Document:

Exhibit 10.1

 

Non-qualified Stock Option Agreement

 

This NON-QUALIFIED STOCK OPTION AGREEMENT
(this "Agreement") is made as of the 3rd day of July, 2012, by Nephros, Inc, a Delaware corporation (the "Corporation"),
and John C. Houghton ("Optionee").

 

WITNESSETH:

 

Pursuant to that certain Employment Agreement
dated as of April 20, 2012 (the “Employment Agreement”) between the Corporation and the Optionee, the Board has determined
to grant a non-qualified stock option to the Optionee on the following terms and conditions:

 

SECTION I

DEFINED TERMS

 

Capitalized terms used
herein shall have the meanings set forth herein. The following term shall have the meanings set forth below:

 

"Fair Market Value" of a share
on a specified date means the average of the bid and asked closing prices at which one share is traded on the over-the-counter
market on that date, as reported on the National Association of Securities Dealers Automated Quotation system ("NASDAQ"),
or the closing price at which a share is listed on a national securities exchange on which shares are primarily traded; but if
no shares were traded on such date, then on the last previous date on which a share was so traded, or, if none of the above is
applicable, the value of a share as established by the Board of Directors (the “Board”) for such date using any reasonable
method of valuation. In all event, Fair Market Value shall be no less than fair market value as determined under Treasury Regulation
Section 1.409A-1(b)(5)(i)(A)(1), or a successor provision.

 

SECTION II

OPTION GRANT, OPTION PRICE AND TIME OF EXERCISE

 

Effective as of July 3, 2012 (the "Grant
Date"), the Board grants to Optionee, subject to the terms and provisions set forth hereinafter, the right and option to purchase
all or any part of the number of shares set forth in Exhibit A of the presently authorized but unissued common stock ("Common
Stock") of the Corporation at the purchase price per share set forth as the Option Price in Exhibit A (the option hereby
granted being hereinafter referred to as the "Option"). The Optionee shall not be required to pay any fee or amount to
the Corporation for the grant of the Option to the Optionee. The Option shall not constitute an "incentive stock option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").

 

Each of the Optionee and the Corporation
hereby acknowledge and agree that the grant of the Option in this Agreement shall satisfy in full the Corporation’s obligation
to deliver stock options to the Optionee under Section 3.3 of the Employment Agreement.

 

The Option shall become exercisable in
accordance with the Exercise Schedule set forth on Exhibit A and shall remain exercisable until the date specified on Exhibit
A (the "Expiration Date"), subject to any acceleration or other change in the exercisability or expiration of the
Option set forth in this Agreement apart from Exhibit A.

 

    	 

    	 

    
 

Upon the occurrence of a Change in Control,
the Option shall become fully exercisable.

 

In no event can the Option be exercised
after the Expiration Date. If Optionee does not purchase the full number of shares to which he is entitled in any one year, he
may purchase such shares in any succeeding year specified in the Exercise Schedule hereto, in addition to the shares which he is
otherwise entitled to purchase in the succeeding years.

 

SECTION III

EXERCISE PROCEDURE, WITHHOLDING

 

Optionee shall exercise the Option by notifying
the Corporation of the number of shares that he desires to purchase and by delivering with such notice the full payment of the
purchase price for the shares being purchased and all required tax withholding amounts. Such purchase price and tax withholding
shall be payable (i) in cash or by certified or official bank check (or the equivalent thereof acceptable to the Corporation or
its exchange agent); (ii) with the consent of the Board, by delivery of shares of Common Stock owned by the Optionee (whether acquired
by option exercise or otherwise) having a Fair Market Value (determined as of the exercise date) equal to all or part of the option
exercise price and/or all or part of the tax withholding amounts; (iii) with the consent of the Board and to the extent permitted
by law and consistent with procedures adopted by the Board, by means of a brokered cashless exercise; (iv) at the discretion of
the Board and to the extent permitted by law, by such other provision, as the Board may from time to time prescribe; or (v) a combination
of the foregoing methods. Any Common Stock delivered in satisfaction of all or a portion of the purchase price shall be appropriately
endorsed for transfer and assignment to the Corporation.

 

The Corporation will, as soon as is reasonably
practicable following the Optionee’s notification to the Corporation that he intends to exercise the Option, notify the Optionee
of the amount of withholding tax, if any, that must be paid under federal, state and local law in order to exercise the Option.
The payment by the Optionee of all required tax withholding amounts is a condition of exercising the Option.

 

SECTION IV

TERMINATION OF EMPLOYMENT/SERVICE

 

		(a)	Section 4.2 of the Employment Agreement shall apply in the event that Optionee’s employment
with the Corporation is terminated for “Cause” (as defined in the Employment Agreement).

 

		(b)	Section 4.3 of the Employment Agreement shall apply in the event that Optionee’s employment
with the Corporation is terminated by reason of death, retirement, or resignation.

 

		(c)	Section 4.4 of the Employment Agreement shall apply in the event that Optionee’s employment
with the Corporation is terminated due to “Disability” (as defined in the Employment Agreement) of the Optionee.

 

    	 

    	 

    
 

		(d)	Section 4.5 of the Employment Agreement shall apply in the event that Optionee’s employment
with the Corporation is terminated for any other reason, including a “Change in Control” (as defined in the Employment
Agreement), or by the Optionee for “Good Reason” (as defined in the Employment Agreement).

  

SECTION V

NON-ASSIGNABILITY

 

The Option shall not be transferable or
assignable by the Optionee, otherwise than by will or the laws of descent and distribution and the Option shall be exercisable,
during the Optionee's lifetime, only by him or, during periods of legal disability, by his legal representative. The Option shall
not be subject to execution, attachment, or similar process.

 

SECTION VI

TERM OF OPTION

 

The Option shall expire at the close of
business on the Expiration Date. In no event may the Option be exercisable to any extent by anyone after the Expiration Date.

 

SECTION VII

NO RIGHT OF EMPLOYMENT

 

It is expressly agreed, anything contained
herein to the contrary notwithstanding, that this Agreement shall not constitute, or be evidence of, any agreement or understanding,
express or implied, that the Corporation, a Subsidiary or any other affiliated entity will employ Optionee for any period of time
or in any position or for any particular compensation.

 

SECTION VIII

RIGHTS OF OPTIONEE IN STOCK

 

The Optionee shall not have any of the
rights of a shareholder of the Corporation with respect to the shares for which the Option is exercised until such shares are issued
by the Corporation.

 

SECTION IX

NOTICES

 

Any notice to be given hereunder shall
be in writing and shall be sent by (i) personal delivery to the party entitled thereto, (ii) facsimile with confirmation of receipt,
(iii) registered or certified mail, return receipt requested, or (iv) Federal Express or similar courier service. The notice shall
be deemed to have been received upon personal delivery, upon confirmation of receipt of facsimile transmission or courier service,
or, if mailed, three (3) days after mailing. Any notice to the Corporation shall be addressed to the Corporation, in care of the
Chief Financial Officer, at 41 Grand Avenue, River Edge, New Jersey 07661, and any notice to the Optionee shall be sent to the
address designated below the signature appearing hereinafter, or at such other address as either party may hereafter designate
in writing to the other.

 

    	 

    	 

    
 

SECTION X

COMPLIANCE WITH LAWS AND REGULATIONS

 

The Option and the obligation of the Corporation
to sell and deliver shares of Common Stock under the Option and this Agreement shall be subject in all respects to (i) all applicable
Federal and state laws, rules and regulations and (ii) any registration, qualification, approvals or other requirements imposed
by any government or regulatory agency or body which the Board shall, in its discretion, determine to be necessary or applicable,
in all respects. Moreover, the Option may not be exercised if its exercise, or the receipt of shares of Common Stock pursuant thereto,
would be contrary to applicable law. If at any time the Corporation shall determine, in its discretion, that the listing, registration
or qualification of shares of Common Stock upon any national securities exchange or under any state or Federal law, or the consent
or approval of any governmental regulatory body, is necessary or desirable, the Corporation shall not be required to deliver any
certificates for shares of Stock to the Optionee or any other person unless and until such listing, registration, qualification,
consent or approval shall have been effected or obtained, or otherwise provided for, free of any conditions not acceptable to the
Corporation.

 

SECTION XI

SUCCESSORS OR ASSIGNS OF THE CORPORATION

 

The Option shall be binding upon and shall
inure to the benefit of any successor of the Corporation.

 

SECTION XII

MISCELLANEOUS

 

		(a)	Designation of Beneficiary. The Optionee shall have the right to appoint any individual
or legal entity in writing, on Exhibit B hereto, as his beneficiary to exercise the Option (to the extent not previously
terminated or forfeited) upon the Optionee's death. Such designation under this Agreement may be revoked by the Optionee at any
time and a new beneficiary may be appointed by the Optionee by execution and submission to the Board of a revised Exhibit B
to this Agreement. In order to be effective, a designation of beneficiary must be completed by the Optionee on Exhibit B
and received by the Board, or its designee, prior to the date of the Optionee's death. In the absence of such designation, the
Optionee's beneficiary shall be the legal representative of the Optionee's estate. Any beneficiary shall be subject to all the
terms of this Agreement. In the absence of a valid designation of beneficiary, the Optionee’s estate shall be his designated
beneficiary.

 

		(b)	[RESERVED]

 

		(c)	Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing
to any party hereto upon any breach or default of any party under this Agreement, shall impair any such right, power or remedy
of such party, nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in
any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of
any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character
on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party or any provisions
or conditions of this Agreement, must be in a writing signed by such party and shall be effective only to the extent specifically
set forth in such writing.

 

    	 

    	 

    
 

		(d)	Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE AND
ALL APPLICABLE FEDERAL LAWS.

 

		(e)	Gender. Reference to the masculine herein shall be deemed to include the feminine, wherever
appropriate.

 

		(f)	Integration. This Agreement contains the entire understanding of the parties with respect
to its subject matter. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings
with respect to the subject matter hereof other than those expressly set forth herein. This Agreement supersedes all prior agreements
and understandings between the parties with respect to its subject matter.

 

		(g)	Counterparts. This Agreement may be executed in one or more counterparts, which shall together
constitute a valid and binding agreement.

 

		(h)	Optionee Acknowledgment. The Optionee hereby acknowledges receipt of a copy of this Agreement.
The Optionee hereby acknowledges that all decisions, determinations and interpretations of the Board in respect of this Agreement
and the Option shall be final and conclusive.

 

		(i)	Decisions Binding. All interpretations, determinations and decisions made by the Board pursuant
to the provisions of this Option shall be final, conclusive and binding on all persons, including the Corporation and the Optionee,
and his estate and beneficiaries.

 

SECTION XIII

ADJUSTMENT

 

The Board shall adjust the number of shares
subject to an Option and the terms of such Option, as follows:

 

(a) Increase or
Decrease in Issued Shares Without Consideration. Subject to any required action by the stockholders of the Corporation, in
the event of any increase or decrease in the number of issued shares resulting from a subdivision or consolidation of shares or
the payment of a stock dividend (but only on the shares), or any other increase or decrease in the number of such shares effected
without receipt of consideration by the Corporation, the Board shall proportionally adjust the number of shares subject to each
outstanding Option and the exercise price-per-share of each such Option.

 

(b) Certain Mergers.
Subject to any required action by the stockholders of the Corporation, in the event that the Corporation shall be the surviving
corporation in any merger or consolidation (except a merger or consolidation as a result of which the holders of shares receive
securities of another corporation and/or other property, including cash), each Option outstanding on the date of such merger or
consolidation shall pertain to and apply to the securities which a holder of the number of shares subject to such Option would
have received in such merger or consolidation.

 

    	 

    	 

    
 

(c) Certain Other
Transactions. In the event of (i) a dissolution or liquidation of the Corporation, (ii) a sale of all or substantially all
of the Corporation's assets, (iii) a merger or consolidation involving the Corporation in which the Corporation is not the surviving
corporation, or (iv) a merger or consolidation involving the Corporation in which the Corporation is the surviving corporation
but the holders of shares receive securities of another corporation and/or other property, including cash, the Board, in its absolute
discretion, shall have the power to:

 

(A) cancel,
effective immediately prior to the occurrence of such event, each Option outstanding immediately prior to such event (whether or
not then exercisable) and, in full consideration of such cancellation, pay to the Optionee an amount in cash, for each share subject
to such Option, equal to the excess (if any) of (i) the value, as determined by the Board in its absolute discretion, of the property
(including cash) received by the holder of a share as a result of such event over (ii) the exercise price of such Option; or

 

(B) provide
for the exchange of each Option outstanding immediately prior to such event (whether or not then exercisable) for an option or
stock appreciation right, as appropriate, on some or all of the property which a holder of the number of shares subject to such
Option would have received in such transaction or on shares of the acquirer or surviving corporation and, incident thereto, make
an equitable adjustment as determined by the Board in its absolute discretion in the exercise price of the option or stock appreciation
right, and/or the number of shares or amount of property subject to the option or stock appreciation right and/or, if appropriate,
provide for a cash payment to the Optionee in partial consideration for the exchange of the Option.

 

(d) Other Changes.
In the event of any change in the capitalization of the Corporation or corporate change, other than those specifically referred
to in this Section, the Board may, in its absolute discretion, make such adjustments in the number and class of shares subject
to Options outstanding on the date on which such change occurs and in the per-share exercise price of each such Option as the Board
may consider appropriate to prevent dilution or enlargement of rights. In addition, if and to the extent the Board determines it
is appropriate, the Board may elect to cancel each Option outstanding immediately prior to such event (whether or not then exercisable),
and, in full consideration of such cancellation, pay to the Optionee an amount in cash, for each Share subject to such Option,
equal to the excess (if any) of (i) the Fair Market Value of each Share on the date of such cancellation over (ii) the exercise
price of such Option.

 

[Signature
Page Follows]

 

    	 

    	 

    
 

IN WITNESS WHEREOF, this Agreement has
been executed by the Corporation and the Optionee as of the date and year first written above.

 

	OPTIONEE	 	NEPHROS, INC., a Delaware corporation
	 	 	 
	/s/ John C. Houghton               	 	/s/ Gerald J. Kochanski
	Print Name:  John C. Houghton	 	Gerald J. Kochanski
	 	 	Chief Financial Officer 

 

	Address:    	 	 	 
	 	 	 	 
	 	 	 	 

 

    	 

    	 

    
 

EXHIBIT A

NON-QUALIFIED STOCK OPTION AGREEMENT

 

	1.	Date of Grant:	July 3, 2012
	2.	Optionee:	John C. Houghton
	3.	Number of Shares:	331,550 shares of Common Stock
	4.	Option Price Per Share:	US $1.89
	5.	Exercise Schedule:	vesting

Vesting Criterion:

 

The Option shall vest in equal monthly installments over the
course of four years commencing on April 20, 2012.

 

	6.	Expiration Date:	July 3, 2022 (10 years from grant date)

 

    	 

    	 

    
 

EXHIBIT B

DESIGNATION OF BENEFICIARY FOR THE NON-QUALIFIED STOCK OPTION AGREEMENT

 

Name of Optionee:    John C. Houghton

Original Date of Agreement: July 3, 2012

 

If I shall die while all or a portion of the Option evidenced
by the Agreement between me and Nephros, Inc. dated as of July 3, 2012, has neither expired nor been exercised, then all rights
to the Option granted under this Agreement that I hereby hold upon my death, to the extent not previously terminated or forfeited,
shall be transferred to ___________ (insert name of beneficiary) in the manner provided for in this Agreement.

  

	 	 
	 	 

Date

 

Receipt acknowledged on behalf of ___________ by:

 

	 	 
	 	 

DateFORBEARANCE AGREEMENT

 

This FORBEARANCE
AGREEMENT (this “Agreement”) is entered into as of November 5, 2012 by and among BFE OPERATING COMPANY, LLC,
a Delaware limited liability company (“Opco”), BUFFALO LAKE ENERGY, LLC, a Delaware limited liability company
(“Buffalo Lake”), PIONEER TRAIL ENERGY, LLC, a Delaware limited liability company (“Pioneer Trail”;
Pioneer Trail, Buffalo Lake and Opco, each a “Borrower” and, collectively, “Borrowers”), as borrowers,
Opco, as Borrowers’ agent (“Borrowers’ Agent”), FIRST NATIONAL BANK OF OMAHA, a national banking
association, as administrative agent under the Credit Agreement described below (“Administrative Agent”), DEUTSCHE
BANK TRUST COMPANY AMERICAS, a New York state banking corporation, as collateral agent under the Credit Agreement described
below (“Collateral Agent”; Collateral Agent and Administrative Agent, each an “Agent” and, together, “Agents”),
and the Lenders set forth on the signature pages hereto.

 

RECITALS: 

 

A.Pursuant to that
certain Credit Agreement dated as of September 25, 2006 (as amended and supplemented from time to time, the “Credit Agreement”)
among Borrowers, as borrowers, Borrowers’ Agent, various financial institutions, as lenders (together with their successors
and assigns, the “Lenders”), Collateral Agent and Administrative Agent, the Lenders made certain loans to Borrowers,
subject to the terms and conditions set forth therein. Capitalized terms used herein without definition shall have the meanings
assigned to such terms in the Credit Agreement.

 

B.Borrowers
have failed to make (i) the regularly scheduled payment of principal due and payable in respect of the Term Loans on or before
11:00 a.m. (New York City time) on September 28, 2012 (the “Principal Payment Deadline”) as required pursuant to Section
6.5 of the Credit Agreement (the “September Principal Payment”) and (ii) the regularly scheduled payment of interest
due and payable in respect of the Term Loans on or before September 28, 2012 (the “Interest Payment Deadline”) as required
pursuant to Section 2.9(d) of the Credit Agreement (the “September Interest Payment”).

 

C.The failure of
Borrowers to make the September Principal Payment on or before the Principal Payment Deadline automatically resulted in an immediate
Event of Default pursuant to Section 7.1(a) of the Credit Agreement (the “Principal Payment Default”). The failure
of Borrowers to make the September Interest Payment within three Business Days following the Interest Payment Deadline automatically
resulted in an immediate Event of Default pursuant to Section 7.1(a) of the Credit Agreement (the “Interest Payment Default,”
and together with the Principal Payment Default, the “Acknowledged Events of Default”).

 

D.Agents and the
Lenders have been informed by Borrowers that the Buffalo Lake Plant has temporarily ceased production of ethanol.

 

E.As a result of
the Acknowledged Events of Default, Agents may (subject to the terms of the Financing Documents), and upon the direction of the
Required Lenders shall, exercise on behalf of the Lenders all rights and remedies under the Financing Documents or otherwise available
at law or in equity.

 

F.Borrowers have
requested that Agents and the Lenders forbear from exercising their rights and remedies under the Financing Documents, and Agents
and the Lenders are willing to forbear, subject to the terms and conditions set forth in this Agreement.

 

AGREEMENT:

 

For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, Borrowers, Agents and the Lenders hereby agree as
follows:

 

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1.Accuracy of
Recitals; Acknowledgment and Waiver.The Recitals set forth above are hereby incorporated herein by reference and each Borrower
hereby acknowledges and agrees that the Recitals are true and correct. Each Borrower acknowledges and agrees (a) that the description
of the Acknowledged Events of Default set forth above is true and correct, (b) that the Acknowledged Events of Default have occurred
and (c) that it has no defenses, counterclaims or rights of setoff with respect to the Acknowledged Events of Default, any of the
Obligations or any other obligation otherwise owed to any Agent or Lender under the Financing Documents. Each Borrower hereby waives,
to the fullest extent permitted by law, any and all defense that such Borrower now has or in the future may have, whether known
or unknown, and to the extent arising from events or actions occurring prior to the date of this Agreement, to the enforcement
of its contractual obligations under the Financing Documents and any related agreements or documents.

 

2.Forbearance.

 

(a)Terms
of Forbearance. In order to induce Agents and the Lenders to forbear from exercising their rights and remedies
under the Financing Documents on account of the Acknowledged Events of Default, each Borrower absolutely and unconditionally agrees
as follows, and the agreement of Agents and the Lenders to forbear pursuant to this Agreement is expressly conditioned upon:

 

(i)Default
Interest. Interest shall accrue on the amount of the September Principal Payment and the September Interest Payment from and
after the Interest Payment Deadline at the Default Rate (such interest, the “Default Interest”). All accrued unpaid
Default Interest shall be immediately due and payable on the Expiration Date (as hereafter defined).

 

(ii)Restructuring.
During the Forbearance Period (as hereafter defined), Borrowers, Administrative Agent and the Lenders shall discuss and negotiate
the terms of an agreement that will address the Acknowledged Events of Default and Borrowers’ obligation to pay and satisfy
the Obligations under the Financing Documents (the “Proposed Restructuring”). Neither this subsection (ii) nor the
negotiations among Borrowers, Administrative Agent and the Lenders with respect to the Proposed Restructuring shall alter, amend
or waive any provisions, rights or obligations of any party under the Financing Documents, or constitute or be deemed an agreement
by Agents or any Lender to waive or forbear from exercising any of their respective rights and remedies under the Financing Documents
or otherwise available at law or in equity (except as expressly provided herein with respect to the forbearance during the Forbearance
Period). Each Borrower acknowledges and agrees that (A) Administrative Agent and the Lenders may discontinue negotiations
with respect to the Proposed Restructuring at any time, (B) any Proposed Restructuring will be on such terms and conditions as
Administrative Agent and the Lenders may require in their sole and absolute discretion and (C) no agreement by Administrative
Agent or any Lender with respect to the Proposed Restructuring shall be effective unless set forth in a definitive written agreement
executed by Agents and the Lenders.

 

(iii)Management
Fees. During the Forbearance Period, no Borrower shall make any payment to Sponsor or any other party under any of the Management
Services Agreements.

 

(iv)Approved
Budget. Attached hereto as Exhibit A is a budget for Borrowers’ operations during the 13-week period commencing as of
the date hereof (the “Approved Budget”). Borrowers shall not amend the Approved Budget without the prior written consent
of Administrative Agent. Without the prior written consent of Administrative Agent, no Borrower shall make any expenditure during
the Forbearance Period other than for operating expenses, expenses payable hereunder or under the Credit Agreement and capital
expenditures, in each case, exclusively as set forth in the Approved Budget (collectively, “Permitted Expenditures”);
provided, however, that Borrowers may make expenditures contemplated under the Approved Budget in excess of the applicable
budget amount for the related line item category so long as (A) such expenditure, in the aggregate with all other expenditures
falling under the same line item category in the Approved Budget, does not exceed the applicable budget amount for such line item
category for the applicable weekly budgeting period by more than 10%, and (B) such expenditure, in the aggregate with all other
expenditures during the three week period ending as of the end of the then-current weekly budgeting period, does not exceed the
total budgeted cash use for such three week budgeting period by more than 10%. Administrative Agent’s consent to any matter
under this subsection (iv) may be granted or withheld by Administrative Agent in Administrative Agent’s sole and absolute
discretion.

 

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(v)Weekly
Reports. During the Forbearance Period, Borrowers shall deliver to Administrative Agent weekly reports, in form and substance
acceptable to Administrative Agent, detailing all variances from the Approved Budget, all sources and uses of cash during the applicable
weekly budgeting period and such other information as Administrative Agent may require in its sole discretion.

 

(vi)Inspections,
Access and Disclosures. During the Forbearance Period, Borrowers shall (A) provide Agents and their representatives, agents
and designees (collectively, the “Agent Parties”) with access to each of the Plants as frequently and at such times
as the Agent Parties may request; (B) permit the Agent Parties to inspect, audit and make extracts and copies (or take originals
if reasonably necessary) from all of Borrowers’ books and records; (C) permit the Agent Parties to inspect, review, evaluate
and make physical verifications and appraisals of the Plants and all other Collateral in any manner and through any medium that
the Agent Parties consider advisable; (D) provide Administrative Agent with copies of all proposed ethanol marketing or corn procurement
contracts (or any term sheets with respect thereto) immediately upon the receipt thereof by any Borrower (provided that the foregoing
shall not constitute an approval or consent by Administrative Agent or the Required Lenders to the execution by a Borrower of any
such contracts); and (E) provide the Agent Parties with access to Borrowers’ and Sponsor’s management level employees,
officers, directors, creditors (including trade creditors), vendors, suppliers and customers, including, without limitation, Cargill
and Cargill Commodity (collectively, the “Borrower Parties”), and, in each such case, Borrowers agree that the Agent
Parties may meet and discuss with Borrower Parties their participation in the business operations likely to result from the Proposed
Restructuring; provided, however, that, (1) at Borrowers’ election, the management level employees of Borrowers and
Sponsor may participate in any such meetings and discussions between the Agent Parties and Cargill or Cargill Commodity and (2)
the failure of Cargill or Cargill Commodity to cooperate, meet or engage in discussions with the Agent Parties at the request of
Borrowers shall not constitute a Forbearance Default (as hereafter defined). Borrowers hereby authorize and direct each of the
Borrower Parties to disclose and release to the Agent Parties any and all information the Agent Parties may request from time to
time, including, without limitation, information regarding the Plants, the Collateral and the business and operations of Borrowers.

 

(vii)Continued
Operations. During the Forbearance Period, and without limitation of the obligations of Borrowers under the Financing Documents,
Borrowers shall (A) use commercially reasonable efforts, consistent with the Approved Budget, to maintain the Buffalo Lake Plant
in its current state of “hot idle”; (B) use commercially reasonable efforts, consistent with the Approved Budget, to
maintain and fully operate and not idle the Pioneer Trail Plant; and (C) maintain, preserve and protect the Plants and all other
Collateral. Notwithstanding the foregoing, in the event Borrowers change the operational status (from either operating to idle
state or vice versa) of either Plant during the Forbearance Period, Borrowers will provide notice to the Administrative Agent of
such change within three (3) Business Days.  For the avoidance of doubt, Agents and the Lenders seek only notice of such changes
and not any decision-making authority over the operational status of the Borrowers’ Plants.

 

(viii)Costs
and Expenses. Without limitation of the obligations of Borrowers under Section 9.1 of the Credit Agreement, Borrowers
shall pay to Agents or the Lenders, as the case may be, all out-of-pocket costs and expenses incurred by any Agent or Lender in
connection with this Agreement, the Financing Documents, the Acknowledged Events of Default and the actions contemplated hereby,
including, without limitation, all costs and expenses incurred in connection with any evaluation of the operations of the Borrowers
or the Collateral (including any inspection or investigation performed by any of the Agent Parties pursuant to subsection (vi)
above), all attorneys’ fees and disbursements and all fees and expenses of all consulting and valuation experts engaged by
Administrative Agent or Administrative Agent’s attorneys. All such costs and expenses shall be paid by Borrowers within five
Business Days following receipt of an invoice therefor. Borrowers hereby acknowledge and agree that all costs and expenses described
in this subsection (viii) constitute Indemnified Liabilities.

 

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(b)Agreement
to Forbear. Subject to the terms and conditions of this Agreement, Agents and the Lenders hereby agree to forbear
from exercising rights and remedies under the Financing Documents on account of the Acknowledged Events of Default for the period
(the “Forbearance Period”) commencing on the date hereof and ending on the earlier of (i) November 15, 2012 and (ii)
the date that any of the following (each, a “Forbearance Default”) shall occur: (A) any condition or agreement set
forth in Section 2(a) of this Agreement is not fully or timely satisfied or performed, (B) the occurrence of any Default or Event
of Default under the Credit Agreement (other than the existing Acknowledged Events of Default) or (C) any representation or warranty
made by any Borrower in this Agreement or in any other writing or document executed in connection herewith or in any way relating
hereto (including, without limitation, any weekly report delivered by Borrowers to Administrative Agent pursuant to Section 2(a)(v)
of this Agreement) is or shall be untrue in any material respect when made (the earlier of (i) and (ii) is referred to herein as
the “Expiration Date”). Notwithstanding any provision in any of the Financing Documents requiring written notice from
Administrative Agent or any other party prior to Agents’ and the Lenders’ pursuing their rights and remedies under
the Financing Documents or otherwise available at law or in equity, upon the Expiration Date, the forbearance of Agents and the
Lenders under this Agreement shall terminate automatically and without notice, and Agents and the Lenders shall immediately be
entitled to all available rights and remedies under any or all of the Financing Documents or otherwise available at law or in equity
on account of the Acknowledged Events of Default (or any other then existing Default or Event of Default) without any further notice
to any Borrower or any other person. For purposes of clarity, Agent shall not be required to deliver notice to Borrowers of a breach,
default or failure to satisfy the conditions or agreements set forth in Section 2(a) of this Agreement and the Borrowers’
failure to satisfy or perform such conditions or agreements shall immediately constitute a Forbearance Default.

 

3.Borrower Representations,
Warranties and Covenants. As additional consideration to and inducement for Agents and the Lenders to enter into this Agreement,
each Borrower represents and warrants to and covenants with and for the benefit of Agents and the Lenders as follows:

 

(a)Representations
and Warranties. Each and all representations and warranties of such Borrower in the Financing Documents are and will continue
to be accurate, complete and correct. The representations and warranties in this Agreement are true, complete and correct as of
the date set forth above, will continue to be true, complete and correct as of the consummation of the transactions contemplated
by this Agreement, and will survive such consummation.

 

(b)No
Defaults. Except for the Acknowledged Events of Default, such Borrower is not in default under any of the Financing Documents,
nor has any event or circumstance occurred that is continuing that, with the giving of notice or the passage of time, or both,
would be a Default or an Event of Default under any of the Financing Documents. Without limitation of the foregoing, all Governmental
Approvals, Project Documents and insurance required to be obtained or maintained by such Borrower pursuant to the Financing Documents
are and shall remain in full force and effect.

 

(c)No
Material Changes. There has been no material adverse change in the financial condition of such Borrower or any other person
whose financial statement has been delivered to Administrative Agent from the most recent financial statement received by Administrative
Agent from Borrowers or such other persons.

 

(d)No
Conflicts; No Consents Required. Neither execution nor delivery of this Agreement nor fulfillment of or compliance with the
terms and provisions hereof will conflict with, or result in a breach of the terms or conditions of, or constitute a default under,
any agreement or instrument to which such Borrower is a party or by which such Borrower may be bound. No consents, approvals or
authorizations are required for the execution and delivery of this Agreement by such Borrower or for such Borrower’s compliance
with the terms and provisions hereof.

 

(e)Claims
and Defenses. Such Borrower has no claims, counterclaims, defenses, or set-offs with respect to the Obligations or the Financing
Documents. Agents, the Lenders and their respective predecessors in interest have performed all of their obligations under the
Financing Documents, and such Borrower has no defenses, offsets, counterclaims, claims or demands of any nature which can be asserted
against any Agent, any of the Lenders or their respective predecessors in interest for damages or to reduce or eliminate all or
any part of the obligations of such Borrower under the Financing Documents.

 

    	4

    	 

    

 

(f)Validity.
This Agreement and the other Financing Documents are and will continue to be the legal, valid and binding obligations of such Borrower,
enforceable against such Borrower in accordance with their terms.

 

(g)Valid
Existence, Execution and Delivery, and Due Authorization. Such Borrower validly exists under the laws of the State of Delaware
and has the requisite power and authority to execute and deliver this Agreement and to perform hereunder and under the Financing
Documents. The execution and delivery of this Agreement and the performance hereunder and under the Financing Documents have been
duly authorized by all requisite action by or on behalf of such Borrower. This Agreement has been duly executed and delivered on
behalf of such Borrower.

 

(h)Ratification
of Current Loan Documents and Collateral. The Financing Documents, as modified by this Agreement, are ratified and affirmed
by such Borrower and shall remain in full force and effect. This Agreement shall not constitute a waiver of any rights or remedies
of Agents or any of the Lenders in respect of the Financing Documents.

 

(i)No
Duress. Such Borrower has executed this Agreement as a free and voluntary act, without any duress, coercion or undue influence
exerted by or on behalf of Agents, any of the Lenders or any other party.

 

4.Conditions
Precedent. The obligations of the Lenders and Agents to consummate the transactions contemplated by this Agreement are subject
to satisfaction of the following conditions precedent, each in the sole and absolute discretion of Agents:

 

(a)Borrower
Performance. Borrowers, Borrowers’ Agent and Sponsor shall have duly executed and delivered to Administrative Agent this
Agreement.

 

(b)Representations
and Warranties. The representations and warranties of Borrowers contained in this Agreement shall be true and correct in all
material respects.

 

(c)No
Default. No event or circumstance shall have occurred that is continuing, that, with the giving of notice or the passage of
time, or both, would be a Default or an Event of Default under any of the Financing Documents, other than the Acknowledged Events
of Default.

 

(d)Payment
of Indemnified Liabilities. Borrowers shall have paid to Agents and any other Indemnified Person all Indemnified Liabilities
for which Borrowers have been presented an invoice prior to the date hereof (provided, however, that the foregoing shall not limit
the obligation of Borrowers to pay all now existing or hereafter arising Indemnified Liabilities upon demand in accordance with
the terms hereof and of the Credit Agreement).

 

5.Post-Default
Waiver of Collateral Disposition Rights. An Event of Default has occurred under the Financing Documents, and notwithstanding
any forbearance or other provision set forth herein, such event of default remains as a pre-existing event. Each Borrower hereby
waives (a) any and all rights that it may have to notification of disposition of collateral under Section 9-611 of the Uniform
Commercial Code; (b) any and all rights that it may have to require disposition of collateral under Section 9-620(e) of the
Uniform Commercial Code and (c) any and all rights that it may have to the right to redeem the Collateral under Section 9-623 of
the Uniform Commercial Code.

 

6.No Limitations.
The description in this Agreement of the Acknowledged Events of Default shall not be to the exclusion of any other Defaults or
Events of Default now existing or hereafter occurring under the Financing Documents. The description in this Agreement of the specific
rights of Agents and the Lenders shall not be deemed to limit or exclude any other rights to which Agents or the Lenders may now
be or may hereafter become entitled to under the Financing Documents at law, in equity or otherwise.

 

    	5

    	 

    

 

7.Release.
Borrowers’ Agent and each Borrower, together with their respective successors and assigns (each such party, a “Releasing
Party”) fully, finally and forever releases and discharges Agents, the Lenders and their respective successors, assigns,
affiliates, representatives, officers, directors, employees and other related persons (each such party, a “Released
Party”) from any and all actions, causes of action, claims, debts, demands, liabilities, obligations and suits, of
whatever kind or nature, in law or equity, that Releasing Party has or in the future may have, whether known or unknown against
any Released Party (a) in respect of this Agreement, the other Financing Documents or the actions or omissions of any of the Lenders
or Agents in respect of the Financing Documents and (b) arising from events occurring prior to the date of this Agreement. EACH
RELEASING PARTY EXPRESSLY WAIVES ANY PROVISION OF STATUTORY OR DECISIONAL LAW TO THE EFFECT THAT A GENERAL RELEASE DOES NOT EXTEND
TO CLAIMS WHICH THE RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN SUCH PARTY’S FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH, IF KNOWN BY SUCH PARTY, MUST HAVE MATERIALLY AFFECTED SUCH PARTY’S SETTLEMENT WITH THE RELEASED PARTIES.

 

8.Receiver.
Upon the occurrence, and during the continuance of an Event of Default (other than the Acknowledged Events of Default prior to
the Expiration Date), Agents, on behalf of the Lenders, may seek and obtain the appointment of a court-appointed receiver, regardless
of the adequacy of Collateral Agent’s security, and each Borrower hereby irrevocably consents to the appointment of such
receiver. Any action or proceeding to obtain the appointment of a receiver may be brought in any state or federal court having
jurisdiction over Borrowers or the Collateral and each Borrower hereby irrevocably waives any objection, including any objection
to the laying of venue or based on the grounds of forum non conveniens, that it may now or hereafter have to the bringing
of any such action or proceeding in such jurisdictions. Each Borrower hereby agrees that the receiver may enter upon and take possession
and control of the Collateral and shall perform all acts necessary and appropriate to implement the order appointing such receiver.
Each Borrower hereby agrees that the receiver shall have access to the books and records used in the operation and maintenance
of such Borrower’s business and the Collateral. None of the Lenders or Agents shall be liable to any Borrower or anyone claiming
under or through any Borrower by reason of the appointment of a receiver or such receiver’s actions or failure to act.

 

9.Limitation
of Liability for Certain Damages. In no event shall any Released Party be liable to any Borrower or any other Releasing Party
on any theory of liability for any special, indirect, consequential or punitive damages (including any loss of profits, business
or anticipated savings).  EACH BORROWER AND EACH OTHER RELEASING PARTY HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE UPON (AND
EACH BORROWER SHALL CAUSE EACH OF THE OTHER RELEASING PARTIES TO SO WAIVE, RELEASE, AND AGREE NOT TO SUE UPON) ANY SUCH CLAIM FOR
ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST
IN ITS FAVOR.

 

10.Governing
Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).

 

11.Jurisdiction.Each
Borrower hereby submits to the nonexclusive jurisdiction of any United States District Court or state court sitting in the State
of Minnesota or the State of Nebraska for purposes of all legal proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby. Each Borrower hereby waives, to the fullest extent permitted by applicable law, any objection
which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that
any such proceeding brought in such a court has been brought in an inconvenient forum.

 

12.WAIVER OF
JURY TRIAL. EACH OF THE PARTIES HERETO, TO THE EXTENT PERMITTED BY APPLICABLE LAW, WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, SUIT, OR PROCEEDING ARISING OUT OF, IN CONNECTION WITH OR RELATING TO, THIS AGREEMENT AND ANY OTHER TRANSACTION CONTEMPLATED
HEREBY. THIS WAIVER APPLIES TO ANY ACTION, SUIT OR PROCEEDING WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE.

 

    	6

    	 

    

 

13.Miscellaneous

 

(a)Entire
Agreement; Change; Discharge; Termination or Waiver; Financing Document. This Agreement contains the entire understanding and
agreement of Borrowers, Agents and the Lenders in respect of the subject matter hereof and supersedes all prior representations,
warranties, agreements and understandings. No provision of this Agreement or any of the other Financing Documents may be changed,
discharged, supplemented, terminated or waived except in a writing signed by Agents, the Lenders and Borrowers. This Agreement
shall be deemed to constitute a Financing Document.

 

(b)Time
of the Essence. Time is of the essence in this Agreement.

 

(c)Binding
Effect. This Agreement, shall be binding upon, and inure to the benefit of, Borrowers, Agents, the Lenders and their respective
successors and assigns.

 

(d)Further
Assurances. Borrowers shall execute and deliver to Administrative Agent such additional agreements, documents and instruments
as reasonably required by Administrative Agent to carry out the intent of this Agreement.

 

(e)Counterpart
Execution. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same document. Signature pages may be detached from the counterparts and attached to
a single copy of this Agreement to physically form one document. Delivery of an executed signature page of this Agreement by facsimile
or e-copy transmission shall be as effective as delivery of a manually executed counterpart thereof.

 

[REMAINDER OF PAGE INTENTIONALLY
LEFT BLANK;

EXECUTION PAGES FOLLOW]

 

    	7

    	 

    

 

Executed and effective as of the date first set forth above.

 

	 	ADMINISTRATIVE AGENT:
	 	 
	 	FIRST NATIONAL BANK OF OMAHA, 

a national banking association, as Administrative Agent
	 	 
	 	By:	 
	 	Name:	 
	 	Title:	 
	 	 	 
	 	 	 
	 	COLLATERAL AGENT:
	 	 
	 	DEUTSCHE BANK TRUST COMPANY AMERICAS, 

a New York state banking corporation, as Collateral Agent
	 	 
	 	By:	 
	 	Name:	 
	 	Title:	 
	 	 	 
	 	 	 
	 	BORROWERS:
	 	 
	 	BFE OPERATING COMPANY, 

a Delaware limited liability company, as Borrower and as Borrowers’ Agent
	 	 
	 	By:	 
	 	Name:	 
	 	Title:	 
	 	 	 
	 	 	 
	 	BUFFALO LAKE ENERGY, LLC, 

a Delaware limited liability company, as Borrower
	 	 
	 	By:	 
	 	Name:	 
	 	Title:	 
	 	 	 
	 	 	 
	 	PIONEER TRAIL ENERGY, LLC, 

a Delaware limited liability company, as Borrower
	 	 
	 	By:	 
	 	Name:	 
	 	Title:	 

 

[EXECUTION PAGE OF AGENTS
AND BORROWERS TO FORBEARANCE AGREEMENT]

 

    	8

    	 

    
 

 

 

	 	STANDARD CHARTERED BANK, 

as Lender
	 	 	 
	 	 	 
	 	By: 	 
	 	Name: 	 
	 	Title: 	 
	 	 	 
	 	 	 
	 	AGFIRST FARM CREDIT BANK, 

as Lender
	 	 	 
	 	 	 
	 	By: 	 
	 	Name: 	 
	 	Title: 	 
	 	 	 
	 	 	 
	 	FARM CREDIT BANK OF TEXAS, 

as Lender
	 	 	 
	 	 	 
	 	By: 	 
	 	Name: 	 
	 	Title: 	 
	 	 	 
	 	 	 
	 	GREENSTONE FARM CREDIT SERVICES, FLCA, 

as Lender
	 	 	 
	 	 	 
	 	By: 	 
	 	Name: 	 
	 	Title: 	 
	 	 	 
	 	 	 
	 	TPG CREDIT STRATEGIES FUND, L.P., 

as Lender
	 	 	 
	 	 	 
	 	By: 	 
	 	Name: 	 
	 	Title: 	 
	 	 	 
	 	 	 
	 	AMARILLO NATIONAL BANK, 

as Lender
	 	 	 
	 	 	 
	 	By: 	 
	 	Name: 	 
	 	Title: 	 
	 	 	 

[EXECUTION PAGE OF LENDERS
TO FORBEARANCE AGREEMENT]

 

    	9

    	 

    

 

	 	FIRST NATIONAL BANK OF OMAHA, as Lender
	 	 	 
	 	 	 
	 	By: 	 
	 	Name: 	 
	 	Title: 	 
	 	 	 
	 	 	 
	 	INTERNATIONAL”, NEW YORK BRANCH, as Lender
	 	 	 
	 	 	 
	 	By: 	 
	 	Name: 	 
	 	Title: 	 
	 	 	 
	 	 	 
	 	GOLDMAN SACHS LENDING PARTNERS, LLC, as Lender
	 	 	 
	 	 	 
	 	By: 	 
	 	Name: 	 
	 	Title: 	 

 

[EXECUTION PAGE OF LENDERS
TO FORBEARANCE AGREEMENT]

 

    	10

    	 

    
 

 

[ACKNOWLEDGMENT AND AGREEMENT PAGE OF SPONSOR

TO FORBEARANCE AGREEMENT]

 

    	11

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