10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x	Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the fiscal year ended June 30, 2004 Commission file number: 0-4136

LIFECORE BIOMEDICAL, INC.

(Exact name of registrant as specified in its charter)

Minnesota	41-0948334
(State or other jurisdiction	(IRS Employer
of incorporation or organization)	Identification No.)

3515 Lyman Boulevard
Chaska, Minnesota 55318-3051
(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (952) 368-4300

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.01 par value)
Preferred Stock Purchase Rights
(Title of Class)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the registrant is an accelerated filer as defined in Rule 12b-2 of the Act. Yes x No o

     The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant based upon the closing price of the registrant’s stock, as quoted on the Nasdaq National Market on December 31, 2003, the last business day of the registrant’s most recently completed second fiscal quarter, as quoted on the Nasdaq National Market, was $57,560,609. Shares of common stock held by each officer and director and by each person or group who owns 5% or more of the outstanding common stock have been excluded given that such persons or groups may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

     The number of shares outstanding of the registrant’s Common Stock, $.01 par value, as of August 27, 2004 was 12,932,958 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Certain responses to Part III are incorporated by reference to information contained in the Company’s definitive Proxy Statement for its 2004 Annual Meeting to be filed with the Commission within 120 days after the end of the registrant’s fiscal year.

TABLE OF CONTENTS

PART I
	Item 1. Business
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
	Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7a. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
	Item 9A. Controls and Procedures
	Item 9B. Other Information
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	Item 13. Certain Relationships and Related Transactions
	Item 14. Principal Accountant Fees and Services
PART IV
	Item 15. Exhibits and Financial Statement Schedules
SIGNATURES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
EXHIBIT INDEX
EX-4.2 Indenture of Trust
EX-10.6 2003 Stock Incentive Plan
EX-10.9 Loan Agreement
EX-10.10 Remarketing Agreement
EX-10.11 Tax Exemption Agreement
EX-10.12 Irrevocable Letter of Credit
EX-10.13 Reimbursement Agreement
EX-10.14 Mortgage, Security Agreement, Assignment of Leases and Rents
EX-10.15 Security Agreement
EX-10.16 Pledge and Security Agreement
EX-10.17 Bond Purchase Agreement
EX-23.1 Consent of Grant Thornton LLP
EX-31.1 Certification of Dennis J. Allingham - Section 302
EX-31.2 Certification of David M. Noel - Section 302
EX-32.1 Certification of Dennis J. Allingham - Section 906
EX-32.2 Certification of David M. Noel - Section 906
EX-99.1 Risk Factors

PART I

Item 1. Business

     Lifecore Biomedical, Inc. (“Lifecore” or the “Company”) manufactures biomaterials and medical devices for use in various surgical markets. The Company was incorporated in the State of Minnesota in 1965. The Company operates two divisions, the Hyaluronan Division and the Oral Restorative Division. Further information about Lifecore can be obtained from Lifecore’s internet website at www.lifecore.com, however, the contents of the website are not intended to be a part of this Form 10-K and are not incorporated by reference. Also, Lifecore makes available free of charge through its internet website the Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the Securities and Exchange Commission.

     The Company’s Hyaluronan Division is principally involved in the development and manufacture of products utilizing hyaluronan, a naturally occurring polysaccharide that is widely distributed in the extracellar matrix of connective tissues in both animals and humans.

     The Hyaluronan Division primarily sells into three medical segments: 1) Ophthalmic, 2) Orthopedic, and 3) Veterinary. In addition, the Company developed and marketed a product using its patented ferric hyaluronan adhesion prevention technology. The product, GYNECARE INTERGEL Adhesion Prevention Solution (“INTERGEL Solution”), has been clinically proven to reduce the incidence of post-surgical adhesions following surgical trauma. The Company’s exclusive worldwide marketing partner, GYNECARE, a division of ETHICON, INC. (“ETHICON”), a Johnson & Johnson company, began marketing INTERGEL Solution outside the United States in June 1998 for reducing the incidence of post-surgical adhesions. INTERGEL Solution was approved by the FDA for the U.S. market in November 2001. INTERGEL Solution was voluntarily withdrawn from the market by ETHICON in March 2003 in order to assess information obtained from postmarketing experience with the product, including allegations of adverse events associated with off-label use in non-conservative surgical procedures (such as hysterectomies). The Company is working with ETHICON to complete the post-marketing evaluation and determine the opportunities for returning the product to market.

     Lifecore also supplies hyaluronan to customers pursuing other medical applications, such as wound care, aesthetic surgery, medical device coatings, tissue engineering, drug delivery and pharmaceuticals. The Company leverages its hyaluronan manufacturing expertise to provide expanded hyaluronan product offerings and specialized aseptic manufacturing of hyaluronan products.

     The Company’s Oral Restorative Division develops and markets precision surgical and prosthetic devices for the restoration of damaged or deteriorating dentition and associated support tissues. The Company’s dental implants are permanently implanted in the jaw for tooth replacement therapy as long-term support for crowns, bridges, and dentures.

     The Oral Restorative Division also offers innovative bone regenerative products for the repair of bone defects resulting from periodontal disease and tooth loss. Additionally, the Oral Restorative Division provides professional support services to its dental surgery clients through comprehensive education curricula, as provided in the Company’s various Support Plus™ programs and surgical courses. These professional continuing education programs are designed to train restorative clinicians and their auxiliary teams in the principles of tooth replacement therapy and practice management. The Company’s Increasing Case Acceptance Program (“ICA”) offers clients the marketing and consultative tools and training to foster higher patient acceptance of dental implants.

     The Oral Restorative Division’s products are marketed in the United States through the Company’s direct sales force. Internationally, the Division’s products are marketed through direct subsidiaries in Italy, Germany and Sweden, and through 25 national distributors covering 35 additional countries.

     Financial information regarding the Company’s two business segments is contained in Note H to the Company’s Consolidated Financial Statements.

2

Trademarks

     The following trademarks are the property of Lifecore: LUROCOAT® Ophthalmic Solution; RENOVA™, RESTORE® and SUSTAIN® Dental Implant Systems; STAGE-1™ Single Stage Implant System; Quick-Cap™ Impression System; CAPSET® Calcium Sulfate Bone Graft Barrier; SlowSet™; TefGen Regenerative Membrane™; and Support Plus™.

     GYNECARE INTERGEL Adhesion Prevention Solution, GYNECARE, and ETHICON, INC., are registered trademarks of ETHICON, INC.; Viscoat® Ophthalmic Viscoelastic Solution is a registered trademark of Alcon, Inc.; HY-50® is a registered trademark of Bexco Pharma, Inc. Rayvisc Ophthalmic Viscoelastic Solution is a registered trademark of Rayner: ENDOGEL Ophthalmic Viscoelastic Solution is a registered trademark of IOLTECH; and DBX® Demineralized Bone Matrix is a registered trademark of the Musculoskeletal Transplant Foundation.

Hyaluronan Division

Background

     Hyaluronan, a naturally occurring polysaccharide, is a component of many tissues in the body and of physiological fluids that lubricate or otherwise protect the body’s soft tissues. Due to its widespread presence in tissues, critical role in normal physiology, and its high degree of biocompatibility, the Company believes that hyaluronan will continue to be used for an increasing variety of medical applications. The Company produces hyaluronan through a proprietary fermentation process.

     Hyaluronan was first demonstrated to have commercial medical utility as a viscoelastic solution in cataract surgery. In this application, it is used for maintaining the shape of the anterior chamber and protecting corneal tissue during the removal and implantation of intraocular lenses. The first ophthalmic hyaluronan product, produced by extraction from rooster comb tissue, became commercially available in the United States in 1981. Hyaluronan-based products, produced either by rooster comb extraction or by fermentation processes such as the Company’s, have since gained widespread acceptance in ophthalmology and are currently used in the majority of cataract extraction procedures in the world. The Company’s hyaluronan is also used as the primary raw material for making INTERGEL Solution; as an aseptic solution which is used as a carrier vehicle for allogeneic demineralized, freeze-dried bone provided to orthopedic surgeons; as a component of devices to treat the symptoms of osteoarthritis; and as a component to provide increased lubricity to medical devices. The Company’s hyaluronan has been utilized in veterinary applications such as an embryo cryopreservation media and as a veterinary drug and device to treat traumatic arthritis.

Strategy

     The Company intends to use its proprietary fermentation process and aseptic formulation and filling expertise to be a leader in the development of hyaluronan-based products for multiple applications. Elements of the Company’s strategy include the following:

     • Establish strategic alliances with market leaders. The Company will continue to develop applications for products with partners who have strong marketing, sales and distribution capabilities to end-user markets. The Company currently has established relationships with the market leading companies Alcon, Inc. and Advanced Medical Optics in ophthalmology; Hexal AG in generic devices and drugs, and Musculoskeletal Transplant Foundation (“MTF”), the world’s largest bone tissue procurement and distribution service.

     • Expand medical applications for hyaluronan. Due to the growing knowledge of the unique characteristics of hyaluronan and the role it plays in normal physiology, the Company continues to identify and pursue further uses for hyaluronan in other medical applications, such as wound care, aesthetic surgery, adhesion prevention, drug delivery, device coatings and pharmaceuticals.

     • Maintain flexibility in product development and supply relationships. The Company’s vertically integrated development and manufacturing capabilities allow it to establish a variety of relationships with global corporate partners. Lifecore’s role in these relationships extends from supplier of raw materials to manufacturer of aseptically-packaged sterile products. In addition, the Company may develop its own proprietary products.

3

Hyaluronan Division Products

     The following chart summarizes the principal products of the Hyaluronan Division, along with their applications, and the companies with which Lifecore has related strategic alliances:

PRODUCT	STRATEGIC ALLIANCE	MARKET	STATUS+
OPHTHALMIC
Viscoat® Ophthalmic Viscoelastic Solution	Lifecore supplies hyaluronan powder for inclusion in Alcon’s Viscoat® ophthalmic viscoelastic solution.	Cataract surgery	Commercial sales since 1986
LUROCOAT® Ophthalmic Viscoelastic Solution	Lifecore supplies its private label product for marketing on a non-exclusive basis outside the United States	Cataract surgery	Commercial sales since June 1997
ORTHOPEDIC
Hyaluronan Solution for DBX	Lifecore supplies a sterile hyaluronan solution to MTF for use as a carrier vehicle for its allogeneic demineralized, freeze-dried bone	Grafting material for restoration of bone defects	Commercial sales since 2000
Hyaluron HEXAL® Orthopedic Viscosupplement	Lifecore supplies a finished orthopedic viscosupplement for HEXAL AG’s distribution network.	Injections for the local treatment of pain associated with osteoarthritis	Commercial sales expected to begin in fiscal 2005, pending regulatory approval
VETERINARY
HY-50®	Lifecore supplies a finished veterinary viscosupplement to Bexco Pharma, Inc. for use as a veterinary orthopedic injectible drug or an orthopedic device.	Veterinary device / drug	Commercial sales since 1993
ADHESION PREVENTION
GYNECARE INTERGEL Adhesion Prevention Solution	Lifecore’s proprietary product; ETHICON has exclusive worldwide marketing rights for adhesion prevention applications	Adhesion prevention	Voluntary market withdrawal March 2003

+ For many of the products listed above, government regulatory approvals are required before commercial sales can commence in the United States or elsewhere. See “Government Regulation.” No assurance can be given that such products will be successfully approved in new markets.

4

Ophthalmic Applications

     Cataract Surgery. Currently, a primary commercial application for the Company’s hyaluronan is in cataract surgery. Hyaluronan, in the form of a viscoelastic solution, is used to maintain a deep chamber during anterior segment surgeries (including cataract extraction and intraocular lens implantation) and to protect the corneal endothelium and other ocular tissue. These solutions have been shown to reduce surgical trauma and thereby contribute to more rapid recovery with fewer complications than were experienced prior to the use of viscoelastics. The Company currently sells hyaluronan for this application to Alcon, Inc. (“Alcon”) the leading producer of ophthalmic surgical products in the world, for inclusion in Viscoat® Ophthalmic Viscoelastic Solution. The Company also has agreements with two European ophthalmic companies to supply its hyaluronan based LUROCOAT Solution (discussed below) under private label outside the United States and Canada.

     The Company’s relationship with Alcon and its predecessors commenced in 1983. Since that time, sales of hyaluronan to Alcon have continued to be made pursuant to supply agreements. The current Alcon supply agreement, as renewed in December 2002, is a non-exclusive agreement for a term of two years through December 31, 2004. Management expects that the Company will be able to negotiate an extension of this supply agreement. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

     Hyaluronan-based products are used in the majority of cataract surgeries in the world. The Company estimates that the worldwide market for hyaluronan for cataract surgery, on a hospital cost basis, is approximately $140 million per year.

     The Company has developed its own viscoelastic solution, LUROCOAT Solution. The Company received CE marking for LUROCOAT Solution during 1997, allowing LUROCOAT Solution to be marketed and sold in Europe. The Company supplies LUROCOAT Solution outside the United States under private label agreements. Export shipments of LUROCOAT Solution began in 1997.

     The Company signed an agreement with Advanced Medical Optics (“AMO”) to supply Lifecore’s hyaluronan based viscoelastic under private label with sales commencing in fiscal year 2005. The AMO agreement is for a term of three years through May 2007 with renewal provisions.

     Lifecore estimates that its hyaluronan has been used in approximately 25 million ophthalmic patients globally since 1983.

Orthopedic Applications

     The Company supplies an aseptic hyaluronan solution to BioCon, Inc., the non-profit controlling affiliate of MTF, which utilizes the solution as a carrier vehicle for its allogeneic demineralized, freeze-dried bone in a final putty composition trademarked as “DBX® Demineralized Bone Matrix”. This bone putty is provided by MTF to orthopedic surgeons through MTF’s distribution channels. The Company has a supply agreement with MTF through December 2009.

Veterinary Applications

     The Company manufactures Bexco Pharma, Inc.’s HY-50® product, an aseptically packaged hyaluronan solution for use as a veterinary orthopedic device or veterinary orthopedic injectible drug, under a supply agreement expiring July 11, 2005. Bexco Pharma, Inc. has the option to renew the agreement for an additional two years with the same terms and conditions as the original agreement.

     Lifecore estimates that its veterinary hyaluronan product has been used in over 500,000 equine procedures worldwide.

Adhesion Prevention Opportunities with ETHICON

     The Company has developed a product using a version of its patented ferric hyaluronan technology, INTERGEL Solution, for reducing the incidence of post-surgical adhesions. ETHICON has worldwide, exclusive distribution rights for INTERGEL Solution.

5

     ETHICON began marketing INTERGEL Solution outside the United States in June 1998. The Company received FDA clearance for marketing INTERGEL Solution in the United States in November 2001, and ETHICON began marketing it in the United States during the first calendar quarter of 2002. INTERGEL Solution was voluntarily withdrawn from the market by ETHICON in March 2003 in order to assess information obtained from postmarketing experience with the product, including allegations of adverse events associated with off-label use in non-conservative surgical procedures (such as hysterectomies). The Company is working with ETHICON to complete the post-marketing evaluation and determine the opportunities for returning the product to market.

Product Development

     The Hyaluronan Division undertakes its own product development activities for hyaluronan-based applications, as well as on a contract basis with certain clients. The majority of outside projects are initiated by a client to demonstrate that the Company’s hyaluronan is suitable for a particular medical application. Suitability is often measured by detailed specifications for product characteristics such as purity, stability, viscosity, and molecular weight, as well as efficacy for a particular medical application.

     There can be no assurance that products currently under development by the Company or in partnership with others will be successfully developed or, if so developed, will be successfully and profitably marketed.

Oral Restorative Division

Background

     Dental implant systems are increasingly accepted as a replacement for missing or extracted teeth and serve as supports for dentures, crowns and bridges. In comparison to conventional restorative procedures, dental implants are surgically placed in the jawbone, simulating the anchoring of a tooth by its root. The implant maintains underlying bone structure and provides superior fixation of restorations, minimizing loosening of fixtures against surrounding teeth and gingiva. The titanium cylinder or screw-shaped implant is categorized by shape and method of implantation. For example, the threaded cylinder implant is surgically screwed into the jawbone, while an alternate form, the press-fit cylinder, is placed into a precision-drilled hole with a friction fit. To further enhance bone fixation, various implant styles may be roughened to create added surface area for bone-to-implant contact or coated with materials such as hydroxylapatite. The annual worldwide dental implant market is trending to exceed $1 billion in 2005.

     Bone graft substitutes and bone regeneration membranes are used for the restoration of deteriorated bone caused by periodontal disease and tooth loss. Historically, autologous bone (self-donated from another part of the patient’s own body) has been used to treat and regenerate deteriorated bone. Cadaver, synthetic and animal-derived bone graft substitutes emerged to address the issues of limited quantity and second surgical site morbidity associated with use of autologous bone. The current annual U.S. market for synthetic and animal-derived bone substitute products exceeds $36 million. And the addition of supplemental bone regeneration barrier membranes has expanded the U.S. dental bone regeneration market to approximately $75 million. The Company’s TefGen Regenerative Membrane™ and CAPSET® Calcium Sulfate Bone Graft Barrier products, along with additional new product development, target this market opportunity.

Strategy

     The Company is committed to providing the dental community with comprehensive treatment solutions and practice-building support through:

• Development or acquisition of a broad line of dental implants, technology and related dental surgery support products that facilitate the transition from competitive systems to the Lifecore system.

• Development and delivery of unique customer support programs and materials concentrating on the principles of tooth replacement therapy, practice management techniques, and marketing and consulting skills training to foster higher patient acceptance of dental implants.

• Expansion of international markets by direct selling efforts and additional distribution agreements.

6

Oral Restorative Division Products

     The following chart summarizes the principal products of the Company’s Oral Restorative Division:

PRODUCT	BENEFIT / APPLICATION	STATUS
RENOVA™ Internal Hex Dental Implant System	Major clinical segment utilizing internal hex connection providing increased stability; available in both straight and tapered implant systems offering flexibility of clinical treatment	Commercial sales
RESTORE® External Hex Dental Implant Systems	Time proven external hex implants with industry leading prosthetic fit and familiar surgical/restorative procedures	Commercial sales
STAGE-1™ Single Stage Implant System	Provides the timesaving benefits of a one-stage surgical procedure with the restorative simplicity and reliability of a Morsetaper prosthetic connection	Commercial sales
Quick-Cap™ Impression System	Increases the ease and efficiency of the implant restoration process	Commercial sales
CAPSET® Calcium Sulfate Bone Graft Barrier, including SlowSet™ Version	For use with natural and synthetic bone graft materials as a resorbable barrier cap and/or binding agent	Commercial sales
TefGen Regenerative Membrane™	Non-resorbable membrane for assisting the regeneration of bone defects	Commercial sales

Implant Products

     The RENOVA Internal Hex Implant System design provides the stability of an internal hex connection, while providing surgical treatment flexibility of both straight and tapered implants, improved thread design, indexability, superior esthetics and ease of clinician handling. The RENOVA system was commercially launched in June 2004.

     The RESTORE System is based on a classic threaded titanium implant design that pioneered the commercialization of these devices in general oral restorative surgery. In July 1993, the Company acquired this implant design in connection with its acquisition of Implant Support Systems, Inc. (“ISS”), a manufacturer of dental implant products. The Company has since enhanced and expanded the original ISS line into a broad range of implant options. The Company now markets its line of external hex implants, prosthetics and associated instrumentation under the RESTORE System name.

     The SUSTAIN System is based on a design that embraces both threaded and press-fit cylinder formats with added “bone-like” hydroxylapatite (“HA”). In May 1992, the Company acquired the basic SUSTAIN System from Bio-Interfaces, Inc. after serving as an exclusive distributor for the SUSTAIN System since 1990. SUSTAIN HA-Coated Dental Implants are now marketed under the RESTORE System name.

     The STAGE-1 Single Stage Implant System was designed by the Company to allow for a one-stage surgical procedure. The STAGE-1 Implant design allows placement in a single surgical procedure that reduces treatment time. The system’s reliable Morse taper prosthetic connection simplifies restorative procedures for the dentist. Commercial sales began in September 1999. In March 2001, the Company added the RBM STAGE-1 Single Stage Implant System to this line.

     The Quick-Cap™ Impression System greatly improves the restorative dentist’s ease and accuracy of impressioning for subsequent laboratory construction of the final crown, bridge or denture.

7

     Lifecore has enhanced and expanded its product lines, creating numerous new products with a combination of innovative features from its existing systems. This gives the Company a broad product line which offers practitioners maximum flexibility in choice of treatment modalities and several innovations that enhance ease-of-use by the clinician. Additionally, the Oral Restorative Division assists its dental surgery clients by developing comprehensive continuing education curricula, as provided in the Company’s various Support Plus™ programs, to train restorative clinicians and their auxiliary teams in the principles of tooth replacement therapy and practice management. The Company’s Increasing Patient Case Acceptance Program offers client personnel the marketing and selling skills training to foster higher patient acceptance of dental implants. The Company recently introduced Support Plus Overdentures, a program that teaches a step-by-step approach to obtain predictable and profitable results for attachment retained overdenture implant restorations.

Bone Regeneration Products

     The Company offers products that address various bone and tissue regeneration procedures.

     CAPSET® Calcium Sulfate Bone Graft Barrier received 510(k) clearance and was introduced to the market in 1995. CAPSET SlowSet™ Barrier was introduced in July 1999. These products are based on a proprietary medical grade calcium sulfate technology developed by and licensed from Wright Medical, Inc., an orthopedic product manufacturer based in Memphis, Tennessee. CAPSET Barrier and CAPSET SlowSet Barriers provide guided bone regeneration containment barriers to prevent migration of bone graft materials used to fill oral bone defects. 510(k) clearance was received in 1996 to market the calcium sulfate powder in the Capset package reserve cup for use as a binder for bone graft materials. This addition markedly improves the handling properties of various types of bone graft materials and also enhances the bone regeneration process.

     TefGen Regenerative Membrane technology was acquired by the Company from Bridger Biomed, Inc. in May 1997. This non-resorbable membrane is based on nanoporous PTFE Biomaterials (“nPTFE”); competitive with the market’s leading product produced by W.L. Gore. A TefGen Regenerative Membrane allows the dental surgeon to cover treated defect in bone to prevent the invasion of unwanted soft tissue while the slower growing bone tissue underneath the membrane regenerates.

Product Development

     The Oral Restorative Division is also involved in product development activities to improve existing components and packaging and to add new components to the dental implant systems. These development activities enhance the suitability and ease-of-use of the products for specific surgical applications and reflect changing trends in dental implant technology. There can be no assurance, however, that products which are currently under development by the Company will be successfully developed, or if so developed, will be successfully and profitably marketed.

Sales and Marketing

Hyaluronan Division Products

     The Company generally markets and distributes its hyaluronan products to end-users through corporate partners. The Company sells hyaluronan to these partners in a variety of forms, including powders, gels and solutions packaged in bulk or single-application units.

     The Company has an agreement with ETHICON for exclusive distribution of INTERGEL Solution. INTERGEL Solution was voluntarily withdrawn from the market by ETHICON in March 2003 in order to assess information obtained from postmarketing experience with the product, including allegations of adverse events associated with off-label use in non-conservative surgical procedures (such as hysterectomies). The Company is working with ETHICON to complete the post-marketing evaluation and determine the opportunities for returning the product to market. No assurance can be given that INTERGEL Solution will be returned to the market. Further, there is no assurance that if INTERGEL Solution is returned to the market, that the market will accept a product that has been previously withdrawn.

     The Company also sells various forms of medical grade hyaluronan directly to academic and corporate research customers for development and evaluation of new applications.

8

Oral Restorative Division Products

     The Company is focused on expanding its oral restorative product line and developing increased sales and marketing support. The dental implant market is highly specialized. Products are marketed to oral surgeons, periodontists, implantologists, prosthodontists, general dental practitioners and dental laboratories. Accordingly, management believes it must maintain a highly experienced direct sales force in the United States for proper distribution of these products. The Company believes that its sales force offers better customer service, technical support and regulatory control than could be achieved through an independent distributor network in the United States. The Company employs 27 individuals dedicated to sales in the United States and four U.S. based international sales personnel. The Oral Restorative Division products are marketed internationally in 35 countries through 25 distributors and in Italy through its subsidiary, Lifecore Biomedical SpA, in Germany through its subsidiary, Lifecore Biomedical GmbH, and in Scandinavia through its subsidiary, Lifecore Biomedical AB.

     The Company’s marketing activities are designed to support its direct domestic sales force and its international business base, and include advertising and product publicity in trade journals, direct mail catalogs, newsletters, continuing education programs, telemarketing, and attendance at trade shows and professional association meetings. Industry estimates indicate a need for replacement of approximately 100 million teeth in the adult population of the United States. That represents a potential implants and accessories market of approximately $20 billion compared to the actual current U.S. market size of approximately $400 million.

Manufacturing

     The commercial production of hyaluronan by the Company requires fermentation, separation and purification capabilities, and aseptic packaging of product in a variety of bulk and single dose configurations. In addition, the production of the INTERGEL Solution requires formulation of viscous fluids, contract Blow-Fill-Seal filling and secondary sterilization.

     The Company produces its hyaluronan through a proprietary fermentation process. Until the introduction of the Company’s medical grade hyaluronan, the only commercial source for medical hyaluronan was through a process of extraction from rooster combs. The Company believes that the fermentation manufacturing approach is superior to rooster comb extraction because of greater efficiency, flexibility, a more favorable long-term regulatory environment, and better economies of scale in producing large commercial quantities.

     The Company’s 110,000 square foot facility is primarily used for the proprietary hyaluronan manufacturing process, formulation and aseptic syringe filling, and the formulation of INTERGEL Solution. As a result of the voluntary withdrawal of INTERGEL, the hyaluronan manufacturing requirements have been limited, and therefore the Company has noted the associated unused manufacturing capacity charges, which negatively affected the Company’s profitability. The Company believes that the current inventory on-hand, together with its manufacturing capacity, will be sufficient to allow it to meet the needs of its current customers for the foreseeable future.

     The Company provides versatility in the manufacturing of various types of finished products. Currently, the Company supplies several different forms of hyaluronan in a variety of molecular weight fractions as powders, solutions and gels, and in a variety of bulk and single-use finished packages. The Hyaluronan Division continues to conduct development work designed to improve production efficiencies and expand the Company’s capabilities to achieve a wider range of hyaluronan product specifications in order to address the broadening opportunities for using hyaluronan in medical applications.

     The Company’s facility was designed to meet applicable regulatory requirements and has been cleared for the manufacture of both device and pharmaceutical products. The FDA periodically inspects the Company’s manufacturing systems and requires conformance to the FDA’s Quality Systems Regulations (“QSR”). In addition, the Company’s corporate partners conduct intensive regulatory audits of the facility. The Company also periodically contracts with independent regulatory consultants to conduct audits of the Company’s operations. The Company maintains a Quality System which assures conformance to all applicable current standards (21 CFR820, 21 CFR210-211, ISO 9001 : 1994, ISO 13485 : 1996, 9/42/MDDEEL, and Canadian Medical Device Regulation : 1998). These approvals represent international symbols of quality system assurance and compliance with applicable European Medical Device Directives, which greatly assist in the marketing of the Company’s products in the European Union.

9

     The Company uses outside metal finishing vendors to produce its dental implant devices and related components. The Company inspects vendors’ quality assurance and control functions and performs its own finished packaging related to the implant product lines.

     The Company purchases raw materials for its production of hyaluronan and calcium sulfate-based products from outside vendors. While these materials are available from a variety of sources, the Company principally uses limited sources for some of its key materials to better monitor quality and achieve cost efficiencies. Wright Medical, Inc. exclusively supplies the key raw material for CAPSET Barrier. The Company believes Wright Medical is able to provide adequate amounts of the raw materials for CAPSET Barrier, and is under a supply agreement with the Company through September 2006. The Company utilizes a supply agreement with Bridger Biomed, Inc. to supply the TefGen Regenerative Membrane product line.

Competition

     The competitors of the Company include major chemical, dental, medical, and pharmaceutical companies, as well as smaller specialized firms. Many of these companies have significantly greater financial, manufacturing, marketing and research and development resources than the Company.

Hyaluronan Products

     A number of companies produce hyaluronan products and thus directly or indirectly compete with Lifecore or its corporate partners. Several companies produce hyaluronan through a fermentation process, including Genzyme, Inc., Savient, Fidia SpA, IOLTECH, Kyowa Hakko, Kibun and Bayer. In addition, several companies manufacture hyaluronan by using rooster comb extraction methods. These companies primarily include Anika Therapeutics, Inc., Genzyme, Inc., Fidia SpA, Pharmacia and Kibun. The Company believes that its fermentation process may offer production and regulatory advantages over the traditional rooster comb extraction method. The Company’s competitors have filed or obtained patents covering aspects of fermentation production or uses of hyaluronan. These patents may cover the same applications as the Company’s. Although there can be no assurance, the Company believes that it does not infringe the patents of its competitors. See “Patents and Proprietary Rights.”

     Several companies are pursuing anti-adhesion product development, including, but not limited to, Alliance Pharmaceuticals, Inc., Angiotech Pharmaceuticals, Inc., Anika Therapeutics, Inc., Confluent Surgical, ETHICON, Fidia SpA, FzioMed, Genzyme Corporation, Life Medical Sciences, M.L. Labs, W.L. Gore & Associates, Inc. and Wright Medical Group, Inc. If any or all of the competing products are successfully developed and obtain regulatory approval and commercial acceptance, the Company’s prospects for INTERGEL Solution may be adversely affected.

     The Company believes that competition in the ophthalmic and medical grade hyaluronan market is primarily based on product performance, manufacturing capacity and product development capabilities. Future competition may be based on the existence of established supply relationships, regulatory approvals, intellectual property and product price. After a manufacturer has taken a product through the FDA marketing approval process, a change in suppliers can involve costs and delays because supplemental FDA review may be required.

Oral Restorative Products

     The dental implant market is also highly competitive. Major market competitors include Biomet, Inc., Zimmer (Centerpulse) Dental, Dentsply International, Inc., Nobel Biocare AB and Straumann AG. A number of these competitors are established companies with dominant market shares. The Company believes that competition in the dental implant market is based primarily on product performance and quality, strong sales support and education.

     The Company believes that its broad product line facilitates the conversion of competitive implant users to a Lifecore system. In addition, the Company has developed several innovative education and marketing support programs which are designed to increase the client’s implant business. The Company believes it has established a strong reputation for quality products due to its stringent design and inspection criteria. No assurance can be given, however, that the Company can effectively compete with other manufacturers of dental implant systems.

     The market for the Company’s tissue regeneration products is also competitive. The major competitors include Biomet, Inc., Dentsply International, Inc., Geistlich, W. L. Gore (GORE-TEX), and Zimmer (Centerpulse) Dental. While the Company believes its product line and experienced sales representation are an advantage in this area, no assurance can be given that it can gain significant market share from its more established competitors.

10

Patents and Proprietary Rights

     The Company pursues a policy of obtaining patent protection for patentable subject matter in its proprietary technology. In May 1985, the Company received a U.S. patent covering certain aspects of its hyaluronan fermentation process. In August 1994, in connection with the ETHICON Agreement, the Company was assigned a pending patent covering the composition and use of INTERGEL Solution, with applications filed in the United States, Australia, Brazil, Canada, Europe, Greece, and Japan. Subsequently, the patent has been issued in Australia, Canada, Greece, Japan, and the United States. The Company licenses two patents covering the dental surgical use of calcium sulfate from Wright Medical, Inc. The Company also licenses patented technology used in the production of calcium sulfate from Wright Medical and the University of North Carolina. In conjunction with the purchase of the TefGen Regenerative Membrane product line, the Company obtained the rights to the patent for composition, manufacture and use of the nPTFE material. The Company has received a patent on its dental implant packaging and a patent on a self-tapping dental implant design.

     The Company believes that patent protection is important to its business. However, if other manufacturers were to infringe on its patents, there can be no assurance that the Company would be successful in challenging, or would have adequate resources to challenge, such infringement. The Company also relies upon trade secrets, proprietary know-how and continuing technological innovation to develop and maintain its competitive position. There can be no assurance that others will not obtain or independently develop technologies which are the same as or similar to the Company’s technologies. The Company pursues a policy of requiring employees, temporary staff, consultants and customers (which have access to some of its proprietary information) to sign confidentiality agreements. There can be no assurance that the Company will be able to adequately protect its proprietary technology through patents or other means.

     The Company is aware that one or more of its competitors have obtained, or are attempting to obtain, patents covering fermentation and other processes for producing hyaluronan. Other patents have been, or may be, issued in the future in product areas of interest to the Company. Although the Company is not aware of any claims that its current or anticipated products infringe on patents held by others, no assurance can be given that there will not be an infringement claim against the Company in the future. The costs of any Company involvement in legal proceedings could be substantial, both in terms of legal costs and the time spent by management of the Company in connection with such proceedings. It is also possible that the Company, to manufacture and market some of its products, may be required to obtain additional licenses, which may require the payment of initial fees, minimum annual royalty fees and ongoing royalties on net sales. There can be no assurance that the Company would be able to license technology developed by others, on favorable terms or at all, that may be necessary for the manufacture and marketing of its products.

Government Regulation

     Government regulation in the United States and other countries is a significant factor in the marketing of the Company’s products and in the Company’s ongoing research and development activities. The Company’s products are subject to extensive and rigorous regulation by the FDA, which regulates the products as medical devices and which, in some cases, requires Pre-Market Approval, or PMA, and by foreign countries, which regulate the products as medical devices or drugs. Under the Federal Food, Drug, and Cosmetic Act (“FDC Act”), the FDA regulates clinical testing, manufacturing, labeling, distribution, sale, and promotion of medical devices in the United States.

     Following the enactment of the Medical Device Amendments of 1976 to the FDC Act, the FDA classified medical devices in commercial distribution at the time of enactment (“old devices”) into one of three classes - - Class I, II, or III. This classification is based on the controls necessary to reasonably ensure the safety and effectiveness of medical devices. Class I devices are those whose safety and effectiveness can reasonably be ensured through general controls, such as labeling, premarket notification (the “510(k) Notification”), and adherence to FDA-mandated current QSR requirements for devices. Class II devices are those whose safety and effectiveness can reasonably be ensured through the use of special controls, such as performance standards, post-market surveillance, patient registries and FDA guidelines. Class III devices are devices that must receive a PMA from the FDA to ensure their safety and effectiveness. Ordinarily, a PMA requires the performance of at least two independent, statistically significant clinical trials that demonstrate the device’s safety and effectiveness. Class III devices are generally life-sustaining, life-supporting or implantable devices, and also include most devices that were not on the market before May 28, 1976 (“new devices”) and for which the FDA has not made a finding of substantial equivalence based upon a 510(k) Notification. An old Class III device does not require a PMA unless and until the FDA issues regulation requiring submission of a PMA application for the device.

11

     The FDA invariably requires clinical data for a PMA application and has the authority to require such data for a 510(k) Notification. If clinical data is necessary, the manufacturer or distributor is ordinarily required to obtain an Investigational Device Exemption, or IDE authorizing the conduct of human studies. Once in effect, an IDE permits evaluation of devices under controlled clinical conditions. After a clinical evaluation process, the resulting data may be included in a PMA application or a 510(k) Notification. The PMA may be approved or the 510(k) Notification may be cleared by the FDA, only after a review process that may include requests for additional data, sometimes requiring further studies.

     If a manufacturer or distributor of medical devices can establish to the FDA’s satisfaction that a new device is substantially equivalent to what is called a “predicate device,” i.e., a legally marketed Class I or Class II medical device or a legally marketed Class III device for which the FDA has not required a PMA, the manufacturer or distributor may market the new device. In the 510(k) Notification, a manufacturer or distributor makes a claim of substantial equivalence, which the FDA may require to be supported by various types of information, including data from clinical studies, showing that the new device is as safe and effective for its intended use as the predicate device.

     Following submission of the 510(k) Notification, the manufacturer or distributor may not place the new device into commercial distribution until an order is issued by the FDA finding the new device to be substantially equivalent. The FDA has a 90 day period in which to respond to a 510(k) Notification. Dependent on the specific submission and subsequent agency requirements, the 510(k) Notification process can take significantly longer to complete. The FDA may agree with the manufacturer or distributor that the new device is substantially equivalent to a predicate device and allow the new device to be marketed in the United States. The FDA may, however, determine that the new device is not substantially equivalent and require the manufacturer or distributor to submit a PMA or require further information, such as additional test data, including data from clinical studies, before it is able to make a determination regarding substantial equivalence. Although the PMA process is significantly more complex, time-consuming and expensive than the 510(k) Notification process, the latter process can also be expensive and substantially delay the market introduction of a product.

     Hyaluronan products are generally Class III devices. In cases where the Company is supplying hyaluronan to a corporate partner as a raw material or producing a finished product under a license for the partner, the corporate partner will be responsible for obtaining the appropriate FDA clearance or approval. Export of the Company’s hyaluronan products generally requires approval of the importing country.

     The Company’s TefGen Regenerative Membrane product line is a Class II device. CAPSET Barrier has received market clearance through a 510(k) Notification but is unclassified.

     Other regulatory requirements are placed on a medical device’s manufacture and the quality control procedures in place, such as the FDA’s device QSR regulations. Manufacturing facilities are subject to periodic inspections by the FDA to ensure compliance with device QSR requirements. The Company’s facility is subject to inspections as both a device and a drug manufacturing operation. Other applicable FDA requirements include the medical device reporting regulation, which requires that the Company provide information to the FDA regarding deaths or serious injuries alleged to have been associated with the use of its devices, as well as product malfunctions that would likely cause or contribute to death or serious injury if the malfunction were to recur.

     If the Company is not in compliance with FDA requirements, the FDA or the federal government can order a recall, detain the Company’s devices, withdraw or limit 510(k) Notification clearances or PMA approvals, institute proceedings to seize the Company’s devices, prohibit marketing and sales of the Company’s devices, and assess civil money penalties and impose criminal sanctions against the Company, its officers, or its employees.

     There can be no assurance that any of the Company’s clinical studies will show safety or effectiveness; that 510(k) Notifications or PMA applications will be submitted or, if submitted, accepted for filing; that any of the Company’s products that require clearance of a 510(k) Notification or approval of a PMA application will obtain such clearance or approval on a timely basis, on terms acceptable to the Company for the purpose of actually marketing the products, or at all; or that following any such clearance or approval previously unknown problems will not result in restrictions on the marketing of the products or withdrawal of clearance or approval.

12

Product Liability

     Product liability claims may be asserted with respect to the Company’s products. In addition, the Company may be subject to product liability claims for the products of its customers that incorporate Lifecore’s materials. The Company maintains product liability insurance coverage in amounts the Company deems to be adequate. Lifecore Biomedical SpA and Lifecore GmbH also carry product liability insurance. There can be no assurance that the Company will have sufficient resources to satisfy product claims if they exceed available insurance coverage.

Employees

     As of August 27, 2004 the Company employed 183 persons on a full-time basis, 8 part-time employees and 6 temporary employees. None of the Company’s employees is represented by a labor organization, and the Company has never experienced a work stoppage or interruption due to labor disputes. Management believes its relations with employees are good.

Executive Officers of the Registrant

Executive Officers

     The following sets forth the names of the executive officers of Lifecore, in addition to information about their positions with Lifecore, their periods of service in such capacities, and their business experience for at least the past five years. There are no family relationships among them. All executive officers named are elected or appointed by the Board of Directors for a term of office from the time of election or appointment until the next annual meeting of directors (held following the annual meeting of shareholders) and until their respective successors are elected and have qualified.

     Dennis J. Allingham. Mr. Allingham, 53 years old, was appointed President and Chief Executive Officer and to the Board of Directors in February 2004. Mr. Allingham previously served as Executive Vice President of the Company since November 1997. He has been Chief Financial Officer of the Company since January 1996. Mr. Allingham has also been General Manager of the Hyaluronan Division since November 1996 and General Manager of the Oral Restorative Division since November 1997.

     David M. Noel. Mr. Noel, 47 years old, was appointed Vice President of Finance and Chief Financial Officer in March 2004. Mr. Noel, a Certified Public Accountant, joined the Company as Controller in February 2002. From 1996 to 2001, Mr. Noel was Controller of Nilfisk-Advance, Inc., a manufacturer of floor maintenance equipment.

     Andre P. Decarie. Mr. Decarie, 58 years old, joined the Company as Vice President of Sales and Marketing – ORD in January 2001. Prior to joining the Company, Mr. Decarie was Vice President, Business Development for Avitar, Inc., a manufacturer of specialized wound dressings, from 1999 to December 2000. From 1998 to 1999, Mr. Decarie was Vice President, Business Development for Tremont Medical, Inc., a medical electronics company. From 1993 to 1998, Mr. Decarie was Senior Vice President with Integra LifeSciences Corporation, a medical products company.

     Larry A. Hiebert. Mr. Hiebert, 48 years old, was appointed Vice President of Operations in March 2004. Mr. Hiebert had been the Director of Operations since 1996 and has held various manufacturing and materials management positions within the Company since 1983.

Item 2. Properties

     The Company’s operations are all conducted in its 110,000 square foot building in Chaska, Minnesota. The Company completed an expansion of its facility during fiscal 1998. The Company leases local office space for its three foreign subsidiaries.

13

Item 3. Legal Proceedings

     Lifecore has been named as a defendant in 41 product liability lawsuits filed by 37 different plaintiffs (four plaintiffs have filed more than one case) alleging that the plaintiffs suffered injuries due to the defective nature of INTERGEL Solution manufactured by Lifecore and marketed by ETHICON. In the majority of the cases, Lifecore has not yet been served with the complaints. Lifecore has been served in the following cases as of August 31, 2004:

1.	Linda Authement and Michael Ray Lavergne v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 8/20/04
2.	Barbara Black v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 8/16/04
3.	Renee Contratto v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Northern District of California); served 9/15/03
4.	Renee Contratto v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Superior Court of the State of California, County of Alameda); served 2/4/04
5.	Nancy Susan Drinkwitz v. Lifecore Biomedical, Inc., Johnson & Johnson, Ethicon, Inc. and Gynecare Worldwide (Carver County District Court, State of Minnesota); served 8/20/04
6.	April Ferrell and Michael Ferrell, Jr. v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc., (Florida); served 8/20/04
7.	Michelle Frosh Bernard v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 8/20/04
8.	Pamela Gregory and Darrell Gregory v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida);served 8/20/04
9.	Kristin Manning v. Johnson & Johnson, Ethicon, Inc., d/b/a Gynecare Worldwide and Lifecore Biomedical, Inc. (D. Kansas); served 1/29/04
10.	Elizabeth M. Manning v. Lifecore Biomedical, Inc., Johnson & Johnson, Ethicon, Inc. and Gynecare Worldwide (Carver County District Court, State of Minnesota) - this case was settled in June 2004
11.	Melissa Powers v. Gynecare Through Ethicon, Inc., Johnson & Johnson, Lifecore Biomedical, Inc. and George B. Morris, IV, M.D. (Civil District Court for the Parish of Orleans, State of Louisiana); served 6/3/04
12.	Rebecca J. Rezendes v. Lifecore Biomedical, Inc., Johnson &Johnson, Ethicon, Inc. and Gynecare Worldwide; served 6/4/04
13.	Natalie M. Sanders v. Johnson & Johnson, Inc., Gynecare Worldwide, Ethicon, Inc., and Lifecore Biomedical, Inc. (District of New Jersey); served 5/21/04
14.	Monika Shumbo-Poissant v. Lifecore Biomedical, Inc., et al. (Superior Court of Connecticut); served 7/19/04
15.	Siobhan Sprecace and David Sprecace v. Ethicon, Inc., d/b/a Gynecare Worldwide, Johnson & Johnson, Lifecore Biomedical, Inc. and Vital Pharma, Inc. (Florida); served 8/20/04

     ETHICON is defending Lifecore in the above-listed lawsuits.

14

     Lifecore 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 Lifecore. In addition to the above-listed claim letters, Lifecore 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. Lifecore has not received any response to its letter dated February 19, 2003 disputing her claim. ETHICON has denied Lifecore’s tender of defense of Whitfield’s claim.

Item 4. Submission of Matters to a Vote of Security Holders

     Not Applicable.

15

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     The Company’s Common Stock is traded on the Nasdaq National Market under the symbol LCBM. The following table sets forth for each quarter of fiscal 2004 and 2003 the range of high and low closing sale prices of the Common Stock on the Nasdaq National Market.

Fiscal year	Low		High
2004
First Quarter	$	5.32	$	6.83
Second Quarter		6.01		7.19
Third Quarter		6.17		8.17
Fourth Quarter		5.53		8.20
2003
First Quarter	$	6.02	$	11.20
Second Quarter		5.20		8.83
Third Quarter		3.01		9.25
Fourth Quarter		2.90		5.97

     The Company has not paid cash dividends on its Common Stock and does not plan to pay cash dividends in the near future. The Company expects to retain any future earnings to finance its business. The Company has a loan agreement that restricts its ability to pay dividends. See Note C to Consolidated Financial Statements.

     At August 26, 2004, the Company had 587 shareholders of record.

16

Item 6. Selected Financial Data

SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share amounts)

     The following sets forth selected historical financial data with respect to the Company and its subsidiaries. The data given below as of and for the five years ended June 30, 2004 has been derived from the Company’s Consolidated Financial Statements audited by Grant Thornton LLP, independent registered public accounting firm. Such data should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto included elsewhere herein and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

	Years Ended June 30,
	2004		2003			2002			2001			2000
Statements of Operations Data:
Net sales	$	47,036	$	42,441		$	38,794		$	34,136		$	32,823
Costs of goods sold		20,483		20,379			22,116			18,487			17,618
Gross profit		26,553		22,062			16,678			15,649			15,205
Operating expenses
Research and development		4,519		4,067			4,865			4,704			4,213
Marketing and sales		13,782		12,353			10,774			9,284			7,907
General and administrative		6,372		5,543			5,035			4,633			3,847
Restructuring charges		1,136		—			—			—			—
		25,809		21,963			20,674			18,621			15,967
Operating income (loss)		744		99			(3,996	)		(2,972	)		(762	)
Other income (expense), net		130		(367	)		(684	)		(729	)		(837	)
Income (loss) before income taxes		874		(268	)		(4,680	)		(3,701	)		(1,599	)
Provision for income taxes		167		87			37			—			—
Net income (loss)	$	707	$	(355	)	$	(4,717	)	$	(3,701	)	$	(1,599	)
Net income (loss) per common share
Basic	$	0.05	$	(0.02	)	$	(0.37	)	$	(0.29	)	$	(0.13	)
Diluted	$	0.05	$	(0.02	)	$	(0.37	)	$	(0.29	)	$	(0.13	)
Weighted average common and common equivalent shares outstanding
Basic		12,898		12,882			12,802			12,631			12,489
Diluted		12,958		12,882			12,802			12,631			12,489

	As of June 30,
	2004		2003		2002		2001		2000
Balance Sheet Data:
Working capital	$	21,692	$	18,511	$	17,783	$	14,210	$	15,530
Total assets		60,318		58,352		60,096		62,696		66,108
Long-term obligations, net		5,809		5,969		6,114		6,249		6,477
Shareholders’ equity		48,826		48,394		48,548		52,056		55,421

17

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies

     The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions in certain circumstances that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. Management bases its estimates and judgments on historical experience, observance of trends in the industry, information provided by customers and other outside sources and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition:

     The Company’s revenues are recognized when products are shipped to or otherwise accepted by unaffiliated customers pursuant to customers orders, the price is defined and collection is reasonably assured. The Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition” provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues. The Company has concluded that its revenue recognition policy is appropriate and in accordance with generally accepted accounting principles and SAB No. 101.

Allowance for Uncollectible Accounts Receivable:

     Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. The Company extends credit to customers in the normal course of business, but generally does not require collateral or any other security to support amounts due. Management performs on-going credit evaluations of its customers and bases the estimated allowance on these evaluations.

Inventories:

     Inventories are stated at the lower of cost (first-in, first-out method) or market and have been reduced to the lower of cost or market for obsolete, excess or unmarketable inventory. The lower of cost or market adjustment is based on management’s review of inventories on hand compared to estimated future usage and sales.

Goodwill, Intangible and Other Long-Lived Assets:

     Intangible and certain other long-lived assets with a definite life are amortized over their useful lives. Useful lives are based on management’s estimates of the period that the assets will generate revenue.

     The Company does not amortize goodwill and reviews goodwill for impairment on a regular basis, at least annually.

     Management has reviewed goodwill and other intangibles for impairment and has concluded that such assets are appropriately valued at the financial statement date.

General

     The Company manufactures biomaterials and medical devices for use in various surgical markets and provides related specialized contract aseptic manufacturing services. The Company operates through two business units, the Hyaluronan Division and the Oral Restorative Division.

18

     The Company has a number of relationships with corporate partners relating to the development and marketing of hyaluronan-based products for a variety of medical applications. Currently, the primary commercial application for the Company’s hyaluronan is as a component in ophthalmic surgical products marketed by Alcon for cataract surgery. Sales to Alcon are made under a supply agreement that extends through December 31, 2004. The agreement contains minimum purchase requirements totaling $2.5 million in each of calendar years 2003 and 2004. ETHICON began marketing INTERGEL Solution outside the United States in June 1998. The Company received FDA approval to market INTERGEL Solution in the United States in November 2001, and ETHICON began marketing it in the United States during the first calendar quarter of 2002. INTERGEL Solution was voluntarily withdrawn from the market by ETHICON in March 2003 in order to complete an assessment of information obtained during postmarketing experience with the product, including allegations of adverse events associated with off-label use in non-conservative surgical procedures (such as hysterectomies). The Company is working with ETHICON to complete the post-marketing evaluation and determine the opportunities for returning the product to market.

     The Company’s Oral Restorative Division markets a comprehensive line of titanium-based dental implants for tooth replacement therapy. The Oral Restorative Division also manufactures and markets synthetic bone graft substitute products for the restoration of bone tissue deterioration resulting from periodontal disease and tooth loss. The Oral Restorative Division also markets other products for the regeneration of bone and soft tissue. The Division’s products are marketed in the United States through the Company’s direct sales force; in Italy through the Company’s subsidiary, Lifecore Biomedical SpA, in Germany through the Company’s subsidiary, Lifecore Biomedical GmbH, in Scandinavia through the Company’s subsidiary, Lifecore Biomedical AB, and in other countries through distributors.

Results of Operations

Year ended June 30, 2004 compared with year ended June 30, 2003.

	Hyaluronan					Oral Restorative
	Division					Division				Consolidated
	2004			2003		2004		2003		2004		2003
Net sales	$	15,719,000		$	15,659,000	$	31,317,000	$	26,782,000	$	47,036,000	$	42,441,000
Cost of goods sold		9,183,000			9,762,000		11,300,000		10,617,000		20,483,000		20,379,000
Gross profit		6,536,000			5,897,000		20,017,000		16,165,000		26,553,000		22,062,000
Operating expenses
Research and development		3,467,000			3,165,000		1,052,000		902,000		4,519,000		4,067,000
Marketing and sales		508,000			664,000		13,274,000		11,689,000		13,782,000		12,353,000
General and administrative		2,417,000			2,035,000		3,955,000		3,508,000		6,372,000		5,543,000
Restructuring charges		523,000			—		613,000		—		1,136,000		—
		6,915,000			5,864,000		18,894,000		16,099,000		25,809,000		21,963,000
Operating income (loss)	$	(379,000	)	$	33,000	$	1,123,000	$	66,000	$	744,000	$	99,000

     Net Sales. Net sales increased $4,595,000 or 11% in fiscal 2004 from fiscal 2003. Hyaluronan Division sales increased $60,000 and Oral Restorative Division sales increased $4,535,000 or 17%.

     Hyaluronan Division sales increased to $15,719,000 in fiscal 2004 from $15,659,000 in fiscal 2003 due to increased sales of ophthalmic and veterinary products. Sales of ophthalmic products to a single customer were $7,435,000 in fiscal 2004 compared with $6,725,000 for fiscal 2003. This sales increase was partially offset by a reduction in INTERGEL Solution sales due to ETHICON’s voluntary withdrawal of INTERGEL Solution from the market.

     Oral Restorative Division sales increased to $31,317,000 in fiscal 2004 from $26,782,000 in fiscal 2003. Domestic sales increased 12% due to the continued expansion of our sales representatives, the introduction of the RENOVA Internal Hex Implant System and growth in market acceptance of the STAGE-1 Single Stage Implant System. Sales in the international markets increased by 22% due to sales increases at our subsidiary operations and a favorable impact from currency translations.

19

     Gross profit. Consolidated gross profit, as a percentage of net sales, was 56% in fiscal 2004 and 52% in fiscal 2003. The gross profit for the Hyaluronan Division increased to 42% in fiscal 2004 from 38% in fiscal 2003. The increase in gross profit is due to a favorable product mix and cost savings, partially offset by an increase in unused manufacturing capacity charges associated with decreased hyaluronan production. Gross profit for the Oral Restorative Division increased to 64% in fiscal 2004 from 60% in fiscal 2003 due to sales mix, reduced discounting and lower material costs.

     Research and development. Research and development expenses increased $452,000 or 11% in fiscal 2004 from fiscal 2003. The increase is due to additional consulting and professional fees associated with the market withdrawal of INTERGEL Solution in March 2003.

     Marketing and sales. Marketing and sales expenses increased by $1,429,000 or 12% in fiscal 2004 from fiscal 2003. The increase was due mainly to costs associated with the expansion of the oral restorative’s domestic sales force and international operations.

     General and administrative. General and administrative expenses increased by $829,000 or 15% in fiscal 2004 from fiscal 2003. The increase is principally related to increases in legal, insurance, subsidiary operations and Sarbanes-Oxley compliance costs.

     Restructuring charges. Restructuring charges of $1,136,000 were recorded as part of a 10% workforce reduction. The restructuring charges consisted of $1,072,000 for employee severance costs and $64,000 for professional fees.

     Other income (expense). Net other expense, as shown on the Condensed Consolidated Statements of Operations, decreased $497,000 for the current fiscal year as compared to the last fiscal year. The decrease is due to the $294,000 increase in currency transaction gains realized on Euro denominated intercompany transactions and a reduction of interest expense of $115,000.

Year ended June 30, 2003 compared with year ended June 30, 2002.

	Hyaluronan					Oral Restorative
	Division					Division					Consolidated
	2003		2002			2003		2002			2003		2002
Net sales	$	15,659,000	$	15,244,000		$	26,782,000	$	23,550,000		$	42,441,000	$	38,794,000
Cost of goods sold		9,762,000		12,165,000			10,617,000		9,951,000			20,379,000		22,116,000
Gross profit		5,897,000		3,079,000			16,165,000		13,599,000			22,062,000		16,678,000
Operating expenses
Research and development		3,165,000		3,948,000			902,000		917,000			4,067,000		4,865,000
Marketing and sales		664,000		259,000			11,689,000		10,515,000			12,353,000		10,774,000
General and administrative		2,035,000		1,831,000			3,508,000		3,204,000			5,543,000		5,035,000
		5,864,000		6,038,000			16,099,000		14,636,000			21,963,000		20,674,000
Operating income (loss)	$	33,000	$	(2,959,000	)	$	66,000	$	(1,037,000	)	$	99,000	$	(3,996,000	)

     Net Sales. Net sales increased $3,647,000 or 9% in fiscal 2003 from fiscal 2002. Hyaluronan Division sales increased $415,000 or 3%, and Oral Restorative Division sales increased $3,232,000 or 14%.

     Hyaluronan Division sales increased to $15,659,000 in fiscal 2003 from $15,244,000 in fiscal 2002 due to increased sales of ophthalmic and orthopedic products. Sales of ophthalmic products to a single customer were $6,725,000 in fiscal 2003 compared with $5,359,000 for fiscal 2002. This sales increase was partially offset by a reduction in INTERGEL Solution sales due to ETHICON’s voluntary withdrawal of INTERGEL Solution from the market.

20

     Oral Restorative Division sales increased to $26,782,000 in fiscal 2003 from $23,550,000 in fiscal 2002. Domestic sales increased 4% due to continued growth in market acceptance of the STAGE-1 Single Stage Implant System and the RBM coated implant lines. Sales in the international markets increased by 27% due to sales increases at our subsidiary operations and a favorable impact from currency translations.

     Gross profit. Consolidated gross profit, as a percentage of net sales, was 52% in fiscal 2003 and 43% in fiscal 2002. The gross profit for the Hyaluronan Division increased to 38% in fiscal 2003 from 20% in fiscal 2002. The increase in gross profit is due to absorption of unused manufacturing capacity charges associated with increased hyaluronan production and product mix. Gross profit for the Oral Restorative Division increased to 60% in fiscal 2003 from 58% in fiscal 2002 due to sales mix and reduced material costs.

     Research and development. Research and development expenses decreased $798,000 or 16% in fiscal 2003 from fiscal 2002. The decrease is due to the decline in consulting and professional fees related to the regulatory review process of INTERGEL Solution which received FDA approval in fiscal 2002.

     Marketing and sales. Marketing and sales expenses increased by $1,579,000 or 15% in fiscal 2003 from fiscal 2002. The increase was due mainly to costs associated with the international expansion of the oral restorative business.

     General and administrative. General and administrative expenses increased by $508,000 or 10% in fiscal 2003 from fiscal 2002. The increase is principally related to costs associated with subsidiary operations and higher legal expenses in the 2003 fiscal year as compared to the 2002 fiscal year.

     Other income (expense). Net other expense decreased $267,000 for the 2003 fiscal year as compared to the 2002 fiscal year. The decrease is primarily due to the $291,000 increase in other income from currency gains realized on Euro-denominated intercompany transactions.

Liquidity and Capital Resources

     Inventories consist mainly of finished hyaluronan powder and oral restorative products and related raw materials. The portion of finished hyaluronan inventory that is not expected to be consumed within the next twelve months is classified as long-term inventory. The finished hyaluronan inventory is maintained in a frozen state and has a shelf life of ten years. Total inventory decreased by $985,000 and $759,000 in fiscal 2004 and 2003, respectively, as the Company decreased production of hyaluronan powder.

     The Company had positive cash flow from operations in fiscal 2004, 2003 and 2002. Charges for unused manufacturing capacity associated with the Company’s hyaluronan production, additional costs associated with the withdrawal of INTERGEL Solution from the market, and restructuring charges have negatively impacted operating results in the current fiscal year. Also, marketing and sales expenses for the oral restorative products are expected to continue at a high level due to continued international expansion and increased personnel costs. Prior to the current fiscal year, charges for unused capacity were due to an unanticipated delay in receiving INTERGEL Solution marketing approval in the United States from the FDA.

     In October 2001, the Company issued an aggregate of 21,647 shares of common stock to Lancet as the final payment under a consulting agreement. The number of shares issued to Lancet was determined using a formula based on the quoted market value of the common stock as determined on the Nasdaq National Market. Under the terms of the agreement, Lancet exercised the right to have the shares registered for sale. A Registration Statement on Form S-3 was filed and declared effective by the Securities and Exchange Commission in November 2001.

     The loan agreement between the Company and the holder of the industrial development revenue bonds issued to finance the Company’s Chaska, Minnesota facility was amended in June 2004 to waive the fixed charge coverage ratio and the cash flow coverage ratio through June 30, 2005. On July 27, 2004, the Company gave notice to the bond trustee of its intention to redeem the bonds on September 1, 2004. The Company repaid the existing bonds with the proceeds of a new issuance of industrial revenue bonds which closed on August 19, 2004. The aggregate principal amount of the new bonds is $5,630,000 and the bonds will bear interest at a variable rate set weekly by the bond Remarketing Agent (1.28% on date of closing). In addition, the Company will pay an annual remarketing fee equal to .125% and an annual letter of credit fee of 1.0%.

21

     The Company has a $5,000,000 credit facility with a bank which has a maturity date of December 31, 2005. The agreement allows for advances against eligible accounts receivable and inventories, subject to a borrowing base certificate. Interest is accrued at the prime rate at June 30, 2004 and 2003, which was 4.0% and 4.25%, respectively. At June 30, 2004 and 2003, there were no balances outstanding under the line of credit. The terms of the agreement require the Company to comply with various financial covenants including minimum tangible net worth, liabilities to tangible net worth ratio and net income (loss). At June 30, 2004 and 2003, the Company was in compliance with all covenants.

     The Company’s ability to generate positive cash flow from operations and achieve ongoing profitability is dependent upon the continued expansion of revenue from its hyaluronan and oral restorative businesses. Growth in the Hyaluronan Division is unpredictable due to the uncertainty associated with the future market status of INTERGEL Solution, the complex governmental regulatory environment for new medical products and the early stage of certain of these markets. Similarly, expansion of the Company’s Oral Restorative Division sales is also dependent upon increased revenue from new and existing customers, as well as successfully competing in a more mature market. The Company expects its cash generated from anticipated operations and the availability under the line of credit to satisfy cash flow needs in the near term. No assurance can be given that the Company will maintain positive cash flow from operations. While the Company’s capital resources appear adequate today, the Company may seek additional financing in the future. If additional financing is necessary, no assurance can be given that such financing will be available and, if available, will be on terms favorable to the Company and its shareholders.

Contractual Obligations

     The Company’s “off-balance sheet” financing activities consist of operating leases for office equipment. See the amount of contractual obligations for operating leases in the table below. The effect of these operating leases is not material.

     Payments due by period for our contractual obligations at June 30, 2004 are as follows:

	Payments due by period
			Less than 1
	Total		Year		1 to 3 Years		4 to 5 Years		Thereafter
Long-term debt	$	5,986,000	$	177,000	$	375,000	$	460,000	$	4,974,000
Operating leases		427,000		169,000		193,000		65,000		—
Purchase obligations		3,150,000		3,150,000		—		—		—
Total	$	9,563,000	$	3,496,000	$	568,000	$	525,000	$	4,974,000

     Subsequent to the end of the year, on August 19, 2004, the Company issued variable rate industrial revenue bonds. The proceeds from these bonds were used to retire the existing 10.25% fixed rate industrial revenue bonds on September 1, 2004. The new bond obligation is $5,630,000 and the variable interest rate at the date of issuance was 1.28%. The five year scheduled maturity of this new issuance beginning 2005 and ending in 2009 is: $280,000, $285,000, $290,000, $305,000, $315,000; and $4,155,000 thereafter.

Cautionary Statement

     Statements included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Form 10-K, in the Letter to Shareholders contained in the Annual Report to Shareholders, in future filings by the Company with the Securities and Exchange Commission and in the Company’s press releases and oral statements made with the approval of authorized executive officers, if the statements are not historical or current facts, should be considered “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to market acceptance and demand for the Company’s products, future product development plans and timing, the results of clinical trials, FDA clearances and the related timing of such, the potential size of the markets for the Company’s products, future product introductions, future revenues, expense levels and capital needs and the Company’s ability to successfully negotiate acceptable agreements with its corporate partners. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The following important factors, among others, in some cases have affected and in the future could affect the Company’s actual results and could cause its actual financial performance to differ materially from that expressed in any forward-looking statement: (i) the uncertainty associated with the future market status of INTERGEL

22

Solution; (ii) obtaining the necessary regulatory approvals for new hyaluronan and oral restorative products; (iii) the Company’s reliance on corporate partners to develop new products on a timely basis and to market the Company’s existing and new hyaluronan products effectively; (iv) intense competition in the markets for the Company’s principal products and (v) other factors discussed in the risk factors filed as Exhibit 99.1 to this Form 10-K. The foregoing list should not be construed as exhaustive, and the Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

     The Company invests its excess cash in money market mutual funds and highly rated short-term corporate debt securities. All investments are held to maturity. The market risk on such investments is minimal.

     Receivables from sales to foreign customers are denominated in U.S. dollars. Transactions at the Company’s foreign subsidiaries are denominated in European Euros at Lifecore Biomedical SpA and Lifecore Biomedical GmbH and are denominated in Swedish Krona at Lifecore Biomedical AB. The Company is exposed to foreign currency exchange rate risk arising from transactions in the normal course of business from sales to its foreign subsidiaries. Because the Company’s products are manufactured or sourced primarily from the United States, a stronger U.S. dollar generally has a negative impact on results from operations outside the United States while a weaker dollar generally has a positive effect. The Company does not use derivative financial instruments to manage foreign currency fluctuation risk.

     At June 30, 2004, the Company’s outstanding long-term debt carries interest at a fixed rate. As a result, there is no material market risk. However, the Company will repay the existing bonds with the proceeds of a new issuance of industrial revenue bonds on September 1, 2004. The aggregate principal amount of the new bonds is $5,630,000, and the new bonds will bear interest at a variable rate set weekly by the bond Remarketing Agent. The effective rate on August 19, 2004 was 1.28%. A ten percent change in this variable rate would be approximately $10,000 annually.

23

Item 8. Financial Statements and Supplementary Data

     The consolidated financial statements and schedule are listed under Item 15 of this report. Summarized unaudited quarterly financial data for 2004 and 2003 is as follows:

	Quarter
	First			Second		Third			Fourth
Year ended June 30, 2004
Net sales	$	9,947,000		$	11,558,000	$	12,537,000		$	12,994,000
Gross profit		5,178,000			6,695,000		6,952,000			7,728,000
Net income (loss)		(843,000	)		597,000		(49,000	)		1,002,000
Net income (loss) per share
Basic and diluted	$	(0.07	)	$	0.05	$	(0.00	)	$	0.08
Weighted average common and common equivalent shares outstanding
Basic		12,889,113			12,891,083		12,898,331			12,912,589
Diluted		12,889,113			12,938,352		12,898,331			12,971,547
Year ended June 30, 2003
Net sales	$	8,972,000		$	10,262,000	$	11,833,000		$	11,374,000
Gross profit		4,063,000			6,097,000		6,420,000			5,482,000
Net income (loss)		(1,046,000	)		312,000		947,000			(568,000	)
Net income (loss) per share
Basic and diluted	$	(0.08	)	$	0.02	$	0.07		$	(0.04	)
Weighted average common and common equivalent shares outstanding
Basic		12,874,628			12,882,313		12,885,206			12,885,417
Diluted		12,874,628			12,949,904		12,962,378			12,885,417

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     None.

Item 9A. Controls and Procedures

     Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are adequately designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in applicable rules and forms.

     During the Company’s most recent fiscal quarter, there has been no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

     None.

24

PART III

Item 10. Directors and Executive Officers of the Registrant

     Information concerning director nominees is set forth in the sections entitled “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s Proxy Statement for its 2004 Annual Meeting of Shareholders to be held November 11, 2004, which is incorporated herein by reference. See also “Executive Officers of the Registrant” in Item 1 above.

Code of Business Conduct and Ethics

     The Company has adopted a Code of Business Conduct and Ethics (the “Code”) that applies to all officers, directors and employees. The Code and the charters of the Audit and Governance and Nominating committees are posted on the Company’s website at www.Lifecore.com. The Company intends to post any amendments to or waivers from the Code on its website.

Item 11. Executive Compensation

     A description of our executive officers’ compensation is set forth in the sections titled “Executive Compensation”, “Option Grants”, “Option Exercises and Option Values” and “Executive Agreements” of the Company’s Proxy Statement for its 2004 Annual Meeting of Shareholders, which is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     Security ownership of certain owners and management is set forth in the section entitled “Security Ownership of Certain Beneficial Owners and Management” in the Company’s Proxy Statement for its 2004 Annual Meeting of Shareholders, which is incorporated herein by reference.

Securities authorized for issuance under equity compensation plans

     The following table provides information on equity compensation plans under which equity securities of the Company are authorized for issuance, as of June 30, 2004:

						Number of
						securities
						remaining available
	Number of					for future issuance
	securities to be					under equity
	issued upon			Weighted-average		compensation plans
	exercise of			exercise price of		(excluding
	outstanding			outstanding		securities
	options, warrants			options, warrants		reflected in column
	and rights			and rights		(a))
Plan Category	(a)			(b)		(c)
Equity compensation plans approved by security holders:		2,751,640	(1)	$	11,28		1,448,381	(2)
Equity compensation plans not approved by security holders:		—			—		—
Total		2,751,640		$	11,28		1,448,381

(1) Includes the Company’s 1990 Stock Plan and 1996 Stock Plan.

(2) The Company has not granted shares of restricted stock under the 1996 Stock Plan or any shares under the 2003 Stock Plan.

25

Item 13. Certain Relationships and Related Transactions

     None.

Item 14. Principal Accountant Fees and Services.

     A description of the fees paid to our independent registered public accounting firm is set forth in the section titled “Independent Registered Public Accountants” of the Company’s Proxy Statement for its 2004 Annual Meeting of Shareholders and is incorporated herein by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules

     (a) Documents filed as part of the report

1. Consolidated Financial Statements

	Form 10-K
	Page Reference
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets - June 30, 2004 and 2003	F-2 and F-3
Consolidated Statements of Operations - years ended June 30, 2004, 2003 and 2002	F-4
Consolidated Statements of Shareholders’ Equity - years ended June 30, 2004, 2003 and 2002	F-5
Consolidated Statements of Cash Flows - years ended June 30, 2004, 2003 and 2002	F-6
Notes to Consolidated Financial Statements	F-7 through F-19

2. Consolidated Financial Statement Schedule

Schedule II - Valuation and Qualifying Accounts S-1

3. Exhibits and Exhibit Index

	Description
2.1	Stock Purchase Agreement between ISS and Lifecore dated July 28, 1993 (includes $2 million 5% Promissory Note dated July 28, 1993 as Exhibit A and Security Agreement as Exhibit B) (Pursuant to Rule 24b-2, certain portions of this Exhibit have been deleted and filed separately with the Commission) (incorporated by reference to Exhibit 2.1 to Form 8-K dated July 8, 1993)
3.1	Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 19(a) to Amendment No. 1 on Form 8, dated July 13, 1988, to Form 10-Q for the quarter ended December 31, 1987), as amended by Amendment No. 2 (incorporated by reference to Exhibit 3.1 to Form 10-K for the year ended June 30, 1997)
3.2	Amended Bylaws, (incorporated by reference to Exhibit 3.2 to Form 10-K/A for the year ended June 30, 1995)

26

	Description
3.3	Form of Rights Agreement, dated as of May 23, 1996, between the Company and Norwest Bank Minnesota, National Association (incorporated by reference to Exhibit 1 to the Company’s Form 8-A Registration Statement dated May 31, 1996)
4.1	Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to 1987 S-2 Registration Statement [File No. 33-12970])
4.2	Indenture of Trust, dated as of August 1, 2004, between City of Chaska, Minnesota and Wells Fargo Bank, National Association
10.1	Hyaluronan Purchase Agreement dated March 28, 1990 between the Company and Alcon (incorporated by reference to Exhibit 10 to Form 8-K dated April 10, 1990, as amended on Form 8 dated May 23, 1990) as amended on July 17, 1992, (Certain information has been deleted from this exhibit and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2) (incorporated by reference to Exhibit 10.5 to Form 10-K for the year ended June 30, 1992)
10.2	Form of Indemnification Agreement entered into between the Company and directors and officers (incorporated by reference to Exhibit 10.7 to Form 10-K for the year ended June 30, 1995)
10.3*	1990 Stock Plan (incorporated by reference to Exhibit 4(a) to S-8 Registration Statement [File No. 33-38914]) as amended by Amendment No. 1 (incorporated by reference to Exhibit 10.13 to Form 10-K for the year ended June 30, 1994), as amended by Amendment No. 2 (incorporated by reference to Exhibit 10.11 to Form 10-K for the year ended June 30, 1997)
10.4	Conveyance, License, Development and Supply Agreement dated August 8, 1994 between Lifecore Biomedical, Inc. and ETHICON, INC. (pursuant to Rule 24b-2, certain portions of this Exhibit have been omitted and filed separately with the Commission) (incorporated by reference to Exhibit 10.14 to Form 10-K for the year ended June 30, 1994)
10.5*	1996 Stock Option Plan (incorporated by reference to Exhibit 4.1 to S-8 Registration Statement [File No. 333-18515])
10.6*	2003 Stock Incentive Plan
10.7	Revolving Credit and Security Agreement dated December 18, 2002 between M & I Marshall & Ilsley Bank and the Company, (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended December 31, 2002)
10.8	Amendment No. 1 to Revolving Credit and Security Agreement dated June 27, 2003 between M & I Marshall & Ilsley Bank and the Company, (incorporated by reference to Exhibit 10.21 to Form 10-K for the year ended June 30, 2003)
10.9	Loan Agreement, dated as of August 1, 2004, between City of Chaska, Minnesota and the Company
10.10	Remarketing Agreement, dated as of August 1, 2004, between the Company and Northland Securities, Inc.
10.11	Tax Exemption Agreement, dated as of August 1, 2004, between City of Chaska, Minnesota, the Company and Wells Fargo Bank, National Association
10.12	Irrevocable Letter of Credit, dated as of August 19, 2004, from M&I Marshall & Ilsley Bank to Wells Fargo Bank, National Association
10.13	Reimbursement Agreement, dated as of August 1, 2004, between the Company and M&I Marshall & Ilsley Bank
10.14	Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement, dated as of August 1, 2004, from the Company to M&I Marshall & Ilsley Bank

27

	Description
10.15	Security Agreement, dated as of August 1, 2004, from the Company to M&I Marshall & Ilsley Bank
10.16	Pledge and Security Agreement, dated as of August 1, 2004, between the Company, M&I Marshall & Ilsley Bank and Wells Fargo Bank, National Association
10.17	Bond Purchase Agreement, dated as of August 19, 2004, by and between City of Chaska, Minnesota, the Company and Northland Securities, Inc.
23.1	Consent of Grant Thornton LLP
31.1	Certification of Dennis J. Allingham pursuant to Exchange Act Rules 13a – 14(a) and 15d – 14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of David M. Noel pursuant to Exchange Act Rules 13a – 14(a) and 15d – 14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Dennis J. Allingham pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of David M. Noel pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
99.1	Risk Factors
*	Denotes management contract or compensatory plan, contract or arrangement.

     (b) Reports on Form 8-K

     The Company filed the following Current Reports on Form 8-K on the dates and for the purposes indicated:

April 13, 2004	Press release announcing results for the third quarter of fiscal year 2004.
June 14, 2004	Press release announcing the introduction of the RENOVA™ Internal Hex Dental Implant System.

28

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	LIFECORE BIOMEDICAL, INC.
Dated: September 13, 2004		/s/ DENNIS J. ALLINGHAM
		Dennis J. Allingham
		President, Chief Executive Officer
		and Secretary

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in capacities and on the dates indicated.

Dated: September 13, 2004	/s/ DAVID M. NOEL
	David M. Noel
	Vice President of Finance and Chief Financial Officer (principal financial and accounting officer)
Dated: September 13, 2004	/s/ DENNIS J. ALLINGHAM
	Dennis J. Allingham
	President, Chief Executive Officer, Secretary and Director (principal executive officer)
Dated: September 13, 2004	/s/ ORWIN L. CARTER
	Orwin L. Carter
	Director
Dated: September 13, 2004	/s/ JOAN L. GARDNER
	Joan L. Gardner
	Director
Dated: September 13, 2004	/s/ THOMAS H. GARRETT
	Thomas H. Garrett
	Director
Dated: September 13, 2004	/s/ JOHN C. HEINMILLER
	John C. Heinmiller
	Director
Dated: September 13, 2004	/s/ RICHARD W. PERKINS
	Richard W. Perkins
	Director
Dated: September 13, 2004	/s/ JOHN E. RUNNELLS
	John E. Runnells
	Director

29

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors
Lifecore Biomedical, Inc.

     We have audited the accompanying consolidated balance sheets of Lifecore Biomedical, Inc. and Subsidiaries as of June 30, 2004 and 2003, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended June 30, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lifecore Biomedical, Inc. and Subsidiaries as of June 30, 2004 and 2003, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended June 30, 2004, in conformity with accounting principles generally accepted in the United States of America.

     We have also audited Schedule II of Lifecore Biomedical, Inc. and Subsidiaries for each of the three years in the period ended June 30, 2004. In our opinion, this schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be set forth therein.

/s/ GRANT THORNTON LLP

Minneapolis, Minnesota

July 29, 2004 (except for the last paragraph of Note C, as to which the date is September 1, 2004)

F-1

Lifecore Biomedical, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

June 30,

ASSETS

	2004			2003
CURRENT ASSETS
Cash and cash equivalents	$	8,553,000		$	4,211,000
Accounts receivable, less allowances		8,626,000			7,795,000
Inventories		9,491,000			9,728,000
Prepaid expenses		705,000			766,000
Total current assets		27,375,000			22,500,000
PROPERTY, PLANT AND EQUIPMENT — AT COST
Land		249,000			249,000
Building		23,970,000			23,960,000
Equipment		17,672,000			17,024,000
Land and building improvements		3,507,000			3,499,000
		45,398,000			44,732,000
Less accumulated depreciation		(22,200,000	)		(19,820,000	)
		23,198,000			24,912,000
OTHER ASSETS
Intangibles		4,513,000			4,643,000
Security deposits		837,000			843,000
Inventories		3,891,000			4,639,000
Other		504,000			815,000
		9,745,000			10,940,000
	$	60,318,000		$	58,352,000

F-2

Lifecore Biomedical, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS — (continued)

June 30,

LIABILITIES AND SHAREHOLDERS’ EQUITY

	2004			2003
CURRENT LIABILITIES
Current maturities of long-term obligations	$	177,000		$	156,000
Accounts payable		2,467,000			1,880,000
Accrued compensation		1,362,000			1,113,000
Accrued expenses		1,677,000			840,000
Total current liabilities		5,683,000			3,989,000
LONG-TERM OBLIGATIONS		5,809,000			5,969,000
COMMITMENTS AND CONTINGENCIES		—			—
SHAREHOLDERS’ EQUITY
Preferred stock – authorized, 25,000,000 shares of $1.00 stated value; none issued		—			—
Preferred stock, Series A Junior Participating — authorized, 500,000 shares of $1.00 par value; none issued		—			—
Common stock – authorized, 50,000,000 shares of $.01 stated value; issued and outstanding, 12,931,758 and 12,885,417 shares at June 30, 2004 and 2003		129,000			129,000
Accumulated currency translation adjustment		(422,000	)		87,000
Additional paid-in capital		89,116,000			88,882,000
Accumulated deficit		(39,997,000	)		(40,704,000	)
		48,826,000			48,394,000
	$	60,318,000		$	58,352,000

The accompanying notes are an integral part of these statements.

F-3

Lifecore Biomedical, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended June 30,

	2004			2003			2002
Net sales	$	47,036,000		$	42,441,000		$	38,794,000
Cost of goods sold		20,483,000			20,379,000			22,116,000
Gross profit		26,553,000			22,062,000			16,678,000
Operating expenses
Research and development		4,519,000			4,067,000			4,865,000
Marketing and sales		13,782,000			12,353,000			10,774,000
General and administrative		6,372,000			5,543,000			5,035,000
Restructuring charges		1,136,000			–			–
		25,809,000			21,963,000			20,674,000
Operating income (loss)		744,000			99,000			(3,996,000	)
Other income (expense)
Interest income		52,000			49,000			72,000
Interest expense		(642,000	)		(757,000	)		(743,000	)
Currency transaction gains (losses)		650,000			356,000			(19,000	)
Other, net		70,000			(15,000	)		6,000
		130,000			(367,000	)		(684,000	)
Income (loss) before income taxes		874,000			(268,000	)		(4,680,000	)
Provision for income taxes		167,000			87,000			37,000
Net income (loss)	$	707,000		$	(355,000	)	$	(4,717,000	)
Net income (loss) per common share
Basic	$	0.05		$	(0.03	)	$	(0.37	)
Diluted	$	0.05		$	(0.03	)	$	(0.37	)
Weighted average common and common equivalent shares outstanding
Basic		12,897,737			12,881,863			12,802,354
Diluted		12,957,726			12,881,863			12,802,354

The accompanying notes are an integral part of these statements.

F-4

Lifecore Biomedical, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

	Common Stock				Accumulated			Additional
	Shares				Currency Translation			Paid-In		Accumulated
	Issued		Amount		Adjustment			Capital		Deficit
Balances at June 30, 2001		12,679,127	$	127,000	$	—		$	87,561,000	$	(35,632,000	)
Exercise of stock options and employee stock purchase savings plan		97,371		1,000		—			653,000		—
Issuance of common stock as payment for services		21,647		—		—			208,000		—
Issuance of common stock as payment for subsidary purchase		69,597		1,000		—			346,000		—
Net loss		—		—		—			—		(4,717,000	)
Balances at June 30, 2002		12,867,742		129,000		—			88,768,000		(40,349,000	)
Exercise of stock options and stock awards		17,675		—		—			114,000		—
Addition to accumulated currency translation adjustment		—		—		87,000			—		—
Net loss		—		—		—			—		(355,000	)
Balances at June 30, 2003		12,885,417		129,000		87,000			88,882,000		(40,704,000	)
Exercise of stock options and stock awards		46,341		—		—			234,000		—
Addition to accumulated currency translation adjustment		—		—		(509,000	)		—		—
Net income		—		—		—			—		707,000
Balances at June 30, 2004		12,931,758	$	129,000	$	(422,000	)	$	89,116,000	$	(39,997,000	)

The accompanying notes are an integral part of these statements.

F-5

Lifecore Biomedical, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30,

	2004			2003			2002
Cash flows from operating activities:
Net income (loss)	$	707,000		$	(355,000	)	$	(4,717,000	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		2,520,000			2,844,000			2,940,000
Allowance for doubtful accounts		(7,000	)		89,000			187,000
Accumulated currency translation adjustment		(509,000	)		87,000			—
Changes in operating assets and liabilities
Accounts receivable		(823,000	)		(2,000	)		(1,146,000	)
Inventories		985,000			759,000			2,935,000
Prepaid expenses		61,000			231,000			(322,000	)
Accounts payable		587,000			(1,620,000	)		443,000
Accrued liabilities		1,086,000			158,000			688,000
Net cash provided by operating activities		4,607,000			2,191,000			1,008,000
Cash flows from investing activities:
Purchases of property, plant and equipment		(666,000	)		(744,000	)		(961,000	)
Purchases of intangibles		—			—			(60,000	)
Decrease in security deposits		6,000			2,000			9,000
Decrease (increase) in other assets		300,000			248,000			(209,000	)
Net cash used in investing activities		(360,000	)		(494,000	)		(1,221,000	)
Cash flows from financing activities:
Payments on long-term obligations		(139,000	)		(128,000	)		(223,000	)
Proceeds from stock options exercised		234,000			114,000			654,000
Net cash provided by (used in) financing activities		95,000			(14,000	)		431,000
Net increase in cash and cash equivalents		4,342,000			1,683,000			218,000
Cash and cash equivalents at beginning of year		4,211,000			2,528,000			2,310,000
Cash and cash equivalents at end of year	$	8,553,000		$	4,211,000		$	2,528,000
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest	$	645,000		$	713,000		$	763,000
Taxes		87,000			61,000			37,000

The accompanying notes are an integral part of these statements.

F-6

Lifecore Biomedical, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Lifecore Biomedical, Inc. (the “Company”) manufactures biomaterials and surgical devices for use in various surgical markets and provides specialized contract aseptic manufacturing services through its two divisions, the Hyaluronan Division and the Oral Restorative Division. The Company’s manufacturing facility is located in Chaska, Minnesota. The Hyaluronan Division markets its products through original equipment manufacturers and contract manufacturing alliances in gynecologic, ophthalmologic and orthopedic surgery and veterinary medicine. The Oral Restorative Division markets its products through direct sales in the United States, Italy, Germany and Sweden and through distributors in other foreign countries.

     In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting periods. Actual results could differ from those estimates.

     A summary of significant accounting policies consistently applied in the preparation of the financial statements follows:

1. Consolidation

     The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

2. Cash and Cash Equivalents

     The Company considers all highly liquid temporary investments with original maturities of three months or less to be cash equivalents. At June 30, 2004 and 2003, substantially all of the Company’s cash and cash equivalents were invested in a money market fund.

3. Accounts Receivable

     The Company extends credit to customers in the normal course of business, but generally does not require collateral or any other security to support amounts due. Management performs on-going credit evaluations of its customers. The Company’s customers are located primarily throughout the United States, Asia, Europe and South America. Accounts receivable balances from customers located in Asia, Europe and South America were 16%, 31% and 8% of total receivables, respectively, at June 30, 2004 and 12%, 35% and 9% of total receivables, respectively, at June 30, 2003. The Company maintains allowances for potential credit losses, which were $407,000 and $414,000 at June 30, 2004 and 2003, respectively.

F-7

Lifecore Biomedical, Inc. and Subsidiaries

NOTE TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

4. Inventories

     Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories consist mainly of finished hyaluronan powder, aseptic units and oral restorative products and related raw materials. The Company’s inventory has been reduced to lower of cost or market for obsolete, excess or unmarketable inventory. The lower of cost or market adjustment is based on management’s review of inventories on hand compared to estimated future usage and sales. The portion of finished hyaluronan powder inventory not expected to be consumed within the next 12 months is classified as a long-term asset. The finished hyaluronan inventory is maintained in a frozen state and has a shelf life of ten years. Inventories consist of the following:

	As of June 30,
	2004		2003
Raw materials	$	2,756,000	$	2,756,000
Work-in-process		416,000		344,000
Finished goods		10,210,000		11,267,000
	$	13,382,000	$	14,367,000

5. Depreciation

     Depreciation is provided in amounts sufficient to charge the cost of depreciable assets to operations over their estimated service lives principally on a straight-line method for financial reporting purposes and on straight-line and accelerated methods for income tax reporting purposes. Depreciation expense was approximately $2,379,000, $2,627,000 and $2,603,000 for the years ended June 30, 2004, 2003 and 2002, respectively. Lives used in straight-line depreciation for financial reporting purposes are as follows:

	Number of
	years
Building		18-25
Equipment		3-15
Land and building improvements		18

6. Intangibles

     Intangibles consist primarily of the cost of technology and regulatory rights, the goodwill related to acquisitions and the cost of acquiring a customer list. All intangibles relate to the oral restorative segment.

     Included within intangibles are costs incurred to register patents and trademarks, which are capitalized as incurred. Amortization of these costs commences when the related patent or trademark is granted. The costs are amortized over the estimated useful life of the patent or trademark, not to exceed 17 years.

F-8

Lifecore Biomedical, Inc. and Subsidiaries

NOTE TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

     Effective July 1, 2001, the Company adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” Under the provisions of SFAS No. 142 the Company ceased amortization of goodwill and technology and regulatory rights effective July 1, 2001, while the customer list continued to be amortized on the straight-line method over 5 years and was fully amortized as of June 30, 2004. On an ongoing basis the Company reviews the valuation of intangibles to determine possible impairment by comparing the carrying value to projected undiscounted future cash flows of the related assets. As a result, an impairment loss of $40,000 and $160,000 was recorded in general and administrative expenses in fiscal 2003 and 2002, respectively. There was no impairment recorded in fiscal 2004.

     Intangibles consisted of the following at June 30:

	2004			2003
Goodwill	$	8,245,000		$	8,245,000
Customer list		725,000			725,000
Patents		387,000			387,000
Less accumulated amortization		(4,844,000	)		(4,714,000	)
	$	4,513,000		$	4,643,000

7. Other Assets

     Other assets consist of the following at June 30:

	2004			2003
Website development costs	$	802,000		$	802,000
Financing costs		317,000			307,000
Distribution rights and licenses		150,000			150,000
Other		38,000			69,000
Less accumulated amortization		(803,000	)		(513,000	)
	$	504,000		$	815,000

     Amortization of these costs commences when the related asset is placed in service. The costs are amortized over the estimated useful life of the asset ranging from 3 to 20 years.

8. Revenue Recognition

     The Company recognizes revenue when product is shipped, or otherwise accepted by the customer, pursuant to customers orders, the price is fixed and collection is reasonably assured.

9. Income taxes

     Deferred income taxes are provided on the liability method whereby deferred tax assets and deferred tax liabilities are recognized for the effects of taxable temporary differences. Temporary differences are the differences between reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

F-9

Lifecore Biomedical, Inc. and Subsidiaries

NOTE TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

10. Net Income (Loss) Per Common Share

     The Company’s basic net income (loss) per share amounts have been computed by dividing net income (loss) by the weighted average number of outstanding common shares. The Company’s diluted net income (loss) per share is computed by dividing net loss by the weighted average number of outstanding common shares and common share equivalents relating to stock options, when dilutive. For the fiscal year ended June 30, 2004, 59,989 shares of common stock equivalents were included in the computation of diluted net income per share. For the fiscal years ended June 30, 2003 and 2002, the common share equivalents that would have been included in the computation of diluted net income per share were 62,539 and 308,513, respectively, had net income been achieved.

     Options to purchase 2,334,340, 2,620,145 and 1,532,793 shares of common stock with a weighted average exercise price of $12.26, $12.37 and $15.52 were outstanding at June 30, 2004, 2003, and 2002, respectively, but were excluded from the computation of common share equivalents because their exercise prices were greater than the average market price of the common shares.

11. Stock Based Compensation

     The Company accounts for stock-based compensation using the intrinsic value method, whereby the options are granted at market price, and therefore no compensation costs are recognized. If compensation expense for the Company’s various stock option plans had been determined based upon the projected fair values at the grant dates for awards under those plans, the Company’s pro-forma net income (loss), and basic and diluted income (loss) per common share would have been as follows:

	2004			2003			2002
Net income (loss), as reported	$	707,000		$	(355,000	)	$	(4,717,000	)
Deduct: Total stock-based employee compensation expense determined under fair value method for awards, net of related tax effects (no tax effect in 2004, 2003 and 2002)		(1,978,000	)		(1,841,000	)		(2,768,000	)
Pro forma net loss	$	(1,271,000	)	$	(2,196,000	)	$	(7,485,000	)
Net income (loss) per common equivalent share:
Basic — as reported	$	0.05		$	(0.03	)	$	(0.37	)
Diluted — as reported	$	0.05		$	(0.03	)	$	(0.37	)
Basic — pro-forma	$	(0.10	)	$	(0.17	)	$	(0.58	)
Diluted — pro-forma	$	(0.10	)	$	(0.17	)	$	(0.58	)

F-10

Lifecore Biomedical, Inc. and Subsidiaries

NOTE TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

     The weighted average fair value of options granted in 2004, 2003 and 2002 was $6.48, $7.62 and $7.66 per share, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2004, 2003, and 2002, respectively: no dividend yield; risk-free rate of return of 3.8%, 6%, 6%; volatility of 81.59%, 86.57% and 89.4%; and an average term of 6.15, 6.0, 6.0 years. These effects may not be representative of the future effects of applying the fair value method.

NOTE B – LINE OF CREDIT

     The Company has a $5,000,000 credit facility with a bank which has a maturity date of December 31, 2005. The agreement allows for advances against eligible accounts receivable and inventories, subject to a borrowing base certificate. Interest is accrued at the prime rate, which was 4.00% and 4.25% at June 30, 2004 and 2003, respectively. At June 30, 2004 and 2003, there were no balances outstanding under the line of credit. The terms of the agreement require the Company to comply with various financial covenants including minimum tangible net worth, liabilities to tangible net worth ratio and net income (loss). At June 30, 2004 and 2003, the Company was in compliance with all covenants.

NOTE C — LONG-TERM OBLIGATIONS

     Long-term obligations consist of the following:

	As of June 30,
	2004			2003
Industrial development revenue bonds	$	5,986,000		$	6,125,000
Less current maturities		(177,000	)		(156,000	)
	$	5,809,000		$	5,969,000

Industrial Development Revenue Bonds

     In 1990, the Company completed a $7,000,000 transaction to finance its manufacturing and administrative facility through the issuance of 30-year industrial development revenue bonds by the municipality where the facility is located. The bonds are collateralized by a first mortgage on the facility and bear interest at 10.25%. The Company is required to make debt service payments on the bonds of approximately $775,000 per year through 2021. The payments are required to be made monthly to a sinking fund. At June 30, 2004 and 2003, the Company had approximately $700,000 on deposit with the bond trustee to cover the reserve fund requirement.

F-11

Lifecore Biomedical, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

NOTE C — LONG-TERM OBLIGATIONS — (continued)

     The Company has the right to redeem the bonds upon the payment of the outstanding principal balance plus accrued interest and a premium. The premium is 2% of the principal amount during the year commencing September 1, 2004 and declines during subsequent years.

     The terms of the loan agreement require the Company to comply with various financial covenants including minimum current ratio, fixed charges coverage and cash flow coverage requirements and maximum debt to net worth limitation. The fixed charges coverage and cash flow coverage requirements have been waived by the bondholder through fiscal 2005. The debt to net worth ratio covenant has the effect of restricting the payment of cash dividends or repurchases of common stock.

     The aggregate minimum annual principal payments of long-term obligations for the years ending June 30 are as follows:

2005	$	177,000
2006		180,000
2007		195,000
2008		220,000
2009		240,000
Thereafter		4,974,000
	$	5,986,000

     Subsequent to the end of the year, on August 19, 2004, the Company issued variable rate industrial revenue bonds. The proceeds from these bonds were used to retire the existing 10.25% fixed rate industrial revenue bonds on September 1, 2004. The aggregate principal amount of the new bonds is $5,630,000 and the bonds will bear interest at a variable rate set weekly by the bond Remarketing Agent (1.28% on date of closing). The bonds are collateralized by a Bank Letter of Credit which is secured by a first mortgage on the facility. The Company is required to make monthly principal and interest payments to a sinking fund. The terms of the agreement require the Company to comply with various financial covenants including minimum tangible net worth, liabilities to tangible net worth ratio and net income (loss). In addition, the Company will pay an annual remarketing fee equal to .125% and an annual letter of credit fee of 1.0%. The five year scheduled maturity of this new issuance beginning 2005 and ending in 2009 is: $280,000, $285,000, $290,000, $305,000, $315,000; and $4,155,000 thereafter. As a result of calling the fixed rate bonds for redemption the Company incurred an early redemption premium of approximately $120,000 and wrote off unamortized deferred financing costs of approximately $170,000 both of which will be recorded in the first quarter of fiscal 2005 as additional interest expense. Deferred financing costs associated with the newly issued bonds of approximately $160,000 will be amortized over the life of the new bonds which are scheduled to be fully repaid in 2020.

F-12

Lifecore Biomedical, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

NOTE D — INCOME TAXES

     The provision for income taxes consists of the following at June 30:

	2004		2003		2002
Current
Federal	$	23,000	$	—	$	—
State		—		—		—
Foreign		144,000		87,000		37,000
Deferred		—		—		—
	$	167,000	$	87,000	$	37,000

     Deferred tax assets and liabilities represent the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events that have been recognized in the financial statements. Deferred tax assets (liabilities) consist of the following at June 30:

	2004			2003
Deferred tax assets
Net operating loss carryforward	$	11,322,000		$	11,674,000
Tax credit carryforward		1,054,000			934,000
Inventories		1,892,000			1,338,000
Other		434,000			384,000
Total deferred tax assets		14,702,000			14,330,000
Deferred tax liabilities
Depreciation		(805,000	)		(802,000	)
Prepaid expenses		(197,000	)		—
Customer list		(20,000	)		(59,000	)
Total deferred tax liabilities		(1,022,000	)		(861,000	)
Net deferred tax asset before valuation allowance		13,680,000			13,469,000
Valuation allowance		(13,680,000	)		(13,469,000	)
Net deferred tax asset	$	—		$	—

     The Company has established a valuation allowance due to uncertainties regarding the realization of deferred tax assets based on the Company’s lack of historical earnings. The Company will continue to assess the valuation allowance and to the extent it is determined the allowance is no longer required, the tax benefit of remaining deferred tax assets will be recognized in the future.

     At June 30, 2004, the Company had net operating loss carryforwards of approximately $28,800,000 for Federal tax reporting purposes, which expire from 2007 through 2024. Included as part of the Company’s net operating loss carryforwards are approximately $2,000,000 in tax deductions that resulted from the exercise of stock options. When the loss carryforwards are realized the corresponding changes in the valuation allowance will be recorded as additional paid-in capital.

F-13

Lifecore Biomedical, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

NOTE D — INCOME TAXES — (continued)

     The Company also has general business credit carryforwards of approximately $1,054,000, which expire from 2007 through 2019.

     Differences between income tax expense (benefit) and amounts derived by applying the statutory federal income tax rate to loss before income taxes are as follows for fiscal years ending June 30:

	2004			2003			2002
Statutory income tax rate		34.0	%		(34.0	)%		(34.0	)%
Research and development credits		(13.7	)%		(85.1	)%		(8.7	)%
Foreign sales deduction		(30.5	)%		(95.1	)%		(5.0	)%
Other permanent differences		7.8	%		19.1	%		0.9	%
Expiration of net operating loss		0.0	%		0.0	%		11.9	%
Change in valuation allowance		24.1	%		227.7	%		35.6	%
Other		(2.6	)%		0.0	%		0.0	%
		19.1	%		32.5	%		0.8	%

NOTE E — SHAREHOLDERS’ EQUITY

Issuance of Stock

     On October 8, 2001, the Company issued 21,647 shares of common stock with an aggregate value of $208,000 as the final payment under a consulting agreement relating to the development of the Company’s e-Commerce website.

     On July 2, 2001, the Company issued 69,597 shares of common stock with an aggregate value of $347,000, in connection with the acquisition of shares of Lifecore Biomedical AB held by two individuals.

Stock Option Plans

     The Company has three stock option plans. In November 1990, the shareholders adopted the 1990 Stock Plan (the “1990 Plan”) to provide for options to be granted to certain eligible employees, non-employee members of the Board of Directors and other non-employee persons as defined in the 1990 Plan. In November 1993, the 1990 Plan was amended to provide for a total of 1,000,000 shares of common stock reserved for issuance under the 1990 Plan. In November 1996, the shareholders adopted the 1996 Stock Plan (the “1996 Plan”) to provide for options to be granted to certain eligible employees, non-employee members of the Board of Directors and other non-employee persons as defined in the 1996 Plan. A total of 3,000,000 shares of common stock are reserved for issuance under the 1996 Plan. In November 2003, the shareholders adopted the 2003 Stock Plan (the “2003 Plan”) to provide for options to be granted to certain eligible employees, non-employee members of the Board of Directors and other non-employee persons as defined in the 2003 Plan. A total of 1,000,000 shares of common stock are reserved for issuance under the 2003 Plan. No stock options have been issued under the 2003 Plan. Options will be granted under all plans at exercise prices that are determined by a committee appointed by the Board of Directors. Options granted to date under all plans have been at exercise prices equal to the fair market value of the Company’s stock on the date of grant. Each grant awarded specifies the period for which the options are exercisable and provides that the options shall expire at the end of such period.

F-14

Lifecore Biomedical, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

NOTE E — SHAREHOLDERS’ EQUITY — (continued)

     Option transactions under the 1990 and 1996 Stock Option Plans during the three years ended June 30, 2004 are summarized as follows:

	Number of			Weighted Average
	Shares			Exercise Price
Outstanding at June 30, 2001		2,723,073		$	12.27
Granted		325,900			7.66
Exercised		(70,860	)		7.45
Canceled		(154,903	)		13.13
Outstanding at June 30, 2002		2,823,210			11.87
Granted		203,267			7.62
Exercised		(17,575	)		6.41
Canceled		(70,599	)		11.46
Outstanding at June 30, 2003		2,938,303			11.66
Granted		342,000			6.48
Exercised		(46,341	)		5.07
Canceled		(482,322	)		10.48
Outstanding at June 30, 2004		2,751,640		$	11.28

	Number of		Weighted Average
	Shares		Exercise Price
Options exercisable at June 30:
2004		2,329,865	$	11.62
2003		2,213,838		12.10
2002		1,884,541		12.63

F-15

Lifecore Biomedical, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

NOTE E — SHAREHOLDERS’ EQUITY — (continued)

     The following tables summarize information concerning currently outstanding and exercisable stock options.

Options Outstanding
Range of	Number		Weighted Average Remaining	Weighted Average
Exercise Price	Outstanding		Contractual Life	Exercise Price
$  3.55 - 5.82		158,050	6.4 years	$	5.24
5.83 - 8.75		1,148,945	5.5 years		7.49
8.76 - 13.12		344,146	5.1 years		10.02
13.13 - 19.68		1,066,499	1.4 years		16.33
19.69 - 23.38		34,000	3.5 years		21.53
		2,751,640		$	11.28

Options Outstanding
			Options Exercisable
Range of	Number		Weighted Average
Exercise Price	Exercisable		Exercise Price
$  3.55 - 5.82		88,875	$	5.25
5.83 - 8.75		919,845		7.45
8.76 - 13.12		280,396		9.98
13.13 - 19.68		1,026,249		16.22
19.69 - 23.38		14,500		21.33
		2,329,865	$	11.62

Employee Stock Purchase Savings Plan

     The 1990 Employee Stock Purchase Savings Plan (“ESPSP”) provides for the purchase by eligible employees of Company common stock at a price equal to 85% of the market price on either the anniversary date of such plan’s commencement or the termination date of the plan, whichever is lower. Participants may authorize payroll deductions up to 10% of their base salary during the plan year to purchase the stock. Since inception of the ESPSP a total of 149,828 shares have been issued, including 26,511 shares for approximately $126,000 in 2002 and 6,178 shares for approximately $29,000 in 2001. The ESPSP was terminated in 2002 because 149,828 shares of the 150,000 shares authorized for the plan had been issued.

F-16

Lifecore Biomedical, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

NOTE E — SHAREHOLDERS’ EQUITY — (continued)

Shareholder Rights Plan

     In May 1996 the Board of Directors unanimously adopted a shareholder rights plan designed to ensure that all of the Company’s shareholders receive fair and equal treatment in the event of any proposal to acquire the Company. The Board declared a distribution of one Right for each share of common stock outstanding on June 15, 1996. Each Right entitles the holder to purchase 1/100th of a share of a new series of Junior Participating Preferred Stock of Lifecore at an initial exercise price of $110.00. Initially, the Rights are attached to the common stock and are not exercisable. They become exercisable only following the acquisition by a person or group, without the prior consent of the Company’s Board of Directors, of 15 percent or more of the Company’s voting stock, or following the announcement of a tender offer or exchange offer to acquire an interest of 15 percent or more of the Company’s voting stock.

     In the event that the Rights become exercisable, each Right will entitle the holder to purchase, at the exercise price, common stock with a market value equal to twice the exercise price and, should the Company be acquired, each Right would entitle the holder to purchase, at the exercise price, common stock of the acquiring company with a market value equal to twice the exercise price. Rights that are owned by the acquiring person would become void. In certain specified instances, the Company may redeem the Rights. If not redeemed, the Rights will expire on June 15, 2006.

NOTE F — COMMITMENTS AND CONTINGENCIES

Royalty Agreements

     The Company has entered into agreements that provide for royalty payments based on a percentage of net sales of certain products. Royalty expense under these agreements was $184,000, $128,000 and $148,000 for the years ended June 30, 2004, 2003 and 2002, respectively.

Severance Agreements

     The Company has an agreement with each officer that provides severance pay benefits if there is a change in control of the Company (as defined) and the officer is involuntarily terminated (as defined). The maximum potential liability under these agreements at June 30, 2004 was approximately $985,000.

NOTE G — EMPLOYEE BENEFIT PLAN

     The Company has a 401(k) profit sharing plan for eligible employees. The Company, at the discretion of the Board of Directors, may set a matching percentage that is proportionate to the amount of the employees’ elective contributions each year. During the years ended June 30, 2004, 2003 and 2002, the Board of Directors authorized a company matching contribution to the plan of $92,000, $81,000 and $65,000, respectively.

F-17

Lifecore Biomedical, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

NOTE H — SEGMENT INFORMATION

     The Company operates two business segments. The Hyaluronan Division manufactures, markets and sells products containing hyaluronan and provides contract aseptic packaging services. The Oral Restorative Division produces and markets various oral restorative products in the area of implant dentistry. Currently, products containing hyaluronan are sold primarily to customers pursuant to supply agreements. Sales to one customer under such agreements were 16%, 16% and 14% of total sales in 2004, 2003 and 2002, respectively. The Company’s Oral Restorative Division markets products directly to clinicians and dental laboratories in the United States, Italy, Germany and Sweden and primarily through distributorship arrangements in other foreign locations. Sales to customers located principally in Europe accounted for 44%, 35% and 31% of total Company sales during the years ended June 30, 2004, 2003 and 2002, respectively.

     Segment information for the Company is as follows:

	Year ended June 30,
	2004			2003		2002
Net sales
Hyaluronan products	$	15,719,000		$	15,659,000	$	15,244,000
Oral restorative products		31,317,000			26,782,000		23,550,000
	$	47,036,000		$	42,441,000	$	38,794,000
Operating income (loss)
Hyaluronan products	$	(379,000	)	$	33,000	$	(2,959,000	)
Oral restorative products		1,123,000			66,000		(1,037,000	)
	$	744,000		$	99,000	$	(3,996,000	)
Capital expenditures
Hyaluronan products	$	369,000		$	444,000	$	637,000
Oral restorative products		297,000			300,000		324,000
	$	666,000		$	744,000	$	961,000
Depreciation and amortization expense
Hyaluronan products	$	1,823,000		$	2,120,000	$	2,070,000
Oral restorative products		697,000			724,000		870,000
	$	2,520,000		$	2,844,000	$	2,940,000

	As of June 30,
	2004		2003
Identifiable assets
Hyaluronan products	$	31,899,000	$	35,433,000
Oral restorative products		20,847,000		18,708,000
General corporate		7,572,000		4,211,000
	$	60,318,000	$	58,352,000

F-18

Lifecore Biomedical, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

NOTE I — AGREEMENTS

     Lifecore and ETHICON, INC. (“ETHICON”) have entered into a Conveyance, License, Development and Supply Agreement (the “ETHICON Agreement”) whereby ETHICON transferred to Lifecore its ownership in certain technology related to research and development previously conducted on the Company’s sodium hyaluronan material. The technology transferred to Lifecore includes written technical documents related to ETHICON’s research and development of a product to inhibit the formation of postsurgical adhesions. These documents include product specifications, methods and techniques, technology, know-how and certain patents. Lifecore assumed responsibility for continuing the anti-adhesion development project, including conducting a human gynecology clinical trial on GYNECARE INTERGEL* Adhesion Prevention Solution (“INTERGEL Solution”), a second-generation ferric hyaluronan-based product. Lifecore has granted ETHICON exclusive worldwide marketing rights to the products developed by Lifecore within defined fields of use through 2008. INTERGEL Solution was voluntarily withdrawn from the market by ETHICON in March 2003 in order to assess information obtained from postmarketing experience with the product, including allegations of adverse events associated with off-label use in non-conservative surgical procedures (such as hysterectomies). The Company is working with ETHICON to complete the post-marketing evaluation and determine the opportunities for returning the product to market. Management does not believe there has been an impairment of hyaluronan assets as of June 30, 2004.

*Trademark of ETHICON

NOTE J — RESTRUCTURING PLAN

     During the fiscal year ended June 30, 2004, the Company announced and implemented a restructuring plan (the “Restructuring Plan”). The Restructuring Plan was implemented to bolster future profitability by aligning resources for future revenue growth. The Restructuring Plan included a workforce reduction of 10% and resulted in a one-time restructuring charge of $1,136,000. The components of the restructuring charge for the fiscal year were $1,072,000 for employee severance costs and $64,000 for outplacement fees.

     The following table summarizes the Restructuring Plan accrual, which is included in Accrued expenses:

	Employee
	Severance			Outplacement
	Costs			Fees			Total
Balances at June 30, 2003		—			—			—
Restructuring charges		1,072,000			64,000			1,136,000
Amounts utilized		(621,000	)		(38,000	)		(659,000	)
Balances at June 30, 2004	$	451,000		$	26,000		$	477,000

NOTE K — LEGAL PROCEEDINGS

     Lifecore is a party in 41 pending lawsuits filed by 37 different plaintiffs, all of which allege that the plaintiffs suffered injuries due to the defective nature of INTERGEL Solution manufactured by Lifecore and marketed by ETHICON. ETHICON is currently defending Lifecore in each of these lawsuits. Lifecore also has product liability insurance that it believes will cover these claims.

NOTE L — RECLASSIFICATIONS

     Certain 2002 and 2003 amounts have been reclassified to conform to the 2004 presentation.

F-19

Lifecore Biomedical, Inc. and Subsidiaries

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

	Balance at		Charged to		Charged to
	Beginning		Costs and		Other					Balance at End
Description	of Period		Expenses		Accounts		Deductions			of Period
Year ended June 30, 2004
Accounts receivable allowance	$	414,000	$	194,000	$	—	$	(201,000	)(A)	$	407,000
Year ended June 30, 2003
Accounts receivable allowance		325,000		171,000		—		(82,000	)(A)		414,000
Year ended June 30, 2002
Accounts receivable allowance		145,000		272,000		—		(92,000	)(A)		325,000

(A) Deductions represent accounts receivable balances written-off during the year.

S-1

EXHIBIT INDEX

	Description
2.1	Stock Purchase Agreement between ISS and Lifecore dated July 28, 1993 (includes $2 million 5% Promissory Note dated July 28, 1993 as Exhibit A and Security Agreement as Exhibit B) (Pursuant to Rule 24b-2, certain portions of this Exhibit have been deleted and filed separately with the Commission) (incorporated by reference to Exhibit 2.1 to Form 8-K dated July 8, 1993)
3.1	Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 19(a) to Amendment No. 1 on Form 8, dated July 13, 1988, to Form 10-Q for the quarter ended December 31, 1987), as amended by Amendment No. 2 (incorporated by reference to Exhibit 3.1 to Form 10-K for the year ended June 30, 1997)
3.2	Amended Bylaws, (incorporated by reference to Exhibit 3.2 to Form 10-K/A for the year ended June 30, 1995)
3.3	Form of Rights Agreement, dated as of May 23, 1996, between the Company and Norwest Bank Minnesota, National Association (incorporated by reference to Exhibit 1 to the Company’s Form 8-A Registration Statement dated May 31, 1996)
4.1	Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to 1987 S-2 Registration Statement [File No. 33-12970])
4.2	Indenture of Trust, dated as of August 1, 2004, between City of Chaska, Minnesota and Wells Fargo Bank, National Association
10.1	Hyaluronan Purchase Agreement dated March 28, 1990 between the Company and Alcon (incorporated by reference to Exhibit 10 to Form 8-K dated April 10, 1990, as amended on Form 8 dated May 23, 1990) as amended on July 17, 1992, (Certain information has been deleted from this exhibit and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2) (incorporated by reference to Exhibit 10.5 to Form 10-K for the year ended June 30, 1992)
10.2	Form of Indemnification Agreement entered into between the Company and directors and officers (incorporated by reference to Exhibit 10.7 to Form 10-K for the year ended June 30, 1995)
10.3*	1990 Stock Plan (incorporated by reference to Exhibit 4(a) to S-8 Registration Statement [File No. 33-38914]) as amended by Amendment No. 1 (incorporated by reference to Exhibit 10.13 to Form 10-K for the year ended June 30, 1994), as amended by Amendment No. 2 (incorporated by reference to Exhibit 10.11 to Form 10-K for the year ended June 30, 1997)
10.4	Conveyance, License, Development and Supply Agreement dated August 8, 1994 between Lifecore Biomedical, Inc. and ETHICON, INC. (pursuant to Rule 24b-2, certain portions of this Exhibit have been omitted and filed separately with the Commission) (incorporated by reference to Exhibit 10.14 to Form 10-K for the year ended June 30, 1994)
10.5*	1996 Stock Option Plan (incorporated by reference to Exhibit 4.1 to S-8 Registration Statement [File No. 333-18515])
10.6*	2003 Stock Incentive Plan
10.7	Revolving Credit and Security Agreement dated December 18, 2002 between M & I Marshall & Ilsley Bank and the Company, (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended December 31, 2002)
10.8	Amendment No. 1 to Revolving Credit and Security Agreement dated June 27, 2003 between M & I Marshall & Ilsley Bank and the Company, (incorporated by reference to Exhibit 10.21 to Form 10-K for the year ended June 30, 2003)

10.9	Loan Agreement, dated as of August 1, 2004, between City of Chaska, Minnesota and the Company
10.10	Remarketing Agreement, dated as of August 1, 2004, between the Company and Northland Securities, Inc.
10.11	Tax Exemption Agreement, dated as of August 1, 2004, between City of Chaska, Minnesota, the Company and Wells Fargo Bank, National Association
10.12	Irrevocable Letter of Credit, dated as of August 19, 2004, from M&I Marshall & Ilsley Bank to Wells Fargo Bank, National Association
10.13	Reimbursement Agreement, dated as of August 1, 2004, between the Company and M&I Marshall & Ilsley Bank
10.14	Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement, dated as of August 1, 2004, from the Company to M&I Marshall & Ilsley Bank
10.15	Security Agreement, dated as of August 1, 2004, from the Company to M&I Marshall & Ilsley Bank
10.16	Pledge and Security Agreement, dated as of August 1, 2004, between the Company, M&I Marshall & Ilsley Bank and Wells Fargo Bank, National Association
10.17	Bond Purchase Agreement, dated as of August 19, 2004, by and between City of Chaska, Minnesota, the Company and Northland Securities, Inc.
23.1	Consent of Grant Thornton LLP
31.1	Certification of Dennis J. Allingham pursuant to Exchange Act Rules 13a – 14(a) and 15d – 14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of David M. Noel pursuant to Exchange Act Rules 13a – 14(a) and 15d – 14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Dennis J. Allingham pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of David M. Noel pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
99.1	Risk Factors

* Denotes management contract or compensatory plan, contract or arrangement.

EX-4.2

Exhibit 4.2

$5,630,000

City of Chaska, Minnesota

Variable Rate Demand Purchase Revenue Bonds

(Lifecore Biomedical, Inc. Project)

Series 2004

INDENTURE OF TRUST

Dated as of August 1, 2004

Between

CITY OF CHASKA, MINNESOTA

and

WELLS FARGO BANK, NATIONAL ASSOCIATION

This instrument was drafted by:

Dorsey & Whitney LLP

Suite 1500

50 South Sixth Street

Minneapolis, Minnesota 55402-1498

TABLE OF CONTENTS

(This Table of Contents is not a part of the Indenture of Trust and is only for convenience of reference.)

PARTIES	1
RECITALS	1
GRANTING CLAUSES	1
ARTICLE I DEFINITIONS	3
ARTICLE II THE BONDS	11
Section 2.01. Authorized Amount of Bonds	11
Section 2.02. Issuance of Bonds	11
Section 2.03. Execution; Limited Obligations	13
Section 2.04. Authentication	13
Section 2.05. Form of Bonds	14
Section 2.06. Delivery of Bonds	14
Section 2.07. Mutilated, Lost, Stolen or Destroyed Bonds	14
Section 2.08. Transfer of Bonds; Persons Treated as Owners	14
Section 2.09. Destruction of Bonds	15
Section 2.10. Temporary Bonds	15
Section 2.11. Book-Entry System	16
ARTICLE III REDEMPTION OF BONDS BEFORE MATURITY	18
Section 3.01. Extraordinary Redemption	18
Section 3.02. Optional Redemption	18
Section 3.03. Sinking Fund Redemption	18
Section 3.04. Notice of Redemption	20
Section 3.05. Redemption Payments	20
Section 3.06. Cancellation	20
Section 3.07. Partial Redemption of Bonds	20
ARTICLE IV CONVERSION OF INTEREST RATE; DEMAND PURCHASE OPTION	21
Section 4.01. Conversion of Interest Rate on Optional Conversion Date	21
Section 4.02. Conversion of Interest Rate on Automatic Conversion Date	22
Section 4.03. [Intentionally Omitted]	22
Section 4.04. Conditions to Conversion	22
Section 4.05. Additional Notices	23
Section 4.06. Demand Purchase Option	23
Section 4.07. Funds for Purchase of Bonds	23
Section 4.08. Delivery of Purchased Bonds	23
Section 4.09. Delivery of Proceeds of Sale of Purchased Bonds	24
Section 4.10. Duties of Trustee with Respect to Purchase of Bonds	24
Section 4.11. Election by Bank to Purchase Bonds	25

i

ARTICLE V GENERAL COVENANTS	26
Section 5.01. Payment of Principal, Premium, if any, and Interest	26
Section 5.02. Performance of Covenants	26
Section 5.03. Instruments of Further Assurance	26
Section 5.04. Recording and Filing	26
Section 5.05. Inspection of Books	27
Section 5.06. Rights Under Agreement	27
ARTICLE VI REVENUES AND FUNDS	28
Section 6.01. Creation of the Bond Fund	28
Section 6.02. Payments into the Bond Fund	28
Section 6.03. Use of Money in the Bond Fund	28
Section 6.04. Rebate Fund	28
Section 6.05. Payments into the Rebate Fund; Investments	28
Section 6.06. Disbursements from Rebate Fund	29
Section 6.07. Creation of the Project Fund	29
Section 6.08. Payments into the Project Fund	29
Section 6.09. Disbursements from Project Fund	29
Section 6.10. Nonpresentment of Bonds	29
Section 6.11. Money to be Held in Trust	30
Section 6.12. Repayment to the Bank and the Borrower from the Bond Fund or the Rebate Fund	30
Section 6.13. Letter of Credit and Substitute Letter of Credit	30
ARTICLE VII INVESTMENT OF MONEY	31
ARTICLE VIII DISCHARGE OF INDENTURE	32
Section 8.01. Discharge of Indenture	32
Section 8.02. Defeasance of Bonds	32
ARTICLE IX DEFAULTS AND REMEDIES	34
Section 9.01. Defaults	34
Section 9.02. Acceleration	34
Section 9.03. Other Remedies; Rights of Owners of Bonds	35
Section 9.04. Right of Owners of Bonds to Direct Proceedings	35
Section 9.05. [Intentionally Omitted]	35
Section 9.06. Waiver	35
Section 9.07. Application of Money	36
Section 9.08. Remedies Vested in Trustee	37
Section 9.09. Rights and Remedies of Owners of Bonds	37
Section 9.10. Termination of Proceedings	38
Section 9.11. Waivers of Default	38
ARTICLE X TRUSTEE	40
Section 10.01. Acceptance of Trusts	40
Section 10.02. Fees, Charges and Expenses of the Trustee	42
Section 10.03. Notice to Owners of Bonds	42

ii

Section 10.04. Intervention by the Trustee	42
Section 10.05. Successor Trustee	42
Section 10.06. Resignation by the Trustee	43
Section 10.07. Removal of the Trustee	43
Section 10.08. Appointment of Successor Trustee by Owners of Bonds	43
Section 10.09. Acceptance by Successor Trustee	43
Section 10.10. Appointment of Co-Trustee	44
Section 10.11. Notice to Owners	44
Section 10.12. Notices to Rating Agency	44
ARTICLE XI SUPPLEMENTAL INDENTURES	45
Section 11.01. Supplemental Indentures Not Requiring Consent of Owners of Bonds	45
Section 11.02. Supplemental Indentures Requiring Consent of Owners of Bonds	45
ARTICLE XII AMENDMENT OF AGREEMENT	47
Section 12.01. Amendments to Agreement Not Requiring Consent of Owners of Bonds	47
Section 12.02. Amendments to Agreement Requiring Consent of Owners of Bonds	47
ARTICLE XIII MISCELLANEOUS	48
Section 13.01. Consents of Owners of Bonds	48
Section 13.02. Limitation of Rights	48
Section 13.03. Severability	48
Section 13.04. Notices	48
Section 13.05. Payments Due on Saturdays, Sundays and Holidays	49
Section 13.06. Counterparts	49
Section 13.07. Applicable Provisions of Law	49
Section 13.08. Rules of Interpretation	50
Section 13.09. Captions	50
Section 13.10. Certain References to Bank, Bank, Letter of Credit, Etc.	50
Section 13.11. Limitation of Issuer’s Liability	50
EXHIBIT A (VARIABLE RATE FORM OF BOND)	A-1
EXHIBIT B (FIXED RATE FORM OF BOND)	B-1

iii

INDENTURE OF TRUST

     This INDENTURE OF TRUST is dated and entered into as of August 1, 2004, between CITY OF CHASKA, MINNESOTA, a Minnesota municipal corporation (the “City” or the “Issuer”) and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national association organized under the laws of the United States of America, as trustee (referred to in such capacity as the “Trustee”).

W I T N E S S E T H

     WHEREAS, Lifecore Biomedical, Inc., a Minnesota corporation (the “Borrower”), has requested that the Issuer issue its refunding revenue bonds pursuant to Minnesota Statutes, Sections 469.153 to 169.1651, as amended (the “Act”), to provide refinancing with respect to a “project,” within the meaning of the Act (as more fully described in the Loan Agreement referred to below, the “Project”) undertaken by the Borrower; and

     WHEREAS, as authorized by the Act, the Issuer proposes to issue its Variable Rate Demand Purchase Revenue Bonds (Lifecore Biomedical, Inc. Project), Series 2004, in the aggregate principal amount of $5,630,000 (the “Bonds”) pursuant to this Indenture and to lend the proceeds thereof to the Borrower pursuant to a Loan Agreement (the “Agreement”) of even date herewith between the Issuer and the Borrower, in order to provide refinancing with respect to the Project, all in accordance with the provisions hereof and of the Agreement; and

     WHEREAS, all things necessary to make the Bonds when authenticated by the Trustee and issued as in this Indenture provided, the valid, binding and legal obligations of the Issuer according to the import thereof, and to constitute this Indenture a valid assignment and pledge of the payments under the Agreement (except for amounts payable to the Issuer under Sections 4.04(b), 6.01, 7.04 and 7.05 of the Agreement) for payment of the principal of, premium, if any, and interest on the Bonds, and to constitute this Indenture a valid assignment of the rights of the Issuer under the Agreement except as otherwise stated herein, have been done and performed, and the creation, execution and delivery of this Indenture, and the issuance of the Bonds, subject to the terms hereof, have in all respects been duly authorized.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

GRANTING CLAUSES

     That the Issuer, in consideration of the premises and the acceptance by the Trustee of the trusts hereby created and of the purchase and acceptance of the Bonds by the Owners thereof, and of the sum of one dollar, lawful money of the United States of America, to it duly paid by the Trustee at or before the execution and delivery of these presents, and for other good and valuable consideration, the receipt of which is hereby acknowledged, in order to secure the payment of the principal of, premium, if any, and interest on the Bonds according to their tenor and effect and to secure the performance and observance by the Issuer of all the covenants expressed herein and in the Bonds, does hereby assign and grant a security interest in the

following to the Trustee, and its successors in trust and assigns forever, for the securing of the performance of the obligations of the Issuer hereinafter set forth:

GRANTING CLAUSE FIRST

     All right, title and interest of the Issuer in and to the Agreement, including, but not limited to, the present and continuing right to make claim for, collect, receive and receipt for any of the sums, amounts, income, revenues, issues and profits and any other sums of money payable or receivable under the Agreement, to bring actions and proceedings thereunder or for the enforcement thereof, and to do any and all things which the Issuer is or may become entitled to do under the Agreement, except for the rights of the Issuer under Sections 4.04, 6.01, 7.04 and 7.05 thereof;

GRANTING CLAUSE SECOND

     All right, title and interest of the Issuer in and to all money and securities from time to time held by the Trustee under the terms of this Indenture;

GRANTING CLAUSE THIRD

     Any and all other property rights and interests of every kind and nature from time to time hereafter by delivery or by writing of any kind granted, bargained, sold, alienated, demised, released, conveyed, assigned, transferred, mortgaged, pledged, hypothecated or otherwise subjected hereto, as and for additional security herewith, by the Borrower or any other person on its behalf or with its written consent, including but not limited to the Letter of Credit described herein and proceeds thereof, and the Trustee is hereby authorized to receive any and all such property at any and all times and to hold and apply the same subject to the terms hereof (all such property hereinafter designated the “Trust Estate”);

     TO HAVE AND TO HOLD all and singular the Trust Estate, whether now owned or hereafter acquired, unto the Trustee and its respective successors in said trust and assigns forever;

     IN TRUST NEVERTHELESS, upon the terms and trusts herein set forth for the equal and proportionate benefit, security and protection of all present and future Owners of the Bonds, from time to time, issued under and secured by this Indenture without privilege, priority or distinction as to the lien or otherwise of any of the Bonds over any of the other Bonds except in the case of funds held hereunder for the benefit of particular Owners of Bonds, and for the benefit of the Bank to the extent provided herein;

     PROVIDED, HOWEVER, that if the Issuer, its successors or assigns, shall well and truly pay, or cause to be paid, the principal of, premium, if any, and interest on the Bonds due or to become due thereon, at the times and in the manner set forth in the Bonds according to the true intent and meaning thereof, and shall cause the payments to be made on the Bonds as required hereunder, or shall provide, as permitted hereby, for the payment thereof by depositing with the Trustee the entire amount due or to become due thereon, and shall well and truly cause to be kept, performed and observed all of its covenants and conditions pursuant to the terms of this Indenture, and shall pay or cause to be paid to the Trustee all sums of money due or to become

2

due to it in accordance with the terms and provisions hereof, then upon the final payment thereof this Indenture and the rights hereby granted shall cease, determine and be void, except to the extent specifically provided in Article VIII hereof; otherwise this Indenture shall remain in full force and effect.

     THIS INDENTURE FURTHER WITNESSETH, and it is expressly declared, that all Bonds issued and secured hereunder are to be issued, authenticated and delivered and all said property, rights and interests, including, without limitation, the amounts payable under the Agreement and any other amounts hereby assigned and pledged are to be dealt with and disposed of under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes as herein expressed, and the Issuer has agreed and covenanted, and does hereby agree and covenant with the Trustee and with the respective Owners of the Bonds as follows:

ARTICLE I

DEFINITIONS

     All capitalized, undefined terms used herein shall have the meanings assigned to such terms in Article I of the Agreement. In addition, the following words and phrases shall have the following meanings:

     “Act” means Minnesota Statutes, Sections 469.152.152 to 469.1651, as amended.

     “Agreement” or “Loan Agreement” means the Loan Agreement of even date herewith between the Issuer and the Borrower, as amended or supplemented from time to time.

     “Authorized Borrower Representative” means Borrower Representative.

     “Automatic Conversion Date” means the interest payment date immediately preceding the Letter of Credit Termination Date; provided, that if the Letter of Credit Termination Date falls on or after the final maturity date of the Bonds, neither such date nor the interest payment date immediately preceding such date shall constitute an Automatic Conversion Date.

     “Bank” means (i) M&I Marshall & Ilsley Bank, a state banking association organized and existing under the laws of the State of Wisconsin, in its capacity as issuer of the Letter of Credit, and (ii) any Substitute Bank.

     “Bank Insolvency” means a decree or order of a court or agency or supervisory authority, having jurisdiction in the premises for the appointment of a conservator or receiver or liquidator of any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceeding, or for the winding-up or liquidation of its affairs has been entered against the Bank or the Bank has consented to the appointment of a conservator or receiver or liquidator in any such proceedings of or relating to the Bank or relating to all or substantially all of its property.

     “Beneficial Owner” means with respect to Bonds while in Book-Entry Form, each person who beneficially owns such Bond(s) and on whose behalf, directly or indirectly, such Bond is held by the Depository pursuant to a Book-Entry System.

3

     “Bond Fund” means the fund created in Section 6.01 hereof.

     “Bond Registrar” means the Trustee, as the registrar for the Bonds, appointed by the Issuer pursuant to Section 2.08 hereof.

     “Bond Resolution” means the resolution adopted by the Issuer on July 19, 2004, authorizing the issuance of the Series 2004 Bonds, as amended or supplemented from time to time.

     “Bonds” means the Variable Rate Demand Purchase Revenue Bonds (Lifecore Biomedical, Inc. Project), Series 2004, issued by the Issuer pursuant to this Indenture.

     “Book-Entry Form” means Bonds which are held in the name of the Depository (or its nominee) with each maturity evidenced by a single Bond certificate.

     “Book-Entry System” means a system of record keeping, securities clearance and funds transfer and settlement maintained for securities by the Depository and Participants.

     “Borrower” means Lifecore Biomedical, Inc., a Minnesota corporation, its successors and assigns.

     “Borrower Representative” or “Authorized Borrower Representative” means the person or persons at the time designated to act on behalf of the Borrower by a written certificate furnished to the Issuer and the Trustee containing the specimen signatures of such person or persons and signed on behalf of the Borrower by its President, any Vice President or Secretary. Such certificate may designate an alternate or alternates.

     “Business Day” means a day which in each of the cities where the principal corporate trust offices of the Trustee and the principal offices of the Bank are located is not a Saturday, a Sunday or a day on which banking institutions are authorized or required by law to close.

     “Call Date” means, whenever used with reference to the redemption of the Refunded Bonds, September 1, 2004.

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

     “Completion Date” shall have the meaning provided in the Loan Agreement.

     “Conversion Date” means the earlier to occur of either the Optional Conversion Date or the Automatic Conversion Date.

     “Conversion Option” means the option granted to the Borrower pursuant to Section 4.01 hereof, as a result of which the interest rate on the Bonds is converted from the Variable Rate to the Fixed Rates as of the Optional Conversion Date.

4

     “Credit Agreement” means (i) the Reimbursement Agreement, and (ii) the letter of credit agreement or reimbursement agreement between the Borrower and any Substitute Bank, as each of the same may be amended in accordance with its terms.

     “Date of Issuance” means the date on which the Bonds are initially authenticated and delivered pursuant to Section 2.06 hereof.

     “Default” means any Default under this Indenture as specified in and defined by Section 9.01 hereof.

     “Demand Purchase Option” means the option granted to Owners of Bonds to require that Bonds be purchased prior to the Conversion Date pursuant to Section 4.06 hereof.

     “Depository” means The Depository Trust Company in New York, New York, its successors or assigns, or any other person who shall be a Holder of all Bonds directly or indirectly for the benefit of Beneficial Owners and approved by the Borrower and Original Purchaser to act as the Depository; provided that any Depository shall be registered or qualified as a “clearing agency” within the meaning of Section 17A of the Securities Exchange Act of 1934, as amended.

     “Determination of Taxability” means the issuance of a statutory notice of deficiency by the Internal Revenue Service, or a ruling of the National Office or any District Office of the Internal Revenue Service, or a final decision by any court of competent jurisdiction that interest on the Bonds is includible in the gross income of the recipient under Section 103 and related Sections of the Internal Revenue Code and regulations thereunder, except for any period during which a Bond is owned by a “substantial user” or “related person,” within the meaning of Section 147(a) of the Internal Revenue Code, provided that the period for a contest or appeal, if any, of such action, ruling or decision has expired without any such appeal or contest having been instituted, or, if instituted, such contest or appeal has been unsuccessfully concluded.

     “First Optional Redemption Date” means the September 1 occurring in the year which is a number of years after the Conversion Date equal to the number of years between the September 1 immediately following the Conversion Date (unless the Conversion Date is a September 1, in which case from such September 1), and September 1, 2020, multiplied by 1/2 and rounded up to the nearest whole number.

     “Fixed Rates” means the interest rate or rates in effect on the Bonds from and after the Conversion Date, as said rate or rates are determined in accordance with Section 2.02(d) hereof.

     “Governmental Obligations” means any of the following which are noncallable:

     (a) direct general obligations of, or obligations the payment of the principal of and interest on which are unconditionally guaranteed by, the United States of America;

     (b) bonds, debentures or notes issued by Federal National Mortgage Association, Government National Mortgage Association, Federal Financing Bank, Federal Farm Credit Banks, Federal Land Banks, Federal Home Loan Banks, Farmers Home Administration, Federal Home Loan Mortgage Corporation or any of their

5

successors or any other comparable federal agency hereafter created to the extent that said obligations are unconditionally guaranteed by the United States of America; and

     (c) shares of an investment company registered under the Federal Investment Company Act of 1940 whose shares are registered under the Securities Act of 1933 and whose only investments are in obligations described in (a) or (b) above.

     “Indenture” means this Indenture of Trust dated as of August 1, 2004, as the same may be amended or supplemented in accordance with its terms.

     “Independent Counsel” shall have the meaning provided in the Loan Agreement.

     “Interest Payment Date” means, prior to the Conversion Date, the first day of each month; the Conversion Date; and, after the Conversion Date, September 1 and March l of each year. If, prior to the Conversion Date, the first day of any month is not a Business Day then payment of interest is calculated through the last day of the preceding month and is payable on the first Business Day of the next succeeding month.

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

     “Letter of Credit” means (i) that certain direct-pay Irrevocable Letter of Credit dated the Date of Issuance and issued by M&I Marshall & Ilsley Bank, as the same may be extended from time to time (provided, however, that each such extended expiration date shall be no earlier than one Business Day after an interest payment date for the Bonds), and (ii) any Substitute Letter of Credit, in each case securing the payment of the principal of, interest on and Purchase Price of the Bonds in accordance with the terms hereof.

     “Letter of Credit Termination Date” means the later of (i) that date upon which the Letter of Credit shall expire or terminate pursuant to its terms, or (ii) the date of expiration or termination of a Substitute Letter of Credit.

     “Letter of Representations” means any Letter of Representations from the Issuer to the Depository, providing for the issuance of the Bonds in Book-Entry Form.

     “Loan Agreement” means the Agreement.

     “Optional Conversion Date” means that date, which shall be a Business Day on or after December 1, 2004, from and after which the interest rate on the Bonds is converted from the Variable Rate to the Fixed Rates as a result of the exercise of the Conversion Option by the Borrower.

     “Original Purchaser” means Northland Securities, Inc.

     “Outstanding” or “Bonds Outstanding” means all Bonds which have been authenticated and delivered under this Indenture, except:

6

     (a) Bonds canceled after purchase in the open market or because of payment at or redemption prior to maturity;

     (b) Bonds paid or deemed to be paid pursuant to Article VIII hereof;

     (c) Bonds in lieu of which others have been authenticated under Section 2.07 or Section 2.08 hereof; and

     (d) Bonds in lieu of which others have been issued pursuant to Section 2.04(b) hereof.

     “Owner” means the person or persons in whose name or names a Bond shall be registered on the books or records of the Bond Registrar kept for that purpose in accordance with provisions of this Indenture.

     “Participants” means participants of the Depository in connection with the Book-Entry System.

     “Pledged Bonds” means any Bonds which, at the time of determination thereof, are pledged in favor of the Bank pursuant to the Credit Agreement or otherwise.

     “Preliminary Expenditures” means architectural, engineering, surveying, soil testing, reimbursement bond issuance, and similar costs that are incurred prior to commencement of acquisition, construction, or rehabilitation of a project, other than land acquisition, site preparation, and similar costs incident to commencement of construction; provided, however, that such expenditures in the aggregate are not in excess of 20% of the aggregate issue price of the Bonds, all within the meaning of Treasury Regulation, § 1.150-2(f)(2).

     “Prior Indenture” means the Trust Indenture dated as of September 1, 1990, between the Issuer and the Prior Trustee.

     “Prior Trustee” means Wells Fargo Bank, National Association (successor-by-merger to “Norwest Bank Minnesota, National Association”), acting in the capacity of trustee under the Prior Indenture.

     “Project” shall have the meaning generally set forth in the recitals hereto, and as more fully set forth in the Loan Agreement.

     “Project Costs” means, without intending thereby to limit or restrict any proper definition of such cost under any applicable laws and generally accepted accounting principles, the following:

     (a) Payment of the outstanding principal amount of the Refunded Bonds owing on the Call Date; and

     (b) Underwriting fees and commissions, title insurance premiums, abstracting and filing fees, legal expenses and fees, fiscal consultant fees and expenses, costs of

7

audits and of preparing, offering and issuing any of the Bonds, and initial fees of the Trustee; and

     (c) Any other obligation or expense heretofore or hereafter incurred by the Borrower in connection with the acquisition and construction of the Project defined as and constituting a proper Project cost under the Act and approved by the Authorized Borrower Representative.

     Provided, however, that notwithstanding the foregoing, Project Costs shall be limited to any extent provided in Section 3.03 of the Loan Agreement; and provided further, however, that Project Costs shall not include any costs expended by the Borrower prior to the date that is sixty (60) days prior to the Reimbursement Declaration Date for any of the above items, except for (A) any Preliminary Expenditures, and (B) expenditures not in excess of the lesser of $100,000 or 5% of the proceeds of the Bonds, with respect to which costs described in either (A) or (B) above, such sixty (60) day limitation shall not apply.

     “Project Equipment” shall have the meaning set forth in the Loan Agreement.

     “Project Fund” means the fund created in Section 6.07 hereof.

     “Project Supervisor” means the Project Supervisor appointed pursuant to Section 3.07 of the Loan Agreement, and includes any alternate or alternates.

     “Purchase Price” means an amount equal to 100% of the principal amount of any Bond tendered or deemed tendered pursuant to Section 4.01, 4.02, 4.06 or 4.11 hereof, plus, in the case of purchase pursuant to Section 4.06 and 4.11 hereof, accrued and unpaid interest thereon to the date of purchase.

     “Qualified Investments” means those investments enumerated in Article VII hereof, but only to the extent authorized by the Act.

     “Rating Agency” means any nationally recognized bond rating agency or service which at the time has issued a rating on the Bonds. During any period in which the Bonds are not rated by a Rating Agency, references herein to “Rating Agency” shall be of no force or effect.

     “Rebate Fund” means the fund created in Section 6.04 hereof.

     “Record Date” means prior to the Conversion Date, that day which is the Business Day immediately preceding each interest payment date, and on and after the Conversion Date, the fifteenth day of the month prior to each interest payment date.

     “Reference Rate” means the rate publicly announced by M&I Marshall & Ilsley Bank from time to time as its base rate or prime rate; changes in the Reference Rate shall be on the day they are announced; M&I Marshall & Ilsley Bank may lend to its customers at rates that are at, above or below the Reference Rate.

8

     “Refunded Bonds” means the Industrial Development Revenue Bonds (Lifecore Biomedical, Inc. Project), Series 1990, issued by the Issuer in the original aggregate principal amount of $7,000,000, pursuant to the Prior Indenture.

     “Reimbursement Agreement” means the Reimbursement Agreement of even date herewith between the Borrower and the Bank, as the same may be amended or supplemented from time to time in accordance with its terms.

     “Reimbursement Declaration Date” means the date, if any, on which the Borrower adopted with respect to the Project an official intent, within the meaning of Treasury Regulation, Section 1.150-2.

     “Remarketing Agent” means the Remarketing Agent acting as such under the Remarketing Agreement. “Principal Office” of the Remarketing Agent means the principal office of the Remarketing Agent designated in the Remarketing Agreement.

     “Remarketing Agreement” means the Remarketing Agreement of even date herewith between the Borrower and Northland Securities, Inc., and any amendments or supplements thereto.

     “Series 2004 Bonds” means the Bonds.

     “Sinking Fund” means the Sinking Fund established by the Trustee pursuant to Section 3.03 hereof as part of the Bond Fund.

     “State” means the State of Minnesota.

     “Substitute Bank” means a commercial bank, savings and loan association, insurance company or other financial institution which has issued a Substitute Letter of Credit.

     “Substitute Letter of Credit” means a direct-pay letter of credit, insurance policy, guaranty or other credit device delivered to the Trustee in accordance with Section 4.10 of the Agreement (i) issued by the Bank or a Substitute Bank, (ii) replacing any existing Letter of Credit, (iii) dated as of a date prior to the expiration or termination date of the Letter of Credit for which the same is to be substituted, (iv) which shall expire on a date which is no earlier than one Business Day after an interest payment date for the Bonds and (v) issued on substantially identical terms and conditions as the then-existing Letter of Credit, except that the Substitute Letter of Credit may expire on a date which is later than the expiration date of the Letter of Credit being replaced, and except that the stated amount of the Substitute Letter of Credit shall equal the sum of (A) the aggregate principal amount of Bonds at the time Outstanding, plus (B) an amount equal to at least 45 days’ interest (computed at the maximum interest rate applicable to the Bonds) on all Bonds at the time Outstanding.

     “Tax Exemption Agreement” means the Tax Exemption Agreement of even date herewith among the Issuer, the Borrower and the Trustee, as amended or supplemented from time to time.

9

     “Trustee” means Wells Fargo Bank, National Association, and its successors and any corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party and any successor trustee at the time serving as successor trustee hereunder. “Principal Office” of the Trustee means the address specified in Section 13.04 hereof or such other address as may be designated in writing to the Issuer, the Remarketing Agent and the Borrower.

     “Trust Estate” means the property conveyed to the Trustee pursuant to the Granting Clauses hereof.

     “Variable Rate” means the interest rate in effect on the Bonds from the date of issuance of the Bonds until (but not including) the Conversion Date, as said rate is determined in accordance with Section 2.02(c) hereof.

[The balance of this page intentionally left blank]

10

ARTICLE II

THE BONDS

     Section 2.01. Authorized Amount of Bonds. The total principal amount of Bonds that may be issued hereunder is hereby expressly limited to $5,630,000.

     Section 2.02. Issuance of Bonds.

     (a) Prior to the Conversion Date, the Bonds shall be issuable in fully registered form without coupons in authorized denominations of $100,000 and, above $100,000, any integral multiple of $5,000. From and after the Conversion Date, the Bonds shall be issuable in fully registered form without coupons in authorized denominations of $5,000 or any integral multiple thereof. Unless the Issuer shall otherwise direct, the Bonds shall be lettered “R” and shall be numbered consecutively from 1 upward.

     (b) Each Bond shall be dated the date of its authentication and shall bear interest, payable, so long as the Bonds bear interest at the Variable Rate, on the first day of each month and on the Conversion Date, commencing September 1, 2004, and payable from and after the Conversion Date on September 1 and March 1 of each year, commencing on the September 1 or March 1 next following the Conversion Date, in each case from the interest payment date next preceding the date thereof to which interest has been paid or duly provided for, unless the date thereof is an interest payment date to which interest has been paid or duly provided for, in which case from the date thereof, or unless no interest has been paid or duly provided for on the Bonds, in which case from the Date of Issuance, until payment of the principal thereof has been made or duly provided for. Notwithstanding the foregoing, any Bond dated after any Record Date and before the following interest payment date shall bear interest from such following interest payment date, provided, however, that if the Issuer shall default in the payment of interest due on such interest payment date, then such Bond shall bear interest from the next preceding interest payment date to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for on the Bonds, from the Date of Issuance.

     The Bonds shall all mature on September 1, 2020, and shall be subject to redemption on the terms and conditions and at the prices specified in Article III hereof.

     (c) Prior to the Conversion Date, the Bonds shall bear interest at the Variable Rate. From August 19, 2004, through and including August 23, 2004, the Variable Rate shall be equal to 1.28% per annum. Thereafter, the Variable Rate shall be a variable rate of interest equal to the lesser of:

     (i) 10.00% per annum, or

     (ii) that rate which the Remarketing Agent determines, as of each Monday (or if the Remarketing Agent is not open for business on any Monday then on the last preceding day on which it is open for business) commencing Monday, August 23, 2004, is the minimum rate which the Bonds would have to

11

bear in order to enable the Remarketing Agent to remarket the Bonds at par on such date (whether or not any Bonds are actually to be remarketed on such date). In the event of any failure by the Remarketing Agent to so reset the Variable Rate, the immediately preceding Variable Rate shall remain in effect.

     The Variable Rate shall change each Tuesday (whether or not such day is a Business Day) to the rate most recently determined in accordance with the preceding paragraph.

     The Remarketing Agent shall notify the Trustee, and, upon request, the Borrower, the Owners of the Bonds, and the Bank, by facsimile (followed by written verification) of the initial Variable Rate and each change in the Variable Rate by no later than 4:00 p.m. Minneapolis, Minnesota, time on the day that a determination is made under clause (ii) above. The determination of the Variable Rate by the Remarketing Agent shall be conclusive and binding upon the Trustee, the Issuer, the Borrower, the Bank and the Owners of the Bonds.

     (d) The Bonds shall bear interest at the Fixed Rates from and after the Conversion Date until their stated maturities. The Fixed Rates shall be provided for, as follows:

     (i) Not less than 25 days prior to the Conversion Date, the Remarketing Agent shall deliver to the Trustee, the Bank and the Borrower a schedule of the interest rate or rates constituting the Fixed Rates. A separate interest rate shall be assigned to each stated maturity, and shall be the rate which, in the judgment of the Remarketing Agent, is the minimum rate which Bonds of such stated maturity must bear in order to enable the Remarketing Agent to remarket such Bonds at par on the Conversion Date.

     (ii) Upon receipt from the Remarketing Agent of the schedule of the Fixed Rates, the Trustee shall cause the minimum denomination of the Bonds to be reduced from $100,000 to $5,000 and shall allocate to each $5,000 of principal amount of Bonds Outstanding a stated maturity and a Fixed Rate in accordance with the schedule of the Fixed Rates prepared by the Remarketing Agent.

     (iii) On the Conversion Date, the interest rate on the Bonds shall be converted from the Variable Rate to the Fixed Rates determined by the Remarketing Agent in accordance with clause (i).

     (e) Prior to the Conversion Date, interest on the Bonds shall be computed on the basis of a 365-day or 366-day year, as the case may be, and the actual number of days elapsed. On and after the Conversion Date, interest on the Bonds shall be computed on the basis of a 360-day year of twelve 30-day months. The principal of and premium, if any, on the Bonds shall be payable in lawful money of the United States of America at the designated office of the Trustee, or of its successor in trust. The Purchase Price of the Bonds shall be payable in lawful money of the United States of America by the Trustee to the Owner of Bonds entitled to receive such Purchase Price at its address shown on the

12

registration books maintained by the Trustee, unless otherwise instructed by such Owner at least 24 hours prior to the time such Purchase Price is due. Payment of interest on the Bonds shall be made on each interest payment date to the Owner thereof as of the applicable Record Date by check mailed by the Trustee to such Owner at its address as it appears on the registration books maintained by the Trustee or at such other address as is furnished to the Trustee in writing by such Owner, or in such other manner as may be mutually acceptable to the Trustee and the Owner of any Bond, including payment made by wire transfer.

     Section 2.03. Execution; Limited Obligations. The Bonds shall be executed on behalf of the Issuer with the manual or facsimile signature of one or more officers of the Issuer. All authorized facsimile signatures shall have the same force and effect as if manually signed. The Bonds shall not be general obligations of the Issuer but shall be limited and special obligations payable solely from the amounts payable under the Agreement and other amounts specifically pledged therefor under this Indenture, and shall be a valid claim of the respective Owners thereof only against the Bond Fund and other money held therefor by the Trustee and the amounts payable under the Agreement or otherwise pledged therefor, which amounts are hereby pledged, assigned and otherwise secured for the equal and ratable payment of the Bonds and shall be used for no other purpose than to pay the principal of, premium, if any, and interest on the Bonds, except as may be otherwise expressly authorized in this Indenture. The principal of, premium, if any, and interest on the Bonds shall be payable solely and only from the Bond Fund, except as otherwise specifically provided hereby. Neither the State, nor any political subdivision thereof or body corporate and politic of the State other than the Issuer shall in any event be liable for the payment of the principal of or interest on the Bonds or for the performance of any pledge, obligation or agreement of any kind whatsoever of Issuer, and none of the Bonds or any of Issuer’s agreements or obligations hereunder or in the Bonds shall be construed to constitute an indebtedness of the State or any political subdivision or body corporate and politic of the State other than the Issuer, within the meaning of any constitutional or statutory provision whatsoever. Neither the faith and credit nor the taxing power of Issuer is pledged to the payment of principal of or interest on the Bonds.

     Section 2.04. Authentication.

     (a) No Bond shall be valid or obligatory for any purpose or entitled to any security or benefit under this Indenture unless and until a certificate of authentication on such Bond substantially in the form set forth in either Exhibit A or Exhibit B attached hereto shall have been duly executed by the Trustee, and such executed certificate of authentication upon any such Bond shall be conclusive evidence that such Bond has been authenticated and delivered under this Indenture. The certificate of authentication on any Bond shall be deemed to have been executed by the Trustee if signed by an authorized signatory of the Trustee, but it shall not be necessary that the same signatory execute the certificate of authentication on all of the Bonds. No Bond shall be authenticated except in accordance with the requirements of Section 2.06.

     (b) In the event any Bond is deemed tendered to the Trustee as provided in Section 4.01 or 4.02 hereof but is not physically delivered to the Trustee, the Issuer shall

13

execute and the Trustee shall authenticate a new Bond of like denomination as that deemed tendered.

     Section 2.05. Form of Bonds. The Bonds and the certificate of authentication to be endorsed thereon prior to the Conversion Date are to be in substantially the form set forth in Exhibit A attached hereto, with appropriate variations, omissions and insertions as permitted or required by this Indenture. The Bonds which bear interest at the Fixed Rates and the certificate of authentication to be endorsed thereon are to be in substantially the form set forth in Exhibit B attached hereto, with appropriate variations, omissions and insertions as permitted or required by this Indenture.

     Section 2.06. Delivery of Bonds. On the Date of Issuance the Issuer shall execute and deliver to the Trustee and the Trustee shall authenticate the Bonds and deliver them as directed by the Issuer as hereinafter in this Section provided.

     Notwithstanding anything else set forth herein, no Bond shall be authenticated and delivered hereunder unless, prior thereto, the following shall be furnished to or filed with the Trustee: (1) duly executed counterparts of the Loan Agreement and this Indenture and the duly executed Letter of Credit; (2) a certified copy of the Bond Resolution; (3) a request and authorization to the Trustee on behalf of the Issuer and signed by the Mayor, the City Administrator or any other officer of the Issuer to authenticate and deliver the Bonds to or at the order of the Original Purchaser thereof and for the purchase price therein identified; and (4) an opinion of Dorsey & Whitney LLP, as Bond Counsel to the Borrower, to the effect that the Bonds have been duly and validly issued and bear interest excludible from gross income for purposes of federal income taxation. Upon payment of the proceeds to the Trustee, the Trustee shall deposit such proceeds to the credit of the Project Fund.

     Section 2.07. Mutilated, Lost, Stolen or Destroyed Bonds. In the event any Bond is mutilated, lost, stolen or destroyed, the Issuer shall execute and the Trustee shall authenticate a new Bond of like date and denomination as that mutilated, lost, stolen or destroyed, provided that, in the case of any mutilated Bond, such mutilated Bond shall first be surrendered to the Issuer or the Trustee, and in the case of any lost, stolen, or destroyed Bond, there first shall be furnished to the Issuer and the Trustee evidence of such loss, theft or destruction satisfactory to the Issuer and the Trustee, together with an indemnity satisfactory to them which indemnity shall, in any event, name the Trustee, the Issuer and the Borrower as a beneficiary. In the event any such Bond shall have matured, the Trustee, instead of issuing a duplicate Bond, may pay the same without surrender thereof, making such requirements as it deems fit for its protection, including a lost instrument bond. The Issuer and the Trustee may charge the Owner of such Bond with their reasonable fees and expenses for such service. In executing a new Bond, the Issuer may rely conclusively upon a representation by the Trustee that the Trustee is satisfied with the adequacy of the evidence presented concerning the mutilation, loss, theft or destruction of any Bond.

     Section 2.08. Transfer of Bonds; Persons Treated as Owners. The Trustee shall keep records for the transfer of the Bonds as provided in this Indenture, and the Trustee is hereby constituted and appointed the Bond Registrar of the Issuer. Upon surrender for transfer of any Bond at the designated office of the Trustee, duly endorsed for transfer or accompanied by an

14

assignment duly executed by the Owner or his attorney duly authorized in writing, the Issuer shall execute and the Trustee shall authenticate and deliver in the name of the transferee or transferees a new Bond or Bonds in authorized denominations for a like aggregate principal amount. Any Bond, upon surrender thereof at the designated office of the Trustee duly endorsed for transfer or accompanied by an assignment duly executed by the Owner or his attorney duly authorized in writing, may, at the option of the Owner thereof, be exchanged for an equal aggregate principal amount of Bonds of any denominations authorized by this Indenture in an aggregate principal amount equal to the principal amount of such Bond. In each case, the Trustee may require the payment by the Owner of the Bond requesting exchange or transfer of any tax or other governmental charge required to be paid with respect to such exchange or transfer.

     The Trustee shall not be required to exchange or register a transfer of (a) any Bonds during the 15-day period next preceding the selection of Bonds to be redeemed and thereafter until the date of the mailing of a notice of redemption of Bonds selected for redemption, or (b) any Bonds selected, called or being called for redemption in whole or in part except, in the case of any Bond to be redeemed in part, the portion thereof not so to be redeemed; provided that the foregoing shall not apply to the registration of transfer of any Bond which has been tendered to the Trustee pursuant to Section 4.06 hereof, and in any such case, for purposes of selection for redemption, the Bond so tendered and the Bond issued to the transferee thereof pursuant to Section 4.08 hereof shall be deemed and treated as the same Bond. If any Bond shall be transferred and delivered pursuant to Section 4.08(a) hereof after such Bond has been called for redemption, the Trustee shall deliver to such transferee a copy of the applicable redemption notice, indicating that the Bond delivered to such transferee has previously been called for redemption.

     The Trustee and the Issuer may treat the person in whose name a Bond is registered as the absolute Owner thereof for all purposes, and neither the Issuer nor the Trustee shall be bound by any notice or knowledge to the contrary, but such registration may be changed as hereinabove provided. All payments made to the Owner shall be valid and effectual to satisfy and discharge the liability upon such Bond to the extent of the sum or sums so paid.

     Section 2.09. Destruction of Bonds. Whenever any Outstanding Bond shall be delivered to the Trustee for cancellation pursuant to this Indenture, or for replacement pursuant to Section 2.07 hereof, such Bond shall be promptly canceled and cremated or otherwise destroyed by the Trustee.

     Section 2.10. Temporary Bonds. Until Bonds in definitive form are ready for delivery, the Issuer may execute, and, upon the request of the Issuer, the Trustee shall authenticate and deliver, subject to the provisions, limitations and conditions set forth above, one or more Bonds in temporary form, whether printed, typewritten, lithographed or otherwise produced, substantially in the form of the definitive Bonds, with appropriate omissions, variations and insertions, and in authorized denominations. Until exchanged for Bonds in definitive form, such Bonds in temporary form shall be entitled to the benefits of this Indenture. Upon presentation and surrender of any Bond or Bonds in temporary form, the Issuer shall, at the request of the Trustee, execute and deliver to the Trustee, and the Trustee shall authenticate and deliver, in exchange therefor, a Bond or Bonds in definitive form. Such exchange shall be made by the

15

Trustee without making any charge therefor to the Owner of such Bond in temporary form. Bonds in definitive form may be issued hereunder in typewritten form.

     Section 2.11. Book-Entry System. The Bonds may be issued, either initially or subsequently, in Book-Entry Form by using and delivering to the Depository one typed Bond for each stated maturity of the Bonds, registered to CEDE & Co., and by entering into the Letter of Representations. While the Bonds remain issued in Book-Entry Form, the provisions of this Indenture which conflict with the operation of the Book-Entry System shall not apply, and the provisions of the Letter of Representations relating to such Book-Entry System and the following provisions shall prevail.

     (a) Registration, Recording and Transfer of Ownership. The Depository (or its nominees) shall be and remain recorded on the registration records maintained by the Trustee as the Holder of all Bonds which are in Book-Entry Form. No transfer of any Bond in Book-Entry Form shall be made, except from one Depository to another (or its nominee) or except to terminate the Book-Entry Form. All Bonds of each stated maturity in Book-Entry Form shall be issued and remain in a single Bond certificate registered in the name of the Depository (or its nominee); provided, however, that upon termination of the Book-Entry Form pursuant to the Letter of Representations or as otherwise directed by written notice from the Borrower to the Issuer, Trustee and Depository, the Issuer shall, upon delivery of all Bonds from the Depository, promptly execute, and the Trustee shall thereupon authenticate and deliver, Bonds to all persons who were Beneficial Owners thereof immediately prior to such termination; and the Trustee shall register such Beneficial Owners as Holders of the applicable Bonds. The Trustee, as bond registrar and paying agent, shall maintain accurate books and records of the principal balance, if any, of each such Outstanding Bond in Book-Entry Form, which shall be conclusive for all purposes whatsoever. Upon the authentication of any new Bond in Book-Entry Form in exchange for a previous Bond, the Trustee shall designate thereon the principal balance remaining on such Bond according to the Trustee’s books and records.

     (b) Notices. The Issuer and Trustee shall each give notices to the Depository of such matters and at such times as are required by the Letter of Representations. All notices of any nature required or permitted hereunder to be delivered to a Holder of a Bond in Book-Entry Form shall be transmitted to Beneficial Owners of such bonds at such times and in such manner as shall be determined by the Depository and the Participants in accordance with the Book-Entry System and Letter of Representations.

     (c) Payments. All payments of principal of, premium, if any, and interest on Bonds while in Book-Entry Form shall be paid to the Depository in accordance with the Book-Entry System and Letter of Representations in same day funds by wire transfer. All payments of principal of, premium, if any, and interest on any Bonds in Book-Entry Form due Beneficial Owners shall be made at such times and in such manner as shall be determined by the Depository and the Participants in accordance with the Book-Entry System and Letter of Representations.

     (d) Limitations on Liability. With respect to Bonds in Book-Entry Form, and any Beneficial Owners thereof, except as expressly provided to the contrary herein, the

16

Issuer, the Borrower and the Trustee shall have no responsibility, liability or obligation of any nature whatsoever with respect to (i) the non-payment to any Beneficial Owner or any other person, other than the Depository, of any amount due for principal or interest; (ii) the failure to give any notice or other information to the applicable Beneficial Owner; (iii) the inaccuracy of the records of the Depository or any Participant, or (iv) the failure in any manner of the Depository or any Participant to timely or properly comply with procedures or requirements of the Book-Entry System. No such payment, failure or inaccuracy shall cause an Event of Default under the Indenture or the Loan Agreement.

[The balance of this page intentionally left blank]

17

ARTICLE III

REDEMPTION OF BONDS BEFORE MATURITY

     Section 3.01. Extraordinary Redemption. The Bonds are subject to extraordinary redemption in the event that (1) the Borrower shall exercise its option to cause the Bonds to be redeemed as provided in Sections 5.06 or 5.07 of the Agreement, or (2) the Borrower shall be obligated, as a result of the occurrence of a Determination of Taxability, to cause the Bonds to be redeemed as provided in Section 4.08 of the Agreement. If called for extraordinary redemption, the Bonds shall be subject to redemption, subject to any contrary provisions of the Agreement, on the earliest interest payment date for which timely notice of redemption may be given, in whole, at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the redemption date.

     In addition, the Bonds are subject to mandatory redemption, in whole, on the Automatic Conversion Date, at a redemption price equal to 100% of the principal amount thereof, in the event that any condition precedent required to be satisfied pursuant to Section 4.04 hereof shall not have been satisfied on or prior to the date required therefor.

     Section 3.02. Optional Redemption. On or prior to the Conversion Date, the Bonds are subject to redemption, at the option of the Borrower, with the written consent of the Bank, in whole or in part, on December 1, 2004, and any Interest Payment Date thereafter, and if in part, the Bonds to be redeemed shall be selected as provided in Section 3.07 hereof, at the redemption price of 100% of the principal amount thereof plus accrued interest to the redemption date.

     After the Conversion Date, the Bonds are subject to redemption, at the option of the Borrower, on or after the First Optional Redemption Date, in whole at any time or in part on any interest payment date, and if in part, the Bonds to be redeemed shall be selected as provided in Section 3.07 hereof, at the redemption prices (expressed as percentages of principal amount) set forth in the following table plus accrued interest to the redemption date:

	Redemption
Redemption Dates	Prices
First Optional Redemption Date through the following August 31		102	%
First Anniversary of the First Optional Redemption Date through the following August 31		101	%
Second Anniversary of the First Optional Redemption Date and thereafter		100	%

     Section 3.03. Sinking Fund Redemption. All Bonds maturing on September 1, 2020, shall be subject to mandatory sinking fund redemption as provided in this Section. For the retirement of such Bonds, the Borrower has covenanted in the Loan Agreement to deposit in the

18

Sinking Fund, as required, an amount sufficient to redeem on September 1 of the years indicated below the following principal amounts of the Bonds maturing on September 1, 2020, on the dates specified (each such date being herein called a “Sinking Fund redemption date”) at the principal amount thereof plus accrued interest to the redemption date:

Year	Amount
2005	$	280,000
2006		285,000
2007		290,000
2008		305,000
2009		315,000
2010		325,000
2011		330,000
2012		340,000
2013		355,000
2014		365,000
2015		375,000
2016		390,000
2017		400,000
2018		410,000
2019		425,000
2020*		440,000

*Final Maturity

From such cash Sinking Fund payments, to the maximum extent possible, the Trustee shall redeem at 100% of the principal amount thereof plus accrued interest to the Sinking Fund redemption date the Bonds maturing on September 1, 2020. At its option, to be exercised on or before the forty-fifth day next preceding any such Sinking Fund redemption date, the Borrower may (i) deliver to the Trustee for cancellation such Bonds in any aggregate principal amount desired, or (ii) receive a credit in respect of such Sinking Fund redemption obligation for any such Bonds which prior to said date have been purchased or redeemed (otherwise than at the stated maturity thereof or through the operation of such Sinking Fund) and cancelled by the Trustee and not theretofore applied as a credit against such Sinking Fund redemption obligation. Each such Bond so delivered or previously purchased or redeemed shall be credited by the Trustee at 100% of the principal amount thereof on the obligation of the Borrower on such Sinking Fund redemption date and any excess amount shall be credited on future Sinking Fund redemption obligations in chronological order, and the principal amount of such Bonds to be redeemed by operation of the Sinking Fund shall be accordingly reduced. The Borrower shall on or before the forty-fifth day next preceding each such Sinking Fund redemption date furnish the Trustee with a Certificate of the Authorized Borrower Representative indicating whether or not

19

and to what extent the provisions of clauses (i) and (ii) of this Section are to be availed of with respect to such Sinking Fund payment.

     Notwithstanding any other provision hereof or of the Loan Agreement, the Sinking Fund shall be established and maintained by the Trustee as a separate subaccount of the Bond Fund.

     Section 3.04. Notice of Redemption. Notice of the call for redemption, identifying the Bonds or portions thereof to be redeemed, shall be given by the Trustee by mailing first class mail a copy of the redemption notice by at least thirty (30) days but not more than sixty (60) days prior to the date fixed for redemption to the Owner of each Bond to be redeemed in whole or in part at the address shown on the registration records maintained by the Trustee. Any notice mailed as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives the notice. Notwithstanding the foregoing provisions of this Section 3.04, delivery by the Trustee of a copy of a redemption notice to a transferee of a Bond which has been called for redemption, pursuant to the requirements of Section 2.08, shall be deemed to satisfy the requirements of the first sentence of this Section 3.04 with respect to any such transferee.

     Section 3.05. Redemption Payments. Upon the giving of notice and the deposit of money for redemption at the required times on or prior to the date fixed for redemption, as provided in this Article, interest on the Bonds or portions thereof thus called shall no longer accrue after the date fixed for redemption.

     Section 3.06. Cancellation. All Bonds which have been redeemed shall not be reissued but shall be canceled and cremated or otherwise destroyed by the Trustee in accordance with Section 2.09 hereof.

     Section 3.07. Partial Redemption of Bonds.

     (a) Upon surrender of any Bond for redemption in part only, the Issuer shall execute and the Trustee shall authenticate and deliver to the Owner thereof a new Bond or Bonds of authorized denominations, in an aggregate principal amount equal to the unredeemed portion of the Bond surrendered.

     (b) In case a Bond is of a denomination larger than the minimum authorized denomination, a portion of such Bond may be redeemed, but Bonds shall be redeemed only in principal amounts equal to the minimum authorized denomination or any integral multiple thereof.

     (c) Whenever the Bonds are to be redeemed in part, Bonds which are Pledged Bonds at the time of selection of Bonds for redemption shall be selected for redemption prior to the selection of any other Bonds. After the selection of Pledged Bonds, the Trustee shall select for redemption Bonds in inverse order of maturities (if applicable, after the Conversion Date) and, within any maturity, in such manner as the Trustee may determine.

20

ARTICLE IV

CONVERSION OF INTEREST RATE; DEMAND

PURCHASE OPTION

     Section 4.01. Conversion of Interest Rate on Optional Conversion Date. The interest rate on the Bonds shall be converted from the Variable Rate to the Fixed Rates upon the exercise of the Conversion Option by the Borrower, with the written consent of the Bank, to be exercised by delivery to the Trustee of a Certificate of the Authorized Borrower Representative specifying the Optional Conversion Date. Upon exercise of the Conversion Option the Bonds shall be subject to mandatory tender for purchase by or on behalf of the Borrower from the Owners thereof on the Optional Conversion Date, and the Owners shall have no right to retain the ownership of their Bonds. Upon receipt of any such notice from the Borrower in the form required hereby, and the satisfaction of the conditions precedent set forth in Section 4.04 hereof, the Trustee shall deliver or mail by first class mail a notice at least thirty (30) days but not more than forty-five (45) days prior to the Optional Conversion Date to the Owner of each Bond at the address shown on the registration books. Any notice given as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives the notice. Said notice shall state in substance the following:

     1. The Optional Conversion Date.

     2. That all Owners of Bonds are required to tender their Bonds to the Trustee at its Principal Office for purchase at the Purchase Price on the Optional Conversion Date.

     3. That all Owners of Bonds shall be deemed to have tendered their Bonds for purchase on the Optional Conversion Date regardless of whether they tender their Bonds on or prior to such date and no interest will accrue on or after the Optional Conversion Date to the Owners of Bonds tendered or deemed tendered.

All Owners of Bonds shall be required to tender their Bonds to the Trustee for purchase by the Borrower at the Purchase Price, and any such Bonds not delivered to the Trustee on or prior to the Optional Conversion Date (“Undelivered Bonds”), for which there has been irrevocably deposited in trust with the Trustee an amount of money sufficient to pay the Purchase Price of the Undelivered Bonds, shall be deemed to have been purchased on the Conversion Date pursuant to this Section 4.01. IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO DELIVER ITS BONDS ON OR PRIOR TO THE OPTIONAL CONVERSION DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE SUBSEQUENT TO THE OPTIONAL CONVERSION DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFITS OF THE INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE PRICE THEREFOR.

21

     Notwithstanding the foregoing, the Borrower may, by written notice given to the Trustee, the Bank, and the Remarketing Agent at least 10 days prior to the Optional Conversion Date, cancel the Conversion Option.

     So long as the Bank shall have honored all conforming draw requests to effect the purchase of Bonds resulting from such conversion, on the Business Day following the Optional Conversion Date, the Trustee shall surrender the Letter of Credit to the Bank for cancellation.

     Section 4.02. Conversion of Interest Rate on Automatic Conversion Date. The interest rate on the Bonds shall be converted from the Variable Rate to the Fixed Rates on the Automatic Conversion Date, and the Bonds shall be subject to mandatory tender for purchase by the Borrower from the Owners thereof on the Automatic Conversion Date. Upon satisfaction of the conditions precedent set forth in Section 4.04, the Trustee shall deliver or mail a notice, conforming to the requirements set forth in Section 4.01 above, at least thirty (30) days but not more than forty-five (45) days prior to the Automatic Conversion Date to the Owner of each Bond at the address shown on the registration books. Any notice given as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives the notice. If any of the conditions to the establishment of the Conversion Date set forth in Section 4.04 herein are not met, the Bonds shall become subject to extraordinary redemption as provided in Section 3.01 and the Trustee shall provide notice to Bondholders that the Bonds shall be subject to extraordinary redemption on the Automatic Conversion Date.

     All Owners of Bonds shall be required to tender their Bonds to the Trustee for purchase by the Borrower at the Purchase Price, and any Bonds not delivered to the Trustee on or prior to the Automatic Conversion Date (“Undelivered Bonds”), for which there has been irrevocably deposited in trust with the Trustee an amount of money sufficient to pay the Purchase Price of the Undelivered Bonds, shall be deemed to have been purchased pursuant to this Section 4.02. IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO DELIVER ITS BONDS ON OR PRIOR TO THE AUTOMATIC CONVERSION DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE SUBSEQUENT TO THE AUTOMATIC CONVERSION DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFITS OF THE INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE PRICE THEREFOR.

     So long as the Bank shall have honored all conforming draw requests to effect the purchase of Bonds resulting from such conversion, on the Business Day following the Automatic Conversion Date, the Trustee shall surrender the Letter of Credit to the Bank for cancellation.

     Section 4.03. [Intentionally Omitted].

     Section 4.04. Conditions to Conversion. As conditions to the giving of notice as provided in Section 4.01 or 4.02 above, the Borrower shall provide the Trustee with an opinion of nationally recognized bond counsel to the effect that the proposed conversion of the interest rate on the Bonds from the Variable Rate to the Fixed Rates will not cause the interest on the Bonds to become includible in the gross income of the recipients thereof for purposes of federal income taxation, and the Remarketing Agent shall advise the Trustee of the Fixed Rates.

22

     Section 4.05. Additional Notices. The Trustee shall promptly provide the Borrower and the Bank copies of any notice delivered to the Owners of the Bonds pursuant to Section 4.01 or 4.02 hereof and any notice received by the Trustee from any Owner of a Bond pursuant to Section 4.01 or 4.02 hereof.

     Section 4.06. Demand Purchase Option. Prior to the Conversion Date, any Bond shall be purchased at the Purchase Price from the Owner thereof upon:

     (i) delivery in care of the Trustee at its principal office and to the Remarketing Agent at its principal office of a notice (which shall be irrevocable and effective upon receipt) which states (1) the aggregate principal amount and Bond numbers (or other relevant book-entry account information) of the Bonds to be purchased, and (2) the date on which such Bonds are to be purchased, which date shall be a Business Day not prior to the seventh (7th) day next succeeding the date of delivery of such notice and which date shall be prior to the Conversion Date; and

     (ii) in the event that the Bonds are not then in Book-Entry-Only form, delivery in care of the Trustee at its principal corporate trust offices in Minneapolis, Minnesota, at or prior to 11:00 A.M., Minneapolis, Minnesota, time, on the Business Day preceding the date designated for purchase in the notice described in (i) above, such Bonds to be purchased, with an appropriate endorsement for transfer or accompanied by a bond power endorsed in blank; provided, that if such Bonds are not then in Book-Entry-Only form, such Bonds shall be so purchased pursuant to this Section 4.06 only if the Bonds are delivered to the Trustee and conform in all respects to the description thereof in the notice described in clause (i).

     Section 4.07. Funds for Purchase of Bonds. On the date Bonds are to be purchased pursuant to Section 4.01, 4.02 or 4.06 hereof, such Bonds shall be purchased at the Purchase Price only from the funds listed below. Funds for the payment of the Purchase Price shall be derived from the following sources in the order of priority indicated:

     (i) money drawn by the Trustee under the Letter of Credit;

     (ii) the proceeds of the sale of such Bonds which have been remarketed by the Remarketing Agent to any entity other than the Borrower or the Issuer prior to 11:00 a.m., Minneapolis, Minnesota time, on the Business Day preceding the date such Bonds are to be purchased in an amount which the Remarketing Agent has telephonically notified the Trustee is on deposit with the Remarketing Agent to be transferred to the Trustee by the Remarketing Agent pursuant to the Remarketing Agreement; and

     (iii) any other money furnished to the Trustee and available for such purpose.

     Section 4.08. Delivery of Purchased Bonds.

     (a) Bonds purchased with money described in Section 4.07(i) hereof with respect to which reimbursement is made to the Bank from proceeds of a remarketing effected by the Remarketing Agent, and Bonds purchased with money described in

23

Section 4.07(ii) hereof, shall be delivered by the Trustee to the Remarketing Agent for redelivery to or upon the order of the purchasers thereof.

     (b) Bonds purchased with money described in Section 4.07(i) hereof with respect to which reimbursement shall not have been made to the Bank shall be held by the Trustee for the benefit of the Bank pursuant to the Credit Agreement or otherwise.

     (c) Bonds purchased with money described in Section 4.07(iii) shall, at the direction of the Borrower, be (i) delivered as instructed by the Borrower or (ii) canceled by the Trustee; provided, however, that any Bonds so purchased after the selection thereof by the Trustee for redemption shall be canceled by the Trustee.

     (d) The Trustee shall deliver to the person to whom the Trustee is to deliver such Bonds the due bills, if any, delivered to the Trustee with such Bonds in accordance with Section 4.06 hereof.

     Bonds delivered as provided in this Section shall be registered in the manner directed by the recipient thereof.

     Section 4.09. Delivery of Proceeds of Sale of Purchased Bonds.

     (a) Except in the case of the sale of any Pledged Bonds, the proceeds of the sale of any Bonds delivered to the Trustee pursuant to Section 4.01, 4.02 or 4.06 hereof shall be held in a separate subaccount of the Bond Fund and, to the extent not required to pay the Purchase Price thereof in accordance with Section 4.07 hereof, shall be paid to or upon the order of the Bank for payment of any obligations owed the Bank under the Reimbursement Agreement or, if the obligations then due the Bank under the Reimbursement Agreement have been satisfied, such proceeds shall be delivered to the Borrower. Such proceeds shall be invested as provided in Article VII.

     (b) In the event the Remarketing Agent shall have remarketed any Pledged Bonds, and the Bank shall have released such Pledged Bonds from the lien of the Credit Agreement and shall have delivered to the Trustee a written notice of reinstatement of the Letter of Credit, increasing the amount of the Letter of Credit by an amount equal to the principal amount of released Pledged Bonds, plus an amount equal to 45 days’ interest thereon at the maximum rate of 10.00% per annum, such Bonds shall be delivered by the Trustee to the Remarketing Agent, in accordance with Section 4.08(a) hereof, and the proceeds of sale of such Bonds shall be delivered to the Bank.

     Section 4.10. Duties of Trustee with Respect to Purchase of Bonds.

     (a) The Trustee shall hold all Bonds delivered to it pursuant to Section 4.01, 4.02 or 4.06 hereof in trust for the benefit of the respective Owners of Bonds which shall have so delivered such Bonds until money representing the Purchase Price of such Bonds shall have been delivered to or for the account of or to the order of such Owners of Bonds.

24

     (b) The Trustee shall hold all money delivered to it pursuant to this Indenture for the purchase of Bonds in a separate account in trust for the benefit of the person or entity which shall have so delivered such money until the Bonds purchased with such money shall have been delivered to or for the account of such person or entity.

     (c) The Trustee shall promptly deliver to the Borrower and the Bank a copy of each notice delivered to it in accordance with Section 4.06 hereof.

     (d) Upon any failure of the delivery to it of Bonds in accordance with said Section 4.06, the Trustee shall give telephonic or telegraphic notice thereof to the Borrower, the Remarketing Agent and the Bank.

     (e) The Trustee shall draw money under the Letter of Credit in accordance with the terms thereof to the extent required by Sections 4.07 and 6.13 hereof to provide for timely payment of the Purchase Price of Bonds.

     Section 4.11. Election by Bank to Purchase Bonds. Prior to the Letter of Credit Termination Date, at the option of the Bank, the Bonds are subject to purchase by the Bank, in whole but not in part, from proceeds derived from a draw under the Letter of Credit if the Bank notifies the Trustee than an Event of Default has occurred under the Credit Agreement and the Bank has elected to purchase rather than accelerate the Bonds. In such event, the Trustee shall draw money under the Letter of Credit in accordance with the terms thereof to pay the Purchase Price of the Bonds on the payment date selected by the Trustee, which payment date shall be a date not more than two Business Days after the date the Trustee receives notice as aforesaid from the Bank.

25

ARTICLE V

GENERAL COVENANTS

     Section 5.01. Payment of Principal, Premium, if any, and Interest. The Issuer covenants that it will promptly pay or cause to be paid the principal of, premium, if any, and interest on every Bond issued under this Indenture at the place, on the dates, and in the manner provided herein and in said Bonds according to the true intent and meaning thereof, but solely from the amounts pledged therefor which are from time to time held by the Trustee in the Bond Fund. The principal of, premium, if any, and interest on the Bonds are payable from the amounts to be paid under the Agreement and otherwise as provided herein and in the Agreement, which amounts are hereby specifically pledged to the payment thereof in the manner and to the extent herein specified, and nothing in the Bonds or in this Indenture shall be construed as pledging any other funds or assets of the Issuer. Neither the Issuer, the State, nor any political subdivision of the State shall in any event be liable for the payment of the principal of, premium, if any, or interest on any of the Bonds or for the performance of any pledge, obligation or agreement undertaken by the Issuer except to the extent that the money pledged herein is sufficient therefor.

     No Owner of any Bonds has the right to compel any exercise of any taxing power of the Issuer, the State or any political subdivision of the State to pay the Bonds or the interest thereon, and the Bonds do not constitute an indebtedness of the Issuer or a loan of credit thereof within the meaning of any constitutional or statutory provision.

     Section 5.02. Performance of Covenants. The Issuer covenants that it will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in this Indenture and in the Agreement, in any and every Bond executed, authenticated and delivered hereunder and in all of its proceedings pertaining hereto. The Issuer covenants that it is duly authorized under the Constitution and laws of the State, including particularly and without limitation the Act, to issue the Bonds and to execute this Indenture, to assign the Agreement, and to pledge the amounts to be paid under the Agreement and other amounts hereby pledged in the manner and to the extent herein set forth, that all action on its part for the issuance of the Bonds and the execution and delivery of this Indenture has been duly and effectively taken, and that the Bonds in the hands of the Owners thereof are and will be valid and enforceable obligations of the Issuer according to the terms thereof and hereof.

     Section 5.03. Instruments of Further Assurance. The Issuer will do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered, such indentures supplemental hereto and such further acts, instruments and transfers as the Trustee may reasonably require for the better assuring, transferring, conveying, pledging, assigning and confirming unto the Trustee all and singular the amounts pledged hereby to the payment of the principal of, premium, if any, and interest on the Bonds. The Issuer, except as herein and in the Agreement provided, will not sell, convey, mortgage, encumber or otherwise dispose of any part of the amounts, revenues and receipts payable under the Agreement or its rights under the Agreement.

     Section 5.04. Recording and Filing. The Borrower has agreed pursuant to the Agreement that it will cause all financing statements related to this Indenture and all supplements

26

hereto to be recorded and filed in such manner and in such places as may from time to time be required by law in order to preserve and protect fully the security of the Owners of the Bonds and the rights of the Trustee hereunder, and to take or cause to be taken any and all other action necessary to perfect the security interest, pledge and assignment created by this Indenture, as the Trustee may request.

     Section 5.05. Inspection of Books. All books and records, if any, in the Issuer’s possession relating to the Project and the amounts derived from the Project shall at all reasonable times be open to inspection by such accountants or other agents as the Trustee may from time to time designate.

     Section 5.06. Rights Under Agreement. The Agreement, a duly executed counterpart of which has been filed with the Trustee, sets forth the covenants and obligations of the Issuer and the Borrower, and reference is hereby made to the Agreement for a detailed statement of said covenants and obligations of the Borrower thereunder, and the Issuer agrees that the Trustee in its name or in the name of the Issuer may enforce all rights of the Issuer and all obligations of the Borrower under and pursuant to the Agreement for and on behalf of the Owners of Bonds, whether or not the Issuer is in default hereunder.

[The balance of this page intentionally left blank]

27

ARTICLE VI

REVENUES AND FUNDS

     Section 6.01. Creation of the Bond Fund. There is hereby established with the Trustee a trust fund designated the Bond Fund, which shall be used to pay when due the principal and Purchase Price, as applicable, of, premium, if any, and interest on the Bonds.

     Section 6.02. Payments into the Bond Fund. There shall be deposited into the Bond Fund from time to time the following:

     (a) all payments specified in Section 4.02 of the Agreement;

     (b) any money drawn under the Letter of Credit which money shall be deposited in a separate sub-account of the Bond Fund and shall not be commingled with any other money held by the Trustee;

     (c) amounts held by the Trustee pursuant to Section 4.10(b) hereof, which amounts shall be deposited in a separate subaccount of the Bond Fund; and

     (d) all other money received by the Trustee under and pursuant to any of the provisions of the Agreement which is required to be or which are accompanied by directions that such money is to be paid into the Bond Fund.

     Section 6.03. Use of Money in the Bond Fund. Except as provided in Sections 4.07, 4.10 and 6.12 hereof, money in the Bond Fund shall be used solely for the payment of the principal of, premium, if any, and interest on the Bonds and for the redemption of the Bonds prior to maturity. Funds for the payment of the principal of and interest on the Bonds shall be derived from the following sources in the order of priority indicated:

     (i) money drawn by the Trustee under the Letter of Credit;

     (ii) money on deposit in the Bond Fund from payments made by the Borrower under Section 4.02 of the Agreement; and

     (iii) any other money furnished to the Trustee and available for such purpose.

     Section 6.04. Rebate Fund. There is hereby established with the Trustee a trust fund designated the Rebate Fund, which shall be disbursed in accordance with the provisions of the Agreement and this Indenture.

     Section 6.05. Payments into the Rebate Fund; Investments. The Trustee shall make information regarding the Bonds and investments hereunder available to the Borrower, and shall make deposits and disbursements into the Rebate Fund as directed by the Borrower in order that the Borrower may comply with the provisions of Section 4.08(d) of the Agreement and Section 6.06 hereof.

28

     Section 6.06. Disbursements from Rebate Fund. Not later than 60 days after each installment computation date and not later than 60 days after the final computation date, the Trustee shall, at the direction of the Borrower, cause to be paid to the United States an amount equal to not less than the minimum amount required to be rebated to the United States in respect of the Bonds under Section 148(f) of the Internal Revenue Code and pertinent regulations. In any event, not later than 60 days after the final computation date, the Trustee shall, at the direction of the Borrower, pay to the United States one hundred percent (100%) of the rebatable arbitrage owing with respect to the Bonds under Section 148(f) of the Internal Revenue Code and pertinent regulations. All payments to be made under this Section by the Trustee shall be made solely from amounts on deposit in the Rebate Fund or from other amounts made available therefor by the Borrower or the Bank; provided, however, that the Trustee shall not be entitled to draw money under the Letter of Credit for deposit in the Rebate Fund. Each payment shall be accompanied by such documents as may be required by then applicable Treasury Regulations and by a statement prepared by or on behalf of the Borrower and furnished to the Trustee summarizing the determination of the amount to be paid to the United States. In performing the obligations set forth in this Section 6.06, all provisions of Section 4.08(d) of the Loan Agreement shall be incorporated herein.

     Section 6.07. Creation of the Project Fund. There is hereby created by the Issuer and ordered established with the Trustee a trust fund to be designated the Project Fund, which shall be disbursed in accordance with the Agreement and this Indenture.

     Section 6.08. Payments into the Project Fund. Upon the original issuance and delivery of the Series 2004 Bonds, the entire proceeds of the sale of the Series 2004 Bonds shall be deposited in the Project Fund. Such additional moneys shall be deposited into the Project Fund as shall be required pursuant to the Loan Agreement or the Credit Agreement to provide for the refunding in full of the Refunded Bonds.

     Section 6.09. Disbursements from Project Fund.

     (a) Moneys in the Project Fund shall be disbursed only for Project Costs and only in accordance with the provisions of Section 3.03 of the Loan Agreement, and the applicable provisions of the Credit Agreement. The Trustee is hereby authorized and directed to issue its checks for each disbursement to be made from the Project Fund.

     (b) The Trustee shall maintain true and complete records pertaining to the Project Fund and all disbursements therefrom.

     Section 6.10. Nonpresentment of Bonds. In the event any Bond shall not be presented for payment when the principal thereof becomes due, either at maturity, or at the date fixed for redemption thereof, or otherwise, if funds sufficient to pay any such Bond shall have been made available to the Trustee for the benefit of the Owner thereof, all liability of the Issuer to the Owner thereof for the payment of such Bond shall forthwith cease, terminate and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such funds, without liability for interest thereon, for the benefit of the Owner of such Bond who shall thereafter be restricted exclusively to such funds for any claim of whatever nature on his part under this Indenture with respect to such Bond.

29

     Section 6.11. Money to be Held in Trust. All money required to be deposited with or paid to the Trustee for the account of any fund or account referred to in any provision of this Indenture or the Agreement shall be held by the Trustee in trust, and shall, while held by the Trustee, constitute part of the Trust Estate and be subject to the lien and security interest created hereby.

     Section 6.12. Repayment to the Bank and the Borrower from the Bond Fund or the Rebate Fund. In the event that any payment of interest or principal by the Borrower is on deposit in the Bond Fund on the date such payment is due on the Bonds and the Trustee has drawn money under the Letter of Credit to make such payment on the Bonds, the Trustee shall transfer amounts on deposit in the Bond Fund to the extent of the amount so drawn under the Letter of Credit to the Bank to be applied to the satisfaction of the reimbursement obligations under the Credit Agreement. Any amounts remaining in the Bond Fund, the Project Fund, the Rebate Fund or any other fund or account created hereunder after payment in full of the principal of, premium, if any, and interest on the Bonds, the fees, charges and expenses of the Trustee and all other amounts required to be paid hereunder, including any amounts due the United States under Section 148 of the Code, and including any amounts owing to the Issuer under the Loan Agreement or this Indenture, shall be paid immediately to the Bank to the extent of any indebtedness owed to the Bank under the Credit Agreement, and, after repayment of all such indebtedness and the payment of the fees, charges and expenses of the Issuer and the Remarketing Agent, to the Borrower.

     Section 6.13. Letter of Credit and Substitute Letter of Credit.

     (a) During the term of the Letter of Credit, the Trustee shall draw money under the Letter of Credit in accordance with the terms thereof (i) to pay the principal of and interest on the Bonds when due (whether on an interest payment date or by reason of maturity, redemption, acceleration of maturity or otherwise), and (ii) to pay the Purchase Price of Bonds when due. Specifically, the Trustee’s duties shall include, but not be limited to, submitting to the Bank a drawing under the Letter of Credit in accordance with the provisions thereof by not later than 10:30 a.m., Milwaukee, Wisconsin time, one Business Day in advance of any date on which the principal of, Purchase Price for, or interest on the Bonds is due. The Trustee shall not draw on the Letter of Credit to make payments with respect to Pledged Bonds or Bonds owned by the Borrower.

     (b) At any time during the term hereof, the Trustee shall accept delivery of any Substitute Letter of Credit delivered to it by or on behalf of the Borrower in accordance with the provisions of Section 4.10 of the Loan Agreement and meeting the requirements of Section 4.10(a) and 4.10(b) of the Loan Agreement. The Trustee shall give notice of such Substitute Letter of Credit to the owners of 100% in aggregate principal amount of the Bonds in accordance with the provisions of Section 10.11 hereof. Upon the effective date of the Substitute Letter of Credit, the Trustee shall cancel and return to the former Bank the former Letter of Credit.

[The balance of this page intentionally left blank]

30

ARTICLE VII

INVESTMENT OF MONEY

     Any money held as a part of the Bond Fund, including any remarketing proceeds, shall be invested or reinvested by the Trustee, to the extent permitted by law, in Governmental Obligations maturing not later than the date when needed and, in any event, in not more than 30 days. Any money held as a part of any other Fund hereunder shall be invested or reinvested by the Trustee, to the extent permitted by law, at the written request of and as directed by a Borrower Representative, in any of the following Qualified Investments: (i) Governmental Obligations; or (ii) certificates of deposit or time deposits (including savings accounts) with the Bank or with any other banking or savings institution which is insured by the Federal Deposit Insurance Corporation; or (iii) any other investment authorized by law which is approved in writing by the Bank; or (iv) money market funds the assets of which are obligations of or guaranteed by the United States of America, including those of the Trustee.

     The Trustee may make any and all such investments through itself or any bank or trust company under common control with the Trustee. All such investments shall at all times be a part of the fund or account from which the money used to acquire such investments shall have come and all income and profits on such investments shall be credited to, and losses thereon shall be charged against, such fund. Investments in the Rebate Fund and Project Fund shall be made so as to mature or be subject to redemption at the option of the owner thereof on or prior to the date or dates that the Borrower anticipates that money therefrom will be required. All investments hereunder shall be registered in the name of the Trustee, as Trustee under this Indenture. All investments hereunder shall be held by or under the control of the Trustee. The Trustee shall sell and reduce to cash a sufficient amount of investments in the Bond Fund whenever the cash balance in the Bond Fund is insufficient, together with any other funds available therefor, to pay the principal or Purchase Price, as applicable, of, premium, if any, and interest on the Bonds when due.

     In the event that the Borrower upon the advice of nationally recognized bond counsel or special tax counsel is of the opinion that it is necessary to restrict or limit the yield on the investment of any moneys, securities or other obligations paid to or held by the Trustee under the Indenture in order to comply with or implement those provisions of the documents intended to prevent the Bonds (or any series or portion thereof) from being considered an “arbitrage bond” within the meaning of Section 148 of the Code and regulations thereunder, the Borrower shall issue to the Trustee a written notice to such effect (no other direction being required), and the Trustee hereby agrees to take such actions as may be necessary to restrict the yield on such moneys, securities or other obligations in accordance therewith.

31

ARTICLE VIII

DISCHARGE OF INDENTURE

     Section 8.01. Discharge of Indenture. If the Issuer shall pay or cause to be paid, in accordance with the provisions of this Indenture, to the Owners of the Bonds, the principal of, premium, if any, and interest due or to become due thereon at the times and in the manner stipulated therein, and if the Issuer shall not then be in default in any of the other covenants and promises in the Bonds and in this Indenture expressed as to be kept, performed and observed by it or on its part and if the Issuer shall pay or cause to be paid to the Trustee all sums of money due or to become due according to the provisions hereof, then these presents and the estate and rights hereby granted shall cease, determine and be void, whereupon the Trustee shall cancel and discharge the lien of this Indenture, and execute and deliver to the Issuer such instruments in writing as shall be requested by the Issuer and requisite to release the lien hereof and reconvey, release, assign and deliver unto the Issuer any and all of the estate, right, title and interest in and to any and all rights or property conveyed, assigned or pledged to the Trustee or otherwise subject to the lien of this Indenture, except amounts in the Bond Fund or Rebate Fund required to be paid to the United States under Section 6.06 hereof or to such other party as is provided for under Section 6.12 hereof and except cash held by the Trustee for the payment of the principal or Purchase Price of, premium, if any, or interest on particular Bonds.

     Section 8.02. Defeasance of Bonds. Any Bonds shall be deemed to be paid within the meaning of this Article and for all purposes of this Indenture when: (a) payment of the principal of and premium, if any, on such Bond, plus interest thereon (and, if the Bonds shall at the time bear interest at the Variable Rate, the rate of interest thereon for purposes of this section shall assumed to be the maximum rate of 10.00%) to the due date thereof (whether such due date is by reason of maturity or upon redemption as provided herein) either (i) shall have been made or caused to be made in accordance with the terms thereof, or (ii) shall have been provided for by irrevocably depositing with the Trustee, in trust and irrevocably set aside exclusively for such payment, (1) money sufficient to make such payment or (2) Governmental Obligations maturing as to principal and interest in such amounts and at such times as will ensure the availability of sufficient money to make such payment; (b) all payments to the United States under Section 6.06 hereof or Section 4.08(d) of the Loan Agreement, and all necessary and proper fees, compensation and expenses of the Trustee and the Issuer pertaining to the Bonds with respect to which such deposit is made, shall have been paid or the payment thereof provided for to the satisfaction of the Trustee; and (c) the rating on the Bonds, if any, shall be confirmed by the Rating Agency. Bonds defeased pursuant to this Section shall be paid in full by no later than the next forthcoming Interest Payment Date. At such time as a Bond shall be deemed to be paid hereunder, as aforesaid, such Bond shall no longer be secured by or entitled to the benefits of this Indenture, except for the purposes of any such payment from such money or Governmental Obligations.

     Notwithstanding the foregoing, no deposit under clause (a)(ii) of the immediately preceding paragraph shall be deemed payment of such Bonds as aforesaid until (a) proper notice of redemption of such Bonds shall have been previously given in accordance with Article III of this Indenture, or in the event said Bonds are not by their terms subject to redemption within the next succeeding sixty (60) days, until the Borrower shall have given the Trustee, in form

32

satisfactory to the Trustee, irrevocable instructions to notify, as soon as practicable, the Owners of the Bonds, that the deposit required by (a)(ii) above has been made with the Trustee and that said Bonds are deemed to have been paid in accordance with this Section 8.02 and stating the maturity or redemption date upon which money is to be available for the payment of the principal of and the applicable redemption premium, if any, on said Bonds, plus interest thereon to the due date thereof, or (b) the maturity of such Bonds.

     All money so deposited with the Trustee as provided in this Section 8.02 may also be invested and reinvested, at the direction of the Borrower, in Governmental Obligations, maturing in the amounts and times as hereinbefore set forth, and all income from all Governmental Obligations in the hands of the Trustee pursuant to this Section 8.02 which is not required for the payment of the Bonds and interest and premium, if any, thereon with respect to which such money shall have been so deposited shall be deposited in the Bond Fund as and when realized and collected for use and application as is other money deposited in the Bond Fund.

     The Trustee hereby covenants that no deposit will knowingly be made or accepted and no use knowingly made of any such deposit which would cause the Bonds to be treated as arbitrage bonds within the meaning of Section 148 of the Code.

     Notwithstanding any provision of any other Article of this Indenture which may be contrary to the provisions of this Section 8.02, all money or Governmental Obligations set aside and held in trust pursuant to the provisions of this Section 8.02 for the payment of Bonds (including interest and premium thereon, if any) shall be applied to and used solely for the payment of the particular Bonds (including the interest and premium thereon, if any) with respect to which such money or Governmental Obligations have been so set aside in trust.

     Anything in Article XI hereof to the contrary notwithstanding, if money or Governmental Obligations have been deposited or set aside with the Trustee pursuant to this Section 8.02 for the payment of Bonds and such Bonds shall not have in fact been actually paid in full, no amendment to the provisions of this Section 8.02 shall be made without the consent of the Owner of each Bond affected thereby.

     Notwithstanding anything else in the Loan Agreement or this Indenture to the contrary, there shall be required as a condition to any defeasance of Bonds hereunder an opinion of nationally recognized bond counsel to the effect that such defeasance will not cause the interest on the Bonds to become includible in the gross income of the recipients thereof for purposes of federal income taxation.

[The balance of this page intentionally left blank]

33

ARTICLE IX

DEFAULTS AND REMEDIES

     Section 9.01. Defaults. If any of the following events occur, it is hereby declared to constitute a “Default”:

     (a) default in the due and punctual payment of interest on any Bond when due;

     (b) default in the due and punctual payment of the principal of or premium, if any, on any Bond, whether at the stated maturity thereof, or upon proceedings for redemption thereof, or upon the maturity thereof by declaration of acceleration;

     (c) default in the due and punctual payment of the Purchase Price of any Bond at the time required by Section 4.01, 4.02 or 4.06 hereof;

     (d) at any time prior to the Letter of Credit Termination Date, receipt by the Trustee, within 7 Business Days following a drawing under the Letter of Credit, of notice from the Bank that the Letter of Credit will not be reinstated to an amount equal to at least the principal of and 45 days’ interest on all Outstanding Bonds, assuming a maximum interest rate of 10.00% per annum;

     (e) receipt by the Trustee of notice from the Bank that an “Event of Default” has occurred under the Credit Agreement, together with a direction from the Bank to the Trustee requiring the acceleration, or purchase by the Bank in lieu of acceleration, of the Bonds;

     (f) prior to the Letter of Credit Termination Date, the date on which the Bank notifies the Trustee or the date that the Trustee otherwise ascertains that a Bank Insolvency has occurred, unless the Borrower shall have exercised its Conversion Option or unless the Borrower shall have furnished the Trustee with a Substitute Letter of Credit, as more fully provided by the Loan Agreement and this Indenture.

     Section 9.02. Acceleration. Upon the occurrence of (i) any Default under subsection (a), (b), (c) or (f) of Section 9.01, the Trustee may, and, at the written request of the Owners of not less than twenty-five percent (25%) in aggregate principal amount of Outstanding Bonds shall, or (ii) any Default under subsection (d) or (e) of Section 9.01, the Trustee shall, by notice in writing delivered to the Issuer and the Borrower, immediately declare the principal of all Bonds and the interest accrued thereon to the date of such acceleration to be immediately due and payable. Interest on the Bonds shall cease to accrue on the date of declaration of acceleration. Prior to the Letter of Credit Termination Date upon the occurrence of an Event of Default under Section 9.01(e), the Trustee, at the direction of the Bank, shall, by notice in writing delivered to the Issuer and the Borrower, either (i) declare the principal of all Bonds and the interest accrued thereon to the date of such acceleration to be immediately due and payable or (ii) call all the Bonds for purchase as provided in Section 4.11 hereof. Upon any declaration of acceleration hereunder, the Trustee may immediately declare the Loan Repayments required to be made by the Borrower under Section 4.02 of the Loan Agreement to be immediately due and payable and,

34

prior to the Letter of Credit Termination Date, shall immediately draw money under the Letter of Credit to pay (i) the principal of all Outstanding Bonds and the accrued interest thereon to the date of acceleration to the extent required by Section 6.13 hereof or (ii) the Purchase Price of all Outstanding Bonds on the date of purchase as provided in Section 4.11 hereof.

     Section 9.03. Other Remedies; Rights of Owners of Bonds. Subject to the provisions of Section 9.02 hereof, upon the occurrence of a Default, and, if prior to the Letter of Credit Termination Date, acceleration of the Bonds, the Trustee may pursue any available remedy at law or in equity to enforce the payment of the principal of, premium, if any, and interest on the Outstanding Bonds.

     Subject to the provisions of Section 9.02 hereof, if a Default and, if prior to the Letter of Credit Termination Date, acceleration of the Bonds, shall have occurred and be continuing and if requested so to do by the Owners of twenty-five percent (25%) in aggregate principal amount of Outstanding Bonds and provided the Trustee is indemnified as provided in Section 10.01(1) hereof, the Trustee shall be obligated to exercise such one or more of the rights and powers conferred by this Section and by Section 9.02 hereof, as the Trustee, being advised by counsel, shall deem most expedient in the interests of the Owners of Bonds.

     Subject to the provisions of Section 9.02 hereof, no remedy by the terms of this Indenture conferred upon or reserved to the Trustee (or to the Owners of Bonds) is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or to the Owners of Bonds hereunder or now or hereafter existing at law or in equity.

     No delay or omission to exercise any right or power accruing upon any Default shall impair any such right or power or shall be construed to be a waiver of any such Default or acquiescence therein; such right or power may be exercised from time to time as often as may be deemed expedient.

     No waiver of any Default hereunder, whether by the Trustee or by the Owners of Bonds, shall extend to or shall affect any subsequent Default or shall impair any rights or remedies consequent thereon.

     Section 9.04. Right of Owners of Bonds to Direct Proceedings. Subject to the provisions of Section 9.02 hereof, the Owners of a majority in aggregate principal amount of the Outstanding Bonds shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of this Indenture, or for the appointment of a receiver or any other proceedings hereunder provided that such direction shall not be otherwise than in accordance with the provisions of law and of this Indenture.

     Section 9.05. [Intentionally Omitted].

     Section 9.06. Waiver. Upon the occurrence of a Default, to the extent that such rights may then lawfully be waived, neither the Issuer nor anyone claiming through or under it, shall set up, claim or seek to take advantage of any appraisement, valuation, stay, extension or redemption

35

laws of any jurisdiction now or hereafter in force, in order to prevent or hinder the enforcement of this Indenture, and the Issuer, for itself and all who may claim through or under it, hereby waives, to the extent that it lawfully may do so, the benefit of all such laws.

     Section 9.07. Application of Money. All money received by the Trustee pursuant to any right given or action taken under the provisions of this Article shall, after payment of the costs and expenses of the proceedings resulting in the collection of such money and of the fees, expenses, liabilities and advances incurred or made by the Trustee (provided that money drawn by the Trustee under the Letter of Credit shall not be used for such purposes), be deposited in the Bond Fund and applied as follows:

     (a) Unless the principal of all the Bonds shall have become or shall have been declared due and payable, all such money shall be applied:

     FIRST — to the payment to the persons entitled thereto of all installments of interest then due on the Bonds, in the order of the maturity of the installments of such interest (with interest on overdue installments of such interest, to the extent permitted by law, at any applicable late payment rate provided for herein or in the Bonds) and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the persons entitled thereto, without any discrimination or privilege; and

     SECOND — to the payment to the persons entitled thereto of the unpaid principal of and premium, if any, on any of the Bonds which shall have become due (other than Bonds matured or called for redemption for the payment of which money is held pursuant to the provisions of this Indenture), with interest on overdue installments of principal and premium, if any, to the extent permitted by law, at any applicable late payment rate provided for herein or in the Bonds and, if the amount available shall not be sufficient to pay in full all Bonds due on any particular date, then to the payment ratably according to the amount of principal due on such date, to the persons entitled thereto without any discrimination or privilege; and

     THIRD — to the payment to the persons entitled thereto as the same shall become due of the principal of and premium, if any, and interest on the Bonds which may thereafter become due and, if the amount available shall not be sufficient to pay in full Bonds due on any particular date, together with interest and premium, if any, then due and owing thereon, payment shall be made ratably according to the amount of interest, principal and premium, if any, due on such date to the persons entitled thereto without any discrimination or privilege.

     (b) If the principal of all the Bonds shall have become due or shall have been declared due and payable, all such money shall be applied to the payment of the principal and interest then due and unpaid upon the Bonds, without preference or priority of principal over interest or of interest over principal, or of any installment of interest over any other installment of interest, or of any Bond over any other Bond, ratably, according

36

to the amounts due, respectively, for principal and interest, to the persons entitled thereto without any discrimination or privilege, with interest on overdue installments of interest or principal, to the extent permitted by law, at any applicable late payment rate provided for herein or in the Bonds.

     (c) If the principal of all the Bonds shall have been declared due and payable and if such declaration shall thereafter have been rescinded and annulled under the provisions of this Article, then, subject to the provisions of Section 9.07(b) hereof, in the event that the principal of all the Bonds shall later become due or be declared due and payable, the money shall be applied in accordance with the provisions of Section 9.07(a) hereof.

     Whenever money is to be applied pursuant to the provisions of this Section, such money shall be applied at such times, and from time to time, as the Trustee shall determine, having due regard to the amount of such money available for application and the likelihood of additional money becoming available for such application in the future. Subject to Section 9.02 hereof, whenever the Trustee shall apply such funds, it shall fix the date (which shall be an interest payment date unless it shall deem another date more suitable) upon which such application is to be made and upon such date interest on the amounts of principal to be paid on such dates shall cease to accrue. The Trustee shall give such notice as it may deem appropriate of the deposit with it of any such money and of the fixing of any such date, and shall not be required to make payment to the Owner of any Bond until such Bond shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid.

     Whenever the principal of, premium, if any, and interest on all Bonds have been paid under the provisions of this Section and all expenses and charges of the Trustee have been paid or duly provided for, any balance remaining in the Bond Fund shall be paid to the Borrower or the Bank as provided in Section 6.12 hereof.

     Money drawn under the Letter of Credit shall be applied only to the payment of principal or Purchase Price of, and interest on, the Bonds.

     Section 9.08. Remedies Vested in Trustee. All rights of action (including the right to file proofs of claim) under this Indenture or under any of the Bonds may be enforced by the Trustee without the possession of any of the Bonds or the production thereof in any trial or other proceeding relating thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its name as Trustee without the necessity of joining as plaintiffs or defendants any Owners of the Bonds, and any recovery of judgment shall be for the equal and ratable benefit of the Owners of the Outstanding Bonds.

     Section 9.09. Rights and Remedies of Owners of Bonds. No Owner of any Bond shall have any right to institute any suit, action or proceeding at law or in equity for the enforcement of this Indenture or for the execution of any trust hereof or for the appointment of a receiver or any other remedy hereunder, unless (subject to the provisions of Section 9.02 hereof) (i) a Default has occurred of which the Trustee has been notified as provided in Section 10.01(h) hereof, or of which by said subsection it is deemed to have notice, (ii) the Owners of twenty-five percent (25%) in aggregate principal amount of Outstanding Bonds shall have made written

37

request to the Trustee and shall have offered it reasonable opportunity either to proceed to exercise the powers hereinbefore granted or to institute such action, suit or proceeding and shall have offered to the Trustee indemnity as provided in Section 10.01(1), and (iii) the Trustee shall thereafter fail or refuse to exercise the powers hereinbefore granted, or to institute such action, suit or proceeding. Such notification, request and offer of indemnity are hereby declared in every case at the option of the Trustee to be conditions precedent to the execution of the powers and trusts of this Indenture, and to any action or cause of action for the enforcement of this Indenture, or for the appointment of a receiver or for any other remedy hereunder, it being understood and intended that no one or more Owners of the Bonds shall have any right in any manner whatsoever to affect, disturb or prejudice the lien of this Indenture by their action or to enforce any right hereunder except in the manner herein provided, and that all proceedings at law or equity shall be instituted, had and maintained in the manner herein provided and for the equal and ratable benefit of the Owners of all Outstanding Bonds. However, nothing contained in this Indenture shall affect or impair the right of any Owner of Bonds to enforce the payment of the principal of, premium, if any, and interest on any Bond at and after the maturity thereof, or the obligation of the Issuer to pay the principal of, premium, if any, and interest on each of the Bonds issued hereunder to the respective Owners thereof at the time and place, from the source and in the manner in the Bonds expressed. No Owner of any Bond shall have any right to institute any suit, action or proceeding at equity or at law to enforce a drawing under the Letter of Credit, except as may be specifically required under the provisions of this Indenture.

     Section 9.10. Termination of Proceedings. In case the Trustee shall have proceeded to enforce any right under this Indenture by the appointment of a receiver 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, subject to any determination in such proceedings, the Issuer, the Trustee and the Owners of Bonds shall be restored to their former positions and rights hereunder, respectively, with regard to the property subject to this Indenture, and all rights, remedies and powers of the Trustee shall continue as if no such proceedings had been taken.

     Section 9.11. Waivers of Default. Subject to the further provisions of this Section, the Trustee shall waive any Default hereunder and its consequences and rescind any declaration of acceleration of principal (and shall waive any corresponding Default under the Agreement and its consequences) upon the written request of the Owners of at least a majority in aggregate principal amount of all Outstanding Bonds. Any default under subsections (d) or (e) of Section 9.01 hereof may be waived only if the Bank shall notify the Trustee in writing that the Letter of Credit has been fully reinstated and the Bank shall have rescinded any notices given pursuant to subsections (d) or (e). Any Default under subsection (e) of Section 9.01 hereof (and the corresponding Default under the Agreement) may only be waived upon the written request of the Bank (and in such case the consent of the Owners of the Bonds shall not be required); and provided further that there shall not be waived any Default specified in subsection (a), (b) or (c) of Section 9.01 hereof unless prior to such waiver or rescission, all arrears of principal and interest (other than principal of or interest on the Bonds which became due and payable by declaration of acceleration), and all expenses of the Trustee in connection with such Default shall have been paid or provided for. In case of any waiver or rescission described above, or in case any proceeding taken by the Trustee on account of any such Default shall have been discontinued or concluded or determined adversely, then and in every such case the Issuer, the

38

Trustee and the Owners of Bonds shall be restored to their former positions and rights hereunder, respectively, but no such waiver or rescission shall extend to any subsequent or other Default, or impair any right consequent thereon.

     No waiver, rescission or annulment of a Default hereunder shall be made without the written consent of the Bank if the Bank shall theretofore have honored in full all drawings under the Letter of Credit required to be made under the provisions of this Indenture.

[The balance of this page intentionally left blank]

39

ARTICLE X

TRUSTEE

     Section 10.01. Acceptance of Trusts. The Trustee hereby accepts the trusts imposed upon it by this Indenture, and agrees to perform said trusts, but only upon and subject to the following express terms and conditions:

     (a) The Trustee, prior to the occurrence of a Default and after the curing of all Defaults which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and the Agreement. In case a Default has occurred (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in the exercise of such rights and powers as an ordinary, prudent man would exercise or use in the conduct of his own affairs.

     (b) The Trustee may execute any of the trusts or powers hereof and perform any of its duties by or through attorneys, agents, receivers or employees, and shall be entitled to advice of counsel concerning its duties hereunder, and may in all cases pay such reasonable compensation to all such attorneys, agents, receivers and employees as may reasonably be employed in connection with the trusts hereof. The Trustee may act upon the opinion or advice of any attorney (who may be the attorney or attorneys for the Issuer, the Borrower, the Bank, or the Bank) selected by the Trustee in the exercise of reasonable care. The Trustee shall not be responsible for any loss or damage resulting from any action or inaction taken or not taken, as the case may be, in good faith in reliance upon such opinion or advice.

     (c) The Trustee shall not be responsible for any recital herein or in the Bonds (except with respect to the certificate of authentication endorsed on the Bonds), or for the validity of the execution by the Issuer of this Indenture or of any supplements hereto or instruments of further assurance, or for the sufficiency of the security for the Bonds issued hereunder or intended to be secured hereby, and the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any covenants, conditions or agreements on the part of the Borrower under the Agreement except as hereinafter set forth; but the Trustee may require of the Issuer and the Borrower full information and advice as to the performance of the aforesaid covenants, conditions and agreements. The Trustee shall have no obligation to perform any of the duties of the Issuer under the Agreement.

     (d) The Trustee shall not be accountable for the use of any Bonds authenticated or delivered hereunder. The Trustee may become the Owner of Bonds secured hereby with the same rights which it would have if not the Trustee hereunder.

     (e) The Trustee shall be protected in acting upon any notice, request, consent, certificate, order, affidavit, letter, telegram or other paper or document believed to be genuine and correct and to have been signed or sent by the proper person or persons. Any action taken by the Trustee pursuant to this Indenture upon the request or authority

40

or consent of any person who at the time of making such request or giving such authority or consent is the Owner of any Bond shall be conclusive and binding upon all future owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof.

     (f) As to the existence or nonexistence of any fact or as to the sufficiency or validity of any instrument, paper or proceeding, the Trustee shall be entitled to rely upon a certificate signed by an authorized officer of the Issuer or a Borrower Representative as sufficient evidence of the facts therein contained and prior to the occurrence of a Default of which the Trustee has been notified as provided in Section 10.01(h) hereof, or of which by said subsection the Trustee is deemed to have notice, shall also be at liberty to accept a similar certificate to the effect that any particular dealing, transaction or action is necessary or expedient, but may at its discretion secure such further evidence deemed by it to be necessary or advisable, but shall in no case be bound to secure the same. The Trustee may accept a certificate of the Secretary of the Issuer to the effect that a resolution in the form therein set forth has been adopted by the Issuer as conclusive evidence that such resolution has been duly adopted and is in full force and effect.

     (g) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty.

     (h) The Trustee shall not be required to take notice or be deemed to have notice of any Default hereunder except for Defaults specified in subsections (a), (b), (c), (d), (e) or (f) of Section 9.01 hereof, unless the Trustee shall be specifically notified in writing of such Default by the Issuer, the Bank, or by the Owners of at least twenty-five percent (25%) in aggregate principal amount of Outstanding Bonds, and all notices or other instruments required by this Indenture to be delivered to the Trustee, must, in order to be effective, be delivered at the Principal Office of the Trustee, and in the absence of such notice so delivered the Trustee may conclusively assume there is no Default except as aforesaid.

     (i) At any and all reasonable times the Trustee, and its duly authorized agents, attorneys, experts, engineers, accountants and representatives, shall have the right fully to inspect all books and records of the Issuer pertaining to the Project and the Bonds, and to make such copies and memoranda from and with regard thereto as may be desired.

     (j) The Trustee shall not be required to give any bond or surety in respect of the execution of this Indenture or otherwise in respect of the premises.

     (k) Notwithstanding anything elsewhere in this Indenture with respect to the authentication of any Bonds, the withdrawal of any cash, the release of any property or any action whatsoever within the purview of this Indenture, the Trustee shall have the right, but shall not be required, to demand any showings, certificates, opinions, appraisals or other information, or corporate action or evidence thereof, in addition to that by the terms hereof required as a condition of such action, deemed desirable by the Trustee for the purpose of establishing the right of the Issuer to the authentication of any Bonds, the withdrawal of any cash or the taking of any other action.

41

     (l) Before taking any action under this Indenture or under the Agreement, other than action under Sections 4.01, 4.02, 4.03, 6.13 or 9.02, the Trustee may require that a satisfactory indemnity bond be furnished for the reimbursement of any expenses to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from its gross negligence or willful default in connection with any such action.

     (m) All money received by the Trustee shall, until used or applied or invested as herein provided, be held in trust for the purpose or purposes for which it was received but need not be segregated from other funds except to the extent otherwise required herein or required by law.

     (n) The Trustee’s right to payment of its fees and expenses shall survive final payment or defeasance of the Bonds and the Trustee’s removal or resignation.

     Section 10.02. Fees, Charges and Expenses of the Trustee. The Trustee shall be entitled to payment of reasonable fees for its services rendered hereunder and reimbursement of all advances, counsel fees and other expenses reasonably made or incurred by the Trustee in connection with such services. Upon the occurrence of a Default, but only upon the occurrence of a Default, the Trustee shall have a first lien with right of payment prior to payment on account of principal of, premium, if any, and interest on any Bond upon the Trust Estate (exclusive of the proceeds of any drawing under the Letter of Credit) for the foregoing fees, charges and expenses of the Trustee. When the Trustee incurs expenses or renders services after the occurrence of an Act of Bankruptcy with respect to the Borrower, the expenses and the compensation for the services are intended to constitute expenses of administration under any federal or state bankruptcy, insolvency, arrangement, moratorium, reorganization or other debtor relief law. The Issuer shall have no liability to pay any fees, charges or other expenses of the Trustee hereinabove mentioned except from the amounts pledged under this Indenture.

     Section 10.03. Notice to Owners of Bonds. If a Default occurs of which the Trustee has been notified as provided in Section 10.01(h) hereof, or of which by said subsection it is deemed to have notice, or in the event of the appointment of a separate or Co-Trustee or the succession of a new Trustee hereunder, then the Trustee shall promptly give notice thereof to the Bank and to the Owner of each Bond.

     Section 10.04. Intervention by the Trustee. In any judicial proceeding which in the opinion of the Trustee and its counsel has a substantial bearing on the interests of the Owners of the Bonds, the Trustee may intervene on behalf of the Owners of the Bonds and shall do so if requested in writing by the Bank or the Owners of at least twenty-five percent (25%) of the aggregate principal amount of Outstanding Bonds.

     Section 10.05. Successor Trustee. Any corporation or association into which the Trustee may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which it is a party, shall be and become successor Trustee hereunder and vested with all of the title to the Trust Estate and all the trusts, powers, discretion’s, immunities, privileges and all other matters

42

as was its predecessor, without the execution or filing of any instrument or any further act, deed or conveyance on the part of any of the parties hereto, anything herein to the contrary notwithstanding.

     Section 10.06. Resignation by the Trustee. The Trustee and any successor Trustee may at any time resign from the trusts hereby created by giving thirty (30) days’ notice to the Issuer, the Bank, the Borrower, and to the Owner of each Bond. Such resignation shall not take effect until the appointment of a successor Trustee or temporary Trustee.

     Section 10.07. Removal of the Trustee. The Trustee may be removed at any time by an instrument or concurrent instruments in writing delivered to the Trustee and to the Issuer and signed by the Owners of a majority in aggregate principal amount of Outstanding Bonds. Such removal shall not take effect until the appointment of a successor Trustee or temporary Trustee.

     Section 10.08. Appointment of Successor Trustee by Owners of Bonds. In case the Trustee hereunder shall resign or be removed, or be dissolved, or shall be in the course of dissolution or liquidation, or otherwise become incapable of acting hereunder, or in case it shall be taken under the control of any public officer or officers, or of a receiver appointed by a court, a successor may be appointed by the Owners of a majority in aggregate principal amount of Outstanding Bonds by an instrument or concurrent instruments in writing signed by such Owners, or by their attorneys-in-fact duly authorized, a copy of which shall be delivered personally or sent by registered mail to the Issuer, the Borrower and the Bank. In case of any such vacancy, the Issuer, at the direction of the Borrower, may appoint a temporary successor Trustee to fill such vacancy until a successor Trustee shall be appointed by the Owners of Bonds in the manner above provided; such temporary successor Trustee shall immediately and without further act be superseded by the Trustee appointed by the Owners of Bonds. If no successor Trustee has accepted appointment in the manner provided in Section 10.09 hereof within ninety (90) days after the Trustee has given notice of resignation to the Issuer and the Owner of each Bond, the Trustee may petition any court of competent jurisdiction for the appointment of a temporary successor Trustee; any such temporary successor Trustee shall immediately and without further act be superseded by a Trustee appointed by the Issuer or the Owners of Bonds as provided above. Every successor Trustee appointed pursuant to the provisions of this Section shall be, if there be such an institution willing, qualified and able to accept the trust upon customary terms, a bank or trust company within or without the State, in good standing and having reported capital and surplus of not less than $25,000,000.

     Section 10.09. Acceptance by Successor Trustee. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to its or his predecessor and also to the Issuer, the Bank and the Borrower an instrument in writing accepting such appointment hereunder and thereupon such successor, without any further act, deed or conveyance, shall become fully vested with all the estates, properties, rights, powers, trusts, duties and obligations of its predecessor; but its predecessor shall, nevertheless, on the written request of the Borrower, or of its successor, execute and deliver an instrument transferring to such successor all the estates, properties, rights, powers and trusts of such predecessor hereunder; and every predecessor Trustee shall deliver all securities and money held by it as Trustee hereunder to its successor. Should any instrument in writing from the Issuer be required by any successor Trustee for more fully and certainly vesting in such successor the estate, rights, powers and duties hereby vested or intended to be vested in

43

the predecessor, any and all such instruments in writing shall, on request, be executed, acknowledged and delivered by the Issuer.

     Section 10.10. Appointment of Co-Trustee. It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction (including particularly the law of the State) denying or restricting the right of banking corporations or associations to transact business as Trustee in such jurisdiction. It is recognized that in case of litigation under this Indenture or the Agreement, and in particular in case of the enforcement thereof on Default, or in case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers, rights or remedies herein or therein granted to the Trustee or hold title to the properties, in trust, as herein granted, or take any other action which may be desirable or necessary in connection therewith, the Trustee may appoint an additional individual or institution as a separate or Co-Trustee, in which event each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by this Indenture or the Agreement to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate or Co-Trustee, but only to the extent necessary to enable such separate or Co-Trustee to exercise such powers, rights and remedies, and every covenant and obligation necessary to the exercise thereof by such separate or Co-Trustee shall run to and be enforceable by either of them.

     Should any deed, conveyance or instrument in writing from the Issuer be required by the separate or Co-Trustee so appointed by the Trustee for more fully and certainly vesting in and confirming to him or it such properties, rights, powers, trusts, duties and obligations, any and all such deeds, conveyances and instruments in writing shall, on request, be executed, acknowledged and delivered by the Issuer. In case any separate or Co-Trustee, or a successor, shall die, become incapable of acting, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of such separate or Co-Trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a successor to such separate or Co-Trustee. Any Co-Trustee appointed by the Trustee pursuant to this Section may be removed by the Trustee, in which case all powers, rights and remedies vested in the Co-Trustee shall again vest in the Trustee as if no such appointment of a Co-Trustee had been made.

     Section 10.11. Notice to Owners. The Trustee shall provide each Owner of a Bond with prompt written notice of any Substitute Bank or Substitute Letter of Credit not less than thirty (30) days prior to the effectiveness thereof.

     Section 10.12. Notices to Rating Agency. Prior to the occurrence of any of the following, the Trustee shall provide the Rating Agency (if the Bonds are then rated) with written notice thereof: (a) termination or substitution of the Letter of Credit; (b) redemption, acceleration, payment in full, conversion of or mandatory purchase of the Bonds; (c) any changes to the Letter of Credit, the Indenture or the Remarketing Agreement; or (d) a change of the Trustee. The Trustee, upon written request, shall also provide the Rating Agency with any other information necessary or desirable to maintain its rating on the Bonds.

44

ARTICLE XI

SUPPLEMENTAL INDENTURES

     Section 11.01. Supplemental Indentures Not Requiring Consent of Owners of Bonds. The Issuer and the Trustee may, with the written consent of the Bank, and without consent of, or notice to, any of the Owners of Bonds, enter into an indenture or indentures supplemental to this Indenture for any one or more of the following purposes:

     (a) To cure any ambiguity or formal defect or omission in this Indenture;

     (b) To grant to or confer upon the Trustee for the benefit of the Owners of Bonds any additional rights, remedies, powers or authorities that may lawfully be granted to or conferred upon the Owners of Bonds or the Trustee;

     (c) To subject to this Indenture additional revenues, properties or collateral;

     (d) To modify, amend or supplement this Indenture or any indenture supplemental hereof in such manner as to permit the qualification hereof and thereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect or to permit the qualification of the Bonds for sale under the securities laws of any of the states of the United States of America;

     (e) To evidence the appointment of a separate or Co-Trustee or the succession of a new Trustee hereunder;

     (f) To make any amendment or modification required in order to achieve or maintain any credit rating on the Bonds; or

     (g) To effect any other change herein which, in the judgment of the Trustee, is not to the prejudice of the Trustee or the Owners of Bonds.

     Section 11.02. Supplemental Indentures Requiring Consent of Owners of Bonds. Exclusive of supplemental indentures permitted by Section 11.01 hereof and subject to the terms and provisions contained in this Section, and not otherwise, the Owners of not less than a majority in aggregate principal amount of the Outstanding Bonds, with the written consent of the Bank, shall have the right, from time to time, to consent to and approve the execution by the Issuer and the Trustee of such other indenture or indentures supplemental hereto as shall be deemed necessary and desirable for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in this Indenture or in any supplemental indenture; provided, however, that nothing in this Section or in Section 11.01 hereof contained shall permit, or be construed as permitting, without the written consent of the Bank and the Owners of all Bonds Outstanding, (a) an extension of the maturity of the principal of, or the interest on, any Bond issued hereunder, or (b) a reduction in the principal amount or Purchase Price of, or redemption premium on, any Bond or the rate of interest thereon, or (c) a privilege or priority of any Bond or Bonds over any other Bond or Bonds, or (d) a reduction in the aggregate principal amount of the Bonds required for consent to such supplemental indentures or any modifications or waivers of the provisions of this Indenture or the Agreement,

45

or (e) the creation of any lien ranking prior to or on a parity with the lien of this Indenture on the Trust Estate or any part thereof, except as hereinbefore expressly permitted, or (f) the deprivation of the Owner of any Outstanding Bond of the lien hereby created on the Trust Estate.

     If at any time the Borrower shall request the Issuer and the Trustee to enter into any such supplemental indenture for any of the purposes of this Section, the Trustee shall, upon being satisfactorily indemnified with respect to expenses, cause notice of the proposed execution of such supplemental indenture to be given to the Bank and to the Owners of the Bonds, in the manner provided in Section 3.04 of this Indenture. Such notice shall briefly set forth the nature of the proposed supplemental indenture and shall state that copies thereof are on file at the Principal Office of the Trustee for inspection by all Owners of Bonds. If, within sixty (60) days or such longer period as shall be prescribed by the Borrower following such notice, the Bank and the Owners of not less than a majority in aggregate principal amount of the Bonds Outstanding at the time of the execution of any such supplemental indenture shall have consented to and approved the execution thereof as herein provided, no Owner of any Bond shall have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Trustee or the Issuer from executing the same or from taking any action pursuant to the provisions thereof. Upon the execution of any such supplemental indenture as in this Section permitted and provided, this Indenture shall be and be deemed to be modified and amended in accordance therewith.

     No supplemental indenture under this Article shall become effective unless and until the Borrower shall have consented to the execution and delivery of such supplemental indenture. In this regard, the Trustee shall cause notice of the proposed execution of any such supplemental indenture together with a copy of the proposed supplemental indenture to be mailed to the Borrower at least fifteen (15) Business Days prior to the proposed date of execution and delivery of any such supplemental indenture.

46

ARTICLE XII

AMENDMENT OF AGREEMENT

     Section 12.01. Amendments to Agreement Not Requiring Consent of Owners of Bonds. The Issuer, at the request of the Borrower, and the Trustee may, with the written consent of the Bank, and without the consent of or notice to the Owners of Bonds, consent to any amendment, change or modification of the Agreement as may be required (i) by the provisions of the Agreement, (ii) for the purpose of curing any ambiguity or formal defect or omission in the Agreement, (iii) so as more precisely to identify the Project, or to substitute or add additional improvements or equipment to the Project or additional rights or interests in property acquired in accordance with the provisions of the Agreement, (iv) to enter into an indenture or indentures supplemental hereto as provided in Section 11.01 hereof, or (v) in connection with any other change therein which, in the judgment of the Trustee, is not to the prejudice of the Trustee or the Owners of Bonds.

     Section 12.02. Amendments to Agreement Requiring Consent of Owners of Bonds. Except for the amendments, changes or modifications as provided in Section 12.01 hereof, neither the Issuer nor the Trustee shall consent to any other amendment, change or modification of the Agreement without mailing of notice and the written approval or consent of the Bank and the Owners of at least a majority in aggregate principal amount of the Outstanding Bonds, provided that the written consent of the Bank and the Owners of all Bonds Outstanding is required for any amendment, change or modification of the Agreement that would permit the termination or cancellation of the Agreement or a reduction in or postponement of the payments under the Agreement or any change in the provisions relating to payment thereunder. If at any time the Borrower shall request the consent of the Issuer and the Trustee to any such proposed amendment, change or modification of the Agreement, the Trustee shall, upon being satisfactorily indemnified with respect to expenses, cause notice of such proposed amendment, change or modification to be given in the same manner as provided by Section 11.02 hereof with respect to supplemental indentures. Such notice shall briefly set forth the nature of such proposed amendment, change or modification and shall state that copies of the instrument embodying the same are on file at the principal office of the Trustee for inspection by all Owners of Bonds.

47

ARTICLE XIII

MISCELLANEOUS

     Section 13.01. Consents of Owners of Bonds. Any consent, request, direction, approval, objection or other instrument required by this Indenture to be signed and executed by the Owners of Bonds may be in any number of concurrent documents and may be executed by such Owners of Bonds in person or by an agent or agents appointed in writing. Proof of the execution of any such consent, request, direction, approval, objection or other instrument or of the written appointment of any such agent or of the ownership of Bonds, if made in the following manner, shall be sufficient for any of the purposes of this Indenture, and shall be conclusive in favor of the Trustee with regard to any action taken by it under such request or other instrument. The fact and date of the execution by any person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by an officer authorized by law to take acknowledgments of deeds certifying that the person signing such instrument or writing acknowledged to him the execution thereof. The fact of ownership of Bonds and the amount or amounts, numbers and other identification of such Bonds, and the date of owning the same shall be proved by the registration books of the Issuer maintained by the Trustee pursuant to Section 2.08 hereof.

     Section 13.02. Limitation of Rights. With the exception of any rights herein expressly conferred, nothing expressed or mentioned in or to be implied from this Indenture or the Bonds is intended or shall be construed to give to any person or company other than the parties hereto, the Bank and the Owners of the Bonds any legal or equitable right, remedy or claim under or with respect to this Indenture or any covenants, conditions and provisions herein contained; this Indenture and all of the covenants, conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of the parties hereto, the Bank and the Owners of the Bonds as herein provided.

     Section 13.03. Severability. If any provision of this Indenture shall be held or deemed to be or shall, in fact, be illegal, inoperative or unenforceable, the same shall not affect any other provision or provisions herein contained or render the same invalid, inoperative or unenforceable to any extent whatever.

     Section 13.04. Notices. Any notice, request, complaint, demand, communication or other paper shall be sufficiently given and shall be deemed given when delivered or mailed by first class mail, postage prepaid, or sent by facsimile, promptly confirmed by delivery or first class mail, addressed as follows:

A.	To the Issuer	—	City of Chaska, Minnesota
			City Hall
			Chaska, Minnesota 55318
			Attention: City Administrator

48

B.	To the Borrower	—	Lifecore Biomedical, Inc.
			3515 Lyman Boulevard
			Chaska, Minnesota 55318
			Attention: Chief Financial Officer
C.	To the Trustee	—	Wells Fargo Bank, National Association
			MAC N9303-110
			Sixth and Marquette
			Minneapolis, MN 55479
			Attention: Corporate Trust Services
D.	To the Bank		M&I Marshall & Ilsley Bank
			651 Nicollet Mall
			Minneapolis, MN 55402
			Attention: Commercial Banking
			with a copy to:
			M&I Marshall & Ilsley Bank
			770 North Water Street, NW 18
			Milwaukee, WI 53202
E.	To the	—	Northland Securities, Inc.
	Remarketing Agent		45 South Seventh Street
			Suite 2500
			Minneapolis, Minnesota 55402
			Attention: Public Finance Department

A duplicate copy of each notice required to be given hereunder by any person listed above shall also be given to the others. The Issuer, the Borrower, the Trustee, the Remarketing Agent and the Bank may designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent.

     Section 13.05. Payments Due on Saturdays, Sundays and Holidays. In any case where the date of maturity of interest on or principal of the Bonds or the date fixed for purchase or redemption of any Bonds shall not be a Business Day, then payment of principal, Purchase Price, premium, if any, or interest need not be made on such date but may be made on the next succeeding Business Day with the same force and effect as if made on the date of maturity or the date fixed for purchase or redemption.

     Section 13.06. Counterparts. This Indenture may be simultaneously executed in several counterparts, each of which shall be an original and all of such shall constitute but one and the same instrument.

     Section 13.07. Applicable Provisions of Law. This Indenture is governed by the laws of the State, without regard to the choice of law rules of the State. Venue for any action under this Indenture to which the Issuer is a party shall lie within the district courts of the State, and the

49

parties hereto consent to the jurisdiction and venue of any such court and hereby waive any argument that venue in such forums is not convenient.

     Section 13.08. Rules of Interpretation. Unless expressly indicated otherwise, references to Sections or Articles are to be construed as references to Sections or Articles of this instrument as originally executed. Use of the words “herein,” “hereby,” “hereunder,” “hereof,” “hereinbefore,” “hereinafter” and other equivalent words refer to this Indenture and not solely to the particular portion in which such word is used.

     Section 13.09. Captions. The captions and headings in this Indenture are for convenience only and in no way define, limit or describe the scope or intent of any provisions or Sections of this Indenture.

     Section 13.10. Certain References to Bank, Bank, Letter of Credit, Etc. If at any time the Bank has failed to honor a conforming draft submitted under the Letter of Credit in accordance with the provisions thereof, or is subject to any insolvency or receivership proceeding, and at all times following the Letter of Credit Termination Date, all references herein or in the Loan Agreement to the Bank or the Credit Agreement, and all provisions herein or in the Loan Agreement requiring the consent of the Bank for any purpose shall no longer be of any force or effect and the Loan Agreement and this Indenture shall be construed as if all such references were void. If at any time there shall be no Letter of Credit required at such time to be in effect, all references herein or in the Loan Agreement to the Bank or its consent or to the Letter of Credit or the Credit Agreement shall be of no force or effect and the Loan Agreement and this Indenture shall be construed as if all such references were void.

     Section 13.11. Limitation of Issuer’s Liability. No agreement or provision contained in this Indenture nor any agreement, covenant or undertaking by the Issuer contained in any document executed by the Issuer in connection with the Project or the issuance, sale and delivery of the Bonds shall give rise to any pecuniary liability of the Issuer or a charge against its general credit or taxing powers, or shall obligate the Issuer financially in any way except with respect to the proceeds of the Bonds and the revenues under the Agreement pledged to the payment of the Bonds and the interest thereon. No Owner shall ever have the right to compel any exercise of the taxing power of the Issuer to pay the Bonds or interest thereon, nor to enforce payment of them against any property of the Issuer except the revenues under the Agreement pledged to the payment thereof. No failure of the Issuer to comply with any term, condition, covenant or agreement herein shall subject the Issuer to liability for any claim for damages, costs or other financial or pecuniary charge except to the extent that the same can be paid or recovered from the revenues under the Agreement pledged to the payment of the Bonds and the interest thereon or proceeds of the Bonds; and no execution on any claim, demand, cause of action or judgment shall be levied upon or collected from the general credit, general funds or taxing powers of the Issuer. Nothing herein shall preclude a proper party in interest from seeking and obtaining specific performance against the Issuer for any failure to comply with any term, condition, covenant or agreement herein; provided, that no costs, expenses or other monetary relief shall be recoverable from the Issuer except as may be payable from the revenues under the Agreement pledged to the payment of the Bonds and the interest thereon.

50

     IN WITNESS WHEREOF, the Issuer has caused these presents to be executed in its name, and to evidence its acceptance of the trusts hereby created, the Trustee has caused these presents to be executed in its name.

CITY OF CHASKA, MINNESOTA
By	/s/ GARY F. VAN EYLL
	Mayor
And by	/s/ DAVE POKORNEY
	City Administrator

[Signature page to Indenture of Trust dated as of August 1, 2004, between the
City of Chaska, Minnesota and Wells Fargo Bank, National Association, as Trustee]

51

WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Trustee
By:	/s/ MARTHA K. EARLEY
	Its Assistant Vice President

[Signature page to Indenture of Trust dated as of August 1, 2004, between the
the City of Chaska, Minnesota and Wells Fargo Bank, National Association, as Trustee]

52

EXHIBIT A

(VARIABLE RATE FORM OF BOND)

UNITED STATES OF AMERICA
STATE OF MINNESOTA

CITY OF CHASKA
VARIABLE RATE DEMAND PURCHASE REVENUE BOND
(LIFECORE BIOMEDICAL, INC. PROJECT)
SERIES 2004

No. R-1 $5,630,000

     THIS BOND IS SUBJECT TO MANDATORY TENDER FOR PURCHASE AT THE TIME AND IN THE MANNER HEREINAFTER DESCRIBED, AND MUST BE SO TENDERED OR WILL BE DEEMED TO HAVE BEEN SO TENDERED UNDER CERTAIN CIRCUMSTANCES DESCRIBED HEREIN.

		Date of Original
Interest Rate	Maturity Date	Issuance	CUSIP
Variable	September 1, 2020	August __, 2004

See Reverse for Certain Definitions

Registered Owner: Cede & Co.

Principal Amount: $5,630,000

     City of Chaska, a Minnesota municipal corporation (the “Issuer”), for value received, hereby promises to pay, solely from the sources hereinafter described, to the registered owner named above or registered assigns, on the maturity date specified above, upon surrender hereof, the principal sum stated above, and in like manner to pay interest on said sum at the rate described below on the first day of each month and on the Conversion Date, commencing September 1, 2004 from the preceding interest payment date to which interest has been paid or duly provided for, unless no interest has been paid or duly provided for on the Bonds (as hereinafter defined), in which case from the Date of Original Issuance specified above, until payment of the principal hereof has been made or duly provided for. The principal of this Bond is payable in lawful money of the United States of America at the principal corporate trust offices of Wells Fargo Bank, National Association, in Minneapolis, Minnesota. Payment of interest on this Bond shall be made on each interest payment date to the registered Owner hereof as of the close of business on the Business Day immediately preceding such interest payment date (a “Record Date”) and shall be paid by the Trustee to such registered Owner at his address as it appears on the registration records maintained by the Trustee as Bond Registrar or at such other address as is furnished to the Trustee in writing by such registered Owner, or in such other manner as may be mutually acceptable to the Trustee and the registered Owner of this Bond.

A-1

The Purchase Price (hereinafter defined) of this Bond shall be payable by the Trustee to the registered Owner hereof at his address as it appears on the registration books maintained by the Trustee as Bond Registrar or at such other address as may be specified by such Owner at least 24 hours prior to the time such Purchase Price is due. Notwithstanding anything else set forth herein, however, so long as the Bonds are in Book-Entry Form, as provided in the Indenture of Trust dated as of August 1, 2004, between the Issuer and the Trustee (the “Indenture”), principal and interest shall be paid in accordance with the requirements of The Depository Trust Company, New York, New York (“DTC”), as in effect from time to time. So long as the Bonds are in Book-Entry Form, the operating procedures of DTC and the Issuer’s Blanket Letter of Representations shall apply, notwithstanding anything to the contrary set forth in this Bond or the Indenture.

     Neither the Bonds nor the interest thereon, nor any of the agreements or obligations of the Issuer, shall be construed to constitute an indebtedness of the City of Chaska, Minnesota, or the State of Minnesota within the meaning of any constitutional or statutory limitation, or to constitute or give rise to a charge against the general credit or taxing powers of the Issuer. The Bonds are limited obligations of the Issuer payable solely from the revenues described in the Indenture. Neither the Issuer, the State, nor any political subdivision thereof shall be obligated to pay the principal of or interest on the Bonds except from said revenues, and neither the faith and credit nor any taxing power of the Issuer, the State or any political subdivision thereof is pledged to the payment of the principal of or interest on the Bonds.

     This Bond shall bear interest as follows:

     (A) Prior to the Conversion Date, this Bond shall bear interest at the “Variable Rate.” From August 19, 2004 through and including August 23, 2004, the Variable Rate shall be equal to the rate set forth in the Indenture. Thereafter, the “Variable Rate” shall be a variable rate of interest equal to the lesser of (i) 10.00% per annum, or (ii) that rate which the Remarketing Agent determines, as of each Monday (or if the Remarketing Agent is not open for business on any Monday then on the last preceding day on which it is open for business) is the minimum rate which the Bonds would have to bear in order to enable the Remarketing Agent to remarket such Bonds at par on such date (whether or not any Bonds are actually to be remarketed on such date). The Variable Rate shall change on each Tuesday following any such determination.

     (B) The Bonds shall bear interest at the Fixed Rates from and after the Conversion Date until their stated maturities. A separate interest rate shall be assigned to each stated maturity and shall be the rate which, in the judgment of the Remarketing Agent, is the minimum rate which Bonds of such stated maturity must bear in order to enable the Remarketing Agent to remarket such Bonds at par on the Conversion Date. On the Conversion Date, the interest rate borne by the Bonds shall be converted to the rate or rates so determined by the Remarketing Agent.

     Prior to the Conversion Date, interest on the Bonds shall be computed on the basis of a 365-day or 366-day year, as the case may be, and the actual number of days elapsed. On and after the Conversion Date, interest on the Bonds shall be computed on the basis of a 360-day year of twelve 30-day months.

A-2

     As used herein, the term “Conversion Date” means the earlier to occur of either the Optional Conversion Date or the Automatic Conversion Date; the term “Automatic Conversion Date” means the interest payment date immediately preceding the Letter of Credit Termination Date, unless a Substitute Letter of Credit conforming to the Indenture is procured by the Borrower; the term “Optional Conversion Date” means that date, which shall be a Business Day, from and after which the interest rate on the Bonds is converted from the Variable Rate as a result of the exercise of the Conversion Option by Lifecore Biomedical, Inc., a Minnesota corporation (the “Borrower”); the term “Conversion Option” means the option granted to the Borrower in the Indenture pursuant to which the interest rate on the Bonds is converted from the Variable Rate to the Fixed Rates as of the Optional Conversion Date; the term “Purchase Price” means an amount equal to 100% of the principal amount of any Bond tendered or deemed tendered for purchase pursuant to the Indenture or with respect to which the Demand Purchase Option (as defined below) has been exercised or with respect to which the Bank has exercised its option to purchase in lieu of acceleration of the maturity thereof, plus, in the case of a purchase pursuant to the exercise of such Demand Purchase Option or purchase in lieu of acceleration, accrued and unpaid interest thereon to the date of purchase.

     The interest rate on the Bonds may be converted from the Variable Rate to the Fixed Rates upon satisfaction of certain conditions and notice given by the Borrower in accordance with the requirements of the Indenture, and the Bonds shall be subject to mandatory tender by the Owners thereof for purchase by the Borrower on the Conversion Date. On and after the Conversion Date the Demand Purchase Option will not be available to the Owners of the Bonds. On the Conversion Date, Owners of Bonds shall be required to tender their Bonds to the Trustee for purchase by or on behalf of the Borrower at the Purchase Price. Accrued interest on the Bonds will be payable on the Conversion Date to the Owners of Bonds as of the applicable Record Date. Any Bonds not delivered to the Tender Agent on or prior to the Conversion Date (“Undelivered Bonds”), for which there has been irrevocably deposited in trust with the Trustee an amount of money sufficient to pay the Purchase Price of the Undelivered Bonds, shall be deemed to have been purchased on the Conversion Date at the Purchase Price. IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO DELIVER ITS BONDS ON OR PRIOR TO THE CONVERSION DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO ACCRUE SUBSEQUENT TO THE CONVERSION DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFITS OF THE INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT OF THE PURCHASE PRICE THEREFOR.

     This Bond shall be purchased, at the option of the Owner hereof (“Demand Purchase Option”) at the Purchase Price, upon:

     (a) delivery in care of the Trustee at its principal corporate trust office and to the Remarketing Agent at its principal office of a notice (which shall be irrevocable and effective upon receipt) which states (i) the aggregate principal amount and the numbers (or other relevant book-entry account information) of Bonds to be purchased; and (ii) the date on which such Bonds are to be purchased, which date shall be a Business Day not prior to the seventh (7th) day next succeeding the date of delivery of such notice and which date shall be prior to the Conversion Date; and

A-3

     (b) in the event that the Bonds are not then in Book-Entry-Only Form, delivery in care of the Trustee at its principal corporate trust office at or prior to 11:00 A.M., Minneapolis, Minnesota, time, on the Business Day preceding the date designated for purchase in the notice described in (a) above of such Bonds to be purchased with an appropriate endorsement for transfer or accompanied by a bond power endorsed in blank; provided, that if this Bond is not then in Book-Entry-Only Form, this Bond shall be so purchased only if this Bond is delivered to the Trustee and conforms in all respects to the description thereof in the notice described in (a).

     Any delivery of a notice required to be made to the Trustee at its principal corporate trust office pursuant to paragraph (a) or (b) above shall be delivered to the Trustee at its principal corporate trust offices in Minneapolis, Minnesota, or to the office designated for such purpose by any successor Trustee. Any delivery of a notice required to be made to the Remarketing Agent pursuant to paragraph (a) above shall be delivered to the principal offices of the Remarketing Agent in Minneapolis, Minnesota, or to the office designated for such purpose by any successor Remarketing Agent.

     This Bond is one of an authorized issue of Bonds limited in aggregate principal amount to $5,630,000 (the “Bonds”) issued for the purpose of providing financing for a project of the Borrower, as described in the Loan Agreement mentioned below. The proceeds from the sale of the Bonds have been lent by the Issuer to the Borrower under the terms of a Loan Agreement dated as of August 1, 2004 (which agreement, as from time to time amended and supplemented, is hereinafter referred to as the “Agreement”), under which the Borrower is obligated to pay or cause to be paid amounts which are sufficient to pay the principal and Purchase Price of, premium, if any, and interest on the Bonds as the same shall become due in accordance with their terms and provisions and the terms and provisions of the Indenture.

     The Bonds are all issued under and are equally and ratably secured by and entitled to the protection of the Indenture, pursuant to which all payments due from the Borrower to the Issuer under the Agreement (other than certain indemnification payments and the payment of certain expenses of the Issuer) are assigned to the Trustee to secure the payment of the principal and Purchase Price of, and premium, if any, and interest on the Bonds. The Borrower has caused to be delivered to the Trustee an irrevocable Letter of Credit (together with any Substitute Letter of Credit, the “Letter of Credit”) issued by M&I Marshall & Ilsley Bank (in such capacity, the “Bank”), which will expire, unless earlier terminated, on September 15, 2007. Subject to certain conditions, the Letter of Credit may be replaced by a letter of credit, guaranty, insurance policy or other credit device (a “Substitute Letter of Credit”) of another commercial bank, savings and loan association, insurance company or other financial institution. Under the Letter of Credit, the Trustee will be entitled to draw up to an amount sufficient to pay (a) the principal of the Bonds or the portion of the Purchase Price corresponding to the principal of the Bonds and (b) up to 45 days’ accrued interest (at maximum rate of 10.00% per annum) on the Bonds or the portion of the Purchase Price of the Bonds corresponding to accrued interest thereon. Reference is hereby made to the Indenture for a description of the property pledged and assigned, the provisions, among others, with respect to the nature and extent of the security, the rights, duties and obligations of the Issuer, the Trustee and the Owners of the Bonds and the terms upon which the Bonds are issued and secured.

A-4

     This Bond is transferable by the registered Owner hereof in person or by its attorney duly authorized in writing, at the designated corporate trust office of the Trustee, but only in the manner, subject to the limitations and upon payment of the charges provided in the Indenture, and upon surrender and cancellation of this Bond. Upon such transfer a new registered Bond or Bonds of authorized denomination or denominations for the same aggregate principal amount will be issued to the transferee in exchange therefor. The Issuer and the Trustee may deem and treat the registered Owner hereof as the absolute Owner hereof (whether or not this Bond shall be overdue) for all purposes, and neither the Issuer nor the Trustee shall be bound by any notice or knowledge to the contrary.

     Prior to the Conversion Date, the Bonds are issuable as fully registered bonds in the authorized denominations of $100,000 and, above $100,000, any integral multiple of $5,000. From and after the Conversion Date, the Bonds shall be issuable as fully registered bonds in the denominations of $5,000 or any integral multiple thereof.

     The Bonds are subject to extraordinary redemption upon the occurrence of any of the events described in Section 3.01 of the Indenture, including exercise by the Borrower of its option to cause the Bonds to be redeemed as provided in Sections 5.06 and 5.07 of the Agreement, or the occurrence of a Determination of Taxability, as more fully provided in Section 4.08 of the Agreement. If called for extraordinary redemption, the Bonds shall be subject to redemption on any interest payment date, in whole, at a redemption price of one hundred percent (100%) of the principal amount thereof plus accrued interest to the redemption date. Reference is hereby made to Section 3.01 of the Indenture and Sections 4.07(a) and 4.08 of the Agreement for a description of the circumstances under which the Bonds are subject to extraordinary redemption.

     The Bonds are subject to mandatory redemption, in whole, on the Automatic Conversion Date, at 100% of the principal amount thereof plus accrued interest to the redemption date, if on or prior to the twentieth day prior to the Automatic Conversion Date (i) the Borrower has failed to provide the Trustee with an opinion of nationally recognized bond counsel to the effect that the proposed conversion of the interest rate on the Bonds to the Fixed Rates on the Automatic Conversion Date will not cause the interest on the Bonds to become includible in the gross income of the recipients thereof for purposes of federal income taxation, or (ii) the Fixed Rates have not been established in accordance with the terms of the Indenture.

     On or prior to the Conversion Date, the Bonds are subject to optional redemption, at the option of the Borrower, on any interest payment date on or after December 1, 2004, in whole or in part, and if in part, the Bonds to be redeemed to be selected in such manner as the Trustee shall determine (except as otherwise provided in the Indenture), at a redemption price of 100% of the principal amount thereof plus accrued interest to the redemption date.

     The Bonds are subject to mandatory sinking fund redemption on September 1 of the years and in the amounts set forth in Section 3.03 of the Indenture.

     After the Conversion Date, the Bonds are subject to optional redemption, at the option of the Borrower, on or after the First Optional Redemption Date (hereinafter defined), in whole at any time or in part on any interest payment date, less than all of the Bonds to be selected in such

A-5

manner as the Trustee shall determine (except as otherwise provided in the Indenture), at the redemption prices (expressed as percentages of principal amount) set forth in the following table plus accrued interest to the redemption date:

	Redemption
Redemption Dates	Prices
First Optional Redemption Date through the following August 31		102	%
First Anniversary of the First Optional Redemption Date through the following August 31		101	%
Second Anniversary of the First Optional Redemption Date and thereafter		100	%

As used herein, the term “First Optional Redemption Date” means the September 1 occurring in the year which is a number of years after the Conversion Date equal to the number of years between the September 1 immediately following the Conversion Date (unless the Conversion Date is a September 1, in which case from such September 1) and September 1, 2020, multiplied by 1/2 and rounded up to the nearest whole number.

     In the event any of the Bonds or portions thereof are called for redemption as aforesaid, notice of the call for redemption, identifying the Bonds or portions thereof to be redeemed, shall be given by the Trustee by mailing a copy of the redemption notice at least thirty (30) days but not more than sixty (60) days prior to the date fixed for redemption to the Owner of each Bond to be redeemed in whole or in part at the address shown on the registration books maintained by the Trustee as Bond Registrar. Any notice mailed as provided above shall be conclusively presumed to have been duly given, whether or not the Owner receives the notice. No further interest shall accrue on the principal of any Bond called for redemption after the redemption date if funds sufficient for such redemption have been deposited with the Trustee. Notwithstanding the foregoing, the notice requirements contained in the first sentence of this paragraph may be deemed satisfied with respect to a transferee of a Bond which has been purchased pursuant to the Demand Purchase Option after such Bond has previously been called for redemption, notwithstanding the failure to satisfy the notice requirements of the first sentence of this paragraph with respect to such transferee, as more fully provided in Section 3.04 of the Indenture.

     This Bond and all other Bonds of the issue of which it forms a part are issued under and pursuant to Minnesota Statutes, Sections 469.152 to 469.1651, as amended (the “Act”), and pursuant to a Bond Resolution adopted by the Issuer. This Bond and the issue of which it forms a part are not an indebtedness or other liability of the Issuer, the State or of any political subdivision of the State and are payable solely out of Bond proceeds, revenues and other amounts derived under the hereinafter described Loan Agreement, and the funds and accounts held under and pursuant to the Indenture and pledged therefor. The Bonds, the interest thereon and any other payments or costs incident thereto do not constitute an indebtedness of the Issuer,

A-6

the State or any political subdivision thereof within the meaning of any constitutional or statutory provisions. The Issuer shall not pledge its faith or credit nor the faith or credit of the State nor any political subdivision of the State to the payment of this Bond. The issuance of this Bond by the Issuer does not directly, indirectly or contingently obligate the Issuer, the State or a political subdivision of the State to apply money from, or levy or pledge any form of taxation whatever to the payment of this Bond. The Bonds and the interest payable thereon do not give rise to a pecuniary liability of the Issuer or a charge against its general credit or taxing power of the Issuer, the State of Minnesota or any political subdivision thereof for the payment of the Bonds or the interest thereon or other payments or costs incident thereto.

     The Owner of this Bond shall have no right to enforce the provisions of the Indenture or to institute action to enforce the covenants therein, or to take any action with respect to any default under the Indenture, or to institute, appear in or defend any suit or other proceedings with respect thereto, unless certain circumstances described in the Indenture shall have occurred. In certain events, on the conditions, in the manner and with the effect set forth in the Indenture, the principal of all the Bonds issued under the Indenture and then outstanding may become or may be declared due and payable before the stated maturity thereof, together with interest accrued thereon.

     The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights of the Owners of the Bonds at any time by the Issuer and the Trustee, at the request of the Borrower, and with the written consent of the Bank and the holders of a majority in aggregate principal amount of the Bonds at the time outstanding. Any such consent or any waiver by the Bank and the holders of a majority in aggregate principal amount of the Bonds shall be conclusive and binding upon the Owner and upon all future Owners of this Bond and of any Bond issued in replacement hereof whether or not notation of such consent or waiver is made upon this Bond. The Indenture also contains provisions which, subject to certain conditions, permit or require the Trustee to waive certain past defaults under the Indenture and their consequences.

     It is hereby certified, recited and declared that all acts, conditions and things required to exist, to happen and to be performed precedent to and in the execution and delivery of the Indenture and the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by law; and that the issuance of this Bond and the issue of which it forms a part, together with all other obligations of the Issuer, does not exceed or violate any constitutional or statutory limitation.

     This Bond shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Indenture until the certificate of authentication hereon shall have been signed by the Trustee.

A-7

     IN WITNESS WHEREOF, City of Chaska, Minnesota, has caused this Bond to be duly executed in its name by the manual or facsimile signature of one or more of its duly authorized officers.

		CITY OF CHASKA, MINNESOTA
		By:
			Mayor
Attest:
By:
	City Administrator
[SEAL]

A-8

(Form of Certificate of Authentication)

CERTIFICATE OF AUTHENTICATION

     This Bond is one of the Bonds of the issue described in the within-mentioned Indenture of Trust.

Date of Authentication:

WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Trustee
By
	Authorized Signatory

A-9

     FOR VALUE RECEIVED,                    , the undersigned, hereby sells, assigns and transfers unto                     the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints                     attorney to transfer the within Bond on the records kept for registration thereof, with full power of substitution in the premises.

Dated:

________________________________________________

PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER OF ASSIGNEE                                                           /                                                         /

NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Bond in every particular, without alteration or enlargement or any change whatever. Signature guarantee must be provided in accordance with the prevailing standards and procedures of the Registrar and Transfer Agent which may require signatures to be guaranteed by certain eligible guarantor institutions which participate in a recognized signature guarantee program.

     The following abbreviations, when used in the inscription on the face of this Bond, shall be construed as though they were written out in full according to applicable laws or regulations:

TEN COM —	as tenants	UNIF TRANS MIN ACT		___________	Custodian	____________
	in common			(Cust)		(Minor)
TEN ENT —	as tenants
	by the entireties
JT TEN —	as joint tenants with right of		under Uniform Transfers to Minors Act ________________
	survivorship and not as tenants in common			(State)

Additional abbreviations may also be used
although not in the above list. `

A-10

EXHIBIT B

(FIXED RATE FORM OF BOND)

UNITED STATES OF AMERICA
STATE OF MINNESOTA

CITY OF CHASKA
REVENUE BOND
(LIFECORE BIOMEDICAL, INC.)
SERIES 2004

Interest Rate Maturity Date Date of Issuance CUSIP

SEE REVERSE FOR CERTAIN DEFINITIONS
REGISTERED OWNER:
PRINCIPAL AMOUNT:	DOLLARS
No. R-	$

     City of Chaska, Minnesota, a Minnesota municipal corporation (the “Issuer”), for value received, hereby promises to pay solely from the source and as hereinafter provided, to the registered owner named above or registered assigns, on the maturity date specified above, upon surrender hereof, the principal sum stated above and in like manner to pay interest (calculated on the basis of a 360-day year of twelve 30-day months) on said sum at the rate per annum specified above on September 1 and March 1 of each year, commencing       1,      , or from the interest payment date next preceding the date hereof to which interest has been paid or duly provided for, unless the date hereof is an interest payment date to which interest has been paid or duly provided for, in which case from the date hereof or unless no interest has been paid or duly provided for on the Bonds (as hereinafter defined), in which case from the Date of Issuance specified above until payment of the principal hereof has been made or duly provided for. The principal of this Bond is payable in lawful money of the United States of America at the principal corporate trust offices of Wells Fargo Bank, National Association, in Minneapolis, Minnesota. Payment of interest on this Bond shall be made on each interest payment date to the registered Owner hereof as of the close of business on the fifteenth day of the month (whether or not a Business Day) preceding the month in which there occurs such interest payment date and shall be paid by check mailed by the Trustee to such registered Owner at his address as it appears on the registration books maintained by the Trustee as Bond Registrar or at such other address as is furnished to the Trustee in writing by such registered Owner, or in such other manner as may be mutually acceptable to the Trustee and the registered Owner of this Bond.

B-1

     This Bond is one of an authorized issue of Bonds limited in aggregate principal amount to $5,630,000 (the “Bonds”) issued for the purpose of providing financing for a “project” of Lifecore Biomedical, Inc., a Minnesota corporation (the “Borrower”). The proceeds from the sale of the Bonds have been lent by the Issuer to the Borrower under the terms of a Loan Agreement dated as of August 1, 2004 (which agreement, as from time to time amended and supplemented, is hereinafter referred to as the “Agreement”), under which the Borrower is obligated to pay amounts which are sufficient to pay the principal of, premium, if any, and interest on the Bonds as the same shall become due in accordance with their terms and provisions and the terms and provisions of the Indenture of Trust dated as of August 1, 2004 between the Issuer and the Trustee (the “Indenture”).

     Neither the Bonds nor the interest thereon, nor any of the agreements or obligations of the Issuer, shall be construed to constitute an indebtedness of City of Chaska, Minnesota, or the State of Minnesota (the “State”) within the meaning of any constitutional or statutory limitation, or to constitute or give rise to a charge against the general credit or taxing powers of the Issuer. The Bonds are limited obligations of the Issuer payable solely from the revenues described in the Indenture. Neither the Issuer, the State, nor any political subdivision thereof shall be obligated to pay the principal of or interest on the Bonds except from said revenues, and neither the faith and credit nor the taxing power of the Issuer, the State or any political subdivision thereof is pledged to the payment of the principal of or interest on the Bonds.

     ADDITIONAL PROVISIONS OF THIS BOND ARE CONTAINED ON THE REVERSE HEREOF AND SUCH PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH HEREIN.

     This Bond shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Indenture until the certificate of authentication hereon shall have been signed by the Trustee.

B-2

     IN WITNESS WHEREOF, the City of Chaska, Minnesota, has caused this Bond to be duly executed in its name by the manual or facsimile signatures of one or more of its duly authorized officers.

		CITY OF CHASKA, MINNESOTA
[SEAL]
		By:
			Mayor
Attest:
By:
	City Administrator

B-3

(Form of Certificate of Authentication)

CERTIFICATE OF AUTHENTICATION

     This Bond is one of the Bonds of the issue described in the within-mentioned Indenture of Trust.

Date of Authentication:

WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Trustee
By
	Authorized Signature

[Reverse of Bond]

     The Bonds are all issued under and are equally and ratably secured by and entitled to the protection of the Indenture, pursuant to which all payments due from the Borrower to the Issuer under the Agreement (other than certain indemnification payments and the payment of certain expenses of the Issuer) are assigned to the Trustee to secure the payment of the principal of and premium, if any, and interest on the Bonds. Reference is hereby made to the Indenture for a description of the property pledged and assigned, the provisions, among others, with respect to the nature and extent of the security, the rights, duties and obligations of the Issuer, the Trustee and the Owners of the Bonds, and the terms upon which the Bonds are issued and secured.

     This Bond is transferable by the registered Owner hereof in person or by its attorney duly authorized in writing, at the principal corporate trust office of the Trustee but only in the manner, subject to the limitations and upon payment of the charges provided in the Indenture, and upon surrender and cancellation of this Bond. Upon such transfer a new registered Bond or Bonds of authorized denomination or denominations for the same aggregate principal amount will be issued to the transferee in exchange therefor. The Issuer and the Trustee may deem and treat the registered Owner hereof as the absolute Owner hereof (whether or not this Bond shall be overdue) for all purposes, and neither the Issuer nor the Trustee shall be bound by any notice or knowledge to the contrary.

     The Bonds are issuable as fully registered Bonds in the denomination of $5,000 or any integral multiple thereof.

     The Bonds are subject to redemption in the event (1) the Borrower shall exercise its option to cause the Bonds to be redeemed as provided in Section 4.07(a) of the Agreement, or (2) the Borrower shall be obligated to cause the Bonds to be redeemed as provided in Section 4.08 of the Agreement. If called for redemption at any time pursuant to (1) or (2) above, the Bonds shall be subject to redemption by the Issuer on any interest payment date, in whole at a redemption price of one hundred percent (100%) of the principal amount thereof plus

B-4

accrued interest to the redemption date. Reference is hereby made to Section 4.07(a) and Section 4.08 of the Agreement for a description of the circumstances under which the Borrower may cause or be required to cause the Bonds to be redeemed.

     [Insert any mandatory sinking fund redemption provisions]

     The Bonds are subject to redemption by the Issuer, at the option of the Borrower, on or after September 1,          , in whole at any time or in part on any interest payment date, and if less than all of the Bonds are to be redeemed, the Bonds to be redeemed shall be selected [in inverse order of maturity and] in such manner as the Trustee shall determine (except as otherwise provided in the Indenture), at the redemption prices (expressed as percentages of principal amount) set forth in the following table plus accrued interest to the redemption date:

Redemption Dates	Redemption Prices
September 1, ____ through August 31, ____		102	%
September 1, ____ through August 31, ____		101	%
September 1, ____ and thereafter		100	%

     In the event any of the Bonds or portions thereof are called for redemption as aforesaid, notice of the call for redemption, identifying the Bonds or portions thereof to be redeemed, shall be given by the Trustee by mailing a copy of the redemption notice at least thirty (30) days but not more than sixty (60) days prior to the date fixed for redemption to the Owner of each Bond to be redeemed in whole or in part at the address shown on the registration books maintained by the Trustee as Bond Registrar. Any notice mailed as provided above shall be conclusively presumed to have been duly given, whether or not the Owner receives the notice. No further interest shall accrue on the principal of any Bond called for redemption after the redemption date if funds sufficient for such redemption have been deposited with the Trustee.

     This Bond and all other Bonds of the issue of which it forms a part are issued under and pursuant to Minnesota Statutes, Sections 469.152 to 469.1651, as amended (the “Act”), and pursuant to a Bond Resolution adopted by the Issuer. This Bond and the issue of which it forms a part are not an indebtedness or other liability of the Issuer, the State or of any political subdivision of the State and are payable solely out of Bond proceeds, revenues and other amounts derived under the hereinafter described Loan Agreement, and the funds and accounts held under and pursuant to the Indenture and pledged therefor. The Bonds, the interest thereon and any other payments or costs incident thereto do not constitute an indebtedness of the Issuer, the State or any political subdivision thereof within the meaning of any constitutional or statutory provisions. The Issuer shall not pledge its faith or credit nor the faith or credit of the State nor any political subdivision of the State to the payment of this Bond. The issuance of this Bond by the Issuer does not directly, indirectly or contingently obligate the Issuer, the State or a political subdivision of the State to apply money from, or levy or pledge any form of taxation whatever to the payment of this Bond. The Bonds and the interest payable thereon do not give rise to a pecuniary liability of the Issuer or a charge against its general credit or taxing power of the Issuer, the State of Minnesota or any political subdivision thereof for the payment of the Bonds or the interest thereon or other payments or costs incident thereto.

B-5

     The Owner of this Bond shall have no right to enforce the provisions of the Indenture or to institute action to enforce the covenants therein, or to take any action with respect to any default under the Indenture, or to institute, appear in or defend any suit or other proceedings with respect thereto, unless certain circumstances described in the Indenture shall have occurred. In certain events, on the conditions, in the manner and with the effect set forth in the Indenture, the principal of all the Bonds issued under the Indenture and then outstanding may become or may be declared due and payable before the stated maturity thereof, together with interest accrued thereon.

     The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights of the Owners of the Bonds at any time by the Issuer with the consent of the Owners of a majority in aggregate principal amount of the Bonds at the time outstanding. Any such consent or any waiver by the Owners of a majority in aggregate principal amount of the Bonds shall be conclusive and binding upon the Owner and upon all future Owners of this Bond and of any Bond issued in replacement hereof whether or not notation of such consent or waiver is made upon this Bond. The Indenture also contains provisions which, subject to certain conditions, permit or require the Trustee to waive certain past defaults under the Indenture and their consequences.

     It is hereby certified, recited and declared that all acts, conditions and things required to exist, to happen and to be performed precedent to and in the execution and delivery of the Indenture and the issuance of this Bond do exist, have happened and have been performed in due time, form and manner as required by law; and that the issuance of this Bond and the issue of which it forms a part, together with all other obligations of the Issuer does not exceed or violate any constitutional or statutory limitation.

B-6

     FOR VALUE RECEIVED,           assigns and transfers unto           the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints           attorney to transfer the within Bond on the books kept for registration thereof with full power of substitution in the premises.

Dated: _______________________	________________________________________________
	NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Bond in every particular, without alteration or enlargement or any change whatever. Signature guarantee must be provided in accordance with the prevailing standards and procedures of the Registrar and
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER OF ASSIGNEE                                                           /                                                         /	Transfer Agent which may require signatures to be guaranteed by certain eligible guarantor institutions which participate in a recognized signature guarantee program.

     The following abbreviations, when used in the inscription on the face of this Bond, shall be construed as though they were written out in full according to applicable laws or regulations:

TEN COM —	as tenants	UNIF TRANS MIN ACT		___________	Custodian	____________
	in common			(Cust)		(Minor)
TEN ENT —	as tenants
	by the entireties
JT TEN —	as joint tenants with right of		under Uniform Transfers to Minors Act ______________
	survivorship and not as tenants in common			(State)

Additional abbreviations may also be used
although not in the above list.

B-7

EX-10.6

Exhibit 10.6

LIFECORE BIOMEDICAL, INC.

2003 STOCK INCENTIVE PLAN

SEPTEMBER 24, 2003

Table of Contents

Section 1.	Purpose	1
Section 2.	Definitions	1
Section 3.	Administration	3
(a)	Power and Authority of the Committee	3
(b)	Delegation	3
(c)	Power and Authority of the Board	4
Section 4.	Shares Available for Awards	4
(a)	Shares Available	4
(b)	Accounting for Awards	4
(c)	Adjustments	4
(d)	Award Limitations Under the Plan	4
Section 5.	Eligibility	5
Section 6.	Awards	5
(a)	Options	5
(b)	Stock Appreciation Rights	6
(c)	Restricted Stock and Restricted Stock Units	6
(d)	Performance Awards	7
(e)	Other Stock Grants	7
(f)	Other Stock-Based Awards	7
(g)	General	8
Section 7.	Amendment and Termination; Adjustments	9
(a)	Amendments to the Plan	9
(b)	Amendments to Awards	10
(c)	Correction of Defects, Omissions and Inconsistencies	10
Section 8.	Income Tax Withholding	10
Section 9.	General Provisions	11
(a)	No Rights to Awards	11
(b)	Award Agreements	11
(c)	Plan Provisions Control	11
(d)	No Rights of Shareholders	11
(e)	No Limit on Other Compensation Arrangements	11
(f)	No Right to Employment	11
(g)	Governing Law	12
(h)	Severability	12
(i)	No Trust or Fund Created	12

ii 

(j)	Other Benefits	12
(k)	No Fractional Shares	12
(l)	Headings	12
(m)	Section 16 Compliance; Section 162(m) Administration	12
(n)	Conditions Precedent to Issuance of Shares	13
Section 10.	Effective Date of the Plan	13
Section 11.	Term of the Plan	13

iii 

LIFECORE BIOMEDICAL, INC.
2003 STOCK INCENTIVE PLAN

Section 1. Purpose

     The purpose of the Plan is to promote the interests of the Company and its shareholders by aiding the Company in attracting and retaining employees, officers, consultants, independent contractors and directors capable of assuring the future success of the Company, to offer such persons incentives to put forth maximum efforts for the success of the Company’s business and to afford such persons an opportunity to acquire a proprietary interest in the Company.

Section 2. Definitions

     As used in the Plan, the following terms shall have the meanings set forth below:

     (a) “Affiliate” shall mean (i) any entity that, directly or indirectly through one or more intermediaries, is controlled by the Company and (ii) any entity in which the Company has a significant equity interest, in each case as determined by the Committee.

     (b) “Award” shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award, Other Stock Grant or Other Stock-Based Award granted under the Plan.

     (c) “Award Agreement” shall mean any written agreement, contract or other instrument or document evidencing any Award granted under the Plan. Each Award Agreement shall be subject to the applicable terms and conditions of the Plan and any other terms and conditions (not inconsistent with the Plan) determined by the Committee.

     (d) “Board” shall mean the Board of Directors of the Company.

     (e) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder.

     (f) “Committee” shall mean a committee of Directors designated by the Board to administer the Plan, which shall initially be the Company’s compensation committee. The Committee shall be comprised of not less than such number of Directors as shall be required to permit Awards granted under the Plan to qualify under Rule 16b-3 and Section 162(m) of the Code, and each member of the Committee shall be a “Non-Employee Director.”

     (g) “Company” shall mean Lifecore Biomedical, Inc., a Minnesota corporation, and any successor corporation.

     (h) “Director” shall mean a member of the Board, including any Non-Employee Director.

     (i) “Eligible Person” shall mean any employee, officer, consultant, independent contractor or director providing services to the Company or any Affiliate who the Committee determines to be an Eligible Person.

     (j) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

     (k) “Fair Market Value” shall mean, with respect to any property (including, without limitation, any Shares or other securities), the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee. Notwithstanding the foregoing and unless otherwise determined by the Committee, the Fair Market Value of a Share as of a given date shall be, if the Shares are then listed on the Nasdaq National Market, the closing sale price of one Share as reported on the Nasdaq National Market on such date or, if the Nasdaq National Market is not open for trading on such date, on the most recent preceding date when it is open for trading.

     (l) “Incentive Stock Option” shall mean an option granted under Section 6(a) of the Plan that is intended to qualify as an “incentive stock option” in accordance with the terms of Section 422 of the Code or any successor provision.

     (m) “Non-Employee Director” shall mean any Director who is not also an employee of the Company or an Affiliate within the meaning of Rule 16b-3 and an “outside director” within the meaning of Section 162(m) of the Code.

     (n) “Non-Qualified Stock Option” shall mean an option granted under Section 6(a) of the Plan that is not an Incentive Stock Option.

     (o) “Option” shall mean an Incentive Stock Option or a Non-Qualified Stock Option.

     (p) “Other Stock Grant” shall mean any right granted under Section 6(e) of the Plan.

     (q) “Other Stock-Based Award” shall mean any right granted under Section 6(f) of the Plan.

     (r) “Participant” shall mean an Eligible Person designated to be granted an Award under the Plan.

     (s) “Performance Award” shall mean any right granted under Section 6(d) of the Plan.

     (t) “Person” shall mean any individual or entity, including a corporation, partnership, limited liability company, association, joint venture or trust.

     (u) “Plan” shall mean the Lifecore Biomedical, Inc. 2003 Stock Incentive Plan, as amended from time to time, the provisions of which are set forth herein.

     (v) “Restricted Stock” shall mean any Share granted under Section 6(c) of the Plan.

2

     (w) “Restricted Stock Unit” shall mean any unit granted under Section 6(c) of the Plan evidencing the right to receive a Share (or a cash payment equal to the Fair Market Value of a Share) at some future date.

     (x) “Rule 16b-3” shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, or any successor rule or regulation.

     (y) “Securities Act” shall mean the Securities Act of 1933, as amended.

     (z) “Share” or “Shares” shall mean a share or shares of common stock, $.01 par value per share, of the Company or such other securities or property as may become subject to Awards pursuant to an adjustment made under Section 4(c) of the Plan.

     (aa) “Stock Appreciation Right” shall mean any right granted under Section 6(b) of the Plan.

Section 3. Administration

     (a) Power and Authority of the Committee. The Plan shall be administered by the Committee. Subject to the express provisions of the Plan and to applicable law, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to each Participant under the Plan; (iii) determine the number of Shares to be covered by (or the method by which payments or other rights are to be determined in connection with) each Award; (iv) determine the terms and conditions of any Award or Award Agreement; (v) amend the terms and conditions of any Award or Award Agreement and accelerate the exercisability of any Option or waive any restrictions relating to any Award; (vi) determine whether, to what extent and under what circumstances Awards may be exercised in cash, Shares, promissory notes (provided, however, that the acceptance of such promissory notes does not conflict with Section 402 of the Sarbanes-Oxley Act of 2002) other securities, other Awards or other property, or canceled, forfeited or suspended; (vii) interpret and administer the Plan and any instrument or agreement, including an Award Agreement, relating to the Plan; (viii) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon any Eligible Person and any holder or beneficiary of any Award.

     (b) Delegation. The Committee may delegate to one or more officers or Directors of the Company, subject to such terms, conditions and limitations as the Committee may establish in its sole discretion, the authority to grant Options; provided, however, that the Committee shall not delegate such authority (i) with regard to grants of Options to be made to officers or directors of the Company or any Affiliate who are subject to Section 16 of the Exchange Act or (ii) in such a manner as would cause the Plan not to comply with the requirements of Section 162(m) of

3

the Code or (iii) in such a manner as would contravene Section 409 of the Minnesota Business Corporation Act.

     (c) Power and Authority of the Board. Notwithstanding anything to the contrary contained herein, the Board may, at any time and from time to time, without any further action of the Committee, exercise the powers and duties of the Committee under the Plan.

Section 4. Shares Available for Awards

     (a) Shares Available. Subject to adjustment as provided in Section 4(c) of the Plan, the aggregate number of Shares that may be issued under the Plan shall be 1,000,000. Notwithstanding the foregoing, (i) the number of Shares available for granting Incentive Stock Options under the Plan shall not exceed 1,000,000, subject to adjustment as provided in Section 4(c) of the Plan and subject to the provisions of Section 422 or 424 of the Code or any successor provision and (ii) the number of Shares available for granting Restricted Stock and Restricted Stock Units shall not exceed 500,000, subject to adjustment as provided in Section 4(c) of the Plan.

     (b) Accounting for Awards. For purposes of this Section 4, if an Award entitles the holder thereof to receive or purchase Shares, the number of Shares covered by such Award or to which such Award relates shall be counted on the date of grant of such Award against the aggregate number of Shares available for granting Awards under the Plan. If any Shares covered by an Award or to which an Award relates are not purchased or are forfeited, or if an Award otherwise terminates without delivery of any Shares, then the number of Shares counted against the aggregate number of Shares available under the Plan with respect to such Award, to the extent of any such forfeiture or termination, shall again be available for granting Awards under the Plan.

     (c) Adjustments. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares (or other securities or other property) that thereafter may be made the subject of Awards, (ii) the number and type of Shares (or other securities or other property) subject to outstanding Awards and (iii) the purchase price or exercise price with respect to any Award; provided, however, that the number of Shares covered by any Award or to which such Award relates shall always be a whole number.

     (d) Award Limitations Under the Plan. No Eligible Person may be granted any Award or Awards under the Plan, the value of which Award or Awards is based solely on an increase in the value of the Shares after the date of grant of such Award or Awards, for more

4

than 100,000 Shares (subject to adjustment as provided for in Section 4(c) of the Plan), in the aggregate in any taxable year. The foregoing annual limitation specifically includes the grant of any Award or Awards representing “qualified performance-based compensation” within the meaning of Section 162(m) of the Code.

Section 5. Eligibility

     Any Eligible Person shall be eligible to be designated a Participant. In determining which Eligible Persons shall receive an Award and the terms of any Award, the Committee may take into account the nature of the services rendered by the respective Eligible Persons, their present and potential contributions to the success of the Company or such other factors as the Committee, in its discretion, shall deem relevant. Notwithstanding the foregoing, an Incentive Stock Option may only be granted to full-time or part-time employees (which term as used herein includes, without limitation, officers and directors who are also employees), and an Incentive Stock Option shall not be granted to an employee of an Affiliate unless such Affiliate is also a “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code or any successor provision.

Section 6. Awards

     (a) Options. The Committee is hereby authorized to grant Options to Eligible Persons with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine:

     (i) Exercise Price. The purchase price per Share purchasable under an Option shall be determined by the Committee; provided, however, that such purchase price shall not be less than 100% of the Fair Market Value of a Share on the date of grant of such Option.

     (ii) Option Term. The term of each Option shall be fixed by the Committee at the time of grant.

     (iii) Time and Method of Exercise. The Committee shall determine the time or times at which an Option may be exercised in whole or in part and the method or methods by which, and the form or forms (including, without limitation, cash, Shares, promissory notes (provided, however, that the acceptance of such promissory notes does not conflict with Section 402 of the Sarbanes-Oxley Act of 2002) other securities, other Awards or other property, or any combination thereof, having a Fair Market Value on the exercise date equal to the applicable exercise price) in which, payment of the exercise price with respect thereto may be made or deemed to have been made.

     (iv) Incentive Stock Options. Notwithstanding anything in the Plan to the contrary, the following additional provisions shall apply to the grant of stock options which are intended to qualify as Incentive Stock Options:

     (A) The Committee will not grant Incentive Stock Options in which the aggregate Fair Market Value (determined as of the time the option is granted) of

5

the Shares with respect to which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under this Plan and all other plans of the Company and its Affiliates) shall exceed $100,000.

     (B) All Incentive Stock Options must be granted within ten years from the earlier of the date on which this Plan was adopted by the Board or the date this Plan was approved by the shareholders of the Company.

     (C) Unless sooner exercised, all Incentive Stock Options shall expire and no longer be exercisable no later than 10 years after the date of grant; provided, however, that in the case of a grant of an Incentive Stock Option to a Participant who, at the time such Option is granted, owns (within the meaning of Section 422 of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of its Affiliate, such Incentive Stock Option shall expire and no longer be exercisable no later than five years from the date of grant.

     (D) The purchase price per Share for an Incentive Stock Option shall be not less than 100% of the Fair Market Value of a Share on the date of grant of the Incentive Stock Option; provided, however, that, in the case of the grant of an Incentive Stock Option to a Participant who, at the time such Option is granted, owns (within the meaning of Section 422 of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of its Affiliate, the purchase price per Share purchasable under an Incentive Stock Option shall be not less than 110% of the Fair Market Value of a Share on the date of grant of the Incentive Stock Option.

     (E) Any Incentive Stock Option authorized under the Plan shall contain such other provisions as the Committee shall deem advisable, but shall in all events be consistent with and contain all provisions required in order to qualify the Option as an Incentive Stock Option.

     (b) Stock Appreciation Rights. The Committee is hereby authorized to grant Stock Appreciation Rights to Eligible Persons subject to the terms of the Plan. Each Stock Appreciation Right granted under the Plan shall confer on the holder upon exercise the right to receive, as determined by the Committee, cash or a number of Shares equal to the excess of (i) the Fair Market Value of one Share on the date of exercise over (ii) the grant price of the Stock Appreciation Right as determined by the Committee, which grant price shall not be less than 100% of the Fair Market Value of one Share on the date of grant of the Stock Appreciation Right. Subject to the terms of the Plan, the grant price, term, methods of exercise, dates of exercise, methods of settlement and any other terms and conditions (including conditions or restrictions on the exercise thereof) of any Stock Appreciation Right shall be as determined by the Committee.

     (c) Restricted Stock and Restricted Stock Units. The Committee is hereby authorized to grant Restricted Stock and Restricted Stock Units to Eligible Persons with the following terms and conditions and with such additional terms

6

and conditions not inconsistent with the provisions of the Plan as the Committee shall determine:

     (i) Restrictions. Shares of Restricted Stock and Restricted Stock Units shall be subject to such restrictions as the Committee may impose (including, without limitation, a restriction on or prohibition against the right to receive any dividend or other right or property with respect thereto), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise as the Committee may deem appropriate.

     (ii) Stock Certificates. Any Restricted Stock granted under the Plan shall be evidenced by the issuance of a stock certificate or certificates, which shall be held by the Company. Such certificate or certificates shall be registered in the name of the Participant and shall bear an appropriate legend referring to the applicable Award Agreement and possible forfeiture of such shares of Restricted Stock.

     (iii) Forfeiture. Except as otherwise determined by the Committee, upon a Participant’s termination of employment (as determined under criteria established by the Committee) during the applicable restriction period, all applicable Shares of Restricted Stock and Restricted Stock Units at such time subject to restriction shall be forfeited and reacquired by the Company; provided, however, that the Committee may, when it finds that a waiver would be in the best interest of the Company, waive in whole or in part any or all remaining restrictions with respect to Shares of Restricted Stock or Restricted Stock Units.

     (d) Performance Awards. The Committee is hereby authorized to grant Performance Awards to Eligible Persons subject to the terms of the Plan. A Performance Award granted under the Plan (i) may be denominated or payable in cash, Shares (including, without limitation, Restricted Stock and Restricted Stock Units), other securities, other Awards or other property and (ii) shall confer on the holder thereof the right to receive payments, in whole or in part, upon the achievement of such performance goals during such performance periods as the Committee shall establish. Subject to the terms of the Plan, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award granted, the amount of any payment or transfer to be made pursuant to any Performance Award and any other terms and conditions of any Performance Award shall be determined by the Committee.

     (e) Other Stock Grants. The Committee is hereby authorized, subject to the terms of the Plan, to grant to Eligible Persons Shares without restrictions thereon as are deemed by the Committee to be consistent with the purpose of the Plan.

     (f) Other Stock-Based Awards. The Committee is hereby authorized to grant to Eligible Persons, subject to the terms of the Plan, such other Awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares), as are deemed by the Committee to be consistent with the purpose of the Plan. Shares or other securities delivered

7

pursuant to a purchase right granted under this Section 6(f) shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms (including, without limitation, cash, Shares, promissory notes (provided, however, that the acceptance such promissory notes does not conflict with Section 402 of the Sarbanes-Oxley Act of 2002) other securities, other Awards or other property or any combination thereof), as the Committee shall determine, the value of which consideration, as established by the Committee, shall not be less than 100% of the Fair Market Value of such Shares or other securities as of the date such purchase right is granted.

     (g) General.

     (i) Consideration for Awards. Awards may be granted for no cash consideration or for any cash or other consideration as determined by the Committee and required by applicable law.

     (ii) Awards May Be Granted Separately or Together. Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with or in substitution for any other Award or any award granted under any plan of the Company or any Affiliate. Awards granted in addition to or in tandem with other Awards or in addition to or in tandem with awards granted under any such other plan of the Company or any Affiliate may be granted either at the same time as or at a different time from the grant of such other Awards or awards.

     (iii) Forms of Payment under Awards. Subject to the terms of the Plan, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise or payment of an Award may be made in such form or forms as the Committee shall determine (including, without limitation, cash, Shares, promissory notes (provided, however, that the acceptance of such promissory notes does not conflict with Section 402 of the Sarbanes-Oxley Act of 2002), other securities, other Awards or other property or any combination thereof), and may be made in a single payment or transfer, in installments or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments.

     (iv) Limits on Transfer of Awards. No Award (other than Other Stock Grants) and no right under any such Award shall be transferable by a Participant otherwise than by will or by the laws of descent and distribution and the Company shall not be required to recognize any attempted assignment of such rights by any Participant; provided, however, that, if so determined by the Committee, a Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the Participant and receive any property distributable with respect to any Award upon the death of the Participant; provided, further, that, if so determined by the Committee, a Participant may transfer a Non-Qualified Stock Option to any Family Member (as such term is defined in the General Instructions to Form S-8 (or successor to such Instructions or such Form)) at any time that such Participant holds such Option,

8

provided that the Participant may not receive any consideration for such transfer, the Family Member may not make any subsequent transfers other than by will or by the laws of descent and distribution and the Company receives written notice of such transfer, provided, further, that, if so determined by the Committee and except in the case of an Incentive Stock Option, Awards may be transferable as determined by the Committee. Except as otherwise determined by the Committee, each Award (other than an Incentive Stock Option) or right under any such Award shall be exercisable during the Participant’s lifetime only by the Participant or, if permissible under applicable law, by the Participant’s guardian or legal representative. Except as otherwise determined by the Committee, no Award (other than an Incentive Stock Option) or right under any such Award may be pledged, alienated, attached or otherwise encumbered, and any purported pledge, alienation, attachment or other encumbrance thereof shall be void and unenforceable against the Company or any Affiliate.

     (v) Term of Awards. Subject to Section 6(a)(iv)(C) of the Plan, the term of each Award shall be for such period as may be determined by the Committee.

     (vi) Restrictions; Securities Exchange Listing. All Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan, applicable federal or state securities laws and regulatory requirements, and the Committee may direct appropriate stop transfer orders and cause other legends to be placed on the certificates for such Shares or other securities to reflect such restrictions. If the Shares or other securities are traded on a securities exchange, the Company shall not be required to deliver any Shares or other securities covered by an Award unless and until such Shares or other securities have been admitted for trading on such securities exchange.

     (vii) Prohibition on Repricing. Except as provided in Section 4(c) of the Plan, no Option or Stock Appreciation Right may be amended to reduce its initial exercise price and no Option or Stock Appreciation Right shall be canceled and replaced with Options or Stock Appreciation Rights having a lower exercise price, without the approval of the stockholders of the Company or unless there would be no material adverse effect on the Company’s financial statements as prepared in accordance with Generally Accepted Accounting Principles.

Section 7. Amendment and Termination; Adjustments

     (a) Amendments to the Plan. The Board may amend, alter, suspend, discontinue or terminate the Plan at any time; provided, however, that, notwithstanding any other provision of the Plan or any Award Agreement, without the approval of the shareholders of the Company, no such amendment, alteration, suspension, discontinuation or termination shall be made that, absent such approval:

     (i) violates the rules or regulations of the National Association of Securities Dealers, Inc. or of any other securities exchange that are applicable to the Company;

9

     (ii) causes the Company to be unable, under the Code, to grant Incentive Stock Options under the Plan;

     (iii) increases the number of shares authorized under the Plan as specified in Section 4(a) of the Plan;

     (iv) permits the award of Options or Stock Appreciation Rights at a price less than 100% of the Fair Market Value of a Share on the date of grant of such Option or Stock Appreciation Right, as prohibited by Sections 6(a)(i) and 6(b)(ii) of the Plan or the repricing of Options or Stock Appreciation Rights, as prohibited by Section 6(g)(vii) of the Plan; or

     (v) would prevent the grant of Options or Stock Appreciation Rights that would qualify under Section 162(m) of the Code.

     (b) Amendments to Awards. The Committee may waive any conditions of or rights of the Company under any outstanding Award, prospectively or retroactively. Except as otherwise provided herein or in an Award Agreement, the Committee may not amend, alter, suspend, discontinue or terminate any outstanding Award, prospectively or retroactively, if such action would adversely affect the rights of the holder of such Award, without the consent of the Participant or holder or beneficiary thereof.

     (c) Correction of Defects, Omissions and Inconsistencies. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to carry the Plan into effect.

Section 8. Income Tax Withholding

     In order to comply with all applicable federal, state or local income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal, state or local payroll, withholding, income or other taxes, which are the sole and absolute responsibility of a Participant, are withheld or collected from such Participant. In order to assist a Participant in paying all or a portion of the federal, state and local taxes to be withheld or collected upon exercise or receipt of (or the lapse of restrictions relating to) an Award, the Committee, in its discretion and subject to such additional terms and conditions as it may adopt, may permit the Participant to satisfy such tax obligation by (i) electing to have the Company withhold a portion of the Shares otherwise to be delivered upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes (but only to the extent of the minimum amount required to be withheld under applicable laws or regulations) or (ii) delivering to the Company Shares other than Shares issuable upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes. The election, if any, must be made on or before the date that the amount of tax to be withheld is determined.

10

Section 9. General Provisions

     (a) No Rights to Awards. No Eligible Person or other Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Eligible Persons or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to any Participant or with respect to different Participants.

     (b) Award Agreements. No Participant will have rights under an Award granted to such Participant unless and until an Award Agreement shall have been duly executed on behalf of the Company and, if requested by the Company, signed by the Participant.

     (c) Plan Provisions Control. In the event that any provision of an Award Agreement conflicts with or is inconsistent in any respect with the terms of the Plan as set forth herein or subsequently amended, the terms of the Plan shall control.

     (d) No Rights of Shareholders. Except with respect to Shares of Restricted Stock as to which the Participant has been granted the right to vote, neither a Participant nor the Participant’s legal representative shall be, or have any of the rights and privileges of, a shareholder of the Company with respect to any Shares issuable to such Participant upon the exercise or payment of any Award, in whole or in part, unless and until such Shares have been issued in the name of such Participant or such Participant’s legal representative without restrictions thereto.

     (e) No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases.

     (f) No Right to Employment. The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ, or as giving a director of the Company or an Affiliate the right to continue as a director or an Affiliate of the Company or any Affiliate, nor will it affect in any way the right of the Company or an Affiliate to terminate such employment at any time, with or without cause. In addition, the Company or an Affiliate may at any time dismiss a Participant from employment, or terminate the term of a director of the Company or an Affiliate, free from any liability or any claim under the Plan or any Award, unless otherwise expressly provided in the Plan or in any Award Agreement. Nothing in this Plan shall confer on any person any legal or equitable right against the Company or any Affiliate, directly or indirectly, or give rise to any cause of action at law or in equity against the Company or an Affiliate. The Awards granted hereunder shall not form any part of the wages or salary of any Eligible Person for purposes of severance pay or termination indemnities, irrespective of the reason for termination of employment. Under no circumstances shall any person ceasing to be an employee of the Company or any Affiliate be entitled to any compensation for any loss of any right or benefit under the Plan which such employee might otherwise have enjoyed but for termination of employment, whether such compensation is claimed by way of damages for wrongful or unfair dismissal, breach of contract or otherwise. By participating in the Plan, each

11

Participant shall be deemed to have accepted all the conditions of the Plan and the terms and conditions of any rules and regulations adopted by the Committee and shall be fully bound thereby.

     (g) Governing Law. The validity, construction and effect of the Plan or any Award, and any rules and regulations relating to the Plan or any Award, shall be determined in accordance with the internal laws, and not the law of conflicts, of the State of Minnesota.

     (h) Severability. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction or Award, and the remainder of the Plan or any such Award shall remain in full force and effect.

     (i) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and an Eligible Person or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.

     (j) Other Benefits. No compensation or benefit awarded to or realized by any Participant under the Plan shall be included for the purpose of computing such Participant’s compensation under any compensation-based retirement, disability, or similar plan of the Company unless required by law or otherwise provided by such other plan.

     (k) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash shall be paid in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated.

     (l) Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.

     (m) Section 16 Compliance; Section 162(m) Administration. The Plan is intended to comply in all respects with Rule 16b-3 or any successor provision, as in effect from time to time, and in all events the Plan shall be construed in accordance with the requirements of Rule 16b-3. If any Plan provision does not comply with Rule 16b-3 as hereafter amended or interpreted, the provision shall be deemed inoperative. The Board of Directors, in its absolute discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan with respect to persons who are officers or directors subject to Section 16 of the Exchange Act without so restricting, limiting or conditioning the Plan with respect to other Eligible Persons. With respect to Options and Stock Appreciation Rights, the Company intends to have the Plan

12

administered in accordance with the requirements for the award of “qualified performance-based compensation” within the meaning of Section 162(m) of the Code.

     (n) Conditions Precedent to Issuance of Shares. Shares shall not be issued pursuant to the exercise or payment of the purchase price relating to an Award unless such exercise or payment and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act, the Exchange Act, the rules and regulations promulgated thereunder, the requirements of any applicable Stock Exchange and the Minnesota Business Corporation Act. As a condition to the exercise or payment of the purchase price relating to such Award, the Company may require that the person exercising or paying the purchase price represent and warrant that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation and warranty is required by law.

Section 10. Effective Date of the Plan

     The Plan shall be effective upon its adoption by the Board, provided, however, that in the event the Plan is not approved by the shareholders of the Company within one year thereafter, the Plan will be terminated and all Awards granted under the Plan will be terminated and deemed null and void, provided, further, that no Award may vest and no Shares (including Shares of Restricted Stock) may be issued under the Plan prior to approval of the Plan by the Shareholders of the Company.

Section 11. Term of the Plan

     No Award shall be granted under the Plan after ten years from earlier of date of adoption of Plan by Board or date of shareholder approval or any earlier date of discontinuation or termination established pursuant to Section 7(a) of the Plan. However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond such date, and the authority of the Committee provided for hereunder with respect to the Plan and any Awards, and the authority of the Board to amend the Plan, shall extend beyond the termination of the Plan.

13

EX-10.9

Exhibit 10.9

$5,630,000
City of Chaska, Minnesota
Variable Rate Demand Purchase Revenue Bonds
(Lifecore Biomedical, Inc. Project)
Series 2004

LOAN AGREEMENT

Dated as of August 1, 2004

Between

CITY OF CHASKA, MINNESOTA

and

LIFECORE BIOMEDICAL, INC.

This instrument was drafted by:

Dorsey & Whitney LLP
Suite 1500
50 South Sixth Street
Minneapolis, Minnesota 55402-1498

$5,630,000 City of Chaska, Minnesota
Variable Rate Demand Purchase Revenue Bonds
(Lifecore Biomedical, Inc. Project), Series 2004

TABLE OF CONTENTS

LOAN AGREEMENT

ARTICLE I DEFINITIONS AND INTERPRETATION	2
Section 1.01 Definitions	2
Section 1.02 Characteristics of Certificate or Opinion	6
Section 1.03 Description of Project	6
Section 1.04 Additional Provisions as to Interpretation	6
ARTICLE II REPRESENTATIONS, ETC	8
Section 2.01 Representations by the Issuer	8
Section 2.02 Representations, Warranties and Covenants by the Borrower	8
ARTICLE III ISSUANCE OF THE SERIES 2004 BONDS; REFUNDING OF REFUNDED BONDS	12
Section 3.01 Changes to Project	12
Section 3.02 Agreement to Issue Series 2004 Bonds; Application of Series 2004 Bond Proceeds	12
Section 3.03 Deposits to and Disbursements from the Project Fund	12
Section 3.04 Obligation of the Borrower to Cooperate in Furnishing Documents to Trustee	12
Section 3.05 Title to the Project	13
ARTICLE IV LOAN PAYMENTS AND DEPOSITS	14
Section 4.01 The Loan	14
Section 4.02 Repayment of Loan	14
Section 4.03 Mandatory Purchase of Bonds	15
Section 4.04 Additional Payments	15
Section 4.05 No Set-Off; Borrower’s Obligations Unconditional	15
Section 4.06 Interest on Loan Repayments and Other Overdue Payments	16
Section 4.07 Options to Prepay Loan	16
Section 4.08 Tax Exempt Status of Series 2004 Bonds	17
Section 4.09 Investment of Funds, Credits	18
Section 4.10 Substitute Letter of Credit	19
ARTICLE V PROJECT FACILITIES	20
Section 5.01 Use of Project Facilities	20
Section 5.02 Ownership, Maintenance and Possession of Project Facilities by Borrower	20
Section 5.03 Liens	20
Section 5.04 Taxes and Other Governmental Charges	20

i

Section 5.05 Insurance	21
Section 5.06 Damage or Destruction	21
Section 5.07 Condemnation	21
ARTICLE VI SPECIAL COVENANTS	22
Section 6.01 No Warranty of Condition or Suitability; Indemnification	22
Section 6.02 Annual Certificate; Reports	23
Section 6.03 Borrower to Maintain its Existence; Conditions Under Which Exceptions Permitted	23
Section 6.04 Records and Inspection	24
Section 6.05 Filings, Instruments of Further Assurance	24
Section 6.06 Assignments	24
Section 6.07 Observance of Indenture Covenants and Terms	24
Section 6.08 Obligations Regarding Continuing Disclosure	25
ARTICLE VII EVENTS OF DEFAULT AND REMEDIES	26
Section 7.01 Events of Default	26
Section 7.02 Remedies on Default	26
Section 7.03 Remedies Cumulative, Delay Not to Constitute Waiver	27
Section 7.04 Agreement to Pay Attorneys’ Fees and Expenses	27
Section 7.05 Advances	28
ARTICLE VIII MISCELLANEOUS	29
Section 8.01 Amounts Remaining in Funds	29
Section 8.02 Notices	29
Section 8.03 References to Bonds Ineffective after Bonds Paid	30
Section 8.04 Binding Effect	30
Section 8.05 Amendments, Changes and Modifications	30
Section 8.06 Counterparts	30
Section 8.07 Severability	30
Section 8.08 Captions	31
Section 8.09 Benefit of Bondholders	31
Section 8.10 Term of Agreement	31
Section 8.11 Certain References to the Bank, the Letter of Credit, Etc	31
Section 8.12 No Liability of Issuer	31
Section 8.13 Governing Law; Venue	32
Section 8.14 Right of Borrower To Perform Issuer’s Agreements	32
Section 8.15 Complete Agreement	32
EXHIBIT A (Form of Draw Request)	A-1

ii

LOAN AGREEMENT

     This LOAN AGREEMENT, made as of the 1st day of August 2004, between the CITY OF CHASKA, a Minnesota municipal corporation (herein sometimes called the “City” or the “Issuer”), and LIFECORE BIOMEDICAL, INC., a Minnesota corporation (herein sometimes called the “Borrower”),

WITNESSETH:

     WHEREAS, Minnesota Statutes, Sections 469.152 to 469.1651, as amended (collectively the “Act”), authorizes and empowers the Issuer to issue and sell revenue bonds and refunding revenue bonds and lend the proceeds thereof to corporations for the purpose of financing or refinancing projects authorized thereby; and

     WHEREAS, Lifecore Biomedical, Inc., a Minnesota corporation (the “Borrower”), has undertaken a “project,” within the meaning of the Act (as more specifically referred to herein, the “Project”); and

     WHEREAS, the Issuer proposes to make a loan to the Borrower pursuant to the Act to provide refinancing for the Project through the refunding in full of the Refunded Bonds (described herein); and

     WHEREAS, the Issuer proposes to issue its $5,630,000 Variable Rate Demand Purchase Revenue Bonds (Lifecore Biomedical, Inc. Project), Series 2004 (the “Series 2004 Bonds”) pursuant to an Indenture of Trust of even date herewith, between the Issuer and Wells Fargo Bank, National Association, as trustee (the “Trustee”), to provide the funds to be loaned to the Borrower hereunder, and to assign its interests in this Loan Agreement to the Trustee (except for certain rights of indemnity and to payment of fees, expenses and advances), as security for the Bonds; and

     WHEREAS, the Borrower has arranged to deliver to the Trustee as a condition to the issuance of the Bonds a “direct pay” Irrevocable Letter of Credit to be issued by M&I Marshall & Ilsley Bank, to support payment of the Bonds.

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

ARTICLE I

DEFINITIONS AND INTERPRETATION

     Section 1.01 Definitions. Unless the context otherwise requires, the terms defined in this Article I and in the recitals and succeeding Articles of this Loan Agreement shall, for all purposes of this Loan Agreement and of any agreement supplemental hereto, have the meanings herein specified, such definitions to be equally applicable to both the singular and plural forms of any of the terms defined:

     “Act” means Minnesota Statutes, Sections 469.152 to 469.1651, as amended.

     “Authorized Borrower Representative” means the person at the time designated to act on behalf of the Borrower by written certificate furnished to the Issuer and the Trustee, containing the specimen signature of such person and signed on behalf of the Borrower by its President, Secretary or any Vice President. Such Certificate may designate an alternate or alternates.

     “Bank” means (i) M&I Marshall & Ilsley Bank, a state banking association organized and existing under the laws of the State of Wisconsin in its capacity as issuer of the Letter of Credit, and (ii) any Substitute Bank.

     “Bond Counsel” means Independent nationally recognized bond counsel.

     “Bond Documents” means this Loan Agreement, the Indenture, the Remarketing Agreement, the Tax Exemption Agreement and the Letter of Credit.

     “Bond Fund” means the Bond Fund created under the Indenture.

     “Bond Resolution” means the resolution adopted by the Issuer on July 19, 2004, authorizing the issuance and sale of the Series 2004 Bonds, as the same may be amended, modified or supplemented by any amendments or modifications thereof.

     “Bonds” means the Series 2004 Bonds.

     “Borrower” means Lifecore Biomedical, Inc., a Minnesota corporation, its successors and assigns.

     “Call Date” means, whenever used with reference to the redemption of the Refunded Bonds, September 1, 2004.

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

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

2

     “City” means the City of Chaska, Minnesota.

     “Closing Date” means the date on which the Series 2004 Bonds are delivered to the original purchaser or purchasers thereof.

     “Credit Agreement” shall have the meaning set forth in the Indenture.

     “Default” means default by the Borrower in the performance or observance of any of the covenants, agreements or conditions on its part contained in this Loan Agreement, exclusive of any notice or period of grace required for a default to constitute an “Event of Default” as described in Section 7.01 of this Loan Agreement.

     “Determination of Taxability” means the issuance of a statutory notice of deficiency by the Internal Revenue Service, or a ruling of the National Office or any District Office of the Internal Revenue Service, or a final decision by any court of competent jurisdiction that interest on the Bonds is includible in the gross income of the recipient under Section 103 and related Sections of the Internal Revenue Code and regulations thereunder, except for any period during which a Bond is owned by a “substantial user” or “related person,” within the meaning of Section 147(a) of the Internal Revenue Code, provided that the period for a contest or appeal, if any, of such action, ruling or decision has expired without any such appeal or contest having been instituted, or, if instituted, such contest or appeal has been unsuccessfully concluded.

     “Event of Default” means an Event of Default described in Section 7.01 of this Loan Agreement which has not been cured.

     “Governing Body” means the City Council or its successor as governing body of the Issuer.

     “Holder” or “Bondholder” or “Owner” means the person in whose name a Bond shall be registered in the registration records maintained by the Trustee.

     “Indenture” means the Indenture of Trust between the Issuer and Wells Fargo Bank, National Association, as trustee, of even date herewith, under which the Bonds are authorized to be issued, and including any indenture supplemental thereto.

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

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

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

3

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

     “Issuer” means the City of Chaska, Minnesota.

     “Land” means the land and interests in land located in City of Chaska, Minnesota, constituting the site of the Project.

     “Letter of Credit” shall have the meaning set forth in the Indenture.

     “Loan Agreement” means this Loan Agreement between the Issuer and the Borrower, dated as of August 1, 2004, as from time to time amended or supplemented.

     “Loan Repayments” means the payments made or to be made by the Borrower pursuant to Section 4.02 of this Loan Agreement.

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

     “Original Purchaser” means Northland Securities, Inc.

     “Outstanding” when used as of any particular time with reference to Bonds, shall have the meaning provided in the Indenture.

     “Prior Indenture” means the Trust Indenture dated as of September 1, 1990, between the Issuer and the Prior Trustee.

     “Prior Trustee” means Wells Fargo Bank, National Association (successor-by-merger to “Norwest Bank Minnesota, National Association”), acting in the capacity of trustee under the Prior Indenture.

     “Project” means the Project described in Section 1.03 hereof.

     “Project Buildings” means the building or buildings constituting the Project, located on the Land.

     “Project Costs” shall have the meaning set forth in the Indenture.

     “Project Equipment” means all those items of equipment, building service equipment and fixtures located in the Project Buildings or used in connection with the Project Facilities and acquired and installed with the proceeds of the Refunded Bonds.

     “Project Facilities” means the Land, the Project Buildings and the Project Equipment, all as the same may at any time exist.

     “Project Fund” means the Project Fund established under the Indenture.

4

     “Purchase Price” shall have the meaning set forth in the Indenture.

     “Qualified Investments” means investments authorized and described in Article VII of the Indenture, but only to the extent authorized by the Act.

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

     “Refunded Bonds” means the Industrial Development Revenue Bonds (Lifecore Biomedical, Inc. Project), Series 1990, issued by the Issuer in the original aggregate principal amount of $7,000,000, pursuant to the Prior Indenture.

     “Reimbursement Agreement” means the Reimbursement Agreement of even date herewith between the Borrower and the Bank, as amended or supplemented from time to time.

     “Remarketing Agent” means Northland Securities, Inc.

     “Remarketing Agreement” means the Remarketing Agreement of even date herewith between the Borrower and the Remarketing Agent, as amended or supplemented from time to time.

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

     “Series 2004 Bonds” means the City of Chaska, Minnesota Variable Rate Demand Purchase Revenue Bonds (Lifecore Biomedical, Inc. Project), Series 2004, authorized by the Indenture, this Loan Agreement and the Bond Resolution and described in the Indenture.

     “Sinking Fund” means the Sinking Fund established by the Trustee pursuant to Section 3.03 of the Indenture as part of the Bond Fund.

     “Substitute Bank” shall have the meaning set forth in the Indenture.

     “Substitute Letter of Credit” shall have the meaning set forth in the Indenture.

     “Tax Exemption Agreement” means the Tax Exemption Agreement of even date herewith among the Issuer, the Borrower and the Trustee, as amended or supplemented from time to time.

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

     “Trust Estate” means the interest of the Issuer in this Loan Agreement assigned under Granting Clause I of the Indenture; the revenues, moneys, investments, contract rights, general intangibles and instruments and proceeds and products and accessions thereof as set forth in

5

Granting Clause II of the Indenture; and additional property held by the Trustee pursuant to Granting Clause III of the Indenture, including the Letter of Credit.

     Section 1.02 Characteristics of Certificate or Opinion. Every certificate or opinion with respect to compliance with a condition or covenant provided for in the Indenture or this Loan Agreement, shall include: (i) a statement that the person or persons making such certificate or opinion have read such covenant or condition and the definitions herein relating thereto; (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (iii) a statement that, in the opinion of the signers, they have made or caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether, in the opinion of the signers, such condition or covenant has been complied with.

     Any such Certificate made or given by an officer of the Issuer or the Borrower may be based, insofar as it relates to legal matters, upon an Opinion of Counsel, unless such person knows that the Opinion of Counsel with respect to the matters upon which his Certificate may be based as aforesaid is erroneous, or, in the exercise of reasonable care, should have known that the same was erroneous. Any such Opinion of Counsel may be based (insofar as it relates to factual matters in the possession of the Issuer or the Borrower), upon the Certificate of an officer or officers of the Issuer or the Borrower, unless such counsel knows that the Certificate with respect to the matters upon which his opinion may be based as aforesaid is erroneous.

     Section 1.03 Description of Project. The term “Project” refers to the acquisition and construction of a manufacturing facility by the Borrower in the City, to the extent financed with proceeds of the Refunded Bonds.

     Section 1.04 Additional Provisions as to Interpretation. All references herein to “Articles”, “Sections” and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Loan Agreement; and the words “herein”, “hereof”, “hereunder” and other words of similar import refer to this Loan Agreement as a whole and not any particular Article, Section or subdivision hereof.

     Whenever in this Loan Agreement it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the necessary amount to pay or redeem any Bonds, the amount so to be deposited or held shall be the principal amount of such Bonds and all unpaid interest thereon to maturity, except that in the case of Bonds which are to be redeemed prior to maturity and in respect of which there shall have been furnished to the Trustee proof satisfactory to it that notice of such redemption on a specified redemption date has been duly given or provision satisfactory to the Trustee shall be made for such notice, the amount so to be deposited or held shall be the principal amount of such Bonds and interest thereon to the redemption date, together with the redemption premium, if any.

     Any terms defined in the Indenture but not defined herein shall have the same meaning herein unless the context hereof clearly requires otherwise.

6

     This Loan Agreement is governed by and shall be construed in accordance with the laws of Minnesota.

7

ARTICLE II

REPRESENTATIONS, ETC.

     Section 2.01 Representations by the Issuer. The Issuer makes the following representations as the basis for its undertakings herein:

     (a) The Issuer is a duly organized and existing municipal corporation under the laws of the State of Minnesota.

     (b) On March 5, 1990, after publication of notice of hearing in the official newspaper of the Issuer, being a newspaper of general circulation in the community, the Issuer held a public hearing on the Project and the issuance of the Refunded Bonds, and thereafter the Governing Body, as the applicable elected representative, duly adopted the Bond Resolution and thereby granted final approval to the issuance of the Refunded Bonds.

     (c) The issuance and sale of the Series 2004 Bonds, the execution and delivery of this Loan Agreement and the Indenture, the performance of all covenants and agreements of the Issuer contained in this Loan Agreement and the Indenture, and the loan hereunder are authorized and have been duly authorized by resolutions of the Issuer, including the Bond Resolution, which was duly adopted at a meeting of the Issuer duly called and held, by the requisite vote of its members, all as required by law.

     (d) The Borrower has requested that the Issuer issue the Series 2004 Bonds as provided in the Act, the Indenture and the Bond Resolution and lend the proceeds thereof to the Borrower pursuant to this Loan Agreement. The Issuer will issue the Series 2004 Bonds in the aggregate principal amount of $5,630,000, and the Series 2004 Bonds shall be in the form and shall be subject to the terms and provisions set forth in the Indenture.

     (e) There is no litigation pending or, to the best of its knowledge threatened, against the Issuer relating to the Project or to the Bonds or to this Loan Agreement or the Indenture or questioning the powers or Issuer of the Issuer under the Act, or questioning the corporate existence of the Issuer or the title of any of the present officers of the Issuer to their respective offices.

     (f) The execution, delivery and performance of this Loan Agreement by the Issuer do not violate any agreement or any court order or judgment in any litigation to which the Issuer is a party or by which it is bound.

     Section 2.02 Representations, Warranties and Covenants by the Borrower. The Borrower makes the following representations, warranties and covenants:

     (a) The Borrower is a corporation duly organized and existing under the laws of Minnesota.

     (b) Subject to Section 5.02 hereof, the Borrower intends, but shall not be obligated, to own and operate the Project Facilities to the expiration or sooner termination

8

of this Loan Agreement, as provided herein, except to the extent such operation may be interrupted by strikes, riots, acts of God or public enemy or other circumstances beyond the control of the Borrower.

     (c) The execution and delivery of this Loan Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or constitute a breach of or default under any bond, debenture, note or other evidence of indebtedness or any contract, loan agreement or lease to which the Borrower is a party or by which it is bound, or violate any law, regulation or order of the United States or the State of Minnesota or agency or political subdivision thereof, or any court order or judgment in any proceeding to which the Borrower is or was a party or by which it is bound.

     (d) The proceeds of the Series 2004 Bonds to be deposited in the Project Fund, together with other funds to be contributed for the purpose by the Borrower, will be sufficient to cause the Refunded Bonds to be redeemed in whole on the Call Date.

     (e) There is no litigation pending, or to the best of its knowledge threatened, against the Borrower materially and adversely affecting the Project or its ability to carry out the terms of this Loan Agreement.

     (f) The Land is currently zoned properly for the Project Facilities and the Borrower has obtained or will timely obtain all necessary licenses and permits required for renovation and operation of the Project Buildings.

     (g) To the best of the Borrower’s knowledge and belief, no member of the Governing Body of the Issuer or other officer or employee of the Issuer is directly or indirectly interested in this Loan Agreement, the Series 2004 Bonds, the Project or any contract, agreement or job hereby contemplated to be entered into or undertaken.

     (h) The Borrower has approved the terms and conditions of the Indenture and the Bonds.

     (i) The Official Statement relating to the issuance and sale of the Series 2004 Bonds, including all Appendices thereto, does not contain any untrue statement of a material fact, and does not omit to state a material fact, required to be stated therein or necessary in order to make the statements contained therein not misleading.

     (j) The Borrower shall take no action nor omit to take any action the effect of which would be to jeopardize the tax-exempt status of the Series 2004 Bonds.

     (k) Substantially all (that is, not less than 95%) of the proceeds of the Refunded Bonds were used for the acquisition, construction, reconstruction or improvement of land or property of a character subject to the allowance for depreciation under the Internal Revenue Code.

     (l) Not less than 95% of the proceeds of the Refunded Bonds were used to provide a facility which is used in the manufacturing or production of tangible personal property (including the processing resulting in a change in the condition of the property).

9

An office shall not be described in the preceding sentence unless (a) the office is located on the premises of the manufacturing facility, and (b) not more than a de minimis amount of the functions to be performed at such office is not directly related to the day-to-day operations at such facility. For purposes of the first sentence of this paragraph, the term “manufacturing facility” includes facilities which are directly related and ancillary to a manufacturing facility (determined without regard to this sentence) if (i) such facilities are located on the same site as the manufacturing facility, and (ii) not more than 25 percent of the net proceeds of the Bonds are used to provide such facilities.

     (m) The aggregate of (i) capital expenditures with respect to facilities in or attributable to the City which are or were used by the Borrower, or any other principal user of the Project Facilities or by any person related to the Borrower or such other principal user paid or incurred within a period of 36 months prior to the date of issuance of the Refunded Bonds, whether allocable or attributable to the Project Facilities or any other facility within or attributable to the City, plus (ii) the original aggregate principal amount of the Refunded Bonds, together with the then outstanding principal amounts of any “prior issues,” plus (iii) the capital expenditures made with respect to facilities in or attributable to the City by the Borrower or such other principal user of the Project Facilities or by any person related to the Borrower or such other principal user within a period of 36 months after the date of issuance of the Refunded Bonds, whether allocable or attributable to the Project Facilities or any other facility within or attributable to the City, all as such terms are used in Section 144(a) of the Internal Revenue Code of 1986, and regulations thereunder, did not exceed $10,000,000.

     (n) The Borrower did not use any portion of the proceeds of the Refunded Bonds and shall not use any portion of the proceeds of the Bonds to provide any private or commercial golf course facility, country club, massage parlor, tennis club, skating facility (including roller skating, skateboard or ice skating), racquet sports facility (including any handball or racquetball court), hot tub facility, suntan facility, racetrack, airplane, skybox, or other private luxury box, any facility primarily used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises, and the Borrower does not expect that the Project Facilities, or any part thereof, will be used for any of such purposes.

     (o) The Borrower used less than 25 percent of the proceeds of the Refunded Bonds either directly or indirectly to finance the acquisition of land (or any interest therein), and used not more than 25 percent of the proceeds of the Refunded Bonds and of the Refunded Bonds to provide a facility the primary purpose of which is retail food or beverage service, automobile sales or service, or the provision of recreation or entertainment, and the Borrower does not expect that the Project Facilities, or any portion thereof, shall subsequently be used primarily for any of such purposes.

     (p) None of the proceeds of the Refunded Bonds were used for the acquisition of any existing building or other used property, unless at least 15 percent (or in the case of a structure other than a building 100 percent) of the cost of acquisition of such existing property financed by proceeds of the Refunded Bonds was spent for rehabilitation expenditures, within the meaning of Section 147(d) of the Internal Revenue Code, within

10

two years of the date of acquisition or, if later, the date of issuance of the Refunded Bonds.

     (q) The aggregate outstanding amount of tax-exempt facility-related bonds allocated to the Borrower (including related persons) or any other principal user of the Project Facilities (including related persons) when added to the aggregate amount of the Series 2004 Bonds allocated to the Borrower (including related persons) or such other principal user (including related persons), all as such terms are defined in Section 144(a) of the Internal Revenue Code of 1986 (or the applicable predecessor Section of the Internal Revenue Code of 1954, as amended prior to the enactment of the Tax Reform Act of 1986), does not exceed $40,000,000.

     (r) The Borrower is not a principal user, nor related to any principal user, of any facilities other than the Project Facilities within the City which were acquired in whole or in part, directly or indirectly, by the issuance of tax-exempt bonds which are outstanding on the date hereof, within the meaning of Section 144 of the Internal Revenue Code of 1986 and regulations thereunder. No tax-exempt bonds issued with respect to the Project Facilities are outstanding as of the date hereof except for the Refunded Bonds.

     (s) The weighted average maturity of the Series 2004 Bonds does not exceed 120% of the average weighted economic life of the Project Facilities.

     (t) The weighted average maturity of the Series 2004 Bonds does not exceed the remaining weighted average maturity of the Refunded Bonds.

     (u) The original principal amount of the Series 2004 Bonds is in an amount not greater than the current outstanding principal amount of the Refunded Bonds. The principal amount of the Series 2004 Bonds is not larger than the amount necessary to cause the Refunded Bonds to be redeemed in whole, in accordance with the provisions of the Prior Indenture and in accordance with the provisions hereof. The entire gross proceeds of the Series 2004 Bonds ($5,630,000) are to be expended solely for the payment and discharge on the Call Date of the outstanding principal amount of the Refunded Bonds. The Refunded Bonds will be redeemed in whole within 90 or fewer days from the date of issuance of the Series 2004 Bonds.

     (v) Within the meaning of Treasury Regulation, § 1.148-1(c)(3), any amount required by the Bank under the Credit Agreement to be held by the Borrower or affiliate of the Borrower at a particular level for the direct or indirect benefit of the Bank will not be “pledged” to the Bank or other party for the following reasons: (i) the amount does not exceed reasonable needs for which it is maintained; (ii) the required level is tested no more frequently than every six months; and (iii) the amount may be spent without any substantial restriction other than a requirement to replenish the amount by the next testing date.

[The balance of this page is intentionally left blank]

11

ARTICLE III

ISSUANCE OF THE SERIES 2004 BONDS;
REFUNDING OF REFUNDED BONDS

     Section 3.01 Changes to Project. Subject to the terms of the Credit Agreement and the documents related thereto, the Borrower may make changes in the Project Facilities at any time; provided that no changes will be made which would delete from the Project any essential characteristics of the Project as specified in Section 1.03 nor which materially and adversely affect the total operating unity and efficiency or capacity of the Project Facilities and that, after such changes, the Project shall remain in compliance with all applicable requirements of this Loan Agreement and of law, including all relevant provisions of the Internal Revenue Code required to be met in order to maintain the exclusion from gross income, for federal income tax purposes, of interest on the Series 2004 Bonds. The Project Facilities, to the best knowledge of the Borrower, are in compliance with all applicable zoning, planning and building regulations of governmental authorities having jurisdiction of the Project Facilities.

     Section 3.02 Agreement to Issue Series 2004 Bonds; Application of Series 2004 Bond Proceeds. In order to provide funds to loan to the Borrower for the refunding of the Refunded Bonds, the Issuer has, or will have, upon or promptly after the execution of this Loan Agreement, issued and delivered the Series 2004 Bonds to the Original Purchaser thereof and the Issuer has or will have deposited the proceeds of said Series 2004 Bonds as follows: (i) in the Bond Fund all accrued interest (if any) received, and (ii) in the Project Fund the balance of the proceeds received from said sale.

     Section 3.03 Deposits to and Disbursements from the Project Fund. The Issuer has, in the Indenture, authorized and directed the Trustee to use the moneys in the Project Fund to cause the Refunded Bonds to be redeemed in whole on the Call Date, as further specified in the Indenture.

     The Borrower covenants and agrees that, in addition to the proceeds of the Series 2004 Bonds, it will deposit moneys in the Project Fund or provide funds to the indenture trustee for the Refunded Bonds as may be required to refund and redeem in full the Refunded Bonds on the Call Date, and that on the Call Date there shall accordingly be sufficient funds on hand with the indenture trustee for the Refunded Bonds to pay all principal of, premium, if any, and interest then due on the Refunded Bonds. The Borrower further covenants and agrees that it will cause or has caused the indenture trustee for the Refunded Bonds to publish and mail notice of the redemption in whole of the Refunded Bonds, in accordance with the provisions of the Prior Indenture.

     The Borrower agrees that the issuance costs financed by the Series 2004 Bonds shall not exceed 2.00% of the proceeds of the Series 2004 Bonds, all within the meaning of Section 147(g) of the Internal Revenue Code.

     Section 3.04 Obligation of the Borrower to Cooperate in Furnishing Documents to Trustee. The Borrower agrees to cooperate in furnishing to the Trustee (i) any documents referred to in the Indenture that are required to effect payments out of the Project Fund, and

12

(ii) the documents referred to in Section 2.06 of the Indenture required for the authentication and delivery of the Series 2004 Bonds. Such obligations are subject to any provision of this Loan Agreement or the Indenture requiring additional documentation.

     Section 3.05 Title to the Project. The Issuer acknowledges and agrees that as between the Issuer and the Borrower, neither the Issuer, the Trustee nor any Holder of the Bonds shall be entitled to or have any interest in the Land, the Project Building, the Project Equipment, or in any other Project Facilities, or in the Borrower’s title thereto or interest therein.

[The balance of this page is intentionally left blank]

13

ARTICLE IV

LOAN
PAYMENTS AND DEPOSITS

     Section 4.01 The Loan. The Issuer agrees, upon the terms and conditions in this Loan Agreement, to lend to the Borrower the gross proceeds of issuance of the Bonds ($5,630,000) (the “Loan”) and further agrees to deposit the proceeds of sale thereof into the Bond Fund and Project Fund established with the Trustee as provided herein and in the Indenture, which deposits shall constitute the making of the Loan from the Issuer to the Borrower hereunder. Such proceeds shall thereafter be invested and disbursed by the Trustee in accordance with the provisions of this Loan Agreement and the Indenture.

     Section 4.02 Repayment of Loan. The Borrower covenants and agrees to repay the Loan, together with interest and premium, if any, in Loan Repayments which in the aggregate shall be in an amount sufficient to pay, in full and when due, all the Bonds. To provide for the repayment of the Loan (until the principal of, premium (if any) and interest on the Bonds shall have been fully paid or provision for payment thereof shall have been made in accordance with the Indenture), the Borrower agrees to pay or cause to be paid for the account of the Issuer in immediately available funds the following amounts:

     (a) into the Bond Fund on September 1, 2004, and on the 1st day of each month thereafter, a sum equal to (i) the amount, if any, then payable as principal of and premium, if any, on the Bonds, plus (ii) the amount then payable as interest on the Bonds;

     (b) into the Bond Fund forthwith, the amount of the deficiency in the event the funds on deposit in the Bond Fund on any Bond payment date are for any reason insufficient to pay principal, premium (if any) and interest on the Bonds then due or to become due on any Bond principal or interest payment date (whether at maturity or upon redemption or acceleration of maturity in event of default); and

     (c) into the Rebate Fund moneys in the amount necessary to comply with the provisions of Section 4.08(d) hereof.

Paragraphs (a) and (b) are subject, however, to the amounts of any credits allowable under Section 4.09 hereof; and provided however, that the obligation of the Borrower to make any payment under paragraph (a) or (b) above shall be deemed satisfied and discharged to the extent of any corresponding payment made by the Bank to the Trustee under the Letter of Credit, it being the intention of the parties hereto that each payment owing with respect to the Bonds is to be made directly to the Trustee by the Bank from the proceeds of draws made on the Letter of Credit. If and to the extent the Borrower shall make payment to the Trustee hereunder prior to a drawing under the Letter of Credit and the Bank shall thereafter make payment of such amount pursuant to a drawing under the Letter of Credit, the Trustee shall transmit to the Bank the amounts so paid by the Borrower to the extent necessary in reimbursement of such drawing. In addition, if the Bank shall make payment pursuant to a drawing under the Letter of Credit sufficient to satisfy the Borrower’s obligation to make payments hereunder, the Borrower shall not be obligated to make such payment hereunder but shall, instead, cause payment to be made directly to the Bank in reimbursement for such drawing in accordance with the terms of the Credit Agreement.

14

     Section 4.03 Mandatory Purchase of Bonds. The Borrower agrees to pay or cause to be paid to the Trustee such amounts as shall be necessary to enable the Trustee to pay the Purchase Price of Bonds delivered to it for purchase, all as more particularly described in Sections 4.01, 4.02, 4.06 and 4.11 of the Indenture; provided, however, that the obligation of the Borrower to make any such payment under this Section 4.03 is intended to be discharged, first, from proceeds of the Letter of Credit and, second, from proceeds of a remarketing of Bonds, all as further set forth in Section 4.07 of the Indenture.

     Section 4.04 Additional Payments. The Borrower also agrees:

     (a) to pay to the Trustee, for itself or remittance to the paying agents, promptly after being billed, until the principal of and interest on the Bonds shall have been fully paid or provision for the payment thereof shall have been made in accordance with the provisions of the Indenture, (i) an amount equal to the annual fee of the Trustee, as trustee, for the ordinary services of the Trustee rendered and its ordinary expenses incurred under the Indenture during the preceding billing period, (ii) the reasonable fees and charges of paying agents on the Bonds for acting as paying agent as provided in the Indenture, as and when the same become due, and (iii) the reasonable fees and charges of the Trustee for necessary extraordinary services rendered by it and extraordinary expenses incurred by it under the Indenture, as and when the same become due; provided, that the Borrower may, without creating a default hereunder, contest in good faith the necessity for any such extraordinary services and extraordinary expenses and the reasonableness of any such fees, charges or expenses; and

     (b) to pay to the Issuer, when due, all reasonable fees and expenses of the Issuer, including the fees and expenses of counsel to the Issuer, incurred in connection with the issuance, payment, redemption and exchange of Bonds or otherwise in connection with the transactions contemplated by this Loan Agreement and the Indenture.

     Section 4.05 No Set-Off; Borrower’s Obligations Unconditional. The obligation of the Borrower to make the payments required hereby shall be absolute and unconditional. Until such time as the principal of, premium, if any, and interest on the Bonds shall have been fully paid or provision for the payment thereof shall have been made in accordance with the Indenture, the Borrower (i) will perform and observe all of its agreements contained in this Loan Agreement and (ii) will pay without abatement, diminution or deduction (whether for taxes or otherwise) all amounts required to be paid hereunder, regardless of any cause or circumstance whatsoever including, without limiting the generality of the foregoing: any defense, set-off, recoupment or counterclaim which the Borrower may have or assert against the Issuer, the Trustee, the Bank, any Holder of a Bond or any other person; any failure of the Issuer to perform any covenant or agreement contained herein or in any other agreement between the Issuer and the Borrower; any indebtedness or liability at any time owing to the Borrower by the Issuer, the Trustee, the Bank, any Holder of a Bond or any other person; any acts or circumstances that may constitute failure of consideration; damage to or condemnation of the Project Facilities; failure or delay in completion of the Project; eviction by paramount title; commercial frustration of purpose;

15

bankruptcy or insolvency of the Issuer or the Trustee; any change in the tax or other laws of the United States of America or of the State of Minnesota or any political subdivision thereof; or any failure of the Issuer, the Bank, or the Trustee to perform and observe any agreement, whether express or implied, or any duty, liability or obligation, arising out of or connected with this Loan Agreement, the Credit Agreement or the Indenture.

     The Borrower hereby waives, to the extent permitted by law, any and all rights which it may now have or which at any time hereafter may be conferred upon it, by statute or otherwise, to terminate or cancel, or to limit its liability under, this Loan Agreement except in accordance with the express terms hereof.

     Section 4.06 Interest on Loan Repayments and Other Overdue Payments. In the event the Borrower shall fail to make Loan Repayments required by Section 4.02 or 4.03 hereof, the installment so in default shall continue as an obligation of the Borrower until the amount in default shall have been fully paid, and the Borrower agrees to pay interest on such default at the rate or rates of interest specified in the Bonds. In the event the Borrower shall fail to make any payment required under Section 4.04 hereof or if advances are made pursuant to Section 7.05 hereof, the item so in default shall continue as an obligation of the Borrower until the amount shall have been fully paid and the Borrower agrees to pay interest on such payment in default at a rate equal to the rate or rates of interest specified in the Bonds.

     Section 4.07 Options to Prepay Loan.

     (a) The Borrower shall have and is hereby granted, the option to prepay the loan and require the Series 2004 Bonds to be redeemed, in whole or in part, upon the deposit of funds sufficient therefor or making provision satisfactory to the Trustee and the Bank therefor, if and to the extent the Bonds are subject to optional redemption under Section 3.01 or Section 3.02 of the Indenture, as further provided therein, or in order to cause the Bonds to be defeased in accordance with the provisions of the Indenture.

     (b) To exercise the options granted in this Section, the Borrower shall, at least forty-five (45) days prior to the date upon which such prepayment is to be made, give written notice of such prepayment to the Issuer, the Bank and the Trustee. Such notice shall request the redemption pursuant to the applicable provisions of the Indenture of a specified principal amount of Bonds if less than all outstanding Bonds are to be redeemed and shall otherwise comply with the provisions hereof and of the Indenture. On or before the date specified for the redemption of the Bonds, the Borrower shall pay or cause to be paid to the Trustee an amount which, together with other funds held by the Trustee and available for the purpose, is equal to the redemption price of the Bonds to be redeemed and accrued interest thereon to the redemption date, and in any case, such further amounts, if any, as may be required to redeem the Bonds called for redemption by the Trustee on the redemption date. So long as the Letter of Credit is still in effect, redemption shall be accomplished by means of a drawing on the Letter of Credit, and the amounts deposited hereunder shall be used to reimburse the Bank for such drawing.

     The Issuer, at the request at any time of the Borrower and if the Bonds are then callable, shall forthwith take all steps that may be necessary under the applicable redemption provisions of

16

the Indenture to effect redemption of all or part of the then outstanding Bonds, as may be specified by the Borrower, on the earliest redemption date on which such redemption may be made under such applicable provisions, provided that the Borrower shall have made available funds in adequate amount therefor or shall have made arrangements satisfactory to the Issuer therefor. Except as herein otherwise provided, Bonds shall be called for redemption by the Issuer only upon the direction of the Borrower.

     Section 4.08 Tax Exempt Status of Series 2004 Bonds. It is the intention of the parties hereto that the interest paid on the Series 2004 Bonds will not be included in the gross income of the recipients of said interest by reason of Section 103 and related Sections of the Internal Revenue Code. In order to confirm and carry out such intention:

     (a) The Borrower shall (A) provide such Certificates of the Authorized Borrower Representative, Opinions of Bond Counsel, and other evidence as may be necessary or reasonably requested by the Issuer, the Bank or the Trustee to establish the exclusion from gross income of interest on the Series 2004 Bonds under Section 103 and related Sections of the Internal Revenue Code, and (B) file such information and statements, acting alone or with the Issuer, with the Internal Revenue Service, as may be required from the Borrower or the Issuer to establish or preserve such exclusion or as may be required by Section 103 and related Sections of the Internal Revenue Code, including Section 149(e) thereof, regulations thereunder and related provisions of law or regulation.

     (b) If there shall occur a Determination of Taxability, the Borrower shall have the obligation to, and hereby covenants and agrees that it shall forthwith repay the loan and cause the Series 2004 Bonds to be redeemed on the next interest payment date following notice to the Borrower of the Determination of Taxability. Any redemption required under this Section shall be effected upon the following terms and conditions:

         (i) Forthwith after receipt by the Borrower of receipt of the Determination of Taxability the Borrower shall give written notice of the Determination of Taxability and of its intention to redeem the outstanding Series 2004 Bonds to the Issuer, the Bank and the Trustee, stating the date of redemption and the Trustee shall make arrangements for the giving of notice required for redemption of all of the outstanding Series 2004 Bonds and the Borrower shall make arrangements for the transmittal of funds needed for such redemption in advance of that date. If the Letter of Credit is then in effect, redemption shall occur with the proceeds of a draw under the Letter of Credit.

         (ii) The aggregate redemption price payable by the Borrower shall be an amount which will be equal to the principal amount of all then outstanding Series 2004 Bonds, plus accrued interest thereon to the redemption date.

         (iii) The Borrower shall also pay an amount equal to the Trustee’s and any paying agent’s fees under the Indenture, accrued and to accrue until final payment and redemption of the Series 2004 Bonds and all other advances, fees,

17

costs and expenses incurred by the Trustee under the Indenture or by the Issuer under this Agreement or any other agreement or instrument relating to the Bonds.

     (c) If there shall be a Determination of Taxability and the Borrower shall fail to give notice thereof and of its intention to redeem the Bonds as above described, the Trustee shall nevertheless be authorized to give notice of redemption of the outstanding Series 2004 Bonds on the next interest payment date thereafter whenever it shall have determined, in good faith, that a Determination of Taxability has been made; and the Trustee shall give such notice of redemption if the Issuer, the Bank or any Bondholder shall furnish to the Trustee a copy of the Determination of Taxability duly certified or authenticated to the satisfaction of the Trustee. The Trustee shall furnish to the Borrower, the Bank and the Issuer a copy of the notice given or to be given by it pursuant to this paragraph, and the Borrower shall thereupon become obligated to pay the aggregate redemption price to the Trustee as a Loan Repayment prior to the redemption date and to pay all fees, expenses, costs and advances of the Trustee and any paying agent under the Indenture.

     (d) The Borrower hereby acknowledges and confirms its obligations under Section 148(f) of the Internal Revenue Code and regulations thereunder. Specifically, the Borrower agrees to comply with the rebate requirements imposed under said Section 148(f) and pertinent regulations, including the requirement to make or cause to be made annual (or other periodic) calculations of the amount subject to rebate thereunder, and to maintain and to provide to the Trustee copies of records of such determinations until six years after the retirement of the Bonds, and the requirement to make all required rebates to the United States not later than 60 days after each installment computation date and not later than 60 days after the final computation date. If the Borrower shall fail to deposit with the Trustee the full amount of any rebate required to be paid by the Borrower when such deposit is due, the Issuer or the Trustee may make (but has no obligation to make) payment to the United States or the Issuer may deposit (but has no obligation to deposit) the required amount with the Trustee with appropriate instructions to make payment to the United States, and such payment or deposit shall be an advance under Section 7.05 of this Loan Agreement. In construing the Borrower’s obligations hereunder, all terms used in this paragraph (d) shall have the meanings provided in said Section 148(f) and regulations thereunder, and all provisions set forth in the Indenture for the purpose of complying with said Section and regulations shall be incorporated herein by reference. The Borrower agrees to make all required rebate payments to the United States, as and when required, and such payments shall constitute additional Loan Repayments under Section 4.02 hereof. In performing or causing to be performed the obligations set forth in this paragraph, the Borrower and the Trustee may require such reports or opinions of accountants, Certificates of the Borrower, and Opinions of Counsel as the Borrower or the Trustee may deem necessary or desirable. All costs therefor shall be borne by the Borrower.

     Section 4.09 Investment of Funds, Credits. To the extent authorized by the Act, moneys on deposit to the credit of any Fund or Account maintained by the Trustee under the Indenture shall be invested by the Trustee, upon request by the Authorized Borrower Representative to the Trustee, in Qualified Investments. Investments permitted under this

18

Section may be purchased from the Trustee or any of its affiliates. Investments so purchased shall be deemed at all times to be a part of the respective Fund or Account, but may from time to time be sold or otherwise converted into cash, whereupon the proceeds derived from such sale or conversion shall be credited to the respective Fund or Account. Any interest or profit shall be credited to the respective Fund or Account. The Trustee shall redeem or sell, at the best price obtainable, any investments so purchased, whenever it shall be necessary to do so in order to provide moneys to meet any payment from any such Fund or Account. Neither the Trustee nor the Issuer shall be liable for any loss resulting from any such investment, nor from failure to preserve rights against endorsers or other prior parties to instruments evidencing any such investment. Investment of funds pursuant to this Section shall be limited as to amount and yield of investment in such manner that no part of the outstanding Bonds shall be deemed “arbitrage bonds” under Section 148 of the Internal Revenue Code and regulations thereunder.

     Section 4.10 Substitute Letter of Credit. The Borrower may provide for the delivery to the Trustee of a Substitute Letter of Credit. Any Substitute Letter of Credit shall be delivered to the Trustee not less than 45 days prior to the expiration of the Letter of Credit it is being issued to replace; provided, however, that on or before the date of such delivery of a Substitute Letter of Credit to the Trustee, the Borrower shall furnish to the Trustee (a) written evidence from each rating agency, if any, by which the Bonds are then rated, to the effect that such rating agency has reviewed the proposed Substitute Letter of Credit and that the substitution of the proposed Substitute Letter of Credit will not result in the modification, reduction or withdrawal of the rating(s), if any, then borne by the Bonds; provided, however, that if at the time of such substitution the Bonds are not then rated by a rating agency, there is no requirement that any issuer of a Substitute Letter of Credit have an equivalent financial standing to that of the Bank or that the long or short-term obligations of an issuer of a Substitute Letter of Credit have an equivalent credit rating as those of the Bank; and (b) an Opinion of Counsel by nationally recognized bond counsel to the effect that the delivery of such Substitute Letter of Credit shall not cause the interest on the Bonds to become includible in the gross income of the recipients thereof for purposes of federal income taxation.

19

ARTICLE V

PROJECT FACILITIES

     Section 5.01 Use of Project Facilities. The Borrower will use the Project Facilities only in furtherance of its lawful purposes and will cause the Project Facilities to be used and operated only as a facility eligible to be and defined as a “project” under the Act and in accordance with all pertinent provisions of Sections 103, 145 and 150 of the Internal Revenue Code, to the extent necessary or desirable to maintain the excludability of Bond interest from the gross income of the recipients thereof.

     The Borrower will not use or permit any person to use the Project Facilities for any use or purpose in violation of the laws of the United States, the State of Minnesota, or any ordinance of the Issuer, and agrees to comply with all the orders, rules, regulations and requirements of the agencies, officers or boards of the City, City or State or other governmental authority having jurisdiction over the Project Facilities. The Borrower shall have the right to contest by appropriate legal proceedings, without cost or expense to the Issuer, the validity of any law, ordinance, order, rule, regulation or requirement of the nature herein referred to.

     Section 5.02 Ownership, Maintenance and Possession of Project Facilities by Borrower. The Borrower agrees that so long as the Bonds are outstanding, the Borrower will keep or cause to be kept the Project Facilities in good repair and good operating condition, making such repairs and replacements as are necessary in the judgment of the Borrower so that the Project Facilities will remain a “project” under the Act and the interest on the Bonds will be and remain not includible in gross income for purposes of federal income taxation. The Borrower has no present intention to sell, lease or otherwise dispose of the Project Facilities, but the Borrower may sell or enter into a lease of any part of the Project Facilities or enter into an agreement for the management or use of the Project Facilities so long as (i) no such sale, lease or agreement shall be inconsistent with the provisions of this Loan Agreement, the Indenture or the Act, including Section 5.01 hereof; (ii) if at such time the Letter of Credit is not in effect, the Borrower shall remain fully obligated under this Loan Agreement as if such sale, lease or agreement had not been made; (iii) any purchaser shall assume all of the obligations of the Borrower under this Loan Agreement; and (iv) the Borrower furnishes the Trustee with an opinion of Bond Counsel to the effect that proposed sale, lease or other transaction shall not cause the interest on the Bonds to become includible in the gross income of the recipients thereof for purposes of federal income taxation.

     Section 5.03 Liens. The Borrower will pay or cause to be paid all utility charges and other charges arising from the operations at the Project Facilities; provided, that the Borrower may, subject to the terms of the Credit Agreement and the documents related thereto, in good faith contest any such liens filed or established against the Project Facilities, and in such event may permit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom.

     Section 5.04 Taxes and Other Governmental Charges. The Borrower will pay or cause to be paid, as the same respectively become due, any taxes, special assessments, license fees and governmental charges of any kind whatsoever that may at any time be lawfully assessed or

20

levied against or with respect to the operations of the Project Facilities, or any improvements, equipment or related property installed or brought by the Borrower therein or thereon. The Borrower may and subject to the terms of the Credit Agreement and the documents related thereto, at its expense, in good faith contest any such taxes, assessments, license fees and other governmental charges and, in the event of any such contest, may permit the taxes, assessments, license fees or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom to the extent permitted by law.

     Section 5.05 Insurance. The Borrower shall maintain, or cause to be maintained, at its cost and expense, insurance, including all-risk and liability coverage, with respect to the Project Facilities in such amounts and upon such terms as are customary and prudent for properties similar to the Project Facilities and as required by the Credit Agreement.

     Section 5.06 Damage or Destruction. In the event of any damage to or destruction of the Project Facilities or any portion thereof, and subject to the terms of the Credit Agreement and the documents related thereto, the Borrower shall proceed either to repair, reconstruct or restore the Project Facilities or cause the Series 2004 Bonds to be prepaid and redeemed, all as may be further provided in the Indenture. Any prepayment or redemption of Bonds shall be effected in accordance with all applicable provisions of the Indenture and of Section 4.07 hereof. In connection with any application or proposed application of moneys pursuant to this Section, the Trustee shall require the Borrower to furnish an opinion of Bond Counsel to the effect that such application or proposed application of moneys shall not cause the interest on the Bonds to become includible in the gross income of the recipients thereof for purposes of federal income taxation.

     Section 5.07 Condemnation. If the Project Facilities or any portion thereof is condemned or taken for any public or quasi-public use and title thereto vests in the party condemning or taking the same, and subject to the terms of the Credit Agreement and the documents related thereto, the Borrower shall elect either to repair, reconstruct or restore the Project Facilities, as may be deemed necessary or desirable by the Borrower, or to cause the Bonds to be prepaid and redeemed. Any prepayment or redemption of Bonds shall be effected in accordance with all applicable provisions of the Indenture and of Section 4.07 hereof. In connection with any application or proposed application of moneys pursuant to this Section, the Trustee shall, require the Borrower to furnish an opinion of Bond Counsel to the effect that such application or proposed application of moneys shall not cause the interest on the Bonds to become includible in the gross income of the recipients thereof for purposes of federal income taxation.

21

ARTICLE VI

SPECIAL COVENANTS

     Section 6.01 No Warranty of Condition or Suitability; Indemnification. The Issuer does not make any warranty, either express or implied, as to the design or capacity of the Project, as to the suitability for operation of the Project, or that the Project will be suitable for the Borrower’s purposes or needs. The Borrower releases the Issuer from, agrees that the Issuer shall not be liable for, and agrees to hold the Issuer, its city council members and its respective officers and employees, harmless against, any claim, cause of action, suit or liability for any loss or damage to property or any injury to or death of any person that may be occasioned by any cause whatsoever pertaining to the Project Facilities or the use thereof as a result of the Issuer acting as the issuer of the Bonds.

     The Borrower will, to the fullest extent permitted by law, protect, indemnify and save the Issuer and its officers, agents, and employees, and any person who controls the Issuer within the meaning of the Securities Act of 1933, harmless from and against all liabilities, losses, damages, costs, expenses (including attorneys’ fees and expenses of the Issuer), taxes, causes of action, suits, claims, demands and judgments in connection with the transaction contemplated by this Agreement or arising from or related to the issuance or sale of the Bonds, including but not limited to:

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

     2. violation of any agreement, provision or condition of this Agreement, the Bonds or the Indenture, except a violation by the party seeking indemnification;

     3. violation by the Borrower of any contract, agreement or restriction which shall have existed at the commencement of the term of this Agreement or shall have been approved by the Borrower;

     4. violation by the Borrower of any law, ordinance, court order or regulation affecting the Project Facilities or a part thereof or the ownership, occupancy or use thereof;

     5. any statement or information relating to the expenditure of the proceeds of the Bonds contained in the Tax Exemption Agreement or similar document furnished by the Borrower to the Issuer or the Trustee which, at the time made, is misleading, untrue or incorrect in any material respect; and

22

     6. any untrue statement or alleged untrue statement of a material fact contained in any offering material relating to the sale of the Bonds (as from time to time amended or supplemented) or arising out of or based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading, other than any statement or omission relating to or provided by the Issuer, the Bank, the Original Purchaser or the Remarketing Agent.

     Promptly after receipt by the Issuer or any such other indemnified person, as the case may be, of notice of the commencement of any action with respect to which indemnity may be sought against the Borrower under this Section, such person will notify the Borrower in writing of the commencement thereof, and, subject to the provisions hereinafter stated, the Borrower shall assume the defense of such action (including the employment of counsel, who shall be counsel subject to the approval of the Issuer, which approval shall not be unreasonably withheld, and the payment of expenses). Insofar as such action shall relate to any alleged liability with respect to which indemnity may be sought against the Borrower, the Issuer or any such other indemnified person shall have the right to employ separate counsel of their own choice in any such action and to participate in the defense thereof, and the fees and expenses of such counsel shall be at the expense of the Borrower. The Borrower shall not be liable to indemnify any person for any settlement of any such action effected without its consent.

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

     Section 6.02 Annual Certificate; Reports. The Borrower agrees to furnish to the Trustee, on or before August 1 of each year during the term hereof, a Certificate of the Authorized Borrower Representative that there is no Default under this Loan Agreement and that he has no knowledge of any default by the Issuer under this Loan Agreement or the Indenture, or, if there be any such Default or default by the Issuer, explaining the nature thereof and specifying the steps being taken to remedy the same.

     The Borrower shall provide the Issuer with such information as may be necessary or desirable for the Issuer to comply with the reporting requirements of Minnesota Statutes, Section 469.154, Subdivisions 5 and 7, and shall take such further action as may be necessary or desirable to insure that such reporting requirements are complied with.

     Section 6.03 Borrower to Maintain its Existence; Conditions Under Which Exceptions Permitted. The Borrower agrees that, so long as the Bonds are outstanding, it will maintain its existence as a corporation under the laws of Minnesota; will not dissolve or otherwise dispose of all or substantially all of its assets; and will not consolidate with or merge into another corporation or permit one or more other corporations to consolidate with or merge into it; provided, that the Borrower may, subject to the terms of the Credit Agreement and the documents related thereto, without violating the agreement contained in this Section, consolidate with or merge into another institution, or permit one or more other of such institutions to consolidate with or merge into it, or sell or otherwise transfer to another such institution all or substantially all of its assets as an entirety and thereafter dissolve upon satisfaction of the following conditions: (i) if the surviving, resulting or transferee institution, as the case may be, is other than the Borrower, such surviving, resulting or transferee institution shall assume in

23

writing all of the obligations of the Borrower herein; and (ii) the Borrower shall furnish to the Trustee an opinion of Bond Counsel to the effect that such consolidation, merger or transfer shall not cause the interest on the Bonds to become includible in the gross income of the recipients thereof for purposes of federal income taxation.

     If merger or sale or other transfer is made as provided in this Section, the provisions of this Section shall continue in full force and effect and no further merger or sale or other transfer shall be made except in compliance with the provisions of this Section.

     Section 6.04 Records and Inspection. To the extent required by any provision of this Loan Agreement or the Indenture or by law relating to the Project or the issuance of the Bonds, the Borrower shall maintain (i) copies of all building permits, surveys, insurance, and all other documents relating to the Project Facilities, (ii) copies of federal, state, municipal and other licenses and permits obtained by the Borrower relating to the completion or operation of the Project Facilities, (iii) financial books and records reflecting the condition of the Borrower, and (iv) all other documents, instruments, reports and records required to be maintained hereunder. The Issuer and the Trustee shall have the right to inspect all such materials if required to assess compliance with any of the provisions hereof, except any materials made private or confidential by federal or state law or regulation, and the Project Facilities, at all reasonable times during regular business hours and to make such copies and extracts as they may desire. At the request of the Issuer or the Trustee, the Borrower shall furnish to the Issuer or the Trustee, at the Borrower’s expense, a copy of any such materials which are reasonably required by the Issuer or the Trustee in the performance of their duties under the Loan Agreement, the Indenture or the Act.

     Section 6.05 Filings, Instruments of Further Assurance. The Borrower agrees to cooperate with the Trustee in order that all financing statements related to the Indenture and all supplements thereto as shall reasonably be requested in writing by the Issuer or the Trustee, to be recorded and filed in such manner and in such places as may from time to time be required by law in order to preserve and protect fully the security of the Owners of the Bonds and the rights of the Trustee thereunder, and to take or cause to be taken any and all other action necessary to perfect the security interest, pledge and assignment created by the Indenture, as the Trustee may request.

     Section 6.06 Assignments. The Borrower consents to the pledge and assignment of the Loan Repayments and other interests of the Issuer in this Loan Agreement by the Issuer to the Trustee as provided in the Indenture. Except as otherwise provided in Section 5.02 hereof, the interests and obligations of the Borrower under this Loan Agreement are nonassignable and shall not be assigned except to a trustee in bankruptcy or similar officer pursuant to the United States Bankruptcy Code or similar law. Without limiting the foregoing, funds and investments in the Bond Fund and Project Fund and other funds comprising the Trust Estate are trust funds not subject to assignment by the Borrower or execution, attachment, or garnishment by any creditor of the Borrower.

     Section 6.07 Observance of Indenture Covenants and Terms. The Borrower will not do, in any manner, anything which will cause or permit to occur any default under the Indenture, but will faithfully observe and perform, and will do all things necessary so that the Issuer may

24

observe and perform, all the conditions, covenants and requirements of the Indenture. The Issuer agrees that it will observe and perform all obligations imposed upon it by the Indenture and the Bonds provided that the Issuer has no obligation to use its own funds or funds of the State of Minnesota to perform or cause performance of any such obligations.

     Section 6.08 Obligations Regarding Continuing Disclosure. In the event that the interest rate on the Bonds is converted to the Fixed Rates, the Borrower shall cause all pertinent requirements of Rule 15c2-12, promulgated by the Securities and Exchange Commission, to be complied with in connection with such conversion.

[The balance of this page is intentionally left blank.]

25

ARTICLE VII

EVENTS OF DEFAULT AND REMEDIES

     Section 7.01 Events of Default. The following shall be “Events of Default” under this Loan Agreement and the term “Event of Default” shall mean, whenever used in this Loan Agreement, any one or more of the following events:

     (a) If the Borrower fails to pay or cause to be paid the amount of any Loan Repayment required to be paid under Section 4.02 hereof when due; or

     (b) If the Borrower shall fail to perform any obligation under Section 4.03 hereof with respect to the mandatory purchase of outstanding Bonds; or

     (c) If the Borrower shall default in the due and punctual performance of any of the other covenants, conditions, agreements and provisions contained in this Loan Agreement on the part of the Borrower to be performed, and such Default shall have continued for a period of sixty days after written notice, specifying such Default and requiring the same to be remedied, shall have been given to the Borrower and the Bank by the Issuer or Trustee; or

     (d) The occurrence of any Default under the Indenture and the continuance thereof after the expiration of any period of grace or cure granted therein.

The provisions of paragraph (c) of this Section are subject to the following limitations: (1) No Default in the payment of money to the Issuer (other than a Loan Repayment) shall become an Event of Default. (2) If by reason of force majeure the Borrower is unable in whole or in part to carry out its agreements contained herein, the Borrower shall not be deemed in default during the continuance of such disability. The term “force majeure” as used herein includes but is not limited to the following: acts of God; strikes, lockouts or other employee disturbances; acts of public enemies; orders of any kind of the government of the United States of America or of the State of Minnesota or any of their departments, agencies, political subdivisions or officials, or any civil or military authority; insurrections; riots; epidemics; landslides; lightning; earthquakes; fires; tornadoes, hurricanes, storms; floods; washouts; droughts; restraint of government and people; civil disturbances; explosions, breakage or accident to machinery, transmission pipes or canals; material failure of utilities; or any other cause or event not reasonably within the control of the Borrower. (3) If the Default can be remedied but not within a period of sixty days after notice and if the Borrower has taken all action reasonably possible to remedy such Default within such sixty day period, the Default shall not become an Event of Default for so long as the Borrower shall diligently proceed to remedy such Default. The Borrower agrees, however, to use its best efforts to remedy with all reasonable dispatch any cause or causes preventing the Borrower from carrying out its agreements.

     Section 7.02 Remedies on Default. Whenever any Event of Default shall have happened and be subsisting, any one or more of the following steps may be taken, except that, so long as the Letter of Credit remains in full force and effect, the following steps may be taken

26

only upon the occurrence and continuance of an Event of Default described in Section 7.01 (a), (b) or (d):

     (a) The Trustee may declare all or any amounts of Loan Repayments thereafter to become due and payable under Section 4.02 hereof for the remainder of the term of this Loan Agreement to be immediately due and payable, whereupon the same shall become immediately due and payable.

     (b) The Trustee may take whatever action in law or in equity which appears necessary or desirable to enforce this Loan Agreement in accordance with the provisions hereof.

Any amounts collected by the Trustee pursuant to action taken under the foregoing paragraphs shall be applied as provided in the Indenture.

     Whenever any Default shall occur, the Trustee (or the Issuer with respect to Sections 4.04(b), 6.01, 7.04 and 7.05 hereof) may take whatever action at law or in equity which may appear necessary or desirable to collect the payments then due or to enforce performance and observance of any obligation, agreement or covenant under this Loan Agreement. Whenever any Default shall occur with respect to any obligation of the Borrower to the Issuer under Sections 4.04 (b), 6.01, 7.04 or 7.05 hereof, the Issuer may take whatever action at law or in equity which may appear necessary or desirable to enforce the obligations of the Borrower to the Issuer thereunder.

     Section 7.03 Remedies Cumulative, Delay Not to Constitute Waiver. No remedy conferred upon or reserved to the Issuer or the Trustee by this Loan Agreement is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Loan Agreement or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any Default shall impair any such right or power, and any such right or power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Issuer or the Trustee to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice, other than such notice as may be herein expressly required. In the event any agreement contained in this Loan Agreement should be breached by either party and thereafter waived by the other party, such waiver shall be limited to a particular breach so waived and shall not be deemed to waive any other breach hereunder.

     Section 7.04 Agreement to Pay Attorneys’ Fees and Expenses. In the event the Borrower should default under any of the provisions of this Loan Agreement and the Issuer or the Trustee should employ attorneys or incur other expenses for the collection of payments due or to become due hereunder or the enforcement of performance or observance of any obligation or agreement on the part of the Borrower contained in this Loan Agreement the Borrower agrees that it will on demand therefor reimburse the reasonable fee of such attorneys and such other reasonable expenses as are so incurred. This provision is in addition to and not in lieu of any other provision for payment of attorneys fees herein.

27

     Section 7.05 Advances. In the event the Borrower shall fail to pay any Loan Repayments under Section 4.02 hereof, or to do any other thing or make any other payment required to be done or made by any other provision of this Loan Agreement, the Issuer or the Trustee, each in its own discretion, may do or cause to be done any such thing or make or cause to be made any such payment at the expense or as an advance for the account of the Borrower, and the Borrower shall pay to the Issuer or the Trustee, as the case may be, upon demand, all costs and expenses so incurred and advances so made, with interest at a rate equal to the Reference Rate, plus 2.00% per annum.

[The balance of this page is intentionally left blank.]

28

ARTICLE VIII

MISCELLANEOUS

     Section 8.01 Amounts Remaining in Funds.

     (a) It is agreed by the parties hereto that any amounts remaining in any Fund or Account maintained by the Trustee under the Indenture after payment in full of the Bonds (or provision for payment thereof having been made in accordance with the provisions of the Indenture) and any additional amounts payable to the Trustee and fees, charges and expenses of any paying agents and all other amounts required to be paid under the Indenture or this Agreement, shall belong to and be paid to the Borrower or the Bank, as their interests may appear.

     (b) In the event that at any time the Trustee holds moneys in the Bond Fund as a result of a payment made under Section 4.02 hereof or otherwise and in respect of which a credit is given due to a corresponding payment made by the Bank under the Letter of Credit, the Trustee is authorized to remit such money to the Bank in satisfaction of the reimbursement obligations under the Credit Agreement.

     Section 8.02 Notices. All notices, certificates, requests or other communications hereunder shall be sufficiently given and shall be deemed given when delivered personally or the earlier of actual receipt or three days following the mailing thereof by either certified or registered mail, return receipt requested, postage prepaid, addressed as follows:

A.	To the Issuer	—	City of Chaska
			City Hall Chaska, Minnesota 55318 Attention: City Administrator
B.	To the Borrower	—	Lifecore Biomedical, Inc.
			3515 Lyman Boulevard Chaska, Minnesota 55318 Attention: Chief Financial Officer
C.	To the Trustee	—	Wells Fargo Bank, National Association
			MAC N9303-110
			Sixth and Marquette
			Minneapolis, MN 55479
			Attn: Corporate Trust Services
D.	To the Remarketing Agent	—	Northland Securities, Inc.
			45 South Seventh Street Suite 2500
			Minneapolis, Minnesota 55402
			Attention: Public Finance Department

29

E.	To the Bank	—	M&I Marshall & Ilsley Bank
			651 Nicollet Mall Minneapolis, MN 55402 Attention: Commercial Banking
			with a copy to:
			M&I Marshall & Ilsley Bank
			770 North Water Street, NW 18 Milwaukee, WI 53202

A duplicate copy of each notice, certificate, request or other communication given hereunder to any party shall also be given to the others. Any party may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent.

     Section 8.03 References to Bonds Ineffective after Bonds Paid. Upon payment in full of the Bonds (or provision for payment thereof having been made in accordance with the provisions of the Indenture) and all fees and charges of the Trustee and any paying agents of the Bonds, all references in this Loan Agreement to the Bonds and the Trustee shall be ineffective and neither the Trustee nor the Holders of any of the Bonds shall thereafter have any rights hereunder, saving and excepting those that shall have heretofore vested.

     Section 8.04 Binding Effect. This Loan Agreement shall inure to the benefit of and shall be binding upon the Issuer, the Borrower and their respective successors and assigns, and subject to the further limitation that any obligation of the Issuer created by or arising out of this Loan Agreement shall not be a general debt of the Issuer but shall be payable solely out of the proceeds derived from this Loan Agreement or the sale of the Bonds.

     Section 8.05 Amendments, Changes and Modifications. Except as otherwise provided in this Loan Agreement or in the Indenture, subsequent to the issuance of the Bonds and prior to payment of the Bonds in full (or provision for the payment thereof having been made in accordance with the provisions of the Indenture), this Loan Agreement may not be effectively amended, changed, modified, altered or terminated without the prior written consent of the parties hereto, the Trustee and the Bank, and the Indenture may not be effectively amended, changed, modified, altered or terminated except as provided in the Indenture.

     Section 8.06 Counterparts. This Loan Agreement may be executed in several counterparts, each of which shall be regarded as an original and all of which shall constitute but one and the same Loan Agreement.

     Section 8.07 Severability. In case any section or provision of this Loan Agreement, or in case any covenant, stipulation, obligation, agreement, act or action, or part thereof, made, assumed, entered into, or taken under this Loan Agreement, or any application thereof, is for any reason held to be illegal or invalid, or is at any time inoperable by reason of any law, or actions thereunder, such illegality or invalidity or inoperability shall not affect the remainder thereof or any other section or provision of this Loan Agreement or any other covenant, stipulation, obligation, agreement, act or action, or part thereof, made, assumed, entered into, or taken under

30

this Loan Agreement, which shall at the time be construed and enforced as if such illegal or invalid or inoperable portion were not contained therein, nor shall such illegality or invalidity or inoperability or any application thereof affect any legal and valid and operable application therefor from time to time, and each such section, provision, covenant, stipulation, obligation, agreement, act or action, or part thereof, shall be deemed to be effective, operative, made, entered into or taken in the manner and to the full extent from time to time permitted by law.

     Section 8.08 Captions. The captions or headings in this Loan Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Loan Agreement.

     Section 8.09 Benefit of Bondholders. This Loan Agreement is executed in part to induce the purchase by others of Bonds to be issued by the Issuer, and accordingly all covenants and agreements on the part of the Borrower and the Issuer as set forth in this Loan Agreement are hereby declared to be for the benefit of the Holders from time to time of the Bonds.

     Section 8.10 Term of Agreement. Except as otherwise provided herein, this Loan Agreement shall remain in full force and effect from the date of execution hereof until such time as the Indenture has been discharged in accordance with its terms.

     Section 8.11 Certain References to the Bank, the Letter of Credit, Etc. If at any time the Bank has failed to honor a conforming draft submitted under the Letter of Credit in accordance with the provisions thereof, or is subject to any insolvency or receivership proceeding, and at all times following the Letter of Credit Termination Date, all references herein or in the Indenture to the Bank or the Credit Agreement, and all provisions herein or in the Indenture requiring the consent of the Bank for any purpose shall no longer be of any force or effect and this Loan Agreement and the Indenture shall be construed as if all such references were void. If at any time there shall be no Letter of Credit required at such time to be in effect, all references herein or in the Indenture to the Bank or its consent, or to the Letter of Credit or the Credit Agreement shall be of no force or effect and this Loan Agreement and the Indenture shall be construed as if all such references were void.

     Section 8.12 No Liability of Issuer. It is understood and agreed by the Borrower that no covenant, provision or agreement of the Issuer herein or in the Bonds or in any other document executed by the Issuer in connection with the issuance, sale and delivery of the Bonds, or any obligation herein or therein imposed upon the Issuer or breach thereof, shall give rise to a pecuniary liability of the Issuer or a charge against its general credit or general fund or shall obligate the Issuer financially in any way except with respect to the application of revenues under this Agreement, and the proceeds of the Bonds. No failure of the Issuer to comply with any term, condition, covenant or agreement therein shall subject the Issuer to liability for any claim for damages, costs or other financial or pecuniary charges except to the extent that the same can be paid or recovered from this Agreement or revenues therefrom or proceeds of the Bonds. No execution on any claim, demand, cause of action or judgment shall be levied upon or collected from the general credit or general funds of the Issuer. In making the agreements, provisions and covenants set forth herein, the Issuer has not obligated itself except with respect to this Agreement and the application of revenues hereunder as hereinabove provided. The Bonds constitute special obligations of the Issuer, payable solely from the revenues pledged to

31

the payment thereof pursuant to this Agreement and the Indenture, and do not now and shall never constitute an indebtedness or a loan of the credit of the Issuer, the State or any political subdivision thereof within the meaning of any constitutional or statutory provision whatsoever. The Issuer has no taxing power. It is further understood and agreed by the Borrower and the Holders that the Issuer shall incur no pecuniary liability hereunder and shall not be liable for any expenses related hereto. If, notwithstanding the provisions of this Section, the Issuer incurs any expense, or suffers any losses, claims or damages or incurs any liabilities, the Borrower will indemnify and hold harmless the Issuer from the same and will reimburse the Issuer for any legal or other expenses incurred by the Issuer in relation thereto, and this covenant to indemnify, hold harmless and reimburse the Issuer shall survive delivery of and payment for the Bonds.

     Section 8.13 Governing Law; Venue. This Loan Agreement is governed by the laws of the State of Minnesota, without regard to the choice of law rules of the State of Minnesota. Venue for any action under this Loan Agreement to which the Issuer is a party shall lie within the district courts of the State of Minnesota, and the parties hereto consent to the jurisdiction and venue of any such court and hereby waive any argument that venue in such forums is not convenient.

     Section 8.14 Right of Borrower To Perform Issuer’s Agreements. The Issuer irrevocably authorizes and empowers, to the extent possible under law, the Borrower to perform in the name and on behalf of the Issuer any agreement made by the Issuer in this Loan Agreement or in the Indenture which the Issuer fails to perform in a timely fashion if the continuance of such failure could result in an Event of Default. This Section will not require the Borrower to perform any agreement of the Issuer.

     Section 8.15 Complete Agreement. This Loan Agreement represents the entire agreement between the Issuer and the Borrower with respect to its subject matter.

[The balance of this page is intentionally left blank.]

32

     IN WITNESS WHEREOF, the Issuer and the Borrower have caused this Loan Agreement to be duly executed in their respective names, all as of the date first above written, but actually on the        day of August, 2004.

CITY OF CHASKA
By	/s/ GARY F. VAN EYLL
	Mayor
And by	/s/ DAVE POKORNEY
	City Administrator

[Signature Page to Loan Agreement dated as of August 1, 2004, between the City of Chaska,
Minnesota and Lifecore Biomedical, Inc.]

33

LIFECORE BIOMEDICAL, INC.
By:	/s/ DENNIS J. ALLINGHAM
	Its President and Chief Executive Officer

[Signature Page to Loan Agreement dated as of August 1, 2004, between the City of Chaska,
Minnesota and Lifecore Biomedical, Inc.]

34

EXHIBIT A

DRAW REQUEST

To: Wells Fargo Bank, National Association, as trustee

1.

The undersigned Authorized Borrower Representative (the “Authorized Borrower Representative”) of Lifecore Biomedical, Inc., a Minnesota corporation (the “Corporation”) hereby authorizes and requests the above-referenced trustee (the “Trustee”) to disburse from the Project Fund (the “Project Fund”) held by the Trustee, pursuant to the Indenture of Trust dated as of August 1, 2004, (the “Indenture”), between the City of Chaska, Minnesota (the “Issuer”) and the Trustee, in order to (i) reimburse the Borrower for certain expenditures paid by the Borrower prior to the issuance of the Series 2004 Bonds described in the Indenture (the “Bonds”) pursuant to the Indenture, or (ii) pay designated parties for expenditures by the Borrower paid after the issuance of the Bonds, all as more specifically described in the attachments hereto.

2.

The Authorized Borrower Representative further certifies, pursuant to Section 6.09 of the Indenture, that (i) none of the items for which reimbursement or payment is sought has formed the basis for any payment heretofore made from the Project Fund, and (ii) each item for which reimbursement or payment is sought is or was necessary in connection with the Project.

Answer Items 3 And 4 Only If Applying For Reimbursement Of
Expenditures Paid Before Bond Closing.

3. With respect to reimbursement of expenditures incurred and paid prior to the issuance of the Bonds, the Authorized Borrower Representative further certifies, pursuant to Section 1.150-2 (the “Regulations”) of the Income Tax Regulations under the Internal Revenue Code of 1986, as amended (the “Code”), that:

     (a) De minimis Expenditures. The expenditure for which reimbursement is hereby sought is/is not (circle one) a de minimis expenditure as defined and within the permitted limit described in paragraph (f)(1) of the Regulations (lesser of $100,000 or 5% of the proceeds).

     (b) Preliminary Expenditures. The expenditure for which reimbursement is hereby sought is/is not (circle one) a Preliminary Expenditure (as defined and within the permitted limit described in paragraph (f)(2) of the Regulations).

If the expenditure is described under (a) or (b), go to question 4 below.

     (c) Declaration of Official Intent. The expenditure for which reimbursement is hereby sought is not described under (a) or (b) above. On February 28, 2002, a date no later than 60 days after payment of the expenditure for which reimbursement is hereby

A-1

sought, the Borrower made a written declaration of official intent, stating that: (i) the Borrower reasonably expects to reimburse the expenditure with the Bond proceeds; (ii) a general description of the project for which reimbursement is sought or an identification by name and functional purpose of the fund or account from which the expenditure is to be paid; and (iii) the maximum principal amount of Bonds expected to be issued for the project.

     (d) Reimbursement Period. The reimbursement is being sought for an expenditure which has already been paid and such reimbursement would be on or before the later of:

        (i) eighteen months after the expenditure was paid; or

        (ii) the date the property was placed in service or abandoned, but in no event more than three years after the expenditure was paid.

     (e) Capital Expenditure. The reimbursed expenditure is for a “capital expenditure” as defined in Section 1.150-2(d)(3) of the Code.

4. The Authorized Borrower Representative hereby requests reimbursement for an expenditure which meets the requirements of (i) paragraph 3(d) and (e) above, and (ii) one of the following [check one or provide specific information for multiple items on an attachment]:

(a)                    
de minimis
expenditures (b)                    
preliminary
expenditures (c)                     declaration
of official intent

5.

The undersigned further certifies that this statement and all exhibits and attachments hereto, and documents furnished in connection herewith, shall be conclusive evidence of the facts and statements set forth herein and shall constitute full warrant, protection and Issuer to the Trustee for its actions taken pursuant hereto, and that this statement constitutes the approval of the Borrower of each disbursement hereby requested and authorized.

6.

The undersigned further certifies that the Borrower has general funds which, together with amounts remaining in the Project Fund, are sufficient to complete the Project.

Dated: _________________
	Authorized Borrower Representative
	Approved:
	M&I MARSHALL ILSLEY BANK
	By
	Its

A-2

EX-10.10

Exhibit 10.10

$5,630,000
City of Chaska, Minnesota
Variable Rate Demand Purchase Revenue Bonds
(Lifecore Biomedical, Inc. Project)
Series 2004

REMARKETING AGREEMENT

Dated as of August 1, 2004

Between

LIFECORE BIOMEDICAL, INC.

and

NORTHLAND SECURITIES, INC.

This document drafted by:

Dorsey & Whitney LLP
Suite 1500
50 South Sixth Street
Minneapolis, MN 55402-1498

REMARKETING AGREEMENT

     This REMARKETING AGREEMENT dated as of August 1, 2004, between LIFECORE BIOMEDICAL, INC., a Minnesota corporation (the “Borrower”) and NORTHLAND SECURITIES, INC., acting as remarketing agent (the “Remarketing Agent”);

W I T N E S S E T H

     WHEREAS, City of Chaska, Minnesota (the “Issuer”) has approved the issuance and sale of its Variable Rate Demand Purchase Revenue Bonds (Lifecore Biomedical, Inc. Project), Series 2004, in the aggregate principal amount of $5,630,000 (the “Bonds”) pursuant to an Indenture of Trust dated as of August 1, 2004 (the “Indenture”) between the Issuer and Wells Fargo Bank, National Association, as trustee (as defined in the Indenture, the “Trustee”); and

     WHEREAS, the Bonds are subject to purchase under certain circumstances, as described in the Bonds and in Sections 4.01, 4.02, 4.06 and 4.11 of the Indenture; and

     WHEREAS, the Borrower desires that the Remarketing Agent provide a mechanism for remarketing the Bonds according to the terms and subject to the conditions described herein;

     NOW, THEREFORE, for and in consideration of the covenants herein made, the parties hereto hereby agree as follows:

     Section 1. Definitions. Unless a different meaning clearly appears from the context, all words and terms used herein shall have the respective meanings assigned to them in the Indenture.

     Section 2. Acceptance of Duties. The Remarketing Agent agrees to serve as the Remarketing Agent for the Bonds, and to carry out the duties and obligations of the Remarketing Agent under the Indenture and this Remarketing Agreement, on the terms and conditions set forth herein.

     Section 3. Remarketing of the Bonds — Variable Rate.

     (a) While the Bonds bear interest at the Variable Rate, so long as no Event of Default under the Indenture has occurred and is continuing, the Remarketing Agent shall perform the functions of the Remarketing Agent set forth in Section 2.02(c) of the Indenture, and (ii) upon delivery of notice to the Remarketing Agent by any Owner of Bonds in accordance with Section 4.06 of the Indenture, the Remarketing Agent shall use its best efforts to arrange for the subsequent remarketing of the Bonds referred to in such notice, at a price equal to their principal amount plus accrued interest.

     (b) Within one Business Day after receipt thereof, the Remarketing Agent shall deliver to the Trustee a copy of any notice delivered to the Remarketing Agent pursuant to Section 4.06 of the Indenture.

     (c) At or prior to 11:00 A.M., Minneapolis, Minnesota time, on the Business Day preceding the date any Bonds are to be purchased pursuant to Section 4.06 of the Indenture, the Remarketing Agent shall give notice by telephone or telex, promptly confirmed in writing, to the Borrower and the Bank specifying the principal amount of such Bonds, if any, remarketed by it pursuant to Section 3(a) hereof and on or prior to 9:00 A.M., Minneapolis, Minnesota time on the date any Bonds are to be purchased pursuant to Section 4.06 of the Indenture, the Remarketing Agent shall, simultaneously with the payment of the Purchase Price for the Bonds by the Bank, pursuant to a draw under the Letter of Credit (or as soon thereafter as remarketing proceeds are available therefor), transfer the proceeds of any such remarketing to the Bank.

     (d) It is the express intention of the parties hereto that neither the determination of any interest rate on the Bonds nor any purchase, sale or transfer of any Bonds as herein provided, shall constitute or be construed to be the extinguishment of any Bonds or the obligations represented thereby or the reissuance of any Bonds.

     Section 4. Remarketing of the Bonds on the Conversion Date. Provided no Default under the Indenture has occurred and is continuing, the Remarketing Agent shall, at the request of the Borrower, such request to be delivered to the Remarketing Agent at least 45 days prior to the Conversion Date, use its best efforts to arrange for the subsequent remarketing of the Bonds which are delivered to the Trustee on the Conversion Date pursuant to Section 4.01 or Section 4.02 of the Indenture, at a price equal to not less than the principal amount thereof, subject to the following conditions:

     (a) satisfactory compensation and other terms and conditions shall have been agreed upon by the Borrower and the Remarketing Agent;

     (b) the Remarketing Agent shall have received an opinion of nationally recognized bond counsel to the effect that the interest on the Bonds will continue to be excluded from gross income for federal income taxation purposes after the Conversion Date;

     (c) the Remarketing Agent shall have received an Official Statement, private placement memorandum, or other appropriate disclosure document satisfactory in form and substance to the Remarketing Agent, to be used in connection with its efforts to arrange for the remarketing of the Bonds; and

     (d) the Remarketing Agent shall have received such additional documents, certificates and legal opinions as it may reasonably request.

     Further details regarding any such remarketing shall be negotiated between the Borrower and the Remarketing Agent prior to the Conversion Date.

     Section 5. Remarketing Agent Compensation.

     (a) As long as the Bonds bear interest at the Variable Rate, the Borrower shall pay to the Remarketing Agent during the term hereof a continuing remarketing and administration fee (the “Remarketing Fee”) computed at the annual rate of one-eighth of

2

1.00% per annum of the aggregate principal amount of the Bonds outstanding from time to time. Such fee shall be payable annually, in advance, commencing on the Closing Date, and thereafter on the first day of each September during the term hereof (each such date sometimes referred to as a “Fee Payment Date”), based on the outstanding principal amount of the Bonds on each Fee Payment Date. Such fee shall be computed on the basis of the actual number of days elapsed in a year of 365 or 366 days, as the case may be. The amount of the Remarketing Fee payable on the Closing Date for the period from the Closing Date to and including September 1, 2005, shall be prorated.

     (b) If the Remarketing Agent is requested by the Borrower to use its best efforts to arrange for the remarketing of the Bonds on the Conversion Date pursuant to Section 4, the Remarketing Agent shall be paid such remarketing fee as may then be mutually agreed upon by the Borrower and the Remarketing Agent.

     (c) In addition to the fees set forth above, the Borrower shall reimburse the Remarketing Agent for its reasonable actual out-of-pocket expenses incurred in connection herewith and shall indemnify the Remarketing Agent for, and hold it harmless against, any loss, liability or expense (including counsel fees and disbursements), incurred without gross negligence or willful misconduct on its part, arising out of or in connection with its performance of its obligations hereunder.

     Section 6. Proceeds of Sale of the Bonds. The proceeds of the sale of any Bonds as a result of the remarketing thereof by the Remarketing Agent, to the extent not used to pay the Purchase Price of such Bonds in accordance with Section 4.07 of the Indenture, shall be paid in accordance with the provisions of Section 4.09 or any other applicable Section of the Indenture or hereof.

     Section 7. Duties of the Remarketing Agent. The Remarketing Agent hereby agrees:

     (a) to use its best efforts to arrange for the remarketing of any Bond delivered to the Trustee for purchase pursuant to Section 4.06 of the Indenture in accordance with Section 3(a) hereof, except as otherwise provided in this Remarketing Agreement;

     (b) to determine the Variable Rate at the times and in the manner provided in Sections 2.02(c) (ii) of the Indenture and to notify the Trustee, the Borrower and the Bank of each change in the Variable Rate at the times and in the manner provided in Section 2.02(c) of the Indenture;

     (c) if the Remarketing Agent is requested by the Borrower to use its best efforts to arrange for the remarketing of the Bonds on the Conversion Date pursuant to Section 4, to prepare and deliver to the Trustee, the Bank and the Borrower the schedule of the interest rate or rates constituting the Fixed Rates, at the time and in the manner provided in Section 2.02(d)(i) of the Indenture;

     (d) to carry out all of the other duties and obligations of the Remarketing Agent under the Indenture; and

3

     (e) to keep such books and records as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Issuer, the Borrower, the Bank and the Trustee at all reasonable times.

     Section 8. Replacement of Remarketing Agent by Borrower. The Borrower may replace the Remarketing upon 30 days’ notice in writing to the Remarketing Agent and the Trustee, but such replacement shall only become effective if the appointment of a successor Remarketing Agent has become effective and notice has been given in writing by the Borrower to the Trustee of the name and address of the successor Remarketing Agent.

     In the event that the Remarketing Agent shall be removed or be dissolved, or if the property or affairs of the Remarketing Agent shall be taken under the control of any state or federal court or administrative body, the Borrower shall appoint as successor Remarketing Agent an institution authorized by law to perform all the duties imposed upon it under this Agreement.

     If a successor Remarketing Agent shall be appointed pursuant to this Section, all references herein to the “Remarketing Agent” shall thereafter refer to such successor.

     Section 9. Successor Remarketing Agent. The Remarketing Agent may at any time resign and be discharged of the duties and obligations created by this Agreement by giving at least 30 days’ notice to the Borrower, the Issuer, the Bank and the Trustee. The Remarketing Agent may be removed at any time, at the direction of the Borrower, for any reason, with or without cause, upon not less than 30 days’ notice, by an instrument signed by the Borrower and filed with the Remarketing Agent, the Tender Agent, the Issuer and the Trustee. The Remarketing Agent shall be relieved from further performance of its obligations hereunder upon the acceptance of such obligations by a successor.

     In the event that the Remarketing Agent shall resign, or if the property or affairs of the Remarketing Agent shall be taken under the control of any state or federal court or administrative body, the Borrower shall appoint as successor Remarketing Agent an institution authorized by law to perform all the duties imposed upon it under this Agreement.

     If a successor Remarketing Agent shall be appointed pursuant to this Section, all references herein to the “Remarketing Agent” shall thereafter refer to such successor.

     Section 10. Delivery and Approval of Amendments to Indenture, Etc. Prior to the execution of any amendment or supplement to the Indenture, the Loan Agreement or the Letter of Credit, or the delivery of a Substitute Letter of Credit, the Borrower shall deliver to the Remarketing Agent a copy of such amendment, supplement or Substitute Letter of Credit.

     Section 11. Borrower’s Remedy. The Borrower’s remedy against the Remarketing Agent under this Agreement in the event of a breach by the Remarketing Agent of its obligations hereunder shall be the right to the return of any fees paid to the Remarketing Agent hereunder during such time as the Remarketing Agent breached or failed to perform its obligations hereunder and/or the termination of the Remarketing Agent, provided however in the event of willful misconduct or gross negligence of the Remarketing Agent in connection with the operation of this Remarketing Agreement the Borrower may recover its actual damages. The Borrower acknowledges and agrees that any breach of this Agreement by the Remarketing Agent

4

shall not constitute a defense, setoff, or otherwise be deemed to excuse performance by the Borrower of its obligations under the Loan Agreement, the Reimbursement Agreement, or any related document.

     Section 12. Notices. The Remarketing Agent hereby designates as its notice address the address shown for it in Section 13.04 of the Indenture. Unless otherwise provided herein, all notices, requests, certificates or other communications hereunder shall be sufficiently given if the same shall be duly mailed by first class or registered mail, return receipt requested, postage prepaid, or sent by any electronic method capable of creating a written document, addressed to the address or addresses provided in the Indenture. Any party mentioned above may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent.

     The Remarketing Agent may rely upon, and is authorized to honor, any telephonic requests or directions which the Remarketing Agent believes, in its sole discretion, to emanate from an authorized representative of the Borrower or the Trustee, regardless of the source of such request or direction. Any telephonic request or direction to the Remarketing Agent shall promptly be confirmed in writing; provided, however, that failure to receive any such notice shall not affect the authority of the Remarketing Agent to rely and act upon such request or direction.

     Section 13. Amendments. This Agreement may be amended by an instrument in writing signed by the Borrower and the Remarketing Agent. The Borrower shall promptly give a written notice to the Trustee after an amendment is made to this Agreement.

     Section 14. Governing Law. This Agreement shall be governed by, and interpreted in accordance with, the laws of the State of Minnesota.

     Section 15. Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

5

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

NORTHLAND SECURITIES, INC.
By	/s/ CHRIS FLANNERY
	Its	Senior Vice President

[Signature page to Remarketing Agreement dated as of August 1, 2004, between
Lifecore Biomedical, Inc. and Northland Securities, Inc.]

6

LIFECORE BIOMEDICAL, INC.
By	/s/ DENNIS J. ALLINGHAM
	Its President and Chief Executive Officer

[Signature page to Remarketing Agreement dated as of August 1, 2004, between
Lifecore Biomedical, Inc. and Northland Securities, Inc.]

7

EX-10.11

Exhibit 10.11

$5,630,000
City of Chaska, Minnesota
Variable Rate Demand Purchase Revenue Bonds
(Lifecore Biomedical, Inc. Project),
Series 2004

TAX EXEMPTION AGREEMENT

Dated as of August 1, 2004

By and Between

CITY OF CHASKA, MINNESOTA

and

WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Trustee

and

LIFECORE BIOMEDICAL, INC.

This instrument drafted by:

Dorsey & Whitney LLP
Suite 1500
50 South Sixth Street
Minneapolis, MN 55401-1498

TAX EXEMPTION AGREEMENT

     The undersigned are, respectively, duly qualified and acting officers of the City of Chaska, Minnesota (the “Issuer”), Lifecore Biomedical, Inc. (the “Borrower”), and Wells Fargo Bank, National Association, as trustee ( the “Trustee”). The City Administrator of the Issuer is charged, with others, with the responsibility for delivering the $5,630,000 City of Chaska, Minnesota Variable Rate Demand Purchase Revenue Bonds (Lifecore Biomedical, Inc. Project), Series 2004 (the “Bonds”) on August 19, 2004 (the “Closing Date”). The Bonds were authorized pursuant to the Issuer’s resolution adopted July 19, 2004. The Bonds are being issued pursuant to an Indenture of Trust dated as of August 1, 2004 (the “Indenture”) between the Issuer and the Trustee. The Bonds were sold pursuant to a Bond Purchase Agreement (the “Purchase Agreement”) dated August 19, 2004, by and between the Issuer, the Borrower, and Northland Securities, Inc. (the “Underwriter”). Pursuant to Section 1.150(f)(1)(i) of the Regulations, the Bonds are deemed to have been sold on the Closing Date. Certain terms are defined in Article VII hereof. Terms used herein and not defined herein shall have the meanings given to them in the Indenture.

     One purpose of executing this Agreement is to set forth various facts regarding the Bonds and to establish the expectations of the Issuer, the Borrower, and the Trustee as to future events regarding the Bonds and the use of Bond proceeds. To the extent such facts do not relate directly to the Issuer or the Trustee, the Issuer and the Trustee are relying upon the certifications of the Borrower and other parties, which is deemed by the undersigned to be reasonable and prudent. The certifications and representations made herein and the expectations presented herein are intended, and may be relied upon, as a certification of an officer of the Issuer given in good faith as described in Section 1.148-2(b)(2) of the Regulations.

     The certifications, covenants and agreements contained herein are made on behalf of the Issuer, the Borrower, and the Trustee for the benefit of the owners from time to time of the Bonds. We do hereby certify, covenant and agree on behalf of the Issuer, the Borrower, and the Trustee, respectively, the following:

ARTICLE I

DESCRIPTION OF THE PURPOSE OF THE BONDS

     Section 1.1 Purpose of the Bonds. The Bonds are being issued to provide refinancing for an existing manufacturing facility of the Borrower located in the City (the “Project”), through the refunding in full of the outstanding Industrial Development Revenue Bonds (Lifecore Biomedical, Inc. Project), Series 1990, issued by the Issuer in the original aggregate principal amount of $7,000,000 (the Refunded Bonds”). A breakdown of sources and uses of funds appears in Section 2.1 hereof.

     The proceeds from the sale of the Bonds will be loaned by the Issuer to the Borrower pursuant to a Loan Agreement dated as of August 1, 2004 (the “Loan Agreement”) between the Issuer and the Borrower. The proceeds of the Bonds will be deposited with the Trustee into the Project Fund and applied to the refunding of the Refunded Bonds, provided, however, that any proceeds representing accrued interest on the Bonds shall be deposited in the Bond Fund.

     In connection with the issuance of the Bonds, M&I Marshall Ilsley Bank (the “Bank”) has issued its Irrevocable Letter of Credit (the “Letter of Credit”) pursuant to a Reimbursement Agreement dated as of August 1, 2004 (the “Reimbursement Agreement”) between the Bank and the Borrower to support payment of the principal of and interest on the Bonds and to pay the purchase price of Bonds tendered for purchase (sometimes referred to as “Tendered Bonds”), in accordance with the Indenture.

     Section 1.2 Redemption in Whole of Refunded Bonds. The Borrower has caused the Refunded Bonds to be called for redemption in whole on September 1, 2004 (the “Call Date”), in accordance with the provisions of the Prior Indenture. The Call Date will be less than 90 days from the date of issuance of the Bonds. The original principal amount of the Series 2004 Bonds is in an amount not greater than the current outstanding principal amount of the Refunded Bonds. The principal amount of the Series 2004 Bonds is not larger than the amount necessary to cause the Refunded Bonds to be redeemed in whole, in accordance with the provisions of the Prior Indenture and in accordance with the provisions hereof. The entire gross proceeds of the Series 2004 Bonds ($5,630,000) are to be expended solely for the payment and discharge on the Call Date of the outstanding principal amount of the Refunded Bonds. The weighted average maturity of the Series 2004 Bonds does not exceed the remaining weighted average maturity of the Refunded Bonds.

     Section 1.3 Reimbursement. Except for certain preliminary expenditures evidenced by the files and records of the Borrower (the “Preliminary Expenditures”), none of the proceeds of the Refunded Bonds were used and none of the proceeds of the Bonds will be used to reimburse the Borrower for an expenditure paid prior to the date which is 60 days prior to the date on which the Issuer adopted a reimbursement resolution with respect to the Project. Any such reimbursement that is allocated to proceeds of the Bonds is referred to herein as a “Reimbursement Allocation.” With respect to the Preliminary Expenditures, the Borrower represents and covenants as follows:

-2-

     (a) All Preliminary Expenditures relate to architectural, engineering, surveying, soil testing, bond issuance and similar costs that were incurred prior to commencement of construction, or acquisition of the Project and do not include any costs related to land acquisition, site preparation and similar costs incident to commencement of construction.

     (b) All Preliminary Expenditures represent (i) costs of a type that would be properly chargeable to a capital account under the Code (or would be so chargeable with a proper election) under federal income tax principles if the Borrower were treated as a corporation subject to Federal income taxation or (ii) a cost of issuing the Bonds.

     (c) Funds corresponding to Gross Proceeds used to reimburse a Preliminary Expenditure will not be used within one year after making any Reimbursement Allocation in a manner that results in the creation of Replacement Proceeds of the Bonds or any other issue. The preceding sentence does not apply to amounts deposited in a bona fide Bond Fund.

     (d) No Reimbursement Allocation will employ any action that (A)(i) enables the Borrower to exploit the difference between tax-exempt and taxable interest rates to obtain a material financial advantage and (ii) overburdens the tax-exempt bond market to avoid arbitrage restrictions or (B) avoids the restrictions under Sections 142 through 147 of the Code.

     Section 1.4 Working Capital. (a) All of the proceeds of the Bonds, plus investment earnings, will be used, directly or indirectly, to pay principal or interest on the Bonds or to refinance costs of a type that were and are properly chargeable to a capital account (or would be so chargeable with a proper election) under general federal income tax principles in effect at the time the cost was paid, other than the following:

     (i) an amount not to exceed five percent of the Sale Proceeds of the Bonds for working capital expenditures directly related to capital expenditures financed by the Refunded Bonds;

     (ii) payments of interest on the Bonds for a period commencing on the date of issuance of the Bonds and ending on the later of the date three years after such date or one year after the date on which the Project is placed in service;

     (iii) costs of issuing the Bonds and qualified administrative costs of investments within the meaning of Sections 1.148-5(e)(2)(i), 1.148-5(e)(2)(ii) or 1.148-5(e)(3) of the Regulations;

     (iv) payments of rebate or yield reduction payments made to the United States under the Regulations;

     (v) principal of or interest on an issue paid from unexpected excess sale or investment proceeds; and

-3-

     (vi) principal of or interest on an issue paid from investment earnings on a reserve or replacement fund that are deposited in a bona fide debt service fund.

     (b) No Gross Proceeds may be spent for non-capital purposes pursuant to this Section if the expenditure merely substitutes Gross Proceeds for other amounts that would have been used to make such expenditures in a manner that gives rise to Replacement Proceeds.

     Section 1.5 Consequences of Contrary Expenditure. The Borrower acknowledges that if Gross Proceeds of the Bonds are spent for non-capital purposes other than as permitted by Section 1.4 hereof, a like amount of then-available funds of the Borrower will be treated as unspent Gross Proceeds, which, among other things, may be subject to the yield restrictions described in Section 5.2 hereof and rebate described in Article III hereof.

     Section 1.6 Abusive Transactions. Neither the Issuer, the Borrower nor any member of the same Controlled Group of either of the foregoing has employed a device or entered into any arrangements or understandings in connection with the issuance of the Bonds, or the acquisition or construction of the Project, or in connection with any transaction or series of transactions related to the issuance of the Bonds, or the acquisition or construction of the Project, to obtain a material financial advantage based on arbitrage. Neither the Issuer, the Borrower nor any member of the same Controlled Group of either of the foregoing will realize any material financial advantage based on arbitrage in connection with the issuance of the Bonds or in connection with any transaction or series of transactions related to the issuance of the Bonds or the acquisition or construction of the Project. In particular, neither the Issuer, the Borrower nor any member of the same Controlled Group as either of the foregoing has or will receive a rebate or credit resulting from any payments having been made in connection with the issuance of the Bonds or the acquisition or construction of the Project.

     Section 1.7 Hedges; Bonds Not Hedge Bonds. The Bonds will not be hedge bonds as defined in Section 149(g) of the Code since the Issuer and the Borrower reasonably expect that at least 85% of the spendable proceeds of the Bonds will be used to carry out the governmental purposes of the issue within a three year period beginning on the Delivery Date and not more than 50% of the proceeds of the Bonds are or will be invested on investments (other than Tax Exempt Obligations) having a yield that is substantially guaranteed for four years or more.

-4-

ARTICLE II

USE OF PROCEEDS; DESCRIPTION OF FUNDS

     Section 2.1 Use of Proceeds; Funds Established.

     (a) The Sources and Uses of Funds anticipated in connection with the issuance of the Bonds are, as follows:

Sources of Funds
Proceeds of Bonds			$	5,630,000
Existing Reserves and other Fund Balances held by Prior Trustee				1,105,350
Total			$	6,735,350
Uses of Funds
Redemption Price for Refunded Bonds
Outstanding Principal	$	6,105,000
Premium		119,200
Accrued Interest		312,881
Total			$	6,537,081
Letter of Credit Fees				90,210
Issuance Expenses (including underwriting commissions, legal fees, trustee fees, printing expenses, etc.)				108,059
Total			$	6,735,350

     (b) The Bonds have been sold by the Underwriter pursuant to the Purchase Agreement. In accordance with the Purchase Agreement, the Bonds are being issued on the Closing Date by delivery of the Bonds to the Underwriter for a purchase price calculated as follows:

Principal	$	5,630,000
Plus: Accrued Interest		0
Less: Underwriter’s Discount		56,300
Total purchase price	$	5,573,700

     The Indenture creates the following funds and accounts: the Project Fund, the Bond Fund and the Rebate Fund (sometimes collectively referred to herein as the “Funds”).

     (c) On the Closing Date the total purchase price of the Bonds, as shown in (a) above ($5,573,700) will be deposited in the Project Fund.

     (d) All income derived from the investment of moneys on deposit in any of the Funds created under the Indenture shall be credited to such Fund. The Borrower anticipates that there will be no investment earnings with respect to the Project Fund because forthwith upon the issuance of the Bonds and the deposit of the proceeds thereof

-5-

into the Project Fund all moneys in the Project Fund will be transferred to the Prior Trustee for application to the redemption in whole of the Refunded Bonds, in accordance with the provisions of the Prior Indenture.

     (e) Costs of issuance incurred in connection with the issuance of the Bonds (other than costs of issuance in an amount not to exceed 2.00% of the proceeds of the Bonds) will be paid by the Borrower from sources other than proceeds of the Bonds or moneys held by the Prior Trustee under the provisions of the Prior Indenture for payment of the Refunded Bonds.

     (f) Payments received by the Trustee from draws on the Letter of Credit to pay the principal of and premium, if any, and interest on the Bonds will be deposited in the Bond Fund created under the Indenture. Moneys on deposit in the Bond Fund will be used to pay interest and principal on the Bonds.

     (g) Interest on the Bonds and principal due at maturity will be paid from the Bond Fund established under the Indenture. The redemption price of the Bonds will also be paid from the Bond Fund.

     (h) Moneys received from draws under the Letter of Credit to pay the Purchase Price of Tendered Bonds shall be deposited into the Bond Fund on the date that payment of the Purchase Price is due and moneys received from the sale, remarketing or placement of Tendered Bonds shall be paid to the Bank to reimburse amounts drawn under the Letter of Credit to pay the Purchase Price of the Bonds.

     Section 2.2 Purpose of the Bond Fund. The Bond Fund will be used primarily to achieve a proper matching of revenues and earnings with principal and interest in each bond year. It is expected that the Bond Fund will be depleted at least once a year, except for a reasonable carry over amount not to exceed the greater of (i) one year’s earnings, in the aggregate, on the investment of moneys in the Bond Fund for the immediately preceding bond year or (ii) in the aggregate, one-twelfth (1/12th) of the principal and interest payments on the Bonds for the immediately preceding bond year.

     Section 2.3 Purpose of the Project Fund. At closing, proceeds of the Bonds in the amount of $5,573,700 will be credited to the Project Fund. Moneys deposited in the Project Fund are to be transferred forthwith upon such deposit to the Prior Trustee for application to the redemption in whole of the Refunded Bonds on the Call Date.

     Section 2.4 No Replacement, Sinking or Pledged Funds.

     (a) Except as otherwise provided in Sections 2.1 and 2.2 hereof, after the issuance of the Bonds on this date, neither the Issuer, the Borrower, nor any member of the same Controlled Group of which the Issuer or the Borrower is a member has on hand any property, including cash and securities, that has a sufficiently direct nexus to the purposes financed with the Bonds to support the conclusion that the amounts derived from such property would have been used for such purposes if the Bonds had not been issued.

-6-

     (b) Except as otherwise provided in Sections 2.1 and 2.2 hereof, neither the Issuer, the Borrower, nor any member of the same Controlled Group of which the Issuer or the Borrower is a member has established or expects to establish any funds or accounts in which any Replacement Proceeds will be deposited.

     (c) Except as otherwise provided in Sections 2.1 and 2.2 hereof, no property has been or is expected to be pledged or otherwise restricted (no matter where held or the source thereof) to provide reasonable assurance, in the event the Issuer, the Borrower, or any member of the same Controlled Group of which the Issuer or the Borrower is a member encounters financial difficulty, of its availability to be used, directly or indirectly, for the payment of amounts due or to become due on the Bonds or the Loan Agreement. No compensating balance, negative pledge or similar arrangement exists with respect to, in any way, the Bonds, or the Loan Agreement.

     (d) No portion of the Bonds is being issued solely for the purpose of investing the proceeds thereof at a yield higher than the Yield on the Bonds.

     (e) The term of the Bonds is not longer than is reasonably necessary for the governmental purposes of the Bonds. The weighted average maturity of the Bonds as determined by the Underwriter is 9.181 years. The proceeds of the Bonds will be applied to pay the costs of refunding the Refunded Bonds, as shown on Exhibit A hereto. The reasonably expected remaining economic life of the portions of the Project financed with proceeds of the Refunded Bonds is 26.75 years. The weighted average maturity of the Bonds does not exceed 120% of the average reasonably expected economic life of the property refinanced with the proceeds of the Bonds.

     Section 2.5 No Grants. No proceeds of the Bonds are being used to make grants to any person.

     Section 2.6 Letter of Credit.

     (a) The Letter of Credit is essential in marketing the Bonds at the Variable Rate, including the initial Variable Rate specified in the Indenture, (ii) the absence of the Letter of Credit would materially affect in an adverse manner the Variable Rates at which the Bonds have or will be sold (either initially or by remarketing), and (iii) the present value of the fees for the Letter of Credit paid to the Bank is less than the present value of the interest reasonably expected to be saved as a result of using the Letter of Credit to secure the Bonds, using as a discount rate the expected yield on the Bonds.

     (b) Neither the Issuer nor the Borrower, nor any member of the same Controlled Group as the Issuer or the Borrower is a Related Person as defined in Section 144(a)(3) of the Code to the Bank. Other than the fees paid to the Bank, neither the Bank, nor any person who is a Related Person to the Bank within the meaning of Section 144(a)(3) of the Code will use any Gross Proceeds.

-7-

ARTICLE III

REBATE FUND; ARBITRAGE REQUIREMENT

     Section 3.1 Rebate Fund. The Rebate Fund created in the Indenture shall be continuously held, invested, expended and accounted for in accordance with this Agreement; provided, however, that the Rebate Fund need not be maintained if the Issuer, the Trustee, and the Borrower shall have received an opinion of Bond Counsel acceptable to the Trustee to the effect that failure to maintain the Rebate Fund shall not cause the Bonds to become arbitrage bonds within the meaning of Section 148 of the Code or otherwise adversely affect the exclusion from gross income of interest on the Bonds for federal income tax purposes. Moneys in the Rebate Fund shall not constitute a part of the “trust estate” held for the benefit of the Bondholders, or, except as provided in Section 9.2 hereof, for the benefit of the Issuer, or the Borrower. Except as provided in the Regulations, moneys in the Rebate Fund (including earnings and deposits therein) shall be held in trust by the Trustee for future payment to the United States government as required by the Regulations and as contemplated under the provisions of this Agreement.

     Section 3.2 Issuer’s and Borrower’s Covenants; Records. The Issuer and the Borrower covenant and agree to take such actions and the Borrower covenants and agrees to make, or cause to be made, all calculations, transfers and payments that may be necessary to comply with the rebate requirements contained in Section 148(f) of the Code with respect to the Bonds. The Borrower will make, or cause to be made, rebate payments in accordance with law with respect to the Bonds. Bond Counsel has provided a letter attached hereto as Exhibit C concerning the principles set forth in certain Regulations regarding rebate. The Borrower agrees that the Computation Dates for the Bonds will be the day immediately preceding the anniversary date of the Dated Date each year beginning in the year 2005, and, if all of the Bonds are paid in full prior to such dates, the date of such payment.

     The Trustee and the Borrower agree to keep and retain or cause to be kept and retained, until the date six years after the final payment with respect to the Bonds, adequate records with respect to the investment of all Gross Proceeds and amounts in the Rebate Fund, if any. Such records shall include (i) purchase price; (ii) purchase date; (iii) type of investment; (iv) accrued interest paid; (v) interest rate (if applicable); (vi) principal amount; (vii) maturity date; (viii) interest payment date (if applicable); (ix) date of liquidation; (x) amounts received upon liquidation. If any investment becomes Gross Proceeds of the Bonds on a date other than the date such investment is purchased, the records required to be kept shall include the fair market value of such investment on the date it becomes Gross Proceeds. If any investment is retained after the date the last Bond is retired, the records required to be kept shall include the fair market value of such investment on the date the last Bond is retired. Amounts will be segregated wherever held in order to maintain these records.

     Section 3.3 Fair Market Value.

     (a) In General. Whenever the Borrower shall purchase or sell, or cause any party to purchase or sell, any Nonpurpose Investment, such purchase or sale shall be made only at the fair market value of such Nonpurpose Investment. Except as described below, the fair market value of a Nonpurpose Investment is the price determined by

-8-

reference to an established securities market for the Investment, as of the date on which a contract to purchase or sell the Investment becomes binding, at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm’s length transaction. The price shall not be adjusted to take into account “administrative costs” of the investment (within the meaning of Section 1.148-5(e)(1) of the Regulations) except as permitted by Section 1.148-5(e)(2) of the Regulations. The fair market value of a United States Treasury obligation purchased directly from the United States Treasury is its purchase price.

     (b) Guaranteed Investment Contracts. In the case of a Nonpurpose Investment that has specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate, including an agreement to supply investments on two or more future dates, the fair market value is its purchase price if the following conditions are satisfied:

     (1) The Borrower or its agent makes a bona fide solicitation for the purchase of the Investment that satisfies all of the following requirements:

     (a) The bid specifications were in writing and were timely forwarded to potential providers.

     (b) The bid specifications included all material terms of the bid. A term is material if it may directly or indirectly affect the yield or the cost of the Investment.

     (c) The bid specifications included a statement notifying potential providers that submission of a bid is a representation that the potential provider did not consult with any other potential provider about its bid, that the bid was determined without regard to any other formal or informal agreement that the potential provider has with the Issuer or any other person (whether or not in connection with the Bonds), and that the bid is not being submitted solely as a courtesy to the Borrower or any other person for purposes of satisfying the requirements of paragraph (2) below.

     (d) The terms of the bid specifications are commercially reasonable. A term is commercially reasonable if there is a legitimate business purpose for the term other than to increase the purchase price or reduce the yield of the Investment.

     (e) The terms of the solicitation take into account the Borrower’s reasonably expected deposit and drawdown schedule for the amounts to be invested.

     (f) All potential providers had an equal opportunity to bid. For example, no potential provider was given the opportunity to review other bids (i.e., a last look) before providing a bid.

-9-

     (g) At least three reasonably competitive providers were solicited for bids. A reasonably competitive provider is a provider that has an established industry reputation as a competitive provider of the type of investments being purchased.

     (2) The bids received must meet all of the following requirements:

     (a) Bids are received from at least three providers that were solicited under a bona fide solicitation meeting the requirements of paragraph (1) above and that do not have a material financial interest in the Bonds. The Underwriter is deemed to have a material financial interest in the Bonds until 15 days after the date hereof. In addition, any entity acting as a financial advisor with respect to the purchase of the Investment at the time the bid specifications are forwarded to potential providers has a material financial interest in the Bonds. A provider that is a related party to a provider that has a material financial interest in the Bonds is deemed to have a material financial interest in the Bonds.

     (b) At least one of the three bids described in the preceding paragraph is from a reasonably competitive provider, within the meaning of paragraph (1)(g) above.

     (c) The agent soliciting the bids does not bid to provide the Investment.

     (3) The winning bid is the highest yielding bona fide bid (determined net of any broker’s fees).

     (4) The amount paid to the agent soliciting the bids does not exceed the amount authorized by the applicable Regulations.

     (c) Certificates of Deposit. In the case of a certificate of deposit that has a fixed interest rate, a fixed payment schedule and a substantial penalty for early withdrawal, the fair market value of the certificate is its purchase price if the yield on the certificate is not less than (i) the yield on reasonably comparable direct obligations of the United States, and (ii) the highest yield that is published or posted by the provider to be currently available from the provider on reasonably comparable certificates of deposit offered to the public.

     (d) Commingled Funds. Gross Proceeds of the Bonds may be invested in a Commingled Fund only if the Commingled Fund complies with the special accounting rules set forth at Section 1.148-6(e) of the Regulations. Generally, this requires that, not less frequently than as of the close of each fiscal period, all payments and receipts (including deemed payments and receipts) on investments held by a Commingled Fund must be allocated (but not necessarily distributed) among the different investors in the fund in accordance with a consistently applied, reasonable ratable allocation method. For this purpose, the term “investor” means each different source of funds invested in a Commingled Fund, and the term “fiscal period” means any consistent fiscal period that does not exceed 3 months.

-10-

ARTICLE IV

ADDITIONAL PAYMENTS

     In addition to the amounts provided in this Agreement, the Borrower hereby agrees to pay to the Trustee for deposit into the Rebate Fund for payment to the United States any amount which under the Regulations must be deposited in the Rebate Fund for payment to the United States with respect to the Bonds, but which is not available under the Indenture for transfer to the Rebate Fund for payment to the United States.

-11-

ARTICLE V

YIELD AND YIELD LIMITATIONS

     Section 5.1 Issue Price. The Underwriter has certified that at the time it agreed to market the Bonds, based upon its assessment of the then prevailing market conditions, it reasonably expected that all Bonds would be sold on the date hereof to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers) at par.

     Section 5.2 Yield Limits and Election.

     (a) All Gross Proceeds and all amounts in the Rebate Fund, to the extent not exempted in (b) below, shall be invested at market prices and at a yield (after taking into account any yield reduction payments to the extent permitted by and made pursuant to Section 1.148-5(c) of the Regulations) not in excess of the yield on the Bonds, plus, for amounts in the Project Fund only, 1/8 of 1%.

     (b) The following may be invested without yield restriction:

     (i) amounts invested in Tax-Exempt Obligations (to the extent permitted by the Indenture);

     (ii) amounts in the Rebate Fund;

     (iii) amounts deposited in the Bond Fund that have not been on deposit under the Indenture for more than 13 months, so long as such funds continue to qualify as bona fide debt service funds as described in Section 2.2 hereof;

     (iv) [Intentionally Omitted]

     (v) [Intentionally Omitted]

     (vi) all amounts for the first 30 days after they become Gross Proceeds;

     (vii) all amounts derived from the investment of proceeds for a period of one year from the date received; and

     (viii) an amount not to exceed $100,000 (a “Minor Portion”).

     Section 5.3 Fees of the Bank. Based on the certifications of the Underwriter and the Bank, which the Borrower and the Issuer have no reason to believe are untrue, and the representations contained in this Agreement the fees of the Bank for the Letter of Credit will be treated as interest on the Bonds for purposes of calculating Bond Yield. Neither the Borrower, the Issuer nor any member of the same Controlled Group of the Borrower or the Issuer is a related person to the Bank within the meaning of Section 144(a)(3) of the Code. Other than the fees paid to the Bank, neither the Bank, nor any person who is a Related Person to the Bank within the meaning of Section 144(a)(3) of the Code will use any proceeds received from the sale of the Bonds or investment earnings thereon.

-12-

     Section 5.4 Continuing Nature of Yield Limits. Subject to Section 9.5, once moneys are subject to the yield limits of Section 5.2, they remain yield restricted until they cease to be Gross Proceeds.

     Section 5.5 Debt Service on the Loan Agreement. Payments of debt service on the Loan Agreement, exactly equal debt service payments on the Bonds. No fees will be payable to the Issuer in connection with the issuance of the Bonds in an amount in excess of one-eighth of one per cent per annum. Expenses incurred by the Issuer in connection with the issuance of the Bonds will be reimbursed by the Borrower. The earnings and profits of any temporary investment of amounts held under the Indenture will accrue to the Borrower and not to the Issuer. It is not expected that payments will be made sooner than necessary under the Loan Agreement, provided that the Borrower may make early payments to effect the redemption of the Bonds.

     Section 5.6 Other Payments Relating to the Bonds. The Issuer will require the Borrower to reimburse it for a portion or all of its costs relating to the issuance of the Bonds.

     Except for (a) costs of issuance relating to the Bonds, (b) fees and expenses of the Trustee, as set forth in the Indenture, and (c) the fees of the Issuer as set forth above, no consideration, in cash or in kind, is being or will be paid by any person to any person in connection with or relating to issuing, carrying or redeeming the Bonds or issuing, carrying or repaying the amounts owing under the Loan Agreement.

     Section 5.7 Calculation of Bond Yield. The Bonds are a “variable yield issue”, as defined in Section 1.148-1(b) of the Regulations. Accordingly, Bond Yield will be computed separately for each computation period. As provided in Section 1.148-4(c) of the Regulations, the Bond Yield for each computation period will be the discount rate that, when used in computing the present value, as of the first day of the computation period, of all the payments of principal and interest and fees for qualified guarantees that are attributable to the computation period, produces an amount equal to the present value, using the same discount rate, of the aggregate issue price of the Bonds as of the first day of the computation period. Such payments will include principal and interest to be paid on the Bonds and fees paid to the Bank for the Letter of Credit, as a qualified guarantee. As required in Section 1.148-4(f) of the Regulations and based in part on the Underwriter’s Certificate, it is determined that, computed over the term of the Letter of Credit, the present value of the savings resulting from the Letter of Credit (i.e., the present value of the difference between the interest payable on the Bonds and the interest which would be payable on the Bonds if the Letter of Credit had not been obtained, utilizing a discount rate equal to the yield on the Bonds and taking into account the fees for the Letter of Credit) is greater than the present value of the aggregate fees paid to the Bank. Further, as evidenced by the Closing Certificate of the Bank, (i) the Letter of Credit unconditionally shifts the ultimate credit risk for the Bonds to the Bank (ii) the fees and charges to be paid to the Bank for the Letter of Credit do not exceed a reasonable charge for the transfer of credit risk and are comparable to fees and charges charged by other guarantors in comparable transactions; and (iii) the fees and charges to be paid to the Bank for the Letter of Credit do not include any direct or indirect payment for a cost, risk or other element that is not customarily borne by guarantors of tax-exempt obligations.

-13-

     In the event that the Bonds are converted to a Fixed Rate, on the Conversion Date, the Bonds will be treated (for purposes of computing the Bond Yield) as having been retired on that date and reissued as a “fixed yield issue.” Following the Conversion Date the Bond Yield on the Bonds will be calculated, as provided in Section 1.148-4(b) of the Treasury Regulations, as that discount rate which when used in computing the present value as of the Conversion Date of all unconditionally payable payments of principal, interest, and fees paid or reasonably expected to be paid for qualified guarantees on the Bonds, produces an amount which is equal to the present value, using the same discount rate, of the aggregate issue price thereof.

     Section 5.8 Yield Reduction Payments. The Bonds qualify for the special yield reduction rule of Section 1.148-5(c) of the Regulations prior to the Conversion Date because the Bonds are a variable yield issue. The Issuer may determine to make yield reduction payments to the United States under Section 1.148-5(c) of the Regulations with respect to Nonpurpose Investments held in the Project Fund, and such payments may be taken into account as a payment for that Nonpurpose Investment which reduces the yield thereon. Payments of Rebate under Section 3.2 hereof may be taken into account as yield reduction payments to the extent permitted by Section 1.148-5(c) of the Regulations.

-14-

ARTICLE VI

BORROWER PROJECT AND TAX COVENANTS

     Section 6.1 Use of Proceeds.

     (a) Substantially all (that is, not less than 95%) of the proceeds of the Refunded Bonds were used for the acquisition, construction, reconstruction or improvement of land or property of a character subject to the allowance for depreciation under the Internal Revenue Code.

     (b) Not less than 95% of the proceeds of the Refunded Bonds were used to provide a facility which is used in the manufacturing or production of tangible personal property (including the processing resulting in a change in the condition of the property). An office shall not be described in the preceding sentence unless (a) the office is located on the premises of the manufacturing facility, and (b) not more than a de minimis amount of the functions to be performed at such office is not directly related to the day-to-day operations at such facility. For purposes of the first sentence of this paragraph, the term “manufacturing facility” includes facilities which are directly related and ancillary to a manufacturing facility (determined without regard to this sentence) if (i) such facilities are located on the same site as the manufacturing facility, and (ii) not more than 25 percent of the net proceeds of the Bonds are used to provide such facilities.

     (c) The aggregate of (i) capital expenditures with respect to facilities in or attributable to the City which are or were used by the Borrower, or any other principal user of the Project Facilities or by any person related to the Borrower or such other principal user paid or incurred within a period of 36 months prior to the date of issuance of the Refunded Bonds, whether allocable or attributable to the Project Facilities or any other facility within or attributable to the City, plus (ii) the original aggregate principal amount of the Refunded Bonds, together with the then outstanding principal amounts of any “prior issues,” plus (iii) the capital expenditures made with respect to facilities in or attributable to the City by the Borrower or such other principal user of the Project Facilities or by any person related to the Borrower or such other principal user within a period of 36 months after the date of issuance of the Refunded Bonds, whether allocable or attributable to the Project Facilities or any other facility within or attributable to the City, all as such terms are used in Section 144(a) of the Internal Revenue Code of 1986, and regulations thereunder, did not exceed $10,000,000.

     (d) The Borrower did not use any portion of the proceeds of the Refunded Bonds and shall not use any portion of the proceeds of the Bonds to provide any private or commercial golf course facility, country club, massage parlor, tennis club, skating facility (including roller skating, skateboard or ice skating), racquet sports facility (including any handball or racquetball court), hot tub facility, suntan facility, racetrack, airplane, skybox, or other private luxury box, any facility primarily used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises, and the Borrower does not expect that the Project Facilities, or any part thereof, will be used for any of such purposes.

-15-

     (e) The Borrower used less than 25 percent of the proceeds of the Refunded Bonds either directly or indirectly to finance the acquisition of land (or any interest therein), and used not more than 25 percent of the proceeds of the Refunded Bonds and of the Refunded Bonds to provide a facility the primary purpose of which is retail food or beverage service, automobile sales or service, or the provision of recreation or entertainment, and the Borrower does not expect that the Project Facilities, or any portion thereof, shall subsequently be used primarily for any of such purposes.

     (f) None of the proceeds of the Refunded Bonds were used for the acquisition of any existing building or other used property, unless at least 15 percent (or in the case of a structure other than a building 100 percent) of the cost of acquisition of such existing property financed by proceeds of the Refunded Bonds was spent for rehabilitation expenditures, within the meaning of Section 147(d) of the Internal Revenue Code, within two years of the date of acquisition or, if later, the date of issuance of the Refunded Bonds.

     (g) The aggregate outstanding amount of tax-exempt facility-related bonds allocated to the Borrower (including related persons) or any other principal user of the Project Facilities (including related persons) when added to the aggregate amount of the Series 2004 Bonds allocated to the Borrower (including related persons) or such other principal user (including related persons), all as such terms are defined in Section 144(a) of the Internal Revenue Code of 1986 (or the applicable predecessor Section of the Internal Revenue Code of 1954, as amended prior to the enactment of the Tax Reform Act of 1986), does not exceed $40,000,000.

     (h) The Borrower is not a principal user, nor related to any principal user, of any facilities other than the Project Facilities within the City which were acquired in whole or in part, directly or indirectly, by the issuance of tax-exempt bonds which are outstanding on the date hereof, within the meaning of Section 144 of the Internal Revenue Code of 1986 and regulations thereunder. No tax-exempt bonds issued with respect to the Project Facilities are outstanding as of the date hereof except for the Refunded Bonds.

     (i) The weighted average maturity of the Series 2004 Bonds does not exceed 120% of the average weighted economic life of the Project Facilities.

     (j) The weighted average maturity of the Series 2004 Bonds does not exceed the remaining weighted average maturity of the Refunded Bonds.

     (k) The original principal amount of the Series 2004 Bonds is in an amount not greater than the current outstanding principal amount of the Refunded Bonds. The principal amount of the Series 2004 Bonds is not larger than the amount necessary to cause the Refunded Bonds to be redeemed in whole, in accordance with the provisions of the Prior Indenture and in accordance with the provisions hereof. The entire gross proceeds of the Series 2004 Bonds ($5,630,000) are to be expended solely for the payment and discharge on the Call Date of the outstanding principal amount of the Refunded Bonds. The Refunded Bonds will be redeemed in whole within 90 or fewer days from the date of issuance of the Series 2004 Bonds.

-16-

     Section 6.2 MACRS Information. The cost of Modified Accelerated Cost Recovery System (“MACRS”) (within the meaning of Section 168 of the Code) assets comprising the Project and the cost of land and other property, all of which have been or will be financed or refinanced with the proceeds of the Bonds is as follows:

     (a) Buildings

     (b) Site Improvements

     (c) Fixtures

     (d) Equipment and Furnishings

     (e) Land

     Section 6.3 The cost of the aforementioned assets will be recovered using the straight line method over the applicable recovery periods, or pursuant to such other method as may be required by the Code.

-17-

ARTICLE VII

DEFINITIONS

     “Agreement” means this Tax Exemption Agreement.

     “Bond Counsel” means Dorsey & Whitney LLP, or any other nationally recognized firm of attorneys experienced in the field of municipal bonds whose opinions are generally accepted by purchasers of municipal bonds.

     “Closing” or “Closing Date” means August 19, 2004.

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

     “Commingled Fund” means any fund or account containing both Gross Proceeds and an amount in excess of $25,000 that are not Gross Proceeds if the amounts in the fund or account are invested and accounted for, collectively, without regard to the source of funds deposited in the fund or account. An open-ended regulated investment company under Section 851 of the Code is not a Commingled Fund.

     “Control” means the possession, directly or indirectly through others, of either of the following discretionary and non-ministerial rights or powers over another entity:

     (a) to approve and to remove without cause a controlling portion of the governing body of a Controlled Entity; or

     (b) to require the use of funds or assets of a Controlled Entity for any purpose.

     “Controlled Entity” means any entity or one of a group of entities that is subject to Control by a Controlling Entity or group of Controlling Entities.

     “Controlled Group” means a group of entities directly or indirectly subject to Control by the same entity or group of entities, including the entity that has the Control of the other entities.

     “Controlling Entity” means any entity or one of a group of entities directly or indirectly having Control of any entities or group of entities.

     “Dated Date” means August 1, 2004

     “External Commingled Fund” means a Commingled Fund in which the Issuer, the Borrower, and all members of the same Controlled Group as the Issuer or the Borrower own, in the aggregate, not more than ten percent of the beneficial interests in such fund.

     “Gross Proceeds” means (a) Sale Proceeds, (b) all amounts in the Bond Fund and the Project Fund, (c) any other Replacement Proceeds, (d) any transferred proceeds (as defined in Section 1.148-9 of the Regulations or applicable provisions of prior law) of the Bonds and (e) amounts actually or constructively received from the investment and reinvestment of amounts described above.

-18-

     “Guaranteed Investment Contract” includes (i) any investment that has specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate and (ii) any agreement to supply investments on two or more future dates (e.g., a forward supply contract).

     “Investment Property” means any security, obligation (other than a tax-exempt obligation unless such tax-exempt obligation is a “specified private activity bond” within the meaning of Section 57(a)(5)(C) of the Code), annuity contract, or any other investment-type property.

     “Nonpurpose Investment” means any Investment Property in which Gross Proceeds of the Bonds are invested.

     “Regulations” means United States Treasury Regulations (including Temporary Regulations) associated with the tax-exempt bond provisions of the Code.

     “Replacement Proceeds” means (a) amounts in Bond Funds, redemption funds, reserve funds, replacement funds or any similar funds, to the extent reasonably expected to be used directly or indirectly to pay principal or interest on the Bonds, or amounts due under the Loan Agreement, (b) any amounts for which there is provided, directly or indirectly, a reasonable assurance, in substance, that the amount will be available to pay principal or interest on the Bonds or, amounts due under the Loan Agreement, if the Borrower encounters financial difficulties, including any liquidity device or negative pledge to the extent described in Section 1.148-1(c)(3)(ii) of the Regulations and (c) any other amounts treated as replacement proceeds under Section 1.148-1(c) of the Regulations.

     “Sale Proceeds” means amounts actually or constructively received from the sale of the Bonds, including (a) amounts used to pay underwriters’ discount or compensation and accrued interest, if any, other than accrued interest for a period not greater than one year before Closing but only if it is to be paid within one year after Closing and (b) amounts derived from the sale of any right that is part of the terms of a bond or is otherwise associated with a bond (e.g., a redemption right).

     “Tax-Exempt Obligations” means (i) obligations described in Section 103(a) of the Code, the interest on which is not includable in the gross income of the owner thereof for federal income tax purposes and is not an item of tax preference for purposes of the alternative minimum tax imposed by Section 55 of the Code, (ii) interests in regulated investment companies to the extent that at least 95 percent of the income to the holder of the interest is interest on which is not includable in the gross income of any owner thereof for federal income tax purposes and is not an item of tax preference for purposes of the alternative minimum tax imposed by Section 55 of the Code or (iii) certificates of indebtedness issued by the United States Treasury pursuant to the Demand Deposit State and Local Government Series Program described in 31 CFR part 344.

     “Underwriter” means Northland Securities, Inc.

     “Yield” or “yield” means that discount rate which when used in computing the present value of all payments of principal and interest paid and to be paid on an obligation (using semiannual compounding on the basis of a 360-day year) produces an amount equal to its purchase price, including accrued interest. For this purpose, fees for qualified guarantees and payments made or received on qualified hedges, as those terms are defined in Treasury

-19-

Regulations Sections 1.148-4(f) and 1.148-4(h)(2), respectively, are taken into account in computing yield on the Bonds.

     “Yield Reduction Payment” means a rebate payment or any other amount paid to the United States in the same manner as rebate amounts are required to be paid or at such other time or in such manner as the Internal Revenue Service may prescribe that will be treated as a reduction in Yield with respect to an investment.

-20-

ARTICLE VIII

CONCERNING THE TRUSTEE

     Section 8.1 Trustee Charges and Expenses; Other Expenses. The Borrower hereby agrees to pay to the Trustee all reasonable fees, charges, and expenses of such Trustee charged or incurred in connection with its services hereunder and any payments due the Trustee under Section 8.3 hereof, including reasonable legal fees and expenses of agents such as accountants employed in connection with this Agreement. The Borrower shall pay all reasonable fees, charges, and expenses of the Issuer incurred in connection with this Agreement.

     Section 8.2 Resignation and Removal of the Trustee. The Trustee at the time acting hereunder may at any time resign from the trusts created by this Agreement by giving written notice to the Issuer and the Borrower as provided in the Indenture.

     The Trustee shall, upon the written request of the Borrower, execute and deliver an instrument transferring to its successor Trustee all the estates, properties, rights, powers, and trusts of such predecessor hereunder; and every predecessor Trustee shall deliver all securities and moneys held by it as Trustee hereunder to its successors.

     Any corporation or association into which the Trustee may be merged or converted, or with which it may be consolidated, or to which it may sell or transfer its corporate trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation, or transfer to which such Trustee or any successor to it shall be a party, provided such corporation or association is eligible under the Indenture to the Trustee, shall be and become the successor Trustee hereunder and vested with all the trusts, powers, discretions, immunities, privileges, and all other matters as was its predecessor, without the execution or filing of any instrument or any further act, deed, or conveyance on the part of any of the parties hereto, unless otherwise required by law.

     Section 8.3 Acceptance. The Trustee shall accept the trusts imposed upon it by this Agreement and agree to perform said trusts, but only upon and subject to the express terms and conditions stated in the Bond Indenture.

     The Trustee shall not be under any liability for interest on any moneys received hereunder except as provided in this Agreement with respect to the continuous investment of funds and except as may otherwise be agreed upon.

     When any consent or other action by the Trustee is called for pursuant to this Agreement, it may defer such action pending such investigation or inquiry or receipt of such supporting evidence as it may require. The Trustee shall be entitled to reimbursement for expenses reasonably incurred and advances reasonably made, with interest, in the performance of its obligations hereunder. Notwithstanding anything to the contrary herein, absent negligence or willful misconduct, the Trustee shall not be liable to the Issuer or the Borrower or any Bondholders for any action taken or not taken hereunder.

     The Trustee will take such further action as the Borrower or the Issuer may direct in order to comply with the rebate requirements contained in Section 148(f) of the Code.

-21-

ARTICLE IX

MISCELLANEOUS

     Section 9.1 Termination; Interest of the Borrower and Issuer in Rebate Fund. This Agreement shall terminate if (a) the Trustee shall have filed with the Issuer and the Borrower a written notice of termination of this Agreement, which notice shall contain a certification that the Bonds have been fully paid and retired, (b) all amounts due to the Trustee under Section 8.1 hereof shall have been paid to the Trustee and (c) all amounts remaining on deposit in the Rebate Fund, if any, shall have been paid to or upon the order of the United States. Notwithstanding the foregoing, the provisions of Section 3.2 hereof shall not terminate until the sixth anniversary of the date the Bonds are fully paid and retired. Termination of this Agreement shall not affect the provisions of Section 8.3 hereof with respect to the duties and liabilities of the Trustee.

     The parties hereto recognize that amounts, if any, on deposit in the Rebate Fund are held for payment to the United States Treasury. The foregoing notwithstanding, the Borrower and the Issuer shall be deemed to have an interest in such amounts to the extent such amounts represent amounts available to satisfy the obligation of the Issuer and the Borrower to rebate certain amounts to the United States Treasury with respect to the Bonds.

     Section 9.2 No Common Plan of Financing. Within 15 days of the Closing Date, neither the Issuer, the Borrower nor any member of the same Controlled Group of which the Issuer or the Borrower is a member has sold or delivered (nor will either the Issuer, the Borrower or any member of the same Controlled Group of which the Issuer, or the Borrower is a member sell or deliver within 15 days after the date hereof) any other tax-exempt obligations that are reasonably expected to be paid out of substantially the same source of funds as the Bonds.

     Section 9.3 No Sale of Project. No portion of the property financed with proceeds of the Bonds is expected to be sold or otherwise disposed of prior to the last maturity of the Bonds, except as otherwise provided in the Loan Agreement unless:

     (a) prior to such sale, lease or other disposition the Borrower delivers to the Trustee and the Issuer an opinion of Bond Counsel to the effect that any such disposition will not adversely affect the validity of the Bonds or any exemption of the interest on the Bonds from federal income taxation to which such Bonds would otherwise be entitled, (b) prior to such sale, lease, or other disposition, there is delivered to the Trustee an Officer’s Certificate of the Borrower, stating that, in the judgment of such officer, (1) such property has become inadequate, obsolete, or worn out, (2) such property has been owned and used by the Borrower for a period not less than the reasonably expected economic life of the property as set forth herein, and (3) that any amounts received by the Borrower upon such disposition will be applied by the Borrower in such manner as will not adversely affect the validity of the Bonds or any exemption from federal income taxation to which the interest on the Bonds would otherwise be entitled, or (c) the Borrower provides the Trustee and the Issuer with an Officer’s Certificate of the Borrower, stating that (1) all sales, leases, or other dispositions in excess of the amount set forth above were made during the preceding 12-month period were of property that, in the judgment of such officer, had become inadequate, obsolete or worn out, (2) such property had been owned and used by the Borrower for a period not less than the

-22-

reasonably expected economic life of the property as set forth herein and (3) that any amounts received by the Borrower upon such disposition shall be applied by the Borrower to acquire additional property useful to the Borrower. The Borrower agrees to apply the proceeds of any disposition referred to in a certificate of the type described in subsection (b) or (c) above as provided in such subsection and agrees that any property acquired with such proceeds shall be deemed to be property financed with the proceeds of the Bonds for the purposes of applying the provisions of the Loan Agreement. The Issuer may request that, in connection with the delivery of the certificate described in subsection (b) or (c) above, the Borrower, deliver an opinion of Bond Counsel to the effect that such disposition will not have an adverse effect on the validity of the Bonds or any exemption from federal income taxation to which the interest on the Bonds would otherwise be entitled.

     Section 9.4 Future Events. The Issuer, the Trustee, and the Borrower acknowledge that any changes in facts or expectations from those set forth herein may result in different yield restrictions or rebate requirements and agree that Bond Counsel will be contacted if such changes do occur.

     Section 9.5 Permitted Changes; Opinion of Bond Counsel. The yield restrictions contained in Section 5.2, or any other restriction or covenant contained herein need not be observed or may be changed if the Issuer, the Trustee and the Borrower receive an opinion of Bond Counsel to the effect that such noncompliance or change will not adversely affect the exclusion from gross income of interest on the Bonds for federal income tax purposes.

     Section 9.6 Severability. If any clause, provision or section of this Agreement is ruled invalid by any court of competent jurisdiction, the invalidity of such clause, provision or section shall not affect any of the remaining clauses, sections or provisions hereof.

     Section 9.7 Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

     Section 9.8 Notices. All notices, demands, communications and requests which may or are required to be given hereunder or by any party hereto shall be deemed given on the date on which the same shall have been mailed by registered or certified mail, postage prepaid, addressed to such parties at the addresses set forth in the Indenture and the Loan Agreement:

     Section 9.9 Successors and Assigns. The terms, provisions, covenants and conditions of this Agreement shall bind and inure to the benefit of the respective successors and assigns of the Issuer, the Borrower and the Trustee.

     Section 9.10 Heading. The headings of this Agreement are inserted for convenience only and shall not be deemed to constitute a part of this Agreement.

     Section 9.11 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota.

-23-

     Section 9.12 Expectations. This Agreement is being executed by the Issuer to establish the expectations of the Issuer regarding the expenditure of the proceeds of the Bonds, pursuant to Section 148 of the Code and Section 1.148-2(b) of the Regulations. The Issuer and its signatory have made no independent investigation of the matters stated herein. The expectations of the Issuer described herein are based upon the provisions of the Loan Agreement and Indenture and upon the representations of the Underwriter and the Borrower as to the matters contained in this Agreement and in their certificates attached hereto. Nothing has come to the attention of the Issuer which would lead it to believe that any of the expectations described in this Agreement, and any of the expectations of the Borrower and Underwriter described in their respective certificates, are not reasonable or correct. No facts, estimates, conditions or circumstances that would materially alter the expectations described in this Agreement are known to the Issuer.

-24-

     IN WITNESS WHEREOF, City of Chaska, Minnesota has caused these presents to be executed in its name by a duly authorized officer thereof all as of the Closing Date.

CITY OF CHASKA, MINNESOTA
By:	/s/ DAVE POKORNEY
	City Administrator

[Signature Page to Tax Exemption Agreement by and between the
City of Chaska, Minnesota, Wells Fargo Bank, National Association, as Trustee,
and Lifecore Biomedical, Inc.]

     IN WITNESS WHEREOF, the Trustee has caused these presents to be executed all as of the Closing Date.

WELLS FARGO BANK, NATIONAL
ASSOCIATION,
as Trustee
By:	/s/ MARTHA K. EARLEY
	Its Assistant Vice President

[Signature Page to Tax Exemption Agreement by and between the
City of Chaska, Minnesota, Wells Fargo Bank, National Association, as Trustee,
and Lifecore Biomedical, Inc.]

     IN WITNESS WHEREOF, the Borrower has caused these presents to be executed all as of the Closing Date.

LIFECORE BIOMEDICAL, INC.
By:	/s/ DENNIS J. ALLINGHAM
	Its President and Chief Executive Officer

[Signature Page to Tax Exemption Agreement by and between the
City of Chaska, Minnesota, Wells Fargo Bank, National Association, as Trustee,
and Lifecore Biomedical, Inc.]

EXHIBIT A

AVERAGE ECONOMIC LIFE

Adjusted

Adjusted

Economic

Prior

Future

Economic

Economic Life

Type of Asset

Life(1)

Years(2)

Years(3)

Life(4)

Asset Cost(5)

x Asset Cost(6)

Building

40

13.25

N/A

26.75

$

5,573,000

149,077,760

TOTAL
* Average economic weighted life.

(1)	The “Economic Life” of an asset is expressed in years and is the longer of (1) reasonably expected economic life of the asset, or (2) the “midpoint life” under the Asset Depreciation Range (“AOR”) system, as set forth in Revenue Procedure 77-10, 1977-1 C.B. 548, as superseded by Revenue Procedure 83-35, 1983-1 C.B. 745, where applicable, and the “guideline lives” under Revenue Procedure 62-21, 1962-2 C.B. 418, in the case of structures.
(2)	This applies only if the asset has already been placed in service as of the date hereof. The term “Prior Years” refers to the number of years prior to the date hereof that an asset was placed in service.
(3)	This applies only if the asset has not yet been placed in service as of the date the Bonds are issued. The term “Future Years” refers to the number of years after the Closing Date that an asset is expected to be placed in service.
(4)	The “Adjusted Economic Life” of an asset is equal either to the Economic Life minus Prior Years or the Economic Life (for Future Years), whichever is applicable.
(5)	The term “Asset Cost” refers to the purchase price of the asset to the Borrower.
(6)	The product of the Adjusted Economic Life and Asset Cost.

     The “average reasonably expected economic life” of the Project Facilities financed or refinanced by the Bonds is 26.75 years which is computed by dividing the total product of Adjusted Economic Life and the Asset Cost, or $149,077,750 by the total Asset Cost for assets so financed or refinanced, or $5,573,000. For this purpose, the reasonably expected economic life of each asset has been determined as of the later of (i) the Closing Date, or (ii) the date on which such asset is expected to be placed in service.

A-1

EXHIBIT B

UNDERWRITER’S CERTIFICATE AND

RECEIPT FOR BONDS

        I, the undersigned, a duly qualified and acting officer of Northland Securities, Inc. (the “Underwriter”), hereby acknowledge that on the date hereof, upon payment of the purchase price therefor, I received on behalf of the foregoing the fully registered bonds generally described as the $5,630,000 City of Chaska, Minnesota Variable Rate Demand Purchase Revenue Bonds (Lifecore Biomedical, Inc. Project), Series 2004 (the “Bonds”).

        In such connection, I hereby certify, as follows:

1.	The Underwriter, Lifecore Biomedical, Inc. (the “Borrower”) and the City of Chaska, Minnesota (the “Issuer”) executed on August 19, 2004 a Bond Purchase Agreement (the “Purchase Agreement”) in connection with the Bonds. The Purchase Agreement has not been modified since its execution.
2.	The Underwriter hereby confirms that the first offering price at which all of the principal amount of the Bonds has been placed is equal to the par amount of the Bonds. The initial offering price of the Bonds to the public (excluding bond houses, brokers and other intermediates) was equal to 100% of the principal amount of the issue, determined without regard to administrative costs incurred in the issuance of the Bonds (such as underwriting, legal and accounting fees). A substantial amount of the Bonds of each maturity was sold at the initial offering price to the initial purchasers of the Bonds (excluding bond houses, brokers and other intermediaries).
3.	The Underwriter has not and will not receive any compensation with respect to or related to the issuance of the Bonds in excess of the Underwriter’s fee (except for a fee in the first six months as the Remarketing Agent equal to one-eighth of one percent per annum of the aggregate outstanding principal amount of Bonds, which shall be prorated for the period from closing to February 1, 2005).
4.	The initial Variable Rate (as set forth in Section 2.02(c) of the Indenture) set by the Remarketing Agent for each of the Bonds is    % and represents the lowest rate that enabled such Bond to be marketed at par on the date hereof.

B-1

5.	If the Bonds were not secured by the Letter of Credit, the interest rates at which the Bonds could be sold or remarketed would be materially adversely affected.
6.	Payment of the principal of and interest on the Bonds at the stated maturities thereof is secured by the Letter of Credit issued by M&I Marshall & Ilsley Bank (the “Bank”). Based upon our experience, the fees charged by the Bank for the Letter of Credit is a reasonable charge for the transfer of the credit risk with respect to the Bonds to the Bank and does not represent in whole or in part direct or indirect payments for a cost, risk or other element that is not customarily borne by a credit facility provider providing similar credit enhancement for the payment of principal of and interest on tax-exempt bonds. The present value of such fees paid is less than the present value of the interest to be saved as a result of the security afforded by the Letter of Credit. In determining the present value savings, the expected yield on the Bonds (determined without regard to costs of issuance of the Bonds) has been used as the discount rate.
7.	The Remarketing Agent is required to use its best efforts to remarket Bonds that are tendered for purchase and not retired.
8.	The Underwriter has calculated the weighted average maturity of the Bonds to be 9.181 years.
9.	The Bonds have been offered and sold by the Underwriter solely to institutional investors in transactions that are exempt from registration under the Securities Act of 1933, as amended.

        All terms not defined herein shall have the same meanings as in the Tax Exemption Agreement dated as of August 1, 2004 among the Issuer, the Borrower and Wells Fargo Bank, National Association, as trustee.

     Dated: August      , 2004

NORTHLAND SECURITIES, INC.

By:

B-2

EXHIBIT C

August __, 2004

City of Chaska, Minnesota
Chaska, Minnesota

Wells Fargo Bank, National Association,
   as Trustee
Minneapolis, Minnesota

Lifecore Biomedical, Inc.
Chaska, Minnesota

Re:	$5,630,000 Variable Rate Demand Purchase Revenue Bonds
	(Lifecore Biomedical, Inc. Project), Series 2004
	City of Chaska, Minnesota
	(the “Bonds”)

Ladies and Gentlemen:

     We have acted as Bond Counsel in connection with the issuance on this date of the above-referenced Bonds (the “Bonds”). In a Tax Exemption Agreement delivered by each of you this date (the “Tax Agreement”), the City of Chaska, Minnesota (the “Issuer”), Wells Fargo Bank, National Association, as trustee (the “Trustee”) and Lifecore Biomedical, Inc. (the “Borrower”) have agreed to comply with the arbitrage rebate requirements of Section 148 of the Internal Revenue Code of 1986. The purpose of this letter is to set out generally the rules that you must follow to comply with the Tax Agreement. This letter does not describe how to actually compute the amount to be rebated to the United States, and due to the complexity involved, the computation will, in all likelihood, require consultation with an expert.

     The Internal Revenue Service has issued final regulations relating to arbitrage and rebate matters. This letter is based on these regulations which are subject to change in the future. Such changes may require further recalculation of rebate amounts. For these reasons, it is very important for you and your tax advisors to keep abreast of developments in this area.

     The following advice is based on factual information contained in the Tax Agreement. If the facts or expectations stated therein change, please call us to determine whether this results in a change in the following rules. Please note that the rules governing permissible yield on investments set forth in the Tax Agreement are in addition to the rebate rules, and although you might be allowed to earn a yield in excess of Bond Yield under the yield rules, such excess may

C-1

still be required to be rebated. In some cases, the payment of rebate may assist in compliance with the yield restriction requirements. Thus, rebate compliance and yield restriction may, in certain circumstances, operate together rather than independently. In any case, rebate compliance is essential to the maintenance of the tax exemption of interest on the Bonds even if no amounts are subject to yield restriction. Terms not defined herein shall have the meanings set forth in the Tax Agreement. Yield is defined in Article VII of the Tax Agreement.

     General Rule. Except in the case of certain exceptions as summarized below, every five years and at the final retirement of all of the Bonds, you must compute and pay (as described below) to the United States the difference (the “Excess Earnings”) between the amount earned on all investments and reinvestments of Gross Proceeds (as defined in the Tax Agreement) of the Bonds (“Actual Earnings”) and the amount that would have been earned if Gross Proceeds had been invested at the Bond Yield (the “Allowable Earnings”). Earnings to be taken into account are not determined under normal tax accounting principles. In addition to taking into account earnings received (either actually or constructively), receipts with respect to investments that have not been liquidated are computed by assuming that such investments are, in essence, converted to cash as of each computation date (as such dates are described below). The “cash value” of investments determined in this manner is subject to many special rules. Under many circumstances, the “market value” of an investment may be used. The application of these rules is complex and in all likelihood will require consultation with an expert.

     To properly plan for the eventual payment of rebate to the United States, we suggest that you make annual calculations estimating rebate liability. The Indenture establishes a Rebate Fund into which you may also wish to deposit annual estimates of rebate liability so that the payment to the United States may be made from amounts set aside. Federal tax law does not, however, require such set asides. In any event, we strongly encourage you to make an annual estimate of the rebate liability. The calculations can be lengthy and often produce surprising results. Experience indicates that the calculation is far more difficult as the period of time for which the calculation is being performed increases.

     Phantom Income. With certain exceptions, amounts paid for administrative costs are not treated as increasing earnings for purposes of rebate calculations. Administrative costs that do not increase earnings are reasonable, direct administrative costs, other than carrying costs, and generally include brokerage commissions for the purchase of investment agreements (but only to the extent that the commission does not exceed the present value of annual payments equal to 0.05 percent of the weighted average amount reasonably expected to be invested per year) and separately stated brokerage or selling commissions (but not legal and accounting fees), record keeping, custody and similar costs and expenses.

     Computation Dates. Each calculation of Excess Earnings should be made as of a “Computation Date.” The Computation Date should be the same date in each calendar year (except that the final Computation Date should be the date on which all of the Bonds are actually retired). As indicated above, a Computation Date is required at least every five years. The first Computation Date must be on or before the fifth anniversary of the issuance of the Bonds. Each Computation Date, other than the Final Computation Date, is the end of a bond year. A bond year ends on any date within one year of the issuance of the Bonds that you choose. In the Tax Agreement you have chosen the date immediately prior to the anniversary date of the Dated Date of the Bonds.

C-2

     Except as provided below, on a variable yield issue such as the Bonds, Excess Earnings are computed for the period of time between Computation Dates (or from the date of issue of the Bonds in the case of the first Computation Date) by calculating Allowable Earnings based on the Bond Yield for the Bonds for that period of time and comparing it with Actual Earnings for the same period. Once calculated for each such period, rebate for that period cannot change—i.e., a snapshot for that period is taken and it never changes. Prior to the first date on which a rebate payment is required, you may choose to treat the end of any bond year as a Computation Date for purposes of the snapshot approach. After such date, you must consistently treat either the end of each bond year or the end of each fifth bond year as Computation Dates, and you may not change these Computation Dates after the first required rebate payment date.

     Bond Yield. For variable yield issues such as the Bonds, as discussed above, Bond Yield is computed as of each Computation Date for the period from the prior Computation Date (or from the date of issue of the Bonds in the case of the first Computation Date) to the current Computation Date, and it is based upon (i) the actual payments of principal and interest on the Bonds (including amounts treated as interest) and (ii) the assumed receipt on such date of an amount equal to the value of the outstanding Bonds. The rules for computing Bond Yield are quite complex and an expert should be consulted.

     Generally, upon conversion of a variable yield issue to a fixed yield issue the yield on the issue after the conversion date will be calculated under the fixed yield rules. Certain special rules and elections apply upon such a conversion and an expert should be consulted.

     Gross Proceeds. Gross Proceeds is defined in Article VII of the Tax Agreement. Based upon the facts and expectations presented in the Tax Agreement, the Gross Proceeds are all moneys and investments in the funds and accounts (regardless of where held) held by the Trustee under the Indenture other than the Bond Purchase Fund and the Rebate Fund. If, contrary to the expectations described in the Tax Agreement, moneys or investments are pledged or otherwise set aside for payment of principal of or interest on the Bonds, such amounts may also constitute Gross Proceeds.

     Universal Cap. Gross Proceeds will cease to be allocated to the Bonds (and will therefore be treated as if spent) if the amount of Gross Proceeds exceeds the outstanding amount of the Bonds (the “Universal Cap”). Although special rules are applicable in the case of discount bonds, the outstanding amount of bonds is roughly equal to the outstanding principal amount. Generally, but not always, the market value of investments is used to test the amount of Gross Proceeds. The Universal Cap may cause allocations on the second anniversary of the issue date and as of the first day of each bond year thereafter.

     Commingled Funds. Funds allocated to two or more issues, or containing amounts that are not Gross Proceeds of the Bonds and amounts that are Gross Proceeds of the Bonds (including, for example, parity reserve funds) in which amounts are invested collectively without regard to source of funds must be treated as commingled funds. Investment earnings on commingled funds must be allocated to the Gross Proceeds of the Bonds according to a consistently applied reasonable ratable allocation method. Such method, for example, may be based on average daily balances. Investments in commingled funds must generally be valued annually to properly allocate unrealized gain or loss to the Gross Proceeds of the Bonds. This mark to market requirement will generally not apply if the weighted average maturity of all

C-3

investments held in the commingled fund during a particular fiscal year does not exceed 18 months, and does not apply to commingled debt service reserve funds.

     Bona Fide Debt Service Fund Exception to the General Rule. Based upon the information in the Tax Agreement, the Bond Fund is a bona fide debt service fund. If the earnings in the Bond Fund in a bond year (as described above under “Computation Dates”) is less than $100,000 in the aggregate, they will not be subject to the rebate requirement and you may keep such earnings for that year. If during such period earnings on these funds are $100,000 or greater, all such earnings will be subject to rebate. However, if the average annual debt service on the Bonds is no more than $2,500,000, you may treat these funds as satisfying the $100,000 limitation in each year. To the extent that the Bond Fund ceases to be a “bona fide debt service fund” as described in Section 2.2 of the Tax Agreement, some Bond Fund moneys may be subject to the rebate requirement (if this occurs, please call us for advice).

     Tax-Exempt Obligation Exception to the General Rule. To the extent that any Gross Proceeds are invested in Tax-Exempt Obligations (as defined in Article VII of the Tax Agreement), the earnings thereon would not be considered when calculating Excess Earnings. To the extent that 100% of Gross Proceeds are continually invested in Tax-Exempt Obligations, there would be no rebate requirement.

     Investment of Rebate Fund and Other Funds. Investments of moneys in the Rebate Fund and any other fund must be made in arm’s-length transactions in a manner that does not reduce the amount to be rebated to the United States. Investment decisions (other than the decision to invest in Tax-Exempt Obligations to avoid rebate) must be made on the basis of normal investment criteria of safety, yield and when the money will be needed. All interest rates and yields must be market rates and yields. Money must not be allowed to remain uninvested except for small amounts or for short periods of time, as provided in Section 3.3 of the Tax Agreement. Specific rules exist for certificates of deposit and investment agreements (including repurchase agreements) as set forth in Section 3.3 of the Tax Agreement.

     Rebate Payments. Within 60 days after the Computation Date that is the end of the fifth bond year and every fifth bond year thereafter, at least 90% of the Excess Earnings and all earnings on the Excess Earnings (net of an appropriate credit, which depends on whether unexpended Gross Proceeds continue to exist) must be paid to the United States. Within 60 days of final payment of principal of and interest on the Bonds to the Bondholders, all Excess Earnings and all earnings on the Excess Earnings (net of the credit) must be paid to the United States.

DORSEY & WHITNEY LLP

C-4

EX-10.12

Exhibit 10.12

August 19, 2004

IRREVOCABLE LETTER OF CREDIT NUMBER SB/IRB 314

BENEFICIARY	APPLICANT
Wells Fargo Bank, National Association	Lifecore Biomedical, Inc.
Sixth Street and Marquette Avenue	3515 Lyman Boulevard
Minneapolis, Minnesota 55479	Chaska, Minnesota 55318
	AMOUNT
	USD $5,699,411.00
	EXPIRY DATE
	September 15, 2007

     Wells Fargo Bank, National Association, as Trustee (the “Trustee”) under the Indenture of Trust, dated as of August 1, 2004 (the “Indenture”) between the City of Chaska, Minnesota (the “Issuer”), and the Trustee, pursuant to which $5,630,000.00 in aggregate principal amount of the Issuer’s Variable Rate Demand Purchase Revenue Bonds (Lifecore Biomedical, Inc. Project), Series 2004 (the “Bonds”) are being issued on behalf of Lifecore Biomedical, Inc., a Minnesota corporation (the “Borrower”), to finance the refinancing of certain indebtedness for the Borrower is hereby irrevocably authorized to draw on M&I Marshall & Ilsley Bank, Irrevocable Letter of Credit Number SB/IRB 314 for account of the Borrower pursuant to a Reimbursement Agreement dated as of August 1, 2004 (as amended or extended, the “Credit Agreement”) between us and the Borrower, available by your drawing upon the terms and conditions hereinafter set forth, an aggregate amount not exceeding USD $5,699,411.00 hereinafter, as reduced from time to time in accordance with the provisions hereof, the “Stated Amount”).

     Of the Stated Amount (a) up to $5,630,000.00 (the “Principal Portion”) may be drawn at any time and from time to time with respect to (i) payment of the purchase price of Bonds or beneficial ownership interests tendered for purchase or (ii) amounts due as principal of the Bonds, whether at maturity or upon acceleration, demand or prepayment or call for redemption; and (b) up to $69,411.00 (the “Interest Portion”) may be drawn at any time and from time to time with respect to payment of up to 45 days’ accrued interest on the Bonds (up to a maximum rate of 10% per annum) whether at interest payment dates, maturity or upon acceleration, demand or prepayment or call for redemption or the interest component of the purchase price of Bonds or

PAGE 2 WHICH FORMS AN INTEGRAL PART OF IRREVOCABLE LETTER OF CREDIT NO. SB/IRB 314 ISSUED IN FAVOR OF: WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE.

beneficial ownership interests tendered for purchase on or prior to the stated maturity of the Bonds (provided, however, that any amount drawn with respect to interest may not exceed the amount of unpaid interest accrued and to accrue on the Bonds to the applicable interest payment date or the date fixed for redemption or the purchase date, as determined by you pursuant to the Indenture and herein).

     All interest shall be calculated on the basis of actual number of days over a 365-day or 366-day, as the case may be, year.

     This Letter of Credit shall expire at 4:00 p.m., Milwaukee, Wisconsin time, on September 15, 2007 (the “Expiry Date”). Notwithstanding the foregoing, this Letter of Credit shall expire earlier than such date upon the first to occur of (a) the date of receipt by us of notice from you as Trustee that a Substitute Letter of Credit (as defined in the Indenture) has been issued in substitution for this Letter of Credit and such Substitute Letter of Credit is then effective, which notice shall be in the form of Exhibit F hereto; (b) the date on which we honor a final drawing or drawings available to be made under this Letter of Credit, in which event this Letter of Credit shall expire immediately after we honor such drawing or drawings; (c) the date of receipt by us of notice from you as Trustee of a certificate stating that no Bonds remain outstanding under the Indenture and the Indenture has been discharged, which notice shall be in the form of Exhibit G hereto; (d) fourteen (14) calendar days after the earlier of (i) the date of the acceleration of the Bonds under the Indenture because of the occurrence of an Event of Default or (ii) the date you have received written notice from us to accelerate the Bonds because of the occurrence of an Event of Default under the Credit Agreement, as the case may be; or (e) a Conversion Date for the Bonds of which you have provided us notice in the form of Exhibit I hereto.

     In the event that any Expiry Date of this Letter of Credit as specified in the preceding paragraph is not a Business Day (as hereinafter defined), this Letter of Credit shall expire at 4:00 p.m., Milwaukee, Wisconsin time, on the next following Business Day.

     Upon its expiration, the Letter of Credit and all amendments related thereto shall be returned by you to us.

     Funds under this Letter of Credit are available to you against your written certificate(s) presented to us, signed by an individual purporting to be an authorized officer, appropriately completed, in the form of Exhibit A, B or C hereto as indicated below. Presentation of such certificates shall be made at the offices of M&I Marshall & Ilsley Bank, 770 North Water Street, Milwaukee, Wisconsin 53202, Attention: Trade Services-IRB LC, 10th Floor, or at any other office which may be designated by us by written notice delivered to you.

PAGE 3 WHICH FORMS AN INTEGRAL PART OF IRREVOCABLE LETTER OF CREDIT NO. SB/IRB 314 ISSUED IN FAVOR OF: WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE.

     If a drawing in respect of payment for interest on the Bonds or for amounts due at maturity or upon acceleration, demand or prepayment or call for redemption is made by you hereunder at or prior to 1:30 p.m., Milwaukee, Wisconsin time, on a Business Day and provided that such drawing and the documents presented in connection therewith conform to the terms and conditions hereof, we shall initiate a wire to you of the amount specified by 11:00 a.m., Milwaukee, Wisconsin time, on the next Business Day. If such a drawing is made after 1:30 p.m., Milwaukee, Wisconsin time, on a Business Day and provided that such drawing and the documents presented conform to the terms and conditions hereof, we will initiate a wire to you of the amount specified by 11:00 a.m., Milwaukee, Wisconsin time, on the second following Business Day.

     If a drawing in respect of payment of the purchase price of tendered Bonds is made by you hereunder at or prior to 10:30 a.m., Milwaukee, Wisconsin time, on a Business Day and provided that such drawing and the documents presented in connection therewith conform to the terms and conditions hereof, we shall initiate a wire to you of the amount specified by 2:00 p.m., Milwaukee, Wisconsin time, on the same Business Day. If such a drawing is made after 10:30 a.m., Milwaukee, Wisconsin time, on a Business Day and provided that such drawing and the documents presented conform to the terms and conditions hereof, we shall initiate a wire to you of the amount specified by 11:00 a.m., Milwaukee, Wisconsin time, on the next Business Day.

     For purposes of this Letter of Credit, presentation of a certificate shall be made in person, by mail or by telecopy (or other electronic telecommunication) without further need of documentation, it being understood that appropriate certificates submitted via such telecopy (or other electronic telecommunication) are to be the sole operative instruments of drawing; provided, however, that with respect to any drawing which reduces the Stated Amount hereunder to zero (a) if such drawing is made in person or mail, the drawing certificate shall be accompanied by the original of this Letter of Credit and all amendments hereto, and (b) if such drawing is made by facsimile or other electronic means, the original of this Letter of Credit and all amendments hereto shall be sent on the day of such draw by overnight delivery to us at the address set forth below. No sight drafts are required to be presented hereunder. Drawings shall be presented to us at our office located at 770 North Water Street, Milwaukee, Wisconsin 53202, Attention: Trade Services-IRB LC, telecopy number (414) 765-7788 (or such other place or electronic address as we may from time to time specify).

     This Letter of Credit is not negotiable by any financial institution other than M&I Marshall & Ilsley Bank. As used herein “Business Day” shall mean a day in which each of the cities where the principal corporate trust offices of the Trustee and the principal offices of M&I

PAGE 4 WHICH FORMS AN INTEGRAL PART OF IRREVOCABLE LETTER OF CREDIT NO. SB/IRB 314 ISSUED IN FAVOR OF: WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE.

Marshall & Ilsley Bank are located is not a Saturday, a Sunday or a day on which banking institutions are authorized or required by law to close.

     Payment of all drawings under this Letter of Credit will be made in immediately available funds and from moneys of M&I Marshall & Ilsley Bank and not from funds of any Borrower under the Credit Agreement.

     No drawing may be made hereunder to pay principal of, or interest on, or the purchase price of, or premium on, any Pledged Bonds (as defined in the Indenture)

     Principal Portion Drawings. Drawings under the Principal Portion to pay principal of the Bonds due to redemption, acceleration, prepayment or maturity (an “A Drawing”) must be made by presentation to us of your appropriately completed written certificate, signed by an individual purporting to be an authorized officer, in the form of Exhibit A hereto. Drawings under the Principal Portion to purchase tendered Bonds or beneficial ownership interests of tendered Bonds (a “B Drawing”) must be made by presentation to us of your appropriately completed written certificate signed by an individual purporting to be an authorized officer in the form of Exhibit B hereto.

     Interest Portion Drawings. Drawings under the Interest Portion to pay interest due and payable on the Bonds (a “C Drawing”) must be made by presentation to us of your appropriately completed written certificate signed by an individual purporting to be an authorized officer in the form of Exhibit C hereto.

     In the case of any A Drawing or B Drawing, the Stated Amount shall automatically be reduced (subject to the provisions below regarding reinstatement with respect to a B Drawing) by (a) an amount of the Principal Portion equal to 100% of the amount of such drawing and (b) unless the Interest Portion has already been reduced pursuant to a C Drawing which has not been reinstated, an amount of the Interest Portion equal to 45 days’ interest on the amount of the Principal Portion drawing calculated at an assumed rate of 10% per annum. In the case of any C Drawing, the Interest Portion shall automatically be reduced by the amount of such drawing except to the extent the Interest Portion has already been reduced because of a concurrent A Drawing.

     Reinstatement of A Drawings and B Drawings. A Drawings shall not be reinstated. Reductions in the Principal Portion and Interest Portion resulting from a B Drawing shall be reinstated upon the resale of all or any portion of the Bonds or beneficial ownership interests purchased with the proceeds of such B Drawing and the receipt by us of (a) such resale proceeds in the amount by which the Principal Portion and Interest Portion of the Stated Amount is to be

PAGE 5 WHICH FORMS AN INTEGRAL PART OF IRREVOCABLE LETTER OF CREDIT NO. SB/IRB 314 ISSUED IN FAVOR OF: WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE.

reinstated plus interest due us on such drawing as set forth in the Credit Agreement and (b) a notice from you as Trustee as to the amount by which the Principal Portion and Interest Portion of the Stated Amount is to be reinstated, which notice shall be in the form of Exhibit H hereto.

     Reinstatement of C Drawings. The Interest Portion shall be automatically reinstated in an amount equal to the amount of any reduction resulting from a C Drawing upon the earlier of (a) our receipt from the Borrower, in accordance with the terms of the Credit Agreement, of an amount equal to such C Drawing or (b) the seventh Business Day following the honoring of such drawing. Notwithstanding the foregoing, such amount shall not be reinstated if we shall have delivered written notice to you, as Trustee, which notice shall be given on or before the close of business on the seventh Business Day following the honoring of such C Drawing, that such amount available to be drawn under the Letter of Credit to pay interest on the Bonds has not been reinstated and such notice directs acceleration of the Bonds.

     Likewise, the Principal Portion shall be reduced automatically upon the date notice is received from you in the form of Exhibit E attached hereto appropriately completed that prepayment of the Bonds (whether by optional or mandatory redemption or otherwise) under the Indenture (other than Letter of Credit proceeds) has taken place. The Interest Portion (unless it has already been reduced because of a C Drawing that has not been reinstated) and the Stated Amount shall be reduced proportionately to the reduction in the Principal Portion.

     If there has been an acceleration of the Bonds under the Indenture because of the occurrence of an Event of Default under the Indenture, you must present a drawing hereunder to pay principal and interest then due on the Bonds within thirteen (13) calendar days after the date of the acceleration of the Bonds under the Indenture because of the occurrence of an Event of Default, and the payment date on the Bonds (the “Acceleration Payment Date”) shall not be later than fourteen (14) calendar days from the date of the acceleration of the Bonds under the Indenture because of the occurrence of an Event of Default, and the Interest Portion which would otherwise be available under this Letter of Credit will be reduced to cover interest to accrue on the Bonds only to such Acceleration Payment Date (and the Stated Amount will be reduced correspondingly).

     If we have notified you that an Event of Default has occurred under the Credit Agreement, that we are terminating this Letter of Credit and that we are directing you to cause a mandatory tender of the Bonds, you must present a drawing hereunder to pay principal and interest due with respect to such tender of the Bonds within thirteen (13) calendar days after the date which we have given you such notice and the purchase date for the tender on the Bonds the (“Mandatory Bond Purchase Date”) shall not be later than fourteen (14) calendar days from the date of our notice to you and the Interest Portion which would otherwise be available under this

PAGE 6 WHICH FORMS AN INTEGRAL PART OF IRREVOCABLE LETTER OF CREDIT NO. SB/IRB 314 ISSUED IN FAVOR OF: WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE.

Letter of Credit to cover the interest portion of the tender price will be reduced to cover interest to accrue on the Bonds only to such Mandatory Bond Purchase Date (and the Stated Amount will be reduced correspondingly).

     If a demand for payment made by you hereunder does not, in any instance, conform to the terms and conditions of this Letter of Credit, we shall give you prompt notice that the purported demand for payment was not effected in accordance with the terms and conditions of this Letter of Credit, stating the reasons therefor and that we are holding any documents at your disposal or are returning the same to you, as we may elect. Upon being notified that the purported demand for payment was not effected in accordance with this Letter of Credit, you may attempt to correct any such nonconforming demand for payment if, and to the extent that, you are entitled (without regard to the provisions of this sentence) and able to do so.

     Only the Trustee may make a drawing under this Letter of Credit. Upon the payment to the Trustee or to the Trustee’s account of the amount specified in a drawing drawn hereunder, we shall be fully discharged on our obligation under this Letter of Credit with respect to such drawing and we shall not thereafter be obligated to make any further payments under this Letter of Credit with respect to such drawing to the Trustee or any other person who may have made to the Trustee or makes to the Trustee a demand for payment of principal of or interest on or purchase price of any Bond.

     We shall be entitled to conclusively rely upon all certificates for drawing presented to us and we shall have no duty to investigate any facts set forth in any certificates.

     This Letter of Credit applies only to the principal amount of the Bonds and the purchase price of Tendered Bonds or beneficial ownership interests and an amount equal to up to 45 days’ interest accruing on the Bonds on or prior to the redemption date or stated maturity of the Bonds or the tender date with respect to purchased Bonds or beneficial ownership interests, and does not apply to any interest that may accrue thereon after such maturity or redemption date or tender date (unless reinstated as provided above, in the case of purchase price of tendered bonds or beneficial ownership interests). This Letter of Credit does not apply to any redemption premium, if any, or any fees or expenses of the Trustee or the Issuer and no funds are available under this Letter of Credit for payment of any such amounts.

     Communications with respect to this Letter of Credit shall be in writing and shall be addressed to us at 770 North Water Street, Milwaukee, Wisconsin 53002, Attention: Trade Services-IRB LC, 10th Floor or shall be by facsimile at (414) 765-7788 or by other electronic telecommunications, specifically referring thereon to “M&I Marshall & Ilsley Bank Irrevocable

PAGE 7 WHICH FORMS AN INTEGRAL PART OF IRREVOCABLE LETTER OF CREDIT NO. SB/IRB 314 ISSUED IN FAVOR OF: WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE.

Letter of Credit Number SB/IRB 314.” We will communicate to you by mail or facsimile or other electronic telecommunications.

     Except as otherwise expressly stated herein, this Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits (1993 Revisions), International Chamber of Commerce, Publication No. 500 (the “Uniform Customs”). This Letter of Credit is issued under the laws of the State of Wisconsin and shall, as to matters not governed by the Uniform Customs, be governed by and construed in accordance with the laws of said State, without regard to principles of conflicts of law.

     It is understood that if documents relating to a drawing are presented to us in compliance with all the terms of this Letter of Credit prior to the date on which this Letter of Credit would otherwise expire as set forth in this Letter of Credit, and if our business has been interrupted by an Act of God, riot, civil commotion, insurrection, war or any other cause beyond our control, or by any strike or lockout (such event herein called an “Interruption Event”) which prevents us from meeting our obligations under this Letter of Credit with respect to such drawing prior to such time, we shall remain obligated to pay the amount of such drawing until two Business Days after the resumption of our business following the Interruption Event. It is further understood that if the beneficiary is prevented by circumstances reasonably beyond its control from presenting documents with respect to any drawing prior to the date on which this Letter of Credit would otherwise expire as set forth in this Letter of Credit because of such an Interruption Event, we shall remain obligated to pay the amount of such drawing until two Business Days after the resumption of your business following the Interruption Event.

     This Letter of Credit is transferable in its entirety (but not in part) to any transferee who has succeeded to you as Trustee under the Indenture and such transferred Letter of Credit may be successively transferred. Transfer of the available drawing(s) under this Letter of Credit to such transferee shall be effected by presentation to us of this original Letter of Credit and all amendments related thereto accompanied by the transfer forms attached hereto as Exhibit D. We will then, at our option, either (a) issue to the transferee a replacement Letter of Credit which shall be identical to this Letter of Credit except that it shall set forth the transferee, as Beneficiary, and it will reflect any amendments then applicable or (b) endorse on the reverse side of this Letter of Credit the new beneficiary and forward the Letter of Credit to the new beneficiary.

     This Letter of Credit sets forth in full our undertaking, and such undertaking shall not in any way be modified, amended, amplified or limited by reference to any document, instrument or agreement referred to herein (including, without limitation, the Bonds), except only certificates required herein and the Uniform Customs referred to herein; and any such reference

PAGE 8 WHICH FORMS AN INTEGRAL PART OF IRREVOCABLE LETTER OF CREDIT NO. SB/IRB 314 ISSUED IN FAVOR OF: WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE.

shall not be deemed to incorporate herein by reference any document, instrument or agreement except such certificates.

     We hereby agree that all drawings made in compliance with the terms of this Letter of Credit will be duly honored by us upon receipt of the certificates as specified if presented at such office on or before the Expiry Date.

Very truly yours,
M&I MARSHALL & ILSLEY BANK
By	/s/ PAT SEAGO, VP
	Authorized Officer

EXHIBIT A, PAGE 1 WHICH FORMS AN INTEGRAL PART OF IRREVOCABLE LETTER OF CREDIT NO. SB/IRB 314 ISSUED IN FAVOR OF: WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE.

CERTIFICATE FOR THE PAYMENT OF THE $5,630,000 VARIABLE RATE DEMAND PURCHASE REVENUE BONDS (LIFECORE BIOMEDICAL, INC. PROJECT), SERIES 2004 OF THE CITY OF CHASKA, MINNESOTA (“A Drawing”)

M&I Marshall & Ilsley Bank
770 North Water Street
Milwaukee WI 53202
Attention: Trade Services-IRB LC - 10th Floor

     The undersigned, a duly authorized officer of                                                                               (the “Trustee”), hereby certifies to M&I Marshall & Ilsley Bank (“M&I”) with reference to M&I Marshall & Ilsley Bank Irrevocable Letter of Credit Number SB/IRB 314 (the “Letter of Credit”; any capitalized term used herein and not defined shall have its respective meaning as set forth in the Letter of Credit) issued by M&I in favor of the Trustee, that:

     (1) The Trustee is the Trustee under the Indenture for the holders of the Bonds.

     (2) The Trustee is making A Drawing under the Letter of Credit for the benefit of the holders or beneficial owners of the Bonds and with respect to the payment of principal of the Bonds.

     (3) The amount of principal of the Bonds which is due and payable (whether at maturity or upon acceleration or prepayment or call for redemption) on the date of this Certificate or on the Business Day immediately following the date hereof is $                   , and such amount does not exceed the amount available on the date hereof to be drawn under the Letter of Credit in respect of the payment of principal of the Bonds. The Stated Amount has been reduced to $                   , after taking into account the principal payment and accrued interest thereon of 45 days at 10% interest. The amount which is being drawn does not cover any premium on the Bonds or any fees or expenses related thereto. The amount which is being drawn does not cover any amounts due with respect to any Credit Facility Bonds.

     (4) The date of this Certificate is the date on which or the Business Day immediately preceding the date on which the principal amount described in the first sentence of paragraph (3) of this Certificate is due on the Bonds (whether at maturity or upon acceleration or prepayment or call for redemption). The date on which the principal amount is due on the Bonds is                    .

EXHIBIT A, PAGE 2 WHICH FORMS AN INTEGRAL PART OF IRREVOCABLE LETTER OF CREDIT NO. SB/IRB 314 ISSUED IN FAVOR OF: WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE.

     (5) The amount of this Certificate was computed in accordance with the terms and conditions of the Bonds and the Indenture.

     (6) Upon receipt by the undersigned of the amount demanded hereby, (a) the undersigned will apply the same directly to the payment when due of the appropriate amount owing on account of the Bonds pursuant to the Indenture, and (b) no portion of said amount shall be applied by the undersigned for any other purpose, and (c) no portion of said amount shall be commingled with any other funds held by the undersigned.

     (7) Please remit the proceeds to                                       .¹

     (8) This certificate is being presented (i) as a result of an acceleration of the obligations of the Bond issuer to pay principal on the Bonds as a result of an Event of Default under the Indenture or (ii) as a result of redemption in whole of the Bonds or (iii) as a result of payment in full of the Bonds at their stated maturity. If so permitted by the Indenture, you have not purchased the Bonds with respect to this drawing.²

     (9) The original Letter of Credit and all amendments related thereto are presented herewith.²

     IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the                     day of                                       ,                    .

[Trustee]

By:

Title:

Telephone No.

1	Insert wire transfer instructions.
2	Include in Certificate only if certificate covers a final drawing hereunder or acceleration of the Bonds.

EXHIBIT B, PAGE 1 WHICH FORMS AN INTEGRAL PART OF IRREVOCABLE LETTER OF CREDIT NO. SB/IRB 314 ISSUED IN FAVOR OF: WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE.

CERTIFICATE FOR THE PAYMENT OF THE $5,630,000 VARIABLE RATE DEMAND PURCHASE REVENUE BONDS (LIFECORE BIOMEDICAL, INC. PROJECT), SERIES 2004 OF THE CITY OF CHASKA, MINNESOTA (“B Drawing”)

M&I Marshall & Ilsley Bank
770 North Water Street
Milwaukee WI 53202
Attention: Trade Services-IRB LC – 10th Floor

     The undersigned, a duly authorized officer of                                                           (the “Trustee”), hereby certifies to M&I Marshall & Ilsley Bank (“M&I”) with reference to M&I Marshall & Ilsley Bank Irrevocable Letter of Credit Number SB/IRB 314 (the “Letter of Credit”; any capitalized term used herein and not defined shall have its respective meaning as set forth in the Letter of Credit) issued by M&I in favor of the Trustee, that:

     (1) The Trustee is the Trustee under the Indenture for the holders of the Bonds.

     (2) The Trustee is making A Drawing under the Letter of Credit for the benefit of the holders or beneficial owners of the Bonds and with respect to the payment of the purchase price of the tendered Bonds or beneficial ownership interests. The Trustee hereby demands payment under the Letter of Credit in the amount of $                    for the payment of the purchase price of the tendered Bonds or beneficial ownership interests which are being purchased. Of such amount, $                    is demanded with respect to the principal component of such purchase price, and $                    is demanded with respect to the interest component of such purchase price.

     (3) The amount demanded does not exceed the amount available on the date hereof to be drawn under the Letter of Credit in respect of the payment of the purchase price of the Bonds or beneficial ownership interests tendered. The amount which is being drawn does not cover any premium on the Bonds or any fees or expenses related thereto or any amounts due with respect to any Credit Facility Bonds.

     (4) The Stated Amount will automatically be reduced in the amount of $                   , being the sum of the principal component drawn hereunder, as set forth in paragraph 2, plus 45 days’ interest on such principal component at 10% per annum. The Stated Amount, as so reduced, will be $                   .

EXHIBIT B, PAGE 2 WHICH FORMS AN INTEGRAL PART OF IRREVOCABLE LETTER OF CREDIT NO. SB/IRB 314 ISSUED IN FAVOR OF: WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE.

     (5) The date of this Certificate is the date on which the purchase price of the tendered Bonds or beneficial ownership interests described in paragraph (2) of this Certificate is due pursuant to the terms of the Indenture.

     (6) The amount of this Certificate was computed in accordance with the terms and conditions of the Bonds and the Indenture.

     (7) Upon receipt by the undersigned of the amount demanded hereby, (a) the undersigned will apply the same directly to the purchase of the tendered Bonds or beneficial ownership interests required under the Indenture or deposit such amount into the Bond Fund to cover untendered Bonds which are subject to tender under the Indenture, and (b) no portion of said amount shall be applied by the undersigned for any other purpose, and (c) no portion of said amount shall be commingled with any other funds held by the undersigned except that amounts deposited into the [bond purchase account] may be commingled with proceeds from the remarketing of Bonds.

     (8) Please remit the proceeds to                                       .¹

     IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the                     day of                                       ,                    .

[Trustee]

By:

Title:

Telephone No.

¹ Insert wire transfer instructions.

EXHIBIT C, PAGE 1 WHICH FORMS AN INTEGRAL PART OF IRREVOCABLE LETTER OF CREDIT NO. SB/IRB 314 ISSUED IN FAVOR OF: WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE.

CERTIFICATE FOR THE PAYMENT OF THE $5,630,000 VARIABLE RATE DEMAND PURCHASE REVENUE BONDS (LIFECORE BIOMEDICAL, INC. PROJECT), SERIES 2004 OF THE CITY OF CHASKA, MINNESOTA (“C Drawing”)

M&I Marshall & Ilsley Bank
770 North Water Street
Milwaukee WI 53202
Attention: Trade Services-IRB LC - 10th Floor

     The undersigned, a duly authorized officer of                                                           (the “Trustee”), hereby certifies to M&I Marshall & Ilsley Bank (“M&I”) with reference to M&I Marshall & Ilsley Bank Irrevocable Letter of Credit Number SB/IRB 314 (the “Letter of Credit”; any capitalized term used herein and not defined shall have its respective meaning as set forth in the Letter of Credit) issued by M&I in favor of the Trustee, that:

     (1) The Trustee is the Trustee under the Indenture for the holders of the Bonds.

     (2) The Trustee is making A Drawing under the Letter of Credit for the benefit of the holders or beneficial owners of the Bonds and with respect to the payment of interest on the Bonds. The Trustee hereby demands payment under the Letter of Credit in the amount of $                    for the payment of interest accrued on the Bonds (whether at a scheduled interest payment date or upon acceleration, prepayment or call for redemption).

     (3) The amount demanded hereby does not exceed the amount available on the date hereof to be drawn under the Letter of Credit in respect of payment of interest accrued on the Bonds. The amount demanded does not cover any premium on the Bonds or any fees or expenses related thereto or any amounts due with respect to any Credit Facility Bonds.

     (4) The date of this Certificate is the date on which or the Business Day immediately preceding the date on which the interest amount described in paragraph (2) of this Certificate is due on the Bonds. The date on which the interest amount is due on the Bonds is                                       .

     (5) The amount of this Certificate was computed in accordance with the terms and conditions of the Bonds and the Indenture.

EXHIBIT C, PAGE 2 WHICH FORMS AN INTEGRAL PART OF IRREVOCABLE LETTER OF CREDIT NO. SB/IRB 314 ISSUED IN FAVOR OF: WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE.

     (6) Upon receipt by the undersigned of the amount demanded hereby, (a) the undersigned will apply the same directly to the payment when due of the appropriate interest amount owing on account of the Bonds pursuant to the Indenture, and (b) no portion of said amount shall be applied by the undersigned for any other purpose, and (c) no portion of said amount shall be commingled with any other funds held by the undersigned.

     (7) Please remit the proceeds to                                       .¹

     (8) This Certificate is presented in connection with an acceleration of the Bonds. The payment date on the Bonds is                                       ,                     and the date to which interest on the Bonds is accrued is                                       ,                    , both of which dates are not more than fourteen (14) calendar days after the date of the acceleration of the Bonds under the Indenture because of the occurrence of an Event of Default.²

     (9) The original Letter of Credit and all amendments related thereto are presented herewith.³

     IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the                     day of                                       ,                    .

[Trustee]

By:

Title:

Telephone No.

1	Insert wire transfer instructions.
2	Include in Certificate only if certificate covers an acceleration of the Bonds.
3	Include in Certificate only if certificate covers a final drawing hereunder or acceleration of the Bonds.

EXHIBIT D WHICH FORMS AN INTEGRAL PART OF IRREVOCABLE LETTER OF CREDIT NO. SB/IRB 314 ISSUED IN FAVOR OF: WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE.

INSTRUCTION TO TRANSFER IN ENTIRETY

                                      ,                    

M&I Marshall & Ilsley Bank
770 North Water Street
Milwaukee WI 53202
Attention: Trade Services-IRB LC – 10th Floor

     Re: Irrevocable Letter of Credit Number SB/IRB 314

     For value received, the undersigned beneficiary hereby irrevocably transfers to:

(Name of Transferee)

(Address)

Attention:

Telephone / Facsimile

Nbrs:

all rights of the undersigned beneficiary to draw under the above Letter of Credit in its entirety. Said transferee has succeeded the undersigned as Trustee under the Indenture of Trust dated as of August 1, 2004, between the City of Chaska, Minnesota, and the undersigned.

     By this transfer, all rights of the undersigned beneficiary in such Letter of Credit are transferred to the transferee and the transferee shall hereafter have the sole rights as beneficiary thereof; provided, however, that no rights shall be transferred to a transferee unless such transfer complies with the requirements of such Letter of Credit pertaining to transfers.

     The original Letter of Credit and all amendments are returned herewith and in accordance therewith we ask you to either (a) issue a new irrevocable letter of credit in favor of the transferee with provisions consistent with the Letter of Credit, except for the change in beneficiary and which will reflect any amendments then applicable or (b) endorse on the reverse side of this Letter of Credit the new beneficiary and forward the Letter of Credit to the new beneficiary.

EXHIBIT D, PAGE 2 WHICH FORMS AN INTEGRAL PART OF IRREVOCABLE LETTER OF CREDIT NO. SB/IRB 314 ISSUED IN FAVOR OF: WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE

Very truly yours,
[Trustee]
By:
	[Trustee]
Telephone No.
SIGNATURE GUARANTEE
[Name of Bank]
By:
Telephone No.

EXHIBIT E WHICH FORMS AN INTEGRAL PART OF IRREVOCABLE LETTER OF CREDIT NO. SB/IRB 314 ISSUED IN FAVOR OF: WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE.

CERTIFICATE FOR THE REDUCTION OF LETTER OF CREDIT FOR THE $5,630,000 VARIABLE RATE DEMAND PURCHASE REVENUE BONDS (LIFECORE BIOMEDICAL, INC. PROJECT), SERIES 2004 OF THE CITY OF CHASKA, MINNESOTA

M&I Marshall & Ilsley Bank
770 North Water Street
Milwaukee WI 53202
Attention: Trade Services-IRB LC – 10th Floor

     The undersigned, a duly authorized officer of                                                           (the “Trustee”), hereby certifies to M&I Marshall & Ilsley Bank (“M&I”) with reference to M&I Marshall & Ilsley Bank Irrevocable Letter of Credit Number SB/IRB 314 (the “Letter of Credit”; any capitalized term used herein and not defined shall have its respective meaning as set forth in the Letter of Credit) as follows:

     (1) Bonds in the principal amount of $                    have been redeemed under the Indenture by a prepayment of such Bonds under the terms of the Indenture, other than Letter of Credit proceeds. Forty-five days of interest on such prepaid principal amount at 10% per annum is $                   . The Principal Portion, Interest Portion and Stated Amount of the Letter of Credit shall be irrevocably reduced accordingly, to take into account such reduction of principal and interest. Thus, the Stated Amount of the Letter of Credit, effective on the date of this Certificate, is $                    representing the Principal Portion of $                    and the Interest Portion of $                   .

     (2) The original Letter of Credit and all amendments related thereto are presented herewith.¹

¹ Include when Stated Amount is zero.

EXHIBIT E, PAGE 2 WHICH FORMS AN INTEGRAL PART OF IRREVOCABLE LETTER OF CREDIT NO. SB/IRB 314 ISSUED IN FAVOR OF: WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE

     IN WITNESS WHEREOF, the undersigned has executed and delivered this Certificate as of the                     day of                                       ,                    .

[Trustee]

By:

Title:

Telephone No.

EXHIBIT F WHICH FORMS AN INTEGRAL PART OF IRREVOCABLE LETTER OF CREDIT NO. SB/IRB 314 ISSUED IN FAVOR OF: WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE.

NOTICE OF DELIVERY OF SUBSTITUTE LETTER OF CREDIT FOR SB/IRB 314 FOR THE $5,630,000 VARIABLE RATE DEMAND PURCHASE REVENUE BONDS (LIFECORE BIOMEDICAL, INC. PROJECT), SERIES 2004 OF THE CITY OF CHASKA, MINNESOTA

M&I Marshall & Ilsley Bank
770 North Water Street
Milwaukee WI 53202
Attn: Trade Services-IRB LC – 10th Floor

     The undersigned, a duly authorized officer of                                                           (the “Trustee”) hereby certifies to M&I Marshall & Ilsley Bank with reference to M&I Marshall & Ilsley Bank Irrevocable Letter of Credit Number SB/IRB 314 (the “Letter of Credit”) that a Substitute Letter of Credit as defined in the Indenture has been issued in substitution for the Letter of Credit issued by M&I Marshall & Ilsley Bank. The effective date of such Substitute Letter of Credit is prior to the date of this certificate. We are hereby returning to you for termination your Letter of Credit and all amendments related thereto.

     IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the                     day of                                       ,                    .

[Trustee]

By:

Title:

Telephone No.

EXHIBIT G WHICH FORMS AN INTEGRAL PART OF IRREVOCABLE LETTER OF CREDIT NO. SB/IRB 314 ISSUED IN FAVOR OF: WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE.

NOTICE OF DISCHARGE OF INDENTURE

M&I Marshall & Ilsley Bank
770 North Water Street
Milwaukee WI 53202
Attn: Trade Services-IRB LC – 10th Floor

     The undersigned, a duly authorized officer of                                                           (the “Trustee”) hereby certifies to M&I Marshall & Ilsley Bank with reference to M&I Marshall & Ilsley Bank Irrevocable Letter of Credit Number SB/IRB 314 (the “Letter of Credit”) that no Variable Rate Demand Purchase Revenue Bonds (Lifecore Biomedical, Inc. Project), Series 2004 of the City of Chaska, Minnesota, remain outstanding under the Indenture and the Indenture has been discharged and thus that the Letter of Credit issued by M&I Marshall & Ilsley Bank hereby terminates. We are hereby returning to you your Letter of Credit and all amendments related thereto.

     IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the                     day of                                       ,                    .

[Trustee]

By:

Title:

Telephone No.

EXHIBIT H WHICH FORMS AN INTEGRAL PART OF IRREVOCABLE LETTER OF CREDIT NO. SB/IRB 314 ISSUED IN FAVOR OF: WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE.

NOTICE OF AMOUNT OF LETTER OF CREDIT BEING REINSTATED AFTER B DRAWING

M&I Marshall & Ilsley Bank
770 North Water Street
Milwaukee WI 53202
Attn: Trade Services-IRB LC – 10th Floor

     The undersigned, a duly authorized officer of                                                           (the “Trustee”) hereby certifies to M&I Marshall & Ilsley Bank with reference to M&I Marshall & Ilsley Bank Irrevocable Letter of Credit Number SB/IRB 314 (the “Letter of Credit”) that $                    principal amount of the Bonds or beneficial ownership interests purchased with the proceeds of a B Drawing have been remarketed. We understand that you have received in full the resale proceeds from the remarketing of such Bonds or beneficial ownership interests and all other funds due you. Thus, the Stated Amount of the Letter of Credit, effective on the date of this Certificate, shall be reinstated by the amount of $                    representing the Principal Portion of $                    and the Interest Portion of $                    (which Interest Portion represents 45 days of interest on such Principal Portion at the rate of 10% per annum). The Stated Amount of the Letter of Credit after this reinstatement is $                    with respect to the Bonds.

     IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the                     day of                                       ,                    .

[Trustee]

By:

Title:

Telephone No.

EXHIBIT H, PAGE 2 WHICH FORMS AN INTEGRAL PART OF IRREVOCABLE LETTER OF CREDIT NO. SB/IRB 314 ISSUED IN FAVOR OF: WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE

ACKNOWLEDGMENT

     M&I Marshall & Ilsley Bank hereby acknowledges that the Stated Amount of the Letter of Credit has been reinstated on                                       ,                     and the Stated Amount of the Letter of Credit after this reinstatement is $                   .

M&I MARSHALL & ILSLEY BANK

By:

Title:

Telephone No.

EXHIBIT I WHICH FORMS AN INTEGRAL PART OF IRREVOCABLE LETTER OF CREDIT NO. SB/IRB 314 ISSUED IN FAVOR OF: WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE.

NOTICE OF CONVERSION

M&I Marshall & Ilsley Bank
770 North Water Street
Milwaukee WI 53202
Attn: Trade Services-IRB LC – 10th Floor

     The undersigned, a duly authorized officer of                                                           (the “Trustee”) hereby certifies to M&I Marshall & Ilsley Bank with reference to M&I Marshall & Ilsley Bank Irrevocable Letter of Credit Number SB/IRB 314 (the “Letter of Credit”) that a Conversion Date with respect to the Bonds occurred on                                        [insert date] and thus that the Letter of Credit issued by M&I Marshall & Ilsley Bank hereby terminates. We are hereby returning to you your Letter of Credit and all amendments related thereto.

     IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the                     day of                                       ,                    .

	[Trustee]
By:
Title:
Telephone No.

EX-10.13

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

-i-

	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

-ii-

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.

-2-

(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.

-3-

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;

-4-

(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.

-5-

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.

-6-

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.

-7-

(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;

-8-

(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.

-15-

(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.

-18-

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-

EX-10.14

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.

EX-10.15

Exhibit 10.15

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (this “Agreement”) is made as of this 1st day of August, 2004, by LIFECORE BIOMEDICAL, INC., a Minnesota corporation (the “Debtor”), in favor of M&I MARSHALL & ILSLEY BANK, a Wisconsin state banking corporation (the “Secured Party”).

In order to secure the payment of the obligations of the Debtor to the Secured Party pursuant to that certain Reimbursement Agreement of even date herewith (the “Reimbursement Agreement”) by and between the Debtor and the Secured Party, all debts and obligations of the Debtor under any interest rate hedging documents and/or agreements now or hereafter entered into by the Debtor and the Secured Party with respect to the transaction contemplated by the Reimbursement Agreement, 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 the Debtor to reimburse the Secured Party for any and all amounts paid, and other losses suffered, by the Secured Party, as a result of the early termination of such transaction, the amount of which is indeterminate on the date hereof, and each and every other debt, liability and obligation of every type and description which the Debtor may now or at any time hereafter owe to the Secured Party (whether such debt, liability or obligation now exists or is hereafter created or incurred, whether it arises under or is evidenced by this Agreement, the Reimbursement Agreement, or any other present or future instrument or agreement or by operation of law, and whether it is direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, or sole, joint or joint and several) (all such debts, liabilities and obligations of the Debtor to the Secured Party are herein collectively referred to as the “Secured Obligations”), the Debtor hereby agrees as follows:

1. SECURITY INTEREST AND COLLATERAL. In order to secure the payment and performance of the Secured Obligations, the Debtor hereby grants to the Secured Party a security interest (herein called the “Security Interest”) in and to the following property (hereinafter collectively referred to as the “Collateral”):

SEE EXHIBIT A ATTACHED HERETO AND INCORPORATED
HEREIN BY THIS REFERENCE.

2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The Debtor hereby represents and warrants to, and covenants and agrees with, the Secured Party as follows:

(a) The Collateral will be used primarily for business purposes. The Collateral shall be located on the real property located at 3515 Lyman Boulevard, Chaska, Minnesota 55318.

(b) The Debtor is a Minnesota corporation and the address of the Debtor’s chief executive office is 3515 Lyman Boulevard, Chaska, Minnesota 55318, and it keeps and will keep all of its books and records with respect to all of its accounts at such address. The Debtor shall not change its state of organization or chief executive office without the Secured Party’s prior written consent. The Debtor’s state of organization has been its state of organization since the date of the Debtor’s organization.

(c) If any part or all of the Collateral will become so related to particular real estate as to become a fixture, the Debtor will promptly advise the Secured Party as to real estate concerned and the record owner thereof and execute and deliver any and all instruments necessary to perfect the Security Interest therein and to assure that such Security Interest will be prior to the interest therein of the owner of the real estate.

(d) During the preceding one (1) year, the Debtor has not changed its name or operated or conducted business under any trade name or “d/b/a” which is different from its corporate name. The Debtor shall promptly notify the Secured Party of any change in such name or if it operates or conducts business under any trade name or “d/b/a” which is different from such name.

(e) The Debtor has (or will have at the time the Debtor acquires rights in Collateral hereafter acquired or arising) and will maintain absolute title to each item of Collateral free and clear of all security interests, liens and encumbrances, except the Security Interest, and such other security interests as are permitted under the Reimbursement Agreement (the Security Interest and the security interests permitted under the Reimbursement Agreement are hereinafter collectively referred to as the “Permitted Interests”), and will defend the Collateral against all claims or demands of all persons other than the Secured Party and those holding Permitted Interests. Except as permitted in the Reimbursement Agreement, the Debtor will not sell or otherwise dispose of the Collateral or any interest therein.

(f) The Debtor will not permit any Collateral to be located in any state (and, if a county filing is required, in any county) in which a financing statement covering such Collateral is required to be, but has not in fact been, filed.

(g) The Debtor authorizes the Secured Party to file all of the Secured Party’s financing statements and amendments to financing statements, and all terminations of the filings of other secured parties, all with respect to the Collateral, in such form and substance as the Secured Party, in its sole discretion, may determine.

(h) All rights to payment and all instruments, documents, chattel paper and other agreements constituting or evidencing Collateral are (or will be when arising or issued) the valid, genuine and legally enforceable obligation, subject to no defense, set-off or counterclaim (other than those arising in the ordinary course of business) of each account debtor or other obligor named therein or in the Debtor’s records pertaining thereto as being obligated to pay such obligation. The Debtor will not agree to any modification, amendment or cancellation of any such obligation without the Secured Party’s prior written consent, and will not subordinate any such right to payment to claims of other creditors of such account debtor or other obligor.

- 2 -

(i) The Debtor will (i) keep all Collateral in good repair, working order and condition, normal depreciation excepted, and will, from time to time, replace any worn, broken or defective parts thereof; (ii) other than taxes and other governmental charges contested in good faith and by appropriate proceedings, promptly pay all taxes and other governmental charges levied or assessed upon or against any Collateral or upon or against the creation, perfection or continuance of the Security Interest; (iii) keep all Collateral free and clear of all security interests, liens and encumbrances except the Permitted Interests; (iv) at all reasonable times, permit the Secured Party or its representatives to examine or inspect any Collateral, wherever located, and to examine, inspect and copy the Debtor’s books and records pertaining to the Collateral and its business and financial condition and to discuss with account debtors and other obligors requests for verifications of amounts owed to the Debtor; (v) keep accurate and complete records pertaining to the Collateral and pertaining to the Debtor’s business and financial condition and will submit to the Secured Party such periodic reports concerning the Collateral and the Debtor’s business and financial condition as the Secured Party may from time to time reasonably request; (vi) promptly notify the Secured Party of any loss or material damage to any Collateral or of any material adverse change, known to the Debtor, in the prospect of payment of any sums due on or under any instrument, chattel paper or account constituting Collateral; (vii) if the Secured Party at any time so requests promptly deliver to the Secured Party any instrument, document or chattel paper constituting Collateral, duly endorsed or assigned by the Debtor to the Secured Party; (viii) at all times keep all Collateral insured against risks of fire (including so called extended coverage), theft, collision (in case of collateral consisting of motor vehicles) and such other risks and in such amounts as the Secured Party may reasonably request, with any loss payable to the Secured Party to the extent of its interest and notify the Secured Party in writing of any loss or damage to the Collateral or any part; (ix) from time to time execute such financing statements or other forms, including, without limitation, patent and trademark recordation forms, as the Secured Party may reasonably deem required to be filed in order to perfect the Security Interest and, if any Collateral is covered by a certificate of title, execute such documents as may be required to have the Security Interest properly noted on a certificate of title; (x) pay when due or reimburse the Secured Party on demand for all costs of collection of any of the Secured Obligations and all other out-of-pocket expenses (including in each case all reasonable attorneys’ fees) incurred by the Secured Party in connection with the creation, perfection, satisfaction or enforcement of the Security Interest or the execution or creation, continuance or enforcement of this Agreement or any or all of the Secured Obligations including expenses incurred in any litigation or bankruptcy or insolvency proceedings; (xi) execute, deliver or endorse any and all instruments, documents, assignments, security agreements and other agreements and writings which the Secured Party may at any time reasonably request in order to secure, protect, perfect or enforce the Security Interest and the Secured Party’s rights under this Agreement, including, without limitation, an assignment of claim with respect to any account which is a government receivable; (xii) not use or keep any Collateral, or permit it to be used or kept, for any unlawful purpose or in violation of any federal, state or local law, statute or ordinance; (xiii) permit

- 3 -

the Secured Party at any time and from time to time to send requests (both before and after the occurrence of an Event of Default under the Reimbursement Agreement) to account debtors or other obligors for verification of amounts owed to Debtor; and (xiv) not permit any Collateral to become part of or to be affixed to any real property, without first assuring to the reasonable satisfaction of the Secured Party that the Security Interest will be prior and senior to any interest or lien then held or thereafter acquired by any mortgagee of such real property or the owner or purchaser of any interest therein. If the Debtor at any time fails to perform or observe any agreement contained in this Section 2(i), and if such failure shall continue for a period of ten (10) calendar days after the Secured Party gives the Debtor written notice thereof (or, in the case of the agreements contained in clauses (viii) and (ix) of this Section 2(i), immediately upon the occurrence of such failure, without notice or lapse of time) the Secured Party may (but need not) perform or observe such agreement on behalf and in the name, place and stead of the Debtor (or, at the Secured Party’s option, in the Secured Party’s own name) and may (but need not) take any and all other actions which the Secured Party may reasonably deem necessary to cure or correct such failure (including, without limitation, the payment of taxes, the satisfaction of security interests, liens or encumbrances (other than Permitted Interests), the performance of obligations under contracts or agreements with account debtors or other obligors, the procurement and maintenance of insurance, the execution of financing statements, the endorsement of instruments, and the procurement of repairs, transportation or insurance); and, except to the extent that the effect of such payment would be to render any loan or forbearance of money usurious or otherwise illegal under any applicable law, the Debtor shall thereupon pay the Secured Party on demand the amount of all moneys expended and all costs and expenses (including reasonable attorneys’ fees) incurred by the Secured Party in connection with or as a result of the Secured Party’s performing or observing such agreements or taking such actions, together with interest thereon from the date expended or incurred by the Secured Party at the rate set forth in the Reimbursement Agreement. To facilitate the performance or observance by the Secured Party of such agreements of the Debtor, the Debtor hereby irrevocably appoints (which appointment is coupled with an interest) the Secured Party, or its delegate, as the attorney-in-fact of the Debtor with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file, in the name and on behalf of the Debtor, any and all instruments, documents, financing statements, forms, applications for insurance and other agreements and writings required to be obtained, executed, delivered or endorsed by the Debtor under this Section 2.

3. ASSIGNMENT OF INSURANCE. The Debtor hereby assigns to the Secured Party, as additional security for the payment of the Secured Obligations, any and all moneys (including but not limited to proceeds of insurance and refunds of unearned premiums) due or to become due under, and all other rights of the Debtor under or with respect to, any and all policies of insurance covering the Collateral, and the Debtor hereby directs the issuer of any such policy to pay any such moneys to the Secured Party. Before and upon the occurrence of an Event of Default, and at any time thereafter, the Secured Party may (but need not) in its own name or in the Debtor’s name, execute and deliver proofs of claim, receive all such moneys (subject to the Debtor’s rights), endorse checks and other instruments representing payment of such monies, and adjust, litigate, compromise or release any claim against the issuer of any such policy.

- 4 -

4. COLLECTION OF ACCOUNTS. The Secured Party may, or at the Secured Party’s request, the Debtor shall, either prior to or after the occurrence of an Event of Default, and at any time thereafter, notify any account debtor or any obligor on an instrument to make payment directly to a lockbox (the “Lockbox”) under the sole control of the Secured Party, whether or not the Secured Party was theretofore making collections with respect thereto, and the Secured Party shall be entitled to take control of any proceeds thereof. If so requested by the Secured Party, the Debtor shall insert appropriate language on each invoice directing its customers to make payment to the Lockbox. The Debtor hereby authorizes and directs the Secured Party to deposit into a collateral account (the “Collateral Account”) all checks, drafts and cash payments, received in the Lockbox. All deposits in the Collateral Account shall constitute proceeds of Collateral and shall not constitute payment of any of the Secured Obligations. At its option, the Secured Party may, at any time, apply finally collected funds on deposit in the Collateral Account to the payment of the Secured Obligations in such order of application as the Secured Party may determine, or permit the Debtor to withdraw all or any part of the balance on deposit in the Collateral Account. The Debtor agrees that it will promptly deliver to the Secured Party for deposit into the Collateral Account, all payments on accounts and chattel paper received by it. All such payments shall be delivered to the Secured Party in the form received (except for the Debtor’s endorsement where necessary). Until so deposited, all payments on accounts and chattel paper received by the Debtor shall be held in trust by the Debtor for and as the property of the Secured Party and shall not be commingled with any funds or property of the Debtor.

5. REMEDIES. Upon the occurrence of an Event of Default, and at any time thereafter, the Secured Party may exercise any one or more of the following rights or remedies if any or all of the Secured Obligations are not paid when due: (i) exercise and enforce any or all rights and remedies available after default to a secured party under the Uniform Commercial Code, including but not limited to the right to take possession of any Collateral, proceeding without judicial process or by judicial process (without a prior hearing or notice thereof, which the Debtor hereby expressly waives), and the right to sell, lease or otherwise dispose of or use any or all of the Collateral; (ii) the Secured Party may require the Debtor to assemble the Collateral and make it available to the Secured Party at a place to be designated by the Secured Party which is reasonably convenient to both parties; (iii) exercise its rights under any lessors’ agreements regardless of whether or not the Debtor is in default under such leases; and (iv) exercise or enforce any or all other rights or remedies available to the Secured Party by law or agreement against the Collateral, against the Debtor or against any other person or property. The Secured Party is hereby granted a non-exclusive, worldwide and royalty-free license to use or otherwise exploit all trademarks, franchises, copyrights and patents of the Debtor that the Secured Party deems necessary or appropriate to the disposition of any Collateral. If notice to the Debtor of any intended disposition of Collateral or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given (in the manner specified in Section 6 below) at least ten (10) calendar days prior to the date of intended disposition or other action.

6. MISCELLANEOUS. This Agreement does not contemplate a sale of accounts or chattel paper, and, as provided by law, the Debtor is entitled to any surplus and shall remain liable for any deficiency. This Agreement can be waived, modified, amended, terminated or discharged, and the Security Interest can be released, only explicitly in a writing signed by the Secured Party. A waiver signed by the Secured Party shall be effective only in the specific instance and for the

- 5 -

purpose given. Mere delay or failure to act shall not preclude the exercise or enforcement of any of the Secured Party’s rights or remedies. All rights and remedies of the Secured Party shall be cumulative and may be exercised singularly or concurrently, at the Secured Party’s option, and the exercise or enforcement of any one such right or remedy shall neither be a condition to nor bar the exercise or enforcement of any other. All notices to be given to the Debtor shall be deemed sufficiently given if deposited in the United States mails, registered or certified, postage prepaid, or personally delivered to the Debtor at its address set forth herein. The Secured Party’s duty of care with respect to Collateral in its possession (as imposed by law) shall be deemed fulfilled if the Secured Party exercises reasonable care in physically safe keeping such Collateral or, in the case of Collateral in the custody or possession of a bailee or other third person, exercises reasonable care in the selection of the bailee or other third person, and the Secured Party need not otherwise preserve, protect, insure or care for any Collateral. The Secured Party shall not be obligated to preserve any rights the Debtor may have against any other party, to realize on the Collateral at all or in any particular manner or order, or to apply any cash proceeds of Collateral in any particular order of application. This Agreement shall be binding upon and inure to the benefit of the Debtor and the Secured Party and their respective heirs, representatives, successors and assigns and shall take effect when signed by the Debtor and delivered to the Secured Party, and the Debtor waives notice of the Secured Party’s acceptance hereof. Except to the extent otherwise required by law, this Agreement shall be governed by the laws of the State of Minnesota and, unless the context otherwise requires, all terms used herein which are defined in Articles 1 and 9 of the Uniform Commercial Code, as in effect in said state, shall have the meanings therein stated and all capitalized terms used herein which are defined in the Reimbursement Agreement shall have the meanings therein stated. If any provision or application of this Agreement is held unlawful or unenforceable in any respect, such illegality or unenforceability shall not affect other provisions or applications which can be given effect, and this Agreement shall be construed as if the unlawful or unenforceable provision or application had never been contained herein or prescribed hereby. All representations and warranties contained in this Agreement shall survive the execution, delivery and performance of this Agreement and the creation and payment of the Secured Obligations.

IN WITNESS WHEREOF, the Debtor has executed and delivered to the Secured Party this Security Agreement as of the day and year first above written.

LIFECORE BIOMEDICAL, INC.
By:	/s/ DENNIS J. ALLINGHAM
	Its: President and CEO

- 6 -

EXHIBIT A

(Description of Collateral)

All of the Debtor’s Accounts, chattel paper (including, without limitation, electronic chattel paper and tangible chattel paper), deposit accounts, documents, Equipment, General Intangibles, goods, instruments, Inventory, Investment Property, letter-of-credit rights, letters of credit, patents, patent rights, copyrights, trademarks, trade names, goodwill, royalty rights, franchise rights, license rights, software, payment intangibles, all sums on deposit in any collateral account, any items in any lockbox, and Receivables; together with (i) all substitutions and replacements for and products of any of the foregoing; (ii) proceeds of any and all of the foregoing; (iii) in the case of all tangible goods, all accessions; (iv) all accessories, attachments, parts, equipment and repairs now or hereafter attached or affixed to or used in connection with any tangible goods; (v) all warehouse receipts, bills of lading and other documents of title now or hereafter covering such goods; (vi) all collateral subject to the lien of any Security Document; (vii) any money, or other assets of the Debtor, that now or hereafter come into the possession, custody or control of the Lender; and (viii) all supporting obligations. Capitalized terms used herein shall have the meanings assigned thereto in Exhibit B attached hereto.

EXHIBIT B

(Definitions)

“Accounts” means all of the Debtor’s accounts, as such term is defined in the Uniform Commercial Code in effect in the State of Minnesota (the “UCC”), including without limitation the aggregate unpaid obligations of customers and other account debtors to the Debtor arising out of the sale or lease of goods or rendition of services by the Debtor on an open account or deferred payment basis.

“Equipment” means all of the Debtor’s equipment, as such term is defined in the UCC, whether now owned or hereafter acquired, including but not limited to all present and future machinery, vehicles, furniture, fixtures, manufacturing equipment, shop equipment, office and recordkeeping equipment, parts, tools, supplies, and including specifically (without limitation) the goods described in any equipment schedule or list herewith or hereafter furnished to the Secured Party by the Debtor.

“General Intangibles” means all of the Debtor’s general intangibles, as such term is defined in the UCC, whether now owned or hereafter acquired, including (without limitation) all present and future patents, patent applications, copyrights, trademarks, trade names, trade secrets, customer or supplier lists and contracts, manuals, operating instructions, permits, franchises, the right to use the Debtor’s name, and the goodwill of the Debtor’s business.

“Investment Property” means all of the Debtor’s investment property, as such term is defined in the UCC, whether now owned or hereafter acquired, including but not limited to all securities, security entitlements, securities accounts, commodity contracts, commodity accounts, stocks, bonds, mutual fund shares, money market shares and U.S. Government securities.

“Lockbox” means any lockbox established pursuant to any Security Document.

“Receivables” means each and every right of the Debtor to the payment of money, whether such right to payment now exists or hereafter arises, whether such right to payment arises out of a sale, lease or other disposition of goods or other property, out of a rendering of services, out of a loan, out of the overpayment of taxes or other liabilities, or otherwise arises under any contract or agreement, whether such right to payment is created, generated or earned by the Debtor or by some other person who subsequently transfers such person’s interest to the Debtor, whether such right to payment is or is not already earned by performance, and howsoever such right to payment may be evidenced, together with all other rights and interests (including all liens and security interests) which the Debtor may at any time have by law or agreement against any account debtor or other obligor obligated to make any such payment or against any property of such account debtor or other obligor; all including but not limited to all present and future accounts, contract rights, loans and obligations receivable, chattel papers, bonds, notes and other debt instruments, tax refunds and rights to payment in the nature of general intangibles.

“Security Documents” means any document delivered to the Secured Party from time to time to secure the obligations of the Debtor to the Secured Party.

EX-10.16

Exhibit 10.16

PLEDGE AND SECURITY AGREEMENT

THIS PLEDGE AND SECURITY AGREEMENT is made as of the 1st day of August, 2004, among LIFECORE BIOMEDICAL, INC., a Minnesota corporation (the “Pledgor”), M&I MARSHALL & ILSLEY BANK, a Wisconsin state banking corporation (the “Lender”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as trustee (the “Agent”).

R E C I T A L S:

WHEREAS, the City of Chaska, Minnesota (the “Issuer”) is issuing its $5,630,000 Variable Rate Demand Purchase Revenue Bonds (Lifecore Biomedical, Inc. Project), Series 2004 (the “Bonds”), under the Indenture of Trust dated as of August 1, 2004 (the “Indenture”), between the Issuer and the Agent, as Trustee;

WHEREAS, the Indenture requires the Agent, as Trustee, acting for the Pledgor, to purchase the Bonds from the holders thereof under certain circumstances as set forth in the Indenture;

WHEREAS, the Pledgor has entered into the Reimbursement Agreement dated as of August 1, 2004, between the Pledgor and the Lender (hereinafter, as the same may from time to time be amended or supplemented, the “Reimbursement Agreement”), in order for the Lender to issue the letter of credit thereunder (the “Letter of Credit”) which may be drawn upon, inter alia, to pay the purchase price of the Bonds, and

WHEREAS, it is a condition precedent to the Lender’s delivery of the Letter of Credit that the Pledgor and the Agent shall execute and deliver this Pledge Agreement;

NOW, THEREFORE, in consideration of the premises and in order to induce the Lender to enter into the Reimbursement Agreement and issue the Letter of Credit thereunder and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Pledgor and the Agent hereby agree with the Lender as follows:

1. Defined Terms. Unless otherwise defined herein, terms defined in the Reimbursement Agreement shall have such defined meanings when used herein.

2. Pledge. As collateral security for the prompt and complete payment when due of all amounts due from the Pledgor to the Lender under the Reimbursement Agreement and the performance of all other obligations of the Pledgor under the Reimbursement Agreement (all the foregoing being hereinafter called the “Obligations”), the Pledgor hereby pledges, assigns, hypothecates, transfers and grants to the Lender a lien on and security interest in all its right, title and interest to all Bonds purchased with proceeds of draws on the Letter of Credit, together with all payments, earnings, proceeds and substitutions of such Bonds (collectively, such Bonds and all payments, earnings, proceeds and substitutions of such Bonds are hereinafter referred to as the “Borrower Bonds”). The Pledgor agrees that the Agent shall receive, hold and deliver Borrower Bonds as provided in the Indenture. (All property at any time pledged to the Lender hereunder and all income therefrom and proceeds thereof, are herein collectively sometimes called the “Collateral.”)

3. Registration and Custody of Borrower Bonds. The Pledgor and the Agent acknowledge and agree that during any period in which the Agent holds Borrower Bonds, the Agent shall hold them as agent and custodian for the Lender, shall register the Borrower Bonds in the name of the Lender, as pledgee, and shall, upon written request of the Lender, deliver to the Lender (or a person designated by the Lender) the Borrower Bonds. The Agent acknowledges the Lender’s security interest in the Borrower Bonds and agrees to hold the Borrower Bonds in accordance with the terms of this Agreement. The Lender appoints the Agent as its attorney to transfer the Borrower Bonds on the books kept for the registration thereof in accordance with the terms of this Agreement.

4. Payments on Borrower Bonds; Voting Rights.

(a) All payments on the Borrower Bonds, including (without limitation) any payment of principal of or premium, if any, or interest on, or proceeds of sale of the Borrower Bonds, shall be subject to this Agreement, and the Agent, as agent for the Lender, shall receive, collect and hold any such payments in respect of the Borrower Bonds. The Agent agrees to pay any such payment to the Lender forthwith upon receipt. In the event any such payments are received by the Pledgor, the Pledgor agrees to accept such payments as the Lender’s agent, to hold such payments in trust on behalf of the Lender and to deliver such payments forthwith to the Agent. All sums of money so paid in respect of the Borrower Bonds which shall be paid directly to the Lender by the Agent shall be credited against the Obligations.

(b) The Lender shall be entitled to exercise all of the rights of an owner of the Borrower Bonds with respect to voting, consenting and directing the Agent as if the Lender were the owner of the Borrower Bonds, and the Pledgor hereby grants and assigns to the Lender all such rights.

5. Release of Borrower Bonds. If a payment is made by or on behalf of the Pledgor in respect of its Obligations and if the other conditions respecting payment of amounts due to the Lender under the Reimbursement Agreement are met, the Lender agrees upon receipt of such payment to release from the lien of this Agreement and to instruct the Agent to deliver to the Pledgor or to such other party as shall make payment to the Lender, as the case may be, Borrower Bonds in the principal amount so paid and upon receipt of such instruction the Agent shall deliver such Borrower Bonds to such party; provided, however, that if such payment is less than the minimum denomination of Bonds then available under the Indenture, Borrower Bonds shall be released only at such time as the cumulative amount of payments made under the Reimbursement Agreement and for which no Borrower Bonds have been released under this paragraph equal to the minimum denomination of Bonds then available. If the Bonds are then rated by a Rating Agency (as that term is defined in the Indenture), no Borrower Bonds shall be released pursuant to this paragraph unless the Lender has, contemporaneously with such payment, reinstated the amount available to be drawn under the Letter of Credit by an amount equal to the principal amount drawn under the Letter of Credit at the time the Bonds became Borrower Bonds. Notwithstanding the foregoing, no Borrower Bonds shall be released from the lien of this Agreement if the Agent receives notice from the Lender that an Event of Default has occurred and is continuing, unless the Lender shall otherwise agree in writing.

- 2 -

6. Rights of the Lender. The Lender shall not be liable for failure to collect or realize upon the Obligations or any collateral security or guarantee therefor, or any part thereof, or for any delay in so doing nor shall it be under any obligation to take any action whatsoever with regard thereto. Except as otherwise required by the provisions of the Uniform Commercial Code, if an Event of Default has occurred and is continuing, the Lender may thereafter, without notice, exercise all rights, privileges or options pertaining to any Borrower Bonds as if it were the holder and absolute owner thereof, upon such terms and conditions as it may determine, all without liability except to account for property actually received by it, but the Lender shall have no duty to exercise any of the aforesaid rights, privileges or options and shall not be responsible for any failure to do so or delay in so doing.

7. Remedies. If any portion of the Obligations has been declared due and payable, the Lender without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon the Pledgor or any other person (all and each of which demands, advertisements and/or notices are hereby expressly waived), may, subject to compliance with requirements of the Uniform Commercial Code, forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, assign, give an option or options to purchase, contract to sell or otherwise dispose of and deliver said Collateral, or any part thereof, in one or more parcels at public or private sale or sales, at any exchange, broker’s board or at any of the Lender’s offices or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk, with the right to the Lender upon any such sale or sales, public or private, to purchase the whole or any part of said collateral so sold, free of any right or equity of redemption in the Pledgor, which right or equity is hereby expressly waived or released. The Lender shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care, safekeeping or otherwise of any and all of the Collateral or in any way relating to the rights of the Lender hereunder, including reasonable attorneys’ fees and legal expenses, to the payment, in whole or in part, of the Obligations in such order as the Lender may elect, the Pledgor remaining liable for any deficiency remaining unpaid after such application, and only after so applying such net proceeds and after the payment by the Lender of any other amount required by any provision of law, including, without limitation, the Uniform Commercial Code, need the Lender account for the surplus, if any, to the Pledgor. The Pledgor agrees that the Lender need not give more than ten days’ notice of the time and place of any public sale or of the time after which a private sale or other intended disposition is to take place and that such notice is reasonable notification of such matters. No notification need be given to the Pledgor if it has signed after default a statement renouncing or modifying any right to notification of sale or other intended disposition. In addition to the rights and remedies granted to it in this Agreement and in any other instrument or agreement securing, evidencing or relating to any of the Obligations, the Lender shall have all the rights and remedies of a secured party under the Uniform Commercial Code of the State of Minnesota. The Pledgor further agrees that the Pledgor shall be liable for the deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay all amounts to which the Lender is entitled, and the fees of any attorneys employed by the Lender to collect such deficiency.

- 3 -

8. Representations, Warranties and Covenants of the Pledgor. The Pledgor represents and warrants that: (a) on the date of delivery to the Lender of any Borrower Bonds, neither the Issuer nor the Agent will have any right, title or interest in and to the Borrower Bonds (except the interest of the Agent as agent for the Lender); (b) the Pledgor has, and on the date of delivery to the Lender of any Borrower Bonds will have, full power, authority and legal right to pledge all of its right, title and interest in and to such Borrower Bonds pursuant to this Agreement; (c) this Agreement has been duly authorized, executed and delivered by the Pledgor and constitutes a legal, valid and binding obligation of the Pledgor enforceable in accordance with its terms (subject, as to enforceability, to limitations resulting from Bankruptcy, insolvency and other similar laws affecting creditors’ rights generally and principles of equity); (d) no consent of any other party (including, without limitation, creditors of the Pledgor) and no consent, license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority, domestic or foreign, is required to be obtained by the Pledgor in connection with the execution, delivery or performance of this Agreement; (e) the execution, delivery and performance of this Agreement will not violate any provision of any applicable law or regulation or of any order, judgment, writ, award or decree of any court, arbitrator or governmental authority, domestic or foreign, or of any securities issued by the Pledgor, or of any mortgage, indenture, lease, contract, or other agreement, instrument or undertaking to which the Pledgor is a party or which purports to be binding upon the Pledgor or upon any of its assets and will not result in the creation or imposition of any lien, charge or encumbrance on or security interest in any of the assets of the Pledgor except as contemplated by this Agreement; and (f) the pledge, assignment and delivery of Borrower Bonds pursuant to this Agreement, and as provided in the Indenture, will create a valid first lien on and a first perfected security interest in all right, title or interest of the Pledgor in or to such Borrower Bonds, and the proceeds thereof, subject to no prior pledge, lien, mortgage, hypothecation, security interest, charge, option or encumbrance or to any agreement purporting to grant to any third party a security interest in the property or assets of the Pledgor which would include the Borrower Bonds. The Pledgor covenants and agrees that it will defend the Lender’s right, title and security interest in and to the Borrower Bonds and the proceeds thereof against the claims and demands of all persons whosoever; and covenants and agrees that it will have like title to and right to pledge any other property at any time hereafter pledged to the Lender as collateral hereunder and will likewise defend the Lender’s right thereto and security interest therein. The Pledgor shall be deemed to have represented and warranted to the Lender on each date that a drawing is made under the Letter of Credit that the statements contained herein are true and correct.

9. No Disposition, etc. Without the prior written consent of the Lender, the Pledgor agrees that it will not sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Collateral, nor will it create, incur or permit to exist any pledge, lien, mortgage, hypothecation, security interest, charge, option or any other encumbrance with respect to any of the Collateral, or any interest therein, or any proceeds thereof, except for the lien and security interest provided for by this Agreement.

10. Sale of Collateral.

(a) The Pledgor recognizes that the Lender may be unable to effect a public sale of any or all of the Borrower Bonds by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and applicable state securities laws, but may be compelled to resort to one or more private sales thereof to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such securities

- 4 -

for their own account for investment and not with a view to the distribution or resale thereof. The Pledgor acknowledges and agrees that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that the fact that the Borrower Bonds are sold in a private sale shall not in and of itself be deemed a failure to sell the Borrower Bonds in a commercially reasonable manner.

(b) The Pledgor further agrees to do or cause to be done all such other acts and things as may be necessary to make such sale or sales of any portion or all of the Borrower Bonds valid and binding and in compliance with any and all applicable laws, regulations, orders, writs, injunctions, decrees or awards of any and all courts, arbitrators or governmental instrumentalities, domestic or foreign, having jurisdiction over any such sale or sales, all at the Pledgor’s expense. The Pledgor further agrees that a breach of any of the covenants contained in this paragraph 10 will cause irreparable injury to the Lender, that the Lender has no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every covenant contained in this paragraph shall be specifically enforceable against the Pledgor and the Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred under the Reimbursement Agreement.

(c) Notwithstanding anything to the contrary contained in paragraph 7 or this paragraph 10, at the time of the sale of any Borrower Bonds as contemplated herein, any rating assigned to such Bonds by a Rating Agency shall cease to apply to such Borrower Bonds unless the Lender has reinstated the amount available to be drawn under the Letter of Credit by an amount equal to the principal amount drawn under the Letter of Credit at the time the Bonds became Borrower Bonds.

11. Further Assurances. The Pledgor agrees that at any time and from time to time upon the written request of the Lender, the Pledgor will execute and deliver such further documents and do such further acts and things as the Lender may reasonably request in order to effect the purposes of this Agreement.

12. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

13. No Waiver, Cumulative Remedies. The Lender shall not by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder and no waiver shall be valid unless in writing, signed by the Lender, and then only to the extent therein set forth. A waiver by the Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Lender would otherwise have on any further occasion. No failure to exercise nor any delay in exercising on the part of the Lender, any right, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any right, power or privilege. The rights and remedies herein provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights or remedies provided by law.

- 5 -

14. Indemnification. The Pledgor agrees to indemnify Agent for, and to hold it harmless against, any loss, liability or expense incurred without negligence, willful misconduct or bad faith on its part, arising out of or in connection with the acceptance or administration of its duties hereunder including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder.

15. Waivers, Amendments; Applicable Law. None of the terms or provisions of this Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by the Lender and the Pledgor. This Agreement and all obligations of the Pledgor and the Agent hereunder shall be binding upon the successors and assigns of the Pledgor and the Agent, respectively, and shall, together with the rights and remedies of the Lender hereunder, inure to the benefit of the Lender and its successors and assigns. This Agreement shall be governed by, and be construed and interpreted in accordance with, the laws of the State of Minnesota.

16. Term. This Agreement shall remain in full force and effect for so long as the Letter of Credit or any of the Obligations remains outstanding.

17. Notice. All notices and other communications provided for hereunder shall be given as provided in the Indenture.

18. Counterparts. This Agreement may be executed in several counterparts, each of which shall constitute one and the same instrument.

19. Section Headings. Section headings in this Agreement are included for convenience only and shall not constitute a part of this Agreement for any other purpose.

- 6 -

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered on 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
WELLS FARGO BANK, NATIONAL
ASSOCIATION
By:	/s/ MARTHA K. EARLEY
	Its: Assistant Vice President

- 7 -

EX-10.17

Exhibit 10.17

$5,630,000
CITY OF CHASKA, MINNESOTA
VARIABLE RATE DEMAND PURCHASE REVENUE BONDS
(LIFECORE BIOMEDICAL, INC. PROJECT),

SERIES 2004

BOND PURCHASE AGREEMENT

August 19, 2004

Between

CITY OF CHASKA, MINNESOTA,

LIFECORE BIOMEDICAL, INC.

and

NORTHLAND SECURITIES, INC.

This document drafted by:

Dorsey & Whitney LLP
Suite 1500
50 South Sixth Street
Minneapolis, Minnesota 55402-1498

$5,630,000
City of Chaska, Minnesota
Variable Rate Demand Purchase Revenue Bonds
(Lifecore Biomedical, Inc. Project),
Series 2004

BOND PURCHASE AGREEMENT

City of Chaska, Minnesota
Chaska, Minnesota

Lifecore Biomedical, Inc.
Chaska, Minnesota

Ladies and Gentlemen:

     We (sometimes referred to as the “Underwriter”) hereby offer to purchase, upon the terms and conditions hereinafter specified, $5,630,000 aggregate principal amount of Variable Rate Demand Purchase Revenue Bonds (Lifecore Biomedical, Inc. Project), Series 2004 (the “Bonds”), to be issued by City of Chaska, Minnesota (referred to as the “City” or the “Issuer”). The Bonds are described in the Official Statement prepared in connection with the issuance of the Bonds (together with the respective Appendices thereto, the “Official Statement”). If and when accepted by all of you, this document shall constitute our Bond Purchase Agreement.

     1. Background. The Bonds are to be issued by the Issuer pursuant to, and will be secured as provided in, the Indenture of Trust (the “Indenture”) dated as of August 1, 2004, between the Issuer and Wells Fargo Bank, National Association, as trustee (as defined in the Indenture, the “Trustee”). The proceeds of the Bonds will be used to provide refinancing for a “project” (as more fully described in the Loan Agreement referred to below, the “Project”) undertaken by Lifecore Biomedical, Inc., a Minnesota corporation (the “Borrower”), in the City, through the refunding in full of the outstanding Industrial Development Revenue Bonds (Lifecore Biomedical, Inc. Project), Series 1990, issued by the Issuer in the original aggregate principal amount of $7,000,000 (the “Refunded Bonds”). The Borrower will be obligated to make or cause to be made loan repayments at times and in amounts sufficient to repay the Bonds pursuant to a Loan Agreement (the “Loan Agreement”) dated as of August 1, 2004, and the proceeds of the Bonds will be loaned by the Issuer to the Borrower and will be applied to the refunding of the Refunded Bonds, as further provided in the Loan Agreement and the Indenture.

     The Bonds will be subject to such terms and provisions, including provisions with respect to the optional and mandatory tender and purchase thereof, as are set forth in the Indenture.

     Payment of the principal of, purchase price for, premium, if any, and interest on the Bonds is to be supported by a “direct pay” Irrevocable Letter of Credit (the “Letter of Credit”) to be issued by M&I Marshall & Ilsley Bank, a state banking association organized under the laws of the State of Wisconsin (the “Bank”).

     The Bonds are subject to purchase from the owners thereof by or on behalf of the Borrower through draws required to be made on the Letter of Credit on not less than seven days’ notice, and are also subject to mandatory tender for purchase under certain circumstances, all as further provided in the Indenture. Bonds tendered for purchase are to be remarketed, on a best efforts basis, by Northland Securities, Inc. (the “Remarketing Agent”) pursuant to the Remarketing Agreement dated as of August 1, 2004 ( the “Remarketing Agreement”), between the Borrower and the Remarketing Agent.

     The Bonds are to be sold by us pursuant to the Official Statement.

     2. Issuer’s Representations and Warranties. The Issuer hereby represents and warrants to the Underwriter that the issuance of the Bonds by the Issuer has been duly and validly authorized pursuant to the adoption by the governing body of a resolution on July 19, 2004 (the “Bond Resolution”), all pursuant to and in accordance with the relevant provisions of the Act.

     3. The Borrower’s Representations, Covenants and Warranties. The Borrower makes the following covenants, warranties and representations:

         (a) The Borrower is a corporation duly organized and existing under the laws of the State of Minnesota, with full power and authority to own its properties and conduct its operations as currently being conducted. The Borrower is conducting its business in substantial compliance with all applicable and valid laws, rules and regulations of each jurisdiction where it owns or leases substantial property or where it transacts material intrastate business.

         (b) The Borrower has full power and authority to execute and deliver the Loan Agreement, the Remarketing Agreement, the Tax Exemption Agreement and this Agreement and to carry out the terms thereof. This Agreement, the Remarketing Agreement, the Tax Exemption Agreement and the Loan Agreement, when executed and delivered by the respective parties thereto, will have been duly and validly authorized, executed and delivered by the Borrower, will be in full force and effect and will be valid and binding instruments of the Borrower, enforceable in accordance with their terms.

         (c) The consummation of the transactions herein contemplated and carrying out of the terms hereof will not result in violation of any provision of, or a default under, the articles of incorporation or bylaws of the Borrower or any indenture, agreement, mortgage, deed of trust, indebtedness, instrument, judgment, decree, order, statute, rule or regulation to which the Borrower is a party or by which it or its property is bound, other than violations or defaults which would not have a material and adverse effect on the operations or financial position of the Borrower or the ability of the Borrower to perform its obligations under the Loan Agreement, the Remarketing Agreement, the Tax Exemption Agreement or this Agreement, or on the legality, validity or enforceability of the Loan Agreement, the Remarketing Agreement, the Tax Exemption Agreement or this Agreement; provided, however, that the representations and warranties in this paragraph shall not apply to the qualification of the Bonds under state securities or “Blue Sky” laws or the law of any jurisdiction outside the United States.

2

         (d) No approval, authorization, consent or other order of any public board or body not obtained as of the date hereof (other than the registration under and compliance with the securities or “Blue Sky” laws of any state) is legally required for the transactions contemplated hereby.

         (e) The Borrower is not in violation of any provision of, or in default under, its articles of incorporation or bylaws or any indenture, agreement, mortgage, deed of trust, indebtedness, instrument, judgment, decree, order, statute, rule or regulation to which it is a party or by which it or its property is bound, other than violations and defaults which would not have a material and adverse effect on the operations or financial position of the Borrower and which would have no material and adverse effect on the transactions contemplated hereby. There is no provision of any judgment, decree, order, statute, rule or regulation that materially adversely affects the operations, properties, assets, liabilities or condition (financial or other) of the Borrower.

         (f) There are no legal or governmental proceedings pending or, to the best of the Borrower’s knowledge, threatened or contemplated by governmental authorities or threatened by others, to which the Borrower is or may become a party or to which any property of the Borrower is or may become subject, other than ordinary routine litigation incident to the kind of business conducted by the Borrower which, if determined adversely to the Borrower, would not individually or in the aggregate have a material adverse effect on the operations or financial position of the Borrower.

         (g) Neither the Official Statement, nor any amendment or supplement thereto, does or will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading; provided, however, that the Borrower makes no representations, warranties or agreements as to information contained in the Official Statement or any such amendment or supplement regarding or furnished by the Underwriter, the Issuer, or the Bank in reliance upon and in conformity with written information furnished by us, by the Issuer or by the Bank specifically for use in the preparation thereof.

         (h) Subsequent to the respective dates as of which the information referred to in paragraph (g) was given and prior to the Closing Date hereinafter mentioned, (1) there has not been and will not have been any material adverse change in the operations of the Borrower, or the financial position of the Borrower, (2) no loss or damage (whether or not insured) to the property of the Borrower, has been or will have been sustained which materially and adversely affects the Borrower, and (3) no legal or governmental proceedings affecting the transactions contemplated by this Agreement have been or will have been instituted or threatened which are material and adverse.

         (i) The information supplied or to be supplied by the Borrower that has been or is to be relied upon by bond counsel (as stated in the opinion of such bond counsel given as of the date hereof) with respect to the tax-free status of interest on the Bonds is and shall be correct and complete.

3

     4. Purchase, Sale and Delivery of the Bonds. On the basis of the representations and warranties and subject to the terms and conditions set forth herein, we agree to purchase, and the Issuer agrees to sell to us, the total principal amount of the Bonds at a purchase price of $5,573,700 (99% of par). Payment for the Bonds shall be made to the Issuer or its order in Federal Funds or by certified or official bank check or checks payable in immediately available funds at the offices of the Trustee, in Minneapolis, Minnesota, at 10:00 a.m. prevailing time on August 19, 2004, or at such later date as may be agreed upon by an appropriate officer of the Issuer and us against delivery of the Bonds to us. The date and time of such payment and delivery are herein called the “Closing Date”. The Bonds will be delivered in Book Entry Only Form, in accordance with the Indenture and standard procedures of The Depository Trust Company, New York, New York.

     5. The Borrower’s Covenants. The Borrower will:

         (a) if at any time for a period of 30 days after the date of the Official Statement an event shall have occurred as a result of which it is necessary to amend or supplement the Official Statement in order to make the statements therein not untrue or misleading, notify us promptly thereof and furnish to us an appropriate amendment or a supplement that will correct the statements in the Official Statement in order to make the statements therein not untrue or misleading; and

         (b) refrain from taking any action, or permitting any action to be taken with regard to which the Borrower may exercise control, that would cause the interest on the Bonds to become includible in the gross income of the recipients thereof for purposes of federal income taxation..

     6. Conditions of Purchase Obligation of Underwriter. Our obligation to purchase and pay for the Bonds is subject to the following conditions:

         (a) The representations and warranties of the Borrower shall be true and correct as of the date hereof and the Closing Date.

         (b) At the Closing Date the Borrower shall have performed all of its obligations hereunder theretofore to have been performed.

         (c) At the Closing Date, there shall be delivered to us and dated as of the Closing Date:

               (i) one or more opinions of Dorsey & Whitney LLP, Bond Counsel to the Borrower, in form and substance satisfactory to us, covering the tax-exempt status of interest on the Bonds and related matters.

               (ii) an opinion of counsel to the Borrower, in form and substance satisfactory to us.

               (iii) one or more opinions of counsel to the Bank, addressed to us and to the Trustee, in form and substance satisfactory to us and to the Trustee.

4

In rendering the above opinions, counsel may rely upon customary certificates and other customary matters.

         (d) The Loan Agreement, the Indenture, the Remarketing Agreement, the Tax Exemption Agreement and the Letter of Credit, in substantially the forms existing on the date hereof, with such changes therein as may be mutually agreed upon by the parties thereto and us, and all instruments contemplated thereby, shall have been duly authorized, executed and delivered by the respective parties thereto and shall be in full force and effect on the Closing Date.

         (e) All proceedings and related matters in connection with the authorization, issue, sale and delivery of the Bonds shall have been satisfactory to bond counsel, and such counsel shall have been furnished with such papers and information as they may have reasonably requested to enable them to pass upon the matters referred to in this Section 5.

         (f) The Borrower shall have furnished or caused to be furnished to us on the Closing Date a certificate satisfactory to us as to the accuracy of all representations, warranties and covenants of the Borrower, contained herein as of the date hereof and as of the Closing Date and as to the performance by the Borrower of all of its obligations hereunder to be performed at or prior to the Closing Date.

         (g) The offer and sale of the Bonds and underlying securities shall be exempt from registration under the Securities Act of 1933, as amended; and the Indenture shall be exempt from qualification under the Indenture of Trust Act of 1939, as amended.

         (h) We shall have been provided with such quantities of the Official Statement at such time or times as shall be necessary for us to comply with any applicable provision of law or regulation, including Regulation 15c2-12 promulgated by the Securities and Exchange Commission.

         (i) The Bonds shall have been assigned a rating of “Aa3/Vmig1” by Moody’s Investors Services, Inc.

     All such opinions, certificates, letters and documents will be in compliance with the provisions hereof only if they are in all material respects satisfactory to us, as to which we shall act reasonably.

     If any condition of our obligation hereunder to be satisfied prior to the Closing Date is not so satisfied, this Agreement may be terminated by us by notice in writing to the Borrower and the Issuer.

     We may waive in writing compliance by the Borrower or the Issuer with any one or more of the foregoing conditions or extend the time for their performance.

     7. Indemnification. The Borrower hereby agrees to indemnify and hold harmless the Issuer and the Underwriter and the directors, officers, and employees of the Issuer and the Underwriter, as well as any person who controls the Issuer or the Underwriter, within the

5

meaning of the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any applicable state securities law (singularly, the “Indemnified Party”, and collectively, the “Indemnified Parties”) from and against any and all losses, claims, damages and liabilities, joint or several, to which the Indemnified Parties may become subject under federal laws or regulations or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact with respect to the Borrower contained in the Official Statement or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein such a material fact if necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and will reimburse the Indemnified Parties in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Borrower will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any such document in reliance upon and in conformity with any information furnished in writing by the Issuer, the Underwriter or the Bank or their respective agents.

     If any action or proceeding shall be brought or asserted against any Indemnified Party for which indemnity may be sought against the Borrower, such Indemnified Party shall promptly notify the Borrower in writing, and the Borrower shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party, and the payment of all expenses. The Indemnified Party shall have the right to employ separate counsel in any such action and to participate in the defense thereof at the expense of the Borrower. The Borrower shall not be liable for any settlement of any such action or proceeding effected without its consent but if settled with its written consent, or if there be a final judgment for the plaintiff in any such action or proceeding, the Borrower agrees to indemnify and hold harmless the Indemnified Parties from and against any loss or liability by reason of such settlement or judgment.

     8. Offering by Underwriter. We shall offer the Bonds for sale in transactions exempt from registration under the applicable securities laws in the states in which the Bonds will be reoffered, or in compliance with such registration requirements, as may be further set forth in the Official Statement. Concessions from the offering price may be allowed to selected dealers and special purchasers. The initial offering price and concessions set forth in the Official Statement may vary after the initial offering. The Bonds may be offered at prices other than the par value thereof. The Borrower hereby consents to the use by the Underwriter of the Official Statement. The Borrower represents, warrants, certifies, ratifies and confirms that the Official Statement, as of its date, was in final form, within the meaning of Rule 15c2-12, promulgated by the Securities and Exchange Commission.

     The use by the Underwriter of the Official Statement (the “Official Statement”), in connection with the sale of the Bonds is hereby authorized and approved by the Issuer and the Borrower; provided such authorization and approval by the Issuer shall not be deemed to include authorization and approval of information contained in such Official Statement other than information describing the Issuer or its litigation, and only as the same relates to the Issuer, but nothing contained in the resolution shall be construed as prohibiting or limiting the Underwriter and the Borrower from including such information as they reasonably deem appropriate.

6

     9. Representations, Warranties and Agreements to Survive Delivery. The representations, warranties, indemnities, agreements and other statements of the Borrower and the Underwriter or their officers set forth in or made pursuant to this Agreement will remain operative and in full force and effect and will survive delivery of and payment for the Bonds; provided, however, that representations made herein speak only as of the date hereof.

     10. Payment of Costs and Expenses. All costs and expenses incident to the execution and performance of this Bond Purchase Agreement and to the sale and delivery of the Bonds to the Underwriter, including, but not limited to, an underwriting fee payable to the Underwriter in the amount of $56,300 (1.00% of the aggregate principal amount of the Bonds), against which underwriting fee any discount from par in the purchase price for the Bonds shall serve as a credit, the fees and expenses of the Issuer in connection with the issuance of the Bonds, the fees and expenses of counsel to the Borrower, the fees and expenses of Bond Counsel to the Borrower, the fees and expenses of Disclosure Counsel to the Borrower, the fees and expenses of counsel to the Bank, the fees and expenses of counsel to the Issuer, all costs and expenses with respect to the examination of, and registration of the Bonds under, the securities or “Blue Sky” laws of the various jurisdictions in which the Bonds are to be offered or sold, and the costs and expenses of preparing, printing and distributing the Official Statement, the Bonds, this Agreement, the Indenture, the Loan Agreement, the Remarketing Agreement, the Tax Exemption Agreement, the Letter of Credit, and related documents shall be payable by the Borrower. Notwithstanding anything else contained in this Section 10 to the contrary, issuance costs (including underwriting discount) financed by the Bonds shall not exceed 2.00% of the proceeds of the Bonds.

     11. Termination of Agreement. This Agreement may be terminated at any time prior to the Closing Date by us by written notice to the Issuer and the Borrower if in our reasonable judgment it is impracticable to offer for sale or to enforce contracts made by the Underwriter for the resale of the Bonds agreed to be purchased hereunder by reason of (i) trading in securities on the New York Stock Exchange or the American Stock Exchange having been suspended or general or minimum prices having been established on either such Exchange, (ii) a banking moratorium having been declared by either Federal or applicable state authorities, (iii) an outbreak of major hostilities or other national or international calamity having occurred (it being agreed that no such event is in existence as of the date hereof), (iv) any action having been taken by any government in respect of its monetary affairs which, in our reasonable opinion, has a material adverse effect on the United States securities markets, (v) legislation is introduced in Congress, or a decision rendered by any court, or any order, ruling, regulation or statement issued by any agency of the United States which, in the opinion of the Underwriter, could result in the interest payable on the Bonds being subject to United States income taxes or the Bonds, Loan Agreement, Indenture, or Letter of Credit being subject to registration or qualification with the Securities and Exchange Commission, (vi) by reason of a default with respect to any security issued by a state or any subdivision or instrumentality of a state having a population of over one million, which, in the opinion of the Underwriter, has a material adverse effect on the United States securities markets, or (vii) the occurrence of any event, or knowledge to that effect, which makes untrue, incorrect or misleading in any material respect any statement or information contained herein or in the Official Statement. If this Agreement shall be terminated pursuant to

7

Section 5 or this Section 11, or if the purchase provided for herein is not consummated because any condition to our obligation hereunder is not satisfied or because of any refusal, inability or failure on the part of the Borrower or the Issuer to comply with any of the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Borrower or the Issuer shall be unable to perform all of its respective obligations under this Agreement, neither the Borrower nor the Issuer shall be liable to us for damages on account of loss of anticipated profits arising out of the transactions covered by this Agreement, but the Borrower shall remain liable for payment of costs and expenses, to the extent provided in Section 10 hereof, except for payment of any underwriting commissions, and, except where termination occurs pursuant to the first sentence of this Section 11, or as a result of the Underwriter’s inability to comply with any of its obligations hereunder, the Borrower shall pay all out-of-pocket expenses incurred by us in contemplation of the purchase and sale of the Bonds.

     12. Notices and Governing Law. All communications hereunder shall be in writing and, except as otherwise provided, shall be delivered at, or mailed or telecopied to, the following addresses: if to the Underwriter, to Northland Securities, Inc., at 45 South Seventh Street, Suite 2500, Minneapolis, Minnesota 55402, Attention: Public Finance; if to the Borrower addressed to Lifecore Biomedical, Inc., at 3515 Lyman Boulevard, Chaska, Minnesota 55318, Attention: Chief Financial Officer; and if to the Issuer, addressed to it at City of Chaska, City Hall, Chaska, Minnesota 55318, Attention: City Administrator.

     This Agreement is governed by the laws of the State of Minnesota. Venue for any action under this Agreement to which the Issuer is a party shall lie within the district courts of the State of Minnesota, and the parties hereto consent to the jurisdiction and venue of any such court and hereby waive any argument that venue in such forums is not convenient.

     13. Parties in Interest. This Agreement shall be binding upon and shall inure to the benefit of the Underwriter, the Borrower and the Issuer, and, to the extent expressed, any person controlling the Issuer, the Underwriter, the Borrower and their respective executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. The term “successors and assigns” shall not include any purchaser, as such purchaser, from the Underwriter of the Bonds.

     14. Time. Time shall be of the essence of this Agreement.

     15. Counterparts. This Agreement may be executed in any number of counterparts.

8

     If the foregoing is in accordance with your understanding of the Agreement, kindly sign and return to us the enclosed duplicate copies hereof, whereupon it will become a binding agreement among the Issuer, the Borrower and the Underwriter in accordance with its terms.

Very truly yours,
NORTHLAND SECURITIES, INC.,
By	/s/ CHRIS FLANNERY
	Its Senior Vice President

9

Confirmed and accepted as of the date first above written.
CITY OF CHASKA
By	/s/ GARY F. VAN EYLL
	Mayor
And by	/s/ DAVE POKORNEY
	City Administrator

[Signature Page to Bond Purchase Agreement dated August 19, 2004, between the City of
Chaska, Minnesota, Lifecore Biomedical, Inc. and Northland Securities, Inc.]

10

LIFECORE BIOMEDICAL, INC.
By	/s/ DENNIS J. ALLINGHAM
	Its President and Chief Executive Officer

[Signature Page to Bond Purchase Agreement dated August 19, 2004, between the City of
Chaska, Minnesota, Lifecore Biomedical, Inc. and Northland Securities, Inc.]

11

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     We have issued our report dated July 29, 2004, accompanying the consolidated financial statements and schedule included in the Annual Report of Lifecore Biomedical, Inc. and subsidiaries on Form 10-K for the year ended June 30, 2004. We hereby consent to the incorporation by reference of said report in the Registration Statements of Lifecore Biomedical, Inc. and subsidiaries on Forms S-8 (File No. 33-19288, effective December 23, 1987; File No. 33-26065, effective February 18, 1988; File No. 33-32984, effective January 12, 1990; File No. 33-38914, effective February 8, 1991; File No. 33-38914, effective September 26, 1994 and File No. 333-18515, effective December 20, 1996) and Forms S-3 (File No. 333-60987, effective August 21, 1998, File No. 333-32144, effective March 10, 2000, File No. 333-58506, effective April 23, 2001, File No. 333-65580, effective August 3, 2001 and File No. 333-73796, effective November 20, 2001).

/s/ Grant Thornton LLP

Minneapolis, Minnesota
September 8, 2004

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Dennis J. Allingham, certify that:

I have reviewed this annual report on Form 10-K of Lifecore Biomedical, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (d) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (e) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 13, 2004
	By	/s/ DENNIS J. ALLINGHAM
	Dennis J. Allingham
	President, Chief Executive Officer, Secretary and Director
	(principal executive officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, David M. Noel, certify that:

I have reviewed this annual report on Form 10-K of Lifecore Biomedical, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (d) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (e) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 13, 2004	By	/s/ DAVID M. NOEL
	David M. Noel
	Vice President of Finance and Chief Financial Officer
	(principal financial and accounting officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Lifecore Biomedical, Inc. (the “Company”) on Form 10-K for the year ended June 30, 2004, as filed with the Securities and Exchange Commission (the “Report”), I, Dennis J. Allingham, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

By /s/ DENNIS J. ALLINGHAM

Dennis J. Allingham
President, Chief Executive Officer, Secretary and Director
(principal executive officer)
September 13, 2004

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Lifecore Biomedical, Inc. (the “Company”) on Form 10-K for the year ended June 30, 2004, as filed with the Securities and Exchange Commission (the “Report”), I, David M. Noel, Vice President of Finance and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

By /s/ DAVID M. NOEL

David M. Noel
Vice President of Finance and Chief Financial Officer
(principal financial and accounting officer)
September 13, 2004

EX-99.1

Exhibit 99.1

RISK FACTORS

Lack of sustained Profitability; Possible Need for Future Financing

     The Company recorded net income of $707,000 for the year ended June 30, 2004 and losses of $355,000 and $4,717,000 for the years ended June 30, 2003 and 2002, respectively. Charges for unused manufacturing capacity associated with the Company’s hyaluronan production negatively impacted operating results in fiscal 2004, 2003 and 2002. These charges are a result of ETHICON’s voluntary withdrawal if INTERGEL Solution from the market in 2003 and the unanticipated delay in receiving INTERGEL Solution marketing approval in the U.S. from the FDA in 2002. Marketing and sales expenses for the oral restorative products are expected to continue at a high level, and personnel costs have increased.

     The Company’s ability to generate positive cash flow from operations and achieve profitability is dependent upon the continued expansion of revenue from its hyaluronan and oral restorative businesses. The Company expects its future cash requirements to be covered by cash generated from anticipated operations and from its line of credit facility. No assurance can be given that the Company will maintain positive cash flow before its capital resources are exhausted. If additional financing is necessary, no assurance can be given that such financing will be available and, if available, will be on terms favorable to the Company and its shareholders.

Uncertainty of Re-release of INTERGEL Solution

     INTERGEL Solution was voluntarily withdrawn from the market by ETHICON in March 2003 in order to assess information obtained from postmarketing experience with the product, including allegations of adverse events associated with off-label use in non-conservative surgical procedures (such as hysterectomies). The Company is working with ETHICON to complete the post-marketing evaluation and determine the opportunities for returning the product to market. There can be no assurance that INTERGEL Solution will be returned to the market, thereby negatively affecting revenues and unused manufacturing capacity charges in the future.

Uncertainty of Successful Development of New Hyaluronan Products

     A significant amount of the Company’s anticipated growth is dependent on its ability to develop, manufacture and market new product applications for hyaluronan. Such formulations must be developed, tested and, in most cases, approved for use by appropriate government agencies. Once approved as products, they must be manufactured in commercial quantities and marketed successfully. Each of these steps involves significant amounts of time and expense. There can be no assurance that any of these products, if and when fully developed and tested, will perform in accordance with the Company’s expectations, that necessary regulatory approvals will be obtained in a timely manner, if at all, or that these products can be successfully and profitably produced and marketed.

Reliance on Marketing and Development Support from Corporate Partners for Hyaluronan Division

     The Company has historically developed, manufactured, and marketed its Hyaluronan Division products through long-term strategic alliances with corporate partners. In the case of such relationships, the speed and other aspects of the development project are sometimes outside of the Company’s control, as the other party to the relationship often has priorities that differ from those of the Company. Thus, the timing of commercialization of the Company’s products under development may be subject to unanticipated delays.

     Further, the Company currently has limited direct sales capabilities in the Hyaluronan Division and generally relies upon its corporate partners for marketing and distribution to end-users. The market success of the Company’s hyaluronan products generally will depend upon the size and skill of the marketing organizations of the Company’s corporate partners, as well as the level of priority assigned to the marketing of the Company’s products by these entities, which may differ from the Company’s. Should one or more of the Company’s strategic alliances fail to develop or market products as planned, the Company’s business may be adversely affected. No assurance can be given that the Company will be able to negotiate acceptable strategic alliances in the future or that current strategic alliances will continue.

     The development contracts into which the Company enters with corporate partners are long-term agreements that are subject to development milestones, product specifications, and other terms. Consequently, future agreement often is required regarding the course and nature of continued development activities. Contractual

1

issues requiring resolution between the parties have arisen in the past and are expected to arise in the ordinary course of the Company’s future development activities. There can be no assurance that all such issues will be successfully resolved.

Limited Direct Sales and Marketing Resources for Oral Restorative Division Products

     The Oral Restorative Division markets its products through a direct sales force and a distribution network. Continued growth of the Company’s revenues from oral restorative products will depend on the ability of this sales and distribution network to increase the Company’s market share by convincing practitioners to use the Company’s products over competing established products. No assurance can be given that the sales and distribution network will be successful in increasing or maintaining the Company’s market share or sales levels. Failure to maintain and increase the market share of these products would adversely affect the Company’s results of operations and financial condition.

Exposure to Product Liability Claims and Other Legal Proceedings

     The manufacture and sale of the Company’s products entails a risk of product liability claims. In addition to product liability exposure for its own products, the Company may be subject to claims for products of its customers which incorporate Lifecore’s materials. The Company maintains product liability insurance coverage in amounts it deems adequate. However, there can be no assurance that the Company will have sufficient resources if claims exceed available insurance coverage. In addition, other types of claims may arise that are not covered by such insurance.

     Lifecore is a party in 41 pending lawsuits filed by 37 different plaintiffs, all of which allege that the plaintiffs suffered injuries due to the defective nature of INTERGEL Solution manufactured by Lifecore and marketed by ETHICON. There can be no assurance that other related claims will not arise. ETHICON is currently defending Lifecore in each of these lawsuits. Lifecore also has products liability insurance that it believes will cover these claims. There can be no assurance, however, that these claims, other product liability claims, claims with respect to uninsured liabilities or claims in excess of insured liabilities, will not have a material adverse effect on the business, financial condition and results of operations of the Company. In addition, there can be no assurance that insurance will continue to be available to the Company and that, if available, the insurance will continue to be on commercially acceptable terms.

Competition

     Lifecore is engaged in very competitive segments of the human health care products industry. Competitors of the Hyaluronan and Oral Restorative Divisions in the United States and elsewhere are numerous and include major chemical, dental, medical, and pharmaceutical companies, as well as smaller specialized firms. Many of these competitors have substantially greater capital resources, marketing experience, and research and development resources than the Company. These companies may succeed in developing products that are more effective than any that have been or may be developed by Lifecore and may also prove to be more successful than Lifecore in producing and marketing these products. In addition, the Oral Restorative Division is competing against a number of large established competitors. In order to increase sales, the Division may need to gain market share from its competitors. There can be no assurance that Lifecore will be able to continue to compete successfully against these competitors.

     Several companies produce hyaluronan through a fermentation process, including Genzyme, Inc., Savient, Fidia SpA, IOLTECH, Kyowa Hakko, Kibun and Bayer. In addition, several companies manufacture hyaluronan by using rooster comb extraction methods. These companies primarily include Anika Therapeutics, Inc., Genzyme, Inc., Fidia SpA, Pharmacia and Kibun. The Company’s competitors have filed or obtained patents covering aspects of fermentation production or uses of hyaluronan. These patents may cover the same applications as the Company’s. Although the Company believes that it does not infringe the patents of its competitors, there can be no assurance that the Company will not receive claims of infringement from third parties.

     In addition, negative announcements regarding any competitor’s products may have a negative impact on the public’s perception of the market potential for all similar products, including the Company’s products.

     There can be no assurance that product introductions by present or future competitors or future technological or health care innovations will not render Lifecore’s products and processes obsolete.

2

Protection of Proprietary Technology

     Lifecore’s success depends, to a large extent, on its ability to maintain a competitive technological position in its product areas. While certain of Lifecore’s patents have been allowed or issued, there can be no assurance that, to the extent issued, the Company’s patents will effectively protect its proprietary technology. If other manufacturers were to infringe on its patents, there can be no assurance that the Company would be successful in challenging, or would have adequate resources to challenge, such infringement. Lifecore also relies upon trade secrets, proprietary know-how and continuing technological innovation to develop and maintain its competitive position. There can be no assurance that others will not independently develop such know-how or otherwise obtain access to the Company’s technology. While Lifecore’s employees, temporary staff, consultants and corporate partners with access to proprietary information are required to enter into confidentiality agreements, there can be no assurance that these agreements will provide the Company with adequate protection from loss of proprietary technology or know-how.

     Under current law, patent applications in the United States are maintained in secrecy until patents are issued, and patent applications in foreign countries are maintained in secrecy for a period after filing. The right to a device patent in the United States is attributable to the first to invent the device, not the first to file a patent application. Accordingly, the Company cannot be sure that its products or technologies do not infringe patents that may be granted in the future pursuant to pending patent applications. The Company has not received any notices alleging, and is not aware of, any infringement by the Company of any other entity’s patents relating to the Company’s current or anticipated products. There can be no assurance, however, that its products do not infringe any patents or proprietary rights of third parties. In the event that any relevant claims of third-party patents are upheld as valid and enforceable, the Company could be prevented from selling its products or could be required to obtain licenses from the owners of such patents or be required to redesign its products or processes to avoid infringement. There can be no assurance that such licenses would be available or, if available, would be on terms acceptable to the Company or that the Company would be successful in any attempt to redesign its products or processes to avoid infringement. The Company’s failure to obtain these licenses or to redesign its products or processes would have a material adverse effect on the Company’s business, financial condition, and results of operations.

Lack of Regulatory Approvals; Regulation of Existing Products

     The Company’s products under development are considered to be medical devices and, therefore, they require clearance or approval by the FDA before commercial sales can be made in the United States. The products also require approvals of foreign government agencies before sales may be made in many other countries. The process of obtaining these clearances or approvals varies according to the nature and use of the product. It can involve lengthy and detailed laboratory and clinical testing, sampling activities and other costly and time-consuming procedures. There can be no assurance that any of the required clearances or approvals will be granted on a timely basis, if at all.

     In addition, most of the existing products being sold by the Company and its customers are subject to continued regulation by the FDA, various state agencies and foreign regulatory agencies which regulate manufacturing, labeling and record keeping procedures for such products. Marketing clearances or approvals by these agencies can be withdrawn due to failure to comply with regulatory standards or the occurrence of unforeseen problems following initial clearance or approval. These agencies can also limit or prevent the manufacture or distribution of the Company’s products. A determination that the Company is in violation of such regulations could lead to the imposition of civil penalties, including fines, product recalls or product seizures, injunctions, and, in extreme cases, criminal sanctions.

Possible Limitations on Ability to Manufacture Products

     The Company has designed its modular facility to permit the production of hyaluronan at levels exceeding current levels of production. However, in the event of a sudden increase in demand for any of the Company’s hyaluronan products, the Company will be required to scale-up operations, including the acquisition and validation of additional equipment and training of additional personnel. No assurance can be given that the Company will be able to adequately meet any such demands on a timely basis.

3

Risk of Interruption of Manufacturing

     The Company’s manufacturing requires extensive specialized equipment. In addition, the Company manufactures its hyaluronan products at one facility. Although the Company has contingency plans in effect for certain natural disasters, as well as other unforeseen events that could damage the Company’s facilities or equipment, no assurance can be given that any such events will not materially interrupt the Company’s business. In the event of such an occurrence, the Company has business interruption insurance to cover lost revenues and profits. However, such insurance would not compensate the Company for the loss of opportunity and potential adverse impact on relations with existing customers created by an inability to produce its products.

Dependence on Management

     The Company’s success depends in large part upon the services of its executive officers. The executive officers consist of Dennis J. Allingham, President and Chief Executive Officer, David M. Noel, Vice President of Finance and Chief Financial Officer; Andre P. Decarie, Vice President of Marketing and Sales; and Larry Hiebert, Vice President of Operations. The loss of any one of these individuals may have a material adverse effect on the Company’s business and operations. The Company does not have employment agreements with or life insurance on its officers.

Possible Volatility of Share Price

     Market prices in the United States for securities of medical technology companies can be highly volatile, and the trading price of the Company’s Common Stock could be subject to significant fluctuations in response to quarterly variations in operating results, announcements of the status or results of development projects or technological innovations by the Company or its competitors, government regulation and other events or factors. The volatility in market prices may be unrelated to the operating performance of particular companies. These market fluctuations have in the past materially adversely affected the market price of the Company’s Common Stock, and may have such an effect in the future.

Anti-Takeover Considerations

     The Company’s charter documents, Minnesota law and the Company’s shareholder rights plan include provisions that may discourage or prevent takeover attempts. The Board of Directors of the Company has the authority, without any action by the shareholders, to fix the rights and preferences of any shares of the Company’s Preferred Stock to be issued from time to time. Pursuant to the Company’s Articles of Incorporation, the Board of Directors is divided into three classes of directors, with each director serving a three-year term. Each year only one class of directors is subject to a shareholder vote. A shareholder desiring to control the Board of Directors must participate in two elections of directors to obtain majority representation on the Board of Directors. In addition, as a Minnesota corporation, the Company is subject to certain anti-takeover provisions of the Minnesota Business Corporation Act. The Company also has a shareholder rights plan, commonly referred to as a poison pill, which makes it difficult, if not impossible, for a person to acquire control of the Company without the consent of the Board of Directors. All of these factors could have the effect of delaying, deferring or preventing a change in control of the Company, may discourage bids for the Company’s Common Stock at a premium over the then prevailing market price of the Common Stock, and may adversely affect the market price of, and the voting and other rights of the holders of, Common Stock.

No Dividends

     The Company has never paid or declared a dividend on its capital stock and does not anticipate doing so for the foreseeable future.

4