Document:

Exhibit
10.5

	
  

  	
   

  	
  

  

 

CONTINUOUS SERVICES AGREEMENT

FOR

ENGINEERING
SERVICES

THIS
CONTINUOUS SERVICES AGREEMENT is made this 25th day of April, 2006, between Highwater Ethanol (“OWNER”) and TranSystems
Corporation (“TRANSYSTEMS”).

WITNESSETH:

WHEREAS,
OWNER desires to engage TRANSYSTEMS on a non-exclusive basis to provide
engineering, design and other professional services for OWNER in connection
with a variety of projects at various job sites, the general scope of work,
duties and responsibilities for which will be described in separate “Request
for Services” for each project; and

WHEREAS,
TRANSYSTEMS desires to provide OWNER with such design, engineering and other
professional services as may be requested by Owner in connection with the
various Owner’s projects, all in accordance with the terms and conditions of
this Agreement; and

WHEREAS,
the parties hereto desire to enter into this Agreement to set forth the general
terms and conditions applicable to OWNER’s overall relationship with
TRANSYSTEMS with respect to each project on which OWNER may engage TRANSYSTEMS;
and

WHEREAS,
the parties hereto intend that OWNER shall issue a separate “Request for
Services” for each project for which OWNER desires to engage TRANSYSTEMS to
provide services pursuant to this Agreement and each such Request for Services
shall describe and define the exact scope of the project, the scope of work and
the exact services to be performed by TRANSYSTEMS on the particular project;
the respective duties of Owner and TRANSYSTEMS on the particular project, any
special pricing or special fees applicable to the particular project, the time
for completion of the particular project and any other special or unique terms
and conditions with respect to the particular project;

NOW,
THEREFORE, in consideration of the premises and the covenants hereinafter
contained, the parties hereto agree as follows:

 

Highwater Ethanol

April 25, 2006

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SECTION 1

DESCRIPTION
OF AGREEMENT

Section 1.1                                   Continuous
Services agreement. This Agreement consists of this contract document that
stipulates the general terms and conditions that will govern the services the
OWNER has engaged TRANSYSTEMS to perform as defined in a separate “Request for
Services” document.

Section 1.2                                                           Entire
Agreement. This Agreement, as defined in Section 1.1 and as adopted by the
particular Request for Services Agreement, sets forth the full and complete
understanding of the parties responsibilities as of the date first stated
above.

Section 1.3                                                           Conflicting
Provisions. Unless expressly agreed to the contrary, in the Request For
Services Agreement, In the event of any conflict between this Agreement and any
Requests for Services issued pursuant to Section 2.1, the Request for Service
Agreement shall control.

SECTION 2

SCOPE OF WORK

Section 2.1                                                           Description
of Work; Requests for Services. TRANSYSTEMS shall perform on an “on call”
basis, engineering, design, master planning or other professional services
(including, but not limited to, civil, structural, mechanical, electrical, industrial
and railroad engineering services and architectural design services) in
connection with various of OWNER’s projects at various of OWNER’s facilities
all as specified in particular written Requests for Services issued by OWNER
from time to time during the term of this Agreement (the “Services”).  Each Request for Services shall make specific
reference to this Agreement and shall not be effective or binding upon
TRANSYSTEMS until such Request for Services has been accepted by TRANSYSTEMS in
writing under the signature of its authorized representative.  Requests for Services shall not amend or add
to the general terms and conditions set forth in this Agreement in any respect
except to define and describe: i) the particular project on which TRANSYSTEMS is
being engaged to perform Services (the “Project”); ii) the scope of work and
the exact Services to be performed by TRANSYSTEMS on the particular Project;
iii) the respective special or unique responsibilities or duties of OWNER and
TRANSYSTEMS, if any, on the particular Project; iv) any special pricing or
special fees, if any, applicable to the particular Project; v) the time for
completion of the particular Project, if any; and, vi) any other special or
unique terms and conditions which are necessary to describe the particular
Project or the Services to be performed by TRANSYSTEMS on the particular
Project. Additional or conflicting contractual terms or conditions may be added
only by formal amendment to this Agreement and not through Requests for Services;
any such terms and conditions contained in Requests for Services shall be of no
force or effect.

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In
addition, the OWNER agrees, to the fullest extent permitted by law, to
indemnify and hold harmless TRANSYSTEMS, its officers, directors, employees and
subconsultants (collectively, Consultant) against all damages, liabilities or
costs, including reasonable attorneys’ fees and defense costs, arising out of
or in any way connected with the performance of such services by other persons
or entities and from any and all claims arising from modifications,
clarifications, interpretations, adjustments or changes made to the Contract
Documents to reflect changed field or other conditions, except for claims, to
the extent caused by the negligence or willful misconduct of TRANSYSTEMS.

Section 2.2                                                           Agreed
Upon Changes in the Services.  It is
the desire of the parties to keep changes in the scope of the Services under
each approved Request for Services at a minimum, but the parties recognize that
such changes may become necessary and agree that OWNER may initiate deletions,
additions, modifications or changes to the Services by advising TRANSYSTEMS in
writing of the change believed to be necessary. 
As soon thereafter as practical, TRANSYSTEMS shall prepare a cost
estimate of the change and shall inform OWNER of the adjustment in the
compensation due TRANSYSTEMS under Section 5 hereof (“TRANSYSTEMS’ Compensation”)
and/or the Completion Date set forth in Section 4 hereof, if any, applicable to
the Request for Service for which the change is requested. OWNER shall then
advise TRANSYSTEMS in writing of its approval or disapproval of the
change.  If OWNER approves the change, a
written Contract Amendment shall be executed by both parties and TRANSYSTEMS
shall perform the Services as changed and the adjustment in TRANSYSTEMS’
Compensation and/or the Completion Date set forth in the executed Contract
Amendment shall become effective. 
TRANSYSTEMS may initiate changes in the Services by advising OWNER in
writing that in its opinion a change is necessary.  If OWNER approves, it shall so advise
TRANSYSTEMS and, thereafter, the change shall be handled as if initiated by
OWNER.  If a change is not approved, or
if a written Contract Amendment is not executed, by both OWNER and TRANSYSTEMS,
the change shall not become effective and TRANSYSTEMS shall not be obligated to
perform the change.

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Section 2.3                                                           Constructive
Changes and Other Additional Costs. 
In the event of (1) the OWNER’s addition to, modification or change of
or deletion from the Services to be performed by TRANSYSTEMS (other than
additions, modifications, changes or deletions handled through the provisions
of Section 2.2 above); (2) a request for or approval from OWNER of performance
of Services in excess of TRANSYSTEMS’ standard work day or work week or such
shorter times as are provided by applicable collective bargaining agreements,
or on a holiday customarily observed by TRANSYSTEMS; (3) the discovery of any
subsurface or other conditions, which differ materially from those shown in or
reasonably inferable from the documents or other information on which this
Agreement is based and/or those ordinarily encountered and generally recognized
as inherent in the locality of the Project; (4) a modification of applicable
law by which TRANSYSTEMS is required to pay increased or additional taxes,
government-regulated transportation costs, insurance or other amounts which are
not required as of the date of this Agreement; (5) delay, suspension of,
acceleration of or interference with, TRANSYSTEMS’ performance of the Services
by OWNER or by any other person or entity including, but not limited to
national, state or local governments; (6) wage, benefit or payroll tax
increases due to governmental action or area agreements; (7) modification to or
delay in furnishing design criteria or other information supplied by any person
or entity, other than TRANSYSTEMS, if TRANSYSTEMS’ performance of the Services
under this Agreement depends upon such criteria or information; and/or (8) any
other increase in TRANSYSTEMS’ costs, or the time required for completion of
the Services due to “Force Majeure Event” as set forth in Section 4 hereof, a
change in applicable law or any other cause beyond TRANSYSTEMS’ reasonable
control, then the TRANSYSTEMS’ Compensation and/or the Completion Date, if any,
applicable to that particular Request for Services effected by said change,
shall be equitably adjusted and TRANSYSTEMS shall be paid, and TRANSYSTEMS’
Compensation under that particular Request for Services shall be adjusted by,
an amount equal to the additional costs to TRANSYSTEMS resulting therefrom.

SECTION 3

DUTIES
AND RESPONSIBILITIES

Section 3.1                                   TRANSYSTEMS’
Responsibilities. TRANSYSTEMS, 
subject to the terms and provisions of this Agreement and each specific
Request for Services, shall:

Section 3.1.1                                                 Furnish
the services of all necessary supervisors, engineers, designers, draftsmen, and
other personnel (including independent professional associates and consultants)
which TRANSYSTEMS deems reasonably necessary to provide or perform the Services
set forth in an approved Request for Services;

Section 3.1.2                                                 Obtain
all process and other licenses required to be obtained by TRANSYSTEMS pursuant
to an approved Request for Services;

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Section 3.1.3                                                 Perform
or provide the Services to be performed or provided by TRANSYSTEMS pursuant to
an approved Request for Services and perform any other specific
responsibilities and duties, if any, set forth in an approved Request for
Services,

Section 3.1.4                                                 Appoint
one or more individuals who shall be authorized to act on behalf of TRANSYSTEMS
and with whom OWNER may consult at all reasonable times, and whose
instructions, requests, and decisions will be binding upon TRANSYSTEMS as to
all matters pertaining to this Agreement and the performance of the parties
hereunder.

Section 3.1.5                                                 Upon
request by the OWNER, TRANSYSTEMS shall evaluate and make recommendations
regarding substitutions of materials, products or equipment proposed by the
OWNER’s consultants or contractors. 
TRANSYSTEMS shall be compensated for these services, as well as any
services required to modify and coordinate the construction documents prepared
by TRANSYSTEMS with those of TRANSYSTEMS’s subconsultants and the OWNER’s
consultants, as Additional Services. 
TRANSYSTEMS also shall be entitled to an adjustment in schedule caused
by this additional effort.

Section 3.1.6                                                 TRANSYSTEMS
shall not supervise, direct or have control over the Contractor’s work nor have
any responsibility for the construction means, methods, techniques, sequences
or procedures selected by the Contractor nor for the Contractor’s safety
precautions or programs in connection with the Work.  These rights and responsibilities are solely
those of the Contractor in accordance with the Contract Documents.

TRANSYSTEMS
shall not be responsible for any acts or omissions of the Contractor,
subcontractor, any entity performing any portions of the Work, or any agents or
employees of any of them.  TRANSYSTEMS
does not guarantee the performance of the Contractor and shall not be
responsible for the Contractor’s failure to perform its Work in accordance with
the Contract Documents or any applicable laws, codes, rules or regulations.

Section 3.1.7                                                 The
Contractor may, after exercising due diligence to locate required information,
request from TRANSYSTEMS clarification or interpretation of the requirements of
the Contract Documents.  TRANSYSTEMS
shall, with reasonable promptness, respond to such Contractor’s requests for
clarification or interpretation. 
However, if the information requested by the Contractor is apparent from
field observations, is contained in the Contract Documents or is reasonably
inferable from them, the Contractor shall be responsible to the OWNER for all
reasonable costs charged by TRANSYSTEMS to the OWNER for the work required to
provide such information.

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Section 3.1.8                                                 If,
during the term of this Agreement, circumstances or conditions that were not
originally contemplated by or known to TRANSYSTEMS are revealed, to the extent
that they affect the scope of services, compensation, schedule, allocation of
risks or other material terms of this Agreement, TRANSYSTEMS may call for
renegotiation of appropriate portions of this Agreement.  TRANSYSTEMS shall notify the OWNER of the
changed conditions necessitating renegotiation, and TRANSYSTEMS and the OWNER
shall promptly and in good faith enter into renegotiation of this Agreement to
address the changed conditions.  If terms
cannot be agreed to, the parties agree that either party has the absolute right
to terminate this Agreement, in accordance with the Termination provision
hereof.

Section 3.2                                                        Owner’s
Responsibilities.  OWNER, subject to
the terms and provisions of this Agreement and each specific Request for
Services, shall do the following in a timely manner so as to not delay the
Services of TRANSYSTEMS:

Section 3.2.1                                                 Designate
a person to act as OWNER’s representative with respect to the Services to be
rendered under this Agreement.  Such
person shall have complete authority to transmit instructions, receive
information, interpret, and define OWNER’S policies and decisions with respect
to TRANSYSTEMS’ Services for the particular Project;

Section
3.2.2                                                 Provide
all criteria, all available information pertinent to each Project, and full
information as to OWNER’S requirements for each Project.  OWNER agrees that TRANSYSTEMS shall be
entitled to rely upon the accuracy and completeness of all such information;

Section 3.2.3                                                 Arrange
for access to and make all provisions for TRANSYSTEMS to enter upon public and
private property as required for TRANSYSTEMS to perform services under this
Agreement.  All such access shall be
provided without condition or restriction unacceptable to TRANSYSTEMS nor shall
TRANSYSTEMS be required to indemnify or insure any third party as a condition
to such access.

Section 3.2.4                                                 Examine
all studies, reports, sketches, drawings, specifications, proposals, and other
documents presented by TRANSYSTEMS, obtain advice of an attorney, insurance
counselor and other consultants as OWNER deems appropriate for such examination
and render in writing decisions pertaining thereto within a reasonable time so
as not to delay the Services of TRANSYSTEMS;

Section 3.2.5                                                 Give
prompt written notice to TRANSYSTEMS whenever OWNER observes or otherwise
becomes aware of any development that affects the scope or timing of
TRANSYSTEMS’ Services, or any defect or non-conformance in the Services by
TRANSYSTEMS 

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(or
its independent professional associates or consultants) or in the work of any
other party performing or providing work or services in connection with the
Project;

Section 3.2.6                                                 When
OWNER deems it necessary or appropriate for services in addition to the
Services to be performed in connection with a particular Request for
Services,  OWNER shall furnish such additional
services or direct TRANSYSTEMS to provide such additional services either by
the issuance of a new and additional Request for Services or by following the
provisions set forth in Section 2.2 of this Agreement;

Section 3.2.7                                                 Provide
TRANSYSTEMS with any necessary governmental allocations or priorities, obtain
all permits and licenses required to be taken out in the name of OWNER which
are necessary for the performance of the Services and, except where such
permits, processes or licenses are by the terms of a particular approved
Request for Services the responsibility of TRANSYSTEMS, obtain any permits,
processes and other licenses which are required for the Project or the
Services;

Section 3.2.8                                                 Perform
any other duties, obligations or responsibilities of the OWNER set forth
elsewhere in this Agreement, including, but not limited to, the obligation to
make the payments called for under Section 5 hereof and perform any
responsibilities and duties of the OWNER which may be identified on a
particular Request for Services, if any;

Section 3.2.9                                                 Pay
for and be responsible for all taxes incurred in connection with each Project,
regardless of whether such taxes are assessed against OWNER, TRANSYSTEMS or
others.

Section 3.2.10                                          Bear
all costs incident to compliance with the requirements of this Section 3.2.

Section
3.2.11                                          The
OWNER shall promptly report to TRANSYSTEMS any defects or suspected defects in
TRANSYSTEMS’s services of which the OWNER becomes aware, so that TRANSYSTEMS
may take measures to minimize the consequences of such a defect.  The OWNER further agrees to impose a similar
notification requirement on all Contractors in its OWNER/Contractor contract
and shall require all subcontracts at any level to contain a like
requirement.  Failure by the OWNER and
the OWNER’s contractors or subcontractors to notify TRANSYSTEMS shall relieve
TRANSYSTEMS of the costs of remedying the defects above the sum such remedy
would have cost had prompt notification been given when such defects were first
discovered;

Section 3.2.12                                          In
the event OWNER, OWNER’s contractors or subcontractors, or 

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anyone
for whom OWNER is legally liable makes or permits to be made any changes to any
reports, plans, specifications or other construction documents prepared by
TRANSYSTEMS without obtaining TRANSYSTEMS’s prior written consent, OWNER shall
assume full responsibility for the results of such changes;  therefore, OWNER agrees to waive any claim
against TRANSYSTEMS and to release TRANSYSTEMS from any liability arising directly
or indirectly from such changes.

In
addition, OWNER agrees, to the fullest extent permitted by law, to indemnify
and hold harmless TRANSYSTEMS from any damages, liabilities or costs, including
reasonable attorneys’ fees and costs of defense, arising from such changes.

In
addition, OWNER agrees to include in any contracts for construction appropriate
language that prohibits the Contractor or any subcontractors of any tier from
making any changes or modifications to TRANSYSTEMS’s construction documents
without the prior written approval of TRANSYSTEMS and that further requires the
Contractor to indemnify both TRANSYSTEMS and OWNER from any liability or cost
arising from such changes made without such proper authorization.

SECTION 4

PERIODS
OF SERVICE, COMPLETION DATE, FORCE MAJEURE

Section 4.1                                   Period
of Service.  This Agreement shall
continue until this Agreement is terminated pursuant to Section 7.1 and all
Services under those Requests for Services which are pending at the time of
said termination are completed.

Section 4.2                                   Completion
Date.  Unless a specific Completion
Date is expressly set forth in a particular Request for Services as the date
the Services under that Request for Services must be completed, any date set
forth in a Request for Service shall be an estimated, but not guaranteed, date
for the completion of the Services under that particular Request for
Services.  If any such Completion Date is
exceeded through no fault of TRANSYSTEMS, all rates, measures and compensation
provided herein shall be subject to equitable adjustment. The Completion Date
(and TRANSYSTEMS’ obligation to complete the Services by such date, if any) is
subject to reasonable extensions for the performance of additional Services,
constructive changes or other extra work and is subject to reasonable
extensions for a Force Majeure Event.

The
OWNER and Consultant are aware that many factors outside TRANSYSTEMS’s control
may affect TRANSYSTEMS’ ability to complete the services to be provided under
this Agreement.  TRANSYSTEMS will perform
these services with reasonable diligence and expediency consistent with sound
professional practices.

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If
TRANSYSTEMS becomes aware of delays due to time allowances for review and
approval being exceeded, delay by the Contractor, the OWNER, the OWNER’s consultants
or any other cause beyond the control of TRANSYSTEMS, which will result in the
schedule for performance of TRANSYSTEMS’s services not being met, TRANSYSTEMS
shall promptly notify the OWNER.  If the
OWNER becomes aware of any delays or other causes that will affect TRANSYSTEMS’s
schedule, the OWNER shall promptly notify TRANSYSTEMS.  In either event, TRANSYSTEMS’s schedule for
performance of its services shall be equitably adjusted.

Section 4.3                                                        Force
Majeure.   For purposes hereof, a “Force
Majeure Event” shall mean the occurrence of a failure or delay due to
circumstances beyond TRANSYSTEMS’ control including, without limitation, acts
of God, acts of a public enemy, fires, floods, earthquakes, wars, civil
disturbances, sabotage, accidents, insurrection, blockages, embargoes, storms,
explosions, catastrophes, epidemics, damage to a particular Project, lack of
access to a particular Project, unavailable utilities and power, water, labor
disputes, OWNER’s failure to timely perform its obligations under this
Agreement or other causes beyond TRANSYSTEMS’ control.

SECTION 5

TRANSYSTEMS’
COMPENSATION

Section 5.1                                                           Compensation
for Services and Expenses of TRANSYSTEMS. 
Unless other compensation or fee arrangements are expressly set
forth in a particular approved Request for Services (in which case OWNER shall
pay TRANSYSTEMS in accordance with any such compensation or fee arrangements),
OWNER shall compensate TRANSYSTEMS for its Services performed or furnished
under a particular Request for Service as follows:

Section 5.1.1                                                 For
Services. As compensation for the performance of the Services rendered by
TRANSYSTEMS under a particular Request for Services, OWNER shall pay
TRANSYSTEMS, in accordance with the provisions of Section 5.3.

Section 5.1.2                                                 For
Reimbursable Expenses.  In addition
to payments provided for in paragraphs 5.1.1. OWNER shall also pay TRANSYSTEMS
for all Reimbursable Expenses incurred in connection with all Services provided
pursuant to a particular Request for Service. 
For purposes hereof, “Reimbursable Expenses” are those costs and
expenses incurred by TRANSYSTEMS in connection with the performance of the
Services under this Agreement or a particular Request for Service, including,
but not limited to, the costs and expenses incurred by TRANSYSTEMS for travel,
reproduction, mailing costs, computer time, supplies and materials, taxes,
transportation, telephone and communications, independent professional
associates and consultants and subconsultants and any other expense items which
are described on TRANSYSTEMS’ Schedule of Rates and Expenses in effect at the
time the Services are provided 

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and
the Reimbursable Expenses are incurred.

Section 5.2                                                           Monthly
Invoices.  TRANSYSTEMS shall submit
monthly statements for Services rendered and for Reimbursable Expenses incurred
under each Request for Services.  The
statements will be based upon TRANSYSTEMS’ estimate of the proportion of the
total Services actually completed at the time of billing or upon the time spent
and costs incurred by TRANSYSTEMS during the period covered by such
statement.  OWNER shall make prompt
monthly payments in response to TRANSYSTEMS’ monthly statements.

Section 5.3                                                           Other
Provisions Concerning Payments.

Section 5.3.1                                                 Interest,
Suspension of Services.  If OWNER
fails to make any payment due TRANSYSTEMS for services and expenses within
thirty (30) days after receipt of TRANSYSTEMS’ statement therefor, TRANSYSTEMS
shall be entitled interest on the unpaid amounts due TRANSYSTEMS at the lesser
of: i) 1.5 % per month; or, ii) the highest rate of interest allowed under
applicable law.   The entire unpaid
balance due TRANSYSTEMS shall bear said rate of interest from the thirtieth day
after OWNER’s receipt of TRANSYSTEMS’ statement,  until the entire unpaid balance has been paid
to TRANSYSTEMS.  In addition to being
entitled to interest, TRANSYSTEMS may, after giving seven (7) days written
notice to OWNER, suspend services under this Agreement until TRANSYSTEMS has
been paid in full all amounts due for Services, expenses, and charges.

Section 5.3.2                                                 Payments
after Termination by OWNER.  In the
event of termination under Section 7.1, TRANSYSTEMS will be paid for Services
rendered and Reimbursable Expenses incurred to the date of termination on those
particular Requests for Services terminated, on the basis of TRANSYSTEMS’
Invoiced Services and Expenses then in effect. 
TRANSYSTEMS shall also be reimbursed for the charges of independent
professional associates and consultants employed by TRANSYSTEMS to render
Services and all reasonable demobilization costs incurred by TRANSYSTEMS,
including any cancellation charges by independent professional associates,
consultants and others performing or furnishing Services through TRANSYSTEMS
under those particular Request for Services terminated, and TRANSYSTEMS shall
be paid all other amounts due it under this Agreement which are earned through
the date of the termination.

Section 5.3.3                                                 Records.  Records of TRANSYSTEMS’ salary costs
pertinent to TRANSYSTEMS’ compensation under this Agreement will be kept in
accordance with generally accepted accounting practices.  If OWNER desires to have copies of such
records, copies will be made available to OWNER upon OWNER’s request prior to
final payment for TRANSYSTEMS’ Services under a particular Request for
Services.  TRANSYSTEMS shall be
reimbursed the cost of any such copies by OWNER.

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Section 5.3.4                                                 Cost
Factors.  Whenever a factor is
applied to salary costs or other expenses in determining compensation payable
to TRANSYSTEMS that factor will be adjusted periodically and equitably to
reflect changes in the various elements that comprise such factor.  All such adjustments will be in accordance
with generally accepted accounting practices as applied on a consistent basis
by TRANSYSTEMS and consistent with TRANSYSTEMS’ overall compensation practices
and procedures.

SECTION 6

OPINIONS
OF COST AND SCHEDULE

Section 6.1                                                           Opinions
of Cost and Schedule.  Since
TRANSYSTEMS has no control over the cost of labor, materials, equipment or
services furnished by others, or over the resources provided by others to meet
construction or other Project schedules, or over the methods of others in
determining prices, or over competitive bidding or market conditions,  TRANSYSTEMS’ opinions of probable costs
(including probable Total Project Costs and Construction Cost) and of Project
Schedules shall be made on the basis of TRANSYSTEMS’ experience and
qualifications and represent TRANSYSTEMS’ best judgment as an experienced and
qualified professional engineer, familiar with the construction industry; but
TRANSYSTEMS cannot and does not guarantee that proposals, bids or actual
Project Costs (including Total Project Costs or Construction Costs) will not
vary from opinions of probable cost prepared by TRANSYSTEMS or that actual
schedules will not vary from the projected schedules prepared by TRANSYSTEMS.  TRANSYSTEMS
makes no warranty, express or implied, that the bids or the negotiated cost of
the work will not vary from TRANSYSTEMS’ opinion of probable construction cost.

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SECTION 7

GENERAL
CONSIDERATIONS

Section 7.1                                                           Termination.  The obligation to provide further Services
under this Agreement may be terminated by either party upon thirty (30) days
written notice to the other party.  In
the event such a termination is of a particular Request for Services, then this
Agreement shall remain in effect for all other outstanding requests for
services and any future approved Requests for Services.  In the event said termination is for the entire
Agreement, then the termination shall effect and terminate this Agreement and
all outstanding Requests for Services.

If
TRANSYSTEMS for any reason is not allowed to complete all the services called
for by this Agreement, TRANSYSTEMS shall not be held responsible for the
accuracy, completeness or constructability of the construction documents
prepared by TRANSYSTEMS if used, changed or completed by the OWNER or by
another party.  Accordingly, the OWNER
agrees, to the fullest extent permitted by law, to indemnify and hold harmless
TRANSYSTEMS, its officers, directors, employees and subconsultants
(collectively, Consultant) from any damages, liabilities or costs, including
reasonable attorneys’ fees and defense costs, arising or allegedly arising from
such use, change or completion by any other party of any construction documents
prepared by TRANSYSTEMS.

Section 7.2                                                           Reuse
of Documents.  All documents,
drawings, sketches, studies, analysis, information, schedules, estimates,
reports and other items prepared or furnished by TRANSYSTEMS (or TRANSYSTEMS’
independent professional associates and consultants) pursuant to this
Agreement,  including, but not limited to
Drawings and Specifications,  are
instruments of service in respect of the particular Project for which they were
prepared and TRANSYSTEMS shall retain an ownership and property interest
therein whether or not the particular Project is completed.  Provided, however, that such documents,
drawings, sketches, studies, analysis, information, schedules, estimates,
reports and other items are not intended or represented to be suitable for
reuse by OWNER or others on extensions of the particular Project or on any
other project.  Any reuse without written
verification or adaptation by TRANSYSTEMS for the specific purpose intended
will be at OWNER’s sole risk and without liability or legal exposure to
TRANSYSTEMS, or to TRANSYSTEMS’ independent professional associates or
consultants, and OWNER does hereby, to the fullest extent permitted by law,
indemnify and hold harmless TRANSYSTEMS, TRANSYSTEMS’ officers, employees and
agents and TRANSYSTEMS’ independent professional associates and consultants
from all claims, suits, demands, damages, liabilities, losses, expenses and
costs, including but not limited to reasonable attorney’s fees and other costs
of defense, arising out of or resulting therefrom.  The provisions of this Section 7.2 shall
survive the termination of this Agreement.

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Section 7.3                                                           Use
of Electronic Media.

In
the event that OWNER requests any electronic deliverables under this agreement,
TRANSYSTEMS and OWNER shall execute a separate CADD agreement.  Otherwise, in accepting and utilizing any
drawings, reports and data on any form of electronic media generated and
furnished by TRANSYSTEMS, the OWNER agrees that all such electronic files are
instruments of service of TRANSYSTEMS, who shall be deemed the author, and
shall retain all common law, statutory law and other rights, including
copyrights.

The
OWNER agrees not to reuse these electronic files, in whole or in part, for any
purpose other than for the Project.  The
OWNER agrees not to transfer these electronic files to others without the prior
written consent of TRANSYSTEMS.  The
OWNER further agrees to waive all claims against TRANSYSTEMS resulting in any
way from any unauthorized changes to or reuse of the electronic files for any
other project by anyone other than TRANSYSTEMS.

Electronic
files furnished by either party shall be subject to an acceptance period of
sixty (60) days during which the receiving party agrees to perform appropriate
acceptance tests.  The party furnishing
the electronic file shall correct any discrepancies or errors detected and
reported within the acceptance period. 
After the acceptance period, the electronic files shall be deemed to be
accepted and neither party shall have any obligation to correct errors or
maintain electronic files.

The
OWNER is aware that differences may exist between the electronic files
delivered and the printed hard-copy construction documents.  In the event of a conflict between the signed
construction documents prepared by TRANSYSTEMS and electronic files, the signed
or sealed hard-copy construction documents shall govern.

In
addition, the OWNER agrees, to the fullest extent permitted by law, to
indemnify and hold harmless TRANSYSTEMS, its officers, directors, employees and
subconsultants (collectively, Consultant) against all damages, liabilities or
costs, including reasonable attorneys’ fees and defense costs, arising from any
changes made by anyone other than TRANSYSTEMS or from any reuse of the
electronic files without the prior written consent of TRANSYSTEMS.

Under
no circumstances shall delivery of electronic files for use by the OWNER be
deemed a sale by TRANSYSTEMS, and TRANSYSTEMS makes no warranties, either
express or implied, of merchantability and fitness for any particular
purpose.  In no event shall TRANSYSTEMS
be liable for indirect or consequential damages as a result of the OWNER’s use
or reuse of the electronic files.

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Section 7.4                                                           Standard
of Practice, Warranties.  Services
performed by TRANSYSTEMS under this Agreement will be conducted in a manner
consistent with the level of care, diligence and skill ordinarily possessed and
exercised by members of the profession currently practicing in the same
locality under similar conditions.  Except as expressly set forth above, no other
representations, expressed or implied, and no warranty or guarantee, express or
implied, is included in this Agreement, or in any document, drawing, sketch,
study, analysis, schedule, estimate, report, opinion, specification and other
item prepared or furnished by TRANSYSTEMS (or TRANSYSTEMS’ independent
professional associates and consultants) pursuant to this Agreement.

Section 7.5                                                           Limitation
of Responsibility, Job Site Safety/Techniques. 
Neither the professional activities of TRANSYSTEMS, nor the presence
of TRANSYSTEMS or its employees and subconsultants at a construction/project
site, shall relieve the Contractor of its obligations, duties and
responsibilities including, but not limited to, construction means, methods,
sequence, techniques or procedures necessary for performing, superintending and
coordinating the Work in accordance with the Contract Documents and any health
or safety precautions required by any regulatory agencies.  TRANSYSTEMS and its personnel have no
authority to exercise any control over any construction contractor or its
employees in connection with their work or any health or safety programs or
procedures.  The OWNER agrees that the
Contractor shall be solely responsible for job site safety, and warrants that
this intent shall be carried out in the OWNER’s contract with the
Contractor.  The OWNER also agrees that
the OWNER, TRANSYSTEMS and TRANSYSTEMS’ subconsultants shall be indemnified by
the Contractor and shall be made additional insureds under the Contractor’s
policies of general liability insurance. 
In addition, TranSystems shall not be responsible for (i) the failure of
any other project party to fulfill their respective contractual
responsibilities and obligations to OWNER or to comply with Federal, State or
local laws, rules, regulations or codes; (ii) the schedules of any of the other
project parties or the failure of any of the other project parties to carry out
their work in accordance with their respective agreements.  TranSystems shall not have control over or
charge of and shall not be responsible for acts or omissions of the other
project parties, or their agents or employees, or of any other persons
performing portions of the work on the project.

Section 7.6                                                           Insurance.

Section 7.6.1                                                 TRANSYSTEMS
Insurance.  TRANSYSTEMS shall
maintain throughout the duration of this Agreement insurance in the following
amounts and will, upon request of the OWNER furnish a copy of certification
thereof:

(a)                               Worker’s
Compensation and Employer’s Liability

Worker’s Compensation
Statutory

Employer’s Liability
$500,000/$500,000/$500,000

 14
 

 

(b)                                 Comprehensive
Automobile Liability

$1,000,000
combined single limit Bodily Injury and Property Damage

(c)                                  Comprehensive
General Liability

$1,000,000 - per occurrence

$2,000,000 - annual
aggregate

$2,000,000 product /
completed operations per occurrence

$1,000,000
- personal injury / advertising liability

(d)                                 Umbrella/Excess
Liability

$1,000,000 -per
occurrence

$1,000,000
-annual aggregate

(e)                                  Professional
Liability Insurance in an amount of $1,000,000 per claim and annual aggregate.

Section 7.6.2                                                 If,
pursuant to the provisions of Exhibit A, OWNER is required to obtain certain
insurance coverages, OWNER agrees to obtain and maintain throughout the
duration of this Agreement (or, as applicable, cause its contractors to obtain
and maintain) such insurance in the coverages and the amounts specified on
Exhibit A.  OWNER will furnish
TRANSYSTEMS with a copy of certification of such insurance.  TRANSYSTEMS’ interests shall be covered under
any such insurance coverage. [Note: Deletion of Section 7.6.2 was agreed to
and initialed by Brian Kletscher, President of Highwater Ethanol, LLC and
Timothy P. Rock, Assistant Vice President of TranSystems Corporation on
November 16, 2006.]

Section 7.7                                                           Liability
and Indemnification.

Section 7.7.1                                                 General.  Having considered the potential liabilities
that may exist during the performance of the Services, the benefits of the
Project, and TRANSYSTEMS’ Compensation for the performance of the Services, and
in consideration of the promises contained in this Agreement, OWNER and
TRANSYSTEMS agree to allocate and limit such liabilities in accordance with the
provisions of this Section 7.7.

Section 7.7.2                                                 TRANSYSTEMS
Indemnification. TRANSYSTEMS agrees, to the fullest extent permitted by
law, to indemnify and hold the OWNER harmless from any damage, liability or
cost (including reasonable attorney’s fees and costs of defense) to the extent
caused by TRANSYSTEMS’ negligent acts, errors or omissions in the performance
of professional services under this Agreement and those of its subconsultants
or anyone for whom TRANSYSTEMS is legally liable.  TRANSYSTEMS is not obligated to indemnify the
OWNER in any manner whatsoever for the OWNER’S own negligence.

 15
 

 

Section 7.7.3                                                 OWNER
Indemnification.   The OWNER agrees,
to the fullest extent permitted by law, to indemnify and hold TRANSYSTEMS
harmless from any damage, liability or cost (including reasonable attorney’s
fees and costs of defense) to the extent caused by the OWNER’S negligent acts,
errors or omissions and those of its contractors, subcontractors or consultants
or anyone for whom the OWNER is legally liable, and arising from the Project
that is the subject of this Agreement.  The
OWNER is not obligated to indemnify TRANSYSTEMS in any manner whatsoever for
TRANSYSTEMS’ own negligence.

Section 7.7.4                                                 Contractor
Indemnification. OWNER agrees to cause each of its other contractors on
each particular Project to include an indemnification provision in OWNER’s
contract with each such contractor that indemnifies and holds harmless
TRANSYSTEMS and any of its officers or employees from all loss, damage, cost or
expense to the extent caused by such contractors (or its employees or
subcontractors) negligence or willful misconduct.

Section 7.7.5                                                 Employee
Claims.  TRANSYSTEMS shall indemnify
OWNER against any loss, damage, cost or expense arising out of claims by
TRANSYSTEMS’ employees (unless such claim arises out of or as a result of the
negligence of OWNER, its employees, agents or contractors). OWNER shall
indemnify TRANSYSTEMS against any loss, damage, cost or expense arising out of
claims by OWNER’S employees (unless such claim arises out of or as a result of
the negligence of TRANSYSTEMS, its employees, agents or subcontractors).

Section 7.7.6                                                 Consequential
Damages.  To the fullest extent
permitted by law, TRANSYSTEMS shall not, in any event,  be liable to OWNER for any special, indirect,
incidental or consequential damages, including, but not limited to,  damages from delay, distribution, loss of
product, loss of use, loss of profits or revenue or increased cost of
operation, the cost of capital or the cost of purchased or replacement
equipment, systems or power.

Section 7.7.7                                                 Limitation
of Liability.  To the fullest extent
permitted by law, TRANSYSTEMS’ total liability to OWNER for all claims, losses,
damages and expenses resulting or arising in any way from the performance of
the Services (including TRANSYSTEMS’ indemnity obligations hereunder) shall not
exceed the total compensation received by TRANSYSTEMS under this Agreement or
the limits of any professional liability insurance requirements outlined in
Section 7.6.1(e), whichever is greater. 
BK

Section 7.7.8                                                 Survival.  The terms and conditions of this Section 7.7
shall survive the termination of this Agreement and/or the completion of the
Services.

 16
 

 

Section 7.7.9                                                 Betterment.
If, due to TRANSYSTEMS’ negligence, a required item or component of the
Project is omitted from TRANSYSTEMS’ construction documents, TRANSYSTEMS shall
not be responsible for paying the cost required to add such item or component
to the extent that such item or component would have been required and included
in the original construction documents. 
In no event will TRANSYSTEMS be responsible for any cost or expense that
provides betterment or upgrades or enhances the value of the Project.

Section 7.7.10                                          Protection
of Supplanting Consultant.  In
consideration of the risks and rewards involved in this Project, the OWNER
agrees, to the maximum extent permitted by law, to indemnify and hold harmless
TRANSYSTEMS from any damages, liabilities or costs, including reasonable
attorneys’ fees and defense costs, arising or allegedly arising from any
negligent acts, errors or omissions by any prior consultant employed by the
OWNER on this project and from any claims of copyright or patent infringement
by TRANSYSTEMS arising from the use of any documents prepared or provided by
the OWNER or any prior consultant of the OWNER’s.  The OWNER warrants that any documents
provided to TRANSYSTEMS by the OWNER or by the prior consultant may be relied
upon as to their accuracy and completeness without independent investigation by
TRANSYSTEMS and that the OWNER has the right to provide such documents to
TRANSYSTEMS free of any claims of copyright or patent infringement or violation
of any other party’s rights in intellectual property.

SECTION 8

SPECIAL
PROVISIONS, EXHIBITS AND SCHEDULES

Section 8.1                                                           Special
Provisions.  This Agreement is subject to
no special provisions.

Section 8.2                                                           Entire
Agreement.  This Agreement together
with all approved Requests for Services constitute the entire agreement between
OWNER and TRANSYSTEMS and supersede all prior written or oral
understandings.  This Agreement may only
be amended, supplemented, modified, or canceled by a duly executed written
instrument.

Nothing
contained in this Agreement shall create a contractual relationship with or a
cause of action in favor of a third party against either the OWNER or
TRANSYSTEMS.  TRANSYSTEMS’ services under
this Agreement are being performed solely for the OWNER’s benefit, and no other
party or entity shall have any claim against TRANSYSTEMS because of this
Agreement or the performance or nonperformance of services hereunder.  The OWNER and Consultant agree to require a
similar provision in all contracts with contractors, subcontractors,
subconsultants, vendors and other entities involved in this Project to carry
out the intent of this provision.

 17
 

 

TRANSYSTEMS
shall not be required to execute any documents subsequent to the signing of
this Agreement that in any way might, in the sole judgment of TRANSYSTEMS,
increase TRANSYSTEMS’ contractual or legal obligations or risks, or adversely
affect the availability or cost of its professional or general liability
insurance.

Section 8.3                                                           Hazardous Materials.  Unless otherwise provided in this Agreement,
TRANSYSTEMS shall have no responsibility for the discovery, presence, handling,
removal or disposal of or exposure of persons to hazardous materials in any
form at the Project site.  However,
TRANSYSTEMS shall report to OWNER the presence and location of any hazardous
material which it notices or which an engineer of similar skill and experience
should have noticed.

Section 8.4                                                           Attorneys
Fees.  In the event that either party
hereto employs an attorney to enforce any provision of this Agreement or to
collect damages for default or breach of this Agreement, or pursue claims in
litigation or arbitration, the prevailing party in any such action shall be
entitled to recover from the other such attorneys’ fees and costs of collection
as the prevailing party may expend or incur with respect thereto.  In the event that a settlement is reached
between the parties before a final decision in any such litigation or arbitration,
then neither party shall be entitled to recover its attorneys fees or costs
from the other and neither party shall be responsible for the other party’s
attorney’s fees or costs, unless otherwise agreed by the parties.

Section 8.5                                                           Disputes.  In the event a dispute arises between
TRANSYSTEMS and OWNER regarding the application or interpretation of any
provision of this Agreement, or quality of Services by TRANSYSTEMS, the
aggrieved party shall promptly notify the other party to this Agreement of the
dispute, but in no event more than 20 days after such dispute arises.  If the parties fail to resolve the dispute
within 20 days after receipt of such notice, each party shall, within five days
thereafter, proceed to non-binding mediation, with each party to bear its
own costs and attorneys’ fees (except as otherwise provided in Section 8.4
above) and the parties shall share equally in the cost of the mediator.  In the event that the mediation is
unsuccessful, the aggrieved party may elect to litigate its dispute with the
other party.  All disputes shall be
governed by the laws of the State of Missouri and the jurisdiction and venue
for litigation between the parties shall be solely and exclusively in Jackson
County, Missouri, or the United States District Court for the Western District
of Missouri.

It
is intended by the parties to this Agreement that TRANSYSTEMS’ services in
connection with the Project shall not subject TRANSYSTEMS’ individual
employees, officers or directors to any personal legal exposure for the risks
associated with this Project.  Therefore,
and notwithstanding anything to the contrary contained herein, the OWNER agrees
that as the OWNER’s sole and exclusive remedy, any claim, demand or suit shall
be directed and/or asserted only against TRANSYSTEMS, a Missouri corporation,
and not against any of TRANSYSTEMS’ individual employees, officers or
directors.

 18
 

 

Section 8.6                                                           Independent
Contractor. TRANSYSTEMS shall be an independent contractor with respect to
the Services to be performed hereunder. 
Neither TRANSYSTEMS, nor its independent professional associates,
consultants or subcontractors, nor the employees of any of the foregoing, shall
be deemed to be the servants, employees or agents of OWNER.

Section 8.7                                                           Representations
and Remedies.  TRANSYSTEMS makes no
representations, covenants, warranties or guarantees, express or implied, other
than those expressly set forth herein. 
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE ARE SPECIFICALLY EXCLUDED.  The
parties’ rights, liabilities, responsibilities and remedies with respect to the
Services, whether in contract or otherwise, shall be exclusively those
expressly set forth in this Agreement.

Section 8.8                                                           Assignment,
Subcontractors. This Agreement shall not be assignable by either party
without the prior written consent of the other party hereto, except that it may
be assigned without such consent to the successor of either party, or to a
person, firm or corporation acquiring all or substantially all of the business
assets of such party or to a wholly owned subsidiary of either party, but such
assignment shall not relieve the assigning party of any of its obligations
under this Agreement.  No assignment of
this Agreement shall be valid until this Agreement shall have been assumed by
the assignee.  This Agreement shall be
binding upon and shall inure to the benefit of TRANSYSTEMS’ and OWNER’s
respective successors and assigns. Nothing in this Section 8.9 shall prevent or
be deemed to prevent TRANSYSTEMS from employing, contracting with or engaging
independent professional associates, consultants and other subcontractors to
perform or assist in the performance of the Services.

Section 8.9                                                           Interpretation.

(a)                                  This
Agreement shall be governed by and interpreted in accordance with the laws of
Missouri.

(b)                                 Headings
and titles of sections, paragraphs and other subparts of this Agreement are for
convenience of reference only and shall not be considered in interpreting the
text of this Agreement.  Modifications or
amendments to this Agreement must be in writing and executed by duly authorized
representatives of each party.

(c)                                  Unless
specifically stated to the contrary therein, indemnities against, releases from
and limitations on liability expressed in this Agreement shall apply even in
the event of the fault, negligence or strict liability of the party indemnified
or released or whose liability is limited and shall extend to the officers,
directors, employees, agents, licensors and related entities of such party.

 19
 

 

(d)                                 In
the event that any portion or all of this Agreement is held to be void or
unenforceable, the parties agree to negotiate in good faith to reach an
equitable agreement which shall effect the intent of the parties as set forth
in this Agreement.

(e)                                  No
failure by either party to insist on performance of any term, condition, or
instruction, or to exercise any right or privilege included in this Agreement,
and no waiver of any breach shall constitute a waiver of any other or
subsequent term, condition, instruction, breach, right or privilege.

(f)                                    The
parties acknowledge and agree that the terms and conditions of this Agreement,
including but not limited to those relating to allocations and assumptions of,
releases from, exclusions against and limitations of liability, have been freely
and fairly negotiated.  Each party
acknowledges that in executing this Agreement they have relied solely on their
own judgment, belief, and knowledge, and such advice as they may have received
from their own counsel, and they have not been influenced by any representation
or statements made by any other party or its counsel.  No provision in this Agreement is to be
interpreted for or against any party because that party or its counsel drafted
such provision.

 20
 

 

Section 8.11                                                    Certifications,
Guarantees and Warranties.  TRANSYSTEMS
shall not be required to sign any documents, no matter by whom requested, that
would result in TRANSYSTEMS’ having to certify, guarantee or warrant the
existence of conditions whose existence TRANSYSTEMS cannot ascertain.  The OWNER also agrees not to make resolution
of any dispute with TRANSYSTEMS or payment of any amount due to TRANSYSTEMS in
any way contingent upon TRANSYSTEMS’ signing any such certification.

As
used herein, the word “certify” shall mean an expression of TRANSYSTEMS’
professional opinion to the best of its information, knowledge and belief, and
does not constitute a warranty or guarantee by TRANSYSTEMS.

IN
WITNESS WHEREOF, the parties hereto have made and executed this Agreement as of
the 4th day of May 2006

	
   

  	
   

  	
   

  	
   

  
	
  Highwater Ethanol

  	
   

  	
   

  	
  TranSystems Corporation

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
  /s/ Brian Kletscher

  	
   

  	
  By:

  	
   

  	
  /s/ Timothy P. Rock

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Printed Name: 

  	
   

  	
  Brian Kletscher

  	
   

  	
  Printed Name:

  	
   

  	
  Timothy P. Rock

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
  President

  	
   

  	
  Title: 

  	
   

  	
  Assistant Vice President

  	
   

  
																		

 

 21Exhibit 10.7

 

PHASE I AND PHASE II

 

ENGINEERING SERVICES
AGREEMENT

 

BETWEEN

 

HIGHWATER ETHANOL, LLC

 

AND

 

FAGEN ENGINEERING, LLC

 

July 20, 2006

 

TABLE OF CONTENTS

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Article 1

  	
   

  	
  Definitions; Rules of Interpretation

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.1

  	
   

  	
  Rules of Construction

  	
   

  	
  1

  
	
  1.2

  	
   

  	
  Defined Terms

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Article 2

  	
   

  	
  Retention of Agent

  	
   

  	
  4

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.1

  	
   

  	
  Retention of Services

  	
   

  	
  4

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Article 3

  	
   

  	
  Engineer Responsibilities

  	
   

  	
  4

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.1

  	
   

  	
  Services

  	
   

  	
  4

  
	
  3.2

  	
   

  	
  Phase I Design Package

  	
   

  	
  4

  
	
  3.3

  	
   

  	
  Delivery of Phase I Design Package

  	
   

  	
  4

  
	
  3.4

  	
   

  	
  The Phase II Design Package

  	
   

  	
  4

  
	
  3.5

  	
   

  	
  Delivery of Phase II Design Package

  	
   

  	
  5

  
	
  3.6

  	
   

  	
  Delays

  	
   

  	
  5

  
	
  3.7

  	
   

  	
  Utility Routing and Design Services Limited

  	
   

  	
  5

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Article 4

  	
   

  	
  Client Responsibilities

  	
   

  	
  5

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.1

  	
   

  	
  Client’s Representative

  	
   

  	
  5

  
	
  4.2

  	
   

  	
  Client’s Requirements

  	
   

  	
  6

  
	
  4.3

  	
   

  	
  Other Information

  	
   

  	
  6

  
	
  4.4

  	
   

  	
  Access to Property

  	
   

  	
  6

  
	
  4.5

  	
   

  	
  Review of Documents

  	
   

  	
  6

  
	
  4.6

  	
   

  	
  Consents, Approvals, Licenses, and Permits

  	
   

  	
  6

  
	
  4.7

  	
   

  	
  Bids

  	
   

  	
  6

  
	
  4.8

  	
   

  	
  Other Services

  	
   

  	
  6

  
	
  4.9

  	
   

  	
  Services Outside Scope of Engineer’s Services

  	
   

  	
  6

  
	
  4.10

  	
   

  	
  Deviation from Design

  	
   

  	
  6

  
	
  4.11

  	
   

  	
  Developments Affecting Scope or Timing of Services

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Article 5

  	
   

  	
  Compensation And Payment

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.1

  	
   

  	
  Compensation

  	
   

  	
  7

  
	
  5.2

  	
   

  	
  Reimbursement of Engineer Expenses

  	
   

  	
  7

  
	
  5.3

  	
   

  	
  Reimbursement of Subcontractor Expenses

  	
   

  	
  7

  
	
  5.4

  	
   

  	
  Fees for Work Outside Scope of Services

  	
   

  	
  7

  
	
  5.5

  	
   

  	
  Collection of Unpaid Amounts

  	
   

  	
  7

  
	
  5.6

  	
   

  	
  Reimbursement Schedules Subject to Change

  	
   

  	
  7

  
	
  5.7

  	
   

  	
  Invoices

  	
   

  	
  8

  
	
  5.8

  	
   

  	
  Payment

  	
   

  	
  8

  
	
  5.9

  	
   

  	
  Late Payment and Interest

  	
   

  	
  8

  
	
  5.10

  	
   

  	
  Suspension for Failure to Pay

  	
   

  	
  8

  

 

 i
 

 

 

 

	
   

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.11

  	
   

  	
  Payment

  	
   

  	
  8

  
	
  5.12

  	
   

  	
  Withholding Payments

  	
   

  	
  8

  
	
  5.13

  	
   

  	
  Purchase Orders

  	
   

  	
  8

  
	
  5.14

  	
   

  	
  Changes in Project

  	
   

  	
  8

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Article 6

  	
   

  	
  Construction Cost And Cost Estimates

  	
   

  	
  8

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.1

  	
   

  	
  Cost Estimates

  	
   

  	
  8

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Article 7

  	
   

  	
  Termination

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.1

  	
   

  	
  Termination Upon Default

  	
   

  	
  9

  
	
  7.2

  	
   

  	
  Termination Upon Abandonment of Plant

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Article 8

  	
   

  	
  Ownership of Work Product

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.1

  	
   

  	
  Work Product

  	
   

  	
  9

  
	
  8.2

  	
   

  	
  Copies Provided to Client

  	
   

  	
  9

  
	
  8.3

  	
   

  	
  Prohibited Use of Work Product

  	
   

  	
  9

  
	
  8.4

  	
   

  	
  Derogation of Engineer’s Rights to Work Product

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Article 9

  	
   

  	
  Successors and Assigns

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.1

  	
   

  	
  Successors

  	
   

  	
  10

  
	
  9.2

  	
   

  	
  Written Consent Required

  	
   

  	
  10

  
	
  9.3

  	
   

  	
  No Third-Party Beneficiaries

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Article 10

  	
   

  	
  Warranty

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.1

  	
   

  	
  No Warranty Extended

  	
   

  	
  10

  
	
  10.2

  	
   

  	
  No Responsibility for Construction

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Article 11

  	
   

  	
  Indemnification

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11.1

  	
   

  	
  Engineer’s Indemnification

  	
   

  	
  10

  
	
  11.2

  	
   

  	
  Client’s Indemnification

  	
   

  	
  11

  
	
  11.3

  	
   

  	
  Hazardous Materials Indemnification

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Article 12

  	
   

  	
  Dispute Resolution

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.1

  	
   

  	
  Arbitration

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Article 13

  	
   

  	
  Confidentiality

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13.1

  	
   

  	
  Non-Disclosure Obligation

  	
   

  	
  12

  
	
  13.2

  	
   

  	
  Publicity and Advertising

  	
   

  	
  12

  
	
  13.3

  	
   

  	
  Term of Obligation

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Article 14

  	
   

  	
  Miscellaneous

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  14.1

  	
   

  	
  Governing Law

  	
   

  	
  12

  
	
  14.2

  	
   

  	
  Severability

  	
   

  	
  12

  
	
  14.3

  	
   

  	
  No Waiver

  	
   

  	
  13

  

 

 ii
 

 

 

	
   

  	
   

  	
   

  	
   

  	
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  14.4

  	
   

  	
  Captions and Headings

  	
   

  	
  13

  
	
  14.5

  	
   

  	
  Engineer’s Accounting Records

  	
   

  	
  13

  
	
  14.6

  	
   

  	
  Counterparts

  	
   

  	
  13

  
	
  14.7

  	
   

  	
  Survival

  	
   

  	
  13

  
	
  14.8

  	
   

  	
  No Privity with Client’s Contractors

  	
   

  	
  13

  
	
  14.9

  	
   

  	
  Amendments

  	
   

  	
  13

  
	
  14.10

  	
   

  	
  Entire Agreement

  	
   

  	
  13

  
	
  14.11

  	
   

  	
  Notice

  	
   

  	
  13

  
	
  14.12

  	
   

  	
  Extent of Agreement

  	
   

  	
  14

  
	
  14.13

  	
   

  	
  Subrogation Waiver

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT A

  	
   

  	
  Reimbursement Schedule

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT B

  	
   

  	
  Reimbursable Expense Schedule

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT C

  	
   

  	
  Client’s Deliverable Site Obligations

  	
   

  	
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 iii

 

PHASE I AND PHASE II

ENGINEERING SERVICES AGREEMENT

THIS PHASE I AND PHASE II ENGINEERING
SERVICES AGREEMENT (the “Agreement”) is made as of
July 20, 2006, (the “Effective Date”) by and between Highwater Ethanol,
LLC, a Minnesota Limited Liability Company (the “Client”) and Fagen
Engineering, LLC a Minnesota Limited Liability Company (the “Engineer”).  Each of the Client and Engineer are referred
to herein individually as a “Party” and collectively as the “Parties.”

RECITALS

WHEREAS,  Client
is developing a 50 million gallons per year dry grind ethanol production
facility to be located in Lamberton, MN (the “Plant”) to be owned and
operated by Client; and

WHEREAS,  Client and Fagen, Inc. (“Design - Builder”)
intend to enter into that certain Lump-Sum Design-Build Agreement (“Design-Build
Agreement”) under which Fagen, Inc., an affiliate of Engineer,  will serve as the design-builder for the
Plant and provide design, engineering, procurement and construction services
for the development and construction of the Plant; and

WHEREAS,   Client wishes to retain an entity in advance
of entering into the Design-Build Agreement to perform certain engineering and
design work that will be required under the Design-Build Agreement on the terms
and conditions set forth in this Agreement, and Engineer desires to act as such
entity upon the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the
mutual promises contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound by this Agreement, the parties do hereby agree as follows:

Article 1

Definitions; Rules of Interpretation

1.1          Rules of
Construction.

The
capitalized terms listed in this Article 1 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 industry standards.  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.

 1
 

 

(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.  The following definitions will apply in this
Agreement:

1.2          Defined Terms.

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

Agreement
will have the meaning given to such term in the Preamble to this Agreement.

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, it
partners or their respective representatives, to the extent any such person is
engaged in activities related to the Services; 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
Services or an activity related to the Services.

Client
will have the meaning given to such term in the Preamble to this Agreement.

Client’s
Representative will have the meaning given to such term in
Section 4.1

Design-Build
Agreement will have the meaning given to such term in the
Recitals to this Agreement.

Effective
Date will have the meaning given
to such term in the Preamble to this Agreement.

Engineer
will have the meaning given to such term in the Preamble to this Agreement.

Engineer
Responsible Parties will have the meaning given to such term
in Section 4.10.

 2
 

 

Governmental
Approvals will mean any material authorizations or
permissions issued or granted by any Governmental Authority to the Project, the
Client, the Engineer, subcontractors and their affiliates in connection with
any activity related to the Services.

Governmental
Authority will mean 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 Client, the Engineer, the
Plant, or the Site.

Monthly
Invoice will have the meaning given to such term in Section
5.7.

Party
or Parties will have the meaning given to such term in the
Preamble to this Agreement.

Phase
I Deliverables will mean the Client’s deliverable obligations
pursuant to Exhibit C attached to this Agreement.

Phase
I Design Package will have the meaning given to such term in
Section 3.2.

Phase
II Deliverables will mean the Client’s deliverable
obligations pursuant to Exhibit C

Phase
II Design Package will have the meaning given to such term in
Section 3.4 attached to this Agreement.

Plant
will have the meaning given to such term in the Recitals to this Agreement.

Project
will mean the Plant, together with all equipment, labor,
services and materials furnished under the Design-Build Agreement.

Services
will have the meaning given to such term in Section 3.1.

Site
will mean the land or premises on which the Plant is located.

Subcontractor will mean any person or entity,
including but not limited to independent engineers, associates, and
consultants, retained by Engineer, or by any person or entity retained directly
or indirectly by Engineer, in each case as an independent contractor, to
perform a portion of the Services.

Work Product will have the meaning given to
such term in Section 8.1.

 3
 

 

Article 2

Retention
of the Agent

2.1          Retention of Services.  On the terms and subject to the conditions
hereinafter set forth, Client hereby retains Engineer to perform, and Engineer
hereby agrees to perform, the Services. 
Engineer will provide such Services solely pursuant to the terms and
conditions set forth herein including any indemnifications and limitations on
liability.

Article 3

Engineer
Responsibilities

3.1          Services.  Engineer shall perform the Phase I
Design Package and Phase II Design Package engineering services necessary to
facilitate Client’s completion of the Phase I and Phase II Site work required
of Client prior to the issuance of a Notice to Proceed pursuant to the
Design-Build Agreement (collectively, the “Services”).

3.2          Phase I Design
Package. (Grading and Drainage). The Phase I Design Package to be
provided by Engineer shall consist of the engineering and design of the Plant
Site and shall include the following drawings:

a)              Cover
Sheet

b)             Property
Layout Drawing

c)              Grading,
Drainage and Erosion Control Plan Drawing (Multiple Drawings if Required)

i.                 Used
for Land Disturbance Permitting

ii.             Site
grading is held 6-inches low for topsoil and seeding

d)             Roadway
Alignment Drawing

e)              Culvert
Cross Sections and Details (Multiple Drawings)

f)                Seeding
and Landscaping (If Required)

g)             Geometric layout
drawing (includes contractor’s trailer, parking and laydown areas)

Plan sets along
with a Bid Tabulation Sheet will be supplied to the Client so all contractors
bid the same quantities.  A telephone
conference call for a Phase I pre-bid meeting will be provided upon Client’s
request.

3.3          Delivery
of Phase I Design Package.   Engineer
shall deliver the completed Phase I Design Package no later than 60 days after
the receipt of all the Phase I Owner Deliverables, however, the 60 day time
frame will commence no sooner than December 5, 2006.

3.4          Phase II
Design Package.  The Phase II
Design Package to be provided by Engineer shall provide the engineering and
design of Site work and utilities for the Plant, all within the property line
of Plant, and shall consist of the following:

a)              Cover Sheet

 4
 

 

b)             Property
Layout Drawing

c)              Site
Grading and Drainage Drawing (Final Interior Plant Grading)

d)             Roadway
Alignment

e)              Utility
Layout (Fire Loop)

f)                Utility
Layout (Potable Water)

g)             Utility
Layout (Well Water) if using on-Site wells

h)             Utility
Layout (Sanitary Sewer)

i)                 Utility
Layout (Utility Water Blowdown)

j)                 Utility
Layout (Natural Gas)

i.                 Fagen
Engineering provides a preferred routing through the Site, line size and pipe
specifications are typically provided by the gas supplier.

k)              Geometric
Layout (For Project Control Verification)

l)                 Site
Utility Piping Tables Drawing

m)           Tank
Farm Layout Drawing

n)             Tank
Farm Details Drawing

o)             Sections
and Details Drawing (If required)

p)             Miscellaneous Details
Drawing (If required)

A telephone
conference call for a Phase II pre-bid meeting will be provided upon Client’s
request.

3.5          Delivery
of Phase II Design Package.  Engineer
shall deliver the completed Phase II Design Package no later than 60 days after
the receipt of all Phase II Deliverables.

3.6          Delays.  The Parties agree that Engineer
shall not be responsible for delays in providing the Services under this
Agreement due to factors beyond Engineer’s control.

3.7          Utility
Routing and Design Services Limited.  The
Parties agree that Engineer shall provide the routing and design for the
utilities necessary for the Plant only within the Plant property line and up to
the Plant property line, and that, for purposes of this Agreement, Engineer
assumes a tie-in point to a city utility. 
The Parties agree that, if there is no city tie-in point, Engineer will
route the utilities to the Plant property line and stop.  Any special tie-in requirements necessary to
connect the utilities at the Plant property line are not included in the compensation
or the scope of this Agreement and shall only be designed and engineered by
Engineer as change in the Project which affects the Services hereunder.

Article 4

Client
Responsibilities

4.1          Client’s
Representative.  Client shall,
prior to the commencement of Services by Engineer, name a representative (“Client’s
Representative”) with authority to receive information and transmit
instructions for Client.  Client’s
Representative shall be vested with authority to act on behalf of Client and
Engineer shall be entitled to rely on Client’s Representative’s communications
with regard to the Services.

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4.2          Client’s
Requirements.  Client shall,
prior to the commencement of Services by Engineer, provide Engineer with Client’s
requirements for the Project, including objectives and constraints, design and
construction standards, bonding and insurance requirements, and contract forms.

4.3          Other Information.  Prior to the commencement
of Services by Engineer, Client shall provide Engineer with all other
information available to Client and pertinent to the Project and the Services
including, but not limited to, all items required pursuant to Exhibit C.  The items required by Client pursuant to this
Section 4.3 shall be furnished at Client’s expense, and Engineer shall be
entitled to rely upon the accuracy and completeness thereof.

4.4          Access to
Property.   Prior to the commencement of Services and as
necessary during the performance of Services, Client shall arrange for
access by Engineer upon public and private property, as required for the
performance of the Services under this Agreement.

4.5          Review of
Documents.  As related to the
performance of Services hereunder, Client shall examine documents presented by
Engineer, obtain legal and other advice as Client deems appropriate, and render
written decisions within reasonable time. 
The items required by Client pursuant to this Section 4.5 shall be
furnished at Client’s expense, and Engineer shall be entitled to rely upon the
accuracy and completeness thereof.

4.6          Consents,
Approvals, Licenses and Permits.  Prior
to the commencement of Services and as necessary during the performance of the
Services, Client shall obtain all consents, approvals, licenses, permits, and
other Governmental Approvals necessary for the Project and for the performance
of the Services.  The items required by
Client pursuant to this Section 4.6 shall be furnished at Client’s expense, and
Engineer shall be entitled to rely upon the accuracy and completeness thereof.

4.7          Bids.  Client shall advertise for
and open bids when scheduled.

4.8          Other
Services  Client shall furnish all legal,
accounting and insurance counseling services as may be necessary at any time
for the Services, including auditing services the Client may require to verify
the monthly invoices or to ascertain how or for what purposes the Engineer
and/or Subcontractors have used the money paid by or on behalf of the Client.

4.9          Service
Outside Scope of Engineer’s Services.    Client shall, at its own expense, as
necessary for the performance and completions of the Services, provide
any additional services necessary for the Project that are outside the scope of
the Services provided by Engineer under this Agreement.  Engineer shall be entitled to rely upon, as
applicable, the completeness and accuracy of such additional services.

4.10        Deviation
from Design.   Client shall indemnify and hold
harmless Engineer, its employees, its agents, its affiliates, and any other
persons or entities within its control or for whom Engineer would otherwise be
responsible (“Engineer Responsible Parties”) against claims arising out
of Engineer’s design, if there has been, in the completion of the Phase I and
Phase II Site work required of Client prior to the issuance of a Notice to
Proceed pursuant to the Design-Build 

 6
 

 

Agreement, a failure to follow Engineer’s recommendation and such
deviation or failure caused the claims.

 

4.11        Developments
Affecting Scope or Timing of Services.  Client
shall promptly notify Engineer, in writing, when Client learns of contractor
error or any development that affects the scope or timing of Engineer’s
Services.

Article
5

Compensation
and Payment

5.1          Compensation.   In consideration
of its performance of the Services, Client shall pay Engineer for Engineer’s
time in the performance of the Services at a fixed fee of $92,500 (“Fixed Fee”)
as compensation.  Engineer’s compensation
under this Section 5.1 shall be pursuant to the Fee schedule attached hereto as
Exhibit A, as such schedule may be modified from time to time. The full amount
of compensation paid by Client under this Section 5.1 shall be included in and
credited to the Design-Build Agreement’s contract price if entered into upon
payment in full by Client.

5.2          Reimbursement
of Engineer Expenses.    In
addition to the fixed fee in 5.1, Client shall reimburse Engineer for
its expenses related to the performance of the Services in accordance with
Engineer’s current reimbursable expense schedule attached hereto as Exhibit B.

5.3          Reimbursement
of Subcontractor Expenses.

5.3.1       Subcontractor
charges related to time spent in the performance of the Services shall not be
marked-up by Engineer.  Client shall
reimburse Engineer for costs related to Subcontractors’ time in accordance with
the Subcontractors’ invoices for the work.

5.3.2       Subcontractor
reimbursable expenses will be marked up in accordance with the current
reimbursable expense schedule attached hereto as Exhibit B.

5.4          Fees
for Work Outside Scope of Services.  Fees
for all work outside the scope of Engineer’s responsibilities described in
Article 3, including change order work, shall be computed in accordance with
Engineer’s current fee schedules, attached hereto as Exhibits A and B, as such
schedules may be revised from time to time, unless otherwise agreed to in
writing.

5.5          Collection
of Unpaid Amounts.  If
any amount due is not paid in accordance with this Agreement and Engineer must
collect that amount, Engineer shall be entitled to recover, in addition to the
amount due, the cost of collection, including reasonable attorney’s fees in
connection with those collection efforts.

5.6          Reimbursement
Schedules Subject to Change.  Engineer’s reimbursement schedule and
reimbursable expense schedule attached hereto as Exhibits A and B are subject
to change on January 1 of each year.

 7
 

 

5.7          Invoices.  Engineer shall submit a monthly
invoice (“Monthly Invoice”) for Services provided and for reimbursable
expenses incurred by Engineer and any Subcontractors.

5.8          Payment.    Within thirty (30) days after Client’s
receipt of each Monthly Invoice, Client shall pay Engineer all amounts due.

5.9          Late Payment
and Interest.  If Client fails
to make payment within thirty (30) days after receipt of Monthly Invoice,
interest at the maximum legal rate or at an annual rate of 18%, whichever is
less, shall accrue

5.10        Suspension for
Failure to Pay.  If Client
fails to make payment within thirty (30) days after receipt of Monthly Invoice,
Engineer may, at its option, after giving seven (7) days’ written notice,
suspend Services until all amounts due to Engineer by Client have been paid in
full.

5.11        Payments
from Lawful Sources.  Client
shall provide for payment from one or more lawful source of all sums to be paid
Engineer.

5.12        Withholding
Payments.  Engineer’s
compensation shall not be reduced on account of any amounts withheld from
payment to Subcontractors.

5.13        Purchase Orders.  If
Client issues a purchase order or other document to initiate the commencement
of Services hereunder, it is expressly agreed that any terms and conditions
appearing thereon shall have no application and only the provisions of this
Agreement shall apply.

5.14        Changes
in Project.  If Client
requests changes in the Project which affect the Services, compensation for and
time of performance of Engineer’s services shall be adjusted appropriately.

Article 6

Construction
Cost and Cost Estimates

6.1          Cost
Estimates.  Client and
Engineer acknowledge that Engineer has no control over cost of labor,
materials, equipment or services furnished by others, over contractors’ methods
of determining prices, or other competitive bidding or market conditions and
that Engineer’s estimates of Project construction cost will be made on the
basis of its employees’ experience and qualifications and will represent
Engineer’s employees’ best judgment as experienced and qualified professionals,
familiar with the construction industry. 
Engineer does not guarantee that proposal, bids, or actual construction
cost will not vary from its estimates of Project cost and Client acknowledges
the same.

 8
 

 

Article 7

Termination

7.1          Termination
Upon  Default.  Either party may terminate
this Agreement upon twenty (20) days’ written notice if the non-terminating
party has defaulted through no fault of the terminating party.

7.2          Termination
Upon Abandonment of Plant.   Client may terminate Engineer’s obligation to
provide further services upon twenty (20) days’ written notice if Client
abandons development of the Plant.  In
such event, all past due amounts for services rendered (including Subcontractor’s
fees, if any) and any unpaid reimbursable expenses shall be immediately due and
payable by Client.

Article 8

Ownership
of Work Product

8.1          Work
Product.  All tangible
items prepared by Engineer, including but not limited to all drawings,
specifications, calculations, data, notes and other materials and documents,
including electronic data furnished by Engineer to Client and to Subcontractors
under this Agreement  (“Work Product”)
shall be instruments of service, and Engineer 
shall retain the ownership and property interests therein, including the
copyrights thereto.

8.2          Copies
Provided to Client.  Client
may retain copies of Work Product for reference; provided, however, that Client
may not make copies of the Work Product available without Engineer’s written
permission, and, granted such permission, may only do so to the extent the use
of such copies of the Work Product directly pertains to the Services, the
Plant, or the construction thereof. 
Pursuant to Section 8.1 of this Agreement, Engineer retains ownership of
and property interests in any Work Product made available and/or copied.

8.3          Prohibited
Use of Work Product.  Reuse
of the Work Product on any another Project without Engineer’s written consent
is prohibited.  Client shall indemnify
and hold harmless Engineer Responsible Parties against claims resulting from
such prohibited reuse.  Said items are
not intended to be suitable for completion of this Project by others.

8.4          Derogation
of Engineer’s Rights to Work Product.  Submittal
or distribution of Work Product in connection with the performance and
completion of the Services and the construction of the Project does not
constitute publication in derogation of Engineer’s rights and does not in any
way diminish Engineer’s Work Product rights established herein.

 9
 

 

Article 9

Successors
and Assigns

9.1          Successors.  The Parties intend that the
provisions of this Agreement are binding upon the Parties, their employees,
agents, heirs, successors and assigns.

9.2          Written
Consent Required.  Neither
Party shall assign, sublet, or transfer any interest in this Agreement without
written consent of the other; provided, however, that Engineer may employ such
Subcontractors as it may deem appropriate and may transfer or assign any
interest in this Agreement or the Work Product to Design-Builder without
consent of Client.

9.3          No
Third-Party Beneficiaries. 
None of the provisions of this Agreement will be for the benefit of or
enforceable by any person other than the Parties hereto, their successors and
permitted assigns and legal representatives

Article 10

Warranty

10.1        No
Warranty Extended.  Engineer
shall use reasonable care to reflect requirements of all Applicable Laws,
rules, or regulations of which Engineer has knowledge or about which Client
specifically advises in writing, which are in effect on the date of this
Agreement.  ENGINEER INTENDS TO RENDER
SERVICES IN ACCORDANCE WITH GENERALLY ACCEPTED PROFESSIONAL STANDARDS, BUT NO
OTHER WARRANTY IS EXTENDED, EITHER EXPRESS OR IMPLIED, IN CONNECTION WITH SUCH
SERVICES.  Client’s rights and remedies
in this Agreement are exclusive.

10.2        No
Responsibility for Construction.  Engineer
shall not be responsible for construction of the Plant, contractors’
construction means, methods, techniques, sequences, or procedures, or for
contractors’ safety precautions and programs, or for contractors’ failure
according to contract documents.

Article 11

Indemnification

11.1        Engineer’s
Indemnification.  To the
fullest extent permitted by law, Engineer shall indemnify and hold harmless
Client, Client’s officers, directors, partners, employees, and agents from and
against any and all claims for bodily injury and for damage to tangible
property caused solely by the negligent acts or omissions of Engineer or
Engineer Responsible Parties and Engineer’s Engineers in the performance and
furnishing of Engineer’s Services under this Agreement.  Any indemnification shall be limited to the
terms and amounts of coverage of the Engineer’s insurance policies.

 10
 

 

11.2        Client’s
Indemnification.  To
the fullest extent permitted by law, Client shall indemnify and hold harmless
Engineer, Engineer’s officers, directors, partners, employees, and agents and
Engineer’s Engineers from and against any and all claims for bodily injury and
for damage to tangible property caused solely by the negligent acts of omission
of Client or Client’s officers, directors, partners, employees, agents, and
Client’s Engineers with respect to this Agreement or the Project.

11.3        Hazardous Materials Indemnification. In addition to the
indemnity provided under this section, and to the fullest extent permitted by
law, Client shall indemnify and hold harmless Engineer and its officers,
directors, partners, employees, and agents and Engineer’s Engineers from and
against all claims, costs, losses, and damages (including but not limited to
all fees and charges of engineers, architects, attorneys, and other
professionals and all court or arbitration or other dispute resolution costs)
caused by, arising out of, or relating to the presence, discharge, release, or
escape of asbestos, PCBs, petroleum, hazardous waste, or radioactive materials
at, on, under, or from the Site.

Article
12

Dispute
Resolution

12.1        Arbitration.  In an effort to resolve any
conflicts that arise out of or relate to this Agreement, the Client and the Engineer
agree that all disputes shall be submitted first to nonbinding mediation.  If mediation does not resolve the conflicts,
the controversy shall be decided by final and binding arbitration conducted in
Minneapolis, Minnesota in accordance with the Construction Industry Arbitration
Rules of the American Arbitration Association then in effect, unless the
Parties mutually agree otherwise.

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.

Engineer and Client expressly
agree that any arbitration pursuant to this Section 12.1 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 Engineer and Client will include appropriate
provisions in all contracts they execute with other parties in connection with
the Services 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.

 11

 

 

Article 13

Confidentiality

13.1        Non-Disclosure
Obligation.  Except as required by court order, subpoena,
or Applicable Law, neither Party shall disclose to third parties any
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, 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 information regarding the terms and
conditions of this Agreement confidential and shall disclose such information
to third Persons only as reasonably required for the permitting of the Project;
financing the development, construction, ownership, operation and maintenance
of the Plant; or as reasonably required by either Party for performing its
obligations hereunder and if prior to such disclosure, the disclosing Party
informs such third Persons of the existence of this confidentiality obligation
and only if such third Persons agree to maintain the confidentiality of any
information received.  This Article 13
shall not apply to information that was already in the possession of one Party
prior to receipt from the other, that is now or hereafter becomes a part of the
public domain through no fault of the Party wishing to disclose, or that
corresponds in substance to information heretofore or hereafter furnished by
third parties without restriction on disclosure.

13.2        Publicity and
Advertising.  Neither Client
nor Engineer shall make or permit any of their 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 the other Party unless prior written
consent is obtained from the other Party, which consent shall not be
unreasonably withheld.

13.3        Term of
Obligation.  The
confidentiality obligations of the Parties pursuant to this Article 13
shall survive for a period five (5) years following the later to occur of
termination of this Agreement or completion of the Plant.

Article 14

Miscellaneous

14.1        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.

14.2        Severability.  If any provision or any part of a provision of
the Agreement 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

 12
 

 

 

validity, legality, or enforceability of the remaining provision or
parts of the provision of the Agreement, which shall remain in full force and
effect as if the unenforceable provision or part were deleted.

14.3        No Waiver.  The failure of either Engineer or
Client to insist, in any one or more instances, on the performance of any of
the obligations required by the other under this Agreement shall not be
construed as a waiver or relinquishment of such obligation or right with
respect to future performance.

14.4        Captions and Headings.  The table of contents and the
headings used in this Agreement 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.

14.5        Engineer’s
Accounting Records. 
Records of Engineer’s personnel time, reimbursable expenses, and
accounts between parties shall be maintained on a generally recognized
accounting basis.

14.6        Counterparts.  This Agreement may be executed in one 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.

14.7        Survival.  Notwithstanding any provisions
herein to the contrary, the Work Product provisions set forth in Article 8 and
the indemnity obligations set forth herein shall survive (in full force) 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.

14.8        No Privity with Client’s Contractors.  Nothing in this
Agreement is intended or deemed to create any legal or contractual relationship
between Engineer and any Client contractor or subcontractor retained to perform
the Phase I and Phase II Site work required of Client prior to the issuance of
a Notice to Proceed pursuant to the Design-Build Agreement.

14.9        Amendments.  This Agreement may not be changed,
altered, or amended in any way except in writing signed by a duly authorized
representative of each Party.

14.10      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.

14.11      Notice.  Whenever the Agreement requires
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

 13
 

 

 

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 Engineer, to:

Fagen Engineering LLC

501 W. Highway 212

P. O. Box 159

Granite Falls, MN  56241

Attention: John Austgen

Fax:  (320) 564-4861

with a copy to:

Fagen, Inc.

501 W. Highway 212

P. O. Box 159

Granite Falls, MN  56241

Attention: Bruce Langseth

Fax:  (320) 564-3278

If to Client, to:

Highwater Ethanol, LLC

30427 County Highway 10

Vesta, MN 56292

Attention: Brian Kletscher

14.12      Extent of
Agreement.  This Agreement and
the Exhibits incorporated therein represent the entire agreement between the
Parties and may be amended only by written instrument signed by both Parties.

14.13      Subrogation
Waiver.  The Parties
waive all rights against each other, and against the contractors, Engineers,
agents, and employees of the other for damages covered by any property
insurance during construction, and each shall require similar waivers from
their contractors, Engineers, and agents.

 14
 

 

 

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 July 20,
2006.

	
  HIGHWATER ETHANOL, LLC

  	
   

  	
  FAGEN ENGINEERING, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By: 

  	
    /s/ Brian Kletscher

  	
   

  	
   

  	
  By:

  	
    /s/
  John Austgen

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
    President

  	
   

  	
   

  	
  Title:

  	
    Senior Vice President

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Address for
  giving notices:

  	
   

  	
  Address for giving notices:

  
	
   

  	
   

  	
   

  
	
  30427 County
  Highway 10

  	
   

  	
  501 West Highway 212

  
	
  Vesta, MN 56292

  	
   

  	
  PO Box 159

  
	
   

  	
   

  	
  Granite Falls, MN 
  56241

  
									

 

 15
 

 

EXHIBIT
A

FAGEN
ENGINEERING LLC

Fee
Schedule FY 2006

CONFIDENTIAL

	
  TYPICAL ASSIGNMENT

  	
   

  	
  BILLING

  CLASS

  	
   

  	
  BILLING RATE

  	
   

  
	
  Clerical / CADD
  Operator

  	
   

  	
  1

  	
   

  	
  $

  	
  32.40

  	
   

  
	
  Clerical / CADD
  Operator

  	
   

  	
  2

  	
   

  	
  $

  	
  50.01

  	
   

  
	
  CADD Operator /
  Designer

  	
   

  	
  3

  	
   

  	
  $

  	
  64.76

  	
   

  
	
  CADD Operator /
  Designer / Engineer

  	
   

  	
  4

  	
   

  	
  $

  	
  80.94

  	
   

  
	
  Designer /
  Engineer / PM

  	
   

  	
  5

  	
   

  	
  $

  	
  97.48

  	
   

  
	
  Engineer /
  Senior Engineer / PM

  	
   

  	
  6

  	
   

  	
  $

  	
  113.83

  	
   

  
	
  Senior Engineer
  / PM

  	
   

  	
  7

  	
   

  	
  $

  	
  130.38

  	
   

  
	
  Senior Engineer
  / PM

  	
   

  	
  8

  	
   

  	
  $

  	
  146.56

  	
   

  
	
  Senior Engineer
  / PM / Principal

  	
   

  	
  9

  	
   

  	
  $

  	
  163.10

  	
   

  
	
  PM / Principal

  	
   

  	
  10

  	
   

  	
  $

  	
  179.45

  	
   

  
	
  Principal

  	
   

  	
  11

  	
   

  	
  $

  	
  195.80

  	
   

  
	
  Principal

  	
   

  	
  12

  	
   

  	
  $

  	
  212.18

  	
   

  
	
  Principal

  	
   

  	
  13

  	
   

  	
  $

  	
  228.52

  	
   

  

 

Subject
to Revision January 1, 2007

 16
 

 

 

EXHIBIT
B

Fagen
Engineering LLC

Reimbursable Expense Billing Schedule

Effective
January 1, 2006

CONFIDENTIAL

	
  Expense Code

  	
   

  	
  Expense Description

  	
   

  	
  Billing Rate

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BCA

  	
   

  	
  Blackline Print
  Copy – A

  	
   

  	
  $

  	
  1.00

  	
   

  
	
  BCB

  	
   

  	
  Blackline Print
  Copy – B

  	
   

  	
  $

  	
  1.00

  	
   

  
	
  BCC

  	
   

  	
  Blackline Print
  Copy – C

  	
   

  	
  $

  	
  1.25

  	
   

  
	
  BCD

  	
   

  	
  Blackline Print
  Copy – D

  	
   

  	
  $

  	
  1.90

  	
   

  
	
  BCE

  	
   

  	
  Blackline Print
  Copy – E

  	
   

  	
  $

  	
  3.70

  	
   

  
	
  BOA

  	
   

  	
  Paper Print
  Original – A

  	
   

  	
  $

  	
  1.25

  	
   

  
	
  BOB

  	
   

  	
  Paper Print
  Original – B

  	
   

  	
  $

  	
  1.55

  	
   

  
	
  BOC

  	
   

  	
  Paper Print
  Original – C

  	
   

  	
  $

  	
  1.90

  	
   

  
	
  BOD

  	
   

  	
  Paper Print
  Original – D

  	
   

  	
  $

  	
  2.20

  	
   

  
	
  BOE

  	
   

  	
  Paper Print
  Original – E

  	
   

  	
  $

  	
  4.40

  	
   

  
	
  DISK

  	
   

  	
  Floppy Disk
  31⁄2”/ea

  	
   

  	
  $

  	
  2.50

  	
   

  
	
  FAX

  	
   

  	
  Fax Machine
  Usage/Page

  	
   

  	
  $

  	
  1.20

  	
   

  
	
  LD

  	
   

  	
  Long Distance
  Phone Calls

  	
   

  	
  cost plus 10% markup

  	
   

  
	
  LODGING

  	
   

  	
  Lodging

  	
   

  	
  cost plus 10% markup

  	
   

  
	
  MEALS

  	
   

  	
  Meal Expense

  	
   

  	
  cost plus 10% markup

  	
   

  
	
  MILEAGE

  	
   

  	
  Mileage/Mile

  	
   

  	
  $

  	
  .485

  	
   

  
	
  PC1

  	
   

  	
  Photocopies
  81⁄2x11 (<100)/ea

  	
   

  	
  $

  	
  .24

  	
   

  
	
  PC2

  	
   

  	
  Photocopies
  11x17/ea

  	
   

  	
  $

  	
  .50

  	
   

  
	
  PC3

  	
   

  	
  Photocopies
  8(1/2)x11 (>100)/ea

  	
   

  	
  $

  	
  .17

  	
   

  
	
  PO

  	
   

  	
  Postage

  	
   

  	
  cost plus 10% markup

  	
   

  
	
  PROSVC

  	
   

  	
  Outside
  Professional Services

  	
   

  	
  Cost

  	
   

  
	
  PROSVCEXP

  	
   

  	
  Outside
  Professional Services Expenses

  	
   

  	
  cost plus 10% markup

  	
   

  
	
  FLM

  	
   

  	
  Film &
  Developing

  	
   

  	
  cost plus 10% markup

  	
   

  
	
  SPECCOV

  	
   

  	
  Specification
  Book - Cover & Binder/ea

  	
   

  	
  $

  	
  3.15

  	
   

  
	
  TRANS

  	
   

  	
  Transportation

  	
   

  	
  cost plus 10% markup

  	
   

  
	
  UPS

  	
   

  	
  Delivery Service
  Charges

  	
   

  	
  cost plus 10% markup

  	
   

  
	
  VELLUM

  	
   

  	
  Original
  Print/square foot

  	
   

  	
  $

  	
  3.15

  	
   

  

 

Subject
to Revision January 1, 2007

 17
 

 

 

EXHIBIT C

Client’s
Deliverable Site Obligations

Phase
I Deliverables

Prior
to Engineer’s commencement of the Phase I Design Package work, the Client shall
provide Engineer with the following Phase I Deliverables:

1.               A legal description
of the Site

2.               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

3.               To the extent
available, as-built and record drawings of any existing structures at the Site

4.               Environmental
studies, reports and impact statements describing the environmental conditions,
including Hazardous Conditions, in existence at the Site

5.               Topographic Survey
to one (1) foot contours including property boundaries and at least two (2)
benchmarks including existing service and utility lines.

6.               Any special sizing
or other requirements for ethanol storage tank farm.

7.               Preliminary
approval from Client’s Rail service provider of rail design as prepared by
Client’s Rail Designer.

8.               Preliminary
location and design of administration building.

9.               Client’s written
approval of final site layout including rail design and environmental
permitting emission points.

10.         Soil borings logs for all
soil borings complete at Engineer’s specified locations.

11.         Geotechnical Report
regarding subsurface conditions with Client’s Geotechnical Engineer’s
recommendations from Engineer approved Geotechnical Engineer (Terracon is
preferred) including soil borings, and any other surveys or information
available describing other latent or concealed physical conditions at the Site.

12.         Review, comment, and
written approval of Client’s air permit application.

13.         Owner is required to
provide approval of and understand the cost implications of the soil
stabilization and foundation systems required for the project.  This approval will be based on the
recommendations of the geotechnical and structural engineers.

14.         Location and form for
delivery of temporary electrical service.

15.         On-site location for
Storm Water discharge.

16.         Preliminary NPDES
discharge location for water discharges from utility discharges including, but
not limited to the water pre-treatment system, water softeners, and cooling
tower blowdown.

17.         Preliminary indication of
source, analysis, and location of Client’s water supply.

18.         Client’s risk insurance
provider’s specific requirements for fire protection or approval to design fire
protection to Liberty Insurance standards.

 18
 

 

 

Phase
II Deliverables

Prior
to Engineer’s commencement of the Phase II Design Package work, the Client
shall provide Engineer with the following Phase II Deliverables:

1.               Final location,
source and quality of Client’s water supply.

2.               Off-site utility
tie-in locations at or near the property lines (this includes, but is not
limited to, gas supply, electrical supply, water supply if no on-site wells,
on-site or off-site sanitary sewer)

3.               Final NPDES
discharge location for Utility Water Blowdown.

4.               An insurance
provider to allow the proper positioning and number of required hydrants and
hydrants with monitors.

5.               Written approval of
final rail design from the Client’s rail service provider.

6.               Final location and
design (general arrangement) of the Client’s administration building.

7.               Final water
pre-treatment design and operating parameters.

8.               Design and location
of sanitary sewer discharge point of septic system.

9.               Provide
verification that an application for a permit has been made for the
construction of a lined settling pond with wetland discharge for receiving the
ethanol plant non-contact waste streams and filter backwash (if
applicable).  The settling pond maybe
required for meeting the NPDES discharge limits set forth by the state.  This application process can take in excess
of 6 months.  Owner is required to apply
for this settling pond permit.  A
determination will be made upon receipt of the NPDES permit on whether or not
the settling pond is required for the project.

 19

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