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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) of THE
SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year Ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-11431
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
(formerly, New Energy Company of Indiana)
(Exact Name of Registrant as Specified in its Charter)
Indiana 52-1195762
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3201 West Calvert Street, South Bend, Indiana 46680
(Address of principal executive office) (zip code)
(Registrant's telephone number, including area code:) (219) 233-3116
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Securities Registered Pursuant to Section 12(b) of the Act
None
Securities Registered Pursuant to Section 12(g) of the Act
Limited Partnership Interests
(Title of Class)
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 preceding twelve 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 X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained,
to the best of 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 [ ]
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State the aggregate market value of the voting stock held by
non-affiliates of the registrant.
Not Applicable.
TABLE OF CONTENTS
PART I Page
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Item 1. Business............................................ 4
Item 2. Properties.......................................... 17
Item 3. Legal Proceedings................................... 17
Item 4. Submission of Matters to a Vote of Security Holders. 18
PART II
Item 5. Market for Registrant's Limited Partner Units
and Related Security Holder Matters................. 19
Item 6. Selected Financial Data............................. 20
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 20
Item 8. Financial Statements and Supplementary Data......... 26
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. 44
PART III
Item 10. Directors and Executive Officers of the Registrant.. 44
Item 11. Executive Compensation.............................. 46
Item 12. Security Ownership of Certain Beneficial
Owners and Management............................... 46
Item 13. Certain Relationships and Related Transactions...... 47
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PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................. 50
Index to Exhibits............................................ 50
Signatures.................................................... 50
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FORWARD-LOOKING INFORMATION
This document contains, and other materials filed or to be filed by the
Company (as hereinafter defined) with the Securities and Exchange Commission
(the "Commission"), as well as information included in oral statements or
other written statements made or to be made by the Company, contain or will
contain or include, disclosures which are forward-looking statements. These
forward-looking statements address, among other things, strategic initiatives
(including plans for capital expenditure requirements and financing sources).
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Business", and "Legal Proceedings". These forward-looking
statements are based upon our current plans or expectations and are subject to
a number of uncertainties and risks that could significantly affect current
plans, anticipated actions and our future financial condition and results.
These uncertainties and risks include, but are not limited to, those relating
to conducting operations in a competitive environment; delays, difficulties
and technological changes associated with production of ethanol; changes in
government regulation and taxation that may affect costs of production and/or
the competitiveness of ethanol compared to other oxygenates; leverage and debt
service requirements; general economic conditions; and changes or volatility
in corn, ethanol and DDGS prices. As a consequence, current plans,
anticipated actions and future financial condition and results may differ from
those expressed in any forward-looking statements made by or on behalf of the
Company.
PART 1
Item 1. Business
General Development of Business
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New Energy Company of Indiana Limited Partnership, an Indiana limited
partnership (the "Company"), whose general partner is New Energy Corporation
of Indiana, an Indiana corporation (the "General Partner"), was formed on
April 15, 1980, under the Indiana Uniform Limited Partnership Act to construct
and operate an ethanol production facility (the "Plant") located in South
Bend, Indiana.
On April 28, 1982, the Company commenced an offering, on a best efforts basis,
of $37,000,000 in limited partnership interests in $5,000 increments with a
minimum required investment of $5,000. In addition to subscribing for
interests at a minimum price of $5,000, each limited partner executed an
assumption agreement pursuant to which he or she assumed $2,500 of the
principal amount of a loan obtained by the Company to be used in connection
with the construction of the Plant. On August 27, 1982, the Partnership
terminated the offering having raised the minimum amount of $32,000,000
through the sale of 6,400 limited partner interests.
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Plant construction commenced in 1982 with proceeds of the offering; a
$5,000,000 private offering of special limited partner interests; a $3,000,000
General Partner contribution; $140,914,000 long-term financing by an eight
bank consortium, 90% of which was guaranteed by the United States of America
acting by and through the Secretary of Energy on behalf of the Department of
Energy ("DOE"); and $2,432,264 long-term financing from the Business
Development Corporation of South Bend, Mishawaka, St. Joseph County, Indiana
("SBDC").
The Plant was designed and constructed to produce annually approximately
52,500,000 gallons of fuel grade ethanol from corn. The Plant also was
designed to produce annually, as by-products of the ethanol production
process, approximately 186,000 tons of distilled dried grains and solubles
("DDGS") and approximately 145,000 tons of gaseous carbon dioxide ("CO2").
Financial Information about Industry Segments
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The Company operates in one business segment, the production of ethanol and
its by-products: DDGS and CO2. The Company does not operate in any other
business segment. The following chart lists Company sales for each of ethanol
and its by-products (DDGS and CO2) for 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
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<S> <C> <C> <C>
Ethanol Sales $94,918,677 $103,227,074 $96,111,285
By-Product Sales $36,775,692 $30,859,962 $31,818,002
</TABLE>
Narrative Description of Business
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Since commencing operations in 1985, the Plant has consistently produced
ethanol without extensive down-time. During 1996, the Plant produced
approximately 73 million gallons of ethanol as compared to approximately 88
million gallons produced in 1995; approximately a 17% decrease in ethanol
production. The approximate 17% decrease in ethanol production primarily
resulted from the Company's decision to decrease production by approximately
30% during the period May through September, 1996, compared to the same period
in 1995, and due to a 71% increase in the average price per bushel of corn for
the period from January through September, 1996, compared to the same period
in 1995. This reduction also resulted from, but to a significantly lesser
extent, an unplanned outage caused by equipment failure during the quarter
ended March 31, 1996.
In 1997, the Plant is currently projected to produce approximately 85 million
gallons of denatured ethanol. The Plant also is currently projected to
produce in 1997, as by-products, approximately 268,000 tons of DDGS, and
approximately 169,000 tons of CO2. There can be no assurance,
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however, that these forward looking projections may be realized because they
are subject to numerous factors, including, without limitation, general
economic conditions, product and supply price fluctuations, and mechanical
difficulties and other structural limitations on production capacity.
The Company's revenues during its last three fiscal years primarily were
derived from sales of ethanol, DDGS and CO2. The statements of operations set
forth in the financial statements contained in this report indicate the
amounts of revenue and operating income or loss derived from the Company's
sale of ethanol and its by-products for the fiscal years ended December 31,
1996, 1995 and 1994. The following table indicates the percentage of revenue
from the Company's sales of ethanol and its by-products for the fiscal years
ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
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<S> <C> <C> <C>
Ethanol 72.1% 77.0% 75.2%
DDGS 26.7% 21.7% 23.5%
Carbon Dioxide 1.2% 1.3% 1.3%
</TABLE>
Products
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Ethanol. Known chemically as ethyl alcohol, and commonly as grain alcohol,
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ethanol is used primarily as an octane enhancer and as an oxygen source to
produce cleaner burning gasoline. To produce ethanol, corn is dry-milled
through grinding and then converted to a fermentable sugar stream through a
process of enzyme hydrolysis. The resulting mash is fermented in batch
fermenters and then transferred to a continuous distillation column which
yields 95%-pure ethanol. The ethanol is then further refined by a separate
distillation column into anhydrous (water-free) ethanol. The anhydrous
ethanol is denatured to produce fuel ethanol. The ethanol produced by the
Plant may only be used as a fuel or a substitute for petroleum or
petrochemical feedstock.
Distilled Dried Grains and Solubles. DDGS is a by-product of the Plant's
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ethanol production process. Approximately 90% of the protein content of the
corn used by the Plant is recovered in the DDGS and is marketed as a protein
supplement in livestock feed.
Carbon Dioxide. The fermentation process used by the Plant yields CO2 as a
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by-product. The CO2 produced at the Plant primarily is used in the
preparation of carbonated beverages and frozen foods.
Research and Development
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In April 1991, the Company entered into a cooperative research and development
agreement ("CRADA") with the National Renewable Energy Laboratory ("NREL"), a
research laboratory
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operated by the DOE in an effort to develop an economical process for the
conversion of cellulose and hemi-cellulose materials to ethanol. The
Company's goal was to develop a method to produce ethanol from alternative,
less expensive feedstocks. Management of the NREL research was coordinated by
the Company's Project Development Team ("PDT").
In addition to its work with NREL, PDT was engaged in projects to identify new
products that would allow the Company to diversify its product line and to
develop manufacturing processes for those products. The Company also engaged
a research consultant to assist it in developing new production processes and
alternative products.
Because of a severe cash flow crisis and the lack of prior tangible results,
the Company allowed the CRADA to expire pursuant to its terms on March 31,
1996, without renewal. Moreover, at approximately the same time and for
similar reasons, the PDT was dissolved. Certain PDT members were reassigned
within the Plant, while other PDT members left the Company's employ. In
addition, the Company permitted the Research Consultant Agreement to expire in
August, 1996, without renewal. Research and development has remained unfunded
since that time.
As of the date of this Report the Company's past research and development
efforts achieved limited success in eliminating production bottlenecks and no
commercially feasible new products or processes have been identified.
The Company currently has not budgeted research and development funds for
1997.
The Plant
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The Company owns a single plant located on approximately 60 acres in South
Bend, Indiana. The Plant is an open air facility that consists of various
physical equipment used in the ethanol production process and a two story
office building used for the Company's administrative offices. The Plant is
located in the heart of the "corn belt" and in close proximity to many of the
Company's major customers. The Plant, equipment and other assets are
encumbered under a first and second mortgage lien held by the DOE and SBDC,
respectively, as security for their loans to the Company. In addition, Great
American Insurance Company ("GAIC") holds a senior lien on inventory, accounts
receivable and certain other assets of the Company as security for its loan to
the Company.
Under normal conditions, the Plant is expected to operate at full capacity
from 340 to 350 days per year. During the remainder of each year, the Plant
is expected to be shut down for regularly scheduled repair and maintenance
operations. During the year ended December 31, 1996, the
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Plant operated for approximately 338 days. The slightly higher than usual
1996 down time resulted from a significant mechanical failure in March 1996.
During the period May through September, 1996, the Plant production rates were
reduced to approximately 70% of prior operating capacity which was adequate to
produce sufficient ethanol to fulfill existing customer contracts, but little
additional ethanol for spot-market sales. The Company took this action
because the elevated cost of corn and relatively static ethanol prices made
production unprofitable. Therefore, the Company acted to conserve cash during
that period of extraordinarily high corn prices. Beginning October 1, 1996,
Plant production rates have increased to approximately 90% of operating
capacity prior to the May through September, 1996, reduction. Attempts to
return to 100% of prior operating capacity have been hindered by various
limitations in the distillation area of the Plant. Various engineering and
operational solutions have been and are being explored to overcome these
operational limitations. While Plant personnel are optimistic that the
limitations will be overcome and the Plant will return to 100% of prior
operating capacity, there is no guarantee that the Plant will be able to
return to production levels experienced immediately prior to the May through
September, 1996, period. Nonetheless, the Plant continues to operate at
greater than design capacity.
Raw Materials
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Corn. As currently projected, in 1997 the Plant will consume approximately 31
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million bushels of corn. Pursuant to a supply contract commencing January 1,
1996, and expiring December 31, 1997 (subject to price and quantity
renegotiation subsequent to September, 1997), the Company purchases 100% of
its expected corn requirements from a large regional supplier at a price which
may fluctuate with corn futures prices or which may be fixed at the Company's
election (a copy of this agreement has been filed as Exhibit 10.25 to the
Company's Form 10-K for the year ended December 31, 1995). Approximately 90%
of the Company's corn requirements are purchased by that regional supplier
within a 75 mile radius of the Plant.
The price of corn is posted daily on national commodities exchanges for both
immediate delivery (spot price) and future delivery. Prices for corn in the
area surrounding the Plant are influenced by local, national and international
supply and demand conditions, weather conditions, transportation rates and
transportation system constraints such as the freezing of waterways in winter
and the adequacy and cost of storage. Price differentials within the area are
influenced by the location and number of grain processors and feed
manufacturers. In the past, the price of corn also was significantly affected
by federal governmental policies with respect to price supports and exports.
Certain of that impact, at least with respect to price supports and related
farm programs, may significantly be reduced as a result of the Freedom to
Farm Act of 1996 which eliminated most government corn price supports and
related limits on planting. Because the 1997 crop is only the second under
this Act, the Act's effect on corn supply and price cannot yet be determined.
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In 1996, the monthly average price paid for corn by the Company varied by
approximately $1.74 per bushel. Based on its projected annual requirements of
approximately 31 million bushels, the Company experiences a $3.1 million
change in operating costs for every 10 cents per bushel change in the price it
pays for corn.
The Plant has an aggregate storage capacity for approximately 320,000 bushels
of corn, which is adequate for approximately 3.5 days of normal operation.
Supplies of corn in the eight Indiana and five Michigan counties surrounding
South Bend are considered to be adequate to meet the Plant's operating
requirements. Based upon its current corn supply contract and reasonable
access to the 1997 crop, the Company anticipates adequate supplies to meet its
1997 operating requirements. However, on a longer term basis, the Company is
concerned with access to corn supplies. See discussion of regional corn
suppliers, Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operation - Liquidity and Capital Resources.
Coal. The Plant uses coal as its principal fuel source. In 1996, the Company
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entered into fixed price contracts with suppliers to purchase a one year
supply of coal. The Company purchased approximately 101,000 tons of coal in
fiscal year 1996. During 1997, the Company expects to continue to purchase
coal under annual fixed price contracts.
Enzymes. Enzymes constitute the principal chemicals used in the Plant's
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production process. The Company maintains enzyme supply contracts with major
enzyme suppliers which are renewable on an annual basis.
Denaturants. The Company purchases denaturants for use in converting the
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grain alcohol into fuel grade ethanol. There are a number of denaturing
agents that the Plant may use. Currently, the Company purchases unleaded
hydrocarbons on the open market for use as a denaturant. During 1996, the
Company purchased approximately 3,198,000 gallons of unleaded hydrocarbons,
including gasoline, for use as a denaturant. In 1997, the Company expects to
continue to purchase unleaded hydrocarbons on the open market to be used as a
denaturant.
Marketing of Ethanol
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The Company sells the ethanol it produces to refiners, blenders and
distributors of motor fuels for blending with gasoline at up to a 90:10 ratio
as an octane enhancer and as an oxygenate source to comply with certain state
and federal carbon-monoxide reduction programs. Beginning in the mid-1970's,
increasingly stringent air quality standards, especially the requirement to
phase out the use of lead additives as octane boosters, had the effect of
creating a demand for ethanol-
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enhanced motor fuels. Regular unleaded gasoline has lower octane levels than
gasoline with lead additives, and the engines of some fuel-efficient
automobiles "knock and ping" when using regular unleaded gasoline because of
the lower octane level. Several major oil companies, in order to boost
gasoline octane ratings without employing lead additives, began utilizing
octane boosting additives such as ethanol and methyl tertiary butyl ether,
more commonly known as MTBE.
A critical factor in the development of the alcohol motor fuels market was the
enactment in 1978 of a federal excise tax exemption or alternative income tax
credit on alcohol/gasoline fuel mixtures containing at least 10% alcohol.
Similar state tax exemptions or production grants ranging from 1 to 8 cents
were also enacted in a variety of states. However, beginning in 1986 the
amount of such state tax exemptions and other production grants has been
significantly reduced, and a number of states, including Indiana, have
eliminated these benefits altogether. In addition, certain states such as
Ohio, are considering the reduction or elimination of certain tax benefits
associated with ethanol. In past Congresses several Bills have been
introduced to limit ethanol tax incentives. In the 105th Congress, several
Bills have been introduced which would, if enacted, either curtail or
eliminate federal tax incentives for ethanol production. The ultimate outcome
of these Bills presently is impossible to predict. In any case, the existing
federal tax incentives for ethanol are authorized only through 2000. There
can be no assurance that such incentives will be continued through the year
2000 or renewed thereafter. The cost per gallon of producing ethanol
currently exceeds the wholesale price per gallon of regular unleaded gasoline.
Consequently, alcohol motor fuels are competitive with regular unleaded
gasoline only because of certain federal and state tax exemptions for ethanol.
Consequently, abrupt loss of federal tax exemptions for ethanol could have a
devastating impact on the Company's operations and revenues and could result
in closing the Plant.
The current, as well as the future, market for ethanol, also is significantly
impacted by other congressional action. The Clean Air Act of 1990 ("CAA")
requires that cleaner burning, reformulated gasoline ("RFG") be sold in
certain designated cities. The CAA requires Chicago, Milwaukee, Houston,
Hartford, New York City, Philadelphia, Baltimore, Los Angeles and San Diego to
utilize RFG. Additionally, the governors of a number of other states have
"opted" into the RFG program to help their states achieve air quality
improvements. Subsequently, the governors of New York, Pennsylvania and Maine
have elected to opt out of the CAA in certain specific areas within each
state.
Among the many changes in the composition of RFG, as compared to conventional
gasoline, is the addition of an oxygenate, such as ethanol or MTBE. The
addition of oxygen allows the gasoline to burn cleaner. As a result of the
RFG program, demand for ethanol increased.
In June 1994, the United States Environmental Protection Agency ("EPA") issued
the "Renewable Oxygen Standard" ("ROS") which required refiners manufacturing
RFG to utilize 15% of their oxygenate requirements in 1995, from a renewable
source - like ethanol. The percentage was scheduled to increase from 15% to
30% in 1996. The enactment of the ROS program encountered
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strong resistance from, among others, the National Petroleum Refiners
Association, The American Petroleum Institute and The American Methanol
Institute. In September 1994, the United States Court of Appeals for the
Fourth Circuit issued a restraining order staying enforcement of the ROS.
The case was argued in February 1995 and in July 1995, the Court of Appeals
ruled that EPA did not have the authority to issue the ROS. As a result, the
ROS was not implemented. Management believes that implementation of the ROS
would have increased the demand for ethanol and allowed the Company to
penetrate new, higher value markets.
On March 18, 1996, the EPA finalized a rule lifting the cap on oxygen content
in summertime RFG, thereby allowing ethanol to be blended at 10 percent
volume. A cap on oxygen content, limiting fuels to 2.7 percent oxygen (7.7
percent volume ethanol) had originally been adopted by EPA in the belief that
higher levels of oxygen increased nitrous oxide ("NOx") emissions. Data
generated subsequently proved that higher levels of oxygen did not increase
NOx emissions and EPA promulgated a rule that the cap be lifted in October
1995. The new rule allows up to 4 percent oxygen or 10 percent volume
ethanol.
In December of 1996, the EPA proposed tougher standards relating to air
emissions. Comments on the proposed rules were due on March 12, 1997. It is
anticipated that EPA's final rules on these issues will be issued by July 19,
1997. The Company believes these rules, if enacted, may have a positive
effect on ethanol demand as more geographic regions are required to meet the
tougher air quality standards. See discussion of perceived impact of law on
Company under Item 1, Business - Government Regulation.
In addition to the availability and amount of exemptions from federal and
state excise and sales taxes and environmental regulation as previously
discussed, the ethanol industry is affected by numerous other factors,
including, but not limited to, (1) gasoline prices generally and the
comparative prices of regular unleaded gasoline versus alcohol/gasoline
mixtures; (2) market prices of corn, the principal raw material used in the
production of ethanol; (3) the level of refiners' crude oil and gasoline
inventories; (4) competition among domestic ethanol producers; (5)
availability of low-cost foreign ethanol; (6) the familiarity of jobbers and
retailers with tax and octane benefits of ethanol blends; (7) marketing
support of retailers by major refinery/blenders, and (8) competition with
other oxygenates, such as MTBE.
Customers, each accounting for 10% or more ethanol sales, accounted for 84%,
59% and 24% of total ethanol sales in 1996, 1995 and 1994, respectively. The
Company does not believe that the loss of any ethanol customer which accounts
for 10% or more of ethanol sales would have a material adverse impact on the
operation of the business.
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Marketing of By-Products
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DDGS. DDGS is sold by the Company as a high-protein livestock feed
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supplement. DDGS competes with soybean meal and, to a lesser extent, urea and
cottonseed meal. Among the principal domestic markets for the DDGS produced by
the Plant are feed-lot operators and animal feed compounders in Indiana, Ohio,
Michigan and, generally, the eastern and western United States. DDGS is
marketed domestically or exported, depending upon prevailing market
conditions. During 1996, 1995 and 1994, the Company sold approximately 3%, 9%
and 17% of its DDGS, respectively, for export. In 1996, 1995 and 1994, one
customer accounted for 21%, 22% and 27%, respectively, of its DDGS sales.
The Company does not believe that the loss of any DDGS customer which
represents 10% or more of DDGS sales would have a material adverse impact on
the operation of the business. During 1996, the Company sold approximately
232,000 tons of DDGS, as compared to approximately 283,000 tons of DDGS sold
in 1995. This reduction primarily resulted from less DDGS being produced
while the Plant operated at reduced capacity from May through September 1996.
Carbon Dioxide. The Company first began sales of carbon dioxide in June 1985,
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following completion of a carbon dioxide recovery facility adjacent to the
Plant. BOC, Inc. ("BOC") (formerly Airco, Inc.) is currently operating the
facility. The General Partner and BOC are parties to a contract providing for
the sale of all of the Plant's carbon dioxide production. The agreement
extends until the year 1999 and can be automatically extended for an
additional five-year term. The Company sold approximately 152,000 tons of
carbon dioxide to BOC in 1996, as compared to approximately 167,000 tons of
carbon dioxide sold to BOC in 1995. This reduction also primarily resulted
from less carbon dioxide being produced while the Plant operated at reduced
capacity from May through September 1996.
Working Capital Requirements
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The Company maintains raw material and finished goods inventory to the extent
required for the continued normal operation of the Plant. Raw material
inventory consists primarily of corn, coal and enzymes used in the production
process. Finished goods inventory consists of both ethanol and DDGS.
Corn. At its current rate of production the Company has the ability to store
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approximately 3.5 days inventory of corn. The value of this inventory
fluctuates daily based upon changes in the cash and futures market prices for
corn.
Coal. The Company's coal inventory is seasonally affected by weather
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conditions which affect both the amount of coal used in the operation of the
Plant and the ability of the Plant to take delivery. Due to these seasonal
fluctuations the Company maintains between 3 weeks and 4 months inventory of
coal.
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Enzymes. The Company uses two primary enzymes in its production process. On
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average the Company maintains approximately 7 days of enzyme inventory.
Ethanol. Ethanol inventory consists of in-transit inventory and inventory
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maintained at the Plant in its primary storage facility. During 1996, the
average finished goods inventory at the Plant represented approximately 2.5
days of production. In addition, inventory in-transit to customers and at
off-site storage locations, which fluctuates seasonally, averages
approximately 1.5 days of production.
Competition
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The most important competitive factor of the Company is the price of ethanol
relative to the price of gasoline and MTBE. Other competitive factors include
the value of state and federal incentives, the cost of corn and the other
costs associated with the Plant's operations. The Company is also vulnerable
to adverse effects which would emanate from a reduction or elimination of
federal or state excise taxes on gasoline containing up to 10% ethanol as well
as the loss of alternative federal income tax credits. See discussion of
proposed tax changes respecting ethanol under Item 1, Business - Marketing of
Ethanol. The price of ethanol varies at times with the price of gasoline and
MTBE and the value of state and federal tax exemptions. The price of DDGS
fluctuates with the price of corn and the agricultural by-product market as
well as the market for competing products such as soybean meal. Because the
Company is unable to directly control the relationship of the corn, gasoline
and agricultural by-product markets, and is unable to assure the continuation
of state and federal tax exemptions, changes in market conditions could
adversely affect the future operations of the Company.
The Company has two programs which, management believes, serve to lessen these
risks. First, the Company enters into long-term contracts with major gasoline
refiners to sell a significant portion of its ethanol production. Second, the
Company has executed a contract which allows it to flat price a significant
portion of its 1997 corn requirements on a rolling basis at a price which is
fixed based upon the futures market price for corn. This strategy may allow
the Company to reduce the risk associated with the purchase of corn and the
sale of ethanol and its by-products. In addition, the Company has purchased
option contracts for certain time periods to reduce the risk of significant
upward fluctuations in corn prices. The Company will continue to review the
need for similar future upward corn price protections.
The production of ethanol for motor fuels is a highly competitive industry.
The Company competes with both large and small producers, other energy
companies and major corn processors, many of which are well-established and
have substantially greater financial resources than the Company.
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Other ethanol producers include: Archer Daniels Midland Company, with
production capacity of approximately 750 million gallons per year, Minnesota
Corn Processors, with production capacity of approximately 115 million gallons
per year, Cargill, with production capacity of approximately 110 million
gallons per year, Pekin Energy, Inc. with production capacity of approximately
125 million gallons per year, and Midwest Grain, with production capacity of
approximately 78 million gallons per year.
The Company's principal methods of competing for market share are the price it
charges for its products, the quality of its products, the level of service
that it provides to its customers, and the Company's geographic location and
its ability to deliver adequate supplies of its products in a reliable manner.
The Company competes for customers with ethanol producers located throughout
the United States and the world.
Ethanol primarily competes with MTBE, which is a hydrocarbon derivative.
Because of changing technology, it is possible that other alternative fuels or
octane enhancers may be developed which would also compete with ethanol for
market share.
The marketing of DDGS is also highly competitive. As with ethanol, the
principal methods of competition in this market are price, quality, service,
geographic location of the Plant and the ability to deliver adequate product
supplies in a reliable manner.
Government Regulation
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The Company has obtained an Alcohol Fuel Producers Permit from the Department
of the Treasury, Bureau of Alcohol, Tobacco and Firearms and all other
necessary federal and state licensing permits needed to produce and sell
ethanol. The Company's activities are also affected by federal and state
regulations governing the sale and distribution of gasoline.
As of December 31, 1996, the federal excise tax on the sale of gasoline was
$.184 per gallon. Congress has also provided for an excise tax exemption for
qualifying fuel/ethanol blends which is currently set at $.054 per 10% blended
gallon through the year 2000. As an alternative to the excise tax exemption,
effective through the year 2000, fuel blenders who blend gasoline with ethanol
or ethyl tertiary butyl ether, a product derived from ethanol, at up to a
90:10 ratio (gasoline/ethanol) are entitled to the corresponding alternative
income tax credit of $.54 per gallon of ethanol. If the federal excise tax
exemption or alternative income tax credit are eliminated or phased out, it
will have a significant adverse effect on the Company. See discussion of
proposed tax changes under Item 1, Business - Marketing of Ethanol.
Currently 9 states, including 3 states within the Company's marketing area,
Ohio, Minnesota and Illinois, have exempted, in varying amounts, from excise
and/or sales taxes, the sale of motor fuel blends containing ethanol. Most
state tax exemptions vary in proportion to the amount of ethanol
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blended into gasoline up to a maximum of 10% ethanol. Ohio is presently
considering terminating its tax credit for motor fuel blends containing
ethanol effective June 30, 1997.
Environmental Matters. The Company is subject to federal, state and local
- ---------------------
laws and regulations designed to protect the environment. The Company does
not believe or expect that compliance with such existing laws and regulations
regarding the discharge of materials into the environment, or otherwise
relating to the protection of the environment, has had or will have a material
adverse effect upon the Company. However, in December of 1996, the EPA
proposed tougher standards relating to air emissions which could require
significant investment in compliance and monitoring equipment. Under present
technology available, however, it is questionable whether the proposed rules
can be implemented by industry generally, and the Company specifically. The
EPA's current proposal is to change the existing ozone rule from a standard
that sets a one-hour average concentration limit of 0.12 parts per million to
one that sets an eight-hour average limit of 0.08 parts per million. The EPA
also proposed a new standard for regulating fine particles or particles that
are 2.5 microns or less in diameter. Comments on the proposed rules were due
on March 12, 1997. It is anticipated that EPA's final rules on these issues
will be issued by July 19, 1997. Historically, environmental regulations have
contained reasonable periods of time in which to comply. Presently, however,
these proposed regulations to not contain such a period. There can be no
assurance that the regulations promulgated will contain such a compliance
period.
On September 30, 1991, the EPA issued to the Company Finding of Violation
("FOV") No. EPA-5-91-R-17 and Notice of Violation ("NOV") No. EPA-5-91-R-18.
Both the FOV and NOV are based on alleged violations of the Clean Air Act as
it relates to sulphur dioxide emissions. At limited times during the second,
third and fourth quarters of 1990, the Company's sulphur dioxide emissions
exceeded the limitations specified in the Approval to Construct which was
issued by EPA on December 3, 1981. EPA also contended that the Company was
not maintaining and operating a continuous monitoring system for measuring
sulphur dioxide emissions in compliance with applicable law.
In August 1992, after negotiations with the Company's attorneys, EPA issued a
Consent Order to resolve the FOV and NOV. The Company was required to install
a continuous monitoring system for measuring sulfur dioxide emissions. The
deadline for installation and certification of the new monitoring equipment
was February 15, 1993. The Company met that deadline. The Consent Order
reserves EPA's right to assess a fine against the Company in connection with
the alleged violations as reflected in the FOV and NOV. Under the applicable
federal statutes, the Company could potentially be fined a maximum of $27,500
per day beginning from the date that the FOV and NOV were issued (9/30/91)
through the date that the alleged violation was corrected. However, no
specific fine has been proposed by EPA to date. Although there is no statute
of limitations applicable to fine assessments, the risk of a fine will
continue to decrease as time passes. The cost of installing the monitoring
system was approximately $154,000. Management estimates that any fines levied
in this matter will not be significant.
-15-
<PAGE>
On April 12, 1995, the Company received a FOV from the EPA as a result of the
Company's alleged failure to submit a report summarizing the regulatory status
of each benzene containing wastestream as required by federal regulations.
The Company responded to the FOV on June 8, 1995 and provided EPA with all
requested documentation. The matter has been resolved pursuant to a July 8,
1996 letter in which the EPA agreed that the Company's recordkeeping
procedures relating to benzene wastestreams complied with applicable law.
In February, 1996, the Company received a FOV from the Indiana Department of
Environmental Management ("IDEM") regarding excess continuous monitoring
downtime. The matter was resolved pursuant to an Agreed Order dated June 28,
1996, pursuant to which the Company paid a fine of $1,500.
The Company is in the process of reassessing its potential volatile organic
chemical ("VOC") emissions related to certain process equipment within the
facility. If this reassessment indicates that VOC emission controls are
required, it is possible that the Company will be required to expend certain
funds which generally will be capital in nature to implement air pollution
control technology. It is not possible at this time to predict whether such
an expenditure will be required, but if so, the amount required could be
significant.
Additional Legislation. No prediction can be made as to what additional state
- ----------------------
or federal legislation or regulations may be enacted, if any, affecting the
production, sale or distribution of ethanol for use in alcohol fuels. Any
regulations, orders, directives or legislation which may be promulgated in the
future may require expenditures by the Company which could be substantial or
otherwise adversely affect the Company.
Safety Standards. The Company is subject to various federal and state laws
- ----------------
relating to worker health and safety requirements, including the federal
Occupational Safety and Health Act.
Employees
- ---------
At December 31, 1996, the Company had 131 employees. Most of the Company's
employees are from the South Bend, Indiana area. Concurrent with the reduced
production during the May through September, 1996, period, the Company reduced
its work force in each of its designated departments and work areas. All but
three of the twenty-three laid-off employees have either been recalled to fill
jobs made available by attrition or no longer seek reinstatement from the
Company.
None of the Company's employees are unionized. On or about November, 1996,
the Company became aware of a purported Teamsters Union organizational effort
of the Company's employees. Mindful of its legal constraints, the Company
communicated to the employees its position that certification of a union is
not beneficial to the employees or the Company. A significant time period has
elapsed since the rumors of an active union organization effort with no formal
-16-
<PAGE>
notification to the Company of any organizing activity. Consequently, the
Company believes that presently no formal organization activity is proceeding.
Notwithstanding the recent purported organizational activity, the Company
considers its labor relations to be good.
Item 2. Properties
The Plant and administrative offices are located on approximately 60 acres in
South Bend, Indiana. The land for the Plant site, administrative offices and
all equipment is subject to liens to secure the Company's debt with the DOE
and SBDC. The Company's inventory, accounts receivable, and certain other
assets are subject to liens to collateralize the GAIC loan to the Company.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Item 3. Legal Proceedings
A determination of liability on any of the alleged activities subject to the
following proceedings could result in an event of default under loan
agreements with the DOE. If a default is declared by the DOE and not cured by
the Company in a timely fashion, the DOE could accelerate the DOE indebtedness
and foreclose the DOE's mortgage on the Plant.
A. Andrew C. Palmer v. New Energy Company of Indiana Ltd. Partnership
------------------------------------------------------------------
Court/Agency: Equal Employment Opportunity Commission ("EEOC")
Cause No.: 24M970039
Date Filed: November 19, 1996
Nature of the litigation, claim or assessment: Mr. Palmer alleges that the
Company harassed him in an unspecified manner in October, 1992 and July, 1996
and that the Company discriminated against him because of his race by denying
him, an African-American supervisor, the opportunity to apply for a
non-supervisory "A-Operator" position. On February 4, 1997, the Company filed
its position letter with the EEOC. The Company refused to respond to the
allegations of harassment because it is impossible to respond without
clarification as to precisely what Mr. Palmer claims the Company did or failed
to do that constituted harassment and because the October, 1992 claims are
beyond the 300 day filing deadline. The Company denied the allegations of
discriminatory denial of promotion opportunities because Mr. Palmer failed to
submit an application for the A-Operator position during the 7 days the
position was posted and it was awarded to the best qualified candidate. As of
the date of this report, the case is awaiting investigation and determination
by the EEOC.
-17-
<PAGE>
B. Bobby J. Clark, Jr. v. New Energy Company of Indiana Ltd. Partnership
---------------------------------------------------------------------
Court/Agency: Equal Employment Opportunity Commission ("EEOC")
Cause No.: 24M970113
Date Filed: January 28, 1997
Nature of the litigation, claim or assessment: Mr. Clark claims the Company
discriminated against him because of his race, African-American, by twice
denying him the position of A-Operator in August, 1994 and again in August,
1996. The case is awaiting investigation and determination by the EEOC. The
Company denies the allegations of the charge. The selection of another
candidate for this position was for legitimate, non-discriminatory reasons and
had nothing to do with Mr. Clark's race. Furthermore, the allegations
pertaining to August, 1994 are beyond the 300 day filing deadline and subject
to dismissal.
C. Frank J. Rivera v. New Energy Company of Indiana Ltd. Partnership
-----------------------------------------------------------------
Court/Agency: Equal Employment Opportunity Commission ("EEOC")
Cause No.: 24M970117
Date Filed: February 3, 1997
Nature of the litigation, claim or assessment: Mr. Rivera alleges that the
Company engaged in unspecified harassment and intimidation of him since June,
1986 and denied him unspecified "higher status positions." He asserts that
the foregoing conduct was based on his Hispanic national origin. The case is
awaiting investigation and determination by the EEOC. The Company denies the
allegations of the charge, but has been unable to respond with any greater
particularity until the allegations of the charge are clarified.
For additional pending legal proceedings please see the discussion of
environmental matters under Item 1, Business - Government Regulation. Except
as set forth herein, the Company is not a party to any material legal
proceedings other than routine litigation incidental to its business.
Item 4. Submission of Matters to a Vote of Security Holders
None.
-18-
<PAGE>
PART II
Item 5. Market for Registrant's Limited Partnership Units & Related
Security Holder Matters
A regulated public market for trading Limited Partnership Units does not exist
and is not likely to develop. Unregulated auction markets have developed for
limited partnership interests, however, no assurances can be made that a
market exists for New Energy Units. Consequently, limited partners (the
"Limited Partners") of the Company may not be able to liquidate their
investment. As of December 31, 1996, there were 3,272 record holders owning
an aggregate of 6,400 Limited Partnership Units and one record holder owning a
Special Limited Partnership Interest.
As of the date of this report no cash distributions have been made to the
holders of the Limited Partnership Units. Restrictions contained in the GAIC
Loan (hereinafter defined) and the Restructuring Agreement, as amended
(hereinafter defined) significantly limit the amount of cash the Company can
distribute to its Limited Partners. The terms of the SBDC loan and the
Special Limited Partner Agreement also require that the Company give priority
to debt payments and Special Limited Partner distributions before paying
distributions to Limited Partners.
Commencing October, 1989, the Special Limited Partner was eligible to receive
allocations of income, losses, or distributions from the Company. The Special
Limited Partner is entitled to receive over a period of ten years out of
distributions made by the Company, equal annual installments, in preference to
distributions to other partners, a return of capital plus a rate of return
thereon equal to 8% per year compounded annually. With the exception of
certain permitted distributions from cash flow, no distributions can be made
until the DOE loan is repaid and, accordingly, no amounts have been
distributed to date.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
-19-
<PAGE>
Item 6. Selected Financial Data
The following table sets forth selected financial data of the Company for the
years ended December 31, 1992, 1993, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
SELECTED FINANCIAL DATA
Year Ended December 31,
-------------------------------------------------------------------
1992 1993 1994 1995 1996
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $121,003,872 $115,538,391 $127,929,287 $134,087,036 $131,694,369
Net Income
(Loss) 2,401,385 629,052 (2,549,586) 11,653,870 (13,132,716)
Total Assets at
End of Year 75,715,837 61,659,770 52,082,532 51,662,253 41,380,546
Total Long-
Term Debt 102,663,981 89,661,930 81,791,708 69,842,321 71,941,383
Partner's Capital at
End of Year (1):
General Partner
(5,081,192) (5,018,287) (5,273,246) (4,107,859) (5,421,131)
Limited
Partners (30,402,351) (29,813,739) (32,107,672) (21,619,189) (33,438,633)
Special Ltd.
Partner 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000
</TABLE>
(1) Before syndication costs of $4,523,047.
See financial statements and related notes elsewhere in this Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
- -------------------------------
The Company originally financed the construction and start up of the Plant
with bank financing guaranteed by the DOE. On December 31, 1986, the Company
defaulted on its construction loan and the consortium of banks that provided
the original financing seized certain cash collateral and called the DOE
guarantee. Since 1987, the DOE has held a promissory note or notes
collateralized by essentially all of the Partnership's assets.
-20-
<PAGE>
On October 14, 1982, the Company and the SBDC, a not-for-profit corporation
organized and existing under the laws of the State of Indiana, entered into a
loan agreement whereby the SBDC through a grant the SBDC received from the
U.S. Department of Housing and Urban Development, loaned $2,432,264 to the
Company for the construction of the Plant.
On December 23, 1991, the Company restructured its loan with the DOE by the
execution of an Amended and Restated Loan Restructuring Agreement (the
"Restructuring Agreement") and two new promissory notes, Note A and Note B.
Note A, in the amount of $55,000,000, provides for 119 consecutive monthly
installments of interest and principal of $631,533 commencing April 30, 1992
and maturing on March 31, 2002. Note A provides for a fixed rate of interest
of 6.75% per annum. Note B, in the amount of $40,622,523, provides for a
fixed rate of interest of 4.00% per annum. Payments of Note B are based upon
monthly cash flow as defined by the Restructuring Agreement. Note B matures
on March 31, 2002. Accordingly, the fixed monthly payment called for under
the Restructuring Agreement is $631,533.
On March 25, 1996, the Company and DOE entered into an agreement ("DOE Letter
Agreement") which allowed the Company to suspend payment of all Note A
principal and interest payments during the period January 1, 1996 through
September 30, 1996. As described above, Note A requires monthly principal and
interest payments totaling $631,533. Under the terms of the DOE Letter
Agreement, nine principal and interest payments totaling $5,683,797 were
suspended on Note A. Suspended payments on Note A were added monthly to the
outstanding principal balance of Note B and accrue interest at the Note B
interest rate of 4% per annum. Note B payments continued to be calculated and
paid on a cash flow basis as defined in the DOE Letter Agreement.
On March 27, 1996, the Company and SBDC entered into an agreement ("SBDC
Letter Agreement") which allowed the Company to suspend payment of all
principal and interest payments under the SBDC Loan during the period January
1, 1996 through September 30, 1996. Principal and interest payments totaling
$69,877 are due SBDC on each of February 1, May 1, August 1 and November 1 of
each year. Under the terms of the SBDC Letter Agreement, three payments (due
in February, May and August 1996), totaling $209,631 were suspended.
Suspended payments were evidenced by a new note that accrues interest at a
rate of 6% per annum and is payable in 38 equal monthly payments of $6,194
beginning October 1, 1996.
On August 23, 1996, the Company and GAIC, an entity related to Chiquita Brands
International, Inc., a shareholder of the General Partner, entered into a $10
million revolving working capital loan facility (the "GAIC Loan") through
December 31, 1997, or such date that GAIC agrees to extend the maturity date,
but, in no event later than December 31, 1998, collateralized by a senior lien
on the Company's accounts receivable, inventory and certain other assets. The
loan provides for interest at three percent over the "prime rate" of interest
as quoted daily in The Wall Street
---------------
-21-
<PAGE>
Journal and includes other terms customary in the commercial loan market. As
- -------
of the date of this report, no amounts are outstanding under the GAIC Loan.
Also, in connection with the GAIC Loan, the DOE and SBDC agreed to further
suspend the Company's obligation to make debt service payments from October 1,
1996 through December 31, 1997, and under certain circumstances, through
December 31, 1998. The suspension shall be all or partially terminated for any
month that the Company is able to generate earnings and cash flow sufficient
to repay the GAIC Loan and have cash in excess of $4.8 million on deposit in
its bank. In March, 1997, the Company made a payment of $682,961 to the DOE
on Notes A and B and intends to make a payment of $29,886 to the SBDC on April
1, 1997.
On July 20, 1987, the Company entered into an agreement with the Indiana
Recycling and Energy Development Board, formerly the Indiana Energy
Development Board, pursuant to which the Company received a loan of $8,500,000
(the "Loan"). The Loan required quarterly payments of $288,462 with the
balance due in April 1994. On December 20, 1989 the Company restructured the
Loan and cured a default which occurred as a result of its failure to make
timely quarterly payments. Under a restructured loan agreement the Company
agreed to extend the due dates on the four quarterly payments in arrears and
to pay $286,559 in accrued interest. On April 7, 1994 the Company made its
final payment on the Loan.
In 1982, as part of the original financing package for the construction of the
Plant, the General Partner was required to pledge a certificate of deposit in
the amount of $4 million and a $1.5 million letter of credit posted on the
General Partner's behalf as partial security for the Company's loan. On
December 30, 1986, as a result of the Company's failure to pay interest due
under the terms of the loan, a default was declared and the certificate of
deposit together with accrued interest thereon and the proceeds of the letter
of credit totaling $5,780,583, was immediately paid to the bank consortium
that provided the financing. This amount has been classified as a loan by the
General Partner to the Company. The General Partner did not charge interest
on the loan to the Company through July 31, 1987. Effective August 1, 1987,
interest began accruing at an annual rate of 8.5%. Recently, the General
Partner's Board of Directors (the "Board") revisited the characterization of
this amount as a loan. The Board ratified the characterization of these
amounts as a loan and directed that the loan be evidenced by a demand
promissory note which contains a sixty (60) day notice period.
In December 1991, as a condition precedent to the DOE consenting to the
Partnership's Amended and Restated Loan Restructuring Agreement, the General
Partner was required to contribute $578,832 to the Company's working capital
reserves. This amount has also been classified as a loan by the General
Partner to the Company. Effective in 1996, the Board determined interest
should accrue on outstanding balances at prime plus 3% from the date of this
loan. Likewise, as part of the August 23, 1996 restructuring and the GAIC
Loan, the General Partner was required to loan $500,000 to the Company. This
loan accrues interest at prime plus 3%. Effective in 1996, at the direction
of the Board of Directors of the General Partner, management undertook
-22-
<PAGE>
a study of expenditures to determine the allocation of expenses between the
Company and the General Partner. As a result of this study, amounts totaling
$1,436,028 were invoiced to the General Partner and credited against selling,
general and administrative expenses in 1996. This amount has been offset
against amounts owed to the General Partner.
During 1996, the Company's average selling price per gallon of ethanol was
approximately 10% higher than 1995. However, during 1996, the Company's
average cost per bushel of corn processed was approximately 58% higher than
1995. This was due primarily to a smaller corn crop during 1995 than in 1994
and an increase in worldwide demand for corn. For the first two months of
1997 the Company's average corn prices have approximated those for the same
period in 1996. However, the Company's average corn prices for the first two
months of 1997 have declined by approximately 29% from their highest levels in
1996. Based upon the foregoing and the variables respecting the Company
listed elsewhere in this report, there can be no assurance, however, that the
1996 average selling price of ethanol will continue and/or the decline in corn
prices will continue or result in lower or similar corn prices relative to
prior corresponding periods.
As a result of the rise in corn prices in the first nine months of 1996, the
Company decreased production by approximately 30% during the period May
through September, 1996. The Company is returning to production at prior
levels, but has not yet attained such levels because of technical difficulties
confronted in ramping up production. The Company anticipates resolution of
the technical difficulties related to production and a return to prior levels
by July, 1997. There, however, can be no assurance that such technical
difficulties will be surmounted or that production will return to historical
levels.
Based on present corn prices and anticipated revenues from the first quarter
1997, as well as preliminary negotiations respecting ethanol sales contracts
through September, 1997, the Company expects 1997 to show significant
improvement over 1996. Based upon the variable factors, among others,
affecting the ethanol industry generally, and the Company specifically, set
forth in Item 1, Business - Marketing Ethanol, there can be no assurance that
the Company's 1997 expectations will be realized.
On a longer term basis, the Company is faced with significant hurdles to
profitability. Among them are corn supply issues, loss of federal and state
ethanol production incentives, and capital expenditures that may be required
by proposed environmental regulations. The regional corn supplier market has
consolidated in the last few years to approximately three suppliers with the
capability to supply the Company's corn needs. As a result of a joint venture
in 1996, one of the largest regional corn suppliers is related to or
affiliated with one of the Company's competitors. In the past year, one other
regional supplier has declined a long term supply arrangement with the
Company. One other regional supplier with whom the Company presently has
contracted has
-23-
<PAGE>
indicated to the Company that its grain business is for sale. Consequently,
further consolidation or shrinkage of the regional corn supplier market could
endanger existing supply relationships and result in supply shortages or
higher procurement costs. Such a result could negatively impact the Company's
operations and revenues. The Company has begun reviewing its alternatives,
but has not yet determined the preferred option. Many of the options are
likely to require significant additional capital expenditures or working
capital outlays.
As discussed herein, reduction or loss of federal and state ethanol production
incentives also could have a materially negative impact on the Company's
revenue and continued operations. See discussion regarding ethanol production
incentives in Item 1, Business - Marketing of Ethanol. The Company, through
its membership in ethanol industry organizations, continues its efforts to
educate state and federal policy makers respecting ethanol's benefits and to
effect pro-ethanol production policies.
Also as discussed in Item 1, Business - Government Regulation, certain ambient
air quality regulations proposed by the EPA in December 1996, as will be
modified by comments received, are expected to become law in July 1997. These
proposed regulations could result in the need for significant capital
expenditures for monitoring and compliance equipment. These expenditures, if
required, could significantly impact the Company's operations. Historically,
environmental regulations have contained reasonable periods of time in which
to comply. Presently, however, these proposed regulations do not contain such
a period. There can be no assurance that the regulations promulgated will
contain such a compliance period.
Thus, on a long term basis, the Company's ability to maintain sufficient
liquidity to meet its debt service and other obligations will depend on a
combination of factors which include, among others, further concessions by the
DOE and SBDC, obtaining additional financing, and/or upon favorable market
price levels for corn and ethanol, factors over which the Company has little
control. However, through its corn purchasing agreement (see Note 2 to the
financial statements) and its strategy to execute multiple month ethanol sales
contracts, the Company is attempting to minimize its exposure to fluctuations
in the corn and gasoline/MTBE markets. There can be no assurance, however,
that any or all of the foregoing factors will obtain so as to permit the
Company to maintain sufficient liquidity to meet its debt service and other
obligations in the longer term.
Results of Operations - Fiscal Year Ended December 31, 1996 as Compared to
- --------------------------------------------------------------------------
Fiscal Year Ended December 31, 1995.
- -----------------------------------
For the year ended December 31, 1996, the Company reported a net loss of
$13,132,716 compared to net income of $11,653,870 for the year ended December
31, 1995. The decrease in income during 1996, when compared to 1995, was
primarily due to a significant increase in the price of corn, the Company's
primary raw material, with little corresponding increase in the price
-24-
<PAGE>
of ethanol, most of which was already under contract to customers. Revenues
from the sale of ethanol decreased to $94,918,677 during 1996 from
$103,227,074 in 1995. The decrease in revenue during 1996, was primarily due
to a decrease in production beginning in May, 1996 and ending in September,
1996 caused by higher corn prices and to a lesser extent, an unplanned outage
caused by equipment failure. Revenue from the sale of by-products increased
to $36,775,692 during 1996, from $30,859,962 in 1995, primarily due to a
significant increase in the selling price of DDGS offset by a decrease in
volume produced as a result of the ethanol production decrease beginning in
June 1996. The decrease in selling, general and administrative expenses of
$1,422,389 in 1996 from those in 1995 is due principally to the charge to the
General Partner for payments made by the Company on the General Partner's
behalf in prior years which resulted from the current year study undertaken at
the direction of the Board of Directors of the General Partner. Interest
expense increased by $136,749 in fiscal year 1996 compared to a decrease of
$438,660 in fiscal year 1995. The increase is the primary result of the DOE
and SBDC Letter Agreements which deferred Note A and SBDC principal and
interest payments, in effect increasing total borrowings, as well as the
interest incurred on the GAIC Loan.
Results of Operations - Fiscal Year Ended December 31, 1995 as Compared to
- --------------------------------------------------------------------------
Fiscal Year Ended December 31, 1994.
- -----------------------------------
For the year ended December 31, 1995, the Company reported net income of
$11,653,870 compared to a net loss of $2,549,586 for the year ended December
31, 1994. The increase in income during 1995, when compared to 1994, was
primarily the result of higher ethanol selling prices and lower corn costs as
well as a decline of $8,182,927 in depreciation expense from 1994 to 1995.
Revenues from the sale of ethanol increased to $103,227,074 during 1995, from
$96,111,285 in 1994. The increase in revenue during 1995, was primarily due
to an increase in ethanol selling prices and to a lesser degree in the volume
of ethanol produced and sold. Revenue from the sale of by-products decreased
to $30,859,962 during 1995, from $31,818,002 in 1994, primarily due to lower
DDGS selling prices offset partially by an increase in the volume of DDGS
produced and sold. Interest expense decreased by $438,660 in fiscal year
1995, primarily due to a reduction in the principal amount of debt
outstanding.
Impact of Inflation
- -------------------
Inflation continued to be moderate during the year ended December 31, 1996.
Management of the Company believes that inflation has a relatively minor
direct impact on its results of operations. While certain types of costs
(such as salaries) are affected by inflation, the items which most affect the
Company's operations are ethanol prices and the cost of raw materials which
are influenced by a variety of factors. The impact of inflation on these
items is not readily determinable.
-25-
<PAGE>
<TABLE>
<CAPTION>
New Energy Company of Indiana
Limited Partnership
FORM 10-K
ITEMS 8 AND 14(a)
Page
----
<S> <C>
Report of Independent Auditors............................... 27
Financial Statements:
Balance Sheets as of December 31, 1996 and 1995.......... 28
Statements of Operations for the years
ended December 31, 1996, 1995 and 1994.................. 30
Statements of Partners' Capital Deficit for the
years ended December 31, 1996, 1995 and 1994........... 31
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994........................ 32
Notes to Financial Statements................................ 34
Financial Statement Schedules:
None
</TABLE>
* * *
All financial statement schedules are omitted because they are either not
applicable or the required information is included in the financial statements
or notes thereto.
-26-
<PAGE>
Report of Independent Auditors
Partners
New Energy Company of Indiana Limited Partnership
We have audited the accompanying balance sheets of New Energy Company of
Indiana Limited Partnership as of December 31, 1996 and 1995, and the related
statements of operations, partners' capital deficit and cash flows for each of
the three years in the period ended December 31, 1996. 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 generally accepted auditing
standards. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of New Energy Company of Indiana
Limited Partnership at December 31, 1996 and 1995, and the results of its
operations, partners' capital deficit and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
March 20, 1997
-27-
<PAGE>
<TABLE>
<CAPTION>
New Energy Company of Indiana Limited Partnership
Balance Sheets
December 31
Assets (Note 3) 1996 1995
----------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 2) $ 3,765,950 $ 11,460,672
Accounts receivable 6,879,774 7,353,405
Other receivables 150,783 178,685
Inventories (Note 2) 4,822,450 4,235,685
Spare parts 2,419,626 2,604,433
Prepaid expenses and other 361,918 317,815
----------------------------------------
Total current assets 18,400,501 26,150,695
Property and equipment:
Land 2,047,477 2,047,477
Land improvements 2,316,203 2,316,203
Buildings 3,753,067 3,744,805
Machinery and equipment 151,277,927 151,262,507
Construction in progress 125,732 141,312
Allowances for depreciation (136,540,361) (134,000,746)
----------------------------------------
22,980,045 25,511,558
----------------------------------------
Total assets $ 41,380,546 $ 51,662,253
========================================
</TABLE>
-28-
<PAGE>
<TABLE>
<CAPTION>
December 31
1996 1995
----------------------------------------
<S> <C> <C>
Liabilities and partners'
capital deficit
Current liabilities:
Accounts payable $ 2,992,298 $ 3,832,976
Interest payable (Note 3) 42,505 290,740
Taxes payable 1,794,614 1,704,799
Other accrued liabilities 1,440,799 1,241,512
Working capital loan (Note 3) 1,200,000 -
Current portion of long-term
debt (Note 3) 740,893 3,268,249
----------------------------------------
Total current liabilities 8,211,109 10,338,276
Deferred management fees payable
to general partner (Note 6) 351,758 -
Long-term debt, less current
portion (Note 3) 71,200,490 66,574,072
Partners' capital (deficit) (Note 5):
General partner (5,421,131) (4,107,859)
Limited partners (33,438,633) (21,619,189)
Special limited partner 5,000,000 5,000,000
Syndication costs (4,523,047) (4,523,047)
----------------------------------------
Total partners' capital deficit (38,382,811) (25,250,095)
----------------------------------------
Total liabilities and partners'
capital deficit $ 41,380,546 $ 51,662,253
========================================
</TABLE>
See accompanying notes.
-29-
<PAGE>
<TABLE>
<CAPTION>
New Energy Company of Indiana Limited Partnership
Statements of Operations
Years ended December 31
1996 1995 1994
----------------------------------------------
<S> <C> <C> <C>
Net sales, ethanol $ 94,918,677 $ 103,227,074 $ 96,111,285
By-product revenue 36,775,692 30,859,962 31,818,002
----------------------------------------------
131,694,369 134,087,036 127,929,287
Cost of goods sold 134,455,026 111,006,086 118,291,931
----------------------------------------------
(2,760,657) 23,080,950 9,637,356
Selling, general and
administrative expenses 6,280,838 7,703,227 7,736,138
----------------------------------------------
(9,041,495) 15,377,723 1,901,218
Other income (expense):
Interest income 364,207 591,931 313,159
Interest expense (4,455,428) (4,318,679) (4,757,339)
Other income (expense) - 2,895 (6,624)
----------------------------------------------
Net income (loss) $(13,132,716) $ 11,653,870 $ (2,549,586)
==============================================
Net income (loss) allocable
to limited partners $(11,819,444) $ 10,488,483 $ (2,294,627)
==============================================
Limited partner units
outstanding 6,400 6,400 6,400
==============================================
Net income (loss) per unit $ (1,847) $ 1,639 $ (359)
==============================================
</TABLE>
See accompanying notes.
-30-
<PAGE>
<TABLE>
<CAPTION>
New Energy Company of Indiana Limited Partnership
Statements of Partners' Capital Deficit
Special
General Limited Limited
Partner Partners Partner
----------------------------------------------
<S> <C> <C> <C>
Capital (deficit) at
January 1, 1994 $ (5,018,287) $ (29,813,739) $ 5,000,000
Net loss - 1994 (254,959) ( 2,294,627) -
Contributions - 694 -
----------------------------------------------
Capital (deficit) at
December 31, 1994 (5,273,246) (32,107,672) 5,000,000
Net income - 1995 1,165,387 10,488,483 -
----------------------------------------------
Capital (deficit) at
December 31, 1995 (4,107,859) (21,619,189) 5,000,000
Net loss - 1996 (1,313,272) (11,819,444) -
----------------------------------------------
Capital (deficit) at
December 31, 1996 $ (5,421,131) $ (33,438,633) $ 5,000,000
==============================================
</TABLE>
See accompanying notes.
-31-
<PAGE>
<TABLE>
<CAPTION>
New Energy Company of Indiana Limited Partnership
Statements of Cash Flows
Years ended December 31
1996 1995 1994
----------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ (13,132,716) $ 11,653,870 $(2,549,586)
Adjustments to reconcile
net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation 2,539,616 2,550,148 10,733,075
Increase (decrease) in
deferred management fees
payable to general partner 351,758 (1,100,188) (119,172)
Increase (decrease) in interest
expense deferred and added to
long-term debt 4,124,889 (380,277) 540,550
Net loss (gain) on disposition
of property and equipment - (2,895) 6,624
Increase (decrease) due to
changes in operating assets
and liabilities:
Accounts and other
receivables (934,495) 571,680 (3,639,768)
Inventories (586,765) 217,591 1,291,221
Spare parts 184,807 6,568 26,483
Prepaid expenses
and other (44,103) 28,432 76,000
Accounts payable (840,678) 628,488 619,010
Interest payable (248,235) (51,782) 74,046
Taxes payable 89,815 62,675 17,907
Other accrued
liabilities 199,287 336,045 250,085
----------------------------------------------
Net cash provided by (used in)
operating activities (8,296,820) 14,520,355 7,326,475
Investing activities
Purchases of property and equipment (8,103) (373,272) (173,629)
Proceeds from sale of property and
equipment - 2,895 -
----------------------------------------------
Net cash used in investing
activities (8,103) (370,377) (173,629)
Financing activities
Payment on working capital loan (600,000) - -
Proceeds from working capital loan
borrowings 1,800,000 - -
Payments on long-term debt (1,089,799) (11,569,110) (8,410,772)
Proceeds from long-term debt
borrowings 500,000 - -
Capital contributions from
limited partners - - 694
-----------------------------------------
Net cash provided by (used in)
financing activities 610,201 (11,569,110) (8,410,078)
-----------------------------------------
Increase (decrease) in cash and
cash equivalents (7,694,722) 2,580,868 (1,257,232)
Cash and cash equivalents,
beginning of year 11,460,672 8,879,804 10,137,036
----------------------------------------
Cash and cash equivalents, end
of year $ 3,765,950 $ 11,460,672 $ 8,879,804
========================================
</TABLE>
-32-
<PAGE>
See accompanying notes.
-33-
<PAGE>
New Energy Company of Indiana Limited Partnership
Notes to Financial Statements
December 31, 1996
1. Organization and Significant Accounting Policies
Organization and Operations
New Energy Company of Indiana Limited Partnership (the "Company"), the General
Partner of which is New Energy Corporation of Indiana (the "General Partner"),
operates an ethanol production facility in South Bend, Indiana. The Company
competes against several other ethanol producers some of which are larger and
operate out of flexible, integrated production facilities.
The Company sells ethanol to petroleum refiners, blenders and retailers on
unsecured terms. Customers, each accounting for 10% or more of sales, totaled
84%, 59% and 24% of total ethanol sales in 1996, 1995 and 1994, respectively.
The Company also sells distillers' dried grains and solubles ("DDGS") and
carbon dioxide, both by-products, on unsecured terms. The Company sold
approximately 3%, 9% and 17% of its DDGS to a worldwide exporter for sales
overseas in 1996, 1995 and 1994, respectively. In 1996, 1995 and 1994 another
customer also accounted for 21%, 22% and 27%, respectively, of its DDGS sales.
Carbon dioxide sales are made to one customer on contract which extends to the
year 1999.
To a large extent, the Company's operations are dependent upon market factors
which are outside the Company's control. The Company's cost of production is
largely dependent upon the cost of corn, its principal raw material. In
addition, the Company's revenues are principally generated from the sale of
ethanol, the price of which can vary at times with the price of gasoline,
methyl tertiary butyl ether ("MTBE") and the value of state and federal tax
exemptions and credits; and from the sale of DDGS, the price of which
fluctuates with the agricultural by-product market. Because the Company is
unable to directly control the relationship of the corn, gasoline and
agricultural by-product markets, and is unable to assure the continuation of
state and federal tax exemptions and credits, changes in market and political
conditions could adversely affect the future operations of the Company.
The Company has several programs which, management believes, serve to reduce
the risk associated with the purchase of corn and sale of ethanol and its
by-products. First, the Company enters into long-term contracts with major
gasoline refiners to sell a significant portion of its ethanol production.
Second, the Company has executed a contract which allows it to flat price a
significant portion of its 1997 corn requirements on a rolling basis at a
price which is fixed based upon the futures market price for corn. In
addition, the Company has purchased option contracts for certain time periods
to reduce the risk of significant upward price fluctuations in corn prices.
-34-
<PAGE>
New Energy Company of Indiana Limited Partnership
Notes to Financial Statements (continued)
1. Organization and Significant Accounting Policies (continued)
On a long-term basis, the Company's ability to maintain sufficient liquidity
to meet its debt requirements and other obligations will depend on a
combination of factors which include, among others, further concessions from
its lenders, obtaining additional financing, favorable market price levels for
corn and ethanol, availability of corn at reasonable prices and continuation
of state and federal tax exemptions and credits.
Statements of Cash Flows
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less when purchased to
be cash equivalents.
Financial Instruments
The carrying amounts reported in the balance sheet for financial instrument
assets approximate those assets' fair value. Payment of long-term liabilities
are generally dependent upon the Company's ability to achieve cash flow.
Management believes that estimating the fair value of these long-term
liabilities is either not appropriate or, because of excess costs, considers
estimation of fair value to otherwise be impracticable.
Inventories
Inventories consist of raw materials (corn, coal and chemicals), work in
process and finished goods (ethanol and DDGS). Coal and chemical inventories
are stated at the lower of average cost or market. Corn and ethanol
inventories are stated at the lower of cost (FIFO) or market. DDGS, a
by-product, is stated at net realizable value.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided over the
estimated useful lives of the assets using the straight-line method.
-35-
<PAGE>
New Energy Company of Indiana Limited Partnership
Notes to Financial Statements (continued)
1. Organization and Significant Accounting Policies (continued)
Pension Plans
The Company has a defined benefit pension plan covering substantially all
full-time employees. The Company's policy is to fund amounts as are necessary
on an actuarial basis to provide sufficient funds to meet benefits to be paid
to plan members.
Federal Income Taxes
No provision is made for federal income taxes or related credits since the
results of operations are included in the tax returns of the partners.
Use of Estimates
Preparation of the financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
2. Inventories
The major components of inventories at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------
<S> <C> <C>
Raw materials $ 2,429,888 $ 2,162,478
Work in process 542,018 559,451
Finished goods 1,850,544 1,513,756
------------------------------
$ 4,822,450 $ 4,235,685
==============================
</TABLE>
In January 1996, the Company executed a contract with a grain supplier to
provide its expected corn requirements through December 31, 1997 (subject to
price and quantity renegotiation subsequent to September, 1997) at a price
which may fluctuate with the commodity prices or be fixed at the Company's
election. In connection with the contract, the Company has purchased an
irrevocable standby letter of credit for $1,000,000, secured by cash and cash
equivalents, which expires March 31, 1997, for the benefit of the grain
supplier. As of March 20, 1997, the Company has fixed the price for all corn
purchases through approximately April, 1997.
-36-
<PAGE>
New Energy Company of Indiana Limited Partnership
Notes to Financial Statements (continued)
2. Inventories (continued)
In 1996, the Company purchased option contracts to reduce the risk associated
with price fluctuations of the corn used in its manufacturing process. Market
value gains and losses on these option contracts are recognized currently as a
component of cost of goods sold.
3. Working Capital Loan and Long-Term Debt
On August 23, 1996, the Company entered into a revolving working capital loan
with Great American Insurance Company (GAIC), an affiliate of a shareholder of
the General Partner. The loan provides a $10,000,000 line of credit,
collateralized by a senior lien on the Company's accounts receivable,
inventory and certain other assets, and is due the later of December 31, 1997
or such date that GAIC agrees to extend the maturity date, but, in no event
later than December 31, 1998. Interest is computed at prime plus 3% (11.25%
at December 31, 1996). In connection with the GAIC loan, the Department of
Energy ("DOE") and the Business Development Corporation of South Bend, Indiana
("BDC") entered into a Subordination and Intercreditor Agreement with GAIC
pursuant to which, among other things, the DOE and BDC agreed to subordinate
their debt, as discussed below, to the unpaid balance of the GAIC loan. The
Company paid a closing fee of $200,000 and reimbursed GAIC for their legal
fees of $32,942. The loan also calls for an annual .75% unused commitment fee
payable monthly.
Long-term debt is collateralized by substantially all the assets of the
Company and consists of the following as of December 31:
<TABLE>
<CAPTION>
1996 1995
--------------------------
<S> <C> <C>
Department of Energy note payable ("Note A"),
interest at 6.75%, due March 31, 2002 $ 34,807,983 $ 40,251,665
Department of Energy note payable ("Note B"),
interest at 4%, due March 31, 2002 26,559,414 18,865,699
South Bend Development Corporation note payable
("Note I"), interest at 8%, due November, 1999 687,367 884,390
South Bend Development Corporation note payable
("Note II"), interest at 8%, due November, 1999 50,037 64,378
South Bend Development Corporation note payable
("Note III"), interest at 6%, due November, 1999 198,420 -
South Bend Development Corporation note payable
("Note IV"), interest at 6%, due November, 1999 90,107 -
New Energy Corporation of Indiana note payable
("Loan I"), interest at 8.5%, 9,490,692 8,999,342
-37-
<PAGE>
New Energy Corporation of Indiana note payable
("Loan II") - 776,847
New Energy Corporation of Indiana note payable
("Loan III"), interest at prime plus 3% (11.25%
at December 31, 1996), due March 21, 2002 57,363 -
--------------------------
71,941,383 69,842,321
Less current portion 740,893 3,268,249
--------------------------
$ 71,200,490 $ 66,574,072
==========================
</TABLE>
-38-
<PAGE>
New Energy Company of Indiana Limited Partnership
Notes to Financial Statements (continued)
3. Working Capital Loan and Long-Term Debt (continued)
On December 23, 1991, the DOE promissory note was restructured by the
execution of an Amended and Restated Loan Restructuring Agreement
("Restructuring Agreement") and two new promissory notes, Note A and Note B.
On March 25, 1996, the Company and DOE entered into an agreement ("DOE Letter
Agreement") which allowed the Company to suspend payment of all Note A monthly
principal and interest payments in the amount of $631,533 during the period
January 1, 1996, through September 30, 1996. Suspended payments were to be
added monthly to the outstanding principal balance of Note B and were to
accrue interest at the Note B interest rate of 4% per annum. Note B payments
continued to be calculated and paid on a cash flow basis as defined in the DOE
Letter Agreement. The above agreements were further amended on August 23,
1996 when the Company and DOE entered into "Amendment No. 1 to the Amended and
Restated Loan Restructuring Agreement" (Amendment No. 1). Amendment No. 1
suspended Note A monthly principal and interest payments through and including
the GAIC loan maturity date and provided they be added to Note B. Note B
payments are to be calculated and paid from excess cash flow, as defined in
Amendment No. 1. Monthly Note A principal and interest payments of $631,533
are to recommence in the month following the maturity date of the GAIC loan.
Based upon present facts and circumstances, the Company has estimated that it
will not make any principal payments during 1997 under the terms of Note B.
However, as discussed in Note 1, the Company is subject to various market
factors which are outside of its control. The ultimate amount paid during
1997 will depend upon the status of market conditions on a monthly basis. In
addition, the Restructuring Agreement requires the Company to maintain cash
balances of $3,300,000 for working capital and capital expenditures. However,
Amendment No. 1 required the Company to transfer available funds from the
working capital and capital expenditure accounts into the operating accounts
prior to drawing down loans under the GAIC loan.
On March 27, 1996, the Company and the BDC entered into an agreement ("BDC
Letter Agreement") which allowed the Company to suspend all quarterly
principal and interest payments due to the BDC during the period January 1,
1996, through September 30, 1996 on Note I and Note II. Suspended payments
were evidenced by the execution of Note III, that accrues interest at a rate
of 6% per annum. On August 23, 1996, the Company and the BDC entered into an
agreement ("Third Amendment to Loan Agreement") which allows the Company to
further suspend all payments on Notes I, II, and III through and including the
maturity date of the GAIC loan. Suspended payments are added to a new note,
Note IV, which accrues interest at 6% per annum. Monthly principal and
interest payments shall commence on the first day of the month following the
GAIC loan maturity date.
-39-
<PAGE>
New Energy Company of Indiana Limited Partnership
Notes to Financial Statements (continued)
3. Working Capital Loan and Long-Term Debt (continued)
The DOE and BDC August 23, 1996 agreements provide that prior to the GAIC Loan
maturity date that if any of the conditions below exist the payments described
above shall be adjusted. The above payments are adjusted if the monthly
calculation of cash flow, as defined, exceeds the interest then due and owing
on the GAIC loan; the GAIC loan has been prepaid and has no current
outstanding principal balance; and certain cash reserve balances exist, as
defined. The suspension of payment referred to above shall be all or
partially terminated for such month and such cash flow (to the extent it
exceeds the interest then due and owing on the GAIC loan, prepayment of any
outstanding balance of the GAIC Loan and the amounts of cash reserves) shall
be applied first towards the monthly $631,533 payment on Note A, second to the
monthly payment due to BDC and the balance shall be applied as a payment of
Note B. In addition, if the GAIC loan has been repaid in its entirety, the
Company has terminated the GAIC loan and the Company has on deposit certain
cash reserve balances, the suspension of the monthly payments due on Note A
shall be irrevocably terminated and the Company shall be required to resume
the monthly payments of $631,533.
The New Energy Corporation of Indiana note payable (Loan I) represents certain
cash payments made by the General Partner on behalf of the Company in
December, 1986, in fulfillment of its obligations under various financing
agreements. This amount includes the balance of cash payments totaling
$5,780,583 plus accrued interest of $3,710,109 and is due on demand with sixty
days notice. In December, 1991, as a condition to the DOE Restructuring
Agreement, the General Partner was required to contribute $578, 832 to the
Company's working capital reserves. This amount was classified as a loan
(Loan II) by the General Partner to the Company. On August 23, 1996, New
Energy Corporation of Indiana made an additional loan (Loan III) to the
Company in the amount of $500,000. The New Energy Corporation of Indiana
notes are subordinated to the GAIC, DOE and BDC notes and payment of these
notes and the related accrued interest are restricted to cash flow, as
defined, until all GAIC, DOE and BDC notes are paid. Under the terms of the
DOE Letter Agreement and Amendment No. 1, the General Partner has agreed to
further limit permitted distributions to $50,000 per month during the term of
the agreements. In 1995, the Company paid $918,000 from cash flow. Effective
in 1996, the General Partner's Board of Directors elected to offset amounts
due to the Company from the General Partner in the amount of $973,411 and
$462,617 against the balance of Loan II and Loan III, respectively.
Management has estimated, based upon present facts and circumstances, payments
of long-term debt for the next five years, excluding Note B and the New Energy
Corporation of Indiana Loans and related accrued interest, are:
1997--$740,893; 1998--$6,283,753; 1999--$6,670,586; 2000--$6,566,082; and
2001-- $7,021,073.
-40-
<PAGE>
New Energy Company of Indiana Limited Partnership
Notes to Financial Statements (continued)
3. Working Capital Loan and Long-Term Debt (continued)
Interest of $353,543, $4,750,394, and $4,142,262, was paid in 1996, 1995 and
1994, respectively.
4. Employee Benefit Plans
Under the terms of the defined benefit pension plan, benefits are based upon
years of service and the highest five years of compensation during the
participants' last ten years of employment. The Company also maintains a
savings plan covering substantially all employees for which matching
contributions are provided. Company contributions are 25% of the first 6% of
an employee's salary deferral. The plans' assets are invested in cash and
cash equivalents and bond and equity mutual funds.
A summary of the components of net pension cost for the pension plan and
contributions charged to pension expense for the savings plan for the years
ended December 31 follows:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Pension Plan:
Service cost-benefits earned
during the year $ 240,165 $ 260,187 $ 246,673
Interest cost on projected benefit
obligation 179,106 166,816 143,385
Actual return on plan assets (200,155) (214,834) (19,920)
Net amortization and deferral 59,839 113,588 (62,907)
-----------------------------------
Net pension cost 278,955 325,757 307,231
Savings plan 67,321 86,821 86,467
-----------------------------------
$ 346,276 $ 412,578 $ 393,698
===================================
</TABLE>
-41-
<PAGE>
New Energy Company of Indiana Limited Partnership
Notes to Financial Statements (continued)
4. Employee Benefit Plans (continued)
The following table sets forth the funded status and amounts recognized in the
balance sheets at December 31 for the defined benefit plan:
<TABLE>
<CAPTION>
1996 1995
---------------------------------
<S> <C> <C>
Actuarial present value of accumulated
benefit obligation, including vested
benefits of $1,488,848 and $1,266,457,
respectively $ (1,538,188) $ (1,343,800)
===================================
Actuarial present value of projected
benefit obligation for services
rendered to date $ (2,804,672) $ (2,648,014)
Plan assets at fair value 2,142,727 1,761,461
-----------------------------------
Projected benefit obligation in excess
of plan assets (661,945) (886,553)
Unrecognized net gain from past
experience and effects of changes in
assumptions (28,214) 207,651
Unrecognized transition obligation 80,909 94,393
Unrecognized prior service cost 59,646 64,234
-----------------------------------
Accrued pension costs $ (549,604) $ (520,275)
===================================
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligations was 7.5%. The rate of increase in
future compensation levels used was 5.5%. The expected long-term rate of
return on plan assets was 8.5%.
5. Partnership Interests
The Amended and Restated Limited Partnership Agreement dated October 26, 1982,
provides that allocations of income, gains, losses, deductions and credits,
and distributions to the partners shall be based on the following percentages:
<TABLE>
<CAPTION>
Limited General
Partners Partner
---------------------------
<S> <C> <C>
For all periods prior to the Conversion Date 90% 10%
For all periods after the Conversion Date 60% 40%
</TABLE>
-42-
<PAGE>
New Energy Company of Indiana Limited Partnership
Notes to Financial Statements (continued)
5. Partnership Interests (continued)
The "Conversion Date" will take place after the distribution of tax credits,
income, gains, losses, deductions, and distributions to the Limited Partners
reach certain levels as defined in the Amended and Restated Limited
Partnership Agreement.
Commencing October, 1989, the Special Limited Partner was eligible to receive
allocations of income, losses or distributions from the Company. The Special
Limited Partner is entitled to receive over a period of ten years out of
distributions made by the Company, equal annual installments, in preference to
distributions to other partners, a return of its capital plus a rate of return
thereon equal to 8% per year compounded annually. With the exception of
certain permitted distributions from cash flow, as defined, no distributions
can be made until the DOE notes are repaid and, accordingly, no amounts have
been distributed to date.
6. Related Party Transactions
In accordance with the terms of the Amended and Restated Limited Partnership
Agreement dated October 26, 1982, the General Partner is entitled to an annual
management fee of $850,000 plus annual increases based on the Consumer Price
Index. Total management fees accrued were $1,333,718, $1,296,531 and
$1,261,656 for 1996, 1995 and 1994, respectively. In connection with the
Restructuring Agreement, the General Partner has agreed to defer payment of
50% of the management fee, except for certain distributions from cash flow, as
defined, until such time as the DOE notes are paid in full. Under the terms
of the DOE Letter Agreement, the General Partner has agreed to limit
distributions to $50,000 per month during the term of this agreement.
Further, under the terms of the August 23, 1996, Amendment No. 1,
distributions are limited to 50% of the management fee as long as the GAIC
loan is outstanding and the General Partner has agreed that if a Default (as
defined therein) occurs and is continuing, no amount of the management fee for
such month shall be paid.
Effective in 1996, at the direction of the Board of Directors of the General
Partner, management undertook a study of expenditures to determine the
allocation of expenses between the Company and the General Partner. As a
result of this study, amounts totaling $1,436,028 were invoiced to the General
Partner and credited against selling, general and administrative expenses in
1996. This amount has been offset against amounts owed to the General
Partner.
7. Contingent Liabilities
The Company is party to various legal and environmental matters, the outcome
of which is not presently determinable. Management believes that the
resolution of these matters will not have a material impact on the financial
statements.
-43-
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Company has no officers or directors. The sole General Partner of the
Company, New Energy Corporation of Indiana, is the founder of the Company, and
as General Partner, manages and controls the Company's affairs and retains all
policy making power and general responsibility in all matters affecting the
Company's business.
The Bylaws of the General Partner presently provide for the election by the
shareholders of the General Partner of up to four directors, each to serve an
approximate one-year term from the time of election at the annual meeting of
shareholders until the next annual meeting. The Board presently consists of
four members. In May, 1996, at the General Partner's shareholders' meeting,
Rodger Miller who held proxies from Chiquita Brands International, Inc. and
Ethanol Services, Inc., two of the General Partner's shareholders together
holding a majority of the General Partner's shares, proposed a slate of
directors. That slate consisted of Julius S. Anreder, William R. Martin,
Joseph A. Pedoto, and Jerome K. Walsh. Jerome K. Walsh, is a member of the
law firm that is counsel to Interamerican Investment Group, Inc.
("Interamerican"), a third General Partner shareholder, and Interamerican's
President, Victor Shaio, at whose request Mr. Walsh was slated. Mr. Walsh
also represents Mr. Shaio's wife. The proposed slate was elected to the
General Partner's Board of Directors. The executive officers of the General
Partner are elected approximately annually by the Board of Directors of the
General Partner. The current directors and executive officers of the General
Partner are as follows:
<TABLE>
<CAPTION>
Name Age Title Principal Occupation
- ---- --- ----- --------------------
<S> <C> <C> <C>
Julius S. Anreder 62 Director Partner, Oscar Gruss & Son
Chairman
William R. Martin 67 Director Chairman of the Board
Secretary MB Computing, Inc.
Joseph A. Pedoto 54 Director President
JLM Financial, Inc.
Jerome K. Walsh 64 Director Partner, Lane & Mittendorf LLP
-44-
<PAGE>
Larry W. Singleton 46 Executive Officer President
Chief Executive
Officer Treasurer
Nathan P. Kimpel 51 Executive Officer Vice President
Assistant Secretary
</TABLE>
Julius S. Anreder - Partner of Oscar Gruss & Son, the controlling shareholder
- -----------------
of Oscar Gruss & Son, Inc. a New York based member of the New York Stock
Exchange. Mr. Anreder has served as Vice President of Oscar Gruss & Son, Inc.
for more than five years. Mr. Anreder is a director of American Financial
Enterprises, Inc.
William R. Martin - Chairman of the Board (since 1993) and President and Chief
- -----------------
Executive Officer (until 1993) of MB Computing, Inc., a computer software and
services company. Mr. Martin is a director of American Financial Group, Inc.,
American Annuity Group, Inc., American Financial Corporation, and American
Premier Underwriters, Inc. Mr. Martin also serves as Chairman of American
Financial Group, Inc.'s Compensation Committee.
Joseph A. Pedoto - President, JLM Financial, Inc., a financial consulting
- ----------------
firm. Mr. Pedoto is a director of Provident Bancorp, Inc. since 1993 and
United Dairy Farmers, Inc. since 1981.
Jerome K. Walsh - Member in the law firm of Lane & Mittendorf LLP, New York,
- ---------------
New York.
Larry W. Singleton - President, Chief Executive Officer and Treasurer of the
- ------------------
General Partner since May 29, 1996. Mr. Singleton was a financial consultant
to financially troubled and other companies since 1993. He served as a
director from 1993 through 1995 of Alert Centre, Inc. ("Alert"), a security
monitoring company. He previously served during 1992 and 1993 as chief
financial officer of Alert and as director, president and chief financial
officer of certain Alert-related entities. During the period April 1992
through November 1992, Mr. Singleton was a director of Specialty Equipment
Companies, Inc., a food service equipment manufacturer. During the period
July 1989 through January 1992, Mr. Singleton was a financial reorganization
consultant to secured lenders, bondholders and managements of various
financially troubled companies. Before then, Mr. Singleton served as
executive vice president and chief financial officer to the Charter Company, a
petroleum marketing company.
Nathan P. Kimpel - Vice President and Assistant Secretary of the General
- ----------------
Partner since 1996 and General Manager and/or Plant Manager of the Company
since 1984.
-45-
<PAGE>
Item 11. Executive Compensation
The Company does not have executive officers and directors. The Company's
policies are established and its affairs are managed exclusively by its sole
General Partner, for which the General partner is compensated by a management
fee established pursuant to the terms of the Limited Partnership Agreement.
See Item 13 below "Certain Relationships and Related Transactions" for a
description of remuneration paid to the General Partner and its affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Ownership of Common Stock in General Partner
- --------------------------------------------
As of the date of this report, the following table sets forth information
concerning the beneficial ownership of the 41,140 outstanding shares of the
General Partner's common stock, no par value (the "Common Stock"), by (i) all
persons who own more than 5% of the Common Stock, (ii) each director of the
General Partner who owns any such shares, and (iii) all officers and directors
of the General Partner as a group:
<TABLE>
<CAPTION>
Shares Beneficially Percent of Class
Name and Address Owned Beneficially Owned
----------------- ------------------- -------------------
<S> <C> <C>
Chiquita Brands International, Inc. 11,745 28.5%
250 East 5th Street
Cincinnati, Ohio 45202
Interamerican Investment Group, Inc. 16,549 40.2%
20 Cedar Street, Suite 304
New Rochelle, N.Y. 10801
Ethanol Services, Inc. 10,338 25.1%
c/o Lehman Brothers, Inc.
3 World Financial Center
New York, N.Y. 10285
All General Partner Executive Officers 0 0.0%
and Directors as a group.
</TABLE>
-46-
<PAGE>
Ownership of Limited Partnership Interests
Special Limited Partnership Interest. As of the date of this report, South
- ------------------------------------
Bend Development Corporation, an Indiana non-profit local development
corporation, owned 100% of the Special Limited Partnership Interest.
Limited Partnership Units. As of the date of this report, no person
- -------------------------
(including any "group" as that term is defined in Section 13(d)(3) of the
Securities Exchange Act of 1934) is known to the Company to be the beneficial
owner of more than five percent of the outstanding Limited Partnership Units.
Item 13. Certain Relationships and Related Transactions
Pursuant to the Limited Partnership Agreement, the General Partner is entitled
to receive an annual operating management fee of $850,000, payable on a
monthly basis and subject to annual adjustments based on changes in the
Consumer Price Index. Under the terms of Amendment No. 1 to the Amended and
Restated Loan Restructuring Agreement dated as of August 23, 1996, the General
Partner agreed to defer 50% of its management fee, (which is accrued but not
paid) except for certain permitted distributions from Cash Flow, as defined
therein, until such time the GAIC Loan is paid in full. For the year ended
December 31, 1996, the Company paid management fees to the General Partner
totaling $981,960. As of December 31, 1996, $351,758 is owed to the General
Partner for accrued, but unpaid, management fees. Under the terms of the
August 23, 1996 Amendment No. 1 to the Amended and Restated Loan Restructuring
Agreement, the General Partner further agreed that if a Default (as defined
therein) occurs and is continuing, no amount of the management fee for such
month shall be paid.
In 1996, the Company offset $1,436,028 of General Partner expenses previously
allocated to the Company against amounts due from the Company to the General
Partner under the General Partner notes. The General Partner notes represent
certain cash payments made by the General Partner on behalf of the Company in
fulfillment of its obligations under various financing agreements. See
discussion of General Partner indebtedness in Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources. As of December 31, 1996, $9,548,055 was owed by the
Company to the General Partner. The General Partner notes are subordinated to
the DOE loan and SBDC loan and, as required by the Restructuring Agreement,
payment of these notes and the related accrued interest are restricted to cash
flow, as defined, until the DOE loan and SBDC loan are paid. Under the terms
of the agreement with DOE, the General Partner has agreed to further limit
distributions to $50,000 per month during the term of the agreement.
-47-
<PAGE>
Article 7 of the amended and restated limited partnership agreement provides,
in general, for the following allocations of income, gains, losses, deductions
and credits among the Limited Partners and the General Partner (collectively,
the "Partners").
<TABLE>
<CAPTION>
Limited General
Partners Partner
- -------- -------
<S> <C>
90% 10% ........For all periods prior to the Conversion Date
60% 40% ........For all periods after the Conversion Date
</TABLE>
The "Conversion Date" is the last day of that calendar month on which the sum
of (i) the federal income tax credits allocated or allocable to the Limited
Partners with respect to the property placed in service by the Company on or
prior to that date, (ii) the cash distributions by the Company to the Limited
Partners on or prior to that date, and (iii) 50% of the taxable losses of the
Company allocated to the Limited Partners with respect to calendar months of
the Company ending on or prior to that date (excluding any losses which may
not be deducted by Limited Partners by reason of their having insufficient
basis in their Limited Partnership Units within the meaning of Section 704(d)
of the Internal Revenue Code of 1986, as amended (the "Code") or an
insufficient amount "at risk" within the meaning of Section 465 of the Code),
first equals or is greater than the sum of (x) 150% of the aggregate capital
contributions to the Company of the Limited Partners, (y) 50% of the taxable
income and gains of the Company allocated to the Limited Partners with respect
to calendar months of the Company ending on or prior to that date (net of any
losses not included in clause (iii) above by reason of the parenthetical
phrase therein), and (z) any payments made by Limited Partners pursuant to
Assumption Agreements by which each Limited Partner agreed to assume $2,500 of
the principal amount of the loan to be incurred by the Company for each
Limited Partnership Unit purchased by such Limited Partner; provided, however,
that the Conversion Date shall not occur prior to the day after the Plant is
placed in service or, if later, the date when at least $1,000,000 in cash
distributions resulting from operations of the Company have been made to the
Partners or, under certain circumstances, have been placed in a segregated
reserve for the distribution after the Recapture Period, as such term is
defined in the Partnership Agreement of the Company (generally comprising the
period ending on the fifth anniversary of the date on which the Plant is place
in service). For purposes of determining the Conversion Date, income, gain,
losses and deductions shall be computed as provided in Article 7 of the
Amended and Restated Limited Partnership Agreement of the Company and shall
also include income, gain, losses and deductions recognized for federal income
tax purposes by Limited Partners by reason of Section 465(e) or Section 731 of
the Code.
Any gain realized by the Company from a taxable disposition of the Plant or
any other asset of the Company will be allocated generally so as to restore
any negative capital account balances of any Partners to zero and then in the
following manner:
(a) if such disposition occurs prior to the Conversion Date, to the
Partners in the proportions applicable prior to the Conversion Date in
the amount that will increase the capital account balances of the
Limited Partners to 90% of an amount (the "Conversion
-48-
<PAGE>
Amount") which, if distributed on the date of disposition, would cause
Conversion to occur;
(b) next, to the General Partner in an amount that will cause the
capital account of the General Partner (after reduction by 10% of the
Conversion Amount) to be increased to an amount equal to 40% of the
difference between (i) the then sum of the balances of the capital
accounts of all Partners and (ii) the Conversion Amount; and
(c) finally, to the Partners in proportion to their interests in
profits and losses after the Conversion Date.
Losses realized by the Company from the taxable disposition of the Plant or
any other asset of the Company will be allocated in the same manner as losses
from operations of the Company.
The General Partner will determine periodically, in its discretion, and
subject to restrictions contained in loan agreements and restrictions imposed
by the federal income tax laws and regulations relating to the recapture of
income tax credits, the amount of cash, if any, that may be distributed to
Partners, as well as the timing of any such distributions. Distributions made
before the Conversion Date will be allocated 90% to the Limited Partners and
10% to the General Partner. Distributions made after the Conversion Date will
be allocated 60% to the Limited Partners and 40% to the General Partner. Each
Limited Partner's share of distributions will be in the ratio that his capital
contribution bears to the aggregate contributions of all Limited Partners.
In the event of liquidation of the Company, cash distributions (after
repayment of any loans to the Company and the accrued, but unpaid, amounts due
the SBDC pursuant to the special Limited Partnership Interest) will be made in
proportion to the capital accounts of all Partners, after such capital
accounts have been adjusted for allocations of profit and loss. Any gain from
the sale of the Plant will generally be allocated initially to the General
Partner after such capital accounts have been adjusted for allocations of
profit and loss. Any gain from the sale of the Plant will generally be
allocated initially to the General Partner to the extent necessary to increase
the capital account of the General Partner to 40% of the total capital
accounts. Thus, if such gain is adequate, the General Partner will be assured
of receiving 40% of the assets in liquidation. The General Partner is
obligated to make additional contributions to the Partnership during winding
up in the amount equal to the lesser of (i) the amount necessary to permit
distributions to be made to Limited Partners that will reduce their capital
account balances to zero or (ii) the amount necessary to raise the General
Partner's capital account balance to zero.
Section 704(b) of the Internal Revenue Code contains rules that determine the
share of Company income or loss allocated to limited partners for tax
purposes. During 1996 the Company experienced a loss from operations.
Because the cumulative losses allocated to the limited partners in prior years
exceeds their cumulative allocated income, and this excess loss is greater
than their
-49-
<PAGE>
investment in the Company, none of the current loss is allocated to them.
Limited partners are not required to provide additional capital to the
Company, nor are they liable for the Company debt, and as such are not
economically at risk. An allocation for tax purposes of the current year loss
to the limited partners is not permitted under Section 704(b).
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements and Financial Statement Schedules - See
Index to Financial Statements on page 26.
(b) Reports on Form 8-K. One report on Form 8-K was filed during
fiscal 1996 on September 5, 1996, a copy of which is
incorporated herein by reference.
(c) Exhibits
4.1 Restated and Amended Limited Partnership Agreement of the Company
dated October 26, 1982 (filed as Exhibit 12 to the Form 8-K amending
the Company's quarterly report on Form 10-Q for the nine months ended
September 30, 1982, and incorporated herein by reference).
4.2 Form of Assumption Agreement (filed as Exhibit B-3 to the Prospectus
dated April 28, 1982, contained in the Company's Registration
Statement on Form S-1, No. 2-74254, and incorporated herein by
reference).
9.1 Voting Trust Agreement, dated September 14, 1981, between United
Brands Company and Interamerican Investment Group, Inc. (filed as
Exhibit 10(o) to the Company's Registration Statement on Form S-1, No.
2-74524, and incorporated herein by reference).
10.1 Credit Agreement, dated as of October 26, 1982, among the Company, the
First National Bank of Chicago, in its individual capacity and as
agent (the "Agent"), 1st Source Bank, in its individual capacity and
as collateral trustee (the "Collateral Trustee"), and the banks
listed on the signature pages thereof (the "Banks) (filed as Exhibit 2
to the Company's quarterly report on Form 10-Q for the nine months
ended September 30, 1982, and incorporated herein by reference).
10.2 Guarantee Agreement, dated as of October 26, 1982, among the Company,
the United States of America, acting by and through the Secretary of
Energy (the "Secretary"), the Agent, and 1st Source Bank, as
Collateral Trustee and Servicer for the Secretary (filed as
Exhibit 17 to Form 8-K amending the Company's quarterly report on Form
10-Q for the nine months ended September 30, 1982, and incorporated
herein by reference).
-50-
<PAGE>
10.3 Security and Collateral Application Agreement, dated as of October 26,
1982, among the Company, the General Partner, the Agent, the
Collateral Trustee and the Secretary (filed as Exhibit 4 to the
Company's quarterly report on Form 10-Q for the nine months ended
September 30, 1982, and incorporated herein by reference).
10.4 General Partner Agreement, dated as of October 26, 1982, among the
General Partner, the Agent, the Collateral Trustee and the Secretary
(filed as Exhibit 5 to the Company's quarterly report on Form 10-Q for
the nine months ended September 30, 1982, and incorporated herein by
reference).
10.5 Cash Pledge Escrow Agreement dated as of October 26, 1982, among the
Company, the General Partner, the Collateral Trustee and the Agent
(filed as Exhibit 6 to the Company's Quarterly report on Form 10-Q for
the nine months ended September 30, 1982, and incorporated herein by
reference).
10.6 Loan Agreement, dated October 14, 1982, between the Company and South
Bend Development Corporation (filed as Exhibit 8 to the Company's
quarterly report on Form 10-Q for the nine months ended September 30,
1982, and incorporated herein by reference).
10.7 Subordinated Security Agreement, dated as of October 26, 1982, between
the Company and South Bend Development Corporation (filed as Exhibit
10 to the Company's quarterly report on Form 10-Q for the nine months
ended September 30, 1982, and incorporated herein by reference).
10.8 Subordinated Real Estate Mortgage, dated as of October 26, 1982,
between the Company and South Bend Development Corporation (filed as
Exhibit 11 to the Company's quarterly report on Form 10-Q for the nine
months ended September 30, 1982, and incorporated herein by
reference).
10.9 Mortgage, dated as of October 26, 1982, between the Company and 1st
Source Bank (filed as Exhibit 13 to Form 8-K amending the Company's
quarterly report on Form 10-Q for the nine months ended September 30,
1982, and incorporated herein by reference).
10.10 Promissory Note, dated October 26, 1982, in the principal amount of
$1,769,057 executed by the Company and payable to the United States
Department of Energy (filed as Exhibit 14 to Form 8-K amending the
Company's quarterly report on Form 10-Q for the nine months ended
September 30, 1982, and incorporated herein by reference).
10.11 First Amended Agreement for Engineering, Procurement and Construction
Services, dated June 11, 1982, between the General Partner and Davy
McKee Corporation, as amended by letter agreements dated September 21,
1982 and October 26, 1982 (filed as Exhibit 16 to Form 8-K amending
the Company's quarterly report on Form 10-Q for the nine months
ended September 30, 1982, and incorporated herein by reference).
-51-
<PAGE>
10.12 Agreement for Sale of Carbon Dioxide, dated February 4, 1983, between
the General Partner and Airco Industrial Gases, a Division of Airco,
Inc. (filed under Confidential Treatment as Exhibit 10.16 to the
Company's annual report on Form 10-K for the year ended December 31,
1982, and incorporated herein by reference).
10.13 Letter agreement dated August 17, 1982, between the General Partner
and Ethanol Services, Inc. (filed as Exhibit 10(cc) to the Company's
Registration Statement on Form S-1, No. 2-74254, and incorporated
herein by reference).
10.14 Promissory Note, dated October 24, 1984, in the principal amount of
$2,272,903.31, executed by the Company and payable to Business
Development Corporation of South Bend (filed as Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1985, and incorporated herein by reference).
10.15 Promissory Note, dated October 24, 1985, in the principal amount of
$159,360.95, executed by the Company and payable to Business
Development Corporation of South Bend (filed as Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1985, and incorporated herein by reference).
10.16 Principal Assistance Agreement dated as of November 25, 1986, by and
among the United States of America, acting by and through the
Secretary of Energy, the Company and the General Partner (filed as
Exhibit 10.20 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1985, and incorporated herein by reference).
10.17 Loan Restructuring Agreement dated July 31, 1987, by and among the
United States of America, acting by and through the Secretary of
Energy, the Company and the General Partner (filed as Exhibit 19.1 to
the Company's Form 10-Q for the quarter ended September 30, 1987, and
incorporated herein by reference).
10.18 Loan Agreement dated July 20, 1987, by and between the Indiana Energy
Development Board and the Company (filed as Exhibit 19.2 to the
Company's Form 10-Q for the quarter ended September 30, 1987, and
incorporated herein by reference).
10.19 Receivables and Inventory Loan and Security Agreement dated January
29, 1988, by and between First Interstate Commercial Corporation and
the Company (filed as Exhibit 10.19 to the Company's Form 10-K for the
year ended December 31, 1989, and incorporated herein by reference).
10.20 Agreement dated December 20, 1989, by and between the Indiana Energy
Development Board and the Company (filed as Exhibit 10.20 to the
Company's Form 10-K for the year ended December 31, 1989, and
incorporated herein by reference).
-52-
<PAGE>
10.21 Amendment to Loan and Security Agreement dated January 29, 1990, by
and between First Interstate Commercial Corporation and the Company
(filed as Exhibit 10.21 to the Company's Form 10-K for the year ended
December 31, 1989, and incorporated herein by reference).
10.22 Amended and Restated Loan Restructuring Agreement dated December 23,
1991, by and among the Company, the General Partner and the United
States of America, acting by and through the Secretary of Energy
(filed as Exhibit 10.22 to the Company's Form 10-K for the year ended
December 31, 1991, and incorporated herein by reference).
10.23 Letter Agreement dated January 14, 1994, by and between Interamerican
Investments, Inc. and Ethanol Services, Inc. (filed as Exhibit 10.23
to the Company's Form 10-K for the year ended December 31, 1994, and
incorporated herein by reference).
10.24 Agreement dated December 17, 1993, by and between the Company and
Countrymark Cooperative, Inc. (filed as Exhibit 10.24 to the Company's
Form 10-K for the year ended December 31, 1993, and incorporated herein
by reference).
10.25 Agreement dated January 16, 1996, by and between the Company and Frick
Services, Inc. referenced in Part I, Item I, "Raw Materials", page 4
of the Company's Form 10-K for the year ended December 31, 1995.
10.26 DOE Letter Agreement dated March 25, 1996, by and among the Company,
the General Partner and the United States of America, acting by and
through the Secretary of Energy, referenced in Part II, Item 7
"Liquidity and Capital Resources", page 14 of the Company's Form 10-K
for the year ended December 31, 1995.
10.27 SBDC Letter Agreement dated March 27, 1996, by and among the Company,
the General Partner and the South Bend Development Corporation,
referenced in Part II, Item 7 "Liquidity and Capital Resources", page
15 of the Company's Form 10-K for the year ended December 31, 1995.
10.28 Letter Agreement dated August 23, 1995, by and between Interamerican
Investments, Inc. and Ethanol Services, Inc. (filed as Exhibit 10.28
to the Company's Form 10-K for the year ended December 31, 1995, and
incorporated herein by reference.)
10.29 Loan and Security Agreement between New Energy and Great American
Insurance Company.
10.30 Amendment No. 1 to Amended and Restated Loan Restructuring Agreement
between New Energy and the DOE.
-53-
<PAGE>
10.31 Endorsements to Note "A" and Note "B" to the DOE.
10.32 Third Amendment to Loan Agreement between New Energy and the SBDC.
10.33 Note No. 4 to the SBDC.
10.34 Promissory Note dated as of December 31, 1996, between the Company and
the General Partner
27.1 Financial Data Schedule
-54-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEW ENERGY COMPANY OF INDIANA
By: New Energy Corporation of Indiana,
General Partner
Dated: March 27, 1997 By: /s/ Larry W. Singleton
-------------- --------------------------------------
Larry W. Singleton, President
Chief Executive Officer & Treasurer
-55-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the undersigned on behalf of the Company and
in the capacities and on the date indicated.
March 27, 1997 /s/ Julius S. Anreder
------------------------------------------
Julius S. Anreder, Chairman of the Board
of the General Partner
March 27, 1997 /s/ William R. Martin
------------------------------------------
William R. Martin
Director of the General Partner
March 27, 1997 /s/ Joseph A. Pedoto
------------------------------------------
Joseph A. Pedoto
Director of the General Partner
March 27, 1997 /s/ Jerome K. Walsh
------------------------------------------
Jerome K. Walsh
Director of the General Partner
<PAGE>
LOAN AND SECURITY AGREEMENT
DATED AS OF AUGUST 23, 1996
BETWEEN
NEW ENERGY COMPANY OF INDIANA LIMITED
PARTNERSHIP
AND
GREAT AMERICAN INSURANCE COMPANY
<PAGE>
- i -
TABLE OF CONTENTS
Page
ARTICLE 1 INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Provisions Pertaining to Definitions . . . . . . . . . 1
Section 1.2 Definitions. . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 THE LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.1 Lender's Commitment. . . . . . . . . . . . . . . . . . 12
Section 2.2 Making the Loans . . . . . . . . . . . . . . . . . . . 12
Section 2.3 Draws, Advances and Settlement of
Payments and Advances. . . . . . . . . . . . . . . . . 12
Section 2.4 Interest Payable on the Loans. . . . . . . . . . . . . 13
(a) Determination of Interest Rate . . . . . . . . . . . . 13
(b) Monthly Installments . . . . . . . . . . . . . . . . . 13
(c) Interest on Overdue Payments; Default
Interest Rate. . . . . . . . . . . . . . . . . . . . . 13
Section 2.5 Repayments and Prepayments of Principal . . . . . . . 14
(a) Repayments of Loans. . . . . . . . . . . . . . . . . . 14
(b) Optional Prepayments . . . . . . . . . . . . . . . . . 14
(c) Application of Payments . . . . . . . . . . . . . . . 14
(d) Early Termination of Commitment. . . . . . . . . . . . 14
(e) Borrower's Right to TerminateLender's Commitment. . . .14
(f) Unused Commitment Fee. . . . . . . . . . . . . . . . . 14
Section 2.6 Payments and Computations. . . . . . . . . . . . . . . 15
(a) Time and Place of Payments . . . . . . . . . . . . . . 15
(b) Application of Funds . . . . . . . . . . . . . . . . . 15
(i) No Default. . . . . . . . . . . . . . . . . . . .15
(ii) Default. . . . . . . . . . . . . . . . . . . . . 15
(c) Payments on Business Days. . . . . . . . . . . . . . . 15
(d) Computation of Interest. . . . . . . . . . . . . . . . 16
Section 2.7 Payments to be Free of Deductions. . . . . . . . . . . . 16
Section 2.8 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . 17
(a) Permitted Uses of Loan Proceeds. . . . . . . . . . . . 17
(b) Prohibited Uses. . . . . . . . . . . . . . . . . . . . 17
Section 2.9 Lender Statements. . . . . . . . . . . . . . . . . . . . 17
ARTICLE 3 SECURITY AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.1 Security Interest. . . . . . . . . . . . . . . . . . . . 17
Section 3.2 Financing Statements; Additional
Documents. . . . . . . . . . . . . . . . . . . . . 17
Section 3.3 Accounts; Chattel Paper; Lease
Agreements . . . . . . . . . . . . . . . . . . . . 18
Section 3.4 Release of Collateral. . . . . . . . . . . . . . . . . . 18
ARTICLE 4 CONDITIONS PRECEDENT TO DISBURSEMENTS. . . . . . . . . . . . . . 19
Section 4.1 Conditions Precedent to Closing. . . . . . . . . . . . . 19
(a) Closing Fee. . . . . . . . . . . . . . . . . . . . . . 19
(b) Legal Fees . . . . . . . . . . . . . . . . . . . . . . 19
(c) First Priority Liens . . . . . . . . . . . . . . . . . 19
<PAGE> - ii -
(d) Certified Copies of organizational
Documents. . . . . . . . . . . . . . . . . . . . . .19
(e) Proof of Authority . . . . . . . . . . . . . . . . . . 19
(f) Legality of Transactions . . . . . . . . . . . . . . . 19
(g) Loan Documents, Etc. . . . . . . . . . . . . . . . . . 20
(h) Legal Opinion. . . . . . . . . . . . . . . . . . . . . 20
(i) Subordination and Intercreditor
Agreement. . . . . . . . . . . . . . . . . . . . . 20
(j) General Partner Subordination and
Intercreditor. . . . . . . . .. . . . . . . . . . 20
(k) Amendments to the Subordinated Debt. . . . . . . . . . 20
Section 4.2 Conditions Precedent to Loans. . . . . . . . . . . . . . 20
(a) Legality of Transactions . . . . . . . . . . . . . . . 20
(b) Representations and Warranties . . . . . . . . . . . . 20
(c) No Default . . . . . . . . . . . . . . . . . . . . . . 21
(d) Maximum Credit . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 5 GENERAL REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . 21
Section 5.1 Existence, Etc.. . . . . . . . . . . . . . . . . . . . . 21
Section 5.2 Authority, Etc.. . . . . . . . . . . . . . . . . . . . . 21
Section 5.3 Title to Assets; Leases. . . . . . . . . . . . . . . . . 22
Section 5.4 Environmental Conditions . . . . . . . . . . . . . . . . 22
Section 5.5 Chief Executive Office. . . . . . . . . . . . . . . . . 23
Section 5.6 Representation Regarding the
Collateral. . . . . . . . . . . . .. . . . . . . . 23
Section 5.7 Accounts . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 6 AFFIRMATIVE COVENANTS OF BORROWER. . . . . . . . . . . . . . . . 25
Section 6.1 Financial Statements and other
Information. . . . . . . . . . . . . . . . . . . . 25
Section 6.2 Maintenance of Property;
Authorization; Insurance . . . . . . . . . . . . . 26
Section 6.3 Partnership Existence. . . . . . . . . . . . . . . . . . 27
Section 6.4 Inspection Rights. . . . . . . . . . . . . . . . . . . . 27
Section 6.5 Compliance with Laws . . . . . . . . . . . . . . . . . . 28
Section 6.6 Notice of other Events . . . . . . . . . . . . . . . . . 28
Section 6.7 Communication with Accountants . . . . . . . . . . . . . 29
Section 6.8 Payment of Indebtedness. . . . . . . . . . . . . . . . . 29
Section 6.9 Governmental Consents and Approvals. . . . . . . . . . . 29
Section 6.10 Employee Benefit Plans and
Guaranteed Pension Plans . . . . . . . . . . . . .30
Section 6.11 Notices with Respect to
Subordinated Debt. . . . . . . . . . . . . . . . .30
Section 6.12 Further Assurances. . . . . . . . . . . . . . . . . . . 30
Section 6.13 Use of Proceeds . . . . . . . . . . . . . . . . . . . . 31
Section 6.14 Audit Expenses. . . . . . . . . . . . . . . . . . . . . 31
ARTICLE 7 NEGATIVE COVENANTS OF Borrower. . . . . . . . . . . . . . . . . 31
Section 7.1 Limitation on Nature of Business . . . . . . . . . . . . 31
Section 7.2 Limitation on Fundamental Changes. . . . . . . . . . . . 31
Section 7.3 Limitation on Disposition of Assets. . . . . . . . . . . 31
<PAGE> - iii -
Section 7.4 Limitation on Mortgages, Liens
and Encumbrances . . . . . . . . . . . . . . . . . 32
Section 7.5 No Additional Negative Pledges . . . . . . . . . . . . . 32
Section 7.6 Transactions with
Associated Persons. . . . . . . . . . . . . . . . .33
Section 7.7 Limitations on Restricted Payments . . . . . . . . . . . 33
Section 7.8 Limitation on Payments on General
Partner Subordinated Debt. . . . . . . . . . . . .33
Section 7.9 Transactions with Affiliates . . . . . . . . . . . . . . 33
Section 7.10 Limitations on Indebtedness . . . . . . . . . . . . . . 34
Section 7.11 Limitation on Optional Payments and
Modifications of Debt Instruments . . . . . . . . . . . 34
Section 7.12 Organizational Documents. . . . . . . . . . . . . . . . 34
Section 7.13 Change of Locations; Collateral . . . . . . . . . . . . 34
ARTICLE 8 EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . 35
Section 8.1 Events of Default. . . . . . . . . . . . . . . . . . . . 35
(a) Principal and Interest . . . . . . . . . . . . . . . . 35
(b) Representation and Warranties. . . . . . . . . . . . . 35
(c) Certain Covenants. . . . . . . . . . . . . . . . . . . 35
(d) Other Covenants. . . . . . . . . . . . . . . . . . . . 35
(e) Loan Documents . . . . . . . . . . . . . . . . . . . . 35
(f) Litigation . . . . . . . . . . . . . . . . . . . . . . 36
(g) Default by Borrower under other
Agreements . . . . . . . . . . . . . . . . . . . . 36
(h) Insolvency . . . . . . . . . . . . . . . . . . . . . . 36
(i) Judgment . . . . . . . . . . . . . . . . . . . . . . . 37
(j) Material Adverse Change. . . . . . . . . . . . . . . . 37
Section 8.2 Termination of Commitments and
Acceleration of Obligations . . . . . . . . . . . .37
Section 8.3 Remedies . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 8.4 Lockbox Accounts . . . . . . . . . . . . . . . . . . . . 40
Section 8.5 No Implied Waiver; Rights Cumulative . . . . . . . . . . 41
Section 8.6 Set-Off; Pro Rata Sharing. . . . . . . . . . . . . . . . 41
ARTICLE 9 PROVISIONS OF GENERAL APPLICATION. . . . . . . . . . . . . . . . 42
Section 9.1 Term of Agreement. . . . . . . . . . . . . . . . . . . . 42
Section 9.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.3 Survival of Representations. . . . . . . . . . . . . . . 43
Section 9.4 Costs, Expenses, Taxes and
Indemnification . . . . . . . . . . . . . . . . . .43
Section 9.5 Language . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.6 Binding Effect; Assignment . . . . . . . . . . . . . . . 44
Section 9.7 Assignment of Loans; Participation . . . . . . . . . . . 45
Section 9.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . 45
Section 9.9 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . 45
Section 9.10 Waivers . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.11 Interpretation of Loan Documents. . . . . . . . . . . . 45
Section 9.12 Headings. . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.13 Counterparts. . . . . . . . . . . . . . . . . . . . . . 45
Section 9.14 Severability. . . . . . . . . . . . . . . . . . . . . . 46
Section 9.15 One General Obligation. . . . . . . . . . . . . . . . . 46
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
THIS LOAN AND SECURITY AGREEMENT dated as of August 23, 1996 by and
between NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP, an Indiana limited
partnership (the "Borrower") and Great American Insurance Company, an Ohio
corporation (the "Lender").
ARTICLE 1
INTERPRETATION
--------------
Section 1.1 Provisions Pertaining to Definitions. For all purposes of
------------------------------------
this Loan and Security Agreement (except where such interpretations would be
inconsistent with the context or the subject matter):
(a) The expression "this Agreement" shall mean this Loan and
Security Agreement (including all of the Schedules and Exhibits annexed
hereto) as originally executed, or, if supplemented, amended or restated from
time to time, as so supplemented, amended or restated;
(b) Where appropriate, words importing the singular only shall
include the plural and vice versa, and all references to dollars shall be
United States Dollars; and
(c) Accounting terms not otherwise defined herein shall have the
meanings assigned to them in accordance with Generally Accepted Accounting
Principles (as hereinafter defined).
Section 1.2 Definitions. In addition to terms defined elsewhere in this
-----------
Agreement, the following terms shall have the following meanings in this
Agreement:
"Account Debtor" means any Person obligated for the payment of an
--------------
Account.
"Accounts" mean, with respect to any person, such Person's accounts,
--------
rental agreements and other contract rights, rights to payment and other forms
of obligation for the payment of money, whether now existing or existing in
the future, including, without limitation, all (i) accounts receivable whether
or not specifically listed on schedules furnished to Lender), all accounts
created by or arising from all of such Person's sales of goods, financial
instruments, documents, permits or other items, or rendition of services,
including funds transfer services, made under any of such Person's trade names
or styles, or through any of such Person's subsidiaries or divisions, and all
accounts acquired by assignment in the ordinary course of business; (ii)
unpaid seller's rights (including rescission, replevin, reclamation and
stopping in transit) relating to the foregoing or arising therefrom;
- 2 -
<PAGE>
(iii) rights to any goods represented by any of the foregoing, including
returned or repossessed goods; (iv) reserves and credit balances held by such
Person with respect to any such accounts receivable or account debtors; (v)
guarantees or collateral for any of the foregoing; and (vi) insurance policies
or rights relating to any of the foregoing.
"Administration Fee" means the administration fee to be paid by the
------------------
Borrower to the General Partner pursuant to the terms of Amendment No. 1 to
the Amended and Restated Loan Restructuring Agreement among New Energy Company
of Indiana Limited Partnership, New Energy Corporation of Indiana, and the
United States of America, acting by and through the Secretary of Energy.
"Affiliate" means, in relation to any Person (in this definition called
---------
"Affiliated Person"), any Person which (directly or indirectly) controls or is
controlled by or is under common control with such Affiliated Person. For the
purposes of this definition, the term "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with") , as used
with respect to any Person, shall mean the possession (directly or indirectly)
of the power to direct or to cause the direction of the management or the
policies of such Person, whether through the ownership of shares of any class
in the capital or any other voting securities of such Person or by contract or
otherwise. The term "Affiliate" specifically includes the General Partner and
does not include the Lender.
"Associated Person" means (a) any Person which is an Affiliate of the
-----------------
Borrower; (b) any Person who is a Relative of any Person who is an Associated
Person; (c) any corporation more than twenty-five percent (25%) of the shares
of any class of the capital stock of which is legally and/or beneficially
owned by any one or more Associated Persons; (d) any partnership, joint
venture or unincorporated trade or business enterprise more than twenty-five
percent (25%) of all of the ownership rights in the capital or equity of which
is legally and/or beneficially owned by and one or more Associated Persons;
(e) any trust or estate more than twenty-five percent (25%) of all of the
beneficial interest in which is owned or held by any one or more Associated
Persons; and (f) any Person which legally and/or beneficially owns (i) more
than twentyfive percent (25%) of the shares of any class and the capital of
any corporation which is an Associated Person, or (ii) more than twenty-five
percent (25%) of all of the ownership rights in the capital or equity of any
partnership, joint venture or unincorporated trade or business enterprise
which is an Associated Person, or (iii) more than twenty-five percent (25%) of
all of the beneficial interests of any trust or estate which is an Associated
Person. Under no circumstance shall the Lender, in its capacity as such, be
considered an Associated Person.
- 3 -
<PAGE>
"Borrowing Base Certificate" means a certificate in such form and
--------------------------
containing such information as the Lender may from time to time direct,
setting forth the calculation of Eligible Accounts, Inventory and Maximum
Borrowing Base.
"Business Day" means any day other than a Saturday or Sunday on which
------------
commercial banking institutions are open for business in Cincinnati, Ohio and
South Bend, Indiana.
"Cash Disbursement Account" has the meaning set forth in Section 2.3(a)
-------------------------
hereof.
"Closing Date" means the day as of which this Agreement shall be legally
------------
enforceable in accordance with its terms against each of the parties hereto.
"Code" means the United States Internal Revenue Code of 1986, as
____
amended from time to time, or any successor federal tax code, and any
reference to any statutory provision shall be deemed to be a reference to any
successor provision or provisions.
"Collateral" means
----------
(i) all of the Accounts and Inventory of the Borrower,
whether tangible or intangible, or whether now owned or hereafter acquired by
Borrower;
(ii) all proceeds and products of any of the foregoing in
whatever form, including cash, negotiable instruments and other evidences of
indebtedness, chattel paper, security agreements or other documents and all
rights of Borrower in, to and under all leases and rental agreements relating
to the foregoing;
(iii) all of the right, title and interest of Borrower in
and to all goods or other property represented by or securing any of the
accounts receivable, including all goods that may be reclaimed or repossessed
from or returned by an account debtor;
(iv) all of the rights of Borrower as an unpaid seller,
including stoppage in transit, detinue and reclamation;
(v) all additional amounts due to Borrower from any
account debtor, irrespective of whether such additional amounts have been
specifically assigned to Lender;
- 4 -
<PAGE>
(vi) all guaranties, or other agreements or property
securing or relating to any of the items referred to in (i) above, or acquired
for the purpose of securing and enforcing any of such items;
(vii) all instruments, documents, securities, cash,
property, deposit accounts (including, but not limited to, deposits made to
any cash collateral account), and the proceeds of any of the foregoing, owned
by Borrower or in which Borrower has an interest, which are now or may
hereafter be in the possession or control of Lender or in transit by mail or
carrier to or from Lender, or in possession of any third party acting on
behalf of Lender, without regard to whether Lender received same in pledge,
for safekeeping, as agent for collection or transmission or otherwise or
whether Lender had conditionally released the same;
(viii) all proceeds and products of the collateral
described above, including without limitation, all claims against third
parties for damage to or loss or destruction of any of the foregoing,
including proceeds, accounts, contract rights, chattel paper and general
intangibles arising out of any sale, lease or other disposition of any of the
foregoing; and
(ix) any other collateral security granted to Lender from
time to time.
"Default" means any event or occurrence which, with the giving of
-------
notice or the passage of time, or both, would constitute an Event of Default.
"Default Interest Rate" means an annual rate of interest which shall (to
---------------------
the extent permitted by applicable law) at all times be equal to three percent
(3.0%) in excess of the Interest Rate.
"Delinquent Real Estate Taxes" means the unpaid real estate taxes of
----------------------------
Borrower in the approximate amount of $800, 000 due and payable in connection
with real property located in South Bend, Indiana.
"Draw Date" means in relation to any Loan, the day on which such Loan is
---------
made or is to be made to Borrower pursuant to this Agreement.
"Eligible Accounts" means, as at any date of determination, the aggregate
-----------------
of all Accounts consisting of trade accounts receivable arising in the
ordinary course of business; except that the following Accounts shall not be
considered "Eligible Accounts":
(i) Accounts which remain unpaid for more than ninety (90) days
after invoice date;
<PAGE> - 5 -
(ii) Accounts due from an Account Debtor whose principal place of
business is located outside, the United States of America unless such Account
is backed by a letter of credit issued or confirmed by a bank that is
organized under the laws of the United States of America or a State thereof
and has capital and surplus in excess of $2,000,000,000; provided that such
letter of credit becomes additional collateral under the Security Documents;
(iii) Accounts due from an Account Debtor which Lender has notified
Borrower does not have a satisfactory credit standing (as determined in the
sole discretion of Lender);
(iv) Accounts with respect to which the Account Debtor is the United
States of America or any department, agency or instrumentality thereof unless
Borrower has, with respect to such Accounts, complied with the Federal
Assignment of Claims Act (31 U.S.C. section 3727);
(v) Accounts with respect to which the Account Debtor is an
Affiliate of Borrower or a director, officer, agent, stockholder or employee
of Borrower or any of its Affiliates;
(vi) Accounts due from an Account Debtor if more than fifty percent
(50%) of the aggregate amount of Accounts of such customer have at the time
remained unpaid for more than ninety (90) days after invoice date;
(vii) Accounts with respect to which the Account Debtor is also
Borrower's creditor or supplier, or as to which any other Indebtedness owing
to Borrower the Account Debtor has disputed liability, or where the Account
otherwise has become the subject of any right of set off or counterclaim (but
only to the extent of such contra-account, disputed amount, claim,
counterclaim or right of set off);
(viii) Accounts evidenced by an instrument or chattel paper (in each
case, as defined in Article 9 of the UCC) not in the possession of Lender;
(ix) Accounts with respect to which Lender does not have a valid,
first priority and fully perfected security interest and Accounts subject to
any Lien except those in favor of Lender and Permitted Encumbrances;
(x) Accounts with respect to which the Account Debtor is the subject
of any bankruptcy or other insolvency proceeding;
(xi) Accounts due from any single Account Debtor to the extent that
such Accounts exceed in the aggregate an amount equal to twenty percent (20%)
of the aggregate of all Accounts at said
<PAGE> - 6 -
date; provided, however, Lender agrees to except here from Accounts of Account
Debtors of recognized creditworthiness, including the Recognized Account
Debtors;
(xii) Accounts due from any affiliated group of Account Debtors, to
the extent that such Accounts, in the aggregate, exceed an amount equal to
forty percent (40%) of the aggregate of all Accounts at said date;
(xiii) Accounts with respect to which the Account Debtor's
obligation to pay is conditional or subject to a repurchase obligation or
right to return, including bill and hold sales, guaranteed sales, sale or
return transactions, sales on approval or consignment sales;
(xiv) Accounts with respect to which any covenant, representation or
warranty contained in this Agreement or in any other Loan Document has been
breached (unless cured or waived);
(xv) Accounts with respect to which the Inventory giving rise to
such Account has not been shipped and delivered to the Account Debtor (or, if
shipped and delivered, as to which Borrower has received knowledge or notice
of its loss in transit, misdelivery or nonacceptance); and
(xvi) Any other Accounts which from time to time Lender, in the
reasonable exercise of its credit judgment, may declare to be ineligible for
purposes hereof.
"Eligible Accounts Advance Rate" means 75% or such greater percentage
------------------------------
amount as the Lender may determine at any time or from time to time in its
sole discretion.
"Employee Benefit Plan" means an "employee benefit plan" as defined in
---------------------
Section 3(3) of ERISA.
"Environmental Laws" means, individually or collectively, any local,
------------------
state or federal law, statute, rule, regulation, order, ordinance, common law,
permit or license term or condition, or state superlien or environmental
clean-up or disclosure statutes pertaining to the environment or to
environmental contamination, regulation, management, control, treatment,
storage, disposal, containment, removal, clean-up, reporting, or disclosure.
"EPA Permits" has the meaning set forth in Section 5.4 hereof.
-----------
"ERISA" means the Employee Retirement Income Security Act of 1974 and
-----
regulations issued thereunder, as amended from time to time and any successor
statute.
<PAGE> - 7 -
"ERISA Affiliate" means, in relation to any Person, any trade or
---------------
business (whether or not incorporated) which is a member of a
group of which that Person is a member and which is under common control
within the meaning of the regulations promulgated under Section 414 of the
Code.
"ERISA Liabilities" means the aggregate of all unfunded vested
-----------------
benefits under any employee pension benefit plan, within the meaning of
Section 3(2) of ERISA, of Borrower or any ERISA Affiliate of Borrower under
any Plan covered by ERISA that is not a Multi-employer Plan and all potential
withdrawal liabilities of any thereof under all Multiemployer Plans.
"Event of Default" means any event or condition described in Section
----------------
8.1 of this Agreement.
"Generally Accepted Accounting Principles" or "GAAP" means generally
---------------------------------------- ----
accepted accounting principles in effect from time to time, consistently
applied.
"General Partner" means New Energy Corporation of Indiana, an
---------------
Indiana corporation, and its successors and assigns.
"General Partner Subordinated Debt" means the original existing
---------------------------------
Indebtedness of Borrower to the General Partner in the approximate amount of
Ten Million Six Hundred Thousand and 00/100 Dollars ($10,600,000), and the
accrued but any unpaid portion of the Administration Fee.
"General Partner Subordination and Intercreditor Agreement" means
---------------------------------------------------------
the Agreement to be entered into between the General Partner and Lender
pursuant to which the General Partner shall subordinate the General Partner
Subordinated Debt to the unpaid balance of the Loans and all of the other
Obligations.
"Guaranteed Pension Plan" means any pension plan maintained by
-----------------------
Borrower or an ERISA Affiliate of Borrower, or to which Borrower or an ERISA
Affiliate contributes, some or all of the benefits under which are guaranteed
by the United States Pension Benefit Guaranty Corporation ("PBGC").
"Hazardous Substances" means any and all hazardous and toxic
--------------------
substances, wastes or materials, any pollutants, contaminants, or dangerous
materials, or any other similar substances or materials which are included
under or regulated by any Environmental Law.
"Head Office" means, in relation to the Lender, its head office at
-----------
One East Fourth Street, Cincinnati, Ohio 45202 or such office designated in
writing to Borrower by the Lender.
- 8 -
<PAGE>
"Indebtedness" means, in relation to any Person, at any particular
------------
time, all of the obligations of such Person which, in accordance with GAAP,
would be classified as indebtedness upon a balance sheet including any
footnote thereto of such Person prepared at such time.
"Interest Rate" means an annual rate of interest which shall (to the
-------------
extent permitted by applicable law) at all times be equal to three percent
(3%) in excess of the Prime Rate.
"Inventory" means, with respect to any Person, such Person's
---------
inventory, including without limitation: (i) all raw materials, work in
process, parts, components, assemblies, supplies and materials used or
consumed in such Person's business, wherever located and whether in the
possession of such Person or any other Person; (ii) all goods, wares and
merchandise, finished or unfinished, held for sale or lease or leased or
furnished or to be furnished under contracts of service, wherever located and
whether in the possession of such Person or any other Person; and (iii) all
goods returned to or repossessed by such Person.
"Inventory Advance Rate" means 50% or such greater percentage amount
----------------------
as the Lender may determine at any time or from time to time in its sole
discretion.
"Legal Requirements" means all applicable laws, rules, regulations,
------------------
ordinances, judgments, orders, decrees, injunctions, arbitral awards, permits,
licenses, authorizations, directions and requirements of all governments,
departments, commissions, boards, courts, authorities, agencies, and officials
and officers thereof, that are now or at any time in the future in effect.
"Liabilities" means all indebtedness, obligations and other liabilities
-----------
of Borrower whether matured or unmatured, liquidated or unliquidated, direct
or indirect, absolute or contingent, joint or several, secured or unsecured
arising by contract, operation of law or otherwise, classified as liabilities
in accordance with GAAP on a balance sheet of Borrower.
"Licenses and Permits" means all licenses, permits, registrations
--------------------
and recordings thereof and all applications incorporated into for such
licenses, permits and registrations now owned or hereafter acquired by
Borrower and required for the business operations of Borrower.
"Lien" means any lien, mortgage, pledge, security interest, charge
----
or other encumbrance of any kind including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to
give any security interest.
- 9 -
<PAGE>
"Loan Documents" mean this Agreement, the Security Documents and any
--------------
other agreement, instrument, certificate or document executed in connection
with or pursuant to this Agreement whether concurrently herewith or subsequent
hereto.
"Loans" mean, collectively, the revolving credit loans, each singly
-----
a "Loan" made or to be made to the Borrower by the Lender pursuant to this
Agreement.
"Material Adverse Effect" means any event which will, or is
-----------------------
reasonably likely to, have a material adverse effect upon the financial
condition, operations, assets or prospects of the Borrower.
"Maturity Date" means the later of December 31, 1997 or such date
-------------
that the Lender agrees to extend the Maturity Date, but, in no event later
than December 31, 1998.
"Maximum Borrowing Base" means the lesser of either (i) the Maximum
----------------------
Commitment or (ii) the sum of (a) the value of the Borrower's Eligible
Accounts times the Eligible Accounts Advance Rate plus (b) the value of the
Borrower's Inventory times the Inventory Advance Rate.
"Maximum Commitment" means Ten Million Dollars ($10,000,000).
------------------
"Multiemployer Plan" means a "multiemployer plan" as defined in
------------------
Section 4001(a) (3) of ERISA which is maintained for employees of Borrower, or
any ERISA Affiliate of Borrower.
"Obligations" means, collectively, all of the indebtedness,
-----------
obligations and liabilities existing on the date hereof or arising from time
to time hereafter, whether direct, indirect, absolute, contingent, joint or
several, matured or unmatured, liquidated or unliquidated, secured or
unsecured, arising by contract, operation of law or otherwise, of Borrower to
the Lender or any Lender (i) in respect of the Loans made pursuant to this
Agreement; or (ii) under or in respect of any one or more of the Loan
Documents. obligations shall also include all interest, charges and other fees
chargeable hereunder to Borrower or due hereunder from Borrower to Lender from
time to time and all costs and expenses referred to in Section 9.4 herein.
"Permitted Liens" means those Liens and encumbrances permitted
---------------
hereunder pursuant to Section 7.4.
"Person" shall include an individual, a company, a corporation,
------
an association, a partnership, a joint venture, an unincorporated trade or
business enterprise, a trust, an estate, or other legal entity or a government
(national, regional or local),
- 10 -
<PAGE>
court, arbitrator or any agency, instrumentality or official of the foregoing.
"Prime Rate" means the rate of interest per annum the "prime rate"
----------
of interest as quoted daily in The Wall Street Journal in its column entitled
-----------------------
"Money Rates", or if such rate is not quoted or more than one such rate is
quoted a rate equal to the arithmetic average (rounded upwards, if necessary,
to the next 1/10 of 1%) of the rates per annum announced by (a) The Chase
Manhattan Bank, New York, (b) Morgan Guaranty Trust Co., New York, New York,
and (c) Citibank, N.A., New York, New York, as their "prime rate" of interest
or base rate on corporate loans. If any such bank should fail to quote such
rates, the Lender shall determine, in its reasonable judgment, a substitute
bank or banks having its principal office in New York, New York, as the
substitute rate to be used in calculating the Prime Rate.
"Property" means all types of real, personal, tangible, intangible
--------
or mixed property.
"Recognized Account Debtors" means Mobil Oil Corporation, Shell Oil
--------------------------
Products Company, Amoco Oil Corporation, Marathon Oil Company and Clark
Refining And Marketing, Inc.
"Relative" means, in relation to any first person, any Person (i)
--------
who is the first person's spouse, parent, grandparent, child, grandchild,
brother or sister, or (ii) who is the spouse of any such Person referenced to
in clause (i).
"Restricted Payment" means (a) any distribution in cash or in kind
------------------
with respect to the partnership interests of the Borrower or any guaranteed
payment made by Borrower to any partner of the Borrower other than payment of
the Administration Fee, (b) any purchase, redemption or other acquisition for
value of any partnership interest of the Borrower, (c) any loan, advance,
extension of credit or guarantee obligation by the Borrower to any Affiliate
of the Borrower, other than as permitted hereunder, or (d) any investment in
any Affiliate of the Borrower.
"SEC" means the Securities and Exchange Commission or any successor
---
agency.
"Security Documents" shall mean, collectively, this Agreement,
------------------
UCC-1 Financing Statements and each other agreement, assignment or instrument
creating or purporting to create a lien in favor of Lender for the ratable
benefit of the Lender.
"Subordinated Debt" means the existing Indebtedness of Borrower to
-----------------
(i) the United States of America, acting by and through the Secretary of
Energy (the "Secretary") in the aggregate
- 11 -
<PAGE>
principal amount of $95,622,523.26, which is evidenced by two promissory
notes, one which is in the, original principal amount of $55,000,000 dated as
of December 23, 1991 with an unpaid balance as of June 30, 1996 of
$37,371,429.51 and the other of which is in the original principal amount of
$40,622,523.26 dated as of December 23, 1991 with an unpaid balance as of June
30, 1996 of $22,297,318.66 and (ii) the Business Development Corporation of
South Bend, Indiana (the "BDC"), which is evidenced by three promissory notes,
one which is in the original principal amount of $2,272,903.31 dated as of
October 24, 1985 with an unpaid balance as of August 13, 1996 of $739,181.07,
a promissory note in the original principal amount of $159,360.95, dated as of
October 24, 1985 with an unpaid balance as of August 13, 1996 of $53,808.39,
and a promissory note in the original principal amount of $209,630.67 undated
February 1, 1996 with an unpaid balance as of August 13, 1996 of $212,806.76.
"Subordination and Intercreditor Agreement" means the Agreement to
-----------------------------------------
be entered into among the Secretary, BDC and Lender pursuant to which, among
other things, the Secretary and BDC shall subordinate the Subordinated Debt to
the unpaid balance of the Loans and all of the other Obligations.
"Subsidiary" means, as to any Person, a corporation, partnership or
----------
other entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such corporation,
partnership or other entity are at the time owned, or the management of which
is otherwise controlled, directly or indirectly through one or more
intermediaries, or both, by such Person.
"Termination Date" means the earlier of December 31, 1997 or the date
----------------
upon which the entire principal of the Loans shall become due pursuant to the
provisions hereof (whether as a result of acceleration by Lender or
otherwise); or the date upon which the Lender's commitment to make additional
Loans terminates pursuant to Section 8.2 hereof.
"Termination Event" means (i) a "Reportable Event" described in
-----------------
Section 4043 of ERISA and the regulations issued thereunder, but not including
any such event for which the 30 day notice requirement has been waived by
applicable PBGC regulation; or the withdrawal of Borrower or an ERISA
Affiliate of Borrower from a Guaranteed Pension Plan during a plan year in
which it was a "substantial employer" as defined in Section 4001(a)(2) of
ERISA; or the filing of a notice of intent to terminate a Guaranteed Pension
Plan or the treatment of a Guaranteed Pension Plan amendment as a termination
under Section 4041 of ERISA; or the
- 12 -
<PAGE>
institution of proceedings to terminate a Guaranteed Pension Plan by the
Pension Benefit Guaranty Corporation; or the withdrawal or partial withdrawal
of Borrower or an ERISA Affiliate of Borrower from a Multi-Employer Plan; or
any other event or condition which might reasonably be expected to constitute
grounds under ERISA for the termination of, or the appointment of a trustee to
administer, any Guaranteed Pension Plan.
"UCC" means the Uniform Commercial Code as the same may, from time
---
to time, be in effect in the State of Ohio; provided, however, that if, by
reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of the Lender's security interest in any Collateral is
governed by the Uniform commercial Code as in effect in a jurisdiction other
than the State of Ohio, the term "UCC" shall mean the Uniform Commercial Code
as in effect in such other jurisdiction for purposes of the provisions hereof
relating to such attachment, perfection or priority or for purposes of
definitions related to such provisions.
ARTICLE 2
THE LOANS
_________
Section 2.1 Lender's Commitment. Lender agrees, upon the terms and
-------------------
subject to the conditions contained in this Agreement, to make the Loans to
Borrower from time to time prior to the Termination Date, in a principal
amount not to exceed the Maximum Borrowing Base.
Section 2.2 Making the Loans. Lender will, subject to all of the
----------------
applicable terms and conditions of this Agreement, make the Loans available to
Borrower at such times and in such amounts as shall be requested by Borrower
in compliance with Section 2.3, and Borrower may borrow on a revolving basis
from Lender on the Closing Date and from time to time thereafter, sums not to
exceed the lesser of the Maximum Commitment and the Maximum Borrowing Base.
All obligations of the Borrower hereunder shall constitute one general
obligation of the Borrower. Borrower may borrow, repay and reborrow hereunder
on and after the date hereof until the Termination Date, subject to the terms,
provisions and limitations set forth herein. Amounts repaid hereunder after
the Termination Date may not be reborrowed.
Section 2.3 Draws, Advances and Settlement of Payments and Advances.
-------------------------------------------------------
(a) All advances or disbursements of the Loans shall be effectuated
at Borrower's request either through wire transfer or deposit of proceeds into
a disbursement account (the "Cash Disbursement Account") of Borrower
maintained at Norwest Bank,
- 13 -
<PAGE>
N.A., Account No. 7004137801. Each request for an advance or disbursement of
a Loan shall be transmitted to Lender at its then current address for notices
pursuant to Section 9.2 via facsimile provided Borrower immediately notifies
Lender by telephone of such transmission. All such requests for advances
shall be made to and received by Lender not later than 12:00 noon Cincinnati,
Ohio time on the Business Day preceding the Draw Date specified in such
request and each such request shall be deemed to be a request for an advance
of a Loan on the date when received and processed by Lender. Borrower hereby
designates Larry W. Singleton (or any other officer of the General Partner) to
make all requests for draws and advances. Advances or disbursements of the
Loans shall be in a minimum amount of Fifty Thousand Dollars ($50,000.00).
(b) Lender shall have no obligation to fund any request
for an advance unless Lender shall have received and approved a
Borrowing Base Certificate dated within seven (7) days of the Draw
Date specified in the request for such advance.
Section 2.4 Interest Payable on the Loans.
-----------------------------
(a) Determination of Interest Rate. Lender shall determine
------------------------------
the Interest Rate in effect from time to time. Any change in the Interest
Rate shall, for all purposes of this Agreement and any of the other Loan
Documents, become effective on the effective date of such change as published
in The Wall Street Journal.
(b) Monthly Installments. On the first day of each calendar month
--------------------
during the term hereof commencing on October 1, 1996 and until the Termination
Date, Borrower shall pay to Lender interest continuing in arrears calculated
on the basis of the average daily balance of Loans outstanding since the date
of this Agreement or the date on which interest was most recently paid, as the
case may be, at an annual rate equal to the Interest Rate.
(c) Interest on Overdue Payments; Default Interest Rate. If the
---------------------------------------------------
Loans have been accelerated pursuant to Section 8.2(b) or if a Default or an
Event of Default with respect to any monetary payment hereunder shall have
occurred and during the period in which the Default or Event of Default is
continuing, the outstanding principal and all accrued interest as well as any
other obligations due Lender hereunder or under any Loan Document shall bear
interest from the date on which such amount shall have first become due and
payable to Lender to the date on which such amount shall be paid to Lender
(whether before or after judgment), at the Default Interest Rate. Interest
will continue to accrue until the Obligations in respect of the payment are
discharged (whether before or after judgment).
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<PAGE>
Section 2.5 Repayments and Prepayments of Principal.
---------------------------------------
(a) Repayments of Loans. Borrower shall pay the principal
-------------------
and all accrued and unpaid interest in full on the Maturity Date. If at any
time the aggregate amount of the Loans outstanding to Borrower exceeds the
Maximum Borrowing Base, Borrower shall be obligated to immediately repay the
amount thereof that exceeds the Maximum Borrowing Base.
(b) Optional Prepayments. Borrower shall have the right to prepay
--------------------
the principal of the Loans in full at any time or in part from time to time in
a minimum amount of Fifty Thousand Dollars ($50,000), together with interest
accrued on the principal of the Loans so prepaid through and including the
date of prepayment. Borrower shall not be obligated to pay Lender any
prepayment fee, exit fee or any other fee in connection with any prepayment of
the principal of the Loans.
(c) Application of Payments. Any payment of the Obligations under
-----------------------
this Agreement or any of the other Loan Documents shall be applied by Lender
as set forth in Section 2.6 hereof.
(d) Early Termination of Commitment. Subject to the terms and
-------------------------------
conditions of this Agreement, Borrower will be entitled to reborrow all or any
part of the principal of the Loans repaid or prepaid prior to the termination
of the Lender's commitment. if the Lender's commitment to make Loans hereunder
shall be terminated by Lender pursuant to Section 8.2 (a), the Lender shall be
entitled to declare all of the obligations to be immediately due and payable
pursuant to Section 8.2(b).
(e) Borrower's Right to Terminate Lender's Commitment. Borrower
-------------------------------------------------
shall be entitled at any time prior to the Termination Date to terminate the
Lender's commitment to make Loans hereunder by giving written notice of its
intention to do so to Lender. Upon Lender's receipt of any such written
notice, the Lender's commitment to make Loans hereunder shall thereupon be
irrevocably terminated and Borrower shall not be entitled to reinstate the
Lender's commitment to make Loans hereunder previously terminated pursuant to
this Section 2.5(g). If Borrower exercises its right to terminate the Lender's
commitment to make Loans hereunder, Borrower shall pay to Lender a termination
fee of $5,000 per month for each partial and full calendar month from the date
of such termination to and including the Maturity Date.
(f) Unused Commitment Fee. The Borrower agrees to pay the Lender an
---------------------
unused commitment fee equal to three fourths of one percent (.75%).
- 15 -
<PAGE>
Section 2.6 Payments and Computations.
-------------------------
(a) Time and Place of Payments. Notwithstanding anything in this
--------------------------
Agreement or any of the other Loan Documents to the contrary, each payment
payable by Borrower to the Lender under this Agreement or any of the other
Loan Documents other than payments pursuant to Section 8.4 made as a result of
the application of funds in the Cash Deposit Account, shall be made directly
to the Lender, at Lender's Head Office, not later than 12:00 noon Eastern
Standard or Eastern Daylight Time, as applicable in Cincinnati, Ohio, on the
due date of each such payment in immediately available and freely
transferrable funds.
(b) Application of Funds. Notwithstanding anything herein to the
--------------------
contrary, the funds received by Lender with respect to the obligations shall
be applied as follows:
(i) No Default. If the Loans have not been accelerated pursuant to
----------
Section 8.2(b) or if no Default or Event of Default with respect to any
monetary payment hereunder or under any of the other Loan Documents shall have
occurred and be continuing at the time Lender receives such funds, in the
following manner: (a) first, to the payment of all fees, charges, and other
sums (with exception of principal and interest) due and payable to Lender
under this Agreement or the other Loan Documents at such time; (b) second, to
the payment of all of the interest which shall be due and payable on the
principal of the Loans at the time of such payment; and (c) third, to the
payment of principal of the Loans.
(ii) Default. If the Loans have been accelerated pursuant to Section
-------
8.2(b), or if a Default or Event of Default with respect to any monetary
payment hereunder shall have occurred and be continuing hereunder or under any
of the other Loan Documents at the time Lender receives such funds, in the
following manner: (a) first, to the payment or reimbursement of Lender for all
costs, expenses, disbursements and losses which shall have been incurred or
sustained by Lender in or incidental to the collection of the Obligations owed
by Borrower hereunder or the exercise, protection, or enforcement by Lender of
all or any of the rights, remedies, powers and privileges of Lender under this
Agreement, or any of the other Loan Documents and in and towards the provision
of adequate indemnity to the Lender against all taxes or Liens which by law
shall have, or may have priority over the rights of the Lender in and to such
funds and (b) second, to the payment of all of the Obligations in accordance
with Section 2.6(b)(i) above.
(c) Payments on Business Days. If any sum would (but for the
-------------------------
provisions of this paragraph (c)) become due and payable to Lender by Borrower
under any of the Loan Documents on any day which
- 16 -
<PAGE>
is not a Business Day, then such sum shall become due and payable on the
Business Day next succeeding the day on which such sum would otherwise have
become due and payable hereunder or thereunder, and interest payable to Lender
under this Agreement or any of the other Loan Documents shall continue to
accrue and shall be adjusted by the Lender accordingly.
(d) Computation of Interest. All computations of interest payable
-----------------------
under this Agreement, or any of the other Loan Documents shall be computed by
Lender on the basis of the actual principal amount outstanding on each day
during the payment period and shall be calculated on the basis of the actual
number of days elapsed during such period for which interest is being charged,
predicated on a year consisting of three hundred and sixty (360) days. The
daily interest charge shall be one three hundred sixtieth (1/360th) of the
annual interest amount. Each determination of any interest rate by Lender
pursuant to this Agreement, or any of the other Loan Documents shall be
conclusive and binding on Borrower in the absence of manifest error. Absent
manifest error, a certificate or statement signed by an authorized officer of
Lender shall be conclusive evidence of the amount of the Obligations due and
unpaid as of the date of such certificate or statement.
Section 2.7 Payments to be Free of Deductions. Each
---------------------------------
payment payable by Borrower to Lender under this Agreement, or any of the
other Loan Documents shall be made in accordance with Section 2.6 hereof,
without set-off or counterclaim and free and clear of and without any
deduction of any kind for any taxes, levies, imposts, duties, charges, fees,
deductions, withholdings, compulsory loans, restrictions or conditions of any
nature now or hereafter imposed or levied by any political subdivision or any
taxing or other authority therein, unless Borrower is compelled by law to make
any such deduction or withholding. In the event that any such obligation to
deduct or withhold is imposed upon Borrower with respect to any such payment
payable by Borrower to Lender, (a) Borrower shall be permitted to make the
deduction or withholding required by law in respect of the said payment, and
(b) there shall become and be absolutely due and payable by Borrower to Lender
on the date on which the said payment shall become due and payable and
Borrower hereby promises to pay to Lender on such date, such additional amount
as shall be necessary to enable Lender to receive the same net amount which
Lender would have received on such due date had no such obligation been
imposed by law. Anything in this Section to the contrary notwithstanding, the
foregoing provisions of this Section shall not apply in the case of any
deductions or withholdings made in respect of taxes charged upon or by
reference to the overall net income, profits or gains of Lender.
- 17 -
<PAGE>
Section 2.8 Use of Proceeds.
---------------
(a) Permitted Uses of Loan Proceeds. All proceeds of the Loans
-------------------------------
shall be used by Borrower for the purpose of providing working capital in
order to fund the day to day operations of the Borrower's ethanol production
plant or other working capital purposes, and a portion of the Loan proceeds
shall be used by the Borrower to pay in full all Delinquent Real Estate taxes
on or before November 11, 1996.
(b) Prohibited Uses. Borrower represents, warrants and covenants
---------------
to Lender that no part of the proceeds of the Loans will be used (directly or
indirectly) so as to result in a violation under Regulations G, T, U or X of
the Board of Governors of the Federal Reserve System or for any other purpose
violative of any rule or regulation of such Board.
Section 2.9 Lender Statements. A statement setting forth any amount
-----------------
or amounts required to be paid by Borrower to Lender hereunder, and the
computations made by Lender to determine such amount or amounts, shall be
submitted by Lender to Borrower in connection with each demand for payment
made at any time by Lender. A demand by Lender f or any amount or amounts
required to be paid by Borrower hereunder may be made before or after any
payment to which such claim relates. Each such statement shall, in the
absence of manifest error, constitute conclusive evidence of the amount or
amounts required to be paid to Lender, provided it sets out in reasonable
detail the reasons for such notice and averaging and attribution methods used
by Lender to determine the amounts set forth in such notice.
ARTICLE 3
SECURITY AGREEMENT
------------------
Section 3.1 Security Interest. To secure the prompt repayment of
-----------------
the Loans and all of the other Obligations and further to secure the due and
punctual observance and performance by Borrower of all of the conditions,
warranties, obligations, covenants, promises and agreements contained in the
Agreement and the other Loan Documents with respect to the Loans, Borrower
hereby grants and hereby pledges and collaterally assigns to Lender a first
priority lien and security interest in all of the Collateral.
Section 3.2 Financing Statements; Additional Documents. Borrower
------------------------------------------
covenants and agrees to deliver to Lender all such documents necessary, in the
Lender's opinion, to perfect its liens and security interests in the
Collateral which now exist or which may exist or arise hereafter from time to
time. Such filings shall be in form and substance required by Lender, and
Borrower shall pay
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<PAGE>
all costs of recording and filing the financing statements (and any
continuation or termination statements with respect thereto), and any other
documents, titles, statements, assignments or the like reasonably required to
create, maintain, preserve or perfect the liens or security interests,
together with costs and expenses of any lien or UCC searches required by
Lender in connection with the making of the Loans. At Lender's request,
Borrower shall execute and deliver to Lender, at any time and from time to
time hereafter, all supplemental documentation that Lender may reasonably
request to perfect, maintain, preserve or continue the security interest and
liens granted Lender hereby and under any of the other Loan Documents, in form
and substance acceptable to Lender, and pay the costs of preparing and
recording or filing of the same. Except as otherwise provided in this
Agreement, Borrower, immediately on acquiring Inventory or Accounts or
proceeds thereof for which separate perfection is necessary or reasonably
considered desirable by Lender, shall deliver to Lender, any and all evidence
of ownership of any such property and shall take all such action as may be
reasonably necessary to perfect Lender's security interest in such property.
Lender (by any of its officers, employees or agents, but only upon
authorization of an officer of Lender) shall have the right, at any time or
times during Borrower's usual business hours, to inspect the Collateral, all
records related thereto (and to make extracts from such records) and the
premises upon which any of the Collateral is located, to discuss Borrower's
affairs and finances with any accountant, Account Debtor or creditor of
Borrower and to verify the amount, quality, quantity, value and condition of,
or any other matter relating to, the Collateral.
Section 3.3 Accounts; Chattel Paper; Lease Agreements. After the
-----------------------------------------
occurrence of an Event of Default and during the continuance thereof, Lender
shall have the right, at any time, to notify any person obligated to make
payments to Borrower with respect to Accounts, chattel paper and lease
agreements to make such payments directly to Lender.
Section 3.4 Release of Collateral. Upon Borrower's full performance
---------------------
of its obligations in respect of the Loans and the other Obligations and
termination of Borrower's right to borrow under this Agreement, Lender shall
release its security interest in all of the Collateral.
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<PAGE>
ARTICLE 4
CONDITIONS PRECEDENT TO DISBURSEMENTS
-------------------------------------
Section 4.1 Conditions Precedent to Closing. On or prior to the
-------------------------------
Closing Date, each of the following conditions precedent shall have been
satisfied:
(a) Closing Fee. Borrower shall have paid to Lender a closing fee
-----------
in the amount of two percent (2%) of the Maximum Commitment.
(b) Legal Fees. Borrower shall have reimbursed Lender for all fees
----------
and disbursements of legal counsel to Lender which shall have been incurred by
Lender through the Closing Date in connection with the preparation,
negotiation, review, execution and delivery of the Loan Documents and the
handling of any other matters incidental thereto.
(c) First Priority Liens. Lender's Liens in the Collateral shall be
--------------------
first priority Liens in such Collateral under the UCC taking into account the
effect of the Subordination and Intercreditor Agreement.
(d) Certified Copies of Organizational Documents. Lender shall
--------------------------------------------
have received from Borrower (i) a copy, certified by a duly authorized
representative of Borrower to be true and complete on and as of the Closing
Date, of the limited partnership agreement as in effect on the Closing Date
(together with all, if any, amendments thereto); (ii) the limited partnership
certificate filed with the appropriate State of County; and (iii) the Articles
of Incorporation and other organization documents of the General Partner
certified by the applicable Secretary of State and a good standing certificate
of the General Partner.
(e) Proof of Authority. Lender shall have received from Borrower,
------------------
certified by the General Partner to be true and complete on and as of the
Closing Date, records of all action taken by Borrower to authorize (i) the
execution and delivery of this Agreement and the other Loan Documents; (ii)
its performance of all of its obligations under each of such documents; and
(iii) the making by Borrower of the borrowings.
(f) Legality of Transactions. No change in applicable law shall
------------------------
have occurred as a consequence of which it shall have become and continue to
be unlawful (i) for Lender to perform any of its agreements or obligations
under any of the Loan Documents to which it is a party on the Closing Date; or
(ii) for Borrower to perform any of its agreements or obligations under any of
the Loan Documents on the Closing Date.
- 20 -
<PAGE>
(g) Loan Documents, Etc. The Loan Documents shall have been duly
-------------------
and properly authorized, executed and delivered to Lender by the respective
party or parties thereto and shall be in full force and effect.
(h) Legal Opinion. Lender shall have received a written legal
-------------
opinion, addressed to Lender and dated as of the Closing Date, from legal
counsel for Borrower, which shall be substantially in a form reasonably
acceptable to Lender.
(i) Subordination and Intercreditor Agreement. The Secretary and
-----------------------------------------
BDC shall have duly authorized, executed and delivered the Subordination and
Intercreditor Agreement to the Lender and shall have taken all actions
required thereby for the performance and observance of their respective
obligations thereunder to the satisfaction of the Lender.
(j) General Partner Subordination and Intercreditor Agreement.
---------------------------------------------------------
The General Partner shall have duly authorized, executed and delivered the
General Partner Subordination and Intercreditor Agreement to the Lender and
shall have taken all actions required thereby for the performance and
observance of its obligations thereunder to the satisfaction of the Lender.
(k) Amendments to the Subordinated Debt. The Secretary, the BDC
-----------------------------------
and Borrower shall have authorized, executed and delivered amendments to their
respective loan documents restructuring payments under such documents to the
satisfaction of Lender.
Section 4.2 Conditions Precedent to Loans. The obligation of the
------------------------------
Lender to make any Loan shall be subject to the satisfaction, prior thereto or
concurrently therewith, of each of the following conditions precedent:
(a) Legality of Transactions. It shall not be unlawful (a) for
------------------------
Lender to perform or observe any of its agreements or obligations under any of
the Loan Documents to which it is a party on the Draw Date of such Loan or (b)
for Borrower to perform or observe any of its material agreements or
obligations under any of the Loan Documents.
(b) Representations and Warranties. Each of the representations and
------------------------------
warranties made by or on behalf of Borrower to Lender in this Agreement or any
other Loan Document (a) shall be true and correct in all material respects
when made and (b) shall, for all purposes of this Agreement, be deemed to be
repeated on and as of the date of Borrower' s request for such Loan, as the
case may be, and shall be true and correct in all material respects as of each
of such dates, except, in each case, as affected by the
- 21 -
<PAGE>
consummation of the transactions contemplated by the Loan Documents.
(c) No Default. Except with respect to the Delinquent Real Estate
----------
Taxes which shall be paid on or before December _, 1996, no event shall have
occurred on or prior to such date and be continuing on such date, and no
condition shall exist on such date which constitutes a Default or Event of
Default.
(d) Maximum Credit. The making of such Loan shall not result in
--------------
the sum of all outstanding Loans exceeding the Maximum Commitment.
ARTICLE 5
GENERAL REPRESENTATIONS AND WARRANTIES
--------------------------------------
Borrower represents and warrants to Lender as follows:
Section 5.1 Existence, Etc. Borrower (i) is a limited partnership
--------------
duly organized, validly existing and in good standing under the laws of the
State of Indiana; and (ii) has full power and authority and full legal right
to own or to hold under lease its Property and to carry on its business as
presently conducted. Borrower is qualified and licensed in each jurisdiction
wherein the character of the Property owned or held under lease by it, or the
nature of its business makes such qualification necessary or advisable.
Section 5.2 Authority, Etc.
--------------
(a) Borrower has adequate power, authority and full legal right to
enter into this Agreement and each of the other Loan Documents, and to
perform, observe and comply with all of its agreements and obligations under
each of such documents, including, without limitation, the borrowings
contemplated hereby.
(b) The execution and delivery by Borrower of each of the Loan
Documents, the performance by Borrower of all of its agreements and
obligations under such documents, and the making by Borrower of the borrowings
contemplated by this Agreement, have been duly authorized by all necessary
action on the part of Borrower and the General Partner and do not and will not
(i) contravene any provision of its partnership agreement (as in effect from
time to time); (ii) conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under, or result in the
creation of any Lien upon any of the Property of Borrower under any agreement,
trust deed, indenture, mortgage or other material instrument to which Borrower
is a party or by which Borrower or any other Property of Borrower is bound or
- 22 -
<PAGE>
affected; (iii) violate or contravene any provision of any law, rule or
regulation (including, without limitation, Regulations G, T, U or X of the
Board of Governors of the Federal Reserve System) or any order, ruling or
interpretation thereunder or any decree, order or judgment of any court or
governmental or regulatory authority, bureau, agency or official (all as from
time to time in effect and applicable to Borrower); or (iv) require any
waivers, consents or approvals by any of the creditors or trustees for
creditors of Borrower or any other Person.
(c) Except for those obtained by Borrower prior to the closing,
copies of which have been delivered to the Lender, no approval, consent,
order, authorization or license by, or giving notice to, or taking any other
action with respect to, any governmental or regulatory authority or agency is
required, under any provision of any applicable law:
(i) for the execution and delivery by Borrower of this Agreement and
the other Loan Documents, for the performance by Borrower of any of the
agreements and obligations thereunder or for the making by Borrower of the
borrowings contemplated by this Agreement or for the conduct by Borrower of
its business; or
(ii) to ensure the continuing legality, validity, binding effect,
enforceability or admissibility in evidence of this Agreement and the other
Loan Documents.
Section 5.3 Title to Assets; Leases. Borrower has good, sufficient
-----------------------
and legal title to, or leasehold interest in, all the Property and assets
reflected in the most recent balance sheet of Borrower, except for assets
disposed of since that date in the ordinary course of business. Borrower
enjoys peaceful and undisturbed possession of all leases of Property and all
such leases are valid and in full force and effect.
Section 5.4 Environmental Conditions.
------------------------
(a) Borrower and its Affiliates have obtained all necessary permits,
licenses, variances, clearances and all other necessary approvals
(collectively the "EPA Permits") for the operation and conduct of its business
from all applicable federal, state, and local governmental authorities,
utility companies or development-related entities including, but not limited
to, any and all appropriate federal or state environmental protection agencies
and other county or city departments, public water works and public utilities
in regard to the operation and conduct of its business, and the handling,
transporting, treating, storage, disposal, discharge, or release of Hazardous
Substances, if any, into, on or from the environment (including, but not
limited to, any air,
- 23 -
<PAGE>
water, or soil) except where the failure to obtain such a permit would not
have a Material Adverse Effect.
(b) Borrower, nor any Property owned by Borrower, is subject to any
material private or governmental litigation, threatened litigation, Lien or
judicial or administrative notice, order or action relating to Hazardous
Substances or environmental problems, impairments or liabilities with respect
to Borrower.
(c) Borrower has not received written notice of any circumstances
which would result in any material obligation under any Environmental Law to
investigate or remediate any Hazardous Substances including, but not limited
to, in, on or under any Property owned or used by Borrower.
Section 5.5 Chief Executive Office. The chief executive office of
----------------------
Borrower and the office where all of the records and books of account of
Borrower are located is 3201 West Calvert Street, South Bend, Indiana, 46680.
Section 5.6 Representations Regarding the Collateral.
----------------------------------------
(a) Borrower is and at all times will be the sole owner of and
have good and marketable title to the Collateral, free from all Liens other
than the Delinquent Real Estate Taxes, in favor of any Person other than the
Lender and except Permitted Liens, and has full right and power to grant the
Lender a security interest therein. All information furnished to the Lender
concerning the Collateral is and will be complete, accurate and correct in all
respects when furnished.
(b) No security agreement, financing statement, equivalent security
or Lien instrument or continuation statement covering all or any part of the
Collateral is on file or of record in any public office, except such as may
have been filed (i) by Borrower in favor of the Secretary and BDC, or (ii) in
respect of the items of Collateral subject to the Permitted Liens.
(c) The terms of this Agreement and the Subordination and
Intercreditor Agreement are sufficient to create in favor of the Lender, and
at all times thereafter, a valid and continuing lien on, and first priority
security interest in, the types of the Collateral hereunder in which a
security interest may be created under Article 9 of the UCC. Financing
Statements on Form UCC-1 when duly executed on behalf of Borrower and the
description of such Collateral set forth therein is sufficient to perfect
security interests in such Collateral in which a security interest may be
perfected by the filing of a Financing Statement under the UCC. Such
Financing Statements duly filed in all appropriate filing offices, and the
requisite filing fees when paid, will grant to
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<PAGE>
Lender a first priority security interest enforceable as such as against
creditors of and purchasers from Borrower, except that under certain
circumstances described in the UCC, the right of the Lender to enforce a
security interest in proceeds may be limited, and all action necessary to
protect and perfect a security interest in each item of the Collateral has
been duly taken.
Section 5.7 Accounts. As to each and every Account classified
--------
hereunder as an Eligible Account of the Borrower:
(a) it is a bona fide existing obligation, valid and enforceable
against the debtor for a sum certain for sales of ethanol and other products
shipped or delivered in the ordinary course of business;
(b) all supporting documents, instruments, chattel paper and other
evidence of indebtedness, if any, delivered to the Lender are complete and
correct and valid and enforceable in accordance with their terms, and, to the
best of Borrower's knowledge with respect to the signatures and endorsements
of debtors, all signatures and endorsements that appear thereon are genuine,
and all signatories and endorsers have full capacity to contract;
(c) the Account Debtor is liable for and is obligated to make
payment of the amount expressed in the invoice pertaining to such Account
according to its terms;
(d) it will be subject to no discount, allowance or special terms of
payment without the prior approval of the Lender except prompt payment and
other discounts and allowances which are customary in the industry and
consistent with the past practices of the Borrower and, from and after the
Closing, the Borrower;
(e) it is subject to no dispute, defense or offset, real or claimed;
(f) it is not subject to any prohibition or limitation upon
assignment; and
(g) the Borrower has full right and power to grant the Lender a
security interest therein and the security interest granted in such Account to
the Lender in Article 5 hereof, when perfected, will be a valid first security
interest which will inure to the benefit of the Lender without further action,
subject to Permitted Liens and the provisions of Section 5.6(c).
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<PAGE>
The warranties set out herein shall be deemed to have been made with respect
to each and every Eligible Account now owned or hereafter acquired by the
Borrower.
ARTICLE 6
AFFIRMATIVE COVENANTS OF BORROWER
---------------------------------
Borrower covenants with and warrants to Lender that, from and after
the Closing Date and until all of the Obligations are paid and satisfied in
full Borrower shall provide the following:
Section 6.1 Financial Statements and Other Information.
------------------------------------------
(a) As soon as possible and in any event within two (2) Business
Days after the Borrower shall have actual knowledge of the occurrence of each
Default, or event which but for the lapse of time or the giving of notice, or
both, would constitute an Event of Default, the statement of the Borrower
setting forth details of such Default or event and the action which the
Borrower proposes to take with respect thereto;
(b) As soon as available and in any event within fifteen (15)
days following the subject month, a monthly operating statement of the
Borrower and a cash flow statement in the form provided to the Secretary;
(c) As soon as available and in any event within forty five (45)
days after the end of each of the first three quarters of each fiscal year of
the Borrower, a balance sheet and statement of income and retained earnings
and statement of changes in financial position and capital accounts for the
period commencing at the end of the previous fiscal year and ending with the
end of such quarter for the Borrower, setting forth in each case in
comparative form the figures for the corresponding period of the preceding
fiscal year, all in reasonable detail (it being understood that delivery by
the Borrower to the Lender of the quarterly reports of the Borrower to the
Securities and Exchange Commission on Form 10-Q containing the foregoing
financial statements will satisfy the foregoing requirement), and all duly
certified (subject to year-end audit adjustments) by a responsible officer of
the General Partner, as having been prepared in accordance with generally
accepted accounting principles and, except as otherwise disclosed in such
financial statements, consistent with those applied in the preparation of the
financial statements previously furnished to the Lender.
(d) As soon as available and in any event within ninety (90) days
after the end of each fiscal year of the Borrower and the General Partner, a
copy of the annual audit report for such year
- 26 -
<PAGE>
for the Borrower and the General Partner, as the case may be, including
therein a balance sheet as of the end of such fiscal year, a statement of
income and retained earnings and a statement of changes in financial position
and capital accounts for such fiscal year, setting forth in each case in
comparative form the figures for the preceding fiscal year, such balance
sheet, statement of income and retained earnings and statement of changes in
financial position and capital accounts to be in each case accompanied by the
unqualified opinion (except as to changes in accounting principles in which
they concur) of the independent public accountants of the Borrower or the
General Partner, which independent public accountants shall be acceptable to
the Lender (it being understood that delivery by the Borrower to the Lender of
the annual report of the Borrower to the Securities and Exchange Commission on
Form 10-K containing the foregoing report, financial statements and opinion
will satisfy the foregoing requirement), together with a certificate of such
accounting firm to the Lender stating that in the course of the regular audit
of the business of the Borrower or the General Partner, as the case may be,
which audit was conducted by such accounting firm in accordance with generally
accepted auditing standards, such accounting firm has (i) reviewed the
calculations of net cash flow for such fiscal year which were submitted to the
Lender pursuant to subsection (b) of this Section 6.1 and has determined that
-----------
such calculations comply with the requirements of this Agreement, and (ii)
obtained no knowledge that a Default or an event which but for the lapse of
time or the giving of notice, or both, would constitute an Event of Default
has occurred and is continuing or, if in the opinion of such accounting firm a
Default or such an event has occurred and is continuing, a statement as to the
nature thereof;
(e) On the date of the delivery to the Lender of the financial
statements pursuant to subsections (c) and (d) of this Section 6.1, an
-----------
Officer's Certificate, dated as of such date from the General Partner in the
form provided to the Secretary;
(f) Within ten (10) Business Days after the Borrower obtains
knowledge thereof, written notice of all actions, suits and proceedings before
any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting the Borrower.
(g) Promptly upon finalization thereof, a copy of the minutes of all
meetings of the board of directors of the General Partner.
Section 6.2 Maintenance of Property; Authorization; Insurance.
-------------------------------------------------
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<PAGE>
(a) Borrower covenants to keep and maintain all of its Property in
good repair, working order and condition, reasonable wear and tear excepted,
and from time to time to make, or use all reasonable legal remedies to cause
to be made, all proper repairs, renewals or replacements, betterments and
improvements thereto so that the business carried on in connection therewith
may be properly and advantageously conducted at all times;
(b) At its own cost and expense, Borrower shall obtain and maintain
during the term of this Agreement customary insurance against loss,
destruction or damage to its Property for the replacement value thereof,
insurance against public liability and insurance against property damage, with
policy limits reasonably acceptable to Lender, which shall cover without
limitation risks of bodily injury and property damage arising out of the
condition, maintenance, use or operation of its properties, workers'
compensation insurance required by any applicable law, and "extra expense"
insurance, all (except workers' compensation insurance) naming Lender as
additional insured as its interests may appear. Borrower agrees to deliver to
Lender upon request insurance certificates or policies evidencing compliance
with the above requirements. If any insurance losses are paid by check, draft
or other instrument payable to Borrower and Lender jointly, Lender may endorse
the name of Borrower thereon and do such other things as it may deem advisable
to reduce the same to cash. Provided Borrower is not in default to Lender in
any of its obligations to Lender under any of the Loan Documents, all loss
recoveries received by Lender upon any such insurance shall be paid by Lender
to Borrower so long as such proceeds promptly are reinvested in Borrower's
business. Should Borrower then be in default in any of its obligations to
Lender under any of the Loan Documents, such cash resources may be applied and
credited by Lender to any obligation, subject to Section 2.6(b). Borrower
further covenants that it shall require that the insurer with respect to each
such insurance policy provide for thirty (30) days advance written notice to
Borrower of any cancellation or termination of, or other change of any nature
whatsoever in, the coverage provided under any such policy.
Section 6.3 Partnership Existence. Borrower shall, preserve and
---------------------
maintain its existence as a limited partnership in the jurisdiction of its
creation and all of its rights, franchises and privileges as a limited
partnership.
Section 6.4 Inspection Rights. At any reasonable time, upon
-----------------
reasonable notice, and from time to time, Borrower shall permit the Lender, or
any of its agents, representatives or participants in the Loans, to examine
and make copies of and abstracts from the records and books of account of, and
visit the properties of, Borrower and to discuss the affairs, finances and
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<PAGE>
accounts of Borrower with any of its representatives or with its certified
public accountants. All such information shall be treated confidentially and
shall not be disseminated by the Lender, provided that the Lender may disclose
such information to its employees and agents and as required by any applicable
law or statute.
Section 6.5 Compliance with Laws.
--------------------
(a) Except for the failure to pay Delinquent Real Estate Taxes,
Borrower will comply with all applicable federal, state and local laws, rules,
regulations and orders pertaining to the operation of its business (including,
all Environmental Laws), paying before the same become delinquent all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits or its properties, and paying all lawful claims which if
unpaid might become a Lien upon any of its properties, except to the extent
contested in good faith by proper proceedings which stay the imposition of any
penalty, fine or Lien resulting from the nonpayment thereof and with respect
to which adequate reserves have been set aside for the payment thereof.
(b) Borrower will promptly notify Lender in the event that Borrower
receives any notice, claim or demand from any governmental agency which
alleges that Borrower is in material violation of any of the terms of, or has
materially failed to comply with any applicable order issued pursuant to any
federal, state or local statute regulating its operation and business,
including, but not limited to, the Occupational Safety and Health Act, the
Federal Comprehensive Environmental Response, Compensation and Liability Act
and the Resource Conservation and Recovery Act and such violation or failure
to comply would have a Material Adverse Effect.
Section 6.6 Notice of Other Events. Immediately upon Borrower first
----------------------
becoming aware of any of the following occurrences, Borrower will furnish or
cause to be furnished to Lender written notice with full particulars of (i)
the business failure, insolvency or bankruptcy of Borrower; (ii) the
rescission, cancellation or termination, or the creation or adoption, of any
agreement or contract to which Borrower is a party which would have a Material
Adverse Effect; (iii) any labor dispute, any attempt by any labor union or
organization representatives to organize or represent employees of Borrower,
or any unfair labor practices or proceedings of the National Labor Relations
Board with respect to Borrower which would have a Material Adverse Effect; or
(iv) any defaults or events of default under any agreement of Borrower or any
violations of any laws, regulations, rules or ordinances of any governmental
or regulatory body which would have a Material Adverse Effect.
- 29 -
<PAGE>
Section 6.7 Communication with Accountants. Borrower authorizes
------------------------------
Lender, to communicate directly with its accountants and authorizes its
accountants to disclose to Lender any and all financial statements and other
information of any kind, including copies of any management letter or the
substance of any oral information or conversation that such accountants may
have with respect to the business, financial condition and other affairs of
Borrower.
Section 6.8 Payment of Indebtedness. Borrower will duly and
-----------------------
punctually pay or cause to be paid principal and interest on the Loans and
all fees and other amounts payable hereunder or under the Loan Documents in
accordance with the terms hereunder. Borrower shall pay all other
Indebtedness (whether existing on the date hereof or arising at any time
thereafter) punctually in accordance with trade practices or within any
applicable period of grace except to the extent that any such obligation is
contested in good faith by proper proceedings or Borrower has provided Lender
evidence that any Lien resulting from the non-payment thereof has been bonded
or with respect to which adequate reserves have been set aside for the payment
thereof.
Section 6.9 Governmental Consents and Approvals.
-----------------------------------
(a) Borrower will obtain or cause to be obtained all such approvals,
consents, orders, authorizations and licenses from, give all such notices
promptly to, register, enroll or file all such agreements, instruments or
documents promptly with, and promptly take all such other action with respect
to, any governmental or regulatory authority, agency or official, or any
central bank or other fiscal or monetary authority, agency or official, as may
be required from time to time under any provision of any applicable law:
(i) for the performance by Borrower of any of its agreements or
obligations under this Agreement or any of the other Loan Documents or for the
payment by Borrower to the Lender of any sums which shall become due and
payable by Borrower to Lender thereunder;
(ii) to ensure the continuing legality, validity, binding effect or
enforceability of any of the other Loan Documents or of any of the agreements
or obligations thereunder of Borrower; or
(iii) to continue the proper operation of the business and operations
of Borrower.
(b) Borrower shall duly perform and comply with the terms and
conditions of all such approvals, consents; orders,
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<PAGE>
authorizations and Licenses and Permits from time to time granted to or made
upon Borrower except to the extent such performance or compliance is contested
by proper proceedings.
Section 6.10 Employee Benefit Plans and Guaranteed Pension Plans.
---------------------------------------------------
Borrower will and will cause each of its ERISA Affiliates to comply in all
material respects with all requirements imposed by (a) ERISA and the Code
applicable from time to time to any of its Guaranteed Pension Plans or
Employee Benefit Plans, (b) make full payment when due of all amounts which,
under the provisions of Employee Benefit Plans or under applicable law, are
required to be paid as contributions thereto, (c) not permit to exist any
accumulated funding deficiency, whether or not waived, (d) file on a timely
basis all reports, notices and other filings required by any governmental
agency with respect to any of its Employee Benefit Plans,(e) make any payments
to Multiemployer Plans required to be made under any agreement relating to
such Multiemployer plans, or under any law pertaining thereto, (f) not amend
or otherwise materially alter any Guaranteed Pension Plan if the effect would
be to cause the actuarial present value of all benefit commitments under each
Guaranteed Pension Plan to be less than the current value of the assets of
such Guaranteed Pension Plan allocable to such benefit commitments, (g)
furnish to all participants, beneficiaries and employees under any of the
Employee Benefit Plans, within the periods prescribed by law, all reports,
notices and other information to which they are entitled under applicable law,
and (h) take no action which would cause any of the Employee Benefit Plans to
fail to meet any qualification requirement imposed by the Code. As used in
this Section 6.10, the term "accumulated funding deficiency" has the meaning
specified in Section 302 of ERISA and Section 412 of the Code, and the terms
"actuarial present value", "benefit commitments" and "current value" have the
meaning specified in Section 4001 of ERISA.
Section 6.11 Notices with Respect to Subordinated Debt. Borrower
-----------------------------------------
shall give Lender copies of all notices and other correspondence concerning
defaults with respect to the Subordinated Debt promptly upon receiving the
same (if given to the Borrower) or concurrently with notice being given to the
holder of the Subordinated Debt (if given by the Borrower).
Section 6.12 Further Assurances. Borrower will execute, acknowledge
------------------
and deliver, or cause to be executed, acknowledged and delivered, any and all
such further assurances and other agreements or instruments, and take or cause
to be taken all such other action, as shall be reasonably requested by the
Lender from time to time in order to give full effect to any of the Loan
Documents.
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<PAGE>
Section 6.13 Use of Proceeds. Borrower shall use all Loan proceeds
---------------
disbursed only in accordance with the purposes set forth in Section 2.8 of
this Agreement.
Section 6.14 Audit Expenses. Borrower shall promptly reimburse
--------------
Lender, upon Lender's request, for all of Lender's reasonable out-of-pocket
expenses (including travel expenses) incurred by Lender as a result of its
periodic audits of Borrower; provided, however, unless and until any Default
or Event of Default shall have occurred and be continuing, Borrower's
obligation to reimburse Lender for its audit expenses shall be limited to
$20,000 during each calendar year prior to the Termination Date. Borrower
shall cooperate fully with the Lender in the completion of all such audits;
provided, however, unless and until any Default or Event of Default shall have
occurred and be continuing, Lender shall not audit Borrower more frequently
than once per calendar quarter.
ARTICLE 7
NEGATIVE COVENANTS OF BORROWER
------------------------------
Borrower covenants with and warrants to Lender that from and after
the Closing Date and until all of the obligations are paid and satisfied in
full:
Section 7.1 Limitation on Nature of Business. Borrower will not at
--------------------------------
any time make any material change in the nature of its business as carried on
at the date hereof or undertake, conduct or transact any business in a manner
prohibited by applicable law unless contesting the applicability of such law
by appropriate legal proceedings and there exists no reasonable likelihood of
the sale or forfeiture of any of the Collateral.
Section 7.2 Limitation on Fundamental Changes. The Borrower shall
---------------------------------
not enter into any reorganization among its partners, merger, consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, lease, assign, transfer or
otherwise dispose of, all or substantially all of its property, business or
assets, or make any material change in its business or its present method of
conducting business.
Section 7.3 Limitation on Disposition of Assets. During the term of
-----------------------------------
this Agreement, Borrower shall not at any time engage in any sale, lease (as
lessor), liquidation or other transfer, distribution or disposition of all or
any material part of its Property or assets (either by or through a single
transaction or by or through a series of separate but related transactions),
other than in the ordinary course of Borrower's business.
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<PAGE>
Section 7.4 Limitation on Mortgages, Liens and Encumbrances.
-----------------------------------------------
Borrower shall not at any time create, assume, incur or permit to exist, any
mortgage, Lien or other encumbrance in respect of any of its Property, assets,
income or revenues of any character (including, without limitation, its real
property), whether heretofore or hereafter acquired by it; excluding, however,
from the operation of the foregoing provisions of this Section (each a
"Permitted Lien"):
(a) Any Liens for taxes, assessments or governmental charges or
claims the payment of which is not at the time required by Section 6.5(a) of
this Agreement to be paid except for the Delinquent Real Estate Taxes which
shall be paid in full on or before November 11, 1996;
(b) Any statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens imposed by law incurred
in the ordinary course of business for sums not yet delinquent or being
contested in good faith, if such reserve or other appropriate provision, if
any, as shall be required by GAAP, shall have been made in respect thereof;
(c) Any Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, and
other similar obligations (exclusive of obligations for the payment of
borrowed money);
(d) Any easements, rights-of -way, encroachments, leases, royalties,
restrictions and other similar title exceptions or encumbrances provided such
do not materially interfere with the ordinary conduct of the business of
Borrower materially reduce or impair the value of the Property so encumbered;
(e) Liens incurred in connection with the Subordinated Debt; and
(f) Liens securing the Borrower's contractual obligations to purchase
corn in the ordinary course of its business but not to exceed the aggregate
amount of $2,000,000.
Section 7.5 No Additional Negative Pledges. Except as set forth
------------------------------
herein, Borrower will not create or otherwise cause or suffer to exist or
become effective, directly or indirectly, any prohibition or restriction
(including any agreement to provide equal or ratable security to any other
person in the event a Lien is granted to or for the benefit of the Lender) on
the creation or existence of any Lien upon the assets of Borrower, or any
contractual obligation which may restrict or inhibit the Lender's
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<PAGE>
rights or ability to sell or otherwise dispose of the Collateral or any part
thereof after the occurrence of an Event of Default.
Section 7.6 Transactions with Associated Persons. Except
------------------------------------
for the payment of the Administration Fee, Borrower will not, at any time,
enter into or participate in any transaction with, or make any payment to,
including, without limitation, any purchase, sale, lease or exchange of
property or the rendering of any service, any Associated Person unless such
transaction is otherwise permitted under this Agreement, is in the ordinary
course of Borrower's business and is upon fair and reasonable terms no less
favorable to Borrower, as the case may be, than it would obtain in a
comparable arm's length transaction with a Person not an Associated Person.
Section 7.7 Limitations on Restricted Payments.
----------------------------------
(a) Without the prior written consent of Lender, the Borrower shall
not, at any time, enter into, participate in, or make any Restricted Payment,
except for the payment of the Administration Fee.
(b) Without the prior written consent of Lender, the Borrower shall
not issue any additional partnership interests or grant or issue any warrant,
right or option pertaining thereto.
Section 7.8 Limitation on Payments on General Partner Subordinated
------------------------------------------------------
Debt. Notwithstanding anything herein to the contrary, for so long as the
- ----
Loans remain unpaid, the Borrower shall not make any payments, redemptions or
purchases (whether in cash or in kind) with respect to the General Partner
Subordinated Debt.
Section 7.9 Transactions with Affiliates.
----------------------------
(a) Except as permitted herein Borrower shall not, without first
obtaining the written consent of the Lender:
(i) permit the direct or indirect transfer, loan or advance,
distribution or payment of any of its funds, assets or property to any
director, officer, shareholder or employee of Borrower except for the payment
of salaries, and benefits to employees and the reimbursement of reasonable
business expenses, all in the ordinary course of Borrower's business, or to
any of Borrower's Affiliates; or
(ii) enter into or participate in any transaction with any Affiliate
of the Borrower, including without
- 34 -
<PAGE>
limitation, any Purchase, sale, lease or exchange of property or the
rendering of any service.
(b) Any agreement between the Borrower and any of its Affiliates
otherwise permitted hereby shall provide that the Borrower's obligations
thereunder shall be subordinated to the obligations of the Borrower hereunder
on terms satisfactory to the Lender.
Section 7.10 Limitations on Indebtedness. The Borrower will not
---------------------------
at any time create, incur or assume, or become or be liable (directly or
indirectly) in respect of, any Indebtedness, other than:
(a) The Obligations incurred pursuant to this Agreement;
(b) The Subordinated Debt;
(c) The General Partner Subordinated Debt;
(d) Accounts payable, accrued expenses and similar obligations
arising out of transactions (other than borrowings) in the ordinary course of
business;
(e) Purchase money liens incurred in connection with Borrower's
acquisition of specific items of inventory or equipment, not to exceed in the
aggregate the sum of $1,000,000.
Section 7.11 Limitation on Optional Payments and Modifications of
----------------------------------------------------
Debt Instruments. The Borrower shall not:
- ----------------
(a) except as otherwise permitted hereby, make any optional payment
or prepayment on the Subordinated Debt, the General Partner Subordinated Debt
or any other Indebtedness of Borrower (other than obligations under this
Agreement); or
(b) amend, modify or change or consent or agree to any amendment,
modification or change to any of the terms of the Subordinated Debt, the
General Partner Subordinated Debt, or such other Indebtedness without the
prior written consent of the Lender.
Section 7.12 Organizational Documents. Borrower shall not make any
------------------------
material change, amendment or modification to Borrower's partnership agreement
or other organizational documents.
Section 7.13 Change of Locations; Collateral. The Borrower
-------------------------------
shall not (i) remove the books and records or the Collateral from
the locations set forth herein; or (ii) keep any of such books and
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<PAGE>
records at any other office(s) or locations unless (a) Borrower gives Lender
written notice thereof and of the new location of said books and records at
least thirty (30) days prior thereto, (b) such other office or location is
within the continental United States, and (c) a financing statement covering
such location of the Collateral is on file and of record in the appropriate
governmental office creating a valid first lien and security interest in the
Collateral in favor of Lender.
ARTICLE 8
EVENTS OF DEFAULT AND REMEDIES
------------------------------
Section 8.1 Events of Default. The occurrence of any one
-----------------
or more of the following events shall constitute an "Event of Default":
(a) Principal and Interest. Failure by the Borrower to pay any
----------------------
payment of principal or interest or to pay any fee or other amount payable
under this Agreement when due;
(b) Representation and Warranties. Any representation or warranty
-----------------------------
at any time made by or on behalf of Borrower in this Agreement, any Loan
Document or in any certificate, written report or statement furnished to
Lender pursuant thereto shall prove to have been untrue, incorrect or breached
in any material respect on or as of the date on which such representation or
warranty was made or deemed to have been made or repeated;
(c) Certain Covenants. Borrower shall fail to perform, comply
-----------------
with or observe or shall otherwise breach any of the covenants set forth in
Article 7;
(d) Other Covenants. Borrower shall fail to perform, comply with
---------------
or observe or shall otherwise breach any other covenant or agreement contained
in this Agreement and such failure or breach shall continue for more than
thirty (30) days after the earlier of the date on which Borrower shall have
first become aware of such failure or breach or Lender shall have first
notified Borrower of such failure or breach;
(e) Loan Documents. The breach or a failure of Borrower to perform,
--------------
comply with or observe any Loan Document or any other agreement, document,
instrument or certificate executed on delivered in connection with this
Agreement and if such failure shall continue for more than thirty (30)
Business Days after the earlier of the date on which Borrower shall have first
become aware of such failure or breach or Lender shall have first notified
Borrower of such failure or breach; or any Loan Document shall cease to be
legal, valid, binding or enforceable in accordance with the terms thereof;
- 36 -
<PAGE>
(f) Litigation. Any action at law, suit in equity or other legal
----------
proceeding to amend, cancel, revoke or rescind any Loan Document shall be
commenced by or on behalf of Borrower or any other person bound thereby, or by
any court or any other governmental or regulatory authority or agency of
competent jurisdiction; or any court or any other governmental or regulatory
authority or agency of competent jurisdiction shall make a determination that,
or shall issue a judgment, order, decree or ruling to the effect that, any one
or more of the covenants, agreements or obligations of Borrower under any one
or more of the Loan Documents are illegal, invalid or unenforceable in
accordance with the terms thereof;
(g) Default by Borrower under other Agreements. Any default by
------------------------------------------
Borrower or any event of default shall occur under the Subordinate Debt,
General Partner Subordinated Debt or any agreement, instrument or contract
relating to Indebtedness individually or in the aggregate in excess of Fifty
Thousand Dollars ($50,000) to which Borrower is at any time a party or by
which Borrower is at any time bound or affected, or Borrower shall fail to
perform or observe any of its agreements or covenants thereunder, and such
default or event of default or failure shall consist of a default by Borrower
in the payment at maturity or when first due and payable of all or any part of
such Indebtedness under any such document, or any default or event of default
shall result in all or any part of the Indebtedness of Borrower under any such
document becoming or being declared due and payable prior to the date on which
such Indebtedness or any part thereof would otherwise have become due and
payable, or any such default, event of default or failure shall continue for
such period of time as would permit, or as would have permitted (assuming the
giving of appropriate notice), holders of Indebtedness of Borrower to
accelerate the maturity of all or any part of such Indebtedness under any such
document.
(h) Insolvency. With respect to Borrower, any action shall be taken
----------
by or on behalf of Borrower for the termination, winding up, liquidation or
dissolution of Borrower; or Borrower shall make an assignment for the benefit
of creditors, be unable to pay its debts as they mature; or Borrower shall
file a petition in voluntary liquidation or bankruptcy; or Borrower shall file
a petition or answer or consent seeking the reorganization of Borrower, or the
readjustment of any of the Indebtedness of Borrower; or Borrower shall
commence any case or proceeding under applicable insolvency or bankruptcy laws
now or hereafter existing; or Borrower shall consent to the appointment of any
receiver, administrator, custodian, liquidator or trustee of all or any part
of the Property or assets of Borrower; or any corporate action shall be taken
by Borrower for the purpose of effecting any of the foregoing; or by order or
decree of any court of competent jurisdiction, Borrower shall be adjudicated
as bankrupt or
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<PAGE>
insolvent; or any petition for any proceedings in bankruptcy or liquidation or
for the reorganization or readjustment of Indebtedness of Borrower shall be
filed, or any case or proceeding shall be commenced, under any applicable
bankruptcy or insolvency laws now or hereafter existing, against Borrower, or
any receiver, administrator, custodian, liquidator or trustee shall be
appointed for Borrower or for all or any part of the property of Borrower and
such case or proceeding shall remain undismissed for a period of sixty (60)
days, or any order for relief shall be entered in a proceeding with respect to
Borrower under the provisions of the United States Bankruptcy Code, as
amended;
(i) Judgment. Any judgment, order or decree for the payment of
--------
money in excess of Ten Thousand Dollars ($10,000) shall be rendered against
Borrower, and Borrower shall not discharge the same or provide for its
discharge in accordance with its terms, or procure a stay of execution
thereof, within Thirty (30) days after the date of the entry thereof;
(j) Material Adverse Change. Any event or occurrence which has a
-----------------------
Material Adverse Effect on the financial condition or operations of Borrower;
provided, however, the effects of any material increase in the price of corn
from the price prevailing on the date of this Agreement shall be excluded from
this Section 8.1(j).
Section 8.2 Termination of Commitments and Acceleration of
----------------------------------------------
Obligations. If any one or more of the Events of Default shall at any time
- -----------
occur:
(a) The Lender shall, by giving notice to Borrower, immediately
terminate its commitment to make additional Loans in full and Lender shall
thereupon be relieved of all of its obligations to make any Loans hereunder;
except that if there shall be an Event of Default under Section 8.1(h) hereof,
such commitment shall automatically terminate in full, and Lender shall
thereupon be relieved of all of its obligations to make any Loans hereunder.
(b) The Lender shall, by giving notice to Borrower (in this
Agreement and in the other Loan Documents called a "Notice of Acceleration"),
declare all of the Obligations, including the entire unpaid principal of the
Loans, all of the unpaid interest accrued thereon, and all (if any) other sums
payable by Borrower under this Agreement or any of the other Loan Documents,
to be immediately due and payable; except that if there shall be an Event of
Default under Section 8.1(h), all of the Obligations, including the entire
unpaid balance of all of the Loans, all of the unpaid interest accrued thereon
and all (if any) other sums payable by Borrower under this Agreement or any of
the other Loan Documents shall automatically and immediately be due and
payable without notice to Borrower. Thereupon, all of such Obligations which
- 38 -
<PAGE>
are not already due and payable shall forthwith become and be absolutely and
unconditionally due and payable, without any further notice or any other
formalities of any kind, all of which are hereby expressly and irrevocably
waived.
(c) The Lender may proceed to protect and enforce all or any of its
rights, remedies, powers and privileges under this Agreement or any of the
other Loan Documents by action at law, suit in equity or other appropriate
proceedings, whether for specific performance of any covenant contained in
this Agreement or any of the other Loan Documents, or in aid of the exercise
of any power granted to Lender herein or therein.
Section 8.3 Remedies. From and after the occurrence of an Event of
--------
Default which is continuing and which has not been waived by the Lender,
Borrower, individually and irrevocably, hereby designates, makes, constitutes
and appoints Lender (and all persons designated by Lender) as Borrower's true
and lawful attorney and agent-in-fact, with power, without prior notice to
Borrower and at such time or times thereafter as Lender, in its sole and
absolute discretion, may determine, in Borrower's or in Lender's name:
(a) to remove from any premises where same may be located any and
all Inventory or any and all documents, instruments, files and records
(including the copying of any computer records), and any receptacles or
cabinets containing same, relating to the Accounts of Borrower, or the Lender
may use (at the expense of Borrower) such of the supplies or space of
Borrower, at Borrower's place of business or otherwise, as may be necessary to
properly administer and control the Accounts of Borrower or the handling of
collections and realizations thereon;
(b) to bring suit, in the name of Borrower or the Lender, and
generally shall have all other rights respecting the Accounts, including
without limitation the right to: accelerate or extend the time of payment,
settle, compromise, release in whole or in part any amounts owing on any such
Accounts and issue credits in the name of Borrower or the Lender;
(c) to sell, assign and deliver such Inventory and Accounts and any
returned, reclaimed or repossessed merchandise, with or without advertisement,
at public or private sale, for cash, on credit or otherwise, at the Lender's
sole discretion, and Lender may bid or become a purchaser at any such sale,
free from any right of redemption, which right is hereby expressly waived by
Borrower;
(d) to notify the account debtor on any account receivable or
chattel paper of Lender's security interest therein; to demand that monies due
or to become due be paid directly to Lender for the account of Lender; to open
Borrower's mail and to collect any and all amounts due Borrower from account
debtors; to
- 39 -
<PAGE>
enforce payment of the accounts receivable or chattel paper by legal
proceedings or otherwise; to exercise all of Borrower's rights and remedies
with respect to the collection of the accounts receivable or chattel paper; to
settle, adjust, compromise, modify, extend or renew the accounts receivable or
chattel paper; to settle, adjust or compromise any legal proceedings brought
to collect the accounts receivable or chattel paper; to the extent permitted
by applicable law, to sell or assign the accounts receivable or chattel paper
upon such terms, for such amounts and at such time or times as Lender deems
advisable; to grant waivers or indulgences with respect to, accept partial
payments from, discharge, release, surrender, substitute any customer security
for, make compromise with or release, any other party liable on, any account
receivable or chattel paper; to take control, in any manner, of any item of
payment or proceeds from any Account Debtor; to prepare, file, and sign
Borrower's name on any proof of claim in Bankruptcy or similar document
against any Account Debtor; to prepare, file, and sign Borrower's name on any
notice of lien, assignment or satisfaction of lien or similar document in
connection with the accounts receivable or chattel paper; to endorse the name
of Borrower upon any chattel paper, document, instrument, invoice, freight
bill, bill of lading or similar document or agreement relating to the accounts
receivable or chattel paper or Inventory; to use Borrower's stationery and
sign Borrower's name to verifications of the accounts receivable or chattel
paper and notices thereof to Account Debtors; and to use the information
recorded on or contained in any data processing equipment or computer hardware
or software relating to the accounts receivable, chattel paper, Inventory, or
proceeds thereof to which Borrower has access; and
(e) to foreclose the security interests created pursuant to the Loan
Documents by any available judicial procedure, or take possession of any or
all of the Inventory of Borrower without judicial process and enter any
premises where any such Inventory may be located for the purpose of taking
possession of or removing the same.
The Lender shall have the right, without notice of advertisement, to
sell, lease, or otherwise dispose of all or any part of the Collateral of
Borrower, whether in its then condition or after further preparation or
processing, in the name of Borrower, or the Lender, or in the name of such
other party as the Lender may designate, either at public or private sale or
at any broker's board, in lots or in bulk, for cash or for credit, with or
without warranties or representations, and upon such other terms and
conditions as the Lender in its sole discretion may deem advisable, and the
Lender shall have the right to purchase at any such sale. If any such
Inventory shall require rebuilding, repairing, maintenance or preparation, the
Lender shall have the right, at its option, to do such of the aforesaid as is
necessary,
- 40 -
<PAGE>
for the purpose of putting such Inventory in such saleable form as the Lender
shall deem appropriate. Borrower agrees, at the request of the Lender, to
assemble such Inventory and to make it available to the Lender at places which
the Lender shall reasonably select, whether at the premises of Borrower or
elsewhere, and to make available to the Lender the premises and facilities of
Borrower for the purpose of the Lender's taking possession of, removing or
putting such Inventory in saleable form. However, if notice of intended
disposition of any Collateral is required by law, it is agreed that five (5)
Business Days notice shall constitute reasonable notification and full
compliance with the law. The Lender shall be entitled to use all intangibles
and computer software programs and data bases used by Borrower in connection
with its business or in connection with the Collateral. The net cash proceeds
resulting from the Lender's exercise of any of the foregoing rights (after
deducting all charges, costs and expenses including reasonable attorneys'
fees) shall be applied by the Lender to the payment of the Obligations,
whether due or to become due, in such order as the Lender may elect. Borrower
shall remain liable to the Lender for any deficiencies, and the Lender in turn
agrees to remit to Borrower or its successors or assigns, any surplus
resulting therefrom. The enumeration of the foregoing rights is not intended
to be exhaustive and the exercise of any right shall not preclude the exercise
of any other rights, all of which shall be cumulative.
Section 8.4 Lockbox Accounts. After the occurrence of an Event of
----------------
Default and during the continuance thereof, Lender shall, after having
notified Borrower, have the right at any time to require that Borrower
establish and maintain one or more lockboxes (collectively, the "Lockboxes")
with Norwest Bank, N.A. and Lender is authorized to thereafter instruct all
Account Debtors on all of the accounts of Borrower to remit all payments to be
made by checks or other drafts to its Lockboxes and to remit all payments to
be made by wire transfer to an account with Norwest Bank, N.A. (the "Lockbox
Account") and/or enter into and maintain Blocked Account Agreements. Except
as otherwise agreed by Lender, all amounts received by Borrower from any
Account Debtor, in addition to all other cash received from any other source
including but not limited to proceeds from sales of Collateral and judgments,
shall upon receipt be deposited into a Lockbox Account. Each bank subject to
a Blocked Account Agreement shall be notified that all funds subject to such
agreement shall be directed to an account at Norwest Bank, N.A. (the "Cash
Deposit Account"). All deposits to the Cash Deposit Account shall be the
property of Lender for the benefit of Lender and shall not be commingled with
Borrower's other funds or be deposited in any bank account of Borrower, or
used in any manner except to pay the obligations. Lender shall, on each
Business Day be authorized to automatically debit the Cash Deposit Account and
apply the proceeds against the Loans pursuant to the provisions of Section
2.6(b)(ii). So long as no Event of Default
- 41 -
<PAGE>
shall have occurred and be continuing, if funds remain in the Cash Deposit
Account following the application provided for in the preceding sentence, the
balance will be promptly transferred to the Cash Disbursement Account. The
crediting of items deposited in the Cash Deposit Account to the reduction of
the Loans shall be conditioned upon final payment of the item and if any item
is not so paid, the amount of any credit given for it may be charged to the
Loans or to any other deposit account of Borrower, whether or not the item is
returned.
Section 8.5 No Implied Waiver; Rights Cumulative. No delay on the
------------------------------------
part of Lender in exercising any right, remedy, power or privilege under any
of the Loan Documents or provided by statute or at law or in equity or
otherwise shall impair, prejudice or constitute a waiver of any such right,
remedy, power or privilege or be construed as a waiver of any Default or Event
of Default or as an acquiescence therein. No right, remedy, power or
privilege conferred on or reserved to Lender under any of the Loan Documents
or otherwise is intended to be exclusive of any other right, remedy, power or
privilege. Each and every right, remedy, power and privilege conferred on or
reserved to Lender under any of the Loan Documents or otherwise shall be
cumulative and in addition to each and every other right, remedy, power or
privilege so conferred on or reserved to Lender and may be exercised at such
time or times and in such order and manner as Lender shall (in its sole and
complete discretion) deem expedient.
Section 8.6 Set-Off; Pro Rata Sharing. Borrower hereby confirms to
-------------------------
Lender the continuing and immediate rights of set-off of Lender with respect
to all deposits, balances and other sums credited by or due from Lender or any
of the offices or branches of Lender to Borrower, which rights are in addition
to any other rights which Lender may have under applicable law. If any
principal, interest or other sum payable by Borrower to Lender under any of
the Loan Documents is not paid to Lender punctually when the same shall first
become due and payable, or if any Event of Default shall at any time occur,
any deposits, balances or other sums credited by or due from Lender or any of
the offices or branches of Lender to Borrower, may, without any prior notice
of any kind to Borrower, or compliance with any other conditions precedent now
or hereafter imposed by statute, rule or law or otherwise (all of which are
hereby expressly and irrevocably waived by Borrower), be immediately set off,
appropriated and applied by Lender toward the payment and satisfaction of the
Obligations (but not to any other obligations of Borrower to Lender until all
of the obligations have been paid in full) in such order and manner as Lender
(in its sole and complete discretion) may determine.
- 42 -
<PAGE>
ARTICLE 9
PROVISIONS OF GENERAL APPLICATION
---------------------------------
Section 9.1 Term of Agreement. This Agreement shall continue in full
-----------------
force and effect and the duties, covenants, and liabilities of Borrower
hereunder and all the terms, conditions, and provisions hereof relating
thereto shall continue to be fully operative until all Obligations to Lender
have been satisfied in full.
Section 9.2 Notices.
-------
(a) All notices and other communications pursuant to this Agreement
shall be in writing, either delivered in hand or sent by first class mail,
postage prepaid, or sent by telex, telecopier, facsimile transmission or
telegraph, addressed as follows:
(i) If to Borrower, at: New Energy Company of
Indiana Limited Partnership
3201 West Calvert Street
P.O. Box 2289
South Bend, Indiana 46680
Attn: Larry W. Singleton
with a copy to:
Thompson Coburn
700 14th Street, N.W.
Washington, D.C. 20005-2010
Fax Number: (202) 508-1010
Attn: Barbara B. Powell
(ii) If to Lender, at:
American Money Management Corporation
One East Fourth Street
Cincinnati, Ohio 45202
Attn: Rodger M. Miller
Fax Number: (513) 579-2580
with copies to:
Great American Insurance Company
580 Walnut Street
Cincinnati, Ohio 45202
Attn: Ronald C. Hayes
Fax Number: (513) 369-3655
- 43 -
<PAGE>
and
Keating, Muething & Klekamp
1800 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
Attn: James R. Whitaker
Fax Number: (513) 579-6457
or to such other addresses or by way of such telex and other numbers as any
party hereto shall have designated in a written notice to the other parties
hereto.
(b) Except as otherwise expressly provided herein, any notice or
other communication pursuant to this Agreement or any other Loan Document
shall be deemed to have been duly given or made and to have become effective
when delivered in hand to the party to which it is directed, or, if sent by
first class mail, postage prepaid, or by telex, telecopier, facsimile
transmission or telegraph, and properly addressed in accordance with Section
9.2(a), when received by the addressee; or if sent by first class mail,
postage prepaid, on the third (3rd) Business Day following the day of the
dispatch thereof, whichever of (i) or (ii) shall be the earlier.
Section 9.3 Survival of Representations. All representations and
---------------------------
warranties made by or on behalf of Borrower in this Agreement, or any of the
other Loan Documents shall be deemed to have been relied upon by Lender
notwithstanding any investigation made by Lender and shall survive the making
of each of the Loans.
Section 9.4 Costs, Expenses, Taxes and Indemnification.
------------------------------------------
(a) Borrower absolutely and unconditionally agrees to pay to the
Lender, upon demand by Lender at any time and as often as the occasion
therefor may require, whether or not all or any of the transactions
contemplated by any of the Loan Documents are ultimately consummated all
reasonable out-of-pocket costs and expenses which shall at any time be
incurred or sustained by Lender or any of its directors, officers, employees
or agents as a consequence of, on account of, in relation to or any way in
connection with the preparation, negotiation, execution and delivery of the
Loan Documents and the perfection and continuation of the rights of the Lender
in connection with the Loans, as well as the preparation, negotiation,
execution, or delivery or in connection with the amendment or modification of
any of the Loan Documents or as a consequence of, on account of, in relation
to or any way in connection with the granting by Lender of any consents,
approvals or waivers under any of the Loan Documents including, but not
limited to, reasonable attorneys' fees and disbursements; and all reasonable
out-of-pocket costs and expenses which shall be
- 44 -
<PAGE>
incurred or sustained by Lender or any of their directors, officers, employees
or agents as a consequence of, on account of, in relation to or any way in
connection with the exercise, protection or enforcement (whether or not suit
is instituted) any of its rights, remedies, powers or privileges under any of
the Loan Documents or in connection with any litigation, proceeding or dispute
in any respect related to any of the relationships under, or any of the Loan
Documents (including, but not limit ed to, all of the reasonable fees and
disbursements of consultants, legal advisers, accountants. experts and agents
for Lender, the reasonable travel and living expenses away from home of
employees, consultants, experts or agents of Lender, and the reasonable fees
of agents, consultants and experts not in the full-time employ of Lender for
services rendered on behalf of Lender).
(b) Borrower shall absolutely and unconditionally indemnify and hold
harmless Lender against any and all claims, demands, suits, actions, causes of
action, damages, losses, settlement payments, obligations, costs, expenses and
all other liabilities whatsoever which shall at any time or times be incurred
or sustained by Lender or by any of their shareholders, directors, officers,
employees, subsidiaries, Affiliates or agents on account of, or in relation
to, or in any way in connection with, any of the arrangements or transactions
contemplated by, associated with or ancillary to this Agreement or any of the
other Loan Documents, whether or not all or any of the transactions
contemplated by, associated with or ancillary to this Agreement, or any of
such Loan Documents are ultimately consummated.
(c) Borrower hereby covenants and agrees that any sums expended by
Lender or which Lender is entitled to be reimbursed for pursuant to this
Section 9.4 shall be immediately due and payable upon demand by Lender, and
shall, unless payment is made in full to Lender within 30 days after payment
shall have been duly demanded by Lender, bear interest at the Default Interest
Rate from the date Lender incurred such expense until the date such payment is
made in full to Lender.
Section 9.5 Language. All notices, applications, certificates,
--------
reports, financial statements and other financial information, correspondence
and all other communications from Borrower to Lender pursuant to this
Agreement or any of the other Loan Documents shall be in the English language
or shall be accompanied by an English translation thereof completely
satisfactory to Lender.
Section 9.6 Binding Effect; Assignment. This Agreement shall be
--------------------------
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that the Borrower may
-----------------
not assign or delegate any of its
- 45 -
<PAGE>
rights or obligations hereunder to any Person or Persons without the express
prior written consent of Lender.
Section 9.7 Assignment of Loans, Participation. Lender may
----------------------------------
assign all or a portion of its rights and obligations under this Agreement.
Lender may sell participations of its rights and obligations under the Loan
Documents to one or more banks or other entities. It is understood and agreed
that Lender may share any and all information received by it from or on behalf
of Borrower pursuant to this Agreement or any of the other Loan Documents with
any participant or prospective assignee or participant of Lender.
Section 9.8 Governing Law. The undersigned agree that this Agreement
-------------
and the rights and obligations of all parties hereunder shall be governed by
and construed under the substantive laws of the State of Ohio, without
reference to the conflict of laws principles of such state.
Section 9.9 WAIVER OF JURY TRIAL. AS A SPECIFICALLY BARGAINED
--------------------
INDUCEMENT FOR THE LENDER TO EXTEND CREDIT TO BORROWER, AND AFTER HAVING THE
OPPORTUNITY TO CONSULT COUNSEL, BORROWER HEREBY EXPRESSLY WAIVES THE RIGHT TO
TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATING TO THIS AGREEMENT OR
ARISING IN ANY WAY FROM THE OBLIGATIONS.
Section 9.10 Waivers. Borrower waives notice of nonpayment, demand,
-------
notice of demand, presentment, protest and notice of protest with respect to
the obligations, or notice of acceptance hereof, notice of the Loans made,
credit extended, or any other action taken in reliance hereon, and all other
demands and notices of any description, except such as are expressly provided
for herein.
Section 9.11 Interpretation of Loan Documents. Whenever possible,
--------------------------------
the provisions of each Loan Document will be construed in such a manner as to
be consistent with this Agreement and each other Loan Document.
Section 9.12 Headings. The headings of the Articles, Sections and
--------
paragraphs of this Agreement have been inserted for convenience of reference
only and shall not be deemed to be a part of this Agreement.
Section 9.13 Counterparts. This Agreement may be executed in any
------------
number of counterparts, but all of such counterparts shall together constitute
but one agreement. In making proof of this Agreement, it shall not be
necessary to produce or account for more than one counterpart hereof signed by
each of the parties hereto.
- 46 -
<PAGE>
Section 9.14 Severability. Any provision of this Agreement which is
------------
prohibited and unenforceable, in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 9.15 One General Obligation. All Loans and advances by
-----------------------
Lender to Borrower under this Agreement constitute one loan, and all
Obligations of Borrower to Lender under this Agreement constitute one general
obligation. It is expressly understood and agreed that all of the rights of
Lender contained in this Agreement shall likewise apply insofar as applicable
to any modification of or supplement to this Agreement.
[Remainder of Page Intentionally Left Blank]
- 47 -
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Loan and Security
Agreement has been duly executed and delivered by or on behalf of each of the
parties as of the day and in the year first above written.
SIGNED IN THE PRESENCE OF: NEW ENERGY COMPANY OF INDIANA
LIMITED PARTNERSHIP
/s/
- --------------------------
/s/ By Its General Partner
- --------------------------
NEW ENERGY CORPORATION OF
INDIANA, an Indiana
corporation
BY:/s/Larry W. Singleton
--------------------------
ITS: President
------------------------
GREAT AMERICAN INSURANCE COMPANY
/s/
- ------------------------------- BY:/s/Eve Cutler Rosen
-----------------------------
/s/
- ------------------------------- ITS: Vice President
----------------------------
<PAGE>
AMENDMENT NO. 1 TO AMENDED AND RESTATED
LOAN RESTRUCTURING AGREEMENT
THIS AMENDMENT NO. 1 TO AMENDED AND RESTATED LOAN RESTRUCTURING AGREEMENT
dated as of August 23, 1996 (this "Amendment") is entered into by and among
New Energy Company of Indiana Limited Partnership, a limited partnership
formed under the laws of Indiana (the "Borrower"), New Energy Corporation of
Indiana, an Indiana corporation (the "General Partner") and The United States
of America, acting by and through the Secretary of Energy (the "Secretary").
Capitalized terms used herein and not otherwise defined herein shall have the
respective meaning ascribed to them in Article 1 of the Amended and Restated
---------
Loan Restructuring Agreement dated as of December 23, 1991 (the "Loan
Agreement").
WHEREAS, The Borrower, the General Partner and the Secretary entered into
the Loan Agreement for the purpose of amending the Loan Restructuring
Agreement and restructuring the Indebtedness evidenced by the outstanding New
Note No. 4;
WHEREAS, by letter dated March 25, 1996, the Borrower, by reason of an
marked increase in corn prices, requested that the Secretary allow the
Borrower to suspend principal and interest payments on Note A until October 1,
1996, with such suspended amounts being added to Note B, which request was
approved by the Secretary;
WHEREAS by letter dated June 8, 1996, the Borrower requested further
relief from payments of principal and interest on Note A and Note B and
approval of a borrowing of $500,000 from the General Partner (the "General
Partner Loan") and an amount to be determined by the Great American Insurance
Company, an affiliate of the American Financial Group, Inc. or another
affiliate thereof ("GAIC") which is supported by the collateral to be pledged
to GAIC (the "GAIC Loan"), estimated to be approximately $10,000,000; and
WHEREAS, subject to the terms hereof, the Secretary has agreed to further
temporary relief from payments of principal and interest on Note A and Note B
and approval of a borrowing by the Borrower from the General Partner and GAIC
and the pledge of certain collateral to GAIC.
NOW, THEREFORE, in consideration of the premises, the following mutual
agreements and for other good and valuable
<PAGE>
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree that the Loan Agreement is hereby amended as follows:
ARTICLE 1. ADDITIONS, DELETIONS AND AMENDMENTS TO THE LOAN AGREEMENT.
---------------------------------------------------------
A. Article 1. DEFINITIONS. is hereby amended as follows:
-----------
(1) Adding the definitions of "Amendment No.
"GAIC", "GAIC Collateral" , "GAIC Loan", "General
Partner Loan" and "Loan Agreement".
"Amendment No. 1. Amendment No. 1 to Amended
---------------
and Restated Loan Restructuring Agreement dated as of
August 23, 1996, among the Borrower, the General
Partner and the Secretary, pursuant to which the Loan
Agreement was amended.
GAIC Collateral. The cash receivables and
---------------
inventory pledged to GAIC pursuant to Loan and Security
Agreement dated as of August 23, 1996, between the
Borrower and GAIC.
GAIC Loan. The revolving loan from GAIC
---------
to the Borrower in the principal amount not to exceed
$10,000,000.
GAIC Maturity Date. December 31, 1997, provided
------------------
however, in the event the GAIC Loan is not fully repaid
by December 31, 1997, and the Borrower has extended the
GAIC Loan, the GAIC Maturity Date shall be December 31,
1998.
General Partner Loan. The loan from the General
--------------------
Partner to the Borrower in the principal amount of
$500,000.
GAIC. Great American Insurance Company, an
----
affiliate of the American Financial Group, Inc., or any
other affiliate thereof, together with its successors
and assigns.
Loan Agreement. The Amended and Restated Loan
--------------
Restructuring Agreement dated as of December 23, 1991,
among the Borrower, the General Partner and the
Secretary."; and
(2) Amending the definition of "Borrower's Cash Flow",
"Note A" and "Note B" to read as follows:
<PAGE> - 2 -
"Borrower's Cash Flow. All Excess Cash Flow so
--------------------
long as, after giving effect to the current Borrower's
use of such Excess Cash Flow, the Operating Account,
Working Capital Account and Capital Expenditure Account
contain in the aggregate at least $5,000,000, and not
otherwise required to be paid to the Secretary or
transferred to the Special Capital Expenditure Account
pursuant to Section 2.3(b)(iii)(y) hereof.
----------------------
Note A. The promissory note of the Borrower in
------
the form of Exhibit A-1 attached to the Loan Agreement,
-----------
dated the date thereof, duly executed and delivered to
the Secretary by the Borrower and payable to the order
of the Secretary in substitution for (and not in
discharge of the Indebtedness evidenced by) $55,000,000
of the $95,622,523.26 of principal and accrued interest
outstanding as of the date of the Loan Agreement under
the New Note No. 4 surrendered to the Borrower by the
Secretary, as endorsed by the Borrower on the date of
Amendment No. 1, a copy of which endorsement is
attached hereto as Exhibit A, including any further
endorsements, amendments, modifications, renewals or
replacements of such promissory note.
Note B. The promissory note of the Borrower in
------
the form of Exhibit A-2 attached to the Loan Agreement,
-----------
dated the date thereof, duly executed and delivered to
the Secretary by the Borrower and payable to the order
of the Secretary in substitution for (and not in
discharge of the Indebtedness evidenced by)
$40,622,523.26 of the $95,622,523.26 of principal and
accrued interest outstanding as of the date of the Loan
Agreement under the New Note No. 4 surrendered to the
Borrower by the Secretary, as endorsed by the Borrower
(i) on March 25, 1996, a copy of which endorsement is
attached hereto as Exhibit B and (ii) on the date of
Amendment No. 1, a copy of which endorsement is
attached hereto as Exhibit C, including any further
endorsements, amendments, modifications, renewals or
replacements of such promissory note."; and
(3) Deleting the definition of "IEDB".
B. ARTICLE 2. AMENDED TERMS is hereby amended as follows:
-------------
(1) Section 2.3(a)(i) is hereby deleted and the
following is inserted in lieu thereof:
"(i) Regular Monthly Payments. (A) Commencing
------------------------
on April 30, 1992 and on the last day of each calendar
<PAGE> - 3 -
month thereafter to and including December 31, 1995,
the Borrower shall make forty-four (44) consecutive
monthly payments of principal and interest on Note A,
each such monthly payment to be in the aggregate amount
of $631,533.
(B) Except as herein after provided, commencing on
January 31, 1996 through and including the GAIC
Maturity Date, the payments on Note A shall be
suspended and the amount of $631,533 shall be added on
the last day of each month to Note B.
(C) In the event that (1) the monthly calculation of
Cash Flow exceeds the interest then due and owing on
the GAIC Loan; the GAIC Loan has been prepaid and has
no current outstanding principal balance; the Operating
Account has a balance of at least $1,500,000; the
Working Capital Account has a balance of $2,000,000;
and the Capital Expenditure Account has a balance of
$1,300,000, the suspension of payment referred to in
Section 2.3(a)(i)(B) above shall be all or partially
--------------------
terminated for such month and such Cash Flow (to the
extent it exceeds the interest then due and owing on
the GAIC Loan, prepayment of any outstanding balance of
the GAIC Loan and the amounts of $1,500,000 in the
Operating Account, $2,000,000 in the Working Capital
Account and $1,300,000 in the Capital Expenditure
Account) shall be first applied to towards the monthly
$631,533 payment on Note A, second, applied to the
monthly payment due to BDC and the balance shall be
applied as a payment of Note B; (2) the GAIC Loan has
been repaid in its entirety and the Borrower has
terminated the GAIC Loan; and the Borrower has on
deposit in its Operating Account at least the sum of
$1,500,000, in its Working Capital Account the sum of
$2,000,000 and in its Capital Expenditure Account the
sum of $1,300,000, the suspension of the monthly
payments due on Note A shall be irrevocably terminated
and the Borrower shall be required to resume the
monthly payments of $631,533; and (3) by December 31,
1996, the Borrower shall have made any payment on Note
A pursuant to (1) above, then, unless the Borrower and
the Secretary agree that the price of corn is projected
to substantially increase in 1997 and by reason
thereof, the Borrower will continue to experience cash
flow difficulties in 1997, commencing January 31, 1997,
the Borrower shall commence payments on a monthly basis
of the interest then due and owing on Note A, with the
principal amount continuing to be added to Note B.
(D) Commencing on 31st day following the GAIC Maturity
Date and on the last day of each calendar month
<PAGE> - 4 -
thereafter, the Borrower shall make consecutive monthly
payments of principal and interest on Note A, each such
monthly payment to be in the aggregate amount of
$631,533.
(E) Any payment on Note A, pursuant to this Section
-------
2.3(a)(i) shall be applied first to accrued but unpaid
---------
interest on Note A until paid in full, and second, to
the principal on Note A."
(2) Section 2.3(b)(i) and (ii) is hereby deleted
in its entirety and the following is inserted in lieu
thereof:
"(i) Transfers to Working Capital Account and
----------------------------------------
Capital Expenditure Account. Commencing on March 1,
---------------------------
1992, and continuing each month thereafter, the
Borrower shall, as soon as possible and in any event
within fifteen (15) days after the last day of each
calendar month, compute its Cash Flow for the
immediately preceding calendar month in accordance with
Exhibit 1 to Amendment No. 1 and shall, so long as the
Borrower has on deposit in its Operating Account the
sum of $1,500,000, transfer such Cash Flow in the
following order of priority (a) to GAIC for payment of
the accrued interest; (b) to GAIC for prepayment of the
outstanding principal of the GAIC Loan; (c) to the
Working Capital Account in an amount equal to the
difference between $2,000,000 and the balance in the
Working Capital Account as of the last day of such
month, (d) to the Capital Expenditure Account in an
amount equal to the difference between $1,300,000 and
the balance in the Capital Expenditure Account as of
the last day of such month, (e) to the payment of
interest and/or principal of Note A and (f) to the
payment of interest and/or principal of the Note B.
(ii) Payments from Excess Cash Flow. On and
------------------------------
after repayment of the GAIC Loan in its entirety and
termination of the GAIC Loan by Borrower, and to the
extent there is Excess Cash Flow, Borrower shall,
subject to the provisions of Section 2.3(b)(iii)(y)
----------------------
hereto, pay to the Secretary (the "Note B Payment
Amount") the sum of: (1) 90% of the lesser of (A)
Excess Cash Flow for such month, or (B) $100,000, plus
(2) 80% of the lesser of (A) the amount by which such
Excess Cash Flow exceeds $100,000, or (B) $100,000,
plus (3) 70% of the lesser of (A) the amount by which such
Excess Cash Flow exceeds $200,000, or (B)
$100,000, plus (4) 60% of such Excess Cash Flow in
excess of $300,000. Any amount paid to the Secretary
pursuant to this Section 2.3(b)(i) or (ii) shall be
-------------------------
<PAGE> - 5 -
applied first to accrued but unpaid interest on Note B
until paid in full and thereafter to the principal of
Note B until the outstanding principal amount of Note B
is paid in full. Thereafter, any amount paid to the
Secretary pursuant to this Section 2.3(b)(ii) shall be
------------------
applied as provided in Section 2.3(a)(ii) hereof.
------------------
C. ARTICLE 5. AFFIRMATIVE COVENANTS OF THE BORROWER is hereby
-------------------------------------
amended as follows:
1. Section 5.3 is hereby amended by adding a new
subsection (c) reading as follows:
"(c) Until the GAIC Loan has been repaid in its
entirety and Borrower shall have terminated the GAIC
Loan, Borrower shall, so long as funds remain on
deposit in the Capital Expenditure Account, from time
to time, withdraw or transfer funds from the Capital
Expenditure Account to the Operating Account prior to
drawing down funds under the GAIC Loan.
2. Section 5.17 is hereby amended by deleting
the references to IEDB.
3. Adding new Section 5.27 reading as follows:
"Section 5.27 DRAWDOWNS UNDER GAIC LOAN. The
-------------------------
Borrower agrees that it will transfer funds from the
Working Capital Account and the Capital Expenditure
Account into the Operating Account and use such
transferred funds for operation and maintenance of the
Plant prior to drawing down loans under the GAIC Loan."
D. ARTICLE 6 NEGATIVE COVENANTS OF THE BORROWER is hereby amended
----------------------------------
as follows:
1. Section 6.1 is hereby amended by deleting proviso
at the end of the Section and inserting in lieu thereof
the following:
"provided, however, that any Lien permitted by this
-------- -------
Section 6.1 (other than the Lien securing the
-----------
Indebtedness permitted by subsections (a), (c) and (d)
of Section 6.2 hereof) shall be junior and subordinate
-----------
to the Lien securing the Notes."
2. Section 6.2 is hereby amended by deleting
-----------
subsection (c) and inserting in lieu thereof the
following:
<PAGE> - 6 -
"(c) the GAIC Loan secured by the GAIC Collateral, a
copy of such loan documentation attached hereto as
Exhibit D"; and
adding a new subsection (f) reading as follows:
"and the General Partner Loan, a copy of such
promissory note of the Borrower attached hereto as
Exhibit E".
3. Section 6.11 is hereby amended by deleting the
reference to IEDB.
4. Section 6.12 is hereby deleted in its entirety and
the following is inserted in lieu thereof:
Section 6.12 Administration Fee. From and after
-------------------
the date hereof and so long as the GAIC Loan shall be
outstanding, the Borrower shall be permitted to pay
monthly in arrears to the General Partner only fifty
percent (50%) of such month's amount of the
Administration Fee. The amount of such Administration
Fee not paid shall continue to accrue, but shall not be
paid until the GAIC Loan shall have been repaid.
Thereafter, the Borrower shall be permitted to pay
monthly in arrears to the General Partner only fifty
percent (50%) of such month's amount of the
Administration Fee; provided, however, that if a
-----------------
Default shall have occurred and is continuing, no
amount of the Administration Fee for such month shall
be paid. Any amount of Administration Fee not paid as
a result of the Section 6.12 may continue to accrue and
------------
constitute a debt due to the General Partner from the
Borrower, but shall not be paid, except out of
Borrower's Cash Flow.
5. Section 6.13 is hereby amended by adding after the
words "the Borrower shall not" the words "until the
GAIC Loan has been repaid, and then only" and deleting
the word "except".
E. ARTICLE 7. COVENANTS OF THE GENERAL PARTNER is
--------------------------------
hereby amended by adding a new Section 7.16 reading as follows:
"Section 7.16 New Equity. The General Partner
----------
agrees that it will use its best efforts to raise
additional funding that could be used to provide equity
to the General Partner or another entity, which could
then be made available (i) to the Borrower in the form
of a loan or (ii) for the acquisition of Borrower's
assets, on terms to be negotiated."
<PAGE> - 7 -
ARTICLE 2. MISCELLANEOUS
-------------
A. This Amendment may be executed in any number of counterparts, each
of which, when so executed, shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
B. This Amendment shall be construed with and as a part of the Loan
Agreement, as amended and supplemented hereby.
C. The Loan Agreement, as amended and supplemented by this Amendment,
is in all respects confirmed and shall, as so amended and supplement, remain
in full force and effect.
D. Unless specifically modified or amended by this Amendment, no
existing rights, interests, duties or obligations of the parties to the Loan
Agreement are affected, changed, or modified by the entering into this
Amendment.
<PAGE> - 8 -
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the date first above written.
NEW ENERGY COMPANY OF INDIANA
LIMITED PARTNERSHIP, an
Indiana limited partnership
By its General Partner
NEW ENERGY CORPORATION OF
INDIANA, an Indiana
corporation
By: /s/
-----------------------------------
Larry W. Singleton
Its: President
NEW ENERGY CORPORATION OF
INDIANA, an Indian
corporation
By: /s/
---------------------------------------
Larry W. Singleton
Its: President
THE UNITED STATES OF AMERICA,
acting by and through the
Secretary of Energy
By: /s/
---------------------------------------
Its: Contracting Officer
<PAGE>
ENDORSEMENT TO NOTE A
DATED
AS OF AUGUST 23, 1996
Pursuant to that certain Amendment No. 1 to Amended and Restated Loan
Restructuring Agreement dated as of the date hereof (the "Amendment") by and
among New Energy Company of Indiana Limited Partnership (the "Partnership"),
New Energy Corporation of Indiana, an Indiana corporation and General Partner
of the Partnership (the "General Partner") and The United States of America,
acting by and through the Secretary of Energy (the "Secretary"), the Secretary
has agreed to the terms provided in the Amendment to the Amended and Restated
Loan Restructuring Agreement dated as of December 23, 1991, by and among the
Partnership, the General Partner and the Secretary (the "Loan Agreement" and,
together with the Amendment, herein called the "Agreement"), on the condition
that, inter alia, (i) the Partnership may borrow from the Great American
----- ----
Insurance Company, or one of its affiliates (the "GAIC") up to $10,000,000
(the "GAIC Loan") and from the General Partner $500,000 and (ii) the aggregate
amount of any Note A principal and interest payments not paid be added to the
outstanding principal amount of Note B by way of this endorsement; provided,
however, in the event that the Partnership has not repaid the GAIC Loan by
December 31, 1996, the Secretary will allow the unpaid principal and interest
payments on Note A to be added to the outstanding principal amount of Note B
for a further twelve (12) months and be due and payable under the terms of
Note B.
Terms used herein but not otherwise defined herein shall have the same
meaning ascribed to them in the Agreement.
This Endorsement to Note A shall be deemed to be a contract made under
the federal laws of the United States and for all purposes shall be governed
by and construed in accordance with the federal laws of the United States.
<PAGE>
IN WITNESS WHEREOF, the Partnership has caused this Endorsement to Note A
to be duly executed and delivered by a Responsible Officer of its General
Partner thereunto duly authorized as of the 23rd day of August, 1996.
NEW ENERGY COMPANY OF INDIANA
LIMITED PARTNERSHIP, an Indiana
limited partnership
By its General Partner
NEW ENERGY CORPORATION OF
INDIANA, an Indiana
corporation
By: /s/ Larry W. Singleton
-----------------------------
Its: President
- 2 -
<PAGE>
ENDORSEMENT TO NOTE B
DATED
AS OF AUGUST 23, 1996
Pursuant to that certain Amendment No. 1 to Amended and Restated Loan
Restructuring Agreement dated as of the date hereof (the "Amendment") by and
among New Energy Company of Indiana Limited Partnership (the "Partnership"),
New Energy Corporation of Indiana, an Indiana corporation and General Partner
of the Partnership (the "General Partner") and The United States of America,
acting by and through the Secretary of Energy (the "Secretary"), the Secretary
has agreed to the terms of the Amendment to the Amended and Restated Loan
Restructuring Agreement dated as of December 23, 1991, by and among the
Partnership, the General Partner and the Secretary (the "Loan Agreement" and,
together with the Amendment, herein called the "Agreement"), on the condition
that, inter alia, (i) the Partnership borrow from the Great American Insurance
----- ----
Company, or one of its affiliates (the "GAIC") up to $10,000,000 (the "GAIC
Loan") and from the General Partner $500,000 and (ii) the aggregate amount of
any Note A principal and interest payments not paid be added to the
outstanding principal amount of Note B by way of this endorsement; provided,
however, in the event that the Partnership has not repaid the GAIC Loan by
December 31, 1996, the Secretary has agreed to allow the unpaid principal and
interest payments on Note A to be added to the outstanding principal amount of
Note B for a further twelve (12) months and be due and payable under the terms
of Note B.
Terms used herein but not otherwise defined herein shall have the same
meaning ascribed to them in the Agreement.
This Endorsement to Note B shall be deemed to be a contract made under
the federal laws of the United States and for all purposes shall be governed
by and construed in accordance with the federal laws of the United States.
<PAGE>
IN WITNESS WHEREOF, the Partnership has caused this Endorsement to Note B
to be duly executed and delivered by a Responsible Officer of its General
Partner thereunto duly authorized as of the 23rd day of August, 1996.
NEW ENERGY COMPANY OF INDIANA
LIMITED PARTNERSHIP, an Indiana
limited partnership
By its General Partner
NEW ENERGY CORPORATION OF
INDIANA, an Indiana
corporation
By: /s/ Larry W. Singleton
-----------------------
Its: President
- 2 -
<PAGE>
THIRD AMENDMENT TO LOAN AGREEMENT
This Third Amendment to Loan Agreement ("Amendment") is entered into by
and among the Business Development Corporation of South Send, Mishawaka, St.
Joseph County, Indiana (formerly South Bend Development Corporation) ("BDC")
and New Energy Company of Indiana Limited Partnership, an Indiana limited
partnership ("New Energy").
RECITALS
--------
1. On October 14, 1982, the BDC and New Energy entered into a Loan
Agreement which was amended by Amendment to Loan Agreement dated February,
1990 and further amended by letter agreement ("Letter Agreement") dated March
27, 1996 (collectively the "Loan Agreement").
2. In the Letter Agreement, New Energy, by reason of a marked
increase in corn prices, requested that the BDC allow New Energy to suspend
payments of principal and interest on the Promissory Note in the original
principal amount of Two Million Two Hundred Seventy-Two Thousand Nine Hundred
Three and 31/100 Dollars ($2,272,903.31) dated October 24, 1984 as amended by
an Amendment to Promissory Note dated April 10, 1990 ("Note 1") and the
Promissory Note in the original principal amount of One Hundred Fifty-Nine
Thousand Three Hundred Sixty and 95/100 Dollars ($159,360.95) dated October
24, 1985 as amended by an Amendment to Promissory Note dated April 10, 1990
("Note 2") executed by New Energy in favor of the BDC in accordance with the
Loan Agreement. The request was approved by the BDC, with such suspended
amounts being evidenced by an additional promissory note ("Note 3"); the
suspended payments on Note 1 and Note 2 were the quarterly payments due
February 1, 1996, May 1, 1996 and August 1, 1996. Payments on Note 1 and Note
2 are to recommence on October 1, 1996. Monthly payments on Note 3 are to
begin on October 1, 1996.
3. New Energy has requested that the BDC approve: 1) further relief
from payments of principal and interest on Note 1 , Note 2 and Note 3; 2) the
amendment of Note 1 and Note 2 to provide for monthly payments; and 3) a
borrowing from New Energy Corporation of Indiana ("General Partner") of Five
Hundred Thousand Dollars ($500,000) ("General Partner Loan") and of an amount
to be determined by Great American Insurance Company, an affiliate of American
Financial Group, Inc., or another affiliate thereof ("Lender") estimated to be
<PAGE>
2
approx Ten Million Dollars ($10,000,000) to be supported by the collateral to
be pledged to the Lander ("AIC Loan").
4. New Energy is indebted to the United State of America, acting by
and through the Secretary of Energy (the "Secretary"), in the original
aggregate principal amount of $95,622,523.26 pursuant to the terms of a
Promissory Note dated as of December 23, 1991 in the original principal amount
of $55,000,000.00 and a Promissory Note dated as of December 23, 1991 in the
original principal amount of $40,622,523.26 (the "Secretary's Debt"). New
Energy continues to make periodic payments on the Secretary's Debt and has
requested deferral of such payments on terms similar to those set forth herein
relating to BDC.
5. Subject to the terms hereof , the BDC has agreed to New Energy's
requests.
Now, therefore, in consideration of the premises, the following mutual
agreements and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree that the Loan
Agreement is further amended as follows:
1. All terms used in this Amendment, unless otherwise defined, shall
have the meaning ascribed to them in the Amended and Restated Loan
Restructuring Agreement between New Energy, the General Partner, and the
Secretary dated December 23, 1991, as amended on the date hereof by Amendment
No. 1 to Amended and Restated Loan Restructuring Agreement.
2. Except as hereinafter provided, beginning on October 1, 1998
through and including the AIC Maturity Date ("Deferral Period"), the
obligation of New Energy to make principal and interest payments on Note 1,
Note 2 and Note 3 ("Deferred Payments") shall be deemed satisfied upon the
execution of Note 4 as hereinafter defined.
3. On the first day of each month during the Deferral Period
beginning on October 1, 1996, the Deferred Payments shall be added to a new
Promissory note ("Note 4") to be executed by New Energy in favor of the BDC.
Note 4 shall be in substantially the form attached hereto as Exhibit "A."
Note 1, Note 2, Note 3 and Note 4 shall collectively be referred to as the
"Notes."
4. Amounts due under Note 4 shall accrue interest at the rate of six
percent (6%) per annum.
<PAGE>
3
5. In the avant that: (1) the monthly calculation of Cash Flow
exceeds the interest then due and owing on the AIC Loan; the AIC Loan has been
prepaid and has no current outstanding principal balance; the operating
Account has a balance of at least One Million Five Hundred Thousand Dollars
($1,500,000); the Working Capital Account has a balance of Two Million Dollars
($2,000,000); and the Capital Expenditure Account has a balance of One Million
Three Hundred Thousand Dollars ($1,300,000), the suspension of payment
referred to in paragraph 2 above shall be all or partially terminated for such
month and such Cash Flow (to the extent it exceeds the interest then due and
owing on the AIC Loan, prepayment of any outstanding balance of the AIC Loan
and the amounts of One Million Five Hundred Thousand Dollars [$1,500,000] in
the Operating Account, Two Million Dollars [$2,000,000] In the Working
Capital Account and One Million Three Hundred Thousand Dollars [$1 300,000] in
the Capital Expenditure Account) shall be first applied towards the monthly
$631,533 payment on Note A, second applied to the payments due on the Notes
and the balance shall be applied as a payment of Note B; 2) the AIC Loan has
been repaid in its entirety and New Energy has terminated the AIC Loan; and
New Energy has an deposit in its Operating Account at least the sum of One
Million Five Hundred Thousand Dollars ($1,500,000), in its Working Capital
Account the sum of Two Million Dollars ($2,000,000) and in its Capital
Expenditure Account the sum of One Million Three Hundred Thousand Dollars
($1,300,000), the suspension of the monthly payments as set forth in this
Amendment shall be irrevocably terminated and New Energy shall be required to
resume the monthly payments; and (3) by December 31, 1996, New Energy shall
have made any payment on Note A pursuant to (1) above, then, unless New Energy
and the Secretary agree that the price of corn is projected to substantially
increase in 1997 and by reason thereof, New Energy will, continue to
experience cash flow difficulties in 1997, commencing February 1, 1997, New
Energy shall commence payments on a monthly basis of the interest then duo and
owing on Note 1, Note 2 and Note 3 with the principal amounts continuing to be
added to Note 4.
6. Commencing on the first day of the month immediately following the
AIC Maturity Date, New Energy's obligation to make principal and interest
payments as set forth in the Loan Agreement and the Notes shall recommence.
<PAGE>
4
7. A now paragraph 2(b)(iv) is added to the Loan Agreement as
follows:
(iv) A loan to be made in an amount to be determined
by Great American Insurance Company, an affiliate
of American Financial Group, Inc., or another
affiliate thereof ("Lander") estimated to be
approximately Ten Million Dollars ($10,000,000)
which is supported by the collateral to be
pledged to the Lender.
8. Section 2A of the Loan Agreement shall be amended by deleting the
second sentence thereof and substituting the following:
A. Subject to paragraph 5 on page 3 of the Third Amendment
to Loan Agreement by and between the parties, payments of
principal and interest shall be made on a monthly
basis beginning on October 1, 1996 with subsequent
payments being made on the first day of each consecutive
month thereafter to the date of maturity, all as
described in two promissory notes, as amended, the first
of which is dated October 2, 1984 In the original
amount of $2,272,903.31 and the second dated October 24,
1985 in the original amount of $159,360.95, such Notes
evidencing the obligation of New Energy to the BDC under
the terms of the Loan Agreement. All principal and
accrued interest shall be due and payable on November 1,
1999.
9. New Energy agrees that it will transfer funds from the Working
Capital Account and the Capital Expenditure Account into the Operating Account
and use such transferred funds for operation and maintenance of the Plant prior
to drawing down loans under the AIC Loan.
10. The BDC hereby approves the borrowing under the General Partner
Loan; New Energy will commence repayment of the General Partner Loan at such
time as the AIC Loan has been repaid and repayment would be limited to
payments out of Cash Flow.
11. The parties acknowledge that New Energy's Indiana real estate
taxes which were due and payable on May 10, 1996 are delinquent. The
BDC hereby agrees that it will not declare a default by New Energy under the
Loan Agreement or the Notes because of the delinquent taxes unless such taxes
remain unpaid after November 11, 1996.
12. New Energy hereby agrees that execution of documents evidencing
deferral of payments on the Secretary's Debt during the year 1996 must occur
within thirty (30) days of the execution hereof by the last person to do so.
<PAGE>
5
The execution of such documents is a condition subsequent to this agreement.
This agreement shall become effective only upon the occurrence of said
condition subsequent.
13. It New Energy receives notice that it is in default under the AIC
Loan or the General Partner Loan, New Energy shall immediately provide BDC
with notice of such default. Any default under the General Partner Loan or
the AIC Loan by New Energy shall constitute an event of default under the Loan
Agreement entitling BDC, subject to the Subordination and Intercreditor
Agreement dated August 23, 1998 among New Energy, the United States of
America, the BDC and Great American Insurance Company, to accelerate the
amounts owed it and to take any and all other actions available to it under
the Loan Agreement and applicable law.
14. All other terms and conditions of the Loan Agreement and the
Notes remain in full force and effect.
Dated this 23rd day of August, 1996.
BUSINESS DEVELOPMENT CORPORATION NEW ENERGY COMPANY OF INDIANA
OF SOUTH BEND, MISHAWAKA, LIMITED PARTNERSHIP BY NEW ENERGY
ST. JOSEPH COUNTY, INDIANA CORPORATION OF INDIANA, ITS
GENERAL PARTNER
/S/ /S/
- --------------------------------- ---------------------------------------
By: Donald R. Kyle By: Larry W. Singleton
------------------------------ ------------------------------------
Its: President The President of New Energy
----------------------------- Corporation of Indiana, General Partner
<PAGE>
Note 4
PROMISSORY NOTE
---------------
August 23, 1996
Pursuant to, and subject to the terms of, the Third Amendment to Loan
Agreement between the parties dated August, 1996 ("Amendment"), New Energy
Company of Indiana Limited Partnership, an Indiana limited partnership, ("New
Energy") promises to pay to the order of the Business Development Corporation
of South Bend, Mishawaka, St. Joseph County, Indiana ("BDC") the principal sum
of up to Eight Hundred Six Thousand Nine Hundred Seventeen and 68/100 Dollars
($806,917.68); together with interest as provided in this Promissory Note
("Note"), until payment in full. Principal sums will be deemed to have been
loaned to New Energy as provided in the Amendment beginning October 1, 1996
and on the first day of each consecutive month thereafter. Interest shall
accrue at the rate of six percent (6%) per year compounded monthly. The
principal and accrued interest shall be payable as follows:
A. Commencing on the first day of the month immediately following the
AIC Maturity Date (as defined in the Amendment) and on the first day of each
consecutive calendar month thereafter, equal monthly payments which shall
include principal and interest thereon, and all without relief from valuation
and appraisement laws and with attorneys fees and costs of collection. Such
payments shall be in amounts so as to fully amortize the Note over its term.
This Note shall mature on and all principal and accrued interest on this Note
shall be due and payable on November 1, 1999. Payments must be made by
personal delivery or United States mail, correct postage prepaid, at the
office of the BDC.
B. Any late payments shall bear additional interest (aside from the
normal rate of interest established at six percent [6%] per year compounded
monthly) on both principal and interest due at the rate of six percent (6%)
per year, compounded monthly, during such period of any delinquency.
Subject to the terms of the Subordination Agreement (as later defined),
voluntary prepayments of the amounts due under this Note may be made at any
time without penalty. Such prepayment may be made in any amount. To the
extent required under the terms of paragraph 5 of the Amendment,
prepayments shall be made.
Payments shall be applied first to the payment of any unpaid interest,
secondly to the unpaid balance of any other unpaid debt on account of this
<PAGE>
2
obligation, and thirdly the remainder to be applied on the unpaid principal of
the debt until it is paid in full.
The undersigned waives presentment for payment, protest, notice of
protest and nonpayment of this Note and agrees that on default in any payment
of principal or interest, the whole amount remaining unpaid shall immediately
become due and payable without notice of nonpayment or demand for payment.
Extension of time for payment shall not release or discharge New Energy.
Anything contained in this Note to the contrary notwithstanding, the
indebtedness evidenced by this Note shall have the rights and priorities as
set forth in the Amended and Restated Loan and Restructuring Agreement, as the
same has been amended from time to time, between New Energy and the United
States Department of Energy dated December 23, 1991 and in the Subordination
and Intercreditor Agreement among New Energy, the United States of America,
the BDC and Great American Insurance Company dated the 23rd day of August,
1996 ("Subordination Agreement").
NEW ENERGY COMPANY OF INDIANA
LIMITED PARTNERSHIP BY ITS GENERAL
PARTNER NEW ENERGY CORPORATION OF
INDIANA
By: /s/ Larry W. Singleton
------------------------------
Its: President
<PAGE>
PROMISSORY NOTE
---------------
New Energy Company of Indiana Limited Partnership ("Borrower") promises
to pay to the order of New Energy Corporation of Indiana ("Lender") the
principal sum of Five Million Seven Hundred Eighty Thousand Five Hundred
Eighty-Two and 95/100 Dollars ($5,780,582.95) plus accrued interest on the
unpaid principal balance as provided for in this Promissory Note ("Note").
Simple interest will be calculated at the rate of eight and one-half
percent (8 1/2%) per annum. Interest shall accrue beginning August 1, 1987.
All principal and accrued interest under this Note shall be due and payable on
or before sixty (60) days after the delivery of Lender's written demand for
payment.
In the event of delinquency or default of the payment due on this Note,
interest shall then be payable at the rate of ten and one-half percent (10 1/2%)
per annum until the default has been removed. Attorney fees of Lender, if
incurred because of a default, shall be paid by Borrower.
In the event of default of the required payment under this Note, the
entire unpaid principal, interest and any other obligations ("Indebtedness")
may be collected by appropriate procedure and no delay or failure by Lender or
its successors in interest to exercise any right or remedy shall release the
liability of Borrower on this Note.
Prepayment of any amounts due under this Note may be made at any time
without penalty. Payment shall be made to Lender at 3201 West Calvert, Post
Office Box 2289, South Bend, Indiana 46680-2289 or wherever Lender may direct
in writing.
Payments shall be applied first to any unpaid interest, second to any
other unpaid debt on account on this Note, and third to the unpaid principal
of this Note until paid in full.
The Indebtedness evidenced by this Note is subordinate to Borrower's
indebtedness to Great American Insurance Company under a Loan and Security
Agreement dated August 23, 1996 ("Loan Agreement") and the United States of
America under the Amended and Restated Loan Restructuring Agreement dated
December 31, 1991 ("Restructuring Agreement"). The Indebtedness can be paid
only in accordance with the terms of the Restructuring Agreement and the Loan
Agreement.
<PAGE>
This Note is now signed to be effective December 31, 1996.
BORROWER
NEW ENERGY COMPANY OF INDIANA
LIMITED PARTNERSHIP
By: /s/ Larry W. Singleton
-------------------------
Larry W. Singleton, President of
New Energy Corporation of Indiana,
General Partner
This instrument was prepared by Richard L. Mintz, Roemer and Mintz, 1400
Society Bank Building, South Bend, Indiana 46601.
-2-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Statement and Consolidated Statement of Operations of New
Energy Company of Indiana Limited Partnership as of and for the fiscal year
ended December 31, 1996, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,765,950
<SECURITIES> 0
<RECEIVABLES> 6,879,774
<ALLOWANCES> 0
<INVENTORY> 4,822,450
<CURRENT-ASSETS> 18,400,501
<PP&E> 159,520,406
<DEPRECIATION> 136,540,361
<TOTAL-ASSETS> 41,380,546
<CURRENT-LIABILITIES> 8,211,109
<BONDS> 71,200,490
0
0
<COMMON> 0
<OTHER-SE> (38,382,811)
<TOTAL-LIABILITY-AND-EQUITY> 41,380,456
<SALES> 131,694,369
<TOTAL-REVENUES> 132,020,576
<CGS> 134,455,026
<TOTAL-COSTS> 134,455,026
<OTHER-EXPENSES> 6,280,838
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,455,428
<INCOME-PRETAX> (13,132,716)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,132,716)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,132,716)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
