Document:

exv10w13

 

Exhibit 10.13

REIMBURSEMENT AGREEMENT

BY AND BETWEEN

LIFECORE BIOMEDICAL, INC.

AND

M&I MARSHALL & ILSLEY BANK

IN CONNECTION WITH

$5,699,411.00 LETTER OF CREDIT

Dated As Of: August 1, 2004

	 	 	 
	

	 	This Instrument Was Drafted By:
	 
	 	 
	

	 	WINTHROP & WEINSTINE, P.A.
	

	 	225 South Sixth Street, Suite 3500
	

	 	Minneapolis, Minnesota 55402

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page

	ARTICLE I. DEFINITIONS
	 	 	1	 
	SECTION 1.1. Defined Terms
	 	 	1	 
	SECTION 1.2. Other Terms
	 	 	3	 
	SECTION 1.3. Reimbursement Agreement Controlling
	 	 	3	 
	ARTICLE II. COMMITMENT TO ISSUE LETTER OF CREDIT
	 	 	3	 
	SECTION 2.1. Issuance of Letter of Credit
	 	 	3	 
	SECTION 2.2. Expiration, Extension of Letter of Credit
	 	 	4	 
	SECTION 2.3. Draw Under Letter of Credit to Redeem Bonds
	 	 	4	 
	ARTICLE III. CONDITIONS PRECEDENT
	 	 	4	 
	SECTION 3.1. Conditions Precedent to Issuance of Letter of Credit
	 	 	4	 
	ARTICLE IV. REIMBURSEMENTS AND OTHER PAYMENTS; LENDER’S RIGHT TO CURE
	 	 	5	 
	SECTION 4.1. Obligation of Reimbursement
	 	 	5	 
	SECTION 4.2. Payment of Credit Enhancement Fee
	 	 	5	 
	SECTION 4.3. Capital Adequacy/Change in Law
	 	 	6	 
	SECTION 4.4. Computation of Credit Enhancement Fee and Interest
	 	 	6	 
	SECTION 4.5. Right of Lender to Cure Defaults Under Bond Documents
	 	 	6	 
	SECTION 4.6. Payments
	 	 	7	 
	SECTION 4.7. Collateral
	 	 	7	 
	SECTION 4.8. Letter of Credit Fees
	 	 	7	 
	SECTION 4.9. Required Deposits
	 	 	7	 
	SECTION 4.10. Substitution/Termination Fee
	 	 	7	 
	SECTION 4.11. Cash Collateral Account
	 	 	7	 
	ARTICLE V. WARRANTIES, REPRESENTATIONS AND COVENANTS
	 	 	8	 
	SECTION 5.1. Warranties and Representations
	 	 	8	 
	SECTION 5.2. Covenants
	 	 	11	 
	ARTICLE VI. EVENT OF DEFAULT DEFINED; RIGHTS AND REMEDIES
	 	 	14	 
	SECTION 6.1. Event of Default Defined
	 	 	14	 
	SECTION 6.2. Rights and Remedies
	 	 	15	 
	ARTICLE VII. MISCELLANEOUS
	 	 	16	 
	SECTION 7.1. Indemnification by the Borrower
	 	 	16	 

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	 	 	Page

	SECTION 7.2. Expenses
	 	 	17	 
	SECTION 7.3. Addresses for Notices
	 	 	17	 
	SECTION 7.4. Time of Essence
	 	 	18	 
	SECTION 7.5. Binding Effect and Assignment
	 	 	18	 
	SECTION 7.6. Waivers
	 	 	18	 
	SECTION 7.7. Remedies Cumulative
	 	 	18	 
	SECTION 7.8. Governing Law and Entire Agreement
	 	 	18	 
	SECTION 7.9. Counterparts
	 	 	18	 
	SECTION 7.10. Not Joint Venturers
	 	 	18	 
	SECTION 7.11. Adequacy of Bond Proceeds
	 	 	18	 
	SECTION 7.12. Jurisdiction; Waiver of Jury Trial
	 	 	18	 
	SECTION 7.13. Interest Rate
	 	 	19	 
	SECTION 7.14. Obligations Absolute
	 	 	19	 
	SECTION 7.15. Liability of the Lender
	 	 	19	 
	SECTION 7.16. Security Interest in Funds and Bonds
	 	 	20	 
	SECTION 7.17. Term
	 	 	20	 
	SECTION 7.18. Financial Covenants
	 	 	20	 
	SECTION 7.19. USA Patriot Act
	 	 	21	 
	SIGNATURES
	 	 	 	 
	EXHIBIT A
	 	 	 	 

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REIMBURSEMENT AGREEMENT

THIS REIMBURSEMENT AGREEMENT, made as of the 1st day of August, 2004, by and
between LIFECORE BIOMEDICAL, INC., a Minnesota corporation (the “Borrower”),
and M&I MARSHALL & ILSLEY BANK, a Wisconsin state banking corporation with its
banking house located in Milwaukee, Wisconsin (the “Lender”).

ARTICLE I.

DEFINITIONS

SECTION 1.1. Defined Terms. As used in this Agreement, the following terms
shall have the meanings set out respectively after each (such meanings to be
equally applicable to both the singular and plural forms of the terms defined):

(a) Agreement: this Reimbursement Agreement.

(b) Bond Counsel: Dorsey & Whitney LLP, or such other bond counsel which
is acceptable to the Lender.

(c) Bond Documents: individually or collectively, as the context
requires, the Loan Agreement, the Indenture, the Bond Purchase Agreement,
the Remarketing Agreement and the Tax Exemption Agreement.

(d) Bond Purchase Agreement: the Bond Purchase Agreement dated as of
August 19, 2004, by and among the Borrower, the Issuer and the
Underwriter.

(e) Bonds: the $5,630,000 Variable Rate Demand Purchase Revenue Bonds
(Lifecore Biomedical, Inc. Project), Series 2004, issued by the Issuer.

(f) Borrower Documents: collectively, this Agreement, the Security
Agreement, the Mortgage, the Pledge and Security Agreement, the Credit
Agreement and any and all other documents and instruments executed by the
Borrower and delivered to the Lender in connection with the financing
transaction contemplated hereby.

(g) Cash Collateral Account: shall have the meaning assigned thereto in
Section 4.11 hereof.

(h) Commitment: the commitment of the Lender hereunder to issue the
Letter of Credit.

(i) Credit Agreement: the Revolving Credit Agreement dated as of
December 18, 2002, by and between the Borrower and the Lender, as the
same may be extended, renewed, restated or modified from time to time.

(j) Credit Enhancement Fee: shall have the meaning assigned thereto in
Section 4.2 hereof.

 

(k) Event of Default: any of the events of default specified in Section
6.1 hereof.

(l) Indenture: the Indenture of Trust of even date herewith by and
between the Issuer and the Trustee.

(m) Issuer: the City of Chaska, Minnesota.

(n) Land: the real property upon which the Project relating thereto is
situated which is legally described on Exhibit A to the Mortgage.

(o) Letter of Credit: the Irrevocable Letter of Credit No. SB/IRB 314
issued by the Lender to the Trustee for the account of the Borrower in
the original stated amount of $5,699,411.00 (calculated by adding the sum
of (i) $5,630,000.00 representing the principal amount of the Bonds plus
(ii) $69,411.00 representing a forty-five (45) day interest reserve on
the Bonds calculated at 10%).

(p) Loan Agreement: the Loan Agreement of even date herewith by and
between the Borrower and the Issuer.

(q) Mortgage: the Mortgage, Security Agreement, Assignment of Leases and
Rents and Fixture Financing Statement of even date herewith executed by
the Borrower in favor of the Lender, pursuant to which the Borrower has
granted to the Lender a first priority mortgage lien and security
interest in and to, and a first assignment of leases and rents with
respect to, the Project to secure repayment of the Borrower’s obligations
to Lender under the Borrower Documents.

(r) Obligation of Reimbursement: shall have the meaning assigned thereto
in Section 4.1 hereof.

(s) Organizational Documents: collectively, the following documents each
of which shall be in form and substance acceptable to the Lender:

(1) a copy of the Articles of Incorporation of the Borrower, duly
certified by the Secretary of State of the State of Minnesota;

(2) a copy of the Bylaws of the Borrower, duly certified by an
officer of the Borrower;

(3) an original current Certificate of Good Standing for the
Borrower, duly issued by the Secretary of State of the State of
Minnesota;

(4) a copy of the resolutions of the Borrower authorizing the
execution, delivery and performance of the Borrower Documents and
the Bond Documents, duly certified by an officer of the Borrower;
and

(5) an opinion of counsel for the Borrower dated as of the date
hereof and acceptable in form and substance to the Lender.

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(t) Permitted Encumbrances: shall have the meaning assigned thereto in
the Mortgage.

(u) Prime Rate: the prime or base rate of interest (or equivalent
successor rate) set and announced from time to time by the Lender as a
basis for determining the rate of interest on commercial borrowing,
whether or not the Lender makes loans to other customers at, above or
below said prime or base rate of interest.

(v) Project: the manufacturing facility located on the Land, as the same
may from time to time exist.

(w) Remarketing Agreement: the Remarketing Agreement of even date
herewith by and between the Borrower and the Underwriter.

(x) Security Agreement: the Security Agreement of even date herewith
executed by the Borrower in favor of the Lender, pursuant to which the
Borrower has granted to the Lender a first priority security interest in
and to the property described therein to secure, among other things,
repayment of the Borrower’s obligations to the Lender under the Borrower
Documents.

(y) Tax Exemption Agreement: the Tax Exemption Agreement of even date
herewith by and among the Issuer, the Borrower and the Trustee.

(z) Trustee: Wells Fargo Bank, National Association, and any co-trustee
or successor trustee appointed, qualified and then acting under the
provisions of the Indenture.

(aa) Underwriter: Northland Securities, Inc.

SECTION 1.2. Other Terms. All capitalized terms used herein and not otherwise
defined in this Agreement shall have the respective meanings for purposes of
this Agreement as are assigned to such terms in Article I of the Indenture or
Section 1.01 of the Loan Agreement, as the case may be, including, without
limitation, the following terms: Interest Payment Date; Business Day;
Remarketing Agent; and Substitute Letter of Credit.

SECTION 1.3. Reimbursement Agreement Controlling. To the extent there exists
any inconsistencies as between the terms and/or provisions contained in this
Agreement and the Bond Documents, the language in this Agreement shall control.

ARTICLE II.

COMMITMENT TO ISSUE LETTER OF CREDIT

SECTION 2.1. Issuance of Letter of Credit. The Lender and the Borrower agree
that, on the terms and subject to the conditions hereinafter set forth, the
Lender shall issue the Letter of Credit to secure payment of the Bonds.

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SECTION 2.2. Expiration, Extension of Letter of Credit. The Letter of Credit
shall have an initial expiration date of September 15, 2007. The Borrower
acknowledges and agrees that the Lender shall have no obligation to extend the
Letter of Credit at any time in the future. The Lender agrees, however, to
provide the Borrower with at least one hundred twenty (120) days notice prior
to the expiration date of the Letter of Credit or any extension thereof that
the Lender will not be extending the expiration date of the Letter of Credit.
The Borrower agrees to pay to the Lender on demand such fees as are customarily
charged by the Lender in connection with extensions of letters of credit, as
the same may change from time to time, which are currently in the amount of
$750 per extension. The Borrower further acknowledges and understands that the
Bonds will be subject to mandatory redemption if the Lender does not extend the
Letter of Credit thereby resulting in a draw under the Letter of Credit unless
a Substitute Letter of Credit is delivered to the Trustee pursuant to the
Indenture or unless the Bonds are re-marketed pursuant to the terms of the
Indenture.

SECTION 2.3. Draw Under Letter of Credit to Redeem Bonds. The Borrower
acknowledges and agrees that the consent of the Lender is required in order for
the Trustee to submit a drawing under the Letter of Credit for the purpose of
optionally redeeming Bonds pursuant to the Indenture. The Lender shall give
such consent provided (a) no Event of Default, and no event which with the
giving of notice or the passage of time or both would constitute an Event of
Default, has occurred and is then continuing, and (b) the Borrower provides
evidence acceptable to the Lender that the Borrower will have deposited into
the Cash Collateral Account by the time a drawing is submitted under the Letter
of Credit an amount sufficient to reimburse the Lender for the amount of such
draw. Amounts in the Cash Collateral Account may be utilized to reimburse the
Lender for amounts drawn under the Letter of Credit, but not to fund draws
under the Letter of Credit.

ARTICLE III.

CONDITIONS PRECEDENT

SECTION 3.1. Conditions Precedent to Issuance of Letter of Credit. The
obligation of the Lender to issue the Letter of Credit shall be subject to the
conditions precedent that it shall have received and approved the following:

(a) the Borrower Documents, duly executed and delivered by the Borrower;

(b) the Bond Documents, duly executed by the parties thereto;

(c) the Organizational Documents;

(d) evidence that the Mortgage has been duly recorded in the office of
the County Recorder or the Registrar of Titles (as the case may be) for
the county in which the Land is located;

(e) evidence that UCC-1 financing statements have been duly filed of
record in the office of the Minnesota Secretary of State, serving to
perfect valid first liens on the personal property subject to the
Mortgage and the Security Agreement;

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(f) an opinion of Bond Counsel issued in connection with the Bonds which
states that the Bonds are validly issued, and the interest on the Bonds
is not includable in gross income for federal income tax purposes, either
addressed to the Lender or accompanied by a reliance letter indicating
that the Lender is entitled to rely on the opinion;

(g) certified copies of the resolution adopted by the Issuer authorizing
the issuance of the Bonds;

(h) the Credit Enhancement Fee in the amount of $62,060.25 for the Letter
of Credit that will accrue from August 19, 2004, through and including
September 15, 2005, as required under Section 4.2 hereof;

(i) evidence of payment to the Trustee of the $2,400.00 set up fee and
the first annual trustee fee in the amount of $2,400.00;

(j) the non-refundable, fully-earned origination fee in the amount of
$28,150.00;

(k) evidence of payment of all expenses incurred by the Lender which are
payable by the Borrower pursuant to Section 8.2 hereof; and

(l) such other documents and instruments as the Lender may reasonably
request.

ARTICLE IV.

REIMBURSEMENTS AND OTHER PAYMENTS;

LENDER’S RIGHT TO CURE

SECTION 4.1. Obligation of Reimbursement. The Borrower hereby agrees to pay to
the Lender (the “Obligation of Reimbursement”) (a) on the day that the Lender
honors a draw under the Letter of Credit a sum equal to the amount drawn under
the Letter of Credit plus any and all reasonable charges and expenses which
the Lender may pay or incur relative to such draw, (b) on demand, any amounts
advanced by the Lender in its sole discretion to cure any event of default
under the Bond Documents, and (c) on demand, interest on all amounts remaining
unpaid by the Borrower
to the Lender under this Agreement at any time accruing from the date such
amounts become payable (in the case of an amount payable on demand, which
interest shall accrue from the date the Lender is first entitled to demand
payment, regardless of whether a demand for payment is actually made), until
payment in full, at an annual rate equal to two percent (2.00%) per annum in
excess of the Prime Rate, as the same changes from time to time; provided,
however, that no interest shall accrue or be payable on any amounts paid by the
Lender pursuant to a draw submitted under the Letter of Credit if the full
amount of such draw is reimbursed by the Borrower to the Lender, by 2:00
o’clock p.m. on the same day such draw is paid by the Lender. The Borrower
agrees that it will have deposited with the Lender into the Cash Collateral
Account at least one (1) Business Day before a draw is made under the Letter of
Credit an amount equal to the anticipated amount of such draw.

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SECTION 4.2. Payment of Credit Enhancement Fee. So long as the Letter of
Credit is outstanding, the Borrower agrees to pay the Lender a credit
enhancement fee with respect to the Letter of Credit (the “Credit Enhancement
Fee”) for each calendar year during the term of the Letter of Credit in an
amount equal to one percent (1.00%) per annum of the maximum amount available
to be drawn under the Letter of Credit as of the date of issuance of the Letter
of Credit and as of September 15 of each calendar year thereafter. The Credit
Enhancement Fee shall be payable in advance on the date hereof and on each
September 15 thereafter while the Letter of Credit is outstanding commencing
with September 15, 2005. Notwithstanding the foregoing, if and for so long as
an Event of Default has occurred and continues or exists, then, at the Lender’s
option, the Credit Enhancement Fee shall thereafter be increased by an
additional one percent (1.00%) per annum.

SECTION 4.3. Capital Adequacy/Change in Law. If any change in any law or
regulation or in the interpretation thereof by any court or administrative
governmental authority charged with the administration thereof shall either (a)
impose, modify or deem applicable or modify any capital adequacy, reserve,
special deposit or similar requirement against letters of credit issued by, or
assets held by, or deposits in or for the account of the Lender (including
without limitation, a requirement which affects the Lender’s allocation of
capital resources), or (b) impose on the Lender any other condition regarding
this Agreement or the Letter of Credit, and the result of any event referred to
in the preceding clause (a) or (b) shall be to increase the cost (including
without limitation, reserve or similar cost) to the Lender of issuing or
maintaining the Letter of Credit or reduce the Lender’s return hereunder or all
or any of the Lender’s capital is reduced (which increase in cost or reduction
in return shall be determined by the Lender’s reasonable allocation of the
aggregate of such cost increases or return reductions resulting from such
events), then upon demand by the Lender, the Borrower shall immediately pay to
the Lender, from time to time as specified by the Lender, additional amounts
which shall be sufficient to compensate the Lender for such increased cost
which will be incurred from and after the Lender first provides notice to the
Borrower of such increase, together with interest on each such amount from the
date demanded until payment in full thereof at the rate provided for in Section
4.1 hereof. A certificate as to such increased costs incurred by the Lender as
a result of any event mentioned in clause (a) or (b) above, submitted by the
Lender to the Borrower shall be conclusive, absent manifest error, as to the
amount thereof.

SECTION 4.4. Computation of Credit Enhancement Fee and Interest. The Credit
Enhancement Fee and interest payable on amounts due under this Agreement shall
be computed on the basis of a 360-day year and charged for actual days elapsed.

SECTION 4.5. Right of Lender to Cure Defaults Under Bond Documents. If the
Borrower shall fail to make any payments under the Bond Documents on the day
such payment is first due and payable by the Borrower, or shall fail to comply
with any other covenant or agreement of the Borrower under the Bond Documents,
or if any other default or event of default shall occur under the Bond
Documents, the Lender shall have the option, in the Lender’s sole discretion,
to cure any such failure by taking action reasonably required to effect such
cure, including, without limitation, making the required payment directly to
the Trustee. Any such payment by the Lender shall constitute an advance
repayable by the Borrower in accordance with Section 4.1 hereof. The Borrower
shall be responsible for any costs and/or expenses incurred by the Lender in
curing any such default or event of default.

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SECTION 4.6. Payments. All payments by the Borrower to the Lender hereunder
shall be made in lawful currency of the United States in immediately available
funds at the Lender’s office at 651 Nicollet Mall, Minneapolis, Minnesota
55402. In addition, the Lender shall have the right to debit any of the
Borrower’s accounts at the Lender without further authorization of the Borrower
to make any such payments.

SECTION 4.7. Collateral. The Borrower hereby acknowledges that the Obligation
of Reimbursement and each and every other liability and indebtedness of the
Borrower under the Borrower Documents is secured by the Mortgage, the Pledge
and Security Agreement and the Security Agreement.

SECTION 4.8. Letter of Credit Fees. In addition to the Credit Enhancement Fee,
the Borrower shall pay to the Lender, on demand, such fees as are customarily
charged by the Lender from time to time in connection with the extension,
amendment and administration of letters of credit, as the same change from time
to time, including, without limitation, an administrative fee of $300 for each
draw under the Letter of Credit which is in full compliance with the terms of
the Letter of Credit and $600 for each draw under the Letter of Credit which is
not in full compliance with the terms of the Letter of Credit. The Borrower
shall also pay a customary transfer fee to the Lender if the Letter of Credit
is transferred to a successor trustee under the Indenture.

SECTION 4.9. Required Deposits. Commencing on September 1, 2004, and
continuing on the first (1st) day of each calendar month thereafter during the
term of this Agreement, the Borrower shall deposit into the Cash Collateral
Account an amount equal to one-twelfth (1/12th) of the next scheduled mandatory
sinking fund payment under the Indenture. In addition, to the extent not paid
from deposits made pursuant to the preceding sentence, Borrower shall deposit
into the Cash Collateral Account at least five (5) Business Days prior to the
date of each required redemption hereunder an amount sufficient to reimburse
Lender for the amount of such redemption. Amounts in the Cash Collateral
Account
may be utilized to reimburse the Lender for amounts drawn under the Letter of
Credit, but not to fund draws under the Letter of Credit.

SECTION 4.10. Substitution/Termination Fee. In the event the Letter of Credit
is returned to the Lender prior to September 15, 2007, due to the issuance of a
Substitute Letter of Credit or a refunding or other refinancing of the Bonds,
the Borrower shall pay to the Lender at the time of such return a
substitution/termination fee in an amount equal to two percent (2.00%) of the
then outstanding principal balance of the Bonds.

SECTION 4.11. Cash Collateral Account. There is hereby established a Cash
Collateral Account (the “Cash Collateral Account”) in the Borrower’s name with
the Lender which shall be funded and administered in accordance with the terms
set forth herein. The Lender will from time to time invest funds on deposit in
the Cash Collateral Account in a money market account with the Lender.

(1) The Borrower hereby pledges and grants to the Lender a security
interest in all funds held in the Cash Collateral Account from time to
time and all proceeds thereof, as security for the payment of all
amounts dues and to become due from the Borrower to the Lender under
this Agreement.

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(2) The Lender may, at any time or from time to time after funds are
deposited in the Cash Collateral Account, apply funds then held in the
Cash Collateral Account to the payment of any amounts, in such order
as the Lender may elect, as shall have become or shall become due and
payable by the borrower to the Lender under this Agreement.

(3) Neither the Borrower nor any person or entity claiming on behalf
of or through the Borrower shall have any right to withdraw any of the
funds held in the Cash Collateral Account, except that after the
expiration of the Letter of Credit in accordance with its terms and
the payment of all amounts payable by the Borrower to the Lender under
this Agreement, any funds remaining in the Cash Collateral Account
shall promptly be returned by the Lender to the Borrower or paid to
whomever may be legally entitled thereto.

(4) The Borrower agrees that it will not (A) sell or otherwise dispose
of any interest in the Cash Collateral Account or any funds held
therein, or (B) create or permit to exist any lien, security interest
or other change or encumbrance upon or with respect to the Cash
Collateral Account.

(5) The Lender shall exercise reasonable care in the custody and
preservation of any funds held in the Cash Collateral Account and
shall be deemed to have exercised such care if such funds are accorded
treatment substantially equivalent to that which the Lender accords
its own property it being understood that the Lender shall not have
any responsibility for taking any necessary steps to preserve rights
against any parties with respect to any such funds.

ARTICLE V.

WARRANTIES, REPRESENTATIONS AND COVENANTS

SECTION 5.1. Warranties and Representations. The Borrower hereby warrants,
represents and certifies to and for the benefit of the Lender as follows:

(a) the Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the State of Minnesota and to own its
property and conduct its business as presently conducted and as proposed
to be conducted;

(b) the Borrower possesses adequate licenses, certificates, permits,
franchises, patents, copyrights, trademarks and trade names, or rights
thereto, to conduct its business substantially as now conducted and as
presently proposed to be conducted;

(c) the execution, delivery and performance by the Borrower of the
Borrower Documents and the Bond Documents will not violate any provision
of the organizational documents of the Borrower or of any law, rule,
regulation or court order or result in the breach of or constitute a
default under any indenture or loan, credit or other agreement or
instrument to which the Borrower is a party or by which it or its
properties may be bound or affected or result in the creation or
imposition of any lien, charge or encumbrance of any nature upon any of
its properties or assets contrary to the terms of any such instrument or
agreement;

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(d) each of the Borrower Documents and the Bond Documents constitutes the
legal, valid and binding obligation of the Borrower enforceable in
accordance with its respective terms (except, as to enforceability, to
the extent limited by bankruptcy, insolvency and other similar laws
affected creditors’ rights generally);

(e) the Project and the use thereof are permitted by and complies in all
material respects with all presently applicable use or other restrictions
and requirements in prior conveyances, zoning ordinances and all
development, pollution control, water conservation and other laws,
regulations, rules and ordinances of the United States and the State of
Minnesota and the respective agencies thereof, and the political
subdivision in which the Project is located;

(f) except as disclosed by the Borrower in its Form 10-Q report for its
quarter ended March 31, 2004, as filed with the Securities and Exchange
Commission, and except as described on Exhibit A attached hereto, there
is no suit, action or proceeding pending or, to the knowledge of the
Borrower, threatened against or affecting the Borrower before or by any
court, arbitrator, administrative agency or other governmental authority
which, if adversely determined, would materially and adversely affect its
business, properties, operations, assets or condition (financial or
otherwise) or the validity of any of the transactions contemplated by the
Borrower Documents and the Bond Documents or any of the documents related
thereto, or the ability of the Borrower to perform its obligations
hereunder or thereunder or as contemplated hereby or thereby;

(g) the Borrower has furnished the Lender with financial statements for
the Borrower, each of which financial statements fairly presents the
financial condition of the Borrower at and as of the date thereof, and,
as of said date, there were no material liabilities of the Borrower,
direct or indirect, fixed or contingent, which were not reflected in the
financial statements or the notes thereto;

(h) the Borrower has filed all federal and state tax returns and reports
required to be filed, which returns properly reflect the taxes owed by it
for the period covered thereby and they have paid or made appropriate
provisions for the payment of all taxes which may become due pursuant to
said returns and for the payment of all present installments of any
assessments, fees and other governmental charges upon it or upon any of
its property;

(i) no consent, approval or authorization of or permit or license from or
registration with or notice to any federal or state regulatory authority
or any third party is required in connection with the making or
performance of the Borrower Documents, the Bond Documents or any document
or instrument related thereto, or, if so required, such consent,
approval, authorization, permit or license has been requested and
obtained or such registration made or notice given or such other
appropriate action taken on or prior to the date hereof;

-9-

 

(j) the Borrower is not in default of a material provision under any
material agreement, instrument, decree or order to which it is a party or
to which it or its property is bound or affected;

(k) no pollutants or other toxic or hazardous waste or substances,
including any solid, liquid, gaseous, or thermal irritant or contaminant,
such as smoke, vapor, soot, fumes, acids, alkalis, chemicals or waste
(including materials to be recycled, reconditioned or reclaimed)
(collectively “substances”) which is regulated by law, regulation,
ordinance or code have existed in, on or under any property of the
Borrower or have been discharged, dispersed, released, stored, treated,
generated, disposed of, or allowed to escape (collectively referred to as
an “incident”) on any property of the Borrower; the Borrower shall not
permit third parties to cause an incident, shall take reasonable steps to
ensure that an incident does not occur, and shall promptly take all
appropriate steps to remedy an incident, in compliance with all local,
state and federal laws and regulations should an incident occur;

(l) except as disclosed by the Borrower in its Form 10-Q report for its
quarter ended March 31, 2004, as filed with the Securities and Exchange
Commission, and except as described on Exhibit A attached hereto, no
investigation, administrative order, consent order and agreement,
litigation, or settlement (collectively referred to as the “action”)
including, but not limited to, proceedings or actions commenced by any
person (including, but not limited to any federal, state, or local
government or agency or entity before any court or administrative agency)
with respect to substances is proposed, threatened, anticipated or in
existence with respect to any of the Borrower’s property;

(m) except as disclosed by the Borrower in its Form 10-Q report for its
quarter ended March 31, 2004, as filed with the Securities and Exchange
Commission, and except as described on Exhibit A attached hereto, the
Project and the Borrower’s operations at the Project always have been and
now are in compliance with all applicable federal, state and local
statutes, laws and regulations; no notice has been served on the Borrower
from any entity, governmental body or individual claiming any violation
of any law, regulation, ordinance or code, or requiring compliance with
any law, regulation, ordinance or code, or demanding payment or
contribution for environmental damage or injury to natural resources, or
any injury to human health;

(n) no underground storage tanks are located on the Project or were
located on the Project and subsequently removed or filled;

(o) no dumps, sanitary landfills or gasoline service stations are or were
located on the Project;

(p) the Project is in compliance with all applicable provisions of the
Americans with Disabilities Act; and

(q) each and all of the warranties and representations of Borrower set
forth and contained in each of the Bond Documents are true and correct in
all material respects as of the date hereof.

-10-

 

SECTION 5.2. Covenants. In addition to the covenants and agreements of the
Borrower set forth and contained herein and the documents related hereto, the
Borrower hereby covenants and agrees to and with the Lender, so long as the
Letter of Credit remains outstanding, any amounts remain due and payable by the
Borrower to the Lender pursuant to Article IV hereof:

(a) that the Project does and shall comply with all applicable
restrictions, conditions, ordinances, regulations and laws of
governmental departments and agencies having jurisdiction over the
Project, and does not and shall not violate any private restrictions or
covenants or encroach upon or interfere with easements affecting the
Land;

(b) to keep, perform, enforce and maintain in full force and effect all
of the terms, covenants, conditions and requirements of the Borrower
Documents and the Bond Documents; not to amend, modify, supplement,
terminate, cancel or waive any of the terms, covenants, conditions or
requirements of any of said documents without the prior written consent
of the Lender;

(c) to deliver to the Lender, upon the request by the Lender, from time
to time, and at any time, updated and recertified copies of the
Organizational Documents;

(d) upon the demand of Lender for reasonable cause, from time to time, to
deliver to the Lender an updated survey showing the Project to be located
within applicable lot lines of the Land and setback lines and not
encroaching upon any easements, streets or adjoining property, and to
deliver to Lender, from time to time, and at any time, updated and
recertified copies of the Title Documents and the Organizational
Documents;

(e) not to create, permit to be created or to allow to exist, any liens,
charges or encumbrances on the Project (other than Permitted
Encumbrances) and the lien of general real estate taxes and pending and
special assessments) except for such liens, charges and encumbrances
which are being diligently contested in good faith by appropriate
proceedings and provided that, if requested by Lender, Borrower shall
have provided to Lender security satisfactory to Lender;

(f) to obtain and maintain, or cause to be obtained and maintained, at
all times during the term of this Agreement, if applicable (and, from
time to time at the request of Lender, furnish Lender with proof of
payment of premiums on):

(1) comprehensive general liability insurance (including
operations, contingent liability, operations of subcontractors,
complete operations and contractual liability insurance) in such
amount as Lender may require from time to time (but with coverage
of not less than $2,000,000/$2,000,000) and naming Lender as an
additional insured;

(2) hazard insurance insuring against loss by fire, lightning,
vandalism, malicious mischief and other risks customarily covered
by a standard extended coverage endorsement, in an amount not less
than the face amount of the Letter of Credit, or the full insurable
value of the Project, whichever is greater, and naming Lender as
mortgagee and loss payee;

-11-

 

(3) flood insurance, if any of the Land is located in a “flood
plain” as defined by the Federal Insurance Administration, in the
maximum obtainable amount up to the face amount of the Letter of
Credit, naming Lender as loss payee (unless Lender receives and
approves a flood certificate certifying that all of the Land is not
located in a “flood plain” as defined by the Federal Insurance
Administration); and

(4) rent loss or business interruption insurance, with respect to
the perils set forth in paragraph (ii) above, in an amount
sufficient to enable the Borrower to make the required payments
under this Agreement, to pay taxes and insurance and continue
operations during an assumed reconstruction period of one (1) year,
naming Lender as mortgagee and loss payee;

such policies of insurance to be in form and content satisfactory to the
Lender and to be placed with insurers acceptable to Lender licensed to
transact business in the State of Minnesota and to contain an agreement
of the insurer to give not less than thirty (30) days’ prior written
notice to the Lender in the event of cancellation, termination, amendment
change or non-renewal of such policy affecting the coverage thereunder;
acceptance of such insurance policies not to bar the Lender from
requiring additional insurance (either in type or amount) at a later date
which it reasonably deems necessary;

(g) not to assign this Agreement or any interest herein;

(h) to permit the Lender, acting by and through its officers, employees
and agents, to examine all books, records, contracts, plans, drawings,
permits, bills and statements of account pertaining to the Project and to
make extracts therefrom and copies thereof;

(i) to furnish to the Lender as soon as possible and in any event within
three (3) days after the Borrower has obtained knowledge of the
occurrence of an Event of Default, or an event which with the giving of
notice or lapse of time or both would constitute an Event of Default, a
statement signed by the Borrower setting forth details of such Event of
Default or event and the action which the Borrower has taken, is taking
or proposes to take to correct the same;

(j) to hold the Lender harmless, and the Lender shall have no liability
or obligation of any kind to the Borrower, creditors of the Borrower, or
any third party, in connection with any defective, improper or inadequate
workmanship performed in or about, or materials supplied to, the Land or
the Project, or any mechanics’, suppliers’ or materialmen’s liens arising
as a result of such defective, improper or inadequate workmanship or
materials, and upon the Lender’s reasonable request, to replace or cause
to be replaced any such defective, improper or inadequate workmanship or
materials;

(k) to pay and discharge all real estate taxes prior to the attachment of
penalties with respect thereto and installments of special assessments
payable therewith, and insurance premiums with respect to the insurance
required to be maintained by the Borrower under the terms of any of the
Borrower Documents, and utility charges incurred by the Borrower prior to
or during the term of this Agreement, except if such taxes, assessments

-12-

 

or premiums are being contested in good faith by appropriate proceedings
and provided that, if requested by the Lender, the Borrower shall have
deposited into escrow with the Lender an amount equal to such taxes,
assessments or premiums plus penalties accrued thereon;

(l) to keep accurate books of record and account for itself in which true
and complete entries will be made in accordance with generally acceptable
accounting principles consistently applied and, upon request of the
Lender, give any representative of the Lender access during normal
business hours to, and permit such representative to examine, copy or
make extracts from, any and all books, records, contracts, plans,
drawings, permits, bills and statements of account pertaining to the
Project, to inspect any of its properties and to discuss its affairs,
finances and accounts with any of the Borrower’s officers, all at such
times and as often as it may reasonably be requested by the Lender or its
officers or representatives;

(m) to cause to be prepared and delivered to the Lender the following:

(1) as soon as available and in any event within one hundred twenty
(120) days after the end of each fiscal year of the Borrower,
audited financial statements of the Borrower, all in reasonable
detail and prepared by independent accountants of recognized
standing selected by the Borrower and acceptable to the Lender in
accordance with generally accepted accounting principles,
consistently applied;

(2) as soon as available and in any event within forty-five (45)
days after the end of each calendar quarter, internally prepared
financial statements for the Borrower for such calendar quarter and
year to date; and

(3) from time to time, with reasonable promptness, such further
information regarding the business, operations, affairs and
financial and other condition of the Borrower and the Project as
the Lender may reasonably request;

(n) to promptly give notice in writing to the Lender of any and all
litigation involving the Borrower where the amount in dispute exceeds
$100,000 and is not covered by insurance, and of any and all litigation
if the aggregate amount in dispute in connection with such litigation
exceeds $100,000 and is not covered by insurance, and of any and all
material proceedings commenced against the Borrower by or before any
court or governmental or regulatory agency;

(o) to comply with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority, a breach of which
would materially and adversely affect the business or credit of the
Borrower, except where diligently contested in good faith and by proper
proceedings;

(p) to preserve and maintain all of the Borrower’s rights, privileges and
franchises necessary or desirable in the normal conduct of the Borrower’s
business, not to suspend business operations or convey, transfer,
encumber or pledge the Project;

-13-

 

(q) to keep all of the assets and properties necessary in the Borrower’s
business in good working order and condition, ordinary wear and tear
excepted;

(r) to obtain all necessary and convenient state, federal, local and
private clearances, authorizations, permits and licenses with respect to
the business operations of the Borrower;

(s) to comply with all covenants and agreements in any other credit or
similar agreement now or hereafter entered into between the Borrower and
the Lender and any third party; and

(t) to perform each and all of the covenants and agreements set forth and
contained in the Bond Documents.

ARTICLE VI.

EVENT OF DEFAULT DEFINED; RIGHTS AND REMEDIES

SECTION 6.1. Event of Default Defined. As used herein, the term “Event of
Default” shall mean and include each or all of the following events:

(a) the Borrower shall fail to pay, when due, any amounts required to be
paid by the Borrower under the Borrower Documents or the Bond Documents
or any other indebtedness of the Borrower to the Lender, the Trustee or
any third party, whether any such indebtedness is now existing or
hereafter arises and whether direct or indirect, due or to become due,
absolute or contingent, primary or secondary or joint or joint and
several;

(b) the Borrower shall fail to observe or perform any of the covenants,
conditions or agreements to be observed or performed by it under the
Borrower Documents, the Bond Documents or any credit or similar agreement
between the Borrower and the Lender for a period of ten (10) days after
written notice, specifying such default and requesting that it be
remedied, given to such party by the Lender;

(c) the Borrower shall file a petition in bankruptcy or for
reorganization or for an arrangement pursuant to any present or future
state or federal bankruptcy act or under any similar federal or state
law, or shall be adjudicated a bankrupt or insolvent, or shall make a
general assignment for the benefit of its creditors, or shall be unable
to pay its debts generally as they become due;

(d) if a petition or answer proposing the adjudication of the Borrower as
a bankrupt or its reorganization under any present or future state or
federal bankruptcy act or any similar federal or state law shall be filed
in any court and such petition or answer shall not be discharged or
denied within sixty (60) days after the filing thereof; or if a receiver,
trustee or liquidator of the Borrower or of all or substantially all of
the assets of the Borrower or of the Project shall be appointed in any
proceeding brought against the Borrower and shall not be discharged
within sixty (60) days of such appointment; or if

-14-

 

the Borrower shall
consent to or acquiesce in such appointment; or if any property of the
Borrower (including, without limitation, the estate or interest of the
Borrower in the Project or any part thereof) shall be levied upon or
attached in any proceeding;

(e) final judgment(s) for the payment of money in excess of $100,000,
individually or in the aggregate, shall be rendered against the Borrower
and shall remain undischarged for a period of thirty (30) days during
which execution shall not be effectively stayed;

(f) the Borrower shall be or become insolvent (whether in the equity or
bankruptcy sense);

(g) any representation or warranty made by the Borrower in the Borrower
Documents, the Bond Documents or any document related thereto shall prove
to be untrue or misleading in any material respect, or any statement,
certificate or report furnished hereunder or under any of the foregoing
documents by or on behalf of the Borrower shall prove to be untrue or
misleading in any material respect on the date when the facts set forth
and recited therein are stated or certified;

(h) the Project is condemned, destroyed or damaged to any material extent
and the same is not covered by insurance; or

(i) the Borrower fails to maintain its operating line of credit and
primary banking relationship with the Lender.

SECTION 6.2. Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, the Lender may, at its option, exercise any
and all of the following rights and remedies (and any other rights and remedies
available to it):

(a) The Lender may instruct the Trustee to accelerate the Bonds and
submit a drawing under the Letter of Credit pursuant to the Indenture.

(b) The Lender may, by written notice to the Borrower, declare all
indebtedness of every type or description owed by the Borrower to the
Lender to be immediately due and payable and the same shall thereupon be
immediately due and payable.

(c) The Lender shall have the right, in addition to any other rights
provided by law, to enforce its rights and remedies under the Borrower
Documents and the documents related thereto.

(d) The Lender may make demand upon the Borrower and forthwith upon such
demand the Borrower will pay to the Lender in immediately available funds
for deposit in the Cash Collateral Account an amount equal to the maximum
amount then available to be drawn under the Letter of Credit (assuming
compliance with all conditions for drawing thereunder).

(e) The Lender, in its sole discretion, may pay any amount owing under
the Bond Documents, including without limitation, principal of, interest
and premium on the Bonds or the Lender may cure any other Event of
Default under the Bond Documents.

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(f) The Lender may offset any deposits of the Borrower held by the Lender
(including those held by the Lender in the Cash Collateral Account and
any unmatured time deposits) against sums due hereunder or against any
other indebtedness then owed by the Borrower to the Lender, whether or
not then due.

ARTICLE VII.

MISCELLANEOUS

SECTION 7.1. Indemnification by the Borrower.

(a) The Borrower agrees to indemnify and hold harmless the Lender, its
officers, agents and employees, against any and all losses, claims,
damages or liability to which the Lender, its officers, agents and
employees, may become subject under any law in connection with the
carrying out of the transactions contemplated by this Agreement or the
Bond Documents or the conduct of any activity at the Project (other than
as a result of the act of commission or omission, including negligence or
willful misconduct, of the
Lender, its officers, agents and employees), and to reimburse the Lender,
its officers, agents and employees, for any out-of-pocket legal and other
expenses (including reasonable attorneys’ fees) incurred by the Lender,
its officers, agents and employees, in connection with investigating any
such losses, claims, damages or liabilities or in connection with
defending any actions relating thereto. The Lender agrees, at the
request and expense of the Borrower, to cooperate in the making of any
investigation in defense of any such claim and promptly to assert any or
all of the rights and privileges and defenses which may be available to
the Lender. The Borrower further releases and agrees to hold harmless
the Lender, its officers, agents and employees, from any liability to the
Borrower arising out of any covenant, representation or undertaking of
the Borrower contained in this Agreement, the Bond Documents or the
documents related hereto. The provisions of this Section shall survive
payment of the Letter of Credit and the payment and/or redemption of the
Bonds.

(b) Without limiting the generality of the foregoing, the Borrower shall
bear all loss, expense (including reasonable attorneys’ fees) and damage
in connection with, and agrees to indemnify and hold harmless, the
Lender, its agents, servants and employees from all claims, demands and
judgments made or recovered against the Lender, its agents, servants and
employees, because of bodily injuries, including death at any time
resulting therefrom, and/or because of damages to property of the Lender,
its agents, servants, employees, or others (including loss of use) from
any cause whatsoever, if due to any act of omission or commission,
including negligence, of the Borrower, its employees, servants or agents,
but excluding any acts of omission or commission of the Lender, its
employees, servants or agents. The Borrower’s liability hereunder shall
not be limited to the extent of insurance carried by or provided by the
Borrower or subject to any exclusions from coverage in any insurance
policy. The obligations of the Borrower under this Section shall survive
payment of the Letter of Credit and the payment and/or redemption of the
Bonds.

-16-

 

(c) The Borrower hereby indemnifies and holds harmless the Lender from
and against any and all claims, damages, losses, liabilities, costs or
expenses whatsoever which the Lender may incur (or which may be claimed
against the Lender by any person or entity whatsoever) (i) by reason of
any untrue statement or alleged untrue statement of any material fact
contained in any official statement or other offering document relating
to the offer or sale of the Bonds or the omission or alleged omission to
state therein a material fact necessary to make such statements, in light
of the circumstances under which they are made, not misleading (except
any statement or omission relating to the Lender contained in any written
materials supplied or approved by the Lender), or (ii) by reason of or in
connection with the execution and delivery or transfer of, or payment or
failure to pay under the Letter of Credit; provided, however, that the
Borrower shall not be required to indemnify the Lender for any claims,
damages, losses, liabilities, costs or expenses to the extent, but only
to the extent, caused by the willful misconduct or gross negligence of
the Lender or its officers, directors, agents or employees, in connection
with paying or wrongfully dishonoring a draw presented under the Letter
of Credit. Nothing in this Section 7.1 is intended to limit the
Borrower’s Obligation of Reimbursement.

SECTION 7.2. Expenses. The Borrower shall reimburse the Lender, upon demand,
for all costs and expenses, including without limitation reasonable attorneys’
fees, appraisal fees, survey fees, closing charges, inspection fees, collateral
audit fees, documentary or tax stamps, recording and filing fees, mortgage
registration tax, insurance premiums and service charges, paid or incurred by
the Lender in connection with (i) the preparation, negotiation, approval,
execution and delivery of the Borrower Documents and any other documents and
instruments related thereto; (ii) the review and approval of documents
submitted by the Borrower to the Lender to satisfy the conditions precedent set
forth in Article IV hereof or to obtain an Advance pursuant to Article III
hereof; (iii) the negotiation of any amendments or modifications to any of the
foregoing documents, instruments or agreements and the preparation of any and
all documents necessary or desirable to effect such amendments or
modifications; and (iv) the enforcement by the Lender during the term hereof or
thereafter of any of the rights or remedies of the Lender hereunder or under
any of the foregoing documents, instruments or agreements, including without
limitation costs and expenses of collection in the Event of Default, whether or
not suit is filed with respect thereto.

SECTION 7.3. Addresses for Notices. All notices to be given by any party to
the others hereunder shall be in writing and deemed to have been given when
delivered personally or when deposited in the United States mail, registered or
certified, postage prepaid, addressed as follows:

	 	 	 
	If to the Borrower:

	 	Lifecore Biomedical, Inc.
	

	 	3515 Lyman Boulevard
	

	 	Chaska, Minnesota 55318
	

	 	Attention: Chief Financial Officer
	 
	 	 
	If to the Lender:

	 	M&I Marshall & Ilsley Bank
	

	 	651 Nicollet Mall
	

	 	Minneapolis, Minnesota 55402
	

	 	Attention: Scott D. Thorson

-17-

 

SECTION 7.4. Time of Essence. Time is of the essence in the performance of
this Agreement.

SECTION 7.5. Binding Effect and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Borrower and the Lender and their
respective successors and permitted assigns, except that the Borrower may not
transfer or assign its rights hereunder without the prior written consent of
the Lender.

SECTION 7.6. Waivers. No waiver by the Lender of any right, remedy or Event of
Default hereunder shall operate as a waiver of any other right, remedy, or
Event of Default or of the same right, remedy or Event of Default on a future
occasion. No delay on the part of the Lender in exercising any right or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any right or remedy preclude other or future exercise thereof or
the exercise of any other right or remedy.

SECTION 7.7. Remedies Cumulative. The rights and remedies herein specified of
the Lender are cumulative and not exclusive of any rights or remedies which the
Lender would otherwise have at law or in equity or by statute.

SECTION 7.8. Governing Law and Entire Agreement. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Minnesota. The Borrower Documents and the documents related thereto contain
the entire agreement of the parties on the matters covered herein. No other
agreement, statement or promise relating to the subject matter hereof made by
any party or by any employee, officer, or agent of any party that is not in
writing and signed by all parties to this Agreement shall be binding.

SECTION 7.9. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an
original, but such counterparts shall together constitute one and the same
instrument.

SECTION 7.10. Not Joint Venturers. The Lender is not, and shall not by reason
of any provision of any of the Borrower Documents or the documents related
thereto be deemed to be, a joint venturer with or partner or agent of the
Borrower.

SECTION 7.11. Adequacy of Bond Proceeds. The Lender has not made, nor shall it
be deemed to have made, any representation or warranty that the funds to be
advanced hereunder to the Borrower are or will be sufficient to fully complete
the refunding of the prior Bonds.

SECTION 7.12. Jurisdiction; Waiver of Jury Trial. THE BORROWER HEREBY SUBMITS
ITSELF TO THE JURISDICTION OF THE STATE OF MINNESOTA AND THE FEDERAL COURTS OF
THE UNITED STATES LOCATED IN SUCH STATE IN RESPECT OF ALL ACTIONS ARISING OUT
OF OR IN CONNECTION WITH THE INTERPRETATION OR ENFORCEMENT OF THIS AGREEMENT
AND THE DOCUMENTS RELATED HERETO. THE BORROWER AND THE LENDER HEREBY WAIVE ANY
AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OF PROCEEDING RELATING TO THIS
AGREEMENT AND ANY OF THE OTHER BORROWER DOCUMENTS, THE OBLIGATIONS HEREUNDER OR
THEREUNDER, ANY COLLATERAL SECURING THE OBLIGATIONS, OR ANY TRANSACTION ARISING
THEREFROM OR CONNECTED THERETO. THE BORROWER AND THE LENDER EACH REPRESENT TO
THE OTHER THAT THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY GIVEN.

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SECTION 7.13. Interest Rate. Notwithstanding anything herein to the contrary
notwithstanding, the obligations of the Borrower under this Agreement shall be
subject to the limitation that payments of interest shall not be required to
the extent that contracting for or receipt thereof would be contrary to the
provisions
of law applicable to the Lender limiting the highest rate of interest which may
be lawfully contracted for, charged or received by the Lender.

SECTION 7.14. Obligations Absolute. Subject to Section 7.15 hereof, the
obligations of the Borrower under this Agreement shall be absolute,
unconditional and irrevocable, and shall be paid and performed strictly in
accordance with the terms of this Agreement, under all circumstances
whatsoever, including, the following circumstances:

(a) any lack of validity or enforceability of the Letter of Credit, the
Bonds, any of the Bond Documents, or any other agreement or instrument
relating thereto (collectively the “Related Documents”);

(b) any amendment or any waiver of or any consent to departure from all
or any of the Related Documents;

(c) the existence of any claim, set-off, defense or other right which the
Borrower may have at any time against the Issuer, the Trustee, any
beneficiary or any transferee of the Letter of Credit (or any person or
entity for whom the Issuer, the Trustee, any such beneficiary or any such
transferee may be acting), or any other person or entity, whether in
connection with this Agreement, the transactions contemplated herein or
in the Related Documents or any unrelated transactions;

(d) any statement or any other document presented under the Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any
respect whatsoever; or

(e) payment by the Lender under the Letter of Credit against presentation
of a draft or certificate which does not comply with the terms of the
Letter of Credit.

SECTION 7.15. Liability of the Lender. The Borrower assumes all risks of the
acts or omissions of the Issuer, the Trustee or any beneficiary or transferee
of the Letter of Credit with respect to its use of the Letter of Credit.
Neither the Lender nor any of their employees, officers or directors, in its or
their capacity as issuer of the Letter of Credit shall be liable or responsible
for:

(a) the use which may be made of the Letter of Credit or for any acts or
omissions of the Issuer, the Trustee or any beneficiary or transferee in
connection therewith;

(b) the validity, sufficiency or genuineness of documents, or of any
endorsement thereon, even if such documents should in fact prove to be in
any or all respects invalid, insufficient, fraudulent or forged; or

-19-

 

(c) payment by the Lender against presentation of documents which do not
comply with the terms of the Letter of Credit, including failure of any
documents to bear any reference or adequate reference to the Letter of
Credit;

except that the Borrower shall have a claim against the Lender, and the
Lender shall be liable to the Borrower, to the extent, but only to the
extent, of any direct, as opposed to consequential, damages (including
reasonable attorneys fees, costs and expenses) suffered by the Borrower
which were caused by:

(1) the willful misconduct or gross negligence of the Lender or its
officers, directors, agents or employees in determining whether
documents presented under the Letter of Credit comply with the
terms of the Letter of Credit; or

(2) the willful failure or gross negligence of the Lender or its
officers, directors, agents or employees to pay under the Letter of
Credit after the presentation to it by the Trustee or an approved
successor trustee of a draw and certificate strictly complying with
the terms and conditions of the Letter of Credit.

SECTION 7.16. Security Interest in Funds and Bonds. As additional security for
payment of its obligations under this Agreement, the Borrower hereby grants a
security interest to the Lender in all securities, assets, deposits in and
rights to payment from all funds now or hereafter on deposit in or otherwise a
part of any fund created by the Trustee under the Indenture or any and all
other accounts created under the Indenture, including Bonds and Bond proceeds
held pursuant to the Indenture, and in the proceeds realized from the
investment of any such items, and in any and all Bonds and substitutions of
such Bonds at any time held by the Trustee; and the Borrower hereby consents to
the Lender’s appointment of the Trustee as the Lender’s agent to perfect the
Lender’s security interest in such funds and other assets. The security
interest granted hereunder shall be subordinate to the Trustee’s right to apply
such funds in accordance with the Indenture and subordinate to the rights of
holders of the Bonds in and to such funds. All payments on Bonds or funds held
by the Trustee as agent for the Lender under this Section 7.16, including
(without limitation) any payment of principal or interest or proceeds of sale,
shall be paid directly to the Lender. All such payments received by the Lender
shall be credited against the Borrower’s Obligation of Reimbursement. The
Lender shall be entitled to exercise all of the rights of an owner of the Bonds
held by the Trustee as agent for the Lender with respect to voting, consenting
and directing the Trustee as if the Lender were the owner of such Bonds, and
the Borrower hereby grants and assigns to the Lender all such rights.

SECTION 7.17. Term. This Agreement shall automatically terminate upon the
later of (i) expiration of the Letter of Credit, or (ii) payment in full of the
Obligation of Reimbursement and all other amounts due and payable by the
Borrower to the Lender hereunder or under the documents related hereto.

SECTION 7.18. Financial Covenants. It is acknowledged that the Borrower and
the Lender have entered into the Credit Agreement concerning the extension by
the Lender to the Borrower of a line of credit. The failure by the Borrower to
comply with any of the financial covenants in such credit agreement, as the
same may be amended, restated or reduced, shall, pursuant to Section 6.1(b)
hereof, constitute an Event of Default hereunder. In the event that during the
term

-20-

 

of this Agreement, the Borrower and the Lender are no longer parties to a
credit or similar agreement, the financial covenants set forth in the most
recent credit or similar agreement shall continue to be binding on
the Borrower for the purposes of this Agreement unless and until the Borrower
and the Lender agree in writing to modify or amend such financial covenants.

SECTION 7.19. USA Patriot Act. The Lender hereby notifies the Borrower that
pursuant to the requirements of the USA Patriot Act (Title III of Pub. L.
107-56 (signed into law October 26, 2001)) (the “Patriot Act”), the Lender is
required to obtain, verify and record information that identifies the Borrower,
which information includes the name and address of the Borrower and other
information that will allow the Lender to identify the Borrower in accordance
with the Patriot Act.

THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK

-21-

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the day and year first above written.

	 	 	 	 	 
	 	 	LIFECORE BIOMEDICAL, INC.
	 
	 	 	 	 
	

	 	By:
	 	/s/ DENNIS J. ALLINGHAM
	

	 	 	 	

	

	 	 	 	Its: President and CEO
	 
	 	 	 	 
	 	 	M&I MARSHALL & ILSLEY BANK
	 
	 	 	 	 
	

	 	By:
	 	/s/ SCOTT THORSON

	

	 	 	 	Its: Senior Vice President
	 
	 	 	 	 
	

	 	By:
	 	/s/ STEVEN NOLANDER

	

	 	 	 	Its: Officer

[SIGNATURE PAGE TO REIMBURSEMENT AGREEMENT]

-22-

 

EXHIBIT A

     The Borrower has been named as a defendant in 40 product liability
lawsuits filed by 37 different plaintiffs (three plaintiffs have filed more
than one case) alleging that the plaintiffs suffered injuries due to the
defective nature of INTERGEL Solution manufactured by the Borrower and marketed
by ETHICON. In the majority of the cases, the Borrower has not yet been served
with the complaints. The Borrower has been served in the following cases, in
addition to those cases disclosed in the Borrower’s Quarterly Report on Form
10-Q for the Quarter ended March 31, 2004:

	1.	 	Rebecca J. Rezendes v. Lifecore Biomedical, Inc. et al.
(Carver County District Court, MN)
	 
	2.	 	Melissa Powers v. Ethicon, Inc. et al. (Orleans Parish,
Louisiana)
	 
	3.	 	Natalie Sanders v. Johnson & Johnson, Inc. et al. (D. N.J.)
	 
	4.	 	Monika Shumbo-Poissant v. Lifecore Biomedical, Inc. et al.
(Superior Court of New Jersey, Middlesex County)

     ETHICON is currently defending the Borrower in each of these lawsuits.
The Borrower has also received claim letters alleging claims similar to the
complaints listed above as follows:

	1.	 	Heather Dunne, letter dated October 9, 2003
	 
	2.	 	Margery LeRoux, letter dated September 9, 2003
	 
	3.	 	Kenna Schaller, letter dated July 10, 2003
	 
	4.	 	Julia Smith, letter dated May 10, 2004

     ETHICON is responding to the above-listed claim letters on behalf of the
Borrower. In addition to the above-listed claim letters, the Borrower has
received a claim letter on behalf of Melody Whitfield, dated October 2, 2003,
relating to injuries unrelated to INTERGEL Solution suffered in a second-look
surgery as part of a clinical trial. Whitfield is seeking $195,000 in damages.
The Borrower has not received any response to its letter dated February 19,
2003 disputing her claim. ETHICON has denied Borrower’s tender of defense of
Whitfield’s claim.

-23-exv10w14

 

Exhibit 10.14

MORTGAGE, SECURITY AGREEMENT,

ASSIGNMENT OF LEASES AND RENTS

AND FIXTURE FINANCING STATEMENT

NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, THE MAXIMUM
PRINCIPAL AMOUNT OF THE OBLIGATIONS SECURED BY THIS MORTGAGE IS $5,699,411.00,
TOGETHER WITH SUCH ADDITIONAL AMOUNTS AS MAY BE ADVANCED BY LENDER AND FOR
WHICH NO MORTGAGE REGISTRATION TAX IS PAYABLE PURSUANT TO MINNESOTA STATUTES
ANNOTATED § 287.05, SUBD. 4.

THIS MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE
FINANCING STATEMENT (this “Mortgage”) is made as of the 1st day of August,
2004, by LIFECORE BIOMEDICAL, INC., a Minnesota corporation (“Borrower”),
having its principal office at 3515 Lyman Boulevard, Chaska, Minnesota 55318,
in favor of M&I MARSHALL & ILSLEY BANK, a Wisconsin state banking corporation
(“Lender”), having its principal office at 651 Nicollet Mall, Minneapolis,
Minnesota 55402, Attention: Scott D. Thorson, or its assignee.

RECITALS

A. The City of Chaska, Minnesota (the “Issuer”), has issued those certain
Variable Rate Demand Purchase Revenue Bonds (Lifecore Biomedical, Inc.
Project), Series 2004 (the “Bonds”), pursuant to that certain Indenture of
Trust dated as of August 1, 2004 (the “Indenture”), by and between the Issuer
and Wells Fargo Bank, National Association, as Trustee (the “Trustee”).

B. In order to provide the credit and liquidity enhancement with respect to the
Bonds, Borrower has requested Lender to issue its Irrevocable Direct Pay Letter
No. SB/IRB 134 (the “Letter of Credit”) for Borrower’s account in the amount of
$5,699,411.00 for the benefit of the Trustee under the terms of the Indenture.

C. As a condition to the issuance of the Letter of Credit, Lender has required
Borrower to execute that certain Reimbursement Agreement of even date herewith
for the benefit of Lender (the “Reimbursement Agreement”), which requires,
among other things, that Borrower reimburse Lender for any and all draws made
under the Letter of Credit.

 

D. The obligations of Borrower under the Reimbursement Agreement become due and
payable in full on or before September 15, 2007.

E. Lender has required as an express condition to issuing the Letter of Credit
pursuant to the Reimbursement Agreement that Borrower secure the obligations of
Borrower under the Reimbursement Agreement by this Mortgage.

F. All capitalized terms herein which are not otherwise defined herein shall
have the meanings assigned thereto as set forth in the Reimbursement Agreement.
The Letter of Credit, the Reimbursement Agreement and each of the other
documents executed in connection therewith (collectively, the “LOC Documents”)
are hereby incorporated herein by reference.

G. The obligations secured by this Mortgage (collectively, the “Obligations”)
are the prompt payment and/or performance of the following:

(i) the amount of $5,699,411.00 or so much thereof as may be drawn under
the Letter of Credit pursuant to the Reimbursement Agreement; plus

(ii) all debts and obligations of Borrower under any interest rate
hedging documents and/or agreements now or hereafter entered into by
Borrower and Lender with respect to the Bonds or the LOC Documents,
including, but not limited to, a rate swap transaction, basis swap,
forward rate transaction, commodity option, equity or equity index rate
swap, equity or index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar
transaction, currency swap transaction, cross-currency rate swap
transaction, currency option or any similar transaction or combination of
similar transactions (including, as applicable, any ISDA Master Agreement
and each schedule, transaction and confirmation relating to or entered
into under an ISDA Master Agreement or any such other agreement), all as
amended, modified, supplemented or extended from time to time, and
including all obligations of Borrower to reimburse Lender for any and all
amounts paid, and other losses suffered, by Lender, as a result of the
early termination of such transaction, the amount of which is
indeterminate on the date hereof; plus

(iii) all other amounts payable by Borrower and the performance of all
other agreements of Borrower under the LOC Documents as the same now
exist or may hereafter be amended.

NOW, THEREFORE, Borrower, in consideration of the foregoing recitals, which are
hereby incorporated herein by reference and which are true and correct on the
date hereof, and of Lender issuing the Letter of Credit, and to secure the
Letter of Credit and payment and performance of the Obligations, hereby grants,
bargains, sells, conveys and mortgages to Lender, its successors and assigns,
forever, with power of sale, and grants to Lender, its successors and assigns,
a security interest in, the following, all of which is called the “Mortgaged
Property”:

- 2 -

 

A. LAND AND IMPROVEMENTS

The land described in Exhibit A attached hereto and all mineral rights,
hereditaments, easements and appurtenances thereto (collectively the “Land”),
and all improvements and structures now or hereafter located thereon (the
“Improvements”); and

B. FIXTURES AND PERSONAL PROPERTY

All fixtures (the “Fixtures”) and all goods, machinery, equipment and personal
property (collectively the “Personal Property”) now or hereafter located on, in
or under the Land and the Improvements, or usable in connection with the Land
or the Improvements, and which are owned by Borrower or in which Borrower has
an interest, including any construction and building materials stored on and/or
to be included in the Improvements, plus any repairs, replacements and
betterments to or of any of the foregoing; and

C. LEASES AND RENTS

All rights of Borrower with respect to tenants or occupants now or hereafter
occupying any part of the Land or the Improvements, if any, including all
Leases (as hereinafter defined), all guaranties thereof, all licenses, and all
rights in connection therewith, whether oral or written (collectively the
“Leases”), and all rents, income, royalties, revenues and payments, including
prepayments and security deposits, payments in termination of Leases, payments
for the rental or sale or use of rooms, for goods sold or leased, for food or
beverage sold on or from the Land and the Improvements, for any entertainment
offered on the Land and the Improvements, for services rendered, whether or not
yet earned by performance, for the rental, sale or use of any equipment, from
vending machines, and all payments from any consumer credit/charge card
organization, whether or not now existing or owed, or hereafter credited or
owed (collectively the “Rents”), which are now or hereafter due or to be paid
in connection with the Land, the Improvements, the Fixtures or the Personal
Property; and

D. GENERAL INTANGIBLES

All general intangibles of Borrower which relate to any of the Land, the
Improvements, the Fixtures, the Personal Property, the Leases or the Rents,
including proceeds of insurance and condemnation or conveyance of the Land and
the Improvements, accounts, trade names, contract rights, accounts and bank
accounts; and

E. OTHER PROPERTY

All feasibility studies, plans and specifications, soil tests, environmental
reports, engineering reports, architect’s, engineer’s and construction
contracts, licenses, permits, certificates and documents relating to the Land,
the Improvements, the Fixtures and the Personal Property; and

F. AFTER ACQUIRED PROPERTY AND PROCEEDS

All property similar to the property herein described and conveyed which may be
subsequently acquired by Borrower and used in connection with the Land, the
Improvements, the Fixtures, the
Personal Property and other property; and all cash and non-cash proceeds and
products of all of the foregoing property.

- 3 -

 

TO HAVE AND TO HOLD the same, and all estate therein, together with all the
rights, privileges and appurtenances thereunto belonging, to the use and
benefit of Lender, its successors and assigns, forever.

PROVIDED NEVERTHELESS, should Borrower pay and perform all the Obligations,
then these presents will be of no further force and effect, and this Mortgage
shall be satisfied by Lender, at the expense of Borrower.

This Mortgage constitutes an absolute, irrevocable, currently effective
assignment of rents and profits within the meaning of Minnesota Statutes, §§
559.17 and 576.01, and is intended to comply fully with the provisions thereof,
and to afford Lender, to the fullest extent allowed by law, the rights and
remedies of a mortgage lender or secured lender pursuant thereto; provided,
however, that, prior to the occurrence of an Event of Default, Borrower shall
have a conditional license and opportunity to collect (but not more than one
[1] month in advance) all such rents and profits, and to use the same for
payment of all sums which Borrower is required to pay by the terms hereof and
the Obligations, before using the same for any other purpose.

This Mortgage also constitutes a security agreement within the meaning of the
Uniform Commercial Code as in effect in the State of Minnesota, as the same may
be amended from time to time (the “UCC”), with respect to all property
described herein as to which a security interest may be granted and/or
perfected pursuant to the UCC, and is intended to afford Lender, to the fullest
extent allowed by law, the rights and remedies of a secured party under the
UCC.

BORROWER FURTHER agrees as follows:

ARTICLE I

AGREEMENTS

Section 1.1. Performance of Obligations: Incorporation by Reference. Borrower
shall pay and perform the Obligations. Time is of the essence hereof. All of
the covenants, obligations, agreements, warranties and representations of
Borrower contained in the Reimbursement Agreement and the other LOC Documents
and all of the terms and provisions thereof, are hereby incorporated herein and
made a part hereof by reference as if fully set forth herein.

Section 1.2. Further Assurances. If Lender requests, Borrower shall sign and
deliver and cause to be recorded and hereby authorizes Lender to record to the
full extent permitted by applicable law, any further mortgages, instruments of
further assurance, certificates, financing statements, continuation statements
and other documents as Lender reasonably may consider necessary or desirable in
order to perfect, continue and preserve the Obligations and Lender’s rights,
title, estate, liens and interests under the LOC Documents. Borrower further
agrees to pay to Lender, upon demand, all costs and expenses incurred by Lender
in connection with the preparation, execution, recording, filing and refiling
of any such documents, including attorneys’ fees and title insurance costs.

- 4 -

 

Section 1.3. Sale, Transfer, Encumbrance. If Borrower sells, conveys,
transfers or otherwise disposes of, or encumbers, any part of its interest in
the Mortgaged Property, legal or equitable, whether voluntarily, involuntarily
or by operation of law, without the prior written consent of Lender, which may
be given or withheld by Lender in its sole and absolute discretion, Lender
shall have the option to declare the Obligations immediately due and payable
without notice. Included within the foregoing actions requiring prior written
consent of Lender are: (a) execution of a purchase, sale or option agreement;
(b) sale by deed or contract for deed; and (c) mortgaging or granting a Lien
(as hereinafter defined) on the Mortgaged Property. Borrower shall request in
writing Lender’s consent to any such proposed action at least thirty (30) days
prior to the proposed date of such action. Borrower shall pay all costs and
expenses incurred by Lender in evaluating any such request. Lender may
condition such consent upon modification of the LOC Documents, an increase in
the interest rate or payment of fees. No such action shall relieve Borrower
from liability for the Obligations.

Section 1.4. Insurance. Borrower shall obtain, maintain and keep in full force
and effect (and upon request of Lender shall furnish to Lender copies of)
policies of insurance as described in, and meeting the requirements of the
Reimbursement Agreement.

Section 1.5. Taxes, Liens and Claims, Utilities. Borrower, before any penalty
attaches thereto, shall pay and discharge, or cause to be paid and discharged,
all taxes, installments of assessments and governmental charges and levies
(collectively “Impositions”) imposed upon or against the Mortgaged Property or
the Rents, or upon or against the Obligations, or upon or against the interest
of Lender in the Mortgaged Property or the Obligations, except Impositions
measured by the income of Lender. Borrower shall provide evidence of such
payment at Lender’s request. Borrower shall keep the Mortgaged Property free
and clear of all liens, encumbrances, easements, covenants, conditions,
restrictions and reservations (collectively “Liens”) except the Permitted
Encumbrances. Borrower shall pay or cause to be paid when due all charges or
fees for utilities and services supplied to the Mortgaged Property.
Notwithstanding anything to the contrary contained in this Section, Borrower
shall not be required to pay or discharge any Imposition or Lien so long as
Borrower shall in good faith, and after giving notice to Lender, contests the
same by appropriate legal proceedings. As a condition to any such contest,
Borrower shall provide such security to Lender as Lender shall reasonably
require against loss or impairment of Borrower’s ownership of or Lender’s lien
on the Mortgaged Property and shall in any event pay such Imposition or Lien
before loss or impairment occurs. In the event Lender determines that loss or
impairment may occur, Borrower shall, within ten (10) days after notice from
Lender, pay such Imposition or Lien in full. In the event Borrower fails to
pay such Imposition or Lien in full within such ten (10) day period or upon
completion of such contest, Lender may apply the security provided to Lender by
Borrower under this Section to pay such Imposition or Lien.

Section 1.6. Escrow Payments. At Lender’s request at any time after the
occurrence of an Event of Default, Borrower shall deposit with Lender monthly
on the first (1st) day of such month the amount reasonably estimated by Lender
to be necessary to enable Lender to pay, before they become due, all
Impositions against the Mortgaged Property and the premiums upon all insurance
required hereby to be maintained with respect to the Mortgaged Property. All
funds so deposited shall secure the Obligations. Such deposits shall be held
by Lender, or its nominee, in a non-interest bearing account and may be
commingled with other funds. Such deposits shall

- 5 -

 

be used to pay such Impositions and insurance premiums when due. If at any
time the funds are less than the amount deemed necessary by Lender to pay such
Impositions and insurance premiums when due, Borrower shall pay to Lender any
amount necessary to make up the deficiency within ten (10) days after written
notice from Lender to Borrower requesting payment thereof. Any excess sums so
deposited shall be retained by Lender and shall be applied to pay said items in
the future, unless the Obligations have been paid and performed in full, in
which case all excess sums so paid shall be refunded to Borrower. Upon the
occurrence of an Event of Default, Lender may apply any funds in said account
against the Obligations in such order as Lender may determine.

Section 1.7. Maintenance and Repair; Compliance with Laws. Borrower shall
cause the Mortgaged Property to be operated, maintained and repaired in safe
and good repair, working order and condition, reasonable wear and tear
excepted, and shall not commit or permit waste thereof. Except as provided in
any LOC Document, Borrower shall not commence construction of any Improvements,
change the use of the Improvements from that contemplated by Section 2.2
hereof, or remove, demolish or substantially alter the design or structural
character of any Improvements without the prior written consent of Lender;
shall complete or cause to be completed forthwith any Improvements which are
now or may hereafter be under construction upon the Land; shall comply or cause
compliance with all laws, statutes, ordinances and codes, and governmental
rules, regulations and requirements, applicable to the Mortgaged Property or
the manner of using or operating the same, and with any covenants, conditions,
restrictions and reservations affecting the title to the Mortgaged Property,
and with the terms of all insurance policies relating to the Mortgaged
Property; and shall obtain and maintain in full force and effect all consents,
permits and licenses necessary for the construction, development, use and
operation of the Mortgaged Property.

Section 1.8. Leases. Borrower shall not enter into or amend any Lease without
Lender’s prior written consent. As used herein, “Lease” means any lease or
other document or agreement, written or oral, permitting any Person to use or
occupy any part of the Mortgaged Property, and any guaranty thereof.

Section 1.9. Environmental Notices. Promptly after learning of the occurrence
of any of the following, Borrower shall give Lender oral and written notice
thereof, describing the same and the steps being taken or proposed to be taken
by Borrower with respect thereto: (a) the happening of any event involving the
spill, release, leakage, seepage, discharge or cleanup of any asbestos,
polychlorinated biphenyls, mold, radon, petroleum products and any other
hazardous or toxic waste, substance or constituent (collectively, “Hazardous
Substances”); (b) any litigation, arbitration proceeding, or governmental
proceeding arising from an environmental accident; (c) notice that Borrower’s
operations on the Mortgaged Property are not in compliance with requirements of
applicable federal, state or local environmental, health and safety statutes
and regulations; (d) notice that Borrower is the subject of a federal or state
investigation evaluating whether any remedial action is needed to respond to
the release of any Hazardous Substance from or onto the Mortgaged Property; (e)
notice that the Mortgaged Property is subject to a lien in favor of any
governmental entity for (i) any liability under federal or state environmental
laws or regulations or (ii) damages arising from or costs incurred by such
governmental entity in response to a release of a Hazardous Substance into the
environment; or (f) the happening of any
event or the obtaining of any information which would cause any of the
representations or warranties set forth in Section 2.4 hereof untrue or
misleading in any material respect.

- 6 -

 

ARTICLE II

REPRESENTATIONS, WARRANTIES AND COVENANTS

Borrower makes the following representations, warranties and covenants:

Section 2.1. Ownership, Liens, Compliance with Laws. Borrower owns good and
marketable fee simple title to the Mortgaged Property free from all Liens,
except the permitted encumbrances set forth on Exhibit C attached hereto (the
“Permitted Encumbrances”). All applicable zoning, environmental, land use,
subdivision, building, fire, safety and health laws, statutes, ordinances,
codes, rules, regulations and requirements affecting the Mortgaged Property
permit the current or intended use and occupancy thereof, and Borrower has
obtained or will timely obtain all consents, permits and licenses required for
such use. Borrower has examined and is familiar with all applicable covenants,
conditions, restrictions and reservations, and with all applicable laws,
statutes, ordinances, codes and governmental rules, regulations and
requirements affecting the Mortgaged Property, and the Mortgaged Property
complies with all of the foregoing.

Section 2.2. Use. The Mortgaged Property is not homestead property nor is it
agricultural property or in agricultural use, but rather is the site of an
manufacturing facility and appurtenances.

Section 2.3. Utilities; Services. The Mortgaged Property is serviced by all
necessary public utilities, and all such utilities are operational and have
sufficient capacity.

Section 2.4. Environmental. Except as disclosed in the environmental reports
identified on Exhibit B attached hereto (the “Environmental Reports”), (a) the
Mortgaged Property presently complies with, in all material respects, all
applicable federal, state or local environmental, health and safety statutes
and regulations with which non-compliance would have a material adverse effect
on the Mortgaged Property; (b) no part of the Mortgaged Property was ever used
as a dump, sanitary landfill, junk yard or gasoline service station; (c) the
Mortgaged Property is not the subject of any judicial or administrative
proceeding alleging the violation of any federal, state or local environmental,
health or safety statute or regulation, which violation would have a material
adverse effect on the Mortgaged Property; (d) the Mortgaged Property is not the
subject of a federal or state investigation regarding the need for any remedial
action to respond to a release of any Hazardous Substance or other substance
into the environment which remedial action would have a material adverse effect
on the Mortgaged Property; (e) Borrower has received no summons, citations,
directives, claims of lien, letters or other communications, written or oral,
from any federal, state or local agency or department concerning the storing,
releasing, pumping, pouring, emitting, emptying or dumping of any Hazardous
Substance on the Mortgaged Property or any surrounding areas; (f) Borrower has
not filed any notice under any federal or state law indicating past or present
treatment, storage or disposal of a Hazardous Substance or reporting a spill or
release of any Hazardous Substances into the environment;

- 7 -

 

(g) no Hazardous Substances are located or have been released in, on or under
the Mortgaged Property; and (h) there are no underground storage tanks on the
Mortgaged Property.

Except as disclosed in the Environmental Reports, Borrower covenants and agrees
that it shall not, nor shall it permit others to, use the Mortgaged Property
for the business of generating, transporting, storing, treating or disposing of
any Hazardous Substances, nor shall it either take or fail to take any action
which may result in a release of any Hazardous Substances from or onto the
Mortgaged Property. Notwithstanding the foregoing, Borrower shall be entitled
to store, use and dispose of Hazardous Substances in the ordinary course of its
business, provided such storage, use and disposal is in compliance with all
applicable local, state and federal laws, rules and regulations.

Borrower covenants and agrees, at its sole cost and expense, to indemnify,
protect and save the Lender, its parent, directors, officers, employees,
agents, representatives, consultants and attorneys (collectively, the
“Indemnified Parties”) harmless against and from any and all damages, losses,
liabilities, obligations, penalties, claims, litigation, demands, defenses,
judgments, suits, proceedings, costs, disbursements or expenses (including,
without limitation, attorneys’ and experts’ reasonable fees and disbursements)
of any kind or of any nature whatsoever (collectively, the “Indemnified
Matters”) which may at any time be imposed upon, incurred by or asserted or
awarded against the Indemnified Parties and arising from or out of any existing
and future Hazardous Substances on, in, under or affecting all or any portion
of the Mortgaged Property or any surrounding areas. Indemnified Matters shall
include, without limitation, all of the following: (i) the costs of removal of
any and all Hazardous Substances from all or any portion of the Mortgaged
Property or any surrounding areas, (ii) costs required to take necessary
precautions to protect against the release of Hazardous Substances on, in,
under or affecting the Mortgaged Property into the air, any body of water, any
other public domain or any surrounding areas, (iii) costs incurred to comply,
in connection with all or any portion of the Mortgaged Property or any
surrounding areas, with all applicable laws, rules and regulations with respect
to Hazardous Substances (clauses (i), (ii) and (iii) above being herein
collectively referred to as “Corrective Work”), and (iv) loss in value of the
Mortgaged Property due to the existence of Hazardous Substances. Lender’s
rights hereunder shall be in addition to all rights of Lender under this
Mortgage, the Reimbursement Agreement, the Letter of Credit and any guaranty or
guaranties given to Lender in connection with the Letter of Credit and under
any other LOC Documents and payments by Borrower hereunder shall not reduce
Borrower’s obligations and liabilities under any of the LOC Documents.
Notwithstanding anything to the contrary contained herein, (a) the indemnity
provided for hereunder with respect to surrounding areas shall not extend to
the costs of Corrective Work on, in, under or affecting any surrounding areas
if the applicable Hazardous Substances did not originate from any portion of
the Mortgaged Property, unless the removal of any Hazardous Substances on, in,
under or affecting any surrounding areas is required by applicable laws, rules
or regulations or by order or directive of any federal, state or local
governmental authority in connection with the Corrective Work on, in, under or
affecting any portion of the Mortgaged Property and (b) if Lender or any
affiliate of Lender takes title to the Mortgaged Property at a foreclosure
sale, at a sale pursuant to a power of sale under this Mortgage or by deed in
lieu of foreclosure or otherwise, then the indemnity provided for hereunder
shall not apply to Hazardous Substances which are initially released on, in or
under all or any portion of the Mortgaged Property after the date Lender or
such affiliate so takes title to the Mortgaged Property.

- 8 -

 

All obligations set forth in this Section 2.4 shall survive payment of the
Obligations, foreclosure of this Mortgage or acceptance by Lender, its
successors or assigns, of a deed-in-lieu of foreclosure.

Section 2.5. Wetlands. The Mortgaged Property is in compliance with all
federal laws relating to “Wetlands” (as defined in 33 C.F.R. §328.3, as
hereinafter amended), and in any comparable state and/or local law, statute or
ordinance, rule or regulation pertaining to such Wetlands, and Borrower shall
not perform or cause to be performed any excavation or fill activity or other
acts which would in any way destroy, eliminate, alter, obstruct, interfere with
or otherwise affect any Wetlands in violation of any such laws, statutes,
ordinances, rules or regulations.

Section 2.6. ADA/Fair Housing Act. The Mortgaged Property is, and/or upon
completion of construction, will be, in compliance with all applicable
provisions of the Americans With Disabilities Act (the “ADA”), the Fair Housing
Act and any and all other laws, rules and regulations governing accessibility
to or from the Mortgaged Property, and all rules and regulations pertaining
thereto. Borrower shall at all times hereafter continue to comply with all
requirements of the ADA, the Fair Housing Act and such other laws, rules and
regulations.

ARTICLE III

CASUALTY; CONDEMNATION

Section 3.1. Casualty, Repair, Proof of Loss. Subject to the provisions of
Section 3.3 hereof, if any portion of the Mortgaged Property shall be damaged
or destroyed by any cause (a “Casualty”), Borrower shall:

(a) give immediate notice to Lender; and

(b) promptly commence and diligently pursue to completion (in accordance
with plans and specifications approved by Lender) the restoration, repair
and rebuilding of the Mortgaged Property as nearly as possible to its
value, condition and character immediately prior to the Casualty; and

(c) if the Casualty is covered by insurance, immediately make proof of
loss and collect all insurance proceeds, all such proceeds to be payable
to Lender or as Lender shall direct. If an Event of Default shall be in
existence, or if Borrower shall fail to provide notice to Lender of
filing proof of loss, or if Borrower shall not be diligently proceeding,
in Lender’s reasonable opinion, to collect such insurance proceeds, then
Lender may, but is not obligated to, make proof of loss, and is
authorized, but is not obligated, to settle any claim with respect
thereto, and to collect the proceeds thereof. All proceeds from such
claim shall be paid to Lender to be applied pursuant to the terms of this
Article III.

Section 3.2. Use of Insurance Proceeds — Total Loss. In the event the Casualty
results in a loss of 75% or more of the full replacement value of the Mortgaged
Property, as determined by Lender, all proceeds received from such claim shall
be used to prepay the Obligations in accordance with the terms of the
Reimbursement Agreement. Should said proceeds exceed the

- 9 -

 

amounts due under the Reimbursement Agreement and this Mortgage, any such
excess shall be repaid to Borrower. Should said proceeds be less than the
amounts due under the Reimbursement Agreement and this Mortgage, any deficiency
shall be paid by Borrower to Lender within sixty (60) days of demand by Lender.
Lender’s right to payment of insurance proceeds shall exist whether or not any
such loss results in any impairment to the security of the Lender hereunder.

Section 3.3. Use of Insurance Proceeds — Partial Loss. In the event the
Casualty results in a loss of less than 75% of the full replacement value of
the Mortgaged Property, as determined by Lender, Lender shall make the net
insurance proceeds received by it (after reimbursement of Lender’s reasonable
out-of-pocket costs of collecting and disbursing the same) available to
Borrower to pay the cost of restoration, repair and rebuilding of the Mortgaged
Property, subject to the following conditions:

(a) There shall be no Event of Default in existence at the time of any
disbursement of the insurance proceeds.

(b) Lender shall have determined, in its reasonable discretion, that the
cost of restoration, repair and rebuilding is and will be equal to or
less than the amount of insurance proceeds deposited by Borrower with
Lender or Borrower has deposited with Lender such additional funds such
that the sum of the insurance proceeds and such funds equals the cost of
restoration, repair or rebuilding.

(c) Lender shall have determined, in its reasonable discretion, that the
restoration, repair and rebuilding can be completed in accordance with
plans and specifications approved by Lender (such approval not to be
unreasonably withheld), in accordance with applicable codes and
ordinances, and in accordance with the terms, and in any event not less
than sixty (60) days prior to the Maturity Date.

(d) All funds shall be held by Lender in an interest bearing account and
shall be disbursed, at Lender’s option, in accordance with Lender’s
customary disbursement procedures for construction loans.

(e) The Casualty shall have occurred more than six (6) months prior to
the Maturity Date.

(f) The Mortgaged Property shall have been appraised and, if required
therein, the Letter of Credit reduced as required by Lender in its
discretion.

If any of these conditions shall not be satisfied, then Lender shall have the
right to use the insurance proceeds to prepay the Obligations in accordance
with the Reimbursement Agreement. If any insurance proceeds shall remain after
completion of the restoration, repair and rebuilding of the Mortgaged Property,
they shall be used to prepay the Obligations in accordance with the
Reimbursement Agreement.

Notwithstanding anything to the contrary contained herein, and provided no
Event of Default, and no event which with the giving of notice or the passage
of time or both would constitute an Event of Default, has occurred and is then
continuing, in the event the amount of the insurance

- 10 -

 

proceeds payable in connection with a Casualty is less than $100,000, Borrower
shall be entitled to directly settle and compromise such claim to be applied,
at the reasonable discretion of Borrower, applied to the cost of restoration,
repair and rebuilding of the Mortgaged Property.

Section 3.4. Condemnation. If any portion of the Mortgaged Property shall be
taken, condemned or acquired pursuant to exercise of the power of eminent
domain or threat thereof (a “Condemnation”), Borrower shall:

(a) give immediate notice thereof to Lender, and send a copy of each
document received by Borrower in connection with the Condemnation to
Lender promptly after receipt; and

(b) diligently pursue any negotiation and prosecute any proceeding in
connection with the Condemnation at Borrower’s expense. If an Event of
Default shall be in existence, or if Borrower, in Lender’s reasonable
opinion, shall not be diligently negotiating or prosecuting the claim,
Lender is authorized, but not required, to negotiate and prosecute the
claim and appear at any hearing for itself and on behalf of Borrower and
to compromise or settle all compensation for the Condemnation. Lender
shall not be liable to Borrower for any failure by Lender to collect or
to exercise diligence in collecting any such compensation. Borrower
shall not compromise or settle any claim resulting from the Condemnation
if such settlement shall result in payment of $10,000.00 or more less
than Lender’s reasonable estimate of the damages therefrom. All awards
shall be paid to Lender to be used to prepay the Obligations in
accordance with the terms of the Reimbursement Agreement.

Notwithstanding anything to the contrary contained herein, and provided no
Event of Default, and no event which with the giving of notice or the passage
of time or both would constitute an Event of Default, has occurred and is then
continuing, in the event the amount of the claim in connection with a
Condemnation is less than $100,000, Borrower shall be entitled to directly
settle and compromise such claim.

ARTICLE IV

DEFAULTS AND REMEDIES

Section 4.1. Events of Default. An Event of Default (as that term is defined
in the Reimbursement Agreement) shall constitute an Event of Default hereunder.

Section 4.2. Remedies. Upon the occurrence of an Event of Default, all of the
Obligations, at the option of Lender, shall be accelerated and become
immediately due and payable, without presentment, demand or further notice of
any kind. In addition to the remedies set forth in the Reimbursement
Agreement, Lender shall have the right to proceed to protect and enforce its
rights by one or more of the following remedies:

(a) Lender shall have the right to bring suit either for damages, for
payment of amounts outstanding under the Reimbursement Agreement, for
specific performance of
any agreement contained in any LOC Document, for the foreclosure of this
Mortgage, or for the enforcement of any other appropriate legal or
equitable remedy.

- 11 -

 

(b) Lender shall have the right to sell the Mortgaged Property at public
auction and convey the same to the purchaser in fee simple, power being
expressly granted to sell the Mortgaged Property, as provided by law,
Borrower to remain liable for any deficiency. Said sale may be as one
(1) tract or otherwise, at the sole option of Lender, the Mortgaged
Property being a single tract for the purposes of Minnesota Statutes
Annotated § 580.08. In the event of any sale of the Mortgaged Property
pursuant to any judgment or decree of any court or at public auction or
otherwise in connection with the enforcement of any of the terms of this
Mortgage, Lender, its successors or assigns, may become the purchaser,
and for the purpose of making settlement for or payment of the purchase
price, shall be entitled to deliver over and use the Reimbursement
Agreement and any claims for interest accrued and unpaid thereon,
together with all other sums, with interest, advanced or secured hereby
and unpaid hereunder, in order that there may be credited as paid on the
purchase price the total amount of the Obligations then due (or any
portion thereof which Lender may elect), including all other sums, with
interest, advanced or secured hereby and unpaid hereunder or under any of
the other LOC Documents.

(c) Lender shall have the right to obtain the appointment of a receiver
at any time after the occurrence of an Event of Default. Lender may
apply for the appointment of a receiver to the district court for the
county where the Mortgaged Property or any part thereof is located, by an
action separate from any foreclosure of this Mortgage pursuant to
Minnesota Statutes Chapter 580 or pursuant to Minnesota Statutes Chapter
581, or as a part of the foreclosure action under said Chapter 581 (it
being agreed that the existence of a foreclosure pursuant to said Chapter
580 or a foreclosure action pursuant to said Chapter 581 is not a
prerequisite to any action for a receiver hereunder). Lender shall be
entitled to the appointment of a receiver without regard to waste,
adequacy of the security or solvency of Borrower. The receiver, who
shall be an experienced property manager, shall collect (until the
Obligations are fully paid and satisfied and, in the case of a
foreclosure sale, during the entire redemption period) the Rents, and
shall manage the Mortgaged Property, execute Leases within or beyond the
period of the receivership if approved by the court and apply all rents,
profits and other income collected by him in the following order:

(i) to the payment of all reasonable fees of the receiver, if any,
approved by the court;

(ii) to the repayment of tenant security deposits, with interest
thereon, as required by Minnesota Statutes, Section 504B.178, if
applicable;

(iii) to the payment when due of delinquent or current real estate
taxes or special assessments with respect to the Mortgaged
Property, or the periodic escrow for the payment of the same;

(iv) to the payment when due of premiums for insurance of the type
required by this Mortgage, or the periodic escrow for the payment
of the same;

- 12 -

 

(v) to payment for the keeping of the covenants required of a
lessor or licensor pursuant to Minnesota Statutes, Section
504B.161, subdivision 1, if applicable;

(vi) to the payment of all expenses for normal maintenance of the
Mortgaged Property; and

(vii) the balance to Lender (a) if received prior to the
commencement of a foreclosure, to be applied to the Obligations, in
such order as Lender may elect and (b) if received after the
commencement of a foreclosure, to be applied to the amount required
to be paid to effect a reinstatement prior to foreclosure sale, or,
after a foreclosure sale to any deficiency or, at the option of
Lender, to the amount required to be paid to effect a redemption,
all pursuant to Minnesota Statutes, Sections 580.30, 580.23 and
581.10, with any excess to be paid to Borrower. Provided, that if
this Mortgage is not reinstated nor the Mortgaged Property redeemed
as provided by said Sections 580.30, 580.23 or 581.10 following
foreclosure, the entire amount paid to Lender, after deducting
therefrom the amounts applied by Lender to any deficiency, shall be
the property of the purchaser of the Mortgaged Property at the
foreclosure sale, together with all or any part of the Mortgaged
Property acquired through foreclosure.

Lender shall have the right, at any time and without limitation, as
provided in Minnesota Statutes, Section 582.03, to advance money to the
receiver to pay any part or all of the items which the receiver should
otherwise pay if cash were available from the Mortgaged Property, and
sums so advanced, with interest at the Default Rate, shall be secured
hereby, or if advanced during the period of redemption shall be part of
the sum required to be paid to redeem from the sale.

(d) Lender shall have the right to collect the rents from the Mortgaged
Property and apply the same in the manner hereinbefore provided with
respect to a receiver. For that purpose, Lender may enter and take
possession of the Mortgaged Property and manage and operate the same and
take any action which, in Lender’s judgment, is necessary or proper to
collect the Rents and to conserve the value of the Mortgaged Property.
Lender may also take possession of, and for these purposes use, any and
all of the Personal Property. The expense (including any receiver’s
fees, attorneys’ fees, costs and agent’s compensation) incurred pursuant
to the powers herein contained shall be secured by this Mortgage. Lender
shall not be liable to account to Borrower for any action taken pursuant
hereto other than to account for any Rents actually received by Lender.
Enforcement hereof shall not cause Lender to be deemed a mortgagee in
possession unless Lender elects in writing to be a mortgagee in
possession.

(e) Lender shall have the right to enter and take possession of the
Mortgaged Property and manage and operate the same in conformity with all
applicable laws and take any action which, in Lender’s judgment, is
necessary or proper to conserve the value of the Mortgaged Property.

- 13 -

 

(f) Lender shall have all of the rights and remedies provided in the
Uniform Commercial Code, including the right to proceed under the Uniform
Commercial Code provisions governing default as to any Personal Property
separately from the real estate included within the Mortgaged Property,
or to proceed as to all of the Mortgaged Property in accordance with its
rights and remedies in respect of said real estate. If Lender should
elect to proceed separately as to such Personal Property, Borrower agrees
to make such Personal Property available to Lender at a place or places
acceptable to Lender, and if any notification of intended disposition of
any of such Personal Property is required by law, such notification shall
be deemed reasonably and properly given if given at least ten (10) days
before such disposition in the manner hereinafter provided.

(g) Lender shall have the right and remedy to file proof of claim and
other documents as may be necessary or advisable in order to have its
claims allowed in any receivership, insolvency, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceedings affecting Borrower, its creditors or its property, for the
entire amount due and payable by Borrower in respect of the Obligations
at the date of the institution of such proceedings, and for any
additional amounts which may become due and payable by Borrower after
such date.

Each remedy herein specifically given shall be in addition to every other right
now or hereafter given or existing at law or in equity, and each and every
right may be exercised from time to time and as often and in such order as may
be deemed expedient by Lender, and the exercise or the beginning of the
exercise of one (1) right shall not be deemed a waiver of the right to exercise
at the same time or thereafter any other right. Lender shall have all rights
and remedies available under the law in effect now and/or at the time such
rights and remedies are sought to be enforced, whether or not they are
available under the law in effect on the date hereof.

Section 4.3. Expenses of Exercising Rights Powers and Remedies. The expenses
(including any receiver’s fees, attorneys’ and legal assistants’ fees,
appraisers’ fees, environmental engineers’ and/or consultants’ fees, costs
incurred for documentary and expert evidence, stenographers’ charges,
publication costs, costs (which may be estimated as to items to be expended
after completion of the foreclosure) of procuring all abstracts of title,
continuations of abstracts of title, title searches and examinations, title
insurance policies and commitments and extensions thereof, UCC and chattel lien
searches, and similar data and assurances with respect to title as Lender may
deem reasonably necessary either to prosecute any foreclosure action or to
evidence to bidders at any sale which may be had pursuant to any foreclosure
decree the true condition of the title to or the value of the Mortgaged
Property, and agent’s compensation) incurred by Lender after the occurrence of
any Event of Default and/or in pursuing the rights, powers and remedies
contained in this Mortgage shall be immediately due and payable by Borrower,
with interest thereon from the date incurred at the Default Rate, and shall be
added to the indebtedness secured by this Mortgage.

Section 4.4. Restoration of Position. In case Lender shall have proceeded to
enforce any right under this Mortgage by foreclosure, sale, entry or otherwise,
and such proceedings shall have been discontinued or abandoned for any reason
or shall have been determined adversely, then, and in every such case, Borrower
and Lender shall be restored to their former positions and rights hereunder
with respect to the Mortgaged Property subject to the lien hereof.

- 14 -

 

Section 4.5. Marshalling. Borrower, for itself and on behalf of all Persons
which may claim under Borrower, hereby waives all requirements of law relating
to the marshalling of assets, if any, which would be applicable in connection
with the enforcement by Lender of its remedies for an Event of Default
hereunder, absent this waiver. Lender shall not be required to sell or realize
upon any portion of the Mortgaged Property before selling or realizing upon any
other portion thereof.

Section 4.6. Waivers. No waiver of any provision hereof shall be implied from
the conduct of the parties. Any such waiver must be in writing and must be
signed by the party against which such waiver is sought to be enforced. The
waiver or release of any breach of the provisions set forth herein to be kept
and performed shall not be a waiver or release of any preceding or subsequent
breach of the same or any other provision. No receipt of partial payment after
acceleration of any of the Obligations shall waive the acceleration. No
payment by Borrower or receipt by Lender of a lesser amount than the full
amount secured hereby shall be deemed to be other than on account of the sums
due and payable hereunder, nor shall any endorsement or statement on any check
or any letter accompanying any check or payment be deemed an accord and
satisfaction, and Lender may accept any check or payment without prejudice to
Lender’s right to recover the balance of such sums or to pursue any other
remedy provided in this Mortgage. The consent by Lender to any matter or event
requiring such consent shall not constitute a waiver of the necessity for such
consent to any subsequent matter or event.

Section 4.7. Lender’s Right to Cure Defaults. If Borrower shall fail to comply
with any of the terms of the LOC Documents with respect to the procuring of
insurance, the payment of taxes, assessments and other charges, the keeping of
the Mortgaged Property in repair, or any other term contained herein or in any
of the other LOC Documents, Lender may make advances to perform the same
without releasing Borrower from any of the Obligations. Borrower agrees to
repay upon demand all sums so advanced and all sums expended by Lender in
connection with such performance, including without limitation attorneys’ fees,
with interest at the Default Rate set forth in the Reimbursement Agreement from
the dates such advances are made, and all sums so advanced and/or expenses
incurred, with interest, shall be secured hereby, but no such advance and/or
incurring of expense by Lender, shall be deemed to relieve Borrower from any
default hereunder or under any of the other LOC Documents, or to release
Borrower from any of the Obligations.

Section 4.8. Suits and Proceedings. Lender shall have the power and authority,
upon prior notice to Borrower, to institute and maintain any suits and
proceedings as Lender may deem advisable to (i) prevent any impairment of the
Mortgaged Property by any act which may be unlawful or by any violation of this
Mortgage, (ii) preserve or protect its interest in the Mortgaged Property, or
(iii) restrain the enforcement of or compliance with any legislation or other
governmental enactment, rule or order that may be unconstitutional or otherwise
invalid, if, in the sole opinion of Lender, the enforcement of or compliance
with such enactment, rule or order might impair the security hereunder or be
prejudicial to Lender’s interest.

Section 4.9. Homestead Waiver. Borrower hereby waives any and all homestead
and related rights in and to the Mortgaged Property.

- 15 -

 

ARTICLE V

MISCELLANEOUS

Section 5.1. Binding Effect; Survival; Number; Gender. Subject to the
provisions of Section 1.3 hereof, this Mortgage shall be binding on and inure
to the benefit of the parties hereto, and their respective heirs, legal
representatives, successors and assigns. All agreements, representations and
warranties contained herein or otherwise heretofore made by Borrower to Lender
shall survive the execution, delivery and foreclosure hereof. The singular of
all terms used herein shall include the plural, the plural shall include the
singular, and the use of any gender herein shall include all other genders,
where the context so requires or permits.

Section 5.2. Severability. The unenforceability or invalidity of any provision
of this Mortgage as to any person or circumstance shall not render that
provision unenforceable or invalid as to any other person or circumstance.

Section 5.3. Notices. Any notice or other communication to any party in
connection with this Mortgage shall be given pursuant to the provisions of the
Reimbursement Agreement.

Section 5.4. Applicable Law. This Mortgage and the other LOC Documents shall
be construed and enforceable in accordance with, and be governed by, the laws
of the State of Minnesota, without giving effect to conflict of laws principles
thereof. Whenever possible, each provision of this Mortgage and any other
statement, instrument or transaction contemplated hereby or relating hereto,
shall be interpreted in such manner as to be effective and valid under such
applicable law, but, if any provision of this Mortgage or any other statement,
instrument or transaction contemplated hereby or relating hereto shall be held
to be prohibited or invalid under such applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Mortgage or any other statement, instrument or transaction contemplated
hereby or relating hereto.

Section 5.5. Effect. This Mortgage is in addition and not in substitution for
any other guarantees, covenants, obligations or other rights now or hereafter
held by Lender from any other Person in connection with the Obligations.

Section 5.6. Headings. Headings of the Sections of this Mortgage are inserted
for convenience only and shall not be deemed to constitute a part hereof.

Section 5.7. Fixture Filing. This instrument shall be deemed to be a Fixture
Filing within the meaning of the Minnesota Uniform Commercial Code, and for
such purpose, the following information is given:

	 	 	 	 	 
	(a)

	 	Name and address of Debtor:
	 	Lifecore Biomedical, Inc.
	

	 	 	 	3515 Lyman Boulevard
	

	 	 	 	Chaska, Minnesota 55318
	

	 	 	 	Organizational I.D. No.: MN 1J-75

- 16 -

 

	 	 	 	 	 
	(b)

	 	Name and address of
	 	M&I Marshall & Ilsley Bank
	

	 	Secured Party:
	 	651 Nicollet Mall
	

	 	 	 	Minneapolis, Minnesota 55402
	

	 	 	 	Attention: Scott D. Thorson
	 
	 	 	 	 
	(c)

	 	Description of the types (or
	 	 See granting clause on pages 2 and 3 hereof.
	

	 	items) of property covered	 	 
	

	 	by this Fixture Filing:	 	 
	 
	 	 	 	 
	(d)

	 	Description of real estate
	 	See Exhibit A hereto.
	

	 	to which the collateral is	 	 
	

	 	attached or upon which it
	 	 
	

	 	is or will be located:	 	 

Some of the above-described collateral is or is to become fixtures upon the
above-described real estate, and this Fixture Filing is to be filed for record
in the public real estate records. This Mortgage secures an obligation
incurred for the construction of an improvement on land and is a construction
mortgage within the meaning of applicable Minnesota Statutes.

IN WITNESS WHEREOF, Borrower has executed this Mortgage as of the date first
written above.

	 	 	 	 	 
	 	 	LIFECORE BIOMEDICAL, INC.
	 
	 	 	 	 
	

	 	By:
	 	/s/ DENNIS J. ALLINGHAM

	

	 	 	 	Its: President and CEO

	 	 	 	 	 
	STATE OF MINNESOTA

	)	 	 	 
	 
	 	 	 	 
	COUNTY OF HENNEPIN

	)	 	 	 

The foregoing instrument was acknowledged before me the 18th   day of
August, 2004, by Dennis J. Allingham, the President and CEO of Lifecore
Biomedical, Inc., a Minnesota corporation, for and on behalf of the
corporation.

	 	 	 
	

	 	    /s/ JANE M. MILLER

	

	 	Notary Public

THIS INSTRUMENT DRAFTED BY:

Winthrop & Weinstine, P.A. (JWJA)

225 South Sixth Street, Suite 3500

Minneapolis, Minnesota 55402

- 17 -

 

EXHIBIT A

(Legal Description)

Lot 1, Block 1, Lifecore, Carver County, Minnesota.

 

 

EXHIBIT B

(Environmental Reports)

Phase One Environmental Site Assessment dated July 2004 prepared by Earth Tech,
Inc.

 

 

EXHIBIT C

(Permitted Encumbrances)

	1.	 	Easement for utilities and drainage as shown on the recorded plat.
	 
	2.	 	Easement for pipelines, in favor of Williams Brothers Pipe Line Company
(now Williams Pipe Line Company), as created in document dated December
14, 1971, filed January 10, 1972, in Book 20 of Satns., Page 287,
originally granted in Book 57 of Deeds, Page 397 and subsequently modified
by Release of Right of Way Agreement, in Book 1 of Misc., Page 306.
	 
	 	 	Released and defined by Amendment and Release of Right of Way Agreement
filed April 13, 1990, as Document No. 113693 (Abstract) and filed April
13, 1990, as Document No. T 64813 (Torrens).
	 
	3.	 	Easement for pipelines, in favor of Williams Pipe Line Company, as
created in document dated March 28, 1990, filed April 13, 1990, as
Document No. 113694.

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