Document:

exv10w5

Exhibit 10.5

ADVANCED BIOENERGY

Richard Peterson

SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT

          This Second Amended
and Restated Employment Agreement (this “Agreement”) is entered into on
May 11, 2011 by and between Advanced BioEnergy, LLC, a Delaware limited liability company (the
“Company”), and Richard Peterson, a resident of Minnesota (“Employee”).

Background

          A. The Company, which was formed in early 2005, currently owns and operates dry mill
corn-based ethanol plants throughout the Midwest.

          B. Employee’s employment with the Company commenced on November 13, 2006. Employee was
previously employed by the Company as its Vice President of Accounting and Finance, and Chief
Financial Officer, and is currently employed by the Company as its Chief Executive Officer.

          C. The Company and Employee are parties to an Amended and Restated Employment Agreement dated
December 11, 2007 (the “Prior Amended Agreement”), which the parties desire to amend and restate in
its entirely as set forth in this Agreement.

          D. It is desirable and in the best interests of the Company to provide inducement for Employee
(1) to remain in the service of the Company in the event of any proposed or anticipated change in
control of the Company and (2) to remain in the service of the Company in order to facilitate an
orderly transition in the event of a change in control of the Company.

          E. The parties agree that it is in their mutual best interests to modify, amend and clarify
the terms and conditions of the Prior Amended Agreement, as set forth in this Agreement.

          F. In consideration of the foregoing premises and the respective agreements of the Company and
Employee set forth below, the Company and Employee, intending to be legally bound, agree as
follows.

AGREEMENT

	1.	 	Employment. Subject to all terms and conditions hereof, the Company will employ
Employee, and Employee will continue to serve the Company and perform services for the
Company, until Employee’s employment terminates under Section 11.

	2.	 	Position and Duties.

	 	(a)	 	Position with the Company. (“Position”) Employee will continue
to serve as Chief Executive Officer, and will continue to perform such duties
and

 

 

	 	 	 	responsibilities as the Company’s Board of Directors (“Board”) may assign to
Employee from time to time.
	 
	 	(b)	 	Performance of Duties and Responsibilities. Employee will
serve the Company faithfully and to the best of Employee’s ability and will
devote Employee’s full time, attention and efforts to the business of the
Company during Employee’s employment. Employee will report to the Board.
During Employee’s employment hereunder, Employee will not accept other
employment or engage in other material business activity, except as approved in
writing by the Board.
	 
	 	(c)	 	Prior Commitments. Employee hereby represents and warrants
that Employee is under no contractual or legal commitments that would prevent
Employee from fulfilling the duties and responsibilities as set forth in this
Agreement. Employee has previously provided copies to the Company of any
employment agreements, non-competition agreements or other agreements that
Employee previously signed that might arguably restrict Employee’s right to
work for the Company, the services that Employee may provide to the Company, or
the information that Employee may disclose to the Company or use in the course
and scope of his employment with the Company.

	3.	 	Compensation.

	 	(a)	 	Base Salary. The Company will pay to Employee an annual base
salary of $285,000 effective as of October 1, 2010, less deductions and
withholdings, which base salary will be paid in accordance with the Company’s
normal payroll policies and procedures. During each year after the first year
of Employee’s employment hereunder, the Board may review and may adjust
Employee’s base salary in its sole discretion.
	 
	 	(b)	 	Employee Benefits. While Employee is employed by the Company
hereunder, Employee will be entitled to participate in all employee benefit
plans and programs of the Company to the extent that Employee meets the
eligibility requirements for each individual plan or program. These benefit
plans and programs currently include a 401 (k) plan and medical, life and
disability insurance programs. The Company provides no assurance as to the
adoption or continuance of any particular employee benefit plan or program.
	 
	 	(c)	 	Expenses. The Company will reimburse Employee for all
reasonable and necessary out-of-pocket business, travel and entertainment
expenses incurred by Employee in the performance of the duties and
responsibilities hereunder, subject to Employee’s providing receipts and
complying with the Company’s normal policies and procedures for expense
verification and documentation; provided, however, that Employee shall submit

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	 	 	 	verification of expenses within 30 days after the date the expense was
incurred; and the Company shall reimburse Employee for such expenses
eligible for reimbursement within 30 days thereafter. The right to
reimbursement hereunder is not subject to liquidation or exchange for any
other benefit, and the amount of expenses eligible for reimbursement in a
calendar year shall not affect the expenses eligible for reimbursement in
any other calendar year.
	 
	 	(d)	 	Vacation. Employee will receive fifteen business days paid
vacation time off, such time to be taken with the approval of the Board at such
times so as not to disrupt the operations of the Company.
	 
	 	(e)	 	Automobile Allowance. While employed by the Company hereunder,
the Company shall provide employee with a vehicle classified as E-85 and will
reimburse all cost incurred in the use of that automobile for business or
personal purposes, including without limitation the costs of insuring,
maintaining and operating the automobile; provided, however, that Employee
shall submit verification of expenses within 30 days after the date the expense
was incurred, and the Company shall reimburse Employee for such expenses
eligible for reimbursement within 30 days thereafter. The right to
reimbursement hereunder is not subject to liquidation or exchange for any other
benefit, and the amount of expenses eligible for reimbursement in a calendar
year shall not affect the expenses eligible for reimbursement in any other
calendar year. Such automobile plan will be structured within IRS requirements
for personal use of a Company vehicle. In addition to complying with the
Company’s Substance Abuse Policy and Testing Program, Employee shall never
drive the vehicle while impaired by or under the influence of alcohol or
illegal drugs.
	 
	 	(f)	 	Annual Performance Bonus. For each complete fiscal year that
Employee is employed by the Company, Employee shall be eligible for an annual
bonus in an amount up to 37% of Employee’s base salary during such fiscal year.
Employee’s eligibility for any such bonus, and the amount of any such bonus
that is paid, shall be based upon and subject to reasonable criteria
established by the Board or a committee of the Board. Any bonus earned by
Employee for a fiscal year shall be payable to Employee no later than 60 days
following the fiscal year for which the bonus was earned.

	4.	 	Affiliated Entities. As used in this Agreement, “Affiliates” includes the Company
and each corporation, partnership, LLC or other entity that controls the Company, is
controlled by the Company, or is under common control with the Company (in each case “control”
meaning the direct or indirect ownership of 50% or more of all outstanding equity interests).

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	5.	 	Confidential Information. Except as permitted by the Company, Employee will not at
any time divulge, furnish or make accessible to anyone or use in any way other than in the
ordinary course of the business of the Company or its Affiliates, any confidential,
proprietary or secret knowledge or information of the Company or its Affiliates that Employee
has acquired or will acquire about the Company or its Affiliates, whether developed by
Employee or by others, concerning (i) any trade secrets, (ii) any confidential, proprietary or
secret designs, programs, processes, formulae, plans, devices or material (whether or not
patented or patentable) directly or indirectly useful in any aspect of the business of the
Company or of its Affiliates, (iii) any customer or supplier lists, (iv) any confidential,
proprietary or secret development or research work, (v) any strategic or other business,
marketing or sales plans, (vi) any financial data or plans, or (viii) any other confidential
or proprietary information or secret aspects of the business of the Company or of its
Affiliates. Employee acknowledges that the above-described knowledge and information
constitutes a unique and valuable asset of the Company and represents a substantial investment
of time and expense by the Company, and that any disclosure or other use of such knowledge or
information other than for the sole benefit of the Company or its Affiliates would be wrongful
and would cause irreparable harm to the Company. The foregoing obligations of confidentiality
will not apply to any knowledge or information that (i) is now or subsequently becomes
generally publicly known, other than as a direct or indirect result of the breach of this
Agreement, (ii) is independently made available to Employee in good faith by a third party who
has not violated a confidential relationship with the Company or its Affiliates, or (iii) is
required to be disclosed by law or legal process.
	 
	6.	 	Ventures. If, during Employee’s employment with the Company, Employee is engaged in
or provides input into the planning or implementing of any project, program or venture
involving the Company, all rights in such project, program or venture belong to the Company.
Except as approved in writing by the Board, Employee will not be entitled to any interest in
any such project, program or venture or to any commission, finder’s fee or other compensation
in connection therewith. Employee may have no interest, direct or indirect, in any customer or
supplier that conducts business with the Company.
	 
	7.	 	Non-Competition and Non-Solicitation Agreements.

	 	(a)	 	Agreement Not to Compete. During Employee’s employment with
the Company or any Affiliates and for a period of twenty-four (24) consecutive
months from and after the termination of Employee’s employment, whether such
termination is with or without cause, or whether such termination is at the
instance of Employee or the Company, Employee will not, directly or indirectly,
engage in any business, in the area within a 100-mile radius of the Company’s
headquarters or any of the Company’s ethanol plants or prospective ethanol
plants, relating to the design, development, construction or operation of an
ethanol plant. For purposes of this Section, Employee agrees not to engage in
any such activity as a proprietor, principal, agent, partner, officer,
director, stockholder, employee, member of any association, consultant, agent
or otherwise. Ownership by Employee, as a passive investment, of less than

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	 	 	 	1.0% of the outstanding shares of capital stock of any corporation listed on
a national securities exchange or publicly traded in the over-the-counter
market will not constitute a breach of this Section 7(a).
	 
	 	(b)	 	Agreement Not to Solicit or Hire Away Employees. During
Employee’s employment with the Company or any Affiliates and for a period of
twenty-four (24) consecutive months from and after the termination of
Employee’s employment, whether such termination is with or without Cause, or
whether such termination is at the instance of Employee or the Company,
Employee will not, directly or indirectly, hire, engage or solicit any person
who is then an employee of the Company or who was an employee of the Company at
any time during the twelve-month period immediately preceding Employee’s
termination of employment, in any manner or capacity, including without
limitation as a proprietor, principal, agent, partner, officer, director,
stockholder, employee, member of any association, consultant or otherwise.
	 
	 	(c)	 	Agreement Not to Solicit Customers and Other Business
Relations. During Employee’s employment with the Company or any Affiliates
and for a period of twenty-four (24) consecutive months from and after the
termination of Employee’s employment, whether such termination is with or
without Cause, or whether such termination is at the instance of Employee or
the Company, Employee will not, directly or indirectly, solicit, request,
advise or induce any current or potential customer, supplier or other business
contact of the Company to cancel, curtail or otherwise adversely change its
relationship with the Company, in any manner or capacity, including without
limitation as a proprietor, principal, agent, partner, officer, director,
stockholder, employee, member of any association, consultant or otherwise.
	 
	 	(d)	 	Acknowledgment. Employee hereby acknowledges that the
provisions of this Section 7 are reasonable and necessary to protect the
legitimate interests of the Company and that any violation of this Section 7 by
Employee will cause substantial and irreparable harm to the Company to such an
extent that monetary damages alone would be an inadequate remedy therefore.
	 
	 	(e)	 	Blue Pencil Doctrine. If the duration of, the scope of, or any
business activity covered by any provision of this Section 7 is in excess of
what is determined to be valid and enforceable under applicable law, such
provision will be construed to cover only that duration, scope or activity that
is determined to be valid and enforceable. Employee hereby acknowledges that
this Section 7 will be given the construction which renders its provisions
valid and enforceable to the maximum extent, not exceeding its express terms,
possible under applicable law.

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	8.	 	Patents, Copyrights and Related Matters.

	 	(a)	 	Disclosure and Assignment. Employee agrees to immediately
disclose to the Company any and all improvements and inventions that Employee
has conceived or reduced to practice individually or jointly with others since
Employee began his employment with the Company or that Employee may conceive or
reduce to practice individually or jointly with others while Employee is
employed with the Company or any of its Affiliates. Any such improvements and
inventions will be the sole and exclusive property of the Company and Employee
shall immediately assign, transfer and set over to the Company Employee’s
entire right, title and interest in and to any and all of such improvement and
inventions as are specified in this Section 8(a), and in and to any and all
applications for letters patent that may be filed on such inventions, and in
and to any and all letters patent that may issue, or be issued, upon such
applications. In connection therewith and for no additional compensation
therefor, but at no expense to Employee, Employee will sign any and all
instruments deemed necessary by the Company for patent protection of such
inventions. Employee acknowledges that the assignment provisions of this
Section 8(a) are written to be in accordance with and shall be interpreted
consistent with Minnesota Statute Section 181.78, and therefore Employee’s
assignment of inventions under this Section 8(a) does not apply to any
invention for which no equipment, supplies, facility, or trade secret
information of the Company was used and which was developed entirely on the
Employee’s own time, and (1) which does not relate (A) directly to the business
of the Company or (B) to the Company’s actual or demonstrably anticipated
research or development, or (2) which does not result from any work performed
by the Employee for the Company.
	 
	 	(b)	 	Copyrightable Material. All right, title and interest in all
copyrightable material that Employee shall conceives or originates individually
or jointly with others, and that arises in connection with Employee’s services
hereunder or knowledge of confidential and proprietary information of the
Company, will be the property of the Company and are hereby assigned by
Employee to the Company or its Affiliates, along with ownership of any and all
copyrights in the copyrightable material. Where applicable, works of authorship
created by Employee relating to the Company or its Affiliates and arising out
of Employee’s knowledge of confidential and proprietary information of the
Company shall be considered “works made for hire,” as defined in the U.S.
Copyright Act, as amended.

	9.	 	Return of Records and Property. Upon termination of Employee’s employment or at any
time upon the Company’s request, Employee will promptly deliver to the Company any and all
Company and Affiliate records and any and all Company and Affiliate property in Employee’s
possession or under Employee’s control, including without limitation manuals, books, blank
forms, documents, letters, memoranda, notes, notebooks, reports, printouts, computer disks,
computer tapes, source codes, data, tables

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	 	 	or calculations and all copies thereof, documents that in whole or in part contain any trade
secrets or confidential, proprietary or other secret information of the Company or its
Affiliates and all copies thereof, and keys, access cards, access codes, passwords, credit
cards, personal computers, telephones and other electronic equipment belonging to the
Company or its Affiliates.
	 
	10.	 	Remedies. Employee acknowledges that it would be difficult to fully compensate the
Company for monetary damages resulting from any breach by him of the provisions hereof.
Accordingly, in the event of any actual or threatened breach of any such provisions, the
Company will, in addition to any other remedies it may have, be entitled to injunctive and
other equitable relief to enforce such provisions, and such relief may be granted without the
necessity of proving actual monetary damages. In the event that a court of competent
jurisdiction concludes that Employee has violated Employee’s obligations under paragraphs 5,
6, 7, 8 or 9 of this Agreement, Employee shall also be liable to the Company for the
reasonable costs and attorneys’ fees that it incurs in any legal action in which it enforces
its legal rights under those paragraphs.
	 
	11.	 	Termination of Employment. The Employee’s employment with the Company will terminate
immediately upon:

	 	(a)	 	Employee’s receipt of written notice from the Company of the
termination of Employee’s employment, effective as of the date indicated in
such notice;
	 
	 	(b)	 	The Company’s receipt of Employee’s written resignation from the
Company, effective as of the date indicated in such resignation or Employee’s
abandonment of his employment;
	 
	 	(c)	 	Employee’s Disability (as defined below); or
	 
	 	(d)	 	Employee’s death.

	 	 	The date upon which Employee’s termination of employment with the Company occurs is the
“Termination Date.” For purposes of Section 12 of this Agreement only, with respect to
timing of any payments thereunder, the “Termination Date” shall mean the date on which a
“separation from service” has occurred for purposes of section 409A of the Internal Revenue
Code, and the regulations and guidance thereunder (the “Code”).
	 
	 	 	“Disability” means the inability of Employee to perform on a full-time basis the duties and
responsibilities of Employee’s employment with the Company by reason of illness or other
physical or mental impairment or condition, if such inability continues for an uninterrupted
period of 90 days or for more than 90 complete days during any 12-month period.
Notwithstanding any other provision of this Agreement, the termination of Employee’s
employment does not terminate Employee’s other obligations under this Agreement.

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	12.	 	Payments upon Termination of Employment.

	 	(a)	 	Payments Upon Termination Without Cause Or Resignation For Good
Reason. If Employee’s employment with the Company is terminated by the
Company for any reason other than for “Cause” (as defined below), including
without limitation termination of Employee’s employment in connection with a
Change in Control (as defined in Appendix A hereof), or by Employee as a result
of his resignation for “Good Reason” (as defined below) such that Employee’s
Termination Date occurs within twenty-four (24) months after the occurrence of
the condition which is the basis for the termination of the Employee without
Cause, the Good Reason resignation by Employee or the termination of Employee’s
employment in connection with a Change in Control, then, in addition to the
Company paying Employee his base salary through the Termination Date, Employee
shall in such case receive from Company the following severance pay and
benefits.

	 	(1)	 	The Company will pay Employee severance pay in an
aggregate amount equal to fifty two weeks of Employee’s weekly base
salary amount immediately prior to the Termination Date, payable over
one year in equal installments in accordance with the Company’s regular
payroll practices, with the first payment beginning no earlier than the
expiration of all applicable rescission periods provided by law and no
later than forty-five (45) calendar days following the Termination
Date; provided that if the 45 day period begins in one taxable year and
ends in a second taxable year, the Company will begin payment in the
second taxable year.
	 
	 	(2)	 	The Company will pay Employee a pro rata portion (based
on the portion of the fiscal year Employee provided services to the
Company) of any annual performance bonus pursuant to Section 3(e) that
would have been payable to Employee if he had remained employed by the
Company for the fiscal year in which the Termination Date occurs, based
on actual Company performance for such fiscal year. Such payment shall
be made in the same manner and at the same time that annual incentive
bonus payments are made to current executive officers of the Company,
but no earlier than the expiration of all applicable rescission periods
provided by law and no later than the date 2-1/2 months following the
end of the fiscal year.
	 
	 	(3)	 	Provided Employee is eligible for and takes all steps
necessary to continue his and his family’s then-applicable health,
dental, disability and life insurance coverage with the Company
following the Termination Date, the Company will continue to provide
such coverage under the same terms and conditions as then made
available to other Company employees and their families (the

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	 	 	 	employer- and employee-portions being the same as for then-current
Company employees) for up to one year following the Termination
Date. The Company shall be entitled to cease providing any health,
dental, disability, or life insurance benefits prior to one year
after the Termination Date if Employee becomes eligible for group
health, dental, disability or life insurance coverage (as
applicable) from any other employer. Once Employee has become
eligible for comparable group health, dental, disability or life
insurance coverage from any other such employer, Employee shall
promptly and fully disclose this fact to the Company in writing and
shall be liable to repay any amounts to the Company that should have
been so mitigated or reduced but for Employee’s failure or
unwillingness to make such disclosure.

	 	(b)	 	If the Employee is terminated by the Company or its successor without
Cause or the Employee resigns for Good Reason prior to June 18, 2012, then in
addition to the severance pay and benefits payable to Employee pursuant to
Section 12(a)(l), (2) and (3), Employee shall receive severance pay in an
aggregate amount equal to fifty two weeks of Employee’s weekly base salary
amount immediately prior to the Termination Date payable in equal installments
in accordance with the Company’s or its successor’s regular payroll practices,
beginning on the first payroll date following the last severance payment made
pursuant to Section 12(a)(l) above.
	 
	 	(c)	 	If a Change in Control occurs and Employee’s employment is terminated
by the Company without Cause, then in addition to the severance pay and
benefits payable to Employee pursuant to Section 12(a)(1), (2) and (3), and
provided that the Termination Date occurs during a period beginning the earlier
of (1) the date the Company signs a letter of intent regarding the Change in
Control transaction or (2) 120 days prior to the consummation of the Change in
Control, and ending on the day immediately prior to the date of the Change of
Control, Employee shall receive severance pay in an aggregate amount equal to
fifty two weeks of Employee’s weekly base salary amount immediately prior to
the Termination Date payable in equal installments in accordance with the
Company’s regular payroll practices, beginning on the first payroll date
following the last severance payment made pursuant to Section 12(a)(1) above.
	 
	 	(d)	 	If a Change in Control occurs and Employee’s employment with the
Company or its successor is terminated by the Company or its successor without
Cause or by Employee for Good Reason then, in addition to the severance pay and
benefits payable to Employee pursuant to Section 12(a)(l), (2) and (3), and
provided that the Termination Date occurs (1) during the period starting on the
date of consummation of the Change in Control transaction and ending two years
after consummation of the Change in Control transaction in respect of
termination by Company or its

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	 	 	 	successor, or (2) by Employee as a result of Employee’s resignation for Good
Reason during the period beginning 90 days after the closing of the Change
in Control transaction and ending on the date two years after consummation
of the Change in Control transaction, then Employee shall receive severance
pay in an aggregate amount equal to fifty two weeks of Employee’s weekly
base salary amount immediately prior to the Termination Date, payable in
equal installments in accordance with the Company’s regular payroll
practices, beginning on the first payroll date following the last severance
payment made pursuant to Section 12(a)(l) above.
	 
	 	(e)	 	Wages Due. If Employee’s employment with the Company is
terminated by reason of (1) Employee’s abandonment of Employee’s employment or
Employee’s resignation for any reason other than for Good Reason; (2)
termination of Employee’s employment by the Company for Cause; or (3)
Employee’s Disability or death, then the Company will pay to Employee,
Employee’s beneficiary or Employee’s estate, as the case may be, Employee’s
base salary through the Termination Date and shall have no obligation to
provide any severance pay or benefits under this Agreement to Employee.
	 
	 	(f)	 	Limitations on Severance Pay.

	 	(1)	 	The Company will not be obligated to make any payments
or provide any benefits under this Section 12 if Employee’s employment
with the Company is terminated by the Company in connection with a
Change in Control and the Employee rejects an offer of employment in
the Minneapolis, Minnesota metropolitan area from any successor in
interest of the Company in respect of the Change in Control on terms
that are comparable to those provided for by this Agreement.
	 
	 	(2)	 	Notwithstanding anything to the contrary herein
provided, if Employee becomes eligible to receive severance payments
pursuant to Section 12(a)(1) above and also becomes eligible to receive
severance payments pursuant to either Section 12(b), 12(c) or 12(d)
above, then the total amount of severance payable under Section
12(a)(1) combined with severance payable under Section 12(b), 12(c) or
12(d) may not exceed the lesser of two times (A) the limit of
compensation set forth in section 401(a)(17) of the Code as in effect
for the year in which the Termination Date occurs, or (B) Employee’s
annualized compensation based upon the annual rate of pay for services
to the Company for the calendar year prior to the calendar year in
which the Termination Date occurs (adjusted for any increase during
that year that was expected to continue indefinitely if Employee had
not separated from service).

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	 	(3)	 	In the event that any severance payable under Section
12(a)(1) combined with severance payable under Section 12(b), 12(c) or
12(d) is limited by Section 12(f)(2) above, then the Company will also
pay Employee a lump sum payment equal to the difference between the
severance that would otherwise be payable under Section 12(a)(1)
combined with severance payable under Section 12(b), 12(c) or 12(d) and
the amount payable as a result of the limitation imposed under Section
12(f)(2) above. Such payment shall be paid to Employee in a lump sum
on the Company’s first regular payroll date after expiration of all
applicable rescission periods provided by law but in no event no later
than forty-five (45) calendar days following the Termination Date;
provided that if the 45 day period begins in one taxable year and ends
in a second taxable year, the Company will make payment only in the
second taxable year.
	 
	 	(4)	 	Notwithstanding the foregoing provisions of this
Section 12, the obligation of the Company to make any of the
termination payments to Employee under Sections 12(a), 12(b), 12(c),
12(d), 12(f)(2) or 12(f)(3) of this Agreement is contingent upon
Employee’s execution of a full and valid release of claims arising out
of his employment or the termination of that employment in favor of the
Company, its officers, directors, agents, employees, successors,
assigns and affiliates. Execution of such a release and the expiration
of any applicable rescission period, following such execution, is a
condition precedent to the Company’s obligation to make any of the
termination payments set forth in this Agreement.
	 
	 	(5)	 	If the payment of the employee’s portion of premiums
under Section 12(a)(3) would be discriminatory under the Patriot
Protection and Affordable Care Act, then in lieu of such payment, the
Company shall pay, in addition to the amount in Section 12(f)(3) an
after-tax amount equal to the present value of the full amount of
premium payments otherwise due.

	 	(g)	 	If, as of the Termination Date, Employee is a “specified employee”
under Section 409A(a)(2)(B)(i) of the Code, and if any payments that Employee
is entitled to receive hereunder may not be made at the time contemplated by
the terms of this Agreement without causing Employee to be subject to the
additional tax imposed by Section 409A of the Code, then any such payments
under this Agreement that would have been paid during the period six months
after Termination Date shall be held and paid in a lump sum on the first day of
the seventh month following the Termination Date (without interest or
earnings). Such deferral, if any, shall have no effect on any payments
scheduled following the period six months after the Termination Date.

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	 	(h)	 	For purposes of this Agreement, “Cause” shall mean:

	 	(1)	 	an act of dishonesty undertaken by Employee and
intended to result in personal gain or enrichment of Employee or
another at the expense of the Company or its Affiliates;
	 
	 	(2)	 	unlawful conduct or gross misconduct by Employee,
whether on the job or off the job, that, in either event, is publicly
detrimental to the reputation or goodwill of the Company;
	 
	 	(3)	 	the conviction of Employee of a felony, or Employee’s
entry of a no contest or nolo contendre plea to a felony;
	 
	 	(4)	 	persistent failure of Employee to perform Employee’s
material duties and responsibilities hereunder or to meet reasonable
performance objectives set by the Board, as applicable, from time to
time, which failure is willful and deliberate on Employee’s part and
has not been cured by Employee within fifteen (15) days after written
notice thereof to Employee from the Company;
	 
	 	(5)	 	willful and deliberate breach by Employee of his
fiduciary obligations as an officer or director of the Company; or
	 
	 	(6)	 	material breach of any terms or conditions of this
Agreement by Employee which breach has not been cured by Employee
within fifteen (15) days after written notice thereof to Employee from
the Company.

	 	 	 	For the purposes of this Section 12(h), no act or failure to act on
Employee’s part shall be considered “dishonest,” “willful” or “deliberate”
unless done or omitted to be done by Employee in bad faith and without
reasonable belief that Employee’s action or omission was in the best
interests of the Company. Any act, or failure to act, based upon authority
given pursuant to a resolution duly adopted by the Board shall be
conclusively presumed to be done, or omitted to be done, by Employee in good
faith and in the best interests of the Company.

	 	(i)	 	For purposes of this Agreement, “Good Reason” shall mean the occurrence
of any of the following conditions without Employee’s consent, provided that
Employee has first given written notice to the Company of the existence of the
condition within 90 days of the occurrence of such condition which is the basis
for Good Reason termination by Employee, and the Company has failed to remedy
the condition within 30 days thereafter:

	 	(1)	 	a material reduction in the duties, responsibilities,
or authority of Employee, whether such reduction is initiated by
Company or any

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	 	 	 	successor in interest (except in connection with the termination of
Employee’s employment for Cause);
	 
	 	(2)	 	A material reduction in the duties, responsibilities,
or authority of the Board;
	 
	 	(3)	 	any reduction in Employee’s base salary or failure to
pay Employee any base salary or bonus to which he is entitled under
this Agreement;
	 
	 	(4)	 	any material breach by the Company of its obligations
under this Agreement;
	 
	 	(5)	 	requiring Employee to be principally based at any
office or location more than 50 miles from Minneapolis, Minnesota
(other than for normal travel in connection with Employee’s performance
of responsibilities hereunder); or
	 
	 	(6)	 	the failure of the Company to assign this Agreement to
a successor pursuant to Section 13(g), or failure of such successor to
explicitly assume and agree to be bound by this Agreement.

	13.	 	Miscellaneous.

	 	(a)	 	Tax Matters. Employee acknowledges that the Company shall
deduct from any compensation payable to Employee or payable on his behalf under
this Agreement all applicable federal, state, and local income and employment
taxes and other taxes and withholdings required by law. This Agreement is
intended to be exempt from, or to satisfy, the requirements of Code Sections
409A(a)(2), (3) and (4), and regulations interpreting such provisions, and it
should be interpreted accordingly.
	 
	 	(b)	 	Governing Law. All matters relating to the interpretation,
construction, application, validity and enforcement of this Agreement will be
governed by the laws of the State of Minnesota without giving effect to any
choice or conflict of law provision or rule, whether of the State of Minnesota
or any other jurisdiction, that would cause the application of laws of any
jurisdiction other than the State of Minnesota,
	 
	 	(c)	 	Jurisdiction and Venue. Employee and the Company consent to
the jurisdiction of the federal and state courts located in the State of
Minnesota for the purpose of resolving all issues of law, equity, or fact,
arising out of or in connection with this Agreement.
	 
	 	(d)	 	Entire Agreement. This Agreement contains the entire agreement
of the parties relating to Employee’s employment with the Company and
supersedes all prior agreements and understandings with respect to such subject
matter, including without limitation the Prior Amended

13

 

	 	 	 	Agreement, and the parties hereto have made no agreements, representations
or warranties relating to the subject matter of this Agreement that are not
set forth herein.
	 
	 	(e)	 	Amendments. No amendment or modification of this Agreement
will be deemed effective unless made in writing and executed by the Employee
and the Chairman of the Board.
	 
	 	(f)	 	No Waiver. No term or condition of this Agreement will be
deemed to have been waived, except by a statement in writing signed by the
party against whom enforcement of the waiver is sought. Any written waiver will
not be deemed a continuing waiver unless specifically stated, will operate only
as to the specific term or condition waived and will not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
	 
	 	(g)	 	Assignment. This Agreement is not assignable, in whole or in
part, by Employee. The Company’s rights and obligations under this Agreement
may be assigned by the Company (1) to an Affiliate or (2) to any corporation or
other person or business entity to which the Company may sell or transfer all
or substantially all of its interest in the Company or any operating facility
or facilities. After any such assignment by the Company, the Company will be
discharged from all further liability hereunder and such assignee will
thereafter be deemed to be “the Company” for purposes of all terms and
conditions of this Agreement, including this Section 13.
	 
	 	(h)	 	Counterparts. This Agreement may be executed by facsimile
signature and in any number of counterparts, and such counterparts executed and
delivered, each as an original, will constitute but one and the same instrument
	 
	 	(i)	 	Severability. Subject to Section 7(e) hereof, to the extent
that any portion of any provision of this Agreement is held invalid or
unenforceable, it will be considered deleted herefrom and the remainder of such
provision and of this Agreement will be unaffected and will continue in full
force and effect.
	 
	 	(j)	 	Captions and Headings. The captions and paragraph headings used
in this Agreement are for convenience of reference only and will not affect the
construction or interpretation of this Agreement or any of the provisions
hereof.

(remainder of page intentionally left blank)

14

 

SIGNATURES

	 	 	Employee and the Company have executed this Agreement as of the date set forth in the first
paragraph.

	 	 	 

	 

	 	Advanced BioEnergy LLC
	 
	 	 
	Date: May 9, 2011

	 	By: /s/ John Lovegrove
	 

	 	 

	 

	 	Its: Chairman of the Board
	 
	 	 
	 

	 	EMPLOYEE
	 
	 	 
	Date: May 11, 2011

	 	By: /s/ Richard Peterson
	 

	 	 

	 

	 	Richard Peterson

15

 

Appendix A

“Change in Control” for purposes of this Second Amended and Restated Employment Agreement shall
mean the occurrence of any one or more of the following:

     (1) the acquisition, during any 12 consecutive month period that ends subsequent to the date
of this Agreement (“Effective Date”), by any “person” (within the meaning of section 13(d)(3) or
14(d)(2) of the Exchange Act) (an “Acquirer”) of ownership (determined taking into account the
ownership attribution rules of Section 318(a) of the Code) of membership interests of the Company
possessing 30% or more of the total voting power of the then outstanding membership interests of
the Company; provided that for purposes of this paragraph (1):

          (a) any membership interests of the Company owned by the Acquirer prior to the start of the
applicable 12 consecutive month period shall not be counted toward the 30% threshold specified
above; and

          (b) an acquisition shall not constitute a Change in Control pursuant to this paragraph (1)
if: (i) prior to the acquisition, the Acquirer owns membership interests of the Company possessing
more than 50% of the total fair market value or total voting power of the then outstanding
membership interests of the Company; (ii) the acquisition is by the Company or a subsidiary of the
Company; (iii) the acquisition is by an employee benefit plan (or related trust) sponsored or
maintained by the Company or one or more of its subsidiaries; (iv) the acquisition is by the
Employee or any group that includes the Employee; or (v) the acquisition is by a surviving or
acquiring entity in connection with a Business Combination described in clause (4)(a) below;

     (2) the acquisition by an Acquirer of membership interests of the Company that, together with
membership interests already held by such Acquirer, constitutes more than 50% of the total fair
market value or total voting power of the membership interests of the Company, other than an
acquisition by an Acquirer who, prior to the acquisition, owned more than 50% of the total fair
market value or total voting power of the membership interests of the Company;

     (3) the replacement, during any 12 consecutive month period that ends subsequent to the
Effective Date, of a majority of the members of the Board with members whose appointment or
election is not endorsed by a majority of the members of the Board before the date of the
appointment or election;

     (4) the consummation of a merger or consolidation of the Company with or into another entity,
a statutory share exchange or a similar business combination involving the Company (each, a
“Business Combination”) which, subsequent to the Effective Date, has been approved by the unit
holders of the Company, other than (a) a Business Combination where the holders of membership
interests of the Company immediately before the Business Combination own, directly or indirectly,
65% or more of the total voting power of all the outstanding equity securities of the surviving or
acquiring entity resulting from such Business Combination, or (b) a Business Combination where the
Employee or a group that includes the Employee owns, directly or indirectly, 30% or more of the
total value or voting power of all the outstanding

A-1

 

equity interests of the surviving or acquiring entity resulting from such Business Combination; or

     (5) the acquisition, during any 12 consecutive month period that ends subsequent to the
Effective Date, by an Acquirer of assets of the Company with a total gross fair market value
(determined without regard to any liabilities associated with such assets) equal to more than 40%
of the total gross fair market value of all assets of the Company immediately prior to the
acquisition, other than an acquisition (a) by a holder of membership interests in the Company
immediately prior to such acquisition in exchange for its Company membership interests, (b) by an
entity 65% or more of the total voting power of which is owned, directly or indirectly, by the
Company, (c) by a person or group (within the meaning of 26 CFR § 1.409A-3(i)(5)(vii)(C)) that
owns, directly or indirectly, 65% or more of the total voting power of all outstanding membership
interests of the Company, (d) by an entity 65% or more of the total voting power of which is
owned, directly or indirectly, by a person or group described in the immediately preceding clause
(c), or (e) by a corporation or other entity 30% or more of the total value or voting power of
which is owned, directly or indirectly, by the Employee or a group that includes the Employee.

A-2exv10w6

Exhibit 10.6

ADVANCED BIOENERGY, LLC

Award Agreement for Unit Appreciation Right

With Tandem Nonqualified Unit Option

     Advanced BioEnergy, LLC (the “Company”) hereby grants to you, the Grantee named below, a Unit
Appreciation Right (the “UAR”) with a tandem option (the “Option”) to acquire Units (ownership
interests in the Company as defined in the Company’s Third Amended and Restated Operating
Agreement, as it may be amended from time to time (the “LLC Agreement”)). The tandem award of the
UAR and the Option is referred to as the “Award,” and covers the number of Units set forth below.
The terms and conditions of the Award are set forth in this Agreement, consisting of this cover
page and the Award Terms and Conditions on the following pages.

	 	 	 	 	 

	Name of Grantee:

	 	Richard Peterson
	 	 

	 	 	 

	No. of Units Subject to Award:     150,000

	 	Date of Grant:     May 11, 2011

	 	 	 	 	 

	Expiration Date:

	 	May 10, 2021
	 	 

Exercise Price Schedule:

	 	 	 	 	 	 	 	 	 
	 	 	Number of Units in Tranche	 	Exercise Price Per Unit in Tranche
	Tranche A
	 	 	50,000	 	 	$	1.50	 
	Tranche B
	 	 	50,000	 	 	$	3.00	 
	Tranche C
	 	 	50,000	 	 	$	4.50	 

Vesting Schedule

	 	 	 	 	 
	 	 	Number of Units as to Which
	Dates	 	Award Becomes Vested
	May 11, 2012
	 	 	30,000	 
	May 11, 2013
	 	 	30,000	 
	May 11, 2014
	 	 	30,000	 
	May 11, 2015
	 	 	30,000	 
	May 11, 2016
	 	 	30,000	 

Of the 30,000 Units as to which the Award vests on each Scheduled Vesting Date, 10,000 Units come from each Exercise Price Tranche.

     By signing below, you agree to all of the terms and conditions contained in this Agreement.
You acknowledge that you have reviewed this document and that it sets forth the entire agreement
between you and the Company regarding your rights with respect to the Award.

	 	 	 

	GRANTEE:

	 	ADVANCED BIOENERGY, LLC
	 
	 	 
	/s/ Richard Peterson

	 	By:  /s/ John Lovegrove
	 

	 	 

	 

	 	Title: Chairman of the Board

1

 

Advanced BioEnergy, LLC

Award Agreement for Unit Appreciation Right

With Tandem Nonqualified Unit Option ment

Award Terms and Conditions1

	1.	 	Nature of Award. Exercise of the UAR in accordance with this Agreement entitles you
to receive the difference between the Exercise Value (as defined in Section 19(f)) of each
Unit as to which the Award is then being exercised and the applicable Exercise Price of such
Unit as set forth in the Exercise Price Schedule. This difference is referred to in this
Agreement as the “Appreciation Amount.” Exercise of the Option entitles you to purchase the
number of Units as to which the Option is being exercised at the applicable Exercise Price per
Unit specified in the Exercise Price Schedule. This Option is not intended to be an
“incentive stock option” within the meaning of Section 422 of the Internal Revenue Code (the
“Code”). You may exercise some or all of the vested portion of this Award as either a UAR or
Option under the circumstances specified below, but not as both. Exercising any portion of
the Award as a UAR automatically cancels the corresponding Option as to the same number of
Units, and exercising any portion of the Award as an Option automatically cancels the
corresponding UAR as to the same number of Units.
	 
	2.	 	Vesting of Award. This Award will vest as to the number of Units and on the dates
specified in the Vesting Schedule, so long as your employment with the Company and its
Affiliates does not end. The Vesting Schedule is cumulative. If, however, your employment
terminates due to your death or Disability during the term of the Award, the next installment
of the Award that is scheduled to vest after the date of such termination of employment will
immediately vest upon such termination of employment. Accelerated vesting of the Award may
also occur under the circumstances described in Section 12 below. After giving effect to any
accelerated vesting as provided in this Section 2 or in Section 12, the unvested portion of
this Award will be immediately forfeited upon your termination of employment.
	 
	3.	 	Exercisability of Award as a UAR. To the extent the Award has vested and has not yet
expired or been terminated, you may exercise the Award as a UAR only under the following
circumstances and at the following times:

	 	(a)	 	During the 30 day period immediately following a Change in Control (but a
notice of exercise as contemplated by Section 7 may be provided prior to such Change in
Control, to be effective upon such Change in Control);
	 
	 	(b)	 	At any time during the term of the Award when the Units are Publicly Traded; or
	 
	 	(c)	 	If the Units are then Publicly Traded, during the following periods of time
following the termination of your employment with the Company and its Affiliates other
than for Cause:

	 	(1)	 	For one year after termination of your employment due to death
or Disability; or

 

			
	1	 	Each capitalized term used in this Agreement
that is not defined when first used shall have the meaning specified in Section
19 or in the Second Amended and Restated Employment Agreement, as applicable.

2

 

	 	(2)	 	For three months following your termination of employment for
any reason other than death, Disability or Cause.

	4.	 	Exercisability of Award as an Option. To the extent the Award has vested and has not
yet expired or been terminated, and if the Units are not then Publicly Traded, you may
exercise the Award as an Option only during the following periods of time following the
termination of your employment with the Company and its Affiliates other than for Cause:

	 	(a)	 	For one year after termination of your employment due to death or Disability;
or
	 
	 	(b)	 	For three months following your termination of employment for any reason other
than death, Disability or Cause.

	5.	 	Continued Employment Requirement. Except as otherwise provided in Sections 3(c), 4
or 12, this Award may be exercised only while you continue to be employed by the Company or
any of its Affiliates, and only if you have been continuously so employed since the Date of
Grant.
	 
	6.	 	Expiration. This Award will expire and will no longer be exercisable at 5:00 p.m.
Central Time on the earliest of:

	 	(a)	 	The Expiration Date;
	 
	 	(b)	 	Upon your termination of employment with the Company for Cause;
	 
	 	(c)	 	Upon the expiration of any applicable period specified in Section 3(c), 4 or
12(c) during which this Award may be exercised after termination of your employment; or
	 
	 	(d)	 	The date of termination of this Award pursuant to Section 12(b).

	7.	 	Exercise of Award as UAR. The vested portion of this Award may be exercised as a UAR
at the times and under the circumstances set forth in Section 3 by delivering a written notice
of exercise, in the form attached to this Agreement as Attachment 1, to the Company at
its principal executive office (or to the Company’s designated agent for such purpose), and by
providing for payment of any related withholding taxes. The notice shall state the number of
Units as to which the UAR is being exercised, and shall be signed by the person exercising the
UAR. If you are not the person exercising the UAR, the person submitting the notice also must
submit appropriate proof of his/her right to exercise the UAR.
	 
	8.	 	Settlement of UAR Following Exercise. The per Unit Appreciation Amount payable in
connection with an exercise of the UAR under this Agreement is calculated by subtracting the
Exercise Price for each Unit as to which the UAR is being exercised from the Exercise Value of
that Unit as of the applicable exercise date. The aggregate Appreciation Amount payable in
connection with such an exercise (the “Aggregate Appreciation Amount”) is the sum of all the
applicable per Unit Appreciation Amounts. With respect to a UAR exercise pursuant to Section
3(b) or 3(c), payment of the Aggregate Appreciation Amount (net of applicable withholding
taxes) shall be made as soon as reasonably practicable after the Company receives the notice
of exercise as provided in Section 7, and shall be made in cash, Units or some combination of
the two in the Committee’s discretion. With respect to
a UAR exercise pursuant to Section 3(a), payment of the Aggregate Appreciation Amount shall
be made as provided in Section 12(d).
	 
	9.	 	Exercise of Award as Option. The vested portion of this Award may be exercised as an
Option under the circumstance and during the periods specified in Section 4 by delivering a

3

 

	 	 	written notice of exercise, in the form attached to this Agreement as Attachment 2, to
the Company at its principal executive office (or to the Company’s designated agent for such
purpose), and by providing for payment of the exercise price of the Units being acquired and
any related withholding taxes in accordance with Section 11. The notice shall state the
number of Units to be purchased, and shall be signed by the person exercising the Option. If
you are not the person exercising the Option, the person submitting the notice also must
submit appropriate proof of his/her right to exercise the Option. When you submit your notice
of exercise, you must include payment in cash (including personal check, cashier’s check or
money order) of the exercise price of the Units being purchased.
	 
	10.	 	Delivery of Units Upon Exercise of Option. As soon as practicable after the Company
receives the notice and exercise price as provided in Section 9, and has determined that all
conditions to exercise, including Sections 11 and 14 of this Agreement, have been satisfied,
it shall deliver to the person exercising the Option, in the name of such person, the Units
being purchased, as evidenced by issuance of a Unit certificate. The Company shall pay any
original issue or transfer taxes with respect to the issue or transfer of the Units and all
fees and expenses incurred by it in connection therewith.
	 
	11.	 	Withholding Taxes. You may not exercise this Award in whole or in part unless you
make arrangements acceptable to the Company for payment of any federal, state or local
withholding taxes that may be due as a result of the exercise of this Award. The Company
shall have the right, and you hereby authorize the Company, to (i) withhold from any cash
payment under this Award or from any other compensation or other amount owed to you an amount
sufficient to cover any required withholding taxes related to the exercise of this Award, and
(ii) require you or any other person receiving Units as a result of the exercise of this Award
to pay a cash amount sufficient to cover any required withholding taxes before actual receipt
of those Units. You may satisfy some or all of such withholding tax obligations (up to your
minimum required tax withholding rate) by surrendering to the Company Units you already own or
by having the Company retain a portion of the Units being acquired upon exercise of the Award.
Any Units surrendered to or retained by the Company in satisfaction of tax withholding
obligations shall be valued in the same manner as used in computing the withholding taxes
under applicable laws.
	 
	12.	 	Effect of Change in Control. In the event of a Change in Control during the term of
this Award:

	 	(a)	 	If the Company is not the surviving or successor entity, then the surviving or
successor entity (or its parent entity) may assume or replace the Award (with such
adjustments as may be required or permitted by Section 18), subject to Section 12(c)
below. If the Company is the surviving entity, this Award shall continue in accordance
with its terms, subject to Section 12(c). For purposes of this Section 12(a), the
Award shall be considered assumed or replaced if, in connection with the Change in
Control and in a manner consistent with Code Section 409A, either
(i) the contractual obligations represented by this Agreement are expressly assumed
by the surviving or successor entity (or its parent entity) with appropriate
adjustments to the number and type of securities subject to the Award and the
Exercise Price thereof that preserve the intrinsic value of the Award existing at
the time of the Change in Control, or (ii) you have received a comparable
equity-

4

 

	 	 	 	based award that preserves the intrinsic value of the Award existing at the
time of the Change in Control and is subject to terms and conditions, including
those applicable to vesting and exercisability, that are substantially equivalent to
those to which this Award is subject. To the extent the Award was vested prior to
the Change in Control, it shall be exercisable as a UAR as provided in Section 3(a)
notwithstanding the continuation, assumption or replacement of the Award.
	 
	 	(b)	 	If the Company is not the surviving or successor entity, and if this Award is
not assumed or replaced in connection with a Change in Control, then the Award shall
become fully vested and fully exercisable as a UAR for the period of time provided in
Section 3(a), and shall terminate at the end of such period of exercisability.
	 
	 	(c)	 	If the Company is the surviving entity in a Change in Control, or if the Award
is assumed or replaced under the circumstances described in Section 12(a), and if
within two years after the Change in Control you experience an involuntary termination
of employment for reasons other than Cause or you terminate your employment for Good
Reason, then the Award shall immediately become fully vested and fully exercisable in
accordance with its terms and shall remain exercisable for three months following your
termination of employment.
	 
	 	(d)	 	If and to the extent this Award is exercised as a UAR in accordance with
Section 3(a) under the circumstances specified in either Section 12(a) or Section
12(b), payment of the Aggregate Appreciation Amount shall be made to you using the same
form(s) of consideration provided to Unit holders generally in connection with the
Change in Control transaction, provided that (i) the Committee may, to the extent that
the consideration provided to Unit holders generally is other than cash, provide for
the payment of some or all of the corresponding portion of the Aggregate Appreciation
Amount in cash, and (ii) to the extent the consideration provided to Unit holders
generally is other than cash or readily tradable securities, payment shall be made in
cash of a portion of the Aggregate Appreciation Amount equal to your required
withholding taxes in connection with the UAR exercise. Payment of any amount under
this Section 12(d) shall be made on the same schedule and subject to the same terms,
including subjecting such payment to escrow or holdback terms, as are applicable to
payments of the Change in Control consideration to the Company’s Unit holders
generally.
	 
	 	(e)	 	If and to the extent this Award is exercised pursuant to Section 12(c), it
shall be exercisable as a UAR consistent with Section 3(c)(2) if the Units or other
underlying securities are then Publicly Traded, and exercisable as an Option
consistent with Section 4(b) if the Units or other underlying securities are not
then Publicly Traded.

	13.	 	Forfeiture Conditions. If your employment with the Company and its Affiliates is
terminated for Cause, or if you breach any non-competition, non-solicitation or
confidentiality restrictions applicable to you, then (i) any unexercised portion of this Award
shall be forfeited, and (ii) any Units issued upon exercise of the Option or UAR or

5

 

	 	 	other
payments made upon exercise of the UAR within a period of [12] months prior to such
termination or breach or at any time thereafter shall be forfeited and returned to the
Company.

	14.	 	Compliance with Laws. This Award may be exercised only if the issuance of Units upon
such exercise complies with all applicable legal requirements, including compliance with the
provisions of applicable federal and state securities laws.
	 
	15.	 	Transfer of Award. During your lifetime, only you (or your guardian or legal
representative in the event of legal incapacity) may exercise this Award except in the case of
a transfer described below. You may not assign or transfer this Award except (i) for a
transfer upon your death in accordance with your will, by the laws of descent and distribution
or pursuant to a beneficiary designation submitted in accordance with such procedures as the
Committee may specify, or (ii) with the prior written approval of the Company, by gift to a
permitted transferee as specified in Section 9.2(a)(ii) of the LLC Agreement. The Award as
held by any such transferee will continue to be subject to the same terms and conditions that
were applicable to the Award immediately prior to its transfer and may be exercised by such
transferee only as and to the extent that the Award becomes exercisable under this Agreement
and has not terminated in accordance with the provisions of this Agreement.
	 
	16.	 	No Unit Holder Rights Before Exercise. Neither you nor any permitted transferee of
this Award will have any of the rights of a Unit holder of the Company with respect to any
Units subject to this Award until the issuance of the Units has been effected in accordance
with the LLC Agreement and a certificate evidencing such Units have been issued. No
adjustments shall be made for distributions or other rights if the applicable record or
effective date occurs before your Units and the resulting certificate have been issued.
	 
	17.	 	Subject to LLC Agreement. You acknowledge that any Units issued to you pursuant to
this Agreement and Award are subject to the Company’s Articles of Organization, as amended
from time to time, and the Company’s LLC Agreement. You acknowledge and agree that you will
become a party to the Company’s LLC Agreement, as currently in effect, if you are not already
a party to that agreement. Subject to the provisions of the LLC Agreement, you will have all
the rights of a member of the Company with respect to each Unit issued to you hereunder.
	 
	18.	 	Adjustment for Changes in Capitalization. In the event of any reorganization,
merger, consolidation, recapitalization, liquidation, reclassification, unit dividend, unit
split, combination of Units, rights offering, or extraordinary dividend or divestiture
(including a spin-off), or any other change in the structure or Units of the Company,
including any conversion by the Company into to a corporate form, the Committee (or if the
Company does not survive any such transaction, the board of directors or an authorized
committee of
the board of directors of the surviving company) shall, without your consent, make such
adjustments as it determines in its discretion to be appropriate as to the number and kind of
securities subject to this Agreement and to the Award in order to prevent dilution or
enlargement of your rights hereunder. Following any such adjustments, references in this
Agreement to “Units” or “membership interests” shall, to the extent necessary, be deemed to
refer to such other kind of securities.

	19.	 	Definitions. In this Agreement, the following definitions will apply:

6

 

	 	(a)	 	“Affiliate” means each corporation, partnership, LLC or other entity that
controls the Company, is controlled by the Company, or is under common control with the
Company (in each case, “control” meaning the direct or indirect ownership of 50% or
more of all outstanding equity interests).
	 
	 	(b)	 	“Cause” means (i) an act of dishonesty undertaken by you and intended to result
in personal gain or enrichment of you or another at the expense of the Company or its
Affiliates; (ii) unlawful conduct or gross misconduct by you, whether on the job or off
the job, that, in either event, is publicly detrimental to the reputation or goodwill
of the Company; (iii) your conviction of a felony, or your entry of a no contest or
nolo contendre plea to a felony; (iv) your persistent failure to perform the material
duties and responsibilities of your position with the Company or to meet reasonable
performance objectives set by the Board from time to time, which failure is willful and
deliberate on your part and has not been cured by you within fifteen (15) days after
written notice thereof to you from the Company; (v) your willful and deliberate breach
of your fiduciary obligations as an officer or director of the Company; or (vi) your
material breach of any terms or conditions of this Agreement or any other agreement
between you and Company which breach has not been cured by you within fifteen (15) days
after written notice thereof to you from the Company.
	 
	 	 	 	For the purposes of this Section 19(b), no act or failure to act on your part shall
be considered “dishonest,” “willful” or “deliberate” unless done or omitted to be
done by you in bad faith and without reasonable belief that your action or omission
was in the best interests of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board shall be
conclusively presumed to be done, or omitted to be done, by you in good faith and in
the best interests of the Company.
	 
	 	(c)	 	“Change in Control” means a change in control as defined in Appendix A to your
Second Amended and Restated Employment Agreement dated as of May 11, 2011.
	 
	 	(d)	 	“Committee” means the Compensation Committee of the Board of Directors of the
Company, or two or more non-employee directors of the Company designated by the Board
to administer this Agreement.
	 
	 	(e)	 	“Disability” means the your inability to perform on a full-time basis the
duties and responsibilities of your employment with the Company by reason of illness or
other physical or mental impairment or condition, if such inability continues for an
uninterrupted period of 90 days or for more than 90 complete days during any
12-month period.
	 
	 	(f)	 	“Exercise Value” of a Unit means the value of the Unit as of the date of
exercise of the UAR determined as follows:

	 	(1)	 	If the UAR is being exercised pursuant to Section 3(a), the
value of the Unit as of the date of exercise shall be equal to the fair market
value per Unit, as determined by the Committee in good faith, of the
consideration to be received by the Company or its Unit holders, as the case
may be, in the applicable Change in Control transaction.

7

 

	 	(2)	 	If the UAR is being exercised pursuant to Section 3(b) or 3(c),
the value of the Unit as of the date of exercise will be the closing or last
sale price of a Unit on the principal securities market on which the Units
trade on the date of exercise, or if no sale of Units occurred on that date, on
the next preceding date on which a sale of Units occurred, as reported by such
source as the Committee deems reliable.

	 	(g)	 	“Good Reason” means the occurrence of any of the following conditions without
your consent, provided that you have first given written notice to the Company of the
existence of the condition within 90 days of its first occurrence, and the Company has
failed to remedy the condition within 30 days thereafter: (i) a material reduction in
the your duties, responsibilities, or authority (except in connection with the
termination of your employment for Cause); (ii) a material reduction in the duties,
responsibilities, or authority of the person to whom you report; (iii) any reduction in
your base salary or failure to pay you any base pay or bonus to which you are entitled;
(iv) any material breach by the Company of its obligations under this Agreement or any
other agreement with you; (v) requiring you to be principally based at any office or
location more than 50 miles from Minneapolis, Minnesota (other than for normal travel
in connection with your performance of the duties and responsibilities of your position
with the Company); or (vi) the failure of the Company to assign this Agreement to a
successor pursuant to Section 20(e), or failure of such successor to explicitly assume
and agree to be bound by this Agreement.
	 
	 	(h)	 	“Publicly Traded” means at any time with respect to Units or other securities
that the Units or other securities are then readily tradable on an established
securities market for purposes of Treasury Regulation §1.409A-1(b)(5)(iv)(A).

	20.	 	Miscellaneous.

	 	(a)	 	Governing Law. This Agreement will be interpreted and enforced under
the laws of the state of Minnesota (without regard to its conflicts or choice of law
principles).
	 
	 	(b)	 	Jurisdiction and Venue. The parties consent to jurisdiction of the
courts of the State of Minnesota and/or the federal district courts, District of
Minnesota, for the purpose of resolving all issues of law, equity, or fact, arising out
of or in connection with this Agreement.
	 
	 	(c)	 	Entire Agreement. This Agreement contains the entire agreement of the
parties relating to the Award and supersedes all prior agreements and understandings
with respect to such subject matter, and the parties hereto have made no agreements,
representations or warranties relating to the subject matter of this Agreement that are
not set forth herein.
	 
	 	(d)	 	Amendments. The Committee may unilaterally amend the terms of this
Agreement, except that no such amendment may materially impair the your rights with
respect to the Award without your prior written consent, unless such amendment is
necessary to comply with applicable law.

8

 

	 	(e)	 	Successors and Assigns. This Agreement will be binding in all respects
on your heirs, representatives, successors and assigns , and on the successors and
assigns of the Company.
	 
	 	(f)	 	Counterparts. This Agreement may be executed by facsimile signature
and in any number of counterparts, and such counterparts executed and delivered, each
as an original, will constitute but one and the same instrument.
	 
	 	(g)	 	Severability. To the extent that any portion of any provision of this
Agreement is held invalid or unenforceable, it will be considered deleted herefrom and
the remainder of such provision and of this Agreement will be unaffected and will
continue in full force and effect.
	 
	 	(h)	 	Notices. Every notice or other communication relating to this
Agreement shall be in writing and shall be mailed to or delivered to the party for whom
it is intended at such address as may from time to time be designated by it in a notice
mailed or delivered to the other party as herein provided. Unless and until some other
address is so designated, all notices or communications by you to the Company shall be
mailed or delivered to the Company at its office at 10201 Wayzata Boulevard, Suite 250,
Minneapolis, Minnesota, 55305, and all notices or communications by the Company to you
may be given to you personally or may be mailed to you at the address indicated in the
Company’s records as your most recent mailing address.
	 
	 	(i)	 	Captions and Headings. The captions and paragraph headings used in
this Agreement are for convenience of reference only and will not affect the
construction or interpretation of this Agreement or any of the provisions hereof.

By signing the cover page of this Agreement, you agree to all the terms and conditions described
above and in the Plan document.

9

 

Attachment 1

NOTICE OF EXERCISE

Unit Appreciation Right

Subject to the terms and conditions of the Award Agreement for Unit Appreciation Rights dated May
11, 2011, I hereby elect to exercise the following Unit Appreciation Rights (“UAR”) and shall be
entitled to receive the total Aggregate Appreciation Amount set forth below:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Employee to Complete	 	Company to Complete
	 	 	 	 	 	 	No. of	 	Exercise	 	 	 	 	 	Aggregate
	 	 	Exercise Price 	 	UAR	 	Value Per	 	Appreciation	 	Appreciation
	 	 	Per Unit	 	Exercised	 	Unit	 	Amount Per Unit	 	Amount
	Tranche A
	 	$	1.50	 	 	 	 	 	 	$	 	 	 	$	 	 	 	$	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Tranche B
	 	$	3.00	 	 	 	 	 	 	$	 	 	 	$	 	 	 	$	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Tranche C
	 	$	4.50	 	 	 	 	 	 	$	 	 	 	$	 	 	 	$	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Total Aggregate Appreciation Amount	 	$	 	 

If the Company is required to withhold any taxes in connection with the exercise of the option, I
understand it is a condition to the exercise that I pay the applicable tax or make provisions that
are reasonably satisfactory to the Company for the payment thereof. I hereby direct the Company to
withhold any taxes required to be withheld as a result of the exercise of the Unit Appreciation
Right from the Total Aggregate Appreciation Amount due me.

     IN WITNESS WHEREOF, Richard Peterson executed this Notice of Exercise as of the date set forth
below.

	 	 	 

	 

Richard Peterson

	 	 
	 
	 	 
	 

Date

	 	 

10

 

Attachment 2

NOTICE OF EXERCISE

Unit Option

Subject to the terms and conditions of the Award Agreement for Unit Appreciation Rights with Tandem
Nonqualified Unit Option dated May 11, 2011, I hereby elect to exercise the following option to
purchase Units of the Company:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Exercise Price Per	 	Number of Units	 	Aggregate Exercise
	 	 	Unit	 	Exercised	 	Price
	Tranche A
	 	$	1.50	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Tranche B
	 	$	3.00	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Tranche C
	 	$	4.50	 	 	 	 	 	 	 	 	 
	 
	 
	 	Totals	 	 	 	 	 	 	 	 

I enclose payment of the Aggregate Exercise Price for the Units shown above in the amount of
$                    . I am
enclosing payment in the form of:                                         .

In purchasing the Units, I certify that:

     a. I am purchasing the Units for my own account and not for or on behalf of any other person.

     b. I am purchasing the Units for investment purposes and do not presently intend to resell or
distribute the Units. I understand that I must bear the economic risk of investing in the Units
for an indefinite period of time, even if my circumstances should change.

     c. I understand that there is currently no market for the Units and that the Units have not
been registered under federal or state securities laws and may not be issued, sold or otherwise
transferred unless they are registered or an exemption from registration is available.

     d. I understand that the Company is relying on the truth and accuracy of these statements in
issuing and selling the Units to me.

     e. I have consulted with my tax advisor as to the consequences of exercise of the option on
my taxable income.

     f. If the Company is required to withhold any taxes in connection with the exercise of the
option, I understand it is a condition to the exercise that I pay the applicable tax or make
provisions that are reasonably satisfactory to the Company for the payment thereof.

11

 

Tax Withholding

	 	o	 	I hereby direct the Company to pay any required withholding on my behalf and to
withhold from the number of Units to be delivered to me pursuant to my exercise of the
option, the number of whole Units the fair market value of which is equal to my minimum
withholding obligation, and I will pay the difference in cash.
	 
	 	o	 	I hereby deliver to the Company $                     to satisfy my minimum tax withholding
obligation. I am enclosing payment in the form of               
                                  .

IN WITNESS WHEREOF, Richard Peterson executed this Notice of Exercise as of the date set forth
below.

	 	 	 

	 

Richard Peterson

	 	 
	 
	 	 
	 

Date

	 	 

12

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