EMPLOYMENT AGREEMENT CHIEF EXECUTIVE OFFICER/GENERAL MANAGER

Exhibit 10.2

EMPLOYMENT AGREEMENT

CHIEF EXECUTIVE OFFICER/GENERAL MANAGER

This Employment Agreement (“Agreement”) is made and effective the 12th day of May, 2006, by and between Otter Tail Ag Enterprises, LLC, a Minnesota limited liability company (“Company”), and Xxxxx Xxxxxxx, a Minnesota resident (“Executive”).

RECITALS

WHEREAS, Company is a limited liability company organized for the purpose, among other things, of developing, constructing, and operating an ethanol plant and associated operations, with its principal place of business near Fergus Falls, Minnesota; and

WHEREAS, Executive is experienced in management and administration of agri-business enterprises and seeks to be employed by Company as Chief Executive Officer/General Manager, and Company seeks to hire Executive as Chief Executive Officer/General Manager; and

WHEREAS, the Company and Executive believe it is in their mutual best interests to enter into an agreement regarding their mutual obligations relative to Executive’s employment with the Company.

NOW, THEREFORE, the parties hereto agree as follows:

1. EMPLOYMENT.

Company agrees to employ Executive as its Chief Executive Officer, also known as General Manager, commencing on January 1, 2007, or such earlier or later date as agreed to by the parties (the “Start Date”). Executive hereby accepts such employment commencing on the Start Date, and agrees to be employed with the Company in accordance with the terms and conditions of this Agreement and the terms of employment applicable to regular employees of Company, including the terms and conditions to be set forth in the Company’s Human Resources Policy Manual to be developed by the Company (the “Handbook”). In the event of any conflict or ambiguity between the terms of this Agreement and terms of employment applicable to regular employees, the terms of this Agreement shall control.

Prior to the Start Date, Executive shall complete such pre-employment applications, screening and background checks as required by Company, with results satisfactory to Company.

Prior to the Start Date, commencing August 1, 2006, Executive and Company will enter into a consulting services agreement under which Executive will provide consulting services to the Company on an independent contractor basis at the rate of $11,000.00 per month, through December 31, 2006. In addition, Contractor will be reimbursed for his COBRA costs for health and hospitalization insurance and for the cost of Worker’s Compensation equivalent coverage, during the term of the independent contractor services agreement. Any activity by Executive prior to August 1, 2006, will be voluntary services. The parties will enter into the independent contractor services agreement on or before June 1, 2006.

2. DUTIES OF EXECUTIVE.

The duties of Executive shall include the performance of all of the duties typical of the office held by Chief Executive Officer of an ethanol plant as described in the organizational documents of the Company, to be described in the job description of Chief Executive Officer, and such other duties and obligations as may be assigned or directed by the Company’s Board of Governors (the “Board”). Executive shall perform all his duties in a professional, ethical and businesslike manner.

Executive agrees to serve the Company faithfully and to the best of his abilities, and to devote his full time, attention, and efforts to the business and affairs of the Company during the term of his employment with the Company. Executive will not, during the term of this Agreement or his employment with the Company, directly or indirectly engage in any other part time or full time employment or business, either as an employee, employer, consultant, principal, officer, director, advisor, or in any other capacity, either with or without compensation, without the prior written consent of the Board. Executive represents to the Company that he is under no contractual commitments that are inconsistent with his obligations set forth in this Agreement or that would preclude his employment with the Company.

3. COMPENSATION.

Executive’s salary during the term of his employment with the Company under this Agreement will be payable in installments according to the Company’s regular payroll schedule. Executive’s base salary for the following periods during the term of this Agreement shall be as follows (for any period, the “Base Salary”):

Start Date – December 31, 2007: $132,000.00

January 1, 2008 - December 31, 2008: $137,000.00

January 1, 2009 – December 31, 2009: $142,000.00

If the Start Date does not fall on January 1, 2007, then the Base Salary for the first annual period of this Agreement shall be pro rated based upon actual calendar days during the first employment period. Base Salary shall accrue and be payable on a pro rata basis for days of service during each Base Salary period. On any renewal of this Agreement, Executive’s Base Salary shall be evaluated and adjusted as appropriate based upon a survey of comparable positions at comparable companies, comparably qualified and experienced persons in the applicable job market, as well as upon Executive’s performance as evaluated by the Board.

After the Company’s ethanol plant is operational and meets performance guarantees, in addition to the Base Salary, Executive shall have the opportunity to earn annual incentive compensation awards, which shall first be considered in December, 2008, and thereafter in December, 2009. The maximum incentive compensation payable for any one period shall not exceed fifty percent (50%) of the Executive’s Base Salary for the period in which the incentive compensation is being considered. The incentive compensation plan will be developed by mutual agreement of the Executive and the Search Committee of the Company’s Board, to be approved by the full Board. The incentive compensation plan will be developed, agreed upon and set forth in a separate document in order to be put in place and effective as of the Start Date.

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It is contemplated that the incentive compensation plan will establish goals in various areas of the Executive’s individual performance. In addition there will an annual performance review of employee satisfaction, customer satisfaction, vendor relations, public relations, positive working relationship with the Board of Governors, attitude, creativity, achievement of short-term goals, and other contributions beyond normal expectations. The incentive compensation plan will include a required level of financial performance to be attained by the Company before payment eligibility on any of the goals occurs. Goals and thresholds for incentive compensation will be developed by the Executive and the Search Committee of the Company’s Board. It is further contemplated that the incentive compensation plan will set forth goals to measure the Company’s performance based upon return on investment performance to the Company’s members and upon net cost per gallon benchmark reporting by Xxxxxxxxxxxx & Associates. Attached as Schedule “A” is a summary description of goals for return on investment performance and attendant bonus eligibility. Attached as Schedule “B” is a summary description of the Xxxxxxxxxxxx & Associates, PLLP benchmark measured goals for net cost per gallon performance. Goals within the Xxxxxxxxxxxx & Associates benchmark measured incentive compensation plan will include a category for “cost of goods sold” (to include feed stock, ingredients, water costs, electricity costs, natural gas, and production labor) and “operations” (to include, administrative expenses, plant supplies, repairs and maintenance, insurance costs, real estate taxes, taxes-other, depreciation/amortization, interest expense). The incentive compensation plan will provide that one-half of the incentive compensation will be determined by goals and standards relating to return on investment, and one-half will be determined based on standards and goals related to the Xxxxxxxxxxxx net cost per gallon benchmark reporting.

The incentive compensation review will be conducted on or before December 31 for each eligibility period, and will be based upon the Xxxxxxxxxxxx & Associates, PLLP benchmark reporting for the quarter ended September 30, and will be based upon the Company’s financial statements for the year ended September 30. In connection with each incentive compensation review, the Executive will be responsible to submit to the Board a summary of achievements on goals for consideration by the Board. The Board will be charged with reviewing, determining, and awarding an appropriate incentive compensation payment.

It is contemplated that the incentive compensation plan will include an opportunity for Executive to purchase member units of the Company at a per-unit cost of $2.00. The levels of eligibility for such member unit purchase options granted to Executive are generally described on the attached Schedule “A.” The Executive’s member unit purchase option agreement will be included within the written incentive compensation plan for Executive. It is contemplated that Executive’s option to purchase is conditioned upon the option being exercised within one-hundred eighty (180) days of the option period, and Executive must be employed with the Company to exercise his options. The member unit purchase option plan will provide that Executive’s first option to purchase will be January 1, 2009. It is contemplated that the Executive’s member unit purchase option plan will include an option by the Company and right of first refusal to repurchase Executive’s units at fair market value as determined by comparable sales of the Company’s units at the time of the exercise of option, in the event Executive separates from employment.

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Provided Executive meets the standard requirements of qualifying to be a member of the Company, as a one-time signing bonus, Executive will receive a profit’s interest on 12,500 Class A member units of the Company at a zero basis, with ownership of said units to vest at 20% per year as follows (the “Vesting Dates”):

January 1, 2007 – 2,500 Units Vest

January 1, 2008 – 2,500 Units Vest

January 1, 2009 – 2,500 Units Vest

January 1, 2010 – 2,500 Units Vest

January 1, 2011 – 2,500 Units Vest

Vesting is contingent upon Executive being employed with the Company on any of the Vesting Dates. Until the Vesting Date, Executive shall be allocated all profits or losses associated with the 12,500 Class A member units of the Company. The arrangements relative to the signing bonus units shall be set forth in a separate agreement between the parties.

A precondition of any Compensation to be paid under this Agreement is Executive’s performance of his duties, compliance with this Agreement, and compliance with the regulations governing plant operations.

4. BENEFITS.

In addition to the compensation described in Section 3 of this Agreement, Executive will be entitled to certain additional benefits afforded to the Chief Executive Officer position, as well as those benefits generally available to employees of the Company. Benefits afforded are generally subject to being altered, modified, discontinued, amended, or otherwise changed by the Company.

A. Vacation/Sick Leave. Executive will be entitled to paid time off and extended illness bank benefits or vacation/sick leave benefits as set forth in the Handbook. It is contemplated that Executive will accrue up to three weeks of vacation per period, and accrue up to six days of sick leave per period, or their equivalent in PTO/EIB.

B. Health and Hospitalization Insurance. - Executive shall be afforded health and hospitalization insurance coverage pursuant to the Company’s plans afforded other employees, with the Company paying health and hospitalization insurance premiums for Executive’s individual coverage. Depending on the health and hospitalization plan selected by Company, family and dependent coverage might be available for Executive, with premium payments to be at Executive’s cost for family coverage.

C. Other Benefits. Executive shall also be afforded the right to participate in any other benefit plans now or later available to other Company employees.

D. 401K. Executive shall be entitled to participate in Company’s 401K savings plan, to be developed, on the basis of the same availability to other Company employees.

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E. Automobile. Company shall lease a motor vehicle for Executive’s use during the term of this Agreement. The motor vehicle will be insured by the Company. The vehicle will be used for administrative purposes primarily, but may be used by Executive for personal use. A mileage log shall be kept by Executive noting all business use and personal use miles, and this log shall be utilized to do a personal value calculation to be reflected on Executive’s W-2 form each year.

F. Expense Reimbursement. Executive shall be entitled to reimbursement for all reasonable expenses, including travel and entertainment, incurred by Executive in the performance of Executive’s duties pursuant to policies adopted by the Board. Executive will maintain records and written receipt as required by the Company policy and reasonably requested by the board of directors to substantiate such expenses. The Company will pay or reimburse Executive for service club dues or fees of those service club organizations or associations in which Executive participates, and the Company hereby encourages Executive to be involved in service, civic, and other local clubs, organizations, and affiliations. Such involvement shall be considered part of Executive’s duties as Chief Executive Officer.

G. Miscellaneous. Company will provide Executive with a cellular phone and service plan, personal computer, PDA, and such other equipment and tools as are reasonably necessary for Executive to perform Executive’s duties. Company shall reimburse Executive or pay dues or fees incurred by Executive in ethanol industry related programs, organizations, and education programs as the Company may, from time to time, authorize Executive to participate in. Executive is authorized and directed to involve himself in and participate in the activities of such organizations related to the ethanol industry as Executive, in his reasonable discretion, and such other organizations related to the ethanol industry as Executive, in his reasonable discretion, deems appropriate and necessary, and such activities shall be regarded as part of Executive’s duties as Chief Executive Officer.

5. TERM AND TERMINATION.

A. Term. The term of Executive’s employment with the Company pursuant to this Agreement shall commence on the Start Date, and it shall continue in effect for a period terminating on December 31, 2009 (the “Termination Date”), unless earlier terminated as provided in this Agreement. On the Termination Date, this Agreement and Executive’s employment with the Company shall terminate without any further action, but may be renewed or extended upon the mutual written agreement of Executive and Company. In the ninety- (90-) day period preceding the Termination Date, or earlier as agreed to by the parties, Company and Executive will engage in discussions regarding extension of this Agreement and Executive’s employment with the Company.

B. Termination By Company Without Cause. Notwithstanding any provision of this Agreement or applicable law to the contrary, Executive’s employment with the Company and this Agreement may be terminated by the Company, acting by and through the Board, at anytime prior to the Termination Date without Cause (as that term is defined herein), in its sole discretion and at its election, effective immediately upon written notice to Executive or such later date as determined by the Board. In the event of such termination after January 31, 2007, the Company shall pay to Executive $60,000.00 (the “Severance Payment”). By agreement of the parties, in the event of such termination without Cause (as that term is defined herein), in

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addition to any pro-rated portion of the Base Salary then earned, the Severance Payment shall be the sole and exclusive liability of Company to Executive, and Executive hereby waives and releases the Company from any further or other claims by Executive against the Company. Executive shall not be entitled to any further or other payments from the Company, including, without limitation, any incentive compensation payment. As a condition to receiving the Severance Payment, Executive will execute and deliver to Company a release of all claims against Company, its officers, governors, employees, affiliates, or other agents or representatives from any and all legal and equitable claims, of any nature whatsoever.

C. Termination By Employee. Executive’s employment with the Company and this Agreement may be terminated by Executive at any time prior to the Termination Date, effective upon one hundred eighty (180) days’ prior written notice to the Company. This Agreement and Executive’s employment with the Company will be deemed terminated by Employee upon the occurrence of any of the following events: (i) the death of Executive; or (ii) Executive’s inability to carry on the essential functions of his usual and customary duties, because of illness or sickness, for a period of an aggregate six (6) months. In the event of termination pursuant to this section, no Severance Payment will be payable and Company’s sole obligation will be to pay Executive’s salary at the pro-rated Base Salary to the termination date included in Executive’s original termination notice or the date of death or disability.

D. Termination by Company for Cause. In the event that Executive is in breach of any obligation owed Company in this Agreement, or engages in any of the following conduct which shall constitute “Cause,” then Company shall have the right, at its discretion, to terminate this Agreement and Executive’s employment with the Company upon five (5) days’ written notice to Executive.

Grounds for termination of this Agreement and Executive’s employment with the Company, for Cause, includes:

i. Executive habitually and willfully neglects the duties to be performed by him;

ii. Executive engages in any conduct which is dishonest, or disloyal to Company, or materially damages the reputation or standing of the Company;

iii. Executive is convicted of any crime involving theft or dishonesty, or comprising a felony level offense;

iv. Executive violates material Company rules, regulations, directives, or policies;

v. Executive engages in conduct unbecoming a chief executive officer which materially impairs the Company’s operations or Executive’s effectiveness in his work;

vi. Other good and sufficient grounds constituting similar serious misconduct.

Except for termination on the basis of Subdivisions D(ii), D(iii), or D(iv), Executive’s employment shall not be terminated upon any of the above specified grounds constituting Cause, unless he shall have failed to correct a deficiency to the satisfaction of Company, at its discretion, after having been given written notice of the specified items of nonperformance and a

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reasonable amount of time, not to exceed thirty (30) days within which to correct the claimed failure to perform. Any recurrence of conduct for which notice was previously given shall constitute grounds for immediate termination.

In event of termination of this Agreement pursuant to this section, Company’s sole obligation will be to pay Executive’s then earned salary at the pro-rated Base Salary to the termination date, and no Severance Payment will be due or owing to Executive.

6. BOARD MEETING ATTENDANCE.

Executive shall be notified of and attend all annual, regular, and special meetings of the Board, but in a non-voting capacity.

7. SUCCESSOR TRANSITION.

Executive shall assist Company in transitioning to Executive’s successor to the Chief Executive Officer position as reasonably requested by the Company.

8. CONFIDENTIAL INFORMATION; INTELLECTUAL PROPERTY.

In connection with this Agreement, and as a condition to Company agreeing to employ Executive, Executive will execute and deliver a confidential information and intellectual property agreement under which Executive will agree (i) during the term of his employment with the Company and thereafter, to not use any Company information, except for the purposes of performing his duties and services for the Company, and never in competition with the Company; and (ii) that all developments, know-how, research, processes, or other concepts developed by Executive during the course and scope of his employment with Company, shall be the exclusive property of the Company.

A breach of said companion agreement will be a breach of this Agreement. The obligations of Executive under this section shall survive termination of this Agreement.

9. NON-COMPETITION; NON-SOLICIT.

As a condition of Executive’s employment by the Company, Executive agrees to execute and deliver to the Company contemporaneously with execution and delivery of this Agreement, a non-competition and non-solicit agreement under which Employee agrees that during the term of this Agreement, and for so long as he is employed with the Company, and for a period of two (2) years after the termination of this Agreement or Executive’s employment with the Company, whichever date is later, i) Executive will not consult for, be employed with, or otherwise perform services for, any person or entity in the ethanol business within a geographic area as follows: Minnesota, the northern one-half of the State of Iowa, the eastern one-half of the State of North Dakota, and the eastern one-half of the State of South Dakota; and ii) that Executive will not, directly or indirectly, solicit any customer, supplier, employee, or other representative of the Company to withdraw, curtail, or cancel its business with the Company, or leave the employ of the Company, as the case may be. The companion agreement will provide that employment in

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for an elevator not owned or controlled by an ethanol plant or an affiliate of an ethanol plant will not be a breach of the non-compete, provided that no grain procurement for ethanol plants will be permitted within a one-hundred fifty (150) mile radius of the Company’s ethanol plant.

A breach of said companion agreement will be a breach of this Agreement. The obligations of Executive under this section shall survive termination of this Agreement.

10. MISCELLANEOUS.

A. Notices. Any notice required by this Agreement or given in connection with it, shall be in writing and shall be given to the appropriate party by personal delivery, or by certified mail, postage prepaid, and return receipt requested, or by recognized, national overnight delivery services;

If to Company:	Otter Tail Ag Enterprises, LLC
	0000 Xxxxx Xxxxx Xxxx, Xxxxx 000
	Xxxxxx Xxxxx, XX 00000
If to Executive:	Xxxxx Xxxxxxx
	00000 Xxxxxxxxxxx Xxxxx
	Xxxxxx, XX 00000

Notice given by certified mail shall be deemed given five (5) days after the notice is deposited in the mail. All other forms of notice shall be deemed given on the date of personal delivery or the date of the overnight delivery. If either party desires to change their address for notice purposes, prior notice of such address change shall be given to the other party as set forth in this section.

B. Final Agreement. This Agreement and any other agreements referred to herein are the entire agreement of the parties relating to the subject matter hereof, and supersede all prior understandings or agreements on the subject matter hereof. This Agreement may be modified, waived, amended, or altered only by a further writing that is duly executed by both parties.

C. Governing Law And Jurisdiction. This Agreement shall be construed and enforced in accordance with the laws of the state of Minnesota, without regard to choice of law or conflict of law provisions. Each party consents to the state courts of Minnesota, Otter Tail County, as exclusive jurisdiction and venue to determine any disputes and hear any proceedings related to or arising from this Agreement or the parties’ employer/employee relationship. The parties waive any argument or objection to such jurisdiction and venue and agree that it is mutually convenient.

D. Headings. Headings used in this Agreement are provided for convenience only and shall not be used to construe meaning or intent.

E. No Assignment. Neither this Agreement nor any or interest in this Agreement may be assigned by Executive without the prior express written approval of Company, which may be withheld by Company at Company’s absolute discretion.

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F. Severability. If any term of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, then this Agreement, including all of the remaining terms, will remain in full force and effect as if such invalid or unenforceable term had never been included.

G. Dispute Resolution. For purposes of this provision, the term “dispute” means any and all disputes between Company, including its officers, governors, employees, on the one hand; and Executive, on the other hand, arising out of or relating to the making, performance, interpretation, or application of this Agreement, or in any way relating to, concerning, or arising from Executive’s employment with the Company, or the termination of this Agreement or Executive’s employment with the Company, and specifically includes, without limitation, any claim that a termination of employment by Company was not for cause, that Executive was constructively discharged or terminated, or otherwise.

If a dispute arises, the parties agree first to try in good faith for a period of sixty (60) days to settle the dispute by mediation under the Commercial Mediation Rules of the American Arbitration Association, before resorting to arbitration. Thereafter, any remaining unresolved dispute, controversy or claim shall be submitted to binding arbitration pursuant to the Commercial Arbitration Rules of the American Arbitration Association as modified by this Section; PROVIDED, that this Section shall not require use of the American Arbitration Association (only that such Rules as modified by this Section shall be followed). The arbitration shall be conducted in the State of Minnesota. Any award rendered shall be final and conclusive upon the parties and a judgment thereon may be entered in any court having competent jurisdiction. The parties shall (i) agree upon and appoint as the arbitrator a retired former trial Judge in Minnesota; (ii) direct the arbitrator to follow substantive rules of law and the Federal Rules of Evidence; (iii) allow for the parties to conduct discovery pursuant to the rules then in effect under the Federal Rules of Civil Procedure for a period not to exceed 60 days; (iv) require the testimony to be transcribed; and (v) require the award to be accompanied by findings of fact and a statement of reasons for the decision. The cost and expense of the arbitrator and location costs shall be borne equally by the parties to the dispute. All other costs and expenses, including reasonable attorney’s fees and expert’s fees, of all parties incurred in any dispute which is determined and/or settled by arbitration pursuant to this Section shall be borne by the party incurring such cost and expense. Except where clearly prevented by the area in dispute, the parties agree to continue performing their respective obligations under this Agreement while the dispute is being resolved.

H. Surrender of Records and Property. Upon termination of employment with the Company, Executive must deliver promptly to the Company all records, manuals, books, blank forms, documents, letters, memoranda, notes, notebooks, reports, data, tables, calculations or copies thereof, which are the property of the Company or which relate in any way to the business, products, practices or techniques of the Company, and all other property of the Company such as keys, computers, cell phones and other tools of the trade, trade secrets and confidential information of the Company, including, but not limited to, all documents which in whole or in part contain any trade secrets or confidential information of the Company, which in any of these cases are in his possession or under his control.

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IN WITNESS WHEREOF, the Executive and the Company enter into this Agreement dated effective the 12^th day of May, 2006.

			OTTER TAIL AG ENTERPRISES, LLC
			By	/s/ [ILLEGIBLE]
			Its Board President
			Date:		5-12-06
/s/ Xxxxx Xxxxxxx
Xxxxx Xxxxxxx
Xxxx:	5-12-06

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Schedule “A”

to CEO Employment Agreement

ROI		15%		2.5% of Bonus or $3,425		1,000 Units at $2.00
ROI		16%		5.0% of Bonus or $6,850		2,000 Units at $2.00
ROI		17%		7.5% of Bonus or $10,275		3,000 Units at $2.00
ROI		18%		10.0% of Bonus or $13,700		4,000 Units at $2.00
ROI		19%		12.5% of Bonus or $17,125		5,000 Units at $2.00
ROI		20%		15.0% of Bonus or $20,550		6,000 Units at $2.00
ROI		21%		17.5% of Bonus or $23,975		7,000 Units at $2.00
ROI		22%		20.0% of Bonus or $27,400		8,000 Units at $2.00
ROI		23%		22.5% of Bonus or $30,825		9,000 Units at $2.00
ROI		24%		25.0% of Bonus or $34,250		10,000 Units at $2.00
Total(s)				25% Bonus        or $34,500		10,000 Units at $2.00

Initials	[ILLEGIBLE]		(Company)
Initials	K.L.	(Executive)

Schedule “B”

Xxxxxxxxxxxx & Associates Benchmarking Model

NET COST PER GALLON (NC/G) Schedule

Position in Group		2008			2009
Top 10% of Group		$	8,562.50		$	11,833.00
Top 20% of Group		$	8,562.50		$	11,833.00
Top 30% of Group		$	8,562.50		$	11,833.00
Top 40% of Group		$	8,562.50
Total(s)		$	34,250.00		$	35,500.00

The NC/G calculation will be determined by taking the Xxxxxxxxxxxx & Associates, PLLP benchmarking reports to include the following elements of Costs of Goods Sold and Operations:

Cost of Goods Sold		Operations
Feed Stock
Ingredients		Administrative Expense
Water Cost		Plant Supplies
Natural Gas		Repairs and Maintenance
Production Labor		Insurance Costs
Electricity Cost		Real Estate Taxes
		Taxes – Other
		Depreciation/Amortization
		Interest Expense

Initials	[ILLEGIBLE]		(Company)
Initials	K.L.	(Executive)