EXHIBIT 10.7

 

HERON LAKE BIOENERGY, LLC

 

SUBSCRIPTION AGREEMENT INCLUDING INVESTMENT REPRESENTATIONS

 

7.25% SUBORDINATED SECURED NOTES DUE 2018

 

and

 

SUBORDINATED LOAN AGREEMENT

 

THIS SUBSCRIPTION AGREEMENT AND SUBORDINATED LOAN AGREEMENT (this “Subscription
and Subordinated Loan Agreement”) is entered into and made effective on May 17,
2013, by and between Heron Lake BioEnergy, LLC, a Minnesota limited liability
company with its principal executive office located at 91246 390th Avenue,
P.O. Box 198, Heron Lake, Minnesota 56137 (the “Company”), and
                                         (“Subscriber”).

 

W I T N E S S E T H

 

In consideration of the mutual promises contained herein, and other good and
valuable consideration, Subscriber hereby agrees, represents and warrants as
follows:

 

1.                                      Agreement of Subscription.

 

a.                                      Subscriber hereby subscribes to purchase
** $                ** in aggregate principal amount of the Company’s 7.25%
Subordinated Secured Notes due 2018 (the “Interim Subordinated Note”), upon the
terms and conditions as set forth in this Subscription and Subordinated Loan
Agreement, for a Total Purchase Price of ** $                **.  (All
capitalized terms used in this Subscription and Subordinated Loan Agreement and
not otherwise defined herein shall have the meaning ascribed to such terms in
the Company’s Member Control Agreement dated effective September 23, 2004, as
amended (the “Member Control Agreement”), the Amended Senior Loan Agreement (as
defined herein), or the Interim Subordinated Debt Subordination Agreement (as
defined herein), as the context shall require.

 

b.                                      This subscription is irrevocable.  The
Company will accept this subscription by having one of its officers countersign
this Subscription and Subordinated Loan Agreement and return a copy of the
signature page to you to confirm acceptance.

 

c.                                       Upon acceptance, this Subscription and
Subordinated Loan Agreement is binding on Subscriber, and the obligations of
Subscriber hereunder are unconditional.

 

d.                                      Delivery of and payment for the Interim
Subordinated Note shall be made on the Closing Date (as defined in the Sixth
Amended and Restated Master Loan Agreement by and among the Company and AgStar
Financial Services, PCA dated to be effective as of May 17, 2013, hereinafter
the “Amended Senior Loan Agreement”).  Delivery of the Interim Subordinated Note
shall be made to Subscriber against payment by Subscriber of the Total

 

--------------------------------------------------------------------------------

 

Purchase Price to or upon the order of the Company by federal wire transfer of
same-day funds or such other manner of payment as may be agreed upon by the
Company.

 

e.                                       Subscriber agrees that the Interim
Subordinated Note shall be governed by and subject to the terms and conditions
of (i) this Subscription and Subordinated Loan Agreement, including without
limitation the additional agreements and documents set forth or referenced in
Section 10 hereof, and (ii) the Interim Subordinated Debt Subordination
Agreement dated effective May 17, 2013 by and among AgStar Financial Services,
PCA, Subscriber and the other Initial Sub-debt Holders in the form attached
hereto as Exhibit A (the “Interim Subordinated Debt Subordination Agreement”).

 

f.                                        Subscriber acknowledges and agrees
that 100% of Subscriber’s Total Purchase Price of the Interim Subordinated Note
constitutes “AT-RISK” capital and will not be placed into any type of escrow. 
Immediately following acceptance of this Subscription by the Company and tender
of the payment for the Interim Subordinated Note, the Company will use such
funds to pay down Senior Debt on the Closing Date under the terms and conditions
of the Amended Senior Loan Agreement.

 

2.                                      Representations and Warranties of
Subscriber.

 

In consideration of the Company’s offer to sell the Interim Subordinated Note,
and in order to induce the Company to sell and issue the Interim Subordinated
Note to Subscriber, Subscriber hereby represents and warrants to the Company and
its agents as follows:

 

a.                                      SEC Reporting Obligations; Information
About the Company and the Interim Subordinated Note.  Subscriber acknowledges
that the Company is a public reporting company under the Securities Exchange Act
of 1934, and that Subscriber has immediate reporting obligations under such Act
of its purchase of the Interim Subordinated Note hereunder, as a result of
Subscriber’s ownership of membership interests in the Company and the amount of
the Interim Subordinated Note purchased.  Subscriber, or its representative(s),
has received, read and understands the business, financial and operating
information, and the risk factors affecting the Company and its business and the
value of the Interim Subordinated Note being purchased hereunder, as described
in or set forth in the periodic reports and schedules filed by the Company with
the SEC (including all exhibits and financial statement schedules attached
thereto or included therewith), including but not limited to: (1) FORM 10-K
Annual Report filed pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the “34 Act”) for the fiscal year ended October 31, 2012; (2) all
FORM 8-K reports filed in the past twelve months, including Form 8-K reports
filed in connection with the various amendments to the forbearance agreement and
related loan agreements between the Company and AgStar Financial Services, PCA. 
In addition, Subscriber acknowledges it has received the Company’s unaudited,
non-public, financial statements for the fiscal quarter ended January 31, 2013,
for the month ended March 31, 2013 and the 5-month period ended March 31, 2013,
by reason of its appointees to the Company’s Board of Governors.  In addition,
Subscriber has reviewed the Amended Senior Loan Agreement, the Interim
Subordinated Debt Subordination Agreement, and the Interim

 

2

--------------------------------------------------------------------------------

 

Subordinated Note.  Without limiting the foregoing representation, Subscriber
understands that, until the Senior Debt has been indefeasibly paid in full in
cash and all lending commitments under the Senior Debt Documents have
terminated, all Liens and security interests of Subscriber and the other Initial
Sub-debt Holders in the Collateral shall be and are subordinated for all
purposes and in all respects to the Liens and security interests of the Senior
Lender in the Collateral, and Subscriber and the other Initial Sub-debt Holders
may not, without the prior written consent of the Senior Lender, take any
Enforcement Action with respect to the Subordinated Debt, any of the Collateral
or any property or assets of any guarantor of the Subordinated Debt.  Without
limiting the foregoing, Subscriber acknowledges that the Company may default in
its payment obligations under, and/or become out of compliance with one or more
covenants in, the Amended Senior Loan Agreement, and that there are no
assurances that the payment or covenant(s) violations could be cured or that the
Company will not violate additional loan covenants in the near future, or that
the Senior Lender will not declare an event of default and exercise all of their
rights and remedies under the Amended Senior Loan Agreement and/or the Interim
Subordinated Debt Subordination Agreement if the Company cannot cure such
defaults or violations.  Subscriber acknowledges that, upon an Event of Default
under any Senior Debt Document, Subscriber and the other Initial Sub-debt
Holders shall not be entitled to receive or retain payments of periodic interest
under the Interim Subordinated Notes as provided for by the Subordinated Debt
Documents (or any subsequent Initial Notes issued pursuant to the Indenture
Subordinated Debt).  Subscriber understands that the foregoing capitalized terms
shall have the meaning ascribed to them in the Interim Subordinated Debt
Subordination Agreement.  Subscriber acknowledges that, in the event Subscriber,
or its representative, has had an opportunity to obtain, and has received, any
additional information and has had an opportunity to ask such questions of, and
receive answers from, the Company or an agent or representative of the Company,
to the extent deemed necessary by Subscriber in order to form a decision
concerning an investment in the Company.  As a result, Subscriber believes it
has sufficient knowledge about the business, management and financial affairs of
the Company and the ethanol plant and the Company’s planned use of the proceeds
of this subscription, and the terms and conditions of the purchase of Interim
Subordinated Note contemplated hereby.

 

b.                                      Amended Senior Loan Agreement; $5.0
Million Required Payment by July 31, 2013.  Subscriber understands and
acknowledges that, among other terms, the Amended Senior Loan Agreement requires
the Company to make a $5.0 million principal payment on the Term Revolver Note
on or before July 31, 2013.  The Company will not be able to make the payment
unless it raises at least $5.0 million in the Member Capital Raise (as defined
in section 10 hereof).  Failure to make the payment will constitute a payment
default, and subject the Company and its assets to all rights and remedies of
the Senior Lender under the Amended Senior Loan Agreement upon the occurrence of
an event of default, which rights and remedies include but are not limited to
(i) declaring the entire unpaid balance of the Senior Debt immediately due and
payable, (ii) protecting and enforcing all of its legal, contractual, and
equitable right and remedies under the Senior Loan Documents which include
foreclosure of the Senior Mortgage.  Under the Interim Subordinated Debt
Subordination Agreement, Subscriber and the other Initial Sub-debt Holders may
not, without the consent of the Senior Lender, take any enforcement action with
respect to the Subordinated Debt or any of the collateral of the

 

3

--------------------------------------------------------------------------------

 

Subordinated Debt, including the Real Property and Fixtures under the
Subordinated Mortgage and the UCC Collateral under the Subordinated Security
Agreement.  In that foreclosure actions on mortgages and security agreements
which are senior to junior or subordinated mortgages and security agreements
will extinguish all rights of the creditors under such junior security
documents, foreclosure on the Senior Loan Documents including mortgages and
security agreements may render Subscriber’s benefit in the Subordinated
Collateral worthless.

 

c.                                       High Degree of Risk.  Subscriber
realizes that an investment in the Interim Subordinated Note involves a high
degree of risk, including, but not limited to, the risks of receiving no return
on the investment and of losing Subscriber’s entire investment in the Company.

 

d.                                      Ability to Bear the Risk.  Subscriber is
able to bear the economic risk of investment in the Interim Subordinated Note,
including the total loss of such investment.

 

e.                                       No Market for Interim Subordinated
Note; Restrictions on Transfer.  Subscriber realizes that (i) there are
substantial restrictions on the transfer of the Interim Subordinated Note, both
under the Securities Act and State Laws, as well as under the Articles and the
Member Control Agreement; (ii) there is not currently, and it is unlikely that
in the future there will exist, a public market for the Interim Subordinated
Note; and (iii) accordingly, for the above and other reasons, Subscriber may not
be able to liquidate an investment in the Interim Subordinated Note for an
indefinite period.  Subscriber realizes that the Interim Subordinated Note have
not been registered for sale under the Securities Act of 1933, as amended (the
“Securities Act”) or applicable state securities laws (the “State Laws”). 
Subscriber acknowledges and agrees that the Interim Subordinated Note may be
sold only pursuant to registration under the Securities Act and State Laws, or
an opinion of counsel acceptable to the Company that such registration is not
required, and in accordance with the Articles and the Member Control Agreement.

 

f.                                        Suitability.  Subscriber believes that
the investment in the Interim Subordinated Note is suitable for the undersigned
based upon Subscriber’s investment objectives and financial needs, and
Subscriber has adequate means for providing for his, her or its current
financial needs and personal contingencies and has no need for liquidity of
investment with respect to the Interim Subordinated Note.  Subscriber has such
knowledge and experience in financial and business matters that he, she or it is
capable of evaluating the merits and risks of an investment in the Interim
Subordinated Note or Subscriber has obtained, to the extent Subscriber deems
necessary, his, her or its own professional advice with respect to the risks
inherent in the investment in the Interim Subordinated Note, and the suitability
of the investment in the Interim Subordinated Note in light of Subscriber’s
financial condition and investment needs.

 

g.                                      Investment Intent.  Subscriber has been
advised that the Interim Subordinated Note are not being registered under the
Securities Act or the relevant State Laws but are being offered and sold
pursuant to exemptions from such laws and that the Company’s reliance upon such
exemptions is predicated in part on Subscriber’s representations to it as
contained herein.

 

4

--------------------------------------------------------------------------------

 

Subscriber represents and warrants that the Interim Subordinated Note is being
purchased for Subscriber’s own account and for Subscriber’s investment and
without the intention of reselling or redistributing the same, that Subscriber
has made no agreement with others regarding any of the Interim Subordinated Note
and that Subscriber’s financial condition is such that it is not likely that it
will be necessary to dispose of any of the Interim Subordinated Note in the
foreseeable future.  Subscriber is aware that, in the view of the Securities and
Exchange Commission, a purchase of the Interim Subordinated Note with an intent
to resell by reason of any foreseeable specific contingency or anticipated
change in market values, or any change in the condition of the Company, or in
connection with a contemplated liquidation or settlement of any loan obtained
for the acquisition of the Interim Subordinated Note and for which the Interim
Subordinated Note was pledged as security, would represent an intent
inconsistent with the representations set forth above.  Subscriber further
represents and agrees that if, contrary to the foregoing stated intentions,
Subscriber should later desire to dispose of or transfer any of the Interim
Subordinated Note in any manner, he, she or it shall not do so without first
obtaining the consent of the Company as required by the Company’s Articles and
the Member Control Agreement and (i) the opinion of counsel satisfactory to the
Company that such proposed disposition or transfer lawfully may be made without
the registration of the Interim Subordinated Note pursuant to the Securities Act
and applicable State Laws, or (ii) such registration (it being expressly
understood that the Company shall not have any obligation to register such
Interim Subordinated Note for such purpose).

 

h.                                      Brokers or Finders.  Subscriber has not
taken any action that will cause the Company to incur, directly or indirectly,
any liability for brokerage or finders’ fees or agents’ commissions or any
similar charges in connection with this Subscription and Subordinated Loan
Agreement.

 

i.                                         Tax Liability.  Subscriber has
reviewed with Subscriber’s own tax advisors the tax consequences of this
investment and the transactions contemplated by this Subscription and
Subordinated Loan Agreement, and has and will rely solely on such advisors and
not on any statements or representations of the Company or any of its agents. 
Subscriber understands that Subscriber (and not the Company) shall be
responsible for Subscriber’s own tax liability that may arise as a result of
this investment or the transactions contemplated by this Subscription and
Subordinated Loan Agreement.

 

j.                                         Residency.  Subscriber has its
principal place of business in the following State:

 

(please write in your principal place state of residency).

 

3.                                      Accredited Status.

 

SECTION 3 IS REQUIRED IN CONNECTION WITH THE EXEMPTIONS FROM THE SECURITIES ACT
AND STATE LAWS BEING RELIED ON BY THE COMPANY WITH RESPECT TO THE OFFER AND SALE
OF THE INTERIM SUBORDINATED NOTE.  SUBJECT TO SECURITIES LAWS REQUIREMENTS, ALL
FINANCIAL INFORMATION

 

5

--------------------------------------------------------------------------------

 

IN SECTION 3 WILL BE KEPT CONFIDENTIAL, AND WILL BE REVIEWED ONLY BY THE COMPANY
AND ITS COUNSEL, EXCEPT AS DISCLOSURE MAY BE REQUIRED OR COMPELLED UNDER
APPLICABLE SECURITIES LAWS.  The undersigned agrees to furnish any additional
information that the Company or its counsel deems reasonably necessary in order
to verify the responses set forth below.

 

Subscriber represents and warrants as follows (EACH SUBSCRIBER MUST COMPLETE.
PLEASE CHECK ALL THAT APPLY — YOU MUST BE AN ACCREDITED INVESTOR TO PURCHASE THE
INTERIM SUBORDINATED NOTE):

 

INDIVIDUALS

 

o

 

(a)                            Subscriber (hereinafter in this Section 3, “the
undersigned”) is an individual with a net worth, or a joint net worth together
with his or her spouse, in excess of $1,000,000. (In calculating net worth, the
persons primary residence shall not be included as an asset, and indebtedness
that is secured by the person’s primary residence, up to the estimated fair
market value of the primary residence at the time of the sale of the securities,
shall not be included as a liability, except that if the amount of such
indebtedness outstanding at the time of sale of securities exceeds the amount
outstanding 60 days before such time, other than as a result of acquisition of
the primary residence, the amount of such excess shall be included as a
liability. Indebtedness that is secured by the person’s primary residence in
excess of the estimated fair market value of the primary residence at the time
of the sale of securities shall be included as a liability. You may include
equity in personal property and real estate, excluding your primary residence,
cash, short-term investments, stock and securities. Equity in personal property
and real estate, excluding your primary residence, should be based on the fair
market value of such property minus debt secured by such property.)

 

 

 

o

 

(b)                            The undersigned is an individual that had an
individual income in excess of $200,000 in each of the prior two years and
reasonably expects an income in excess of $200,000 in the current year.

 

 

 

o

 

(c)                             The undersigned is an individual that had with
his/her spouse joint income in excess of $300,000 in each of the prior two years
and reasonably expects joint income in excess of $300,000 in the current year.

 

 

 

o

 

(d)                            The undersigned is a director or executive
officer or general partner (or its equivalent) of the Company.

 

 

 

ENTITIES

 

o

(e)

The undersigned, if other than an individual, is an entity all of whose equity
owners meet one of the tests set forth in (a) through (d) above. (If relying on
this

 

6

--------------------------------------------------------------------------------

 

 

 

category alone, each equity owner must complete a separate copy of this
Subscription and Subordinated Loan Agreement.)

 

 

 

o

 

(f)                              The undersigned is an entity, and is an
“Accredited Investor” as defined in Rule 501(a) of Regulation D under the
Securities Act. This representation is based on the following (check one or
more, as applicable):

 

 

 

 

o

(i)                                The undersigned (or, in the case of a trust,
the undersigned trustee) is a bank or savings and loan association as defined in
Sections 3(a)(2) and 3(a)(5)(A), respectively, of the Securities Act acting
either in its individual or fiduciary capacity.

 

 

 

 

o

(ii)                             The undersigned is an insurance company as
defined in Section 2(13) of the Securities Act.

 

 

 

 

o

(iii)                          The undersigned is an investment company
registered under the Investment Company Act of 1940 or a business development
Company as defined in Section 2(a)(48) of that Act.

 

 

 

 

o

(iv)                         The undersigned is a Small Business Investment
Company licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act of 1958.

 

 

 

 

o

(v)                            The undersigned is an employee benefit plan
within the meaning of Title I of the Employee Retirement Income Security Act of
1974 and either (check one or more, as applicable):

 

 

 

o         (aa)                         the investment decision is made by a plan
fiduciary, as defined in Section 3(21) of such Act, which is either a bank,
savings and loan association, insurance Company, or registered investment
adviser; or

 

 

 

o         (bb)                         the employee benefit plan has total
assets in excess of $5,000,000; or

 

 

 

o         (cc)                           the plan is a self-directed plan with
investment decisions made solely by persons who are “Accredited Investors” as
defined under the Securities Act.

 

 

 

 

o

(vi)                         The undersigned is a private business development
company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940.

 

7

--------------------------------------------------------------------------------

 

 

o

(vii)                      The undersigned has total assets in excess of
$5,000,000, was not formed for the specific purpose of acquiring securities of
the Company and is one or more of the following (check one or more, as
appropriate):

 

 

 

o         (aa)                         an organization described in
Section 501(c)(3) of the Internal Revenue Code; or

 

 

 

o         (bb)                         a corporation or limited liability
company; or

 

 

 

o         (cc)                           a Massachusetts or similar business
trust; or

 

 

 

o         (dd)                         a partnership.

 

 

 

 

o

(viii)                   The undersigned is a trust with total assets exceeding
$5,000,000, which was not formed for the specific purpose of acquiring
securities of the Company and whose purchase is directed by a person who has
such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the investment in the Interim
Subordinated Note.

 

4.                                      Entities.

 

If Subscriber is an entity, the individual signing on behalf of such entity and
the entity jointly and severally agree and certify that:

 

a.                                      if entity is accredited solely by reason
of the category described in Section 3(f)(vii) or (viii) above, then the
undersigned entity was not organized for the specific purpose of acquiring the
Interim Subordinated Note; and

 

b.                                      this Subscription and Subordinated Loan
Agreement has been duly authorized by all necessary action on the part of the
undersigned entity, has been duly executed by an authorized officer or
representative of the undersigned entity, and each is a legal, valid, and
binding obligation of the undersigned entity enforceable in accordance with its
terms.

 

5.                                      Relationship to Brokerage Firms.

 

(Please answer the following questions by checking the appropriate response.)

 

a.                                      o  YES  o  NO:  Are you a director,
officer, partner, branch manager, registered representative, employee,
shareholder of, or similarly related to or employed by a brokerage firm?

 

8

--------------------------------------------------------------------------------

 

b.                                      o  YES  o  NO:  Is your spouse, father,
mother, father-in-law, mother-in-law, or any of your brothers, sisters,
brothers-in-law, sisters-in-law or children, or any relative which you support,
a director, officer, partner, branch manager, registered representative,
employee, shareholder of, or similarly related to or engaged by, a brokerage
firm?

 

c.                                       o  YES  o  NO:  Does Subscriber own
voting securities of any brokerage firm?

 

d.                                      o  YES  o  NO:  If the undersigned is an
entity, is any director, officer, partner or 5% owner of the undersigned also a
director, officer, partner, branch manager, registered representative, employee,
shareholder of, or similarly related to or employed by, a brokerage firm?

 

e.                                       If the answer to any of the above items
is “YES”, please supply details below:

 

 

6.                                      Securities Law Exemptions.

 

Subscriber acknowledges that the offer and sale of the Interim Subordinated Note
and the capital units of the Company issuable upon any conversion of the Interim
Subordinated Note has not been registered under the Securities Act, or any state
securities laws and that the Company will offer and sell the Interim
Subordinated Note and the Interim Subordinated Note will be issued to Subscriber
in reliance on exemptions from the registration requirements of the Securities
Act and exemptions under applicable state securities laws and in reliance on the
representations, warranties and agreements made by Subscriber herein.  Without
limiting the foregoing, the Interim Subordinated Note was offered and sold in
reliance on section 3(a)(11) and Rule 147 of the Securities Act covering
intrastate offers and sales of securities.  Accordingly, the Interim
Subordinated Note and, if converted, the capital units of the Company issued
upon such conversion, may be sold or transferred only to persons resident of the
State of Minnesota during the period in which the Interim Subordinated Notes and
any Notes issued under the Indenture (as defined in Section 10 hereof) are being
offered and sold by the Company and for a period of nine months from the date of
last sale by the Company of such securities.

 

7.                                      Restrictive Legend.

 

In addition to the restrictions to transfer on the Interim Subordinated Note
contained in the Articles and Member Control Agreement, and any corresponding
restrictive legends required thereunder, Subscriber also agrees that the Company
shall place a restrictive legend on any statement of interest prepared by the
Company with respect to the Interim Subordinated Note containing substantially
the following language:

 

9

--------------------------------------------------------------------------------

 

The securities represented by this Interim Subordinated Note and the capital
units issuable upon any conversion have not been registered under the Securities
Act of 1933, as amended (the “Act”) or under applicable state securities laws
and are also subject to a Subscription and Investment Representation Agreement. 
The securities may not be sold, transferred or pledged in the absence of such
registration, unless pursuant to an exemption from the registration requirements
of the Act and applicable state securities laws.  The Company reserves the right
to require an opinion of counsel satisfactory to it before effecting any
transfer of the securities.  Without limiting the foregoing, the Interim
Subordinated Note was offered and sold in reliance on section 3(a)(11) and
Rule 147 of the Securities Act covering intrastate offers and sales of
securities.  Accordingly, the Interim Subordinated Note and, if converted, the
capital units of the Company issued upon such conversion, may be sold or
transferred only to persons resident of the State of Minnesota during the period
in which the Interim Subordinated Notes and any Notes issued under the Indenture
(as defined in Section 10 hereof) are being offered and sold by the Company and
for a period of nine months from the date of last sale by the Company of such
securities.

 

8.                                      Miscellaneous.

 

a.                            Survival of Representations and Warranties;
Indemnification.  Subscriber understands the meaning and legal consequences of
the agreements, representations and warranties contained herein, agrees that
such agreements, representations and warranties shall survive and remain in full
force and effect after the execution hereof and payment for the Interim
Subordinated Note, and further agrees to indemnify and hold harmless the Company
and each current and future employee, agent and member of the Company from and
against any and all loss, damage or liability due to, or arising out of, a
breach of any agreement, representation or warranty of the undersigned contained
herein.

 

b.                            No Assignment or Revocation; Binding Effect. 
Neither this Subscription and Subordinated Loan Agreement, nor any interest
herein, shall be assignable by Subscriber without prior written consent of the
Company.  Subscriber hereby acknowledges and agrees that Subscriber is not
entitled to cancel, terminate or revoke this Subscription and Subordinated Loan
Agreement and that it shall survive the death, incapacity, dissolution or
bankruptcy of Subscriber.  The provisions of this Subscription and Subordinated
Loan Agreement shall be binding upon and inure to the benefit of the parties
hereto, and their respective heirs, legal representatives, successors and
assigns.

 

c.                             Choice of Law.  This Subscription and
Subordinated Loan Agreement shall be construed and interpreted in accordance
with Minnesota law, without regard to its choice of law or conflicts of law
provisions.

 

d.                            Issue Date of Interim Subordinated Note.  Upon
acceptance of this Subscription and Subordinated Loan Agreement by the Company,
the issuance of the Interim Subordinated Note subscribed for hereunder shall be
the date of acceptance and full tender of the purchase price by Subscriber.

 

10

--------------------------------------------------------------------------------

 

9.                                      Representations and Warranties of the
Company.

 

In consideration of Subscriber’s agreement to purchase the Interim Subordinated
Note, the Company represents and warrants to Subscriber as follows:

 

a.                                      Existence.  The Company is a duly
organized and validly existing limited liability company under the laws of the
State of Minnesota.

 

b.                                      Good Standing.  The Company is in good
standing under the laws of the State of Minnesota and there are no proceedings
or actions pending to limit or impair any of its powers, rights, privileges, or
to dissolve it.

 

c.                                       Due Authorization and Approval.  The
execution, delivery and performance of this Subscription and Subordinated Loan
Agreement, the Interim Subordinated Note, the Subordinated Mortgage, the
Subordinated Security Agreement, and all other notes, mortgages, security
agreements, documents, certificates, instruments, and assignments and contracts,
evidencing or entered into in connection therewith, or incident, ancillary, or
relating thereto (collectively, the “Subordinated Debt Documents”), and the
consummation of the transactions set forth in and contemplated by the
Subordinated Debt Documents, have been duly authorized and approved by proper
corporate action of the Company, and do not contravene the Articles of
Organization or Member Control Agreement of the Company or any law or
contractual restriction binding on or affecting the Company.

 

d.                                      Enforceability. Upon receipt of full
payment for the Interim Subordinated Note, the Subordinated Debt Documents to
which the Company is a party when delivered will be legal, valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the
enforcement of creditor’s rights generally and by general principles of equity.

 

10.                               Additional Agreements.

 

a.                                      Subordinated Loan Agreement.  Subscriber
agrees to lend to the Company and the Company agrees to borrow from Subscriber a
subordinated term loan in the amount of                                         
and No/100 Dollars ($                    .00) pursuant to the terms and
conditions set forth herein and the Interim Subordinated Note.  The subordinated
term loan shall bear interest on the outstanding principal at the rate of 7.25%
per annum.  The subordinated term loan term shall run for a period beginning on
the Closing Date and ending on October 1, 2018 (the “Maturity Date”).  The
Company will pay interest only on the subordinated term loan semi-annually on
October 1 and April 1 of each calendar year, commencing on April 1, 2014, and
continuing on each October 1 and April 1 thereafter until the Maturity Date.  On
the Maturity Date, the amount of the then unpaid principal balance of the
subordinated term loan and any and all accrued and unpaid interest on the
subordinated term loan is due and payable in full.  The Company may, by 30-day
notice to Subscriber, prepay the outstanding amount of the subordinate term loan
in whole or in part with accrued interest to the date of such prepayment on the
amount prepaid, without penalty or premium, provided that any prepayment of the
subordinate term loan must be done pro rata on the outstanding principal amount
of all Subordinated Term Loans.  If

 

11

--------------------------------------------------------------------------------

 

any payment date is not a business day, then the interest and/or principal then
due shall be paid on the next business day and shall continue to accrue interest
until paid.

 

b.                                      $1,407,000.00 Aggregate Principal of
Subordinated Term Loans; Equal and Ratable Interest.  Subscriber understands
that the subordinated term loan contemplated by this Subscription and
Subordinated Loan Agreement is part of $1,407,000.00 in aggregate principal
amount of subordinated term loans borrowed by the Company on the Closing Date
(the “Subordinated Term Loans”) and the Interim Subordinated Note issued to
Subscriber hereunder is part of the Company’s 7.25% Subordinated Secured Notes
due 2018 issued on the date hereof in aggregate principal amount of
$1,407,000.00, each having identical terms and conditions other than the
principal amount thereof (collectively, the “Interim Subordinated Notes”).  The
interest of Subscriber in the Subordinated Mortgage and the Subordinated
Security Agreement and all collateral described therein shall be an equal and
ratable benefit and interest based on the principal amount of the Interim
Subordinated Note held by Subscriber to the aggregate principle amounts of all
Interim Subordinated Notes issued under the Subordinated Term Loans.  References
to the Subordinated Term Loans herein include such equal and ratable interest of
Subscriber.

 

c.                                       The Interim Subordinated Note.  The
subordinate term loan shall be evidenced by the form of Interim Subordinated
Note attached hereto as Exhibit B.

 

d.                                      The Subordinated Mortgage.  The
Subordinated Term Loans shall be secured by a Subordinated Mortgage in the form
attached hereto as Exhibit C encumbering on a junior lien basis the fee interest
and/or leasehold interest of the Company in the real property and the fixtures
thereon described in the Subordinated Mortgage (“Real Property and Fixtures”). 
The liens of Subscriber under the Subordinated Mortgage in the Real Property and
Fixtures shall be subordinate for all purposes and in all respects to the liens
of the Senior Lender in the Real Property and Fixtures, until the Senior Debt
has been indefeasibly paid in full in cash and all lending commitments under the
Senior Debt Documents have terminated, as further provided in and as such terms
are defined in the Interim Subordinated Debt Subordination Agreement.

 

e.                                       The Subordinated Security Agreement. 
The Subordinated Term Loans shall be secured by a Subordinated Security
Agreement in the form attached hereto as Exhibit D encumbering on a junior lien
and security interest basis the properties, rights and assets of the Company
described in the Subordinated Security Agreement (the “UCC Collateral”).  The
liens and security interest of Subscriber under the Subordinated Security
Agreement Mortgage in the UCC Collateral shall be subordinate for all purposes
and in all respects to the liens and security interests of the Senior Lender in
the UCC Collateral, until the Senior Debt has been indefeasibly paid in full in
cash and all lending commitments under the Senior Debt Documents have
terminated, as further provided in and as such terms are defined in the Interim
Subordinated Debt Subordination Agreement.

 

f.                                        Interim Subordinated Debt
Subordination Agreement. Subscriber understands and agrees that the subordinated
term loan contemplated hereby that is part of the Subordinated Term Loans,
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

 

12

--------------------------------------------------------------------------------

 

Interim Subordinated Debt Subordination Agreement in the form attached hereto as
Exhibit A.  Subscriber agrees to execute and deliver and become a party to the
Interim Subordinated Debt Subordination Agreement on the Closing Date.

 

g.                                      Conversion Rights; Preemptive Rights. 
On October 1, 2014, and each anniversary date thereafter prior to the Maturity
Date, on the Maturity Date, and immediately prior to the effective time of any
sale of all or substantially all of the assets of he Company or merger (each, a
“Conversion Date”), each holder of Interim Subordinated Notes including
Subscriber may convert all (but not less than all) of the outstanding principal
balance of the Interim Subordinated Notes into class A units of the Company, at
the rate of $0.30 per class A unit. The Company reserves the right to issue
class B units upon conversion if the principal balance of the 7.25% Subordinated
Secured Notes due 2018 issued by the Company exceeds the authorized class A
units at the conversion rate.  On any Prepayment Date, each holder of Interim
Subordinated Notes may convert the principal amount to be prepaid into class A
units of the Company, at the rate of $0.30 per class A unit.  The conversion
right may be exercised by the holder by delivering a Conversion Notice to the
Company at any time during the 30-day period prior to the Conversion Date. 
Accrued but unpaid interest to the Conversion Date would be paid within 30 days
of the Conversion Date.  Subscriber agrees that the capital units issuable upon
any conversion shall be governed by and that Subscriber is bound by the
Company’s Member Control Agreement dated effective September 23, 2004, as
amended, (the “Member Control Agreement”).  Subscriber acknowledges that
Subscriber is a current member of the Company and therefore has received a copy
of the Member Control Agreement.  Subscriber and Company agree that Subscriber
shall have the preemptive rights in respect of the Interim Subordinated Note and
the class A units of the Company issuable upon conversion thereof (but excluding
Subscriber’s existing class A units) that are provided to subscribers of the
Company’s 7.25% Subordinated Secured Notes due 2018 in the Member Capital Raise.

 

h.                                      Offering of 7.25% Subordinated Secured
Notes Due 2018; Exchange of Interim Subordinated Notes for Initial Notes under
Indenture.  Subscriber and the Company agree that the the Subordinated Term
Loans and the Interim Subordinated Notes will be included in the Company’s offer
and sale of up to $12.0 million dollars of the Company’s 7.25% Subordinated
Secured Notes due 2018 (the “Member Capital Raise”), provided that, in
connection with the offer and sale in the Member Capital Raise, the Company will
engage a third-party trustee to act as Indenture Trustee, Paying Agent,
Registrar, Conversion Agent and Collateral Agent for the Company’s 7.25%
Subordinated Secured Notes due 2018 issued under the Indenture in the Member
Capital Raise.  The minimum amount in the Member Capital Raise to break escrow
will be $5.0 million (exclusive of the $1,407,000.00 of Subordinated Term Loans)
and the maximum amount in the Member Capital Raise will be $12.0 million dollars
(inclusive of the $1,407,000.00 of Subordinated Term Loans).  The Company and
the Indenture Trustee will enter into an Indenture for the equal and ratable
benefit of the Holders of the Initial Notes issued under the Indenture in the
Member Capital Raise upon the Company’s receipt of subscriptions for the minimum
amount and completion of the first escrow closing or July 31, 2013, whichever
occurs first (the “First Issue Date”).  On the First Issue Date, the Company
will issue the Initial Notes under and subject to the Indenture.  On the First
Issue Date, Subscriber agrees to exchange the Interim Subordinated Note for an
Initial Note in equal

 

13

--------------------------------------------------------------------------------

 

principal amount issued under and subject to the Indenture in accordance with
the following terms:

 

(1)                                 The Company will pay Subscriber accrued
interest on the Interim Subordinated Note from the Closing Date to the First
Issue Date;

 

(2)                                 Subscriber will surrender the Interim
Subordinated Note in exchange for an Initial Note in equal principal amount,
which Initial Note shall be issued as of the First Issue Date in accordance with
and be subject to the terms and conditions of the Indenture;

 

(3)                                 The Initial Notes 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 Indenture Intercreditor Agreement to
be entered into by the Indenture Trustee and Senior Lender to set forth the
relative rights and priorities of the parties to and under the Senior Debt
Documents and the Subordinated Debt Documents (each as defined in the Indenture
Intercreditor Agreement), as required under the terms of the Amended Senior Loan
Agreement;

 

(4)                                 The due and punctual payment of the
principal of and interest on the Initial Notes when the same shall be due and
payable and the performance of all other obligations under the Indenture shall
be secured by a liens and security interests as provided in the Collateral
Documents (as defined under the Indenture), which liens and security interests
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 Indenture
Intercreditor Agreement;

 

(5)                                 The Indenture Trustee shall act as the
Collateral Agent under the Collateral Documents, for the equal and ratable
benefit of the Holders of the Initial Notes including Subscriber, under the
terms and conditions of the Indenture;

 

(6)                                 In consideration of the Initial Note,
Subscriber shall execute a satisfaction of mortgage in respect of the
Subordinated Mortgage;

 

(7)                                 In consideration of the Initial Note,
Subscriber shall execute and/or authorize its collateral agent to execute a
termination of the Subordinated Security Agreement and any and all security
interests granted thereunder, and authorize the filing of UCC-1 termination
statements with respect thereto; and

 

(8)                                 On or before the First Issue Date,
Subscriber agrees to execute and deliver to the Escrow Agent and/or the
Indenture Trustee such documents, agreements or certificates as required from
subscribers in the Member Capital Raise under the Escrow Agreement or the
Indenture.

 

i.                                         Collateral Agent; Intercreditor
Agreement among Holders of Interim Subordinated Notes.  Subscriber agrees to the
appointment of the Collateral Agent named in the Collateral Agreement attached
hereto as Exhibit E, and his successors and assigns, to serve on behalf of the
holders of the Interim Subordinated Notes issued under the terms of the
Subordinated Term Loans in accordance with and subject to the terms and
conditions of the Collateral Agreement, for the period from the Closing Date
until the First Issue Date.

 

j.                                         No Voting.  The 7.25% Subordinated
Secured Notes due 2018 are non-voting, and the holders of the Interim
Subordinated Notes shall not be entitled to vote on the election of

 

14

--------------------------------------------------------------------------------

 

governors or any other matter on which the members of the Company are entitled
to vote, except as provided by applicable law, and except for the limited
approval rights described as follows:  The Company may not take the following
actions without the approval or consent of the Holders of a majority of the
aggregate principal amounts outstanding of the Interim Subordinated Notes: 
(1) materially change the business purpose of the Company; or (2) voluntarily
dissolve the Company.

 

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * * * *

 

[The rest of this page left blank intentionally]

 

15

--------------------------------------------------------------------------------

 

SIGNATURE

 

 

 

 

Subscriber (Signature)

 

Subscriber (Signature, if more than one investor)

 

 

 

 

 

 

 

 

 

Print Name of Subscriber

 

Print Name of Subscriber (If more than one investor)

 

 

 

 

 

 

 

 

 

Name and Title of Signatory (for entities)

 

 

 

 

 

Address:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTE:   Please be certain to complete the Subscriber Information Page attached
hereto and, if Subscriber is an entity, the attached Certificate of Signatory.

 

ACCEPTANCE OF SUBSCRIPTION AND AGREEMENT TO TERMS

 

The Company hereby accepts the subscription evidenced by this Subscription and
Subordinated Loan Agreement including Investment Representations, AND agrees to
the terms and conditions of this Subscription and Subordinated Loan Agreement,
effective as of May 17, 2013.

 

 

 

HERON LAKE BIOENERGY, LLC

 

 

 

 

 

By:

 

 

 

Its:

 

 

16

--------------------------------------------------------------------------------

 

SUBSCRIBER INFORMATION

 

 

(Please print name(s) in which the Interim Subordinated Note are to be issued)

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxpayer I.D. No.

 

Taxpayer I.D. No.

 

 

(If more than one investor)

 

 

 

 

 

 

 

 

 

 

Address

 

 

 

 

 

 

 

 

 

City:

 

 

State:

 

 

Zip Code:

 

 

 

 

 

 

Telephone Number:

(

 

)

 

 

 

 

 

 

 

Name of Authorized Representative (if other than individual):

 

 

 

 

 

 

Form of Ownership:

 

(check one)

 

 

 

 

 

o

Individual Ownership

 

o

Tenants in Common

 

 

 

 

o

Joint Tenants (JTWROS)

 

o

Corporation

 

 

 

 

o

Limited Liability Company

 

o

Trust (Signature and title pages of Trust
Agreement and all amendments must
be enclosed)

 

 

 

Trustee Name:

 

 

 

 

Trust Date:

 

 

 

 

 

 

o

Other: Provide information below.

 

 

 

 

 

 

 

 

 

 

17

--------------------------------------------------------------------------------

 

CERTIFICATE OF SIGNATORY

 

(To be completed if Interim Subordinated Note are being subscribed for by an
Entity)

 

I,                                                                         , am
the                                                    of
                                                                                                                                                            
(the “Entity”).

 

I certify that I am empowered and duly authorized by the Entity to execute and
carry out the terms of this Subscription and Subordinated Loan Agreement and to
purchase and hold the Interim Subordinated Note pursuant to the terms of this
Subscription and Subordinated Loan Agreement and the Company’s Articles and the
Member Control Agreement, and to act on behalf of the Entity with respect to any
actions or consents of the Entity required thereunder or this Subscription and
Subordinated Loan Agreement.  I further certify that this Subscription and
Subordinated Loan Agreement and such actions or consents been duly and validly
executed on behalf of the Entity and each constitutes a legal and binding
obligation of the Entity.

 

IN WITNESS WHEREOF, I have set my hand hereto effective May 17, 2013.

 

 

 

 

 

(Signature)

 

 

 

 

 

 

 

(Title)

 

 

 

 

 

 

 

(Please Print Name)

 

18

--------------------------------------------------------------------------------