Exhibit 10.2

 

TRINITY INDUSTRIES LEASING COMPANY
RAILROAD CAR LEASE AGREEMENT

July BK TJ

 

This Agreement dated as of the 1st day June, 2009 (this ‘Agreement”), between
Trinity Industries Leasing Company, a Delaware corporation, with its principal
office at 2525 Stemmons Freeway, Dallas, Texas 75207 (“TILC”, and whether as
principal on behalf of itself as lessor or as agent for the lessor as
contemplated in Article 30, the “Lessor”) and Highwater Ethanol, LLC, a
Minnesota limited liability company, with its principal office at 24500 U.S.
Highway 14, Lamberton, Minnesota 56152

, as lessee (“Lessee”).

 

In consideration of the mutual terms and conditions hereinafter set forth, the
parties hereto hereby agree as follows:

 

ARTICLE 1

LEASE AGREEMENT

 

Lessor agrees to lease to Lessee and Lessee agrees to lease from Lessor, on the
terms and conditions set forth herein, the railroad cars (herein collectively
called the “cars” and separately a “car”) set out and identified in the Rider or
Riders hereto and such additional Riders as may from time to time be executed by
the parties incorporating the terms of this Agreement. Each Rider shall set
forth a brief description of the car or cars covered thereby, including such
facts as the number of cars, the Association of American Railroads (“AAR”) or
the United States Department of Transportation (“DOT”) specifications, rent, the
term throughout which the car or cars shall remain in Lessee’s service and such
other information as may be agreed by the parties. Lessor and Lessee agree that
each Rider hereto shall constitute a separate lease which incorporates the terms
of this Agreement. For the purposes of this Agreement, “Lease” shall mean the
lease transaction with respect to a particular car or cars evidenced by the
related Rider incorporating the terms of this Agreement. All cars leased
pursuant to a Rider are subject to the terms of this Agreement and such
additional terms as are set forth in the Rider applicable thereto. Each Rider
shall be severable from any other cars or Riders relating to this Agreement and
shall become a separate Lease which is separately transferable for all purposes.
It is the intent of all parties to this Agreement to characterize this Agreement
as a “true lease” (as distinguished from a financing arrangement for the
Lessee’s acquisition of ownership of the subject cars).

 

ARTICLE 2

 

DELIVERY

 

Lessor agrees to deliver or cause to be delivered to Lessee, each car being
subjected to a Lease pursuant to a Rider and Lessee agrees to accept such
delivery and lease such cars under the related Lease hereunder, in each case on
the date and at the location specified in the related Rider (and subject to any
other delivery conditions or requirements that may be so specified) it being
understood the Lessee shall be responsible for any losses caused to the Lessor
for Lessee’s failure to accept delivery where the cars so delivered meet the
conditions and requirement

 

1

--------------------------------------------------------------------------------

 

provided in this Agreement. Each car shall be deemed to be delivered to the
Lessee on the date upon which it is received or otherwise deemed delivered
pursuant to the related Rider, except that any car which is already in Lessee’s
service under a predecessor expiring agreement (other than this Agreement) or a
predecessor agreement being terminated in connection with the parties’ entering
into this Agreement shall be deemed delivered to Lessee hereunder immediately
upon the expiration or termination of such other agreement. Lessor shall be
excused from any agreement to deliver the subject cars, and Lessor shall not be
liable, for any causes beyond the reasonable control of Lessor (including, but
not limited to, delays caused by fire, labor difficulties, delays of carriers
and materials suppliers, governmental authority, late delivery by the
manufacturer of the cars or late delivery by a prior lessee) and, in the event
of a delay in such delivery, Lessor shall deliver the cars to Lessee as soon as
reasonably possible thereafter. Lessor shall also be excused from any agreement
to deliver the subject cars, and the Lessor shall have no resulting liability to
Lessee for failure to deliver, if prior to the delivery of the subject cars
there occurs a material adverse change in the condition (including but not
limited to the financial condition or prospects) of the Lessee (or any guarantor
or co-obligor of Lessee, if applicable) or any event which, in the good faith
judgment of the Lessor would reasonably be expected to result in such a material
adverse change.

 

ARTICLE 3

 

CONDITION OF CARS - ACCEPTANCE

 

All cars delivered hereunder shall be in satisfactory condition for movement in
the normal interchange of rail traffic and shall otherwise comply with the
descriptions and specifications contained in the applicable Rider. Lessee shall
be solely responsible for determining that cars are in proper condition for
loading and shipment, except for those responsibilities which, under applicable
law, have been assumed by the railroads. Lessee shall inspect the cars promptly
after they are delivered and shall notify Lessor in writing within five days
after delivery of its rejection of any car, and the specific reasons for such
rejection, which shall be limited to the failure of the cars so delivered to
comply with the first sentence of this Article 3. Failure by the Lessee to so
notify Lessor of rejection of any car within five days after delivery, or, if
earlier, the successful loading of such car, shall constitute acceptance of such
car or cars, as the case may be, by Lessee and shall be conclusive evidence of
the fit and suitable condition of such car or cars.

 

If Lessee fails to accept any cars as a result of defects properly reported to
Lessor, Lessor shall be provided such additional time as is necessary to correct
any such defects, except to the extent that the parties may otherwise agree in
writing at such time.

 

Lessee’s acceptance, however and whenever effected, shall be deemed effective as
of the delivery date of a particular car. Such acceptance shall conclusively
establish that such cars conform to the applicable standards set forth in the
Rider(s) and the Interchange Rules of the AAR (the “Interchange Rules”).

 

2

--------------------------------------------------------------------------------

 

ARTICLE 4

 

RENT

 

Lessee agrees to pay to Lessor for the use of each car the monthly rent set
forth in the Rider applicable to such car from the date such car is delivered to
Lessee, in accordance with Article 2, until such car is returned to Lessor, as
hereinafter provided in Article 17. Rent shall be payable in U.S. Dollars and in
advance on or before the first day of each calendar month (provided, however,
that the rent for each car for the month in which it is delivered shall be
prorated for the number of days, including the day of delivery, remaining in
such month at a daily rate based upon a 365 day year and shall be payable on or
before the first day of the next succeeding month together with the rent for
such month). Rent shall be paid to Lessor by electronic funds transfer to
Trinity Leasing Customer Payment Account, Wilmington Trust Company, ABA #
031-100-092, Account # 2860-4998, or at such other address as Lessor may specify
by notice to Lessee. Except as set forth in this Agreement (including without
limitation, the provisions of Article 10) or a related Rider rent shall be paid
without deduction, abatement, set off or counterclaim and without notice or
demand.

 

Late Rent — If Lessee has not paid rent or other amounts payable hereunder for a
period of longer than ten (10) days, Lessee shall pay Lessor, as additional
rent, interest on such unpaid sum from its due date to the date of payment by
Lessee at the rate per annum equal to three percentage points above the prime
rate of JPMorgan Chase Bank (or its successor). Any costs incurred by Lessor in
collecting rent or any other sum of money due under this Agreement wrongfully
withheld by Lessee, including, but not limited to, reasonable attorneys’ fees,
will be paid by Lessee.

 

Holdover Rent — Until any car is returned to Lessor in the condition required
hereunder after an expiration or termination of the related Lease, Lessee shall
continue to pay rent for such car and to comply with all other payment and other
obligations under this Agreement as though such expiration or other termination
had not occurred. If sixty (60) days after the expiration or other termination
of the related Lease, Lessee has not returned any car, Lessor may charge, and
Lessee shall pay Lessor upon demand, one hundred twenty-five (125%) of the rent
for such car in effect immediately prior to such expiration or termination of
the Lease for such car. Nothing in this Article 4 shall give Lessee the right to
retain possession of any car after the expiration or other termination of the
Lease with respect to such car.

 

ARTICLE 5

 

MILEAGE ALLOWANCE

 

Lessor shall collect all mileage earned by the cars during the lease term and
shall credit to the rent of Lessee such mileage earned by the cars while in the
service of Lessee, as and when received from the railroads according to, and
subject to, all rules of the tariffs of the railroads.

 

3

--------------------------------------------------------------------------------

 

ARTICLE 6

 

TERM

 

This Agreement shall be effective as dated and will expire upon the completion
of the leasing arrangement shown on the related Rider(s) of the last car or cars
covered under a Lease hereunder. The Lease term, with respect to each car
covered by a particular Rider, shall commence on the first day of the succeeding
month after the delivery of the last car subject to the subject Lease, and shall
terminate as specified in such Rider, unless sooner terminated in accordance
with the provisions of this Agreement or such Rider.

 

ARTICLE 7

 

USE AND POSSESSION

 

Throughout the continuance of this Agreement so long as Lessee is not in default
under this Agreement or any related Rider(s), Lessee shall be entitled to
possession of each car from the date the Lease term commences as to such car.
Lessee shall use each car only in the manner for which it was designed and
intended, and Lessee shall subject the cars only to normal wear and tear. In
addition, Lessee agrees that the cars shall at all times be used: (a) in
conformity with all Interchange Rules; (b) in compliance with the terms and
conditions of this Agreement and any related Rider(s); (c) in compliance with
the laws of each jurisdiction in which the same are operated and in which the
same may be located, and (d) predominantly in the continental limits of the
United States.

 

In the event any car is used outside of the continental United States, for any
reason whatsoever, Lessee shall assume full responsibility for all costs, taxes,
duties or other charges incidental to such use including costs incurred in
returning car to the continental United States.

 

Each car is limited to the number of total loaded and empty miles per calendar
year shown on the Rider and is subject to a surcharge also shown on the Rider
for all excess miles.

 

Lessee shall not exceed the weight limitations prescribed for operation of cars
in unrestricted interchange service as set forth under Interchange Rule 70
without Lessor’s prior written consent.

 

ARTICLE 8

 

ADDITIONAL CHARGES BY RAILROADS

 

Lessee agrees to use the cars, upon each railroad over which cars shall move, in
accordance with the then prevailing tariffs to which each railroad shall be a
party; and if the operation or movements of any of the cars during the term
hereof shall result in any charges being made against Lessor by any such
railroad, or AAR in the case of equalization of mileage on tank cars operated on
U.S. railroads, Lessee shall pay to Lessor the amount of such charges within the
period prescribed by and at the rate and under the conditions of the then
prevailing

 

4

--------------------------------------------------------------------------------

 

tariffs. Lessee agrees to indemnify Lessor against any such charges, and shall
be liable for any switching, demurrage, track storage, detention or special
handling charges imposed on any car during the term hereof.

 

ARTICLE 9

 

LESSEE’S RIGHT TO TRANSFER OR SUBLEASE

 

Lessee shall not encumber, grant a security interest in, transfer, subcontract,
sublease or assign any car or its interests and obligations pursuant to this
Agreement (any a “Restricted Transfer”), nor shall a Restricted Transfer that
occurs by operation of law or otherwise of Lessee’s interest in the cars or this
Agreement be effective against Lessor without Lessor’s prior written consent. No
Restricted Transfer of Lessee’s interest in the cars or this Agreement shall
relieve Lessee from any of its obligations to Lessor under this Agreement. Any
Restricted Transfer that is consented to by Lessor which is entered into by
Lessee shall contain language in form and substance reasonably acceptable to
Lessor which expressly makes such encumbrance, transfer, sublease or assignment
subject and subordinate to the interests of Lessor and of any chattel mortgagee,
assignee, trustee or other holder of legal title to or security interest in the
cars and/or the related Lease (but in any case, in respect to such transfers by
and transferees of Lessor, subject to Article 23 hereof).

 

Notwithstanding the foregoing paragraph, Lessee shall have the right to sublease
any car for single trips to its customers or suppliers; provided, however,
notwithstanding any such sublease, Lessee shall continue to remain liable to
Lessor for the fulfillment of Lessee’s obligations and liabilities under the
related Lease; provided, further, Lessor shall have the right, at any time, to
withdraw the privilege of subleasing hereinabove granted to Lessee.

 

Notwithstanding any other rights provided Lessor in this Agreement, Lessee
agrees to indemnify Lessor and hold Lessor harmless from any loss, cost or
expense, including attorneys’ fees, incurred as a result of or with respect to
any Restricted Transfer.

 

ARTICLE 10

 

MAINTENANCE RESPONSIBILITY

 

Lessor agrees to maintain the cars in good condition and repair according to the
Interchange Rules. Lessee agrees to notify Lessor promptly when any car is
damaged or in need of repair, and to forward such cars and any other cars
subject to this Agreement to shops as directed by Lessor for repairs and/or
periodic maintenance and inspections. No maintenance, alteration or repair to
any of the cars shall be made or authorized by Lessee without Lessor’s prior
written consent, except (i) Lessee shall, at its expense, replace any removable
part (dome covers, hatch covers, outlet caps, etc.) if lost, stolen or broken
and (ii) as otherwise provided in this Agreement (including, but not limited to
the following two paragraphs relating to certain repairs on tank cars and hopper
cars, respectively). Replacement or repair by Lessee of any parts, equipment
and/or accessories on any of the cars shall be with parts, equipment and/or
accessories that are of like kind and of at least equal quality to those being
replaced or repaired, unless

 

5

--------------------------------------------------------------------------------

 

otherwise agreed in writing by Lessor. Lessee shall be responsible for all
losses and damages caused by Lessee’s failure to use parts, equipment and/or
accessories that are not of like kind and of at least equal quality to those
being replaced or repaired. For the avoidance of doubt, title of all replacement
parts or repaired parts shall be immediately vested in Lessor.

 

On tank cars, Lessee agrees that it will assume the responsibility for the
maintenance and replacement of angle valves and check valves and, if such cars
are so equipped, thermometer wells, gauging devices, regulator valves, safety
heads and top unloading valves.

 

On hopper cars, Lessee will be responsible for inspection and cleaning of the
operating mechanisms of the outlets, hatches and special fittings. Further, any
damage to such outlets, hatches, special fittings or the operating mechanisms
will be repaired for the account of the Lessee.

 

For all cars requiring maintenance or repair, Lessee shall be solely responsible
for all costs associated with the removal, disposal and cleaning of commodities
from the cars.

 

When a car is placed in a private shop for maintenance or repair, the rent shall
cease on the date of arrival in the shop, except in the case where a car arrives
without advance notice of defects from Lessee, in which case rent will cease on
communication of such notice of defects to Lessor from Lessee, and shall be
reinstated on the date that the car is forwarded from the shop or on the date
that the car is ready to leave the shop, awaiting disposition instructions from
Lessee. If any repairs are required as a result of the misuse by or negligence
of Lessee or its consignee, agent or sublessee or while on a railroad that does
not subscribe to, or fails to meet its responsibility under the Interchange
Rules, or while on any private siding or track or any private or industrial
railroad, the rent shall continue during the repair period, and Lessee agrees to
pay Lessor for the cost of such repairs.

 

ARTICLE 11

 

LOSS OR DESTRUCTION

 

If any of the cars shall be completely destroyed, or if the physical condition
of any car shall become such that the car cannot be operated in railroad
service, as determined by the parties, then Lessor may, at its option, cancel
the related Lease as to such car as of the date on which such event occurred, or
may substitute another car within a reasonable period of time. Lessee shall
notify Lessor of the occurrence of any such event within two (2) days of such
event. In the event of such substitution, the substituted car shall be held
pursuant to all the terms and conditions of the related Lease as was the car for
which it substituted. Without limiting the foregoing, Lessee agrees that if a
car is lost or destroyed or is in such physical condition that it cannot be
operated in railroad service by reason of misuse or negligence of Lessee or its
consignee, agent or sublessee or while on a railroad that does not subscribe to
the Interchange Rules or while on any private siding or track or any private or
industrial railroad, Lessee will pay Lessor, in cash, the settlement value of
such car as determined by Rule #107 of the Interchange Rules within ten
(10) days following a request by Lessor for such payment. Lessor and Lessee
shall cooperate with and assist each other in any reasonable manner requested,
but without

 

6

--------------------------------------------------------------------------------

 

affecting their respective obligations under this Article or Article 20, to
establish proper claims against parties responsible for the loss of, destruction
of or damage to the cars.

 

ARTICLE 12

 

LOSS OF COMMODITY

 

Lessor shall not be liable for any loss of, or damage to, commodities or any
part thereof, loaded or shipped in the cars however such loss or damage shall be
caused or shall result. Lessee agrees to assume responsibility for, to indemnify
Lessor against, and to save it harmless from any such loss or damage or claim
therefor.

 

ARTICLE 13

 

DAMAGE TO CAR BY COMMODITY

 

Notwithstanding the exception for normal wear and tear in Article 17, if during
the term of any Rider any of the Cars or any components or appurtenances thereto
shall be unduly and materially damaged, destroyed or depreciated in value or
condition due to the corrosive or other damaging effect of any substance carried
therein or thereon (whether or not such damage was foreseeable), Lessee will
reimburse Lessor promptly for such damage, loss or expense suffered by Lessor as
a consequence thereof and no abatement of rent shall occur during the period in
which repairs are performed.

 

ARTICLE 14

 

ALTERATION AND LETTERING

 

Lessee will preserve the cars in good condition and will not in any way alter
the physical structure of the cars without the advance approval, in writing, of
the Lessor. Lessee shall place no lettering or marking of any kind upon the cars
without Lessor’s prior written consent; provided, however, that Lessee may cause
said cars to be stenciled, boarded, or placarded with letters not to exceed two
inches (2”) in height to indicate to whom the cars are leased and with commodity
stencils per Interchange Rules or DOT specifications.

 

ARTICLE 15

 

LININGS AND COATINGS

 

The application, maintenance and removal of interior protective linings and
coatings in cars so equipped is to be at the expense of the Lessee unless
otherwise specified on the related Rider. Commodity or mechanical damage to such
linings or coatings shall be for the account of the Lessee and no abatement of
rent shall occur during the period in which repairs are performed.

 

7

--------------------------------------------------------------------------------

 

ARTICLE 16

 

INTERIOR PREPARATION FOR COMMODITIES

 

Subsequent to Lessee acceptance, any cleaning or special preparation of the
interior of cars to make them suitable for the shipment of commodities by or for
Lessee during the term of the related Lease shall be done at Lessee’s expense
unless otherwise agreed.

 

ARTICLE 17

 

RETURN OF CARS - CLEANING

 

At the expiration of the Lease term as provided in the Riders, Lessee shall, at
its expense, return the cars to Lessor at the location and to the agent selected
by the Lessor empty, clean and free from residue, and in the same good condition
as the cars were in when delivered, except for normal wear and tear. At the
expiration, should car cleaning be required, the Lessee shall bear the full cost
of cleaning and rent shall continue until the car is clean.

 

ARTICLE 18

 

MODIFICATIONS

 

Lessor and Lessee agree that if, at any time after the effective date of any
Rider, changes in car design or equipment are required by the AAR, DOT, Federal
Railroad Administration (“FRA”) or any other governmental authority, Lessor may,
at its option, perform all modifications so ordered and that the cost of those
modifications shall be reflected in an increase in the monthly rent per car
according to the base monthly rent escalation formula shown on the Rider for
that car.

 

ARTICLE 19

 

USE OF CARS ON CERTAIN ROADS UNDER AAR CIRCULAR OT - 5

 

Lessee is responsible for obtaining all consents or authority to use the cars on
any railroad. Upon the written request of Lessee (which request shall name the
railroads involved) Lessor shall use reasonable efforts to obtain from each
named railroad consents or authority to place the cars in service under
provisions issued by such railroad or the AAR, including, without limitation,
the provisions of AAR Circular OT-5 as promulgated by the AAR and all
supplements thereto and reissues thereof. Lessee shall furnish to Lessor such
information as is necessary to apply for and obtain such consents or authority.
Lessor, however, shall not be liable for failure to obtain such consents or
authority for any reason whatsoever and this Agreement shall remain in full
force and effect notwithstanding any failure of Lessor or Lessee to obtain such
consents or authority.

 

8

--------------------------------------------------------------------------------

 

ARTICLE 20

 

INDEMNIFICATIONS

 

Lessee shall defend (if such defense is tendered to Lessee), indemnify and hold
Lessor, on an after-tax basis, harmless from and against, and does hereby
release Lessor from, all claims, suits, liabilities, losses, damages, costs and
expenses, including attorney’s fees, in any way arising out of, or resulting
from, the condition, storage, use, loss of use, maintenance or operation of the
cars, the inaccuracy of any representation or warranty of the Lessee, the
Lessee’s failure to comply with the obligations under any Lease, liability
arising from any present or future applicable law, rule or regulation, including
without limitation, common law and environmental law, related to the release,
removal, discharge or disposition, whether intentional or unintentional of any
materials from or placed in any car, or any other cause whatsoever except to the
extent the same results from Lessor’s gross negligence or willful misconduct, or
except to the extent a railroad has assumed full responsibility and satisfies
such responsibility.

 

ARTICLE 21

 

TAXES AND LIENS

 

Lessor shall be liable for and pay all federal, state, provincial or other
governmental property taxes assessed or levied against the cars, except that
(i) Lessee shall be liable for and pay such taxes when cars bear reporting marks
and numbers other than Lessor’s and (ii) Lessee shall be liable at all times for
and shall pay or reimburse Lessor for the payment of any sales, use, leasing,
operation, excise, gross receipts and other taxes with respect to the cars,
together with any penalties, fines or interest thereon, and all duties, imposts,
taxes, investment tax credit reductions and similar charges arising out of the
use of cars outside the continental United States.

 

Lessee acknowledges and agrees that by the execution of this Agreement and
related Riders it does not obtain, and by payments and performance hereunder it
does not, and will not, have or obtain any title to the cars or any property
right or interest therein, legal or equitable, except solely as Lessee hereunder
and subject to all of the terms hereof. Lessee shall keep the cars free from any
liens or encumbrances created by or through Lessee (except as contemplated in
respect of Restricted Transfers consented to by the Lessor as described in
Article 9).

 

ARTICLE 22

 

DEFAULT AND REMEDIES

 

If Lessee (i) defaults in the payment of any sum of money to be paid under any
Lease or under this Agreement and such default continues for a period of five
(5) days after written notice to Lessee of such default, (ii) fails to perform
any covenant or condition required to be performed by Lessee under this
Agreement (including, without limitation, failure to accept delivery as required
under Article 3 and failure to comply with assurance requirements under
Article 28) and such failure shall not be remedied within ten (10) days after
written notice to Lessee of such failure, (iii) makes any representation or
warranty that was incorrect when made

 

9

--------------------------------------------------------------------------------

 

or (iv) shall dissolve, make or commit any act of bankruptcy or if any
proceeding under any bankruptcy or insolvency statute or any laws relating to
relief of debtors is commenced by Lessee or if any such proceeding is commenced
against Lessee and same shall not have been removed within thirty (30) days of
the date of the filing thereof or if a receiver, trustee or liquidator is
appointed for Lessee or for all or a substantial part of Lessee’s assets with
Lessee’s consent or, if without Lessee’s consent, the same shall not have been
removed within thirty (30) days of the date of the appointment thereof or if an
order, judgment or decree is entered by a court of competent jurisdiction and
continues unpaid and in effect for any period of thirty (30) consecutive days
without a stay of execution or if a writ of attachment or execution is levied on
any car and is not discharged within ten (10) days thereafter (any of the
foregoing, an “Event of Default”) then, in addition to any other rights of
Lessor provided in this Agreement, Lessor may exercise one or more of the
following remedies with respect to the cars leased under any Lease entered into
under this Agreement:

 

1.                                      Immediately terminate any and all Leases
and Lessee’s rights hereunder or under any related Rider(s); provided, however,
in the event of termination, Lessee shall remain liable for all unpaid rent
charges and any other amounts due under any Lease or Leases, this Agreement and
any related Rider(s);

 

2.                                      Require Lessee to return the cars to
Lessor at Lessee’s expense, and if Lessee fails to so comply, Lessor may take
possession of such cars without demand or notice and without court order or
legal process and remove the cars from Lessee’s service. Lessee hereby waives
any damages occasioned by such taking of possession, whether or not Lessee was
in default at the time possession was taken, so long as Lessor reasonably
believes that Lessee was in default at such time. Lessee acknowledges that it
may have a right to notice of possession from Lessor and the taking of
possession pursuant to a court order or other legal process obtained by Lessor.
Lessee, however, knowingly waives any right to such notice of possession from
Lessor and the taking of such possession without the Lessor’s obtaining a court
order or other legal process;

 

3.                                      Lease the cars to such persons, at such
rent, and for such period of time as Lessor shall elect. Lessor shall apply the
proceeds from such leasing, less all costs and expenses incurred in the
recovery, repair, storage and renting of such cars, toward the payment of
Lessee’s obligations hereunder. Lessee shall remain liable for any deficiency,
which, at Lessor’s option, shall be paid monthly as suffered or immediately, or
at the end of the lease term as damages for Lessee’s default;

 

4.                                      Bring legal action to recover all rent
charges or other amounts then accrued or thereafter accruing from Lessee to
Lessor under any provision hereunder or any related Rider(s);

 

5.                                      Pursue any other remedy which Lessor may
have.

 

Each remedy is cumulative and may be enforced separately or concurrently. The
exercise of any remedy is in the Lessor’s discretion, and any failure or delay
by Lessor to exercise any

 

10

--------------------------------------------------------------------------------

 

particular remedy shall not affect Lessee’s rent or holdover rent obligations
hereunder. In the event of default, in addition to Late Rent and Holdover Rent
as provided in Article 4, Lessee shall pay to Lessor upon demand all costs and
expenses, including attorneys’ fee expended by Lessor in the enforcement of its
rights and remedies hereunder, and Lessee shall pay interest on any amount owing
to Lessor from the time such amount becomes due hereunder at a rate per annum
equal to three percentage points above the prime rate of JPMorgan Chase Bank (or
its successor), such rate to be reduced, however, to the extent it exceeds the
maximum rate permitted by applicable law. In addition, Lessee shall, without
expense to Lessor, assist Lessor in repossessing the cars and shall, for a
reasonable time, if required, furnish suitable trackage space for the storage of
the cars.

 

If Lessee fails to perform any of its obligations hereunder, Lessor, at Lessee’s
expense, and without waiving any rights it may have against Lessee for such
nonperformance, may itself render such performance. Lessee shall reimburse
Lessor on demand for all sums so paid by Lessor on Lessee’s behalf, together
with interest at a rate equal to three percentage points above the prime rate of
JPMorgan Chase Bank (or its successor), such rate to be reduced, however, to the
extent it exceeds the maximum rate permitted by applicable law.

 

In addition, in respect of any Event of Default by Lessee hereunder, Lessor
shall be entitled to any and all rights and remedies inuring to the benefit of a
lessor upon a default by the lessee as provided in Article 2A of the Uniform
Commercial Code in effect in the applicable jurisdiction.

 

ARTICLE 23

 

LESSOR’S RIGHT TO ASSIGN, SUBORDINATION

 

All right, title and interest of Lessor in respect of any or all Leases
hereunder may be assigned, pledged, mortgaged, leased, transferred, delegated or
otherwise disposed of, either in whole or in part, and/or Lessor may assign,
pledge, mortgage, lease, transfer or otherwise dispose of title to the cars,
with or without notice to Lessee. In the event of any such assignment, pledge,
mortgage, lease, transfer, delegation or other disposition, the Lease or Leases
so assigned and all related rights of Lessee hereunder or those of any person,
firm or corporation who claims or who may hereafter claim any rights in this
Agreement under or through such Lease or Leases or Lessee, are hereby made
subject and subordinate to the terms, covenants and conditions of any
assignment, pledge, mortgage, lease, or other agreements covering the cars
heretofore or hereafter created and entered into by Lessor, its successors or
assigns and to all of the rights of any such assignee, pledgee, mortgagee,
lessor, transferee or other holder of legal title to or security interest in the
cars. Notwithstanding the foregoing, during the term of such Lease or Leases so
assigned no such assignee, pledgee, mortgagee, lessor, transferee or other
holder of legal title to or security interest in the cars shall interfere with
the quiet use, possession and enjoyment of the related cars by Lessee provided
that no event of default or termination event (however described) shall have
occurred under this Agreement or the related Lease. At the request of Lessor or
any assignee, pledgee, mortgagee, lessor, transferee or other holder of the
legal title to or security interest in the cars, Lessee shall, at Lessor’s
expense, (i) letter or mark the cars to identify the legal owner of the cars
and, if applicable, place on each side of each car, in

 

11

--------------------------------------------------------------------------------

 

letters not less than one inch in height, the words “Ownership Subject to a
Security Lease Filed with the Surface Transportation Board” or other appropriate
words reasonably requested and (ii) evidence its acknowledgement of any
assignment, pledge, mortgage, lease, transfer or other disposition by Lessor by
executing an acknowledgement letter in form and substance satisfactory to Lessor
and its assignee, pledgee, mortgagee, lessor or other holder of legal title to
or security interest in the cars. Lessee agrees that no claim or defense which
Lessee may have against Lessor shall be asserted or enforced against any
assignee, pledgee, mortgagee, lessor or other holder of legal title to or
security interest in the cars; provided, that Lessee’s right to quiet enjoyment
not disturbed due to action by any such party.

 

ARTICLE 24

 

DISCLAIMER OF WARRANTIES

 

LESSOR MAKES NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO THE
CONDITION, MERCHANTABILITY, FITNESS FOR PARTICULAR PURPOSE OR ANY OTHER MATTER
CONCERNING THE CARS. LESSOR SHALL NOT HAVE ANY RESPONSIBILITY TO LESSEE FOR ANY
INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY NATURE, INCLUDING BUT NOT
LIMITED TO INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR ANTICIPATED PROFITS.
Lessee shall be solely responsible for determining that the specifications and
design of any car are appropriate for the commodities loaded therein. During the
period of any lease hereunder in which Lessee renders faithful performance of
its obligations, Lessor hereby assigns to Lessee any factory or dealer warranty,
whether express or implied, or other legal right Lessor may have against the
manufacturer in connection with defects in the cars covered by this Agreement.

 

ARTICLE 25

 

RIGHT OF INSPECTION AND NOTICES

 

Lessor, or its assignee, shall, at any reasonable time and without interfering
with Lessee’s operations, have the right to inspect the cars by its authorized
representative wherever they may be located for the purpose of determining
compliance by Lessee with its obligations hereunder. Lessee shall use its best
effort to obtain permission, if necessary, for Lessor or its representative to
enter upon any premises where the cars may be located.

 

Lessee shall notify Lessor, in writing, within three (3) days after any
attachment, lien (including any tax and mechanics’ liens) or other judicial
process attaches to the cars.

 

ARTICLE 26

 

ADMINISTRATION OF LEASE

 

Lessee agrees to make available to Lessor information concerning the movement of
the cars reasonably required for the efficient administration of this Agreement.

 

12

--------------------------------------------------------------------------------

 

Lessee agrees to cooperate with Lessor for the purpose of complying with any
reasonable requirements of any lender, the Surface Transportation Board, the
Registrar General of Canada pursuant to Sections 104 or 105 of the Canada
Transportation Act, or the provisions of Article 9 of the Uniform Commercial
Code or equivalent Canadian personal property security legislation provided such
cooperation does not materially affect the rights or liabilities of Lessee
hereunder.

 

ARTICLE 27

 

FINANCIAL STATEMENTS

 

Lessee will make available to Lessor within one hundred twenty (120) days after
the end of each fiscal year of the Lessee a complete financial statement package
of the Lessee, for such fiscal year ended period, including but not limited to,
balance sheet, income statement, cash flow statement, and all schedules, notes,
and disclosures made a part of such financial statement package. The financial
statements shall be prepared in accordance with Generally Accepted Accounting
Principles (“GAAP”), all in reasonable detail and certified by public
accountants of recognized standing. If Lessee files a Form 10-K with the U.S.
Securities and Exchange Commission (SEC), the filing of such Form 10-K with the
SEC within one hundred twenty (120) days after the end of such fiscal year will
satisfy the requirements set forth above. In addition, upon request of the
Lessor and with reasonable prior notice, Lessee shall make quarterly unaudited
financial reports available to Lessor (if so requested by Lessor, as soon as
available and in any case not later than ninety (90) days after the end of each
of the first three fiscal quarters of the Lessor).

 

ARTICLE 28

 

INSURANCE

 

Lessee shall maintain at all times on the cars, at its expense, commercial
general liability insurance and umbrella/excess insurance (covering bodily
injury, property damage and pollution exposures, including, but not limited to,
contractual liability and products liability) against such risks, in such form
as shall be satisfactory to Lessor and with such insurer(s) as shall be rated
A-:VII or better by A.M. Best. The requirement for pollution liability insurance
may be satisfied by scheduling a self-insured retention to an umbrella/excess
policy affording pollution liability insurance. The commercial general liability
insurance policy or self-insured retention and umbrella or excess insurance
policies shall have a combined limit of not less than $3,000,000 per occurrence,
and the policies shall be endorsed to name Lessor, Lessor’s subsidiaries and
Lessor’s assignees as additional insureds as their interest may appear.

 

Prior to the initial delivery date of cars under this Agreement and from time to
time thereafter, Lessee shall furnish to Lessor an original certificate
demonstrating that insurance coverage as required by this Agreement and any
related Rider(s) is in effect; provided, however, that Lessor shall be under no
duty to ascertain the existence or adequacy of such insurance. The insurance
maintained by Lessee shall be primary without any right of contribution from
insurance which may be maintained by Lessor. The obligations of Lessee under
this Article shall be independent of all other terms under this Agreement and
shall in no event relieve Lessee from

 

13

--------------------------------------------------------------------------------

 

any indemnity obligation hereunder. The Lessee shall procure an agreement from
the insurer that the insurer shall give the Lessor at least thirty (30) days
prior written notice (at the address for notice to Lessor set forth herein) of
any alteration in or cancellation of the terms of such policies.

 

ARTICLE 29

 

RECIPROCAL REPRESENTATIONS AND WARRANTIES

 

Lessee hereby makes to Lessor as representations and warranties of Lessee the
statements set forth in Paragraphs 1 through 6 set forth below in this
Article 29, which representations and warranties are (i) made as of the date of
this Agreement and as of the date of any related Rider, and (ii) are made only
to the actual knowledge of Lessee without further inquiry. Lessor hereby makes
to Lessee as representations and warranties of Lessor the statements set forth
in Paragraphs 1 through 6 set forth below in this Article 29, which
representations and warranties are (i) made as of the date of this Agreement and
as of the date of any related Rider, and (ii) are made only to the actual
knowledge of Lessor without further inquiry. As used in such Paragraphs I
through 6, “it” refers to the entity making the statement in question.

 

1.                                      It is a corporation, limited liability
company or limited partnership duly incorporated or organized, validly existing,
and in good standing under the laws of its state of incorporation or
organization as identified in the preamble of this Agreement and is either duly
qualified to do business and is in good standing in such other jurisdictions in
which the business and activities of Lessee, or Lessor as the case may be,
require such qualification or its failure to so qualify in such other
jurisdiction will not have a material adverse impact on this Agreement.

 

2.                                      It has full power to enter into this
Agreement and any related Rider.

 

3.                                      This Agreement and any related Rider has
been duly authorized, executed and delivered by it and constitutes a valid,
legal and binding agreement, enforceable in accordance with the terms and
conditions set forth in this Agreement and any related Rider, subject to
bankruptcy and other creditor’s rights laws and the principles of equity.

 

4.                                      It is not required to obtain any
approval from any governmental or public body or authority with respect to the
entering into and performance by it of this Agreement and any related Rider,
except for any approvals that may be required in connection with the actual
operation of the cars.

 

5.                                      The entering into and performance by it
of this Agreement and any related Rider will not conflict with, or result in a
breach of, the terms, conditions or provision of any law or any regulations,
order, injunction, permit, franchise or decree of any court or governmental
instrumentality by which it is bound or to which it is subject.

 

6.                                      The entering into and performance by it
of this Agreement and any related Rider

 

14

--------------------------------------------------------------------------------

 

will not conflict with, or result in a breach of, the terms, conditions or
provisions of any indenture, agreement or other instrument to which it is a
party or by which it or any of its property is bound.

 

ARTICLE 30

 

TILC CAPACITY

 

The parties hereto acknowledge and agree that TILC in executing an individual
Rider incorporating the terms of this Agreement (thereby entering into an
individual and separate Lease of the subject cars as described in Article I
above) may execute such Rider (and, together with this Agreement, enter into
such Lease of the subject cars) in either of the following capacities:

 

1.                                      If TILC is the owner of the subject cars
at the time they are placed into service under the Agreement, TILC executes the
related Rider and enters into such Lease in its individual capacity as the car
owner for its own account.

 

2.                                      If TILC is not the owner of the subject
cars at the time they are placed into service under the Agreement, then TILC
executes the related Rider and enters into such Lease as manager for the benefit
of the relevant car owner, pursuant to contractual authority delegated by the
car owner to TILC (as manager) to encumber and bind the subject cars and car
owner under such Lease.

 

In the event TILC enters into the Agreement or a related Rider in the capacity
of manager as aforesaid, TILC in its individual capacity represents and warrants
to the Lessee, and agrees with the Lessee that (i) the party for whom TILC acts
as manager is contractually bound and liable as Lessor to the same extent as if
it signed this Agreement or a related Rider directly, (ii) TILC is obligated in
its capacity as manager to perform the Lessor’s obligations to the Lessee under
the Agreement, and (iii) if TILC (a) fails to perform the Lessor’s obligations
while serving as manager, or (b) is removed or terminated as manager and the car
owner for whose benefit TILC has been acting as manager breaches or otherwise
fails to perform (or cause to be performed) the Lessor’s obligations to the
Lessee in accordance with this Agreement, then in either such case TILC agrees
that it is directly liable to the Lessee for any resulting damages and costs, to
the same extent that TILC would have been had TILC been the actual car owner
executing this Agreement or a related Rider as Lessor.

 

ARTICLE 31

 

MISCELLANEOUS

 

This Agreement and the related Riders, together with any and all exhibits
attached hereto, constitutes the entire agreement between Lessor and Lessee, and
it shall not be amended, altered or changed except by written agreement signed
by the parties hereto. No waiver of any provision of this Agreement or a related
Rider or consent to any departure by Lessee therefrom shall be effective unless
the same shall be in writing, signed by both parties and then such waiver of

 

15

--------------------------------------------------------------------------------

 

consent shall be effective only in the specific instance and for the purpose for
which it was given.

 

1.                                       Governing Law

 

This Agreement and related Riders shall be interpreted under and performance
shall be governed by the laws of the State of Texas.

 

2.                                       Conflict with Interchange Rules

 

In the event the Interchange Rules conflict with any provision of this Agreement
and any related Rider, this Agreement or the Rider shall govern.

 

3.                                       Exhibits

 

All exhibits attached hereto are incorporated herein by this reference.

 

4.                                       Payments

 

All payments to be made under this Agreement shall be made at the addresses set
forth in Article 32.

 

5.                                       Severability

 

If any term or provision of this Agreement or the application thereof shall, to
any extent, be invalid or unenforceable, such invalidity or unenforceability
shall not affect or render invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be valid and enforced to the fullest extent
permitted by law.

 

6.                                       Headings

 

The headings that have been used to designate the various Sections and Articles
hereof are solely for convenience in reading and ease of reference and shall not
be construed in any event or manner as interpretative or limiting the
interpretation of the same.

 

7.                                       Survival

 

All indemnities contained in this Agreement shall survive the termination
hereof. In addition, the obligation to pay any deficiency, as well as the
obligation for any and all other payments by Lessee to Lessor hereunder shall
survive the termination of this Agreement or the lease contained herein.

 

8.                                       Restrictions on Assignability by Lessee

 

Lessee has reviewed the provisions of Article 9 of this Agreement prohibiting or

 

16

--------------------------------------------------------------------------------

 

restricting the assignment or other transfer of its interests in this Agreement
or the cars leased to it and is bound by such provisions as set forth in this
Agreement. Lessee agrees that said provisions are made “conspicuous” by this
paragraph.

 

9.                                       Conflicts between Riders and this
Agreement

 

In the event any provision of any Rider modifies or conflicts with any provision
of this Agreement, the provisions of such Rider shall govern as to the Lease
transaction evidenced by such Rider.

 

ARTICLE 32

 

ADDRESSING OF NOTICES

 

Any notice required or permitted hereunder shall be in writing and shall be
delivered to the respective (parties hereto by (i) overnight courier delivery,
(ii) facsimile transmission (with follow-up mail confirming as described in
clause (iii)), or (iii) deposit in the United States mail as a certified or
registered matter, return receipt requested, postage prepaid, and addressed to
the respective parties as follows, unless otherwise advised in writing.

 

Lessee to Lessor:

Lessor to Lessee:

 

 

 

TO:

Trinity Industries Leasing Company

Highwater Ethanol, LLC

 

2525 Stemmons Freeway

24500 U.S. Highway 14

 

Dallas, Texas 75207

Lamberton, MN 56152

 

Facsimile: 214-589-7402

 

 

ATTENTION:

Thomas C. Jardine

ATTENTION: Brian Kletsher

 

Vice President

 

Chief Executive Officer

 

Portfolio Management

 

 

17

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed and delivered as of the 16th day of April, 2009

 

 

LESSOR: TRINITY INDUSTRIES LEASING COMPANY

 

 

 

 

 

By:

/s/ Thomas C. Jardine

 

 

Thomas C. Jardine

 

 

Vice President, Portfolio Management

 

 

 

LESSEE: HIGHWATER ETHANOL, LLC

 

 

 

By:

/s/ Brian Kletsher

 

 

 

 

Title:

CEO

 

18

--------------------------------------------------------------------------------

 

RIDER ONE (1) TO R 1LROAD CAR LEASE AGREEMENT

July  BK TJ

Effective this 1st day of June, 2009, this Rider shall become a part of the
Railroad Car Lease Agreement between Trinity Industries Leasing Company, Lessor,
and Highwater Ethanol, LLC, Lessee, dated July 1, 2009, and the cars described
herein shall be leased to Lessee, subject to the terms and conditions in said
Railroad Car Lease Agreement, during the term and for the rent shown below:

 

Number
of
Cars

 

Type and Description

 

Base
Monthly
Rent
(Per Car)

50

 

6,351 cubic foot capacity used covered hopper cars. Car marks and numbers to be
confirmed by Exhibit A which will be forwarded to Customer within thirty (30)
days of delivery of the final car hereunder.

 

$

425.00

 

Delivery —FOB Lamberton, Minnesota

 

Impact Damage - Impact damage resulting from striking the car with hammers,
lances, sledges, or other such mechanical devices shall not be considered normal
wear and tear to the extent such damage results in (a) cracks, punctures, or
tears of the steel sheet, or (b) dents to the steel sheet exceeding one inch
(1”) in depth, or (c) penetration of the exterior paint film exposing the steel
sheet to the elements; all of the preceding enumerated items shall collectively
be defined as “Lessee Responsibility Damage”. Lessee Responsibility Damage shall
be repaired at Lessee’s expense by means of straightening dents, welding any
cracks, patching punctures or tears, and spot painting any repaired or exposed
surfaces.

 

Escalation of Base Monthly Rent:

 

1.               Modifications - In accordance with Article 18 of Railroad Car
Lease Agreement, any change in car design required by the AAR, DOT, FRA or other
governmental authority during the term of this lease will cause the monthly rent
to increase for each car on the month following its modification as follows:

 

A.          For a modification with a useful life equal to the car itself,
monthly car rent will increase by a monthly rate of $1.75 per car for each $100
of Lessor’s cost incurred in the course of making such modification.

 

B.            For a modification with a useful life less than that of the car,
monthly car rent will increase to equal the cost of such modification, including
the implicit cost of money at 10% per annum, divided by the number of months of
estimated remaining life of the modification.

 

2.                                    High Mileage - In accordance with
Article 7, in the event that a car travels more than 30,000 miles (empty and
loaded) in any calendar year, the Lessee shall pay the Lessor $0.03 per mile for
each mile over 30,000 traveled by such car.

 

1

--------------------------------------------------------------------------------

 

Separate Lease - Lessor and Lessee agree that this Rider shall constitute a
separate lease which incorporates the terms of the above referenced Railroad Car
Lease Agreement. This Rider shall be severable from any other cars or riders
relating to the above referenced Railroad Car Lease Agreement and shall become a
separate lease which is separately transferable for all purposes.

 

Term - The minimum term for the cars leased hereunder shall be sixty (60)
months, and the cars shall continue under lease thereafter for successive one
(1) month terms, at the same rate and under the same conditions, unless notice,
in writing, requesting cancellation shall be given by either party to the other
at least thirty (30) days prior to expiration of the initial term or any
successive term for cars covered by this Rider. Thereafter, this Rider shall
terminate automatically upon the date of release of the last car covered by this
Rider.

 

TRINITY INDUSTRIES LEASING COMPANY

HIGHWATER ETHANOL, LLC

 

 

 

 

By:

/s/ Thomas C. Jardine

 

By:

/s/ Brian Kletscher

 

 

 

 

 

Vice President, Portfolio Management

 

Title:

CEO

 

2

--------------------------------------------------------------------------------