EXHIBIT
10.8


 


FIFTH SUPPLEMENT


TO THE MASTER LOAN AGREEMENT


(REVOLVING LINE OF CREDIT LOAN)


 


THIS FIFTH SUPPLEMENT TO THE MASTER LOAN AGREEMENT
(this “Fifth Supplement”), dated as of November 19, 2007, is
between AGSTAR FINANCIAL SERVICES, PCA (the “Lender”) and HERON LAKE BIOENERGY, LLC, a Minnesota limited liability company (the “Borrower”), and supplements that certain Fourth
Amended and Restated Master Loan Agreement, dated October 1, 2007, 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 Fifth Supplement, the
following terms shall have the following meanings.  Capitalized terms used and not otherwise
defined in this Fifth Supplement shall have the meanings attributed to such
terms in the MLA.  Terms not defined in
either this Fifth 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.


 


“Availability Date” shall have the meaning specified
in Section 5 of this Fifth Supplement.


 


“Borrowing Base” means, at any time,
the lesser of: (a) $7,500,000.00; or (b) commencing sixty days after
start-up of operations, the sum of: (i) 75% of Borrower’s Eligible
Accounts Receivable; plus (ii) 75% of Borrower’s Eligible Inventory.


 


“Borrowing Base Certificate” means the certificate in
the form of Exhibit A attached hereto properly completed and duly executed
by an authorized officer of the Borrower.


 


“Eligible Accounts Receivable” means
all unpaid Accounts, net of any credits, except the following shall not in any
event be deemed Eligible Accounts:


 


(a)  That portion of Accounts unpaid 30
days or more after the invoice date:


 


(b)  That portion of Accounts that is
disputed or subject to a claim of offset or a contra account;


 


(c)  That portion of Accounts not yet
earned by the final delivery of goods or rendition of services, as applicable,
by any Borrower to the customer;


 


(d)  Accounts owed by any unit of
government, whether foreign or domestic except Incentive Payments will be
considered a part of Eligible Accounts as defined in this Agreement;


 


(e)  
Accounts owed by an account debtor located outside the United States;


 


(f)  Accounts owed by an account debtor
that is insolvent, the subject of bankruptcy proceedings or has gone out of
business;


 


(g)  Accounts owed by a shareholder,
Guarantor, Affiliate, officer or employee of any Borrower;


 

















 


(h)  Accounts not subject to a duly perfected
security interest in the Lender’s favor or which are subject to any lien,
security interest or claim in favor of any Person other than the Lender,
including, without limitation, any payment or performance bond;


 


(i)  
That portion of Accounts that has been restructured, extended, amended
or modified;


 


(j)  
That portion of Accounts that constituted advertising, finance charges,
service charges or sales or excise taxes; and


 


(k)  Accounts, or portions thereof,
otherwise deemed ineligible by the Lender, in its sole discretion, exercised
reasonably.


 


“Eligible Inventory” means all inventory held for
ultimate sale or lease, or which has been or will be supplied under contracts
of service, or which are raw materials, work in process, or materials used or
consumed in the Borrower’s business and that has been specifically identified
and accepted by the Lender, excluding all of the following inventory:


 


(a) Covered by documents of title, instruments, or
chattel paper when these documents, instruments and paper are not owned and
held by the Borrower or are subject to competing claims, liens or encumbrances.


 


(b)   Intended to
be sold outside of the ordinary course of business.


 


(c)  Consigned, sold or leased to others or on
consignment or lease from others or subject to a bailment.


 


(d)  Subject to a competing claim, lien or encumbrance.


 


(e) Paid for in advance with progress payments or any
other sums to the  Borrower in
anticipation of the sale and delivery of inventory.


 


(f)  Obsolete or unusable in the ordinary course of
business.


 


(g)  Inventory of work in progress.


 


(h) Inventory that the Lender, in its sole discretion,
disqualifies as Eligible Inventory, exercised reasonably.


 


“Incentive Payments” means any and all federal or
state governmental subsidies, payments, transfers or other benefits, whether
now or hereafter established, received by the Borrower in any fiscal year aged
less than 120 days.


 


“Letters of Credit” shall have the meaning specified
in Section 7 of this Fifth Supplement.


 


“Maximum Rate” shall have the meaning specified in Section 8
of this Fifth Supplement.


 


“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 under this
Fifth Supplement and the Revolving Line of Credit Note.


 


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“Outstanding Revolving Advance” means the total
Outstanding Credit under this Fifth Supplement and the Revolving Line of Credit
Note.


 


“Revolving Advance” means an advance under this Fifth
Supplement and the Revolving Line of Credit Note.


 


“Revolving Line of Credit Loan” shall have the meaning
specified in Section 2 of this Fifth Supplement.


 


“Revolving Line of Credit Loan Commitment” shall have
the meaning specified in Section 2 of this Fifth Supplement.


 


“Revolving Line of Credit Loan Maturity Date” shall
have the meaning specified in Section 2 of this Fifth Supplement.


 


“Revolving Line of Credit Loan Termination Date” shall
have the meaning specified in Section 2 of this Fifth Supplement.


 


“Unused
Commitment Fee” shall have the meaning specified in Section 6(d) of
this Fifth Supplement.


 


2.                                      Revolving Line of Credit Loan
Commitment.  On the terms and conditions set forth in the
MLA and this Fifth Supplement, Lender agrees to make one or more advances
(collectively, the “Revolving Line of Credit
Loan”) to the Borrower, during the period beginning on the Availability
Date (as defined in Section 5 of this Fifth Supplement) and ending on the
Business Day immediately preceding the Revolving Line of Credit Loan Maturity
Date (as hereinafter defined in this Section 2) (the “Revolving Line of Credit Loan Termination Date”), in an aggregate principal amount outstanding at any one
time not to exceed $7,500,000.00 (the “Revolving
Line of Credit Loan Commitment”) provided, however, that at no time shall the Outstanding
Revolving Advance exceed the Borrowing Base. 
The Revolving Line of Credit
Loan Commitment shall expire at 12:00 noon Central time on November 16,
2008 (the “Revolving Line of Credit Loan Maturity Date”).  Subject to Section 7 of this Fifth
Supplement, under the Revolving Line of Credit Loan Commitment amounts borrowed
and repaid or prepaid may be reborrowed at any time prior to and including the Revolving
Line of Credit Loan Termination Date.


 


3.                                      Purpose.  The purposes for which advances under the
Loan may be used are for general corporate and operating purposes of the
Borrower and its subsidiaries, including closing costs and fees associated with
the Revolving Line of Credit Loan.  The
Borrower agrees that the proceeds of the Loan are to be used only for the purposes
set forth in this Section 3.


 


4.                                      Repayment
of the Revolving Line of Credit Loan.  The Borrower will pay interest on the Revolving
Line of Credit Loan on the first day of each month, commencing on the first
Monthly Payment Date following the date on which the first Advance is made on
the Revolving Line of Credit Loan, and continuing on each Monthly Payment Date
thereafter until the Revolving Line of Credit Loan Maturity Date.  On the Revolving Line of Credit Loan Maturity
Date, the amount of the then unpaid principal balance of the Revolving Line of
Credit Loan and any and all other amounts due and owing hereunder or under any
other Loan Document relating to the Revolving Line of Credit Loan will 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.


 


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5.                                      Availability.
Subject to the provisions of the MLA and this Fifth Supplement, during the
period commencing on the date on which all conditions precedent to the initial
advance under the Revolving Line of Credit Loan are satisfied (the “Availability Date”) and ending on the Revolving Line of Credit Loan Termination
Date, advances under the Revolving Line of Credit Loan will be made as provided
in this Fifth Supplement.


 


6.                                      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 Accounts 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 Fifth 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 Article III of this Fifth Supplement),
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 $10,000.00.


 


(d)                                 Unused
Commitment  Fee.  Borrower agrees to pay to the Lender an
Unused Commitment Fee on the average daily unused portion of the Revolving Line
of Credit Loan Commitment from the effective date of this Agreement until the Revolving
Line of Credit Loan Maturity Date.  Such
Unused Commitment Fee shall be equal to a rate of 0.25% per annum, payable in
arrears in quarterly installments on the first (1st) day of each
third month after the effective date of this Agreement.


 


(e)                                  Draft
Loan Program.  At the
Borrower’s request and at the Lender’s sole discretion, the Borrower may obtain
a Revolving Advance by using draft forms furnished by the Lender to the
Borrower, subject to the following terms and conditions:


 


(i)                                     Borrower Authorization
and Responsibility.  The Borrower
shall be deemed to have authorized and directed the Lender and its duly
authorized agents to accept drafts and to disburse Revolving Line of Credit
Loan funds by due execution of any draft. 
The Borrower shall be responsible for all disbursements made pursuant to
this authorization and direction.  The
Lender shall not be obligated to inquire as to whether the Borrower has issued
specific directions for any particular draft or to determine whether the
Borrower has received the benefit of the proceeds of any particular draft
before honoring such draft.  The
execution of any draft by the Borrower shall constitute a representation and
warranty to the Lender that the conditions set forth in Section 6(e) have
been met as of the date of all such drafts.


 


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(ii)                                  Minimum Amount.  Each draft shall be in a minimum amount equal
to $10,000.00 and shall not be written in excess of the Revolving Line of
Credit Loan Commitment provided, however; that
at no time shall any draft be written that results in the Outstanding Revolving
Advance exceeding the Borrowing Base or the Revolving Line of Credit Loan Commitment,
whichever is less.


 


(iii)                               Stop Payment
Provisions.  The
Borrower may stop payment on a draft by written request to the Lender.  The Lender shall not be liable in the event
the draft is honored following a stop-payment order, if such order is not
received in sufficient time to permit the dishonor.  The Borrower shall reimburse the Lender for
all damages, costs and expenses as a result of the Lender’s refusal to honor a
draft due to a stop payment order requested by the Borrower.


 


(iv)                              Fees.  Reasonable fees may be charged the Borrower
by Lender for the use of drafts and are subject to change at the Lender’s
discretion.  In addition, the Borrower
may be charged additional fees for each draft that is not in compliance with
the provisions set forth in this Section 6(d) and for any draft for
which the Borrower requests a stop-payment order.


 


(v)                                 Limitations.  The Borrower shall not issue any draft as
payment on this or other Loan Obligations of the Borrower or for any purpose
other than as permitted in the Loan Documents.


 


(vi)                              Revocation of
Rights and Rejection of Drafts.  The Lender reserves the right to revoke all
future draft privileges without notice to the Borrower in the event the payment
of any draft would result in the Outstanding Revolving Advance exceeding the
Borrowing Base or the Revolving Line of Credit Loan commitment, whichever is
less.  The Lender reserves the right to
reject drafts that are not written for purposes specified in or pursuant to the
terms and conditions of the Loan Documents. 
In the event that Lender chooses to honor a draft which exceeds the
limits as set forth in this Section 6(d)(ii), Borrower shall repay all the
amounts by which the Outstanding Revolving Advances exceed the Borrowing Base
or the Revolving Line of Credit Loan Commitment, whichever is less, plus
interest and a reasonable overdraft fee, upon demand by Lender.


 


(vii)                           Notification.  The Borrower agrees to immediately notify the
Lender in the event one or more drafts are lost, stolen, destroyed or otherwise
misused and to indemnify the Lender and hold the Lender harmless from any loss
or claim if any draft is lost, stolen, forged, altered or otherwise misused.


 


(viii)                        Authorization.  This authorization and direction shall be
effective until the Lender receives written notice of revocation by the
Borrower, provided the privilege of using drafts may be terminated by the
Lender at any time in its sole discretion. 
Upon such termination, the Borrower shall surrender to the Lender all
unused drafts on demand.


 


(f)                                    Conditions
Precedent to All Advances.  The Lender’s obligation to make each Advance
under the Revolving Line of Credit Note shall be subject to the terms,
conditions and covenants set forth in the MLA and this Fifth Supplement,
including, without limitation, the following further conditions precedent:


 


(i)                                     Representations
and Warranties.  The
representations and warranties set forth in the MLA and this Fifth Supplement
are true and correct in all material respects as of the date of the request for
any Advance 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;


 


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(ii)                                  Compliance With
Disbursing Agreement.  All of the
terms and conditions of the Disbursing Agreement have been satisfied with
respect to each such Advance;


 


(iii)                               No Defaults.  The Borrower is not in default under the
terms of the MLA, 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


 


7.                                      Letters
of Credit.


 


(a)                                  Commitment
to Issue.  The
Borrower may request Revolving Advances by the Lender, and the Lender, subject
to the terms and conditions of this Fifth Supplement, may, in its sole
discretion, issue letters of credit for any Borrower’s account (such letters of
credit, being hereinafter referred to collectively as the “Letters of
Credit”); provided, however,
that:


 


(i)                                     the aggregate
amount of outstanding Letter of Credit Liabilities shall not at any time exceed
the amount of $500,000.00;


 


(ii)                                  the sum of the
outstanding Letters of Credit plus the Outstanding Revolving Advances shall not
at any time exceed the Borrowing Base.


 


(b)                                 Letter
of Credit Request Procedure.  The Borrower shall give the Lender
irrevocable prior notice (effective upon receipt) on or before 3:00 P.M.
(Minneapolis, Minnesota time) on the Business Day three Business Days prior to
the date of the requested issuance of a Letter of Credit specifying the requested
amount, expiry date and issuance date of each Letter of Credit to be issued and
the nature of the transactions to be supported thereby.  Any such notice received after 3:00 P.M.
(Minneapolis, Minnesota time) on a Business Day shall be deemed to have been
received and be effective on the next Business Day.  Each Letter of Credit shall be in the form of
Exhibit B to this Fifth Supplement, have an expiration date that occurs on
or before the Maturity Date, shall be payable in U.S. dollars, must be satisfactory
in form and substance to the Lender, and shall be issued pursuant to such
documentation as the Lender may require, including, without limitation, the
Lender’s standard form letter of credit request and reimbursement Fifth
Supplement; provided that, in the event of any
conflict between the terms of such Fifth Supplement and the other Loan
Documents, the terms of the other Loan Documents shall control.


 


(c)                                  Letter
of Credit Fees.  The
Borrower shall pay to the Lender for (i) all fees, costs, and expenses of
the Lender arising in connection with any Letter of Credit, including the
Lender’s customary fees for amendments, transfers, and drawings on Letters of
Credit and (ii) on the date of the issuance of the Letter of Credit, and
at the anniversary date of issuance of such Letter of Credit, an issuance fee
equal to two and one-half (2.5%) percent, on an annualized basis, of the
maximum amount available to be drawn under the Letter of Credit.


 


(d)                                 Funding
of Drawings.  Upon
receipt from the beneficiary of any Letter of Credit of any demand for payment
or other drawing under such Letter of Credit, the Issuer shall promptly notify
the Borrower as to the amount to be paid as a result of such demand or drawing
and the respective payment date.  Any
notice pursuant to the forgoing sentence shall specify the amount to be paid as
a result of such demand or drawing and the respective payment date.


 


(e)                                  Reimbursements.  After receipt of the notice delivered
pursuant to clause (d) of this section  with respect to a Letter
of Credit, the Borrower shall be irrevocably and unconditionally obligated to
reimburse the Lender for any amounts paid by the Lender upon any demand for
payment or 


 


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drawing under the applicable Letter of Credit, without presentment,
demand, protest, or other formalities of any kind other than the notice
required by clause (d) of this section.  Such 
reimbursement shall occur no later than 3:00 P.M. (Minneapolis,
Minnesota time) on the date of payment under the applicable Letter of Credit if
the notice under clause (d) of this section is received by 2:00 P.M.
(Minneapolis, Minnesota time) on such date or by 11:00 A.M. (Minneapolis,
Minnesota time) on the next Business Day, if such notice is received after 2:00 P.M.
(Minneapolis, Minnesota time).  All
payments on the Reimbursement Obligations (including any interest earned
thereon) shall be made to the Lender for the account of the Lender in U.S.
dollars and in immediately available funds, without set-off, deduction, or
counterclaim.


 


(f)                                    Reimbursement Obligations Absolute.  The
Reimbursement Obligations of the Borrower under this Fifth Supplement shall be
absolute, unconditional, and irrevocable, and shall be performed strictly in
accordance with the terms of the Loan Documents under all circumstances
whatsoever and the Borrower hereby waives any defense to the payment of the
Reimbursement Obligations based on any circumstance whatsoever, including,
without limitation, in any case, the following circumstances:  (i) any lack of validity or
enforceability of any Letter of Credit or any other Loan Document; (ii) any
amendment or waiver of or any consent to departure from any Loan Document; (iii) the
existence of any claim, set-off, counterclaim, defense, or other rights which
any Borrower or any other Person may have at any time against any beneficiary
of any Letter of Credit, the Lender or any other Person, whether in connection
with any Loan Document or any unrelated transaction; (iv) any statement,
draft, or other documentation presented under any Letter of Credit proving to
be forged, fraudulent, invalid, or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect whatsoever; (v) payment
by the Lender under any Letter of Credit against presentation of a draft or
other document that does not comply with the terms of such Letter of Credit; or
(vi) any other circumstance whatsoever, whether or not similar to any of
the foregoing; provided that Reimbursement
Obligations with respect to a Letter of Credit may be subject to avoidance by a
Borrower if the Borrower proves in a final non-appealable judgment that it was
damaged and that such damage arose directly from the Lender’s willful
misconduct or gross negligence in determining whether the documentation
presented under the Letter of Credit in question complied with the terms
thereof.


 


(g)                                 Issuer
Responsibility.  Borrower
assumes all risks of the acts or omissions of any beneficiary of any Letter of
Credit with respect to its use of such Letter of Credit.  Neither the Lender, nor any of its respective
officers or directors shall have any responsibility or liability to the
Borrower or any other Person for:  (a) the
failure of any draft to bear any reference or adequate reference to any Letter
of Credit, or the failure of any documents to accompany any draft at
negotiation, or the failure of any Person to surrender or to take up any Letter
of Credit or to send documents apart from drafts as required by the terms of
any Letter of Credit, or the failure of any Person to note the amount of any
instrument on any Letter of Credit, each of which requirements, if contained in
any Letter of Credit itself, it is agreed may be waived by the Lender; (b) errors,
omissions, interruptions, or delays in transmission or delivery of any
messages; (c) the validity, sufficiency, or genuineness of any draft or
other document, or any endorsement(s) thereon, even if any such draft,
document or endorsement should in fact prove to be in any and all respects
invalid, insufficient, fraudulent, or forged or any statement therein is untrue
or inaccurate in any respect; (d) the payment by the Lender to the
beneficiary of any Letter of Credit against presentation of any draft or other
document that does not comply with the terms of the Letter of Credit; or (e) any
other circumstance whatsoever in making or failing to make any payment under a
Letter of Credit.  The Lender may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary.


 


8.                                      Interest Rate.  Subject to the
provisions of Sections 9 and 11 of this Fifth Supplement, the Revolving Line of
Credit 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 Revolving
Line of Credit Loan shall be as provided in the Revolving Line of Credit Note,
provided, 


 


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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 (including, without
limitation, any purchase of equity of Lender when required), 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 Revolving Line of Credit 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 Revolving Line of Credit Loan under the terms of the Revolving
Line of Credit Note; (iii) after the maturity of the Revolving Line of
Credit Loan, whether by reason of acceleration or otherwise, the unpaid
principal balance of the Revolving Line of Credit 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 Revolving Line of Credit Loan under the terms of the Revolving
Line of Credit 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 Fifth Supplement or the Revolving
Line of Credit 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.


 


11.                               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.


 


12.                               Payments and Computations.


 


(a)                                  Method
of Payment.  Except as
otherwise expressly provided herein, all payments of principal, interest, and
other amounts to be made by the Borrower under the Loan Documents shall be made
to the Lender in U.S. dollars and in immediately available funds, without
set-off, deduction, or counterclaim, not later than 2:00 P.M.
(Minneapolis, Minnesota time) on the date on which such payment shall become
due (each such payment made after such time on such due date to be deemed to
have been made on the next succeeding Business Day).  The Borrower shall, at the time of making
each such payment, specify to the Lender the sums payable under the Loan
Documents to which such payment is to be applied and in the event that the
Borrower fail to so specify or if an Event of Default exists, the Lender  may apply such payment and any proceeds of
any Collateral to the Loan Obligations in such order and manner as it may elect
in its sole discretion, subject to Section 12(c).


 


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(b)                                 Application
of Funds.  Apply all
payments received by it to the Borrower’s obligations to Lender in such order
and manner as Lender may elect in its sole discretion; provided that any
payments received from any guarantor or from any disposition of any collateral
provided by such guarantor shall only be applied against obligations guaranteed
by such guarantor.


 


(c)                                  Payments
on a Non-Business Day. 
Whenever any payment under any Loan Document shall be stated to be due
on a day that is not a Business Day, such payment may be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of the payment of interest and fees, as the case may
be.


 


(d)                                 Proceeds
of Collateral.  All
proceeds received by the Lender from the sale or other liquidation of the
Collateral when an Event of Default exists shall first be applied as payment of
the accrued and unpaid fees and expenses of the Lender hereunder and then to
all other unpaid or unreimbursed Loan Obligations (including reasonable
attorneys’ fees and expenses) owing to the Lender and then any remaining amount
of such proceeds shall be applied to the unpaid amounts of Loan Obligations,
until all the Loan Obligations have been paid and satisfied in full or cash
collateralized.  After all the Loan
Obligations (including without limitation, all contingent Loan Obligations)
have been paid and satisfied in full, all Commitments terminated and all other
obligations of the Lender to the Borrower otherwise satisfied, any proceeds of
Collateral shall be delivered to the Person entitled thereto as directed by the
Borrower or as otherwise determined by applicable law or applicable court
order.


 


(e)                                  Computations.  Except as expressly provided otherwise herein,
all computations of interest and fees shall be made on the basis of actual
number of days lapsed over a year of 365 or 366 days, as appropriate.  Interest shall accrue from and include the
date of borrowing, but exclude the date of payment.


 


13.                               Maximum
Amount Limitation. 
Anything in this MLA, this Fifth Supplement, or the other Loan Documents
to the contrary notwithstanding, Borrower shall not be required to pay unearned
interest on the Revolving Line of Credit Note or any of the Loan Obligations,
or ever be required to pay interest on the Revolving Line of Credit 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 Fifth Supplement, the Revolving Line
of Credit 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 Fifth Supplement, the Revolving
Line of Credit 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 Fifth
Supplement, the Revolving Line of Credit 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
Revolving Line of Credit Note, be either refunded to the Borrower, or credited
on the principal of the Revolving Line of Credit 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 Revolving Line of Credit Note, or under any of the Loan
Documents, that are made for the purpose of 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 Revolving Line of Credit 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 


 


9

















 


Documents, and the terms of this section shall be deemed to be
incorporated in every Loan Document and communication related thereto.


 


14.                               Lender
Records.  All advances
and all payments or prepayments made thereunder on account of principal or
interest may be evidenced by the Lender in accordance with its usual practice
in an account or accounts evidencing such advances and all payments or
prepayments thereunder from time to time and the amounts of principal and
interest payable and paid from time to time thereunder; in any legal action or
proceeding in respect of the Notes, the entries made in such account or
accounts shall be prima  facie evidence of the existence and
amounts of all advances and all payments or prepayments made thereunder on
account of principal or interest.  Lender
shall provide monthly statements of such entries to Borrower for the purpose of
confirming the accuracy of such entries.


 


15.                               Mandatory
Prepayments or Collateralization. The Borrowers shall,
within five (5) days following the earlier of the delivery of each
Borrowing Base Certificate hereof or the day upon which such Borrowing Base
Certificate was due, either (i) prepay the Advances in the amount, if any,
by which the Outstanding Credit on the date of prepayment under this Section 15
exceeds the Borrowing Base at such time, together with accrued interest to the
date of such prepayment on the amount prepaid, or (ii) pledge and assign
to the Lender additional collateral acceptable to the Lender, in the Lender’s
sole discretion, and deliver all documentation that the Lender, in its sole
discretion, may require in connection with such pledge and assignment and the
perfection of a first-priority security interest in such additional collateral,
so that the Borrowing Base plus the value assigned by the Lender, in its sole
discretion, to such additional collateral equals or exceeds the Outstanding
Credit.


 


16.                               Loan
Payments.  During the
continuance of an Event of Default, the Lender may deduct any obligations due
or any other amounts due and payable by the Borrower under the Loan Documents
from any accounts maintained with the Lender.


 


17.                               Reporting
Requirements.  In addition to
the reporting requirements under Section 5.01(c) in the MLA, the
Borrower will furnish to the Lender as soon as available and in any event
within 30 days after the end of each month (or at such other times or with such
greater frequency as is requested by the Lender), a duly completed Borrowing
Base Certificate, setting forth the Borrowing Base as of the last day of such
month calculated based upon collateral value criteria and advance rates which
do not exceed those set forth in the Borrowing Base Certificate, and including
such other information, representation and warranties contemplated therein,
certified by the appropriate authorized officer of the Borrower.


 


18.                               Compensation.  Upon the request of the
Lender, the Borrower shall pay to the Lender such amount or amounts as shall be
sufficient (in the reasonable opinion of the Lender) to compensate it for any
loss, cost, or expense (excluding loss of anticipated profits incurred by it)
as a result of: (i) any payment, prepayment, or conversion of a LIBOR rate
loan for any reason on a date other than the last day of the Interest Period
for such Loan; or (ii) any failure by the Borrower for any reason
(including, without limitation, the failure of any condition precedent
specified in the MLA or this Fifth Supplement to be satisfied) to borrow,
extend, or prepay a LIBOR rate loan on the date for such borrowing, extension,
or prepayment specified in the relevant notice of borrowing, extension or
prepayment under this Agreement.


 


Such indemnification may include any amount equal to the excess, if
any, of:  (a) the amount of interest
which would have accrued on the amount so prepaid, or not so borrowed,
converted or extended, for the period from the date of such prepayment or of
such failure to borrower, convert or extend to the last day of the applicable
Interest Period (or in the case of a failure to borrow, convert or extend, the
Interest Period that would have commenced on the date of such failure) in each
case at the applicable rate of interest for such loan as provided for herein; over
(b) the amount of interest (as reasonably determined 


 


10

















 


by the Lender) which would have accrued to the Lender on such amount by
placing such amount on deposit for a comparable period with leading banks in
the interbank LIBOR market. The covenants of the Borrower set forth in this
section shall survive the repayment of the Revolving Line of Credit Loan and
other obligations under the Loan Documents hereunder.


 


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


 


20.                               Effect
of Fifth Supplement.  The execution and delivery of this Fifth
Supplement and the Revolving Line of Credit Note shall supercede and replace in
its entirety the Fourth Amended and Restated Second Supplement and the Second
Amended and Restated Revolving Note dated May 18, 2007, which shall be of
no force or effect.


 


IN WITNESS WHEREOF, the
parties have caused this Fifth 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

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
     /s/
  Robert J. Ferguson

  
	
   

  	
  Name: Robert J. Ferguson

  
	
   

  	
  Title: President

  
	
   

  	
   

  
	
   

  	
  AGSTAR FINANCIAL SERVICES, PCA

  
	
   

  	
  an United States corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
     /s/ Mark
  Schmidt

  
	
   

  	
   

  	
  Mark Schmidt

  
	
   

  	
   

  	
  Its Vice President

  
				



 


11

















 


EXHIBIT A


BORROWING
BASE CERTIFICATE


 


Date:                                   
        ,


 


	
  1

  	
  Accounts Receivable:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
                                               (ethanol)

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
                                               (DDGs)

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
  Other

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
  Other

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
  Total

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
  Deduct Ineligible Accounts

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
  (31 days or more from invoice date)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Deduct Ineligible Accounts

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
  (as determined by Bank)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Eligible Accounts Receivable

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
  Multiply by Borrowing Base Factor

  	
   

  	
  75.00

  	
  %

  	
   

  	
   

  
	
   

  	
  Accounts Receivable Loan Availability

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2

  	
  Corn and Distiller’s
  Dried Grain (current value)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Ending Corn Inventory

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
  Ending DDGs Inventory

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
  Total Inventory

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Multiply by Borrowing Base Factor

  	
   

  	
  75.00

  	
  %

  	
   

  	
   

  
	
   

  	
  Corn Inventory Loan Availability

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3

  	
  Ethanol Inventories
  (lower of cost or market)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Ending Fuel Ethanol Inventory

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
  Ending Denaturant Inventory

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
  Ending AA Enzyme Inventory

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
  Ending GA Enzyme Inventory

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
  Other Inventory

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Total Inventory

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
  Multiply by Borrowing Base Factor

  	
   

  	
  75.00

  	
  %

  	
   

  	
   

  
	
   

  	
  Inventory Loan Availability

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4

  	
  Total Borrowing Base
  (Totals from #1, #2, & #3)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5

  	
  Outstanding Loan
  Balance (as of month end)

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6

  	
  Margin (Line 4 minus
  Line 5)

  	
   

  	
   

  	
   

  	
  $

  	
   

  



 


12

















 


EXHIBIT B


FORM OF
LETTER OF CREDIT


 


IRREVOCABLE STANDBY LETTER OF CREDIT NO.


 


(Date)


 


 


(Beneficiary)


 


Ladies and
Gentlemen:


 


At the request of
Heron Lake BioEnergy, LLC,                                   ,
Heron Lake, MN                                ,
we hereby establish our Irrevocable Standby Letter of Credit in your favor in
the amount of $                
U.S. dollars.


 


We undertake that
drawings under this Irrevocable Standby  Letter of Credit will be honored upon
presentation of your draft drawn on AgStar Financial Services, PCA, at 1921
Premier Drive, Mankato, Minnesota 56002-4249 and the original of this
Irrevocable Standby Letter of Credit prior to the expiration date set forth
herein.  All drafts submitted to Agstar
Financial Services, PCA must indicate the number and date of this Irrevocable
Standby Letter of Credit.


 


This Irrevocable
Standby Letter of Credit expires on                           .


 


Except as
expressly stated herein, this undertaking is not subject to any conditions or
qualification.  The obligation of AgStar
Financial Services, PCA, under this Irrevocable Standby  Letter of Credit shall be the individual
obligation of AgStar Financial Services, PCA, and in no way contingent upon
reimbursement with respect thereto.


 


This Irrevocable
Standby Letter of Credit is subject to the Uniform Customs and Practice for
Documentary Credits, 1993 Version, of the International Chamber of Commerce or
any successor publication.


 


Sincerely,


 


AGSTAR FINANCIAL
SERVICES, PCA


 


Mark Schmidt


 


13