EXHIBIT 10.8

 

INTERIM SUBORDINATED NOTE

 

THIS SUBORDINATED SECURED PROMISSORY NOTE AND THE CLASS A OR B UNITS ISSUABLE
UPON ANY CONVERSION HEREOF, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “ACT”), OR UNDER APPLICABLE STATE SECURITIES LAWS.  THIS
SUBORDINATED SECURED PROMISSORY NOTE MAY NOT BE OFFERED FOR SALE, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH STATE
LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE
LAWS, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY WHOSE AUTHORIZED OFFICER HAS SIGNED THIS NOTE BELOW.

 

ALL RIGHTS OF THE HOLDER HEREOF INCLUDING BUT NOT LIMITED TO THE PAYMENT OF
INTEREST, THE PAYMENT OF PRINCIPAL ON THE MATURITY DATE AND THE PREPAYMENT OF
PRINCIPAL SHALL IN ALL RESPECTS AND FOR ALL PURPOSES BE SUBORDINATE TO THE
SENIOR DEBT IN ACCORDANCE WITH AND SUBJECT TO THE TERMS AND CONDITIONS OF THE
INTERIM SUBORDINATED DEBT SUBORDINATION AGREEMENT BY AND AMONG AGSTAR FINANCIAL
SERVICES, PCA, THE ORIGINAL HOLDER HEREOF, AND THE OTHER INITIAL SUB-DEBT
HOLDERS DATED MAY 17, 2013 (THE “INTERIM SUBORDINATION AGREEMENT).

 

No.

 

Principal Amount $                          

 

 

May 17, 2013

 

7.25% SUBORDINATED SECURED NOTES DUE 2018

 

Heron Lake BioEnergy, LLC, a Minnesota limited liability company, promises to
pay to                                          or its registered assigns, the
principal sum of                                        and no/100ths Dollars
($                    .00) on October 1, 2018.

 

Interest Payment Dates: April 1 and October 1
Record Dates: March 15 and September 15

 

Additional provisions of this Note are set forth on the other side of this Note.

 

 

HERON LAKE BIOENERGY, LLC

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

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REVERSE SIDE OF INTERIM SUBORDINATED NOTES

 

HERON LAKE BIOENERGY, LLC

 

7.25% SUBORDINATED SECURED NOTES DUE 2018

 

I.                                        Interest

 

Heron Lake BioEnergy, LLC, a Minnesota limited liability company (such company,
and its successors and assigns under the Indenture hereinafter referred to,
being herein called the “Company”), promises to pay interest on the principal
amount of this Interim Subordinated Note at the rate per annum shown above.

 

The Company will pay interest semiannually on April 1 and October 1 of each year
commencing April 1, 2014. Interest on the Interim Subordinated Notes will accrue
from the most recent date to which interest has been paid on the Interim
Subordinated Notes or, if no interest has been paid, from May 17, 2013. 
Interest will be computed on the basis of a 365-day year.

 

II.                                   Method of Payment

 

By no later than 10:00 a.m. (St. Paul, Minnesota time) on the date on which any
principal of, premium, if any, or interest on any Interim Subordinated Note is
due and payable, the Company shall irrevocably deposit with the Collateral Agent
or the Paying Agent money sufficient to pay such principal, premium, if any,
and/or interest (including Special Interest). The Company will pay interest
(except Defaulted Interest) to the Persons who are registered Holders of Interim
Subordinated Notes at the close of business on the March 15 or September 15 next
preceding the interest payment date even if Interim Subordinated Notes are
cancelled, repurchased or redeemed after the record date and on or before the
interest payment date. Holders must surrender Interim Subordinated Notes to a
Paying Agent to collect principal payments. The Company will pay principal,
premium, if any, and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts. The Company
will make all payments in respect of an Interim Subordinated Note (including
principal, premium, if any, and interest) by mailing a check to the registered
address of each Holder thereof.

 

III.                              Paying Agent and Registrar

 

The Company may appoint and change any Paying Agent, Registrar or co-registrar
without notice to any Holder. The Company or any of its domestically organized,
wholly owned Subsidiaries may act as Paying Agent, Registrar or co-registrar.

 

IV.                               Subordinated Loan Agreements

 

The Company issued the Interim Subordinated Notes under the Subscription and the
Subordinated Loan Agreements dated as of May 17, 2013 (as it may be amended or
supplemented from time to time in accordance with the terms thereof, the
“Subordinated Loan

 

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Agreements”) in aggregate borrowed amounts of $1,407,000.00, among the Company
and the original Holders of the Interim Subordinated Notes. The terms of the
Interim Subordinated Notes include those stated in the Subordinated Loan
Agreements. Capitalized terms used herein and not defined herein have the
meanings ascribed thereto in the Subordinated Loan Agreements or the Indenture
to be entered into in connection with the Member Capital Raise. The Interim
Subordinated Notes are subject to all terms and provisions of the Subordinated
Loan Agreements, and Holders are referred to the Subordinated Loan Agreements
for a statement of certain of those terms.

 

The Interim Subordinated Notes are secured subordinated obligations of the
Company. The aggregate principal amount of Interim Subordinated Notes that may
be authenticated and delivered under the Subordinate Loan Agreements is limited
to $1,407,000.00. This Interim Subordinated Note is one of the 7.25%
Subordinated Secured Notes due 2018 referred to in the Subordinated Loan
Agreements.

 

All references to “Indenture” herein refer to the Indenture to be entered into
between the Indenture Trustee and the Company in connection with the Member
Capital Raise, for the equal and ratable benefit of the Holders of the Company’s
7.25% Subordinated Secured Notes due 2018 issued on an Issue Date in accordance
with the terms of the Indenture, which Notes shall include Notes issued to the
Holder hereof in consideration of the exchange and surrender of this Interim
Subordinated Note as further provided in Article XV hereof.

 

V.                                    Optional Redemption

 

At any time prior to October 1, 2018 the Company may redeem all of the Interim
Subordinated Notes, upon not less than 30 nor more than 60 days’ prior notice
mailed by first-class mail to each holder’s registered address, at a redemption
price equal to 100% of the principal amount of Interim Subordinated Notes
redeemed as of, and accrued and unpaid interest and Special Interest, if any, to
the date of redemption (the “Redemption Date”), subject to the rights of holders
of Interim Subordinated Notes on the relevant record date to receive interest
due on the relevant interest payment date, and further subject to the conversion
rights of holders of Interim Subordinated Notes as provided in the Subordinated
Loan Agreements.

 

VI.                               Denominations; Transfer; Exchange

 

The Interim Subordinated Notes are in registered form without coupons in
denominations of principal amount of $15,000 and whole multiples of $1,500 in
excess thereof. A Holder may transfer or exchange Interim Subordinated Notes in
accordance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements or transfer documents and to pay a
sum sufficient to cover any taxes and fees required by law or permitted by the
Indenture. The Registrar need not register the transfer of or exchange of any
Interim Subordinated Note for a period beginning (1) 15 days before the mailing
of a notice of an offer to repurchase or redeem Interim Subordinated Notes and
ending at the close of business on the day of such mailing or (2) 15 days before
an interest payment date and ending on such interest payment date.

 

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VII.                          Persons Deemed Owners

 

The registered Holder of this Note may be treated as the owner of it for all
purposes.

 

VIII.                     Unclaimed Money

 

If money for the payment of principal, premium, if any, or interest remains
unclaimed for two years after such principal, premium, if any, or interest has
become due and payable, the Collateral Agent or Paying Agent shall pay the money
back to the Company at its request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company for payment as general creditors unless an abandoned
property law designates another person and not to the Collateral Agent for
payment.

 

IX.                              Defeasance

 

Subject to certain exceptions and conditions set forth in the Indenture, the
Company at any time may terminate some or all of its obligations under the
Interim Subordinated Notes, the Indenture, the Collateral Documents and the
Indenture Intercreditor Agreement if the Company deposits with the Collateral
Agent money or Government Securities for the payment of principal, premium, if
any, and interest on the Interim Subordinated Notes to redemption or maturity,
as the case may be.

 

X.                                   Amendment, Supplement, Waiver

 

The Interim Subordinated Notes, the Collateral Documents (as defined in the
Collateral Agreement) or the Interim Subordination Agreement may be amended or
supplemented by the Company and the Collateral Agent with the consent of the
Holders of 75% or more in aggregate principal amount of the Interim Subordinated
Notes or noncompliance with any provision may be waived with the consent of the
Holders of 75% or more in aggregate principal amount of the Interim Subordinated
Notes. Without the consent of any Holder, the Company and the Collateral Agent
may amend or supplement the Collateral Documents or the Interim Subordination
Agreement (1) to cure any ambiguity, defect or inconsistency; (2) to make any
change that would provide any additional rights or benefits to the Holders of
Interim Subordinated Notes or that does not adversely affect the legal rights
hereunder or under the Interim Subordinated Notes, the Collateral Documents and
the Interim Subordination Agreement of any such Holder; (3) to add additional
Collateral to secure the Interim Subordinated Notes; or (4) to release Liens in
favor of the Collateral Agent in the Collateral as provided in Collateral
Agreement.

 

XI.                              Defaults and Remedies

 

Each of the following is an “Event of Default”:

 

(1)           default in the payment when due (at maturity, upon redemption or
otherwise) of the principal of, or premium, if any, on, the Interim Subordinated
Notes;

 

(2)           failure by the Company for 60 days after notice to the Company by
the trustee or the holders of at least 75% in aggregate principal amount of the
Interim Subordinated Notes then outstanding voting as a single class to comply
with any of the

 

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other agreements in the Subordinated Loan Agreements, the Interim Subordinated
Notes, the Collateral Documents or the Interim Subordination Agreement;

 

(3)           default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company (or the payment of which is
guaranteed by the Company), whether such Indebtedness or guarantee now exists,
or is created after the date of the Subordinated Loan Agreements, if that
default:

 

(a)           is caused by a failure to pay any such Indebtedness at its stated
final maturity (a “Payment Default”); or

 

(b)           results in the acceleration of such Indebtedness prior to its
stated final maturity,

 

and, in each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates $15
million or more;

 

(4)           failure by the Company to pay final judgments entered by a court
or courts of competent jurisdiction aggregating in excess of $2 million (net of
any amount covered by insurance issued by a national insurance company that has
not contested coverage), which judgments are not paid, discharged or stayed for
a period of 60 days;

 

(5)           certain events of bankruptcy, insolvency or reorganization
described in the Amended Senior Loan Agreement with respect to the Company; and

 

(6)           with respect to any Collateral having a fair market value in
excess of $5 million, individually or in the aggregate, (A) the failure of the
security interest with respect to such Collateral under the Collateral
Documents, at any time, to be in full force and effect for any reason other than
in accordance with their terms and the terms of the Subordinated Loan Agreements
and other than the satisfaction in full of all obligations under the
Subordinated Loan Agreements if such Default continues for 60 days, (B) the
declaration that the security interest with respect to such Collateral created
under the Collateral Documents or under the Subordinated Loan Agreements is
invalid or unenforceable, if such Default continues for 60 days or (C) the
assertion by the Company, in any pleading in any court of competent
jurisdiction, that any such security interest is invalid or unenforceable.

 

If an Event of Default (other than an Event of Default described in clause
(5) above) occurs and is continuing, the Collateral Agent by notice to the
Company, or the Holders of at least 75% in aggregate principal amount of the
outstanding Interim Subordinated Notes by notice to the Company and the
Collateral Agent, may, and the Collateral Agent at the request of such Holders
shall, declare the principal of, premium, if any, and accrued and unpaid
interest (including Special Interest), if any, on all the Interim Subordinated
Notes to be due and payable. Upon such a declaration, such principal, premium
and accrued and unpaid interest shall be due and payable immediately.

 

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In the case of an Event of Default specified in clause (5) above, with respect
to the Company all outstanding Interim Subordinated Notes will become due and
payable immediately without further action or notice.

 

The Holders of 75% in aggregate principal amount of the outstanding Interim
Subordinated Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Collateral Agent or of
exercising any trust or power conferred on the Collateral Agent.

 

The Collateral Agent may withhold from holders of the Interim Subordinated Notes
notice of any continuing Default or Event of Default if it determines that
withholding notice is in their interest, except a Default or Event of Default
relating to the payment of principal or premium or Special Interest, if any.

 

Subject to the provisions of the Subordinated Loan Agreements relating to the
duties of the Collateral Agent, in case an Event of Default occurs and is
continuing, the Collateral Agent will be under no obligation to exercise any of
the rights or powers under the Subordinated Loan Agreements, the Interim
Subordinated Notes, the Collateral Documents and the Interim Subordination
Agreement at the request or direction of any holders of Interim Subordinated
Notes unless such holders have offered to the Collateral Agent or the Collateral
Agent reasonable indemnity or security against any loss, liability or expense.

 

XII.                         [reserved]

 

XIII.                    No Recourse Against Others

 

An incorporator, director, officer, employee or stockholder of the Company,
solely by reason of this status, shall not have any liability for any
obligations of the Company under the Interim Subordinated Notes, the
Subordinated Loan Agreements, the Collateral Documents or the Interim
Subordination Agreement or for any claim based on, in respect of or by reason of
such obligations or their creation. By accepting an Interim Subordinated Note,
each Holder waives and releases all such liability. The waiver and release are a
part of the consideration for the issuance of the Interim Subordinated Notes.

 

XIV.                     Conversion

 

Each Holder has the right at the Holder’s option to irrevocably convert all of
such Holder’s Interim Subordinated Notes into Class A Units subject to
satisfaction of the conditions set forth in Section 10 of the Subscription and
Subordinated Loan Agreement;  provided however, if the number of Class A Units
exceeds the authorized Class A Units, the Company shall issue Class B Units in
lieu of Class A Units.

 

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XV.                          Surrender of Interim Subordinated Notes and
Exchange for Indenture Notes

 

Each Holder acknowledges that the Interim Subordinated Notes must be surrendered
and exchanged for Notes issued under, in accordance with and subject to the
Indenture on the First Issue Date, as further provided in Section 10.h. of the
Subordinated Loan Agreements.

 

XVI.                     Abbreviations

 

Customary abbreviations may be used in the name of a Holder or an assignee, such
as TEN COM (= tenants in common), TEN ENT (= tenants by the entirety), JT TEN (—
joint tenants with rights of survivorship and not as tenants in common), CUST (=
custodian) and U/G/M/A (= Uniform Gift to Minors Act).

 

XVII.                Governing Law

 

This Note shall be governed by, and construed in accordance with, the laws of
the State of Minnesota.

 

XVIII.           USA Patriot Act

 

The parties hereto acknowledge that in accordance with Section 326 of the U.S.A.
PATRIOT Act, the Collateral Agent is required to obtain, verify, and record
information that identifies each person or legal entity that establishes a
relationship or opens an account with the Collateral Agent. The parties to the
Subordinated Loan Agreements agree that they will provide the Collateral Agent
with such information as it may request in order for the Collateral Agent to
satisfy the requirements of the U.S.A. PATRIOT Act.

 

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