Heron Lake BioEnergy, LLC (Form: 8-K, Received: 03/31/2015 06:09:33)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 25, 2015



HERON LAKE BIOENERGY, LLC
(Exact name of small business issuer as specified in its charter)

Minnesota	000-51825		41-2002393
(State or other jurisdiction of incorporation or organization)	(Commission File Number)		(I.R.S. Employer Identification No.)

91246 390th Avenue, Heron Lake, MN		56137-1375
(Address of principal executive offices)		(Zip Code)

(507) 793-0077
(Issuer's telephone number)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):



o	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT

Allonge to Negotiable Promissory Note dated July 29, 2014 from Agrinatural Gas, LLC

On March 30, 2015, Heron Lake BioEnergy, LLC (the "Company") entered into an allonge (the “Allonge”) to the negotiable promissory note dated July 29, 2014 (the "Note") with Agrinatural Gas, LLC ("Agrinatural"), our majority owned subsidiary. Agrinatural is a pipeline company formed to construct, own, and operate a natural gas pipeline that provides natural gas to the Company’s ethanol plant through a connection with the natural gas pipeline facilities of Northern Border Pipeline Company in Cottonwood County, Minnesota. The Company owns 73% of Agrinatural through the Company’s wholly-owned subsidiary HLBE Pipeline Company, LLC. The remaining 27% is owned by Rural Energy Solutions, LLC ("RES").

The Allonge is an integral part of the Note, and the related loan agreement, security agreement, and collateral assignment between the Agrinatural and the Company, all of which were dated July 29, 2014, and the guaranty of RES dated July 29, 2014 (as amended and modified from time to time, collectively referred to as the “Original Agrinatural Credit Facility”). Under the terms of the Original Agrinatural Credit Facility, the Company extended to Agrinatural a five-year term loan in the principal amount of $3.05 million.

Under the terms of the Allonge, the Company and Agrinatural agreed to amend the terms of the Note as follows:


•	the principal amount of Note was increased from $3.05 million to approximately $3.06 million;


•	the commencement of monthly principal repayment was deferred from January 1, 2015 to May 1, 2015 and the amount of the monthly principal repayment was decreased from approximately $51,000 to $36,000 per month plus interest;


•	the maturity date of the Note was shortened from December 1, 2019 to May 1, 2019.

Interest on the Original Agrinatural Credit Facility continues to be due and payable on a monthly basis. Except as otherwise set forth in the Allonge, all of the terms and conditions contained in the Original Agrinatural Credit Facility remain in full force and effect. The foregoing is only a summary of the material terms of the Allonge and does not purport to be complete and is subject to and qualified in its entirety by reference to such agreement, attached hereto as Exhibit 10.1. The Company previously filed a Form 8-K reporting the entry into the Original Agrinatural Credit Facility on August 11, 2014.

Additional Loan Agreement with Agrinatural Gas, LLC

On March 30, 2015, the Company entered into a new loan agreement, new negotiable promissory note, new security agreement, and new collateral assignment with Agrinatural ( all of which were dated March 30, 2015) to provide an additional credit facility to Agrinatural (the “Additional Agrinatural Credit Facility”).

Under the Additional Agrinatural Credit Facility, the Company agreed to make an additional four-year term loan in the principal amount of $3.5 million to Agrinatural to repay Agrinatural's outstanding trade accounts payable and provide working capital. Interest on the new term loan accrues at a variable rate equal to the One-Month LIBOR rate plus 4.0% subject to weekly adjustment, with the interest rate capped and not to exceed 6.0% per annum. Commencing May 1, 2015, principal of the new term loan shall be payable in equal monthly installments of $41,667.67, plus accrued interest, on the first day of each month though April 1, 2019. The entire principal balance and accrued and unpaid interest on the term loan is due and payable in full on the maturity date of May 1, 2019. Prior to May 1, 2015, Agrinatural is required to pay only monthly interest on the new term loan by the first day of each month.

The loan agreement contains customary financial and non-financial affirmative covenants and negative covenants for loans of this type and size. The financial covenants include (i) maintenance of at least $400,000 in working capital, measured monthly on a unconsolidated basis beginning on March 1, 2015; and (ii) maintenance of an debt service coverage ratio of not less than 1.50 to 1.00 at the end of fiscal year 2015 and for each fiscal year thereafter of not less 1.20 to 1.00. Additionally, Agrinatural is limited to annual capital expenditures of $100,000 without prior written consent of the Company, except for the $350,000 of previously committed capital expenditures in calendar year 2015. The loan agreement also prohibits Agrinatural from making distributions to its members without the prior approval of the Company; provided that Agrinatural may make distributions in an amount up to $300,000 to cover estimated tax obligations of the members due to taxable profits of Agrinatural. The loan agreement also limits the amount of payments that may be made on debt owed Swan Engineering, Inc., a related party and part owner of RES, for services previously provided by Swan Engineering to Agrinatural pursuant to the Project Management Agreement between Swan Engineering and Agrinatural.

The loan agreement provides for customary events of default which include (subject in certain cases to customary grace and cure periods), among others, the following: nonpayment of principal or interest; breach of covenants or other agreements in the loan

agreement; defaults in failure to pay certain other indebtedness; and certain events of bankruptcy or insolvency. If any event of default occurs, the unpaid principal balance and accrued interest on the Term Loan will become immediately due and payable.

In exchange for the Additional Agrinatural Credit Facility, Agrinatural executed a security agreement granting the Company a first lien security interest in all of Agrinatural's equipment and assets and a collateral assignment assigning the Company all of Agrinatural's interests in its contracts, leases, easements and other agreements. In addition, RES executed a guarantee under which RES guaranteed full payment and performance of 27% of Agrinatural's obligations to the Company.

The foregoing summaries of the material terms of the loan agreement, negotiable promissory note, security agreement, collateral assignment and guaranty comprising the Additional Agrinatural Credit Facility do not purport to be complete and are subject to and qualified in their entirety by reference to such agreements, which are attached hereto as Exhibits 10.2, 10.3, 10.4, 10.5 and 10.6, respectively.

Agrinatural Restructure Agreement

On March 30, 2015, Agrinatural Gas entered into a restructure agreement with Swan Engineering, Inc. Pursuant to the restructure agreement, Mychael Swan, the principal of Swan Engineering, resigned as the CEO of Agrinatural effective as January 10, 2014. Mr. Swan shall continue to serve as the chairman of the Agrinatural board of directors. Additionally, pursuant to the restructure agreement, the parties agreed to reduce the monthly fee paid by Agrinatural to Swan Engineering for day-to-day management services under the Natural Gas Local Distribution Company Management and Operating Agreement dated July 8, 2011 from $6,000 per month to $2,500 per month.

The foregoing summary of the restructure agreement does not purport to be complete and is subject to and is qualified in its entirety by reference to such agreement, which is attached hereto as Exhibit 10.7.


ITEM 2.03	CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT

The information disclosed in Item 1.01 is incorporated by reference into this Item 2.03.

ITEM 5.07 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On March 25, 2015, the Company held its 2015 Annual Meeting of Members (the “Annual Meeting”). The only matter voted upon by the members at the Annual Meeting was the election of two governors to serve for a term of three years, or until their respective successors have been elected and qualified or their earlier death, resignation or removal. The two governors whose term expired at the Annual Meeting were David Woestehoff and Doug Schmitz.

At least fifty percent of the outstanding units needed to be represented at the Annual Meeting in order for there to be a quorum. As of the record date for the Annual Meeting there was an aggregate total of 77,896,119 units issued, outstanding and entitled to vote at the Annual Meeting, of which 59,765,787 units or 76.7% were present either in person or by proxy. As a result, a quorum was present to conduct business at the Annual Meeting.

The following describes the matters considered by the Company’s members at the Annual Meeting, as well as the final results of the votes cast at the meeting. Votes were solicited in person and by proxy.

Under the Company’s member control agreement, the Class A units and the Class B units are identical with respect to voting rights and privileges. Therefore, the Class A units and Class B units vote collectively as a single class. However, units held by appointing members, and such appointing member's affiliates, are not entitled to vote for the election of governors. Therefore, of the total units present in person or by proxy at the meeting, 20,344,838 units were entitled to vote on Proposal 1 and the two nominees receiving the greatest number of votes would be elected to fill the two governor positions; provided, that each receives an affirmative vote of members holding at least a majority of the units present, in person or proxy.

There were three nominees for the two governor positions: David Woestehoff, Doug Schmitz and Gregory L. Grossbach. The votes for the nominee governors were as follows:



Name		Votes For
David Woestehoff		16,000,888
Doug Schmitz		17,785,063
Gregory L. Grossbach		2,554,900

As a result, Mr. Woestehoff and Mr. Schmitz were re-elected as governors of the Company to each serve a three-year term expiring at the 2018 Annual Meeting or until their respective successors have been elected and qualified or their earlier death, resignation or removal.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS



(a)	None.
(b)	None.
(c)	None.
(d)	Exhibits
	10.1	Allonge Agreement dated March 30, 2015 by and between Agrinatural Gas, LLC, and Heron Lake BioEnergy, LLC
	10.2	Loan Agreement dated March 30, 2015 by and between Agrinatural Gas, LLC, and Heron Lake BioEnergy, LLC
	10.3	Promissory Note dated March 30, 2015 between Heron Lake BioEnergy, LLC, as Holder, and Agrinatural Gas, LLC, as Borrower
	10.4	Security Agreement dated March 30, 2015 by and between Agrinatural Gas, LLC, and Heron Lake BioEnergy, LLC
	10.5	Collateral Assignment dated March 30, 2015 by and between Agrinatural Gas, LLC, and Heron Lake BioEnergy, LLC
	10.6	Guaranty dated March 30, 2015 by Rural Energy Solutions, LLC, guarantor, in favor of Heron Lake BioEnergy, LLC
	10.7	Restructure Agreement dated March 30, 2015 by and between Agrinatural Gas, LLC and Swan Engineering, Inc.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



	HERON LAKE BIOENERGY, LLC

Date: March 30, 2015	/s/ Stacie Schuler
	Stacie Schuler, Chief Financial Officer

Loan to Agrinatural Gas, LLC

ALLONGE

Agreement, made this 30 ^th day of March, 2015 by and between Heron Lake BioEnergy, LLC, (hereafter referred to as “Heron Lake”) and Agrinatural Gas, LLC (hereafter referred to as “Agrinatural”);

WHEREAS, Agrinatural executed and delivered to Heron Lake a Negotiable Promissory Note dated July 29, 2014; and

WHEREAS, on March 30, 2015, the following amounts were outstanding on the Promissory Note:

Principal - $3,050,000.00

Interest - $ 10,453.80

TOTAL - $3,060,453.80

and

WHERESAS, Agrinatural desires to restructure the payments as required by said Negotiable Promissory Note; and

WHEREAS, Heron Lake has agreed to extend and restructure the repayment terms of said Promissory Note; and

WHEREAS, Agrinatural and Heron Lake mutually desire and agree to modify the repayment terms on the Negotiable Promissory Note in accordance with the terms and conditions herein setforth.

NOW, THEREFORE, it is agreed:

1) The Negotiable Promissory Note dated July 29, 2014 between Heron Lake and Agrinatural is hereby modified to provide for repayment terms as herein set forth.

2) Agrinatural and Heron Lake agree that on March 30, 2015 the sum of $3,060,453.80 shall be owed (principal and interest) by Agrinatural to Heron Lake on the Negotiable Promissory Note.

3) The interest rate as set by said Negotiable Promissory Note shall remain in effect and shall not be changed or modified.

4) The payment terms are modified as follows:

Payment . Beginning May 1, 2015 and on the first day of each month thereafter through and including April 1, 2019, $36,309.52 of principal, plus interest shall be paid. On May 1, 2019 all remaining principal, plus interest, shall balloon and shall be paid in full.

5) Agrinatural and Heron Lake acknowledge and agree that the balance due on the Negotiable Promissory Note shall continue to be secured and subject to all agreements and documents executed when the July 29, 2014 Negotiable Promissory Note was extended, including, but not limited to a Loan Agreement, Security Agreement, Collateral Assignment and Guaranty of Rural Energy Solutions, LLC (all of which are correspondingly dated July 29, 2014) and including UCC Financing Statement(s).

6) Agrinatural and Heron Lake acknowledge that said documents and agreements as described in paragraph 5 shall remain in full force and effect to secure and control payments of the balance due on the Negotiable Promissory Note. Nothing herein contained shall affect or modify in any regard Heron Lake’s lien position or security on any real estate, personal property, or fixtures or other interests in which Heron Lake holds a security interest or collateral interest.

7) Except as specifically modified herein, Heron Lake and Agrinatural agree that all other terms and conditions of the Negotiable Promissory Note and the other documents and agreements as described herein shall remain in full force and effect. In the event of default on this Allonge or the other documents and agreements described herein, Heron Lake reserves and retains all rights and remedies that it may have under those documents and under Minnesota law to pursue collection of the indebtedness including, without limitation, foreclosure, replevin or a suit for money damages.

The parties have hereunto set their hands to this Allonge the day and year first above written.



AGRINATURAL GAS, LLC		HERON LAKE BIOENERGY, LLC

By:	/s/ John Sprangers	By:	/s/ Steve A. Christensen
Its:	CEO	Its:	CEO/GM

Rural Energy Solutions, LLC acknowledges the terms and conditions of this Allonge and acknowledges and agrees that the Guaranty dated July 29, 2014 executed by Rural Energy Solutions, LLC guarantying said Negotiable Promissory Note is valid and enforceable and shall remain in full force and effect.

Dated: March 30, 2015.

RURAL ENERGY SOLUTIONS, LLC

By: /s/ Mychael L. Swan

Its: CEO/Chairman

By: /s/ Ann Tessier

Its: CFO

LOAN AGREEMENT

DATED: MARCH 30, 2015

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 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:

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.

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.

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.).

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

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 liens/mortgages as previously granted to Heron Lake and 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 or any other Agreements 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 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.

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.

Agrinatural shall pay no debts currently outstanding without Board approval of Agrinatural, except for payments as described and allowed at paragraphs 8.8 and 8.15.


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, except subject to all the other terms and conditions of this Loan Agreement and other

agreements related to these loans, Agrinatural may distribute up to $300,000.00 each calendar year to cover estimated tax obligations caused by taxable profit of Agrinatural. Agrinatural acknowledges that any such payments and distributions 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. Heron Lake reserves the right to terminate or suspend in any year Agrinatural’s ability to make distributions to its members.

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 One Hundred Thousand and no/100 Dollars ($100,000.00) (including the asset value of leased equipment) without the prior written consent of Heron Lake, except that Agrinatural is authorized to proceed with and pay up to $350,000.00 for capital expenditures in calendar year 2015. (Such capital expenditures related to previous commitments made by Agrinatural.)


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 2015 of the Company a “Debt Service Coverage Ratio” (as defined below) of not less than 1.5 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) The debt as then owed by Agrinatural to Heron Lake (as of the date the Ratio is calculated).


8.14	Minimum Working Capital . The Company, beginning March 1, 2015 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, excluding obligations and debt owed to related parties.

The financial statements which are received by the Agrinatural Board at its next meeting shall be deemed incorporated herein as a representation of the current financial status of Agrinatural.

8.15

Payments by Agrinatural to Swan Engineering on Debt Owed For Prior Services On Project Management Agreement . Agrinatural owes approximately $475,000 to Swan Engineering for services previously provided by Swan Engineering pursuant to the Project Management Agreement (construction). Such amounts may be paid by Agrinatural to Swan Engineering (subject to the requirements of paragraph 8.16 hereof) on the following schedule:


(a)	$200,000.00 in calendar year 2015;


(b)	$200,000.00 in calendar year 2016;


(c)	The remaining balance in calendar year 2017.

8.16

All Payments Subject to Available Cash (Cash Flow) . All payments as allowed by this Loan Agreement (to Swan Engineering as described in paragraph 8.15 hereof; for dividends and distributions to members for estimated tax consequences and any other payments allowed by this Loan Agreement) shall be subject to Agrinatural having adequate cash and verification of cash flow so as to fund any such payments out of cash, reserving sufficient cash for operations, including the Minimum Working Capital as required by paragraph 8.14 hereof and reserving (retaining) at all times, at least $200,000.00 of cash on hand, specifically keeping in mind and accounting for the required debt payments to Heron Lake as required by the promissory notes owed by Agrinatural to Heron Lake. All payments to Swan Engineering as allowed by paragraph 8.15 hereof shall be calculated and shall occur on a quarterly basis. Any dividends and distributions to members for estimated tax shall be calculated and occur at year end (each calendar year).


8.17	Environmental Representations, Conditions and Indemnity Clause . Except 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 pipelines 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 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 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 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, 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 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:

John Sprangers

680 Commerce Drive, Suite 270

Woodbury, MN 55125

and also to :

Agrinatural Gas, LLC

201 10 ^th 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.


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 Five Hundred Thousand and no/100 Dollars ($3,500,000.00) being made in conjunction with this Agreement shall be used to pay off NPL Construction (for construction done in calendar year 2014) 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.

13. Prior Agreements and Documents to Remain in Effect . The documents as previously executed by and between the parties regarding the loan by Heron Lake to Agrinatural that occurred July 29, 2014 shall remain in full force and effect. The intention is the terms and conditions of this Loan Agreement and the other Agreements/documents being executed in conjunction with this new loan shall be cumulative to and provide further rights and assurances to Heron Lake and shall not be construed to limit any rights and authority as granted to Heron Lake by previous documents or as granted by these newly executed agreements and documents.

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: March 30, 2015. By: /s/ John Sprangers

Its: CEO

By: /s/ Ann Tessier

Its: CFO

SEE ADDITIONAL SIGNATURES ON PAGE 16

LENDOR:

HERON LAKE BIOENERGY, LLC

Dated: March 30, 2015. By: /s/ Steve A. Christensen

Its: CEO/GM

By: /s/ Stacie Schuler

Its: CFO

Negotiable Promissory Note

DATED: March 30, 2015 PAYABLE: Installments

AMOUNT: $3,500,000.00

For value received, AGRINATURAL GAS, LLC, promises to pay to the order of HERON LAKE BIOENERGY, LLC, at 91246 390th Avenue, Heron Lake, MN 56137, or at any other place designated from time to time in writing by the holder hereof, in lawful money of the United States of America, the principal sum of Three Million Five Hundred Thousand and no/100 Dollars ($3,500,000.00) plus interest; all as provided herein.

Interest . One month Libor rate, plus four percent (4%), with interest capped and to not exceed six percent (6%) per annum, on the unpaid balance from time-to-time.

The interest charged to Borrower shall be reset weekly on the first “U.S. Banking Day” of each week as defined herein.

The one month Libor rate defined as follows: a rate (rounded upward to the nearest 1/100 ^th and adjusted for reserves required on “Euro Currency Liabilities” (as hereinafter defined) for banks subject to “FRB Regulation D” (as hereinafter defined) or required by any other Federal Law or Regulation) per annum at the rate reported at 11:00 a.m. London time for the offering of one (1) month U.S. Dollars deposits, by Bloomberg Information Services (or any successor or substitute service providing rate quotations comparable to those currently provided by such service, from time-to-time, for the purpose of providing quotations of interest rates applicable to dollar deposits in the London Interbank Market) on the first “U.S. Banking Day” (as hereinafter defined) in each week, with such rate to change weekly on such day. The rate shall be reset automatically, without the necessity of notice being provided to the Borrower or any other party, on the first “U.S. Banking Day” of each succeeding week, and each change in the rate shall be applicable to all balances subject to this Promissory Note. Information about the then-current rate shall be made available upon request.

For purposes hereof: (1) “U.S. Banking Day” shall mean a day on which Lender is open for business and banks are open for business in New York, New York; (2) “Euro Currency Liabilities” shall have the meaning set forth in “FRB Regulation D”; and (3) “FRG Regulation D” shall mean Regulation D as promulgated by the Board of Governors of the Federal Reserve System, 12CRF Part 204, as amended.

1 of 2

Payment . Beginning May 1, 2015 and on the 1 ^st day of each month thereafter through and including April 1, 2019, $41,666.67 of principal, plus interest shall be paid. On May 1, 2019 all remaining principal, plus interest, shall balloon and shall be paid in full.

Security . The amounts owed pursuant to this Negotiable Promissory Note are secured.

Guaranty . Twenty-seven percent (27%) of any and all amounts owed pursuant to this Promissory Note (principal, interest, attorneys’ fees and costs) shall be guaranteed by the execution of a separate Guaranty by Rural Energy Solutions, LLC.

Prepayment . This note may be prepaid at any time, in whole or in part, without penalty.

Default . If Borrower fails to make any payments due under this Note when due, then, the holder hereof may accelerate the entire balance of this Note and declare the same immediately due and payable without further notice or demand. Borrower shall pay all costs and expenses of collection or foreclosure, including, without limitation, reasonable attorneys' fees, except to the extent limited or prohibited by applicable law. Any written notice to Borrower hereunder shall be by certified mail, postage prepaid, and addressed to the Borrower at the property address or at such other address as Borrower designates by written notice to holder.

No delay or omission on the part of the holder in exercising any right hereunder shall operate as a waiver of such right or of any other remedy under this Note. A waiver on any one occasion shall not be construed as a waiver of any such right or remedy on a future occasion.

Dated: March 30, 2015.

AGRINATURAL GAS, LLC

By: /s/ John Sprangers

Its: CEO

By: /s/ Ann Tessier

Its: CFO

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SECURITY AGREEMENT

THIS SECURITY AGREEMENT, effective March 30, 2015, is made and executed by and between Agrinatural Gas, LLC, a Delaware limited liability company, having its principal place of business at 201 - 10th Street, P.O. Box 216, Heron Lake, Minnesota 56137 ("Grantor") and Heron Lake BioEnergy, LLC, a Minnesota limited liability company, having its principal place of business at 91246 - 390 ^th Ave., Heron Lake, Minnesota 56137 ("Lender").


1.	Grant of Security Interest . For valuable consideration, and to secure the Indebtedness:


a.	Grantor grants to Lender a security interest in all of Grantor’s currently existing and hereafter acquired property detailed in Exhibit A annexed hereto and incorporated herein by reference (the “ Collateral ”). Grantor agrees that Lender shall have the rights stated in this Security Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law.


b.	Grantor shall assign all existing easements in which Grantor is the holder, dominant tenant or has any other beneficial interest whatsoever.

Cross Collateralization . In addition to the Note, this Security Agreement secures all obligations, debts and liabilities, plus interest thereon, of Grantor to Lender, or any one or more of them, as well as all claims by Lender against Grantor or any one or more of them, whether now existing or hereafter arising, whether related or unrelated to the purpose of the Note, whether voluntary or otherwise, whether due or not due, direct or indirect, determined or undetermined, absolute or contingent, liquidated or unliquidated whether Grantor may be liable individually or jointly with others, whether obligated as guarantor, surety, accommodation party or otherwise, and whether recovery upon such amounts may be or hereafter may become barred by any statute of limitations, and whether the obligation to repay such amounts may be or hereafter may become otherwise unenforceable. All rights of Lender and all obligations of Grantor hereunder shall be absolute and unconditional irrespective of (i) any lack of validity or enforceability of the Note or any Related Documents, (ii) any change in the time, manner or place of payment of, or in any other term in respect of, all or any of the obligations under the Note or any Related Documents, or any other amendment or waiver of or consent to any departure from the Note or any Related Documents, (iii) any exchange or release of (except to the extent of such release), or non-perfection of any lien on any Collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the obligations under the Note or any Related Documents, or (iv) any other circumstance that might otherwise constitute a defense available to, or a discharge of, Lender in respect of the Note or any Related Documents.


3.	Right of Setoff . To the extent permitted by applicable law, Lender reserves a right of setoff and Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any obligations that Lender may have to Grantor at any time.


4.	Grantor's Representations and Warranties with Respect to the Collateral . With respect to the Collateral, Grantor represents, promises and warrants to Lender that:

Perfection of Security Interest . Grantor agrees to execute financing statements and to take whatever other actions are requested by Lender to perfect and continue Lender's security interest in the Collateral. Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Grantor will note Lender's interest upon any and all chattel paper if not delivered to Lender for possession by Lender. This is a continuing Security Agreement and will continue in effect even though all or any part of the Indebtedness is paid in full and even though for a period of time Grantor may not be indebted to Lender.

Enforceability of Collateral . To the extent the Collateral consists of accounts, chattel paper, or general intangibles, as defined by the Uniform Commercial Code, the Collateral is enforceable in accordance with its terms, is genuine, and fully complies with all applicable laws and regulations concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the Collateral have authority and capacity to contract and are in fact obligated as they appear to be on the Collateral. At the time any Account becomes subject to a security interest in favor of Lender, the Account shall be a good and valid account representing an undisputed, bona fide indebtedness incurred by the account debtor, for merchandise held subject to delivery instructions or previously shipped or delivered pursuant to a contract of sale, or for services previously performed by Grantor with or for the account debtor. So long as this Security Agreement remains in effect, Grantor shall not, without Lender's prior written consent, compromise, settle, adjust, or extend payment under or with regard to any such Accounts. There shall be no setoffs or counterclaims against any of the Collateral, and no agreement shall have been made under which any deductions or discounts may be claimed concerning the Collateral except those disclosed to Lender in writing.

Location of the Collateral . Except in the ordinary course of Grantor's business, Grantor agrees to keep the Collateral (or to the extent the Collateral consists of intangible property such as accounts or general intangibles, the records concerning the Collateral) at Grantor's address shown above or at such other locations as are acceptable to Lender. Upon Lender's request, Grantor will deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral locations relating to Grantor's operations, including without limitation the following: (1) all real property Grantor owns or is purchasing; (2) all real property Grantor is renting or leasing; (3) all storage facilities Grantor owns, rents, leases, or uses; and (4) all other properties where Collateral is or may be located.

Removal of the Collateral . Except in the ordinary course of Grantor's business, including the sales of inventory, Grantor shall not remove the Collateral from its existing location without Lender's prior written consent. To the extent that the Collateral consists of vehicles, or other titled property, Grantor shall not take or permit any action which would require application for certificates of title for the vehicles outside the State of Minnesota, without Lender's prior written consent. Grantor shall, whenever requested, advise Lender of the exact location of the Collateral.

Severance from Real Property . Grantor agrees that all Collateral shall be and remain severed from the real property wherever the same may be installed and further agrees that upon any Event of Default, that Lender may (a) take possession of and remove said fixture(s) (the Collateral) without notice to (including without notice to any other creditors of Grantor) and without liability to Grantor or any of its creditors for any diminution of value of the real estate caused by the absence of the fixture(s) (the Collateral) or by any necessity for replacing the fixture(s) (the Collateral), and (b) enforce Lender’s security interest granted herein against said fixture(s) (the Collateral).

Transactions Involving Collateral . Except for inventory sold or accounts collected in the ordinary course of Grantor's business, or as otherwise provided for in this Security Agreement, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. While Grantor is not in default under this Security Agreement, Grantor may sell inventory, but only in the ordinary course of its business and only to buyers who qualify as a buyer in the ordinary course of business. A sale in the ordinary course of Grantor's business does not include a transfer in partial or total satisfaction of a debt or any bulk sale. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Security Agreement, without the prior written consent of Lender. This includes security interests even if junior in right to the security interests granted under this Security Agreement. Unless waived by Lender, all proceeds from any disposition of the Collateral (for whatever reason) shall be held in trust for Lender and shall not be commingled with any other funds; provided however, this requirement shall not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall immediately deliver any such proceeds to Lender.

Title . Grantor represents and warrants to Lender that Grantor holds good and marketable title to the Collateral, free and clear of all liens and encumbrances except for the lien of this Security Agreement. No financing statement covering any of the Collateral is on file in any public office other than those which reflect the security interest created by this Security Agreement or to which Lender has specifically consented. Grantor shall defend Lender's rights in the Collateral against the claims and demands of all other persons.

Repairs and Maintenance . Grantor agrees to keep and maintain, and to cause others to keep and maintain, the Collateral in good order, repair and condition at all times while this Security Agreement remains in effect. Grantor further agrees to pay when due all claims for work done on, or services rendered or material furnished in connection with the Collateral so that no lien or encumbrance may ever attach to or be filed against the Collateral.


i.	Inspection of Collateral . Lender and Lender's designated representatives and agents shall have the right at all reasonable times to examine and inspect the Collateral wherever located.


j.	Taxes, Assessments and Liens . Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Security Agreement, upon any promissory note or notes evidencing the Indebtedness, or upon any of the other Related Documents. Grantor may withhold any such payment or may elect to contest any lien if

Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's interest in the Collateral is not jeopardized in Lender's sole opinion.

Compliance with Governmental Requirements . Grantor shall comply promptly with all laws, ordinances, rules and regulations of all governmental authorities, now or hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral. Grantor may contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Lender's interest in the Collateral, in Lender's opinion, is not jeopardized.

Hazardous Substances . Grantor represents and warrants that the Collateral never has been, and never will be so long as this Security Agreement remains a lien on the Collateral, used in violation of any Environmental Laws or for the generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any Hazardous Substance. Grantor hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Grantor becomes liable for cleanup or other costs under any Environmental Laws, and (2) agrees to indemnify and hold harmless Lender against any and all claims and losses resulting from a breach of this provision of this Security Agreement. This obligation to indemnify shall survive the payment of the Indebtedness and the satisfaction of this Security Agreement.

Maintenance of Casualty Insurance . Grantor shall procure and maintain all risks insurance, including without limitation fire, theft and liability coverage together with such other insurance as Lender may require with respect to the Collateral, in form, amounts, coverages and basis reasonably acceptable to Lender and issued by a company or companies reasonably acceptable to Lender. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days' prior written notice to Lender and not including any disclaimer of the insurer's liability for failure to give such a notice. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest, Grantor will provide Lender with such loss payable or other endorsements as Lender may require, if Grantor at any time fails to obtain or maintain any insurance as required under this Security Agreement, Lender may (but shall not be obligated to) obtain such insurance as Lender deems appropriate, including if Lender so chooses "single interest insurance," which will cover only Lender's interest in the Collateral.

Application of Insurance Proceeds . Grantor shall promptly notify Lender of any loss or damage to the Collateral. Lender may make proof of loss if Grantor fails to do so within fifteen (15) days of the casualty. All proceeds of any insurance on the Collateral, including accrued proceeds thereon, shall be held by Lender as part of the Collateral. If Lender consents to repair or replacement of the damaged or destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds

for the reasonable cost of repair or restoration. If Lender does not consent to repair or replacement of the Collateral, Lender shall retain a sufficient amount of the proceeds to pay all of the indebtedness, and shall pay the balance to Grantor. Any proceeds which have not been disbursed within six (6) months after their receipt and which Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the Indebtedness.

Financing Statements . Grantor authorizes Lender to file a UCC-1 financing statement, or alternatively, a copy of this Security Agreement to perfect Lender's security interest. At Lender's request, Grantor additionally agrees to sign all other documents that are necessary to perfect, protect, and continue Lender's security interest in the Collateral. Grantor will pay all filing fees, title transfer fees, and other fees and costs involved unless prohibited by law or unless Lender is required by law to pay such fees and costs. Grantor irrevocably appoints Lender to execute financing statements and documents of title in Grantor's name and to execute all documents necessary to transfer title if there is a default, Lender may file a copy of this Security Agreement as a financing statement. If Grantor changes Grantor's name or address, or the name or address of any person granting a security interest under this Security Agreement changes, Grantor will promptly notify the Lender of such change.

Notices to Lender . Grantor will promptly notify Lender in writing at Lender's address shown above (or such other addresses as Lender may designate from time to time) prior to any (1) change in Grantor's name; (2) change in Grantor's assumed business name(s); (3) change in the management of the Corporation Grantor; (4) change in the authorized signer(s); (5) change in Grantor's principal office address; (6) change in Grantor's state of organization; (7) conversion of Grantor to a new or different type of business entity; or (8) change in any other aspect of Grantor that directly or indirectly relates to any agreements between Grantor and Lender. No change in Grantor's name or state of organization will take effect until after Lender has received notice.


6.	No Violation . The execution and delivery of this Security Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any term or condition of this Security Agreement.

Grantor's Right to Possession and to Collect Accounts . Until default and except as otherwise provided below with respect to accounts, Grantor may have possession of the tangible personal property and beneficial use of all the Collateral and may use it in any lawful manner not inconsistent with this Security Agreement or the Related Documents, provided that Grantor's right to possession and beneficial use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect Lender's security interest in such Collateral. Until otherwise notified by Lender, Grantor may collect any of the Collateral consisting of accounts. At any time, and even though no Event of Default exists, Lender may exercise its rights to collect the accounts and to notify account debtors to make payments directly to Lender for application to the Indebtedness. If Lender at any time has possession of any Collateral, whether before or after an Event of Default, Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if

Lender takes such action for that purpose as Grantor shall request or as Lender, in Lender's sole discretion, shall deem appropriate under the circumstances, but failure to honor any request by Grantor shall not of itself be deemed to be a failure to exercise reasonable care. Lender shall not be required to take any steps necessary to preserve any rights in the Collateral against prior parties, nor to protect, preserve or maintain any security interest given to secure the Indebtedness.

Lender's Expenditures . If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Grantor fails to comply with any provision of this Security Agreement or any Related Documents, including but not limited to Grantor's failure to discharge or pay when due any amounts Grantor is required to discharge or pay under this Security Agreement or any Related Documents, Lender on Grantor's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on the Collateral and paying all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity. This Security also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon Default.


9.	Default . Each of the following shall constitute an Event of Default under this Security Agreement:


a.	Payment Default . Grantor fails to make any payment when due under the Indebtedness.


b.	Other Defaults . Grantor fails to comply with or to perform any other term, obligation, covenant or condition contained in this Security Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Grantor.

Default in Favor of Third Parties . Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Grantor's property or Grantor's or any Grantor's ability to repay the Indebtedness or perform their respective obligations under this Security Agreement or any of the Related Documents.


d.	False Statements . Any warranty, representation or statement made or furnished to Lender by Grantor or on Grantor's behalf under this Security Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.


e.	Defective Collateralization . This Security Agreement or any of the Related Documents

ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason.

Insolvency . The dissolution, termination, or suspension of Grantor's existence as an ongoing business, the Grantor admits in writing its inability to pay its debts as they mature, the insolvency of Grantor, the appointment of a receiver for any part of Grantor's property, any assignment by the Grantor for the benefit of its creditors, any type of creditor workout, or the commencement of any bankruptcy, reorganization or other insolvency proceedings by or against Grantor.

Creditor or Forfeiture Proceedings . Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Grantor or by any governmental agency against any collateral securing the Indebtedness. This includes a garnishment of any of Grantor's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Grantor as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding.


h.	Events Affecting Guarantor . Any of the preceding events occurs with respect to any guarantor, endorser, surety, or accommodation party of any of the Indebtedness or guarantor, endorser, surety, or any accommodation party dies or becomes incompetent or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.


i.	Adverse Change . A material adverse change occurs in Grantor's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired.


j.	Insecurity . Lender in good faith believes itself insecure.


10.	Rights and Remedies on Default . If an Event of Default occurs under this Security Agreement, at any time thereafter, Lender shall have all the rights of a secured party under this Security Agreement and the Minnesota Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following rights and remedies:


a.	Accelerate Indebtedness . Lender may declare the entire Indebtedness, including any prepayment penalty which Grantor would be required to pay, immediately due and payable, without notice of any kind to Grantor.

Assemble Collateral . Lender may require Grantor to deliver to Lender all or any portion, of the Collateral and any and all certificates of title and other documents relating to the Collateral. Lender may require Grantor to assemble the Collateral and make it available to Lender at a place to be designated by Lender. Lender also shall have full power to enter upon the property of Grantor to take possession of and remove the Collateral. If the Collateral contains other goods not covered by this Security Agreement at the time of repossession, Grantor agrees Lender may take such other goods, provided that Lender makes reasonable efforts to return them to Grantor after repossession.


c.	Sell the Collateral . Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in Lender's own name or that of Grantor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens to

decline speedily in value or is of a type customarily sold on a recognized market, Lender will give Grantor, and other persons as required by law, reasonable notice of the time and place of any public sale, or the time after which any private sale or any other disposition of the Collateral is to be made. However, no notice need be provided to any person who, after Event of Default occurs, enters into and authenticates an agreement waiving that person's right to notification of sale. The requirements of reasonable notice shall be met if such notice is given at least ten (10) days before the time of the sale or disposition. All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, repairing, preparing for sale and selling the Collateral, shall become a part of the Indebtedness secured by this Security Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid.

Appoint Receiver . Lender shall have the right to have a receiver appointed to take possession of all or any part of the Collateral, with the power to protect and preserve the Collateral, to operate the Collateral preceding foreclosure or sale, and to collect the Rents from the Collateral and apply the proceeds, over and above the cost of the receivership, against the Indebtedness. The receiver may serve without bond if permitted by law. Lender's right to the appointment of a receiver shall exist whether or not the apparent value of the Collateral exceeds the Indebtedness by a substantial amount. Employment by Lender shall not disqualify a person from serving as a receiver.

Collect Revenues, Apply Accounts . Lender, either itself or through a receiver, may collect the payments, rents, income, and revenues from the Collateral. Lender may at any time in Lender's discretion transfer any Collateral into Lender's own name or that of Lender's nominee and receive the payments, rents, income, and revenues therefrom and hold the same as security for the Indebtedness or apply it to payment of the Indebtedness in such order of preference as Lender may determine. Insofar as the Collateral consists of accounts, general intangibles, insurance policies, instruments, chattel paper, choses in action, or similar property, Lender may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not the Indebtedness or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed to Grantor; change any address to which mail and payments are to be sent; and endorse notes, checks, drafts, money orders, documents of title, instruments and items pertaining to payment, shipment, or storage of any Collateral. To facilitate collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender.

Obtain Deficiency . If Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Grantor for any deficiency remaining on the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this Security Agreement. Grantor shall be liable for a deficiency even if the transaction described in this subsection is a sale of accounts or chattel paper.


g.	Other Rights and Remedies . Lender shall have all the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, as may be amended from

time to time. In addition, Lender shall have and may exercise any or all other rights and remedies it may have available under this Security Agreement, at law, in equity, or otherwise.

Election of Remedies . Except as may be prohibited by applicable law, all of Lender's rights and remedies, whether evidenced by this Security Agreement, the Related Documents, or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Security Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and exercise its remedies.


11.	Miscellaneous Provisions . The following miscellaneous provisions are a part of this Security Agreement:


a.	Amendments . This Security Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Security Agreement. No alteration of or amendment to this Security Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

Attorneys' Fees; Expenses . Grantor agrees to pay upon demand all of Lender's costs and expenses, including Lender's reasonable attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Security Agreement. Lender may hire or pay someone else to help enforce this Security Agreement, and Grantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's reasonable attorneys' fees and legal expenses whether or not there is a lawsuit, including reasonable attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Grantor also shall pay all court costs and such additional fees as may be directed by the court.


c.	Caption Headings . Caption headings in this Security Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Security Agreement.


d.	Governing Law . This Security Agreement will be governed by, construed and enforced in accordance with federal law and the laws of the State of Minnesota. This Security Agreement has been accepted by Lender in the State of Minnesota.

No Waiver by Lender . Lender shall not be deemed to have waived any rights under this Security Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Security Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Security Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required

under this Security Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

Notices . Any notice required to be given under this Security Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Security Agreement. Any party may change its address for notices under this Security Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor's current address. Unless otherwise provided or required by law, if there is more than one Grantor, any notice given by Lender to any Grantor is deemed to be notice given to all Grantors.

Power of Attorney . Grantor hereby appoints Lender as Grantor's irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect, amend, or to continue the security interest granted in this Security Agreement or to demand termination of filings of other secured parties. Lender may at any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction of any financing statement or of this Security Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses for the perfection and the continuation of the perfection of Lender's security interest in the Collateral.

Severability . If a court of competent jurisdiction finds any provision of this Security Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Security Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Security Agreement shall not affect the legality, validity or enforceability of any other provision of this Security Agreement.

Successors and Assigns . Subject to any limitations stated in this Security Agreement on transfer of Grantor's interest, this Security Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person other than Grantor, Lender, without notice to Grantor, may deal with Grantor's successors with reference to this Security Agreement and the Indebtedness by way of forbearance or extension without releasing Grantor from the obligations of this Security Agreement or liability under the Indebtedness.


j.	Survival of Representations and Warranties . All representations, warranties, and agreements made by Grantor in this Security Agreement shall survive the execution and delivery of this Security Agreement, shall be continuing in nature, and shall remain in full force and effect until such time as Grantor's Indebtedness shall be paid in full.


k.	Time is of the Essence . Time is of the essence in the performance of this Security Agreement.

12.

Definitions . The following capitalized words and terms shall have the following meanings when used in this Security Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Security Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code:


a.	Account . The word "Account" means a trade account, account receivable, other receivable, or other right to payment for goods sold or services rendered owing to Grantor (or to a third party grantor acceptable to Lender).


b.	Borrower . The word "Borrower" means Agrinatural Gas, LLC, and includes all co-signers and co-makers signing the Note.


c.	Default . The word "Default" means the Default set forth in this Security Agreement in the section titled "Default".


d.	Environmental Laws . The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment.


e.	Event of Default . The words "Event of Default" mean any of the events of default set forth in this Security Agreement in the default section of this Security Agreement.


f.	Guaranty . The word "Guaranty" means the guaranty from guarantor, endorser, surety, or accommodation party to Lender, including without limitation a guaranty of all or part of the Note.


g.	Hazardous Substances . The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled.


h.	Indebtedness . The word "Indebtedness" means the indebtedness evidenced by the Negotiable Promissory Note dated July 29, 2014 and the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Grantor is responsible under this Security Agreement or under any of the Related Documents.


i.	Note . The word "Note" means that certain Negotiable Promissory Note executed Grantor on even date herewith, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement.


j.	Related Documents . The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments,

agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness.

13.

Prior Agreements and Documents to Remain in Effect . The documents as previously executed by and between the parties regarding the loan by Heron Lake to Agrinatural that occurred July 29, 2014 shall remain in full force and effect. The intention is the terms and conditions of this Security Agreement and the other Agreements/documents being executed in conjunction with this new loan shall be cumulative to and provide further rights and assurances to Heron Lake and shall not be construed to limit any rights and authority as granted to Heron Lake by previous documents or as granted by these newly executed agreements and documents.

GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF THE DATE FIRST SET FORTH ABOVE.

GRANTOR: LENDER:

Agrinatural Gas, LLC, a Delaware Heron Lake BioEnergy, LLC, a

limited liability company Minnesota limited liability company



By: /s/ John Sprangers Print Name: John Sprangers Its.: CEO	By: /s/ Steve A. Christensen Print Name: Steve A. Christensen Its.: CEO/GM



By: /s/ Ann Tessier Print Name: Ann Tessier Its.: CFO	By: /s/ Stacie Schuler Print Name: Stacie Schuler Its.: CFO

EXHIBIT “A”

SECURITY AGREEMENT

The following property constitutes the “Collateral” in which Lender is Granted a security interest pursuant to the terms of the Security Agreement dated and effective March 30, 2015:

All property, whether now owned or hereafter acquired by Grantor, Agrinatural Gas, LLC, and whether now existing or hereafter arising, and wherever located, including but not limited to all inventory, equipment, accounts (including but not limited to all health-care-insurance receivables), chattel paper, instruments (including but not limited to all promissory notes), letter-of-credit rights, letters of credit, documents, deposit accounts, investment property, money, other rights to payment and performance, and general intangibles (including but not limited to all software and all payment intangibles); all oil, gas and other minerals before extraction; all oil gas, other minerals and accounts constituting as-extracted collateral; all fixtures; all timber to be cut; all attachments, accessions, accessories, fittings, increases, tools, parts, repairs, supplies, and commingled goods relating to the foregoing property; all insurance refunds relating to the foregoing property; all good will relating to the foregoing property; all records and data and embedded software relating to the foregoing property, and all equipment, inventory, and software to utilize, create, maintain and process any such records and data on electronic media; all easements and easement rights whatsoever and wherever located; and all supporting obligations relating to the foregoing property.

The above describe property also includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located:


1)	All accessions, attachments, accessories, tools, parts, supplies, replacements, expansions, or substitutions of and additions to any of the property described herein, whether added now or later;


2)	All products and produce of any of the property described in this Collateral section;


3)	All accounts, general intangibles, instruments, rents, monies, payments, and all other rights, arising out of a sale, lease, consignment or other disposition of any of the property described in this Collateral section;


4)	All proceeds (including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described in this Collateral section, and sums due from a third party who has damaged or destroyed the Collateral or from that party's insurer, whether due to judgment, settlement or other process; and


5)	All records and data relating to any of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm, microfiche, or electronic media, together with all of Grantor's right, title, and interest in and to all computer software required to utilize, create, maintain, and process any such records or data on electronic media.

A-1

COLLATERAL ASSIGNMENT

THIS COLLATERAL ASSIGNMENT (“Assignment”), effective March 30, 2015, is made and executed by and between Agrinatural Gas, LLC, a Delaware limited liability company, having its principal place of business at 201 - 10th Street, P.O. Box 216, Heron Lake, Minnesota 56137 ("Assignor") and Heron Lake BioEnergy, LLC, a Minnesota limited liability company, having its principal place of business at 91246 - 390 ^th Ave., Heron Lake, Minnesota 56137 ("Assignee").

A. Assignor and Assignee are parties to a Loan Agreement, Negotiable Promissory Note and Security Agreement dated as of March 30, 2015 (as amended, restated or otherwise modified from time to time, the “Credit Agreements”) under which Assignee has agreed to extend certain financial accommodations to the Assignor.

B. As a condition to extending the credit facilities to Assignor under the Credit Agreements, Assignee has required the execution of this Assignment by Assignor.

AGREEMENT

Accordingly, in consideration of the foregoing, the parties agree as follows:

1. Assignor does hereby collaterally grant, assign, transfer and set over unto the Assignee all of its right, title and interest in and to the leases, contracts and agreements described on Exhibit A annexed hereto (whether one or more, as the same have been or may be amended, restated, extended or otherwise modified from time to time, the “Contract” whether one or more), by and between the Assignor and various landowners named therein. Assignor acknowledges and agrees that it maintains full and complete copies of each said Contract at its principal place of business.

2. Assignor agrees that Assignee does not assume any of the obligations or duties of Assignor under and with respect to the Contract unless and until Assignee shall have given the Assignor and the landowner named in the Contract written notice that it has affirmatively exercised its right to assume and perform under the Contract following the occurrence and during the continuance of an Event of Default under the Credit Agreements. In the event that the Assignee does not personally undertake to perform under the Contract, Assignee shall have no liability whatsoever for the performance of any of such obligations or duties. For the purpose of performing under the Contract, Assignee may assign the Contract, upon notice to Assignor and the landowner named in the Contract and subject to the terms of the Contract, to an entity that will own all or substantially all of the assets of the Assignor, but without any requirement of Assignor’s consent.

3. Assignor represents and warrants there have been no prior assignments of any Contract, that each Contract is a valid and enforceable agreement, that neither Assignor nor any landowner named in each Contract is in default thereunder, and that all covenants, conditions and agreements have been performed as required therein, except those not due to be performed until after the date hereof. Assignor agrees that no material change in the terms thereof shall be valid without the prior written approval of the Assignee, which approval shall not be unreasonably withheld. Assignor agrees not to assign, sell, pledge, mortgage or otherwise transfer or encumber its interest in the Contract so long as this Assignment is in effect, except as otherwise permitted under the Credit Agreements.

4. Subject to Paragraph 5 below, Assignor hereby irrevocably constitutes and appoints the Assignee as attorney-in-fact to demand, receive and enforce the Assignor’s rights with respect to the Contract, to make payments under the Contract, if necessary, and to give appropriate receipt, releases and satisfactions for and on behalf of and in the name of Assignor, at the option of the Assignee, with the same force and effect as the Assignor could do if this Assignment had not been made.

5. This Assignment shall constitute an absolute and present collateral assignment, provided that the Assignee shall have no right under this Assignment to take any actions under Paragraph 4 of this Assignment or enforce the provisions of the Contract until an Event of Default occurs under the Credit Agreements. Upon the occurrence and during the continuation of any Event of Default, the Assignee may, upon expiration of any applicable cure period and without affecting any of its rights or remedies against the Assignor under any other instrument, document, or agreement, exercise its rights under this Assignment as the Assignor’s attorney-in-fact in any manner permitted by law.

6. The Assignor hereby agrees to indemnify and hold the Assignee harmless from and against any and all claims, demands, liabilities, losses, lawsuits, judgments, and costs and expenses, including without limitation reasonable attorneys’ fees, to which it may become exposed, or which it may incur, in exercising any of its rights under this Assignment.

7. This Assignment shall be binding upon the Assignor, its successors and assigns, and shall inure to the benefit of the Assignee and its successors and assigns.

8. This Assignment can be waived, modified, amended, terminated or discharged only explicitly in writing signed by the Assignee. A waiver signed by the Assignee shall be effective only in a specific instance and for the specific purpose given. Mere delay or failure to act shall not preclude the exercise or enforcement of any of the Assignee’s rights or remedies hereunder. All rights and remedies of the Assignee shall be cumulative and shall be exercised singularly or concurrently, at the Assignee’s option, and the exercise or enforcement of any one such right or remedy shall neither be a condition to nor bar the exercise or enforcement of any other remedy.

9. All capitalized terms used in this Assignment, but not otherwise defined herein, shall have the meanings as set forth in the Credit Agreements.

10. This Assignment may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

11. This Assignment shall be binding upon the parties hereto, their successors and assigns and shall inure to the benefit of the Assignee and its successors or assigns.

ASSIGNOR: Agrinatural Gas, LLC, ASSIGNEE: Heron Lake BioEnergy, LLC,

a Delaware limited liability a Minnesota limited liability

company company



By: /s/ John Sprangers Print Name: John Sprangers Its.: CEO	By: /s/ Steve A. Christensen Print Name: Steve A. Christensen Its.: CEO/GM



By: /s/ Ann Tessier Print Name: Ann Tessier Its.: CFO	By: /s/ Stacie Schuler Print Name: Stacie Schuler Its.: CFO

EXHIBIT “A”

COLLATERAL ASSIGNMENT

The following property constitutes the “Contract” assigned pursuant to that certain Collateral Assignment dated and effective March 30, 2015:

All of Assignor’s easements, easement agreements, and easement rights in which Assignor is the holder, dominant tenant or has any other beneficial interest whatsoever, whether now existing or hereafter acquired by Assignor, relating to or involving real property located in Brown, Cottonwood, Jackson and Nobles Counties, in the State of Minnesota, and in any such other counties in which Assignor may acquire future easement rights, and in locations represented on Attachment 1, pages 1 thru 12, to this Exhibit “A”.


2.	All of Assignor’s contracts and licenses of whatever type and nature and all transportation service agreements of whatever type and nature. Such assignment includes, but is not limited to, any and all pipeline and maintenance service agreements and pipeline construction agreements.

[ Remainder intentionally blank. ]

A - 1

GUARANTY

In order to induce Heron Lake BioEnergy, LLC, (hereinafter called "Lender") to make a loan or loans, or renewal or extension thereof, to Agrinatural Gas, LLC (hereinafter called "Debtor"), the Undersigned hereby unconditionally guarantees to Lender, its successors and assigns, the due and punctual payment when due, whether by acceleration or otherwise, in accordance with the terms thereof, twenty-seven percent (27%) of the principal of and interest on and all other sums payable, or stated to be payable, with respect to the note of the Debtor, made by the Debtor to Lender, dated March 30, 2015 in the principal amount of Three Million Five Hundred Thousand and no/100 Dollars ($3,500,000.00) with interest at the rate as indicated in said Negotiable Promissory Note. Such note, and the interest thereon and all other sums payable with respect thereto are hereinafter collectively called "Liabilities." As security for the performance of this guaranty the Undersigned hereby mortgages, pledges, assigns, transfers and delivers to Lender certain collateral (if any), listed in the attached schedule. The term "collateral" as used herein shall mean any funds, guaranties, agreements or other property or rights or interests of any nature whatsoever, or the proceeds thereof, which may have been, are, or hereafter may be, mortgaged, pledged, assigned, transferred or delivered directly or indirectly by or on behalf of the Debtor or the Undersigned or any other party to Lender or to the holder of the aforesaid note of the Debtor, or which may have been, are, or hereafter may be held by any party as trustee or otherwise, as security, whether immediate or underlying, for the performance of this guaranty or the payment of the Liabilities or any of them or any security therefore. (The providing of “collateral” shall occur as described in the Loan Agreement of identical date hereof.)

The Undersigned waives any notice of the incurring by the Debtor at any time of any of the Liabilities, and waives any and all presentment, demand, protest or notice of dishonor, nonpayment, or other default with respect to any of the Liabilities and any obligation of any party at any time comprised in the collateral. The Undersigned hereby grants to Lender full power, in its uncontrolled discretion and without notice to the undersigned, but subject to the provisions of any agreement between the Debtor or any other party and Lender at the time in force, to deal in any manner with the Liabilities and the collateral, including, but without limiting the generality of the foregoing, the following powers:


(a)	To modify or otherwise change any terms of all or any part of the Liabilities or the rate of interest thereon (but not to increase the principal amount of the note of the Debtor to Lender), to grant any extension or renewal thereof and any other indulgence with respect thereto, and to effect any release, compromise or settlement with respect thereto;


(b)	To enter into any agreement of forbearance with respect to all or any part of the Liabilities, or with respect to all or any part of the collateral, and to change the terms of any such agreement;


(c)	To forbear from calling for additional collateral to secure any of the Liabilities or to secure any obligation comprised in the collateral;


(d)	To consent to the substitution, exchange, or release of all or any part of the collateral, whether or not the collateral, if any, received by Lender upon any such substitution, exchange, or release shall be of the same or of a different character or value than the collateral surrendered by Lender;

(e)

In the event of the nonpayment when due, whether by acceleration or otherwise, of any of the Liabilities, or in the event of default in the performance of any obligation comprised in the collateral, to realize on the collateral or any part thereof, as a whole or in such parcels or subdivided interests as Lender may elect, at any public or private sale or sales, for cash or on credit or for future delivery, without demand, advertisement or notice of the time or place of sale or any adjournment thereof (the Undersigned hereby waiving any such demand, advertisement and notice to the extent permitted by law), or by foreclosure or otherwise, or to forbear from realizing thereon, all as Lender in its uncontrolled discretion may deem proper, and to purchase all or any part of the collateral for its own account at any such sale or foreclosure, such powers to be exercised only to the extent permitted by law.

The obligations of the Undersigned hereunder shall not be released, discharged or in any way affected, nor shall the Undersigned have any rights or recourse against Lender, by reason of any action Lender may take or omit to take under the foregoing powers.

In case the Debtor shall fail to pay all or any part of the Liabilities when due, whether by acceleration or otherwise, according to the terms of said note, the Undersigned, immediately upon the written demand of Lender, will pay to Lender the amount due and unpaid by the Debtor as aforesaid, in like manner as if such amount constituted the direct and primary obligation of the Undersigned. Lender shall not be required, prior to any such demand on, or payment by, the Undersigned, to make any demand upon or pursue or exhaust any of its rights or remedies against the Debtor or others with respect to the payment of any of the Liabilities, or to pursue or exhaust any of its rights or remedies with respect to any part of the collateral. Until all indebtedness of Debtor to Lender shall have been paid in full, the Undersigned shall have no right of subrogation, and waives any right to enforce any remedy which Lender now has or may hereafter have against Debtor, and waives any benefit of, and any right to participate in any security now or hereafter held by Lender.

The obligations of the Undersigned hereunder, and the rights of Lender in the collateral, shall not be released, discharged or in any way affected, nor shall the Undersigned have any rights against Lender: by reason of the fact that any of the collateral may be in default at the time of acceptance thereof by Lender or later; nor by reason of the fact that a valid lien in any of the collateral may not be conveyed to, or created in favor of, Lender; nor by reason of the fact that any of the collateral may be subject to equities or defenses or claims in favor of others or may be invalid or defective in any way; nor by reason of the fact that any of the Liabilities may be invalid for any reason whatsoever; nor by reason of the fact that the value of any of the collateral, or the financial condition of the Debtor or of any obligor under or guarantor of any of the collateral, may not have been correctly estimated or may have changed or may hereafter change; nor by reason of any deterioration, waste, or loss by fire, theft, or otherwise of any of the collateral, unless such deterioration, waste, or loss be caused by the willful act or willful failure to act of Lender.

The Undersigned agrees to furnish lender, or the holder of the aforesaid note of the Debtor, upon demand, but not more often than semiannually, so long as any part of the indebtedness under such note remains unpaid, a financial statement setting forth, in reasonable detail, the assets, liabilities, and net worth of the Undersigned.

The term "Undersigned" as used in this agreement shall mean the signer or signers of this agreement, and such signers, if more than one, shall be jointly and severally liable hereunder. The Undersigned further agrees that all liability hereunder shall continue notwithstanding the incapacity, lack of authority, death, or disability of any one or more of the Undersigned, and that any failure by Lender or its assigns to file or enforce a claim against the estate of any of the Undersigned shall not operate to release any other of the Undersigned from liability hereunder. The failure of any other person to sign this guaranty shall not release or affect the liability of any signer hereof.

Dated: March 30, 2015

RURAL ENERGY SOLUTIONS, LLC

By: /s/ Mychael L. Swan

Its: CEO/Chairman

By: /s/Ann Tessier

Its: /s/CFO

AGRINATURAL GAS, LLC RESTRUCTURE AGREEMENT

The undersigned parties, hereby agree and contract as follows:

1) Mr. Mychael Swan hereby resigns effective January 10, 2015 as Chief Executive Officer of Agrinatural Gas, LLC.

2) Swan Engineering, Inc. and Agrinatural Gas, LLC agree that the amount paid by Agrinatural Gas, LLC to Swan Engineering, Inc. on the Natural Gas Local Distribution Company Management and Operating Agreement dated July 8, 2011 shall be reduced by Fifty-four Thousand and no/100 Dollars ($54,000.00) on an annual basis (said reduction prorated on a monthly basis).

3) Agrinatural Gas, LLC shall make no debt reduction payments (other than payments required on the loans owed to Heron Lake BioEnergy, LLC and the payments to Swan Engineering as allowed by the Loan Agreement), except as authorized by the Agrinatural Gas, LLC Board of Managers.

4) Agrinatural Gas, LLC shall not make any dividend payments or distributions, except as allowed by the Loan Agreement and as approved in advance by the Agrinatural Gas, LLC Board of Managers.

5) Agrinatural shall pay $6,000.00 a year to Wildwood Technolog ies y, LLC [hand written changes initialed: JCS, MS, AT] (Ann Tessier) for Board Secretary CFO [hand written changes initialed: JCS, MS, AT] functions for Agrinatural.

Dated: March 30, 2015

AGRINATURAL GAS, LLC SWAN ENGINEERING, INC.



By: /s/ John Sprangers Its.: CEO	By: /s/ Mychael L. Swan Its.: CEO/Chairman/Owner



By: /s/ Ann Tessier Its.: CFO	By: Its.: