Exhibit 10.2


 





 


LEASE AGREEMENT


 


BETWEEN


 


CITY OF LAMBERTON, MINNESOTA


 


AND


 


HIGHWATER ETHANOL, LLC


 


$15,180,000


SOLID WASTE FACILITIES REVENUE BONDS, SERIES
2008A


(HIGHWATER ETHANOL, LLC PROJECT)


 


DATED AS OF: 
April 1, 2008




 





 


The interest of the City of Lamberton, Minnesota in this Lease
Agreement, except for certain rights retained by the City pursuant to Section 4.6
hereof, has been assigned to U.S. Bank National Association, St. Paul,
Minnesota, as Trustee.


 


This instrument was drafted by: SCR


FAEGRE & BENSON LLP


2200 Wells Fargo Center


90 South Seventh Street


Minneapolis, Minnesota 55402


 

















 


TABLE OF CONTENTS


 


	
   

  	
  Page

  
	
  ARTICLE I
  DEFINITIONS, EXHIBITS AND MISCELLANEOUS

  	
  3

  
	
   

  	
  Section 1.1. Definitions

  	
  3

  
	
   

  	
  Section 1.2. Exhibits

  	
  11

  
	
   

  	
  Section 1.3. Company’s Acts

  	
  11

  
	
   

  	
  Section 1.4. Rules of
  Interpretation

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE II
  REPRESENTATIONS OF CITY AND COMPANY

  	
  13

  
	
   

  	
  Section 2.1. Representations by the
  City

  	
  13

  
	
   

  	
  Section 2.2. Representations by the
  Company

  	
  13

  
	
   

  	
   

  	
   

  
	
  ARTICLE III
  COMPLETION OF PROJECT

  	
  16

  
	
   

  	
  Section 3.1. Development, Acquisition
  and Installation of Equipment and Completion of Project by Company

  	
  16

  
	
   

  	
  Section 3.2. Payment of Costs by
  Company

  	
  16

  
	
   

  	
  Section 3.3. Authorization by City

  	
  18

  
	
   

  	
  Section 3.4. Issuance of Bonds

  	
  19

  
	
   

  	
  Section 3.5. Disbursements from
  Project Fund

  	
  19

  
	
   

  	
  Section 3.6. Establishment of
  Completion Date and Use of Excess Proceeds

  	
  20

  
	
   

  	
  Section 3.7. Warranties

  	
  21

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV USE,
  OCCUPANCY, BASIC PAYMENTS AND ADDITIONAL CHARGES

  	
  23

  
	
   

  	
  Section 4.1. Possession and Use

  	
  23

  
	
   

  	
  Section 4.2. Basic Payments

  	
  23

  
	
   

  	
  Section 4.3. Additional Charges

  	
  24

  
	
   

  	
  Section 4.4. Company’s Obligations
  Unconditional

  	
  25

  
	
   

  	
  Section 4.5. Assignment of City’s
  Rights

  	
  25

  
	
   

  	
  Section 4.6. Company’s Remedies

  	
  25

  
	
   

  	
   

  	
   

  
	
  ARTICLE V PROJECT
  COVENANTS

  	
  26

  
	
   

  	
  Section 5.1. Project Operation and
  Maintenance

  	
  26

  
	
   

  	
  Section 5.2. Transfer of Company’s
  Leasehold Interest in the Equipment

  	
  26

  
	
   

  	
  Section 5.3. Alterations to the
  Equipment

  	
  26

  
	
   

  	
  Section 5.4. Taxes and Other
  Governmental Charges

  	
  26

  
	
   

  	
  Section 5.5. Insurance

  	
  27

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI DAMAGE
  AND DESTRUCTION

  	
  28

  
	
   

  	
  Section 6.1. Damage and Destruction

  	
  28

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII
  COMPANY’S COVENANTS

  	
  29

  
	
   

  	
  Section 7.1. Covenant for the Benefit
  of the Trustee and the Bondholders

  	
  29

  
	
   

  	
  Section 7.2. Inspection and Access

  	
  29

  
	
   

  	
  Section 7.3. Certificate of Compliance
  and Other Reports

  	
  29

  
					



 


i

















 


	
   

  	
  Section 7.4. Indemnification

  	
  31

  
	
   

  	
  Section 7.5. Existence; Maintenance of
  Business

  	
  31

  
	
   

  	
  Section 7.6. Filing of Financing
  Statements

  	
  32

  
	
   

  	
  Section 7.7. Assurance of Tax
  Exemption

  	
  32

  
	
   

  	
  Section 7.8. Determination of
  Taxability

  	
  35

  
	
   

  	
  Section 7.9. Surrender of Equipment;
  Holdover

  	
  36

  
	
   

  	
  Section 7.10. Refinancing of FNBO Loan

  	
  36

  
	
   

  	
  Section 7.11. Additional Indebtedness

  	
  36

  
	
   

  	
  Section 7.12. Financial Covenants

  	
  37

  
	
   

  	
  Section 7.13. Performance of
  Obligations

  	
  38

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII
  COMPANY’S OPTIONS

  	
  39

  
	
   

  	
  Section 8.1. Assignment and Sublease

  	
  39

  
	
   

  	
  Section 8.2. Prepayment

  	
  39

  
	
   

  	
  Section 8.3. Direction of Investments

  	
  39

  
	
   

  	
  Section 8.4. Termination of Bond Lease
  Agreement and Option to Purchase

  	
  39

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX EVENTS
  OF DEFAULT AND REMEDIES

  	
  42

  
	
   

  	
  Section 9.1. Events of Default

  	
  42

  
	
   

  	
  Section 9.2. Remedies

  	
  43

  
	
   

  	
  Section 9.3. Disposition of Funds

  	
  44

  
	
   

  	
  Section 9.4. Nonexclusive Remedies

  	
  44

  
	
   

  	
  Section 9.5. Attorneys’ Fees and
  Expenses

  	
  44

  
	
   

  	
  Section 9.6. Effect of Waiver

  	
  44

  
	
   

  	
  Section 9.7. Waiver of Stay or
  Extension

  	
  44

  
	
   

  	
  Section 9.8. City May File Proofs
  of Claim

  	
  45

  
	
   

  	
  Section 9.9. Restoration of Positions

  	
  45

  
	
   

  	
  Section 9.10. Suits to Protect the
  Project

  	
  45

  
	
   

  	
  Section 9.11. Performance by Third
  Parties

  	
  45

  
	
   

  	
  Section 9.12. Exercise of the City’s
  Remedies by Trustee

  	
  45

  
	
   

  	
   

  	
   

  
	
  ARTICLE X GENERAL

  	
  46

  
	
   

  	
  Section 10.1. Amounts Remaining in
  Funds

  	
  46

  
	
   

  	
  Section 10.2. Notices

  	
  46

  
	
   

  	
  Section 10.3. Binding Effect

  	
  46

  
	
   

  	
  Section 10.4. Severability

  	
  46

  
	
   

  	
  Section 10.5. Amendments, Changes, and
  Modifications

  	
  47

  
	
   

  	
  Section 10.6. Execution Counterparts

  	
  47

  
	
   

  	
  Section 10.7. Required Approvals

  	
  47

  
	
   

  	
  Section 10.8. Limitation on City
  Liability

  	
  47

  
	
   

  	
  Section 10.9. Survivorship of
  Obligations

  	
  48

  
	
   

  	
  Section 10.10. Administrative Fees,
  Attorneys’ Fees and Costs

  	
  48

  
	
   

  	
  Section 10.11. Release

  	
  48

  
					



 


EXHIBIT A       Description of
Equipment


EXHIBIT B       Location of the
Plant


EXHIBIT C       Description of the
Project


 


ii

















 


LEASE AGREEMENT


 


THIS LEASE AGREEMENT (this “Lease”) is made and entered into as of the
first day of April 2008, by and between the CITY OF LAMBERTON, Minnesota,
a political subdivision of the State of Minnesota (the “City”), and HIGHWATER
ETHANOL, LLC, a Minnesota limited liability company (the “Company”).


 


WHEREAS, the City and the Company, each in consideration of the
representations, covenants and agreements of the other as set forth herein,
mutually represent, covenant and agree as follows:


 


R E C I T A L S:


 


A.            The City is a duly
organized and existing political subdivision of the State of Minnesota, and is
authorized to issue its revenue bonds pursuant to the provisions of Minnesota
Statutes, Sections 469.152 to 469.1651, as amended, known as the Minnesota
Industrial Development Revenue Bonding Act (herein called the “Act”).


 


B.            The City is, under
the Act, authorized to issue and sell its revenue bonds for the purpose of
providing funds to finance projects, including real and personal property used
or useful in the disposal of solid wastes in connection with a revenue
producing enterprise as provided in Section 469.153, Subd. 2 (a) of
the Act.


 


C.            Pursuant to and in
accordance with the provisions of the Act, the City has adopted a resolution
authorizing the issuance of its $15,180,000 Solid Waste Facilities Revenue
Bonds, Series 2008A (Highwater Ethanol, LLC Project), (the “Series 2008
Bonds”) for the purpose of financing the development, acquisition, construction
and equipping of solid waste facilities as part of an ethanol plant in the City
(as hereinafter further described in Exhibit C hereto, the “Project”) to
be located on the premises described in Exhibit B hereto.


 


D.            The Series 2008
Bonds shall be issued under and pursuant to the Trust Indenture, dated as of April 1,
2008 (the “Indenture”), between the City and U.S. Bank National Association, as
Trustee, pursuant to which the City shall pledge and assign to the Trustee
certain rights of the City hereunder, including lease payments to provide for
payment of the Series 2008 Bonds.


 


E.             In order to provide
for the payment of the principal of and interest on the Series 2008 Bonds
and any Additional Bonds issued hereunder, the City proposes to lease the
Equipment (as defined herein) to the Company, and the Company desires to lease
and rent the Equipment (as defined herein) from the City upon the terms and
conditions in this Lease.


 


F.             The issuance, sale
and delivery of the Series 2008 Bonds and the execution and delivery of
this Lease and the Indenture have been in all respects duly and validly
authorized in accordance with the Act and the Resolution (as defined in the
Indenture).


 


1

















 


WITNESSETH:


 


LEASING CLAUSE; SECURITY
AGREEMENT


 


(a)           Lease of
Equipment.  The City hereby leases to
the Company and the Company leases from the City the Equipment herein
described, for a term commencing as of the date of this Lease and extending to April 1,
2028, or unless sooner terminated as herein provided, without option of renewal
except by mutual consent, and at the rentals and upon the further terms and
conditions set forth herein; and the City and the Company, each in
consideration of the representations, covenants and agreements of the other as
set forth herein, mutually represent, covenant and agree as provided
herein.  Except as provided herein, this
Lease is not terminable by the City.


 


(b)           Delivery.  The City hereby appoints the Company as its
agent for inspection and acceptance of each Item of Equipment from the
Contractors under the Construction Contracts. 
Each delivery of an Item to the City under the Construction Contract
shall be deemed a delivery to the Company under this Lease at the location at
which the item is so delivered to the City after having previously been
inspected by the Company and approved for payment by or on behalf of FNBO.


 


(c)           Security
Agreement.  Notwithstanding any
provision of this Lease to the contrary, including certain provisions required
by the Code in order for the City to be deemed the owner of the Equipment for
purposes of Section 142 (a) of the Internal Revenue Code, this Lease
is intended to be and shall be construed as a security agreement for purposes
of the Uniform Commercial Code as in effect in the State of Minnesota.


 


2

















 


ARTICLE I


 


DEFINITIONS, EXHIBITS AND MISCELLANEOUS


 


Section 1.1.  Definitions.  The terms used herein, unless the context
hereof shall require otherwise, shall have the following meanings, and any
other terms defined in Section 1.01 of the Indenture shall have the same
meanings when used herein as assigned them in the Indenture, unless the context
or use thereof indicates another or different meaning or intent.


 


“Act” means the Minnesota Municipal Industrial Development Act,
Minnesota Statutes, Sections 469.152 to 469.1651, as amended.


 


“Additional Bonds” means any Additional Bonds issued pursuant to the
terms and conditions of Section 2.09 of the Indenture.


 


“Additional Charges” means the payments required to be made by the
Company under Section 4.3 hereof.


 


“Additional Secured Indebtedness” means any indebtedness of the Company
which is in addition to the indebtedness under the FNBO Loan and the Bonds,
which additional indebtedness is or will be secured by a mortgage lien or other
security interest against all or part of the Plant, or any other asset of the
Company.


 


“Adjusted EBITDA” means EBITDA less taxes, Capital Expenditures and
Allowable Distributions under this Lease, in each case for the applicable
reporting period.


 


“Allowable Distributions” means distributions to members of the Company
permitted under Section 7.11(7) hereof.


 


“Authorized Company Representative” means the CEO/General Manager or
President of the Company or any person at the time designated to act on behalf
of the Company by written certificate furnished to the City and the Trustee, containing
the specimen signature of such person and signed on behalf of the Company by
any member.  Such Certificate may
designate an alternate or alternates.


 


“Basic Payments” means the payments required to be made by the Company
under Section 4.2 hereof.


 


“Bond Counsel” means Independent nationally recognized bond counsel.


 


“Bond Fund” means the Bond Fund established under Section 5.01 of
the Indenture.


 


“Bond Lease” means this Lease Agreement, between the City, as lessor,
and the Company, as lessee, as amended or supplemented from time to time,
including any renewals or extensions hereof.


 


3

















 


“Bond Mortgage” means the Mortgage, Security Agreement and Assignment
of Leases and Rents and Fixture Financing Statement of even date herewith from
the Company, as mortgagor, to the Trustee, as mortgagee, and all amendments and
supplements thereto.


 


“Bond Resolution” means the resolution of the City adopted by the City
Council on March 24, 2008, authorizing the issuance and sale, as the same
may be amended, modified or supplemented by any amendments or modifications
thereof.


 


“Bond Security Agreement” means the Security Agreement of even date
herewith between the Company and the Trustee and all amendments and supplements
thereto.


 


“Bonds” means Series 2008 Bonds and any Additional Bonds issued
under a supplement to the Indenture.


 


“Capital Expenditure” means any expenditure of money for the purchase
or construction of fixed assets or for the purchase or construction of any
other assets, or improvements or additions thereto, which are properly
capitalized on the Company’s balance sheet.


 


“Capitalized Interest Account” means the account by that name
established within the Project Fund pursuant to the Indenture.


 


“Certificate” means a certification in writing required or permitted by
the provisions of this Lease or the Indenture signed and delivered to the
Trustee or other proper person or persons. 
If and to the extent required by the provisions of Section 1.02 of
the Indenture, each Certificate shall include the statements provided for in
said Section 1.02.


 


“Certified Resolution” means a copy of a resolution of the City
Council, certified by the City Clerk to have been duly adopted by said City
Council and to be in full force and effect on the date of such certification.


 


“City” means the City of Lamberton, a Minnesota municipal corporation,
its successors and assigns.


 


“City Council” or “Council” means the Lamberton City Council, or its
successor as governing body of the City.


 


“Closing Date” means the date on which the Series 2008 Bonds are
delivered to the Original Purchaser thereof.


 


“Code” means the Internal Revenue Code of 1986, as amended.


 


“Company” means Highwater Ethanol, LLC, a Minnesota limited liability
company, its successors and assigns.


 


4

















 


“Contractual Subordinated Debt” means Subordinated Debt which is
subordinated to the FNBO Loan, the Bonds and Additional Secured Indebtedness
under a written subordination agreement.


 


“Construction Contract” means any and all contracts, written or oral,
between the Company and any Contractor or any subcontractor and between any of
the foregoing and any other person or entity relating in any way to the
development, acquisition or installation of the Equipment, or any part thereof,
including the performing of labor or the furnishing of standard or specially
fabricated materials in connection therewith, as amended from time to time.


 


“Construction Period” the period between the beginning of construction
of the Project or the date on which the Series 2008 Bonds are first
delivered to the Original Purchaser, whichever is earlier, and the Completion
Date.


 


“Contractors” means and includes any person or entity engaged to work
on or to furnish labor, materials or supplies for the development, acquisition
or installation of the Equipment, their successors and assignees.


 


“Debt Payments” means all scheduled payments due with respect to the
FNBO Loan, the Bonds and any Additional Secured Indebtedness.


 


“Debt Service Coverage Ratio” means, for any period, the ratio of
EBITDA to interest expense and scheduled principal payments payable during such
period in respect of the FNBO Loan, the Bonds and any Additional Secured
Indebtedness existing at the time the calculation is made.


 


“Default” means default by the City in the performance or observance of
any of the covenants, agreements or conditions on its part contained in this
Lease, or in the Series 2008 Bonds and Additional Bonds outstanding hereunder,
exclusive of any notice or period of grace required for a default to constitute
an “event of default” as hereinafter provided.


 


“Determination of Taxability” means the issuance of a statutory notice
of deficiency by the Internal Revenue Service, or a ruling of the National
Office or any District Office, or a final decision by any court of competent
jurisdiction that interest on the Bonds is includible in the gross income of
the recipient under Section 103 and related Sections of the Internal
Revenue Code and regulations thereunder as in effect at the date of issuance of
the Series 2008 Bonds, for any reason other than a change of law or that
the Holder is a substantial user or a related person under Section 147(a),
provided that the period for a contest or appeal, if any, of such action,
ruling or decision has expired without any such appeal or contest having been
instituted, or, if instituted, such contest or appeal has been unsuccessfully
concluded.


 


“Disbursing Agreement” means the Disbursing Agreement dated April 1,
2008, entered into among the Company, the Trustee and FNBO, Homestead Escrow
and Exchange Company, as disbursing agent, and Dakota Homestead Title Insurance Company
(the “Title Company”).


 


5

















 


“EBITDA” means for any period, an amount determined in accordance with
GAAP, equal to (a) Net Income for such period, plus (b) to the extent
deducted in determining Net Income for such period, the sum of (1) interest
expense, (2) depreciation and amortization and (3) all other non-cash
charges, in each case for such period.


 


“Equipment” or “Items” means the equipment described in Exhibit A
hereto, and any additional equipment described in a Lease Supplement, together
with any and all accessories from time to time incorporated therein or
installed thereon.


 


“Equipment Account” means the account by that name established within
the Project Fund pursuant to the Indenture.


 


“Equipment Costs” means the costs described in Section 3.2 hereof.


 


“Event of Default” means an Event of Default described in Section 9.1
of this Lease which has not been cured.


 


“Excess Cash Flow” means Adjusted EBITDA less scheduled payments to
FNBO and the Bond Trustee and approved debt and capital expenditures.


 


“Fair Market Value Purchase Price” means an amount be determined on the
basis of, and shall be equal in amount to, the value which would be agreed to
in an arm’s-length transaction between an informed and willing buyer (other
than a buyer currently in possession) and an informed and willing seller, under
no compulsion to buy or sell.


 


“Fixed Charge Coverage Ratio” means Adjusted EBITDA compared to all
Debt Payments of the Company.


 


“FNBO” means First National Bank of Omaha, a national bank.


 


“FNBO Loan” means the loans from FNBO to the Company in the aggregate
authorized amount of $64,402,000 made under the FNBO Loan Documents, and any
refinance, extensions, renewals, modifications or substitutions thereof.


 


“FNBO Loan Agreement” means the Construction Loan Agreement dated April 24,
2008 between FNBO and the Company.


 


“FNBO Loan Documents” means the FNBO Loan Agreement, the FNBO Note, the
FNBO Mortgage, the FNBO Security Agreement and amendments and supplements
thereto.


 


“FNBO Mortgage” means the Construction Loan Mortgage, Security Agreement,
Assignment of Leases and Rents and Fixture Financing Statement dated April 24,
2008 from the Company to FNBO to secure the FNBO Loan.


 


“FNBO Note” means the Note and other instruments executed by the
Company to evidence its obligations under the FNBO Loan Documents, and any
refinance, extensions, renewals, modifications or substitutions thereof.


 


6

















 


“FNBO Security Agreement” means the Security Agreement dated April 24,
2008 between the Company and FNBO to secure the FNBO Loan.


 


“Goodwill” means assets of the Company designated as goodwill or its
balance sheet under generally accepted accounting principles.


 


“Guaranty” means the Guaranty dated as of April 1, 2008 executed
by the Company to the Trustee to guaranty payment of the principal and interest
on the Bonds when due.


 


“Holder,” “Bondholder” or “owner” whenever employed herein with respect
to a Bond means the person in whose name such Bond shall be registered.


 


“Indenture” means the Trust Indenture between the City and U.S. Bank
National Association, as Trustee, dated as of April 1, 2008, under which
the Bonds are authorized to be issued, and including any amendments or
supplements thereto.


 


“Independent,” when used with reference to an attorney, engineer,
architect, certified public accountant, consultant or other professional
person, means a person who (i) is in fact independent, (ii) does not
have any material financial interest in the Company or the transaction to which
his Certificate or opinion relates (other than payment to be received for
professional services rendered), and (iii) is not connected with the City
or the Company as an officer, director or employee.


 


“Independent Counsel” means an Independent attorney duly admitted to
practice law before the highest court of any state.


 


“Independent Engineer” means an Independent engineer or engineering
firm or an Independent architect or architectural firm qualified to practice
the profession of engineering or architecture under the laws of Minnesota.


 


“Intercreditor Agreement” means the Intercreditor Agreement, dated as
of April 24, 2008, entered into between the Trustee and FNBO.


 


“Interest Payment Date” means, with respect to the Bonds, June 1
and December 1 of each year, commencing December 1, 2008.


 


“Internal Revenue Code” or “Code” means the Internal Revenue Code of
1986, as amended.


 


“Issuance Expense Account” means the account by that name established
within the Project Fund pursuant to the Indenture.


 


“Item” or Item of Equipment” means any such item of equipment.


 


“Land” means the land and interests in land constituting the site of
the Plant as described in Exhibit A to the Bond Mortgage, less any portion
of the Land released in accordance with the provisions of the Bond Mortgage.


 


7






 


 












 


“Lease Payments” means the payments made or to be made by the Company
pursuant to Section 4.2 and 4.3 of this Lease.


 


“Leveraged Ratio” means the ratio of Total Liabilities to Tangible Book
Equity.


 


“Liabilities” means all indebtedness, obligations and other items
properly treated as liabilities on the balance sheet of the Company under
generally accepted accounting principles.


 


“Net Income” means, for any period, the net income (or loss) of Company
for such period determined in accordance with generally accepted accounting
principles, but excluding therefrom (to the extent otherwise included therein) (a) any
extraordinary gains or losses, (b) any gains attributable to write-ups of
assets, (c) any equity interest in the un-remitted earnings of any Person
that is not a subsidiary of the Company, and (d) any income (or loss) of
any Person accrued prior to the date it becomes a subsidiary of, or is merged
into or consolidated with, the Company on the date that such Person’s assets
are acquired by the Company.


 


“Net Proceeds” means, when used with respect to proceeds of insurance
or a condemnation award, moneys received or receivable by the Company, as
owner, or the Trustee, as secured party, of the Plant, less the cost of
recovery (including attorneys’ fees) of such moneys from the insuring company
or the condemning authority.


 


“Net Worth” means the aggregate of the owners’ equity in the Company,
determined in accordance with generally accepted accounting principles.


 


“Opinion of Counsel” means a written opinion of counsel (who need not
be Independent Counsel unless so specified) appointed by the Company or the
City and acceptable to the Trustee or appointed by the Trustee.  If and to the extent required by the
provisions of Section 1.02 of the Indenture, each Opinion of Counsel shall
include the statements provided for in said Section 1.02.


 


“Optional Redemption Fund” means the Optional Redemption Fund
established under Section 5.02 of the Indenture.


 


“Original Purchaser” means Northland Securities, Inc.


 


“Outstanding” or “outstanding” when used as of any particular time with
reference to Bonds means (subject to the provisions of Section 9.03 of the
Indenture pertaining to Bonds held by the City and the Company) all Bonds
theretofore authenticated and delivered by the Trustee under the Indenture
except:  (i) Bonds theretofore
cancelled by the Trustee or surrendered to the Trustee for cancellation; (ii) Bonds
for the payment or redemption of which funds or direct obligations of or
obligations fully guaranteed by the United States of America in the necessary
amount shall have theretofore been deposited with the Trustee (whether upon or
prior to the maturity or the redemption date of such Bonds), provided that if
such Bonds are to be redeemed prior to the maturity thereof, notice of such
redemption 


 


8

















 


shall have been given pursuant to Article III of the Indenture, or
provision satisfactory to the Trustee shall have been made for the giving of
such notice; and (iii) Bonds in lieu of or in substitution for which other
Bonds shall have been authenticated and delivered by the Trustee pursuant to
the terms of Section 2.07 of the Indenture pertaining to replacement of
Bonds.


 


“Permitted Encumbrances” means, as of any particular time, (i) liens
for ad valorem taxes and special assessments not then delinquent, (ii) utility,
access and other easements and rights-of-way, mineral rights, restrictions and
exceptions that an Independent Engineer certifies will not interfere with or impair
the use of or operations being conducted in the Plant, (iii) such minor
defects, irregularities, encumbrances, easements, rights-of-way and clouds on
title as normally exist with respect to properties similar in character to the
Plant and as do not in the aggregate, in the opinion of Independent Counsel,
materially impair the property affected thereby for the purposes for which it
was acquired or is held by the Company, (iv) the Bond Mortgage, (v) any
mortgage lien or security interest granted by Company in connection with
incurring Permitted Parity Indebtedness permitted under this Bond Lease, (vi) any
mortgage lien superior to the lien of the Mortgage granted by the Company in
connection with the FNBO Loan or Additional Secured Indebtedness, (vii) this
Bond Lease, and (viii) those additional encumbrances identified in Exhibit B
to the Bond Mortgage or permitted under the FNBO Documents.


 


“Person” means any individual, corporation, business trust,
association, company, partnership, joint venture, governmental authority or
other entity.


 


“Plant” means the 50 million gallon per year nameplate capacity ethanol
production facility to be constructed, equipped and operated on the Land by the
Company, as it may exist from time to time.


 


“Principal Payment Dates” means, with respect to the Bonds, December 1
of each year, commencing December 1, 2015.


 


“Project” means the Project described in Exhibit C hereto.


 


“Project Fund” means the Project Fund established under Section 4.02
of the Indenture.


 


“Qualified Investments” means investments authorized by the Act and
described in Section 5.05 of the Indenture.


 


“Redeem” or “redemption” means and includes “prepay” or “prepayment” as
the case may be.


 


“Reserve Fund” means the Reserve Fund established under Section 5.03
of the Indenture.


 


9

















 


“Reserve Requirement” means an amount equal to $1,518,000, plus any
amount required to be deposited in the Reserve Fund in connection with the
issuance of Additional Bonds.


 


“Responsible Officer” of any Trustee hereunder means and includes the
Chairman of the board of directors, the president, every vice president, every
assistant vice president, the cashier, every assistant cashier, every corporate
trust officer, and every officer and assistant officer of such trustee, other
than those specifically above mentioned, to whom any corporate trust matter is
referred because of his knowledge of, and familiarity with, a particular
subject.


 


“Series 2008 Bonds” means the City of Lamberton Solid Waste
Facilities Revenue Bonds, Series 2008A (Highwater Ethanol, LLC Project),
authorized by the Indenture and the Resolution, and described in Section 2.01
of the Indenture.


 


“Sinking Fund” means any Sinking Fund established under Section 3.08
of the Indenture.


 


“Subordinated Debt” means indebtedness of the Company other than the
FNBO Loan, the Bonds and Additional Secured Indebtedness.


 


“Tangible Book Equity” means Net Worth plus Contractual Subordinated
Debt minus Goodwill.


 


“Tangible Net Worth” means Net Worth less all intangible assets as
determined in accordance with generally accepted accounting principles.


 


“Tax Distributions” means cash distributions to each or any of the
Company’s members in an amount not exceeding such member’s estimated federal, state
and local income tax liability, after application of allowable credits, with
respect to the Company’s income, gain or earnings.


 


“Total Debt Service Coverage Ratio” means, for any period, the ratio of
EBITDA to interest expense and scheduled principal payments payable during such
period in respect of the FNBO Loan, any Additional Secured Indebtedness and any
amounts owing under this Bond Lease existing at the time the calculation is
made.


 


“Total Liabilities” means all Liabilities minus Contractual Subordinated
Debt.


 


“Trustee” means the trustee at the time serving as such under the
Indenture.


 


“Trust Estate” means the interest of the City in the Bond Lease
assigned under Granting Clause I of the Indenture; the revenues, moneys,
investments, contract rights, general intangibles and instruments and proceeds
and products and accessions thereof as set forth in Granting Clause II of
the Indenture; and additional property held by the Trustee pursuant to Granting
Clause III of the Indenture, including the interests of the Trustee under
the Bond Mortgage.


 


10

















 


“Working Capital” means current assets (including any amount available
under the Variable Portion of the FNBO Loan at the time of determination), less
investments in or other amounts due from any member, employee or affiliate of
the Company and less prepayments, less current liabilities.


 


“Working Capital Expenses” means expenses which are working capital
expenditures within the meaning of Treas. Reg. § 1.150-1(b) except
expenses meeting the exceptions set forth in Treas. Reg. § 1.148-6(d) (3)(ii).


 


Section 1.2.  Exhibits.  The following Exhibits are attached to and by
reference made a part of this Bond Lease:


 


(1)           Exhibit A:  the Equipment;


 


(2)           Exhibit B:  location of the Plant;


 


(3)           Exhibit C:  description of the Project.


 


Section 1.3.  Company’s
Acts.  Where the Company is permitted
or required to do or accomplish any act or thing hereunder, the Company may
cause the same to be done or accomplished by a third party selected by the
Company with the same force and effect as if done or accomplished by the
Company.


 


Section 1.4.  Rules of Interpretation.


 


(1)           This Bond Lease
shall be interpreted in accordance with and governed by the laws of the State
of Minnesota.


 


(2)           The words “herein”
and “hereof” and “hereunder” and words of similar import, without reference to
any particular section or subdivision, refer to this Bond Lease as a whole
rather than to any particular section or subdivision of this Bond Lease.


 


(3)           References in this
Bond Lease to any particular article, section or subdivision hereof are to the
designated article, section or subdivision of this Bond Lease as originally
executed.


 


(4)           All accounting terms
not otherwise defined herein have the meanings assigned to them in accordance
with generally accepted accounting principles; and all computations provided
for herein shall be made in accordance with generally accepted accounting
principles consistently applied and applied on the same basis as in prior
years.


 


(5)           The Table of
Contents and titles of articles and sections herein are for convenience only
and are not a part of this Bond Lease.


 


(6)           Unless the context
hereof clearly requires otherwise, the singular shall include the plural and
vice versa and the masculine shall include the feminine and vice versa.


 


11

















 


(7)           Articles, sections,
subsections and clauses mentioned by number only are those so numbered which
are contained in this Bond Lease.


 


(8)           For purposes of this
Bond Lease and the Indenture, a Petition in Bankruptcy shall be deemed
dismissed only if either (a) the petition is dismissed by order of a court
of competent jurisdiction and no further appeal rights exist from such order or
(b) the Company notifies the Trustee that such a dismissal has occurred.


 


(9)           Any opinion of
counsel required hereunder shall be a written opinion of such counsel.


 


(10)         References to the
Bonds as “tax-exempt” or to the “tax-exempt status of the Bonds” are to the exclusion
of interest from gross income pursuant to Section 103(a) of the
Internal Revenue Code of 1986, except during any period the Bonds are held by a
Substantial User or Related Person, irrespective of such forms of taxation as
the alternative minimum tax or branch profits tax on foreign corporations, as
is consistent with the approach taken in Section 59(i) of the Code.


 


12

















 


ARTICLE II


 


REPRESENTATIONS OF CITY AND COMPANY


 


Section 2.1.  Representations
by the City.  The City makes the
following representations and warranties as the basis for its covenants herein:


 


(1)           The
City is a duly organized and existing political subdivision pursuant to the
laws of the State of Minnesota and is issuing the Series 2008 Bonds to
finance the costs of the Project pursuant to the Act;


 


(2)           The
issuance and sale of the Series 2008 Bonds, the execution and delivery of
this Bond Lease and the Indenture, and the performance of all covenants and
agreements of the City contained in this Bond Lease and the Indenture have been
duly authorized by a resolution of the governing body of the City adopted at a
meeting thereof duly called and held on March 24, 2008, by the affirmative
vote of not less than a majority of its members;


 


(3)           There
is not pending any suit, action or proceeding against the City before or by any
court, arbitrator, administrative agency or other governmental authority which
materially and adversely affects the validity, as to the City, of this Bond
Lease or the Indenture, any of its obligations hereunder or thereunder or any
of the transactions contemplated hereby or thereby;


 


(4)           No
public official of the City has either a direct or indirect financial interest
in this Bond Lease nor will any public official either directly or indirectly
benefit financially from this Bond Lease;


 


Section 2.2.  Representations
by the Company.  As of the date
hereof, the Company makes the following representations and warranties as the
basis for its covenants herein:


 


(1)           The
Company is a limited liability company validly formed under the laws of the
State of Minnesota, is duly authorized to conduct its business in the State of
Minnesota, has power to enter into this Bond Lease and to use the Equipment for
the purpose set forth in this Bond Lease and by proper action has authorized
the execution and delivery of this Bond Lease and has approved the Indenture;


 


(2)           The
execution and delivery of this Bond Lease, the consummation of the transactions
contemplated thereby, and the fulfillment of the terms and conditions thereof
do not and will not conflict with or result in a breach of any of the terms or
conditions of the Company’s Articles of Organization or Operating and Member
Control Agreement, any restriction or any agreement or instrument to which the
Company is now a party or by which it is bound or to which any property of the
Company is subject, and do not and will not constitute a default under any of
the foregoing, or be in violation of any order, decree, statute, rule or
regulation of any court or any state or federal regulatory body having
jurisdiction over the Company or 


 


13

















 


its properties, including the Project, and do not and will not result
in the creation or imposition of any lien, charge or encumbrance of any nature
upon any of the property or assets of the Company contrary to the terms of any
instrument or agreement to which the Company is a party or by which it is
bound;


 


(3)           This
Bond Lease has been duly and validly authorized, executed and delivered by the
Company and is a legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium, usury or other similar
laws affecting the rights of creditors generally, equitable principles relating
to the availability of remedies and principles of public or governmental policy
limiting the enforceability of the indemnification and contribution provisions;


 


(4)           All
orders and approvals of any court or governmental or regulatory agency or body
required with respect to the Company for the execution, delivery and
performance by the Company of this Bond Lease as of the date hereof have been
received and will be in effect prior to the Closing Date, and, no further
consent, approval, authorization or order of, or registration with, any court
or governmental or regulatory agency or body is required with respect to the
Company;


 


(5)           The
Company has received an executed counterpart of the Indenture and hereby
consents to and approves of the provisions thereof;


 


(6)           The
information relating to the Project and use of the proceeds of the Bonds
furnished by the Company in writing to Faegre & Benson LLP, as Bond
Counsel, in connection with the issuance of the Bonds, is true and correct in
all material respects;


 


(7)           The
Company does not, as of the date of issuance of the Series 2008 Bonds,
reasonably expect any use of moneys derived from the proceeds of the Series 2008
Bonds or any investment or reinvestment thereof or from the sale of the Project
which would cause the Series 2008 Bonds to be classified as “arbitrage
bonds” within the meaning of Section 148 of the Code;


 


(8)           The
information provided by and on behalf of the Company to Faegre &
Benson LLP for the purpose of establishing that Equipment constitutes and will
constitute solid waste disposal facilities within the meaning of Section 142
(a) (6) of the Code is true and correct (which Equipment consists of
those Items described in Exhibit A hereto as such Exhibit A is from
time to time amended or supplemented in accordance with Section 3.2), and
the Company shall not consent to any changes in the use of the Equipment in the
Project which would adversely affect the qualification of the Equipment as a “project”
under the Act or adversely affect the tax-exempt status of the Series 2008
Bonds;


 


14

















 


(9)           The
Company will cooperate with the City in filing or causing to be filed with the
United States Department of Treasury the information required by Section 149(e) of
the Code;


 


(10)         There
is no litigation or proceeding pending, or to the knowledge of the Company
threatened, against the Company which could adversely affect the validity of
this Bond Lease or the ability of the Company to comply with its obligations
under this Bond Lease or the Indenture; and


 


(11)         To
the best of Company’s knowledge, no public official of the City has either a
direct or indirect financial interest in this Bond Lease nor will any public
official either directly or indirectly benefit financially from this Bond
Lease.


 


Concurrently with the Closing Date, the Company shall execute and
deliver a certificate reaffirming the foregoing representations, warranties and
agreements as of the Closing Date.


 


15

















 


ARTICLE III


 


COMPLETION OF PROJECT


 


Section 3.1.  Development,
Acquisition and Installation of Equipment and Completion of Project by Company.  In connection with the acquisition and
installation of the Equipment and completion of the Project, the Company
represents and covenants as follows:


 


(1)           Completion.  The Company will complete the development,
acquisition and installation of the Equipment and the Project as promptly as
practicable with all reasonable dispatch in accordance with the plans and
specifications and in any event no later than August 1, 2009, except only
as completion may be delayed by strikes, riots or acts of God or the public
enemy, shortages of materials or supplies or any other reason beyond the
reasonable control of the Company, for which a reasonable extension of time of
completion shall be granted as determined by the City, provided that if the
Project is not completed by that date there shall be no resulting liability on
the part of the City and no abatement or diminution in the payments required to
be made by the Company under Article IV hereof.


 


(2)           Insurance.  The Company will cause adequate insurance to
be procured and maintained during construction of the Project which insurance
shall name the Trustee as loss payee, as its interest may appear.


 


(3)           Plan
Changes.  The Company may make,
authorize or permit changes or amendments in the components of the Project or
may determine not to complete any portion of the Project for which Bond
proceeds (and investment income thereon) are available, or may finance such
portion of the Project from any other source; provided, however, that Series 2008
Bond proceeds (and investment income thereon) otherwise allocable to Equipment
must be used either (i) to pay the costs of other Items of Equipment, (ii) to
pay the cost of other solid waste disposal facilities qualifying under the Act
and the Code, subject to the provisions of this Section and with the
approval of the City, or (iii) to pay or redeem principal on the Series 2008
Bonds in accordance with the provisions of this Bond Lease, the Indenture and
the Bond Resolution, provided that in the case of (ii) or (iii), the
Company shall have received an Opinion of Bond Counsel to the effect that such
application will not affect the tax exempt status of interest on the Series 2008
Bonds.  If the Company determines not to
acquire and install any item of Equipment or to fund such Equipment from any
other source, such portion of the Project shall no longer be deemed to be
within the meaning of the term “Equipment” for any purpose of this Bond Lease
or the Indenture.


 


Section 3.2.  Payment of
Costs by Company.  The Company agrees
that it will provide any and all money required for the prompt and full payment
of all sums required to complete the Project, including all of the following
items which the City agrees will be 


 


16

















 


reimbursable from Bond proceeds to the extent and in the manner
provided in Sections 3.5 and 3.6 and subject to the provisions of the Act:


 


(1)           the
expenses incurred and to be incurred in connection with the development,
acquisition and installation of the Equipment, including but not limited to the
contract price of all labor, services, materials, supplies and equipment
furnished under any Construction Contract for installation of the Equipment or
otherwise incurred in connection therewith, and all fees required for recording
all financing statements and any title documents relating to the Indenture;


 


(2)           the
expense of preparation of the plans and specifications for the Equipment,
including utilities, and all other facilities necessary or desirable in
connection therewith, and all other architectural, engineering and supervisory
services incurred and to be incurred in the planning, acquisition and
installation of the Equipment;


 


(3)           All
legal (including Bond Counsel and counsel to the Company, City, Trustee and
Original Purchaser), abstractors’, financial and accounting fees and expenses,
administrative and rating agency fees (if any), printing and engraving costs
and other expenses incurred and to be incurred on or before or in connection
with the Completion Date with respect to (i) the establishment of ownership
to the Equipment, (ii) the authorization, sale and issuance of the Series 2008
Bonds, (iii) the preparation of this Bond Lease, the Indenture and all
other documents necessary to the Bond Closing or required by this Bond Lease,
the Indenture or the Bond Resolution;


 


(4)           premiums
on all insurance (including any title insurance) required to be taken out and
maintained during the period before the Completion Date;


 


(5)           all
expenses incurred in seeking to enforce any remedy against any Contractor, or
any subcontractor or any supplier with respect to any default under any
contract with such person;


 


(6)           all
recording fees and other taxes, charges and assessments and license and
registration fees of every nature whatsoever incurred and to be incurred in
connection with development, acquisition or installation of the Equipment,
including the financing thereof;


 


(7)           the
cost of all other labor, services, materials, supplies and equipment necessary
to complete the development, construction, acquisition and installation of the
Equipment;


 


(8)           all
fees and expenses of the Trustee and Paying Agent under the Indenture or Bond
Resolution that become due on or before the Completion Date or in connection
with the establishment of the Completion Date;


 


17

















 


(9)           all
interest accruing on money borrowed by the Company for temporary financing of
Equipment Costs, including interest accruing on the Series 2008 Bonds
during the development, acquisition and installation period (which period for
purposes of this subsection will be deemed to be and for the Equipment or any
portion thereof no later than the date on which the Project is placed in
service) and for six (6) months thereafter;


 


(10)         All
other expenses which under generally accepted accounting principles constitute
necessary capital expenditures for the development, acquisition and
installation of the Equipment or issuance of the Series 2008 Bonds not
including working capital or expendable supplies (all of which are nevertheless
to be supplied by the Company from its own funds without reimbursement);


 


(11)         all
advances, payments and expenditures made or to be made by the City, the
Trustee, the Company and any other person with respect to any of the foregoing
expenses.


 


All Equipment Costs may be paid or reimbursed from moneys available in
the Project Fund to the extent and in the manner permitted in Sections 3.5 and
3.6 hereof.  If, however, such moneys are
insufficient to pay in full Equipment Costs payable therefrom or are otherwise
unavailable to pay any Equipment Costs, the Company shall nevertheless promptly
pay so much of such Costs as may be in excess of such moneys available in the
Project Fund.  The Company shall not by
reason of the payment of such excess Costs be entitled to any reimbursement
from the City in excess of any moneys available therefore in the Project Fund
or for any abatement or diminution of the Basic Payments or Additional Charges.


 


Section 3.3.  Authorization
by City.  In accordance with the Act,
the Company is authorized by the City, and the Company, pursuant to such
authorization, agrees:


 


(1)           to
acquire and install the Equipment as provided in Section 3.1, upon the
Land or in the Plant;


 


(2)           to
make, execute, acknowledge and deliver any contracts, orders, receipts,
writings and instructions, with any other persons, firms or corporations, and
in general to do all things which may be requisite or proper for acquiring and
installing the Equipment and establishing the City as the owner of the
Equipment;


 


(3)           pursuant
to the provisions of this Bond Lease, to pay all fees, costs and expenses
incurred in the development, acquisition, construction and installation of the
Project from funds made available therefore in accordance with this Bond Lease
or otherwise, subject to the right to contest such fees, costs and expenses;
and


 


(4)           so
long as the Company is not in default under any of the provisions of this Bond
Lease, to exercise all authority hereby conferred, which is granted and
conferred irrevocably to the Completion Date and thereafter until all
activities in 


 


18

















 


connection with the development, acquisition, construction and
installation of the Project shall have been completed.


 


Neither the authorization granted in this Section nor any other
provision of this Bond Lease shall be construed as making the Company an agent
or joint venturer with the City.


 


Section 3.4.  Issuance of
Bonds.  The City has contracted for
the sale of the Series 2008 Bonds authorized by the Indenture, and the
Company has and does approve the terms of the Indenture.  Forthwith upon execution of this Bond Lease
and the Indenture, or as soon thereafter as practicable, the City will execute
the Series 2008 Bonds and cause them to be authenticated by the Trustee
and delivered to the Original Purchaser upon payment of the purchase price and
filing with the Trustee of the opinion of Bond Counsel as to the legality of
the Bonds and the furnishing of all other documents required by this Bond Lease
and the Indenture to be furnished before delivery.  The City will then cause the proceeds of the
Bonds to be transmitted to the Trustee, who is required by the Indenture to
deposit the same into the Project Fund and the Reserve Fund.


 


Section 3.5.  Disbursements from Project Fund.


 


(1)           The City has in the
Indenture authorized and directed the Trustee to disburse the proceeds of the Series 2008
Bonds from the Project Fund upon the direction of the Company in accordance
with the Disbursing Agreement, in payment or reimbursement of all items of Cost
enumerated in Section 3.2 and certified in writing by the Company
Representative to be due and payable or to have been paid by the Company to the
persons entitled thereto.


 


(2)           In
no event shall:


 


(a)           any
Series 2008 Bond proceeds be used to reimburse for the payment of the
acquisition of any property other than land (or an interest therein) unless the
first use of such property is pursuant to such acquisition;


 


(b)           twenty-five
percent (25%) or more of Series 2008 Bond proceeds be used to reimburse
for the payment of the acquisition of land;


 


(c)           any
Series 2008 Bond proceeds, including earnings thereon, be used to pay or
reimburse for the payment of Working Capital Expenses;


 


(d)           any
amounts be disbursed from the Equipment Account until all conditions of the
disbursements of funds under the Disbursing Agreement have been satisfied; or


 


(e)           any
amounts be disbursed from the Equipment Account for payment or reimbursement
for the cost of any Item of Equipment in excess of the percentages of the Costs
of such Item which is eligible to be paid from the proceeds of Bonds, as 


 


19

















 


such percentage is listed in Exhibit A or as may otherwise be
approved by Bond Counsel.


 


(3)           The Equipment Costs
described in Section 3.2, (3), (8) and (9) hereof may be paid or
reimbursed in full upon receipt by the Trustee of any statement of the payee
covering such expenses endorsed by the payee and approved by the Company
Representative, or, with respect to fees of Bond Counsel, the City’s counsel,
Company’s counsel, Trustee’s counsel, or other fees of the Trustee or City or
bond printing expenses, the City, with the reasonable consent of the Company
from the Issuance Expense Account and the Capitalized Interest Account.  With respect to all other Equipment Costs,
each certificate of the Company Representative shall be approved by or on
behalf of FNBO and contain the following additional information:


 


(a)           the
amount and nature of each item of Cost and the name and address of the payee,
with the payee’s statement and, if reimbursement is requested, evidence of
payment thereof attached, which evidence of payment may be either copies of a
canceled check, lien waiver, invoice marked paid by the payee or other evidence
satisfactory to the Trustee;


 


(b)           a
statement that the amount for which payment reimbursement is requested does not
exceed the amount properly allocable to the Equipment or the portion of the
Cost thereof listed in Exhibit A;


 


(c)           evidence
establishing that the City is, or upon acquisition and installation of the
Items of Equipment for which payment or reimbursement is requested will be, the
owner of such Items of Equipment;


 


(d)           a
statement that all other conditions set forth in the Section 3.5(2) and
(3) have been fully satisfied; and


 


(e)           a
statement that all Equipment Costs then and theretofore certified for payment
or reimbursement from bond proceeds in the Project Fund do not cause the
average maturity of the Series 2008 Bonds to exceed one hundred twenty
percent (120%) of the average reasonably expected economic life of all of the
facilities financed with the proceeds of the Series 2008 Bonds.


 


Section 3.6.  Establishment of Completion Date and Use
of Excess Proceeds.


 


(1)           The Completion Date
shall be that date on which the Trustee shall acknowledge receipt of the
following items, which the Company shall furnish to the Trustee no later than
thirty (30) days after completion of the Project:


 


(A)          a
certificate signed by the Company Representative and stating that to its
knowledge (i) the development, acquisition and installation of the
improvements, equipment and all other facilities comprising the Project have
been completed in substantial conformity with the plans and specifications, (ii) the
entire cost of the 


 


20

















 


Project has been paid and (iii) the Project conforms to all
applicable zoning (by special use permit or otherwise), planning and building
regulations and laws, and pollution control laws and regulations and is
suitable and sufficient for efficient operation of the Plant;


 


(B)           an
executed copy of any supplement to this Bond Lease necessary to specifically
identify the Equipment actually purchased from the proceeds of the Series 2008
Bonds and installed in the Plant or on the Land.


 


(2)           On the Completion
Date, any balance remaining in the Project Fund, after disbursement has been
made as provided in Section 3.5 hereof, shall be transferred from the
Project Fund by the Trustee to the Bond Fund and shall be used to redeem the
largest possible principal amount of Bonds on the earliest possible date that
Bonds may be optionally redeemed by the Company in accordance with Section 3.01
of the Indenture.


 


Section 3.7.  Warranties.  The Company acknowledges that it has selected
the Equipment based upon its own judgment and without reliance on any statement
or representation by the City.  THE CITY
MAKES NO REPRESENTATION OR WARRANTY WITH RESPECT TO THE EQUIPMENT, EXPRESS OR
IMPLIED, AND SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF THE CITY,
EXPRESS OR IMPLIED, AS TO (A) THE FITNESS FOR ANY PARTICULAR PURPOSE AND
MERCHANTABILITY OF ANY ITEM OF EQUIPMENT, (B) THE DESIGN OR CONDITION OF,
OR THE QUALITY OF THE MATERIAL OR WORKMANSHIP IN, THE EQUIPMENT, (C) ANY
LIABILITY FOR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OF OR THE INABILITY
TO USE THE EQUIPMENT, AND (D) ANY OTHER MATTER WHATSOEVER, IT BEING AGREED
THAT ALL SUCH RISKS, AS BETWEEN THE CITY AND THE COMPANY, ARE TO BE BORNE BY THE
COMPANY.  THE COMPANY ACKNOWLEDGES THAT
THE CITY DID NOT MANUFACTURE THE ITEMS AND THAT THE COMPANY ACCEPTS THE ITEMS
BASED UPON ITS OWN INDEPENDENT JUDGMENT AND EXPRESSLY DISCLAIMS ANY RELIANCE ON
STATEMENTS MADE BY THE CITY OR ITS AGENTS.


 


CITY HEREBY ACKNOWLEDGES THAT ANY MANUFACTURER’S, INSTALLER’S, DESIGNER’S,
ENGINEER’S, CONTRACTOR’S AND/OR SELLER’S WARRANTIES ARE FOR THE BENEFIT OF BOTH
CITY AND COMPANY, NOTWITHSTANDING THE FOREGOING, AND PROVIDED COMPANY IS NOT IN
DEFAULT UNDER THIS BOND LEASE, CITY SHALL MAKE AVAILABLE TO COMPANY ALL
WARRANTIES, GUARANTIES, AND INDEMNITEES WITH RESPECT TO EQUIPMENT.  The City hereby assigns to the Company all
warranties, guaranties and indemnities, express or implied, and similar rights
which the City may have against any designer, manufacturer, installer, seller,
engineer, contractor or builder in respect of any of the Equipment, including,
but not limited to, any rights and remedies existing under contract or pursuant
to the uniform Commercial Code and hereby appoints and constitutes the Company
as its agent during the term of this Bond Lease to assert and enforce, from
time 


 


21

















 


to time, in the name and for the account of the Company and the City,
as their interests may appear, but in all cases at the sole cost and expense of
the Company, whatever claims and rights the City may have as owner of the
Equipment against the designer, manufacturer, installer, seller, engineer,
contractor or builder or any other person in connection with the development,
acquisition, construction, installation or any other aspect of the Equipment or
the Project; provided, however, that if at any time an Event of Default shall
have occurred and be continuing, the City may assert and enforce such claims
and rights at the Company’s sole cost and expense.  Company’s delivery to the City of an
acceptance certificate signed by the Company or delivery by the City or the
manufacturer to the City of an inspection or acceptance certificate the Company’s
representative gave to the manufacturer shall be conclusive evidence as between
the Company and the City only that all Items of Equipment described therein are
in all the foregoing respects satisfactory to the Company; provided, however,
that neither the manufacturer nor any party other than the City , its
successors and assigns may rely on the foregoing.  So long as no Event of Default has occurred
and is continuing, the City agrees, to the extent they are assignable, to
assign to the Company, without any recourse to the City, any warranty received
by the City.


 


22
















 


ARTICLE IV


 


USE, OCCUPANCY, BASIC PAYMENTS AND


ADDITIONAL CHARGES


 


Section 4.1.  Possession
and Use.  The Company shall have sole
and exclusive possession, use and control of the Equipment, subject-to the
right of the City to enter the Land and the Plant as contemplated in Article IX
hereof for the purpose of inspection, and covenants and agrees that it will not
take any action other than pursuant to Article IX hereof to prevent the
Company from having quiet and peaceable possession and enjoyment of the Project
during the Term of this Bond Lease, and will, at the request and expense of the
Company, cooperate with the Company to secure such possession and
enjoyment.  The City agrees that it will
not make, do, execute or suffer any act or thing whereby its interest in any
property now or hereafter included as part of the Equipment shall or may be
impaired, charged or encumbered in any manner whatsoever; any impairment,
charge or encumbrance created in violation of this covenant shall be void and
of no effect, unless the Company and the Trustee shall have consented in
writing to its creation.  The Company
accepts possession of the Equipment on the date of its acceptance thereof.  Its right of possession shall continue until
the Term of this Bond Lease expires or is terminated as provided herein.  The Company shall have the right to use and
shall use the Equipment throughout the Term of this Bond Lease only as solid
waste disposal facilities as contemplated by Section 142(a)(6) of the
Code and in conformity with the policies and purposes of the Act.


 


Section 4.2.  Basic
Payments.  Subject to the Company’s
right of prepayment granted in Section 8.2, the Company agrees to pay or
cause to be paid rent for the use of the Equipment as follows:


 


(1)           The
Company shall pay or cause to be paid to the Trustee for the account of the
City an amount equal to the aggregate principal amount of the Bonds Outstanding
and, as interest on its obligation to pay such amount, an amount equal to
interest on the Bonds, such amounts to be paid in installments commencing November 25,
2008, on the 25th day of each month, (A) as to interest, one-sixth of the
amount of interest payable on the next following Interest Payment Date, (B) as
to principal, commencing November 25, 2009, in an amount equal to
one-twelfth of the principal scheduled to become due on the next Principal
Payment Date and (C) following payment of the FNBO Loan, for deposit in
the Mandatory Sinking Fund Redemption Fund, 25% of Excess Cash Flow, and in any
event shall pay such amounts as may be necessary to pay the principal, interest
and redemption price of the Bonds when due, all in order that the City can
cause amounts to be deposited in the Bond Fund and Sinking Fund for the payment
of the principal of, premium, if any, and interest on the Bonds, whether at
maturity, upon redemption or otherwise; provided, however, that the obligation
of the Company to make any such payment hereunder shall be reduced by the
amount of any reduction under the Indenture of the amount of the corresponding
payment required to be made by the City thereunder.


 


23

















 


(2)           The
Company shall provide for the payment of the principal of the Bonds, upon
maturity, redemption or acceleration, and provide for payment of the interest
on the Bonds to the Trustee when due. 
The Company hereby authorizes and directs the Trustee to draw moneys in
accordance with the provisions of the Indenture to the extent necessary to pay
the principal of and interest on the Bonds when due.  All moneys drawn from the Capitalized
Interest Account to pay the interest on the Bonds shall be credited against the
obligation of the Company to make Basic Payments.


 


(3)           Upon
the occurrence of a “Determination of Taxability” the Company shall make the
payment described in Section 7.8 hereof.


 


Section 4.3.  Additional
Charges.  The Company agrees to pay
as additional rent, when due, each and all of the following:


 


(1)           all
Issuance Expenses of the Bonds not paid or reimbursed from the issuance Expense
Account;


 


(2)           to
or upon the order of the Trustee, when due, all fees of the Trustee for
services rendered under the Indenture and all fees and charges of the Paying
Agent, registrars, legal counsel, accountants, engineers, public agencies and
others incurred in the performance on request of the Trustee of services
required under the Indenture for which the Trustee and such other persons are
entitled to payment or reimbursement; provided that the Company may, without
creating a default hereunder, contest in good faith the necessity or
reasonableness of any such services, fees or expenses other than the Trustee’s
fees for ordinary services as set forth in the Indenture, Paying Agency fees
and any fees or charges of public agencies;


 


(3)           to
the City, all expenses including reasonable attorney’s fees directly incurred
by the City to perform its obligations or exercise its rights under this Bond
Lease, and all other reasonable expenses incurred by the City in relation to
the Project which are not otherwise required to be paid by the Company under
the terms of this Bond Lease and all indemnity payments required to be made
under Section 7.4;


 


(4)           subject
to the provisions of Section 5.4 hereof, to the City Treasurer of City of
Lamberton, and to any other governmental official authorized by law to collect
taxes levied on the Land or Plant or the privilege of using the same, the full
amount of all such taxes, if any, when due and payable during the Term of this
Bond Lease; and


 


(5)           subject
to the provisions of Section 5.4 hereof, to each public or private person,
firm or corporation furnishing utility service or constructing or extending
facilities for the furnishing of such service for the Project, when due and
payable during the Term of this Bond Lease, all fees, charges and rentals for
such service and facilities.


 


24

















 


Section 4.4.  Company’s
Obligations Unconditional.  All Basic
Payments and Additional Charges and all other payments required of the Company
hereunder shall be paid without notice or demand and without setoff,
counterclaim, or defense for any reason and without abatement or deduction or
defense.  The Company will not suspend or
discontinue any such payments, and will perform and observe all of its other
agreements in this Bond Lease, and, except as expressly permitted in Sections
7.8 and 8.4 hereof, will not terminate this Bond Lease for any cause, including
but not limited to any acts or circumstances that may constitute failure of
consideration, destruction or damage to the Plant, the Equipment or Company’s
business, the taking of the Plant, the Equipment or Company’s business by
condemnation or otherwise, the lawful prohibition of the Company’s use of the
Plant, or Company’s business, the interference with such use by any private
person or corporation, the invalidity or unenforceability or lack of due
authorization or other infirmity of this Bond Lease, or lack of right, power or
authority of the City to enter into this Bond Lease, eviction by paramount
title, commercial frustration of purpose, bankruptcy or insolvency of the City
or the Trustee, change in the tax or other laws or administrative rulings or
actions of the United States of America or of the State of Minnesota or any
political subdivision thereof, or failure of the City to perform and observe
any agreement, whether express or implied or any duty, liability or obligation
arising out of or connected with this Bond Lease, or for any other cause
whether similar or dissimilar to the foregoing, any present or future law to
the contrary notwithstanding, it being the intention of the parties hereto that
the Basic Payments and other amounts payable by the Company hereunder shall be
paid in full when due without any delay or diminution whatever.


 


Section 4.5.  Assignment
of City’s Rights.  As security for
the payment of the Bonds, the City will pledge the amounts payable hereunder
and assign, without recourse or liability, to the Trustee, the City’s rights
under this Bond Lease, including the right to receive payments hereunder
(except the right to receive payments, if any, under Sections 4.2(2), 4.3, 7.4
and 9.5 hereof) and hereby directs the Company to make said payments directly
to the Trustee.  The Company herewith
assents to such assignment and will make payments under this Bond Lease
directly to the Trustee without defense or setoff by reason of any dispute
between the Company and the Trustee.


 


Section 4.6.  Company’s
Remedies.  Nothing contained in this Article shall
be construed to release the City from the performance of any of its agreements
herein, and if the City should fail to perform any such agreements, the Company
may institute such action against the City as the Company may deem necessary to
compel the performance so long as such action for specific performance shall
not violate the Company’s agreements in Section 4.4 or diminish or delay
the amounts required to be paid by the Company pursuant to Section 4.2 or
4.3 of this Bond Lease.  The Company
acknowledges however and agrees that any pecuniary obligation of the City
created by or arising out of this Bond Lease shall be payable solely out of the
proceeds derived from this Bond Lease, the sale of the Bonds, or other
disposition of the Equipment upon a default by the Company or otherwise.


 


25

















 


ARTICLE V


 


PROJECT COVENANTS


 


Section 5.1.  Project
Operation and Maintenance.  The
Company shall pay all expenses of the operation and maintenance of the
Equipment including, but without limitation, adequate insurance thereon and
insurance against all liability for injury to persons or property arising from
the operation thereof, and all taxes and special assessments levied upon or
with respect to the Equipment and payable during the Term of this Bond Lease.


 


Section 5.2.  Transfer of
Company’s Leasehold Interest in the Equipment.  Subject to Section 8.1, and except as
permitted in the FNBO Loan Documents, the Company shall not sublease, assign,
transfer, grant a security interest in or otherwise encumber its interests in
this Bond Lease or any Equipment, in whole or part, without the consent of the
Trustee, which consent will not be unreasonably withheld or conditioned, except
for the Permitted Encumbrances; provided, the Company, so long as an Event of Default
has not occurred and is continuing, may sublease any items of Equipment not
needed for operation of the Plant subordinate to this Bond Lease if the effect
thereof would be to impair the validity or cause the interest on the Bonds to
become includable in gross income for purposes of federal income taxation and
the Company shall remain liable for rental and other obligations under this
Bond Lease.


 


Section 5.3.  Alterations
to the Equipment.  The Company shall
have the right from time to time at its cost and expense, to make additions,
modifications, alterations, improvements and changes (collectively referred to
as “alterations”) in or to the Equipment, and remove obsolete or worn out
Equipment, provided such alterations or removal do not impair the character of
the Equipment as a “project” within the meaning of the Act or cause the
interest on the Series 2008 Bonds to become includable in gross income for
purposes of federal income taxation.  All
alterations made by the Company to the Equipment shall become the property of
the City and remain part of the Equipment, but subject to purchase by the
Company under Section 8.4 hereof.


 


Section 5.4.  Taxes and
Other Governmental Charges.  The
Company will make promptly all payments due during the term of this Bond Lease
on taxes and special assessments lawfully levied upon or with respect to the
Land, the Plant and the Equipment, other charges lawfully made by any
governmental body for public improvements, taxes or governmental charges on any
property of the Company brought in or upon the Land or Plant, sales and other
excise taxes on products thereof, and any taxes levied upon or with respect to
income or profits from the operation of the Plant.  With respect to governmental charges that may
lawfully be paid in installments over a period of years, with or without
interest, the Company shall be obligated to pay only such installments and
interest as are required to be paid during the term of this Bond Lease.  The Company may, at its own expense, in good
faith, contest any such taxes and other charges and, in the event of such
contest, may permit the items so contested to remain unpaid during the period
of the contest and any appeal 


 


26

















 


therefrom, provided that such contest does not affect the Company’s
right to operate the Plant and the Equipment.


 


Section 5.5.  Insurance.  The Company shall procure and maintain, or
cause to be procured or maintained, continuously in effect during the term of
this Bond Lease, policies of insurance with respect to the Equipment insuring
against such risks and in such amounts as are customary for property comparable
to those comprising the Equipment, including, specifically, insurance against
such hazards and in such amounts as reasonably may be required by the Trustee
and insurance against all liability for injury to persons or property arising
out of the operation of the Equipment. 
All policies shall be written in the names of the Company and the
Trustee and shall show the Trustee as an additional insured.


 


All insurance required in this Section 5.5 shall be taken out and
maintained with responsible insurance companies authorized to do business in
Minnesota and selected by the Company. 
The Company will deposit with the Trustee policies evidencing all such
insurance, or a certificate or certificates of the respective insurers stating
that such insurance is in force and effect. 
Each policy of insurance herein required shall contain a provision that
the insurer shall not cancel, refuse to renew or materially modify it without
giving written notice to the City and the Trustee at least thirty (30) days
before the cancellation, non-renewal or modification becomes effective.  Before the expiration of any policy of
insurance herein required, the Company shall furnish the Trustee evidence
satisfactory to the Trustee that the policy has been renewed or replaced by
another policy conforming to the provisions of this Section 5.5.  In lieu of separate policies, the Company may
maintain blanket policies having the coverage required herein, in which event
it shall deposit with the Trustee a certificate or certificates of the
respective insurers as to the amount of coverage in force with respect to the
Equipment.


 


27

















 


ARTICLE VI


 


DAMAGE AND DESTRUCTION


 


Section 6.1.  Damage and
Destruction.  If there are any
Outstanding Bonds when the Plant is damaged or destroyed by fire or other
casualty, the Company shall either restore the Plant or if Section 8.4 of
this Bond Lease is applicable, exercise its option to redeem all Bonds and
purchase the Equipment pursuant to said Section.


 


28

















 


ARTICLE VII


 


COMPANY’S COVENANTS


 


Section 7.1.  Covenant
for the Benefit of the Trustee and the Bondholders.  The Company recognizes the authority of the
City to assign its interest in and pledge monies receivable under this Bond
Lease (other than certain payments required to be made to the City under
Sections 4.2(2), 4.3(3), 7.4 and 9.5 hereof) to the Trustee as security for the
payment of the principal of and interest and redemption premiums, if any, on
the Bonds, and the payment of all fees and expenses of the Trustee; and hereby
agrees to be bound by, and joins with the City in the grant of a security
interest to the Trustee in any rights and interest the Company may have in sums
held in the Funds described in Article VI pursuant to the terms and
conditions of the Indenture to secure payment of the Bonds.  Each of the terms and provisions of this Bond
Lease is a covenant for the use and benefit of the Trustee and the Holders of
the Bonds, so long as any thereof shall remain Outstanding; but upon payment in
full of the Bonds in accordance with Article IX of the Indenture and of
all fees and charges of the Trustee and Paying Agent, all references in this
Bond Lease to the Bonds, the Holders thereof and the Trustee shall be
ineffective, and neither the Trustee nor the Holders of any of the Bonds shall
thereafter have any rights hereunder, save and except those that shall have
theretofore vested or that arise from provisions hereunder which survive
termination of this Bond Lease.


 


Section 7.2.  Inspection
and Access.  The Company agrees that
the City, the Trustee and their duly authorized agents shall have the right at
all reasonable times to examine and inspect the Equipment and all books and
records of the Company related thereto and for that purpose to enter upon the
Land and Plant after reasonable notice, and shall also have such right of
access thereto as may be reasonably necessary to cause the Equipment to be
properly maintained in accordance with Article V, subject to the Company’s
confidentiality and proprietary information handling and disclosure policies
and practices, or similar agreements to which the Company, the Equipment or the
Plant are subject.


 


Section 7.3.  Certificate of Compliance and Other
Reports.


 


(1)           The
Company will at the request of the Trustee, and at the Company’s expense,
furnish to the Trustee, Original Purchaser and City at such times and in such
form as the Trustee may reasonably require a copy of reports containing such
information as is necessary to comply with any lawful reporting or continuing
registration requirements imposed by any agency of the State of Minnesota under
the Act, the Minnesota Blue Sky Laws or any other applicable state law as it
now exists or may hereafter be amended or any agency of any other state in
which the Bonds have been sold, or such information as necessary to comply with
federal securities law; and


 


(2)           The
Company shall furnish to the Trustee, Original Purchaser and City, within
ninety (90) days following the completion of its fiscal year during each fiscal
year in which 


 


29

















 


any Series 2008 Bonds are outstanding, a
certificate evidencing compliance with all terms and conditions set forth in
the Indenture and this Bond Lease.


 


Section 7.4.  Indemnification.  The Company, will, to the fullest extent
permitted by law, protect, indemnify and save the City and its officers,
agents, and employees and any person who controls the City within the meaning
of the Securities Act of 1933, harmless from and against all liabilities,
losses, damages, costs, expenses (including attorneys’ fees and expenses of the
City), taxes, causes of action, suits, claims, demands and judgments of any
nature arising during the term of this Bond Lease from:


 


(1)           any
injury to or death of any person or damage to property in or upon the Project
or growing out of or connected with the use, non-use, condition or occupancy of
the Project or any part thereof, including any and all acts or operations
relating to the development, acquisition or installation of property or
improvements.  The foregoing
indemnification obligations shall not be limited in any way by any limitation
on the amount or type of damages, compensation or benefits payable by or for
the Company, customers, suppliers or affiliated organizations under any Workers’
Compensation Acts, Disability Benefit Acts or other employee benefit acts;


 


(2)           violation
of any agreement, provision or condition of this Bond Lease, the Bonds or the
Indenture, or the Bond Resolution except an intentional violation by the City;


 


(3)           violation
by the Company of any contract, agreement or restriction relating to the
Project which shall have existed at the commencement of the Term of this Bond
Lease or shall have been approved by the Company;


 


(4)           violation
by the Company of any law, ordinance, court order or regulation affecting the
Project or a part thereof or the ownership, occupancy or use thereof; provided,
that the Company shall have the right to reasonably protest the finding of a
violation so long as the City shall have no liability during the time of such
protest;


 


(5)           any
statement or information relating to the expenditure of the proceeds of the
Bonds contained in the “Nonarbitrage Certificate” or similar document furnished
by the Company to the City which, at the time made, is misleading, untrue or
incorrect in any material respect; and


 


(6)           any
untrue statement or alleged untrue statement of a material fact contained in
any offering material relating to the sale of the Bonds (as from time to time
amended or supplemented) or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, or failure to
properly register or otherwise qualify the sale of the Bonds or failure to
comply with any licensing or other law or regulation which would affect the
manner whereby or to whom the Bonds could be sold.


 


30

















 


Promptly after receipt by the City or any such other indemnified
person, as the case may be, of notice of the commencement of any action with
respect to which indemnity may be sought against the Company under this
Section, such person will notify the Company in writing of the commencement
thereof, and, subject to the provisions hereinafter stated, the Company shall
assume the defense of such action (including the employment of counsel, who
shall be counsel reasonably satisfactory to the City, Trustee or such other
person as the case may be, and the payment of expenses).  Insofar as such action shall relate to any
alleged liability with respect to which indemnity may be sought against the
Company, the City or any such other indemnified person shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the Company unless the employment of such Counsel has been specifically
authorized by the Company.  The Company
shall not be liable to indemnify any person for any settlement of any such action
effected without its consent.


 


The provisions of this Section 7.4 shall survive the payment and
discharge of the Bonds.


 


Section 7.5.  Existence;
Maintenance of Business.  The Company
shall:


 


(a)                                  continue
to be a limited liability company subject to service of process in the State
and either organized under the laws of the State, or organized under the laws
of any other state of the United States and duly qualified to do business as a
foreign corporation in the State;


 


(b)                                 not
liquidate, wind up or dissolve or otherwise dispose of all or substantially all
of its property, business or assets; and


 


(c)                                  not
consolidate with or merge into another corporation or permit one or more
corporations to consolidate with or merge into it.  The Company may, however, after the
Completion Date, without violating the foregoing, but upon thirty (30) days
prior written notice to the City and the Trustee, consolidate with or merge
into another corporation or permit one or more corporations to consolidate with
or merge into it, or sell or otherwise transfer all or substantially all of its
property, business or assets to another such corporation (and thereafter
liquidate, wind up or dissolve or not, as the Company may elect) if:


 


(i)            immediately
after giving effect to such transaction, no Event of Default, nor any event
which, after notice or lapse of time or both, would become an Event of Default,
shall have happened and be continuing, and the Company would not thereby be in
default in the payment, performance or observance of any payment, agreement,
covenant or obligation under this Bond Lease, the Indenture, the Bond Mortgage
or the Bond Security Agreement;


 


(ii)           either
(A) the Company is the surviving, resulting or transferee corporation, as
the case may be, and, unless the Trustee shall otherwise 


 


31

















 


consent in writing, the resulting corporation has a net worth at least
equal to the net worth of the Company immediately prior to such merger or
consolidation, or (B) in the event that the Company is not the surviving,
resulting or transferee corporation:


 


(A)          such
corporation is subject to service of process in the State and either organized
under the laws of the State, or organized under the laws of any other state of
the United States and duly qualified to do business as a foreign corporation in
the State;


 


(B)           such
corporation assumes in writing all of the obligations of the Company contained
in this Bond Lease, the Bond Mortgage and the Bond Security Agreement;


 


(C)           in
the Opinion of Counsel, (y) such corporation shall be bound by all of the
terms applicable to the Company of this Bond Lease, the Bond Mortgage and the
Bond Security Agreement and (z) such action does not legally impair the
security for the Holders of the Bonds afforded by the Bond Mortgage and the
Bond Security Agreement; and


 


(D)          in
the opinion of Bond Counsel, such action will not cause the interest on the
Bonds to cease to be excludable from gross income for federal income tax
purposes.


 


Section 7.6.  Filing of
Financing Statements.  The Company
agrees that it will, at its sole expense, file or cause to be filed any
financing statements and continuation statements required or if requested by
the Trustee in writing to perfect the security interest granted to the Trustee
under the Indenture in this Bond Lease and the payments to be made hereunder
granted.


 


Section 7.7.  Assurance
of Tax Exemption.  The Company
covenants for the benefit of the Holders of the Bonds and the City that it (a) has
not taken, and will not take or permit to be taken on its behalf, any action
which would adversely affect the tax-exempt status of the Bonds and (b) will
take, or require to be taken, such actions as may, from time to time, be
required under applicable law or regulation to continue to cause the Bonds to
be tax-exempt.


 


The Company acknowledges that in the event of an examination by the
Internal Revenue Service of the exclusion of interest on the Bonds from the
gross income of the owners thereof for federal income tax purposes, the City
may be treated as the “taxpayer” in such examination and agrees that it will
respond, and will direct the City to respond, in a commercially reasonable
manner to any inquiries from the Internal Revenue Service in connection with
such an examination.  The City covenants
that it will cooperate with the Company, at the Company’s expense and at its
direction, in connection with such examination.


 


32

















 


In order to assure that the interest on the Bonds shall at all times be
free from federal income taxation, the Company represents and covenants with
the City, Trustee and all Holders of the Bonds that it will comply with the
applicable provisions of Sections 103 and 141 through 150 of the Code as
follows:


 


(1)           The
Company will not use (or permit to be used) the Equipment or use or invest (or
permit to be used or invested) the proceeds of the Bonds or any other sums
treated as “bond proceeds” under Section 148 of the Code, including “investment
proceeds,” “invested sinking funds” and “replacement proceeds,” in such a
manner as to cause the Bonds to be classified as “arbitrage bonds” under Section 148
of the Code;


 


(2)           In
addition to the Bonds, no other obligations have been or are expected to be
issued under Section 103(a) of the Code for sale at substantially the
same time (within 15 days) as the Bonds are sold, pursuant to the same plan of
financing, including bonds for the same facility or related facilities, and
which are reasonably expected to be paid from substantially the same source of
funds, determined without regard to guarantees from unrelated parties, or to
otherwise become part of the same “issue of obligations” of the Bonds as
described in Treasury Regulations Section 1.150-(1)(c)(1), so as to impair
the exclusion from gross income under Section 103 of the Code of the
interest on the Bonds;


 


(3)           no
portion of the proceeds of the Bonds will be used (i) to acquire or
otherwise provide any private or commercial golf course, country club, massage
parlor, tennis club, skating facility (including roller skating, skateboard and
ice-skating), racquet sports facility (including any handball or racquetball
court), hot tub facility, suntan facility or racetrack, land (or interest
therein) to be used for farming purposes, and in no event will more than
twenty-five percent (25%) (or twenty-five percent (25%), or more in the case of
land) of the proceeds of the Bonds, be used to acquire or otherwise provide a
facility the primary purpose of which is either retail food and beverage
services, automobile sales or service, or the provision of recreation or
entertainment, or land, all within the meaning of Sections 144 and 147 of the
Code; or (ii) to provide any airplane, skybox or other private luxury box,
health club facility, facility primarily used for gambling, or store the
principal business of which is the sale of alcoholic beverages for consumption
off premises, all within the meaning of Section 144 of the Code;


 


(4)           the
average maturity of the Bonds does not exceed one hundred twenty percent (120%)
of the average reasonably expected economic life of the Equipment;


 


(5)           the
Company shall provide the City at the Bond Closing with all information
required to satisfy the informational reporting requirements set forth in Section 149(e) of
the Code, including the information necessary to complete IRS Form 8038;


 


33

















 


(6)           no
portion of the proceeds of the Bonds will be used to acquire property to be
leased to the government of the United States of America or to any department,
agency or instrumentality of the government of the United States of America;
and no moneys in the Bond Fund (or other fund created under the Indenture)
shall be invested in investments which cause the Bonds to be federally
guaranteed within the meaning of Section 149(b) of the Code.  If at any time the moneys in such funds
exceed, within the meaning of Section 149(b)(3)(B) of the Code, (i) amounts
invested for an initial temporary period until the moneys are needed for the
purpose for which the Bonds were issued, (ii) investments of a bona fide
debt service fund, and (iii) investments of a reserve which meet the
requirement of Section 148(d) of the Code, such excess moneys shall
be invested in only those Permitted Investments or Government Obligations, as
otherwise appropriate, which are (A) obligations issued by the United
States Treasury, (B) other investments permitted under regulations, or (C) obligations
which are (a) not issued by, or guaranteed by, or insured by, the United
States or any agency or instrumentality thereof or (b) not federally
insured deposits or accounts, all within the meaning of Section 149(b)(3)(B) of
the Code;


 


(7)           no
portion of the Bond proceeds will be used for the acquisition of any property
(or any interest therein) unless (i) the first use of such property is
pursuant to such acquisition, other than land, or (ii) the property is a
building (and the equipment therefore) and rehabilitation expenditures with
respect to such building equal or exceed fifteen percent (15%) of the portion
of the cost of acquiring such building (and equipment) financed with Bond
proceeds, or (iii) the property is a structure other than a building and
rehabilitation expenditures with respect to such structure equal or exceed one
hundred percent (100%) of the portion of the cost of acquiring such facility
financed with Bond proceeds, all within the meaning of Section 147(d) of
the Code;


 


(8)           it
will not use the proceeds of the Bonds in such a manner as to cause the Bonds
to be “arbitrage bonds” within the meaning of Section 148 of the Code and
applicable Treasury Regulations; and to this end, the Company on behalf of the
City shall pay to the United States, as a rebate, an amount equal to the sum of
(i) the excess of (I) the aggregate amount earned on all nonpurpose
obligations (other than investments attributable to an excess described in this
clause), over (II) the amount which would have been earned if all
nonpurpose obligations were invested at a rate equal to the yield on the Bonds,
plus (ii) any income attributable to the excess described in clause (1),
at the times and in the amounts required by Section 148 of the Code, all
within the meaning of Section 148 of the Code.  The Company and Trustee shall maintain
records of the interest rate borne by the Bonds and the investments of the
Project Fund and the Bond Fund and earnings thereon in adequate detail to
enable the Company to calculate the amount of any rebate required to be made to
the United States.  The Company shall pay
the rebate to the United States at times and in installments which satisfy Section 148
of the Code and the regulations, at least once every five years and within
sixty (60) days after the day on which the last of each of the series of Bonds
is redeemed.  Calculations of the amount
to be rebated shall be 


 


34

















 


made at least every five years, by Bond Counsel or an Independent
Accountant selected by the Company, and the City and Trustee shall be furnished
with such calculations within sixty (60) days of the time they are made.  The records for such calculations shall be
retained until six (6) years after the retirement of the Bonds.  The rebate shall be calculated as provided in
the applicable Treasury Regulations, including taking into account the gain or
loss on the disposition of nonpurpose investments.  The Company shall acquire nonpurpose
obligations at their fair market value;


 


(9)           at
least 85% of the spendable proceeds of the Bonds will be used to carry out the
governmental purpose of the Bonds within the 3-year period beginning on the
date hereof; and


 


(10)         the
Company will not otherwise knowingly use Bond proceeds, including earnings
thereon, or take, or permit or cause to be taken, any action that would
adversely affect the exemption from federal income taxation of the interest on
the Bonds, nor otherwise omit to take or cause to be taken any action necessary
to maintain such tax exempt status; and, if it should take or permit, or omit to
take or cause to be taken, as appropriate, any such action, the Company shall
take all lawful actions necessary to rescind or correct such actions or
omissions promptly upon having knowledge thereof.


 


(11)         the
Company hereby makes an irrevocable election (binding on it and any successors
in interest in this Bond Lease) not to claim any depreciation or investment
credit with respect to the Equipment financed with the proceeds of the Series 2008
Bonds.


 


Section 7.8.  Determination of Taxability.


 


(1)           Promptly after the
occurrence of a Determination of Taxability, the Company shall give written
notice to the City and Trustee of the Determination of Taxability and the
Company shall provide to the Trustee in immediately available funds, an amount
which when added to the amounts on deposit in the Funds, will equal the
principal amount of all the Unpaid Bonds plus accrued interest thereon to the
redemption date, plus a premium equal to eight percent (8.00%) percent of the
outstanding Bonds, and the Bonds shall be redeemed pursuant to Article III
of the Indenture.


 


(2)           Upon a Determination
of Taxability the Company shall also pay to the Trustee an amount equal to the
Paying Agent’s and Trustee’s fees, accrued and to accrue until final payment
and redemption of the Bonds, and all other advances, fees, costs and expenses
reasonably incurred by the Trustee, the City and the Paying Agent, including
Bond Counsel and legal fees.


 


(3)           If this Bond Lease
has not been terminated and the Equipment repurchased by the Company under Section 8.4
prior to the redemption date for the Bonds, this Bond Lease shall be terminated
on said redemption date and the closing for the termination of this Bond 


 


35

















 


Lease shall be completed otherwise as provided for termination of this
Bond Lease upon exercise of the Company’s options under Section 8.4.


 


(4)           Neither the Company
nor any Holder shall be required to contest or appeal any notice of deficiency,
ruling, decision or legislative enactment which may give rise to a
Determination of Taxability; and the expenses of any such contest or appeal
shall be paid by the party initiating the contest or appeal.


 


Section 7.9.  Surrender
of Equipment; Holdover.  Except as
otherwise provided in this Bond Lease, at the expiration or earlier termination
of the Term of this Bond Lease the Company will surrender possession of the
Equipment to the City peaceably and promptly and in as good condition as at the
commencement of the Term of this Bond Lease, loss by fire or other casualty to
the extent covered by insurance and ordinary wear, tear and obsolescence only
excepted.


 


Section 7.10.  Refinancing
of FNBO Loan.  The Company may not
enter into any amendment of the FNBO Loan Agreement or refinance all or any
portion of the FNBO Loan, unless, the amendment or refinancing is approved by
the holders of at least a majority in principal amount of the outstanding
Bonds.  The Company shall provide the
Trustee at least 30 days notice of the amendment or refinancing and, if not
approved by the holders of at least a majority in principal amount of
outstanding Bonds, all Bonds shall be subject to mandatory redemption at par
plus accrued interest on the earliest practical date for which notice may be
given.


 


Section 7.11.  Additional
Indebtedness.  The Company may not
incur Additional Secured Indebtedness unless either (a) the outstanding
balance of the FNBO Loan is more than 50% of the total of the outstanding
balance of the FNBO Loan and outstanding Additional Secured Indebtedness and
the outstanding principal amount of the Bonds and such Additional Secured
Indebtedness is issued in accordance with the terms of the FNBO Loan Agreement,
or (b) if the outstanding balance of the FNBO  Loan is less then 50% of the total of the
outstanding balance of the FNBO Loan and outstanding Additional Secured
Indebtedness and the outstanding principal amount of the Bonds and (i) the
holders of a majority of the outstanding principal amount of the Bonds have
approved the Additional Secured Indebtedness, (ii) the Additional Secured
Indebtedness is for a capital project other than the Plant and (iii) the
Additional Secured Indebtedness does not exceed 60% of the total cost of the
capital project.  If any Additional
Secured Indebtedness takes the form of tax exempt bonds, the holders of a
majority of the outstanding principal amount of Bonds shall have the first
right to purchase such bonds on terms at least as favorable as the bonds are
being offered.  No Additional Secured
Indebtedness in the form of tax exempt bonds may be issued unless the Company
first delivers to the Trustee written certification from FNBO that the existing
Secured Indebtedness has been fully satisfied and the Additional Secured
Indebtedness is approved by the holders of a majority of the outstanding Bonds.


 


36

















 


Section 7.12.  Financial Covenants.


 


(1)           The Company shall
not incur any additional debt in the form of additional tax exempt solid waste
disposal facility revenue bonds while any Series 2008 Bonds are
Outstanding.


 


(2)           The Company shall
not incur debt on parity with the Series 2008 Bonds without obtaining
prior approval of a majority of the Holders of the Series 2008 Bonds.


 


(3)           The Company shall
maintain a minimum Fixed Charge Coverage Ratio of at least 1.25:1 for all
periods, which ratio is measured on a rolling four quarter basis, following the
end of the Construction Period.


 


(4)           Beginning on the
first day of the fourth month after the end of the Construction Period, the Company
shall at all times maintain a minimum amount of Working Capital as follows:


 


	
  Time Following Construction
  Period

  	
   

  	
  Minimum Working Capital

  	
   

  
	
  Months 4
  through 7

  	
   

  	
  $

  	
  3,000,000

  	
   

  
	
  Months 8
  through 12

  	
   

  	
  $

  	
  4,500,000

  	
   

  
	
  Months 13
  through Maturity

  	
   

  	
  $

  	
  6,000,000

  	
   

  



 


(5)           The Company shall
have a minimum Tangible Net Worth of at least $44,775,000 at all times
following the Construction Period, including any losses during construction of
the Project, which amount shall increase annually, in an amount equal to the
greater of (i) the undistributed earnings for the fiscal year just ended
or (ii) $250,000.


 


(6)           For each fiscal
quarter following the end of the Construction period, the Company shall
maintain a Leverage Ratio that does not exceed 1.65:1.


 


(7)           Annual
distribution payouts to the members or other owners of the Company shall not
exceed the following maximum amounts, measured as a percentage of Net Income:


 


Maximum
Distribution Allowed


 


	
  If the Company’s Ratio of Total
  Indebtedness to

  Tangible Net Worth is:

  	
   

  	
  Allowable Distribution

  	
   

  
	
  Greater than
  or equal to 1.00:1.00

  	
   

  	
  45

  	
  %

  
	
  Less than
  1.00:1.00 but Greater than or Equal to 1.00:.75

  	
   

  	
  55

  	
  %

  
	
  Less than
  .75:1.00

  	
   

  	
  65

  	
  %

  



 


which distributions, except for Tax Distributions, may be made only at
the completion of the fiscal year and so long as no Default exists.  So long as no Event of Default has occurred
and is continuing or would occur as a result thereof, the Company may make Tax
Distributions to its members; provided that (a) no Tax Distributions may
exceed the total tax liabilities of the members of the Company by reason of
their membership interests and (b) the permitted 


 


37

















 


distributions under this clause shall be reduced by any Tax
Distributions with respect to the prior fiscal year.


 


(8)           The Company covenants that it will
keep proper books of record and account in which full, true and correct entries
shall be made of all dealings or transactions of or in relation to the business
and affairs of the Company, in accordance with generally accepted accounting
principles consistently applied, and will furnish to the Trustee, the City and
the Original Purchaser of the Series 2008 Bonds copies of:


 


(a)           Quarterly unaudited
financial statements of the Company, certified by the Treasurer or other
authorized financial officer of the Company, within sixty (60) days of the end
of each fiscal quarter; and


 


(b)           Complete audited
financial statements and an opinion by an Independent Accountant, which opinion
shall be based upon an audit made in accordance with generally accepted
auditing standards, within one hundred twenty (120) days after the last day of
each fiscal year.  The audited financial
statements shall cover the operations of the Company for such fiscal year and
contain a balance sheet as of the end of such fiscal year, showing in each case
in comparative form the figures for the preceding fiscal year except for
instances where changes to generally accepted accounting principles dictate a
revised format.


 


Section 7.13.  Performance
of Obligations.  The Company shall
perform in a timely manner each of its obligations under the FNBO Loan
Documents and all of its obligations under any Additional Secured Indebtedness.


 


38






 












 


ARTICLE VIII


 


COMPANY’S OPTIONS


 


Section 8.1.  Assignment
and Sublease.  The Company may assign
its rights and obligations under this Bond Lease and, as an incident thereto,
sublease its interest in the Project without prior consent of the City or the
Trustee, but subject to the provisions of Section 5.2 and 7.5 hereof.  The City consents to the assignment of this
Bond Lease to FNBO as security for the FNBO Loan.


 


Section 8.2.  Prepayment.


 


(1)           The Company shall
have the option to direct the Trustee to call for redemption and prepayment of
the Outstanding Bonds in whole or in part as provided in Section 3.01 of
the Indenture.  The Bonds to be redeemed
shall be redeemed at a price equal to their principal amount plus accrued
interest as set forth in Section 3.01 of the Indenture.  In the event the Bonds are called for
redemption in whole or in part, a Basic Payment shall be made by the Company as
provided in Section 4.2 hereof on said Redemption Date.


 


(2)           If, after the
Company exercises its option to redeem all Bonds, no Bonds remain Outstanding,
the Indenture is discharged, and the Company has satisfied all of its
obligations hereunder, the Company may exercise its option to purchase the
Equipment under Section 8.4 hereof.


 


(3)           The Company shall
have the option to prepay the Basic Payments due the City under Section 4.2(3) hereof
in whole or in part, which prepayments shall be made by payment to the City
Treasurer.


 


Section 8.3.  Direction
of Investments.  Except during the
continuance of an Event of Default, the Company shall have the right during the
Term of this Bond Lease to direct the Trustee to invest or reinvest all monies
held for the credit of Funds established by Article VI of the Indenture,
in such securities as are authorized by law, for such funds, subject, however,
to the further conditions of Article VIII of the Indenture.


 


Section 8.4.  Termination
of Bond Lease Agreement and Option to Purchase.  Except during the continuance of an Event of
Default, the Company shall have the option at the expiration of this Bond Lease
and upon earlier termination of this Bond Lease to purchase the Equipment for
the Fair Market Value Purchase Price, subject to the following conditions:


 


(1)           such
option may be exercised only if all Bonds shall have matured or will mature or
be subject to redemption in accordance with their terms on their then next
succeeding Interest Payment Date or if provision is otherwise made for payment
of all Bonds in such manner that the Indenture will be discharged under Article VII
thereof on or before the date of termination;


 


39

















 


(2)           the
Company shall give written notice to the City and to the Trustee of its
intention to exercise the option, stating therein a termination date not less
one hundred twenty (120) nor more than one hundred fifty (150) days after the
date the notice is mailed, but in no event prior to the date on which all
Outstanding Bonds shall be deemed discharged under Article X of the
Indenture; and the Company shall make arrangements satisfactory to the Trustee
for the giving of any notice required for redemption of all of the Outstanding
Bonds on the date on which the Bonds are to be redeemed;


 


(3)           if
on or before ninety (90) days prior to the expiration date of the Lease Term,
the City and the Company are unable to agree upon the Fair Market Value
Purchase Price of the Equipment, such value shall be determined in accordance
with the foregoing definition by a qualified independent Appraiser.  The term “Appraiser” shall mean any
independent appraiser mutually agreed upon by the City and the Company or if no
such mutual agreement is reached within fifteen (15) days after the beginning
of such 90-day period, two independent appraisers, one chosen by the City and
one chosen by the Company, or, if such appraisers cannot agree on the amount of
such value within forty-five (45) days after the beginning of such 90-day
period, an independent appraiser to be chosen by the American Arbitration
Association promptly thereafter.  The
Appraiser shall be instructed to make such determination within a period of
thirty (30) days following appointment, and shall promptly communicate such
determination in writing to the City and the Company.  The determination so made shall be
conclusively binding upon both the City and the Company.  The Company shall each pay the expenses of
the Appraiser.


 


(4)           If
necessary, a Basic Payment shall be made by the Company as provided in Section 4.2
hereof on the Redemption Date;


 


(5)           the
Company shall pay to the Trustee on or prior to the termination date, an amount
equal to the Trustee’s and Paying Agent’s fees and expenses under the
Indenture, accrued and to accrue until final payment and redemption of the
Bonds and all other advances, fees, costs and expenses reasonably incurred and
to be incurred on or before the termination date by the Trustee and Paying
Agent under the Indenture and by the City under this Bond Lease.


 


At the closing, which shall be held at the principal office of the
Trustee, or such other place as the parties may mutually select, the City shall
convey to the Company all of its right, title and interest in and to the
Equipment, subject to:


 


(A)          those
liens and encumbrances, if any, to which the property was subject when conveyed
to the City;


 


(B)           those
liens and encumbrances, if any, created, permitted or acquiesced in by the
Company, or to the creation of which the City did not consent;


 


40

















 


(C)           those
liens and encumbrances, if any, resulting from the failure of the Company to
perform or observe any of its agreements in this Bond Lease; and


 


(D)          the
lien of unpaid installments of taxes, if any, levied against the Equipment and
not yet due and payable.


 


The City shall convey all of its right, title and interest in and to
the Equipment by bill of sale, which bill of sale shall be delivered upon
payment by the Company to the City of the purchase price specified above and
payment of all obligations with respect to the Indenture and the Bonds.  The Company shall pay all costs and expenses
of the preparation of the deed and bill of sale and the delivery thereof and
all taxes and charges payable in connection with the conveyance.


 


The Company shall take the Equipment subject to all applicable laws or
ordinances, rules or regulations of governmental authority.


 


On conveyance of the City’s interest in the Equipment and payment
therefore as provided in this Section 8.4, the City will deliver a release
of the leasehold estate created by this Bond Lease, and all further obligations
of the Company hereunder, except under Section 7.4, 7.7, 7.8, 10.8 and
10.11 shall thereupon terminate, and, if the same has not been previously
released, the City will cause the Trustee to deliver a release of the
Indenture; provided, however, that the Company shall also remain obligated to
pay or reimburse the City and Trustee for the payment of all other fees, costs
and expenses unaccounted for in any sum paid in accordance with subsection (4) above
and reasonably incurred before or subsequent to such closing in connection with
the Bonds.


 


41

















 


ARTICLE IX


 


EVENTS OF DEFAULT AND REMEDIES


 


Section 9.1.  Events of
Default.  Any one or more of the
following events is an Event of Default under this Bond Lease, and the term “Event
of Default,” wherever used herein, means any one of the following events,
whatever the reason for such default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body:


 


(1)           if
the Company shall fail to pay or cause to be paid any Basic Payments due under
this Bond Lease;


 


(2)           if
an Act of Bankruptcy occurs;


 


(3)           if
the Company shall fail to pay any Additional Charges on or before the date that
the payment is due (subject to any right to contest the amount of Additional
Charges set forth in Section 4.3 hereof), and shall continue to be in
arrears for thirty (30) days after mailing of a notice to it by the City or the
Trustee that said Additional Charges have not been received on the due date;


 


(4)           if
the Company shall fail to observe and perform or shall breach any other
covenant, condition or agreement on its part under this Bond Lease for a period
of sixty (60) days after mailing of a notice to it by the City or the Trustee,
specifying such default or breach and requesting that it be remedied; provided
that such default may be waived by the Holders of not less than 51% of the
principal amount of the Outstanding Bonds; and further provided that if the
failure stated in the notice cannot be corrected within sixty (60) days, the
City and Trustee will not unreasonably withhold their consent to an extension
of such time if corrective action is instituted by the Company with sixty (60)
days and is diligently pursued until such failure is corrected;


 


(5)           if
the Company shall be dissolved or liquidated (other than when a new entity
assumes the obligations of the Company under the conditions permitting such
action contained in Section 7.5); or


 


(6)           if
any representation or warranty made by the Company herein, or by an officer or
representative of the Company in any document or certificate furnished the
Trustee, the City or any Original Purchaser in connection herewith or therewith
or pursuant hereto or thereto, shall prove at any time to be, in any material
respect, incorrect or misleading as of the date made.


 


(7)           if
an event of default shall have occurred and be continuing under the Bond
Mortgage or the FNBO Loan Agreement.


 


42

















 


Section 9.2.  Remedies.


 


(1)           Whenever any Event
of Default specified in Section 9.1(1) or (2) hereof shall have
happened and be subsisting the Trustee shall declare all the Basic Payments
payable for the remainder of the Term of this Bond Lease (an amount equal to
that necessary to pay in full all Outstanding Bonds and the interest thereon
assuming acceleration of the Bonds under the Indenture and to pay all other
indebtedness thereunder) to be immediately due and payable whereupon the same
shall become immediately due and payable by the Company;


 


(2)           Whenever any Event
of Default shall have happened and be subsisting, any one or more of the
following remedial steps may also be taken to the extent permitted by law:


 


(A)          the
Trustee or the City may take whatever action at law or in equity may appear
necessary or appropriate to collect all sums then due and thereafter to become
due, or to enforce performance and observance of any obligation, agreement,
covenant, representation or warranty of the Company, under this Bond Lease, or
any related instrument; or to otherwise compensate the City, Trustee or
Bondholders for any damages on account of such Event of Default;


 


(B)           the
City (without the prior written consent of the Trustee if the Trustee is not
enforcing the City’s right in a manner to protect the City or is otherwise
taking action that brings adverse consequences to the City) may take whatever
action at law or in equity may appear necessary or appropriate to enforce its
rights of indemnification under Section 7.4 and to collect all sums then
due and thereafter to become due to the City under Section 4.3, 7.4, 9.5,
10.8 and 10.11 of this Bond Lease. 
Notwithstanding the foregoing, the City is not precluded from exercising
any of its rights reserved to it as set forth in this Section, even if the
Trustee is exercising the rights of the City hereunder;


 


(C)           the
City may enter the Plant and take possession of the Equipment without
termination of this Bond Lease, and use its best efforts to sublease the
Equipment for the account of the Company, holding the Company liable for the
difference in the rent and other amounts payable by the subleasee and the rents
and other amounts payable by the Company hereunder;


 


(D)          the
City may terminate this Bond Lease, exclude the Company from possession of the
Equipment, and use its best efforts to lease the Equipment to another for the
account of the Company, holding the Company liable for the difference between
the rentals received and the Basic Payments which would have been receivable
hereunder;


 


(E)           the
City may require the Company to furnish copies of all books and records of the
Company pertaining to the Project; and


 


43

















 


(F)           the
City may exercise any remedies available to a secured party under the Minnesota
Uniform Commercial Code.


 


(G)           the
City or Trustee may exercise any remedies available under the Bond Mortgage,
the Bond Security Agreement, the Guaranty or the Intercreditor Agreement.


 


Section 9.3.  Disposition
of Funds.  Any amounts collected
pursuant to action taken under Section 9.2 (other than sums collected for
the City on account of its rights to indemnification and certain direct
payments to be made to the City under Sections 4.3, 7.4 and 9.5, which shall be
paid directly to the City) shall be applied in accordance with the provisions
of the Indenture.


 


Section 9.4.  Nonexclusive
Remedies.  No remedy herein conferred
upon or reserved to the City or Trustee is intended to be exclusive of any
other available remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this Bond
Lease or now or hereafter existing at law or in equity or by statute.  No delay or omission to exercise any right or
power accruing upon any Event of Default shall impair any such right or power
or shall be construed to be a waiver thereof, but any such right and power may
be exercised from time to time and as often as may be deemed expedient.  In order to entitle the City (or the Trustee)
to exercise any remedy reserved to it in this Article, it shall not be
necessary to give any notice, other than such notice as may be herein expressly
required or be required by law.


 


Section 9.5.  Attorneys’
Fees and Expenses.  If an Event of
Default shall exist under this Bond Lease and the City or the Trustee should
employ attorneys or incur other expenses for the collection of any amounts due
hereunder, or the enforcement of performance of any obligation or agreement on
the part of the Company, the Company will upon demand pay to the City or the
Trustee the reasonable fees of such attorneys and such other expenses so
incurred.


 


Section 9.6.  Effect of
Waiver.  In the event any agreement
contained in this Bond Lease should be breached by either party and thereafter
waived by the other party, such waiver shall be limited to the particular
breach so waived and shall not be deemed to waive any other breach hereunder.


 


Section 9.7.  Waiver of
Stay or Extension.  The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any appraisement, valuation, stay, or extension law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Bond Lease; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law, and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the City or the Trustee, but will
suffer and permit the execution of every such power as though no such law had been
enacted.


 


44

















 


Section 9.8.  City May File
Proofs of Claim.  In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Company or the property of the Company, the Trustee
or the City with the prior consent of the Trustee shall be entitled and
empowered, by intervention in such proceeding or otherwise,


 


(1)           to
file and prove a claim and to file such other papers or documents as may be
necessary or advisable in order to have the claims of the City and the Trustee
(for themselves and on behalf of Bondholders) (including any claim for the
reasonable compensation, expenses, disbursements and advances of the City and
Trustee, their agents and counsel) allowed in such judicial proceeding, and


 


(2)           to
collect and receive any monies or other property payable or deliverable on any
such claims and to distribute the same.


 


Section 9.9.  Restoration
of Positions.  If the City or the
Trustee have instituted any proceeding to enforce any right or remedy under
this Bond Lease, and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the City or the Trustee then, and
in every such case, the Company and the City shall, subject to any
determination in the proceeding, be restored to the positions they held prior
to commencement of such proceedings, and thereafter all rights and remedies of
the City shall continue as though no such proceeding had been instituted.


 


Section 9.10.  Suits to
Protect the Project.  If the Company
shall fail to do so after thirty (30) days prior written notice from the City
or the Trustee, the City shall have power to institute and to maintain such
proceedings as it may deem expedient to prevent any impairment of the Project
or any portion thereof, by any acts which may be unlawful or in violation of
this Bond Lease, and such suits and proceedings as the City may deem expedient
to protect its interests in the Project or any portion thereof, including power
to institute and maintain proceedings to restrain the enforcement of or
compliance with any governmental enactment, rule or order that may be
unconstitutional or otherwise invalid, if the enforcement of, or compliance
with, such enactment, rule or order would impair or adversely affect the
Project or be prejudicial to the interests of the Bondholders.


 


Section 9.11.  Performance
by Third Parties.  The City may
permit third parties to perform any and all acts or take such action as may be
necessary for and on behalf of the Company to cure any Event of Default
hereunder.  The acceptance by the City or
the Trustee of any such performance by third parties shall not in any way
diminish or absolve the Company of primary liability hereunder.


 


Section 9.12.  Exercise
of the City’s Remedies by Trustee. 
Whenever any Event of Default shall have happened and be subsisting the
Trustee may, but except as otherwise provided in the Indenture shall not be obliged
to, exercise any or all of the rights of the City under this Article IX.


 


45

















 


ARTICLE X


 


GENERAL


 


Section 10.1.  Amounts
Remaining in Funds.  Except during
the continuance of an Event of Default, any amounts remaining in the Funds
created under Article VI of the Indenture upon expiration or earlier
termination of this Bond Lease, as provided herein, and after adequate
provision has been made for payment in full of the Bonds, in accordance with Article IX
of the Indenture, any Additional Charges payable to the Trustee and the City,
including Paying Agent’s fees and expenses, and all other amounts required to
be paid under this Bond Lease and the Indenture shall forthwith be paid to the
Company by the Trustee.


 


Section 10.2.  Notices.  All notices, certificates or other
communications hereunder shall be in writing (except as otherwise expressly
provided herein) and shall be sufficiently given and shall be deemed given when
mailed by registered or certified mail or commercially expedited delivery
service, with proper address as indicated below.  The City, the Company and the Trustee may, by
written notice given by each of them to the others, designate any address or
addresses to which notices, certificates or other communications to them shall
be sent when required as contemplated by this Bond Lease.  Until otherwise provided by the respective
parties, all notices, certificates and communications to each of them shall be
addressed as follows:


 


	
  To the City:

  	
   

  	
  City of Lamberton

  112 Second Avenue West

  P.O. Box 356

  Lamberton, MN 56152-0356

  Attn: City Administrator/Clerk

  
	
   

  	
   

  	
   

  
	
  To the Company:

  	
   

  	
  Highwater Ethanol, LLC

  205 N. Main Street, PO Box 96

  Lamberton, MN 56152

  Attn: President

  
	
   

  	
   

  	
   

  
	
  To the Trustee:

  	
   

  	
  U.S.
  Bank National Association

  Mail Station: EP-MN-WS3C

  60 Livingston Avenue, 3rd Floor

  St. Paul MN 55107

  



 


Section 10.3.  Binding
Effect.  This Bond Lease shall inure
to the benefit of and shall be binding upon the City and the Company and their
respective successors and assigns.


 


Section 10.4.  Severability.  In the event any provisions of this Bond
Lease shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provision hereof.  If any term or
provision of this Bond Lease or the application thereof to any provision of
this Bond Lease or the 


 


46

















 


application thereof to any person or circumstances shall to any extent
be invalid and unenforceable, the remainder of this Bond Lease, or the
application of such term or provision to person or circumstances other than
those as to which it is invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Bond Lease shall be valid and
shall be enforced to the extent permitted by law.


 


Section 10.5.  Amendments,
Changes, and Modifications.  Except
as otherwise provided in this Bond Lease or in the Indenture, subsequent to the
issuance of the Bonds and before the lien of the Indenture is satisfied and
discharged in accordance with its terms, this Bond Lease may not be effectively
amended, changed, modified, altered or terminated without the written consent
of the Trustee, Company and City.


 


Section 10.6.  Execution
Counterparts.  This Bond Lease may be
simultaneously executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the same instrument.


 


Section 10.7.  Required
Approvals.  Consents and approvals
required by this Bond Lease to be obtained from the Company, the City or the
Trustee shall be in writing and shall not be unreasonably withheld or delayed.


 


Section 10.8.  Limitation
on City Liability.  It is understood
and agreed by the Company and the Holders that no covenant, provision or
agreement of the City herein or in the Bonds or in any other document executed
by the City in connection with the issuance, sale and delivery of the Bonds, or
any obligation herein or therein imposed upon the City or breach thereof, shall
give rise to a pecuniary liability of the City or a charge against its general
credit or taxing powers or shall obligate the City financially in any way
except with respect to this Bond Lease and the application of revenues
therefrom and the proceeds of the Bonds. 
No failure of the City to comply with any term, condition, covenant or
agreement herein or therein shall subject the City to liability for any claim
for damages, costs or other financial or pecuniary charges except to the extent
that the same can be paid or recovered from this Bond Lease or revenues
therefrom or proceeds of the Bonds.  No
execution on any claim, demand, cause of action or judgment shall be levied
upon or collected from the general credit, general funds or taxing powers of
the City.  In making the agreements,
provisions and covenants set forth herein, the City has not obligated itself
except with respect to this Bond Lease and the application of revenues
hereunder as hereinabove provided.  The
Bonds constitute special obligations of the City, payable solely from the
revenues pledged to the payment thereof pursuant to this Bond Lease and the
Indenture, and do not now and shall never constitute an indebtedness or a loan
of the credit of the City, the State of Minnesota or any political subdivision
thereof or a charge against general taxing powers within the meaning of any
constitutional or statutory provision whatsoever.  It is further understood and agreed by the
Company and the Holders that the City shall incur no pecuniary liability
hereunder and shall not be liable for any expenses related hereto.  If, notwithstanding the provisions of this
Section, the City incurs any expense, or suffers any losses, claims or damages
or incurs any liabilities, the Company will indemnify and hold harmless the
City from the same and will reimburse the City for any legal or other expenses
incurred by the 


 


47

















 


City in relation thereto, and this covenant to indemnify, hold harmless
and reimburse the City shall survive delivery of and payment for the Bonds.


 


Section 10.9.  Survivorship
of Obligations.  All obligations of
the Company under Sections 7.4, 7.7, 7.8, 10.8 and 10.11 hereof shall survive
payment of the Bonds or earlier termination of this Bond Lease under Section 7.8,
8.2 or 8.4 hereof.


 


Section 10.10.  Administrative
Fees, Attorneys’ Fees and Costs.  The
Company shall reimburse the City, upon demand, for all costs and expenses,
including without limitation attorneys’ fees, paid or incurred by the City in
connection with (i) the discussion, negotiation, preparation, approval,
execution and delivery of the Bonds, the Indenture, this Bond Lease, and the
documents and instruments related hereto or thereto; (ii) any amendments
or modifications to any of the foregoing documents, instruments or agreements
and the discussion, negotiation, preparation, approval, execution and delivery
of any and all documents necessary or desirable to effect such amendments or
modifications; (iii) the servicing and administration of the loan during
the term hereof or thereafter; and (iv) the enforcement by the City during
the term hereof or thereafter of any of the rights or remedies of the City
hereunder or under the foregoing documents, or any document, instrument or
agreement related hereto or thereto, including, without limitation, costs and
expenses of collection in the Event of Default, whether or not suit is filed
with respect thereto.


 


Section 10.11.  Release.  The Company hereby acknowledges and agrees
that the City shall not be liable to the Company except for failure to perform
its obligations hereunder, or the Indenture, or the documents and transactions
related hereto or thereto or contemplated hereby or thereby, and hereby
releases and discharges the City from any liability, for any and all losses,
costs, expenses (including attorneys’ fees), damages, judgments, claims and
causes of action, paid, incurred or sustained by the Company as a result of or
relating to any action, or failure or refusal to act, on the part of the City
or any other party with respect to the Bonds, the Indenture, this Bond Lease,
or the documents and transactions related hereto or thereto or contemplated
hereby or thereby, including, without limitation, the exercise by the Trustee
or any third party of any of its rights or remedies pursuant to any of such
documents.


 


48

















 


IN WITNESS WHEREOF, the City and the Company have caused this Bond
Lease to be executed by their duly authorized officers.


 


	
   

  	
  CITY OF LAMBERTON, MINNESOTA

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Craig Wetter

  
	
   

  	
   

  	
  Its Mayor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  And by

  	
  /s/ Steven Flaig

  
	
   

  	
   

  	
  Its City Clerk

  



 


S-1

















 


	
   

  	
  HIGHWATER ETHANOL, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Brian Kletscher

  
	
   

  	
   

  	
  Its President

  



 


S-2

















 


EXHIBIT A


 


Description of Equipment


 


Description of Equipment


 


	
  EQUIPMENT DESCRIPTION

  	
   

  	
  PERCENTAGE ALLOCABLE TO SOLID WASTE FACILITIES

  	
   

  
	
  Centrifuge
  System

  	
   

  	
  100.00

  	
  %

  
	
  Boiler
  or Thermal Oxidizer

  	
   

  	
  66.70

  	
   

  
	
  Evaporator
  System

  	
   

  	
  100.00

  	
   

  
	
  Dryer
  System

  	
   

  	
  64.64

  	
   

  
	
  Methanator

  	
   

  	
  100.00

  	
   

  



 


A-1






 












 


EXHIBIT B


 


Location of the Plant


 


PARCEL
I (PROJECT SITE)


 


TRACT
A:  That part of the Southwest Quarter of
Section 21, Township 109 North, Range 37 West, Redwood County, Minnesota,
lying north of the northerly right-of-way line of the Dakota Minnesota &
Eastern Railroad.


 


Excepting
therefrom that part of said Tract A which lies northwesterly of “Line 1”
described below, southerly of a line run parallel with and distant 50 feet
southerly of “Line 2” described below, and easterly of the easterly
right-of-way line of Township Road T-190, as now located and established, said
exception containing 0.20 acres more or less.


 


“Line
1”:  Beginning at the intersection of the
easterly right-of-way line of said township road with a line run parallel with
and distant 180 feet southerly of “Line 2” described below; thence
northeasterly to a point distant 50 feet southerly (measured at right angles)
of a point on said “Line 2”, distant 167.4 feet easterly of its point of
beginning, and there terminating.


 


“Line
2”:  Beginning at a point on the west
line of the Northwest Quarter of Section 21, distant 1.0 foot north of the
southwest corner thereof; thence run northeasterly at an angle of 92 degrees 05
minutes 00 seconds (as measured from south to east) from said west line of 1521.8
feet; thence deflect to the right at an angle of 01 degree 03 minutes 00
seconds for 1100 feet and there terminating.


 


Also
Excepting that part of said Tract A hereinbefore described, which lies within a
distance of 35 feet southerly of a line run parallel with and distant 50 feet
southerly of the following described line: 
Beginning at a point on “Line 2” hereinbefore described, distant 484.4
feet westerly of its point of termination; thence easterly on said “Line 2” for
484.4 feet and there terminating; said exception containing 0.37 acres more or
less.


 


Subject
to Township Road right-of-way over the westerly 33 feet of said Southwest
Quarter, also subject to Trunk Highway 14 right-of-way.


 


AND
ALSO


 


PARCEL
II (PROJECT SITE)


 


All
that part of the Southeast Quarter of Section 21, Township 109 North,
Range 37 West, Redwood County, Minnesota, lying north of the northerly
right-of-way line of the Dakota Minnesota & Eastern Railroad, subject
to Highway 14 right-of-way.


 


Excepting
therefrom that part of said Southeast Quarter which lies within a distance of
35 feet southerly of the following described line:  Beginning at a point on the westerly boundary
of said 


 


B-1

















 


Southeast
Quarter, distant 40 feet southerly of the northwest corner thereof; thence run
easterly for 345.6 feet along a line that intersects the easterly boundary of
the Southeast Quarter of said Section 21, distant 64.4 feet southerly of
the northeast corner thereof and there terminating.


 


Also
Excepting therefrom that part of the Northeast Quarter of the Southeast Quarter
of Section 21, Township 109 North, Range 37 West, Redwood County,
Minnesota, described as follows: 
Commencing at the northeast corner of said Southeast Quarter; thence
southerly on a Minnesota State Plane Grid Azimuth from north of 181 degrees 50
minutes 35 seconds along the east line of said Southeast Quarter 102.21 feet;
thence westerly 270 degrees 48 minutes 42 seconds azimuth 665.31 feet to the
point of beginning; thence continue westerly 270 degrees 48 minutes 42 seconds
azimuth 400.00 feet; thence southerly 180 degrees 48 minutes 42 seconds azimuth
200.00 feet; thence easterly 90 degrees 48 minutes 42 seconds azimuth 400.00
feet; thence northerly 00 degrees 48 minutes 42 seconds azimuth 200.00 feet to
the point of beginning.


 


Containing
0.27 acres, more or less.


 


AND
ALSO


 


PARCEL
III (LAMBERTON
ECONOMIC DEVELOPMENT AUTHORITY PARCEL)


 


That
part of the South Half (S1⁄2) of Section Twenty-two (22), Township One
Hundred Nine (109) North, Range Thirty-seven (37) West, Redwood County,
Minnesota, lying northerly of the northerly right-of-way line of the Dakota
Minnesota & Eastern Railroad, and southerly of the following described
line:  Commencing at a point on the west
line of the Southwest Quarter (SW1⁄4) of said Section Twenty-two (22) where
said line intersects the northerly right-of-way line of the Dakota Minnesota
and Eastern Railroad, said right-of-way line being 50 feet northerly of and
parallel with the center line of the tracks; thence northerly along said west
line on an assumed azimuth of 01 degrees 50 minutes 35 seconds 145.69 feet to
the point of beginning of the line to be described; thence easterly 84 degrees
21 minutes 14 seconds azimuth 388.43 feet; thence 85 degrees 21 minutes 11
seconds azimuth 900.66 feet; thence easterly 83 degrees 46 minutes 16 seconds
azimuth 896.53 feet; thence easterly 81 degrees 30 minutes 37 seconds azimuth
193.47 feet; thence easterly 78 degrees 15 minutes 04 seconds 396.89 feet;
thence easterly 80 degrees 37 minutes 13 seconds 299.78 feet; thence easterly
77 degrees 40 minutes 49 seconds 199.61 feet; thence easterly 80 degrees 37
minutes 44 seconds azimuth 200.67 feet; thence easterly 77 degrees 47 minutes
42 seconds azimuth 316.70 feet to the southerly right-of-way line of Trunk
Highway No. 14; thence easterly 90 degrees 48 minutes 42 seconds azimuth
along said southerly right-of-way line 619.24 feet to its intersection with
said northerly right-of-way line of said Dakota Minnesota and Eastern Railroad
and there terminating.


 


AND
ALSO


 


PARCEL
IV (ERICKSON WELL
SITE PARCEL)


 


The
East 2040.20 feet of the North 128.10 feet of the Northwest Quarter of Section 14,
Township 108 North, Range 37 West, Cottonwood County, Minnesota.  Said tract subject to a 


 


B-2

















 


33.00
foot township road right-of-way easement. 
Said tract contains 6.00 acres more or less, including 1.55 acres of
township road right-of-way.


 


AND
ALSO


 


PARCEL
V (GEIS WELL SITE
PARCEL)


 


The
East 1188.00 feet of the South 220.00 feet of the Southeast Quarter of the
Southwest Quarter of Section 29, Township 109 North, Range 37 West,
Redwood County, Minnesota.  Said tract
subject to a 33.00 foot township road right-of-way easement.  Said tract contains 6.00 acres more or less,
containing 0.90 acres of township road right-of-way.


 


B-3

















 


EXHIBIT C


 


Description of Project


 


The
acquisition, purchase and installation of solid waste disposal
facilities (including centrifuge, dryer, evaporator and related equipment) in
connection with construction of a 50 million gallon nameplate capacity ethanol
production facility, to be owned by the City and operated by the
Company, including the Equipment and site improvements necessary or desirable
for such purposes.


 


C-1