

NOTE 4:	CORPORATE BORROWINGS AND CAPITAL LEASE OBLIGATIONS

Indebtedness Outstanding. Debt consists of the following:



	December 31,
	2014			2013
Credit Agreement - Revolver, 2.269% (variable interest rate)	$	—		$	18,000
Credit Agreement - Fixed Asset Sub-Line term loan, 2.655% (variable interest rate)	6,670			—
Secured Promissory Note, 6.76% (variable interest rate), due monthly to July, 2016.	404			746
Water Cooling System Capital Lease Obligation, 2.61%, due monthly to May, 2017	3,209			4,422
Total	10,283			23,168
Less current maturities of long term debt	(2,613		)	(1,557		)
Long-term debt	$	7,670		$	21,611

Credit Agreement. On November 2, 2012, the Company entered into an Amended and Restated Credit Agreement, and ancillary documents (the "Credit Agreement") with Wells Fargo Bank, N.A. ("Wells Fargo"). On February 12, 2014, the Company entered into Amendment No. 1 to the Credit Agreement (the "First Amendment"). The First Amendment amended and restated the definition of the term EBITDA to add back (to the Company's consolidated net earnings or loss) governance expenses relating to certain shareholder litigation involving the Company in 2013 and incurred prior to December 31, 2013, in an aggregate amount not in excess of $5,500. The Company incurred $5,465 of such expenses as of or prior to December 31, 2013.

On August 5, 2014, the Company entered into Amendment No.2 to the Credit Agreement (the "Second Amendment") by and among Wells Fargo as administrative agent and sole lender and MGP Ingredients, Inc., MGPI Processing, Inc., MGPI Pipeline, Inc. and MGPI of Indiana, LLC. The Second Amendment amended and restated the definition of the term "Fixed Asset Sub-Line" and added Thunderbird Real Estate Holdings, LLC ("Thunderbird"), a wholly-owned subsidiary of MGPI Processing, Inc. which is a wholly-owned subsidiary of MGP Ingredients, Inc., to the Credit Agreement as a Loan Party, as defined in the Credit Agreement. In connection with execution of the Second Amendment, all the equity of Thunderbird was pledged and lien was placed on all the assets of Thunderbird to secure the obligations of the Loan Parties (as defined in the Credit Agreement) under the Credit Agreement. With the execution of the Fixed Asset Sub-Line term loan, $7,004 of debt obligations under the Credit Agreement became debt obligations under the sub-line term loan (maturing with the Credit Agreement), resulting in a non-cash transaction. The loan fees incurred by the Company related to the Second Amendment for the year ended December 31, 2014, were $66 and are being amortized over the life of the Credit Agreement. The amortized portion of the loan fees incurred is included in Interest expense, net on the Consolidated Statements of Operations.

The Credit Agreement matures on November 2, 2017 and provides for the provision of letters of credit and revolving loans with a Maximum Revolver Commitment of $55,000, subject to borrowing base limitations adjusted for the Fixed Asset Sub-Line collateral. As of December 31, 2014, the Company's total outstanding borrowings under the credit facility were $6,670 comprised of $0 of revolver borrowing and $6,670 of fixed asset sub-line term loan borrowing, leaving $42,744 available for additional borrowings. These limitations are generally based on the value of eligible inventory and accounts receivable owned by the Borrowers as defined in the Credit Agreement.

Borrowings under the Credit Agreement may bear interest either on a Base Rate model or a LIBOR Rate model. For LIBOR Rate Loans, the interest rate is equal to the per annum LIBOR Rate (based on 1, 2, 3 or 6 months) plus 2.00 percent – 2.50 percent (depending upon the average Excess Availability, as described below). For Base Rate Loans, the interest rate shall be the greatest of (a) 1.00 percent, (b) the Federal Funds Rate plus 0.50 percent, (c) one-month LIBOR Rate plus 1.00 percent, and (d) Wells Fargo’s "prime rate" as announced from time to time. The weighted average rate in effect at December 31, 2014 and 2013, was 2.54 percent and 2.52 percent, respectively. The Credit Agreement provides for an unused line fee equal to 0.375 percent per annum multiplied by the difference of the total revolving loan commitment less the average outstanding revolving loans for the given period, as well as customary field examination and appraisal fees, letter of credit fees and other administrative fees.

The Company’s Credit Agreement contains a number of financial and other covenants, including provisions that require the Company under certain circumstances to meet certain financial tests. These covenants may limit or restrict the Company’s ability to:


•	incur additional indebtedness;


•	pay cash dividends or make distributions;


•	dispose of assets;


•	create liens on Company assets;


•	pledge the fixed and real property assets; or


•	merge or consolidate.

Under the Credit Agreement, the Company must comply with the following covenants:

Financial Covenants. For all periods in which the Excess Availability (which is the total availability for loans, less the Company’s and its subsidiaries’ trade payables aged in excess of historical levels and book overdrafts) is less than $9,625, the Borrowers are required to have a Fixed Charge Coverage Ratio ("FCCR")

[FCCR means, with respect to any fiscal period and with respect to the Company determined on a consolidated basis in accordance with GAAP, the ratio of (i) EBITDA⁽¹⁾ for such period minus unfinanced Capital Expenditures made (to the extent not already incurred in a prior period) or incurred during such period, to (ii) Fixed Charges for such period.]

⁽¹⁾On February 12, 2014, we entered into the First Amendment, which amended and restated the definition of the term EBITDA to add back (to the Company's consolidated net earnings (or loss)) governance expenses relating to shareholder litigation incurred prior to December 31, 2013, in an aggregate amount not in excess of $5,500. For the years ended December 31, 2014 and 2013, we incurred $0 and $5,465 of such expenses. Had the Company not entered into the First Amendment, the Company still would have been in compliance with its FCCR covenant at December 31, 2013.

measured on a month end trailing basis, of at least 1.10:1.00 (a) for each month-end until October 31, 2013, for the trailing months from November 1, 2012 through such date, and (b) as of each month-end commencing November 30, 2013 using a trailing twelve-month measure. The Company was in compliance with its Credit Agreement’s financial covenants and other restrictions at December 31, 2014 and 2013.

Other Restrictions. The Company is generally prohibited from incurring any liabilities, or acquiring any assets, except for certain ordinary holding company activities as further described in the Credit Agreement. Wells Fargo has significant lending discretion under the Credit Agreement, and may modify borrowing base and advance rates, the effect of which may limit the amount of loans that the Borrowers may have outstanding at any given time. Wells Fargo may also terminate or accelerate our obligations under the Credit Agreement upon the occurrence of various events in addition to payment defaults and other breaches, including such matters as a change of control of the Company, defaults under other material contracts with third parties, and ERISA violations.

6.76% (variable interest rate) Secured Promissory Note, due monthly to July 2016. On July 20, 2009, Union State Bank – Bank of Atchison ("Bank of Atchison"), which previously lent the Company $1,500, agreed to lend the Company an additional $2,000. The note for this loan is secured by a mortgage and security interest on the Company’s Atchison facility and equipment. The note bears interest at 6.00 percent over the three year treasury index, adjustable quarterly, and is payable in 84 monthly installments of $32, with any balance due on the final installment. See Note 14: Related Party Transactions for further discussion on this related party transaction.

On February 27, 2015, we entered into a five year, $80,000 revolving loan pursuant to a Second Amended and Restated Credit Agreement with Wells Fargo Bank, National Association, as Administrative Agent (see Note 18: Subsequent Events for additional details).

Leases

Water Cooling System Capital Lease Obligation. On June 28, 2011, the Company sold a major portion of the new process water cooling towers and related equipment being installed at its Atchison facility to U.S. Bancorp Equipment Finance, Inc. for $7,335 and leased them from U.S. Bancorp pursuant to a Master Lease Agreement and related Schedule. Monthly rentals under the lease are $110 (plus applicable sales/use taxes, if any) and continue for 72 months from that date with a rate of 2.61 percent. The Company may purchase the leased property after 60 months for approximately $1,328, or at the end of the term for fair market value to be determined at that time. Given this continuing involvement, the Company treated this as a financing transaction. The lessor may, at its option, extend the lease for specified periods after the end of the term if the Company fails to exercise its purchase option. Under the terms of the Master Lease, is responsible for property taxes and assumes responsibility for insuring and all risk of loss or damage to the property.

Obligations under the Master Lease may be accelerated if an event of default occurs and continues for 10 days. In addition to payment defaults and breaches of representations and covenants, events of default include defaults under any other agreement with lessor or payment default under any obligation. In such event, among other matters, lessor may cancel the Master Lease, take possession of the property and seek to recover the present value of future rentals, the residual value of the property and the value of lost tax benefits.

Lenders having liens on the Atchison facility, including its revolving credit lender, Wells Fargo Bank, National Association, entered into mortgagee's waivers with respect to the leased property. As described in Note 2: Other Balance Sheet Captions, this equipment is included in property, plant and equipment.

4.90% Industrial Revenue Bond Obligation. On December 28, 2006, the Company engaged in an industrial revenue bond transaction with the City of Atchison, Kansas ("the City") pursuant to which the City (i) under a trust indenture, ("the Indenture"), issued $7,000 principal amount of its industrial revenue bonds ("the Bonds") to the Company and used the proceeds thereof to acquire from the Company its newly constructed office building and technical innovations center in Atchison, Kansas, ("the Facilities") and (ii) leased the Facilities back to the Company under a capital lease ("the Lease"). The assets related to this transaction are included in property and equipment.

The Bonds mature on December 1, 2016 and bear interest, payable annually on December 1 of each year commencing December, 2007 at the rate of 4.90 percent per annum. Basic rent under the lease is payable annually on December 1 in an amount sufficient to pay principal and interest on the Bonds. The Indenture and Lease contain certain provisions, covenants and restrictions customary for this type of transaction. In connection with the transaction, the Company agreed to pay the city an administrative fee of $50 payable over 10 years.

The purpose of the transaction was to facilitate certain property tax abatement opportunities available related to the constructed facilities. The facilities acquired with bond proceeds will receive property tax abatements which terminate upon maturity of the Bonds on December 1, 2016. The issuance of the Bonds was integral to the tax abatement process. Financing for the Facilities was provided internally from the Company’s operating cash flow. Accordingly, upon consummation of the transaction and issuance of the Bonds, the Company acquired all Bonds issued for $7,000, excluding transaction fees. As a result, the Company owns all of the outstanding Bonds. Because the Company owns all outstanding Bonds, management considers the debt canceled and, accordingly, no amount for these Bonds is reflected as debt outstanding on the Consolidated Balance Sheets as of December 31, 2014 or 2013.

Below is a summary of the financial asset and liability that are offset as of December 31, 2014 and 2013, respectively.



	(1)			(2)			(3) = (1) - (2)
	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts offset in the Balance Sheet			Net Amounts of Assets (Liabilities) presented in the Balance Sheet
December 31, 2014:
Investment in bonds	$	7,000		$	7,000		$	0
Capital lease obligation	$	(7,000	)	$	(7,000	)	$	0

December 31, 2013:
Investment in bonds	$	7,000		$	7,000		$	0
Capital lease obligation	$	(7,000	)	$	(7,000	)	$	0

Leases and Debt Maturities. The Company leases railcars and other assets under various operating leases. For railcar leases, the Company is generally required to pay all service costs associated with the railcars. Rental payments include minimum rentals plus contingent amounts based on mileage. Rental expenses under operating leases with terms longer than one month were $2,241 and $2,844 for the years ended December 31, 2014 and 2013, respectively. Minimum annual payments and present values thereof under existing debt maturities, capital leases and minimum annual rental commitments under non-cancelable operating leases are as follows:



					Capital Leases
Year Ending December 31,	Credit Agreement		Long-Term Debt		Minimum Lease Payments		Less Interest		Net Present Value		Total Debt		Operating Leases
2015	$	—	$	368	$	1,316	$	72	$	1,245	$	1,613	$	3,641
2016	—		36		1,317		39		1,277		1,313		2,457
2017	6,670		—		694		7		687		7,357		1,466
2018	—		—		—		—		—		—		320
2019	—		—		—		—		—		—		235
Thereafter	—		—		—		—		—		—		1,304
Total	$	6,670	$	404	$	3,327	$	118	$	3,209	$	10,283	$	9,423