Document:

Exhibit 10.5

 

ETHANOL GRAIN PROCESSORS, LLC

 

SUBSCRIPTION AND INVESTMENT
REPRESENTATION AGREEMENT

 

THIS SUBSCRIPTION AGREEMENT is entered into and made effective as of
the 21st day of November, 2005, by and between Ethanol Grain
Processors, LLC, a Tennessee limited liability company with principal executive
offices located at 1918 McDonald Road, Rives, Tennessee 38253, and mailing
office address of P.O. Box 95, Obion, Tennessee 38240 (the “Company”), and
Ethanol Capital Management, LLC, a Delaware limited liability company with
principal executive offices located at 4400 East Broadway Blvd. Suite 600,
Tucson, Arizona 85711 (the “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, the Subscriber
hereby agrees, represents and warrants as follows:

 

1.             Agreement of Subscription.

 

a.             Subscriber hereby subscribes for the purchase of
membership interests of the Company quantified by the number of units (the “Units”)
indicated below, at a purchase price of $1.20 per Unit, upon the terms and
conditions set forth in this Subscription Agreement:

 

	
   

  	
  250,000

  	
   

  	
  Number of Units

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  $

  	
  300,000

  	
   

  	
  Total
  Purchase Price (number
  of Units multiplied by $1.20 per Unit)

  	
   

  

 

b.             Subscriber agrees to pay the total purchase
price of the Units pursuant to the payment terms of the fully-executed
promissory note dated of even date herewith in principal amount of $300,000 and
delivered to the Company with this Subscription Agreement (the “Promissory Note”).
 Subscriber
acknowledges and agrees that 100% of Subscriber’s purchase price of the Units
and all payments made thereon constitute “at-risk” capital, and will not be
placed into any type of escrow. 
Subscriber understands that this Subscription agreement is subject to
acceptance by the Company’s board of governors. 
Upon acceptance by the Company, Subscriber further agrees that this
Subscription Agreement and the Promissory Note delivered herewith each is
irrevocable and binding upon Subscriber, and the payment obligations pursuant
to the payment terms of the Promissory Note are unconditional.  Notwithstanding the foregoing, this
Subscription Agreement and the payment obligations under the Promissory Note
are contingent upon the consent and approval of a majority in interest of the
Company’s members to the purchase of the Units hereunder, which consent is
required by and shall be sought pursuant to the Company’s operating agreement
dated October 28, 2004, as amended (the “Operating Agreement”)).  If such consent and approval is not obtained
by December 31, 2005, this Subscription Agreement and the Promissory Note shall
be null and void and of no further effect, and the Company shall return the
Promissory Note and Subscription Agreement to Subscriber each marked “cancelled.”

 

 

	
  ETHANOL GRAIN PROCESSORS, LLC

  	
   

  	
  SECOND ROUND SEED CAPITAL

  
	
   

  	
   

  	
  SUBSCRIPTION AGREEMENT

  

 

c.             Subscriber acknowledges that the Company has not
established a minimum number of Units that must be sold in conjunction with the
Company’s second round seed capital offering and that the Company may accept
subscriptions for, and complete sales of, any number of units in its second
round seed capital offering.

 

d.             Subscriber acknowledges and agrees that 100% of
Subscriber’s purchase price of the Units constitutes “at-risk” capital, and
will not be placed into any type of escrow. 
Immediately following tender of the payment(s) for the Units, the
Company will use such funds to pay for a portion of organizational, start-up,
and development costs associated with the Company’s ethanol project in
Northwest Tennessee, as further described in the Feasibility Report and
Memorandum (as defined below).

 

e.             Subscriber and the Company agree that, upon
acceptance of this Subscription Agreement, Subscriber will become a “Member” of
the Company, which membership shall be subject to the Company’s Articles of
Organization and the Operating Agreement. 
No certificates will be issued for the Units unless and until the
Company accepts this Subscription Agreement and Subscriber pays the entire
Principal Balance of the Promissory Note and all other amounts due and owing
under the Promissory Note to the Company, at the times and as provided for
therein.

 

2.             Representations and Warranties of
Subscriber.

 

In consideration of the Company’s offer
to sell the Units, Subscriber hereby represents and warrants to the Company and
its agents as follows:

 

a.             Information About the Ethanol
Project.  Subscriber, or its representative(s), has
received, read and understands the Company’s ethanol feasibility study dated
September, 2004 prepared by PRX Geographic and Holbrook Consulting Services
regarding the feasibility of a large-scale dry-mill ethanol production facility
to be located near Obion, Tennessee and all Exhibits and Appendices thereto (the
“Feasibility Report”).  Subscriber, or
its representative, has had an opportunity to obtain, and has received, any
additional information regarding the Company or its ethanol project under
development, 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 the Subscriber in order to form a decision
concerning an investment in the Company and the ethanol project the Company is
seeking to develop.  As a result,
Subscriber believes it has sufficient knowledge about the business, management
and financial affairs of the Company, the ethanol project and the proposed
ethanol plant, and the terms and conditions of the purchase of Units
contemplated hereby.

 

Without limiting the generality of the
foregoing, Subscriber understands that the Company was recently organized, is a
development stage company with no financial or operating history, and will
require approximately $60 million of additional equity (pursuant to subsequent
offerings of membership interests quantified by units) and approximately $90
million of debt financing in order to reach financial closing on the ethanol
project or begin construction of the proposed ethanol plant.  Therefore, the Company’s financing plan faces
substantial uncertainty and contemplates significant leverage, and Subscriber
will incur and suffer a substantial amount of dilution.  Moreover, the Company recently decided to
pursue a gas-fired 100 million gallon per year (MGY) ethanol project rather the
previously proposed 50 MGY coal-fired ethanol plant.  Therefore, the development of the ethanol
project remains in flux and uncertain. 
Subscriber understands and agrees that, despite these and other
substantial uncertainties facing the Company and its development and financing
of the ethanol project and the planned ethanol plant, Subscriber’s subscription
hereunder and the payment obligations under the Promissory Note each is
irrevocable, absolute and unconditional, and may not be withdrawn for any
reason.

 

2

 

Subscriber understands that all
capitalized terms used in this Subscription Agreement and not otherwise defined
herein shall have the meaning ascribed to such terms first in the Memorandum
(defined below) or, if not defined therein, then in the Feasibility Report.

 

b.             Information About the Offering
and Revised Ethanol Project.  Subscriber, or its representative(s), has
received, read and understands the Company’s private placement memorandum dated
November 18, 2005 including all Appendices and any supplements thereto (the “Memorandum”).  Subscriber acknowledges and agrees that
Subscriber has received, read and understands the Articles and Operating
Agreement.  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 the Subscriber in order to form a decision
concerning an investment in the Company and its ethanol project under
development, and the Company’s capital structure and financing plans.  As a result, Subscriber believes it has
sufficient knowledge about the business, management and financial affairs of
the Company, the ethanol project, and the terms and conditions of the purchase
of Units contemplated hereby.  Without
limiting the generality of the foregoing, Subscriber
understands that Subscriber’s investment in Units is 100% at-risk capital, that
no payments will be held in escrow and there is no minimum
offering amount, and that the Company cannot complete its ethanol project
without substantial amounts of additional equity or debt financing, neither of
which is assured.  Subscriber understands that the inability or failure
of the Company to raise the substantial amount of additional equity or to
obtain the debt financing it will need to complete the ethanol project and to
construct its proposed ethanol plant will likely result in a complete loss of
Subscriber’s investment. 
Many of the impediments to raising such equity or obtaining such debt
financing are completely outside of the control of the Company.

 

c.             High Degree of Risk. 
Subscriber realizes that an investment in the Units 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 Units,
including the total loss of such investment.

 

e.             No Market for Units; Restrictions on Transfer. 
Subscriber realizes that (i) there are substantial restrictions on the
transfer of the Units, both under the Securities Act and State Laws, as well as
under the Articles and the Operating Agreement; (ii) there is not currently,
and it is unlikely that in the future there will exist, a public market for the
Units; and (iii) accordingly, for the above and other reasons, Subscriber may
not be able to liquidate an investment in the Units for an indefinite
period.  Subscriber realizes that the
Units 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 Units 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 Operating Agreement.

 

f.              Suitability. 
Subscriber believes that the investment in the Units 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 Units.  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
Units 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 Units, and the suitability of the investment in the Units
in light of Subscriber’s financial condition and investment needs.

 

3

 

g.             Investment Intent. 
Subscriber has been advised that the Units 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.  Subscriber represents and warrants that the Units are
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 Units
and that Subscriber’s financial condition is such that it is not likely that it
will be necessary to dispose of any of the Units in the foreseeable
future.  Subscriber is aware that, in the
view of the Securities and Exchange Commission, a purchase of the Units 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 Units and for which the Units were
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 Units 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 Operating 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 Units 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 Units for such
purpose).  Moreover, Subscriber
understands that the Board of Governors of the Company has adopted or will
adopt shortly a unit transfer policy that will restrict the transfer of any
units (except for transfers without consideration upon death or to related
parties) until thirty (30) days following the successful start-up of the
proposed ethanol plant.

 

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
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 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 Agreement.

 

j.              Residency. 
Subscriber is a resident of or, if an entity, has its principal place of
business in, the following State:

 

        
ARIZONA                                                 
(please write in your state of residency).

 

k.            Dilution. 
Subscriber understands and realizes that the offering price per Unit
exceeds amounts paid by prior purchasers of the Company’s capital units and the
price at which the Company has granted options to purchase the Company’s
capital units, and that Subscriber will experience substantial dilution in the
per unit net tangible book value of the Units purchased hereunder.

 

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 UNITS.  ALL FINANCIAL INFORMATION IN SECTION 3 

 

4

 

WILL BE KEPT CONFIDENTIAL, AND WILL BE
REVIEWED ONLY BY THE COMPANY AND ITS COUNSEL. 
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 UNITS):

 

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, you may include
equity in personal property and real estate, including your principal
residence, cash, short-term investments, stock and securities.  Equity in personal property and real estate
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

 

ý            (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
category alone, each equity owner must complete a separate copy of this
Subscription Agreement.)

 

ý            (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.

 

ý            (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.

 

5

 

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.

 

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

 

ý            (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

 

ý            (bb)         a corporation; 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 Units.

 

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 Units; and

 

b.             this Subscription 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

 

6

 

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. 
N/A

 

(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?

 

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 the 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 Units has
not been registered under the Securities Act, or any state securities laws
and that the Company will offer and sell the Units and the Units
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.

 

7.             Restrictive Legend.

 

In addition to the restrictions to
transfer on the Units contained in the Articles and Operating 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 Units containing
substantially the following language:

 

The securities represented by this
statement 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 

 

7

 

reserves the right to require an opinion
of counsel satisfactory to it before effecting any transfer of the 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 Units, 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 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 Agreement or its payment obligations hereunder and under the
Promissory Note, and that it shall survive the death, incapacity, dissolution
or bankruptcy of Subscriber.  The
provisions of this Subscription 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 Agreement shall be construed and interpreted in accordance with
Tennessee law, without regard to its choice of law or conflicts of law
provisions.

 

d.             Issue Date of Units.  Upon
acceptance of this Subscription Agreement by the Company and upon the consent
of a majority in interest of the Company’s members, the issuance of the Units
subscribed for hereunder may be made effective as of a uniform date for all
Units issued in the second round of the seed capital offering for
administrative convenience reasons, as determined by the Board of Governors,
and provided such date shall be within a reasonable period (but in all cases
within sixty days) of the date this Subscription Agreement is accepted and the
consent of a majority in interest of members is given.

 

9.             Representations and Warranties of
the Company. 

 

In consideration of Subscriber’s
agreement to purchase the Units, 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 Tennessee.

 

b.             Good Standing. 
The Company is in good standing under the laws of the State of Tennessee
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. 
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by proper corporate
action of the Company.

 

d.             Units. 
Upon receipt of full payment for the Units and all other amounts due and
owing on the Promissory Note, the Units shall be duly authorized, fully-paid,
validly issued and non-assessable units of the Company.

 

8

 

SIGNATURE

 

	
  / Gary Schwendiman /

  	
   

  	
   

  
	
  Subscriber (Signature)

  	
   

  	
  Subscriber (Signature, if more than one
  investor)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Gary Schwendiman

  	
   

  	
   

  
	
  Print Name of Subscriber

  	
   

  	
  Print Name of Subscriber (If more than one
  investor)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Gary Schwendiman,
  Chairman

  	
   

  	
   

  
	
  Name and Title of Signatory (for entities)

  	
   

  	
   

  

 

 

Address:

 

 

Ethanol Capital Management, LLC

 

 

4400 East Broadway #600

 

 

Tucson, Arizona 85711

 

 

NOTE:   All Subscriptions must be accompanied
by (i) completed Subscriber Information Page attached hereto, (ii) a
fully-executed promissory note for payment of 100% of the total purchase price
of the Units, and (iii) an executed additional member signature page to the
Operating Agreement.  Also, if Subscriber
is an entity, the attached Certificate of Signatory must be executed.

 

 

ACCEPTANCE OF SUBSCRIPTION

 

                The Company hereby accepts the subscription
evidenced by this Subscription and Investment Representation Agreement as of
the 5th day of December, 2005.

 

 

	
   

  	
  ETHANOL GRAIN PROCESSORS, LLC

  
	
   

  
	
   

  	
  By:

  	
   / James
  K. Patterson /

  	
   

  
	
   

  
	
   

  	
   

  	
  Its: Chief Executive Officer

  
						

 

9

 

SUBSCRIBER INFORMATION

 

	
  Ethanol Capital Management, LLC

  	
   

  
	
   (Please
  print name(s) in which the Units are to be issued)

  	
   

  
	
   

  	
   

  
	
  57-1205717

  	
   

  
	
  Taxpayer I.D. No.

  	
  Taxpayer I.D. No.

  
	
   

  	
  (If more than one investor)

  
	
   

  	
   

  
	
  4400 E. Broadway
  Suite 600

  	
   

  
	
  Address

  	
   

  
	
   

  	
   

  
	
  City:

  	
  Tucson

  	
  State:

  	
  Arizona

  	
  Zip Code:

  	
  85711

  
	
   

  	
   

  
						

 

Telephone Number:  (520) 628-2000

 

 

Name of Authorized Representative (if
other than individual): Scott Brittenham, President and CEO 

 

 

Form of Ownership:    
(check one)

 

 

	
  o

  	
  Individual Ownership

  	
   

  	
  o

  	
  Tenants in Common

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   Joint
  Tenants (JTWROS)

  	
   

  	
  o

  	
  Corporation

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ý

  	
   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.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
							

 

10

 

CERTIFICATE OF SIGNATORY

 

 

(To be completed if Units are being
subscribed for by an Entity)

 

 

I, Scott Brittenham, am the President
and CEO of Ethanol Capital Management, LLC (the “Entity”).

 

I certify that I am empowered and duly
authorized by the Entity to execute and carry out the terms of the Subscription
and Investment Agreement and to purchase and hold the Units pursuant to the
Company’s Articles and the Operating Agreement, and to act on behalf of the
Entity with respect to any actions or consents of the Entity required
thereunder or this Agreement.  I further
certify that the Subscription and Investment 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 this 21st day of November, 2005.

 

 

	
   

  	
  / Scott Brittenham /
  

  	
   

  
	
   

  	
  (Signature)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  President and CEO

  	
   

  
	
   

  	
  (Title)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Scott Brittenham

  	
   

  
	
   

  	
  (Please Print Name)

  	
   

  

 

11

 

ETHANOL GRAIN PROCESSORS, LLC

 

PROMISSORY NOTE

 

	
  Number
  of Units subscribed:

  	
   

  	
  250,000

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Purchase price per
  unit:

  	
  x

  	
   

  	
   

  	
  $

  	
  1.20

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total subscription
  price:

  	
   

  	
  $

  	
  300,000.00

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Installment payment
  amount:

  	
  x

  	
   

  	
   

  	
  1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Principal balance:

  	
   

  	
  $

  	
  300,000.00

  	
   

  	
   

  	
   

  

 

For value received,
the undersigned, pursuant to the undersigned’s subscription agreement (the
“Subscription Agreement”) to purchase the above units of Ethanol Grain
Processors, LLC, a Tennessee limited liability company (the “Company”), hereby
promises to pay to the Company, in lawful money of the United States of
America, the principal sum of Three Hundred Thousand and No/100 Dollars
($300,000.00) (“Principal Balance”) upon the terms set forth herein.

 

1.             Payments.

 

(a)           The
Principal Balance shall be due and payable in ten, unequal installments, with
the first five installments of $5,000 each due and payable on the 1st
of each month commencing on December 1, 2005, and continuing on the 1st
of each month thereafter for a period of four months until and including the
installment due and payable on April 1, 2006, and then with the remaining five
installments of $55,000 each due and payable on the 1st of each
month commencing on May 1, 2006, and continuing on the 1st of each
month thereafter for a period of four months until and including the
installment due and payable on September 1, 2006, with the entire remaining
unpaid Principal Balance due and payable at maturity on September 1, 2006 (the
“Maturity Date”). All payments shall be made payable to the order of “Ethanol
Grain Processors, LLC”.

 

(b)           In
the event the undersigned fails to make any payment of the Principal Balance
when due, interest shall accrue on such payment amount at the rate of twelve
percent (12%) per annum from the due date, and such interest is due and payable
as of the last day of the calendar month in which accrued.

 

2.             Default.    In
the event the undersigned fails to make any payment of principal or interest
under this Promissory Note when due, and such default remains uncured for a
period of fifteen (15) days, the undersigned acknowledges and agrees that:

 

(a)           The
Company may demand immediate payment of all amounts owing under this Promissory
Note;

 

(b)           The
Company may commence legal proceedings to collect the amounts due, and shall be
entitled to collect from the undersigned all of its costs and expenses of
collection or enforcement including, but not limited to, reasonable attorneys’
fees and expenses; and

 

(c)           The
Company may, if such default remains uncured for a period of thirty (30) days
following written notice to the undersigned, retain all prior payments remitted
pursuant to the Subscription Agreement or this Promissory Note as liquidated
damages, and cancel any units then already issued with respect to the
Subscription Agreement, in exchange for canceling this Promissory Note.

 

3.             Notices.    All
notices, requests, consents and demands shall be made in writing and shall be
delivered by facsimile or by hand, sent via a reputable nationwide overnight
courier service or mailed by first class certified or registered mail, return
receipt requested, postage prepaid, if to the undersigned at the fax number or
address of such undersigned as shown on the books of the Company, or if to the
Company at the following fax number or address, or to such other fax number or
address as may be furnished in writing to the undersigned: Ethanol Grain
Processors, LLC, P.O. Box 95, Obion, Tennessee 38240, fax number: (731)
536-1287. Notices, requests, consents and demands shall be deemed delivered
upon confirmation of facsimile transmission, upon personal delivery, one
business day after being sent via reputable nationwide overnight courier
service, or three business days after deposit in the mail. 

 

1

 

4.             Modification and Waiver.    No
purported amendment, modification or waiver of any provision hereof shall be
binding unless set forth in a written document signed by the undersigned and
the Company (in the case of amendments or modifications) or by the party to be
charged thereby (in the case of waivers). Any waiver shall be limited to the
provision hereof in the circumstances or events specifically made subject
thereto, and shall not be deemed a waiver of any other term hereof or of the
same circumstance or event upon any reoccurrence thereof.

 

5.             Successors and Assigns.    All
the terms and provisions of this Promissory Note shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the undersigned and the Company, whether or not so expressed.

 

6.             Waiver of Demand, Presentment and Notice of Dishonor.    The
undersigned hereby waives demand, presentment, protest, notice of protest and
notice of dishonor, and any and all other notices or demands in connection with
the delivery, acceptance, performance or default hereof.

 

7.             Applicable Law.    The
laws of the State of Tennessee, without regard to its conflicts of law
principles, shall govern the validity, the construction and the interpretation
of the rights and duties of the parties.

 

8.             Contingency.    This
Promissory Note is contingent upon the Company obtaining the consent of a
majority in interest of the Company’s members to the issuance of units pursuant
to the terms and conditions of the Subscription Agreement no later than
December 31, 2005.  Upon obtaining such
consent (certification by an officer of such consent shall be prima facie
evidence of obtaining such consent), the payment obligations under this
Promissory Note are unconditional.   If
such consent is not obtained by December 31, 2005, then the Company shall
return this Promissory Note to the undersigned marked “cancelled.”

 

IN WITNESS WHEREOF,
the undersigned has executed this Promissory Note as of the date set forth
below. 

 

	
  Individuals:

  	
   

  	
  Entities:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Ethanol Capital
  Management, LLC

  
	
  Signature of Investor

  	
   

  	
  Name of Entity

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /
  Scott Brittenham / 

  
	
  Signature of Joint
  Investor

  	
   

  	
   Authorized Signature

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Scott
  Brittenham

  
	
  Date

  	
   

  	
  Print Name

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  	
  President and CEO 

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
   

  	
  November 21, 2005 

  

 

2Exhibit 10.6

 

ETHANOL GRAIN PROCESSORS, LLC

 

SUBSCRIPTION AND INVESTMENT REPRESENTATION
AGREEMENT

 

THIS SUBSCRIPTION AGREEMENT
is entered into and made effective as of December 2, 2005, by and between
Ethanol Grain Processors, LLC, a Tennessee limited liability company with
principal executive offices located at 1918 McDonald Road, Rives, Tennessee
38253, and mailing office address of P.O. Box 95, Obion, Tennessee 38240
(the “Company”), and Fagen Energy, Inc., a Minnesota corporation with
principal executive office located at 501 W. Highway 212, P.O. Box 159,
Granite Falls, Minnesota 56241 (the “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, the Subscriber hereby agrees, represents and warrants
as follows:

 

1.             Agreement of Subscription.

 

a.             Subscriber
hereby agrees to purchase the membership interests of the Company quantified by
the number of units (the “Units”) set forth below, at a purchase price of $2.00
per Unit, upon the terms and conditions set forth in this Subscription
Agreement:

 

	
  1,250,000

  	
   

  	
  Number
  of Units

  
	
   

  	
   

  	
   

  
	
  $

  	
  2,500,000

  	
   

  	
  Total
  Purchase Price (number of Units
  multiplied by $2.00 per Unit)

  
				

 

b.             Concurrently
with the delivery of this Subscription Agreement, Subscriber must deliver a
check for the deposit amount of $50,000 ( i.e. 2% of the total purchase price
of the Units for which Subscriber is subscribing) and a completed and executed
promissory note dated of even date herewith for the remaining 98% of the total
purchase price in the principal amount of $2,450,000 (the “Promissory Note”).  Subscriber’s check shall be made payable to “Ethanol
Grain Processors, LLC – Escrow.”

 

c.             Subscriber
understands that this Subscription agreement is subject to acceptance by the
Company.  Upon acceptance by the Company,
Subscriber further agrees that this Subscription Agreement and the Promissory
Note delivered herewith each is irrevocable and binding upon Subscriber, and
the payment obligations pursuant to the payment terms of the Promissory Note
are unconditional, provided that all such payments shall be held in escrow upon
the terms and conditions of this Subscription Agreement and the Escrow
Agreement.  The outstanding principal
balance of the Promissory Note will be due and payable at financial closing of
the Company’s ethanol project (as defined below) on not less than thirty (30)
days’ notice from the Company.  If
Subscriber does not pay the principal balance of the Promissory Note when due,
interest will accrue on the amount due at a rate of twelve percent (12%) per
annum and the Company may commence legal proceedings to collect the amount due
and any related expenses.  Alternatively,
upon such default, the Company has the right to retain Subscriber’s $50,000 

 

 

	
  ETHANOL GRAIN PROCESSORS, LLC

  	
   

  	
  PRIVATE ESCROW OFFERING

  
	
   

  	
   

  	
  SUBSCRIPTION AGREEMENT

  

 

deposit payment as liquidated damages,
and redeem any Units issued or to be issued with respect to this Subscription
Agreement in exchange for cancellation of this Subscription Agreement and the
Promissory Note.  If the Company redeems
Subscriber’s Units issued or to be issued with respect to this Subscription
Agreement and cancels this Subscription Agreement and the Promissory Note upon
Subscriber’s default, Subscriber will no longer own or have rights to those
Units, will no longer be a unit holder or member of the Company with respect to
such Units, and will forfeit any ownership interest or rights in the Company
related to such Units.  Subscriber
acknowledges that it is aware of the terms and conditions upon which the
Company offers the Units and agrees and consents to such terms and conditions.

 

d.             The
Company will deposit Subscriber’s check in escrow, and shall hold Subscriber’s
deposit payment together with any and all payments made on the principal
balance of the Promissory Note in escrow in accordance with the terms of this
Subscription Agreement and of the escrow agreement between the Company and
Regions Bank, a copy of which is attached hereto (the “Escrow Agreement”),
until the Company satisfies each of the following conditions to financial
closing of the Company’s ethanol project:

 

(i)            The
Company has obtained sufficient debt, equity and other financing to construct
the Company’s proposed ethanol plant and commence start-up operations with an
amount of working capital the Company believes to be reasonable;

 

(ii)           The Company has executed a design-build
agreement with Fagen, Inc. for the construction of its proposed ethanol
plant;

 

(iii)          The
Company has obtained all permits necessary to begin construction of its
proposed ethanol plant; and

 

(iv)          The
Company is not subject to any legal orders prohibiting this private placement
or its project, or orders from any federal or state securities division
revoking the effectiveness of the offer and sale of the Units sold in this
private placement.

 

The satisfaction of the
foregoing conditions shall constitute “financial closing” on the Company’s
ethanol project for purposes of this Subscription Agreement and the Promissory
Note.  The Company shall not commingle
Subscriber’s payments being held in escrow in accordance with this Subscription
Agreement with any other payments the Company is holding or may hold in the
future in escrow.  Subscriber agrees to
provide the Company with the applicable design build contract notice required
under the Escrow Agreement promptly upon request, provided the Company and
Subscriber have entered into such contract.

 

e.             Upon
reaching financial closing, Subscriber’s deposit payment and all payments made
on the principal balance of the Promissory Note shall be released to the
Company in accordance with the terms of the Escrow Agreement.  If the Company does not reach financial
closing on its ethanol project by December 31, 2007, or the escrowed funds
are otherwise returned to Subscriber in accordance with Section 6.c. of
the Escrow Agreement, then the Company will promptly return, or direct the
escrow agent to return, Subscriber’s subscription payments being held in escrow
to Subscriber together with any related interest earned thereon (less escrow
costs), along with the related Promissory Note made by Subscriber, marked “cancelled.”  The Company agrees that Subscriber is the
intended third-party beneficiary of the Escrow Agreement.

 

f.              In
consideration of Subscriber’s agreement to purchase Units hereunder, the
Company agrees that this Subscription is eligible for the following early
subscription and volume incentives:

 

2

 

(i)            Subscriber
will receive, at no additional cost, an early subscription incentive in the
form of additional units equal to ten percent (10%) of the number of Units
subscribed for, or 125,000 Units.

 

(ii)           Subscriber will receive, at no additional
cost, a volume subscription incentive in the form of additional units equal to
four percent (4%) of the number of Units subscribed for, or 50,000 Units.

 

The Company agrees that,
if the terms of its planned primary equity offering include early subscription
incentives or volume subscription incentives that are more favorable to a
subscriber who is subscribing for $2.5 million of units of the Company than the
foregoing incentives being provided Subscriber hereunder, then the foregoing
incentives shall be adjusted to match the more favorable incentives in the
planned primary equity offering.

 

g.             No
Units will be issued and no certificates will be issued for the Units unless
and until the Company accepts this Subscription Agreement and the subscription
amount is released to the Company from escrow under the terms of this
Subscription Agreement and the Escrow Agreement.  The early subscription and volume incentive
units will be issued at the time the subscription amount is released to the
Company from escrow under the terms of this Subscription Agreement and the Escrow
Agreement.  Subscriber acknowledges and
agrees that Subscriber’s membership in the Company and its ownership of
interests in the Company will not include the Units subscribed for hereunder
unless and until the Units are issued to Subscriber hereunder.  Subscriber further acknowledges and agrees
that the Units issued hereunder shall be subject to the Articles of
Organization and the Operating Agreement of the Company in the form attached to
the Memorandum as Appendix A (the “Articles”)
and Appendix B (the “Operating
Agreement”).

 

2.             Representations and Warranties of Subscriber.

 

In
consideration of the Company’s offer to sell the Units, Subscriber hereby
represents and warrants to the Company and its agents as follows:

 

a.             Information About the Ethanol Project.  Subscriber, or its representative(s), has
received, read and understands the Company’s ethanol feasibility study dated
September, 2004 prepared by PRX Geographic and Holbrook Consulting Services
regarding the feasibility of a large-scale dry-mill ethanol production facility
to be located near Obion, Tennessee and all Exhibits and Appendices thereto
(the “Feasibility Report”).  Subscriber,
or its representative, has had an opportunity to obtain, and has received, any
additional information regarding the Company or its ethanol project under
development, 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 the Subscriber in order to form a decision
concerning an investment in the Company and the ethanol project the Company is
seeking to develop.  As a result,
Subscriber believes it has sufficient knowledge about the business, management
and financial affairs of the Company, the ethanol project and the proposed
ethanol plant, and the terms and conditions of the purchase of Units
contemplated hereby.

 

Without limiting the
generality of the foregoing, Subscriber understands that the Company was
recently organized, is a development stage company with no financial or
operating history, and will require approximately $60 million of additional
equity (pursuant to subsequent offerings of membership interests quantified by
units) and approximately $90 million of debt financing in order to reach financial
closing on the ethanol project or begin construction of the proposed ethanol
plant.  Therefore, the Company’s
financing plan faces substantial uncertainty and contemplates significant
leverage, and Subscriber will incur and suffer a substantial amount of
dilution.  Moreover, the Company recently
decided to pursue a 

 

3

 

gas-fired 100 million
gallon per year (MGY) ethanol project rather the previously proposed 50 MGY
coal-fired ethanol plant.  Therefore, the
development of the ethanol project remains in flux and uncertain.  Subscriber understands and agrees that,
despite these and other substantial uncertainties facing the Company and its
development and financing of the ethanol project and the planned ethanol plant,
Subscriber’s subscription hereunder and the payment obligations under the
Promissory Note each is irrevocable, absolute and unconditional, and may not be
withdrawn for any reason except as provided for and in accordance with this
Agreement and the Escrow Agreement.

 

Subscriber understands
that all capitalized terms used in this Subscription Agreement and not
otherwise defined herein shall have the meaning ascribed to such terms first in
the Memorandum (defined below) or, if not defined therein, then in the
Feasibility Report.

 

b.             Information About the Company, the Offering, and
the Revised Ethanol Project.  Subscriber, or its representative(s), has
received, read and understands the Company’s private placement memorandum dated
November 18, 2005 including all Appendices and any supplements thereto
(the “Memorandum”).  Subscriber
acknowledges and agrees that Subscriber has received, read and understands the
Articles and Operating Agreement. 
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 the Subscriber
in order to form a decision concerning an investment in the Company and its
ethanol project under development, and the Company’s capital structure and
financing plans.  As a result, Subscriber
believes it has sufficient knowledge about the business, management and financial
affairs of the Company, the ethanol project, and the terms and conditions of
the purchase of Units contemplated hereby. 
Without limiting the generality of the foregoing, Subscriber understands
that the Company cannot complete its ethanol project without substantial
amounts of additional equity or debt financing, neither of which is assured,
and that many of the impediments to raising such equity or obtaining such debt
financing are completely outside of the control of the Company.

 

c.             High
Degree of Risk.  Subscriber realizes that an investment in the
Units 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 Units, including the total loss of such investment.

 

e.             No
Market for Units; Restrictions on Transfer.  Subscriber realizes that (i) there are
substantial restrictions on the transfer of the Units, both under the
Securities Act and State Laws, as well as under the Articles and the Operating
Agreement; (ii) there is not currently, and it is unlikely that in the
future there will exist, a public market for the Units; and (iii) accordingly,
for the above and other reasons, Subscriber may not be able to liquidate an
investment in the Units for an indefinite period.  Subscriber realizes that the Units 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
Units 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
Operating Agreement.

 

f.              Suitability.  Subscriber believes that the investment in
the Units 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 Units.  Subscriber has such knowledge and 

 

4

 

experience in financial and business
matters that he, she or it is capable of evaluating the merits and risks of an
investment in the Units 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 Units, and the suitability of the
investment in the Units in light of Subscriber’s financial condition and
investment needs.

 

g.             Investment
Intent.  Subscriber has been advised that the Units
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. 
Subscriber represents and warrants
that the Units are 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 Units and that Subscriber’s financial
condition is such that it is not likely that it will be necessary to dispose of
any of the Units in the foreseeable future. 
Subscriber is aware that, in the view of the Securities and Exchange
Commission, a purchase of the Units 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 Units
and for which the Units were 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 Units 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 Operating 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 Units 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 Units for such purpose). 
Moreover, Subscriber understands that the Board of Governors of the
Company has adopted or will adopt shortly a unit transfer policy that will
restrict the transfer of any units (except for transfers without consideration
upon death or to related parties) until thirty (30) days following the
successful start-up of the proposed ethanol plant.

 

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 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 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 Agreement.

 

j.              Residency.  Subscriber is a resident of or, if an entity,
has its principal place of business in, the following State:

 

            
Minnesota                                                   
(please write in your state of residency).

 

k.            Dilution.  Subscriber understands and realizes that the
offering price per Unit exceeds amounts paid by prior purchasers of the Company’s
capital units and the price at which the Company has granted options to
purchase the Company’s capital units, and that Subscriber will experience
substantial dilution in the per unit net tangible book value of the Units
purchased hereunder.

 

5

 

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
UNITS.  ALL FINANCIAL INFORMATION IN SECTION 3
WILL BE KEPT CONFIDENTIAL, AND WILL BE REVIEWED ONLY BY THE COMPANY AND ITS COUNSEL.  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 UNITS):

 

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, you may include equity in personal
  property and real estate, including your principal residence, cash,
  short-term investments, stock and securities. Equity in personal property and
  real estate 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 understands the Company and the current status of its ethanol
  project, understands the ethanol industry and the risks inherent in an
  investment in a development stage company in the ethanol industry, and is
  capable of evaluating (and has evaluated and understands) the merits and
  risks of the Company’s ethanol project and of the prospective investment in
  the Company in this second round seed capital offering. This representation
  is based on the following (check one or more, as applicable):

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  o

  	
   

  	
  (i)

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

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  o

  	
   

  	
  (ii)

  	
  The
  undersigned understands investments in development stage companies in the
  ethanol industry and is a sophisticated investor for purposes of Regulation
  D.

  

 

ENTITIES

 

	
  ý

  	
   

  	
  (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 (c) or
  (d)(ii) above. (If relying on this category alone, each equity owner
  must complete a separate copy of this Subscription Agreement.)

  

 

6

 

	
  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.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ý

  	
   

  	
  (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

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  ý

  	
   

  	
  (bb)

  	
  a
  corporation; or

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  o

  	
   

  	
  (cc)

  	
  a
  Massachusetts or similar business trust; or

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  o

  	
   

  	
  (dd)

  	
  a
  partnership.

  

 

7

 

	
   

  	
   

  	
   

  	
  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 Units.

  

 

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 Units; and

 

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

 

b.             o  YES   ý  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   ý  NO:  Does the Subscriber own voting securities of
any brokerage firm?

 

d.             o  YES   ý  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 Units has not been registered
under the Securities Act, or any state securities laws and that
the Company will offer and sell the Units and the Units will be
issued to Subscriber in reliance on exemptions from the registration
requirements of the 

 

8

 

Securities
Act and exemptions under applicable state securities laws and in reliance
on the representations, warranties and agreements made by Subscriber herein.

 

7.             Restrictive Legend.

 

In
addition to the restrictions to transfer on the Units contained in the Articles
and Operating 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
Units containing substantially the following language:

 

The
securities represented by this statement 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.

 

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 Units, 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 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 Agreement or its payment obligations
hereunder and under the Promissory Note, and that it shall survive the death,
incapacity, dissolution or bankruptcy of Subscriber.  The provisions of this Subscription 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 Agreement shall be
construed and interpreted in accordance with Tennessee law, without regard to
its choice of law or conflicts of law provisions.

 

d.             Issue
Date of Units.  Upon acceptance of this Subscription
Agreement by the Company, the issuance of the Units subscribed for hereunder
may be made effective as of a uniform date for all Units issued in the
escrow-type offerings made by the Company, for administrative convenience
reasons, as determined by the Board of Governors, provided such date shall be
within a reasonable period (but in all cases within sixty days) of the date of
financial closing.

 

9.             Representations and Warranties of the Company.

 

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

 

9

 

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

 

b.             Good Standing.  The Company is in good standing under the
laws of the State of Tennessee 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.  The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by proper corporate action of the Company.

 

d.             Units.  Upon receipt of full payment for the Units
and all other amounts due and owing on the Promissory Note, and the issuance of
Units hereunder, the Units shall be duly authorized, fully-paid, validly issued
and non-assessable units of the Company.

 

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

 

[the
remainder of this page left blank intentionally]

 

10

 

SIGNATURE

 

 

	
  / Ron Fagen /

  	
   

  	
   

  
	
  Subscriber
  (Signature)

  	
   

  	
  Subscriber
  (Signature, if more than one investor)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Fagen
  Energy, Inc.

  	
   

  	
   

  
	
  Print
  Name of Subscriber

  	
   

  	
  Print
  Name of Subscriber (If more than one

  investor)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Ron
  Fagen, Secretarey/Treasurer

  	
   

  	
   

  
	
  Name
  and Title of Signatory (for entities)

  	
   

  	
   

  

 

 

Address:

 

501 W Hwy 212

 

PO Box 159

 

Granite Falls, Minnesota
56241

 

NOTE:  This
Subscription must be accompanied by (i) completed Subscriber
Information Page attached hereto, (ii) a check in the amount of
$50,000 made payable to “Ethanol Grain Processors, LLC – Escrow,” (ii) a
fully-executed promissory note for payment of 98% of the total purchase price
of the Units, and (iii) an executed additional member signature
page to the Operating Agreement. 
Also, if Subscriber is an entity, the attached Certificate of Signatory
must be executed.

 

ACCEPTANCE OF SUBSCRIPTION

 

The
Company hereby accepts the subscription evidenced by this Subscription and
Investment Representation Agreement as of the 5th day of December, 2005.

 

 

	
   

  	
  ETHANOL
  GRAIN PROCESSORS, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /
  James K. Patterson /

  	
   

  
	
   

  	
   

  
	
   

  	
  Its: Chief Executive Officer

  

 

11

 

SUBSCRIBER INFORMATION

 

	
  Fagen Energy, Inc.

  
	
  (Please
  print name(s) in which the Units are to be issued)

  

 

 

	
  41-1277828

  	
   

  	
   

  	
   

  
	
  Taxpayer
  I.D. No.

  	
  Taxpayer
  I.D. No.

  
	
   

  	
  (If
  more than one investor)

  

 

 

	
  PO
  Box 159 501 Hwy 212

  
	
  Address

  
	
   

  
	
  City:

  	
  Granite Falls

  	
  State:

  	
  Minnesota

  	
  Zip
  Code:

  	
  56241

  	
   

  

 

 

Telephone Number:  (320) 564-3324

 

 

Name of Authorized
Representative (if other than individual): Ron Fagen and Diane Fagen

 

 

Form of
Ownership:     (check one)

 

 

	
  o

  	
  Individual
  Ownership

  	
   

  	
  o

  	
  Tenants
  in Common

  
	
   

  	
   

  	
   

  
	
  o

  	
  Joint
  Tenants (JTWROS)

  	
   

  	
  ý

  	
  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.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
								

 

12

 

CERTIFICATE OF SIGNATORY

 

(To
be completed if Units are being subscribed for by an Entity)

 

I,
Ron Fagen, am the Sec./Treas. of Fagen Energy, Inc. (the “Entity”).

 

I
certify that I am empowered and duly authorized by the Entity to execute and
carry out the terms of the Subscription and Investment Agreement and to
purchase and hold the Units pursuant to the Company’s Articles and the
Operating Agreement, and to act on behalf of the Entity with respect to any
actions or consents of the Entity required thereunder or this Agreement.  I further certify that the Subscription and
Investment 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 this 2nd day of December, 2005.

 

	
   

  	
  Fagen
  Energy, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  / Ron Fagen /

  	
   

  
	
   

  	
  (Signature)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Sec/Treas.

  	
   

  
	
   

  	
  (Title)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Ron Fagen

  	
   

  
	
   

  	
  (Please
  Print Name)

  

 

13

 

Ethanol Grain Processors, LLC

 

PROMISSORY NOTE

 

	
  Number of Units
  subscribed:

  	
   

  	
   

  	
   

  	
  1,250,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Purchase price per unit:

  	
   

  	
  x

  	
   

  	
  $

  	
  2.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total subscription price:

  	
   

  	
   

  	
   

  	
  $

  	
  2,500,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Installment payment amount:

  	
   

  	
  x

  	
   

  	
  .98

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Principal balance:

  	
   

  	
   

  	
   

  	
  $

  	
  2,450,000.00

  	
   

  

 

For value received, the undersigned, pursuant to
the undersigned’s subscription agreement (the “Subscription Agreement”) to
purchase the above units of Ethanol Grain Processors, LLC, a Tennessee limited
liability company (the “Company”), hereby promises to pay to the Company, in
lawful money of the United States of America, the principal sum of Two Million
Four Hundred Fifty Thousand and No/100 Dollars ($2,450,000.00) (“Principal
Balance”) upon the terms set forth herein.

 

1.     Payments.

 

(a)   The Principal
Balance shall be due and payable at financial closing (as defined in the
Subscription Agreement) on not less than thirty days’ written notice from the
Company.   All payments shall be made
payable to the order of “Ethanol Grain Processors, LLC – Escrow.”

 

(b)   In the event
the undersigned fails to make any payment of the Principal Balance when due,
interest shall accrue on such payment amount at the rate of twelve percent
(12%) per annum from the due date, and such interest is due and payable as of
the last day of the calendar month in which accrued.   Otherwise, if the undersigned makes all
payments when due hereunder, no interest shall accrue on the Principal Balance.

 

2.     Default.    In
the event the undersigned fails to make any payment of principal or interest
under this Promissory Note when due, the undersigned acknowledges and agrees
that:

 

(a)   The Company may
commence legal proceedings to collect the amounts due, and shall be entitled to
collect from the undersigned all of its costs and expenses of collection or
enforcement including, but not limited to, reasonable attorneys’ fees and
expenses; and

 

(b)   The Company
may, if such default remains uncured for a period of thirty (30) days following
written notice to the undersigned, retain the $50,000 initial deposit remitted
pursuant to the Subscription Agreement or this Promissory Note as liquidated
damages, and cancel any units then already issued with respect to the
Subscription Agreement, in exchange for canceling the Subscription Agreement
and this Promissory Note.

 

3.     Notices.    All
notices, requests, consents and demands shall be made in writing and shall be
delivered by facsimile or by hand, sent via a reputable nationwide overnight
courier service or mailed by first class certified or registered mail, return
receipt requested, postage prepaid, if to the undersigned at the fax number or
address of such undersigned as shown on the books of the Company, or if to the
Company at the following fax number or address, or to such other fax number or
address as may be furnished in writing to the undersigned: Ethanol Grain
Processors, LLC, P.O. Box 95, Obion, Tennessee 38240, fax number: (731)
536-1287. Notices, requests, consents and demands shall be deemed delivered
upon confirmation of facsimile transmission, upon personal delivery, one business
day after being sent via reputable nationwide overnight courier service, or
three business days after deposit in the mail.

 

1

 

4.     Modification and Waiver.    No
purported amendment, modification or waiver of any provision hereof shall be
binding unless set forth in a written document signed by the undersigned and
the Company (in the case of amendments or modifications) or by the party to be
charged thereby (in the case of waivers). Any waiver shall be limited to the
provision hereof in the circumstances or events specifically made subject
thereto, and shall not be deemed a waiver of any other term hereof or of the
same circumstance or event upon any reoccurrence thereof.

 

5.     Successors and Assigns.    All
the terms and provisions of this Promissory Note shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the undersigned and the Company, whether or not so expressed.

 

6.     Waiver of Demand, Presentment and Notice of Dishonor.    The
undersigned hereby waives demand, presentment, protest, notice of protest and
notice of dishonor, and any and all other notices or demands in connection with
the delivery, acceptance, performance or default hereof.

 

7.     Applicable Law.    The
laws of the State of Tennessee, without regard to its conflicts of law
principles, shall govern the validity, the construction and the interpretation
of the rights and duties of the parties.

 

IN WITNESS WHEREOF, the undersigned has executed
this Promissory Note as of the date set forth below.

 

 

	
  Individuals:

  	
   

  	
  Entities:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Fagen
  Energy, Inc.

  
	
  Signature of Investor

  	
   

  	
  Name of Entity

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /
  Ron Fagen /

  
	
  Signature of Joint
  Investor

  	
   

  	
  Authorized Signature

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Ron
  Fagen

  
	
  Date

  	
   

  	
  Print Name

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
  Sec./Treas.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
  December 2,
  2005

  

 

2

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