12. Commitments and Contingencies

The Operating Subsidiaries entered into two operating lease agreements with Cargill. Cargill’s grain handling and storage facilities, located adjacent to the Wood River and Fairmont plants, are being leased for 20 years, which began in September 2008 for both plants. Minimum annual payments initially were $800,000 for the Fairmont plant and $1,000,000 for the Wood River plant so long as the associated corn supply agreements with Cargill remain in effect. Should the Operating Subsidiaries not maintain its corn supply agreements with Cargill, the minimum annual payments under each lease increase to $1,200,000 and $1,500,000, respectively. The leases contain escalation clauses that are based on the percentage change in the Midwest Consumer Price Index. The escalation clauses are considered to be contingent rent and, accordingly, are not included in minimum lease payments. Rent expense is recognized on a straight line basis over the terms of the leases. Events of default under the leases include failure to fulfill monetary or non-monetary obligations and insolvency. Effective September 1, 2009, the Operating Subsidiaries and Cargill entered into Omnibus Agreements whereby the two operating lease agreements were modified, for a period of one year, to defer a portion of the monthly lease payments. The deferred lease payments were to be paid back to Cargill over a two year period beginning September 1, 2010. On September 23, 2010, the Operating Subsidiaries and Cargill entered into a letter agreement (“Letter Agreement”) whereby (i) effective October 2010 the minimum annual payments under the leases were reduced to $50,000 for the Fairmont plant and $250,000 for the Wood River plant and (ii) repayment of the deferred lease payments have been deferred for an indefinite period of time. As of June 30, 2013, the deferred lease payments totaled $1.6 million and are included in other non-current liabilities.

Beginning in the second quarter of 2008, the Operating Subsidiaries entered into agreements to lease railroad cars over a period of ten years. Pursuant to these lease agreements, the Operating Subsidiaries are currently leasing 785 railroad cars for approximately $6.7 million per year. Monthly rental charges escalate if modifications of the cars are required by governmental authorities or mileage exceeds 30,000 miles in any calendar year. Rent expense is recognized on a straight line basis over the terms of the leases. Events of default under the leases include failure to fulfill monetary or non-monetary obligations.

In April 2008, the LLC entered into a 64 month lease that began July 1, 2008 for office space for its corporate headquarters. Rent expense is being recognized on a straight line basis over the term of the lease.

In October 2011, the Operating Subsidiaries entered into two operating lease agreements to lease corn oil extraction systems, one for each of its plants. Each lease agreement is for a period of two years and commenced in April 2012 when funding was completed. Pursuant to these lease agreements, the Operating Subsidiaries are paying approximately $4.3 million per year for the corn oil extraction systems. Rent expense is recognized on a straight line basis over the terms of the leases. Events of default under the leases include failure to fulfill monetary or non-monetary obligations under either lease, as well as any payment default under any of the Company’s other material debt obligations, including the Senior Debt Facility. The Company has informed Farnam Street Financial, Inc. (“Farnam”) of the default notice it received from its senior lenders, and Farnam has elected not to declare a default under either lease agreement so long as the Operating Subsidiaries continue to make timely lease payments.`

Future minimum operating lease payments at June 30, 2013 are as follows (in thousands):

Remainder of 2013	$	5,704
2014		8,392
2015		6,972
2016		6,972
2017		6,972
Thereafter		5,197
Total	$	40,209

Rent expense recorded for the three and six months ended June 30, 2013 totaled $2,889,000 and $5,750,000, respectively. Rent expense recorded for the three and six months ended June 30, 2012 totaled $2,811,000 and $5,639,000, respectively.

Pursuant to long-term agreements, Cargill is the exclusive supplier of corn to the Wood River and Fairmont plants for twenty years commencing September 2008. The price of corn purchased under these agreements is based on a formula including cost plus an origination fee of $0.048 per bushel. The minimum annual origination fee payable to Cargill per plant under the agreements is $1.2 million. The agreements contain events of default that include failure to pay, willful misconduct, purchase of corn from another supplier, insolvency or the termination of the associated grain facility lease. Effective September 1, 2009, the Operating Subsidiaries and Cargill entered into Omnibus Agreements whereby the two corn supply agreements were modified, for a period of one year, extending payment terms for our corn purchases which were to revert to the original terms on September 1, 2010. On September 23, 2010, the Operating Subsidiaries and Cargill entered into a Letter Agreement whereby the extended payment terms for our corn purchases will remain in effect for the remainder of the two corn supply agreements. As a result of the Company’s Fairmont facility being idled, Cargill has been invoicing the Company for the minimum origination fees payable to Cargill. As of June 30, 2013, the minimum origination fees payable to Cargill totaled $1.0 million and are included in accounts payable.

At June 30, 2013, the Operating Subsidiaries had contracted to purchase 55,000 bushels of corn to be delivered during October 2013 at our Fairmont location, and 5,451,000 bushels of corn to be delivered between July 2013 and October 2014 at our Wood River location. The purchase commitment for the Wood River location represents 11% of the projected corn requirements during that period. The purchase price of the corn will be determined at the time of delivery.

Cargill has agreed to purchase all ethanol produced at the Wood River and Fairmont plants through September 2016. Under the terms of the ethanol marketing agreements, the Wood River and Fairmont plants generally participate in a marketing pool in which all parties receive the same net price. That price is generally the average delivered price per gallon received by the marketing pool less average transportation and storage charges and less a commission. In certain circumstances, the plants may elect not to participate in the marketing pool. Minimum annual commissions are payable to Cargill equal to 1% of Cargill’s average selling price for 82.5 million gallons of ethanol from each plant. The ethanol marketing agreements contain events of default that include failure to pay, willful misconduct and insolvency. Effective September 1, 2009, the subsidiaries and Cargill entered into Omnibus Agreements whereby the two ethanol marketing agreements were modified, for a period of one year, to defer a portion of the monthly ethanol commission payments. The deferred commission payments were to be paid to Cargill over a two year period beginning September 1, 2010. On September 23, 2010, the subsidiaries and Cargill entered into a Letter Agreement whereby (i) effective September 24, 2010 the ethanol commissions were reduced and (ii) repayment of the deferred commission payments have been deferred for an indefinite period of time with any repayment at the discretion of the Operating Subsidiaries. As of June 30, 2013, the deferred ethanol commissions totaled $1.0 million and are included in other non-current liabilities. As a result of the Company’s Fairmont facility being idled, Cargill has been invoicing the Company for the minimum ethanol commissions payable to Cargill, As of June 30, 2013, the minimum ethanol commissions payable to Cargill totaled $0.6 million and are included in accounts payable.

The Company is not currently a party to any material legal, administrative or regulatory proceedings that have arisen in the ordinary course of business or otherwise that would result in loss contingencies.