Document:

Exhibit 10.22

 

INDEMNIFICATION AGREEMENT

 

 

INDEMNIFICATION AGREEMENT

 

THIS INDEMNIFICATION AGREEMENT (the “Agreement”) is made and entered into as of May 13, 2014 between PROTEON THERAPEUTICS, INC., a Delaware corporation (the “Company”), and Dmitry Kobyzev (“Indemnitee”).

 

WITNESSETH THAT:

 

WHEREAS, highly competent persons have become more reluctant to serve corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;

 

WHEREAS, the Board of Directors of the Company (the “Board”) has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities.  Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions.  At the same time, directors, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself. The Certificate of Incorporation of the Company permits, and the By-laws of the Company require, indemnification of directors of the Company. Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (“DGCL”).  The By-laws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the board of directors with respect to indemnification;

 

WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons;

 

WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company’s stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;

 

WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;

 

WHEREAS, this Agreement is a supplement to and in furtherance of the By-laws of the Company and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder;

 

 

WHEREAS, Indemnitee does not regard the protection available under the Company’s By-laws and insurance as adequate in the present circumstances, and may not be willing to serve as a director without adequate protection, and the Company desires Indemnitee to serve in such capacity.  Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be so indemnified; and

 

NOW, THEREFORE, in consideration of Indemnitee’s agreement to serve as a director after the date hereof, the parties hereto agree as follows:

 

1.                                      Indemnity of Indemnitee.  The Company hereby agrees to hold harmless and indemnify Indemnitee to the fullest extent permitted by law, as such may be amended from time to time.  In furtherance of the foregoing indemnification, and without limiting the generality thereof:

 

(a)                                 Proceedings Other Than Proceedings by or in the Right of the Company.  Indemnitee shall be entitled to the rights of indemnification provided in this Section l(a) if, by reason of his Corporate Status (as hereinafter defined), the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding (as hereinafter defined) other than a Proceeding by or in the right of the Company.  Pursuant to this Section 1(a), Indemnitee shall be indemnified against all Expenses (as hereinafter defined), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him, or on his behalf, in connection with such Proceeding or any claim, issue or matter therein, if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal Proceeding, had no reasonable cause to believe the Indemnitee’s conduct was unlawful.

 

(b)                                 Proceedings by or in the Right of the Company.  Indemnitee shall be entitled to the rights of indemnification provided in this Section 1(b) if, by reason of his Corporate Status, the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding brought by or in the right of the Company.  Pursuant to this Section 1(b), Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by the Indemnitee, or on the Indemnitee’s behalf, in connection with such Proceeding if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company; provided, however, if applicable law so provides, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company unless and to the extent that the Court of Chancery of the State of Delaware shall determine that such indemnification may be made.

 

(c)                                  Indemnification for Expenses of a Party Who is Wholly or Partly Successful.  Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified to the maximum extent permitted by law, as such may be amended from time to time, against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.  If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter.  For purposes of this Section and without

 

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limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

 

2.                                      Additional Indemnity.  In addition to, and without regard to any limitations on, the indemnification provided for in Section 1 of this Agreement, the Company shall and hereby does indemnify and hold harmless Indemnitee against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf if, by reason of his Corporate Status, he is, or is threatened to be made, a party to or participant in any Proceeding (including a Proceeding by or in the right of the Company), including, without limitation, all liability arising out of the negligence or active or passive wrongdoing of Indemnitee.  The only limitation that shall exist upon the Company’s obligations pursuant to this Agreement shall be that the Company shall not be obligated to make any payment to Indemnitee that is finally determined (under the procedures, and subject to the presumptions, set forth in Sections 6 and 7 hereof) to be unlawful.

 

3.                                      Contribution.

 

(a)                                 Whether or not the indemnification provided in Sections 1 and 2 hereof is available, in respect of any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such action, suit or proceeding without requiring Indemnitee to contribute to such payment and the Company hereby waives and relinquishes any right of contribution it may have against Indemnitee.  The Company shall not enter into any settlement of any action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding) unless such settlement provides for a full and final release of all claims asserted against Indemnitee.

 

(b)                                 Without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall contribute to the amount of expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction from which such action, suit or proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the events that resulted in such expenses, judgments, fines or settlement amounts, as well as any other equitable considerations which the Law may require to be considered.  The relative fault of the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated

 

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by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their conduct is active or passive.

 

(c)                                  The Company hereby agrees to fully indemnify and hold Indemnitee harmless from any claims of contribution which may be brought by officers, directors or employees of the Company, other than Indemnitee, who may be jointly liable with Indemnitee.

 

(d)                                 To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).

 

4.                                      Indemnification for Expenses of a Witness.  Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.

 

5.                                      Advancement of Expenses.  Notwithstanding any other provision of this Agreement, the Company shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding by reason of Indemnitee’s Corporate Status within thirty (30) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding.  Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses.  Any advances and undertakings to repay pursuant to this Section 5 shall be unsecured and interest free.

 

6.                                      Procedures and Presumptions for Determination of Entitlement to Indemnification.  It is the intent of this Agreement to secure for Indemnitee rights of indemnity that are as favorable as may be permitted under the Delaware General Corporation Law and public policy of the State of Delaware.  Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether Indemnitee is entitled to indemnification under this Agreement:

 

(a)                                 To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification.  The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification.

 

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(b)                                 Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 6(a) hereof, a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in the specific case by one of the following three methods, which shall be at the election of the board:  (1) by a majority vote of the disinterested directors, even though less than a quorum, by a committee of disinterested directors designated by a majority vote of the disinterested directors, even though less than a quorum, (2) if there are no disinterested directors or if the disinterested directors so direct, by independent legal counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the Indemnitee, or (3) if so directed by the Board of Directors, by the stockholders of the Company.  For purposes hereof, disinterested directors are those members of the board of directors of the Company who are not parties to the action, suit or proceeding in respect of which indemnification is sought by Indemnitee.

 

(c)                                  If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 6(b) hereof, the Independent Counsel shall be selected as provided in this Section 6(c).  The determination of whether Independent Counsel shall be engaged and the selection of such Independent Counsel shall be made by the Board of Directors.  Indemnitee may, within 10 days after such written notice of selection shall have been given, deliver to the Company, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 13 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion.  Absent a proper and timely objection, the person so selected shall act as Independent Counsel.  If a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit.  If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 6(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Indemnitee to the Company’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 6(b) hereof.  The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 6(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 6(c), regardless of the manner in which such Independent Counsel was selected or appointed.

 

(d)                                 In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement.  Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.  Neither the failure of the Company (including by its directors or independent legal counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or independent legal counsel) that Indemnitee has not met

 

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such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

 

(e)                                  Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise (as hereinafter defined), including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise.  In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.  Whether or not the foregoing provisions of this Section 6(e) are satisfied, it shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company.  Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

 

(f)                                   If the person, persons or entity empowered or selected under Section 6 to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making such determination with respect to entitlement to indemnification in good faith requires such additional time to obtain or evaluate documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 6(f) shall not apply if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 6(b) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination, the Board of Directors or the Disinterested Directors, if appropriate, resolve to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat.

 

(g)                                  Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination.  Any Independent Counsel, member of the Board of Directors or stockholder of the Company shall act reasonably and in good faith in making a determination regarding the Indemnitee’s entitlement to indemnification under this Agreement.  Any costs or expenses (including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person,

 

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persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

 

(h)                                 The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty.  In the event that any action, claim or proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such action, suit or proceeding.  Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

 

(i)                                     The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.

 

7.                                      Remedies of Indemnitee.

 

(a)                                 In the event that (i) a determination is made pursuant to Section 6 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 5 of this Agreement, (iii) no determination of entitlement to indemnification is made pursuant to Section 6(b) of this Agreement within 90 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to this Agreement within ten (10) days after receipt by the Company of a written request therefor or (v) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 6 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of Indemnitee’s entitlement to such indemnification.  Indemnitee shall commence such proceeding seeking an adjudication within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 7(a).  The Company shall not oppose Indemnitee’s right to seek any such adjudication.

 

(b)                                 In the event that a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 7 shall be conducted in all respects as a de novo trial on the merits, and Indemnitee shall not be prejudiced by reason of the adverse determination under Section 6(b).

 

(c)                                  If a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 7, absent (i) a

 

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misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading in connection with the application for indemnification, or (ii) a prohibition of such indemnification under applicable law.

 

(d)                                 In the event that Indemnitee, pursuant to this Section 7, seeks a judicial adjudication of his rights under, or to recover damages for breach of, this Agreement, or to recover under any directors’ and officers’ liability insurance policies maintained by the Company, the Company shall pay on his behalf, in advance, any and all expenses (of the types described in the definition of Expenses in Section 13 of this Agreement) actually and reasonably incurred by him in such judicial adjudication, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of expenses or insurance recovery.

 

(e)                                  The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 7 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement.  The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written request therefore) advance, to the extent not prohibited by law, such expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be.

 

(f)                                   Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.

 

8.                                      Non-Exclusivity; Survival of Rights; Insurance; Primacy of Indemnification; Subrogation.

 

(a)                                 The rights of indemnification as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the certificate of incorporation of the Company, the Bylaws, any agreement, a vote of stockholders, a resolution of directors or otherwise.  No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal.  To the extent that a change in the Delaware General Corporation Law, whether by statute or judicial decision, permits greater indemnification than would be afforded currently under the Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change.  No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise.  The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

 

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(b)                                 To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents or fiduciaries of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any director, officer, employee, agent or fiduciary under such policy or policies.  If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies.  The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

 

(c)                                  The Company hereby acknowledges that Indemnitee has certain rights to indemnification, advancement of expenses and/or insurance provided by Pharmstandard Internation S.A., with registered address 65, Boulevard Grande-Duchesse Charlotte L - 1331 Luxembourg, and certain of its affiliates (collectively, the “Fund Indemnitors”). The Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to Indemnitee are primary and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitee are secondary), (ii) that it shall be required to advance the full amount of expenses incurred by Indemnitee and shall be liable for the full amount of all Expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by the terms of this Agreement and the Certificate of Incorporation or Bylaws of the Company (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Fund Indemnitors, and (iii) that it irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Fund Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing and the Fund Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and Indemnitee agree that the Fund Indemnitors are express third party beneficiaries of the terms of this Section 8(c).

 

(d)                                 Except as provided in paragraph (c) above, in the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

 

(e)                                  Except as provided in paragraph (c) above, the Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

 

(f)                                   Except as provided in paragraph (c) above, the Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, employee or agent of any other corporation,

 

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partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise.

 

9.                                      Exception to Right of Indemnification. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

 

(a)                                 for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision; or

 

(b)                                 for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law; or

 

(c)                                  in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Board of Directors of the Company authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law.

 

10.                               Duration of Agreement.  All agreements and obligations of the Company contained herein shall continue during the period Indemnitee is a director of the Company (or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and for a period of five (5) years thereafter, and in addition shall continue thereafter so long as Indemnitee shall be subject to any Proceeding (or any proceeding commenced under Section 7 hereof) by reason of his Corporate Status, whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives.

 

11.                               Security.  To the extent requested by Indemnitee and approved by the Board of Directors of the Company, the Company may at any time and from time to time provide security to Indemnitee for the Company’s obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral.  Any such security, once provided to Indemnitee, may not be revoked or released without the prior written consent of the Indemnitee.

 

12.                               Enforcement.

 

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(a)                                 The Company expressly confirms and agrees that it has entered into this Agreement and assumes the obligations imposed on it hereby in order to induce Indemnitee to serve as a director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director of the Company.

 

(b)                                 This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.

 

13.                               Definitions.  For purposes of this Agreement:

 

(a)                                 “Corporate Status” describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving at the express written request of the Company.

 

(b)                                 “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

 

(c)                                  “Enterprise” shall mean the Company and any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that Indemnitee is or was serving at the express written request of the Company as a director, officer, employee, agent or fiduciary.

 

(d)                                 “Expenses” shall include all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding.  Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent.  Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

 

(e)                                  “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent:  (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder.  Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.  The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses,

 

11

 

claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

 

(f)                                   “Proceeding” includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative, in which Indemnitee was, is or will be involved as a party or otherwise, by reason of the fact that Indemnitee is or was a director of the Company, by reason of any action taken by him or of any inaction on his part while acting as a director of the Company, or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other Enterprise; in each case whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement; including one pending on or before the date of this Agreement, but excluding one initiated by an Indemnitee pursuant to Section 7 of this Agreement to enforce his rights under this Agreement.

 

14.                               Severability.  The invalidity of unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.  Without limiting the generality of the foregoing, this Agreement is intended to confer upon Indemnitee indemnification rights to the fullest extent permitted by applicable laws.  In the event any provision hereof conflicts with any applicable law, such provision shall be deemed modified, consistent with the aforementioned intent, to the extent necessary to resolve such conflict.

 

15.                               Modification and Waiver.  No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

 

16.                               Notice By Indemnitee.  Indemnitee agrees promptly to notify the Company in writing upon being served with or otherwise receiving any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification covered hereunder.  The failure to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise unless and only to the extent that such failure or delay materially prejudices the Company.

 

17.                               Notices.  All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given:  (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt.  All communications shall be sent:

 

(a)                                 To Indemnitee at the address set forth below Indemnitee’s signature hereto.

 

12

 

(b)                                 To the Company at:

 

200 West Street

Waltham, MA  02451
 Attention: CEO

 

or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.

 

18.                               Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement.  This Agreement may also be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

19.                               Headings.  The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

 

20.                               Governing Law and Consent to Jurisdiction.  This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. The Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (iv) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

 

SIGNATURE PAGE TO FOLLOW

 

13

 

IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement on and as of the day and year first above written.

 

 

	
 
    	
PROTEON THERAPEUTICS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Timothy Noyes
    
	
 
    	
Name:
    	
Timothy   Noyes
    
	
 
    	
Title:
    	
President   and Chief Executive Officer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
INDEMNITEE
    
	
 
    	
 
    
	
 
    	
/s/   Dmitry Kobyzev
    
	
 
    	
Name:
    	
Dmitry   Kobyzev
    
	
 
    	
 
    
	
 
    	
Address:
    
	
 
    	
115172, Moscow Russia 
    
	
 
    	
Krasncholmskaya nub 13 Bld 1, 2
    

 

SIGNATURE PAGE TO INDEMNIFICATION AGREEMENT - KOBYZEVEX10.1 - HeronLake-AgrinaturalLoanAgreement7.29.14

LOAN AGREEMENT
DATED:  JULY 29, 2014

This Loan Agreement (“Agreement”) is between Agrinatural Gas, LLC, a Delaware Limited Liability Company (hereinafter “Agrinatural”), and Heron Lake BioEnergy, LLC, a Minnesota Limited Liability Company, with an office located in Heron Lake, Minnesota (hereinafter “Heron Lake”).

WHEREAS, Agrinatural desires to obtain a loan from Heron Lake; and

WHEREAS, Heron Lake desires to provide a loan to Agrinatural under certain terms and conditions; and

NOW, THEREFORE, in consideration of the loan granted at the time of signing this Agreement and other good and valuable consideration, including the mutual reliance hereon, Agrinatural and Heron Lake agree as follows:

1)    Compliance with Terms and Conditions.  Agrinatural shall comply with the terms of all validly executed Notes, collateral security documents (whether relating to personal property and/or real property) and any other documents of every type and description related to its loan with Heron Lake as such currently exists and as such arises in the future.

2)    Execution of Additional Documents upon Request.  Agrinatural agrees that upon request it shall execute all documents reasonably necessary to grant and perfect the Loan and a Mortgage/Lien on all assets of Agrinatural.  Such additional documents may include, without limitation, one or more real estate mortgages, one or more supplemental security agreements, financing statements, assignments, agreements and other documents.

3)    Cross-Collateralization.  Simultaneous with execution hereof, Agrinatural shall execute a Security Agreement granting a security interest in all assets of Agrinatural to Heron Lake to secure any and all debt now or hereafter owed by Agrinatural to Heron Lake.  Upon the request of Heron Lake, Agrinatural shall grant a Mortgage/security interest in all property of every type and nature and all such property shall serve as collateral for all indebtedness owed by Agrinatural to Heron Lake.  

4)    Inspections.  Heron Lake may enter upon any location where Agrinatural assets are located to inspect such assets as granted as collateral to Heron Lake; provided that such inspections shall occur at reasonable times and upon advance notice to Agrinatural and 

1

further subject to observance by Heron Lake of all appropriate protocol for security and safety.

5)    Collateral Security.  If requested by Heron Lake, Agrinatural shall grant mortgages/liens to Heron Lake on the following collateral of Agrinatural:

		
	a)
	Such Security Agreements as shall grant Heron Lake a first priority lien on all of Agrinatural’s personal property including, but not limited to, all inventory, supplies, accounts, goods, chattel paper, equipment, instruments, investment property, documents, deposit accounts, Letter of Credit rights, general intangibles, contracts, etc., as all defined in Article 9 of the Minnesota Uniform Commercial Code.  

		
	b)
	Upon request of Heron Lake, Agrinatural shall grant Heron Lake a first position security interest in and to an Assignment for purposes of security of all rights and obligations of contracts and agreements incidental to Agrinatural’s business operations, including, but not limited to, any agreements regarding the delivery and/or sale of natural gas or other products.  Such shall include, but not be limited to, assignments of all agreements incidental to Agrinatural’s business operations.  

		
	c)
	Upon request, Agrinatural shall assign to Heron Lake for security purposes its interest in all hedge accounts and assign any documentation reasonably required to secure Heron Lake’s interest in any and all accounts relating to hedging activities.  Agrinatural hereby authorizes Heron Lake to enter into a Control Agreement with Agrinatural’s broker, as such broker my exist from time-to-time, relating to all hedge or brokerage accounts and hedging activities and Agrinatural shall join in executing all such documents and agreements reasonably required by Heron Lake.  

6)    Insecurity/Other Conditions.  Before making any loan disbursements or renewals, Heron Lake has the right to review the creditworthiness of Agrinatural.  If at any time Heron Lake deems itself insecure, or if it would be made insecure by the requested loan disbursement or loan renewal, then, in Heron Lake’s sole discretion, Heron Lake need not make any further loan disbursements hereunder and may exercise all rights and remedies allowed by the loan documents (Note(s), Security Agreement(s), etc.).

2

7)    Representations and Warranties.  Agrinatural represents and warrants to Heron Lake as follows:

		
	7.1
	Limited Liability Company Existence and Power.  Agrinatural is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, and is duly licensed and qualified to transact business in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes its licensing and qualification necessary.  Agrinatural has all requisite power and authority to conduct its business, to own its properties, and to execute and deliver, and to perform all of the obligations under this Agreement, the Notes and the Security Agreements.

		
	7.2
	Limited Liability Company Authority.  The execution, delivery and performance by Agrinatural of this Agreement, the Notes, Mortgages, Security Agreements and other documents required hereby and the borrowing, from time-to-time, hereunder do not:  (1) require any consent or approval of the members of Agrinatural, or any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign; (2) violate any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect having applicability to Agrinatural or to the Limited Liability Company Agreement of Agrinatural; (3) result in the breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which Agrinatural is a party or by which it or its properties may be bound or affected; or (4) result in or require the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance of any nature upon or with respect to any of the properties now owned or hereafter acquired by Agrinatural.

		
	7.3
	Financial Condition.  The financial statements delivered to Heron Lake are true and correct and accurately show the condition of Agrinatural.  There are no undisclosed contingent liabilities of which Agrinatural is aware that would materially impact upon their financial condition.  All taxes owed by Agrinatural have been paid or are fully reserved or the liabilities otherwise disclosed in prior financial statements issued to Heron Lake.  In addition, there has been no material adverse change in the business, properties or condition (financial or otherwise) of Agrinatural since the date of the latest financial statement given to Heron Lake.

		
	7.4
	Litigation.  There are no actions, suits or proceedings pending or, to the knowledge of Agrinatural, threatened against or affecting Agrinatural or the 

3

properties of Agrinatural before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, if determined adversely to Agrinatural, would have a material adverse effect on the financial condition, properties or operations of Agrinatural.

		
	7.5
	Titles and Liens.  Agrinatural has good and marketable title to each of the properties and, as it is reflected in the latest balance sheet given to Heron Lake, free and clear of all Mortgages, security interests, liens and encumbrances, except for covenants, restrictions, rights, easements and minor irregularities of title which do not materially interfere with the business or operations of Agrinatural as presently conducted.  

		
	7.6
	Project Compliance.  The current assets and operations of Agrinatural do, or upon completion, shall comply with all applicable environmental, pollution control and ecological laws, ordinances, rules and regulations.  All governmental authorities having jurisdiction over the Real Estate have issued all necessary permits, licenses or other authorizations for the construction, occupancy, operation and use of the Real Estate.

		
	7.7
	Utility Availability.  Subject only to payment of fees to be paid upon the approved budget, all utility and municipal services required for the construction, occupancy and operation of Agrinatural’s facilities and assets, including, but not limited to, water supply, gas, electric and telephone facilities, are available for use and tap-on at the boundaries of the Sites, and shall be available in sufficient amounts for the normal and intended use of the facilities.  Written permission has been or shall be obtained from the applicable utility companies or municipalities to connect the facilities into each of these services.  

The above warranties and representations shall be deemed continuing, fully binding and enforceable by Heron Lake until all indebtedness owed by Agrinatural to Heron Lake is paid in full.

8.Conditions and Affirmative Covenants of Agrinatural.  As long as any of the Notes or Loans made or being made under the terms of this Agreement shall remain unpaid or there are any commitments outstanding, Agrinatural shall comply with the following requirements, unless Heron Lake shall otherwise consent in writing:

8.1    Financial Statements.  Agrinatural shall deliver to Heron Lake, as soon as available and in such frequencies as Heron Lake shall request from time-to-time, and in any event, within thirty (30) days after the end of the most recent month of the request, complete financial statements and profit and loss statements as of the end of the month and for the year to date, in reasonable 

4

detail, and stating, in comparative form, the figures for the corresponding date or period in the previous year, all prepared in accordance with generally accepted accounting principles applied on a basis consistent with the accounting practices reflected in the annual financial statements. 

Agrinatural shall deliver to Heron Lake, as soon as available and in such frequencies as Heron Lake shall request from time-to-time, and in any event, within thirty (30) days after the end of the most recent month of the request, complete budget updates regarding expected income and expected costs as of the end of the month and for the year to date, in reasonable detail, and stating, in comparative form, the figures for the corresponding date or period in the previous year, all prepared in accordance with generally accepted accounting principles applied on a basis consistent with the accounting practices reflected in the annual financial statements.  

In addition, as soon as available, and, in any event, within ninety (90) days after the end of each fiscal year of Agrinatural, Agrinatural shall produce a copy of an unqualified audit prepared by a certified public accountant.  The audit shall include the balance sheet of Agrinatural as of the end of such fiscal year and the related statements of income, retained earnings and changes in financial position of Agrinatural in the fiscal year then ended, all in reasonable detail and all prepared in accordance with generally accepted accounting principles applied on a consistent basis.

In addition, as soon as available, and, in any event, within ninety (90) days after filing, Agrinatural shall produce a copy of all tax returns filed by Agrinatural.  
    
8.2    Books and Records; Inspection and Examination.  Agrinatural shall keep accurate books of record and account for itself in which true and complete entries shall be made in accordance with generally accepted accounting principles consistently applied and, upon the request of Heron Lake, shall give any representative of Heron Lake access to and permit such representative to examine, copy or make extracts from any and all books, records and documents in their possession, to inspect any of the properties, and to discuss their affairs, finances and accounts with any of the principal officers, all at such time during normal business hours and as often as Heron Lake may reasonably request.

8.3    Production Records.  Agrinatural shall maintain such records and reports of production and shall provide said reports to Heron Lake on such frequency as shall be agreed on by Heron Lake.  

5

8.4    Insurance.  Agrinatural shall obtain and maintain insurance with insurers believed by Agrinatural to be financially sound and reputable.  The insurance coverages to be obtained by Agrinatural shall include, but not be limited to, property loss, general casualty, liability, business interruption, construction in progress and such other coverages usually carried by companies engaged in similar business and owning similar properties in the same general areas in which Agrinatural operates.  All insurance coverages shall be in amounts acceptable to Heron Lake and shall list Heron Lake as loss payee.

8.5    Preservation of Limited Liability Company Existence.  Agrinatural shall preserve and maintain its limited liability company existence and all of its rights, privileges and franchises; provided, however, that Agrinatural shall not be required to preserve any of its rights, privileges and franchises if its members shall determine that the preservation thereof is no longer desirable in the conduct of business of Agrinatural and that the loss thereof is not disadvantageous in any material respect to Heron Lake as a holder of Notes under the terms of this Agreement.  

8.6    Costs and Expenses.  Agrinatural shall pay, when due, all costs and expenses required by this Agreement, including, without limitation:  (a) all taxes and assessments applied to the Real Estate; and (b) all premiums for insurance policies.

8.7    Negative Pledge.  Agrinatural shall not mortgage, pledge, assign or grant security interests in any asset to any other party without the prior written consent of Heron Lake.  Agrinatural shall not borrow money from any other party without the prior written consent of Heron Lake.

8.8    Dividends and Distributions to Members.  Agrinatural shall not:  (a) pay member dividends or distributions, and (b) make payments to members (owners) in the form of labor expense or management fees in any fiscal year without the prior written consent of Heron Lake, however, Heron Lake agrees that a capital distribution in an amount not to exceed fifty percent (50%) of prior fiscal year earnings in the aggregate may be made to members each year for payment of members’ estimated personal income tax liability resulting from Agrinatural’s earnings.  Agrinatural acknowledges that said capital distribution will not materially affect the financial condition of Agrinatural, and further acknowledges that Agrinatural will remain in full compliance with all agreements made with Heron Lake after said capital distribution.  Heron Lake reserves the right to terminate or suspend in any year Agrinatural’s ability 

6

to make a capital distribution to its members as provided herein for payment of members’ estimated personal income tax liability.  

8.9    Capital Expenditures.  Agrinatural shall not, during any calendar year, beginning January 1, 2015 and thereafter, acquire or obligate themselves to acquire any facilities, cash investments in other organizations or other non-current assets of more than Five Hundred Thousand and no/100 Dollars ($500,000.00) (including the asset value of leased equipment) without the prior written consent of Heron Lake.

8.10    Accounts Receivable.  Agrinatural shall take action on any aged accounts receivable more than thirty (30) days old and over One Hundred and no/100 Dollars ($100.00).  Agrinatural will initiate notice and disconnection procedures on accounts receivable more than sixty (60) days old and over One Hundred and no/100 Dollars ($100.00), pursuant to State Rule or Statute, or Commission Proceedings.  

8.11    Inventory Report.  Agrinatural shall furnish inventory reports in such form and frequency as required by Heron Lake.

8.12    Hedge Line Monitoring.  Agrinatural shall provide Heron Lake a written monthly statement and reconciliation of all transactions associated with the purchase and sale of commodities, to be received within ten (10) days after the end of each month.

		
	8.13
	Minimum Debt Service Coverage Ratio.  The Company will have at the end of the fiscal year 2014 of the Company a “Debt Service Coverage Ratio” (as defined below) of not less than 2.00 to 1.00, and for each fiscal year thereafter a ratio of not less than 1.20 to 1.00.  For purposes hereof, the term “Debt Service Coverage Ratio” shall mean the following (all as calculated for the most current year end in accordance with GAAP):  (1) net income plus depreciation and amortization, divided by (2) $610,000.

8.14    Minimum Working Capital.  The Company, beginning December 31, 2014 will have at the end of each period for which financial statements are required to be furnished an excess of current assets over current liabilities (both as determined in accordance with GAAP) of not less than $400,000.00,     provided, however, any note payable to a related party or other long-term debt classified as a current liability may be excluded from current liabilities.  

8.15    Environmental Representations, Conditions and Indemnity Clause.  Except 
        

7

as disclosed in writing to Heron Lake, Agrinatural represents and agrees as follows:

(a)    Hazardous Material Notice.  At all times during which Agrinatural is in control or possession of the facilities, whether directly or indirectly, Agrinatural agrees that it will not cause or permit any hazardous wastes to be brought upon, used, or stored upon or at the facilities which are not necessary or useful to Agrinatural’s business.  For purposes of this section, “hazardous wastes” shall have the same meaning as defined at Minn. Stat. § 116.06, Subd. 11.  All hazardous wastes that are necessary or useful to the facilities shall be properly handled and disposed of to comply with all federal, state, local and county laws and regulations governing such materials.  Agrinatural shall immediately notify Heron Lake of any notice it receives from any federal, state or local governmental or regulatory agencies or entities of ay violations relating to hazardous wastes.  Agrinatural shall comply with all rules, regulations and directives of the Minnesota Pollution Control Agency in any way relating to the handling, storage and disposal of hazardous wastes, and Agrinatural shall be solely liable under the Minnesota Environmental Response and Liability Act.

(b)    No Violation of Environmental Laws.  Agrinatural has not and shall not violate any federal, state or local environmental laws relating to or affecting their owned or leased Real Estate and/or pipelines, which violation would have a material effect on Agrinatural’s business or the value of the collateral.

(c)    Licenses.  Agrinatural shall, at all times, continue to exercise due diligence to obtain and maintain all licenses, permits and other approvals necessary to comply with environmental laws.

(d)    No Lawsuits.  There is no pending or threatened action, suit, investigation or proceeding against Agrinatural or any of its owned or leased Real Estate and/or pieplines seeking to enforce any right or remedy under any environmental law.

(e)    No Release of Hazardous Materials.  There has been no release of such nature requiring notification to proper authorities of any hazardous material onto Agrinatural’s owned or leased Real Estate and/or pipelines.  Agrinatural shall not willfully cause or permit such a release of hazardous material onto, or from, its owned or leased Real Estate 

8

and/or pipelines.  It shall give Heron Lake written notice of the release at the same time it gives notice to the proper authorities.

(f)    Storage Tanks and Pipelines Registered No Leaks.  All above ground and underground storage tanks and all pipelines have been duly registered with all applicable federal, state and local government authorities.  Agrinatural has no knowledge of any leaks from any of its above ground or underground storage tanks or from any of its pipelines.  

(g)    Investigation of Released Hazardous Materials.  If there is a suspected release of hazardous materials, Agrinatural shall conduct all investigations, testing and other action, including an environmental audit made at Heron Lake’s request, necessary to determine the extent (if any) of the release of hazardous materials and to clean up and remove all hazardous material in accordance with environmental laws.  The party performing such action shall be an environmental firm satisfactory to Heron Lake, and the action shall be done at Agrinatural’s expense.

(h)    Indemnity.  Agrinatural agrees to indemnify, hold harmless and defend Heron Lake against all liens, liabilities, demands, claims, actions, suits, judgments, expenses (including attorneys’, consultants’ and experts’ fees) paid or asserted against Heron Lake (or any of Agrinatural’s Real Estate and/or pipelines Heron Lake has taken title to by foreclosure or otherwise) as a direct result of Agrinatural’s violation of any environmental law, including, but not limited to, the release of any Hazardous Material, whether or not such violation was caused or within the control of Agrinatural.  This indemnity shall continue for the benefit of Heron Lake after the termination of this Agreement or other loan documents, including the release of any security interest. 

		
	(i)
	Definition.  Hazardous material is defined as any toxic, radioactive or hazardous substance, material, waste, pollutant, emission or contaminant, including, but not limited to:  asbestos, urea formaldehyde; the group of organic compounds known as polychlorinated biphenyls (PCBs); any petroleum product and by-product, including, but not limited to, gasoline, fuel, oil, crude oil and the various constituents of such products; pesticides, fertilizers and other agricultural chemicals.  It also includes any other substance or material whose generation, storage, treatment, handling, release or disposal is regulated by the provisions of any environmental law or any other waste, material, substance, pollutant or contaminant that might 

9

give rise to any common law or regulatory claim, damage, penalty or liability, or that is or may be detrimental to the environment or health of any living organism.  

		
	9.
	Events of Default, Rights and Remedies.  

(a)    The occurrence of any of the following shall constitute a default by Agrinatural in all indebtedness outstanding to Heron Lake.  A default under any Note or obligation shall constitute a default under all other Notes and obligations due and owing from Agrinatural to Heron Lake. Conditions or events of default shall mean any one of the following events (such being in addition to those conditions or events of default contained in Note(s) and other documents related to this Agreement):

		
	(i)
	If Agrinatural fails to make any payment of indebtedness when and as due under its Notes. 

		
	(ii)
	Any representation or warranty made by Agrinatural in this Agreement, or made by Agrinatural in any certificate, instrument or statement contemplated by or made or delivered to Heron Lake shall prove to have been incorrect in any material respect when made.  

		
	(iii)
	Default in the performance, or breach, of any covenant or agreement of Agrinatural in this Agreement and/or in Note(s) and/or other documents related to this Agreement.  

		
	(iv)
	Default by Agrinatural in the performance, or breach, of any covenant or agreement with any other creditor.

		
	(v)
	Agrinatural has been adjudicated a bankrupt or insolvent or admits, in writing, its inability to pay its debts as they mature and makes an assignment for the benefit of creditors; Agrinatural shall apply for and consent to the appointment of any receiver, trustee or other similar officer for all or any substantial part of its property; or such receiver, trustee or other similar officer shall be appointed without the application or consent of Agrinatural, and such appointment shall continue undischarged for a period of thirty (30) days; Agrinatural shall institute any bankruptcy, whether voluntary or involuntary; or any judgment, writ, warrant of attachment or execution or similar process shall 

10

be issued or levied against a substantial part of the property of Agrinatural, and such judgment, writ or other similar process shall not be released, vacated or fully bonded within thirty (30) days after issuance or levy.  

		
	(vi)
	A mechanic’s lien is recorded in the real estate records in any of the counties where the Real Estate and/or pipelines are located, and Agrinatural fails to obtain a discharge or release of the mechanic’s lien within thirty (30) days of its recording or fails to deposit with Heron Lake, within said thirty (30) days, sufficient monies to act as a reserve to pay the mechanic’s lien in full should the lien be determined to be valid and enforceable by a court of law.  

(b)    Upon the occurrence of an event of default or at any time thereafter until such event of default is cured to the written satisfaction of Heron Lake, Heron Lake may, but is not obligated to, exercise any and all of the following rights and remedies (such being in addition to those rights and remedies contained in Note(s) and other documents related to this Agreement):

		
	(i)
	Heron Lake may, by notice to Agrinatural, declare the entire unpaid principal amount of any or all Notes or obligations then outstanding, all interest accrued and unpaid thereon, and all other amounts payable under this Agreement or otherwise to be forthwith due and payable, whereupon such Notes or obligations, all such accrued interest in all such amounts shall become due and be forthwith due and payable without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by Agrinatural.  

		
	(ii)
	Heron Lake may cancel all further advances or disbursements to Agrinatural or on Agrinatural’s behalf against any Notes.  

		
	(iii)
	Heron Lake may, by notice to Agrinatural, declare any commitments then outstanding to be terminated, whereupon the same shall be forthwith terminated. 

		
	(iv)
	Heron Lake may, without notice to Agrinatural and without further action, apply any and all money owing by Heron Lake to Agrinatural to the payment of any Notes then outstanding, 

11

including interest accrued thereon, and of all sums then owing by Agrinatural hereunder.  

		
	(v)
	Heron Lake may exercise and enforce its rights and remedies under any Notes, Security Agreements and Mortgages and to proceed with the enforcement of any other rights and remedies it has under law.

		
	(vi)
	Heron Lake may seek equitable relief to obtain immediate possession of the facilities (including pipelines) to continue its operation or may request the appointment of a receiver for the operation of the facilities, Real Estate and pipelines until such time as the foreclosure of Heron Lake’s Mortgage(s) and/or security interests are completed and the redemption period has expired.  Agrinatural hereby consents to the appointment of a receiver in the event of default, and Agrinatural will not hinder or interfere with the receiver’s use or possession and quiet enjoyment of the premises.  

		
	10.
	Miscellaneous.

10.1    Costs and Expenses.  Agrinatural agrees to pay, on demand, all costs and expenses of Heron Lake in connection with the preparation and filing/recording of this Agreement, the Notes, security interests and other instruments and documents to be delivered hereunder and thereunder, including the reasonable fees and out-of-pocket expenses of counsel for Heron Lake with respect thereto, as well as all out-of-pocket expenses of legal counsel retained by Heron Lake in connection with the enforcement of this Agreement, the Notes, Security Agreements, Mortgages, and other documents and instruments to be delivered hereunder and thereunder.  This includes legal fees incurred by Heron Lake in the collection of the Notes; the enforcement of its liens or security interests, taking action in any bankruptcy of Agrinatural, and consulting on matters relating to the Notes and this Agreement.

10.2    No Waiver; Cumulative Remedies.  No failure or delay on the part of Heron Lake in exercising any right, power or remedy hereunder or under the Security Agreements, Mortgages or other documents taken under the terms of this Agreement shall operate as a wavier thereof; nor shall any single or partial exercise of any such right, power or 

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remedy preclude any other or further exercise thereof, or any exercise of any other right, power or remedy hereunder or under the documents provided as a part of this Agreement.  The remedies herein and in the Notes, Security Agreements, Mortgages and other documents provided are cumulative and not exclusive of any remedies provided by law.

10.3    Amendments, Etc.  No amendment, modification, termination or waiver of any of the provisions of this Agreement, the Security Agreements, Assignments or Notes or consent by Agrinatural to any departure therefrom shall be effective unless the same shall be in writing and signed by Heron Lake, and then such waiver and consent shall be effective only in the specific instance and for the specific purpose for which given.  No notice or demand on Agrinatural in any case shall entitle Agrinatural to any other or further notice or demand in similar or other circumstances. 

10.4    Addresses for Notices, Etc.  Except as otherwise expressly provided herein, all notices, requests, demands and other communications provided for hereunder and under the Notes, Mortgages or Security Agreements shall be in writing and mailed or delivered to the applicable party at is address indicated below:
If to Agrinatural:
Agrinatural Gas, LLC 
201 10th Street, P. O. Box 216
Heron Lake, MN  56137
            
If to Heron Lake:
Heron Lake BioEnergy, LLC 
91246 390th Avenue
Heron Lake, MN  56137 
                    
or, as to each party, at such other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this section.  All such notices, requests, demands or other communications shall, when mailed, be effective when deposited in the mail, addressed as aforesaid.

10.5    Application of Payments.  All payments received shall be applied to accrued interest as of the date the payment was received and then principal thereafter.

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10.6    Entire Agreement.  This Agreement constitutes the entire agreement between Agrinatural and Heron Lake.  Any prior oral discussions or representations are considered merged into this Agreement.  This Agreement may only be modified by a subsequent written document signed by both Heron Lake and Agrinatural.

10.7    Binding Effect, Assignment.  This Agreement and the Security Agreements, Mortgages and other documents taken in connection herewith shall be binding upon and inure to the benefit of Agrinatural and Heron Lake and their respective successors and assigns, except that Agrinatural shall not have the right to assign their rights hereunder or thereunder or any interest therein or herein without the prior written consent of Heron Lake.

10.8    Governing Law.  This Agreement, the Notes and Security Agreements, Real Estate Mortgages and other documents taken hereunder shall be governed by and construed in accordance with the laws of the State of Minnesota.  

10.9    Survival of Representations.  All representations, warranties, terms and conditions of this Agreement shall survive the closing and final disbursement on the loan(s) and shall continue to be binding and enforceable between the parties until any and all indebtedness owed Heron Lake has been paid in full.

10.10    Review.  Agrinatural and Heron Lake each acknowledge that they have had the opportunity to carefully read through the terms and conditions of this Agreement, and each has had sufficient time to consult with an attorney of their choice and to make revisions, modifications or changes to the original drafts of this Agreement.  Both parties acknowledge that they have had the opportunity to contribute to the terms and provisions of the final draft of this Agreement, and as a consequence, the parties agree and acknowledge that, in the event that it becomes necessary, at any time in the future, for a court of proper jurisdiction to review and interpret the terms and conditions of this Agreement, such terms and conditions will not be construed against either party as the drafter of the Agreement.

11.Payoff/Use of Funds.  The loan in the amount of Three Million Fifty Thousand and no/100 Dollars ($3,050,000.00) being made in conjunction with this Agreement shall be used to pay off Profinium Financial in the approximate amount of One Million Four 

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Hundred Fourteen Thousand and no/100 Dollars ($1,414,000.00) and other debts of Agrinatural as consented to by Heron Lake.  

12.Required Guaranty.  Heron Lake is requiring as a term of the loan referenced in paragraph 11 that Rural Energy Solutions, LLC guarantee twenty-seven percent (27%) of any amounts owed by Agrinatural to Heron Lake.  

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first above written.

BORROWER (DEBTOR):
AGRINATURAL GAS, LLC 
a Delaware Limited Liability Company

Dated: July 29, 2014            By:     /s/ Mychael L. Swan                

Its:         CEO            

By:         /a/ Ann T. Tessier            

Its:     CFO                

LENDER:
HERON LAKE BIOENERGY, LLC 

Dated:  July 29, 2014            By:     /s/ Steve A. Christensen        
                        
Its:         CEO            

By:     /s/ Stacie Schuler                

Its:         CFO            

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