Document:

Exhibit 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
 

 

 

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
  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
 

 

 

	
   

  	
   

  	
   

  	
   

  	
  Page

  
	
  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
 

 

 

	
   

  	
   

  	
   

  	
   

  	
  Page

  
	
  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.

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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.

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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,

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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.

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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.

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15.4        Design-Builder’s Right to Stop Work.

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

  
	
   

  	
   

  	
  Parts bins

  
	
   

  	
   

  	
  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

  30427 Co Hwy 10

  Vesta, MN 56292

  	
   

  	
  301 N First Street

  Colwich, KS 67030

  
	
   

  	
   

  	
   

  
	
  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 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 Telephone)

  	
  OWNER’S REPRESENTATIVE (Architect,

  
	
  AGENT or BROKER:

  	
  Engineer or other party):

  
											

 

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):

  Fagen, Inc.

  P. O. Box 159

  Granite Falls, MN 56241

  	
  SURETY (Name and Principal Place of Business):

  
	
  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:

  

 

 I-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 attached Phase I and
Phase II Engineering Services Agreement

 L-1

 

EXHIBIT M

Form of Application for Payment

See Attached Form of
Application for Payment

 M-1

 

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

  
	
  By: 

  	
   

  	
   

  	
  as Assignor

  
	
  Name:

  	
   

  
	
  Title:

  	
  By: 

  	
   

  	
   

  
	
   

  	
  Name:

  
	
  Address for
  Notices:

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  Fagen, Inc.

  	
  Highwater
  Ethanol, LLC

  
	
   

  	
  501 W. Highway
  212

  	
  30427 Co Hwy 10,
  Vesta, MN 56292

  
	
   

  	
  P.O. Box 159

  	
  Attn:  Brian Kletscher

  
	
   

  	
  Granite Falls,
  MN 56241

  	
  Phone:  (507) 828-1429

  
	
   

  	
  Attn: Aaron
  Fagen

  	
   

  
	
   

  	
  Fax: (320)
  564-3278

  	
   

  
	
   

  	
   

  
	
  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-4Exhibit
10.9

CONSULTING
AGREEMENT AND AUTHORIZATION TO PROCEED

This Agreement between EARTH TECH, Inc, d.b.a. Earth Tech Consulting,
Inc., a California corporation, (“ETI”) with offices at 3033 Campus Drive
North, Suite 290, Minneapolis, Minnesota 55441 and Highwater
Ethanol (“CLIENT”), with offices at 30427
County Highway 10, Vesta, Minnesota 56292.

1.                                       ETI agrees to perform the services described
in its PROPOSAL dated 04/26/06,
including attachments and amendments (“SERVICES”).

2.                                      CLIENT authorizes ETI to perform these
SERVICES for the following project and location:

Environmental Permitting
for the Proposed Highwater Ethanol Facility near Lamberton, Minnesota.

3.                                      ETI is willing to perform the SERVICES in
exchange for the following fee (check and complete):

o                                    CLIENT will pay on a time and
material basis.  ETI will
invoice according to the Fee Schedule* attached to the PROPOSAL.

o                                    CLIENT will pay a lump sum
of $                .  ETI will invoice monthly on a percentage
completed basis.

x                                  CLIENT will pay on a time and
material basis not to exceed the sum of $88,625.50.  ETI will invoice according to the Fee
Schedule* attached to the PROPOSAL up to the stated limit.  Upon reaching the limit, ETI will stop
performing unless CLIENT authorizes further work in writing.

o                                    CLIENT will pay a retainer in the amount of $                ,
to be applied against the fee.

*ETI reserves the right to adjust its Fee Schedule
annually.

4.                                       Billing:     ETI will
submit invoices to CLIENT monthly. 
CLIENT recognizes that timely payment is a material part of this
Agreement.  Each invoice is due and
payable within thirty (30) calendar days of the date of the invoice.  CLIENT will pay an additional charge of one
and one-half percent per month not to exceed the maximum rate allowed by law
for any payment received by ETI more than thirty (30) calendar days from the
date of the invoice.  CLIENT will pay
when due that portion of invoice, if any, not in dispute.  If CLIENT fails to pay any undisputed
invoiced amounts within thirty (30) calendar days of the date of the invoice,
ETI may suspend its performance or terminate this Agreement without incurring
any liability to CLIENT and without waiving any other claim against CLIENT.

5.                                      Special Provisions:           x      NONE           o      ATTACHMENT

6.                                       CLIENT RECOGNIZES THAT THE
PRESENCE OF HAZARDOUS MATERIALS OR POLLUTION ON OR BENEATH THE SURFACE OF A
SITE MAY CREATE RISKS AND LIABILITIES. 
CONSULTANT HAS NEITHER CREATED NOR CONTRIBUTED TO THIS POLLUTION.  CONSEQUENTLY, CLIENT RECOGNIZES THIS AGREEMENT
WILL ACCORDLINGLY LIMIT CONSULTANT’S LIABILITY.

CLIENT confirms reading this document in full
(including the terms 7 through 18 on the following page).  This Agreement when executed by Earth Tech is
an offer to perform their services, open for acceptance within 30 days.  This Agreement becomes effective on the date
CLIENT signs below.

	
  CLIENT:

  	
   

  	
   

  	
   

  	
  ETI – EARTH TECH, Inc., d.b.a Earth Tech
  Consulting, Inc.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
  /s/ Brian Kletscher

  	
   

  	
  By:

  	
   

  	
  /s/ J. Michael Valentine

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Brian Kletscher

  	
   

  	
  Name:

  	
   

  	
  J. Michael Valentine

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  President

  	
   

  	
  Title:

  	
   

  	
  Vice President

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
  5/4/06

  	
   

  	
  Date:

  	
   

  	
  04/26/06

  	
   

  

 

 

7.                                       Standard of Care:  ETI
will perform the Services in accordance with the standards of care and diligence
normally practiced by consulting firms performing services of a similar nature
in the same locale.

8.                                       Indemnity/Limitation of
Liability:  Subject to any limitations stated in this
Agreement, ETI will indemnify and hold harmless CLIENT, its officers, directors,
employees, and subcontractors, from and against all claims and actions,
including reasonable attorneys fees, arising out of damages or injuries to
persons or tangible property to the extent they are caused by a professionally
negligent act, error, or omission of ETI or any of its agents, subcontractors,
or employees in the performance of Services under this Agreement.  ETI will not be responsible for any loss,
damage, or liability arising from any contributing negligent acts by CLIENT,
its subcontractors, agents, staff, or consultants.  Neither party will be responsible to the
other for consequential damages including, but not limited to, loss of profit,
loss of investment or business interruption. 
The CLIENT also agrees to seek recourse only against ETI and not against
its officers, employees, directors, or shareholders.  The CLIENT agrees to limit
ETI’s liability due to breach of contract, warranty or negligent acts, errors
or omissions of ETI to $50,000 or the fee paid to ETI under this Agreement, whichever
is greater.

9.                                       Insurance:  During
the period that Services are performed under this Agreement, ETI will maintain
the following insurance:  (1) Workers’
Compensation coverage in accordance with the laws of the states having
jurisdiction over its employees engaged in the Services and Employer’s
Liability Insurance (limit of $500,000 each occurrence.); (2) Commercial
General Liability Policy with a limit of $1,000,000 per occurrence and a
$2,000,000 aggregate; (3) Commercial Automobile Liability with a limit of
$500,000 per occurrence and a $1,000,000 aggregate; and (4) Professional
Liability coverage with a $500,000 limit on each claim and a $1,000,000
aggregate.  Client
agrees ETI will not be liable for any loss, damage, or liability arising out of
this Agreement beyond the coverage, and conditions of such insurance with
limits as stated above.

10.                                 Hazardous Substances/Hazardous
Waste:  CLIENT represents that if CLIENT knows or has
reason to suspect that hazardous substances or pollution may exist at the
project site, CLIENT has fully informed ETI. 
In the event ETI encounters hazardous substances or contamination
significantly beyond that originally represented by CLIENT, ETI may suspend its
Services and enter into good faith renegotiation of this Agreement.  CLIENT acknowledges that ETI has no
responsibility as a generator, treater, storer, or disposer of hazardous or
toxic substances found or identified at a site and CLIENT agrees to defend,
indemnify, and hold harmless ETI, from any claim or liability, arising out of
ETI’s performance of work under this Agreement and made or brought against ETI
for any actual or threatened environmental pollution or contamination except to
the extent that ETI has negligently caused or contributed to any such pollution
or contamination.  This indemnification
includes reasonable attorney fees and expenses incurred by ETI in defense of
such claim.

11.                                 Sample Ownership:  All
samples and cuttings of materials containing hazardous contaminants are the
property and responsibility of CLIENT. 
Removal of cuttings from the project site will remain the obligation of
CLIENT.  Absent direction from CLIENT,
ETI may return all contaminated samples and laboratory byproducts to the CLIENT
for proper disposal or treatment.

12.                                 Buried Utilities:  In
those situations where ETI performs subsurface exploration, CLIENT, to the
extent of its knowledge, will furnish to ETI information identifying the type
and location of utilities and other man-made objects beneath the surface of the
project site.  ETI will take reasonable
precautions to avoid damaging these utilities or objects.  Prior to penetrating the site’s surface, ETI
will furnish CLIENT a plan indicating the locations intended for
penetration.  CLIENT will approve the
location of these penetrations and authorize ETI to proceed.

13.                                 Documents and Records:  CLIENT
acknowledges that ETI’s reports, boring logs, field data, field notes,
laboratory test data, calculations, estimates and other similar documents (“Records”)
are instruments of professional service, not products.  All data ETI prepares for CLIENT under this
Agreement will remain the property of ETI. 
CLIENT will not use any ETI data or report for any purpose other than
its original purpose as defined in the PROPOSAL.  CLIENT has no rights to incomplete or partial
data.  ETI will retain these Records for
a period of three (3) years following completion of this project.  During this time, ETI will reasonably make
available the records to the CLEINT.  ETI
may charge a reasonable fee in addition to its professional fees for retrieving
or copying such records.

14.                                 Change Orders:  ETI
will treat as a change order any written or oral order (including directions,
instructions, interpretations or determinations) from CLIENT which request changes
in the Services.  ETI will give CLIENT
notice within ten (10) days of the change order of any resulting increase in
fee.  Unless Client objects in writing
within five (5) days, the change order becomes a part of this Agreement.

 

15.                                 Third-Party Rights:  Except
as specifically stated in this Agreement, this Agreement does not create any
rights or benefits to parties other than CLIENT and ETI.

16.                                 Assignment/Status:  The
CLIENT will not delegate, assign, sublet, or transfer any interest in this
Agreement without the written consent of ETI. 
ETI is an independent consultant and not the agent or employee of
CLIENT.

17.                                 Termination:  Either
party may terminate the Services with or without cause upon ten (10) days
advance written notice.  If Client
terminates without cause, CLIENT will pay ETI costs incurred, noncancelable
commitments, and fees earned to the date of termination and through
demobilization, including any cancellation charges of vendors and
subcontractors.

18.                                 Complete Agreement:  The
Parties acknowledge this Agreement, including the Proposal and any Attachments
constitute the entire Agreement between them. 
Unless stated otherwise in this Agreement, this Agreement may not be
modified except in a writing signed by both parties.  The parties agree that California law governs
this Agreement and any dispute involving this Agreement.

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