| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
Delaware
(State or Other Jurisdiction of Incorporation or Organization) |
20-2281511
(I.R.S. Employer Identification No.) |
| Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ (Do not check if a smaller reporting company) | Smaller reporting company o |
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| EX-10.1 | ||||||||
| EX-10.2 | ||||||||
| EX-10.3 | ||||||||
| EX-10.4 | ||||||||
| EX-10.5 | ||||||||
| EX-10.6 | ||||||||
| EX-31 | ||||||||
| EX-32 | ||||||||
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
March 31,
September 30,
2011
2010
(unaudited)
$
29,265
$
22,772
16,581
13,519
1,233
1,543
—
252
—
314
12,408
14,102
2,327
2,666
3,437
4,169
65,251
59,337
172,432
181,701
2,127
3,145
1,956
2,014
$
241,766
$
246,197
$
7,832
$
4,337
8,748
5,818
15,052
20,045
31,632
30,200
410
628
4,544
4,881
137,436
146,670
$
174,022
$
182,379
171,223
171,200
(103,479
)
(107,382
)
67,744
63,818
$
241,766
$
246,197
Table of Contents
(Dollars in thousands, except per unit data)
(Unaudited)
Three Months Ended
Six Months Ended
March 31,
March 31,
March 31,
March 31,
2011
2010
2011
2010
$
152,704
$
98,574
$
268,970
$
194,580
108
167
358
416
152,812
98,741
269,328
194,996
148,000
88,199
258,414
172,329
4,812
10,542
10,914
22,667
3,667
2,217
5,730
4,314
1,145
8,325
5,184
18,353
510
275
610
266
13
17
37
60
(932
)
(3,511
)
(1,928
)
(7,419
)
$
736
$
5,106
$
3,903
$
11,260
24,705,180
17,800,180
24,705,180
17,729,311
24,705,180
17,800,180
24,705,180
17,729,311
$
0.03
$
0.29
$
0.16
$
0.64
$
0.03
$
0.28
$
0.16
$
0.63
Table of Contents
For the Six Months Ended March 31, 2011
(Dollars in thousands)
(Unaudited)
Member
Member
Accumulated
Units
Capital
Deficit
Total
24,714,180
$
171,200
$
(107,382
)
$
63,818
—
23
—
23
—
—
3,903
3,903
24,714,180
$
171,223
$
(103,479
)
$
67,744
Table of Contents
(Dollars in thousands)
(Unaudited)
Six Months Ended
March 31,
March 31,
2011
2010
$
3,903
$
11,260
11,226
10,886
66
66
(337
)
(337
)
(154
)
(191
)
—
308
(428
)
—
23
23
(8
)
—
(64
)
(35
)
314
(425
)
(2,500
)
(2,062
)
1,694
(5,274
)
339
(1,029
)
3,495
1,288
2,930
5,488
20,499
19,966
(1,949
)
(672
)
(8
)
—
1,750
5,450
(207
)
4,778
(13,799
)
(14,305
)
—
1,254
—
(3
)
—
(102
)
(13,799
)
(13,156
)
6,493
11,588
22,772
26,367
$
29,265
$
37,955
$
—
$
4,987
—
1,100
—
489
$
2,393
$
2,429
Table of Contents
March 31, 2011 and 2010
(Unaudited)
Total
Level 1
Level 2
Level 3
$
410
$
—
$
—
$
410
$
314
$
314
$
—
$
—
474
—
—
474
Table of Contents
March 31,
September 30,
2011
2010
$
1.50
$
1.50
$
1.50
$
1.50
104.39
%
117.08
%
1.75
2.00
0.750
%
0.375
%
—
—
—
—
(1)
Market value based on recent unit transactions.
2011
2010
$
474
$
489
(64
)
(35
)
$
410
$
454
Table of Contents
Three Months Ended
Six Months Ended
March 31,
March 31,
2011
2010
2011
2010
$
736
$
5,106
$
3,903
$
11,260
(30
)
(34
)
(64
)
(35
)
706
5,072
3,839
11,225
24,705
17,800
24,705
17,729
$
0.03
$
0.29
$
0.16
$
0.64
$
0.03
$
0.28
$
0.16
$
0.63
Table of Contents
March 31,
September 30,
2011
2010
$
2,140
$
3,127
1,088
1,107
3,203
2,104
3,079
5,427
600
419
2,298
1,918
$
12,408
$
14,102
March 31,
September 30,
2011
2010
$
3,999
$
3,962
21,341
21,341
216,643
215,962
1,373
1,356
1,393
234
244,749
242,855
$
(72,317
)
$
(61,154
)
$
172,432
$
181,701
Table of Contents
March 31,
2011
March 31,
September 30,
Interest Rate
2011
2010
3.65
%
$
34,866
$
45,050
7.53
%
20,000
20,000
3.35
%
—
—
6.75
%
6,185
7,000
61,051
72,050
1.80
%
78,552
81,352
N/A
3,000
3,000
N/A
9,885
10,313
91,437
94,665
$
152,488
$
166,715
N/A
(9,885
)
(10,313
)
$
142,603
$
156,402
Amortization of
Additional Carrying
Stated
Value of
Principal
Restructured Debt
Total
$
14,215
$
837
$
15,052
14,215
1,693
15,908
12,881
2,439
15,320
13,815
2,505
16,320
80,367
2,411
82,778
7,110
—
7,110
$
142,603
$
9,885
$
152,488
Table of Contents
Table of Contents
(1)
Hawkeye Gold must use commercially reasonable efforts to submit purchase orders for,
and ABE Fairmont and ABE South Dakota must sell, substantially all of the denatured fuel
grade ethanol produced by ABE Fairmont and ABE South Dakota,
(2)
a purchase and sale of ethanol under the Ethanol Agreements must be in the form of
either a direct fixed price purchase order, a direct index price purchase order, a
terminal storage purchase order, a transportation swap or similar transaction that is
mutually acceptable to the parties,
(3)
ABE Fairmont or ABE South Dakota will pay any replacement or other costs incurred by
Hawkeye Gold as a result of any failure to deliver by ABE Fairmont or ABE South Dakota,
respectively, and
(4)
with certain exceptions, ABE Fairmont and ABE South Dakota will sell substantially
all of the ethanol they produce to Hawkeye Gold. The initial term of the ABE Fairmont
Agreement is for two years, and provides for automatic renewal for successive 18 month
terms unless either party provides written notice of nonrenewal at least 180 days prior to
the end of any term. The initial terms of the ABE South Dakota Ethanol Agreements are for
three years and provide for automatic renewal for successive one-year terms unless either
party provides written notice of nonrenewal at least 180 days prior to the end of any
term.
Table of Contents
March 31,
March 31,
2011
2010
$
237,667
$
49,173
13,719
6,150
$
—
$
118,059
—
4,378
$
6,614
$
7,229
588
399
Quantity (000s)
Amount
Period Covered
Purchase Contracts
3,168 bushels
$
21,036
July 2011
Sale Contracts
17,852 gallons
45,163
May 2011
Sale Contracts
56 tons
10,278
June 2011
Income Statement
Realized
Unrealized
Total
Classification
Gain
Loss
Gain (Loss)
Cost of Goods Sold
$
—
$
—
$
—
Cost of Goods Sold
419
(1,334
)
(915
)
Cost of Goods Sold
$
90
$
—
$
90
Cost of Goods Sold
766
(1,012
)
(246
)
Table of Contents
Balance Sheet
March 31,
September 30,
Classification
2011
2010
Current Assets
$
—
$
314
•
our operational results are subject to fluctuations in the prices of grain, utilities
and ethanol, which are affected by various factors including weather, production levels,
supply, demand, changes in technology and government support and regulations;
•
margins can be volatile and can evaporate, which may affect our liability to meet
current obligations and debt service requirements at our operating entities;
•
our hedging transactions and mitigation strategies could materially harm our results;
•
cash distributions depend upon our future financial and operational performance and will
be affected by debt covenants, reserves and operating expenditures;
•
current governmental mandated tariffs, credits and standards may be reduced or
eliminated and legislative acts taken by state governments such as California related to
low carbon fuels that include the effects caused by indirect land use, may have an adverse
effect on our business;
•
alternative fuel additives may be developed that are superior to or cheaper than
ethanol;
•
transportation, storage and blending infrastructure may become impaired, preventing
ethanol from reaching markets;
•
our operation facilities may experience technical difficulties and not produce the
gallons of ethanol we expect and insurance proceeds may not be adequate to cover these
production disruptions;
•
our units are subject to a number of transfer restrictions and no public market exists
for our units, and we do not is expect a public market to develop; and
•
our ability to resolve all issues related to an arbitration involving us and our former
chief executive officer, and pending litigation brought by that officer against one of our
current directors.
Table of Contents
Table of Contents
Estimated
Estimated
Annual
Estimated
Annual
Distillers
Annual
Ethanol
Grains
Corn
Primary
Location
Production
Production(1)
Processed
Energy Source
Builder
(Million gallons)
(Tons)
(Million bushels)
110
334,000
39.3
Natural Gas
Fagen
9
27,000
3.2
Natural Gas
Broin
44
134,000
15.7
Natural Gas
ICM
32
97,000
11.4
Natural Gas
ICM
195
592,000
69.6
(1)
Our plants produce and sell wet, modified wet and dried
distillers grains. The stated quantities are on a fully
dried basis operating at full production capacity.
(2)
Our plant at Aberdeen consists of two separate
production facilities, which operate on a separate
basis. Accordingly, we report and track production
from these Aberdeen facilities separately.
Table of Contents
Three Months Ended
Three Months Ended
March 31, 2011
March 31, 2010
Sold/Consumed
Average
Sold/Consumed
Average
(In thousands)
Net Price/Cost
(In thousands)
Net Price/Cost
54,612
$
2.35
48,889
$
1.73
116
159.47
108
102.43
86
65.26
95
33.66
19,469
$
5.96
17,594
$
3.42
1,391
4.34
1,356
5.67
Table of Contents
Six Months Ended
Six Months Ended
March 31, 2011
March 31, 2010
Sold/Consumed
Average
Sold/Consumed
Average
(In thousands)
Net Price/Cost
(In thousands)
Net Price/Cost
103,745
$
2.18
98,912
$
1.68
236
140.53
223
97.42
165
57.56
183
34.63
37,047
$
5.32
35,492
$
3.46
2,797
4.23
2,732
5.07
Table of Contents
Table of Contents
Cellulosic
RFS Requirement
Total Renewable
Ethanol
Biodiesel
That Can Be Met
Fuel
Minimum
Minimum
Advanced
With Corn-Based
Year
Requirement
Requirement
Requirement
Biofuel
Ethanol
13.95
0.25
0.80
1.35
12.60
15.20
0.50
1.00
2.00
13.20
16.55
1.00
—
2.75
13.80
18.15
1.75
—
3.75
14.40
20.50
3.00
—
5.50
15.00
22.25
4.25
—
7.25
15.00
24.00
5.50
—
9.00
15.00
26.00
7.00
—
11.00
15.00
28.00
8.50
—
13.00
15.00
30.00
10.50
—
15.00
15.00
33.00
13.50
—
18.00
15.00
36.00
16.00
—
21.00
15.00
Table of Contents
Table of Contents
Table of Contents
Table of Contents
March 31,
2011
March 31,
September 30,
Interest Rate
2011
2010
3.65
%
$
34,866
$
45,050
7.53
%
20,000
20,000
3.35
%
—
—
6.75
%
6,185
7,000
61,051
72,050
1.80
%
78,552
81,352
N/A
3,000
3,000
N/A
9,885
10,313
91,437
94,665
$
152,488
$
166,715
N/A
(9,885
)
(10,313
)
$
142,603
$
156,402
Amortization of
Additional Carrying
Stated
Value of
Principal
Restructured Debt
Total
$
14,215
$
837
$
15,052
14,215
1,693
15,908
12,881
2,439
15,320
13,815
2,505
16,320
80,367
2,411
82,778
7,110
—
7,110
$
142,603
$
9,885
$
152,488
Table of Contents
5-7 Years
10 Years
40 Years
Table of Contents
Table of Contents
Change in
Estimated at
Hypothetical
Annual
Risk
Change in
Spot
Operating
Volume (1)
Units
Price
Price(2)
Income
(In millions)
(In millions)
123.6
gallons
10.0
%
$
2.66
$
32.9
0.37
tons
10.0
%
189.00
6.9
56.9
bushels
10.0
%
6.93
39.5
4.1
mmbtus
10.0
%
4.39
1.8
(1)
The volume of ethanol at risk is based on the assumption that we will enter into
contracts for 36.6% of our expected annual gallons capacity of 195 million gallons. The volume of
distillers grains at risk is based on the assumption that we will enter into contracts for 38.1% of
our expected annual distillers grains production of 592,000 tons. The volume of corn is based on
the assumption that we will enter into forward contracts for 18.2% of our estimated current 69.6
million bushel annual requirement. The volume of natural gas at risk is based on the assumption
that we will continue to lock in 22.4% gas usage.
(2)
Current spot prices include the CBOT price per gallon of ethanol and the price per bushel of
corn, the NYMEX price per mmbtu of natural gas and our listed local advertised dried distillers
grains price per ton as of March 31, 2011.
Table of Contents
Table of Contents
50,000 Units at $3.00 per Unit (Tranche 2); and
50,000 Units at $4.50 per Unit (Tranche 3).
Table of Contents
Table of Contents
ADVANCED BIOENERGY, LLC
Date: May 16, 2011
By:
/s/ Richard R. Peterson
Richard R. Peterson
Chief Executive Officer and President,
Chief Financial Officer
(Duly authorized signatory and
Principal
Financial Officer)
Exhibit
No.
Description
Method of Filing
Master Loan Agreement between
Farm Credit Services of
America, FLCA and ABE
Fairmont, LLC dated as of
April 7, 2011.
Filed electronically
Multiple Advance Term Loan
Supplement between Farm
Credit Services of America,
FLCA and ABE Fairmont, LLC
dated as of April 7, 2011.
Filed electronically
Monitored Revolving Credit
Supplement between Farm
Credit Services of America,
FLCA and ABE Fairmont, LLC
dated as of April 7, 2011.
Filed electronically
Revolving Credit Supplement
between Farm Credit Services
of America, FLCA and ABE
Fairmont, LLC dated as of
April 7, 2011.
Filed electronically
Second Amended and Restated
Employment Agreement dated as
of May 11, 2011 between the
Company and Richard Peterson.
Filed electronically
Company Agreement with
Richard Peterson Unit
Appreciation Right with
Tandem Nonqualified Unit
Option dated May 15, 2011.
Filed electronically
Rule 13a-14(a)/15d-14(a)
Certification by Principal
Executive Officer, Financial
and Accounting Officer.
Filed Electronically
Section 1350 Certifications.
Filed Electronically
|
|
Owner Name: ABE Fairmont. LLC | SSN/TIN: 20-5736411 |
-3-
-4-
-5-
-6-
-7-
-8-
-9-
| SECTION 12. Events of Default. Each of the following shall constitute an “Event of Default” under this agreement: |
-10-
-11-
-12-
-13-
ABE FAIRMONT, LLC
Fairmont, Nebraska
If to the Company, as follows:
ABE FAIRMONT, LLC
10201 Wayzata Boulevard
Minneapolis, Minnesota 55305
Attention: CEO
Fax No.: 763-226-2725
-14-
| FARM CREDIT SERVICES OF AMERICA, FLCA | ABE FAIRMONT, LLC | ||||||
|
|
By ADVANCED BIOENERGY, LLC, | ||||||
|
|
its sole member | ||||||
|
|
|||||||
|
By:
|
/s/ Kathryn Frahm | By: | /s/ Richard Peterson | ||||
|
Title:
|
VP Credit | Title: |
CEO/CFO
NT 4-28-11 |
||||
|
|
|||||||
| FARM CREDIT SERVICES OF AMERICA, PCA | |||||||
|
|
|||||||
|
By:
|
/s/ Kathryn Frahm | ||||||
|
Title:
|
VP Credit | ||||||
| Multiple Advance Term Loan Supplement RI0340T01E | -2- |
| Multiple Advance Term Loan Supplement RI0340T01E | -3- |
| FARM CREDIT SERVICES OF AMERICA, FLCA | ABE FAIRMONT, LLC | ||||||
|
|
By ADVANCED BIOENERGY, LLC, | ||||||
|
|
its sole member | ||||||
|
|
|||||||
|
By:
|
/s/ Kathryn Frahm | By: | /s/ Richard Peterson | ||||
|
Title:
|
VP Credit | Title: |
CEO/CFO
NT 4-28-11 |
||||
|
Monitored Revolving Credit Supplement R10475S02
ABE FAIRMONT, LLC Fairmont, Nebraska |
- 2 - |
|
Monitored Revolving Credit Supplement RI0475S02
ABE FAIRMONT, LLC Fairmont, Nebraska |
- 3 - |
|
Monitored Revolving Credit Supplement RI0475S02
ABE FAIRMONT, LLC Fairmont, Nebraska |
- 4 - |
|
FARM CREDIT SERVICES
OF AMERICA, PCA
|
ABE FAIRMONT,
LLC
|
|||
|
|
By ADVANCED BIOENERGY, LLC
its sole member |
|||
|
|
||||
|
By:
|
/s/ Kathryn Frahm | By: | /s/ Richard Peterson | |
|
Title:
|
VP Credit | Title: |
CEO/CFO
NT 4-28-11 |
|
|
ABE Fairmont, LLC (00042404)
|
Fairmont, Nebraska | ← For Period ending |
| Line | Type of Eligible Asset | Amount/Price/Value | Advanced Rate | Collateral Value | ||||||||||
|
1
|
Owned Corn Inventory (bushels)
|
|||||||||||||
|
2
|
Corn Price
(lower of cost or market - $/bu)
|
$ | ||||||||||||
|
3
|
Corn Value (Line 1 x Line 2)
|
$ | 85 | % | $ | |||||||||
|
4
|
Less All Grain Payables (if applicable to above corn)
|
$ | 100 | % | $ | |||||||||
|
5
|
Owned DDGS Inventory (tons)
|
|||||||||||||
|
6
|
DDGS Price
(market - $/ton)
|
$ | ||||||||||||
|
7
|
DDGS Value (Line 5 x Line 6)
|
$ | 65 | % | $ | |||||||||
|
8
|
Owned WDGS Inventory (tons)
|
|||||||||||||
|
9
|
WDGS Price
(market - $/ton)
|
$ | ||||||||||||
|
10
|
WDGS Value (Line 8 x Line 9)
|
$ | 65 | % | $ | |||||||||
|
11
|
Owned Ethanol Inventory (gallon)
|
|||||||||||||
|
12
|
Ethanol
Price (market - $/gallon)
|
$ | ||||||||||||
|
13
|
Ethanol Value (Line 11 x Line 12)
|
$ | 80 | % | $ | |||||||||
|
14
|
Ethanol Receivables less than 10 days Past Due
|
$ | 85 | % | $ | |||||||||
|
15
|
DDGS
& WDGS Receivables less than 10 days Past Due
|
$ | 85 | % | $ | |||||||||
|
16
|
|
Total Borrowing Base → | $ | |||||||||||
|
17
|
Less: Book Overdraft(s)
|
$ | 100 | % | $ | |||||||||
|
18
|
Less: Demand Patron Notes/Deposits
|
$ | 100 | % | $ | |||||||||
|
19
|
Less: Outstanding Balance of Seasonal Loan(s)
|
$ | 100 | % | $ | |||||||||
|
20
|
Less: Issued Letters of Credit
|
$ | 100 | % | $ | |||||||||
|
21
|
|
Total Deducts (Line 17+18+19+20) → | $ | |||||||||||
|
22
|
|
EXCESS OR DEFICIT* (Line 16 - Line 21) → | $ | |||||||||||
| * | NOTE: If a deficit exists, please contact Agent (CoBank) immediately with: 1) and updated borrowing base report, and 2) specifics of all payments remitted since end of period (check numbers, wire routing numbers, etc.) |
| Authorized Signature | Title | Date | ||
|
Printed name:
|
-2-
-3-
| FARM CREDIT SERVICES OF AMERICA, PCA | ABE FAIRMONT, LLC | |||||||||
| By: ADVANCED BIOENERGY, LLC | ||||||||||
|
|
its sole member | |||||||||
|
|
||||||||||
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By:
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/s/ Kathryn Frahm
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By: |
/s/ Richard Peterson
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Title:
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VP Credit | Title: | CEO/CFO | |||||||
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NT 4-28-11 | |||||||||
| 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 |
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| 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. |
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| Employee and the Company have executed this Agreement as of the date set forth in the first paragraph. |
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Advanced BioEnergy LLC | |
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Date: May 9, 2011
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By: /s/ John Lovegrove | |
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Its: Chairman of the Board | |
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EMPLOYEE | |
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Date: May 11, 2011
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By: /s/ Richard Peterson | |
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Richard Peterson |
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A-1
A-2
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Name of Grantee:
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Richard Peterson |
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No. of Units Subject to Award: 150,000
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Date of Grant: May 11, 2011 |
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Expiration Date:
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May 10, 2021 |
| Number of Units in Tranche | Exercise Price Per Unit in Tranche | |||||||
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Tranche A
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50,000 | $ | 1.50 | |||||
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Tranche B
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50,000 | $ | 3.00 | |||||
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Tranche C
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50,000 | $ | 4.50 | |||||
| Number of Units as to Which | ||||
| Dates | Award Becomes Vested | |||
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May 11, 2012
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30,000 | |||
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May 11, 2013
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30,000 | |||
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May 11, 2014
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30,000 | |||
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May 11, 2015
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30,000 | |||
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May 11, 2016
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30,000 | |||
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GRANTEE:
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ADVANCED BIOENERGY, LLC | |
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/s/ Richard Peterson
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By: /s/ John Lovegrove | |
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Title: Chairman of the Board |
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| 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. |
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| (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 |
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| 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- |
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| 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 |
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| 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: |
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| (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. |
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| (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. |
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| (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. |
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| 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 | ||||||||||||||||
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Tranche A
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$ | 1.50 | $ | $ | $ | |||||||||||||||
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Tranche B
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$ | 3.00 | $ | $ | $ | |||||||||||||||
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Tranche C
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$ | 4.50 | $ | $ | $ | |||||||||||||||
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| Total Aggregate Appreciation Amount | $ | |||||||||||||||||||
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| Exercise Price Per | Number of Units | Aggregate Exercise | ||||||||||
| Unit | Exercised | Price | ||||||||||
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Tranche A
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$ | 1.50 | ||||||||||
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Tranche B
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$ | 3.00 | ||||||||||
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Tranche C
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$ | 4.50 | ||||||||||
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Totals | |||||||||||
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| 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 . |
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| Date: May 16, 2011 | /s/ Richard R. Peterson | |||
| Richard R. Peterson | ||||
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Chief Executive Officer and
Chief Financial Officer |
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| /s/ Richard R. Peterson | ||||
| Richard R. Peterson | ||||
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Chief Executive Officer and
Chief Financial Officer May 16, 2011 |
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