006 related to our derivative instruments, compared to a loss of $2,697,000 for fiscal year 2005.  We recognize the gains or losses that result from the changes in the value of our derivative instruments in cost of goods sold as the changes occur.  As corn and natural gas prices fluctuate, the value of our derivative instruments are impacted, which affects our financial performance.  We anticipate continued volatility in our cost of goods sold due to the timing of the changes in value of the derivative instruments relative to the cost and use of the commodity being hedged.

Operating Expenses

Our operating expenses, as a percentage of revenue, remained consistent at approximately 2.6% and 2.7% for fiscal year 2006 and 2005 respectively.  Our operating expense amounts have remained fairly level from period to period.  Although we can give no assurances, the plant expansion may increase our operating efficiency which would maintain or lower our operating expenses as a percentage of our revenues.

Operating Income

Our income from operations for fiscal year 2006 totaled $37,106,377 compared to $27,989,532 for fiscal year 2005.  This was a result of the increase in sales revenue for fiscal year 2006 combined with the decrease in cost of goods sold as a percentage of revenues for the same period.  We expect the additional expansion of our Plant’s production capacity by an additional 40 million gallons annually will increase our annual operating income as a result of an increase in revenue and operating efficiency.  There is no assurance, however, that the expansion will reduce our operating costs or increase our operating income.  Our expansion projections are based upon our historical operating costs and historical revenues and there is no guarantee or assurance that our past financial performance can accurately predict future results especially in connection with expansion.  In addition, the expansion may present additional challenges and risks that negatively impact our future financial performance.

Other Income and Expense

Our other income and expense for the twelve months ended September 30, 2006 was an expense of $118,637 compared to an expense of $4,469,066 for the twelve months ended September 30, 2005.  This reduction in expenses was a resulted from a settlement of a dispute with ADM that was recorded in fiscal 2005.

Our CCC Bioenergy payments were $92,857 for the twelve months ended September 30, 2005 compared to $172,850 for the twelve months ended September 30, 2005.  Income from the United States Department of Agriculture’s Commodity Credit Corporation Bioenergy Program during 2006 was significantly less than the amount we were eligible for based on our increases in production.  This reduction was attributed to increased participation by ethanol producers, decreased funding, and a termination of the program on June 30, 2006.

At September 30, 2005, and during the first fiscal quarter of 2006, we were involved in a dispute with ADM regarding the actual price ADM is required to pay for all the ethanol it purchased from LSCP under the ethanol marketing agreement.  The dispute arose over ADM’s claimed failure to include its gains and losses from gasoline index hedges in calculating the price ADM is to pay to LSCP, which resulted in an overpayment for all the ethanol purchased by ADM from LSCP since the inception of the ethanol marketing agreement through September 30, 2005. After engaging independent accountants to review ADM’s claimed overpayment, on February 17, 2006, we entered into a settlement agreement with ADM in resolution of this dispute. Under the terms of the settlement agreement, both parties agreed to release and discharge each other from any and all claims relating to the inclusion of gains and losses from gasoline index hedges in calculating the price ADM is to pay LSCP under the ethanol marketing agreement through September 30, 2005.  In addition, as consideration for the release of claims by ADM, we agreed to pay a single cash payment of approximately $3.9 million to ADM upon execution of the settlement agreement.

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Comparison of Fiscal Years  Ended September 30, 2005 and 2004.

The following table shows the results of our operations and the percentage of revenues, cost of goods sold, operating expenses and other items to total revenues in our consolidated statements of operations for the fiscal years ended September 30, 2005 and 2004:

	2005					2004
Income Statement Data	Amount			%		Amount		%
Revenues	$	95,881,420		100.0		$	85,540,934	100.0
Cost of Goods Sold	$	65,257,086		68.1		$	74,649,569	87.3
Gross Profit	$	30,624,334		31.9		$	10,891,365	12.7
Operating Expenses	$	2,634,802		2.7		$	2,733,993	3.2
Operating Income	$	27,989,532		29.2		$	8,157,372	9.5
Other Income (Expense)	$	(4,469,066	)	(4.7	)	$	5,360,140	6.3
Net Income Before Minority Interest	$	23,520,466		24.5		$	13,517,512	15.8
Minority Interest in Subsidiary Income	$	9,421,765		9.8		$	5,663,681	6.6
Net Income	$	14,098,701		14.7		$	7,853,831	9.2

Revenues

The increase in revenues from fiscal year 2005 compared to fiscal year 2004 is due primarily to an increase in the price we received for our ethanol in 2005.  The average per gallon price we received for our ethanol sold for 2005 increased approximately 12% compared to the twelve months ended September 30, 2004.  We sold approximately the same quantity of ethanol in 2005 as compared 2004.  Sales of co-products increased by approximately 7% in 2005 compared to co-products sales in 2004 due to a more favorable sales mix of wet and dry distillers grains sold.

Cost of Goods Sold

Our cost of goods sold as a percentage of revenues were 68.1% and 83.3% for the twelve months ended September 30, 2005 and 2004 respectively.  The decrease in our cost of goods sold from period to period was primarily due to our reduced corn costs.  Our average per bushel price we paid for our corn decreased approximately 34% for the twelve months ended September 30, 2005 compared to the twelve months ended September 30, 2004.  Our cost of goods sold also includes a loss of $2,697,000 for fiscal year 2005 related to our derivative instruments, down from a loss of $3,851000 for fiscal year 2004.

Operating Expenses

Our operating expenses as a percentage of revenue were approximately 2.7% and 3.2% for fiscal year 2005 and 2004 respectively.  This reduction was primarily due to our increased revenues.  Our operating expense amounts have remained fairly level from period to period.  Although we can give no assurances, the plant expansion may increase our operating efficiency which would maintain or lower our operating expenses as a percentage of our revenues.

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Operating Income

Our income from operations for fiscal year 2005 totaled $27,989,532 compared to $8,157,372 for fiscal year 2004.  This was a result of the increase in sales revenue for fiscal year 2005 combined with the decrease in cost of goods sold for the same period. 

Other Income and Expense

Our other income and expense for the twelve months ended September 30, 2005 was an expense of $4,469,066 compared to income of $5,360,140 for the twelve months ended September 30, 2004.  This resulted from lower CCC Bio-Energy payments and a settlement of the above-described dispute with ADM.  We recorded the $3.9 million settlement as a loss as of September 30, 2005 in other income (expense).

Plant Operations and Expansion

We plan to continue to operate the ethanol plant for the next 12 months. During fiscal year 2006, we commenced a plant expansion which when completed, will increase the ethanol production capacity of our plant by 40 million gallons to 92 million gallons annually.

On May 1, 2006, McCormick Construction Company, Inc. (“McC Inc.”) commenced construction of an expansion of the grain handling facilities and modification of existing grain silos.  In exchange for these services, we have agreed to pay McC Inc., a lump sum of $5,673,025.  We anticipate that the expansion of the grain handling facilities will be substantially complete by May 1, 2007 and the remodeling of the existing grain silos will be substantially complete by September 1, 2007.

On July 17, 2006, we engaged McC Inc. to expand our dried distillers grains storage building.  In exchange for these additional services, we have agreed to pay McC Inc., a lump sum of $936,000.  We anticipate that the expansion of the dried distillers grains storage building will be substantially complete by September 1, 2007.

On July 10, 2006, we entered into an agreement with Fagen Engineering, LLC, an affiliate of Fagen, Inc., to perform the electrical design services for our expansion of the grain handling facilities, modification of our existing grain silos and expansion of our distillers grains storage building.  In exchange for its services, we have agreed to pay Fagen Engineering, LLC $265,079 plus certain reimbursable expenses.

On August 1, 2006, we purchased approximately eight acres of land west of the Marcus plant along the north side of the railroad tracks to accommodate the Plant expansion.  The purchase price of the land was approximately $58,000.

On September 26, 2006, we entered into a design-build agreement with Fagen, Inc., for the construction of the expansion.  Fagen, Inc. will design and build the plant expansion using ICM, Inc., technology. As part of the design-build agreement, we also entered into a limited License Agreement with ICM, Inc. to use the technology and information in the design and construction of the plant expansion.  Under the terms of the design-build agreement, we will pay Fagen, Inc. $47,860,000 for the design and construction of the Plant’s expansion, subject to any mutually agreed-upon adjustments made in accordance with the general conditions of the agreement and subject to a credit for any amounts previously paid to Fagen Engineering, LLC for engineering performed pursuant to the Phase I and Phase II Engineering Services Agreement.  Fagen, Inc. commenced construction of the second expansion in October 2006 and we currently expect the expansion will be completed sometime in late 2007 or early 2008.  However, there is no assurance or guarantee that construction will stay on schedule or that we will be able to operate at expanded production by our anticipated completion date

We estimate that the total cost of the expansion project will be $73,000,000, of which we will pay $47,860,000 to Fagen, Inc. for the design and construction of the expansion, subject to any mutually agreed-upon adjustments made in accordance with the general conditions of the agreement and subject to a credit for any amounts previously paid to Fagen Engineering, LLC for engineering performed pursuant to the Phase I and Phase II Engineering Services Agreement. The total expansion project cost is a preliminary estimate and we expect it will change as we continue to gather information relating to the expansion.

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We expect to finance the 40 million per year expansion using both a portion of our cash and additional debt to finance the required capital expenditure.  We do not expect to seek additional equity from our members to fund this expansion.  On April 10, 2006, we entered into a Eleventh Amendment to Construction Loan Agreement with First National Bank of Omaha to obtain interim financing to finance the expansion of the grain handling facilities and modification of existing grain silos.  We are in the process of negotiating the terms for debt financing for our second Plant expansion with our current lender, First National Bank of Omaha.  While the loan agreements have not been executed, we have signed a commitment letter that provides for a expansion construction loan of $73,000,000 and increases our existing operating line credit/letters of credit facility from $3,500,000 to $5,000,000.  If we are unable to complete negotiation and execute definitive loan document with First National Bank of Omaha for any reason, we may be forced to abandon our expansion plans.  For additional information regarding our expansion debt financing commitment, see “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Indebtedness, Expansion Debt Financing.”

Management anticipates that the Plant will continue to operate at or above name-plate capacity of 52 MGY for the next twelve months.  This current expansion will be completed while the current facility remains in production.  However, the Plant may be shut down from time to time over the next 12 months to incorporate expansion improvements.

We expect to have sufficient cash from cash flow generated by continuing operations, anticipated additional debt financing secured to fund plant expansion, current lines of credit through our revolving promissory note, and cash reserves to cover the costs of expansion as well as our usual operating costs over the next 12 months, which consist primarily of corn supply, natural gas supply, staffing, office, audit, legal, compliance, working capital costs and debt service obligations.

After completion of the second expansion, our total operating costs are expected to increase because of the increase in our production capacity.  We expect to offset the increase in operating costs by increased ethanol revenues, however, a variety of market factors can affect both operating costs and revenues.  These factors include:

·Changes in the availability and price of corn;

·Changes in the environmental regulations that apply to our plant operations;

·Increased competition in the ethanol and oil industries;

·Changes in interest rates or the availability of credit;

·Changes in our business strategy, capital improvements or development plans;

·Changes in plant production capacity or technical difficulties in operating the plant;

·Changes in general economic conditions or the occurrence of certain events causing an economic impact in the agriculture, oil or automobile industries;

·Changes in the availability and price of natural gas and the market for distillers grains; and

·Changes in federal and/or state laws (including the elimination of any federal and/or state ethanol tax incentives).

Development of Akron Ethanol Plant

In addition to expansion of the Plant, we are studying the feasibility of developing and constructing a new 110 million gallon per year ethanol plant near Akron, Iowa in Plymouth County, or participating in some capacity.  However, we have not yet determined how or if we will continue to pursue the opportunities presented by the Akron plant and there is no assurance that if we determine to pursue the Akron plant that we will be successful.  For additional risks associated with development of the Akron plant, see “Risks Relating to Our Expansion Strategy - We give no assurances that we will be able to implement our expansion strategy as planned or at all.”

In connection with our study of the opportunities in Akron, we have obtained two options for the real estate which we expect will make up the primary Akron plant site.  On June 19, 2006, we entered into a real estate option agreement with the Mary Frances Wohlenberg Trust, an unrelated party, granting us an option to purchase

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approximately 156 acres of land (the “Wohlenberg Site”).  The price of the option was $15,000.  Under the terms of the option agreement, we have the option to purchase the land for $15,000 per surveyed acre. This option expires on December 19, 2006, however we may extend the option to June 19, 2007 for an additional payment of $10,000. In the event we exercise this option, the option agreement allows us to apply the amounts paid for the option and extensions of the option towards the total purchase price for the land. If the option is not exercised after the specified date, the option agreement becomes null and void.  This option must be exercised together with our option on the adjacent Lias site (described below).

On June 19, 2006, we entered into a real estate option agreement with Robert E. and Margaret Lias, unrelated parties, granting us an option to purchase approximately 140 acres of land adjacent to the Wohenberg site (the “Lias Site”).  The price of the option was $15,000.  Under the terms of the option agreement, we have the option to purchase the land for $15,000 per surveyed acre. This option expires on December 19, 2006, however we may extend the option to June 19, 2007 for an additional payment of $10,000. In the event we exercise this option, the option agreement allows us to apply the amounts paid for the option and extensions of the option towards the total purchase price for the land. If the option is not exercised after the specified date, the option agreement becomes null and void.  This option must be exercised together with our option on the adjacent property (described above).

Critical Accounting Estimates

Management uses estimates and assumptions in preparing our consolidated financial statements in accordance with generally accepted accounting principles.  These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses.  Of the significant accounting policies described in the notes to our consolidated financial statements, we believe that the following are the most critical:

Derivative Instruments

We account for derivative instruments and hedging activities in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. SFAS No. 133 requires a company to evaluate its contracts to determine whether the contracts are derivatives.  Certain contracts that literally meet the definition of a derivative may be exempted from SFAS No. 133 as normal purchases or normal sales.  Normal purchases and normal sales are contracts that provide for the purchases or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business.  Contracts that meet the requirements of normal are documented as normal and exempted from accounting and reporting requirements of SFAS No. 133. 

In order to reduce the risk caused by market fluctuations of corn, natural gas, and interest rates, we enter into option, futures and swap contracts.  These contracts are used to fix the purchase price of our anticipated requirements of corn and natural gas in production activities and limit the effect of increases in interest rates.  The fair value of these contracts is based on quoted prices in active exchange-traded or over-the-counter markets.  The fair value of the derivatives is continually subject to change due to the changing market conditions.  We do not typically enter into derivative instruments other than for hedging purposes.  On the date the derivative instrument is entered into, we will designate the derivative as a hedge.  Changes in the fair value of a derivative instrument that is designated as, and meets all of the required criteria, for a cash flow or fair value hedge is recorded in accumulated other comprehensive income and reclassified into earnings as the hedged items affect earnings.  Changes in the fair value of a derivative instrument that is not designated as, and accounted for, as a cash flow or fair value hedge is recorded in current period earnings.  Although certain derivative instruments may not be designated as, and accounted for, as a cash flow or fair value hedge, they are effective economic hedges of specified risks. 

Revenue Recognition

Revenue from the sale of our products is recognized at the time title of the goods and all risks of ownership transfer to the customers.  This generally occurs upon shipment to the customer or when the customer picks up the goods.  We record revenue from federal and state incentive programs related to the production of ethanol when we have sold the ethanol and completed all the requirements of the applicable incentive program.

Inventory

Inventory consists of raw materials, work in process, and finished goods.  Corn is the primary raw material and, along with other raw materials, is stated at the lower of average cost or market.  Finished foods consist of ethanol produced and DDGS, MWDGS, and corn oil, and are stated at the lower of first-in, first-out, (FIFO method) cost or market.

Property and Equipment

Property and equipment are stated at the lower of cost or estimated fair value.  Depreciation is computed by the straight –-line method over the following estimated useful lives:

Asset Description	Years
Land improvements	5 – 40
Buildings and improvements	7 – 40
Machinery and equipment	3 – 20
Office equipment and furnishings	3 – 10

Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized.  The present value of capital lease obligations are classified as long-term debt and the related assets are included in equipment.  Amortization of equipment under capital lease is included in depreciation expense.

We review our property and equipment impairment whenever events indicate that the carrying amount of the asset may not be recoverable.  An impairment loss is recorded when the sum of the future cash flows is less than the carrying amount of the asset.  An impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value.

Liquidity and Capital Resources

Comparison of Fiscal Years ended September 30, 2006 and 2005

	Year ended September 30,
	2006			2005
Net cash from operating activities	$	32,957,631		$	34,093,417
Net cash used for investing activities	(18,423,815		)	(7,409,870		)
Net cash used for financing activities	(18,536,079		)	(16,454,973		)

Cash Flow From Operations.  The net cash flow provided from operating activities was consistent between 2006 and 2005.  The increase resulting from improved net income was offset by changes in derivative instruments, accounts payables and accrued expenses.  Our capital needs are being adequately met through cash from our operating activities and our current credit facilities.

Cash Flow From Investing Activities.  We used cash provided by operating activities for capital expenditures which totaled $6,439,043 for fiscal 2006 compared to $374,450 for fiscal 2005.   In addition, we used cash provided by operating activities for the purchase of short term investments which totaled $18,726,834 at September 30, 2006 compared to $6,987,420 at September 30, 2005.

Management estimates that approximately $1,000,000 in capital expenditures will be made in the next twelve months for general improvements to the Plant, all of which are expected to be financed from a portion of cash flows from operations and additional debt financing.

In October 2006, we commenced construction of a 40 million gallon per year expansion to our Plant.  The cost of the expansion is expected to be approximately $73,000,000, which will be financed using both a portion of our cash and additional debt to finance the required capital expenditure.  Our expansion projections are based upon our historical operating costs and historical revenues and there is no guarantee or assurance that our past financial performance can accurately predict future results especially in connection with expansion.  In addition, the expansion may cost more and may present additional challenges and risks that negatively impact our future financial performance.  We anticipate construction will be completed in late 2007 or early 2008.

Cash Flow From Financing Activities. We used cash to pay down our debt by $3,199,251 in fiscal 2006 compared to $8,023,465 in fiscal 2005.  Additionally, the total amount of cash we distributed to partners and members totaled $15,336,828 in 2006 compared to $8,431,508 in 2005

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Comparison of Fiscal Years ended September 30, 2005 and 2004

The following table shows cash flows for 2005 and 2004:

	Year ended September 30,
	2005			2004
Net cash from operating activities	$	34,093,417		$	17,479,109
Net cash used for investing activities	(7,409,870		)	(2,230,069		)
Net cash used for financing activities	(16,454,973		)	(11,878,143		)

Cash Flow From Operations.  The increase in net cash flow provided from operating activities between 2005 and 2004 was primarily due to a favorable spread between the price of corn and the price of ethanol.

Cash Flow From Investing Activities.  We used cash provided by operating activities as well as cash provided by a construction note totaling $5,400,000 for capital expenditures which totaled $5,774,450 in fiscal 2005 compared to $2,230,069 for fiscal 2004.

Cash Flow From Financing Activities. We used cash to pay down our debt by $8,023,465 in fiscal 2005 compared to $9,078,381 in fiscal 2005.  Additionally, the total amount of cash we distributed to partners and members totaled $8,431,508 in 2005 compared to $2,049,762 in 2004.

Indebtedness

Short-Term Debt Sources

We have a revolving promissory note of up to $3,500,000 with First National Bank of Omaha through March 2007.  The interest payable on the revolving promissory note is due monthly at the one month LIBOR plus 2.80%.  The revolving promissory note is our operating line of credit.  We pay a commitment fee of 0.125% on the unused portion of the line.  We did not have an outstanding balance at September 30, 2006 or 2005.  The maximum available credit under this note is based on receivable and inventory balances.  As the balances in these accounts fluctuate, the amount of available credit on this note may be reduced or increased subject to the maximum of $3,500,000.  The operating line of credit is subject to protective covenants requiring us to maintain various financial ratios.  The operating line of credit is secured by all business assets.

On April 10, 2006, we entered into an Eleventh Amendment to Construction Loan Agreement with First National Bank of Omaha. Under this amendment, First National Bank of Omaha agreed to loan us up to $5,673,025 of interim financing pursuant to a Bridge Note to finance the expansion of our grain handling facilities and modification of existing grain silos.  Our bridge loan is subject to all terms and conditions of our existing Construction Loan Agreement with First National Bank of Omaha, including the specific provisions regarding events of default and the granting of liens to secure our performance. In the event of default, First National Bank of Omaha may accelerate the due date of the bridge loan and declare all obligations immediately due and payable. During the term of the bridge loan, we agreed to pay interest only on a quarterly basis on the outstanding principal amount at a rate equal to the one-month LIBOR rate plus 280 basis points.

On October 1, 2006, the Bridge Note terminated.  No amounts have been drawn on this note as of September 30, 2006.  On October 27, 2006, we executed a commitment letter with First National Bank of Omaha for debt financing for our expansion.  Under the terms of the commitment letter, the bridge note will be paid from proceeds of the construction note.  For additional information regarding our expansion debt financing commitment, see below “Expansion Debt Financing.”

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Long-Term Debt Sources

We have long-term debt financing consisting of three term notes held by First National Bank of Omaha and referred to as Term Notes #2, #3, and #4. At September 30, 2006, the principal balance on Term Note #2 was $11,308,363. Term Note #2 is payable in quarterly installments. Interest on Term Note #2 is at the three month LIBOR plus 2.80%, which totaled 8.20% as of September 30, 2006. Term Note #2 is payable in full on June 1, 2008. In order to achieve a fixed interest rate on Term Note #2, we entered into an interest rate swap which helps protect our exposure to increases in interest rates and the swap effectively fixes the interest rate on Term Note #2 at 5.79% until June 1, 2008.

At September 30, 2006, the principal balance on Term Note #3 was $5,090,129. Term Note #3 is payable in quarterly installments. Interest on Term Note #3 is at the three month LIBOR plus 2.80%, which totaled 8.20% as of June 30, 2006. Term Note #3 is payable in full on June 1, 2008.  As part of the financing agreement, we have agreed to pay an annual servicing fee of $50,000 for five years.  However, under our commitment letter with First National Bank of Omaha for our expansion debt financing, this annual servicing fee will be reduced to $30,000 beginning in the first quarter of 2007 and will be payable through 2012.

At September 30, 2006, there was no principal balance on Term Note #4. Term Note #4 is payable in quarterly installments. Interest on Term Note #4 is at the one month LIBOR plus 2.80%. Term Note #4 is payable in full on June 1, 2008. Term Note #4 allows borrowings up to the original principal of $5,000,000 to the extent of principal payments made until maturity and requires a commitment fee of 0.375% on any unused portion.

At September 30, 2006, the aggregate indebtedness represented by Term Notes #2, #3 and #4 was $16,398,492.

We have a capital lease obligation in the amount of $116,428 on which we initially pay monthly installments totaling $6,658, with an implicit interest rate of 3.67%. This obligation is secured by the leased equipment and runs through March 1, 2008.

We have a note in the amount of $97,222 payable to the Iowa Energy Center on which we pay monthly installments of $3,472 without interest. This note is secured by real estate, but is subordinated to the term notes. It matures on January 29, 2009.

We have a note with Farmers State Bank of Marcus, Iowa in the amount of $108,136 on which we pay monthly installments of $5,921, including interest at 6%. This note is secured by real estate, but is subordinated to the term notes. It matures on January 29, 2009.

We have a note totaling $178,500 payable to the Iowa Department of Economic Development on which we pay monthly installments of $1,167 without interest. This note is secured by all equipment and matures on July 1, 2009.

Expansion Debt Financing

We are in the process of negotiating the terms for debt financing for our second Plant expansion with our current lender, First National Bank of Omaha.  While the loan agreements have not been executed, we have signed a commitment letter that provides for a construction loan of $73,000,000 and increases our existing operating line of credit and letters of credit facility from $3,500,000 to $5,000,000. As provided in the commitment letter, during the construction period interest on the construction loan will be payable on a quarterly basis on the outstanding principal amount at a rate equal to the one-month LIBOR rate plus 310 basis points.  Following completion of the construction period, the construction note will be converted to a 5-year term note with quarterly payments of principal and interest on the outstanding principal amount at a rate equal to the three-month LIBOR rate plus 300 basis points.  The interest payable on the revolving operating line of credit and letters of credit facility will be due monthly at the one month LIBOR plus 2.80% and will be subject to a commitment fee of 1.75% per annum assessed against the letter of credit commitments.

35

Under the commitment letter, the terms and conditions of the expansion debt financing loans are similar to our existing credit facility with First National Bank, including the specific provisions regarding distributions to members, maintenance of deposit accounts, annual capital expenditures, certain financial loan covenants, pre-payment penalties, events of default and the granting of liens to secure our performance.  We will also be prohibited from making distributions to our members, however, LSCP will be allowed to distribute 40% of its net income to the limited partners after our lender has received audited financial statements for the fiscal year.

Contractual Obligations and Commercial Commitments

In addition to our long-term debt obligations, we have certain other contractual cash obligations and commitments.  The following tables provide information regarding our consolidated contractual obligations and commitments as of September 30, 2006:

	Payment Due By Period
Contractual Cash Obligations	Total		Less than One Year		One to Three Years		Four to Five Years		After Five Years
Long-Term Debt Obligations	$	16,898,778	$	3,394,196	$	13,504,582	$	0	$	0
Operating Lease Obligations	409,905		187,371		222,534		0		0
Purchase Obligations	66,306,619		65,775,127		531,492		0		0
Other Long-Term Liabilities	0		0		0		0		0
Total Contractual Cash Obligations	$	83,615,302	$	69,356,694	$	14,258,608	$	0	$	0

Off-Balance Sheet Arrangements.

We do not have any off-balance sheet arrangements.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are exposed to the impact of market fluctuations associated with interest rates and commodity prices as discussed below.  We have no exposure to foreign currency risk as all of its business is conducted in U.S. Dollars. We use derivative financial instruments as part of an overall strategy to manage market risk. We use cash, futures and option contracts to hedge changes to the commodity prices of corn and natural gas. We do not enter into these derivative financial instruments for trading or speculative purposes, nor do we designate these contracts as hedges for accounting purposes pursuant to the requirements of SFAS 133, Accounting for Derivative Instruments and Hedging Activities.

Interest Rate Risk

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from holding a revolving promissory note and three term notes which bear variable interest rates.  Specifically, we have $16,398,492 outstanding in variable rate, long-term debt as of September 30, 2006.  The specifics of each note are discussed in greater detail in “Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Indebtedness.”

In order to achieve a fixed interest rate on Term Note #2, we entered into an interest rate swap which helps protect our exposure to increases in interest rates and the swap effectively fixes the interest rate on Term Note #2 at 5.79% until June 1, 2008. When the three-month LIBOR plus 2.80% exceeds 5.79%, we receive payments for the difference between the market rate and the swap rate. Conversely, when the three-month LIBOR plus 2.80% is below 5.79%, we make payments for the difference between the market rate and the swap rate. While our exposure is now greatly reduced, there can be no assurance that the interest rate swap agreement will provide us with protection in all scenarios. For example, if interest rates were to fall below 5.79%, we would still be obligated pay interest at 5.79% under the interest rate swap agreement.

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In order to protect our interest rate exposure on Term Note #3, we entered into an interest rate cap agreement to reduce the risk of increases in interest rates. The interest rate cap agreement is based on a notional amount of $10,000,000 and caps increases in interest rates at 6.8% on this amount. The interest rate cap agreement expired on June 1, 2006; however, obligations under Term Note #3 continue until June 1, 2008. Accordingly, we are vulnerable to rising interest rates.

Since the interest rate cap has expired, it had no value as of September 30, 2006.  At September 30, 2005, the fair value of the interest rate cap was $69,756, which was recorded as an asset with derivative instruments.  The interest rate cap was not designated as a cash flow hedge.  We charged interest expense with the loss on the interest rate cap of approximately $69,756 on the interest rate cap for the fiscal year 2006.  We offset interest expense with a gain of approximately $39,000 on the interest rate cap during fiscal 2005.  The Company charged interest expense with the loss on the interest rate cap of approximately $50,000 for the fiscal year ending September 30, 2004.

Commodity Price Risk

We are also exposed to market risk from changes in commodity prices.  Exposure to commodity price risk results from our dependence on corn and natural gas in the ethanol production process.  We seek to minimize the risks from fluctuations in the prices of corn and natural gas through the use of derivative instruments.  In practice, as markets move, we actively manage our risk and adjust hedging strategies as appropriate.  Although we believe our hedge positions accomplish an economic hedge against our future purchases, they are not designated as such for hedge accounting purposes, which would match the gain or loss on our hedge positions to the specific commodity purchase being hedged.  We are marking to market our hedge positions, which means as the current market price of our hedge positions changes, the gains and losses are immediately recognized in our cost of goods sold.

The immediate recognition of hedging gains and losses can cause net income to be volatile from quarter to quarter due to the timing of the change in value of the derivative instruments relative to the cost and use of the commodity being hedged. At September 30, 2006 and September 30, 2005, the fair value of our derivative instruments for corn and natural gas is an asset in the amount of $4,356,698 and $496,853, respectively. There are several variables that could affect the extent to which our derivative instruments are impacted by price fluctuations in the cost of corn or natural gas. However, it is likely that commodity cash prices will have the greatest impact on the derivatives instruments with delivery dates nearest the current cash price.

To manage our corn price risk, our hedging strategy is designed to establish a price ceiling and floor for our corn purchases.  We have taken a net long position on our exchange traded futures and options contracts, which allows us to offset increases or decreases in the market price of corn.  The upper limit of loss on our futures contracts is the difference between the contract price and the cash market price of corn at the time of the execution of the contract.  The upper limit of loss on our exchange traded and over-the-counter option contracts is limited to the amount of the premium we paid for the option.

We estimate that our expected corn usage is approximately 19 million bushels per year for the production of 52 million gallons of ethanol.  We have price protection in place for a portion of our expected corn usage for fiscal year 2007 and fiscal year 2008 using forward contracts, CBOT futures and options and Over-the-Counter option contracts.  As we move forward, additional protection may be necessary.  As corn prices move in reaction to market trends and information, our income statement will be affected depending on the impact such market movements have on the value of our derivative instruments.  As we move forward, additional price protection may be required to solidify our margins into fiscal year 2007.  Depending on market movements, crop prospects and weather, these price protection positions may cause immediate adverse effects, but are expected to produce long-term positive growth for us.

To manage our natural gas price risk, we entered into a natural gas purchase agreement with our supplier to supply us with natural gas.  This purchase agreement fixes the price at which we purchase natural gas.  We estimate we have purchased a portion of our fall and winter 2006 and 2007 natural gas requirements utilizing both cash, futures and options contracts.  We may also purchase additional natural gas requirements for the 2007 calendar year as we attempt to further reduce our susceptibility to price increases.

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At the time we purchased price protection for natural gas, the market was experiencing a great deal of price uncertainty.  Due to this uncertainty, we purchased amounts for most of the plant’s needs and implemented derivative instruments to allow us to benefit in the event natural gas prices declined.  Energy sector prices have increased and natural gas, as a portion of the total energy market, has responded with higher prices to be cost competitive with its alternatives.  In the future, we may not be able to secure natural gas for prices less than current market price and we may not recover high costs of production resulting from high natural gas prices, which may raise our costs of production.

A sensitivity analysis has been prepared to estimate our exposure to corn and natural gas price risk. The table presents the fair value of our derivative instruments as of September 30, 2006 and 2005 and the potential loss in fair value resulting from a hypothetical 10% adverse change in such prices.  The fair value of the positions is a summation of the fair values calculated by valuing each net position at quoted market prices as of the applicable date. The results of this analysis, which may differ from actual results, are as follows:

Year Ended	Fair Value		Effect of Hypothetical Adverse Change— Market Risk
September 30, 2006	$	4,356,698	$	435,669
September 30, 2005	$	496,853	$	49,685

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Our consolidated financial statements and supplementary data are included beginning at page F-1 of this Report.

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.

Boulay, Heutmaker, Zibell & Co., P.L.L.P. has been our independent auditor since the Company’s inception and is the Company’s independent auditor at the present time.  The Company has had no disagreements with its auditors.

ITEM 9A.CONTROLS AND PROCEDURES.

Our management, including our President and Chief Executive Officer (the principal executive officer), Stephen Roe, along with our Chief Financial Officer (the principal financial officer), Gary Grotjohn, have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2006.  Based upon this review and evaluation, these officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act  is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission; and to ensure that the information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Our management, including our principal executive officer and principal financial officer, have reviewed and evaluated any changes in our internal control over financial reporting that occurred as of September 30, 2006 and there has been no change that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

ITEM 9B.OTHER INFORMATION.

None.

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PART III.

Pursuant to General Instruction G (3), we omit Part III, Items 10, 11, 12, 13, and 14 and incorporate such items by reference to an amendment to this Annual Report on Form 10-K or to a definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Annual Report (September 30, 2006).

PART IV.

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

The following exhibits and financial statements are filed as part of, or are incorporated by reference into, this report:

(1)Financial Statements

An index to the financial statements included in this report appears at page F-1. The financial statements appear beginning at page F-2 of this Report.

(2)Financial Statement Schedules

All supplemental schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.

(3)Exhibits

Exhibit No.	Exhibit	Filed Herewith	Incorporated by Reference
3.1	Articles of Organization of the registrant.		Exhibit 2.1 to the registrant’s registration statement on Form 10-SB filed with the Commission on May 1, 2003
3.2	Third Amended and Restated Operating Agreement of the registrant	X
3.3	Certificate of Limited Partnership.		Exhibit 2.3 to the registrant’s registration statement on Form 10-SB filed with the Commission on May 1, 2003
3.4	Limited Partnership Agreement.		Exhibit 2.4 to the registrant’s registration statement on Form 10-SB filed with the Commission on May 1, 2003
10.1	Ethanol Marketing Agreement between Little Sioux Corn Processors, L.P. and Minnesota Corn Processors, L.L.C.*		Exhibit 6.1 to the registrant’s registration statement on Form 10-SB filed with the Commission on May 1, 2003
10.2	Assignment of Ethanol Marketing Agreement between Little Sioux Corn Processors, L.P. and Minnesota Corn Processors, L.L.C. to Archer Daniels Midland Company.		Exhibit 6.2 to the registrant’s registration statement on Form 10-SB filed with the Commission on May 1, 2003
10.3	Distillers Grain Marketing Agreement between Little Sioux Corn Processors, L.P. and Commodity Specialist Company*.		Exhibit 6.3 to the registrant’s registration statement on Form 10-SB filed with the Commission on May 1, 2003
10.4	Construction Loan Agreement dated July 25, 2002 by and between LSCP, L.P. and First National Bank of Omaha.		Exhibit 10.5 to the registrant’s Form 10-KSB filed with the Commission on December 29, 2003

39

10.5	First Amendment to Construction Loan Agreement dated April 29, 2003 by and between LSCP, L.P. and First National Bank of Omaha.		Exhibit 10.6 to the registrant’s Form 10-KSB filed with the Commission on December 29, 2003
10.6	Second Amendment to Construction Loan Agreement dated June 1, 2003 by and between LCSP, L.P. and First National Bank of Omaha.		Exhibit 10.7 to the registrant’s Form 10-KSB filed with the Commission on December 29, 2003
10.7	Third Amendment to Construction Loan Agreement dated June 23, 2003 by and between LCSP, L.P. and First National Bank of Omaha.		Exhibit 10.8 to the registrant’s Form 10-KSB filed with the Commission on December 29, 2003
10.8	Revolving Promissory Note dated June 23, 2003 between LSCP, L.P. and First National Bank of Omaha.		Exhibit 10.9 to the registrant’s Form 10-KSB filed with the Commission on December 29, 2003
10.9	Term Note #2 dated June 23, 2003 between LSCP, L.P. and First National Bank of Omaha.		Exhibit 10.10 to the registrant’s Form 10-KSB filed with the Commission on December 29, 2003
10.10	Term Note #3 dated June 23, 2003 between LSCP, L.P. and First National Bank of Omaha.		Exhibit 10.11 to the registrant’s Form 10-KSB filed with the Commission on December 29, 2003
10.11	Term Note #4 dated June 23, 2003 between LSCP, L.P. and First National Bank of Omaha.		Exhibit 10.12 to the registrant’s Form 10-KSB filed with the Commission on December 29, 2003
10.12	Agreement Between Owner and Design/Builder on the Basis of a Stipulated Price.		Exhibit 10.1 to the registrant’s Form 10-Q filed with the Commission on February 14, 2005
10.13	Sixth Amendment to Construction Loan Agreement (Term Note #5).		Exhibit 10.2 to the registrant’s Form 10-Q filed with the Commission on February 14, 2005
10.14	LSCP, LLLP Deferred Bonus Compensation Plan.		Exhibit 10.1 to the registrant’s Form 10-Q filed with the Commission on August 15, 2005
10.15	Settlement Agreement and Release of Claims between LSCP, LLLP and Archer Daniels Midland Company dated February 15, 2006.		Exhibit 10.1 to the registrant’s Form 10-Q filed with the Commission on May 15, 2006
10.16	Standard Short Form Agreement between Owner and Contractor for Grain Handling Expansion and Existing Silo Modification dated January 25, 2006 with McCormick Construction Company, Inc.		Exhibit 10.2 to the registrant’s Form 10-Q filed with the Commission on May 15, 2006
10.17	Eleventh Amendment to Construction Loan Agreement dated March 30, 2006 with First National Bank of Omaha.		Exhibit 10.3 to the registrant’s Form 10-Q filed with the Commission on May 15, 2006
10.18	Electrical Design Services Agreement dated July 10, 2006 with Fagen Engineering, LLC.		Exhibit 10.1 to the registrant’s Form 10-Q filed with the Commission on August 14, 2006
10.19	Change Order Agreement dated July 17, 2006 with McCormick Construction Company, Inc.		Exhibit 10.2 to the registrant’s Form 10-Q filed with the Commission on August 14, 2006
10.20	Lump Sum Design-Build Expansion Agreement dated September 20, 2006 with Fagen, Inc.*	X

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14.1	Code of Ethics of Little Sioux Corn Processors, L.L.C. adopted December 18, 2003.		Exhibit 14.1 to the registrant’s Form 10-KSB filed with the Commission on December 29, 2003
21.1	Subsidiaries of the Registrant	X
24.1	Power of Attorney	X
31.1	Certificate Pursuant to 17 CFR 240.13a-14(a)	X
31.2	Certificate Pursuant to 17 CFR 240.13a-14(a)	X
32.1	Certificate Pursuant to 18 U.S.C. Section 1350	X
32.2	Certificate Pursuant to 18 U.S.C. Section 1350	X

*Portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 406 of the Securities Act of 1933, as amended.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		LITTLE SIOUX CORN PROCESSORS, L.L.C.
Date:	December 29, 2006	/s/ Stephen Roe
		Stephen Roe
		President and Chief Executive Officer (Principal Executive Officer)
Date:	December 29, 2006	/s/ Gary Grotjohn
		Gary Grotjohn
		Chief Financial Officer (Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date: December 29, 2006	/s/ Vince Davis**
	Vince Davis, Director
Date: December 29, 2006	/s/ Daryl Haack**
	Daryl Haack, Director
Date: December 29, 2006	/s/ Doug Lansink**
	Doug Lansink, Director
Date: December 29, 2006	/s/ Ron Wetherell
	Ron Wetherell, Chairman and Director
Date: December 29, 2006	/s/ Darrell Downs**
	Darrell Downs, Director
Date: December 29, 2006	/s/ Myron Pingel
	Myron Pingel, Vice Chairman and Director

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Date: December 29, 2006	/s/ Tim Ohlson**
	Tim Ohlson, Secretary and Director
Date: December 29, 2006	/s/ Verdell Johnson**
	Verdell Johnson, Director
Date: December 29, 2006	/s/ Dale Arends**
	Dale Arends, Director

**By:	/s/ Ron Wetherell
	Ron Wetherell Attorney-in-Fact pursuant to a power of attorney
	/s/ Myron Pingel
	Myron Pingel Attorney-in-Fact pursuant to a power of attorney

42

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page No.
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Financial Statements
Consolidated Balance Sheet as of September 30, 2006 and 2005	F-3
Consolidated Statements of Operation for the years ended September 30, 2006, 2005 and 2004	F-5
Consolidated Statements of Members’ Equity and Accumulated Other Comprehensive Income for the years ended September 30, 2006, 2005 and 2004	F-6
Consolidated Statements of Cash Flows for the years ended September 30, 2006, 2005 and 2004	F-7
Notes to Consolidated Financial Statements	F-9
Report of Independent Registered Public Accounting Firm on Supplementary Information	F-19
Consolidating Balance Sheet	F-20
Consolidating Statements of Operations	F-22
Consolidated Schedule of Grain Purchases	F-23
Consolidated Schedule of Corn Payables	F-24

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
Little Sioux Corn Processors, LLC and Subsidiary
Marcus, Iowa

We have audited the accompanying consolidated balance sheet of Little Sioux Corn Processors, LLC and Subsidiary as of September 30, 2006 and 2005, and the related consolidated statements of operations, changes in members’ equity and accumulated other comprehensive income, and cash flows for the fiscal years ended September 30, 2006, 2005 and 2004.  These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Little Sioux Corn Processors, LLC and Subsidiary as of September 30, 2006 and 2005, and the results of their operations and their cash flows for the fiscal years ended September 30, 2006, 2005 and 2004, in conformity with U.S. generally accepted accounting principles.

/s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P.

Certified Public Accountants

Minneapolis, Minnesota
December 27, 2006

F-2

LITTLE SIOUX CORN PROCESSORS, LLC AND SUBSIDIARY
Consolidated Balance Sheet

	September 30		September 30
	2006		2005
ASSETS
Current Assets
Cash and equivalents	$	10,133,691	$	14,135,954
Short-term investments	18,726,834		6,987,420
Accounts receivable	2,655,454		2,703,324
Inventory	1,666,395		1,346,217
Derivative instruments	4,356,698		566,609
Prepaid expenses	1,835,214		1,008,754
Total current assets	39,374,286		26,748,278
Property and Equipment
Land and improvements	2,826,839		2,762,708
Plant buildings and equipment	57,971,654		55,146,210
Office buildings and equipment	213,928		335,392
	61,012,421		58,244,310
Less accumulated depreciation	13,649,392		8,829,771
	47,363,029		49,414,539
Construction in progress	4,384,830		713,898
Net property and equipment	51,747,859		50,128,437
Other Assets
Long-term investments	103,742		48,000
Land option and other	189,616		-
Deferred loan costs, net of accumulated amortization	141,112		237,641
Total other assets	434,470		285,641
Total Assets	$	91,556,615	$	77,162,356

See Notes to Consolidated Financial Statements

F-3

LITTLE SIOUX CORN PROCESSORS, LLC AND SUBSIDIARY
Consolidated Balance Sheet

	September 30		September 30
	2006		2005
LIABILITIES AND MEMBERS’ EQUITY
Current Liabilities
Current maturities of long-term liabilities	$	3,394,196	$	4,005,714
Accounts payable	2,064,582		2,304,286
Accrued expenses	564,618		4,382,316
Total current liabilities	6,023,396		10,692,316
Long-Term Liabilities, net of current maturities	13,504,582		16,092,315
Minority Interest	28,864,721		20,209,574
Members’ Equity, 10,941 units issued and outstanding	43,163,916		30,168,151
Total Liabilities and Members’ Equity	$	91,556,615	$	77,162,356

See Notes to Consolidated Financial Statements

F-4

LITTLE SIOUX CORN PROCESSORS, LLC AND SUBSIDIARY
Consolidated Statements of Operations

	Year Ended			Year Ended			Year Ended
	September 30			September 30			September 30
	2006			2005			2004
Revenues	$	113,785,666		$	95,881,420		$	85,540,934
Cost of Goods Sold	73,678,035			65,257,086			74,649,569
Gross Margin	40,107,631			30,624,334			10,891,365
Selling, General, and Adminstrative Expenses	3,001,254			2,634,802			2,733,993
Operating Income	37,106,377			27,989,532			8,157,372
Other Income (Expense)
Interest income	835,980			158,761			7,557
Interest expense	(1,286,265		)	(1,126,101		)	(1,439,020		)
Other income	331,648			(3,501,726		)	6,791,603
Total other income (expense), net	(118,637		)	(4,469,066		)	5,360,140
Net Income Before Minority Interest	36,987,740			23,520,466			13,517,512
Minority Interest in Subsidiary Income	14,775,906			9,421,765			5,663,681
Net Income	$	22,211,834		$	14,098,701		$	7,853,831
Net Income Per Unit - Basic and Diluted	$	2,030.15		$	1,288.61		$	717.83
Distributions Per Unit - Basic and Diluted	$	842.34		$	458.12		$	103.86
Weighted Average Units Outstanding-Basic and Diluted	10,941			10,941			10,941

See Notes to Consolidated Financial Statements

F-5

LITTLE SIOUX CORN PROCESSORS, LLC AND SUBSIDIARY
Consolidated Statement of Changes in Members’ Equity and Accumulated Other Comprehensive Income

	Member Contributions		Retained Earnings			Comprehensive Income (Loss)		Accumulated Other Comprehensive Income (Loss)
Balance - September 30, 2003	$	10,842,237	$	3,522,028				$	(217,441	)
Net income			7,853,831			7,853,831
Distributions			(1,136,332		)
Other comprehensive loss:
Less: reclassification adjustment for losses included in net income						217,441		217,441
Comprehensive income						$	8,071,272
Balance - September 30, 2004	$	10,842,237	$	10,239,527				$	—
Net income			14,098,701
Distributions			(5,012,314		)
Balance - September 30, 2005	$	10,842,237	$	19,325,914				$	—
Net income			22,211,834
Distributions			(9,216,069		)
Balance - September 30, 2006	$	10,842,237	$	32,321,679				$	—

See Notes to Consolidated Financial Statements

F-6

LITTLE SIOUX CORN PROCESSORS, LLC AND SUBSIDIARY
Consolidated Statements of Cash Flows

	Year Ended			Year Ended			Year Ended
	September 30			September 30			September 30
	2006			2005			2004
Operating Activities
Net income	$	22,211,834		$	14,098,701		$	7,853,831
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	4,916,150			3,885,650			3,519,323
Minority interest in subsidiary’s income	14,775,906			9,421,765			5,663,681
Provision for losses on receivables	(20,000		)	-			-
Loss on hedging activity	-			-			312,777
Change in operating assets and liabilities:
Restricted cash	-			2,730,481			(2,717,579		)
Recievables	67,870			32,252			2,380,756
Inventory	(320,178		)	738,387			(664,360		)
Derivative instruments	(3,790,089		)	(748,188		)	638,192
Prepaid expenses	(826,460		)	(519,869		)	75,544
Accounts payable	(239,704		)	363,135			578,272
Accrued expenses	(3,817,698		)	4,091,103			(161,328		)
Net cash provided by operating activities	32,957,631			34,093,417			17,479,109
Investing Activities
Proceeds from investments	10,869,891			-			-
Payments for investments	(22,665,047		)	(7,035,420		)	-
Capital expenditures	(6,439,043		)	(374,450		)	(2,230,069		)
Land option and other	(189,616		)	-			-
Net cash used in investing activities	(18,423,815		)	(7,409,870		)	(2,230,069		)
Financing Activities
Net changes in short-term debt	-			(38,829		)	(736,336		)
Payments of long-term debt	(3,199,251		)	(7,984,636		)	(8,342,045		)
Redemption of minority interest	-			-			(750,000		)
Distribution paid to minority interest	(6,120,759		)	(3,419,194		)	(913,430		)
Distribution paid to members	(9,216,069		)	(5,012,314		)	(1,136,332		)
Net cash used in financing activities	(18,536,079		)	(16,454,973		)	(11,878,143		)
Net increase in cash and equivalents	(4,002,263		)	10,228,574			3,370,897
Cash and equivalents — Beginning of Period	14,135,954			3,907,380			536,483
Cash and equivalents — End of Period	$	10,133,691		$	14,135,954		$	3,907,380

See Notes to Consolidated Financial Statements

F-7

LITTLE SIOUX CORN PROCESSORS, LLC AND SUBSIDIARY
Consolidated Statements of Cash Flow

	Year Ended		Year Ended		Year Ended
	September 30		September 30		September 30
	2006		2005		2004
Supplemental Cash Flow Information
Cash paid for interest	$	1,255,615	$	1,102,945	$	1,527,937
Construction in progress included in accounts payable	$	-	$	596,000
Equipment acquired through a construction note	$	-	$	5,400,000	$	-
Reduction in property and equipment due to debt
Forgiveness	$	-	$	-	$	90,000

See Notes to Consolidated Financial Statements

F-8

LITTLE SIOUX CORN PROCESSORS, LLC AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2006 and 2005

Note 1:  Nature of Operations

The “Company” represents Little Sioux Corn Processors, LLC (the “LLC”) and its subsidiary LSCP, LLLP (“LSCP”).  The Company operates a 52 million gallon ethanol plant, located near Marcus, Iowa.   In July 2005, the Company completed its expansion, from a 40 million gallon plant to 52 million gallon plant.  The Company is currently in the process of expanding the plant from a 52 million gallon plant to a 92 million gallon plant, as described in Note 15.  The Company sells its production of ethanol, distiller’s grains with solubles, modified wet distillers grains with solubles and corn oil in the Continental United States.

Note 2:  Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the LLC and its 60.15% owned subsidiary, LSCP.  All significant inter-company balances and transactions are eliminated in consolidation.

Minority Interest

Amounts recorded as minority interest on the balance sheet relate to the net investment by limited partners in LSCP plus or minus any allocation of income or loss of LSCP.  After giving effect to certain special allocations, income and losses of LSCP will be allocated to the partners based upon their respective percentage of partnership units held.  The minority interest share of the comprehensive income for the fiscal years ending September 30, 2006, 2005, and 2004, is $14,775,906, $9,421,765, and $5,663,681, respectively.

Minority interest has been classified on the accompanying balance sheet to reflect it as a separate line item rather than including it as part of equity.  This classification has no impact on net income or earnings per unit.

Use of Estimates

The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Revenue Recognition

Revenue from the sale of the Company’s products is recognized at the time title of the goods and all risks of ownership transfer to the customers.  This generally occurs upon shipment to the customer or when the customer picks up the goods.

The Company records revenue from federal and state incentive programs related to the production of ethanol when the Company has sold the ethanol and completed all the requirements of the applicable incentive program.

The Company has an ethanol marketing agreement with ADM, a related party, whereby ADM purchases all of the Company’s ethanol. The Company agrees to pay ADM a fixed price per gallon for every gallon of ethanol produced by the Company and sold by ADM. The initial term is until April 2007 with renewal options thereafter in one-year increments.

Cash and Equivalents

The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash and equivalents.

The Company maintains its accounts primarily at two financial institutions.  At times throughout the year, the Company’s cash and equivalents balances, which include money market funds and debt instrument with a maturity of less than three months, may exceed amounts insured by the Federal Deposit Insurance Corporation.  At September 30, 2006, and September 30, 2005, such money market funds and debt instruments approximated $4,124,000 and

F-9

$11,779,000, respectively.  The Company does not believe it is exposed to any significant credit risk on cash and equivalents.

Restricted Cash

The Company is periodically required to maintain cash balances at its broker related to derivative instrument positions.

Investments

The Company includes in investments certain debt instruments with maturities greater than three months and marketable securities, both classified as “available for sale.”   The Company maintains marketable securities as part of the deferred compensation plan and classifies these amounts as long-term investments.  Accordingly, a corresponding liability has been recorded in accrued expenses.  Investments are carried at their estimated fair market value based on quoted mark prices. 

Accounts Receivable

Credit terms are extended to customers in the normal course of business.  The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral.

Accounts receivable are recorded at their estimated net realizable value.  Accounts are considered past due if payment is not made on a timely basis in accordance with the Company’s credit terms.  Accounts considered uncollectible are written off.  The Company’s estimate of the allowance for doubtful accounts is based on historical experience, its evaluation of the current status of receivables, and unusual circumstances, if any.  At September 30, 2006, the Company was of the belief that such amounts would be collectable and thus an allowance was not considered necessary.  At September 30, 2005, the Company had an allowance for doubtful accounts of $20,000.

Inventory

Inventory consists of raw materials, work in process, and finished goods.  Corn is the primary raw material and, along with other raw materials, is stated at the lower of average cost or market.  Finished foods consist of ethanol produced and DDGS, MWDGS, and corn oil, and are stated at the lower of first-in, first-out, (FIFO method) cost or market.

Property and Equipment

Property and equipment are stated at the lower of cost or estimated fair value.  Depreciation is computed by the straight-line method over the following estimated useful lives:

Asset Description	Years
Land improvements	5 — 40
Buildings and improvements	7 — 40
Machinery and equipment	3 — 20
Office equipment and furnishings	3 — 10

Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized.  The present value of capital lease obligations are classified as long-term debt and the related assets are included in equipment.  Amortization of equipment under capital lease is included in depreciation expense.

The Company reviews its property and equipment impairment whenever events indicate that the carrying amount of the asset may not be recoverable.  An impairment loss is recorded when the sum of the future cash flows is less than the carrying amount of the asset.  An impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value.

F-10

Deferred Loan Costs

Costs associated with the issuance of the construction loan discussed in Note 7 are recorded as deferred loan costs, net of accumulated amortization.  Loan costs are amortized to operations over the life of term note #2 using the effective interest method.

Derivative Instruments

The Company accounts for derivative instruments and hedging activities in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. SFAS No. 133 requires a company to evaluate its contracts to determine whether the contracts are derivatives.  Certain contracts that literally meet the definition of a derivative may be exempted from SFAS No. 133 as normal purchases or normal sales.  Normal purchases and normal sales are contracts that provide for the purchases or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business.  Contracts that meet the requirements of normal are documented as normal and exempted from accounting and reporting requirements of SFAS No. 133.

In order to reduce the risk caused by market fluctuations of corn, natural gas and interest rates, the Company enters into option, futures and swap contracts.  These contracts are used to fix the purchase price of the Company’s anticipated requirements of corn and natural gas in production activities and limit the effect of increases in interest rates.  The fair value of these contracts is based on quoted prices in active exchange-traded or over-the-counter markets.  The fair value of the derivatives is continually subject to change due to the changing market conditions.  The Company does not typically enter into derivative instruments other than for hedging purposes. On the date the derivative instrument is entered into, the Company will designate the derivative as hedge. Changes in the fair value of a derivative instrument that is designated as, and meets all of the required criteria, for a cash flow or fair value hedge is recorded in accumulated other comprehensive income and reclassified into earnings as the hedged items affect earnings. Changes the fair value of derivative instrument that is not designated as, and accounted for, as a cash flow or fair value hedge is recorded in current period earnings. Although certain derivative instruments may not be designated as, and accounted for, as a cash flow or fair value hedge, they are effective economic hedges of specified risks.

Benefit Plans

The Company has a 401(k) plan covering substantially all employees who meet specified age and service requirements.  Under this plan, the Company makes a matching contribution of up to 4% of the participants’ eligible wages.

The Company has a deferred compensation plan for certain employees providing supplemental benefits.  The Board may annually grant a discretionary deferred bonus under the plan to each participant in an amount up to twenty percent of each participant’s base salary for the prior calendar year.  Costs of the plan are recognized during the employee’s service period for the Company so that the benefits are accrued when payments begin.  Participants are fully vested six years after the grant date provided that the participant is employed full-time. Deferred compensation amounts are included in accrued expenses.

Income Taxes

The LLC and LSCP are treated as partnerships for federal and state income tax purposes and generally do not incur income taxes.  Instead, their earnings and losses are included in the income tax returns of the members and partners.  Therefore, no provision or liability for federal or state income taxes has been included in these financial statements.  Differences between consolidated financial statement basis of assets and tax basis of assets is related to capitalization and amortization of organization and start-up costs for tax purposes, whereas these costs are expensed for financial statement purposes.  In addition, the Company uses the modified accelerated cost recovery system method (MACRS) for tax depreciation instead of the straight-line method that is used for book depreciation, which also causes temporary differences.

Fair Value of Financial Instruments

The carrying value of cash and equivalents approximates their fair value.

The Company believes the carrying amount of derivative instruments approximates fair value based on quote market prices.

F-11

It is not currently practicable to estimate fair value of the line of credit and notes payable to the lending institution.  Because these agreements contain certain unique terms, conditions, covenants, and restrictions, as discussed in Notes 8 and 9, there are no readily determinable similar instruments on which to base an estimate of fair value.

Environmental Liabilities

The Company’s operations are subject to environmental laws and regulations adopted by various governmental entities in the jurisdiction in which it operates.  These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its location.  Accordingly, the Company has adopted policies, practices, and procedures in the areas of pollution control, occupational health, and the production, handling, storage and use of hazardous materials to prevent material environmental or other damage, and to limit the financial liability, which could result from such events.  Environmental liabilities are recorded when the liability is probable and the costs can reasonably estimated.

Reclassifications

The presentation of certain items in the consolidated balance sheet for 2005 and consolidated statements of operations and cash flows for September 30, 2005 and 2004, has been changed to conform to the classifications used at September 30, 2006.  These reclassifications had no effect on members’ equity, net income, or cash flows previously reported.

Note 3.  Investments

The cost and fair value of the Company’s investments are as follows at September 30:

	2006
	Amortized Cost		Fair Value
Short-term investments
Certificates of deposit	$	1,000,000	$	1,000,000
Marketable securities — government notes and bonds	17,726,834		17,726,834
Total	18,726,834		18,726,834
Other investments
Marketable securities — government notes and bonds	103,742		103,742
Total investments	$	18,830,576	$	18,830,576

	2005
	Amortized Cost		Fair Value
Short-term investments
Certificates of deposit	$	5,000,000	$	5,000,000
Marketable securities — government notes and bonds	1,987,992		1,987,992
Total	6,987,992		6,987,992
Other investments
Marketable securities — government notes and bonds	48,000		48,000
Total investments	$	7,035,992	$	7,035,992

There were no material realized or unrealized gains or losses for fiscal 2006, 2005, or 2004.

F-12

Shown below are the amortized cost and estimated fair value of securities with fixed maturities at September 30, 2006, by contractual maturity dates.  Actual maturities may differ from contractual maturities because certain securities may retain early call or prepayment rights.

	Amortized Cost		Fair Value
Due within one year	$	18,739,657	$	18,739,657
Due after one year but within five years	90,919		90,919
Total investments	$	18,830,576	$	18,830,576

Note 4:  Inventory

Inventory is comprised of the following at:

	September 30, 2006		September 20, 2005
Raw materials	$	1,001,783	$	579,568
Work in process	364,036		437,872
Finished goods	300,576		328,777
Totals	$	1,666,395	$	1,346,217

Note 5: Derivative Instruments

At September 30, 2006 and September 30, 2005, the Company had recorded an asset for derivative instruments related to corn and natural gas option and futures positions of $4,356,698 and $496,853, respectively.  None of the positions open at September 30, 2006 were designated as cash flow or fair value hedges.  The Company has recorded a gain of approximately $1,311,000 in cost of goods sold for the twelve months ended September 30, 2006.  The Company had recorded a loss of $2,697,000 and $ 3,851,000 in cost of goods sold for the twelve months ended September 30, 2005 and 2004, respectively.

At September 30, 2005, the Company had an interest rate cap as described in Note 9 with a fair value of $69,756, respectively, recorded as an asset with derivative instruments.  The interest rate cap was not designated as a cash flow or fair value hedge.  The Company charged interest expense with a loss of $69,756 during fiscal 2006 as the interest rate cap expired in June 2006.  The Company offset interest expense with a gain $39,000 during fiscal 2005.  The Company charged interest expense with a loss of $50,000 for fiscal 2004.

Note 6: Construction in Progress

The Company continues to make payments for the expansion to a 92 million gallon plant. During fiscal 2006, the Company has not incurred any interest nor has the Company capitalized any interest related to construction in progress.  The Company anticipates the expansion will cost approximately $73,000,000.

During fiscal 2005, the Company capitalized interest related to the expansion to a 52 million gallon plant of $26,526.

Note 7: Deferred Loan Costs

The Company had deferred loan costs of $487,060 with accumulated amortization of $345,948 at September 30, 2006.  At September 30, 2005, the Company has deferred loan costs of $487,060 with accumulated amortization of $249,419.  The amortization expense related to the deferred loan costs for fiscal years 2006, 2005, and 2004 was approximately $97,000, $108,000 and $118,000, respectively.

Note 8:  Revolving Promissory Note

Under the terms of the financing agreement with the lending institution, the Company has a revolving promissory note of up to $3,500,000, subject to borrowing base limitations.  In April 2006, the lending institution renewed the revolving

F-13

promissory note until March 2007.  The revolving promissory note incurs interest monthly at the one month LIBOR plus 280 basis points.  The Company pays a commitment fee of .125% on the unused portion of the revolving promissory note.  There were no balances outstanding on the revolving promissory note at September 30, 2006 or 2005.  The revolving promissory note as well as the term notes described in Note 9 are subject to protective covenants under a common financing agreement requiring the Company to maintain various financial ratios, including debt service coverage and minimum net worth and working capital requirements and secured by all business assets.

Note 9: Long-Term Liabilities

Long-term liabilities consists of the following:

	September 30, 2006	September 30, 2005
Term note 2 has fixed principal payments due quarterly with interest at the three month LIBOR plus 280 basis points, which totaled 8.20% and 6.67% at September 30, 2006 and 2005, respectively, payable in full on June 1, 2008.  As part of the financing agreement, the Company accepted a fixed rate option on term note 2 by entering into an interest rate swap which effectively fixes the interest rate on this term note at 5.79% until this term note is repaid on June 1, 2008. The Company did not designate the interest rate swap as a cash flow or fair value hedge. The value of the interest rate swap is not significant.	$11,308,363	$12,732,447
Term note 3 bears interest at the three month LIBOR plus 280 basis points, which totaled 8.20% and 6.67% at September 30, 2006 and 2005, respectively.  Term note 3 is payable in full on June 1, 2008.  The Company is required to make quarterly payments of $506,588 applied first to accrued interest on term note 4.  The remaining amount is applied to accrued interest on term note 3 and then to principal until this note is paid in full or until maturity.  After term note 3 is repaid, payments are applied first to accrued interest and then to principal on term note 4 until paid in full or until maturity.	5,090,129	1,293,643
Term note 4 bears interest at the one month LIBOR plus 280 basis points.  Term note 4 is payable in full on June 1, 2008.  Term note #4 had no outstanding balance as of June 30, 2006. Term note 4 allows subsequent borrowings up to the original $5,000,000 to the extent of principal payments made until maturity and requires a commitment fee of .25% on any used portion.	-	-
Term note 5 was added to term note #3 on October 1, 2005.	-	5,400,000
Note payable to Iowa Energy Center, due in monthly payments of $3,472 without interest, maturing on January 29, 2009, secured by real estate, subordinated to term notes.	97,222	138,889
Note payable to bank due in monthly payments of $5,921 including interest at 6% maturing on January 29, 2009, secured by real estate, subordinated to term notes.	108,136	149,986
Note payable to Iowa Department of Economic Development, due in sixty monthly installments beginning August 1, 2004 of $1,167 without interest, payable in full on July 1, 2009, secured by all equipment.	178,500	192,500
Capital lease obligation, due in monthly installments initially totaling $6,658 commencing April 1, 2003 including implicit interest at 3.67% through March 1, 2008, secured by leased equipment.	116,428	190,564
Totals	$16,898,778	$20,098,029
Less amounts due within one year	3,394,196	4,005,714
Totals	$13,504,582	$16,092,315

As part of the financing agreement, the premium above the LIBOR on the term notes and revolving promissory note has been reduced based on a financial ratio from the original 380 basis points.  The financing agreement requires an annual servicing fee of $50,000 for five years.  The Company entered into an interest rate cap to reduce the risk of increases in interest rates. The interest rate cap was based on a $10,000,000 notional amount and capped interest rate increases at 6.8%. The interest rate cap expired in June 2006.

F-14

The estimated maturities of long-term liabilities at September 30, 2006 are as follows:

2007	$	3,394,196
2008	13,323,662
2009	180,920
Total long-term liabilities	$	16,898,778

Note 10: Leases

The Company leases equipment under operating and capital leases through 2008.  The Company is generally responsible for maintenance, taxes, and utilities for leased equipment.  Equipment under operating leases includes rail cars and various other equipment.  Rent expense for operating leases was approximately $187,000, $229,000, and $312,000 for fiscal years 2006, 2005, and 2004, respectively.  During fiscal 2006, the Company rented rail cars on a month-to-month basis and recognized approximately $60,000 in other income.  During fiscal 2005, the Company recognized rail car rental income approximately $89,000 in other income.  There was no rail car rental income during fiscal 2004.  During fiscal 2005, the Company also recorded income of approximately $90,000 on the permanent transfer of 30 rail cars of a 50 rail car lease to a third party.  This transfer indemnified the Company from any liability and, as a result, the Company transferred all rights and privileges to the 30 rail cars.

Equipment under capital leases is as follows:

	September 30,		September 30,
	2006		2005
Equipment	$	451,437	$	451,437
Accumulated Amortization	105,212		75,116
Total	$	346,225	$	376,321

At September 30, 2006, the Company had the following minimum commitments, which at inception had non-cancelable terms of more than one year:

	Operating Lease		Capital Lease
2007	$	187,371	$	79,893
2008	168,054		39,946
2009	54,480		——
Total minimum lease commitments	$	409,905	119,839
Less amount representing interest			3,411
Present value of minimum lease commitments, included in the preceding long-term liabilities			$	116,428

Note 11:  Members’ Equity

On January 17, 2006, the Board of Directors declared a distribution of $15,361,000 from LSCP to the partners, which was paid in February 2006.  The LLC received approximately $9,240,000 of this distribution.  In February 2006, the LLC paid $842.34 per unit to the LLC unit holders.

On January 18, 2005, the Board of Directors declared a distribution of $4,000,000 from LSCP to the partners, which was paid in February 2005.  The LLC received approximately $2,406,000 of this distribution.  In February 2005, the LLC paid $219.92 per unit to the LLC unit holders.

On March 15, 2005, the Board of Directors declared a distribution of $3,000,000 from LSCP to the partners, which was paid in April 2005.  The LLC received approximately $1,805,000 of this distribution.  In April 2005, the LLC paid $159.96 per unit to the LLC unit holders.

On September 20, 2005, the Board of Directors declared a distribution of $1,581,000 from LSCP to the partners, which was paid in September 2005.  The LLC received approximately $951,000 of this distribution.  In September 2005, the LLC paid $78.24 per unit to the LLC unit holders.

On January 20, 2004, the Board of Directors declared a distribution of $1,050,000 from LSCP to the partners, which was paid in February 2004.  The LLC received approximately $615,000 of this distribution.  In February 2004, the LLC paid approximately $51.29 per unit to the LLC unit holders.

On August 17, 2004, the Board of Directors declared a distribution of $1,200,000 from LSCP to the partners, which was paid in September 2004.  The LLC received approximately $722,000 of this distribution.  In September 2004, the LLC paid approximately $52.57 per unit to the LLC unit holders.

Note 12:  Employee Benefit Plans

The Company recorded contributions to the 401(k) plan of approximately $53,000, $33,000 and $28,000 in fiscal 2006, 2005 and 2004, respectively.

F-15

Compensation expense related to the deferred compensation plan was approximately $28,000 and $48,000 in fiscal 2006 and 2005, respectively.  There were no deferred compensation amounts in fiscal 2004.

Note 13:  Related Party Transactions

The Company has balances and transactions in the normal course of business with various related parties.  Significant related party activity affecting consolidated financial statements are as follows:

Balance Sheet	September 30, 2006		September 30, 2005
Accounts receivable	$	2,236,000	$	2,272,000
Accounts payable	137,000		3,923,000

Statements of Operations	Year Ended September 30, 2006		Year Ended September 30, 2005		Year Ended September 30, 2004
Revenues	$	101,069,000	$	82,549,000	$	73,309,000
Expenses	14,121,000		11,672,000		15,840,000

Note 14:  Income Taxes

The differences between consolidated financial statement basis and tax basis of assets are as follows:

	September 30 2006		September 30 2005
Consolidated financial statement basis of assets	$	91,556,615	$	77,162,356
Plus: organization and start-up costs capitalized, net	238,211		397,163
Plus: deferred compensation amounts	74,247		48,000
Less: accumulated tax depreciation and amortization greater than financial statement basis	(17,954,460)		(18,585,418		)
Income tax basis of assets	$	73,914,613	$	58,974,101

There were no differences between the consolidated financial statement basis and tax basis of the Company’s liabilities.

Note 15:  Commitments and Contingencies

Contractual Obligations

The following table provides information regarding the contractual obligations of the Company as of September 30, 2006:

	Total		Less than One Year		One to Three Years
Long-Term Debt Obligations	$	16,898,778	$	3,394,196	$	13,504,582
Operating Lease Obligations	$	409,905	$	187,371	$	222,534
Purchase Obligations	$	66,306,619	$	65,775,127	$	531,492
Total Contractual Obligations	$	83,615,302	$	69,356,694	$	14,258,608

F-16

Land Options

In June 2006, the Company entered into a land option agreement for $15,000 that will be credited against the purchases price of $2,333,000 should the Company decide to exercise the option.  The land is expected to be used for the potential 100 MGPY ethanol plant that is anticipated to be located near Akron, Iowa.  The land option commences on the date of the execution of the option agreement and continues for until December 19, 2006.  The option was extended to June 19, 2007 for an additional payment of $10,000.  If the option is not exercised after the specified date, the land option agreement becomes null and void.  The land included in this option and the one described below entered into in June 2006 are the primary building sites, and both options must be exercised together.

In June 2006, the Company entered into a land option agreement for $15,000 that will be credited against the purchase price of $2,100,000 should the Company decide to exercise the option.  The land is expected to be used for the potential 100 MGPY ethanol plant that is anticipated to be located near Akron, Iowa.  The land option commences on the date of the execution of the option agreement and continues for until December 19, 2006.  The option was extended to June 19, 2007 for an additional payment of $10,000.  If the option is not exercised after the specified date, the land option agreement becomes null and void.  The land included in this option and the one described above entered into in June 2006 are the primary building sites, and both options must be exercised together.

The Company had two options on alternate sites that have expired.

Expansion Contract

In September 2006, the Company entered into a Design-Build Contract with Fagen, Inc., a related party, for the construction of a 40 million gallon per year expansion to the Company’s current plant in Marcus, Iowa.  The contract value is approximately $47,860,000.  The construction period on the contract is expected to last approximately one year from the notice to proceed.

Legal Proceedings

The Company was involved in a dispute with ADM involving the ethanol marketing agreement.  The Company settled the claim by agreeing to pay ADM approximately $3,900,000, which the Company recorded as of September 30, 2005 in other income and expense.  This amount was paid in February 2006.

Note 16:  Quarterly Financial Data (Unaudited)

Summary quarterly results are as follows:

Fiscal year ended September 30, 2006	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Revenues	$	23,141,931	$	27,498,079	$	31,146,507	$	31,999,149
Gross profit	7,770,477		7,562,173		11,401,189		13,373,792
Operating income	7,095,713		6,712,372		10,646,392		12,651,900
Income before minority interest	6,993,492		6,654,834		10,646,950		12,692,464
Minority interest in subsidiary income	2,787,012		2,659,079		4,250,481		5,079,334
Net income	4,206,480		3,995,755		6,396,469		7,613,130
Basic and diluted earnings per unit	384.47		365.21		584.63		695.84

Fiscal year ended September 30, 2005	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Revenues	$	22,975,735	$	23,835,684	$	23,101,306	$	25,968,695
Gross profit	5,907,410		8,135,675		7,887,907		8,693,342
Operating income	5,211,539		7,470,042		7,279,454		8,028,497
Income before minority interest	4,993,564		7,375,228		7,146,738		4,004,936
Minority interest in subsidiary income	1,992,348		2,965,331		2,858,942		1,605,144
Net income	3,001,216		4,409,897		4,287,796		2,399,792
Basic and diluted earnings per unit	274.31		403.06		391.90		219.34

F-17

Fiscal year ended September 30, 2004	First Quarter		Second Quarter		Third Quarter			Fourth Quarter
Revenues	$	19,266,908	$	20,203,296	$	21,497,087		$	24,573,643
Gross profit (loss)	3,013,255		8,040,239		(2,591,303		)	2,429,174
Operating income (loss)	2,295,699		7,387,346		(3,223,140		)	1,697,467
Income (loss) before minority interest	4,529,123		11,295,095		(3,900,172		)	1,593,466
Minority interest in subsidiary income (loss)	1,880,548		4,715,589		(1,592,236		)	659,780
Net income (loss)	2,648,575		6,579,506		(2,307,936		)	933,686
Basic and diluted earnings (loss) per unit	242.08		601.36		(210.94		)	85.33

The above quarterly financial data is unaudited, but in the opinion of management, all adjustments necessary for a fair presentation of the selected data for these periods presented have been included.

F-18

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
SUPPLEMENTARY INFORMATION

Board of Directors
Little Sioux Corn Processors, LLC and Subsidiary
Marcus, Iowa

Our report on our audits of the consolidated financial statements of Little Sioux Corn Processors, LLC and Subsidiary for the fiscal years ended September 30, 2006, 2005 and 2004 appears on page F-2.  Those audits were conducted for the purpose of forming an opinion on the consolidated financial statements taken as a whole.  The supplementary information on pages F-20 through F-24 is presented for the purposes of additional analysis and is not a required part of the basic consolidated financial statements.  Such information has not been subjected to the auditing procedures applied in the audits of the consolidated financial statements and, accordingly, we express no opinion on it.

/s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P.

Certified Public Accountants

Minneapolis, Minnesota
December 27, 2006

F-19

LITTLE SIOUX CORN PROCESSORS, LLC AND SUBSIDIARY
Consolidating Balance Sheet

	September 30
	2006
	LSCP, LLLP			Little Sioux Processors, LLC		Elimination			Consolidated			2005 Consolidated
Assets
Current Assets
Cash and equivalents	$	10,130,695		$	2,996	$	—		$	10,133,691		$	14,135,954
Short-term investments	18,726,834			—		—			18,726,834			6,987,420
Accounts receivable	2,749,007			—		(93,553		)	2,655,454			2,703,324
Inventory	1,666,395			—		—			1,666,395			1,346,217
Derivative instruments	4,356,698			—		—			4,356,698			566,609
Prepaid expenses	1,835,214			—		—			1,835,214			1,008,754
Total current assets	39,464,843			2,996		(93,553		)	39,374,286			26,748,278
Property and Equipment
Land and improvements	2,826,839			—		—			2,826,839			2,762,708
Plant buildings and equipment	57,971,654			—		—			57,971,654			55,286,305
Office buildings and equipment	213,928			—		—			213,928			195,298
	61,012,421			—		—			61,012,421			58,244,311
Less accumulated depreciation	(13,649,392		)	—		—			(13,649,392		)	(8,829,771		)
	47,363,029			—		—			47,363,029			49,414,540
Construction in progress	4,384,830			—		—			4,384,830			713,898
Net property and equipment	51,747,859			—		—			51,747,859			50,128,437
Other Assets
Long-term investments	103,742			—		—			103,742			48,000
Investments in LSCP, LLLP	—			43,254,473		(43,254,473		)	—			—
Land options and other	189,616			—		—			189,616			—
Deferred loan costs, net of accumulated amortization	141,112			—		—			141,112			237,641
	434,469			43,254,473		(43,254,473		)	434,470			285,641
Total Assets	$	91,647,172		$	43,257,469	(43,348,026		)	91,556,615			77,162,356

See Report of Independent Registered Public Accounting Firm on Supplemental Information.

F-20

LITTLE SIOUX CORN PROCESSORS, LLC AND SUBSIDIARY
Consolidating Balance Sheet

	September 30
	2006
	LSCP, LLLP		Little Sioux Processors, LLC		Elimination			Consolidated	2005 Consolidated
Liabilities and Members Equity
Current Liabilities
Current maturities of long-term liabilities	$	3,394,196	$	—	$	—		3,394,196	$	4,005,714
Accounts payable	2,064,582		93,553		(93,553		)	2,064,582	2,304,286
Accrued expenses	564,618		—		—			564,618	4,382,316
Total current liabilities	6,023,396		93,553		(93,553		)	6,023,396	10,692,316
Long-Term Liabilities, net of current maturities	13,504,582		—		—			13,504,582	16,092,315
Minority Interest	—		—		28,864,721			28,864,721	20,209,574
Members’ Equity	72,119,194		43,163,916		(72,119,194		)	43,163,916	30,168,151
Total Liabilities and Members’ Equity	91,647,172		43,257,469		(43,348,026		)	91,556,615	77,162,356

See Report of Independent Registered Public Accounting Firm on Supplemental Information

F-21

LITTLE SIOUX CORN PROCESSORS, LLC AND SUBSIDIARY
Consolidating Statements of Operations

	September 30,
	2006
	LSCP, LLLP			Little Sioux Processors, LLC			Eliminations			Consolidated			2005 Consolidated			2004 Consolidated
Revenues	$	113,785,666		$	—		$	—		$	113,785,666		$	95,881,420		$	85,540,934
Cost of Goods Sold	73,678,035			—			—			73,678,035			65,257,086			74,649,569
Gross Profit	40,107,631			—			—			40,107,631			30,624,334			10,891,365
Operating Expenses	2,906,985			94,269			—			3,001,254			2,634,802			2,733,993
Operating Income	37,200,646			(94,269		)	—			37,106,377			27,989,532			8,157,372
Other Income (Expense)
Income from subsidiary	—			22,306,627			(22,306,627		)	—
Interest income	835,980			—			—			835,980			158,761			7,557
Interest expense	(1,286,265		)	—			—			(1,286,265		)	(1,126,101		)	(1,439,020		)
Other income	332,172			(524		)	—			331,648			(3,501,726		)	6,791,603
Total other income (expense), net	(118,113		)	22,306,103			(22,306,627		)	(118,637		)	(4,469,066		)	5,360,140
Net Income Before Minority Interest	37,082,533			22,211,834			(22,306,627		)	36,987,740			23,520,466			13,517,512
Minority Interest in Subsidiary Income	—			—			14,775,906			14,775,906			9,421,765			5,663,681
Net Income	$	37,082,533		$	22,211,834		$	(37,082,533	)	$	22,211,834		$	14,098,701		$	7,853,831.00

See Report of Independent Registered Public Accounting Firm on Supplemental Information

F-22

LITTLE SIOUX CORN PROCESSORS, LLC AND SUBSIDIARY
Consolidated Schedule of Grain Purchases
License No. GD-5050

	September 30 2006	September 30 2005
Grain purchases (in bushels)	19,203,032	17,450,845

See Report of Independent Registered Public Accounting Firm on Supplementary Information.

F-23

LITTLE SIOUX CORN PROCESSORS, LLC AND SUBSIDIARY
Consolidated Schedule of Corn Payables
License No. GD-5050

	September 30, 2006
	Bushels	Price
Deferred payment contract - corn	34,932
Corn payables	90,746	$	2.09

See Report of Independent Registered Public Accounting Firm on Supplementary Information.

F-24

EX-3.2

Exhibit 3.2

THIRD AMENDED AND RESTATED
OPERATING AGREEMENT

OF

LITTLE SIOUX CORN PROCESSORS, L.L.C.

Dated March 24, 2005

THE SECURITIES (MEMBERSHIP INTERESTS) EVIDENCED BY AND/OR ISSUED PURSUANT TO THIS OPERATING AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY SECURITIES OR BLUE SKY LAWS OF ANY STATE OR JURISDICTION.  THEREFORE, THE SECURITIES MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNTIL A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR THE APPLICABLE STATE SECURITIES OR BLUE SKY LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD TO THE PROPOSED TRANSFER OR, IN THE OPINION OF LEGAL COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION OR QUALIFICATION UNDER THE SECURITIES ACT OR BLUE SKY LAWS IS NOT REQUIRED IN CONNECTION WITH THE PROPOSED TRANSFER.  TRANSFER OF THE SECURITIES IS ALSO SUBJECT TO ADDITIONAL RESTRICTIONS SET FORTH HEREIN.

LITTLE SIOUX CORN PROCESSORS, L.L.C. OPERATING AGREEMENT

(CONTAINS RESTRICTIONS ON TRANSFER OF MEMBERSHIP INTERESTS)

TABLE OF CONTENTS

SECTION 1: THE COMPANY	4
1.1 Formation	4
1.2 Name	4
1.3 Purchase; Powers	4
1.4 Principal Place of Business	4
1.5 Term	4
1.6 Agent For Service of Process	5
1.7 Title to Property	5
1.8 Payment of Individual Obligations	5
1.9 Independent Activities; Transactions With Affiliates	5
1.10 Definitions	5
SECTION 2. CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS	10
2.1 Original Capital Contributions	10
2.2 Additional Capital Contributions; Additional Units	10
2.3 Capital Accounts	10
SECTION 3. ALLOCATIONS	11
3.1 Profits	11
3.2 Losses	11
3.3 Special Allocations	11
3.4 Curative Allocations	12
3.5 Loss Limitation	12
3.6 Other Allocation Rules	13
3.7 Tax Allocations: Code Section 704(c)	13
SECTION 4. DISTRIBUTIONS	13
4.1 Net Cash Flow	13
4.2 Amounts Withheld	13
4.3 Limitations on Distributions	13
SECTION 5. MANAGEMENT	13
5.1 Directors	14
5.2 Election and Appointment of Directors	14
5.3 Committees	15
5.4 Authority of Directors	15
5.5 Director as Agent	16
5.6 Restriction on Authority of Directors	16
5.7 Director Actions	17
5.8 Duties and Obligations of Directors	18
5.9 Chairman and Vice Chairman	18
5.10 President and Chief Executive Officer	18
5.11 Chief Financial Officer	18
5.12 Secretary; Assistant Secretary	18
5.13 Vice President	18
5.14 Delegation	19
5.15 Execution of Instruments	19
5.16 Limitation of Liability; Indemnification of Directors	19

5.17 Compensation; Expenses of Directors	19
5.18 Loans	19
SECTION 6. ROLE OF MEMBERS	19
6.1 Rights of Powers	20
6.2 Voting Rights	20
6.3 Member Meetings; Quorum and Proxies	20
6.4 Termination of Membership	20
6.5 Continuation of the Company	20
6.6 No Obligation to Purchase Membership Interest	20
6.7 Waiver of Dissenters Rights	20
SECTION 7. ACCOUNTING, BOOKS AND RECORDS	20
7.1 Accounting, Books and Records	20
7.2 Reports	21
7.3 Tax Matters	21
7.4 Delivery to Members and Inspection	21
SECTION 8. AMENDMENTS	21
8.1 Amendments	22
SECTION 9. TRANSFERS	22
9.1 Restrictions on Transfers	22
9.2 Permitted Transfers	22
9.3 Conditions to Permitted Transfers	22
9.4 Prohibited Transfers	23
9.5 Rights of Unadmitted Assignees	23
9.6 Admission of Substituted Members	24
9.7 Representations Regarding Transfers	24
9.8 Distribution and Allocation in Respect of Transferred Units	24
SECTION 10. DISSOLUTION AND WINDING UP	25
10.1 Dissolution	25
10.2 Winding Up	25
10.3 Compliance with Certain Requirements of Regulations; Deficit Capital Accounts	25
10.4 Deemed Distribution and Recontribution	25
10.5 Rights of Unit Holders	26
10.6 Allocations During Period of Liquidation	26
10.7 Character of Liquidating Distributions	26
10.8 The Liquidator	26
10.9 Forms of Liquidating Distributions	26
SECTION 11. MISCELLANEOUS	26
11.1 Notices	26
11.2 Binding Effect	26
11.3 Construction	26
11.4 Headings	27
11.5 Severability	27
11.6 Incorporation By Reference	27
11.7 Variation of Terms	27
11.8 Governing Law	27
11.9 Waiver of Jury Trial	27
11.10 Counterpart Execution	27
11.11 Specific Performance	27

THIRD AMENDED AND RESTATED OPERATING AGREEMENT

OF

LITTLE SIOUX CORN PROCESSORS, L.L.C.

THIS OPERATING AGREEMENT (the “Agreement”) is entered into and shall be effective as of the 24th day of March, 2005 (the “Effective Date”), by and among LITTLE SIOUX CORN PROCESSORS, L.L.C., an Iowa limited liability company (the “Company”), each of the Persons who are identified as Members on the attached Exhibit A and who have executed a counterpart of this Agreement and a Subscription Agreement, and any other Persons as may from time-to-time be subsequently admitted as a Member of the Company in accordance with the terms of this Agreement. Capitalized terms not otherwise defined herein shall have the meaning set forth in Section 1.10.

WHEREAS, the Members of the Company have adopted a Second Amended and Restated Operating Agreement of the Company dated December 17, 2001, and a First Amendment to the Second Amended and Restated Operating Agreement dated June 26, 2003, pursuant to the Iowa Limited Liability Company Act (the “Act”); and

WHEREAS, the Members desire to amend and restate the Second Amended and Restated Operating Agreement together with the First Amendment thereto, to revise and set forth the respective rights, duties, and responsibilities with respect to the Company and its business and affairs.

NOW, THEREFORE, in consideration of the covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1.  THE COMPANY

1.1           Formation.  The initial Members formed the Company as an Iowa limited liability company by filing Articles of Organization with the Iowa Secretary of Sate on September 28, 2000 pursuant to the provisions of the Act.  To the extent that the rights or obligations of any Member are different by reason of any provision of this Agreement than they would be in the absence of such provisions, this Agreement shall, to the extent permitted by the Act, control.

1.2           Name.   The name of the Company shall be “Little Sioux Corn Processors, L.L.C.” and all business of the Company shall be conducted in such name.

1.3           Purpose; Powers.   The nature of the business and purposes of the Company are (i) to own, construct, operate, lease, finance, contract with, and/or invest in ethanol production and co-product production facilities as permitted under the applicable laws of the State of Iowa; (ii) to engage in the processing of corn, grains and other feedstocks into ethanol and any and all related co-products, and the marketing of all products and co-products from such processing; and (iii) to engage in any other business and investment activity in which an Iowa limited liability company may lawfully be engaged, as determined by the Class A Directors.  The Company has the power to do any and all acts necessary, appropriate, proper, advisable, incidental or convenient to or in furtherance of the purpose of the Company as set forth in this Section 1.3 and has, without limitation, any and all powers that may be exercised on behalf of the Company by the Directors pursuant to Section 5 hereof.

1.4           Principal Place of Business.   The Company shall continuously maintain an office in Iowa. The principal office of the Company shall be at 102 Lewis Avenue South, Cleghorn, Iowa, 51014, or elsewhere as the Directors may determine. Any documents required by the Act to be kept by the Company shall be maintained at the Company’s principal office.

1.5           Term.   The term of the Company commenced on the date the Articles of Organization (the “Articles”) of the Company were filed with the office of the Iowa Secretary of State, and shall continue until the winding up and liquidation of the Company and its business is completed following a Dissolution Event as provided in Section 10 hereof.

4

1.6           Agent For Service of Process.   The name and address of the agent for service of process on the Company in the State of Iowa shall be William E. Hanigan, 666 Grand Avenue, Suite 2000, Des Moines, Iowa, 50309, or any successor as appointed by the Class A Directors.

1.7           Title to Property.   All Property owned by the Company shall be owned by the Company as an entity and no Member shall have any ownership interest in such Property in its individual name.  Each Member’s interest in the Company shall be personal property for all purposes.  At all times after the Effective Date, the Company shall hold title to all of its Property in the name of the Company and not in the name of any Member.

1.8           Payment of Individual Obligations.   Company’s credit and assets shall be used solely for the benefit of the Company, and no asset of the Company shall be Transferred or encumbered for, or in payment of, any individual obligation of any Member.

1.9           Independent Activities; Transactions With Affiliates.   The Directors shall be required to devote such time to the affairs of the Company as may be necessary to manage and operate the Company, and shall be free to serve any other Person or enterprise in any capacity that the Director may deem appropriate in its discretion.  Neither this Agreement nor any activity undertaken pursuant hereto shall (i) prevent any Member or Director or their Affiliates, acting on their own behalf, from engaging in whatever activities they choose, whether the same are competitive with the Company or otherwise, and any such activities may be undertaken without having or incurring any obligation to offer any interest in such activities to the Company or any Member, or (ii) require any Member or Director to permit the Company or Director or Member or its Affiliates to participate in any such activities, and as a material part of the consideration for the execution of this Agreement by each Member, each Member hereby waives, relinquishes, and renounces any such right or claim of participation.  To the extent permitted by applicable law and subject to the provisions of this Agreement, the Directors are hereby authorized to cause the Company to purchase Property from, sell Property to or otherwise deal with any Member (including any Member who is also a Director), acting on its own behalf, or any Affiliate of any Member; provided that any such purchase, sale or other transaction shall be made on terms and conditions which are no less favorable to the Company than if the sale, purchase or other transaction had been made with an independent third party.

1.10         Definitions.   Capitalized words and phrases used in this Agreement have the following meanings:

(a)           “Act” means the Iowa Limited Liability Company Act, as amended from time to time (or any corresponding provision or provisions of any succeeding law).

(b)           “Adjusted Capital Account Deficit” means, with respect to any Unit Holder, the deficit balance, if any, in such Unit Holder’s Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments: (i) Credit to such Capital Account any amounts which such Unit Holder is deemed to be obligated to restore pursuant to the next to the last sentences in Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and (ii) Debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of the Regulations.  The foregoing definition is intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith.

(c)           “Affiliate” means, with respect to any Person (i) any Person directly or indirectly controlling, controlled by or under common control with such Person (ii) any officer, Director, general partner, member or trustee of such Person or (iii) any Person who is an officer, Director, general partner, member or trustee of any Person described in clauses (i) or (ii) of this sentence. For purposes of this definition, the terms “controlling,” “controlled by” or “under common control with” shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person or entity, whether through the ownership of voting securities, by contract or otherwise, or the power to elect at least 50% of the Directors, members, or persons exercising similar authority with respect to such Person or entities.

(d)           “Agreement” means this Operating Agreement of Little Sioux Corn Processors, L.L.C., as amended from time to time.

(e)           “Articles” means the Articles of Organization of the Company filed with the Iowa Secretary of State, as same may be amended from time-to-time.

5

(f)            “Assignee” means a transferee of Units who is not admitted as a substituted member pursuant to Section 9.6.

(g)           “Capital Account” means the separate capital account maintained for each Unit Holder in accordance with Section 2.3.

(h)           “Capital Contributions” means, with respect to any Member, the amount of money (US Dollars) and the initial Gross Asset Value of any assets or property (other than money) contributed by the Member (or such Member’s predecessor in interest) to the Company (net of liabilities secured by such contributed property that the Company is considered to assume or take subject to under Code Section 752) with respect to the Units in the Company held or purchased by such Member, including additional Capital Contributions.

(i)            “Class A Directors” means all Persons who (i) are referred to as such in Section 5.1 of this Agreement or have become a Class A Directors pursuant to the terms of this Agreement, and (ii) have not ceased to be Class A Directors pursuant to the terms of this Agreement.

(j)            “Class B Directors” means all Persons who (i) are referred to as such in Section 5.1 of this Agreement, and (ii) have not ceased to be Class B Directors pursuant to the terms of this Agreement.  The authority of Class B Directors is limited as set forth in this Agreement.

(k)           “Code” means the United States Internal Revenue Code of 1986, as amended from time to time.

(l)            “Company” means Little Sioux Corn Processors, L.L.C., an Iowa limited liability company.

(m)          “Company Minimum Gain” has the meaning given the term “partnership minimum gain” in Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations.

(n)           “Debt” means (i) any indebtedness for borrowed money or the deferred purchase price of property as evidenced by a note, bonds, or other instruments, (ii) obligations as lessee under capital leases, (iii) obligations secured by any mortgage, pledge, security interest, encumbrance, lien or charge of any kind existing on any asset owned or held by the Company whether or not the Company has assumed or become liable for the obligations secured thereby, (iv) any obligation under any interest rate swap agreement, (v) accounts payable and (vi) obligations under direct or indirect guarantees of (including obligations (contingent or otherwise) to assure a creditor against loss in respect of) indebtedness or obligations of the kinds referred to in clauses (i), (ii), (iii), (iv) and (v), above provided that Debt shall not include obligations in respect of any accounts payable that are incurred in the ordinary course of the Company’s business and are not delinquent or are being contested in good faith by appropriate proceedings.

(o)           “Depreciation” means, for each Fiscal Year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Fiscal Year, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such Fiscal Year, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Fiscal Year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Class A Directors.

(p)           “Directors” means all Class A Directors and Class B Directors, collectively.    Notwithstanding the foregoing, however, wherever this Agreement requires or permits action to be taken with the consent, approval or affirmative vote of the Class A Directors, only Class A Directors shall be required or permitted to consent, approve or vote with respect thereto, it being expressly understood and agreed that the authority of Class B Directors shall be limited as otherwise provided herein.  For purposes of the Act, the Directors shall be deemed to be the “managers” (as such term is defined and used in the Act) of the Company. Unless otherwise stated in this Agreement, any action taken by the Directors shall require the affirmative vote of a majority of the Directors present at a meeting of the

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Directors (in person or by telephonic or other electronic means as more specifically described in Section 5.7) and entitled to vote upon respective resolutions regarding the matters presented thereat.

(q)           “Dissolution Event” shall have the meaning set forth in Section 10.1 hereof.

(r)            “Effective Date” means March 24, 2004.

(s)           “Facilities” shall mean the ethanol production and co-product production facilities near Marcus, Iowa or such other location as may be determined by the Directors to be constructed and operated by the Company pursuant to the Business Plan.

(t)            “Financing Closing” means the actual closing (execution and delivery of all required documents) by the Company with its project lender(s) providing for all debt financing, including senior and subordinated debt and any other project financing characterized by debt obligations and repayable as debt which is required by the project lender(s) or which is deemed necessary or prudent in the sole discretion of the Directors.

(u)           “Fiscal Quarter” means (i) any three-month period commencing on each of October 1, January 1, April 1 and July 1 and ending on the last date before the next such date and (ii) the period commencing on the immediately preceding October 1, January 1, April 1 or July 1, as the case may be, and ending on the date on which all Property is distributed to the Unit Holders pursuant to Section 10 hereof.

(v)           “Fiscal Year” means (i) any twelve-month period commencing on October 1 and ending on September 30 and (ii) the period commencing on the immediately preceding October 1 and ending on the date on which all Property is distributed to the Unit Holders pursuant to Section 10 hereof, or, if the context requires, any portion of a Fiscal Year for which an allocation of Profits or Losses or a distribution is to be made.

(w)          “GAAP” means generally accepted accounting principles in effect in the United States of America from time to time.

(x)            “Gross Asset Value” means with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows: (i) The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as determined by the Class A Directors provided that the initial Gross Asset Values of the assets contributed to the Company pursuant to Section 2.1 hereof shall be as set forth in such section; (ii) The Gross Asset Values of all Company assets shall be adjusted to equal their respective gross fair market values (taking Code Section 7701(g) into account), as determined by the Class A Directors as of the following times: (A) the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (B) the distribution by the Company to a Member of more than a de minimis amount of Company property as consideration for an interest in the Company; and (C) the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), provided that an adjustment described in clauses (A) and (B) of this paragraph shall be made only if the Class A Directors reasonably determine that such adjustment is necessary to reflect the relative economic interests of the Members in the Company; (iii) The Gross Asset Value of any item of Company assets distributed to any Member shall be adjusted to equal the gross fair market value (taking Code Section 7701(g) into account) of such asset on the date of distribution as determined by the Class A Directors; and (iv) The Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph (vi) of the definition of “Profits” and “Losses” or Section 3.3(c) hereof; provided, however, that Gross Asset Values shall not be adjusted pursuant to this subparagraph (iv) to the extent that an adjustment pursuant to subparagraph (ii) is required in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (iv). If the Gross Asset Value of an asset has been determined or adjusted pursuant to subparagraph (ii) or (iv), such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset, for purposes of computing Profits and Losses.

(y)           “Issuance Items” has the meaning set forth in Section 3.3(f) hereof.

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(z)            “Liquidation Period” has the meaning set forth in Section 10.6 hereof.

(aa)         “Liquidator” has the meaning set forth in Section 10.8 hereof.

(bb)         “Losses” has the meaning set forth in the definition of “Profits” and “Losses.”

(cc)         “Member” means any person (i) whose name is set forth as such on Exhibit “A” initially attached hereto or has become a Member pursuant to the terms of this Agreement, and (ii) whose is the owner of one or more Units.

(dd)         “Members” means all such Members.

(ee)         “Membership Economic Interest” means collectively, a Member’s share of “Profits” and “Losses,” the right to receive distributions of the Company’s assets, and the right to information concerning the business and affairs of the Company provided by the Act. The Membership Economic Interest of a Member is quantified by the unit of measurement referred to herein as “Units.”

(ff)           “Membership Interest” means collectively, the Membership Economic Interest and Membership Voting Interest.

(gg)         “Membership Register” means the membership register maintained by the Company at its principal office or by a duly appointed agent of the Company setting forth the name, address, the number of Units, and Capital Contributions of each Member of the Company, which shall be modified from time to time as additional Units are issued and as Units are transferred pursuant to this Agreement.

(hh)         “Membership Voting Interest” means collectively, a Member’s right to vote as set forth in this Agreement or required by the Act. The Membership Voting Interest of a Member shall mean as to any matter to which the Member is entitled to vote hereunder or as may be required under the Act, the right to one (1) vote for each Unit registered in the name of such Member as shown in the Membership Register; provided however that under no circumstances shall any Member, and/or any Related Party or Affiliate of a Member, ever be entitled to vote more than five percent (5%) of the outstanding Membership Interests (Units) of the Company even if such Member is the registered owner of more than five percent (5%) of the outstanding Membership Interests (Units) of the Company.  In determining whether a Member has over five percent (5%) of the outstanding Membership Interests (Units) of the Company, Membership Interests (Units) held by an Affiliate and/or Related Party of a Member shall be deemed to be owned and held by such Member.

(ii)           “Net Cash Flow” means the gross cash proceeds of the Company less the portion thereof used to pay or establish reserves for all Company expenses, debt payments, capital improvements, replacements, and contingencies, all as reasonably determined by the Class A Directors. “Net Cash Flow” shall not be reduced by depreciation, amortization, cost recovery deductions, or similar allowances, but shall be increased by any reductions of reserves previously established.

(jj)           “Nonrecourse Deductions” has the meaning set forth in Section 1.704-2(b)(1) of the Regulations.

(kk)         “Nonrecourse Liability” has the meaning set forth in Section 1.704-2(b)(3) of the Regulations.

(ll)           “Officer” or “Officers” has the meaning set forth in Section 5.14 hereof.

(mm)       “Permitted Transfer” has the meaning set forth in Section 9.2 hereof.

(nn)         “Person” means any individual, partnership (whether general or limited), joint venture, limited liability company, corporation, trust, estate, association, nominee or other entity.

(oo)         “Profits and Losses” mean, for each Fiscal Year, an amount equal to the Company’s taxable income or loss for such Fiscal Year, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be

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included in taxable income or loss), with the following adjustments (without duplication): (i) Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this definition of “Profits” and “Losses” shall be added to such taxable income or loss; (ii) Any expenditures of the Company described in Code Section 705(a)(2)(b) or treated as Code Section 705(a)(2)(b) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses pursuant to this definition of “Profits” and “Losses” shall be subtracted from such taxable income or loss; (iii) In the event the Gross Asset Value of any Company asset is adjusted pursuant to subparagraphs (ii) or (iii) of the definition of Gross Asset Value, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Gross Asset Value of the asset) or an item of loss (if the adjustment decreases the Gross Asset Value of the asset) from the disposition of such asset and shall be taken into account for purposes of computing Profits or Losses; (iv) Gain or loss resulting from any disposition of Property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the Property disposed of, notwithstanding that the adjusted tax basis of such Property differs from its Gross Asset Value; (v) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year, computed in accordance with the definition of Depreciation; (vi) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) is required, pursuant to Regulations Section 1.704-(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Unit Holder’s interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) from the disposition of such asset and shall be taken into account for purposes of computing Profits or Losses; and (vii) Notwithstanding any other provision of this definition, any items which are specially allocated pursuant to Section 3.3 and Section 3.4 hereof shall not be taken into account in computing Profits or Losses. The amounts of the items of Company income, gain, loss or deduction available to be specially allocated pursuant to Sections 3.3 and Section 3.4 hereof shall be determined by applying rules analogous to those set forth in subparagraphs (i) through (vi) above.

(pp)         “Property” means all real and personal property acquired by the Company, including cash, and any improvements thereto, and shall include both tangible and intangible property.

(qq)         “Regulations” means the Income Tax Regulations, including Temporary Regulations, promulgated under the Code, as such regulations are amended from time to time.

(rr)           “Regulatory Allocations” has the meaning set forth in Section 3.4 hereof.

(ss)         “Related Party” means the adopted or birth relatives of any Person and such Person’s spouse (whether by marriage or common law), if any, including without limitation great-grandparents, grandparents, children (including stepchildren and adopted children), grandchildren, and great-grandchildren thereof, and such Person’s (and such Person’s spouse’s) brothers, sisters, and cousins and their respective lineal ancestors and descendants, and any other ancestors and/or descendants, and any spouse of any of the foregoing, each trust created for the exclusive benefit of one or more of the foregoing, and the successors, assigns, heirs, executors, personal representatives and estates of any of the foregoing.

(tt)           “Securities Act” means the Securities Act of 1933, as amended.

(uu)         “Subsidiary” means any corporation, partnership, joint venture, limited liability company, association or other entity in which such Person owns, directly or indirectly, fifty percent (50%) or more of the outstanding equity securities or interests, the holders of which are generally entitled to vote for the election of the board of Directors or other governing body of such entity.

(vv)         “Tax Matters Member” has the meaning set forth in Section 7.3 hereof.

(ww)       “Transfer” means, as a noun, any voluntary or involuntary transfer, sale, pledge or hypothecation or other disposition and, as a verb, voluntarily or involuntarily to transfer, give, sell, exchange, assign, pledge, bequest or hypothecate or otherwise dispose of.

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(xx)          “Units or Unit” means an ownership interest in the Company representing a Capital Contribution made as provided in Section 2 in consideration of the Units, including any and all benefits to which the holder of such Units may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement.

(yy)         “Unit Holders” means all Unit Holders.

(zz)          “Unit Holder” means the owner of one or more Units.

(aaa)       “Unit Holder Nonrecourse Debt” has the same meaning as the term “partner nonrecourse debt” in Section 1.704-2(b)(4) of the Regulations.

(bbb)      “Unit Holder Nonrecourse Debt Minimum Gain” means an amount, with respect to each Unit Holder Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Unit Holder Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Section 1.704-2(i)(3) of the Regulations.

(ccc)       “Unit Holder Nonrecourse Deductions “ has the same meaning as the term “partner nonrecourse deductions” in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations.

SECTION 2.  CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS

2.1           Original Capital Contributions.  The name, address, original Capital Contribution, and initial Units quantifying the Membership Interest of each Member are set out in Exhibit A attached hereto, and shall also be set out in the Membership Register.

2.2           Additional Capital Contributions; Additional Units.   No Unit Holder shall be obligated to make any additional Capital Contributions to the Company or to pay any assessment to the Company, other than any unpaid amounts on such Unit Holder’s original Capital Contributions, and no Units shall be subject to any calls, requests or demands for capital. Subject to Section 5.6, additional Membership Economic Interests quantified by additional Units may be issued in consideration of Capital Contributions as agreed to between the Class A Directors and the Person acquiring the Membership Economic Interest quantified by the additional Units. Each Person to whom additional Units are issued shall be admitted as a Member in accordance with this Agreement. Upon such Capital Contributions, the Class A Directors shall cause Exhibit A and the Membership Register to be appropriately amended.

2.3           Capital Accounts.   A Capital Account shall be maintained for each Unit Holder in accordance with the following provisions:

(a)To each Unit Holder’s Capital Account there shall be credited (i) such Unit Holder’s Capital Contributions, (ii) such Unit Holder’s distributive share of Profits and any items in the nature of income or gain which are specially allocated pursuant to Section 3.3 and Section 3.4, and (iii) the amount of any Company liabilities assumed by such Unit Holder or which are secured by any Property distributed to such Unit Holder;

(b)To each Unit Holder’s Capital Account there shall be debited (i) the amount of money and the Gross Asset Value of any Property distributed to such Unit Holder pursuant to any provision of this Agreement, (ii) such Unit Holder’s distributive share of Losses and any items in the nature of expenses or losses which are specially allocated pursuant to Section 3.3 and 3.4 hereof, and (iii) the amount of any liabilities of such Unit Holder assumed by the Company or which are secured by any Property contributed by such Unit Holder to the Company;

(c)In the event Units are Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the Transferred Units; and

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(d)In determining the amount of any liability for purposes of subparagraphs (a) and (b) above there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations.

The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations. In the event the Class A  Directors shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities which are secured by contributed or distributed property or which are assumed by the Company or any Unit Holders), are computed in order to comply with such Regulations, the Class A Directors may make such modification, provided that it is not likely to have a material effect on the amounts distributed to any Person pursuant to Section 10 hereof upon the dissolution of the Company. The Class A Directors also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Unit Holders and the amount of capital reflected on the Company’s balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b).

SECTION 3.  ALLOCATIONS

3.1           Profits.   After giving effect to the special allocations in Section 3.3 and Section 3.4 hereof, Profits for any Fiscal Year shall be allocated among the Unit Holders in proportion to Units held.

3.2           Losses.   After giving effect to the special allocations in Section 3.3 and 3.4 hereof, Losses for any Fiscal Year shall be allocated among the Unit Holders in proportion to Units held.

3.3           Special Allocations.   The following special allocations shall be made in the following order:

(a)           Minimum Gain Chargeback.  Except as otherwise provided in Section 1.704-2(f) of the Regulations, notwithstanding any other provision of this Section 3, if there is a net decrease in Company Minimum Gain during any Fiscal Year, each Unit Holder shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Unit Holder’s share of the net decrease in Company Minimum Gain, determined in accordance with Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Unit Holder pursuant thereto. The items to be so allocated shall be determined in accordance with sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations. This Section 3.3(a) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(f) of the Regulations and shall be interpreted consistently therewith.

(b)           Unit Holder Minimum Gain Chargeback.  Except as otherwise provided in Section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of this Section 3, if there is a net decrease in Unit Holder Nonrecourse Debt Minimum Gain attributable to a Unit Holder Nonrecourse Debt during any Fiscal Year, each Unit Holder who has a share of the Unit Holder Nonrecourse Debt Minimum Gain attributable to such Unit Holder Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of the Regulations, shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Unit Holder’s share of the net decrease in Unit Holder Nonrecourse Debt Minimum Gain, determined in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Unit Holder pursuant thereto. The items to be so allocated shall be determined in accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section 3.3(b) is intended to comply with the minimum gain chargeback requirement in Section 1.704-2(i)(4) of the Regulations and shall be interpreted consistently therewith.

(c)           Qualified Income Offset.  In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) of the Regulations, items of Company income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital

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Account Deficit as soon as practicable, provided that an allocation pursuant to this Section 3.3(c) shall be made only if and to the extent that the Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Section 3 have been tentatively made as if this Section 3.3(c) were not in the Agreement.

(d)           Gross Income Allocation.  In the event any Member has a deficit Capital Account at the end of any Fiscal Year which is in excess of the sum of (i) the amount such Member is obligated to restore pursuant to any provision of this Agreement, and (ii) the amount such Member is deemed to be obligated to restore pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations, each such Member shall be specially allocated items of Company income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 3.3(d) shall be made only if and to the extent that such Member would have a deficit Capital Account in excess of such sum after all other allocations provided for in this Section 3 have been made as if Section 3.3(c) and this Section 3.3(d) were not in this Agreement.

(e)           Nonrecourse Deductions.  Nonrecourse Deductions for any Fiscal Year or other period shall be specially allocated among the Members in proportion to Units held

(f)            Unit Holder Nonrecourse Deductions.  Any Unit Holder Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the Unit Holder who bears the economic risk of loss with respect to the Unit Holder Nonrecourse Debt to which such Unit Holder Nonrecourse Deductions are attributable in accordance with Regulations Section 1.704-2(i)(1).

(g)           Section 754 Adjustments.  To the extent an adjustment to the adjusted tax basis of any Company asset, pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Unit Holder in complete liquidation of such Unit Holder’s interest in the Company, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Unit Holders in accordance with their interests in the Company in the event Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Unit Holder to whom such distribution was made in the event Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.

(h)           Allocations Relating to Taxable Issuance of Company Units.  Any income, gain, loss or deduction realized as a direct or indirect result of the issuance of Units by the Company to a Unit Holder (the “Issuance Items”) shall be allocated among the Unit Holders so that, to the extent possible, the net amount of such Issuance Items, together with all other allocations under this Agreement to each Unit Holder shall be equal to the net amount that would have been allocated to each such Unit Holder if the Issuance Items had not been realized.

3.4           Curative Allocations.   The allocations set forth in Sections 3.3(a), 3.3(b), 3.3(c), 3.3(d), 3.3(e), 3.3(f), 3.3(g) and 3.5 (the “Regulatory Allocations”) are intended to comply with certain requirements of the Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss or deduction pursuant to this Section 3.4. Therefore, notwithstanding any other provision of this Section 3 (other than the Regulatory Allocations), the Class A Directors shall make such offsetting special allocations of Company income, gain, loss or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Member’s Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of the Agreement and all Company items were allocated pursuant to Sections 3.1, 3.2, and 3.3(h).   In exercising their discretion under this Section 3.4, the Class A Directors shall take into account future Regulatory Allocations under Sections 3.3(a) and 3.3(b) that, although not yet made, are likely to offset other Regulatory Allocations previously made under Section 3.3(e) and 3.3(f).

3.5           Loss Limitation.   Losses allocated pursuant to Section 3.2 hereof shall not exceed the maximum amount of Losses that can be allocated without causing any Unit Holder to have an Adjusted Capital Account Deficit at the end of any Fiscal Year. In the event some but not all of the Unit Holders would have Adjusted Capital Account Deficits as a consequence of an allocation of Losses pursuant to Section 3.2 hereof, the limitation set forth in this Section 3.5 shall be applied on a Unit Holder by Unit Holder basis and Losses not allocable to any Unit Holder as a result of such limitation shall be allocated to the other Unit Holders in accordance with the positive balances in such Unit

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Holder’s Capital Accounts so as to allocate the maximum permissible Losses to each Unit Holder under Section 1.704-1(b)(2)(ii)(d) of the Regulations.

3.6           Other Allocation Rules.   (a) For purposes of determining the Profits, Losses, or any other items allocable to any period, Profits, Losses, and any such other items shall be determined on a daily, monthly, or other basis, as determined by the Class A Directors using any permissible method under Code Section 706 and the Regulations thereunder. (b) The Unit Holders are aware of the income tax consequences of the allocations made by this Section 3 and hereby agree to be bound by the provisions of this Section 3 in reporting their shares of Company income and loss for income tax purposes. (c) Solely for purposes of determining a Unit Holder’s proportionate share of the “excess nonrecourse liabilities” of the Company within the meaning of Regulations Section 1.752-3(a)(3), the Unit Holders’ aggregate interests in Company profits shall be deemed to be as provided in the capital accounts. To the extent permitted by Section 1.704-2(h)(3) of the Regulations, the Class A Directors shall endeavor to treat distributions of Net Cash Flow as having been made from the proceeds of a Nonrecourse Liability or a Unit Holder Nonrecourse Debt only to the extent that such distributions would cause or increase an Adjusted Capital Account Deficit for any Unit Holder. (d) Allocations of Profits and Losses to the Unit Holders shall be allocated among them in the ratio which each Unit Holder’s Units bears to the total number of Units issued and outstanding.

3.7           Tax Allocations:  Code Section 704(c).   In accordance with Code Section 704(c) and the Regulations thereunder, income, gain, loss, and deduction with respect to any Property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Unit Holders so as to take account of any variation between the adjusted basis of such Property to the Company for federal income tax purposes and its initial Gross Asset Value (computed in accordance with the definition of Gross Asset Value). In the event the Gross Asset Value of any Company asset is adjusted pursuant to subparagraph (ii) of the definition of Gross Asset Value, subsequent allocations of income, gain, loss, and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Regulations thereunder. Any elections or other decisions relating to such allocations shall be made by the Class A Directors in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 3.7 are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Unit Holder’s Capital Account or share of Profits, Losses, other items, or distributions pursuant to any provision of this Agreement.

SECTION 4.  DISTRIBUTIONS

4.1           Net Cash Flow.  Except as otherwise provided in Section 10 hereof, Net Cash Flow, if any, shall be distributed to the Unit Holders in proportion to Units held subject to, and to the extent permitted by, any loan covenants or restrictions on such distributions agreed to by the Company in any loan agreements with the Company’s lenders from time to time in effect. In determining Net Cash Flow, the Class A Directors shall endeavor to provide for cash distributions at such times and in such amounts as will permit the Unit Holders to make timely payment of income taxes.

4.2           Amounts Withheld.   All amounts withheld pursuant to the Code or any provision of any state, local or foreign tax law with respect to any payment, distribution or allocation to the Company or the Unit Holders shall be treated as amounts paid or distributed, as the case may be, to the Unit Holders with respect to which such amount was withheld pursuant to this Section 4.2 for all purposes under this Agreement. The Company is authorized to withhold from payments and distributions, or with respect to allocations to the Unit Holders, and to pay over to any federal, state and local government or any foreign government, any amounts required to be so withheld pursuant to the Code or any provisions of any other federal, state or local law or any foreign law, and shall allocate any such amounts to the Unit Holders with respect to which such amount was withheld.

4.3           Limitations on Distributions.   The Company shall make no distributions to the Unit Holders except as provided in this Section 4 and Section 10 hereof.  Notwithstanding any other provision, no distribution shall be made if it is not permitted to be made under the Act.

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SECTION 5.  MANAGEMENT

5.1           Directors.   Except as otherwise provided in this Agreement, the Directors shall direct the business and affairs of the Company, and shall exercise all of the powers of the Company except such powers as are by this Agreement conferred upon or reserved to the Members  Notwithstanding the foregoing, however, wherever this Agreement requires or permits action to be taken with the consent, approval or affirmative vote of the Class A Directors, only Class A Directors shall be required or permitted to consent, approve or vote with respect thereto, it being expressly understood and agreed that the authority of Class B Directors shall be limited as otherwise provided herein.  It is further expressly understood and agreed that Class B Directors shall have no power or authority other than the power or authority of Directors as it directly relates to the Company’s activities as the general partner of LSCP, L.P. an Iowa limited partnership.  In the event the Class A Directors determine that it is necessary or appropriate for the Company to undertake activities other than those directly related to the Company’s activities as the general partner of LSCP, L.P., the Class B Directors shall have no power or authority with respect thereto. The Directors shall adopt such policies, rules, regulations, and actions not inconsistent with law or this Agreement as it may deem advisable. The management of the business and affairs of the Company shall be directed by the Directors, as the authority of Class A Directors and Class B Directors is limited herein, and not by its Members. The number of Directors of the Company shall be a minimum of seven (7) and a maximum of thirteen (13); and the number of Directors may be fixed or changed from time to time, within that variable range, by the Directors, in accordance with the provisions of this Section 5.1.  The Members may increase or decrease the number of Directors last approved and may change from a variable range to a fixed number or visa versa by the affirmative vote of a majority of the Membership Voting Interests represented at a meeting of the Members (in person, by proxy, or by mail ballot).  However, the relative ratio of the number of Class A Directors to Class B Directors shall always result in a majority of Class A Directors.  Subject to Section 5.4 hereof or any other express provisions hereof, the business and affairs of the Company shall be managed by or under the direction of the Directors.  The amendment or repeal of this section or the adoption of any provision inconsistent therewith shall require the approval of a majority of the Membership Voting Interests represented at the Members’ meeting (in person, by proxy, or by mail ballot).

5.2           Election and Appointment of Directors.

(a)           Election of Class A Directors.  The initial Class A Directors, appointed by the initial Members, shall be the individuals set forth on Exhibit “B” attached hereto.  The initial Class A Directors shall serve for an initial term ending one (1) year after substantial completion of the construction of the Facilities, and in all cases until a successor is elected and qualified, or until the earlier death, resignation, removal or disqualification of any such Class A Director.  After the expiration of the initial terms of the Class A Directors, at each annual meeting of the Members, Class A Directors shall be elected by the Members for staggered terms of three (3) years and until a successor is elected and qualified.  Class A Directors shall be elected by the Members at each annual meeting of the Members.  Nominees for open Class A Director positions shall be elected by a plurality vote of the Members so that the nominees receiving the greatest number of votes relative to the votes cast for their competitors shall be elected as Class A Directors.   Members shall not be allowed to cumulate their votes in electing Class A Directors.   One or more nominees for Class A Director positions up for election shall be named by the then current Class A Directors or by a nominating committee established by the Class A Directors. Nominations for the election of Class A Directors may also be made by any Unit Holder entitled to vote generally in the election of Class A Directors. However, any Unit Holder that intends to nominate one or more persons for election as Class A Directors at a meeting may do so only if written notice of such Unit Holder’s intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Company not less than thirty (30) days nor more than ninety (90) days prior to the annual meeting of the Company.  Each such notice to the Secretary shall set forth: (i) the name and address of record of the Unit Holder who intends to make the nomination; (ii) a representation that the Unit Holder is a holder of record of Units of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) the name, age, business and residence addresses, and principal occupation or employment of each nominee; (iv) a description of all arrangements or understandings between the Unit Holder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the Unit Holder; (v) such other information regarding each nominee proposed by such Unit Holder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission; (vi) the consent of each nominee to serve as a Class A Director of the Company if so elected, and (vi) a nominating petition signed and dated by the holders of at least five percent (5%) of the then outstanding Units and clearly setting forth the proposed nominee as a candidate of the Class A Director’s seat to be filled at the next election of Class A Directors. The Company may require any proposed nominee to

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furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as a Class A Director of the Company. The presiding Officer of the meeting may, if the facts warrant, determine that a nomination was not made in accordance with the foregoing procedures, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.   The amendment or repeal of this Section or the adoption of any provision inconsistent therewith shall require the approval of a majority of the Membership Voting Interests represented at a meeting of the Members (in person, by proxy, or by mail ballot).  Whenever a vacancy occurs other than from expiration of a term of office or removal from office, a majority of the remaining Class A Directors shall appoint a new Class A Director to fill the vacancy for the remainder of such term.

(b)           Appointment of Class B Directors.  So long as the Company remains the general partner of LSCP, L.P., an Iowa limited partnership, each class of limited partner of LSCP, L.P. may appoint one person as a Class B Director to serve as such at the discretion of such class of limited partners until the next annual meeting of the partners of LSCP, L.P. or until his or her successor is appointed and qualified.

5.3           Committees.   A resolution approved by the affirmative vote of a majority of the Directors may establish committees having the authority of the Directors in the management of the business of the Company to the extent consistent with this Agreement and provided in the resolution. A committee shall consist of one or more persons, who need not be Directors, appointed by affirmative vote of a majority of the Directors present. Committees may include a compensation committee and/or an audit committee, in each case consisting of one or more independent Directors or other independent persons. Committees are subject to the direction and control of, and vacancies in the membership thereof shall be filled by, the Directors. A majority of the members of the committee present at a meeting is a quorum for the transaction of business, unless a larger or smaller proportion or number is provided in a resolution approved by the affirmative vote of a majority of the Directors present.

5.4           Authority of Directors.   Subject to the limitations and restrictions set forth in this Agreement, the Directors shall direct the management of the business and affairs of the Company and shall have all of the rights and powers which may be possessed by a “manager” under the Act including, without limitation, the right and power to do or perform the following and, to the extent permitted by the Act or this Agreement, the further right and power by resolution of the Directors to delegate to the Officers or such other Person or Persons to do or perform the following:

(a)Conduct its business, carry on its operations and have and exercise the powers granted by the Act in any state, territory, district or possession of the United States, or in any foreign country which may be necessary or convenient to effect any or all of the purposes for which it is organized;

(b)Acquire by purchase, lease, or otherwise any real or personal property which may be necessary, convenient, or incidental to the accomplishment of the purposes of the Company;

(c)Operate, maintain, finance, improve, construct, own, grant operations with respect to, sell, convey, assign, mortgage, and lease any real estate and any personal property necessary, convenient, or incidental to the accomplishment of the purposes of the Company;

(d)Execute any and all agreements, contracts, documents, certifications, and instruments necessary or convenient in connection with the management, maintenance, and operation of the business, or in connection with managing the affairs of the Company, including, executing amendments to this Agreement and the Articles in accordance with the terms of this Agreement, both as Directors and, if required, as attorney-in-fact for the Members pursuant to any power of attorney granted by the Members to the Directors;

(e)Borrow money and issue evidences of indebtedness necessary, convenient, or incidental to the accomplishment of the purposes of the Company, and secure the same by mortgage, pledge, or other lien on any Company assets;

(f)Execute, in furtherance of any or all of the purposes of the Company, any deed, lease, mortgage, deed of trust, mortgage note, promissory note, bill of sale, contract, or other instrument purporting to convey or encumber any or all of the Company assets;

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(g)Prepay in whole or in part, refinance, recast, increase, modify, or extend any liabilities affecting the assets of the Company and in connection therewith execute any extensions or renewals of encumbrances on any or all of such assets;

(h)Care for and distribute funds to the Members by way of cash income, return of capital, or otherwise, all in accordance with the provisions of this Agreement, and perform all matters in furtherance of the objectives of the Company or this Agreement;

(i)Contract on behalf of the Company for the employment and services or employees and/or independent contractors, such as lawyers and accountants, and delegate to such Persons the duty to manage or supervise any of the assets or operations of the Company;

(j)Engage in any kind of activity and perform and carry out contracts of any kind (including contracts of insurance covering risks to Company assets and Directors’ and Officers’ liability) necessary or incidental to, or in connection with, the accomplishment of the purposes of the Company, as may be lawfully carried on or performed by a limited liability company under the laws of each state in which the Company is then formed or qualified;

(k)Take, or refrain from taking, all actions, not expressly proscribed or limited by this Agreement, as may be necessary or appropriate to accomplish the purposes of the Company;

(l)Institute, prosecute, defend, settle, compromise, and dismiss lawsuits or other judicial or administrative proceedings brought on or in behalf of, or against, the Company, the Members or the Directors or Officers in connection with activities arising out of, connected with, or incidental to this Agreement, and to engage counsel or others in connection therewith;

(m)Purchase, take, receive, subscribe for or otherwise acquire, own, hold, vote, use, employ, sell, mortgage, lend, pledge, or otherwise dispose of, and otherwise use and deal in and with, shares or other interests in or obligations of domestic or foreign corporations, associations, general or limited partnerships, other limited liability companies, or individuals or direct or indirect obligations of the United States or of any government, state, territory, government district or municipality or of any instrumentality of any of them;

(n)Agree with any Person as to the form and other terms and conditions of such Person’s Capital Contribution to the Company and cause the Company to issue Membership Economic Interests and Units in consideration of such Capital Contribution; and

(o)Indemnify a Member, Director or Officer, or former Members, Directors or Officers, and to make any other indemnification that is authorized by this Agreement in accordance with, and to the fullest extent permitted by, the Act.

5.5           Director as Agent.   Notwithstanding the power and authority of the Directors to manage the business and affairs of the Company, no Director shall have authority to act as agent for the Company for the purposes of its business (including the execution of any instrument on behalf of the Company) unless the Directors have authorized the Director to take such action. The Directors may also delegate authority to manage the business and affairs of the Company (including the execution of instruments on behalf of the Company) to such Person or Persons (including to any Officers) designated by the Directors, and such Person or Persons (or Officers) shall have such titles and authority as determined by the Directors.

5.6           Restrictions on Authority of Directors.   (a) The Directors shall not have authority to, and they covenant and agree that they shall not, do any of the following acts without the unanimous consent of the Members:

(i)Cause or permit the Company to engage in any activity that is not consistent with the purposes of the Company as set forth in Section 1.3 hereof;

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(ii)Knowingly do any act in contravention of this Agreement or which would make it impossible to carry on the ordinary business of the Company, except as otherwise provided in this Agreement;

(iii)Possess Company Property, or assign rights in specific Company Property, for other than a Company purpose; or

(iv)Cause the Company to voluntarily take any action that would cause a bankruptcy of the Company.

(b) The Directors shall not have authority to, and they covenant and agree that they shall not cause the Company to, without the consent of a majority of the Membership Voting Interests:

(i)Merge, consolidate, exchange or otherwise dispose of at one time all or substantially all of the Property, except for a liquidating sale of the Property in connection with the dissolution of the Company;

(ii)Confess a judgment against the Company in an amount in excess of $500,000;

(iii)Issue Units at a purchase price of less than $500.00 per Unit;

(iv)Issue more than an aggregate of 15,000 Units;

(v)Elect to dissolve the Company;

(vi)Cause the Company to acquire any equity or debt securities of any Director or any of its Affiliates, or otherwise make loans to any Director or any of its Affiliates.

The actions specified herein as requiring the consent of the Members shall be in addition to any actions by the Directors which are specified in the Act as requiring the consent or approval of the Members.  Any such required consent or approval may be given by a vote of a majority of the Membership Voting Interests.

5.7           Director Actions.   Meetings of the Directors shall be held at such times and places as shall from time to time be determined by the Directors. Meetings of the Directors may also be called by the Chairman of the Company or by any three or more Class A Directors or by any two or more Class B Directors. If the date, time, and place of a meeting of the Directors has been announced at a previous meeting, no notice shall be required. In all other cases, five (5) days’ written notice of meetings, stating the date, time, and place thereof and any other information required by law or desired by the Person(s) calling such meeting, shall be given to each Director. Any Director may waive notice of any meeting. A waiver of notice by a Director is effective whether given before, at, or after the meeting, and whether given orally, in writing, or by attendance. The attendance of a Director at any meeting shall constitute a waiver of notice of such meeting, unless such Director objects at the beginning of the meeting to the transaction of business on the grounds that the meeting is now lawfully called or convened and does not participate thereafter in the meeting. Any action required or permitted to be taken by the Directors may also be taken by a written action signed by all of the Directors authorized to vote on the specific matters being considered. The Directors may participate in any meeting of the Directors by means of telephone conference or similar means of communication by which all persons participating in the meeting can simultaneously hear each other. Not less than fifty percent (50%) of the Directors of each class of Directors authorized to vote on the specific matters being considered at such meeting shall constitute a quorum for the transaction of the related business at any Director’s meeting. Subject to the voting restrictions applicable to Class B Directors as set forth elsewhere in this Agreement, each Director shall have one (1) vote at meetings of the Directors. The affirmative vote of a majority of the Directors authorized to vote on the specific matters being considered at a meeting at which a quorum is present shall be the act of the Directors. No Director shall be disqualified from voting on any matter to be determined or decided by the Directors solely by reason of such Director’s (or his/her Affiliate’s) potential financial interest in the outcome of such vote, provided that the nature of such Director’s (or his/her Affiliate’s) potential financial interest was reasonably disclosed at the time of such vote.

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5.8           Duties and Obligations of Directors.  The Directors shall cause the Company to conduct its business and operations separate and apart from that of any Director or any of its Affiliates. The Directors shall take all actions which may be necessary or appropriate (i) for the continuation of the Company’s valid existence as a limited liability company under the laws of the State of Iowa and each other jurisdiction in which such existence is necessary to protect the limited liability of Members or to enable the Company to conduct the business in which it is engaged, and (ii) for the accomplishment of the Company’s purposes, including the acquisition, development, maintenance, preservation, and operation of Company Property in accordance with the provisions of this Agreement and applicable laws and regulations. Each Director shall have the duty to discharge the foregoing duties in good faith, in a manner the Director believes to be in the best interests of the Company, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances. The Directors shall be under no other fiduciary duty to the Company or the Members to conduct the affairs of the Company in a particular manner.

5.9           Chairman and Vice Chairman.   The Class A Directors shall appoint a Chairman and may appoint one or more Vice Chairmen for the Company.  Unless provided otherwise by a resolution adopted by the Class A Directors, the Chairman shall preside at meetings of the Members and the Directors; shall see that all orders and resolutions of the Directors are carried into effect; may maintain records of and certify proceedings of the Directors and Members; and shall perform such other duties as may from time to time be prescribed by the Directors.  The Vice Chairman shall, in the absence or disability of the Chairman, perform the duties and exercise the powers of the Chairman and shall perform such other duties as the Directors or the Chairman may from time to time prescribe. The Class A Directors may designate more than one Vice Chairmen, in which case the Vice Chairmen shall be designated by the Class A Directors so as to denote which is most senior in office.

5.10         President and Chief Executive Officer.  The Class A Directors shall appoint a President and Chief Executive Officer for the Company.  Until provided otherwise by a resolution of the Class A Directors, the Chairman shall also act as the interim President and CEO of the Company (herein referred to as the “President”; the titles of President and CEO shall constitute a reference to one and the same office and Officer of the Company), and the Chairman may exercise the duties of the office of Chairman using any such designations. The Class A Directors shall appoint someone other than the Chairman as the President of the Company not later than the commencement of operations of the Facilities, and such President shall perform such duties as the Directors may from time to time prescribe, including without limitation, the management of the day-to-day operations of the Facilities.

5.11         Chief Financial Officer.  The Class A Directors shall appoint a Chief Financial Officer for the Company.  Unless provided otherwise by a resolution adopted by the Class A Directors, the Chief Financial Officer of the Company shall be the Treasurer of the Company and shall keep accurate financial records for the Company; shall deposit all monies, drafts, and checks in the name of and to the credit of the Company in such banks and depositories as the Directors shall designate from time to time; shall endorse for deposit all notes, checks, and drafts received by the Company as ordered by the Directors, making proper vouchers therefor; shall disburse Company funds and issue checks and drafts in the name of the Company as ordered by the Directors, shall render to the President and the Directors, whenever requested, an account of all such transactions as Chief Financial Officer and of the financial condition of the Company, and shall perform such other duties as may be prescribed by the Directors or the President from time to time.

5.12         Secretary; Assistant Secretary.  The Class A Directors shall appoint a Secretary and may appoint one or more Assistant Secretaries for the Company.  The Secretary shall attend all meetings of the Directors and of the Members and shall maintain records of, and whenever necessary, certify all proceedings of the Directors and of the Members. The Secretary shall keep the required records of the Company, when so directed by the Directors or other person or persons authorized to call such meetings, shall give or cause to be given notice of meetings of the Members and of meetings of the Directors, and shall also perform such other duties and have such other powers as the Chairman or the Directors may prescribe from time to time. An Assistant Secretary, if any, shall perform the duties of the Secretary during the absence or disability of the Secretary.

5.13         Vice President.  The Class A Directors may appoint one or more Vice Presidents for the Company.  The Company may have one or more Vice Presidents.  If more than one, the Class A Directors shall designate which is most senior.  The most senior Vice President shall perform the duties of the President in the absence of the President.

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5.14         Delegation.   Unless prohibited by a resolution of the Directors, the President, Chief Financial Officer, Vice President and Secretary (individually, an “Officer” and collectively, “Officers”) may delegate in writing some or all of the duties and powers of such Officer’s management position to other Persons.  An Officer who delegates the duties or powers of an office remains subject to the standard of conduct for such Officer with respect to the discharge of all duties and powers so delegated.

5.15         Execution of Instruments.   All deeds, mortgages, bonds, checks, contracts and other instruments pertaining to the business and affairs of the Company shall be signed on behalf of the Company by (i) the Chairman; or (ii) when authorized by resolution(s) of the Directors, the President; or (iii) by such other person or persons as may be designated from time to time by the Directors.

5.16         Limitation of Liability; Indemnification of Directors.   To the maximum extent permitted under the Act and other applicable law, no Member or Director of this Company shall be personally liable for any debt, obligation or liability of this Company merely by reason of being a Member or Director or both. No Director of this Company shall be personally liable to this Company or its Members for monetary damages for a breach of fiduciary duty by such Director; provided that this provision shall not eliminate or limit the liability of a Director for any of the following: (i) receipt of an improper financial benefit to which the Director is not entitled; (ii) liability under Section 808 of the Act; (iii) a knowing violation of law; or (iv) acts or omissions involving fraud, bad faith or willful misconduct.  To the maximum extent permitted under the Act and other applicable law, the Company, its receiver, or its trustee (in the case of its receiver or trustee, to the extent of Company Property) shall indemnify, save and hold harmless, and pay all judgments and claims against each Director or officer or Director of such Director relating to any liability or damage incurred by reason of any act performed or omitted to be performed by such Director, officer, or Director in connection with the business of the Company, including reasonable attorneys’ fees incurred by such Director, officer, or Director in connection with the defense of any action based on any such act or omission, which attorneys’ fees may be paid as incurred, including all such liabilities under federal and state securities laws as permitted by law. To the maximum extent permitted under the Act and other applicable law, in the event of any action by a Unit Holder against any Director, including a derivative suit, the Company shall indemnify, save harmless, and pay all costs, liabilities, damages and expenses of such Director, including reasonable attorneys’ fees incurred in the defense of such action. Notwithstanding the foregoing provisions, no Director shall be indemnified by the Company to the extent prohibited or limited (but only to the extent limited) by the Act. The Company may purchase and maintain insurance on behalf of any Person in such Person’s official capacity against any liability asserted against and incurred by such Person in or arising from that capacity, whether or not the Company would otherwise be required to indemnify the Person against the liability.

5.17         Compensation; Expenses of Directors.   No Member or Director shall receive any salary, fee, or draw for services rendered to or on behalf of the Company merely by virtue of their status as a Member or Director, it being the intention that, irrespective of any personal interest of any of the Directors, the Directors shall have authority to establish reasonable compensation of all Directors for services to the Company as Directors, Officers, or otherwise. Except as otherwise approved by or pursuant to a policy approved by the Directors, no Member or Director shall be reimbursed for any expenses incurred by such Member or Director on behalf of the Company. Notwithstanding the foregoing, by resolution by the Directors, the Directors may be paid as reimbursement therefor, their expenses, if any, of attendance at each meeting of the Directors. In addition, the Directors, by resolution, may approve from time to time, the salaries and other compensation packages of the Officers of the Company.

5.18         Loans.   Any Member or Affiliate may, with the consent of the Directors, lend or advance money to the Company.  If any Member or Affiliate shall make any loan or loans to the Company or advance money on its behalf, the amount of any such loan or advance shall not be treated as a contribution to the capital of the Company but shall be a debt due from the Company. The amount of any such loan or advance by a lending Member or Affiliate shall be repayable out of the Company’s cash and shall bear interest at a rate not in excess of the prime rate established, from time to time, by any major bank selected by the Directors for loans to its most creditworthy commercial borrowers, plus four percent (4%) per annum.  If the Directors, or any Affiliate of the Directors, is the lending Member, the rate of interest and the terms and conditions of such loan shall be no less favorable to the Company than if the lender had been an independent third party.  None of the Members or their Affiliates shall be obligated to make any loan or advance to the Company.

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SECTION 6.  ROLE OF MEMBERS

6.1           Rights of Powers.   Except as otherwise expressly provided for in this Agreement, the Members shall not have any right or power to take part in the management or control of the Company or its business and affairs or to act for or bind the Company in any way.

6.2           Voting Rights.   The Members shall have voting rights as defined by the Membership Voting Interest of such Member and in accordance with the provisions of this Agreement.

6.3           Member Meetings; Quorum and Proxies.   Meetings of the Members shall be called by the Class A Directors, and shall be held at the principal office of the Company or at such other place as shall be designated by the person calling the meeting.  Notice of the meeting, stating the place, day and hour of the meeting, shall be given to each Member in accordance with Section 14.1 hereof at least 10 days and no more than 60 days before the day on which the meeting is to be held. Unit Holders representing an aggregate of not less than twenty five percent (25%) of the Units may also in writing demand that a meeting of the Members be called by the Class A Directors. Regular meetings of the Members shall be held not less than once per Fiscal Year, at such time and place as determined by the Class A Directors upon written notice thereof stating the date, time and place, given not less than ten (10) days nor more than sixty (60) days prior to the meeting to every Member entitled to vote at such meeting. A Member may waive the notice of meeting required hereunder by written notice of waiver signed by the Member whether given before, during or after the meeting. Attendance by a Member at a meeting is waiver of notice of that meeting, unless the Member objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened and thereafter does not participate in the meeting. The presence (in person or by proxy or mail ballot) of at least twenty-five percent (25%) of the Membership Voting Interests is required for the transaction of business at a meeting of the Members. Voting by proxy or by mail ballot shall be permitted on any matter if authorized by the Class A Directors.

6.4           Voting; Action by Members.  If a quorum is present, the affirmative vote of a majority of the Membership Voting Interests represented at a meeting of the Members (in person, by proxy, or by mail ballot) shall constitute the act of the Members, unless the vote of a greater or lesser proportion or numbers is otherwise required by this Agreement.

6.5           Termination of Membership.   The membership of a Member in the Company shall terminate upon the occurrence of events described in the Act, including registration and withdrawal. If for any reason the membership of a Member is terminated, the Member whose membership has terminated loses all Membership Voting Interests and shall be considered merely as assignee of the Membership Economic Interest owned before the termination of membership, having only the rights of an unadmitted Assignee provided for in Section 10.6 hereof.

6.6           Continuation of the Company.   The Company shall not be dissolved upon the occurrence of any event which is deemed to terminate the continued membership of a Member. The Company’s affairs shall not be required to be wound up. The Company shall continue without dissolution.

6.7           No Obligation to Purchase Membership Interest.   No Member whose membership in the Company terminates, nor any transferee of such Member, shall have any right to demand or receive a return of such terminated Member’s Capital Contributions or to require the purchase or redemption of the Member’s Membership Interest. The other Members and the Company shall not have any obligation to purchase or redeem the Membership Interest of any such terminated Member or transferee of any such terminated Member.

6.8           Waiver of Dissenters Rights.   Each Member hereby disclaims, waives and agrees, to the fullest extent permitted by law or the Act, not to assert dissenters’ or similar rights under the Act.

SECTION 7.  ACCOUNTING, BOOKS AND RECORDS

7.1           Accounting, Books and Records.   The books and records of the Company shall be kept, and the financial position and the results of its operations recorded, in accordance with GAAP. The books and records shall reflect all the Company transactions and shall be appropriate and adequate for the Company’s business. The Company shall maintain at its principal office all of the following: (i) A current list of the full name and last known business or

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residence address of each Member and Assignee set forth in alphabetical order, together with the Capital Contributions, Capital Account and Units of each Member and Assignee; (ii) The full name and business address of each Director; (iii) A copy of the Articles and any and all amendments thereto together with executed copies of any powers of attorney pursuant to which the Articles or any amendments thereto have been executed; (iv) Copies of the Company’s federal, state, and local income tax or information returns and reports, if any, for the six most recent taxable years; (v) A copy of this Agreement and any an all amendments thereto together with executed copies of any powers of attorney pursuant to which this Agreement or any amendments thereto have been executed; and (vi) Copies of the financial statements of the Company, if any, for the six most recent Fiscal Years. The Company shall use the accrual method of accounting in preparation of its financial reports and for tax purposes and shall keep its books and records accordingly. Any Member or its designated representative shall have reasonable access during normal business hours to such information and documents. The rights granted to a Member pursuant to this Section 8.1 are expressly subject to compliance by such Member with the safety, security and confidentiality procedures and guidelines of the Company, as such procedures and guidelines may be established from time to time.

7.2           Reports.   The chief financial officer of the Company shall be responsible for causing the preparation of financial reports of the Company and the coordination of financial matters of the Company with the Company’s accountants. The Company shall cause to be delivered to each Member the financial statements listed below, prepared, in each case (other than with respect to Member’s Capital Accounts, which shall be prepared in accordance with this Agreement) in accordance with GAAP consistently applied.  As soon as practicable following the end of each Fiscal Year (and in any event not later than ninety (90) days after the end of such Fiscal Year) and at such time as distributions are made to the Unit Holders pursuant to Section 12 hereof following the occurrence of a Dissolution Event, a balance sheet of the Company as of the end of such Fiscal Year and the related statements of operations, Unit Holders’ Capital Accounts and changes therein, and cash flows for such Fiscal Year, together with appropriate notes to such financial statements and supporting schedules, all of which shall be audited and certified by the Company’s accountants, and in each case, to the extent the Company was in existence, setting forth in comparative form the corresponding figures for the immediately preceding Fiscal Year end (in the case of the balance sheet) and the two (2) immediately preceding Fiscal Years (in the case of the statements).

7.3           Tax Matters.   The Class A Directors shall, without any further consent of the Unit Holders being required (except as specifically required herein), make any and all elections for federal, state, local, and foreign tax purposes as the Class A Directors shall determine appropriate and represent the Company and the Unit Holders before taxing authorities or courts of competent jurisdiction in tax matters affecting the Company or the Unit Holders in their capacities as Unit Holders, and to file any tax returns and execute any agreements or other documents relating to or affecting such tax matters, including agreements or other documents that bind the Unit Holders with respect to such tax matters or otherwise affect the rights of the Company and the Unit Holders.  The Class A Directors shall designate a Person to be specifically authorized to act as the “Tax Matters Member” under the Code and in any similar capacity under state or local law; provided, however, that the Class A Directors shall have the authority to designate, remove and replace the Tax Matters Member who shall act as the tax matters partner within the meaning of and pursuant to Regulations Sections 301.6231(a)(7)-1 and -2 or any similar provision under state or local law. Necessary tax information shall be delivered to each Unit Holder as soon as practicable after the end of each Fiscal Year of the Company but not later than three (3) months after the end of each Fiscal Year.

7.4           Delivery to Members and Inspection.   Upon the request of any Member for purposes reasonably related to the interest of that Person as a Member, the Class A Directors shall promptly deliver to the requesting Member, at the expense of the requesting Member, a copy of the information required to be maintained under Sections 7.1 and a copy of this Agreement and all amendments hereto. Each Member has the right, upon reasonable request for purposes reasonably related to the interest of the Person as a Member and for proper purposes, to: (i) inspect and copy during normal business hours any of the Company records described in Sections 7.1; and (ii) obtain from the Class A Directors, promptly after their becoming available, a copy of the Company’s federal, state, and local income tax or information returns for each Fiscal Year. Each Assignee shall have the right to information regarding the Company only to the extent required by the Act.

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SECTION 8.  AMENDMENTS

8.1           Amendments.   Amendments to this Agreement may be proposed by the Class A Directors or any Member. Following any such proposal, the Class A Directors shall submit to the Members a verbatim statement of any proposed amendment, providing that counsel for the Company shall have approved of the same in writing as to form, and the Class A Directors shall include in any such submission a recommendation as to the proposed amendment. The Class A Directors shall seek the written vote of the Members on the proposed amendment or shall call a meeting to vote thereon and to transact any other business that it may deem appropriate. A proposed amendment shall be adopted and be effective as an amendment hereto only if approved by the affirmative vote of a majority of the Membership Voting Interests represented at a Meeting of the Members (in person, by proxy, or by mail ballot).  Notwithstanding any provision of this Section 8.1 to the contrary, this Agreement shall not be amended without the consent of each Member adversely affected if such amendment would modify the limited liability of a Member, or alter the Membership Economic Interest of a Member.

SECTION 9.  TRANSFERS

9.1           Restrictions on Transfers.   Except as otherwise permitted by this Agreement, no Member shall Transfer all or any portion of its Units. In the event that any Member pledges or otherwise encumbers all or any part of its Units as security for the payment of a Debt, any such pledge or hypothecation shall be made pursuant to a pledge or hypothecation agreement that requires the pledgee or secured party to be bound by all of the terms and conditions of this Section 9. In the event such pledgee or secured party becomes the Unit Holder hereunder pursuant to the exercise of such party’s rights under such pledge or hypothecation agreement, such pledgee or secured party shall be bound by all terms and conditions of this Operating Agreement and all other agreements governing the rights and obligations of Unit Holders. In such case, such pledgee or secured party, and any transferee or purchaser of the Units held by such pledgee or secured party, shall not have any Membership Voting Interest attached to such Units unless and until the Class A Directors have approved in writing and admitted as a Member hereunder, such pledgee, secured party, transferee or purchaser of such Units.

9.2           Permitted Transfers.   Subject to the conditions and restrictions set forth in this Section 9, a Member may (a) at any time Transfer all or any portion of its Units (i) to the transferor’s administrator or trustee to whom such Units are transferred involuntarily by operation of law, or (ii) without consideration to or in trust for descendants of a Member; and (b) at any time following the date on which substantial operations of the Facilities commences, Transfer all or any portion of its Units (i) to any Person approved by a majority of the Class A Directors in writing, or (ii) to any other Member or to any Affiliate or Related Party of another Member, or (iii) to any Affiliate or Related Party of the transferor. Any such Transfer set forth in this Section 9.2 and meeting the conditions set forth in Section 9.3 below is referred to in this Agreement as a “Permitted Transfer”.

9.3           Conditions to Permitted Transfers.   A Transfer shall not be treated as a Permitted Transfer under Section 9.2 hereof unless and until the Class A Directors have approved such Transfer as set forth in Section 9.2 and the following conditions are satisfied:

(a) Except in the case of a Transfer involuntarily by operation of law, the transferor and transferee shall execute and deliver to the Company such documents and instruments of conveyance as may be necessary or appropriate in the opinion of counsel to the Company to effect such Transfer. In the case of a Transfer of Units involuntarily by operation of law, the Transfer shall be confirmed by presentation to the Company of legal evidence of such Transfer, in form and substance satisfactory to counsel to the Company. In all cases, the Company shall be reimbursed by the transferor and/or transferee for all costs and expenses that it reasonably incurs in connection with such Transfer.

(b) The transferor and transferee shall furnish the Company with the transferee’s taxpayer identification number, sufficient information to determine the transferee’s initial tax basis in the Units transferred, and any other information reasonably necessary to permit the Company to file all required federal and state tax returns and other legally required information statements or returns. Without limiting the generality of the foregoing, the Company shall not be required to make any distribution otherwise provided for in this Agreement with respect to any transferred Units until it has received such information.

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(c) Except in the case of a Transfer of any Units involuntarily by operation of law, either (i) such Units shall be registered under the Securities Act, and any applicable state securities laws, or (ii) the transferor shall provide an opinion of counsel, which opinion and counsel shall be reasonably satisfactory to the Class A Directors, to the effect that such Transfer is exempt from all applicable registration requirements and that such Transfer will not violate any applicable laws regulating the Transfer of securities.

(d) Except in the case of a Transfer of Units involuntarily by operation of law, the transferor shall provide an opinion of counsel, which opinion and counsel shall be reasonably satisfactory to the Class A Directors, to the effect that such Transfer will not cause the Company to be deemed to be an “investment company” under the Investment Company Act of 1940.

(e) Unless otherwise approved by the Class A Directors and a 75% majority in interest of the Members, no Transfer of Units shall be made except upon terms which would not, in the opinion of counsel chosen by and mutually acceptable to the Class A Directors and the transferor Member, result in the termination of the Company within the meaning of Section 708 of the Code or cause the application of the rules of Sections 168(g)(1)(B) and 168(h) of the Code or similar rules to apply to the Company. If the immediate Transfer of such Unit would, in the opinion of such counsel, cause a termination within the meaning of Section 708 of the Code, then if, in the opinion of such counsel, the following action would not precipitate such termination, the transferor Member shall be entitled to (or required, as the case may be) (i) immediately Transfer only that portion of its Units as may, in the opinion of such counsel, be transferred without causing such a termination and (ii) enter into an agreement to Transfer the remainder of its Units, in one or more Transfers, at the earliest date or dates on which such Transfer or Transfers may be effected without causing such termination. The purchase price for the Units shall be allocated between the immediate Transfer and the deferred Transfer or Transfers pro rata on the basis of the percentage of the aggregate Units being transferred, each portion to be payable when the respective Transfer is consummated, unless otherwise agreed by the parties to the Transfer. In the case of a Transfer by one Member to another Member, the deferred purchase price shall be deposited in an interest-bearing escrow account unless another method of securing the payment thereof is agreed upon by the transferor Member and the transferee Member(s).

(f) No notice or request initiating the procedures contemplated by Section 9.3 may be given by any Member after a Dissolution Event has occurred. No Member may sell all or any portion of its Units after a Dissolution Event has occurred.

(g) No Person shall Transfer any Unit if, in the determination of the Class A Directors, such Transfer would cause the Company to be treated as a “publicly traded partnership” within the meaning of Section 7704(b) of the Code.

The Class A Directors shall have the authority to waive any legal opinion or other condition required in this Section 9.3 other than the member approval requirement set forth in Section 9.3(e).

9.4           Prohibited Transfers.   Any purported Transfer of Units that is not a Permitted Transfer shall be null and void and of no force or effect whatsoever; provided that, if the Company is required to recognize a Transfer that is not a Permitted Transfer (or if the Class A Directors, in their sole discretion, elect to recognize a Transfer that is not a Permitted Transfer), the Units Transferred shall be strictly limited to the transferor’s Membership Economic Interests as provided by this Agreement with respect to the transferred Units, which Membership Economic Interests may be applied (without limiting any other legal or equitable rights of the Company) to satisfy any debts, obligations, or liabilities for damages that the transferor or transferee of such Interest may have to the Company. In the case of a Transfer or attempted Transfer of Units that is not a Permitted Transfer, the parties engaging or attempting to engage in such Transfer shall be liable to indemnify and hold harmless the Company and the other Members from all cost, liability, and damage that any of such indemnified Members may incur (including, without limitation, incremental tax liabilities, lawyers’ fees and expenses) as a result of such Transfer or attempted Transfer and efforts to enforce the indemnity granted hereby.

9.5           Rights of Unadmitted Assigness.   A Person who acquires Units but who is not admitted as a substituted Member pursuant to Section 9.6 hereof shall be entitled only to the Membership Economic Interests with respect to

23

such Units in accordance with this Agreement, and shall not be entitled to the Membership Voting Interest with respect to such Units. In addition, such Person shall have no right to any information or accounting of the affairs of the Company, shall not be entitled to inspect the books or records of the Company, and shall not have any of the rights of a Member under the Act or this Agreement.

9.6           Admission of Substituted Members.   As to Permitted Transfers, a transferee of Units shall be admitted as a substitute Member provided that such transferee has complied with the following provisions: (a) The transferee of Units shall, by written instrument in form and substance reasonably satisfactory to the Class A Directors; (i) accept and adopt the terms and provisions of this Agreement, including this Section 9, and (ii) assume the obligations of the transferor Member under this Agreement with respect to the transferred Units. The transferor Member shall be released from all such assumed obligations except (x) those obligations or liabilities of the transferor Member arising out of a breach of this Agreement, (y) in the case of a Transfer to any Person other than a Member or any of its Affiliates, those obligations or liabilities of the transferor Member based on events occurring, arising or maturing prior to the date of Transfer, and (z) in the case of a Transfer to any of its Affiliates, any Capital Contribution or other financing obligation of the transferor Member under this Agreement; (b) The transferee pays or reimburses the Company for all reasonable legal, filing, and publication costs that the Company incurs in connection with the admission of the transferee as a Member with respect to the Transferred Units; and (c) Except in the case of a Transfer involuntarily by operation of law, if required by the Class A Directors, the transferee (other than a transferee that was a Member prior to the Transfer) shall deliver to the Company evidence of the authority of such Person to become a Member and to be bound by all of the terms and conditions of this Agreement, and the transferee and transferor shall each execute and deliver such other instruments as the Class A Directors reasonably deem necessary or appropriate to effect, and as a condition to, such Transfer.

9.7           Representations Regarding Transfers.   Each Member hereby covenants and agrees with the Company for the benefit of the Company and all Members, that (i) it is not currently making a market in Units and will not in the future make a market in Units, (ii) it will not Transfer its Units on an established securities market, a secondary market (or the substantial equivalent thereof) within the meaning of Code Section 7704(b) (and any Regulations, proposed Regulations, revenue rulings, or other official pronouncements of the Internal Revenue Service or Treasury Department that may be promulgated or published thereunder), and (iii) in the event such Regulations, revenue rulings, or other pronouncements treat any or all arrangements which facilitate the selling of Company interests and which are commonly referred to as “matching services” as being a secondary market or substantial equivalent thereof, it will not Transfer any Units through a matching service that is not approved in advance by the Company. Each Member further agrees that it will not Transfer any Units to any Person unless such Person agrees to be bound by this Section 9.7 and to Transfer such Units only to Persons who agree to be similarly bound. (b) Each Member hereby represents and warrants to the Company and the Members that such Member’s acquisition of Units hereunder is made as principal for such Member’s own account and not for resale or distribution of such Units. Each Member further hereby agrees that the following legend, as the same may be amended by the Class A Directors in their sole discretion, may be placed upon any counterpart of this Agreement, the Articles, or any other document or instrument evidencing ownership of Units:

THE TRANSFERABILITY OF THE COMPANY UNITS REPRESENTED BY THIS DOCUMENT IS RESTRICTED. SUCH UNITS MAY NOT BE SOLD, ASSIGNED, OR TRANSFERRED, NOR WILL ANY ASSIGNEE, VENDEE, TRANSFEREE, OR ENDORSEE THEREOF BE RECOGNIZED AS HAVING ACQUIRED ANY SUCH UNITS FOR ANY PURPOSES, UNLESS AND TO THE EXTENT SUCH SALE, TRANSFER, HYPOTHECATION, OR ASSIGNMENT IS PERMITTED BY, AND IS COMPLETED IN STRICT ACCORDANCE WITH, THE TERMS AND CONDITIONS SET FORTH IN THE OPERATING AGREEMENT AND AGREED TO BY EACH MEMBER.

9.8           Distribution and Allocations in Respect of Transferred Units.   If any Units are Transferred during any Fiscal Year in compliance with the provisions of this Section 9, Profits, Losses, each item thereof, and all other items attributable to the Transferred Units for such Fiscal Year shall be divided and allocated between the transferor and the transferee by taking into account their varying interests during the Fiscal Year in accordance with Code Section 706(d), using any conventions permitted by law and selected by the Class A Directors. All distributions on or before the date of such Transfer shall be made to the transferor, and all distributions thereafter shall be made to the transferee. Solely for purposes of making such allocations and distributions, the Company shall recognize such Transfer to be effective as of the first day of the month following the month in which all documents to effectuate the

24

transfer have been executed and delivered to the Company, provided that, if the Company does not receive a notice stating the date such Units were transferred and such other information as the Class A Directors may reasonably require within thirty (30) days after the end of the Fiscal Year during which the Transfer occurs, then all such items shall be allocated, and all distributions shall be made, to the Person who, according to the books and records of the Company, was the owner of the Units on the last day of such Fiscal Year. Neither the Company nor any Member shall incur any liability for making allocations and distributions in accordance with the provisions of this Section 9.8, whether or not the Class A Directors or the Company has knowledge of any Transfer of ownership of any Units.

SECTION 10.  DISSOLUTION AND WINDING UP

10.1         Dissolution.   The Company shall dissolve and shall commence winding up and liquidating upon the first to occur of any of the following (each a “DISSOLUTION EVENT”): (i) The affirmative vote of a 75% majority in interest of the Members to dissolve, wind up, and liquidate the Company; or (ii) The entry of a decree of judicial dissolution pursuant to the Act. The Members hereby agree that, notwithstanding any provision of the Act, the Company shall not dissolve prior to the occurrence of a Dissolution Event.

10.2         Winding Up.   Upon the occurrence of a Dissolution Event, the Company shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors and Members, and no Member shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Company’s business and affairs, PROVIDED that all covenants contained in this Agreement and obligations provided for in this Agreement shall continue to be fully binding upon the Members until such time as the Property has been distributed pursuant to this Section 10.2 and the Articles have been canceled pursuant to the Act. The Liquidator shall be responsible for overseeing the prompt and orderly winding up and dissolution of the Company. The Liquidator shall take full account of the Company’s liabilities and Property and shall cause the Property or the proceeds from the sale thereof (as determined pursuant to Section 10.8 hereof), to the extent sufficient therefor, to be applied and distributed, to the maximum extent permitted by law, in the following order: (a) First, to creditors (including Members and Class A Directors who are creditors, to the extent otherwise permitted by law) in satisfaction of all of the Company’s Debts and other liabilities (whether by payment or the making of reasonable provision for payment thereof), other than liabilities for which reasonable provision for payment has been made; and (b) Second, except as provided in this Agreement, to Members in satisfaction of liabilities for distributions pursuant to the Act; (c) Third, the balance, if any, to the Unit Holders in accordance with the positive balance in their Capital Accounts calculated after making the required adjustment set forth in clause (ii)(C) of the definition of Gross Asset Value in Section 1.11 of this Agreement, after giving effect to all contributions, distributions and allocations for all periods.

10.3         Compliance with Certain Requirements of Regulations; Deficit Capital Accounts.   In the event the Company is “liquidated” within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), (a) distributions shall be made pursuant to this Section 10 to the Unit Holders who have positive Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2). If any Unit Holder has a deficit balance in his Capital Account (after giving effect to all contributions, distributions and allocations for all Fiscal Years, including the Fiscal Year during which such liquidation occurs), such Unit Holder shall have no obligation to make any contribution to the capital of the Company with respect to such deficit, and such deficit shall not be considered a debt owed to the Company or to any other Person for any purpose whatsoever. In the discretion of the Liquidator, a pro rata portion of the distributions that would otherwise be made to the Unit Holders pursuant to this Section 10 may be: (a) Distributed to a trust established for the benefit of the Unit Holders for the purposes of liquidating Company assets, collecting amounts owed to the Company, and paying any contingent or unforeseen liabilities or obligations of the Company. The assets of any such trust shall be distributed to the Unit Holders from time to time, in the reasonable discretion of the Liquidator, in the same proportions as the amount distributed to such trust by the Company would otherwise have been distributed to the Unit Holders pursuant to Section 10.2 hereof; or (b) Withheld to provide a reasonable reserve for Company liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Company, provided that such withheld amounts shall be distributed to the Unit Holders as soon as practicable.

10.4         Deemed Distribution and Recontribution.   Notwithstanding any other provision of this Section 10, in the event the Company is liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g) but no Dissolution

25

Event has occurred, the Property shall not be liquidated, the Company’s Debts and other liabilities shall not be paid or discharged, and the Company’s affairs shall not be wound up.

10.5         Rights of Unit Holders.   Except as otherwise provided in this Agreement, each Unit Holder shall look solely to the Property of the Company for the return of its Capital Contribution and has no right or power to demand or receive Property other than cash from the Company. If the assets of the Company remaining after payment or discharge of the debts or liabilities of the Company are insufficient to return such Capital Contribution, the Unit Holders shall have no recourse against the Company or any other Unit Holder or Directors.

10.6         Allocations During Period of Liquidation.   During the period commencing on the first day of the Fiscal Year during which a Dissolution Event occurs and ending on the date on which all of the assets of the Company have been distributed to the Unit Holders pursuant to Section 10.2 hereof (the “Liquidation Period”), the Unit Holders shall continue to share Profits, Losses, gain, loss and other items of Company income, gain, loss or deduction in the manner provided in Section 3 hereof.

10.7         Character of Liquidating Distributions.   All payments made in liquidation of the interest of a Unit Holder in the Company shall be made in exchange for the interest of such Unit Holder in Property pursuant to Section 736(b)(1) of the Code, including the interest of such Unit Holder in Company goodwill.

10.8         The Liquidator.   The “Liquidator” shall mean a Person appointed by the Class A Directors(s) to oversee the liquidation of the Company. Upon the consent of a majority in interest of the Members, the Liquidator may be the Class A Directors. The Company is authorized to pay a reasonable fee to the Liquidator for its services performed pursuant to this Section 10 and to reimburse the Liquidator for its reasonable costs and expenses incurred in performing those services. The Company shall indemnify, save harmless, and pay all judgments and claims against such Liquidator or any officers, Directors, agents or employees of the Liquidator relating to any liability or damage incurred by reason of any act performed or omitted to be performed by the Liquidator, or any officers, Directors, agents or employees of the Liquidator in connection with the liquidation of the Company, including reasonable attorneys’ fees incurred by the Liquidator, officer, Director, agent or employee in connection with the defense of any action based on any such act or omission, which attorneys’ fees may be paid as incurred, except to the extent such liability or damage is caused by the fraud, intentional misconduct of, or a knowing violation of the laws by the Liquidator which was material to the cause of action.

10.9         Forms of Liquidating Distributions.   For purposes of making distributions required by Section 10.2 hereof, the Liquidator may determine whether to distribute all or any portion of the Property in-kind or to sell all or any portion of the Property and distribute the proceeds therefrom.

SECTION 11.  MISCELLANEOUS

11.1         Notices.   Any notice, payment, demand, or communication required or permitted to be given by any provision of this Agreement shall be in writing and shall be deemed to have been delivered, given, and received for all purposes (i) if delivered personally to the Person or to an officer of the Person to whom the same is directed, or (ii) when the same is actually received, if sent either by registered or certified mail, postage and charges prepaid, or by facsimile, if such facsimile is followed by a hard copy of the facsimile communication sent promptly thereafter by registered or certified mail, postage and charges prepaid, addressed as follows, or to such other address as such Person may from time to time specify by notice to the Members and the Directors: (a) If to the Company, to the address determined pursuant to Section 1.4 hereof; (b) If to the Directors, to the address set forth on record with the company; (c) If to a Member, either to the address set forth in Section 2.1 hereof.

11.2         Binding Effect.   Except as otherwise provided in this Agreement, every covenant, term, and provision of this Agreement shall be binding upon and inure to the benefit of the Members and their respective successors, transferees, and assigns.

11.3         Construction.   Every covenant, term, and provision of this Agreement shall be construed simply according to its fair meaning and not strictly for or against any Member.

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11.4         Headings.   Section and other headings contained in this Agreement are for reference purposes only and are not intended to describe, interpret, define, or limit the scope, extent, or intent of this Agreement or any provision hereof.

11.5         Severability.   Except as otherwise provided in the succeeding sentence, every provision of this Agreement is intended to be severable, and, if any term or provision of this Agreement is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity or legality of the remainder of this Agreement. The preceding sentence of this Section 14.6 shall be of no force or effect if the consequence of enforcing the remainder of this Agreement without such illegal or invalid term or provision would be to cause any Member to lose the material benefit of its economic bargain.

11.6         Incorporation By Reference.   Every exhibit, schedule, and other appendix attached to this Agreement and referred to herein is not incorporated in this Agreement by reference unless this Agreement expressly otherwise provides.

11.7         Variation of Terms.   All terms and any variations thereof shall be deemed to refer to masculine, feminine, or neuter, singular or plural, as the identity of the Person or Persons may require.

11.8         Governing Law.   The laws of the State of Iowa shall govern the validity of this Agreement, the construction of its terms, and the interpretation of the rights and duties arising hereunder.

11.9         Waiver of Jury Trial.   Each of the Members irrevocably waives to the extent permitted by law, all rights to trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement.

11.10       Counterpart Execution.   This Agreement may be executed in any number of counterparts with the same effect as if all of the Members had signed the same document. All counterparts shall be construed together and shall constitute one agreement.

11.11       Specific Performance.   Each Member agrees with the other Members that the other Members would be irreparably damaged if any of the provisions of this Agreement are not performed in accordance with their specific terms and that monetary damages would not provide an adequate remedy in such event. Accordingly, it is agreed that, in addition to any other remedy to which the nonbreaching Members may be entitled, at law or in equity, the nonbreaching Members shall be entitled to injunctive relief to prevent breaches of the provisions of this Agreement and specifically to enforce the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having subject matter jurisdiction thereof.

IN WITNESS WHEREOF, the parties have executed and entered into this Operating Agreement of the Company as of the day first above set forth.

COMPANY:

LITTLE SIOUX CORN PROCESSORS, L.L.C.

By:	/s/ Ron Wetherell
Its:	Chairman

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EXHIBIT “A”

Members and Member’s Membership Units

See Membership Register maintained at the principal office of the Company and available upon request.

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EXHIBIT “B”

Initial Board of Directors

Name of Initial Board Members	Address of Initial Board Members
Daryl Haack, Chairman	5985 390th St., Primghar, IA 51245
Verdell Johnson	991 490th St, Cleghorn, IA 51014
Doug Lansink, Treasurer	2360 Orchard Ave, Arthur, IA 51431
Dean Baughman	3164 170th St, Newell, IA 50568
Vince Davis	P.O. Box 60, Newell, IA 50568
Darrell Downs	405 Ridgeway Drive, Marcus, IA 51035
Myron Pingel	2237 490th St, Aurelia, IA 51005
Tim Ohlson	4687 L Ave, Meriden, IA 51037
Sally Puttman, Secretary	1023 Kossuth Ave, Kingsley, IA 51028
Roland Schmidt	1665 Otter Ave, Newell, IA 50568
Ron Wetherell, Vice Chairman	302 S. Oak Dr, Cleghorn, IA 51014

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EX-10.20

Exhibit 10.20

*Portions omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

LUMP SUM DESIGN-BUILD EXPANSION AGREEMENT

BETWEEN

LITTLE SIOUX CORN PROCESSORS, LP (“OWNER”)

AND

FAGEN, INC. (“DESIGN-BUILDER”)

September 20, 2006

TABLE OF CONTENTS

		Page
Article 1 Definitions; Rules of Interpertation
1.1	Rules of Construction
1.2	Defined Terms
Article 2 TheExpansion Project
2.1	Services to be Performed
2.2	Extent of Agreement
2.3	Conflicting Provisions
Article 3 Design-Builder Responsibilities
3.1	Design-Builder’s Services in General
3.2	Design Development and Services
3.3	Standard of Care
3.4	Government Approvals and Permits
3.5	Subcontractors
3.6	Maintenance of Site
3.7	Project Safety
3.8	Submission of Reports
3.9	Training
3.10	Integration of Expansion Plant into LSCP Plant
Article 4 Owner’s Responsibilities
4.1	Duty to Cooperate
4.2	Furnishing of Services and Information
4.3	Financial Information; Cooperation with lenders; Failure to Obtain Financial Closing
4.4	Owner’s Representative
4.5	Government Approvals and Permits
4.6	Owner’s Separate Contractors
4.7	Security
Article 5 Ownership of Work Product; Risk of Loss
5.1	Work Product
5.2	Owner’s Limited License Upon Payment in Full
5.3	Owner’s Limited License Upon Owner’s Termination for Convenience or Design-Builder’s Election to Terminate
5.4	Owner’s Limited License Upon Design-Builder’s Default
5.5	Owner’s Indemnification for Use of Work Product
5.6	Risk of Loss
Article 6 Commencement and Completion of the Expansion Project
6.1	[Reserved]
6.2	Notice to Proceed; Commencement
6.3	Expansion Project Start-Up and Testing
6.4	Substantial Completion
6.5	Final Completion
6.6	Post Completion Support

Article 7 Performance Testing and Liquidated Damages
7.1	Performance Guarantee
7.2	Performance Testing
7.3	Liquidated Damages
7.4	Bonds and Other Performance Security
Article 8 Warranties
8.1	Design-Builder Warranty
8.2	Correction of Defective Work
8.3	Warranty Period Not Limitation to Owner’s Rights
Article 9 Contract Price
9.1	Contract Price
9.2	Effect of Construction Cost Index Increase on Contract Price
Article 10 Payment Procedures
10.1	Payment of Financial Closing
10.2	Progress Payments
10.3	Final Payment
10.4	Failure to Pay Amounts Due
10.5	Design-Builder’s Payment Obligations
10.6	Record Keeping and Finance Controls
Article 11 Hazardous Conditions and Differing Site Conditions
11.1	Hazardous Conditions
11.2	Differing Site Conditions; Inspection
Article 12 Force Majeure; Change in Legal Requirements
12.1	Force Majeure Event
12.22.2006	Effect of Force Majeure Event
12.3	Change in Legal Requirements
12.4	Time Impact and Availability
Article 13 Changes to the Contract Price and Scheduled Completion Dates
13.1	Change Orders
13.2	Contract Price Adjustments
13.3	Emergencies
13.4	Contract Time Adjustment
13.5	Failure to Complete Owner’s Milestones
Article 14 Indemnity
14.1	Tax Claim Indemnification
14.2	Payment Claim Indemnification
14.3	Design-Builder’s General Indemnification
14.4	Owner’s General Indemnification
14.5	Patent and Copyright Infringement

ii

Article 15 Stop Work; Termination for Cause
15.1	Owner’s Right to Stop Work
15.2	Owner’s Right to Perform and Terminate for Cause
15.3	Owner’s Right to Terminate for Convenience
15.4	Design-Builder’s Right to Stop Work
15.5	Design-Builder’s Right to Terminate for Cause
15.6	Bankruptcy of Owner or Design-Builder
15.7	Lenders’ Right to Cure
Article 16 Representatives of the Parties
16.1	Designation of Owner’s Representatives
16.2	Designation of Design-Builder’s Representatives
Article 17 Insurance
17.1	Insurance
17.2	Design-Builder’s Insurance Requirements
17.3	Owner’s Liability Insurance
17.4	Owner’s Property Insurance
Article 18 Representations and Warranties
18.1	Design-Builder and owner Representations and Warranties
18.2	Design-Builder Representations and Warranties
Article 19 Dispute Resolution
19.1	Dispute Avoidance and Mediation
19.2	Arbitration
19.3	Duty to Continue Performance
19.4	No Consequential Damages
19.5	Limitation of Liability
Article 20 Confidentiality of Shared Information
20.1	Non-Disclosure Obligation
20.2	Publicity and Advertising
20.3	Term of Obligation
Article 21 Miscellaneous
21.1	Assignment
21.2	Successors
21.3	Governing Law
21.4	Severability
21.5	No Waiver
21.6	Hearings
21.7	Notice
21.8	No Privity with Design Consultant/Subcontractors
21.9	Amendments
21.10	Entire Agreement
21.11	Third-Party Beneficiaries
21.12	Counterparts
21.13	Survival

iii

EXHIBIT A Performance Guarantee Criteria

EXHIBIT B Project Scope

EXHIBIT C Owner’s Responsibilities

EXHIBIT D ICM License Agreement

EXHIBIT E Schedule of Values

EXHIBIT F Form of Informational Report

EXHIBIT G Required Permits

EXHIBIT H Form of Performance Bond

EXHIBIT I Form of Payment Bond

EXHIBIT J Draw (Payment) Schedule

EXHIBIT K Air Emissions Application or Permit

EXHIBIT L [Reserved]

EXHIBIT M Form of Application for Payment

EXHIBIT N Form of Lien Waiver

EXHIBIT O Form of Consent to Assignment

iv

LUMP SUM DESIGN-BUILD CONTRACT

This LUMP SUM DESIGN-BUILD CONTRACT (the “Agreement”) is made as of September 20, 2006, (the “Effective Date”) by and between Little Sioux Corn Processors, LP, an Iowa limited partnership (the “Owner”) and Fagen, Inc., a Minnesota corporation (the “Design-Builder”) (each a “Party” and collectively, the “Parties”).

RECITALS

A.             The Design-Builder originally constructed a fifty-two (52) million gallons per year (“MGY”) dry grind ethanol production facility near Marcus, Iowa (the “LSCP Plant”), under a Design-Build Agreement dated December 26, 2001;

B.              The Owner desires to develop, construct, own and operate a forty (40) MGY expansion (the “Expansion Plant”) of the LSCP Plant, which would bring the total nameplate capacity of the LSCP Plant to ninety-two (92) MGY; and

C.              Design-Builder desires to provide design, engineering, procurement and construction services for the Expansion Plant.

NOW, THEREFORE, in consideration of the mutual covenants and obligations contained herein and for other good and valuable consideration, Owner and Design-Builder agree as follows.

AGREEMENT

Article 1
Definitions; Rules of Interpretation

1.1            Rules of Construction. The capitalized terms listed in this Article shall have the meanings set forth herein whenever the terms appear in this Agreement, whether in the singular or the plural or in the present or past tense. Other terms used in this Agreement but not listed in this Article shall have meanings as commonly used in the English language and, where applicable, in generally accepted construction and design-build standards of the fuel ethanol industry in the Midwest United States. Words not otherwise defined herein that have well known and generally accepted technical or trade meanings are used herein in accordance with such recognized meanings. In addition, the following rules of interpretation shall apply:

(a)The masculine shall include the feminine and neuter.

(b)References to “Articles,” “Sections,” “Schedules,” or “Exhibits” shall be to Articles, Sections, Schedules or Exhibits of this Agreement.

(c)This Agreement was negotiated and prepared by each of the Parties with the advice and participation of counsel. The Parties have agreed to the wording of this Agreement and none of the provisions hereof shall be construed against one Party on the ground that such Party is the author of this Agreement or any part hereof.

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1.2        Defined Terms. In addition to definitions appearing elsewhere in this Agreement, the following terms have the following meanings:

AAA is defined in Section 19.1.

Agreement is defined in the Preamble.

Air Emissions Tester means a third party entity engaged by Owner meeting all required state and federal requirements for such testing entities, to conduct air emissions testing of the Expansion Plant in accordance with Exhibit A.

Applicable Law means

(a)any and all laws, legislation, statutes, codes, acts, rules, regulations, ordinances, treaties or other similar legal requirements enacted, issued or promulgated by a Governmental Authority;

(b)any and all orders, judgments, writs, decrees, injunctions, Governmental Approvals or other decisions of a Governmental Authority; and

(c)any and all legally binding announcements, directives or published practices or interpretations, regarding any of the foregoing in (a) or (b) of this definition, enacted, issued or promulgated by a Governmental Authority;

to the extent, for each of the foregoing in (a), (b) and (c) of this definition, applicable to or binding upon (i) a Party, its affiliates, its shareholders, its members, its partners or their respective representatives, to the extent any such person is engaged in activities related to the Expansion Project; or (ii) the property of a Party, its affiliates, its shareholders, its members, its partners or their respective representatives, to the extent such property is used in connection with the Expansion Project or an activity related to the Expansion Project.

Application for Payment is defined in Section 10.2.1.

As Built Plans is defined in Section 5.2.

Bankrupt Party is defined in Section 15.6.1.

Baseline Index is defined in Section 9.2.1.

CCI is defined in Section 9.2.

Change Order is defined in Section 13.1.1.

Certificate of Substantial Completion is defined in Section 6.4.

Confidential Information is defined in Section 20.1.

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Construction Documents is defined in Section 3.2.1.

Contract Documents is defined in Section 2.2.

Contract Price is defined in Section 9.1.

Contract Time(s) means scheduled dates provided for in the Contract Documents including Scheduled Substantial Completion Date and Final Completion Date.

Damages is defined in Section 14.3.1.

Day or Days shall mean calendar days unless otherwise specifically noted in the Contract Documents.

Design-Builder is defined in the Preamble.

Design-Builder’s Representative is defined in Section 16.2.

Design-Builder’s Senior Representative is defined in Section 16.2.

Design Consultant is a qualified, licensed design professional that is not an employee of Design-Builder, but is retained by Design-Builder, or employed or retained by anyone under contract with Design-Builder or Subcontractor, to furnish design services required under the Contract Documents.

Differing Site Conditions is defined in Section 11.2.1.

Early Completion Bonus is defined in Section 6.4.4.

Effective Date is defined in the Preamble.

Expansion Plant is defined in the Recitals.

Expansion Project is defined in Section 2.1.

Expansion Project Scope is defined in Exhibit B.

Final Application for Payment is defined in Section 10.3.

Final Completion is defined in Section 6.5.2.

Final Completion Date is defined in Section 6.5.1.

Final Payment is defined in Section 10.3

Financial Closing means the execution of the Financing Documents by all the parties thereto.

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Financing Documents means the final loan documents with the Lender or Lenders providing financing for the construction or term financing of the Expansion Plant and any and all agreements necessary to demonstrate the binding commitment of Owner or Lenders to fund the construction of the Expansion Plant.

Force Majeure Event is defined in Section 12.1.

LSCP Plant is defined in the Recitals.

Governmental Approvals are any material authorizations or permissions issued or granted by any Governmental Authority to the Expansion Project, its Owner, the Design-Builder, Subcontractors and their affiliates in connection with any activity related to the Expansion Project.

Governmental Authority means any federal, state, local or municipal governmental body; any governmental, quasi-governmental, regulatory or administrative agency, commission, body or other authority exercising or entitled to exercise any administrative, executive, judicial, legislative, policy, regulatory or taxing authority or power; or any court or governmental tribunal; in each case having jurisdiction over the Owner, the Design-Builder, the Expansion Project, or the Site.

Hazardous Conditions are any materials, wastes, substances and chemicals deemed to be hazardous under applicable Legal Requirements, or the handling, storage, remediation, or disposal of which are regulated by applicable Legal Requirements.

ICM means ICM, Inc., a Kansas corporation.

ICM License Agreement means the license agreement to be executed between Owner and ICM, Inc., substantially in the form attached hereto as Exhibit D.

Indemnified Parties is defined in Section 5.2.

Independent Engineer means Owner’s and Lenders’ independent engineer.

Industry-Wide Disruption is defined in Section 12.4.

Informational Report is defined in Section 3.8.

Legal Requirements or Laws are all applicable federal, state and local statutes, laws, codes, ordinances, rules, regulations, judicial decisions, orders, decrees plans, injunctions, permits, tariffs, governmental agreements and governmental restrictions, whether now or hereafter in effect, of any government or quasi-government entity having jurisdiction over the Expansion Project or Site, the practices involved in the Expansion Project or Site, or any Work, including any consensus standards for materials, products, systems, and services established by ASTM International, any successor organization thereto, or any Governmental Authority.

Lenders means the lenders that are party to the Financing Documents.

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Lenders’ Agent means an agent or agents acting on behalf of the Lenders.

Manufacturer’s Warranty shall mean a warranty provided by the original manufacturer or vendor of equipment used by Design-Builder in the Expansion Plant.

MGY is defined in the Recitals.

Notice to Proceed is defined in Section 6.2.

Operating Procedures means, without limitation, the process equipment and specifications manuals, standards of quality, service protocols, data collection methods, construction specifications, training methods, engineering standards and any other information prescribed by Design-Builder and ICM from time to time concerning the ownership, operation, maintenance and repair of the Plant, subject to the limitations provided in the Agreement and in the ICM License Agreement.

Owner is defined in the Preamble.

Owner Indemnified Parties is defined in Section 14.3.1.

Owner’s Milestones is defined in Section 13.5.

Owner’s Representative is defined in Section 16.1.

Owner’s Senior Representative is defined in Section 16.1.

Party or Parties is defined in the Preamble.

Pass Through Warranties mean any warranties provided to Design-Builder by a Subcontractor which are assigned to Owner.

Pay Period means, with respect to a given Application for Payment, the one (1) month period following the last day of the previous Pay Period to which the immediately prior Application for Payment is applied; provided that the initial Pay Period shall commence on the date of delivery of the Notice to Proceed and end on the twenty-fourth (24th) day of the calendar month during which the Notice to Proceed is issued.

Payment Bond is defined in Section 7.4.2.

Performance Bond is defined in Section 7.4.1.

Performance Guarantee Criteria means the criteria listed in Exhibit A.

Performance Tests is defined in Section 7.2.1.

Punch List is defined in Section 6.4.3.

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Qualified Independent Expert means an expert retained by Owner and approved by Design-Builder pursuant to Section 11.1.2.

Safety Representative is defined in Section 3.7.1.

Schedule of Values is defined in Section 10.2.5.

Scheduled Substantial Completion Date is defined in Section 6.4.1.

Site is the land or premises on which the Expansion Project is located.

Subcontractor is any person or entity retained by Design-Builder, or by any person or entity retained directly or indirectly by Design-Builder, in each case as an independent contractor to perform a portion of the Work and shall include materialmen and suppliers.

Substantial Completion is defined in Section 6.4.2.

Work is defined in Section 3.1.

Work Product is defined in Section 5.1.

Article 2
The Expansion Project

2.1          Services to be Performed. Pursuant to this Agreement, Design-Builder shall perform all work and services in connection with the engineering, design, procurement, construction startup, testing and training for the operation and maintenance of the Expansion Plant, and provide all material, equipment, tools and labor necessary to complete the Expansion Plant in accordance with the terms of this Agreement. The Expansion Plant, together with all equipment, labor, services and materials furnished hereunder is defined as the “Expansion Project.”

2.2          Extent of Agreement. This Agreement consists of the following documents, and all exhibits, schedules, appendices and attachments hereto and thereto (collectively, the “Contract Documents”):

2.2.1 All written modifications, amendments and change orders to this Agreement.

2.2.2 This Agreement, including all exhibits and attachments, executed by Owner and Design-Builder, including those below:

List of Exhibits

Exhibit A	Performance Guarantee Criteria
Exhibit B	Project Scope

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Exhibit C	Owner’s Responsibilities
Exhibit D	ICM License Agreement
Exhibit E	Schedule of Values
Exhibit F	Form of Informational Report
Exhibit G	Required Permits
Exhibit H	Form of Performance Bond
Exhibit I	Form of Payment Bond
Exhibit J	Draw (Payment) Schedule
Exhibit K	Air Emissions Application or Permit
Exhibit L	[Reserved]
Exhibit M	Form of Application for Payment
Exhibit N	Form of Lien Waiver
Exhibit 0	Form of Consent to Assignment

2.2.3Construction Documents to be prepared by Design-Builder pursuant to Section 3.2.1 shall be incorporated in this Agreement.

2.3          Conflicting Provisions. In the event of any conflict or inconsistency between the body of this Agreement and any Exhibit or Schedule hereto, the terms and provisions of this Agreement, as amended from time to time, shall prevail and be given priority. Subject to the foregoing, the several documents and instruments forming part of this Agreement are to be taken as mutually explanatory of one another and in the case of ambiguities or discrepancies within or between such parts the same shall be explained and interpreted, if possible, in a manner which gives effect to each part and which avoids or minimizes conflicts among such parts. No oral representations or other agreements have been made by the Parties except as specifically stated in the Contract Documents.

Article 3
Design-Builder Responsibilities

 3.1         Design-Builder’s Services in General. Except for services and information to be provided by Owner and specifically set forth in Article 4 and Exhibit C, Design-Builder shall perform or cause to be performed all design, engineering, procurement, construction services, supervision, labor, inspection, testing, start-up, material, equipment, machinery, temporary utilities and other temporary facilities to complete construction of the Expansion Project consistent with the Contract Documents (the “Work”). All design and engineering and construction services and other Work of the Design-Builder shall be performed in accordance with, and upon completion the Plant shall comply with, (i) the Expansion Project Scope as set forth in Exhibit B, (ii) the Construction Documents, (iii) all Legal Requirements, and (iv) generally accepted construction and design-build standards of the fuel ethanol industry in the Midwest United States during the relevant time period. Any design and engineering or other professional service to be performed pursuant to this Agreement, which under Applicable Law must be performed by licensed personnel, shall be performed by licensed personnel as required by Law. The enumeration of specific duties and obligations to be performed by the Design-Builder under the Contract Documents shall not be construed to limit in any way the general undertakings of the Design-Builder as set forth herein. Design-Builder’s Representative shall be reasonably available to Owner and shall have the necessary expertise and experience required to

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supervise the Work. Design-Builder’s Representative shall communicate regularly with Owner and shall be vested with the authority to act on behalf of Design-Builder.

3.2          Design Development and Services.

3.2.1 Where required by Law, Design-Builder shall provide through qualified, licensed design professionals employed by Design-Builder, or procured from qualified, independent licensed Design Consultants, the necessary design services, including architectural, engineering and other design professional services, for the preparation of the required drawings, specifications and other design submittals required to permit construction of the Work in accordance with this Agreement (such drawings, specifications and design submittals collectively the “Construction Documents”). To the extent not prohibited by Legal Requirements, Design-Builder may prepare Construction Documents for a portion of the Work to permit construction to proceed on that portion of the Work prior to completion of the Construction Documents for the entire Work.

3.2.2Construction of the Expansion Plant shall be consistent with the Construction Documents.

3.2.3 Design-Builder shall maintain a current, complete set of drawings and specifications at the Site. Owner shall have the right to review such drawings and specifications. Owner and Independent Engineer may not make copies of the available drawings and specifications without Design-Builder’s written permission, and, granted such permission, may only do so to the extent such drawings and specifications directly pertain to the Expansion Plant; provided however that, pursuant to Section 5.1 of this Agreement, Design-Builder retains ownership of and property interests in any drawing or specifications made available and/or copied.

3.2.4Except as provided elsewhere in this Agreement, it is understood and agreed that review, comment and/or approval by Owner (or its designees) or Independent Engineer of any documents or submittals that Design-Builder is required to submit to Owner (or its designees) or Independent Engineer hereunder for their review, comment and/or approval (including without limitation the Construction Documents pursuant to Sections 3.2.1 and 3.2.3 hereof) shall not relieve or release Design-Builder from any of its duties, obligations or liabilities provided for under the terms of this Agreement or transfer any design liability from Design-Builder to Owner.

3.3 Standard of Care. All services performed by the Design-Builder and its Subcontractors pursuant to the Construction Documents shall be performed in accordance with the standard of care and skill generally accepted in the fuel ethanol industry in the Midwest United States during the relevant time period or in accordance with any of the practices, methods and acts that in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, safety and expedition. This standard of care is not intended to be limited to the optimum practice, method or act to the exclusion of all others, but rather to be acceptable practices, methods or acts generally accepted in the construction and design-build standards of the fuel ethanol industry in the Midwest United States. Design-Builder

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and its Subcontractors shall perform all construction activities efficiently and with the requisite expertise, skill, competence, resources and care to satisfy the requirements of the Contract Documents and all applicable Legal Requirements. Design-Builder shall at all times exercise complete and exclusive control over the means, methods, sequences and techniques of construction.

3.4          Government Approvals and Permits. Except as identified in Exhibit C and, with respect to items identified as Owner’s responsibility, in Exhibit G (which items shall be obtained by Owner pursuant to Section 4.5), Design-Builder shall obtain and pay for all necessary permits, approvals, licenses, government charges and inspection fees required for the prosecution of the Work by any government or quasi-government entity having jurisdiction over the Expansion Project. Design-Builder shall provide reasonable assistance to Owner in obtaining those permits, approvals and licenses that are Owner’s responsibility.

3.5          Subcontractors.

 3.5.1 Design-Builder may subcontract portions of the Work in accordance with the terms hereof Any subcontractor employed by Design-Builder shall be licensed and qualified to perform the Work consistent with the Contract Documents.

3.5.2Design-Builder assumes responsibility to Owner for the proper performance of the Work of Subcontractors and any acts and omissions in connection with such performance. Nothing in the Contract Documents is intended or deemed to create any legal or contractual relationship between Owner and any Subcontractor, including but not limited to any third-party beneficiary rights.

3.5.3Design-Builder shall coordinate the activities of all of Design-Builder’s Subcontractors. If Owner performs other work on the Expansion Project or at the Site with separate contractors under Owner’s control, Design-Builder agrees to reasonably cooperate and coordinate its activities with those separate contractors so that the Expansion Project can be completed in an orderly and coordinated manner without unreasonable disruption.

3.5.4 Design-Builder shall ensure that each subcontract with a Subcontractor is assignable to Owner without consent of the Subcontractor or any other person or entity in the event that Design-Builder shall be in an uncured default or terminated with cause under the terms of this Agreement.

3.6          Maintenance of Site. Design-Builder shall keep the Site reasonably free from debris, trash and construction wastes to permit Design-Builder to perform its construction services efficiently, safely and without interfering with the use of adjacent land areas. Upon Substantial Completion of the Work Design-Builder shall remove all debris, trash, construction wastes, materials, equipment, machinery and tools arising from the Work to permit Owner to occupy the Expansion Project for its intended use.

3.7          Project Safety.

3.7.1Design-Builder recognizes the importance of performing the Work in a safe

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manner so as to prevent damage, injury or loss to (i) any individuals at the Site, whether working or visiting, (ii) the Work, including materials and equipment incorporated into the Work or stored on-Site or off-Site, and (iii) any other property at the Site or adjacent thereto. Design-Builder assumes responsibility for implementing and monitoring all safety precautions and programs related to the performance of the Work. Design-Builder shall, prior to commencing construction, designate a representative (the “Safety Representative”) with the necessary qualifications and experience to supervise the implementation and monitoring of all safety precautions and programs related to the Work. Unless otherwise required by the Contract Documents, Design-Builder’s Safety Representative shall be an individual stationed at the Site who may have responsibilities on the Expansion Project in addition to safety. The Safety Representative shall make routine daily inspections of the Site and shall hold weekly safety meetings with Design-Builder’s personnel, Subcontractors and others as applicable.

3.7.2Design-Builder and Subcontractors shall comply with all Legal Requirements relating to safety, as well as any Owner-specific safety requirements set forth in the Contract Documents; provided, that such Owner-specific requirements do not violate any applicable Legal Requirement. As promptly as practicable, Design-Builder will report in writing any safety-related injury, loss, damage or accident arising from the Work to Owner’s Representative and, to the extent mandated by Legal Requirements, to all government or quasi-government authorities having jurisdiction over safety-related matters involving the Expansion Project or the Work.

3.7.3Design-Builder’s responsibility for safety under this Section 3.7 is not intended in any way to relieve Subcontractors of their own contractual and legal obligations and responsibility for (i) complying with all Legal Requirements, including those related to health and safety matters, and (ii) taking all necessary measures to implement and monitor all safety precautions and programs to guard against injury, losses, damages or accidents resulting from their performance of the Work.

3.8          Submission of Reports. Design-Builder shall provide Owner with a monthly informational report substantially in the form of Exhibit F attached hereto (“Informational Report”).

3.9          Training. At a mutually agreed time prior to start-up, Design-Builder shall provide any necessary training at the LSCP Plant (or other location) for all of Owner’s employees required for the operation and maintenance of the Expansion Plant in accordance with all design specifications therefor contained in the Contract Documents and necessary in order to maintain the Performance Guarantee Criteria, including operators, laboratory personnel, general, plant and maintenance managers. Other personnel of Owner may receive such on-Site training by separate arrangement between Owner and Design-Builder and as time is available. All training personnel and costs associated with such training personnel, including labor and all training materials will be provided to Owner within the Contract Price at no additional cost. Owner will be responsible for all travel and expenses of their employees and the Owner will pay all wages and all other expenses for their personnel during the training. The training services will include training on computers, laboratory procedures, field operating procedures, and overall plant section performance expectations. Prior to the start-up training, Design-Builder shall provide Owner training manuals and operating manuals and other documents reasonably necessary for the start-up process.

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3.10 Integration of Expansion Plant into LSCP Plant. Design-Builder shall coordinate with Owner the timely and full integration of installation and start-up of the Expansion Plant into the LSCP Plant so as to coincide as much as possible with the periods of non-operation (whether scheduled or otherwise) of, and to reasonably minimize disruption to, the LSCP Plant. Design-Builder shall perform all services reasonably necessary to fully integrate the Expansion Plant into the LSCP Plant so that the Expansion Plant operates in accordance with the Contract Documents and maintains the Performance Guarantee Criteria. However, Design-Builder makes no guarantees as to, and shall not be held liable for, any effect the design, construction, and integration of the Expansion Plant shall have on the performance of the Plant during Design-Builder’s performance of the services provided pursuant to this Agreement.

Article 4
Owner’s Responsibilities

4.1          Duty to Cooperate.

4.1.1 Owner shall, throughout the performance of the Work, cooperate with Design-Builder and perform its responsibilities, obligations and services in a timely manner to facilitate Design-Builder’s timely and efficient performance of the Work and so as not to delay or interfere with Design-Builder’s performance of its obligations under the Contract Documents.

4.1.2 Owner shall pay all reasonable costs incurred by Design-Builder for frost removal so that winter construction can proceed. Such costs may include but are not limited to, equipment costs, equipment rental costs, sheltering costs, special material costs, fuel costs and associated labor costs. Owner acknowledges and agrees that such costs are in addition to, and not included in, the Contract Price, and that the payment of such costs, which shall be billed on a weekly basis, shall not require the issuance of a Change Order or the obtaining of any Owner approval prior to the issuance of invoices for such costs.

4.2          Furnishing of Services and Information.

4.2.1 Prior to the issuance of the Notice to Proceed, at its own cost and expense, Owner shall provide the following items to Design-Builder for Design-Builder’s information and use and, all of which Design-Builder is entitled to rely upon in performing the Work:

(a)surveys describing the property, boundaries, topography and reference points for use during construction, including existing service and utility lines;

(b)geotechnical studies describing subsurface conditions including soil borings, and other surveys describing other latent or concealed physical conditions at the Site;

(c)temporary and permanent easements, zoning and other requirements and encumbrances affecting land use, or necessary to permit the proper design and construction of the Expansion Project and enable Design-Builder to perform the Work;

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(d)A legal description of the Site;

(e)to the extent available, as-built and record drawings of any existing structures at the Site, including modifications since the original construction of the LSCP Plant; and

(f)all environmental studies, reports and impact statements describing the environmental conditions, including Hazardous Conditions, in existence at the Site that have been conducted or performed.

4.2.2Owner shall provide to Design-Builder all Owner’s deliverables under Exhibit C pursuant to Owner’s Milestones. Such deliverables shall be provided, at Owner’s own cost and expense, for Design-Builder’s information and use. Design-Builder is entitled to rely upon such deliverables in performing the Work.

4.2.3Owner is responsible for securing and executing all necessary agreements with adjacent land or property owners that are necessary to enable Design-Builder to perform the Work and that have been identified and notified in writing by Design-Builder to Owner prior to the Effective Date. Owner is further responsible for all costs, including attorneys’ fees, incurred in securing these necessary agreements.

4.3          Financial Information; Cooperation with Lenders; Failure to Obtain Financial Closing. Design-Builder acknowledges that Owner is seeking financing for the Expansion Project. Design-Builder agrees to cooperate with Owner in good faith in order to satisfy the reasonable requirements of Owners’ financing arrangements, including, where appropriate and reasonable, the execution and delivery of documents or instruments necessary to accommodate the Financial Closing. Owner agrees to pay all documented costs incurred by Design-Builder incurred prior to and at Financial Closing, and thereafter during the term of this Agreement, in connection with satisfying the requirements of Owners’ financing arrangements including all documented attorney’s fees. Design-Builder and Owner also acknowledge that the Lenders, as a condition to providing financing for the Expansion Plant, shall require Owner to provide the Independent Engineer with certain reasonable participation and review rights with respect to Design-Builder’s performance of the Work. Design-Builder acknowledges and agrees that such reasonable participation and review rights shall consist of the right to (i) enter the Site and inspect the Work upon reasonable notice to Design-Builder; (ii) attend all start-up and testing procedures; and (iii) review and approve such other items for which Owner is required by Lenders to obtain the concurrence, opinion or a certificate of the Independent Engineer or the Lenders pursuant to the Financing Documents which items do not alter the rights or impose additional obligations on Design-Builder. Nothing in this Section 4.3 shall be deemed to require Design-Builder to agree to any amendments to this Agreement that would adversely affect Design-Builder’s risks, rights or obligations under this Agreement. Upon Financial Closing, Owner shall promptly provide to Design-Builder an officer’s certificate certifying that Financial Closing has occurred and such Owner’s officer’s certificate shall constitute evidence satisfactory to Design-Builder that Owner has adequate funds available and committed to fulfill its obligations under the Contract Documents for all purposes hereunder. Owner must provide such officer’s certificate no later than sixty (60) days after the issuance of Notice to Proceed.

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4.4          Owner’s Representative. Owner’s Representative, as set forth in Section 16.1 hereof, shall be responsible for providing Owner-supplied information and approvals in a timely manner to permit Design-Builder to fulfill its obligations under the Contract Documents. Owner’s Representative shall also provide Design-Builder with prompt notice if it observes any failure on the part of Design-Builder to fulfill its contractual obligations, including any errors, omissions or defects in the performance of the Work. Owner’s Representative shall be vested with the authority to act on behalf of Owner and Design-Builder shall be entitled to rely on written communication from Owner’s Representative with respect to an Expansion Project matter.

4.5          Government Approvals and Permits. Owner shall obtain and pay for all necessary Governmental Approvals required by Law, including permits, approvals, licenses, government charges and inspection fees set forth in Exhibit C and, to the extent identified as Owner’s responsibility, Exhibit G. Owner shall provide reasonable assistance to Design-Builder in obtaining those permits, approvals and licenses that are Design-Builder’s responsibility pursuant to Exhibit G and Section 3.4.

4.6          Owner’s Separate Contractors. Owner is responsible for all work, including such work listed on Exhibit C, performed on the Expansion Project or at the Site by separate contractors under Owner’s control. Owner shall contractually require its separate contractors to cooperate with, and coordinate their activities so as not to interfere with, Design-Builder in order to enable Design-Builder to timely complete the Work consistent with the Contract Documents.

4.7           Security. Owner shall be responsible for Site security (including fencing, alarm systems, security guarding services and the like) at all times during the term of this Agreement to prevent vandalism, theft and danger to the Expansion Plant, the Site, and personnel. Owner shall coordinate and supervise ingress and egress from the Site so as to minimize disruption to the Work.

Article 5
Ownership of Work Product; Risk of Loss

5.1          Work Product. All drawings, specifications, calculations, data, notes and other materials and documents, including electronic data furnished by Design-Builder to Owner under this Agreement (“Work Product”) shall be instruments of service and Design-Builder shall retain the ownership and property interests therein, including the copyrights thereto.

5.2          Owner’s Limited License Upon Payment in Full. Upon Owner’s payment in full for all Work performed under the Contract Documents, Design-Builder shall grant Owner a limited license to use the Work Product in connection with Owner’s occupancy, operation, maintenance and repair of the Expansion Plant. Design-Builder acknowledges and agrees that the limited license to use the Work Product granted hereby shall provide Owner sufficient rights in and to the Work Product as shall be necessary for Owner to operate and maintain the Expansion Plant and shall include any Pass Through Warranties in connection therewith.  Design-Builder shall provide Owner with a copy of the plans of the Expansion Plant, as built, (the “As Built Plans”) conditioned on Owner’s express understanding that its use of the Work Product and its

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acceptance of the As Built Plans is at Owner’s sole risk and without liability or legal exposure to Design-Builder or anyone working by or through Design-Builder, including Design Consultants of any tier (collectively the “Indemnified Parties”); provided, however, that any performance guarantees, and warranties (of equipment or otherwise) shall remain in effect according to the terms of this Agreement.

5.2.1 Design-Builder is utilizing certain proprietary property and information of ICM in the design and construction of the Expansion Project, and Design-Builder may incorporate proprietary property and information of ICM into the Work Product. Owner’s use of the proprietary property and information of ICM shall be governed by the terms and provisions of the ICM License Agreement, to be executed by Owner and ICM in connection with the execution of this Agreement. Owner shall be entitled to use the Work Product solely for purposes relating to the Expansion Plant, but shall not be entitled to use the Work Product for any other purposes whatsoever, including without limitation, expansion of the Expansion Plant. Notwithstanding the foregoing sentence, Owner shall be entitled to use the Work Product for the operation, maintenance and repair of the Expansion Plant including the interconnection of, but not the design of, any future expansions to the Expansion Plant. The limited license granted to Owner under Sections 5.2, 5.3 or 5.4 to use the Work Product shall be limited by and construed according to the same terms contained in the ICM License Agreement attached hereto as Exhibit D and incorporated herein by reference thereto, except (i) references in such ICM License Agreement to ICM and Proprietary Property shall refer to Design-Builder and Work Product, respectively, (ii) the Laws of the State of Minnesota shall govern such limited license, and (iii) the dispute resolution provisions contained in Article 19 hereof shall apply to any breach or threatened breach of Owner’s duties or obligations under such limited license, except that Design-Builder shall have the right to seek injunctive relief in a court of competent jurisdiction against Owner or its Representatives for any such breach or threatened breach. This paragraph also applies to Sections 5.3 and 5.4 below.

5.3          Owner’s Limited License Upon Owner’s Termination for Convenience or Design-Builder’s Election to Terminate. If Owner terminates the Expansion Project for its convenience as set forth in Section 15.3 hereof, or if Design-Builder elects to terminate this Agreement in accordance with Section 15.5, Design-Builder shall, upon Owner’s payment in full of the amounts due Design-Builder under this Agreement, grant Owner a limited license to use the Work Product to complete the Expansion Plant and subsequently occupy, operate, maintain and repair the Expansion Plant, subject to the following:

(a)Use of the Work Product is at Owner’s sole risk without liability or legal exposure to any Indemnified Party; provided, however, that any Pass Through Warranties regarding equipment or express warranties regarding equipment provided by this Agreement shall remain in effect according to their terms; and

(b)If the termination for convenience is by Owner in accordance with Section 15.3 hereof, or if Design-Builder elects to terminate this Agreement in accordance with Section 15.5, then Owner agrees to pay Design-Builder the additional sum of One Million Two Hundred Fifty Thousand Dollars ($1,250,000.00) as compensation for the limited right to use the Work Product completed “as is” on the date of termination in accordance with this Article 5.

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5.4          Owner’s Limited License Upon Design-Builder’s Default. If this Agreement is terminated due to Design-Builder’s default pursuant to Section 15.2 and (i) it is adjudged that Design-Builder was in default, and (ii) Owner has fully satisfied all of its obligations under the Contract Documents through the time of Design-Builder’s default, then Design-Builder shall grant Owner a limited license to use the Work Product in connection with Owner’s completion, operation, maintenance, occupancy and repair of the Expansion Plant. This limited license is conditioned on Owner’s express agreement that its use of the Work Product is at Owner’s sole risk without liability or legal exposure to any Indemnified Party; provided, however, that any Pass Through Warranties regarding equipment or express warranties regarding equipment provided by this Agreement shall remain in effect according to their terms. This limited license grants Owner the ability to repair the Expansion Plant at Owner’s discretion.

5.5          Owner’s Indemnification for Use of Work Product. If Owner uses the Work Product or Expansion Plant under any of the circumstances identified in this Article 5, to the fullest extent allowed by Law, Owner shall defend, indemnify and hold harmless the Indemnified Parties from and against any and all claims, damages, liabilities, losses and expenses, including attorneys’ fees, arising out of or resulting from the use of the Work Product and Expansion Plant; provided, however, that any Pass Through Warranties regarding equipment or express warranties regarding equipment provided by this Agreement shall remain in effect according to their terms.

5.6          Risk of Loss. Design-Builder shall have no liability for a physical loss of or damage to the Work unless such loss or damage is caused by the willful misconduct or the negligence of Design-Builder or someone acting under its direction or control. Design-Builder shall not be liable for physical loss of or damage to the Work where such loss or damage is caused by the willful misconduct or the negligence of Owner’s employees or third parties who are not Subcontractors. Design-Builder shall have no liability for a physical loss of or damage to the Work occurring after Final Completion. Design-Builder shall have no liability for losses or damages for which insurance coverage under this Agreement is available to Owner; in such circumstances, any liability for losses and damages as described in this Section 5.6 shall be limited to losses or damages which exceed insurance coverage available to the Owner without the application of any reductions from such coverages due to deductible, retention or retrospective premiums.

Article 6
Commencement and Completion of the Expansion Project

6.1          [Reserved].

6.2          Notice to Proceed; Commencement. The Work shall commence within five (5) Days of Design-Builder’s receipt of Owner’s written valid notice to proceed (“Notice to Proceed”) unless the Parties mutually agree otherwise in writing. The Parties agree that a valid Owner’s Notice to Proceed cannot be given until: (1) Owner has title to the real estate on which the Expansion Project will be constructed; (2) the Phase I Site work required of Owner and a sufficient portion of the Phase II Site work required of Owner, each as described in Exhibits C and L, have been completed, at Design-Builder’s reasonable determination, so as to permit

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Design-Builder to commence construction, and all relevant redline drawings for such completed Phase I and Phase II Site work have been provided by Owner and deemed adequate by Design-Builder; (3) the air permit(s) and/or other applicable local, state or federal permits necessary so that construction can begin, as listed on Exhibit G, have been obtained; (4) Owner demonstrates it has the financial resources to construct the project and it appears reasonable that Financial Closing and the issuance of an officer’s certificate pursuant to Section 4.3 will occur within sixty (60) days of the issuance of Notice to Proceed; (5) if applicable, Owner has executed a sales tax exemption certificate and provided the same to Design-Builder; (6) Owner has provided the name of its property/all-risk insurance carrier and the specific requirements for fire protection; (7) Owner has provided an insurance certificate or copy of insurance policy demonstrating that Owner has obtained builder’s risk insurance pursuant to Section 17.4.3 hereof; and (8) Design-Builder provides Owner written notification of its acceptance of the Notice to Proceed. Owner and Design-Builder mutually agree that time is of the essence with respect to the dates and times set forth in the Contract Documents. Design-Builder must receive a valid Owner’s Notice to Proceed within one hundred and eighty (180) Days of the Effective Date; otherwise, this Agreement may be terminated at Design-Builder’s sole option. If Design-Builder chooses to terminate this Agreement pursuant to its right under the immediately preceding sentence, then Design-Builder shall have no further obligations hereunder.

6.2.1 Notice to Proceed shall be delivered by Owner to Design-Builder pursuant to the notice requirements set forth in Section 21.7 hereof, with a copy to:

Fagen, Inc.

501 W. Highway 212
P. 0. Box 159

Granite Falls, MN 56241
Attention: Becky Dahl
Fax: (320) 564-5190

Within five (5) Days of receipt by Design-Builder of the Notice to Proceed, Design-Builder shall deliver to Owner notice of either acceptance or denial of the Notice to Proceed including the reasons for rejection, if applicable.

6.3          Expansion Project Start-Up and Testing. Owner shall provide, at Owner’s cost, equipment, tools, instruments and materials necessary for Owner to comply with its obligations under Exhibit C, raw materials, consumables and personnel, necessary for start-up and testing of the Expansion Plant, and Design-Builder shall provide supervision, standard and special test instruments, tools, equipment and materials required to perform component and equipment checkout and testing, initial start-up, operations supervision and corrective maintenance of all permanent Expansion Plant equipment within the scope of the Work. Notwithstanding the foregoing sentence, Design-Builder shall be responsible for raw materials and consumables to the extent such amounts provided by Owner are destroyed or damaged (as opposed to consumed in the ordinary course of start-up and testing) by Design-Builder or its personnel during start-up and testing. Design-Builder shall supervise and direct Owner’s personnel who shall participate in the start-up activities with Design-Builder’s personnel to become familiar with all aspects of the Expansion Plant. Owner and the Independent Engineer may witness start-up and testing activities. Performance testing will be conducted in accordance with the provisions of Section 7.2 hereof

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6.4          Substantial Completion.

6.4.1 Substantial Completion of the entire Work shall be achieved no later than Five Hundred and Forty-five (545) Days after the date of the Notice to Proceed, subject to adjustment in accordance with the Contract Documents hereof (the “Scheduled Substantial Completion Date”).

6.4.2 “Substantial Completion” shall be deemed to occur on the date on which the Work is sufficiently complete so that Owner can occupy and use the Expansion Plant for its intended purposes. Substantial Completion shall be attained at the point in time when the Expansion Plant is ready to grind the first batch of corn and begin operation for its intended use. No production is guaranteed on the date of Substantial Completion.

6.4.3 Procedures. Design-Builder shall notify Owner in writing when it believes Substantial Completion has been achieved with respect to the Work. Within five (5) Days of Owner’s receipt of Design-Builder’s notice, Owner and Design-Builder will jointly inspect such Work to verify that it is substantially complete in accordance with the requirements of the Contract Documents. If such Work is deemed substantially complete, Design-Builder shall prepare and issue a “Certificate of Substantial Completion” for the Work that will set forth (i) the date of Substantial Completion, (ii) the remaining items of Work that have to be completed before Final Payment (“Punch List”), (iii) provisions (to the extent not already provided in this Agreement) establishing Owner’s and Design-Builder’s responsibility for the Expansion Project’s security, maintenance, utilities and insurance pending Final Payment, and (iv) an acknowledgment that warranties with respect to the Work commence on the date of Substantial Completion, except as may otherwise be noted in the Certificate of Substantial Completion. Upon Substantial Completion of the entire Work and satisfaction of the Performance Guarantee Criteria listed in Exhibit A, Owner shall release to Design-Builder all retained amounts less an amount equal to one hundred and fifty percent (150%) of the reasonable value of all remaining or incomplete items of Work as noted in the Certificate of Substantial Completion, and less an amount equal to the value of any Subcontractor lien waivers not yet obtained.

6.4.4 Early Completion Bonus. If Substantial Completion is attained within Five Hundred Forty-five (545) Days after the date of the Notice to Proceed, Owner shall pay Design-Builder at the time of Final Payment under Section 10.3 hereof an early completion bonus (“Early Completion Bonus”) of Eight Thousand Dollars ($8,000.00) per Day for each Day that Substantial Completion occurred in advance of said Five Hundred Forty-five (545) Days.

6.4.5 In all events, payment of said bonus, if applicable, at the time of Final Payment is subject to release of funds by senior lender. If senior lender does not allow release of funds at the time of Final Payment to pay said early completion bonus in full, any unpaid balance shall be converted to an unsecured promissory note payable by Owner to Design-Builder, accruing interest at ten percent (10%) per annum. On each anniversary of the note, any unpaid accrued interest shall be converted to principal and shall accrue interest as principal thereafter. Owner shall pay said promissory note as soon as allowed by senior lender; in any event, the note, plus accrued interest, shall be paid in full before Owner pays or makes any distributions to or for

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the benefit of its owners (shareholders, members, partners, etc.). All payments shall be applied first to accrued interest and then to principal.

6.5          Final Completion.

6.5.1 Final Completion of the Work shall be achieved within Ninety (90) Days after the date of Substantial Completion (the “Final Completion Date”).

6.5.2 “Final Completion” shall be achieved when the Owner reasonably determines that the following conditions have been met:

(a)Substantial Completion has been achieved;

(b)any outstanding amounts owed by Design-Builder to Owner have been paid in
full;

(c)the items identified on the Punch List have been completed by Design-Builder; clean-up of the Site has been completed;

(d)all permits required to have been obtained by Design-Builder have been obtained; the information in Section 6.5.4 has been provided to Owner;

(e)release and waiver of all claims and liens from Design-Builder and Subcontractors have been provided; and

(f)the Performance Tests have been successfully completed.

6.5.3 After receipt of a Final Application for Payment from Design-Builder, Owner shall make Final Payment in accordance with Section 10.3, less an amount equal to the value of any Subcontractor lien waivers not yet obtained.

6.5.4 At the time of submission of its Final Application for Payment, Design-Builder shall provide the following information:

(a)an affidavit that there are no claims, obligations or liens outstanding or unsatisfied for labor, services, material, equipment, taxes or other items performed, furnished or incurred for or in connection with the Work which will in any way affect Owner’s interests;

(b)a general release executed by Design-Builder waiving, upon receipt of final payment by Design-Builder, all claims for payment, additional compensation, or damages for delay, except those previously made to Owner in writing and remaining unsettled at the time of Final Payment provided such general release shall not waive defenses to claims that may be asserted by Owner after payment or claims arising after payment;

(c)consent of Design-Builder’s surety, if any, to Final Payment; and

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(d)a hard copy of the As Built Plans; provided, however, that such plans will remain the Work Product of the Design-Builder and subject in all respects to Article 5.

6.5.5 Upon making Final Payment, Owner waives all claims against Design-Builder except claims relating to (i) Design-Builder’s failure to satisfy its payment obligations, (ii) Design-Builder’s failure to complete the Work consistent with the Contract Documents, including defects appearing within one (1) year after Substantial Completion, and (iii) the terms of any warranties required by the Contract Documents.

6.6       Post Completion Support. Adequate personnel to complete all Work within the Contract Time(s) will be maintained on-Site by Design-Builder or a Subcontractor until Final Completion has been achieved. In addition to prosecuting the Work until Final Completion has been achieved, Design-Builder or its Subcontractor will provide one (1) month of on-Site operational support for Owner’s personnel after successful completion of the Performance Tests and, from the date of Substantial Completion, will provide six (6) months of off-Site technical and operating procedure support by telephone and other electronic data transmission and communication.

Article 7
Performance Testing and Liquidated Damages

7.1          Performance Guarantee. The Design-Builder guarantees that the Expansion Plant will meet the performance criteria listed in Exhibit A (the “Performance Guarantee Criteria”) during a performance test conducted and concluded pursuant to the terms hereof not later than Ninety (90) Days after the date of Substantial Completion. If there is a performance shortfall, Design-Builder will pay all design and construction costs associated with making the necessary corrections. Design-Builder retains the right to use its sole discretion in determining the method (which shall be in accordance with generally accepted construction and design-build standards of the fuel ethanol industry in the Midwest United States) to remedy any performance related issues.

7.2          Performance Testing.

7.2.1 The Design-Builder shall direct and supervise the tests and, if necessary, the retests of the Expansion Plant using Design-Builder’s supervisory personnel and the Air Emissions Tester shall conduct the air emissions test, in each case, in accordance with the testing procedures set forth in Exhibit A (the “Performance Tests”), to demonstrate, at a minimum, compliance with the Performance Guarantee Criteria. Owner is responsible for obtaining Air Emissions Tester and for ensuring Air Emissions Tester’s timely performance. Design-Builder shall cooperate with the Air Emissions Tester to facilitate performance of all air emissions tests. Design-Builder shall not be held responsible for the actions of Owner’s employees and third parties involved in the Performance Testing, including but not limited to Air Emissions Tester.

7.2.2 No later than thirty (30) Days prior to the earlier of the Scheduled Substantial Completion Date or Substantial Completion, Design-Builder shall provide to Owner for review a detailed testing plan for the Performance Tests (other than for air emissions). Owner

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and Design-Builder shall agree upon a testing plan that shall be consistent with the Performance Test Protocol contained in Exhibit A hereto. After such agreement has been reached, Design-Builder shall notify the Owner five (5) business days prior to the date Design-Builder intends to commence the Performance Tests and shall notify the Owner upon commencement of the Performance Tests. Owner and Independent Engineer each have the right to witness all testing, including the Performance Tests and any equipment testing, whether at the Site or at the Subcontractor’s or equipment supplier’s premises during the course of this Agreement. Notwithstanding the foregoing sentence, Owner shall bear the costs of providing a witness to any such testing and all such witnesses shall comply at all times with Design-Builder’s, Subcontractor’s or equipment supplier’s safety and security procedures and other reasonable requirements, and otherwise conduct themselves in a manner that does not interfere with Design-Builder’s, Subcontractor’s or equipment supplier’s activities or operations.

7.2.3 Design-Builder shall provide to Owner a Performance Test report (excluding results from air emissions testing), including all applicable test data, calculations and certificates indicating the results of the Performance Tests and, within five (5) business days of Owner’s receipt of such results, Owner and Design-Builder will jointly inspect such Work and review the results of the Performance Tests to verify that the Performance Guarantee Criteria have been met. If Owner reasonably determines that the Performance Guarantee Criteria have not been met, Owner shall notify Design-Builder the reasons why Owner determined that the Performance Guarantee Criteria have not been met and Design-Builder shall promptly take such action or perform such additional work as will achieve the Performance Guarantee Criteria and shall issue to the Owner another notice in accordance with Section 7.2.2; provided however that if the notice relates to a retest, the notice may be provided no less than two (2) business days prior to the Performance Tests. Such procedure shall be repeated as necessary until Owner verifies that the Performance Guarantee Criteria have been met.

7.2.4 If Owner, for whatever reason, including without limitation, Owner’s failure to perform maintenance or provide supplies necessary for start-up, testing, and demonstration of the Performance Guarantee Criteria for the Expansion Plant, prevents Design-Builder from demonstrating the Performance Guarantee Criteria within thirty (30) Days of Design-Builder’s notice that the Expansion Plant is ready for Performance Testing, then Design-Builder shall be excused from demonstrating compliance with the Performance Guarantee Criteria during such period of time that Design-Builder is prevented from demonstrating Little Sioux Corn Processors, LP compliance with the Performance Guarantee Criteria; provided however that Design-Builder will be deemed to have fulfilled all of its obligations to demonstrate that the Expansion Plant meets the Performance Guarantee Criteria should such period of time during which Design-Builder is prevented from demonstrating the Performance Criteria exceed thirty (30) Days or extend ninety (90) days beyond Substantial Completion.

7.3          Liquidated Damages. Design-Builder understands that if Final Completion is not attained by the Final Completion Date, Owner will suffer damages which are difficult to determine and accurately specify. Design-Builder agrees that if Final Completion is not attained by the end of the Final Completion Date, Design-Builder shall pay Owner Eight Thousand Dollars ($8,000.00) as liquidated damages, and not as a penalty, for each Day that Final Completion extends beyond the Final Completion Date. Owner, at its discretion, may elect to offset any such liquidated damages from any retainage. Liquidated damages shall be paid by

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Design-Builder by the fifteenth (15th) Day of the month following the month in which the liquidated damages were incurred. The liquidated damages provided herein shall be in lieu of all liability for any and all extra costs, losses, loss of profits, expenses, claims, penalties and any other damages, whether special or consequential, and of whatsoever nature incurred by Owner which are occasioned solely by any delay in achieving Final Completion.

7.3.1 Maximum Liquidated Damages. Design-Builder’s liability for liquidated damages under Section 7.3.1 shall be capped at and shall not exceed One Million Dollars ($1,000,000.00).

7.3.2 Design-Builder shall not be liable for liquidated damages during any period of time for which an extension of the Scheduled Substantial Completion Date and/or Final Completion Date is available pursuant to Article 12.

7.4          Bonds and Other Performance Security.

7.4.1 On or prior to the date of Financial Closing, if requested by Owner, the Design-Builder shall deliver to Owner a bond substantially in the form attached as Exhibit H (the “Performance Bond”) in an initial amount equivalent to the Contract Price. Owner shall pay on the date of Financial Closing all costs of obtaining such bond, plus pay Design-Builder a fee of seven and one half percent (7.5%) for obtaining such bond, such fee to be calculated by multiplying seven and one half percent (7.5%) times the cost of the Performance Bond. Any amounts payable to the surety due to Design-Builder’s default under this Agreement or the Performance Bond shall be for the account of Design-Builder.

(a)Design-Builder shall post additional bonds or security (which must be in form and substance satisfactory to Owner and the Lenders) or shall increase the amount of the Performance Bond by the amount of any increases to the Contract Price; provided, however, that Owner shall pay all costs of obtaining such bonds or security, plus pay Design-Builder a fee of seven and one half percent (7.5%) for obtaining such bonds or security, such fee to be calculated by multiplying seven and one half percent (7.5%) times the cost of the bonds or security.

(b)The Performance Bond shall secure the Design-Builder’s obligations to complete
the Work in accordance with this Agreement.

7.4.2 On or prior to the date of Financial Closing, if requested by Owner, the Design-Builder shall deliver to Owner a bond substantially in the form attached as Exhibit I (the “Payment Bond”) in an initial amount equivalent to the Contract Price. Owner shall pay on the date of Financial Closing all costs of obtaining such bond, plus pay Design-Builder a fee of seven and one half percent (7.5%) for obtaining such bond, such fee to be calculated by multiplying seven and one half percent (7.5%) times the cost of the Payment Bond but any amounts payable to the surety due to Design-Builder’s default under this Agreement or the Payment Bond shall be for the account of Design-Builder.

(a)Design-Builder shall post additional bonds or security (which must be in form and substance reasonably satisfactory to Owner and the Lenders) or shall increase the

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amount of the Payment Bond by the amount of any increase to the Contract Price.

(b)The Payment Bond shall secure the Design-Builder’s obligations to pay its Subcontractors, vendors and suppliers.

(c)The Payment Bond shall provide the conditions upon which Subcontractors, vendors and suppliers may draw upon such Payment Bond following Design-Builder’s failure to pay amounts due such Subcontractors, vendors and suppliers.

Article 8
Warranties

8.1          Design-Builder Warranty. Design-Builder warrants to Owner that the construction, including all materials and equipment furnished as part of the construction, shall be new, of good quality, in conformance with the Contract Documents and all Legal Requirements, free of defects in materials and workmanship. Design-Builder’s warranty obligation excludes defects caused by abuse, alterations, or failure to maintain the Work by persons other than Design-Builder or anyone for whose acts Design-Builder may be liable. Nothing in this warranty is intended to limit any Manufacturer’s Warranty which provides Owner with greater warranty rights than set forth in this Section 8.1 or the Contract Documents. Design-Builder will provide to Owner all manufacturers’ and Subcontractors’ warranties upon the earlier of Substantial Completion or termination of this Agreement. Owner’s failure to comply with all Operating Procedures shall void those guarantees, representations and warranties, whether expressed or implied, that were given by Design-Builder to Owner, concerning the performance of the Expansion Plant that are reasonably determined by Design-Builder to be affected by such failure. If Design-Builder reasonably determines that all damage caused by such failure can be repaired and Owner makes all repairs needed to correct such damage, as reasonably determined by Design-Builder, all guarantees, representations and warranties shall be reinstated for the remaining term thereof, if any, from the date of the repair.

8.2          Correction of Defective Work.

8.2.1 Design-Builder agrees to correct any Work that is found to not be in conformance with the Contract Documents, including that part of the Work subject to Section 8.1, within a period of one (1) year from the date of Substantial Completion of the Work; provided that Owner must report such non-conformance within seven (7) days of the date that Owner becomes aware of such failure or non-conformance or the date Owner should have become aware of such failure or non-conformance, whichever is earlier, and that such one (1)-year period shall be extended one (1) Day for any part of the Work that is found to be not in conformance with the Contract Documents for each Day that such part of the Work is not operating in conformity with the Contract Documents, including any time during which any part of the Work is repaired or replaced pursuant to this Article 8.

8.2.2 Design-Builder shall, within seven (7) Days of receipt of written notice from Owner that the Work is not in conformance with the Contract Documents, take meaningful steps to commence correction of such nonconforming Work, including the correction, removal or replacement of the nonconforming Work and correction or replacement of any Work damaged

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by such nonconforming Work. If Design-Builder fails to commence the necessary steps within such seven (7) Day period or fails to continue to perform such steps through completion, Owner, in addition to any other remedies provided under the Contract Documents, may provide Design-Builder with written notice that Owner will commence or assume correction of such nonconforming Work and repair of such damaged Work with its own resources. If, following such written notice, Owner performs such corrective and repair Work, Design-Builder shall be responsible for all reasonable costs incurred by Owner in performing the correction. If the non­conforming Work creates an emergency requiring an immediate response, the seven (7) Day periods identified herein shall be inapplicable and Design-Builder shall immediately correct, remove, or replace the non-conforming Work.

8.3          Warranty Period Not Limitation to Owner’s Rights. The one (1)-year period referenced in Section 8.2 above applies only to Design-Builder’s obligation to correct nonconforming Work and is not intended to constitute a period of limitations for any other rights or remedies Owner may have regarding Design-Builder’s other obligations under the Contract Documents.

Article 9
Contract Price

9.1          Contract Price. As full consideration to Design-Builder for full and complete performance of the Work and all costs incurred in connection therewith, Owner shall pay Design-Builder in accordance with the terms of Article 10, the sum of Forty-seven Million Eight Hundred Sixty Thousand Dollars ($47,860,000.00) (“Contract Price”), subject to adjustments made in accordance with Articles 12.4 and 13. The Contract Price does not include the water-pretreatment system and the fire protection system which shall be provided by Fagen pursuant to a separate side-letter agreement executed by Owner and Design-Builder at Design-Builder’s standard time plus material rates during the relevant time period and at the relevant locale. Owner acknowledges that it has taken no action which would impose a union labor or prevailing wage requirement on Design-Builder, Owner or the Expansion Project. The Parties acknowledge and agree that if after the date hereof, action by Owner, a change in Applicable Law or a Governmental Authority acting pursuant to a change in Applicable Law shall require Design-Builder to employ union labor or compensate labor at prevailing wages, the Contract Price shall be adjusted upwards to include any increased costs associated with such labor or wages. Such adjustments shall include, but not be limited to, increased labor, subcontractor, and material and equipment costs resulting from any union or prevailing wage requirement; provided, however, that if an option is made available to either employ union labor, or to compensate labor at prevailing wages, such option shall be at Design-Builder’s sole discretion and that if such option is executed by Owner without Design-Builder’s agreement, Design-Builder shall have the right to terminate this agreement and shall be entitled to compensation pursuant to Section 15.3.1 hereof.

9.2          Effect of Construction Cost Index Increase on Contract Price. If between the Effective Date and the date on which a Notice to Proceed is given to Design-Builder the Construction Cost Index published by Engineering News-Record Magazine (“CCI”) increases over the Baseline Index established in Section 9.2.1, Design-Builder shall notify Owner in writing that it is adjusting the Contract Price.

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9.2.1       The Baseline Index for this Agreement shall be 7722.66 (August 2006)
(“Baseline Index”).

9.2.2 In the event that the CCI as of the date on which the Notice to Proceed is given increases over the Baseline Index, the Contract Price shall be increased by a percentage amount equal to the percentage increase in CCI.

Article 10
Payment Procedures

10.1        Payment at Financial Closing. As part of the Contract Price, Owner shall pay Design-Builder Two Million Five Hundred Thousand Dollars ($2,500,000.00), as a mobilization fee, as soon as allowed by its organizational documents and any other agreements or Laws and at the latest, at the earlier to occur Financial Closing or the issuance of a Notice to Proceed. Said Two Million Five Hundred Thousand Dollars ($2,500,000.00) mobilization fee payment shall be subject to retainage as provided by Section 10.2.7.

10.2        Progress Payments.

10.2.1 Application for Payment. Following the issuance of Notice to Proceed pursuant to Section 6.2, Design Builder shall submit to Owner, on or before the twenty-fifth (25th) Day of each month, its request for payment for all Work performed and not paid for during the previous Pay Period (the “Application for Payment”). The Application for Payment shall be substantially in the form attached hereto as Exhibit M. Design-Builder shall submit to Owner, along with each Application for Payment, signed lien waivers, substantially in the form attached hereto as Exhibit N, from Design-Builder, Subcontractors and suppliers for the Work included in the Application for Payment submitted for the immediately preceding Pay Period and for which payment has been received.

10.2.2 The Application for Payment shall constitute Design-Builder’s representation that the Work has been performed consistent with the Contract Documents and has progressed to the point indicated in the Application for Payment. The Parties agree that the work completed at the Site, the comparison of the Application for Payment against the work schedule, and the Schedule of Values shall provide sufficient substantiation of the accuracy of the Application for Payment and that no additional documentation will be provided to Owner in support of an Application for Payment. Title to the Work, including Work reflected in an Application for Payment which is in process, is in transit, is in storage, or has been incorporated into the Site, shall pass to Owner free and clear of all claims, liens, encumbrances, and security interests upon Design-Builder’s receipt of payment therefor.

10.2.3 Within fifteen (15) Days after Owner’s receipt of each Application for Payment, Owner shall pay Design-Builder all amounts properly due, but in each case less the total of payments previously made, and less amounts properly withheld under this Agreement.

10.2.4 The Application for Payment may request payment for equipment and materials not yet incorporated into the Expansion Project; provided that (i) Owner is satisfied that the equipment and materials are suitably stored at either the Site or another acceptable

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location, (ii) the equipment and materials are protected by suitable insurance, and (iii) upon payment, Owner will receive the equipment and materials free and clear of all liens and encumbrances except for liens of the Lenders and other liens and encumbrances permitted under the Financing Documents.

10.2.5 Schedule of Values. The schedule of values attached hereto as Exhibit E (the “Schedule of Values”) (i) subdivides the Work into its respective parts, (ii) includes values for all items comprising the Work, and (iii) serves as the basis for monthly progress payments made to Design-Builder throughout the Work.

10.2.6 Withholding of Payments. On or before the date set forth in Section 10.2.3, Owner shall pay Design-Builder all amounts properly due. If Owner determines that Design-Builder is not entitled to all or part of an Application for Payment, it will notify Design-Builder in writing at least ten (10) Days prior to the date payment is due. The notice shall indicate the specific amounts Owner intends to withhold, the reasons and contractual basis for the withholding, and the specific measures Design-Builder must take to rectify Owner’s concerns. Design-Builder and Owner will attempt to resolve Owner’s concerns prior to the date payment is due. If the Parties cannot resolve such concerns, Design-Builder may pursue its rights under the Contract Documents, including those under Article 19. Notwithstanding anything to the contrary in the Contract Documents, Owner shall pay Design-Builder all undisputed amounts in an Application for Payment within the times required by the Agreement.

10.2.7 Retainage on Progress Payments. Owner will retain five percent (5%) of each payment. Notwithstanding the foregoing, the maximum retainage set forth herein shall increase if the Contract Price is increased pursuant to Section 9.2 of this Agreement such that the maximum retainage will equal five percent (5%) of the Contract Price as adjusted. Owner will also reasonably consider reducing retainage for Subcontractors completing their work early in the Expansion Project. Upon Substantial Completion of the Work pursuant to Section 6.4, Owner shall release to Design-Builder all retained amounts less an amount equal to one hundred and fifty percent (150%) of the reasonable value of all remaining or incomplete items of Work and less an amount equal to the value of any Subcontractor lien waivers not yet obtained, as noted in the Certificate of Substantial Completion, provided that such payment shall only be made if Design-Builder has met the Performance Guarantee Criteria listed in Exhibit A.

10.3        Final Payment. Design-Builder shall deliver to Owner a request for final payment (the “Final Application for Payment”) when Final Completion has been achieved in accordance with Section 6.5. Owner shall make final payment within thirty (30) Days after Owner’s receipt of the Final Application for Payment (“Final Payment”).

10.4        Failure to Pay Amounts Due.

10.4.1 Interest. Payments which are due and unpaid by Owner to Design-Builder, whether progress payments or Final Payment, shall bear interest commencing on the date payment is due at the rate of Eighteen Percent (18%) per annum, or the maximum rate allowed by Law.

10.4.2 Right to Suspend Work. If Owner fails to pay Design-Builder any

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undisputed amount that becomes due, Design-Builder, in addition to all other remedies provided in the Contract Documents, may stop Work pursuant to Section 15.4 hereof. All payments properly due and unpaid shall bear interest at the rate set forth in Section 10.4.1.

10.4.3 Failure to Make Final Payment. Owner’s failure to make Final Payment pursuant to section 10.3 hereof shall void any and all warranties, whether express or implied, provided by Design-Builder pursuant to this Agreement.

10.5        Design-Builder’s Payment Obligations. Design-Builder will pay Design Consultants and Subcontractors, in accordance with its contractual obligations to such parties, all the amounts Design-Builder has received from Owner on account of their work. Design-Builder will impose similar requirements on Design Consultants and Subcontractors to pay those parties with whom they have contracted. Design-Builder will indemnify and defend Owner against any claims for payment and mechanic’s liens as set forth in Section 14.2 hereof.

10.6        Record Keeping and Finance Controls. With respect to changes in the Work performed on a cost basis by Design-Builder pursuant to the Contract Documents, Design-Builder shall keep full and detailed accounts and exercise such controls as may be necessary for proper financial management, using accounting and control systems in accordance with generally accepted accounting principles and as may be provided in the Contract Documents. During the performance of the Work and for a period of three (3) years after Final Payment, Owner and Owner’s accountants shall be afforded access from time to time, upon reasonable notice, to Design-Builder’s records, books, correspondence, receipts, subcontracts, purchase orders, vouchers, memoranda and other data relating to changes in the Work performed on a cost basis in accordance with the Contract Documents, all of which Design-Builder shall preserve for a period of three (3) years after Final Payment.

Article 11
Hazardous Conditions and Differing Site Conditions

11.1        Hazardous Conditions.

11.1.1 Unless otherwise expressly provided in the Contract Documents to be part of the Work, Design-Builder is not responsible for any Hazardous Conditions encountered at the Site. Upon encountering any Hazardous Conditions, Design-Builder will stop Work immediately in the affected area and as promptly as practicable notify Owner and, if Design-Builder is specifically required to do so by Legal Requirements, all Governmental Authorities having jurisdiction over the Expansion Project or Site. Design-Builder shall not remove, remediate or handle in any way (except in case of emergency) any Hazardous Conditions encountered at the Site without prior written approval of Owner.

11.1.2 Upon receiving notice of the presence of suspected Hazardous Conditions, Owner shall take the necessary measures required to ensure that the Hazardous Conditions are remediated or rendered harmless. Such necessary measures shall include Owner retaining Qualified Independent Experts to (i) ascertain whether Hazardous Conditions have actually been encountered, and, if they have been encountered, (ii) prescribe the remedial measures that Owner is required under applicable Legal Requirements to take with respect to such Hazardous

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Conditions in order for the Work to proceed. Owner’s choice of such Qualified Independent Experts shall be subject to the prior approval of Design-Builder, which approval shall not be unreasonably withheld or delayed.

11.1.3 Design-Builder shall be obligated to resume Work at the affected area of the Expansion Project only after Owner’s Qualified Independent Expert provides it with written certification that (i) the Hazardous Conditions have been removed or rendered harmless, and (ii) all necessary approvals have been obtained from all government entities having jurisdiction over the Expansion Project or Site and a remediation plan has been undertaken permitting the Work to proceed.

11.1.4 Design-Builder will be entitled, in accordance with this Article 11, to an adjustment in its Contract Price and/or Contract Time(s) to the extent Design-Builder’s cost and/or time of performance have been adversely impacted by the presence of Hazardous Conditions, provided that such Hazardous Materials were not introduced to the Site by Design-Builder, Subcontractors or anyone for whose acts they may be liable.

11.1.5 To the fullest extent permitted by Law, Owner shall indemnify, defend and hold harmless Design-Builder, Design Consultants, Subcontractors, anyone employed directly or indirectly for any of them, and their officers, directors, employees and agents, from and against any and all claims, losses, damages, liabilities and expenses, including attorneys’ fees and expenses, arising out of or resulting from the presence, removal or remediation of Hazardous Conditions at the Site.

11.1.6 Notwithstanding the preceding provisions of this Section 11.1, Owner is not responsible for Hazardous Conditions introduced to the Site by Design-Builder, Subcontractors or anyone for whose acts they may be liable. Design-Builder shall indemnify, Defend and hold harmless Owner and Owner’s officers, directors, employees and agents from and against all claims, losses, damages, liabilities and expenses, including attorneys’ fees and expenses, arising out of or resulting from those Hazardous Conditions introduced to the Site by Design-Builder, Subcontractors or anyone for whose acts they may be liable.

11.2        Differing Site Conditions; Inspection.

11.2.1 Concealed or latent physical conditions or subsurface conditions at the Site that (i) differ from the conditions indicated in the Contract Documents, or (ii) are of an unusual nature, differing from the conditions ordinarily encountered and generally recognized as inherent in the Work are collectively referred to herein as “Differing Site Conditions.” If Design-Builder encounters a Differing Site Condition, Design-Builder will be entitled to an adjustment in the Contract Price and/or Contract Time(s) to the extent Design-Builder’s cost and/or time of performance are adversely impacted by the Differing Site Condition.

11.2.2 Upon encountering a Differing Site Condition, Design-Builder shall provide prompt written notice to Owner of such condition, which notice shall not be later than fourteen (14) business days after such condition has been encountered. Design-Builder shall, to the extent reasonably possible, provide such notice before the Differing Site Condition has been substantially disturbed or altered.

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Article 12
Force Majeure; Change in Legal Requirements

12.1        Force Majeure Event. A force majeure event shall mean a cause or event beyond the reasonable control of, and without the fault or negligence of a Party claiming Force Majeure, including, without limitation, an emergency, floods, earthquakes, hurricanes, tornadoes, adverse weather conditions not reasonably anticipated or acts of God; sabotage; vandalism beyond that which could reasonably be prevented by a Party claiming Force Majeure; terrorism; war; riots; fire; explosion; blockades; insurrection; strike; slow down or labor disruptions (even if such difficulties could be resolved by conceding to the demands of a labor group); economic hardship or delay in the delivery of materials or equipment that is beyond the control of a Party claiming Force Majeure, and action or failure to take action by any Governmental Authority after the Effective Date (including the adoption or change in any rule or regulation or environmental constraints lawfully imposed by such Governmental Authority), but only if such requirements, actions, or failures to act prevent or delay performance; and inability, despite due diligence, to obtain any licenses, permits, or approvals required by any Governmental Authority (any such event, a “Force Majeure Event”).

12.2        Effect of Force Majeure Event. Neither Party shall be considered in default in the performance of any of the obligations contained in the Contract Documents, except for the Owners or the Design-Builder’s obligations to pay money (including but not limited to, Progress Payments and payments of liquidated damages which become due and payable with respect to the period prior to the occurrence of the Force Majeure Event), when and to the extent the failure of performance shall be caused by a Force Majeure Event. If either Party is rendered wholly or partly unable to perform its obligations under the Contract Documents because of a Force Majeure Event, such Party will be excused from performance affected by the Force Majeure Event to the extent and for the period of time so affected; provided that:

(a)the nonperforming Party, within forty-eight (48) hours after the nonperforming Party actually becomes aware of the occurrence and impact of the Force Majeure Event, gives the other Party written notice describing the event or circumstance in detail, including an estimation of its expected duration and probable impact on the performance of the affected Party’s obligations hereunder, and continues to furnish timely regular reports with respect thereto during the continuation of and upon the termination of the Force Majeure Event;

(b)the suspension of performance is of no greater scope and of no longer duration than is reasonably required by the Force Majeure Event;

(c)the obligations of either Party that arose before the occurrence causing the suspension of performance and the performance that is not prevented by the occurrence, shall not be excused as a result of such occurrence;

(d)the nonperforming Party uses its best efforts to remedy its inability to perform and mitigate the effect of such event and resumes its performance at the earliest

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practical time after cessation of such occurrence or until such time that performance is practicable;

(e)when the nonperforming Party is able to resume performance of its obligations under the Contract Documents, that Party shall give the other Party written notice to that effect; and

(f)Design-Builder shall be entitled to a Day for Day time extension for those events set forth in Section 12.1 to the extent the occurrence of such event delayed Design-Builder’s performance of its obligations under this Agreement.

12.3        Change in Legal Requirements. The Contract Price and/or the Contract Time(s) shall be adjusted to compensate Design-Builder for the effects of any changes to the Legal Requirements that occur after the date of this Agreement and as a result of such change, the performance of the Work is adversely affected. Such effects may include, without limitation, revisions Design-Builder is required to make to the Construction Documents because of changes in Legal Requirements.

12.4        Time Impact And Availability. If the Design-Builder is delayed at any time in the commencement or progress of the Work due to a delay in the delivery of, or unavailability of, essential materials or labor to the Project as a result of a significant industry-wide economic fluctuation or disruption beyond the control of and without the fault of the Design-Builder or its Subcontractors which is experienced or expected to be experienced by certain markets providing essential materials and equipment to the Project during the performance of the Work and such economic fluctuation or disruption adversely impacts the price, availability, and delivery timeframes of essential materials, equipment, or labor (such event an “Industry-Wide  Disruption”), the Design-Builder shall be entitled to an equitable extension of the Contract Time(s) on a day-for-day basis equal to such delay. The Owner and Design-Builder shall undertake reasonable steps to mitigate the effect of such delays. Notwithstanding any other provision to the contrary, the Design-Builder shall not be liable to the Owner for any expenses, losses or damages arising from a delay, or unavailability of essential materials or labor to the Project as a result of an Industry-Wide Disruption.

Article 13
Changes to the Contract Price and Scheduled Completion Dates

13.1        Change Orders.

13.1.1 A change order (“Change Order”) is a written instrument issued after execution of this Agreement signed by Owner and Design-Builder, stating their agreement upon all of the following:

(a)the scope of the change in the Work;

(b)the amount of the adjustment to the Contract Price; and

(c)the extent of the adjustment to the Contract Time(s).

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13.1.2 All changes in the Work authorized by an applicable Change Order shall be performed under the applicable conditions of the Contract Documents. Owner and Design-Builder shall negotiate in good faith and as expeditiously as possible the appropriate adjustments for such changes. Prior to incurring any costs with respect to estimating services, design services and any other services involved in the preparation of the proposed revisions to the Contract Documents, Design-Builder must obtain the written approval of Owner for such costs.

13.1.3 If Owner requests a proposal for a change in the Work from Design-Builder and subsequently elects not to proceed with the change, a Change Order shall be issued to reimburse Design-Builder for reasonable costs incurred for estimating services, design services and any other services involved in the preparation of proposed revisions to the Contract Documents; provided that such costs were previously approved by Owner pursuant to Section 13.1.2.

13.2        Contract Price Adjustments.

13.2.1 The increase or decrease in Contract Price resulting from a change in the Work shall be a mutually accepted lump sum, properly itemized and supported by sufficient substantiating data to permit evaluation by Owner.

13.2.2 If Owner and Design-Builder disagree upon whether Design-Builder is entitled to be paid for any services required by Owner, or if there are any other disagreements over the scope of Work or proposed changes to the Work, Owner and Design-Builder shall resolve the disagreement pursuant to Article 19 hereof. As part of the negotiation process, Design-Builder shall furnish Owner with a good faith estimate of the costs to perform the disputed services in accordance with Owner’s interpretations. If the Parties are unable to agree and Owner expects Design-Builder to perform the services in accordance with Owner’s interpretations, Design-Builder shall proceed to perform the disputed services, conditioned upon Owner issuing a written order to Design-Builder (i) directing Design-Builder to proceed, and (ii) specifying Owner’s interpretation of the services that are to be performed. If this occurs, Design-Builder shall be entitled to submit in its Applications for Payment an amount equal to fifty percent (50%) of its reasonable estimated direct cost to perform the services, and Owner agrees to pay such amounts, with the express understanding that (x) such payment by Owner does not prejudice Owner’s right to argue that it has no responsibility to pay for such services, and (y) receipt of such payment by Design-Builder does not prejudice Design-Builder’s right to seek full payment of the disputed services if Owner’s order is deemed to be a change to the Work.

13.3        Emergencies. In any emergency affecting the safety of persons and/or property, Design-Builder shall act, at its discretion, to prevent threatened damage, injury or loss and shall notify the Owner as soon as practicable and in any event within forty-eight (48) hours after Design-Builder becomes aware of the emergency. The notice to Owner shall describe the emergency in detail, including a reasonable estimation of its expected duration and impact, if any, on the performance of Design-Builder’s obligations hereunder. Any change in the Contract Price and/or the Contract Time(s) on account of emergency work shall be determined as provided in this Article 13.

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13.4        Contract Time Adjustment. Design-Builder shall be entitled to an extension of the Contract Time(s) to the extent the LSCP Plant is unable to operate as expected not due to any act or omission of the Design-Builder.

13.5        Failure to Complete Owner’s Milestones. The dates when Owner’s obligations are required to be completed to enable Design-Builder to achieve the contract time(s) are identified in Table 2 in Exhibit C (“Owner’s Milestones”). The Contract Time(s) shall be revised to provide a Day-for-Day extension of the Contract Time(s) for completion of the Work for each full Day during which Owner fails to timely complete its obligations pursuant to the Owner’s Milestones. In the event of Owner’s failure to timely complete its obligations pursuant to Owner’s Milestones results in the extension of the Contract Time(s), the Contract Price shall be adjusted to compensate Design-Builder for the effects, if any, of such change.

Article 14
Indemnity

14.1        Tax Claim Indemnification. If, in accordance with Owner’s direction, an exemption for all or part of the Work is claimed for taxes, Owner shall indemnify, defend and hold harmless Design-Builder (and its officers, directors, agents, successors and assigns) from and against any and all damages claims, costs, losses liabilities, and expenses (including penalties, interest, fines, taxes of any kind, attorneys’ fees, accountants and other professional fees and associated expenses or costs incurred by Design-Builder in connection with or as a result of any action taken by Design-Builder in accordance with Owner’s directive.

14.2        Payment Claim Indemnification. To the extent Design-Builder has received payment for the Work, Design-Builder shall indemnify, defend and hold harmless Owner Indemnified Parties from any claims or mechanic’s liens brought against Owner Indemnified Parties or against the Expansion Project as a result of the failure of Design-Builder, or those for whose acts it is responsible, to pay for any services, materials, labor, equipment, taxes or other items or obligations furnished or incurred for or in connection with the Work. Within three (3) business days of receiving written notice from Owner that such a claim or mechanic’s lien has been filed, Design-Builder shall commence to take the steps necessary to discharge such claim or lien.

14.3        Design-Builder’s General Indemnification.

14.3.1 Design-Builder, to the fullest extent permitted by Law, shall indemnify, hold harmless and defend Owner, Lenders, Lenders’ Agent, and their successors, assigns, officers, directors, employees and agents (“Owner Indemnified Parties”) from and against any and all losses, costs, damages, injuries, liabilities, claims, demands, penalties, interest and causes of action, including without limitation attorney’s fees (collectively, the “Damages”) for bodily injury, sickness or death, and property damage or destruction (other than to the Work itself) to the extent resulting from the negligent or intentionally wrongful acts or omissions of Design-Builder, Design Consultants, Subcontractors, anyone employed directly or indirectly by any of them or anyone for whose acts any of them may be liable.

14.3.2 If an employee of Design-Builder, Design Consultants, Subcontractors,

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anyone employed directly or indirectly by any of them or anyone for whose acts any of them may be liable has a claim against Owner Indemnified Parties, Design-Builder’s indemnity obligation set forth in Section 14.3.1 above shall not be limited by any limitation on the amount of damages, compensation or benefits payable by or for Design-Builder, Design Consultants, Subcontractors, or other entity under any employee benefit acts, including workers’ compensation or disability acts.

14.3.3 Without limiting the generality of Section 14.3.1 hereof, Design-Builder shall fully indemnify, save harmless and defend the Owner Indemnified Parties from and against any and all Damages in favor of any Governmental Authority or other third party to the extent caused by (a) failure of Design-Builder or any Subcontractor to comply with Legal Requirements as required by this Agreement, or (b) failure of Design-Builder or any Subcontractor to properly administer and pay any taxes or fees required to be paid by Design-Builder under this Agreement.

14.3.4 Nothing in the Design-Builder’s General Indemnification contained in this Section 14.3 shall be read to limit in any way any entitlement Design-Builder shall have to insurance coverage under any insurance policy, including any insurance policy required by either Party under this Agreement.

14.4        Owner’s General Indemnification. Owner, to the fullest extent permitted by Law, shall indemnify, hold harmless and defend Design-Builder and any of Design-Builder’s officers, directors, employees, or agents from and against claims, losses, damages, liabilities, including attorneys’ fees and expenses, for bodily injury, sickness or death, and property damage or destruction (other than to the Work itself) to the extent resulting from the negligent acts, willful misconduct, or from omissions of Owner, its officers, directors, employees, agents, or anyone for whose acts any of them may be liable.

14.4.1 Without limiting the generality of Section 14.4 hereof, Owner shall fully indemnify, save harmless and defend the Design-Builder and any of Design-Builder’s officers, directors, employees, or agents from and against any and all Damages in favor of any Governmental Authority or other third party to the extent caused by (a) failure of Owner or any of Owner’s agents to comply with Legal Requirements as required by this Agreement, or (b) failure of Owner or Owner’s agents to properly administer and pay any taxes or fees required to be paid by Owner under this Agreement.

14.4.2 Nothing in the Owner’s General Indemnification contained in this Section 14.4 shall be read to limit in any way any entitlement Owner shall have to insurance coverage under any insurance policy, including any insurance policy required by either Party under this Agreement

14.5        Patent and Copyright Infringement.

14.5.1 Design-Builder shall indemnify, hold harmless and defend Owner Indemnified Parties from and against any and all Damages based on any claim that the Work, the Work Product, or any part thereof, or the operation or use of the Work or any part thereof, constitutes infringement of any United States or foreign patent, copyright or other intellectual

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property, now or hereafter issued. Owner shall give prompt written notice to Design-Builder of any such action or proceeding and will reasonably provide authority, information and assistance in the defense of same. Design-Builder shall indemnify and hold harmless Owner Indemnified Parties from and against all damages and costs, including but not limited to, attorneys’ fees and expenses awarded against Owner or Design-Builder in any such action or proceeding.

14.5.2 If Owner is enjoined from the operation or use of the Work, Work Product, the Project, or any part thereof, as the result of any patent or copyright suit, claim, or proceeding, Design-Builder shall at its sole expense take reasonable steps to procure the right to operate or use the Work, Work Product or the Project. If Design-Builder cannot so procure such right within a reasonable time, Design-Builder shall promptly, at Design-Builder’s option and at Design-Builder’s expense, (i) modify the Work or Work Product so as to avoid infringement of any such patent or copyright or (ii) replace the Work or Work Product with Work or Work Product that does not infringe or violate any such patent, copyright, trade secret, proprietary right, confidential information or intellectual property right.

14.5.3 Sections 14.5.1 and 14.5.2 above shall not be applicable to any suit, claim or proceeding based on infringement or violation of a patent or copyright (i) relating solely to a particular process or product of a particular manufacturer specified by Owner and not offered or recommended by Design-Builder to Owner, or (ii) arising from modifications to the Work by Owner or its agents after acceptance of the Work, or (iii) relating to the operation or use of the Work by the Owner in a manner not permitted by this Agreement or the ICM License Agreement. If the suit, claim or proceeding is based upon events set forth in the preceding sentence, Owner shall defend, indemnify and hold harmless Design-Builder to the same extent Design-Builder is obligated to defend, indemnify and hold harmless Owner in Section 14.5.1 above.

Article 15
Stop Work; Termination for Cause

15.1          Owner’s Right to Stop Work. Owner may, without cause and for its convenience, order Design-Builder in writing to stop and suspend the Work. Such suspension shall not exceed sixty (60) consecutive Days or aggregate more than ninety (90) Days during the duration of the Expansion Project. Design-Builder is entitled to seek an adjustment of the Contract Price and/or the Contract Time(s) if its cost or time to perform the Work has been adversely impacted by any suspension or stoppage of work by Owner.

15.2          Owner’s Right to Perform and Terminate for Cause.

15.2.1 If Design-Builder persistently fails to: (i) provide a sufficient number of skilled workers; (ii) supply the materials required by the Contract Documents; (iii) comply with applicable Legal Requirements; (iv) timely pay, without cause, Design Consultants or Subcontractors; (v) perform the Work with promptness and diligence to ensure that the Work is completed by the Contract Time(s), as such times may be adjusted in accordance with this Agreement; or (vi) perform material obligations under the Contract Documents; then Owner, in addition to any other rights and remedies provided in the Contract Documents or by law or equity, shall have the rights set forth in Sections 15.2.2 and 15.2.3 below.

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15.2.2 Upon the occurrence of an event set forth in Section 15.2.1 above, Owner may provide written notice to Design-Builder that it intends to terminate the Agreement unless the problem cited is cured, or commenced to be cured within seven (7) Days of Design-Builder’s receipt of such notice. If Design-Builder fails to cure, or reasonably commence to cure such problem and thereafter diligently pursue such cure to completion, then Owner may give a second written notice to Design-Builder of its intent to terminate following an additional seven (7) Day period. If Design-Builder, within such second seven (7) Day period, fails to cure, or reasonably commence to cure such problem and thereafter diligently pursue such cure to completion, then Owner may declare the Agreement terminated for default by providing written notice to Design-Builder of such declaration. If (i) the insurance coverage required by Design-Builder pursuant Article 17 hereof is suspended or cancelled without Design-Builder providing immediate replacement coverage (and, in any case, within fourteen (14) Days of the occurrence thereof) meeting the requirements specified in Article 17 hereof; (ii) if applicable, a default occurs under the Performance Bond or the Payment Bond, or the Performance Bond or Payment Bond is revoked or terminated and such Performance Bond or the Payment Bond is not immediately replaced (and, in any case, within fourteen (14) Days of the occurrence thereof) by Design-Builder with a Performance Bond or a Payment Bond providing at least the same level of coverage in a form and from a surety acceptable to Owner and Lenders, or the surety under the Performance Bond or Payment Bond institutes or has instituted against it a case under the United States Bankruptcy Code; (iii) Design-Builder purports to make an assignment of this Agreement in breach of the provisions of Section 21.1 hereof; (iv) Design-Builder fails to achieve Final Completion within seven hundred and twenty-five (725) Days after the date of Notice to Proceed; or (v) any representation or warranty made by Design-Builder under Section 18.1 hereof was false or materially misleading when made, then Owner may terminate this Agreement upon written notice to Design-Builder.

15.2.3 Upon declaring the Agreement terminated pursuant to Section 15.2.2 above, Owner may enter upon the premises and take possession, for the purpose of completing the Work, of all materials, equipment, scaffolds, tools, appliances and other items thereon, which have been purchased for the performance of the Work, all of which Design-Builder hereby transfers, assigns and sets over to Owner for such purpose, and to employ any person or persons to complete the Work and provide all of the required labor, services, materials, equipment and other items. In the event of such termination, Design-Builder shall not be entitled to receive any further payments under the Contract Documents until the Work shall be finally completed in accordance with the Contract Documents. At such time, if the unpaid balance of the Contract Price exceeds the cost and expense incurred by Owner in completing the Work, Design-Builder will be paid promptly by Owner for Work performed prior to its default. If Owner’s cost and expense of completing the Work exceeds the unpaid balance of the Contract Price, then Design-Builder shall be obligated to promptly pay the difference to Owner. Such costs and expense shall include not only the cost of completing the Work, but also losses, damages, costs and expenses, including attorneys’ fees and expenses, incurred by Owner in connection with the re-procurement and defense of claims arising from Design-Builder’s default, subject to the waiver of consequential damages set forth in Section 19.4 and the limitation of liability set forth in Section 19.5 hereof.

15.2.4If Owner improperly terminates the Agreement for cause, the termination

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for cause will be converted to a termination for convenience in accordance with the provisions of Section 15.3.

15.3        Owner’s Right to Terminate for Convenience.

15.3.1 Upon ten (10) Days’ written notice to Design-Builder, Owner may, for its convenience and without cause, elect to terminate this Agreement. In such event, Owner shall pay Design-Builder for the following:

(a)to the extent not already paid, all Work executed, and for proven loss, cost or expense in connection with the Work;

(b)the reasonable costs and expenses attributable to such termination, including demobilization costs;

(c)amounts due in settlement of terminated contracts with Subcontractors and Design Consultants;

(d)overhead and profit margin in the amount of fifteen percent (15%) on the sum of items (a) and (b) above; and

(e)all retainage withheld by Owner on account of Work that has been completed in
accordance with the Contract Documents.

15.3.2 If Owner terminates this Agreement pursuant to this Section 15.3 and proceeds to design and construct the Expansion Project through its employees, agents or third parties, Owner’s rights to use the Work Product shall be as set forth in Section 5.3.

15.4        Design-Builder’s Right to Stop Work.

15.4.1 Design-Builder may, in addition to any other rights afforded under the Contract Documents or at Law, stop work for Owner’s failure to pay amounts properly due under Design-Builder’s Application for Payment.

15.4.2 If any of the events set forth in Section 15.4.1 above occur, Design-Builder has the right to stop work by providing written notice to Owner that Design-Builder will stop work unless such event is cured within seven (7) Days from Owner’s receipt of Design-Builder’s notice. If Owner fails to cure or reasonably commence to cure such problem and thereafter diligently pursue such cure to completion, then Design-Builder may give a second written notice to Owner of its intent to stop work within an additional seven (7) Day period. If Owner, within such second seven (7) Day period, fails to cure, or reasonably commence to cure such problem and thereafter diligently pursue such cure to completion, then Design-Builder may stop work. In such case, Design-Builder shall be entitled to make a claim for adjustment to the Contract Price and Contract Time(s) to the extent it has been adversely impacted by such stoppage.

15.5        Design-Builder’s Right to Terminate for Cause.

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15.5.1 Design-Builder, in addition to any other rights and remedies provided in the Contract Documents or by Law, may terminate the Agreement for cause for the following reasons:

(a)The Work has been stopped for sixty (60) consecutive Days, or more than ninety (90) Days during the duration of the Expansion Project, because of court order, any Governmental Authority having jurisdiction over the Work, or orders by Owner under Section 15.1 hereof, provided that such stoppages are not due to the acts or omissions of Design-Builder, Design Consultant and their respective officers, agents, employees, Subcontractors or any other person for whose acts the Design-Builder may be liable under Law.

(b)Owner’s failure to provide Design-Builder with any information, permits or approvals that are Owner’s responsibility under the Contract Documents which result in the Work being stopped for sixty (60) consecutive Days, or more than ninety (90) Days during the duration of the Expansion Project, even though Owner has not ordered Design-Builder in writing to stop and suspend the Work pursuant to Section 15.1 hereof.

(c)Owner fails to meet its obligations under Exhibit C and such failure results in the Work being stopped for sixty (60) consecutive Days, or more than ninety (90) Days during the duration of the Expansion Project even though Owner has not ordered Design-Builder in writing to stop and suspend the Work pursuant to Section 15.1 hereof.

(d)Owner’s failure to cure the problems set forth in Section 15.4.1 above within seven (7) Days after Design-Builder has stopped the Work.

15.5.2 Upon the occurrence of an event set forth in Section 15.5.1 above, Design-Builder may elect to terminate this Agreement by providing written notice to Owner that it intends to terminate the Agreement unless the problem cited is cured within seven (7) Days of Owner’s receipt of such notice. If Owner fails to cure, or reasonably commence to cure, such problem, then Design-Builder may give a second written notice to Owner of its intent to terminate within an additional seven (7) Day period. If Owner, within such second seven (7) Day period, fails to cure such problem, then Design-Builder may declare the Agreement terminated for default by providing written notice to Owner of such declaration. In such case, Design-Builder shall be entitled to recover in the same manner as if Owner had terminated the Agreement for its convenience under Section 15.3.

15.6        Bankruptcy of Owner or Design-Builder.

15.6.1 If either Owner or Design-Builder institutes or has instituted against it a case under the United States Bankruptcy Code (such Party being referred to as the “Bankrupt Party”), such event may impair or frustrate the Bankrupt Party’s ability to perform its obligations under the Contract Documents. Accordingly, should such event occur:

(a)The Bankrupt Party, its trustee or other successor, shall furnish, upon request of

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the non-Bankrupt Party, adequate assurance of the ability of the Bankrupt Party to perform all future obligations under the Contract Documents, which assurances shall be provided within ten (10) Days after receiving notice of the request; and

(b)The Bankrupt Party shall file an appropriate action within the bankruptcy court to seek assumption or rejection of the Agreement within sixty (60) Days of the institution of the bankruptcy filing and shall diligently prosecute such action.

15.6.2 If the Bankrupt Party fails to comply with its foregoing obligations, the non-Bankrupt Party shall be entitled to request the bankruptcy court to reject the Agreement, declare the Agreement terminated and pursue any other recourse available to the non-Bankrupt Party under this Article 15.

15.6.3 The rights and remedies under this Section 15.6 shall not be deemed to limit the ability of the non-Bankrupt Party to seek any other rights and remedies provided by the Contract Documents or by Law, including its ability to seek relief from any automatic stays under the United States Bankruptcy Code or the right of Design-Builder to stop Work under any applicable provision of this Agreement.

15.7        Lenders’ Right to Cure. At any time after the occurrence of any event set forth in Section 15.4.1 or Section 15.5.1, but within the timeframes set forth therein, the Lenders shall have the right, but not the obligation, to cure such default on behalf of Owner.

Article 16
Representatives of the Parties

16.1        Designation of Owner’s Representatives. Owner designates the individual listed below as its senior representative (“Owner’s Senior Representative”), which individual has the authority and responsibility for avoiding and resolving disputes under Article 19:

Steve Roe

General Manager

4808 F Avenue

Marcus, IA 51035

Telephone: (712) 376-2800

Facsimile: (712) 376-2815

Owner designates the individual listed below as its representative (“Owner’s Representative”), which individual has the authority and responsibility set forth in Section 4.4:

Steve Roe

General Manager

4808 F Avenue

Marcus, IA 51035

Telephone: (712) 376-2800

Facsimile: (712) 376-2815

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16.2        Designation of Design-Builder’s Representatives. Design-Builder designates the individual listed below as its senior representative (“Design-Builder’s Senior Representative”), which individual has the authority and responsibility for avoiding and resolving disputes under Article 19:

Roland “Ron” Fagen

CEO and President

501 W. Highway 212

P.O. Box 159

Granite Falls, MN 56241
Telephone: (320) 564-3324
Facsimile: (320) 564-3278

Design-Builder designates the individual listed below as its representative (“Design-Builder’s Representative”), which individual has the authority and responsibility set forth in Section 3.1:

Aaron Fagen

Chief Operating Officer

501 W. Highway 212

P.O. Box 159

Granite Falls, MN 56241
Telephone: (320) 564-3324
Facsimile (320) 564-3278

Article 17
Insurance

17.1        Insurance. Design-Builder shall procure and maintain in force through the Final Completion Date the following insurance coverages with the policy limits indicated, and otherwise in compliance with the provisions of this Agreement:

Commercial General Liability:
General Aggregate
Products-Comp/Op AGG	$	2,000,000
Personal & Adv Injury	$	1,000,000
Each Occurrence	$	1,000,000
Fire Damage (Any one fire)	$	50,000
Med Exp (Any one person)	$	5,000
Automobile Liability:
Combined Single Limit
Each Occurrence	$	1,000,000

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Excess Liability — Umbrella Form:
Each Occurrence	$	20,000,000
Aggregate	$	20,000,000
Workers’ Compensation
Statutory limits as required by the state in which the Work is performed.
Employers’ Liability:
Each Accident	$	1,000,000
Disease — Policy Limit	$	1,000,000
Disease — Each Employee	$	1,000,000
Professional Errors and Omissions
Per Claim	$	5,000,000
Annual	$	5,000,000

17.2        Design-Builder’s Insurance Requirements.

17.2.1 Design-Builder is responsible for procuring and maintaining from insurance companies authorized to do business in the state in which the Expansion Project is located, the following insurance coverages for certain claims which may arise from or out of the performance of the Work and obligations under the Contract Documents:

(a)coverage for claims arising under workers’ compensation, disability and other similar employee benefit Laws applicable to the Work;

(b)coverage for claims by Design-Builder’s employees for bodily injury, sickness, disease, or death;

(c)coverage for claims by any person other than Design-Builder’s employees for bodily injury, sickness, disease, or death;

(d)coverage for usual personal injury liability claims for damages sustained by a person as a direct or indirect result of Design-Builder’s employment of the person, or sustained by any other person;

(e)coverage for claims for damages (other than to the Work) because of injury to or destruction of tangible property, including loss of use;

(f)coverage for claims of damages because of personal injury or death, or property damage resulting from ownership, use and maintenance of any motor vehicle; and

(g)coverage for contractual liability claims arising out of Design-Builder’s obligations under Section 14.2.

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17.2.2 Design-Builder’s liability insurance required by this Section 17.2 shall be written for the coverage amounts set forth in Section 17.1 and shall include completed operations insurance for the period of time set forth in the Agreement.

17.2.3 Design-Builder’s liability insurance set forth in Sections 17.2.1 (a) through (g) above shall specifically delete any design-build or similar exclusions that could compromise coverages because of the design-build delivery of the Expansion Project.

17.2.4 To the extent Owner requires Design-Builder or any Design Consultant to provide professional liability insurance for claims arising from the negligent performance of design services by Design-Builder or the Design Consultant, the coverage limits, duration and other specifics of such insurance shall be as set forth in the Agreement. Any professional liability shall specifically delete any design-build or similar exclusions that could compromise coverages because of the design-build delivery of the Expansion Project. Such policies shall be provided prior to the commencement of any design services hereunder.

17.2.5 Prior to commencing any construction services hereunder, Design-Builder shall provide Owner with certificates evidencing that (i) all insurance obligations required by the Contract Documents are in full force and in effect and will remain in effect for the duration required by the Contract Documents and (ii) no insurance coverage required hereunder will be canceled, renewal refused, or changed unless at least thirty (30) Days prior written notice is given to Owner.

17.3        Owner’s Liability Insurance. Owner shall procure and maintain from insurance companies authorized to do business in the state in which the Expansion Project is located such liability insurance to protect Owner from claims which may arise from the performance of Owner’s obligations under the Contract Documents or Owner’s conduct during the course of the Expansion Project. The general and professional liability insurance obtained by Owner shall name Design-Builder, the Lenders and Lenders’ Agent as additional insureds, and shall include the interests of such parties and of Design Consultants and Subcontractors without application of deductible, retention or retrospective premiums as to the additional insureds, Design Consultants, and Subcontractors.

17.4        Owner’s Property Insurance.

17.4.1 Unless otherwise provided in the Contract Documents, Owner shall procure from insurance companies authorized to do business in the state in which the Expansion Project is located, and maintain through Final Completion, property insurance upon the entire Expansion Project in a minimum amount equal to the full insurable value of the Expansion Project, including professional fees, overtime premiums and all other expenses incurred to replace or repair the insured property. The property insurance obtained by Owner shall include as additional insureds the interests of Owner, Design-Builder, the Lenders and Lenders’ Agent, shall include the interests of such additional insureds and Design Consultants and Subcontractors, and shall insure against the perils of fire and extended coverage, theft, vandalism, malicious mischief, collapse, flood, earthquake, debris removal and other perils or causes of loss as called for in the Contract Documents and without application of any deductible, retention or retrospective premium with respect to such additional insureds, Design Consultants, and Subcontractors. Owner shall maintain coverage equal to or in excess of the value of each of Design-Builder’s, Design Consultants’, and

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Subcontractors’ property on the Site. The property insurance shall include physical loss or damage to the Work, including materials and equipment in transit, at the Site or at another location as may be indicated in Design-Builder’s Application for Payment and approved by Owner.

17.4.2Unless the Contract Documents provide otherwise, Owner shall procure and maintain boiler and machinery insurance that will include as additional insureds the Owner, Design-Builder, Design Consultants, and Subcontractors, in an amount not less than the Contract Price and without application of any deductible, retention or retrospective premium as to the additional insureds. Owner shall maintain coverage equal to or in excess of the value of each of Design-Builder’s, Design Consultants’, and Subcontractors’ interest or investment in boiler or machinery equipment on the Site.

17.4.3Prior to Design-Builder commencing any Work, Owner shall obtain a builder’s risk insurance policy naming Owner as the insured, with Design-Builder, Design Consultants and Subcontractors as additional insureds, in an amount not less than the Contract Price and without application of deductible, retention or retrospective premium as to the additional insureds.

17.4.4 Owner shall also obtain, prior to Design-Builder commencing any Work, terrorism coverage as described by the Terrorism Risk Insurance Act of 2002, Pub. L. No. 107­297, 116 Stat. 2322 (2002), as extended by the Terrorism Risk Insurance Extension Act of 2005, Pub. L. No. 109-144 (2005), or any successor act or renewing act for the period during which the Terrorism Risk Insurance Act or any successor act or renewing act is in effect.

17.4.5 Prior to Design-Builder commencing any Work, Owner shall provide Design-Builder with copies of the insurance certificates reflecting coverages required under this Section 17.4 evidencing that (i) all Owner’s insurance obligations required by the Contract Documents are in full force and in effect and will remain in effect until Design-Builder has completed all of the Work and has received Final Payment from Owner, and (ii) no insurance coverage will be canceled, renewal refused, or changed unless at least thirty (30) Days prior written notice is given to Design-Builder. Owner’s property insurance shall not lapse or be cancelled during the term of this Agreement. Promptly after Owner’s receipt thereof, Owner shall be required to provide Design-Builder with copies of all insurance policies to which Design-Builder, Design Consultants, and Subcontractors are named as additional insureds. In the event Owner replaces insurance providers for any policy required under this Section, revises policy coverages, or otherwise modifies any applicable insurance policy in any way, Owner shall provide Design-Builder, for its review or possession as provided under this Section 17.4.5, the certificate of insurance and a copy of such new, revised or modified policy when available.

17.4.6 Any loss covered under Owner’s property insurance shall be adjusted with Owner and Design-Builder and made payable to both of them as trustees for the insureds as their interests may appear, subject to any applicable mortgage clause. All insurance proceeds received as a result of any loss will be placed in a separate account and distributed in accordance with such agreement as the interested parties may reach. Any disagreement concerning the distribution of any proceeds will be resolved in accordance with Article 19 hereof.

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17.4.7 Owner and Design-Builder waive against each other and Owner’s separate contracts, Design Consultants, Subcontractors, agents and employees of each and all of them all damages covered by property insurance provided herein, except such rights as they may have to the proceeds of such insurance. Design-Builder and Owner shall, where appropriate, require similar waivers of subrogation from Owner’s separate contractors, Design Consultants Subcontractors, and insurance providers and shall require each of them to include similar waivers in their contracts or policies.

Article 18
Representations and Warranties

18.1        Design-Builder and Owner Representations and Warranties. Each of Design-Builder and Owner represents that:

(a) it is duly organized, validly existing and in good standing under the Laws of its formation and has all requisite power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby;

(b)this Agreement has been duly executed and delivered by such Party and constitutes the legal, valid and binding obligations of such Party, enforceable against such Party in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, moratorium or similar Laws affecting creditor’s rights or by general equitable principles;

(c)the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby do not and will not conflict with or violate (a) the certificate of incorporation or bylaws or equivalent organizational documents of such Party, or (b) any Law applicable to such Party and other than the permits listed on Exhibit G, such execution, delivery and performance of this Agreement does not require any Governmental Approval; and

(d) there is no action pending or, to the knowledge of such Party, threatened, which would hinder, modify, delay or otherwise adversely affect such Party’s ability to perform its obligations under the Contract Documents.

18.2        Design-Builder Representations and Warranties. Design-Builder further represents that it has the necessary financial resources to fulfill its obligations under this Agreement.

Article 19
Dispute Resolution

19.1 Dispute Avoidance and Mediation. The Parties are fully committed to working with each other throughout the Expansion Project and agree to communicate regularly with each other at all times so as to avoid or minimize disputes or disagreements. If disputes or

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disagreements do arise, Design-Builder and Owner each commit to resolving such disputes or disagreements in an amicable, professional and expeditious manner so as to avoid unnecessary losses, delays and disruptions to the Work.

Design-Builder and Owner will first attempt to resolve disputes or disagreements at the field level through discussions between Design-Builder’s Representative and Owner’s Representative.

If a dispute or disagreement cannot be resolved through Design-Builder’s Representative and Owner’s Representative, Design-Builder’s Senior Representative and Owner’s Senior Representative, upon the request of either Party, shall meet as soon as conveniently possible, but in no case later than thirty (30) Days after such a request is made, to attempt to resolve such dispute or disagreement. Prior to any meetings between the Senior Representatives, the Parties will exchange relevant information that will assist the Parties in resolving their dispute or disagreement.

If, after meeting, the Senior Representatives determine that the dispute or disagreement cannot be resolved on terms satisfactory to both Parties, the Parties shall submit the dispute or disagreement to non-binding mediation. The mediation shall be conducted in Minneapolis, Minnesota by a mutually agreeable impartial mediator, or if the Parties cannot so agree, a mediator designated by the American Arbitration Association (“AAA”) pursuant to its Construction Industry Arbitration Rules and Mediation Procedures. The mediation will be governed by and conducted pursuant to a mediation agreement negotiated by the Parties or, if the Parties cannot so agree, by procedures established by the mediator.

19.2     Arbitration. Any claims, disputes or controversies between the Parties arising out of or relating to the Agreement, or the breach thereof, which have not been resolved in accordance with the procedures set forth in Section 19.1 above shall be decided by arbitration to be conducted in Minneapolis, Minnesota in accordance with the Construction Industry Arbitration Rules and Mediation Procedures of the AAA then in effect, unless the Parties mutually agree otherwise.

The award of the arbitrator(s) shall be final and binding upon the Parties without the right of appeal to the courts. Judgment may be entered upon it in accordance with Applicable Law by any court having jurisdiction thereof.

Design-Builder and Owner expressly agree that any arbitration pursuant to this Section 19.2 may be joined or consolidated with any arbitration involving any other person or entity (i) necessary to resolve the claim, dispute or controversy, or (ii) substantially involved in or affected by such claim, dispute or controversy. Both Design-Builder and Owner will include appropriate provisions in all contracts they execute with other parties in connection with the Expansion Project to require such joinder or consolidation.

The prevailing Party in any arbitration, or any other final, binding dispute proceeding upon which the Parties may agree, shall be entitled to recover from the other Party reasonable attorneys’ fees and expenses incurred by the prevailing Party.

19.3        Duty to Continue Performance. Unless provided to the contrary in the Contract

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Documents, Design-Builder shall continue to perform the Work and Owner shall continue to satisfy its payment obligations to Design-Builder, pending the final resolution of any dispute or disagreement between Design-Builder and Owner.

19.4        No Consequential Damages.

19.4.1 Notwithstanding anything herein to the contrary (except as set forth in Section 19.4.2 below), neither Design-Builder nor Owner shall be liable to the other for any consequential losses or damages, whether arising in contract, warranty, tort (including negligence), strict liability or otherwise, including but not limited to, losses of use, profits, business, reputation or financing, except that Design-Builder does not waive any such damages resulting from or arising out of any breach of Owner’s duties and obligations under the limited license granted by Design-Builder to Owner pursuant to Article 5.

19.4.2 The consequential damages limitation set forth in Section 19.4.1 above is not intended to affect the payment of liquidated damages, if any, set forth in Section 7.3 of the Agreement, which both Parties recognize has been established, in part, to reimburse Owner for some damages that might otherwise be deemed to be consequential.

19.5        Limitation of Liability. Notwithstanding anything else in this Agreement to the contrary, the aggregate liability of Design-Builder, its Subcontractors, vendors, suppliers, agents and employees, to Owner (or any successor thereto or assignee thereof) for any and all claims and/or liabilities arising out of or relating in any manner to the Work or to Design-Builder’s performance or non-performance of its obligations hereunder, whether based in contract, tort (including negligence), strict liability, or otherwise, shall not exceed, in the aggregate, the Contract Price and shall be reduced, upon the issuance of each Application for Payment, by the total value of such Application for Payment; provided, however, that upon the earlier of Substantial Completion or such point in time requests for payment pursuant to Article 10 have been made for ninety percent (90%) of the Contract Price, Design-Builder’s aggregate liability shall be limited to the greater of (1) Ten Percent (10%) of the Contract Price or (2) the amount of insurance coverage available to respond to the claim or liability under any policy of insurance provided by Design-Builder under this Agreement. The aggregate liability of Design-Builder shall not include increased costs of purchasing equipment, materials, supplies, or services, except to the extent Owner has terminated the Agreement pursuant to Section 15.2 and such equipment, materials, supplies, and services are required to complete the Work or to the extent that any of such equipment, materials, supplies, and services may be included in the payment of liquidated damages pursuant to Section 7.3 hereof. Notwithstanding the foregoing, the maximum aggregate liability of Design-Builder for failure to achieve the Contract Time(s) shall be as set forth in Section 7.3.

Article 20
Confidentiality of Shared Information

20.1        Non-Disclosure Obligation. Except as required by court order, subpoena, or Applicable Law, the Parties will hold in confidence, and will use only for the purposes of completing the Project, any and all Confidential Information disclosed to each other. Neither Party shall disclose to third parties any Confidential Information without the express written

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consent of the other Party, which consent shall not be unreasonably withheld. The Parties shall at all times use their respective reasonable efforts to keep all Confidential Information and information regarding the terms and conditions of this Agreement confidential. However, the Parties may disclose Confidential Information to their respective lenders, lenders’ agents, advisors and/or consultants only as reasonably necessary in connection with the financing of the Plant or to enable them to advise the Parties with regard to the Contract Documents and the Project, provided that prior to such disclosure any party to whom Confidential Information is disclosed is informed by the disclosing Party of the existence of this confidentiality obligation and agrees to be obligated to maintain the confidentiality of any information received. The term “Confidential Information” will mean (i) confidential or proprietary information regarding the other Party’s business affairs, finances, technology, processes, plans or installations, product information, know-how, or other information that is received from the other Party pursuant to this Agreement or the Parties’ relationship prior thereto or is developed pursuant to this Agreement, (ii) any and all information concerning the Contract Documents, the Agreement, or the terms thereof, and (iii) all information which one Party, directly or indirectly, may acquire from another Party; however, Confidential Information will not include information falling into any of the following categories:

(a)information that, at the time of disclosure hereunder, is in the public domain;

(b)information that, after disclosure hereunder, enters the public domain other than by breach of this Agreement or the obligation of confidentiality;

(c)information that, prior to disclosure hereunder, was already in the recipient’s possession, either without limitation on disclosure to others or subsequently becoming free of such limitation;

(d)information obtained by the recipient from a third party having an independent right to disclose this information; and

(e)information that is available through discovery by independent research without use of or access to the Confidential Information acquired from the other Party; and

(f)photographs and descriptive information regarding the Project, including Plant capacity, Owner’s name, and Project location, as used by Fagen for purposes of marketing and promotion.

Each Party’s obligation to maintain Confidential Information in confidence will be deemed performed if such Party observes with respect thereto the same safeguards and precautions which such Party observes with respect to its own Confidential Information of the same or similar kind. It will not be deemed to be a breach of the obligation to maintain Confidential Information in confidence if Confidential Information is disclosed upon the order of a court or other authorized Governmental Authority, or pursuant to other Legal Requirements. However, if Owner is required to file the Contract Documents or a portion thereof with a Governmental Authority, it agrees that it will not do so without first informing Design-Builder of the requirement and seeking confidential treatment of the Contract Documents prior to filing the

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documents or a portion thereof.

20.2        Publicity and Advertising. Owner shall not make or permit any of its subcontractors, agents, or vendors to make any external announcement or publication, release any photographs or information concerning the Expansion Project or any part thereof, or make any other type of communication to any member of the public, press, business entity, or any official body which names Fagen unless prior written consent is obtained from Fagen, which consent shall not be unreasonably withheld.

20.3        Term of Obligation. The confidentiality obligations of the Parties pursuant to this Article 20 shall survive the expiration or other termination of this Agreement for a period of five (5) years.

Article 21
Miscellaneous

21.1        Assignment. This Agreement shall be binding upon, shall inure to the benefit of, and may be performed by, the successors and permitted assigns of the Parties, except that neither Design-Builder nor Owner shall, without the written consent of the other, assign or transfer this Agreement or any of the Contract Documents. Design-Builder’s subcontracting portions of the Work in accordance with this Agreement shall not be deemed to be an assignment of this Agreement. Owner may assign all of its rights and obligations under the Contract Documents to its Lenders or Lenders’ Agent as collateral security in connection with Owner obtaining or arranging any financing for the Expansion Project; provided, however, Owner shall deliver, at least ten (10) Days prior to any such assignment, to Design-Builder (i) written notice of such assignment and (ii) a copy of the instrument of assignment in form and substance reasonably acceptable to Design-Builder, whose approval shall not be unreasonably withheld. The Lenders or Lenders’ Agent may assign the Contract Documents or their rights under the Contract Documents, including without limitation in connection with any foreclosure or other enforcement of their security interest. Design-Builder shall execute, if requested, a consent to assignment for the benefit of the Lenders and/or the Lenders’ Agent in form and substance reasonably acceptable to Design-Builder, which form is attached hereto as Exhibit 0, provided that with respect to any such assignments such assignee demonstrates to Design-Builder’s satisfaction that it has the capability to fulfill Owner’s obligations under this Agreement.

21.2        Successors. Design-Builder and Owner intend that the provisions of the Contract Documents are binding upon the Parties, their employees, agents, heirs, successors and assigns.

21.3     Governing Law. This Agreement shall be governed by and construed and enforced in accordance with, the substantive laws of the state of Minnesota, without regard to the conflict of laws provisions thereof

21.4     Severability. If any provision or any part of a provision of the Contract Documents shall be finally determined to be superseded, invalid, illegal, or otherwise unenforceable pursuant to any applicable Legal Requirements, such determination shall not impair or otherwise affect the validity, legality, or enforceability of the remaining provision or parts of the provision of the Contract Documents, which shall remain in full force and effect as if

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the unenforceable provision or part were deleted.

21.5        No Waiver. The failure of either Design-Builder or Owner to insist, in any one (1) or more instances, on the performance of any of the obligations required by the other under the Contract Documents shall not be construed as a waiver or relinquishment of such obligation or right with respect to future performance.

21.6        Headings. The table of contents and the headings used in this Agreement or any other Contract Document, are for ease of reference only and shall not in any way be construed to limit, define, extend, describe, alter, or otherwise affect the scope or the meaning of any provision of this Agreement.

21.7        Notice. Whenever the Contract Documents require that notice be provided to a Party, notice shall be delivered in writing to such Party at the address listed below. Notice will be deemed to have been validly given if delivered (i) in person to the individual intended to receive such notice, (ii) by registered or by certified mail, postage prepaid to the address indicated in the Agreement within four (4) Days after being sent, or (iii) by facsimile, by the time stated in a machine-generated confirmation that notice was received at the facsimile number of the intended recipient.

If to Design-Builder, to:

Fagen, Inc.

501 W. Highway 212
P. O. Box 159

Granite Falls, MN 56241
Attention: Aaron Fagen
Fax: (320) 564-3278

with a copy to:

Fagen, Inc.

501 W. Highway 212
P. O. Box 159

Granite Falls, MN 56241
Attention: Jennifer Johnson

Fax: (320) 564-3278

and a copy to:

Fagen, Inc.

501 W. Highway 212
P. O. Box 159

Granite Falls, MN 56241
Attention: Wayne Mitchell

Fax: (320) 564-5190

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If to Owner, to:

Little Sioux Corn Processors, LP

4808 F Avenue

Marcus, IA 51035
Attention: Steve Roe
Fax: (712) 376-2815

and

Lender’s Agent at the address provided for Lender’s Agent to Design-Builder by Owner by notice within five (5) Days following the Financial Closing.

21.8        No Privity with Design Consultant/Subcontractors. Nothing in the Contract Documents is intended or deemed to create any legal or contractual relationship between Owner and any Design Consultant or Subcontractor.

21.9     Amendments. The Contract Documents may not be changed, altered, or amended in any way except in writing signed by a duly authorized representative of each Party.

21.10   Entire Agreement. This Agreement consists of the terms and conditions set forth herein, as well as the Exhibits hereto, which are incorporated by reference herein and made a part hereof. This Agreement sets forth the full and complete understanding of the Parties as of the Effective Date with respect to the subject matter hereof.

21.11 Third-Party Beneficiaries. Except as expressly provided herein, this Agreement is intended to be solely for the benefit of the Owner, the Design-Builder and permitted assigns, and is not intended to and shall not confer any rights or benefits on any person not a signatory hereto.

21.12      Counterparts. This Agreement may be executed in one (1) or more counterparts, each of which shall be deemed an original and all of which together shall be deemed one and the same Agreement, and may be executed and delivered by facsimile signature, which shall be considered an original.

21.13      Survival. Notwithstanding any provisions herein to the contrary, the Work Product provisions set forth in Article 5 and the indemnity obligations set forth herein shall survive (in full force and effect) the expiration or termination of this Agreement, and shall continue to apply to the Parties to this Agreement even after termination of this Agreement or the transfer of such Party’s interest in this Agreement.

[The next page is the signature page.]

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IN WITNESS WHEREOF, the Parties hereto have caused their names to be hereunto subscribed by their officers thereunto duly authorized, intending thereby that this Agreement shall be effective as of the Effective Date.

OWNER:		DESIGN-BUILDER:
Little Sioux Corn Processors, LP
By it general partner
Little Sioux Corn Processors, LLC		Fagen, Inc.
(Name of Owner)		(Name of Design-Builder)
/s/ Stephen Roe		/s/ Ron Fagen
(Signature)		(Signature)
Stephen Roe		Roland “Ron” Fagen
(Printed Name)		(Printed Name)
CEO/President		CEO and President
(Title)		(Title)
Date:	9/26/06	Date:	9/26/06

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EXHIBIT A

Performance Guarantee Criteria

Criteria	Specification	Testing Statement	Documentation
Expansion Plant Capacity — fuel grade ethanol	Operate at a rate of 92 million gallons per year of denatured fuel grade ethanol meeting the specifications of ASTM 4806 based on 353 days of operation per calendar year and 4.76% denaturant.	Seven contiguous day performance test	Production records and written report by Design-Builder.
Corn to Ethanol Conversion ratio; Corn must be #2 [*]	Not be less than 2.80 denatured gallons of ethanol per bushel (56#) of corn	As determined by meter readings during a seven contiguous day performance test.	Production records and written analysis by Design-Builder.
Electrical Energy	0.75 kWh per denatured gallon of fuel grade ethanol [*]	As determined by meter readings during a seven contiguous day performance test.	Production records and written analysis by Design-Builder.
Natural Gas	Shall not exceed 34,000 Btu per denatured gallon of fuel grade ethanol. (This Performance Criteria relates to production of ethanol and excludes any natural gas usage that may occur for drying corn.)	As determined by meter readings during a seven contiguous day performance test.	Production records and written analysis by Design-Builder.

*Portions omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

A-1

Process Water Discharge (not including cooling tower and boiler blowdown and water pre-treatment (RO) discharge)	Zero gallons under normal operations.	Process discharge meter.	Control System reports.
Air Emissions	Must meet the requirements prescribed as of the date hereof by the State of Indiana Department of Environmental Management, Office of Air Quality.	Must meet the requirements as prescribed in the Air Permit Application attached as Exhibit K.	Written report by Owner’s Air Emission Tester.

As part of the Performance Guarantee Criteria the Expansion Plant shall operate in accordance with all Legal Requirements.

DISCLAIMER:

Owner’s failure to materially comply with the operating procedures issued by ICM, Inc./Fagen, Inc. shall void all performance guaranties and warranties set forth in this Design-Build Agreement.

Owner understands that the startup of the Expansion Plant requires resources and cooperation of the Owner, vendors and other suppliers to the Expansion Project. Design-Builder disclaims any liability and Owner indemnifies Design-Builder for non-attainment of the Performance Guarantee Criteria directly or indirectly caused by material non-performance or negligence of third parties not retained by Design-Builder.

A-2

EXHIBIT B

Project Scope

B-1

EXHIBIT C

Owner’s Responsibilities

The Owner shall operate the LSCP Plant in accordance with good fuel ethanol production industry practices and shall provide Design-Builder access to the LSCP Plant to the extent necessary to complete the Work in accordance with the Agreement.

The Owner shall perform and provide the permits, authorizations, services and construction as specifically described hereafter:

1) Land and Grading — Owner shall obtain all legal authority to use the site for its intended purpose and perform technical due diligence to allow Design-Builder to perform, including, but not limited to, proper zoning approvals, building permits, elevation restrictions, soil tests, and water tests. The site shall be rough graded per Design-Builder specifications and be +/- three inches of final grade including the rough grading for Site roadways. The site soils shall be modified as required to provide a minimum allowable soil bearing pressure as described in Table 1.

Other items to be provided by the Owner include, but are not limited to, the following: site survey (boundary and topographic) as required by the Design-Builder, layout of the property corners including two construction benchmarks, Soil Borings and subsequent Geotechnical Report describing recommendation for Roads, foundations and if required, soil stabilization/remediation, land disturbance permit, erosion control permit, site grading as described above with minimum soil standards, placement of erosion control measures, plant access road from a county, state or federal road designed to meet local county road standards, plant storm and sanitary sewers, fire water system with hydrants and plant water main branches taken from the system to be within five feet of the designated building locations, all tanks, motors and other equipment associated with or necessary to operate the fire water loop and associated systems, plant roads as specified and designed for the permanent elevations and effective depth, spill containment and drainage systems from both rail and truck loading spots into the tank farm or other location, “construction” grading plan as drawn (including site retention pond), plant water well and associated permit(s). Owner shall also provide the final grading, seeding and mulching, and site fencing at the site.

Owner is encouraged to obtain preliminary designs/information and estimates of the cost of performing all Owner required permits and services as stated in this Exhibit C. Specifically, the cost of the fire water systems (including associated fire water pumps, required tank, building (if required), sprinklers, and all other equipment and materials associated with the fire water delivery systems) is estimated being in excess of $800,000. The requirements of each state and the decisions of each Owner will increase or decrease the actual cost. Additionally, the cost of the required soil stabilization in Table 1 can be in the range of, or may exceed, $2.5MM which cost is not included in the Contract Price. The specific soil stabilization requirements for the grain and DDGS areas will be

C-1

developed in coordination with the gain/DDGS area subcontractor. Owner shall prepare site according to Design-Builder’s engineering plans provided for the site work.

2)Permits — Owner shall obtain all Operating Permits including, but not limited to, air quality permits, in a timely manner to allow construction and start-up of the plant as designed by Design-Builder. Owner shall obtain all testing, including air emissions tests, and site inspections required to secure the necessary operating permits.

3)Storm Water Runoff Permit — Owner shall obtain the construction storm — water runoff permit, permanent storm-water runoff permit, and the erosion control/land disturbance permit.

4)Iowa Pollutant Elimination Discharge Permit — Owner shall obtain a permit to discharge cooling tower water and reverse osmosis (“R.O.”) reject water and any other waste water directly to a designated waterway or other location. Owner shall supply the discharge piping to transport to the designated waterway or other location.

5)Natural Gas Supply and Service Agreement — Owner shall procure and supply a continuous supply of natural gas to supply the incremental increase in gas requirements related to the expanded operations. Owner shall provide all gas piping to the use points and supply meters and regulators to provide burner tip pressures as specified by Design-Builder. Owner shall also supply a digital flowmeter on-site with appropriate output for monitoring by the plant’s computer control system.

6)Temporary Electrical Service — Owner shall secure electrical service to supply a minimum 750 KW of 3-phase, 480/277 volt electrical power during construction. Owner shall procure, install, and maintain temporary service to up to three 3-phase, 480/277 volt temporary service transformers located throughout the site. The transformer sizing, locations, and underground electrical feed routing layout are to be determined jointly by the Owner, the Design-Builder and the energy supplier. Design-Builder shall pay energy demand and usage charges up to Substantial Completion.

7)Permanent Electrical Service — (1) The Owner is responsible to secure continuous service from an energy supplier to serve the facility. The service from the energy supplier shall be of sufficient size to supply the requirements of the expanded operations. (2) The Owner is responsible for procurement, installation and maintenance of the site distribution system, including, but not limited to, the required substation and all associated distribution lines, switchgear, sectional cabinets, distribution transformers, transformer pads, etc. An on-site primary digital meter is also to be supplied for monitoring of electrical usage and demand. This meter must have the capability to be monitored via a telephone line or other electrical signal. (3) The responsibility of the Design-Builder starts at the secondary electrical terminals of the site distribution system transformers that have been installed by Owner. (4) Modifications to the existing site distribution system, layout, and meters are to be determined jointly by the Owner, the Design-Builder and the energy supplier.

Design-Builder will be providing soft start motor controllers for all motors greater than

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150 horsepower and where demanded by process requirements. Owner is encouraged to discuss with its electrical service supplier whether additional soft start motor controllers are advisable for this facility and such can be added, with any increased cost being an Owner’s cost.

8)Water Supply, Service Agreement, and Pre-Treatment System — Owner shall supply on-site process wells or other water source capable of providing the incremental quantity of water, which includes process water, R.O. feed water, cooling tower make-up water and boiler feed water, of a quality which will allow discharges to comply with NPDES limits and stable operation of the plant. Owner should consider providing a redundant supply source.

Owner shall pay for a water pre-treatment system to be designed and constructed by Design-Builder and to be integrated into the Expansion Plant. Owner shall provide an updated water sample of current process water for analysis to aid in design of the water pre-treatment system. The pre-treatment system will be designed to provide the Expansion Plant with the quantity and quality of raw and treated water needed to supply the Expansion Plant’s process needs. The water pre-treatment system design will also consider and recommend to Owner equipment required to meet the discharge requirements under the Expansion Plant’s wastewater discharge permit. Owner is to execute side-letter agreements as necessary for the design and construction of such water pre-treatment system. Design-Builder shall recover costs for the design and construction of such system from the Owner at Design-Builder’s standard time plus material rates during the relevant time period and at the relevant locale. A side-letter agreement between Owner and Design-Builder shall be executed by Owner and Design-Builder to compensate Design-Builder, at Design-Builder’s standard time plus materials rates during the relevant time period and at the relevant locale, for any costs and expenses related to such water pre-treatment system.

9)Wastewater Discharge System, Permits and/or Service Agreement — Owner shall provide for any additions or improvements to the discharge piping, septic tank and drainfield system or connections to municipal system as required for the sanitary sewer requirements of the Expansion Plant. These provisions shall comply with all federal, state, and local regulations, including any permitting issues.

10)Roads and Utilities — Owner shall provide and maintain any additions required to the ditches and permanent roads, including the gravel, pavement or concrete, with the roads passing standard compaction tests. Design-Builder shall repair any damage directly caused by Design-Builder activities, specifically excluding any damages causes by normal wear and tear.

Except as otherwise specifically stated herein, the Owner shall install all utilities so that they are within five (5) feet of the designated building/structure locations.

11)Maintenance and Power Equipment — The maintenance, spare parts, and power equipment as required by the Expansion Plant or desired by Owner shall be the sole and

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absolute cost and responsibility of Owner and Design-Builder shall have no responsibility in regards thereto.

12)Railroads — Owner is responsible for any costs associated with expansion of the railroads, including, but not limited to, all rail design and engineering and construction and Design-Builder shall have no responsibility in regards thereto.

13)Drawings — Owner shall supply drawings to Design-Builder detailing any changes made
to the plant since completion of the initial plant.

14) Fire Protection System — Fire Protection System requirements vary by governmental requirements per location and by insurance carrier requirements. Owner is responsible to provide the required fire protection system for the Plant. This may include storage tanks, pumps, underground fire water mains, fire hydrants, foam or water monitor valves, sprinkler systems, smoke and heat detection, deluge systems, or other provisions as required by governmental codes or Owner’s insurance carrier’s fire protection criteria.

Owner shall pay for a Fire Protection System to be designed and constructed by Design-Builder and to be integrated into the Expansion Plant. The Fire Protection System shall be designed and constructed to meet the governmental and insurance requirements. Owner is to execute side-letter agreements as necessary for the design and construction of such Fire Protection System. Design-Builder shall recover costs for the design and construction of such system from Owner at Design-Builder’s standard time plus material rates during the relevant time period and at the relevant locale. A side-letter agreement between Owner and Design-Builder shall be executed by Owner and Design-Builder to compensate Design-Builder, at Design-Builder’s standard time plus materials rates during the relevant time period and at the relevant locale, for any costs and expenses related to such Fire Protection System.

Table 1 Minimum Soil Bearing Pressure — Responsibility of Owner

Description	Required Allowable Soil Bearing Pressure (pounds per square foot)
Slurry Tank	4,000
Liquefaction Tank	3,500
Fermentation Tank	4,500
All Other Areas	3,000

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Table 2 Owner’s Milestones

Owner’s Responsibilities Notice to Proceed	Number Of Days To Be  Completed After Notice To Proceed
Notice to Proceed	0
Storm Water Permits Complete	60
Natural Gas/Propane Supply Agreements Complete	90
Water Supply and Service Agreements Complete	90
Risk Insurance Provider Selected/Fire Protection Requirements Known	90
NPDES Discharge Point Selected	90
Electrical Service	90
Water Pre-Treatment System Design Complete	170
Wastewater Discharge System Complete	180
Operating Permits Complete	200
Discharge Permits Complete	200
Pumphouse/Water Pre-treatment System Complete	305
Fire Protection System Complete	305
Administrative Building Complete	90 days prior to SC
Paving (Expansion Plant Roads) Complete	90 days prior to SC
Rail Spur Complete	90 days prior to SC
Employees Hired and Ready for Training	60 days prior to SC
Natural Gas Pipeline Complete	60 days prior to SC

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EXHIBIT D

ICM License Agreement

THIS LICENSE AGREEMENT (this “License Agreement”) is entered into and made effective as of September 20, 2006 (“Effective Date”) by and between Little Sioux Corn Processors, LP, an Iowa limited partnership (“OWNER”), and ICM, Inc., a Kansas corporation (“ICM”).

WHEREAS, OWNER has entered into that certain Design-Build Lump Sum Contract dated September 20, 2006 (the “Contract”) with Fagen, Inc., a Minnesota corporation (“Fagen”), under which Fagen is to design and construct a forty (40) million gallon per year expansion ethanol plant for OWNER, which would bring the total nameplate capacity to ninety-two (92) million gallons per year, to be located in or near Marcus, Iowa (the “Plant”);

WHEREAS, ICM has granted Fagen the right to use certain proprietary technology and information of ICM in the design and construction of the Plant; and

WHEREAS, OWNER desires from ICM, and ICM desires to grant to OWNER, a license to use such proprietary technology and information in connection with OWNER’s ownership, operation, maintenance and repair of the Plant, all upon the terms and conditions set forth herein;

NOW, THEREFORE, the parties, in consideration of the foregoing premises and the mutual promises contained herein and for other good and valuable consideration, receipt of which is hereby acknowledged, agree as follows:

1. Upon substantial completion of the Plant by Fagen pursuant to the terms of the Contract or, if later, payment by OWNER of all amounts due and owing to Fagen under the Contract, ICM grants to OWNER a limited license to use the Proprietary Property (hereinafter defined) solely in connection with the ownership, operation, maintenance and repair of the Plant, subject to the limitations provided herein (the “Purpose”).

2.  The “Proprietary Property” means, without limitation, documents, Operating Procedures (hereinafter defined), materials and other information that are furnished by ICM to OWNER in connection with the Purpose, whether orally, visually, in writing, or by any other means, whether tangible or intangible, directly or indirectly (including, without limitation, through Fagen) and in whatever form or medium including, without limitation, the design, arrangement, configuration, and specifications of (i) the combinations of distillation, evaporation, and alcohol dehydration equipment (including, but not limited to, pumps, vessels, tanks, heat exchangers, piping, valves and associated electronic control equipment) and all documents supporting those combinations; (ii) the combination of the distillers grain drying (DGD), and heat recovery steam generation (HRSG) equipment (including, but not limited to, pumps, vessels, tanks, heat exchangers, piping and associated electronic control equipment) and all documents supporting those combinations; and (iii) the computer system, known as the distributed control system (DCS and/or PLC) (including, but not limited to, the

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software configuration, programming, parameters, set points, alarm points, ranges, graphical interface, and system hardware connections) and all documents supporting that system. The “Operating Procedures” means, without limitation, the process equipment and specifications manuals, standards of quality, service protocols, data collection methods, construction specifications, training methods, engineering standards and any other information prescribed by ICM from time to time concerning the Purpose. Proprietary Property shall not include any information or materials that OWNER can demonstrate by clear and convincing written evidence: (i) was lawfully in the possession of OWNER prior to disclosure by ICM or Fagen; (ii) was in the public domain prior to disclosure by ICM or Fagen; (iii) was disclosed to OWNER by a third party other than Fagen having the legal right to possess and disclose such information or materials; or (iv) after disclosure by ICM or Fagen comes into the public domain through no fault of OWNER or its members, directors, officers, employees, agents, contractors, consultants or other representatives (hereinafter collectively referred to as “Representatives”). Information and materials shall not be deemed to be in the public domain merely because such information is embraced by more general disclosures in the public domain, and any combination of features shall not be deemed to be within the foregoing exceptions merely because individual features are in the public domain if the combination itself and its principles of operation are not in the public domain.

3.           OWNER shall not use the Proprietary Property for any purpose other than the Purpose. OWNER shall not use the Proprietary Property in connection with any expansion or enlargement of the Plant. ICM and its Representatives shall have the express right at any time to enter upon the premises of the Plant to inspect the Plant and its operation to ensure that OWNER is complying with the terms of this License Agreement.

4.           OWNER’s failure to materially comply with the Operating Procedures shall void all guarantees, representations and warranties, whether expressed or implied, if any, that were given by ICM to OWNER, directly or indirectly through Fagen, concerning the performance of the Plant that ICM reasonably determines are materially affected by OWNER’s failure to materially comply with such Operating Procedures. OWNER agrees to indemnify, defend and hold harmless ICM, Fagen and their respective Representatives from any and all losses, damages and expenses including, without limitation, reasonable attorneys’ fees resulting from, relating to or arising out of Owner’s or its Representatives’ (a) failure to materially comply with the Operating Procedures or (b) negligent use of the Proprietary Property.

5.           Any and all modifications to the Proprietary Property made by OWNER or its Representatives shall be the property of ICM. OWNER shall promptly notify ICM of any such modification and OWNER agrees to assign all right, title and interest in such modification to ICM; provided, however, OWNER shall retain the right, at no cost, to use such modification in connection with the Purpose.

6.           ICM has the exclusive right and interest in and to the Proprietary Property and the goodwill associated therewith. OWNER will not, directly or indirectly, contest ICM’ s ownership of the Proprietary Property. OWNER’ s use of the Proprietary Property does not give OWNER any ownership interest or other interest in or to the Proprietary Property except for the limited license granted to OWNER herein.

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7.           OWNER shall pay no license fee or royalty to ICM for OWNER’s use of the Proprietary Property pursuant to this License Agreement, the consideration for the limited license granted herein is certain payments by Fagen to ICM, which is funded by and included in the amounts payable by OWNER to Fagen for the construction of the Plant under the Contract.

8.           OWNER may not assign the limited license granted herein, in whole or in part, without the prior written consent of ICM, which will not be unreasonably withheld or delayed. Prior to any assignment, OWNER shall obtain from such assignee a written instrument, in form and substance reasonably acceptable to ICM, agreeing to be bound by all the terms and provisions of this License Agreement. Any assignment of this License Agreement shall not release OWNER from (i) its duties and obligations hereunder concerning the disclosure and use of the Proprietary Property by OWNER or its Representatives, or (ii) damages to ICM resulting from, or arising out of, a breach of such duties or obligations by OWNER or its Representatives. ICM may assign its right, title and interest in the Proprietary Property, in whole or part, subject to the limited license granted herein.

9.           The Proprietary Property is confidential and proprietary. OWNER shall keep the Proprietary Property confidential and shall use all reasonable efforts to maintain the Proprietary Property as secret and confidential for the sole use of OWNER and its Representatives for the Purpose. OWNER shall retain all Proprietary Property at its principal place of business and/or the Plant. OWNER shall not at any time without ICM’s prior written consent, copy, duplicate, record, or otherwise reproduce the Proprietary Property, in whole or in part, or otherwise make the same available to any unauthorized person provided, OWNER shall be permitted to copy, duplicate or otherwise reproduce the Proprietary Property in whole or in part in connection with, and to the extent it is necessary and essential for, the Purpose so long as all such copies, duplicates or reproductions are kept at its principal place of business and/or the Plant and are treated the same as any other Proprietary Property. OWNER shall not disclose the Proprietary Property except to its Representatives who are directly involved with the Purpose, and even then only to such extent as is necessary and essential for such Representative’s involvement. OWNER shall inform such Representatives of the confidential and proprietary nature of such information and, if requested by ICM, OWNER shall obtain from such Representative a written instrument, in form and substance reasonably acceptable to ICM, agreeing to be bound by all of the terms and provisions of this License Agreement to the same extent as OWNER. OWNER shall make all reasonable efforts to safeguard the Proprietary Property from disclosure by its Representatives to anyone other than permitted hereby. OWNER shall notify ICM immediately upon discovery of any unauthorized use or disclosure of the Proprietary Property, or any other breach of this License Agreement by OWNER or its Representatives, and shall cooperate with ICM in every reasonable way to help ICM regain possession of the Proprietary Property and prevent its further unauthorized use or disclosure. In the event that OWNER or its Representatives are required by law to disclose the Proprietary Property, OWNER shall provide ICM with prompt written notice of same so that ICM may seek a protective order or other appropriate remedy. In the event that such protective order or other appropriate remedy is not obtained, OWNER or its Representatives will furnish only that portion of the Proprietary Property which in the reasonable opinion of its or their legal counsel is legally required and will exercise its

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reasonable efforts to obtain reliable assurance that the Proprietary Property so disclosed will be accorded confidential treatment.

10.           OWNER agrees to indemnify ICM for any and all damages (including, without limitation, reasonable attorneys’ fees) arising out of or resulting from any unauthorized disclosure or use of the Proprietary Property by OWNER or its Representatives. OWNER agrees that ICM would be irreparably damaged by reason of a violation of the provisions contained herein and that any remedy at law for a breach of such provisions would be inadequate. OWNER agrees that ICM shall be entitled to seek injunctive or other equitable relief in a court of competent jurisdiction against OWNER or its Representatives for any unauthorized disclosure or use of the Proprietary Property without the necessity of proving actual monetary loss or posting any bond. It is expressly understood that the remedy described herein shall not be the exclusive remedy of ICM for any breach of such covenants, and ICM shall be entitled to seek such other relief or remedy, at law or in equity, to which it may be entitled as a consequence of any breach of such duties or obligations.

11. The duties and obligations of OWNER under this License Agreement, and all provisions relating to the enforcement of such duties and obligations shall survive and remain in full force and effect notwithstanding any termination or expiration of the Contract or this License Agreement.

12.     ICM may terminate this License Agreement upon written notice to OWNER if OWNER willfully or wantonly (a) uses the Proprietary Property for any purpose, or (b) discloses the Proprietary Property to anyone, in each case other than permitted herein. Upon termination of this License Agreement, OWNER shall cease using the Proprietary Property for any purpose (including the Purpose) and, upon request by ICM, shall promptly return to ICM all documents or other materials in OWNER’s or its Representatives’ possession that contain Proprietary Property in whatever format, whether written or electronic, including any and all copies or reproductions of the Proprietary Property. OWNER shall permanently delete all such Proprietary Property from its computer hard drives and any other electronic storage medium (including any backup or archive system). OWNER shall deliver to ICM a written certificate which certifies that all electronic copies or reproductions of the Proprietary Property have been permanently deleted.

13.     The laws of the State of Kansas, United States of America (or US), shall govern the validity of the provisions contained herein, the construction of such provisions, and the interpretation of the rights and duties of the parties. Any legal action brought to enforce or construe the provisions of this License Agreement shall be brought in the federal or state courts located in Wichita, Kansas, and the parties agree to and hereby submit to the exclusive jurisdiction of such courts and agree that they will not invoke the doctrine of forum non conveniens or other similar defenses in any such action brought in such courts. Notwithstanding the foregoing, nothing in this License Agreement will affect any right ICM may otherwise have to bring any action or proceeding relating to this License Agreement against OWNER or its properties in the courts of any jurisdiction. In the event the Plant is located in, or OWNER is organized under the laws of, a country other than the US, OWNER hereby specifically agrees that any injunctive or other equitable relief granted by a court

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located in the State of Kansas, US, or any award by a court located in the State of Kansas, shall be specifically enforceable as a foreign judgment in the country in which the Plant is located, OWNER is organized or both, as the case may be, and agrees not to contest the validity of such relief or award in such foreign jurisdiction, regardless of whether the laws of such foreign jurisdiction would otherwise authorize such injunctive or other equitable relief, or award.

14.     OWNER hereby agrees to waive all claims against ICM and ICM’s Representatives for any consequential damages that may arise out of or relate to this License Agreement, the Contract or the Proprietary Property whether arising in contract, warranty, tort (including negligence), strict liability or otherwise, including but not limited to losses of use, profits, business, reputation or financing. OWNER further agrees that the aggregate recovery of OWNER and Fagen (and everyone claiming by or through OWNER and Fagen), as a whole, against ICM and ICM’s Representatives, collectively, for any and all claims that arise out of, relate to or result from this License Agreement, the Proprietary Property or the Contract, whether arising in contract, warranty, tort (including negligence), strict liability or otherwise, shall not exceed One Million US Dollars ($1,000,000).

15.     The terms and conditions of this License Agreement constitute the entire agreement between the parties with respect to the subject matter hereof and supersede any prior understandings, agreements or representations by or between the parties, written or oral. Any rule of construction to the effect that any ambiguity is to be resolved against the drafting party shall not be applicable in the interpretation of this License Agreement. This License Agreement may not be modified or amended at any time without the written consent of the parties.

16.         All notices, requests, demands, reports, statements or other communications (herein referred to collectively as “Notices”) required to be given hereunder or relating to this License Agreement shall be in writing and shall be deemed to have been duly given if transmitted by personal delivery or mailed by certified mail, return receipt requested, postage prepaid, to the address of the party as set forth below. Any such Notice shall be deemed to be delivered and received as of the date so delivered, if delivered personally, or as of the third business day following the day sent, if sent by certified mail. Any party may, at any time, designate a different address to which Notices shall be directed by providing written notice in the manner set forth in this paragraph.

17.         In the event that any of the terms, conditions, covenants or agreements contained in this License Agreement, or the application of any thereof, shall be held by a court of competent jurisdiction to be invalid, illegal or unenforceable, such term, condition, covenant or agreement shall be deemed void ab initio and shall be deemed severed from this License Agreement. In such event, and except if such determination by a court of competent jurisdiction materially changes the rights, benefits and obligations of the parties under this License Agreement, the remaining provisions of this License Agreement shall remain unchanged unaffected and unimpaired thereby and, to the extent possible, such remaining provisions shall be construed such that the purpose of this License Agreement and the intent of the parties can be achieved in a lawful manner.

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18.      The duties and obligations herein contained shall bind, and the benefits and advantages shall inure to, the respective successors and permitted assigns of the parties hereto.

19.         The waiver by any party hereto of the breach of any term, covenant, agreement or condition herein contained shall not be deemed a waiver of any subsequent breach of the same or any other term, covenant, agreement or condition herein, nor shall any custom, practice or course of dealings arising among the parties hereto in the administration hereof be construed as a waiver or diminution of the right of any party hereto to insist upon the strict performance by any other party of the terms, covenants, agreement and conditions herein contained.

20.         In this License Agreement, where applicable, (i) references to the singular shall include the plural and references to the plural shall include the singular, and (ii) references to the male, female, or neuter gender shall include references to all other such genders where the context so requires.

IN WITNESS WHEREOF, the parties hereto have executed this License Agreement, the Effective Date of which is indicated on page 1 of this License Agreement.

OWNER:	ICM:
Little Sioux Corn Processors, LP By its general partner Little Sioux Corn Processors, LLC	ICM, Inc.
By:  /s/ Stephen Roe	By:  /s/ David Vander Griend
Title:  CEO/President	Title:  CEO/President
Date Signed: 9/21/06	Date Signed: 9/27/06
Address for giving notices:	Address for giving notices:
4808 F Avenue Marcus, IA 51035	301 N First Street Colwich, KS  67030

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EXHIBIT E

Schedule of Values

LITTLE SIOUX CORN PROCESSORS ETHANOL PLANT EXPANSION MARCUS, IOWA
PAY REQUEST BREAKDOWN
	DESCRIPTION
1	MOBILIZATION	$   2,500,000
2	ENGINEERING	*
3	GENERAL CONDITIONS (16 MONTHS)	*
4	SITEWORK	*
5	CONCRETE	*
6	MASONRY	*
7	STRUCTURAL STEEL & MISC. METALS	*
8	LUMBER, CARPENTRY & FINISHES	*
9	GIRTS, SIDING & ROOF DECK	*
10	DOORS & WINDOWS	*
11	PAINT	*
12	DRYER SYSTEM	*
13	FIELD ERECTED TANKS	*
14	PROCESS TANKS & VESSELS	*
15	THERMAL OXIDIZER	*
16	MIXERS	*
17	PUMPS	*
18	HEAT EXCHANGERS	*
19	SIEVE BOTTLES & BEADS	*
20	CHILLER	*
21	CENTRIFUGES	*
22	AIR COMPRESSORS	*
23	METHANATOR	*
24	COOLING TOWER	*
25	ETHANOL LOADOUT	*
26	VAPOR FLARE SYSTEM	*
27	PROCESS PIPING & VALVES	*
28	INSULATION	*
29	PLUMBING & HVAC	*
30	ELECTRICAL	*
31	START-UP	*
32	DEMOBILIZATION	*
	CONTRACT AMOUNT	$ 47,860,000

*Portions omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

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EXHIBIT F

Form of Informational Report

PROJECT MEETING:Two-Week Look Ahead(s)

JOBSITE: MEETING DATE:

▼ MANPOWER	TOTALS ▼
Fagen, Inc.	0
(sub)	0
	0
	0
	0
	0
	0
	0
	0
	0
JOBSITE TOTAL	0

▼ SAFETY ISSUES

1.  text

2.  text

▼ WAREHOUSE ISSUES

1.  text

2.  text

▼ PROCUREMENT ISSUES

1.  text

2.  text

▼ OPERATIONS ISSUES

1.  text

2.  text

▼ CIVIL

Area

1.  text

2.  text

F-1

▼ STRUCTURAL

Area

1.  text

2.  text

▼ SIDING / INSULATION

Area

1.  text

2.

▼ MILLWRIGHT

Area

1.  text

2.

▼ PIPE

Area

1.  text

2.

▼ ELECTRICAL

Area

1.  text

2.

▼ DELIVERIES

Area

1.  text

▼ SUBCONTRACTOR

Subcontractor Name

1.  text

F-2

EXHIBIT G

Required Permits

No.	Type of Application/Permit	Responsibility for Obtaining Permit	Assistance in Preparation	Notes
1	Underground Utility Locating Service	Design-Builder/Owner		Notification service for underground work.
2	Septic Tank & Drain Field Permit	Owner
3	Railroad Permit/Approval	Owner	Design-Builder
4	Archeological Survey	Owner
5	Highway Access Permit	Owner		State Department of Transportation or County
6	Building Permits	Design-Builder
	Mechanical	Design-Builder
	Electrical	Design-Builder
	Structures	Design-Builder
7	Construction Air Permit	Owner	Design-Builder
8	Construction Permit	Owner	Design-Builder
9	Operations Permit	Owner	Design-Builder
10	Wastewater Permit	Owner	Design-Builder
11	Water Appropriation Permit	Owner	Design-Builder
12	Fire Protection	Owner	Design-Builder
13	Above Ground Storage Tank Permit	Owner
14	TTB	Owner

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EXHIBIT H

Form of Performance Bond

PERFORMANCE BOND

The American Institute of Architects,

AIA Document No. A312 (December, 1984 Edition)

Any singular reference to Contractor, Surety, Owner or other

party shall be considered plural where applicable.

CONTRACTOR (Name and Address):	Amount: [Amount]
Fagen, Inc.	Description (Name and Location):
P. O. Box 159	[Expansion Project Name and Location]
Granite Falls, MN 56241	OWNER (Name and Address):
CONSTRUCTION CONTRACT	[Owner Name/Address]
Date:	SURETY (Name and Principal Place of
	Business): [Name/Place of Business]

BOND#

Date (Not earlier than Construction Contract Date):

Amount:

Modifications to this Bond:               q   None               q    See Page 2

CONTRACTOR AS PRINCIPAL                                                               SURETY

Company:                                 (Corporate Seal)                                         Company:                 (Corporate Seal)

Fagen, Inc.

Signature:	Signature:
Name and Title:	Name and Title:

(Any additional signatures appear an page 2.)

(FOR INFORMATION Only- Name, Address and Telephone)

OWNER’S REPRESENTATIVE (Architect, Engineer or other party):

AGENT OR BROKER:

1.             The Contractor and the Surety, jointly and severally, bind themselves, their heirs, executors, administrators, successors and assigns to the Owner for the performance of the Construction Contract, which is incorporated herein by reference.

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2.             If the Contractor performs the Construction Contract, the Surety and the Contractor shall have no obligation under this Bond, except to participate in conferences as provided in Subparagraph 3.1.

3.             If there is no Owner Default, the Surety’s obligation under this Bond shall arise after:

3.1           The Owner has notified the Contractor and the Surety at its address described in Paragraph 10 below that the Owner is considering declaring a Contractor Default and has requested and attempted to arrange a conference with the Contractor and the Surety to be held not later than fifteen days after receipt of such notice to discuss methods of performing the Construction Contract.  If the Owner, the Contractor and the Surety agree, the Contractor shall be allowed a reasonable time to perform the Construction Contract, but such an agreement shall not waive the Owner’s right, if any, subsequently to declare a Contractor Default; and

3.2           The Owner has declared a Contractor Default and formally terminated the Contractor’s right to complete the contract.  Such Contractor Default shall not be declared earlier than twenty days after the Contractor and Surety have received notice as provided in Subparagraph 3.1; and

3.3           The Owner has agreed to pay the Balance of the Contract Price to the Surety in accordance with the terms of the Construction Contract or to a contractor selected to perform the Construction Contract in accordance with the terms of the contract with the Owner.

4.             When the Owner has satisfied the conditions of Paragraph 3, the Surety shall promptly and at the Surety’s expense take one of the following actions:

4.1           Arrange for the Contractor with consent of the Owner, to perform and complete the Construction Contract; or

4.2           Undertake to perform and complete the Construction Contract itself, through its agents or through independent contractors; or

4.3           Obtain bids or negotiated proposals from qualified contractors acceptable to the Owner for a contract for performance and completion of the Construction Contract, arrange for a contract to be prepared for execution by the Owner and the contractor selected with the Owner’s concurrence, to be secured with performance and payment bonds executed by a qualified surety equivalent to the bonds issued on the Construction Contract, and pay to the Owner the amount of damages as described in Paragraph 6 in excess of the Balance of the Contract Price incurred by the Owner resulting from the Contractor’s default; or

4.4           Waive its right to perform and complete, arrange for completion, or obtain a new contractor and with reasonable promptness under the circumstances:

.1             After investigation, determine the amount for which it may be liable to the Owner and, as soon as practicable after the amount is determined, tender payment therefor to the Owner; or

.2             Deny liability in whole or in part and notify the Owner citing reasons therefor.

5.             If the Surety does not proceed as provided in Paragraph 4 with reasonable promptness, the Surety shall be deemed to be in default on this Bond fifteen days after receipt of an additional written notice from the Owner to the Surety demanding that the Surety perform its Obligations under this Bond, and the Owner shall be entitled to enforce any remedy available to the Owner.  If the Surety proceeds as provided in Subparagraph 4.4, and the Owner refuses the payment tendered or the Surety has denied liability, in whole or in part, without further notice the Owner shall be entitled to enforce any remedy available to the Owner.

H-2

6.             After the Owner has terminated the Contractor’s right to complete the Construction Contract, and if the Surety elects to act under Subparagraph 4.1, 4.2, or 4.3 above, then the responsibilities of the Surety to the Owner shall not be greater than those of the Contractor under the Construction Contract, and the responsibilities of the Owner to the Surety shall not be greater than those of the Owner under the Construction Contract.  To the limit of the amount of this Bond, but subject to commitment by the Owner of the Balance of the Contract Price to mitigation of costs and damages on the Construction Contract, the Surety is obligated without duplication for:

6.1           The responsibilities of the Contractor for correction of defective work and completion of the Construction Contract;

6.2           Additional legal design professional and delay costs resulting from the Contractor’s Default, and resulting from the actions or failure to act of the Surety under Paragraph 4; and

6.3           Liquidated damages, or if no liquidated damages are specified in the Construction Contract, actual damages caused by delayed performance or non-performance of the Contractor.

7.             The Surety shall not be liable to the Owner or others for obligations of the Contractor that are unrelated to the Construction Contract and the Balance of the Contract Price shall not be reduced or set off on account of any such unrelated obligations. No right of action shall accrue on this Bond to any person or entity other than the Owner or its heirs, executors, administrators or successors.

8.             The Surety hereby waives notice of any change, including changes of time, to the Construction Contract or to related subcontracts, purchase orders and other obligations.

9.             Any proceeding, legal or equitable, under this Bond may be instituted in any court of competent jurisdiction in the location in which the work or part of the work is located and shall be instituted within two years after Contractor Default or within two years after the Contractor ceased working or within two years after the Surety refuses or fails to perform its obligations under this Bond, whichever occurs first.  If the provisions of this Paragraph are void or prohibited by law, the minimum period of limitation available to sureties as a defense in the jurisdiction of the suit shall be applicable.

10.           Notice to the Surety, the Owner or the Contractor shall be mailed or delivered to the address shown on the signature page.

11.           When this Bond has been furnished to comply with a statutory or other legal requirement in the location where the construction was to be performed, any provision in this Bond conflicting with said statutory or legal requirement shall be deemed deleted herefrom and provisions conforming to such statutory or other legal requirement shall be deemed incorporated herein. The intent is that this Bond shall be construed as a statutory bond and not as a common law bond.

12.           DEFINITIONS

12.1         Balance of the Contract Price: The total amount payable by the Owner to the Contractor under the Construction Contract after all proper adjustments have been made, including allowance to the Contractor of any amounts received or to be received by the Owner in settlement of insurance or other claims for damages to which the Contractor is entitled, reduced by all valid and proper payments made to or on behalf of the Contractor under the Construction Contract.

12.2         Construction Contract: The agreement between the Owner and the Contractor identified on the signature page, including all Contract Documents and changes thereto.

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12.3         Contractor Default: Failure of the Contractor, which has neither been remedied nor waived, to perform or otherwise to comply with the terms of the Construction Contract.

12.4         Owner Default: Failure of the Owner, which has neither been remedied nor waived, to pay the Contractor as required by the Construction Contract or to perform and complete or comply with the other terms thereof.

MODIFICATIONS TO THIS BOND ARE AS FOLLOWS:

This bond is subject to the attached Dual Obligee Rider dated

______________________________________________________

______________________________________________________

______________________________________________________

(Space is provided below for additional signatures of added parties other than those appearing on the cover page.)

CONTRACTOR AS PRINCIPAL	SURETY
(Corporate Seal)	(Corporate Seal)
Company:	Company:
Address:	Address:
Name and Title:	Name and Title:
Signature:	Signature:

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DUAL OBLIGEE RIDER

(TO BE ATTACHED TO BOND AT TIME OF ISSUANCE)

TO BE ATTACHED TO AND FORM PART OF Performance and Payment Bond NO.                                , dated concurrently with the execution of this Rider, issued by the                                 , a                                  corporation, as Surety, on behalf of Fagen, Inc., as Principal, and in favor of                                 , as Obligee.

IT IS HEREBY UNDERSTOOD AND AGREED that the above described bond(s) are hereby amended to include the following paragraph:

Notwithstanding anything contained herein to the contrary, there shall be no liability on the part of the Principal or Surety under this bond to the Obligees, or either of them, unless the Obligees, or either of them, shall make payments to the Principal or to the Surety in case it arranges for completion of the Contract upon default of the Principal, strictly in accordance with the terms of said Contract as to payments, and shall perform all the other obligations required to be performed under said Contract at the time and in the manner therein set forth.

IT IS FURTHER UNDERSTOOD AND AGREED that nothing herein contained shall be held to change, alter or vary the terms of the above described bond(s) except as hereinbefore set forth.

SIGNED, SEALED AND DATED this          day of                                 , 200  .

Fagen, Inc.

(Contractor)

By:

[                                ]

(Surety)

By:

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EXHIBIT I

Form of Payment Bond

PAYMENT BOND
The American Institute of Architects,
AIA Document No. A312 (December, 1984 Edition)
Any singular reference to Contractor, Surety, Owner or other
party shall be considered plural where applicable.

CONTRACTOR (Name and Address):                                                     SURETY (Name and Principal Place

Fagen, Inc.                                                                                                    Place of Business):

P. O. Box 159

Granite Falls, MN  56241

OWNER (Name and Address):

[NAME AND ADDRESS]

CONSTRUCTION CONTRACT

Date:

Amount:

Description (Name and Location):

BOND#

Date (Not earlier than Construction Contract Date):

Amount:

Modifications to this Bond:                               q   None                               q    See Page 2

CONTRACTOR AS PRINCIPAL                                                               SURETY

Company:                                 (Corporate Seal)                                         Company:                      (Corporate Seal)

Fagen, Inc.

Signature:	Signature:
Name and Title:	Name and Title:

(Any additional signatures appear an page 2.)

(FOR INFORMATION Only- Name, Address and Telephone)

OWNER’S REPRESENTATIVE (Architect, Engineer or other party):

AGENT or BROKER:

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1.             The Contractor and the Surety, jointly and severally, bind themselves, their heirs, executors, administrators, successors and assigns to the Owner to pay for labor, materials and equipment furnished for use in the performance of the Construction Contract, which is incorporated herein by reference.

2.             With respect to the Owner, this obligation shall be null and void if the Contractor:

2.1           Promptly makes payment, directly or indirectly, for all sums due Claimants, and

2.2           Defends, indemnifies and holds harmless the Owner from claims, demands, liens or suits by any person or entity whose claim, demand, lien or suit is for the payment for labor, materials or equipment furnished for use in the performance of the Construction Contract, provided the Owner has promptly notified the Contractor and the Surety (at the address described in Paragraph 12) of any claims; demands, liens or suits and tendered defense of such claims, demands, liens or suits to the Contractor and the Surety, and provided there is no Owner Default.

3.             With respect to Claimants, this obligation shall be null and void if the Contractor promptly makes payment, directly or Indirectly, for all sums due.

4.             The Surety shall have no obligation to Claimants under this Bond until:

4.1           Claimants who are employed by or have a direct contract with the Contractor have given notice to the Surety (at the address described in Paragraph 12) and sent a copy, or notice thereof, to the owner, stating that a claim is being made under this Bond and, with substantial accuracy, the amount of the claim.

4.2           Claimants who do not have a direct contract with the Contractor:

4.2.1        Have furnished written notice to the Contractor and sent a copy, or notice thereof, to the Owner, within 90 days after having last performed labor or last furnished materials or equipment included in the claim stating, with substantial accuracy, the amount of the claim and the name of the party to whom the materials were furnished or supplied or for whom the labor was done or performed; and

4.2.2        Have either received a rejection in whole or in part from the Contractor, or not received within 30 days of furnishing the above notice any communication from the Contractor by which the Contractor has indicated the claim will be paid directly or Indirectly; and

4.2.3        Not having been paid within the above 30 days, have sent a written notice to the Surety (at the address described in Paragraph 12) and sent a copy, or notice thereof, to the Owner, stating that a claim is being made under this Bond and enclosing a copy of the previous written notice furnished to the Contractor.

5.             If a notice required by Paragraph 4 is given by the Owner to the Contractor or to the Surety that is sufficient compliance.

6.             When the Claimant has satisfied the conditions of Paragraph 4, the Surety shall

I-2

promptly and at the Surety’s expense take the following actions:

6.1           Send an answer to the Claimant, with a copy to the Owner, within 45 days after receipt of the claim, stating the amounts that are undisputed and the basis for challenging any amounts that are disputed.

6.2           Pay or arrange for payment of any undisputed amounts.

7.             The Surety’s total obligation shall not exceed the amount of this Bond, and the amount of this Bond shall be credited for any payments made in good faith by the Surety.

8.             Amounts owed by the Owner to the Contractor under the Construction Contract shall be used for the performance of the Construction Contract and to satisfy claims, if any, under any Construction Performance Bond.  By the Contractor furnishing and the Owner accepting this Bond, they agree that all funds earned by the Contractor in the performance of the Construction Contract are dedicated to satisfy obligations of the Contractor and the Surety under this Bond, subject to the Owner’s priority to use the funds for the completion of the work.

9.             The Surety shall not be liable to the Owner, Claimants or others for obligations of the Contractor that are unrelated to the Construction Contract.  The Owner shall not be liable for payment of any costs or expenses of any Claimant under this Bond, and shall have under this Bond no obligation to make payments to, give notices on behalf of, or otherwise have obligations to Claimants under this Bond.

10.           The Surety hereby waives notice of any change, including changes of time, to the Construction Contract or to related subcontracts, purchase orders and other obligations.

11.           No suit or action shall be commenced by a Claimant under this Bond other than in a court of competent jurisdiction in the location in which the work or part of the work is located or after the expiration of one year from the date (1) on which the Claimant gave the notice required by Subparagraph 4.1 or Clause 4.2.3, or (2) on which the last labor or service was performed by anyone or the last materials or equipment were furnished by anyone under the Construction Contract, whichever of (1) or (2) first occurs. If the provisions of this Paragraph are void or prohibited by law, the minimum period of limitation available to sureties as a defense in the jurisdiction of the suit shall be applicable.

12.           Notice to the Surety, the Owner or the Contractor shall be mailed or delivered to the address shown on the signature page. Actual receipt of notice by Surety, the Owner or the Contractor, however accomplished, shall be sufficient compliance as of the date received at the address shown on the signature page.

13.           When this Bond has been furnished to comply with a statutory or other legal requirement in the location where the construction was to be performed, any provision in this Bond conflicting with said statutory or legal requirement shall be deemed deleted herefrom and provisions conforming to such statutory or other legal requirement shall be deemed incorporated herein.  The intent is that this Bond shall be construed as a statutory bond and not as a common law bond.

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14.           Upon request by any person or entity appearing to be a potential beneficiary of this Bond, the Contractor shall promptly furnish a copy of this Bond or shall permit a copy to be made.

15.           DEFINITIONS

15.1         Claimant: An individual or entity having a direct contract with the Contractor or with a subcontractor of the Contractor to furnish labor, materials or equipment for use in the performance of the Contract. The intent of this Bond shall be to include without limitation in the terms “labor, materials or equipment” that part of water, gas, power, light, heat, oil, gasoline, telephone service or rental equipment used in the Construction Contract, architectural and engineering services required for performance of the work of the Contractor and the Contractor’s subcontractors, and all other items for which a mechanic’s lien may be asserted in the jurisdiction where the labor, materials or equipment were furnished.

15.2         Construction Contract: The agreement between the Owner and the Contractor identified on the signature page, including all Contract Documents and changes thereto.

15.3         Owner Default: Failure of the Owner, which has neither been remedied nor waived, to pay the Contractor as required by the Construction Contract or to perform and complete or comply with the other terms thereof.

MODIFICATIONS TO THIS BOND ARE AS FOLLOWS:

This bond is subject to the attached Dual Obligee Rider dated [                               ].

______________________________________________________

______________________________________________________

______________________________________________________

(Space is provided below for additional signatures of added parties other than those appearing on the cover page.)

CONTRACTOR AS PRINCIPAL	SURETY
(Corporate Seal)	(Corporate Seal)
Company:	Company:
Address:	Address:
Name and Title:	Name and Title:
Signature:	Signature:

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DUAL OBLIGEE RIDER

(TO BE ATTACHED TO BOND AT TIME OF ISSUANCE)

TO BE ATTACHED TO AND FORM PART OF Performance and Payment Bond NO.           , dated concurrently with the execution of this Rider, issued by the                      , a                       corporation, as Surety, on behalf of Fagen, Inc., as Principal, and in favor of                      , as Obligee.

IT IS HEREBY UNDERSTOOD AND AGREED that the above described bond(s) are hereby amended to include the following paragraph:

Notwithstanding anything contained herein to the contrary, there shall be no liability on the part of the Principal or Surety under this bond to the Obligees, or either of them, unless the Obligees, or either of them, shall make payments to the Principal or to the Surety in case it arranges for completion of the Contract upon default of the Principal, strictly in accordance with the terms of said Contract as to payments, and shall perform all the other obligations required to be performed under said Contract at the time and in the manner therein set forth.

IT IS FURTHER UNDERSTOOD AND AGREED that nothing herein contained shall be held to change, alter or vary the terms of the above described bond(s) except as hereinbefore set forth. SIGNED, SEALED AND DATED this         day of                , 200_.

Fagen, Inc.

(Contractor)

By:

[                           ]

(Surety)

By:

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EXHIBIT J

Draw (Payment) Schedule

Little Sioux Corn Processors, LP

Marcus, IA

Monthly Draw Schedule - 18 Month Expansion Project

MONTH	BILLING		TOTAL BILLING
1	*		*	*
2	*		*	*
3	*		*	*
4	*		*	*
5	*		*	*
6	*		*	*
7	*		*	*
8	*		*	*
9	*		*	*
10	*		*	*
11	*		*	*
12	*		*	*
13	*		*	*
14	*		*	*
15	*		*	*
	$	47,860,000

*Portions omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

J-1

EXHIBIT K

Air Emissions Application or Permit

See Draft Air Permit Attached

K-1

EXHIBIT L

[Reserved]

L-1

EXHIBIT M

Form of Application for Payment

See attached Form of Application for Payment

M-1

EXHIBIT N

Form of Lien Waiver

GENERAL CONTRACTOR’S PARTIAL WAIVER OF MECHANIC’S LIEN
RIGHTS AND AFFIDAVIT OF DEBTS AND CLAIMS
CONDITIONAL LIEN WAIVER

STATE:  (   INSERT STATE   )                                                                                          FAGEN, INC.

COUNTY:  (   INSERT COUNTY   )

The undersigned is the General Contractor (aka Design-Builder) regarding labor and materials for construction and maintenance work performed for (   INSERT OWNER/PLANT NAME   ), at the Facility located at or near (   INSERT PLANT CITY & STATE   ) under the terms of a contract.

On condition of receiving full payment for billings up to date hereof under the terms of the above mentioned contract, and other good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned does hereby waive and release any and all liens, and any and all claims and rights to lien on the Facility  (including all buildings on the premises) under the statutes of the State of (   INSERT STATE   ) relating to mechanic’s liens on account of labor and materials furnished by the undersigned up to the date hereof at the Facility, as located on real estate legally described as follows:

TRACT 1:  (   INSERT LEGAL DESCRIPTION   )

TRACT 2:  (   INSERT LEGAL DESCRIPTION   )

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The undersigned further certifies that all obligations of General Contractor entered into between suppliers/subcontractors and General Contractor regarding this Facility are current as of this date, including all obligations of General Contractor for all work, labor and services performed; materials and equipment furnished; and all known indebtedness and claims against General Contractor for damages arising in any manner in connection with General Contractor’s performance of the contract mentioned above for which General Contractor or property of General Contractor might in any way be held responsible.

Dated this ______ day of ___________________, 200__

GENERAL CONTRACTOR:

FAGEN, INC.

By (Print):

Title:

(Signature):

Witness (Print):

(Signature):

In the alternative (or if requested):
Subscribed and sworn to before me this
	day of		, 200__.
		Notary Public
My Commission Expires:

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EXHIBIT O

Form of Consent to Assignment

FAGEN CONSENT TO ASSIGNMENT

THIS CONSENT TO ASSIGNMENT (this “Consent”), dated as of                                  , 2006, is made among FAGEN, INC., a Minnesota corporation (the “Obligor”), Little Sioux Corn Processors, LP, an Iowa limited partnership (“Assignor”), and the financial institution party to this Agreement, not in its individual capacity, but acting solely in the capacity of collateral agent on behalf of the below defined Lenders (such financial institution in such capacity, or such other financial institution acting in such capacity, the “Collateral Agent”).

The Assignor seeks to construct and operate a forty (40) million gallon per year expansion to a fifty-two (52) million gallons per year dry grind ethanol production facility near Marcus, Iowa (the “Project”). The Obligor and the Assignor have entered into the Lump-Sum Design-Build Agreement dated as of September 20, 2006 (as amended, modified, supplemented and in effect from time to time, the “Assigned Agreement”). The Assignor and certain other financial institutions (the “Lenders”) intend to finance certain costs of the Assignor for the development, construction and operation of the Project pursuant to various financing arrangements (the “Financing Arrangements”). The Assignor and the Collateral Agent (on behalf of the Lenders) intend to enter into certain security arrangements (the “Security Documents”), pursuant to which the Assignor will pledge and assign to the Collateral Agent a lien on and a security interest in all of the Assignor’s right, title and interest in, among other things, the Assigned Agreement.

SECTION 1. CONSENT TO ASSIGNMENTS; LIABILITY; CURE RIGHTS; ETC.

1.1   Acknowledgments and Consents.   The Obligor (i) acknowledges that the Assigned Agreement is in full force and effect and that there are no other amendments, modifications or supplements thereto, either oral or written; (ii) represents and warrants that it has not assigned, transferred or pledged the Assigned Agreement to any third party; (iii) represents and warrants that it has no knowledge of any existing default by the Assignor in the performance of any provision of the Assigned Agreement; (iv) acknowledges and consents to the Assignor’s pledge and assignment of the Assigned Agreement to the Collateral Agent; (v) acknowledges the right of the Collateral Agent in the exercise of its rights and remedies under the Security Documents to take all actions and exercise all rights of the Assignor under the Assigned Agreement as if it were the Assignor; (vi) acknowledges and agrees that this Consent satisfies Section 21.1 of the Assigned Agreement; and (vii) acknowledges and agrees that the Collateral Agent is entitled to notices under the Assigned Agreement pursuant to Section 21.7 thereof.

1.2   Limitation on Assumption of Obligations.   The Collateral Agent shall not be liable for the performance or observance of any of the obligations or duties of the Assignor under the Assigned Agreement, nor shall the Security Documents give rise to any duties or obligations whatsoever, except that, insofar as the Collateral Agent exercises any of Assignor’s rights under the Assigned Agreement and/or makes any claims with respect to any payments, deliveries or other obligations under the Assigned Agreement, the satisfaction of the terms

O-3

and conditions of the Assigned Agreement applicable to such exercise of rights or such claims shall be a condition precedent to the Obligor’s obligations with respect thereto. Upon any transfer to a third party of the rights of the Collateral Agent under the Assigned Agreement pursuant to its exercise of its remedies under the Security Documents as described in Section 1.4 below which transfer of the Assigned Agreement shall be subject in all respects to the terms and conditions of the Assigned Agreement, including Section 21.1 thereof (i) the transferee shall succeed to all right, title and interest of the Assignor and the Collateral Agent and (ii) the Collateral Agent shall have no further liabilities, duties or obligations to the Assignor under the Assigned Agreement.

1.3   Cure Periods.   The Obligor hereby confirms that it will provide to the Collateral Agent the same notices as are to be provided to the Assignor pursuant to Sections 15.4.2, 15.5.1(d), and 15.5.2 of the Assigned Agreement.

 1.4   Substitute Owner.   The Obligor acknowledges that upon an event of default by the Assignor under the Financing Arrangements and an exercise of remedies by the Collateral Agent under the Security Documents, the Collateral Agent may (but shall not be obligated to) assume, or cause any purchaser at any foreclosure sale or any assignee or transferee under any instrument of assignment or transfer in lieu of foreclosure to assume, all of the interests, rights and obligations of the Assignor thereafter arising under the Assigned Agreement. Each assuming party shall agree in writing to be bound by, and to assume the terms and conditions of, the Assigned Agreement pursuant to an assignment agreement in form and substance satisfactory to the Obligor pursuant to Section 21.1 of the Assigned Agreement, and the Obligor shall continue to perform its obligations under the Assigned Agreement in favor of the assuming party as if such party had been an original party to the Assigned Agreement; provided, that the assuming party shall cure any defaults, whether monetary or otherwise, then existing under the Assigned Agreement in such assuming party’s capacity as “Owner” under the Assigned Agreement (as defined in such agreement) after giving effect to assignment of Assignor’s rights and obligations to such assuming party; but provided, further, that the liability of the Collateral Agent (or any entity acting on behalf of the Collateral Agent or any of the other Secured Parties) shall not exceed all of its right, title and interest in and to the Project.

1.5   No Amendments.   The Obligor acknowledges that under the terms of the Financing Arrangements, the Assignor is required to obtain the consent of the Lenders for certain amendments to the Assigned Agreement.

SECTION 2.            NOTICES.   The first paragraph of Section 21.7 of the Assigned Agreement is hereby incorporated in this Consent, as if set forth herein in its entirety. For purposes of Section 21.7 of the Assigned Agreement, the initial address for notice to the Collateral Agent shall be as follows:

[BANK]

[ADDRESS]

Attn:   [NAME/TITLE]

Fax:   [FAX NUMBER]

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The Obligor acknowledges and agrees that the delivery of the Collateral Agent’s notice information in this Section 2 shall be deemed to satisfy the requirement of the Owner in Section 21.7 of the Assigned Agreement to deliver such information to the Obligor.

SECTION 3.   MISCELLANEOUS.

THIS CONSENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND SHALL BE BINDING UPON THE PARTIES HERETO AND THEIR PERMITTED SUCCESSORS AND ASSIGNS AND SHALL INURE TO THE BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS. THE PARTIES HERETO HEREBY AGREE TO EXECUTE AND DELIVER ALL SUCH INSTRUMENTS AND TAKE ALL SUCH ACTION AS MAY BE REASONABLY NECESSARY TO EFFECTUATE FULLY THE PURPOSES OF THIS CONSENT.

[THE NEXT PAGE IS THE SIGNATURE PAGE]

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

			Consented and Agreed to:
FAGEN, INC.,			LITTLE SIOUX CORN PROCESSORS, LP
as Obligor			By its general partner
			Little Sioux Corn Processors, LLC
By:			as Assignor
Name:
Title:			By:
			Name:
Address for Notices:			Title:
		Fagen, Inc.
		501 W. Highway 212
		P.O. Box 159		Little Sioux Corn Processors, LP
		Granite Falls, MN 56241		4808 F Avenue
		Attn: Aaron Fagen		Marcus, IA 51035
		Fax: (320) 564-3278		Attention: Steve Roe
				Fax: (712) 376-2815
With a copy to
		Fagen, Inc.
		501 W. Highway 212
		P.O. Box 159
		Granite Falls, MN 56241
		Attn: Bruce Langseth
		Fax: (320) 564-3278
:
[BANK NAME]
not in its individual capacity,
but solely as Collateral Agent
By:
Name:
Title:
Address for Notices:
[BANK]
[ADDRESS]
Attn:	[NAME/TITLE]
Fax:	[FAX NUMBER]

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EX-21.1

Exhibit 21.1

SUBSIDIARIES OF LITTLE SIOUX CORN PROCESSORS, LLC

LSCP, LLLP, an Iowa limited liability limited partnership.

EX-24.1

Exhibit 24.1

Annual Report on Form 10-K for the fiscal year ended September 30, 2006 of
Little Sioux Corn Processors, LLC

POWER-OF-ATTORNEY

The undersigned, as a director of Little Sioux Corn Processors, LLC, an Iowa limited liability company (the “Company”), and/or, as applicable, as an officer of the Company, does hereby constitute and appoint each of Ron Wetherell and Myron Pingel to be his agent and attorney-in-fact, with the power to act fully hereunder and with full power of substitution to act in the name and on behalf of the undersigned, (i) to sign in the name and on behalf of the undersigned, as a director and/or officer of the Company, as applicable, and file with the Securities and Exchange Commission, an Annual Report on Form 10-K for the fiscal year ended September 30, 2006 for which the Company is required to file such an Annual Report, and any amendments or supplements thereto, and (ii) to execute and deliver any instruments, certificates or other documents which he shall deem necessary or proper in connection with the filing of such Annual Report on Form 10-K, and any such amendment or supplement thereto, and generally to act for and in the name of the undersigned with respect to each such filing as fully as could the undersigned if then personally present and acting. The foregoing Power-of-Attorney shall be in full force and effect for so long as the undersigned shall be a director or officer of the Company, as applicable, unless and until revoked as to an undersigned by written instrument delivered by him to the Secretary of the Company.

IN WITNESS WHEREOF, the undersigned has executed this Power-of-Attorney on December 19, 2006.

/s/ Vince Davis

Vince Davis, Director

/s/ Daryl Haack

Daryl Haack, Director

/s/ Doug Lansink

Doug Lansink, Director

/s/ Darrell Downs

Darrell Downs, Director

/s/ Verdell Johnson

Verdell Johnson, Director

/s/ Tim Ohlson

Tim Ohlson, Secretary and Director

/s/ Dale Arends

Dale Arends, Director

EX-31.1

Exhibit 31.1

CERTIFICATIONS PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

I, Stephen Roe, certify that:

1.             I have reviewed this annual report on Form 10-K of Little Sioux Corn Processors, L.L.C.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of Little Sioux Corn Processors, L.L.C., as of, and for, the periods presented in this report;

4.Little Sioux Corn Processors, L.L.C.’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for Little Sioux Corn Processors, L.L.C., and have:

a)Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Little Sioux Corn Processors, L.L.C., including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Evaluated the effectiveness of Little Sioux Corn Processors, L.L.C.’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)Disclosed in this report any changes in Little Sioux Corn Processors, L.L.C.’s internal control over financial reporting that occurred during Little Sioux Corn Processors, L.L.C.’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Little Sioux Corn Processors, L.L.C.’s internal control over financial reporting.

5Little Sioux Corn Processors, L.L.C.’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Little Sioux Corn Processors, L.L.C.’s auditors and the audit committee of Little Sioux Corn Processors, L.L.C.’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Little Sioux Corn Processors, L.L.C.’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in Little Sioux Corn Processors, L.L.C.’s internal controls over financial reporting.

Date:	December 29, 2006	/s/ Stephen Roe
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO 17 CFR 240.13a-14(a)

(SECTION 302 CERTIFICATION)

I, Gary Grotjohn, certify that:

1.             I have reviewed this annual report on Form 10-K of Little Sioux Corn Processors, L.L.C.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of Little Sioux Corn Processors, L.L.C., as of, and for, the periods presented in this report;

4.Little Sioux Corn Processors, L.L.C.’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for Little Sioux Corn Processors, L.L.C., and have:

a)Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Little Sioux Corn Processors, L.L.C., including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Evaluated the effectiveness of Little Sioux Corn Processors, L.L.C.’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)Disclosed in this report any changes in Little Sioux Corn Processors, L.L.C.’s internal control over financial reporting that occurred during Little Sioux Corn Processors, L.L.C.’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Little Sioux Corn Processors, L.L.C.’s internal control over financial reporting.

5Little Sioux Corn Processors, L.L.C.’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Little Sioux Corn Processors, L.L.C.’s auditors and the audit committee of Little Sioux Corn Processors, L.L.C.’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Little Sioux Corn Processors, L.L.C.’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in Little Sioux Corn Processors, L.L.C.’s internal controls over financial reporting.

Date:	December 29, 2006	/s/ Gary Grotjohn
		Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report on Form 10-K of Little Sioux Corn Processors, L.L.C. (the “Company”) for the fiscal year ended September 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen Roe, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 /s/ Stephen Roe

Stephen Roe

President and Chief Executive Officer

Dated: December 29, 2006

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report on Form 10-K of Little Sioux Corn Processors, L.L.C. (the “Company”) for the fiscal year ended September 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gary Grotjohn, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 /s/ Gary Grotjohn

Gary Grotjohn

Chief Financial Officer

Dated: December 29, 2006