NOTES  TO CONSOLIDATED FINANCIAL STATEMENTS d) During the year ended December 31, 2012, the Company has entered into a new license agreement for a new technology to increase the concentration of avenanthramides in oats. The Company shall pay an annual royalty percentage rate of 2% of sales, payable every January 1$^{st}$ and July 1$^{st}$, subject to a minimum annual royalty payment according to the schedule below: And $50,000 each year thereafter while the license agreement remains in force. The agreement is an executory contract and therefore all royalty payments under the contract will be recognized as they become due. e) In the normal course of operations, the Company may be subject to litigation and claims from customers, suppliers, and former employees. Management believes that adequate provisions have been recorded in the accounts where required. Although it is not possible to estimate the extent of potential costs, if any, management believes that the ultimate resolution of such contingencies would not have a material adverse effect on the financial position of the Company. The Company paid $346,248 in 2012 (2011 – $348,357) under operating lease. These amounts were recorded as follows: general and administration expenses of $96,819 (2011 – $89,664), research and development expenses of $14,754 (2011 – $13,718), and cost of goods sold of $234,675 (2011 – $244,975). The Company is committed to future annual payments under operating leases for manufacturing facilities and office space for twelve years starting April 1, 2013. Total lease commitments from January 1, 2013 until December 31, 2013 are $314,284; from January 1, 2014 until December 31, 2018 are $1,121,764, and thereafter $1,645,240. The fair value of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and royalties interest payable approximate their carrying amount due to their short-term nature. The fair value of long-term debt is estimated to approximate its carrying value because the interest rate does not differ significantly from current interest rates for similar types of borrowing arrangements. The Canadian Agricultural Adaptation Program (‘‘CAAP’’) loan is recorded at the amount drawn under the agreement, discounted using the prevailing market rate of interest for a similar instrument, which represents the estimated fair value of the obligation. The repayable research funding is recorded at the amount drawn under the agreement which represents the estimated fair value of the obligation plus the deferred interest benefit that will be recognized systematically over the term of the loan. CEAPRO Annual Report 2012 51 21. FINANCIAL INSTRUMENTS 20. OPERATING LEASE Year Amount 2012 nil 2013 $12,500 2014 $37,500 2015 $50,000 2016 $50,000