EXHIBIT
10.3


 


FOURTH
SUPPLEMENT


TO THE
MASTER LOAN AGREEMENT


(TERM
REVOLVING LOAN)


 


THIS FOURTH SUPPLEMENT TO THE MASTER LOAN AGREEMENT (this “Fourth Supplement”), dated as of October 1,
2007, is between AGSTAR FINANCIAL SERVICES, PCA, an
United States corporation (the “Lender”)
and HERON LAKE BIOENERGY,  LLC, a Minnesota limited liability company (the “Borrower”), and supplements and
incorporates all of the provisions of that certain Fourth Amended and Restated
Master Loan Agreement, of even date herewith, between the Lender and the
Borrower (as the same may be amended, modified, supplemented, extended or
restated from time to time, the “MLA”).


 


1.                                      Definitions. 
As used in this Fourth Supplement, the following terms shall have the
following meanings.  Capitalized terms
used and not otherwise defined in this Fourth Supplement shall have the
meanings attributed to such terms in the MLA. 
Terms not defined in either this Fourth Supplement or the MLA shall have
the meanings attributed to such terms in the Uniform Commercial Code, as
enacted in the State of Minnesota and as amended from time to time.


 


“First
Supplement” means that certain Amended and Restated First Supplement dated December 27,
2006.


 


“Monthly
Payment Date” means the first (1st) day of each calendar month.


 


“Outstanding
Credit” means, at any time of determination, the aggregate amount of
Advances then outstanding.


 


“Outstanding
Revolving Advance” means the total Outstanding Credit under this Fourth
Supplement and the Term Revolving Note.


 


“Request
for Advance” shall have the meaning specified in Section 7(a) of
this Fourth Supplement.


 


“Revolving
Advance” means an advance under this Fourth Supplement and the Term
Revolving Note.


 


 “Term Revolving Note” means that
certain promissory note of even date herewith to be executed and delivered to
the Lender by the Borrower in the amount of $5,000,000.00 pursuant to the terms
and conditions provided for in this Fourth Supplement and the MLA.


 


“Term Revolving
Loan Commitment” shall mean the following:


 


	
  On the Closing Date

  	
   

  	
  $

  	
  5,000,000.00

  	
   

  
	
  October 1, 2008

  	
   

  	
  $

  	
  4,500,000.00

  	
   

  
	
  October 1, 2009

  	
   

  	
  $

  	
  4,000,000.00

  	
   

  
	
  October 1, 2010

  	
   

  	
  $

  	
  3,500,000.00

  	
   

  
	
  October 1, 2011

  	
   

  	
  $

  	
  3,000,000.00

  	
   

  



 

















 


“Term Revolving
Loan Maturity Date” means October 1, 2012.


 


“Term
Revolving Loan Termination Date” shall have the meaning specified in Section 3
of this Fourth Supplement.


 


“Unused Commitment Fee” shall have the meaning
specified in Section 7(d) of this Fourth Supplement.


 


2.                                      Conversion
of Construction Loan into Term Revolving Loan.  Pursuant to the terms and conditions
contained in the MLA and this Fourth Supplement, Lender agrees to  convert a portion of the Construction Loan
and obligations represented by the Construction Note into a Term Revolving Loan
in the original principal amount of $5,000,000.00 to be used for, Project Cost,
cash and inventory management purposes.  
Notwithstanding the foregoing, no Advances under the Term Revolving Loan
shall be made for purposes other than the payment of Project Costs without the
written consent of the Lender.


 


                                                3.                                      Term Revolving
Loan Commitment.  Lender agrees,
on the terms and conditions set forth in the MLA and this Fourth Supplement, to
convert $5,000,000.00 of the Construction Loan and obligations represented by
the Construction Note into a Term Revolving Loan on the effective date of this
Fourth Supplement, and to make one or more advances to the Borrower, during the
period beginning on the effective date of this Fourth Supplement and ending on
the Business Day immediately preceding the Term Revolving Loan Maturity Date
(the “Term Revolving Loan Termination Date”), in an aggregate principal amount
outstanding at any one time not to exceed Term Revolving Loan Commitment.  The Term Revolving Loan Commitment shall
expire at 12:00 noon Central time on the Term Revolving Loan Maturity
Date.  Under the Term Revolving Loan
amounts borrowed and repaid or prepaid may be reborrowed at any time prior to
and including the Term Revolving Loan Termination Date provided,
however, that at no time shall the sum of the Outstanding Revolving
Advances exceed the Term Revolving Loan Commitment.  The Borrower shall, without penalty or
premium and within five (5) days following each annual anniversary date of
the Closing Date, prepay the Outstanding 
Revolving Advances in the amount, if any, by which the Outstanding
Credit on such date exceeds the Term Revolving Loan Commitment then in effect,
together with accrued interest thereon to the date of such prepayment.


 


4.                                      Purpose.  Advances under the Loan may be used for cash
and inventory management purposes of the Borrower and its subsidiaries,
including closing costs and fees associated with the Term Revolving Loan.  The Borrower agrees that the proceeds of the
Loan are to be used only for the purposes set forth in this Section 4.


 


5.                                      Repayment
of the Term Revolving Loan.  The
Borrower will pay interest on the Term Revolving Loan on the first (1st)
day of each month, commencing on the first (1st) Monthly Payment
Date following the date on which the first Advance is made on the Term
Revolving Loan, and continuing on each Monthly Payment Date thereafter until
the Term Revolving Loan Maturity Date. 
On the Term Revolving Loan Maturity Date, the amount of the then unpaid 


 


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principal balance
of the Term Revolving Loan and any and all other amounts due and owing
hereunder or under any other Loan Document relating to the Term Revolving Loan
shall be due and payable.  If any Payment
Date is not a Business Day, then the principal installment then due shall be
paid on the next Business Day and shall continue to accrue interest until paid.


 


6.                                      Term
Revolving Loan Term.   The Term Revolving Loan term shall run for a
period beginning on the Closing Date and ending on the Term Revolving Loan
Maturity Date.


 


7.                                      Making the Advances.


 


(a)                                  Revolving Advances.  Each Revolving Advance shall be made, on
notice from the Borrower (a “Request for Advance”)
to the Lender delivered before 12:00 Noon (Minneapolis, Minnesota time) on
a Business Day which is at least three (3) Business Days prior to the date
of such Revolving Advance specifying the amount of such Revolving Advance,  provided that, no Revolving Advance shall be
made while an Event of Default exists or if the interest rate for such LIBOR
Rate Loan would exceed the Maximum Rate. 
Any Request for Advance applicable to a Revolving Advance received after
12:00 Noon (Minneapolis, Minnesota time) shall be deemed to have been
received and be effective on the next Business Day.  The amount so requested from the Lender
shall, subject to the terms and conditions of this Fourth Supplement, be made
available to the Borrower by:  (i) depositing
the same, in same day funds, in an account of the Borrower; or (ii) wire
transferring such funds to a Person or Persons designated by the Borrower in
writing.


 


(b)                                 Requests for Advances Irrevocable.  Each Request for Advance shall be irrevocable
and binding on the Borrower and the Borrower shall indemnify the Lender against
any loss or expense it may incur as a result of any failure to borrow any
Advance after a Request for Advance (including any failure resulting from the
failure to fulfill on or before the date specified for such Advance the
applicable conditions set forth in this Section 7 of this Fourth Supplement
and the MLA), including, without limitation, any loss (including loss of
anticipated profits) or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by the Lender to fund such
Advance when such Advance, as a result of such failure, is not made on such
date.


 


(c)                                  Minimum Amounts.  Each Revolving Advance shall be in a minimum
amount equal to $50,000.00.


 


(d)                                 Unused Commitment  Fee.  In addition
to the fees payable on the effective date of this Fourth Supplement, Borrower
agrees to pay to the Lender an Unused Commitment Fee on the average daily
unused portion of such Lender’s commitment under the Term Revolving Loan from
the date of this Fourth Supplement until the Term Revolving Loan Maturity Date
at the rate of 0.35% per annum, payable in arrears in quarterly installments
payable on the first (1st) day of each third month after the
effective date of this Fourth Supplement.


 


(e)                                  Conditions Precedent to All Advances.  The Lender’s obligation to make each Advance
under the Term Revolving Note shall be subject to the terms, conditions and 


 


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covenants set
forth in the MLA and this Fourth Supplement, including, without limitation, the
following further conditions precedent:


 


(i)                                     Representations
and Warranties.  The representations
and warranties set forth in the MLA and this Fourth Supplement are true and
correct in all material respects as of the date of the request for any Advance,
except as disclosed in writing to the Lender, to the same extent and with the
same effect as if made at and as of the date thereof except as disclosed in
writing to the Lender;


 


(ii)                                  No
Defaults.  The Borrower is not in
default under the terms of the MLA, this Fourth Supplement, the Related
Documents or any other Material Contracts to which the Borrower is a party and
which relates to the construction of the Project or the operation of the
Borrower’s business; and


 


(iii)                               Government Action.  No license, permit, permission or authority
necessary for the construction or operation of the Project has been revoked or
challenged by or before any Governmental Authority.


 


8.                                      Interest Rate.  Subject to the
provisions of Section 2.08 and 2.11 of the MLA and Sections 9 and 12 of
this Fourth Supplement, the Term Revolving Loan shall bear interest at a rate
equal to the LIBOR Rate plus 325 basis points. 
The computation of interest, amortization, maturity and other terms and
conditions of the Term Revolving Loan shall be as provided in the Term Revolving
Note, provided, however, in no event shall the applicable rate exceed the
maximum nonusurious interest rate, if any, that at any time, or from time to
time, may be contracted for, taken, reserved, charged, or received under
applicable state or federal laws (the “Maximum
Rate”).


 


9.                                      Default Interest.  In addition to the rights and remedies set
forth in the MLA:  (i) if the
Borrower fails to make any payment to Lender when due, then at Lender’s option
in each instance, such obligation or payment shall bear interest from the date
due to the date paid at 2% per annum in excess of the rate of interest that
would otherwise be applicable to such obligation or payment; (ii) upon the
occurrence and during the continuance of an Event of Default beyond any
applicable cure period, if any, at Lender’s option in each instance, the unpaid
balances of the Term Revolving Loan shall bear interest from the date of the
Event of Default or such later date as Lender shall elect at 2% per annum in
excess of the rate(s) of interest that would otherwise be in effect on the
Term Revolving Loan under the terms of the Term Revolving Note; (iii) after
the maturity of the Term Revolving Loan, whether by reason of acceleration or
otherwise, the unpaid principal balance of the Term Revolving Loan (including
without limitation, principal, interest, fees and expenses) shall automatically
bear interest at 2% per annum in excess of the rate of interest that would
otherwise be in effect on the Term Revolving Loan under the terms of the Term Revolving
Note.  Interest payable at the Default
Rate shall be payable from time to time on demand or, if not sooner demanded,
on the last day of each calendar month.


 


10.                               Late Charge.  If any payment of principal or interest due
under this Fourth Supplement or the Term Revolving Note is not paid within ten (10) days
of the due date thereof, the Borrower shall, in addition to such amount, pay a
late charge equal to five percent (5%) of the amount of such payment.


 


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11.                               Excess
Cash Flow.   In addition to all other payments of principal and interest required
under the MLA, this Fourth Supplement and the Term Revolving Note, the Borrower
shall remit to Lender, beginning with the first calendar quarter
following the effective date of this Fourth Supplement, and continuing
throughout the term of the Term Revolving Loan, the Borrower shall remit to
Lender, in addition to all other installments of interest, an amount equal to
25% of the Borrower’s Excess Cash Flow for the immediately proceeding calendar
quarter (the “Excess Cash Flow Payment”), provided however, that the total Excess Cash Flow Payments
required hereunder shall not exceed $2,000,000.00 in any calendar year.  All Excess Cash Flow Payments shall be
applied to the reduction of the outstanding principal balance of the Term Loan
or the Term Revolving Loan, at the Lender’s sole discretion.  No Excess Cash Flow Payments shall be
required during any calendar year should the Tangible Owner’s Equity be greater
than 50% at the end of the immediately proceeding fiscal year of the Borrower.


 


12.                               Changes in Law Rendering Certain LIBOR Rate Loans
Unlawful.  In the event
that any change in any applicable law (including the adoption of any new
applicable law) or any change in the interpretation of any applicable law by
any judicial, governmental or other regulatory body charged with the
interpretation, implementation or administration thereof, should make it (or in
the good-faith judgment of the Lender should raise a substantial question as to
whether it is) unlawful for the Lender to make, maintain or fund LIBOR Rate
Loans, then:  (a) the Lender shall
promptly notify each of the other parties hereto; and (b) the obligation
of the Lender to make LIBOR rate loans of such type shall, upon the
effectiveness of such event, be suspended for the duration of such
unlawfulness.  During the period of any
suspension, Lender shall make loans to Borrower that are deemed lawful and that
as closely as possible reflect the terms of the MLA.


 


13.                               Maximum Amount Limitation.  Anything in the MLA, this Fourth Supplement,
or the other Loan Documents to the contrary notwithstanding, Borrower shall not
be required to pay unearned interest on the Term Revolving Note or any of the
Loan Obligations, or ever be required to pay interest on the Term Revolving
Note or any of the Loan Obligations at a rate in excess of the Maximum Rate, if
any.  If the effective rate of interest
which would otherwise be payable under the MLA, this Fourth Supplement, the
Term Revolving Note, or any of the other Loan Documents would exceed the
Maximum Rate, if any, then the rate of interest which would otherwise be
contracted for, charged, or received under the MLA, this Fourth Supplement, the
Term Revolving Note, or any of the other Loan Documents shall be reduced to the
Maximum Rate, if any.  If any unearned
interest or discount or property that is deemed to constitute interest
(including, without limitation, to the extent that any of the fees payable by
Borrower for the Loan Obligations to the Lender under the MLA, this Fourth
Supplement, the Term Revolving Note, or any of the other Loan Documents are
deemed to constitute interest) is contracted for, charged, or received in
excess of the Maximum Rate, if any, then such interest in excess of the Maximum
Rate shall be deemed a mistake and canceled, shall not be collected or
collectible, and if paid nonetheless, shall, at the option of the holder of the
Term Revolving Note, be either refunded to the Borrower, or credited on the principal
of the Term Revolving Note.  It is
further agreed that, without limitation of the foregoing and to the extent
permitted by applicable law, all calculations of the rate of interest or
discount contracted for, charged or received by the Lender under the Term
Revolving Note, or under any of the Loan Documents, that are made for the
purpose of 


 


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determining
whether such rate exceeds the Maximum Rate applicable to the Lender, if any,
shall be made, to the extent permitted by applicable laws (now or hereafter
enacted), by amortizing, prorating and spreading during the period of the full
terms of the Advances evidenced by the Term Revolving Note, and any renewals
thereof all interest at any time contracted for, charged or received by Lender
in connection therewith.  This
section shall control every other provision of all agreements among the
parties to the MLA pertaining to the transactions contemplated by or contained
in the Loan Documents, and the terms of this section shall be deemed to be
incorporated in every Loan Document and communication related thereto.


 


14.                               Security.  The Borrower’s obligations hereunder and, to
the extent related thereto, the MLA, shall be secured as provided in the MLA.


 


15.                               Representation
and Warranty.  The Borrower
hereby agrees with, reaffirms, and acknowledges that Borrower has the power and
authority to execute, deliver, and perform this Fourth Supplement and any
documents required under this Fourth Supplement and that all documents
contemplated herein when executed and delivered to Lender will constitute the
valid, binding and legally enforceable obligations of Borrower in accordance
with their respective terms and conditions, except as enforceability may be
limited by any applicable bankruptcy or insolvency laws.


 


16.                               Effect
on First Supplement.  Except as
set forth in Section 2 of this Fourth Supplement, effective on the Closing
Date, this Fourth Supplement, the Term Revolving Note, the Third Supplement,
and the Term Note shall supersede and replace in their entirety the First
Supplement and Construction Note which shall thereafter be of no force or
effect.


 


IN WITNESS
WHEREOF, the parties have caused this Fourth Supplement to the Fourth
Amended and Restated Master Loan Agreement to be executed by their duly
authorized officers as of the date shown above.


 


	
   

  	
  HERON LAKE BIOENERGY, LLC, a

  
	
   

  	
  Minnesota limited
  liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
  /s/ Robert J. Ferguson

  
	
   

  	
   

  	
  By:  Robert J.
  Ferguson

  
	
   

  	
   

  	
  Its: President

  
	
   

  	
   

  
	
   

  	
  AGSTAR FINANCIAL SERVICES, PCA

  
	
   

  	
  an United States corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Mark Schmidt

  
	
   

  	
   

  	
  Mark Schmidt

  
	
   

  	
   

  	
  Its Vice President

  



 


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