**Exhibit 10.9**

 

**EMPLOYMENT AGREEMENT**

 

**THIS AGREEMENT**,dated this 17th day of October, 2005, between Dakota Ethanol, L.L.C., a SouthDakota limited liability company, hereinafter called “Employer” and Scott A.Mundt, of Brookings, South Dakota, hereinafter called “Employee.”

 

W I T N E S S E T H:

 

1.                                     Definitions.

 

(a)                                  “**Adjusted Earnings**” means Employer’s earnings calculatedbefore deductions for interest expense, income taxes, depreciation andamortization, and without including any governmental incentive income asdetermined by Employer using Generally Accepted Accounting Principles appliedon a consistent basis.

 

(b)                                 “**Applicable Guidance**” means Treasury Regulations issuedpursuant to Code §409A, or other written Treasury or IRS guidance regardingCode §409A, which is in addition to Notice 2005-1.

 

(c)                                  “**Board**” means the Board of Managing Members of the Employer.

 

(d)                                 “**Book Value**” means the book value of the Employer asdisclosed by the Employer’s books of account regularly maintained in accordancewith generally accepted accounting principles applied on a consistent basis.

 

(e)                                  “**Change in Control**” of the Employer means a change: (i) inthe ownership of the Employer; (ii) in the effective control of theEmployer; or (iii) in the ownership of a substantial portion of the assetsof the Employer, within the meaning of Notice 2005-1, Q/As 11-14 or inApplicable Guidance.

 

(f)                                    “**Code**” means the Internal Revenue Code of 1986, as amended.

 

(g)                                 “**Net Income**” means Operational Revenues minus OperationalCosts as determined by using generally accepted accounting principles appliedon a consistent basis before income taxes.

 

(h)                                 “**Operational Costs**” means all normal and reasonable costs andexpenses directly and indirectly associated with the daily operation of theEmployer.  These expenses may include,without limitation, administrative and general overhead expenses, utilities,production inputs, supplies, transportation, general supplies, raw materialacquisitions, insurance premiums, marketing expenses, repair expenses, maintenanceexpenses, engineering expenses, data processing expenses, legal, accounting andaudit fees, billing expenses, expenses of preparing tax returns and reports,taxes, travel, telephone, salaries of employees (including social security andMedicare, relief, pensions, and other benefits) interest, and other incidentalbusiness expenses incurred in connection with Employer’s business.

 

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(i)                                     “**Operational Revenues**” means all revenues from Employer’soperations, including, but not limited to, sales of ethanol, byproducts andancillary operations.

 

(j)                                     “**Separation from Service**” means an Employee’s termination ofemployment  with the Employer or asotherwise defined in Applicable Guidance.

 

2.                                       Employment.  The Employer hereby employs the Employee, andthe Employee hereby accepts employment upon the terms and conditionshereinafter set forth.

 

3.                                     Dutiesof Employee.  Employee shall serve asthe Transition Coordinator of Employer.  Subject to the direction of the Board, Employee shall have fullauthority to operate on a day-to-day basis, and manage the business and affairsof Employer and shall perform such other executive, managerial andadministrative duties as are from time to time assigned to him by the Board andwhich are normally associated with the position of Transition Coordinator.  Employee agrees as follows:

 

(a)                                  Employeeshall devote his working time, knowledge and skill solely and exclusively tothe business of Employer.  Employee shallnot be engaged in any other trade, business or enterprise except as an investorfor himself or any other person, business or company while employed byEmployer.

 

(b)                                 Employeeshall at all times represent the interests of Employer to the utmost ofEmployee’s capacity and ability and Employee shall serve Employer loyally andfaithfully.

 

(c)                                  TheEmployee’s hours of work shall be as dictated by the requirements of the dutiesfor which Employee is responsible.

 

(d)                                 Employeeagrees to observe and comply with all applicable rules and regulationsestablished by the Employer.

 

4.                                       Compensation.  As compensation for his services, theEmployer shall pay to the Employee as follows:

 

(a)                                  BaseCompensation.  An annual base salaryof Ninety Thousand Dollars (90,000.00), payable in equal bi-monthlyinstallments during the term of his employment. The Board will review the basesalary annually.

 

(b)                                 VariableIncentive Compensation.  In additionto the Base Compensation, as an incentive to Employee to achieve highprofitability, to promote collection of those revenues billed and to encouragequality and efficiency of operation, the Employer shall pay to the EmployeeVariable Incentive Compensation equal to three-tenths of one percent (0.3%) ofthe monthly Adjusted Earnings in each month of the fiscal

 

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year. Adjusted Earnings are based on the most recent monthly financialstatements produced by the Employer and provided to the Board.  The Employer will pay the Variable IncentiveCompensation to Employee the first regularly scheduled payroll following Boardapproval of the previous month’s financial statements.  Should the Variable Incentive Compensationfor the month result in a negative amount, such amount will be deducted fromany future Variable Incentive Compensation. For the last month of the fiscal year, this Variable IncentiveCompensation payment will not be paid until following completion of theEmployer’s annual audit, and within ninety (90) days of the end of the fiscalyear, .  This final payment, when addedto the previous Variable Incentive Compensation payments, will adjust theannual Variable Incentive Compensation to equal three-tenths of one percent(0.3%) of Employer’s audited annual Adjusted Earnings for the fiscal year.  During any fiscal year Employee only works apart of the fiscal year, the final payment will adjust the Variable IncentiveCompensation to reflect that the Variable Incentive Compensation payments equalthree-tenths of one percent (0.3%) of the Employer’s audited Adjusted Earningsfor only that portion of the year in which Employee was employed by Employer.

 

5.                                       EmployeeBenefits.  This Agreement is notintended to and shall not be deemed to be in lieu of any rights, benefits andprivileges to which Employee may be entitled as an employee of Employer under anyplan of employee benefits or any other arrangement providing employee benefitsto Employer’s employees, including, but not limited to, vacation, medical andhealth insurance, life insurance, and any qualified retirement plan which maynow be in effect or hereafter adopted by Employer as amended from time to timein the Employer’s sole discretion. To the extent the following benefits areoffered to all of Employer’s employees, Employer shall provide the followingenhanced benefits to Employee:

 

1.   Medical Insurance.Employer agrees to pay the full premium for family coverage for any medicalinsurance plan Employer offers to all of its employees.  To the extent Employer offers more than oneoption to employees for medical insurance, Employer agrees to pay the fullpremium for family coverage for the option chosen by Employee.

 

2.  Dental Insurance.Employer agrees to pay the full premium for family coverage for dentalinsurance.

 

3.  Short Term Disability.Employer agrees to pay the full premium for Short Term Disability insurance.

 

4.  Paid Time Off.  Employee will receive 20 days of PTO duringthe first year, 25 days during the second year, and 30 days per yearthereafter. Employee will provide advance notice to the Board for vacation timeexceeding 5 consecutive business days.

 

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6.                                       Expenses.  Employer will reimburse Employee for allreasonable business related expenses upon the presentment by Employee, fromtime to time, of an itemized account of such expenditures and receiptstherefor.

 

7.                                       Changein Control.  Upon a Change inControl, Employer shall pay Employee the following, payable in cash in a lumpsum on the first day of the month following the Change in Control:

 

(a)                                  Ifthe total financial consideration paid for Employer constituting the Change ofControl equals or exceeds one and one half the Book Value of the Employercalculated as of the last day of the month preceding the final eventconstituting the Change of Control, Employer shall pay Employee a lump sumpayment equal to three (3) times Employee’s annual Base Compensation ineffect on the date of the Change of Control; or

 

(b)                                 Ifthe total financial consideration paid for Employer constituting the Change ofControl is less than one and one-half times the Book Value of the Employercalculated as of the last day of the month preceding the final eventconstituting the Change of Control, Employer will pay Employee an amount equalto his annual Base Compensation in effect on the date of the Change of Control.

 

8.                                       Withholding.The Employer will withhold from any payment to Employee made pursuant to thisAgreement and from any amount taxable under Code §409A, all applicable taxes,and any and all other amounts required to be withheld under federal, state orlocal law, including Notice 2005-1 and Applicable Guidance, and any voluntaryreductions elected by Employee.

 

9.                                       ExcessParachute Payment.  Notwithstandingany provision of this Agreement to the contrary, Employer shall not pay anybenefit to the extent the benefit would be a nondeductible parachute paymentunder Section 280G of the Internal Revenue Code.

 

10.                                 TerminationWith or Without Cause.  Employee isan Employee at will.  It is understoodand agreed that either Employee or Employer may terminate this Agreement at anytime with or without cause and without formal notice.  If terminated, with cause (cause defined astheft, embezzlement, sexual harassment, conviction of a felony or misdemeanorinvolving moral turpitude),Employee shall not be entitled to any advancenotice, severance pay or any other compensation other than compensation earnedto date of the termination.  Ifterminated without cause following completion of a six month probationaryperiod, the employee will receive a severance payment in the amount of 3 monthsbase compensation

 

11.                                 TradeSecrets.  Employee acknowledges thatin the course of employment, Employee will acquire confidential information ofa special and unique nature and value relating to Employer’s business andrelating to any subsidiaries and affiliates of Employer.  Such information shall be considered a tradesecret owned by the Employer, which information shall include, but is notlimited to, specifications, samples, tools, technical information, data, marketinformation, customers, relationship with experts, consultants and governmentalagencies, information concerning

 

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Employer’s systems, policies, methods of operation, procedures,manuals, financial reports, and pricing and all other non-public informationacquired by Employee as a result of or during the course of employment.  Employer shall retain ownership of all rightsto all materials, except materials which are readily available to anyone in theethanol industry.  Reuse of the materialsor concepts is prohibited without the prior written consent of Employer.  Employee agrees that all such informationacquired during the course of employment, whether such information iscommunicated in written or verbal form, and whether such information is inrecorded or unrecorded form and whether it is maintained solely at Employer’soffices or also maintained elsewhere or combined or maintained by Employeesolely or in combination with other information, constitute trade secrets ofEmployer.

 

Employee shall not at any time or in any manner, either directly orindirectly, divulge or disclose Employer’s trade secrets to any other person orentity, and Employee shall not use such trade secrets in competition withEmployer or for the gain or benefit of Employee or any other person orcompany.  The obligations of Employeeunder this paragraph 11 shall survive the termination of this Agreement.

 

Following termination of employment, Employee shall not remove orretain any document, copy of document, client or prospect files, or any otherrecording, in any type or form, relating to said trade secrets.  Employee shall not utilize or divulge saidtrade secrets to any other person or company, regardless of whether suchknowledge or information is in recorded form or otherwise.

 

12.                                 AgreementNot to Compete.  In consideration ofthe Employer’s hiring and continued employment of Employee, and Employer makingEmployer’s trade secrets available to Employee, the sufficiency of whichconsideration is conclusively acknowledged, Employee agrees not to engagedirectly or indirectly, either personally or as an employee, associate,partner, or otherwise, or by means of any corporation or other legal entity, orotherwise, in any business in competition with Employer or its subsidiaries,divisions, or affiliates, during the course of employment and for a period ofsix months from the date of the termination of employment, within South Dakota,Minnesota, Nebraska, Iowa, or any other state in which Employer operates anethanol plant so long as Employer (or related entity) continues to carry on alike business in the described territory (the “Restricted Territory”).

 

The parties have attempted to limit Employee’s rights to compete onlyto the extent necessary to protect Employer from unfair competition.  The parties recognize, however, thatreasonable people may differ in making such a determination.  Employee acknowledges that he will be able toearn a livelihood without violating the foregoing restrictions and that hisability to earn a livelihood without violating such restrictions is a materialcondition to his execution of this Agreement with Employer.

 

Employee agrees that if Employee obtains or commences employment(whether full-time or part-time) with any other employer during the six-monthperiod referred to in this section, Employee shall provide such new employerwith a copy of this Agreement, and Employee agrees that Employer may providecopies of this Agreement to such new employer. Employee agrees that Employer shall have the right to inform such newemployer of Employee’s obligations hereunder.

 

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For purposes of this section, the Employer shall include, in additionto the Employer specifically identified herein, any successor to Employer andany purchaser of Employer’s business.

 

13.                                 Remediesfor Breach of Trade Secrets and Non-Competition Agreement.  Employee expressly agrees that Employee’sviolation of this Agreement relating to trade secrets and/or non-competitionshall entitle Employer to injunctive relief. Employer shall be entitled to any and all further or other rights andremedies available at law or in equity. If a legal action is instituted to enforce the provisions of thisAgreement, or any part of it, the prevailing party shall be entitled torecovery of reasonable attorneys’ fees and costs, including discovery costs, asdetermined by the Court.

 

14.                               Assignment.  This Agreement is a personal servicescontract and neither party may assign his or its duties or obligationshereunder without first obtaining the written consent of the other partieshereto.

 

15.                               Notices.  Any notice required or permitted to be givenunder this Agreement shall be sufficient if in writing and if sent by certifiedmail to the Employee’s residence in the case of the Employee or to the Employer’sprincipal office in the case of the Employer.

 

16.                               Waiverof Breach.  The waiver by theEmployer of a breach of any provisions of this Agreement by the Employee shallnot operate or be construed as a waiver of any subsequent breach by Employee.

 

17.                                 Counterparts.  This Agreement may be executed in multiplecounterparts all of which shall constitute but one Agreement.

 

18.                               EntireAgreement.  This instrument containsthe entire agreement of the parties.  Itmay not be changed orally but only by an agreement in writing signed by theparty against whom the enforcement of any waiver, change, modification,extension or discharge is sought.

 

19.                               BindingEffect.  This Agreement shall bebinding upon and inure to the benefit of the parties, their heirs, legalrepresentatives, successors and assigns.

 

20.                               GoverningLaw.  This Agreement shall beconstrued in accordance with and governed by the laws of the State of SouthDakota.

 

21.                               Severability.  The parties agree that if any part, term,paragraph or provision of this Agreement is in any manner held to be invalid,illegal, void or in any manner unenforceable, or to be in conflict with any lawof the State of South Dakota, then the validity of the remaining portions orprovisions of this Agreement shall not be affected, and such part, term,paragraph or provision shall be construed and enforced in an manner designed toeffectuate the intent expressed in this Agreement to the maximum extentpermitted by law.

 

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IN WITNESS WHEREOF, this Employment Agreement has been signed on thedate  and year first above written.

 
|     | EMPLOYER:              |
|----------|------------------------|
|     |                   |
|     | DAKOTA ETHANOL, L.L.C. |
|     |                   |
|     |                   |
| * * | By                     | */s/ Brian  Woldt* | * * |
| * * |   Its        | *Chairman* | * * |
| * * |                   |
|     |                   |
|     | EMPLOYEE:              |
|     |                   |
|     |                   |
| * * | */s/ Scott  A. Mundt*  | * * |
|     | Scott A.  Mundt        |
|          |                        |  |  |  |

 

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