Gevo
Annual Report 2011

Plain-text annual report

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 Form 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2011 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 001-35073 Gevo, Inc. (Exact name of registrant as specified in its charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 345 Inverness Drive South, Building C, Suite 310, Englewood, CO (Address of Principal Executive Offices) 87-0747704 (I.R.S. Employer Identification No.) 80112 (Zip Code) (303) 858-8358 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Common Stock, par value $0.01 per share Name of Each Exchange on Which Registered NASDAQ Global Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ 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. 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 (Section 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒ 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. (Check one): Large accelerated filer ☐ Non-accelerated filer ☒ (Do not check if a smaller reporting company) Accelerated filer 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 ☐ No ☒ The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the closing sale price of the common stock on June 30, 2011 was approximately $119 million. Shares of common stock held by each officer, director and holder of 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of outstanding shares of the registrant’s common stock, par value $0.01 per share, as of January 31, 2012 was 26,460,750. DOCUMENTS INCORPORATED BY REFERENCE Portions of Part II of this Annual Report on Form 10-K and Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K incorporate information by reference from the registrant’s definitive proxy statement to be filed pursuant to Regulation 14A in connection with the registrant’s 2012 Annual Meeting of Stockholders or an amendment to this Annual Report on Form 10-K to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Annual Report on Form 10-K. GEVO, INC. FORM 10-K—ANNUAL REPORT For the Fiscal Year Ended December 31, 2011 Table of Contents Table of Contents PART I Item 1. Business Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Properties Item 3. Legal Proceedings Item 4. Mine Safety Disclosures. PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. Selected Financial Data Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures about Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accountant Fees and Services PART IV Item 15. Exhibits and Financial Statement Schedules SIGNATURES Page 1 32 59 59 59 59 60 61 63 78 79 117 117 119 119 119 119 119 119 119 126 Table of Contents Forward-Looking Statements When used anywhere in this Annual Report on Form 10-K (this “Report”), the words “expect,” “believe,” “anticipate,” “estimate,” “intend,” “plan” and similar expressions are intended to identify forward-looking statements. These statements relate to future events or our future financial or operational performance and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Such statements are subject to certain risks and uncertainties including those related to the achievement of advances in our technology platform, the success of our retrofit production model, our ability to gain market acceptance for our products, additional competition, changes in economic conditions, and those described in documents we have filed with the Securities and Exchange Commission (the “SEC”), including this Report in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and subsequent reports on Form 10-Q. All forward-looking statements in this document are qualified entirely by the cautionary statements included in this document and such other filings. These risks and uncertainties could cause actual results to differ materially from results expressed or implied by forward-looking statements contained in this document. These forward-looking statements speak only as of the date of this document. We disclaim any undertaking to publicly update or revise any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Unless the context requires otherwise, in this report the terms “we,” “us” and “our” refer to Gevo, Inc. and its wholly owned or indirect subsidiaries, and their predecessors. This Report contains estimates and other information concerning our target markets that are based on industry publications, surveys and forecasts, including those generated by SRI Consulting, a division of Access Intelligence, LLC (“SRI”), Chemical Market Associates, Inc. (“CMAI”), the US Energy Information Association (the “EIA”), the International Energy Agency (the “IEA”), the Renewable Fuels Association (the “RFA”), and Nexant, Inc. (“Nexant”). Certain target market sizes presented in this report have been calculated by us (as further described below) based on such information. This information involves a number of assumptions and limitations. Although we believe the information in these industry publications, surveys and forecasts is reliable, we have not independently verified the accuracy or completeness of the information. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause actual results to differ materially from those expressed in these publications, surveys and forecasts. Conventions that Apply to this Report With respect to calculation of product market volumes: • • • • product market volumes are provided solely to show the magnitude of the potential markets for isobutanol and the products derived from it. They are not intended to be projections of our actual isobutanol production or sales; product market volume calculations for fuels markets are based on data available for the year 2009 (the most current data available from the IEA); product market volume calculations for chemicals markets are based on data available for the year 2011 (the most current data available from Nexant); and volume data with respect to target market sizes is derived from data included in various industry publications, surveys and forecasts generated by the EIA, the IEA and Nexant. We have converted these market sizes into volumes of isobutanol as follows: • we calculated the size of the market for isobutanol as a gasoline blendstock and oxygenate by multiplying the world gasoline market volume by an estimated 12.5% by volume isobutanol blend ratio; Table of Contents • • we calculated the size of the specialty chemicals markets by substituting volumes of isobutanol equivalent to the volume of products currently used to serve these markets; we calculated the size of the petrochemicals and hydrocarbon fuels markets by calculating the amount of isobutanol that, if converted into the target products at theoretical yield, would be needed to fully serve these markets (in substitution for the volume of products currently used to serve these markets); and • for consistency in measurement, where necessary we converted all market sizes into gallons. Conversion into gallons for the fuels markets is based upon fuel densities identified by Air BP Ltd. and the American Petroleum Institute. Table of Contents Item 1. Business. Company Overview PART I We are a renewable chemicals and next generation biofuels company. Our overall strategy is to commercialize biobased alternatives to petroleum-based products using a combination of synthetic biology and chemical technology. In order to implement this strategy, we are taking a building block approach. Initially, we intend to produce and sell isobutanol from renewable feedstocks. Isobutanol is a four carbon alcohol that can be sold directly for use as a specialty chemical in the production of solvents, paints, and coatings or as a value-added fuel blendstock. Isobutanol can also be converted into butenes using straightforward dehydration chemistry deployed in the refining and petrochemicals industries today. The convertibility of isobutanol into butenes is important because butenes are primary hydrocarbon building blocks used in the production of lubricants, rubber, plastics, fibers, other polymers and hydrocarbon fuels. We believe that the products derived from isobutanol have potential applications in approximately 40% of the global petrochemicals market, representing a potential market for isobutanol of approximately 70 billion gallons per year (“BGPY”), and substantially all of the global hydrocarbon fuels market, representing a potential market for isobutanol of approximately 900 BGPY. When combined with a potential specialty chemical market for isobutanol of approximately 1.1 BGPY, and a potential fuel blendstock market for isobutanol of approximately 40 BGPY, we believe that the potential global market for isobutanol is greater than 1,000 BGPY. We believe that products derived from our isobutanol will be drop-in products, which means that our customers will be able to replace petroleum-based intermediate products with isobutanol-based intermediate products without modification to their equipment or production processes. The final products produced from our isobutanol-based intermediate products will be chemically and visually identical to those produced from petroleum-based intermediate products, except that they will contain carbon from renewable sources. Customer interest in our isobutanol is primarily driven by our cost-efficient production route and our isobutanol’s potential to serve as a cost-effective, environmentally sensitive alternative to the petroleum-based intermediate products that they currently use. We believe that at every step of the value chain, renewable products that are chemically identical to the incumbent petrochemical products will have lower market adoption hurdles because the infrastructure and applications for such products already exist. In addition, we believe that products made from biobased isobutanol will be subject to less cost volatility than the petroleum-based products in use today. In order to produce and sell isobutanol made from renewable sources, we have developed the Gevo Integrated Fermentation Technology (“GIFT ”), an ® ® integrated technology platform for the efficient production and separation of isobutanol. GIFT consists of two components, proprietary biocatalysts which convert sugars derived from multiple renewable feedstocks into isobutanol through fermentation, and a proprietary separation unit which is designed to continuously separate isobutanol from water during the fermentation process. We developed our technology platform to be compatible with the existing approximately 23 BGPY of global operating ethanol production capacity, as estimated by the RFA. GIFT is designed to allow relatively low capital expenditure retrofits of existing ethanol facilities, enabling a rapid and cost-efficient route to isobutanol production from the fermentation of renewable feedstocks. We believe that our cost-efficient production route will enable rapid deployment of our technology platform and allow our isobutanol and the products produced from it to be economically competitive with many of the petroleum-based products used in the chemicals and fuels markets today. ® ® We expect that the combination of our efficient proprietary technology, our marketing focus on providing drop-in substitutes for incumbent petrochemical products and our relatively low capital investment retrofit approach will mitigate many of the historical issues associated with the commercialization of renewable chemicals and fuels. 1 Table of Contents Direct Use Markets Without modification, isobutanol has applications in the specialty chemical and gasoline blendstock markets. Since our potential customers in these markets would not be required to develop any additional infrastructure to use our isobutanol, we believe that selling into these markets will result in a relatively low risk profile and produce attractive margins. Specialty Chemicals • Isobutanol has direct applications as a specialty chemical. High-purity and chemical-grade isobutanol can be used as a solvent and chemical intermediate. We plan to produce high-purity and chemical-grade isobutanol that can be used in the existing butanol markets as a cost-effective, environmentally sensitive alternative to petroleum-based products. • • We believe that our cost-efficient production route will allow for significant expansion of the historical isobutanol markets within existing butanol markets through displacing n-butanol, a related compound to isobutanol that is currently sold into butanol markets. We estimate the total addressable world-wide market for isobutanol as a specialty chemical to be approximately 1.1 BGPY, or approximately $6.5 billion annually. Gasoline Blendstocks • Isobutanol has direct applications as a gasoline blendstock. Fuel-grade isobutanol may be used as a high energy content, low Reid Vapor Pressure (“RVP”), gasoline blendstock and oxygenate. Based on isobutanol’s low water solubility, in contrast with ethanol, we believe that isobutanol will be compatible with existing refinery infrastructure, allowing for blending at the refinery rather than blending at the terminal. • Further, based on isobutanol’s high energy content and low water solubility, as well as testing completed by the National Marine Manufacturers Association (“NMMA”), the Outdoor Power Equipment Institute (“OPEI”) and Briggs & Stratton (“B&S”), we believe that isobutanol has direct applications as a blendstock in high value specialty fuels markets serving marine, small engine and sports vehicle markets. • We estimate the total addressable world-wide market for isobutanol as a gasoline blendstock to be approximately 40 BGPY, or approximately $100 billion annually. Butene and Hydrocarbon Markets Beyond direct use as a specialty chemical and fuel blendstock, isobutanol can be converted into butenes, para-xylene (“PX”), and many hydrocarbon fuels and specialty blendstocks, offering substantial potential for additional demand. Butenes • Isobutanol can be dehydrated to produce butenes which have many industrial uses in the production of plastics, fibers, rubber and other polymers. The straightforward conversion of isobutanol into butenes is a fundamentally important process that enables isobutanol to be used as a building block chemical in multiple markets. • Traditionally butenes have been produced as co-products from the process of cracking naptha in the production of ethylene. Reported reductions in the use of naptha as the feedstock for the production of ethylene have changed the projected menu of co-products, resulting in a projected reduction in the volume of available butenes. This structural shift in feedstocks increases the potential market opportunity for our isobutanol in the production of butenes. 2 Table of Contents • • Chemical-grade isobutanol can be sold to isobutylene and n-butene (butenes) chemicals users for conversion into lubricants, methyl methacrylate (“MMA”) and rubber applications. We estimate the total addressable world-wide market for butenes to be approximately 2.3 BGPY, or approximately $8.1 billion annually. Para-xylene and Polyethylene Terephthalate • • Isobutanol can be used to produce PX and its derivatives, including polyesters, which are used in the beverage and food packaging and fibers markets. PX is a key raw material in polyethylene terephthalate (“PET”) production. In June 2011, we announced that we had successfully produced fully renewable and recyclable PET in cooperation with Toray Industries, Inc. (“Toray Industries”). Working directly with Toray Industries, we employed prototypes of commercial operations from the petrochemical and refining industries to make PX from isobutanol. Toray Industries used our PX and commercially available renewable mono ethylene glycol (MEG) to produce fully renewable PET films and fibers. Toray Industries is a large PET resin, film and fiber manufacturing company interested in offering their customers, some of whom are multinational brandowners, with a biobased alternative. • We have also entered into an agreement with The Coca-Cola Company (“Coca-Cola”) to create renewable PET from our isobutanol seeking to accelerate the development of Coca-Cola’s second-generation PlantBottle™ packaging made from 100% plant-based materials. Our objective under the agreement is to take our technology from laboratory-scale to commercial-scale and support Coca-Cola’s efforts to lead the beverage industry away from fossil-fuel based packaging by offering an alternative made completely from renewable raw materials. • We estimate the global market for PET to be approximately 50 million metric tons, or approximately $90 billion annually. Approximately 30% of which will be used for plastic bottles. Jet Fuel • • • • We have demonstrated the conversion of our isobutanol into a renewable jet fuel blendstock which meets current ASTM International (“ASTM”) and U.S. military synthetic jet fuel blendstock performance and purity requirements. We are working to obtain an ASTM standard specification for the use of such jet fuel blendstock in commercial aviation. We have already presented positive test results from fit-for-purpose testing of our biojet fuel to ASTM’s ‘alcohol-to-jet’ task force. Upon reviewing the results of the test, which was conducted by the Southwest Research Institute and the U.S. Air Force Research Lab, the task force had no objection to our proceeding to jet engine testing, which is the next phase in the certification process. Full certification of our biojet fuel is expected in 2013. We have been awarded a contract by the Defense Logistics Agency (“DLA”) to supply biojet fuel to the U.S. Air Force (“USAF”). The contract calls for us to supply the USAF with up to 11,000 gallons of biojet fuel, which will be used to support engine testing and a feasibility flight demonstration using an A-10 aircraft. The biojet fuel will be shipped to Wright-Patterson Air Force Base, where the USAF will finish laboratory testing and begin engine testing. The biojet fuel is being produced from isobutanol at our hydrocarbon processing demonstration plant near Houston, Texas, in partnership with South Hampton Resources, Inc. (“South Hampton Resources”). We shipped initial quantities of biojet fuel to the USAF in December 2011. Commercial airlines are also currently looking to form strategic alliances with biofuels companies to meet their fuel supply demands. We estimate the global market for biojet fuel to be approximately 75 BGPY, or approximately $200 billion annually. 3 Table of Contents Other Hydrocarbon Fuels • Diesel fuel, gasoline, isooctane, isooctene and bunker fuel may also be produced from our isobutanol. In our laboratories we have demonstrated the conversion of isobutanol to isooctane and renewable gasoline. We have also converted isobutanol to kerosene with properties which we expect may be fit for diesel blending applications. Our Retrofit Strategy We plan to commercialize our isobutanol through a strategy of retrofitting existing ethanol production facilities to produce isobutanol. This approach allows us to project substantially lower capital outlays and a faster commercial deployment schedule than the construction of new plants. We developed our technology platform to be compatible with the existing approximately 23 BGPY of global operating ethanol production capacity and we believe that this retrofit approach will allow us to rapidly expand our isobutanol production capacity in response to customer demand. Additionally, the ability of GIFT to convert sugars from multiple renewable feedstocks into isobutanol will enable us to leverage the abundant domestic sources of low cost grain feedstocks (e.g., corn) currently used for ethanol production and will potentially enable the expansion of our production capacity into international markets that use sugar cane or other feedstocks that are prevalent outside of the U.S. ® We believe that our isobutanol not only offers a compelling value proposition to customers in the chemicals and fuels markets, but should also provide current ethanol plant owners with an opportunity to increase their operating margins through the retrofit of their existing facilities in joint venture settings. In addition, we plan to sell our isobutanol primarily under long term off-take agreements, such as our agreement with Sasol Chemical Industries, acting through its Sasol Solvents Division (“Sasol”). This approach, which is a departure from the traditional model for ethanol sales, is expected to enhance operating margin stability by incorporating minimum volume amounts and pricing terms that adjust based on feedstock costs, thus improving the overall business model for existing ethanol plant owners. Ethanol is often sold under marketing agreements that do not include volume requirements or pricing formulas that adjust based on feedstock costs, which can result in volatile operating margins that are a significant operational challenge for current ethanol plant owners. Through our exclusive alliance with ICM, Inc. (“ICM”), a leading engineering firm that has designed over 50% of current U.S. operating ethanol production capacity, which the RFA estimates to be over 13 BGPY, we are developing our retrofit equipment package and have successfully demonstrated the production of isobutanol via the retrofit of a one million gallon per year (“MGPY”) ethanol demonstration facility in St. Joseph, Missouri. We plan to secure access to existing ethanol production facilities through joint ventures, tolling partnerships and direct acquisitions. As we establish our retrofit strategy, we may consider licensing our technology and engineering package to expand overall access to production capacity. We will then work with ICM to deploy GIFT ® through retrofit of these production facilities. In September 2010, we acquired a 22 MGPY ethanol production facility in Luverne, Minnesota (the “Agri-Energy Facility”). In partnership with ICM, we have developed a detailed design for this facility from which we can project equipment packages for the retrofit of other corn ethanol plants. We commenced the retrofit of the Agri-Energy Facility in 2011 and expect to begin commercial production of isobutanol at the facility in the first half of 2012. The Agri-Energy Facility is a traditional dry-mill facility, which means that it uses dry-milled corn as a feedstock. We project capital costs for the retrofit of the Agri-Energy Facility to be $22 million, which includes equipment necessary in order to switch between ethanol and isobutanol production plus additional capital which will be used to increase the potential production capacity of the facility. While we believe we will have the ability to reverse the retrofit and switch between ethanol and isobutanol production, there is no guarantee that this will be the case and it is not our intent to do so. In addition to the retrofit of the Agri-Energy Facility to produce isobutanol, in July 2011 we made the strategic decision to invest in an enhanced yeast seed train at the facility to accelerate the adoption of improved yeast at the Agri-Energy Facility and at future plants, to maintain direct oversight over our yeast material and provide on-site yeast production. We estimate capital costs for the enhanced yeast seed train to be approximately $10 million. We do not anticipate installing an advanced yeast seed train at each future retrofit site. 4 Table of Contents Additionally, on June 15, 2011, we entered into an isobutanol joint venture agreement (the “Joint Venture Agreement”) with Redfield Energy, LLC, a South Dakota limited liability company (“Redfield”), under which we have agreed to work with Redfield to retrofit Redfield’s approximately 50 MGPY ethanol production facility located near Redfield, South Dakota (the “Redfield Facility”) for the commercial production of isobutanol. We will be responsible for all costs associated with the retrofit of the Redfield Facility. If certain conditions have been met following completion of retrofit, commercial production of isobutanol at the Redfield Facility will begin upon the earlier of the date on which certain production targets have been met or the date the parties mutually agree that commercial isobutanol production at the Redfield Facility will be commercially viable. We will be entitled to a percentage of Redfield’s profits, losses and distributions once commercial production of isobutanol has begun. We are currently in discussions with several other ethanol plant owners that have expressed an interest in entering into joint ventures, tolling arrangements or selling their facilities to us for retrofit to produce isobutanol. Collectively, these ethanol plant owners represent over 1.7 BGPY of ethanol capacity. However, there can be no assurance that we will be able to acquire access to ethanol plants from these owners. Customer Agreements We plan to commence commercial production of isobutanol in the first half of 2012 at our Agri-Energy Facility. We expect our initial production to be directed to serve the high-purity and chemical-grade markets under our international off-take and distribution agreement with Sasol, and to provide introductory volumes to the specialty fuel blendstock markets in the U.S., under our commercial off-take agreement with Mansfield Oil Company (“Mansfield”). During the retrofit of the Agri-Energy Facility, we will continue to produce and sell ethanol and related distiller’s grains. Following the retrofit of the facility to isobutanol production, we intend to produce and sell isobutanol to customers and to sell isobutanol distiller’s grains (“iDGs™”) in the same manner as distiller’s grains are sold today. As our production capacity increases, we plan to transition to selling increased isobutanol volumes under direct customer relationships, certain of which we have already established. As of December 31, 2011, we have entered into the following arrangements: Off-take Agreements • Sasol Chemical Industries. In July 2011, we entered into an international off-take and distribution agreement with Sasol to distribute isobutanol globally. The agreement has an initial term of three years and appoints Sasol as a worldwide distributor of our high-purity, chemical-grade biobased isobutanol for sale as a solvent or chemical intermediate. Sasol has been granted non-exclusive distribution rights in North and South America and exclusive distribution rights in the rest of the world. Upon our first commercial sale of isobutanol, if Sasol desires to maintain its exclusive distribution rights, it is obligated to either purchase certain minimum quantities of isobutanol or pay us applicable shortfall fees. We are also obligated to either supply Sasol with certain minimum quantities of isobutanol or pay Sasol applicable shortfall fees. The agreement includes a pricing mechanism that accounts for changes in corn feedstock costs, within certain market-based limits. • • Mansfield Oil Company. In August 2011, we entered into a commercial off-take agreement with Mansfield to distribute isobutanol-based fuel into the petroleum market. Mansfield markets and distributes fuel to thousands of commercial customers across the U.S. and has over 900 supply points across the U.S. The agreement allows Mansfield to blend our isobutanol for its own use and to be a distributor of our isobutanol for a term of five years. We also entered into a three-year supply services agreement with C&N, a Mansfield subsidiary (“C&N”), which will provide supply chain services including logistics management, customer service support, invoicing and billing services. Land O’Lakes Purina Feed LLC. In December 2011, we entered into an off-take and marketing agreement with Land O’Lakes Purina Feed LLC (“Land O’Lakes Purina Feed”) for the sale of iDGs™ produced by the Agri-Energy Facility. Land O’ Lakes Purina Feed provides farmers and ranchers with 5 Table of Contents an extensive line of agricultural supplies (feed, seed, and crop protection products) and services. Land O’Lakes Purina Feed will be the exclusive marketer of our iDGs™ and modified wet distiller grains for the animal feed market. The agreement has an initial three-year term following the first commercial sales of iDGs™ with automatic one-year renewals thereafter unless terminated by one of the parties. Further, we plan to work with Land O’Lakes Purina Feed to explore opportunities to upgrade the iDGs™ for special value-added applications in feed markets. Supply and Commercialization Agreements • U.S. Air Force. In September 2011, we were awarded a solicitation by the DLA to supply biojet fuel to the USAF. DLA sources and provides nearly 100% of the consumable items the U.S. military needs to operate. The solicitation provides that we will supply the USAF with up to 11,000 gallons of biojet fuel, which will be used to support engine testing and a feasibility flight demonstration using an A-10 aircraft. This is the first biojet fuel contract awarded by the DLA. The biojet fuel is being produced from isobutanol at our hydrocarbon processing demonstration plant near Houston, Texas, in partnership with South Hampton Resources. • The Coca-Cola Company. In November 2011, we entered into a joint research, development, license and commercialization agreement with Coca- Cola to create renewable PX from our isobutanol. The objective of the agreement is to accelerate the development of Coca-Cola’s second-generation PlantBottle™ packaging made from 100% plant-based materials. We will work with Coca-Cola to enable and deliver an integrated system to produce renewable PX, a key building block toward Coca-Cola’s goal of creating all of their packaging from renewable materials. • LANXESS. In May 2010, we entered into a non-binding heads of agreement outlining the terms of a future supply agreement with LANXESS Inc. (“LANXESS”), an affiliate of LANXESS Corporation, a stockholder in our company. LANXESS is a specialty chemical company with global operations that currently produces butyl rubber from petrochemical-based isobutylene. Isobutylene is a type of butene that can be produced from isobutanol through straightforward, well-known chemical processes. Pursuant to the heads of agreement, LANXESS has proposed to purchase at least 20 MGPY of our isobutanol for an initial term of 10 years, with an option to extend the term for an additional five years. The pricing under our heads of agreement with LANXESS includes a mechanism that adjusts for future changes in the cost of our feedstock. In January 2011, we also entered into an exclusive supply agreement with LANXESS pursuant to which LANXESS has granted us an exclusive first right to supply LANXESS and its affiliates with certain of their requirements of biobased isobutanol during the initial ten-year term. Our exclusive first right to supply biobased isobutanol to LANXESS and its affiliates will be subject to the terms of the future supply agreement that we intend to enter into with LANXESS, as described above. Letters of Intent • TOTAL PETROCHEMICALS. In February 2010, we entered into a non-binding letter of intent with TOTAL PETROCHEMICALS USA, Inc. (“TOTAL PETROCHEMICALS”), an affiliate of TOTAL S.A., a major oil and gas integrated company. Under the terms of the letter of intent, we have agreed to negotiate a definitive supply agreement, for a term of up to five years, for the sale of a specified amount of isobutanol to TOTAL PETROCHEMICALS for use as a second-generation biofuel. TOTAL PETROCHEMICALS anticipates that it will require a volume of isobutanol ranging from 5 to 10 million gallons during the first year of the agreement. After the first year, the parties will mutually agree upon a ramp-up schedule to increase the annual volume of isobutanol to be supplied by us over the remaining term of the agreement. TOTAL PETROCHEMICALS is affiliated with one of our stockholders, Total Energy Ventures International. • Toray Industries. In April 2010, we received a non-binding letter of interest from Toray Industries, a leader in the development of fibers, plastics and chemicals. Under the terms of the letter of interest, the parties have agreed to negotiate a supply agreement, pursuant to which, beginning on or after 2012, 6 Table of Contents Toray Industries would purchase 1,000 metric tons per year of biobased PX made from our isobutanol, potentially building to 5,000 metric tons within five years. Production of 5,000 metric tons of PX is expected to require approximately 2.3 million gallons of isobutanol. In June 2011, we announced that we had successfully produced fully renewable and recyclable PET in cooperation with Toray Industries. • United Airlines. In July 2010, we entered into a non-binding letter of intent with United Airlines, Inc. (“United Airlines”), one of the largest international airlines in the world. This letter of intent sets forth the initial terms for a supply agreement for renewable jet fuel, produced from our isobutanol, to serve United Airlines’ major hub airport in Chicago. The letter of intent contemplates pricing of the renewable jet fuel will be indexed to the cost of corn, the feedstock that we will use to produce our isobutanol, and natural gas. Isobutanol has a higher price than ethanol today because of the higher value markets that isobutanol can serve. In addition, we have been successful in including pricing mechanisms that are linked to the cost of our feedstocks in certain key agreements, including our international off-take and distribution agreement with Sasol. This pricing mechanism allows us to reduce the risk of entering into long-term supply agreements for our isobutanol. We believe that our ability to enter into long-term agreements for the supply of isobutanol, with customer pricing linked to the cost of our feedstocks, provides us with an advantage over current ethanol marketing agreements. Although we have agreed to preliminary terms with each of the potential customers discussed above, only our agreements with Sasol, Mansfield, Land O’Lakes Purina Feed, Coca-Cola and the DLA on behalf of the USAF, and our exclusive supply agreement with LANXESS, are binding and there can be no assurance that we will be able to enter into definitive supply agreements with any of the other potential customers listed above, or attract customers based on our arrangements with the petrochemical companies and large brand owners discussed above. Competitive Strengths Our competitive strengths include: • Renewable platform molecule to serve multiple large drop-in markets. We believe that the butenes produced from our isobutanol will serve as renewable alternatives in the production of plastics, fibers, rubber and other polymers which comprise approximately 40% of the global petrochemicals market, and will have potential applications in substantially all of the global hydrocarbon fuels market, enabling our customers to reduce intermediate product cost volatility, diversify suppliers and improve feedstock security. We believe that we will face reduced market adoption barriers because products derived from our isobutanol are chemically identical to petroleum-derived products, except that they will contain carbon from renewable sources. • Proprietary, low cost technology with global applications. We believe that GIFT is currently the only known biological process to produce isobutanol cost-effectively from renewable carbohydrate sources, which will enable the economic production of hydrocarbon derivatives of isobutanol. Our biocatalysts are able to achieve a product yield on sugar of approximately 94% of theoretical maximum by weight, which is near to, if not the maximum practical yield attainable from fermentable sugars. Collectively, we believe that these attributes, coupled with our ability to leverage the existing ethanol production infrastructure, will create a relatively low capital cost route to isobutanol. Furthermore, we believe that our cost-efficient production route will allow our isobutanol to be economically competitive with many of the petroleum-derived products used in the chemicals and fuels markets today. Additionally, GIFT is designed to enable the economic production of isobutanol and other alcohols from multiple renewable feedstocks, which will allow our technology to be deployed worldwide. ® ® • Capital-light commercial deployment strategy optimized for existing infrastructure. We have designed GIFT to enable capital-efficient retrofits of existing ethanol facilities, which allows us to leverage the existing approximately 23 BGPY of global operating ethanol production capacity. Our ® 7 Table of Contents retrofit strategy supports a rapid and relatively low capital cost route to isobutanol production. In July 2011, ICM completed the detailed design for the Agri-Energy Facility retrofit to isobutanol production using GIFT . Using a factored estimate based on the results of the detailed design, we estimate retrofit costs for grain ethanol plant retrofits to be approximately $1 per gallon of existing annual ethanol capacity. This projection translates to approximately $50 million for a 50 MGPY ethanol facility and approximately $90 million for a 100 MGPY ethanol facility. These projected retrofit capital expenditures are substantially less than estimates for new plant construction for the production of advanced biofuels, including cellulosic ethanol. We have also designed our production technology to minimize the disruption of ethanol production during the retrofit process, mitigating the costs associated with downtime as the plant is modified. Following an ICM-estimated two-week period to transition to isobutanol production, we expect the original plant to operate in essentially the same manner as it did prior to the retrofit, producing a primary product (isobutanol) and a co-product ( iDGs™). We are in the process of obtaining regulatory approvals for marketing of our iDGs™ as an animal feed, which will allow us to recover a significant portion of our feedstock costs. ® • GIFT demonstrated at commercially relevant scale. We have completed the retrofit of a one MGPY ethanol facility in St. Joseph, Missouri with ® our proprietary engineering package designed in partnership with ICM and we have successfully produced isobutanol at this facility using our biocatalysts, achieving our commercial targets for concentration, yield and productivity, which are consistent with the current yeast performance observed in a grain ethanol plant. These operations have demonstrated the effectiveness of our proprietary technology, confirming the fermentation performance of our biocatalyst technology and our ability to effectively separate isobutanol from water as it is produced. • Off-take agreements and strategic relationships with chemicals, fuels, animal feed and engineering industry leaders in place. We have entered into off-take agreements and strategic relationships with global industry leaders to accelerate the execution of our commercial deployment strategy both in the U.S. and internationally. These agreements establish immediate demand for our isobutanol to meet the planned production from our Agri- Energy Facility, which is expected to commence commercial production in the first half of 2012. To facilitate the adoption of our technology at existing ethanol plants, we have entered into an exclusive alliance with ICM. We expect our relationships with entities such as LANXESS, Toray Industries, the USAF, TOTAL PETROCHEMICALS, and United Airlines to contribute to the development of new chemical and fuel market applications of our isobutanol. To enable the integration of cellulosic feedstocks into our isobutanol production process, we have obtained an exclusive license from Cargill, Incorporated (“Cargill”), to integrate its proprietary biocatalysts into the GIFT system. To accelerate the adoption of isobutanol as a platform molecule and to support the development of hydrocarbon products derived from our isobutanol, we have developed a hydrocarbon demonstration plant near Houston, Texas with South Hampton Resources. ® • Experienced team with a proven track record. Our management team offers an exceptional combination of scientific, operational and managerial expertise and our CEO, Dr. Patrick Gruber, has spent over 20 years developing and successfully commercializing industrial biotechnology products. Across the company, our employees have 450 combined years of biotechnology, synthetic biology and biobased product experience. Our employees have generated over 300 patent and patent application authorships over the course of their careers. Our team members have played key roles in the commercialization of several successful, large-scale industrial biotechnology projects, including a sugar substitute sweetener, four organic acid technologies, an animal feed additive, monomers for plastics and biobased plastics and the first biologically derived high-purity monomer for the production of plastic at a world-scale production facility. As a result of their deep experience, members of our management team play important roles in the industrial biotechnology industry at U.S. and international levels. 8 Table of Contents Our Production Technology Platform We have used tools from synthetic biology, biotechnology and process engineering to develop a proprietary fermentation and separation process to cost ® effectively produce isobutanol from renewable feedstocks. GIFT is designed to allow for relatively low capital expenditure retrofits of existing ethanol facilities, enabling a rapid and cost-efficient route to isobutanol production. GIFT isobutanol production is very similar to existing ethanol production, except that we replace the ethanol producing biocatalyst with our isobutanol producing biocatalyst and we incorporate well-known equipment into the production process to separate and collect the isobutanol during the fermentation process. In July 2011, ICM completed the detailed design for the Agri-Energy Facility retrofit to isobutanol production using GIFT . Using a factored estimate based on the results of the detailed design of the Agri-Energy Facility we estimate retrofit costs for grain ethanol plant retrofits to be approximately $1 per gallon of existing annual ethanol capacity. This projection translates to approximately $50 million for a 50 MGPY ethanol facility and approximately $90 million for a 100 MGPY ethanol facility. We have designed our production technology to minimize the disruption of ethanol production during the retrofit process, mitigating the costs associated with downtime as the plant is modified. Following an estimated two-week period to transition to isobutanol production, we expect the corn ethanol facility will be able to produce isobutanol, as well as iDGs™, as an animal feed co-product, while operating in substantially the same manner as it did prior to the retrofit. ® ® Reusing large parts of the ethanol plant without modification is beneficial because the unchanged parts will stay in place and continue to operate after the retrofit as they did when ethanol was produced. This means that the existing operating staff can continue to manage the production of isobutanol because they will already have experience with the base equipment. This continuity reduces the risks associated with the production startup following the retrofit as most of the process is unchanged and the existing operating staff is available to monitor and manage the production process. As noted above, we intend to process the spent grain mash from our fermenters to produce iDGs™, relying on established processes in the current ethanol industry. We anticipate approval of our iDGs™ by the U.S. Food and Drug Administration (“FDA”), and we plan to market it to the dairy, beef, swine and poultry industries as a high-protein, high-energy animal feed. To support these efforts, in December 2011 we entered into an exclusive off-take and marketing agreement with Land O’Lakes Purina Feed for the sale of iDGs™ produced at the Agri-Energy Facility. We believe that our sales of our iDGs™ will allow us to offset a significant portion of our grain feedstock costs, in the same manner as is practiced by the corn-based ethanol industry today through sale of dry distillers grains. Biocatalyst Overview Our biocatalysts are microorganisms that have been designed to metabolize sugars to produce isobutanol. Our technology team develops these proprietary biocatalysts to efficiently convert fermentable sugars of all types by engineering isobutanol pathways into the biocatalysts, and then minimizing the production of unwanted by-products to improve isobutanol yield and purity, thereby reducing operating costs. With our biocatalysts, we have already demonstrated that we can produce isobutanol at key commercial parameters, validating our biotechnology pathways and efficiencies. Our commercial biocatalyst is yeast, which is designed to produce isobutanol from any fuel ethanol feedstock currently in commercial use, including grains (e.g., corn, wheat, sorghum and barley) and sugar cane. This feedstock flexibility supports our initial deployment in the U.S., as we seek to retrofit available ethanol production facilities which are primarily focused on corn feedstocks, and will enable our future expansion into international markets for production of isobutanol using sugar cane or other grain feedstocks. 9 Table of Contents Although development work still needs to be done, we have shown at laboratory scale that we can convert cellulosic sugars into isobutanol. In addition, through an exclusive license and a services arrangement with Cargill, we are developing a cellulosic sugar converting yeast biocatalyst specifically designed to efficiently produce isobutanol from the sugars derived from cellulosic feedstocks, including crops that are specifically cultivated to be converted into fuels (e.g., switchgrass), forest residues (e.g., waste wood, pulp and sustainable wood), agricultural residues (e.g., corn stalks, leaves, straw and grasses) and municipal green waste (e.g., grass clippings and yard waste). Our current and future-generation biocatalysts are built upon robust industrial varieties of yeast that are widely used in large-scale fermentation processes, such as ethanol and lactic acid production. We have carefully selected our yeast biocatalyst platforms for their tolerance to isobutanol and other conditions present during an industrial fermentation process, as well as their known utility in large-scale commercial production processes. As a result, we expect our biocatalysts to equal or exceed the performance of the yeast used in prevailing grain ethanol production processes. Biocatalyst Development Initially, we used a pathway developed at the University of California, Los Angeles (“UCLA”) and exclusively licensed from The Regents of the University of California (“The Regents”), to create a research biocatalyst capable of producing biobased isobutanol. We chose to use E. coli as the bacteria for our research biocatalyst because of its ease of use and greater understanding relative to other biocatalysts, and because it was the microorganism used by UCLA in developing the licensed pathway. We then developed a new yeast biocatalyst to allow for anaerobic, or oxygen free, isobutanol production as well as minimizing the production of unwanted by-products to improve isobutanol yield and purity thereby reducing operating costs. These efforts resulted in a substantial fermentation yield increase and enabled compatibility with existing ethanol infrastructure. By fermenting sugars to isobutanol without producing by-products, our proprietary isobutanol pathway channels the available energy content of fermentable sugars to isobutanol. Due to thermodynamic constraints that govern the conservation of energy, other processes may match our yield, but will be unable to exceed it significantly. We have achieved approximately 94% of the theoretical yield, which is near to, if not the maximum practical yield limit attainable from the fermentation of sugars. Our expected theoretical yield is equivalent to that of industrial ethanol production. ® We designed our biocatalysts to equal or exceed the performance of the yeast currently used in commercial ethanol production not only in yield, or percentage of the theoretical maximum percentage of isobutanol that can be made from a given amount of feedstock, but also fermentation time, or how fast the sugar fed to the fermentation is converted to isobutanol. At least matching this level of performance is important to our initial commercial production because doing so allows GIFT fermentation to be performed in most existing grain ethanol fermenters without increasing vessel sizes. Because an isobutanol molecule contains more carbon and hydrogen than an ethanol molecule, and because liquid isobutanol has a different density than liquid ethanol, the isobutanol volume our fermentation process produces will be approximately 80% of the volume of ethanol produced by ethanol fermentation at an equivalent fermentation theoretical yield on sugar. In other words, ICM’s design studies predict that a retrofitted 100 MGPY ethanol plant can produce approximately 80 MGPY of isobutanol. A volume of 80 million gallons of isobutanol has roughly the same energy content as 100 million gallons of ethanol. Over time, we anticipate being able to the increase the productivity of our yeast biocatalyst, thereby allowing for the production of a greater volume of isobutanol over the same fermentation time which would allow for an increase in expected annual isobutanol production. Based on this expectation, we have increased the size of the proprietary isobutanol separation system being installed at the Agri-Energy Facility to accommodate potential increased isobutanol production. Demonstrated Biocatalyst Performance By August 2009, our research biocatalyst’s performance was equal to or exceeded our targeted levels of commercial performance, defined as 48 to 72 hours fermentation time and a product yield of approximately 94% of the theoretical yield of isobutanol from the sugar in the feedstock. We initially achieved these fermentation 10 Table of Contents performance goals with our research biocatalyst at our GIFT mini-plant. In September 2009, we replicated this performance in a retrofit one MGPY ethanol demonstration facility located at ICM’s St. Joseph, Missouri site. ® We have completed the transfer of our proprietary isobutanol pathway to an industrially relevant yeast host and have achieved our commercial performance targets for fermentation time and product yield in our GIFT mini-plant. Yeast is the preferred host for low cost industrial fermentation because it is industrially proven for biofuels production, capable of out-competing bacteria, and is not susceptible to bacteriophage, a common problem for bacterial fermentations. Our yeast has been specifically selected and developed for its performance in the GIFT process, which will allow for lower cost isobutanol production. ® ® By October 2010, our yeast biocatalyst had achieved a fermentation time of 52 hours and achieved approximately 94% of the theoretical maximum yield of isobutanol from feedstock, meeting our targeted fermentation performance criteria well in advance of our planned commercial launch of isobutanol production in the first half of 2012. We continue to improve the performance parameters of our yeast biocatalyst to further reduce operating costs and increase volume for isobutanol production. Feedstock Flexibility We have designed our yeast biocatalyst platform to be capable of producing isobutanol from any fuel ethanol feedstock currently in commercial use, which we believe, in conjunction with our proprietary isobutanol separation unit, will permit us to retrofit any existing fuel ethanol facility. We have demonstrated that our biocatalysts are capable of converting the types of sugars in grains and sugar cane to isobutanol at our commercial targets for fermentation time and yield. We believe our yeast biocatalyst will have the ability to convert these sugars into isobutanol at a commercial scale. The vast majority of fuel ethanol currently produced in the U.S. is produced from corn feedstock, which is abundant, according to data from the U.S. Department of Agriculture and the RFA. Although development work still needs to be done, we have shown at laboratory scale that we can convert cellulosic sugars into isobutanol. Through an exclusive license with Cargill, we are developing a future-generation yeast biocatalyst that is specifically designed to efficiently produce isobutanol from mixed sugars derived from cellulosic sources including purpose grown energy crops, agricultural residues, forest residues and municipal green waste. This yeast is highly hydrolyzate- tolerant and employs Cargill’s technology for mixed sugar conversion. We expect that our feedstock flexibility will allow our technology to be deployed worldwide and will enable us to offer our customers protection from the raw material cost volatility historically associated with petroleum-based products. GIFT Improves Fermentation Performance ® ® ® Our experiments show that the GIFT fermentation and recovery system provides enhanced fermentation performance as well as low cost recovery of isobutanol and other alcohols. The GIFT system enables continuous separation of isobutanol from the fermentation tanks while fermentation is in process. Isobutanol is removed from the fermentation broth using a low temperature distillation to continuously remove the isobutanol as it is formed without the biocatalyst being affected. Since biocatalysts have a low tolerance for high isobutanol concentrations in fermentation, the valuable ability of our process to continuously remove isobutanol as it is produced allows our yeast biocatalyst to continue processing sugar into isobutanol at a high rate without being suppressed by rising levels of isobutanol in the fermenter, thereby reducing the time to complete the fermentation. Using our biocatalysts, we have demonstrated that GIFT ® enables isobutanol fermentation times equal to, or less than, those achieved in the current conventional production of ethanol, which allows us to fit our technology into existing ethanol fermenters thereby reducing capital expenditures. We have designed a proprietary engineering package in partnership with ICM to carry out our isobutanol fermentation and recovery process, and this equipment has been successfully deployed via the retrofit of a one MGPY corn ethanol demonstration facility in St. Joseph, Missouri. 11 Table of Contents GIFT requires little change to existing ethanol production infrastructure. As with ethanol production, feedstock is ground, cooked, treated with enzymes ® and fermented. Just like ethanol production, after fermentation, a primary product (isobutanol) and a co-product (iDGs™) are recovered for sale. The main modifications of the GIFT system are replacing the ethanol producing yeast with Gevo’s proprietary isobutanol producing yeast, and adding low temperature distillation for continuous removal and separation of isobutanol. ® Conversion of Isobutanol into Hydrocarbons We have demonstrated conversion of our isobutanol into a wide variety of hydrocarbon products which are currently used to produce plastics, fibers, rubber, other polymers and hydrocarbon fuels. Hydrocarbon products consist entirely of hydrogen and carbon and are currently derived almost exclusively from petroleum. Importantly, isobutanol can be dehydrated to produce butenes, which are an intermediate product in the production of hydrocarbon products with many industrial uses. The straightforward conversion of our isobutanol into butenes is a fundamentally important process that enables isobutanol to be used as a building block chemical. Much of the technology necessary to convert isobutanol into butenes and subsequently into these hydrocarbon products is known and practiced in the chemicals industry today, as shown in an SRI research study. For example, the dehydration of ethanol to ethylene, which uses a similar process and technology to the dehydration of isobutanol, is practiced commercially today to serve the ethylene market. The dehydration of isobutanol into butenes is not commercially practiced today, because isobutanol from petroleum is not cost-competitive with other petrochemical processes for generation of butenes, but we believe that our efficient and low cost fermentation technology for producing isobutanol will promote commercial isobutanol dehydration and provide us with the opportunity to access the hydrocarbon markets. In order to access these markets, we have developed a hydrocarbon demonstration plant at our partner South Hampton Resource’s site near Houston, Texas. The demonstration plant is expected to process up to 10,000 gallons of our isobutanol per month into a variety of renewable hydrocarbons for use as fuels and chemicals. Our Strategy Our strategy is to commercialize our isobutanol for use directly as a specialty chemical and fuel blendstock and for conversion into plastics, fibers, rubber, other polymers and hydrocarbon fuels. Key elements of our strategy include: • Deploy first commercial production facility. In September 2010, we acquired a 22 MGPY ethanol production facility in Luverne, Minnesota. The retrofit of the Agri-Energy Facility to isobutanol production is underway and we expect to commence commercial production of isobutanol at the facility in the first half of 2012. • Build on existing off-take agreements with customers to support capacity growth. We have entered into an international off-take and distribution agreement with Sasol that accounts for the majority of our planned isobutanol production volume from the Agri-Energy and Redfield Facilities upon completion of their respective retrofits. We also have in place a commercial off-take agreement with Mansfield to sell isobutanol into fuels markets. Based on our expected available production volume from the Agri-Energy Facility, we project initial sales of our isobutanol into fuels markets will be introductory volumes intended to conduct demonstration trials. To further support our commercial production of isobutanol, we have entered into an off-take agreement with Land O’Lakes Purina Feed to be the exclusive marketer of the iDGs™ and modified wet distiller grains produced at the Agri-Energy Facility for the animal feed market. We intend to add to our customer pipeline by entering into isobutanol supply agreements for further capacity with additional customers in the refining, specialty chemicals and transportation sectors both in the U.S. and internationally. • Expand our production capacity via retrofit of additional existing ethanol facilities. As we secure supply agreements with customers, we plan to expand access to production capacity through increasing production capacity at our then current locations and acquiring or gaining access to additional and larger scale ethanol facilities via joint ventures, tolling arrangements and acquisitions. As we establish 12 Table of Contents our retrofit strategy, we may consider licensing our technology and engineering package to expand overall access to production capacity. We believe that our exclusive alliance with ICM will enhance our ability to rapidly deploy our technology on a commercial scale at these facilities. We plan to access additional production capacity to enable us to produce and sell over 350 million gallons of isobutanol in 2015. • Expand adoption of our isobutanol across multiple applications and markets. We intend to drive adoption of our isobutanol in multiple U.S. and international chemicals and fuels end-markets by offering a renewable product with superior properties at a competitive price. In addition, we intend to leverage existing and potential strategic partnerships with hydrocarbon companies to accelerate the use of isobutanol as a building block for drop- in hydrocarbons. This strategy will be implemented through direct supply agreements with leading chemicals and fuels companies, as well as through alliances with key technology providers. • Align the value chain for our isobutanol by collaborating with large brand owners and customers. We are developing commitments from large brand owners to purchase products made from our isobutanol by third-party chemicals and fuels companies. For example, we recently entered into a joint research, development, license and commercialization agreement with Coca-Cola to create renewable PX from plant based isobutanol, which will accelerate the development of Coca-Cola’s second-generation PlantBottle™ packaging made from 100% plant-based materials. We have also been awarded a contract to supply the USAF with up to 11,000 gallons of biojet fuel which will be used to support engine testing and a flight demonstration using an A-10 aircraft. We intend to use these commitments, as well as other future agreements, to obtain contracts to sell our isobutanol directly into the manufacturing chain that will use our isobutanol as a building block in the production of PX, PET, biojet fuel and other hydrocarbon products. • Incorporate additional feedstocks into our isobutanol production facilities. Our yeast biocatalyst can produce isobutanol from any fuel ethanol feedstock currently in commercial use, including grains (e.g., corn, wheat, sorghum and barley) and sugar cane. While our initial focus is to access corn ethanol facilities in the U.S., the ability of our biocatalyst to produce isobutanol from multiple feedstocks will support our future efforts to expand production of isobutanol into international markets that use sugar cane or other grain feedstocks, either directly or through partnerships. We are also developing a future-generation biocatalyst under contract with Cargill. We believe that this future-generation biocatalyst will enable us to efficiently integrate mixed sugars from cellulosic feedstocks into our production facilities when the technology to separate and break down cellulosic biomass into separate simple sugar molecules becomes commercially available. Industry Overview Petroleum is a fundamental source of chemicals and fuels, with annual global demand in 2009 estimated at $2.6 trillion based on data from the IEA. Today’s organic chemicals and fuels are predominantly derived from petroleum, as it has historically been convenient and inexpensive. However, recent fundamental trends, including increasing petroleum demand (especially from emerging markets), limited new supply, price volatility and the changing regulatory framework in the U.S. and internationally with regard to the environmental impact of fossil fuels has increased the need for economical, renewable and environmentally sensitive alternatives to petroleum at stable prices. 13 Table of Contents These market developments, combined with advances in synthetic biology and metabolic pathway engineering, have encouraged the convergence between the industrial biotechnology and energy sectors. These new technologies enable the production of flexible platform chemicals, such as isobutanol, from renewable sources instead of fossil fuels, at economically competitive costs. Based on our compilation of data from SRI, Nexant, CMAI, the EIA and the IEA, we believe that isobutanol and the products derived from it have potential applications in approximately 40% of the global petrochemicals market and substantially all of the global fuels market, and that our isobutanol fulfills an immediate need for alternatives to petroleum. Previous attempts to create renewable, cost-effective alternatives to petroleum-based products have faced several challenges: • • • • First generation renewable products are not considered drop-in solutions for existing petroleum infrastructure. Many products contemplated by earlier manufacturers are not considered effective alternatives to conventional petroleum due to various limitations, including lower energy content, viscosity and corrosive properties which limit pipeline transportation or require expensive engine modifications. Capital intensity. Due to the high capital cost incurred in establishing new biofuels plants, numerous companies face limited expansion and customization opportunities and have not been able to relocate to areas with access to new or more cost-effective feedstocks. Reliance on regulatory environment. Many conventional alternatives to current nonrenewable chemicals and fuels have relied heavily on government subsidies. In the absence of governmental support, these alternatives face significant operational hurdles and are often no longer economically viable. Abundant supply of petroleum-based products. Traditionally butenes have been produced as co-products from the process of cracking naptha in the production of ethylene. Reported reductions in the use of naptha as the feedstock for the production of ethylene have changed the projected menu of co-products, resulting in a projected reduction in the volume of available butenes. This structural shift in feedstocks increases the potential market opportunity for our isobutanol in the production of butenes. Advantages of Our Isobutanol We believe our isobutanol provides advantages over both petroleum-based products and alternative renewable chemicals and fuels. These advantages are based on the chemical properties of isobutanol and our low cost production technology. • • Lower cost to manufacture than petroleum isobutanol. We believe our biobased route to manufacture isobutanol is significantly lower cost than the predominant route to manufacture petroleum-based isobutanol. This will allow us to offer our biobased isobutanol to the existing isobutanol markets at a price we believe will encourage customers to switch from petroleum-based butanol to our biobased isobutanol. Further, we believe our price will enable the development of new uses for isobutanol as a gasoline blendstock and as a building block for a variety of intermediate chemicals and hydrocarbon products. Low cost convertibility of renewable feedstocks into specialty chemicals and fuels. We believe our proprietary technology platform will enable rapid deployment and a relatively low capital cost route to isobutanol and currently represents the only known biological process to produce isobutanol cost-effectively from the fermentation of renewable feedstocks. Isobutanol is a highly flexible platform molecule with broad applications in the chemicals and fuels markets. • Alternative source of four-carbon hydrocarbons. Butenes, hydrocarbon products with many industrial uses, can be produced through the dehydration of isobutanol. We believe that butenes derived from our isobutanol can be further processed into other high-value hydrocarbon products using currently known chemistries, as shown in research reports by SRI and CMAI. These include ethyl tert-butyl ether, propylene, MMA, for use in plastics, industrial coatings and other chemical additives, such as antioxidants and plastics modifiers. The prevailing process to manufacture butenes for use by the petrochemical industry today is through the process of cracking 14 Table of Contents naptha in the production of ethylene. Ethylene crackers produce butenes as a co-product and the butenes market has tightened as these crackers have shut down and have shifted or committed to shift from oil to natural gas feedstocks, reducing the available supply of butenes. As a result, we expect the hydrocarbons derived from our isobutanol to provide chemical and fuel producers with both supply chain diversity and alternatives to current petroleum-derived products, which can be particularly important in a tight petrochemicals environment. • Feedstock flexibility. We believe our yeast biocatalyst will produce isobutanol cost-effectively at a commercial scale from any feedstock currently used to produce grain ethanol. Additionally, this biocatalyst provides the ability to convert sugar cane into isobutanol, which provides us with opportunities to expand our production into Brazil and other areas with sugar cane ethanol facilities. Moreover, our work with Cargill to develop a future-generation yeast biocatalyst enabling cellulosic isobutanol production will position us to integrate non-food-based feedstocks into our production facilities when the technology to separate and break down cellulosic biomass into separate simple sugar molecules becomes commercially available. We believe that having the flexibility to use different crops and agricultural by-products as a feedstock for isobutanol production is a particularly attractive trait to the chemicals and fuels markets and has the potential to mitigate their exposure to petroleum price volatility. • Optimized for existing infrastructure. Isobutanol is a fungible, drop-in fuel with chemical and performance characteristics as a fuel additive that are well known. For example, due to its low water solubility, we believe isobutanol can be transported in pipelines and blended into gasoline formulations at the refinery in contrast to prevailing practices where ethanol is blended at the terminal and cannot be transported via pipelines. Initial test results from DNV Columbus, Inc., a well-respected materials testing company, showed that isobutanol did not contribute to stress corrosion cracking in pipeline materials under conditions where ethanol typically would. We believe that refiners are interested in the possibility of using isobutanol to replace more expensive alkylates in their gasoline formulations. In addition, we believe that an important and distinct advantage of isobutanol is its potential ability to align the interests of refiners, commodity agriculture and the ethanol industry, accelerating the development of a biobased economy. • Highly effective solution to current regulatory limitations. The U.S. Environmental Protection Agency (“EPA”) currently limits gasoline blends for use in normal automobile engines to a maximum of 15% ethanol for model years 2001 and later, and 10% for all other model years. Isobutanol can expand biofuel market opportunities as a fuel blendstock as we expect it to be blended into gasoline at higher levels without modifying engines or gasoline distribution logistics. In November 2010, our isobutanol was approved by the EPA for 12.5% blending with gasoline. Additionally, we have filed a dossier for advanced isobutanol with the EPA. We expect a response on the status of our submission from the EPA in the first half of 2012. Even if made from corn in retrofitted ethanol plants, isobutanol can qualify as an advanced biofuel if it can provide a 50% lifecycle greenhouse gas (“GHG”) reduction compared to 2005 baseline gasoline. Lifecycle GHG emissions are the aggregate quantity of GHGs related to the full fuel cycle, including all stages of fuel and feedstock production and distribution, from feedstock generation and extraction through distribution, delivery and use of the finished fuel. Furthermore, because isobutanol contains approximately 30% more energy than ethanol, each gallon of isobutanol provides a renewable identification number (“RIN”) value of 1.3. Therefore, a refiner could purchase fewer gallons of isobutanol than ethanol while meeting its biofuels obligation under the Renewable Fuels Standard (“RFS2”). • Lower impact on air quality. Isobutanol has a low RVP. RVP measures a fuel’s volatility, and in warm weather, high RVP fuel can contribute to precursors of smog formation. The EPA sets regional and seasonal clean air standards in the U.S., which include RVP limitations, with the potential for stricter air quality regulations in the near future. Given isobutanol’s lower RVP relative to ethanol, we believe refiners using isobutanol blends will have more flexibility in their gasoline formulations to meet clean 15 Table of Contents air standards. This added flexibility can be valuable in regions of the U.S. that fail to meet EPA-designated national air quality standards, or in markets like California where the RVP maximum is very low. • Value added specialty applications. Due to isobutanol’s high energy content and low water solubility, as well as testing completed by the NMMA, OPEI and B&S, we believe that isobutanol may have direct applications in high value specialty fuels settings serving marine, small equipment engines and sports vehicle markets. Competition Our isobutanol is targeted for use in the following markets: direct use as a solvent and gasoline blendstock, use in the chemicals industry for producing plastics, fibers, rubber and other polymers and use in the production of hydrocarbon fuels. We face competitors in each market, some of which are limited to individual markets, and some of which will compete with us across all of our target markets. Renewable isobutanol. We are a leader in the development of renewable isobutanol via fermentation of renewable plant biomass. While the competitive landscape in renewable isobutanol production is limited at this time, we are aware of other companies that are seeking to develop isobutanol production capabilities. These include Butamax Advanced Biofuels LLC (“Butamax”), a joint venture between BP p.l.c. (“BP”) and E. I. du Pont de Nemours and Company (“DuPont”), and Butalco GmbH, a development stage company based in Switzerland. While each of these entities is a private company, based on our due diligence related to intellectual property filings we believe that we have a very competitive position in the development of renewable isobutanol production. Solvent markets. We also face competition from companies that are focused on the development of n-butanol, a related compound to isobutanol. These companies include Cathay Industrial Biotech Ltd., METabolic EXplorer S.A., Eastman Chemicals Company, Cobalt Technologies, Inc. and Green Biologics Ltd. We understand that these companies produce n-butanol from an acetone-butanol-ethanol (“ABE”) fermentation process primarily for the small chemicals markets. ABE fermentation using a Clostridia biocatalyst has been used in industrial settings since 1919. As discussed in several academic papers analyzing the ABE process, such fermentation is handicapped in competitiveness by high energy costs due to low concentrations of butanol produced and significant volumes of water processed. It requires high capital and operating costs to support industrial scale production due to the low rates of the Clostridia fermentation, and results in a lower butanol yield because it produces ethanol and acetone as by-products. We believe our proprietary process has many significant advantages over the ABE process because of its limited requirements for new capital expenditures, its production output of only isobutanol as a primary product and its limited water usage in production. We believe these advantages will produce a lower cost isobutanol compared to n-butanol produced by ABE fermentation. N-butanol’s lower octane rating compared to isobutanol gives it a lower value in the gasoline blendstock market, but n-butanol can compete directly in many solvent markets where n-butanol and isobutanol have similar performance. Gasoline blendstocks. In the gasoline blendstock market isobutanol competes with non-renewable alkylate and renewable ethanol. According to the RFA, the global market for ethanol as a fuel blendstock was approximately 23 billion gallons in 2010, and we estimate the total potential global market for isobutanol as a gasoline blendstock approximately 40 BGPY. Alkylate is a premium value gasoline blendstock typically derived from petroleum. However, petroleum feeds for alkylate manufacture are pressured by continued increases in the use of natural gas to generate olefins for the production of alkylate, due to the low relative cost of natural gas compared to petroleum. Alkylate has a low RVP and high octane rating. Ethanol is renewable and has a high octane rating, and although it has a high RVP, ethanol receives a one pound RVP waiver in a large portion of the U.S. gasoline market. Renewability is important in the U.S. because the RFS2 mandates that a minimum volume of renewable blendstocks be used in gasoline each year. A high octane rating is important for engine performance and is a valuable characteristic because many inexpensive gasoline blendstocks have lower octane ratings. Low RVP is important because the EPA sets maximum permissible RVP levels for gasoline. In markets where low RVP is important, isobutanol can enable refiners to meet fuel specifications at lower cost. Ethanol’s vapor pressure waiver is valuable because it offsets much of the negative value of ethanol’s high RVP. We believe that our isobutanol will be valued for its combination of low RVP, high octane and renewability. 16 Table of Contents Many production and technology supply companies are working to develop ethanol production from cellulosic feedstocks, including Shell Oil, BP, DuPont- Danisco Cellulosic Ethanol LLC, Abengoa Bioenergy, S.A., POET, LLC, ICM, Mascoma, Range Fuels, Inbicon A/S, INEOS New Planet BioEnergy LLC, Coskata, Inc., Archer Daniels Midland Company, BlueFire Ethanol, Inc., KL Energy Corporation, ZeaChem Inc., Iogen Corporation, Qteros, Inc., AE Biofuels, Inc. and many smaller start-up companies. Successful commercialization by some or all of these companies will increase the supply of renewable gasoline blendstocks worldwide, potentially reducing the market size or margins available to isobutanol. Plastics, fibers, rubber and other polymers. Isobutanol can be dehydrated to produce butenes, hydrocarbon intermediates currently used in the production of plastics, fibers, rubber and other polymers. The straightforward conversion of our isobutanol into butenes is a fundamentally important process that enables isobutanol to be used as a building block chemical in multiple markets. These markets include butyl rubber, lubricants and additives derived from butenes such as isobutylene, poly methyl methacrylate from isobutanol, propylene for polypropylene from isobutylene, polyesters made via PX from isobutylene and polystyrene made via styrene. In these markets, we compete with the renewable isobutanol companies and renewable n-butanol producers described previously, and face similar competitive challenges. Our competitive position versus petroleum-derived plastics, fibers, rubber and other polymers varies, but we believe that the high volatility of petroleum prices, often tight supply markets for petroleum-based petrochemical feedstocks and the desire of many consumers for goods made from more renewable sources will enable us to compete effectively. However, petrochemical companies may develop alternative pathways to produce petrochemical- based hydrocarbon products that may be less expensive than our isobutanol or more readily available or developed in conjunction with major petrochemical, refiner or end user companies. These products may have economic or other advantages over the plastics, fibers, rubber and other polymers developed from our isobutanol. Further, some of these companies have access to significantly more resources than we do to develop products. Additionally, Global Bioenergies, S.A. is pursuing the direct production of isobutylene from renewable carbohydrates. Through analysis of the fermentation pathway, we believe that the direct production of butenes such as isobutylene via fermentation will have higher capital and operating costs than production of butenes derived from our isobutanol. Hydrocarbon fuels. Beyond direct use as a fuel additive, isobutanol can be converted into many hydrocarbon fuels and specialty blendstocks, offering substantial potential for additional demand in the fuels markets. We will compete with the incumbent petroleum-based fuels industry, as well as biofuels companies. The incumbent petroleum-based fuels industry makes the vast majority of the world’s gasoline, jet and diesel fuels and blendstocks. The petroleum- based fuels industry is mature, and includes a substantial base of infrastructure for the production and distribution of petroleum-derived products. However, the industry faces challenges from its dependence on petroleum. Supply limitations have begun to increase the cost of crude, and oil prices are extremely volatile. High and volatile oil prices provide an opportunity for renewable producers relying on biobased feedstocks like corn, which in recent years have had lower price volatility than oil. Biofuels companies will provide substantial competition in the gasoline market. These biofuels competitors are numerous and include both large established companies and numerous startups. Government tax incentives for renewable fuel producers and regulations such as the RFS2 help provide opportunities for renewable fuels producers to compete. In particular, in the gasoline and gasoline blendstock markets, Virent Energy Systems, Inc. (“Virent”) offers a competitive process for making gasoline and gasoline blendstocks. However, we have the advantage of being able to target conversion of isobutanol into specific high-value molecules such as isooctane, which can be used to make gasoline blendstocks with a higher value than whole gasoline, which we do not believe Virent’s process can match. In the jet fuel market, we may face competition from companies such as Synthetic Genomics, Inc., Solazyme, Inc., Sapphire Energy, Inc. and Exxon-Mobil Corporation, which are pursuing production of jet fuel from algae-based technology. LS9, Inc. (“LS9”) and others are also targeting production of jet fuels from renewable biomass. We may also face competition from companies working to produce jet fuel from hydrotreated vegetable oils. In the diesel fuels market, competitors such as Amyris 17 Table of Contents Biotechnologies, Inc. (“Amyris”) provide alternative hydrocarbon diesel fuel. We believe our technology provides a 20% higher yield on feedstock than the isoprenoid fermentation pathway developed by Amyris, which we believe will yield an approximately 20% production cost advantage. Intellectual Property Our success depends in large part on our proprietary products and technology for which we seek protection under patent, copyright, trademark and trade secret laws. Such protection is also maintained in part using confidential disclosure agreements. Protection of our technologies is important so that we may offer our customers and partners proprietary services and products unavailable from our competitors, and so that we may exclude our competitors from practicing technology that we have developed or exclusively licensed. If competitors in our industry have access to the same technology, our competitive position may be adversely affected. As of December 31, 2011, we exclusively licensed rights to 74 issued patents and filed patent applications in the U.S. and in various foreign jurisdictions. Of the licensed patents and patent applications, most are owned by Cargill and exclusively licensed to us for use in certain fields. These licensed patents and patent applications cover both enabling technologies and products or methods of producing products. Our licenses to such patents allow us to freely practice the licensed inventions, subject only to the terms of these licenses. As of December 31, 2011, we have submitted 243 patent applications in the U.S. and in various foreign jurisdictions. These patent applications are directed to our technologies and specific methods and products that support our business in the biofuel and bioindustrial markets. We continue to file new patent applications, for which terms extend up to 20 years from the filing date in the U.S. As of January 31, 2012, we have been issued 5 patents: U.S. Patent No. 8,017,375, “Yeast Organism Producing Isobutanol at a High Yield” (“PDC Patent”), U.S. Patent No. 8,017,376, “Methods of Increasing Dihydroxy Acid Dehydratase Activity to Improve Production of Fuels, Chemicals, and Amino Acids” (“AFT Patent”), U.S. Patent No. 8,017,358, covering additional “Methods of Increasing Dihydroxy Acid Dehydratase (“DHAD”) Activity to Improve Production of Fuels, Chemicals, and Amino Acids.” (“DHAD Patent”) U.S. Patent No. 8,097,440, “Engineered Microorganisms Capable of Producing Target Compounds Under Anaerobic Conditions.”(“NKR Patent”) and U.S. Patent No. 8,101,808, “Recovery of Higher Alcohols From Dilute Aqueous Solutions.” (“GIFT Patent”). Each of our PDC, AFT, DHAD and NKR Patents represent key aspects of our biocatalyst that survives and thrives by producing isobutanol at high yields. Our PDC Patent focuses on converting an ethanol producing yeast into an isobutanol producing one. This discovery virtually eliminates ethanol production in yeast and enables our yeast to survive and thrive by producing isobutanol at high yields. The AFT Patent represents one of the key enzymatic steps in our unique intracellular pathway for producing isobutanol in yeast. To invent these technologies, we used synthetic biology to reprogram the yeast to make isobutanol instead of ethanol. Our DHAD Patent further details and protects the innovations contained in our yeast biocatalyst to turn an industrial yeast strain into an efficient cell factory to produce isobutanol. Our NKR Patent represents a technology that enables the low-cost, high-yield production of biobased isobutanol. We believe the most efficient and economical way to make isobutanol is to use yeast that does not need significant amounts of oxygen (anaerobic). Our NKR patent describes an anaerobic yeast utilizing a novel enzymatic structure. On January 24, 2012, we received a landmark patent from the United States Patent and Trademark Office (the “USPTO”) on our GIFT separation technology, a central element in our fermentation technology for the production of isobutanol. This is a central patent in our intellectual property estate that distinguishes our route to the economic production of isobutanol, including the production of ethanol and other higher alcohols. The patent covers 156 claims and has broad application in the fermentation alcohol industry. ® We will continue to file and prosecute patent applications and maintain trade secrets, as is consistent with our business plan, in an ongoing effort to protect our intellectual property. It is possible that our licensors’ current patents, or patents which we may later acquire or license, may be successfully challenged or invalidated in whole or in part. It is also possible that we may not obtain issued patents from our filed applications, and may not be able to obtain patents regarding other inventions we seek to protect. Under appropriate circumstances, we may sometimes permit certain intellectual property to lapse or go abandoned. Due to uncertainties inherent in 18 Table of Contents prosecuting patent applications, sometimes patent applications are rejected and we may subsequently abandon them. It is also possible that we will develop products or technologies that will not be patentable or that the patents of others will limit or preclude our ability to do business. In addition, any patent issued to us may provide us with little or no competitive advantage, in which case we may abandon such patent or license it to another entity. We have obtained registered trademarks for Gevo Integrated Fermentation Technology , GIFT , and Gevo in the U.S., and we have a pending U.S. ® ® ® trademark application for iDGs™. These registered and pending U.S. trademarks are also registered or pending in certain foreign countries. Our means of protecting our proprietary rights may not be adequate and our competitors may independently develop technology or products that are similar to or compete with ours. Patent, trademark and trade secret laws afford only limited protection for our technology platform and products. The laws of many countries do not protect our proprietary rights to as great an extent as do the laws of the U.S. Despite our efforts to protect our proprietary rights, unauthorized parties have in the past attempted, and may in the future attempt, to operate using aspects of our intellectual property or products or to obtain and use information that we regard as proprietary. Third parties may also design around our proprietary rights, which may render our protected technology and products less valuable. In addition, if any of our products or technologies is covered by third-party patents or other intellectual property rights, we could be subject to various legal actions. We cannot assure you that our technology platform and products do not infringe patents held by others or that they will not in the future. Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement, invalidity, misappropriation or other allegations. Any such litigation could result in substantial costs and diversion of our resources. In particular, over time, the costs of defending the lawsuit filed by Butamax, a joint venture between DuPont and BP, alleging that we have infringed upon one patent relating to the production of isobutanol, may become significant (as described further in Part I, Item 3 of this Report). Moreover, any settlement of or adverse judgment resulting from such litigation could require us to obtain a license to continue to make, use or sell the products or technology that is the subject of the claim, or otherwise restrict or prohibit our use of the technology. Partnerships and Collaborations ICM, Inc. We currently have an exclusive alliance with ICM to retrofit ethanol plants to the production of isobutanol. ICM is a company that focuses on engineering, building and supporting biorefineries for the renewable fuel industry. We believe that our alliance with ICM will provide us with a competitive advantage and allow us to more quickly achieve commercial-scale production of isobutanol. Through our alliance with ICM, we plan to retrofit existing ethanol plants to expand our production. ICM is well-positioned for this project because they have designed over 50% of the current U.S. operating ethanol production capacity. Development Agreement. On October 16, 2008, we entered into a development agreement with ICM, which set forth the terms for the development of a one MGPY corn drying ethanol demonstration facility in St. Joseph, Missouri. Working with ICM engineers, we installed GIFT at the St. Joseph demonstration plant, and successfully produced isobutanol. This demonstrated that we can cost-effectively retrofit existing ethanol facilities to produce isobutanol, a cornerstone of our strategy. The development agreement, as amended, may be terminated by either party upon 30 days’ written notice. ® Commercialization Agreement. We also entered into a commercialization agreement with ICM on October 16, 2008. Under this agreement, as amended, ICM serves as our exclusive engineering contractor for the retrofit of ethanol plants in North America, and we serve as ICM’s exclusive technology partner for the production of butanols, pentanols and propanols from the fermentation of sugars. This commercialization agreement outlines the terms and fees under which ICM will provide engineering and construction services for 19 Table of Contents commercial plants utilizing dry-milled feedstocks of corn or grain sorghum. Pursuant to the commercialization agreement, we are working with ICM on the joint development of commercial plants utilizing our GIFT system, including the development of engineering designs to retrofit existing dry-mill ethanol facilities. Due to the fact that some of ICM’s proprietary process technology will be included in the plant designs, both parties intend that ICM will be the exclusive engineering services provider for commercial plants. However, in the event that ICM fails to meet commercially reasonable timelines for the engineering of the commercial plants, after a 30-day cure period, we may terminate our exclusivity obligations to ICM. The term of the commercialization agreement is through October 16, 2018. Either party may terminate the commercialization agreement upon 30 days’ notice in the event that the other party ceases regular operations, enters or is forced into bankruptcy or receivership, liquidates its assets or breaches the agreement. ® In August 2011, we also entered into a work agreement with ICM. Pursuant to the terms of the work agreement, ICM will provide engineering, procurement and construction (“EPC”) services for the retrofit of ethanol plants including the retrofit of the Agri-Energy Facility. We expect our alliance with ICM to help us continue to develop efficiency and cost improvements in retrofitting plants and producing isobutanol. Cargill, Incorporated We have developed a relationship with Cargill, and have obtained exclusive rights to develop and integrate Cargill’s microorganisms into GIFT . These microorganisms are able to process cellulosic biomass, which we hope will eventually allow low cost production of isobutanol from varied inputs with an even smaller environmental footprint, including purpose grown energy crops (e.g., switchgrass), forest residues (e.g., waste wood, pulp and sustainable wood), agricultural residues (e.g., corn stalks, leaves, straw and grasses) and municipal green waste (e.g., grass clippings and yard waste). ® License Agreement. On February 19, 2009, we entered into a license agreement with Cargill. Under the license agreement, Cargill granted us an exclusive, worldwide, royalty-bearing license to certain Cargill patents and biological materials, including specialized microorganisms and tools for modifying those microorganisms to produce specific molecules. We also have an option, with a first right of refusal, to purchase an exclusive license to use such patents and biological materials owned by Cargill to produce additional molecules. In exchange for the rights granted under the license agreement, we paid Cargill an upfront license fee and have committed to make additional payments to Cargill including, (i) payments based on the achievement of certain milestones, (ii) payments upon the commercialization of product lines which use the Cargill biological materials or are otherwise covered by the patent rights, and (iii) royalty payments. We may terminate the license agreement at any time upon 90 days’ written notice and either party may terminate the license agreement for a material breach by the other party that is not cured within 120 days of notification of such breach. Unless terminated earlier, the agreement remains in effect until no licensed patent rights remain under the license agreement. The Coca-Cola Company We have established a working relationship with Coca-Cola to create renewable PX from our isobutanol in an effort to accelerate the development of Coca- Cola’s second generation PlantBottle™ packaging made from 100% plant-based materials. Joint Research, Development, License and Commercialization Agreement. In November 2011, we entered into a joint research, development, license and commercialization agreement with Coca-Cola. Pursuant to this agreement, we have agreed to conduct research and development activities, including engineering to produce PX from isobutanol, with the ultimate goal of producing PET for food-grade bottling. Our work will take the technology from lab-scale to commercial-scale and support Coca- Cola’s efforts to lead the beverage industry away from fossil-fuel based packaging by offering an alternative made completely from renewable raw materials. Additionally, pursuant to the terms of the agreement, Coca-Cola will pay us a fixed fee for the research program during the first two years of the agreement. 20 Table of Contents South Hampton Resources Pilot Plant Processing Agreement. To facilitate the demonstration of isobutanol conversion technologies, in July 2011, we entered into a pilot plant processing agreement with South Hampton Resources, a subsidiary of Arabian American Development Co. (NASDAQ: ARSD), to build a hydrocarbon processing demonstration plant at their facility near Houston, Texas. The facility started up in December 2011, is currently producing jet fuel for certification testing and is expected to supply other potential customers with material for product qualification and evaluation. The demonstration plant is expected to process up to 10,000 gallons of isobutanol per month into a variety of renewable hydrocarbons for use as fuels and chemicals. Through operation of this plant, we intend to demonstrate a fully integrated biorefinery processing renewable carbohydrates all the way to fungible hydrocarbon materials used across the refining and petrochemical industries. We expect this plant to showcase the value of our renewable hydrocarbons and drive future customer interest in hydrocarbon products derived from our isobutanol. Other Material Agreements Gevo Development, LLC In September 2009, Gevo, Inc. formed Gevo Development, LLC (“Gevo Development”), as a majority-owned subsidiary to develop isobutanol production ® assets using GIFT . Gevo Development has a flexible business model and aims to secure access to existing ethanol capacity through joint ventures and direct acquisitions. Gevo Development has two classes of membership interests outstanding. Since Gevo Development’s inception, Gevo, Inc. has been the sole owner of the class A interests, which comprise 90% of the outstanding equity interests of Gevo Development. When Gevo Development was formed, CDP Gevo, LLC (“CDP”), which is beneficially owned by the two co-managing directors of Gevo Development, was the sole owner of the class B interests, which comprise the remaining 10% of the outstanding equity interests of Gevo Development. In September 2010, Gevo, Inc. acquired 100% of the outstanding class B interests of Gevo Development from CDP pursuant to an equity purchase agreement. As a result of this acquisition, Gevo, Inc. currently owns 100% of the outstanding equity interests of Gevo Development as a wholly owned subsidiary. See further discussion under the heading “Equity Purchase Agreement and Related Transactions” below. Amended and Restated Warrant Agreement. In connection with the formation of Gevo Development in September 2009, Gevo, Inc. granted a common stock warrant to CDP to purchase up to 858,000 shares of our common stock. The warrant agreement has an exercise price of $2.70 per share, which was the estimated fair value of a share of our common stock on the grant date. The warrant expires in September 2016, unless terminated earlier as provided in the agreement. In September 2010, upon the consummation of Gevo, Inc.’s purchase of the class B interests from CDP, the warrant agreement was amended and restated to provide that 50% of the warrant shares granted under such warrant agreement would vest on September 22, 2010. The remaining warrant shares vest over a two-year period beginning on September 22, 2010, subject to acceleration and termination in certain circumstances, such as the occurrence of a change of control event or a termination of the employment of the former principals of CDP. We valued the warrant at $13,956,000 on September 22, 2010, and recognized 50% of this amount as stock-based compensation on September 22, 2010. We are and will recognize the remaining 50% of this amount over the 24-month vesting period that began on September 22, 2010. Equity Purchase Agreement and Related Transactions. In September 2010, Gevo, Inc. became the sole owner of Gevo Development by acquiring 100% of the class B interests in Gevo Development, which comprise 10% of the outstanding equity interests of Gevo Development, from CDP pursuant to an equity purchase agreement. In exchange for the class B interests, CDP received aggregate consideration of $1,143,000. Since September 22, 2010, each of the owners of CDP has been employed by Gevo, Inc. as an Executive Vice President, Upstream Business Development and as a co-managing director of Gevo Development. Upon the closing of the transactions contemplated by the equity purchase agreement, Gevo, Inc. amended and restated CDP’s warrant agreement, as described above. 21 Table of Contents Agri-Energy Acquisition Acquisition Agreement. In September 2010, we acquired all of the membership interests of Agri-Energy, LLC, a Minnesota limited liability company, and certain assets of Agri-Energy Limited Partnership, a Minnesota limited partnership (collectively referred to as “Agri-Energy”), from their common owner, CORN-er Stone Farmers’ Cooperative, a Minnesota cooperative association. Pursuant to the terms of the acquisition, we acquired ownership of the Agri-Energy Facility. We paid a purchase price of $20.6 million. In addition, we acquired and paid $4.9 million for working capital. The retrofit of our Agri-Energy Facility to isobutanol production is underway and we expect to begin commercial production of isobutanol at the facility in the first half of 2012. We also intend to increase the potential isobutanol production capacity of facility in anticipation of future improvements in the performance of our yeast biocatalyst. We project capital costs for the retrofit of the Agri- Energy Facility to be $22 million, which includes equipment necessary in order to switch between ethanol and isobutanol production plus additional capital which will be used to increase the potential production capacity of the facility. While we believe we will have the ability to reverse the retrofit and switch between ethanol and isobutanol production, there is no guarantee that this will be the case and it is not our intent to do so. In addition to the retrofit of the Agri-Energy Facility to produce isobutanol, in July 2011 we made the strategic decision to invest in an enhanced yeast seed train at the facility to accelerate the adoption of improved yeast at the Agri-Energy Facility and at future plants, maintain direct oversight over our yeast material and provide on-site yeast production. We estimate capital costs for the enhanced yeast seed train to be approximately $10 million. Redfield Energy LLC Joint Venture Agreement. On June 15, 2011, we entered into the Joint Venture Agreement with Redfield and executed the second amended and restated operating agreement of Redfield (together, the “Joint Venture Documents”). Under the terms of the Joint Venture Documents, we have agreed to work with Redfield to retrofit Redfield’s approximately 50 MGPY ethanol production facility located near Redfield, South Dakota for the commercial production of isobutanol. Under the terms of the Joint Venture Agreement, Redfield has issued 100 Class G membership units in Redfield (the “Class G Units”) to our wholly- owned subsidiary, Gevo Development, in exchange for a payment of $1,000. Gevo Development is the sole holder of Class G units, which entitle Gevo Development to certain information and governance rights with respect to Redfield, including the right to appoint two members of Redfield’s 11-member board of managers. The Class G units currently carry no interest in the allocation of profits, losses or other distributions of Redfield and no voting rights. Such rights will vest upon the commencement of commercial isobutanol production at the Redfield Facility, at which time we anticipate consolidating Redfield’s operations because we anticipate we will control the activities that are most significant to the entity. We will be responsible for all costs associated with the retrofit of the Redfield Facility. Redfield will remain responsible for certain expenses incurred by the facility including certain repair and maintenance expenses and any costs necessary to ensure that the facility is in compliance with applicable environmental laws. We anticipate that the Redfield Facility will continue its current ethanol production activities during much of the retrofit. Once the retrofit assets have been installed, the ethanol production operations will be suspended to enable testing of the isobutanol production capabilities of the facility (the “Performance Testing Phase”). During the Performance Testing Phase, we will be entitled to receive all revenue generated by the Redfield Facility and will make payments to Redfield to cover the costs incurred by Redfield to operate the facility plus the profits, if any, that Redfield would have received if the facility had been producing ethanol during that period (the “Facility Payments”). We have also agreed to maintain an escrow fund during the Performance Testing Phase as security for our obligation to make the Facility Payments. If certain conditions are met, commercial production of isobutanol at the Redfield Facility will begin upon the earlier of the date upon which certain production targets have been met or the date upon which the parties mutually agree that commercial isobutanol production at the Redfield Facility will be commercially viable at the then-current production rate. At that time, (i) we will have the right to appoint a total of four members of 22 Table of Contents Redfield’s 11-member board of managers, and (ii) the voting and economic interests of the Class G units will vest and Gevo Development, as the sole holder of the Class G Units, will be entitled to a percentage of Redfield’s profits, losses and distributions, to be calculated based upon the demonstrated isobutanol production capabilities of the Redfield Facility. Gevo Development, or one of its affiliates, will be the exclusive marketer of all products produced by the Redfield Facility once commercial production of isobutanol has begun. Additionally, we will license the technology necessary to produce isobutanol at the facility to Redfield, subject to the continuation of the marketing arrangement described above. In the event that the isobutanol production technology fails or Redfield is permanently prohibited from using such technology, we will forfeit the Class G Units and lose the value of our investment in Redfield. Gevo, Inc. entered into a guaranty effective as of June 15, 2011, pursuant to which it has unconditionally and irrevocably guaranteed the payment by Gevo Development of any and all amounts owed by Gevo Development pursuant to the terms and conditions of the Joint Venture Agreement and certain other agreements that Gevo Development and Redfield expect to enter into in connection with the retrofit of the Redfield Facility. TriplePoint Financing Gevo Loan Agreement. In August 2010, concurrently with the execution of the agreement to acquire Agri-Energy in Luverne, Minnesota, Gevo, Inc. entered into a loan and security agreement with TriplePoint Capital LLC (“TriplePoint”), pursuant to which we borrowed $5,000,000 (the “Gevo Loan Agreement”). The Gevo Loan Agreement includes customary affirmative and negative covenants for agreements of this type and events of default, including, disposing of certain assets, granting or otherwise allowing the imposition of a lien against certain assets, incurring certain amounts of additional indebtedness, or acquiring or merging with another entity, excluding Agri-Energy, unless we receive the prior approval of TriplePoint. The aggregate amount outstanding under the Gevo Loan Agreement bears interest at a rate equal to 13%, is subject to an end-of-term payment equal to 8% of the amount borrowed and is secured by substantially all of the assets of Gevo, Inc., other than our intellectual property. This loan is also secured by substantially all of the assets of Agri-Energy, LLC. Additionally, under the terms of each of (i) the Gevo Loan Agreement and (ii) Gevo, Inc.’s guarantee of Agri-Energy’s obligations under the Original Agri- Energy Loan Agreement described below, Gevo, Inc. is prohibited from granting a security interest in its intellectual property assets to any other entity until both TriplePoint loans are paid in full. The loan matures on August 31, 2014, and provides for interest-only payments during the first 24 months. An additional interest-only period of 6 months may be elected in the event that Gevo, Inc. begins producing isobutanol at its Agri-Energy Facility by June 30, 2012. We used the funds from this loan to repay a portion of our existing indebtedness with Lighthouse Capital Partners V, L.P. (“Lighthouse”). At December 31, 2011, we were in compliance with the debt covenants under the Gevo Loan Agreement. Original Agri-Energy Loan Agreement. In August 2010, Gevo Development borrowed $12,500,000 from TriplePoint to finance its acquisition of Agri- Energy. In September 2010, upon completion of the acquisition, the loan and security agreement was amended to make Agri-Energy the borrower under the facility. This loan and security agreement (the “Original Agri-Energy Loan Agreement”), includes customary affirmative and negative covenants for agreements of this type and events of default. The aggregate amount outstanding under the Original Agri-Energy Loan Agreement bears interest at a rate equal to 13% and is subject to an end-of-term payment equal to 8% of the amount borrowed. The loan is secured by the equity interests of Agri-Energy held by Gevo Development and substantially all the assets of Agri-Energy. The loan matures on September 1, 2014, and provides for interest-only payments during the first 24 months. An additional interest-only period of 6 months may be elected in the event that Gevo, Inc. begins producing isobutanol at its Agri-Energy Facility by June 30, 2012. The loan is guaranteed by Gevo, Inc. pursuant to a continuing guaranty executed by Gevo, Inc. in favor of TriplePoint, which is secured by substantially all of the assets of Gevo, Inc., other than its intellectual property. At December 31, 2011, we were in compliance with the debt covenants under the Original Agri-Energy Loan Agreement. 23 Table of Contents Amended Agri-Energy Loan Agreement. In October 2011, Agri-Energy entered into an amended and restated loan and security agreement (the “Amended Agri-Energy Loan Agreement”) with TriplePoint. The Amended Agri-Energy Loan Agreement amends and restates the Original Agri-Energy Loan Agreement. The Amended Agri-Energy Loan Agreement includes customary affirmative and negative covenants for agreements of this type and events of default. The Amended Agri-Energy Loan Agreement provides Agri-Energy with additional term loan facilities of up to $15,000,000 (the “New Loan”) (which amount is in addition to the existing $12,500,000 term loan provided under the Original Agri-Energy Loan Agreement, which term loan remains in place under the Amended Agri-Energy Loan Agreement), the proceeds of which will be used to pay a portion of the costs, expenses, and other amounts associated with the retrofit of the Agri-Energy Facility to produce isobutanol. The loan matures on October 31, 2015 with the last monthly amortization payment due on the date of such advance. The aggregate amount outstanding under the New Loan bears interest at a rate of 11% and is subject to an end-of-term payment equal to 5.75% of the amount borrowed. The New Loan provides for interest-only payments through July 1, 2012 and an additional interest-only period of 6 months on the New Loan may be elected in the event that we have received net offering proceeds of at least $75 million from one or more secondary equity offerings by June 30, 2012. Any borrowings in excess of 50% of the amount incurred for the retrofit the Agri-Energy Facility, calculated as incurred in total by 6.5 months from the date of the advance, must be immediately repaid to TriplePoint. On October 20, 2011, Agri-Energy borrowed $10,000,000 under the Amended Agri-Energy Loan Agreement. On January 6, 2012, Agri-Energy borrowed an additional $5,000,000 under this facility, bringing the total borrowed under the New Loan at January 6, 2012 to $15,000,000. Upon our request and the additional approval of TriplePoint, we may borrow an additional $5,000,000 under the Amended Agri- Energy Loan Agreement increasing the maximum size of the New Loan to $20,000,000. At December 31, 2011, we were in compliance with the debt covenants under the Amended Agri-Energy Loan Agreement. The Amended Agri-Energy Loan Agreement provides that Agri-Energy will secure all of its obligations under the Amended Agri-Energy Loan Agreement and any other loan documents by granting to TriplePoint a security interest in and lien upon all or substantially all of its assets. Gevo, Inc. has guaranteed Agri- Energy’s obligations under the Amended Agri-Energy Loan Agreement. As additional security, concurrently with the execution of the Amended Agri-Energy Loan Agreement, (i) Gevo Development entered into a limited recourse continuing guaranty in favor of TriplePoint, (ii) Gevo Development entered into an amended and restated limited recourse membership interest pledge agreement in favor of TriplePoint, pursuant to which it pledged the membership interests of Agri-Energy as collateral to secure the obligations under its guaranty and (iii) Gevo, Inc. entered into an amendment to its security agreement with TriplePoint, which secures its guarantee of Agri-Energy’s obligations (including up to $32,500,000 in term loans) under the Amended Agri-Energy Loan Agreement. Research and Development Our strategy depends on continued improvement of our technologies for the production of isobutanol, as well as next generation chemicals and biofuels based on our isobutanol technology. Accordingly, we annually devote significant funds to research and development. The following table shows our research and development costs by function during each of the three years ended December 31, 2011: Biocatalyst development Process engineering and operation of pilot and demo plants Chemistry and applications development 2011 $ 9,722,000 8,462,000 1,569,000 $ 19,753,000 2010 $ 9,504,000 4,469,000 847,000 $ 14,820,000 2009 $ 7,007,000 2,722,000 779,000 $ 10,508,000 During 2011, 2010 and 2009, we recorded revenue from government grants and cooperative agreements in the amounts of $807,000, $1,493,000 and $660,000, respectively, which primarily related to research and development activities performed in our biocatalyst, chemistry, and applications development groups. Our research and development activities are currently being performed primarily in our corporate headquarters located in Englewood, Colorado as well as at the demonstration plant within ICM’s facility in St. Joseph, Missouri and the demonstration plant at the South Hampton Resources facility near Houston, Texas. 24 Table of Contents Environmental Compliance Costs Regulation by governmental authorities in the U.S. and other countries is a significant factor in the development, manufacture and marketing of second- generation biofuels. Our isobutanol and the next generation products isobutanol will be used to produce may require regulatory approval by governmental agencies prior to commercialization. In particular, biofuels are subject to rigorous testing and premarket approval requirements by the EPA’s Office of Transportation and Air Quality, and regulatory authorities in other countries. In the U.S., various federal, and, in some cases, state statutes and regulations also govern or impact the manufacturing, safety, storage and use of biofuels. The process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations requires the expenditure of substantial resources. Regulatory approval, if and when obtained for any of these next generation products, may be limited in scope, which may significantly limit the uses for which our isobutanol and these next generation products may be marketed. When built at a dry-mill facility, our GIFT fermentation process creates iDGs™, a potential animal feed component, as a co-product. Before we can sell ® iDGs™ for animal consumption, we require approval from the Center for Veterinary Medicine of the FDA. The FDA’s policies may change and additional government regulations may be enacted that could prevent or delay regulatory approval of our co-products. We cannot predict the likelihood, nature or extent of adverse governmental regulations that might arise from future legislative or administrative action, either in the U.S. or abroad. Our process contains a genetically engineered organism which, when used in an industrial process, is considered a new chemical under the EPA’s Toxic Substances Control Act program (“TSCA”). These laws and regulations require us to obtain and comply with the EPA’s Microbial Commercial Activity Notice process to operate our isobutanol assets. We do not anticipate a material adverse effect on our business or financial condition as a result of our efforts to comply with these requirements. However, the TSCA new chemical submission policies may change and additional government regulations may be enacted that could prevent or delay regulatory approval of our products. We cannot predict the likelihood, nature or extent of adverse governmental regulations that might arise from future legislative or administrative action, either in the U.S. or abroad. There are various third-party certification organizations, such as ASTM and Underwriters’ Laboratories, Inc. (“UL”), involved in certifying the transportation, dispensing and use of liquid fuel in the U.S. and internationally. Voluntary standards development organizations may change and additional requirements may be enacted that could prevent or delay marketing approval of our products. The process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations require the expenditure of substantial resources. We do not anticipate a material adverse effect on our business or financial conditions as a result of our efforts to comply with these requirements, but we cannot predict the likelihood, nature or extent of adverse third-party requirements that might arise from future action, either in the U.S. or abroad. We are subject to various federal, state and local environmental laws and regulations, including those relating to the discharge of materials into the air, water and ground, the generation, storage, handling, use, transportation and disposal of hazardous materials and the health and safety of our employees. These laws and regulations require us to obtain environmental permits and comply with numerous environmental restrictions as we construct and operate our isobutanol assets. They may require expensive pollution control equipment or operation changes to limit actual or potential impacts to the environment. A violation of these laws, regulations or permit conditions can result in substantial fines, natural resource damage, criminal sanctions, permit revocations and facility shutdowns. There is a risk of liability for the investigation and cleanup of environmental contamination at each of the properties that we own or operate and at off-site locations where we arrange for the disposal of hazardous substances. If these substances are or have been disposed of or released at sites that undergo investigation or remediation by regulatory agencies, we may be responsible under the Comprehensive Environmental Response, Compensation and Liability Act or other environmental laws for all or part of the costs of investigation and remediation. We may also be subject to related claims by private parties alleging property damage and personal 25 Table of Contents injury due to exposure to hazardous or other materials at or from the properties. Some of these matters may require us to expend significant amounts for investigation and cleanup or other costs. We are not aware of any material environmental liabilities relating to contamination at or from our facilities or at off-site locations where we have transported or arranged for the disposal of hazardous substances. In addition, new laws, new interpretations of existing laws, increased governmental enforcement of environmental laws or other developments could require us to make significant additional expenditures. Continued government and public emphasis on environmental issues can be expected to result in increased future investments in environmental controls at our facilities. Present and future environmental laws and regulations applicable to our operations, more vigorous enforcement policies and discovery of currently unknown conditions could all require us to make substantial expenditures. For example, our air emissions are subject to the Clean Air Act, the Clean Air Act Amendments of 1990 and similar state and local laws and associated regulations. Under the Clean Air Act, the EPA has promulgated National Emissions Standards for Hazardous Air Pollutants (“NESHAP”), which could apply to facilities that we own or operate if the emissions of hazardous air pollutants exceed certain thresholds. If a facility we operate is authorized to emit hazardous air pollutants above the threshold level, then we might still be required to come into compliance with another NESHAP at some future time. New or expanded facilities might be required to comply with both standards upon startup if they exceed the hazardous air pollutant threshold. In addition to costs for achieving and maintaining compliance with these laws, more stringent standards may also limit our operating flexibility. As a condition to granting the permits necessary for operating our facilities, regulators could make demands that increase our construction and operations costs, which might force us to obtain additional financing. For example, unanticipated water discharge limits could sharply increase construction costs for our projects. Permit conditions could also restrict or limit the extent of our operations. We cannot guarantee that we will be able to obtain or comply with the terms of all necessary permits to complete the retrofit of an ethanol plant. Failure to obtain and comply with all applicable permits and licenses could halt our construction and could subject us to future claims. Employees As of December 31, 2011, Gevo, Inc. and its subsidiaries employed 114 employees. Gevo, Inc. employed 87 of our total employees, 80 of which were located in Englewood, Colorado. Of the Gevo, Inc. employees, 59 were engaged in research and development activities and 28 were engaged in general, administrative and business development activities. As of December 31, 2011, 25 Gevo, Inc. employees held Ph.D. degrees. As of December 31, 2011, our subsidiary Agri-Energy employed 27 employees, all of which were located in Luverne, Minnesota, and involved in the operations of our ethanol production facility. None of our employees are represented by a labor union, and we consider our employee relations to be good. Segments and Geographic Information We have determined that we have two operating segments: the Gevo, Inc. Segment and the Gevo Development/Agri-Energy Segment. We organize our business segments based on the nature of the products and services offered through each of our consolidated legal entities. Transactions between segments are eliminated in consolidation. For both segments, all revenue is earned and all assets are held in the U.S. For additional financial information related to our segments, see Note 18 to our consolidated financial statements. Gevo, Inc. Segment. Our Gevo, Inc. Segment is responsible for all research and development activities related to the future production of isobutanol, including the development of our proprietary biocatalysts, our retrofit process and the next generation of chemicals and biofuels that will be based on our isobutanol technology. Our Gevo, Inc. Segment also develops, maintains and protects our intellectual property portfolio, develops future markets for our isobutanol and provides corporate oversight services. Gevo Development/Agri-Energy Segment. Our Gevo Development/Agri-Energy Segment is currently responsible for the production of ethanol and related products. Upon the completion of the Agri-Energy 26 Table of Contents acquisition in September 2010, we acquired an operating 22 MGPY ethanol production facility in Luverne, Minnesota, which we are retrofitting to isobutanol production. Upon completion of the retrofit of the Agri-Energy Facility to isobutanol production, our Gevo Development/Agri-Energy Segment will be responsible for isobutanol and related products. Agri-Energy is a wholly owned subsidiary of Gevo Development. The principal products produced by our Gevo Development/Agri-Energy Segment today are ethanol and related products. Substantially all of the ethanol produced from the date of the acquisition through December 31, 2011 was sold through an ethanol marketing company. Sales of ethanol and related products from our Gevo Development/Agri-Energy Segment comprised approximately 99% of our consolidated revenue for the fiscal year ended December 31, 2011. Executive Officers and Directors of the Registrant The following table sets forth certain information about our executive officers and directors, as of December 31, 2011. Name Age Position(s) Patrick R. Gruber, Ph.D. Christopher Ryan, Ph.D. David Glassner, Ph.D. Mark Smith Brett Lund, J.D., M.B.A. David Black, M.B.A. Michael Slaney, J.D. Shai Weiss(1)(2) Carlos A. Cabrera(2)(3) Ganesh M. Kishore, Ph.D.(1) Gary W. Mize(1)(3) Bruce A. Smith(2)(3) Stacy J. Smith(1) 51 Chief Executive Officer and Director 50 President and Chief Operating Officer 54 Executive Vice President, Technology 50 Chief Financial Officer 36 Executive Vice President, General Counsel and Secretary 49 Executive Vice President, Upstream Business Development 48 Executive Vice President, Upstream Business Development 43 Chairman of the Board of Directors 60 Director 58 Director 60 Director 68 Director 49 Director (1) Member of the compensation committee. (2) Member of the nominating and corporate governance committee. (3) Member of the audit committee. Patrick R. Gruber, Ph.D. has served as a director of the company since 2007 and has served as Chief Executive Officer of the company since 2007. Prior to joining the company, from 2005 to 2007 Dr. Gruber was President and Chief Executive Officer of Outlast Technologies, Inc., a technology and marketing company primarily serving the textile industry, where he was responsible for all aspects of Outlast Technologies’ business. Previously, Dr. Gruber co-founded NatureWorks LLC (formerly Cargill Dow, LLC) and served as Vice President, Technology and Operations, and Chief Technology Officer from 1997 to 2005, where he was responsible for all aspects of the business’s project, application and process technology development. Dr. Gruber is a member of the Bioenergy Technical Advisory Committee for the Energy Future Coalition. He currently serves on the boards of directors of Segetis, Inc. and Green Harvest Technologies, LLC. From 2007 to 2008, he served on the board of directors of Outlast Technologies, Inc. In 2008, Dr. Gruber was awarded the first ever George Washington Carver Award, recognizing significant contributions by individuals in the field of industrial biotechnology and its application in biological engineering, environmental science, biorefining and biobased products. Dr. Gruber holds a Ph.D. in chemistry from the University of Minnesota, an M.B.A. from the University of Minnesota and a B.S. in chemistry and biology from the University of St. Thomas. We believe Dr. Gruber’s qualifications to sit on our board include his experience as a CEO and business leader and his extensive experience developing and commercializing industrial biotechnology products. 27 Table of Contents Christopher Ryan, Ph.D. has served as President and Chief Operating Officer of the company since June 2011, having previously served the company as its Executive Vice President, Business Development since June 2009. Prior to joining the company, he co-founded NatureWorks LLC in 1997. Dr. Ryan served as Chief Operating Officer for NatureWorks from 2008 to 2009 and Chief Technology Officer for NatureWorks from 2005 to 2008, where he was involved in the development and commercialization of that company’s new biobased polymer from lab-scale production in 1992 through the completion of a $300 million world- scale production facility. Prior to 1992, Dr. Ryan served for four years in Corporate R&D for specialty chemical company HB Fuller Company. He has over 20 years of experience in strategic leadership, business development and research and product development in biobased materials. Dr. Ryan holds a Ph.D. in organic chemistry from the University of Minnesota, a B.S. in chemistry from Gustavus Adolphus College and completed the Management of Technology program at the University of Minnesota. David Glassner, Ph.D. has served as Executive Vice President, Technology, of the company since October 2009, where he leads the company’s isobutanol technology and engineering development. From March 2009 to September 2009, he was Vice President, Technology, and from July 2007 through February 2009 he was Vice President, Bioprocessing and Engineering, of the company. Prior to joining the company, he led the development of novel yeast biocatalysts for the production of lactic acid and ethanol, and the development of lactic acid, lactide and polylactide technology at NatureWorks LLC from 2000 to 2007. Prior to NatureWorks, from 1993 to 1999 he was Biofuels Technology Manager at the National Renewable Energy Laboratory where he led the development of cellulosic processing technology and the construction of the biomass to ethanol process development unit. Previously, Dr. Glassner was Director of Bioprocess Development at MBI International, where he led the development of a lactic acid pilot plant and developed patented processes for producing lactic acid, succinic acid, acetone, ethanol and butanol. Dr. Glassner holds Ph.D., M.S. and B.S. degrees in chemical engineering from Michigan State University. Mark Smith has served as Chief Financial Officer of the company since November 2008. Prior to joining the company, Mr. Smith served as Chief Financial Officer of Replidyne, Inc., from March 2006 to February 2009 where he played a leadership role in completing its initial public offering and executing its strategic sale to Cardiovascular Systems, Inc. Prior to joining Replidyne, Mr. Smith was an officer at Nabi Biopharmaceuticals, from August 1999 to March 2006, serving as Senior Vice President, Finance, and Chief Financial Officer from April 2001 to March 2006. Prior to joining Nabi Biopharmaceuticals, Mr. Smith was an officer at Neuromedical Systems, Inc., where he served as Vice President, Finance and Administration and Chief Financial Officer from March 1998 to July 1999. He previously served in various financial executive capacities at Genzyme Corporation from 1996 to 1998, most recently as Group Controller. From 1991 to 1996 Mr. Smith worked in various financial management capacities at Genetrix, Inc., most recently as Chief Financial Officer prior to its sale to Genzyme in 1996. He previously was an accountant at Price Waterhouse (now PricewaterhouseCoopers) in both Australia and the US. Mr. Smith holds a B.A. in accounting from Canberra College of Advanced Education. Brett Lund, J.D., M.B.A. has served as Executive Vice President, General Counsel and Secretary of the company since 2007. Before joining the company, from 2004 to 2007 he served as Chairman of the legal, intellectual property and licensing group and biotechnology licensing manager for Syngenta Biotechnology, Inc.’s biofuels business. At Syngenta, Mr. Lund led the management of intellectual property, in-licensing, out-licensing, research collaborations and strategic alliances. Prior to Syngenta, he served as Associate General Counsel for Ford Motor Company, Inc.’s Wingcast subsidiary. Mr. Lund was previously a corporate attorney at the law firm of Cooley Godward Kronish LLP, where he represented numerous companies regarding intellectual property licensing, initial public offerings, venture capital financing, mergers and acquisitions, securities, strategic alliances and related transactions. Mr. Lund holds a J.D. from Duke Law School, an M.B.A. from Duke University’s Fuqua School of Business and a B.A. in political science from the University of California, San Diego. He is a Certified Licensing Professional by the Licensing Executives Society and admitted to practice law in California and North Carolina. 28 Table of Contents David Black has served as one of the company’s Executive Vice Presidents, Upstream Business Development since September 2010 and served as a Co- Managing Director of Gevo Development since September 2009. From 2007 to 2009, Mr. Black was a Co-Managing Partner of ClearDevelopment Partners, LLC, a clean energy development firm he co-founded. In 2005, he co-founded the biofuels company ASAlliances Biofuels, LLC, or ASAB, with Mr. Slaney for the purpose of developing and operating ethanol plants. He served as ASAB’s Chief Executive Officer from 2005 to 2006. Prior to co-founding ASAB, Mr. Black was a partner at Deloitte & Touche, where he served as the co-head of Deloitte’s national corporate finance management consulting practice. Mr. Black holds an M.B.A. from Southern Methodist University and a B.S. in finance from Arizona State University. Michael Slaney, J.D. has served as one of the company’s Executive Vice Presidents, Upstream Business Development since September 2010 and served as a Co-Managing Director of Gevo Development since September 2009. From 2007 to 2009, Mr. Slaney was a Co-Managing Partner of ClearDevelopment Partners, LLC, a clean energy development firm he co-founded. In 2005, he co-founded the biofuels company ASAB with Mr. Black for the purpose of developing and operating ethanol plants. He served as ASAB’s Chief Operating Officer from 2005 to 2006. Prior to co-founding ASAB, Mr. Slaney was a partner in the M&A and corporate finance departments of Akin Gump Strauss Hauer & Feld LLP. Mr. Slaney holds a J.D. from Indiana University and a B.S. in accounting and business administration from the University of Kansas. Shai Weiss has served as a director of the company since 2007 and was appointed chairman of the board of directors in September 2010. Mr. Weiss led the formation of Virgin Green Fund I, L.P., where he has been a partner since 2007. Prior to forming Virgin Green Fund, he held several management positions at ntl:Telewest (now Virgin Media, Inc.), including Managing Director of Consumer Products from 2004 to 2006, Integration Director for the merger between ntl, Inc. and Telewest Global, Inc. from 2005 to 2006, Director of Operations for the ntl Group from 2003 to 2004 and Director of Financial Planning for the Consumer division from 2002 to 2003. In his work as Managing Director of Consumer Products, Mr. Weiss was responsible for the development of internet, telephone and television for the consumer division and the Virgin.net broadband internet service provider. As director of operations for the ntl Group, he was responsible for major operational and business development projects, joint ventures and development of relationships with strategic partners. Prior to joining ntl:Telewest, Mr. Weiss organized the European office of the early-stage technology venture fund Jerusalem Venture Partners, L.P. in 2000, and was an associate with Morgan Stanley’s hi-tech mergers and acquisitions and corporate finance teams from 1997 to 2000. Mr. Weiss holds an M.B.A. from Columbia University and a B.B.A. from City University of New York, Baruch College in business and finance. We believe Mr. Weiss’s qualifications to sit on our board include his extensive experience as a business leader and venture capitalist and his experience in advising growth-focused companies with respect to strategic direction and business transactions. Carlos A. Cabrera has served as a director of the company since June 2010. Since December 2011, Mr. Cabrera has also served as Executive Co-Chairman of Ivanhoe Energy, a publicly traded international heavy-oil development and production company. He has also served as a director of Ivanhoe Energy since May 2010. From December 2009 to November 2011, he served as President and Chief Executive Officer of the National Institute of Low Carbon and Clean Energy, or NICE, a wholly owned subsidiary of the Shenhua Group, a major Chinese coal company. At NICE, Mr. Cabrera led efforts to invent, acquire and develop technologies to reduce the environmental and climate impact of producing energy from coal. From January 2009 to July 2009, he served as Chairman of UOP LLC, a subsidiary of Honeywell International, Inc. From November 2005 to January 2009, Mr. Cabrera served as UOP’s President and Chief Executive Officer, where he oversaw all of UOP’s operations and helped grow the company’s revenue from $850 million when he assumed the role of CEO to $2 billion in 2008. From January to October 2005, Mr. Cabrera served as UOP’s Senior Vice President, Process Technology and Equipment, where he led UOP’s development in the refining and petrochemicals sectors. Mr. Cabrera’s previous roles at UOP include Senior Vice President, Process Technology and Equipment, Senior Vice President, Refining and Petrochemicals, Vice President, Corporate Business Development and Ventures, and Vice President and General Manager, Refining. Mr. Cabrera holds an M.B.A. in business from the University of Chicago and a B.S. in chemical engineering from the University of Kentucky. We believe Mr. Cabrera’s qualifications to sit on our board include his broad technical and management experience in the 29 Table of Contents refining, chemicals and fuels industries and his experience structuring joint ventures and leading acquisition activities in these fields. Ganesh M. Kishore, Ph.D. has served as a director of the company since 2008. Since 2011, Dr. Kishore has also served as a director of Evolva Holding SA and as a director of Kaiima, where he currently serves as a member of the advisory board and the Compensation Committee. Between 2002 and 2007, he served as a director of Embrex, Inc., serving as a member of the Compensation Committee and Nominations Committee during that time. Since April 2007, he has served as Chief Executive Officer of Malaysian Life Sciences Capital Fund, where he oversees fund management, investment portfolio management and governance of companies in which Malaysian Life Sciences Capital Fund has made investments. Since January 2009, he has also served as President and Chief Executive Officer of K Life Sciences, LLC where he provides advisory services to life science businesses. Between April 2007 and December 2008, Dr. Kishore served as a Managing Director of Burrill & Company, where his responsibilities included fund management, fund raising and governance of companies in which Burrill & Company invested. Prior to joining Burrill & Company, Dr. Kishore served as Chief Biotechnology Officer at E. I. du Pont de Nemours and Company from 2005 to 2007, where he was responsible for overall biotechnology leadership for DuPont’s life science businesses. Previously, he was Vice President, Technology, and Chief Technology Officer for DuPont’s Agriculture and Nutrition Division from 2002 to 2005. In his time at DuPont, Dr. Kishore focused on research and development related to biotechnology. Before joining DuPont, Dr. Kishore held several positions between 1980 and 2000 at Monsanto Company, including Co-President, Nutrition and Consumer Sector, and Assistant Chief Scientist/Chief Biotechnologist. His contributions include the discovery, development and commercialization of agricultural biotechnology products such as ROUNDUP READY SOY, the development of a manufacturing process for Nutrasweet and aiding in transforming Monsanto into a leading food and nutrition company. Dr. Kishore co-founded the plant biotechnology and informatics company Metahelix Life Sciences Pvt Ltd in India, Mogene LC in St. Louis, Missouri and Abunda in San Francisco, California. He serves or has served on the boards of numerous nonprofit institutions, including the School of Nutrition and Policy at Tufts University, the St. Louis RCGA and the National Research Advisory Board of Washington University at St. Louis. He is also a member of the American Association for the Advancement of Science. Dr. Kishore holds a Ph.D. in biochemistry from the Indian Institute of Science, an M.S. in biochemistry from the University of Mysore and a B.S. in physics and chemistry from the University of Mysore. We believe Dr. Kishore’s qualifications to sit on our board include his years of experience as an executive in the field of agricultural biotechnology and his experience in advising and managing startup companies. ® Gary W. Mize has served as a director of the company since September 2011. Since October 2009, Mr. Mize has held the position as partner and owner at MR & Associates. Mr. Mize served as president of Rawhide Energy LLC, an ethanol company, from April 2007 to April 2009. Mr. Mize also served as non- executive chairman at Ceres Global AG, a Canadian public company that serves as a vehicle for agribusiness investments, from December 2007 to April 2010. Mr. Mize has also served Noble Group, Hong Kong, as Global Chief Operating Officer from July 2003 to December 2005 and Executive Director from December 2005 to January 2006. Previously, he was president of the Grain Processing Group at ConAgra Foods, Inc., president and CEO of ConAgra Malt and held various positions at Cargill, Inc. Mr. Mize holds a BA in Business and Marketing from Michigan State University. Mr. Mize brings international business experience to the board having previously held expatriate positions in Switzerland, Brazil and Hong Kong. We believe Mr. Mize’s qualifications to sit on our Board include his international experience, coupled with more than 35 years of experience in agribusiness. Bruce A. Smith has served as a director of the company since June 2010. Since January 2012, Mr. Smith has also served as a director of Ventech Engineers, Inc., a fully integrated engineering and procurement services company for the petroleum industry. Since December 2011, he has also served as a director and Chief Executive Officer of One Cypress Energy, a private crude logistics and marketing company. Since July 2010, he has also served as a member of the supervisory board of LyondellBasell Industries N.V., a publicly traded independent chemical company. Mr. Smith served as Chairman of Tesoro Corp. from 1996 until June 2010, and from 1995 until May 2010 he served as Tesoro’s President and Chief Executive Officer. Between 1992 and 1995, Mr. Smith held positions as Tesoro’s Chief Operating Officer, Executive Vice President, Exploration and Production, and 30 Table of Contents Chief Financial Officer. Under Mr. Smith’s leadership, Tesoro went from a small integrated oil company to a Fortune 100 refining and marketing company with a global supply chain and 650,000 barrels per day of production in the western US. From March 2002 to February 2008, Mr. Smith also served as a director of Noble Energy Corp., a publicly traded oil exploration and production company, where he served on the Audit, Compensation and Corporate Governance and Nominating Committees, including service as chair of the Audit Committee in 2005 and 2006 and chair of the Compensation Committee in 2003 and 2004. Mr. Smith holds an M.B.A. in finance from the University of Kansas and a B.A. in biology from Westminster College. We believe Mr. Smith’s qualifications to sit on our board include his extensive senior leadership experience in the refining and marketing industry, his substantial management background and his previous experience serving as a director and chairman of the audit and compensation committees of a publicly traded company. Stacy J. Smith has served as a director of the company since June 2010. Since November 2011, Mr. Smith has also served as a director of Autodesk, Inc. He is also Senior Vice President, Finance, at Intel Corp., a position he has held since 2010, as well as Chief Financial Officer, a position he has held since 2007. Previously, he was Intel’s Assistant Chief Financial Officer from 2006 to 2007, and Vice President, Finance and Enterprise Services and Chief Information Officer from 2004 to 2006, where he was responsible for Intel’s Information Technology Group. From 2002 to 2004, Mr. Smith was Intel’s Vice President, Sales and Marketing Group, and General Manager of Intel Europe, Middle East and Africa, where he was responsible for product sales and marketing across that region. Before then, he served in various finance positions at Intel, where he has been employed since 1988, working in the US, Asia, Europe and Latin America. Mr. Smith holds an M.B.A. in finance from the University of Texas and a B.A. in finance from the University of Texas. Mr. Smith brings global business leadership experience to the board from his current position as Senior Vice President, Finance, and Chief Financial Officer of Intel Corporation. This experience, coupled with Mr. Smith’s experience serving for over 19 years in various finance and senior management positions for Intel, supports the board’s efforts in overseeing and advising on strategy and financial matters, including financial reporting. Corporate Information We were incorporated in Delaware in June 2005 under the name Methanotech, Inc. and filed an amendment to our certificate of incorporation changing our name to Gevo, Inc. on March 29, 2006. Our principal executive offices are located at 345 Inverness Drive South, Building C, Suite 310, Englewood, CO 80112, and our telephone number is (303) 858-8358. Website Access to SEC Filings We are subject to the reporting requirements under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Consequently, we are required to file reports and information with the SEC, including reports on the following forms: annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. These reports and other information concerning us may be accessed through the SEC’s website at http://www.sec.gov and on our website at www.gevo.com. Such filings are placed on our website as soon as reasonably practical after they are filed with the SEC. Any information contained in, or that can be accessed through our website, is not incorporated by reference into, nor is it in any way part of, this Report. 31 Table of Contents Item 1A. Risk Factors You should carefully consider the risks described below before investing in our publicly-traded securities. The risks described below are not the only ones facing us. Our business is also subject to the risks that affect many other companies, such as competition, technological obsolescence, labor relations, general economic conditions, geopolitical changes and international operations. Additional risks not currently known to us or that we currently believe are immaterial also may impair our business operations and our liquidity. The risks described below could cause our actual results to differ materially from those contained in the forward-looking statements we have made in this Report, the information incorporated herein by reference and those forward-looking statements we may make from time to time. Certain Risks Relating to our Business and Strategy We are a development stage company with a history of net losses, and we may not achieve or maintain profitability. We have incurred net losses since our inception, including losses of $48.2 million, $40.1 million, $19.9 million in 2011, 2010 and 2009, respectively. As of December 31, 2011, we had an accumulated deficit of $134.6 million. We expect to incur losses and negative cash flow from operating activities for the foreseeable future. We are a development stage company and, to date, our revenues have been extremely limited and we have not generated any revenues from the sale of isobutanol. Prior to September 2010, our revenues were primarily derived from government grants and cooperative agreements. Since the completion of the Agri-Energy acquisition in September 2010, we have generated revenue from the sale of ethanol and related products, and we expect to continue to generate revenue from the sale of all such products that are produced prior to the completion of the retrofit of the Agri-Energy Facility. If our existing grants and cooperative agreements are canceled prior to the expected end dates or we are unable to obtain new grants and cooperative agreements, our revenues could be adversely affected. Furthermore, we expect to spend significant amounts on further development of our technology, acquiring or otherwise gaining access to ethanol plants and retrofitting them for isobutanol production, marketing and general and administrative expenses associated with our planned growth and management of operations as a public company. In addition, the cost of preparing, filing, prosecuting, maintaining and enforcing patent, trademark and other intellectual property rights and defending ourselves against claims by others that we may be violating their intellectual property rights may be significant. In particular, over time, the costs of the lawsuit with Butamax and our counterclaim, alleging patent infringement relating to the production of isobutanol, may become significant (as described in Part I, Item 3 of this Report). As a result, even if our revenues increase substantially, we expect that our expenses will exceed revenues for the foreseeable future. We do not expect to achieve profitability during this period, and may never achieve it. If we fail to achieve profitability, or if the time required to achieve profitability is longer than we anticipate, we may not be able to continue our business. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our planned retrofits of the ethanol production facilities in Luverne, Minnesota and Redfield, South Dakota will be our first commercial retrofits, and, as a result, our production of isobutanol could be delayed or we could experience significant cost overruns in comparison to our current estimates. In September 2010, we acquired ownership of an ethanol production facility in Luverne, Minnesota and in June 2011, we acquired access to a second ethanol production facility in Redfield, South Dakota pursuant to our joint venture with Redfield. We intend to retrofit both facilities to produce isobutanol. Cost overruns or other unexpected difficulties could cause the retrofits to cost more than we anticipate, which could increase our need for such funding. Such funds may not be available when we need them, on terms that are acceptable to us or at all, which could delay our initial commercial production of isobutanol. If additional funding is not available to us, or not available on terms acceptable to us, it could force us to use significantly more of our own funds than planned, limiting our ability to acquire access to or retrofit additional ethanol plants. Such a result could reduce the scope of our business plan and have an adverse effect on our results of operations. 32 Table of Contents There is no guarantee we will be able to maintain Agri-Energy’s historical revenues and results from operations, and Agri-Energy’s historical financial statements will not be a strong indicator of our future earnings potential. While we remain a development stage company, Agri-Energy operates a commercial ethanol facility in Luverne, Minnesota, which generates revenues from sales of ethanol. There is no guarantee that we will be able to maintain Agri-Energy’s historical levels of revenue or results from operations. We plan to retrofit the Agri-Energy Facility to produce isobutanol, and our future profitability depends on our ability to produce and market isobutanol, not on continued production and sales of ethanol. Because the risks involved in our isobutanol production are different from those involved with operating an ethanol production facility, Agri-Energy’s financial results prior to the completion of the planned retrofit to isobutanol production will not be a reliable indicator of our future earnings potential. Furthermore, our planned retrofit will require a significant amount of time. While we believe the facility will be able to continue ethanol production during most of the modification and retrofit process, there is no guarantee that this will be the case and we may need to significantly reduce or halt ethanol production during the modification and/or retrofit. In addition, the retrofit of the Agri-Energy Facility will be subject to the risks inherent in the build-out of any manufacturing facility, and we may not be able to produce isobutanol at the volumes, rates and costs we expect following the retrofit. While we believe we will have the ability to reverse the retrofit and switch between ethanol and isobutanol production, the Agri-Energy Facility may fail to perform as expected following completion of the retrofit. If we are unable to continue ethanol production during the modification and/or retrofit process or if we are unable to produce isobutanol at the volumes, rates and costs we expect and are unable to switch back to ethanol production, we would be unable to match the facility’s historical economic performance and our business, financial condition and results of operations would be materially adversely affected. We may not be successful in the development of individual steps in, or an integrated process for, the production of commercial quantities of isobutanol from plant feedstocks in a timely or economic manner, or at all. As of the date of this Report, we have not produced commercial quantities of isobutanol and we may not be successful in doing so. The production of isobutanol requires multiple integrated steps, including: • • • • • • obtaining the plant feedstocks; treatment with enzymes to produce fermentable sugars; fermentation by organisms to produce isobutanol from the fermentable sugars; distillation of the isobutanol to concentrate and separate it from other materials; purification of the isobutanol; and storage and distribution of the isobutanol. Our future success depends on our ability to produce commercial quantities of isobutanol in a timely and economic manner. Our biocatalysts have not yet produced commercial volumes of isobutanol. While we have produced isobutanol using our biocatalysts at the demonstration facility, such production was not at full scale. We have focused the majority of our research and development efforts on producing isobutanol from dextrose, and challenges remain in achieving substantial production volumes with other sugars, like corn mash. The risk of contamination and other problems rise as we increase the scale of our isobutanol production. If we are unable to successfully manage these risks, we may encounter difficulties in achieving our target isobutanol production yield, rate, concentration or purity at a commercial scale, which could delay or increase the costs involved in commercializing our isobutanol production. In addition, we have never sourced large quantities of feedstocks and we have no experience storing and/or distributing significant volumes of isobutanol. The technological and logistical challenges associated with each of the processes involved in production, sale and distribution of isobutanol are extraordinary, and we may not be able to resolve any difficulties that arise in a timely or cost 33 Table of Contents effective manner, or at all. Even if we are successful in developing an economical process for converting plant feedstocks into commercial quantities of isobutanol, we may not be able to adapt such process to other biomass raw materials, including cellulosic biomass. Neither we nor ICM have ever built (through retrofit or otherwise) or operated a commercial isobutanol facility. We assume that we understand how the engineering and process characteristics of the one MGPY demonstration facility will scale up to larger facilities, but these assumptions may prove to be incorrect. Accordingly, we cannot be certain that we can manufacture isobutanol in an economical manner in commercial quantities. If our costs to build large-scale commercial isobutanol facilities are significantly higher than we expect or if we fail to manufacture isobutanol economically on a commercial scale or in commercial volumes, our commercialization of isobutanol and our business, financial condition and results of operations will be materially adversely affected. We may not be able to successfully identify and acquire access to additional ethanol production facilities suitable for efficient retrofitting, or acquire access to sufficient capacity to be commercially viable or meet customer demand. Our strategy currently includes accessing and retrofitting, either independently or with potential development partners, existing ethanol facilities for the production of large quantities of isobutanol for commercial distribution and sale. We have acquired one 22 MGPY ethanol production facility and acquired access to one 50 MGPY ethanol production facility pursuant to our joint venture with Redfield. We plan to acquire additional production capacity to enable us to produce and sell over 350 MGPY of isobutanol in 2015. We may not find development partners with whom we can implement this growth strategy, and we may not be able to identify facilities suitable for joint venture, acquisition or lease. Even if we successfully identify a facility suitable for efficient retrofitting, we may not be able to acquire access to such facility in a timely manner, if at all. The owners of the ethanol facility may reach an agreement with another party, refuse to consider a joint venture, acquisition or lease, or demand more or different consideration than we are willing to provide. In particular, if the profitability of ethanol production increases, plant owners may be less likely to consider modifying their production, and thus may be less willing to negotiate with us or agree to allow us to retrofit their facilities for isobutanol production. We may also find that it is necessary to offer special terms, incentives and/or rebates to owners of ethanol facilities that allow us to access and retrofit their facilities before our production technology has been proven on a commercial scale. Even if the owners of the facility are interested in reaching an agreement that grants us access to the plant, negotiations may take longer, or cost more, than we expect, and we may never achieve a final agreement. Further we may not be able to raise capital on acceptable terms, or at all, to finance our joint venture, acquisition, participation or lease of facilities. Even if we are able to access and retrofit several facilities, we may fail to access enough capacity to be commercially viable or meet the volume demands or minimum requirements of our customers, including pursuant to definitive supply or distribution agreements that we may enter into, which may subject us to monetary damages. For example, under the terms of our international off-take and distribution agreement with Sasol, we are required to pay certain shortfall fees if we are not able to supply Sasol with certain minimum quantities of product. Failure to acquire access to sufficient capacity in a timely manner and on favorable terms may slow or stop our commercialization process, which could have a material adverse effect on our business, financial condition and results of operations. Once we acquire access to ethanol facilities, we may be unable to successfully retrofit them to produce isobutanol, and we may not be able to retrofit them in a timely and cost-effective manner. For each ethanol production facility to which we acquire access, we will be required to obtain numerous regulatory approvals and permits to retrofit and operate the facility. These include such items as a modification to the air permit, fuel registration with the EPA, ethanol excise tax registration and others. These requirements may not be satisfied in a timely manner, or at all. Later-enacted federal and state governmental requirements may also substantially increase our costs or delay or prevent the completion of a retrofit, which could have a material adverse effect on our business, financial condition and results of operations. 34 Table of Contents No two ethanol facilities are exactly alike, and each retrofit will require individualized engineering and design work. There is no guarantee that we or any contractor we retain will be able to successfully design a commercially viable retrofit, or properly complete the retrofit once the engineering plans are completed. Neither we nor ICM has ever built, via retrofit or otherwise, a full-scale commercial isobutanol facility. Our estimates of the capital costs that we will need to incur to retrofit a commercial-scale ethanol facility may prove to be inaccurate, and each retrofit may cost materially more to engineer and build than we currently anticipate. For example, our estimates assume that each plant we retrofit will be performing at full production capacity, and we may need to expend substantial sums to repair underperforming facilities prior to retrofit. Our retrofit design was developed in cooperation with ICM and is based on ICM technology. There is no guarantee that our retrofit design will be compatible with existing ethanol facilities that do not utilize ICM technology. Before we can retrofit such facilities, we may need to modify them to be compatible with our retrofit design. This may require significant additional expenditure of time and money, and there is no guarantee such modification will be successful. Furthermore, the retrofit of acquired facilities will be subject to the risks inherent in the build-out of any manufacturing facility, including risks of delays and cost overruns as a result of factors that may be out of our control, such as delays in the delivery of equipment and subsystems or the failure of such equipment to perform as expected once delivered. In addition, we will depend on third-party relationships in expanding our isobutanol production capacity and such third parties may not fulfill their obligations to us under our arrangements with them. Delays, cost-overruns or failures in the retrofit process will slow our commercial production of isobutanol and harm our performance. Though our initial retrofit design includes the capability to switch between isobutanol and ethanol production, we may be unable to successfully revert to ethanol production after we begin retrofit of an ethanol facility, or the facility may produce ethanol less efficiently or in lower volumes than it did before the retrofit. Thus, if we fail to achieve commercial levels of isobutanol production at a retrofitted facility, we may be unable to rely on ethanol production as an alternative revenue source, which could have a material adverse effect on our prospects. Our facilities and process may fail to produce isobutanol at the volumes, rates and costs we expect. Some or all of the facilities we choose to retrofit may be in locations distant from corn or other feedstock sources, which could increase our feedstock costs or prevent us from acquiring sufficient feedstock volumes for commercial production. General market conditions might also cause increases in feedstock prices, which could likewise increase our production costs. Even if we secure access to sufficient volumes of feedstock, the facilities we retrofit for isobutanol production may fail to perform as expected. The equipment and subsystems installed during the retrofit may never operate as planned. Our systems may prove incompatible with the original facility, or require additional modification after installation. Our biocatalyst may perform less efficiently than it did in testing, if at all. Contamination of plant equipment may require us to replace our biocatalyst more often than expected, or cause our fermentation process to yield undesired or harmful by-products. Likewise, our feedstock may contain contaminants like wild yeast, which naturally ferments feedstock into ethanol. The presence of contaminants, such as wild yeast, in our feedstock could reduce the purity of the isobutanol that we produce and require us to invest in more costly isobutanol separation processes or equipment. Unexpected problems may force us to cease or delay production and the time and costs involved with such delays may prove prohibitive. Any or all of these risks could prevent us from achieving the production throughput and yields necessary to achieve our target annualized production run rates and/or to meet the volume demands or minimum requirements of our customers, including pursuant to definitive supply or distribution agreements that we may enter into, which may subject us to monetary damages. For example, under the terms of our international off-take and distribution agreement with Sasol, we are required to pay certain shortfall fees if we are not able to supply Sasol with certain minimum quantities of product. Failure to achieve these rates or meet these minimum requirements, or achieving them only after significant additional expenditures, could substantially harm our commercial performance. 35 Table of Contents We may be unable to produce isobutanol in accordance with customer specifications. Even if we produce isobutanol at our targeted rates, we may be unable to produce isobutanol that meets customer specifications. If we fail to meet specific product or volume specifications contained in a supply agreement, the customer may have the right to seek an alternate supply of isobutanol and/or terminate the agreement completely, and we could be required to pay shortfall fees or otherwise be subject to damages. A failure to successfully meet the specifications of our potential customers could decrease demand, and significantly hinder market adoption of our products. We lack significant experience operating commercial-scale ethanol and isobutanol facilities, and may encounter substantial difficulties operating commercial plants or expanding our business. We have very limited experience operating a commercial ethanol facility and no experience operating a commercial isobutanol facility. Accordingly, we may encounter significant difficulties operating at a commercial scale. We believe that our facilities will be able to continue producing ethanol during much of the retrofit process. We will need to successfully administer and manage this production. Though ICM and the employees of Agri-Energy and Redfield are experienced in the operation of ethanol facilities, and our future development partners or the entities that we acquire may likewise have such experience, we may be unable to manage ethanol producing operations, especially given the possible complications associated with a simultaneous retrofit. Once we complete a commercial retrofit, operational difficulties may increase, because neither we nor anyone else has experience operating a pure isobutanol fermentation facility at a commercial scale. The skills and knowledge gained in operating commercial ethanol facilities or small-scale isobutanol plants may prove insufficient for successful operation of a large-scale isobutanol facility, and we may be required to expend significant time and money to develop our capabilities in isobutanol facility operation. We may also need to hire new employees or contract with third parties to help manage our operations, and our performance will suffer if we are unable to hire qualified parties or if they perform poorly. We may face additional operational difficulties as we further expand our production capacity. Integrating new facilities with our existing operations may prove difficult. Rapid growth, resulting from our operation of, or other involvement with, isobutanol facilities or otherwise, may impose a significant burden on our administrative and operational resources. To effectively manage our growth and execute our expansion plans, we will need to expand our administrative and operational resources substantially and attract, train, manage and retain qualified management, technicians and other personnel. We may be unable to do so. Failure to meet the operational challenges of developing and managing increased isobutanol production, or failure to otherwise manage our growth, may have a material adverse effect on our business, financial condition and results of operations. We may have difficulty adapting our technology to commercial-scale fermentation which could delay or prevent our commercialization of isobutanol. While we have succeeded, at the demonstration plant, in reaching our commercial fermentation performance targets for isobutanol concentration, fermentation productivity and isobutanol yield, we have not accomplished this in a commercial plant environment. We have successfully achieved our commercial performance targets using our biocatalysts at our mini-plant, but have not yet done so at the demonstration or commercial plant scale. We are currently optimizing our yeast biocatalyst in anticipation of its integration into commercial facilities, but this process, if it succeeds at all, may take longer or cost more than expected. Our yeast biocatalyst may not be able to meet the commercial performance targets at a commercial-scale retrofitted plant in a timely manner, or ever. In addition, the risk of contamination and other problems exists at commercial-scale isobutanol production which could negatively impact our cost of production. If we encounter difficulties in scaling up our production, our commercialization of isobutanol and our business, financial condition and results of operations will be materially adversely affected. 36 Table of Contents We may have difficulties gaining market acceptance and successfully marketing our isobutanol to customers, including refiners and chemical producers. A key component of our business strategy is to market our isobutanol to refiners and chemical producers. We have no experience marketing isobutanol on a commercial scale and we may fail to successfully negotiate marketing agreements in a timely manner or on favorable terms. If we fail to successfully market our isobutanol to refiners and chemical producers, our business, financial condition and results of operations will be materially adversely affected. No market currently exists for isobutanol as a fuel or fuel blendstock. Therefore, to gain market acceptance and successfully market our isobutanol to refiners, we must effectively demonstrate the commercial advantages of using isobutanol over other biofuels and blendstocks, as well as our ability to produce isobutanol reliably on a commercial scale at a sufficiently low cost. We must show that isobutanol is compatible with existing infrastructure and does not damage pipes, engines, storage facilities or pumps. We must also overcome marketing and lobbying efforts by producers of other biofuels and blendstocks, including ethanol, many of whom may have greater resources than we do. If the markets for isobutanol as a fuel or fuel blendstock do not develop as we currently anticipate, or if we are unable to penetrate these markets successfully, our revenue and revenue growth rate, if any, could be materially and adversely affected. We also intend to market our isobutanol to chemical producers for use in making various chemicals such as isobutylene, a type of butene that can be produced through the dehydration of isobutanol. Although a significant market currently exists for isobutylene produced from petroleum, which is widely used in the production of plastics, specialty chemicals, alkylate for gasoline blending and high octane aviation fuel, no one has successfully created isobutylene on a commercial scale from biobased isobutanol. Therefore, to gain market acceptance and successfully market our isobutanol to chemical producers, we must show that our isobutanol can be converted into isobutylene at a commercial scale. As no company currently dehydrates commercial volumes of isobutanol into isobutylene, we must demonstrate the large-scale feasibility of the process and reach agreements with companies that are willing to invest in the necessary dehydration infrastructure. Failure to reach favorable agreements with these companies, or the inability of their plants to convert isobutanol into isobutylene at sufficient scale, will slow our development in the chemicals market and could significantly affect our profitability. Obtaining market acceptance in the chemicals industry is complicated by the fact that many potential chemicals industry customers have invested substantial amounts of time and money in developing petroleum-based production channels. These potential customers generally have well-developed manufacturing processes and arrangements with suppliers of chemical components, and may display substantial resistance to changing these processes. Pre- existing contractual commitments, unwillingness to invest in new infrastructure, distrust of new production methods and lengthy relationships with current suppliers may all slow market acceptance of isobutanol. We believe that consumer demand for environmentally sensitive products will drive demand among large brand owners for renewable hydrocarbon sources. One of our marketing strategies is to leverage this demand to obtain commitments from large brand owners to purchase products made from our isobutanol by third parties. We believe these commitments will, in turn, promote chemicals industry demand for our isobutanol. If consumer demand for environmentally sensitive products fails to develop at sufficient scale or if such demand fails to drive large brand owners to seek sources of renewable hydrocarbons, our revenue and growth rate could be materially and adversely affected. We may face substantial delay in getting regulatory approvals for use of our isobutanol in the fuels and chemicals markets, which could substantially hinder our ability to commercialize our products. Commercialization of our isobutanol will require approvals from state and federal agencies. Before we can sell isobutanol as a fuel or fuel blendstock directly to large petroleum refiners, we must receive EPA fuel certification. We are currently conducting Tier 1 EPA testing, and the approval process may require significant 37 Table of Contents time. Approval can be delayed for years, and there is no guarantee of receiving it. Additionally, California requires that fuels meet both its fuel certification requirements and a separate state low-carbon fuel standard. Any delay in receiving approval will slow or prevent the commercialization of our isobutanol for fuel markets, which could have a material adverse effect on our business, financial condition and results of operations. Before any biofuel we produce receives a RIN we must register it with the EPA and receive approval that it meets specified regulatory requirements. Delay or failure in developing a fuel that meets the standards for advanced and cellulosic biofuels, or delays in receiving the desired RIN, will make our fuel less attractive to refiners, blenders, and other purchasers, which could harm our competitiveness. With respect to the chemicals markets, we plan to focus on isobutanol production and sell to companies that can convert our isobutanol into other chemicals, such as isobutylene. However, should we later decide to produce these other chemicals ourselves, we may face similar requirements for EPA and other regulatory approvals. Approval, if ever granted, could be delayed for substantial amounts of time, which could significantly harm the development of our business and prevent the achievement of our goals. Our isobutanol fermentation process utilizes a genetically modified organism which, when used in an industrial process, is considered a new chemical under the TSCA. The TSCA requires us to comply with the EPA’s Microbial Commercial Activity Notice process to operate plants producing isobutanol using our biocatalysts. The TSCA’s new chemicals submission policies may change and additional government regulations may be enacted that could prevent or delay regulatory approval of our isobutanol production. There are various third party certification organizations such as ASTM and UL involved in standard-setting regarding the transportation, dispensing and use of liquid fuel in the U.S. and abroad. These organizations may change the current standards and additional requirements may be enacted that could prevent or delay approval of our products. The process of seeking required approvals and the continuing need for compliance with applicable standards may require the expenditure of substantial resources, and there is no guarantee that we will satisfy these standards in a timely manner, if ever. In addition, to retrofit ethanol facilities and operate the retrofitted plants to produce isobutanol, we will need to obtain and comply with a number of permit requirements. As a condition to granting necessary permits, regulators may make demands that could increase our retrofit or operations costs, and permit conditions could also restrict or limit the extent of our operations, which could delay or prevent our commercial production of isobutanol. We cannot guarantee that we will be able to meet all regulatory requirements or obtain and comply with all necessary permits to complete our planned ethanol plant retrofits, and failure to satisfy these requirements in a timely manner, or at all, could have a substantial negative effect on our performance. We are in negotiations, facilitated by the Air Transport Association of America (“ATA”) with several major passenger and cargo airlines for potential commitments by several ATA member airlines to purchase jet fuel manufactured by third parties from our isobutanol. Jet fuels must meet various statutory and regulatory requirements before they may be used in commercial aviation. In the U.S., the use of specific jet fuels is regulated by the Federal Aviation Administration (“FAA”). Rather than directly approving specific fuels, the FAA certifies individual aircraft for flight. This certification includes authorization for an aircraft to use the types of fuels specified in its flight manual. To be included in an aircraft’s flight manual, the fuel must meet standards set by ASTM. The current ASTM requirements do not permit the use of jet fuel derived from isobutanol, and we will need to give ASTM sufficient data to justify creating a new standard applicable to our biojet fuel. Though our work testing isobutanol-based biojet fuel with the U.S. Air Force Research Laboratory has provided us with data we believe ASTM will consider, the process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations will require the expenditure of substantial resources. Failure to obtain regulatory approval in a timely manner, or at all, could have a significant negative effect on our operations. 38 Table of Contents We may be unable to successfully negotiate final, binding terms related to our current non-binding isobutanol supply and distribution agreements, which could harm our commercial prospects. We have engaged in negotiations with a number of companies, and have agreed to preliminary terms regarding supplying isobutanol or the products derived from it to various companies for their use or further distribution, including LANXESS, Toray Industries, United Airlines, Inc. and TOTAL PETROCHEMICALS. However, as of December 31, 2011, we are not party to any final, definitive supply or distribution agreements for our isobutanol, other than our exclusive supply agreement with LANXESS, our international off-take and distribution agreement with Sasol, our commercial offtake agreement with Mansfield, and our contract from the DLA. We may be unable to negotiate final terms with other companies in a timely manner, or at all, and there is no guarantee that the terms of any final agreement will be the same or similar to those currently contemplated in our preliminary agreements. Final terms may include less favorable pricing structures or volume commitments, more expensive delivery or purity requirements, reduced contract durations and other adverse changes. Delays in negotiating final contracts could slow our initial isobutanol commercialization, and failure to agree to definitive terms for sales of sufficient volumes of isobutanol could prevent us from growing our business. To the extent that terms in our initial supply and distribution contracts may influence negotiations regarding future contracts, the failure to negotiate favorable final terms related to our current preliminary agreements could have an especially negative impact on our growth and profitability. Additionally, as we have yet to produce or supply commercial volumes of isobutanol to any customer, we have not demonstrated that we can meet the production levels contemplated in our current non-binding supply agreements. If our production scale-up proceeds more slowly than we expect, or if we encounter difficulties in successfully completing plant retrofits, potential customers, including those with whom we have current letters of intent, may be less willing to negotiate definitive supply agreements, or demand terms less favorable to us, and our performance may suffer. Even if we are successful in producing isobutanol on a commercial scale, we may not be successful in negotiating sufficient supply agreements for our production. We expect that many of our customers will be large companies with extensive experience operating in the fuels or chemicals markets. As a development stage company, we lack commercial operating experience, and may face difficulties in developing marketing expertise in these fields. Our business model relies upon our ability to successfully negotiate and structure long-term supply agreements for the isobutanol we produce. Many of our potential customers may be more experienced in these matters than we are, and we may fail to successfully negotiate these agreements in a timely manner or on favorable terms which, in turn, may force us to slow our production, delay our acquiring and retrofitting of additional plants, dedicate additional resources to increasing our storage capacity and/or dedicate resources to sales in spot markets. Furthermore, should we become more dependent on spot market sales, our profitability will become increasingly vulnerable to short-term fluctuations in the price and demand for petroleum-based fuels and competing substitutes. Our isobutanol may encounter physical or regulatory issues which could limit its usefulness as a fuel blendstock. In the fuel blendstock market, isobutanol can be used in conjunction with, or as a substitute for, ethanol and other widely-used fuel oxygenates and we believe our isobutanol will be physically compatible with typical gasoline engines. However, there is a risk that under actual engine conditions, isobutanol will face significant limitations, making it unsuitable for use in high percentage gasoline blends. Additionally, current regulations limit fuel blends to low percentages of isobutanol, and also limit combination isobutanol-ethanol blends. Government agencies may maintain or even increase the restrictions on isobutanol fuel blends. As we believe that the potential to use isobutanol in higher percentage blends than is feasible for ethanol will be an important factor in successfully marketing isobutanol to refiners, a low blend wall could significantly limit commercialization of isobutanol as a blendstock. 39 Table of Contents Our isobutanol may be less compatible with existing refining and transportation infrastructure than we believe, which may hinder our ability to market our product on a large scale. We developed our business model based on our belief that our isobutanol is fully compatible with existing refinery infrastructure. For example, when making isobutanol blends, we believe that gasoline refineries will be able to pump our isobutanol through their pipes and blend it in their existing facilities without damaging their equipment. If our isobutanol proves unsuitable for such handling, it will be more expensive for refiners to use our isobutanol than we anticipate, and they may be less willing to adopt it as a blendstock, forcing us to seek alternative purchasers. Likewise, our plans for marketing our isobutanol are based upon our belief that it will be compatible with the pipes, tanks and other infrastructure currently used for transporting, storing and distributing gasoline. If our isobutanol or products incorporating our isobutanol cannot be transported with this equipment, we will be forced to seek alternative transportation arrangements, which will make our isobutanol and products produced from our isobutanol more expensive to transport and less appealing to potential customers. Reduced compatibility with either refinery or transportation infrastructure may slow or prevent market adoption of our isobutanol, which could substantially harm our performance. We may face substantial delay in receiving FDA approval to sell iDGs™ as an animal feedstock, which could substantially increase our net production costs. Most of the ethanol plants we initially plan to retrofit use dry-milled corn as a feedstock. We plan to sell, as an animal feedstock, the iDGs™ left as a co- product of fermenting isobutanol from dry-milled corn. We believe that this will enable us to offset a significant portion of the expense of purchasing corn for fermentation. Before our iDGs™ can be used as an animal feedstock, the FDA must approve it as safe for livestock consumption. FDA testing and approval can take a significant amount of time, and there is no guarantee that we will ever receive such approval. If FDA approval is delayed or never obtained, or if we are unable to secure market acceptance for our iDGs™, our net cost of production will increase, which may hurt our operating results. Our development strategy relies heavily on our relationship with ICM. We rely heavily upon our relationship with ICM. In October 2008, we entered into a development agreement and a commercialization agreement with ICM. Pursuant to the terms of the development agreement, ICM engineers helped us install the equipment necessary to test and develop our isobutanol fermentation process at ICM’s one MGPY ethanol demonstration facility, and ICM agreed to assist us in running and maintaining the converted plant. We currently use the demonstration plant to improve our biocatalysts and to develop processes for commercial-scale production of isobutanol. Under the commercialization agreement, as amended, ICM serves as our exclusive EPC contractor for the retrofit of ethanol plants, and we serve as ICM’s exclusive technology partner for the production of butanols, pentanols and propanols from the fermentation of sugars. In August 2011, we entered into a work agreement with ICM. Pursuant to the terms of the work agreement, ICM will provide EPC services for the retrofit of ethanol plants. Because ICM has designed over 50% of the current operating ethanol production capacity in the U.S., we believe that our exclusive alliance with ICM will provide us with a competitive advantage and allow us to more quickly achieve commercial-scale production of isobutanol. However, ICM may fail to fulfill its obligations to us under our agreements and under certain circumstances, such as a breach of confidentiality by us, can terminate the agreements. In addition, ICM may assign the agreements without our consent in connection with a change of control. Since adapting our technology to commercial-scale production of isobutanol and then retrofitting ethanol plants to use our technology is a major part of our commercialization strategy, losing our exclusive alliance with ICM would slow our technological and commercial development. It could also force us to find a new contractor with less experience than ICM in designing and building ethanol plants, or to invest the time and resources necessary to retrofit plants on our own. Such retrofits may be less successful than if performed by ICM engineers, and retrofitted plants might operate less efficiently than expected. This could substantially hinder our 40 Table of Contents ability to expand our production capacity, and could severely impact our performance. If ICM fails to fulfill its obligations to us under our agreements and our competitors obtain access to ICM’s expertise, our ability to realize continued development and commercial benefits from our alliance could be affected. Accordingly, if we lose our exclusive alliance with ICM, if ICM terminates or breaches its agreements with us, or if ICM assigns its agreements with us to a competitor of ours or to a third party that is not willing to work with us on the same terms or commit the same resources, our business and prospects could be harmed. We may require substantial additional financing to achieve our goals, and a failure to obtain this capital when needed or on acceptable terms could force us to delay, limit, reduce or terminate our development and commercialization efforts. Since our inception, most of our resources have been dedicated to research and development, as well as demonstrating the effectiveness of our technology. We believe that we will continue to expend substantial resources for the foreseeable future on further developing our technologies, developing future markets for our isobutanol and accessing facilities necessary for the production of isobutanol on a commercial scale. These expenditures will include costs associated with research and development, accessing existing ethanol plants, retrofitting the plants to produce isobutanol, obtaining government and regulatory approvals, acquiring or constructing storage facilities and negotiating supply agreements for the isobutanol we produce. In addition, other unanticipated costs may arise. Because the costs of developing our technology at a commercial scale are highly uncertain, we cannot reasonably estimate the amounts necessary to successfully commercialize our production. To date, we have funded our operations primarily through equity offerings, including our initial public offering in February 2011, and borrowings under our secured debt financing arrangements. Based on our current plans and expectations, we will require additional funding to achieve our goal of producing and selling over 350 million gallons of isobutanol in 2015. In addition, the cost of preparing, filing, prosecuting, maintaining and enforcing patent, trademark and other intellectual property rights and defending ourselves against claims by others that we may be violating their intellectual property rights may be significant. Currently, we are party to a lawsuit with Butamax alleging patent infringement relating to the production of isobutanol (as described further in Part I, Item 3 of this Report). Moreover, our plans and expectations may change as a result of factors currently unknown to us, and we may need additional funds sooner than planned. We may also choose to seek additional capital sooner than required due to favorable market conditions or strategic considerations. Our future capital requirements will depend on many factors, including: • • • • • • • • • the timing of, and costs involved in developing our technologies for commercial-scale production of isobutanol; the timing of, and costs involved in accessing existing ethanol plants; the timing of, and costs involved in retrofitting the plants we access with our technologies; the costs involved in an establishing an enhanced yeast seed train; the cost of operating; maintaining and increasing production capacity of the retrofitted plants; our ability to negotiate agreements supplying suitable biomass to our plants, and the timing and terms of those agreements; the timing of, and the costs involved in developing adequate storage facilities for the isobutanol we produce; our ability to gain market acceptance for isobutanol as a specialty chemical, gasoline blendstock and as a raw material for the production of hydrocarbons; our ability to negotiate supply agreements for the isobutanol we produce, and the timing and terms of those agreements; 41 Table of Contents • • • • our ability to negotiate sales of our isobutanol for commercial-scale production of butenes and other industrially useful chemicals and fuels, and the timing and terms of those sales; our ability to sell the iDGs™ left as a co-product of fermenting isobutanol from corn as animal feedstock; our ability to establish and maintain strategic partnerships, licensing or other arrangements and the timing and terms of those arrangements; and the cost of preparing, filing, prosecuting, maintaining, defending and enforcing patent, trademark and other intellectual property claims, including litigation costs and the outcome of such litigation. Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If needed funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate: • • • • our research and development activities; our plans to access and/or retrofit existing ethanol facilities; our production of isobutanol at retrofitted plants; and/or our activities in developing storage capacity and negotiating supply agreements that may be necessary for the commercialization of our isobutanol production. Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies. We may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and licensing arrangements. To the extent that we raise additional capital through the sale or issuance of equity, warrants or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. If we raise capital through debt financing, it may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and licensing agreements with third parties, we may have to relinquish valuable rights to our technologies, or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our development and commercialization efforts. Our quarterly operating results may fluctuate in the future. As a result, we may fail to meet or exceed the expectations of research analysts or investors, which could cause our stock price to decline. Our financial condition and operating results have varied significantly in the past and may continue to fluctuate from quarter to quarter and year to year in the future due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations are described elsewhere in this Report. Accordingly, the results of any prior quarterly or annual periods should not be relied upon as indications of our future operating performance. Fluctuations in the price of corn and other feedstocks may affect our cost structure. Our approach to the biofuels and chemicals markets will be dependent on the price of corn and other feedstocks that will be used to produce isobutanol. A decrease in the availability of plant feedstocks or an increase in the price may have a material adverse effect on our financial condition and operating results. At certain levels, prices may make these products uneconomical to use and produce, as we may be unable to pass the full amount of feedstock cost increases on to our customers. 42 Table of Contents The price and availability of corn and other plant feedstocks may be influenced by general economic, market and regulatory factors. These factors include weather conditions, farming decisions, government policies and subsidies with respect to agriculture and international trade, and global demand and supply. The significance and relative impact of these factors on the price of plant feedstocks is difficult to predict, especially without knowing what types of plant feedstock materials we may need to use. Fluctuations in the price and availability of natural gas may harm our performance. The ethanol facilities we plan to retrofit to produce isobutanol, including the Agri-Energy Facility in Luverne, Minnesota, and the Redfield Facility in Redfield, South Dakota, use significant amounts of natural gas to produce ethanol. After retrofit with our GIFT technology, these facilities will continue to require natural gas to produce isobutanol. Accordingly, our business is dependent upon natural gas supplied by third parties. Should the price of natural gas increase, our performance could suffer. Likewise, disruptions in the supply of natural gas could have a material impact on our business and results of operations. ® Fluctuations in petroleum prices and customer demand patterns may reduce demand for biofuels and biobased chemicals. We anticipate marketing our biofuel as an alternative to petroleum-based fuels. Therefore, if the price of oil falls, any revenues that we generate from biofuel products could decline, and we may be unable to produce products that are a commercially viable alternative to petroleum-based fuels. Additionally, demand for liquid transportation fuels, including biofuels, may decrease due to economic conditions or otherwise. We will encounter similar risks in the chemicals industry, where declines in the price of oil may make petroleum-based hydrocarbons less expensive, which could reduce the competitiveness of our biobased alternatives. Changes in the prices of distiller’s grains and iDGs™ could have a material adverse effect on our financial condition. We sell distiller’s grains as a co-product from the production of ethanol at the Agri-Energy Facility in Luverne, Minnesota and we also plan to sell the iDGs™ that will be produced as a co-product of our commercial isobutanol production. Distiller’s grains and iDGs™ compete with other animal feed products, and decreases in the prices of these other products could decrease the demand for and price of distiller’s grains and iDGs™. If the price of distiller’s grains and iDGs™ decreases, our revenue from the sale of distiller’s grains and iDGs™ could suffer, which could have a material adverse effect on our financial condition. To the extent that we produce ethanol at accessed plants before commencing isobutanol production, we will be vulnerable to fluctuations in the price of and cost to produce ethanol. We believe that the ethanol production facilities we access, including the Agri-Energy Facility in Luverne, Minnesota, will continue to produce ethanol during most of the retrofit process. In most cases, we expect to obtain income from this ethanol production. Our earnings from ethanol revenue will be dependent on the price of, demand for and cost to produce ethanol. Decreases in the price of ethanol, whether caused by decreases in gasoline prices, changes in regulations, seasonal fluctuations or otherwise, will reduce our revenues, while increases in the cost of production will reduce our margins. Many of these risks, including fluctuations in feedstock costs and natural gas costs, are identical to risks we will face in the production of isobutanol. To the extent that ethanol production costs increase or price decreases, earnings from ethanol production could suffer, which could have a material adverse effect on our business. Reductions or changes to existing regulations and policies may present technical, regulatory and economic barriers, all of which may significantly reduce demand for biofuels or our ability to supply isobutanol. The market for biofuels is heavily influenced by foreign, federal, state and local government regulations and policies concerning the petroleum industry. For example, in 2007, the U.S. Congress passed an alternative fuels mandate that required nearly 14 billion gallons of liquid transportation fuels sold in 2011 to come from 43 Table of Contents alternative sources, including biofuels, a mandate that grows to 36 billion gallons by 2022. Of this amount, a minimum of 21 billion gallons must be advanced biofuels. In the U.S. and in a number of other countries, these regulations and policies have been modified in the past and may be modified again in the future. Any reduction in mandated requirements for fuel alternatives and additives to gasoline may cause demand for biofuels to decline and deter investment in the research and development of biofuels. Market uncertainty regarding future policies may also affect our ability to develop new biofuels products or to license our technologies to third parties. Any inability to address these requirements and any regulatory or policy changes could have a material adverse effect on our biofuels business, financial condition and results of operations. Our other potential bioindustrial products may be subject to additional regulations. Additionally, like the ethanol facilities we plan to retrofit, our isobutanol plants will emit GHGs. Any changes in state or federal emissions regulations, including the passage of cap-and-trade legislation or a carbon tax, could limit our production of isobutanol and iDGs™ and increase our operating costs, which could have a material adverse effect on our business, financial condition and results of operations. If we engage in additional acquisitions, we will incur a variety of costs and may potentially face numerous risks that could adversely affect our business and operations. If appropriate opportunities become available, we expect to acquire businesses, assets, technologies or products to enhance our business in the future. In connection with any future acquisitions, we could: • • • issue additional equity securities which would dilute our current stockholders; incur substantial debt to fund the acquisitions; or assume significant liabilities. Acquisitions involve numerous risks, including problems integrating the purchased operations, technologies or products, unanticipated costs and other liabilities, diversion of management’s attention from our core business, adverse effects on existing business relationships with current and/or prospective partners, customers and/or suppliers, risks associated with entering markets in which we have no or limited prior experience and potential loss of key employees. Other than our acquisition of Agri-Energy, we have not engaged in acquisitions in the past, and do not have experience in managing the integration process. Therefore, we may not be able to successfully integrate any businesses, assets, products, technologies or personnel that we might acquire in the future without a significant expenditure of operating, financial and management resources, if at all. The integration process could divert management time from focusing on operating our business, result in a decline in employee morale and cause retention issues to arise from changes in compensation, reporting relationships, future prospects or the direction of the business. Acquisitions may also require us to record goodwill, non-amortizable intangible assets that will be subject to impairment testing on a regular basis and potential periodic impairment charges, incur amortization expenses related to certain intangible assets and incur large and immediate write-offs and restructuring and other related expenses, all of which could harm our operating results and financial condition. In addition, we may acquire companies that have insufficient internal financial controls, which could impair our ability to integrate the acquired company and adversely impact our financial reporting. If we fail in our integration efforts with respect to any of our acquisitions and are unable to efficiently operate as a combined organization, our business, financial condition and results of operations may be materially adversely affected. If we engage in additional joint ventures, we will incur a variety of costs and may potentially face numerous risks that could adversely affect our business and operations. If appropriate opportunities become available, we expect to enter into joint ventures with the owners of existing ethanol production facilities in order to acquire access to additional isobutanol production capacity. We currently anticipate that in each such joint venture, the ethanol producer would contribute access to its existing ethanol production facility and we would be responsible for retrofitting such facility to produce isobutanol. Upon completion of the retrofit, and in some cases the attainment of certain performance targets, both parties to the 44 Table of Contents joint venture would receive a portion of the profits from the sale of isobutanol, consistent with our business model. In connection with these joint ventures, we could incur substantial debt to fund the retrofit of the accessed facilities and we could assume significant liabilities. Realizing the anticipated benefits of joint ventures, including projected increases to production capacity and additional revenue opportunities, involves a number of potential challenges. The failure to meet these challenges could seriously harm our financial condition and results of operations. Joint ventures are complex and time-consuming and we may encounter unexpected difficulties or incur unexpected costs related to such arrangements, including: • • • • • • • • difficulties negotiating joint venture agreements with favorable terms and establishing relevant performance metrics; difficulties completing the retrofits of the accessed facilities using our integrated fermentation technology; the inability to meet applicable performance targets related to the production of isobutanol; difficulties obtaining the permits and approvals required to produce and sell our products in different geographic areas; complexities associated with managing the geographic separation of accessed facilities; diversion of management attention from ongoing business concerns to matters related to the joint ventures; difficulties maintaining effective relationships with personnel from different corporate cultures; and the inability to generate sufficient revenue to offset retrofit costs. Additionally, our joint venture partners may have liabilities or adverse operating issues that we fail to discover through due diligence prior to entering into the joint ventures. In particular, to the extent that our joint venture partners failed to comply with or otherwise violated applicable laws or regulations, or failed to fulfill their contractual obligations, we may suffer financial harm and/or reputational harm for these violations or otherwise be adversely affected. Our joint venture partners may have significant amounts of existing debt and may not be able to service their existing debt obligations, which could cause the failure of a specific project and the loss by us of any investment we have made to retrofit the facilities owned by the joint venture partner. In addition, if we are unable to meet specified performance targets related to the production of isobutanol at a facility owned by one of our joint venture partners, we may never become eligible to receive a portion of the profits of the joint venture and may be unable to recover the costs of retrofitting the facility. Additionally, we plan to be the sole marketer for all isobutanol and co-products produced using our proprietary technology including, without limitation, all isobutanol that is produced by any facilities that we access via joint venture. Marketing agreements can be very complex and the obligations that we assume as the sole marketer of isobutanol may be time consuming. We have no experience marketing isobutanol on a commercial scale and we may fail to successfully negotiate marketing agreements in a timely manner or on favorable terms. If we fail to successfully market the isobutanol produced using our proprietary technology to refiners and chemical producers, our business, financial condition and results of operations will be materially adversely affected. 45 Table of Contents If we lose key personnel, including key management personnel, or are unable to attract and retain additional personnel, it could delay our product development programs and harm our research and development efforts, we may be unable to pursue partnerships or develop our own products and it may trigger an event of default under our loan agreements with TriplePoint. Our business is complex and we intend to target a variety of markets. Therefore, it is critical that our management team and employee workforce are knowledgeable in the areas in which we operate. The loss of any key members of our management, including our named executive officers, or the failure to attract or retain other key employees who possess the requisite expertise for the conduct of our business, could prevent us from developing and commercializing our products for our target markets and entering into partnerships or licensing arrangements to execute our business strategy. In addition, the loss of any key scientific staff, or the failure to attract or retain other key scientific employees, could prevent us from developing and commercializing our products for our target markets and entering into partnerships or licensing arrangements to execute our business strategy. We may not be able to attract or retain qualified employees in the future due to the intense competition for qualified personnel among biotechnology and other technology-based businesses, particularly in the advanced biofuels area, or due to the limited availability of personnel with the qualifications or experience necessary for our renewable chemicals and advanced biofuels business. If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience staffing constraints that will adversely affect our ability to meet the demands of our partners and customers in a timely fashion or to support our internal research and development programs. In particular, our product and process development programs are dependent on our ability to attract and retain highly skilled scientists. Competition for experienced scientists and other technical personnel from numerous companies and academic and other research institutions may limit our ability to do so on acceptable terms. Additionally, certain changes in our management could trigger an event of default under our loan and security agreements with TriplePoint, and we could be forced to pay the outstanding balance of the loan(s) in full. All of our employees are at-will employees, which means that either the employee or we may terminate their employment at any time. Our planned activities will require additional expertise in specific industries and areas applicable to the products and processes developed through our technology platform or acquired through strategic or other transactions, especially in the end markets that we seek to penetrate. These activities will require the addition of new personnel, and the development of additional expertise by existing personnel. The inability to attract personnel with appropriate skills or to develop the necessary expertise could impair our ability to grow our business. Our ability to compete may be adversely affected if we do not adequately protect our proprietary technologies or if we lose some of our intellectual property rights through costly litigation or administrative proceedings. Our success will depend in part on our ability to obtain patents and maintain adequate protection of our intellectual property covering our technologies and products and potential products in the U.S. and other countries. We have adopted a strategy of seeking patent protection in the U.S. and in certain foreign countries with respect to certain of the technologies used in or relating to our products and processes. As such, as of December 31, 2011, we exclusively licensed rights to 74 issued patents and filed patent applications in the U.S. and in various foreign jurisdictions, and we owned rights to approximately 243 issued patents and filed patent applications in the U.S. and in various foreign jurisdictions. When and if issued, patents would expire at the end of their term and any patent would only provide us commercial advantage for a limited period of time, if at all. Our patent applications are directed to our enabling technologies and to our methods and products which support our business in the advanced biofuels and renewable chemicals markets. We intend to continue to apply for patents relating to our technologies, methods and products as we deem appropriate. Only five of the patent applications that we have filed in the U.S. or in any foreign jurisdictions, and only certain of the patent applications filed by third parties in which we own rights, have been issued. A filed patent application does not guarantee a patent will issue and a patent issuing does not guarantee its validity, nor does it give us the right to practice the patented technology or commercialize the patented product. Third parties may 46 Table of Contents have or obtain rights to “blocking patents” that could be used to prevent us from commercializing our products or practicing our technology. The scope and validity of patents and success in prosecuting patent applications involve complex legal and factual questions and, therefore, issuance, coverage and validity cannot be predicted with any certainty. Patents issuing from our filed applications may be challenged, invalidated or circumvented. Moreover, third parties could practice our inventions in secret and in territories where we do not have patent protection. Such third parties may then try to sell or import products made using our inventions in and into the U.S. or other territories and we may be unable to prove that such products were made using our inventions. Additional uncertainty may result from potential passage of patent reform legislation by the U.S. Congress and from legal precedent as handed down by the U.S. Court of Appeals for the Federal Circuit and the U.S. Supreme Court, as they determine legal issues concerning the scope, validity and construction of patent claims. Because patent applications in the U.S. and many foreign jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and because publication of discoveries in the scientific literature often lags behind the actual discoveries, there is additional uncertainty as to the validity of any patents that may issue and the potential for blocking patents coming into force at some future date. Accordingly, we cannot ensure that any of our currently filed or future patent applications will result in issued patents, or even if issued, predict the scope of the claims that may issue in our and other companies’ patents. Given that the degree of future protection for our proprietary rights is uncertain, we cannot ensure that: (i) we were the first to make the inventions covered by each of our filed applications, (ii) we were the first to file patent applications for these inventions, (iii) the proprietary technologies we develop will be patentable, (iv) any patents issued will be broad enough in scope to provide commercial advantage and prevent circumvention, and (v) that competitors and other parties do not have or will not obtain patent protection that will block our development and commercialization activities. These concerns apply equally to patents we have licensed, which may likewise be challenged, invalidated or circumvented, and the licensed technologies may be obstructed from commercialization by competitors’ “blocking patents.” In addition, we generally do not control the patent prosecution and maintenance of subject matter that we license from others. Generally, the licensors are primarily or wholly responsible for the patent prosecution and maintenance activities pertaining to the patent applications and patents we license, while we may only be afforded opportunities to comment on such activities. Accordingly, we are unable to exercise the same degree of control over licensed intellectual property as we exercise over our own intellectual property and we face the risk that our licensors will not prosecute or maintain it as effectively as we would like. In addition, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. Monitoring unauthorized use of our intellectual property is difficult, particularly where, as here, the end products reaching the market generally do not reveal the processes used in their manufacture, and particularly in certain foreign countries where the local laws may not protect our proprietary rights as fully as in the U.S., so we cannot be certain that the steps we have taken in obtaining intellectual property and other proprietary rights will prevent unauthorized use of our technology. If competitors are able to use our technology without our authorization, our ability to compete effectively could be adversely affected. Moreover, competitors and other parties such as universities may independently develop and obtain patents for technologies that are similar to or superior to our technologies. If that happens, the potential competitive advantages provided by our intellectual property may be adversely affected. We may then need to license these competing technologies, and we may not be able to obtain licenses on reasonable terms, if at all, which could cause material harm to our business. Accordingly, litigation may be necessary for us to assert claims of infringement, enforce patents we own or license, protect trade secrets or determine the enforceability, scope and validity of the intellectual property rights of others. Our commercial success also depends in part on not infringing patents and proprietary rights of third parties, and not breaching any licenses or other agreements that we have entered into with regard to our technologies, products and business. We cannot be certain that patents have not or will not issue to third parties that could block our ability to obtain patents or to operate our business as we would like or at all. There may be patents in some countries that, if valid, may block our ability to commercialize products in those countries if we are unsuccessful in circumventing or acquiring rights to these patents. There also may be claims in patent applications filed in some countries that, if granted and valid, may also block our ability to commercialize products or processes in these countries if we are unable to circumvent or license them. 47 Table of Contents As is commonplace in the biotechnology industries, some of our directors, employees and consultants are or have been employed at, or associated with, companies and universities that compete with us or have or will develop similar technologies and related intellectual property. While employed at these companies, these employees, directors and consultants may have been exposed to or involved in research and technology similar to the areas of research and technology in which we are engaged. Though we have not received such a complaint, we may be subject to allegations that we, our directors, employees or consultants have inadvertently or otherwise used, misappropriated or disclosed alleged trade secrets or confidential or proprietary information of those companies. Litigation may be necessary to defend against such allegations and the outcome of any such litigation would be uncertain. Under some of our research agreements, our partners share joint rights in certain intellectual property we develop. For example, under our development agreement with ICM we have exclusive rights to all intellectual property developed within the defined scope of the project, but all other intellectual property developed pursuant to the agreement is to be jointly owned. Such provisions may limit our ability to gain commercial benefit from some of the intellectual property we develop, and may lead to costly or time-consuming disputes with parties with whom we have commercial relationships over rights to certain innovations. If any other party has filed patent applications or obtained patents that claim inventions also claimed by us, we may have to participate in interference proceedings declared by the USPTO to determine priority of invention and, thus, the right to the patents for these inventions in the U.S. These proceedings could result in substantial cost to us even if the outcome is favorable. Even if successful, an interference may result in the loss of certain claims. Even successful interference outcomes could result in significant legal fees and other expenses, diversion of management time and efforts and disruption in our business. Uncertainties resulting from initiation and continuation of any patent or related litigation could harm our ability to compete. Our ability to compete may be adversely affected if we are unsuccessful in defending against any claims by competitors or others that we are infringing upon their intellectual property rights, such as if Butamax is successful in its lawsuit alleging that we are infringing its patents for the production of isobutanol using certain microbial host cells. The various bioindustrial markets in which we plan to operate are subject to frequent and extensive litigation regarding patents and other intellectual property rights. In addition, many companies in intellectual property-dependent industries, including the renewable energy industry, have employed intellectual property litigation as a means to gain an advantage over their competitors. As a result, we may be required to defend against claims of intellectual property infringement that may be asserted by our competitors against us and, if the outcome of any such litigation is adverse to us, it may affect our ability to compete effectively. Currently, we are defending against a lawsuit filed by Butamax, which alleges that we have infringed two patents for certain recombinant microbial host cells that produce isobutanol and methods for the production of isobutanol using such host cells. Our involvement in litigation, interferences, opposition proceedings or other intellectual property proceedings inside and outside of the U.S. may divert management time from focusing on business operations, could cause us to spend significant amounts of money and may have no guarantee of success. Any current and potential intellectual property litigation also could force us to do one or more of the following: • • • stop selling, incorporating, manufacturing or using our products that use the subject intellectual property; obtain from a third party asserting its intellectual property rights, a license to sell or use the relevant technology, which license may not be available on reasonable terms, or at all; redesign those products or processes, such as our process for producing isobutanol, that use any allegedly infringing or misappropriated technology, which may result in significant cost or delay to us, or which redesign could be technically infeasible; or 48 Table of Contents • pay damages, including the possibility of treble damages in a patent case if a court finds us to have willfully infringed certain intellectual property rights. We are aware of a significant number of patents and patent applications relating to aspects of our technologies filed by, and issued to, third parties, including, but not limited to Butamax. We cannot assure you that we will ultimately prevail if any of this third-party intellectual property is asserted against us or that we will ultimately prevail in the patent infringement litigation with Butamax. Our government grants are subject to uncertainty, which could harm our business and results of operations. We have received various government grants, including a cooperative agreement, to complement and enhance our own resources. We may seek to obtain government grants and subsidies in the future to offset all or a portion of the costs of retrofitting existing ethanol manufacturing facilities and research and development activities. We cannot be certain that we will be able to secure any such government grants or subsidies. Any of our existing grants or new grants that we may obtain may be terminated, modified or recovered by the granting governmental body under certain conditions. We may also be subject to audits by government agencies as part of routine audits of our activities funded by our government grants. As part of an audit, these agencies may review our performance, cost structures and compliance with applicable laws, regulations and standards. Funds available under grants must be applied by us toward the research and development programs specified by the granting agencies, rather than for all of our programs generally. If any of our costs are found to be allocated improperly, the costs may not be reimbursed and any costs already reimbursed may have to be refunded. Accordingly, an audit could result in an adjustment to our revenues and results of operations. We have received funding from U.S. government agencies, which could negatively affect our intellectual property rights. Some of our research has been funded by grants from U.S. government agencies. When new technologies are developed with U.S. government funding, the government obtains certain rights in any resulting patents and technical data, generally including, at a minimum, a nonexclusive license authorizing the government to use the invention or technical data for noncommercial purposes. U.S. government funding must be disclosed in any resulting patent applications, and our rights in such inventions will normally be subject to government license rights, periodic progress reporting, foreign manufacturing restrictions and march- in rights. March-in rights refer to the right of the U.S. government, under certain limited circumstances, to require us to grant a license to technology developed under a government grant to a responsible applicant, or, if we refuse, to grant such a license itself. March-in rights can be triggered if the government determines that we have failed to work sufficiently towards achieving practical application of a technology or if action is necessary to alleviate health or safety needs, to meet requirements of federal regulations or to give preference to U.S. industry. If we breach the terms of our grants, the government may gain rights to the intellectual property developed in our related research. The government’s rights in our intellectual property may lessen its commercial value, which could adversely affect our performance. We may not be able to enforce our intellectual property rights throughout the world. The laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the U.S. Many companies have encountered significant problems in protecting and enforcing intellectual property rights in certain foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to bioindustrial technologies. This could make it difficult for us to stop the infringement of our patents or misappropriation of our other intellectual property rights. Proceedings to enforce our patents and other proprietary rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to enforce our intellectual property rights in such countries may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop. 49 Table of Contents If our biocatalysts, or the genes that code for our biocatalysts, are stolen, misappropriated or reverse engineered, others could use these biocatalysts or genes to produce competing products. Third parties, including our contract manufacturers, customers and those involved in shipping our biocatalysts may have custody or control of our biocatalysts. If our biocatalysts, or the genes that code for our biocatalysts, were stolen, misappropriated or reverse engineered, they could be used by other parties who may be able to reproduce these biocatalysts for their own commercial gain. If this were to occur, it would be difficult for us to discover or challenge this type of use, especially in countries with limited intellectual property protection. Confidentiality agreements with employees and others may not adequately prevent disclosures of trade secrets and other proprietary information. We rely in part on trade secret protection to protect our confidential and proprietary information and processes. However, trade secrets are difficult to protect. We have taken measures to protect our trade secrets and proprietary information, but these measures may not be effective. We require new employees and consultants to execute confidentiality agreements upon the commencement of an employment or consulting arrangement with us. These agreements generally require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. These agreements also generally provide that know-how and inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. Nevertheless, these agreements may not be enforceable, our proprietary information may be disclosed, third parties could reverse engineer our biocatalysts and others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position. In addition, an unauthorized breach in our information technology systems may expose our trade secrets and other proprietary information to unauthorized parties. We may face substantial competition, which could adversely affect our performance and growth. We may face substantial competition in the markets for isobutanol, plastics, fibers, rubber, other polymers and hydrocarbon fuels. Our competitors include companies in the incumbent petroleum-based industry as well as those in the nascent biorenewable industry. The incumbent petroleum-based industry benefits from a large established infrastructure, production capability and business relationships. The incumbents’ greater resources and financial strength provide significant competitive advantages that we may not be able to overcome in a timely manner. Academic and government institutions may also develop technologies which will compete with us in the chemicals and solvents and blendstock markets. The biorenewable industry is characterized by rapid technological change. Our future success will depend on our ability to maintain a competitive position with respect to technological advances. Technological development by others may impact the competitiveness of our products in the marketplace. Competitors and potential competitors who have greater resources and experience than we do may develop products and technologies that make ours obsolete or may use their greater resources to gain market share at our expense. In the production of isobutanol we face competition from DuPont, which has announced plans to develop and market isobutanol through Butamax, a joint venture with BP. Additionally, a number of companies including Cathay Industrial Biotech, Ltd., Green Biologics Ltd., METabolic Explorer, S.A., TetraVitae Bioscience, Inc. and Cobalt Technologies, Inc. are developing n-butanol production capability from a variety of renewable feedstocks. In the plastics, fibers, rubber and other polymers markets, we face competition from incumbent petroleum-derived products, other renewable isobutanol producers and renewable n-butanol producers. Our competitive position versus the incumbent petroleum-derived products and other renewable butanol producers may not be favorable. Petroleum-derived products have dominated the market for many years and there is substantial 50 Table of Contents existing infrastructure for production from petroleum sources, which may impede our ability to establish a position in these markets. Other isobutanol and n- butanol companies may develop technologies that prove more effective than our isobutanol production technology, or more adept at marketing their production. Additionally, one small company in France, Global Bioenergies, S.A., is pursuing the production of isobutylene from renewable carbohydrates directly. Since conversion of isobutanol to butenes such as isobutylene is a key step in producing many plastics, fibers, rubber and other polymers from our isobutanol, this direct production of renewable isobutylene, if successful, could limit our opportunities in these markets. In the gasoline blendstock market, we will compete with renewable ethanol producers (including those working to produce ethanol from cellulosic feedstocks), producers of alkylate from petroleum and producers of other blendstocks, all of whom may reduce our ability to obtain market share or maintain our price levels. For example, Coskata, Inc. is developing a hybrid thermochemical-biocatalytic process to produce ethanol from a variety of feedstocks. If any of these competitors succeed in producing blendstocks more efficiently, in higher volumes or offering superior performance than our isobutanol, our financial performance may suffer. Furthermore, if our competitors have more success marketing their products or reach development or supply agreements with major customers, our competitive position may also be harmed. In the production of other cellulosic biofuels, key competitors include Shell Oil, BP, DuPont-Danisco Cellulosic Ethanol LLC, Abengoa Bioenergy, S.A., POET, LLC, ICM, Mascoma, Range Fuels, Inbicon A/S, INEOS New Planet BioEnergy LLC, Coskata, Inc., Archer Daniels Midland Company, BlueFire Ethanol, Inc., KL Energy Corporation, ZeaChem Inc., Iogen Corporation, Qteros, Inc., AE Biofuels, Inc. and many smaller start-up companies. If these companies are successful in establishing low cost cellulosic ethanol or other fuel production, it could negatively impact the market for our isobutanol as a gasoline blendstock. In the markets for the hydrocarbon fuels that we plan to produce from our isobutanol, we will face competition from the incumbent petroleum-based fuels industry. The incumbent petroleum-based fuels industry makes the vast majority of the world’s gasoline, jet and diesel fuels and blendstocks. It is a mature industry with a substantial base of infrastructure for the production and distribution of petroleum-derived products. The size, established infrastructure and significant resources of many companies in this industry may put us at a substantial competitive disadvantage, and delay or prevent the establishment and growth of our business in the market for hydrocarbon fuels. Biofuels companies may also provide substantial competition in the hydrocarbon fuels market. With respect to production of renewable gasoline, biofuels competitors are numerous and include both large established companies and numerous startups. For example, Virent has developed a process for making gasoline and gasoline blendstocks and Kior, Inc. has developed a technology platform to convert biomass into renewable crude oil. Many other competitors may do so as well. In the jet fuel market, we will face competition from companies such as Synthetic Genomics, Inc., Solazyme, Inc., Sapphire Energy, Inc. and Exxon-Mobil Corporation that are pursuing production of jet fuel from algae-based technology. LS9 and others are also targeting production of jet fuels from renewable biomass. We may also face competition from companies working to produce jet fuel from hydrogenated fatty acid methyl esters. In the diesel fuels market, competitors such as Amyris and LS9 have developed technologies for production of alternative hydrocarbon diesel fuel. In the plastics, fibers, rubber and other polymers markets and the hydrocarbon fuels market, we expect to face vigorous competition from existing technologies. The companies we may compete with may have significantly greater access to resources, far more industry experience and/or more established sales and marketing networks. Additionally, since we do not plan to produce most of these products directly, we depend on the willingness of potential customers to purchase and convert our isobutanol into their products. These potential customers generally have well-developed manufacturing processes and arrangements with suppliers of the chemical components of their products and may have a resistance to changing these processes and components. These potential customers frequently impose lengthy and complex product qualification procedures on their suppliers, influenced by consumer preference, manufacturing considerations such as process changes and capital and other costs associated with transitioning to alternative components, supplier operating history, regulatory issues, product liability and other factors, many of which are unknown to, or not well understood by, us. 51 Table of Contents Satisfying these processes may take many months or years. If we are unable to convince these potential customers that our isobutanol is comparable or superior to the alternatives that they currently use, we will not be successful in entering these markets and our business will be adversely affected. We also face challenges in marketing our isobutanol. Though we intend to enhance our competitiveness through partnerships and joint development agreements, some competitors may gain an advantage by securing more valuable partnerships for developing their hydrocarbon products than we are able to obtain. Such partners could include major petrochemical, refiner or end-user companies. Additionally, petrochemical companies may develop alternative pathways for hydrocarbon production that may be less expensive, and may utilize more readily available infrastructure than that used to convert our isobutanol into hydrocarbon products. We plan to enter into partnerships through which we will sell significant volumes of our isobutanol to partners who will convert it into useful hydrocarbons or use it as a fuel or fuel blendstock. However, if any of these partners instead negotiate supply agreements with other buyers for the isobutanol they purchase from us, or sell it into the open market, they may become competitors of ours in the field of isobutanol sales. This could significantly reduce our profitability and hinder our ability to negotiate future supply agreements for our isobutanol, which could have an adverse effect on our performance. Our ability to compete successfully will depend on our ability to develop proprietary products that reach the market in a timely manner and are technologically superior to and/or are less expensive than other products on the market. Many of our competitors have substantially greater production, financial, research and development, personnel and marketing resources than we do. In addition, certain of our competitors may also benefit from local government subsidies and other incentives that are not available to us. As a result, our competitors may be able to develop competing and/or superior technologies and processes, and compete more aggressively and sustain that competition over a longer period of time than we could. Our technologies and products may be rendered obsolete or uneconomical by technological advances or entirely different approaches developed by one or more of our competitors. As more companies develop new intellectual property in our markets, the possibility of a competitor acquiring patent or other rights that may limit our products or potential products increases, which could lead to litigation. Furthermore, to secure purchase agreements from certain customers, we may be required to enter into exclusive supply contracts, which could limit our ability to further expand our sales to new customers. Likewise, major potential customers may be locked into long-term, exclusive agreements with our competitors, which could inhibit our ability to compete for their business. In addition, various governments have recently announced a number of spending programs focused on the development of clean technologies, including alternatives to petroleum-based fuels and the reduction of carbon emissions. Such spending programs could lead to increased funding for our competitors or a rapid increase in the number of competitors within those markets. Our limited resources relative to many of our competitors may cause us to fail to anticipate or respond adequately to new developments and other competitive pressures. This failure could reduce our competitiveness and market share, adversely affect our results of operations and financial position and prevent us from obtaining or maintaining profitability. The terms of our loan and security agreements with Lighthouse and TriplePoint may restrict our ability to engage in certain transactions. In December 2006, we entered into a loan and security agreement with Lighthouse and in August 2010, we entered into the Gevo Loan Agreement and the Original Agri-Energy Loan Agreement with TriplePoint, each of which has since been amended. Pursuant to the terms of these loan and security agreements, we cannot engage in certain actions, including disposing of certain assets, granting or otherwise allowing the imposition of a lien against certain assets, incurring certain kinds of additional indebtedness or acquiring or merging with other entities unless we receive the prior approval of Lighthouse and/or TriplePoint. If Lighthouse and/or TriplePoint do not consent to any of the actions that we desire to take, we could be prohibited from engaging in transactions which could be beneficial to our business and our stockholders or could be forced to pay the outstanding balance 52 Table of Contents of the loan(s) in full. As of December 31, 2011, the aggregate outstanding principal and final payment under our loan from Lighthouse was approximately $1.2 million, and the aggregate outstanding principal and final payments under the loans from TriplePoint was approximately $29.5 million. Business interruptions could delay us in the process of developing our products and could disrupt our sales. We are vulnerable to natural disasters and other events that could disrupt our operations, such as riots, civil disturbances, war, terrorist acts, floods, infections in our laboratory or production facilities or those of our contract manufacturers and other events beyond our control. We do not have a detailed disaster recovery plan. In addition, we may not carry sufficient business interruption insurance to compensate us for losses that may occur. Any losses or damages we incur could have a material adverse effect on our cash flows and success as an overall business. Furthermore, ICM may terminate our commercialization agreement if a force majeure event interrupts our operations for a specified period of time. We engage in hedging transactions, which could harm our business. We currently engage in hedging transactions to offset some of the effects of volatility in commodity prices. We expect to engage in similar transactions once we begin commercial isobutanol production. We generally follow a policy of using exchange-traded futures contracts to reduce our net position in agricultural commodity inventories and forward cash purchase contracts to manage price risk. Hedging activities may cause us to suffer losses, such as if we purchase a position in a declining market or sell a position in a rising market. Furthermore, hedging exposes us to the risk that the other party to a hedging contract defaults on its obligation. We may vary the hedging strategies we undertake, which could leave us more vulnerable to increases in commodity prices or decreases in the prices of isobutanol, distiller’s grains or ethanol. Losses from hedging activities and changes in hedging strategy could have a material adverse effect on our operations. Ethical, legal and social concerns about genetically engineered products and processes, and similar concerns about feedstocks grown on land that could be used for food production, could limit or prevent the use of our products, processes and technologies and limit our revenues. Some of our processes involve the use of genetically engineered organisms or genetic engineering technologies. Additionally, our feedstocks may be grown on land that could be used for food production, which subjects our feedstock sources to “food versus fuel” concerns. If we are not able to overcome the ethical, legal and social concerns relating to genetic engineering or food versus fuel, our products and processes may not be accepted. Any of the risks discussed below could result in increased expenses, delays or other impediments to our programs or the public acceptance and commercialization of products and processes dependent on our technologies or inventions. Our ability to develop and commercialize one or more of our technologies, products, or processes could be limited by the following factors: • • • • • public attitudes about the safety and environmental hazards of, and ethical concerns over, genetic research and genetically engineered products and processes, which could influence public acceptance of our technologies, products and processes; public attitudes regarding, and potential changes to laws governing ownership of genetic material, which could harm our intellectual property rights with respect to our genetic material and discourage others from supporting, developing or commercializing our products, processes and technologies; public attitudes and ethical concerns surrounding production of feedstocks on land which could be used to grow food, which could influence public acceptance of our technologies, products and processes; governmental reaction to negative publicity concerning genetically engineered organisms, which could result in greater government regulation of genetic research and derivative products; and governmental reaction to negative publicity concerning feedstocks produced on land which could be used to grow food, which could result in greater government regulation of feedstock sources. 53 Table of Contents The subjects of genetically engineered organisms and food versus fuel have received negative publicity, which has aroused public debate. This adverse publicity could lead to greater regulation and trade restrictions on imports of genetically engineered products or feedstocks grown on land suitable for food production. The biocatalysts that we develop have significantly enhanced characteristics compared to those found in naturally occurring enzymes or microbes. While we produce our biocatalysts only for use in a controlled industrial environment, the release of such biocatalysts into uncontrolled environments could have unintended consequences. Any adverse effect resulting from such a release could have a material adverse effect on our business and financial condition, and we may be exposed to liability for any resulting harm. Compliance with stringent laws and regulations may be time consuming and costly, which could adversely affect the commercialization of our biofuels products. Any biofuels developed using our technologies will need to meet a significant number of regulations and standards, including regulations imposed by the U.S. Department of Transportation, the EPA, the FAA, various state agencies and others. Any failure to comply, or delays in compliance, with the various existing and evolving industry regulations and standards could prevent or delay the commercialization of any biofuels developed using our technologies and subject us to fines and other penalties. We use hazardous materials in our business and we must comply with environmental laws and regulations. Any claims relating to improper handling, storage or disposal of these materials or noncompliance with applicable laws and regulations could be time consuming and costly and could adversely affect our business and results of operations. Our research and development processes involve the use of hazardous materials, including chemical, radioactive and biological materials. Our operations also produce hazardous waste. We cannot eliminate entirely the risk of accidental contamination or discharge and any resultant injury from these materials. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of, and human exposure to, these materials. We may be sued for any injury or contamination that results from our use or the use by third parties of these materials, and our liability may exceed our total assets. Although we believe that our activities conform in all material respects with environmental laws, there can be no assurance that violations of environmental, health and safety laws will not occur in the future as a result of human error, accident, equipment failure or other causes. Compliance with applicable environmental laws and regulations may be expensive, and the failure to comply with past, present, or future laws could result in the imposition of fines, third-party property damage, product liability and personal injury claims, investigation and remediation costs, the suspension of production or a cessation of operations, and our liability may exceed our total assets. Liability under environmental laws can be joint and several and without regard to comparative fault. Environmental laws could become more stringent over time imposing greater compliance costs and increasing risks and penalties associated with violations, which could impair our research, development or production efforts and harm our business. As isobutanol has not previously been used as a commercial fuel in significant amounts, its use subjects us to product liability risks, and we may have difficulties obtaining product liability insurance. Isobutanol has not previously been used as a commercial fuel and research regarding its impact on engines and distribution infrastructure is ongoing. Though we intend to test our isobutanol further before its commercialization, there is a risk that it may damage engines or otherwise fail to perform as expected. If isobutanol degrades the performance or reduces the lifecycle of engines, or causes them to fail to meet emissions standards, market acceptance could be slowed or stopped, and we could be subject to product liability claims. Furthermore, due to isobutanol’s lack of commercial history as a fuel, we are uncertain as to whether we will be able to acquire product liability insurance on reasonable terms, or at all. A significant product liability lawsuit could substantially impair our production efforts and could have a material adverse effect on our business, reputation, financial condition and results of operations. 54 Table of Contents We may not be able to use some or all of our net operating loss carry-forwards to offset future income. In general, under Section 382 of the Internal Revenue Code of 1986, as amended, a corporation that undergoes an “ownership change” is subject to limitation on its ability to utilize its pre-change net operating loss carry-forwards, or net operating losses, to offset future taxable income. We may have experienced one or more ownership changes in prior years, and the issuance of shares in connection with our initial public offering may itself have triggered an ownership change; hence our ability to utilize our net operating losses to offset income if we attain profitability may be limited. In addition, these loss carry- forwards expire at various times through 2031. We believe that it is more likely than not that these carry-forwards will not result in any material future tax savings. Enacted and proposed changes in securities laws and regulations have increased our costs and may continue to increase our costs in the future. In recent years, there have been several changes in laws, rules, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Sarbanes-Oxley Act of 2002 and various other new regulations promulgated by the SEC and rules promulgated by the national securities exchanges. The Dodd-Frank Act, enacted in July 2010, expands federal regulation of corporate governance matters and imposes requirements on publicly-held companies, including us, to, among other things, provide stockholders with a periodic advisory vote on executive compensation and also requires compensation committee reforms and enhanced pay-for-performance disclosures. While some provisions of the Dodd-Frank Act are effective upon enactment, others will be implemented upon the SEC’s adoption of related rules and regulations. The scope and timing of the adoption of such rules and regulations is uncertain and accordingly, the cost of compliance with the Dodd-Frank Act is also uncertain. These and other new or changed laws, rules, regulations and standards are, or will be, subject to varying interpretations in many cases due to their lack of specificity. As a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Our efforts to comply with evolving laws, regulations and standards are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Further, compliance with new and existing laws, rules, regulations and standards may make it more difficult and expensive for us to maintain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. Members of our board of directors and our principal executive officer and principal financial officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified directors and executive officers, which could harm our business. We continually evaluate and monitor regulatory developments and cannot estimate the timing or magnitude of additional costs we may incur as a result. If we fail to maintain an effective system of internal controls, we might not be able to report our financial results accurately or prevent fraud; in that case, our stockholders could lose confidence in our financial reporting, which would harm our business and could negatively impact the price of our stock. Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. In addition, Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal control over financial reporting and have our chief executive officer and chief financial officer certify as to the accuracy and completeness of our financial reports. The process of implementing our internal controls and complying with Section 404 is expensive and time consuming, and requires significant attention of management. We cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Even if we conclude that our internal control over financial reporting 55 Table of Contents provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (“GAAP”), because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our results of operations or cause us to fail to meet our reporting obligations. Our management has concluded that there are no material weaknesses in our internal controls over financial reporting as of December 31, 2011. However, there can be no assurance that our controls over financial processes and reporting will be effective in the future or that additional material weaknesses or significant deficiencies in our internal controls will not be discovered in the future. If we, or our independent registered public accounting firm, discover a material weakness, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our stock price. In addition, a delay in compliance with Section 404 could subject us to a variety of administrative sanctions, including SEC action, ineligibility for short form resale registration, the suspension or delisting of our common stock from the stock exchange on which it is listed and the inability of registered broker- dealers to make a market in our common stock, which would further reduce our stock price and could harm our business. Certain Risks Related to Owning Our Stock We are subject to anti-takeover provisions in our amended and restated certificate of incorporation and amended and restated bylaws and under Delaware law that could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders. Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws may delay or prevent an acquisition of us. Among other things, our amended and restated certificate of incorporation and amended and restated bylaws provide for a board of directors which is divided into three classes with staggered three-year terms, provide that all stockholder action must be effected at a duly called meeting of the stockholders and not by a consent in writing, and further provide that only our board of directors may call a special meeting of the stockholders. These provisions may also frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, who are responsible for appointing the members of our management team. Furthermore, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits, with some exceptions, stockholders owning in excess of 15% of our outstanding voting stock from merging or combining with us. Finally, our charter documents establish advance notice requirements for nominations for election to our board of directors and for proposing matters that can be acted upon at stockholder meetings. Although we believe these provisions together provide an opportunity to receive higher bids by requiring potential acquirers to negotiate with our board of directors, they would apply even if an offer to acquire our company may be considered beneficial by some stockholders. Concentration of ownership among our existing officers, directors and principal stockholders may prevent other stockholders from influencing significant corporate decisions and depress our stock price. Our officers, directors and existing stockholders who held at least 5% of our common stock as of December 31, 2011 together control approximately 74.24% of our outstanding common stock with a single stockholder (Khosla Ventures I, L.P. and its affiliates (“Khosla Ventures”)) controlling approximately 27.38% of our outstanding common stock. If these officers, directors and principal stockholders or a group of our principal stockholders act together, they will be able to exert a significant degree of influence over our management and affairs and control matters requiring stockholder approval, including the election of directors and approval of mergers or other business combination transactions. The interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders. For instance, officers, directors and principal stockholders, 56 Table of Contents acting together, could cause us to enter into transactions or agreements that we would not otherwise consider. Similarly, this concentration of ownership may have the effect of delaying or preventing a change in control of our company otherwise favored by our other stockholders. This concentration of ownership could depress our stock price. Our stock price may be volatile, and your investment in our stock could suffer a decline in value. The market price of shares of our common stock could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including: • • • • • • • • • • • • • • • • • • • • • • actual or anticipated fluctuations in our financial condition and operating results; the position of our cash and cash equivalents; actual or anticipated changes in our growth rate relative to our competitors; actual or anticipated fluctuations in our competitors’ operating results or changes in their growth rate; announcements of technological innovations by us, our partners or our competitors; announcements by us, our partners or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; the entry into, modification or termination of licensing arrangements; the entry into, modification or termination of marketing arrangements; the entry into, modification or termination of research, development, commercialization, supply, off-take or distribution arrangements; additions or losses of customers; additions or departures of key management or scientific personnel; competition from existing products or new products that may emerge; issuance of new or updated research reports by securities or industry analysts; fluctuations in the valuation of companies perceived by investors to be comparable to us; litigation involving us, our general industry or both; disputes or other developments related to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies; changes in existing laws, regulations and policies applicable to our business and products, including the RFS program, and the adoption or failure to adopt carbon emissions regulation; announcements or expectations of additional financing efforts; sales of our common stock by us or our stockholders; share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; general market conditions in our industry; and general economic and market conditions, including the recent financial crisis. Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of shares of our 57 Table of Contents common stock. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business. A significant portion of our total outstanding shares of common stock is restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well. Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market price of our common stock. Our three largest stockholders as of December 31, 2011 beneficially own, collectively, approximately 47.2% of our outstanding common stock. If one or more of them were to sell a substantial portion of the shares they hold, it could cause our stock price to decline. In addition, as of December 31, 2011, there were 3,261,739 shares subject to outstanding options that are or will become eligible for sale in the public market to the extent permitted by any applicable vesting requirements and Rules 144 and 701 under the Securities Act of 1933, as amended (the “Securities Act”). Moreover, certain holders of our outstanding common stock (including shares of our common stock issuable upon the exercise of outstanding warrants) have rights, subject to some conditions, to require us to file registration statements covering their shares and to include their shares in registration statements that we may file for ourselves or other stockholders. We registered 6,751,194 shares of common stock which are reserved for issuance under our stock incentive plans and our employee stock purchase plan. These shares can be freely sold in the public market upon issuance and once vested. If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our stock price and trading volume could decline. The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our stock or change their opinion of our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline. We do not anticipate paying cash dividends, and accordingly, stockholders must rely on stock appreciation for any return on their investment. The terms of our loan and security agreement with Lighthouse currently prohibits us from paying cash dividends on our common stock and we do not anticipate paying cash dividends in the future. As a result, only appreciation of the price of our common stock, which may never occur, will provide a return to stockholders. Investors seeking cash dividends should not invest in our common stock. Under the terms of the Amended Agri-Energy Loan Agreement, subject to certain limited exceptions, Agri-Energy is only permitted to pay dividends if the following conditions are satisfied: (i) the retrofit of the Agri-Energy Facility is complete and the facility is producing commercial volumes of isobutanol, (ii) its net worth is greater than or equal to $10 million, and (iii) no event of default has occurred and is continuing under the agreement. Accordingly, even if we decide to pay cash dividends in the future, we may not be able to access cash generated by Agri-Energy if amounts are then outstanding pursuant to the Amended Agri-Energy Loan Agreement. 58 Table of Contents Item 1B. Unresolved Staff Comments None. Item 2. Properties Our corporate headquarters and research and development laboratories, included in our Gevo, Inc. Segment, are located in Englewood, Colorado, where we occupy approximately 29,865 square feet of office and laboratory space. Our lease for this facility expires in July 2013. We believe that the facility that we currently lease is adequate for our needs for the immediate future and that, should it be needed, additional space can be leased to accommodate any future growth. Our subsidiary, Agri-Energy, included in our Gevo Development/Agri-Energy Segment, owns and operates an ethanol production facility in Luverne, Minnesota that we are currently retrofitting to isobutanol production. This production facility is on approximately 55 acres of land and contains approximately 50,000 square feet of building space. The production facility was originally constructed in 1998. The land and buildings are owned by Agri-Energy which has granted to TriplePoint a mortgage lien and security interest in such property to secure its obligations under the Amended Agri-Energy Loan Agreement with TriplePoint and its guaranty of Gevo, Inc.’s obligations under the Gevo Loan Agreement with TriplePoint. Item 3. Legal Proceedings On January 14, 2011, Butamax filed a complaint (the “Complaint”) in the United States District Court for the District of Delaware, as Case No. 1:11-cv- 00054-UNA, alleging that we are infringing one or more claims made in U.S. Patent No. 7,851,188 (the “’188 Patent”), entitled “Fermentive Production of Four Carbon Alcohols.” The ’188 Patent, which has been assigned to Butamax, claims certain recombinant microbial host cells that produce isobutanol and methods for the production of isobutanol using such host cells. Butamax is seeking a declaratory judgment, injunctive relief, damages and costs, including attorney’s fees and expenses. On March 25, 2011, we filed a response to the Complaint, denying Butamax’s allegations of infringement and raising affirmative defenses. On August 11, 2011, Butamax amended the Complaint to include allegations that we are infringing one or more claims made in U.S. Patent No. 7,993,889 (the “’889 Patent”), also entitled “Fermentive Production of Four Carbon Alcohols.” The ’889 Patent, which has been assigned to Butamax, claims methods for producing isobutanol using certain recombinant yeast microorganisms expressing an engineered isobutanol biosynthetic pathway. On September 22, 2011, Butamax filed a motion requesting a preliminary injunction with respect to the alleged infringement of the ’899 Patent. We believe that the amended Complaint is without merit and will continue to aggressively defend our freedom to operate. On September 13, 2011, we filed an answer to the amended Complaint in which we asserted counterclaims against Butamax and DuPont for infringement of U.S. Patent No. 8,017,375, entitled “Yeast Organism Producing Isobutanol at a High Yield” and U.S. Patent No. 8,017,376, entitled “Methods of Increasing Dihydroxy Acid Dehydratase Activity to Improve Production of Fuels, Chemicals, and Amino Acids,” both of which were recently awarded to us by the USPTO. Our counterclaim seeks a declaratory judgment, injunctive relief, damages and costs, including attorney’s fees and expenses. On January 24, 2012, we filed an additional complaint in the United States District Court for the District of Delaware, as Case No. 1:99-mc-09999, alleging that Butamax and DuPont are infringing one or more claims made in U.S. Patent No. 8,101,808 (the “’808 Patent”) entitled “Recovery of Higher Alcohols from Dilute Aqueous Solutions.” The ’808 Patent claims methods to produce a C3-C6 alcohol—for example, isobutanol—through fermentation and to recover that alcohol from the fermentation medium. We are seeking a declaratory judgment, injunctive relief, damages and costs, including attorney’s fees and expenses. Item 4. Mine Safety Disclosures Not Applicable. 59 Table of Contents Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market for Common Stock Our common stock has been traded on the NASDAQ Global Market under the symbol “GEVO” since February 9, 2011. The following table sets forth, for the period indicated, the high and low sales prices for our common stock, as reported by the NASDAQ Global Market, for the periods indicated below: PART II Second Quarter Third Quarter Fourth Quarter Holders of Record Common Stock Price 2011 High 26.36 18.75 8.86 Low 12.79 5.44 5.18 The last sale price of our common stock on January 31, 2012, as reported by the NASDAQ Global Market, was $8.665 per share. As of January 31, 2012, there were approximately 48 holders of record of our common stock. We believe that the number of beneficial owners is substantially greater than the number of record holders because a large portion of our common stock is held of record through brokerage firms in “street name.” Dividends No cash dividends have been paid on our common stock to date, nor do we anticipate paying dividends in the foreseeable future. Equity Compensation Plan Information The information required by Item 201(d) of Regulation S-K will be included in the definitive proxy statement for our 2012 annual meeting of stockholders or an amendment to this Report to be filed with the SEC within 120 days after our fiscal year ended December 31, 2011, and is incorporated into this Report by reference. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities Sales of Unregistered Securities None. Use of Proceeds from Public Offering of Common Stock On February 14, 2011, we closed our initial public offering. The offer and sale of 8,222,500 shares of our common stock in the initial public offering were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-168792), which was declared effective by the SEC on February 8, 2011. The principal underwriters of the initial public offering were UBS Securities LLC, Piper Jaffray & Co. and Citigroup Global Markets Inc. We raised approximately $110.4 million in net proceeds after deducting underwriting discounts and commissions of $8.6 million and other offering costs of $4.3 million. There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the SEC pursuant to Rule 424(b). We have and intend to continue to invest these funds in demand deposit accounts or short-term investment-grade securities. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. 60 Table of Contents Item 6. Selected Financial Data The following selected historical consolidated financial data should be read together with our consolidated financial statements and the accompanying notes appearing in Part II, Item 8 of this Report, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The selected historical consolidated financial data in this section is not intended to replace our historical consolidated financial statements and the accompanying notes. Our historical results are not necessarily indicative of our future results. We derived the consolidated statements of operations data for 2011, 2010 and 2009 and the consolidated balance sheet data as of December 31, 2011 and 2010 from our audited consolidated financial statements in Part II, Item 8 of this Report. The consolidated statement of operations data for 2008 and 2007 and the consolidated balance sheet data as of December 31, 2009 and 2008 has been derived from our audited consolidated financial statements not included in this Report. The balance sheet data as of December 31, 2007 have been derived from our unaudited consolidated financial statements not included in this Report. The data should be read in conjunction with the consolidated financial statements, related notes, and other financial information included herein. For purposes of the disclosure contained in this section, “the company,” “we,” “us” and “our” refer to Gevo, Inc. and Gevo Development, as the context requires, and include Agri- Energy following the completion of its acquisition on September 22, 2010. Consolidated statements of operations data: Revenues: Ethanol sales and related products Licensing revenue Grant and research and development program revenue Total revenues Cost of goods sold Gross margin Operating expenses: Research and development Selling, general and administrative Lease termination costs Loss on abandonment or disposal of assets Total operating expenses Loss from operations Other (expense) income: Interest expense Interest and other income Loss from change in fair value of warrant liabilities(1) Other (expense) income—net Net loss Deemed dividend—amortization of beneficial conversion feature on Series D-1 convertible preferred stock Net loss attributable to Gevo, Inc. common stockholders 2011 2010 Years Ended December 31, 2009 2008 2007 $ 63,742,000 — 807,000 64,549,000 (60,588,000) 3,961,000 (19,753,000) (28,890,000) — (11,000) (48,654,000) (44,693,000) $ (3,577,000) 85,000 (29,000) (3,521,000) (48,214,000) $ 14,765,000 138,000 1,493,000 16,396,000 (13,446,000) 2,950,000 (14,820,000) (23,643,000) — — (38,463,000) (35,513,000) $ (2,374,000) 108,000 (2,333,000) (4,599,000) (40,112,000) $ — — 660,000 660,000 — 660,000 (10,508,000) (8,699,000) — (22,000) (19,229,000) (18,569,000) $ (1,103,000) 277,000 (490,000) (1,316,000) (19,885,000) $ — — 208,000 208,000 — 208,000 (7,376,000) (6,065,000) — (78,000) (13,519,000) (13,311,000) $ (1,385,000) 154,000 — (1,231,000) (14,542,000) $ — — 275,000 275,000 — 275,000 (3,699,000) (2,601,000) (894,000) (243,000) (7,437,000) (7,162,000) $ (140,000) 76,000 — (64,000) (7,226,000) (1,094,000) $(49,308,000) (2,778,000) $(42,890,000) — $(19,885,000) — $(14,542,000) — $(7,226,000) 61 Table of Contents Consolidated statements of operations data: Net loss per share of common stock attributable to Gevo, Inc. 2011 2010 2009 2008 2007 Years Ended December 31, stockholders, basic and diluted $ (2.15) $ (37.44) $ (18.07) $ (13.83) $ (7.40) Weighted-average number of common shares used in computing net loss per share of common stock, basic and diluted 22,909,916 1,145,500 1,100,294 1,051,848 976,909 (1) On January 1, 2009, we changed the manner in which we account for warrants that are exercisable into preferred stock, as described in Note 11 to our consolidated financial statements. Consolidated balance sheet data: Cash and cash equivalents Total assets Fair value of warrant liabilities Secured long-term debt, including current portion, net of debt discounts Total liabilities Accumulated deficit Total stockholders’ equity (deficit) 2011 $ 94,225,000 133,030,000 — 28,243,000 40,893,000 (134,635,000) 92,137,000 62 2010 $ 15,274,000 51,609,000 2,034,000 20,432,000 31,650,000 (85,327,000) 19,959,000 As of December 31, 2009 $ 21,240,000 26,383,000 982,000 7,701,000 11,300,000 (42,437,000) 15,083,000 2008 $ 9,635,000 13,094,000 — 8,178,000 9,936,000 (23,137,000) 3,158,000 2007 63,000 $ 2,391,000 — 1,579,000 3,029,000 (8,595,000) (638,000) Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this Report. In addition to historical financial information, the following discussion contains forward- looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Report, particularly in “Risk Factors.” Overview We are a renewable chemicals and next generation biofuels company focused on the development and commercialization of alternatives to petroleum-based products. Our initial commercialization and development efforts are focused on isobutanol, a four carbon alcohol produced from renewable sources. Without any modification, our isobutanol has applications as a specialty chemical and a fuel blendstock. Our isobutanol can also be converted into a wide variety of hydrocarbons which form the basis for the production of many products, including rubber, plastics, fibers, and other polymers and hydrocarbon fuels, including jet and diesel fuel. In September 2009, Gevo, Inc. formed Gevo Development to develop isobutanol production assets using GIFT . Gevo Development has a flexible ® business model and aims to secure access to existing ethanol capacity either through joint venture or direct acquisition. For financial reporting purposes, we have determined that we have two operating segments. Our Gevo, Inc. Segment is responsible for all research and development activities related to the future production of isobutanol, maintaining and protecting our intellectual property portfolio, developing future markets for our isobutanol and providing corporate oversight services. Our Gevo Development/Agri-Energy Segment is currently responsible for the production of ethanol and related products. At December 31, 2011, we are considered to be in the development stage as our primary activities, since incorporation, have been conducting research and development, business development, business and financial planning, establishing our facilities, recruiting personnel and raising capital. Successful completion of our research and development program, and ultimately, the attainment of profitable operations are dependent upon future events, including completion of our development activities resulting in sales of isobutanol or isobutanol-derived products and/or technology, obtaining adequate financing to complete our development activities, obtaining adequate financing to acquire access to and complete the retrofit of ethanol plants to isobutanol production, market acceptance and demand for our products and services, and attracting and retaining qualified personnel. Initial Public Offering On February 14, 2011, we completed our initial public offering issuing 8,222,500 shares of common stock at an offering price of $15.00 per share, resulting in net proceeds of $110,408,000, after deducting underwriting discounts and commissions and other offering costs. Upon the closing of the initial public offering, our outstanding shares of convertible preferred stock were automatically converted into 16,329,703 shares of common stock and our outstanding convertible preferred stock warrants were automatically converted into common stock warrants to purchase a total of 398,032 shares of common stock. Agri-Energy Acquisition In September 2010, we acquired the Agri-Energy Facility, a 22 MGPY ethanol production facility in Luverne, Minnesota that we are currently retrofitting to produce isobutanol. We paid a purchase price of $20.6 million for property, plant and equipment and, in addition, we acquired and paid $4.9 million for working capital. We paid the aggregate purchase price with available cash reserves and by borrowing $12.5 million from TriplePoint (as described in “Management’s Discussion and Analysis of Financial Condition and Results of 63 Table of Contents Operations—Liquidity and Capital Resources—Secured long-term debt”). We project capital costs for the retrofit of the Agri-Energy Facility to be $22 million, which includes equipment necessary in order to switch between ethanol and isobutanol production plus additional capital which will be used to increase the potential production capacity of the facility. In addition to the retrofit of the Agri-Energy Facility to produce isobutanol, in July 2011 we made the strategic decision to invest in an enhanced yeast seed train at the facility to accelerate the adoption of improved yeast at the Agri-Energy Facility and at future plants, maintain direct oversight over our yeast material and provide on-site yeast production. We estimate capital costs for the enhanced yeast seed train to be approximately $10 million. We expect to begin commercial production of isobutanol at the Agri-Energy Facility in the first half of 2012. We currently derive revenue from the sale of ethanol, distiller’s grains and other related products produced as part of the ethanol production process and we expect that we will continue to record revenue from these sources during the period of the retrofit of the Agri-Energy Facility to isobutanol production. Continued ethanol production during the retrofit will allow us to retain local staff for the future operation of the plant, maintain the equipment and generate cash flow. As the production of ethanol is not our intended business, we will continue reporting our operating results as a development stage company during the retrofit process and only intend to report revenue from the sale of ethanol on an interim basis until we begin to generate revenue from sales of isobutanol. Accordingly, the historical operating results of Agri-Energy and the operating results reported during the retrofit to isobutanol production will not be indicative of future operating results for Agri-Energy or Gevo, Inc. once isobutanol production commences. Ethanol plant operations are highly dependent on commodity prices, especially prices for corn, ethanol, distiller’s grains and natural gas. Because the market prices of these commodities are not always correlated, at times ethanol production may be unprofitable. As commodity price volatility poses a significant threat to our margin structure, we have implemented a risk management strategy focused on securing favorable operating margins. We monitor market prices of corn, natural gas and other input costs relative to the prices for ethanol and distiller’s grains in Luverne, Minnesota, the location of the Agri-Energy Facility. We also seek to create offsetting positions by using derivative instruments, fixed-price purchases and sales contracts or a combination of strategies. Our primary focus is not to manage general price movements, such as seeking to minimize the cost of corn consumed, but rather to acquire corn, net of exchange-traded contracted amounts, at prices that reflect the then-current pricing for ethanol sold. By using a variety of risk management tools and hedging strategies we believe we will be able to maintain a disciplined approach to risk. Revenues, Cost of Goods Sold and Operating Expenses Revenues We currently derive revenue from the sale of ethanol, distiller’s grains, other products produced as part of the ethanol production process and we expect that we will continue to record revenue from these sources during the period of the retrofit of the Agri-Energy Facility to isobutanol production. Our grant and research and development program revenue consists of the following: (i) revenues relating to government research grants and cooperative agreements; (ii) research services; and (iii) the procurement of our products for purposes of certification and testing. Cost of Goods Sold and Gross Margin Our cost of goods sold includes costs directly associated with our ethanol production process such as costs for direct materials, direct labor and certain plant overhead costs. Direct materials consist of corn feedstock, denaturant and process chemicals. Direct labor includes compensation of personnel directly involved in the operation of the Agri-Energy Facility. Plant overhead costs primarily consist of plant utilities and plant depreciation. Cost of goods sold is mainly affected by the cost of corn and natural gas. Corn is the most significant raw material cost. We purchase natural gas to power steam generation in the ethanol production process and to dry the distiller’s grains. We enter into forward purchase contracts and exchange-traded futures 64 Table of Contents contracts associated with corn. Accordingly, our cost of goods sold also includes gains or losses from our forward purchase contracts and changes in fair value on our exchange-traded futures contracts, other than those designated under the normal purchases and normal sales scope exception. See discussion of accounting for derivatives in our Critical Accounting Policies and Estimates below. Our gross margin is defined as our total revenues less our cost of goods sold. Research and Development Our research and development costs consist of expenses incurred to identify, develop and test our technologies for the production of isobutanol and the development of downstream applications thereof. Research and development expense includes personnel costs (including stock-based compensation), consultants and related contract research, facility costs, supplies, depreciation and amortization expense on property, plant and equipment used in product development, license fees paid to third parties for use of their intellectual property and patent rights and other overhead expenses incurred to support our research and development programs. Research and development expenses also include upfront fees and milestone payments made under licensing agreements and payments for sponsored research and university research gifts to support research at academic institutions. Selling, General and Administrative Selling, general and administrative expense consists of personnel costs (including stock-based compensation), consulting and service provider expenses (including patent counsel-related costs), legal fees, marketing costs, corporate insurance costs, occupancy-related costs, depreciation and amortization expenses on property, plant and equipment not used in our product development programs or recorded in cost of goods sold, travel and relocation and hiring expenses. Following completion of our initial public offering in February 2011, we experienced a significant increase in certain selling, general and administrative expenses, such as, additional compliance costs to operate as a public company. We expect to continue to incur these costs to comply with the corporate governance, internal control and similar requirements applicable to public companies, as well as increased costs for insurance, costs related to the hiring of additional personnel and payment to outside consultants, attorneys and accountants. We also record selling, general and administrative expenses for the operations of the Agri-Energy Facility that include administrative and oversight, labor, insurance and other operating expenses. Critical Accounting Policies and Estimates Our consolidated financial statements have been prepared in conformity with GAAP and include our accounts and the accounts of our wholly owned subsidiaries, Gevo Development and Agri-Energy. The preparation of our consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the applicable periods. Management bases its estimates, assumptions and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our consolidated financial statements, which, in turn, could change the results from those reported. Our management evaluates its estimates, assumptions and judgments on an ongoing basis. While our significant accounting policies are more fully described in Note 1 to our consolidated financial statements included in this Report, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and reflect the more significant judgments and estimates that we use in the preparation of our consolidated financial statements. 65 Table of Contents Stock-Based Compensation Our stock-based compensation expense includes expenses associated with stock-based awards granted to employees, board members and non-employees. The estimated fair value of stock options is determined on the date of grant and recorded to expense over the requisite service period, generally the vesting period. We estimate the fair value of stock option awards using the Black-Scholes option-pricing model which requires judgments to be made, including estimating: (i) the expected life of an award; (ii) stock price volatility; and (iii) prior to our initial public offering in February 2011, estimating the fair value of our common stock. The Black-Scholes option-pricing model calculates the estimated fair value of stock options using the following inputs: (i) expected life; (ii) expected volatility; (iii) risk-free interest rate; (iv) expected dividend yield rate; (v) exercise price; and (vi) closing price of our common stock on the date of grant. Due to our limited history of grant activity, we use the “simplified method” to estimate the expected stock option life permitted by the SEC as the arithmetic average of the total contractual term of the option and its vesting period. We calculate the estimated volatility rate based on selected comparable public companies, due to a lack of historical information regarding the volatility of our stock price. We will continue to analyze the historical stock price volatility assumption as more historical data for our common stock becomes available. The risk-free interest rate assumption is based on the U.S. Treasury yield curve in effect on the date of grant for instruments with a term similar to the expected life of the related option. No dividends are expected to be paid. Forfeitures have been estimated based upon our historical and expected forfeiture experience. The estimated fair value of a stock option using the Black-Scholes option-pricing model is impacted significantly by changes in a company’s stock price. For example, all other assumptions being equal, the estimated fair value of a stock option will increase as the closing price of a company’s stock increases, and vice versa. Prior to the closing of our initial public offering, we were a private company and, as such, we were required to estimate the fair value of our common stock. In the absence of a public trading market, we determined a reasonable estimate of the then-current fair value of our common stock for purposes of granting stock-based compensation based on multiple criteria. We determined the fair value of our common stock utilizing methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants Practice Aid, “Valuation of Privately-Held-Company Equity Securities Issued as Compensation.” After the closing of our initial public offering in February 2011, the fair value of our common stock is no longer an estimate as it is based upon the closing price of our stock on the NASDAQ Global Market on the date of grant Revenue Recognition Following consummation of the Agri-Energy acquisition on September 22, 2010, we record revenue from the sale of ethanol and related products. 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 or determinable; and collectability is reasonably assured. Ethanol and related products are generally shipped free on board shipping point. Collectability of revenue is reasonably assured based on historical evidence of collectability between us and our customers. In accordance with our agreements for the marketing and sale of ethanol and related products, commissions due to marketers are deducted from the gross sales price at the time payment is remitted. Ethanol and related products sales are recorded net of commissions. Revenue related to our government research grants and cooperative agreements is recognized in the period during which the related costs are incurred, provided that the conditions under the awards have been met and only perfunctory obligations are outstanding. Other research and development program revenue consists of research services and the procurement of our products for purposes of certification and testing, such as that conducted by the USAF. Revenue from research services is recognized over the relevant performance period of the contract. Revenue from the procurement of our products for purposes of certification and testing is recognized upon the transfer of risk of loss and title to the customer. 66 Table of Contents Cost of Goods Sold and Derivatives Our activities expose us to a variety of market risks, including the effects of changes in commodity prices. These financial exposures are monitored and managed by our management as an integral part of our overall risk-management program. Our risk management program focuses on the unpredictability of financial and commodities markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on our cost of goods sold and operating results. We enter into forward purchase contracts for corn to be used in the production of ethanol. Prior to January 1, 2011, we recorded forward purchase contracts as derivative assets or liabilities on our consolidated balance sheets at fair value. The changes in the fair value of these derivatives were recognized as a component of cost of goods sold in our consolidated statements of operations. Effective January 1, 2011, we elected the “normal purchases and normal sales scope exception” guidance of GAAP for our forward purchase contracts and, as a result, they were not marked to market during 2011. To qualify for the normal purchases and normal sales scope exception, a contract must provide for the purchase or sale of commodities in quantities that are expected to be used or sold over a reasonable period of time in the normal course of operations. We also enter into exchange-traded futures contracts for corn as a means of managing exposure to changes in corn prices. These contracts are recorded as derivative assets or liabilities on our consolidated balance sheets at fair value. Changes in the fair value during a reporting period are recognized to cost of goods sold in our consolidated statements of operations. Both our forward purchase and exchange-traded futures contracts are considered to be derivatives and they do not include any credit risk related contingent features. We have not entered into these derivative financial instruments for trading or speculative purposes, and we have not designated any of our derivatives as hedges for financial accounting purposes. Impairment of Long-lived Assets Our long-lived assets consist primarily of assets associated with the acquisition and retrofit of the Agri-Energy Facility. In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360, Property, Plant, and Equipment, we assess impairment of long-lived assets for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate, legal or regulatory factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; or expectations that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. The carrying amount of a long-lived asset may not be recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. Although our cash flow forecasts are based on assumptions that are consistent with our plans, there is significant exercise of judgment involved in determining the cash flow attributable to a long-lived asset over its estimated remaining useful life. As a result, the carrying amounts of our long-lived assets could be reduced through impairment charges in the future. Given our current period cash flow combined with a history of operating losses, we evaluated the recoverability of the book value of our property, plant and equipment. We performed an undiscounted cash flow analysis, the results of which indicate that the sum of the undiscounted cash flows is substantially in excess of the book value of the property, plant and equipment. Accordingly, no impairment charges have been recorded during the period from June 9, 2005 (date of inception) to December 31, 2011. We have not yet generated positive cash flows from operations and such cash flows may not materialize for a significant period in the future, if ever. Additionally, we may make changes to our business plan that will result in changes to the expected cash flows from long-lived assets. As a result, it is possible that future evaluations of long-lived assets may result in impairment. 67 Table of Contents Result of Operations Comparison of the years ended December 31, 2011 and 2010 Revenue: Ethanol sales and related products, net Licensing revenue Grant and research and development program revenue Total revenues Cost of goods sold Gross margin Operating expenses: Research and development Selling, general and administrative Loss on abandonment or disposal of assets Total operating expenses Loss from operations Other (expense) income: Interest and other expense Interest and other income Loss from change in fair value of warrant liabilities Other expense—net Net loss Deemed dividend—amortization of beneficial conversion feature on Series D-1 preferred stock Net loss attributable to Gevo, Inc. common stockholders Year ended December 31, 2010 $ Increase (decrease) % Change Year ended December 31, 2011 $ 63,742,000 — 807,000 64,549,000 (60,588,000) 3,961,000 (19,753,000) (28,890,000) (11,000) (48,654,000) (44,693,000) (3,577,000) 85,000 (29,000) (3,521,000) (48,214,000) $ 14,765,000 138,000 1,493,000 16,396,000 (13,446,000) 2,950,000 (14,820,000) (23,643,000) — (38,463,000) (35,513,000) (2,374,000) 108,000 (2,333,000) (4,599,000) (40,112,000) $48,977,000 (138,000) (686,000) 48,153,000 47,142,000 1,011,000 4,933,000 5,247,000 11,000 10,191,000 9,180,000 1,203,000 (23,000) (2,304,000) (1,078,000) 8,102,000 332% N/A (46%) 294% 351% 34% 33% 22% N/A 26% 26% 51% (21%) (99%) (23%) 20% (61%) 15% (1,094,000) $ (49,308,000) (2,778,000) (42,890,000) $ (1,684,000) $ 6,418,000 Revenues: The increase in ethanol sales and related products of $48,977,000, or 332%, is due to our acquisition of Agri-Energy on September 22, 2010. The decrease in grant and research and development program revenue of $686,000, or 46%, primarily relates to a grant award from the U.S. Department of Energy that ended in August 2010. Cost of goods sold and gross margin: The increase in cost of goods sold of $47,142,000, or 351%, relates to our acquisition of Agri-Energy on September 22, 2010. Prior to our acquisition of Agri-Energy, we did not incur or report cost of goods sold. Research and development: The increase in research and development expense of $4,933,000, or 33%, was primarily driven by increased operating expenses at our demonstration facilities and laboratory supplies and services used in our development efforts of $3,202,000 and increased payroll and related expenses, including stock-based compensation, of $2,416,000, partially offset by achievement of a research milestone under our licensing agreement with Cargill, for which we recorded $1,578,000 in expense during the year ended December 31, 2010. We also incurred increases in consulting, contractor and outside service provider expenses of $441,000. Research and development expense includes stock-based compensation expense of $1,045,000 and $682,000 for the year ended December 31, 2011 and 2010, respectively. 68 Table of Contents Selling, general and administrative: The increase in selling, general and administrative expense of $5,247,000, or 22%, was primarily driven by increased payroll and related expenses, including relocation and recruiting expenses, of $3,025,000, increased litigation related costs of $2,897,000, increased legal, accounting, tax and public company filing and related fees of $1,770,000, increased public relations and corporate development costs of $1,014,000, increased business development consultant costs of $558,000 and increased administrative costs for Agri-Energy of $333,000, partially offset by a decrease in stock-based compensation of $3,916,000 and a decrease of $716,000 in management fees paid to CDP. Selling, general and administrative expense included stock-based compensation expense of $6,687,000 and $10,603,000 for the year ended December 31, 2011 and 2010, respectively. Included in stock-based compensation expense for the year ended December 31, 2011, is $3,488,000 related to the warrant issued to CDP whereby we recognized stock-based compensation based on the fair value of the warrant on September 22, 2010. We valued the warrant at $13,956,000 on September 22, 2010, and recognized 50% of this amount as stock- based compensation on September 22, 2010. We are recognizing the remaining 50% over the 24 month vesting period that began on September 22, 2010. Included in stock-based compensation expense for year ended December 31, 2010, is $7,851,000 related to the warrant issued to CDP. Interest and other expense: Interest and other expense increased by $1,203,000, or 51%, due to the incurrence of additional debt in the third quarter of 2010 and the fourth quarter of 2011, higher interest rates on our secured long-term debt facility and higher amortization of debt discounts and debt issue costs related to our debt with Lighthouse and TriplePoint. Loss from change in fair value of warrant liabilities: The decrease in loss from change in fair value of warrant liabilities of $2,304,000 related to the change in the fair value of our preferred stock warrants and the conversion of these warrants to common stock warrants upon the closing of our initial public offering on February 14, 2011. The preferred stock warrants were recorded as derivatives and recognized in our consolidated balance sheet as a liability through the closing date of our initial public offering. Upon the closing of our initial public offering and the conversion of the underlying preferred stock to common stock, all outstanding warrants to purchase shares of preferred stock converted into warrants to purchase shares of our common stock and were no longer considered to be derivatives. Deemed dividend—amortization of beneficial conversion feature on Series D-1 preferred stock: The decrease in deemed dividend—amortization of beneficial conversion feature on Series D-1 preferred stock of $1,684,000 related to our issuance of Series D-1 preferred stock between March and May of 2010. Following the closing of our initial public offering on February 14, 2011, no additional amortization of the beneficial conversion feature relating to our Series D-1 preferred stock has been recorded. 69 Table of Contents Comparison of years ended December 31, 2010 and 2009 Revenue: Ethanol sales and related products Licensing revenue Grant revenue Total revenues Cost of Goods Sold Gross Margin Operating Expenses: Research and development Selling, general and administrative Loss on abandonment or disposal of assets Total operating expenses Loss from operations Other (expense) income: Interest expense Interest and other income Loss from change in fair value of warrant liabilities Other expense—net Net loss attributable to Gevo, Inc. common stockholders Deemed dividend—amortization of beneficial conversion feature on Series D-1 preferred stock Net loss attributable to Gevo, Inc. common stockholders Year Ended December 31, 2010 Year Ended December 31, 2009 $ Increase (decrease) % Change $ 14,765,000 138,000 1,493,000 16,396,000 (13,446,000) 2,950,000 (14,820,000) (23,643,000) — (38,463,000) (35,513,000) (2,374,000) 108,000 (2,333,000) (4,599,000) (40,112,000) $ — — 660,000 660,000 — 660,000 (10,508,000) (8,699,000) (22,000) (19,229,000) (18,569,000) (1,103,000) 277,000 (490,000) (1,316,000) (19,885,000) $ 14,765,000 138,000 833,000 15,736,000 13,446,000 2,290,000 4,312,000 14,944,000 (22,000) 19,234,000 16,944,000 1,271,000 (169,000) 1,843,000 3,283,000 20,227,000 (2,778,000) $(42,890,000) — $ (19,885,000) 2,778,000 $ 23,005,000 N/A N/A 126% 2,384% N/A 347% 41% 172% N/A 100% 91% 115% (61%) 376% 249% 102% N/A 116% Revenues: The increase in ethanol sales and related products of $14,765,000 is due to our acquisition of Agri-Energy on September 22, 2010. The increase in grant revenue of $833,000, or 126%, primarily relates to additional awards from the U.S. Department of Agriculture and the Army Research Laboratory that commenced in the fourth quarter of 2009. The increase in licensing revenue of $138,000 relates to our licensing of certain materials. Cost of goods sold and gross margin: The increase in cost of goods sold of $13,446,000 relates to our acquisition of Agri-Energy on September 22, 2010. Prior to our acquisition of Agri-Energy, we did not incur or report cost of goods sold. Cost of goods sold includes costs for direct labor, materials and certain plant overhead costs. Our gross margin is derived from our total revenues less our cost of goods sold. Research and development: The increase in research and development expense of $4,312,000, or 41%, was primarily driven by increased payroll and related expenses of $971,000, increased stock-based compensation of $408,000, an increase in depreciation expense of $1,123,000, which includes depreciation of equipment at our demonstration facility, and achievement of milestones under our licensing agreement with Cargill for an increase of $646,000. Our overall research and development expense also reflected an increase in laboratory supplies and services of $873,000 and an increase of $483,000 related to increased levels of consulting and contract research activity, including work under our contractor and development agreements with VIB, the California Institute of Technology, UCLA and Cargill, partially offset by a decrease in operating expenses at our demonstration plant at St. Joseph, Missouri in the amount of $303,000. Research and development expense includes stock-based compensation expense of $274,000 and $682,000 in 2009 and 2010, respectively. 70 Table of Contents Selling, general and administrative: The increase in selling, general and administrative expense of $14,944,000, or 172%, was primarily driven by an increase in stock-based compensation expense of $9,934,000 and legal fees of $1,734,000. Selling, general and administrative expense included stock-based compensation expense of $671,000 and $10,603,000 in 2009 and 2010, respectively. Included in stock-based expense for the year ended December 31, 2010 is $7,851,000 related to the warrant issued to CDP and $774,000 related to the purchase of the 10% minority interest in Gevo Development from CDP, both of which are described in Notes 6 and 13 to our consolidated financial statements. The increase in legal fees related primarily to our acquisition of Agri-Energy, legal expenses to support our intellectual property positions and other general legal fees. We also incurred increased payroll and related expenses, including relocation and recruiting, but excluding stock-based compensation, of $1,398,000, increased our use of consultants resulting in an increased consulting expense of $519,000 and incurred higher management fees to CDP of $188,000. In addition, we reported increases in travel and related costs, public relations, and plant diligence costs of $866,000 in the aggregate. Interest expense: Interest expense increased by $1,271,000, or 115%, due to the incurrence of additional debt, higher interest rates on our secured long-term debt facility and higher amortization of debt discounts and debt issue costs related to our debt with Lighthouse and TriplePoint. In August 2010, we paid off a portion of our Lighthouse debt, consisting of $5,000,000 in principal and $250,000 in final payment, which resulted in accelerating the recognition of $332,000 of debt discounts to non-cash interest expense. Interest and other income: The decrease in interest and other income of $169,000, or 61%, is primarily due to $144,000 received in 2009 under a Colorado state incentive program related to local jobs creation in connection with our relocation from Pasadena, California to Englewood, Colorado. Loss from change in fair value of warrant liabilities: The increase in loss from change in fair value of warrant liabilities of $1,843,000, or 376%, related to the change in the fair value of our preferred stock warrants, which were recorded as derivatives and recognized in our consolidated balance sheet as a liability during 2010. Deemed dividend—amortization of beneficial conversion feature on Series D-1 preferred stock: The increase in deemed dividend—amortization of beneficial conversion feature on Series D-1 convertible preferred stock of $2,778,000 related to our issuance of Series D-1 convertible preferred stock between March and May 2010. Liquidity and Capital Resources On February 14, 2011, we completed our initial public offering issuing 8,222,500 shares of common stock at an offering price of $15.00 per share, resulting in net proceeds of $110,408,000, after deducting underwriting discounts and commissions and other offering costs. From inception to December 31, 2011, we have funded our operations primarily through the sale of preferred equity securities, borrowings under our secured debt financing arrangements, revenues earned and the net proceeds from our initial public offering. To date, we have not generated any revenues from the sale of isobutanol. As of December 31, 2011, our cash and cash equivalents totaled $94,225,000. Based on our current level of operations and anticipated growth, we believe that our existing cash and cash equivalents on hand will provide funds for ongoing operations, planned capital expenditures and working capital requirements for at least the next 12 months. If we exceed planned capital expenditure to complete the retrofit of our Agri-Energy Facility to isobutanol production or other estimates to prepare for commercial production of isobutanol at our Agri-Energy Facility, we may need to raise additional capital through future equity or debt issuances. Possible future joint ventures, tolling arrangements or acquisitions involving ethanol plant assets for retrofit to isobutanol production are subject to our raising additional capital through future equity or debt issuances. Successful completion of our research and development program and the attainment of profitable operations are dependent upon future events, including completion of our development activities resulting in sales of isobutanol or isobutanol-derived products and/or technology, achieving market acceptance and demand for our products and services and attracting and retaining qualified personnel. 71 Table of Contents We will require additional funding to achieve our goal of producing and selling over 350 million gallons of isobutanol in 2015. The following table sets forth the major sources and uses of cash for each of the periods set forth below: Net cash used in operating activities Net cash used in investing activities Net cash provided by financing activities Operating Activities Year ended December 31, 2011 $ (33,611,000) (8,033,000) $ $ 120,595,000 Year ended December 31, 2010 $ (20,896,000) $ (25,702,000) 40,632,000 $ Year ended December 31, 2009 $ (16,099,000) (2,942,000) $ 30,646,000 $ Our primary uses for cash from operating activities are personnel-related expenses and research and development-related expenses including costs incurred under development agreements, for licensing of technology and for the operation of our demonstration facilities. Cash used in operating activities of $33,611,000 in 2011 reflected our net loss of $48,214,000, partially offset by changes in operating assets and liabilities of $2,067,000 and non-cash charges totaling $12,536,000. Non-cash charges included stock-based compensation of $6,826,000, depreciation and amortization of $4,600,000, non-cash interest expense and amortization of debt discounts of $928,000, loss from change in derivatives of $142,000, and a loss from change in fair value of warrant liabilities of $29,000. The net source of cash from our operating assets and liabilities of $2,067,000 primarily reflected an increase in accounts payable and accrued expenses, including amounts payable to ICM for work performed on the retrofit of the Agri-Energy Facility. Cash used in operating activities of $20,896,000 in 2010 reflected our net loss of $40,112,000 partially offset by non-cash charges totaling $16,233,000 and changes in operating assets and liabilities of $2,983,000. Non-cash charges included depreciation and amortization of $3,188,000, stock-based compensation of $10,511,000, loss from change in fair value of warrant liabilities of $2,333,000, and non-cash interest expense and amortization of debt discounts of $762,000, which were offset by a gain in derivative assets of $561,000. The net source of cash from our operating assets and liabilities of $2,983,000 primarily reflected accrued milestone payments under our Cargill license agreement that are payable in 2011 and 2012, an increase in the corn payable account at Agri-Energy and amounts accrued for deferred offering costs and work performed by ICM. Cash used in operating activities of $16,099,000 in 2009 reflected our net loss of $19,885,000 partially offset by non-cash charges totaling $3,203,000 and changes in operating assets and liabilities of $583,000. Non-cash charges included depreciation and amortization of $1,511,000, stock-based compensation of $945,000, loss from change in fair value of warrant liabilities of $490,000, and non-cash interest expense and amortization of debt discounts of $235,000. The net source of cash from our operating assets and liabilities of $583,000 primarily reflected accrued milestone payments under our Cargill license agreement that were payable in 2010. Investing Activities In 2011, cash used in investing activities included $8,015,000 for capital expenditures, including $6,253,000 related to our ongoing retrofit of the Agri- Energy Facility to isobutanol production which is recorded as construction in progress. In 2010, cash used in investing activities included $806,000 for capital expenditures and $24,936,000 related to the purchase and acquisition of Agri- Energy (aggregate cash purchase price of $25,521,000 less cash acquired of $585,000). In 2009, cash used in investing activities was primarily related to $2,982,000 of capital expenditures, including $2,586,000 for construction of our demonstration facility in St. Joseph, Missouri. 72 Table of Contents Financing Activities In 2011, cash provided by financing activities was $120,595,000, primarily due to the gross proceeds from our initial public offering of $114,704,000, less payment of offering costs during the period of $1,692,000, gross borrowings from TriplePoint of $10,000,000, less principal repayments of $1,897,000 on our debt with Lighthouse. In 2010, cash provided by financing activities was $40,632,000, primarily due to the net proceeds of $31,411,000 from the sale of Series D-1 preferred stock, gross borrowings from TriplePoint of $17,500,000, proceeds from the exercise of a preferred stock warrant of $592,000 less repayment of $5,000,000 of principal and $250,000 of final payment under our debt agreement with Lighthouse, payment of deferred offering costs relating to our initial public offering of $2,604,000 and payment of debt issue costs relating to our TriplePoint debt of $1,033,000. In 2009, cash provided by financing activities was $30,646,000, primarily due to net proceeds of $31,154,000 from the sale of Series D preferred stock. In addition, we repaid a net amount of $508,000 under our secured debt arrangement with Lighthouse. Agri-Energy Acquisition In September 2010, we acquired the Agri-Energy Facility that we are currently retrofitting to produce isobutanol. We paid a purchase price of approximately $20.6 million. In addition, we acquired and paid $4.9 million for working capital. We paid the aggregate purchase price with available cash reserves and by borrowing $12.5 million under the Original Agri-Energy Loan Agreement with TriplePoint (as described below). We project capital costs for the retrofit of the Agri-Energy Facility to be $22 million, which includes equipment necessary in order to switch between ethanol and isobutanol production plus additional capital which will be used to increase the potential production capacity of the facility. In addition to the retrofit of the Agri-Energy Facility to produce isobutanol, in July 2011 we made the strategic decision to invest in an enhanced yeast seed train at the facility to accelerate the adoption of improved yeast at the Agri-Energy Facility and at future plants, maintain direct oversight over our yeast material and provide on-site yeast production. We estimate capital costs for the enhanced yeast seed train to be approximately $10 million. We expect to begin commercial production of isobutanol at the Agri-Energy Facility in the first half of 2012. While we believe we will have the ability to reverse the retrofit and switch between ethanol and isobutanol production, there is no guarantee that this will be the case and it is not our intent to do so. Redfield Energy, LLC On June 15, 2011, we entered into the Joint Venture Agreement with Redfield and executed the second amended and restated operating agreement of Redfield (together, the “Joint Venture Documents”). Under the terms of the Joint Venture Documents, we have agreed to work with Redfield to retrofit Redfield’s approximately 50 MGPY ethanol production facility located near Redfield, South Dakota for the commercial production of isobutanol. Under the terms of the Joint Venture Agreement, Redfield has issued 100 Class G membership units in Redfield (the “Class G Units”) to our wholly-owned subsidiary, Gevo Development, in exchange for a payment of $1,000. Gevo Development is the sole holder of Class G units, which entitle Gevo Development to certain information and governance rights with respect to Redfield, including the right to appoint two members of Redfield’s 11-member board of managers. The Class G units currently carry no interest in the allocation of profits, losses or other distributions of Redfield and no voting rights. Such rights will vest upon the commencement of commercial isobutanol production at the Redfield Facility, at which time we anticipate consolidating Redfield’s operations because we anticipate we will control the activities that are most significant to the entity. We will be responsible for all costs associated with the retrofit of the Redfield Facility. Redfield will remain responsible for certain expenses incurred by the facility including certain repair and maintenance expenses and any costs necessary to ensure that the facility is in compliance with applicable environmental laws. We anticipate 73 Table of Contents that the Redfield Facility will continue its current ethanol production activities during much of the retrofit. Once the retrofit assets have been installed, the ethanol production operations will be suspended to enable testing of the isobutanol production capabilities of the facility (the “Performance Testing Phase”). During the Performance Testing Phase, we will be entitled to receive all revenue generated by the Redfield Facility and will make payments to Redfield to cover the costs incurred by Redfield to operate the facility plus the profits, if any, that Redfield would have received if the facility had been producing ethanol during that period (the “Facility Payments”). We have also agreed to maintain an escrow fund during the Performance Testing Phase as security for our obligation to make the Facility Payments. If certain conditions are met, commercial production of isobutanol at the Redfield Facility will begin upon the earlier of the date upon which certain production targets have been met or the date upon which the parties mutually agree that commercial isobutanol production at the Redfield Facility will be commercially viable at the then-current production rate. At that time, (i) we will have the right to appoint a total of four members of Redfield’s 11-member board of managers, and (ii) the voting and economic interests of the Class G units will vest and Gevo Development, as the sole holder of the Class G Units, will be entitled to a percentage of Redfield’s profits, losses and distributions, to be calculated based upon the demonstrated isobutanol production capabilities of the Redfield Facility. Gevo Development, or one of its affiliates, will be the exclusive marketer of all products produced by the Redfield Facility once commercial production of isobutanol has begun. Additionally, we will license the technology necessary to produce isobutanol at the facility to Redfield, subject to the continuation of the marketing arrangement described above. In the event that the isobutanol production technology fails or Redfield is permanently prohibited from using such technology, we will forfeit the Class G Units and lose the value of our investment in Redfield. Gevo, Inc. entered into a guaranty effective as of June 15, 2011, pursuant to which it has unconditionally and irrevocably guaranteed the payment by Gevo Development of any and all amounts owed by Gevo Development pursuant to the terms and conditions of the Joint Venture Agreement and certain other agreements that Gevo Development and Redfield expect to enter into in connection with the retrofit of the Redfield Facility. We have begun the project engineering and permitting process of the retrofit of the Redfield Facility. As of December 31, 2011, we have incurred $66,000 in costs for the retrofit of the Redfield Facility, which has been recorded on our balance sheet in deposits and other assets. Cargill, Incorporated During February 2009, we entered into a license agreement with Cargill to obtain certain biological materials and license patent rights to use yeast biocatalyst owned by Cargill. Under the agreement, Cargill has granted us an exclusive, royalty-bearing license, with limited rights to sublicense, to use the patent rights in a certain field, as defined in the agreement. The agreement contains five milestone payments totaling approximately $4,300,000 that are payable after each milestone is completed. During 2009, two milestones were completed and we recorded the related milestone amounts, along with an up-front signing fee, totaling $875,000 to research and development expense. During March 2010, we completed milestone number three and recorded the related milestone amount of $2,000,000 to research and development 74 Table of Contents expense at its present value amount of $1,578,000 because the milestone payment will be paid over a period greater than twelve months from the date it was incurred. At December 31, 2011, the present value of the liability, $924,000, was recorded in accounts payable and accrued expenses. Milestones number four and five included in the license agreement representing potential payments of up to $1,500,000 have not been met as of December 31, 2011 and no amount has been recorded as a liability for these milestones. Upon commercialization of a product which uses the Cargill biological material or is otherwise covered by the patent rights under this agreement, a royalty based on net sales is payable by us, subject to a minimum royalty amount per year, as defined in the agreement, and up to a maximum amount per year. We may terminate this agreement at any time upon 90 days’ written notice. Unless terminated earlier, the agreement remains in effect until the later of December 31, 2025 and the date that no licensed patent rights remain. The accretion of the liability was recorded to interest expense. Sasol Chemical Industries Limited On July 29, 2011, we entered into an international off-take and distribution agreement with Sasol to market and distribute renewable isobutanol globally. The agreement has an initial term of three years and appoints Sasol as a non-exclusive distributor of high-purity isobutanol in North and South America and as the exclusive distributor for high-purity isobutanol for solvent and chemical intermediate applications in the rest of the world. Beginning upon our first commercial sale of high-purity isobutanol, if Sasol desires to maintain its exclusive distribution rights, Sasol is obligated to either purchase certain minimum quantities of high-purity isobutanol or pay us applicable shortfall fees and we are obligated to either supply Sasol with certain minimum quantities of high-purity isobutanol or pay Sasol applicable shortfall fees. No amounts have been recorded under this agreement as of December 31, 2011. Secured Long-Term Debt Lighthouse Loan and Security Agreement. On December 18, 2006, we entered into a loan and security agreement, as amended, with Lighthouse. On August 6, 2010, we repaid $5,000,000 in outstanding principal, as well as $250,000 of the final payment, under the promissory note issued in connection with the loan and security agreement, using amounts borrowed pursuant to a loan and security agreement with TriplePoint, as well as available cash reserves. As of December 31, 2011, our outstanding principal balance on our loan with Lighthouse was $1,037,000. The promissory note bears interest at a rate of 12% per annum, required interest only payments during the year ended December 31, 2010, and requires principal plus interest repayments of equal amounts over the 18 months commencing January 1, 2011 and a final payment of $204,000 due on July 1, 2012. Under the terms of the loan agreement, we are prohibited from granting a security interest in our intellectual property assets to any other entity until Lighthouse is paid in full, and Lighthouse maintains a security interest in the assets, including equipment and fixtures, financed by the proceeds of each original loan advance made under the loan agreement until such time as the loan is paid in full. The Lighthouse agreement does not contain financial ratio covenants, but does impose certain affirmative and negative covenants, which include prohibiting us from paying any dividends or distributions or creating any liens against the collateral as defined in the agreement, as amended. We cannot borrow any further amounts under our agreement with Lighthouse. At December 31, 2011, we were in compliance with the Lighthouse debt covenants. Gevo Loan Agreement. In August 2010, concurrently with the execution of the agreement to acquire Agri-Energy in Luverne, Minnesota, Gevo, Inc. entered into the Gevo Loan Agreement with TriplePoint, pursuant to which we borrowed $5,000,000. The Gevo Loan Agreement includes customary affirmative and negative covenants for agreements of this type and events of default, including, disposing of certain assets, granting or otherwise allowing the imposition of a lien against certain assets, incurring certain amounts of additional indebtedness, or acquiring or merging with another entity, excluding Agri-Energy, unless we receive the prior approval of TriplePoint. The aggregate amount outstanding under the Gevo Loan Agreement bears interest at a rate equal to 13%, is subject to an end-of-term payment equal to 8% of the amount borrowed and is secured by substantially all of the assets of Gevo, Inc., other than our intellectual property. This loan is also secured by 75 Table of Contents substantially all of the assets of Agri-Energy, LLC. Additionally, under the terms of each of (i) the Gevo Loan Agreement and (ii) Gevo, Inc.’s guarantee of Agri- Energy’s obligations under the Original Agri-Energy Loan Agreement described below, Gevo, Inc. is prohibited from granting a security interest in its intellectual property assets to any other entity until both TriplePoint loans are paid in full. The loan matures on August 31, 2014, and provides for interest-only payments during the first 24 months. An additional interest-only period of 6 months may be elected in the event that Gevo, Inc. begins producing isobutanol at its Agri- Energy Facility by June 30, 2012. We used the funds from this loan to repay a portion of our existing indebtedness with Lighthouse. At December 31, 2011, we were in compliance with the debt covenants under the Gevo Loan Agreement. Original Agri-Energy Loan Agreement. In August 2010, Gevo Development borrowed $12,500,000 from TriplePoint to finance its acquisition of Agri- Energy. In September 2010, upon completion of the acquisition, the loan and security agreement was amended to make Agri-Energy the borrower under the facility. This Original Agri-Energy Loan Agreement includes customary affirmative and negative covenants for agreements of this type and events of default. The aggregate amount outstanding under the Original Agri-Energy Loan Agreement bears interest at a rate equal to 13% and is subject to an end-of-term payment equal to 8% of the amount borrowed. The loan is secured by the equity interests of Agri-Energy held by Gevo Development and substantially all the assets of Agri-Energy. The loan matures on September 1, 2014, and provides for interest-only payments during the first 24 months. An additional interest-only period of 6 months may be elected in the event that Gevo, Inc. begins producing isobutanol at its Agri-Energy Facility by June 30, 2012. The loan is guaranteed by Gevo, Inc. pursuant to a continuing guaranty executed by Gevo, Inc. in favor of TriplePoint, which is secured by substantially all of the assets of Gevo, Inc., other than its intellectual property. At December 31, 2011, we were in compliance with the debt covenants under the Original Agri-Energy Loan Agreement. Amended Agri-Energy Loan Agreement. In October 2011, Agri-Energy entered into the Amended Agri-Energy Loan Agreement with TriplePoint. The Amended Agri-Energy Loan Agreement amends and restates the Original Agri-Energy Loan Agreement. The Amended Agri-Energy Loan Agreement includes customary affirmative and negative covenants for agreements of this type and events of default. The Amended Agri-Energy Loan Agreement provides Agri- Energy with additional term loan facilities of up to $15,000,000 (which amount is in addition to the existing $12,500,000 term loan provided under the Original Agri-Energy Loan Agreement, which term loan remains in place under the Amended Agri-Energy Loan Agreement), the proceeds of which will be used to pay a portion of the costs, expenses, and other amounts associated with the retrofit of the Agri-Energy Facility to produce isobutanol. The loan matures on October 31, 2015 with the last monthly amortization payment due on the date of such advance. The aggregate amount outstanding under the New Loan bears interest at a rate of 11% and is subject to an end-of-term payment equal to 5.75% of the amount borrowed. The New Loan provides for interest-only payments through July 1, 2012 and an additional interest-only period of 6 months on the New Loan may be elected in the event that we have received net offering proceeds of at least $75 million from one or more secondary equity offerings by June 30, 2012. Any borrowings in excess of 50% of the amount incurred for the retrofit the Agri-Energy Facility, calculated as incurred in total by 6.5 months from the date of the advance, must be immediately repaid to TriplePoint. On October 20, 2011, Agri-Energy borrowed $10,000,000 under the Amended Agri-Energy Loan Agreement. On January 6, 2012, Agri-Energy borrowed an additional $5,000,000 under this facility, bringing the total borrowed under the New Loan at January 6, 2012 to $15,000,000. Upon our request and the additional approval of TriplePoint, we may borrow an additional $5,000,000 under the Amended Agri-Energy Loan Agreement increasing the maximum size of the New Loan to $20,000,000. At December 31, 2011, we were in compliance with the debt covenants under the Amended Agri-Energy Loan Agreement. The Amended Agri-Energy Loan Agreement provides that Agri-Energy will secure all of its obligations under the Amended Agri-Energy Loan Agreement and any other loan documents by granting to TriplePoint a security interest in and lien upon all or substantially all of its assets. Gevo, Inc. has guaranteed Agri- Energy’s obligations under the Amended Agri-Energy Loan Agreement. As additional security, concurrently with the execution of the Amended Agri-Energy Loan Agreement, (i) Gevo Development entered into a limited recourse continuing guaranty in favor of TriplePoint, (ii) Gevo Development entered into an amended and restated limited recourse membership interest pledge agreement in favor of TriplePoint, pursuant to which it pledged the 76 Table of Contents membership interests of Agri-Energy as collateral to secure the obligations under its guaranty and (iii) Gevo, Inc. entered into an amendment to its security agreement with TriplePoint, which secures its guarantee of Agri-Energy’s obligations (including up to $32,500,000 in term loans) under the Amended Agri- Energy Loan Agreement. Additionally, concurrent with the execution of the Amended Agri-Energy Loan Agreement, we entered into a warrant agreement with TriplePoint pursuant to which TriplePoint is entitled to purchase up to 188,442 shares of our common stock, par value $0.01, on the terms and subject to the conditions set forth in the warrant agreement, at a price per share of $7.96, subject to adjustment. As of December 31, 2011, we have issued warrants to purchase 157,035 shares of our common stock under this warrant agreement. The warrants may be exercised until October 20, 2018. Contractual Obligations and Commitments The following summarizes the future commitments arising from our contractual obligations at December 31, 2011: Secured long-term debt, including current portion (before debt discounts)(1) Cash interest payments on long-term debt(1) Operating leases(2) Base fee due to South Hampton Resources, Inc. (3) Payments due under Cargill license agreement (4) Total Total 2012 2013 2014 2015 $30,716,000 6,824,000 797,000 238,000 1,000,000 $39,575,000 $4,458,000 3,410,000 505,000 150,000 1,000,000 $9,523,000 $ 11,309,000 2,374,000 292,000 88,000 — $14,063,000 $ 11,456,000 890,000 — — — $12,346,000 $3,493,000 150,000 — — — $3,643,000 2016 and Thereafter $ — — — — — $ — (1) Includes principal and final/end-of-term payments on our long-term debt as of December 31, 2011. With respect to the TriplePoint loans outstanding at December 31, 2011 under the Gevo Loan Agreement and the Original Agri-Energy Loan Agreement, an additional interest-only period of 6 months may be elected in the event that Gevo, Inc. is producing isobutanol at its Agri-Energy Facility by June 30, 2012. With respect to the TriplePoint loans outstanding at December 31, 2011 under the Amended Agri-Energy Loan Agreement, an additional interest-only period of 6 months may be elected in the event that we have received net offering proceeds of at least $75 million from one or more secondary equity offerings by June 30, 2012. If any or all of the additional interest-only periods are elected, the amounts shown during the years ended December 31, 2012 through 2016 will be different. See “—Secured long-term debt” above for a description of our loans with TriplePoint. In January 2012, we borrowed an additional $5 million from TriplePoint under the Amended Agri-Energy Loan Agreement. For more information on these subsequent events, please see “—Secured long-term debt” above. (2) Our commitments for operating leases primarily relate to our leased facility in Englewood, Colorado. (3) In accordance with our pilot plant processing agreement with South Hampton Resources, we are obligated to pay $12,500 per month for the remainder of the initial term of the agreement which ends in July 2013. (4) During March 2010, we completed milestone number three under our license agreement with Cargill which is being paid as $2,000,000 over eight quarters beginning January 1, 2011. The table above reflects only payment obligations that are fixed and determinable. The above amounts exclude potential payments to be made under our license and other agreements that are based on the achievement of future milestones or royalties on product sales. 77 Table of Contents Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any relationships with unconsolidated entities, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Recent Accounting Pronouncements Refer to Note 1 in the accompanying notes to our consolidated financial statements for a discussion of recent accounting pronouncements, if any. Item 7A. Quantitative and Qualitative Disclosures about Market Risk Interest Rate Risk We had unrestricted cash and cash equivalents totaling $94,225,000 at December 31, 2011. These amounts were invested primarily in demand deposit checking and savings accounts and are held for working capital purposes. The primary objective of our investment activities is to preserve our capital for the purpose of funding our operations and we do not enter into investments for trading or speculative purposes. Accordingly, we believe we do not have material exposure to changes in fair value as a result of changes in interest rates. Declines in interest rates, however, will reduce future investment income. If overall interest rates fell by 10% in 2011, 2010 and 2009, our interest income would have declined by approximately $4,000, $11,000 and $13,000, respectively, assuming consistent investment levels. The terms of our Lighthouse and TriplePoint long-term debt facilities provide for a fixed rate of interest upon advance, and therefore are not subject to fluctuations in market interest rates. Commodity Price Risk We produce ethanol and distiller’s grains from corn and our business is sensitive to changes in the price of corn. 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. Distiller’s 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 by employing a variety of risk management and economic hedging strategies. Strategies include the use of forward purchase contracts and exchange-traded futures contracts. 78 Table of Contents Item 8. Financial Statements and Supplementary Data Index to Gevo, Inc. Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets—As of December 31, 2011 and 2010 Consolidated Statements of Operations—For the years ended December 31, 2011, 2010 and 2009, and for the period from June 9, 2005 (date of inception) to December 31, 2011 Consolidated Statements of Stockholders’ Equity—For the years ended December 31, 2011, 2010 and 2009, and for the period from June 9, 2005 (date of inception) to December 31, 2011 Consolidated Statements of Cash Flows—For the years ended December 31, 2011, 2010 and 2009, and for the period from June 9, 2005 (date of inception) to December 31, 2011 Notes to Consolidated Financial Statements 79 Page 80 81 82 83 86 89 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Gevo, Inc. Englewood, CO We have audited the accompanying consolidated balance sheets of Gevo, Inc. and subsidiaries (a development stage company) (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011, and for the period from June 9, 2005 (date of incorporation) to December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, and for the period from June 9, 2005 (date of incorporation) to December 31, 2011, in conformity with accounting principles generally accepted in the United States of America. The Company is a development stage enterprise engaged in conducting research and development, business development, business and financial planning, establishing its facilities, recruiting personnel and raising capital. As discussed in Note 1 to the consolidated financial statements, successful completion of the Company’s research and development program, and ultimately, the attainment of profitable operations are dependent upon future events, including completion of its development activities resulting in sales of isobutanol or isobutanol-derived products and/or technology, obtaining adequate financing to complete its development activities, obtaining adequate financing to acquire access to and complete the retrofit of ethanol plants to isobutanol production, market acceptance and demand for its products and services and attracting and retaining qualified personnel. As discussed in Note 11 to the consolidated financial statements, the Company has changed its method of accounting for preferred stock warrants as of January 1, 2009. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2012 expressed an unqualified opinion on the Company’s internal control over financial reporting. /s/ DELOITTE & TOUCHE LLP Denver, Colorado February 28, 2012 80 Table of Contents GEVO, INC. CONSOLIDATED BALANCE SHEETS ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable Inventories Prepaid expenses and other current assets Derivative asset Margin deposit Total current assets PROPERTY, PLANT AND EQUIPMENT—Net DEFERRED OFFERING COSTS DEBT ISSUE COSTS DEPOSITS AND OTHER ASSETS TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: December 31, 2011 December 31, 2010 $ 94,225,000 2,938,000 3,814,000 1,283,000 — 474,000 102,734,000 28,777,000 — 1,017,000 502,000 $ 133,030,000 $ 15,274,000 2,830,000 3,765,000 1,040,000 361,000 624,000 23,894,000 23,465,000 3,152,000 929,000 169,000 $ 51,609,000 Accounts payable and accrued expenses Current portion of secured long-term debt—Net of $969,000 and $113,000 discount at December 31, 2011 and $ 12,440,000 $ 7,903,000 2010, respectively Derivative liability Fair value of warrant liabilities Total current liabilities(*) SECURED LONG-TERM DEBT—Net of $1,504,000 and $1,493,000 discount, less current portion, at December 31, 2011 and 2010, respectively OTHER LIABILITIES Total liabilities COMMITMENTS AND CONTINGENCIES STOCKHOLDERS’ EQUITY: Convertible preferred stock, $0.01 par value per share; zero and 15,246,000 shares authorized at December 31, 2011 and 2010, respectively; zero and 14,613,602 shares issued and outstanding at December 31, 2011 and 2010, respectively; aggregate liquidation preference of $0 and $90,660,000 at December 31, 2011 and 2010, respectively Preferred stock, $0.01 par value per share; 5,000,000 and no shares authorized at December 31, 2011 and 2010, respectively; none issued and outstanding at December 31, 2011 and 2010, respectively Common stock, $0.01 par value per share; 100,000,000 and 30,000,000 shares authorized at December 31, 2011 and 2010, respectively; 26,382,058 and 1,160,657 shares issued and outstanding at December 31, 2011 and 2010, respectively Additional paid-in capital Deficit accumulated during development stage Total stockholders’ equity TOTAL 3,491,000 186,000 — 16,117,000 24,752,000 24,000 40,893,000 1,785,000 405,000 2,034,000 12,127,000 18,647,000 876,000 31,650,000 — — 146,000 — 264,000 226,508,000 (134,635,000) 92,137,000 $ 133,030,000 12,000 105,128,000 (85,327,000) 19,959,000 $ 51,609,000 * Liabilities of Gevo, Inc.’s consolidated subsidiaries for which creditors do not have recourse to the general credit of Gevo, Inc. were $4,462,000 and $4,785,000 at December 31, 2011 and 2010, respectively, and are recorded within current liabilities. See notes to consolidated financial statements. 81 Table of Contents GEVO, INC. CONSOLIDATED STATEMENTS OF OPERATIONS REVENUES: Ethanol sales and related products, net Licensing revenue Grant and research and development program revenue Total revenues COST OF GOODS SOLD GROSS MARGIN OPERATING EXPENSES: Research and development Selling, general and administrative Lease termination costs Loss on abandonment or disposal of assets Total operating expenses LOSS FROM OPERATIONS OTHER (EXPENSE) INCOME: Interest and other expense Interest and other income Loss from change in fair value of warrant liabilities Other expense—net NET LOSS 2011 Year Ended December 31, 2010 2009 From June 9, 2005 (Date of Inception) To December 31, 2011 $ 63,742,000 — 807,000 64,549,000 (60,588,000) 3,961,000 (19,753,000) (28,890,000) — (11,000) (48,654,000) (44,693,000) (3,577,000) 85,000 (29,000) (3,521,000) (48,214,000) $ $ $ 14,765,000 138,000 1,493,000 16,396,000 (13,446,000) 2,950,000 — — 660,000 660,000 — 660,000 (14,820,000) (23,643,000) — — (38,463,000) (35,513,000) (2,374,000) 108,000 (2,333,000) (4,599,000) (40,112,000) (10,508,000) (8,699,000) — (22,000) (19,229,000) (18,569,000) (1,103,000) 277,000 (490,000) (1,316,000) (19,885,000) 78,507,000 138,000 3,543,000 82,188,000 (74,034,000) 8,154,000 (57,219,000) (70,325,000) (894,000) (354,000) (128,792,000) (120,638,000) (8,579,000) 721,000 (2,852,000) (10,710,000) (131,348,000) Deemed dividend—amortization of beneficial conversion feature on Series D-1 preferred stock (1,094,000) (2,778,000) — (3,872,000) NET LOSS ATTRIBUTABLE TO GEVO, INC. COMMON STOCKHOLDERS Net loss per share attributable to Gevo, Inc. common stockholders—basic $ (49,308,000) $ (42,890,000) $ (19,885,000) $ (135,220,000) and diluted $ (2.15) $ (37.44) $ (18.07) Weighted-average number of common shares outstanding—basic and diluted 22,909,916 1,145,500 1,100,294 See notes to consolidated financial statements. 82 Table of Contents GEVO, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY BALANCE—June 9, 2005 (date of inception) Issuance of common stock Issuance of Series A-1 preferred stock Stock issuance costs Net loss BALANCE—December 31, 2005 Issuance of Series A-2 preferred stock Issuance of Series A-3 preferred stock Issuance of warrants with secured long- term debt Stock issuance costs Non-cash stock-based compensation Net loss BALANCE—December 31, 2006 Issuance of Series A-4 preferred stock Issuance of Series B preferred stock Issuance of common stock Issuance of restricted common stock Issuance of warrants with secured long- term debt Stock issuance costs Non-cash stock-based compensation Net loss Convertible Preferred Stock Common Stock Shares — — 1,000,000 — Amount $ — — 10,000 — Shares — 950,000 — — Amount $ — 10,000 — — Additional Paid-In Capital $ — (10,000) 490,000 (56,000) 1,000,000 1,084,000 915,000 10,000 11,000 9,000 950,000 — — 10,000 — — 424,000 892,000 1,592,000 — — — — — — — — — — — — 10,000 (20,000) 2,000 2,999,000 858,369 1,027,397 — — 30,000 9,000 10,000 — — 950,000 — — 22,000 187,500 10,000 — — 2,000 2,900,000 1,991,000 2,990,000 10,000 (2,000) — — — — — — — — — — — — 33,000 (82,000) 55,000 BALANCE—December 31, 2007 4,884,766 49,000 1,159,500 12,000 7,895,000 Issuance of Series C preferred stock converted from promissory notes and accrued interest Issuance of Series C preferred stock Issuance of warrants with secured long- term debt Issuance of warrants with convertible promissory notes Beneficial conversion feature— convertible promissory notes Stock issuance costs Non-cash stock-based compensation Issuance of restricted common stock Forfeiture of restricted common stock Exercise of stock options to common stock Net loss 555,346 2,546,844 6,000 25,000 — — — — 3,037,000 13,932,000 — — — — 326,000 — — — — 505,000 — — — — 50,000 (64,583) 1,000 (1,000) 505,000 (210,000) 207,000 (1,000) 1,000 — — — — — — — — — — — — 83 Deficit Accumulated During the Development Stage Total Stockholders’ Equity $ — — — — (259,000) (259,000) — — — — — (1,110,000) (1,369,000) — — — — — — — (7,226,000) (8,595,000) $ — — 500,000 (56,000) (259,000) 185,000 903,000 1,601,000 10,000 (20,000) 2,000 (1,110,000) 1,571,000 2,000,000 3,000,000 10,000 — 33,000 (82,000) 55,000 (7,226,000) (639,000) — — — — — — — — — 3,043,000 13,957,000 326,000 505,000 505,000 (210,000) 207,000 — — 19,155 — — — 6,000 — — (14,542,000) 6,000 (14,542,000) Table of Contents GEVO, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—(Continued) BALANCE—December 31, 2008 7,986,956 80,000 1,164,072 12,000 26,203,000 (23,137,000) Convertible Preferred Stock Common Stock Shares Amount Shares Amount Additional Paid-In Capital Deficit Accumulated During the Development Stage Total Stockholders’ Equity 3,158,000 Cumulative effect of reclassification of preferred stock warrants from equity to liabilities Issuance of Series D preferred stock Stock issuance costs Non-cash stock-based compensation Forfeiture of restricted common stock Exercise of stock options to common stock Net loss BALANCE—December 31, 2009 Issuance of Series D-1 preferred stock Beneficial conversion feature—Series D-1 Deemed dividend—amortization of beneficial conversion feature on Series D-1 convertible preferred stock Stock issuance costs Non-cash stock-based compensation Forfeiture of restricted common stock Exercise of stock options to common stock Issuance of Series C preferred stock upon exercise of warrant Net loss 585,000 — — 4,616,483 46,000 — — — — — — — — — — (289,000) — — (874,000) — 32,500,000 — — 32,454,000 (1,346,000) — — — (1,346,000) 945,000 — 945,000 — — — — — (13,530) — — 834 — — — — (19,885,000) (19,885,000) — — 12,603,439 126,000 1,151,376 12,000 57,382,000 (42,437,000) 15,083,000 — 26,820,000 1,902,087 19,000 5,744,000 — — 26,801,000 — — 5,744,000 — — — — — — — — — — — — — 2,778,000 — — (153,000) — — 10,511,000 — 16,000 (22,266) — 31,547 — — (2,778,000) — (153,000) — 10,511,000 — — 16,000 — 108,076 — 1,000 — — — 2,049,000 — — 2,050,000 — — (40,112,000) (40,112,000) 84 Table of Contents GEVO, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—(Continued) BALANCE—December 31, 2010 Shares 14,613,602 Amount 146,000 Shares 1,160,657 Amount 12,000 Convertible Preferred Stock Common Stock Additional Paid-In Capital 105,128,000 Deficit Accumulated During the Development Stage (85,327,000) Total Stockholders’ Equity 19,959,000 Issuance of common stock in initial public offering, net of underwriting discounts and commissions. Conversion of preferred stock to common stock upon initial public offering Conversion of preferred stock warrants to common stock warrants upon initial public offering and reclassification of related liability to additional paid-in capital Deemed dividend—amortization of beneficial conversion feature on Series D-1 convertible preferred stock Non-cash stock-based compensation Issuance of restricted common stock, net of forfeitures Issuance of warrants with secured long- term debt Issuance of common stock pursuant to employee stock purchase plan Exercise of stock options to common stock Issuance of common stock upon cashless — — 8,222,500 82,000 110,326,000 — 110,408,000 (14,613,602) (146,000) 16,329,703 163,000 (17,000) — — — — — — 2,063,000 — 2,063,000 — — — — — — — — — — — — 1,094,000 6,826,000 (1,094,000) — — 6,826,000 — 311,859 3,000 (3,000) — — — 8,764 — — 877,000 47,000 — 266,151 2,000 169,000 — — — — — 877,000 47,000 171,000 net exercise of warrant Net loss BALANCE—December 31, 2011 — — — $ — — — 122,424 — — (48,214,000) 26,382,058 $264,000 $226,508,000 $(134,635,000) $ 92,137,000 — (48,214,000) (2,000) — 2,000 — See notes to consolidated financial statements. 85 Table of Contents GEVO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES: Net loss Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization Non-cash Stock-based compensation Stock expense for shares issued pursuant to license agreements Non-cash interest expense and amortization of debt discounts and debt issue costs to non-cash interest expense Loss from change in fair value of warrant liabilities Loss (gain) from change in derivative Loss on abandonment or disposal of fixed assets Changes in operating assets and liabilities (net of effects of acquisition): Accounts receivable Prepaid expenses and other current assets Inventories Margin deposit Deposits and other assets Accounts payable, accrued expenses, and long-term liabilities Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of property, plant and equipment Acquisition of Agri-Energy, net of cash acquired Other Proceeds from the sale of property and equipment Restricted certificate of deposit Net cash used in investing activities 2011 Year Ended December 31, 2010 2009 From June 9, 2005 (Date of Inception) To December 31, 2011 $ (48,214,000) $ (40,112,000) $ (19,885,000) $ (131,348,000) 4,600,000 6,826,000 — 928,000 29,000 142,000 11,000 (108,000) (531,000) (49,000) 150,000 — 3,188,000 10,511,000 — 762,000 2,333,000 (561,000) — (732,000) 47,000 (195,000) 268,000 1,000 1,511,000 945,000 — 235,000 490,000 — 22,000 (99,000) (128,000) — — 4,000 2,605,000 (33,611,000) 3,594,000 (20,896,000) 806,000 (16,099,000) (8,015,000) — (58,000) — 40,000 (8,033,000) (806,000) (24,936,000) — — 40,000 (25,702,000) (2,982,000) — — — 40,000 (2,942,000) 86 10,292,000 18,546,000 10,000 3,081,000 2,852,000 (419,000) 354,000 (939,000) (648,000) (244,000) 418,000 (90,000) 8,767,000 (89,368,000) (16,255,000) (24,936,000) (58,000) 5,000 (79,000) (41,323,000) Table of Contents GEVO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock (excluding initial public offering and employee stock purchase plan) Proceeds from issuance of common stock pursuant to employee stock purchase plan Proceeds from issuance of convertible preferred stock Proceeds from issuance of convertible promissory notes with warrant Proceeds from issuance of secured long-term debt Proceeds from issuance of warrants Proceeds from exercise of warrants Payments on secured long-term debt Deposit on secured long-term debt Proceeds from issuance of common stock in initial public offering, net of underwriting discounts and commissions Deferred offering costs Debt issue costs Payment of stock issuance costs Net cash provided by financing activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS: Beginning of period Ending of period SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS— Investing and financing: Conversion of preferred stock warrants to common stock warrants upon initial public offering and reclassification of related liability to additional paid-in capital Warrants issued with secured long-term debt Warrants issued with convertible promissory notes 2011 Year Ended December 31, 2010 2009 From June 9, 2005 (Date of Inception) To December 31, 2011 171,000 16,000 — 193,000 47,000 — — 10,000,000 — — (1,897,000) (307,000) 114,704,000 (1,692,000) (431,000) — 120,595,000 78,951,000 — 31,564,000 — 17,500,000 — 592,000 (5,250,000) — — (2,604,000) (1,033,000) (153,000) 40,632,000 (5,966,000) — 32,500,000 — 114,000 — — (622,000) — — — — (1,346,000) 30,646,000 11,605,000 15,274,000 $ 94,225,000 21,240,000 $15,274,000 9,635,000 $21,240,000 $ $ $ 2,063,000 877,000 — $ $ $ — 177,000 — $ $ $ — 203,000 — 87 47,000 86,025,000 3,000,000 36,578,000 1,000 592,000 (8,290,000) (307,000) 114,704,000 (4,296,000) (1,464,000) (1,867,000) 224,916,000 94,225,000 — 94,225,000 2,063,000 1,626,000 505,000 $ $ $ $ Table of Contents GEVO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued) Promissory notes and accrued interest converted to Series C preferred stock Issuance of common stock pursuant to license agreements Issuance of Series C preferred stock upon exercise of warrant (amount reclassified from liability to equity) Issuance of Series D-1 preferred stock to ICM, Inc. in exchange for a credit against future services $ $ $ $ Deemed dividend—amortization of beneficial conversion feature on Series 2011 Year Ended December 31, 2010 — — $ $ — — 2009 $ — $ — — $1,458,000 $ — — $1,000,000 $ — D-1 preferred stock $1,094,000 $2,778,000 $ — Reclassified deferred offering costs to additional paid-in capital upon initial public offering Capital asset additions in accounts payable and accrued expenses Capital asset additions acquired using prepaid credit with ICM, Inc. Accrued deferred offering costs SUPPLEMENTAL CASH FLOW DISCLOSURE—Cash paid for interest, net of $4,296,000 $1,846,000 $ 288,000 — $ $ — $ 174,000 $ 438,000 $ 548,000 $ — $ 52,000 $ — $ — amounts capitalized $2,461,000 $1,453,000 $868,000 From June 9, 2005 (Date of Inception) To December 31, 2011 3,043,000 $ $ $ $ $ $ $ $ $ $ 10,000 1,458,000 1,000,000 3,872,000 4,296,000 1,846,000 726,000 — 5,151,000 See notes to consolidated financial statements. 88 Table of Contents GEVO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (As of December 31, 2011 and 2010 and for the years ended December 31, 2011, 2010 and 2009.) 1. Nature of Business and Significant Accounting Policies Nature of Business—Gevo, Inc. (together with its subsidiaries, the “Company”) is a renewable chemicals and next generation biofuels company focused on the development and commercialization of alternatives to petroleum-based products based on isobutanol produced from renewable feedstocks. Gevo, Inc. was incorporated in Delaware on June 9, 2005 (“Inception”). Gevo, Inc. formed Gevo Development, LLC (“Gevo Development”) on September 18, 2009 to finance and develop biorefineries through joint venture or direct acquisition (Note 6). Gevo Development became a wholly owned subsidiary of the Company on September 22, 2010. Gevo Development purchased all of the membership interests of Agri-Energy, LLC and certain assets of Agri-Energy Limited Partnership (collectively referred to as “Agri-Energy”) on September 22, 2010 (Note 2). Agri-Energy, a wholly owned subsidiary of Gevo Development, is currently engaged in the business of producing and selling ethanol and related products produced at its ethanol plant located in Luverne, Minnesota (the “Agri-Energy Facility”). The retrofit of the Agri-Energy Facility to the production of isobutanol is currently underway and is expected to be completed in the first half of 2012. On February 14, 2011, the Company completed its initial public offering issuing 8,222,500 shares of common stock at an offering price of $15.00 per share, resulting in net proceeds of $110,408,000, after deducting underwriting discounts and commissions of $8,634,000 and other offering costs of $4,296,000. Upon the closing of the initial public offering, the Company’s outstanding shares of convertible preferred stock were automatically converted into 16,329,703 shares of common stock and the outstanding convertible preferred stock warrants were automatically converted into common stock warrants to purchase a total of 398,032 shares of common stock. At December 31, 2011, the Company is considered to be in the development stage as its primary activities, since incorporation, have been conducting research and development, business development, business and financial planning, establishing its facilities, recruiting personnel and raising capital. Successful completion of the Company’s research and development programs, and ultimately, the attainment of profitable operations are dependent upon future events, including completion of its development activities resulting in sales of isobutanol or isobutanol-derived products and/or technology, obtaining adequate financing to complete its development activities, obtaining adequate financing to acquire access to and complete the retrofit of ethanol plants to isobutanol production, market acceptance and demand for its products and services, and attracting and retaining qualified personnel. Following the Company’s acquisition of Agri-Energy on September 22, 2010, the Company began recording revenue from the sale of ethanol and related products. Because the production of ethanol is not the Company’s intended business, the Company will continue to report as a development stage company until it begins to generate revenue from the sale of isobutanol or other products that are or will become the Company’s intended business. Financial Condition—The Company’s consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. For the year ended December 31, 2011, the Company incurred a consolidated net loss of $48,214,000 and had an accumulated deficit of $134,635,000. The Company expects to incur future net losses as it continues to fund the development and commercialization of its product candidates. The Company has funded its activities since Inception primarily through equity offerings, including the Company’s initial public offering in February 2011, and borrowings under the Company’s secured debt financing arrangements. The Company expects to obtain funding through additional equity offerings and issuance of debt until it achieves positive cash flow from operations. The Company’s cash and cash equivalents at December 31, 2011 totaled $94,225,000. Management expects that cash on hand will provide the Company with funding for at least the next 12 months. If the Company exceeds planned capital expenditure to complete the 89 Table of Contents retrofit of the Agri-Energy Facility to isobutanol production or other estimates to prepare for commercial production of isobutanol at the Agri-Energy Facility, the Company may need to raise additional capital through future equity or debt issuances. There are no assurances that the Company will be able to raise additional funds, or achieve or sustain profitability or positive cash flow from operations. The accompanying consolidated financial statements do not include any adjustments that may result from the Company’s inability to raise sufficient funds or achieve profitability. A summary of the Company’s significant accounting policies is as follows: Principles of Consolidation—The consolidated financial statements include the accounts of Gevo, Inc., Gevo Development and Agri-Energy. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. Concentrations of Credit Risk—The Company’s financial instruments that are exposed to concentrations of credit risk consist of cash and cash equivalents in excess of the federally insured limits. The Company’s cash and cash equivalents are deposited with high credit quality financial institutions and are primarily in demand deposit accounts. Substantially all ethanol sold through Agri-Energy from the date of acquisition through December 31, 2011 was sold to C&N Ethanol Marketing (“C&N”). Cash and Cash Equivalents—The Company considers all highly liquid investments purchased with a remaining maturity of three months or less at the date of acquisition to be cash equivalents. The Company maintains its cash in bank deposits that at times may exceed federally insured limits. Accounts Receivable—The Company records receivables for products shipped but for which payment has not yet been received. As of December 31, 2011 and 2010, no allowance for doubtful accounts has been recorded, based upon the expected full collection of the accounts receivable. Substantially all ethanol sold through Agri-Energy from the date of acquisition through December 31, 2011 was sold to C&N. Accounts receivable from C&N made up 58% and 56% of the Company’s total accounts receivable balance at December 31, 2011 and 2010, respectively. Inventories—Corn, ethanol, distiller’s grains, enzymes and other inventory items are stated at the lower of cost or market value. Cost is determined by the first-in, first-out method. Ethanol inventory cost consists of the applicable share of raw material, direct labor and manufacturing overhead costs. Deferred Offering Costs—Deferred offering costs include costs directly attributable to the Company’s offering of its equity securities. These costs were deferred and capitalized and were charged against the proceeds of the offering. Debt Issue Costs and Debt Discount—Debt issue costs are costs incurred in connection with the Company obtaining financing that have been capitalized and are being amortized over the stated maturity period of the related debt, using the effective interest method. Debt discounts incurred with the issuance of long-term debt are amortized to interest expense over the terms of the debt using the effective interest method and are recorded on the consolidated balance sheets as a reduction to long-term debt. Revenue Recognition—The Company records revenue from the sale of ethanol and related products. The Company recognizes 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 or determinable; and collectability is reasonably assured. Ethanol and related products are generally shipped free on board shipping point. Collectability of revenue is reasonably assured based on historical evidence of collectability between the Company and its customers. 90 Table of Contents In accordance with the Company’s agreements for the marketing and sale of ethanol and related products, commissions due to marketers are deducted from the gross sales price at the time payment is remitted to the Company. Ethanol and related products sales are recorded net of commissions. Revenue related to government research grants and cooperative agreements is recognized in the period during which the related costs are incurred, provided that the conditions under the awards have been met and only perfunctory obligations are outstanding. Other research and development program revenue consists of research services and the procurement of the Company’s products for purposes of certification and testing. Revenue from research services is recognized over the relevant performance period of the contract. Revenue from the procurement of the Company’s products for purposes of certification and testing is recognized upon the transfer of risk of loss and title to the customer. Cost of Goods Sold—Cost of goods sold includes costs for materials, direct labor and certain plant overhead costs. Direct materials consist of the costs of corn feedstock, denaturant and process chemicals. Direct labor includes compensation of personnel directly involved in the operation of the ethanol plant. Plant overhead costs primarily consist of plant utilities and plant depreciation. Cost of goods sold is mainly affected by the cost of corn and natural gas. Corn is the most significant raw material cost. The Company purchases natural gas to power steam generation in the ethanol production process and to dry the distiller’s grains. Cost of goods sold also includes gains or losses from the Company’s forward purchase contracts, other than those designated under the normal purchases and normal sales scope exception, and changes in fair value on the Company’s exchange traded futures contracts. Derivative Instruments— The Company’s derivative instruments include forward purchase contracts and exchange-traded futures contracts. The Company enters into forward purchase contracts for corn to be used in the production of ethanol. Prior to January 1, 2011, the Company recorded forward purchase contracts as derivative assets or liabilities on the consolidated balance sheets at fair value. The changes in the fair value of these derivatives were recognized as a component of cost of goods sold in the Company’s consolidated statements of operations. Effective January 1, 2011, the Company elected the normal purchase and normal sales exception guidance of GAAP for its forward purchase contracts and, as a result, they were not marked to market during 2011. To qualify for the normal purchases and normal sales scope exception, a contract must provide for the purchase or sale of commodities in quantities that are expected to be used or sold over a reasonable period of time in the normal course of operations. The Company also enters into exchange-traded futures contracts for corn as a means of managing exposure to changes in corn prices. These contracts are recorded as derivative assets or liabilities on the consolidated balance sheets at fair value. Changes in the fair value during a reporting period are recognized to cost of goods sold in the consolidated statements of operations. Property, Plant and Equipment—Property, plant and equipment are recorded at cost less accumulated depreciation. Provisions for depreciation and amortization are computed using the straight-line method over the assets’ estimated useful lives, except for the Company’s demonstration plant which is fully depreciated at December 31, 2011. The demonstration plant was depreciated over the contractual term of a development agreement with ICM, Inc. (“ICM”), which prior to an amendment in December 2011, was set to expire on December 31, 2011 (Note 5). Leasehold improvements are amortized over the term of the lease agreement or the service lives of the improvements, whichever is shorter. Assets under construction are depreciated when they are placed into service. Maintenance and repairs are charged to expense as incurred and expenditures for major improvements are capitalized. When assets are retired or otherwise disposed of, the property accounts are relieved of costs and accumulated depreciation and any resulting gain or loss is credited or charged to operations. Capitalized interest on construction in progress is included in property, plant and equipment. Impairment of Long-Lived Assets—The Company’s long-lived assets are evaluated for impairment in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360, Property, Plant, and Equipment, whenever events or circumstances indicate the carrying amount of the assets may not be fully recoverable. Circumstances which could trigger a review include, but are not limited to, significant decreases in the market price of the asset; significant adverse changes in the business climate, legal or regulatory factors; accumulation of costs significantly in excess of the amount originally expected for the 91 Table of Contents acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; or expectations that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. The carrying amount of a long-lived asset may not be recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. No impairment charges have been recorded from Inception to December 31, 2011. The Company has not yet generated positive cash flows from operations, and such cash flows may not materialize for a significant period in the future, if ever. Additionally, the Company may make changes to its business plan that will result in changes to the expected cash flows from long-lived assets. As a result, it is possible that future evaluations of long-lived assets may result in impairment. Patents—All costs related to filing and pursuing patent applications are expensed as incurred as recoverability of such expenditures is uncertain. Patent-related legal expenses incurred are recorded as selling, general and administrative expense during the years ended December 31, 2011, 2010 and 2009, and from Inception to December 31, 2011, were $1,342,000, $993,000, $743,000 and $4,306,000, respectively. Beneficial Conversion Feature—The Company recorded a beneficial conversion feature relating to the issuance of Series D-1 preferred stock between March and May 2010 (Note 10). The beneficial conversion feature was recorded as a discount to the Series D-1 preferred stock and was being amortized to retained earnings through September 30, 2011, unless converted earlier. On February 14, 2011, upon completion of the Company’s initial public offering, the shares of Series D-1 preferred stock automatically converted to common stock at a rate of 1.9022 shares of common stock for each share of Series D-1 preferred stock. Research and Development—Research and development costs are expensed as incurred and are recorded as research and development expense in the consolidated statements of operations. The Company’s research and development costs consist of expenses incurred to identify, develop, and test its technologies for the production of isobutanol and the development of downstream applications thereof. Research and development expense includes personnel costs, consultants and related contract research, facility costs, supplies, depreciation on property, plant and equipment used in development, license fees and milestone payments paid to third parties for use of their intellectual property and patent rights, and other direct and allocated expenses incurred to support the Company’s overall research and development programs. Income Taxes—The Company accounts for income taxes under FASB ASC 740, Income Taxes. Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the consolidated balance sheets, as well as operating loss carryforwards. Deferred tax assets are reduced by a valuation allowance if, based upon the weight of available evidence, it is more-likely-than-not that these benefits will not be realized (Note 14). At December 31, 2011 and 2010, the Company had no material unrecognized tax benefits and had no accrued interest or penalties related to uncertain tax positions. The Company classifies interest and penalties arising from the underpayment of income taxes in the consolidated statements of operations as income tax expense. Stock-Based Compensation—The Company accounts for stock-based compensation for awards to employees in accordance with FASB ASC 718, Compensation- Stock Compensation. Under the provisions of FASB ASC 718, stock-based compensation for awards to employees is measured at the grant date based on the fair value of the awards and is recognized as expense over the required service period of the award. The Company estimates the fair value of stock options issued to employees using the Black–Scholes option-pricing model. The Company accounts for stock-based awards to non-employees using a fair value method in accordance with FASB ASC 718 and FASB ASC 505-50, Equity- Equity-Based Payments to Non-Employees. The Company determines the estimated fair value of stock options issued to non-employees using the Black–Scholes option-pricing model. The fair values of the stock options and stock-based awards granted to non-employees are remeasured as the services are performed and the awards vest, and the resulting change in value, if any, is recognized as expense during the period the related services are rendered. Fair Value Measurements and Fair Value of Financial Instruments—Accounting standards define fair value, outline a framework for measuring fair value, and detail the required disclosures about fair value measurements. 92 Table of Contents Under these standards, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. Standards establish a hierarchy in determining the fair market value of an asset or liability. The fair value hierarchy has three levels of inputs, both observable and unobservable. Standards require the utilization of the highest possible level of input to determine fair value. Level 1 inputs include quoted market prices in an active market for identical assets or liabilities. Level 2 inputs are market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data. Level 3 inputs are unobservable and corroborated by little or no market data. As of December 31, 2011 and 2010, there were no transactions measured at fair value on a nonrecurring basis. The following table shows assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 and 2010, and the input categories associated with those assets and liabilities. Liabilities—Exchange-traded derivatives Liabilities—Fair value of warrant liabilities Liabilities—Exchange-traded derivatives Assets—Forward purchase contracts for corn Fair Value as of December 31, 2011 $ 186,000 Fair Value Measurement Using Level 1 $ 186,000 Level 2 $ — Level 3 $ — Fair Value as of December 31, 2010 $ (2,034,000) (405,000) 361,000 $ $ Fair Value Measurement Using Level 1 $ — $(405,000) — $ Level 2 $ — $ — $361,000 Level 3 $(2,034,000) $ $ — — The changes in Level 3 liabilities measured at fair value on a recurring basis for the years ended December 31, 2011 and 2010 are as follows: Liabilities: Balance—December 31, 2009 Initial measurement of warrants issued during the period Change in fair value of warrants Warrants exercised during the period and liability reclassified to additional paid-in-capital Balance—December 31, 2010 Change in fair value of warrants Conversion of preferred stock warrants to common stock warrants and reclassification of related liability to additional paid- in-capital (February 14, 2011) Balance—December 31, 2011 Fair Value of Warrant Liabilities $ $ $ 982,000 177,000 2,333,000 (1,458,000) 2,034,000 29,000 (2,063,000) — The carrying value of cash and cash equivalents, receivables, and accounts payable approximate their respective fair values due to the short-term nature of these instruments. Based on borrowing rates which management believes would currently be available to the Company for similar issues of debt, taking into account the current credit risk of the Company and other market factors, the carrying value of the Company’s debt obligations approximate their fair value. The fair value of exchange-traded derivative instruments is based on quoted market prices. The fair value of forward purchase contracts for corn is based upon the price at the delivery location adjusted for basis 93 Table of Contents differentials, counterparty credit quality, the effect of the Company’s own credit worthiness, the time value of money and/or the liquidity of the market. Contracts which qualify for the normal purchases and normal sales scope exception to fair value accounting are not marked to market in the financial statements. Effective January 1, 2011, the Company designates all of its forward purchase contracts for corn under the normal purchases and normal sales scope exception and therefore were not marked to market during the year ended December 31, 2011. Prior to its initial public offering, the Company had derivative liabilities relating to its preferred stock warrants. These derivative instruments were not entered into as hedging activities. The estimated fair value of the preferred stock warrant liabilities were revalued at each balance sheet date, with changes in value recorded as other income or expense in the consolidated statements of operations (Note 11). While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Environmental Liabilities—The Company’s operations are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdictions in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its locations. Accordingly, the Company has adopted policies, practices and procedures in the areas of pollution control, occupational health and the production, handling, storage and use of hazardous materials to prevent material environmental or other damage, and to limit the financial liability which could result from such events. Environmental liabilities are recorded when the Company’s liability is probable and the costs can be reasonably estimated. No environmental liabilities have been recorded as of December 31, 2011. Net Loss Per Share—Basic net loss per share is computed by dividing the net loss attributable to Gevo, Inc. common stockholders for the period by the weighted- average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss attributable to Gevo, Inc. common stockholders for the period by the weighted-average number of dilutive common shares outstanding during the period. Dilutive shares outstanding are calculated by adding to the weighted shares outstanding any potential (unissued) shares of common stock and warrants based on the treasury stock method. Diluted net loss per share is the same as basic net loss per share for all periods presented because any potentially dilutive common shares were anti-dilutive. Such potentially dilutive shares are excluded from the computation of diluted net loss per share when the effect would be to reduce net loss per share. Therefore, in periods when a loss is reported, the calculation of basic and dilutive net loss per share results in the same value. The following potentially dilutive securities were excluded from the calculation of diluted net loss per share during each period as the effect was anti-dilutive: Convertible preferred stock upon conversion to common stock (on an as-converted basis)(1) Warrants to purchase convertible preferred stock (on an as-converted basis)(1) Warrants to purchase common stock (at period-end) Outstanding stock options to purchase common stock (at period-end) Unvested restricted common stock (at period-end) Total December 31, 2011 — — 1,243,820 3,261,739 284,825 4,790,384 December 31, 2010 16,329,703 398,032 858,000 2,894,265 5,729 20,485,729 (1) The convertible preferred stock and convertible preferred stock warrants were computed on an as-converted basis using a one-to-one conversion rate for all series of preferred stock, except for the Series D-1 preferred stock where the Company used a conversion rate of 1.9022, which was the conversion rate applicable at the closing of the Company’s initial public offering on February 14, 2011. 94 Table of Contents Recent Accounting Pronouncements—In May 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This update amends ASC Topic 820, “Fair Value Measurement and Disclosure.” ASU 2011-04 clarifies the application of certain existing fair value measurement guidance and expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. ASU 2011-04 is effective for annual and interim reporting periods beginning on or after December 15, 2011. The new guidance is to be adopted prospectively and early adoption is not permitted. The Company does not expect the adoption of ASU 2011-04 will have a significant impact on its financial position, results of operations or cash flows. 2. Acquisition of Agri-Energy In September 2010, Gevo Development acquired Agri-Energy and its ethanol production facility located in Luverne, Minnesota. The Company is currently retrofitting the ethanol production facility to isobutanol production. During the ongoing retrofit, the facility continues to operate as an ethanol production facility. The Company paid a purchase price of approximately $20,602,000. In addition, the Company acquired and paid $4,919,000 for working capital, resulting in a total amount paid of $25,521,000. The acquisition of Agri-Energy was completed as part of the Company’s strategy of acquiring access to ethanol production facilities for future retrofit to produce isobutanol. Upon completion of the acquisition, Gevo Development acquired effective control of Agri-Energy on September 22, 2010. The acquisition was accounted for under the acquisition method of accounting which requires, among other things, that all assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date (September 22, 2010): Assets acquired: Cash Receivables Inventory Other current assets Property, plant and equipment Total assets acquired Liabilities assumed: Accounts payable and accrued expenses Other current liabilities Total liabilities assumed Net assets acquired $ 585,000 1,999,000 3,570,000 1,256,000 20,602,000 $ 28,012,000 $ 1,843,000 648,000 $ 2,491,000 $ 25,521,000 The results of Agri-Energy’s operations for the year ended December 31, 2011, and for the period from September 23, 2010 through December 31, 2010, are reflected in the Company’s consolidated statements of operations for the year ended December 31, 2011 and 2010, respectively. The revenue and income from operations relating to Agri-Energy for the period from September 23, 2010 through December 31, 2010 was $14,765,000 and $1,025,000, respectively. Pro forma results of operations for the Company as if the acquisition of Agri-Energy had occurred on January 1, 2009 are as follows (unaudited): Revenues Loss from operations Net loss Year Ended December 31, 2010 46,890,000 $ $ (34,234,000) $ (40,187,000) Year Ended December 31, 2009 40,768,000 $ $ (17,990,000) $ (21,256,000) 95 Table of Contents The pro forma results above include the combined results of operations of the Company and Agri-Energy, after making certain adjustments, for the years ended December 31, 2010 and 2009, as if the Agri-Energy acquisition had occurred on January 1, 2009. There were no transactions between the Company and Agri- Energy prior to the acquisition on September 22, 2010. There were no significant differences between the accounting policies of the Company and Agri-Energy. The unaudited pro forma results above are prepared for illustrative purposes only and are not necessarily indicative of the results of operations that would have actually been reported had the acquisition occurred on January 1, 2009 nor are they necessarily indicative of the future results of operations of the combined Company. 3. Property, Plant and Equipment A summary of property, plant and equipment by classification is as follows: Computer, office equipment, and software Lab equipment, furniture & fixtures and vehicles Leasehold improvements Pilot plant Demonstration plant Construction in progress Land Buildings, site improvements, plant machinery and equipment Tools and support equipment Total property, plant and equipment Less accumulated depreciation and amortization Property, plant and equipment—net Estimated Useful Lives 3 years 5 years 5 years(1) 3 years 2 years(2) — — 10 years 5 years December 31, 2011 614,000 $ 4,035,000 523,000 721,000 3,597,000 8,403,000 410,000 20,359,000 105,000 38,767,000 (9,990,000) $28,777,000 December 31, 2010 581,000 $ 3,432,000 380,000 721,000 2,948,000 442,000 410,000 20,093,000 87,000 29,094,000 (5,629,000) $23,465,000 Leasehold improvements are amortized over the term of the lease agreement or the service lives of the improvements, whichever is shorter. (1) (2) Depreciation related to the demonstration plant began in the period the assets were placed in service which was September 2009. The demonstration plant was being depreciated through December 31, 2011, the contractual end date of the development agreement prior to an amendment signed in December 2011 (Note 5). Depreciation and amortization expense for the years ended December 31, 2011, 2010 and 2009, and from Inception to December 31, 2011, were $4,600,000, $3,188,000, $1,511,000, and $10,292,000, respectively. The Company capitalized $297,000 of incurred interest to construction in progress during the year ended December 31, 2011. No interest incurred prior to 2011 was required to be capitalized. 4. Inventories Inventory balances consist of the following: Raw materials: Corn Enzymes and other inputs Finished goods: Ethanol Distiller’s grains Work in process Spare parts Total inventory December 31, 2011 December 31, 2010 $ 2,408,000 151,000 $ 2,516,000 167,000 349,000 17,000 456,000 433,000 $ 3,814,000 385,000 48,000 301,000 348,000 $ 3,765,000 96 Table of Contents Included in cost of goods sold is depreciation of $2,061,000 and $549,000 for the years ended December 30, 2011 and 2010, respectively. 5. Significant Agreements Off-Take, Distribution and Marketing Agreements International Off-Take and Distribution Agreement with Sasol—On July 29, 2011, the Company and Sasol Chemical Industries Limited (“Sasol”) entered into an international off-take agreement to market and distribute renewable isobutanol globally. The agreement has an initial term of three years and appoints Sasol as a non-exclusive distributor of high-purity isobutanol in North and South America and as the exclusive distributor for high-purity isobutanol for solvent and chemical intermediate applications in the rest of the world. Beginning upon the Company’s first commercial sale of high-purity isobutanol, if Sasol desires to maintain its exclusive distribution rights, Sasol is obligated to either purchase certain minimum quantities of high-purity isobutanol or pay the Company applicable shortfall fees and the Company is obligated to either supply Sasol with certain minimum quantities of high-purity isobutanol or pay Sasol applicable shortfall fees. No amounts have been recorded under this agreement as of December 31, 2011. Exclusive Supply Agreement with LANXESS—On January 14, 2011, the Company entered into an exclusive supply agreement, as amended, with LANXESS Inc. (“LANXESS”) pursuant to which LANXESS has granted the Company an exclusive first right to supply LANXESS and its affiliates with certain of their requirements for biobased isobutanol during the term of the agreement. The Company’s exclusive first right to supply biobased isobutanol to LANXESS and its affiliates will be subject to the terms of a supply agreement to be mutually agreed upon by the parties at a later date. Additionally, pursuant to the terms of the exclusive supply agreement the Company has granted LANXESS, subject to certain exceptions and conditions, (i) an exclusive first right to acquire its biobased isobutanol to produce isobutylene and butenes for use and sale in the field of chemicals, and (ii) an exclusive right to use the Company’s isobutanol to produce butadiene and isobutylene for use in the production of polybutadiene and butyl rubber. The initial term of the mutual exclusivity is ten years, subject to mutual extension. No costs have been incurred under this agreement as of December 31, 2011. Off-Take and Marketing Alliance Agreement and Renewable Fuels Supply Chain Agreement with Mansfield Oil Company—On August 12, 2011, the Company entered into a commercial off-take agreement with Mansfield Oil Company (“Mansfield”), to distribute isobutanol-based fuel into the petroleum market. The agreement allows Mansfield to blend the Company’s isobutanol for its own use, and to be a distributor of the Company’s isobutanol for a term of five years. The Company also entered into a three-year supply services agreement with C&N, a Mansfield subsidiary, which will provide supply chain services including logistics management, customer service support, invoicing and billing services. No amounts have been recorded under these agreements as of December 31, 2011. Ethanol Marketing Agreement with C&N, a subsidiary of Mansfield Oil Company—Substantially all ethanol sold through Agri-Energy from the date of acquisition through December 31, 2011 was sold to C&N pursuant to an ethanol purchase and marketing agreement. The ethanol purchase and marketing agreement with C&N was entered into on April 1, 2009 and automatically renews for subsequent one-year terms unless either party terminates the agreement 60 days before the end of a term. Under the terms of the agreement, C&N will market substantially all of Agri-Energy’s ethanol production from the Agri-Energy Facility and will pay to Agri-Energy the gross sales price paid by the end customer less expenses and a marketing fee. Jet Fuel Supply Agreement with the Defense Logistics Agency (U.S. Air Force)—During September 2011, the Company was awarded a contract for the procurement of up to 11,000 gallons of biojet fuel for the purposes of certification and testing by the U.S. Air Force. The total contract value may be up to $649,000. The term of the agreement is through December 30, 2012. Revenue is recognized upon the transfer of risk of loss and title to the U.S. Air Force. No revenue under this award has been recognized as of December 31, 2011. 97 Table of Contents Commercialization and Development Agreements Development and Commercialization Agreements with ICM—In October 2008, the Company signed development and commercialization agreements with ICM. Under the terms of the development agreement, the Company performs commercial-scale isobutanol production trials in ICM’s research plant and facility in St. Joseph, Missouri, the demonstration plant. The Company is required to pay for or reimburse ICM for engineering fees, equipment, plant modification costs, project fees and various operating expenses. The development agreement, as amended, was effective through December 31, 2011. In December 2011, the development agreement was amended to extend the term indefinitely. The development agreement, as amended, may be cancelled by either party with 30 days’ written notice. During the years ended December 31, 2011, 2010 and 2009, the Company incurred $649,000, $362,000 and $2,587,000, respectively, in capital expenditures with ICM relating to the demonstration plant that are recorded as property, plant and equipment in the Company’s consolidated balance sheets. The Company also incurred operating expenses paid to ICM for production trials at the demonstration plant and depreciation expense relating to the demonstration plant, which are recorded as research and development expenses. The commercialization agreement, as amended, is effective through October 15, 2018, and outlines the terms and fees under which ICM acts as the Company’s exclusive provider of certain engineering and construction services. Also, under the commercialization agreement, the Company is ICM’s exclusive technology partner for the production of butanols, pentanols and propanols from the fermentation of sugars. In addition to amounts recorded under the development and commercialization agreements noted above, the Company has also engaged ICM to perform engineering studies, plant evaluations and other services. In August 2011, the Company entered into a work agreement with ICM whereby ICM will provide engineering, procurement and construction services for the retrofit of ethanol plants. During the years ended December 31, 2011 and 2010, the Company incurred $6,783,000 and $383,000, respectively, in capital expenditures with ICM relating to the retrofit of the Agri-Energy Facility to future isobutanol production, which amounts are recorded within construction in progress on the Company’s consolidated balance sheets. Expenses incurred by the Company under its development, commercialization and other agreements with ICM during the years ended December 31, 2011, 2010 and 2009, and from Inception to December 31, 2011, were $2,388,000, $2,349,000, $1,365,000, and $6,132,000, respectively. Joint Research, Development, License and Commercialization Agreement with The Coca-Cola Company —During November 2011, the Company entered into a joint research, development, license and commercialization agreement with The Coca-Cola Company (“Coca-Cola”). During the first two years of the agreement, Coca-Cola will pay the Company a fixed price fee for a research program as defined in the agreement. The Company recognizes these fees as revenue over the performance period. The payments received are not refundable. The Company recognized $98,000 of revenue under this agreement during the year ended December 31, 2011. License Agreements License Agreement with Cargill, Incorporated—During February 2009, the Company entered into a license agreement with Cargill, Incorporated (“Cargill”) to obtain certain biological materials and license patent rights to use a biocatalyst owned by Cargill. Under the license agreement, Cargill has granted the Company an exclusive, royalty-bearing license, with limited rights to sublicense, to use the patent rights in a certain field, as defined in the license agreement. The license agreement contains five milestone payments totaling approximately $4,300,000 that are payable after each milestone is completed. During 2009, two milestones were completed and the Company recorded the related milestone amounts, along with an up-front signing fee, totaling $875,000, to research and development expense. During March 2010, the Company completed milestone number three and recorded the related milestone amount of $2,000,000 to research and development expense at its present value amount of $1,578,000 because the milestone payment will be paid over a period greater than 12 months from the date it was incurred. 98 Table of Contents Milestones number four and five included in the license agreement representing potential payments of up to $1,500,000 have not been met as of December 31, 2011 and no amounts have been recorded as a liability for these milestones. At December 31, 2011, the present value of the liability, $924,000, was recorded in accounts payable and accrued expenses. The accretion of the liability was recorded to interest expense. Upon commercialization of a product which uses the Cargill biological material or is otherwise covered by the patent rights under the license agreement, a royalty based on net sales is payable by the Company, subject to a minimum royalty amount per year, as defined in the license agreement, and up to a maximum amount per year. The license agreement provides an option for Cargill to purchase a nonexclusive, royalty-bearing license for the use of a Company biocatalyst that utilizes the Cargill biological material or licensed patents for a royalty rate equal to the lowest rate offered to any third party. The Company may terminate the license agreement at any time upon 90 days’ written notice. Unless terminated earlier, the license agreement remains in effect until the later of December 31, 2025 and the date that no licensed patent rights remain. Other Within its research and development activities, the Company routinely enters into research and license agreements with various entities. Future royalty payments may apply under these license agreements if the technologies are used in future commercial products. In addition, the Company may from time to time make gifts to universities and other organizations to expand research activities in its fields of interest. Any amounts paid under these agreements are generally recorded as research and development expenses as incurred. The Company has been awarded grants or cooperative agreements from a number of government agencies, including the U.S. Department of Energy, U.S. National Science Foundation, U.S. Environmental Protection Agency, Army Research Labs and the U.S. Department of Agriculture. Revenues recorded related to these grants and cooperative agreements are recorded within grant and research and development program revenue on the Company’s statements of operations. 6. Gevo Development Gevo, Inc. formed Gevo Development on September 18, 2009 to finance and develop biorefineries through joint venture or direct acquisition. Biorefinery plants accessed through Gevo Development are intended to be retrofitted using Gevo, Inc.’s integrated fermentation technology to produce isobutanol. Gevo, Inc. currently owns 100% of the outstanding equity interests of Gevo Development as a wholly owned subsidiary. Gevo Development has two classes of membership interests outstanding. Gevo, Inc. is the sole owner of the class A interests. Prior to September 22, 2010, CDP Gevo, LLC (“CDP”), which is beneficially owned by the two co-managing directors of Gevo Development, was the sole owner of the class B interests, which comprise 10% of the outstanding equity interests of Gevo Development. In September 2010, Gevo, Inc. became the sole owner of Gevo Development by acquiring 100% of the class B interests in Gevo Development from CDP pursuant to an equity purchase agreement. In exchange for the class B interests, CDP received aggregate consideration of $1,143,000. The original issuance of the class B interests was considered to be a grant of non-employee stock-based compensation. As vesting of the awards was dependent on counterparty performance conditions (the acquisition and retrofit of a biorefinery plant), no compensation expense had been recorded prior to September 22, 2010 because the lowest aggregate fair value of the awards was zero. Upon the purchase of the class B interests on September 22, 2010, the Company recorded stock-based compensation of $774,000, which reflected the amount paid during the year ended December 31, 2010 for the class B interests that were not dependent on counterparty performance. During the year ended December 31, 2011, the Company recorded stock-based compensation of $296,000 for the amount paid during the period. The Company recorded the final payment amount, which was dependent on the continued employment of the two co-managing directors of Gevo Development, in January 2012. 99 Table of Contents For the years ended December 31, 2011 and 2010, and for the period from September 18, 2009 (formation date of Gevo Development) to December 31, 2011, Gevo, Inc. made capital contributions of $4,946,000, $18,607,000 and $24,303,000, respectively, to Gevo Development. No capital contributions had been made by CDP through September 21, 2010. For the years ended December 31, 2011, 2010 and 2009, and for the period from September 18, 2009 (formation date of Gevo Development) to December 31, 2011, Gevo Development (including Agri-Energy after September 22, 2010, the closing date of the acquisition) incurred a net loss of $691,000, $2,327,000, $731,000 and $3,749,000, respectively, which has been fully allocated to Gevo, Inc.’s capital contribution account based upon its capital contributions (for the period prior to September 22, 2010) and 100% ownership (for the period after September 22, 2010). For financial reporting purposes prior to September 22, 2010, the income or loss allocated to the members of Gevo Development was determined using the hypothetical liquidation at book value method. Under this method, net income or loss is allocated between members by determining the difference between the amount of equity at the beginning of the reporting period and equity at the end of the reporting period, which would be distributed to each member if Gevo Development were to be liquidated as of those dates. Distributions, when and if declared by the board of managers, were allocated, first, to each member for their estimated tax amount, then, for their unreturned capital contributions, and lastly, according to their distribution percentages. Allocation, distribution and voting percentages are determined in accordance with the First Amended and Restated Limited Liability Company Agreement of Gevo Development. Amended and Restated Warrant Agreement— The warrant agreement, as amended, details the terms upon which the Company has granted a warrant to CDP to purchase 858,000 shares of Gevo, In. common stock. The warrant agreement has an exercise price of $2.70 per share which was the estimated fair value of a share of Gevo, Inc.’s common stock on the grant date. The warrant expires in September 2016, unless terminated earlier as provided in the agreement. The warrant shares were initially unvested and vested in increments upon the achievement of specific performance milestones. No amounts had been recorded for these warrants in the Company’s consolidated statements of operations through September 21, 2010, as none of the counterparty performance milestones had been met; therefore, the lowest aggregate fair value of the award was zero. On September 22, 2010, the beneficial owners of the equity interests of CDP became employees of Gevo, Inc. and the warrant agreement was amended and restated to provide that 50% of the warrant shares granted under such warrant agreement would vest on September 22, 2010. The remaining warrant shares vest over a two-year period beginning on September 22, 2010, subject to acceleration and termination in certain circumstances, such as the occurrence of a change of control event. The Company valued the warrant at $13,956,000 on September 22, 2010, and recognized 50% of this amount as stock-based compensation on September 22, 2010. The Company is recognizing the remaining 50% over the 24-month vesting period that began on September 22, 2010. When Gevo Development was formed in September 2009, Gevo, Inc., Gevo Development and CDP also entered into the following related agreements: a commercialization agreement, a guaranty agreement and an exchange agreement. In August and September 2010, the commercialization agreement, the guaranty agreement and the exchange agreement were all terminated. Since its formation, Gevo Development has been and continues to be considered a variable interest entity. Gevo, Inc., the primary beneficiary of Gevo Development, has both (i) the power to direct the activities of Gevo Development that most significantly impact Gevo Development’s economic performance and (ii) the obligation to absorb losses of Gevo Development that could potentially be significant to Gevo Development or the right to receive benefits from Gevo Development that could potentially be significant to Gevo Development. As such, Gevo Development is consolidated. The accounts of Agri-Energy are consolidated within Gevo Development as a wholly owned subsidiary. As of December 31, 2011 and 2010, Gevo Development does not have any assets that can be used only to settle obligations of Gevo Development. However, under the terms of Agri-Energy’s loan and security agreement with TriplePoint Capital LLC (“TriplePoint”), as amended, subject to certain limited exceptions, Agri-Energy is only permitted to pay dividends if certain conditions are satisfied. As of December 31, 2011 and 2010, the creditors of Gevo Development have recourse to the general credit of Gevo, Inc. with the exception of $4,462,000 and $4,785,000, respectively, which are recorded within current liabilities, which includes the liabilities of Agri-Energy. No gain or loss was recognized by the Company upon the initial consolidation of Gevo Development. 100 Table of Contents 7. Redfield Energy, LLC On June 15, 2011, Gevo Development entered into an isobutanol joint venture agreement (the “Joint Venture Agreement”) with Redfield Energy, LLC, a South Dakota limited liability company (“Redfield”), and executed the second amended and restated operating agreement of Redfield (together, the “Joint Venture Documents”). Under the terms of the Joint Venture Documents, Gevo Development and Redfield have agreed to work together to retrofit Redfield’s approximately 50 million gallon per year ethanol production facility located near Redfield, South Dakota (the “Redfield Facility”) for the commercial production of isobutanol. Under the terms of the Joint Venture Agreement, Redfield has issued 100 Class G membership units in Redfield (the “Class G Units”) to Gevo Development in exchange for a payment of $1,000, which has been recorded on the Company’s consolidated balance sheet in deposits and other assets. Gevo Development is the sole holder of Class G units, which entitle Gevo Development to certain information and governance rights with respect to Redfield, including the right to appoint two members of Redfield’s 11-member board of managers. The Class G units currently carry no interest in the allocation of profits, losses or other distributions of Redfield and no voting rights. Such rights will vest upon the commencement of commercial isobutanol production at the Redfield Facility, at which time Gevo Development anticipates consolidating Redfield’s operations because Gevo anticipates it will control the activities that are most significant to the entity. Gevo Development will be responsible for all costs associated with the retrofit of the Redfield Facility. Redfield will remain responsible for certain expenses incurred by the facility including certain repair and maintenance expenses and any costs necessary to ensure that the facility is in compliance with applicable environmental laws. The Company anticipates that the Redfield Facility will continue its current ethanol production activities during much of the retrofit. Once the retrofit assets have been installed, the ethanol production operations will be suspended to enable testing of the isobutanol production capabilities of the facility (the “Performance Testing Phase”). During the Performance Testing Phase, Gevo Development will be entitled to receive all revenue generated by the Redfield Facility and will make payments to Redfield to cover the costs incurred by Redfield to operate the facility plus the profits, if any, that Redfield would have received if the facility had been producing ethanol during that period (the “Facility Payments”). Gevo Development has also agreed to maintain an escrow fund during the Performance Testing Phase as security for its obligation to make the Facility Payments. If certain conditions are met, commercial production of isobutanol at the Redfield Facility will begin upon the earlier of the date upon which certain production targets have been met or the date upon which the parties mutually agree that commercial isobutanol production at the Redfield Facility will be commercially viable at the then-current production rate. At that time, (i) Gevo Development will have the right to appoint a total of four members of Redfield’s 11-member board of managers, and (ii) the voting and economic interests of the Class G units will vest and Gevo Development, as the sole holder of the Class G Units, will be entitled to a percentage of Redfield’s profits, losses and distributions, to be calculated based upon the demonstrated isobutanol production capabilities of the Redfield Facility. Gevo Development, or one of its affiliates, will be the exclusive marketer of all products produced by the facility once commercial production of isobutanol has begun. Additionally, Gevo, Inc. will license the technology necessary to produce isobutanol at the facility to Redfield, subject to the continuation of the marketing arrangement described above. In the event that the isobutanol production technology fails or Redfield is permanently prohibited from using such technology, Gevo Development will forfeit the Class G Units and lose the value of its investment in Redfield. Gevo, Inc. entered into a guaranty effective as of June 15, 2011, pursuant to which it has unconditionally and irrevocably guaranteed the payment by Gevo Development of any and all amounts owed by Gevo Development pursuant to the terms and conditions of the Joint Venture Agreement and certain other agreements that Gevo Development and Redfield expect to enter into in connection with the retrofit of the Redfield Facility. The Company has begun the project engineering and permitting process of the Redfield retrofit. As of December 31, 2011, the Company has incurred $66,000 in costs for the retrofit of the Redfield Facility which have been recorded on the Company’s consolidated balance sheet in deposits and other assets. 101 Table of Contents 8. Secured Long-Term Debt The carrying value of the secured long-term debt included in the Company’s consolidated balance sheets at December 31, 2011 and 2010 consists of the following: Long-term debt, unpaid principal plus final/end-of-term payments Less unamortized debt discounts for final/end-of-term payments and original fair value of warrants issued with debt Less current portion Long-term portion of the long-term debt December 31, 2011 $ 30,716,000 (2,473,000) 28,243,000 (3,491,000) $ 24,752,000 December 31, 2010 $ 22,038,000 (1,606,000) 20,432,000 (1,785,000) $ 18,647,000 Lighthouse Loan and Security Agreement. On December 18, 2006, Gevo, Inc. entered into a loan and security agreement, as amended, with Lighthouse Capital Partners V, L.P. (“Lighthouse”). On August 6, 2010, the Company repaid $5,000,000 in outstanding principal, as well as $250,000 of the final payment, under the promissory note issued in connection with the loan and security agreement. As of December 31, 2011, the Company’s outstanding principal balance on its loan with Lighthouse was $1,037,000. The promissory note bears interest at a rate of 12% per annum, required interest only payments during the year ended December 31, 2010, and requires principal plus interest repayments of equal amounts over the 18 months commencing January 1, 2011 and a final payment of $204,000 due on July 1, 2012. Under the terms of the loan and security agreement, the Company is prohibited from granting a security interest in its intellectual property assets to any other entity until Lighthouse is paid in full, and Lighthouse maintains a security interest in the assets, including equipment and fixtures, financed by the proceeds of each original loan advance made under the loan agreement until such time as the loan is paid in full. The Lighthouse agreement does not contain financial ratio covenants, but does impose certain affirmative and negative covenants, which include prohibiting the Company from paying any dividends or distributions or creating any liens against the collateral as defined in the agreement, as amended. The Company cannot borrow any further amounts under its agreement with Lighthouse. At December 31, 2011, the Company was in compliance with the Lighthouse financial covenants. Gevo Loan Agreement. In August 2010, concurrently with the execution of the agreement to acquire Agri-Energy in Luverne, Minnesota, Gevo, Inc. entered into a loan and security agreement with TriplePoint, pursuant to which it borrowed $5,000,000 (the “Gevo Loan Agreement”). The Gevo Loan Agreement includes customary affirmative and negative covenants for agreements of this type and events of default, including disposing of certain assets, granting or otherwise allowing the imposition of a lien against certain assets, incurring certain amounts of additional indebtedness, or acquiring or merging with another entity, excluding Agri-Energy, unless the Company receives the prior approval of TriplePoint. The aggregate amount outstanding under the Gevo Loan Agreement bears interest at a rate equal to 13%, is subject to an end-of-term payment equal to 8% of the amount borrowed and is secured by substantially all of the assets of Gevo, Inc., other than its intellectual property. The loan is also secured by substantially all of the assets of Agri-Energy, LLC. Additionally, under the terms of each of (i) the Gevo Loan Agreement and (ii) Gevo, Inc.’s guarantee of Agri-Energy’s obligations under the Original Agri-Energy Loan Agreement described below, Gevo, Inc. is prohibited from granting a security interest in its intellectual property assets to any other entity until both TriplePoint loans are paid in full. The loan matures on August 31, 2014, and provides for interest-only payments during the first 24 months. An additional interest-only period of 6 months may be elected in the event that Gevo, Inc. begins producing isobutanol at its Agri-Energy Facility by June 30, 2012. Gevo, Inc. used the funds from this loan to repay a portion of its existing indebtedness with Lighthouse. At December 31, 2011, the Company was in compliance with the financial covenants under the Gevo Loan Agreement. Original Agri-Energy Loan Agreement. In August 2010, Gevo Development borrowed $12,500,000 from TriplePoint to finance its acquisition of Agri-Energy. In September 2010, upon completion of the acquisition, the loan and security agreement was amended to make Agri-Energy, LLC the borrower under the facility. This loan 102 Table of Contents and security agreement (the “Original Agri-Energy Loan Agreement”) includes customary affirmative and negative covenants for agreements of this type and events of default. The aggregate amount outstanding under the Original Agri-Energy Loan Agreement bears interest at a rate equal to 13% and is subject to an end-of-term payment equal to 8% of the amount borrowed. The loan is secured by the equity interests of Agri-Energy, LLC held by Gevo Development and substantially all the assets of Agri-Energy, LLC. The loan matures on September 1, 2014, and provides for interest-only payments during the first 24 months. An additional interest-only period of 6 months may be elected in the event that Gevo, Inc. begins producing isobutanol at its Agri-Energy Facility by June 30, 2012. The loan is guaranteed by Gevo, Inc. pursuant to a continuing guaranty executed by Gevo, Inc. in favor of TriplePoint, which is secured by substantially all of the assets of Gevo, Inc., other than its intellectual property. At December 31, 2011, the Company was in compliance with the financial covenants under the Original Agri-Energy Loan Agreement. Amended Agri-Energy Loan Agreement. In October 2011, Agri-Energy entered into an amended and restated loan and security agreement (the “Amended Agri- Energy Loan Agreement”) with TriplePoint. The Amended Agri-Energy Loan Agreement amends and restates the Original Agri-Energy Loan Agreement. The Amended Agri-Energy Loan Agreement includes customary affirmative and negative covenants for agreements of this type and events of default. The Amended Agri-Energy Loan Agreement provides Agri-Energy with additional term loan facilities of up to $15,000,000 (the “New Loan”) (which amount is in addition to the existing $12,500,000 term loan provided under the Original Agri-Energy Loan Agreement, which term loan remains in place under the Amended Agri-Energy Loan Agreement), the proceeds of which will be used to pay a portion of the costs, expenses, and other amounts associated with the retrofit of Agri-Energy’s ethanol plant in Luverne, Minnesota to produce isobutanol. The loan matures on October 31, 2015 with the last monthly amortization payment due on the date of such advance. The aggregate amount outstanding under the New Loan bears interest at a rate of 11% and is subject to an end-of-term payment equal to 5.75% of the amount borrowed. The New Loan provides for interest-only payments through July 1, 2012 and an additional interest-only period of 6 months on the New Loan may be elected in the event that the Company has received net offering proceeds of at least $75 million from one or more secondary equity offerings by June 30, 2012. Any borrowings in excess of 50% of the amount incurred for the retrofit the Agri-Energy Facility, calculated as incurred in total by 6.5 months from the date of the advance, must be immediately repaid to TriplePoint. On October 20, 2011, Agri-Energy borrowed $10,000,000 under the Amended Agri- Energy Loan Agreement. On January 6, 2012, Agri-Energy borrowed an additional $5,000,000 under this facility, bringing the total borrowed under the New Loan to $15,000,000. Upon the Company’s request and the additional approval of TriplePoint, the Company may borrow an additional $5,000,000 under the Amended Agri-Energy Loan Agreement increasing the maximum amount of the New Loan to $20,000,000. At December 31, 2011, the Company was in compliance with the financial covenants under the Amended Agri-Energy Loan Agreement. The Amended Agri-Energy Loan Agreement provides that Agri-Energy will secure all of its obligations under the Amended Agri-Energy Loan Agreement and any other loan documents by granting to TriplePoint a security interest in and lien upon all or substantially all of its assets. Gevo, Inc. has guaranteed Agri- Energy’s obligations under the Amended Agri-Energy Loan Agreement. As additional security, concurrently with the execution of the Amended Agri-Energy Loan Agreement, (i) Gevo Development entered into a limited recourse continuing guaranty in favor of TriplePoint, (ii) Gevo Development entered into an amended and restated limited recourse membership interest pledge agreement in favor of TriplePoint, pursuant to which it pledged the membership interests of Agri-Energy as collateral to secure the obligations under its guaranty and (iii) Gevo, Inc. entered into an amendment to its security agreement with TriplePoint, which secures its guarantee of Agri-Energy’s obligations (including up to $32,500,000 in term loans) under the Amended Agri-Energy Loan Agreement. Interest expense, net of amounts capitalized to construction in progress, related to the secured long-term debt for the years ended December 31, 2011, 2010 and 2009, and from Inception to December 31, 2011, was $3,390,000, $2,207,000, $1,103,000 and $7,172,000, respectively, of which $928,000, $762,000, $235,000 and $2,029,000, respectively, was for the accretion of debt discounts relating to the final/end-of-term payments, amortization of debt issue costs and the accretion of debt discounts relating to the grant date value of the warrants issued in connection with the debt. 103 Table of Contents The following is a summary of principal maturities of long-term debt and the final/end-of-term payments as of December 31, 2011, assuming the extended interest-only periods are not elected: 2012 2013 2014 2015 Principal $ 4,254,000 11,309,000 10,056,000 2,918,000 $ 28,537,000 Final Payment 204,000 $ — 1,400,000 575,000 $ 2,179,000 Total $ 4,458,000 11,309,000 11,456,000 3,493,000 $ 30,716,000 In connection with signing and borrowing under the loans with Lighthouse and TriplePoint, the Company issued warrants to purchase shares of the Company’s preferred stock. The issuance date fair value of these warrants was recorded as a discount against the debt (debt discount) and amortized to interest expense over the terms of the loans. The warrants that were issued prior to the Company’s initial public offering were, while they were exercisable for preferred stock, considered to be derivative instruments (Note 11). From December 2006 through December 31, 2009, the Company issued to Lighthouse warrants to purchase an aggregate of 169,247 shares of the Company’s convertible preferred stock at a weighted-average exercise price of $5.38. These warrants converted to warrants exercisable for 169,247 shares of the Company’s common stock upon completion of its initial public offering on February 14, 2011. In March 2011, Lighthouse completed a cashless net exercise of the warrants that had been issued to them which resulted in the Company issuing 122,424 shares of its common stock to Lighthouse. In connection with signing and borrowing on the loans with TriplePoint in August and September 2010, the Company issued warrants to TriplePoint to purchase an aggregate of 105,140 shares of Series D-1 convertible preferred stock at an exercise price of $17.12. The warrants became exercisable for 199,999 shares of the Company’s common stock upon completion of its initial public offering on February 14, 2011. The warrants may be exercised until August 5, 2017. Concurrent with the execution of the Amended Agri-Energy Loan Agreement in October 2011, Gevo, Inc. and TriplePoint entered into a warrant agreement pursuant to which TriplePoint is entitled to purchase up to 188,442 shares of Gevo, Inc.’s common stock at a price of $7.96 per share. As of December 31, 2011, the Company has issued warrants to purchase 157,035 shares of the Company’s common stock under this warrant agreement. In January 2012, Agri-Energy borrowed an additional $5 million under the Amended Agri-Energy Loan Agreement. Concurrent with the borrowing, Gevo, Inc. issued warrants to purchase 31,407 shares of its common stock at a price per share of $7.96. The warrants may be exercised until October 20, 2018. The warrants issued to TriplePoint during August and September 2010, were valued on the issuance dates based upon an option-pricing model using a risk-free interest rate of 0.15%, expected volatility between 49.14% and 61.90% and a term of 0.17 years. The warrants issued to TriplePoint during October 2011 were valued using a risk-free interest rate of 1.64%, expected volatility of 75.74% and a term of 7 years. 9. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses in the consolidated balance sheets at December 31, 2011 and 2010 consisted of the following: Accounts payable—trade Accrued expenses—Cargill license agreement Accrued employee compensation and related expenses Accrued expenses—ICM Accrued deferred offering costs Other accrued expenses 104 December 31, 2011 $ 7,070,000 924,000 941,000 1,634,000 — 1,871,000 $ 12,440,000 December 31, 2010 $ 4,818,000 924,000 586,000 163,000 548,000 864,000 $ 7,903,000 Table of Contents 10. Capital Stock Initial Public Offering—On February 14, 2011, the Company completed its initial public offering issuing 8,222,500 shares of common stock at an offering price of $15.00 per share, resulting in net proceeds of $110,408,000, after deducting underwriting discounts and commissions and other offering costs. Upon the closing of the initial public offering, the Company’s outstanding shares of convertible preferred stock were automatically converted into 16,329,703 shares of common stock and the outstanding convertible preferred stock warrants were automatically converted into common stock warrants to purchase a total of 398,032 shares of common stock. The net proceeds from the initial public offering, after deducting underwriting discounts and commissions and offering costs, have been recorded in stockholders’ equity. In connection with the closing of the initial public offering, the Company amended and restated its certificate of incorporation to increase its authorized number of shares of common stock to 100,000,000 and to authorize the issuance of 5,000,000 shares of preferred stock. The holder of each share of common stock is entitled to one vote. The board of directors has the authority, without action by its stockholders, to designate and issue shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. The Company’s amended and restated certificate of incorporation provides that the Company’s board of directors will be divided into three classes, with staggered three-year terms and provides that all stockholder actions must be effected at a duly called meeting of the stockholders and not by a written consent. The amended and restated certificate of incorporation also provides that only the board of directors may call a special meeting of the stockholders and requires the approval of either a majority of the directors then in office or 66 2/3% of the voting power of all then outstanding capital stock for the adoption, amendment or repeal of any provision of the Company’s amended and restated bylaws. In addition, the amendment or repeal of certain provisions of the Company’s amended and restated certificate of incorporation requires the approval of 66 2/3% of the voting power of all then outstanding capital stock. Convertible Preferred Stock—All shares of the Company’s convertible preferred stock automatically converted into shares of common stock upon the Company’s initial public offering. Series D-1—Between March and May 2010, the Company issued 1,843,675 shares of Series D-1 preferred stock at a price of $17.12 per share for gross cash proceeds of approximately $31,564,000 and issued 58,412 shares of Series D-1 preferred stock at $17.12 per share in exchange for $1,000,000 of future services to be provided by ICM. The 58,412 shares issued to ICM in exchange for the credit against future services are fully vested, non-forfeitable and non-cancellable. The Company had used the full amount of its prepaid credit with ICM prior to March 31, 2011, which had been recorded in prepaid expenses and other current assets on the Company’s balance sheet. The Series D-1 preferred stock was considered to have a beneficial conversion feature because the conversion ratio would adjust from the initial conversion rate of one common share for each preferred share to two common shares for each preferred share if an initial public offering or qualified financing had not occurred on or before September 30, 2011. At the issuance dates of the Series D-1 between March and May 2010, the Company recorded the beneficial conversion feature at its aggregate intrinsic value of approximately $5,744,000 as a discount on the preferred stock with a corresponding credit to additional paid-in capital. This discount was recorded as a deemed dividend and was being amortized as a debit to retained earnings and a credit to additional paid-in capital. For the period from January 1, 2011 to the closing of the Company’s initial public offering on February 14, 2011, the Company recorded a deemed dividend – amortization of beneficial conversion feature on the Series D-1 convertible preferred stock of $495,000 relating to the issuance of Series D-1 convertible preferred stock. Upon closing of the initial public offering on February 14, 2011 and the automatic conversion of the Company’s Series D-1 preferred stock to common stock, the Company recalculated the intrinsic value of the beneficial conversion feature using the adjusted conversion ratio applied against the original commitment date estimated fair value of the underlying common stock. The amount of the recalculated intrinsic value of the beneficial conversion feature exceeded the previously amortized amount of the beneficial conversion feature by $599,000, which amount was 105 Table of Contents immediately amortized to retained earnings and additional paid-in capital contemporaneously with the closing of the initial public offering. Upon the closing of the Company’s initial public offering, no additional amortization of the beneficial conversion feature relating to the Series D-1 preferred stock will be recorded. Warrants—In September 2010, a holder of Series C preferred stock warrants exercised its warrants to purchase 108,076 shares of Series C preferred stock at an exercise price of $5.48 per share resulting in total proceeds to the Company of $592,000. Upon exercise of the warrant, the Company reclassified $1,458,000 from preferred stock warrant liability to equity. As of December 31, 2010, the Company had issued and outstanding 858,000 warrants to CDP (Note 6) that were exercisable into common stock and 303,173 warrants to TriplePoint, Lighthouse and investors that were exercisable into preferred stock. These 303,173 preferred stock warrants became exercisable for 398,032 shares of the Company’s common stock upon completion of the Company’s initial public offering on February 14, 2011. In March 2011, Lighthouse completed a cashless net exercise of the 169,247 warrants that had been issued to them which resulted in the Company issuing 122,424 shares of its common stock to Lighthouse. In October 2011, the Company issued warrants to TriplePoint to purchase an aggregate of 157,035 shares of common stock (Note 8). As of December 31, 2011, the Company has issued and outstanding an aggregate of 1,243,820 warrants that are exercisable into common stock at a weighted- average exercise price of $4.44. 11. Preferred Stock Warrant Liabilities Effective January 1, 2009, the Company adopted the provisions of Emerging Issues Task Force (EITF) 07-05, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock, which was primarily codified into FASB ASC 815, Derivatives and Hedging (“ASC 815”). As a result of adopting ASC 815, warrants to purchase shares of the Company’s preferred stock previously treated as equity were reclassified as derivative liabilities. Upon the closing of the Company’s initial public offering on February 14, 2011, the preferred stock warrants that were previously recorded as liabilities on the Company’s consolidated balance sheet were automatically converted to common stock warrants. Upon this conversion, the related preferred stock warrant liability of $2,063,000 was reclassified to additional paid-in capital and will no longer be marked to fair value. From January 1, 2009 through February 14, 2011, changes in the fair value of the preferred stock warrants were recorded as a non-cash expense in the Company’s consolidated statements of operations. These non-cash expenses totaled $29,000, $2,333,000, $490,000 and $2,852,000, respectively, during the years ended December 31, 2011, 2010 and 2009, and from Inception to December 31, 2011. 12. Derivative Instruments Since the acquisition of Agri-Energy on September 22, 2010, the Company’s activities expose it to a variety of market risks, including the effects of changes in commodity prices. These financial exposures are monitored and managed by the Company as an integral part of its overall risk management program. The Company’s risk management program focuses on the unpredictability of financial and commodities markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on its operating results. The Company periodically enters into forward purchase contracts for corn to ensure supply and manage the price of this commodity. These transactions are considered to be derivatives and prior to January 1, 2011 were recorded on the consolidated balance sheet as assets and liabilities based on each derivative’s fair value. The changes in the fair value of these derivative contracts were recognized in income, as a component of cost of goods sold. Effective January 1, 2011, the Company designates all of its forward purchase contracts for corn under the normal purchases and normal sales scope exception and therefore were not marked to market during the year ended December 31, 2011. 106 Table of Contents The Company generally follows a policy of using exchange-traded futures contracts to reduce its net position in agricultural commodity inventories and forward cash purchase contracts to reduce price risk. Exchange-traded futures contracts are valued at market price and are recorded as derivative assets or derivative liabilities in the consolidated balance sheet. Changes in market price are recorded in cost of goods sold. The Company’s derivatives do not include any credit risk related contingent features. At December 31, 2011 and 2010, the Company had $474,000 and $624,000, respectively, in a margin deposit account for it exchange-traded futures contracts. The Company has not designated any of its derivatives as hedges for financial accounting purposes. The Company did not have any derivative assets or liabilities prior to September 22, 2010 other than the preferred stock warrants described in Note 11. The Company incurred realized (gains)/losses of $(596,000), $1,098,000 and $502,000 on its exchange-traded futures contracts for the years ended December 31, 2011 and 2010, and from Inception to December 31, 2011, respectively, which have been recorded within cost of goods sold. The following table summarizes the unrealized (gains)/losses of the Company’s derivative instruments that were recorded in cost of goods sold in the consolidated statements of operations. Statement of Operations Location Exchange-traded futures contracts—cost of goods sold—unrealized (gains)/losses Forward purchase contracts—cost of goods sold—unrealized (gains)/losses Years Ended December 31, 2011 2010 $(219,000) $ 361,000 $(243,000) $(318,000) The following table represents the Company’s net long and short positions regardless of whether the derivative instruments qualify for the normal purchase and normal sales scope exception. Year of Expiration 2011 2012 13. Stock-Based Compensation December 31, 2011 Corn Net Long (Short) Position Bushels — (77,000) December 31, 2010 Corn Net Long (Short) Position Bushels (309,000) — 2006 Omnibus Securities and Incentive Plan—During 2006, the Company established the Gevo, Inc. 2006 Omnibus Securities and Incentive Plan (the “2006 Incentive Plan”). Pursuant to the 2006 Incentive Plan, the Company granted stock awards to employees, directors, and consultants of the Company. Upon adoption of the Gevo, Inc. 2010 Stock Incentive Plan (the “2010 Plan”), no further grants can be made under the 2006 Incentive Plan. To the extent outstanding awards under the 2006 Incentive Plan expire, or are forfeited, cancelled, settled, or become unexercisable without the issuance of shares, the shares of common stock subject to such awards will be available for future issuance under the 2010 Plan. Employee Stock Purchase Plan— In February 2011, the Company’s stockholders approved the Gevo, Inc. Employee Stock Purchase Plan (“ESPP”). The offering periods for the ESPP are from January 1 to June 30 and from July 1 to December 31 of each calendar year. The Company has reserved 1,285,643 shares of common stock for issuance under the ESPP, of which 1,276,879 shares as of December 31, 2011 are available for future issuance. The purchase price of the common stock under the ESPP is 85% of the lower of the fair market value of a share of common stock on the first or last day of the purchase period. 107 Table of Contents The Company recorded $54,000 of stock-based compensation expense related to the ESPP during the year ended December 31, 2011. Stock-based compensation expense is based upon the Black-Scholes fair value of the employee stock purchase rights. The following table sets forth the weighted-average assumptions used in the fair value calculation of the employee stock purchase rights. Risk-free interest rate Expected dividend yield Expected volatility factor Expected option life (in years) Year Ended December 31, 2011 0.10% — 81.27% 0.50 2010 — — — — 2010 Stock Incentive Plan—In February 2011, the Company’s stockholders approved the 2010 Plan. The Company has reserved 2,571,286 shares of common stock for issuance under the 2010 Plan. At December 31, 2011, there were 1,665,802 shares available for grant under the 2010 Plan. Stock Options—A summary of stock option activity for grants to employees and non-employees is presented below: Options outstanding—December 31, 2008 Granted Canceled or forfeited Exercised Options outstanding—December 31, 2009 Granted Canceled or forfeited Exercised Options outstanding—December 31, 2010 Granted Canceled or forfeited Exercised Options outstanding—December 31, 2011 Options exercisable—December 31, 2011 Options vested and expected to vest—December 31, 2011 Additional information related to the Company’s stock options is summarized below: Weighted-average grant-date fair value of option awards granted Intrinsic value of options exercised (determined as of the date of option exercise) 108 Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (years) Aggregate Intrinsic Value 0.76 2.70 (0.79) (0.49) $ 1.42 $ 10.45 (1.03) (0.52) $ 2.83 $ 15.81 16.01 0.75 5.34 3.19 5.31 $ $ $ 7.90 $34,936,000 7.43 6.83 7.42 $10,620,000 $ 7,166,000 $10,520,000 Number of Options 1,876,134 863,720 (191,428) (834) 2,547,592 446,880 (68,660) (31,547) 2,894,265 607,982 (14,357) (226,151) 3,261,739 1,755,686 3,218,014 Year Ended December 31, 2011 $ 10.74 $1,703,000 2010 $ 6.99 $69,000 2009 $ 1.92 $2,000 Cumulative Amounts From Inception to December 31, 2011 $ 3.42 $1,792,000 Table of Contents As of December 31, 2011, the Company had $5,945,000 of total unrecognized compensation expense, net of estimated forfeitures, which is expected to be recognized over a weighted-average period of 2.47 years. The Company settles stock option exercises with newly issued common shares. No tax benefits were realized by the Company in connection with these exercises as the Company maintains net operating loss carryforwards and has established a valuation allowance against the entire tax benefit. Information about stock options outstanding and exercisable at December 31, 2011 is as follows: Range of Exercise Prices $ 0.17 to $0.49 $1.16 to $2.70 $6.15 to $8.73 $10.07 to $14.81 $16.19 to $19.14 Options Outstanding Options Exercisable Weighted- Average Exercise Price $ 0.46 $ 2.06 6.88 $ $ 11.26 $ 17.14 Weighted- Average Remaining Contractual Life in Years 5.42 7.35 9.86 8.66 9.34 Number of Options 728,528 707,375 902 253,290 65,591 Weighted- Average Exercise Price $ 0.46 $ 2.17 8.73 $ $ 10.30 $ 17.17 Weighted- Average Remaining Contractual Life in Years 5.42 7.48 9.71 8.46 9.29 Number of Options 759,835 1,460,141 53,578 552,780 435,405 The fair values of stock options granted during the years ended December 31, 2011, 2010 and 2009 were estimated using the following weighted average assumptions: Risk-free interest rate Expected dividend yield Expected volatility factor Expected option life (in years) Year Ended December 31, 2011 1.98% None 79.04% 5.81 2010 2.14% None 78.64% 5.34 2009 2.33% None 78.25% 5.47 The risk-free interest rate was based on the U.S. Treasury yield curve in effect on the grant date for instruments with a term similar to the expected life of the option. The volatility factor was determined based upon management’s estimate using inputs from comparable public companies. Due to the Company’s limited history of grant activity, the expected life of options granted was estimated using the “simplified method” in accordance with Staff Accounting Bulletin 110, where the expected life equals the arithmetic average of the vesting term and the original contractual term of the options. No dividends are expected to be paid. Forfeitures have been estimated by the Company based upon historical and expected forfeiture experience. Expected forfeiture rates used for the periods presented were 0% to 5%. 109 Table of Contents Stock-based compensation included in the Company’s consolidated statements of operations is as follows: Stock options issued to non-employees: Research and development Selling, general and administrative Stock options issued to employees and board members: Research and development Selling, general and administrative Restricted stock issued to non-employees: Research and development Restricted stock issued to employees and board members: Research and development Selling, general and administrative Employee stock purchase plan: Research and development Selling, general and administrative Warrant issued to CDP: Selling, general and administrative Non-cash stock-based compensation Purchase of class B interests of Gevo Development from CDP for cash: Selling, general and administrative Modified stock option awards (1): Selling, general and administrative Cash settled stock-based compensation Total stock-based compensation 2011 Year Ended December 31, 2010 2009 From Inception To December 31, 2011 $ 155,000 — $ 142,000 106,000 $ 31,000 47,000 $ 336,000 164,000 593,000 1,839,000 470,000 1,872,000 173,000 624,000 1,310,000 4,446,000 85,000 70,000 70,000 285,000 189,000 423,000 23,000 31,000 — — — — — — — — 189,000 423,000 23,000 31,000 3,488,000 $ 6,826,000 7,851,000 $ 10,511,000 — $ 945,000 11,339,000 $ 18,546,000 296,000 774,000 — 1,070,000 610,000 $ 906,000 $ 7,732,000 — 774,000 $ $ 11,285,000 — — $ $ 945,000 610,000 $ 1,680,000 $ 20,226,000 (1) On December 21, 2011, the Company amended the existing employment agreements with the Company’s Chief Executive Officer (“CEO”), as a retention incentive to the CEO, and to enhance the alignment of his interests with those of the Company’s stockholders. Upon the effectiveness of the amendment agreement, all options to purchase common stock of the Company that had been granted to the CEO in fiscal years 2008, 2009 and 2010 immediately became unvested (to the extent previously vested) and subject to a revised three-year vesting schedule. Pursuant to the amendment agreement, an aggregate of 624,505 options that were previously vested and exercisable (or approximately 64% of the vested options held by the CEO) became unvested. The CEO is also no longer entitled to the guaranteed portion of his annual equity award, worth $600,000 per year. In exchange for these concessions, the CEO is entitled to receive a cash award of $1,500,000, which is payable in three installments through June 30, 2012, of which $500,000 was paid prior to December 31, 2011. The incremental fair value of the stock option awards subject to modified vesting was calculated as $43,000 which will be amortized to stock-based compensation over the three-year service period from the date of the amendment agreement. During the year ended December 31, 2011, the Company recorded stock-based compensation expense of $610,000 associated with the $1,500,000 cash award. 110 Table of Contents Restricted Stock— The Company periodically grants restricted stock awards to employees (including board members) and non-employee consultants. The vesting period for restricted stock awards granted may be based upon a service period or based upon the attainment of performance objectives. The Company recognizes stock-based compensation over the vesting period, generally three to six years, for awards that vest based upon a service period. For performance based restricted stock awards, the Company recognizes expense over the requisite service period. During December 2011, the Company awarded 199,539 shares of restricted common stock to employees with a vesting schedule based on the attainment of performance objectives related to the start-up of isobutanol production at the Agri-Energy Facility. For these awards, the grant-date fair value is being amortized to expense over the requisite service period which is estimated to be through June 30, 2012. If the performance objectives are not achieved, the awards will be forfeited and cancelled and any previously recognized stock-based compensation expense will be reversed as expense is only recorded for awards that ultimately vest. Stock-based awards granted to non-employees are periodically revalued as services are performed and the awards vest. Activity and related information for the Company’s restricted common stock awards is summarized as follows: Nonvested—December 31, 2008 Granted Vested Canceled or forfeited Nonvested—December 31, 2009 Granted Vested Canceled or forfeited Nonvested—December 31, 2010 Granted Vested Canceled or forfeited Nonvested—December 31, 2011 Number of Shares 86,971 — (37,634) (13,530) 35,807 — (7,812) (22,266) 5,729 318,791 (32,763) (6,932) 284,825 Weighted- Average Grant- Date Fair Value $ 0.42 — (0.41) (0.35) 0.45 $ — (0.49) (0.43) 0.49 $ 10.28 14.39 17.53 9.44 $ As of December 31, 2011, the total unrecognized compensation expense, net of estimated forfeitures, relating to restricted stock awards was $2,544,000, which is expected to be recognized over a weighted-average period of 1.03 years. 14. Income Taxes There is no provision for income taxes because the Company has incurred operating losses since Inception. As of December 31, 2011, the Company had federal and state net operating loss carryforwards of approximately $104,000,000 which may be used to offset future taxable income. The Company also had federal research and development tax credit carryforwards and other federal tax credit carryforwards which aggregate to $4,000,000. These carryforwards expire at various times through 2031 and may be limited in their annual usage by Section 382 of the Internal Revenue Code, as amended, relating to ownership changes. 111 Table of Contents The tax effects of temporary differences that give rise to significant portions of the Company’s net deferred tax assets at December 31, 2011 and 2010, are as follows: Deferred tax assets: Net operating loss carryforwards Research and other credits Other temporary differences Net deferred tax assets—before valuation allowance Valuation allowance Net deferred tax assets—after valuation allowance December 31, 2011 2010 $ 41,200,000 4,000,000 8,000,000 53,200,000 (53,200,000) — $ $ 25,400,000 1,700,000 4,700,000 31,800,000 (31,800,000) — $ As a result of certain realization requirements of FASB ASC 718, the table of net deferred tax assets shown above does not include certain deferred tax assets as of December 31, 2011 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Equity will be increased by $550,000 if and when the deferred tax assets are ultimately realized. The Company uses tax law ordering for purposes of determining when excess tax benefits have been realized. The Company’s deferred tax assets represent an unrecognized future tax benefit. The Company has provided a full valuation allowance on its deferred tax asset at December 31, 2011, as management believes it is more likely than not that the related deferred tax asset will not be realized. The reported amount of income tax expense differs from the amount that would result from applying domestic federal statutory tax rates to pretax losses, primarily because of changes in the valuation allowance. Reconciling items from income tax computed at the statutory federal rate for the years ended December 31, 2011, 2010 and 2009, were as follows: Federal income tax at statutory rate State income taxes, net of federal benefits Research and other credits Permanent adjustments Valuation allowance Other Effective tax rate 2011 35.0% 5.7% 4.7% (1.8%) (43.6%) (0.0%) 0.0% 2010 35.0% 3.4% 2.4% (2.6%) (38.2%) (0.0%) 0.0% 2009 35.0% 3.0% 1.3% (1.4%) (37.7%) (0.2%) 0.0% The Company accounts for uncertain tax positions under FASB ASC 740, Income Taxes. The Company has concluded that there are no significant uncertain tax positions requiring recognition in the consolidated financial statements. The Company’s evaluation was performed for the tax periods from Inception to December 31, 2011, which remain subject to examination by major tax jurisdictions as of December 31, 2011. The Company may from time to time be assessed interest or penalties by major tax jurisdictions, although there have been no such assessments historically, with material impact to its financial results. In the event it receives an assessment for interest and/or penalties, such an assessment would be classified in the consolidated statements of operations as income tax expense. 15. Employee Benefit Plan The Company’s employees participate in the Gevo, Inc. 401(k) Plan (the “401(k) Plan”). Subject to certain eligibility requirements, the 401(k) Plan covers substantially all employees after three months of service with quarterly entry dates. Employee contributions are deposited by the Company into the 401(k) Plan and may not exceed the maximum statutory contribution amount. The Company may make matching and/or discretionary contributions to the 401(k) Plan. Effective January 1, 2008, the Company began providing an employer match of 100% up to a maximum of 5% of compensation per employee, which vests over a period of approximately two years. During the years ended December 31, 2011, 2010 and 2009, and from Inception to December 31, 2011, the Company recorded $416,000, $263,000, $200,000 and $1,002,000, respectively, in matching contributions. 112 Table of Contents 16. Related-Party Transactions A founder, consultant and former director of the Company, who owns common stock of the Company and is a holder of Company stock options, is a professor at the California Institute of Technology, which is a party to license agreement and research agreements with the Company. The co-managing directors of Gevo Development beneficially own 100% of the equity interests of CDP. CDP holds a warrant for common stock of Gevo, Inc. (Note 6). The co-managing directors also entered into employment agreements with Gevo, Inc., which became effective on September 22, 2010. 17. Commitments and Contingencies Legal Matters—On January 14, 2011, Butamax Advanced Biofuels LLC (“Butamax”), a joint venture between BP Biofuels North America LLC and E. I. DuPont de Nemours and Co. (“DuPont”), filed a complaint (the “Complaint”) in the United States District Court for the District of Delaware, as Case No. 1:11- cv-00054-UNA, alleging that the Company is infringing one or more claims made in U.S. Patent No. 7,851,188 (the “’188 Patent”), entitled “Fermentive Production of Four Carbon Alcohols.” The ’188 Patent, which has been assigned to Butamax, claims certain recombinant microbial host cells that produce isobutanol and methods for the production of isobutanol using such host cells. Butamax is seeking a declaratory judgment, injunctive relief, damages and costs, including attorney’s fees and expenses. On March 25, 2011, the Company filed a response to the Complaint, denying Butamax’s allegations of infringement and raising affirmative defenses. On August 11, 2011, Butamax amended the Complaint to include allegations that the Company is infringing one or more claims made in U.S. Patent No. 7,993,889 (the “’889 Patent”), also entitled “Fermentive Production of Four Carbon Alcohols.” The ’889 Patent, which has been assigned to Butamax, claims methods for producing isobutanol using certain recombinant yeast microorganisms expressing an engineered isobutanol biosynthetic pathway. On September 22, 2011, Butamax filed a motion requesting a preliminary injunction with respect to the alleged infringement of the ’899 Patent. The Company believes that the amended Complaint is without merit and will continue to aggressively defend its freedom to operate. On September 13, 2011, the Company filed an answer to the amended Complaint in which the Company asserted counterclaims against Butamax and DuPont for infringement of U.S. Patent No. 8,017,375, entitled “Yeast Organism Producing Isobutanol at a High Yield” and U.S. Patent No. 8,017,376, entitled “Methods of Increasing Dihydroxy Acid Dehydratase Activity to Improve Production of Fuels, Chemicals, and Amino Acids,” both of which were recently awarded to the Company by the United States Patent and Trademark Office. The counterclaim seeks a declaratory judgment, injunctive relief, damages and costs, including attorney’s fees and expenses. On January 24, 2012, the Company filed a complaint in the United States District Court for the District of Delaware, as Case No. 1:99-mc-09999, alleging that Butamax and DuPont are infringing one or more claims made in U.S. Patent No. 8,101,808 (the “’808 Patent”) entitled “Recovery of Higher Alcohols from Dilute Aqueous Solutions.” The ’808 Patent claims methods to produce a C3-C6 alcohol—for example, isobutanol—through fermentation and to recover that alcohol from the fermentation medium. The Company is seeking a declaratory judgment, injunctive relief, damages and costs, including attorney’s fees and expenses. Due to the very early stage of this lawsuit, the Company has determined that the possible loss or range of loss related to this lawsuit cannot be reasonably estimated at this time. Leases—In November 2007, the Company signed an operating lease for its office, research, and production facility in Englewood, Colorado (the “Colorado Facility”) with a term expiring July 31, 2013. The Company also maintains a corporate apartment in Colorado, which has a lease term expiring during the next 12 months. Rent expense for the years ended December 31, 2011, 2010 and 2009, and from Inception to December 31, 2011, was $552,000, $567,000, $514,000 and $2,673,000, respectively. The Company recognizes rent expense on its operating leases on a straight-line basis. 113 Table of Contents As of December 31, 2011, future minimum lease payments required under the Company’s operating leases for the Colorado Facility and corporate apartment are as follows: Years Ending December 31, 2012 2013 2014 2015 2016 $505,000 292,000 — — — $797,000 Guarantees and Indemnifications—In the ordinary course of its business, the Company makes certain indemnities, commitments, and guarantees under which it may be required to make payments in relation to certain transactions. The Company believes the fair value of these indemnification agreements is minimal and, as such, has not recorded any liability for these indemnities in the consolidated balance sheets. The Company, as permitted under Delaware law and in accordance with its amended and restated certificate of incorporation and amended and restated bylaws, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity. The duration of these indemnifications, commitments, and guarantees varies and, in certain cases, is indefinite. The maximum amount of potential future indemnification is unlimited; however, the Company has a director and officer insurance policy that may enable it to recover a portion of any future amounts paid. The Company accrues for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable. No such losses have been recorded to date. 114 Table of Contents 18. Segments Segment Information—The Company’s chief operating decision maker is provided with and reviews the financial results of each of the Company’s consolidated legal entities, Gevo, Inc., Gevo Development, LLC, and Agri-Energy, LLC. The Company organizes its business segments based on the nature of the products and services offered through each of our consolidated legal entities. All revenue is earned, and all assets are held, in the U.S. Prior to the acquisition of Agri- Energy, the financials of Gevo Development were aggregated with Gevo, Inc. due to its size compared to Gevo, Inc. and were not reported separately. For purposes of the table below, the Company has broken out the historical information of Gevo Development. The financial results of Gevo Development and Agri- Energy have been aggregated in the following table as this segment is currently responsible for the production of ethanol and related products and will be responsible for isobutanol and related products. Revenues: Gevo, Inc. Gevo Development, LLC/Agri-Energy, LLC Intercompany eliminations Operating income (loss): Gevo, Inc. Gevo Development, LLC/Agri-Energy, LLC Intercompany eliminations Interest expense: Gevo, Inc. Gevo Development, LLC/Agri-Energy, LLC Intercompany eliminations Depreciation and amortization expense: Gevo, Inc. Gevo Development, LLC/Agri-Energy, LLC Intercompany eliminations Total assets: Gevo, Inc. Gevo Development, LLC/Agri-Energy, LLC Intercompany eliminations Acquisitions of plant, property and equipment: Gevo, Inc. Gevo Development, LLC/Agri-Energy, LLC(1) Intercompany eliminations Year Ended December 31, 2011 Year Ended December 31, 2010 Year Ended December 31, 2009 $ 807,000 63,742,000 — $ 64,549,000 $ 1,631,000 14,765,000 — $ 16,396,000 $ $ 660,000 — — 660,000 $ (46,155,000) 1,462,000 — $ (44,693,000) $ (33,809,000) (1,704,000) — $ (35,513,000) $ (17,838,000) (731,000) — $ (18,569,000) $ $ $ $ 1,381,000 2,196,000 — 3,577,000 2,539,000 2,061,000 — 4,600,000 $ $ $ $ 1,751,000 623,000 — 2,374,000 2,639,000 549,000 — 3,188,000 $ $ $ $ 1,103,000 — — 1,103,000 1,511,000 — — 1,511,000 $ 104,843,000 66,304,000 (38,117,000) $ 133,030,000 $ 34,259,000 47,993,000 (30,643,000) $ 51,609,000 $ 26,307,000 124,000 (48,000) $ 26,383,000 $ $ 1,397,000 6,618,000 — 8,015,000 $ $ 806,000 — — 806,000 $ $ 2,982,000 — — 2,982,000 (1) Excludes property, plant and equipment acquired in the Agri-Energy acquisition during the year ended December 31, 2010. 115 Table of Contents 19. Quarterly Information (Unaudited) The following information has been derived from unaudited consolidated financial statements that, in the opinion of management, include all recurring adjustments necessary for a fair statement of such information: Year ended December 31, 2011 Revenues Gross margin Loss from operations Net loss Net loss attributable to Gevo, Inc. common stockholders Net loss per share Weighted average number of common shares outstanding—basic and diluted Year ended December 31, 2010 Revenues Gross margin Loss from operations Net loss Net loss attributable to Gevo, Inc. common stockholders Net loss per share Weighted average number of common shares outstanding—basic and diluted 20. Subsequent Events First Quarter $ 15,281,000 88,000 (8,412,000) (9,283,000) Second Quarter $ 14,533,000 896,000 (11,633,000) (12,466,000) Third Quarter $ 17,506,000 1,274,000 (11,524,000) (12,305,000) Fourth Quarter $ 17,229,000 1,703,000 (13,124,000) (14,160,000) Total $ 64,549,000 3,961,000 (44,693,000) (48,214,000) (10,377,000) (0.76) $ (12,466,000) (0.48) $ (12,305,000) (0.48) $ (14,160,000) (0.54) $ (49,308,000) (2.15) $ 13,744,337 25,852,185 25,870,060 26,005,744 22,909,916 First Quarter $ 330,000 330,000 (6,980,000) (7,859,000) Second Quarter $ 462,000 462,000 (7,619,000) (8,601,000) Third Quarter $ 1,496,000 640,000 (14,515,000) (17,308,000) Fourth Quarter $ 14,108,000 1,518,000 (6,399,000) (6,344,000) Total $ 16,396,000 2,950,000 (35,513,000) (40,112,000) (7,880,000) (7.02) $ (9,380,000) (8.15) $ (18,297,000) (15.87) $ (7,333,000) (6.35) $ (42,890,000) (37.44) $ 1,123,045 1,151,282 1,152,839 1,154,407 1,145,500 In January 2012, Agri-Energy borrowed an additional $5 million under the Amended Agri-Energy Loan Agreement. Concurrent with the borrowing, Gevo, Inc. issued warrants to purchase 31,407 shares of its common stock at a price per share of $7.96. * * * * * * 116 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosures. As of the end of the period covered by this Report, we conducted an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2011. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d- 15(f) of the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control— Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2011. The effectiveness of our internal control over financial reporting as of December 31, 2011 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein. Changes in Internal Control Over Financial Reporting There have been no changes in our internal control over financial reporting during the fourth quarter of 2011 that have or are reasonably likely to materially affect our internal control over financial reporting identified in connection with the previously mentioned evaluation. 117 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Gevo, Inc. Englewood, Colorado We have audited the internal control over financial reporting of Gevo, Inc. and subsidiaries (a development stage company) (the “Company”) as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2011 of the Company and our report dated February 28, 2012 expressed an unqualified opinion on those financial statements and included an explanatory paragraph referring to the Company’s status as a development stage enterprise. /s/ DELOITTE & TOUCHE LLP Denver, Colorado February 28, 2012 118 Table of Contents Item 9B. Other Information None. Item 10. Directors, Executive Officers and Corporate Governance PART III The information required by this item will be included in the definitive proxy statement for our 2012 annual meeting of stockholders or an amendment to this Report to be filed with the SEC within 120 days after our fiscal year ended December 31, 2011, and is incorporated into this Report by reference. Item 11. Executive Compensation The information required by this item will be included in the definitive proxy statement for our 2012 annual meeting of stockholders or an amendment to this Report to be filed with the SEC within 120 days after our fiscal year ended December 31, 2011, and is incorporated into this Report by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item will be included in the definitive proxy statement for our 2012 annual meeting of stockholders or an amendment to this Report to be filed with the SEC within 120 days after our fiscal year ended December 31, 2011, and is incorporated into this Report by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this item will be included in the definitive proxy statement for our 2012 annual meeting of stockholders or an amendment to this Report to be filed with the SEC within 120 days after our fiscal year ended December 31, 2011, and is incorporated into this Report by reference. Item 14. Principal Accountant Fees and Services The information required by this item will be included in the definitive proxy statement for our 2012 annual meeting of stockholders or an amendment to this Report to be filed with the SEC within 120 days after our fiscal year ended December 31, 2011, and is incorporated into this Report by reference. Item 15. Exhibits and Financial Statement Schedules (a)(1) Financial Statements The following consolidated financial statements are included: PART IV Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets—As of December 31, 2011 and 2010 Consolidated Statements of Operations—For the years ended December 31, 2011, 2010 and 2009, and for the period from June 9, 2005 (date of inception) to December 31, 2011 Consolidated Statements of Stockholders’ Equity—For the years ended December 31, 2011, 2010 and 2009, and for the period from June 9, 2005 (date of inception) to December 31, 2011 Consolidated Statements of Cash Flows—For the years ended December 31, 2011, 2010 and 2009, and for the period from June 9, 2005 (date of inception) to December 31, 2011 Notes to Consolidated Financial Statements 119 Page 80 81 82 83 86 89 Table of Contents (a)(2) Financial Statement Schedules All financial statement schedules have been omitted because they are not applicable or are not required, or because the information required to be set forth therein is included in the consolidated financial statements or notes thereto. (a)(3) Exhibits Exhibit Number 2.1†* Description Form File No. Filing Date Exhibit Filed Herewith Previously Filed Acquisition Agreement by and among Gevo Development, LLC, Agri- Energy, LLC, Agri-Energy Limited Partnership, CORN-er Stone Ethanol Management, Inc. and CORN-er Stone Farmers’ Cooperative, dated August 5, 2010. Equity Purchase Agreement, by and among Gevo, Inc., CDP Gevo, LLC, Gevo Development, LLC, Michael A. Slaney and David N. Black, dated August 5, 2010. S-1 333-168792 November 4, 2010 2.1 S-1 333-168792 October 1, 2010 2.2 Amended and Restated Certificate of Incorporation of Gevo, Inc. 10-K 001-35073 March 29, 2011 Amended and Restated Bylaws of Gevo, Inc. 10-K 001-35073 March 29, 2011 Form of the Gevo, Inc. Common Stock Certificate. S-1 333-168792 January 19, 2011 Fifth Amended and Restated Investors’ Rights Agreement, dated March 26, 2010. Stock Issuance and Stockholder’s Rights Agreement, by and between Gevo, Inc. and California Institute of Technology, dated July 12, 2005. Amended and Restated Warrant to purchase shares of Common Stock issued to CDP Gevo, LLC, dated September 22, 2010. Warrant to purchase shares of Preferred Stock, issued to Virgin Green Fund I, L.P., dated January 18, 2008. Plain English Warrant Agreement No. 0647-W-01, by and between Gevo, Inc. and TriplePoint Capital LLC, dated August 5, 2010. 120 S-1 333-168792 August 12, 2010 S-1 333-168792 August 12, 2010 S-1 333-168792 October 1, 2010 S-1 333-168792 August 12, 2010 4.10 S-1 333-168792 October 1, 2010 4.11 3.1 3.2 4.1 4.2 4.3 4.4 2.2* 3.1 3.2 4.1 4.2 4.3† 4.4 4.5 4.6 Table of Contents Exhibit Number Description Form File No. Filing Date Exhibit Filed Herewith Previously Filed 4.7 4.8 10.1 10.2 10.3 10.4 10.5 10.6 10.7 Plain English Warrant Agreement No. 0647-W-02, by and between Gevo, Inc. and TriplePoint Capital LLC, dated August 5, 2010. Plain English Warrant Agreement No. 0647-W-03, by and between Gevo, Inc. and TriplePoint Capital LLC, dated October 20, 2011 Loan and Security Agreement, by and between Gevo, Inc. and Lighthouse Capital Partners V, L.P., dated December 18, 2006, as amended. Plain English Growth Capital Loan and Security Agreement, by and between Gevo, Inc. and TriplePoint Capital LLC, dated August 5, 2010. First Amendment to Plain English Growth Capital Loan and Security Agreement, by and between Gevo, Inc. and TriplePoint Capital LLC, dated October 20, 2011. Plain English Growth Capital Loan and Security Agreement, by and between Gevo Development, LLC and TriplePoint Capital, LLC, dated August 5, 2010. Joinder Agreement and First Amendment, by and among Gevo Development, LLC, Agri-Energy, LLC and TriplePoint Capital, LLC, dated September 22, 2010, to the Plain English Growth Capital Loan and Security Agreement, by and between Gevo Development, LLC and TriplePoint Capital, LLC, dated August 5, 2010. Amended and Restated Plain English Growth Capital Loan and Security Agreement, by and between Agri-Energy, LLC and TriplePoint Capital LLC, dated October 20, 2011. Plain English Limited Recourse Continuing Guaranty, by Gevo Development, LLC in favor of TriplePoint Capital LLC dated as of October 20, 2011. 121 S-1 333-168792 October 1, 2010 4.12 8-K 001-35073 October 26, 2011 10.7 S-1 333-168792 August 12, 2010 10.1 S-1 333-168792 October 21, 2010 10.23 8-K 001-35073 October 26, 2011 10.2 S-1 333-168792 October 21, 2010 10.24 S-1 333-168792 October 21, 2010 10.25 8-K 001-35073 October 26, 2011 10.3 X Table of Contents Exhibit Number Description Form File No. Filing Date Exhibit Filed Herewith Previously Filed 10.8 10.9 10.10 10.11† 10.12† 10.13 10.14† 10.15 10.16† 10.17† 10.18† Amended and Restated Limited Recourse Membership Interest Pledge Agreement, by Gevo Development, LLC in favor of TriplePoint Capital LLC, dated as of October 20, 2011. First Amendment to Plain English Security Agreement, by and between Gevo, Inc. and TriplePoint Capital LLC, dated October 20, 2011. First Amendment to Plain English Security Agreement, by and between Agri-Energy, LLC and TriplePoint Capital LLC, dated October 20, 2011. Commercialization Agreement, by and between Gevo, Inc. and ICM, Inc., dated October 16, 2008. Development Agreement, by and between Gevo, Inc. and ICM, Inc., dated October 16, 2008. Amendment No. 1, effective July 1, 2010, to the Development Agreement, by and between Gevo, Inc. and ICM, Inc., dated October 16, 2008. Ethanol Purchasing and Marketing Agreement, by and between C&N Ethanol Marketing Corporation and Agri-Energy Limited Partnership, dated April 1, 2009. Exclusive Supply Agreement, by and among Gevo, Inc., LANXESS Inc. and LANXESS Corporation, dated January 14, 2011. License Agreement, by and between Gevo, Inc. and Cargill Incorporated, effective February 19, 2009. Exclusive License Agreement, by and between Gevo, Inc. and The Regents of the University of California, dated September 6, 2007, as amended. License Agreement, by and between Gevo, Inc. and the California Institute of Technology, dated July 12, 2005, as amended. 122 8-K 001-35073 October 26, 2011 10.4 8-K 001-35073 October 26, 2011 10.5 8-K 001-35073 October 26, 2011 10.6 S-1 333-168792 August 12, 2010 10.2 S-1 333-168792 November 4, 2010 10.3 S-1 333-168792 October 1, 2010 10.25 S-1 333-168792 November 4, 2010 10.26 S-1 333-168792 January 19, 2011 10.32 S-1 333-168792 August 12, 2010 S-1 333-168792 August 12, 2010 10.4 10.5 S-1 333-168792 November 4, 2010 10.6 Table of Contents Exhibit Number 10.19 10.20† 10.21† 10.22† 10.23† 10.24 10.25# 10.26# 10.27# 10.28# 10.29# 10.30# 10.31# Description Form File No. Filing Date Exhibit Filed Herewith Previously Filed Amendment No. 4, dated October 1, 2010, to the License Agreement, by and between Gevo, Inc. and the California Institute of Technology, dated July 12, 2005. Sublease, by and between Gevo, Inc. and Luzenac America, Inc., dated November 28, 2007. First Amended and Restated Limited Liability Company Agreement of Gevo Development, LLC, dated August 5, 2010. Isobutanol Joint Venture Agreement, by and between Gevo Development, LLC and Redfield Energy, LLC, dated June 15, 2011. Second Amended and Restated Operating Agreement of Redfield Energy, LLC, dated June 13, 2011. International Off-Take and Distribution Agreement, by and between Gevo, Inc. and Sasol Chemical Industries Limited, dated July 29, 2011. 2006 Omnibus Securities and Incentive Plan. Form of Restricted Stock Award Agreement under the 2006 Omnibus Securities and Incentive Plan. Form of Stock Option Agreement under the 2006 Omnibus Securities and Incentive Plan. 2010 Stock Incentive Plan. Form of Restricted Stock Unit Agreement under the 2010 Stock Incentive Plan. Form of Restricted Stock Award Agreement under the 2010 Stock Incentive Plan. Form of Stock Option Award Agreement under the 2010 Stock Incentive Plan. S-1 333-168792 October 21, 2010 10.10 S-1 333-168792 November 4, 2010 10.7 S-1 333-168792 November 4, 2010 10.8 10-Q 001-35073 August 3, 2011 10-Q 001-35073 August 3, 2011 10.1 10.2 10-Q 001-35073 November 2, 2011 10.2 S-1 333-168792 August 12, 2010 S-1 333-168792 August 12, 2010 10.11 10.12 S-1 333-168792 August 12, 2010 10.13 10-K 001-35073 March 29, 2011 10.19 S-1 333-168792 January 19, 2011 10.15 10-K 001-35073 March 29, 2011 10.21 10-K 001-35073 March 29, 2011 10.22 10.32# Employee Stock Purchase Plan. S-8 333-172771 March 11, 2011 4.7 123 Description Form File No. Filing Date Exhibit Filed Herewith Previously Filed Gevo, Inc. Executive Health Management Plan. 10-Q 001-35073 November 2, 2011 S-1 333-168792 January 19, 2011 10.1 10.33 Table of Contents Exhibit Number 10.33# 10.34# 10.35# 10.36# 10.37# 10.38# 10.39# 10.40# 10.41# 10.42# Form of Indemnification Agreement between Gevo, Inc. and its directors and officers. Employment Agreement, by and between Gevo, Inc. and Patrick Gruber, dated June 4, 2010. Amendment Agreement, by and between Gevo, Inc. and Patrick Gruber, dated December 21, 2011. Employment Agreement, by and between Gevo, Inc. and Mark Smith, dated June 4, 2010. Employment Agreement, by and between Gevo, Inc. and Christopher Ryan, dated June 4, 2010. Employment Agreement, by and between Gevo, Inc. and David Glassner, dated June 4, 2010. Employment Agreement, by and between Gevo, Inc. and Brett Lund, dated June 4, 2010. Employment Agreement, by and between Gevo, Inc. and David N. Black, dated September 22, 2010. Employment Agreement, by and between Gevo, Inc. and Michael A. Slaney, dated September 22, 2010. 124 S-1 333-168792 November 4, 2010 10.14 8-K 001-35073 December 27, 2011 10.1 S-1 333-168792 November 4, 2010 10.15 S-1 333-168792 November 4, 2010 10.16 S-1 333-168792 November 4, 2010 10.17 S-1 333-168792 November 4, 2010 10.18 S-1 333-168792 January 19, 2011 10.23 S-1 333-168792 January 19, 2011 10.24 Table of Contents Exhibit Number Description Form File No. Filing Date Previously Filed S-1 333-168792 October 1, 2010 21.1 23.1 24.1 31.1 31.2 32.1 101** List of Subsidiaries. Consent of Deloitte & Touche, LLP. Power of Attorney (see the signature page to this Report). Section 302 Certification of the Principal Executive Officer. Section 302 Certification of the Principal Financial Officer. Section 906 Certification of the Principal Executive Officer and Principal Financial Officer. Financial statements from the Annual Report on Form 10-K of Gevo, Inc. for the annual period ended December 31, 2011, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) Consolidated Statements of Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows, (v) the Notes to the Consolidated Financial Statements. Filed Herewith Exhibit 10.10 X X X X X * † # ** Certain schedules and exhibits referenced in this document have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the SEC upon request. Certain portions have been omitted pursuant to a confidential treatment request. Omitted information has been filed separately with the SEC. Indicates a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Report. Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Exchange Act, and otherwise is not subject to liability under these sections. (b) Exhibits See Item 15(a)(3) above. (c) Financial Statement Schedules See Item 15(a)(2) above. 125 Table of Contents Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES GEVO, INC. By: /s/ MARK SMITH Mark Smith Chief Financial Officer Date: February 28, 2012 KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Patrick R. Gruber and Mark Smith, jointly and severally, as his or her attorney-in-fact, each with full power of substitution, for him or her, in any and all capacities, to sign each amendment to this report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or his or her substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant POWER OF ATTORNEY and in the capacities and on the dates indicated: Signatures Title /s/ PATRICK R. GRUBER Patrick R. Gruber, Ph.D. Chief Executive Officer (Principal Executive Officer) and Director Date February 28, 2012 February 28, 2012 /s/ MARK SMITH Mark Smith /s/ SHAI WEISS Shai Weiss /s/ GANESH M. KISHORE Ganesh M. Kishore, Ph.D. /s/ STACY J. SMITH Stacy J. Smith /s/ GARY W. MIZE Gary W. Mize /s/ BRUCE A. SMITH Bruce A. Smith Carlos A. Cabrera Chief Financial Officer (Principal Financial and Accounting Officer) Chairman of the Board of Directors February 28, 2012 Director Director Director Director Director 126 February 28, 2012 February 28, 2012 February 28, 2012 February 28, 2012 Exhibit 10.6 AMENDED AND RESTATED PLAIN ENGLISH GROWTH CAPITAL LOAN AND SECURITY AGREEMENT This is an AMENDED AND RESTATED PLAIN ENGLISH GROWTH CAPITAL LOAN AND SECURITY AGREEMENT dated as of October 20, 2011 (this “Agreement”), by and between AGRI-ENERGY, LLC, a Minnesota limited liability company, as borrower, and any other borrower party that may be added as a borrower hereunder from time to time pursuant to a written amendment and/or joinder agreement signed by the then existing borrowers, the new borrower and TRIPLEPOINT CAPITAL LLC (or their successor or permitted assign as lender), and TRIPLEPOINT CAPITAL LLC, a Delaware limited liability company, as lender. The words “We”, “Us”, and “Our” refer to TRIPLEPOINT CAPITAL LLC (including its successors and permitted assigns). Unless otherwise specified, the words “You” and “Your” refers AGRI-ENERGY, LLC, and not to any individual. The words “The Parties” refers to each of and all of TRIPLEPOINT CAPITAL LLC and AGRI-ENERGY, LLC. On August 5, 2010, (the “Original Closing Date”), Gevo Development, LLC, (“Devco”) as borrower and We, as lender, entered into that certain Plain English Growth Capital Loan and Security Agreement (the “Original Loan Agreement”) and certain other “Loan Documents” under and as defined therein (collectively, the “Original Loan Documents”), pursuant to which We agreed to provide a growth capital loan facility totaling $12,500,000 in which the proceeds were used for the Agri-Energy Acquisitions. On September 22, 2010, Devco, You and We entered into that certain Joinder Agreement and First Amendment to Plain English Growth Capital Loan and Security Agreement in which You joined the Original Loan Agreement as a borrower (the “Joinder”). You have requested the Original Loan Documents be amended and restated to provide for growth capital financing and other purposes permitted in this Agreement, and We are willing to do so in accordance with the terms and conditions set forth in this Agreement and in the other Loan Documents. The Parties agree to the following mutual agreements and conditions listed below: GROWTH CAPITAL LOAN FACILITY INFORMATION Facility Number Part 1: 0647-GC-01 Part 2: 0647-GC-03 Part 3: 0647-GC-04 Commitment Amount Part 1: $12,500,000 Part 2: Up to $15,000,000, not to exceed 50% of the Agri- Energy Retrofit Cost (as defined below) Part 3: Up to $5,000,000 Upon Request and Additional Approval and execution of a warrant agreement in substantially the form as the Part 2 Warrant Agreement. Minimum Advance Amount None. Availability Period Part 1: 8/5/10 – 10/30/10* Part 2: 10/20/11- 6/30/12 Part 3: Upon availability through 6/30/12 Loan Term Part 1: 48 Months (Months 1-24 Interest Only)* Part 2 & 3: 48 Months (Interest Only through July 1, 2012)** (with the last monthly amortization payment due in advance on the date of such Advance) */**Interest Only Period subject to extension as set forth in Section 9 Security Interest First (subject only to Permitted Liens) priority security interest in all Collateral. End Of Term Payment Part 1: 8% of each Advance under Part 1. Part 2 & 3: 5.75% of each Advance under Part 2 and Part 3 Interest Rate Part 1: Prime Rate plus 9.75% (the Interest Rate applicable to the outstanding Part 1 Advances is 13%) Part 2 & 3: Prime Rate plus 7.75% (Prime Rate as published in the Wall Street Journal the day before any Advance is funded, however, in no event shall the Prime Rate be less than 3.25%.) Facility Fee Part 1: $125,000 due upon the Original Closing Date; additional $125,000 due upon first Advance. The Part 1 Facility Fees were paid in full in connection with the Original Loan Agreement. Part 2: $150,000 due upon the date upon which this Agreement is executed and delivered by You; plus an additional 1% of each Advance under Part 2 due at the time of such Advance. Part 3: $50,000 due upon the initial Advance under Part 3; plus an additional 1% of each Advance under Part 3 due at the time of such Advance. OUR CONTACT INFORMATION Name TriplePoint Capital LLC YOUR CONTACT INFORMATION Customer Names Agri-Energy, LLC Address For Notices/Contact Person 2755 Sand Hill Rd., Ste. 150 Menlo Park, CA 94025 Tel: (650) 854-2090 Fax: (650) 854-1850 Attn: Sajal Srivastava, COO Email: legal@triplepointcapital.com Address For Notices/Contact Person c/o Gevo, Inc. 345 Inverness Drive South Building C, Suite 310 Englewood, CO 80112 Attention: General Counsel With a copy to (which copy shall not constitute notice): Paul Hastings LLP 4747 Executive Drive, 12th Floor San Diego, California 92121 Attention: Deyan P. Spiridonov 2 Capitalized terms defined or used as headings in the Table of Terms of this Agreement shall have the meanings given to those terms in such Table of Terms, and other capitalized terms not otherwise defined in the body of this Agreement are defined in Section 21. Except as described in the last paragraph of this Agreement, any accounting term not specifically defined herein shall be construed in accordance with GAAP, and all calculations shall be made in accordance with GAAP; provided, however, that if You notify Us that You request an amendment to Section 12, “Other Indebtedness” or Section 12 “Investments” (or any defined term referenced in any such covenant, to eliminate the effect of any Accounting Change occurring after the Closing Date or in the application thereof on the operation of such provision (or if We request from You an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such Accounting Change or in the application thereof, then We and You agree that We and You will negotiate in good faith amendments to the provisions of this Agreement that are directly affected by such Accounting Change with the intent of having such respective positions of Us and You after such Accounting Change conform as nearly as possible to their respective positions as of the date of this Agreement and, until any such amendments have been agreed upon, the provisions in this Agreement shall be calculated as if no such Accounting Change had occurred. 1. WHAT THE PARTIES AGREE TO FINANCE; DESIGNATION OF LEAD BORROWER Proceeds. Provided that the conditions in Sections 4 and 5 and elsewhere in this Agreement are met, We will lend to You the Parts of Commitment Amount as reflected in the Table of Terms of this Agreement and You agree to use such proceeds as follows: • Under the Part 1 Commitment Amount, You will use the proceeds to finance the Agri-Energy Acquisitions pursuant to the Acquisition Agreement and to pay transactional fees, costs, and expenses incurred in connection with this Agreement, the other Loan Documents, and the transactions contemplated hereby and thereby; and • Under the Part 2 Commitment Amount and the Part 3 Commitment Amount, You will use the proceeds to finance the Agri-Energy Retrofit Cost. We will lend to You advances (each an “Advance”) up to a maximum of the Commitment Amount as provided on Page 1. Our obligation to fund Advances under each Part of the Commitment Amount under this Agreement will end on the last day of the Availability Period noted on Page 1 for such Part. Restatement of Obligations. The Parties each hereby acknowledge and agree that: • • • • • • This Agreement shall amend, restate and supersede in its entirety the Original Loan Agreement; Those other Loan Documents that amend and restate any of the Original Loan Documents shall amend, restate and supersede such other Original Loan Documents; The Loan Documents do not constitute an accord and satisfaction or a novation of Our obligations or the obligations of You under the Original Loan Agreement and the other Original Loan Documents; All obligations and commitments outstanding under the Original Loan Documents are amended and restated by the Loan Documents and will be governed by the terms of this Agreement and the other Loan Documents; Amounts in respect of interest, fees, and other amounts payable to Us shall be calculated in accordance with the provisions of (i) the Original Loan Agreement with respect to any period (or portion thereof) ending prior to the Closing Date, and (ii) this Agreement with respect to any period (or portion thereof) commencing on or after the Closing Date. Anything to the contrary herein notwithstanding, on the Closing Date, the Advances outstanding under “Part 1 Commitment Amount” (as defined in the Original Loan Agreement) under the Original Loan Agreement (the “Existing Part 1 Advances”) shall be converted into (and deemed made as part of) the Part 1 Commitment Amount hereunder. The Parties acknowledge Existing Part 1 Advances constitute the entire Part 1 Commitment Amount and no further amounts are available under the Part 1 Commitment Amount. 3 2. YOU WILL ENTER INTO MULTIPLE PROMISSORY NOTES The Plain English Promissory Note in the form of Exhibit A (the “Promissory Note”) is the document The Parties will enter into each time an Advance is to be funded. The Promissory Note will contain the specific financial terms of the Advance (e.g. amount funded, interest rate, maturity date, advance date, payment due dates etc.) and all of the terms and conditions of this Agreement are incorporated in and made a part of each Promissory Note. There may be multiple Promissory Notes associated with this Agreement. 3. YOUR LOAN FACILITY COMMITMENT AMOUNT MAY BE DIVIDED INTO PARTS The Commitment Amount and/or its corresponding parts (if any) will be noted on Page 1 of this Agreement (“Parts”). For purposes of this Agreement, references to the Commitment Amount shall mean the Part or Parts which are available and in effect. Certain terms or conditions associated with the availability of such Part are listed on Pages 1 and 2 of this Agreement. As to any Part that is available “Upon Request and Additional Approval”, You are required to make a request to utilize that additional Part in writing to Us (the “Commitment Increase Request Notice”), prior to Your submission of a corresponding Advance Request. After Our receipt of the Commitment Increase Request Notice, We will review the information available to Us and conduct any legal and business due diligence deemed necessary by Us in connection with Our attempt to obtain Our requisite credit approvals. Our agreement to consider providing the additional Part is not, and is not to be construed as, a commitment, offer, or agreement to provide such additional Part. 4. HOW WILL YOU REQUEST ADVANCES In addition to the requirements of Section 5 set forth below, You agree to follow the procedures listed below to have Us extend an Advance to You: • • You will submit to Us (by facsimile, mail or electronic mail) a completed Advance Request in the form attached as Exhibit B signed by an Authorized Person of You. Such Advance Request must be submitted and received by Us no later than 5:00 p.m. PT ten (10) Business Days prior to the last day of the applicable Availability Period. Any Advance Request submitted after 5:00 p.m. PT shall be considered received the following Business Day. • Each Advance Request will state a requested funding date that is at least ten (10) Business Days after the date such Advance Request is submitted to Us. After We check and approve the information You provide in the Advance Request, We will prepare and provide to You a Promissory Note and an amortization schedule for Your signature. Upon receipt of the Promissory Note signed by an Authorized Person of You and confirmation by Us that all conditions have been met, We will then advance the requested funds to You. All the terms, conditions, and covenants of this Agreement shall apply to all Advances whether or not each Advance is evidenced by a Promissory Note. You agree that We may rely on, and shall be fully protected in relying upon, any notice or Advance Request given by any person purporting to be an Authorized Person of You, without the necessity of Our conducting an independent investigation, including, without limitation, Your contact person listed on the Table of Terms. 5. CONDITIONS FOR US TO MAKE LOANS TO YOU Our obligation to fund any Advance that You request under this Agreement is subject to satisfaction (or waiver by Us) of each of the conditions set forth in Sections 4 and each of the following conditions: 4 • • • • • With respect to any Advance, the representations and warranties in this Agreement and in the Warrant Agreement shall be true, complete and correct in all material respects on and as of the date(s) We fund each Advance with the same effect as though they were made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date, in which case they shall remain true, complete and correct in all material respects as of such date; provided, however, that such materiality qualifiers shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof. (i) No Default or Event of Default shall have occurred and be continuing, and (ii) no fact or conditions shall exist that would (or would with the passage of time, the giving of notice, or both) constitute an Event of Default under this Agreement or any other Loan Document. With respect to any Advance no event or circumstance shall exist or have occurred that has had or could reasonably be expected to have a Material Adverse Effect. You shall have paid to Us the Facility Fee relating to such Advance. You have executed and delivered all of the following documents to Us: • • • this Agreement; the executed Certificate of Perfection, attached as Exhibit C; and any such other documents to which You are party set forth in the Schedule of Documents and identified as due on or prior to the Closing Date. • We shall have received the following: • • • • • • The Warrant Agreement for the respective Party, duly executed and delivered by Gevo, Inc.; Secretary’s certificate of incumbency and authority of You; Certified copy of resolutions of Your and Devco’s boards of directors or similar governing body approving this Agreement and the other Loan Documents entered into on the Closing Date to which they are a party and a certified copy of resolutions of the boards of directors of Gevo, Inc. approving the associated Warrant Agreement executed by such Person; A certificate of good standing from the State of Formation of You, and similar certificates from all other jurisdictions where You do business and where the failure to be qualified could reasonably be expected to have a Material Adverse Effect; Your budget and business plan of the current fiscal year; and A written opinion of Your legal counsel, addressed to Us and dated on the Closing Date, covering such matters relating to You and the Loan Documents as We shall reasonably request. 6. YOU MAY PREPAY YOUR PROMISSORY NOTES Prepayment. You may at any time prepay any obligations under any Promissory Note in full or in part, by paying: (a) the remaining outstanding principal amount (or, if paying in part, the portion of such outstanding principal amount being prepaid) and all accrued and unpaid interest calculated as of the date of such prepayment, unless previously paid (it being understood any interest previously paid and received by Us for such month in which the payoff has been made 5 shall be considered fully earned and not subject to return); (b) the End of Term Payment (or, if paying in part, the applicable portion thereof), if any, (c) all other Secured Obligations, if any, that shall have become due and payable, including interest at the Default Rate with respect to any past due amounts as of the date of prepayment; and (d) an additional prepayment premium as follows: • • • • If prepaid 1-12 months following the date in which such Promissory Note was originally given: 4% of the outstanding balance owing under such Promissory Note; If prepaid 13-24 months following the date in which such Promissory Note was originally given: 2% of the outstanding balance owing under such Promissory Note; If prepaid 25-36 months following the date in which such Promissory Note was originally given: 1% of the outstanding balance owing under such Promissory Note; and If prepaid after 36 months, no additional prepayment premium shall be due. For purposes of clarification, it is understood and agreed that the prepayment premium with respect to any Promissory Note that is amended and restated for any reason shall be calculated based on the date of the original Promissory Note, and not the date of the amended and restated Promissory Note. Mandatory Prepayment, Parts 2 and 3. On (a) the date that is fifteen (15)_Business Days after the sixth month anniversary of any Advance under Part 2 and Part 3, and (b) the date that is fifteen (15) Business Days after the termination of the Availability Period under Part 2 and Part 3, in each case You shall deliver to Us a certificate setting forth the amount of the Agri-Energy Retrofit Cost incurred through such date and, if as of such date the aggregate principal amount of Advances outstanding under the Part 2 and Part 3 Commitment exceeds fifty percent (50%) of the total Agri-Energy Retrofit Cost incurred through such date, You shall immediately prepay an amount under the Promissory Notes with regard to the Part 2 and Part 3 Commitment such that immediately upon receipt of such payment the aggregate outstanding principal amount of Advances under the Part 2 and Part 3 Commitment amount do not exceed fifty percent (50%) of the total Agri-Energy Retrofit Cost. 7. THE MAXIMUM RATE OF INTEREST; DEFAULT RATE Maximum Rate of Interest. It is not Our intent to receive interest at a rate greater than the maximum rate permissible by law, which We shall call the “maximum rate”. If a court determines You have actually paid Us interest based on a rate that exceeds the maximum rate, then We shall apply the excess as follows: first, to the payment of the outstanding principal amount of the Secured Obligations; second, after all principal is repaid, to the payment of Our accrued interest and any other principal, interest, fees, costs or other amounts owed by You to Us in respect of the Secured Obligations; and third, after all amounts owed by You to Us are repaid, the excess (if any) shall be refunded to You. Default Interest. In the event that You do not pay any interest when due, delinquent interest shall be added to principal and shall bear interest on interest, compounded at the rate set forth in Page 1. Upon the occurrence and during the continuation of an Event of Default, all principal, interest or other amounts owed by You to Us shall bear interest at a rate per annum equal to the rate set forth in Page 1 plus five percent (5%) per annum (the “Default Rate”). 8. YOU GRANT US A SECURITY INTEREST You grant to Us, to secure the Secured Obligations, a security interest and continuing Lien (subject only to Permitted Liens) upon all of Your right, title and interest in each of the following whether now owned or hereafter acquired and wherever located: • • • • All Receivables; All Equipment; All Fixtures; All General Intangibles; 6 • All registered Intellectual Property listed on Exhibit C hereto, other than any United States intent-to-use trademark applications until such time as a verified statement of use with respect thereto has been filed with the United States Patent and Trademark Office ; • • • • • • All Inventory; All Investment Property; All Deposit Accounts; All Cash; All commercial tort claims, if any, as listed on Exhibit C; All Goods, whether now or hereinafter owned or existing, leased, consigned by or to or acquired and wherever located; and • To the extent not otherwise included, all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, rents, profits, and products of each of the foregoing. All the above listed items will be collectively called the “Collateral” along with any owned real property (if any) to be pledged to Us pursuant to Section 18. Notwithstanding anything contained in this Agreement to the contrary, the term “Collateral” shall not include: (i) any rights or interest in any contract, lease, permit, license, charter or license agreement covering Your real or personal property if under the terms of such contract, lease, permit, license, charter or license agreement, or applicable law with respect thereto, the grant of a Lien therein is prohibited as a matter of law or under the terms of such contract, lease, permit, license, charter or license agreement and such prohibition or restriction has not been waived or the consent of the other party to such contract, lease, permit, license, charter or license agreement has not been obtained (provided, that, (A) the foregoing exclusions of this clause (i) shall in no way be construed (1) to apply to the extent that any described prohibition or restriction is unenforceable under Section 9-406, 9-407, 9-408, or 9-409 of the UCC or other applicable law, or (2) to apply to the extent that any consent or waiver has been obtained that would permit Our Lien notwithstanding the prohibition or restriction on the pledge of such contract, lease, permit, license, charter or license agreement and (B) the foregoing exclusions of clause (i) shall in no way be construed to limit, impair, or otherwise affect any of Our continuing Liens upon any rights or interests of You in or to (1) monies due or to become due under any described contract, lease, permit, license, charter or license agreement (including any Accounts), or (2) any proceeds from the sale, license, lease, or other dispositions of any such contract, lease, permit, license, charter or license agreement); (ii) any and all Intellectual Property, whether now owned or hereafter acquired, other than Intellectual Property Collateral; or (iii) property subject to Permitted Liens to the extent that a grant or perfection of a Lien in favor of Us on any such property is prohibited by or results in a breach or termination of, or constitutes a default under, the documentation governing such Liens or the obligations secured by such Liens (other than to the extent that such terms would be rendered ineffective pursuant to Section 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction and other than to the extent all necessary consents to creation, attachment and perfection of Our Liens thereon have been obtained) and, in any event, immediately upon the ineffectiveness, lapse or termination of such terms or the obtainment of such consents, such property shall be included in the term “Collateral”; provided, however, that the term “Collateral” shall include any and all Proceeds of such property (other than (x) any non-cash Proceeds of Intellectual Property Collateral, (y) to the extent that such Proceeds are required to be applied to the obligations they secure, or (z) any other Proceeds that would otherwise be excluded from Collateral pursuant to any of the foregoing provisions of this paragraph). Working Capital Facility. You may enter into a Working Capital Loan Facility (defined below) so long as the aggregate outstanding obligations and liabilities thereunder (including advances, bank services, letters of credit, contingent obligations and the like) at no time exceed $2,800,000 upon receipt and review by Us of the final documentation relating to such Working Capital Loan Facility and execution of an intercreditor agreement between Us and the lender under the Working Capital Loan Facility, with terms reasonably acceptable to Us. As used in this Agreement “Working Capital Loan Facility” means a revolving line of credit provided by a bank, commercial lender, or other financial institution or entity regularly engaged in the business of lending money (excluding venture capital, investment banking or similar institutions which sometimes engage in lending activities but which are primarily engaged in investments in equity securities) (each, a “Working Capital Lender”), pursuant to which such Working Capital Lender makes advances based on the value of Your Accounts and/or Inventory and Your obligations thereunder are secured by, and limited to, a security interest in the Accounts, Inventory, other related assets, and the identifiable cash proceeds thereof residing in an associated lockbox deposit account. 7 9. HOW AND WHAT WILL YOU PAY US Payments. The first payment date for each Advance will be the first day of the month following the month in which the Advance was funded, unless that Advance is funded on the first day of that month, in which case the first payment date shall be the Advance Date. Subject to adjustment as provided in this Agreement, (A) each Promissory Note as to Part 1 Advances shall be due in forty-eight (48) monthly installments consisting of twenty-four (24) months of interest only installments followed by twenty-four (24) equal monthly installments of principal plus interest due thereon, payable on the first day of each month through the last payment date (unless that date falls on a weekend or national holiday in which event such payment shall be due on the previous Business Day), and (B) each Promissory Note as to Part 2 and Part 2 Advances and Part 3 and Part 3 Advances shall be due in forty-eight (48) monthly installments consisting of interest only installments through and including the July 1, 2012 installment followed by the remaining term of equal monthly installments of principal plus interest due thereon, payable on the first day of each month through the last payment date (unless that date falls on a weekend or national holiday in which event such payment shall be due on the previous Business Day). Interest. The principal balance of each Promissory Note shall accrue interest at the percentage per year as indicated on Table of Terms of this Agreement, and shall be computed daily on the basis of a year consisting of 360 days for the actual number of days occurring in the period for which such interest is payable, and interest shall be payable in advance on a daily basis from the Advance Date and shall be payable in advance on the first day of each month (unless that date falls on a weekend or national holiday in which event such payment shall be due on the previous Business Day). Interim Payment. In the event an Advance is made on any day other than the first day of the month, You shall make payment to Us on the Advance Date in an amount equal to the per diem interest for the time from the Advance Date through and including the last day of the month in which the Advance is funded. Any amounts that You repay on the Advances may not be re-borrowed. Optional Interest-Only Periods – Part 1 Commitment Amount. • Facility Production. If on or before June 30, 2012, (i) You are current on all payments due and payable in respect of all Secured Obligations, (ii) no Default or Event of Default has occurred and is continuing, and (iii) You have delivered to Us written notice (that the Opco Facility is producing commercial scale isobutanol and We have received evidence reasonably satisfactory to Us of same, then You may elect (by delivery to Us of a notice of election not more than ten (10) Business Days after the end of the calendar month in which Opco Facility begins producing commercial scale isobutanol), effective as of the last day of the month during which in which You have provided Us the notice of election, to make interest-only payments for the payment due under the Promissory Notes on the next scheduled payment date and on the payment dates occurring during the five (5) months immediately following such date (the “Production Interest-Only Period”), followed by equal monthly installments of principal and interest for the remaining term. • Initial Public Offering. If as of any date during the term of this Agreement, (i) You are current on all payments due and payable in respect of all Secured Obligations, (ii) no Default or Event of Default has occurred and is continuing, and You have delivered to Us written notice of the successful consummation of an initial public offering by Gevo, Inc. in which Gevo, Inc. received net offering proceeds, after deduction of all fees, commissions and other costs and expenses in connection therewith, of not less than $50,000,000 with evidence reasonably satisfactory to Us in Our good faith discretion, then You may elect 8 (by delivery to Us of a notice of election not more than ten (10) Business Days after the end of the calendar month in which the successful consummation of an initial public offering occurred), effective as of the last day of the month during which in which You have provided Us the notice of election, to make interest-only payments for the next payment due under the Promissory Notes that would otherwise be required to include principal and on each of the payment dates occurring during the five (5) months immediately following such payment (the “IPO Interest-Only Period”; and together with the Production Interest-Only Period, each an “Interest Only-Period”), followed by equal monthly installments of principal plus interest due thereon for the remaining term. • Amended and Restated Promissory Note. In the event You elect one of the Interest-Only Periods, amended and restated Promissory Note(s) shall be issued by You in favor of Us to evidence these Interest-Only Periods and We shall return the original of the previous Promissory Note(s) to You marked “cancelled”. Optional Interest-Only Periods – Part 2 and 3 Commitment Amount. • • Secondary Offering. If on or before June 30, 2012, (i) You are current on all payments due and payable in respect of all Secured Obligations, (ii) no Default or Event of Default has occurred and is continuing, and You have delivered to Us written notice of the successful consummation of one or more secondary offerings by Gevo, Inc. in which Gevo, Inc. received aggregate net offering proceeds, after deduction of all fees, commissions and other costs and expenses in connection therewith, of not less than $75,000,000 with evidence reasonably satisfactory to Us in Our good faith discretion, then You may elect (by delivery to Us of a notice of election no later than ten (10) Business Days after the end of the calendar month in which such successful consummation of a secondary offering occurred), effective as of the last day of the month during which in which You have provided Us the notice of election, to make interest-only payments for the next payment due under the Promissory Notes that would otherwise be required to include principal and on each of the payment dates occurring during the five (5) months immediately following such payment (the “Secondary Interest-Only Period”, followed by equal monthly installments of principal plus interest due thereon for the remaining term. Amended and Restated Promissory Note. In the event You elect the Secondary Interest-Only Period, amended and restated Promissory Note(s) shall be issued by You in favor of Us to evidence the Secondary Interest-Only Period and We shall return the original of the previous Promissory Note(s) to You marked “cancelled”. Miscellaneous. Payments are due electronically by automatic debit through Automated Clearing House (ACH) payment on or before the first day of each month (unless that date falls on a weekend or national holiday in which event such payment shall be due on the previous Business Day). You agree to fill out and execute the electronic funds transfer/automatic debit Authorization form that We provide. If We do not receive any payments from You within five (5) Business Days after they are due, You will pay a late charge on the overdue amount. The late charge will be equal to five percent (5%) of the amount due for each month not paid when due and until such time as payment is received. All payments shall be free and clear of any taxes, withholdings, duties, impositions or other charges, to the end that We will receive the entire amount of any Secured Obligations payable under this Agreement, regardless of the source of payment. Any interest not paid when due shall be compounded by becoming a part of the Secured Obligations, and such interest shall then accrue interest at the rate then applicable under this Agreement and the applicable Promissory Note. All payments shall be free and clear of any taxes, withholdings, duties, impositions or other charges, to the end that We will receive the entire amount of any Secured Obligations payable under this Agreement, regardless of the source of payment. 9 10. INSURANCE So long as there are any Secured Obligations outstanding, You shall carry and maintain commercial general liability insurance, (a) as You maintain as of the Closing Date, which We agree is acceptable, or (b) against risks customarily insured against in Your line of business. All such insurance shall be in form, with companies, and in amounts reasonably acceptable to Us. Such risks shall include the risks of bodily injury, including death, property damage, personal injury, advertising injury, and contractual liability. You must maintain a minimum of Two Million Dollars ($2,000,000) of commercial general liability insurance for each occurrence (or in the alternative One Million Dollars ($1,000,000) of commercial general liability insurance for each occurrence and an umbrella policy in a minimum amount of One Million Dollars ($1,000,000). So long as there are any Secured Obligations outstanding, You shall also carry and maintain insurance upon the Collateral, insuring against all risks of physical loss or damage howsoever caused, including the perils of fire and windstorm in an amount not less than the full replacement cost of the Collateral, and the perils of flood and earthquake, in an amount not less than $1,000,000. We acknowledge that the insurance in effect on the Closing Date (including, without limitation, the amount of, the type of, the form of, and the insurance companies providing, such insurance) is satisfactory to Us. Within thirty (30) days after the Closing Date, You shall submit to Us certificates of insurance, which reflect Your compliance with Your insurance obligations in the above paragraph and the obligations contained in this Section. Your insurance certificate shall state (other than with respect to public liability and property damage and workers’ compensation insurance) that We are an additional insured for commercial general liability, an additional insured and a loss payee for all risk property damage insurance. Attached to the certificates of insurance will be additional insured endorsements for liability and lender’s loss payable endorsements for all risk property damage insurance (other than with respect to public liability and property damage and workers’ compensation insurance). The certificates of insurance will state that the coverage evidenced is primary and non-contributory to any insurance or Our self-insurance, and will further state that a waiver of subrogation in favor of Us has been agreed to. To the extent permitted by the insurer and by applicable law, all certificates of insurance will provide for a minimum of thirty (30) days (ten (10) days for nonpayment) advance written notice to Us of cancellation. Any failure by Us to scrutinize such insurance certificates for compliance is not a waiver of any of Our rights, all of which are reserved. 11. REPRESENTATIONS AND WARRANTIES FROM YOU You represent and warrant that: • Collateral Title. You own all right, title and interest in and to the Collateral, free of all Liens whatsoever, except for Permitted Liens. • Granting of Lien. You have the full power and authority to, and do grant and convey to Us, a Lien on the Collateral as security for the Secured Obligations, free of all Liens other than Permitted Liens and shall execute such notices, assignments, and control agreements (subject to the limitations set forth in Section 12, paragraph “Deposit and Investment Account”), in connection herewith as We may reasonably request to perfect and obtain the priority of Our Lien on the Collateral. Except for Permitted Liens, the Collateral is not subject to any Liens. • Due Organization. You are a limited liability company duly organized, legally existing and in good standing under the laws of the State of Minnesota with organization number 5711 LLC and are duly qualified as a foreign limited liability company in all jurisdictions in which the nature of Your business or location of Your properties require such qualifications and where the failure to be qualified could reasonably be expected to result in an event which, individually or together with any other event, would have a Material Adverse Effect. • Authorization, Validity and Enforceability. Your execution, delivery and performance of the Promissory Notes, this Agreement, all financing statements, all other Loan Documents, and all Excluded Agreements, (i) have been duly authorized by all necessary corporate or other entity action, and (ii) will not result in the creation or imposition of any Lien upon the Collateral, other than the Liens created by this Agreement and the other related Loan Documents. The person or people executing this Agreement and other Loan Documents are duly authorized to do so, and the Loan Documents executed by or on behalf of either of You and each term and provision thereof are Your legal, valid and binding obligations, enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization or other similar laws generally affecting the enforcement of the rights of creditors and equitable principles (regardless of whether enforcement is sought in equity or at law). 10 • • • • • Litigation. Except as set forth on Schedule 9 (as such Schedule may be updated from time to time by delivery of written notice to Us for events occurring after the Closing Date), there are no actions, suits or proceedings at law or in equity or by or before any governmental authority now pending or, to Your knowledge, threatened against or affecting You or any of the business, property or rights of You . Compliance with Applicable Laws. Except as set forth on Schedule 10, You are not in violation of any law, rule or regulation or in default with respect to any judgment, writ, injunction or decree of any governmental authority, where such violation or default could reasonably be expected to result in a Material Adverse Effect. Conflict. Except as set forth on Schedule 11, neither this Agreement nor any other Loan Document (a) violates any provisions of the articles or certificate of formation, or limited liability company agreement of You, or any law, regulation, order, injunction, judgment, decree or writ to which You are subject or (b) conflicts with or results in the breach or termination of, constitutes an event of default under or accelerates or permits the acceleration of any performance required by, any lease, agreement or other contract to which You are a party or by which You or any of Your property is bound, except in each case of clause (a) and (b) above to the extent that any such violation, conflict, breach, termination, event of default or acceleration could not reasonably be expected to result in a Material Adverse Effect. Material Adverse Effect. During the period commencing with the delivery of Your July 2011 financial statements and continuing through the Closing Date, no event that has had or could reasonably be expected to have a Material Adverse Effect has occurred or is continuing. Further Consent. Except as set forth on Schedule 12, the execution, delivery and performance of this Agreement and the other Loan Documents do not require the consent or approval of any other Person, including any regulatory authority or governmental body of the United States or any State or any political subdivision of the United States or any state, except to the extent that the failure to obtain such consent or approval could not reasonably be expected to result in a Material Adverse Effect and except for consents, approvals or other actions that have been obtained and that are still in force and effect and except for filings and recordings with respect to the Collateral to be made, or otherwise delivered to Us for filing or recordation, as of the Closing Date. • Other Defaults. You are not in default in any manner under any material provision of any indenture or other agreement or instrument evidencing Indebtedness, or any other agreement or instrument to which You are a party or by which You or any of the Collateral of You are or may be bound, in each case where such default could result in an event which, individually or together with any other event, could reasonably be expected to have a Material Adverse Effect. • • • Other Agreement. You are not a party to any agreement or instrument or subject to any limited liability company restriction that has resulted or could reasonably be expected to result in a Material Adverse Effect. Information Correct. No information, report, Advance Request, financial statement, exhibit or schedule furnished by or on behalf of You to Us in connection with the negotiation of any Loan Document contains or will contain any material misstatement of fact or omitted, omits or will omit to state any material fact necessary to make the statements, in the light of circumstances under which they were, are or will be made, not misleading. Filing of Taxes. Except as otherwise permitted in Section 12, Paragraph “Taxes”, You have (a) filed all required federal, state and local tax returns when due, (or filed appropriate extensions for the filing of such returns) except as otherwise excused under the terms of this Agreement and (b), You have fully paid or You have reserved for and are contesting in good faith all taxes or installments (including any interest or penalties) that are due and payable. You have fully paid or reserved for and are contesting in good faith all material tax assessments that You have received for the three (3) years preceding the Closing Date, except as may be otherwise excused under the terms of this Agreement. 11 • • • • ERISA Compliance. You have met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Except as set forth on Schedule 13, no event has occurred resulting from the failure by You to comply with ERISA that is reasonably likely to result in You incurring any liability that could reasonably be expected to have a Material Adverse Effect. Hazardous Waste. Except as set forth on Schedule 14 and except as disclosed on Section 11 (Hazardous Waste) and except for matters described below that could not reasonably be expected to result in a Material Adverse Effect, (a) none of the properties or assets of You has ever been used by You or, to Your knowledge, by previous owners or operators, in the disposal of, or to produce, store, handle, treat, release, or transport, any hazardous waste or hazardous substance other than in accordance with applicable law; (b) to Your knowledge, none of the properties or assets of You has ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute; (c) no Lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned by You; (d) You have not received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal, state or other governmental agency concerning any action or omission by You resulting in the releasing, or otherwise disposing of hazardous waste or hazardous substances into the environment; and (e) You have at all times operated Your business in compliance in all material respects with all applicable provisions of federal, state and local statutes and ordinances dealing with the control, shipment, storage or disposal of hazardous materials or substances. Operation of Business. Except for matters described below that could not reasonably be expected to result in a Material Adverse Effect and for matters disclosed on Schedule 9 (as such Schedule may be updated from time to time by delivery of written notice to Us for events occurring after the Closing Date), (a) to Your knowledge, You own, possess, have access to, or can become licensed on reasonable terms under all patents, patent applications, trademarks, trade names, inventions, franchises, licenses, permits, computer software and copyrights necessary for the operation of Your business as now conducted, with no known infringement of, or conflict with, the rights of others; (b) to Your knowledge, You have taken reasonable measures to avoid liability from infringement by third parties using Your facilities; and (c) You have at all times operated Your business in compliance in all material respects with all applicable provisions of the Federal Fair Labor Standards Act, as amended. Your Information. Your present name, former names (if any) used in the past five (5) years, locations, and other information are correctly and completely stated on the attached Exhibit C (as such Exhibit may be updated from time to time, without the necessity of consent from Us, to reflect changes resulting from actions permitted under the Loan Documents so long as such updated Exhibit is delivered together with written notice thereof to Us). • Intellectual Property. Attached to Exhibit C (as such Exhibit may be updated from time to time, without the necessity of consent from Us, to reflect changes resulting from actions permitted under the Loan Documents so long as such updated Exhibit is delivered together with written notice thereof to Us). is a true, correct and complete list of Your registered Patents, Trademark registrations and applications, and Copyright registrations and applications, together with application or registration numbers, as applicable as of the Closing Date. • Deposit and Securities Accounts. Exhibit C (as such Exhibit may be updated from time to time, without the necessity of consent from Us, to reflect changes resulting from actions permitted under the Loan Documents so long as such updated Exhibit is delivered together with written notice thereof to Us) is a true, correct and complete list of (a) all banks and other financial institutions at which You maintain Deposit Accounts and (b) institutions at which You maintain accounts holding Investment Property owned by You, and such exhibit correctly identifies the name and address of each bank or other institution, the name in which the account is held, a description of the purpose of the account, and the complete account number therefor. 12 12. YOUR COVENANTS TO US So long as the Secured Obligations (other than unasserted contingent obligations) have not been paid in Cash in full or We have any obligation to make Advances, You covenant to the following: • Legal Existence and Qualification. You will maintain Your, and Your Subsidiaries’, legal existence and good standing in Your and their respective jurisdictions of formation or organization, and maintain qualifications to do business in all jurisdictions in which the nature of Your business or location of Your properties require such qualifications and where the failure to be qualified could reasonably be expected to result in an event which, individually or together with any other event, would have a Material Adverse Effect. • Compliance with Laws. You will, and will cause Your Subsidiaries to, comply with all laws (including, without limitation, environmental laws) rules, regulations applicable to, and all orders and directives of any governmental or regulatory authority having jurisdiction over, You, Your Subsidiaries or Your business, and with all material agreements to which You or any of Your Subsidiaries are a party, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. Neither You nor any of Your Subsidiaries shall become an “investment company” or controlled by an “investment company”, within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of Your important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any loan for such purpose. Neither You nor any Your Subsidiaries shall fail to meet the minimum funding requirements of ERISA, permit a reportable event or prohibited transaction, as defined in ERISA, to occur, or fail to comply with the Federal Fair Labor Standards Act, to the extent that any such failure could reasonably be expected to result in a Material Adverse Effect. • Management Rights. You will permit any of Our authorized representatives and Our attorneys and accountants on reasonable notice to inspect, examine and make copies and abstracts of Your books of account and records at reasonable times and during normal business hours; provided, however, that so long as no Event of Default has occurred and is continuing, (a) such inspections and examinations shall be limited to once per fiscal year and (b) shall be at Your sole expense, such expense not to exceed $10,000 prior to the occurrence and continuance of an Event of Default. In addition, We and Our agents, attorneys and accountants will have the right to meet with Your management and officers to discuss such books of account and records; provided, however, that, unless an Event of Default has occurred and is continuing, We shall be limited to one such meeting with Your management and officers to discuss such books of account and records for each twelve (12) consecutive month period and shall be at Our sole expense. In addition, We will be entitled at reasonable times and intervals to consult with and advise Your management and officers concerning significant business issues. Such consultations shall not unreasonably interfere with Your business operations. The Parties intend that the rights granted here shall constitute “management rights” within the meaning of 29 C.F.R. Section 2510.3-101(d)(3)(ii), but that any advice, recommendations or participation with respect to any business issues will not be deemed to give Us, nor be deemed an exercise by Us or control over Your management or policies. • Additional Documents and Assurances. You will from time to time execute, deliver and file, alone or with Us, any security agreements, or other documents (subject to the limitations set forth herein) to perfect or give first priority to (subject only to Permitted Liens) Our Lien on the Collateral. You will from time to time (subject to the limitations set forth herein) obtain any instruments or documents as We may reasonably request, and take all further action that may be reasonably necessary to carry out the provisions and purposes of this Agreement or any other Loan Document or to confirm, perfect, preserve and protect the Liens granted to Us by You under the Loan Documents. In addition, You authorize Us to file, at any time until the time We are paid the Secured Obligations (other than unasserted contingent indemnification Secured Obligations) in full and We have no further commitment to provide Advances, financing statements, continuation statements, and amendments thereto that (i) specifically describe the Collateral or describe the Collateral as all of Your assets or words of similar effect so long as We also specifically identify the assets that are expressly excluded from Collateral pursuant to the terms of this Agreement, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the UCC of such jurisdiction and, (ii) contain any other information required by the UCC for the sufficiency of filing office acceptance of any financing statement, continuation statement, or amendment, including whether You are an organization, the type of organization and any organizational identification number issued to You, if 13 applicable. You hereby appoint Us as its lawful attorney-in-fact to sign Your name on any documents necessary to perfect or continue the perfection of any Lien to secure the Secured Obligations, after an Event of Default has occurred and is continuing until all Secured Obligations (other than unasserted contingent indemnification Secured Obligations) have been paid in full and We are under no further obligation to make Advances. Our foregoing appointment as the attorney-in-fact for You, and all of Our rights and powers, coupled with an interest, are irrevocable until all Secured Obligations (other than unasserted contingent indemnification Secured Obligations) have been fully repaid in immediately available funds and Our obligation to provide Advances terminates, and at such time such attorney-in-fact rights shall automatically terminate without any other action, consent or notice. • Protection of Our Lien. You will take or cause to be taken all actions reasonably necessary to protect and defend Your title to any portion of the Collateral and Our Lien on any portion of the Collateral. You shall give Us prompt written notice of any legal process with respect to any material portion of the Collateral, or any Liens (other than Permitted Liens) on the Collateral. • Maintenance of Properties. You will maintain and protect Your property that is necessary or useful in the proper conduct of Your business in good working order, repair and condition (taking into consideration ordinary wear, tear and casualty and Permitted Dispositions) and from time to time make or cause to be made all reasonably necessary and proper repairs, renewals and replacements and shall completely manage and care for the Your property that is necessary or useful in the proper conduct of Your business in accordance with prudent industry practices, except where the failure to do so could not reasonably be expected to result in a Material Adverse Effect. • Financial Statements. You will provide monthly and yearly financial statements in accordance with Section 18 of this Agreement and such financial statements will include reports of any material contingencies (including commencement of any material litigation by or against You) or any other occurrence that could reasonably be expected to have a Material Adverse Effect. • Audits and Inspections. Upon Our request, You will, during normal business hours and, so long as no Default or Event of Default has occurred and is continuing upon at least 5 days’ prior notice, make the Inventory, Equipment, other Collateral, and books and records concerning the Collateral (including software used in Your business) available to Us for inspection at the place where it is located and shall make Your log and maintenance records pertaining to the Inventory and Equipment available to Us for inspection; provided that so long as no Event of Default shall have occurred and is continuing We shall be limited to conducting two (2) inspections in any twelve (12) consecutive month period and any costs or expenses incurred with regard to the second such inspection shall be paid solely by Us with no reimbursement rights against You. You will take all action reasonably necessary to correctly and completely maintain such books, records, logs, and maintenance records. • Taxes. You will pay all federal income taxes, all state income taxes imposed by Your state of organization/formation and the state of Your principal place of business and all material taxes, fees and assessments (together with any related interest or penalties) imposed or assessed against You or the Collateral or upon Your ownership, possession, use, operation or disposition thereof or upon Your rents, receipts or earnings arising therefrom (excluding taxes imposed on Us based on Our net income) before delinquency or before the expiration of any extension period, except to the extent that the validity of such tax or assessment is being contested as set forth below. You shall file on or before the due date (taking into account any extension period) all federal, state and other material tax returns including personal property tax returns in respect of any material portion of the Collateral. Notwithstanding the foregoing, You may contest, in good faith and by appropriate proceedings, taxes, fees and other charges for which You maintain adequate reserves in accordance with GAAP. In the event a Lien is filed by any Person related to any taxes, fees or other charges of any nature whatsoever (together with any related interest or penalties) imposed or assessed against You, Us or the Collateral or upon Your ownership, possession, use, operation or disposition thereof or upon Your rents, receipts or earnings arising therefrom, You will take all measures necessary to effectuate the release of the Lien within forty-five (45) days of Your notice of such Lien. 14 • Government Contracts. You shall deliver notice to Us on the date You are required to deliver Your Compliance Certificate per the terms of this Agreement of any contract (“Government Contract”) other than any contract that You disclosed on the Closing Date or in connection with the delivery of any prior Compliance Certificate, between You and any department, board, agency or instrumentality of the United States, any state within the United States or the District of Columbia, or any city, county or other municipality within the United States (“Government Account Debtor”), in which any Government Account Debtor has obligations to make payments, whether due or to become due to You, in an amount greater than $250,000 (the “Threshold Government Contract”) as of the most recent date on which You provided Your Compliance Certificate. Upon any written request of Us after the occurrence and during the continuation of an Event of Default, You shall promptly take all steps reasonably requested by Us to protect Our interest in the Collateral under the Federal Assignment of Claims Act, the UCC and all other applicable federal, state or local laws, statutes, codes or ordinances and deliver promptly to Us, appropriately endorsed, any instrument, Account or Chattel Paper connected with any Receivable arising out of a Threshold Government Contract (the “Receivables Threshold Contract”), so that all payments due or to become due under such Receivables Threshold Contract shall be assigned to Us and shall provide written notice thereof under the Federal Assignment of Claims Act or other applicable law • Intellectual Property. You will: (a) protect, defend and maintain the validity and enforceability of Your Intellectual Property Collateral that, in Your reasonable business judgment, is necessary to the operation of Your business; (b) promptly advise Us in writing of material infringements of Your Intellectual Property Collateral that You become aware of; and (c) not allow any Intellectual Property Collateral that, in Your reasonable business judgment, is necessary to Your business to be abandoned, forfeited or dedicated to the public without Our written consent. • Subsidiaries. If at any time, You create or acquire any Subsidiary, You and such Subsidiary will promptly notify Us of the creation or acquisition of such new Subsidiary and take all such action as We may reasonably require to cause such Subsidiary to guaranty the Secured Obligations and grant a continuing Lien in and to the assets of such Subsidiary, and You shall grant and pledge to Us a first priority (subject only to Permitted Liens), perfected Lien in the Stock, units or other evidence of ownership of such Subsidiary. • • Dispositions, Liens and Encumbrances. You will not nor will You permit any of Your Subsidiaries to, transfer, sell, assign, grant a security interest in, hypothecate, permit or suffer to exist any Lien, or otherwise transfer any interest in or encumber any portion of the Collateral, including Intellectual Property Collateral, either voluntarily or involuntarily, without Our prior written consent, other than: (a) non-exclusive licenses or non-perpetual exclusive licenses with respect to geographic area, fields of use and customized products for specific customers that would not result in a transfer of title of the licensed property under applicable law, all given in the ordinary course of Your business, (b) Permitted Dispositions, (c) the Agri-Energy Acquisitions, and (d) Permitted Liens. In addition, except with respect to Purchase Money Indebtedness and/or any Permitted Indebtedness or arrangements described on Schedule 15, You will not, nor will You permit any of Your Subsidiaries to, enter into any agreement with any Person (other than Us) that materially restricts Your ability, or the ability of any of Your Subsidiaries, to transfer, sell, assign, grant a Lien in, hypothecate, permit or suffer to exist any Lien, or otherwise transfer any interest in or encumber any material portion of the Collateral other than Our Liens. Without limiting the generality of the foregoing, You will not sell, transfer, encumber or otherwise dispose of any ownership interest that You may have in any Subsidiary that is part of the Collateral, except with respect to a Permitted Disposition. Mergers or Acquisitions. You will not, nor will You permit any of Your Subsidiaries to, liquidate, dissolve or enter into or consummate any Merger Event, and You will not acquire all or substantially all of the capital Stock or property of another Person, except for (a) a Merger Event of You with or into another borrower party hereto, (b) any merger between You and Your Subsidiaries so long as You are the surviving entity of any such merger, (c) any merger between Your Subsidiaries, or (d) transactions permitted pursuant to Section 12, “Dispositions, Liens and Encumbrances”. • Other Indebtedness. You will not, nor will You permit any of Your Subsidiaries to, incur any Indebtedness without the prior written consent of Us other than Indebtedness evidenced by this Agreement and the Permitted Indebtedness. 15  • Investments. You will not, nor will You permit any of Your Subsidiaries to make any Investment other than Permitted Investments. • Dividends and Distributions. You will not, without Our prior written consent, declare or pay any Cash dividend or make a Cash distribution on, or repurchase or redeem, any class of Your Stock; except, that at any time: (a) You or any of Your Subsidiaries may, or may make distributions so that You may, pay the purchase price necessary to consummate the Agri-Energy Acquisitions in accordance with the agreements evidencing the Agri-Energy Acquisitions, including (i) any working capital adjustments, or (ii) any payment required to be made after the Closing Date, as set forth in the Acquisition Agreement and You agree to use the proceeds of such dividends or distributions solely for such purpose; (b)(i) You or Your Subsidiaries may, and may make distributions to Parents for the purpose of allowing Parents to make distributions to Your current or former employees, officers, or directors (or any spouses, ex-spouses, or estates of any of the foregoing) on account of redemptions or repurchases of Stock of You or any of the Parents held by such Persons, pursuant to employee repurchase plans upon an employee’s death or termination of employment and (ii) so long as no Event of Default shall have occurred and be continuing or would immediately result therefrom, You or Your Subsidiaries may, and may make distributions to Parents for the sole purpose of allowing Parents to, and Parents shall use the proceeds thereof solely to, make distributions to current or former employees, officers, or directors (or any spouses, ex-spouses, or estates of any of the foregoing) of You, solely in the form of forgiveness of Indebtedness of such Persons owing to You or any of the Parents on account of redemptions or repurchases of the Stock of You or any of the Parents held by such Persons up to an aggregate amount of $100,000 in any given calendar year; and (c) You and Your Subsidiaries may make distributions to any of the Parents for the sole purpose of allowing the Parents to (i) pay federal, state and local income taxes and franchise taxes solely arising out of the consolidated operations of You and Your Subsidiaries, after taking into account all available credits and deductions (provided that neither You nor any of Your Subsidiaries shall make any distribution to any of the Parents in any amount greater than the share of such taxes arising out of Your consolidated net income), and (ii) pay other reasonable administrative and maintenance costs and expenses arising solely out of the consolidated operations (including maintenance of existence) of Parents, You and Your Subsidiaries and reasonable out of pocket costs and expenses (including, without limitation, the allocable portion of Parent’s compensation costs for employees of Parent during the actual time spent by such employees providing services to You); provided, however, that at any time on or after the date that the Retrofit is completed, and You are producing commercial scale isobutanol and so long as (y) Opco’s Net Worth is greater than or equal to $10,000,000 and (z) no Event of Default has occurred and is continuing, You may declare or pay any dividend or make a distribution on, or repurchase or redeem, any class of Your Stock without limitation. • Collateral Locations; Name Changes; Jurisdiction. You will not relocate, nor will You permit any Subsidiary to relocate, Your (or such Subsidiary’s) chief executive office or principal place of business unless: (a) You have given Us no less than ten (10) days prior written notice, such location is within the United States, and (c) within forty-five (45) days of such written notification, You use commercially reasonable efforts to provide Us a collateral access agreement with respect thereto. You will not change Your name, type of organization, or jurisdiction or state of organization, without providing Us at least twenty (20) days’ advance written notice. • Line of Business. You will not engage in, nor will You permit any of Your Subsidiaries to engage in, any business other than the businesses currently engaged in by You and Your Subsidiaries or reasonably related thereto, except that You or Your Subsidiaries may engage at any time in the business of renewable chemicals and fuels (including, without limitation, isobutanol), specialty materials, and animal feed. • Deposit and Investment Accounts. You will not maintain, nor permit any of Your Subsidiaries to maintain, any Deposit Accounts or accounts holding Investment Property owned by You (or such Subsidiaries) except (a) accounts identified in Exhibit C, as updated from time to time, (b) Deposit Accounts or accounts holding Investment Property holding amounts deposited in to cash-collateralize letters of credit to the extent the Lien on such cash collateral is permitted hereunder, (c) other accounts with respect to which We have a perfected Lien, (d) amounts deposited into Deposit Accounts specially and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for You or Your Subsidiaries and such Deposit Accounts are solely under the control of the respective company providing the payroll and employee benefit payment services and 16 provided such amounts do not exceed two months of payroll and employee benefit payments, and (e) Deposit Accounts used solely and exclusively for employee benefits, including, without limitation, to hold flexible spending account withholdings or amounts in respect of other Section 125 Plans. Such agreements to perfect Our lien shall be in form and substance satisfactory to Us and shall cause the depositary bank or securities intermediary to comply at all times with instructions from Us to such depositary bank or securities intermediary directing the disposition of funds from time to time credited to such Deposit Account or account holding Investment Property, without Your further consent. The parties acknowledge that upon the occurrence and during the continuance of an Event of Default We may give instructions and cause the depository bank or securities intermediary to withhold any withdrawal rights, We agree that We will not give any such instructions or withhold any withdrawal rights from You, unless an Event of Default has occurred and is continuing. We also agree to rescind instructions and any requests to withhold Your withdrawal rights mentioned in the foregoing sentences if: (a) the Event of Default upon which the instructions or request to withhold Your withdrawal rights was issued has been waived in accordance with the terms of the Loan Documents, and (b) no additional Event of has occurred and is continuing prior to the date such rescission notice is delivered or is reasonably expected to occur on or immediately after the date such rescission notice is delivered. • Transactions with Affiliates. You will not directly or indirectly enter into or permit to exist any material transaction between You and any of Your Affiliates except for: (a) transactions that are in the ordinary course of Your business, upon fair and reasonable terms that are no less favorable to You than would be obtained in an arm’s length transaction with a non-Affiliate; (b) transactions between You or Your Subsidiaries, on the one hand, and any Affiliate, on the other hand, so long as such transactions are fully disclosed to Us prior to the consummation thereof if they involve one or more payments by You or Your Subsidiaries in excess of $100,000 for any single transaction or series of related transactions; (c) any transaction or series of related transactions entered into in the ordinary course of business between You, on the one hand, and any of Your Subsidiaries, on the other hand or any transactions that are expressly permitted under this Agreement, (d) so long as it has been approved by You or one of Your Subsidiaries’ board of directors or other applicable governing body, as the case may be, in accordance with applicable law, any indemnity provided for the benefit of executive officers, directors or managers of You or such Subsidiary; (e) so long as it has been approved by You or one of Your Subsidiaries’ board of directors or other applicable governing body, as the case may be, the payment of reasonable fees, compensation, or employee benefit arrangements to employees, officers, and outside directors of You or one of Your Subsidiaries in the ordinary course of business and consistent with industry practice; (f) Permitted Intercompany Advances; (g) agreements between You and any Parent providing for, among other things, the payment to Parent of (i) management and oversight fees of up to $1,000,000 per fiscal year in connection with the management and oversight of You, (ii) marketing fees equal to up to two percent (2%) of Your total revenue, (iii) intellectual property licensing fees and technology fees of up to six percent (6%) of Your isobutanol revenues, and (iv) reasonable out-of-pocket expenses of Parent pursuant to any management, oversight, advisory, financing, underwriting, or placement agreement or in respect of other investment banking activities, including in connection with acquisitions or divestitures that are permitted by this Agreement; (h) transactions involving the payment of reasonable out-of-pocket expenses and costs (including, without limitation, the allocable portion of Parent’s compensation costs for employees of Parent during the actual time spent by such employees providing services to You) incurred by Parent or its shareholders or members in connection with providing services to You and Your Subsidiaries (including on the board of directors or other applicable governing body of Parent); (i) agreements for the non-exclusive licensing of intellectual property among Parent and any of its Subsidiaries for the purpose of the licensee thereof operating its business; (j) transactions among Parent and any of its Subsidiaries transferring (other than the Intellectual Property Collateral) and/or licensing intellectual property among such Persons; (k) transactions contemplated by the Acquisition Documents and/or the Contribution Documents, and (l) the transactions set forth on Schedule 8. • Anything in the Section entitled “Dividends and Distributions” hereof to the contrary notwithstanding, to the extent any of the payments that are permitted to be made pursuant to this Section are in respect of obligations of a Parent, You and its or Your Subsidiaries shall be permitted to make a distribution to such Parent in the amount of any such obligation so as to provide such Parent with a source of funding for such payment. • Subordinated Indebtedness. Except for Indebtedness under the Heartland Loan Documents, You will not prepay, redeem or otherwise satisfy in any manner prior to the scheduled repayment thereof any Indebtedness 17 (other than the Advances) in excess of $50,000 in the aggregate and You shall not make or permit any payment on any Subordinated Indebtedness, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Indebtedness is subject, or amend any provision in any document relating to the Subordinated Indebtedness except to the extent such amendment is permitted under such subordination, intercreditor or other similar agreement. 13. YOU AGREE TO INDEMNIFY AND PROTECT US You agree to indemnify and hold Us, Our officers, directors, employees, agents, attorneys, representatives and shareholders harmless from and against any and all third party claims, costs, expenses, damages and liabilities (including such claims, costs, expenses, damages and liabilities based on liability in tort, including strict liability in tort), including reasonable attorneys’ fees and disbursements and other costs of investigation or defense, that may be instituted or asserted against or incurred by Us or any such Person as the result of credit having been extended, suspended or terminated under this Agreement and the other Loan Documents or the administration of such credit, or in connection with or arising out of the transactions contemplated or any actions or failures to act in connection with, or arising out of the disposition or utilization of the Collateral, excluding in all cases, claims, costs, expenses, damages and liabilities resulting solely from Our gross negligence and/or willful misconduct. 14. WHAT IS AN EVENT OF DEFAULT The occurrence of any one or more of the following events shall constitute an “Event of Default” under this Agreement: • Payment. You fail to pay (a) any principal under this Agreement, the Promissory Notes or any of the other related Loan Documents on the due date, or (b) any interest, fees, costs or other Secured Obligations (other than any portion thereof constituting principal) under this Agreement, the Promissory Notes or any of the other related Loan Documents on the due date, and such failure continues for a period of two (2) Business Days. • Covenant. You fail to perform any covenant or Secured Obligations under this Agreement, the Promissory Notes or any of the other related Loan Documents, and You fail to cure (or obtain a waiver of) such breach within twenty (20) days after the earlier of (a) We give You written notice or (b) Your actual knowledge of such default. • Material Adverse Effect. Any event or circumstance occurs that would reasonably be expected to have a Material Adverse Effect, which event or circumstance continues for more than ten (10) Business Days after We have given You notice of such Material Adverse Effect, such ten (10) Business Day notice period to expire immediately in the event that (a) the Chief Executive Officer of You or Gevo, Inc. has resigned or (b) the board of directors of You or Gevo, Inc. has resigned. • Misrepresentations. You or any Person acting for You makes any representation, warranty, or other statement now or later in this Agreement or any other Loan Document, or in any other writing delivered to Us or to induce Us to enter this Agreement or any other Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made, provided, however, that such materiality qualifier shall not be applicable to any representation, warranty or statement that already is qualified or modified by materiality in the text thereof. • Bankruptcy; Attachment; Other. • You (a) assign Your assets for the benefit of Your creditors, (b) files a voluntary petition in bankruptcy, (c) files any petition, answer, or document seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation pertinent to such circumstances, (d) seeks or consents to or acquiesces in the appointment of any trustee, receiver, or liquidator of itself or of all or any substantial part of the Collateral (e) ceases operations of Your business as Your business has normally been conducted (other than temporary cessations relating to repairs, upgrades, planned maintenance, or Retrofit of Your facilities and other temporary cessations) (f) terminates substantially all of Your employees, or (g) have Your directors or majority shareholders take any action initiating any of the foregoing actions described in this paragraph; or 18 • Either (a) forty-five (45) days shall have expired after the commencement of an involuntary action against You seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, without such action being dismissed or all orders or proceedings there under affecting Your operations or the business being stayed; or (b) a stay of any such order or proceeding shall thereafter be set aside and the action setting it aside shall not be timely appealed; or (c) You shall file any answer admitting or not contesting the material allegations of a petition filed against You in any such proceedings; or (d) the court in which such proceedings are pending shall enter a decree or order granting the relief sought in any such proceedings; or • Forty-five (45) days shall have expired after the appointment, without Your consent or acquiescence, of any trustee, receiver or liquidator of You or of all or any substantial part of the Collateral of You without such appointment being vacated. • • • Agreements with Us. The occurrence of any default under any other Loan Document or other agreements (other than any Excluded Agreement) providing for Indebtedness between You and/or any of Your Subsidiaries and Us (other than any default embodied in or covered by any clause of this Section 14) and such default continues for more than twenty (20) days after the earlier of (a) We have given notice of such default to You, or (b) You have actual knowledge of such event of default. Other Agreements. The occurrence of any event of default (other than any event of default embodied in or covered by any other clause of this Section 14) under any lease, loan, or other agreement or obligation for borrowed monies of You involving any obligation which aggregates more than $500,000, and which event of default results in a right that has not been waived by Us, irrespective of whether exercised, to accelerate the maturity of such obligations thereunder. Judgments. The entry of (a) any judgment or arbitration award against You involving an award in excess of $500,000 that is not covered by insurance by a solvent insurance carrier that has confirmed coverage in writing, has not been, discharged, bonded or stayed on appeal within thirty (30) days; or (b) any judgment or arbitration award against You in which You are enjoined, restrained or in any way prevented from conducting all or any material part of Your business or affairs. • Change of Control. The occurrence of any event resulting in (1) Gevo, Inc. ceasing to own and control, directly or indirectly, capital Stock representing at least 50% of the voting power of Devco or (2) after the consummation of the Agri-Energy Acquisitions, Devco ceasing to own and control, directly or indirectly, all of the economic and voting rights associated with all of the outstanding capital Stock of Opco. • • Officers. Patrick Gruber shall for any reason cease to be actively engaged in the day-to-day management of Gevo, Inc., unless a successor acceptable to Gevo, Inc.’s respective board of directors is appointed within one hundred eighty (180) days of such cessation. Guaranty Documents. (a) Any guaranty of any Secured Obligations terminates or ceases for any reason to be in full force and effect; (b) any guarantor of the Secured Obligations does not perform any material obligation or material covenant under any guaranty of the Secured Obligations or any Event of Default occurs under any security agreement and between Us and any such guarantor with respect to the Secured Obligations; (c) any event or circumstance described in any paragraph of this Section 14 (other than the first two paragraphs) occurs with respect to any guarantor of the Secured Obligations, or (d) except as otherwise permitted in this Agreement, the liquidation, administration, winding up, or termination of existence of any guarantor of the Secured Obligations (as applicable). 19 15. WHAT HAPPENS UPON AN EVENT OF DEFAULT If an Event of Default has occurred and is continuing, We can at Our option and without written notice to You (however, We agree to use reasonable efforts to provide You with prior written notice so long as it will not materially impair Our Collateral position or remedy rights but in any event We agree to use reasonable efforts to provide You written notice promptly upon taking any actions outlined below): • • • • • Terminate Our commitment to make any future Advances under this Agreement; Terminate Our obligation to permit the principal, interest, fees, costs or other amounts owed by You to Us to remain outstanding; Recover all sums due and accelerate and demand payment of all or any part of the principal, interest, fees, costs or other amounts owed by any of You to Us and declare them to be immediately due and payable (provided, that upon the occurrence of a default of the type described in the fourth paragraph of Section 14 (i.e. “Bankruptcy; Attachment; Other”), the Promissory Notes and all of the principal, interest, fees, costs or other amounts owed by any of You to Us shall automatically be accelerated and made immediately due and payable, in each case without any further notice or act). Upon and after an Event of Default, the unpaid principal and accrued interest on the Promissory Notes and advances and all outstanding principal, interest, and all reasonable fees, costs or other amounts owed by any of You to Us, including all reasonable professional fees and expenses, shall thereafter bear interest at the Default Rate (as defined in Section 7); Settle or adjust disputes and claims directly with the account debtors of any of You for amounts, upon terms and in whatever order that We reasonably consider to be advisable; Enter the premises of any of You, without notice and process of law and in compliance with Your security requirements, to remove and repossess the Collateral without being liable to any of You for damages due to the repossession, except those resulting from Our or Our assignees’ negligence, and charge You for the cost of repossession, storing and shipping the Collateral. With respect to any of premises that any of You own, You hereby grant to Us a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Our rights or remedies provided herein, at law, in equity, or otherwise; and • Pursue any other remedy permitted by law, equity or otherwise. Upon the occurrence and during the continuance of an Event of Default, We may exercise all rights and remedies with respect to the Collateral under this Agreement or the other Loan Documents or otherwise available to Us under the UCC and other applicable law, including the right to release, hold, sell, lease, liquidate, collect, realize upon, or otherwise dispose of all or any part of the Collateral and the right to occupy, utilize, process and commingle the Collateral. You hereby grant to Us a license and right (but only to the extent (y) such license, sublicense or agreement does not prohibit such use by Us and (ii) You will not be in default under such license, sublicense, or other agreement as a result of such use by Us), to use, without charge, upon the occurrence and during the continuance of an Event of Default, the labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature of any of You, as it pertains to the Collateral, solely in completing production of, advertising for sale, and selling any Collateral. In connection with Our exercise of Our rights under this Agreement and the other Loan Documents, each of the rights of any of You under all licenses and all franchise agreements shall inure to Our benefit. All Our rights and remedies shall be cumulative and not exclusive. In addition to the power of attorney granted by You to Us in Section 12, effective only upon the occurrence and during the continuance of an Event of Default, You hereby irrevocably appoint Us (and any of Our designated officers, agents, attorneys or employees) as Your true and lawful attorney to: (a) send requests for verification of Receivables or notify account debtors of Our security interest in the Receivables; (b) endorse Your name on any checks or other forms of payment or security that may come into Our possession; (c) sign Your name on any invoice or bill of lading relating to any Receivable, drafts against account debtors, schedules and assignments of Receivables, verifications of Receivables, and notices to account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims under and decisions with respect to Your policies of insurance; (f) settle and adjust disputes and claims respecting the Accounts directly 20 with account debtors, for amounts and upon terms which We determine to be reasonable. Our appointment as the attorney in fact for You, and each and every one of Our rights and powers, being coupled with an interest, is irrevocable until all of the Secured Obligations (other than unasserted contingent indemnification Secured Obligations) have been fully repaid in immediately available funds and performed and Our obligation to provide Advances hereunder is terminated. 16. WHAT HAPPENS IF YOU ARE IN DEFAULT AND WE EXERCISE OUR REMEDIES If an Event of Default has occurred and is continuing, We may, at any time or from time to time, apply, collect, liquidate, sell in one or more sales, lease or otherwise dispose of, any or all of the Collateral, in its then condition or following any commercially reasonable preparation or processing, in such order as We may elect. Any such sale may be made either at public or private sale at the place of business of any of You or elsewhere. You agree that any such public or private sale may occur upon Our ten (10) calendar days’ prior written notice to You. We may require any of You to assemble the Collateral and make it available to Us at a place We designate that is reasonably convenient to Us. The proceeds of any sale, disposition or other realization upon all or any part of the Collateral shall be applied in the following order of priorities: First, to Us in an amount sufficient to pay in full Our reasonable costs and professionals’ and advisors’ fees and expenses; Second, to Us in an amount equal to the then unpaid amount of all the principal, interest, fees, costs or other Secured Obligation amounts owed by any of You to Us under the Loan Documents, in such order and priority as We may choose in Our sole discretion; and Finally, after the payment in full in Cash of all of the principal, interest, fees, costs or other Secured Obligation amounts owed by any of You to Us under the Loan Documents, to any creditor holding a junior Lien on the Collateral, or to any of You or Your representatives or as a court of competent jurisdiction may direct. 17. [RESERVED] This Section intentionally removed. 18. DOCUMENTS YOU WILL PROVIDE US So long as there are any Secured Obligation (other than unasserted contingent indemnification Secured Obligations) owed by You to Us under the Loan Documents, or We have any obligation to make any additional Advances, You shall provide Us with: Financial Statements. Within thirty (30) days after the end of each month (except for any month that is also the last month of a fiscal quarter, which shall be within forty-five (45) days after the end of such month), You will provide Us with (a) consolidated unaudited financial statements of Gevo, Inc., accompanied by, for periods from and after the Agri-Energy Acquisitions have been consummated, unaudited schedules with the consolidating balance sheet, income statement and statement of cash flow for You, and (b) copies of all board packages delivered to the board of directors or similar governing body of any of You in connection with board meetings or otherwise. Within one hundred eighty (180) days of the end of each fiscal year end, You will provide Us with consolidated audited financials statements of Gevo, Inc., accompanied by an audit report and an unqualified opinion of the independent certified public accountants (other than a “going concern” qualification) and, for periods from and after the Agri-Energy Acquisitions have been consummated, unaudited schedules with the consolidating balance sheet, income statement and statement of cash flow for You; provided, however, that with respect to Your 2010 fiscal year, You shall only be required to deliver such financial information for the period from the Original Closing Date through the end of Your 2010 fiscal year. Within thirty (30) days after the end of each fiscal year, You will provide Us a budget and business plan for the next fiscal year. You will provide Us any additional information (including, but not limited to, tax returns, income statements, balance sheets and names of principal creditors) as We reasonably believe are necessary to evaluate the continuing ability of each of You to meet Your financial obligations to Us. These statements should be emailed to Us at financials@triplepointcapital.com, or upon Our prior approval, facsimiled or mailed to Us at the address listed on Page 2 of this Agreement. 21 Certificate of Compliance. Within forty-five (45) days after the end of each fiscal quarter, You will provide Us with a Certificate of Compliance in the form attached as Exhibit D. Certificate of Agri-Energy Retrofit Cost. (A) Within forty-five (45) days after the end of each fiscal quarter, You will provide Us with a summary statement of the amount of the Agri-Energy Retrofit Costs for which You have incurred through such quarter along with an updated summary projection of Agri-Energy Retrofit Costs, such certificate to be executed by officer of You. Promptly following Our request You shall provide copies of invoices (received) and promptly following Our reasonable request specific reports on the Agri-Energy Retrofit Costs. 19. [RESERVED] This Section intentionally removed. 20. OTHER LEGAL PROVISIONS YOU WILL ABIDE BY Continuation of Security Interest. This is a continuing agreement and the grant of the security interest and Lien hereunder, subject to the limitations and other provisions set forth herein, shall remain in full force and effect and all of Our rights, powers and remedies shall continue to exist until all of the Secured Obligations owed by You to Us under the Loan Documents (other than unasserted contingent indemnification Secured Obligations) are fully paid in Cash and We have no further obligation to make Advances, and at such time, such Liens shall automatically terminate and all rights to the Collateral shall revert to You or any other Person entitled thereto. Immediately upon the payment in full in Cash or other immediately available funds of the Secured Obligations (other than unasserted contingent indemnification Secured Obligations), all of Your obligations under this Agreement, shall, without any other action, consent or notice, automatically terminate. We shall promptly execute releases of Our Liens on the Collateral and file termination statements and provide proof of filing to You promptly after the payment in full in Cash of all of the Secured Obligations owed by You to Us under the Loan Documents (other than unasserted contingent indemnification Secured Obligations), reassigning to You, without recourse except for Our acts, the Collateral and all rights conveyed hereby and returning possession of the Collateral to You. Immediately upon the consummation of any sale of Collateral to any third party pursuant to a transaction permitted by this Agreement or the other Loan Documents, the Liens granted hereby with respect to the Collateral shall automatically terminate and We shall, at Your request and at Your expense, provide evidence of such termination. Our rights, powers and remedies shall be in addition to all rights, powers and remedies given by statute or rule of law and are cumulative. The exercise of any one or more of the rights, powers and remedies provided herein shall not be construed as a waiver of or election of remedies with respect to Our other rights, powers and remedies. Entire Agreement; Modification of Agreement. This Agreement and associated Promissory Notes supersede all other oral or written agreements or understandings between The Parties concerning the Collateral. This Agreement and the other Loan Documents amend, restate and supersede the Original Loan Agreement and those Original Loan Documents that are amended and restated by such other Loan Documents, but the Loan Documents do not constitute an accord and satisfaction or a novation of the obligations of You under the Original Loan Agreement and the Original Loan Documents. ANY AMENDMENT OF THIS AGREEMENT OR A PROMISSORY NOTE MAY ONLY BE ACCOMPLISHED THROUGH A DOCUMENT WITH SIGNATURES FROM EACH OF THE PARTIES HERETO. Headings. Headings used in this Agreement are for reference and convenience of The Parties only and shall have no substantive effect in the interpretation of this Agreement. No Waiver. No action taken by Us or You will be deemed to constitute a waiver of compliance with any representation, warranty or covenant contained in this Agreement or Promissory Note. The waiver by Us of a breach of any provision of this Agreement or a Promissory Note will not operate or be construed as a waiver of any subsequent breach. 22 Survival of Obligations. The indemnification, obligations, representations and warranties contained in this Agreement, any Promissory Note or in any document delivered in connection with those agreements are for the benefit of The Parties and survive the execution and delivery of this Agreement and, except for provisions that by their terms expressly survive the termination of this Agreement, shall automatically and immediately terminate upon the payment in full of the Secured Obligations (other than unasserted indemnification Secured Obligations) and the termination of any commitment to make further Advances under the Loan Documents. Tax Indemnification. Without limiting the generality of Section 13, You agree to pay, and to hold Us harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all Indemnified Taxes that may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this agreement, except for any delays or actions caused by Our gross negligence or willful misconduct. Successors and Assigns. The provisions of this Agreement and the other Loan Documents shall inure to the benefit of and be binding on each of You and Your permitted assigns (if any). None of You shall assign Your obligations under this Agreement, the Promissory Notes or any of the other Loan Documents without Our express prior written consent, and any such attempted assignment shall be void and of no effect. Any other provision in this Agreement notwithstanding, We may (without Your consent) at any time (a) create a security interest in, or pledge, all or any portion of Our rights under and interest in this Agreement as collateral security for Our own financing arrangements or (b) sell, assign or delegate to an Affiliate of Us that is not a natural person or a Direct Competitor (who is subject to the same restrictions as set forth in this section) Our interest hereunder and under the Promissory Note(s) and all other related Loan Documents. We may at any time sell to one or more commercial banks, financial institutions, or other Persons that is not a Direct Competitor (a “Participant”) participating interests in all or any portion of the Secured Obligations and the other rights and interests of Us hereunder and under the other Loan Documents; provided, however, that (i) We shall remain a “lender” and We shall continue to be “We”, “Our” and Us” for all purposes of this Agreement and the other Loan Documents and the Participant receiving the participating interest in the Secured Obligations and the other rights and interests of Us hereunder shall not constitute a “lender” or be considered “We”, “Our” or “Us” hereunder or under the other Loan Documents and Our obligations under this Agreement shall remain unchanged, (ii) We will remain solely responsible for the performance of such obligations, (iii) You shall continue to deal solely and directly with Us in connection with Our rights and obligations under this Agreement and the other Loan Documents, (iv) We shall not transfer or grant any participating interest with respect to which the Participant has the right (whether under any agreement executed with respect to such participation or otherwise) to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment to, or consent or waiver with respect to this Agreement or of any other Loan Document would (A) extend the final maturity date of the Secured Obligations hereunder in which such Participant is participating, (B) reduce the interest rate applicable to the Secured Obligations hereunder in which such Participant is participating, (C) release all or substantially all of the Collateral or guaranties (except to the extent expressly provided herein or in any of the Loan Documents) supporting the Secured Obligations hereunder in which such Participant is participating, (D) postpone the payment of, or reduce the amount of, the interest or fees payable to such Participant through Us (other than a waiver of default interest), or (E) decreases the amount or postpones the due dates of scheduled principal repayments or prepayments or premiums payable to such Participant through Us, and (v) all amounts payable by You hereunder shall be determined as if We had not sold such participation, except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a lender or to Us under this Agreement. The rights of any Participant only shall be derivative through Us and no Participant shall have any rights under this Agreement or the other Loan Documents or any direct rights as to any other Party hereto, the Collections of You or Your Subsidiaries, the Collateral, or otherwise in respect of the Secured Obligations. No Participant shall have the right to participate directly in the making of decisions by Us, as lender hereunder. Notwithstanding the foregoing, We and You acknowledge and agree that solely with Your prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned, and shall not be required if an Event of Default has occurred and is continuing, We may sell, assign or delegate to one or more assignees other than a Person that is a Direct Competitor at the time of such assignment Our interest hereunder and under the Promissory Note(s) and all other related Loan Documents. In addition, any restrictions in this paragraph relating to Direct Competitors shall not apply during the continuance of an Event of Default if We have (a) accelerated the Secured 23 Obligations pursuant to Section 15 of this Agreement and (b) commenced exercising Our other rights and remedies against You and the Collateral as provided in Section 15 of this Agreement; provided, however, that We agree that We shall give You not less than 10 days prior written notice before We assign all or any portion of Our interest hereunder to any assignee, or sell or grant one or more participating interests in Our interest hereunder, in each case, to any Direct Competitor. After such assignment the term “We”, “Us” and “Our” as used in the Loan Documents will mean and include such permitted assignee, and such permitted assignee will be vested with all Our rights, powers and remedies hereunder and shall have Our duties with respect to the interest that each of You have granted Us; but with respect to any such interest not so transferred, We shall retain all rights, powers and remedies. No such assignment will relieve any of You of any of Your obligations. We agree that in the event of any transfer of the Promissory Note(s), We will denote on the Promissory Note a notation as to the portion of the principal and interest of the Promissory Note(s), which shall have been paid at the time of such transfer and the date of the transfer. Consent To Jurisdiction And Venue. All judicial proceedings arising in or under or related to this Agreement, the Promissory Notes or any of the other Loan Documents may be brought in any state or federal court of competent jurisdiction located in the State of California. By execution and delivery of this Agreement, each party hereto generally and unconditionally: (a) consents to personal jurisdiction in San Mateo County, State of California; (b) waives any objection as to jurisdiction or venue in San Mateo County, State of California; (c) agrees not to assert any defense based on lack of jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement, the Promissory Notes or the other Loan Documents. Service of process on any party hereto in any action arising out of or relating to this Agreement shall be effective if given in accordance with the requirements for notice set forth in this Section, and shall be deemed effective and received as set forth therein. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any other jurisdiction. Mutual Waiver Of Jury Trial; Judicial Reference. Because disputes arising in connection with complex financial transactions are most quickly and economically resolved by an experienced and expert person and The Parties wish applicable state and federal laws to apply (rather than arbitration rules), The Parties desire that their disputes be resolved by a judge applying such applicable laws. EACH OF THE PARTIES SPECIFICALLY WAIVES ANY RIGHT THEY MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, “CLAIMS”) ASSERTED BY ANY OF YOU AGAINST US OR OUR ASSIGNEE OR BY US OR OUR ASSIGNEE AGAINST ANY OF YOU. IN THE EVENT THAT THE FOREGOING JURY TRIAL WAIVER IS NOT ENFORCEABLE, ALL CLAIMS, INCLUDING ANY AND ALL QUESTIONS OF LAW OR FACT RELATING THERETO, SHALL, AT THE WRITTEN REQUEST OF ANY PARTY, BE DETERMINED BY JUDICIAL REFERENCE PURSUANT TO THE CALIFORNIA CODE OF CIVIL PROCEDURE (“REFERENCE”). THE PARTIES SHALL SELECT A SINGLE NEUTRAL REFEREE, WHO SHALL BE A RETIRED STATE OR FEDERAL JUDGE. IN THE EVENT THAT THE PARTIES CANNOT AGREE UPON A REFEREE, THE REFEREE SHALL BE APPOINTED BY THE COURT. THE REFEREE SHALL REPORT A STATEMENT OF DECISION TO THE COURT. NOTHING IN THIS SECTION SHALL LIMIT THE RIGHT OF ANY PARTY AT ANY TIME TO EXERCISE LAWFUL SELF-HELP REMEDIES, FORECLOSE AGAINST COLLATERAL OR OBTAIN PROVISIONAL REMEDIES. THE PARTIES SHALL BEAR THE FEES AND EXPENSES OF THE REFEREE EQUALLY UNLESS THE REFEREE ORDERS OTHERWISE. THE REFEREE SHALL ALSO DETERMINE ALL ISSUES RELATING TO THE APPLICABILITY, INTERPRETATION, AND ENFORCEABILITY OF THIS SECTION. THE PARTIES ACKNOWLEDGE THAT THE CLAIMS WILL NOT BE ADJUDICATED BY A JURY. THIS WAIVER EXTENDS TO ALL SUCH CLAIMS, INCLUDING CLAIMS THAT INVOLVE PERSONS OTHER THAN ANY OF YOU AND US; CLAIMS THAT ARISE OUT OF OR ARE IN ANY WAY CONNECTED TO THE RELATIONSHIP BETWEEN YOU AND US; AND ANY CLAIMS FOR DAMAGES, BREACH OF CONTRACT, SPECIFIC PERFORMANCE, OR ANY EQUITABLE OR LEGAL RELIEF OF ANY KIND, ARISING OUT OF THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY OF THE EXCLUDED AGREEMENTS. 24 Professional Fees. Each of You promises to pay any and all reasonable professional fees and out-of-pocket expenses incurred by Us after the execution of this Agreement in connection with or related to: the Secured Obligations, the administration, collection, or enforcement of the Secured Obligations; amendment or modification of the Loan Documents and the Excluded Agreements; any waiver, consent, release, or termination under the Loan Documents or Excluded Agreements; the protection, preservation, sale, lease, liquidation, inspection, audit or disposition of, or other action related to, the Collateral or the exercise of remedies with respect to the Collateral; or any legal, litigation, administrative, arbitration, or out of court proceeding in connection with or related to any of You or the Collateral, and any appeal or review thereof; and any bankruptcy, restructuring, reorganization, assignment for the benefit of creditors, workout, foreclosure, or other action related to any of You, the Collateral, the Loan Documents, or the Excluded Agreements, including representing Us in any adversary proceeding or contested matter commenced or continued by or on behalf of the estate of any of You with respect to the Loan Documents or matters related thereto. Our professional fees and expenses shall include reasonable fees or out-of-pocket expenses for Our attorneys, accountants, auctioneers, liquidators, appraisers, investment advisors, environmental and management consultants, or experts engaged by Us in connection with the foregoing. The promise of each of You to pay all of Our reasonable professional fees and expenses is part of the Secured Obligations under this Agreement. Revival of Secured Obligations. This Agreement and the other Loan Documents shall remain in full force and effect and continue to be effective if any petition is filed by or against any of You for liquidation or reorganization, if any of You become insolvent or make an assignment for the benefit of creditors, if a receiver or trustee is appointed for all or any significant part of the assets of any of You, or if any payment or transfer of Collateral is recovered from Us. The Secured Obligations shall continue to be effective, or shall be revived or reinstated, as the case may be, if at any time payment and performance of the Secured Obligations or any transfer of Collateral to Us, or any part thereof is rescinded, avoided or avoidable, reduced in amount, or must otherwise be restored or returned by, or is recovered from, Us or by any obligee of the Secured Obligations, whether as a “voidable preference”, “fraudulent conveyance”, or otherwise, all as though such payment, performance, or transfer of Collateral had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, avoided, avoidable, restored, returned, or recovered, the Secured Obligations shall be deemed, without any further action or documentation, to have been revived and reinstated except to the extent of the payment in full to Us in Cash. Notices. Any notice, request or other communication to any of The Parties by any other will be given in writing and deemed received upon the earlier of (a) actual receipt, (b) 3 days after mailing if mailed postage prepaid by regular or airmail to Us or You, at the address set out in Pages 2 and 3 of this Agreement, or (c) 1 day after it is sent by courier or overnight delivery Any party hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other party. Applicable Law. This Agreement and any Promissory Note will have been made, executed and delivered in the State of California and will be governed and construed for all purposes in accordance with the laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all such counterparts together constitute one and the same instrument. Signatures. This Agreement and any Promissory Note may be executed and delivered by facsimile or transmitted electronically in either Tagged Image Format Files (“TIFF”), Portable Document Format (“PDF”), or other electronic method of transmission and, upon such delivery, the facsimile, TIFF, PDF or other electronic method of transmission signature, as applicable, will be deemed to have the same effect as if the original signature had been delivered to the other party. The foregoing shall apply to each other Loan Document mutatis mutandis. Confidentiality. All material, non-public information regarding any of the Parents, You, and/or Your and their respective Subsidiaries, operations, assets, and existing and contemplated business plans, and/or all financial information (other than any such information contained in periodic reports filed by any of You or any of the Parents with the Securities and Exchange Commission) disclosed by any of You to Us shall be considered confidential for purposes of this Agreement. In handling any confidential information, We will exercise the same degree of care that We exercise for Our own proprietary information, but disclosure of information may be made (a) to Our Subsidiaries or Affiliates in connection with their business with any of You under the Loan Documents so long as such Affiliates shall have agreed to receive such information hereunder subject to the terms of this Section, (b) to 25 prospective transferees or purchasers of any interest in the Loans (provided, however, We shall obtain such prospective transferee’s agreement of the terms of this Section and any purchaser shall be agreeing to assume the obligations hereunder and therefore agree to abide by the provisions hereof, including, without limitation, the provisions of this Section), (c) as We deem reasonably necessary or appropriate to any bank, financial institution or other similar entity, provided, however, that such bank, financial institution or other similar entity agrees in writing to maintain the confidentiality of such information pursuant to this Section, (d) as required by law, regulation, subpoena, or other order; provided that (i) prior to any disclosure under this clause (d), the disclosing party agrees to provide You with prior notice thereof, to the extent that it is practicable to do so and to the extent that the disclosing party is permitted to provide such prior notice to You pursuant to the terms of such law, regulation, subpoena or other order and (ii) any disclosure under this clause (d) shall be limited to the portion of the confidential information as may be required by such law, regulation, subpoena or other order, (e) as required in connection with Our examination or audit so long as such examiners and auditors are informed of the confidential nature of such information (f) to S&P, Moody’s, Fitch and/or other ratings agency, as We deem necessary or appropriate, provided, however, that such financial institution or ratings agency shall be informed of the confidentiality of such and (g) as We consider appropriate exercising remedies under this Agreement. Confidential information does not include information that either: (a) is in the public domain or in Our possession when disclosed to Us, or becomes part of the public domain after disclosure to Us (other than as a result of a disclosure by Us); or (b) is disclosed to Us by a third party, if We do not know (after reasonable inquiry) that the third party is prohibited from disclosing the information. Notwithstanding the above, each of You hereby consents to the use by Us of the company name and logo of any of You for advertising, promotional and marketing purposes only. Such use may reference the type of credit facility but will not indicate the amount of the credit facility without Your prior written approval and will consist only of deal terms and other information customarily found in publications, tombstones, and advertising materials. 21. DEFINITIONS Capitalized terms used in this Agreement shall have the following meanings: “Account” means any “account”, as such term is defined in the UCC, which any of You now own or acquire or in which any of You now hold or acquire any interest and in any event, shall include, without limitation, all accounts receivable, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, Documents or Instruments) that any of You now own, receive or acquire or belongs or is owed or becomes belonging or owing to any of You (including, without limitation, under any trade name, style or division thereof), whether arising out of goods sold or services that any of You render or from any other transaction, whether or not the same involves the sale of goods or services by any of You (including, without limitation, any such obligation that may be characterized as an account or contract right under the UCC) and all or any of Your rights in, to and under all purchase orders or receipts now owned or acquired by any of You for goods or services, and all of any of Your rights to any goods represented by any of the foregoing (including, without limitation, unpaid seller’s rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), and all monies due or to become due to any of You under all purchase orders and contracts for the sale of goods or the performance of services or both by any of You or in connection with any other transaction (whether or not yet earned by performance on the part of any of You), now in existence or occurring, including, without limitation, the right to receive the proceeds of said purchase orders and contracts, and all collateral security and guarantees of any kind given by any Person with respect to any of the foregoing. “Accounting Changes” means changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants (or successor thereto or any agency with similar functions). “Advance Date” means the day on which We make any Advance to You. “Advance Request” means any request for an Advance to be executed and delivered from time to time by You to Us in the form attached to this Agreement as Exhibit B. “Affiliate” means, as applied to any Person, any other Person who controls, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” means the possession, directly or indirectly 26 through one or more intermediaries, of the power to direct the management and policies of a Person, whether through the ownership of Stock, by contract, or otherwise; provided, however, that, for purposes of Section 12 “Transactions with Affiliates” of this Agreement: (a) any Person which owns directly or indirectly 10% or more of the Stock having ordinary voting power for the election of directors or other members of the governing body of a Person or 10% or more of the partnership or other ownership interests of a Person (other than as a limited partner of such Person) shall be deemed an Affiliate of such Person, (b) each director (or comparable manager) of a Person shall be deemed to be an Affiliate of such Person, and (c) each partnership in which a Person is a general partner shall be deemed an Affiliate of such Person. “Agreement” has the meaning specified therefor in the preamble to this Agreement. “Agri-Energy Acquisitions” means (a) the acquisition by Devco of all of the issued and outstanding shares of Stock of Opco from CORN-ER Stone Farmers’ Cooperative, and (b) the acquisition by Devco of substantially all of the assets (other than certain excluded assets) of Agri-Energy Limited Partnership and the contribution of such assets by Devco to Opco, in the case of each of (a) and (b), pursuant to the terms of the Acquisition Agreement and any Contribution Documents “Agri-Energy Retrofit Cost” means the costs and expenses associated with or related to the implementation of the Retrofit Plan as described in the capital plan attached as Exhibit E-1 hereto (as updated from time to time). “Authorized Person” means any one of the individuals identified on Schedule 7, as such schedule is updated from time to time by written notice from You to Us. “Bankruptcy Code” means title 11 of the United States Code, as in effect from time to time. “Business Day” means any day other than a Saturday, Sunday or other day on which banking institutions in the State of California are authorized or required by law or other government action to close. “Capitalized Lease Obligation” means that portion of the obligations under a Capital Lease that is required to be capitalized in accordance with GAAP. “Capital Lease” means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP. “Cash” means all cash, money, currency, and liquid funds, wherever held, which any of You own now, hold or acquire any right, title, or interest in. “Cash Equivalents” means (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one (1) year from the date of acquisition thereof, (b) marketable direct obligations issued or fully guaranteed by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within one (1) year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor’s Rating Group (“S&P”) or Moody’s Investors Service, Inc. (“Moody’s”), (c) commercial paper maturing no more than 270 days from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody’s, (d) certificates of deposit, time deposits, overnight bank deposits or bankers’ acceptances maturing within one (1) year from the date of acquisition thereof issued by any bank organized under the laws of the United States or any state thereof or the District of Columbia or any United States branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $100,000,000, (e) Deposit Accounts maintained with (i) any bank that satisfies the criteria described in clause (d) above, or (ii) any other bank organized under the laws of the United States or any state thereof so long as the full amount maintained with any such other bank is insured by the Federal Deposit Insurance Corporation, (f) repurchase obligations of any commercial bank satisfying the requirements of clause (d) of this definition or recognized securities dealer having combined capital and surplus of not less than $100,000,000, having a term of not more than seven days, with respect to securities satisfying the criteria in clauses (a) or (d) above, (g) debt securities with maturities of six (6) months or less from the date of acquisition backed by standby letters of credit issued by any commercial bank satisfying the criteria described in clause (d) above, (h) Investments in money market funds substantially all of whose assets are invested in the types 27 of assets described in clauses (a) through (g) above, and (i) shares of investment companies that are registered under the Investment Company Act of 1940 and substantially all of the investments which are one or more of the types of assets described in clauses (a) through (g) above. “Cash Management Services” means any cash management or related services including treasury, depository, return items, overdraft, controlled disbursement, merchant store value cards, e-payables services, electronic funds transfer, interstate depository network, automatic clearing house transfer (including the Automated Clearing House processing of electronic funds transfers through the direct Federal Reserve Fedline system) and other cash management arrangements. “CFC” means a controlled foreign corporation as that term is defined in the IRC. “Chattel Paper” means any “chattel paper”, as such term is defined in the UCC, now owned or acquired by any of You or in which any of You now hold or acquire any interest. “Closing Date” means October 20, 2011. “Collateral” has the meaning given to it in Section 8. “Collections” means all cash, checks, notes, instruments, and other items of payment (including insurance proceeds, cash proceeds of asset sales, rental proceeds, and tax refunds). “Commitment Increase Request Notice” has the meaning given to it in Section 3. “Contribution Documents” means in general those documents relating to the funding by Gevo, Inc. and Gevo Development LLC of equity monies relating to the consideration to paid in connection with the Agri-Energy Acquisitions. “Copyright License” means any written agreement granting any right to use any Copyright or Copyright registration now owned or hereafter acquired by any of You or in which agreement You now hold or hereafter acquire any interest, whether as licensor or licensee. “Copyrights” means all of the following now owned or acquired by any of You or in which any of You now hold or acquire any interest: (a) all copyrights and copyright rights, whether registered or unregistered, held pursuant to the laws of the United States, any State thereof, or of any other country, or pursuant to any convention or treaty; (b) all registrations of, applications for registration. and recordings of any copyright rights in the United States Copyright Office or in any similar office or agency of the United States, any State thereof or any other country; (c) all continuations, renewals or extensions of any copyrights and any registrations thereof; and (d) any copyright registrations to be issued under any pending applications “Default” means any event that, with the passage of time or notice or both would, unless cured or waived, become an Event of Default. “Default Rate” has the meaning given to it in Section 7. “Deposit Accounts” means any “deposit accounts”, as such term is defined in the UCC, now owned or acquired by any of You or in which any of You now hold or acquire any interest. “Devco” has the meaning specified therefor in the preamble to this Agreement. “Direct Competitor” means any competitor of You or Your Affiliates or any Affiliate of such competitor that is engaged in the primary business of fuels and refining with regard to chemicals, agriculture, butanols, ethanol or other renewable fuels and chemicals, including, without limitation, any of the Persons listed on Schedule 6 (provided that such Schedule (a) upon written notice to Us, may be updated by You from time to time to include any Person that becomes a parent or a Subsidiary or Affiliate of a Person listed thereon as a result of a merger or acquisition, and (b) may be updated to include any other Person that is engaged in any business that is similar to, related to, or ancillary to any of the businesses of the Persons listed on Schedule 6 so long as such Person is approved in writing by Us (which approval shall not be unreasonably withheld, delayed or conditioned)). 28 “Documents” means any “documents”, as such term is defined in the UCC, now owned or acquired by any of You or in which any of You now hold or acquire any interest. “Equipment” means any “equipment”, as such term is defined in the UCC, and any and all additions, upgrades, substitutions and replacements thereto or thereof, together with all attachments, components, parts, accessions and accessories installed thereon or affixed thereto, now owned or hereafter acquired by any of You or in which any of You now hold or acquire any interest. “Event of Default” has the meaning given to it in Section 14. “Excluded Agreements” means (i) the Warrant Agreement; and (ii) any stock purchase agreement, options, or other warrants to acquire, or agreements governing the rights of, any capital Stock or other equity security, or any common Stock, preferred Stock, or equity security issued to or purchased by Us or its nominee or assignee. “Excluded Taxes” means (i) any tax imposed on the net income or net profits of Us (including any branch profits taxes), in each case imposed by the jurisdiction (or by any political subdivision or taxing authority thereof) in which We are organized or the jurisdiction (or by any political subdivision or taxing authority thereof) in which Our principal office is located in each case as a result of a present or former connection between Us and the jurisdiction or taxing authority imposing the tax (other than any such connection arising solely from Us having executed, delivered or performed its obligations or received payment under, or enforced its rights or remedies under the Agreement or any other Loan Document) and (ii) any United States federal withholding taxes that would be imposed on amounts payable to a Foreign Lender based upon the applicable withholding rate in effect at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office). “Execution Date” has the meaning given to it in the Original Loan Agreement. “Fixtures” means any “fixtures”, as such term is defined in the UCC, together with any of Your right, title and interest in and to all extensions, improvements, betterments, renewals, substitutes, and replacements thereof, and all additions and appurtenances thereto any, now owned or hereafter acquired by any of You or in which any of You now hold or acquire any interest. “Foreign Lender” means any Person that is not a United States person within the meaning of Internal Revenue Code section 7701(a)(30). “GAAP” means generally accepted accounting principles, consistently applied, as in effect from time to time. “General Intangibles” means any “general intangibles”, as such term is defined in the UCC, and, in any event, includes proprietary or confidential information (other than Intellectual Property); business records and materials (other than Intellectual Property); customer lists; interests in partnerships, joint ventures, corporations, limited liability companies and other business associations; permits; claims in or under insurance policies (including unearned premiums and retrospective premium adjustments); and rights to receive tax refunds and other payments and rights of indemnification, now owned or acquired by any of You or in which any of You may now or hereafter have any interest. “Gevo Loan Agreement” means that certain Plain English Growth Capital Loan and Security Agreement entered into by and between Us and Gevo, Inc. dated as of August 5, 2010. “Gevo Loan Documents” means the Gevo Loan Agreement and all documents, agreements and instruments related thereto, as the same may be amended, restated, supplemented, extended or otherwise modified from time to time. “Goods” means any “goods”, as such term is defined in the UCC, now owned or hereafter acquired by any of You or in which any of You now hold or acquire any interest. 29 “Heartland Credit Agreement” means that certain Credit Agreement dated as of July 17, 2006, by and among Agri-Energy, LLC, CORN-ER Stone Farmers’ Cooperative, Agri-Energy Limited Partnership, Corn-er Stone Ethanol Management, Inc., and Wisconsin Community Bank, Heartland Business Bank Branch, as amended, restated, supplemented and otherwise modified from time to time. “Heartland Loan Documents” means the Heartland Credit Agreement and the agreement, documents and instruments executed in connection therewith, as such documents many be amended, restated, supplemented or otherwise modified from time to time. “Indebtedness” means, of any Person, at any date, without duplication and without regard to whether matured or unmatured, absolute or contingent: (a) all obligations of such Person for borrowed money; (b) all obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments; (c) all obligations of such Person to pay the deferred purchase price of property or services; (iv) all obligations of such Person as lessee under capital leases; (d) all obligations of such Person to reimburse or prepay any bank or other Person in respect of amounts paid under a letter of credit, banker’s acceptance, or similar instrument, whether drawn or undrawn; (e) all obligations of such Person to purchase securities which arise out of or in connection with the sale of the same or substantially similar securities; (f) all obligations of such Person to purchase, redeem, exchange, convert or otherwise acquire for value any capital Stock of such Person or any warrants, rights or options to acquire such capital Stock, now or hereafter outstanding, except to the extent that such obligations remain performable solely at the option of such Person; (g) all obligations to repurchase assets previously sold (including any obligation to repurchase any accounts or chattel paper under any factoring, receivables purchase, or similar arrangement); (h) obligations of such Person under interest rate swap, cap, collar or similar hedging arrangements; and (i) all obligations of others of any type described in clause (a) through clause (h) above guaranteed by such Person. “Indemnified Taxes” means any taxes other than Excluded Taxes. “Instruments” means any “instrument”, as such term is defined in the UCC, now owned or hereafter acquired by any of You or in which any of You now hold or acquire any interest. “Intellectual Property” means all Copyrights; Trademarks; Patents; Licenses; source codes; trade secrets; inventions (whether or not patented or patentable); technical information, processes, designs, knowledge and know-how; data bases; models; drawings; websites, domain names, and URL’s, and all applications therefor and reissues, extensions, or renewals thereof; together with the rights to sue for past, present, or future infringement of Intellectual Property and the goodwill associated with the foregoing. “Intellectual Property Collateral” means the Intellectual Property registrations and applications set forth on Exhibit C as updated from time to time, and any and all cash proceeds thereof. “Inventory” means any “inventory”, as such term is defined in the UCC, now owned or acquired by any of You or in which any of You now hold or acquire any interest, and, in any event, shall include, without limitation, all Goods and personal property that are held by or on any of Your behalf for sale or lease or are furnished or are to be furnished under a contract of service or that constitute raw materials, work in process or materials used or consumed or to be used or consumed in any of Your businesses, or the processing, packaging, promotion, delivery or shipping of the same, and all finished goods, whether or not the same is in transit or in any of Your constructive, actual or exclusive possession or is held by others for any of Your account, including, without limitation, all property covered by purchase orders and contracts with suppliers and all goods billed and held by suppliers and all such property that may be in the possession or custody of any carriers, forwarding agents, truckers, warehousemen, vendors, selling agents or other Persons. “Investment” means any beneficial ownership (including Stock, partnership or limited liability company interest or other securities) of any Person, or any loan, advance or capital contribution to any Person. “Investment Property” means any “investment property”, as such term is defined in the UCC, and includes any certificated security, uncertificated security, money market funds, bonds, mutual funds, and U.S. Treasury bills and notes now owned or hereafter acquired by any of You or in which any of You now hold or acquire any interest. “IRC” means the Internal Revenue Code of 1986, as in effect from time to time. 30 “Letter of Credit Rights” means any “letter of credit rights”, as such term is defined in the UCC, now owned or acquired by any of You or in which any of You now hold or acquire any interest, including any right to payment under any letter of credit. “License” means any Copyright License, Patent License, Trademark License or other written agreement now held or acquired by any of You granting a license of rights or interests in intellectual property or in which any of You now hold or acquire any interest and any renewals or extensions thereof. “Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, against any property, any conditional sale or other title retention agreement, and any lease in the nature of a security interest. “Loan Documents” means this Agreement, the Promissory Notes, all UCC financing statements filed against each of You as the debtor and in favor of Us as the secured party, and the other documents executed in connection with the Secured Obligations or this Agreement and listed in and identified as a “Loan Document” in the Schedule of Documents attached hereto as Schedule 2), as the same may from time to time be amended, modified, supplemented or restated; provided, that the Loan Documents shall not include any of the Excluded Agreements. “Material Adverse Effect” means (a) a material adverse effect on the business, operations, properties, assets or financial condition of all of You as a whole, (b) the material impairment of the ability of all of You as a whole to perform the Secured Obligations in accordance with the terms of the Loan Documents or Our ability to enforce any of Our rights and remedies with respect to the Secured Obligations in accordance with the terms of the Loan Documents (other than as a result of action taken or not taken that is solely in the control of Us), or (c) a material impairment on the enforceability or priority of Our Liens on the Collateral under the Loan Documents as a result of an action or failure to act on the part of You or Your Subsidiaries. “Merger Event” means (i) any reorganization, consolidation or merger (or similar transaction or series of transactions) by You, with or into any other Person; (ii) any transaction, including the sale or exchange of outstanding shares of Your Stock, in which the holders of Your Stock immediately before consummation of such transaction or series of related transactions do not, immediately after consummation of such transaction or series of related transactions, retain Stock representing at least 50% of the voting power of the surviving entity of such transaction or series of related transactions (or the parent entity of such surviving entity if such surviving entity is wholly owned by such parent entity), in each case without regard to whether You are the surviving entity, or (iii) the sale, license or other disposition of all or substantially all of Your assets. “Net Worth” means, as of any date of determination, the result of (a) total consolidated assets minus (b) total consolidated liabilities. “Original Closing Date” means August 5, 2010. “Original Loan Agreement” has the meaning given to it on Page 1 of this Agreement. “Original Loan Documents” has the meaning give to it on Page 1 of this Agreement. “Our” has the meaning specified therefor in the second paragraph to this Agreement. “Parents” means, collectively, Gevo, Inc. and Gevo Development, LLC, and “Parent” means any one of them. “Participant” has the meaning specified therefor in the paragraph with the heading “Successor and Assigns” in Section 20 of this Agreement. “Parties” has the meaning specified therefor in the second paragraph to this Agreement. 31 “Patent License” means any written agreement granting any right with respect to any invention on which a Patent is in existence or a Patent application is pending in which agreement You now hold or acquire any interest, whether as licensor or licensee. “Patents” means all of the following now owned or acquired by any of You or in which any of You now hold or acquire any interest: (a) all patents, or rights corresponding thereto, issued or registered in the United States or any other county, (b) all applications for patents, or rights corresponding thereto in, the United States or any other country; (c) all reissues, reexaminations, continuations, divisions, continuations-in-part, or extensions of the foregoing patents and/or applications; (d) all patents to be issued under any of the foregoing applications; and (e) all foreign counterparts of the foregoing patents and/or applications. “Permitted Disposition” means (a) sales, abandonment, or other dispositions of Equipment that is substantially worn, damaged, or obsolete or no longer used or no longer useful in the ordinary course of business and leases or subleases of real property no longer used or no longer useful in the conduct of the business of You and Your Subsidiaries; (b) sales of Inventory to buyers in the ordinary course of business and/or the entering into of marketing distribution, supply, off take, development, or like agreements relating to the sale of Inventory in the ordinary course of business and containing standard or customary terms for such agreements (which terms may include, without limitation, rights of first offer and/or exclusivity arrangements); (c) the use or transfer of Cash or Cash Equivalents in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents; (d) (i) non-exclusive licenses of patents, trademarks, copyrights, and other intellectual property rights or (ii) non-perpetual exclusive licenses of patents, trademarks, copyrights, and other intellectual property rights with respect to geographic area, fields of use and customized products for specific customers that would not result in a transfer of title of the licensed property under applicable law, all given in the ordinary course of Your business; (e) the granting of Permitted Liens; (f) the sale, assignment, transfer, disposition, or discount, in each case without recourse, of Accounts arising in the ordinary course of business, but only in connection with the compromise or collection thereof; (g) any involuntary loss, damage or destruction of property; (h) any involuntary condemnation, seizure or taking, by exercise of the power of eminent domain or otherwise, or confiscation or requisition of use of property; (i) the leasing or subleasing of assets of You or Your Subsidiaries in the ordinary course of business; (j) the sale or issuance of Stock of a Parent; (k)(i) the lapse of registered patents, trademarks, copyrights and other intellectual property of You and Your Subsidiaries to the extent not economically desirable in the conduct of or material to their business, or (ii) the abandonment of patents, trademarks, copyrights, or other intellectual property rights in the ordinary course of business that are not material to Your business; (l) the making of a Permitted Investment; (m) the making of a Permitted Intercompany Advance; (n) dispositions of assets in exchange or trade in for similarly valued assets so long as the assets so received by You or Your Subsidiaries have a fair market value that is reasonably equivalent to the fair market value of the assets so disposed by You or Your Subsidiaries; provided that if such assets are material to Your business, they are exchanged or traded for similar assets that are used for a similar purposes, and provided further, however, that nothing in this clause (n) shall prevent You or Your Subsidiaries from receiving or paying cash consideration in connection with the disposition of assets in exchange for similarly valued assets contemplated by this clause (n); (o) dispositions of assets in exchange for, or replaced by, an upgrade or a new model of such asset; provided, however, that nothing in this clause (o) shall require the same brand, type or kind of asset to be purchased as the asset being exchanged or replaced in order for this clause (o) to be applicable so long the new asset is used for a similar purpose; (p) the disposition of assets in connection with the Retrofit in accordance with the Retrofit Plan; (q) dispositions of assets in connection with maintenance and updating of the facility for fair market value, and (r) leases and subleases of farmland, and (s) sales or dispositions of assets not otherwise permitted by the foregoing clauses so long as the aggregate fair market value of all such assets disposed of in any fiscal year (including the proposed disposition) would not exceed $500,000. “Permitted Indebtedness” means (a) Indebtedness of any of You in favor of Us; (b) Indebtedness of You existing as of the Closing Date and disclosed on Schedule 1; (c) Indebtedness incurred for the acquisition of services, supplies or inventory on normal trade credit in the ordinary course of business; (d) Permitted Intercompany Advances; (e) Subordinated Indebtedness; (f) Permitted Purchase Money Indebtedness; (g) Indebtedness consisting of (i) unsecured guarantees arising with respect to customary indemnification obligations to purchasers in connection with Permitted Dispositions and (ii) unsecured guarantees with respect to Indebtedness of You or Your Subsidiaries, to the extent that the Person that is obligated under such guaranty could have incurred such underlying Indebtedness; (h) endorsement of instruments or other payment items for deposit in the ordinary course of 32 business; (i) Indebtedness incurred in the ordinary course of business under performance, surety, statutory, and appeal bonds; (j) Indebtedness owed to any Person providing property, casualty, liability, or other insurance to You or Your Subsidiaries, so long as the amount of such Indebtedness is not in excess of the amount of the unpaid cost of, and shall be incurred only to defer the cost of, such insurance for the year in which such Indebtedness is incurred and such Indebtedness is outstanding only during such year, (k) unsecured Indebtedness incurred in respect of netting services, overdraft protection, and other like services, in each case, incurred in the ordinary course of business; (l) unsecured Indebtedness of You or Your Affiliates owing to employees, former employees, officers, former officers, directors, or former directors (or any spouses, ex-spouses, or estates of any of the foregoing) incurred in connection with the redemption by You or Your Affiliates of the Stock of You or Your Affiliates that has been issued to such Persons, so long as (i) no Event of Default has occurred and is continuing or would immediately result from the incurrence of such Indebtedness, (ii) the aggregate amount of all such Indebtedness outstanding at any one time does not exceed $100,000 and (iii) such Indebtedness is subordinated in right of payment to the Indebtedness and other obligations under the Loan Documents on terms and conditions reasonably acceptable to Us; (m) Indebtedness composing Permitted Investments; (n) Indebtedness incurred in respect of credit cards, credit card processing services, debit cards, stored value cards, purchase cards (including so-called “procurement cards” or “P-cards”), in each case, incurred in the ordinary course of business provided the aggregate amount of all such Indebtedness outstanding at any one time does not exceed $200,000; (o) accrual of interest on Indebtedness otherwise permitted under Section 12, accretion or amortization of original issue discount with respect to Indebtedness otherwise permitted under Section 12 or Indebtedness incurred as a result of payment of interest in kind on Indebtedness otherwise permitted under Section 12, to the extent that such interest or original issue discount accrues pursuant to the documents evidencing such Indebtedness as in effect at the time when such Indebtedness is initially incurred; (p) any other unsecured Indebtedness incurred by You or any of Your Subsidiaries in an aggregate outstanding amount not to exceed $100,000 at any one time; (q) to the extent either (i) existing on the Closing Date (after giving effect to the Agri-Energy Acquisitions) or (ii) entered into in the ordinary course of business, deferred payment contracts for the purchase of corn; (r) Indebtedness under the Working Capital Loan Facility so long as the aggregate outstanding principal amount thereof does not at any time exceed Two Million Eight Hundred Thousand Dollars ($2,800,000); (s) the incurrence by You or Your Subsidiaries of Indebtedness under hedge agreements that are entered into for the bona fide purpose of hedging the interest rate or commodity risk associated with You and Your Subsidiaries’ operations in the ordinary course of business and not for speculative purposes; (t) Indebtedness in respect of or Cash Management Services in each case, incurred in the ordinary course of business, (u) Indebtedness in the form of letters of credit issued to Your utility providers in the ordinary course of business as deposits to secure performance of Your obligations to such utility providers; (v) Indebtedness under the “Loan Documents” (as such term is defined in the Gevo Loan Agreement); (w) Indebtedness secured by the Lien permitted pursuant to clause (v) of the definition of Permitted Lien; and (x) extensions, refinancings, modifications, amendments and restatements of any item of Permitted Indebtedness (a) though (w) above, provided that the principal amount thereof is not increased. “Permitted Intercompany Advances” means loans or advances made by (a)(i) Parent to Devco, (ii) Parent to You, (iii) You to Parent, subordinated to the Secured Obligations (it being agreed and understood that subordination provisions in a guaranty executed by Parent in favor of Us subordinating Indebtedness provided by Parent to the Secured Obligations is satisfactory to Us for purposes of the subordination), and (iv) Devco or you to Devco or You, so long as such loans are governed by a subordination agreement in form satisfactory to Us ; and (b) a non-borrower Affiliate of Yours or Devco to You or Devco, so long as such loans made by such non-borrower Affiliate are governed by a subordination agreement in form satisfactory to Us. “Permitted Investment” means (a) Investments of You that are in existence on the Closing Date and described on Schedule 5; (b) Investments in Cash and Cash Equivalents; (c) so long as no Event of Default has occurred and is continuing, temporary advances to employees to cover incidental expenses to be incurred in the ordinary course of business, in an aggregate outstanding amount not to exceed $50,000 at any time; (d) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and/or in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business; (e) Investments in negotiable instruments deposited or to be deposited for collection in the ordinary course of business; (f) advances made in connection with purchases of goods or services in the ordinary course of business; (g) guarantees permitted under the definition of Permitted Indebtedness; (h) Permitted Intercompany Advances; (i) Stock or securities acquired in connection with the satisfaction or enforcement of Indebtedness or claims due or owing to a You or Your Subsidiaries (in bankruptcy of customers or suppliers or otherwise outside the ordinary 33 course of business) or as security for any such Indebtedness or claims; (j) deposits of Cash made in the ordinary course of business to secure performance of operating leases, (k) non-Cash loans and advances to employees, officers, and directors of You or any of Your Subsidiaries for the purpose of purchasing Stock in a Parent so long as the proceeds of such loans are used in their entirety to purchase such Stock in a Parent in an aggregate amount not to exceed $100,000 at any one time, and (ii) so long as no Event of Default has occurred and is continuing, temporary loan and advances to employees and officers of You or any of Your Subsidiaries to cover incidental expenses to be incurred in the ordinary course of business and in an aggregate amount not to exceed $50,000 at any one time; (l) the transactions permitted pursuant to Section 12 of this Agreement; (m) advances and prepayments to non-Affiliate suppliers of goods and services in the ordinary course of business and consistent with past practice; (n) equity Investments by You in any of Your Subsidiaries which is required by law to maintain a minimum net capital requirement or as may be otherwise required by applicable law; (o) Investments in the form of capital contributions and the acquisition of Stock made by a Parent or any other borrower hereunder in any other borrower hereunder (other than capital contributions to or the acquisition of Stock of a Parent); (p) the Agri-Energy Acquisitions; (q) Investments resulting from entering into agreements relative to Indebtedness that is permitted under clause (n) and/or clause (s) and/or clause (u) of the definition of Permitted Indebtedness; and (r) other Investments in an aggregate amount not to exceed $50,000 outstanding at any time during the term of the Agreement. “Permitted Liens” means any and all of the following: (a) Liens in Our favor; (b) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings, provided that such Liens do not have priority over any of Our Liens and You maintain adequate reserves in accordance with GAAP; (c) Liens securing claims or demands of materialmen, artisans, mechanics, carriers, warehousemen, landlords, laborers, suppliers and other like Persons arising in the ordinary course of Your business and imposed without action of such Persons, provided that the payment thereof is not yet required or is being contested in good faith by appropriate proceedings; (d) Liens arising from judgments, decrees or attachments in circumstances which do not constitute an Event of Default hereunder; (e) the following deposits, to the extent made in the ordinary course of You or Your Subsidiaries’ business: deposits under worker’s compensation, unemployment insurance, social security and other similar laws, or to secure the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory obligations (other than Liens arising under ERISA or environmental Liens) or surety or appeal bonds, or to secure indemnity, performance or other similar bonds; (f) Liens on insurance proceeds in favor of insurance companies granted solely as security for financed premiums; (g) intentionally deleted; (h) Liens in favor the Working Capital Lender arising under the Working Capital Loan Facility on Accounts, Inventory and identifiable cash proceeds thereof residing in a lockbox deposit account associated therewith; (i) Liens of You existing at the Closing Date and disclosed on Schedule 4; (j) the interests of lessors and sub-lessors under operating leases and non-exclusive licensors and sub- licensors under license agreements; (k) purchase money Liens or the interests of lessors under Capital Leases to the extent that such Liens or interests secure Permitted Purchase Money Indebtedness and so long as (i) such Lien attaches only to the asset purchased, acquired or leased and the proceeds thereof, and (ii) such Lien only secures the Indebtedness that was incurred to acquire the asset purchased or acquired or any refinancing Indebtedness in respect thereof; (l) with respect to any real property, easements, rights of way, zoning restrictions, covenants, conditions, and restrictions of record, minor title defects, encroachments or matters that would be disclosed in an accurate survey and other similar encumbrances or charges, in each case that do not materially interfere with or impair the use or operation thereof; (m) licenses of patents, trademarks, copyrights, and other intellectual property rights in the ordinary course of business; (n) Liens that are replacements of Permitted Liens to the extent that the original Indebtedness is the subject of permitted refinancing Indebtedness and so long as the replacement Liens only encumber those assets that secured the original Indebtedness; (o) Liens granted in the ordinary course of business on the unearned portion of insurance premiums and dividends, rebates and proceeds thereunder securing the financing of insurance premiums to the extent the financing is permitted under the definition of Permitted Indebtedness; (p) rights of setoff or bankers’ liens upon deposits of Cash in favor of banks or other depository institutions, solely to the extent incurred in connection with the maintenance of such deposit accounts in the ordinary course of business; (q) Liens on Cash and Cash Equivalents that secure Cash Management Services; (r) Liens on Cash and Cash Equivalents that secure Indebtedness permitted pursuant to clause (s) of the definition of Permitted Indebtedness so long as such Cash and Cash Equivalents securing such obligations are limited to the greater of (i) ten percent (10%) of the hedged amount or (ii) such other amount as may be required by the regulated exchange, such as the Chicago Board of Trade, and Your existing brokers in connection with such hedging arrangement; (s) Liens that secure Subordinated Indebtedness; (t) Liens that secure Indebtedness permitted pursuant 34 to clause (r) of the definition of Permitted Indebtedness and subject to an intercreditor agreement acceptable to Us; (u) other Liens as to which the aggregate amount of the obligations secured thereby does not exceed $100,000; (v) Cash collateral securing Your reimbursement obligations in connection with letters of credit issued to landlords in lieu of security deposits not to exceed $100,000 in the aggregate at any time in which You have used commercially reasonable efforts to provide Us with a subordinated security interest in the Collateral securing such letters of credit; (w) Liens granted by You to secure Indebtedness under the Gevo Loan Documents; and (x) leases and subleases of farmland, and (y) Liens incurred in connection with the extension, renewal or refinancing of the Indebtedness secured by Liens of the type described in the foregoing clauses, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness being extended, renewed or refinanced (as may have been reduced by any payment thereon) does not increase. “Permitted Purchase Money Indebtedness” means, as of any date of determination, Purchase Money Indebtedness incurred after the Closing Date in an aggregate principal amount outstanding at any one time not in excess of $1,000,000. “Person” means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, other entity or government (whether federal, state, county, city, municipal, local, foreign, or otherwise, including any instrumentality, division, agency, body or department thereof). “Proceeds” means “proceeds”, as such term is defined in the UCC and, in any event, shall include, without limitation, (a) any and all Accounts, Chattel Paper, Instruments, Cash or other proceeds payable to any of You from time to time in respect of the Collateral, (b) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to any of You from time to time with respect to any of the Collateral, (c) any and all payments (in any form whatsoever) made or due and payable to any of You from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any Person acting under color of governmental authority), (d) the proceeds, damages, or recovery based on any claim of any of You against third parties (i) for past, present or future infringement of any Copyright, Copyright License, Patent or Patent License, or (ii) for past, present or future infringement or dilution of any Trademark or Trademark License or for injury to the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License; and (e) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. “PT” means Pacific Time. “Purchase Money Indebtedness” means Indebtedness (other than the obligations under the Loan Documents, but including Capitalized Lease Obligations), incurred at the time of, or within 90 days after, the acquisition of any fixed assets for the purpose of financing all or any part of the acquisition cost thereof. “Receivables” means (a) all of any of the Accounts, Instruments, Documents, Cash, Chattel Paper, Supporting Obligations, letters of credit, proceeds of a letter of credit, and Letter of Credit Rights of any of You, and (b) all customer lists, software, and related business records. “Retrofit” means the retrofit of Your existing ethanol plant to enable it to produce biobased isobutanol as more fully described by the Retrofit Plan. “Retrofit Plan” means the engineering and operational construction plan for the Retrofit as approved by Your board of governors. “Section 125 Plans” means a cafeteria or premium-only plan under section 125 of the Internal Revenue Code of 1986, as in effect from time to time, that allows employees to pay for health coverage premiums and other costs and expenses mentioned therein with pretax dollars. “Secured Obligations” means Your obligations to repay to Us all Advances (whether or not evidenced by any Promissory Note), together with all principal, interest, fees, costs, professional fees and expenses, and other liabilities or obligations for monetary amounts owed by You to Us under this Agreement, the Promissory Notes, and the other Loan Documents, including the indemnity and insurance obligations in Sections 10, 13 and 20 hereof and including 35 such amounts as may accrue or be incurred before or after default or workout or the commencement of any liquidation, dissolution, bankruptcy, receivership or reorganization by or against You, whether due or to become due, matured or unmatured, liquidated or unliquidated, contingent or non-contingent, and all covenants and duties of any kind or nature, present or future, arising under this Agreement, the Promissory Notes, or any of the other Loan Documents, as the same may from time to time be amended, modified, supplemented or restated, whether or not such obligations are partially or fully secured by the value of Collateral; provided, that the Secured Obligations shall not include any of the Indebtedness or obligations of You arising under or in connection with the Excluded Agreements. “Securities Act” means the Securities Act of 1933, as amended from time to time, and any successor statute. “Solvent” means, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person; (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature; and (d) such Person is not engaged in a business or transaction, and is not about to engage in a business or transaction, for which such Person’s property would constitute an unreasonably small capital. The amount of contingent liabilities (such as litigation, guaranties and pension plan liabilities) at any time shall be computed as the amount that, in light of all the facts and circumstances existing at the time, represents the amount that can be reasonably be expected to become an actual or matured liability. “Stock” means all shares, securities, stock, options, warrants, general or limited partnership interests, membership units or interests, capital stock, or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company, partnership, joint venture or other Person whether voting or nonvoting, including common stock, preferred stock or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934). “Subordinated Indebtedness” means Indebtedness (a) on terms and conditions reasonably satisfactory to Us and (b) subordinated to the Secured Obligations on terms and conditions reasonably acceptable to Us, including without limiting the generality of the foregoing, subordination of such Indebtedness in right of payment to the prior payment in full of the Secured Obligations (other than unasserted contingent indemnification Secured Obligations), the subordination of the priority of any Lien at any time securing such Indebtedness to Our Liens in Your assets and properties, and the subordination of the rights of the holder of such Indebtedness to enforce its junior Lien following an Event of Default hereunder pursuant to a written subordination agreement in form and substance reasonably satisfactory to Us. Notwithstanding the forgoing, subject to subsection (b) in this paragraph only, Indebtedness in an aggregate amount up to 50% of the amount required for the Retrofit shall constitute Subordinated Indebtedness. “Subsidiary” means, with respect to any Person, any Person of which more than 50% of the voting Stock is owned or controlled, directly or indirectly, by such Person or one or more Affiliates of such Person. “Supporting Obligations” means any “supporting obligations”, as such term is defined in the UCC, now owned or acquired by any of You or in which any of You now hold or hereafter acquire any interest. “Table of Terms” means the table describing the basic terms of the Advances on Pages [1, 2 and 3] of this Agreement. “Trademark License” means any written agreement granting any right to use any Trademark or Trademark registration in which agreement You now hold or hereafter acquire any interest, whether as licensor or licensee. “Trademarks” means all of the following property now owned or hereafter acquired by any of You or in which any of You now hold or hereafter acquire any interest: (a) all trademarks, trade names, corporate names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and any applications in connection therewith, including, without 36 limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof and (b) reissues, extensions or renewals thereof. “UCC” means the Uniform Commercial Code as the same is, from time to time, in effect in the State of California; provided, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Secured Party’s Lien on any Collateral is governed by the Uniform Commercial Code as the same is, from time to time, in effect in a jurisdiction other than the State of California, the term “UCC” shall mean the Uniform Commercial Code as in effect, from time to time, in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions. Unless otherwise defined herein or in the other Loan Documents terms that are defined in the UCC and used herein or in the other Loan Documents shall have the meanings given to them in the UCC. “Us” has the meaning specified therefor in the second paragraph to this Agreement. “Warrant Agreement” means the Warrant Agreements between the parties thereto issued in connection with this Agreement or the Original Loan Agreement. “Working Capital Lender” has the meaning given to it in Section 8. “Working Capital Loan Facility” has the meaning given to it in Section 8. “We” has the meaning specified therefor in the second paragraph to this Agreement. “You” has the meaning specified therefor in the second paragraph to this Agreement. “Your” has the meaning specified therefor in the second paragraph to this Agreement. Any reference to “We”, “Us” or “Our” includes the successors and permitted assigns of TriplePoint Capital LLC. Unless otherwise specified, all references in this Agreement or any Annex or Schedule hereto to a “Section”, “subsection”, “Exhibit”, “Annex”, or “Schedule” shall refer to the corresponding Section, subsection, Exhibit, Annex, or Schedule in or to this Agreement. The terms “herein”, “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole, including all Exhibits, Annexes and Schedules, and not to any particular Section, subsection or other subdivision. Any reference in this Agreement or in any other Loan Document to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter genders. The words “including”, “includes” and “include” shall be deemed to be followed by the words “without limitation”, the word “or” is not exclusive and, except where otherwise indicated, has the inclusive meaning represented by the phrase “and/or”; references to Persons include their respective successors and assigns (to the extent and only to the extent permitted by this Agreement and the Loan Documents) or, in the case of governmental Persons, Persons succeeding to the relevant functions of such Persons; and all references to statutes and related regulations shall include any amendments of the same and any successor statutes and regulations. Unless otherwise specifically provided herein, any accounting term used in this Agreement or the other Loan Documents shall have the meaning customarily given such term in accordance with GAAP, and all financial computations hereunder shall be computed in accordance with GAAP (except, in the case of any unaudited financial statements, for the lack of footnotes and being subject to year-end audit adjustments), consistently applied. Notwithstanding any standard or rule to be adopted by the Federal Accounting Standards Board treating operating leases as capital leases after the date hereof, operating leases shall be treated under this Agreement and the other Loan Documents as they were at the time of the execution of this Agreement. 37 (Signature Pages to Follow) 38 IN WITNESS WHEREOF, The Parties have executed and delivered this Agreement as of the day and year first above written. BORROWER: Accepted in Menlo Park, California: LENDER: You: AGRI-ENERGY, LLC Signature: /s/ David Glassner Print Name: David Glassner Title: President Us: TRIPLEPOINT CAPITAL LLC Signature: /s/ Sajal Srivastava Print Name: Sajal Srivastava Title: Chief Operating Officer EXHIBIT A FORM OF PLAIN ENGLISH PROMISSORY NOTE This is a Plain English Promissory Note dated , 20 (this “Promissory Note”), whereby for value received, AGRI-ENERGY, LLC, a Minnesota limited liability company hereby promises to pay to the order of TRIPLEPOINT CAPITAL LLC or the permitted holder of this Promissory Note, at 2755 Sand Hill Road, Ste. 150, Menlo Park, CA, 94025 or such other place of payment as the permitted holder of this Promissory Note may specify from time to time in writing, in lawful money of the United States of America, the principal amount of /100 Dollars ($ ) together with interest at percent ( %) per annum from the date of this Promissory Note to maturity of each installment on the principal remaining unpaid, such principal and interest to be paid as stated on Page 1 and 2 of this Promissory Note and the amortization schedule attached as Schedule A. The words “We”, “Us”, and “Our”, refer to TRIPLEPOINT CAPITAL LLC. The words “You” and “Your” refers to Agri-Energy, LLC, a Minnesota limited liability company, and not to any individual. The words “The Parties” refers to each of and all of TRIPLEPOINT CAPITAL LLC and You. This Promissory Note is one of the Promissory Notes referred to in, and is entitled to the benefits of, and is subject to the limitations set forth in, the Amended and Restated Plain English Growth Capital Loan and Security Agreement, dated as of October 20, 2011 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”), by and between You and Us. All capitalized terms defined in the Loan Agreement shall have the same definitions when used herein, unless otherwise defined herein. PROMISSORY NOTE INFORMATION Each of the headings in the boxes below in this chart entitled “Promissory Note Information” shall be used as a defined term herein for the information contained in the same box as the heading. Facility Name Facility Number Promissory Note Number Principal Amount Growth Capital Loan Facility 0467-GC-0_ 0000-GC-0_-0_ $ Payment Amount Months 1 – [*] interest only Months [*]-[*]: $_______ Loan Term months Funding Date , 2010 Interim Payment $[ ] Last Monthly Payment in advance $[ ] Interest Rate [Prime + %] First Payment Date , 2010 End of Term Payment $[ %] Maturity Date , 200_ CONTACT INFORMATION Name Address For Notices Contact Person TriplePoint Capital LLC Customer Name ______________ 2755 Sand Hill Rd., Ste. 150 Menlo Park, CA 94025 Tel: (650) 854-2090 Fax: (650) 854-1850 Sajal Srivastava, COO Tel: (650) 233-2102 Fax: (650) 854-1850 email: legal@triplepointcapital.com Central Billing Address Contact Person _______________ Name, Title Tel: ___________ Fax: ____________ email: ______________ In addition to Your final principal payment, You will pay Us an End of Term Payment (to be an amount equal to percent ( %) of the principal amount of this Promissory Note). Interest shall be computed daily on the basis of a year consisting of 360 days for the actual number of days occurring in the period for which such interest is payable. Any payments made under this Promissory Note shall not be available for re-borrowing. The aggregate outstanding principal balance of this Promissory Note shall be due and payable in full in immediately available funds on the Maturity Date, if not sooner paid in full. You waive presentment and demand for payment, notice of dishonor, protest and notice of protest under the UCC or any applicable law. This Promissory Note has been negotiated and delivered to Us and is payable in the State of California. This Promissory Note shall be governed by and construed and enforced in accordance with, the laws of the State of California, excluding any conflicts of law rules or principles that would cause the application of the laws of any other jurisdiction. This Promissory Note is a Loan Document, is entitled to the benefits of the Loan Documents and is subject to certain provisions of the Loan Agreement, including, without limitation, the Sections entitled “Successors and Assigns”, “Consent to Jurisdiction and Venue”, “Mutual Waiver of Jury Trial; Judicial Reference” and “Confidentiality” in Section 20 thereof. [signature page follows] This Promissory Note is subject to certain transferability restrictions set forth in the Loan Agreement. Any assignment of this Promissory Note that is prohibited by the Loan Agreement shall be absolutely void ab initio. BORROWERS: YOU: AGRI-ENERGY, LLC Signature: Print Name: Title: To: TRIPLEPOINT CAPITAL LLC 2755 Sand Hill Road Ste 150 Menlo Park, CA 94025 Attention: Customer Administrations Fax (650) 854-1850 EXHIBIT B FORM OF ADVANCE REQUEST Date: AGRI-ENERGY, LLC, a Minnesota limited liability company (“We” and “Us”), hereby request from TRIPLEPOINT CAPITAL LLC (“You”) an Advance (as defined in the below-defined Credit Agreement) in the amount of ($ ) on , (which is at least [ (__)] Business Days from the date hereof) (the “Requested Advance”) under Part [2][3] of the Amended and Restated Plain English Growth Capital Loan and Security Agreement dated as of October 20, 2010 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”) by and between You, the other borrowers party thereto from time to time and Us. All capitalized terms defined in the Loan Agreement shall have the same definitions when used herein, unless otherwise defined herein. We instruct You to please: (a) Issue a check payable to Us or (b) Transfer Funds to Our account Bank: Address: ABA Number: Account Number: Account Name: We represent, warrant and certify: • • • • The representations and warranties set forth in the Loan Agreement and in the Warrant Agreement, as updated from time to time in accordance with the terms of the Loan Agreement, are and shall be true, complete and correct in all material respects on and as of the date the Requested Advance is funded with the same effect as though made on the date of the funding of the Requested Advance, except to the extent such representations and warranties expressly relate to an earlier date (in which case, those representations and warranties remain true, complete and correct in all material respects as of such date); provided, however, that such materiality qualifiers shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof. At the time of funding the Requested Advance, We are in compliance with all the terms and provisions of Section 4 and 5 of the Loan Agreement. At the time of funding of and immediately after funding the Requested Advance, no fact or condition exists that would (or would, with the passage of time, the giving of notice, or both, would) constitute an Event of Default under the Loan Agreement. Since the Closing Date, no event or circumstance has occurred or exists which individually or together with any other event or circumstance, has had or could reasonably be expected to have a Material Adverse Effect; • The Certificate of Perfection executed on , is true and correct as of the date of this Advance Request. [Attach an updated Certificate of Perfection as needed.]. (Signature Page to Follow) Executed as of the date first written above by: YOU: AGRI-ENERGY, LLC Signature: Print Name: Title: [SIGNATURE PAGE TO ADVANCE REQUEST] EXHIBIT C FORM OF CERTIFICATE OF PERFECTION This Certificate of Perfection (this “Certificate of Perfection”) shall reference that certain Amended and Restated Plain English Growth Capital Loan and Security Agreement dated as of October 20, 2011 (the “Loan Agreement”), by and between TRIPLEPOINT CAPITAL LLC and AGRI-ENERGY, LLC, a Minnesota limited liability company (“We”, “Us” and “Our”). All capitalized terms defined in the Loan Agreement shall have the same definitions when used herein, unless otherwise defined herein. This Certificate of Perfection is being delivered pursuant to the terms of the Loan Agreement, We hereby certify, represent and warrant the following as of , 20 : 1. Our current name and organizational status are as follows: Name of Borrower: Name on Organizational Documents: Type of Organization: State of Organization: Organization File Number: Federal Employer Tax Identification Number: 2. During the [five (5)] years prior to the date of this Certificate of Perfection, We did not do business under any other name or organization or form except the following: Name of Borrower: Name on Organizational Documents (other than as listed in the table in Section 1): Type of Organization (other than as listed in the table in Section 1): State of Organization (other than as listed in the table in Section 1): Organization File Number (other than as listed in the table in Section 1): Federal Employer Tax Identification Number (other than as listed in the table in Section 1): Dates of Existence: 3. 4. Our fiscal year ends on . Our current locations and the locations of all the Collateral are: Name of Borrower: Chief Executive Office: Principal Place of Business: Locations of Collateral: 5. The following is a list of any and all of Our Subsidiaries: Name of Subsidiary Type of Organization State of Organization Organization File Number Federal Employer Tax ID Number Our Ownership Interest 6. We currently maintain Deposit Accounts, other accounts holding Investment Property owned by Us, and electronic accounts (such as PayPal or similar accounts) as follows: Bank Name/Address Account Holder Name Account (Type & Number) 7. We currently have the following commercial tort claims: 8. [Attached hereto as Schedule 1 is a listing as of the Closing Date of the Patents, Patent Applications, registered Trademarks, Trademark Applications for Registration, Copyright Registrations, and Copyright Applications for Registration that are owned by Us and that have been filed with either the United States Patent and Trademark Office or the United States Copyright Office. Executed as of the date first written above by: AGRI-ENERGY, LLC Signature: Print Name: Title: [SIGNATURE PAGE TO CERTIFICATE OF PERFECTION] EXHIBIT D FORM OF CERTIFICATE OF COMPLIANCE This Certificate of Compliance shall reference that certain Amended and Restated Plain English Growth Capital Loan and Security Agreement dated as of October 20, 2011 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”), by and between TRIPLEPOINT CAPITAL LLC and AGRI-ENERGY, LLC, a Minnesota limited liability company (“We” or “Us”). All capitalized terms defined in the Loan Agreement shall have the same definitions when used herein, unless otherwise defined herein. Pursuant to the terms of the Loan Agreement, We hereby certify the following as of , 20__: • • • • We are in compliance as of the date of this Certificate of Compliance with all covenants in Section 12 and other sections of the Loan Agreement unless otherwise noted and attached to this Certificate of Compliance as Exhibit A. [Except as set forth below], [A]s of the date of this Certificate of Compliance all representations and warranties in the Loan Agreement are true and correct in all material respects except to the extent such representations and warranties expressly relate to an earlier date (in which case, those representations and warranties remain true as of such date). The Certificate of Perfection executed on , is true and correct as of the date of this Certificate of Compliance. (Attach an updated Certificate of Perfection as needed.) [Attached hereto as Schedule 1 is a list of each contract, other than any contract that We disclosed on a date prior to the date of this Certificate of Compliance, between Us and a Government Account Debtor that has, as of the date hereof, obligations to make payments, whether due or to become due, to Us, in an amount greater than $250,000.] 1 Executed as of the date first written above by: AGRI-ENERGY, LLC Signature: Print Name: Title: 1 To be included if any written notice is required to be delivered by Us to TriplePoint Capital LLC pursuant to the “Government Contracts” covenant in Section 12 of the Loan Agreement. CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement No. 333-172771 on Form S-8 of our reports dated February 28, 2012, relating to the consolidated financial statements of Gevo, Inc. and subsidiaries, (which report expresses an unqualified opinion and includes explanatory paragraphs referring to Gevo, Inc.’s status as a development stage enterprise and the change in the method of accounting for preferred stock warrants) and the effectiveness of Gevo, Inc.’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of Gevo, Inc. for the year ended December 31, 2011. Exhibit 23.1 /s/ Deloitte & Touche LLP Denver, Colorado February 28, 2012 CERTIFICATION OF CHIEF EXECUTIVE OFFICER (Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) Exhibit 31.1 I, Patrick R. Gruber, certify that: 1. 2. 3. 4. I have reviewed this annual report on Form 10-K of Gevo, Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) b) c) d) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 28, 2012 /s/ PATRICK R. GRUBER Patrick R. Gruber Chief Executive Officer (Principal Executive Officer) CERTIFICATION OF CHIEF FINANCIAL OFFICER (Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) Exhibit 31.2 I, Mark Smith, certify that: 1. 2. 3. 4. I have reviewed this annual report on Form 10-K of Gevo, Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) b) c) d) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 28, 2012 /s/ MARK SMITH Mark Smith Chief Financial Officer (Principal Financial Officer) CERTIFICATION Exhibit 32.1 I, Patrick R. Gruber, Chief Executive Officer of Gevo, Inc. (the “Company”), and I, Mark Smith, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Annual Report on Form 10-K of the Company for the year ended December 31, 2011, (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the period covered by the Report. /s/ PATRICK R. GRUBER Patrick R. Gruber Chief Executive Officer Date: February 28, 2012 /s/ MARK SMITH Mark Smith Chief Financial Officer Date: February 28, 2012 A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. This certification accompanies the Report to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, whether made before or after the date of the Report and irrespective of any general incorporation language contained in such filing. 

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