Green Plains Inc.
GREEN PLAINS RENEWABLE ENERGY, INC. (Form: 10-Q, Received: 08/10/2009 17:27:39)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________


FORM 10-Q


Quarterly Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934


For the Quarterly Period Ended June 30, 2009


Commission File Number 001-32924


Green Plains Renewable Energy, Inc.

(Exact name of registrant as specified in its charter)



Iowa

 

84-1652107

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)



9420 Underwood Avenue, Suite 100

Omaha, NE 68114

(Address of principal executive offices, including zip code)



(402) 884-8700

(Registrant’s telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  X . Yes          . No


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).       . Yes          . No


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer         .      Accelerated filer       .      Non-accelerated filer  X .      Smaller reporting company       .


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).       . Yes     X . No


The number of shares of common stock, par value $0.001 per share, outstanding as of July 31, 2009 was 24,954,639 shares.




TABLE OF CONTENTS


 

Page

PART I – FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets

3

 

 

 

 

Consolidated Statements of Operations

4

 

 

 

 

Consolidated Statements of Cash Flows

5

 

 

 

 

Notes to Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

 

 

 

Item 4.

Controls and Procedures

32

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

33

 

 

 

Item 1A.

Risk Factors

33

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

 

 

 

Item 3.

Defaults Upon Senior Securities

33

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

33

 

 

 

Item 5.

Other Information

33

 

 

 

Item 6.

Exhibits

34

 

 

 

Signatures

35



2



GREEN PLAINS RENEWABLE ENERGY, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


(in thousands, except share amounts)


 

 

 

 

June 30,

2009

 

December 31,

2008

 

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

55,322

 

$

65,111

 

Accounts receivable, net of allowances of $539 and $174, and including

 

 

 

 

 

 

 

 

amounts from related parties of $1,477 and $2,177, respectively

 

 

48,664

 

 

54,306

 

Inventories

 

 

64,741

 

 

47,033

 

Prepaid expenses and other

 

 

4,685

 

 

13,069

 

Deposits

 

 

9,243

 

 

10,385

 

Derivative financial instruments

 

 

7,096

 

 

3,065

 

 

Total current assets

 

 

189,751

 

 

192,969

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

494,148

 

 

495,772

Investment in unconsolidated subsidiaries

 

 

1,357

 

 

1,377

Financing costs and other

 

 

13,347

 

 

2,948

 

 

Total assets

 

$

698,603

 

$

693,066

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable, including amounts to related parties

 

 

 

 

 

 

 

 

of $1,140 and $9,824, respectively

 

$

44,386

 

$

61,711

 

Accrued liabilities

 

 

11,067

 

 

14,595

 

Unearned revenue

 

 

17,608

 

 

-

 

Derivative financial instruments

 

 

9,813

 

 

4,538

 

Current maturities of long-term debt

 

 

36,718

 

 

27,405

 

 

Total current liabilities

 

 

119,592

 

 

108,249

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

293,955

 

 

299,011

Other liabilities

 

 

5,324

 

 

5,821

 

 

Total liabilities

 

 

418,871

 

 

413,081

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

Common stock, $0.001 par value; 50,000,000 shares authorized;

 

 

 

 

 

 

 

 

24,954,639 and 24,659,250 shares issued and outstanding, respectively

 

25

 

 

25

 

Additional paid-in capital

 

 

291,172

 

 

290,421

 

Accumulated deficit

 

 

(19,173)

 

 

(10,459)

 

Accumulated other comprehensive loss

 

 

(224)

 

 

(298)

 

 

Total Green Plains stockholders' equity

 

 

271,800

 

 

279,689

 

Noncontrolling interests

 

 

7,932

 

 

296

 

 

Total stockholders' equity

 

 

279,732

 

 

279,985

 

 

Total liabilities and stockholders' equity

 

$

698,603

 

$

693,066


See accompanying notes to the consolidated financial statements.



3



GREEN PLAINS RENEWABLE ENERGY, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS


(unaudited and in thousands, except per share amounts)


 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Ethanol

$

206,111

 

$

259

 

$

367,965

 

$

259

 

Grain

 

21,367

 

 

-

 

 

38,685

 

 

-

 

Agronomy products

 

20,507

 

 

-

 

 

24,968

 

 

-

 

Distillers grains

 

34,210

 

 

-

 

 

69,091

 

 

-

 

Other

 

2,460

 

 

-

 

 

5,028

 

 

-

 

 

Total revenues

 

284,655

 

 

259

 

 

505,737

 

 

259

Cost of goods sold

 

269,772

 

 

165

 

 

488,975

 

 

165

 

 

Gross profit

 

14,883

 

 

94

 

 

16,762

 

 

94

Operating expenses

 

10,747

 

 

1,461

 

 

19,806

 

 

3,414

 

 

Operating income (loss)

 

4,136

 

 

(1,367)

 

 

(3,044)

 

 

(3,320)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

53

 

 

13

 

 

127

 

 

13

 

Interest expense, net of amounts capitalized

 

(3,830)

 

 

(10)

 

 

(6,344)

 

 

(68)

 

Other, net

 

214

 

 

2

 

 

548

 

 

(4)

 

 

Total other income (expense)

 

(3,563)

 

 

5

 

 

(5,669)

 

 

(59)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

573

 

 

(1,362)

 

 

(8,713)

 

 

(3,379)

Income tax provision (benefit)

 

-

 

 

-

 

 

-

 

 

-

Net income (loss)

 

573

 

 

(1,362)

 

 

(8,713)

 

 

(3,379)

Net (income) loss attributable to noncontrolling interests

 

54

 

 

190

 

 

(1)

 

 

420

Net income (loss) attributable to Green Plains

$

627

 

$

(1,172)

 

$

(8,714)

 

$

(2,959)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

Income attributable to Green Plains stockholders - basic

$

0.03

 

$

(0.16)

 

$

(0.35)

 

$

(0.39)

 

Income attributable to Green Plains stockholders - diluted

$

0.03

 

$

(0.16)

 

$

(0.35)

 

$

(0.39)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

24,941

 

7,498

 

24,903

 

7,498

 

Diluted

24,944

 

7,498

 

24,903

 

7,498


See accompanying notes to the consolidated financial statements.



4



GREEN PLAINS RENEWABLE ENERGY, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS


(unaudited and in thousands)


 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

June 30,

 

 

 

 

 

 

2009

 

2008

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss attributable to Green Plains

 

$

(8,714)

 

$

(2,959)

 

Adjustments to reconcile net loss to net cash

 

 

 

 

 

 

 

provided (used) by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

12,995

 

 

21

 

 

Unrealized (gains) losses on derivative financial instruments

 

 

1,330

 

 

-

 

 

Stock-based compensation expense

 

 

447

 

 

136

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

6,913

 

 

-

 

 

 

Inventories

 

 

(17,708)

 

 

(1,846)

 

 

 

Deposits

 

 

1,142

 

 

-

 

 

 

Derivative financial instruments

 

 

133

 

 

-

 

 

 

Prepaid expenses and other assets

 

 

7,728

 

 

1,270

 

 

 

Accounts payable and accrued liabilities

 

 

(21,836)

 

 

3,856

 

 

 

Unearned revenues

 

 

17,608

 

 

-

 

 

 

Other

 

 

(503)

 

 

-

 

 

 

 

Net cash provided (used) by operating activities

 

 

(465)

 

 

478

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(3,185)

 

 

(70,834)

 

Acquisition of business

 

 

(7,500)

 

 

-

 

Withdrawal of restricted cash

 

 

-

 

 

2,204

 

Cash acquired in acquisition of subsidiary

 

 

4,280

 

 

-

 

Purchases of investments

 

 

-

 

 

(1,411)

 

Other

 

 

 

 

(234)

 

 

(421)

 

 

 

 

Net cash used by investing activities

 

 

(6,639)

 

 

(70,462)

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from the issuance of debt

 

 

47,450

 

 

-

 

Payments of principal on long-term debt

 

 

(48,399)

 

 

-

 

Proceeds from notes payable

 

 

-

 

 

68,861

 

Proceeds from exercises of stock options

 

 

40

 

 

-

 

Capital contributions

 

 

-

 

 

2,575

 

Payments of loan fees and equity in creditors

 

 

(1,776)

 

 

(1,587)

 

 

 

 

Net cash provided (used) by financing activities

 

 

(2,685)

 

 

69,849

 

 

 

 

 

 

 

 

 

 

 

Net change in cash and equivalents

 

 

(9,789)

 

 

(135)

Cash and cash equivalents, beginning of period

 

 

65,111

 

 

1,774

Cash and cash equivalents, end of period

 

$

55,322

 

$

1,639

 

 

 

 

 

 

 

 

 

 

 

Continued on the following page

 

 

 

 

 

 




5



GREEN PLAINS RENEWABLE ENERGY, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


(unaudited and in thousands)


Continued from the previous page

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

June 30,

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow:

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

-

 

$

-

 

Cash paid for interest

 

$

5,280

 

$

58

 

 

 

 

 

 

 

 

 

 

 

Noncash additions to property and equipment:

 

 

 

 

 

 

 

Property and equipment acquired in acquisition

 

$

7,437

 

$

-

 

Capital lease obligation incurred for equipment

 

 

535

 

 

-

 

 

Total noncash additions to property and equipment

 

$

7,972

 

$

-

 

 

 

 

 

 

 

 

 

 

 

Supplemental noncash investing and financing activities:

 

 

 

 

 

 

 

Assets acquired in acquisition

 

$

21,593

 

$

-

 

Less: liabilities assumed

 

 

(6,202)

 

 

-

 

 

Total noncash investing and financing activities

 

$

15,391

 

$

-


See accompanying notes to the consolidated financial statements.



6



GREEN PLAINS RENEWABLE ENERGY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)


1.

BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


References to the Company


References to “we,” “us,” “our,” “Green Plains” or the “Company” in the consolidated financial statements and in these notes to the consolidated financial statements refer to Green Plains Renewable Energy, Inc., an Iowa corporation, and its subsidiaries.


Reverse Acquisition Accounting


VBV LLC (“VBV”) and its subsidiaries became wholly-owned subsidiaries of Green Plains Renewable Energy, Inc. pursuant to a merger on October 15, 2008. Under the purchase method of accounting in a business combination effected through an exchange of equity interests, the entity that issues the equity interests is generally the acquiring entity. In some business combinations (commonly referred to as reverse acquisitions), however, the acquired entity issues the equity interests. Statement of Financial Accounting Standard (“SFAS”) No. 141, “Business Combinations,” requires consideration of the facts and circumstances surrounding a business combination that generally involve the relative ownership and control of the entity by each of the parties subsequent to the merger. Based on a review of these factors, the October 2008 merger with VBV (the “Merger”) was accounted for as a reverse acquisition (i.e., Green Plains was considered the acquired company and VBV was considered the acquiring company).


As a result, Green Plains’ assets and liabilities as of October 15, 2008, the date of the Merger closing, have been incorporated into VBV’s balance sheet based on the fair values of the net assets acquired, which equaled the consideration paid for the acquisition. SFAS No. 141 also requires an allocation of the acquisition consideration to individual assets and liabilities including tangible assets, financial assets, separately recognized intangible assets, and goodwill. Further, the Company’s operating results (post-Merger) include VBV’s operating results prior to the date of closing and the results of the combined entity following the closing of the Merger. Although VBV was considered the acquiring entity for accounting purposes, the Merger was structured so that VBV became a wholly-owned subsidiary of Green Plains Renewable Energy, Inc.


Change in Fiscal Year End


Effective April 1, 2008, to more closely align our year end with that of the majority of our peer group, we changed our year end to December 31 (from VBV’s fiscal year end of March 31).


Consolidated Financial Statements


In the consolidated financial statements and the notes thereto, all references to the three and six months ended June 30, 2008 are related to VBV and its subsidiaries as the predecessor company pursuant to reverse acquisition accounting rules. Although pre-merger Green Plains had been producing ethanol since August 2007, under reverse acquisition accounting rules, the merged Company’s consolidated financial statements reflect VBV’s results as a development stage company (from inception on September 28, 2006 until September 2008) and as an operating company since September 2008. Accordingly, the Company’s comparative operating results (post-Merger) include the operating results of VBV and its subsidiaries prior to the date of the Merger and the results of the combined entity following the closing of the Merger.


The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Certain amounts previously reported have been reclassified to conform to the current quarter presentation.



7



The accompanying consolidated balance sheet as of December 31, 2008, which has been derived from our audited consolidated financial statements as filed in our annual report for the transition period then ended and the unaudited interim consolidated financial statements, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), and include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted pursuant to those rules and regulations. The consolidated financial statements at June 30, 2009, and for the three and six months ended June 30, 2009 and 2008, are unaudited and reflect all adjustments of a normal recurring nature, except as otherwise disclosed herein, which are, in the opinion of management, necessary for a fair presentation, in all material respects, of the consolidated financial position, results of operations and cash flows for the interim periods. The results of the interim periods are not necessarily indicative of the results for the full year. The consolidated financial statements should be read in conjunction with the consolidated financial statements included in our Form 10-K as filed with the SEC and notes thereto and risk factors contained therein for the nine-month transition period ended December 31, 2008.


Use of Estimates in the Preparation of Consolidated Financial Statements


The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.


Description of Business


Green Plains was formed in June 2004 to construct and operate dry mill, fuel grade ethanol production facilities. Ethanol is a renewable, environmentally clean fuel source that is produced at numerous facilities in the United States, mostly in the Midwest. In the U.S., ethanol is produced primarily from corn and then blended with unleaded gasoline in varying percentages.


To add shareholder value, Green Plains expanded its business operations beyond ethanol production to integrate a full-service grain and agronomy business (via the April 2008 acquisition of Great Lakes Cooperative), ethanol marketing services, (see Note 3 related to the October 2008 merger between Green Plains and VBV, which provided additional ethanol production and marketing services) and terminal and distribution assets (see Note 4 related to the January 2009 acquisition of majority interest in Blendstar LLC, a biofuel terminal operator). As discussed above, under reverse acquisition accounting rules, VBV was considered the acquiring company in the October 2008 merger.


VBV was formed in September 2006 to capitalize on biofuels opportunities available within the United States. The goal was to create a company in the ethanol business with an integrated network combining production, distribution and marketing. VBV purchased controlling interest in two development stage ethanol plants: Indiana Bio-Energy, LLC, now known as Green Plains Bluffton LLC, and Ethanol Grain Processors, LLC, now known as Green Plains Obion LLC. Both plants were designed as dry mill, natural gas fired ethanol plants with estimated production capacity of 110 million gallons per year of fuel grade ethanol.


Operations commenced at our Shenandoah, IA plant in August 2007, and at our Superior, IA plant in July 2008. Each of these ethanol plants has expected production capacity of 55 million gallons per year (“mmgy”). In September 2008 and November 2008, respectively, the Bluffton, IN and Obion, TN facilities commenced ethanol production activities. Prior to the commencement of ethanol production at the Bluffton plant, VBV had no significant revenue-producing operations and had historically incurred net losses from operations during its development stage. At full capacity, the combined ethanol production of our four facilities is 330 million gallons per year. Processing at full capacity will consume approximately 120 million bushels of corn and produce approximately 1,020,000 tons of distillers grains.


The Company also has an in-house fee based marketing business, Green Plains Trade Group LLC (“Green Plains Trade”), a wholly-owned subsidiary of the Company, which provides ethanol marketing services to other producers in the ethanol industry. We have entered into several ethanol marketing agreements with third parties, pursuant to which the Company has agreed to market substantially all of the ethanol that is expected to be produced by such parties on an annual basis. Annual production from these third-party plants is expected to be approximately 305 million gallons. Our plan is to expand our third-party ethanol marketing operations. Green Plains Trade is also now responsible for the sales, marketing and distribution of all ethanol produced at our production facilities.


In April 2008, Green Plains completed the acquisition of Great Lakes Cooperative, a full-service cooperative that specializes in grain, agronomy, feed and petroleum products with seven locations in northwestern Iowa. Now known as Green Plains Grain Company LLC (“Green Plains Grain”), this business complements the ethanol plants in its grain handling and marketing, as well as grain procurement required in ethanol processing.



8



In January 2009, the Company acquired majority interest in Blendstar LLC, a Houston-based biofuel terminal operator with six facilities in five states. Green Plains owns 51% of Blendstar (see Note 4 – Acquisition for further discussion related to this acquisition).


In July 2009, the Company acquired two ethanol plants from a lender group led by AgStar Financial Services. The plants are located in Ord, NE and Central City, NE and add 50 and 100 million gallons of annual expected production capacity, respectively.


The Company believes that as a result of the 2008 mergers, the January 2009 Blendstar acquisition, and the recent acquisition of the Ord and Central City plants, the combined enterprise is a stronger, more competitive company capable of achieving greater financial strength, operating efficiencies, earning power, access to capital and growth than could have been realized previously.


Revenue Recognition


We recognize revenue when all of the following criteria are satisfied: persuasive evidence of an arrangement exists; risk of loss and title transfer to the customer; the price is fixed and determinable; and collectability is reasonably assured.


Previously, the Company sold ethanol and distillers grains in-house and via third-party marketers, who were our customers for purposes of revenue recognition. Specifically, Green Plains Superior LLC, Green Plains Bluffton and Green Plains Obion each had contracted with independent marketers to purchase all of their ethanol production. These third-party marketers were responsible for subsequent sales, marketing, and shipping of the ethanol and distillers grains. Accordingly, once the ethanol or distillers grains were loaded into rail cars and bills of lading were generated, the criteria for revenue recognition were considered to be satisfied and sales were recorded. The agreements with these third-party marketers terminated in January 2009 and February 2009. Green Plains Trade is now responsible for the sales, marketing and distribution of all ethanol produced at the Company’s four production facilities.


For sales of ethanol and distillers grains by Green Plains Trade, revenue is recognized when title to the product and risk of loss transfer to the customer. Revenues related to Green Plains Trade’s third-party marketing operations are recorded on a gross basis in the consolidated financial statements, as Green Plains Trade takes title to the product and assumes risk of loss. Under our contract with CHS, Inc., certain shipping costs for dried distillers grains are incurred directly by us, which are reflected in cost of goods sold. For distillers grains sold to local farmers, bills of lading are generated and signed by the driver for outgoing shipments, at which time sales are recorded. Revenues from Blendstar, which offers ethanol transload and splash blending services, are recognized as these services are rendered.


The Company routinely enters into fixed-price, physical-delivery ethanol sales agreements. In certain instances, the Company intends to settle the transaction by open market purchases of ethanol rather than by delivery from its own production. These transactions are reported net as a component of revenues.


Sales of agricultural commodities, fertilizers and other similar products are recognized when title to the product and risk of loss transfer to the customer, which is dependent on the agreed upon sales terms with the customer. These sales terms provide for passage of title either at the time shipment is made or at the time the commodity has been delivered to its destination and final weights, grades and settlement prices have been agreed upon with the customer. Shipping and handling costs are included as a component of cost of goods sold. Revenues from grain storage are recognized as services are rendered. Revenues related to grain merchandising are presented gross.


Cost of Goods Sold


Cost of goods sold includes costs for direct labor, materials and certain plant overhead costs. Direct labor includes all compensation and related benefits of non-management personnel involved in the operation of our ethanol plants. Grain purchasing and receiving costs, other than labor costs for grain buyers and scale operators, are also included in cost of goods sold. Direct materials consist of the costs of corn feedstock, denaturant, and process chemicals. Corn feedstock costs include realized and unrealized gains and losses on related derivative financial instruments, inbound freight charges, inspection costs and internal transfer costs. Plant overhead costs primarily consist of plant utilities, plant depreciation, sales commissions and outbound freight charges. Shipping costs incurred directly by us, including railcar lease costs, are also reflected in cost of goods sold. Throughput and unloading fees incurred by Blendstar are recognized as these services are rendered.



9



We use exchange-traded futures and options contracts to minimize the effects of changes in the prices of agricultural commodities on our agribusiness grain inventories and forward purchase and sales contracts. Exchange-traded futures and options contracts are valued at quoted market prices. Forward purchase contracts and forward sale contracts are valued at market prices, where available, or other market quotes adjusted for differences, primarily transportation, between the exchange-traded market and the local markets on which the terms of the contracts are based. Changes in the market value of inventories, forward purchase and sale contracts, and exchange-traded futures and options contracts, are recognized in earnings as a component of cost of goods sold. These contracts are predominantly settled in cash. We are exposed to loss in the event of non-performance by the counter-party to forward purchase and forward sales contracts.


Recent Accounting Pronouncements


In May 2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 165, “Subsequent Events.” SFAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. Although the standard is based on the same principles as those that currently exist in accounting and auditing standards, it includes a new required disclosure of the date through which an entity has evaluated subsequent events. The Company adopted SFAS No. 165 during the quarter ended June 30, 2009, and its application had no impact on the Company’s consolidated financial statements. The Company evaluated subsequent events through the date the accompanying financial statements were issued, which was August 10, 2009.


In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – A Replacement of FASB Statement No. 162.” SFAS No. 168 establishes the FASB Accounting Standards Codification as the single source of authoritative nongovernmental U.S. generally accepted accounting principles. SFAS No. 168 is effective for interim and annual periods ending after September 15, 2009. The adoption of this standard will not have a material impact on our financial statements.


2.

FAIR VALUE DISCLOSURES


The Company accounts for financial instruments according to SFAS No. 157, “Fair Value Measurements.” The following methods and assumptions were used in estimating the fair value of the Company’s financial instruments (which are separate line items in the consolidated balance sheet):


·

Level 1 – Market participant assumptions developed based on market data obtained from sources independent of the Company (observable inputs):


Cash and cash equivalents – The carrying value of cash, cash equivalents and marketable securities represents their fair value due to the high liquidity and relatively short maturity of these instruments. Marketable securities considered cash equivalents are invested in low-risk interest-bearing government instruments and bank deposits, and the carrying value is determined by the financial institution where the funds are held.


Commodity inventories and contracts – Exchange-traded futures and options contracts are valued at quoted market prices. Forward purchase contracts and forward sale contracts are valued at market prices where available or other market quotes, adjusted for differences, primarily transportation, between the exchange traded market and the local markets on which the terms of the contracts are based. Realized changes in the market value of inventories, forward purchase and sale contracts, and exchange-traded futures and options contracts are recognized in earnings as a component of cost of goods sold. These contracts are predominantly settled in cash.


Derivative financial instruments – These instruments are valued at fair market value based upon information supplied by the broker at which these instruments are held. The fair value is determined by the broker based on closing quotes supplied by the Chicago Board of Trade or other commodity exchanges. The Chicago Board of Trade is an exchange with published pricing.


·

Level 2 – The Company’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs):


Accounts receivable, accounts payable and accrued liabilities – The carrying value of accounts receivable, accounts payable and accrued expenses are reasonable estimates of their fair value due to the short duration of these items.



10



3.

BUSINESS COMBINATION


In May 2008, definitive merger agreements were entered into by Green Plains and VBV. At that time, VBV held majority interest in two companies that were constructing ethanol plants. These two companies were Indiana Bio-Energy, LLC (“IBE”) of Bluffton, IN, an Indiana limited liability company which was formed in December 2004; and Ethanol Grain Processors, LLC, (“EGP”) of Obion, TN, a Tennessee limited liability company which was formed in October 2004. The Merger was completed on October 15, 2008. VBV and its subsidiaries became wholly-owned subsidiaries of Green Plains. Pursuant to the terms of the Merger, equity holders of VBV, IBE and EGP received Green Plains common stock and options totaling 11,139,000 shares. Upon closing of the Merger, VBV, IBE and EGP were merged into subsidiaries of Green Plains. IBE has been renamed as Green Plains Bluffton LLC and EGP has been renamed as Green Plains Obion LLC. Simultaneously with the closing of the Merger, NTR plc (“NTR”), a leading international developer and operator in renewable energy and sustainable waste management and majority equity holder of VBV prior to the Merger, through its wholly-owned subsidiaries, invested $60.0 million in Green Plains common stock at a price of $10 per share, or an additional 6.0 million shares. With this investment, NTR is our largest shareholder. This additional investment is being used for general corporate purposes and to finance acquisitions.


Since the Merger occurred toward the end of our fiscal year and involved complex legal and accounting issues, Green Plains performed a tentative allocation of the purchase price using preliminary estimates of the values of the assets and liabilities. We engaged an expert to assist in the determination of the purchase price allocation. The final purchase price allocation, which was completed and recorded during the second quarter of 2009, did not result in material changes to the amounts tentatively recorded in our consolidated financial statements.


4.

ACQUISITION


On January 20, 2009, the Company acquired majority interest in Blendstar LLC, a biofuel terminal operator. The transaction involved a membership interest purchase whereby Green Plains acquired 51% of Blendstar from Bioverda U.S. Holdings LLC, an affiliate of NTR, for $9.0 million. The purchase price of $9.0 million is comprised of a $7.5 million January 2009 payment and the assumption of a liability to the former owners of this 51% interest, payable in three annual installments of $0.5 million, beginning in July 2009. These future annual payments were recorded in debt at a present value of $1.4 million. The allocation of the purchase price to specific assets and liabilities was based, in part, on outside appraisals of the fair value of certain assets acquired. Approximately $21.6 million was attributed to assets acquired, of which $5.3 million was allocated to goodwill. Liabilities and a noncontrolling interest total approximately $6.2 million and $7.9 million, respectively.


The acquisition of Blendstar is a strategic investment within the ethanol value chain. Blendstar operates terminal facilities in Oklahoma City, Little Rock, Nashville, Knoxville, Louisville and Birmingham and has announced commitments to build terminals in two additional cities. Blendstar facilities currently have splash blending and full-load terminal throughput capacity of over 200 million gallons per year. Blendstar’s operations are included in the Marketing and Distribution segment.


5.

SEGMENT INFORMATION


The Company’s chief operating decision makers review our operations in three separate operating segments. These segments are: (1) production of ethanol and related by-products (which we collectively refer to as “Ethanol Production”), (2) grain warehousing and marketing, as well as sales and related services of agronomy and petroleum products (which we collectively refer to as “Agribusiness”), and (3) marketing and distribution of Company-produced and third-party ethanol and distillers grains (which we refer to as “Marketing and Distribution”). Corporate operating expenses, primarily consisting of compensation, professional fees and overhead costs not directly related to a specific operating segment, are reflected in the table below as “corporate activities.”



11



The following are revenues, gross profit and operating income (loss) for our operating segments for the periods indicated (in thousands):


 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

June 30,

 

June 30,

 

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Ethanol Production

 

$

152,053

 

$

-

 

$

289,557

 

$

-

 

Agribusiness

 

 

58,758

 

 

-

 

 

104,968

 

 

-

 

Marketing and Distribution

 

231,208

 

 

259

 

 

409,562

 

 

259

 

Intersegment eliminations

 

 

(157,364)

 

 

-

 

 

(298,350)

 

 

-

 

 

 

 

$

284,655

 

$

259

 

$

505,737

 

$

259

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

Ethanol Production

 

$

4,664

 

$

-

 

$

1,903

 

$

-

 

Agribusiness

 

 

7,343

 

 

-

 

 

10,089

 

 

-

 

Marketing and Distribution

 

2,839

 

 

94

 

 

4,682

 

 

94

 

Intersegment eliminations

 

 

37

 

 

-

 

 

88

 

 

-

 

 

 

 

$

14,883

 

$

94

 

$

16,762

 

$

94

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Ethanol Production

 

$

2,589

 

$

-

 

$

(2,053)

 

$

-

 

Agribusiness

 

 

4,114

 

 

-

 

 

4,040

 

 

-

 

Marketing and Distribution

 

587

 

 

-

 

 

433

 

 

-

 

Intersegment eliminations

 

 

37

 

 

-

 

 

88

 

 

-

 

Corporate activities

 

 

(3,191)

 

 

(1,367)

 

 

(5,552)

 

 

(3,320)

 

 

 

 

$

4,136

 

$

(1,367)

 

$

(3,044)

 

$

(3,320)


In June 2008, VBV established a marketing and distribution business unit whereby VBV purchased, sold and marketed ethanol.


Previously, Green Plains Superior, Green Plains Bluffton and Green Plains Obion had contracted with third-party marketers to purchase all of their ethanol production. Under the agreements, we sold our ethanol production exclusively to them at a price per gallon based on a market price at the time of sale, less certain marketing, storage, and transportation costs, as well as a profit margin for each gallon sold. These agreements terminated in January and February 2009. Following completion of the Merger and prior to the termination of the agreements, nearly all of our ethanol that was sold to one of the third-party marketers was repurchased by Green Plains Trade, reflected in the Marketing and Distribution segment, and resold to other customers. Corresponding revenues and related costs of goods sold were eliminated in consolidation (see intersegment eliminations above).


6.

INVENTORIES


The components of inventories are as follows (in thousands):


 

June 30,

2009

 

December 31,

2008

 

 

 

 

 

 

Petroleum & agronomy items held for sale

$

6,043

 

$

15,925

Grain held for sale

 

14,911

 

 

10,574

Raw materials

 

15,979

 

 

9,503

Work-in-process

 

5,207

 

 

7,371

Finished goods

 

21,007

 

 

2,171

Supplies and parts

 

1,594

 

 

1,489

 

$

64,741

 

$

47,033




12



7.

PROPERTY AND EQUIPMENT


The components of property and equipment are as follows (in thousands):


 

 

 

 

June 30,

2009

 

 

December 31,

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction-in-progress

$

3,096

 

$

1,180

Plant, buildings and improvements

 

271,645

 

 

264,474

Plant equipment

 

179,662

 

 

180,276

Land and improvements

 

35,877

 

 

35,006

Railroad track and equipment

 

21,737

 

 

22,225

Computer and software

 

2,155

 

 

1,702

Office furniture and equipment

 

681

 

 

575

Leasehold improvements and other

 

1,417

 

 

6

 

Total property and equipment

 

516,270

 

 

505,444

 

Less: accumulated depreciation

 

(22,122)

 

 

(9,672)

 

 

Property and equipment, net

$

494,148

 

$

495,772



8.

FINANCIAL DERIVATIVE INSTRUMENTS


To minimize the risk and the effects of the volatility of commodity price changes primarily related to corn, natural gas and ethanol, the Company uses various derivative financial instruments, including exchange-traded futures, and exchange-traded and over-the-counter options contracts. We monitor and manage this exposure as part of our overall risk management policy. As such, we seek to reduce the potentially adverse effects that the volatility of these markets may have on our operating results. We may take hedging positions in these commodities as one way to mitigate risk. While the Company attempts to link its hedging activities to purchase and sales activities, there are situations where these hedging activities can themselves result in losses.


SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” requires companies to evaluate their contracts to determine whether the contracts are derivatives as certain derivative contracts that involve physical delivery may be exempted from SFAS No. 133 treatment as normal purchases or normal sales. Commodity forward contracts generally qualify for the normal purchase or sales exception under SFAS No. 133 and are therefore not subject to its provisions as they will be expected to be used or sold over a reasonable period in the normal course of business. Derivative contracts that do not meet the normal purchase or sales criteria are therefore brought to market with the corresponding gains and losses recorded in operating income unless the contracts qualify for hedge accounting treatment. The Company does not classify any commodity derivative contracts as hedging contracts for purposes of SFAS No. 133. These derivative financial instruments are recognized in other current assets or liabilities at fair value. The financial statement locations of derivatives designated as hedging instruments under SFAS No. 133 are as follows (in thousands):


 

 

 

Asset Derivatives

 

Liability Derivatives

 

 

 

Fair Value at

 

Fair Value at

Derivatives Designated as Hedging

 

June 30,

 

December 31,

 

June 30,

 

December 31,

Instruments under SFAS No. 133

 

2009

 

2008

 

2009

 

2008

Balance Sheet Location:

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventory

 

$

-

 

$

2,480

 

$

-

 

$

-

 

Cash and cash equivalents

 

 

4,600

 

 

272

 

 

-

 

 

-

 

Current assets - Derivative financial instruments

 

 

7,096

 

 

1,915

 

 

-

 

 

-

 

Current liabilities - Derivative financial instruments

 

 

-

 

 

-

 

 

9,813

 

 

4,538

 

Other liabilities

 

 

-

 

 

-

 

 

167

 

 

-

 

Total

 

$

11,696

 

$

4,667

 

$

9,980

 

$

4,538




13



9.

LONG-TERM DEBT AND LINES OF CREDIT


The components of long-term debt are as follows (in thousands):


 

 

 

 

June 30,

2009

 

December 31,

2008

Green Plains Bluffton:

 

 

 

 

 

 

Term loan

$

66,500

 

$

70,000

 

Revolving term loan

 

19,376

 

 

18,715

 

Revenue bond

 

22,000

 

 

22,000

 

Economic development grant

 

500

 

 

500

Green Plains Obion:

 

 

 

 

 

 

Term loan

 

57,600

 

 

60,000

 

Revolving term loan

 

38,800

 

 

30,839

 

Note payable

 

714

 

 

714

 

Capital lease

 

738

 

 

748

 

Economic development loan

 

-

 

 

1,000

 

Economic development grant

 

1,700

 

 

1,700

Green Plains Shenandoah:

 

 

 

 

 

 

Term loan

 

22,000

 

 

23,200

 

Revolving term loan

 

17,000

 

 

17,000

 

Seasonal borrowing

 

3,300

 

 

3,300

 

Economic development loan

 

135

 

 

165

Green Plains Superior:

 

 

 

 

 

 

Term loan

 

34,500

 

 

35,875

 

Revolving term loan

 

10,000

 

 

10,000

 

Capital lease

 

307

 

 

-

Green Plains Grain:

 

 

 

 

 

 

Term loan

 

7,875

 

 

8,325

 

Revolving term loan

 

23,407

 

 

20,000

 

Equipment financing loans

 

1,511

 

 

1,517

Other

 

 

2,710

 

 

818

Total debt

 

330,673

 

 

326,416

 

Less: current portion

 

(36,718)

 

 

(27,405)

Long-term debt

$

293,955

 

$

299,011


Scheduled long-term debt repayments are as follows (in thousands):


Year Ending December 31,

 

Amount

 

 

2009

 

$

21,602

 

 

2010

 

 

55,018

 

 

2011

 

 

31,050

 

 

2012

 

 

30,372

 

 

2013

 

 

87,980

 

 

Thereafter

 

 

104,651

 

 

 Total

 

$

330,673


Loan Terminology


Related to loan covenant discussions below, the following definitions will apply (all calculated in accordance with GAAP consistently applied):


·

Working capital – current assets over current liabilities.


·

Net worth – total assets over total liabilities plus subordinated debt.


·

Tangible owner’s equity – net worth divided by total assets.


·

Debt service coverage ratio – (1) net income (after taxes), plus depreciation and amortization, divided by (2) all current portions of regularly scheduled long-term debt for the prior period (previous year end).



14



·

Fixed charge ratio – adjusted EBITDAR divided by fixed charges, which are the sum of interest expense, current maturities under the term loan, rent expense and lease expenses.


·

EBITDAR – net income plus interest expense, rent and lease expense, and noncash expenses (including depreciation and amortization expense, deferred income tax expense and unrealized gains and losses on futures contracts), less interest income and certain capital expenditures.


·

Senior leverage ratio – debt, excluding amounts under the Green Plains Grain revolving credit note, divided by EBITDAR.


Ethanol Production Segment


Each of our Ethanol Production segment subsidiaries has credit facilities with lender groups that provided for term and revolving term loans to finance construction and operation of the production facilities. The Green Plains Bluffton loan is comprised of a $70.0 million amortizing term loan and a $20.0 million revolving term facility (individually and collectively, the “Green Plains Bluffton Loan Agreement”). The Green Plains Obion loan is comprised of a $60.0 million amortizing term loan, a revolving term loan of $37.4 million and a statused revolving credit supplement (seasonal borrowing capacity) of up to $2.6 million (individually and collectively, the “Green Plains Obion Loan Agreement”). The Green Plains Shenandoah loan is comprised of a $30.0 million amortizing term loan, a $17.0 million revolving term facility, and a statused revolving credit supplement (seasonal borrowing capability) of up to $4.3 million (individually and collectively, the “Green Plains Shenandoah Loan Agreement”). The Green Plains Superior loan is comprised of a $40.0 million amortizing term loan and a $10.0 million revolving term facility (individually and collectively, the “Green Plains Superior Loan Agreement”).


Loan Repayment Terms


·

Term Loans – The term loans were available for advances until construction for each of the plants was completed.


o

Scheduled quarterly principal payments (plus interest) are as follows:


§

Green Plains Bluffton

 $1.75 million

§

Green Plains Obion

 $2.4 million

§

Green Plains Shenandoah

 $1.2 million

§

Green Plains Superior

 $1.375 million


o

Final maturity dates (at the latest) are as follows:


§

Green Plains Bluffton

 November 1, 2013

§

Green Plains Obion

 May 20, 2015

§

Green Plains Shenandoah

 May 20, 2014

§

Green Plains Superior

 July 20, 2015


o

Each term loan has a provision that requires the Company to make annual special payments equal to a percentage ranging from 65% to 75% of the available free cash flow from the related entity’s operations (as defined in the respective loan agreements), subject to certain limitations, generally provided, however, that if such payment would result in a covenant default under the respective loan agreements, the amount of the payment shall be reduced to an amount which would not result in a covenant default.


o

Free cash flow payments are discontinued when the aggregate total received from such payments meets the following amounts:


§

Green Plains Bluffton

 $16.0 million

§

Green Plains Obion

 $18.0 million

§

Green Plains Shenandoah

 $8.0 million

§

Green Plains Superior

 $10.0 million



15



·

Revolving Term Loans – The revolving term loans are generally available for advances throughout the life of the commitment. Allowable advances under the Green Plains Shenandoah Loan Agreement are reduced by $2.4 million each six-month period commencing on the first day of the month beginning approximately six months after repayment of the term loan, but in no event later than November 1, 2014. Allowable advances under the Green Plains Superior Loan Agreement are reduced by $2.5 million each six-month period commencing on the first day of the month beginning approximately six months after repayment of the term loan, but in no event later than July 1, 2015. Interest-only payments are due each month on all revolving term loans until the final maturity date, with the exception of the Green Plains Obion Loan Agreement, which requires additional semi-annual payments of $4.675 million beginning November 1, 2015.


o

Final maturity dates (at the latest) are as follows:


·

Green Plains Bluffton

 November 1, 2013

·

Green Plains Obion

 November 1, 2018

·

Green Plains Shenandoah

 November 1, 2017

·

Green Plains Superior

 July 1, 2017


Pricing and Fees


·

The loans bear interest at either the Agent Base Rate (prime) plus from 0.0% to 1.0% or short-term fixed rates at LIBOR plus 2.5% to 4.35% (each based on a ratio of total equity to total assets). In some cases, the lender may allow us to elect to pay interest at a fixed interest rate to be determined.


·

Certain loans were charged an application fee and have an annual recurring administrative fee.


·

Unused commitment fees, when charged, range from 0.375% to 0.75%.


·

Origination and other fees have been recorded in financing costs in the consolidated balance sheets.


Security


As security for the loans, the lenders received a first-position lien on all personal property and real estate owned by the respective entity borrowing the funds, including an assignment of all contracts and rights pertinent to construction and on-going operations of the plant. These borrowing entities are also required to maintain certain financial and non-financial covenants during the terms of the loans.


Representations, Warranties and Covenants


The loan agreements contain representations, warranties, conditions precedent, affirmative covenants (including financial covenants) and negative covenants including:


·

Maintenance of working capital as follows:


o

Green Plains Bluffton

 $10.0 million (increasing to $12.0 million by September 11, 2009)

o

Green Plains Obion

 $5.4 million (increasing to $9.0 million on April 30, 2010)

o

Green Plains Shenandoah

 $4.0 million (increasing to $6.0 million on September 1, 2009)

o

Green Plains Superior

 $(5.5) million (increasing periodically until reaching $3.0 million by December 1, 2012)


·

Maintenance of net worth as follows:


o

Green Plains Bluffton

 $72.0 million (increasing to $78.8 million on January 1, 2010)

o

Green Plains Obion

 $77.0 million

o

Green Plains Shenandoah

 $51.0 million

o

Green Plains Superior

 $18.0 million (increasing periodically until reaching $23.0 million by December 1, 2011)


·

Maintenance of tangible owner’s equity as follows:


o

Green Plains Bluffton

 at least 40% (increasing to 50% by December 31, 2009)



16



·

Maintenance of debt service coverage ratio as follows:


o

Green Plains Bluffton

 1.25 to 1.0

o

Green Plains Obion

 1.25 to 1.0

o

Green Plains Shenandoah

 1.50 to 1.0

o

Green Plains Superior

 1.25 to 1.0


·

Dividends or other annual distributions to the equity holder will be limited, subject to certain additional restrictions including maintenance with all loan covenants, terms and conditions, as follows:


o

Green Plains Bluffton

 50% of profit, net of income taxes

o

Green Plains Obion

 40% of profit, net of income taxes

o

Green Plains Shenandoah

 40% of profit, net of income taxes

o

Green Plains Superior

 40% of profit, net of income taxes


As of June 30, 2009, the net worth balance at Green Plains Superior was less than required by its financial covenant. The lender has provided a waiver accepting our compliance with the financial covenant as of that date.


Bluffton Revenue Bond


·

Bluffton Revenue Bond – Green Plains Bluffton also received $22.0 million in Subordinate Solid Waste Disposal Facility Revenue Bond funds from the City of Bluffton, IN. The revenue bond requires: (1) semi-annual interest only payments of $825,000 through September 1, 2009, (2) semi-annual principal and interest payments of approximately $1.5 million during the period commencing on March 1, 2010 through March 1, 2019, and (3) a final principal and interest payment of $3.745 million on September 1, 2019.


·

The revenue bond bears interest at 7.50% per annum.


·

Revenue bond issuance costs have been recorded in financing costs in the consolidated balance sheets.


Capitalized Interest


The Company capitalized $0 and $2.4 million of interest and debt issuance costs during the first six months of 2009 and 2008, respectively.


Agribusiness Segment


The Green Plains Grain loan is comprised of a $9.0 million amortizing term loan and a $35.0 million revolving term facility (individually and collectively, the “Green Plains Grain Loan Agreement”). Loan proceeds are used primarily for working capital purposes.


Key Loan Information


·

The term loan expires on April 3, 2013 and the revolving loan expires on September 30, 2010.


·

Payments of $225,000 under the term loan are due on the last business day of each calendar quarter, with any remaining amount payable at the expiration of the loan term.


·

The loans bear interest at LIBOR plus 3.5%, subject to an interest rate “floor” of 4.5%.


·

As security for the loans, the lender received a first-position lien on real estate, equipment, inventory and accounts receivable owned by Green Plains Grain.


·

Unused commitment fees are 0.375% on the unused portion.


The loan agreements contain certain financial covenants and restrictions, including the following:


·

Maintenance of working capital of at least $7.0 million through 2009, increasing to $9.0 million thereafter.


·

Maintenance of tangible net worth of at least $15.0 million.



17



·

Maintenance of a fixed charge ratio of 1.10x or more and a senior leverage ratio that does not exceed 2.25x.


·

Capital expenditures for Green Plains Grain are restricted to $2.0 million per year. However, any unused portion from any fiscal year may be added to the limit for the next succeeding year.


As of June 30, 2009, Green Plains Grain was in compliance with all financial covenants in the loan agreements.


Equipment Financing Loans


Green Plains Grain has two separate equipment financing agreements with AXIS Capital Inc. totaling $1.75 million (individually and collectively, the “Equipment Financing Loans”). The Equipment Financing Loans provide financing for designated vehicles, implements and machinery. The Company agreed to guaranty the Equipment Financing Loans. Pursuant to the terms of the agreements, Green Plains Grain is required to make 48 monthly principal and interest payments of $43,341, which commenced in April 2008.


Marketing and Distribution Segment


On June 30, 2009, Blendstar entered into a loan agreement for $0.5 million. Monthly payments of $16,698 begin in July 2009, with the loan maturing in June 2012. This loan bears a fixed annual interest rate of 7% and is guaranteed by the Company.


10.

STOCK-BASED COMPENSATION


The Company accounts for all share-based compensation transactions pursuant to SFAS No. 123R, “Share-Based Payment,” which requires entities to record noncash compensation expense related to payment for employee services by an equity award in their financial statements over the requisite service period. The Company measures share-based compensation grants at fair value on the grant date, adjusted for estimated forfeitures.


The Company had a 2007 Equity Incentive Plan which reserved a total of 1.0 million shares of common stock for issuance pursuant to the plan. On May 7, 2009, the shareholders of the Company approved the 2009 Equity Incentive Plan which provides for the granting of an additional 1.0 million shares for stock-based compensation, including options to purchase shares of common stock, stock appreciation rights tied to the value of common stock, restricted stock and restricted stock unit awards to eligible employees, non-employee directors and consultants. All shares remaining under the 2007 Equity Incentive Plan rolled into the 2009 Equity Incentive Plan on May 7, 2009. Additionally, outstanding stock options were assumed as part of the Merger.


Grants under the Equity Incentive Plan may include:


·

Options – Stock options may be granted that are currently exercisable, that become exercisable in installments, or that are not exercisable until a fixed future date. Certain options that have been issued are exercisable during their term regardless of termination of employment while other options have been issued that terminate at a designated time following the date employment is terminated. Options issued to date may be exercised immediately and/or at future vesting dates, and must be exercised no later than five to eight years after the grant date or they will expire.


·

Stock Awards – Stock awards may be granted to directors and key employees with ownership of the common stock vesting immediately or over a period determined by the Compensation Committee and stated in the award. Stock awards granted to date vested in some cases immediately and at other times over a period determined by the Compensation Committee and were restricted as to sales for a specified period. Compensation expense was recognized upon the grant award.


·

Deferred Stock Units – Deferred stock units may be granted to directors and key employees with ownership of the common stock vesting immediately or over a period determined by the Compensation Committee and stated in the award. As determined by the Compensation Committee, deferred stock units granted to date vest over a specific period and are issuable in a period beyond the vesting date. Compensation expense was recognized upon the grant award.


For stock options granted during the first six months of 2009, the fair value of options granted was estimated on the date of grant using the Black-Scholes option-pricing model, a pricing model acceptable under SFAS No. 123R, with the following weighted-average assumptions:


Expected life

 

6.9

Interest rate

 

2.7%

Volatility

 

70.0%

Dividend yield

 




18



The expected life of options granted represents the period of time in years that options granted are expected to be outstanding. The interest rate represents the annual interest rate a risk-free investment could potentially earn during the expected life of the option grant. Expected volatility is based on historical volatility of our common stock and other companies within our industry. We currently use a forfeiture rate of zero percent for all existing share-based compensation awards since we have no historical forfeiture experience under our share-based payment plans.


All of our existing share-based compensation awards have been determined to be equity awards. We recognize compensation costs for stock option awards which vest with the passage of time with only service conditions on a straight-line basis over the requisite service period.


A summary of stock options as of June 30, 2009 and changes during the six-month period then ended are as follows:


 

 

 

Shares

 

Weighted-Average Exercise Price

 

Weighted-Average Remaining Contractual Term (in years)

 

Aggregate Intrinsic Value (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2008

 

1,311,528

 

$

12.59

 

 

 

 

 

 

 

Granted

 

12,500

 

 

5.99

 

 

 

 

 

 

 

Exercised

 

(240,096)

 

 

0.14

 

 

 

 

 

 

 

Cancellations

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2009

 

1,083,932

 

$

15.27

 

 

5.8

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at June 30, 2009

 

704,765

 

$

19.69

 

 

5.0

 

$

-


All fully-vested stock options as of June 30, 2009 are exercisable and are included in the above table. Since weighted-average option prices exceeded the closing stock price at June 30, 2009, the aggregate intrinsic value was zero. The Company’s stock awards allow employees to exercise options through cash payment to us for the shares of common stock or through a simultaneous broker-assisted cashless exercise of a share option, through which the employee authorizes the exercise of an option and the immediate sale of the option shares in the open market. The Company uses original issuances of common stock to satisfy our share-based payment obligations.


Compensation costs expensed for share-based payment plans described above were approximately $0.4 million and $0.1 million during the six-month periods ended June 30, 2009 and 2008, respectively. The potential tax benefit realizable for the anticipated tax deductions of the exercise of share-based payment arrangements generally would approximate 40% of these expense amounts. However, due to uncertainty that the tax benefits will be realized, these potential benefits were not recognized currently.


11.

EARNINGS PER SHARE


Basic earnings per common shares (“EPS”) is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period, adjusted for the dilutive effect of any outstanding dilutive securities. The calculation of diluted earnings per share gives effect to common stock equivalents. For periods prior to the Merger, to determine the weighted average number of common shares outstanding, the number of Green Plains common shares issued for outstanding VBV member shares was equated to member shares issued and outstanding.


12.

INCOME TAXES


Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.


The provision for income taxes for the six months ended June 30, 2009 and 2008 has been determined to be zero as the Company had net operating losses for tax purposes and has determined that any benefit from these tax losses may not be realized prior to their expiration. Accordingly, no tax provision or benefit was recognized during each of the periods presented.



19



13.

COMMITMENTS AND CONTINGENCIES


Operating Leases


The Company currently leases or is committed to paying operating leases extending to 2019 that have been executed by the Company. For accounting purposes, rent expense is based on a straight-line amortization of the total payments required over the lease term. The Company incurred lease expenses of $3.1 million and approximately $28,000 during the six-month periods ended June 30, 2009 and 2008, respectively. Aggregate minimum lease payments under these agreements for the remainder of 2009 and in future fiscal years are as follows (in thousands):


Year Ending December 31,

 

Amount

 

2009

 

$

3,146

 

2010

 

 

5,516

 

2011

 

 

2,904

 

2012

 

 

2,601

 

2013

 

 

2,217

 

Thereafter

 

 

5,052

 

Total

 

$

21,436


Commodities – Corn, Natural Gas, Ethanol and Distillers Grains


As of June 30, 2009, we had contracted for future corn deliveries valued at $63.6 million, natural gas deliveries valued at approximately $11.9 million, ethanol product deliveries valued at approximately $11.1 million and distillers grains product deliveries valued at approximately $8.3 million.


14.

RELATED PARTY TRANSACTIONS


Grain Origination Contracts


Obion Grain, Green Plains Obion’s exclusive supplier of corn produced in the seven counties surrounding the plant, had an ownership interest in EGP prior to the Merger, and will hold a subordinated lien on Green Plains Obion’s leased real property if Green Plains Obion defaults under its corn purchase agreement. Green Plains Obion paid $14.6 million under this arrangement for the six months ended June 30, 2009, of which $0.1 million was for origination fees, and the remainder was payments for corn; and $5.0 million under this arrangement for the three months ended June 30, 2009, of which less than $0.1 million was for origination fees, and the remainder was payments for corn. No costs were incurred related to this arrangement for the three or six months ended June 30, 2008 as the plant was still under construction. Included in current liabilities were amounts due to Obion Grain totaling $1.1 million at June 30, 2009 and $0.4 million at December 31, 2008.


Sales and Financing Contracts


Green Plains Grain executed two separate financing agreements for equipment with AXIS Capital Inc. Gordon F. Glade, President and Chief Executive Officer of AXIS Capital, is a member of our Board of Directors. A total of $1.3 million and $1.5 million is included in debt at June 30, 2009 and December 31, 2008, respectively under these financing arrangements. On March 31, 2009, Green Plains Superior entered into a capital lease for equipment with AXIS Capital. The present value of the lease payments totaled $0.3 million, and payments of $18,450 were made during the six-month period ended June 30, 2009.


The Company has entered into fixed-price ethanol purchase and sale agreements with Center Oil Company. Gary R. Parker, President and Chief Executive Officer of Center Oil, is a member of our Board of Directors. The sales agreements are executed to hedge prices on a portion of our expected ethanol production. Rather than delivering all of the ethanol, offsetting purchase agreements for a portion of this ethanol production have also been entered into with Center Oil. During the three and six months ended June 30, 2009, cash receipts from Center Oil totaled $25.8 million and $52.8 million, respectively and payments to Center Oil totaled $10.4 million and $10.7 million, respectively, on these contracts. The Company had $0.1 million in current liabilities and $1.5 million included in current assets at June 30, 2009 under these purchase and sale agreements. At December 31, 2008, the Company did not have any outstanding payables or receivables related to these purchase and sale agreements.


Blendstar Acquisition


As discussed in Note 4 – Acquisition , on January 20, 2009, the Company acquired 51% of Blendstar LLC from Bioverda U.S. Holdings LLC, an affiliate of NTR, for $9.0 million. The purchase price of $9.0 million is comprised of a $7.5 million January 2009 payment and the assumption of a liability to the former owners of this 51% interest, payable in three annual installments of $0.5 million, beginning in July 2009.



20



Blendstar Debt


As discussed in Note 9 – Long Term Debt and Lines of Credit , Blendstar entered into a loan agreement for $0.5 million loan on June 30, 2009. Monthly payments of $16,698 begin in July 2009, with the loan maturing in June 2012. The Company has fully guaranteed the loan.


In addition, the Company has agreed to lend Blendstar an amount up to $2.0 million. At June 30, 2009, $0.5 million was outstanding related to this loan agreement. The loan matures in May 2010 with the option to renew.


15.

SUBSEQUENT EVENTS


The Company evaluated subsequent events through the date the accompanying consolidated financial statements were issued, which was August 10, 2009.


Acquisitions of Ord and Central City Ethanol Plants


On July 2, 2009, the Company, pursuant to two Membership Interest Purchase Agreements (“the Purchase Agreements”) with AgStar Financial Services as Seller agent, and certain other entities (the “Sellers”), acquired all of the membership interests in RBF Acquisition VI, LLC (“RBF VI”) and RBF Acquisition II, LLC (“RBF II), two limited liability companies that own ethanol plants in Ord, NE and Central City, NE, respectively from a lender group led by Ag Star (the “Lenders”). RBF VI and RBF II were renamed at closing to Green Plains Ord LLC and Green Plains Central City LLC, respectively.


Pursuant to the terms of the relevant Purchase Agreements, the Company acquired the membership interests of RBF VI for a purchase price of $38.0 million, and the membership interests of RBF II for a purchase price of $85.5 million, for an aggregate purchase price of $123.5 million. The Lenders provided debt financing of $123.5 million to fund the purchase and $16.0 million in seasonal revolving loans to provide working capital for the plants. The Ord and Central City facilities have annual expected operating capacities of 50 million and 100 million gallons, respectively.


Related Party Capital Lease


In July 2009, Green Plains Central City LLC entered into a capital lease for equipment with AXIS Capital, Gordon F. Glade, President and Chief Executive Officer of AXIS Capital, is a member of our Board of Directors. The present value of the lease payments, which begin in August 2009, totaled $0.3 million.


Expiration of Marketing Agreement


We had previously entered into an exclusive marketing agreement with CHS Inc. for the sale of dried distillers grains produced at our Superior plant. This marketing agreement expired in July 2009 and was not renewed. Green Plains Trade now markets all of the dried distillers grains that are produced at our plants.


Blendstar Debt and Related Party Guaranty


In July 2009, a Blendstar subsidiary entered into a loan for $1.2 million with a commercial bank which is guaranteed by Green Plains Renewable Energy, Inc. The loan matures in January 2010. In addition, Blendstar’s $2.0 million revolving line of credit agreement with Green Plains was amended during July 2009 to provide security on this guaranty exposure.


Receivables Financing


On July 30, 2009, Green Plains Trade entered into a senior secured revolving credit facility with a major commercial lender. Under the credit agreement, the lender will loan up to $30.0 million, subject to a borrowing base up to 85% of eligible receivables and a current availability block of $5.0 million. Green Plains Renewable Energy, Inc. has guaranteed $10.0 million of this facility. The revolving credit facility matures in July 2012 and bears interest at either: (1) Base Rate (lender’s commercial floating rate plus 2.5%); or, (2) EuroDollar Rate (30, 60 or 90 day EuroDollar lending rate plus 3.5%). Green Plains Trade will use this facility to fund its working capital needs.



21



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations


General


References to “we,” “us,” “our” or the “Company” in this report refer to Green Plains Renewable Energy, Inc., an Iowa corporation, and its subsidiaries. The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated financial condition and results of operations. This discussion should be read in conjunction with the consolidated financial statements and accompanying notes included herewith, and our annual report filed on Form 10-K for the nine-month transition period ended December 31, 2008, including the consolidated financial statements, accompanying notes and the risk factors contained therein.


Forward-Looking Statements


This report contains forward-looking statements based on current expectations that involve a number of risks and uncertainties. Forward-looking statements generally do not relate strictly to historical or current facts, but rather to plans and objectives for future operations based upon management’s reasonable estimates of future results or trends, and include words such as “anticipates,” “believes,” “continue,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “may,” “should,” “will,” and words and phrases of similar impact, and include, but are not limited to, statements regarding future operating or financial performance, business strategy, business environment, key trends, and benefits of actual or planned acquisitions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although we believe that our expectations regarding future events are based on reasonable assumptions, any or all forward-looking statements in this report may turn out to be incorrect. They may be based on inaccurate assumptions or may not account for known or unknown risks and uncertainties. Consequently, no forward-looking statement is guaranteed, and actual future results may vary materially from the results expressed or implied in our forward-looking statements. We may experience significant fluctuations in future operating results due to a number of economic conditions, including, but not limited to, competition in the ethanol industry, commodity market risks, financial market risks, counter-party risks, risks associated with changes to federal policy and/or regulation and other risk factors detailed in our reports filed with the Securities and Exchange Commission. The cautionary statements in this report expressly qualify all of our forward-looking statements. In addition, the Company is not obligated, and does not intend, to update any of its forward-looking statements at any time unless an update is required by applicable securities laws. Factors that could cause actual results to differ from those expressed or implied in the forward-looking statements include, but are not limited to, those discussed in Part II, Item 1A – Risk Factors of this report in Part I, Item 1A – Risk Factors of our annual report on Form 10-K for the nine-month transition period ended December 31, 2008 and in Part II, Item IA of our report Form 10-Q for the quarterly period ended March 31, 2009.


Overview


Green Plains was formed in June 2004 to construct and operate dry mill, fuel-grade ethanol production facilities. To add shareholder value, we have expanded our business operations beyond ethanol production to integrate a full-service grain and agronomy business, ethanol marketing services, terminal and distribution assets, and next generation research and development in algae production.


Ethanol is a renewable, environmentally clean fuel source that is produced at numerous facilities in the United States, mostly in the Midwest. In the U.S., ethanol is produced primarily from corn and then blended with unleaded gasoline in varying percentages. The ethanol industry in the U.S. has grown significantly over the last few years as its use reduces harmful auto emissions, enhances octane ratings of the gasoline with which it is blended, offers consumers a cost-effective choice, and decreases the amount of crude oil the U.S. needs to import from foreign sources. Ethanol is most commonly sold as E10, the 10 percent blend of ethanol for use in all American automobiles. Increasingly, ethanol is also available as E85, a higher percentage ethanol blend for use in flexible fuel vehicles.


Operations commenced at our first ethanol plant, located in Shenandoah, IA, in August 2007; at our second ethanol plant, located in Superior, IA, in July 2008; at our third ethanol plant, located in Bluffton, IN, in September 2008; and at our fourth ethanol plant, located in Obion, TN, in November 2008. At capacity, our four ethanol plants produce a total of approximately 330 million gallons of fuel-grade ethanol annually. Operations commenced at our fifth and sixth ethanol plants in Ord, NE and Central City, NE in July 2009, subsequent to the close of the quarter. The addition of the two plants will bring our expected annual operating capacity to a total of approximately 480 million gallons of fuel-grade ethanol.



22



Previously, Green Plains Superior, Green Plains Bluffton and Green Plains Obion had contracted with independent marketers to purchase all of their ethanol production. Under the agreements, we sold our ethanol production exclusively to the independent marketers at a price per gallon based on a market price at the time of sale, less certain costs for each gallon sold. These agreements terminated in January 2009 and February 2009 and as a result, a one-time charge of approximately $4.6 million is reflected in the six-month period ended June 30, 2009 related to the termination of these agreements and certain related matters. The termination of the agreements allows us to market all of our own ethanol through Green Plains Trade, and we believe it will allow us to reduce our costs for leased railcars, provide us a better opportunity to employ our risk management processes, mitigate our risks of counterparty concentration and accelerate our collection of receivables. We expect savings in marketing fees and lower leased railcar costs totaling approximately $4.8 million per year for each of the three years following termination of these agreements, with a reduced yearly benefit thereafter.


Green Plains Trade is now responsible for the sales, marketing and distribution of all ethanol produced at our production facilities. The majority of our ethanol is sold to regional and national markets. The exception to this is at our Obion plant where we expect to market up to 50% of the production into the local Tennessee market. Through Green Plains Trade, we also market and distribute ethanol for three third-party ethanol producers with expected annual production totaling approximately 305 mmgy.


Our ethanol plants produce wet, modified wet and dried distillers grains. We had previously entered into exclusive marketing agreements with CHS Inc., a Minnesota cooperative corporation, for the sale of dried distillers grains produced at our Shenandoah and Superior plants. The agreement with CHS Inc. related to the Shenandoah plant terminated in July 2008 and the agreement related to the Superior plant terminated in July 2009. Green Plains Trade now markets all of the dried distillers grains that are produced at our plants.


Our operations are highly dependent on commodity prices, especially prices for corn, ethanol, distillers grains and natural gas. As a result of price volatility for these commodities, our operating results may fluctuate substantially. The price and availability of corn are subject to significant fluctuations depending upon a number of factors that affect commodity prices in general, including crop conditions, weather, federal policy and foreign trade. Because the market price of ethanol is not always directly related to corn prices, at times ethanol prices may lag movements in corn prices and, in an environment of higher prices, compress the overall margin structure at the plants. As a result, at times, we may operate our plants at negative operating margins.


We attempt to hedge the majority of our positions by buying, selling and holding inventories of various commodities, some of which are readily traded on commodity futures exchanges. We focus on locking in margins based on an “earnings before interest, taxes, depreciation and amortization (“EBITDA”)” model that continually monitors market prices of corn, natural gas and other input costs against prices for ethanol and distillers grains at each of our production facilities. We create offsetting positions by using a combination of derivative instruments, fixed-price purchases and sales, or a combination of strategies in order to manage risk associated with commodity price fluctuations. Our primary focus is not to manage general price movements, for example minimize the cost of corn consumed, but rather to lock in favorable EBITDA margins whenever possible. We also employ a value-at-risk model with strict limits established by our Board of Directors to minimize commodity market exposures from open positions.


In particular, there has been a great deal of volatility in corn markets. The average Chicago Board of Trade (“CBOT”) near-month corn price during 2008 was $5.27 per bushel, with highs reaching nearly $8.00 per bushel and retreating to $4.07 per bushel as of December 31, 2008. Corn prices have dropped during the first six months of 2009; the average CBOT near-month corn price for the six-month period ended June 30, 2009 was $3.93. We believe that market volatility is attributable to a number of factors, including but not limited to export demand, speculation, currency valuation, global economic conditions, ethanol demand and current production concerns. This corn market volatility poses a significant risk to our operations. We use hedging strategies to lock in margins, attempting to leave the Company less exposed to losses resulting from market fluctuations.


During 2008, the average U.S. ethanol price, based on the Oil Price Information Service (“Opis”) Spot Ethanol Assessment, was $2.33 per gallon. For the same time period, the average U.S. gasoline price, based on New York Mercantile Exchange (“NYMEX”) reformulated blendstock for oxygen blending (“RBOB”) contracts was $2.49 per gallon, or approximately $0.16 per gallon above ethanol prices. Beginning in the fourth quarter of 2008, gasoline prices fell at a faster rate than ethanol prices. Gasoline prices continued to be below ethanol prices in the first quarter of 2009. This relationship, along with corn values, tightened crush spreads at plants and forced production to slow. During the second quarter, the relationship started to reverse as corn prices declined with the anticipation of a good crop this coming year. For the quarter ended June 30, 2009, the average Opis Spot Ethanol Assessment was $1.67 per gallon and the average NYMEX RBOB was $1.72 per gallon, or approximately $0.05 per gallon higher than ethanol prices. This relationship during the second quarter incentivized incremental blending but did not increase the value of the ethanol because of increased production coming back on-line. Idle production has begun to come back on-line for numerous reasons, including but not limited to corn prices dropping at the same time enabling better crush margins at production facilities.



23



Federal policy has a significant impact on ethanol market demand. Ethanol blenders benefit from incentives that encourage usage and a tariff on imported ethanol supports the domestic industry. Additionally, the renewable fuels standard (“RFS”) mandates increased level of usage of both corn-based and cellulosic ethanol. Growth Energy, an ethanol industry trade organization, has requested a waiver from the EPA to increase the amount of ethanol blended into gasoline from the 10 percent blend up to a 15 percent blend (E15). We believe there is a reasonable possibility to see increased blends without having to increase the RFS mandate. We believe such a waiver, if granted, would have a positive and material impact on the business.


We believe the ethanol industry will continue to expand due to federal mandates and policies. However, we expect the rate of industry expansion to slow significantly because of the amount of ethanol production added during the past two years or to be added by plants currently under construction. This additional supply, along with a compressed margin structure, has resulted in reduced availability of capital for additional ethanol plant construction or expansion.


We believe that any reversal in federal policy could have a profound impact on the ethanol industry. Recently, a political debate has developed related to the alleged adverse impact that increased ethanol production has had on food prices. The high-profile debate focuses on conflicting economic theories explaining increased commodity prices and consumer costs. The food versus fuel debate has waned as of late with the significant reduction in commodity prices in food and feedstocks around the world. Political candidates and elected officials have responded with proposals to reduce, limit or eliminate the RFS mandate, blender’s credit and tariff on imported ethanol. While at present no policy change appears imminent, we believe that the debates have created uncertainty and increased the ethanol industry’s exposure to political risk.


On April 23, 2009, the California Air Resources Board adopted the Low Carbon Fuel Standard (“LCFS”) requiring a 10% reduction in greenhouse gas (“GHG”) emissions from transportation fuels by 2020. On May 5, 2009, the Environmental Protection Agency (“EPA”) released proposed rulemaking for the second stage of the RFS requiring a 20% reduction in GHG emissions produced at ethanol production, transportation and distribution facilities constructed after December 31, 2007. Both the EPA and the California Air Resources Board propose an Indirect Land Use Changes (“ILUC”) component in the lifecycle GHG emissions calculation. Eleven additional states are currently considering similar ILUC standards. The methodology for determining the ILUC standard has yet to be determined. However, the ILUC standard will possibly penalize corn-based ethanol as a cause of deforestation and displacement of non-intensive agricultural acreage. There is the risk that the market for corn-based ethanol could be negatively impacted if it is determined that corn-based ethanol fails to achieve lifecycle GHG emission reductions. EPA proposed rulemaking potentially “grandfathers” Green Plains’ ethanol plants from the GHG emission requirements because of the timing of their construction. However, we believe the long-term impact of the ILUC standard may result in a fragmented ethanol market where low carbon ethanol from sugarcane or other alternative feedstocks carries a premium value. Passage of the second stage of the RFS could act as a barrier of entry to new construction or expansion of existing corn based ethanol plants, as these plants would not qualify for the 20% reduction exemption unless construction had begun before December 2007.


Companies involved in the production of ethanol have historically been merging to increase efficiency and capture economies of scale. We have adopted a vertical-integration strategy and business model. Vertical integration has often been an effective strategy for reducing risk and increasing profits in other commodity-driven businesses. In recent years, many ethanol companies have focused primarily on ethanol refining and production. The overall ethanol value chain, however, consists of multiple steps involving agribusinesses, such as grain elevators, agronomy services, distributors of distillers grains, and downstream operations such as ethanol marketers and fuel blenders. By simultaneously engaging in multiple steps in the ethanol value chain, we believe we can increase efficiency, diversify cash flows and manage commodity price and supply risk. We are seeking strategic opportunities to further consolidate and integrate firms involved in the ethanol value chain.


The ethanol industry has seen significant distress over the last year. There have been several well-publicized bankruptcies announced, including VeraSun Energy Corporation and Aventine Renewable Energy, which had been two of the largest producers of ethanol in the U.S. In addition, several other ethanol producers have also declared bankruptcy or indicated they were in financial distress. We believe that margin compression and ineffective commodity price risk management were the main reasons for this. In addition, destination market and non-advantaged location plants have seen additional hardship. Ethanol producers of all sizes were caught with corn contracts or inventory ownership in the significant price decline in the corn market without corresponding amounts of ethanol sold against those positions. We believe a disciplined risk management program helps mitigate these occurrences. Green Plains utilizes a disciplined risk management program with a comprehensive policy to monitor and measure the risk of commodity price movements. We attempt to match within a close tolerance our ethanol sales and corn purchases, and monitor the “value at risk” of our open, unhedged position within limits established by our Board of Directors. In addition, our multiple business lines and revenue streams help diversify the Company’s operations and profitability.


Merger and Acquisition Activities


To add shareholder value, we have expanded our business operations beyond ethanol production to integrate a full-service grain and agronomy business, ethanol marketing services, terminal and distribution assets, and next generation research and development in algae-based biofuels.



24



Merger with VBV LLC


In May 2008, we entered into definitive merger agreements with VBV LLC and its subsidiaries. At that time, VBV held majority interest in two companies that were constructing ethanol plants. These two companies were Indiana Bio-Energy, LLC of Bluffton, IN, an Indiana limited liability company which was formed in December 2004; and Ethanol Grain Processors, LLC, of Obion, TN, a Tennessee limited liability company which was formed in October 2004. Additionally, VBV was developing an ethanol marketing and distribution business at the time of the merger announcement. The Merger was completed on October 15, 2008. For accounting purposes, the Merger has been accounted for as a reverse merger. Pursuant to the terms of the Merger, equity holders of VBV, IBE and EGP received Company common stock and options totaling 11,139,000 shares. Upon closing of the Merger, VBV, IBE and EGP were merged into subsidiaries of the Company. Simultaneously with the closing of the Merger, NTR, the majority equity holder of VBV prior to the Merger, through its wholly-owned subsidiaries, invested $60.0 million in Company common stock at a price of $10 per share, or an additional 6.0 million shares. This additional investment is being used for general corporate purposes and to finance future acquisitions.


Operations commenced at the Bluffton and Obion plants in September 2008 and November 2008, respectively. The VBV plants are each expected to produce approximately 110 million of gallons of ethanol and 340,000 tons of distillers grains annually.


Acquisition of Majority Interest in Blendstar LLC


On January 20, 2009, the Company acquired majority interest in Blendstar LLC, a biofuel terminal operator. The transaction involved a membership interest purchase whereby Green Plains acquired 51% of Blendstar from Bioverda U.S. Holdings LLC, an affiliate of NTR, for $9.0 million. The purchase price of $9.0 million is comprised of a $7.5 million January 2009 payment and the assumption of a liability to the former owners of this 51% interest, payable in three annual installments of $0.5 million, beginning in July 2009. These future annual payments were recorded in debt at a present value of $1.4 million. The allocation of the purchase price to specific assets and liabilities was based, in part, on outside appraisals of the fair value of certain assets acquired. Approximately $21.6 million is attributed to assets acquired, of which $5.3 million is allocated to goodwill. Liabilities and a noncontrolling interest total approximately $6.2 million and $7.9 million, respectively.


The acquisition of Blendstar is a strategic investment within the ethanol value chain. Blendstar operates terminal facilities in Oklahoma City, Little Rock, Nashville, Knoxville, Louisville and Birmingham and has announced commitments to build terminals in two additional cities. Blendstar facilities currently have splash blending and full-load terminal throughput capacity of over 200 million gallons per year.


Acquisitions of Ord and Central City Ethanol Plants


On July 2, 2009, the Company, pursuant to two Membership Interest Purchase Agreements (“the Purchase Agreements”) with AgStar Financial Services as Seller agent, and certain other entities (the “Sellers”), acquired all of the membership interests in RBF Acquisition VI, LLC (“RBF VI”) and RBF Acquisition II, LLC (“RBF II), two limited liability companies that own ethanol plants in Ord, NE and Central City, NE, respectively from a lender group led by Ag Star (the “Lenders”). RBF VI and RBF II were renamed at closing to Green Plains Ord LLC and Green Plains Central City LLC, respectively.


Pursuant to the terms of the relevant Purchase Agreements, the Company acquired the membership interests of RBF VI for a purchase price of $38.0 million, and the membership interests of RBF II for a purchase price of $85.5 million, for an aggregate purchase price of $123.5 million. The Lenders provided debt financing of $123.5 million to fund the purchase and $16.0 million in seasonal revolving loans to provide working capital for the plants. The Ord and Central City facilities have annual expected operating capacities of 50 million and 100 million gallons, respectively. Operations commenced at the Ord plant on July 12, 2009 and at the Central City plant on July 29, 2009.


General


Green Plains now has operations throughout the ethanol value chain, beginning “upstream” with our agronomy and grain handling operations, continuing through substantial ethanol production facilities and ending “downstream” with our ethanol marketing, distribution and blending facilities. We intend to continue to explore potential merger or acquisition opportunities, including those involving other ethanol producers and developers, other renewable fuels-related technologies, and grain and fuel logistics facilities. We believe that our vertical-integration model offers strategic advantages over participants operating in only one facet of the industry, such as production, and we continue to seek opportunities to incorporate upstream and downstream ethanol-related firms into our operations. We believe that we are well positioned to be a consolidator of strategic ethanol assets.



25



Critical Accounting Policies and Estimates


The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and other assumptions that we believe are proper and reasonable under the circumstances. We continually evaluate the appropriateness of estimates and assumptions used in the preparation of our consolidated financial statements. Actual results could differ materially from those estimates. Key accounting policies, including but not limited to those relating to revenue recognition, cost of goods sold, property and equipment, impairment of long-lived assets, share-based compensation, derivative financial instruments and income taxes, are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial statements. See further discussion of our critical accounting policies and estimates, as well as significant accounting policies, in our Form 10-K for the nine-month transition period ended December 31, 2008.


Recent Accounting Pronouncements


In May 2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 165, “Subsequent Events.” SFAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. Although the standard is based on the same principles as those that currently exist in accounting and auditing standards, it includes a new required disclosure of the date through which an entity has evaluated subsequent events. The Company adopted SFAS No. 165 during the quarter ended June 30, 2009, and its application had no impact on the Company’s consolidated financial statements. The Company evaluated subsequent events through the date the accompanying financial statements were issued, which was August 10, 2009.


In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – A Replacement of FASB Statement No. 162.” SFAS No. 168 establishes the FASB Accounting Standards Codification as the single source of authoritative nongovernmental U.S. generally accepted accounting principles. SFAS No. 168 is effective for interim and annual periods ending after September 15, 2009. The adoption of this standard will not have a material impact on our financial statements.


Off-Balance Sheet Arrangements


We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, results of operations or liquidity.


Results of Operations


Prior to completion of the merger with Green Plains, VBV had a controlling interest in two development stage ethanol plants. Operations commenced at these plants in September 2008 and November 2008. Accordingly, VBV, the acquiring entity for accounting purposes, was a development stage company until September 2008. Pursuant to reverse acquisition accounting rules, results of operations include the financial results of VBV from its period of inception, along with the financial results of Green Plains since October 15, 2008.


The Company’s chief operating decision makers review our operations in three separate operating segments. For additional information related to operating segments, see Note 5 – Segment Information included herein as part of the Notes to the Consolidated Financial Statements. These segments are: (1) production of ethanol and related by-products (which we collectively refer to as “Ethanol Production”), (2) grain warehousing and marketing, as well as sales and related services of agronomy and petroleum products (which we collectively refer to as “Agribusiness”), and (3) marketing and distribution of Company-produced and third-party ethanol and distillers grains (which we refer to as “Marketing and Distribution”). Corporate operating expenses, primarily consisting of compensation, professional fees and overhead costs not directly related to a specific operating segment, are reflected in the table below as “corporate activities.”



26



The following are revenues, gross profit and operating income (loss) for our operating segments for the periods indicated (in thousands):


 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

June 30,

 

June 30,

 

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Ethanol Production

 

$

152,053

 

$

-

 

$

289,557

 

$

-

 

Agribusiness

 

 

58,758

 

 

-

 

 

104,968

 

 

-

 

Marketing and Distribution

 

231,208

 

 

259

 

 

409,562

 

 

259

 

Intersegment eliminations

 

 

(157,364)

 

 

-

 

 

(298,350)

 

 

-

 

 

 

 

$

284,655

 

$

259

 

$

505,737

 

$

259

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

Ethanol Production

 

$

4,664

 

$

-

 

$

1,903

 

$

-

 

Agribusiness

 

 

7,343

 

 

-

 

 

10,089

 

 

-

 

Marketing and Distribution

 

2,839

 

 

94

 

 

4,682

 

 

94

 

Intersegment eliminations

 

 

37

 

 

-

 

 

88

 

 

-

 

 

 

 

$

14,883

 

$

94

 

$

16,762

 

$

94

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Ethanol Production

 

$

2,589

 

$

-

 

$

(2,053)

 

$

-

 

Agribusiness

 

 

4,114

 

 

-

 

 

4,040

 

 

-

 

Marketing and Distribution

 

587

 

 

-

 

 

433

 

 

-

 

Intersegment eliminations

 

 

37

 

 

-

 

 

88

 

 

-

 

Corporate activities

 

 

(3,191)

 

 

(1,367)

 

 

(5,552)

 

 

(3,320)

 

 

 

 

$

4,136

 

$

(1,367)

 

$

(3,044)

 

$

(3,320)


Revenues during the three and six months ended June 30, 2009 were $284.7 million and $505.7 million, respectively, as compared to $0.3 million for both the three and six months ended June 30, 2008. VBV was a development stage company until the Bluffton ethanol plant commenced production in September 2008. In June 2008, VBV established a marketing and distribution business unit whereby VBV purchased, sold and marketed ethanol.


Previously, Green Plains Superior, Green Plains Bluffton and Green Plains Obion had contracted with third-party marketers to purchase all of their ethanol production. Under the agreements, we sold our ethanol production exclusively to them at a price per gallon based on a market price at the time of sale, less certain marketing, storage, and transportation costs, as well as a profit margin for each gallon sold. These agreements terminated during the first quarter of 2009. Following completion of the Merger and prior to the termination of the agreements, nearly all of our ethanol that was sold to one of the third-party marketers was repurchased by Green Plains Trade, reflected in the Marketing and Distribution segment, and resold to other customers. Corresponding revenues and related costs of goods sold were eliminated in consolidation.


Cost of goods sold during the three and six months ended June 30, 2009 was $269.8 million and $489.0 million, respectively, resulting in a gross profit of $14.9 million and $16.8 million, respectively. We had $0.2 million in cost of goods sold during both the three and six months ended June 30, 2008 as VBV was still a development stage company at that time, and they had just begun to market ethanol in June 2008. Included in cost of goods sold during the six months ended June 30, 2009 is a one-time charge of $4.6 million related to the cancellation of the third-party ethanol marketing agreements, as discussed above.



27



Operating expenses were $10.8 million, and $19.8 million during the three and six months ended June 30, 2009, respectively. Operating expenses during the corresponding time periods of 2008 were $1.5 million and $3.4 million, respectively. Operating expenses for the three and six months ending June 30, 2009 include the operations of the Bluffton and Obion ethanol production plants and Green Plains Trade, along with the acquired operations of Green Plains Grain and the Shenandoah and Superior ethanol production plants. For the three and six months ended June 30, 2008, operating expenses include development-stage expenses only as the Bluffton and Obion plants were under construction, and do not include the operating expenses of the Shenandoah and Superior plants (as this period is pre-Merger). The $16.4 million increase in operating expenses during the six-month period ended June 30, 2009, as compared to the same period during 2008, is mainly due to an increase in employee salaries, incentives, benefits and other expenses resulting from the increase in employees hired to operate our ethanol plants in Bluffton and Obion, stock-based compensation costs, professional services and inclusion of operating expenses for the predecessor Green Plains companies. Our operating expenses are primarily general and administrative expenses for employee salaries, incentives and benefits; stock-based compensation expenses; office expenses; board fees; and professional fees for accounting, legal, consulting, and investor relations activities. Personnel costs, which include employee salaries, incentives and benefits, are the largest single category of expenditures in operating expenses.


Interest expense was $3.8 million and $6.3 million during the three and six months ended June 30, 2009, respectively, and less than $0.1 million for each of the corresponding periods in 2008. Interest expense during the period of plant construction was capitalized to construction in progress. With our plants now operational, interest on debt is charged to interest expense. However, interest expense during the first six months of 2009 was reduced by $1.1 million due to patronage refunds received from two of our lenders, all of which was received during the first quarter of 2009.


Liquidity and Capital Resources


On June 30, 2009, we had $55.3 million in cash and equivalents and $13.2 million available under committed loan agreements (subject to satisfaction of specified lending conditions). Cash and cash equivalents increased from levels at the end of the first quarter primarily as a result of cash provided by operating activities, less cash used by the Company for scheduled debt and interest payments.


On July 30, 2009 Green Plains Trade entered into a senior secured revolving credit facility with a major commercial lender. Under the credit agreement, the lender will loan up to $30.0 million, subject to a borrowing base up to 85% of eligible receivables and a current availability block of $5.0 million. The revolving credit facility matures in July 2012 and bears interest at either: (1) Base Rate (lender’s commercial floating rate plus 2.5%); or, (2) EuroDollar Rate (30, 60 or 90 day EuroDollar lending rate plus 3.5%). Green Plains Trade will use this facility to fund its working capital needs.


Our business is highly impacted by commodity prices, including prices for corn, ethanol and natural gas. We attempt to reduce the market risk associated with fluctuations in commodity prices through the use of derivative financial instruments. Sudden changes in commodity prices may require cash deposits with brokers, or margin calls. Depending on our open derivative positions we may require significant liquidity with little advanced notice to meet margin calls. With the additional funding received in July 2009, which is secured by eligible Company receivables, we believe we have sufficient cash on hand or available under committed loan agreements to support our current risk management activities.


In May and June 2009, loan agreements for Green Plains Bluffton, Green Plains Obion and Green Plains Superior were amended to reduce certain financial covenants related to working capital and net worth balances. Current forecasts for our ethanol plants indicate that we may fail to meet required working capital, net worth and/or debt service coverage ratios at those subsidiaries unless the loan agreements are amended. In that event, we may seek additional waivers from the lenders or may inject additional capital into those subsidiaries, as necessary, to become compliant, though we have no obligation to make such an injection. Because of the volatility of our income and cash flow, we are unable to accurately predict whether any of our subsidiaries will be able to independently comply with their respective covenants in the future. In the event a subsidiary is unable to comply with its respective debt covenants, the subsidiary’s lenders may determine that an event of default has occurred. Upon the occurrence of an event of default, and following notice, the lenders may terminate any commitment and declare the entire unpaid balance due and payable. Based upon our current forecasts, we believe we have sufficient liquidity available on a consolidated basis to resolve a subsidiary’s noncompliance; however, no obligation exists to provide such liquidity. Furthermore, no assurance can be provided that actual operating results will approximate our forecasts or that we will inject the necessary capital into a subsidiary to maintain compliance.



28



We believe that the Company has sufficient working capital for its existing operations. However, we can provide no assurance that we will be able to secure additional funding for any of our operations, if necessary, given the current state of credit markets. A sustained period of unprofitable operations may strain our liquidity and make it difficult to maintain compliance with our financing arrangements. While we may seek additional sources of working capital in response, we can provide no assurance that we will be able to secure this funding, if necessary. In the future, we may decide to improve or preserve our liquidity through the issuance of common stock in exchange for materials and services. We may also sell additional equity or borrow additional amounts to expand our ethanol plants; build additional or acquire existing ethanol plants; and/or build additional or acquire existing corn storage facilities. We can provide no assurance that we will be able to secure the funding necessary for these additional projects or for additional working capital needs at reasonable terms, if at all.


Long-Term Debt


For additional information related to the Company’s long-term debt, see Note 9 – Long-Term Debt and Lines of Credit included herein as part of the Notes to Consolidated Financial Statements.


Ethanol Production Segment


Each of our Ethanol Production segment subsidiaries have credit facilities with lender groups that provided for term and revolving term loans to finance construction and operation of the production facilities.


The Green Plains Bluffton loan is comprised of a $70.0 million amortizing term loan and a $20.0 million revolving term loan. At June 30, 2009, $66.5 million related to the term loan was outstanding, along with $19.4 million on the revolving term loan. The term loan requires quarterly principal payments of $1.75 million. The loans mature on November 1, 2013.


The Green Plains Obion loan is comprised of a $60.0 million amortizing term loan, a revolving term loan of $37.4 million and a $2.6 million statused revolving credit supplement (seasonal borrowing capacity). At June 30, 2009, $57.6 million related to the term loan was outstanding, along with a combined $38.8 million on the revolving term loan and revolving credit supplement. The term loan requires quarterly principal payments of $2.4 million. The term loan matures on May 20, 2015 and the revolving loans mature on November 1, 2018.


The Green Plains Shenandoah loan is comprised of a $30.0 million amortizing term loan, a $17.0 million revolving term loan, and a statused revolving credit supplement (seasonal borrowing capability) of up to $4.3 million. At June 30, 2009, $22.0 million related to the term loan was outstanding, along with the entire $17.0 million on the revolving term loan, and $3.3 million on the seasonal borrowing agreement. The term loan requires quarterly principal payments of $1.2 million. The term loan matures on May 20, 2014 and the revolving loan matures on November 1, 2017.


The Green Plains Superior loan is comprised of a $40.0 million amortizing term loan and a $10.0 million revolving term facility. At June 30, 2009, $34.5 million related to the term loan was outstanding, along with the entire $10.0 million on the revolving term loan. The term loan requires quarterly principal payments of $1.375 million. The term loan matures on July 20, 2015 and the revolving loan matures on July 1, 2017.


Each term loan has a provision that requires the Company to make annual special payments equal to a percentage ranging from 65% to 75% of the available free cash flow from the related entity’s operations (as defined in the respective loan agreements), subject to certain limitations.


With certain exceptions, the revolving term facilities are generally available for advances throughout the life of the commitment. Interest-only payments are due each month on all revolving term facilities until the final maturity date, with the exception of Green Plains Obion’s agreement, which requires additional semi-annual payments of $4.675 million beginning November 1, 2015.


The term loans and revolving facilities bear interest at either the Agent Base Rate (prime) plus from 0.0% to 1.0% or short-term fixed rates at LIBOR plus 250 to 435 basis points (each based on a ratio of total equity to total assets). As security for the loans, the lenders received a first-position lien on all personal property and real estate owned by the respective entity borrowing the funds, including an assignment of all contracts and rights pertinent to construction and on-going operations of the plant. These borrowing entities are also required to maintain certain financial and non-financial covenants during the terms of the loans.


Bluffton Revenue Bond – Green Plains Bluffton also received $22.0 million in Subordinate Solid Waste Disposal Facility Revenue Bond funds from the City of Bluffton, IN. The revenue bond requires: (1) semi-annual interest only payments of $825,000 through September 1, 2009, (2) semi-annual principal and interest payments of approximately $1.5 million during the period commencing on March 1, 2010 through March 1, 2019, and (3) a final principal and interest payment of $3.745 million on September 1, 2019. The revenue bond bears interest at 7.50% per annum.



29



Agribusiness Segment


The Green Plains Grain loan is comprised of a $9.0 million amortizing term loan and a $35.0 million revolving term loan. Loan proceeds are used primarily for working capital purposes. At June 30, 2009, $7.9 million on the term loan and $23.4 million on the revolving term loan was outstanding. The term loan expires on April 3, 2013 and the revolving loan expires on September 30, 2010. Payments of $225,000 under the term loan are due on the last business day of each calendar quarter, with any remaining amount payable at the expiration of the loan term. The loans bear interest at either the Agent Base Rate (prime) minus 0.25% to plus 0.75% or short-term fixed rates at LIBOR plus 175 to 275 basis points (each depending on Green Plains Grain’s fixed charge ratio for the preceding four fiscal quarters). As security for the loans, the lender received a first-position lien on real estate, equipment, inventory and accounts receivable owned by Green Plains Grain. In addition, Green Plain Grain had outstanding equipment financing term loans totaling $1.5 million at June 30, 2009.


Marketing and Distribution Segment


The Blendstar loan is comprised of a $0.5 million loan maturing in 2012. Payments of $16,698 are due monthly and the loan is guaranteed by the Company. In addition, the Company has agreed to lend Blendstar an amount up to $2.0 million. At June 30, 2009, $0.5 million was outstanding related to this loan agreement. The loan matures in May 2010 with the option to renew. Amounts outstanding under this loan are eliminated in consolidation.


Contractual Obligations


Our contractual obligations as of June 30, 2009 were as follows (in thousands):


 

 

 

 

 

Payments Due By Period

Contractual Obligations (1)

 

Total

 

Less than 1 year

 

1-3 years

 

3-5 years

 

More than 5 years

 

Long-term debt obligations (2)

 

$

330,673

 

$

36,761

 

$

86,010

 

$

111,863

 

$

96,039

 

Operating lease obligations (3)

 

 

21,436

 

 

6,217

 

 

6,664

 

 

4,507

 

 

4,048

 

Purchase obligations (4)

 

 

203,601

 

 

188,774

 

 

5,566

 

 

4,398

 

 

4,863

 

 

Total

 

$

555,710

 

$

231,752

 

$

98,240

 

$

120,768

 

$

104,950

_______________________________________

(1) Obligations related to the Ord and Central City plants are not included in the above table as the acquisitions of these plants occurred in July 2009.


(2) Includes current portion of long-term debt.


(3) Operating lease costs are primarily for railcars and office space.


(4) Includes forward corn purchase contracts.


Item 3. Quantitative and Qualitative Disclosures about Market Risk


We are subject to market risks concerning our long-term debt, future prices of corn, natural gas, ethanol and distillers grains. From time to time, we may purchase corn futures and options to hedge a portion of the corn we anticipate we will need. In addition, we have contracted for future physical delivery of corn. We are exposed to the full impact of market fluctuations associated with interest rates and commodity prices as discussed below. At this time, we do not expect to have exposure to foreign currency risk as we expect to conduct all of our business in U.S. dollars.


Interest Rate Risk


We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from holding term and revolving loans that bear variable interest rates. Specifically, we have $330.7 million outstanding in long-term debt as of June 30, 2009, $300.4 million of which is variable-rate in nature. Interest rates on our variable-rate debt are determined based upon the market interest rate of either the lender’s prime rate or LIBOR, as applicable. A 10% change in interest rates would affect our interest cost on such debt by approximately $3.0 million per year in the aggregate. Other details of our outstanding debt are discussed in the notes to the consolidated financial statements included later as a part of this report.



30



Commodity Price Risk


We produce ethanol and distillers grains from corn and our business is sensitive to changes in the prices of each of these commodities. The price of corn is subject to fluctuations due to unpredictable factors such as weather; corn planted and harvested acreage; changes in national and global supply and demand; and government programs and policies. We use natural gas in the ethanol production process and, as a result, our business is also sensitive to changes in the price of natural gas. The price of natural gas is influenced by such weather factors as extreme heat or cold in the summer and winter, or other natural events like hurricanes in the spring, summer and fall. Other natural gas price factors include North American exploration and production, and the amount of natural gas in underground storage during both the injection and withdrawal seasons. Ethanol prices are sensitive to world crude-oil supply and demand; crude-oil refining capacity and utilization; government regulation; and consumer demand for alternative fuels. Distillers grains prices are sensitive to various demand factors such as numbers of livestock on feed, prices for feed alternatives, and supply factors, primarily production by ethanol plants and other sources.


We attempt to reduce the market risk associated with fluctuations in the price of corn and natural gas by employing a variety of risk management and hedging strategies. Strategies include the use of derivative financial instruments, such as futures and options executed on the Chicago Board of Trade and/or the New York Mercantile Exchange, as well as the daily management of our physical corn and natural gas procurement relative to plant requirements for each commodity. The management of our physical corn procurement may incorporate the use of forward fixed-price contracts and basis contracts.


We attempt to hedge the majority of our positions by buying, selling and holding inventories of various commodities, some of which are readily traded on commodity futures exchanges. We focus on locking in net margins based on an “earnings before interest, taxes, depreciation and amortization (“EBITDA”)” model that continually monitors market prices of corn, natural gas and other input costs against prices for ethanol and distillers grains at each of our production facilities. We create offsetting positions by using a combination of derivative instruments, fixed-price purchases and sales, or a combination of strategies in order to manage risk associated with commodity price fluctuations. Our primary focus is not to manage general price movements, for example minimize the cost of corn consumed, but rather to lock in favorable EBITDA margins whenever possible. We also employ a value-at-risk model with strict limits established by our Board of Directors to minimize commodity market exposures from open positions.


Ethanol Production Segment


A sensitivity analysis has been prepared to estimate our Ethanol Production segment exposure to ethanol, corn, distillers grains and natural gas price risk. Market risk related to these factors is estimated as the potential change in pre-tax income resulting from hypothetical 10% adverse changes in prices of our expected corn and natural gas requirements, and ethanol and distillers grains output for a one-year period from June 30, 2009. This analysis excludes the impact of risk management activities that result from our use of fixed-price purchase and sale contracts and derivatives. The results of this analysis, which may differ from actual results, are as follows (in thousands):


Commodity

 

Estimated Total Volume Requirements for the Next 12 Months (1)

 

Unit of Measure

 

Approximate Adverse Change to Income

Ethanol

 

467,752

 

Gallons

 

$

72,901

Corn

 

170,797

 

Bushels

 

$

44,605

Distillers grains

 

1,468

 

Tons (2)

 

$

15,905

Natural gas

 

12,599

 

MMBTU

 

$

6,426

_______________________________________

(1) Estimated volume requirements for the next 12 months, including Ord and Central City plants.

(2) Distillers grains quantities are stated on an equivalent dried ton basis.


At June 30, 2009, approximately 15% of our forecasted ethanol production during the next 12 months has been sold under fixed-price contracts. As a result of these positions, the effect of a 10% adverse move in the price of ethanol shown above would be reduced by approximately $11.0 million.


At June 30, 2009, approximately 17% of our estimated corn usage for the next 12 months was subject to fixed-price contracts. As a result of these positions, the effect of a 10% adverse move in the price of corn shown above would be reduced by approximately $7.4 million.


At June 30, 2009, approximately 14% of our forecasted distillers grain production for the next 12 months was subject to fixed-price contracts. As a result of these positions, the effect of a 10% adverse move in the price of distillers grains shown above would be reduced by approximately $2.1 million.



31



At June 30, 2009, approximately 21% of our forecasted natural gas requirements for the next 12 months have been purchased under fixed-price contracts. As a result of these positions, the effect of a 10% adverse move in the price of natural gas shown above would be reduced by approximately $1.3 million.


Agribusiness Segment


The availability and price of agricultural commodities are subject to wide fluctuations due to unpredictable factors such as weather, plantings, foreign and domestic government farm programs and policies, changes in global demand created by population changes and changes in standards of living, and global production of similar and competitive crops. To reduce price risk caused by market fluctuations in purchase and sale commitments for grain and grain held in inventory, we enter into exchange-traded futures and options contracts that function as economic hedges. The market value of exchange-traded futures and options used for economic hedging has a high, but not perfect correlation, to the underlying market value of grain inventories and related purchase and sale contracts. The less correlated portion of inventory and purchase and sale contract market value (known as basis) is much less volatile than the overall market value of exchange-traded futures and tends to follow historical patterns. We manage this less volatile risk by constantly monitoring our position relative to the price changes in the market. In addition, inventory values are affected by the month-to-month spread relationships in the regulated futures markets, as we carry inventories over time. These spread relationships are also less volatile than the overall market value and tend to follow historical patterns, but also represent a risk that cannot be directly offset. Our accounting policy for our futures and options, as well as the underlying inventory positions and purchase and sale contracts, is to mark them to the market and include gains and losses in the consolidated statement of operations in sales and merchandising revenues.


A sensitivity analysis has been prepared to estimate Agribusiness segment exposure to market risk of our commodity position (exclusive of basis risk). Our daily net commodity position consists of inventories related to purchase and sale contracts and exchange-traded contracts. The fair value of our position is a summation of the fair values calculated for each commodity by valuing each net position at quoted futures market prices. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in such prices. The result of this analysis, which may differ from actual results, is as follows (in thousands):


Fair Value

$

150

Market Risk

$

 15


Item 4. Controls and Procedures


Evaluation of Disclosure Controls and Procedures


The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (“SEC”) rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial disclosure.


As of the end of the period covered by this report, the Company’s management carried out an evaluation, under the supervision of and with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 under the Exchange Act). Due to the numerous pervasive changes that occurred in the Company’s control environment as a result of the October 2008 Merger, and enhancements that were made but not yet tested during the quarter ended June 30, 2009, the Company’s Chief Executive Officer and the Chief Financial Officer were unable to conclude at the time of this evaluation that our disclosure controls and procedures were effective, as of the end of the period covered by this report, to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, completely and accurately, within the time periods specified in SEC rules and forms.


Changes in Internal Control over Financial Reporting


The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with generally accepted accounting principles. As discussed in further detail in our Form 10-K for the nine-month transition period ended December 31, 2008, numerous pervasive changes occurred to the Company’s internal control environment as a result of the October 2008 Merger. Enhancements have been made to the Company’s internal controls over financial reporting during the second quarter ended June 30, 2009 to address the Company’s post-merger internal control environment. Those enhancements include improved documentation of control procedures through expanded inquiry and observation. In addition, the Company implemented standardization of inventory costing and account reconciliation processes. There were no other changes in our internal control over financial reporting that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



32



PART II – OTHER INFORMATION


Item 1. Legal Proceedings


None.


Item 1A. Risk Factors


Our investors should consider the risks that could affect us and our business as set forth in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the nine-month transition period ended December 31, 2008 and in Part II, Item 1A, “Risk Factors” of our report on Form 10-Q for the quarterly period ended March 31, 2009. Although we have attempted to discuss key factors, our investors need to be aware that other risks may prove to be important in the future. New risks may emerge at any time and we cannot predict such risks or estimate the extent to which they may affect our financial performance. As a result of our merger with VBV, IBE and EGP (the “Mergers”), we are subject to a number of risks, which have been previously disclosed, associated with the transactions contemplated by the Mergers. Investors should carefully consider the discussion of risks and the other information included or incorporated by reference in this Quarterly Report on Form 10-Q, including Forward-Looking Information, which is included in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


None.


Item 3. Defaults upon Senior Securities


None.


Item 4. Submission of Matters to a Vote of Security Holders


The Company held its annual meeting of stockholders on May 7, 2009. The matters voted upon at such meeting and the number of shares cast for, against or withheld, and abstained are as follows:


1. Proposal to elect four directors to serve three-year terms that expire at the 2012 annual meeting.


Nominee

 

For

 

Withheld

Jim Barry

 

15,729,362

 

10,251

Todd Becker

 

15,724,187

 

15,426

Brian Peterson

 

15,669,168

 

70,445

Alain Truer

 

15,686,337

 

53,276


2. Proposal to ratify and approve adoption of the Green Plains Renewable Energy, Inc. 2009 Equity Incentive Plan.


For:

15,652,548

 

Against:

86,909

 

Abstain:

156

 

Broker Non-Vote:

0


Item 5. Other Information


None.



33



Item 6. Exhibits


EXHIBIT INDEX


Exhibit No.

Description

10.1

Membership Interest Purchase Agreement by and between the Entities listed on Schedule 1 hereto, AgStar Financial Services, PCA, as Seller Agent, and Green Plains Holdings dated as of May 20, 2009

10.2

Membership Interest Purchase Agreement by and between the Entities listed on Schedule 1 hereto, AgStar Financial Services, PCA, as Seller Agent, and Green Plains Holdings dated as of May 20, 2009

10.3

Refundable Deposit and Escrow Agreement dated May 20, 2009 by and among Green Plains Holdings LLC, AgStar Financial Services, PCA, as Seller Agent and Springdale Title Company

10.4

Refundable Deposit and Escrow Agreement dated May 20, 2009 by and among Green Plains Holdings LLC, AgStar Financial Services, PCA, as Seller Agent and Springdale Title Company

10.5

Credit Agreement by and among Green Plains Ord LLC, Green Plains Holdings LLC, AgStar Financial Services, PCA as Administrative Agent and the Banks named therein, dated July 2, 2009

10.6

Credit Agreement by and among Green Plains Central City LLC, Green Plains Holdings LLC, AgStar Financial Services, PCA as Administrative Agent and the Banks named therein, dated July 2, 2009

10.7

Revolving Credit and Security Agreement by and between PNC Bank, National Association (as Lender and Agent) and Green Plains Trade Group LLC, dated July 30, 2009

31.1

Certification of Chief Executive Officer pursuant to S.E.C. Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to S.E.C. Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002




34



SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



 

GREEN PLAINS RENEWABLE ENERGY, INC.

(Registrant)

 

 

Date: August 10 , 2009

By:

/s/ Todd A. Becker

 

 

 

Todd A. Becker

President and Chief Executive Officer

(Principal Executive Officer)

 

 

 

Date: August 10, 2009

By:

/s/ Jerry L. Peters

 

 

 

Jerry L. Peters

Chief Financial Officer

(Principal Financial Officer)




35


Exhibit 10.1



Membership Interest Purchase Agreement

(RBF Acquisition VI, LLC)

dated as of May 20, 2009

by and between

THE ENTITIES LISTED ON SCHEDULE 1 HERETO,

AgStar Financial Services, PCA, as Seller Agent,

and

Green Plains Holdings LLC






Table of Contents

page

ARTICLE 1

DEFINITIONS

1

1.1

Definitions

1

1.2

Other Definitions and Interpretive Matters

5

ARTICLE 2

PURCHASE AND SALE

6

2.1

Purchase and Sale

6

2.2

Contracts and Permits

6

2.3

Further Assurances

6

ARTICLE 3

PURCHASE PRICE

6

3.1

Purchase Price

6

ARTICLE 4

CLOSING

7

4.1

Closing Date

7

4.2

Buyer’s Deliveries

7

4.3

Seller’s Deliveries

7

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF SELLERS

7

5.1

Organization and Good Standing

7

5.2

Ownership of Membership Interests

8

5.3

Authority; Validity

8

5.4

No Conflict

8

5.5

Litigation

8

5.6

Brokers or Finders

8

5.7

Representations and Warranties with Respect to the Company

8

ARTICLE 6

REPRESENTATIONS AND WARRANTIES OF BUYER

10

6.1

Organization and Good Standing

10

6.2

Authority; Validity

10

6.3

No Conflict

10

6.4

Availability of Funds

10

6.5

Litigation

10

6.6

Brokers or Finders

10

6.7

Investment Intent

10

6.8

Expertise

10

6.9

Certain Information

11

6.10

No Other Representations

11

6.11

Inspection

11

ARTICLE 7

ACTIONS PRIOR TO THE CLOSING DATE

11

7.1

Operations Prior to the Closing Date

11

7.2

Divestiture of Certain Assets

11

7.3

Access to Information

11

7.4

637 Registrations; Alcohol Fuel Plant Permits

12

7.5

Pre-Startup Capital and Plant Maintenance and Repairs

12

7.6

TIF Bonds

12

ARTICLE 8

ADDITIONAL AGREEMENTS

12

8.1

Allocation of Liabilities

12

8.2

Payments Received

12

8.3

Tax Credits; Tax Recapture Liabilities

13

ARTICLE 9

CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER TO CLOSE

13

9.1

Accuracy of Representations

13

9.2

Seller’s Performance

13

9.3

No Order

13

9.4

Seller Deliveries

13

9.5

Consents

13

9.6

Financing

13

9.7

Damage to Assets

13

9.8

TIF Bonds

13

9.9

Central City Purchase Agreement

13

ARTICLE 10

CONDITIONS PRECEDENT TO THE OBLIGATION OF EACH SELLER TO CLOSE

13

10.1

Accuracy of Representations

13

10.2

Buyer’s Performance

14

10.3

No Order

14

10.4

Buyer’s Deliveries

14



ii



10.5

Central City Purchase Agreement

14

ARTICLE 11

INDEMNIFICATION

14

11.1

Indemnification by Sellers

14

11.2

Indemnification by Buyer

14

11.3

Procedures

14

11.4

Settlement and Compromise

15

11.5

Deductible; Limitation Amount; Indemnification Escrow

15

11.6

Seller Agent

15

ARTICLE 12

TERMINATION

16

12.1

Termination Events

16

12.2

Effect of Termination

17

ARTICLE 13

GENERAL PROVISIONS

17

13.1

Survival

17

13.2

Public Announcements

17

13.3

Notices

17

13.4

Waiver

18

13.5

Entire Agreement; Amendment

18

13.6

Assignment

18

13.7

Severability

18

13.8

Expenses and Taxes

18

13.9

Governing Law; Consent to Jurisdiction and Venue; Jury Trial Waiver

18

13.10

Counterparts

19

13.11

Parties in Interest; No Third Party Beneficiaries

19

13.12

Non-Recourse

19



iii



SCHEDULES


Schedule 1

Sellers

Schedule 5.7(a)

Disclosure Regarding Organization

Schedule 5.7(d)

Litigation

Schedule 5.7(e)

Disclosure of Liabilities and Liens

Schedule 5.7(f)

Tax Matters

Schedule 5.7(h)

Contracts

Schedule 5.7(i)

Real Property

Schedule 5.7(j)

Environmental Matters

Schedule 5.7(k)

Intellectual Property Matters

Schedule 7.2

Excluded Assets


EXHIBITS


Exhibit A

Credit Agreement




iv



Membership Interest Purchase Agreement


This Membership Interest Purchase Agreement (this “ Agreement ”) is made as of May 20, 2009 (the “ Effective Date ”), by and among each of the entities identified as a seller on Schedule 1 attached hereto (each a Seller ” and collectively “ Sellers ”), Seller Agent, and Green Plains Holdings LLC (“ Buyer ”). Capitalized terms used herein and not otherwise defined herein have the meanings set forth in Article 1 .

Recitals

Whereas , Sellers collectively own all of the issued and outstanding membership interests of RBF Acquisition VI, LLC, a Delaware limited liability company (the “ Company ”);

Whereas , VeraSun Energy Corporation, a South Dakota corporation (“ VeraSun ”), US BioEnergy Corporation, a South Dakota corporation (“ US Bio ”), and VeraSun Ord, LLC (“ Ord ,” and together with VeraSun and US Bio, the “ VeraSun Entities ”) were engaged in the business of producing ethanol and its co-products, including distillers grains, at the Facility (such business, as conducted by the VeraSun Entities, the “ Business ”);

Whereas , US Bio is a direct wholly-owned subsidiary of VeraSun and Ord is an indirect wholly-owned subsidiary of VeraSun;

Whereas , on October 31, 2008 (the “ Petition Date ”), VeraSun and its direct and indirect subsidiaries (including US Bio and Ord) filed a voluntary petition for relief (the “ Filings ”) commencing cases under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the “ Bankruptcy Case ”);

Whereas , the Company purchased substantially all of the assets and assumed certain liabilities of the VeraSun Entities relating to the Business pursuant to Sections 363 and 365 of the Bankruptcy Code under the Order issued in the Bankruptcy Case and certain additional sale Orders (collectively, the “ Sale Order ”) and upon the terms and conditions of that certain Asset Purchase Agreement by and among VeraSun, US Bio, Ord and the Company, dated April 2, 2009(the “ Bankruptcy Purchase Agreement ”); and

Whereas , Sellers desire to sell to Buyer all of the issued and outstanding membership interests in the Company, and Buyer desires to purchase from Sellers all of the issued and outstanding membership interests in the Company, upon the terms and conditions hereinafter set forth.

Now, Therefore , in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties and covenants herein contained, the Parties agree as follows:

ARTICLE 1
DEFINITIONS

1.1

Definitions . For purposes of this Agreement, the following terms have the meanings specified or referenced below.

637 Registrations ” has the meaning set forth in Section 7.4 .

Action ” means any legal action, suit or arbitration, or any inquiry, proceeding (including any civil, criminal, administrative or appellate proceeding), hearing, audit or investigation, brought, conducted or heard by or before any court or other Governmental Authority.

Affiliate ” of any particular Person means any other Person or Persons controlling, controlled by, or under common control with such particular Person, where “ control ” means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through the ownership of voting securities, contract, or otherwise.

Agreement ” has the meaning set forth in the introductory paragraph.

AgStar ” means AgStar Financial Services, PCA.

Alcohol Fuel Permits ” has the meaning set forth in Section 7.4 .

Allocated Other Liability Amount ” has the meaning set forth in Section 8.1 .






Allocated Tax Amount ” has the meaning set forth in Section 8.1 .

Assignment ” means the assignment by a Seller to Buyer of the Membership Interests owned by such Seller in form and substance reasonably acceptable to Buyer and Seller Agent.

Bankruptcy Case ” has the meaning set forth in the recitals.

Bankruptcy Code ” means Title 11 of the United States Code, Sections 101 et seq .

Bankruptcy Purchase Agreement ” has the meaning set forth in the recitals.

Business ” has the meaning set forth in the recitals.

Business Day ” means any day of the year on which national banking institutions in New York are open to the public for conducting business and are not required or authorized by law to close.

Buyer ” has the meaning set forth in the introductory paragraph.

Cash Purchase Price ” has the meaning set forth in Section 3.1(c) .

Central City Purchase Agreement ” means the Membership Interest Purchase Agreement dated on or about the date of this Agreement relating to the sale to Buyer of all outstanding membership interests in RBF Acquisition II, LLC.

Closing ” has the meaning set forth in Section 4.1 .

Closing Date ” means the date and time as of which the Closing occurs as set forth in Section 4.1 .

Code ” means the Internal Revenue Code of 1986, as amended.

Company ” has the meaning set forth in the recitals.

Contract ” means any agreement, contract, obligation, promise, license, note, lease or undertaking (whether written or oral) that is legally binding.

Deposit Escrow Amount ” means $250,000.

Deposit Escrow Agreement ” means the Refundable Deposit and Escrow Agreement dated as of even date herewith by and among Buyer, Seller Agent and Escrow Agent.

Effective Date ” has the meaning set forth in the introductory paragraph.

Environmental, Health and Safety Laws ” means any Legal requirements concerning environmental, health or safety matters.

Escrow Agent ” means Springdale Title Company.

Excluded Assets ” has the meaning set forth in Section 7.2 .

Facility” means the dry mill ethanol plant located near Ord, Nebraska including the Owned Real Property on which such facility is located and all buildings, structures, improvements, easements and other property related thereto.

Facility Maintenance Agreement ” means the Management Services Agreement dated March 25, 2009, by and between ICM Inc. and the Company.

Filings ” has the meaning set forth in the recitals.

Financing Documents ” means (i) a credit agreement by and between the Company and AgStar, as agent, and other banks named therein, substantially in the form of the Credit Agreement attached as Exhibit A hereto, as the same may be modified by mutual agreement of the parties thereto on or prior to the Closing Date, together with (ii) all other documents and instruments contemplated thereby.



2



Finished Ethanol ” means 190 proof ethanol, 200 proof ethanol and denatured ethanol.

Governmental Authority ” means any United States federal, state or local or any foreign government, governmental authority or regulatory or administrative authority or any court, tribunal or judicial body having jurisdiction.

Hazardous Substance ” means any “pollutant,” “contaminant,” “hazardous waste,” “hazardous material,” or “hazardous substance” under any Environmental, Health and Safety Laws.

Indemnification Escrow Agent ” has the meaning set forth in Section 3.1(c) .

Indemnification Escrow Agreement ” has the meaning set forth in Section 3.1(c) .

Indemnification Escrow Amount ” has the meaning set forth in Section 3.1(c) .

Legal Requirement ” means any federal, state, provincial, local, municipal, foreign, international, multinational, or other administrative Order, constitution, law, ordinance, principle of common law, regulation, statute or treaty.

Liability ” means any debt, losses, claim, damage, demand, fine, judgment, penalty, deficiency, liability or obligation (whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, or due or to become due).

Lien ” means any mortgage, pledge, lien, easement, charge, security interest, option or other encumbrance of any kind.

Material Adverse Effect ” means a material adverse change in or material adverse effect on the assets of the Company or the Business, in each case taken as a whole, but excluding (a) any change or effect to the extent that it results from or arises out of (i) the Filings; (ii) the execution and delivery of this Agreement or the announcement thereof or the pendency or consummation of the transactions contemplated hereby; (iii) geopolitical conditions or any outbreak or escalation of hostilities or acts of terrorism or war; (iv) any hurricane, tornado, flood, earthquake or other natural disaster; (v) changes in (or proposals to change) Legal Requirements or accounting regulations or principles; (vi) any action contemplated by this Agreement or taken at the request of Buyer; (vii) changes in prices or costs of commodities or supplies; (viii) failure of the Company to meet any internal or published projections, forecasts, estimates or predictions in respect of financial or operating metrics; or (ix) any motion, application, pleading or Order filed under or in connection with the Bankruptcy Case; and (b) any change or effect generally applicable to (i) the industries and markets in which the Business operates or proposes to operate or (ii) economic or political conditions or the securities or financial markets in any country or region; provided, however, that in the cases of clauses (b)(i) and (b)(ii), only to the extent such change or effect does not affect the assets of the Company or the Business, taken as a whole, in a disproportionate manner relative to the other participants in the industries and markets in which the Business operates.

Membership Interests ” means all of the issued and outstanding membership interests of the Company.

Ord ” has the meaning set forth in the recitals.

Order ” means any award, writ, injunction, judgment, order or decree entered, issued, made, or rendered by any Governmental Authority.

Owned Real Property ” means the real property legally described in Schedule 5.7(i) .

Party ” or “ Parties ” means, individually or collectively, Buyer, Seller Agent and Sellers.

Periodic Taxes ” has the meaning set forth in Section 8.1 .

Permits ” means all franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, certificates, approvals, clearances and Orders.

Person ” means any individual, corporation (including any non-profit corporation), partnership, limited liability company, joint venture, estate, trust, association, organization or other entity or Governmental Authority.

Petition Date ” has the meaning set forth in the recitals.



3



Proceeding ” means any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative or investigative) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Authority.

Purchase Price ” has the meaning set forth in Section 3.1 .

RBF VIII ” means RBF Acquisition VIII, LLC, a Delaware limited liability company and an Affiliate of the Company.

Release ” means any past or present spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing of a Hazardous Substance into the environment.

Representative ” means, with respect to a particular Person, any director, officer, employee, agent, consultant, advisor or other representative of such Person, including legal counsel, accountants and financial advisors.

Retained Corn Inventory ” means 20,000 bushels of #2 yellow corn of merchantable quality or such different amount as is stored at the Facility as of the Closing Date.

Retained Corn Price ” means an aggregate amount determined by multiplying (i) 20,000 (or whatever number of bushels constitutes the Retained Corn Inventory) by (ii) a price per bushel equal to (A) the Chicago Board of Trade closing price per bushel for the corn as of the Business Day immediately preceding the Closing Date, less (ii) $0.15 per bushel.

Sale Order ” has the meaning set forth in the recitals.

Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations of the United States Securities and Exchange Commission promulgated thereunder.

Seller Agent ” means AgStar and its successors in such capacity.

Seller’s Knowledge ” means, with respect to each Seller and with respect to any matter in question, the actual knowledge (excluding, among other things, constructive and imputed knowledge) of Mark Schmidt or Rick Kjolsing with respect to such matter, without making any independent investigation or inquiry or verification. Such words signify only that no information has come to their attention in connection with the transaction contemplated by this Agreement that has given them actual knowledge that a statement regarding the matter is not accurate in any material respect.

Sellers ” has the meaning set forth in the introductory paragraph.

Startup Costs ” has the meaning set forth in Section 7.5 .

Subsidiary ” means any corporation or limited liability company with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or membership interests, as the case may be, or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors or governors, as the case may be.

Tax ” or “ Taxes ” (and with correlative meaning, “ Taxable ” and “ Taxing ”) means (i) any federal, state, provincial, local, foreign or other income, alternative, minimum, add-on minimum, accumulated earnings, personal holding company, franchise, capital stock, net worth, capital, profits, intangibles, windfall profits, gross receipts, value added, sales, use, goods and services, excise, customs duties, transfer, conveyance, mortgage, registration, stamp, documentary, recording, premium, severance, environmental (including taxes under Section 59A of the Code), natural resources, real property, personal property, ad valorem, intangibles, rent, occupancy, license, occupational, employment, unemployment insurance, social security, disability, workers’ compensation, payroll, health care, withholding, estimated or other similar tax, duty, levy or other governmental charge or assessment or deficiency thereof (including all interest and penalties thereon and additions thereto whether disputed or not) and (ii) any transferee or successor liability (by law, contract or otherwise) in respect of any items described in clause (i) above.

Tax Credits ” means, collectively, any credits, refunds, rebates or incentives payable to the Company (as assignee of the VeraSun Entities, owner of the Facility or otherwise) by any Governmental Authority with respect to Taxes.

Tax Recapture Liability ” means any Liability of the Company (as assignee of the VeraSun Entities, owner of the Facility or otherwise) with respect to amounts previously deducted from income for purposes of Taxes but which have become Taxable or otherwise subject to recapture Liability.



4



Tax Return ” means any return, declaration, report, claim for refund, information return or other document (including any related or supporting estimates, elections, schedules, statements, or information) filed or required to be filed in connection with the determination, assessment or collection of any Tax or the administration of any laws, regulations or administrative requirements relating to any Tax.

TIF Bonds ” means the Series 2006 State of Nebraska, City of Ord Community Redevelopment Revenue Bonds dated May 17, 2006, originally issued to Val-E Ethanol, L.L.C. and assigned October 9, 2007, to US Bio, the current holder thereof, issued in the following amounts: $1,026,000, maturing December 11, 2011, bearing interest at 7.0% per annum; $1,500,000, maturing December 1, 2016, bearing interest at 7.5% per annum; and $1,224,000, maturing December 31, 2021, bearing interest at 7.75%.

Transaction Documents ” means this Agreement, the Indemnification Escrow Agreement, the Deposit Escrow Agreement and any other agreements, instruments or documents entered into pursuant to this Agreement.

Unpermitted Liens ” has the meaning set forth in Section 5.7(e) .

US Bio ” has the meaning set forth in the recitals.

VeraSun ” has the meaning set forth in the recitals.

VeraSun Entities ” has the meaning set forth in the recitals.

1.2

Other Definitions and Interpretive Matters

(a)

Unless otherwise expressly provided, for purposes of this Agreement, the following rules of interpretation shall apply:

(i)

Calculation of Time Period . When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded. If the last day of such period is a day other than a Business Day, the period in question shall end on the next succeeding Business Day.

(ii)

Dollars . Any reference in this Agreement to $ means U.S. dollars.

(iii)

Exhibits/Schedules . All Exhibits and Schedules attached or annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Schedule or Exhibit but not otherwise defined therein shall be defined as set forth in this Agreement.

(iv)

Gender and Number . Any reference in this Agreement to gender includes all genders, and words imparting the singular number only include the plural and vice versa.

(v)

Headings . The provision of a table of contents, the division of this Agreement into Articles, Sections and other subdivisions and the insertion of headings are for convenience of reference only and shall not affect or be utilized in the construction or interpretation of this Agreement. All references in this Agreement to any “ Section ” or “ Article ” are to the corresponding Section or Article of this Agreement unless otherwise specified.

(vi)

Herein . Words such as “ herein ,” “ hereof ” and “ hereunder ” refer to this Agreement as a whole and not merely to a subdivision in which such words appear, unless the context otherwise requires.

(vii)

Including . The word “ including ” or any variation thereof means “ including, without limitation, ” and shall not be construed to limit any general statement that it follows to the specific or similar items or matters immediately following it.



5



(b)

No Strict Construction. Buyer, on the one hand, and Sellers, on the other hand, participated jointly in the negotiation and drafting of this Agreement, and, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as jointly drafted by Buyer, on the one hand, and Sellers, on the other hand, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provision of this Agreement. Without limitation as to the foregoing, no rule of strict construction construing ambiguities against the draftsperson shall be applied against any Person with respect to this Agreement.

ARTICLE 2
PURCHASE AND SALE

2.1

Purchase and Sale . Upon the terms and subject to the conditions of this Agreement, on the Closing Date, Sellers shall sell, transfer, assign, convey and deliver to Buyer, and Buyer shall purchase, acquire and accept from Sellers, all right, title and interest of Sellers in and to the Membership Interests.

2.2

Contracts and Permits . If the sale of the Membership Interests pursuant to this Agreement shall, under the terms of any Contract to which the Company is a party or Permit held by the Company, be deemed to constitute an assignment of such Contract or Permit, the responsibility for obtaining any consents from or making other arrangements with third parties required therefor shall be borne by Buyer, it being understood and agreed that Sellers shall provide reasonable cooperation in connection therewith, provided that nothing in this Section 2.2 shall require any Seller to make any expenditure or incur any obligation on its own or on behalf of Buyer.

2.3

Further Assurances . At the Closing, and at all times thereafter as may be necessary, Sellers shall execute and deliver to Buyer such instruments of transfer as shall be reasonably necessary or appropriate to vest in Buyer good and indefeasible title to the Membership Interests and to comply with the purposes and intent of this Agreement, and each of the Sellers, on the one hand, and Buyer, on the other hand, shall use its reasonable efforts to take, or cause to be taken, all appropriate action, do or cause to be done all things necessary, proper or advisable under applicable law, and execute and deliver such documents and other papers, as may be required to consummate the transactions contemplated by this Agreement.


ARTICLE 3.

PURCHASE PRICE

3.1

Purchase Price .

(a)

The purchase price (the “ Purchase Price ”) for the Membership Interests shall be $38,000,000, payable to Seller Agent for the benefit of Sellers. That portion of the Purchase Price as is distributable to Sellers in accordance with the provisions of this Section 3.1 shall be distributed by Seller Agent to Sellers on a pro rata basis based on the number of Membership Interests owned by each Seller as disclosed on Schedule 1 .

(b)

At Closing, Buyer shall pay to Seller Agent for the benefit of Sellers, in immediately available funds by wire transfer to such account or accounts designated by Seller Agent prior to Closing, an aggregate amount equal to (i) the sum of (A) $37,850,000 and (B) the Retained Corn Price, less (ii) the sum of (A) the Allocated Tax Amount and (B) the Allocated Other Liability Amount (such amount so determined being referred to as the “ Cash Purchase Price ”). Seller Agent shall apply such Cash Purchase Price first to pay in full the Liabilities secured by the Unpermitted Liens, and shall distribute the remaining portion to Sellers.

(c)

At Closing, Buyer shall place into escrow with an escrow agent (the “ Indemnification Escrow Agent ”) mutually acceptable to Buyer and Seller Agent the sum of $150,000 (the “ Indemnification Escrow Amount ”), in accordance with an escrow agreement in form and substance reasonable acceptable to Buyer, Seller Agent and the Indemnification Escrow Agent (the “ Indemnification Escrow Agreement ”).



6



ARTICLE 4
CLOSING

4.1

Closing Date . Upon the terms and subject to the conditions hereof, the closing of the sale of the Membership Interests contemplated hereby (the “Closing”) shall take place at the office of Gray Plant Mooty, Minneapolis, Minnesota, no later than the third (3rd) Business Day following the date on which the conditions set forth in Article 9 and Article 10 have been satisfied or (if permissible) waived (other than the conditions which by their nature are to be satisfied at the Closing, but subject to the satisfaction or (if permissible) waiver of such conditions), or at such other place or time as Buyer and Seller Agent may mutually agree. The date and time at which the Closing actually occurs is hereinafter referred to as the “Closing Date.”

4.2

Buyer’s Deliveries . At the Closing, Buyer shall deliver to Seller Agent on behalf of Sellers:

(a)

the Cash Purchase Price;

(b)

the Indemnification Escrow Agreement, duly executed by Buyer;

(c)

each other Transaction Document to which Buyer is a party, duly executed by Buyer;

(d)

the certificates of Buyer to be received by Seller Agent pursuant to Sections 10.1 and 10.2 ; and

(e)

a certificate of good standing of Buyer issued as of a recent date by the Secretary of State of the State of Delaware.

4.3

Seller’s Deliveries . At the Closing, Sellers shall deliver to Buyer:

(a)

against payment of the Cash Purchase Price, an Assignment duly executed by each Seller with respect to the Membership Interests owned by such Seller;

(b)

the Indemnification Escrow Agreement, duly executed by Seller Agent on behalf of Sellers;

(c)

each other Transaction Document to which any Seller or Seller Agent is a party, duly executed by such Seller or Seller Agent, as the case may be;

(d)

the resignation of all managers, governors, officers, directors and authorized representatives for the Company;

(e)

the certificates of Sellers to be received by Buyer pursuant to Sections 9.1 and 9.2 ;

(f)

a certificate of good standing of each Seller issued as of a recent date by the Secretary of State or similar officer of the jurisdiction of its organization;

(g)

if required, a certificate executed by each Seller, in the form prescribed under Treasury Regulation Section 1.1445-2(b), that such Seller is not a foreign person within the meaning of Section 1445(f)(3) of the Code; and

(h)

a release or termination of each of the Unpermitted Liens, to be delivered following the consummation of transactions contemplated to close contemporaneously with the Closing.

ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLERS

Each Seller represents and warrants to Buyer as follows:

5.1

Organization and Good Standing . Such Seller is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization.



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5.2

Ownership of Membership Interests . Such Seller is the owner, beneficially and of record, of the Membership Interests indicated on Schedule 1 as owned by such Seller, free and clear of any restriction on transfer (other than restrictions under the Securities Act and state securities law) or Lien. Such Membership Interests have been duly authorized, and are validly issued, fully paid and nonassessable. Such Seller is not a party to any option, warrant, purchase right, or other contract or commitment that would require such Seller to sell, transfer or otherwise dispose of any such Membership Interests (other than this Agreement). Such Seller is not a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of any of such Membership Interests.

5.3

Authority; Validity . Such Seller has the requisite entity power and authority necessary to enter into and perform its obligations under this Agreement and the other Transaction Documents to which such Seller is a party and to consummate the transactions contemplated hereby and thereby, and the execution, delivery and performance of this Agreement and such other Transaction Documents by such Seller and the consummation by such Seller of the transactions contemplated herein and therein has been duly and validly authorized by all requisite entity action. This Agreement has been duly and validly executed and delivered by such Seller and each other Transaction Document required to be executed and delivered by such Seller at the Closing will be duly and validly executed and delivered by such Seller at the Closing. This Agreement and the other Transaction Documents constitute, with respect to such Seller, the legal, valid and binding obligations of such Seller, enforceable against such Seller in accordance with their respective terms, except as such enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to creditors’ rights generally or general principles of equity.

5.4

No Conflict . The execution and delivery of this Agreement and the other Transaction Documents and the consummation of the transactions provided for herein and therein will not result in the breach of any of the terms and provisions of, or constitute a default under, or conflict with, or cause any acceleration of any obligation of such Seller under (a) any agreement, indenture, or other instrument to which it is bound (other than any Contract for which consent for the transaction contemplated by this Agreement is required by the terms of such Contract but for which such consent has not been obtained), (b) the bylaws or other similar governing documents of such Seller, (c) any Order or (d) any Legal Requirement.

5.5

Litigation . There are no Proceedings pending or, to the knowledge of such Seller, threatened, that would affect such Seller’s ability to perform its obligations under this Agreement or any other Transaction Documents or to consummate the transactions contemplated hereby or thereby.

5.6

Brokers or Finders . Neither such Seller nor any Person acting on behalf of such Seller has paid or become obligated to pay any fee or commission to any broker, finder, investment banker, agent or intermediary for or on account of the transactions contemplated by this Agreement for which Buyer is or will become liable, and such Seller shall hold harmless and indemnify Buyer from any claims with respect to any such fees or commissions.

5.7

Representations and Warranties with Respect to the Company .

(a)

The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Except as described in Schedule 5.7(a) , the Company has the full limited liability company right, power and authority to own, lease and operate all of its properties and assets and carry out its businesses as they are presently conducted or proposed to be conducted.

(b)

Other than this Agreement, there are (i) no outstanding options, warrants, rights (including subscription, conversion or preemptive rights and rights of first refusal or similar rights, whether or not contingent) or agreements, orally or in writing, for the purchase or acquisition from the Company of any issued or unissued membership interests of the Company; (ii) no restrictions upon, or agreements or understandings of the Company, or understandings of any other Person, with respect to, the voting or transfer of any membership interests of the Company; and (iii) no outstanding contractual obligations of the Company to repurchase, redeem or otherwise acquire any membership interests of the Company.

(c)

The Company does not own or have an interest in any Subsidiaries, or own or have an interest, beneficially or otherwise, in any shares, capital or other equity or profit interest in any other corporation, partnership, limited liability company or other business association. The Company has not engaged in any business activity of any nature other than that directly associated with the consummation of the transactions contemplated by the Bankruptcy Purchase Agreement. The transactions contemplated by the Bankruptcy Purchase Agreement have been consummated.

(d)

Except for the Bankruptcy Case and as otherwise described in Schedule 5.7(d) , there are no Proceedings pending or, to such Seller’s Knowledge, threatened against the Company or its assets.



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(e)

Except as set forth in Schedule 5.7(e) , the Company has no material Liabilities of any nature. The Company has not (i) granted any lien or security interest on or in any of its assets, other than such liens and security interests listed or described in Schedule 5.7(e) (the “ Unpermitted Liens ”), or (ii) assigned any rights under the Bankruptcy Purchase Agreement. The Company has such title in its assets as was conveyed to the Company under the Bankruptcy Purchase Agreement and pursuant to the Sale Order.

(f)

Except as set forth in Schedule 5.7(f) , all Tax Returns with respect to any Tax which is required to be filed by or with respect to the Company have been duly and timely filed, (ii) all items of income, gain, loss, deduction and credit or other items required to be included in each such Tax Return have been so included and all information provided in each such Tax Return is true, correct and complete in all material respects, and (iii) all material Taxes which have become due with respect to the period covered by each such Tax Return have been timely paid in full. There are no outstanding contests or disputes with respect to any Taxes relating to the Company, the Business or the Company’s property, whether paid, payable or asserted to be payable by a taxing authority.

(g)

The Company does not have any employees. The Company has no written or oral employee benefit plans.

(h)

To such Seller’s Knowledge, Schedule 5.7(h) lists all Contracts to which the Company is a party as of the date hereof. To such Seller’s Knowledge, neither the Company nor any other party to any such Contract is in material breach or default thereunder, except (i) as may be described in Schedule 5.7(h) , and (ii) for any breaches or defaults that would not, individually or in the aggregate, have a Material Adverse Effect.

(i)

Schedule 5.7(i) lists, as of the Effective Date, all real property acquired by the Company pursuant to the Bankruptcy Purchase Agreement. To such Seller’s Knowledge, the Company is not a lessor or lessee of any real property; (ii) except as set forth on Schedule 5.7(i) , such Seller has not received written notice of, and to such Seller’s Knowledge, there is no threatened (A) condemnation, eminent domain, expropriation or similar Proceeding affecting the Owned Real Property, (B) Proceeding to change the zoning classification of any portion of the Owned Real Property, or (C) imposition of any special assessments for public betterments affecting the Real Property, which in the case of each of clauses (A), (B) and (C) would have, individually or in the aggregate, a Material Adverse Effect; and (iii) except as set forth on Schedule 5.7(i) , to such Seller’s Knowledge, the Owned Real Property, and the present uses of the Owned Real Property by the Company are in compliance with, and not in default under or in violation of any building, zoning, land use, public health, public safety, sewage, water, sanitation or other comparable Legal Requirement, except for such instances of noncompliance, default or violation that would not, individually or in the aggregate, have a Material Adverse Effect.

(j)

Except as set forth on Schedule 5.7(j) , (i) the Company has received no notice, either written or to such Seller’s Knowledge otherwise, alleging that the activities of the Business are in violation of any Environmental, Health and Safety Laws; and (ii) to such Seller’s Knowledge, there has been no Release of any Hazardous Substances that requires reporting under applicable Environmental, Health and Safety Laws at, on or under the Owned Real Property, and to such Seller’s Knowledge none of the Owned Real Property has been used by any Person as a landfill or storage, treatment or disposal site for any type of Hazardous Substance or non-hazardous solid wastes as defined under the Resource Conservation and Recovery Act of 1976, as amended.

(k)

Except as disclosed in Schedule 5.7(k) , and except as would not, individually or in the aggregate, have a Material Adverse Effect, to such Seller’s Knowledge (i) the conduct of the Business as currently conducted (including the products and services currently sold or provided) does not infringe or otherwise violate any Person’s intellectual property rights, and, to such Seller’s Knowledge, no such claims are pending or threatened against the Company, and (ii) no Person is infringing or otherwise violating any intellectual property rights of the Company, and to such Seller’s Knowledge no such claims are pending or threatened in writing against any Person.

(l)

Under the terms of the Bankruptcy Order, RBF VIII acquired certain assets of US Bio, including the TIF Bonds. The TIF Bonds have not yet been transferred to RBF VIII. RBF VIII has the right to direct US Bio to transfer the TIF Bonds to the Company.



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ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to Seller as follows:

6.1

Organization and Good Standing . Buyer is a limited liability company, duly organized, validly existing and in good standing under the laws of the State of Delaware.

6.2

Authority; Validity . Buyer has the requisite power and authority necessary to enter into and perform its obligations under this Agreement and the other Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement by Buyer and the consummation by Buyer of the transactions contemplated herein have been duly and validly authorized by all requisite limited liability company actions in respect thereof. This Agreement has been duly and validly executed and delivered by Buyer and each other Transaction Document to which Buyer is a party will be duly and validly executed and delivered by Buyer at the Closing. This Agreement and the other Transaction Documents to which Buyer is a party constitute the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with their respective terms, except as such enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to creditors’ rights generally or general principles of equity.

6.3

No Conflict . The execution and delivery of this Agreement and the other Transaction Documents and the consummation of the transactions provided for herein and therein will not result in the breach of any of the terms and provisions of, or constitute a default under, or conflict with, or cause any acceleration of any obligation of Buyer under (a) any agreement, indenture, or other instrument to which it is bound, (b) the certificate of formation, limited liability company agreement or other similar governing documents of Buyer, (c) any Order or (d) any Legal Requirement.

6.4

Availability of Funds . Buyer at the Closing will have at least $3,000,000 in immediately available funds, exclusive of amounts available to be borrowed under the Financing Documents, to consummate the transactions contemplated by this Agreement and the other Transaction Documents.

6.5

Litigation . There are no Proceedings pending or, to the knowledge of Buyer, threatened, that would affect Buyer’s ability to perform its obligations under this Agreement or any other Transaction Documents or to consummate the transactions contemplated hereby or thereby.

6.6

Brokers or Finders . Neither Buyer nor any Person acting on behalf of Buyer has paid or become obligated to pay any fee or commission to any broker, finder, investment banker, agent or intermediary for or on account of the transactions contemplated by this Agreement for which any Seller is or will become liable, and Buyer shall hold harmless and indemnify Sellers from any claims with respect to any such fees or commissions.

6.7

Investment Intent . . Buyer understands that the offering and sale of the Membership Interests is intended to be exempt from registration under the Securities Act pursuant to Section 4(2) thereof, and that there is no existing public or other market for the Membership Interests. Buyer hereby acknowledges that the Membership Interests are not registered under the Securities Act or registered or qualified for sale under any state securities law and cannot be resold without registration thereunder or exemption therefrom. Buyer is acquiring the Membership Interests for its own account as principal, for investment and not with a view to the public resale or distribution thereof in violation of any securities laws. Buyer (either alone or together with its advisors) has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of investment in the membership Interests and the economic risk of such investment. Buyer is an “accredited investor” as defined in Regulation D under the Securities Act.

6.8

Expertise . Buyer and its Affiliates are engaged in the Business and related energy businesses, and Buyer is generally familiar with the federal, state and local statutes, laws, rules and regulations applicable to the Company and any associated business Buyer intends to conduct after the Closing, and Buyer has the expertise necessary to independently evaluate Seller title to, and the condition, operation, suitability, performance and prospects of, the Company.



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6.9

Certain Information . In connection with investigation by Buyer, Buyer has received or may receive from Sellers or Seller Agent certain projections, forward-looking statements and other forecasts and certain business plan information. Buyer acknowledges that there are uncertainties inherent in attempting to make such estimates, projections and other forecasts and plans, that Buyer is familiar with such uncertainties, that Buyer is taking full responsibility for making its own evaluation of the adequacy and accuracy of all estimates, projections and other forecasts and plans so furnished to it (including the reasonableness of the assumptions underlying such estimates, projections, forecasts or plans), and that Buyer shall have no claim against anyone with respect thereto. Accordingly, Buyer acknowledges that neither any Seller nor Seller Agent makes any representation or warranty with respect to such estimates, projections, forecasts or plans (including the reasonableness of the assumptions underlying such estimates, projections, forecasts or plans).

6.10

No Other Representations . Buyer acknowledges that, except for the representations and warranties contained in Article 5, neither any Seller, Seller Agent nor any other Person on behalf of any Seller makes any express or implied representation or warranty with respect to any Seller or the Company (including representations and warranties as to title to or the condition of the Company’s assets) or with respect to any information provided by or on behalf of any Seller or Seller Agent to Buyer.

6.11

Inspection . Buyer agrees, warrants and represents that (a) Buyer is purchasing the Company on an “AS IS” and “WITH ALL FAULTS” basis based solely on Buyer’s own investigation of the Company and its Assets and (b) neither any Seller nor any real estate broker or other Representative of any Seller has made any warranties, representations or guarantees, express, implied or statutory, written or oral, respecting the Company or its assets, the financial performance of the Company or its assets, the Business, or the physical condition of the Company’s assets. Buyer further acknowledges that the consideration for the Membership Interests specified in this Agreement has been agreed upon by Sellers and Buyer after good-faith arms-length negotiation in light of Buyer’s agreement to purchase the Membership Interests and accept the Company and its assets and liabilities “AS IS” and “WITH ALL FAULTS”. Buyer agrees, warrants and represents that, except as set forth in this Agreement, Buyer has relied, and shall rely, solely upon its own investigation of all such matters, and that Buyer assumes all risks with respect thereto. EXCEPT AS SET FORTH IN THIS AGREEMENT, SELLER MAKES NO EXPRESS WARRANTY, NO WARRANTY OF MERCHANTABILITY, NO WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, AND NO IMPLIED OR STATUTORY WARRANTY WHATSOEVER WITH RESPECT TO THE COMPANY, ANY REAL OR PERSONAL PROPERTY OR ANY FIXTURES OF THE COMPANY, OR THE BUSINESS.

ARTICLE 7
ACTIONS PRIOR TO THE CLOSING DATE

7.1

Operations Prior to the Closing Date . Sellers covenant and agree that, after the Effective Date and prior to the Closing Date, Sellers shall:

(a)

cause the Company to use commercially reasonable efforts to maintain the Facility Maintenance Agreement in full force and effect;

(b)

with respect to any assets not subject to Section 7.2 below, not permit the Company to sell, transfer or dispose of any of such assets, grant any mortgage or security interest on any of such assets, or modify or amend any Contract included in such assets; and

(c)

not issue, sell, pledge, dispose of, grant, encumber or authorize the issuance, sale, pledge, disposal of, grant or encumbrance of any membership interests of the Company or any options, warrants, convertible securities or other rights of any kind to acquire any such membership interests or any other ownership interests in the Company.

7.2

Divestiture of Certain Assets . Between the date of this Agreement and the Closing, Sellers shall cause the Company to transfer and convey to Sellers or an Affiliate of Sellers, and such transferee(s) shall assume all obligations with respect to, the assets specified in Schedule 7.2 attached hereto (collectively, the “ Excluded Assets ”), such transfer and conveyance to be made without any representation or warranty by the Company.

7.3

Access to Information . Sellers and Seller Agent shall furnish to Buyer and its authorized Representatives such additional information relating to the Business, the Company or the Company’s assets as Buyer may reasonably request and shall permit Buyer to make reasonable investigations of the same and have reasonable access to the Facility. Without limiting the generality of the foregoing, Sellers and Seller Agent shall provide Buyer, with respect to the Owned Real Property, any existing surveys, legal descriptions and title policies that are in the possession of any Seller or Seller Agent.



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7.4

637 Registrations; Alcohol Fuel Plant Permits . As soon as practicable following the Effective Date, Buyer shall file all applications and undertake all necessary activities to obtain (i) from the U.S. Internal Revenue Service or its successor the excise tax registrations under Section 4041 of the Code (applied for under IRS Form 637 and commonly referred to as “637 Registrations”) necessary for the Company or its agents to sell Finished Ethanol and (ii) from the U.S. Department of the Treasury’s Alcohol and Tobacco Tax and Trade Bureau or the successor thereto the alcohol fuel plant permits (“Alcohol Fuel Permits”) necessary for the Company or its agents to manufacture Finished Ethanol.

7.5

Pre-Startup Capital and Plant Maintenance and Repairs .

(a)

Buyer may propose to Sellers (i) maintenance and repairs to be undertaken at the Facility from and after the date of this Agreement through and including May 1, 2010, and (ii) other startup costs to be incurred from and after the Closing Date through and including May 1, 2010 (such costs and the costs of such maintenance and repairs being collectively referred to as “ Startup Costs ”). Sellers will pay such Startup Costs in accordance with the provisions of this Section 7.5 , provided that the aggregate amount of such Startup Costs, combined with Startup Costs (as defined in the Central City Purchase Agreement) incurred in connection with the Central City Purchase Agreement, do not exceed $2,000,000 in the aggregate.

(b)

Buyer shall describe any such proposed Startup Costs in a budget to be submitted to Seller Agent. Such budget shall be subject to Seller Agent’s written approval, such approval not to be unreasonably withheld or delayed. No such Startup Costs shall be incurred unless and until such approval is obtained. Following such approval, each Seller shall pay to Seller Agent its pro rata share (based on the number of Membership Interests owned by such Seller as disclosed on Schedule 1 ) of such approved Startup Costs, following which Seller Agent shall pay, on behalf of the Company, such Startup Costs.

(c)

The obligation of Sellers to fund such Startup Costs shall terminate upon the earlier to occur of (i) the termination of this Agreement, (ii) the date upon which $2,000,000 in Startup Costs, as allocated between the Facility and the Facility referred to in the Central City Purchase Agreement, has been so funded, or (iii) May 1, 2010.

7.6

TIF Bonds . Sellers shall enter into contractual arrangements with RBF VIII or otherwise cause RBF VIII to direct US Bio to transfer the TIF Bonds to the Company on or prior to the Closing Date.

ARTICLE 8
ADDITIONAL AGREEMENTS

8.1

Allocation of Liabilities .

(a)

All real and personal property Taxes and similar ad valorem obligations levied with respect to the Company (“ Periodic Taxes ”) payable in the year 2009 shall be prorated as of the Closing Date, with the amount allocable to the period before the Closing Date (the “ Allocated Tax Amount ”) to be offset against the Cash Purchase Price as provided in Section 3.1(b).

(b)

Contemporaneously with Closing, on behalf of the Company and by application of a portion of the Purchase Price proceeds, Sellers will pay in full the Liabilities of the Company secured by the Unpermitted Liens and obtain the release or termination of the Unpermitted Liens.

(c)

All other Liabilities of the Company outstanding as of the Closing Date shall be prorated as of the Closing Date, and Sellers agree to pay the amount allocable to the period before the Closing Date (other than any existing or potential Tax Recapture Liability, which shall not be so prorated and shall be borne entirely by the Company). Without limiting the generality of the foregoing, all Liabilities of the Company disclosed on Schedule 5.7(e) but not otherwise subject to the foregoing clauses (a) or (b) and not constituting Tax Recapture Liabilities shall be prorated as of the Closing Date, with the amount allocable to the period before the Closing Date (the “ Allocated Other Liability Amount ”) to be offset against the Cash Purchase Price as provided in Section 3.1(b).

8.2

Payments Received . Sellers, on the one hand, and Buyer, on the other hand, each agree that, after the Closing, each will hold and will promptly transfer and deliver to the other (with deliveries by Buyer to be made to Seller Agent on behalf of Sellers), from time to time as and when received by them, any cash, checks with appropriate endorsements (using their best efforts not to convert such checks into cash) or other property that they may receive on or after the Closing which properly belongs to the other and will account to the other for all such receipts.



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8.3

Tax Credits; Tax Recapture Liabilities . After the Closing, Sellers shall provide reasonable cooperation in connection with any actions taken, on behalf of the Company and at the Company’s sole expense, to recover Tax Credits and avoid or minimize Tax Recapture Liabilities, provided that nothing in this Section 8.3 shall require any Seller to make any expenditure or incur any obligations on its own or on behalf of Buyer or the Company.

ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER TO CLOSE

The obligations of Buyer to consummate the transactions contemplated by this Agreement are subject to the satisfaction or waiver, at or prior to the Closing, of each of the following conditions:

9.1

Accuracy of Representations . Each of the representations and warranties of Sellers contained in Article 5 shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, and Buyer shall have received a certificate of Sellers to such effect signed by duly authorized officers thereof.

9.2

Seller’s Performance . Sellers shall have performed and complied with in all material respects the covenants and agreements that Sellers are required to perform or comply with pursuant to this Agreement at or prior to the Closing, and Buyer shall have received a certificate of Sellers to such effect signed by a duly authorized officer thereof.

9.3

No Order . No Governmental Authority shall have enacted, issued, promulgated or entered any Order which is in effect and has the effect of making illegal or otherwise prohibiting the consummation of the transactions contemplated by this Agreement.

9.4

Seller Deliveries . Each of the deliveries required to be made to Buyer pursuant to Section 4.3 shall have been so delivered.

9.5

Consents . Buyer shall have obtained any consents from third parties reasonably necessary to permit the transactions contemplated by this Agreement without breach of any Contract listed on Schedule 5.7(h) .

9.6

Financing . AgStar and the other banks named therein as lenders shall have entered into the Financing Documents, and all conditions precedent contained in the Financing Documents shall have been satisfied or waived such that such lenders shall be obligated to advance funds on the Closing Date sufficient for Buyer to consummate the transactions contemplated by this Agreement.

9.7

Damage to Assets . There shall not have occurred any damage, loss, destruction or condemnation of the assets of the Company that would have a Material Adverse Effect.

9.8

TIF Bonds . The TIF Bonds shall have been transferred to the Company.

9.9

Central City Purchase Agreement . The transactions contemplated by the Central City Purchase Agreement shall be consummated contemporaneously with the consummation of the transactions contemplated by this Agreement.

ARTICLE 10
CONDITIONS PRECEDENT TO THE OBLIGATION OF EACH SELLER TO CLOSE

Seller’s obligation to consummate the transactions contemplated by this Agreement is subject to the satisfaction or waiver, at or prior to the Closing, of each of the following conditions:

10.1

Accuracy of Representations . Each of the representations and warranties of Buyer contained in Article 6 shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, and Seller shall have received a certificate of Buyer to such effect signed by a duly authorized officer thereof.



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10.2

Buyer’s Performance . Buyer shall have performed and complied with in all material respects the covenants and agreements that Buyer is required to perform or comply with pursuant to this Agreement at or prior to the Closing, and Seller shall have received a certificate of Buyer to such effect signed by a duly authorized officer thereof.

10.3

No Order . No Governmental Authority shall have enacted, issued, promulgated or entered any Order which is in effect and which has the effect of making illegal or otherwise prohibiting the consummation of the transactions contemplated by this Agreement.

10.4

Buyer’s Deliveries . Each of the deliveries required to be made to Seller pursuant to Section 4.2 shall have been so delivered.

10.5

Central City Purchase Agreement . The transactions contemplated by the Central City Purchase Agreement shall be consummated contemporaneously with the consummation of the transactions contemplated by this Agreement.

ARTICLE 11
INDEMNIFICATION

11.1

Indemnification by Sellers . Sellers hereby agree, jointly but not severally, to indemnify and hold harmless Buyer at all times from and after the Closing Date against and with respect to:

(a)

Any and all loss, injury, damage, deficiency or other Liability resulting from any misrepresentation or breach of warranty on the part of Sellers under this Agreement;

(b)

Any and all loss, injury, damage, deficiency or other Liability resulting from any non-fulfillment of any covenant or agreement on the part of Sellers under this Agreement (including, without limitation, the covenant set forth in Section 8.1(c) with respect to payment of the amount of Liabilities of the Company outstanding as of the Closing Date allocable to Sellers); and

(c)

Any and all demands, claims, Actions, Proceedings, Orders, costs, legal and other expenses and other Liabilities incident to any of the foregoing.

11.2

Indemnification by Buyer . Buyer hereby agrees to indemnify and hold harmless each Seller at all times from and after the Closing Date against and with respect to:

(a)

Any and all loss, injury, damage, deficiency or other Liability resulting from any misrepresentation or breach of warranty on the part of Buyer under this Agreement;

(b)

Any and all loss, injury, damage, deficiency or other Liability resulting from any non-fulfillment of any covenant or agreement on the part of Buyer under this Agreement; and

(c)

Any and all demands, claims, Actions, Proceedings, Orders, costs and legal and other expenses incident to any of the foregoing.

11.3

Procedures . In the event any demands or claims are asserted against a Party or any Actions or Proceedings are commenced against a Party (such Party against which such are asserted or commenced being the “ Indemnified Party ”) for which the other Party (the “ Indemnifying Party ”) is obligated to indemnify the Indemnified Party under this Article 11, then Indemnified Party shall give timely notice thereof to Indemnifying Party in order to permit Indemnifying Party the necessary time to evaluate the merits of such demand, claim, Action or Proceeding and defend, settle or compromise the same so that Indemnifying Party’s interest is not materially prejudiced; and, in the event Indemnified Party fails to provide such timely notice, Indemnifying Party shall have no liability whatsoever to indemnify and defend Indemnified Party from such demand, claim, Action or Proceeding pursuant to this Article 11 and Indemnified Party shall be solely responsible for the defense thereof and any and all liability of Indemnified Party arising therefrom. Within 10 Business Days after such notice, Indemnifying Party shall assume defense thereof with counsel chosen by Indemnifying Party and reasonably acceptable to Indemnified Party. Indemnifying Party shall not be liable for any costs or expenses incurred by Indemnified Party in connection with any demand, claim, action, suit or proceeding for which Indemnifying Party is obligated to indemnify Indemnified Party under this Article 11, provided that Indemnifying Party shall have assumed the defense thereof in accordance with this Article 11.



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11.4

Settlement and Compromise . Indemnifying Party shall not settle or compromise any demands, claims, Actions or Proceedings for which Indemnified Party has sought indemnification from Indemnifying Party unless it shall have given Indemnified Party not less than 15 Business Days prior written notice of the proposed settlement or compromise and afforded Indemnified Party an opportunity to consult with Indemnifying Party regarding the proposed settlement or compromise.

11.5

Deductible; Limitation Amount; Indemnification Escrow .

(a)

No Indemnified Party shall make a claim for indemnification unless and until the amount for which it would seek indemnification exceeds a deductible of $10,000, at which time such Indemnified party shall be entitled to indemnification for that portion of such claim in excess of $10,000.

(b)

Notwithstanding anything contained in this Agreement to the contrary, (i) the aggregate liability of Sellers as the Indemnifying Party under this Agreement shall be limited to the Indemnification Escrow Amount, which shall be available for indemnification claims by Buyer as the Indemnified Party from time to time from and after the Closing Date through December 31, 2009 pursuant to the terms of the Indemnification Escrow Agreement, and (ii) the liability of Buyer as the Indemnifying Party under this Agreement shall be limited to the Deposit Escrow Amount, which shall be available for indemnification claims by Seller Agent as the Indemnified Party from time to time from and after the Closing Date through December 31, 2009 pursuant to the terms of the Deposit Escrow Agreement.

(c)

The Parties acknowledge and agree that (i) the only source of funds for any payment under this Agreement to Buyer as the Indemnified Party shall be from the Indemnification Escrow Amount pursuant to the terms of the Indemnification Escrow Agreement such that no Seller shall have a direct obligation to pay any amounts under this Agreement, and (ii) the only source of funds for any payment under this Agreement to Seller Agent as the Indemnified Party shall be from the Deposit Escrow Amount pursuant to the terms of the Deposit Escrow Agreement.

(d)

An Indemnified Party shall be forever barred from asserting any claim for indemnification under this Article 11 unless such Indemnified Party shall assert such claim for indemnification before December 31, 2009.

11.6

Seller Agent .

(a)

Subject to the terms and conditions of this Section 11.6 , Seller Agent is designated as the representative of Sellers by each Seller to serve, and Buyer hereby acknowledges that Seller Agent shall serve, as the sole representative of Sellers from the date of this Agreement and after the Closing Date with respect to the matters set forth in this Agreement, such service to be without compensation except for the reimbursement of out-of-pocket expenses and indemnification as provided herein or in the Indemnification Escrow Agreement. Seller Agent shall have no duties or responsibilities except those expressly set forth herein, and Seller Agent shall have no implied covenants, functions, responsibilities, duties, obligations or liabilities on behalf of any Seller.

(b)

Each Seller irrevocably appoints Seller Agent as the agent, proxy and attorney-in-fact for such Seller for all purposes of this Agreement, including full power and authority on such Seller’s behalf:

(i)

to execute and deliver the Deposit Escrow Agreement and the Indemnification Escrow Agreement on behalf of Sellers, and to take all actions which Seller Agent considers necessary or desirable in connection with the defense, pursuit or settlement of any determination relating to the payment of the Deposit Escrow Amount and the Indemnification Escrow Amount and any claims for indemnification pursuant to this Article 11 , including to sue, defend, negotiate, settle and compromise any such claims for indemnification made by or against and other disputes with Buyer relating to this Agreement or transactions contemplated hereby;

(ii)

to engage and employ Representatives and to incur such other expenses as Seller Agent shall deem necessary or prudent in connection with the administration of this Agreement;

(iii)

to disburse to Sellers all indemnification payments received from Buyer under this Article 11 , and to disburse to Buyer all indemnification payments to be paid to Buyer by Sellers;

(iv)

to accept and receive notices to Sellers pursuant to this Agreement;



15



(v)

to resolve, in Seller Agent’s sole discretion, any and all disputes arising under this Agreement, the Deposit Escrow Agreement, the Indemnification Escrow Agreement or any other agreement contemplated hereby or thereby; and

(vi)

to take all other actions and exercise all other rights which the Seller Agent (in its sole discretion) considers necessary or appropriate in connection with this Agreement.

(c)

Each Seller agrees that such agency and proxy are coupled with an interest, and are therefore irrevocable without the consent of Seller Agent and shall survive the bankruptcy, dissolution or liquidation of any Seller. All decisions and acts by Seller Agent shall be binding upon all of the Sellers, and no Seller shall have the right to object, dissent, protest or otherwise contest the same. Each Seller further agrees to pay or reimburse Seller Agent for such Seller’s respective share (based on the number of Membership Interests owned immediately prior to the date hereof) of any expenses incurred by Seller Agent in connection with the administration of the foregoing.

(d)

In the event Seller Agent shall resign for any reason, a replacement shall be selected from among the Sellers by Sellers owning a majority of the Membership Interests immediately prior to the Closing, and such substituted representative thereafter shall be deemed to be the Seller Agent for all purposes of this Agreement.

(e)

Neither Seller Agent nor any Representative employed by Seller Agent shall be liable to any Seller relating to the performance of its duties under this Agreement for any errors in judgment, negligence, oversight, breach of duty or otherwise except to the extent it is finally determined in a court of competent jurisdiction that the actions taken or not taken by Seller Agent were taken or not taken in bad faith, or upon its willful misconduct or gross negligence. Seller Agent shall be indemnified and held harmless by Sellers, jointly and severally, against all Liabilities paid or incurred in connection with any claim, Action or Proceeding to which Seller Agent is made a party by reason of the fact that it was acting as Seller Agent pursuant to this Agreement.

ARTICLE 12
TERMINATION

12.1

Termination Events . Anything contained in this Agreement to the contrary notwithstanding, this Agreement may be terminated at any time prior to the Closing Date:

(a)

by either Seller Agent or Buyer:

(i)

by mutual written consent of Seller Agent and Buyer; or

(ii)

by either Seller Agent or Buyer by written notice to the other if the Closing shall not have occurred on or before June 30, 2009 through no fault of (i) Buyer, in the case of notice from Buyer, or (ii) Sellers, in the case of notice from Seller Agent;

(b)

by Buyer in the event of any breach by any Seller of any of such Seller’s agreements, covenants, representations or warranties contained herein ( provided such breach would result in the failure of a condition set forth in Section 9.1 or Section 9.2 to be satisfied) and the failure of such Seller to cure such breach within fourteen (14) days after delivery of notice from Buyer specifying particularly such breach; provided , that such breach is capable of being cured; provided further , however , that in the event that any breach shall have been cured before the termination of the fourteen (14) day cure-period, at the election of Buyer the Closing Date shall be extended by the number of days actually elapsed before the cure of such breach ; and

(c)

by Seller Agent in the event of any breach by Buyer of any of Buyer’s agreements, covenants, representations or warranties contained herein ( provided such breach would result in the failure of a condition set forth in Section 10.1 or Section 10.2 to be satisfied) and the failure of Buyer to cure such breach within fourteen (14) days after delivery of notice from Seller Agent specifying particularly such breach; provided , that such breach is capable of being cured; provided further , however , that in the event that any breach shall have been cured before the termination of the fourteen (14) day cure-period, at the election of Seller Agent the Closing Date shall be extended by the number of days actually elapsed before the cure of such breach.



16



12.2

Effect of Termination . In the event of termination of this Agreement by Buyer or Seller pursuant to this Article 12, except as otherwise provided in this Section 12.2, all rights and obligations of the Parties under this Agreement shall terminate without any liability of any Party to any other Party; provided , however , that (i) nothing herein shall relieve any Party from liability for willful breach of this Agreement prior to such termination, (ii) in the event this Agreement is terminated by Buyer pursuant to Section 12.1(b) and Buyer is not in breach of this Agreement such that Buyer would fail to satisfy a condition set forth in Section 10.1 or Section 10.2, Sellers shall pay, pro-rata in accordance with their ownership of the Membership Interests, an aggregate amount equal to $250,000 as liquidated damages, and (iii) in the event this Agreement is terminated by Seller Agent pursuant to Section 12.1(c) and Sellers are not in breach of this Agreement such that Sellers would fail to satisfy a condition set forth in Section 9.1 or Section 9.2, the Sellers shall be paid, as liquidated damages, in accordance with the provisions of the Deposit Escrow Agreement, the amount specified therein. The provisions of this Section 12.2 and, to the extent applicable, Article 13 and Article 1, shall expressly survive the expiration or termination of this Agreement.

ARTICLE 13
GENERAL PROVISIONS

13.1

Survival . All representations and warranties contained herein or in any certificated deliveries hereunder, and all covenants and agreements contained herein, shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby.

13.2

Public Announcements . The initial press release relating to this Agreement shall be a joint press release, the text of which shall be agreed to by Buyer, on the one hand, and Seller Agent, on the other hand. Unless otherwise required by applicable Legal Requirement or by obligations of Buyer or Sellers or their respective Affiliates pursuant to any listing agreement with or rules of any securities exchange, Buyer, on the one hand, and Seller Agent, on the other hand, shall consult with each other before issuing any other press release or otherwise making any public statement with respect to this Agreement, the transactions contemplated hereby or the activities and operations of the other and shall not issue any such release or make any such statement without the prior written consent of the other (such consent not to be unreasonably withheld or delayed).

13.3

Notices . All notices, consents, waivers and other communications under this Agreement must be in writing and shall be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by facsimile (with written confirmation of receipt), (c) received by the addressee, if sent by a delivery service (prepaid, receipt requested) or (d) received by the addressee, if sent by registered or certified mail (postage prepaid, return receipt requested), in each case to the appropriate addresses, representatives (if applicable) and facsimile numbers set forth below (or to such other addresses, representatives and facsimile numbers as a Party may designate by notice to the other Parties):

(i)

If to Seller Agent, then to:


AgStar Financial Services, PCA

1921 Premier Drive

P.O. Box 4249

Mankato, MN 56002

Attn: Rick Kjolsing

Facsimile: (507) 344-5091


with a copy (which shall not constitute notice) to:


Gray, Plant, Mooty, Mooty & Bennett, P.A.

1010 West St. Germain

Suite 500

St. Cloud, MN 56301

Attn: Phillip L. Kunkel, Esq.

Facsimile: (320) 252-4482


(ii)

If to Buyer:


Green Plains Holdings LLC

9420 Underwood Ave., Suite 100

Omaha, NE 68114

Attn: Todd Becker, Chief Executive Officer

Facsimile: (402) 884-8776



17



with a copy (which shall not constitute notice) to:


Husch Blackwell Sanders LLP

1620 Dodge St., Suite 2100

Omaha, NE 68102

Attn: Michelle S. Mapes, Esq.

Facsimile: (402) 964-5050


13.4

Waiver . Neither the failure nor any delay by any Party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement shall operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power, or privilege shall preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no waiver that may be given by a Party shall be applicable except in the specific instance for which it is given, and (b) no notice to or demand on one Party shall be deemed to be a waiver of any right of the Party giving such notice or demand to take further action without notice or demand.

13.5

Entire Agreement; Amendment . This Agreement (including the Schedules and the Exhibits) and the other Transaction Documents supersede all prior agreements between Buyer, on the one hand, and Sellers, on the other hand, with respect to its subject matter and constitute a complete and exclusive statement of the terms of the agreements between Buyer, on the one hand, and Seller, on the other hand, with respect to their subject matter. This Agreement may not be amended except by a written agreement executed by all of the Parties.

13.6

Assignment . This Agreement, and the rights, interests and obligations hereunder, shall not be assigned by any Party by operation of law or otherwise without the express written consent of the other Parties (which consent may be granted or withheld in the sole discretion of such other Party); provided , however , that Buyer shall be permitted, upon prior notice to Seller, to assign all or part of its rights or obligations hereunder to an Affiliate, but no such assignment shall relieve Buyer of its obligations under this Agreement.

13.7

Severability . The provisions of this Agreement shall be deemed severable, and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any Person or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability.

13.8

Expenses and Taxes .

(a)

Whether or not the transactions contemplated by this Agreement are consummated, the Parties shall bear their own respective expenses (including all compensation and expenses of counsel, financial advisors, consultants, actuaries and independent accountants) incurred in connection with this Agreement and the transactions contemplated hereby.

(b)

The parties agree that all applicable excise, sales, transfer, stamp, documentary, filing, recordation and other similar Taxes, levies, fees and charges, if any (including all real estate transfer taxes and conveyance and recording fees, if any, but excluding Periodic Taxes referred to in Section 8.1 and income taxes of any Seller) that may be imposed upon, or payable or collectible or incurred in connection with, this Agreement and the transactions contemplated by this Agreement shall be borne by Buyer. Sellers shall furnish Buyer on a timely basis with all information necessary to accurately prepare and file all documentation and Tax Returns with respect to such taxes.

13.9

Governing Law; Consent to Jurisdiction and Venue; Jury Trial Waiver .

(a)

This Agreement shall be governed by, and construed in accordance with, the laws of the State of Minnesota applicable to contracts made and to be performed entirely in such state without regard to principles of conflicts or choice of laws or any other law that would make the laws of any other jurisdiction other than the State of Minnesota applicable hereto.



18



(b)

All Actions and Proceedings arising out of or relating to this Agreement shall be heard and determined in a Minnesota state court or a federal court sitting in the state of Minnesota, and the Parties hereby irrevocably submit to the exclusive jurisdiction and venue of such courts in any such Action or Proceeding and irrevocably waive the defense of an inconvenient forum to the maintenance of any such Action or Proceeding. The Parties consent to service of process by mail (in accordance with Section 13.3 ) or any other manner permitted by law.

(c)

THE PARTIES HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED IN CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF SELLER OR BUYER OR THEIR RESPECTIVE REPRESENTATIVES IN THE NEGOTIATION OR PERFORMANCE HEREOF.

13.10

Counterparts . This Agreement and any amendment hereto may be executed in one or more counterparts, each of which shall be deemed to be an original of this Agreement or such amendment and all of which, when taken together, shall be deemed to constitute one and the same instrument. Notwithstanding anything to the contrary in Section 13.3, delivery of an executed counterpart of a signature page to this Agreement or any amendment hereto by telecopier, facsimile or email attachment shall be effective as delivery of a manually executed counterpart of this Agreement or such amendment, as applicable.

13.11

Parties in Interest; No Third Party Beneficiaries . This Agreement shall inure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns. This Agreement is for the sole benefit of the Parties and their permitted assigns, and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable benefit, claim, cause of action, remedy or right of any kind.

13.12

Non-Recourse . No past, present or future director, officer, employee, incorporator, member, partner or equityholder of any Seller shall have any liability for any obligations or liabilities of such Seller under this Agreement or any other Transaction Document, for any claim based on, in respect of, or by reason of the transactions contemplated hereby and thereby.


[ Signature pages follow .]



19



In Witness Whereof, the Parties have caused this Agreement to be executed and delivered by their duly authorized representatives, all as of the Effective Date.

SELLERS:


 

 

AGSTAR FINANCIAL SERVICES, PCA

 

 

 

 

By:

/s/ Donald S. Farm, Jr .

 

 

Name:

Donald S. Farm, Jr.

 

 

Title:

SVP AgriBusiness Capital

 



20




 

 

1 ST FARM CREDIT SERVICES, PCA/FLCA

 

 

 

 

By:

/s/ Dale A. Richardson

 

 

Name:

Dale A. Richardson

 

 

Title:

VP, Illinois Capital Markets Group

 




21




 

 

AGCOUNTRY FARM CREDIT SERVICES, FLCA

 

 

 

 

By:

/s/ Richard Costain

 

 

Name:

Richard Costain

 

 

Title:

VP - Credit

 




22




 

 

AGFIRST FARM CREDIT BANK

 

 

 

 

By:

/s/ Bruce B. Fortner

 

 

Name:

Bruce B. Fortner

 

 

Title:

Vice President

 




23




 

 

AGRIBANK, FCB

 

 

 

 

By:

/s/ Eugene Flemming

 

 

Name:

Eugene Flemming

 

 

Title:

Director, Lending Services

 



24




 

 

BADGERLAND FINANCIAL, ACA

 

 

 

 

By:

/s/ Kenneth H. Rue

 

 

Name:

Kenneth H. Rue

 

 

Title:

VP – Loan Participations & Capital Markets

 



25




 

 

BANK OF THE WEST

 

 

 

 

By:

/s/ Jeffrey Mumm

 

 

Name:

Jeffrey Mumm

 

 

Title:

Vice President

 



26




 

 

COFINA FINANCIAL, LLC

 

 

 

 

By:

/s/ Brian K. Legried

 

 

Name:

Brian K. Legried

 

 

Title:

President

 



27




 

 

FARM CREDIT SERVICES OF MANDAN, FLCA

 

 

 

 

By:

/s/ Rod Bachmeier

 

 

Name:

Rod Bachmeier

 

 

Title:

Vice President

 




28




 

 

FARM CREDIT SERVICES OF MID-AMERICA, PCA

 

 

 

 

By:

/s/ Ralph M Bowman

 

 

Name:

Ralph M. Bowman

 

 

Title:

Vice President

 



29




 

 

FARM CREDIT SERVICES OF NORTH DAKOTA, FLCA

 

 

 

 

By:

/s/ Claude Sem

 

 

Name:

Claude Sem

 

 

Title:

CEO

 



30




 

 

FNBO ETHANOL HOLDINGS, LLC

 

 

 

 

By:

/s/ Bradley J. Brummond

 

 

Name:

Bradley J. Brummond

 

 

Title:

 

 



31



MLIC ASSET HOLDINGS LLC

By: Transmountain Land & Livestock

Company, a Montana Corporation, its Manager


 

By:

/s/ Steven D. Craig

 

 

Name:

Steven D. Craig

 

 

Title:

Vice President

 





32




 

 

UNITED FCS, PCA

 

 

 

 

By:

/s/ Jeffrey A. Schmidt

 

 

Name:

Jeffrey A. Schmidt

 

 

Title:

CCO

 




33



BUYER :


 

 

GREEN PLAINS HOLDINGS LLC

 

 

 

 

By:

/s/ Todd Becker

 

 

Name:

Todd Becker

 

 

Title:

Chief Executive Officer

 





34



EXHIBIT A


CREDIT AGREEMENT


[see attached]



35


Exhibit 10.2







Membership Interest Purchase Agreement

(RBF Acquisition II, LLC)

dated as of May 20, 2009

by and between

THE ENTITIES LISTED ON SCHEDULE 1 HERETO,

AgStar Financial Services, PCA, as Seller Agent,

and

Green Plains Holdings LLC






Table of Contents

PAGE

ARTICLE 1

DEFINITIONS

1

1.1

Definitions

1

1.2

Other Definitions and Interpretive Matters

5

ARTICLE 2

PURCHASE AND SALE

6

2.1

Purchase and Sale

6

2.2

Contracts and Permits

6

2.3

Further Assurances

6

ARTICLE 3

PURCHASE PRICE

6

3.1

Purchase Price

6

ARTICLE 4

CLOSING

6

4.1

Closing Date

6

4.2

Buyer’s Deliveries

7

4.3

Seller’s Deliveries

7

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF SELLERS

7

5.1

Organization and Good Standing

7

5.2

Ownership of Membership Interests

7

5.3

Authority; Validity

8

5.4

No Conflict

8

5.5

Litigation

8

5.6

Brokers or Finders

8

5.7

Representations and Warranties with Respect to the Company

8

ARTICLE 6

REPRESENTATIONS AND WARRANTIES OF BUYER

9

6.1

Organization and Good Standing

9

6.2

Authority; Validity

10

6.3

No Conflict

10

6.4

Availability of Funds

10

6.5

Litigation

10

6.6

Brokers or Finders

10

6.7

Investment Intent

10

6.8

Expertise

10

6.9

Certain Information

10

6.10

No Other Representations

10

6.11

Inspection

11

ARTICLE 7

ACTIONS PRIOR TO THE CLOSING DATE

11

7.1

Operations Prior to the Closing Date

11

7.2

HSR Act; Reasonable Best Efforts

11

7.3

Divestiture of Certain Assets

12

7.4

Access to Information

12

7.5

637 Registrations; Alcohol Fuel Plant Permits

12

7.6

Pre-Startup Capital and Plant Maintenance and Repairs

13

7.7

TIF Bonds

13

ARTICLE 8

ADDITIONAL AGREEMENTS

13

8.1

Allocation of Liabilities

13

8.2

Payments Received

13

8.3

Tax Credits; Tax Recapture Liabilities

13

ARTICLE 9

CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER TO CLOSE

14

9.1

Accuracy of Representations

14

9.2

Seller’s Performance

14

9.3

No Order

14

9.4

Governmental Authorizations

14

9.5

Seller Deliveries

14

9.6

Consents

14

9.7

Financing

14

9.8

Damage to Assets

14

9.9

TIF Bonds

14

9.10

Ord Purchase Agreement.

14

9.11

Rail Access Agreement

14

ARTICLE 10

CONDITIONS PRECEDENT TO THE OBLIGATION OF EACH SELLER TO CLOSE

14



ii



10.1

Accuracy of Representations

15

10.2

Buyer’s Performance

15

10.3

No Order

15

10.4

Governmental Authorizations

15

10.5

Buyer’s Deliveries

15

10.6

Ord Purchase Agreement

15

ARTICLE 11

INDEMNIFICATION

15

11.1

Indemnification by Sellers

15

11.2

Indemnification by Buyer

15

11.3

Procedures

16

11.4

Settlement and Compromise

16

11.5

Deductible; Limitation Amount; Indemnification Escrow

16

11.6

Seller Agent

16

ARTICLE 12

TERMINATION

17

12.1

Termination Events

17

12.2

Effect of Termination

18

ARTICLE 13

GENERAL PROVISIONS

18

13.1

Survival

18

13.2

Public Announcements

18

13.3

Notices

18

13.4

Waiver

19

13.5

Entire Agreement; Amendment

19

13.6

Assignment

19

13.7

Severability

19

13.8

Expenses and Taxes

20

13.9

Governing Law; Consent to Jurisdiction and Venue; Jury Trial Waiver

20

13.10

Counterparts

20

13.11

Parties in Interest; No Third Party Beneficiaries

20

13.12

Non-Recourse

20




iii




SCHEDULES


Schedule 1

Sellers

Schedule 5.7(a)

Disclosure Regarding Organization

Schedule 5.7(d)

Litigation

Schedule 5.7(e)

Disclosure of Liabilities and Liens

Schedule 5.7(f)

Tax Matters

Schedule 5.7(h)

Contracts

Schedule 5.7(i)

Real Property

Schedule 5.7(j)

Environmental Matters

Schedule 5.7(k)

Intellectual Property Matters

Schedule 7.2

Excluded Assets


EXHIBITS


Exhibit A

Credit Agreement




iv



Membership Interest Purchase Agreement


This Membership Interest Purchase Agreement (this “ Agreement ”) is made as of May 20, 2009 (the “ Effective Date ”), by and among each of the entities identified as a seller on Schedule 1 attached hereto (each a Seller ” and collectively “ Sellers ”), Seller Agent, and Green Plains Holdings LLC (“ Buyer ”). Capitalized terms used herein and not otherwise defined herein have the meanings set forth in Article 1 .

Recitals

Whereas , Sellers collectively own all of the issued and outstanding membership interests of RBF Acquisition II, LLC, a Delaware limited liability company (the “ Company ”);

Whereas , VeraSun Energy Corporation, a South Dakota corporation (“ VeraSun ”), US BioEnergy Corporation, a South Dakota corporation (“ US Bio ”), and VeraSun Central City, LLC (“ Central City ,” and together with VeraSun and US Bio, the “ VeraSun Entities ”) were engaged in the business of producing ethanol and its co-products, including distillers grains, at the Facility (such business, as conducted by the VeraSun Entities, the “ Business ”);

Whereas , US Bio is a direct wholly-owned subsidiary of VeraSun and Central City is an indirect wholly-owned subsidiary of VeraSun;

Whereas , on October 31, 2008 (the “ Petition Date ”), VeraSun and its direct and indirect subsidiaries (including US Bio and Central City) filed a voluntary petition for relief (the “ Filings ”) commencing cases under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the “ Bankruptcy Case ”);

Whereas , the Company purchased substantially all of the assets and assumed certain liabilities of the VeraSun Entities relating to the Business pursuant to Sections 363 and 365 of the Bankruptcy Code under the Order issued in the Bankruptcy Case and certain additional sale Orders (collectively, the “ Sale Order ”) and upon the terms and conditions of that certain Asset Purchase Agreement by and among VeraSun, US Bio, Central City and the Company, dated April 2, 2009 (the “ Bankruptcy Purchase Agreement ”); and

Whereas , Sellers desire to sell to Buyer all of the issued and outstanding membership interests in the Company, and Buyer desires to purchase from Sellers all of the issued and outstanding membership interests in the Company, upon the terms and conditions hereinafter set forth.

Now, Therefore , in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties and covenants herein contained, the Parties agree as follows:

ARTICLE 1
DEFINITIONS

1.1

Definitions . For purposes of this Agreement, the following terms have the meanings specified or referenced below.

637 Registrations ” has the meaning set forth in Section 7.4 .

Action ” means any legal action, suit or arbitration, or any inquiry, proceeding (including any civil, criminal, administrative or appellate proceeding), hearing, audit or investigation, brought, conducted or heard by or before any court or other Governmental Authority.

Affiliate ” of any particular Person means any other Person or Persons controlling, controlled by, or under common control with such particular Person, where “ control ” means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through the ownership of voting securities, contract, or otherwise.

Agreement ” has the meaning set forth in the introductory paragraph.

AgStar ” means AgStar Financial Services, PCA.

Alcohol Fuel Permits ” has the meaning set forth in Section 7.4 .



1



Allocated Other Liability Amount ” has the meaning set forth in Section 8.1 .

Allocated Tax Amount ” has the meaning set forth in Section 8.1 .

Assignment ” means the assignment by a Seller to Buyer of the Membership Interests owned by such Seller in form and substance reasonably acceptable to Buyer and Seller Agent.

Bankruptcy Case ” has the meaning set forth in the recitals.

Bankruptcy Code ” means Title 11 of the United States Code, Sections 101 et seq .

Bankruptcy Purchase Agreement ” has the meaning set forth in the recitals.

Business ” has the meaning set forth in the recitals.

Business Day ” means any day of the year on which national banking institutions in New York are open to the public for conducting business and are not required or authorized by law to close.

Buyer ” has the meaning set forth in the introductory paragraph.

Cash Purchase Price ” has the meaning set forth in Section 3.1(c) .

Central City ” has the meaning set forth in the recitals.

Closing ” has the meaning set forth in Section 4.1 .

Closing Date ” means the date and time as of which the Closing occurs as set forth in Section 4.1 .

Code ” means the Internal Revenue Code of 1986, as amended.

Company ” has the meaning set forth in the recitals.

Contract ” means any agreement, contract, obligation, promise, license, note, lease or undertaking (whether written or oral) that is legally binding.

Deposit Escrow Amount ” means $500,000.

Deposit Escrow Agreement ” means the Refundable Deposit and Escrow Agreement dated as of even date herewith by and among Buyer, Seller Agent and Escrow Agent.

Effective Date ” has the meaning set forth in the introductory paragraph.

Environmental, Health and Safety Laws ” means any Legal requirements concerning environmental, health or safety matters.

Escrow Agent ” means Springdale Title Company.

Ethanol Production Tax Credit Agreement ” means the Ethanol Production Credit Agreement dated October 30, 2002, between Fagen Inc. and the State of Nebraska, as subsequently amended by Amendment #1 dated August 29, 2004, between Platte Valley Ethanol, L.L.C. and the State of Nebraska, which is included in the list of Contracts on Schedule 5.7(h) .

Excluded Assets ” has the meaning set forth in Section 7.2 .

Facility” means the dry mill ethanol plant located near Central City, Nebraska including the Owned Real Property on which such facility is located and all buildings, structures, improvements, easements and other property related thereto.

Facility Maintenance Agreement ” means the Management Services Agreement dated March 25, 2009, by and between ICM Inc. and the Company.

Filings ” has the meaning set forth in the recitals.



2



Financing Documents ” means (i) a credit agreement by and between the Company and AgStar, as agent, and other banks named therein, substantially in the form of the Credit Agreement attached as Exhibit A hereto, as the same may be modified by mutual agreement of the parties thereto on or prior to the Closing Date, together with (ii) all other documents and instruments contemplated thereby.

Finished Ethanol ” means 190 proof ethanol, 200 proof ethanol and denatured ethanol.

Governmental Authority ” means any United States federal, state or local or any foreign government, governmental authority or regulatory or administrative authority or any court, tribunal or judicial body having jurisdiction.

Hazardous Substance ” means any “pollutant,” “contaminant,” “hazardous waste,” “hazardous material,” or “hazardous substance” under any Environmental, Health and Safety Laws.

HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the relevant rules and regulations thereunder.

Indemnification Escrow Agent ” has the meaning set forth in Section 3.1(c) .

Indemnification Escrow Agreement ” has the meaning set forth in Section 3.1(c) .

Indemnification Escrow Amount ” has the meaning set forth in Section 3.1(c) .

Legal Requirement ” means any federal, state, provincial, local, municipal, foreign, international, multinational, or other administrative Order, constitution, law, ordinance, principle of common law, regulation, statute or treaty.

Liability ” means any debt, losses, claim, damage, demand, fine, judgment, penalty, deficiency, liability or obligation (whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, or due or to become due).

Lien ” means any mortgage, pledge, lien, easement, charge, security interest, option or other encumbrance of any kind.

Material Adverse Effect ” means a material adverse change in or material adverse effect on the assets of the Company or the Business, in each case taken as a whole, but excluding (a) any change or effect to the extent that it results from or arises out of (i) the Filings; (ii) the execution and delivery of this Agreement or the announcement thereof or the pendency or consummation of the transactions contemplated hereby; (iii) geopolitical conditions or any outbreak or escalation of hostilities or acts of terrorism or war; (iv) any hurricane, tornado, flood, earthquake or other natural disaster; (v) changes in (or proposals to change) Legal Requirements or accounting regulations or principles; (vi) any action contemplated by this Agreement or taken at the request of Buyer; (vii) changes in prices or costs of commodities or supplies; (viii) failure of the Company to meet any internal or published projections, forecasts, estimates or predictions in respect of financial or operating metrics; or (ix) any motion, application, pleading or Order filed under or in connection with the Bankruptcy Case; and (b) any change or effect generally applicable to (i) the industries and markets in which the Business operates or proposes to operate or (ii) economic or political conditions or the securities or financial markets in any country or region; provided, however, that in the cases of clauses (b)(i) and (b)(ii), only to the extent such change or effect does not affect the assets of the Company or the Business, taken as a whole, in a disproportionate manner relative to the other participants in the industries and markets in which the Business operates.

Membership Interests ” means all of the issued and outstanding membership interests of the Company.

Ord Purchase Agreement ” means the Membership Interest Purchase Agreement dated on or about the date of this Agreement relating to the sale to Buyer of all outstanding membership interests in RBF Acquisition VI, LLC.

Order ” means any award, writ, injunction, judgment, order or decree entered, issued, made, or rendered by any Governmental Authority.

Owned Real Property ” means the real property legally described in Schedule 5.7(i) .

Party ” or “ Parties ” means, individually or collectively, Buyer, Seller Agent and Sellers.

Periodic Taxes ” has the meaning set forth in Section 8.1 .



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Permits ” means all franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, certificates, approvals, clearances and Orders.

Person ” means any individual, corporation (including any non-profit corporation), partnership, limited liability company, joint venture, estate, trust, association, organization or other entity or Governmental Authority.

Petition Date ” has the meaning set forth in the recitals.

Proceeding ” means any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative or investigative) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Authority.

Purchase Price ” has the meaning set forth in Section 3.1 .

Rail Condition Expiration Date ” means the date occurring three (3) Business Days from and after the date on which the condition precedent set forth in Section 9.4 and Section 10.4 hereof shall have been satisfied.

RBF VIII ” means RBF Acquisition VIII, LLC, a Delaware limited liability company and an Affiliate of the Company.

Release ” means any past or present spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing of a Hazardous Substance into the environment.

Representative ” means, with respect to a particular Person, any director, officer, employee, agent, consultant, advisor or other representative of such Person, including legal counsel, accountants and financial advisors.

Sale Order ” has the meaning set forth in the recitals.

Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations of the United States Securities and Exchange Commission promulgated thereunder.

Seller Agent ” means AgStar and its successors in such capacity.

Seller’s Knowledge ” means, with respect to each Seller and with respect to any matter in question, the actual knowledge (excluding, among other things, constructive and imputed knowledge) of Mark Schmidt or Rick Kjolsing with respect to such matter, without making any independent investigation or inquiry or verification. Such words signify only that no information has come to their attention in connection with the transaction contemplated by this Agreement that has given them actual knowledge that a statement regarding the matter is not accurate in any material respect.

Sellers ” has the meaning set forth in the introductory paragraph.

Startup Costs ” has the meaning set forth in Section 7.5 .

Subsidiary ” means any corporation or limited liability company with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or membership interests, as the case may be, or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors or governors, as the case may be.

Tax ” or “ Taxes ” (and with correlative meaning, “ Taxable ” and “ Taxing ”) means (i) any federal, state, provincial, local, foreign or other income, alternative, minimum, add-on minimum, accumulated earnings, personal holding company, franchise, capital stock, net worth, capital, profits, intangibles, windfall profits, gross receipts, value added, sales, use, goods and services, excise, customs duties, transfer, conveyance, mortgage, registration, stamp, documentary, recording, premium, severance, environmental (including taxes under Section 59A of the Code), natural resources, real property, personal property, ad valorem, intangibles, rent, occupancy, license, occupational, employment, unemployment insurance, social security, disability, workers’ compensation, payroll, health care, withholding, estimated or other similar tax, duty, levy or other governmental charge or assessment or deficiency thereof (including all interest and penalties thereon and additions thereto whether disputed or not) and (ii) any transferee or successor liability (by law, contract or otherwise) in respect of any items described in clause (i) above.

Tax Credits ” means, collectively, any credits, refunds, rebates or incentives payable to the Company (as assignee of the VeraSun Entities, owner of the Facility or otherwise) by any Governmental Authority with respect to Taxes.



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Tax Recapture Liability ” means any Liability of the Company (as assignee of the VeraSun Entities, owner of the Facility or otherwise) with respect to amounts previously deducted from income for purposes of Taxes but which have become Taxable or otherwise subject to recapture Liability.

Tax Return ” means any return, declaration, report, claim for refund, information return or other document (including any related or supporting estimates, elections, schedules, statements, or information) filed or required to be filed in connection with the determination, assessment or collection of any Tax or the administration of any laws, regulations or administrative requirements relating to any Tax.

TIF Bonds ” means the Series 2006B State of Nebraska, County of Merrick Tax Increment Revenue Bond of the Community Redevelopment Authority of Central City, Nebraska, dated March 27, 2006, originally issued to Platte Valley Fuel Ethanol LLC (and now held by US Bio as successor by merger), issued in the original amount of $3,200,000, maturing December 11, 2018, and bearing interest at 6.0% per annum.

Transaction Documents ” means this Agreement, the Indemnification Escrow Agreement, the Deposit Escrow Agreement and any other agreements, instruments or documents entered into pursuant to this Agreement.

Unpermitted Liens ” has the meaning set forth in Section 5.7(e) .

US Bio ” has the meaning set forth in the recitals.

VeraSun ” has the meaning set forth in the recitals.

VeraSun Entities ” has the meaning set forth in the recitals.

1.2

Other Definitions and Interpretive Matters .

(a)

Unless otherwise expressly provided, for purposes of this Agreement, the following rules of interpretation shall apply:

(i)

Calculation of Time Period . When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded. If the last day of such period is a day other than a Business Day, the period in question shall end on the next succeeding Business Day.

(ii)

Dollars . Any reference in this Agreement to $ means U.S. dollars.

(iii)

Exhibits/Schedules . All Exhibits and Schedules attached or annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Schedule or Exhibit but not otherwise defined therein shall be defined as set forth in this Agreement.

(iv)

Gender and Number . Any reference in this Agreement to gender includes all genders, and words imparting the singular number only include the plural and vice versa.

(v)

Headings . The provision of a table of contents, the division of this Agreement into Articles, Sections and other subdivisions and the insertion of headings are for convenience of reference only and shall not affect or be utilized in the construction or interpretation of this Agreement. All references in this Agreement to any “ Section ” or “ Article ” are to the corresponding Section or Article of this Agreement unless otherwise specified.

(vi)

Herein . Words such as “ herein ,” “ hereof ” and “ hereunder ” refer to this Agreement as a whole and not merely to a subdivision in which such words appear, unless the context otherwise requires.

(vii)

Including . The word “ including ” or any variation thereof means “ including, without limitation, ” and shall not be construed to limit any general statement that it follows to the specific or similar items or matters immediately following it.



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(b)

No Strict Construction. Buyer, on the one hand, and Sellers, on the other hand, participated jointly in the negotiation and drafting of this Agreement, and, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as jointly drafted by Buyer, on the one hand, and Sellers, on the other hand, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provision of this Agreement. Without limitation as to the foregoing, no rule of strict construction construing ambiguities against the draftsperson shall be applied against any Person with respect to this Agreement.

ARTICLE 2
PURCHASE AND SALE

2.1

Purchase and Sale . Upon the terms and subject to the conditions of this Agreement, on the Closing Date, Sellers shall sell, transfer, assign, convey and deliver to Buyer, and Buyer shall purchase, acquire and accept from Sellers, all right, title and interest of Sellers in and to the Membership Interests.

2.2

Contracts and Permits . If the sale of the Membership Interests pursuant to this Agreement shall, under the terms of any Contract to which the Company is a party or Permit held by the Company, be deemed to constitute an assignment of such Contract or Permit, the responsibility for obtaining any consents from or making other arrangements with third parties required therefor shall be borne by Buyer, it being understood and agreed that Sellers shall provide reasonable cooperation in connection therewith, provided that nothing in this Section 2.2 shall require any Seller to make any expenditure or incur any obligation on its own or on behalf of Buyer.

2.3

Further Assurances . At the Closing, and at all times thereafter as may be necessary, Sellers shall execute and deliver to Buyer such instruments of transfer as shall be reasonably necessary or appropriate to vest in Buyer good and indefeasible title to the Membership Interests and to comply with the purposes and intent of this Agreement, and each of the Sellers, on the one hand, and Buyer, on the other hand, shall use its reasonable efforts to take, or cause to be taken, all appropriate action, do or cause to be done all things necessary, proper or advisable under applicable law, and execute and deliver such documents and other papers, as may be required to consummate the transactions contemplated by this Agreement.

ARTICLE 3
PURCHASE PRICE

3.1

Purchase Price.

(a)

 The purchase price (the “ Purchase Price ”) for the Membership Interests shall be $85,500,000, payable to Seller Agent for the benefit of Sellers. That portion of the Purchase Price as is distributable to Sellers in accordance with the provisions of this Section 3.1 shall be distributed by Seller Agent to Sellers on a pro rata basis based on the number of Membership Interests owned by each Seller as disclosed on Schedule 1 .

(b)

At Closing, Buyer shall pay to Seller Agent for the benefit of Sellers, in immediately available funds by wire transfer to such account or accounts designated by Seller Agent prior to Closing, an aggregate amount equal to (i) $85,350,000, less (ii) the sum of (A) the Allocated Tax Amount and (B) the Allocated Other Liability Amount (such amount so determined being referred to as the “ Cash Purchase Price ”). Seller Agent shall apply such Cash Purchase Price first to pay in full the Liabilities secured by the Unpermitted Liens, and shall distribute the remaining portion to Sellers.

(c)

At Closing, Buyer shall place into escrow with an escrow agent (the “ Indemnification Escrow Agent ”) mutually acceptable to Buyer and Seller Agent the sum of $150,000 (the “ Indemnification Escrow Amount ”), in accordance with an escrow agreement in form and substance reasonable acceptable to Buyer, Seller Agent and the Indemnification Escrow Agent (the “ Indemnification Escrow Agreement ”).

ARTICLE 4
CLOSING

4.1

Closing Date . Upon the terms and subject to the conditions hereof, the closing of the sale of the Membership Interests contemplated hereby (the “Closing”) shall take place at the office of Gray Plant Mooty, Minneapolis, Minnesota, no later than the third (3rd) Business Day following the date on which the conditions set forth in Article 9 and Article 10 have been satisfied or (if permissible) waived (other than the conditions which by their nature are to be satisfied at the Closing, but subject to the satisfaction or (if permissible) waiver of such conditions), or at such other place or time as Buyer and Seller Agent may mutually agree. The date and time at which the Closing actually occurs is hereinafter referred to as the “Closing Date.”



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4.2

Buyer’s Deliveries . At the Closing, Buyer shall deliver to Seller Agent on behalf of Sellers:

(a)

the Cash Purchase Price;

(b)

the Indemnification Escrow Agreement, duly executed by Buyer;

(c)

each other Transaction Document to which Buyer is a party, duly executed by Buyer;

(d)

the certificates of Buyer to be received by Seller Agent pursuant to Sections 10.1 and 10.2 ; and

(e)

a certificate of good standing of Buyer issued as of a recent date by the Secretary of State of the State of Delaware.

4.3

Seller’s Deliveries . At the Closing, Sellers shall deliver to Buyer:

(a)

against payment of the Cash Purchase Price, an Assignment duly executed by each Seller with respect to the Membership Interests owned by such Seller;

(b)

the Indemnification Escrow Agreement, duly executed by Seller Agent on behalf of Sellers;

(c)

each other Transaction Document to which any Seller or Seller Agent is a party, duly executed by such Seller or Seller Agent, as the case may be;

(d)

the resignation of all managers, governors, officers, directors and authorized representatives for the Company;

(e)

the certificates of Sellers to be received by Buyer pursuant to Sections 9.1 and 9.2 ;

(f)

a certificate of good standing of each Seller issued as of a recent date by the Secretary of State or similar officer of the jurisdiction of its organization;

(g)

if required, a certificate executed by each Seller, in the form prescribed under Treasury Regulation Section 1.1445-2(b), that such Seller is not a foreign person within the meaning of Section 1445(f)(3) of the Code; and

(h)

a release or termination of each of the Unpermitted Liens, to be delivered following the consummation of transactions contemplated to close contemporaneously with the Closing.

ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLERS

Each Seller represents and warrants to Buyer as follows:

5.1

Organization and Good Standing . Such Seller is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization.

5.2

Ownership of Membership Interests . Such Seller is the owner, beneficially and of record, of the Membership Interests indicated on Schedule 1 as owned by such Seller, free and clear of any restriction on transfer (other than restrictions under the Securities Act and state securities law) or Lien. Such Membership Interests have been duly authorized, and are validly issued, fully paid and nonassessable. Such Seller is not a party to any option, warrant, purchase right, or other contract or commitment that would require such Seller to sell, transfer or otherwise dispose of any such Membership Interests (other than this Agreement). Such Seller is not a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of any of such Membership Interests.



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5.3

Authority; Validity . Such Seller has the requisite entity power and authority necessary to enter into and perform its obligations under this Agreement and the other Transaction Documents to which such Seller is a party and to consummate the transactions contemplated hereby and thereby, and the execution, delivery and performance of this Agreement and such other Transaction Documents by such Seller and the consummation by such Seller of the transactions contemplated herein and therein has been duly and validly authorized by all requisite entity action. This Agreement has been duly and validly executed and delivered by such Seller and each other Transaction Document required to be executed and delivered by such Seller at the Closing will be duly and validly executed and delivered by such Seller at the Closing. This Agreement and the other Transaction Documents constitute, with respect to such Seller, the legal, valid and binding obligations of such Seller, enforceable against such Seller in accordance with their respective terms, except as such enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to creditors’ rights generally or general principles of equity.

5.4

No Conflict . The execution and delivery of this Agreement and the other Transaction Documents and the consummation of the transactions provided for herein and therein will not result in the breach of any of the terms and provisions of, or constitute a default under, or conflict with, or cause any acceleration of any obligation of such Seller under (a) any agreement, indenture, or other instrument to which it is bound (other than any Contract for which consent for the transaction contemplated by this Agreement is required by the terms of such Contract but for which such consent has not been obtained), (b) the bylaws or other similar governing documents of such Seller, (c) any Order or (d) any Legal Requirement.

5.5

Litigation . There are no Proceedings pending or, to the knowledge of such Seller, threatened, that would affect such Seller’s ability to perform its obligations under this Agreement or any other Transaction Documents or to consummate the transactions contemplated hereby or thereby.

5.6

Brokers or Finders . Neither such Seller nor any Person acting on behalf of such Seller has paid or become obligated to pay any fee or commission to any broker, finder, investment banker, agent or intermediary for or on account of the transactions contemplated by this Agreement for which Buyer is or will become liable, and such Seller shall hold harmless and indemnify Buyer from any claims with respect to any such fees or commissions.

5.7

Representations and Warranties with Respect to the Company .

(a)

The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Except as described in Schedule 5.7(a) , the Company has the full limited liability company right, power and authority to own, lease and operate all of its properties and assets and carry out its businesses as they are presently conducted or proposed to be conducted.

(b)

Other than this Agreement, there are (i) no outstanding options, warrants, rights (including subscription, conversion or preemptive rights and rights of first refusal or similar rights, whether or not contingent) or agreements, orally or in writing, for the purchase or acquisition from the Company of any issued or unissued membership interests of the Company; (ii) no restrictions upon, or agreements or understandings of the Company, or understandings of any other Person, with respect to, the voting or transfer of any membership interests of the Company; and (iii) no outstanding contractual obligations of the Company to repurchase, redeem or otherwise acquire any membership interests of the Company.

(c)

The Company does not own or have an interest in any Subsidiaries, or own or have an interest, beneficially or otherwise, in any shares, capital or other equity or profit interest in any other corporation, partnership, limited liability company or other business association. The Company has not engaged in any business activity of any nature other than that directly associated with the consummation of the transactions contemplated by the Bankruptcy Purchase Agreement. The transactions contemplated by the Bankruptcy Purchase Agreement have been consummated.

(d)

Except for the Bankruptcy Case and as otherwise described in Schedule 5.7(d) , there are no Proceedings pending or, to such Seller’s Knowledge, threatened against the Company or its assets.

(e)

Except as set forth in Schedule 5.7(e) , the Company has no material Liabilities of any nature. The Company has not (i) granted any lien or security interest on or in any of its assets, other than such liens and security interests listed or described in Schedule 5.7(e) (the “ Unpermitted Liens ”), or (ii) assigned any rights under the Bankruptcy Purchase Agreement. The Company has such title in its assets as was conveyed to the Company under the Bankruptcy Purchase Agreement and pursuant to the Sale Order.



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(f)

Except as set forth in Schedule 5.7(f) , all Tax Returns with respect to any Tax which is required to be filed by or with respect to the Company have been duly and timely filed, (ii) all items of income, gain, loss, deduction and credit or other items required to be included in each such Tax Return have been so included and all information provided in each such Tax Return is true, correct and complete in all material respects, and (iii) all material Taxes which have become due with respect to the period covered by each such Tax Return have been timely paid in full. There are no outstanding contests or disputes with respect to any Taxes relating to the Company, the Business or the Company’s property, whether paid, payable or asserted to be payable by a taxing authority.

(g)

The Company does not have any employees. The Company has no written or oral employee benefit plans.

(h)

To such Seller’s Knowledge, Schedule 5.7(h) lists all Contracts to which the Company is a party as of the date hereof. To such Seller’s Knowledge, neither the Company nor any other party to any such Contract is in material breach or default thereunder, except (i) as may be described in Schedule 5.7(h) , and (ii) for any breaches or defaults that would not, individually or in the aggregate, have a Material Adverse Effect.

(i)

Schedule 5.7(i) lists, as of the Effective Date, all real property acquired by the Company pursuant to the Bankruptcy Purchase Agreement. To such Seller’s Knowledge, the Company is not a lessor or lessee of any real property; (ii) except as set forth on Schedule 5.7(i) , such Seller has not received written notice of, and to such Seller’s Knowledge, there is no threatened (A) condemnation, eminent domain, expropriation or similar Proceeding affecting the Owned Real Property, (B) Proceeding to change the zoning classification of any portion of the Owned Real Property, or (C) imposition of any special assessments for public betterments affecting the Real Property, which in the case of each of clauses (A), (B) and (C) would have, individually or in the aggregate, a Material Adverse Effect; and (iii) except as set forth on Schedule 5.7(i) , to such Seller’s Knowledge, the Owned Real Property, and the present uses of the Owned Real Property by the Company are in compliance with, and not in default under or in violation of any building, zoning, land use, public health, public safety, sewage, water, sanitation or other comparable Legal Requirement, except for such instances of noncompliance, default or violation that would not, individually or in the aggregate, have a Material Adverse Effect.

(j)

Except as set forth on Schedule 5.7(j) , (i) the Company has received no notice, either written or to such Seller’s Knowledge otherwise, alleging that the activities of the Business are in violation of any Environmental, Health and Safety Laws; and (ii) to such Seller’s Knowledge, there has been no Release of any Hazardous Substances that requires reporting under applicable Environmental, Health and Safety Laws at, on or under the Owned Real Property, and to such Seller’s Knowledge none of the Owned Real Property has been used by any Person as a landfill or storage, treatment or disposal site for any type of Hazardous Substance or non-hazardous solid wastes as defined under the Resource Conservation and Recovery Act of 1976, as amended.

(k)

Except as disclosed in Schedule 5.7(k) , and except as would not, individually or in the aggregate, have a Material Adverse Effect, to such Seller’s Knowledge (i) the conduct of the Business as currently conducted (including the products and services currently sold or provided) does not infringe or otherwise violate any Person’s intellectual property rights, and, to such Seller’s Knowledge, no such claims are pending or threatened against the Company, and (ii) no Person is infringing or otherwise violating any intellectual property rights of the Company, and to such Seller’s Knowledge no such claims are pending or threatened in writing against any Person.

ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to Seller as follows:

6.1

Organization and Good Standing . Buyer is a limited liability company, duly organized, validly existing and in good standing under the laws of the State of Delaware.



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6.2

Authority; Validity . Buyer has the requisite power and authority necessary to enter into and perform its obligations under this Agreement and the other Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement by Buyer and the consummation by Buyer of the transactions contemplated herein have been duly and validly authorized by all requisite limited liability company actions in respect thereof. This Agreement has been duly and validly executed and delivered by Buyer and each other Transaction Document to which Buyer is a party will be duly and validly executed and delivered by Buyer at the Closing. This Agreement and the other Transaction Documents to which Buyer is a party constitute the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with their respective terms, except as such enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to creditors’ rights generally or general principles of equity.

6.3

No Conflict . The execution and delivery of this Agreement and the other Transaction Documents and the consummation of the transactions provided for herein and therein will not result in the breach of any of the terms and provisions of, or constitute a default under, or conflict with, or cause any acceleration of any obligation of Buyer under (a) any agreement, indenture, or other instrument to which it is bound, (b) the certificate of formation, limited liability company agreement or other similar governing documents of Buyer, (c) any Order or (d) any Legal Requirement.

6.4

Availability of Funds . Buyer at the Closing will have at least $7,000,000 in immediately available funds, exclusive of amounts available to be borrowed under the Financing Documents, to consummate the transactions contemplated by this Agreement and the other Transaction Documents.

6.5

Litigation . There are no Proceedings pending or, to the knowledge of Buyer, threatened, that would affect Buyer’s ability to perform its obligations under this Agreement or any other Transaction Documents or to consummate the transactions contemplated hereby or thereby.

6.6

Brokers or Finders . Neither Buyer nor any Person acting on behalf of Buyer has paid or become obligated to pay any fee or commission to any broker, finder, investment banker, agent or intermediary for or on account of the transactions contemplated by this Agreement for which any Seller is or will become liable, and Buyer shall hold harmless and indemnify Sellers from any claims with respect to any such fees or commissions.

6.7

Investment Intent . Buyer understands that the offering and sale of the Membership Interests is intended to be exempt from registration under the Securities Act pursuant to Section 4(2) thereof, and that there is no existing public or other market for the Membership Interests. Buyer hereby acknowledges that the Membership Interests are not registered under the Securities Act or registered or qualified for sale under any state securities law and cannot be resold without registration thereunder or exemption therefrom. Buyer is acquiring the Membership Interests for its own account as principal, for investment and not with a view to the public resale or distribution thereof in violation of any securities laws. Buyer (either alone or together with its advisors) has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of investment in the membership Interests and the economic risk of such investment. Buyer is an “accredited investor” as defined in Regulation D under the Securities Act.

6.8

Expertise . Buyer and its Affiliates are engaged in the Business and related energy businesses, and Buyer is generally familiar with the federal, state and local statutes, laws, rules and regulations applicable to the Company and any associated business Buyer intends to conduct after the Closing, and Buyer has the expertise necessary to independently evaluate Seller title to, and the condition, operation, suitability, performance and prospects of, the Company.

6.9

Certain Information . In connection with investigation by Buyer, Buyer has received or may receive from Sellers or Seller Agent certain projections, forward-looking statements and other forecasts and certain business plan information. Buyer acknowledges that there are uncertainties inherent in attempting to make such estimates, projections and other forecasts and plans, that Buyer is familiar with such uncertainties, that Buyer is taking full responsibility for making its own evaluation of the adequacy and accuracy of all estimates, projections and other forecasts and plans so furnished to it (including the reasonableness of the assumptions underlying such estimates, projections, forecasts or plans), and that Buyer shall have no claim against anyone with respect thereto. Accordingly, Buyer acknowledges that neither any Seller nor Seller Agent makes any representation or warranty with respect to such estimates, projections, forecasts or plans (including the reasonableness of the assumptions underlying such estimates, projections, forecasts or plans).

6.10

No Other Representations . Buyer acknowledges that, except for the representations and warranties contained in Article 5, neither any Seller, Seller Agent nor any other Person on behalf of any Seller makes any express or implied representation or warranty with respect to any Seller or the Company (including representations and warranties as to title to or the condition of the Company’s assets) or with respect to any information provided by or on behalf of any Seller or Seller Agent to Buyer.



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6.11

Inspection . Buyer agrees, warrants and represents that (a) Buyer is purchasing the Company on an “AS IS” and “WITH ALL FAULTS” basis based solely on Buyer’s own investigation of the Company and its Assets and (b) neither any Seller nor any real estate broker or other Representative of any Seller has made any warranties, representations or guarantees, express, implied or statutory, written or oral, respecting the Company or its assets, the financial performance of the Company or its assets, the Business, or the physical condition of the Company’s assets. Buyer further acknowledges that the consideration for the Membership Interests specified in this Agreement has been agreed upon by Sellers and Buyer after good-faith arms-length negotiation in light of Buyer’s agreement to purchase the Membership Interests and accept the Company and its assets and liabilities “AS IS” and “WITH ALL FAULTS”. Buyer agrees, warrants and represents that, except as set forth in this Agreement, Buyer has relied, and shall rely, solely upon its own investigation of all such matters, and that Buyer assumes all risks with respect thereto. EXCEPT AS SET FORTH IN THIS AGREEMENT, SELLER MAKES NO EXPRESS WARRANTY, NO WARRANTY OF MERCHANTABILITY, NO WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, AND NO IMPLIED OR STATUTORY WARRANTY WHATSOEVER WITH RESPECT TO THE COMPANY, ANY REAL OR PERSONAL PROPERTY OR ANY FIXTURES OF THE COMPANY, OR THE BUSINESS.

ARTICLE 7
ACTIONS PRIOR TO THE CLOSING DATE

7.1

Operations Prior to the Closing Date . Sellers covenant and agree that, after the Effective Date and prior to the Closing Date, Sellers shall:

(a)

cause the Company to use commercially reasonable efforts to maintain the Facility Maintenance Agreement in full force and effect;

(b)

with respect to any assets not subject to Section 7.3 below, not permit the Company to sell, transfer or dispose of any of such assets, grant any mortgage or security interest on any of such assets, or modify or amend any Contract included in such assets; and

(c)

not issue, sell, pledge, dispose of, grant, encumber or authorize the issuance, sale, pledge, disposal of, grant or encumbrance of any membership interests of the Company or any options, warrants, convertible securities or other rights of any kind to acquire any such membership interests or any other ownership interests in the Company.

7.2

HSR Act; Reasonable Best Efforts .

(a)

Subject to Section 7.2(c) , as soon as reasonably practicable (and, in any event, within five (5) Business Days) following Buyer’s execution and delivery of this Agreement, Seller, on the one hand, and Buyer, on the other hand, shall each prepare and file, or cause to be prepared and filed, any notifications required to be filed under the HSR Act with the United States Federal Trade Commission and the Department of Justice, and request early termination of the waiting period under the HSR Act. Buyer, on the one hand, and Seller, on the other hand, shall promptly respond to any requests for additional information in connection with such filings and shall take all other actions necessary to cause the waiting periods under the HSR Act to terminate or expire at the earliest practicable date after the date of filing. Buyer and Seller shall each pay 50% of the applicable filing fee under the HSR Act. Buyer and Seller shall each bear their respective costs and expenses (including attorneys’ fees and other legal fees and expenses) associated with the preparation of any antitrust filings.



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(b)

In addition to the actions to be taken under Section 7.2(a) , Seller, on the one hand, and Buyer, on the other hand, shall use all reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated hereby, including using all reasonable best efforts to accomplish the following: (i) the taking of all reasonable acts necessary to cause the conditions precedent set forth in Article 9 and Article 10 to be satisfied, (ii) the obtaining of all necessary Governmental Authorizations and the making of all necessary registrations, declarations and filings (including registrations, declarations and filings with Governmental Authorities, if any) and the taking of all reasonable steps as may be necessary to avoid any Proceeding by any Governmental Authority ( provided, however , that neither Buyer nor any Affiliate of Buyer shall be deemed to be required by this Section 7.2(b) , in connection with obtaining any approval from a Governmental Authority following the filing of the required notifications under the HSR Act, to divest, modify or otherwise change its current business operations), (iii) the defending of any Proceedings challenging this Agreement or the consummation of the transaction contemplated hereby, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Authority vacated or reversed, (iv) the taking of all reasonable acts necessary to effectuate the transfer of the Permits and pending applications specified in Section 2.1(e) , and (v) the execution or delivery of any additional instruments necessary to consummate the transactions contemplated hereby and to fully carry out the purposes of this Agreement.

(c)

Seller, on the one hand, and Buyer, on the other hand, (i) shall promptly inform each other of any communication from any Governmental Authority concerning this Agreement, the transactions contemplated hereby, and any filing, notification or request for approval and (ii) shall permit the other to review in advance any proposed written or material oral communication or information submitted to any such Governmental Authority in response thereto. In addition, none of Parties shall agree to participate in any meeting with any Governmental Authority in respect of any filings, investigation or other inquiry with respect to this Agreement or the transactions contemplated hereby, unless such Party consults with the other Parties in advance and, to the extent permitted by any such Governmental Authority, gives the other Parties the opportunity to attend and participate thereat, in each case to the maximum extent practicable. Subject to any restrictions under applicable laws, rules or regulations, Buyer, on the one hand, and Seller, on the other hand, shall furnish the other with copies of all correspondence, filings and communications (and memoranda setting forth the substance thereof) between it and its Affiliates and their respective Representatives on the one hand, and the Governmental Authority or members of its staff on the other hand, with respect to this Agreement, the transactions contemplated hereby (excluding documents and communications which are subject to preexisting confidentiality agreements or to the attorney-client privilege or work product doctrine) or any such filing, notification or request for approval. Each Party shall also furnish the other Party with such necessary information and assistance as such other Party and its Affiliates may reasonably request in connection with their preparation of necessary filings, registration or submissions of information to the Governmental Authority in connection with this Agreement, the transactions contemplated hereby and any such filing, notification or request for approval.

7.3

Divestiture of Certain Assets . Between the date of this Agreement and the Closing, Sellers shall cause the Company to transfer and convey to Sellers or an Affiliate of Sellers, and such transferee(s) shall assume all obligations with respect to, the assets specified in Schedule 7.2 attached hereto (collectively, the “ Excluded Assets ”), such transfer and conveyance to be made without any representation or warranty by the Company.

7.4

Access to Information . Sellers and Seller Agent shall furnish to Buyer and its authorized Representatives such additional information relating to the Business, the Company or the Company’s assets as Buyer may reasonably request and shall permit Buyer to make reasonable investigations of the same and have reasonable access to the Facility. Without limiting the generality of the foregoing, Sellers and Seller Agent shall provide Buyer, with respect to the Owned Real Property, any existing surveys, legal descriptions and title policies that are in the possession of any Seller or Seller Agent.

7.5

637 Registrations; Alcohol Fuel Plant Permits . As soon as practicable following the Effective Date, Buyer shall file all applications and undertake all necessary activities to obtain (i) from the U.S. Internal Revenue Service or its successor the excise tax registrations under Section 4041 of the Code (applied for under IRS Form 637 and commonly referred to as “637 Registrations”) necessary for the Company or its agents to sell Finished Ethanol and (ii) from the U.S. Department of the Treasury’s Alcohol and Tobacco Tax and Trade Bureau or the successor thereto the alcohol fuel plant permits (“Alcohol Fuel Permits”) necessary for the Company or its agents to manufacture Finished Ethanol.



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7.6

Pre-Startup Capital and Plant Maintenance and Repairs .

(a)

Buyer may propose to Sellers (i) maintenance and repairs to be undertaken at the Facility from and after the date of this Agreement through and including May 1, 2010, and (ii) other startup costs to be incurred from and after the Closing Date through and including May 1, 2010 (such costs and the costs of such maintenance and repairs being collectively referred to as “ Startup Costs ”). Sellers will pay such Startup Costs in accordance with the provisions of this Section 7.6 , provided that the aggregate amount of such Startup Costs, combined with Startup Costs (as defined in the Ord Purchase Agreement) incurred in connection with the Ord Purchase Agreement, do not exceed $2,000,000 in the aggregate.

(b)

Buyer shall describe any such proposed Startup Costs in a budget to be submitted to Seller Agent. Such budget shall be subject to Seller Agent’s written approval, such approval not to be unreasonably withheld or delayed. No such Startup Costs shall be incurred unless and until such approval is obtained. Following such approval, each Seller shall pay to Seller Agent its pro rata share (based on the number of Membership Interests owned by such Seller as disclosed on Schedule 1 ) of such approved Startup Costs, following which Seller Agent shall pay, on behalf of the Company, such Startup Costs.

(c)

The obligation of Sellers to fund such Startup Costs shall terminate upon the earlier to occur of (i) the termination of this Agreement, (ii) the date upon which $2,000,000 in Startup Costs, as allocated between the Facility and the Facility referred to in the Ord Purchase Agreement, has been so funded, or (iii) May 1, 2010.

7.7

TIF Bonds . Sellers shall enter into contractual arrangements with RBF VIII or otherwise cause RBF VIII to direct US Bio to transfer the TIF Bonds to the Company on or prior to the Closing Date.

ARTICLE 8
ADDITIONAL AGREEMENTS

8.1

Allocation of Liabilities .

(a)

All real and personal property Taxes and similar ad valorem obligations levied with respect to the Company (“ Periodic Taxes ”) payable in the year 2009 shall be prorated as of the Closing Date, with the amount allocable to the period before the Closing Date (the “ Allocated Tax Amount ”) to be offset against the Cash Purchase Price as provided in Section 3.1(b).

(b)

Contemporaneously with Closing, on behalf of the Company and by application of a portion of the Purchase Price proceeds, Sellers will pay in full the Liabilities of the Company secured by the Unpermitted Liens and obtain the release or termination of the Unpermitted Liens.

(c)

All other Liabilities of the Company outstanding as of the Closing Date shall be prorated as of the Closing Date, and Sellers agree to pay the amount allocable to the period before the Closing Date (other than any existing or potential Tax Recapture Liability, which shall not be so prorated and shall be borne entirely by the Company). Without limiting the generality of the foregoing, all Liabilities of the Company disclosed on Schedule 5.7(e) but not otherwise subject to the foregoing clauses (a) or (b) and not constituting Tax Recapture Liabilities shall be prorated as of the Closing Date, with the amount allocable to the period before the Closing Date (the “ Allocated Other Liability Amount ”) to be offset against the Cash Purchase Price as provided in Section 3.1(b).

8.2

Payments Received . Sellers, on the one hand, and Buyer, on the other hand, each agree that, after the Closing, each will hold and will promptly transfer and deliver to the other (with deliveries by Buyer to be made to Seller Agent on behalf of Sellers), from time to time as and when received by them, any cash, checks with appropriate endorsements (using their best efforts not to convert such checks into cash) or other property that they may receive on or after the Closing which properly belongs to the other and will account to the other for all such receipts.

8.3

Tax Credits; Tax Recapture Liabilities . After the Closing, Sellers shall provide reasonable cooperation in connection with any actions taken, on behalf of the Company and at the Company’s sole expense, to recover Tax Credits and avoid or minimize Tax Recapture Liabilities, provided that nothing in this Section 8.3 shall require any Seller to make any expenditure or incur any obligations on its own or on behalf of Buyer or the Company.



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ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER TO CLOSE

The obligations of Buyer to consummate the transactions contemplated by this Agreement are subject to the satisfaction or waiver, at or prior to the Closing, of each of the following conditions:

9.1

Accuracy of Representations . Each of the representations and warranties of Sellers contained in Article 5 shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, and Buyer shall have received a certificate of Sellers to such effect signed by duly authorized officers thereof.

9.2

Seller’s Performance . Sellers shall have performed and complied with in all material respects the covenants and agreements that Sellers are required to perform or comply with pursuant to this Agreement at or prior to the Closing, and Buyer shall have received a certificate of Sellers to such effect signed by a duly authorized officer thereof.

9.3

No Order . No Governmental Authority shall have enacted, issued, promulgated or entered any Order which is in effect and has the effect of making illegal or otherwise prohibiting the consummation of the transactions contemplated by this Agreement.

9.4

Governmental Authorizations . Any applicable waiting period under the HSR Act shall have expired or been terminated.

9.5

Seller Deliveries . Each of the deliveries required to be made to Buyer pursuant to Section 4.3 shall have been so delivered.

9.6

Consents . Buyer shall have obtained any consents from third parties reasonably necessary to permit the transactions contemplated by this Agreement without breach of any Contract listed on Schedule 5.7(h) . Without limiting the generality of the foregoing, Buyer shall have obtained such a consent from the State of Nebraska with respect to the Ethanol Production Tax Credit Agreement, but only if obtaining such consent is reasonably necessary to permit the transactions contemplated by this Agreement without breach of such Ethanol Production Tax Credit Agreement..

9.7

Financing . AgStar and the other banks named therein as lenders shall have entered into the Financing Documents, and all conditions precedent contained in the Financing Documents shall have been satisfied or waived such that such lenders shall be obligated to advance funds on the Closing Date sufficient for Buyer to consummate the transactions contemplated by this Agreement.

9.8

Damage to Assets . There shall not have occurred any damage, loss, destruction or condemnation of the assets of the Company that would have a Material Adverse Effect.

9.9

TIF Bonds . The TIF Bonds shall have been transferred to the Company.

9.10

Ord Purchase Agreement . The transactions contemplated by the Ord Purchase Agreement shall be consummated contemporaneously with the consummation of the transactions contemplated by this Agreement.

9.11

Rail Access Agreement . Buyer shall not have terminated this Agreement in accordance with Section 12.1(d) hereof as a result of Buyer’s failure to make arrangements reasonably acceptable to Buyer for rail access to the Facility.

ARTICLE 10
CONDITIONS PRECEDENT TO THE OBLIGATION OF EACH SELLER TO CLOSE

Seller’s obligation to consummate the transactions contemplated by this Agreement is subject to the satisfaction or waiver, at or prior to the Closing, of each of the following conditions:



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10.1

Accuracy of Representations . Each of the representations and warranties of Buyer contained in Article 6 shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, and Seller shall have received a certificate of Buyer to such effect signed by a duly authorized officer thereof.

10.2

Buyer’s Performance . Buyer shall have performed and complied with in all material respects the covenants and agreements that Buyer is required to perform or comply with pursuant to this Agreement at or prior to the Closing, and Seller shall have received a certificate of Buyer to such effect signed by a duly authorized officer thereof.

10.3

No Order . No Governmental Authority shall have enacted, issued, promulgated or entered any Order which is in effect and which has the effect of making illegal or otherwise prohibiting the consummation of the transactions contemplated by this Agreement.

10.4

Governmental Authorizations . Any applicable waiting period under the HSR Act shall have expired or been terminated.

10.5

Buyer’s Deliveries . Each of the deliveries required to be made to Seller pursuant to Section 4.2 shall have been so delivered.

10.6

Ord Purchase Agreement . The transactions contemplated by the Ord Purchase Agreement shall be consummated contemporaneously with the consummation of the transactions contemplated by this Agreement.

ARTICLE 11
INDEMNIFICATION

11.1

Indemnification by Sellers . Sellers hereby agree, jointly but not severally, to indemnify and hold harmless Buyer at all times from and after the Closing Date against and with respect to:

(a)

Any and all loss, injury, damage, deficiency or other Liability resulting from any misrepresentation or breach of warranty on the part of Sellers under this Agreement;

(b)

Any and all loss, injury, damage, deficiency or other Liability resulting from any non-fulfillment of any covenant or agreement on the part of Sellers under this Agreement (including, without limitation, the covenant set forth in Section 8.1(c) with respect to payment of the amount of Liabilities of the Company outstanding as of the Closing Date allocable to Sellers); and

(c)

Any and all demands, claims, Actions, Proceedings, Orders, costs, legal and other expenses and other Liabilities incident to any of the foregoing.

11.2

Indemnification by Buyer . Buyer hereby agrees to indemnify and hold harmless each Seller at all times from and after the Closing Date against and with respect to:

(a)

Any and all loss, injury, damage, deficiency or other Liability resulting from any misrepresentation or breach of warranty on the part of Buyer under this Agreement;

(b)

Any and all loss, injury, damage, deficiency or other Liability resulting from any non-fulfillment of any covenant or agreement on the part of Buyer under this Agreement; and

(c)

Any and all demands, claims, Actions, Proceedings, Orders, costs and legal and other expenses incident to any of the foregoing.



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11.3

Procedures . In the event any demands or claims are asserted against a Party or any Actions or Proceedings are commenced against a Party (such Party against which such are asserted or commenced being the “ Indemnified Party ”) for which the other Party (the “ Indemnifying Party ”) is obligated to indemnify the Indemnified Party under this Article 11, then Indemnified Party shall give timely notice thereof to Indemnifying Party in order to permit Indemnifying Party the necessary time to evaluate the merits of such demand, claim, Action or Proceeding and defend, settle or compromise the same so that Indemnifying Party’s interest is not materially prejudiced; and, in the event Indemnified Party fails to provide such timely notice, Indemnifying Party shall have no liability whatsoever to indemnify and defend Indemnified Party from such demand, claim, Action or Proceeding pursuant to this Article 11 and Indemnified Party shall be solely responsible for the defense thereof and any and all liability of Indemnified Party arising therefrom. Within 10 Business Days after such notice, Indemnifying Party shall assume defense thereof with counsel chosen by Indemnifying Party and reasonably acceptable to Indemnified Party. Indemnifying Party shall not be liable for any costs or expenses incurred by Indemnified Party in connection with any demand, claim, action, suit or proceeding for which Indemnifying Party is obligated to indemnify Indemnified Party under this Article 11, provided that Indemnifying Party shall have assumed the defense thereof in accordance with this Article 11.

11.4

Settlement and Compromise . Indemnifying Party shall not settle or compromise any demands, claims, Actions or Proceedings for which Indemnified Party has sought indemnification from Indemnifying Party unless it shall have given Indemnified Party not less than 15 Business Days prior written notice of the proposed settlement or compromise and afforded Indemnified Party an opportunity to consult with Indemnifying Party regarding the proposed settlement or compromise.

11.5

Deductible; Limitation Amount; Indemnification Escrow .

(a)

No Indemnified Party shall make a claim for indemnification unless and until the amount for which it would seek indemnification exceeds a deductible of $10,000, at which time such Indemnified party shall be entitled to indemnification for that portion of such claim in excess of $10,000.

(b)

Notwithstanding anything contained in this Agreement to the contrary, (i) the aggregate liability of Sellers as the Indemnifying Party under this Agreement shall be limited to the Indemnification Escrow Amount, which shall be available for indemnification claims by Buyer as the Indemnified Party from time to time from and after the Closing Date through December 31, 2009 pursuant to the terms of the Indemnification Escrow Agreement, and (ii) the liability of Buyer as the Indemnifying Party under this Agreement shall be limited to the Deposit Escrow Amount, which shall be available for indemnification claims by Seller Agent as the Indemnified Party from time to time from and after the Closing Date through December 31, 2009 pursuant to the terms of the Deposit Escrow Agreement.

(c)

The Parties acknowledge and agree that (i) the only source of funds for any payment under this Agreement to Buyer as the Indemnified Party shall be from the Indemnification Escrow Amount pursuant to the terms of the Indemnification Escrow Agreement such that no Seller shall have a direct obligation to pay any amounts under this Agreement, and (ii) the only source of funds for any payment under this Agreement to Seller Agent as the Indemnified Party shall be from the Deposit Escrow Amount pursuant to the terms of the Deposit Escrow Agreement.

(d)

An Indemnified Party shall be forever barred from asserting any claim for indemnification under this Article 11 unless such Indemnified Party shall assert such claim for indemnification before December 31, 2009.

11.6

Seller Agent .

(a)

Subject to the terms and conditions of this Section 11.6 , Seller Agent is designated as the representative of Sellers by each Seller to serve, and Buyer hereby acknowledges that Seller Agent shall serve, as the sole representative of Sellers from the date of this Agreement and after the Closing Date with respect to the matters set forth in this Agreement, such service to be without compensation except for the reimbursement of out-of-pocket expenses and indemnification as provided herein or in the Indemnification Escrow Agreement. Seller Agent shall have no duties or responsibilities except those expressly set forth herein, and Seller Agent shall have no implied covenants, functions, responsibilities, duties, obligations or liabilities on behalf of any Seller.

(b)

Each Seller irrevocably appoints Seller Agent as the agent, proxy and attorney-in-fact for such Seller for all purposes of this Agreement, including full power and authority on such Seller’s behalf:



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(i)

to execute and deliver the Deposit Escrow Agreement and the Indemnification Escrow Agreement on behalf of Sellers, and to take all actions which Seller Agent considers necessary or desirable in connection with the defense, pursuit or settlement of any determination relating to the payment of the Deposit Escrow Amount and the Indemnification Escrow Amount and any claims for indemnification pursuant to this Article 11 , including to sue, defend, negotiate, settle and compromise any such claims for indemnification made by or against and other disputes with Buyer relating to this Agreement or transactions contemplated hereby;

(ii)

to engage and employ Representatives and to incur such other expenses as Seller Agent shall deem necessary or prudent in connection with the administration of this Agreement;

(iii)

to disburse to Sellers all indemnification payments received from Buyer under this Article 11 , and to disburse to Buyer all indemnification payments to be paid to Buyer by Sellers;

(iv)

to accept and receive notices to Sellers pursuant to this Agreement;

(v)

to resolve, in Seller Agent’s sole discretion, any and all disputes arising under this Agreement, the Deposit Escrow Agreement, the Indemnification Escrow Agreement or any other agreement contemplated hereby or thereby; and

(vi)

to take all other actions and exercise all other rights which the Seller Agent (in its sole discretion) considers necessary or appropriate in connection with this Agreement.

(c)

Each Seller agrees that such agency and proxy are coupled with an interest, and are therefore irrevocable without the consent of Seller Agent and shall survive the bankruptcy, dissolution or liquidation of any Seller. All decisions and acts by Seller Agent shall be binding upon all of the Sellers, and no Seller shall have the right to object, dissent, protest or otherwise contest the same. Each Seller further agrees to pay or reimburse Seller Agent for such Seller’s respective share (based on the number of Membership Interests owned immediately prior to the date hereof) of any expenses incurred by Seller Agent in connection with the administration of the foregoing.

(d)

In the event Seller Agent shall resign for any reason, a replacement shall be selected from among the Sellers by Sellers owning a majority of the Membership Interests immediately prior to the Closing, and such substituted representative thereafter shall be deemed to be the Seller Agent for all purposes of this Agreement.

(e)

Neither Seller Agent nor any Representative employed by Seller Agent shall be liable to any Seller relating to the performance of its duties under this Agreement for any errors in judgment, negligence, oversight, breach of duty or otherwise except to the extent it is finally determined in a court of competent jurisdiction that the actions taken or not taken by Seller Agent were taken or not taken in bad faith, or upon its willful misconduct or gross negligence. Seller Agent shall be indemnified and held harmless by Sellers, jointly and severally, against all Liabilities paid or incurred in connection with any claim, Action or Proceeding to which Seller Agent is made a party by reason of the fact that it was acting as Seller Agent pursuant to this Agreement.

ARTICLE 12
TERMINATION

12.1

Termination Events . Anything contained in this Agreement to the contrary notwithstanding, this Agreement may be terminated at any time prior to the Closing Date:

(a)

by either Seller Agent or Buyer:

(i)

by mutual written consent of Seller Agent and Buyer; or

(ii)

by either Seller Agent or Buyer by written notice to the other if the Closing shall not have occurred on or before June 30, 2009 through no fault of (i) Buyer, in the case of notice from Buyer, or (ii) Sellers, in the case of notice from Seller Agent;



17



(b)

by Buyer in the event of any breach by any Seller of any of such Seller’s agreements, covenants, representations or warranties contained herein ( provided such breach would result in the failure of a condition set forth in Section 9.1 or Section 9.2 to be satisfied) and the failure of such Seller to cure such breach within fourteen (14) days after delivery of notice from Buyer specifying particularly such breach; provided , that such breach is capable of being cured; provided further , however , that in the event that any breach shall have been cured before the termination of the fourteen (14) day cure-period, at the election of Buyer the Closing Date shall be extended by the number of days actually elapsed before the cure of such breach ;

(c)

by Seller Agent in the event of any breach by Buyer of any of Buyer’s agreements, covenants, representations or warranties contained herein ( provided such breach would result in the failure of a condition set forth in Section 10.1 or Section 10.2 to be satisfied) and the failure of Buyer to cure such breach within fourteen (14) days after delivery of notice from Seller Agent specifying particularly such breach; provided , that such breach is capable of being cured; provided further , however , that in the event that any breach shall have been cured before the termination of the fourteen (14) day cure-period, at the election of Seller Agent the Closing Date shall be extended by the number of days actually elapsed before the cure of such breach; and

(d)

by Buyer giving written notice to Seller Agent on or before the Rail Condition Expiration Date if Buyer has failed to make arrangements reasonably acceptable to Buyer for rail access to the Facility ( provided that if Buyer does not give such notice to Seller Agent on or before the Rail Condition Expiration Date, Buyer will be deemed to have waived its rights to terminate this Agreement pursuant to this Section 12.1(d) ).

12.2

Effect of Termination . In the event of termination of this Agreement by Buyer or Seller pursuant to this Article 12, except as otherwise provided in this Section 12.2, all rights and obligations of the Parties under this Agreement shall terminate without any liability of any Party to any other Party; provided , however , that (i) nothing herein shall relieve any Party from liability for willful breach of this Agreement prior to such termination, (ii) in the event this Agreement is terminated by Buyer pursuant to Section 12.1(b) and Buyer is not in breach of this Agreement such that Buyer would fail to satisfy a condition set forth in Section 10.1 or Section 10.2, Sellers shall pay, pro-rata in accordance with their ownership of the Membership Interests, an aggregate amount equal to $500,000 as liquidated damages, and (iii) in the event this Agreement is terminated by Seller Agent pursuant to Section 12.1(c) and Sellers are not in breach of this Agreement such that Sellers would fail to satisfy a condition set forth in Section 9.1 or Section 9.2, the Sellers shall be paid, as liquidated damages, in accordance with the provisions of the Deposit Escrow Agreement, the amount specified therein. The provisions of this Section 12.2 and, to the extent applicable, Article 13 and Article 1, shall expressly survive the expiration or termination of this Agreement.

ARTICLE 13
GENERAL PROVISIONS

13.1

Survival . All representations and warranties contained herein or in any certificated deliveries hereunder, and all covenants and agreements contained herein, shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby.

13.2

Public Announcements . The initial press release relating to this Agreement shall be a joint press release, the text of which shall be agreed to by Buyer, on the one hand, and Seller Agent, on the other hand. Unless otherwise required by applicable Legal Requirement or by obligations of Buyer or Sellers or their respective Affiliates pursuant to any listing agreement with or rules of any securities exchange, Buyer, on the one hand, and Seller Agent, on the other hand, shall consult with each other before issuing any other press release or otherwise making any public statement with respect to this Agreement, the transactions contemplated hereby or the activities and operations of the other and shall not issue any such release or make any such statement without the prior written consent of the other (such consent not to be unreasonably withheld or delayed).

13.3

Notices . All notices, consents, waivers and other communications under this Agreement must be in writing and shall be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by facsimile (with written confirmation of receipt), (c) received by the addressee, if sent by a delivery service (prepaid, receipt requested) or (d) received by the addressee, if sent by registered or certified mail (postage prepaid, return receipt requested), in each case to the appropriate addresses, representatives (if applicable) and facsimile numbers set forth below (or to such other addresses, representatives and facsimile numbers as a Party may designate by notice to the other Parties):



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(i)

If to Seller Agent, then to:


AgStar Financial Services, PCA

1921 Premier Drive

P.O. Box 4249

Mankato, MN 56002

Attn: Rick Kjolsing

Facsimile: (507) 344-5091


with a copy (which shall not constitute notice) to:


Gray, Plant, Mooty, Mooty & Bennett, P.A.

1010 West St. Germain

Suite 500

St. Cloud, MN 56301

Attn: Phillip L. Kunkel, Esq.

Facsimile: (320) 252-4482


(ii)

If to Buyer:


Green Plains Holdings LLC

9420 Underwood Ave., Suite 100

Omaha, NE 68114

Attn: Todd Becker, Chief Executive Officer

Facsimile: (402) 884-8776


with a copy (which shall not constitute notice) to:


Husch Blackwell Sanders LLP

1620 Dodge St., Suite 2100

Omaha, NE 68102

Attn: Michelle S. Mapes, Esq.

Facsimile: (402) 964-5050


13.4

Waiver . Neither the failure nor any delay by any Party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement shall operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power, or privilege shall preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no waiver that may be given by a Party shall be applicable except in the specific instance for which it is given, and (b) no notice to or demand on one Party shall be deemed to be a waiver of any right of the Party giving such notice or demand to take further action without notice or demand.

13.5

Entire Agreement; Amendment . This Agreement (including the Schedules and the Exhibits) and the other Transaction Documents supersede all prior agreements between Buyer, on the one hand, and Sellers, on the other hand, with respect to its subject matter and constitute a complete and exclusive statement of the terms of the agreements between Buyer, on the one hand, and Seller, on the other hand, with respect to their subject matter. This Agreement may not be amended except by a written agreement executed by all of the Parties.

13.6

Assignment . This Agreement, and the rights, interests and obligations hereunder, shall not be assigned by any Party by operation of law or otherwise without the express written consent of the other Parties (which consent may be granted or withheld in the sole discretion of such other Party); provided , however , that Buyer shall be permitted, upon prior notice to Seller, to assign all or part of its rights or obligations hereunder to an Affiliate, but no such assignment shall relieve Buyer of its obligations under this Agreement.

13.7

Severability . The provisions of this Agreement shall be deemed severable, and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any Person or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability.



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13.8

Expenses and Taxes .

(a)

Whether or not the transactions contemplated by this Agreement are consummated, the Parties shall bear their own respective expenses (including all compensation and expenses of counsel, financial advisors, consultants, actuaries and independent accountants) incurred in connection with this Agreement and the transactions contemplated hereby.

(b)

The parties agree that all applicable excise, sales, transfer, stamp, documentary, filing, recordation and other similar Taxes, levies, fees and charges, if any (including all real estate transfer taxes and conveyance and recording fees, if any, but excluding Periodic Taxes referred to in Section 8.1 and income taxes of any Seller) that may be imposed upon, or payable or collectible or incurred in connection with, this Agreement and the transactions contemplated by this Agreement shall be borne by Buyer. Sellers shall furnish Buyer on a timely basis with all information necessary to accurately prepare and file all documentation and Tax Returns with respect to such taxes.

13.9

Governing Law; Consent to Jurisdiction and Venue; Jury Trial Waiver .

(a)

This Agreement shall be governed by, and construed in accordance with, the laws of the State of Minnesota applicable to contracts made and to be performed entirely in such state without regard to principles of conflicts or choice of laws or any other law that would make the laws of any other jurisdiction other than the State of Minnesota applicable hereto.

(b)

All Actions and Proceedings arising out of or relating to this Agreement shall be heard and determined in a Minnesota state court or a federal court sitting in the state of Minnesota, and the Parties hereby irrevocably submit to the exclusive jurisdiction and venue of such courts in any such Action or Proceeding and irrevocably waive the defense of an inconvenient forum to the maintenance of any such Action or Proceeding. The Parties consent to service of process by mail (in accordance with Section 13.3 ) or any other manner permitted by law.

(c)

THE PARTIES HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED IN CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF SELLER OR BUYER OR THEIR RESPECTIVE REPRESENTATIVES IN THE NEGOTIATION OR PERFORMANCE HEREOF.

13.10

Counterparts . This Agreement and any amendment hereto may be executed in one or more counterparts, each of which shall be deemed to be an original of this Agreement or such amendment and all of which, when taken together, shall be deemed to constitute one and the same instrument. Notwithstanding anything to the contrary in Section 13.3, delivery of an executed counterpart of a signature page to this Agreement or any amendment hereto by telecopier, facsimile or email attachment shall be effective as delivery of a manually executed counterpart of this Agreement or such amendment, as applicable.

13.11

Parties in Interest; No Third Party Beneficiaries . This Agreement shall inure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns. This Agreement is for the sole benefit of the Parties and their permitted assigns, and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable benefit, claim, cause of action, remedy or right of any kind.

13.12

Non-Recourse . No past, present or future director, officer, employee, incorporator, member, partner or equityholder of any Seller shall have any liability for any obligations or liabilities of such Seller under this Agreement or any other Transaction Document, for any claim based on, in respect of, or by reason of the transactions contemplated hereby and thereby.



[ Signature pages follow .]



20



In Witness Whereof, the Parties have caused this Agreement to be executed and delivered by their duly authorized representatives, all as of the Effective Date.

SELLERS:


 

 

AGSTAR FINANCIAL SERVICES, PCA

 

 

 

 

By:

/s/ Donald S. Farm, Jr .

 

 

Name:

Donald S. Farm, Jr.

 

 

Title:

SVP AgriBusiness Capital

 




21




 

 

1 ST FARM CREDIT SERVICES, PCA/FLCA

 

 

 

 

By:

/s/ Dale A. Richardson

 

 

Name:

Dale A. Richardson

 

 

Title:

VP, Illinois Capital Markets Group

 



22




 

 

AGCOUNTRY FARM CREDIT SERVICES, FLCA

 

 

 

 

By:

/s/ Richard Costain

 

 

Name:

Richard Costain

 

 

Title:

VP - Credit

 



23




 

 

AGFIRST FARM CREDIT BANK

 

 

 

 

By:

/s/ Bruce B. Fortner

 

 

Name:

Bruce B. Fortner

 

 

Title:

Vice President

 



24




 

 

AGRIBANK, FCB

 

 

 

 

By:

/s/ Eugene Flemming

 

 

Name:

Eugene Flemming

 

 

Title:

Director, Lending Services

 



25




 

 

BADGERLAND FINANCIAL, ACA

 

 

 

 

By:

/s/ Kenneth H. Rue

 

 

Name:

Kenneth H. Rue

 

 

Title:

VP – Loan Participations & Capital Markets

 




26




 

 

BANK OF THE WEST

 

 

 

 

By:

/s/ Jeffrey Mumm

 

 

Name:

Jeffrey Mumm

 

 

Title:

Vice President

 



27




 

 

COFINA FINANCIAL, LLC

 

 

 

 

By:

/s/ Brian K. Legried

 

 

Name:

Brian K. Legried

 

 

Title:

President

 



28




 

 

FARM CREDIT SERVICES OF MANDAN, FLCA

 

 

 

 

By:

/s/ Rod Bachmeier

 

 

Name:

Rod Bachmeier

 

 

Title:

Vice President

 




29




 

 

FARM CREDIT SERVICES OF MID-AMERICA, PCA

 

 

 

 

By:

/s/ Ralph M Bowman

 

 

Name:

Ralph M. Bowman

 

 

Title:

Vice President

 



30




 

 

FARM CREDIT SERVICES OF NORTH DAKOTA, FLCA

 

 

 

 

By:

/s/ Claude Sem

 

 

Name:

Claude Sem

 

 

Title:

CEO

 



31




 

 

FEDERAL AG MORTGAGE CORPORATION

 

 

 

 

By:

/s/ Mark Browning

 

 

Name:

Mark Browning

 

 

Title:

Mortgage Servicing Manager

 



32




 

 

FNBO ETHANOL HOLDINGS, LLC

 

 

 

 

By:

/s/ Bradley J. Brummond

 

 

Name:

Bradley J. Brummond

 

 

Title:

 

 



33



MLIC ASSET HOLDINGS LLC

By: Transmountain Land & Livestock

Company, a Montana Corporation, its Manager


 

By:

/s/ Steven D. Craig

 

 

Name:

Steven D. Craig

 

 

Title:

Vice President

 




34






 

 

UNITED FCS, PCA

 

 

 

 

By:

/s/ Jeffrey A. Schmidt

 

 

Name:

Jeffrey A. Schmidt

 

 

Title:

CCO

 



35



BUYER :


 

 

GREEN PLAINS HOLDINGS LLC

 

 

 

 

By:

/s/ Todd Becker

 

 

Name:

Todd Becker

 

 

Title:

Chief Executive Officer

 




36



EXHIBIT A


CREDIT AGREEMENT


[see attached]



37


Exhibit 10.3


REFUNDABLE DEPOSIT AND ESCROW AGREEMENT


THIS AGREEMENT (this “ Agreement ”), effective the 20th day of May, 2009, by and among Green Plains Holdings LLC (“ Buyer ”), AgStar Financial Services, PCA, as Seller Agent (“Seller Agent”) and Springdale Title Company (“ Deposit Escrow Agent ”).


WHEREAS, Buyer has agreed to purchase all outstanding membership interests in RBF Acquisition VI, LLC (the “ Company ”), subject to the terms and conditions set forth in that certain Membership Interest Purchase Agreement dated as of even date herewith by and among Buyer, Seller Agent and the Sellers named therein (the “ Purchase Agreement ,” the transactions contemplated thereby collectively the “ Proposed Transaction ”);


WHEREAS, Seller Agent has requested a refundable deposit be made by Buyer to be paid in cash to demonstrate good faith efforts to proceed with the Proposed Transaction;


WHEREAS, in addition, Buyer has agreed that, following the Closing, such amount shall be available to Seller Agent and Sellers as a source of payment for indemnification claims against Buyer under the Purchase Agreement;


WHEREAS, Buyer has agreed to deliver an amount equal to $250,000 as such deposit (the “ Deposit ”) to Deposit Escrow Agent, such Deposit to be held by Deposit Escrow Agent subject to the terms and conditions set forth herein; and


WHEREAS, the parties desire to enter into this Agreement with respect to the above described Proposed Transaction.


NOW, THEREFORE, in consideration of the foregoing and the mutual promises and covenants contain herein, IT IS HEREBY AGREED as follows:


1.

Capitalized terms used but not otherwise defined herein have the meanings ascribed to them in the Purchase Agreement.


2.

Buyer and Seller hereby appoint Deposit Escrow Agent to serve as escrow agent under this Agreement, and Escrow Agent hereby accepts such appointment and agrees to act in accordance with the terms and conditions of this Agreement.


3.

Deposit Escrow Agent hereby acknowledges receipt on the date hereof of funds in the amount of $250,000, which amount Deposit Escrow Agent has deposited into an account designated as follows: “Ord Escrow Account” (the “ Deposit Escrow Account ”).


4.

During the term of this Agreement, none of the amounts deposited in the Deposit Escrow Account while so deposited shall either become the property of Seller Agent or any of its affiliates or be subject to the debts of Seller Agent or any of its affiliates, and, except as expressly provided herein with respect to payments by Deposit Escrow Agent to Seller Agent or Buyer, Deposit Escrow Agent shall make or permit no disbursement from the Deposit Escrow Account.


5.

Deposit Escrow Agent shall pay over all funds in the Deposit Escrow Account to Buyer or Seller as their interests may be determined under this paragraph 5 in accordance with the following limitations and conditions:




(a)

If the Purchase Agreement is terminated by Seller Agent pursuant to Section 12.1(c) of the Purchase Agreement as a result of Buyer’s breach as specified therein (and Sellers are not in breach of the Purchase Agreement such that Sellers would fail to satisfy a condition set forth in Section 9.1 or Section 9.2 of the Purchase Agreement), all funds in the Deposit Escrow Account shall be paid in full to Seller Agent as liquidated damages, for distribution on a pro-rata basis to Sellers, following presentation to Deposit Escrow Agent of a certificate in the form of Exhibit A attached hereto executed by Seller Agent, such payment to be made as specified in such certificate;


(b)

If the Purchase Agreement is otherwise terminated, following presentation to Deposit Escrow Agent of a certificate in the form of Exhibit B attached hereto executed by Buyer, all funds in the Deposit Escrow Account shall be immediately returned to Buyer via wire transfer to the following account:


Green Plains Renewable Energy Inc.

Acct. #105701003706

U.S. Bank

1700 Farnham Street

Omaha, NE 68102

ABA #104000029; or


(c)

If the transaction contemplated by the Purchase Agreement is consummated, and (i) a certificate in the form of Exhibit C-1 attached hereto executed by Seller Agent and Buyer is presented to Deposit Escrow Agent, such amount as is specified in such certificate, or as much thereof as remains in the Deposit Escrow Account, shall be paid to Seller Agent, such payment to be made as specified in such certificate, or (ii) a certificate in the form of Exhibit C-2 attached hereto executed by Seller Agent is presented to Deposit Escrow Agent, the Deposit Escrow Agent shall segregate within the Deposit Escrow Account (or create a separate Deposit Escrow Account subject to the terms of this Agreement) an amount in cash equal to the disputed amount described in such certificate (such disputed amount to be held pending receipt of a certificate in the form of Exhibit C-1, any other written instruction given by Seller Agent and Buyer jointly or an order of a court of competent jurisdiction ordering a disbursement to be made to Seller Agent); or


(d)

Following payment pursuant to any certificate delivered to Deposit Escrow Agent pursuant to clause (c)(i) above outstanding as of December 31, 2009, and following resolution of any dispute referred to in any certificate delivered to Deposit Escrow Agent pursuant to clause (c)(ii) above on or prior to December 31, 2009 and any payment required as a result of such resolution, any amount remaining in the Deposit Escrow Account shall be returned to Buyer via wire transfer to the account specified in clause (b) above.   


Notwithstanding anything herein to the contrary, Deposit Escrow Agent may also act upon any written instructions given by Buyer and Seller Agent jointly. At such time as Deposit Escrow Agent shall have made the payments and remittances provided for in this paragraph, Deposit Escrow Agent shall be completely discharged and released of any and all further liabilities and responsibilities hereunder.


6.

The Deposit Escrow Agent is authorized and directed to invest all funds in the Deposit Escrow Account in a money market mutual fund invested in U.S. Treasuries, investments in which are readily converted to cash at face value when needed to make payments in accordance with the terms and conditions of this Agreement.


7.

Seller Agent (on behalf of Sellers) and Buyer shall, jointly and severally, indemnify and hold harmless Deposit Escrow Agent against any and all losses, claims, damages, liabilities, costs, and expenses, including reasonable costs of investigation and attorney’s fees, court costs and disbursements which may be imposed upon Deposit Escrow Agent or incurred by Deposit Escrow Agent in connection with its acceptance of appointment as Deposit Escrow Agent hereunder or in the performance of its duties hereunder except to the extent resulting from the Deposit Escrow Agent’s bad faith, gross negligence, willful misconduct or intentional breach of the terms of this Agreement.


8.

This Agreement shall continue in force until the final distribution of all funds and investments held by Deposit Escrow Agent hereunder or until terminated by written notice signed by Buyer and Seller Agent.



2



9.

This Agreement constitutes an integrated contract and is the entire agreement among the parties relating to the matters covered hereby. No parole evidence may be considered in determining the meaning of any term used herein or interpreting this Agreement.


10.

All notices, demands, or requests required or authorized hereunder shall be deemed given sufficiently, if in writing and personally delivered or sent by overnight courier, postage prepaid, or by facsimile to the addresses set forth on the signature page hereto.


11.

This Agreement shall be governed and interpreted by the laws of the State of Minnesota.


12.

This Agreement may not be assigned by any party hereto without the prior written consent of the other parties hereto.


13.

This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall be deemed one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by telecopier, facsimile or email attachment shall be effective as delivery of a manually executed counterpart of this Agreement.



{Signature page follows.}



3



IN WITNESS WHEREOF, Seller Agent, Buyer and Deposit Escrow Agent have executed this Agreement to be effective on the day and year first above written.


 

 

AGSTAR FINANCIAL SERVICES, PCA

 

 

 

 

By:

/s/ Donald S. Farm, Jr.

 

 

Name:

Donald S. Farm, Jr.

 

 

Title:

SVP AgriBusiness Capital

 

 

 

 

 

 

Address:

 

 

 

 

 

1921 Premier Drive

 

 

P. O. Box 4249

 

 

Mankato, MN 56002

 

 

 

 

 

 

 

 

GREEN PLAINS HOLDINGS LLC

 

 

 

 

By:

/s/ Todd Becker

 

 

Name:

Todd Becker

 

 

Title:

Chief Executive Officer

 

 

 

 

 

 

Address:

 

 

 

 

 

9420 Underwood Ave., Suite 100

 

 

Omaha, NE 68114

 

 

 

 

 

 

 

 

SPRINGDALE TITLE COMPANY

 

 

 

 

 

By:

/s/ Linda J. Volf

 

 

Name:

Linda J. Volf

 

 

Title:

Title Agent

 

 

 

 

 

 

Address:

 

 

 

 

 

1545 M St. P.O. Box 40

 

 

Ord, NE 68862




4



EXHIBIT A




To:

Springdale Title Company


Ladies and gentlemen:


Reference is made to that certain Refundable Deposit and Escrow Agreement dated May 20, 2009 (the “Deposit Escrow Agreement”) by and among AgStar Financial Services, PCA (“Seller Agent”), Green Plains Holdings LLC (“Buyer”) and Springdale Title Company (“Deposit Escrow Agent”). Capitalized meanings used and not defined herein have the meanings ascribed to such terms in the Deposit Escrow Agreement.


The Purchase Agreement has been terminated by Seller Agent pursuant to Section 12.1(c) of the Purchase Agreement as a result of Buyer’s breach as specified therein (and Sellers are not in breach of the Purchase Agreement such that Sellers would fail to satisfy a condition set forth in Section 9.1 or Section 9.2 of the Purchase Agreement).


Accordingly, pursuant to the Deposit Escrow Agreement, you are hereby directed to pay, as liquidated damages, all funds in the Deposit Escrow Account to Seller Agent to the following account:


 

 

 

 

 

 

 

 

 


Very truly yours,



 

AGSTAR FINANCIAL SERVICES, PCA

 

 

 

By:

 

 

Name:

 

 

Title:

 




5



EXHIBIT B



To:

Springdale Title Company


Ladies and gentlemen:


Reference is made to that certain Refundable Deposit and Escrow Agreement dated May 20, 2009 (the “Deposit Escrow Agreement”) by and among AgStar Financial Services, PCA (“Seller Agent”), Green Plains Holdings LLC (“Buyer”) and Springdale Title Company (“Deposit Escrow Agent”). Capitalized meanings used and not defined herein have the meanings ascribed to such terms in the Deposit Escrow Agreement.


The Purchase Agreement has been terminated other than under circumstances under which the funds in the Deposit Escrow Account are payable to Seller Agent as provided in Section 5(a) of the Deposit Escrow Agreement.


Accordingly, pursuant to the Deposit Escrow Agreement, you are hereby directed to pay all funds in the Deposit Escrow Account to Buyer as provided in Section 5(b) of the Deposit Escrow Agreement.


Very truly yours,



 

GREEN PLAINS HOLDINGS LLC

 

 

 

By:

 

 

Name:

 

 

Title:

 



6



EXHIBIT C-1


To:

Springdale Title Company


Ladies and gentlemen:


Reference is made to that certain Refundable Deposit and Escrow Agreement dated May 20, 2009 (the “Deposit Escrow Agreement”) by and among AgStar Financial Services, PCA (“Seller Agent”), Green Plains Holdings LLC (“Buyer”) and Springdale Title Company (“Deposit Escrow Agent”). Capitalized meanings used and not defined herein have the meanings ascribed to such terms in the Deposit Escrow Agreement.


Seller Agent, on behalf of Sellers, is entitled to indemnification in the amount of $________.


Accordingly, pursuant to the Deposit Escrow Agreement, you are hereby directed to pay Seller Agent, from the Deposit Escrow Account, $_________, or, if less, the entire amount remaining on deposit in the Deposit Escrow Account, to the following account:


 

 

 

 

 

 

 

 

 


Very truly yours,


 

AGSTAR FINANCIAL SERVICES, PCA

 

 

 

By:

 

 

Name:

 

 

Title:

 



 

GREEN PLAINS HOLDINGS LLC

 

 

 

By:

 

 

Name:

 

 

Title:

 



7



EXHIBIT C-2


To:

Springdale Title Company


Ladies and gentlemen:


Reference is made to that certain Refundable Deposit and Escrow Agreement dated May 20, 2009 (the “Deposit Escrow Agreement”) by and among AgStar Financial Services, PCA (“Seller Agent”), Green Plains Holdings LLC (“Buyer”) and Springdale Title Company (“Deposit Escrow Agent”). Capitalized meanings used and not defined herein have the meanings ascribed to such terms in the Deposit Escrow Agreement.


Seller Agent has made a claim for indemnification in the amount of $________, which has been disputed by Buyer. In accordance with Section 5(c)(ii) of the Deposit Escrow Agreement, you are hereby instructed to designate such amount as a disputed amount within the Deposit Escrow Account.


Very truly yours,



 

AGSTAR FINANCIAL SERVICES, PCA

 

 

 

By:

 

 

Name:

 

 

Title:

 




8


Exhibit 10.4


REFUNDABLE DEPOSIT AND ESCROW AGREEMENT



THIS AGREEMENT (this “ Agreement ”), effective the 20th day of May, 2009, by and among Green Plains Holdings LLC (“ Buyer ”), AgStar Financial Services, PCA, as Seller Agent (“Seller Agent”) and Springdale Title Company (“ Deposit Escrow Agent ”).


WHEREAS, Buyer has agreed to purchase all outstanding membership interests in RBF Acquisition II, LLC (the “ Company ”), subject to the terms and conditions set forth in that certain Membership Interest Purchase Agreement dated as of even date herewith by and among Buyer, Seller Agent and the Sellers named therein (the “ Purchase Agreement ,” the transactions contemplated thereby collectively the “ Proposed Transaction ”);


WHEREAS, Seller Agent has requested a refundable deposit be made by Buyer to be paid in cash to demonstrate good faith efforts to proceed with the Proposed Transaction;


WHEREAS, in addition, Buyer has agreed that, following the Closing, such amount shall be available to Seller Agent and Sellers as a source of payment for indemnification claims against Buyer under the Purchase Agreement;


WHEREAS, Buyer has agreed to deliver an amount equal to $500,000 as such deposit (the “ Deposit ”) to Deposit Escrow Agent, such Deposit to be held by Deposit Escrow Agent subject to the terms and conditions set forth herein; and


WHEREAS, the parties desire to enter into this Agreement with respect to the above described Proposed Transaction.


NOW, THEREFORE, in consideration of the foregoing and the mutual promises and covenants contain herein, IT IS HEREBY AGREED as follows:


1.

Capitalized terms used but not otherwise defined herein have the meanings ascribed to them in the Purchase Agreement.


2.

Buyer and Seller hereby appoint Deposit Escrow Agent to serve as escrow agent under this Agreement, and Escrow Agent hereby accepts such appointment and agrees to act in accordance with the terms and conditions of this Agreement.


3.

Deposit Escrow Agent hereby acknowledges receipt on the date hereof of funds in the amount of $500,000, which amount Deposit Escrow Agent has deposited into an account designated as follows: “Central City Escrow Account” (the “ Deposit Escrow Account ”).


4.

During the term of this Agreement, none of the amounts deposited in the Deposit Escrow Account while so deposited shall either become the property of Seller Agent or any of its affiliates or be subject to the debts of Seller Agent or any of its affiliates, and, except as expressly provided herein with respect to payments by Deposit Escrow Agent to Seller Agent or Buyer, Deposit Escrow Agent shall make or permit no disbursement from the Deposit Escrow Account.


5.

Deposit Escrow Agent shall pay over all funds in the Deposit Escrow Account to Buyer or Seller as their interests may be determined under this paragraph 5 in accordance with the following limitations and conditions:




(a)

If the Purchase Agreement is terminated by Seller Agent pursuant to Section 12.1(c) of the Purchase Agreement as a result of Buyer’s breach as specified therein (and Sellers are not in breach of the Purchase Agreement such that Sellers would fail to satisfy a condition set forth in Section 9.1 or Section 9.2 of the Purchase Agreement), all funds in the Deposit Escrow Account shall be paid in full to Seller Agent as liquidated damages, for distribution on a pro-rata basis to Sellers, following presentation to Deposit Escrow Agent of a certificate in the form of Exhibit A attached hereto executed by Seller Agent, such payment to be made as specified in such certificate;


(b)

If the Purchase Agreement is otherwise terminated, following presentation to Deposit Escrow Agent of a certificate in the form of Exhibit B attached hereto executed by Buyer, all funds in the Deposit Escrow Account shall be immediately returned to Buyer via wire transfer to the following account:


Green Plains Renewable Energy Inc.

Acct. #105701003706

U.S. Bank

1700 Farnham Street

Omaha, NE 68102

ABA #104000029; or


(c)

If the transaction contemplated by the Purchase Agreement is consummated, and (i) a certificate in the form of Exhibit C-1 attached hereto executed by Seller Agent and Buyer is presented to Deposit Escrow Agent, such amount as is specified in such certificate, or as much thereof as remains in the Deposit Escrow Account, shall be paid to Seller Agent, such payment to be made as specified in such certificate, or (ii) a certificate in the form of Exhibit C-2 attached hereto executed by Seller Agent is presented to Deposit Escrow Agent, the Deposit Escrow Agent shall segregate within the Deposit Escrow Account (or create a separate Deposit Escrow Account subject to the terms of this Agreement) an amount in cash equal to the disputed amount described in such certificate (such disputed amount to be held pending receipt of a certificate in the form of Exhibit C-1, any other written instruction given by Seller Agent and Buyer jointly or an order of a court of competent jurisdiction ordering a disbursement to be made to Seller Agent); or


(d)

Following payment pursuant to any certificate delivered to Deposit Escrow Agent pursuant to clause (c)(i) above outstanding as of December 31, 2009, and following resolution of any dispute referred to in any certificate delivered to Deposit Escrow Agent pursuant to clause (c)(ii) above on or prior to December 31, 2009 and any payment required as a result of such resolution, any amount remaining in the Deposit Escrow Account shall be returned to Buyer via wire transfer to the account specified in clause (b) above.   


Notwithstanding anything herein to the contrary, Deposit Escrow Agent may also act upon any written instructions given by Buyer and Seller Agent jointly. At such time as Deposit Escrow Agent shall have made the payments and remittances provided for in this paragraph, Deposit Escrow Agent shall be completely discharged and released of any and all further liabilities and responsibilities hereunder.


6.

The Deposit Escrow Agent is authorized and directed to invest all funds in the Deposit Escrow Account in a money market mutual fund invested in U.S. Treasuries, investments in which are readily converted to cash at face value when needed to make payments in accordance with the terms and conditions of this Agreement.


7.

Seller Agent (on behalf of Sellers) and Buyer shall, jointly and severally, indemnify and hold harmless Deposit Escrow Agent against any and all losses, claims, damages, liabilities, costs, and expenses, including reasonable costs of investigation and attorney’s fees, court costs and disbursements which may be imposed upon Deposit Escrow Agent or incurred by Deposit Escrow Agent in connection with its acceptance of appointment as Deposit Escrow Agent hereunder or in the performance of its duties hereunder except to the extent resulting from the Deposit Escrow Agent’s bad faith, gross negligence, willful misconduct or intentional breach of the terms of this Agreement.


8.

This Agreement shall continue in force until the final distribution of all funds and investments held by Deposit Escrow Agent hereunder or until terminated by written notice signed by Buyer and Seller Agent.



2



9.

This Agreement constitutes an integrated contract and is the entire agreement among the parties relating to the matters covered hereby. No parole evidence may be considered in determining the meaning of any term used herein or interpreting this Agreement.


10.

All notices, demands, or requests required or authorized hereunder shall be deemed given sufficiently, if in writing and personally delivered or sent by overnight courier, postage prepaid, or by facsimile to the addresses set forth on the signature page hereto.


11.

This Agreement shall be governed and interpreted by the laws of the State of Minnesota.


12.

This Agreement may not be assigned by any party hereto without the prior written consent of the other parties hereto.


13.

This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall be deemed one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by telecopier, facsimile or email attachment shall be effective as delivery of a manually executed counterpart of this Agreement.




{Signature page follows.}



3



IN WITNESS WHEREOF, Seller Agent, Buyer and Deposit Escrow Agent have executed this Agreement to be effective on the day and year first above written.


 

 

AGSTAR FINANCIAL SERVICES, PCA

 

 

 

 

By:

/s/ Donald S. Farm, Jr.

 

 

Name:

Donald S. Farm, Jr.

 

 

Title:

SVP AgriBusiness Capital

 

 

 

 

 

 

Address:

 

 

 

 

 

1921 Premier Drive

 

 

P. O. Box 4249

 

 

Mankato, MN 56002

 

 

 

 

 

 

 

 

GREEN PLAINS HOLDINGS LLC

 

 

 

 

By:

/s/ Todd Becker

 

 

Name:

Todd Becker

 

 

Title:

Chief Executive Officer

 

 

 

 

 

 

Address:

 

 

 

 

 

9420 Underwood Ave., Suite 100

 

 

Omaha, NE 68114

 

 

 

 

 

 

 

 

SPRINGDALE TITLE COMPANY

 

 

 

 

 

By:

/s/ Linda J. Volf

 

 

Name:

Linda J. Volf

 

 

Title:

Title Agent

 

 

 

 

 

 

Address: