Document:

Exhibit 10.1

	
  [FAGEN, INC. LOGO]

  	
   

  	
  501 West Hwy. 212, P.O.
  Box 159

  
	
   

  	
  www.fageninc.com

  	
  Granite Falls, MN 56241

  
	
   

  	
   

  	
  320-564-3324

  
	
   

  	
   

  	
  320-564-3278 fax

  

 

June 7, 2006

Mr. Brian Kletscher

HIGHWATER ETHANOL, LLC

30427 County Highway 10

Vesta, MN  56292

Re:          Highwater Ethanol, LLC Ethanol Project

Dear Brian:

This letter of
intent will confirm our discussions regarding the proposed terms and conditions
under which Fagen, Inc. (“Fagen”) will enter into exclusive negotiations
with Highwater Ethanol, LLC (“Owner”) to implement the transaction
described in Paragraph 1 below (the “Transaction”).  (Fagen and Owner are referred to herein
individually as a “Party” and collectively as the “Parties”).  This letter, if executed and returned by you
within thirty (30) days of the date hereof, will constitute a letter of intent
between us (the “Letter of Intent”).

The Parties agree
to effect the Transaction subject only to the execution and delivery (in each
case in a form satisfactory to Fagen) of a definitive Design-Build Agreement
and other ancillary instruments and agreements (the “Transaction Documents”).  The Transaction Documents will be executed
and delivered by the parties thereto no later than December 31, 2008 (the “Closing
Date”); provided that the Transaction Documents
may, if agreed to by the Parties, provide for extensions necessary to secure
any consents and approvals of persons (other than affiliates of the Parties) on
terms reasonable to the Parties.

1.               The Transaction.  The
Parties agree that the Transaction will consist of the following:

(a)                                  Fagen agrees to provide Owner with those
services as described in this Letter of Intent which are necessary for Owner to
develop a detailed description of a fifty (50) million gallons per year (“MGY”)
dry grind ethanol production facility located at Lamberton, Minnesota (the “Plant”)
and to establish a price for which Fagen would provide design, engineering,
procurement of equipment and construction services for the Plant.  The description of the Plant will be
sufficiently detailed to permit an analysis of the Owner’s lump-sum cost to
develop the Plant and to develop an economic pro forma sufficient to determine
if the Plant can be financed.

(b)                                 Fagen
will also provide Owner with assistance in evaluating, from both a technical
and business perspective, Owner’s organizational options, the 

appropriate location of the Plant, and business plan development.  Fagen will assume no risk or liability of
representation or advice to Owner by assisting in evaluating the above and all
decisions made regarding feasibility, financing, and business risks are the
Owner’s sole responsibility and liability. 
Owner acknowledges that Fagen has no control over cost of labor,
materials, equipment, or services furnished by others, over other contractors’
methods of determining prices, or other competitive bidding or market
conditions. Fagen’s estimates of project construction cost will be made on the
basis of its experience and qualifications and will represent Fagen’s best
judgment as experienced and qualified professionals familiar with the
construction industry.  Fagen does not
guarantee that proposals, bids, or actual construction cost will not vary from
its estimates of project cost and Owner acknowledges the same.

(c)                                  Fagen
will also provide Owner with conceptual design and technical information
required to support Owner’s application for a construction air permit prior to
the commencement of Plant Construction.

(d)                                 If Owner determines
that the Plant is economically feasible and desires to proceed with the
development of the Plant, then Owner
agrees to enter into a Lump Sum Design-Build contract with Fagen for the
design, procurement of equipment and construction of the Plant (the “Design-Build
Agreement”).

(e)                                  Owner shall offer Fagen the right to invest
in the project.  Unless otherwise
specifically agreed between Fagen and Owner, such investment shall be offered
on the same terms and conditions as all other investors.

(f)                                    Owner agrees that the Design-Build Agreement
will be Fagen’s chosen form of Design-Build Agreement and will contain among
other things, those terms and conditions set forth in the General Terms and
Conditions section of this Letter of Intent.

(g)                                 The Plant shall be constructed using an
Indeck Boiler.

2.               Contract Price.  Owner
shall pay Fagen Sixty-six Million Twenty-five Thousand Eight Hundred
Forty-eight Dollars ($66,025,848.00) (the “Contract Price”) as full
consideration to Fagen for full and complete performance of the services
described in the Design-Build Agreement and all costs incurred in connection
therewith.

(a)                                  The
Contract Price shall not include any costs related to union labor or prevailing
wage requirements.  If any action by
Owner, a change in Applicable Law, or a Governmental Authority (as those terms
are defined in the Design-Build Agreement) acting pursuant to a change in
Applicable Law, shall require Fagen to employ union labor or compensate labor
at prevailing wages, the Contract Price 

 2
 

shall be adjusted
upwards to include any increased costs associated with such labor or wages.  Such adjustment shall include, but not be
limited to, increased labor, subcontractor, and material and equipment costs
resulting from any union or prevailing wage requirement; provided, however,
that if an option is made available to either employ union labor, or to
compensate labor at prevailing wages, such option shall be at Fagen’s sole
discretion and that if such option is executed by Owner without Fagen’s
agreement, Fagen shall have the right to terminate this Letter of Intent or the
Design-Build Agreement, as applicable, and receive compensation pursuant to Paragraph
4(c) hereof or the terms of the Design-Build Agreement, whichever is
applicable.

(b)                                 If
the Construction Cost Index published by Engineering News-Record Magazine (“CCI”)
for the month in which a Notice to Proceed is given to Fagen is greater than 7660.29
(January 2006), the Contract Price shall be adjusted to reflect such increase.

3.               General Terms and Conditions.  The consummation of the Transaction will be
subject to the Design-Build Agreement containing the following conditions:

(a)                                  Fagen
will have no responsibility for and will not perform any site preparation
work.  Owner’s site responsibilities will
include, but will not be limited to:

	
  i.

  	
   

  	
  Obtaining land and legal authority to use the site
  for its intended purpose;

  
	
  ii.

  	
   

  	
  site grading including soil stabilization and the
  costs connected therewith;

  
	
  iii.

  	
   

  	
  final grading, seeding, and mulching;

  
	
  iv.

  	
   

  	
  site security, including any site fencing;

  
	
  v.

  	
   

  	
  procuring boundary and topographic surveys;

  
	
  vi.

  	
   

  	
  procuring soil borings and geotechnical reports;

  
	
  vii.

  	
   

  	
  obtaining all operating permits, including any fees,
  bonding, and required testing;

  
	
  viii.

  	
   

  	
  obtaining storm water runoff permit;

  
	
  ix.

  	
   

  	
  obtaining any necessary pollutant elimination
  discharge permit;

  
	
  x.

  	
   

  	
  obtaining a natural gas supply and service agreement
  and providing all gas piping to the use points, providing burner tip
  pressures as specified by Fagen, and supplying a digital flowmeter;

  
	
  xi.

  	
   

  	
  securing temporary and permanent electrical service,
  including all infrastructure design and installation for any line/service
  extensions, substation, primary feed and metering system, and on-site
  electrical distribution system up to and including the service transformers;

  
	
  xii.

  	
   

  	
  supplying a water source, storage, and water supply
  lines of appropriate quality and quantity;

  
	
  xiii.

  	
   

  	
  paying for a water pre-treatment system should the
  project require such a system (procurement and installation by Fagen);

  
	
  xiv.

  	
   

  	
  providing wastewater discharge piping, septic tank
  and drainfield or

  

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  connect to a municipal system as required for the
  sanitary sewer requirements of the Plant;

  
	
  xv.

  	
   

  	
  providing and maintain required ditches and
  permanent roads;

  
	
  xvi.

  	
   

  	
  constructing, furnishing, and equipping the
  administration building;

  
	
  xvii.

  	
   

  	
  providing maintenance and power equipment and spare
  parts;

  
	
  xviii.

  	
   

  	
  providing all rail design, engineering, and
  construction, including any railroad permits or approvals;

  
	
  xix.

  	
   

  	
  supplying drawings of rail system and administration
  building to Fagen; and

  
	
  xx.

  	
   

  	
  paying for the required fire protection system for
  the Plant (procurement and installation by Fagen).

  

 

(b)                                 Owner will enter into a Phase I and Phase II
Engineering Services Agreement with Fagen Engineering, LLC.  The Phase I and Phase II Engineering Services
Agreement will provide for commencement of 
work on the Phase I and Phase II engineering for the project as set
forth therein.  The Phase I engineering
shall consist of engineering and design of the Plant site and shall include:
property layout; grading, drainage and erosion control plan drawings; roadway
alignment drawings; culvert cross sections and details; and seeding and
landscaping, if required.  The Phase II
engineering shall consist of engineering and design of site work and utilities
for the Plant, all within the property line of the Plant, including: property
layout; site grading and drainage drawings; roadway alignment; all utility
layout including fire loop, potable water, well water if applicable, sanitary
sewer, utility water blowdown, and natural gas; geometric layout; site utility
piping tables; tank farm layout; tank farm details; sections and details
drawing, if required, and miscellaneous details drawing, if required.  Owner will pay Fagen Engineering, LLC Ninety-two
Thousand Five Hundred Dollars (92,500.00) for such engineering services
pursuant to the terms of that agreement, the full amount of which shall be
included in and credited to the Contract Price. 
Notwithstanding the foregoing sentence, if a Notice to Proceed is not
issued pursuant to the terms of the Design-Build Agreement, or Financial Closing
is not obtained, then Fagen Engineering, LLC 
shall keep the full amount paid under the Phase I and Phase II
Engineering Services Agreement as compensation for the services provided
thereunder.

(c)                                  Fagen
will provide reasonable assistance to Owner in obtaining Owner’s permits,
approvals and licenses.

(d)                                 Owner
will provide:  surveys describing the property’s
boundaries; geotechnical studies describing subsurface conditions; temporary
and permanent easements, zoning and other requirements and encumbrances to
enable Fagen to perform the work; a legal description of the site; as-built and
record drawings of any existing structures; environmental studies, reports, and
statements describing the environmental conditions, including hazardous
conditions at the site.

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(e)                                  Owner
will be responsible for securing and executing all necessary real estate
agreements to secure the site and is responsible for all costs incurred in
obtaining those agreements.

(f)                                    Fagen
may subcontract portions of the work.

(g)                                 Fagen
will provide two (2) weeks of training for all of Owner’s employees and, if
applicable, Owner’s Operator’s employees required for the operation and
maintenance of the Plant.

(h)                                 Owner
must obtain Financial Closing prior to the issuance of a Notice to Proceed.

(i)                                     Owner
will pay all reasonable costs incurred by Fagen for frost removal so that
winter construction can proceed.  Such
costs will be in addition to, and not included in, the lump sum price.

(j)                                     All
drawings, specifications, calculations, data, notes and other materials and
documents, including electronic data furnished by Fagen to Owner under the
Design-Build Agreement (“Work Product”) will be instruments of service
and Fagen will retain the ownership and property interests therein, including
copyrights thereto.

(k)                                  Fagen
will utilize certain proprietary property and information of ICM, Inc., a
Kansas corporation (“ICM”), in the design and construction of the
project, and may incorporate proprietary property and information of ICM into
the project.  Owner’s use of the
proprietary property and information of ICM shall be governed by the terms and
provisions of a license agreement between Owner and ICM which shall be attached
as an exhibit to the Design-Build Agreement. 
Owner will be responsible for negotiating any requested changes to the
ICM license directly with ICM, not Fagen.

(l)                                     Upon
payment in full under the Design-Build Agreement, Fagen will grant Owner a
limited license to the Work Product for use in connection with the operation,
maintenance, and repair of the Plant including the interconnection of, but not
design of, any future expansions to the Plant. 
The limited license will not permit Owner to modify the Plant in any way
that would increase the distillation, dehydration or evaporation capacity of
the Plant.

(m)                               Work
will commence following receipt of Owner’s written valid notice to proceed (“Notice
to Proceed”).  The Notice to Proceed
cannot be given until (1) the Owner has title to the real estate on which the
project will be constructed; (2) the site work required of Owner is completed;
(3) the air permit(s) and/or other applicable local, state or federal permits
necessary for construction to begin have been 

 5
 

obtained; (4) Owner has
obtained Financial Closing; (5) if applicable, Owner executes a sales tax
exemption certificate and provides to Fagen; (6) Owner provides the name of its
property/all-risk insurance carrier and the specific requirements for fire
protection; (7) Owner has provided an insurance certificate or copy of
insurance policy demonstrating that Owner has obtained builder’s risk
insurance; and (8) Fagen has provided Owner written notification of its
acceptance of the Notice to Proceed, provided that such written notification of
its acceptance shall not be unreasonably withheld.  If Notice to Proceed is not issued within one
hundred and eighty (180) days of the effective date of the Design-Build
Agreement, that agreement shall terminate, thus releasing Fagen of all
obligations.

(n)                                 Phase
I Design Package (Grading and Drainage) will BK    RF be
delivered to Owner prior to February 5, 2007.

(o)                                 “Substantial
Completion” will be the date on which the Plant construction has been
completed to a point that the Plant is ready to grind the first batch of corn
for producing ethanol and begin operation for its intended use as a fifty (50)
MGY dry grind ethanol production facility. 
No production capacity is guaranteed on the Substantial Completion date,
but the Plant is largely completed as of that date.

(p)                                 Substantial
Completion will occur within Five Hundred and Forty-Five (545) days after the
date of the Notice to Proceed.

(q)                                 “Final
Completion” will be achieved once Owner reasonably determines that:
Substantial Completion has been achieved; any outstanding amounts owed by Fagen
to Owner have been paid; remaining items of work have been completed; clean-up
of the site has been completed; all permits required to have been obtained by
Fagen have been obtained; certain information including an affidavit stating
that there are no outstanding liens, a release from further compensation,
consent to final payment, and a hard copy of the as-built plans (which will
remain Work Product) has been provided to Owner; releases and waivers of all
claims and liens from Fagen and subcontractors have been provided; and the Performance
Tests have been successfully completed. 
Final Completion will occur no more than ninety (90) days after the
actual Substantial Completion date.  The
90-day period between Substantial Completion and Final Completion will be tied
directly to actual Substantial Completion. 
By way of example, if Substantial Completion is achieved 10 days early,
then the 90-day period to Final Completion would begin on that earlier date.

(r)                                    Fagen
will demonstrate certain performance guarantee criteria through performance
testing performed following Substantial Completion but prior to Final
Completion (“Performance Tests”).   Air permit testing shall be done by a third
party contractor retained by Owner.

 6
 

(s)                                  Owner
will take control of the Plant after completion and acceptance of the Performance
Tests.  The Performance Tests will be
completed by Owner’s personnel under Fagen’s direction.

(t)                                    The
aggregate liability of Fagen, its Subcontractors, vendors, suppliers, agents
and employees, to Owner (or any successor thereto or assignee thereof) for any
and all claims and/or liabilities arising out of or relating in any manner to
the work or to Fagen’s performance or non-performance of its obligations under
the Design-Build Agreement, whether based on contract, tort (including
negligence), strict liability, or otherwise, shall not exceed in the aggregate,
the Contract Price and shall be reduced, upon the issuance of each Application
for Payment, by the total value of such Application for Payment; provided,
however, that upon the earlier of Substantial Completion or such point in time
that requests for payment pursuant to the Design-Build Agreement have been made
for ninety percent (90%) of the Contract Price, Fagen’s aggregate liability
shall be limited to the greater of (1) Ten Percent (10%) of the Contract Price
or (2) the amount of insurance coverage available to respond to the claim or
liability under any policy of insurance provided by Fagen under the
Design-Build Agreement.

(u)                                 The
warranty period for work completed pursuant to the Design-Build Agreement will
extend for one year past Substantial Completion.  The Warranty will not apply to defects caused
by abuse, alterations, or failure to maintain the work by persons other than
Fagen or anyone for whose acts Fagen may be liable.  The warranty period will be extended one day
for each day that such part of the work repaired under such warranty is
malfunctioning or not in conformance with project requirements provided that
Owner must report such non-conformance or malfunction within seven (7) days of
the appearance of such non-conformance or malfunction.

(v)                                 Owner
will pay Fagen a mobilization fee in the amount of Five Million Dollars ($5,000,000.00)
at the earlier to occur of financial closing or the issuance of a Notice to
Proceed.

(w)                               Fagen
will request payment and Owner will pay Fagen in accordance with the following
procedures:

i.               Fagen will submit
to Owner a request for payment (an “Application for Payment”) on or
before the twenty-fifth (25th) day of each month beginning with the first month
following the acceptance of Notice to Proceed. 
Along with each Application for Payment, Fagen will submit to Owner
signed lien waivers for the work included in the Application for Payment
submitted for the immediately preceding pay period and for which payment has
been received.

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ii.            The Application for
Payment will constitute Fagen’s representation that the work has been performed
consistent with the Transaction Documents and has progressed to the point
indicated in the Application for Payment. 
No additional documentation will be provided to Owner in support of the
Application for Payment.  The work
completed at the site and the comparison of the Application for Payment against
the Schedule of Values shall provide sufficient substantiation to Owner of the
accuracy of the Application for Payment. 
The Schedule of Values subdivides the work into its respective parts,
includes values for all items comprising the work, and serves as the basis for
the monthly progress payments.

iii.   The Application for Payment may request
payment for equipment and materials not yet incorporated into the project only
if Owner is satisfied that the materials and equipment are suitably stored at
the site or elsewhere and are protected by suitable insurance.  Upon payment, Owner will receive title to
such equipment and materials.

iv.   Owner shall make payment within ten (10) days
of receipt of the Application for Payment. 
Failure to make such payment will result in the accrual of interest at a
rate of eighteen percent (18%) per annum commencing five (5) days after the
payment is due.  Failure to make such
payment, except if due to appropriate withholding of payment due to a good
faith dispute, entitles Fagen to stop work.

v.           If Owner wishes to
dispute any portion of the Application for Payment, Owner must notify Fagen in
writing at least five (5) days prior to the date payment is due.  Such notice must state the specific amounts
Owner intends to withhold, the reasons and contractual basis for withholding,
and the specific measures Fagen must take to rectify Owner’s concerns.  Regardless of a dispute as to a portion of
the Application for Payment, Owner must pay all undisputed amounts by the
payment due date.

vi.   Retainage on progress payments made pursuant
to the Design-Build Agreement will be capped at five percent (5%) of the total
price.  Owner will retain ten percent
(10%) of each payment up to a maximum of five percent (5%) of the total
Contract Price.  Once five percent (5%) of
the total price has been retained, Owner will not retain any additional amounts
from subsequent payments.  Owner will
release retainage, less the amount equal to the value of subcontractor lien
waivers not yet obtained, upon completion of the Performance Tests.

vii.  Upon Final Completion, Fagen will deliver to
Owner a request for final payment.  Owner
will make the final payment within thirty (30) days after the receipt of such
request.    Owner’s failure to make Final Payment will
void any and all warranties, whether express or implied, provided by Fagen  pursuant to the Agreement.

(x)                                   Fagen
will not be responsible for any hazardous condition encountered at the site and
may stop work in an affected area until such hazardous condition is removed 

 8
 

by Owner.

(y)                                 Fagen
will not be responsible for differing site conditions including concealed or
latent physical conditions or subsurface conditions and will be entitled to a
price adjustment to the Contract Price to the extent that its cost and/or time
of performance is adversely impacted by the differing site conditions.

(z)                                   “Force
Majeure Events” shall mean any cause or event beyond the reasonable control
of, and without the fault or negligence of a Party claiming Force Majeure,
including, without limitation, an emergency, floods, earthquakes, hurricanes,
tornadoes, adverse weather conditions not reasonably anticipated or acts of
God; sabotage; vandalism beyond that which could reasonably be prevented by a
Party claiming Force Majeure; terrorism; war; riots; fire; explosion;
blockades; insurrection; strike; slow down or labor disruptions (even if such
difficulties could be resolved by conceding to the demands of a labor group);
economic hardship or delay in the delivery of materials or equipment that is
beyond the control of a Party claiming Force Majeure, and action or failure to
take action by any governmental authority after the effective date of the
Design-Build Agreement (including the adoption or change in any rule or
regulation or environmental constraints lawfully imposed by such governmental
authority), but only if such requirements, actions, or failures to act prevent
or delay performance; and inability, despite due diligence, to obtain any
licenses, permits, or approvals required by any governmental authority.

(aa)                            If Fagen
is delayed at any time in the commencement or progress of the work due to a
delay in the delivery of, or unavailability of, essential materials or labor to
the project as a result of a significant industry-wide economic fluctuation or
disruption beyond the control of and without the fault of Fagen or its subcontractors
which is experienced or expected to be experienced by certain markets providing
essential materials, equipment or labor to the project during the performance
of the work and such economic fluctuation or disruption adversely impacts  the price, availability, and delivery
timeframes of essential materials and equipment 
(such event an “Industry-Wide Disruption”), Fagen shall be
entitled to an equitable extension of the Contract Time on a day-for-day basis
equal to such delay.  The Owner and Fagen
shall undertake reasonable steps to mitigate the effect of such delays.  Notwithstanding any other provision to the
contrary, Fagen shall not be liable to the Owner for any expenses, losses or
damages arising from a delay, or unavailability of, essential materials or
labor to the project as a result of an Industry-Wide Disruption.

(bb)                          The
Transaction will be governed by the laws of the State of Minnesota.

4.               Exclusivity, No Solicitation or Negotiations.

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(a)                                  Neither
Owner, nor its affiliates, shareholders, members or other equity owners, or
their officers, representatives, agents or employees will solicit or negotiate,
directly or indirectly, with any third party to obtain the services
contemplated by this Letter of Intent.

(b)                                 During
the term of this Letter of Intent the Owner agrees that Fagen will have the
exclusive right to provide to Owner the services contemplated by the Letter of
Intent. Developer and Owner will not disclose any information related to this
Letter of Intent to a competitor or prospective competitor of Fagen.

(c)                                  Should Owner choose to develop or pursue a
relationship with a company other than Fagen to provide the preliminary
engineering or design-build services for the project, then Owner will pay Fagen
One Million Dollars ($1,000,000.00) and reimburse Fagen for all expenses Fagen
has incurred in connection with the project based upon Fagen’s standard rate schedule plus all third party costs
incurred from the date of this Letter of Intent.  Such expenses include, but are not limited
to, labor rates and reimbursable expenses such as legal charges for document
review and preparation, travel expenses, reproduction costs, long distance
phone costs, and postage.

(d)                                 In the event Fagen’s services are terminated
by Owner, title to the technical data, which may include preliminary
engineering drawings and layouts and proprietary process related information
will remain with Fagen and any copies thereof, will be returned to Fagen.

(e)                                  Owner acknowledges that the technical data
provided by Fagen under this Letter of Intent is preliminary and may not be
suitable for construction.  Owner agrees
that any use of such technical data following termination of Fagen’s services
will be at Owner’s sole risk.

5.               Confidentiality.  Owner will hold in confidence and will use
only for the purposes of completing the Transaction any and all confidential
information disclosed to it except that Owner may disclose confidential
information to its lenders, lenders’ agents, prospective investors, advisors and/or
consultants as may be reasonably necessary to enable them to advise Owner on
the Transaction, provided that any party to whom confidential information is
disclosed is informed of the existence of this confidentiality obligation and
agree to be obligated to keep such information confidential.  The term “confidential information”
will mean (i) any and all information concerning the Transaction, including
that Fagen and Owner are negotiating the consummation of the Transaction, and
(ii) all information which Owner, directly or indirectly, may acquire from Fagen,
but confidential information will not include information falling into any of
the following categories:

 10
 

(a)                                  information
that, at the time of disclosure hereunder, is in the public domain;

(b)                                 information
that, after disclosure hereunder, enters the public domain other than by breach
of this Agreement or the obligation of confidentiality;

(c)                                  information
that, prior to disclosure hereunder, was already in the Owner’s possession,
either without limitation on disclosure to others or subsequently becoming free
of such limitation;

(d)                                 information
obtained by the Owner from a third party having an independent right to
disclose this information; and

(e)                                  information
that is available through discovery by independent research without use of or
access to the confidential information acquired from Fagen.

Owner’s obligation to maintain confidential information in confidence will be
deemed performed if Owner observes with respect thereto the same safeguards and
precautions which Owner observes with respect to its own confidential
information of the same or similar kind. 
It will not be deemed to be a breach of the obligation to maintain
confidential information in confidence if confidential information is disclosed
upon the order of a court or other authorized governmental entity, or pursuant
to other legal requirements.  However, if
Owner is required to file the Transaction Documents or a portion thereof with a
governmental entity, it agrees that it will not do so without first informing
Fagen of the requirement and seeking confidential treatment of the Transaction
Documents prior to filing the documents or a portion thereof.  Owner’s confidentiality obligations under
this section shall survive the expiration or termination of this Letter of
Intent and shall be a legally binding obligation of Owner for five (5) years
following the later to occur of termination of this Letter of Intent or
completion of the Plant contemplated by the Transaction Documents.

6.               Publicity. 
Neither Owner nor any of its affiliates, shareholders, subcontractors,
or vendors or their officers, representatives, agents and employees will issue
any press or publicity release or otherwise release, distribute, announce, or
disseminate any information for publication concerning the Transaction, the
existence of the negotiations among Fagen and Owner, the participation of Fagen
in the Transaction, or any other matter affecting Fagen hereunder, without the
prior written consent of Fagen, which consent may be withheld for any reason,
except where such press or publicity release is required by order of a court or
necessary or appropriate under the rules or regulations of any governmental
agency.

The Parties will jointly agree on the timing and content of any public
disclosure by Owner, including but not limited to, press releases, relating to
Fagen’s involvement in Owner’s project, and no such disclosure will be made
without Fagen’s consent and approval, except as may be required by applicable
law.

 11
 

7.               Disclaimer of Consequential Damages.  In no event will either Fagen or Owner be
liable to the other pursuant to this Letter of Intent, or for activities
conducted under this Letter of Intent, under any theory of recovery for any
indirect, special, incidental or consequential damages (including, without
limitation, loss of revenues or profits, loss of use, cost of replacement, cost
of capital and claims of customers, interest charges, or increased costs of
nature whatsoever) .

8.               Legal Effect.  Although
this Letter of Intent does not contain all matters upon which agreement must be
reached in order for the Transaction to be consummated, Fagen and Owner wish to
set forth, prior to the execution of the Transaction Documents, their mutual
agreement as to the material terms and conditions of the Transaction.  Each Party agrees to negotiate in good faith
towards entering into the written, definitive and legally binding Transaction
Documents containing, among other terms and conditions, those terms and
conditions set forth in this Letter of Intent including, without limitation,
those terms set forth in Paragraphs 2 and 3 hereof.  Notwithstanding the foregoing, the provisions
of this Paragraph and of Paragraphs 1, 4, 5, 6, 7, 10, 11, 13, 16 and 17 hereof
are agreed to be legally binding obligations of the Parties upon the execution
and acceptance of this Letter of Intent.

9.               Negotiation of Definitive Agreements. The
Transaction Documents will contain reasonable terms and conditions regarding
releases, payment obligations, cooperation as to tax planning and structuring,
other financial matters, legal opinions, confidentiality, limitations of
liability, assignment, breach, dispute resolution, events of default, remedies,
representations, warranties, indemnifications and other provisions customary
for similar transactions. Time is of the essence in the performance of this
Letter of Intent in all respects.

10.         Termination.  This Letter of Intent will terminate on December
31, 2007 unless the basic size and design of the Plant have been determined and
mutually agreed upon, a specific site or sites have been determined and
mutually agreed upon, and at least 10% of the necessary equity has been raised.
This date may be extended upon mutual written agreement of the Parties.  Furthermore, unless otherwise agreed to by
the Parties, this Letter of Intent will terminate:

(a)                                  at
the option of either Fagen or Owner if the Design-Build Agreement is not
completed and executed by the Closing Date; or

(b)                                 upon
the execution and delivery of the Transaction Documents.

11.         Governing Law.  This Letter of Intent is
governed by, and will be construed and interpreted in accordance with the laws
of the State of Minnesota, without regard to any conflicts of law or choice of
law rules.

12.         Expenses. 
Except as set forth in Paragraph 4(c) above, unless otherwise agreed by
Fagen and Owner, each Party will bear its own expenses in connection with the
negotiation and 

 12
 

execution of
definitive documentation for the transactions contemplated herein.

13.         Indemnification.  Each Party will indemnify, defend and hold
harmless the other Party and its respective agents, servants, officers,
directors, employees and affiliates from and against any loss, cost, liability,
claim, damage, expense (including reasonable attorneys’ and consultants’ fees
and disbursements), penalty or fine incurred in connection with any claim or
cause of action arising from or in connection with this Letter of Intent to the
extent caused by the negligence, misrepresentation, fraud, fault or misconduct
of the indemnifying Party.

14.         Assignability;
Binding Effect; Benefit.  This Letter of Intent will inure to the
benefit of and be binding upon the Parties and their respective successors and
assigns.  Nothing in this Letter of
Intent, either expressed or implied, is intended to confer on any person other
than the Parties and their respective successors and permitted assigns, any
rights, remedies, obligations or liabilities under or by reason of this Letter
of Intent.

15.         Further Action. Each Party agrees to execute and deliver all
further instruments, legal opinions and documents, and take all further action
not inconsistent with the provisions of this Letter of Intent that may be
reasonably necessary to complete performance of the Parties’ obligations
hereunder and to effectuate the purposes and intent of this Letter of Intent.

16.         Amendments.  The Parties agree that this Letter of Intent
may be modified only by written agreement by the Parties.

17.         Integration; Letter of Intent.  This Letter of Intent represents the entire
understanding between the Parties in relation to the subject matter hereof, and
supersedes any and all previous agreements, arrangements or discussions between
the Parties (whether written or oral) in respect of the subject matter
hereof.  No change, amendment or
modification of this Letter of Intent will be valid or binding upon the Parties
unless such change, amendment or modification will be in writing and duly
executed by both Parties.

18.         No Representation, Warranties or Covenants. 
Nothwithstanding anything contained herein to the contrary, Fagen is not
making any representation, warranty or covenant of any kind with respect to any
design, engineering or construction scheduling, or with respect to projections,
estimates or budgets heretofore delivered to or made available to Owner of
future revenues, expenses or expenditures, future results of operations (or any
component thereof) or the future business and operations of the Owner, nor any
other commitments or assurances except as may be provided in the Transaction
Documents.

19.         Counterparts.  This Letter of Intent may be executed in one
or more counterpart, each of which when so executed and delivered will be
deemed an original, but all of which taken together constitute one and the same
instrument.  Signatures which have been
affixed and transmitted by facsimile or other electronic means will be binding
to the same extent as an original signature, although the Parties contemplate
that a fully executed counterpart with 

 13
 

original signatures will be delivered to each Party.

If the foregoing
terms accurately reflect your understanding of our discussions and are
acceptable to you, please sign and return the enclosed counterpart of this Letter
of Intent to the undersigned.

	
  

  	
  Yours sincerely,

  
	
   

  	
   

  
	
   

  	
  FAGEN, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Ron Fagen

  
	
   

  	
  By:

  	
  Ron Fagen

  
	
   

  	
  Title:

  	
  President and CEO

  

 

	
  Accepted and agreed to this

  	
  7th

  	
   

  	
   

  	
   

  
	
  day of

  	
  June

  	
  , 2006.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  HIGHWATER ETHANOL, LLC

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Brian
  Kletscher

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Title: 

  	
   

  	
   

  	
   

  	
   

  
									

 

 14Exhibit 10.8

LUMP SUM DESIGN-BUILD AGREEMENT

BETWEEN

HIGHWATER ETHANOL, LLC (“OWNER”)

AND

FAGEN, INC. (“DESIGN-BUILDER”)

September 28, 2006

* Portions omitted pursuant to a
request for confidential treatment and filed separately with the Securities and
Exchange Commission.

TABLE OF CONTENTS

	
  

  	
   

  	
   

  	
  Page

  
	
  Article 1 Definitions; Rules of Interpretation

  	
  1

  
	
   

  	
   

  
	
  1.1

  	
   

  	
  Rules of Construction.

  	
  1

  
	
  1.2

  	
   

  	
  Defined Terms.

  	
  2

  
	
   

  	
   

  
	
  Article 2 The Project

  	
   

  	
   

  	
  6

  
	
   

  	
   

  
	
  2.1

  	
   

  	
  Services to be Performed.

  	
  6

  
	
  2.2

  	
   

  	
  Extent of Agreement.

  	
  6

  
	
  2.3

  	
   

  	
  Conflicting Provisions.

  	
  7

  
	
   

  	
   

  
	
  Article 3 Design-Builder Responsibilities

  	
   

  	
   

  	
  7

  
	
   

  	
   

  
	
  3.1

  	
   

  	
  Design-Builder’s Services in General.

  	
  7

  
	
  3.2

  	
   

  	
  Design Development and Services.

  	
  8

  
	
  3.3

  	
   

  	
  Standard of Care.

  	
  8

  
	
  3.4

  	
   

  	
  Government Approvals and Permits.

  	
  9

  
	
  3.5

  	
   

  	
  Subcontractors.

  	
  9

  
	
  3.6

  	
   

  	
  Maintenance of Site.

  	
  9

  
	
  3.7

  	
   

  	
  Project Safety.

  	
  9

  
	
  3.8

  	
   

  	
  Submission of Reports.

  	
  10

  
	
  3.9

  	
   

  	
  Training.

  	
  10

  
	
   

  	
   

  
	
  Article 4 Owner’s Responsibilities

  	
   

  	
   

  	
  11

  
	
   

  	
   

  
	
  4.1

  	
   

  	
  Duty to Cooperate.

  	
  11

  
	
  4.2

  	
   

  	
  Furnishing of Services and Information.

  	
  11

  
	
  4.3

  	
   

  	
  Financial Information; Cooperation with Lenders;
  Failure to Obtain Financial Closing.

  	
  12

  
	
  4.4

  	
   

  	
  Owner’s Representative.

  	
  12

  
	
  4.5

  	
   

  	
  Government Approvals and Permits.

  	
  12

  
	
  4.6

  	
   

  	
  Owner’s Separate Contractors.

  	
  13

  
	
  4.7

  	
   

  	
  Security.

  	
  13

  
	
   

  	
   

  
	
  Article 5 Ownership of Work Product; Risk of
  Loss

  	
   

  	
   

  	
  13

  
	
   

  	
   

  
	
  5.1

  	
   

  	
  Work Product.

  	
  13

  
	
  5.2

  	
   

  	
  Owner’s Limited License Upon Payment in Full.

  	
  13

  
	
  5.3

  	
   

  	
  Owner’s Limited License Upon Owner’s Termination for
  Convenience or Design-Builder’s Election to Terminate.

  	
  14

  
	
  5.4

  	
   

  	
  Owner’s Limited License Upon Design-Builder’s
  Default.

  	
  14

  
	
  5.5

  	
   

  	
  Owner’s Indemnification for Use of Work Product.

  	
  14

  
	
  5.6

  	
   

  	
  Risk of Loss.

  	
  15

  
	
   

  	
   

  
	
  Article 6 Commencement and Completion of the
  Project

  	
  15

  
	
   

  	
   

  
	
  6.1

  	
   

  	
  Phase I and Phase II Engineering.

  	
  15

  
	
  6.2

  	
   

  	
  Notice to Proceed; Commencement.

  	
  15

  
	
  6.3

  	
   

  	
  Project Start-Up and Testing.

  	
  16

  
									

 

 i
 

 

	
  6.4

  	
   

  	
  Substantial Completion.

  	
  16

  
	
  6.5

  	
   

  	
  Final Completion.

  	
  17

  
	
  6.6

  	
   

  	
  Post Completion Support.

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  Article 7 Performance Testing

  	
  18

  
	
   

  	
   

  
	
  7.1

  	
   

  	
  Performance Guarantee.

  	
  18

  
	
  7.2

  	
   

  	
  Performance Testing.

  	
  19

  
	
  7.3

  	
   

  	
  Failure to Attain Timely Final Completion.

  	
  20

  
	
  7.4

  	
   

  	
  Bonds and Other Performance Security.

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  Article 8 Warranties

  	
  21

  
	
   

  	
   

  
	
  8.1

  	
   

  	
  Design-Builder Warranty.

  	
  21

  
	
  8.2

  	
   

  	
  Correction of Defective Work.

  	
  21

  
	
  8.3

  	
   

  	
  Warranty Period Not Limitation to Owner’s Rights.

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  Article 9 Contract Price

  	
  22

  
	
   

  	
   

  
	
  9.1

  	
   

  	
  Contract Price.

  	
  22

  
	
  9.2

  	
   

  	
  Effect of Construction Cost Index Increase on
  Contract Price.

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  Article 10 Payment Procedures

  	
  23

  
	
   

  	
   

  
	
  10.1

  	
   

  	
  Payment at Financial Closing.

  	
  23

  
	
  10.2

  	
   

  	
  Progress Payments.

  	
  23

  
	
  10.3

  	
   

  	
  Final Payment.

  	
  24

  
	
  10.4

  	
   

  	
  Failure to Pay Amounts Due.

  	
  24

  
	
  10.5

  	
   

  	
  Design-Builder’s Payment Obligations.

  	
  25

  
	
  10.6

  	
   

  	
  Record Keeping and Finance Controls.

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
  Article 11 Hazardous Conditions and Differing
  Site Conditions

  	
  25

  
	
   

  	
   

  
	
  11.1

  	
   

  	
  Hazardous Conditions.

  	
  25

  
	
  11.2

  	
   

  	
  Differing Site Conditions; Inspection.

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  Article 12 Force Majeure; Change in Legal
  Requirements

  	
  27

  
	
   

  	
   

  
	
  12.1

  	
   

  	
  Force Majeure Event.

  	
  27

  
	
  12.2

  	
   

  	
  Effect of Force Majeure Event.

  	
  27

  
	
  12.3

  	
   

  	
  Change in Legal Requirements.

  	
  28

  
	
  12.4

  	
   

  	
  Time Impact And Availability.

  	
  28

  
	
  12.5

  	
   

  	
  Effect of Industry-Wide Disruption on Contract
  Price.

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
  Article 13 Changes to the Contract Price and
  Scheduled Completion Dates

  	
  29

  
	
   

  	
   

  
	
  13.1

  	
   

  	
  Change Orders.

  	
  29

  
	
  13.2

  	
   

  	
  Contract Price Adjustments.

  	
  29

  
	
  13.3

  	
   

  	
  Emergencies.

  	
  30

  
	
  13.4

  	
   

  	
  Failure to Complete Owner’s Milestones.

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  Article 14 Indemnity

  	
  30

  
	
   

  	
   

  
	
  14.1

  	
   

  	
  Tax Claim Indemnification.

  	
  30

  
	
  14.2

  	
   

  	
  Payment Claim Indemnification.

  	
  30

  

 

 ii
 

 

	
  14.3

  	
   

  	
  Design-Builder’s General Indemnification.

  	
  30

  
	
  14.4

  	
   

  	
  Owner’s General Indemnification.

  	
  31

  
	
   

  	
   

  	
   

  	
   

  
	
  Article 15 Stop Work; Termination for Cause

  	
  32

  
	
   

  	
   

  
	
  15.1

  	
   

  	
  Owner’s Right to Stop Work.

  	
  32

  
	
  15.2

  	
   

  	
  Owner’s Right to Perform and Terminate for Cause.

  	
  32

  
	
  15.3

  	
   

  	
  Owner’s Right to Terminate for Convenience.

  	
  33

  
	
  15.4

  	
   

  	
  Design-Builder’s Right to Stop Work.

  	
  33

  
	
  15.5

  	
   

  	
  Design-Builder’s Right to Terminate for Cause.

  	
  34

  
	
  15.6

  	
   

  	
  Bankruptcy of Owner or Design-Builder.

  	
  35

  
	
  15.7

  	
   

  	
  Lenders’ Right to Cure.

  	
  35

  
	
   

  	
   

  	
   

  
	
  Article 16 Representatives of the Parties

  	
  35

  
	
   

  	
   

  
	
  16.1

  	
   

  	
  Designation of Owner’s Representatives.

  	
  35

  
	
  16.2

  	
   

  	
  Designation of Design-Builder’s Representatives.

  	
  36

  
	
   

  	
   

  	
   

  
	
  Article 17 Insurance

  	
  37

  
	
   

  	
   

  
	
  17.1

  	
   

  	
  Insurance.

  	
  37

  
	
  17.2

  	
   

  	
  Design-Builder’s Insurance Requirements.

  	
  37

  
	
  17.3

  	
   

  	
  Owner’s Liability Insurance.

  	
  38

  
	
  17.4

  	
   

  	
  Owner’s Property Insurance.

  	
  39

  
	
   

  	
   

  	
   

  
	
  Article 18 Representations and Warranties

  	
  40

  
	
   

  	
   

  
	
  18.1

  	
   

  	
  Design-Builder and Owner Representations and
  Warranties.

  	
  40

  
	
  18.2

  	
   

  	
  Design-Builder Representations and Warranties.

  	
  41

  
	
   

  	
   

  	
   

  
	
  Article 19 Dispute Resolution

  	
  41

  
	
   

  	
   

  
	
  19.1

  	
   

  	
  Dispute Avoidance and Mediation.

  	
  41

  
	
  19.2

  	
   

  	
  Arbitration.

  	
  41

  
	
  19.3

  	
   

  	
  Duty to Continue Performance.

  	
  42

  
	
  19.4

  	
   

  	
  No Consequential Damages.

  	
  42

  
	
  19.5

  	
   

  	
  Limitation of Liability.

  	
  42

  
	
   

  	
   

  	
   

  
	
  Article 20 Confidentiality of Shared Information

  	
  43

  
	
   

  	
   

  
	
  20.1

  	
   

  	
  Non-Disclosure Obligation.

  	
  43

  
	
  20.2

  	
   

  	
  Publicity and Advertising.

  	
  44

  
	
  20.3

  	
   

  	
  Term of Obligation.

  	
  44

  
	
   

  	
   

  	
   

  
	
  Article 21 Miscellaneous

  	
  44

  
	
   

  	
   

  
	
  21.1

  	
   

  	
  Assignment.

  	
  44

  
	
  21.2

  	
   

  	
  Successors.

  	
  44

  
	
  21.3

  	
   

  	
  Governing Law.

  	
  45

  
	
  21.4

  	
   

  	
  Severability.

  	
  45

  
	
  21.5

  	
   

  	
  No Waiver.

  	
  45

  
	
  21.6

  	
   

  	
  Headings.

  	
  45

  
	
  21.7

  	
   

  	
  Notice.

  	
  45

  
	
  21.8

  	
   

  	
  No Privity with Design Consultant/Subcontractors.

  	
  46

  

 

 iii
 

 

	
  21.9  

  	
   

  	
  Amendments.

  	
  46

  
	
  21.10

  	
   

  	
  Entire Agreement.

  	
  46

  
	
  21.11

  	
   

  	
  Third-Party Beneficiaries.

  	
  47

  
	
  21.12

  	
   

  	
  Counterparts.

  	
  47

  
	
  21.13

  	
   

  	
  Survival.

  	
  47

  
	
   

  
	
  EXHIBIT A Performance Guarantee Criteria

  	
   

  	
  A-1

  
	
  EXHIBIT B General Project Scope

  	
   

  	
  B-1

  
	
  EXHIBIT C Owner’s Responsibilities

  	
   

  	
  C-1

  
	
  EXHIBIT D ICM License Agreement

  	
   

  	
  D-1

  
	
  EXHIBIT E Schedule of Values

  	
   

  	
  E-1

  
	
  EXHIBIT F Form of Informational Report

  	
   

  	
  F-1

  
	
  EXHIBIT G Required Permits

  	
   

  	
  G-1

  
	
  EXHIBIT H Form of Performance Bond

  	
   

  	
  H-1

  
	
  EXHIBIT I Form of Payment Bond

  	
   

  	
  I-1

  
	
  EXHIBIT J Draw (Payment) Schedule

  	
   

  	
  J-1

  
	
  EXHIBIT K Air Emissions Application or Permit

  	
   

  	
  K-1

  
	
  EXHIBIT L Phase I and Phase II Engineering
  Services Agreement

  	
   

  	
  L-1

  
	
  EXHIBIT M Form of Application for Payment

  	
   

  	
  M-1

  
	
  EXHIBIT N Form of Lien Waiver

  	
   

  	
  N-1

  
	
  EXHIBIT O Form of Consent to Assignment

  	
   

  	
  O-1

  
						

 

 iv

  

LUMP SUM
DESIGN-BUILD CONTRACT

This LUMP SUM DESIGN-BUILD CONTRACT (the “Agreement”)
is made as of September 28, 2006, (the “Effective Date”) by and between
Highwater Ethanol, LLC a Minnesota limited liability company (the “Owner”)
and Fagen, Inc., a Minnesota corporation (the “Design-Builder”) (each a “Party”
and collectively, the “Parties”).

RECITALS

A.    The Owner
desires to develop, construct, own and operate a fifty (50)  million gallons per year (“MGY”) dry
grind ethanol production facility located at Lamberton, Minnesota (the “Plant”);
and

B.    Design-Builder
desires to provide design, engineering, procurement and construction services
for the Plant.

NOW, THEREFORE, in consideration of the mutual
covenants and obligations contained herein and for other good and valuable
consideration, Owner and Design-Builder agree as follows.

AGREEMENT

Article 1

Definitions; Rules of Interpretation

1.1          Rules of Construction. 
The capitalized terms listed in this Article shall have the meanings set
forth herein whenever the terms appear in this Agreement, whether in the
singular or the plural or in the present or past tense.  Other terms used in this Agreement but not
listed in this Article shall have meanings as commonly used in the English
language and, where applicable, in generally accepted construction and
design-build standards of the fuel ethanol industry in the Midwest United
States.  Words not otherwise defined
herein that have well known and generally accepted technical or trade meanings
are used herein in accordance with such recognized meanings.  In addition, the following rules of
interpretation shall apply:

(a)                                  The
masculine shall include the feminine and neuter.

(b)                                 References
to “Articles,” “Sections,” “Schedules,” or “Exhibits” shall be to Articles,
Sections, Schedules or Exhibits of this Agreement.

(c)                                  This
Agreement was negotiated and prepared by each of the Parties with the advice
and participation of counsel.  The
Parties have agreed to the wording of this Agreement and none of the provisions
hereof shall be construed against one Party on the ground that such Party is
the author of this Agreement or any part hereof.

1.2          Defined Terms.  In addition to definitions
appearing elsewhere in this Agreement, the following terms have the following
meanings:

AAA is
defined in Section 19.1.

Agreement is defined in the Preamble.

Air Emissions Tester means a third party
entity engaged by Owner meeting all required state and federal requirements for
such testing entities, to conduct air emissions testing of the Plant in
accordance with Exhibit A.

Applicable
Law means

(a)                                  any
and all laws, legislation, statutes, codes, acts, rules, regulations,
ordinances, treaties or other similar legal requirements enacted, issued or
promulgated by a Governmental Authority;

(b)                                 any
and all orders, judgments, writs, decrees, injunctions, Governmental Approvals
or other decisions of a Governmental Authority; and

(c)                                  any
and all legally binding announcements, directives or published practices or
interpretations, regarding any of the foregoing in (a) or (b) of this
definition, enacted, issued or promulgated by a Governmental Authority;

to the extent, for
each of the foregoing in (a), (b) and (c) of this definition, applicable to or
binding upon (i) a Party, its affiliates, its shareholders, its members, its
partners or their respective representatives, to the extent any such person is
engaged in activities related to the Project; or (ii) the property of a Party,
its affiliates, its shareholders, its members, its partners or their respective
representatives, to the extent such property is used in connection with the
Project or an activity related to the Project.

Application
for Payment is defined in Section 10.2.1.

As Built
Plans is defined in
Section 5.2.

Bankrupt
Party is defined in Section 15.6.1.

Baseline
Index is defined in Section 9.2.1.

Change
Order is defined in Section 13.1.1.

CCI
is defined in Section 9.2.

Certificate
of Substantial Completion is defined in Section 6.4.3.

Confidential
Information is
defined in Section 20.1.

Construction
Documents is defined in Section 3.2.1.

Contract
Documents is
defined in Section 2.2.

Contract
Price is defined in Section 9.1.

 2
 

Contract
Time(s) means scheduled dates provided for in the Contract
Documents including Scheduled Substantial Completion Date and Final Completion
Date.

Damages
is defined in Section 14.3.1.

Day
or Days shall mean calendar days
unless otherwise specifically noted in the Contract Documents.

Design-Builder
is defined in the Preamble.

Design-Builder’s
Representative is defined in Section 16.2.

Design-Builder’s
Senior Representative is defined in Section 16.2.

Design
Consultant is a qualified, licensed design professional that
is not an employee of Design-Builder, but is retained by Design-Builder, or
employed or retained by anyone under contract with Design-Builder or
Subcontractor, to furnish design services required under the Contract
Documents.

Differing
Site Conditions is defined in Section 11.2.1.

Effective
Date is defined in the Preamble.

Fagen
Engineering is
defined in Section 6.1.

Final
Application for Payment is defined in Section 10.3.

Final
Completion is
defined in Section 6.5.2.

Final
Completion Date is
defined in Section 6.5.1.

Final
Payment is defined
in Section 10.3.

Financial
Closing means the execution of the Financing Documents by all
the parties thereto, and the fulfillment of all conditions precedent thereunder
necessary to permit the advance of funds to pay amounts due under this
Agreement.

Financing
Documents means the final loan documents with the Lender or
Lenders providing financing for the construction or term financing of the Plant
and any and all agreements necessary to demonstrate a binding commitment of
Owner or Lenders to fund the construction of the Plant.

Force
Majeure Event is defined in Section 12.1.

 3
 

Governmental
Approvals are any material authorizations or permissions
issued or granted by any Governmental Authority to the Project, its Owner, the
Design-Builder, Subcontractors and their affiliates in connection with any
activity related to the Project.

Governmental
Authority means any federal, state, local or municipal
governmental body; any governmental, quasi-governmental, regulatory or
administrative agency, commission, body or other authority exercising or
entitled to exercise any administrative, executive, judicial, legislative,
policy, regulatory or taxing authority or power; or any court or governmental
tribunal; in each case having jurisdiction over the Owner, the Design-Builder,
the Project, or the Site.

Hazardous
Conditions are any materials, wastes, substances and
chemicals deemed to be hazardous under applicable Legal Requirements, or the
handling, storage, remediation, or disposal of which are regulated by
applicable Legal Requirements.

ICM means ICM, Inc., a Kansas
corporation.

ICM
License Agreement means the license agreement to be executed
between Owner and ICM, Inc., substantially in the form attached hereto as
Exhibit D.

Indemnified
Parties is defined
in Section 5.2.

Independent
Engineer means Owner’s and Lenders’ independent engineer.

Industry-Wide
Disruption is defined in Section 12.4.

Informational
Report is defined in
Section 3.8.

Legal
Requirements or Laws are
all applicable federal, state and local statutes, laws, codes, ordinances,
rules, regulations, judicial decisions, orders, decrees, plans, injunctions,
permits, tariffs, governmental agreements and governmental restrictions,
whether now or hereafter in effect, of any government or quasi-government
entity having jurisdiction over the Project or Site, the practices involved in
the Project or Site, or any Work, including any consensus standards for
materials, products, systems, and services established by ASTM International,
any successor organization thereto, or any Governmental Authority.

Lenders
means the lenders that are party to the Financing Documents.

Lenders’
Agent means an agent or agents acting on behalf of the
Lenders.

Manufacturer’s
Warranty shall mean
a warranty provided by the original manufacturer or vendor of equipment used by
Design-Builder in the Plant.

MGY is defined in the Recitals.

Notice
to Proceed is defined in Section 6.2.

 4
 

Operating
Procedures means, without limitation, the process equipment
and specifications manuals, standards of quality, service protocols, data
collection methods, construction specifications, training methods, engineering
standards and any other information prescribed by Design-Builder and ICM from
time to time concerning the ownership, operation, maintenance and repair of the
Plant, subject to the limitations provided in the Agreement and in the ICM
License Agreement.

Owner is defined in the Preamble.

Owner
Indemnified Parties is defined in Section 14.3.1.

Owner’s
Milestones is defined in Section 13.4.

Owner’s
Operator means the
entity that Owner identifies, upon written notice to Design-Builder, as
operator of the Project or any other entity that Owner chooses, upon notice to
Design-Builder, to replace such entity as operator of the Project.

Owner’s
Representative is defined in Section 16.1.

Owner’s
Senior Representative is defined in Section 16.1.

Party
or Parties is
defined in the Preamble.

Pass Through Warranties mean any warranties provided to
Design-Builder by a Subcontractor which are assigned to Owner.

Pay
Period means, with respect to a given Application for
Payment, the one (1) month period following the last day of the previous Pay
Period to which the immediately prior Application for Payment is applied;
provided that the initial Pay Period shall commence on the date of delivery of
the Notice to Proceed and end on the twenty-fourth (24th) day of the calendar month during which
the Notice to Proceed is issued.

Payment
Bond is defined in Section 7.4.2.

Performance
Bond is defined in Section 7.4.1.

Performance
Guarantee Criteria means the criteria listed in
Exhibit A.

Performance
Tests is defined in Section 7.2.1.

Phase
I is defined in Exhibit L.

Phase
I and Phase II Engineering Services Agreement is defined in Section 6.1.

Phase
II is defined in Exhibit L.

Plant
is defined in the Recitals.

Project is
defined in Section 2.1.

 5
 

Punch
List is defined in Section 6.4.3.

Qualified
Independent Expert means an expert retained by Owner and
approved by Design-Builder pursuant to Section 11.1.2.

Safety
Representative is defined in Section 3.7.1.

Schedule
of Values is defined in Section 10.2.5.

Scheduled
Substantial Completion Date is defined in Section 6.4.1.

Site
is the land or premises on which the Project is located.

Subcontractor
is any person or entity retained by Design-Builder, or by any person or entity
retained directly or indirectly by Design-Builder, in each case as an
independent contractor to perform a portion of the Work, and shall include
materialmen and suppliers.

Substantial
Completion is defined in Section 6.4.2.

Work
is defined in Section 3.1.

Work
Product is defined in Section 5.1.

Article 2

The Project

2.1          Services
to be Performed.

  Pursuant to this Agreement, Design-Builder
shall perform all work and services in connection with the engineering, design,
procurement, construction startup, testing and training for the operation and
maintenance of the Plant, and provide all material, equipment, tools and labor
necessary to complete the Plant in accordance with the terms of this
Agreement.   The Plant, together with all
equipment, labor, services and materials furnished hereunder is defined as the “Project.”

2.2          Extent of
Agreement.  This Agreement
consists of the following documents, and all exhibits, schedules, appendices
and attachments hereto and thereto (collectively, the “Contract Documents”):

2.2.1       All
written modifications, amendments and change orders to this Agreement.

2.2.2       This
Agreement, including all exhibits and attachments, executed by Owner and
Design-Builder, including those below:

 6
 

 

	
  List of Exhibits

  
	
   

  
	
  Exhibit A

  	
  Performance Guarantee Criteria

  
	
  Exhibit B

  	
  General Project Scope

  
	
  Exhibit C

  	
  Owner’s Responsibilities

  
	
  Exhibit D

  	
  ICM License Agreement

  
	
  Exhibit E

  	
  Schedule of Values

  
	
  Exhibit F

  	
  Form of Informational Report

  
	
  Exhibit G

  	
  Required Permits

  
	
  Exhibit H

  	
  Form of Performance Bond

  
	
  Exhibit I

  	
  Form of Payment Bond

  
	
  Exhibit J

  	
  Draw (Payment) Schedule

  
	
  Exhibit K

  	
  Air Emissions Application or Permit

  
	
  Exhibit L

  	
  Phase I and Phase II Engineering 

  Services Agreement

  
	
  Exhibit M

  	
  Form of Application for Payment

  
	
  Exhibit N

  	
  Form of Lien Waiver

  
	
  Exhibit O

  	
  Form of Consent to Assignment

  

 

2.2.3       Construction
Documents to be prepared by Design-Builder pursuant to Section 3.2.1 shall be
incorporated in this Agreement.

2.3          Conflicting Provisions. 
In the event of any conflict or inconsistency between the body of this
Agreement and any Exhibit or Schedule hereto, the terms and provisions of this
Agreement, as amended from time to time, shall prevail and be given
priority.  Subject to the foregoing, the
several documents and instruments forming part of this Agreement are to be
taken as mutually explanatory of one another and in the case of ambiguities or
discrepancies within or between such parts the same shall be explained and
interpreted, if possible, in a manner which gives effect to each part and which
avoids or minimizes conflicts among such parts. 
No oral representations or other agreements have been made by the
Parties except as specifically stated in the Contract Documents.

Article 3

Design-Builder
Responsibilities

3.1          Design-Builder’s Services in General.  Except for services and information to be
provided by Owner and specifically set forth in Article 4 and Exhibit C,
Design-Builder shall perform or cause to be performed all design, engineering,
procurement, construction services, supervision, labor, inspection, testing,
start-up, material, equipment, machinery, temporary utilities and other
temporary facilities to complete construction of the Project consistent with
the Contract Documents (the “Work”). 
All design and engineering and construction services and other Work of
the Design-Builder shall be performed in accordance with (i) the general
project scope guidelines set forth in Exhibit B, (ii) the Construction
Documents, (iii) all Legal Requirements, and (iv) generally accepted construction
and design-build standards of the fuel ethanol industry in the United States
during the relevant time period.  Any
design and engineering or other professional service to be performed pursuant
to this Agreement, which under Applicable Law must be performed by licensed
personnel, shall be performed by licensed personnel as required by Law.  The enumeration of specific duties and
obligations to be 

 7
 

performed by the
Design-Builder under the Contract Documents shall not be construed to limit in
any way the general undertakings of the Design-Builder as set forth
herein.  Design-Builder’s Representative
shall be reasonably available to Owner and shall have the necessary expertise
and experience required to supervise the Work. 
Design-Builder’s Representative shall communicate regularly with Owner
and shall be vested with the authority to act on behalf of Design-Builder.

3.2          Design
Development and Services.

3.2.1       Where
required by Law, Design-Builder shall provide through qualified, licensed
design professionals employed by Design-Builder, or procured from qualified,
independent licensed Design Consultants, the necessary design services,
including architectural, engineering and other design professional services,
for the preparation of the required drawings, specifications and other design
submittals required to permit construction of the Work in accordance with this
Agreement (such drawings, specifications and design submittals collectively,
the “Construction Documents”). To the extent not prohibited by Legal
Requirements, Design-Builder may prepare Construction Documents for a portion
of the Work to permit construction to proceed on that portion of the Work prior
to completion of the Construction Documents for the entire Work.

3.2.2       Construction of the Plant shall be consistent
with the Construction Documents.

3.2.3       Design-Builder
shall maintain a current, complete set of drawings and specifications at the
Site.  Owner shall have the right to
review such drawings and specifications. 
Owner and Independent Engineer may not make copies of the available
drawings and specifications without Design-Builder’s written permission, and,
granted such permission, may only do so to the extent such drawings and
specifications directly pertain to the Plant; provided however that, pursuant
to Section 5.1 of this Agreement, Design-Builder retains ownership of and
property interests in any drawing or specifications made available and/or
copied.

3.2.4       Except
as provided elsewhere in this Agreement, it is understood and agreed that
review, comment and/or approval by Owner (or its designees) or Independent
Engineer of any documents or submittals that Design-Builder is required to
submit to Owner (or its designees) or Independent Engineer hereunder for their
review, comment and/or approval (including without limitation the Construction
Documents pursuant to Sections 3.2.1 and 3.2.3 hereof) shall not relieve or
release Design-Builder from any of its duties, obligations or liabilities
provided for under the terms of this Agreement or transfer any design liability
from Design-Builder to Owner.

3.3          Standard of Care.  All
services performed by the Design-Builder and its Subcontractors pursuant to the
Construction Documents shall be performed in accordance with the  standard of care and skill generally accepted
in the fuel ethanol industry in the Midwest United States during the relevant
time period or in accordance with any of the practices, methods and acts that
in the exercise of reasonable judgment in light of the facts known at the time
the decision was made, could have been expected to accomplish the desired
result at a reasonable cost consistent with good business practices, safety and
expedition.  This standard of care is not
intended to be limited to the optimum practice, method or act to the exclusion
of all others, but rather to be acceptable practices, methods or acts generally
accepted in the construction and 

 8
 

design-build
standards of the fuel ethanol industry in the Midwest United States.  Design-Builder and its Subcontractors shall
perform all construction activities efficiently and with the requisite
expertise, skill, competence, resources and care to satisfy the requirements of
the Contract Documents and all applicable Legal Requirements.  Design-Builder shall at all times exercise
complete and exclusive control over the means, methods, sequences and
techniques of construction.

3.4          Government Approvals and Permits.  Except as identified in Exhibit C and, with
respect to items identified as Owner’s responsibility, in Exhibit G (which items
shall be obtained by Owner pursuant to Section 4.5), Design-Builder shall
obtain and pay for all necessary permits, approvals, licenses, government
charges and inspection fees required for the prosecution of the Work by any
government or quasi-government entity having jurisdiction over the Project.
Design-Builder shall provide reasonable assistance to Owner in obtaining those
permits, approvals and licenses that are Owner’s responsibility.

3.5          Subcontractors.

3.5.1       Design-Builder
may subcontract portions of the Work in accordance with the terms hereof.

3.5.2       Design-Builder
assumes responsibility to Owner for the proper performance of the Work of
Subcontractors and any acts and omissions in connection with such
performance.  Nothing in the Contract
Documents is intended or deemed to create any legal or contractual relationship
between Owner and any Subcontractor, including but not limited to any
third-party beneficiary rights.

3.5.3       Design-Builder
shall coordinate the activities of all of Design-Builder’s Subcontractors.  If Owner performs other work on the Project
or at the Site with separate contractors under Owner’s control, Design-Builder
agrees to reasonably cooperate and coordinate its activities with those
separate contractors so that the Project can be completed in an orderly and
coordinated manner without unreasonable disruption.

3.5.4       Design-Builder
shall ensure that each subcontract with a Subcontractor is assignable to Owner
without consent of the Subcontractor or any other person or entity in the event
that Design-Builder shall be in an uncured default or terminated with cause
under the terms of this Agreement.

3.6          Maintenance of Site. 
Design-Builder shall keep the Site reasonably free from debris, trash
and construction wastes to permit Design-Builder to perform its construction
services efficiently, safely and without interfering with the use of adjacent
land areas.  Upon Substantial Completion
of the Work Design-Builder shall remove all debris, trash, construction wastes,
materials, equipment, machinery and tools arising from the Work to permit Owner
to occupy the Project for its intended use.

3.7          Project
Safety.

3.7.1       Design-Builder
recognizes the importance of performing the Work in a safe manner so as to
prevent damage, injury or loss to (i) any individuals at the Site, whether 

 9
 

working or
visiting, (ii) the Work, including materials and equipment incorporated into
the Work or stored on-Site or off-Site, and (iii) any other property at the
Site or adjacent thereto.  Design-Builder
assumes responsibility for implementing and monitoring all safety precautions
and programs related to the performance of the Work.  Design-Builder shall, prior to commencing
construction, designate a representative (the “Safety Representative”)
with the necessary qualifications and experience to supervise the
implementation and monitoring of all safety precautions and programs related to
the Work. Unless otherwise required by the Contract Documents, Design-Builder’s
Safety Representative shall be an individual stationed at the Site who may have
responsibilities on the Project in addition to safety.  The Safety Representative shall make routine
daily inspections of the Site and shall hold weekly safety meetings with
Design-Builder’s personnel, Subcontractors and others as applicable.

3.7.2       Design-Builder
and Subcontractors shall comply with all Legal Requirements relating to safety,
as well as any Owner-specific safety requirements set forth in the Contract
Documents; provided, that such Owner-specific requirements do not violate any
applicable Legal Requirement.  As
promptly as practicable, Design-Builder will report in writing any
safety-related injury, loss, damage or accident arising from the Work to Owner’s
Representative and, to the extent mandated by Legal Requirements, to all
government or quasi-government authorities having jurisdiction over
safety-related matters involving the Project or the Work.

3.7.3       Design-Builder’s
responsibility for safety under this Section 3.7  is
not intended in any way to relieve Subcontractors of their own contractual and
legal obligations and responsibility for (i) complying with all Legal
Requirements, including those related to health and safety matters, and (ii)
taking all necessary measures to implement and monitor all safety precautions
and programs to guard against injury, losses, damages or accidents resulting
from their performance of the Work.

3.8          Submission of Reports.  Design-Builder shall provide Owner with a
monthly informational report substantially in the form of Exhibit F attached hereto (“Informational Report”).

3.9          Training.  At a
mutually agreed time prior to start-up, Design-Builder shall provide up to two
(2) weeks of training at a facility designated by ICM for all of Owner’s
employees and Owner Operator’s employees required for the operation and
maintenance of the Plant in accordance with all design specifications therefor
contained in the Contract Documents and necessary in order to maintain the
Performance Guarantee Criteria, including operators, laboratory personnel,
general, plant and maintenance managers. Other personnel of Owner and Owner
Operator may receive such training by separate arrangement between Owner and
Design-Builder and as time is available. 
All training personnel and costs associated with such training
personnel, including labor and all training materials will be provided to Owner
and Owner Operator within the Contract Price at no additional cost. Owner and
Owner Operator will be responsible for all travel and expenses of their
employees and the Owner and Owner Operator will pay all wages and all other
expenses for their personnel during the training. The training services will
include training on computers, laboratory procedures, field operating
procedures, and overall plant section performance expectations.  Prior to the start-up training,
Design-Builder shall provide Owner training manuals and operating manuals and
other documents reasonably necessary for the start-up process.

 10
 

Article 4

Owner’s
Responsibilities

4.1          Duty
to Cooperate.

4.1.1       Owner
shall, throughout the performance of the Work, cooperate with Design-Builder
and perform its responsibilities, obligations and services in a timely manner
to facilitate Design-Builder’s timely and efficient performance of the Work and
so as not to delay or interfere with Design-Builder’s performance of its
obligations under the Contract Documents.

4.1.2       Owner
shall pay all reasonable costs incurred by Design-Builder for frost removal so
that winter construction can proceed. 
Such costs may include, but are not limited to, equipment costs,
equipment rental costs, sheltering costs, special material costs, fuel costs
and associated labor costs.  Owner
acknowledges and agrees that such costs are in addition to, and not included
in, the Contract Price, and that the payment of such costs, which shall be
billed on a weekly basis, shall not require the issuance of a Change Order or
the obtaining of any Owner approval prior to the issuance of invoices for such
costs.

4.2          Furnishing
of Services and Information.

4.2.1       Prior
to the issuance of the Notice to Proceed, at its own cost and expense, Owner
shall provide the following items to Design-Builder for Design-Builder’s
information and use and all of which Design-Builder is entitled to rely upon in
performing the Work:

(a)                                  surveys
describing the property, boundaries, topography and reference points for use
during construction, including existing service and utility lines;

(b)                                 geotechnical
studies describing subsurface conditions including soil borings, and other
surveys describing other latent or concealed physical conditions at the Site;

(c)                                  temporary
and permanent easements, zoning and other requirements and encumbrances
affecting land use, or necessary to permit the proper design and construction
of the Project and enable Design-Builder to perform the Work;

(d)                                 A
legal description of the Site;

(e)                                  to
the extent available, as-built and record drawings of any existing structures
at the Site; and

(f)                                    all
environmental studies, reports and impact statements describing the environmental
conditions, including Hazardous Conditions, in existence at the Site that have
been conducted or performed.

4.2.2       Owner
shall provide to Design-Builder all Owner’s deliverables under Exhibit C
pursuant to Owner’s Milestones.  Such
deliverables shall be provided, at Owner’s own cost and expense, for
Design-Builder’s information and use. Design-Builder is entitled to rely upon
such deliverables in performing the Work.

 11
 

4.2.3       Owner
is responsible for securing and executing all necessary agreements with
adjacent land or property owners that are necessary to enable Design-Builder to
perform the Work and that have been identified and notified in writing by
Design-Builder to Owner prior to the Effective Date.  Owner is further responsible for all costs,
including attorneys’ fees, incurred in securing these necessary agreements.

4.3          Financial Information; Cooperation with Lenders; Failure to Obtain
Financial Closing.  Design-Builder acknowledges that Owner
is seeking financing for the Project. 
Design-Builder agrees to cooperate with Owner in good faith in order to
satisfy the reasonable requirements of Owners’ financing arrangements,
including, where appropriate and reasonable, the execution and delivery of
documents or instruments necessary to accommodate the Financial Closing.  Owner agrees to pay all documented costs
incurred by Design-Builder incurred prior to and at Financial Closing, and
thereafter during the term of this Agreement, in connection with satisfying the
requirements of Owners’ financing arrangements including all documented
attorney’s fees.  Design-Builder and
Owner also acknowledge that the Lenders, as a condition to providing financing
for the Plant, shall require Owner to provide the Independent Engineer with
certain reasonable participation and review rights with respect to
Design-Builder’s performance of the Work. 
Design-Builder acknowledges and agrees that such reasonable
participation and review rights shall consist of the right to (i) enter the
Site and inspect the Work upon reasonable notice to Design-Builder; (ii) attend
all start-up and testing procedures; and (iii) review and approve such other
items for which Owner is required by Lenders to obtain the concurrence, opinion
or a certificate of the Independent Engineer or the Lenders pursuant to the
Financing Documents which items do not alter the rights or impose additional
obligations on Design-Builder.  Nothing
in this Section 4.3 shall be deemed to require Design-Builder to agree to any amendments
to this Agreement that would adversely affect Design-Builder’s risks, rights or
obligations under this Agreement.  Upon
Financial Closing, Owner shall promptly provide to Design-Builder an officer’s
certificate certifying that Financial Closing has occurred and such Owner’s
officer’s certificate shall constitute evidence satisfactory to Design-Builder
that Owner has adequate funds available and committed to fulfill its
obligations under the Contract Documents for all purposes hereunder.  Owner must provide such officer’s certificate
prior to issuing the Notice to Proceed.

4.4          Owner’s Representative.  Owner’s
Representative, as set forth in Section 16.1 hereof, shall be responsible for
providing Owner-supplied information and approvals in a timely manner to permit
Design-Builder to fulfill its obligations under the Contract Documents.  Owner’s Representative shall also provide
Design-Builder with prompt notice if it observes any failure on the part of
Design-Builder to fulfill its contractual obligations, including any errors,
omissions or defects in the performance of the Work.  Owner’s Representative shall be vested with
the authority to act on behalf of Owner and Design-Builder shall be entitled to
rely on written communication from Owner’s Representative with respect to a
Project matter.

4.5          Government Approvals and Permits.  Owner shall obtain and pay for all necessary
Governmental Approvals required by Law, including permits, approvals, licenses,
government charges and inspection fees set forth in Exhibit C and, to the
extent identified as Owner’s responsibility, Exhibit G.  Owner shall provide reasonable assistance to
Design-Builder in obtaining those permits, approvals and licenses that are
Design-Builder’s responsibility pursuant to Exhibit G and Section 3.4.

 12
 

4.6          Owner’s Separate Contractors.  Owner is responsible for all work, including
such work listed on Exhibit C, performed on the Project or at the Site by
separate contractors under Owner’s control. 
Owner shall contractually require its separate contractors to cooperate
with, and coordinate their activities so as not to interfere with,
Design-Builder in order to enable Design-Builder to timely complete the Work
consistent with the Contract Documents.

4.7          Security.  Owner shall
be responsible for Site security (including fencing, alarm systems, security
guarding services and the like) at all times during the term of this Agreement
to prevent vandalism, theft and danger to the Project, the Site, and
personnel.  Owner shall coordinate and
supervise ingress and egress from the Site so as to minimize disruption to the
Work.

Article 5

Ownership
of Work Product; Risk of Loss

5.1          Work Product.  All drawings, specifications,
calculations, data, notes and other materials and documents, including
electronic data furnished by Design-Builder to Owner under this Agreement (“Work
Product”) shall be instruments of service and Design-Builder shall retain
the ownership and property interests therein, including the copyrights thereto.

5.2          Owner’s Limited License Upon Payment in Full.  Upon
Owner’s payment in full for all Work performed under the Contract Documents,
Design-Builder shall grant Owner a limited license to use the Work Product in
connection with Owner’s occupancy and repair of the Plant.  Design-Builder acknowledges and agrees that
the limited license to use the Work Product granted hereby shall provide Owner
sufficient rights in and to the Work Product as shall be necessary for Owner to
operate and maintain the Plant and shall include any Pass Through Warranties in
connection therewith.  Design-Builder
shall provide Owner with a copy of the plans of the Plant, as built, (the “As
Built Plans”) conditioned on Owner’s express understanding that its use of
the Work Product and its acceptance of the As Built Plans is at Owner’s sole
risk and without liability or legal exposure to Design-Builder or anyone
working by or through Design-Builder, including Design Consultants of any tier
(collectively the “Indemnified Parties”); provided, however, that any
warranties (of equipment or otherwise) shall remain in effect according to the
terms of this Agreement.

5.2.1       Design-Builder
is utilizing certain proprietary property and information of ICM in the design
and construction of the Project and Design-Builder may incorporate proprietary
property and information of ICM into the Work Product.  Owner’s use of the proprietary property and
information of ICM shall be governed by the terms and provisions of the ICM
License Agreement, to be executed by Owner and ICM in connection with the
execution of this Agreement.  Owner shall
be entitled to use the Work Product solely for purposes relating to the Plant,
but shall not be entitled to use the Work Product for any other purposes
whatsoever, including without limitation, expansion of the Plant.  Notwithstanding the foregoing sentence, Owner
shall be entitled to use the Work Product for the operation, maintenance and
repair of the plant including the interconnection of, but not the design of,
any 

 13
 

future
expansions to the Plant.  The limited
license granted to Owner under Sections 5.2, 5.3 or 5.4 to use the Work Product
shall be limited by and construed according to the same terms contained in the
ICM License Agreement, attached hereto as Exhibit D and incorporated
herein by reference thereto, except (i) references in such ICM License
Agreement to ICM and Proprietary Property shall refer to Design-Builder and
Work Product, respectively, (ii) the Laws of the State of Minnesota shall
govern such limited license, and (iii) the dispute resolution provisions
contained in Article 19 hereof shall apply to any breach or threatened breach
of Owner’s duties or obligations under such limited license, except that
Design-Builder shall have the right to seek injunctive relief in a court of
competent jurisdiction against Owner or its Representatives for any such breach
or threatened breach.  This paragraph
also applies to Sections 5.3 and 5.4 below.

5.3          Owner’s Limited License Upon Owner’s Termination for Convenience or
Design-Builder’s Election to Terminate.  If Owner terminates the Project for its
convenience as set forth in Section 15.3 hereof, or if Design-Builder
elects to terminate this Agreement in accordance with Section 15.5,
Design-Builder shall, upon Owner’s payment in full of the amounts due
Design-Builder under this Agreement, grant Owner a limited license to use the
Work Product to complete the Plant and subsequently occupy and repair the
Plant, subject to the following:

(a)                                  Use
of the Work Product is at Owner’s sole risk without liability or legal exposure
to any Indemnified Party; provided, however, that any Pass Through Warranties
regarding equipment or express warranties regarding equipment provided by this
Agreement shall remain in effect according to their terms; and

(b)                                 If
the termination for convenience is by Owner in accordance with
Section 15.3 hereof, or if Design-Builder elects to terminate this
Agreement in accordance with Section 15.5, then Owner agrees to pay
Design-Builder the additional sum of One Million Two Hundred Fifty Thousand
Dollars ($1,250,000.00) as compensation for the limited right to use the Work
Product completed “as is” on the date of termination in accordance with this
Article 5.

5.4          Owner’s Limited License Upon Design-Builder’s Default.  If this Agreement is terminated due to
Design-Builder’s default pursuant to Section 15.2 and (i) it is adjudged
that Design-Builder was in default, and (ii) Owner has fully satisfied all of
its obligations under the Contract Documents through the time of Design-Builder’s
default, then Design-Builder shall grant Owner a limited license to use the
Work Product in connection with Owner’s completion and occupancy and repair of
the Plant.  This limited license is
conditioned on Owner’s express agreement that its use of the Work Product is at
Owner’s sole risk without liability or legal exposure to any Indemnified Party;
provided, however, that any Pass Through Warranties regarding equipment or
express warranties regarding equipment provided by this Agreement shall remain
in effect according to their terms.  This
limited license grants Owner the ability to repair the Plant at Owner’s
discretion.

5.5          Owner’s Indemnification for Use of Work Product.  If Owner uses the Work Product or Plant under any
of the circumstances identified in this Article 5, to the fullest extent allowed
by Law, Owner shall defend, indemnify and hold harmless the Indemnified Parties
from and against any and all claims, damages, liabilities, losses and expenses,
including attorneys’

 14

fees, arising out
of or resulting from the use of the Work Product and Plant; provided, however,
that any Pass Through Warranties regarding equipment or express warranties
regarding equipment provided by this Agreement shall remain in effect according
to their terms.

5.6          Risk of Loss.  Design-Builder shall have no liability
for a physical loss of or damage to the Work unless such loss or damage is
caused by the willful misconduct or gross negligence of Design-Builder or
someone acting under its direction or control. Design-Builder shall not be
liable for physical loss of or damage to the Work where such loss or damage is
caused by the willful misconduct or gross negligence of Owner’s employees or
third parties who are not Subcontractors. 
Design-Builder shall have no liability for a physical loss of or damage
to the Work occurring after Final Completion. 
Design-Builder shall have no liability for losses or damages for which
insurance coverage under this Agreement is available to Owner; in such
circumstances, any liability for losses and damages as described in this
Section 5.6 shall be limited to losses or damages which exceed insurance
coverage available to the Owner without the application of any reductions from
such coverages due to deductible, retention, or retrospective premiums.

Article 6

Commencement
and Completion of the Project

6.1          Phase I and Phase II Engineering.  Owner shall have entered into that certain
Phase I and Phase II Engineering Services Agreement dated July 20, 2006 between
Owner and Fagen Engineering, LLC (“Fagen Engineering”) and attached
hereto as Exhibit L (“Phase I and Phase II Engineering Services Agreement”).
The Phase I and Phase II Engineering Services Agreement provides for Fagen
Engineering to commence work on the Phase I and Phase II engineering for the
Project as set forth therein.  Owner has
agreed to pay Fagen Engineering Ninety-two Thousand Five Hundred Dollars
($92,500.00) for such engineering services pursuant to the terms of that agreement,
the full amount of which shall be included in and credited to the Contract
Price.  Notwithstanding the foregoing
sentence, if a Notice to Proceed is not issued pursuant to Section 6.2, or
Financial Closing is not obtained pursuant to Section 4.3, then no amount paid
under the Phase I and Phase II Engineering Services Agreement shall be refunded
to Owner.

6.2          Notice to Proceed; Commencement.  The Work shall commence
within five (5) Days of Design-Builder’s receipt of Owner’s written valid
notice to proceed (“Notice to Proceed”) unless the Parties mutually
agree otherwise in writing.  The Parties
agree that a valid Owner’s Notice to Proceed cannot be given until:  (1) Owner has title to the real estate on
which the Project will be constructed; (2) the Phase I and Phase II Site work
required of Owner, as described in Exhibit L is completed along with
redline drawings and such Phase I and Phase II Site work and redline drawings
have been reviewed and deemed adequate by Design-Builder; (3) the air
permit(s) and/or other applicable local, state or federal permits necessary so
that construction can begin, as listed on Exhibit G, have been obtained;
(4) Owner has obtained Financial Closing pursuant to Section 4.3; (5) if
applicable, Owner has executed a sales tax exemption certificate and provided the
same to Design-Builder; (6) Owner has provided the name of its
property/all-risk insurance carrier and the specific requirements for fire
protection; (7) Owner has provided an insurance certificate or copy of
insurance policy demonstrating that

 15
 

Owner has obtained
builder’s risk insurance pursuant to Section 17.4.3 hereof, and (8)
Design-Builder provides Owner written notification of its acceptance of the
Notice to Proceed, provided that Design-Builder shall not be required to accept
the Notice to Proceed prior to March 26, 2007. Owner and Design-Builder
mutually agree that time is of the essence with respect to the dates and times
set forth in the Contract Documents. 
Owner must complete the prerequisites to the issuance of a valid Notice
to Proceed, as listed in items number (1) through (7) of this Section 6.2 and
submit a Notice to Proceed to Design-Builder for Design-Builder’s acceptance by
March 26, 2007; otherwise this Agreement may be terminated, at Design-Builder’s
sole option.  If Design-Builder chooses
to terminate this Agreement pursuant to its right under the immediately
preceding sentence, then Design-Builder shall have no further obligations
hereunder.

6.2.1       Notice
to Proceed shall be delivered by Owner to Design-Builder pursuant to the notice
requirements set forth in Section 21.7 hereof, with a copy to:

Fagen, Inc.

501 W. Highway 212

P. O. Box 159

Granite Falls, MN  56241

Attention: Becky Dahl

Fax:  (320)
564-5190

6.3          Project Start-Up and Testing.  Owner shall provide, at Owner’s cost,
equipment, tools, instruments and materials necessary for Owner to comply with
its obligations under Exhibit C, raw materials, consumables and personnel
necessary for start-up and testing of the Plant, and Design-Builder shall
provide supervision, standard and special test instruments, tools, equipment
and materials required to perform component and equipment checkout and testing,
initial start-up, operations supervision and corrective maintenance of all
permanent Plant equipment within the scope of the Work.  Notwithstanding the foregoing sentence,
Design-Builder shall be responsible for raw materials and consumables to the
extent such amounts provided by Owner are destroyed or damaged (as opposed to
consumed in the ordinary course of start-up and testing) by Design-Builder or
its personnel during start-up and testing. Design-Builder shall supervise and
direct Owner’s employees and Owner Operator’s personnel who shall participate
in the start-up activities with Design-Builder’s personnel to become familiar
with all aspects of the Plant. Owner and the Independent Engineer may witness
start-up and testing activities. 
Performance testing will be conducted in accordance with the provisions
of Section 7.2 hereof.

6.4          Substantial
Completion.

6.4.1       Substantial
Completion of the entire Work shall be achieved no later than Five Hundred
Forty-five (545) Days after the date of the Notice to Proceed, subject to
adjustment in accordance with the Contract Documents hereof (the “Scheduled
Substantial Completion Date”).

6.4.2     “Substantial
Completion” shall be deemed to occur on the date on which the Work is
sufficiently complete so that Owner can occupy and use the Plant for its
intended purposes.  Substantial
Completion shall be attained at the point in time when the Plant is ready to

 16
 

grind the first batch of corn and begin operation for its intended
use.  No production is guaranteed on the
date of Substantial Completion.

6.4.3       Procedures.  Design-Builder shall notify Owner in writing
when it believes Substantial Completion has been achieved with respect to the
Work.  Within five (5) Days of Owner’s
receipt of Design-Builder’s notice, Owner and Design-Builder will jointly
inspect such Work to verify that it is substantially complete in accordance
with the requirements of the Contract Documents.  If such Work is deemed substantially
complete, Design-Builder shall  prepare
and issue a “Certificate of Substantial Completion” for the Work that
will set forth (i) the date of Substantial Completion, (ii) the remaining items of Work that have to be
completed before Final Payment (“Punch List”), (iii) provisions
(to the extent not already provided in this Agreement) establishing Owner’s and
Design-Builder’s responsibility for the Project’s security, maintenance,
utilities and insurance pending Final Payment, and (iv) an acknowledgment
that warranties with respect to the Work commence on the date of Substantial
Completion, except as may otherwise be noted in the Certificate of Substantial
Completion.  Upon Substantial Completion
of the entire Work and satisfaction of the Performance Guarantee Criteria
listed in Exhibit A, Owner shall release to Design-Builder all retained
amounts, less an amount equal to the reasonable value of all remaining or
incomplete items of Work as noted in the Certificate of Substantial Completion,
and less an amount equal to the value of any Subcontractor lien waivers not yet
obtained.

6.5          Final Completion.

6.5.1       Final
Completion of the Work shall be achieved within ninety (90) Days after the
earlier of the actual date of Substantial Completion or the Scheduled
Substantial Completion Date (the “Final Completion Date”).

6.5.2     “Final
Completion” shall be achieved when the Owner reasonably determines that the
following conditions have been met:

(a)                                  Substantial
Completion has been achieved;

(b)                                 any
outstanding amounts owed by Design-Builder to Owner have been paid in full;

(c)                                  the
items identified on the Punch List have been completed by Design-Builder;

(d)                                 clean-up
of the Site has been completed;

(e)                                  all
permits required to have been obtained by Design-Builder have been obtained;

(f)                                    the
information in Section 6.5.4 has been provided to Owner;

(g)                                 release
and waiver of all claims and liens from Design-Builder and Subcontractors have
been provided; and

(h)                                 the
Performance Tests have been successfully completed.

 17
 

6.5.3     After
receipt of a Final Application for Payment from Design-Builder, Owner shall
make Final Payment in accordance with Section 10.3, less an amount equal
to the value of any Subcontractor lien waivers not yet obtained.

6.5.4     At
the time of submission of its Final Application for Payment, Design-Builder
shall provide the following information:

(a)                                  an
affidavit that there are no claims, obligations or liens outstanding or
unsatisfied for labor, services, material, equipment, taxes or other items
performed, furnished or incurred for or in connection with the Work which will
in any way affect Owner’s interests;

(b)                                 a
general release executed by Design-Builder waiving, upon receipt of final
payment by Design-Builder, all claims for payment, additional compensation, or
damages for delay, except those previously made to Owner in writing and
remaining unsettled at the time of Final Payment provided such general release
shall not waive defenses to claims that may be asserted by Owner after payment
or claims arising after payment;

(c)                                  consent
of Design-Builder’s surety, if any, to Final Payment; and

(d)                                 a
hard copy of the As Built Plans; provided, however, that such plans will remain
the Work Product of the Design-Builder and subject in all respects to Article
5.

6.5.5       Upon
making Final Payment, Owner waives all claims against Design-Builder except
claims relating to (i) Design-Builder’s failure to satisfy its payment
obligations, (ii) Design-Builder’s failure to complete the Work consistent with
the Contract Documents, including defects appearing within one (1) year after
Substantial Completion, and (iii) the terms of any warranties required by the
Contract Documents.

6.6          Post Completion Support.  Adequate personnel to
complete all Work within the Contract Time(s) will be maintained on-Site by
Design-Builder or a Subcontractor until Final Completion has been
achieved.  In addition to prosecuting the
Work until Final Completion has been achieved, Design-Builder or its Subcontractor
will provide one (1) month of on-Site operational support for Owner’s and Owner
Operator’s personnel after successful completion of the Performance Tests and,
from the date of Substantial Completion, will provide six (6) months of
off-Site technical and operating procedure support by telephone and other
electronic data transmission and communication.

Article 7

Performance
Testing

7.1          Performance Guarantee.  The Design-Builder
guarantees that the Plant will meet the performance criteria listed in Exhibit
A (the “Performance Guarantee Criteria”) during a performance test
conducted and concluded pursuant to the terms hereof not later than Ninety (90)
Days after the date of Substantial Completion. 
If there is a performance shortfall, Design-Builder will pay all design
and construction costs associated with making the necessary

 18
 

corrections.  Design-Builder retains the right to use its
sole discretion in determining the method (which shall be in accordance with
generally accepted construction and design-build standards of the fuel ethanol
industry in the Midwest United States) to remedy any performance related
issues.

7.2          Performance
Testing.

7.2.1       The
Design-Builder shall direct and supervise the tests and, if necessary, the
retests of the Plant using Design-Builder’s supervisory personnel and the Air
Emissions Tester shall conduct the air emissions test, in each case, in
accordance with the testing procedures set forth in Exhibit A (the “Performance
Tests”), to demonstrate, at a minimum, compliance with the Performance
Guarantee Criteria.  Owner is responsible
for obtaining Air Emissions Tester and for ensuring Air Emissions Tester’s
timely performance.  Design-Builder shall
cooperate with the Air Emissions Tester to facilitate performance of all air
emissions tests.  Design-Builder shall
not be held responsible for the actions of Owner’s employees and third parties
involved in the Performance Testing, including but not limited to Air Emissions
Tester.

7.2.2     No
later than thirty (30) Days prior to the earlier of the Scheduled Substantial
Completion Date or Substantial Completion, Design-Builder shall provide to
Owner for review a detailed testing plan for the Performance Tests (other than
for air emissions).  Owner and Design-Builder
shall agree upon a testing plan that shall be consistent with the Performance
Test Protocol contained in Exhibit A hereto. 
After such agreement has been reached, Design-Builder shall notify the
Owner five (5) business days prior to the date Design-Builder intends to
commence the Performance Tests and shall notify the Owner upon commencement of
the Performance Tests. Owner and Independent Engineer each have the right to
witness all testing, including the Performance Tests and any equipment testing,
whether at the Site or at the Subcontractor’s or equipment supplier’s premises
during the course of this Agreement. 
Notwithstanding the foregoing sentence, Owner shall bear the costs of
providing a witness to any such testing and all such witnesses shall comply at
all times with Design-Builder’s, Subcontractor’s or equipment supplier’s safety
and security procedures and other reasonable requirements, and otherwise
conduct themselves in a manner that does not interfere with Design-Builder’s,
Subcontractor’s or equipment supplier’s activities or operations.

7.2.3     Design-Builder
shall provide to Owner a Performance Test report (excluding results from air
emissions testing), including all applicable test data, calculations and
certificates indicating the results of the Performance Tests and, within five
(5) business days of Owner’s receipt of such results, Owner, Independent
Engineer and Design-Builder will jointly inspect such Work and review the
results of the Performance Tests to verify that the Performance Guarantee
Criteria have been met.   If Owner or
Independent Engineer reasonably determines that the Performance Guarantee
Criteria have not been met, Owner shall notify Design-Builder the reasons why
Owner determined that the Performance Guarantee Criteria have not been met and
Design-Builder shall promptly take such action or perform such additional work
as will achieve the Performance Guarantee Criteria and shall issue to the Owner
another notice in accordance with Section 7.2.2; provided however that if the
notice relates to a retest, the notice may be provided no less than two (2)
business days prior to the Performance Tests. 
Such procedure shall be repeated as necessary until Owner and
Independent Engineer verifies that the Performance Guarantee Criteria have been
met.

 19
 

7.2.4       If
Owner, for whatever reason, prevents Design-Builder from demonstrating the
Performance Guarantee Criteria within thirty (30) Days of Design-Builder’s
notice that the Plant is ready for Performance Testing, then Design-Builder
shall be excused from demonstrating compliance with the Performance Guarantee
Criteria during such period of time that Design-Builder is prevented from
demonstrating compliance with the Performance Guarantee Criteria; provided
however that Design-Builder will be deemed to have fulfilled all of its
obligations to demonstrate that the Plant meets the Performance Guarantee
Criteria should such period of time during which Design-Builder is prevented
from demonstrating the Performance Criteria exceed thirty (30) Days or extend
beyond the Final Completion Date.

7.3          Failure
to Attain Timely Final Completion. Owner agrees and
hereby acknowledges that it has waived any and all claims and damages against
Design-Builder, including without limitation any and all costs, losses,
expenses, and carrying charges, incurred as a result of Design-Builder’s
failure to timely attain the Contract Time(s).

7.4          Bonds and Other Performance Security.

7.4.1       On
or prior to the date of Financial Closing, if requested by Owner, the
Design-Builder shall deliver to Owner a bond substantially in the form attached
as Exhibit H (the “Performance Bond”) in an initial amount equivalent to
the Contract Price.  Owner shall pay on the date of
Financial Closing all costs of obtaining such bond, plus pay Design-Builder a
fee of seven and one half percent (7.5%) for obtaining such bond, such fee to
be calculated by multiplying seven and one half percent (7.5%) times the cost
of the Performance Bond.  Any amounts
payable to the surety due to Design-Builder’s default under this Agreement or
the Performance Bond shall be for the account of Design-Builder.

(a)                                  Design-Builder
shall post additional bonds or security (which must be in form and substance
satisfactory to Owner and the Lenders) or shall increase the amount of the
Performance Bond by the amount of any increases to the Contract Price;
provided, however, that Owner shall pay all costs of obtaining such bonds or
security, plus pay Design-Builder a fee of seven and one half percent (7.5%)
for obtaining such bonds or security, such fee to be calculated by multiplying
seven and one half percent (7.5%) times the cost of the bonds or security.

(b)                                 The
Performance Bond shall secure the Design-Builder’s obligations to complete the
Work in accordance with this Agreement.

7.4.2       On
or prior to the date of Financial Closing, if requested by Owner, the
Design-Builder shall deliver to Owner a bond substantially in the form attached
as Exhibit I (the “Payment Bond”) in an initial amount equivalent to the
Contract Price.  Owner
shall pay on the date of Financial Closing all costs of obtaining such bond,
plus pay Design-Builder a fee of seven and one half percent (7.5%) for
obtaining such bond, such fee to be calculated by multiplying seven and one
half percent (7.5%) times the cost of the Payment Bond but any amounts payable
to the surety due to Design-Builder’s default under this Agreement or the
Payment Bond shall be for the account of Design-Builder.

 20
 

(a)                                  Design-Builder
shall post additional bonds or security (which must be in form and substance
reasonably satisfactory to Owner and the Lenders) or shall increase the amount
of the Payment Bond by the amount of any increase to the Contract Price.

(b)                                 The
Payment Bond shall secure the Design-Builder’s obligations to pay its
Subcontractors, vendors and suppliers.

(c)                                  The
Payment Bond shall provide the conditions upon which Subcontractors, vendors
and suppliers may draw upon such Payment Bond following Design-Builder’s
failure to pay amounts due such Subcontractors, vendors and suppliers.

Article 8

Warranties

8.1          Design-Builder Warranty. 
Design-Builder warrants to Owner that the construction, including all
materials and equipment furnished as part of the construction, shall be new, of
good quality, in conformance with the Contract Documents and all Legal
Requirements, free of defects in materials and workmanship.  Design-Builder’s warranty obligation excludes
defects caused by abuse, alterations, or failure to maintain the Work by
persons other than Design-Builder or anyone for whose acts Design-Builder may
be liable. Nothing in this warranty is intended to limit any Manufacturer’s
Warranty which provides Owner with greater warranty rights than set forth in
this Section 8.1 or the Contract Documents.  Design-Builder will provide to Owner all
manufacturers’ and Subcontractors’ warranties upon the earlier of Substantial
Completion or termination of this Agreement.  
Owner’s failure to comply with all Operating Procedures shall void those
guarantees, representations and warranties, whether expressed or implied, that
were given by Design-Builder to Owner, concerning the performance of the Plant
that are reasonably determined by Design-Builder to be affected by such
failure.  If Design-Builder reasonably
determines that all damage caused by such failure can be repaired and Owner
makes all repairs needed to correct such damage, as reasonably determined by
Design-Builder, all guarantees, representations and warranties shall be
reinstated for the remaining term thereof, if any, from the date of the repair.

8.2          Correction
of Defective Work.

8.2.1       Design-Builder
agrees to correct any Work that is found to not be in conformance with the
Contract Documents, including that part of the Work subject to Section 8.1,
within a period of one (1) year from the date of Substantial Completion of the
Work; provided that Owner must report such non-conformance within seven (7)
days of the appearance of such failure or non-conformance and that such one
(1)-year period shall be extended one (1) Day for any part of the Work that is
found to be not in conformance with the Contract Documents for each Day that
such part of the Work is not operating in conformity with the Contract
Documents, including any  time during
which any part of the Work is repaired or replaced pursuant to this Article 8.

8.2.2       Design-Builder
shall, within seven (7) Days of receipt of written notice from Owner that the
Work is not in conformance with the Contract Documents, take meaningful steps
to commence correction of such nonconforming Work, including the correction,
removal or

 21
 

replacement of
the nonconforming Work and correction or replacement of any Work damaged by
such nonconforming Work.  If
Design-Builder fails to commence the necessary steps within such seven (7) Day
period or fails to continue to perform such steps through completion, Owner, in
addition to any other remedies provided under the Contract Documents, may
provide Design-Builder with written notice that Owner will commence or assume
correction of such nonconforming Work and repair of such damaged Work with its
own resources.  If, following such
written notice, Owner performs such corrective and repair Work, Design-Builder
shall be responsible for all reasonable costs incurred by Owner in performing
the correction.

8.3          Warranty Period Not Limitation to Owner’s Rights.  The one (1)-year period referenced in
Section 8.2 above applies only to Design-Builder’s obligation to correct
nonconforming Work and is not intended to constitute a period of limitations
for any other rights or remedies Owner may have regarding Design-Builder’s
other obligations under the Contract Documents.

Article 9

Contract
Price

9.1          Contract Price.  As full consideration to
Design-Builder for full and complete performance of the Work and all costs
incurred in connection therewith, Owner shall pay Design-Builder in accordance
with the terms of Article 10, the sum of Sixty-six Million Twenty-five Thousand
Eight Hundred Forty-eight Dollars ($66,025,848.00) (“Contract Price”),
subject to adjustments made in accordance with Article 13.  The Contract Price does not include the water
pre-treatment system and the fire protection system which shall be provided by
Design-Builder pursuant to a separate side-letter agreement executed by Owner
and Design-Builder at Design-Builder’s standard time plus material rates during
the relevant time period and at the relevant locale.  Owner acknowledges that it has taken no
action which would impose a union labor or prevailing wage requirement on
Design-Builder, Owner or the Project. 
The Parties acknowledge and agree that if after the date hereof, an
Owner’s action, a change in Applicable Law, or a Governmental Authority acting
pursuant to a change in Applicable Law shall require Design-Builder to employ
union labor or compensate labor at prevailing wages, the Contract Price shall
be adjusted upwards to include any increased costs associated with such labor
or wages.  Such adjustment shall include,
but not be limited to, increased labor, subcontractor, and material and
equipment costs resulting from any union or prevailing wage requirement;
provided, however, that if an option is made available to either employ union
labor, or to compensate labor at prevailing wages, such option shall be at
Design-Builder’s sole discretion and that if such option is executed by Owner
without Design-Builder’s agreement, Design-Builder shall have the right to
terminate this agreement and shall be entitled to compensation pursuant to
Section 15.3.1 hereof.

9.2          Effect of Construction Cost Index Increase on Contract Price.  If between the Effective Date and the date on
which a Notice to Proceed is given to Design-Builder the Construction Cost
Index published by Engineering News-Record Magazine (“CCI”) increases
over the Baseline Index established in Section 9.2.1, Design-Builder shall
notify Owner in writing that it is adjusting the Contract Price.

9.2.1       The
Baseline Index for this Agreement shall be 7660.29 (January 2006) (“Baseline
Index”).

 22
 

9.2.2       In
the event that the CCI as of the date on which the Notice to Proceed is given
increases over the Baseline Index, the Contract Price shall be increased by a
percentage amount equal thereto.

Article
10

Payment
Procedures

10.1        Payment at Financial Closing.  As part of the Contract
Price, Owner shall pay Design-Builder Five Million Dollars ($5,000,000.00), as
a mobilization fee, as soon as allowed by its organizational documents and any
other agreements or Laws and at the latest, at the earlier to occur of
Financial Closing or the issuance of a Notice to Proceed. The Five Million
Dollar ($5,000,000.00) mobilization fee payment shall be subject to retainage
as provided by Section 10.2.7.

10.2        Progress
Payments.

10.2.1     Application for Payment.  Following
the issuance of Notice to Proceed pursuant to Section 6.2, Design-Builder shall
submit to Owner, on or before the twenty-fifth (25th) Day of each month, its request for
payment for all Work performed and not paid for during the previous Pay Period
(the “Application for Payment”). 
The Application for Payment shall be substantially in the form attached
hereto as Exhibit M.  Design-Builder
shall submit to Owner, along with each Application for Payment, signed lien
waivers, substantially in the form attached hereto as Exhibit N, received from
Subcontractors and suppliers for the Work included in the Application for
Payment submitted for the immediately preceding Pay Period and for which
payment has been received.

10.2.2     The
Application for Payment shall constitute Design-Builder’s representation that
the Work has been performed consistent with the Contract Documents and has
progressed to the point indicated in the Application for Payment.  The Parties agree that the work completed at
the Site, the comparison of the Application for Payment against the work
schedule, and the Schedule of Values shall provide sufficient substantiation of
the accuracy of the Application for Payment and that no additional
documentation will be provided to Owner or Independent Engineer in support of
an Application for Payment.  Title to the
Work, including Work reflected in an Application for Payment which is in
process, is in transit, is in storage, or has been incorporated into the Site,
shall pass to Owner free and clear of all claims, liens, encumbrances, and
security interests upon Design-Builder’s receipt of payment therefor.

10.2.3     Within
ten (10) Days after Owner’s receipt of each Application for Payment, Owner
shall pay Design-Builder all amounts properly due, but in each case less the
total of payments previously made, and less amounts properly withheld under
this Agreement.

10.2.4     The
Application for Payment may request payment for equipment and materials not yet
incorporated into the Project; provided that (i) Owner is satisfied that the
equipment and materials are suitably stored at either the Site or another
acceptable location, (ii) the equipment and materials are protected by suitable
insurance, and (iii) upon payment, Owner will receive the equipment and
materials free and clear of all liens and encumbrances except for

 23
 

liens of the
Lenders and other liens and encumbrances permitted under the Financing
Documents.

10.2.5     Schedule of Values.  The
schedule of values attached hereto as Exhibit E (the “Schedule of Values”)
(i) subdivides the Work into its respective parts, (ii) includes values for all
items comprising the Work, and (iii) serves as the basis for monthly progress
payments made to Design-Builder throughout the Work.

10.2.6     Withholding of Payments. 
On or before the date set forth in Section 10.2.3, Owner shall pay
Design-Builder all amounts properly due. 
If Owner determines that Design-Builder is not entitled to all or part
of an Application for Payment, it will notify Design-Builder in writing at
least five (5) Days prior to the date payment is due.  The notice shall indicate the specific
amounts Owner intends to withhold, the reasons and contractual basis for the
withholding, and the specific measures Design-Builder must take to rectify
Owner’s concerns.  Design-Builder and
Owner will attempt to resolve Owner’s concerns prior to the date payment is
due.  If the Parties cannot resolve such
concerns, Design-Builder may pursue its rights under the Contract Documents,
including those under Article 19. 
Notwithstanding anything to the
contrary in the Contract Documents, Owner shall pay Design-Builder all
undisputed amounts in an Application for Payment within the times required by
the Agreement.

10.2.7     Retainage on Progress Payments.  Owner
will retain ten percent (10%) of each payment up to a maximum of Three Million
Three Hundred One Thousand Two Hundred Ninety-two Dollars ($3,301,292.00). Once
Three Million Three Hundred One Thousand Two Hundred Ninety-two Dollars
($3,301,292.00) has been retained, in total, Owner will not retain any
additional amounts from any subsequent payments. Owner will also reasonably
consider reducing retainage for Subcontractors completing their work early in
the Project.  Upon Substantial Completion
of the Work Owner shall release to Design-Builder all retained amounts less an
amount equal to the reasonable value of all remaining or incomplete items of
Work and less an amount equal to the value of any Subcontractor lien waivers
not yet obtained, as noted in the Certificate of Substantial Completion,
provided that such payment shall only be made if Design-Builder has met the
Performance Guarantee Criteria listed in Exhibit A.

10.3        Final Payment.  Design-Builder shall deliver to Owner
a request for final payment (the “Final Application for Payment”) when
Final Completion has been achieved in accordance with Section 6.5. Owner shall
make final payment within thirty (30) Days after Owner’s receipt of the Final
Application for Payment (“Final Payment”).

10.4        Failure
to Pay Amounts Due.

10.4.1     Interest.  Payments
which are due and unpaid by Owner to Design-Builder, whether progress payments
or Final Payment, shall bear interest commencing five (5) Days after payment is
due at the rate of eighteen percent (18%) per annum, or  the maximum rate allowed by Law.

10.4.2     Right to Suspend Work. 
If Owner fails to pay Design-Builder any undisputed amount that becomes
due, Design-Builder, in addition to all other remedies provided in the Contract
Documents, may stop Work pursuant to Section 15.4 hereof.  All payments properly due and unpaid shall
bear interest at the rate set forth in Section 10.4.1.

 24
 

10.4.3     Failure to Make Final Payment.  Owner’s failure to make Final Payment
pursuant to section 10.3 hereof shall void any and all warranties, whether
express or implied, provided by Design-Builder pursuant to this Agreement.

10.5        Design-Builder’s Payment Obligations.  Design-Builder will pay
Design Consultants and Subcontractors, in accordance with its contractual
obligations to such parties, all the amounts Design-Builder has received from
Owner on account of their work.  Design-Builder
will impose similar requirements on Design Consultants and Subcontractors to
pay those parties with whom they have contracted.  Design-Builder will indemnify and defend
Owner against any claims for payment and mechanic’s liens as set forth in
Section 14.2 hereof.

10.6        Record Keeping and Finance Controls. With
respect to changes in the Work performed on a cost basis by Design-Builder
pursuant to the Contract Documents, Design-Builder shall keep full and detailed
accounts and exercise such controls as may be necessary for proper financial management,
using accounting and control systems in accordance with generally accepted
accounting principles and as may be provided in the Contract Documents.  During the performance of the Work and for a
period of three (3) years after Final Payment, Owner and Owner’s accountants
shall be afforded access from time to time, upon reasonable notice, to
Design-Builder’s records, books, correspondence, receipts, subcontracts,
purchase orders, vouchers, memoranda and other data relating to changes in the
Work performed on a cost basis in accordance with the Contract Documents, all
of which Design-Builder shall preserve for a period of three (3) years after
Final Payment.

Article
11

Hazardous
Conditions and Differing Site Conditions

11.1        Hazardous Conditions.

11.1.1     Unless
otherwise expressly provided in the Contract Documents to be part of the Work,
Design-Builder is not responsible for any Hazardous Conditions encountered at
the Site.  Upon encountering any
Hazardous Conditions, Design-Builder will stop Work immediately in the affected
area and as promptly as practicable notify Owner and, if Design-Builder is
specifically required to do so by Legal Requirements, all Governmental
Authorities having jurisdiction over the Project or Site.  Design-Builder shall not remove, remediate or
handle in any way (except in case of emergency) any Hazardous Conditions
encountered at the Site without prior written approval of Owner.

11.1.2     Upon
receiving notice of the presence of suspected Hazardous Conditions, Owner shall
take the necessary measures required to ensure that the Hazardous Conditions
are remediated or rendered harmless. 
Such necessary measures shall include Owner retaining Qualified
Independent Experts to (i) ascertain whether Hazardous Conditions have actually
been encountered, and, if they have been encountered, (ii) prescribe the
remedial measures that Owner is required under applicable Legal Requirements to
take with respect to such Hazardous Conditions in order for the Work to
proceed.  Owner’s choice of such Qualified
Independent Experts shall be subject to the prior approval of Design-Builder,
which approval shall not be unreasonably withheld or delayed.

 25
 

11.1.3     Design-Builder shall be
obligated to resume Work at the affected area of the Project only after Owner’s
Qualified Independent Expert provides it with written certification that (i)
the Hazardous Conditions have been removed or rendered harmless, and (ii) all
necessary approvals have been obtained from all government entities having
jurisdiction over the Project or Site and a remediation plan has been
undertaken permitting the Work to proceed.

11.1.4     Design-Builder
will be entitled, in accordance with this Article 11, to an adjustment in its
Contract Price and/or Contract Time(s) to the extent Design-Builder’s cost
and/or time of performance have been adversely impacted by the presence of
Hazardous Conditions, provided that such Hazardous Materials were not
introduced to the Site by Design-Builder, Subcontractors or anyone for whose
acts they may be liable.

11.1.5     To
the fullest extent permitted by Law, Owner shall indemnify, defend and hold
harmless Design-Builder, Design Consultants, Subcontractors, anyone employed
directly or indirectly for any of them, and their officers, directors,
employees and agents, from and against any and all claims, losses, damages,
liabilities and expenses, including attorneys’ fees and expenses, arising out
of or resulting from the presence, removal or remediation of Hazardous
Conditions at the Site.

11.1.6     Notwithstanding
the preceding provisions of this Section 11.1, Owner is not responsible
for Hazardous Conditions introduced to the Site by Design-Builder,
Subcontractors or anyone for whose acts they may be liable.  Design-Builder shall indemnify, defend and
hold harmless Owner and Owner’s officers, directors, employees and agents from
and against all claims, losses, damages, liabilities and expenses, including
attorneys’ fees and expenses, arising out of or resulting from those Hazardous
Conditions introduced to the Site by Design-Builder, Subcontractors or anyone
for whose acts they may be liable.

11.2        Differing
Site Conditions; Inspection.

11.2.1     Concealed
or latent physical conditions or subsurface conditions at the Site that (i)
differ from the conditions indicated in the Contract Documents, or (ii) are of
an unusual nature, differing from the conditions ordinarily encountered and
generally recognized as inherent in the Work are collectively referred to
herein as “Differing Site Conditions.” 
If Design-Builder encounters a Differing Site Condition, Design-Builder
will be entitled to an adjustment in the Contract Price and/or Contract Time(s)
to the extent Design-Builder’s cost and/or time of performance are adversely
impacted by the Differing Site Condition.

11.2.2     Upon
encountering a Differing Site Condition, Design-Builder shall provide prompt
written notice to Owner of such condition, which notice shall not be later than
fourteen (14) business days after such condition has been encountered.  Design-Builder shall, to the extent
reasonably possible, provide such notice before the Differing Site Condition
has been substantially disturbed or altered.

 26
 

Article
12

Force
Majeure; Change in Legal Requirements

12.1        Force Majeure Event.  A force Majeure event shall mean a cause or
event beyond the reasonable control of, and without the fault or negligence of
a Party claiming Force Majeure, including, without limitation, an emergency,
floods, earthquakes, hurricanes, tornadoes, adverse weather conditions not
reasonably anticipated or acts of God; sabotage; vandalism beyond that which
could reasonably be prevented by a Party claiming Force Majeure; terrorism;
war; riots; fire; explosion; blockades; insurrection; strike; slow down or
labor disruptions (even if such difficulties could be resolved by conceding to
the demands of a labor group); economic hardship or delay in the delivery of
materials or equipment that is beyond the control of a Party claiming Force
Majeure, and action or failure to take action by any Governmental Authority
after the Effective Date (including the adoption or change in any rule or
regulation or environmental constraints lawfully imposed by such Governmental
Authority), but only if such requirements, actions, or failures to act prevent
or delay performance; and inability, despite due diligence, to obtain any
licenses, permits, or approvals required by any Governmental Authority (any
such event, a “Force Majeure Event”).

12.2        Effect of Force Majeure Event.  Neither Party shall be considered in default
in the performance of any of the obligations contained in the Contract
Documents, except for the Owners or the Design-Builder’s obligations to pay
money (including but not limited to, Progress Payments which become due and
payable with respect to the period prior to the occurrence of the Force Majeure
Event), when and to the extent the failure of performance shall be caused by a
Force Majeure Event.  If either Party is
rendered wholly or partly unable to perform its obligations under the Contract
Documents because of a Force Majeure Event, such Party will be excused from
performance affected by the Force Majeure Event to the extent and for the
period of time so affected; provided that:

(a)                                  the
nonperforming Party, within forty-eight (48) hours after the nonperforming
Party actually becomes aware of the occurrence and impact of the Force Majeure
Event, gives the other Party written notice describing the event or
circumstance in detail, including an estimation of its expected duration and
probable impact on the performance of the affected Party’s obligations
hereunder and continues to furnish timely regular reports with respect thereto
during the continuation of and upon the termination of the Force Majeure Event;

(b)                                 the
suspension of performance is of no greater scope and of no longer duration than
is reasonably required by the Force Majeure Event;

(c)                                  the
obligations of either Party that arose before the occurrence causing the
suspension of performance and the performance that is not prevented by the
occurrence, shall not be excused as a result of such occurrence;

(d)                                 the
nonperforming Party uses its best efforts to remedy its inability to perform
and mitigate the effect of such event and resumes its performance at the
earliest practical time after cessation of such occurrence or until such time
that performance is practicable;

 27
 

(e)                                  when
the nonperforming Party is able to resume performance of its obligations under
the Contract Documents, that Party shall give the other Party written notice to
that effect; and

(f)                                    Design-Builder
shall be entitled to a Day-for-Day time extension for those events set forth in
Section 12.1 to the extent the occurrence of such event delayed Design-Builder’s
performance of its obligations under this Agreement.

12.3        Change
in Legal Requirements.  The Contract Price and/or the Contract Time(s)
shall be adjusted to compensate Design-Builder for the effects of any changes
to the Legal Requirements that occur after the date of this Agreement and as a
result of such change, the performance of the Work is adversely affected.  Such effects may include, without limitation,
revisions Design-Builder is required to make to the Construction Documents
because of changes in Legal Requirements.

12.4        Time Impact
And Availability.  If the
Design-Builder is delayed at any time in the commencement or progress of the
Work due to a delay in the delivery of, or unavailability of, essential
materials or labor to the Project as a result of a significant industry-wide
economic fluctuation or disruption beyond the control of and without the fault
of the Design-Builder or its Subcontractors which is experienced or expected to
be experienced by certain markets providing essential materials and equipment
to the Project during the performance of the Work and such economic fluctuation
or disruption adversely impacts the price, availability, and delivery
timeframes of essential materials, equipment, or labor  (such event an “Industry-Wide Disruption”),
the Design-Builder shall be entitled to an equitable extension of the Contract
Time(s) on a day-for-day basis equal to such delay.  The Owner and Design-Builder shall undertake
reasonable steps to mitigate the effect of such delays.  Notwithstanding any other provision to the
contrary, the Design-Builder shall not be liable to the Owner for any expenses,
losses or damages arising from a delay, or unavailability of, essential
materials or labor to the Project as a result of an Industry-Wide Disruption.

12.5        Effect
of Industry-Wide Disruption on Contract Price.  In the event of an Industry-Wide Disruption,
the Contract Price shall be adjusted to allocate the risk of such market
conditions between the Owner and Design-Builder through the following equitable
escalation in the Contract Price:

12.5.1     If
during the course of the Project the CCI increases over the Baseline Index
established in Section 9.2.1, Design-Builder shall notify Owner in writing that
it is adjusting the Contract Price.

12.5.2     In
the event that the CCI increases over the Baseline Index, the Contract Price
shall be adjusted to reflect such increase, but only with respect to those
Applications for Payment submitted after the date on which written notice of
the adjustment in Contract Price is given.

12.5.3     Payment
for any adjustment in the Contract Price as a result of this Article 12 shall
be made in accordance with the terms of this Agreement.

 28
 

Article
13

Changes
to the Contract Price and Scheduled Completion Dates

13.1        Change
Orders.

13.1.1     A
change order (“Change Order”) is a written instrument issued after
execution of this Agreement signed by Owner and Design-Builder, stating their
agreement upon all of the following:

(a)                                  the
scope of the change in the Work;

(b)                                 the
amount of the adjustment to the Contract Price; and

(c)                                  the
extent of the adjustment to the Contract Time(s).

13.1.2     All
changes in the Work authorized by an applicable Change Order shall be performed
under the applicable conditions of the Contract Documents.  Owner and Design-Builder shall negotiate in
good faith and as expeditiously as possible the appropriate adjustments for
such changes.  Prior to incurring any
costs with respect to estimating services, design services and any other
services involved in the preparation of the proposed revisions to the Contract
Documents, Design-Builder must obtain the written approval of Owner for such
costs.

13.1.3     If
Owner requests a proposal for a change in the Work from Design-Builder and
subsequently elects not to proceed with the change, a Change Order shall be
issued to reimburse Design-Builder for reasonable costs incurred for estimating
services, design services and any other services involved in the preparation of
proposed revisions to the Contract Documents; provided that such costs were
previously approved by Owner pursuant to Section 13.1.2.

13.2        Contract
Price Adjustments.

13.2.1     The
increase or decrease in Contract Price resulting from a change in the Work
shall be a mutually accepted lump sum, properly itemized and supported by
sufficient substantiating data to permit evaluation by Owner.

13.2.2     If
Owner and Design-Builder disagree upon whether Design-Builder is entitled to be
paid for any services required by Owner, or if there are any other
disagreements over the scope of Work or proposed changes to the Work, Owner and
Design-Builder shall resolve the disagreement pursuant to Article 19
hereof.  As part of the negotiation
process, Design-Builder shall furnish Owner with a good faith estimate of the
costs to perform the disputed services in accordance with Owner’s
interpretations.  If the Parties are
unable to agree and Owner expects Design-Builder to perform the services in
accordance with Owner’s interpretations, Design-Builder shall proceed to
perform the disputed services, conditioned upon Owner issuing a written order
to Design-Builder (i) directing Design-Builder to proceed, and (ii) specifying
Owner’s interpretation of the services that are to be performed.  If this occurs, Design-Builder shall be
entitled to submit in its Applications for Payment an amount equal to fifty
percent (50%) of its reasonable estimated direct cost to perform the services,
and Owner agrees to pay such amounts, with the express understanding that
(x) such payment by Owner

 29

does not
prejudice Owner’s right to argue that it has no responsibility to pay for such
services, and (y) receipt of such payment by Design-Builder does not prejudice
Design-Builder’s right to seek full payment of the disputed services if Owner’s
order is deemed to be a change to the Work.

13.3        Emergencies.  In any emergency affecting the safety of
persons and/or property, Design-Builder shall act, at its discretion, to
prevent threatened damage, injury or loss and shall notify the Owner as soon as
practicable and in any event within forty-eight (48) hours after Design-Builder
becomes aware of the emergency.  The
notice to Owner shall describe the emergency in detail, including a reasonable
estimation of its expected duration and impact, if any, on the performance of
Design-Builder’s obligations hereunder. 
Any change in the Contract Price and/or the Contract Time(s) on account
of emergency work shall be determined as provided in this Article 13.

13.4        Failure
to Complete Owner’s Milestones.  The dates when Owner’s obligations are
required to be completed to enable Design-Builder to achieve the Contract
Time(s) are identified in Table 3 in Exhibit C (“Owner’s Milestones”).  The Contract Time(s) shall be revised to
provide a Day-for-Day extension of the Contract Time(s) for completion of the
Work for each full Day during which Owner fails to timely complete its
obligations pursuant to the Owner’s Milestones. 
In the event of Owner’s failure to timely complete its obligations
pursuant to Owner’s Milestones results in the extension of the Contract
Time(s), the Contract Price shall be adjusted to compensate Design-Builder for
the effects, if any, of such change.

Article
14

Indemnity

14.1        Tax
Claim Indemnification. 
If, in accordance with Owner’s direction, an exemption for all or part
of the Work is claimed for taxes, Owner shall indemnify, defend and hold
harmless Design-Builder (and its officers, directors, agents, successors and
assigns) from and against any and all damages, claims costs, losses,
liabilities, and expenses (including penalties, interest, fines, taxes of any
kind, attorneys’ fees, accountants and other professional fees and associated
expenses) incurred by Design-Builder in connection with or as a result of any
action taken by Design-Builder in accordance with Owner’s directive.

14.2        Payment
Claim Indemnification. 
To the extent Design-Builder has received payment for the Work,
Design-Builder shall indemnify, defend and hold harmless Owner Indemnified
Parties from any claims or mechanic’s liens brought against Owner Indemnified
Parties or against the Project as a result of the failure of Design-Builder, or
those for whose acts it is responsible, to pay for any services, materials,
labor, equipment, taxes or other items or obligations furnished or incurred for
or in connection with the Work.  Within
three (3) business days of receiving written notice from Owner that such a
claim or mechanic’s lien has been filed, Design-Builder shall commence to take
the steps necessary to discharge such claim or lien.

14.3        Design-Builder’s General Indemnification.

14.3.1     Design-Builder,
to the fullest extent permitted by Law, shall indemnify, hold harmless and
defend Owner, Lenders, Lenders’ Agent, and their successors, assigns,

 30
 

officers,
directors, employees and agents (“Owner Indemnified Parties”) from and
against any and all losses, costs, damages, injuries, liabilities, claims,
demands, penalties, interest and causes of action, including without limitation
attorney’s fees (collectively, the “Damages”) for bodily injury,
sickness or death, and property damage or destruction (other than to the Work
itself) to the extent resulting from the negligent or intentionally wrongful
acts or omissions of Design-Builder, Design Consultants, Subcontractors, anyone
employed directly or indirectly by any of them or anyone for whose acts any of
them may be liable.

14.3.2     If
an employee of Design-Builder, Design Consultants, Subcontractors, anyone
employed directly or indirectly by any of them or anyone for whose acts any of
them may be liable has a claim against Owner Indemnified Parties,
Design-Builder’s indemnity obligation set forth in Section 14.3.1 above
shall not be limited by any limitation on the amount of damages, compensation
or benefits payable by or for Design-Builder, Design Consultants,
Subcontractors, or other entity under any employee benefit acts, including
workers’ compensation or disability acts.

14.3.3     Without
limiting the generality of Section 14.3.1 hereof, Design-Builder shall fully
indemnify, save harmless and defend the Owner Indemnified Parties from and
against any and all Damages in favor of any Governmental Authority or other
third party to the extent caused by (a) failure of Design-Builder or any
Subcontractor to comply with Legal Requirements as required by this Agreement,
or (b) failure of Design-Builder or any Subcontractor to properly
administer and pay any taxes or fees required to be paid by Design-Builder
under this Agreement.

14.3.4     Nothing
in the Design-Builder’s General Indemnification contained in this Section 14.3
shall be read to limit in any way any entitlement Design-Builder shall have to
insurance coverage under any insurance policy, including any insurance policy
required by either Party under this Agreement.

14.4        Owner’s
General Indemnification.  Owner, to the fullest extent permitted by
Law, shall indemnify, hold harmless and defend Design-Builder and any of
Design-Builder’s officers, directors, employees, or agents from and against
claims, losses, damages, liabilities, including attorneys’ fees and expenses,
for bodily injury, sickness or death, and property damage or destruction (other
than to the Work itself) to the extent resulting from the negligent acts,
willful misconduct, or from omissions of Owner, its officers, directors,
employees, agents, or anyone for whose acts any of them may be liable.

14.4.1     Without
limiting the generality of Section 14.4 hereof, Owner shall fully indemnify,
save harmless and defend the Design-Builder and any of Design-Builder’s
officers, directors, employees, or agents from and against any and all Damages
in favor of any Governmental Authority or other third party to the extent
caused by (a) failure of Owner or any of Owner’s agents to comply with
Legal Requirements as required by this Agreement, or (b) failure of Owner
or Owner’s agents to properly administer and pay any taxes or fees required to
be paid by Owner under this Agreement.

14.4.2     Nothing
in the Owner’s General Indemnification contained in this Section 14.4 shall be
read to limit in any way any entitlement Owner shall have to insurance coverage

 31
 

under any
insurance policy, including any insurance policy required by either Party under
this Agreement.

Article
15

Stop
Work; Termination for Cause

15.1        Owner’s
Right to Stop Work. 
Owner may, without cause and for its convenience, order Design-Builder
in writing to stop and suspend the Work. 
Such suspension shall not exceed sixty (60) consecutive Days or
aggregate more than ninety (90) Days during the duration of the Project.  Design-Builder is entitled to seek an
adjustment of the Contract Price and/or the Contract Time(s) if its cost or
time to perform the Work has been adversely impacted by any suspension or
stoppage of work by Owner.

15.2        Owner’s
Right to Perform and Terminate for Cause.

15.2.1     If
Design-Builder persistently fails to: (i) provide a sufficient number of
skilled workers; (ii) supply the materials required by the Contract Documents;
(iii) comply with applicable Legal Requirements; (iv) timely pay, without
cause, Design Consultants or Subcontractors; (v)  perform the Work with
promptness and diligence to ensure that the Work is completed by the Contract
Time(s), as such times may be adjusted in accordance with this Agreement; or
(vi) perform material obligations under the Contract Documents; then Owner, in
addition to any other rights and remedies provided in the Contract Documents or
by law or equity, shall have the rights set forth in Sections 15.2.2 and 15.2.3
below.

15.2.2     Upon
the occurrence of an event set forth in Section 15.2.1 above, Owner may
provide written notice to Design-Builder that it intends to terminate the
Agreement unless the problem cited is cured, or commenced to be cured within
seven (7) Days of Design-Builder’s receipt of such notice.  If Design-Builder fails to cure, or reasonably
commence to cure such problem and thereafter diligently pursue such cure to
completion, then Owner may give a second written notice to Design-Builder of
its intent to terminate following an additional seven (7) Day period.  If Design-Builder, within such second seven
(7) Day period, fails to cure, or reasonably commence to cure such problem and
thereafter diligently pursue such cure to completion, then Owner may declare
the Agreement terminated for default by providing written notice to Design-Builder
of such declaration.  If (i) the insurance coverage required by
Design-Builder pursuant Article 17 hereof is suspended or cancelled without
Design-Builder providing immediate replacement coverage (and, in any case,
within fourteen (14) Days of the occurrence thereof) meeting the requirements
specified in Article 17 hereof; (ii) if applicable, a default occurs under the
Performance Bond or the Payment Bond, or the Performance Bond or Payment Bond
is revoked or terminated and such Performance Bond or the Payment Bond is not
immediately replaced (and, in any case, within fourteen (14) Days of the
occurrence thereof) by Design-Builder with a Performance Bond or a Payment Bond
providing at least the same level of coverage in a form and from a surety
acceptable to Owner and Lenders, or the surety under the Performance Bond or
Payment Bond institutes or has instituted against it a case under the United
States Bankruptcy Code; (iii) Design-Builder purports to make an assignment of
this Agreement in breach of the provisions of Section 21.1 hereof, or (iv) any
representation or warranty made by Design-Builder under Section 18.1 hereof was
false or materially misleading when made, then Owner may terminate this
Agreement upon written notice to Design-Builder.

 32
 

15.2.3     Upon
declaring the Agreement terminated pursuant to Section 15.2.2 above, Owner
may enter upon the premises and take possession, for the purpose of completing
the Work, of all materials, equipment, scaffolds, tools, appliances and other
items thereon, which have been purchased for the performance of the Work, all
of which Design-Builder hereby transfers, assigns and sets over to Owner for
such purpose, and to employ any person or persons to complete the Work and
provide all of the required labor, services, materials, equipment and other
items.  In the event of such termination,
Design-Builder shall not be entitled to receive any further payments under the
Contract Documents until the Work shall be finally completed in accordance with
the Contract Documents.  At such time, if
the unpaid balance of the Contract Price exceeds the cost and expense incurred
by Owner in completing the Work, Design-Builder will be paid promptly by Owner
for Work performed prior to its default. 
If Owner’s cost and expense of completing the Work exceeds the unpaid
balance of the Contract Price, then Design-Builder shall be obligated to
promptly pay the difference to Owner. 
Such costs and expense shall include not only the cost of completing the
Work, but also losses, damages, costs and expenses, including attorneys’ fees
and expenses, incurred by Owner in connection with the re-procurement and
defense of claims arising from Design-Builder’s default, subject to the waiver
of consequential damages set forth in Section 19.4 and the limitation of
liability set forth in Section 19.5 hereof.

15.2.4     If
Owner improperly terminates the Agreement for cause, the termination for cause
will be converted to a termination for convenience in accordance with the
provisions of Section 15.3.

15.3        Owner’s
Right to Terminate for Convenience.

15.3.1     Upon
ten (10) Days’ written notice to Design-Builder, Owner may, for its convenience
and without cause, elect to terminate this Agreement.  In such event, Owner shall pay Design-Builder
for the following:

(a)                                  to
the extent not already paid, all Work executed, and for proven loss, cost or
expense in connection with the Work;

(b)                                 the
reasonable costs and expenses attributable to such termination, including
demobilization costs;

(c)                                  amounts
due in settlement of terminated contracts with Subcontractors and Design
Consultants;

(d)                                 overhead and profit
margin in the amount of fifteen percent (15%) on the sum of items (a) and (b)
above; and

(e)                                  all retainage
withheld by Owner on account of Work that has been completed in accordance with
the Contract Documents.

15.3.2     If
Owner terminates this Agreement pursuant to this Section 15.3 and proceeds
to design and construct the Project through its employees, agents or third
parties, Owner’s rights to use the Work Product shall be as set forth in
Section 5.3.

15.4        Design-Builder’s
Right to Stop Work.

 33
 

15.4.1     Design-Builder
may, in addition to any other rights afforded under the Contract Documents or
at Law, stop work for Owner’s failure to pay amounts properly due under
Design-Builder’s Application for Payment.

15.4.2     If
any of the events set forth in Section 15.4.1 above occur, Design-Builder
has the right to stop work by providing written notice to Owner that
Design-Builder will stop work unless such event is cured within seven (7) Days
from Owner’s receipt of Design-Builder’s notice. If Owner fails to cure or
reasonably commence to cure such problem and thereafter diligently pursue such
cure to completion, then Design-Builder may give a second written notice to
Owner of its intent to stop work within an additional seven (7) Day
period.  If Owner, within such second
seven (7) Day period, fails to cure, or reasonably commence to cure such
problem and thereafter diligently pursue such cure to completion, then
Design-Builder may stop work.  In such
case, Design-Builder shall be entitled to make a claim for adjustment to the
Contract Price and Contract Time(s) to the extent it has been adversely
impacted by such stoppage.

15.5        Design-Builder’s
Right to Terminate for Cause.

15.5.1     Design-Builder,
in addition to any other rights and remedies provided in the Contract Documents
or by Law, may terminate the Agreement for cause for the following reasons:

(a)                                  The
Work has been stopped for sixty (60) consecutive Days, or more than ninety (90)
Days during the duration of the Project, because of court order, any
Governmental Authority having jurisdiction over the Work, or orders by Owner
under Section 15.1 hereof, provided that such stoppages are not due to the
acts or omissions of Design-Builder, Design Consultant and their respective
officers, agents, employees, Subcontractors or any other person for whose acts
the Design-Builder may be liable under Law.

(b)                                 Owner’s
failure to provide Design-Builder with any information, permits or approvals
that are Owner’s responsibility under the Contract Documents which result in
the Work being stopped for sixty (60) consecutive Days, or more than ninety
(90) Days during the duration of the Project, even though Owner has not ordered
Design-Builder in writing to stop and suspend the Work pursuant to
Section 15.1 hereof.

(c)                                  Owner
fails to meet its obligations under Exhibit C and such failure results in the
Work being stopped for sixty (60) consecutive Days, or more than ninety (90)
Days during the duration of the Project even though Owner has not ordered
Design-Builder in writing to stop and suspend the Work pursuant to
Section 15.1 hereof.

(d)                                 Owner’s
failure to cure the problems set forth in Section 15.4.1 above within
seven (7) Days after Design-Builder has stopped the Work.

15.5.2     Upon
the occurrence of an event set forth in Section 15.5.1 above,
Design-Builder may elect to terminate this Agreement by providing written
notice to Owner that it intends to terminate the Agreement unless the problem
cited is cured within seven (7) Days of Owner’s receipt of such notice.  If Owner fails to cure, or reasonably
commence to cure, such problem, then Design-Builder may give a second written notice
to Owner of its intent to

 34
 

terminate
within an additional seven (7) Day period. 
If Owner, within such second seven (7) Day period, fails to cure such
problem, then Design-Builder may declare the Agreement terminated for default
by providing written notice to Owner of such declaration.  In such case, Design-Builder shall be
entitled to recover in the same manner as if Owner had terminated the Agreement
for its convenience under Section 15.3.

15.6        Bankruptcy
of Owner or Design-Builder.

15.6.1     If
either Owner or Design-Builder institutes or has instituted against it a case
under the United States Bankruptcy Code (such Party being referred to as the “Bankrupt
Party”), such event may impair or frustrate the Bankrupt Party’s ability
to perform its obligations under the Contract Documents.  Accordingly, should such event occur:

(a)                                  The
Bankrupt Party, its trustee or other successor, shall furnish, upon request of
the non-Bankrupt Party, adequate assurance of the ability of the Bankrupt Party
to perform all future obligations under the Contract Documents, which
assurances shall be provided within ten (10) Days after receiving notice of the
request; and

(b)                                 The
Bankrupt Party shall file an appropriate action within the bankruptcy court to
seek assumption or rejection of the Agreement within sixty (60) Days of the
institution of the bankruptcy filing and shall diligently prosecute such
action.

15.6.2     If
the Bankrupt Party fails to comply with its foregoing obligations, the
non-Bankrupt Party shall be entitled to request the bankruptcy court to reject
the Agreement, declare the Agreement terminated and pursue any other recourse
available to the non-Bankrupt Party under this Article 15.

15.6.3     The
rights and remedies under this Section 15.6 shall not be deemed to limit
the ability of the non-Bankrupt Party to seek any other rights and remedies
provided by the Contract Documents or by Law, including its ability to seek
relief from any automatic stays under the United States Bankruptcy Code or the
right of Design-Builder to stop Work under any applicable provision of this
Agreement.

15.7        Lenders’
Right to Cure. 
At any time after the occurrence of any event set forth in Section
15.4.1 or Section 15.5.1, but within the timeframes set forth therein, the
Lenders shall have the right, but not the obligation, to cure such default on
behalf of Owner.

Article 16

Representatives
of the Parties

16.1        Designation
of Owner’s Representatives.  Owner designates the individual listed below
as its senior representative (“Owner’s Senior Representative”), which
individual has the authority and responsibility for avoiding and resolving
disputes under Article 19:

Brian Kletscher

President and Chairman

30427 Co
Hwy 10

 35
 

Vesta, MN 56292

Cell Phone:  (507) 828-1429

Home Telephone:   (507) 762-3376

E-mail:  brian_k@co.redwood.mn.us

Owner designates the individual
listed below as its representative (“Owner’s Representative”), which
individual has the authority and responsibility set forth in Section 4.4:

Brian Kletscher

President and Chairman

30427 Co Hwy 10

Vesta, MN 56292

Cell Phone:  (507) 828-1429

Home Telephone:   (507) 762-3376

E-mail:  brian_k@co.redwood.mn.us

16.2        Designation
of Design-Builder’s Representatives.  Design-Builder designates the individual
listed below as its senior representative (“Design-Builder’s Senior
Representative”), which individual has the authority and responsibility for
avoiding and resolving disputes under Article 19:

Roland “Ron” Fagen

CEO and President

501 W. Highway 212

P.O. Box 159

Granite Falls, MN 56241

Telephone:  (320) 564-3324

Facsimile: (320) 564-3278

Design-Builder designates the
individual listed below as its representative (“Design-Builder’s  Representative”),
which individual has the authority and responsibility set forth in
Section 3.1:

Aaron Fagen

Chief Operating Officer

501 W. Highway 212

P.O. Box 159

Granite Falls, MN 56241

Telephone:  (320) 564-3324 

Facsimile: (320) 564-3278

 36
 

Article
17

Insurance

17.1        Insurance.  Design-Builder shall procure and maintain in
force through the Final Completion Date the following insurance coverages with
the policy limits indicated, and otherwise in compliance with the provisions of
this Agreement:

	
  Commercial General
  Liability:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  General Aggregate

  	
   

  	
   

  	
   

  
	
  Products-Comp/Op AGG

  	
   

  	
  $

  	
  2,000,000

  	
   

  
	
  Personal & Adv Injury

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  Each Occurrence

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  Fire Damage (Any one fire)

  	
   

  	
  $

  	
  50,000

  	
   

  
	
  Med Exp (Any one person)

  	
   

  	
  $

  	
  5,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Automobile
  Liability:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Combined Single Limit

  	
   

  	
   

  	
   

  
	
  Each Occurrence

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Excess Liability
  – Umbrella Form:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Each Occurrence

  	
   

  	
  $

  	
  20,000,000

  	
   

  
	
  Aggregate

  	
   

  	
  $

  	
  20,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Workers’
  Compensation

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Statutory limits as required by the state in which
  the Work is performed.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Employers’
  Liability:

  	
   

  	
   

  	
   

  
	
  Each Accident

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  Disease-Policy Limit

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  Disease-Each Employee

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Professional
  Errors and Omissions

  	
   

  	
   

  	
   

  
	
  Per Claim

  	
   

  	
  $

  	
  5,000,000

  	
   

  
	
  Annual

  	
   

  	
  $

  	
  5,000,000

  	
   

  

 

17.2        Design-Builder’s
Insurance Requirements.

17.2.1     Design-Builder
is responsible for procuring and maintaining from insurance companies
authorized to do business in the state in which the Project is located, the
following insurance coverages for certain claims which may arise from or out of
the performance of the Work and obligations under the Contract Documents:

 37
 

(a)                                  coverage
for claims arising under workers’ compensation, disability and other similar
employee benefit Laws applicable to the Work;

(b)                                 coverage
for claims by Design-Builder’s employees for bodily injury, sickness, disease,
or death;

(c)                                  coverage
for claims by any person other than Design-Builder’s employees for bodily
injury, sickness, disease, or death;

(d)                                 coverage
for usual personal injury liability claims for damages sustained by a person as
a direct or indirect result of Design-Builder’s employment of the person, or
sustained by any other person;

(e)                                  coverage
for claims for damages (other than to the Work) because of injury to or
destruction of tangible property, including loss of use;

(f)                                    coverage
for claims of damages because of personal injury or death, or property damage
resulting from ownership, use and maintenance of any motor vehicle; and

(g)                                 coverage
for contractual liability claims arising out of Design-Builder’s obligations
under Section 14.2.

17.2.2     Design-Builder’s
liability insurance required by this Section 17.2 shall be written for the
coverage amounts set forth in Section 17.1 and shall include completed
operations insurance for the period of time set forth in the Agreement.

17.2.3     Design-Builder’s
liability insurance set forth in Sections 17.2.1 (a) through (g) above shall
specifically delete any design-build or similar exclusions that could
compromise coverages because of the design-build delivery of the Project.

17.2.4     
To the extent Owner requires Design-Builder or any Design Consultant to provide
professional liability insurance for claims arising from the negligent
performance of design services by Design-Builder or the Design Consultant, the
coverage limits, duration and other specifics of such insurance shall be as set
forth in the Agreement.  Any professional
liability shall specifically delete any design-build or similar exclusions that
could compromise coverages because of the design-build delivery of the
Project.  Such policies shall be provided
prior to the commencement of any design services hereunder.

17.2.5     Prior
to commencing any construction services hereunder, Design-Builder shall provide
Owner with certificates evidencing that (i) all insurance obligations required
by the Contract Documents are in full force and in effect and will remain in
effect for the duration required by the Contract Documents and (ii) no
insurance coverage required hereunder will be canceled, renewal refused, or
changed unless at least thirty (30) Days prior written notice is given to
Owner.

17.3        Owner’s
Liability Insurance. 
Owner shall procure and maintain from insurance companies authorized to
do business in the state in which the Project is located such liability
insurance to protect Owner from claims which may arise from the performance of
Owner’s obligations under the Contract Documents or Owner’s conduct during the
course of the Project.  

 38
 

The general and professional liability insurance obtained by Owner
shall name Design-Builder, Design Consultants, Subcontractors, the Lenders and
Lenders’ Agent as additional insureds, without application of deductible,
retention or retrospective premiums as to the additional insureds.

17.4        Owner’s
Property Insurance.

17.4.1     Unless
otherwise provided in the Contract Documents, Owner shall procure from
insurance companies authorized to do business in the state in which the Project
is located, and maintain through Final Completion, property insurance upon the
entire Project in a minimum amount equal to the full insurable value of the
Project, including professional fees, overtime premiums and all other expenses
incurred to replace or repair the insured property.  The property insurance obtained by Owner
shall include as additional insureds the interests of Owner, Design-Builder,
Design Consultants, Subcontractors, the Lenders and Lenders’ Agent and shall
insure against the perils of fire and extended coverage, theft, vandalism,
malicious mischief, collapse, flood, earthquake, debris removal and other
perils or causes of loss as called for in the Contract Documents and without
application of any deductible, retention or retrospective premium.  Owner shall maintain coverage equal to or in
excess of the value of each of Design-Builder’s, Design Consultants’, and
Subcontractors’ property on the Site. 
The property insurance shall include physical loss or damage to the
Work, including materials and equipment in transit, at the Site or at another
location as may be indicated in Design-Builder’s Application for Payment and
approved by Owner.

17.4.2     Unless
the Contract Documents provide otherwise, Owner shall procure and maintain boiler
and machinery insurance that will include as additional insureds the Owner,
Design-Builder, Design Consultants, and Subcontractors, in an amount not less
than Contract Price and without application of any deductible, retention or
retrospective premium as to the additional insureds. Owner shall maintain
coverage equal to or in excess of the value of each of Design-Builder’s, Design
Consultants’, and Subcontractors’ interest or investment in boiler or machinery
equipment on the Site.

17.4.3     Prior
to Design-Builder commencing any Work, Owner shall obtain a builder’s risk
insurance policy naming Owner as the insured, with Design-Builder, Design
Consultants and Subcontractors as additional insureds, in an amount not less
than the Contract Price and without application of deductible, retention or
retrospective premium as to the additional insureds.

17.4.4     Owner
shall also obtain, prior to Design-Builder commencing any Work, terrorism
coverage as described by the Terrorism Risk Insurance Act of 2002, Pub. L. No.
107-297, 116 Stat. 2322 (2002), as extended by the Terrorism Risk Insurance
Extension Act of 2005, Pub. L. No. 109-144 (2005), or any successor act or
renewing act for the period during which the Terrorism Risk Insurance Act or
any successor act or renewing act is in effect.

17.4.5     Prior
to Design-Builder commencing any Work, Owner shall provide Design-Builder with
copies of the insurance certificates reflecting coverages required under this
Section 17.4 evidencing that (i) all Owner’s insurance obligations required by
the Contract Documents are in full force and in effect and will remain in
effect until Design-Builder has completed all of the Work and has received
Final Payment from Owner, and (ii) no insurance

 39
 

coverage will
be canceled, renewal refused, or changed unless at least thirty (30) Days prior
written notice is given to Design-Builder. 
Owner’s property insurance shall not lapse or be cancelled during the
term of this Agreement.  Promptly after
Owner’s receipt thereof, Owner shall be required to provide Design-Builder with
copies of all insurance policies to which Design-Builder, Design Consultants,
and Subcontractors are named as additional insureds.  In the event Owner replaces insurance
providers for any policy required under this Section, revises policy coverages,
or otherwise modifies any applicable insurance policy in any way, Owner shall
provide Design-Builder, for its review or possession as provided under this
Section 17.4.5, the certificate of insurance and a copy of such new, revised or
modified policy when available.

17.4.6     Any
loss covered under Owner’s property insurance shall be adjusted with Owner and
Design-Builder and made payable to both of them as trustees for the insureds as
their interests may appear, subject to any applicable mortgage clause.  All insurance proceeds received as a result
of any loss will be placed in a separate account and distributed in accordance
with such agreement as the interested parties may reach.  Any disagreement concerning the distribution
of any proceeds will be resolved in accordance with Article 19 hereof.

17.4.7     Owner
and Design-Builder waive against each other and Owner’s separate contracts,
Design Consultants, Subcontractors, agents and employees of each and all of
them all damages covered by property insurance provided herein, except such
rights as they may have to the proceeds of such insurance.  Design-Builder and Owner shall, where
appropriate, require similar waivers of subrogation from Owner’s separate
contractors, Design Consultants Subcontractors, and insurance providers and
shall require each of them to include similar waivers in their contracts or
policies.

Article
18

Representations
and Warranties

18.1        Design-Builder
and Owner Representations and Warranties.  Each of Design-Builder and Owner represents
that:

(a)                                  it
is duly organized, validly existing and in good standing under the Laws of its
formation  and has all requisite power
and authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby;

(b)                                 this
Agreement has been duly executed and delivered by such Party and constitutes
the legal, valid and binding obligations of such Party, enforceable against
such Party in accordance with their respective terms, except as enforcement may
be limited by bankruptcy, insolvency, moratorium or similar Laws affecting
creditor’s rights or by general equitable principles;

(c)                                  the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby do not and will not conflict with or
violate (a) the certificate of incorporation or bylaws or equivalent
organizational documents of such Party, or (b) any Law applicable to such Party
and other than

 40
 

the
permits listed on Exhibit G, such execution, delivery and performance of this
Agreement does not require any Governmental Approval; and

(d)                                 there
is no action pending or, to the knowledge of such Party, threatened, which
would hinder, modify, delay or otherwise adversely affect such Party’s ability
to perform its obligations under the Contract Documents.

18.2        Design-Builder
Representations and Warranties.  Design-Builder further represents that it has
the necessary financial resources to fulfill its obligations under this
Agreement.

Article
19

Dispute
Resolution

19.1        Dispute
Avoidance and Mediation.  The Parties are fully committed to working
with each other throughout the Project and agree to communicate regularly with
each other at all times so as to avoid or minimize disputes or disagreements.  If disputes or disagreements do arise,
Design-Builder and Owner each commit to resolving such disputes or
disagreements in an amicable, professional and expeditious manner so as to
avoid unnecessary losses, delays and disruptions to the Work.

Design-Builder and
Owner will first attempt to resolve disputes or disagreements at the field
level through discussions between Design-Builder’s Representative and Owner’s
Representative.

If a dispute or
disagreement cannot be resolved through Design-Builder’s Representative and
Owner’s Representative, Design-Builder’s Senior Representative and Owner’s
Senior Representative, upon the request of either Party, shall meet as soon as
conveniently possible, but in no case later than thirty (30) Days after such a
request is made, to attempt to resolve such dispute or disagreement.  Prior to any meetings between the Senior
Representatives, the Parties will exchange relevant information that will
assist the Parties in resolving their dispute or disagreement.

If, after meeting,
the Senior Representatives determine that the dispute or disagreement cannot be
resolved on terms satisfactory to both Parties, the Parties shall submit the
dispute or disagreement to non-binding mediation.  The mediation shall be conducted in Minneapolis,
Minnesota by a mutually agreeable impartial mediator or, if the Parties cannot
so agree, a mediator designated by the American Arbitration Association (“AAA”)
pursuant to its Construction Industry Arbitration Rules and Mediation
Procedures.  The mediation will be
governed by and conducted pursuant to a mediation agreement negotiated by the
Parties or, if the Parties cannot so agree, by procedures established by the
mediator.

19.2        Arbitration.  Any claims, disputes or controversies between
the Parties arising out of or relating to the Agreement, or the breach thereof,
which have not been resolved in accordance with the procedures set forth in
Section 19.1 above shall be decided by arbitration to be conducted in
Minneapolis, Minnesota in accordance with the Construction Industry Arbitration
Rules and Mediation Procedures of the AAA then in effect, unless the Parties
mutually agree otherwise.

 41
 

The award of the
arbitrator(s) shall be final and binding upon the Parties without the right of
appeal to the courts.  Judgment may be
entered upon it in accordance with Applicable Law by any court having
jurisdiction thereof.

Design-Builder and
Owner expressly agree that any arbitration pursuant to this Section 19.2
may be joined or consolidated with any arbitration involving any other person
or entity (i) necessary to resolve the claim, dispute or controversy, or (ii)
substantially involved in or affected by such claim, dispute or
controversy.  Both Design-Builder and
Owner will include appropriate provisions in all contracts they execute with
other parties in connection with the Project to require such joinder or
consolidation.

The prevailing
Party in any arbitration, or any other final, binding dispute proceeding upon
which the Parties may agree, shall be entitled to recover from the other Party
reasonable attorneys’ fees and expenses incurred by the prevailing Party.

19.3        Duty
to Continue Performance.  Unless provided to the contrary in the
Contract Documents, Design-Builder shall continue to perform the Work and Owner
shall continue to satisfy its payment obligations to Design-Builder, pending
the final resolution of any dispute or disagreement between Design-Builder and
Owner.

19.4        No
Consequential Damages.

19.4.1     Notwithstanding
anything herein to the contrary, neither Design-Builder nor Owner shall be
liable to the other for any consequential losses or damages, whether arising in
contract, warranty, tort (including negligence), strict liability or otherwise,
including but not limited to, losses of use, profits, business, reputation or
financing, except that Design-Builder does not waive any such damages resulting
from or arising out of any breach of Owner’s duties and obligations under the
limited license granted by Design-Builder to Owner pursuant to Article 5.

19.5        Limitation
of Liability. 
Notwithstanding anything else in this Agreement to the contrary, the
aggregate liability of Design-Builder, its Subcontractors, vendors, suppliers,
agents and employees,  to Owner (or any
successor thereto or assignee thereof) for any and all claims and/or
liabilities arising out of or relating in any manner to the Work or to
Design-Builder’s performance or non-performance of its obligations hereunder,
whether based in contract, tort (including negligence), strict liability, or
otherwise, shall not exceed, in the aggregate, the Contract Price and shall be
reduced, upon the issuance of each Application for Payment, by the total value
of such Application for Payment; provided, however, that upon the earlier of
Substantial Completion or such point in time requests for payment pursuant to
Article 10 have been made for ninety percent (90%) of the Contract Price,
Design-Builder’s aggregate liability shall be limited to the greater of (1) Ten
Percent (10%) of the Contract Price or (2) the amount of insurance coverage
available to respond to the claim or liability under any policy of insurance
provided by Design-Builder under this Agreement. The aggregate liability of
Design-Builder shall not include increased costs of purchasing equipment,
materials, supplies, or services, except to the extent Owner has terminated the
Agreement pursuant to Section 15.2 and such equipment, materials, supplies, and
services are required to complete the Work.

 42
 

Article
20

Confidentiality
of Shared Information

20.1        Non-Disclosure
Obligation. 
Except as required by court order, subpoena, or Applicable Law, the
Parties will hold in confidence, and will use only for the purposes of
completing the Project, any and all Confidential Information disclosed to each
other.  Neither Party shall disclose to
third parties any Confidential Information without the express written consent
of the other Party, which consent shall not be unreasonably withheld.  The Parties shall at all times use their
respective reasonable efforts to keep all Confidential Information and
information regarding the terms and conditions of this Agreement
confidential.  However, the Parties may
disclose Confidential Information to their respective lenders, lenders’ agents,
advisors and/or consultants only as reasonably necessary in connection with the
financing of the Plant or to enable them to advise the Parties with regard to
the Contract Documents and the Project, provided that prior to such disclosure
any party to whom Confidential Information is disclosed is informed by the
disclosing Party of the existence of this confidentiality obligation and agrees
to be obligated to maintain the confidentiality of any information received.
The term “Confidential Information” will mean (i) confidential or proprietary
information regarding the other Party’s business affairs, finances, technology,
processes, plans or installations, product information, know-how, or other
information that is received from the other Party pursuant to this Agreement or
the Parties’ relationship prior thereto or is developed pursuant to this
Agreement, (ii) any and all information concerning the Contract Documents, the
Agreement, or the terms thereof, and (iii) all information which one Party,
directly or indirectly, may acquire from another Party; however,   Confidential Information will not include
information falling into any of the following categories:

(a)                                  information
that, at the time of disclosure hereunder, is in the public domain;

(b)                                 information
that, after disclosure hereunder, enters the public domain other than by breach
of this Agreement or the obligation of confidentiality;

(c)                                  information
that, prior to disclosure hereunder, was already in the recipient’s possession,
either without limitation on disclosure to others or subsequently becoming free
of such limitation;

(d)                                 information
obtained by the recipient from a third party having an independent right to
disclose this information; and

(e)                                  information
that is available through discovery by independent research without use of or
access to the Confidential Information acquired from the other Party; and

(f)                                    photographs
and descriptive information regarding the Project, including Plant capacity,
Owner’s name, and Project location, as used by Fagen for purposes of marketing
and promotion.

 43
 

Each Party’s
obligation to maintain Confidential Information in confidence will be deemed
performed if such Party observes with respect thereto the same safeguards and
precautions which such Party observes with respect to its own Confidential Information
of the same or similar kind.  It will not
be deemed to be a breach of the obligation to maintain Confidential Information
in confidence if Confidential Information is disclosed upon the order of a
court or other authorized Governmental Authority, or pursuant to other Legal
Requirements.  However, if Owner is
required to file the Contract Documents or a portion thereof with a
Governmental Authority, it agrees that it will not do so without first
informing Design-Builder of the requirement and seeking confidential treatment
of the Contract Documents prior to filing the documents or a portion thereof.

20.2        Publicity
and Advertising. 
Owner shall not make or permit any of its subcontractors, agents, or
vendors to make any external announcement or publication, release any
photographs or information concerning the Project or any part thereof, or make
any other type of communication to any member of the public, press, business
entity, or any official body which names Fagen unless prior written consent is
obtained from Fagen, which consent shall not be unreasonably withheld.

20.3        Term
of Obligation. 
The confidentiality obligations of the Parties pursuant to this
Article 20 shall survive the expiration or other termination of this
Agreement for a period of five (5) years.

Article
21

Miscellaneous

21.1        Assignment.  This Agreement shall be binding upon, shall
inure to the benefit of, and may be performed by, the successors and permitted
assigns of the Parties, except that neither Design-Builder nor Owner shall,
without the written consent of the other, assign or transfer this Agreement or
any of the Contract Documents. 
Design-Builder’s subcontracting portions of the Work in accordance with
this Agreement shall not be deemed to be an assignment of this Agreement.  Owner may assign all of its rights and
obligations under the Contract Documents to its Lenders or Lenders’ Agent as
collateral security in connection with Owner obtaining or arranging any
financing for the Project; provided, however, Owner shall deliver, at least ten
(10) Days prior to any such assignment, to Design-Builder (i) written notice of
such assignment and (ii) a copy of the instrument of assignment in form and
substance reasonably acceptable to Design-Builder, whose approval shall not be
unreasonably withheld.  The Lenders or
Lenders’ Agent may assign the Contract Documents or their rights under the
Contract Documents, including without limitation in connection with any
foreclosure or other enforcement of their security interest.  Design-Builder shall execute, if requested, a
consent to assignment for the benefit of the Lenders and/or the Lenders’ Agent
in form and substance reasonably acceptable to Design-Builder, a form of which
is attached hereto as Exhibit O, provided that with respect to any such
assignments such assignee demonstrates to Design-Builder’s satisfaction that it
has the capability to fulfill Owner’s obligations under this Agreement.

21.2        Successors.  Design-Builder and Owner intend that the
provisions of the Contract Documents are binding upon the Parties, their
employees, agents, heirs, successors and assigns.

 44
 

21.3        Governing
Law.  This
Agreement shall be governed by and construed and enforced in accordance with,
the substantive laws of the state of Minnesota, without regard to the conflict
of laws provisions thereof.

21.4        Severability.  If any provision or any part of a provision
of the Contract Documents shall be finally determined to be superseded,
invalid, illegal, or otherwise unenforceable pursuant to any applicable Legal Requirements,
such determination shall not impair or otherwise affect the validity, legality,
or enforceability of the remaining provision or parts of the provision of the
Contract Documents, which shall remain in full force and effect as if the
unenforceable provision or part were deleted.

21.5        No
Waiver.  The
failure of either Design-Builder or Owner to insist, in any one (1) or more
instances, on the performance of any of the obligations required by the other
under the Contract Documents shall not be construed as a waiver or
relinquishment of such obligation or right with respect to future performance.

21.6        Headings.  The table of contents and the headings used
in this Agreement or any other Contract Document, are for ease of reference
only and shall not in any way be construed to limit, define, extend, describe,
alter, or otherwise affect the scope or the meaning of any provision of this
Agreement.

21.7        Notice.  Whenever the Contract Documents require that
notice be provided to a Party, notice shall be delivered in writing to such
Party at the address listed below. 
Notice will be deemed to have been validly given if delivered (i) in
person to the individual intended to receive such notice, (ii) by registered or
by certified mail, postage prepaid to the address indicated in the Agreement
within four (4) Days after being sent, or (iii) by facsimile, by the time
stated in a machine-generated confirmation that notice was received at the
facsimile number of the intended recipient.

If to
Design-Builder, to:

Fagen, Inc.

501 W. Highway 212

P. O. Box 159

Granite Falls, MN  56241

Attention: Aaron Fagen

Fax:  (320) 564-3278

with a copy to:

Fagen, Inc.

501 W. Highway 212

P. O. Box 159

Granite Falls, MN  56241

Attention: Jennifer Johnson

Fax:  (320) 564-3278

 45
 

and to:

Fagen, Inc.

501 W. Highway 212

P. O. Box 159

Granite Falls, MN  56241

Attention: Wayne Mitchell

Fax:  (320) 564-5190

If to Owner, to:

Brian Kletscher

President and Chairman

30427 Co Hwy 10

Vesta, MN 56292

Cell Phone:  (507) 828-1429

Home Phone:  (507) 762-3376

E-mail:  brian_k@co.redwood.mn.us

and

Kevin K. Stroup

STONEBERG, GILES &
STROUP, P.A.

300 O’Connell Street

Marshall, MN 56258

Telephone:  (507) 537-0591

Fax:  (507) 532-3498

E-mail:  kevin@sgslawyers.com

and

Lender’s Agent at the address provided for Lender’s Agent to
Design-Builder by Owner by notice within five (5) Days following the Financial
Closing.

21.8        No
Privity with Design Consultant/Subcontractors.  Nothing in the Contract Documents is intended
or deemed to create any legal or contractual relationship between Owner and any
Design Consultant or Subcontractor.

21.9        Amendments.  The Contract Documents may not be changed,
altered, or amended in any way except in writing signed by a duly authorized
representative of each Party.

21.10      Entire
Agreement.  This
Agreement consists of the terms and conditions set forth herein, as well as the
Exhibits hereto, which are incorporated by reference herein and made a part
hereof.  This Agreement sets forth the
full and complete understanding of the Parties as of the Effective Date with
respect to the subject matter hereof.

 46
 

21.11      Third-Party
Beneficiaries. 
Except as expressly provided herein, this Agreement is intended to be
solely for the benefit of the Owner, the Design-Builder and permitted assigns,
and is not intended to and shall not confer any rights or benefits on any
person not a signatory hereto.

21.12      Counterparts.  This Agreement may be executed in one (1) or
more counterparts, each of which shall be deemed an original and all of which
together shall be deemed one and the same Agreement, and may be executed and
delivered by facsimile signature, which shall be considered an original.

21.13      Survival.   Notwithstanding any provisions herein to the
contrary, the Work Product provisions set forth in Article 5 and the indemnity
obligations set forth herein shall survive (in full force and effect) the
expiration or termination of this Agreement and shall continue to apply to the
Parties to this Agreement even after termination of this Agreement or the
transfer of such Party’s interest in this Agreement.

[The next page is
the signature page.]

 47
 

IN
WITNESS WHEREOF, the Parties hereto have caused their names
to be hereunto subscribed by their officers thereunto duly authorized,
intending thereby that this Agreement shall be effective as of this September
28, 2006.

	
  OWNER:

  	
   

  	
  DESIGN-BUILDER:

  
	
   

  	
   

  	
   

  
	
  Highwater
  Ethanol, LLC

  	
   

  	
  Fagen, Inc.

  
	
  (Name
  of Owner)

  	
   

  	
  (Name of Design-Builder)

  
	
   

  	
   

  	
   

  
	
  /s/ Brian Kletscher

  	
   

  	
  /s/ Ron Fagen

  
	
  (Signature)

  	
   

  	
  (Signature)

  
	
   

  	
   

  	
   

  
	
  Brian Kletscher

  	
   

  	
  Roland “Ron” Fagen

  
	
  (Printed
  Name)

  	
   

  	
  (Printed Name)

  
	
   

  	
   

  	
   

  
	
  President

  	
   

  	
  CEO and President

  
	
  (Title)               (Title)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
  9-28-06 

  	
   

  	
  Date: 

  	
  9/28/06

  
					

 

 48

EXHIBIT A

Performance
Guarantee Criteria

	
  Criteria

  	
  Specification

  	
  Testing Statement

  	
  Documentation

  
	
  Plant Capacity – fuel grade ethanol

  	
  Operate at a rate of 50 million gallons per year of
  denatured fuel grade ethanol meeting the specifications of ASTM 4806 based on
  353 days of operation per calendar year and 4.76% denaturant.

  	
  Seven day performance test

  	
  Production records and written report by
  Design-Builder.

  
	
  Corn to Ethanol Conversion ratio; [*]

  	
  Not be less than 2.80 denatured gallons of ethanol
  per bushel (56#) of corn

  	
  As determined by meter readings during a seven day
  performance test.

  	
  Production records and written analysis by
  Design-Builder.

  
	
  Electrical Energy

  	
  0.75 kWh per denatured gallon of fuel grade ethanol
  [*]

  	
  As determined by meter readings during a seven day
  performance test.

  	
  Production records and written analysis by
  Design-Builder.

  
	
  Natural Gas

  	
  Shall not exceed 34,000 Btu per denatured gallon of
  fuel grade ethanol. (This Performance Criteria relates to production of
  ethanol and excludes any natural gas usage that may occur for drying corn.)

  	
  As determined by meter readings during a seven day
  performance test.

  	
  Production records and written analysis by
  Design-Builder.

  

 

*Portion omitted pursuant to a request for confidential treatment and
filed separately with the Securities and Exchange Commission.

 A-1
 

 

	
  Process Water Discharge (not including cooling tower
  and boiler blowdown and water pre-treatment (RO) discharge)

  	
  Zero gallons under normal operations.

  	
  Process discharge meter.

  	
  Control System reports.

  
	
  Air Emissions

  	
  Must meet the requirements prescribed as of the date
  hereof by the State of Minnesota Pollution Control Agency, Air Quality
  Division.

  	
  Must meet the requirements as prescribed in the Air
  Permit Application to be provided by Owner, approved by Design-Builder, and
  attached as Exhibit K.

  	
  Written report by Owner’s Air Emission Tester.

  

As part of the Performance
Guarantee Criteria the Plant shall operate in accordance with all Legal
Requirements.

DISCLAIMER:

Owner’s failure to
materially comply with the operating procedures issued by ICM, Inc./Fagen, Inc.
shall void all performance guaranties and warranties set forth in this
Design-Build Agreement.

Owner understands that the startup of the plant requires resources and
cooperation of the Owner, vendors and other suppliers to the project.  Design-Builder disclaims any liability and
Owner indemnifies Design-Builder for non-attainment of the Performance
Guarantee Criteria directly or indirectly caused by material non-performance or
negligence of third parties not retained by Design-Builder.

 A-2

EXHIBIT B

General
Project Scope

Construct a fifty (50) MGY dry
mill fuel ethanol plant near Lamberton, Minnesota.  The plant will grind approximately seventeen
million eight hundred seventy-five thousand (17,875,000) bushels of corn per
year to produce approximately fifty (50) MGY of denatured fuel ethanol.  The plant will also produce approximately one
hundred sixty thousand seven hundred fifty (160,750) tons per year of 11%
moisture dried distillers grains with solubles (DDGS), and approximately one
hundred fifty-one thousand two hundred fifty (151,250) tons per year of raw
carbon dioxide (CO2) gas.

Delivered corn will be dumped
in the receiving building.  The receiving
building will have two truck grain receiving bays and a rail receiving bay,
including an underground conveyor from the rail pit to the second truck
receiving bay both of which share a common receiving leg.  The truck driver will drive onto the pitless
scale located near the administration building, be weighed and sampled, then
drive to the receiving building, dump the grain, then proceed back to the
pitless scale and obtain a final weight ticket from the scale operator.  Two independent 15,000 -bushel legs will lift
the corn to one of two 250,000 — bushel concrete storage bins.  A dust collection system will be installed on
the grain receiving system to limit particulate emissions as described in the
Air Quality Permit application.

Ground corn will be mixed in a
slurry tank, routed through a pressure vessel and steam flashed off in a flash
vessel.  Cooked mash will continue
through liquefaction tanks and into one of the fermenters.  Simultaneously, propagated yeast will be
added to the mash as the fermenter is filling. 
After batch fermentation is complete, the beer will be pumped to the
beer well and then to the beer column to vaporize the alcohol from the mash.

Alcohol streams are dehydrated
in the rectifier column, the side stripper and the molecular sieve system.  Two hundred proof alcohol is pumped to the
tank farm day tank and blended with five percent natural gasoline as the
product is being pumped into one of two seven hundred fifty thousand (750,000)
gallon final storage tanks.  Loading
facilities for truck and rail cars will be provided.  Tank farm tanks include:  one tank for 190 proof storage, one tank for
200 proof storage, one tank for denaturant storage and two seven hundred fifty
thousand (750,000) gallon tanks for denatured ethanol storage.

Corn mash from the beer
stripper is dewatered in the centrifuge(s). 
Wet cake from the centrifuge(s) is conveyed to the DDGS dryer system.
Wet cake is conveyed from the centrifuges to the dryer(s) where the water is
removed from the cake and the product is dried to 11% moisture.  A modified wet or wet cake pad is located
along side the DDGS dryer building to divert modified wet or wet cake to the
pad when necessary or for limited production of modified wet or wet cake for
sales.  Water in the thin stillage is
evaporated and recycled by the Bio-Methanation system.  Syrup is added to the wet cake entering the
dryer(s).  DDGS is cooled and conveyed to
flat storage in the DDGS storage building. 
Shipping is accomplished by scooping and pushing the product with a
front-end loader into an in-floor conveyor system.  The DDGS load out pit has capacity for
approximately one semi-trailer load. 
DDGS is weighed as it is loaded for shipment through a bulk-weigh
system.

 B-1
 

Fresh water for the boilers,
cooking, cooling tower and other processes will be obtained from the Owner
supplied water pretreatment system.  Boiler
water conditioned in regenerative softeners will be pumped through a deaerator
scrubber and into a deaerator tank. 
Appropriate boiler chemicals will be added as preheated water is sent to
the boiler.

Steam energy will be provided
by one Thermal Oxidizer (TO) driven boiler system utilizing a high percentage
of condensate return to a condensate receiver tank.

The TO/Heat Recovery Steam
Generator is a process used to thermally oxidize the exhaust gasses from the
Dryers.  This process will be used to reduce
VOCs and particulates that are in the dryer exhaust and ensure compliance with
environmental regulations.  The energy
required to complete thermal oxidization will then be ducted to a waste heat
boiler that will produce 100% of the steam requirements of the ethanol
plant.  The exhaust gasses from the waste
heat boiler will be ducted through stack gas economizer(s) to recover the
maximum amount of energy possible from the exhaust gas stream.  After the economizer(s), the gas stream will
be vented to atmosphere through a stack.

The process will be cooled by
circulating water through heat exchangers, a chiller, and a cooling tower.

The design includes a
compressed air system consisting of air compressor(s), a receiver tank,
pre-filter, coalescing filter, and double air dryer(s).

The design also incorporates
the use of a clean-in-place (CIP) system for cleaning cook, fermentation,
distillation, evaporation, centrifuges, and other systems.  Fifty percent caustic soda is received by
truck and stored in a tank.

Under normal operating
circumstances, the plant will not have any wastewater discharges that have been
in contact with corn, corn mash, cleaning system, or contact process
water.  An ICM/Phoenix Bio-Methanator
will reduce the BOD in process water allowing complete reuse within the
plant.  The plant will have blowdown
discharges from the cooling tower and may have water discharge from any water
pre-treatment processes.  Owner shall
provide on-site connection to sanitary sewer or septic system.

Most plant processes are
computer controlled by a Siemens/Moore APACS distributed control system with
graphical user interface and three workstations.  The control room control console will have
dual monitors to facilitate operator interface between two graphics screens at
the same time.  Additional programmable
logic controllers (PLCs) will control certain process equipment.  Design-Builder provides lab equipment.

The cooking system requires the
use of anhydrous ammonia, and other systems require the use of sulfuric acid.  Therefore, a storage tank for ammonia and a
storage tank for acid will be on site to provide the quantities necessary.  The ammonia storage requires that plant
management implement and enforce a Process Safety Management (PSM)
program.  The plant design may require
additional programs to ensure safety and to satisfy regulatory authorities.

NOTE:  This Exhibit B is a general description of
the Plant’s basic design and operation only. 
It is not intended to be the final Project scope or to establish the final
specifications.  The final

 B-2
 

design of the
Plant, including equipment incorporated, and equipment specifications will be
reflected in the As Built Plans.

 B-3

EXHIBIT C

Owner’s
Responsibilities

The Owner shall perform and
provide the permits, authorizations, services and construction as specifically
described hereafter:

1)              Land and Grading – Owner
shall provide a site near Lamberton, Minnesota. 
Owner shall obtain all legal authority to use the site for its intended
purpose and perform technical due diligence to allow Design-Builder to perform
including, but not limited to, proper zoning approvals, building permits,
elevation restrictions, soil tests, and water tests. The site shall be rough
graded per Design-Builder specifications and be +/- three inches of final grade
including the rough grading for Site roadways. 
The site soils shall be modified as required to provide a minimum
allowable soil bearing pressure as described in Table 1.

Other items to be provided by the Owner include, but
are not limited to, the following: initial site survey (boundary and
topographic) as required by the Design-Builder, layout of the property corners
including two construction benchmarks, Soil Borings and subsequent Geotechnical
Report describing recommendation for Roads, foundations and if required, soil
stabilization/remediation, land disturbance permit, erosion control permit,
site grading as described above with minimum soil standards, placement of
erosion control measures, plant access road from a county, state or federal
road designed to meet local county road standards, plant storm and sanitary
sewers, fire water system with hydrants and plant water main branches taken
from the system to be within five feet of the designated building locations,
all tanks, motors and other equipment associated with or necessary to operate
the fire water loop and associated systems, plant roads as specified and
designed for the permanent elevations and effective depth, spill containment
and drainage systems from both rail and truck loading spots into the tank farm
or other location, “construction” grading plan as drawn (including site
retention pond), plant water well and associated permit(s).  The Owner shall provide for Design-Builder
aggregate covered areas for construction trailers and parking along with
adequate aggregate covered area or areas for material laydown purposes.  The recommended aggregate specifications
shall be as specified by the Owner’s geotechnical engineer.  Owner shall also provide the final grading,
seeding, and mulching, and the site fencing at the site.

Owner is encouraged to obtain preliminary
designs/information and estimates of the cost of performing all Owner required permits
and services as stated in this Exhibit C. 
Specifically, the cost of the fire water systems (including associated
fire water pumps, required tank, building (if required), sprinklers, and all
other equipment and materials associated with the fire water delivery systems)
is estimated being in excess of $800,000. 
The requirements of each state and the decisions of each Owner will
increase or decrease the actual cost. 
Additionally, the cost of the required soil stabilization in Table 1 can
be in the range of, or may exceed, $2.5MM which cost is not included in the
Contract Price.  The specific soil
stabilization requirements for the grain and DDGS areas will be developed in
coordination with the grain/DDGS area subcontractor.  Owner shall prepare site according to
Design-Builder’s engineering plans provided for the site work under the Phase I
and Phase II Engineering Services Agreement.

 C-1
 

2)              Permits
- Owner shall obtain all Operating Permits including, but not limited to, air
quality permits, in a timely manner to allow construction and startup of the
plant as scheduled by Design-Builder.

3)              Storm Water
Runoff Permit – Owner shall obtain the construction storm-water
runoff permit and permanent storm-water runoff permit. Design-Builder shall
obtain the erosion control/land disturbance permit.

4)              Minnesota
Pollutant Elimination Discharge Permit – Owner shall obtain a permit
to discharge cooling tower water, boiler blowdown water, reverse osmosis (“R.O.”)
reject water, and any other waste water directly to a designated waterway or
other location.  If required by item 9
below, Owner will secure appropriate permits for emergency process water
discharges.

5)              Natural Gas
Supply and Service Agreement – Continuous supply of natural gas of
at least 1.5 billion cubic feet per year, at a minimum rate of 200-400 MCF per
hour and at a minimum pressure of 75 – 200 psi at the plant site.  Pressure reducing stations must be located so
as to provide stable pressure at the point of use.  Owner shall provide all gas piping to the use
points and supply meters and regulators to provide burner tip pressures as
specified by Design-Builder.  Owner shall
also supply a digital flowmeter on-site with appropriate output for monitoring
by the plant’s computer control system.

6)              Temporary Electrical
Service – Owner shall secure electrical service to supply a minimum
750 KW of 3-phase, 480/277 volt electrical power during construction.  Owner shall procure, install, and maintain
temporary service to up to three 3-phase, 480/277 volt temporary service
transformers located throughout the site. 
The transformer sizing, locations, and underground electrical feed
routing layout are to be determined jointly by the Owner, the Design-Builder
and the energy supplier.  Design-Builder
shall pay energy demand and usage charges up to Substantial Completion.

7)              Permanent
Electrical Service –  (1) Owner is
responsible to secure continuous service from an energy supplier to serve the
facility.  The service from the energy
supplier shall be of sufficient size to provide at a minimum 10 MW of
electrical capacity to the site.  (2) The
Owner is responsible for procurement, installation and maintenance of the site
supply and distribution system, including but not limited to the required
substation and all associated distribution lines.  An on-site digital meter is also to be
supplied for monitoring of electrical usage. 
(3) The responsibility of the Design-Builder starts at the secondary electrical
terminals of the site distribution system transformers that have been installed
by Owner (i.e., the 480 volt terminals for the process building transformers;
the 480 volt terminals for the energy center transformers; the 480 volt
terminals for the grains transformer; the 480 volt terminals for the pumphouse
transformer; and the 4160 volt terminals for the chiller transformer; and the
4160 volt terminals of the thermal oxidizer transformer). (4)  The site distribution system requirements,
layout, and meters are to be determined jointly by the Owner, the
Design-Builder and the energy supplier.

 C-2
 

Design-Builder will be providing soft start motor
controllers for all motors greater than 150 horsepower and where demanded by
process requirements.  Owner is
encouraged to discuss with its electrical supplier whether additional soft start
motor controllers are advisable for this facility and such can be added, with
any increased cost being an Owner’s cost.

Design-Builder will provide power factor correction to
0.92 lagging at plant nameplate capacity. 
Owner is encouraged to discuss with its electrical service supplier any
requirements for power factor correction above 0.92 lagging.  Additional power factor correction can be
added with any increased cost being an Owner’s cost.

8)              Water
Supply, Service Agreement, and Pre-Treatment System – Owner shall
supply on-site process wells or other water source that is capable of providing
a quantity of raw water satisfying the needs of the Plant.  Owner should consider providing a redundant
water supply source.  Owner will supply
one process fresh water supply line terminating within five (5) feet of the
point of entry designated by Design-Builder, and one potable supply line
terminating within five (5) feet of the process building and to the
administration building at a point of entry designated by administration
building contractor.

Owner shall pay for a water pre-treatment system to be
designed and constructed by Design-Builder and to be integrated into the
Plant.  The pre-treatment system will be
designed to provide the Plant with the quantity and quality of raw and treated
water needed to supply the Plant’s process needs. The water pre-treatment
system design will also consider and recommend to Owner equipment required to
meet the discharge requirements under the Plant’s wastewater discharge permit.  Owner is to execute side-letter agreements as
necessary for the design and construction of such water pre-treatment
system.  Design-Builder shall recover
costs for the design and construction of such system from the Owner at
Design-Builder’s standard time plus material rates during the relevant time
period and at the relevant locale.    A
side-letter agreement between Owner and Design-Builder shall be executed by
Owner and Design-Builder to compensate Design-Builder, at Design-Builder’s
standard time plus materials rates during the relevant time period and at the
relevant locale, for any costs and expenses related to such water pre-treatment
system.

9)              Wastewater
Discharge System, Permits and/or Service Agreement –  Owner to provide discharge piping, septic tank and
drainfield system or connect to municipal system as required for the sanitary
sewer requirements of the Plant.  These
provisions shall comply with all federal, state, and local regulations,
including any permitting issues.

10)        Roads and
Utilities – Owner shall provide and maintain the ditches and
permanent roads, including the gravel, pavement or concrete, with the roads
passing standard compaction tests. 
(Design-Builder will maintain aggregate construction roads during
construction of the Plant and will return to original pre-construction
condition prior to Owner completing final grade and surfacing.)

Except as otherwise specifically stated herein the
Owner shall install all utilities so that they are within five (5) feet of the
designated building/structure locations.

 C-3
 

11)        Administration
Building – The administration building – one story free standing,
office computer system, telephone system, office copier and fax machine and
office furniture and any other office equipment and personal property for the
administration building shall be the sole and absolute cost and responsibility
of Owner and Design-Builder shall have no responsibility in regards thereto.

12) Maintenance
and Power Equipment – The maintenance and power equipment as
described in Table 2 and any other maintenance and power equipment as required
by the plant or desired by Owner shall be the sole and absolute cost and
responsibility of Owner and Design-Builder shall have no responsibility in
regards thereto.

13)        Railroads –  Owner is responsible for any costs associated with the
railroads including, but not limited to, all rail design and engineering and
construction and Design-Builder shall have no responsibility in regards
thereto.  Owner shall supply drawings and
Phase II redline drawings to Design-Builder.

14)        Drawings – Owner shall
supply drawings to Design-Builder of items supplied under items 11) and 13) and
also supply Phase II redline drawings.

15)        Fire Protection System –
Fire Protection System requirements vary by governmental requirements per
location and by insurance carrier requirements. 
Owner is responsible to provide the required fire protection system for
the Plant.  This may include storage tanks,
pumps, underground fire water mains, fire hydrants, foam or water monitor
valves, sprinkler systems, smoke and heat detection, deluge systems, or other
provisions as required by governmental codes or Owner’s insurance carrier’s
fire protection criteria.

Owner shall pay for a Fire Protection System to be
designed and constructed by Design-Builder and to be integrated into the
Plant.  The Fire Protection System shall
be designed and constructed to meet the governmental and insurance
requirements.  Owner is to execute
side-letter agreements as necessary for the design and construction of such
Fire Protection System.  Design-Builder
shall recover costs for the design and construction of such system from Owner
at Design-Builder’s standard time plus material rates during the relevant time
period and at the relevant locale.  A
side-letter agreement between Owner and Design-Builder shall be executed by
Owner and Design-Builder to compensate Design-Builder, at Design-Builder’s
standard time plus materials rates during the relevant time period and at the
relevant locale, for any costs and expenses related to such Fire Protection
System.

 C-4
 

Table 1 Minimum Soil Bearing Pressure – Responsibility of Owner

** Subject to revision based on detailed design and engineering.

	
  Description

  	
  Required Allowable Soil Bearing

  Pressure (pounds per square foot)

  
	
  Grain Storage
  Silos

  	
  8,000

  
	
  DDGS Storage
  Silos

  	
  8,000

  
	
  Corn/DDGS
  Building

  	
  4,000

  
	
  Cook Water Tank

  	
  3,500

  
	
  Methanator Feed
  Tank

  	
  3,500

  
	
  Liquefaction
  Tank #1

  	
  3,500

  
	
  Liquefaction
  Tank #2

  	
  3,500

  
	
  Fermentation
  Tank #1

  	
  5,000

  
	
  Fermentation Tank
  #2

  	
  5,000

  
	
  Fermentation
  Tank #3

  	
  5,000

  
	
  Fermentation
  Tank #4

  	
  5,000

  
	
  Beerwell

  	
  5,000

  
	
  Whole Stillage
  Tank

  	
  3,500

  
	
  Thin Stillage
  Tank

  	
  3,500

  
	
  Syrup Tank

  	
  3,500

  
	
  190 Proof Day
  Tank

  	
  3,000

  
	
  200 Proof Day
  Tank

  	
  3,000

  
	
  Denaturant Tank

  	
  3,000

  
	
  Fire Water Tank

  	
  3,000

  
	
  Denatured
  Ethanol Tank #1

  	
  4,000

  
	
  Denatured
  Ethanol Tank #2

  	
  4,000

  
	
  All Other Areas

  	
  3,000

  

 

 C-5
 

Table 2 Maintenance and Power Equipment – Responsibility of Owner

	
  Description

  	
  Additional
  Description

  	
   

  
	
  Spare Parts

  	
  Spare parts

  Partsbins

  Misc. materials, supplies and equipment

  	
   

  
	
  Shop supplies and equipment

  	
  One shop welder

  One portable gas welder 

  One plasma torch 

  One acetylene torch 

  One set of power tools 

  Two sets of hand tools with tool boxes 

  Carts and dollies 

  Hoists (except centrifuge overhead crane) 

  Shop tables 

  Maintenance office furnishings & supplies 

  Fire Extinguishers 

  Reference books 

  Safety manuals 

  Safety cabinets & supplies, etc. 

  Safety showers as required

  	
   

  
	
  Rolling stock

  	
  Used 1 1⁄2 yard
  front end loader 

  New Skid loader 

  Used Fork lift 

  Used Scissors lift, 30 foot 

  Used Pickup truck 

  Track Mobile

  	
   

  

 

 C-6
 

Table 3 Owner’s Milestones

	
  Owner’s Responsibilities

  	
  Number Of
  Days To Be 

  Completed After Notice To 

  Proceed

  
	
  Temporary Electrical Service In Place

  	
  0

  
	
  Obtain Builder’s Risk policy in the amount of the
  Contract Price, obtain Boiler and Machinery Insurance, and obtain Terrorism
  Coverage per TRIA as long as it is required under Article 17 of the
  Agreement.

  	
  0

  
	
  Storm Water Permits Complete:  Modify the existing storm water discharge
  permit to reflect the ethanol plant, if required.

  	
  60

  
	
  Natural Gas/Propane Transportation / Storage
  Agreement Complete

  	
  90

  
	
  Water Supply and Service Agreements Complete

  	
  90

  
	
  Electrical Service Arrangement

  	
  90

  
	
  Wastewater Discharge System Complete

  	
  180

  
	
  TTB Operating Permits Complete

  	
  200

  
	
  Discharge Permits Complete

  	
  200

  
	
  Pumphouse/Water System Complete

  	
  305

  
	
  Fire Protection System Complete

  	
  305

  
	
  Paving (Plant Roads) Complete

  	
  90 days prior to SC

  
	
  Rail Spur Complete

  	
  90 days prior to SC

  
	
  Permanent Electrical Service Complete

  	
  60 days prior to SC

  
	
  Maintenance and Power Equipment Onsite (Table 2)

  	
  60 days prior to SC

  
	
  Employees Hired and Ready for Training

  	
  60 days prior to SC

  
	
  Natural Gas Pipeline/Delivery System Complete

  	
  60 days prior to SC

  

 

 C-7

EXHIBIT D

ICM
License Agreement

THIS LICENSE AGREEMENT (this “License Agreement”) is entered into and made effective as of the
28th day of September, 2006 (“Effective
Date”) by and between Highwater Ethanol, LLC, a Minnesota limited liability
company (“OWNER”), and ICM, Inc., a Kansas corporation (“ICM”).

WHEREAS, OWNER has entered into that certain Design-Build Lump Sum
Contract dated September 28, 2006 (the “Contract”) with Fagen, Inc., a
Minnesota corporation (“Fagen”), under which Fagen is to design and construct a
50 million gallon per year ethanol plant for OWNER to be located in or near
Lamberton, Minnesota (the “Plant”);

WHEREAS, ICM has granted Fagen the right to use certain proprietary
technology and information of ICM in the design and construction of the Plant;
and

WHEREAS, OWNER desires from ICM, and ICM desires to grant to OWNER, a
license to use such proprietary technology and information in connection with
OWNER’s ownership, operation, maintenance and repair of the Plant, all upon the
terms and conditions set forth herein;

NOW, THEREFORE, the parties, in consideration of the foregoing premises
and the mutual promises contained herein and for other good and valuable
consideration, receipt of which is hereby acknowledged, agree as follows:

1.     Upon substantial completion
of the Plant by Fagen pursuant to the terms of the Contract or, if later,
payment by OWNER of all amounts due and owing to Fagen under the Contract, ICM
grants to OWNER a limited license to use the Proprietary Property (hereinafter
defined) solely in connection with the ownership, operation, maintenance and
repair of the Plant, subject to the limitations provided herein (the “Purpose”).

2.     The “Proprietary Property”
means, without limitation, documents, Operating Procedures (hereinafter
defined), materials and other information that are furnished by ICM to OWNER in
connection with the Purpose, whether orally, visually, in writing, or by
any other means, whether tangible or intangible, directly or indirectly
(including, without limitation, through Fagen) and in whatever form or medium including, without limitation, the design,
arrangement, configuration, and specifications of (i) the combinations of
distillation, evaporation, and alcohol dehydration equipment (including, but
not limited to, pumps, vessels, tanks, heat exchangers, piping, valves and
associated electronic control equipment) and all documents supporting those
combinations; (ii) the combination of the distillers grain drying (DGD), and
heat recovery steam generation (HRSG) equipment (including, but not limited to,
pumps, vessels, tanks, heat exchangers, piping and associated electronic
control equipment) and all documents supporting those combinations; and (iii)
the computer system, known as the distributed control system (DCS and/or PLC)
(including, but not limited to, the software configuration, programming,
parameters, set points, alarm points, ranges, graphical interface, and system
hardware connections) and all documents supporting that system.  The “Operating Procedures” means, without
limitation, the process equipment and specifications manuals, standards of
quality, service protocols, data collection methods, construction
specifications, training methods, engineering standards and any other
information prescribed by ICM from time to time concerning the Purpose.  Proprietary Property shall not include any
information or materials that OWNER can demonstrate by clear and convincing
written evidence:  (i) was lawfully in
the possession of OWNER prior to disclosure by ICM or Fagen; (ii) was in the
public domain prior to disclosure by ICM or Fagen; (iii) was disclosed to OWNER
by a third party other than Fagen having the legal right to

 D-1
 

possess and disclose such information or materials; or (iv) after
disclosure by ICM or Fagen comes into the public domain through no fault of
OWNER or its members, directors, officers, employees, agents, contractors,
consultants or other representatives (hereinafter collectively referred to as “Representatives”).  Information and materials shall not be deemed
to be in the public domain merely because such information is embraced by more
general disclosures in the public domain, and any combination of features shall
not be deemed to be within the foregoing exceptions merely because individual
features are in the public domain if the combination itself and its principles
of operation are not in the public domain.

3.     OWNER shall not use the
Proprietary Property for any purpose other than the Purpose.  OWNER shall not use the Proprietary Property
in connection with any expansion or enlargement of the Plant.  ICM and its Representatives shall have the
express right at any time to enter upon the premises of the Plant to inspect
the Plant and its operation to ensure that OWNER is complying with the terms of
this License Agreement.

4.     OWNER’s failure to
materially comply with the Operating Procedures shall void all guarantees,
representations and warranties, whether expressed or implied, if any, that were
given by ICM to OWNER, directly or indirectly through Fagen, concerning the
performance of the Plant that ICM reasonably determines are materially affected
by OWNER’s failure to materially comply with such Operating Procedures.  OWNER agrees to indemnify, defend and hold
harmless ICM, Fagen and their respective Representatives from any and all
losses, damages and expenses including, without limitation, reasonable
attorneys’ fees resulting from, relating to or arising out of Owner’s or its
Representatives’ (a) failure to materially comply with the Operating Procedures  or (b) negligent use of the Proprietary
Property.

5.     Any and all modifications
to the Proprietary Property made by OWNER or its Representatives shall be the
property of ICM.  OWNER shall promptly
notify ICM of any such modification and OWNER agrees to assign all right, title
and interest in such modification to ICM; provided, however, OWNER shall retain
the right, at no cost, to use such modification in connection with the Purpose.

6.     ICM has the exclusive right
and interest in and to the Proprietary Property and the goodwill associated
therewith.  OWNER will not, directly or
indirectly, contest ICM’s ownership of the Proprietary Property.  OWNER’s use of the Proprietary Property does
not give OWNER any ownership interest or other interest in or to the
Proprietary Property except for the limited license granted to OWNER herein.

7.     OWNER shall pay no license
fee or royalty to ICM for OWNER’s use of the Proprietary Property pursuant to
this License Agreement, the consideration for the limited license granted
herein is certain payments by Fagen to ICM, which is funded by and included in
the amounts payable by OWNER to Fagen for the construction of the Plant under
the Contract.

8.     OWNER may not assign the
limited license granted herein, in whole or in part, without the prior written
consent of ICM, which will not be unreasonably withheld or delayed.  Prior to any assignment, OWNER shall obtain
from such assignee a written instrument, in form and substance reasonably
acceptable to ICM, agreeing to be bound by all the terms and provisions of this
License Agreement.  Any assignment of
this License Agreement shall not release OWNER from (i) its duties and
obligations hereunder concerning the disclosure and use of the Proprietary
Property by OWNER or its Representatives, or (ii) damages to ICM resulting
from, or arising out of, a breach of such duties or obligations by OWNER or its
Representatives.  ICM may assign its
right, title and interest in the Proprietary Property, in whole or part,
subject to the limited license granted herein.

 D-2
 

9.     The Proprietary Property is
confidential and proprietary.  OWNER
shall keep the Proprietary Property confidential and shall use all reasonable
efforts to maintain the Proprietary Property as secret and confidential for the
sole use of OWNER and its Representatives for the Purpose.  OWNER shall retain all Proprietary Property
at its principal place of business and/or the Plant.  OWNER shall not at any time without ICM’s
prior written consent, copy, duplicate, record, or otherwise reproduce the
Proprietary Property, in whole or in part, or otherwise make the same available
to any unauthorized person provided, OWNER shall be permitted to copy,
duplicate or otherwise reproduce the Proprietary Property in whole or in part
in connection with, and to the extent it is necessary and essential for, the
Purpose so long as all such copies, duplicates or reproductions are kept at its
principal place of business and/or the Plant and are treated the same as any
other Proprietary Property.  OWNER shall
not disclose the Proprietary Property except to its Representatives who are
directly involved with the Purpose, and even then only to such extent as is
necessary and essential for such Representative’s involvement.  OWNER shall inform such Representatives of
the confidential and proprietary nature of such information and, if requested
by ICM, OWNER shall obtain from such Representative a written instrument, in
form and substance reasonably acceptable to ICM, agreeing to be bound by all of
the terms and provisions of this License Agreement to the same extent as
OWNER.  OWNER shall make all reasonable
efforts to safeguard the Proprietary Property from disclosure by its
Representatives to anyone other than permitted hereby.  OWNER shall notify ICM immediately
upon discovery of any unauthorized use or disclosure of the Proprietary
Property, or any other breach of this License Agreement by OWNER or its
Representatives, and shall cooperate with ICM in every reasonable way to help
ICM regain possession of the Proprietary Property and prevent its further
unauthorized use or disclosure.  In the event that OWNER or its
Representatives are required by law to disclose the Proprietary Property, OWNER
shall provide ICM with prompt written notice of same so that ICM may seek a
protective order or other appropriate remedy. 
In the event that such protective order or other appropriate remedy is
not obtained, OWNER or its Representatives will furnish only that portion of
the Proprietary Property which in the reasonable opinion of its or their legal
counsel is legally required and will exercise its reasonable efforts to obtain
reliable assurance that the Proprietary Property so disclosed will be accorded
confidential treatment.

10.   OWNER agrees to indemnify
ICM for any and all damages (including, without limitation, reasonable
attorneys’ fees) arising out of or resulting from any unauthorized disclosure
or use of the Proprietary Property by OWNER or its Representatives.  OWNER agrees that ICM would be irreparably
damaged by reason of a violation of the provisions contained herein and that
any remedy at law for a breach of such provisions would be inadequate.  OWNER agrees that ICM shall be entitled to
seek injunctive or other equitable relief in a court of competent jurisdiction
against OWNER or its Representatives for any unauthorized disclosure or use of
the Proprietary Property without the necessity of proving actual monetary loss
or posting any bond.  It is expressly
understood that the remedy described herein shall not be the exclusive remedy
of ICM for any breach of such covenants, and ICM shall be entitled to seek such
other relief or remedy, at law or in equity, to which it may be entitled as a
consequence of any breach of such duties or obligations.

11.   The duties and obligations
of OWNER under this License Agreement, and all provisions relating to the
enforcement of such duties and obligations shall survive and remain in full
force and effect notwithstanding any termination or expiration of the Contract
or this License Agreement.

12.   ICM may terminate this
License Agreement upon written notice to OWNER if OWNER willfully or wantonly
(a) uses the Proprietary Property for any purpose, or (b) discloses the
Proprietary Property to anyone, in each case other than permitted herein.  Upon termination of this License Agreement,
OWNER shall cease using the Proprietary Property for any purpose (including the
Purpose) and, upon request by ICM, shall promptly return to ICM all documents
or other materials in OWNER’s or its Representatives’ possession that contain
Proprietary Property in whatever format,

 D-3
 

whether written or electronic, including any and all copies or
reproductions of the Proprietary Property. 
OWNER shall permanently delete all such Proprietary Property from its
computer hard drives and any other electronic storage medium (including any
backup or archive system).  OWNER shall
deliver to ICM a written certificate which certifies that all electronic copies
or reproductions of the Proprietary Property have been permanently deleted.

13.   The laws of the State of Kansas, United States of America (or US),
shall govern the validity of the provisions contained herein, the construction
of such provisions, and the interpretation of the rights and duties of the
parties.  Any legal action brought to
enforce or construe the provisions of this License Agreement shall be brought
in the federal or state courts located in Wichita, Kansas, and the parties
agree to and hereby submit to the exclusive jurisdiction of such courts and
agree that they will not invoke the doctrine of forum non conveniens or other
similar defenses in any such action brought in such courts.  Notwithstanding the foregoing, nothing in
this License Agreement will affect any right ICM may otherwise have to bring
any action or proceeding relating to this License Agreement against OWNER or
its properties in the courts of any jurisdiction.  In the event the Plant is located in, or
OWNER is organized under the laws of, a country other than the US, OWNER hereby
specifically agrees that any injunctive or other equitable relief granted by a
court located in the State of Kansas, US, or any award by a court located in
the State of Kansas, shall be specifically enforceable as a foreign judgment in
the country in which the Plant is located, OWNER is organized or both, as the
case may be, and agrees not to contest the validity of such relief or award in
such foreign jurisdiction, regardless of whether the laws of such foreign
jurisdiction would otherwise authorize such injunctive or other equitable
relief, or award.

14.   OWNER hereby agrees to waive all claims against ICM and ICM’s
Representatives for any consequential damages that may arise out of or relate
to this License Agreement, the Contract or the Proprietary Property whether arising
in contract, warranty, tort (including negligence), strict liability or
otherwise, including but not limited to losses of use, profits, business,
reputation or financing.  OWNER further
agrees that the aggregate recovery of OWNER and Fagen (and everyone claiming by
or through OWNER and Fagen), as a whole, against ICM and ICM’s Representatives,
collectively, for any and all claims that arise out of, relate to or result
from this License Agreement, the Proprietary Property or the Contract, whether
arising in contract, warranty, tort (including negligence), strict liability or
otherwise,  shall not
exceed One Million US Dollars ($1,000,000).

15.   The terms and conditions of
this License Agreement constitute the entire agreement between the parties with
respect to the subject matter hereof and supersede any prior understandings,
agreements or representations by or between the parties, written or oral.  Any rule of construction to the effect that
any ambiguity is to be resolved against the drafting party shall not be
applicable in the interpretation of this License Agreement.  This License Agreement may not be modified or
amended at any time without the written consent of the parties.

16.   All notices, requests,
demands, reports, statements or other communications (herein referred to
collectively as “Notices”) required to be given hereunder or relating to this
License Agreement shall be in writing and shall be deemed to have been duly
given if transmitted by personal delivery or mailed by certified mail, return receipt
requested, postage prepaid, to the address of the party as set forth
below.  Any such Notice shall be deemed
to be delivered and received as of the date so delivered, if delivered
personally, or as of the third business day following the day sent, if sent by
certified mail.  Any party may, at any
time, designate a different address to which Notices shall be directed by
providing written notice in the manner set forth in this paragraph.

17.   In the event that any of the
terms, conditions, covenants or agreements contained in this License Agreement,
or the application of any thereof, shall be held by a court of competent
jurisdiction to be

 D-4
 

invalid, illegal or unenforceable, such term, condition, covenant or
agreement shall be deemed void ab initio and shall be deemed severed from this
License Agreement.  In such event, and
except if such determination by a court of competent jurisdiction materially
changes the rights, benefits and obligations of the parties under this License
Agreement, the remaining provisions of this License Agreement shall remain
unchanged unaffected and unimpaired thereby and, to the extent possible, such
remaining provisions shall be construed such that the purpose of this License
Agreement and the intent of the parties can be achieved in a lawful manner.

18.   The duties and obligations
herein contained shall bind, and the benefits and advantages shall inure to,
the respective successors and permitted assigns of the parties hereto.

19.   The waiver by any party
hereto of the breach of any term, covenant, agreement or condition herein
contained shall not be deemed a waiver of any subsequent breach of the same or
any other term, covenant, agreement or condition herein, nor shall any custom,
practice or course of dealings arising among the parties hereto in the
administration hereof be construed as a waiver or diminution of the right of
any party hereto to insist upon the strict performance by any other party of
the terms, covenants, agreement and conditions herein contained.

20.   In this License Agreement,
where applicable, (i) references to the singular shall include the plural and
references to the plural shall include the singular, and (ii) references to the
male, female, or neuter gender shall include references to all other such
genders where the context so requires.

IN WITNESS WHEREOF, the parties hereto have
executed this License Agreement, the Effective Date of which is indicated on
page 1 of this License Agreement.

	
  OWNER:

  	
   

  	
  ICM:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Highwater
  Ethanol, LLC

  	
   

  	
  ICM, Inc.

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Brian
  Kletscher

  	
   

  	
   

  	
  By: 

  	
  /s/ Dave Vande Griend

  	
   

  
	
   

  	
   

  	
   

  
	
  Title: President

  	
   

  	
  Title: President and CEO

  
	
   

  	
   

  	
   

  
	
  Date Signed: 9/28/06

  	
   

  	
  Date Signed: 10-9-06

  
	
   

  	
   

  	
   

  
	
  Address for
  giving notices:

  	
   

  	
  Address for giving notices:

  
	
   

  	
   

  	
   

  
	
  Brian Kletscher 

  	
   

  	
  301 N First Street 

  
	
  30427 Co Hwy 10 

  	
   

  	
  Colwich, KS 67030

  
	
  Vesta, MN 56292 

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Kevin K Stroup 

  	
   

  	
   

  
	
  STONEBERG, GILES
  & STROUP, P.A. 

  	
   

  	
   

  
	
  300 O’Connell
  Street 

  	
   

  	
   

  
	
  Marshall, MN
  56258

  	
   

  	
   

  
							

 

 D-5

EXHIBIT E

Schedule
of Values

Schedule of Values for:

HIGHWATER
ETHANOL, LLC

Lamberton,
MN

50 MGY
Dry Grind Ethanol Plant

 

	
  

  	
  DESCRIPTION

  	
   

  
	
   

  	
   

  	
   

  
	
  1

  	
  MOBILIZATION

  	
    $                 5,000,000

  
	
  2

  	
  ENGINEERING

  	
    $                              [*]

  
	
  3

  	
  GENERAL CONDITIONS

  	
    $                              [*]

  
	
  4

  	
  SITEWORK

  	
    $                              [*]

  
	
  5

  	
  CONCRETE

  	
    $                              [*]

  
	
  6

  	
  MASONRY / ARCHITECTURAL

  	
    $                              [*]

  
	
  7

  	
  STRUCTURAL STEEL - MISC. METALS

  	
    $                              [*]

  
	
  8

  	
  PRE-ENGINEERED BUILDINGS

  	
    $                              [*]

  
	
  9

  	
  GRAIN HANDLING SYSTEM

  	
    $                              [*]

  
	
  10

  	
  PROCESS TANKS & VESSELS

  	
    $                              [*]

  
	
  11

  	
  FIELD ERECTED TANKS

  	
    $                              [*]

  
	
  12

  	
  HEAT EXCHANGERS

  	
    $                              [*]

  
	
  13

  	
  PROCESS EQUIPMENT

  	
    $                              [*]

  
	
  14

  	
  CENTRIFUGES

  	
    $                              [*]

  
	
  15

  	
  CHILLER

  	
    $                              [*]

  
	
  16

  	
  TRUCK SCALES & PROBE

  	
    $                              [*]

  
	
  17

  	
  ETHANOL LOADOUT & FLARE SYSTEM

  	
    $                              [*]

  
	
  18

  	
  COOLING TOWER

  	
    $                              [*]

  
	
  19

  	
  DUAL DRYER SYSTEM

  	
    $                              [*]

  
	
  20

  	
  THERMAL OXIDIZER

  	
    $                              [*]

  
	
  21

  	
  METHANATOR

  	
    $                              [*]

  
	
  22

  	
  PROCESS PIPING & VALVES

  	
    $                              [*]

  
	
  23

  	
  PAINTING

  	
    $                              [*]

  
	
  24

  	
  INSULATION

  	
    $                              [*]

  
	
  25

  	
  PLUMBING & HVAC

  	
    $                              [*]

  
	
  26

  	
  ELECTRICAL - INSTRUMENTATION

  	
    $                              [*]

  
	
  27

  	
  START-UP

  	
    $                              [*]

  
	
  28

  	
  DEMOBILIZATION

  	
    $                              [*]

  
	
  

  	
   

  	
    $                               —

  
	
   

  	
   

  	
   

  
	
  

  	
  TOTAL

  	
    $               66,025,848

  

 

*Portions omitted
pursuant to a request for confidential treatment and filed separately with the
Securities and Exchange Commission.

 E-1

EXHIBIT F

Form of
Informational Report

	
  

  	
   

  	
  PROJECT MEETING: Two-Week Look Ahead(s)

  

 

	
  JOBSITE:

  	
   

  	
   

  	
  MEETING 

  	
   

  
	
   

  	
   

  	
   

  	
  DATE:

  	
   

  

 

	
  ▼ MANPOWER

  	
  TOTALS ▼

  
	
  Fagen, Inc.

  	
  0

  
	
  (sub)

  	
  0

  
	
   

  	
  0

  
	
   

  	
  0

  
	
   

  	
  0

  
	
   

  	
  0

  
	
   

  	
  0

  
	
   

  	
  0

  
	
   

  	
  0

  
	
   

  	
  0

  
	
  JOBSITE TOTAL

  	
  0

  

 

	
  ▼ SAFETY ISSUES

  	
   

  
	
  1.   text

  2.   text

  	
   

  

 

	
  ▼ WAREHOUSE ISSUES

  	
   

  
	
  1.   text

  2.   text

  	
   

  

 

	
  ▼ PROCUREMENT ISSUES

  	
   

  
	
  1.   text

  	
   

  
	
  2.   text

  	
   

  

 

	
  ▼ OPERATIONS ISSUES

  	
   

  
	
  1.   text

  	
   

  
	
  2.   text

  	
   

  

 

	
  ▼ CIVIL

  	
   

  
	
  Area

  	
   

  
	
  1.   text

  	
   

  
	
  2.   text

  	
   

  

 

 F-1
 

 

	
  ▼ STRUCTURAL

  	
   

  	
   

  
	
  Area

  	
   

  	
   

  
	
  1.   text

  	
   

  	
   

  
	
  2.   text

  	
   

  	
   

  

 

	
  ▼ SIDING / INSULATION

  	
   

  	
   

  
	
  Area

  	
   

  	
   

  
	
  1.   text

  	
   

  	
   

  
	
  2.

  	
   

  	
   

  

 

	
  ▼ MILLWRIGHT

  	
   

  	
   

  
	
  Area

  	
   

  	
   

  
	
  1.   text

  	
   

  	
   

  
	
  2.

  	
   

  	
   

  

 

	
  ▼ PIPE

  	
   

  	
   

  
	
  Area

  	
   

  	
   

  
	
  1.   text

  	
   

  	
   

  
	
  2.

  	
   

  	
   

  

 

	
  ▼ ELECTRICAL

  	
   

  	
   

  
	
  Area

  	
   

  	
   

  
	
  1.   text

  	
   

  	
   

  
	
  2.

  	
   

  	
   

  

 

	
  ▼ DELIVERIES

  	
   

  	
   

  
	
  Area

  	
   

  	
   

  
	
  1.   text

  	
   

  	
   

  

 

	
  ▼ SUBCONTRACTOR

  	
   

  	
   

  
	
  Subcontractor
  Name

  	
   

  	
   

  
	
  1.   text

  	
   

  	
   

  

 

 F-2

EXHIBIT G

Required
Permits

	
  No.

  	
  Type of Application/Permit

  	
  Responsibility for

  Obtaining Permit

  	
  Assistance in Preparation

  	
  Notes

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   1

  	
  Underground Utility Locating Service

  	
  Design-Builder/Owner

  	
   

  	
  Notification service for underground work.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   2

  	
  Septic Tank & Drain Field Permit

  	
  Owner

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   3

  	
  Railroad Permit/Approval

  	
  Owner

  	
  Design-Builder

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   4

  	
  Archeological Survey

  	
  Owner

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   5

  	
  Highway Access Permit

  	
  Owner

  	
   

  	
  State Department of Transportation or County

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   6

  	
  Building Permits

  	
  Design-Builder

  	
   

  	
   

  
	
   

  	
  Mechanical

  	
  Design-Builder

  	
   

  	
   

  
	
   

  	
  Electrical

  	
  Design-Builder

  	
   

  	
   

  
	
   

  	
  Structures

  	
  Design-Builder

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   7

  	
  Construction Air Permit

  	
  Owner

  	
  Design-Builder

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   8

  	
  Construction Permit

  	
  Owner

  	
  Design-Builder

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   9

  	
  Operations Permit

  	
  Owner

  	
  Design-Builder

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10

  	
  Wastewater Permit

  	
  Owner

  	
  Design-Builder

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11

  	
  Water Appropriation Permit

  	
  Owner

  	
  Design-Builder

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12

  	
  Fire Protection

  	
  Owner

  	
  Design-Builder

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13

  	
  Above Ground Storage Tank Permit

  	
  Owner

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  14

  	
  TTB Permit

  	
  Owner

  	
   

  	
   

  

 

 G-1

EXHIBIT H

Form of
Performance Bond

PERFORMANCE BOND

The American Institute of Architects,

AIA Document No. A312 (December, 1984 Edition)

Any singular reference to Contractor, Surety, Owner or other

party shall be considered plural where applicable.

	
  CONTRACTOR
  (Name and Address):

  	
  Amount: [Amount]

  
	
  Fagen, Inc.

  	
  Description (Name and Location):

  
	
  P. O. Box 159

  	
  [Project Name and Location]

  
	
  Granite Falls, MN 56241

  	
  OWNER (Name and Address): 

  
	
  CONSTRUCTION CONTRACT

  	
  [Owner Name/Address]

  
	
  Date: 

  	
   SURETY (Name and Principal Place of 

  
	
   

  	
  Business): [Name/Place of Business]

  
	
   

  	
   

  
	
  BOND# 

  	
   

  
	
  Date (Not earlier than Construction Contract Date): 

  	
   

  
	
  Amount:

  	
   

  
	
  Modifications to this Bond:

  	
  q
  None

  	
  q
  See Page 2

  
	
  CONTRACTOR AS PRINCIPAL

  	
  SURETY

  
	
  Company:

  	
  (Corporate Seal)

  	
  Company:

  	
  (Corporate Seal)

  
	
  Fagen, Inc.

  	
   

  
	
  Signature:

  	
   

  	
   

  	
  Signature:

  	
   

  
	
  Name and Title:

  	
   

  	
   

  	
  Name and Title:

  	
   

  
	
  (Any additional signatures appear an page 2.)

  	
   

  
	
  (FOR INFORMATION Only- Name,
  Address and 

  	
  OWNER’S REPRESENTATIVE (Architect, 

  
	
  Telephone)

  	
  Engineer or other party):

  
										

 

AGENT or BROKER:

1.             The Contractor and
the Surety, jointly and severally, bind themselves, their heirs, executors,
administrators, successors and assigns to the Owner for the performance of the
Construction Contract, which is incorporated herein by reference.

2.             If the Contractor
performs the Construction Contract, the Surety and the Contractor shall have no
obligation under this Bond, except to participate in conferences as provided in
Subparagraph 3.1.

3.             If there is no
Owner Default, the Surety’s obligation under this Bond shall arise after:

3.1           The Owner has
notified the Contractor and the Surety at its address described in Paragraph 10
below that the Owner is considering declaring a Contractor Default and has
requested and attempted to arrange a conference with the Contractor and the
Surety to be held not later than fifteen days after receipt of such notice to
discuss methods of performing the Construction Contract.  If the Owner, the Contractor and the Surety
agree, the Contractor shall be allowed a reasonable time to perform the
Construction Contract, but such an agreement shall not waive the Owner’s right,
if any, subsequently to declare a Contractor Default; and

3.2           The Owner has declared a Contractor
Default and formally terminated the Contractor’s right to complete the
contract.  Such Contractor Default shall
not be declared earlier than twenty days after the Contractor and Surety have
received notice as provided in Subparagraph 3.1; and

 H-1
 

3.3           The Owner has agreed
to pay the Balance of the Contract Price to the Surety in accordance with the
terms of the Construction Contract or to a contractor selected to perform the
Construction Contract in accordance with the terms of the contract with the
Owner.

4.             When the Owner has
satisfied the conditions of Paragraph 3, the Surety shall promptly and at the
Surety’s expense take one of the following actions:

4.1           Arrange for the
Contractor with consent of the Owner, to perform and complete the Construction
Contract; or

4.2           Undertake to perform
and complete the Construction Contract itself, through its agents or through
independent contractors; or

4.3           Obtain bids or
negotiated proposals from qualified contractors acceptable to the Owner for a
contract for performance and completion of the Construction Contract, arrange
for a contract to be prepared for execution by the Owner and the contractor
selected with the Owner’s concurrence, to be secured with performance and
payment bonds executed by a qualified surety equivalent to the bonds issued on
the Construction Contract, and pay to the Owner the amount of damages as
described in Paragraph 6 in excess of the Balance of the Contract Price
incurred by the Owner resulting from the Contractor’s default; or

4.4           Waive its right to perform and
complete, arrange for completion, or obtain a new contractor and with
reasonable promptness under the circumstances:

.1             After
investigation, determine the amount for which it may be liable to the Owner
and, as soon as practicable after the amount is determined, tender payment
therefor to the Owner; or

.2             Deny liability in
whole or in part and notify the Owner citing reasons therefor.

5.             If the Surety does
not proceed as provided in Paragraph 4 with reasonable promptness, the Surety
shall be deemed to be in default on this Bond fifteen days after receipt of an
additional written notice from the Owner to the Surety demanding that the
Surety perform its Obligations under this Bond, and the Owner shall be entitled
to enforce any remedy available to the Owner. 
If the Surety proceeds as provided in Subparagraph 4.4, and the Owner
refuses the payment tendered or the Surety has denied liability, in whole or in
part, without further notice the Owner shall be entitled to enforce any remedy
available to the Owner.

6.             After the Owner has
terminated the Contractor’s right to complete the Construction Contract, and if
the Surety elects to act under Subparagraph 4.1, 4.2, or 4.3 above, then the
responsibilities of the Surety to the Owner shall not be greater than those of
the Contractor under the Construction Contract, and the responsibilities of the
Owner to the Surety shall not be greater than those of the Owner under the
Construction Contract.  To the limit of
the amount of this Bond, but subject to commitment by the Owner of the Balance
of the Contract Price to mitigation of costs and damages on the Construction
Contract, the Surety is obligated without duplication for:

6.1           The responsibilities
of the Contractor for correction of defective work and completion of the
Construction Contract;

6.2           Additional legal
design professional and delay costs resulting from the Contractor’s Default,
and resulting from the actions or failure to act of the Surety under Paragraph
4; and

6.3           Liquidated damages,
or if no liquidated damages are specified in the Construction Contract, actual
damages caused by delayed performance or non-performance of the Contractor.

 H-2
 

7.             The Surety shall
not be liable to the Owner or others for obligations of the Contractor that are
unrelated to the Construction Contract and the Balance of the Contract Price
shall not be reduced or set off on account of any such unrelated obligations.
No right of action shall accrue on this Bond to any person or entity other than
the Owner or its heirs, executors, administrators or successors.

8.             The Surety hereby waives notice of any change, including
changes of time, to the Construction Contract or to related subcontracts,
purchase orders and other obligations.

9.             Any proceeding,
legal or equitable, under this Bond may be instituted in any court of competent
jurisdiction in the location in which the work or part of the work is located
and shall be instituted within two years after Contractor Default or within two
years after the Contractor ceased working or within two years after the Surety refuses
or fails to perform its obligations under this Bond, whichever occurs
first.  If the provisions of this
Paragraph are void or prohibited by law, the minimum period of limitation
available to sureties as a defense in the jurisdiction of the suit shall be
applicable.

10.           Notice to the
Surety, the Owner or the Contractor shall be mailed or delivered to the address
shown on the signature page.

11.           When this Bond has
been furnished to comply with a statutory or other legal requirement in the
location where the construction was to be performed, any provision in this Bond
conflicting with said statutory or legal requirement shall be deemed deleted
herefrom and provisions conforming to such statutory or other legal requirement
shall be deemed incorporated herein. The intent is that this Bond shall be
construed as a statutory bond and not as a common law bond.

12.           DEFINITIONS

12.1         Balance of the
Contract Price: The total amount payable by the Owner to the Contractor under
the Construction Contract after all proper adjustments have been made,
including allowance to the Contractor of any amounts received or to be received
by the Owner in settlement of insurance or other claims for damages to which
the Contractor is entitled, reduced by all valid and proper payments made to or
on behalf of the Contractor under the Construction Contract.

12.2         Construction
Contract: The agreement between the Owner and the Contractor identified on the
signature page, including all Contract Documents and changes thereto.

12.3         Contractor Default:
Failure of the Contractor, which has neither been remedied nor waived, to
perform or otherwise to comply with the terms of the Construction Contract.

12.4         Owner Default:
Failure of the Owner, which has neither been remedied nor waived, to pay the Contractor
as required by the Construction Contract or to perform and complete or comply
with the other terms thereof.

MODIFICATIONS TO THIS BOND ARE AS
FOLLOWS:

This bond is
subject to the attached Dual Obligee Rider dated 

 

(Space is provided below for additional signatures of added parties
other than those appearing on the cover page.)

 

 H-3
 

 

	
  CONTRACTOR AS PRINCIPAL

  	
   

  	
  SURETY

  
	
  (Corporate Seal)

  	
   

  	
  (Corporate Seal)

  
	
  Company:

  	
   

  	
   

  	
  Company:

  	
   

  
	
  Address:

  	
   

  	
   

  	
  Address:

  	
   

  
	
  Name and Title:

  	
   

  	
   

  	
  Name and Title:

  	
   

  
	
  Signature:

  	
   

  	
   

  	
  Signature:

  	
   

  
										

 

 H-4
 

DUAL OBLIGEE RIDER

(TO BE ATTACHED TO BOND AT TIME OF ISSUANCE)

TO BE ATTACHED TO AND FORM PART
OF Performance and Payment Bond NO.           ,
dated concurrently with the execution of this Rider, issued by the                ,
a              
corporation, as Surety, on behalf of Fagen,
Inc., as Principal, and in favor of                  ,
as Obligee.

IT IS HEREBY UNDERSTOOD AND AGREED that the above
described bond(s) are hereby amended to include the following paragraph:

Notwithstanding anything
contained herein to the contrary, there shall be no liability on the part of
the Principal or Surety under this bond to the Obligees, or either of them,
unless the Obligees, or either of them, shall make payments to the Principal or
to the Surety in case it arranges for completion of the Contract upon default
of the Principal, strictly in accordance with the terms of said Contract as to
payments, and shall perform all the other obligations required to be performed
under said Contract at the time and in the manner therein set forth.

IT IS FURTHER UNDERSTOOD AND AGREED that nothing
herein contained shall be held to change, alter or vary the terms of the above
described bond(s) except as hereinbefore set forth.

SIGNED, SEALED AND DATED this     
day of              ,
200 .

	
  

  	
   

  	
  Fagen, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Contractor)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [                                 ]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Surety)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
					

 

 H-5

EXHIBIT I

Form of
Payment Bond

PAYMENT BOND

The American Institute of Architects,

AIA Document No. A312 (December, 1984 Edition)

Any singular reference to Contractor, Surety, Owner or other

party shall be considered plural where applicable.

	
  CONTRACTOR
  (Name and Address): 

  	
   

  	
  SURETY (Name and Principal Place of 

  
	
  Fagen, Inc. 

  	
   

  	
  Business):

  
	
  P. O. Box 159 

  	
   

  	
   

  
	
  Granite Falls, MN 56241

  	
   

  	
   

  
	
  OWNER (Name and Address): 

  	
   

  	
   

  
	
  [NAME AND ADDRESS]

  	
   

  	
   

  
	
  CONSTRUCTION CONTRACT 

  	
   

  	
   

  
	
  Date:  

  	
   

  	
   

  
	
  Amount:

  	
   

  	
   

  
	
  Description (Name and Location):

  	
   

  	
   

  
	
  BOND # 

  	
   

  	
   

  
	
  Date (Not earlier than Construction Contract 

  	
   

  	
   

  
	
  Date): 

  	
   

  	
   

  
	
  Amount:

  	
   

  	
   

  
	
  Modifications to this Bond:     o
  None      o
  See Page 2

  	
   

  	
   

  
	
  CONTRACTOR AS PRINCIPAL    SURETY

  	
   

  	
   

  
	
  Company: 

  	
  (Corporate Seal)

  	
  Company: 

  	
  (Corporate Seal)

  
	
  Fagen, Inc.

  	
   

  	
   

  
	
  Signature: 

  	
   

  	
   

  	
  Signature: 

  	
   

  
	
  Name and Title:

  	
   

  	
   

  	
  Name and Title:

  	
   

  
	
  (Any
  additional signatures appear an page 2.)

  
	
  (FOR INFORMATION Only—Name, Address and Telephone)

  	
   

  	
  OWNER’S REPRESENTATIVE (Architect, Engineer or other
  party):

  
	
  AGENT or BROKER:

  	
   

  	
   

  
										

1.             The
Contractor and the Surety, jointly and severally, bind themselves, their heirs,
executors, administrators, successors and assigns to the Owner to pay for
labor, materials and equipment furnished for use in the performance of the
Construction Contract, which is incorporated herein by reference.

2.             With
respect to the Owner, this obligation shall be null and void if the Contractor:

2.1           Promptly
makes payment, directly or indirectly, for all sums due Claimants, and

2.2           Defends,
indemnifies and holds harmless the Owner from claims, demands, liens or suits
by any person or entity whose claim, demand, lien or suit is for the payment
for labor, materials or equipment furnished for use in the performance of the
Construction Contract, provided the Owner has promptly notified the Contractor
and the Surety

 I-1
 

(at the address described
in Paragraph 12) of any claims; demands, liens or suits and tendered
defense of such claims, demands, liens or suits to the Contractor and the
Surety, and provided there is no Owner Default.

3.             With
respect to Claimants, this obligation shall be null and void if the Contractor
promptly makes payment, directly or Indirectly, for all sums due.

4.             The
Surety shall have no obligation to Claimants under this Bond until:

4.1           Claimants
who are employed by or have a direct contract with the Contractor have given
notice to the Surety (at the address described in Paragraph 12) and sent a
copy, or notice thereof, to the owner, stating that a claim is being made under
this Bond and, with substantial accuracy, the amount of the claim.

4.2           Claimants
who do not have a direct contract with the Contractor:

4.2.1        Have
furnished written notice to the Contractor and sent a copy, or notice thereof,
to the Owner, within 90 days after having last performed labor or last
furnished materials or equipment included in the claim stating, with
substantial accuracy, the amount of the claim and the name of the party to whom
the materials were furnished or supplied or for whom the labor was done or
performed; and

4.2.2        Have
either received a rejection in whole or in part from the Contractor, or not
received within 30 days of furnishing the above notice any communication from
the Contractor by which the Contractor has indicated the claim will be paid
directly or Indirectly; and

4.2.3        Not
having been paid within the above 30 days, have sent a written notice to the
Surety (at the address described in Paragraph 12) and sent a copy, or notice
thereof, to the Owner, stating that a claim is being made under this Bond and
enclosing a copy of the previous written notice furnished to the Contractor.

5.             If
a notice required by Paragraph 4 is given by the Owner to the Contractor or to
the Surety that is sufficient compliance.

6.             When
the Claimant has satisfied the conditions of Paragraph 4, the Surety shall
promptly and at the Surety’s expense take the following actions:

6.1           Send
an answer to the Claimant, with a copy to the Owner, within 45 days after
receipt of the claim, stating the amounts that are undisputed and the basis for
challenging any amounts that are disputed.

6.2           Pay
or arrange for payment of any undisputed amounts.

7.             The
Surety’s total obligation shall not exceed the amount of this Bond, and the
amount of this Bond shall be credited for any payments made in good faith by
the Surety.

 I-2
 

8.             Amounts
owed by the Owner to the Contractor under the Construction Contract shall be
used for the performance of the Construction Contract and to satisfy claims, if
any, under any Construction Performance Bond. 
By the Contractor furnishing and the Owner accepting this Bond, they
agree that all funds earned by the Contractor in the performance of the
Construction Contract are dedicated to satisfy obligations of the Contractor
and the Surety under this Bond, subject to the Owner’s priority to use the
funds for the completion of the work.

9.             The
Surety shall not be liable to the Owner, Claimants or others for obligations of
the Contractor that are unrelated to the Construction Contract.  The Owner shall not be liable for payment of
any costs or expenses of any Claimant under this Bond, and shall have under
this Bond no obligation to make payments to, give notices on behalf of, or
otherwise have obligations to Claimants under this Bond.

10.           The
Surety hereby waives notice of any change, including changes of time, to the
Construction Contract or to related subcontracts, purchase orders and other
obligations.

11.           No
suit or action shall be commenced by a Claimant under this Bond other than in a
court of competent jurisdiction in the location in which the work or part of
the work is located or after the expiration of one year from the date (1) on
which the Claimant gave the notice required by Subparagraph 4.1 or Clause
4.2.3, or (2) on which the last labor or service was performed by anyone or the
last materials or equipment were furnished by anyone under the Construction
Contract, whichever of (1) or (2) first occurs. If the provisions of this
Paragraph are void or prohibited by law, the minimum period of limitation
available to sureties as a defense in the jurisdiction of the suit shall be
applicable.

12.           Notice
to the Surety, the Owner or the Contractor shall be mailed or delivered to the
address shown on the signature page. Actual receipt of notice by Surety, the
Owner or the Contractor, however accomplished, shall be sufficient compliance
as of the date received at the address shown on the signature page.

13.           When
this Bond has been furnished to comply with a statutory or other legal
requirement in the location where the construction was to be performed, any
provision in this Bond conflicting with said statutory or legal requirement
shall be deemed deleted herefrom and provisions conforming to such statutory or
other legal requirement shall be deemed incorporated herein.  The intent is that this Bond shall be
construed as a statutory bond and not as a common law bond.

14.           Upon
request by any person or entity appearing to be a potential beneficiary of this
Bond, the Contractor shall promptly furnish a copy of this Bond or shall permit
a copy to be made.

15.           DEFINITIONS

15.1         Claimant: An individual or entity
having a direct contract with the Contractor or with a subcontractor of the
Contractor to furnish labor, materials or equipment for use in the performance
of the Contract. The intent of this Bond shall be to include without limitation
in the terms “labor, materials or equipment” that part of water, gas, power,
light, heat, oil, gasoline, telephone service or rental equipment used in the
Construction Contract,

 I-3
 

architectural and
engineering services required for performance of the work of the Contractor and
the Contractor’s subcontractors, and all other items for which a mechanic’s
lien may be asserted in the jurisdiction where the labor, materials or
equipment were furnished.

15.2         Construction
Contract: The agreement between the Owner and the Contractor identified on the
signature page, including all Contract Documents and changes thereto.

15.3         Owner
Default: Failure of the Owner, which has neither been remedied nor waived, to
pay the Contractor as required by the Construction Contract or to perform and
complete or comply with the other terms thereof.

MODIFICATIONS TO THIS BOND ARE AS
FOLLOWS:

This bond is subject to
the attached Dual Obligee Rider dated [                 ].

(Space is provided below
for additional signatures of added parties other than those appearing on the
cover page.)

	
  CONTRACTOR AS PRINCIPAL

  	
   

  	
  SURETY

  
	
  (Corporate Seal)

  	
   

  	
  (Corporate Seal)

  
	
  Company:

  	
   

  	
   

  	
  Company:

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
   

  	
  Address:

  	
   

  
	
  Name and Title:

  	
   

  	
   

  	
  Name and Title:

  	
   

  
	
  Signature:

  	
   

  	
   

  	
  Signature:

  	
   

  
											

DUAL
OBLIGEE RIDER

(TO BE ATTACHED TO
BOND AT TIME OF ISSUANCE)

TO BE ATTACHED TO AND FORM PART OF Performance
and Payment Bond NO.           ,
dated concurrently with the execution of this Rider, issued by the                ,
a              
corporation, as Surety, on behalf of Fagen,
Inc., as Principal, and in favor of                  ,
as Obligee.

IT IS HEREBY UNDERSTOOD AND AGREED that the above described bond(s) are
hereby amended to include the following paragraph:

Notwithstanding anything
contained herein to the contrary, there shall be no liability on the part of
the Principal or Surety under this bond to the Obligees, or either of them,
unless the Obligees, or either of them, shall make payments to the Principal or
to the Surety in case it arranges for completion of the Contract upon default
of the Principal, strictly in accordance with the terms of said Contract as to
payments, and shall perform all the other obligations required to be performed
under said Contract at the time and in the manner therein set forth.

IT IS FURTHER UNDERSTOOD AND AGREED that nothing herein contained shall
be held to change, alter or vary the terms of the above described bond(s)
except as hereinbefore set forth.

SIGNED, SEALED AND DATED
this      day of              ,
200 .

 I-4

	
  

  	
   

  	
  Fagen, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Contractor)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [                                 ]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Surety)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
					

 

 M-5

EXHIBIT J

Draw
(Payment) Schedule

HIGHWATER
ETHANOL, LLC

Lamberton, 

MN

Monthly Draw Schedule - 18 Month Project

	
  

  	
   

  	
   

  	
   

  	
  Previously

  	
   

  	
   

  	
   

  
	
  Month #

  	
   

  	
  This Month

  	
   

  	
  Completed

  	
   

  	
  Total

  	
   

  
	
  1

  	
   

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  
	
  2

  	
   

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  
	
  3

  	
   

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  
	
  4

  	
   

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  
	
  5

  	
   

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  
	
  6

  	
   

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  
	
  7

  	
   

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  
	
  8

  	
   

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  
	
  9

  	
   

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  
	
  10

  	
   

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  
	
  11

  	
   

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  
	
  12

  	
   

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  
	
  13

  	
   

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  
	
  14

  	
   

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  
	
  15

  	
   

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  
	
  16

  	
   

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  
	
  17

  	
   

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  
	
  18

  	
   

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  [*]

  	
   

  	
  $

  	
  66,025,848

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  $

  	
  66,025,848

  	
   

  	
   

  	
   

  

 

*** $5,000,000 Mobilization Fee
included in 1st Billing

*Portions omitted
pursuant to a request for confidential treatment and filed separately with the
Securities and Exchange Commission.

 J-1

EXHIBIT K

Air
Emissions Application or Permit

Air Permit Application to
be provided by Owner and approved by Design-Builder.

 K-1

EXHIBIT L

Phase I
and Phase II Engineering Services Agreement

See Phase I and II
Engineering Services Agreement dated July 20, 2006 between Highwater Ethanol,
LLC and Fagen Engineering, LLC filed as Exhibit 10.7 to the Highwater Ethanol,
LLC registration statement on Form SB-2 as filed with the Securities and
Exchange Commission.

 L-1

EXHIBIT M

Form of
Application for Payment

	
  APPLICATION AND CERTIFICATE FOR PAYMENT

  
	
  TO (OWNER):

  	
  SAMPLE

  	
  PROJECT:

  	
  100 MGY Ethanol Plant

  	
  APPLICATION NO: 1

  	
  DISTRIBUTION TO:

  
	
   

  	
  123 Any Street

  Anywhere, US 12345-6789

  	
   

  	
   

  	
  

  PERIOD TO: 10/25/2005

  	
  _OWNER

  _ARCHITECT

  _CONTRACTOR

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  FROM (CONT):

  	
  FAGEN, INC

  501 WEST HWY 212

  GRANITE FALLS, MN 56241-0159

  	
  VIA (ARCHITECT): SAMPLE

  	
  ARCHITECT’S

  PROJECT NO. SAMPLE

  	
  

  –

  
	
  CONTRACT FOR: 00 MGY Ethanol Plant :

  	
  CONTRACT DATE:

  	
   

  

 

	
  CONTRACTOR’S
  APPLICATION FOR PAYMENT

  
	
  Change Orders approved in

  previous months by owner

  	
   

  	
  Additions

  	
   

  	
  Deductions

  
	
   

  	
   

  	
  TOTAL

  	
   

  	
   

  	
   

  	
   

  
	
  Approved
  this Month

  	
   

  	
   

  	
   

  	
   

  
	
  Number

  	
   

  	
  Date

  Approved

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  TOTALS

  	
   

  	
   

  	
   

  	
   

  
	
  Net Change by Change Orders

  	
   

  	
  $                                                 .00

  	
   

  	
   

  
	
  The undersigned Contractor certifies that to the
  best of the Contractor’s knowledge, information, and believe the work covered
  by this Application for Payment has been completed in accordance with the
  Contract Documents, that all amounts have been paid by the Contractor for
  Work for which previous Certificates for Payment were issued and payments
  were received from the Owner, and that current payment shown herein is now
  due.

  

 

	
   Application is made for Payment, as shown below,
  in connection

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   With the contract.

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   Continuation
  Sheet is attached.

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   1. ORIGINATION CONTRACT SUM

  	
   

  	
   

  	
   

  	
  $

  	
  .00

  	
   

  
	
   2. Net Change by Change Orders

  	
   

  	
   

  	
   

  	
  $

  	
  .00

  	
   

  
	
   3. CONTRACT SUM TO DATE

  	
   

  	
   

  	
   

  	
  $

  	
  .00

  	
   

  
	
   4. TOTAL COMPLETED & STORED TO DATE

  	
   

  	
   

  	
   

  	
  $

  	
  .00

  	
   

  
	
  (Column 6)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   5. RETAINAGE:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
       a.        10.00 % of Completed Work

  	
   

  	
  $

  	
  .00

  	
   

  	
   

  	
   

  
	
  (Column D+E)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
       b.        10.00 % of Stored Material

  	
   

  	
  $

  	
  .00

  	
   

  	
   

  	
   

  
	
  (Column F)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
       Total Retainage
  (Line 5a+5b) or

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (Total in Column
  I)

  	
   

  	
   

  	
   

  	
  $

  	
  .00

  	
   

  
	
   6.  TOTAL EARNED LESS RETAINAGE

  	
   

  	
   

  	
   

  	
  $

  	
  .00

  	
   

  
	
  (Line 4 less
  Line 5 Total)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   7.  LESS PAYMENT CERTIFICATES FOR

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PAYMENT (Line 6
  from prior Certificate)

  	
   

  	
   

  	
   

  	
  $

  	
  .00

  	
   

  
	
   8.  CURRENT PAYMENT DUE

  	
   

  	
   

  	
   

  	
  $

  	
  .00

  	
   

  
	
   9.  BALANCE
  TO FINISH, PLUS RETAINAGE
  (Line 3 less Line 6)

  	
   

  	
   

  	
   

  	
  $

  	
  .00

  	
   

  

 

	
  

  	
   

  	
   

  
	
  CONTRACTOR: FAGEN, INC.

  	
  State of:

  	
  County of:

  
	
   

  	
  Subscribed and Sworn to before me this

  	
  day of

  
	
   

  	
  Notary Public:

  	
   

  
	
  By:

  	
   

  	
  Date:

  	
   

  	
  My Commission expires:

  
	
   

  	
  AMOUNT CERTIFIED                                                     $

  	
   

  
	
  ARCHITECT’S CERTIFICATE FOR PAYMENT

  	
  (Attach explanation if amount certified differs from
  the amount applied for.)

  
	
  In accordance with the Contract Documents, based on
  on-site observa-Tions and the data comprising the above application, the
  Architect Certifies to the Owner that to the best of the Architect’s
  knowledge, Information, and believe the Work has progressed as indicated, the
  quality of the Work is in accordance with the Contract Documents, and the
  Contractor is entitled to payment of the AMOUNT CERTIFIED.

  	
  ARCHITECT: SAMPLE

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  Date:

  	
   

  	
   

  
	
  This Certificate is not negotiable. The AMOUNT
  CERTIFIED is payable only to the Contractor named herein. Issuance, payment
  and acceptance of payment are without prejudice to any rights of the Owner or

  
	
   

  	
   

  
	
   

  	
   

  
												

Contractor under
this contract.

 M-1
 

 

	
  Date : 00/00/00

  	
  FAGEN, INC.

  	
   

  	
   

  
	
  Time: 10:03:47

  	
  AIA CONTINUATION
  SHEET

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Application No.:

  	
  1

  	
   

  
	
   

  	
   

  	
  Application Date:

  	
  00/00/00

  	
   

  
	
   

  	
   

  	
  Period To:

  	
  00/00/00

  	
   

  
	
  Job: SAMPLE 00 MGY Ethanol Plant

  	
   

  	
  Architect Project No. :

  	
  SAMPLE

  	
   

  
							

 

	
  Item

  No.

  	
   

  	
  Description of Work

  	
   

  	
  Scheduled

  Value

  	
   

  	
  Previous 

  Compltd

  	
   

  	
  Current

  Compltd

  	
   

  	
  Stored

  Material

  	
   

  	
  Tot.Compl.

  & Stored

  	
   

  	
  %

  Comp

  	
   

  	
  Balance

  To Finish

  	
   

  	
  

  Retainage

  	
   

  
	
  000001

  	
   

  	
  Mobilization

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000002

  	
   

  	
  Engineering

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000003

  	
   

  	
  General
  Conditions

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000004

  	
   

  	
  Sitework

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000005

  	
   

  	
  concrete

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000006

  	
   

  	
  Masonry/Architectural

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000007

  	
   

  	
  Structural
  Steel & Misc Metals

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000008

  	
   

  	
  Girts
  Siding RoofDeck PE Build

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000009

  	
   

  	
  Grain
  Handling System

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000010

  	
   

  	
  DDG
  Storage Building

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000011

  	
   

  	
  Process
  Tanks & Vessels

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000012

  	
   

  	
  Field
  Erected Tanks

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000013

  	
   

  	
  Heat
  Exchangers

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000014

  	
   

  	
  Process
  Equipment

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000015

  	
   

  	
  Centrifuges

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000016

  	
   

  	
  Chiller

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000017

  	
   

  	
  Truck
  Scales & Probe

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000018

  	
   

  	
  Ethanol
  Loadout/Vapor Flare

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000019

  	
   

  	
  Cooling
  Tower

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000020

  	
   

  	
  Dryer
  System

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000021

  	
   

  	
  Thermal
  Oxidizer

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000022

  	
   

  	
  Methanator

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000023

  	
   

  	
  Process
  Piping & Valves

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000024

  	
   

  	
  Painting

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000025

  	
   

  	
  Insulation

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000026

  	
   

  	
  Plumbing
  & HVAC

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000027

  	
   

  	
  Electrical

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000028

  	
   

  	
  Instrumentation

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  000029

  	
   

  	
  Start-Up

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  
	
  Totals: 

  	
   

  	
   

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00 

  	
   

  	
  .00

  	
   

  	
  .00 

  	
   

  	
  .00 

  	
   

  	
  .00

  	
   

  
	
  Percent:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
  .00

  	
   

  	
   

  	
   

  

 

 M-2

EXHIBIT N

Form of
Lien Waiver

GENERAL CONTRACTOR’S
PARTIAL WAIVER OF MECHANIC’S LIEN

RIGHTS AND AFFIDAVIT OF
DEBTS AND CLAIMS

CONDITIONAL LIEN
WAIVER

	
  STATE:

  	
  (   INSERT STATE   )

  	
  FAGEN, INC.

  	
   

  
	
  COUNTY: 

  	
  (   INSERT COUNTY   )

  	
   

  	
   

  
					

 

The undersigned is the
General Contractor (aka Design-Builder) regarding labor and materials for
construction and maintenance work performed for (   INSERT OWNER/PLANT NAME   ), at the Facility located at or near (   INSERT PLANT CITY & STATE   ) under the terms of a contract.

On condition of receiving
full payment for billings up to date hereof under the terms
of the above mentioned contract, and other good and valuable consideration, the
receipt of which is hereby acknowledged, the undersigned does hereby waive and
release any and all liens, and any and all claims and rights to lien on the
Facility  (including all buildings on the
premises) under the statutes of the State of (   INSERT STATE   ) relating to mechanic’s liens on
account of labor and materials furnished by the undersigned up to the date
hereof at the Facility, as located on real estate legally described as follows:

TRACT 1:  (  
INSERT LEGAL DESCRIPTION   )

TRACT 2:  (  
INSERT LEGAL DESCRIPTION   )

 N-1
 

The undersigned further
certifies that all obligations of General Contractor entered into between
suppliers/subcontractors and General Contractor regarding this Facility are
current as of this date, including all obligations of General Contractor for
all work, labor and services performed; materials and equipment furnished; and
all known indebtedness and claims against General Contractor for damages
arising in any manner in connection with General Contractor’s performance of
the contract mentioned above for which General Contractor or property of General
Contractor might in any way be held responsible.

Dated this             
day of                                         ,
200    

	
  

  	
   

  	
  GENERAL CONTRACTOR:

  
	
   

  	
   

  	
  FAGEN, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By (Print):

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Signature):

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Witness (Print):

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Signature):

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  In the alternative (or
  if requested):

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Subscribed and sworn to
  before me this

  	
   

  	
   

  
	
              
  day of                                         ,
  200    .

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Notary Public

  	
   

  	
   

  
	
  My Commission Expires:

  	
   

  	
   

  	
   

  
										

 

 N-2

EXHIBIT O

Form of Consent to Assignment

FAGEN CONSENT TO
ASSIGNMENT

THIS CONSENT TO
ASSIGNMENT (this “Consent”), dated as of September 28, 2006, is made
among FAGEN, INC., a Minnesota corporation (the “Obligor”), HIGHWATER
ETHANOL, LLC, a Minnesota limited liability company (“Assignor”), and
the financial institution party to this Agreement, not in its individual
capacity, but acting solely in the capacity of collateral agent on behalf of
the below defined Lenders (such financial institution in such capacity, or such
other financial institution acting in such capacity, the “Collateral Agent”).

The Assignor seeks to construct and operate a fifty
(50) million gallon per year fuel-grade ethanol production plant in Lamberton,
Minnesota (the “Project”).  The
Obligor and the Assignor have entered into the Lump-Sum Design-Build Agreement
dated as of September 28, 2006 (as amended, modified, supplemented and in
effect from time to time, the “Assigned Agreement”).  The Assignor and certain other financial
institutions (the “Lenders”) intend to finance certain costs of the
Assignor for the development, construction and operation of the Project
pursuant to various financing arrangements (the “Financing Arrangements”).  The Assignor and the Collateral Agent (on
behalf of the Lenders) intend to enter into certain security arrangements (the “Security
Documents”), pursuant to which the Assignor will pledge and assign to the
Collateral Agent a lien on and a security interest in all of the Assignor’s
right, title and interest in, among other things, the Assigned Agreement.

SECTION
1.       CONSENT TO ASSIGNMENTS; LIABILITY; CURE RIGHTS; ETC.

1.1        Acknowledgments and Consents. The
Obligor (i) acknowledges that the Assigned Agreement is in full force and
effect and that there are no other amendments, modifications or supplements
thereto, either oral or written; (ii) represents and warrants that it has
not assigned, transferred or pledged the Assigned Agreement to any third party;
(iii) represents and warrants that it has no knowledge of any existing
default by the Assignor in the performance of any provision of the Assigned
Agreement; (iv) acknowledges and consents to the Assignor’s pledge and
assignment of the Assigned Agreement to the Collateral Agent;
(v) acknowledges the right of the Collateral Agent in the exercise of its
rights and remedies under the Security Documents to take all actions and
exercise all rights of the Assignor under the Assigned Agreement as if it were
the Assignor; (vi) acknowledges and agrees that this Consent satisfies
Section 21.1 of the Assigned Agreement; and (vii) acknowledges and
agrees that the Collateral Agent is entitled to notices under the Assigned
Agreement pursuant to Section 21.7 thereof.

1.2        Limitation on Assumption of
Obligations.  The Collateral Agent
shall not be liable for the performance or observance of any of the obligations
or duties of the Assignor under the Assigned Agreement, nor shall the Security
Documents give rise to any duties or obligations whatsoever, except that,
insofar as the Collateral Agent exercises any of Assignor’s rights under the
Assigned Agreement and/or makes any claims with respect to any payments,
deliveries or other obligations under the Assigned Agreement, the satisfaction
of the terms and conditions of the Assigned Agreement applicable to such
exercise of rights or such claims shall be a condition precedent to the Obligor’s
obligations with respect thereto.  Upon
any transfer to a third party of

 O-1
 

the rights of the
Collateral Agent under the Assigned Agreement pursuant to its exercise of its
remedies under the Security Documents as described in Section 1.4
below which transfer of the Assigned Agreement shall be subject in all
respects  to the terms and conditions of
the Assigned Agreement, including Section 21.1 thereof (i) the transferee
shall succeed to all right, title and interest of the Assignor and the
Collateral Agent and (ii) the Collateral Agent shall have no further
liabilities, duties or obligations to the Assignor under the Assigned
Agreement.

1.3
       Cure Periods.  The Obligor hereby confirms that it will
provide to the Collateral Agent the same notices as are to be provided to the
Assignor pursuant to Sections 15.4.2, 15.5, 15.6.1(d), and 15.5.2 of the
Assigned Agreement.

1.4
       Substitute Owner.  The Obligor acknowledges that upon an event
of default by the Assignor under the Financing Arrangements and an exercise of
remedies by the Collateral Agent under the Security Documents, the Collateral
Agent may (but shall not be obligated to) assume, or cause any purchaser at any
foreclosure sale or any assignee or transferee under any instrument of
assignment or transfer in lieu of foreclosure to assume, all of the interests,
rights and obligations of the Assignor thereafter arising under the Assigned
Agreement.  Each assuming party shall
agree in writing to be bound by, and to assume the terms and conditions of, the
Assigned Agreement pursuant to an assignment agreement in form and substance
satisfactory to the Obligor pursuant to Section 21.1 of the Assigned Agreement,
and the Obligor shall continue to perform its obligations under the Assigned
Agreement in favor of the assuming party as if such party had been an original
party to the Assigned Agreement; provided, that the assuming party shall
cure any  defaults, whether monetary or
otherwise, then existing under the Assigned Agreement in such assuming party’s
capacity as “Owner” under the Assigned Agreement (as defined in such agreement)
after giving effect to assignment of Assignor’s rights and obligations to such
assuming party; but provided, further, that the liability of the
Collateral Agent (or any entity acting on behalf of the Collateral Agent or any
of the other Secured Parties) shall not exceed all of its right, title and
interest in and to the Project.

1.5
       No Amendments.  The Obligor acknowledges that under the terms
of the Financing Arrangements, the Assignor is required to obtain the consent
of the Lenders for certain amendments to the Assigned Agreement.

SECTION 2.       NOTICES.  The first paragraph
of Section 21.7 of the Assigned Agreement is hereby incorporated in this
Consent, as if set forth herein in its entirety.  For purposes of Section 21.7 of the
Assigned Agreement, the initial address for notice to the Collateral Agent
shall be as follows:

[BANK]

[ADDRESS]

Attn: [NAME/TITLE]

Fax:  [FAX
NUMBER]

 O-2
 

 

The
Obligor acknowledges and agrees that the delivery of the Collateral Agent’s
notice information in this Section 2 shall be deemed to satisfy the requirement
of the Owner in Section 21.7 of the Assigned Agreement to deliver such
information to the Obligor.

SECTION 3.       MISCELLANEOUS.

THIS CONSENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND SHALL BE BINDING UPON THE
PARTIES HERETO AND THEIR PERMITTED SUCCESSORS AND ASSIGNS AND SHALL INURE TO
THE BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND
ASSIGNS.  THE PARTIES HERETO HEREBY AGREE
TO EXECUTE AND DELIVER ALL SUCH INSTRUMENTS AND TAKE ALL SUCH ACTION AS MAY BE
REASONABLY NECESSARY TO EFFECTUATE FULLY THE PURPOSES OF THIS CONSENT.

[THE NEXT PAGE IS THE
SIGNATURE PAGE]

 O-3
 

IN WITNESS WHEREOF, the parties hereto have caused
this Consent to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.

	
  FAGEN, INC.,

  	
  Consented and
  Agreed to:

  
	
  as Obligor

  	
   

  
	
   

  	
  HIGHWATER
  ETHANOL, LLC

  
	
   

  	
  as Assignor

  
	
  By: 

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
  Address for
  Notices:

  	
  Title:

  
	
   

  	
   

  
	
  Fagen, Inc.

  501 W. Highway
  212

  P.O. Box 159

  Granite Falls, MN 56241

  Attn: Aaron Fagen

  Fax: (320) 564-3278

  	
  Highwater
  Ethanol, LLC

  30427 Co Hwy 10, Vesta, MN 56292

  Attn:  Brian Kletscher

  Phone:  (507) 828-1429

  
						

 

With a copy to:

Fagen, Inc.

501 W. Highway 212

P.O. Box 159

Granite Falls, MN 56241

Attn: Bruce Langseth

Fax: (320) 564-3278

[BANK NAME]

not in its individual capacity, but solely as

Collateral Agent

	
  By:

  	
   

  	
   

  

Name:

Title:

Address for Notices:

[BANK]

[ADDRESS]          

Attn: [NAME/TITLE]

Fax:  [FAX NUMBER]

 O-4

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