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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
AMENDMENT NO. 3
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[X] Preliminary Proxy Statement [X] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
New Energy Company of Indiana Limited Partnership
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
New Energy Corporation of Indiana
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
Units of Limited Partnership Interests
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
6,399
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3) Per unit price or other underlying value of transacting computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
$9,034,800 cash received (Rule 0-11(c)(2))
- --------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
$9,034,800
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5) Total fee paid:
$1,807
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
- --------------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
3) Filing Party:
New Energy Corporation of Indiana
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4) Date Filed:
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NEW ENERGY CORPORATION OF INDIANA
3201 WEST CALVERT STREET
SOUTH BEND, INDIANA 46613
------------------------
NOTICE OF A SPECIAL MEETING OF LIMITED PARTNERS
TO BE HELD ON DECEMBER 16, 1997
------------------------
To the Limited Partners of New Energy Company of Indiana Limited Partnership:
PLEASE TAKE NOTICE that a Special Meeting of Limited Partners (the "Special
Meeting") of New Energy Company of Indiana Limited Partnership, an Indiana
limited partnership (the "Company"), will be held on December 16, 1997, at 11:00
am., local time, at Century Center--Recital Hall, 120 South Saint Joseph Street,
South Bend, Indiana 46601, for the following purposes:
1. To consider and vote upon the question of the approval of the sale
of the assets and business of the Company pursuant to an Asset Purchase
Agreement (the "Agreement") dated as of July 1, 1997, by and between the
Company and Corn Energy, Inc. (the "Purchaser") and the subsequent
liquidation of the Company in accordance with the Amended and Restated
Limited Partnership Agreement of the Company and an Agreement and Plan of
Complete Liquidation, dated July 1, 1997, between the Company and New
Energy Corporation of Indiana, an Indiana corporation (the "Corporation"),
the Company's sole general partner. The sale of the business and assets and
the subsequent liquidation of the Company, and the other transactions
contemplated by the Agreement, are hereinafter referred to as the
"Transaction."
2. To transact such other business pertaining or related to the
foregoing as may properly come before the Special Meeting.
Only Limited Partners at the close of business on October 1, 1997, are
entitled to notice of and to vote at the Special Meeting or any adjournment or
postponement thereof. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
New Energy Corporation of Indiana,
General Partner
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF THIS TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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NEW ENERGY COMPANY OF INDIANA
SPECIAL MEETING OF LIMITED PARTNERS , 1997
LIMITED PARTNERSHIP
THIS PROXY IS SOLICITED ON BEHALF OF
NEW ENERGY CORPORATION OF INDIANA,
GENERAL PARTNER
PROXY
I hereby revoke all proxies previously given by me with respect to
all my units of Limited Partnership Interest ("Limited Partner Units")
in New Energy Company of Indiana Limited Partnership (the "Company")
and hereby constitute and appoint New Energy Corporation of Indiana
(the "Corporation"), through its officers, or any of them acting
singly, with full power of substitution, my proxy to attend and vote
in my behalf at the Special Meeting of the Limited Partners of the
Company to be held , 1997 at South Bend, Indiana or at any
adjournment thereof, upon the following matters:
(1) Proposal to approve the Transaction (as defined in Notice of Special
Meeting).
[ ] For Approval.
[ ] Against Approval.
(2) In their discretion, on such other business as may properly come
before the meeting or any adjournment thereof.
THE CORPORATION RECOMMENDS A VOTE FOR APPROVAL OF THE TRANSACTION.
This acknowledges receipt of the Proxy Statement dated . Your
Limited Partner Units will be voted as directed herein. If this form is signed
and no direction is given, the Limited Partner Units will be voted for approval
of the Transaction.
(continued, and to be signed, on other side)
(continued from other side)
Please mark, sign, and date this form and return it to the Corporation in
the self-addressed envelope, postage free if mailed in the United States, or by
facsimile transmission to: (219) 237-3317.
for receipt by not later than a.m., South Bend, Indiana time, on
, 1997.
I hereby further certify that I am not a Corporation Assign or Corporation
Affiliate as those terms are defined on page of the Proxy Statement.
EXECUTED this day of , 1997.
X
(Printed)
X
(Printed)
If Owned
Jointly
IF YOU ATTEND THE MEETING, YOU MAY
WITHDRAW YOUR PROXY AND VOTE IN
PERSON.
SIGNING INSTRUCTIONS: Please sign
exactly as your name(s) appears on
your Limited Partner Unit
Subscription Agreement as modified
by any form of Assignment and
Acceptance executed and accepted by
the Company. If the signer is a
corporation, sign the full
corporate name by a duly authorized
officer.
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LIMITED PARTNERS SHOULD READ THE ENTIRE
PROXY STATEMENT CAREFULLY PRIOR TO
RETURNING THEIR PROXIES
PROXY STATEMENT
FOR
SPECIAL MEETING OF LIMITED PARTNERS OF
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
TO BE HELD DECEMBER 16, 1997
FORWARD-LOOKING INFORMATION
This document and other materials filed or to be filed by the Company or
the Corporation 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 or the Corporation, contain or will contain or
include disclosures that are forward-looking statements. These forward-looking
statements address, among other things, strategic initiatives (including plans
for capital expenditure requirements and financing sources). See "INFORMATION
CONCERNING THE COMPANY." These forward-looking statements are based upon the
Company's current plans or expectations and are subject to a number of
uncertainties and risks that could significantly affect current plans,
anticipated actions and 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
the prices of corn, ethanol and distillers dried grains and solubles ("DDGS").
As a consequence, current plans, anticipated actions and future financial
conditions and results may differ from those expressed in any forward-looking
statements made by or on behalf of the Company or the Corporation.
GENERAL
INTRODUCTION
This Proxy Statement and the enclosed form of Proxy are provided to limited
partners (the "Limited Partners") of New Energy Company of Indiana Limited
Partnership (the "Company") in connection with the solicitation of Proxies by
New Energy Corporation of Indiana (the "Corporation"), the Company's sole
general partner, for use at the Special Meeting. This Proxy Statement and the
accompanying form of Proxy were first mailed to Limited Partners on or about
, 1997.
A person giving a Proxy may revoke it at any time before it is exercised by
written notice to the Corporation at the address below or by attending the
Special Meeting and requesting in writing a return of the Proxy. The Company
will pay the costs of soliciting Proxies. No amount is to be paid to the
Corporation or any employee of the Company or the Corporation for soliciting
Proxies other than the standard salaries and wages of employees for performance
of their customary duties. The principal executive offices of the Company and
the Corporation are located at 3201 West Calvert Street, South Bend, Indiana
46613.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the Limited Partners will consider and vote upon
the question of approval of the sale of all the assets and business of the
Company pursuant to an Asset Purchase Agreement (the "Agreement") dated July 1,
1997, by and between the Company and Corn Energy, Inc., an Indiana corporation
(the "Purchaser"), and the subsequent liquidation of the Company in accordance
with the Company's Amended and Restated Limited Partnership Agreement (the
"Partnership Agreement") and an
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Agreement and Plan of Complete Liquidation (the "Liquidation Plan") dated July
1, 1997, between the Company and the Corporation. The sale of the assets and
business and the subsequent liquidation of the Company, and the other
transactions contemplated by the Agreement and the Liquidation Plan, are
hereinafter referred to as the "Transaction." The units of limited partnership
interests in the Company are hereinafter referred to as "Limited Partner Units."
It is anticipated that approval of the Transaction will result in a distribution
to holders of Limited Partner Units who made full or partial payment to the
Company pursuant to their Assumption Agreements entered into in connection with
the initial capitalization of the Company (the Limited Partner Units held by
such holders are hereinafter referred to as "Qualified Limited Partner Units")
of approximately $400 per Qualified Limited Partner Unit. As of the date of this
Proxy Statement there are 6,399 Limited Partner Units, of which 6,258 are
Qualified Limited Partner Units. No distributions will be made to holders of
Limited Partner Units which are not Qualified Limited Partner Units. The
Agreement and the Liquidation Plan are attached hereto as Exhibit "A" and
Exhibit "B," respectively.
The Corporation does not know of any other matters to come before the
Special Meeting. In the event any such matters properly are raised for
consideration and vote, the Corporation will exercise the voting rights of the
Limited Partners returning duly executed Proxies. The Corporation will have the
Company's accountants, Ernst & Young LLP, present or available to answer
questions at the Special Meeting.
VOTING; VOTE REQUIRED
Approval of the Agreement and the Transaction will be considered as a
single proposal. Approval of the sale of all of the Company's assets and
business pursuant to the Agreement will constitute approval of the Transaction
and all related transactions necessary to consummate the Agreement and
accomplish the Transaction. The units of limited partnership interests in the
Company (the "Limited Partner Units") represented by each Proxy received by the
Corporation and not timely revoked will be voted at the Special Meeting in
accordance with the instructions contained therein and, if no instructions are
given, will be voted FOR approval of the Agreement and the Transaction.
Approval of the Transaction requires the affirmative vote of Limited
Partners, other than the Special Limited Partner, the Corporation, Corporation
Affiliates and Corporation Assigns (each as defined herein), who own more than
50% of the distributive share of profits and losses of the Company owned by all
Limited Partners other than the Special Limited Partner, the Corporation,
Corporation Affiliates and Corporation Assigns (a "Majority in Interest of the
Limited Partners"). For purposes of determining whose votes may be counted
toward a Majority in Interest of the Limited Partners, the Partnership Agreement
provides as follows:
(i) A "Corporation Affiliate" means any person, corporation or other
entity directly or indirectly controlling, controlled by or under common
control with the Corporation, including, without limitation, a person,
corporation or other entity in which the Corporation and Corporation
Affiliates own, in the aggregate, 10% or more of the outstanding voting
stock or equity interest or which owns 10% or more of the outstanding
voting stock or equity interest in the Corporation or a Corporation
Affiliate; and
(ii) A "Corporation Assign" means any person who acquires an interest
in the Limited Partnership held by the Corporation on November 15, 1982,
including, without limitation, (a) the right to a distributive share of the
profits and losses of the Company, (b) the right to a distributive share of
the assets of the Company, and (c) the right to participate in the
management of the Company.
The Corporation has fixed the close of business on October 1, 1997 as the
record date (the "Record Date") for determination of the Limited Partners
entitled to receive notice of and to vote at the Special Meeting. On the Record
Date, the Company had 3,274 Limited Partners holding 6,337 Limited Partner
Units, excluding the Special Limited Partner, the Corporation, Corporation
Affiliates and Corporation Assigns. Accordingly, the affirmative vote of 3,169
Limited Partner Units is required for approval of the Transaction. The
Corporation owns 62 Limited Partner Units that will not be voted and will be
contributed to the Company and cancelled as part of the Transaction.
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Agreement and Plan of Complete Liquidation (the "Liquidation Plan") dated July
1, 1997, between the Company and the Corporation. The sale of the assets and
business and the subsequent liquidation of the Company, and the other
transactions contemplated by the Agreement and the Liquidation Plan, are
hereinafter referred to as the "Transaction." The units of limited partnership
interests in the Company are hereinafter referred to as "Limited Partner Units."
It is anticipated that approval of the Transaction will result in a distribution
to holders of Limited Partner Units who made full or partial payment to the
Company pursuant to their Assumption Agreements entered into in connection with
the initial capitalization of the Company (the Limited Partner Units held by
such holders are hereinafter referred to as "Qualified Limited Partner Units")
of approximately $400 per Qualified Limited Partner Unit. As of the date of this
Proxy Statement there are 6,399 Limited Partner Units, of which 6,258 are
Qualified Limited Partner Units. No distributions will be made to holders of
Limited Partner Units which are not Qualified Limited Partner Units. The
Agreement and the Liquidation Plan are attached hereto as Exhibit "A" and
Exhibit "B," respectively.
The Corporation does not know of any other matters to come before the
Special Meeting. In the event any such matters properly are raised for
consideration and vote, the Corporation will exercise the voting rights of the
Limited Partners returning duly executed Proxies. The Corporation will have the
Company's accountants, Ernst & Young LLP, present or available to answer
questions at the Special Meeting.
VOTING; VOTE REQUIRED
Approval of the Agreement and the Transaction will be considered as a
single proposal. Approval of the sale of all of the Company's assets and
business pursuant to the Agreement will constitute approval of the Transaction
and all related transactions necessary to consummate the Agreement and
accomplish the Transaction. The units of limited partnership interests in the
Company (the "Limited Partner Units") represented by each Proxy received by the
Corporation and not timely revoked will be voted at the Special Meeting in
accordance with the instructions contained therein and, if no instructions are
given, will be voted FOR approval of the Agreement and the Transaction.
Approval of the Transaction requires the affirmative vote of Limited
Partners, other than the Special Limited Partner, the Corporation, Corporation
Affiliates and Corporation Assigns (each as defined herein), who own more than
50% of the distributive share of profits and losses of the Company owned by all
Limited Partners other than the Special Limited Partner, the Corporation,
Corporation Affiliates and Corporation Assigns (a "Majority in Interest of the
Limited Partners"). For purposes of determining whose votes may be counted
toward a Majority in Interest of the Limited Partners, the Partnership Agreement
provides as follows:
(i) A "Corporation Affiliate" means any person, corporation or other
entity directly or indirectly controlling, controlled by or under common
control with the Corporation, including, without limitation, a person,
corporation or other entity in which the Corporation and Corporation
Affiliates own, in the aggregate, 10% or more of the outstanding voting
stock or equity interest or which owns 10% or more of the outstanding
voting stock or equity interest in the Corporation or a Corporation
Affiliate; and
(ii) A "Corporation Assign" means any person who acquires an interest
in the Limited Partnership held by the Corporation on November 15, 1982,
including, without limitation, (a) the right to a distributive share of the
profits and losses of the Company, (b) the right to a distributive share of
the assets of the Company, and (c) the right to participate in the
management of the Company.
The Corporation has fixed the close of business on , 1997
as the record date (the "Record Date") for determination of the Limited Partners
entitled to receive notice of and to vote at the Special Meeting. On the Record
Date, the Company had 3,274 Limited Partners holding 6,337 Limited Partner
Units, excluding the Special Limited Partner, the Corporation, Corporation
Affiliates and Corporation Assigns. Accordingly, the affirmative vote of 3,169
Limited Partner Units is required for approval of the Transaction. The
Corporation owns 62 Limited Partner Units that will not be voted and will be
contributed to the Company and cancelled as part of the Transaction.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. The reports and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street NW, Room 1024, Washington D.C.
20549. In addition, this information also may be reviewed by accessing
http://www.sec.gov. The Transaction will be a Rule 13e-3 transaction, as defined
in Rule 13e-3 promulgated by the Commission under the Exchange Act. In
accordance with the terms of that Rule, the Corporation and the Company and the
Purchaser and Carl H. Lindner have filed with the Commission a Rule 13e-3
Transaction Statement on Schedule 13E-3.
APPRAISAL RIGHTS
No appraisal rights are available with respect to the Transaction under the
Indiana Revised Uniform Limited Partnership Act or under the Partnership
Agreement and none are being accorded voluntarily by the Corporation, the
Company, the Purchaser or Mr. Lindner in connection with the Transaction. There
may exist other rights or actions under state law for limited partners who are
aggrieved by partnership transactions. Although the nature and extent of such
rights or actions are uncertain and may vary depending upon facts and
circumstances, limited partner challenges to partnership action generally relate
to the fiduciary responsibilities of the general partner and to the fairness of
partnership transactions.
TRADING IN LIMITED PARTNER UNITS
There is no established trading market for the Limited Partner Units. Since
January 1, 1995, other than transfers upon the death, or for estate planning, of
Limited Partners, the only transactions in the Limited Partner Units of which
the Corporation is aware are the surrender to the Corporation of 29 Limited
Partner Units by Limited Partners for no compensation except in the case of two
Limited Partner Units purchased by the Corporation for $250 per Limited Partner
Unit on January 27, 1995. The Limited Partner Units held in the name of the
Corporation will not be treated as outstanding for purposes of the vote on the
Transaction and will not be voted. Those Units will be surrendered to the
Company for cancellation upon the closing of the Transaction.
SUMMARY OF THE TRANSACTION
The following summary of certain information contained in this Proxy
Statement is qualified in its entirety by reference to the more detailed
discussion contained in this Proxy Statement and the documents referred to
herein, to which reference should be made for a more complete description of the
Transaction.
DESCRIPTION OF THE TRANSACTION
At the Special Meeting, the Company's Limited Partners will be asked to
consider and vote upon the question of approval of the Transaction, pursuant to
which the Company will sell to the Purchaser all of the Company's assets,
including but not limited to all of its cash, working capital and other assets
used or usable in the business of producing and distributing ethanol and its
by-products (the "Business"). In consideration therefor, the Purchaser has
agreed to pay to the Company $9,034,800 in cash at closing and to assume all of
the liabilities of the Company then existing or thereafter arising (other than
those liabilities released or satisfied as part of the Transaction). Immediately
prior to the consummation of the Transaction, the Corporation will contribute to
the Company substantially all of its assets and liabilities, retaining only the
right to payment of the sum of $4,000,000 with respect to an aggregate
$10,486,996 owed as of June 30, 1997 by the Company to the Corporation . The
Company simultaneously will (a) provide to the Corporation complete releases
with respect to all of the Corporation's obligations respecting the Company's
indebtedness to the United States Department of Energy ("DOE"), the Business
Development Corporation of South Bend, Mishawaka, and St. Joseph County, Indiana
("BDC") and Great American Insurance Company ("GAIC"); and (b) assume and agree
to pay and to perform all of the liabilities and obligations of the Corporation
of any
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nature whether fixed or contingent, known or unknown, liquidated or
unliquidated, including, without limitation, unpaid expenses related to the
Transaction and the costs of winding up the Company's affairs, provided that the
amount of expenses shall not exceed the amounts of administration fees to which
the Corporation is entitled under the Partnership Agreement. All of the
obligations assumed by the Company then will be assumed by the Purchaser upon
the consummation of the Transaction. By side letter, dated June 26, 1997, the
Purchaser has agreed to pay the Corporation's expenses for winding up its, and
the Company's affairs, to the extent such expenses exceed the administration
fees to which the Corporation is entitled under the Partnership Agreement.
EFFECT OF THE TRANSACTION
Upon consummation of the Transaction, the Company will cease its ownership
and operation of its sole Business. Pursuant to the terms of the Partnership
Agreement, the Company will dissolve and wind up its affairs in accordance with
the terms and subject to the conditions of the Agreement, the Liquidation Plan
and the Partnership Agreement. The Company will pay $2,500,000 to the BDC in
full satisfaction of its claims and Special Limited Partner interest and will
pay to the Corporation $4,000,000 in full satisfaction of the Company's debt
obligations to the Corporation and will then distribute its remaining assets to
the Limited Partners. As of June 30, 1997, the balance outstanding on the BDC
loans was $1,033,900 consisting of $1,028,757 principal and $5,143 of accrued
and unpaid interest. For a more thorough discussion of the BDC Loans please see
"INFORMATION CONCERNING THE COMPANY -- Capitalization". The $2,500,000 to be
paid to BDC will be applied initially to repay such balance of principal and
interest. The remainder of the payment will be allocated to the BDC's Special
Limited Partner Interest. It is anticipated that the liquidation of the Company
will result in the distribution of $2,534,800 to holders of Qualified Limited
Partner Units, or approximately $400 in cash per Qualified Limited Partner Unit.
The Corporation also will then liquidate and distribute its remaining assets
(consisting of the $4,000,000 in cash received from the Company) to its
shareholders in accordance with their interests. There can be no assurance as to
the exact amount or timing of these distributions. The Transaction is a taxable
transaction to the Company and the tax consequences thereof are allocable to the
holders of Limited Partner Units. The Transaction will result in approximately
$5,995 per Limited Partner Unit of recognizable taxable income to Limited
Partners, which may be offset in full by losses attributable to prior periods.
See "TAX CONSEQUENCES." The amount of the distribution to the Corporation and
the BDC and the allocation thereof between principal, interest, and capital are
the result of separate negotiations between the Purchaser and three of the
Corporation's shareholders and the BDC. Because the Partnership Agreement
provides that in liquidation Limited Partner distributions are subordinate to
distributions to the BDC and debt owed the Corporation, absent these negotiated
reductions in the Corporation's and the BDC's entitlement to the Transaction
proceeds, no distributions would have been available for Limited Partners. See
"THE AGREEMENT AND THE TRANSACTION -- Plan of Liquidation." An unaudited Pro
Forma Balance Sheet for the Company giving effect to the Transaction is annexed
hereto as Exhibit "C", and incorporated herein.
CONDITIONS TO THE TRANSACTION
In addition to approval by the Limited Partners, the Transaction requires
the consent of the DOE and certain regulatory approvals. The BDC and GAIC have
provided the consents or agreements required from them. See Agreement dated as
of May 30, 1997, between the Company and the BDC (the "BDC Agreement"), a copy
of which is attached hereto as Exhibit C. Approval of the Transaction by the
shareholders of the Corporation is assured under the terms of a Transaction
Assurance Agreement among shareholders holding a majority of the Corporation's
shares, dated as of June 26, 1997 (the "Transaction Assurance Agreement"). A
copy of the Transaction Assurance Agreement along with the Indemnity Agreements
annexed thereto, is attached hereto as Exhibit D. There are other conditions to
closing that are more fully set forth in the Agreement.
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EFFECTIVE TIME OF THE TRANSACTION
The Transaction will be closed as soon as practicable following the
satisfaction of the conditions thereto. Distributions to Limited Partners will
be made as soon as reasonably practicable thereafter, but will be subject to a
further determination of the Corporation's Board of Directors that the Company's
liabilities assumed by the Purchaser will be paid.
CONFLICTS OF INTEREST
The Purchaser and GAIC are affiliates of Chiquita Brands International,
Inc. ("Chiquita"), a shareholder of the Corporation. Chiquita ultimately is
controlled by Carl H. Lindner, who is also the controlling shareholder of the
Purchaser. Since May 1996, persons having other business relationships with
Chiquita or who are directors of Chiquita's affiliates, have held three of the
four positions on the Corporation's Board of Directors, and the fourth director
is a person having professional relationships with Interamerican Investment
Group, Inc. ("Interamerican"), another shareholder of the Corporation. The
Corporation, its Board of Directors and management also are subject to a number
of conflicts of interest in connection with the Transaction. Consequently, the
Transaction cannot be considered as an "arm's length" transaction. The
Corporation has retained Duff & Phelps LLC ( "Duff & Phelps") to review the
Transaction for its fairness to the Limited Partners and Duff & Phelps has
rendered its opinion to the effect that the Transaction is fair to the Limited
Partners from a financial point of view.
SPECIAL FACTORS
THE COMPANY
The Company, whose sole general partner is the Corporation, was formed on
April 15, 1980, under the Indiana Uniform Limited Partnership Act to construct
and operate an ethanol production facility (the "Plant") located at 3201 West
Calvert Street, South Bend, Indiana. In 1988, Indiana adopted its version of the
Revised Uniform Limited Partnership Act. The Company has been operating under
the Revised Uniform Limited Partnership Act, as adopted in Indiana, since June
6, 1990.
On April 28, 1982, the Company commenced an offering, on a best efforts
basis, of up to $37,000,000 in Limited Partner Units in increments of $5,000 per
Limited Partner Unit and a minimum required investment of one Limited Partner
Unit. Each Limited Partner also executed an Assumption Agreement pursuant to
which he or she assumed $2,500 per Limited Partner Unit 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 Company terminated the offering having
raised approximately $32,000,000 through the sale of 6,399 Limited Partner
Units. Payment under the Assumption Agreements was called for in December, 1986.
Plant construction commenced in 1982 with proceeds of the offering,
$5,000,000 from a private offering of Special Limited Partner interests to the
BDC, a $3,000,000 capital contribution from the Corporation, $140,914,000 in
long-term debt 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 DOE, and $2,432,264 in long-term debt financing from
the BDC. See "INFORMATION CONCERNING THE COMPANY -- Capitalization."
THE CORPORATION
The Corporation was organized under the Indiana Business Corporation Law
for the purpose of acting as the general partner of the Company, and it has
engaged in no other business. The Corporation has provided all of the management
services required for the Company. The principal shareholders of the Corporation
are Interamerican, Chiquita and Ethanol Services, Inc. ("ESI"), which own 40.2%,
28.5% and 25.1%, respectively, of the Corporation's outstanding shares. The
remainder of the Corporation's shares are owned by nine persons who, to the
Corporation's knowledge, are not affiliated with the three largest shareholders.
See "MANAGEMENT OF COMPANY AND CORPORATION." From early 1994 until May 29, 1996,
the
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senior management of the Corporation were persons affiliated with Interamerican.
At the annual meeting of shareholders of the Corporation held May 29, 1996,
Chiquita, in possession of ESI's proxy, proposed, and the Corporation's
shareholders elected, a slate of directors selected by Carl H. Lindner, and
nominated by Chiquita and the chief executive and financial officers of the
Corporation were replaced. Three of the four directors of the Corporation are
persons having business, professional or director relationships with Chiquita or
Chiquita affiliates, and the other director has professional relationships with
Interamerican. The Purchaser is owned by affiliates of Chiquita. See "CONFLICTS
OF INTEREST."
THE COMPANY DEBT
As a part of the Company's original financing and in addition to the
Corporation's capital contribution, the Corporation was required to provide a
cash pledge of $4,000,000 and to post a $1,500,000 letter of credit as security
for the Company's obligations to the bank consortium. In December, 1986, the
Company defaulted on the bank loan and the lenders seized the cash pledge and
drew on the letter of credit, which amounts, with interest, totaled $5,780,583
at the time of foreclosure. The Board of Directors of the Corporation
determined, at that time, that the foreclosed amount represented a loan by the
Corporation to the Company, and the Company began to accrue interest on that
amount beginning August 1, 1987. No note or other evidence of the loan was
provided, but the obligation was carried as an account payable by the Company to
the Corporation and characterized as such in all reports to Limited Partners and
in all filings by the Company with the Commission. Subsequently, the Corporation
loaned $578,832 to the Company in connection with the restructuring of the DOE
loan in 1991, and loaned an additional $500,000 to the Company in August, 1996
in connection with entry into the agreement relating to the GAIC loan. As of
June 30, 1997, the aggregate of these amounts, together with interest accrued
thereon, was $9,795,354 and is referred to herein as the "Intercompany Debt." In
addition, as of June 30, 1997, the Company owed the Corporation $691,642 for
deferred management fees. Accordingly, as of June 30, 1997, the Company owed the
Corporation a total of $10,486,996 consisting of the Intercompany Debt and
deferred management fees. As of June 30, 1997, the Company also was indebted to
the DOE and the BDC in the amounts of $62,203,411 and $1,033,900, respectively.
In addition, the BDC is entitled to receive, over a period of ten years out of
distributions made by the Company, in equal annual installments, and in
preference to distributions to other partners, a return of its capital plus an
amount equal to 8% per year compounded annually. As of June 30, 1997, these
amounts aggregated approximately $15,500,000. 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.
See "INFORMATION CONCERNING THE COMPANY -- Capitalization."
BACKGROUND OF THE TRANSACTION
In August, 1994, Interamerican advised the Board of Directors of the
Corporation that it was interested in acquiring the assets of the Corporation
and the Company and it provided to the Corporation's Board of Directors a draft
of an asset purchase agreement describing the proposed terms of that
transaction. Because the persons then acting as the senior management of the
Corporation also owned shares in Interamerican, the Corporation's Board of
Directors appointed a special committee of directors not involved in management
of the Corporation with the authority to consider and respond to the
Interamerican proposal. The terms of the offer included (a) the assumption by
the purchaser of the DOE loan (then in the amount of approximately $75,400,000),
(b) the assumption of the BDC loan (then in the amount of approximately
$1,300,000), (c), the issuance to the Corporation of a promissory note of
Interamerican with respect to the Intercompany Debt and the accrued and unpaid
management fees (approximately $9,900,000 and $1,300,000, respectively), (d) the
assumption of approximately $6,400,000 of other obligations of the Company and
(e) a cash payment of $1,777,750. Extended discussions and negotiations then
took place between the special committee and Interamerican with respect to
various aspects of the offer, including discussion of the special committee's
position that a vote by the shareholders of the Corporation was required as a
condition to the completion of the transaction. Prior to the resolution of this
question, Interamerican advised the special committee that it had determined
that the account receivable reflecting the bank foreclosure on the Corporation's
pledge and letter of credit was not a legally enforceable loan, and that it was
unwilling to include payment for this obligation as a part of the consideration
for the proposed transaction. The special committee took this issue under
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advisement, and negotiations continued with respect to this and other issues.
The subsequent discussion concerning the Intercompany Debt included an attempt
to arrive at a value for the obligation, on the assumption that it represented
an enforceable debt. However, the parties ultimately were unable to reach any
agreement as to the valuation of the obligation, and negotiations were
terminated in April, 1995 as a result of this and other unresolved issues.
On October 7, 1996, Larry W. Singleton, President of the Corporation,
received a telephone call from Rodger M. Miller of American Money Management
Corporation ("AMMC") in which Miller suggested a transaction whereby a newly
formed corporation, to be 49%-owned by American Financial Group, Inc. ("AFG") or
a subsidiary or affiliate of AFG, the parent company of AMMC, would purchase the
assets of the Company. AFG is controlled by Carl H. Lindner, and is the
principal shareholder and affiliate of Chiquita. The transaction was to be
subject to the agreement of the DOE to certain modifications in the existing DOE
loan, and to the willingness of the BDC to accept a settlement of its interests
in the Company. The price and structure of the transaction discussed in this
telephone conversation would have resulted in the distribution to Limited
Partners of approximately $275 per Limited Partner Unit and to shareholders of
the General Partner of an aggregate of $650,000. The terms of this proposal were
confirmed in a subsequent exchange of correspondence between Singleton and
Miller, but no commitments were made with respect to the transaction in
question.
On October 11, 1996, the Company engaged Duff & Phelps to provide a
valuation of the Company and to advise the Company respecting the possible sale
of the assets of the Company or the financial reorganization or restructuring of
the Company.
On October 23, 1996, the Board of Directors of the Corporation engaged the
law firm of Ice Miller Donadio & Ryan, Indianapolis, Indiana, ("Ice Miller") to
advise the members of the Board of Directors, in their capacities as such, with
respect to their fiduciary responsibilities, specifically in relation to a
possible financial reorganization or restructuring of the Company. The Company
and the Corporation have been advised throughout the Transaction by their
regular counsel, Roemer & Mintz, South Bend, Indiana, and Johnson, Smith, Pence,
Densborn, Wright and Heath, Indianapolis, Indiana ("Johnson Smith").
On December 11, 1996, Singleton reported to the Corporation's Board of
Directors that he had met with the DOE on two occasions in an effort to
facilitate discussions between the DOE and AFG. Singleton further reported that
AFG had offered a $2,000,000 principal pre-payment of the Company's debt to the
DOE with an extension of the current loan to a 30 year amortization with a 15
year term. Singleton also reported that he had met with the BDC in an effort to
facilitate negotiations between the BDC and AFG, and that AFG also was holding
discussions with Interamerican, ESI and Chiquita with respect to the disposition
of their interests as shareholders in the Corporation in connection with the
proposed transaction.
At the December 11, 1996, meeting of the Corporation's Board of Directors,
Duff & Phelps presented a report on its valuation of the Company. Duff & Phelps
stated its preliminary determination that the value of the Company ranged
between $60,800,000 and $67,600,000. A discussion of the December 11, 1996, Duff
& Phelps' analysis and of Duff & Phelps qualifications is contained in the
section entitled Opinion of Duff & Phelps, LLC. See "OPINION OF DUFF & PHELPS,
LLC." A copy of the Duff & Phelps December 11, 1996, report is annexed hereto as
Exhibit "F", and incorporated herein. Singleton also presented a valuation of
the Company prepared by management, concluding that the value of the Company
ranged between $56,500,000 and $61,000,000. The only significant difference in
the valuations was management's assumption that the Company would have to spend
approximately $8,000,000 within the next two years to maintain an adequate
supply of corn.
On December 16, 1996, Duff & Phelps delivered to the Company a preliminary
draft of a recommendation regarding the process of selling the Company and the
possible strategies that the Company might pursue.
At a meeting of the Corporation's Board of Directors held December 23,
1996, the directors reviewed the Duff & Phelps recommendations and assessed the
potential purchasers for the Company's business and the perceived limitations on
a transaction with those purchasers. Singleton was authorized to pursue the
offer from AFG, in an attempt to determine if an agreement could be reached on
terms acceptable to the Company.
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the letter of intent. That analysis pointed out that a shareholder vote might
not be required under the provisions of Indiana law dealing with the
authorization of a sale of "substantially all" of the property of a corporation
other than in the usual course of its business, but that a shareholder vote
might be the only means of assuring that the transaction would not be subject to
challenge as "voidable" under the Indiana provisions dealing with conflict of
interest transactions. At a meeting of the Corporation's Board of Directors held
February 21, 1997, the Board of Directors made certain adjustments to the
allocation of expenses arrived at on January 30, 1997 and made a final
determination that $1,436,028 of expenses paid by the Company were allocable to
the Corporation as an adjustment to 1996 selling, general and administrative
expenses. With respect to the Intercompany Debt, the Board reaffirmed that the
$578,832 loan made by the Corporation to the Company in connection with the 1991
restructuring of the DOE loan, and the August, 1996 loan by the Corporation to
the Company in the original principal amount of $500,000 represented valid
obligations of the Company to the Corporation. The Corporation's Board of
Directors also directed that the $1,436,028 determined to be owing to the
Company by the Corporation as a result of the reallocation of expenses should be
set off against those amounts plus interest accrued thereon. After the offset of
such amounts, $57,363 remained unpaid on the $500,000 note. In addition, by the
offset, the $578,832 loan was paid in full. The Board discussed further the
issues related to the remaining Intercompany Debt but took no action with
respect thereto. The Board also approved the establishment of an account
receivable from Interamerican in the amount of $142,336, plus interest at prime
plus 3% since the incurrence thereof, with respect to legal fees paid by the
Company, with Mr. Walsh abstaining on this matter.
On March 14, 1997, the Corporation's Board of Directors again discussed the
remaining issues with respect to the Intercompany Debt, and unanimously
determined that the 1986 foreclosure created a debt owing by the Company to the
Corporation, earning simple interest at the rate of 8.5% per annum. The Board
provided for the issuance of a demand promissory note payable on 60 days notice
evidencing the principal amount of $5,780,583 ($9,734,347 with interest on June
30, 1997) owing by the Company to the Corporation.
In reaching its conclusions, the Board of Directors considered the
respective legal arguments provided by Johnson Smith and Roemer & Mintz, and the
advice of Ice Miller as to the principles of Indiana law relevant to their
decision. The Board was cognizant of the conflict between the interests of the
shareholders of the Corporation and those of the Limited Partners presented by
the resolution of the issues, and of its obligations to all of its constituents.
It also was aware of the principles of Indiana law governing the duties of
directors and the standards of care to which they are held in discharge of those
duties. The Board considered the financial reporting and tax consequences of its
decision. In reaching its decision, the Board viewed as controlling
considerations (a) the historic treatment of the 1986 foreclosure as creating a
debt obligation, (b) the consistent public reporting of that treatment, (c) the
absence of any objections thereto, (d) the advice received in 1986 and 1987 by
the Board of Directors from the Company's predecessor auditors with respect to
the accounting for the foreclosure transactions, (e) the circumstances giving
rise to the account including the absence of any provision in the Partnership
Agreement requiring its treatment as a capital contribution by the Corporation
to the Company and (f) the inclusion in the Partnership Agreement of a specific
provision authorizing the lending of funds by the Corporation to the Company.
The Board of Directors considered the technical difficulties arising from the
possible application of the statute of limitations and of the possible
availability of equitable defenses to any attempt on the part of the Corporation
to enforce the collection of the obligation, but did not view these factors as a
bar to the conclusion reached.
On March 19, 1997, the Purchaser provided a revised draft of the letter of
intent, pursuant to which it proposed to acquire all of the outstanding shares
of the Corporation from its shareholders (in addition to the acquisition of the
assets of the Company); to reduce the consideration to be received by the
Limited Partners to $300 per Limited Partner Unit; to establish a $2,500,000
break-up fee payable upon any termination of the Agreement other than by the
Purchaser; and to indemnify the directors of the Corporation with respect to any
claims of breach of fiduciary duty in relation to the proposed transaction. The
Purchaser also rejected the Company's proposal that the Purchaser provide a
non-refundable deposit. The Purchaser was advised that this proposal was not
acceptable to the Company.
On March 24, 1997, Singleton and Miller held a meeting in Cincinnati, with
their counsel, to discuss the status of the negotiations. The Company
representatives were advised that the Purchaser had reached a
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the letter of intent. That analysis pointed out that a shareholder vote might
not be required under the provisions of Indiana law dealing with the
authorization of a sale of "substantially all" of the property of a corporation
other than in the usual course of its business, but that a shareholder vote
might be the only means of assuring that the transaction would not be subject to
challenge as "voidable" under the Indiana provisions dealing with conflict of
interest transactions. At a meeting of the Corporation's Board of Directors held
February 21, 1997, the Board of Directors made certain adjustments to the
allocation of expenses arrived at on January 30, 1997 and made a final
determination that $1,436,028 of expenses paid by the Company were allocable to
the Corporation as an adjustment to 1996 selling, general and administrative
expenses. With respect to the Intercompany Debt, the Board reaffirmed that the
$578,832 loan made by the Corporation to the Company in connection with the 1991
restructuring of the DOE loan, and the August, 1996 loan by the Corporation to
the Company in the original principal amount of $500,000 represented valid
obligations of the Company to the Corporation. The Corporation's Board of
Directors also directed that the $1,436,028 determined to be owing to the
Company by the Corporation as a result of the reallocation of expenses should be
set off against those amounts plus interest accrued thereon. After the offset of
such amounts, $57,363 remained unpaid on the $500,000 note. In addition, by the
offset, the $578,832 loan was paid in full. The Board discussed further the
issues related to the remaining Intercompany Debt but took no action with
respect thereto. The Board also approved the establishment of an account
receivable from Interamerican in the amount of $142,336, plus interest at prime
plus 3% since the incurrence thereof, with respect to legal fees paid by the
Company, with Mr. Walsh abstaining on this matter.
On March 14, 1997, the Corporation's Board of Directors again discussed the
remaining issues with respect to the Intercompany Debt, and unanimously
determined that the 1986 foreclosure created a debt owing by the Company to the
Corporation, earning simple interest at the rate of 8.5% per annum. The Board
provided for the issuance of a demand promissory note payable on 60 days notice
evidencing the principal amount of $5,780,583 ($9,734,347 with interest on June
30, 1997) owing by the Company to the Corporation.
In reaching its conclusions, the Board of Directors considered the
respective legal arguments provided by Johnson Smith and Roemer & Mintz, and the
advice of Ice Miller as to the principles of Indiana law relevant to their
decision. The Board was cognizant of the conflict between the interests of the
shareholders of the Corporation and those of the Limited Partners presented by
the resolution of the issues, and of its obligations to all of its constituents.
It also was aware of the principles of Indiana law governing the duties of
directors and the standards of care to which they are held in discharge of those
duties. The Board considered the financial reporting and tax consequences of its
decision. In reaching its decision, the Board viewed as controlling
considerations (a) the historic treatment of the 1986 foreclosure as creating a
debt obligation, (b) the consistent public report of that treatment, (c) the
absence of any objections thereto, (d) the advice received in 1986 and 1987 by
the Board of Directors from the Company's predecessor auditors with respect to
the accounting for the foreclosure transactions, (e) the circumstances giving
rise to the account including the absence of any provision in the Partnership
Agreement requiring its treatment as a capital contribution by the Corporation
to the Company and (f) the inclusion in the Partnership Agreement of a specific
provision authorizing the lending of funds by the Corporation to the Company.
The Board of Directors considered the technical difficulties arising from the
possible application of the statute of limitations and of the possible
availability of equitable defenses to any attempt on the part of the Corporation
to enforce the collection of the obligation, but did not view these factors as a
bar to the conclusion reached.
On March 19, 1997, the Purchaser provided a revised draft of the letter of
intent, pursuant to which it proposed to acquire all of the outstanding shares
of the Corporation from its shareholders (in addition to the acquisition of the
assets of the Company); to reduce the consideration to be received by the
Limited Partners to $300 per Limited Partner Unit; to establish a $2,500,000
break-up fee payable upon any termination of the Agreement other than by the
Purchaser; and to indemnify the directors of the Corporation with respect to any
claims of breach of fiduciary duty in relation to the proposed transaction. The
Purchaser also rejected the Company's proposal that the Purchaser provide a
non-refundable deposit. The Purchaser was advised that this proposal was not
acceptable to the Company.
On March 24, 1997, Singleton and Miller held a meeting in Cincinnati, with
their counsel, to discuss the status of the negotiations. The Company
representatives were advised that the Purchaser had reached a
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preliminary agreement with Interamerican, ESI and Chiquita under which those
shareholders would agree to support the proposed transaction if it resulted in a
payment to the Corporation of at least $4,000,000 in settlement of the Company's
Intercompany Debt and other obligations to the Corporation that would be
distributed to the Corporation's shareholders upon liquidation of the
Corporation. The Purchaser affirmed its willingness to pay a price for the
assets sufficient to result in a $4,000,000 Intercompany Debt payment to the
Corporation and provide a distribution to Limited Partners of approximately $400
per Qualified Limited Partner Unit. At that meeting, the Company representatives
also proposed a $250,000 deposit by the Purchaser payable in the event the
transaction did not close absent a breach by the Company. The Purchaser
requested a $5,000,000 break-up fee. After further discussion continuing after
this meeting, the Company dropped its proposal for a non-refundable deposit
sufficient to cover the Company's transaction expenses, and the Purchaser agreed
to a $2,500,000 break-up fee. The Company retained the right to terminate the
transaction in the event that it received other offers for the business within
45 days following the first public announcement of the terms of the transaction,
subject only to the payment of the break-up fee. The representatives of the
parties were then able to arrive at a general understanding as to the structure
and terms of the transaction, and agreed to proceed with the preparation of a
definitive purchase agreement.
Approval by the Company's Board of Directors of the terms negotiated by the
Purchaser, the BDC, and the three largest shareholders of the Corporation, i.e.,
a $4,000,000 payment to settle the Company's Intercompany Debt and other
obligations to the Corporation, and a $2,500,000 distribution to the BDC, that
would result in a $2,534,800 distribution to holders of Qualified Limited
Partner Units, was based upon the Board's knowledge that (a) the settlement of
the Intercompany Debt and other obligations to the Corporation reflected a
reduction of more than $6.5 million from the total balance owed by the Company
to the Corporation, (b) likewise, the settlement of the BDC's Loan and Special
Limited Partner Interest rights resulted in a reduction in excess of $14 million
of the BDC's higher priority claim against the liquidation distributions, and
(c) if the company was required to pay the full balance of the BDC's claims and
interest and/or the Intercompany Debt, the holders of Qualified Limited Partner
Units would receive no distribution at all. Further, consent of the
Corporation's shareholders was desired to avoid any potential challenge to the
Transaction as an "interested transaction" under Indiana corporation law.
A first draft of the Agreement was received by the Company on April 5,
1997. In the course of negotiations as to the terms of the definitive Agreement,
the parties agreed that, in order to assure the distribution to the Limited
Partners and shareholders of the Corporation of the amounts contemplated, it
would be necessary for the Purchaser to agree to assume all of the liabilities
of both the Corporation and the Company, including any unpaid transaction costs
and the expenses incurred in winding up the Company and the Corporation, and
that the Purchaser would provide appropriate assurances to the Company as to its
solvency and ability to pay the obligations of the Company and the Corporation
as they come due. Negotiations over the terms of the Agreement and the related
Transaction documents continued until June 26, 1997, at which time the
definitive Agreement was submitted to the Board of Directors of the Corporation
and approved by it. In the interim, the Corporation's Board of Directors met on
May 13, June 2, and June 16. At those meetings, the directors reviewed interim
drafts of the Transaction documents and resolved various issues that arose in
the course of the negotiations.
At its June 2 meeting, Duff & Phelps advised the Corporation's Board of
Directors that it was prepared to issue its opinion that a distribution of not
less than $400 per qualified Limited Partner Unit was fair from a financial
point of view, and it provided a draft of its fairness opinion. Duff & Phelps
also discussed with the Board the processes undertaken by it to arrive at its
opinion. See "OPINION OF DUFF & PHELPS LLC."
Upon consummation of the Transaction, the Company will cease its ownership
and operation of its sole Business. Pursuant to the terms of the Partnership
Agreement, the Company will dissolve and wind up its affairs in accordance with
the terms and subject to the conditions of the Agreement, the Liquidation Plan
and the Partnership Agreement. It is anticipated that the liquidation of the
Company will result in the distribution of $2,534,800 to holders of Qualified
Limited Partner Units, or approximately $400 in cash per Qualified Limited
Partner Unit. The Corporation also will then liquidate and distribute its
remaining assets (consisting of the $4,000,000 in cash received from the Company
as a compromise of the Intercompany Debt) to its shareholders in accordance with
their interests.
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REASONS FOR THE TRANSACTION
The Partnership Agreement provides for the expiration of the Company's
initial term on the fiftieth anniversary of the date it commenced, or November
15, 2032. In addition, the Partnership Agreement contains standard provisions
relating to termination and dissolution, including a requirement that the
Company be dissolved in the event of the sale of substantially all of its
assets. The Partnership Agreement does not specifically contemplate the
Transaction.
The Corporation's Board of Directors has concluded that it would be in the
best interests of the Limited Partners for the Company's Business to be sold at
this time, for the following reasons:
1. Debt Structure. The Company's financial condition is highly leveraged.
As of June 30, 1997, the Company owed to the DOE, BDC, GAIC and the Corporation
a total of $73,724,307 and had a $39,915,618 deficit in partners' capital. The
BDC loan matures November 1, 1999, and the DOE loan matures March 31, 2002.
There can be no assurance that the Company will be able to repay its obligations
to the DOE and BDC in accordance with their terms. The Company has been in
default, or imminent risk of default, under the DOE loan and BDC loan on at
least three prior occasions: 1986, 1991, and 1996. Although the Company has been
able to renegotiate the terms of the DOE loan and BDC loan in each instance, it
has no commitments from the DOE and BDC beyond the expiration dates of the
current loan agreements and there can be no assurance that the Company will be
able to repay or refinance its debt obligations as they come due. As part of the
1996 restructuring of the DOE loan and the BDC loan, and in response to the
Company's cash crises, the Company has obtained a $10,000,000 working capital
loan from GAIC. That loan expires by its terms on December 31, 1997, unless
extended by agreement through December 31, 1998. Although no amounts were
outstanding under the GAIC loan on June 30, 1997, the Company anticipates a
continuing need for a working capital credit facility. GAIC is an affiliate of
the Purchaser. Absent completion of the Transaction, there can be no assurance
the GAIC loan will continue past December 31, 1997, or that substitute working
capital loans would be available. The Company has limited means of raising
additional equity capital, and none of its current partners have any obligation
to the Company to provide additional capital. In the event of an uncured default
by the Company under the DOE loan, it is possible that the existing equity
interests of the Limited Partners would be extinguished. See "INFORMATION
CONCERNING THE COMPANY -- Capitalization."
2. Needed Capital Investment. The Company's Business requires additional
capital investment or working capital to address the following, among other,
identified needs: assuring a timely, adequate and reasonably priced corn supply
and meeting environmental and other regulatory requirements. The Company needs
to take steps promptly to assure its continued timely and reasonably priced
supply of corn from local corn producers. Recent consolidations and acquisitions
in the regional corn supplier market have resulted in one of the three regional
corn suppliers being owned by or affiliated with the Company's competitors. The
Company has been advised by the Company's present supplier that it is actively
negotiating its sale to another competitor of the Company. The third regional
corn supplier previously has rejected the Company's business for financial or
other reasons. Although the Company has contracted its corn needs through
September 1997 from its existing supplier, the Company must begin promptly to
contract corn for subsequent periods not covered by the Company's existing
supply contract. The Company has examined its alternatives, and has determined
that the best alternative is to self-originate from producers and various
suppliers its corn supply rather than contract exclusively with an outside
supplier. This alternative will require access to additional capital or working
capital. See "INFORMATION CONCERNING THE COMPANY -- Raw Materials." The Company
also is in the process of assessing its compliance with environmental
regulations respecting Volatile Organic Chemicals ("VOC's") and other existing
or proposed environmental regulations. Moreover, presently proposed
environmental regulations may significantly affect the Company. In any case, the
Company anticipates the need over the next few years for additional capital or
working capital to satisfy existing or proposed environmental regulations. See
"INFORMATION CONCERNING THE COMPANY -- Marketing of Ethanol." The Company has
limited ability to raise additional capital for these purposes and none of its
partners is obligated to the Company to contribute additional capital. Since
obtaining the GAIC loan, the Company has not looked for additional working
capital loans. Even if replacement or additional working capital loans should
become available, DOE, BDC and GAIC consents are required for the Company's
incurrence of additional indebtedness. There can be no assurance that lenders
could be located to make loans
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(10) competition with other oxygenates, such as methyl tertiary butyl ether,
more commonly known as MTBE.
BENEFITS AND DETRIMENTS TO THE COMPANY, AFFILIATES AND LIMITED PARTNERS
The primary benefit of the Transaction to the Limited Partners is the
liquidation of their investments in the Company at a value deemed by Duff &
Phelps to be fair to them from a financial point of view.
The primary detriment of the Transaction to Limited Partners is that the
Limited Partners will no longer share in future income, distributions and
credits or any other benefits that may be generated by the future operation of
the Company's Business. Also, the Limited Partners will not share in any future
increases, if any, in the value of the Company's Business.
The primary benefits of the Transaction to the Company are the satisfaction
of its outstanding debt, and the payment of a cash distribution to the holders
of Qualified Limited Partner Units. The benefit of the Transaction to the
Corporation is the receipt of a $4,000,000 cash payment in settlement of its
Intercompany Debt receivable from the Company. But for the Transaction, little,
if any, payment against the Intercompany Debt could be anticipated in the
foreseeable future. The primary detriment to the Corporation of the Transaction
will be the loss of its management fee and its rights as general partner to
share in any future increase in the Company's value and future income of the
Company, if any.
The primary benefits of the Transaction to the BDC are the compromise and
settlement of its loan and Special Limited Partner Interest and maintaining an
operating entity in St. Joseph County, Indiana that employs residents of St.
Joseph County and pays taxes there. But for the Transaction, little, if any
payment against the BDC Loan and the Special Limited Partner Interest could be
anticipated in the foreseeable future. The Primary detriment of the Transaction
to the BDC, will be the loss of its preferred rights as Special Limited Partner.
The shareholders of the Corporation will benefit indirectly from the
distribution to the Corporation in respect of the Intercompany Debt that will be
distributed to the shareholders of the Corporation upon dissolution of the
Corporation. As a detriment, the Corporation's shareholders will forego any
potential benefits accruing indirectly to them resulting from the Corporation's
management fee and general partner interest in the Company.
Further, all of the parties to the Transaction will benefit from the
removal of and/or solution to the problems and uncertainties set forth above
under "Reasons for the Transaction."
As general partner, the Corporation's interest in the net book value and
income of the Company is 10%. However, it should be noted the losses allocable
to the limited partners of the Company have exceeded their invested capital
balances. The limited partners have no obligation to fund any amounts in excess
of their investment. Since the Corporation, as general partner, is responsible
for all debts and obligations of the Company, the Corporation's policy is to
recognize all losses in excess of limited partners' investments. After the
Transaction, the Corporation will have zero interest in the Company's net book
value and income.
FAIRNESS OF THE TRANSACTION
The consideration to be received by the Company in the Transaction was
determined by negotiation among the Company and the Purchaser. Negotiations
between the Purchaser, the shareholders of the Corporation, and the BDC set the
parameters for allocation of the purchase price and permitted distribution to
holders of Qualified Limited Partner Units. The Corporation's Board of Directors
determined that the price it negotiated was reasonable based upon Duff & Phelp's
valuation of the Company as a going concern. The Board adopted the conclusions
and analysis contained in the Duff & Phelps December 11, 1996 Report as its own.
Duff & Phelps did not, however, propose the purchase price. The Corporation's
Board of Directors believes that the Transaction is fair to the holders of the
Limited Partner Units. In arriving at this conclusion, the Corporation's Board
of Directors has relied heavily upon and adopted as its own, the conclusion and
analyses contained in Duffs & Phelps June 26, 1997 oral Report and the written
opinion of Duff & Phelps, an independent financial advisor to the Corporation,
to the effect that the Transaction is fair to the Limited
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<PAGE> 17
Partners from a financial point of view. See "OPINION OF DUFF & PHELPS LLC." The
Corporation's Board of Directors believes that the valuation analysis conducted
by Duff & Phelps provides the most meaningful approach to the valuation of the
Company and the Limited Partner Units. The Corporation's Board of Directors
noted, in particular, that under a discounted cash flow analysis the Limited
Partner Units have a negative value. The Corporation's Board of Directors
considered, but did not attach significant weight to, the book value or
liquidation value of the Company. The Company's principal asset is its Plant,
which is believed to have only scrap value if sold other than as a part of the
Business of the Company as a going concern.
In arriving at its conclusions as to the fairness of the Transaction, the
Board of Directors also has relied upon the condition that, under the terms of
the Partnership Agreement and the Agreement, the Transaction must receive the
approval of a Majority in Interest of the Limited Partners in order to go
forward. Neither the Purchaser nor the shareholders of the Corporation will have
the power to direct the approval of the Transaction. If the Limited Partners do
not find the Transaction to be in their best interests, they may vote against
its approval and the Transaction will be abandoned without penalty to the
Company (other than for its expenses incurred in connection therewith).
However, no independent representative has been engaged to act on behalf of
the Limited Partners in connection with the negotiation of the terms of the
Transaction, and none of the members of the Corporation's Board of Directors can
be viewed as disinterested persons in the context of the approval of the
Transaction by the Corporation's Board of Directors. There can be no assurance
that the terms of the Transaction would not have been more favorable to the
Limited Partners had they been determined by a Board of Directors of the
Corporation having no relationship with the Purchaser. See "CONFLICTS OF
INTEREST."
The Purchaser and Mr. Lindner advised the Corporation that they believe the
Transaction is fair to holders of Limited Partner Units primarily because it
provides such holders with liquidity in the absence of alternative transactions,
both in terms of an active trading market in Limited Partner Units or the sale
of Limited Partner Units in a business reorganization transaction. Moreover, the
Purchaser and Mr. Lindner noted that the Transaction must be approved by holders
of a Majority in Interest of the Limited Partners and that it is a condition to
closing that the opinion of Duff & Phelps, to the effect that the transaction is
fair to holders of Limited Partner Units from a financial point of view, shall
have been delivered at the time of mailing of proxy materials and orally
confirmed at the time of Closing. The Purchaser and Mr. Lindner did not rely on
the opinion of Duff & Phelps in reaching the conclusion that the Transaction is
fair to holders of Limited Partner Units. The Purchaser and Mr. Lindner did not
consider the Company's book value (partner's capital), going concern value or
liquidation value in reaching the conclusion that the Transaction is fair to
holders of Limited Partner Units, noting that, in view of the Company's losses
and significant debt, such factors would generally be considered negatively. The
Purchaser and Mr. Lindner did consider the purchase price paid for Limited
Partner Units in previous purchases and noted that the amount that holders of
Limited Partner Units will receive upon consummation of the Transaction exceeds
such price.
The Purchaser and Mr. Lindner gave the greatest weight to the liquidity
factor, significant weight to the procedural terms of the Transaction and less
weight to the prior purchase factor. The Purchaser has advised the Corporation
that it is engaging in the Transaction in spite of the risks, which it believes
to be substantial, that the Business of the Company will either continue to be
marginally profitable or incur operating losses because of its belief that there
will be continued governmental incentives in support of ethanol production and
use and that the cost of producing ethanol will compare favorably to the costs
of producing MTBE or other oxygenates, leading to greater market demand for
ethanol and increased producer profitability.
OPINION OF DUFF & PHELPS LLC
Duff & Phelps has acted as financial advisor to the Company in connection
with the Transaction, and has assisted the Corporation's Board of Directors in
its examination of the fairness, from a financial point of view, of the
resulting distribution of not less than $400 per Qualified Limited Partner Unit.
14
<PAGE> 18
THE DECEMBER 11, 1996 VALUATION ANALYSIS
Initially Duff & Phelps was retained by the Company to perform an overall
evaluation of the Company's operations for the purpose of providing a frame of
reference within which to judge proposals to purchase the Company's assets. Duff
& Phelps performed discounted cash flow ("DCF") analyses of two potential
scenarios: one assuming a renewal of the ethanol tax subsidy and one assuming
the revocation of the ethanol tax subsidy in the year 2000. The results of these
analyses were delivered in a written report to the Company in December 1996 and
is attached hereto as Exhibit "F" and incorporated herein by reference. A
summary of that analysis is set forth below.
The DCF projections in the renewal of the ethanol tax subsidy scenario
assume that the Company is able to ramp up ethanol production levels to 89
million gallons per year in 1997. Revenues are projected to increase from $134
million in 1995 to $152 million in 2005 at an annual growth rate of 1.3%.
Emphasis was placed on the profitability of the Company rather than the absolute
level of revenues in the DCF analysis. One of the key cash flow drivers in the
DCF analysis was the relationship between the selling price of ethanol and the
cost of corn ("ethanol-corn spread"). Duff & Phelps projected the long-term
ethanol-corn spread to be a profit $0.22 per gallon which is consistent with the
average historical relationship adjusted for a new program of hedging corn
costs. In comparison the ethanol-corn spread was $0.25 per gallon in 1995.
Projected gross margins before depreciation in the DCF analysis range from 14.7%
to 18.3%. Gross margins before depreciation were 19.1% in 1995. Projected
earnings before interest and taxes range from $9.5 to $16.8 million per year
compared to $15.4 million in 1995. Projected capital expenditures range from
$1.1 million to $2.3 million per year. Projected working capital ratios are
consistent with recent Company performance. The DCF analysis assuming the
continuation of the ethanol tax subsidy yielded a value of $64.2 million to
$66.2 million for the operations of the Company (before any benefits of a tax
shield due to goodwill amortization).
Duff & Phelps also investigated a scenario which assumes the revocation of
the ethanol tax subsidy in the year 2000. The DCF analysis assuming the
revocation of the tax-subsidy has the same assumptions until the year 2000 as
those of the analysis assuming the renewal of the tax subsidy. The analysis
assuming the revocation of the tax subsidy, however, assumes that the Company
ceases operations in the year 2000 and the assets of the Company are liquidated.
Duff & Phelps assumed that the liquidation value of the Company at the end of
the year 2000 is the projected GAAP book value of the net fixed assets ($20.2
million) plus net working capital ($7.8 million). This assumption was based on
conversations with management and represents from Duff & Phelps' perspective an
optimistic estimate. The DCF analysis assuming the revocation of the ethanol tax
subsidy yielded a value of $43.1 million to $43.6 million for the operations of
the Company (before any benefits of a tax shield due to goodwill amortization).
The discount rate range used in both analyses described above was 12.3% to
12.8% (midpoint 12.5%) based on an analysis of alternative investments. By
comparison, as of the valuation date, the interest rate on 20-year US Treasury
bonds was 6.6%; the rate on 20-year AAA corporate bonds was 7.0%; and the S&P
500 was expected to return 11.9% (based on historical risk premiums over 20-year
US Treasury bonds).
The results of the two DCF analyses were weighted as shown in the table on
page 18 aggregated with the expected value of a tax shield due to goodwill
amortization to arrive at the valuation range of $60.8 million to $67.6 million
for the assets of the Company. Overall, lower market interest rates and more
favorable ethanol prices in the near term resulted in a higher valuation of the
Company in the December 11, 1996 Duff & Phelps' presentation to the
Corporation's Board than in the June presentation.
Using publicly available information, Duff & Phelps analyzed the historical
financial performance, stock prices and resulting valuation multiples for the
following firms: Arco Chemical Company; Odyssey Petroleum Corporation (formerly
Brimm Energy Corporation); Great Lakes Chemical Corporation; High Plains
Corporation; and Methanex Corporation (collectively, the "Comparable
Companies").
Duff & Phelps compared the financial performance of the Company with the
financial performance of the Comparable Companies, duly adjusted for any
nonrecurring items. As the Company is a partnership, Duff & Phelps tax-effected
the Company's operating results for comparability to the Comparable Companies.
Comparative statistics reveal the following: (i) five-year compounded annual
growth in revenue for the
15
<PAGE> 19
Company was 3.7%, compared to a median of 24.0% for the Comparable Companies;
(ii) five-year compounded annual growth in earnings for the Company was not
meaningful due to losses, compared to a median of 16.3% for the Comparable
Companies; (iii) five-year average and latest twelve months' net income margins
for the Company were 0.0% and a loss of 3.3%, respectively, compared to 9.3% and
11.4%, respectively, for the Comparable Companies; and (iv) five-year average
and latest twelve months' return on equity for the Company was not meaningful
for the Company due to the accumulated losses, as opposed to 18.8% and 20.1%,
respectively, for the Comparable Companies. In summary, the financial
performance of the Company significantly lagged that of the Comparable
Companies. Five-year averages for Company are based on fiscal years ended on or
about December 31, 1990 to 1995, while the latest twelve months ended September
30, 1996 (latest twelve months' financial information for Odyssey Petroleum
Corporation is as of June 30, 1996).
Duff & Phelps analyzed the capitalized values for the Comparable Companies
as multiples of latest twelve months' operating cash flow ("OCF"), three-year
average OCF and projected OCF (from Value Line, Inc.) available as of the
valuation date. The median multiples of capitalized value to latest twelve
months', three-year average and projected OCF were 6.7x, 5.7x, and 6.9x,
respectively. Duff & Phelps noted that projected cash flow was only available
for Great Lakes Chemical Corporation. In comparison, the latest twelve months',
three-year average and projected (per control DCF) OCF multiples for the Company
were not meaningful, 4.6x, and 3.9x, respectively. Due to the Company's
historical negative net income levels, a comparison of equity value to earnings
and book value multiples was not meaningful. All Comparable Companies multiples
were based upon closing stock prices as of November 29, 1996.
THE JUNE 26, 1997 FAIRNESS OPINION
Subsequently, the Corporation's Board of Directors engaged Duff & Phelps to
analyze from a financial perspective the fairness of the Transaction and the
proposed $400 distribution to holders of Qualified Limited Partner Units. As
part of that analysis, Duff & Phelps updated and revised its December 1996
analyses of the overall value of the Company's operations. A summary of Duff &
Phelps oral report presented June 20, 1997 as to both updated valuation and the
analysis supporting its fairness opinion is set forth below.
Duff & Phelps' revised DCF projections in the continuation of the tax
subsidy scenario assume that the Company overcomes its recent operating problems
and reaches ethanol production levels of 89 million gallons per year in 1998
(ethanol production in 1996 was 73 million gallons). Revenues are projected to
increase from $132 million in 1996 to $143 million in 2005 at an annual growth
rate of 0.9%. Emphasis was placed on the profitability of the Company, rather
than the absolute level of revenues, in the DCF analysis. One of the key cash
flow drivers in the DCF analysis was the relationship between the selling price
of ethanol and the cost of corn ("ethanol-corn spread"). Duff & Phelps projected
the long-term ethanol-corn spread to be a profit $0.22 per gallon, which is
consistent with the average historical relationship adjusted for a new program
of hedging corn costs. In comparison, the ethanol-corn spread was a loss of
$0.14 per gallon in 1996. Projected gross margins before depreciation in the DCF
analysis range from 12.4% to 17.8%. Gross margins before depreciation were
negative 0.2% in 1996. Projected earnings before interest and taxes range from
$8.6 million to $16.1 million per year compared to a loss of $9.0 million in
1996. Projected capital expenditures range from $1.1 million to $2.1 million per
year. Projected working capital ratios are consistent with recent Company
performance. The DCF analysis, assuming the continuation of the ethanol tax
subsidy, yielded a value of $56.1 million to $57.9 million for the operations of
the Company (before any benefits of a tax shield due to goodwill amortization).
Duff & Phelps also investigated a scenario which assumes the revocation of
the ethanol tax subsidy in the year 2000. The DCF analysis assuming the
revocation of the ethanol tax subsidy has the same assumptions until the year
2000 as those of the analysis assuming the renewal of the tax subsidy. The
analysis assuming the revocation of the ethanol tax subsidy, however, assumes
that the Company ceases operations in the year 2000 and the assets of the
Company are liquidated. Duff & Phelps assumed that the liquidation value of the
Company at year-end 2000 is the projected GAAP book value of the net fixed
assets ($19.6 million) plus net working capital ($6.8 million). This assumption
was based on conversations with management and represents an optimistic
estimate. The DCF analysis assuming the revocation of the ethanol tax subsidy
yielded a value of
16
<PAGE> 20
$35.5 million to $35.8 million for the operations of the Company (before any
benefits of a tax shield due to goodwill amortization).
The discount rate range used in both analyses described above was 12.8% to
13.3% (midpoint 13.0%) based on an analysis of alternative investments. By
comparison, as of the valuation date, the interest rate on 20-year US Treasury
bonds was 7.1%; the rate on 20-year AAA corporate bonds was 7.5%; and the S&P
500 was expected to return 12.7% (based on historical risk premiums over 20-year
US Treasury bonds).
The results of these two DCF analyses were weighted as shown in the table
on page 19 and aggregated with the expected value of a tax shield due to
goodwill amortization to arrive at the valuation range of $52.1 million to $58.5
million for the assets of the Company.
The cash flow projections attributable to each party having a security
claim on the Company were then projected. The Limited Partner Units have no cash
flows attributable to them through the year 2000, at which time the Company
would be liquidated (assuming the revocation of the ethanol tax subsidy). All
proceeds upon liquidation would go to senior claimants. The Limited Partner
Units would receive no cash and are therefore worthless assuming the revocation
of the ethanol tax subsidy.
The cash flow projections from the DCF analysis assuming the renewal of the
tax subsidy provided the most optimistic estimate of the potential future cash
flows accruing to the benefit of the Limited Partner Units. The projections
assuming the renewal of the ethanol tax subsidy were extended to the year 2017
so as to allow for the paydown of claims senior to the Limited Partner Units.
The Company is projected to generate taxable income ranging from $66,000 to
$14.2 million per year over the projection period. Duff & Phelps assumed that in
the near term, an estimated tax loss carryforward of $39.0 million would shelter
the Limited Partner's share of the taxable income. Duff & Phelps further assumed
that the tax loss carryforward is expected to be used up by the year 2001 and
then the Limited Partners would start paying taxes on their share of the income
without cash distributions from the Company, resulting in net cash outflows for
the holders of the Limited Partner Units. The aggregate projected cash outflows
range from $26,000 to $4.7 million per year.
The Limited Partner cash flows are then projected to turn positive in 2007
after the claims senior to the Limited Partners have been paid and cash
distributions to the Limited Partner Units are possible. Aggregate projected
cash flows to the Limited Partner Units range from $1.4 million to $4.7 million
per year. A discount rate of 30% was used to determine the present value of the
Limited Partner Units. This rate reflects the highly levered capital structure
of the Company, the very low position in the capital structure held by the
Limited Partner Units, and the resulting high risks inherent in an investment in
the Limited Partner Units. This analysis yielded a negative value for the
Limited Partner Units.
Duff & Phelps estimated the aggregate value of the Special Limited Partner
interest to be $4.4 million based on a discount rate of 12.5% for the Special
Limited Partner debt and 28.0% for the Special Limited Partner equity. The
aggregate value of the General Partner interest was estimated to be $8.4 million
based on discount rates of 15.0% for the General Partner debt, 20.0% for the
General Partner management fees, and 30.0% for the General Partner equity.
On June 26, 1997, Duff & Phelps orally presented (a) the results of its
updated valuation of the Company as discussed above and (b) its analysis as to
the fairness of the Transaction to Limited Partners from a financial
perspective, and rendered its written opinion to the Corporation's Board of
Directors to the effect that, as of the date of such opinion, the distribution
of not less than $400 per Qualified Limited Partner Unit was fair, from a
financial point of view. The full text of the written opinion, which sets forth
the assumptions made, procedures followed, matters considered, and limitations
on and scope of review by Duff & Phelps in rendering its opinion, is attached as
Exhibit "G" to this Proxy Statement and is incorporated herein by reference.
Limited Partners are urged to read the Duff & Phelps opinion in its entirety.
In connection with its opinion, Duff & Phelps reviewed, among other things,
certain financial and other information of the Company that was publicly
available or furnished to Duff & Phelps by the Company, including certain
internal financial analysis, financial forecasts, reports and other information
prepared by management of the Corporation and Company representatives. Duff &
Phelps discussed with senior management of the Corporation and Company employees
the past and current operations, financial condition
17
<PAGE> 21
and future outlook of the Company and toured the Plant. Duff & Phelps also
reviewed draft versions of certain reports prepared by outside consultants at
the request of senior management of the Corporation.
In preparing its opinion to the Corporation's Board of Directors, Duff &
Phelps performed a variety of financial and comparative analyses including (a) a
discounted cash flow analysis of the projected free cash flows of the Company;
(b) a comparison of financial performance and market valuation ratios of the
Company with those of publicly traded companies Duff & Phelps deemed relevant
for purposes of its opinion; and (c) a discounted cash flow analysis of the
Limited Partnership Units based on the projected financial performance of the
Company and considering capital structure issues and tax consequences. In
addition, Duff & Phelps conducted other studies, analyses and investigations as
it deemed appropriate for purposes of its opinion.
Duff & Phelps used the change of control valuation standard to determine
the adequacy of the distribution to Limited Partners. Although the Limited
Partners of the Company are under no compulsion to vote in favor of approval of
the Transaction, Duff & Phelps valued the Company and the Limited Partner Units
on a change of control basis using valuation methodologies described below.
DISCOUNTED CASH FLOW ANALYSIS OF THE COMPANY.
Duff & Phelps performed a DCF analysis of the projected free cash flows of
the Company. Free cash flow is defined as cash that is available to either
reinvest in new business opportunities or to distribute to investors in the form
of dividends, repurchase of equity interests, or debt service and is calculated
without reference to existing debt service obligations. The projected free cash
flows are discounted to the present at a rate which reflects the relative risk
associated with these flows as well as the rates of return that both equity and
debt investors could expect to realize on alternative investment opportunities.
The Company's current capital structure and certain related tax consequences are
not relevant to this analysis. The book value of the Company's facilities, land
and equipment was not considered relevant for the analysis assuming a
continuation of the ethanol tax subsidy. In addition, the potential market value
of the Company's assets, considered apart from their use in the operation of the
Business, was deemed to be substantially less than the value of such assets as a
going concern. Accordingly, such potential values were not considered in this
analysis.
The Company's future free cash flows were based on projected revenues, net
income, depreciation and amortization, working capital and capital expenditure
requirements for the fiscal years ending December 31, 1997, to December 31,
2005. Duff & Phelps' projections were prepared from the perspective of a
hypothetical buyer of a controlling interest in the Company. Duff & Phelps
discounted the resulting free cash flows at a rate of 13.0%, which reflects,
among other things, industry risks, the relative size of the Company, and
current rates of return required by investors in equity and debt instruments in
general. The DCF analysis of the Company resulted in a control price, or a
reasonable estimate of the price that a fully informed buyer would pay for all
of the assets less operating liabilities of the Company as opposed to the
various debt and equity components of the capital structure of the Company. Two
sets of projections were utilized in this analysis and then weighted to arrive
at Duff & Phelps' conclusion as to the value of the assets of the Company. The
first set of projections assumed the continuation of the ethanol tax subsidy in
the future. The second set of projections assumed the revocation of the ethanol
tax subsidy in the year 2000. The cash flow projections derived from this
analysis were then used in the DCF analysis of the Limited Partner Units
(discussed below) to determine the value of the Limited Partner Units. The DCF
analysis of the Company yielded a value of $52.1 million to $58.5 million for
the Company's assets, which is less than the face value of the debt outstanding
on the Company's balance sheet. The value arrived at by the discounted cash flow
analysis is compared to the face value of the Company's indebtedness rather than
the discounted face value of the indebtedness because the value of the Company
may only be realized presently by a sale of the Company's assets or other
extraordinary business transaction which would result in a default and
acceleration of the DOE Loan. Thus, Duff & Phelps determined that DCF value to
debt face value is the appropriate comparison here.
18
<PAGE> 22
Duff & Phelps used the change of control valuation standard to determine
the adequacy of the distribution to Limited Partners. Although the Limited
Partners of the Company are under no compulsion to vote in favor of approval of
the Transaction, Duff & Phelps valued the Company and the Limited Partner Units
on a change of control basis using valuation methodologies described below.
DISCOUNTED CASH FLOW ANALYSIS OF THE COMPANY.
Duff & Phelps performed a DCF analysis of the projected free cash flows of
the Company. Free cash flow is defined as cash that is available to either
reinvest in new business opportunities or to distribute to investors in the form
of dividends, repurchase of equity interests, or debt service and is calculated
without reference to existing debt service obligations. The projected free cash
flows are discounted to the present at a rate which reflects the relative risk
associated with these flows as well as the rates of return that both equity and
debt investors could expect to realize on alternative investment opportunities.
The Company's current capital structure and certain related tax consequences are
not relevant to this analysis. The book value of the Company's facilities, land
and equipment was not considered relevant for the analysis assuming a
continuation of the ethanol tax subsidy. In addition, the potential market value
of the Company's assets, considered apart from their use in the operation of the
Business, was deemed to be substantially less than the value of such assets as a
going concern. Accordingly, such potential values were not considered in this
analysis.
The Company's future free cash flows were based on projected revenues, net
income, depreciation and amortization, working capital and capital expenditure
requirements for the fiscal years ending December 31, 1997, to December 31,
2005. Duff & Phelps' projections were prepared from the perspective of a
hypothetical buyer of a controlling interest in the Company. Duff & Phelps
discounted the resulting free cash flows at a rate of 13.0%, which reflects,
among other things, industry risks, the relative size of the Company, and
current rates of return required by investors in equity and debt instruments in
general. The DCF analysis of the Company resulted in a control price, or a
reasonable estimate of the price that a fully informed buyer would pay for all
of the assets less operating liabilities of the Company as opposed to the
various debt and equity components of the capital structure of the Company. Two
sets of projections were utilized in this analysis and then weighted to arrive
at Duff & Phelps' conclusion as to the value of the assets of the Company. The
first set of projections assumed the continuation of the ethanol tax subsidy in
the future. The second set of projections assumed the revocation of the ethanol
tax subsidy in the year 2000. The cash flow projections derived from this
analysis were then used in the DCF analysis of the Limited Partner Units
(discussed below) to determine the value of the Limited Partner Units. The DCF
analysis of the Company yielded a value of $52.1 million to $58.5 million for
the Company's assets, which is less than the face value of the debt outstanding
on the Company's balance sheet. The value arrived at by the discounted cash flow
analysis is compared to the face value of the Company's indebtedness rather than
the discounted face value of the indebtedness because the value of the Company
may only be realized presently by a sale of the Company's assets or other
extraordinary business transaction which would result in a default and
acceleration of the DOE Loan. Thus, Duff & Phelps determined that DCF value to
debt face value is the appropriate comparison here.
18
<PAGE> 23
A numerical summary of the two discounted cash flow analyses is set forth
below:
<TABLE>
<CAPTION>
HIGH MEDIAN LOW
----- ------ -----
<S> <C> <C> <C>
DECEMBER 11, 1996 VALUATION
Operating Value-Subsidy Renewed............................ $66.2 $65.2 $64.2
Probability................................................ 80% 70% 60%
---- ----- -----
Expected Value Subsidy Renewal............................. $53.0 $45.6 $38.5
Operating Value-Subsidy Revoked............................ $43.6 $43.3 $43.1
Probability................................................ 20% 30% 40%
---- ----- -----
Expected Value Subsidy Revoked............................. $ 8.7 $13.0 $17.2
Expected Value of Tax-Shield*.............................. $ 6.0 $ 5.5 $ 5.0
TOTAL EXPECTED VALUE....................................... $67.6 $64.1 $60.8
</TABLE>
- ---------------
*Based on amortization of $35 million of goodwill.
<TABLE>
<CAPTION>
HIGH MEDIAN LOW
----- ------ -----
<S> <C> <C> <C>
JUNE 26, 1997 VALUATION
Operating Value-Subsidy Renewed............................ $57.9 $57.0 $56.1
Probability................................................ 80% 70% 60%
---- ----- -----
Expected Value Subsidy Renewal............................. $46.3 $39.9 $33.7
Operating Value-Subsidy Revoked............................ $35.8 $35.7 $35.5
Probability................................................ 20% 30% 40%
---- ----- -----
Expected Value Subsidy Revoked............................. $ 7.2 $10.7 $14.2
Expected Value of Tax-Shield**............................. $ 5.0 $ 4.6 $ 4.2
TOTAL EXPECTED VALUE....................................... $58.5 $55.2 $52.1
</TABLE>
- ---------------
**Based on amortization of $29 million of goodwill.
Note: All numbers in $millions except percentages.
Duff & Phelps explained that the difference between the June 26, 1997,
valuation and the valuation presented to the Corporation's Board of Directors on
December 11, 1996 is due to a rise in market interest rates and a decline in the
price of ethanol, which is expected to lead to a near-term deterioration in
margins. See "SPECIAL FACTORS -- Background of the Transaction."
COMPARABLE COMPANY ANALYSIS.
In its comparable company analysis, Duff & Phelps selected a set of
publicly traded companies based on comparability to the Company. Although no
single company chosen is exactly similar to the Company, Duff & Phelps believes
these companies share many of the same operating characteristics and are
affected by many of the same economic forces as the Company. Duff & Phelps
checked the value of the Company for reasonableness by comparing the rate at
which these companies are capitalized in the market with the capitalization rate
implied by the valuation of the Company's assets, after adjusting for
differences in operations and performance.
Using publicly available information, Duff & Phelps analyzed the historical
financial performance, stock prices and resulting valuation multiples for the
following firms: Arco Chemical Company; Odyssey Petroleum Corporation; Great
Lakes Chemical Corporation; High Plains Corporation; and Methanex Corporation
(collectively, the "Comparable Companies").
Duff & Phelps compared the financial performance of the Company with the
financial performance of the Comparable Companies, duly adjusted for any
nonrecurring items. Because the Company is a partnership, Duff & Phelps
tax-effected the Company's operating results for comparability to the Comparable
Companies. Comparative statistics reveal the following: (i) five-year compounded
annual growth in revenue for the
19
<PAGE> 24
Company was 4.2% as compared to a median of 20.9% for the Comparable Companies;
(ii) five-year compounded annual growth in earnings for the Company was
determined by Duff & Phelps not to be meaningful for the Company due to losses,
as compared to a median of 46.1% for the Comparable Companies; (iii) five-year
average and latest twelve months' net income margin for the Company was a loss
of 0.1% and 3.9%, respectively, as compared to a gain of 9.4% and 7.2%,
respectively, for the Comparable Companies; and (iv) five-year average and
latest twelve months' return on equity for the Company was determined by Duff &
Phelps not to be meaningful for the Company due to the accumulated losses, as
compared to 19.7% and 14.7%, respectively, for the Comparable Companies. In
summary, the financial performance of the Company significantly lagged that of
the Comparable Companies. Five-year averages for the Company are based on fiscal
years ended on or about December 31, 1991, to 1996, while the latest twelve
months' data was collected as of March 31, 1997.
Duff & Phelps analyzed the capitalized values for the Comparable Companies
as multiples of latest twelve months' operating cash flow ("OCF"), three-year
average OCF and projected OCF (from Value Line, Inc.) available as of the date
of the Duff & Phelps opinion. The median multiples of capitalized value to
latest twelve months', three-year average and projected OCF were 7.2 x, 6.4 x,
and 6.3x, respectively. Projected cash flow was available only for Great Lakes
Chemical Corporation. In comparison, the latest twelve months' OCF multiple for
the Company was not meaningful due to losses. The three-year average and
projected (per control DCF) OCF multiples for the Company were 6.9 x and 5.0 x,
respectively. Due to the Company's historical negative net income levels, a
comparison of equity value to earnings and book value multiples was not
considered by Duff & Phelps to be meaningful. All Comparable Companies'
multiples were based upon closing stock prices as of June 5, 1997.
DISCOUNTED CASH FLOW ANALYSIS OF THE LIMITED PARTNER UNITS.
Duff & Phelps performed a DCF analysis of the projected cash flows to the
Limited Partner Units of the Company. As discussed above, the DCF analysis of
the Limited Partner Units uses operating income assumptions from the earlier
analysis but takes into account the Company's current capital structure and
certain tax consequences to the Limited Partners. Specifically, the Company is
projected to produce income in future years; however, due to restrictions in the
Partnership Agreement and the terms of certain debt instruments, the Company is
restricted from distributing cash to the Limited Partners over a significant
portion of the projection period. As a result, the Limited Partners are expected
to experience "phantom" taxable income for future years resulting in negative
cash flows to the Limited Partners for a significant portion of the projection
period. The projected cash flows are discounted to the present at a rate which
reflects the relative risk associated with these flows as well as the rates of
return investors could expect to realize on alternative investment
opportunities. The DCF analysis of the Limited Partner Units yielded negative
values per Limited Partner Unit. A similar analysis by Duff & Phelps of other
parties to the Transaction yielded positive values for those interests. For
example, Duff & Phelps determined that using the discounted cash flows as
determined above and considering the relative priorities of the BDC and the
Corporation to the distributions generated thereby, that the BDC Loan and
Special Limited Partner Interest were determined to aggregate approximately $4.4
million and the Corporation's Intercompany Debt, General Partner Interest and
present and future right to management fees aggregated approximately $8.4
million. Accordingly, Duff & Phelps concluded that a distribution of not less
than $400 per Qualified Limited Partner Unit would be fair to the Limited
Partners of the Company from a financial point of view.
In rendering its opinion, Duff & Phelps relied, without independent
verification, on the accuracy and completeness of all financial and other
information publicly available or furnished to Duff & Phelps by or on behalf of
the Company. Duff & Phelps did not make an independent evaluation or appraisal
of the assets or liabilities (contingent or otherwise) of the Company, nor was
Duff & Phelps furnished with any such evaluations or appraisals. Duff & Phelps'
opinion is based on all economic, market, business and financial conditions
relevant to the Company existing on the date of Duff & Phelps' opinion. Neither
the Company nor the Corporation placed any limitations upon Duff & Phelps with
respect to the procedures followed or factors considered by Duff & Phelps in
rendering its opinion.
20
<PAGE> 25
Duff & Phelps was selected as the Company's financial advisor and,
subsequently, to provide to the Corporation's Board of Directors Duff & Phelps'
opinion as to the fairness of the Transaction from a financial perspective,
because Duff & Phelps is a nationally recognized financial advisory firm with
substantial experience in transactions similar to the Transaction. As part of
its financial advisory business, Duff & Phelps regularly is engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, leveraged buyouts, restructurings, employee benefit plans, private
placements and valuations for estate, corporate and other purposes. Duff &
Phelps previously has provided financial advisory services to the Company but is
not under contract or in specific discussions to provide future financial
advisory services to the Company or the Corporation.
As compensation for its services to the Corporation's Board of Directors
respecting its opinion as to the Transaction's fairness to Limited Partners from
a financial perspective, the Corporation agreed to pay Duff & Phelps a fee of
$110,000 for professional services related to the fairness opinion. Prior to
delivery of the fairness opinion, Duff & Phelps has received from the Company
$40,000 for professional services rendered to the Company. No portion of the fee
paid to Duff & Phelps is contingent upon the conclusion reached in Duff &
Phelps' final opinion. In addition, the Corporation has agreed to reimburse Duff
& Phelps for reasonable out-of-pocket expenses, including the fees and expenses
of its legal counsel, and to indemnify Duff & Phelps against certain
liabilities, including liabilities under the federal securities laws, relating
to, arising out of or in connection with this engagement.
CONFLICTS OF INTEREST
DUTIES OF THE CORPORATION TO THE COMPANY; INDEMNIFICATION
Under the terms of the Partnership Agreement, the Corporation has full and
exclusive authority to manage the Company in all matters regarding its Business
and property, subject to specific restrictions set forth in the Partnership
Agreement. Under Indiana law, a general partner stands in a fiduciary
relationship with the partnership. This fiduciary relationship imposes on the
general partner a duty to act in good faith and with fairness and loyalty in all
dealings with the partnership. This fiduciary duty requires the general partner
to determine the best interests of the partnership and its limited partners and
to conduct the business and affairs of the limited partnership accordingly.
The Partnership Agreement requires that the Company indemnify and hold
harmless the Corporation for any claims against the Corporation, as general
partner of the Company, and any expenses incurred by the Corporation in
defending such claims, that are connected with the manner in which the
Corporation conducted the Company's Business, provided, however, that the
Corporation acted in good faith and in a manner it reasonably believed to be in
or not opposed to the best interests of the Company and the Corporation's
conduct did not constitute gross negligence, willful or wanton misconduct or
breach of the Corporation's fiduciary obligations to the Limited Partners.
The Partnership Agreement also requires that the Company indemnify and hold
harmless the Corporation for any claims against the Corporation, as a general
partner of the Company, and any expenses incurred by the Corporation in
defending such claims, that are related to the manner in which the Corporation
managed the internal affairs of the Company in accordance with the Partnership
Agreement or the Indiana Uniform Limited Partnership Act, provided, however,
that the Corporation acted in good faith and in a manner it reasonably believed
to be in or not opposed to the best interests of the Company. However, no
indemnification shall be made in respect of any such claim as to which the
Corporation shall have been adjudged to be liable for negligence, misconduct or
breach of the Corporation's fiduciary obligations to the Limited Partners,
unless and only to the extent that the court in which such claim was brought
shall determine that, despite the adjudication and liability, but in view of all
circumstances of the case, the Corporation is fairly and reasonably entitled to
indemnity for such expenses that the court shall deem proper.
The Partnership Agreement provides that indemnification of the Corporation,
unless ordered by a court, shall be made by the Company only upon a
determination by independent legal counsel that indemnification of the
Corporation is proper in the circumstances.
21
<PAGE> 26
payment to the BDC of $2,500,000 in settlement of the obligations of the
Corporation and the Company to the BDC; (e) the decision of the Board of
Directors not to seek other offers for the Company prior to entering into the
Agreement. See "SPECIAL FACTORS -- Background of the Transaction" and "THE
AGREEMENT AND THE TRANSACTION." There can be no assurance that decisions with
respect to these and other issues might not have been more favorable to the
Limited Partners if made by a Board of Directors of the Corporation having no
relationships with the Purchaser.
MANAGEMENT OF COMPANY AND CORPORATION
The Company has no officers or directors. The Corporation 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 Corporation's Bylaws presently provide for the election by the
Corporation's shareholders 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. At
the annual meeting of shareholders in May 1996, Rodger M. Miller, the
Purchaser's president, who held proxies from Chiquita and ESI, proposed a slate
of directors selected by Carl H. Lindner consisting 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. Mr. Walsh also is
counsel to Interamerican's President, Victor Shaio, at whose request Mr. Walsh
was slated, and Mr. Shaio's wife. The proposed slate was elected. The executive
officers of the Corporation are elected approximately annually by the
Corporation's Board of Directors and the new Board of Directors elected Larry W.
Singleton to replace the persons then serving in the capacities of chief
executive officer and chief financial officer. The current directors and
executive officers of the Corporation 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............. 68 Director Chairman of the Board
Secretary MB Computing, Inc.
Joseph A. Pedoto.............. 55 Director President
JLM Financial, Inc.
Jerome K. Walsh............... 65 Director Partner, Lane & Mittendorf LLP
Larry W. Singleton............ 46 Executive Officer President and 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., an affiliate of the Purchaser.
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 an independent director of AFG, American
Annuity Group, Inc., and American Premier Underwriters, Inc. Mr. Martin also
serves as Chairman of AFG's Compensation Committee and Chairman of American
Annuity Group Inc.'s Audit Committee. American Financial Group, Inc., American
Annuity Group, Inc., and American Premier Underwriters, Inc. are affiliates of
the Purchaser.
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.
23
<PAGE> 27
payment to the BDC of $2,500,000 in settlement of the obligations of the
Corporation and the Company to the BDC; (e) the decision of the Board of
Directors not to seek other offers for the Company prior to entering into the
Agreement. See "SPECIAL FACTORS -- Background of the Transaction" and "THE
AGREEMENT AND THE TRANSACTION." There can be no assurance that decisions with
respect to these and other issues might not have been more favorable to the
Limited Partners if made by a Board of Directors of the Corporation having no
relationships with the Purchaser.
MANAGEMENT OF COMPANY AND CORPORATION
The Company has no officers or directors. The Corporation 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 Corporation's Bylaws presently provide for the election by the
Corporation's shareholders 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. At
the annual meeting of shareholders in May 1996, Rodger M. Miller, the
Purchaser's president, who held proxies from Chiquita and ESI, proposed a slate
of directors selected by Carl H. Lindner consisting 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. Mr. Walsh also is
counsel to Interamerican's President, Victor Shaio, at whose request Mr. Walsh
was slated, and Mr. Shaio's wife. The proposed slate was elected. The executive
officers of the Corporation are elected approximately annually by the
Corporation's Board of Directors and the new Board of Directors elected Larry W.
Singleton to replace the persons then serving in the capacities of chief
executive officer and chief financial officer. The current directors and
executive officers of the Corporation 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............. 68 Director Chairman of the Board
Secretary MB Computing, Inc.
Joseph A. Pedoto.............. 55 Director President
JLM Financial, Inc.
Jerome K. Walsh............... 65 Director Partner, Lane & Mittendorf LP
Larry W. Singleton............ 46 Executive Officer President and 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., an affiliate of the Purchaser.
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 an independent director of AFG, American
Annuity Group, Inc., and American Premier Underwriters, Inc. Mr. Martin also
serves as Chairman of AFG's Compensation Committee and Chairman of American
Annuity Group Inc.'s Audit Committee. American Financial Group, Inc., American
Annuity Group, Inc., and American Premier Underwriters, Inc. are affiliates of
the Purchaser.
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 LP, New
York, New York.
23
<PAGE> 28
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
Corporation since 1996 and General Manager and/or Plant Manager of the Company
since 1984.
STOCK OWNERSHIP OF THE CORPORATION
The following table sets forth information concerning the beneficial
ownership of the 41,140 outstanding shares of the Corporation's common stock, no
par value (the "Common Stock"), by (a) all persons who own more than 5% of the
Common Stock, (b) each director of the Corporation who owns any such shares, and
(c) all officers and directors of the Corporation as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENT OF CLASS
NAME AND ADDRESS OWNED BENEFICIALLY OWNED
---------------------------------------------------- ------------------- ------------------
<S> <C> <C>
Interamerican Investment Group, Inc. ............... 16,549 40.2%
630 West 246th Street, Apt. 231
Riverdale, N.Y. 10471
Chiquita Brands International, Inc. ................ 11,745 28.5%
250 East 5th Street
Cincinnati, Ohio 45202
Carl H. Lindner .................................... 11,745(a) 28.5%(a)
One East Fourth Street
Cincinnati, Ohio 45202
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>
- ---------------
(a) Mr. Lindner purports to share with Chiquita voting and investment power
with respect to the shares of the Corporation owned by Chiquita and is
the controlling person of Chiquita. Mr. Lindner does not beneficially
own any shares of the Corporation other than through Chiquita.
EXECUTIVE COMPENSATION
The Company does not have executive officers and directors. The Company's
policies are established and its affairs are managed exclusively by the
Corporation as its sole general partner. The Corporation is compensated by a
management fee established pursuant to the terms of the Partnership Agreement.
Pursuant to the Partnership Agreement, the Corporation 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 DOE Loan dated as of August 23, 1996,
the Corporation agreed to defer 50% of its management fees (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 Corporation totaling
$981,960. As of December 31, 1996, $351,758 is owed to the Corporation for
accrued, but unpaid, management fees.
24
<PAGE> 29
Under the terms of the August 23, 1996 Amendment No. 1 to the DOE loan, the
Corporation 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. All
compensation paid to the Corporation's officers and directors is paid by the
Corporation, except in the case of Nathan P. Kimpel who is compensated
exclusively by the Company for his efforts as General Manager of the Company.
Concurrent with their acceptance of a position as a Director or Officer of the
Corporation, as the case may be, each of Julius S. Anreder, William R. Martin,
Joseph A. Pedoto and Larry W. Singleton obtained indemnification from AFG
respecting their service in such capacities.
LIMITED PARTNER UNIT OWNERSHIP
As of the date of this Proxy Statement, no person (including any "group" as
that term is defined in Section 13(d)(3) of the Exchange Act) is known to the
Company or the Corporation to be the beneficial owner of more than 5% of the
outstanding Limited Partner Units. The Corporation owns 62 Limited Partner
Units. The Corporation will not vote its Limited Partner Units, and upon
consummation of the Transaction, those Limited Partner Units will be contributed
to the Company and canceled. No Limited Partner Units are owned by the executive
officers and directors of the Corporation or by Corporation affiliates.
THE AGREEMENT AND THE TRANSACTION
The following summary of the principal provisions of the Agreement is
qualified in its entirety by reference to the Agreement which is attached as
Exhibit "A" to this Proxy Statement and incorporated herein by reference.
ASSETS TO BE SOLD
The Agreement provides for the purchase by Purchaser of all of the Business
and assets of the Company including but not limited to:
(a) all cash, cash equivalents, accounts receivable, other
receivables, inventories, spare parts, deposits and prepaid expenses;
(b) all equipment, machinery, vehicles, furniture, fixtures, office
materials and supplies and other tangible personal property of every kind
and description owned, by the Company and used or useable in connection
with Company's business;
(c) all land, leaseholds, easements and other interest of every kind
and description in real property, buildings and improvements thereon;
(d) all orders for product and product supply agreements or
arrangements;
(e) all other contracts, agreements and arrangements related to the
Company's business;
(f) all intellectual property assets and other similar intangible
assets (or rights therein) owned or used by the Company;
(g) all files, books and other records relating to the operating of
Company's business;
(h) all of the Company's goodwill in and going concern value of the
Company's business;
(i) to the extent transferable under the applicable law, all
franchises, approvals, permits, licenses, orders, registrations,
certificates, variances and similar rights obtained from governments and
governmental agencies relating to the Company's business;
(j) all claims, causes of action, chooses in action, rights of
recovery, rights of set off, rights of recoupment, deposits, reserves and
prepaid expenses; and
(k) those assets received under the Transfer Agreement between the
Company and the Corporation, annexed to the Liquidation Plan, other than
the Limited Partner Units owned by the Corporation.
25
<PAGE> 30
The Purchaser has agreed to indemnify and hold harmless the Company and the
Corporation, the Limited Partners and the shareholders of the Corporation from
and against any loss, damage, liability or expenses relating to or arising out
of the Assumed Obligations and the Purchaser's post-closing liabilities.
NO SOLICITATION OF OTHER OFFERS; TERMINATION; TERMINATION FEE
The Company has agreed not to solicit, initiate or encourage third party
offers to purchase the Company's assets or any other transaction having a
similar effect. The Company has preserved its right to file all disclosures and
reports required under law and to respond to unsolicited third-party offers made
within 45 days of the public announcement of the proposed Transaction. That
announcement was made on July 1, 1997. As of the date of this Proxy Statement,
the Company has received no offers to purchase the Company other than the
Purchaser's offer described herein.
If the Company elects to terminate the Agreement in order to enter into a
transaction with another party, the Company must immediately pay to the
Purchaser a termination fee in the amount of $2,500,000.
The Agreement terminates October 31, 1997 unless extended by further
agreement of the parties. On October 22, 1997, the parties extended the
termination date of the Agreement through and including December 31, 1997.
CONDITIONS
In addition to the approval of the Transaction by Limited Partners, the
obligations of the parties to complete the Transaction are subject to a number
of conditions, including the continued accuracy of their respective
representations and warranties, the performance of the obligations to be
performed prior to or at the closing, the granting of all third party consents
required to complete the Transaction, the termination of all applicable waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
absence of any legal proceedings prohibiting the Transaction. The Purchaser's
obligations also are subject to the satisfactory modification of the Company's
indebtedness to the DOE. In addition, the Transaction may be terminated or
delayed by Purchaser if any law has been enacted, proposed or has passed either
house of the United States Congress prior to Closing the Transaction that would
have a material adverse effect on the conduct or profitability of the Business
following the closing, including, but not limited to, laws respecting ethanol
tax incentives. The Company's obligations also are subject to the release of the
Company and the Corporation from all liability with respect to the DOE loan and
to the BDC loan, the absence of any action by Duff & Phelps to withdraw its
fairness opinion and approval of the Transaction by shareholders of the
Corporation. The BDC has executed its necessary consents and releases subject to
closing of the Transaction. Based upon information provided by the Purchaser,
approval of the DOE loan modifications and the release of the Company and the
Corporation by the DOE are expected to be forthcoming.
PLAN OF LIQUIDATION
The Board of Directors of the Corporation has adopted an Agreement and Plan
of Complete Liquidation and Dissolution of the Company and the Corporation (the
"Liquidation Plan"). Under the terms of the Liquidation Plan, immediately prior
to the consummation of the Transaction, the Corporation shall contribute to the
Company substantially all of its assets and liabilities, retaining only the
right to payment of the sum of $4,000,000 with respect to the Intercompany Debt.
The Company simultaneously will (a) provide to the Corporation complete releases
with respect to all of the Corporation's obligations respecting the Company's
indebtedness to the DOE, the BDC and GAIC and (b) assume and agree to pay and to
perform all of the liabilities and obligations of the Corporation now existing
or hereafter arising of any nature whether fixed or contingent, known or
unknown, liquidated or unliquidated, including, but not limited to unpaid
expenses required to administer the Company through the period required for
winding-up the Company's affairs, provided that these unpaid expenses shall not
exceed the amounts of administration unpaid expenses the Corporation is entitled
to under the Partnership Agreement. By a side letter, dated June 26, 1997, the
Purchaser has agreed to pay the Corporation's expenses winding up its and the
Company's affairs to the extent such expenses exceed the administration fees to
which the Corporation is entitled under the Partnership Agreement.
27
<PAGE> 31
The Purchaser has agreed to indemnify and hold harmless the Company and the
Corporation, the Limited Partners and the shareholders of the Corporation from
and against any loss, damage, liability or expenses relating to or arising out
of the Assumed Obligations and the Purchaser's post-closing liabilities.
NO SOLICITATION OF OTHER OFFERS; TERMINATION; TERMINATION FEE
The Company has agreed not to solicit, initiate or encourage third party
offers to purchase the Company's assets or any other transaction having a
similar effect. The Company has preserved its right to file all disclosures and
reports required under law and to respond to unsolicited third-party offers made
within 45 days of the public announcement of the proposed Transaction. That
announcement was made on July 1, 1997. As of the date of this Proxy Statement,
the Company has received no offers to purchase the Company other than the
Purchaser's offer described herein.
If the Company elects to terminate the Agreement in order to enter into a
transaction with another party, the Company must immediately pay to the
Purchaser a termination fee in the amount of $2,500,000.
The Agreement terminates October 31, 1997 unless extended by further
agreement of the parties. On , the parties extended the termination
date of the Agreement through and including , 1997.
CONDITIONS
In addition to the approval of the Transaction by Limited Partners, the
obligations of the parties to complete the Transaction are subject to a number
of conditions, including the continued accuracy of their respective
representations and warranties, the performance of the obligations to be
performed prior to or at the closing, the granting of all third party consents
required to complete the Transaction, the termination of all applicable waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
absence of any legal proceedings prohibiting the Transaction. The Purchaser's
obligations also are subject to the satisfactory modification of the Company's
indebtedness to the DOE. In addition, the Transaction may be terminated or
delayed by Purchaser if any law has been enacted, proposed or has passed either
house of the United States Congress prior to Closing the Transaction that would
have a material adverse effect on the conduct or profitability of the Business
following the closing, including, but not limited to, laws respecting ethanol
tax incentives. The Company's obligations also are subject to the release of the
Company and the Corporation from all liability with respect to the DOE loan and
to the BDC loan, the absence of any action by Duff & Phelps to withdraw its
fairness opinion and approval of the Transaction by shareholders of the
Corporation. The BDC has executed its necessary consents and releases subject to
closing of the Transaction. Based upon information provided by the Purchaser,
approval of the DOE loan modifications and the release of the Company and the
Corporation by the DOE are expected to be forthcoming.
PLAN OF LIQUIDATION
The Board of Directors of the Corporation has adopted an Agreement and Plan
of Complete Liquidation and Dissolution of the Company and the Corporation (the
"Liquidation Plan"). Under the terms of the Liquidation Plan, immediately prior
to the consummation of the Transaction, the Corporation shall contribute to the
Company substantially all of its assets and liabilities, retaining only the
right to payment of the sum of $4,000,000 with respect to the Intercompany Debt.
The Company simultaneously will (a) provide to the Corporation complete releases
with respect to all of the Corporation's obligations respecting the Company's
indebtedness to the DOE, the BDC and GAIC and (b) assume and agree to pay and to
perform all of the liabilities and obligations of the Corporation now existing
or hereafter arising of any nature whether fixed or contingent, known or
unknown, liquidated or unliquidated, including, but not limited to unpaid
expenses required to administer the Company through the period required for
winding-up the Company's affairs, provided that these unpaid expenses shall not
exceed the amounts of administration unpaid expenses the Corporation is entitled
to under the Partnership Agreement. By a side letter, dated June 26, 1997, the
Purchaser has agreed to pay the Corporation's expenses winding up its and the
Company's affairs to the extent such expenses exceed the administration fees to
which the Corporation is entitled under the Partnership Agreement.
27
<PAGE> 32
The Partnership Agreement provides that the Company shall be dissolved upon
the disposition of all or substantially all of the Company's assets utilized in
connection with the Business. Therefore, upon consummation of the Transaction
contemplated by the Agreement, the Company will be dissolved and the Corporation
will proceed to wind up the affairs of the Company. The Partnership Agreement
provides the following priorities for the distribution of the Company's assets,
which will consist of the cash paid to the Company by the Purchaser in the
Transaction:
(i) To the payment of the debts and liabilities of the Company owed to
persons other than the Corporation, the Special Limited Partner, and
Limited Partners;
(ii) To the payment of the BDC of the undistributed amounts owed to
the Special Limited Partner pursuant to Section 8(d) of the Partnership
Agreement;
(iii) To the payment of any debts and liabilities of the Company owed
to the Corporation, the Special Limited Partner, and Limited Partners;
(iv) To the payment of any amounts paid by Limited Partners pursuant
to their respective Assumption Agreements;
(v) To the Limited Partners in proportion to their respective Capital
Accounts (as defined in the Partnership Agreement) balances until the
Capital Account of each Limited Partner is reduced to zero;
(vi) To the Corporation in the amount of its Capital Account balance;
and
(vii) To the Limited Partners and the Corporation in proportion to
their respective interests in the profits and losses of the Company.
It is expected that the $9,034,800 of cash proceeds received by the Company
from the Purchaser will be distributed as follows: $2,500,000 to the BDC in full
settlement of the BDC Loan and the Special Limited Partner Interest; $4,000,000
to the Corporation in full settlement of the Intercompany Debt; and $2,534,800
to Limited Partners who have made payments under their Assumption Agreements.
The expected distribution per Qualified Limited Partner Unit will be not less
than $400.
The distribution to Limited Partners will be made at such time as the
Corporation's Board of Directors shall determine that the claims of all persons
having priority to the Limited Partners with respect to the distribution of the
assets of the Company have been fully satisfied, or amounts sufficient to pay
all such claims have been reserved and set aside for that purpose. The
Corporation shall not receive any distributions with respect to the Limited
Partner Units held by it. There can be no assurance as to when the distribution
to Limited Partners will be made.
TRANSACTION ASSURANCE AGREEMENT
The Purchaser has entered into the Transaction Assurance Agreement with
Chiquita, ESI and Interamerican. The Transaction Assurance Agreement provides
that each of Chiquita, ESI and Interamerican will (a) vote all their shares of
the Corporation in favor of the Transaction and against any other proposal,
action or agreement that would deter the Transaction; (b) grant its proxy to
certain of Purchaser's officers to effectuate the purpose of the Transaction
Assurance Agreement; (c) not solicit a Competing Transaction (as defined
therein); and (d) release the Purchaser, the Corporation and each of their
respective directors, officers, shareholders, partners and employees from any
and all claims held by any of them, effective upon consummation of the
Transaction and receipt of the expected distributions to the Corporation's
shareholders. In consideration therefor, the Purchaser and American Annuity
Group, Inc. (up to 49% of the total indemnification amount) has agreed to
indemnify each of Chiquita, ESI and Interamerican from claims that may arise
from their execution of the Transaction Assurance Agreement. The Transaction
Assurance Agreement terminates (other than the indemnification provisions)
October 31, 1997, or earlier upon agreement of the parties thereto or upon a
termination of the Agreement other than for breach of the Agreement.
28
<PAGE> 33
OTHER TRANSACTIONS
Since January 1, 1995, the Company has engaged in the following
transactions with the Corporation, with shareholders of the Corporation or with
persons who may be deemed to be "affiliates" of those shareholders, as that term
is defined in the regulations promulgated by the Commission under the Exchange
Act.
During the years 1993 - January 1995, the Corporation paid $250 per Limited
Partner Unit for 33 Limited Partner Units abandoned to the Corporation. There
were no purchases of Limited Partner Units by the Corporation subsequent to
January 1995.
In March, 1994, the Corporation entered into an Employment Agreement and a
Termination Benefits Agreement with each of Victor Shaio, John H. Parker and
Anthony R. Corso. At the time these agreements were entered into, Shaio and his
wife were the owners of an aggregate of 51.4% of the outstanding shares of
Interamerican and Parker and Corso each owned 14.3% of its shares. Shaio and
Parker were then acting as officers of the Corporation, and Corso was acting as
a consultant. Under the Employment Agreements, Shaio was employed as Chairman
and Chief Executive Officer of the Corporation, Parker was employed as President
and Chief Operating Officer and Corso was employed as Vice President and Chief
Financial Officer. The agreements were for a term of five years. Under the
Termination Benefits Agreements, the employees were entitled to certain payments
in the event of the termination of their employments following a "change in
control" of the Corporation, as defined in those agreements.
At the annual meeting of shareholders of the Corporation held in May, 1996,
at Carl H. Lindner's request Chiquita proposed, and with Interamerican and ESI,
elected the current members of the Board of Directors of the Corporation. See
"MANAGEMENT OF THE COMPANY AND THE CORPORATION." The new Board of Directors of
the Corporation terminated the employments of Shaio, Parker and Corso by the
Corporation, and the Corporation entered into agreements with Shaio, Parker and
Corso pursuant to which the Corporation paid, partially from funds in a "Rabbi"
trust established by the Corporation for this purpose, $1,000,000, $420,000 and
$335,000, to each of Shaio, Parker, and Corso, respectively. In addition, the
Corporation paid $15,000, $47,500 and $47,500 for legal fees of Shaio, Parker
and Corso, respectively. The Corporation also agreed to pay premiums for up to
twelve months' COBRA coverage for each of Parker and Corso and up to eighteen
months' COBRA coverage (subject to an additional nine months' COBRA coverage at
Shaio's expense for premiums under certain circumstances) for Shaio. The
Corporation is self-insured and arranges with the Company at the Corporation's
expense, to insure the Corporation's employees in a self-insured pool with the
Company's employees. The Company maintains stop loss coverage insurance against
excessive expenses. The Corporation has paid for the stop loss premiums
calculated to result from Corporation's employees. It is possible, however, that
claims made by Shaio, Parker and Corso may impact the future costs to the
Company of such stop loss coverage. To the extent such costs are identified, the
Corporation will compensate the Company for such added expense. Each of these
settlement agreements include certain other covenants including restrictions on
Shaio's, Parker's and Corso's further involvement with the Corporation and the
Company, and their dissemination of the Company's and the Corporation's
proprietary and other information. The settlement agreements also provide for
mutual releases between each of Parker, Corso and Shaio, on the one hand, and
each of the Company and the Corporation, on the other hand. Pursuant to the
settlement agreements, the Corporation indemnified Parker, Corso and Shaio
respecting claims, if any, against each of them respecting their involvement
with the Corporation's "Rabbi" trust. Those commitments have been fully
discharged as of the date of this Proxy Statement except for the Corporation's
continuing obligation to provide payments for health insurance coverage to
Shaio. Those obligations will be assumed by the Purchaser upon the closing of
the Transaction, and Shaio has released the Corporation from any further
liability to him as a result of this commitment.
In August, 1996, GAIC, an affiliate of Chiquita, entered into the GAIC loan
with the Company pursuant to which GAIC agreed to provide a $10,000,000 line of
credit to the Company for working capital purposes. See "INFORMATION CONCERNING
THE COMPANY -- Capitalization."
Recently, the Corporation's Board of Directors completed a review of the
manner in which certain expenses had been allocated between the Company, the
Corporation and Interamerican. As a result of that review, $1,436,028 of
selling, general and administrative expense paid by the Company was charged to
the
29
<PAGE> 34
qualifying as capital assets, Section 1231 property or Section 1250 property
will be taxable as ordinary income. The aggregate net gain or loss recognized by
a Limited Partner on dispositions of Section 1231 property in any taxable year
will be taxable as capital gain or ordinary loss, respectively, except that any
net Section 1231 gain will be treated as ordinary income to the extent of
unrecovered net losses from the sale or exchange of Section 1231 property in the
previous five years. Effective for gain or loss recognized on sales and
exchanges of capital assets, Section 1231 property or Section 1250 property
properly taken into account after July 28, 1997, the Taxpayer Relief Act of 1997
(P.L. 105-34 (August 5, 1997)) requires individuals, estates and trusts to
further classify such gain or loss for tax at rates of 20 percent (or 10
percent, in the case of taxpayers otherwise subject to tax at 15 percent), 25
percent or 28 percent. The new law requires each Limited Partner to make
separate capital gain, Section 1250 and Section 1231 gain and loss
determinations for purposes of evaluating whether and to what extent any such
rate would be applicable in calculating that Partner's federal tax liability.
Further legislation addressing errors and omissions contained in the new law
applicable to capital transaction tax rates is required and will have
retroactive effect.
LIQUIDATION OF THE COMPANY
Each Limited Partner will recognize capital gain or loss in an amount equal
to the difference between (i) the aggregate amount of liquidating distributions
received actually and constructively from the Company and (ii) the adjusted
basis of such person in his Limited Partner interest immediately before
dissolution of the Company. Such gain or loss will be long-term capital gain or
loss if the Limited Partner had held his interest in the Company for more than
twelve months prior to receipt of the final liquidating distribution. The entire
amount of gain or loss recognized on the dissolution of the Company must be
taken into account by each Limited Partner in the taxable year in which the
final liquidating distribution is actually or constructively received. The
Company expects the closing date for the sale of Company assets to occur in the
taxable year of the Company preceding the taxable year in which the liquidating
distribution will become available, and the Limited Partners must thus account
for the tax consequences from the sale of assets in the first such taxable year
and the tax consequences from the dissolution of the Company in the latter
taxable year.
The Company reasonably anticipates that each Limited Partner will recognize
gain on the liquidation of the Company equal to the aggregate amount of
liquidating distributions such partner actually or constructively receives from
the Company. As discussed in greater detail below under "Limitation on Use by
Limited Partners of Company Losses" any expenses or deductions of the Company
allocable to a Limited Partner, which had been suspended under Section 469 of
the Code in prior taxable years and not previously applied by such Limited
Partner against passive activity income from any other passive activity, shall
be available to offset some or all of the gain such Partner will recognize on
the liquidation of the Company.
BASIS OF UNITS
In general, each Limited Partner had an original tax basis in his interest
in the Company equal to the cash he paid initially to acquire that interest. A
Limited Partner's original basis has been increased generally by (i) the amount
of his obligation under the Assumption Agreement; and (ii) such partner's share
of the Company taxable and tax-exempt income. Generally, such partner's basis
has been decreased (but not below zero) by (I) non-liquidating distributions
received from the Company (including Indiana taxes paid by the Company on such
partner's behalf); (II) such partner's share of deductible Company expenses and
losses; and (III) such partner's share of nondeductible expenditures of the
Company that are not chargeable to his capital account. In calculating a Limited
Partner's basis in his interest in the Company for purposes of determining gain
or loss on receipt of the liquidating distribution(s), such partner will take
into account (A) his allocable share of income, gain, loss and deduction of the
Company realized or sustained prior to dissolution, including, without
limitation, debt discharge income and gain or loss on the sale of the Company
properties; and (B) Company expenses and losses previously allowable as
deductions but suspended from use under Section 704(d) of the Code, discussed in
greater detail below under "Limitation on Use by Limited
31
<PAGE> 35
qualifying as capital assets, Section 1231 property or Section 1250 property
will be taxable as ordinary income. The aggregate net gain or loss recognized by
a Limited Partner on dispositions of Section 1231 property in any taxable year
will be taxable as capital gain or ordinary loss, respectively, except that any
net Section 1231 gain will be treated as ordinary income to the extent of
unrecovered net losses from the sale or exchange of Section 1231 property in the
previous five years. Effective for gain or loss recognized on sales and
exchanges of capital assets, Section 1231 property or Section 1250 property
properly taken into account after July 28, 1997, the Taxpayer Relief Act of 1997
(P.L. 105-34 (August 5, 1997)) requires individuals, estates and trusts to
further classify such gain or loss for tax at rates of 20 percent (or 10
percent, in the case of taxpayers otherwise subject to tax at 15 percent), 25
percent or 28 percent. The new law requires each Limited Partner to make
separate capital gain, Section 1250 and Section 1231 gain and loss
determinations for purposes of evaluating whether and to what extent any such
rate would be applicable in calculating that Partner's federal tax liability.
Further legislation addressing errors and omissions contained in the new law
applicable to capital transaction tax rates is likely to be required and may
have retroactive effect.
LIQUIDATION OF THE COMPANY
Each Limited Partner will recognize capital gain or loss in an amount equal
to the difference between (i) the aggregate amount of liquidating distributions
received actually and constructively from the Company and (ii) the adjusted
basis of such person in his Limited Partner interest immediately before
dissolution of the Company. Such gain or loss will be long-term capital gain or
loss if the Limited Partner had held his interest in the Company for more than
twelve months prior to receipt of the final liquidating distribution. The entire
amount of gain or loss recognized on the dissolution of the Company must be
taken into account by each Limited Partner in the taxable year in which the
final liquidating distribution is actually or constructively received. The
Company expects the closing date for the sale of Company assets to occur in the
same taxable year of the Company in which the liquidating distributions will be
made available to the Limited Partners. If the taxable year in which such sale
occurs closes prior to the date on which the liquidating distribution becomes
available, the Limited Partners must account for the tax consequences from the
sale of assets in the first such taxable year and the tax consequences from the
dissolution of the Company in the latter taxable year.
The Company reasonably anticipates that each Limited Partner will recognize
gain on the liquidation of the Company equal to the aggregate amount of
liquidating distributions such partner actually or constructively receives from
the Company. As discussed in greater detail below under "Limitation on Use by
Limited Partners of Company Losses" any expenses or deductions of the Company
allocable to a Limited Partner, which had been suspended under Section 469 of
the Code in prior taxable years and not previously applied by such Limited
Partner against passive activity income from any other passive activity, shall
be available to offset some or all of the gain such Partner will recognize on
the liquidation of the Company.
BASIS OF UNITS
In general, each Limited Partner had an original tax basis in his interest
in the Company equal to the cash he paid initially to acquire that interest. A
Limited Partner's original basis has been increased generally by (i) the amount
of his obligation under the Assumption Agreement; and (ii) such partner's share
of the Company taxable and tax-exempt income. Generally, such partner's basis
has been decreased (but not below zero) by (I) non-liquidating distributions
received from the Company (including Indiana taxes paid by the Company on such
partner's behalf); (II) such partner's share of deductible Company expenses and
losses; and (III) such partner's share of nondeductible expenditures of the
Company that are not chargeable to his capital account. In calculating a Limited
Partner's basis in his interest in the Company for purposes of determining gain
or loss on receipt of the liquidating distribution(s), such partner will take
into account (A) his allocable share of income, gain, loss and deduction of the
Company realized or sustained prior to dissolution, including, without
limitation, debt discharge income and gain or loss on the sale of the Company
properties; and (B) Company expenses and losses previously allowable as
deductions but suspended from use under Section 704(d) of the Code, discussed in
greater detail below under "Limitation on Use by Limited
31
<PAGE> 36
specific circumstances of such partner. Further, the tax authorities could
successfully challenge certain prior reporting positions of the Company, which
may adversely affect determinations of the amount realized, the adjusted basis
in a Limited Partner's interest in the Company, and the application of the
aforementioned limitation provisions in any year. The Company intends to report
the consequences of the Transaction consistently with prior reporting positions
it has adopted.
POSSIBLE INDIANA TAX WITHHOLDING
The Company will be required to pay Indiana withholding tax on income
realized by a Limited Partner not resident or qualified to do business in
Indiana, based on the net amount of income recognized by such partner on the
sale of Company assets, unless such partner is a full-year resident of a
jurisdiction which subjects to tax Indiana-source income but allows a full
credit for Indiana taxes paid on that income. The Company will reimburse itself
for any such Indiana withholding tax paid on behalf of a limited partner from
the liquidating distributions payable to such partner.
EACH LIMITED PARTNER IS URGED TO CONSULT HIS OWN TAX ADVISOR REGARDING THE
TAX CONSEQUENCES OF THE TRANSACTION.
REGULATORY MATTERS
Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended ("HSR Act"), and the rules promulgated thereunder by the Federal
Trade Commission (the "FTC"), the Transaction cannot be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and specified waiting period requirements have been satisfied. The
Purchaser and the Company have filed notification and report forms under the HSR
Act with the FTC and the Antitrust Division. On September 8, 1997, each have
been advised that early termination of the waiting period requirements has been
granted, effective September 8, 1997.
Securities. The Corporation and the Company must comply with the
requirements of Section 13(e) under the Exchange Act.
INFORMATION CONCERNING THE PURCHASER
The Purchaser was formed January 8, 1997, by its shareholders, American
Annuity Group, Inc. and Carl H. Lindner (the controlling person of Chiquita),
who own 49% and 51% respectively of the Purchaser. The Purchaser was formed
solely for the purposes of acquiring the Company's assets pursuant to the
Agreement. The Purchaser has not, and will not prior to closing the Transaction,
conduct any business other than respecting the Transaction. The Purchaser's
business address is One East Fourth Street, 900 Provident Tower, Cincinnati,
Ohio 45202. The Purchaser will have approximately $10,000,000 in equity capital
immediately prior to consummation of the Transaction. Consequently, no portion
of the cash payment component of the purchase price will be from borrowed money.
See "THE AGREEMENT AND THE TRANSACTION." Rodger M. Miller is the sole director,
President and Treasurer of the Purchaser. James C. Kennedy is the Purchaser's
Secretary.
INFORMATION CONCERNING THE COMPANY
GENERAL
In 1980, the Company was formed by the Corporation, its sole general
partner, to construct and operate the Plant and conduct an ethanol production
and marketing business. The Plant was designed and constructed to produce
annually approximately 52,500,000 gallons of fuel grade ethanol and, as a
by-product of the ethanol production process, approximately 186,000 tons of DDGS
and approximately 145,000 tons of gaseous carbon dioxide ("CO(2)").
33
<PAGE> 37
specific circumstances of such partner. Further, the tax authorities could
successfully challenge certain prior reporting positions of the Company, which
may adversely affect determinations of the amount realized, the adjusted basis
in a Limited Partner's interest in the Company, and the application of the
aforementioned limitation provisions in any year. The Company intends to report
the consequences of the Transaction consistently with prior reporting positions
it has adopted.
POSSIBLE INDIANA TAX WITHHOLDING
The Company will be required to withhold Indiana tax from the liquidation
distributions payable to a Limited Partner not resident or qualified to do
business in Indiana, based on the net amount of income recognized by such
partner on the sale of Company assets, unless such partner is a full-year
resident of a jurisdiction which subjects to tax Indiana-source income but
allows a full credit for Indiana taxes paid on that income.
EACH LIMITED PARTNER IS URGED TO CONSULT HIS OWN TAX ADVISOR REGARDING THE
TAX CONSEQUENCES OF THE TRANSACTION.
REGULATORY MATTERS
Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended ("HSR Act"), and the rules promulgated thereunder by the Federal
Trade Commission (the "FTC"), the Transaction cannot be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and specified waiting period requirements have been satisfied. The
Purchaser and the Company have filed notification and report forms under the HSR
Act with the FTC and the Antitrust Division. On September 8, 1997, each have
been advised that early termination of the waiting period requirements has been
granted, effective September 8, 1997.
Securities. The Corporation and the Company must comply with the
requirements of Section 13(e) under the Exchange Act.
INFORMATION CONCERNING THE PURCHASER
The Purchaser was formed January 8, 1997, by its shareholders, American
Annuity Group, Inc. and Carl H. Lindner (the controlling person of Chiquita),
who own 49% and 51% respectively of the Purchaser. The Purchaser was formed
solely for the purposes of acquiring the Company's assets pursuant to the
Agreement. The Purchaser has not, and will not prior to closing the Transaction,
conduct any business other than respecting the Transaction. The Purchaser's
business address is One East Fourth Street, 900 Provident Tower, Cincinnati,
Ohio 45202. The Purchaser will have approximately $10,000,000 in equity capital
immediately prior to consummation of the Transaction. Consequently, no portion
of the cash payment component of the purchase price will be from borrowed money.
See "THE AGREEMENT AND THE TRANSACTION." Rodger M. Miller is the sole director,
President and Treasurer of the Purchaser. James C. Kennedy is the Purchaser's
Secretary.
INFORMATION CONCERNING THE COMPANY
GENERAL
In 1980, the Company was formed by the Corporation, its sole general
partner, to construct and operate the Plant and conduct an ethanol production
and marketing business. The Plant was designed and constructed to produce
annually approximately 52,500,000 gallons of fuel grade ethanol and, as a
by-product of the ethanol production process, approximately 186,000 tons of DDGS
and approximately 145,000 tons of gaseous carbon dioxide ("CO(2)").
33
<PAGE> 38
CAPITALIZATION
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 Company's assets.
On October 14, 1982, the Company and the BDC, entered into a loan agreement
whereby the BDC, through a grant the BDC 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. The Company
estimates that the total of Note B payments, including principal and interest
for the 12 month period ending June 30, 1998, will be $1,012,335 based on the
calculation defined in the DOE Letter Agreement. Because the formula for DOE
debt payment is based on company performance, there can be no assurance that the
estimate will be validated by history. Moreover, a payment schedule for the DOE
Loans after June 30, 1998, cannot be determined with any certainty because
performance for the longer term cannot be projected with any certainty. The DOE
loans, however, are due March 31, 2002.
On March 27, 1996, the Company and the BDC entered into an agreement ("BDC
Letter Agreement") which allowed the Company to suspend payment of all principal
and interest payments under the BDC Loan during the period January 1, 1996
through September 30, 1996. Principal and interest payments totaling $69,877 are
due the BDC on each of February 1, May 1, August 1 and November 1 of each year.
Under the terms of the BDC 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, entered into a $10,000,000
revolving working capital loan facility 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 GAIC loan provides for
interest at three percent over the "prime rate" of interest as quoted daily in
The Wall Street Journal and includes other terms customary in the commercial
loan market. Pursuant to the terms of the GAIC loan and the Restructuring
Agreement, the Corporation has agreed to limit payment of its management fee to
50% of accrued management fees. As of June 30, 1997, the Company owed the
Corporation $691,642 accrued, but unpaid, management fees.
Also, in connection with the GAIC loan, the DOE and BDC 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 further suspensions under the DOE loan were accounted for
in the same manner as set forth above. The amounts accruing under the deferral
by the BDC are
34
<PAGE> 39
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, JUNE 30, JUNE 30,
------------------------------------------------------------------------ 1996 1997
1992 1993 1994 1995 1996 (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............... $121,003,872 $115,538,391 $127,929,287 $134,087,036 131,694,369 67,555,698 72,195,098
Net Income (Loss)...... 2,401,385 629,052 (2,549,586) 11,653,870 (13,132,716) (8,383,456) (1,532,807)
Total Assets at End of
Period............... 75,715,837 61,659,770 52,082,532 51,662,253 41,380,546 44,112,277 41,419,720
Total Long-Term Debt... 102,663,981 89,661,930 81,791,708 69,842,321 71,941,383 70,758,957 72,987,589
Partner's Capital at
End of Period(1):
General Partner...... (5,081,192) (5,018,287) (5,273,246) (4,107,859) (5,421,131) (4,946,205) (5,574,412)
Limited Partners..... (30,402,351) (29,813,739) (32,107,672) (21,619,189) (33,438,633) (29,164,299) (34,818,159)
Special Ltd.
Partner............ 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000
Amounts per Limited
Partner Unit:
Income or (loss) from
continuing
operations......... 338 88 (359) 1,639 (1,847) (1,179) (216)
Capital(1)........... (4,751) (4,659) (5,018) (3,379) (5,226) (4,557) (5,441)
Distributions........ -- -- -- -- -- -- --
</TABLE>
- ---------------
(1) Before syndication costs of $4,523,047.
The Company's ratio of earnings to fixed charges for the two most recent
fiscal years and the six months ended June 30, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
6/30/97 6/30/96 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges.................. .24 (3.19) (1.95) 3.70
Limited partner deficit per LP unit (excluding
allocations of syndicated costs................... ($5,441) ($4,557) ($5,226) ($3,379)
</TABLE>
As of June 30, 1997 the earnings of the Company were inadequate to cover
fixed charges by approximately $1,500,000. Moreover, for the six months ended
June 30, 1996, and the year ended December 31, 1996, the ratio of Earnings to
Fixed Charges was negative and is denoted by parentheses around those numbers.
The ratio of Earnings to Fixed Charges for those two periods was negative
because before fixed charges for the six months ended June 30, 1996 and the year
ended December 31, 1996 of approximately $2,000,000 and $4,500,000,
respectively, the Company had a net loss for those same periods of approximately
$6,400,000 and $8,700,000, respectively.
See financial statements and related notes included in the Company's Annual
Report on Form 10K for the Fiscal year ended December 31, 1996 and the Company's
Quarterly Report on Form 10Q for the Quarter ended June 30, 1997, and
incorporated herein by reference.
A copy of the Corporation's Audited Balance Sheet as of December 31, 1996
is annexed hereto as Exhibit "H", and incorporated herein. A copy of an
Unaudited Pro Forma Balance Sheet for the Company giving effect to the
Transaction is annexed hereto as Exhibit "C".
36
<PAGE> 40
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, JUNE 30, JUNE 30,
------------------------------------------------------------------------ 1996 1997
1992 1993 1994 1995 1996 (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............... $121,003,872 $115,538,391 $127,929,287 $134,087,036 131,694,369 67,555,698 72,195,098
Net Income (Loss)...... 2,401,385 629,052 (2,549,586) 11,653,870 (13,132,716) (8,383,456) (1,532,807)
Total Assets at End of
Period............... 75,715,837 61,659,770 52,082,532 51,662,253 41,380,546 44,112,277 41,419,720
Total Long-Term Debt... 102,663,981 89,661,930 81,791,708 69,842,321 71,941,383 10,060,089 72,987,589
Partner's Capital at
End of Period(1):
General Partner...... (5,081,192) (5,018,287) (5,273,246) (4,107,859) (5,421,131) (4,946,205) (5,574,412)
Limited Partners..... (30,402,351) (29,813,739) (32,107,672) (21,619,189) (33,438,633) (29,164,299) (34,818,159)
Special Ltd.
Partner............ 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000
Amounts per Limited
Partner Unit:
Income or (loss) from
continuing
operations......... 338 88 (359) 1,639 (1,847) (1,179) (216)
Capital(1)........... (4,751) (4,659) (5,018) (3,379) (5,226) (4,557) (5,441)
Distributions........ -- -- -- -- -- -- --
</TABLE>
- ---------------
(1) Before syndication costs of $4,523,047.
The Company's ratio of earnings to fixed charges for the two most recent
fiscal years and the six months ended June 30, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
6/30/97 6/30/96 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges.................. .24 (1.95) 3.70
Limited partner deficit per LP unit (excluding
allocations of syndicated costs................... ($5,441) ($5,226) ($3,379)
</TABLE>
As of June 30, 1997 the earnings of the Company were inadequate to cover
fixed charges by approximately $ . Moreover, as of June 30 and December
31, 1996, the ratio of Earnings to Fixed Charges was negative and is denoted by
parentheses around the number.
See financial statements and related notes included in the Company's Annual
Report on Form 10K for the Fiscal year ended December 31, 1996 and the Company's
Quarterly Report on Form 10Q for the Quarter ended June 30, 1997, and
incorporated herein by reference.
A copy of the Corporation's Audited Balance Sheet as of December 31, 1996
is annexed hereto as Exhibit "H", and incorporated herein. A copy of an
Unaudited Pro Forma Balance Sheet for the Company giving effect to the
Transaction is annexed hereto as Exhibit "C".
36
<PAGE> 41
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in one business segment, the production of ethanol and
its by-products: DDGS and CO(2). 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 CO(2)) for the six months ended June 30, 1997 and
1996, and for the years 1996, 1995 and 1994:
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1997 1996
(UNAUDITED) (UNAUDITED) 1996 1995 1994
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Ethanol Sales.......... $53,279,943 $48,656,579 $94,918,677 $103,227,074 $96,111,285
By-Product Sales....... $18,915,155 $18,899,179 $36,775,692 $ 30,859,962 $31,818,002
</TABLE>
DESCRIPTION OF BUSINESS
Since commencing operations in 1985, the Plant consistently has 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. 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, 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. In 1997, the Plant also is currently
projected to produce approximately 267,000 tons of DDGS, and approximately
164,000 tons of CO(2), as by-products. There can be no assurance, 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 CO(2). The "Financial Information about
Industry Segments" set forth above indicate the amounts of revenue derived from
the Company's sale of ethanol and its by-products for the six months ended June
30, 1997 and 1996 and 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 six months ended June 30, 1997 and 1996
and the fiscal years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1997 1997 1996 1995 1994
---------- ---------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Ethanol............................. 73.8% 72.0% 72.1% 77.0% 75.2%
DDGS................................ 25.0% 26.8% 26.7% 21.7% 23.5%
Carbon Dioxide...................... 1.2% 1.2% 1.2% 1.3% 1.3%
</TABLE>
PRODUCTS
Ethanol. Known chemically as ethyl alcohol, and commonly as grain alcohol,
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.
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<PAGE> 42
Distillers Dried Grains and Solubles. DDGS is a by-product of the Plant's
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 CO(2) as
a by-product. The CO(2) produced at the Plant primarily is used in the
preparation of carbonated beverages and frozen foods.
RESEARCH AND DEVELOPMENT
In April 1991, the Company entered into a cooperative research and
development agreement ("CRADA") with the National Renewable Energy Laboratory
("NREL"), a research laboratory 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. The Company's Project Development Team
("PDT") and the NREL coordinated the research management.
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 situation 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 Proxy Statement, 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
The Company owns a single plant located on approximately 70 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 BDC, respectively, as
security for their loans to the Company. In addition, 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 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. As of the date of this Proxy Statement,
Plant production rates have increased to approximately 95% of operating capacity
prior to the May through September, 1996, reduction. Attempts to return to 100%
of prior operating capacity have
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<PAGE> 43
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
Corn. As currently projected, in 1997 the Plant will consume approximately
31 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.
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 the Plant 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. The regional corn supply
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
advised the Company that it is actively negotiating the sale of its grain
business to another of the Company's competitors. 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 examined its alternatives, and has
determined that the best alternative is to self-originate from producers and
various suppliers its corn supply rather than contract exclusively with an
outside supplier. This option will require significant additional capital
expenditures or working capital outlays.
Coal. The Plant uses coal as its principal fuel source. In 1996, the
Company 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.
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<PAGE> 44
Enzymes. Enzymes constitute the principal chemicals used in the Plant's
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
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
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-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 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 and Ohio (effective June 30,
1997), have eliminated these benefits altogether. In addition, other states 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 present Congress, several Bills have been introduced
which would, if enacted, either curtail or eliminate federal tax incentives for
ethanol production. One such bill introduced in the House of Representatives
would have reduced the tax credit by three cents per gallon and would have
capped the credit by reducing the number of gallons of produced ethanol to which
it would apply. That bill was defeated in committee. In response to that bill, a
bill was introduced in the Senate that would maintain existing ethanol tax
credits through 2000, and extend the program at reduced rates through 2006. As
of the date of this Proxy Statement that bill remains active. The ultimate
outcome of these Bills cannot be determined at this time. 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 or reduction in 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.
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<PAGE> 45
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 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. The
Company 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. Although more regions may become RFG regions as a result
of the new Clean Air Regulations, other regulations beginning January 1, 2000
may significantly limit ethanol's participation in the RFG market. The Clean Air
Act requires the Environmental Protection Agency to promulgate standards for
reformulated gasoline. The rules address, among other things, Volatile Organic
Compounds (VOCs) emissions performance reduction. Compliance with the standards
are divided into two distinct phases. The first phase commences January 1, 1998
and ends December 31, 1999, and establishes a per-gallon VOC emission
performance standard. The second phase, which commences January 1, 2000,
incorporates much more stringent standards. Because adding ethanol to gasoline
increases its volatility and thus raises VOC emissions, the stringent second
phase requirements may prove difficult for the ethanol industry, as adding
ethanol to gasoline may cause difficulty in complying with the regulations. The
Company through an industry association is seeking alteration of these
regulations to accommodate use of ethanol, in recognition of ethanol's other
purported environmental benefits. See discussion of perceived impact of
environmental laws on Company under "INFORMATION CONCERNING THE
COMPANY -- Environmental Matters."
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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<PAGE> 46
MARKETING OF BY-PRODUCTS
DDGS. DDGS is sold by the Company as a high-protein livestock feed
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, following completion of a carbon dioxide recovery facility adjacent to the
Plant. BOC, Inc. ("BOC") (formerly Airco, Inc.) currently owns and operates the
facility located on land leased under a long term lease from the Company. The
Corporation 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 2000
and can be automatically extended for an additional five-year term. The Company
has not yet extended this agreement and has not yet determined whether to do so.
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
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 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
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.
Enzymes. The Company uses two primary enzymes in its production process.
On average the Company maintains approximately 7 days of enzyme inventory.
Ethanol. Ethanol inventory consists of in-transit inventory and inventory
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
The most important competitive factor faced by 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 "INFORMATION
CONCERNING THE COMPANY -- 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
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<PAGE> 47
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.
To combat these risks, the Company enters into long-term contracts with
major gasoline refiners to sell a significant portion of its ethanol production.
Second, the Company attempts to match its grain purchases with certain of those
fixed price long-term ethanol sales contracts, thereby providing a locked in
margin on those sales to the extent possible. 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 previously 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 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.
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
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 could have a
significant adverse effect on the Company. See discussion of proposed tax
changes under "INFORMATION CONCERNING THE COMPANY -- Marketing of Ethanol".
Currently 8 states, including 2 states within the Company's marketing area,
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 blended into gasoline up
to a maximum of 10% ethanol.
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<PAGE> 48
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 in the near
future. Although the final rule has not yet been issued, documents released by
the White House on June 25, 1997, indicate that the new standards will be
implemented in a flexible manner in an attempt to allow businesses ample time to
find cost-effective pollution controls. There can be no assurance that these
regulations will be implementated in a manner that will allow the Company to
find cost-effective pollution controls.
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. Because the EPA has been aware of the violations for approximately six
years and the Company has successfully completed remediation measures,
Management estimates that any fines levied in this matter will not be
significant.
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 waste stream 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 record keeping
procedures relating to benzene waste streams 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
occasionally experiences short term excursions from its allowable emission
limits for sulfur dioxide, nitrous oxides and opacity from its boiler
operations. Each excursion is reported to the appropriate authorities on a
quarterly basis and potentially could result in enforcement activity.
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
44
<PAGE> 49
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.
St. Joseph County, Indiana recently has proposed certain regulations
respecting ground water purity. If these regulations become law, additional
material capital expenditures may be required to comply.
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 ("OSHA"). The Company is in the process of determining what it must
do, and the costs involved, to comply with OSHA process safety management
standards.
INCORPORATION BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1996 as amended September 18, 1977, Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 as amended September 18, 1997, and Current Report on
Form 8K dated July 1, 1997, are hereby incorporated by reference into this Proxy
Statement as Exhibits "I," Exhibit "J" and Exhibit "K," respectively. The
Corporation, without charge and within one business day of any written or oral
request of any person to whom this Proxy Statement is delivered, will provide to
such requesting person a copy of any and all information incorporated by
reference herein (without exhibits thereto, unless such exhibits are
incorporated by reference in this Proxy Statement), by first class mail or
equally prompt means. To request such material contact Michele Verhoeven 3201
West Calvert Street, P.O. Box 2289, South Bend, Indiana 46613 or by telephone at
1(800) 526-8947 or (219) 233-3116.
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<PAGE> 50
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
Exhibit A -- Agreement
Exhibit B -- Liquidation Plan
Exhibit C -- Company Unaudited Pro Forma Balance Sheet giving effect to the Transaction
Exhibit D -- The BDC Agreement
Exhibit E -- Transaction Assurance Agreement
Exhibit F -- Duff & Phelps, LLC December 11, 1996 Valuation
Exhibit G -- Duff & Phelps, LLC Opinion
Exhibit H -- Corporation Audited Balance Sheet, December 31, 1996
Exhibit I -- Company's Annual Report on Form 10K for the year ended December 31, 1996, filed
on March 27, 1997 and incorporated herein by reference, as amended September 18,
1997.
Exhibit J -- Company's Quarterly Report on Form 10Q for the quarter ended June 30, 1997,
filed on August 14, 1997 and incorporated herein by reference, as amended
September 18, 1997.
Exhibit K -- Company's Current Report on Form 8K dated July 1, 1997, filed on July 1, 1997
and incorporated herein by reference.
</TABLE>
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<PAGE> 51
EXHIBIT A
ASSET PURCHASE AGREEMENT
DATED AS OF
JULY 1, 1997
BETWEEN
CORN ENERGY INC.
AND
NEW ENERGY COMPANY OF INDIANA
LIMITED PARTNERSHIP
<PAGE> 52
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is made as of July 1, 1997
between CORN ENERGY, INC., an Indiana corporation ("Buyer"), and NEW ENERGY
COMPANY OF INDIANA LIMITED PARTNERSHIP, an Indiana limited partnership formerly
known as New Energy Company of Indiana ("Seller").
RECITALS:
Seller desires to sell, convey, transfer and assign to Buyer, and Buyer
desires to purchase from Seller, substantially all the assets used or useable in
Seller's business of producing and distributing ethanol and its byproducts for
the consideration and on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
and undertakings hereinafter set forth, the parties hereto, intending to be
legally bound, do hereby agree as follows:
1. Definitions
Certain capitalized terms used in this Agreement have the meanings
specified in the Glossary attached hereto. Other capitalized terms are defined
in the body of this Agreement.
2. Assets to be Purchased
(a) Subject to the terms and conditions herein provided, Seller hereby
agrees to sell, convey, transfer and assign to Buyer, and Buyer hereby agrees to
purchase and receive, all of Seller's right, title and interest in and to:
(i) all cash, cash equivalents, accounts receivable, other
receivables, inventories, spare parts, deposits and prepaid expenses as
they existed as of March 31, 1997, including, without limitation, those set
forth on Schedules 2(a)(i)(1) through 2(a)(i)(6), inclusive, to this
Agreement, as adjusted for changes to those assets that occur in the
Ordinary Course of Business between March 31, 1997 and the Closing Date;
(ii) all equipment, machinery, vehicles, furniture, fixtures, office
materials and supplies and other tangible personal property of every kind
and description owned as of March 31, 1997 by Seller and used or useable in
connection with Seller's business of producing and distributing ethanol and
its byproducts ("Seller's Business"), including, without limitation, those
set forth on Schedules 2(a)(ii)(1) and 2(a)(ii)(2) to this Agreement, and
any additions, improvements, replacements and alterations thereto (less any
dispositions) made between March 31, 1997 and the Closing Date;
(iii) all land, leaseholds, easements and other interests of every
kind and description in real property, buildings and improvements thereon
(to the extent that they constitute fixtures or other interests in real
property) and construction in progress owned, leased or used by Seller in
Seller's Business, including, without limitation, those set forth on
Schedule 2(a)(iii) to this Agreement, and those acquired between the date
of this Agreement and the Closing Date;
(iv) all orders for product and product supply agreements or
arrangements now existing, or entered into in the Ordinary Course of
Business between the date of this Agreement and the Closing Date, for the
sale of ethanol products and ethanol by-products (the "Sales Contracts"),
including, without limitation, those listed on Schedules 2(a)(iv)(1)
through 2(a)(iv)(3), inclusive, to this Agreement;
(v) all other contracts, agreements and arrangements related to
Seller's Business, including, without limitation, those contracts,
agreements and arrangements set forth on Schedules 2(a)(v)(1) through
2(a)(v)(7), inclusive, to this Agreement, together with all such contracts,
agreements and arrangements as may be entered into in the Ordinary Course
of Business of Seller between the date of this Agreement and the Closing
Date (the "Other Contracts");
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(vi) all Intellectual Property Assets and other similar intangible
assets (or rights therein) owned or used by Seller in connection with the
Seller's Business as of the date of this Agreement, including, without
limitation, those registered Marks and Patents set forth on Schedule
2(a)(vi) to this Agreement, and those acquired between the date of this
Agreement and the Closing Date;
(vii) all files, books and other records relating to the operation of
Seller's Business, including, without limitation, all written technical
information, employment records, data, specifications, research and
development information, engineering drawings, manuals, computer programs,
tapes and software relating to Seller's Business;
(viii) all of Seller's goodwill in and going concern value of Seller's
Business;
(ix) to the extent transferable under applicable law, all franchises,
approvals, permits, licenses, orders, registrations, certificates,
variances and similar rights obtained from governments and governmental
agencies relating to Seller's Business, including, without limitation,
those set forth on Schedules 2(a)(ix)(1) and 2(a)(ix)(2) to this Agreement;
(x) all claims (including, without limitation, all claims under
Seller's insurance policies), causes of action, choses in action, rights of
recovery, rights of setoff, rights of recoupment, deposits, reserves and
prepaid expenses; and,
(xi) those assets received under the Transfer Agreement (as defined
hereinafter) except the limited partnership interests.
The assets, rights, interests and properties described in clauses (i) through
(xi) above, inclusive, are collectively herein referred to as the "Assets."
(b) The Assets shall be sold, transferred and conveyed by Seller to Buyer
on the Closing Date by means of bills of sale, assignments and other instruments
of conveyance, including (without limitation) a quit claim deed, reasonably
satisfactory in form and substance to Buyer (collectively, the "Conveyance
Documents") against delivery by Buyer to Seller of the Purchase Price (as
defined hereinafter). Seller covenants that Buyer shall receive the Assets from
Seller free and clear of any and all liens, security interests, pledges,
hypothecation or claims of any kind excepting only the Permitted Encumbrances
(as defined hereinafter), the rights of the other parties under the Sales
Contracts and the Other Contracts and the matters disclosed in Part 4.6 of the
Disclosure Letter.
3. Sale and Transfer of Assets; Closing
3.1 Cash Component
The purchase price ("Purchase Price") for the Assets will include Nine
Million Thirty-Four Thousand Eight Hundred Dollars ($9,034,800) to be paid in
immediately available funds at the Closing (the "Cash Component").
3.2 Assumption of Liabilities
(a) On and after the Closing Date, Buyer will assume and discharge all of
the liabilities and all of the obligations of Seller (collectively, the "Assumed
Liabilities") including, but not limited to:
(i) Seller's obligations under the Sales Contracts (the "Sales
Contract Obligations");
(ii) Seller's obligations under the Other Contracts (the "Other
Contract Obligations") and all other current trade liabilities of Seller
arising in the Ordinary Course of Business of Seller, as they come due,
including, without limitation, those set forth on Schedules 3.2(a)(ii)(1)
and 3.2(a)(ii)(2) to this Agreement;
(iii) Seller's obligations (including indebtedness of approximately
$61,600,000 in unpaid aggregate principal amount as of March 31, 1997) to
the United States Department of Energy ("DOE"), subject to modification as
set forth in Section 7.7 hereof;
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(iv) Seller's obligations to Great American Insurance Company ("GAIC")
under the Loan and Security Agreement dated as of August 23, 1996 (the
"GAIC Loan Agreement");
(v) Seller's employment-related and employee benefit-related
obligations, including, without limitation, any such obligations to
Seller's employees arising out of the Plans disclosed under Section 4.13
hereof or arising out of consummation of the transactions contemplated by
this Agreement;
(vi) Seller's liabilities and obligations under federal or applicable
state Environmental Laws and all other Environmental, Health and Safety
Obligations of Seller; and,
(vii) any and all other liabilities of Seller, now existing or
hereafter arising, of any nature whatsoever, whether fixed or contingent,
liquidated or unliquidated, including (but not limited to) (A) all
liabilities of the General Partner assumed by Seller pursuant to the
Transfer Agreement, including all income and other tax liabilities of the
General Partner and all expenses incurred by the General Partner in the
transactions hereby contemplated or in winding up the affairs of the
General Partner; (B) all liability arising out of or related to the conduct
of Seller's Business prior to the Closing Date/ and (C) all liabilities of
Seller incurred in the transactions hereby contemplated or in the winding
up of the affairs of Seller.
(b) Buyer reserves the right to contest in good faith any Assumed
Liability, but Buyer shall be solely liable for the prompt and full discharge of
the Assumed Liabilities.
(c) Buyer shall be solely liable for the prompt and full discharge of any
liability arising from, or in connection with, the ownership of the Assets
acquired by Buyer after consummation of the transactions contemplated hereby,
including (without limitation) any such liabilities arising by reason of any
violation or claimed violation by Buyer, through acts or events or omissions
arising or occurring after the Closing, of any federal, state or local law,
rule, regulation, ordinance or other governmental requirement (collectively, the
"Buyer's Post-Closing Liabilities").
(d) Buyer shall employ, at the Closing, all employees of Seller as of the
date of Closing, the terms and conditions of employment to be substantially
equivalent to those prevailing as of the date of Closing, subject, however, to
Buyer's right after the Closing to amend, alter or otherwise change the terms
and conditions of such employment.
(e) Buyer shall indemnify and hold harmless Seller and the General Partner,
the limited partners and the shareholders of the General Partner, from and
against any loss, damage, liability or expenses relating to or arising out of
the Assumed Liabilities and Buyer's Post-Closing Liabilities.
3.3 Closing
The closing of the purchase and sale of the Assets (the "Closing") provided
for in this Agreement will take place at the offices of Roemer Mintz, 1400 Key
Bank Building, 202 South Michigan Street, South Bend, Indiana 46601 at 10:00
a.m. (local time) on such date as the parties may agree, which date shall (if,
but only if, the forty five (45) day period described in Section 6(e) shall have
expired) be no later than five (5) business days after each of the conditions
precedent to Closing shall have been satisfied or waived.
3.4 Closing Obligations
(a) At the Closing, Seller will deliver to Buyer:
(i) the Conveyance Documents, executed by Seller;
(ii) a certificate executed by the Chief Executive Officer of the
General Partner, solely in his capacity as such, to the effect that each of
Seller's representations and warranties in this Agreement was accurate in
all respects as of the date of this Agreement and is accurate in all
respects as of the Closing Date as if made on the Closing Date; and
(iii) the documentation required to be delivered by or on behalf of
Seller pursuant to Section 7 hereof.
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(b) At the Closing, Buyer will deliver to Seller:
(i) the Cash Component;
(ii) a certificate executed by the Chief Executive Officer of Buyer,
solely in his capacity as such, to the effect that each of Buyer's
representations and warranties in this Agreement was accurate in all
respects as of the date of this Agreement and is accurate in all respects
as of the Closing Date as if made on the Closing Date;
(iii) the Conveyance Documents, executed (where required) by Buyer;
(iv) the Assumption Agreement in the form of Exhibit 3.4(b)(iv) (the
"Assumption Agreement");
(v) evidence of the availability of not less than Ten Million Dollars
($10,000,000) in a secured credit facility from a reputable lender
reasonably acceptable to Seller; and,
(vi) the other documentation required to be delivered by or on behalf
of Buyer pursuant to Section 8 hereof.
3.5 Allocation of Purchase Price
Buyer and Seller will agree on an allocation of the Purchase Price to the
Assets in accordance with Section 1060 of the IRC and the temporary and/or
permanent regulations promulgated thereunder. Seller and Buyer shall prepare
their respective federal, state and local income tax returns (including Form
8594) employing the allocation of the Purchase Price made pursuant to this
Section 3.5. Seller and Buyer each hereby covenant and agree that it will not
take a position before any governmental agency charged with the collection of
any income, revenue or franchise tax or in any judicial proceeding that is in
any way inconsistent with the terms of this Section 3.5. A schedule showing the
agreed upon allocation of the Purchase Price to the Assets is attached hereto as
Schedule 3.5.
4. Representations and Warranties of Seller
Seller represents and warrants to Buyer as follows:
4.1 Organization and Good Standing
(a) Seller is a limited partnership duly formed, validly existing and
having active status under the laws of the State of Indiana, with full power and
authority to conduct its business as it is now being conducted and to own or use
the properties and assets that it purports to own or use. Except as set forth in
Part 4.1 of the Disclosure Letter, Seller is qualified to do business and is in
good standing as a foreign limited partnership under the laws of each other
state or other jurisdiction in which it is required to be so qualified.
(b) Seller has delivered to Buyer copies of its Organizational Documents,
as currently in effect.
4.2 Authority; No Conflict
(a) This Agreement constitutes the legal, valid, and binding obligation of
Seller, enforceable against Seller in accordance with its terms. Subject to
receipt of the approvals set forth in Part 4.2 of the Disclosure Letter, Seller
has the absolute and unrestricted right, power, authority and capacity to
execute and deliver this Agreement and the other documents contemplated to be
executed and delivered at the Closing by Seller and to perform their respective
obligations under this Agreement and such other documents.
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<PAGE> 56
(b) Except as set forth in Part 4.2 of the Disclosure Letter and except for
the Assumed Liabilities, neither the execution and delivery of this Agreement
nor the consummation or performance of any of the transactions contemplated
hereby will, directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of Seller, or (B) any resolution
adopted by the General Partner or the limited partners of Seller;
(ii) contravene, conflict with, or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
transactions contemplated hereby or to exercise any remedy or obtain any
relief under, any Legal Requirement or any Order to which Seller may be
subject;
(iii) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any material
Governmental Authorization that is held by Seller or that otherwise relates
to Seller's Business;
(iv) cause Buyer to become subject to, or to become liable for the
payment of, any state or local Tax (except as relates to Buyer's ownership
of the Assets or conduct of Seller's Business after the Closing);
(v) cause any of Seller's Assets to be reassessed or revalued by any
taxing authority or other Governmental Body (except as relates to Buyer's
ownership of Seller's assets or conduct of Seller's Business after the
Closing);
(vi) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any material Sales Contract or Other
Contract; or
(vii) result in the imposition or creation of any material Encumbrance
upon or with respect to any of Seller's Assets.
Except as set forth in Part 4.2 of the Disclosure Letter, Seller is not required
to give any notice to or obtain any Consent from any Person in connection with
the execution and delivery of this Agreement or the consummation or performance
of any of the transactions contemplated hereby.
4.3 Capitalization
The authorized, issued and outstanding equity securities of Seller consist
of Six Thousand Three Hundred Ninety Nine (6,399) limited partnership interests,
and a special limited partnership interest held by BDC. The General Partner is
the sole general partner of Seller. Seller owns no shares of capital stock or
other equity interests in any other limited partnership, corporation, firm or
other entity and has no Subsidiaries.
4.4 Financial Statements; SEC Reports
(a) Seller has delivered to Buyer (or will deliver to Buyer in accordance
with this Agreement): (i) audited balance sheets of Seller as at December 31, in
each of the years 1994 through 1996, and the related audited statements of
income for each of the fiscal years then ended (the "Financial Statements"), and
(ii) an unaudited balance sheet of Seller as at March 31, 1997 (the "Interim
Balance Sheet") and the related unaudited statement of income for the three (3)
month period then ended. Any such financial statements pertaining to periods
ended after June 1, 1996 fairly present in all material respects the financial
condition and the results of operations of Seller as at the respective dates of
and for the periods referred to in such financial statements in accordance with
GAAP. Any interim financial statements are further subject to normal recurring
year-end adjustments (none of which, individually or in the aggregate, shall be
material).
(b) Since June 1, 1996, Seller has timely filed with the Securities and
Exchange Commission ("SEC") all materials and documents required to be filed by
it under the Securities Exchange Act of 1934 (the "Exchange Act"). All the
materials and documents filed with the SEC by Seller since June 1, 1996 are
hereinafter referred to as the "Seller SEC Reports." The Seller SEC Reports,
copies of which have been delivered to Buyer, are true and correct in all
material respects, including the financial statements and other
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<PAGE> 57
financial information contained therein, and do not omit to state any material
fact necessary to make the statements in such Seller SEC Reports, in light of
the circumstances in which they were made, not misleading.
4.5 Books and Records
The books of account, minute books, limited partnership record books and
other records of Seller, copies or the originals of all of which have been made
available to Buyer, are complete and correct in all material respects and have
been maintained in accordance with sound business practices, including the
maintenance of an adequate system of internal controls.
4.6 Title to Properties; Encumbrances
Except as otherwise indicated in Parts 4.6 or 4.22 of the Disclosure
Letter, Seller owns all the properties and assets (whether real, personal, or
mixed and whether tangible or intangible) that it purports to own, including all
of the properties and assets reflected in the Financial Statements and the
Interim Balance Sheet (except for personal property sold since the date of the
Financial Statements and the Interim Balance Sheet, as the case may be, in the
Ordinary Course of Business), and all of the properties and assets purchased or
otherwise acquired by Seller since the date of such Financial Statements (except
for personal property acquired and sold since the date of such Financial
Statements in the Ordinary Course of Business and consistent with past
practice). All material properties and assets reflected in such Financial
Statements and the Interim Balance Sheet are free and clear of all Encumbrances
other than the Permitted Encumbrances. To Seller's Knowledge, all buildings,
plants, and structures leased or used by Seller lie wholly within the boundaries
of the real property leased or used by Seller and do not encroach upon the
property of, or otherwise conflict with the property rights of, any other
Person.
4.7 Condition and Sufficiency of Assets
The buildings, fixtures, equipment, vehicles and other tangible personal
property included in the Assets are structurally sound, are in good operating
condition and repair, ordinary wear and tear excepted, and are adequate for the
uses to which they are being put, and the Assets, taken as a whole, are not in
need of maintenance or repairs except for: (i) Seller's ongoing "Clean In Place"
maintenance program; (ii) Seller's annual maintenance overhaul; (iii) the
matters disclosed on Part 4.7 of the Disclosure Letter; and (iv) ordinary,
routine maintenance and repairs that are not material in nature or cost. The
Assets are sufficient for the continued conduct of Seller's Business after the
Closing in substantially the same manner as conducted prior to the Closing.
4.8 Accounts Receivable
Other than as set forth in Part 4.8 of the Disclosure Letter, all accounts
receivable of Seller that are reflected on Seller's Interim Balance Sheet or on
the accounting records of Seller as of the Closing Date (collectively, the
"Accounts Receivable") represent or will represent valid obligations arising
from sales actually made or services actually performed in the Ordinary Course
of Business. Except as set forth in Part 4.8 of the Disclosure Letter, unless
paid prior to the Closing Date, the Accounts Receivable are or will be as of the
Closing Date current and collectible less an amount equal to the reserve on the
Interim Balance Sheet for doubtful accounts. There is no contest, claim, or
right of set-off, other than returns in the Ordinary Course of Business, under
any Sales Contract or other contract or arrangement with any obligor of an
Accounts Receivable relating to the amount or validity of such Accounts
Receivable. Part 4.8 of the Disclosure Letter contains a complete and accurate
list of all Accounts Receivable as of March 31, 1997, which list shall set forth
the aging of such Accounts Receivable.
4.9 Inventory
Except as set forth on Part 4.9 of the Disclosure Letter, all inventory of
Seller, whether or not reflected in the Interim Balance Sheet, consists of
tangible property that is, in all material respects, of a quality and
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quantity usable and salable in the Ordinary Course of Business, except for
obsolete items and items of below-standard quality, which do not constitute a
material amount of such inventories.
4.10 No Undisclosed Liabilities
Except as set forth in Part 4.10 of the Disclosure Letter, to Seller's
Knowledge, Seller has no material liabilities or obligations of any nature
(whether absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the Interim Balance Sheet and
liabilities incurred in the Ordinary Course of Business since the respective
dates thereof.
4.11 Taxes
(a) Seller has filed or caused to be filed (on a timely basis, giving
effect to allowable extensions) since June 1, 1996 all Tax Returns that are or
were required to be filed by or with respect to Seller or Seller's Business,
pursuant to applicable Legal Requirements. Seller has delivered to Buyer copies
of all such Tax Returns relating to income or franchise taxes filed since June
1, 1996. All Tax Returns filed by Seller are true, correct and complete in all
material respects as such and to the extent that such Tax Returns may affect the
transactions contemplated by this Agreement. Seller has paid, or made provision
for the payment of, all Taxes that have or may have become due pursuant to those
Tax Returns or otherwise, or pursuant to any assessment received by Seller,
except such Taxes, if any, as are listed in Part 4.11 of the Disclosure Letter
and are being contested in good faith and as to which adequate reserves have
been provided in the Interim Balance Sheet.
(b) The charges, accruals and reserves, if any, with respect to Taxes on
the books of Seller are adequate and are at least equal to Seller's liability
for Taxes. Seller has received no proposed tax assessment against Seller except
as disclosed in the Interim Balance Sheet or in Part 4.11 of the Disclosure
Letter. No consent to the application of Section 341(f)(2) of the IRC has been
filed with respect to any property or assets held, acquired, or to be acquired
by Seller. All Taxes that Seller is or was required by Legal Requirements to
withhold or collect have been duly withheld or collected and, to the extent
required, have been paid to the proper Governmental Body or other Person.
4.12 No Material Adverse Change
Except as set forth on Part 4.12 of the Disclosure Letter or as otherwise
expressly permitted under this Agreement, since December 31, 1996 there has not
been any material adverse change in the business, operations, properties,
prospects, assets, or condition of Seller or Seller's Business, and no event has
occurred or circumstance exists that may result in such a material adverse
change.
4.13 Employee Benefits
(a) Seller sponsors or maintains in effect for its employees the plans and
other arrangements set forth on Schedules 4.13(a)(i) through 4.13(a)(iii),
inclusive, to this Agreement (the "Plans"). Other than the Plans, there are no
Company Plans, Company Other Benefit Obligations or Company VEBAs.
(b) Seller has delivered to Buyer:
(i) all documents that set forth the terms of each of the Plans,
including (A) all plan descriptions and summary plan descriptions of the
Plans for which Seller is required to prepare, file, and distribute plan
descriptions and summary plan descriptions, and (B) all summaries and
descriptions furnished to participants and beneficiaries regarding those of
the Plans for which a plan description or summary plan description is not
required;
(ii) all personnel, payroll, and employment manuals and policies;
(iii) all insurance policies purchased by or to provide benefits under
any of the Plans;
(iv) all notifications to employees of their rights under ERISA sec.
601 et seq. and IRC sec. 4980B during the most recent three (3) years; and,
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(v) the Form 5500, if any, filed in each of the most recent three (3)
plan years with respect to each of the Plans, including all schedules
thereto and the opinions of independent accountants.
(c) Except as set forth in Part 4.13(c) of the Disclosure Letter:
(i) Seller, with respect to the Plans is, and each of the Plans is, in
compliance in all material respects with ERISA, the IRC, and other
applicable Laws including the provisions of such Laws expressly mentioned
in this Section 4.13, and with any applicable collective bargaining
agreement.
(ii) Other than claims for benefits submitted by participants or
beneficiaries, no claim against, or legal proceeding involving, any of the
Plans is pending or, to Seller's Knowledge, is Threatened.
(iii) The consummation of the transactions contemplated hereby will
not result in the payment, vesting, or acceleration of any benefit.
4.14 Compliance With Legal Requirements; Governmental Authorizations
(a) Except as set forth in Part 4.14 of the Disclosure Letter:
(i) To Seller's Knowledge, Seller is in compliance in all material
respects with each Legal Requirement that is or was applicable to it or to
the conduct or operation of Seller's Business or the ownership or use of
any of its assets;
(ii) To Seller's Knowledge, no event has occurred or circumstance
exists that (with or without notice or lapse of time) (A) may constitute or
result in a violation by Seller of, or a failure on the part of Seller to
comply with, any Legal Requirement, or (B) may give rise to any obligation
on the part of Seller to undertake, or to bear all or any portion of the
cost of, any remedial action of any nature; and
(iii) Seller has not received, at any time since January 1, 1994, any
notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding (A) any actual, alleged,
possible, or potential material violation of, or material failure to comply
with, any Legal Requirement, or (B) any actual, alleged, possible, or
potential obligation on the part of Seller to undertake, or to bear all or
any portion of the cost of, any material remedial action of any nature.
(b) Part 4.14 of the Disclosure Letter contains a complete and accurate
list of each material Governmental Authorization that is held by Seller or that
otherwise relates to Seller's Business. Each material Governmental Authorization
listed or required to be listed in Part 4.14 of the Disclosure Letter is valid
and in full force and effect.
4.15 Legal Proceedings; Orders
(a) Except as set forth in Part 4.15 of the Disclosure Letter, there is no
pending Proceeding:
(i) that has been commenced by or against Seller or that otherwise
materially relates to or may materially affect Seller's Business; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the
transactions contemplated hereby.
To Seller's Knowledge, no such Proceeding has been Threatened, and Seller
has not received any notice or communication that any event has occurred or
circumstance exists that may give rise to or serve as a basis for the
commencement of any such Proceeding other than as set forth in Part 4.15 of the
Disclosure Letter. Seller has delivered to Buyer copies of all pleadings,
correspondence, and other documents relating to each Proceeding listed in Part
4.15 of the Disclosure Letter.
(b) Except as set forth in Part 4.15 of the Disclosure Letter:
(i) Seller is not subject to any Order that relates in any material
respect to Seller's Business, or any of the Assets; and,
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(ii) No officer, director, agent, or employee of Seller is subject to
any Order that prohibits such officer, director, agent, or employee from
engaging in or continuing any conduct, activity, or practice relating to
Seller's Business.
4.16 Absence of Certain Changes and Events
Except as set forth in Part 4.16 of the Disclosure Letter or as otherwise
expressly permitted in this Agreement, since December 31, 1996, Seller has
conducted Seller's Business only in the Ordinary Course of Business and there
has not been any:
(a) change in Seller's authorized or issued capital stock; grant of
any stock option or right to purchase shares of capital stock of Seller;
issuance of any security convertible into such capital stock; grant of any
registration rights; purchase, redemption, retirement, or other acquisition
by Seller of any shares of any such capital stock; or declaration or
payment of any dividend or other distribution or payment in respect of
shares of capital stock;
(b) amendment to the Organizational Documents of Seller;
(c) except in the Ordinary Course of Business, payment or increase by
Seller of any bonuses, salaries, or other compensation to any stockholder,
director, officer, or employee or entry into any employment, severance, or
similar contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of
Seller;
(e) damage to or destruction or loss of any asset or property of
Seller, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or
prospects of Seller (including the loss or prospective loss of any material
business relationships);
(f) entry into, termination of, or receipt of notice of termination of
(i) any license, exclusive contract or arrangement, joint venture, credit,
or similar agreement, or (ii) any contract or transaction involving a total
commitment by or to Seller (determined on an individual basis) of at least
$250,000, as of the date of this Agreement;
(g) other than in the Ordinary Course of Business, sale, lease, or
other disposition of any asset or property of Seller or mortgage, pledge,
or imposition of any lien or other encumbrance on any material asset or
property of Seller, including the sale, lease, or other disposition of any
of the Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a value
(determined individually) to Seller in excess of $250,000;
(i) material change in the accounting methods used by Seller; or
(j) agreement, whether oral or written, by Seller to do any of the
foregoing.
4.17 Contracts; No Defaults
(a) Part 4.17(a) of the Disclosure Letter contains a complete and accurate
list, and Seller has delivered or made available to Buyer true and complete
copies, of each of the Sales Contracts and the Other Contracts representing a
commitment on the part of Seller of $250,000 or more (collectively, the "Assumed
Contracts").
(b) Except as set forth in Part 4.17(b) of the Disclosure Letter, Seller
has no rights under, and has not or may not become subject to any obligation or
liability under, any other contract other than the Assumed Contracts that
relates in any material respect to Seller's Business or the Assets.
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(c) Except as set forth in Part 4.17(c) of the Disclosure Letter, each
Assumed Contract identified or required to be identified in Part 4.17(a) of the
Disclosure Letter is in full force and effect and is valid and enforceable in
accordance with its terms.
(d) Except as set forth in Part 4.17(d) of the Disclosure Letter:
(i) Seller is in compliance in all material respects with all
applicable terms and requirements of each of the Assumed Contracts;
(ii) to Seller's Knowledge, each other Person that has or had any
obligation or liability under any of the Assumed Contracts is in compliance
in all material respects with all applicable terms and requirements of such
Assumed Contract;
(iii) to Seller's Knowledge, no event has occurred or circumstance
exists that (with or without notice or lapse of time) may contravene,
conflict with, or result in a violation or breach of, or give Seller or
other Person the right to declare a default or exercise any remedy under,
or to accelerate the maturity or performance of, or to cancel, terminate,
or modify, any Assumed Contract; and
(iv) Seller has not given to or received from any other Person, at any
time since January 1, 1996, any notice or other communication (whether oral
or written) regarding any actual, alleged, possible, or potential violation
or breach of, or default under, any Assumed Contract.
(e) Other than in the Ordinary Course of Business or as set forth in Part
4.17 of the Disclosure Letter, there are no renegotiations of, attempts to
renegotiate, or outstanding rights to renegotiate any material amounts paid or
payable to Seller under current or completed contracts with any Person included
in the Assumed Contracts and no such Person has made written demand for such
renegotiation.
4.18 Insurance
(a) Seller has delivered to Buyer:
(i) true and complete copies of all policies of insurance to which
Seller is a party or under which Seller is or has been covered at any time
within the two (2) years preceding the date of this Agreement; and
(ii) true and complete copies of all pending applications for policies
of insurance.
(b) Part 4.18(b) of the Disclosure Letter describes:
(i) any self-insurance arrangement by or affecting Seller or Seller's
Business, including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of insurance,
for the transfer or sharing of any risk by Seller's Business; and
(iii) all obligations of Seller to third parties with respect to
insurance (including such obligations under leases and service agreements)
and identifies the policy under which such coverage is provided.
4.19 Environmental Matters
Except as set forth in Part 4.19 of the Disclosure Letter:
(a) Seller is, and at all times has been, in compliance in all
material respects with all Environmental Laws. Seller has not received any
order, notice, or other communication from (i) any Governmental Body or
private citizen acting in the public interest, or (ii) the current or prior
owner or operator of any Facilities, of any actual or potential violation
or failure to comply with any Environmental Law, or of any actual or
Threatened obligation to undertake or bear the cost of any Environmental,
Health, and Safety Liabilities with respect to any of the Facilities or any
other properties or assets (whether real, personal, or mixed) in which
Seller has had an interest, or with respect to any property or Facility at
or to which
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Hazardous Materials were refined, transferred, imported, or processed by
Seller or any other Person for whose conduct it is or may be held
responsible.
(b) There are no pending or, to Seller's Knowledge, Threatened claims,
Encumbrances, or other restrictions of any nature, resulting from any
Environmental, Health, and Safety Liabilities or arising under or pursuant
to any Environmental Law, with respect to or affecting any of the
Facilities or any other properties and assets (whether real, personal, or
mixed) in which Seller has or had an interest.
(c) To Seller's Knowledge, neither Seller nor any other Person for
whose conduct it is or may be held responsible, has any material
Environmental, Health, and Safety Liabilities with respect to the
Facilities or, to Seller's Knowledge with respect to any other properties
and assets (whether real, personal, or mixed) in which Seller (or any
predecessor), has or had an interest.
(d) To Seller's Knowledge, there has been no Release or Threat of
Release, of any Hazardous Materials that would constitute a material
violation of any Environmental Laws at or from the Facilities or at any
other locations where any Hazardous Materials were generated, manufactured,
refined, transferred, produced, imported, used, or processed from or by the
Facilities, or from or by any other properties and assets (whether real,
personal, or mixed) in which Seller has or had an interest.
4.20 Employees
(a) Seller has delivered a complete and accurate list of the following
information for each employee of Seller, including each employee on leave of
absence or layoff status: employee name; job title; current compensation paid or
payable and the compensation payable prior to the most recent change in
compensation; vacation accrued; and service credited for purposes of vesting and
eligibility to participate under Seller's fringe benefit plans.
(b) To Seller's Knowledge, except as set forth on Part 4.20 of the
Disclosure Letter, none of Seller's employees is a party to, or is otherwise
bound by, any agreement or arrangement, including any confidentiality,
noncompetition, or proprietary rights agreement, between such employee and any
other Person ("Proprietary Rights Agreement") that in any way adversely affects
or will affect (i) the performance of his duties as an employee in Seller's
Business, or (ii) the ability of Seller to conduct Seller's Business. Seller has
received no notice (written or oral) that any officer or other key employee of
Seller intends to terminate his employment with Seller in connection with the
transactions contemplated hereby.
4.21 Labor Relations; Compliance
Except as set forth in Part 4.21 of the Disclosure Letter, since January 1,
1996, Seller has not been or is not a party to any collective bargaining or
other labor Contract. Since January 1, 1996, there has not been, there is not
presently pending or existing, and there is not Threatened, (a) any strike,
slowdown, picketing, work stoppage, or employee grievance process, (b) any
Proceeding against or affecting Seller's Business relating to the alleged
violation of any Legal Requirement pertaining to labor relations or employment
matters, including any charge or complaint filed by an employee or union with
the National Labor Relations Board, the Equal Employment Opportunity Commission,
or any comparable Governmental Body, organizational activity, or other labor or
employment dispute against or affecting Seller or its premises, or (c) any
application for certification of a collective bargaining agent. To Seller's
Knowledge, no event has occurred or circumstance exists that could provide the
basis for any work stoppage or other labor dispute. There is no lockout of any
employees by Seller, and no such action is contemplated by Seller. To Seller's
Knowledge, Seller has complied in all material respects with all Legal
Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing. Seller has not been assessed for the payment of any
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
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4.22 Intellectual Property
(a) Intellectual Property Assets -- The term "Intellectual Property Assets"
includes:
(i) the name "New Energy Company of Indiana," all fictional business
names, trading names, registered and unregistered trademarks, service
marks, and applications used in Seller's Business (collectively, "Marks");
(ii) all patents, patent applications, and inventions and discoveries
that may be patentable used in Seller's Business (collectively, "Patents");
(iii) all copyrights in both published works and unpublished works
used in Seller's Business (collectively, "Copyrights"); and,
(iv) all know-how, trade secrets, confidential information, customer
lists, internally derived or custom software, technical information, data,
process technology, plans, drawings, and blue prints (collectively, "Trade
Secrets") owned, used, or licensed by Seller as licensee or licensor.
(b) Agreements -- Part 4.22(b) of the Disclosure Letter contains a complete
and accurate list and summary description, including any royalties paid or
received by Seller, of all Contracts relating to the Intellectual Property
Assets to which Seller is a party or by which Seller is bound, except for any
license implied by the sale of a product and perpetual, paid-up licenses for
commonly available software programs with a value of less than $10,000 under
which Seller is the licensee. There are no outstanding and, to Seller's
Knowledge, no Threatened disputes or disagreements with respect to any such
agreement.
(c) Trademarks
(i) Part 4.22(c) of the Disclosure Letter contains a complete and
accurate list and summary description of all Marks.
(ii) Except as set forth on Part 4.22(c) of the Disclosure Letter, all
Marks that have been registered with the United States Patent and Trademark
Office are currently in compliance with all formal legal requirements
(including the timely post-registration filing of affidavits of use and
incontestability and renewal applications), are valid and enforceable, and
are not subject to any maintenance fees or taxes or actions falling due
within ninety days after the Closing Date.
(iii) Except as set forth on Part 4.22(c) of the Disclosure Letter, no
Mark has been or is now involved in any opposition, invalidation, or
cancellation and, to Seller's Knowledge, no such action is Threatened with
the respect to any of the Marks.
(iv) Except as set forth on Part 4.22(c) of the Disclosure Letter, to
Seller's Knowledge, there is no potentially interfering trademark or
trademark application of any third party.
(d) Trade Secrets
(i) With respect to the Trade Secrets, taken as a whole, the
documentation relating to such Trade Secret is current, accurate, and
sufficient in detail and content to identify and explain it and to allow
its full and proper use without reliance on the knowledge or memory of any
individual.
(ii) Seller has taken all reasonable precautions to protect the
secrecy, confidentiality and value of its Trade Secrets.
4.23 Disclosure
(a) No representation or warranty of Seller in this Agreement and no
statement in the Disclosure Letter omits to state a material fact required to be
made in such representation or warranty or in the Disclosure Letter and
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) There is no fact known to Seller that has specific application to
Seller's Business (other than general economic or industry conditions) and that
materially adversely affects the assets, business, prospects, financial
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condition, or results of operations of Seller's Business that has not been set
forth in this Agreement or the Disclosure Letter.
4.24 Brokers or Finders
Seller and its agents have incurred no obligation or liability, contingent
or otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement.
5. Representations and Warranties of Buyer
Buyer represents and warrants to Seller as follows:
5.1 Organization and Good Standing
Buyer is a corporation duly organized and validly existing under the laws
of the State of Indiana, with full corporate power and authority to conduct its
business as it is now being conducted and to own or use the properties and
assets that it purports to own or use. Buyer is duly qualified to do business as
foreign corporation and is in good standing under the laws of each state or
other jurisdiction in which either the ownership or use of the properties owned
or used by it, or the nature of the activities conducted by it, requires such
qualification. Buyer has delivered to Seller copies of its Organizational
Documents, as currently in effect.
5.2 Authority; No Conflict
(a) This Agreement constitutes the legal, valid, and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms. Buyer has the
absolute and unrestricted right, power, and authority to execute and deliver
this Agreement and the other documents contemplated to be executed and delivered
at the Closing by Buyer and to perform its obligations under this Agreement and
such other documents.
(b) Except as set forth in Schedule 5.2, neither the execution and delivery
of this Agreement nor the consummation or performance of any of the transactions
contemplated hereby will give any Person the right to prevent, delay, or
otherwise interfere with any of the transactions contemplated hereby pursuant
to:
(i) any provision of Buyer's Organizational Documents;
(ii) any resolution adopted by the board of directors or shareholders
of Buyer;
(iii) any Legal Requirement or Order to which Buyer may be subject; or
(iv) any material contract to which Buyer is a party or by which Buyer
may be bound.
Except as set forth in Schedule 5.2, Buyer is not and will not be required
to obtain any Consent from any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
transactions contemplated hereby.
5.3 Certain Proceedings
There is no pending Proceeding that has been commenced against Buyer and
that challenges, or may have the effect of preventing, delaying, making illegal,
or otherwise interfering with, any of the transactions contemplated hereby. To
Buyer's Knowledge, no such Proceeding has been Threatened.
5.4 Solvency
As of the date of this Agreement: (a) Buyer is able to pay its debts and
other obligations as they become due in the Ordinary Course of Business; and (b)
Buyer's total assets exceed, in terms of value, Buyer's total liabilities.
Immediately following the Closing: (a) Buyer will be able to pay its debts and
other obligations (including, without limitation, the Assumed Liabilities) as
they become due in the Ordinary Course of Business; and (b) Buyer's total assets
will exceed, in terms of value, Buyer's total liabilities (including, without
limitation, the Assumed Liabilities).
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5.5 Buyer's Pro Forma Financial Statements
Attached hereto as Schedule 5.5 is a true, complete and correct copy of the
two (2) year pro forma financial statements for Buyer for the period commencing
on the Closing Date (the "Pro Forma Financial Statements"). The Pro Forma
Financial Statements have been prepared by Buyer in good faith on the basis of
accounting practices and principles that are reasonable in the circumstances,
and utilize assumptions that, assuming the truth and accuracy of Seller's
warranties and representations contained in Section 4, are reasonable under the
circumstances. Assuming the truth and accuracy of Seller's warranties and
representations contained in Section 4, the Pro Forma Financial Statements
fairly present, in all material respects, Buyer's financial condition at and as
of the Closing Date.
5.6 Equity Capitalization
On or prior to the date hereof, Buyer has received from its shareholders
cash in an amount not less than Ten Million Dollars ($10,000,000) in equity
contributions.
6. Pre-Closing Covenants
Each of Seller and Buyer agrees as follows with respect to the period from
and after the execution of this Agreement until the Closing Date:
(a) Each of Seller and Buyer will use its reasonable best efforts to
take all action and to do all things necessary, proper or advisable in
order to consummate and make effective the transactions contemplated by
this Agreement, including (but not limited to) Buyer's obtaining a release
of all Seller's obligations to the DOE.
(b) Seller will give any notices to third parties and will use its
reasonable best efforts to obtain any Consents, that the Buyer reasonably
may request in connection with the matters referred to in Section 4.2
above.
(c) Each of Seller and Buyer will give any notices to, make any
filings with, and use its reasonable best efforts to obtain any
authorizations, consents, and approvals of Governmental Bodies. Without
limiting the generality of the foregoing:
(i) As soon as reasonably practicable, Seller will promptly after
the execution of this Agreement prepare and file with the Securities and
Exchange Commission ("SEC") preliminary proxy materials and any other
statements or filings required under the Securities Exchange Act
relating to the Special Meeting as defined hereinafter and the
transactions contemplated hereunder (the "SEC Filings"). Seller will use
its reasonable best efforts to respond to the comments of the SEC
thereon and will make any further filings (including amendments and
supplements and definitive proxy materials) in connection therewith that
may be necessary, proper or advisable. Buyer will provide Seller, and
Seller will provide Buyer, with whatever information and assistance in
connection with the SEC Filings that Seller or Buyer reasonably may
request. Each of Seller and Buyer shall correct promptly any information
specifically provided by it which is included in the SEC Filings which
shall have become false or misleading in any material respect. Each of
Seller and Buyer shall take all steps necessary to file or to cause to
be filed with the SEC and have cleared by the SEC any amendment or
supplement to the SEC Filings so as to correct the same and to cause the
SEC Filings as so corrected to be disseminated to the limited partners
of Seller, in each case as and to the extent required by applicable law.
(ii) Seller will call a special meeting of its limited partners
(the "Special Meeting"), as soon as reasonably practicable in order that
the limited partners may consider and vote upon the approval of this
Agreement and the transactions contemplated hereby in accordance with
the requirements of the Partnership Agreement and of the Indiana limited
partnership laws. The Seller will mail definitive proxy materials to the
limited partners as soon as reasonably practicable after clearance
thereof by the SEC. Seller shall, through its general partner, recommend
to the limited partners approval of this Agreement and the transactions
contemplated hereby and shall not withdraw such
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recommendation; provided, however, that Seller's general partner shall
not be required to make and shall be entitled to withdraw such
recommendation if Seller's general partner reasonably concludes in good
faith after consultation with, and based on the advice of, its outside
counsel, that the making of or the failure to withdraw, such
recommendation would be inconsistent with the fiduciary obligations of
Seller's general partner under applicable law.
(d) Except for the adoption of the Plan of Liquidation and the actions
to be taken thereunder, Seller will engage only in practices, and only take
action, or enter into transactions in the Ordinary Course of Business.
Seller may, notwithstanding the foregoing, take such actions as it
reasonably deems necessary to assure its supply of corn, including making
capital improvements and/or obtaining or utilizing working capital
commitments or investments.
(e) Seller will not solicit, initiate, or encourage the submission of
any proposal or offer from any Person relating to a tender or exchange
offer, a merger, consolidation or other business combination involving
Seller or any proposal to acquire in any manner a substantial equity
interest in, or substantial portion of the Assets of Seller (a "Third Party
Offer"); provided, however, that (i) Seller and its representatives may
furnish information concerning Seller and its Assets to any Person that
requests the same within forty five (45) days after public announcement of
the transactions hereby contemplated; (ii) Seller shall, promptly after
execution hereof, send to each of its limited partners a copy of a Form 8-K
to be filed by Seller with the SEC that shall inform the limited partners
of the entry into this Agreement and the transactions contemplated hereby,
(iii) Seller may issue a press release announcing the entry into of this
Agreement and describing the transactions contemplated hereby; and (iv)
Seller may take and disclose to Seller's limited partners a position
contemplated by Rule 14e-2 promulgated under the Securities Exchange Act,
comply with Rule 14d-9 thereunder and any other applicable provisions of
the Securities Exchange Act and make all disclosures required by applicable
law. Seller shall promptly (but in no case later than 48 hours) notify
Buyer (i) of the receipt of any Third Party Offer (providing Buyer with a
summary of the material terms thereof) or (ii) of a decision by Seller to
furnish information concerning Seller or its Assets to any Person.
(f) Buyer shall take any and all actions necessary to ensure that
Buyer has at least Ten Million Dollars ($10,000,000) in equity on the
Closing Date.
7. Conditions Precedent to Buyer's Obligation to Close
Buyer's obligation to purchase the Assets and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
7.1 Accuracy of Representations
After giving effect to the matters set forth in the Disclosure Letter, all
of the representations and warranties of Seller in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must have been accurate in all material respects (other than
representations and warranties having materiality qualifiers, which shall be
accurate in all respects) as of the date of this Agreement, and (except for a
Change in Law, as defined hereinafter, with respect to which the rights of the
parties shall be as provided in Section 9.2 hereof) must be accurate in all
material respects (other than representations and warranties having materiality
qualifiers, which shall be accurate in all respects) as of the Closing Date as
if made on the Closing Date, after giving effect to any supplement to the
Disclosure Letter.
7.2 Seller's Performance
(a) All of the covenants and obligations that Seller is required to perform
or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been duly performed and complied with in
all material respects.
(b) Each document required to be delivered pursuant to Section 7.4, must
have been delivered.
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7.3 Consents
Each of the Consents identified in Part 4.2 of the Disclosure Letter as
Consents to be obtained prior to Closing, must have been obtained and must be in
full force and effect.
7.4 Additional Documents
Each of the following documents must have been delivered to Buyer:
(a) an opinion of Roemer Mintz, dated the Closing Date, in the form of
Exhibit 7.4(a); and,
(b) such other documents as Buyer may reasonably request for the
purpose of (i) enabling its counsel to provide the opinion referred to in
Section 8.4(a), (ii) evidencing the accuracy of any of Seller's
representations and warranties, (iii) evidencing the performance by Seller
of, or the compliance by Seller with, any covenant or obligation required
to be performed or complied with by Seller, and (iv) evidencing the
satisfaction of any condition referred to in this Section 7.
7.5 No Proceedings
Since the date of this Agreement, there must not have been commenced or
Threatened against Buyer, or against any Person affiliated with Buyer, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the transactions contemplated hereby, or (b) that may
reasonably have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the transactions contemplated hereby.
7.6 No Prohibition
Neither the consummation nor the performance of any of the transactions
contemplated hereby will, directly or indirectly (with or without notice or
lapse of time), materially contravene, or conflict with, or result in a material
violation of, or cause Buyer to suffer any material adverse consequence under,
(a) any applicable Legal Requirement or Order, or (b) any Legal Requirement or
Order that has been published, introduced, or otherwise proposed by or before
any Governmental Body.
7.7 Satisfactory Modification and Restructuring of DOE Indebtedness
Seller's indebtedness to DOE shall have been modified and restructured to
Buyer's satisfaction, including modifications to eliminate the currently
existing "cash sweep" feature, to consolidate the currently existing two (2)
promissory notes into one (1) promissory note and to require no more than a Two
Million Dollar ($2,000,000) principal reduction payment upon the assumption of
such indebtedness by Buyer; and DOE shall have consented to the assumption by
Buyer of such indebtedness, as so modified and restructured.
7.8 Hart-Scott-Rodino Act
All applicable waiting periods (and any extensions thereof) under the
Hart-Scott-Rodino Act shall have expired or otherwise been terminated.
7.9 Transfer Agreement Transactions
Seller and the General Partner shall have consummated the asset transfer
transactions contemplated by the Plan of Liquidation and executed by means of
the Transfer Agreement dated as of 1997 (the "Transfer Agreement").
8. Conditions Precedent to Seller's Obligation to Close
Seller's obligation to sell the Assets and to take the other actions
required to be taken by Seller at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Seller, in whole or in part):
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8.1 Accuracy of Representations
All of Buyer's representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must have been accurate in all material respects (other than
representations and warranties having materiality qualifiers, which shall be
accurate in all respects) as of the date of this Agreement and must be accurate
in all material respects (other than representations and warranties having
materiality qualifiers, which shall be accurate in all respects) as of the
Closing Date as if made on the Closing Date.
8.2 Buyer's Performance
(a) All of the covenants and obligations that Buyer is required to perform
or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been performed and complied with in all
material respects.
(b) Buyer must have delivered each of the documents required to be
delivered by Buyer pursuant to Section 8.4 and must have paid the Purchase
Price.
8.3 Consents
Each of the Consents identified in Part 4.2 of the Disclosure Letter must
have been obtained and must be in full force and effect.
8.4 Additional Documents
Buyer must have caused the following documents to be delivered to Seller:
(a) an opinion of Keating, Muething & Klekamp, dated the Closing Date,
in the form of Exhibit 8.4(a);
(b) the Assumption Agreement;
(c) Seller and the General Partner shall, prior to the execution and
delivery of this Agreement, have received a release, in form and substance
reasonably satisfactory to Seller, from GAIC from any and all obligations
relating to the GAIC Loan Agreement; and,
(d) such other documents as Seller may reasonably request for the
purpose of (i) enabling its counsel to provide the opinion referred to in
Section 7.4(a), (ii) evidencing the accuracy of any representation or
warranty of Buyer, (iii) evidencing the performance by Buyer of, or the
compliance by Buyer with, any covenant or obligation required to be
performed or complied with by Buyer, or (iv) evidencing the satisfaction of
any condition referred to in this Section 8.
8.5 No Proceedings
Since the date of this Agreement, there must not have been commenced or
Threatened against Seller, or against any Person affiliated with Seller, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the transactions contemplated hereby, or (b) that may
reasonably have the effect of preventing, delaying, making illegal or otherwise
interfering with any of the transactions contemplated hereby.
8.6 No Prohibition
Neither the consummation nor the performance of any of the transactions
contemplated hereby will, directly or indirectly (with or without notice or
lapse of time), materially contravene or conflict with, or result in a material
violation of, or cause Seller to suffer any material adverse consequence under,
(a) any applicable Legal Requirement or Order, or (b) any Legal Requirement or
Order that has been published, introduced or otherwise proposed by or before any
Governmental Body.
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8.7 Hart-Scott-Rodino Act
All applicable waiting periods (and any extensions thereof) under the
Hart-Scott-Rodino Act shall have expired or otherwise been terminated.
8.8 Fairness Opinion
The opinion of Duff & Phelps LLC to the effect that the transactions
contemplated by this Agreement and by the Plan of Liquidation are fair to the
Partnership's limited partners (except for the Special Limited Partner, as to
which no opinion has been or will be requested) from a financial point of view,
shall have been delivered, shall not have been withdrawn prior to the mailing of
the definitive proxy materials, and shall have been orally confirmed at the
Closing.
8.9 Release of DOE Indebtedness; Plan of Liquidation Transactions
Seller and the General Partner shall have received from DOE a release, in
form and substance reasonably satisfactory to Seller, of any and all obligations
of Seller and the General Partner, including obligations relating to the
indebtedness being modified, restructured and assumed by Buyer as set forth in
Section 7.7 hereof. Seller and the General Partner shall have consummated the
transactions contemplated by the Plan of Liquidation.
8.10 Release of BDC
Seller and General Partner shall have received from the Business
Development Corporation of South Bend, Mishawaka & St. Joseph County, Indiana
("BDC") a release, in form and substance reasonably satisfactory to Seller, of
any and all obligations of Seller and the General Partner.
8.11 Approvals
The transactions contemplated by this Agreement and by the Plan of
Liquidation shall have been approved by the holders of a majority of the
outstanding shares of Seller's general partner, New Energy Corporation of
Indiana, and by a majority in interest of Seller's limited partners.
9. Termination
9.1 Termination Events
This Agreement may, by notice given prior to or at the Closing, be
terminated:
(a) by either Buyer or Seller if a material Breach of any provisions
contained in Sections 4, 5 or 6 of this Agreement has been committed by the
other party and such Breach has not been waived or cured to the reasonable
satisfaction of the party alleging the material Breach within fifteen (15)
days after the party alleged to have committed the material Breach receives
written notice of Breach from the other party;
(b) (i) by Buyer if any of the conditions in Section 7 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Buyer to comply
with its obligations under this Agreement) and Buyer has not waived such
condition on or before the Closing Date; or (ii) by Seller, if any of the
conditions in Section 8 has not been satisfied of the Closing Date or if
satisfaction of such a condition is or becomes impossible (other than
through the failure of Seller to comply with its obligations under this
Agreement) and Seller has not waived such condition on or before the
Closing Date;
(c) by mutual consent of Buyer and Seller;
(d) by Seller, in connection with Seller's acceptance of a Third Party
Offer; provided, however, that, in the event of such termination, Seller
shall immediately pay to Buyer the sum of Two Million Five
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Hundred Thousand Dollars ($2,500,000) as a termination fee, such payment to
be made in immediately available funds;
(e) by either Buyer or Seller if the Closing has not occurred (other
than through the failure of any party seeking to terminate this Agreement
to comply fully with its obligations under this Agreement) on or before
October 31, 1997 or such later date as the parties may agree upon; or
(f) by Buyer if, after the date of this Agreement and prior to the
Closing, there occurs a casualty loss affecting the Assets that materially
adversely impacts production in the Seller's Business for a period of
thirty (30) consecutive days or more.
9.2 Change in Law
In the event that, subsequent to the date of this Agreement:
(a) there has occurred: (i) any change in any applicable Legal
Requirement; or (ii) any change in any applicable Legal Requirement enacted
into law or promulgated or issued prior to the Closing but with an
effective date after the Closing; or (iii) any change in any applicable
Legal Requirement embodied in legislation that passes either house of the
United States Congress prior to the Closing, including (without limitation)
any change involving the elimination or phase-out of applicable income or
other tax benefits, that, in the case of any of clauses (i), (ii) and
(iii), when fully effective or implemented, could reasonably be expected to
have a material adverse effect on the conduct or profitability of the
Seller's Business after the Closing (a "Change in Law"); provided, however,
for purposes of this Section 9.2 only, Legal Requirements do not include
any laws or regulations pertaining to air emissions from any existing
emissions source; and,
(b) at or subsequent to the date of the occurrence of a Change in Law,
all of the conditions to Buyer's obligation to close as set forth in
Section 7 shall have been satisfied, Buyer may give Seller a notice (a
"Change in Law Notice") that it either (x) has elected to defer the
Closing; or (y) has elected to terminate this Agreement. If Buyer elects in
the Change in Law Notice to defer the Closing, the Closing shall be
deferred. If Buyer elects in the Change in Law Notice to terminate this
Agreement, this Agreement shall be deemed to have been terminated as of the
date such Change in Law Notice is given without penalty or payment to
Seller except as provided in this Section 9.2. Buyer's rights under this
Section 9.2 shall expire without any further action on the part of Seller
unless a Change in Law Notice is given within the date that is the later
of: (I) thirty (30) days after the date the Change in Law occurs and the
conditions specified in this subparagraph (b) above have been met; and (II)
ten (10) business days following the first date on which both Buyer has
actual knowledge of a Change in Law and the conditions specified in this
subparagraph (b) above have been met. Buyer covenants that it shall give
Seller notice within seventy two (72) hours of the time that Buyer obtains
actual knowledge of a Change in Law. In the event that Buyer gives a Change
in Law Notice to Seller electing to defer the Closing, Seller thereafter
shall have the right to terminate this Agreement by notice thereof given to
Buyer ("Seller's Notice"), without penalty or payment to Buyer of the
termination fee provided for in Section 9.1(d) hereof, and this Agreement
shall be deemed to have terminated as of the close of business on the tenth
business day following the date of the Seller's Notice (the "Termination
Time") unless (i) within two (2) business days following the date of
Seller's Notice Buyer shall have advised Seller of Buyer's election to
close, and (ii) the Closing shall have occurred prior to the Termination
Time. If (aa) Buyer gives a Change in Law Notice to Seller electing to
terminate this Agreement or (bb) Buyer gives a Change in Law Notice to
Seller electing to defer the Closing and the Closing does not occur
thereafter for any reason (other than a material Breach hereof by Seller),
including (but not limited to) the circumstances described in Section
9.1(e), Buyer shall in either event reimburse to Seller all of its costs
(including but not limited to legal fees, accounting fees, printing and
mailing costs) incurred by Buyer after June 17, 1997, with respect to the
transactions contemplated by this Agreement.
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9.3 Effect of Termination
Each party's right of termination under Section 9.1 is in addition to any
other rights it may have under this Agreement or otherwise, and the exercise of
a right of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 9.1, all further obligations of the parties under
this Agreement will terminate, except that the obligations in Section 11.1 will
survive; provided, however, that if this Agreement is terminated by a party
pursuant to Sections 9.1(a) or 9.1(b), the terminating party's right to pursue
all legal remedies will survive such termination unimpaired. If Buyer receives
payment of the termination fee described in Section 9.1(d), receipt of such
payment shall be Buyer's sole remedy with respect to its rights and Seller's
obligations under this Agreement.
10. Indemnification; Remedies
10.1 Non-Survival of Representations and Warranties
All representations and warranties in this Agreement, the Disclosure
Letter, the supplements to the Disclosure Letter, the certificate delivered
pursuant to Section 3.4(a)(ii) and Section 3.4(b)(ii), and any other certificate
or document delivered pursuant to this Agreement will terminate and cease to
have any force or effect on the Closing Date and no claim may be made thereafter
with respect to any alleged breach thereof.
10.2 Indemnification and Payment of Damages by Seller
Seller will indemnify and hold harmless Buyer and its stockholders,
controlling persons, and affiliates (collectively, the "Indemnified Persons")
from any loss, liability, claim, damage (including incidental and consequential
damages), expense (including costs of investigation and defense and reasonable
attorneys' fees) or diminution of value, whether or not involving a third-party
claim (collectively, "Damages"), arising, directly or indirectly, from or in
connection with:
(a) any Breach by Seller of any covenant or obligation in this
Agreement prior to the Closing Date; or
(b) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with Seller (or any Person
acting on Seller's behalf) in connection with any of the transactions
contemplated hereby.
The amount and source of any indemnification made by Seller pursuant to
Section 10.2 shall be limited to the Assets of Seller without recourse to any
rights Seller may have against the General Partner.
10.3 Indemnification and Payment of Damages by Buyer
Buyer will indemnify and hold harmless Seller and its partners, employees,
controlling persons and affiliates and the General Partner and its stockholders,
directors, officers, employees, controlling persons and affiliates
(collectively, the "Indemnified Parties"), from any Damages arising, directly or
indirectly, from or in connection with (a) any Breach by Buyer of any covenant
or obligation of Buyer in this Agreement, including the obligation to discharge
the Assumed Liabilities, or (b) any claim by any Person for brokerage or
finder's fees or commissions or similar payments based upon any agreement or
understanding alleged to have been made by such Person with Buyer (or any Person
acting on Buyer's behalf) in connection with any of the transactions
contemplated hereby; or (c) any claim by any Person relating to the transactions
contemplated by this Agreement or by the Plan of Liquidation.
10.4 No Liability After Closing
If the Closing occurs, Seller will have no liability (for indemnification
or otherwise) with respect to any representation, warranty, covenant or claim
contained in this Agreement or any other provision hereof. If the Closing
occurs, Buyer will have no liability (for indemnification or otherwise) with
respect to any representation, warranty, covenant or claim contained in this
Agreement or any other provision hereof other than under the Assumption
Agreement.
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11. General Provisions
11.1 Expenses
Except as otherwise expressly provided in this Agreement, each party to
this Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the transactions
contemplated hereby, including all fees and expenses of agents, representatives,
counsel and accountants. Buyer shall pay all filing fees required in connection
with compliance with the Hart-Scott-Rodino Act.
11.2 Public Announcements
Subject to compliance by both parties with applicable legal and regulatory
requirements, and except as provided in Section 6(e), any public announcement or
similar publicity with respect to this Agreement or the transactions
contemplated hereby will be issued, if at all, at such time and in such manner
as Buyer and Seller mutually determine. Seller and Buyer will consult with each
other in good faith concerning the means by which Seller's employees, customers,
and suppliers and others having dealings with Seller's Business will be informed
of the transactions contemplated hereby, and Buyer and Seller will have the
right to be present for any such communication.
11.3 Notices
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), or (c) when received by the addressee,
if sent by a nationally recognized overnight delivery service, in each case to
the appropriate addresses and telecopier numbers set forth below (or to such
other addresses and telecopier numbers as a party may designate by notice to the
other parties):
<TABLE>
<C> <S>
Seller: New Energy Company of Indiana
Limited Partnership
3201 West Calvert Street
South Bend, Indiana 46680
Attention: Larry W. Singleton
with a copy to: Roemer Mintz
1400 Key Bank Building
202 South Michigan Street
South Bend, Indiana 46601
Attention: Richard Mintz, Esq.
and with a further copy to: Ice Miller Donadio & Ryan
One American Square
Box 82001
Indianapolis, Indiana 46282
Attention: Berkeley W. Duck, Esq.
Buyer: Corn Energy, Inc.
One East Fourth Street
900 Provident Tower
Cincinnati, Ohio 45202
Attention: Rodger M. Miller
with a copy to: Keating, Muething & Klekamp, P.L.L.
One East Fourth Street
1800 Provident Tower
Cincinnati, Ohio 45202
Attention: Edward E. Steiner, Esq.
</TABLE>
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11.4 Further Assurances; Records Retention
The parties agree: (a) to furnish upon request to each other such further
information; (b) to execute and deliver to each other such other documents; and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement. Buyer
shall retain all files, books and other records of Seller relating to the
operation of Seller's Business after the Closing in a manner that is consistent
with Buyer's general records retention policy (under which Buyer currently
retains most records for seven (7) years) and shall, after the Closing, give
Seller and its respective representative(s) access thereto during regular
business hours on reasonable prior notice.
11.5 Waiver
Except as otherwise provided in Section 9.2, the rights and remedies of the
parties to this Agreement are cumulative and not alternative. Neither the
failure nor any delay by any party in exercising any right, power or privilege
under this Agreement or the documents referred to in this Agreement will operate
as a waiver of such right, power or privilege, and no single or partial exercise
of any such right, power, or privilege will preclude any other or further
exercise of such right, power, or privilege or the exercise of any other right,
power, or privilege. To the maximum extent permitted by applicable law, (a) no
claim or right arising out of this Agreement or the documents referred to in
this Agreement can be discharged, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the party
entitled to assert such claim or right; (b) no waiver that may be given by a
party will be applicable except in the specific instance for which it is given;
and (c) no notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
11.6 Entire Agreement and Modification
This Agreement supersedes all prior agreements, arrangements or
understandings between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may not be amended except by a
written agreement executed by all the parties hereto.
11.7 Assignments, Successors, and No Third-Party Rights
Neither Buyer nor Seller may assign any of its rights under this Agreement
without the prior consent of the other parties, which will not be unreasonably
withheld or delayed. Subject to the preceding sentence, this Agreement will
apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any Person other than the parties
to this Agreement and the Indemnified Parties any legal or equitable right,
remedy or claim under or with respect to this Agreement or any provision of this
Agreement. This Agreement and all of its provisions and conditions are for the
sole and exclusive benefit of the parties to this Agreement and the Indemnified
Parties and their successors and assigns.
11.8 Severability
If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
11.9 Waiver of Bulk Sales Laws
Buyer and Seller hereby waive compliance with the bulk sales or bulk
transfer laws of the State of Indiana as they may apply to the transactions
hereby contemplated.
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11.10 Section Headings, Construction
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
11.11 Time of Essence
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
11.12 Governing Law
This Agreement will be governed by and construed under the laws of the
State of New York without regard to conflicts of laws principles.
11.13 Counterparts
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement.
(remainder of page intentionally blank)
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
CORN ENERGY, INC.
By: /s/
-------------------------------------
Name: Rodger M. Miller
Title: President
NEW ENERGY COMPANY OF INDIANA
LIMITED PARTNERSHIP
By: NEW ENERGY CORPORATION OF INDIANA
as Sole General Partner
By: /s/
-----------------------------------
Name: Larry W. Singleton
Title: President
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GLOSSARY
"Balance Sheet" -- as defined in Section 4.4.
"Breach" -- a "Breach" of a representation, warranty, covenant or
obligation of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been any inaccuracy
in such representation or warranty, or any failure to perform or comply with,
such covenant or obligation.
"Buyer" -- as defined in the first paragraph of this Agreement.
"Closing" -- as defined in Section 3.3.
"Closing Date" -- the date and time as of which the Closing actually takes
place.
"Company Other Benefit Obligation" means an Other Benefit Obligation owed,
adopted, or followed by Seller or an ERISA Affiliate of Seller.
"Company Plan" means all Plans of which Seller or an ERISA Affiliate of
Seller is or was a Plan Sponsor, or to which Seller or an ERISA Affiliate of
Seller otherwise contributes or has contributed, or in which Seller or an ERISA
Affiliate of Seller otherwise participates or has participated. All references
to Plans are to Company Plans unless the context requires otherwise.
"Company VEBA" means a VEBA whose members include employees of Seller or
any ERISA Affiliate of Seller.
"Consent" -- any approval, consent, ratification, waiver or other
authorization (including any Governmental Authorization).
"Damages" -- as defined in Section 10.2.
"Disclosure Letter" -- the disclosure letter delivered by Seller to Buyer
concurrently with the execution and delivery of this Agreement.
"Encumbrance" -- any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income or exercise of any other attribute of ownership.
"Environment" -- soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental, Health, and Safety Liabilities" -- any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and
health, and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational
Safety and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, or other remediation or
response actions ("Cleanup") required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for
any natural resource damages; or
(d) any other compliance, corrective, investigative or remedial
measures required under Environmental Law or Occupational Safety and Health
Law.
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The terms "removal," "remedial," and "response action," include the types
of activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. sec. 9601 et seq., as amended
("CERCLA").
"Environmental Law" -- any Legal Requirement that requires or relates to:
(a) advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances or
materials, violations of discharge limits or other prohibitions and of the
commencements of activities, such as resource extraction or construction,
that could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged and used
so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil or other
potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing the
threat of release or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them,
for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for
injuries done to public assets.
"ERISA" -- the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"ERISA Affiliate" means, with respect to Seller, any other person that,
together with Seller, would be treated as a single employer under IRC sec. 414.
"Facilities" -- any real property, leaseholds, or other interests currently
or formerly owned or operated by Seller in the conduct of the Seller's Business
and any buildings, plants, structures, or equipment (including motor vehicles)
currently or formerly owned or operated by Seller in the conduct of the Seller's
Business.
"GAAP" -- generally accepted United States accounting principles, applied
on a consistent basis.
"General Partner" -- New Energy Corporation of Indiana, an Indiana
corporation and sole general partner of the Partnership.
"Governmental Authorization" -- any approval, consent, license, permit,
waiver, or other authorization issued, granted, given or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body" -- any:
(a) nation, state, county, city, town, village, district or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official or entity
and any court or other tribunal);
(d) multi-national organization or body; or
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(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory or taxing authority or
power of any nature.
"Hazardous Activity" -- the distribution, generation, handling, importing,
management, manufacturing, processing, production, refinement, Release, storage,
transfer, transportation, treatment, or use (including any withdrawal or other
use of groundwater) of Hazardous Materials in, on, under, about, or from the
Facilities or any part thereof into the Environment, and any other act,
business, operation, or thing that increases the danger, or risk of danger, or
poses an unreasonable risk of harm to persons or property on or off the
Facilities, or that may affect the value of the Facilities or the Acquired
Companies.
"Hazardous Materials" -- any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"Intellectual Property Assets" -- as defined in Section 4.22.
"Interim Balance Sheet" -- as defined in Section 4.4.
"IRC" -- the Internal Revenue Code of 1986 or any successor law and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS" -- the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"Knowledge" -- an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) an individual who is not grossly negligent should have been aware
of such fact or other matter.
A Person (other than an individual or Seller) will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is
serving, or who has at any time served, as a director, officer, partner,
executor or trustee of such Person (or in any similar capacity) has, or at any
time had, Knowledge of such fact or other matter.
"Legal Requirement" -- any federal, state, local, municipal, foreign,
international, multinational or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Multi-Employer Plan" has the meaning given in ERISA sec. 3(37)(A).
"Occupational Safety and Health Law" -- any Legal Requirement designed to
provide safe and healthful working conditions and to reduce occupational safety
and health hazards and any program, whether governmental or private (including
those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"Order" -- any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" -- an action taken by a Person will be deemed
to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person
and is taken in the ordinary course of the normal day-to-day operations of
such Person;
(b) such action is not required to be specifically authorized by the
board of directors of such Person (or by any Person or group of Persons
exercising similar authority); and
(c) such action is similar in nature and magnitude to actions
customarily taken, without any specific authorization by the board of
directors (or by any Person or group of Persons exercising similar
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authority), in the ordinary course of the normal day-to-day operations of
other Persons that are in the same line of business as such Person.
"Organizational Documents" -- (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any amendment
to any of the foregoing.
"Other Benefit Obligations" means all obligations, arrangements, or
customary practices, whether or not legally enforceable, to provide benefits,
other than salary, as compensation for services rendered, to present or former
directors, employees, or agents, other than obligations, arrangements, and
practices that are Plans. Other Benefit Obligations include consulting
agreements under which the compensation paid does not depend upon the amount of
service rendered, sabbatical policies, severance payment policies, and fringe
benefits within the meaning of IRC sec. 132.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Pension Plan" has the meaning given in ERISA sec. 3(2)(A).
"Permitted Encumbrances" -- liens or encumbrances for (i) current taxes and
assessments not yet due and payable; (ii) zoning or planning restrictions,
easements, permits or other restrictions or limitations on the use of property
(or irregularities in title thereto) which do not materially detract from the
value of, or impair the use of, the Assets; and (iii) deposits made by Seller to
comply with unemployment insurance or workers' compensation laws.
"Person" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Plan of Liquidation" means the Agreement and Plan of Complete Liquidation
and Dissolution of the Partnership and the General Partner.
"Plan Sponsor" has the meaning given in ERISA sec. 3(16)(B).
"Qualified Plan" means any Plan that meets or purports to meet the
requirements of IRC sec. 401(a).
"Proceeding" -- any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Related Person" -- with respect to a particular individual:
(a) each other member of such individual's family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's family;
(c) any Person in which such individual or members of such
individual's family hold (individually or in the aggregate) a material
interest; and
(d) any Person with respect to which such individual or one or more
members of such individual's family serves as a director, officer, partner,
executor or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control
with such specified Person;
(b) any Person that holds a material interest in such specified
Person;
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<PAGE> 80
(c) each Person that serves as a director, officer, partner, executor,
or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a material
interest;
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or
(c).
For purposes of this definition, (a) the "Family" of an individual includes
(i) the individual, (ii) the individual's spouse, (iii) any other natural person
who is related to the individual or the individual's spouse within the second
degree, and (iv) any other natural person who resides with such individual, and
(b) "material interest" means direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934) of voting
securities or other voting interests representing at least 10% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 10% of the outstanding equity securities or
equity interests in a Person.
"Release" -- any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
"Representative" -- with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"Seller" -- as defined in the first paragraph of this Agreement.
"Seller's Knowledge" means the Knowledge of Larry Singleton, Nathan Kimpel,
Todd Allsop (as to customer and marketing matters only), Randy Chrobot (as to
plant, property and equipment matters only) and Frank Butiste (as to employee
matters only).
"Subsidiary" -- with respect to any Person (the "Owner"), any corporation
or other Person of which securities or other interests having the power to elect
a majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of Seller.
"Tax Return" -- any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"Threat of Release" -- a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the Environment that
may result from such Release.
"Threatened" -- a claim, Proceeding, dispute, action, or other matter will
be deemed to have been "Threatened" if any demand or statement has been made in
writing or any notice has been given in writing or if any other event has
occurred or any other circumstances exist, that would lead a prudent Person to
conclude that such a claim, Proceeding, dispute, action, or other matter is
likely to be asserted, commenced, taken or otherwise pursued in the future.
"Title IV Plans" means all Pension Plans that are subject to Title IV of
ERISA, 29 U.S.C. sec. 1301 et seq., other than Multi-Employer Plans.
"VEBA" means a voluntary employees' beneficiary association under IRC sec.
501(c)(9).
"Welfare Plan" has the meaning given in ERISA sec. 3(1).
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<PAGE> 81
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
RECITALS:............................................................................... A-1
1. DEFINITIONS........................................................................ A-1
2. ASSETS TO BE PURCHASED............................................................. A-1
3. SALE AND TRANSFER OF ASSETS; CLOSING............................................... A-2
3.1 Cash Component.............................................................. A-2
3.2 Assumption of Liabilities................................................... A-2
3.3 Closing..................................................................... A-3
3.4 Closing Obligations......................................................... A-3
3.5 Allocation of Purchase Price................................................ A-4
4. REPRESENTATIONS AND WARRANTIES OF SELLER........................................... A-4
4.1 Organization and Good Standing.............................................. A-4
4.2 Authority; No Conflict...................................................... A-4
4.3 Capitalization.............................................................. A-5
4.4 Financial Statements; SEC Reports........................................... A-5
4.5 Books and Records........................................................... A-6
4.6 Title to Properties; Encumbrances........................................... A-6
4.7 Condition and Sufficiency of Assets......................................... A-6
4.8 Accounts Receivable......................................................... A-6
4.9 Inventory................................................................... A-6
4.10 No Undisclosed Liabilities.................................................. A-7
4.11 Taxes....................................................................... A-7
4.12 No Material Adverse Change.................................................. A-7
4.13 Employee Benefits........................................................... A-7
4.14 Compliance With Legal Requirements; Governmental Authorizations............. A-8
4.15 Legal Proceedings; Orders................................................... A-8
4.16 Absence of Certain Changes and Events....................................... A-9
4.17 Contracts; No Defaults...................................................... A-9
4.18 Insurance................................................................... A-10
4.19 Environmental Matters....................................................... A-10
4.20 Employees................................................................... A-11
4.21 Labor Relations; Compliance................................................. A-11
4.22 Intellectual Property....................................................... A-12
4.23 Disclosure.................................................................. A-12
4.24 Brokers or Finders.......................................................... A-13
5. REPRESENTATIONS AND WARRANTIES OF BUYER............................................ A-13
5.1 Organization and Good Standing.............................................. A-13
5.2 Authority; No Conflict...................................................... A-13
5.3 Certain Proceedings......................................................... A-13
5.4 Solvency.................................................................... A-13
5.5 Buyer's Pro Forma Financial Statements...................................... A-14
5.6 Equity Capitalization....................................................... A-14
6. PRE-CLOSING COVENANTS.............................................................. A-14
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE................................ A-15
7.1 Accuracy of Representations................................................. A-15
7.2 Seller's Performance........................................................ A-15
7.3 Consents.................................................................... A-16
7.4 Additional Documents........................................................ A-16
</TABLE>
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<PAGE> 82
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
7.5 No Proceedings.............................................................. A-16
7.6 No Prohibition.............................................................. A-16
7.7 Satisfactory Modification and Restructuring of DOE Indebtedness............. A-16
7.8 Hart-Scott-Rodino ACT....................................................... A-16
7.9 Transfer Agreement Transactions............................................. A-16
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE............................... A-16
8.1 Accuracy of Representations................................................. A-17
8.2 Buyer's Performance......................................................... A-17
8.3 Consents.................................................................... A-17
8.4 Additional Documents........................................................ A-17
8.5 No Proceedings.............................................................. A-17
8.6 No Prohibition.............................................................. A-17
8.7 Hart-Scott-Rodino ACT....................................................... A-18
8.8 Fairness Opinion............................................................ A-18
8.9 Release of DOE Indebtedness; Plan of Liquidation Transactions............... A-18
8.10 Release of BDC.............................................................. A-18
8.11 Approvals................................................................... A-18
9. TERMINATION........................................................................ A-18
9.1 Termination Events.......................................................... A-18
9.2 Change in Law............................................................... A-19
9.3 Effect of Termination....................................................... A-20
10. INDEMNIFICATION; REMEDIES.......................................................... A-20
10.1 Non-Survival of Representations and Warranties.............................. A-20
10.2 Indemnification and Payment of Damages by Seller............................ A-20
10.3 Indemnification and Payment of Damages by Buyer............................. A-20
10.4 No Liability After Closing.................................................. A-20
11. GENERAL PROVISIONS................................................................. A-21
11.1 Expenses.................................................................... A-21
11.2 Public Announcements........................................................ A-21
11.3 Notices..................................................................... A-21
11.4 Further Assurances; Records Retention....................................... A-22
11.5 Waiver...................................................................... A-22
11.6 Entire Agreement and Modification........................................... A-22
11.7 Assignments, Successors, and No Third-Party Rights.......................... A-22
11.8 Severability................................................................ A-22
11.9 Waiver of Bulk Sales Laws................................................... A-22
11.10 Section Headings, Construction.............................................. A-23
11.11 Time of Essence............................................................. A-23
11.12 Governing Law............................................................... A-23
11.13 Counterparts................................................................ A-23
GLOSSARY................................................................................ A-25
</TABLE>
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit 3.4(b)(iv) -- Form of Assumption Agreement
Exhibit 7.4(a) -- Legal Opinion of Counsel to Seller
Exhibit 8.4(a) -- Legal Opinion of Counsel to Buyer
</TABLE>
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<PAGE> 83
ASSUMPTION AGREEMENT
THE ASSUMPTION AGREEMENT ("Agreement") is made as of , 1997
between CORN ENERGY, INC., an Indiana corporation ("Corn Energy"), and NEW
ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP, an Indiana limited partnership
(the "Company").
RECITALS:
WHEREAS, the Company and Corn Energy are parties to the Asset Purchase
Agreement dated as of June , 1997 ("APA") and pursuant to which the Company
shall sell to Corn Energy substantially all the assets used or usable in the
Company's business of producing and distributing ethanol and its by-products;
and,
WHEREAS, pursuant to the APA, Corn Energy shall assume and discharge the
Assumed Liabilities (as defined in the APA); and,
WHEREAS, the Company and Corn Energy desire further to document Corn
Energy's assumption of the Assumed Liabilities;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained hereinafter, the parties hereto do hereby agree as
follows:
1. Assumption of the Assumed Liabilities. Effective as of the date of
this Agreement, Corn Energy hereby assumes and shall discharge all of the
liabilities and all of the obligations of the Company, including (but not
limited to):
(i) the Company's Sales Contract Obligations (as defined in the APA);
(ii) the Company's Other Contract Obligations (as defined in the APA)
and all other current trade liabilities of the Company arising in the
Ordinary Course of Business (as defined in the APA), as they become due,
including (without limitation) those set forth in Sections 3.2(a)(ii)(1)
and 3.2(a)(ii)(2) to the APA;
(iii) the Company's obligations (including indebtedness of
approximately $61,600,000 in unpaid aggregate principal amount as of March
31, 1997) to the United States Department of Energy ("DOE"), subject to
modification as set forth in Section 7.7 of the APA;
(iv) the Company's obligations to Great American Insurance Company
("GAIC") under the Loan and Security Agreement dated August 23, 1996;
(v) the Company's employment-related and employee benefit-related
obligations, including (without limitation) any such obligations to the
Company's employees arising out of the Plans disclosed under Section 4.13
of the APA or arising out of consummation of the transactions contemplated
by the APA;
(vi) the Company's liabilities and obligations under federal or
applicable state Environmental Laws (as defined in the APA) and all other
Environmental, Health and Safety Obligations (as defined in the APA) of the
Company; and,
(vii) any and all other liabilities of the Company, now existing or
hereafter arising, of any nature whatsoever, whether fixed or contingent,
liquidated or unliquidated, including (but not limited to) (A) all
liabilities of the Company's general partner assumed by the Company
pursuant to the Transfer Agreement (as defined in the APA), including all
income and other tax liabilities of the Company's general partner in the
transactions contemplated by the APA or in winding up the affairs of the
Company's general partner; (B) all liability arising out of or related to
the conduct of the Seller's Business (as defined in the APA) prior to the
Closing Date (as defined in the APA); and (C) all liabilities of the
Company incurred in the transactions contemplated by the APA or in the
winding up of the affairs of the Company.
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<PAGE> 84
The liabilities described above in paragraph 1 are collectively referred to
herein as the "Assumed Liabilities." Corn Energy reserves the right to contest
in good faith any Assumed Liability but Corn Energy shall be solely liable for
the prompt and full discharge of the Assumed Liabilities.
2. Indemnification by Corn Energy. Corn Energy shall indemnify and hold
harmless the Company and its general partner, limited partners, officers,
representatives, agents and employees and the shareholders of the Company's
general partner from and against any and all claims, actions, causes of actions,
cost, loss, liability or expense arising out of or relating to the Assumed
Liabilities. The foregoing indemnity shall be deemed to supplement, and not to
limit or restrict, the indemnification undertakings of Corn Energy set forth in
Sections 3.2(E) or 10.3 of the APA or in Section 4.1 of the Transaction
Assurance Agreement among Corn Energy and certain shareholders of the Company's
general partner.
3. Miscellaneous. This Agreement shall be governed by and construed under
the internal substantive laws of the State of New York without regard to
conflicts of laws principles. This Agreement may be executed in counterparts.
(remainder of page intentionally blank)
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<PAGE> 85
IN WITNESS WHEREOF, the undersigned have hereunto set their respective
hands effective as of the date and year first above written.
CORN ENERGY, INC.
By:
------------------------------------
Name:
Title:
NEW ENERGY COMPANY OF INDIANA
LIMITED PARTNERSHIP
By: NEW ENERGY CORPORATION OF
INDIANA
Its Sole General Partner
By:
----------------------------------
Name:
Title:
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<PAGE> 86
EXHIBIT 7.4(a)
FORM OF OPINION OF COUNSEL TO SELLER
, 1997
Corn Energy, Inc.
One East Fourth Street
900 Provident Tower
Cincinnati, Ohio 45202
RE: Asset Purchase Agreement Dated as of June , 1997 Between Corn Energy, Inc.
and New Energy Company of Indiana Limited Partnership (the "Agreement")
Gentlemen:
We have acted as counsel to New Energy Company of Indiana Limited
Partnership, an Indiana limited partnership (the "Company"), in connection with
the preparation, execution and delivery of the Agreement and the transactions
contemplated thereby. This opinion letter is provided to you pursuant to Section
7.4(a) of the Agreement. Capitalized terms used herein without specific
definition have the meanings respectively ascribed thereto in the Agreement.
In this capacity we have examined the Agreement and the other documents
executed and delivered by the Company in connection with the transactions
contemplated by the Agreement (collectively, the "Transaction Documents"), and
the originals, or copies identified to our satisfaction, of such corporate
records of the Company, certificates of public officials, officers of the
Company and other persons, and such other documents, agreements and instruments
as we have deemed necessary as a basis for the opinions hereinafter expressed.
In such examinations, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals and the
conformity to authentic original documents of all documents submitted to us as
certified, conformed or photostatic copies. Notwithstanding the foregoing, we
have (with your permission) limited our factual inquiries to conferences with
representatives of the Company (at which conferences the business, affairs and
properties of the Company, the transactions contemplated by the Agreement and
other related matters were discussed), a review of the resolutions of the Board
of Directors and shareholders of New Energy Corporation of Indiana
("Corporation"), the certificates of certain public officials and of officers of
the Company and certain factual inquiries that, in fact, were actually made by
attorneys in this firm based on the matters discussed in such resolutions and
certificates or at such conferences. Any opinion herein qualified by the
modifier "to the best of our knowledge after due investigation" shall be deemed
to incorporate these limitations (including the limitations set forth in any of
the above certificates) with respect to our factual inquiries.
We have also assumed that all parties to the Agreement and the other
Transaction Documents to which the Company is a party other than the Company
have properly executed and delivered the Agreement and such other Transaction
Documents and that such execution and delivery have been properly authorized as
to each of said parties and that such parties have the power fully to perform
their respective obligations under the Agreement and such other Transaction
Documents.
We are admitted to practice only in the State of Indiana and do not hold
ourselves out as being conversant with, and therefore express no opinion with
respect to, the laws of any jurisdiction other than the laws of the State of
Indiana.
We note that the Agreement and certain of the other Transaction Documents
state that they are governed by the laws of the State of New York and, as noted
above, we are not rendering any opinion with respect to the laws of the State of
New York. We have assumed, with your permission, that the law of the State of
New York is identical to the law of the State of Indiana in all respects
material to the opinions hereby rendered.
A-35
<PAGE> 87
Based solely on the review described above and subject to the foregoing
assumptions, limitations and qualifications, we are of the opinion that:
1. The Company is a limited partnership duly organized and validly
existing under the laws of the State of Indiana, with full corporate power
and authority to conduct its business as it is now being conducted to own
or use the properties and asserts that it purports to own or use.
2. The Agreement constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its
terms. The Company has the absolute and unrestricted right, power and
authority to execute and deliver the Agreement and the other Transaction
Documents contemplated to be executed and delivered at the Closing by the
Company and to perform its obligations under the Agreement and such other
Transaction Documents.
3. Except as set forth in Part 4.2 of the Disclosure Letter, neither
the execution and delivery of the Agreement nor the consummation or
performance of any of the transactions contemplated thereby will give any
Person the right to prevent, delay, or otherwise interfere with any of the
transactions contemplated hereby pursuant to:
(i) any provision of the Company's Organization Documents:
(ii) any resolution adopted by the Board of Directors or
shareholders of the Corporation;
(iii) any Legal Requirement or Order to which the Company may be
subject; or
(iv) to the best or our knowledge after due investigation and in
full reliance upon the assumption that all such contracts are listed in
Part 4.2 of the Disclosure Letter, any material contract to which the
Company is a party or by which the Company may be bound.
4. Except as set forth in Part 4.2 of the Disclosure Letter, the
Company is not and will not be required to obtain any Consent from any
Person in connection with the execution and delivery of the Agreement or
the consummation or performance of any of the transactions contemplated
thereby.
5. There is no pending Proceeding that has been commenced against the
Company and that challenges, or may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the
transactions contemplated by the Agreement. To the best of our knowledge
after due investigation, no such Proceeding has been Threatened.
Each of the foregoing opinions is subject to the following
qualifications:
(a) the legality, validity and enforceability of any rights and
remedies provided in the Agreement and the other Transaction
Documents are subject to exceptions provided by bankruptcy,
insolvency, reorganization, receivership, moratorium, assignment
for the benefit of creditors' laws or similar laws now or
hereafter in effect affecting the validity, legality and binding
effect and enforceability of creditors' rights generally,
including, without limitation, statutory or other laws regarding
fraudulent transfers and conveyances or preferential transfers;
(b) specific performance, injunctive relief or other traditional
equitable remedies may not be available as they are subject to the
discretion of the court before which any proceeding with respect
thereto may be brought;
(c) rights to indemnification may be limited by federal or state
securities law: accordingly, we express no opinion as to the
enforceability of any indemnity provisions contained in the
Agreement and the other Transaction Documents;
(d) we express no opinion as to the enforceability of any provisions
in the Agreement and the other Transaction Documents providing for
the recovering of attorneys' fees or other costs of collection;
and
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<PAGE> 88
(e) we express no opinion with respect to any provision for submission
to jurisdiction or related waivers of defenses to such
jurisdiction contained in the Agreement and the other Transaction
Documents.
We do not render any opinion as to any matter expect as specifically set
forth herein. We do not undertake to update or to revise this opinion in the
event of any change of law, whether by legislative action, judicial decision or
otherwise, or in any factual circumstance. This opinion is being delivered
solely to you and may not be delivered to, or relied upon by, any other party
without our prior written consent.
Very truly yours,
A-37
<PAGE> 89
EXHIBIT 8.4(a)
FORM OF OPINION OF COUNSEL TO BUYER
FACSIMILE (613) 578-6957
, 1997
Direct Dial: (513) 579-6468
E-Mail: [email protected]
New Energy Company
of Indiana Limited Partnership
3201 West Calvert Street
South Bend, Indiana 46680
RE: Asset Purchase Agreement Dated as of June , 1997 Between Corn Energy,
Inc. and New Energy Company of Indiana Limited Partnership ("the
Agreement")
Gentlemen:
We have acted as counsel to Corn Energy, Inc., an Indiana corporation (the
"Company"), in connection with the preparation, execution and delivery of the
Agreement and the transactions contemplated thereby. This opinion letter is
provided to you pursuant to Section 8.4(a) of the Agreement. Capitalized terms
used herein without specific definition have the meanings respectively ascribed
thereto in the Agreement.
In this capacity we have examined the Agreement and the other documents
executed and delivered by the Company in connection with the transactions
contemplated by the Agreement (collectively, the "Transaction Documents"), and
the originals, or copies identified to our satisfaction, of such corporate
records of the Company, certificates of public officials, officers of the
Company and other persons, and such other documents, agreements and instruments
as we have deemed necessary as a basis for the opinions hereinafter expressed.
In such examinations, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals and the
conformity to authentic original documents of all documents submitted to us as
certified, conformed or photostatic copies. Notwithstanding the foregoing, we
have (with your permission) limited our factual inquiries to conferences with
representatives of the Company (at which conferences the business, affairs and
properties of the Company, the transactions contemplated by the Agreement and
other related matters were discussed), a review of the resolutions of the Board
of Directors and shareholders of the Company, the certificates of certain public
officials and of officers of the Company and certain factual inquiries that, in
fact, were actually made by attorneys in this firm based on the matters
discussed in such resolutions and certificates or at such conferences. Any
opinion herein qualified by the modifier "to the best of our knowledge after due
investigation" shall be deemed to incorporate these limitations (including the
limitations set forth in any of the above certificates) with respect to our
factual inquiries.
We have also assumed that all parties to the Agreement and the other
Transaction Documents to which the Company is a party other than the Company
have properly executed and delivered the Agreement and such other Transaction
Documents and that such execution and delivery have been properly authorized as
to each of said parties and that such parties have the power fully to perform
their respective obligations under the Agreement and such other Transaction
Documents.
We are admitted to practice only in the State of Ohio and do not hold
ourselves out as being conversant with, and therefore express no opinion with
respect to, the laws of any jurisdiction other than the federal laws of the
United States of America, the Indiana Business Corporation Law and the laws of
the State of Ohio.
We note that the Agreement and certain other Transaction Documents state
that they are governed by the laws of the State of New York and, as noted above,
we are not rendering any opinion with respect to the
A-38
<PAGE> 90
laws of the State of New York. We have assumed, with your permission, that the
law of the State of New York is identical to the Law of the State of Ohio in all
respects material to the opinions hereby rendered.
Based solely on the review described above and subject to the foregoing
assumptions, limitations and qualifications, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing under
the laws of the State of Indiana, with full corporate power and authority to
conduct its business as it is now being conducted and to own or use the
properties and assets that it purports to own or use. The Company is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each state or other jurisdiction in which either the ownership or
use of the properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification. The Company has delivered to
Seller copies of its Organizational Documents, as current in effect.
2. The Agreement constitutes the legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms. The
Company has the absolute and unrestricted right, power and authority to execute
and deliver the Agreement and the other Transaction Documents contemplated to be
executed and delivered at the Closing by the Company and to perform its
obligations under the Agreement and such other Transaction Documents.
3. Except as set forth in Schedule 5.2 to the Agreement, neither the
execution and delivery of the Agreement nor the consummation or performance of
any of the transactions contemplated thereby will give any Person the right to
prevent, delay, or otherwise interfere with any of the transactions contemplated
hereby pursuant to:
(i) any provision of the Company's Organizational Documents;
(ii) any resolution adopted by the Board of Directors or shareholders
of the Company;
(iii) any Legal Requirement or Order to which the Company may be
subject; or
(iv) to the best of our knowledge after due investigation, any
material contract to which the Company is a party or by which the Company
may be bound.
4. Except as set forth in Schedule 5.2 to the Agreement, the Company is
not and will not be required to obtain any Consent from any Person in connection
with the execution and delivery of the Agreement or the consummation or
performance of any of the transactions contemplated thereby.
5. There is no pending Proceeding that has been commenced against the
Company and that challenges, or may have the effect of preventing, delaying,
making illegal, or otherwise interfering with, any of the transactions
contemplated by the Agreement. To the best of our knowledge after due
investigation, no such Proceeding has been Threatened.
Each of the foregoing opinions is subject to the following qualifications:
(a) the legality, validity and enforceability of any rights and
remedies provided in the Agreement and the other Transaction Documents are
subject to exceptions provided by bankruptcy, insolvency, reorganization,
receivership, moratorium, assignment for the benefit of creditors' laws or
similar laws now or hereafter in effect affecting the validity, legality
and binding effect and enforceability of creditors' rights generally,
including, without limitation, statutory or other laws regrading fraudulent
transfers and conveyances or preferential transfers;
(b) specific performance, injunctive relief or other traditional
equitable remedies may not be available as they are subject to the
discretion of the court before which any proceeding with respect thereto
may be brought;
(c) the enforceability of any indemnity provisions contained in the
Agreement and the other Transaction Documents may be limited by federal or
state securities law;
A-39
<PAGE> 91
(d) we express no opinion as to the enforceability of any provisions
in the Agreement and the other Transaction Documents providing for the
recovering of attorney's fees or other costs of collection; and
(e) we express no opinion with respect to any provision for submission
to jurisdiction or related waivers of defenses to such jurisdiction
contained in the Agreement and the other Transaction Documents.
We do not render any opinion as to any matter except as specifically set
forth herein. We do not undertake to update or to revise this opinion in the
event of any change of law, whether by legislative action, judicial decision or
otherwise, or in any factual circumstance. This opinion is being delivered
solely to you and may not be delivered to, or relied upon by, any other party
without our prior written consent.
Very truly yours,
A-40
<PAGE> 92
EXHIBIT B
AGREEMENT AND PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
OF
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
AND
NEW ENERGY CORPORATION OF INDIANA
This Agreement and Plan of Complete Liquidation and Dissolution (the
"Plan") of New Energy Company of Indiana Limited Partnership, an Indiana limited
partnership (the "Company") and of New Energy Corporation of Indiana, an Indiana
corporation (the "Corporation"), has been entered into and adopted for the
purpose of effecting the complete liquidation and dissolution of the Company and
of the Corporation in accordance with the Amended and Restated Limited
Partnership Agreement of the Company (the "Partnership Agreement"), the Indiana
Limited Partnership Act (IC 23-16), the Indiana Business Corporation Law (IC
23-1) (the "IBCL") and the provisions of Section 331 of the Internal Revenue
Code of 1986, as amended (the "Code").
RECITALS
A. The sole business of the Company is the ownership and operation of
a plant engaged in the production of ethanol and its by-products located in
South Bend, Indiana, and the sole business of the Corporation is to act as
the General Partner of the Company. A transaction has been proposed whereby
Corn Energy, Inc. (the "Purchaser") will purchase substantially all of the
business and assets and assume all of the liabilities of the Company (the
"Transaction").
B. The Corporation, acting through its Board of Directors, has
determined that the Transaction is in the best interests of the Limited
Partners of the Company and the shareholders of the Corporation, and a
majority in interest of the shareholders of the Corporation have entered
into a Transaction Assurance Agreement with the Purchaser dated as of June
26, 1997, pursuant to which they have agreed to vote their shares in favor
of the Transaction and to otherwise support its consummation.
C. Contemporaneously with the adoption of this Plan, the Board of
Directors of the Corporation, in its capacity as General Partner of the
Company, has authorized the officers of the Corporation to enter into an
Agreement (the "BDC Agreement") with the Business Development Corporation
of South Bend, Mishawaka, St. Joseph County, Indiana (the "BDC"), pursuant
to which the BDC will accept payment of $2,500,000 in full settlement of
its claims under the Notes payable by the Company to the BDC in the
aggregate principal amount of $1,033,900.87 as of June 30, 1997, and its
interests as a Special Limited Partner of the Company.
D. Contemporaneously with the adoption of this Plan, the Board of
Directors of the Corporation, in its capacity as General Partner of the
Company, has authorized the officers of the Corporation to enter into an
Asset Purchase Agreement with the Purchaser dated as of July 1, 1997,
relating to the Transaction, a copy of which is appended to this Plan as
Appendix A and incorporated herein by reference (the "Purchase Agreement").
E. As a result of the consummation of the Transaction, the Company and
the Corporation will cease the active conduct of their respective
businesses, and will thereafter liquidate and dissolve in accordance with
the terms and subject to the conditions of this Plan.
TERMS AND CONDITIONS
1. Disposition of Corporation Assets and Liabilities.
A. Immediately prior to the Closing (as that term is defined in the
Purchase Agreement), the Corporation shall, pursuant to a Transfer
Agreement in the form appended to this Plan as Appendix B (the "Transfer
Agreement"):
B-1
<PAGE> 93
(i) contribute to the Company all of the obligations of the Company
to the Corporation, including but not limited to those evidenced by the
New Energy Company of Indiana note payable ("Note I") in the total
amount of $9,734,347.40 as of June 30, 1997, retaining only the right to
the payment of the sum of $4,000,000 with respect to Note I as described
in subparagraph 2.C., and
(ii) transfer and assign to the Company -
(a) all of its cash, cash equivalents and accounts receivable;
(b) all of its furniture, fixtures, equipment and other personal
property;
(c) all of its leaseholds and other contracts, agreements,
contract rights and general intangibles, excepting only its rights as
an insured under all policies providing insurance with respect to
directors and officers liability heretofore issued to the
Corporation, including but not limited to (x) Directors and Officers
Liability Insurance Policy #751-039462-96 issued by Executive Risk
Indemnity Inc. and (y) London Insurance and Reinsurance Market
Association Policy #599/UP961849; and
(d) all of its other assets and property of every kind and
character, including but not limited to all its right, title and
interest in and to the Limited Partner interests in the Company held
in the name of the Corporation (which shall be cancelled by the
Company and of no further force or effect).
B. In consideration of the actions of the Corporation described in
subparagraph 1.A., the Company shall:
(i) simultaneously therewith, assume and agree to pay and to
perform all of the liabilities and obligations of the Corporation now
existing or hereafter arising of any nature whatsoever, whether fixed or
contingent, known or unknown, liquidated or unliquidated, including but
not limited to (a) any unpaid expenses incurred by the Corporation in
connection with the Transaction and the actions contemplated by this
Plan (provided, however, that in no event shall the Company's
obligations with respect to those unpaid expenses exceed the amount of
the administration fees to which the General Partner would be otherwise
entitled under the Partnership Agreement for the period beginning on the
Closing Date and ending on the date of termination of the Company
specified in paragraph 5), and (b) any obligation that the Corporation
may have to indemnify its officers and directors under its Articles of
Incorporation, Bylaws, the IBCL or otherwise, now or in the future; and
(ii) at the Closing, provide to the Corporation complete releases
with respect to all of the obligations of the Corporation relating to
the indebtedness of the Company to the United States Department of
Energy, the BDC and Great American Insurance Company.
2. Disposition of Company Assets and Liabilities. At the Closing, the
Company shall:
A. Transfer and assign its assets to the Purchaser pursuant to and in
accordance with the terms and conditions of the Purchase Agreement, in
exchange for the consideration specified in the Purchase Agreement (which
includes the assumption by the Purchaser of certain of the liabilities of
the Company, including but not limited to the liabilities assumed by the
Company pursuant to subparagraph 1.B.(i) above);
B. Pay to the BDC the amount of $2,500,000, in full settlement of the
amounts due to the BDC pursuant to the BDC Agreement; and
C. Pay to the Corporation the amount of $4,000,000, in full
satisfaction of the amounts remaining due under Note I.
3. Distribution of Net Assets of the Company. At such time as the
Corporation, as General Partner, shall determine that the claims of all persons
having priority to the Limited Partners with respect to the distribution of the
assets of the Company in liquidation, as set forth in the Partnership Agreement,
have been
B-2
<PAGE> 94
fully satisfied, or amounts sufficient to pay all such claims shall have been
reserved and set aside for that purpose, the Corporation shall cause the
remaining assets of the Company to be distributed to the Limited Partners in
accordance with their Limited Partner interests. The Corporation waives any
rights it may have with respect to the distribution of the assets of the Company
other than as provided in subparagraph 2.C. above.
4. Distribution of the Net Assets of the Corporation. At such time as the
Board of Directors of the Corporation shall determine that the claims of all
persons having priority to the shareholders with respect to the distribution of
the assets of the Corporation in liquidation have been satisfied (giving due
consideration to the assumption by the Purchaser of the liabilities of the
Corporation pursuant to the Purchase Agreement), or amounts sufficient to pay
all such claims shall have been reserved and set aside for that purpose, the
Corporation shall distribute the remaining assets of the Corporation to the
shareholders in accordance with their interests. The Board of Directors shall
review the payment of claims periodically and shall not unreasonably delay the
distribution of the remaining assets to shareholders following its determination
that all claims have been satisfied. The Corporation shall send to each
shareholder of record a letter of transmittal for use by those shareholders in
surrendering certificates representing the outstanding common shares of the
Corporation in exchange for the liquidation payment.
5. Dissolution of the Company. As provided in the Partnership Agreement,
the Company will be dissolved upon the consummation of the Transaction, but the
Company will not terminate until its assets have been distributed in accordance
with the provisions of the Partnership Agreement as set forth in paragraph 3.
6. Dissolution of the Corporation. Upon completion of the distribution of
the net assets of the Company and of the Corporation in accordance with
paragraph 3 and paragraph 4, respectively, and the termination of the Company as
described in paragraph 5, the Corporation shall be dissolved in accordance with
the provisions of the IBCL.
7. Conditions. The obligations of the Company and the Corporation
hereunder are subject to:
A. The execution and delivery of the Purchase Agreement by the
Purchaser;
B. The execution and delivery of the BDC Agreement by the BDC;
C. Approval of the Transaction by a majority in interest of the
Limited Partners; and
D. Approval of this Plan by the holders of a majority of the
outstanding shares of the Corporation.
8. Termination Date. This Plan shall terminate and be of no further force
or effect in the event that the Closing shall not have occurred prior to the
close of business on October 31, 1997, or in the event that the Purchase
Agreement is terminated in accordance with Section 9 thereof.
B-3
<PAGE> 95
IN WITNESS WHEREOF, the Company and the Corporation each have caused this
Agreement and Plan of Liquidation and Dissolution to be signed on its behalf.
NEW ENERGY COMPANY OF INDIANA
LIMITED PARTNERSHIP
By: New Energy Corporation of Indiana,
General Partner
By:
------------------------------------
Larry W. Singleton, President
Date: ________________ , 1997
NEW ENERGY CORPORATION OF INDIANA
By:
------------------------------------
Larry W. Singleton, President
Date: ________________ , 1997
B-4
<PAGE> 96
APPENDIX A
ASSET PURCHASE AGREEMENT
DATED AS OF JULY 1, 1997 BETWEEN
CORN ENERGY INC. AND
NEW ENERGY COMPANY OF INDIANA
LIMITED PARTNERSHIP
A full copy of this Document is annexed to the Proxy Statement as Exhibit
A. Consequently, it is not included here.
B-5
<PAGE> 97
APPENDIX B
TRANSFER AGREEMENT
This Transfer Agreement has been entered into between New Energy Company of
Indiana Limited Partnership, an Indiana limited partnership (the "Company"), and
New Energy Corporation of Indiana, an Indiana corporation (the "Corporation"),
pursuant to and in accordance with the Agreement and Plan of Complete
Liquidation and Dissolution between the parties hereto dated as of ____________,
1997 (the "Plan"). Capitalized terms used but not otherwise defined herein shall
have the meanings assigned to them in the Plan.
1. The Corporation hereby contributes to the Company all of the obligations
of the Company to the Corporation, including but not limited to those evidenced
by the New Energy Company of Indiana note payable ("Note I") in the total amount
of $9,734,347.40 as of June 30, 1997, retaining only the right to the payment of
the sum of $4,000,000 with respect to Note I as described in paragraph 2, and
transfers and assigns to the Company -
(a) all of its cash, cash equivalents and accounts receivable,
including without limitation those items set forth on Schedule 1(a);
(b) all of its furniture, fixtures, equipment and other personal
property, including without limitation those items set forth on
Schedule 1(b);
(c) all of its leaseholds and other contracts, agreements,
contract rights and general intangibles, including without limitation
those items set forth on Schedule 1(c), excepting only its rights as
an insured under all policies providing insurance with respect to
directors and officers liability heretofore issued to the
Corporation, including but not limited to (i) Directors and Officers
Liability Insurance Policy #751-039462-96 issued by Executive Risk
Indemnity Inc. and (ii) London Insurance and Reinsurance Market
Association Policy #599/UP961849; and
(d) all of its other assets and property of every kind and
character, including but not limited to all its right, title and
interest in and to the Limited Partner interests in the Company held
in the name of the Corporation, including without limitation those
items set forth on Schedule 1(d).
2. In consideration of the actions of the Corporation described in
paragraph 1, the Company:
(a) hereby assumes and agrees to pay, when due and in accordance
with the terms thereof, and to perform all of the liabilities and
obligations of the Corporation now existing or hereafter arising of
any nature whatsoever, whether fixed or contingent, known or unknown,
liquidated or unliquidated, including without limitation those items
set forth on Schedule 2(a) which include, but are not limited to (i)
any unpaid expenses incurred by the Corporation in connection with
the Transaction and the actions contemplated by the Plan (provided,
however, that in no event shall the Company's obligations with
respect to those unpaid expenses exceed the amount of the
administration fees to which the General Partner would be otherwise
entitled under the Partnership Agreement for the period beginning on
the Closing Date and ending on the date of termination of the Company
specified in paragraph 5 of the Plan), and (ii) any obligation that
the Corporation may have to indemnify its officers and directors
under its Articles of Incorporation, Bylaws, the IBCL or otherwise,
now or in the future;
B-6
<PAGE> 98
(b) hereby cancels all of the Limited Partner interests
transferred to the Company pursuant to paragraph 1; and
(c) at the Closing, shall (i) pay to the Corporation the amount
of $4,000,000, in full satisfaction of the amounts remaining due
under Note I, and (ii) provide to the Corporation complete releases
with respect to all of the obligations of the Corporation relating to
the indebtedness of the Company to the United States Department of
Energy, the BDC and Great American Insurance Company.
IN WITNESS WHEREOF, the parties have executed and delivered this Transfer
Agreement this ____ day of ________ , 1997.
NEW ENERGY COMPANY OF INDIANA
LIMITED PARTNERSHIP
By: New Energy Corporation of Indiana,
General Partner
By:
------------------------------------
Larry W. Singleton, President
NEW ENERGY CORPORATION OF INDIANA
By:
------------------------------------
Larry W. Singleton, President
B-7
<PAGE> 99
EXHIBIT C
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
UNAUDITED PRO FORMA BALANCE SHEET
The accompanying unaudited pro forma balance sheet gives effect to the
Agreement and Plan of Complete Liquidation and Dissolution of New Energy Company
of Indiana Limited Partnership ("Company") and New Energy Corporation of Indiana
("Corporation") and the Asset Purchase Agreement Between Corn Energy, Inc. and
New Energy Company of Indiana Limited Partnership (contemplated transaction).
Immediately prior to the closing of the purchase agreement between the
Company and Corn Energy, Inc., the Corporation will contribute to the Company
all of the obligations of the Company to the Corporation, including but not
limited to those evidenced by the New Energy Company of Indiana note payable
("Note I") retaining only the right to the payment of the sum of $4,000,000 from
the Company. As a result the Company is relieved of its remaining obligations on
notes payable (Note I and Note III) and deferred management fees payable to the
Corporation. In addition, the Corporation transfers its assets to the Company,
and the Company assumes the Corporation's liabilities.
Also immediately prior to the closing of the purchase agreement between the
Company and Corn Energy, Inc., the Company will pay to the Business Development
Corporation of South Bend ("BDC") $2,500,000 in full settlement of notes payable
and cancellation of the Company's special limited partner account.
At closing, the Company transfers its assets to Corn Energy, Inc. for
$9,034,800, and Corn Energy, Inc. assumes the liabilities of the Company.
The pro forma balance sheet is based on certain assumptions and adjustments
described in the Notes to Pro Forma Balance Sheet and should be read in
conjunction therewith and with the financial statements and related notes
thereto of New Energy Company of Indiana Limited Partnership included in Form
10-K for the fiscal year ended December 31, 1996 and Form 10-Q for the quarter
ended June 30, 1997 incorporated by reference into this Proxy Statement and the
balance sheet of New Energy Corporation of Indiana for the fiscal year ended
December 31, 1996 and related notes thereto furnished supplementary in this
filing.
C-1
<PAGE> 100
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------- ------------- ----------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............ $ 7,677,789 $ (5,142,989)(a)(b)(c) $2,534,800
Accounts receivable.................. 5,374,658 (5,374,658)(c) --
Other receivables.................... 163,970 (163,970)(a)(c) --
Inventories.......................... 2,693,805 (2,693,805)(c) --
Spare parts.......................... 2,555,601 (2,555,601)(c) --
Prepaid expenses and other........... 350,287 (350,287)(a)(c) --
------------- ------------- ----------
TOTAL CURRENT ASSETS................... 18,816,110 (16,281,310) 2,534,800
Property and equipment................. 160,282,517 (160,282,517)(c) --
Allowances for depreciation............ (137,678,907) 137,678,907(c) --
------------- ------------- ----------
22,603,610 (22,603,610) --
TOTAL ASSETS........................... $ 41,419,720 $ (38,884,920) $2,534,800
============= ============= ==========
LIABILITIES AND PARTNERS' CAPITAL
(DEFICIT)
Current liabilities
Accounts payable..................... $ 3,669,012 $ (3,669,012)(a)(c) $ --
Interest payable..................... 45,076 (45,076)(c) --
Taxes payable........................ 1,770,021 (1,770,021)(a)(c) --
Other accrued liabilities............ 2,171,998 (2,171,998)(a)(c) --
Current portion of long-term debt.... 4,845,088 (4,845,088)(b)(c) --
------------- ------------- ----------
TOTAL CURRENT LIABILITIES.............. 12,501,195 (12,501,195) --
Deferred management fees payable
to general partner................... 691,642 (691,642)(a) --
Long-term debt, less current portion... 68,142,501 (68,142,501)(a)(b)(c) --
PARTNERS' CAPITAL (DEFICIT)
Limited partners..................... (39,341,206) 41,876,006(a)(b)(c) 2,534,800
Special limited partner.............. 5,000,000 (5,000,000)(b) --
General partner...................... (5,574,412) 5,574,412(a) --
------------- ------------- ----------
Total partners' capital (deficit)...... (39,915,618) 42,450,418 2,534,800
------------- ------------- ----------
Total liabilities and partners' capital
(deficit)............................ $ 41,419,720 $ (38,884,920) $2,534,800
============= ============= ==========
Book value per limited partner
unit(1)........................... $ (5,441) $ 405
============= ==========
</TABLE>
- ---------------
(1) The book value per limited partner unit "Historical" excludes the allocation
of syndication costs of $4,523,047 and is based on 6,399 limited partner
units. The book value per limited partner unit "Pro forma" only includes the
holders of 6,258 qualified limited partner units.
See Notes to Unaudited Pro Forma Balance Sheet
C-2
<PAGE> 101
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
a. The pro forma adjustment reflects the following:
1. The contribution to the Company by the Corporation all of the
obligations of the Company to the Corporation, including but not
limited to those evidenced by the New Energy Company of Indiana note
payable ("Note I") in the total amount of $9,734,347 as of June 30,
1997 retaining only the right to the payment of the sum of $4,000,000
from the Company. As a result, the Company is relieved of its
obligations to pay deferred management fees of $691,642 and notes
payable (Note I and Note III) of $5,795,354.
2. The transfer by the Corporation to the Company of its assets
including cash of $531,904, other receivables of $439,882, and
prepaid expenses of $114,207.
3. The assumption by the Company of the Corporation's liabilities
including accounts payable of $24,572, taxes payable of $466, and
other accrued liabilities of $220,540.
4. The payment of $4,000,000 by the Company to the Corporation as
outlined in No. 1 above. In addition, the Corporation is provided by
the Company complete releases with respect to all of the obligations
of the Corporation relating to the indebtedness of the Company to the
U.S. Department of Energy, BDC, and Great American Insurance Company.
5. The cancellation of the general partner's capital deficit account of
$5,574,412 on the Company's books.
b. The pro forma adjustment reflects the payment of $2,500,000 to the BDC
in full settlement of notes payable of $1,033,901 ($208,520 current) and
cancellation of the Company's $5,000,000 special limited partner capital
account.
c. The pro forma adjustment reflects the payment of $9,034,800 by Corn
Energy, Inc. to the Company, the transfer by the Company of its assets
to Corn Energy, Inc. (excluding $2,534,800 of cash to be distributed to
the holders of qualified limited partner units), the assumption of the
Company's liabilities by Corn Energy, Inc., and the recognition of a net
gain of $36,589,106.
C-3
<PAGE> 102
EXHIBIT D
AGREEMENT
This Agreement is entered into between New Energy Company of Indiana
Limited Partnership ("Company"), New Energy Corporation of Indiana ("General
Partner") and the Business Development Corporation of South Bend, Mishawaka, St.
Joseph County, Indiana ("BDC").
The Company and the General Partner are indebted to the BDC which
indebtedness is evidenced by four promissory notes (collectively the "Notes"):
A. A Promissory Note dated October 24, 1984 in the original principal
amount of Two Million Two Hundred Seventy-Two Thousand Nine Hundred Three and
31/100 Dollars ($2,272,903.31);
B. A Promissory Note dated October 24, 1985 in the original principal
amount of One Hundred Fifty-Nine Thousand Three Hundred Sixty and 95/100 Dollars
($159,360.95);
C. A Promissory Note dated as of February 1, 1996 in the original principal
sum of Two Hundred Nine Thousand Six Hundred Thirty and 67/100 Dollars
($209,630.67); and
D. A Promissory Note dated August 23, 1996 in the original principal sum of
Eight Hundred Six Thousand Nine Hundred Seventeen and 68/100 Dollars
($806,917.68).
The BDC is also the owner of a special limited partnership interest in the
Company which it purchased for Five Million Dollars ($5,000,000) ("Special
Limited Partnership Interest"). The BDC's rights under the Special Limited
Partnership Interest are described in the Company's Amended and Restated Limited
Partnership Agreement ("Partnership Agreement").
A transaction ("Transaction") has been proposed whereby Corn Energy, Inc.,
an affiliate of one of the shareholders of the General Partner, will purchase
substantially all of the assets of the Company for a purchase price of Nine
Million Thirty-Four Thousand Eight Hundred Dollars ($9,034,800) in cash and the
assumption of all of the liabilities of the Company (with the exception of the
Company's obligations to the BDC and a $4,000,000 obligation of the Company to
the General Partner). The terms of the Transaction have been discussed with the
BDC. During the discussions, the BDC also has been given the opportunity to ask
questions and receive answers concerning the terms and conditions of the
Transaction, the reasons for the Transaction and the alternatives available to
the Company; to obtain any additional information related to the Transaction in
the possession of the Company or the General Partner or which they could
acquire; and has been provided with current drafts of the Asset Purchase
Agreement related to the Transaction and of the Agreement and Plan of Complete
Liquidation and Dissolution of the Company and the General Partner. As a part of
those discussions, the BDC has been provided with, among other things, the
Company's 1996 Form 10-K and the information which is attached hereto as Exhibit
"A" (collectively the "Financial Information").
The BDC, the Company and the General Partner agree as follows:
1. If the Transaction closes, the BDC will accept the sum of Two
Million Five Hundred Thousand Dollars ($2,500,000) ("Payment") as payment
in full and in full satisfaction of the Notes and of all other obligations
of the Company and the General Partner to it including but not limited to
their obligations with respect to the Special Limited Partnership Interest.
The Payment will be made at the closing of the Transaction (the "Closing")
and applied first to the full payment of all amounts due under the Notes
with the balance applied to the retirement of the Special Limited
Partnership Interest.
2. At the Closing, the BDC will provide releases of all of the
mortgages, security interests and financing statements which it holds
against the assets of the Company and the General Partner.
3. At the Closing, the BDC will deliver to the Company and the General
Partner a release in the form attached as Exhibit "B" and the Company will
deliver to the BDC a letter describing Corn Energy's
D-1
<PAGE> 103
intention to continue operations of the ethanol production facility in
South Bend in the form of Exhibit "C."
4. The BDC represents and warrants that: (a) it is the owner of the
Notes and the Special Limited Partnership Interest which are free and clear
of all liens, encumbrances, claims, security interests, pledges and rights
of others; (b) it has not previously assigned or transferred the Notes or
the Special Limited Partnership Interest or any interest therein; and (c)
it has all necessary power and authority to execute and deliver this
Agreement and the Release.
5. In deciding to enter into this Agreement, the BDC has been advised
by counsel and by certified public accountants, has conducted its own
analysis of the Financial Information and believes that this Agreement is
in its best interests. The BDC acknowledges that there is no assurance that
the projections contained in the Financial Information will prove to be
accurate.
6. If the Transaction fails to close by December 31, 1997, the
provisions of this Agreement shall be null and void.
7. Until the Transaction closes, the Company will timely pay to the
BDC all payments which it is obligated to pay in the Notes pursuant to the
Loan Agreement, as amended, between the Company and the BDC.
This Agreement is entered into the 30th day of May, 1997.
<TABLE>
<S> <C>
BDC COMPANY
BUSINESS DEVELOPMENT CORPORATION NEW ENERGY COMPANY OF INDIANA LIMITED
OF SOUTH BEND, MISHAWAKA, ST. JOSEPH COUNTY, PARTNERSHIP
INDIANA By: NEW ENERGY CORPORATION
By: /s/ Donald R. Kyle OF INDIANA
---------------------------------------- Its: General Partner
Its: President By: /s/ Larry W. Singleton
----------------------------------------
Its: President
</TABLE>
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<PAGE> 104
EXHIBIT "A"
FINANCIAL INFORMATION
PROVIDED TO BDC
This Exhibit is too voluminous to attach to this document. Copies of this
information is attached to Execution Copy held by the Company.
D-3
<PAGE> 105
EXHIBIT "B"
RELEASE
In consideration of Two Million Five Hundred Thousand Dollars ($2,500,000),
the receipt of which is hereby acknowledged, the Business Development
Corporation of South Bend, Mishawaka, St. Joseph County, Indiana ("BDC")
releases New Energy Company of Indiana Limited Partnership ("Company") and New
Energy Corporation of Indiana ("General Partner"), and their officers,
directors, employees, agents, shareholders, partners and representatives from
all claims which it might have against any of them arising out of or in any way
related to any indebtedness of the Company and/or the General Partner to the
BDC, the interest of the BDC as a Special Limited Partner of the Company, the
ethanol production facility in South Bend, Indiana or otherwise and stipulates
and agrees that all such claims and interests have been fully and finally
discharged.
This Release is signed the day of , 1997.
BDC
BUSINESS DEVELOPMENT CORPORATION
OF SOUTH BEND, MISHAWAKA, ST. JOSEPH
COUNTY, INDIANA
By:
--------------------------------------
Its:
--------------------------------------
D-4
<PAGE> 106
EXHIBIT E
TRANSACTION ASSURANCE AGREEMENT
(STOCKHOLDERS OF NEW ENERGY CORPORATION OF INDIANA)
THIS TRANSACTION ASSURANCE AGREEMENT ("Assurance Agreement") is made as of
June , 1997 among CORN ENERGY, INC., an Indiana corporation ("Corn Energy"),
INTERAMERICAN INVESTMENT GROUP, INC., an Indiana corporation ("IIG"), CHIQUITA
BRANDS INTERNATIONAL, INC., a New Jersey corporation ("CBI"), and ETHANOL
SERVICES, INC., a Delaware corporation ("ESI") (IIG, CBI and ESI collectively,
the "Stockholders").
RECITALS
WHEREAS, Corn Energy has proposed to New Energy Company of Indiana Limited
Partnership, an Indiana limited partnership (the "Partnership"), a transaction
pursuant to which Corn Energy will acquire substantially all the assets, and
assume and agree to pay all of the liabilities, of the Partnership substantially
on the terms and conditions set forth in the draft of the Asset Purchase
Agreement dated as of June , 1997, attached hereto as Exhibit 1 and
incorporated by reference herein ("Purchase Agreement"), after which the
Partnership and New Energy Corporation of Indiana, an Indiana corporation that
is the sole general partner of the Partnership (the "General Partner"), will
liquidate and dissolve on substantially the terms set forth in the draft of the
Agreement and Plan of Complete Liquidation and Dissolution dated June 1997,
attached hereto as Exhibit 2 and incorporated by reference herein (the
"Liquidation Agreement"); and,
WHEREAS, the Stockholders own, in the aggregate, Ninety Three and 91/100
percent (93.91%) of the issued and outstanding capital stock of the General
Partner; and,
WHEREAS, in connection with the transaction contemplated pursuant to the
Purchase Agreement and the subsequent liquidation and dissolution of the General
Partner pursuant to the Liquidation Agreement, the Stockholders will each
receive consideration equal to Four Million Dollars ($4,000,000) times their pro
rata percentage share of the issued and outstanding capital stock of the General
Partner; and,
WHEREAS, as a condition to the willingness of Corn Energy to enter into and
to consummate the transactions contemplated by the Purchase Agreement and in
order to induce Corn Energy to enter into and to consummate the transactions
contemplated by the Purchase Agreement, Corn Energy has required, and the
Stockholders have agreed, to enter into this Assurance Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, and
with the intention that the Board of Directors of the General Partner will rely
hereon in connection with its consideration of the Purchase Agreement and the
Liquidation Agreement, the parties hereto hereby agree as follows:
ARTICLE 1
AGREEMENTS
SECTION 1.1 Voting Agreement. Each Stockholder hereby agrees that, until
the termination of this Assurance Agreement, at any meeting of the stockholders
of the General Partner or any adjournment thereof, however called, or in any
other circumstances upon which a vote, consent or other approval is sought, such
Stockholder shall vote or cause to be voted all shares of capital stock of the
General Partner beneficially owned by such Stockholder (collectively, the
"Shares") in favor of the liquidation of the General Partner, sale of
Partnership assets, assumption of Partnership liabilities, liquidation of the
Partnership and dissolution of the General Partner and the other transactions
contemplated by the Purchase Agreement and the Liquidation Agreement, each as
contemplated by such agreements (collectively, the "Transactions") and against
any proposal for any action or agreement that would in any manner prevent or
nullify any of the Transactions, or result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the
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Partnership under the Purchase Agreement or that would result in any of the
conditions to the Partnership's obligations under the Purchase Agreement and the
Liquidation Agreement not being fulfilled ("Competing Transaction"). Each
Stockholder acknowledges that the forms of the Purchase Agreement and
Liquidation Agreement are subject to review and approval by the Board of
Directors of the General Partner; and such Stockholder agrees that, upon the
execution by the Partnership and the General Partner of the definitive Purchase
Agreement and definitive Liquidation Agreement in substantially the form of the
attached exhibits, such Stockholder shall be bound by the terms and conditions
thereof for the purposes of this Assurance Agreement
SECTION 1.2 No Inconsistent Arrangements.
(a) Each Stockholder hereby covenants and agrees that, until the
termination of this Assurance Agreement and except as contemplated by this
Assurance Agreement, it shall not: (i) transfer (which term shall include,
without limitation, any sale, gift, pledge or other disposition), or consent to
any transfer of, or enter into discussions or negotiations with any party for or
with respect to the transfer of, any or all of its Shares or any interest
therein; (ii) enter into any contract, option or other agreement or
understanding with respect to any transfer of any or all of its Shares or any
interest therein; (iii) grant any proxy, power-of-attorney or other
authorization in or with respect to its Shares; (iv) deposit its Shares into a
voting trust or enter into a voting agreement or arrangement with respect to its
Shares; or (v) take any other action that would in any way restrict, limit or
interfere with the performance of their obligations hereunder or the
transactions contemplated hereby or in the Purchase Agreement or the Liquidation
Agreement.
(b) Notwithstanding Section 1.2(a) and 1.5 hereof, the Stockholders may
transfer Shares to any person who shall have agreed to be bound by all of the
obligations of the Stockholders hereunder with respect to such Shares and shall
have executed a counterpart of this Assurance Agreement for such purpose.
SECTION 1.3 Grant Of Irrevocable Proxy; Appointment Of Proxy.
(a) Each Stockholder hereby irrevocably grants to, and appoints Rodger M.
Miller and James C. Kennedy, or any one or more of them, in their respective
capacities as officers of Corn Energy, and any individual who shall hereafter
succeed to any such office of Corn Energy and each of them individually, such
Stockholder's proxy and attorney-in-fact (with full power of substitution) for
and in the name, place and stead of such Stockholder, to vote such Stockholder's
Shares, or grant a consent or approval in respect of such Shares, in favor of
the Transactions and against any Competing Transaction. The appointment and
authority granted herein shall terminate upon the termination of this Assurance
Agreement.
(b) Each Stockholder represents that any proxies heretofore given in
respect of its Shares are not irrevocable, and that all such proxies are hereby
revoked.
(c) Each Stockholder understands and acknowledges that Corn Energy is
entering into the Purchase Agreement in reliance upon such Stockholder's
execution and delivery of this Assurance Agreement. Each Stockholder hereby
affirms that the irrevocable proxy set forth in this Section 1.3 is given in
connection with the execution of the Purchase Agreement and the Liquidation
Agreement, and that such irrevocable proxy is given to secure the performance of
the duties of such Stockholder under the Purchase Agreement, the Liquidation
Agreement and this Assurance Agreement. Such Stockholder hereby further affirms
that the irrevocable proxy is coupled with an interest and may under no
circumstances be revoked during the term of this Assurance Agreement except in
connection with a transfer of Shares pursuant to Section 1.2(b) hereof. Each
Stockholder hereby ratifies and confirms all that such irrevocable proxy may
lawfully do or cause to be done by virtue hereof. Such irrevocable proxy is
executed and intended to be irrevocable during the term of this Assurance
Agreement in accordance with the provisions of Section 23-1-30-3(d) of the
Indiana Business Corporation Law.
SECTION 1.4 No Solicitation. Each Stockholder hereby covenants and agrees
that, until the termination of this Assurance Agreement, it shall not, directly
or indirectly, through any officer, director, agent or otherwise, initiate,
solicit, encourage, negotiate with any person (other than the General Partner
during the forty five (45) day period described in Section 6(e) of the Purchase
Agreement), or take any other action to facilitate any inquiries with respect to
or the making of, any proposal that constitutes or may reasonably be
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expected to lead to a Competing Transaction, or, unless otherwise required by
law, furnish to any other person any information with respect to the General
Partner or the Partnership or its subsidiaries or afford access to any of the
properties, books or records of the General Partner or the Partnership or its
subsidiaries for the purposes of, or cooperate with, or assist or participate
in, facilitate or encourage, any effort or attempt by any other person or entity
to seek or effect a Competing Transaction.
SECTION 1.5 Certain Events. Each Stockholder agrees that this Assurance
Agreement and the obligations hereunder shall attach to its Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of its
Shares shall pass, whether by operation of law or otherwise, including without
limitation its heirs, guardians, administrators or successors. In the event of
any stock split, stock dividend, merger, reorganization, recapitalization or
other change in the capital structure of the General Partner affecting General
Partner capital stock or the acquisition of additional shares of General Partner
capital stock or other voting securities of General Partner by the Stockholders,
the number of Shares as to which such Stockholder is bound hereby shall be
appropriately adjusted and this Assurance Agreement and the obligations
hereunder shall attach to any additional shares of the General Partner capital
stock or other voting securities of the General Partner issued to or acquired by
such Stockholder.
SECTION 1.6 Reasonable Commercial Efforts. Subject to the terms and
conditions of this Assurance Agreement and of the Purchase Agreement, each of
the parties hereto agrees to use its reasonable commercial efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by the Purchase
Agreement and the Liquidation Agreement and by this Assurance Agreement. Each
party shall promptly consult with the other and provide any necessary
information and material with respect to all filings made by such party with any
governmental or regulatory authority, domestic or foreign, in connection with
this Assurance Agreement and the transactions contemplated hereby.
SECTION 1.7 Further Assurances. Each Stockholder shall perform such
further acts and execute such further documents and instruments as may
reasonably be required to vest in Corn Energy the power to carry out the
provisions of this Assurance Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder, as to itself, severally and not jointly, hereby
represents and warrants to Corn Energy as follows:
SECTION 2.1 Ownership, Voting Authority. The Stockholder is the legal or
beneficial owner of, or exercises voting control over, the Shares set forth
opposite its name on the signature page hereof. The Stockholder owns,
beneficially or of record, no limited partnership interests in the Partnership.
SECTION 2.2 Authority Relative to this Assurance Agreement. The
Stockholder has all necessary power and authority to execute and deliver this
Assurance Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Assurance
Agreement by the Stockholder and the consummation by the Stockholder of the
transactions contemplated hereby have been duly and validly authorized by all
necessary action on the part of the Stockholder, and no other proceedings on the
part of the Stockholder are necessary to authorize this Assurance Agreement or
to consummate such transactions. This Assurance Agreement has been duly and
validly executed and delivered by or on behalf of the Stockholder and, assuming
this Assurance Agreement constitutes a valid and binding obligation of Corn
Energy, constitutes a valid and binding obligation of the Stockholder,
enforceable against the Stockholder in accordance with its terms except as such
enforcement may be limited by equitable principles or by bankruptcy, insolvency
or similar laws affecting the rights of creditors generally.
SECTION 2.3 No Conflict; Required Filings and Consents. The execution and
delivery of this Assurance Agreement by each Stockholder, as to itself, does
not, and the performance of this Assurance Agreement by each Stockholder, as to
itself, shall not: (i) conflict with or violate the certificate of
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incorporation or by-laws or comparable organizational documents of such
Stockholder; (ii) conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to such Stockholder or by which the Shares
beneficially owned by such Stockholder are bound or affected; (iii) result in
any breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
contract, indenture, note or instrument to which such Stockholder is a party or
by which such Stockholder is bound or affected, except for any such breaches,
defaults or other occurrences that would not cause or create a material risk of
non-performance or delayed performance by such Stockholder of its obligations
under this Assurance Agreement; or (iv) except for filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the HSR Act, the Securities Act of 1933, as amended
(the "Securities Act") and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), require any filing by such Stockholder with, or any permit,
authorization consent or approval of, any governmental or regulatory authority,
domestic or foreign.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF CORN ENERGY
SECTION 3.1 Authority Relative to this Assurance Agreement. Corn Energy
has all necessary power and authority to execute and deliver this Assurance
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Assurance
Agreement by Corn Energy and the consummation by Corn Energy of the transactions
contemplated hereby have been duly and validly authorized by all necessary
action on the part of Corn Energy, and no other proceedings on the part of Corn
Energy are necessary to authorize this Assurance Agreement or to consummate such
transactions. This Assurance Agreement has been duly and validly executed and
delivered by or on behalf of Corn Energy and, assuming this Assurance Agreement
constitutes a valid and binding obligation of the Stockholders, constitutes a
valid and binding obligation of Corn Energy, enforceable against Corn Energy in
accordance with its terms except as such enforcement may be limited by equitable
principles or by bankruptcy, insolvency or similar laws affecting the rights of
creditors generally.
SECTION 3.2 No Conflict; Required Filings and Consents. The execution and
delivery of this Assurance Agreement by Corn Energy does not, and the
performance of this Assurance Agreement by Corn Energy, shall not: (i) conflict
with or violate the certificate of incorporation or by-laws or comparable
organizational documents of Corn Energy; (ii) conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to Corn Energy by which
Corn Energy is bound or affected; (iii) result in any breach of or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, contract, indenture, note or
instrument to which Corn Energy is a party or by which Corn Energy is bound or
affected, except for any such breaches, defaults or other occurrences that would
not cause or create a material risk of non-performance or delayed performance by
Corn Energy of its obligations under this Assurance Agreement; or (iv) except
for filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the HSR Act, the Securities Act of
1933, as amended (the "Securities Act") and the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), require any filing by Corn Energy with, or any
permit, authorization consent or approval of, any governmental or regulatory
authority, domestic or foreign.
ARTICLE 4
INDEMNIFICATION
SECTION 4.1 Indemnification of the Stockholders. Corn Energy shall
indemnify and hold harmless the Stockholders, and each of them, and each of the
affiliates, directors, officers, shareholders, employees, agents and
representatives of any of them (collectively, the "Indemnitees") from and
against any and all claims, losses, expenses, damages or liabilities, including
reasonable attorneys' fees (collectively, "Claims")
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that the Indemnitees, or any of them, may incur or become subject to resulting
from or relating to the Stockholders' execution, delivery or performance of this
Assurance Agreement or transactions contemplated in the Purchase Agreement or
the Liquidation Agreement; provided, however, that nothing in this Section 3.1
shall obligate Corn Energy to indemnify any Indemnitee for or with respect to
any Claims resulting from or relating to a breach or violation by any
Stockholder of this Assurance Agreement.
ARTICLE 5
RELEASE BY STOCKHOLDERS
SECTION 5.1 Release By the Stockholders. Effective upon the: (i)
consummation of the transactions contemplated by the Purchase Agreement; and
(ii) consummation of the transactions contemplated by the Liquidation Agreement;
and (iii) the Stockholder's receipt of the final distribution provided for in
the Liquidation Agreement with respect to the shares of capital stock of the
General Partner, each of the Stockholders hereby releases and forever discharges
Corn Energy, the Partnership, the General Partner and each of their respective
directors, officers, shareholders, partners, employees, agents and
representatives (collectively, the "Releasees") from any and all actions, causes
of action or claims, of any nature whatsoever, at law or in equity, in tort or
in contract, known or unknown, that such Stockholder then has, may then have or
may in the future have against the Releasees (or any of them) arising out of or
relating to such Stockholder's acquisition or ownership of shares of capital
stock of the General Partner, the General Partner's interest in the Partnership
or the Transactions other than Claims made pursuant to Section 4.1 of this
Assurance Agreement and claims made pursuant to the Indemnity Agreement between
American Annuity Group, Inc. and such Stockholder. In addition, and without
limiting the generality of the foregoing, effective upon fulfillment of the
conditions set forth in each of clauses (i), (ii) and (iii) of the immediately
preceding sentence, IIG hereby releases and forever discharges, the Releasees
(and each of them) from any and all actions, causes of action, claims,
obligation or liability payable to or for the benefit of IIG.
ARTICLE 6
MISCELLANEOUS
SECTION 6.1 Specific Performance. The parties hereto agree that if any of
the provisions of this Assurance Agreement were not performed in accordance with
their specific terms or were otherwise breached, irreparable damage would occur,
no adequate remedy at law would exist and damages would be difficult to
determine, and that the parties shall be entitled to specific performance of the
terms hereof, in addition to any other remedy at law or equity.
SECTION 6.2 Entire Agreement. This Assurance Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and understandings, both written and oral,
between the parties, or any of them, with respect to the subject matter hereof.
SECTION 6.3 Amendment. This Assurance Agreement may not be amended except
by an instrument in writing signed by each of the parties hereto.
SECTION 6.4 Severability. If any term or other provision of this
Assurance Agreement is invalid, illegal or incapable of being enforced by any
rule of law, or public policy, all other provisions of this Assurance Agreement
shall nevertheless remain in full force and effect for so long as the economic
or legal substance of this Assurance Agreement is not affected in any manner
materially adverse to any party. Upon a determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Assurance Agreement so as to effect
the original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in a mutually acceptable manner in order that the
terms of this Assurance Agreement remain as originally contemplated to the
fullest extent possible.
SECTION 6.5 Governing Law. This Assurance Agreement shall be governed by,
and construed in accordance with, the laws of the State of Indiana without
regard to any applicable conflicts of law principles.
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SECTION 6.6 Notices. All notices, requests, claims, demands and other
communications under this Assurance Agreement shall be in writing and shall be
deemed given if delivered personally or sent by overnight courier (providing
proof of delivery) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice): (i) if to Corn
Energy, to the address specified on the signature pages hereof; and (ii) if to
the Stockholders, to the address as specified on the signature pages hereof.
SECTION 6.7 Expenses. Each of the parties hereto shall bear and pay all
costs and expenses incurred by it or on its own behalf, except as otherwise
provided herein and in the Purchase Agreement.
SECTION 6.8 Interpretation. The descriptive headings contained herein are
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Assurance Agreement. Capitalized terms used in this
Assurance Agreement shall have the meanings respectively ascribed thereto in the
Purchase Agreement.
SECTION 6.9 Termination. This Assurance Agreement shall terminate on
October 31, 1997. This Assurance Agreement may be terminated earlier with the
written consent of Corn Energy and each of the Stockholders and shall terminate
automatically without need for any further action on the part of any party
hereto upon the termination of the Purchase Agreement other than a termination
of the Purchase Agreement resulting from a breach or violation thereof or
default thereunder by the Partnership. No termination of this Assurance
Agreement shall expand, extend, limit or reduce any of the rights or remedies of
any party to the Purchase Agreement or the Liquidation Agreement. Upon the
termination of this Assurance Agreement, the Stockholders shall be released from
any and all of their obligations hereunder but shall, notwithstanding such
termination, have the full benefit of the indemnification provisions of Section
4.1 of this Assurance Agreement.
SECTION 6.10 Execution in Counterparts. This Assurance Agreement may be
executed in counterparts, with all such counterparts together being deemed to be
one and the same instrument.
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IN WITNESS WHEREOF, the Stockholders and Corn Energy have caused this
Assurance Agreement to be duly executed on the date hereof.
CORN ENERGY, INC.
By: /s/ RODGER M. MILLER
--------------------------------------
Title: President
--------------------------------------
Address:
--------------------------------------
INTERAMERICAN INVESTMENT GROUP, INC.
16549 Shares of
Common Stock
By: /s/ VICTOR SHAIO
--------------------------------------
Title: President
--------------------------------------
Address:
--------------------------------------
CHIQUITA BRANDS INTERNATIONAL, INC.
11745 shares
Common Stock
By: /s/
--------------------------------------
Name: Robert W. Olson
--------------------------------------
Title: Senior Vice President and
General Counsel
--------------------------------------
Address:
--------------------------------------
ETHANOL SERVICES, INC.
10338 shares
Common Stock
By: /s/
--------------------------------------
Name: Rocco Andriola
--------------------------------------
Title: President
--------------------------------------
Address:
--------------------------------------
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<PAGE> 113
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT ("Agreement") is made as of this day of June
1997 between AMERICAN ANNUITY GROUP, INC., a Delaware corporation ("AAG"), and
ETHANOL SERVICES, INC., a Delaware corporation (the "Indemnitee").
RECITALS:
A. AAG is the owner of forty nine percent (49%) of the issued and
outstanding capital stock of CORN ENERGY, INC., an Indiana corporation ("Corn
Energy") that is a party to the Asset Purchase Agreement dated as of June ,
1997 ("APA") with New Energy Company of Indiana Limited Partnership (the
"Partnership").
B. In connection with the transactions contemplated by the APA, Corn Energy
has required the Indemnitee to enter into a Transaction Assurance Agreement
("TAA").
C. As a condition to its execution and delivery of the TAA, the Indemnitee
has required AAG to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the undersigned hereby
agree as follows:
1. INDEMNITY. To induce the Indemnitee to execute the TAA and in
addition to the indemnification provided by Corn Energy under the TAA, AAG
hereby agrees to indemnify and hold harmless the Indemnitee and each of the
affiliates, directors, officers shareholders, employees, agents and
representatives of the Indemnitee (collectively, the "Benefited Parties")
from and against forty nine percent (49%) of any and all claims, losses,
expenses, damages or liabilities, including reasonable attorneys' fees
(collectively, "Claims") that the Benefited Parties, or any of them, may
incur or become subject to resulting from or relating to the Indemnitee's
execution, delivery or performance of the TAA or transactions contemplated
in the APA or the Liquidation Agreement (as defined in the TAA); provided,
however, that nothing in this instrument shall obligate AAG to indemnify
any Benefited Party for or with respect to any Claims resulting from or
relating to a breach or violation by the Indemnitee of the TAA or for more
than forty nine percent (49%) of any Claims.
2. MISCELLANEOUS. This Agreement shall survive any termination of the
TAA and shall be governed by the laws of the State of Indiana and may be
executed in counterparts.
IN WITNESS WHEREOF, the undersigned have hereunto set their respective
hands as of the date and year first above written.
AMERICAN ANNUITY GROUP, INC.
By:
----------------------------------
Name:
Title:
ETHANOL SERVICES, INC.
By:
----------------------------------
Name:
Title:
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<PAGE> 114
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT ("Agreement") is made as of this day of June
1997 between AMERICAN ANNUITY GROUP, INC., a Delaware corporation ("AAG"), and
INTERAMERICAN INVESTMENT GROUP, INC., an Indiana corporation (the "Indemnitee").
RECITALS:
A. AAG is the owner of forty nine percent (49%) of the issued and
outstanding capital stock of CORN ENERGY, INC., an Indiana corporation ("Corn
Energy") that is a party to the Asset Purchase Agreement dated as of June ,
1997 ("APA") with New Energy Company of Indiana Limited Partnership (the
"Partnership").
B. In connection with the transactions contemplated by the APA, Corn Energy
has required the Indemnitee to enter into a Transaction Assurance Agreement
("TAA").
C. As a condition to its execution and delivery of the TAA, the Indemnitee
has required AAG to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the undersigned hereby
agree as follows:
1. INDEMNITY. To induce the Indemnitee to execute the TAA and in
addition to the indemnification provided by Corn Energy under the TAA, AAG
hereby agrees to indemnify and hold harmless the Indemnitee and each of the
affiliates, directors, officers shareholders, employees, agents and
representatives of the Indemnitee (collectively, the "Benefited Parties")
from and against forty nine percent (49%) of any and all claims, losses,
expenses, damages or liabilities, including reasonable attorneys' fees
(collectively, "Claims") that the Benefited Parties, or any of them, may
incur or become subject to resulting from or relating to the Indemnitee's
execution, delivery or performance of the TAA or transactions contemplated
in the APA or the Liquidation Agreement (as defined in the TAA); provided,
however, that nothing in this instrument shall obligate AAG to indemnify
any Benefited Party for or with respect to any Claims resulting from or
relating to a breach or violation by the Indemnitee of the TAA or for more
than forty nine percent (49%) of any Claims.
2. MISCELLANEOUS. This Agreement shall survive any termination of the
TAA and shall be governed by the laws of the State of Indiana and may be
executed in counterparts.
IN WITNESS WHEREOF, the undersigned have hereunto set their respective
hands as of the date and year first above written.
AMERICAN ANNUITY GROUP, INC.
By:
-------------------------------------
Name:
Title:
INTERAMERICAN INVESTMENT GROUP, INC.
By:
-------------------------------------
Name:
Title:
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<PAGE> 115
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT ("Agreement") is made as of this day of June
1997 between AMERICAN ANNUITY GROUP, INC., a Delaware corporation ("AAG"), and
CHIQUITA BRANDS INTERNATIONAL, INC., a New Jersey corporation (the
"Indemnitee").
RECITALS:
A. AAG is the owner of forty nine percent (49%) of the issued and
outstanding capital stock of CORN ENERGY, INC., an Indiana corporation ("Corn
Energy") that is a party to the Asset Purchase Agreement dated as of June ,
1997 ("APA") with New Energy Company of Indiana Limited Partnership (the
"Partnership").
B. In connection with the transactions contemplated by the APA, Corn Energy
has required the Indemnitee to enter into a Transaction Assurance Agreement
("TAA").
C. As a condition to its execution and delivery of the TAA, the Indemnitee
has required AAG to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the undersigned hereby
agree as follows:
1. INDEMNITY. To induce the Indemnitee to execute the TAA and in
addition to the indemnification provided by Corn Energy under the TAA, AAG
hereby agrees to indemnify and hold harmless the Indemnitee and each of the
affiliates, directors, officers shareholders, employees, agents and
representatives of the Indemnitee (collectively, the "Benefited Parties")
from and against forty nine percent (49%) of any and all claims, losses,
expenses, damages or liabilities, including reasonable attorneys' fees
(collectively, "Claims") that the Benefited Parties, or any of them, may
incur or become subject to resulting from or relating to the Indemnitee's
execution, delivery or performance of the TAA or transactions contemplated
in the APA or the Liquidation Agreement (as defined in the TAA); provided,
however, that nothing in this instrument shall obligate AAG to indemnify
any Benefited Party for or with respect to any Claims resulting from or
relating to a breach or violation by the Indemnitee of the TAA or for more
than forty nine percent (49%) of any Claims.
2. MISCELLANEOUS. This Agreement shall survive any termination of the
TAA and shall be governed by the laws of the State of Indiana and may be
executed in counterparts.
IN WITNESS WHEREOF, the undersigned have hereunto set their respective
hands as of the date and year first above written.
AMERICAN ANNUITY GROUP, INC.
By:
------------------------------------
Name:
Title:
CHIQUITA BRANDS INTERNATIONAL, INC.
By:
------------------------------------
Name:
Title:
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<PAGE> 116
EXHIBIT F
PRESENTATION TO THE BOARD OF DIRECTORS
VALUATION ANALYSIS
OF
NEW ENERGY COMPANY OF INDIANA
DECEMBER 11, 1996
F-1
<PAGE> 117
TABLE OF CONTENTS
<TABLE>
<S> <C>
I. Duff & Phelps Qualification
II. Limitations and Scope
III. Executive Summary
IV. Summary Valuation Analysis
V. Value Drivers
VI. Discounted Cash Flow Analysis
VII. Comparative Company Analysis
APPENDICES
A. New Energy Company Historical Financial Statements
B. Discounted Cash Flow Analysis
C. Comparable Company Descriptions and Schedules
</TABLE>
F-2
<PAGE> 118
I. DUFF & PHELPS, LLC QUALIFICATIONS
Duff & Phelps, LLC, headquartered in Chicago, is an independent investment
banking and financial advisory firm.
OVERALL CREDIBILITY AND RECOGNITION
Widely recognized within the investment and financial community as being a
source of financial advisory services of the highest quality and integrity.
VALUATION AND FINANCIAL ADVISORY EXPERTISE
Built upon over 400 financial advisory engagements per year, including a
substantial number of fairness opinions for corporate purposes relating to
companies in a broad range of industries.
CONTINUITY
Third year of valuing New Energy.
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II. LIMITATIONS AND SCOPE
- -- Goal: value of operations not valuation of partnership interests
- -- Valuation doesn't take into account tax consequences other than goodwill
tax-shield
- -- Duff & Phelps Process
- Discussed operating history and future prospects with management
- Reviewed financial performance
- Reviewed management projections
- Plant tour
- Analyzed industry and comparable company information
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<PAGE> 120
III. EXECUTIVE SUMMARY
- -- Enterprise Value range $61 million to $68 million; midpoint $64 million.
- -- Valuation Multiples at midpoint:
<TABLE>
<S> <C>
Projected Cash Flow 4.6x
3-yr Average Cash Flow 3.9x
Latest Twelve Month Revenues 0.5x
</TABLE>
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<PAGE> 121
IV. SUMMARY VALUATION ANALYSIS
- -- Weighted-average of the two scenarios
<TABLE>
<CAPTION>
HIGH MEDIAN LOW
----- ------ -----
<S> <C> <C> <C>
Operating Value-Subsidy Renewed $66.2 $65.2 $64.2
Probability 80% 70% 60%
===== ===== =====
Expected Value-Subsidy Renewed $53.0 $45.6 $38.5
Operating Value-Subsidy Revoked $43.6 $43.3 $43.1
Probability 20% 30% 40%
===== ===== =====
Expected Value-Subsidy Revoked $ 8.7 $13.0 $17.2
Expected Value of Tax-Shield* $ 6.0 $ 5.5 $ 5.0
TOTAL EXPECTED VALUE ($ MM) $67.6 $64.1 $60.8
Adjusted Equity Rate 14.7% 15.6 % 16.7%
* Based on amortization of $35 million
of goodwill
</TABLE>
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<PAGE> 122
V. VALUE DRIVERS
- -- Commodity prices
- Difficult to forecast
- Absolute levels not critical
- Relative levels critical
- -- Spread Relationships Key
- Ethanol Price vs. Gasoline
- Ethanol Price vs. MTBE
- Ethanol Price vs. Corn
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<PAGE> 123
V. VALUE DRIVERS -- SPREAD RELATIONSHIPS
<TABLE>
<CAPTION>
MEASUREMENT PERIOD ETHANOL VS. GASOLINE ETHANOL-
(FISCAL YEAR COVERED) ETHANOL GASOLINE GASOLINE
<S> <C> <C> <C>
JAN-92 1.1375 .534 .6035
1.142 .553 .589
1.1796 .54 .6396
APR-92 1.2089 .59 .6189
1.2805 .63 .6505
1.311 .643 .668
JUL-92 1.2954 .602 .6934
1.2949 .623 .6719
1.3255 .623 .7025
OCT-92 1.319 .606 .713
1.3398 .573 .7668
1.2798 .538 .7418
JAN-93 1.2634 .53 .7334
1.2097 .525 .6847
1.1525 .538 .6145
APR-93 1.1879 .592 .5959
1.1809 .595 .5859
1.1408 .548 .5928
JUL-93 1.1087 .516 .5927
1.1202 .53 .5902
1.1372 .485 .6522
OCT-93 1.1608 .502 .6588
1.1054 .448 .6574
1.0582 .376 .6822
JAN-94 1.0426 .428 .6146
1.0847 .443 .6417
1.0481 .44 .6081
APR-94 1.082 .4898 .5922
1.1213 .5062 .6151
1.1458 .5284 .6174
JUL-94 1.1881 .5452 .6429
1.2406 .5607 .6799
1.2063 .4653 .741
OCT-94 1.1726 .5114 .6612
1.2114 .5256 .6858
1.1883 .4687 .7196
JAN-95 1.1927 .5081 .6846
1.1768 .5143 .6625
1.1411 .5106 .6305
APR-95 1.1592 .6101 .5491
1.2277 .6479 .5798
1.2265 .594 .6325
JUL-95 1.1535 .5121 .6414
1.1322 .5333 .5989
1.1075 .561 .5465
OCT-95 1.0774 .483 .5944
1.081 .505 .576
1.1571 .536 .6211
JAN-96 1.1718 .503 .6688
1.0968 .52 .5768
1.131 .582 .549
APR-96 1.2715 .693 .5785
1.3009 .644 .6569
1.2066 .578 .6286
JUL-96 1.2138 .623 .5908
1.2432 .612 .6312
1.3779 .628 .7499
OCT-96 .643 .696
</TABLE>
AVERAGE (1987-96YTD): $0.56
Note: Gasoline is NYMEX Unleaded Gasoline
F-8
<PAGE> 124
V. VALUE DRIVERS -- SPREAD RELATIONSHIPS
<TABLE>
<CAPTION>
MEASUREMENT PERIOD ETHANOL VS. MTBE
(FISCAL YEAR COVERED) ETHANOL MTBE ETHANOL- MTBE
<S> <C> <C> <C>
JAN-92 1.1375 .96 .1775
1.142 .95 .192
1.1796 .88 .2996
APR-92 1.2089 .87 .3389
1.2805 .92 .3605
1.311 .97 .341
JUL-92 1.2954 .95 .3454
1.2949 .89 .4049
1.3255 .87 .4555
OCT-92 1.319 .82 .499
1.3398 .81 .5298
1.2798 .75 .5298
JAN-93 1.2634 .72 .5434
1.2097 .72 .4897
1.1525 .71 .4425
APR-93 1.1879 .73 .4579
1.1809 .75 .4309
1.1408 .74 .4008
JUL-93 1.1087 .69 .4187
1.1202 .72 .4002
1.1372 .72 .4172
OCT-93 1.1608 .72 .4408
1.1054 .67 .4354
1.0582 .63 .4282
JAN-94 1.0426 .61 .4326
1.0847 .6 .4847
1.0481 .59 .4581
APR-94 1.082 .65 .432
1.1213 .69 .4313
1.1458 .75 .3958
JUL-94 1.1881 .86 .3281
1.2406 .92 .3206
1.2063 .93 .2763
OCT-94 1.1726 1.064 .1086
1.2114 1.075 .1364
1.1883 .979 .2093
JAN-95 1.1927 .947 .2457
1.1768 .907 .2698
1.1411 .701 .4401
APR-95 1.1592 .784 .3752
1.2277 .944 .2837
1.2265 .901 .3255
JUL-95 1.1535 .855 .2985
1.1322 .836 .2962
1.1075 .755 .3525
OCT-95 1.0774 .689 .3884
1.081 .793 .288
1.1571 .896 .2611
JAN-96 1.1718 .866 .3058
1.0968 .766 .3308
1.131 .83 .301
APR-96 1.2715 .86 .4115
1.3009 .78946 .51144
1.2066 .75375 .45285
JUL-96 1.2138 .76875 .44505
1.2432 .83148 .41172
1.3779 .843425 .534475
OCT-96 .889675 .8605
</TABLE>
AVERAGE (1992-96YTD): $0.38
F-9
<PAGE> 125
V. VALUE DRIVERS -- SPREAD RELATIONSHIPS
<TABLE>
<CAPTION>
MEASUREMENT PERIOD ETHANOL VS. CORN COSTS
(FISCAL YEAR COVERED) ETHANOL CORN COSTS ETHANOL-CORN
<S> <C> <C> <C>
JAN-92 1.1375 .9325433335 .2049566665
1.142 .9619809357 .1800190643
1.1796 .9787543127 .2008456873
APR-92 1.2089 1.0024656828 .2064343172
1.2805 .9981141843 .2823858157
1.311 .9978900611 .3131099389
JUL-92 1.2954 .9815295601 .3138704399
1.2949 .8802357709 .4146642291
1.3255 .8502519265 .4752480735
OCT-92 1.319 .8358192048 .4831807952
1.3398 .7516033725 .5881966275
1.2798 .7801602612 .4996397388
JAN-93 1.2634 .8412340661 .4221659339
1.2097 .8400513008 .3696486992
1.1525 .8315602193 .3209397807
APR-93 1.1879 .8518298787 .3360701213
1.1809 .8509493198 .3299506802
1.1408 .8562765761 .2845234239
JUL-93 1.1087 .8563902295 .2523097705
1.1202 .8438578017 .2763421983
1.1372 .8363907695 .3008092305
OCT-93 1.1608 .8627821639 .2980178361
1.1054 .8527532045 .2526467955
1.0582 .8783759157 .1798240843
JAN-94 1.0426 1.1211780494 -.0785780494
1.0847 1.126927123 -.042227123
1.0481 1.1139267767 -.0658267767
APR-94 1.082 1.0280874786 .0539125214
1.1213 .9984084497 .1228915503
1.1458 .9804751992 .1653248008
JUL-94 1.1881 1.0049377337 .1831622663
1.2406 .9741663613 .2664336387
1.2063 .8939188224 .3123811776
OCT-94 1.1726 .8131450899 .3594549101
1.2114 .7934621636 .4179378364
1.1883 .798242375 .390057625
JAN-95 1.1927 .8413628935 .3513371065
1.1768 .8813160987 .2954839013
1.1411 .8730896286 .2680103714
APR-95 1.1592 .8925345089 .2666654911
1.2277 .9026629267 .3250370733
1.2265 .9158471532 .3106528468
JUL-95 1.1535 .9307340127 .2227659873
1.1322 .9090110534 .2231889466
1.1075 .9592436203 .1482563797
OCT-95 1.0774 .9516234474 .1257765526
1.081 1.007840992 .073159008
1.1571 .9890189541 .1680810459
JAN-96 1.1718 1.2608648997 -.0890648997
1.0968 1.3314355722 -.2346355722
1.131 1.3091535893 -.1781535893
APR-96 1.2715 1.4039573383 -.1324573383
1.3009 1.585337833 -.284437833
1.2066 1.7001779359 -.4935779359
JUL-96 1.2138 1.8007425283 -.5869425283
1.2432 1.8180524425 -.5748524425
1.3779 1.7980935875 -.4201935875
OCT-96
</TABLE>
AVERAGE (1991-96E NORMALIZED): $0.24/GALLON
F-10
<PAGE> 126
VI. DISCOUNTED CASH FLOW ANALYSIS
<TABLE>
<CAPTION>
SCENARIO: SUBSIDY RENEWED
--------------------------
HIGH MEDIAN LOW
----- ------ -----
<S> <C> <C> <C>
Value of Operations $66.2 $65.2 $64.2
Value of Goodwill Tax-Shield $ 8.3 $ 8.1 $ 8.1
===== ===== =====
Value-Subsidy Renewed ($ MM) $74.5 $73.3 $72.3
</TABLE>
F-11
<PAGE> 127
VI. DISCOUNTED CASH FLOW ANALYSIS
SCENARIO: Subsidy Renewed
- -- Corn hedging costs $0.05/Bushel or $0.018/Gallon
- -- Forecasts for 1997 and 1998
- Consistent with gasoline and corn futures markets and spreads
- -- Forecasts beyond 1998
- Based on an average ethanol-corn costs spread ($0.24) less hedge i.e.
$0.22
- -- Key ratios over projection period 1997-05
- Average Gross Income $24.3 million
- Average Operating Cash Flow $0.17/Gallon (1985-96E $0.20)
- Operating Expenses grow at 4% taper down to 3%
- -- Value Range: $72.3 million to $74.5 million; midpoint $73.3 million
F-12
<PAGE> 128
VI. DISCOUNTED CASH FLOW ANALYSIS
<TABLE>
<CAPTION>
SCENARIO: SUBSIDY REVOKED IN
2000
--------------------------------
HIGH MEDIAN LOW
----- ------ -----
<S> <C> <C> <C>
Value of Operations $43.6 $43.3 $43.1
Value of Goodwill Tax-Shield $ 1.3 $ 1.3 $ 1.2
===== ===== =====
Value-Subsidy Revoked ($ MM) $44.8 $44.6 $44.4
</TABLE>
F-13
<PAGE> 129
VI. DISCOUNTED CASH FLOW ANALYSIS
SCENARIO: Subsidy Revoked in 2000
- -- Year 2000 New Energy's Value is
- Net Fixed Assets
- Working Capital
- -- Value Range: $44.4 million to $44.8 million; midpoint $44.6 million
Common Assumptions
- -- Weighted Average Cost of Capital 12.50% (cost of equity 13.4%)
- -- 1997-1999 Cash Flows
F-14
<PAGE> 130
VII. COMPARATIVE COMPANY ANALYSIS
- -- Comparative financial performance
- Comparable Group: Arco Chemicals, Brimm Energy, Great Lakes Chemical,
High Plains, and Methanex.
- New Energy ranked at the bottom of the comparable group
- -- Valuation multiples consistent with financial performance and risks
<TABLE>
<CAPTION>
IMPLIED COMPARABLE
MULTIPLE COMPANIES
NEW ENERGY
IN $000 PERFORMANCE MEDIAN HIGH LOW
----------------------------------- ----------- ------ ----- ----
<S> <C> <C> <C> <C> <C>
LTM OCF (8,360) NM 6.7x 11.2x 6.2x
Proj. 1997 OCF* 13,993 4.6x 5.7x 5.7x 5.7x
3-Yr. Avg. OCF 16,647 3.9x 6.9x 10.1x 5.3x
LTM Revenues 131,233 0.5x 1.7x 2.5x 1.4x
</TABLE>
* Projected OCF for only Great Lakes Chemical was available.
Note: OCF is operating income before depreciation and amortization.
F-15
<PAGE> 131
APPENDIX A-1
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
COMPARATIVE COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 & 1996 AND
THE LATEST TWELVE MONTHS ENDED SEPTEMBER 30, 1996
(IN $000S)
<TABLE>
<CAPTION>
LTM 9 MONTHS 9 MONTHS
ENDED % OF ENDED % OF ENDED % OF
9/30/96 SALES 9/30/96 SALES 9/30/95 SALES
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales, ethanol............... $ 93,811 71.5% $ 68,088 71.1% $ 77,504 78.6%
By-product revenue............... 37,413 28.5 27,662 28.9 21,109 21.4
-------- ----- -------- ----- -------- -----
TOTAL SALES...................... 131,223 100.0 95,749 100.0 98,613 100.0
Cost of goods sold............... 131,774 100.4 101,906 106.4 78,588 79.7
-------- ----- -------- ----- -------- -----
GROSS PROFIT................... -551 -0.4 -6,156 -6.4 20,025 20.3
Selling, general and
administrative expenses........ 7,809 6.0 5,972 6.2 5,866 5.9
-------- ----- -------- ----- -------- -----
OPERATING INCOME BEFORE
DEPRECIATION AND
AMORTIZATION................ -8,360 -6.4 -12,128 -12.7 14,160 14.4
Depreciation and amortization.... 2,563 2.0 1,963 2.1 1,951 2.0
-------- ----- -------- ----- -------- -----
OPERATING INCOME............... -10,923 -8.3 -14,091 -14.7 12,209 12.4
OTHER INCOME (EXPENSE)
Interest income................ 466 0.4 320 0.3 445 0.5
Interest expense............... -4,264 -3.2 -3,220 -3.4 -3,275 -3.3
Other income (expense)......... 3 0.0 0 0.0 0 0.0
-------- ----- -------- ----- -------- -----
TOTAL OTHER INCOME............. -3,795 -2.9 -2,901 -3.0 -2,830 -2.9
-------- ----- -------- ----- -------- -----
NET INCOME (LOSS).............. -14,717 -11.2 -16,992 -17.7 9,379 9.5
Limited partnership interest... 90% 90% 90%
-------- ----- -------- ----- -------- -----
NET INCOME (LOSS) ALLOCABLE TO
LIMITED PARTNERS............ $-13,246 -10.1% $-15,293 -16.0% $ 8,442 8.6%
======== ===== ======== ===== ======== =====
</TABLE>
Source: Unaudited financial statements of New Energy Company of Indiana Limited
Partnership.
F-16
<PAGE> 132
APPENDIX A-2
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
COMPARATIVE COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
(IN $000S)
<TABLE>
<CAPTION>
9/30/96 9/30/95
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents....................................... $ 3,721 $ 11,840
Accounts receivable............................................. 5,322 5,432
Other receivables............................................... 122 209
Inventories..................................................... 3,773 4,868
Spare parts..................................................... 2,510 2,629
Prepaid expenses and other...................................... 237 273
-------- --------
TOTAL CURRENT ASSETS......................................... 15,684 25,251
Property, plant and equipment, at cost............................ 159,504 159,370
Less accumulated depreciation and depletion....................... 135,956 133,422
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT................................. 23,548 25,948
TOTAL ASSETS................................................. $ 39,233 $ 51,200
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................................ $ 3,612 $ 3,481
Interest payable................................................ 61 291
Taxes payable................................................... 3,187 2,111
Other accrued liabilities....................................... 1,338 779
Current portion of long-term debt............................... 6,492 12,167
-------- --------
TOTAL CURRENT LIABILITIES.................................... 14,689 18,829
Long-term debt, less current portion.............................. 66,785 59,896
PARTNERS' CAPITAL (DEFICIT)
General partner................................................. -5,807 -4,335
Limited partners................................................ -36,912 -23,666
Special limited partner......................................... 5,000 5,000
Syndication costs............................................... -4,523 -4,523
-------- --------
TOTAL PARTNERS' CAPITAL (DEFICIT)............................ -42,242 -27,524
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................... $ 39,233 $ 51,200
======== ========
Working Capital................................................... $ 995 $ 6,423
Current Ratio..................................................... 1.1 1.3
</TABLE>
Source: Unaudited financial statements of New Energy Company of Indiana Limited
Partnership.
F-17
<PAGE> 133
APPENDIX A-3
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
COMPARATIVE COMBINED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1991-1995
(IN $000S)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales, ethanol................. $103,227 $ 96,111 $ 86,995 $ 90,563 $ 77,932
By-product revenue................. 30,860 31,818 28,544 30,441 29,110
-------- -------- -------- -------- --------
TOTAL SALES........................ 134,087 127,929 115,538 121,004 107,042
Cost of goods sold................. 108,456 107,559 88,435 90,819 86,718
-------- -------- -------- -------- --------
GROSS PROFIT..................... 25,631 20,370 27,104 30,185 20,323
Selling, general and administrative
expenses......................... 7,703 7,736 7,724 8,286 7,417
-------- -------- -------- -------- --------
OPERATING INCOME BEFORE
DEPRECIATION AND
AMORTIZATION.................. 17,928 12,634 19,380 21,899 12,906
Depreciation and amortization...... 2,550 10,733 13,623 13,589 13,602
-------- -------- -------- -------- --------
OPERATING INCOME................. 15,378 1,901 5,757 8,310 -697
OTHER INCOME (EXPENSE)
Interest income.................. 592 313 328 256 261
Interest expense................. -4,319 -4,757 -5,450 -6,162 -8,995
Other income (expense)........... 3 -7 -5 -3 -122
-------- -------- -------- -------- --------
TOTAL OTHER INCOME............... -3,724 -4,451 -5,127 -5,909 -8,856
-------- -------- -------- -------- --------
NET INCOME (LOSS)................ 11,654 -2,550 629 2,401 -9,552
Limited partnership interest..... 90.0% 90.0% 90.0% 90.0% 90.0%
-------- -------- -------- -------- --------
NET INCOME (LOSS) ALLOCABLE TO
LIMITED PARTNERS.............. $ 10,488 $ -2,295 $ 566 $ 2,161 $ -8,597
======== ======== ======== ======== ========
</TABLE>
Source: Audited financial statements of New Energy Company of Indiana Limited
Partnership.
F-18
<PAGE> 134
APPENDIX A-4
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
COMPARATIVE MARGIN ANALYSIS
YEARS ENDED DECEMBER 31, 1991-1995
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales, ethanol................................. 77.0% 75.1% 75.3% 74.8% 72.8%
By-product revenue................................. 23.0 24.9 24.7 25.2 27.2
----- ----- ----- ----- -----
TOTAL SALES........................................ 100.0 100.0 100.0 100.0 100.0
Cost of goods sold................................. 80.9 84.1 76.5 75.1 81.0
----- ----- ----- ----- -----
GROSS PROFIT..................................... 19.1 15.9 23.5 24.9 19.0
Selling, general and administrative expenses....... 5.7 6.0 6.7 6.8 6.9
----- ----- ----- ----- -----
OPERATING INCOME BEFORE DEPRECIATION AND
AMORTIZATION.................................. 13.4 9.9 16.8 18.1 12.1
Depreciation and amortization...................... 1.9 8.4 11.8 11.2 12.7
----- ----- ----- ----- -----
OPERATING INCOME................................. 11.5 1.5 5.0 6.9 -0.7
OTHER INCOME (EXPENSE)
Interest income.................................. 0.4 0.2 0.3 0.2 0.2
Interest expense................................. -3.2 -3.7 -4.7 -5.1 -8.4
Other income (expense)........................... 0.0 0.0 0.0 0.0 -0.1
----- ----- ----- ----- -----
TOTAL OTHER INCOME............................... -2.8 -3.5 -4.4 -4.9 -8.3
NET INCOME (LOSS)................................ 8.7 -2.0 0.5 2.0 -8.9
LIMITED PARTNERSHIP INTEREST..................... 90.0% 90.0% 90.0% 90.0% 90.0%
----- ----- ----- ----- -----
NET INCOME (LOSS) ALLOCABLE TO LIMITED
PARTNERS...................................... 7.8% -1.8% 0.5% 1.8% -8.0%
===== ===== ===== ===== =====
</TABLE>
F-19
<PAGE> 135
APPENDIX A-5
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
COMPARATIVE COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1991-1995
(IN $000S)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........ $ 11,461 $ 8,880 $ 10,137 $ 7,728 $ 4,819
Accounts receivable.............. 7,353 8,026 4,386 6,727 4,513
Other receivables................ 179 78 70 101 145
Inventories...................... 4,236 4,453 5,744 5,972 4,013
Spare parts...................... 2,604 2,611 2,637 2,570 2,328
Prepaid expenses and other....... 318 346 430 1,043 793
-------- -------- -------- -------- --------
TOTAL CURRENT ASSETS............. 26,151 24,394 23,405 24,141 16,611
Property, plant and equipment, at
cost............................. 159,512 159,159 159,118 158,878 158,513
Less accumulated depreciation and
depletion........................ -134,001 -131,471 -120,863 -107,521 -94,450
-------- -------- -------- -------- --------
NET PROPERTY, PLANT AND
EQUIPMENT........................ 25,512 27,688 38,255 51,357 64,064
Deferred costs..................... 0 0 0 218 432
-------- -------- -------- -------- --------
TOTAL ASSETS..................... $ 51,662 $ 52,083 $ 61,660 $ 75,716 $ 81,107
======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable................. 3,833 3,204 2,585 2,514 2,905
Management fees payable to
general partner............... 0 0 0 252 0
Interest payable................. 291 343 268 283 428
Taxes payable.................... 1,705 1,642 1,624 1,627 1,479
Other accrued liabilities........ 1,242 905 655 782 669
Current portion of long-term
debt.......................... 3,268 12,795 5,867 14,763 4,626
-------- -------- -------- -------- --------
TOTAL CURRENT LIABILITIES........ 10,338 18,890 11,000 20,221 10,108
Deferred management fees payable to
general partner.................. 0 1,100 1,219 2,601 2,660
Long-term debt..................... 66,574 68,997 83,795 87,901 105,747
PARTNERS' CAPITAL (DEFICIT)
General partner.................. -4,108 -5,273 -5,018 -5,081 -5,321
Limited partners................. -21,619 -32,108 -29,814 -30,402 -32,564
Special limited partner.......... 5,000 5,000 5,000 5,000 5,000
Syndication costs................ -4,523 -4,523 -4,523 -4,523 -4,523
Accumulated deficit.............. 0 0 0 0 0
-------- -------- -------- -------- --------
TOTAL PARTNERS' CAPITAL
(DEFICIT)..................... -25,250 -36,904 -34,355 -35,007 -37,408
-------- -------- -------- -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY.......... $ 51,662 $ 52,083 $ 61,660 $ 75,716 $ 81,107
======== ======== ======== ======== ========
Working Capital.................... $ 15,812 $ 5,504 $ 12,405 $ 3,921 $ 6,504
Current Ratio...................... 2.5 1.3 2.1 1.2 1.6
</TABLE>
Source: Audited financial statements of New Energy Company of Indiana Limited
Partnership.
F-20
<PAGE> 136
APPENDIX A-6
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
COMPARATIVE CASH FLOW STATEMENT
YEARS ENDED DECEMBER 31, 1991-1995
(IN $000S)
<TABLE>
<CAPTION>
TOTAL 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)............... $ 2,583 $ 11,654 $ -2,550 $ 629 $ 2,401 $ -9,552
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization... 54,098 2,550 10,733 13,623 13,589 13,602
Increase (decrease) in deferred
management fees payable to
general partner............... -2,088 -1,100 -119 -1,381 -60 573
Increase in accrued interest on
general partner loan.......... 1,735 -380 541 541 542 493
Net loss on disposition of
property and equipment........ 134 -3 7 5 3 122
Changes in operating assets and
liabilities:
Accounts and other
receivables................... -2,619 572 -3,640 2,371 -2,169 247
Inventories..................... -267 218 1,291 228 -1,959 -44
Spare parts..................... -462 7 26 -67 -243 -185
Prepaid expenses and other...... 405 28 76 617 -250 -67
Accounts payable................ 471 628 619 71 -391 -457
Management fees payable to
general partner............... 0 0 0 -252 252 0
Interest payable................ 47 -52 74 -14 -145 184
Taxes payable................... 504 63 18 -3 148 278
Other accrued liabilities....... 701 336 250 -126 112 128
-------- -------- -------- -------- -------- --------
Net cash provided by operating
activities.................... 55,242 14,520 7,326 16,241 11,831 5,323
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment..................... -1,926 -373 -174 -312 -672 -395
Proceeds from sale of property
and equipment................. 4 3 0 0 1 0
-------- -------- -------- -------- -------- --------
Net cash used in investing
activities.................. -1,922 -370 -174 -312 -671 -395
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net decrease in short-term
borrowings.................... -25 0 0 0 0 -25
Payments on long-term debt...... -45,417 -11,569 -8,411 -13,543 -8,251 -3,644
Loan from general partner....... 579 0 0 0 0 579
Capital contributions from
limited partners.............. 49 0 1 22 0 26
-------- -------- -------- -------- -------- --------
Net cash used in financing
activities.................. -44,814 -11,569 -8,410 -13,520 -8,251 -3,064
-------- -------- -------- -------- -------- --------
Net Increase (Decrease) in
Cash and Equivalent......... $ 8,505 $ 2,581 $ -1,257 $ 2,409 $ 2,909 $ 1,863
======== ======== ======== ======== ======== ========
</TABLE>
Source: Audited financial statements of New Energy Company of Indiana Limited
Partnership.
F-21
<PAGE> 137
APPENDIX B-1
NEW ENERGY COMPANY OF INDIANA, L.P.
PROJECTED FINANCIAL STATEMENTS
FISCAL YEARS ENDING DECEMBER 31, 1996 -- 2005
(IN $000S)
<TABLE>
<CAPTION>
ACTUAL ACTUAL ACTUAL EXPECTED PROJECTED
-------- -------- -------- -------- --------
INCOME STATEMENT 1993 1994 1995 1996 1997 1998 1999 2000 2001
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Ethanol net
revenues.......... 86,995 96,111 103,227 98,633 111,857 107,690 116,202 116,202 116,202
DDGS net revenues.. 26,948 30,118 29,110 37,742 33,903 31,922 33,155 33,155 33,155
C02 net revenues... 1,596 1,700 1,750 1,582 1,913 1,989 2,069 2,151 2,238
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total revenue...... $115,538 $127,929 $134,087 $137,957 $147,673 $141,601 $151,425 $151,508 $151,594
COST OF SALES
Total Corn Costs... 64,262 81,607 81,098 113,143 100,379 92,917 96,444 96,444 96,444
Total Denaturant
Costs............. 1,545 1,505 1,803 1,716 2,004 1,930 2,082 2,082 2,082
Total other raw
material costs.... 5,718 6,551 7,786 6,378 7,497 7,797 8,109 8,434 8,771
Other cost of goods
sold.............. 16,909 17,896 17,769 15,247 15,857 16,492 17,151 17,837 18,551
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total cost of
sales............. 88,435 107,559 108,456 136,484 125,738 119,136 123,786 124,797 125,848
Gross Income before
Depreciation...... 27,104 20,370 25,631 1,473 21,935 22,466 27,639 26,711 25,747
Gross Margin....... 23.5% 15.9% 19.1% 1.1% 14.9% 15.9% 18.3% 17.6% 17.0%
OPERATING EXPENSES
Operating
Expenses.......... 7,724 7,736 7,703 7,694 8,002 8,322 8,655 9,001 9,361
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total operating
expenses.......... 7,724 7,736 7,703 7,694 8,002 8,322 8,655 9,001 9,361
Operating Income
Bef.
Depreciation...... 19,380 12,634 17,928 (6,221) 13,933 14,144 18,984 17,711 16,386
OIBD Margin........ 16.8% 9.9% 13.4% -4.5% 9.4% 10.0% 12.5% 11.7% 10.8%
Depreciation....... 13,623 10,733 2,550 2,615 2,467 2,325 2,229 2,154 2,127
Other Income....... 0 0 0 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- -------- -------- --------
Earnings before
interest and
taxes............. 5,757 1,901 15,378 (8,836) 11,466 11,819 16,755 15,556 14,259
Income tax
provision......... 2,274 751 6,074 0 1,039 4,668 6,618 6,145 5,632
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income......... 3,483 1,150 9,304 (81,836) 10,427 7,150 10,137 9,412 8,627
======== ======== ======== ======== ======== ======== ======== ======== ========
Net Income Margin.. 3.0% 0.9% 6.9% -6.4% 7.1% 5.0% 6.7% 6.2% 5.7%
-------- -------- -------- -------- -------- -------- -------- -------- --------
OIBD ($/Gallon).... $ 0.26 $ 0.15 $ 0.20 ($ 0.08) $ 0.16 $ 0.16 $ 0.21 $ 0.20 $ 0.18
======== ======== ======== ======== ======== ======== ======== ========
Avg 97-05.......... $ 0.17
========
<CAPTION>
INCOME STATEMENT 2002 2003 2004 2005
-------- -------- -------- --------
<S> <C<C> <C> <C> <C>
REVENUES
Ethanol net
revenues.......... 116,202 116,202 116,202 116,202
DDGS net revenues.. 33,155 33,155 33,155 33,155
C02 net revenues... 2,327 2,397 2,469 2,543
-------- -------- -------- --------
Total revenue...... $151,684 $151,753 $151,825 $151,899
COST OF SALES
Total Corn Costs... 96,444 96,444 96,444 96,444
Total Denaturant
Costs............. 2,082 2,082 2,082 2,082
Total other raw
material costs.... 9,122 9,395 9,677 9,968
Other cost of goods
sold.............. 19,293 19,872 20,468 21,082
-------- -------- -------- --------
Total cost of
sales............. 126,940 127,793 128,671 129,575
Gross Income before
Depreciation...... 24,743 23,961 23,155 22,324
Gross Margin....... 16.3% 15.8% 15.3% 14.7%
OPERATING EXPENSES
Operating
Expenses.......... 9,735 10,028 10,328 10,638
-------- -------- -------- --------
Total operating
expenses.......... 9,735 10,028 10,328 10,638
Operating Income
Bef.
Depreciation...... 15,008 13,933 12,826 11,686
OIBD Margin........ 9.9% 9.2% 8.4% 7.7%
Depreciation....... 2,103 2,121 2,137 2,152
Other Income....... 0 0 0 0
-------- -------- -------- --------
Earnings before
interest and
taxes............. 12,905 11,812 10,689 9,534
Income tax
provision......... 5,098 4,666 4,222 3,766
-------- -------- -------- --------
Net income......... 7,808 7,147 6,467 5,768
======== ======== ======== ========
Net Income Margin.. 5.1% 4.7% 4.3% 3.8%
-------- -------- -------- --------
OIBD ($/Gallon).... $ 0.17 $ 0.16 $ 0.14 $ 0.13
======== ======== ======== ========
Avg 97-05..........
</TABLE>
F-22
<PAGE> 138
APPENDIX B-2
NEW ENERGY COMPANY OF INDIANA, L.P.
PROJECTED FINANCIAL STATEMENTS
FISCAL YEARS ENDING DECEMBER 31, 1996 -- 2005
(IN $000S)
<TABLE>
<CAPTION>
ACTUAL ACTUAL ACTUAL EXPECTED PROJECTED
------- ------- -------- ------- --------
VALUATION ASSUMPTIONS 1993 1994 1995 1996 1997 1998 1999 2000 2001
- --------------------- ------- ------- -------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE FORECAST
ETHANOL REVENUES
Ethanol Production
(Gallons/Yr.)....... 75,264 83,415 88,154 78,743 89,000 89,000 89,000 89,000 89,000
Ethanol price
growth.............. -0.3% 1.6% 7.0% 0.3% -3.7% 7.9% 0.0% 0.0%
-- Spread ceiling... $ 1.25 $ 1.27 $ 1.22 $ 1.32 $ 1.32 $ 1.32
-- Spread floor..... $ 1.25 $ 1.25 $ 1.21 $ 1.30 $ 1.30 $ 1.30
-- Average Price
($/Gallon)........ $ 1.16 $ 1.15 $ 1.17 $ 1.25 $ 1.26 $ 1.21 $ 1.31 $ 1.31 $ 1.31
------- ------- -------- ------- -------- -------- -------- -------- --------
Ethanol net
revenues............ $86,995 $96,111 $103,227 $98,633 $111,857 $107,690 $116,202 $116,202 $116,202
Ethanol Yield
(Gallons/Busbel).... 2.83 2.75 2.75 2.75 2.75 2.75
Implied Corn
Bushels............. 27,796 32,364 32,364 32,364 32,364 32,364
DDGS REVENUES
DDGS Yield
(lbs/Bushel)........ 17.62 17.8 17.8 17.8 17.8 17.8
DDGS Production
(Tons/Yr.).......... 244.9 288.0 288.0 288.0 288.0 288.0
DDGS Markup on Com
(net of $0.05 hedge
costs).............. 6.0% 8.0% 10.0% 10.0% 10.0% 10.0%
DDGS price per ton... $154.11 $ 117.70 $ 110.83 $ 115.11 $ 115.11 $ 115.11
------- ------- -------- ------- -------- -------- -------- -------- --------
DDGS net revenues.... $26,948 $30,118 $ 29,110 $37,742 $ 33,903 $ 31,922 $ 33,155 $ 33,155 $ 33,155
C02 REVENUES
C02 Production
(Tons/Yr.).......... 149.2 173.5 173.5 173.5 173.5 173.5
C02 price per ton
growth.............. 4.0% 4.0% 4.0% 4.0% 4.0%
C02 price per ton.... $ 10.60 $ 11.02 $ 11.47 $ 11.92 $ 12.40 $ 12.90
------- ------- -------- ------- -------- -------- -------- -------- --------
C02 net revenues..... $ 1,596 $ 1,700 $ 1,750 $ 1,582 $ 1,913 $ 1,989 $ 2,069 $ 2,151 $ 2,238
Other Income as
return on
investment.......... 0.0% 0.0% 0.0% 0.0%
Strategic
Investment.......... $ 0 $ 0 $ 0 $ 0
------- ------- -------- ------- -------- -------- -------- -------- --------
Total revenue
growth.............. 10.7% 4.8% 2.9% 7.0% -4.1% 6.9% 0.1% 0.1%
CAGR over projection
period.............. 1.3%
======= ======= ======== ======= ======== ======== ======== ======== ========
<CAPTION>
VALUATION ASSUMPTIONS 2002 2003 2004 2005
- --------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUE FORECAST
ETHANOL REVENUES
Ethanol Production
(Gallons/Yr.)....... 89,000 89,000 89,000 89,000
Ethanol price
growth.............. 0.0% 0.0% 0.0% 0.0%
-- Spread ceiling... $ 1.32 $ 1.32 $ 1.32 $ 1.32
-- Spread floor..... $ 1.30 $ 1.30 $ 1.30 $ 1.30
-- Average Price
($/Gallon)........ $ 1.31 $ 1.31 $ 1.31 $ 1.31
-------- -------- -------- --------
Ethanol net
revenues............ $116,202 $116,202 $116,202 $116,202
Ethanol Yield
(Gallons/Busbel).... 2.75 2.75 2.75 2.75
Implied Corn
Bushels............. 32,364 32,364 32,364 32,364
DDGS REVENUES
DDGS Yield
(lbs/Bushel)........ 17.8 17.8 17.8 17.8
DDGS Production
(Tons/Yr.).......... 288.0 288.0 288.0 288.0
DDGS Markup on Com
(net of $0.05 hedge
costs).............. 10.0% 10.0% 10.0% 10.0%
DDGS price per ton... $ 115.11 $ 115.11 $ 115.11 $ 115.11
-------- -------- -------- --------
DDGS net revenues.... $ 33,155 $ 33,155 $ 33,155 $ 33,155
C02 REVENUES
C02 Production
(Tons/Yr.).......... 173.5 173.5 173.5 173.5
C02 price per ton
growth.............. 4.0% 3.0% 3.0% 3.0%
C02 price per ton.... $ 13.41 $ 13.81 $ 14.23 $ 14.66
-------- -------- -------- --------
C02 net revenues..... $ 2,327 $ 2,397 $ 2,469 $ 2,543
Other Income as
return on
investment.......... 0.0% 0.0% 0.0% 0.0%
Strategic
Investment.......... $ 0 $ 0 $ 0 $ 0
-------- -------- -------- --------
Total revenue
growth.............. 0.1% 0.0% 0.0% 0.0%
CAGR over projection
period..............
======== ======== ======== ========
</TABLE>
F-23
<PAGE> 139
APPENDIX B-3
NEW ENERGY COMPANY OF INDIANA, L.P.
PROJECTED FINANCIAL STATEMENTS
FISCAL YEARS ENDING DECEMBER 31,1996 -- 2005
(IN $000S)
<TABLE>
<CAPTION>
ACTUAL ACTUAL ACTUAL EXPECTED PROJECTED
------- ------- ------- -------- --------
VALUATION ASSUMPTIONS 1993 1994 1995 1996 1997 1998 1999 2000 2001
- ----------------------------- ------- ------- ------- -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EXPENSE FORECAST
CORN COSTS
Implied Corn Bushels......... 27,796 32,364 32,364 32,364 32,364 32,364
Corn price growth............ -23.8% -7.4% 3.8% 0.0% 0.0%
Corn price ($/Bushel)........ $ 4.07 $ 3.10 $ 2.87 $ 2.98 $ 2.98 $ 2.98
------- ------- ------- -------- -------- ------- ------- ------- -------
Total Corn Costs............. $64,262 $81,607 $81,098 $113,143 $100,379 $92,917 $96,444 $96,444 $96,444
Corn Costs/Gallon............ $ 0.85 $ 0.98 $ 0.92 $ 1.44 $ 1.13 $ 1.04 $ 1.08 $ 1.08 $ 1.08
Ethanol-Corn Spread.......... $ 0.30 $ 0.17 $ 0.25 (0.18) $ 0.13 $ 0.17 $ 0.22 $ 0.22 $ 0.22
Average Spread 97-05......... $ 0.21
DENATURANT COSTS
Denaturant Blend as % of
Ethanol Prodn............... 4.17% 4.30% 4.30% 4.30% 4.30% 4.30%
Denaturant Gallons........... 3,287 3,827 3,827 3,827 3,827 3,827
Denaturant price growth
rate........................ 0.3% -3.7% 7.9% 0.0% 0.0%
Denaturant price
($/Gallon).................. $ 0.52 $ 0.52 $ 0.50 $ 0.54 $ 0.54 $ 0.54
------- ------- ------- -------- -------- ------- ------- ------- -------
Total Denaturant Costs....... $ 1,545 $ 1,505 $ 1,803 $ 1,716 $ 2,004 $ 1,930 $ 2,082 $ 2,082 $ 2,082
OTHER RAW MATERIAL COSTS
Other raw material costs
growth...................... 3.4% 12.4% -8.3% 4.0% 4.0% 4.0% 4.0% 4.0%
Other raw material costs
($/Gallon).................. $ 0.08 $ 0.08 $ 0.09 $ 0.08 $ 0.08 $ 0.09 $ 0.09 $ 0.09 $ 0.10
------- ------- ------- -------- -------- ------- ------- ------- -------
Total other raw material
costs....................... $ 5,718 $ 6,551 $ 7,786 $ 6,378 $ 7,497 $ 7,797 $ 8,109 $ 8,434 $ 8,771
OTHER COGS
Growth in other cost of goods
sold........................ 5.8% -0.7% -14,2% 4.0% 4.0% 4.0% 4.0% 4.0%
Total cost of sales (% of
Sales)...................... 76.5% 84.1% 80.9% 98.9% 85.1% 84.1% 81.7% 82.4% 83.0%
growth in cost of sales...... 21.6% 0.8% 25.8% -7.9% -5.3% 3.9% 0.8% 0.8%
OPERATING EXPENSES
Growth rate of operating
expenses.................... 0.2% -0.4% -0.1% 4.0% 4.0% 4.0% 4.0% 4.0%
Total operating
expenses/sales.............. 6.7% 6.0% 5.7% 5.6% 5.4% 5.9% 5.7% 5.9% 6.2%
CAGR over forecast period.... 3.3%
INCOME TAX RATE.............. 39.5% 39.5% 39.5% 39.5% 39.5% 39.5% 39.5% 39.5% 39.5%
<CAPTION>
VALUATION ASSUMPTIONS 2002 2003 2004 2005
- ----------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
EXPENSE FORECAST
CORN COSTS
Implied Corn Bushels......... 32,364 32,364 32,364 32,364
Corn price growth............ 0.0% 0.0% 0.0% 0.0%
Corn price ($/Bushel)........ $ 2.98 $ 2.98 $ 2.98 $ 2.98
------- ------- ------- -------
Total Corn Costs............. $96,444 $96,444 $96,444 $96,444
Corn Costs/Gallon............ $ 1.08 $ 1.08 $ 1.08 $ 1.08
Ethanol-Corn Spread.......... $ 0.22 $ 0.22 $ 0.22 $ 0.22
Average Spread 97-05.........
DENATURANT COSTS
Denaturant Blend as % of
Ethanol Prodn............... 4.30% 4.30% 4.30% 4.30%
Denaturant Gallons........... 3,827 3,827 3,827 3,827
Denaturant price growth
rate........................ 0.0% 0.0% 0.0% 0.0%
Denaturant price
($/Gallon).................. $ 0.54 $ 0.54 $ 0.54 $ 0.54
------- ------- ------- -------
Total Denaturant Costs....... $ 2,082 $ 2,082 $ 2,082 $ 2,082
OTHER RAW MATERIAL COSTS
Other raw material costs
growth...................... 4.0% 3.0% 3.0% 3.0%
Other raw material costs
($/Gallon).................. $ 0.10 $ 0.11 $ 0.11 $ 0.11
------- ------- ------- -------
Total other raw material
costs....................... $ 9,122 $ 9,395 $ 9,677 $ 9,968
OTHER COGS
Growth in other cost of goods
sold........................ 4.0% 3.0% 3.0% 3.0%
Total cost of sales (% of
Sales)...................... 83.7% 84.2% 84.7% 85.3%
growth in cost of sales...... 0.9% 0.7% 0.7% 0.7%
OPERATING EXPENSES
Growth rate of operating
expenses.................... 4.0% 3.0% 3.0% 3.0%
Total operating
expenses/sales.............. 6.4% 6.6% 6.8% 7.0%
CAGR over forecast period....
INCOME TAX RATE.............. 39.5% 39.5% 39.5% 39.5%
</TABLE>
F-24
<PAGE> 140
APPENDIX B-4
NEW ENERGY COMPANY OF INDIANA, L.P.
PROJECTED FINANCIAL STATEMENTS
FISCAL YEARS ENDING DECEMBER 31, 1996 -- 2005
(IN $000S)
<TABLE>
<CAPTION>
ACTUAL ACTUAL ACTUAL EXPECTED PROJECTED
------ ------ ------ -------- ---------
WORKING CAPITAL & FIXED ASSETS 1994 1995 SEP-96 1996 1997 1998 1999 2000 2001
- -------------------------------- ------ ------ ------ -------- --------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accounts receivable............. 8,026 7,353 5,322 7,566 8,098 7,765 8,304 8,309 8,314
Inventory....................... 4,453 4,236 6,283 5,459 5,030 4,765 4,951 4,992 5,034
Prepaid expenses and deposits... 346 318 237 327 350 336 359 359 359
------- ------- ------- ------- ------- ------- -------
- - - - - - -
------- - ------- -
Total Current Assets............ 12,825 11,907 11,842 13,352 13,478 12,867 13,615 13,660 13,707
Net Fixed Assets................ 27,688 25,512 23,548 23,497 22,141 21,232 20,517 20,257 20,025
------- ------- ------- ------- ------- ------- -------
- - - - - - -
------- - ------- -
Total Assets.................... 40,514 37,418 35,390 36,849 35,619 34,099 34,132 33,916 33,731
======== ======== ======== ======== ======== ======== ======== ======== ========
Accounts payable................ 3,204 3,833 4,491 4,961 4,478 4,243 4,409 4,445 4,482
Accrued liabilities............. 905 1,242 1,336 1,231 1,280 1,332 1,385 1,440 1,498
------- ------- ------- ------- ------- ------- -------
- - - - - - -
------- - ------- -
Total Current Liabilities....... 4,110 5,074 5,827 6,092 5,759 5,575 5,794 5,885 5,980
Net Working Capital............. 8,715 6,832 6,014 7,260 7,719 7,292 7,821 7,775 7,727
As a % of Sales................ 6.8% 5.1% 5.3% 5.2% 5.1% 5.2% 5.1% 5.1%
<CAPTION>
WORKING CAPITAL & FIXED ASSETS 2002 2003 2004 2005
- -------------------------------- ------ ------ ------ ------
<S> <C><C> <C> <C> <C>
Accounts receivable............. 8,318 8,322 8,326 8,330
Inventory....................... 5,078 5,112 5,147 5,183
Prepaid expenses and deposits... 360 360 360 360
------- ------- ------- -------
- - - -
Total Current Assets............ 13,756 13,794 13,833 13,873
Net Fixed Assets................ 20,197 20,353 20,493 20,620
------- ------- ------- -------
- - - -
Total Assets.................... 33,953 34,146 34,326 34,493
======== ======== ======== ========
Accounts payable................ 4,521 4,552 4,583 4,615
Accrued liabilities............. 1,558 1,604 1,653 1,702
------- ------- ------- -------
- - - -
Total Current Liabilities....... 6,079 6,156 6,235 6,317
Net Working Capital............. 7,677 7,638 7,598 7,556
As a % of Sales................ 5.1% 5.0% 5.0% 5.0%
</TABLE>
F-25
<PAGE> 141
APPENDIX B-5
NEW ENERGY COMPANY OF INDIANA, L.P.
PROJECTED FINANCIAL STATEMENTS
FISCAL YEARS ENDING DECEMBER 31, 1996 -- 2005
(IN $000S)
<TABLE>
<CAPTION>
ACTUAL ACTUAL ACTUAL EXPECTED PROJECTED
------- ------- ------- -------- ---------
VALUATION ASSUMPTIONS 1993 1994 1995 1996 1997 1998 1999 2000 2001
- ----------------------------- ------- ------- ------- -------- --------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WORKING CAPITAL INVESTMENT
Receivables -- DSO........... 22.9 20.0 20.0 20.0 20.0 20.0 20.0 20.0
Inventory turnover........... 24.2x 25.6x 25.0 x 25.0x 25.0x 25.0x 25.0x 25.0x
Other current
assets/revenue.............. 0.3% 0.2% 0.2 % 0.2% 0.2% 0.2% 0.2% 0.2%
Accounts payable -- DPO...... 10.9 12.9 13.0 13.0 13.0 13.0 13.0 13.0
Accrued expenses/operating
expenses.................... 11.7% 16.1% 16.0 % 16.0% 16.0% 16.0% 16.0% 16.0%
FIXED CAPITAL INVESTMENT
Capital expenditures......... 312 174 373 600 1,111 1,416 1,514 1,894 1,895
% of revenues............. 0.3% 0.1% 0.7% 0.4 % 0.8% 1.0% 1.0% 1.3% 1.3%
Depreciation................. 13,623 10,733 2,550 2.615 2,467 2,325 2,229 2,154 2,127
- -- Depr./Prior yr. NFA....... 9.2% 10.3 % 10.5% 10.5% 10.5% 10.5% 10.5%
IMPLIED RATIOS
Fixed asset turnover......... 4.6x 5.0x 5.7 x 6.5x 6.5x 7.3x 7.4x 7.5x
<CAPTION>
VALUATION ASSUMPTIONS 2002 2003 2004 2005
- ----------------------------- ------- ------- ------- -------
<S> <C<C> <C> <C> <C>
WORKING CAPITAL INVESTMENT
Receivables -- DSO........... 20.0 20.0 20.0 20.0
Inventory turnover........... 25.0x 25.0x 25.0x 25.0x
Other current
assets/revenue.............. 0.2% 0.2% 0.2% 0.2%
Accounts payable -- DPO...... 13.0 13.0 13.0 13.0
Accrued expenses/operating
expenses.................... 16.0% 16.0% 16.0% 16.0%
FIXED CAPITAL INVESTMENT
Capital expenditures......... 2,275 2,276 2,277 2,278
% of revenues............. 1.5% 1.5% 1.5% 1.5%
Depreciation................. 2,103 2,121 2,137 2,152
- -- Depr./Prior yr. NFA....... 10.5% 10.5% 10.5% 10.5%
IMPLIED RATIOS
Fixed asset turnover......... 7.5x 7.5x 7.4x 7.4x
</TABLE>
F-26
<PAGE> 142
APPENDIX B-6
NEW ENERGY COMPANY OF INDIANA, L.P.
PROJECTED FINANCIAL STATEMENTS
FISCAL YEARS ENDING DECEMBER 31, 1996 -- 2005
(IN $000S)
<TABLE>
<CAPTION>
DISCOUNTED CASH FLOW ANALYSIS 1997 1998 1999 2000 2001 2002
- ---------------------------------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net operating profit after taxes.............. 10,427 7,150 10,137 9,412 8,627 7,808
Plus: Depreciation............................ 2,467 2,325 2,229 2,154 2,127 2,103
------- ------- ------- ------- ------- -------
Total Sources................................. 12,894 9,475 12,366 11,566 10,753 9,910
Less: working capital investment.............. 460 (428) 529 (46) (48) (50)
Less: capital expenditures.................... 1,111 1,416 1,514 1,894 1,895 2,275
Less: Hedge................................... 750 0 0 0 0 0
------- ------- ------- ------- ------- -------
Free Cash Flow................................ 10,574 8,487 10,323 9,718 8,907 7,685
<CAPTION>
DISCOUNTED CASH FLOW ANALYSIS 2003 2004 2005
- ---------------------------------------------- ------- ------- -------
<S> <C<C> <C> <C>
Net operating profit after taxes.............. 7,147 6,467 5,768
Plus: Depreciation............................ 2,121 2,137 2,152
------- ------- -------
Total Sources................................. 9,267 8,604 7,920
Less: working capital investment.............. (39) (40) (41)
Less: capital expenditures.................... 2,276 2,277 2,278
Less: Hedge................................... 0 0 0
------- ------- -------
Free Cash Flow................................ 7,030 6,367 5,683
</TABLE>
VALUATION SUMMARY
- ----------------
<TABLE>
<CAPTION>
LONG-TERM WEIGHTED AVERAGE COST OF CAPITAL 12.25% 12.50% 12.75%
- ---------------------------------------------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Continuing Value in 2005...................... 46,391 45,463 44,572
Present Value of Continuing Value............. 17,372 16,706 16,072
Present Value of FYE 1996 -- 2005 Cash
Flows........................................ 48,821 48,459 48,101
------- ------- -------
Value of Operations........................... 66,193 65,164 64,173
<CAPTION>
LONG-TERM WEIGHTED AVERAGE COST OF CAPITAL
- ----------------------------------------------
<S> <C<C> <C> <C>
Continuing Value in 2005......................
Present Value of Continuing Value.............
Present Value of FYE 1996 -- 2005 Cash
Flows........................................
Value of Operations...........................
</TABLE>
F-27
<PAGE> 143
APPENDIX B-7
NEW ENERGY COMPANY OF INDIANA, L.P.
PROJECTED FINANCIAL STATEMENTS
FISCAL YEARS ENDING DECEMBER 31, 1996 -- 2005
(IN $000S)
<TABLE>
<CAPTION>
PV'S OF
DCF WORKSHEET CASH FLOWS 1997 1998 1999 2000 2001 2002
- ----------------------- ---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash Flow Dates (mid-
year convention)...... 30-Jun-97 30-Jun-98 30-Jun-99 30-Jun-00 30-Jun-01 30-Jun-02
SUBSIDY RENEWED
Discount Periods....... 0.50 1.50 2.50 3.50 4.50 5.50
Projected NOPAT........ 10,427 7,150 10,137 9,412 8,627 7,808
Projected Free Cash
Flows................. 10,574 8,487 10,323 9,718 8,907 7,685
Present Value of Cash
Flows @............... 12.25% 48,821 9,980 7,136 7,733 6,485 5,295 4,070
Present Value of Cash
Flows @............... 12.50% 48,459 9,969 7,112 7,690 6,435 5,242 4,021
Present Value of Cash
Flows @............... 12.75% 48,101 9,958 7,089 7,647 6,385 5,190 3,972
Present Value of
Investment............ 12.0% 0 0 0 0 0 0
Cash Flow Dates (mid-
year convention)...... 30-Jun-97 30-Jun-98 30-Jun-99 30-Jun-00 30-Jun-01 30-Jun-02
SUBSIDY REVOKED
Discount Periods....... 0.50 1.50 2.50 3.50 4.50 5.50
Projected NOPAT........ 10,427 7,150 10,137 0 0 0
Projected Free Cash
Flows................. 10,574 8,487 10,323 20,257 0 0
Present Value of Cash
Flows @............... 12.25% 38,367 9,980 7,136 7,733 13,518 0 0
Present Value of Cash
Flows @............... 12.50% 38,184 9,969 7,112 7,690 13,413 0 0
Present Value of Cash
Flows @............... 12.75% 38,003 9,958 7,089 7,647 13,309 0 0
Growth in NOPAT........ -31.4% 41.8% -7.2% -8.3% -9.5%
Growth in Free Cash
Flow.................. -19.7% 21.6% -5.9% -8.4% -13.7%
PV of cash flows....... 9,969 17,081 24,771 31,206 36,448 40,469
PV of terminal value... 79,752 56,899 61,518 51,480 41,939 32,166
------ ------ ------ ------ ------ ------
Total PV............... 89,721 73,980 86,289 82,686 78,387 72,635
<CAPTION>
DCF WORKSHEET 2003 2004 2005
- ----------------------- --------- --------- ---------
<S> <C> <C> <C>
Cash Flow Dates (mid-
year convention)...... 30-Jun-03 30-Jun-04 30-Jun-05
SUBSIDY RENEWED
Discount Periods....... 6.50 7.50 8.50
Projected NOPAT........ 7,147 6,467 5,768
Projected Free Cash
Flows................. 7,030 6,367 5,683
Present Value of Cash
Flows @............... 3,317 2,676 2,128
Present Value of Cash
Flows @............... 3,269 2,632 2,088
Present Value of Cash
Flows @............... 3,223 2,588 2,049
Present Value of
Investment............ 0 0 0
Cash Flow Dates (mid-
year convention)...... 30-Jun-03 30-Jun-04 30-Jun-05
SUBSIDY REVOKED
Discount Periods....... 6.50 7.50 8.50
Projected NOPAT........ 0 0 0
Projected Free Cash
Flows................. 0 0 0
Present Value of Cash
Flows @............... 0 0 0
Present Value of Cash
Flows @............... 0 0 0
Present Value of Cash
Flows @............... 0 0 0
Growth in NOPAT........ -8.5% -9.5% -10.8%
Growth in Free Cash
Flow.................. -8.5% -9.4% -10.7%
PV of cash flows....... 43,739 46,370 48,459
PV of terminal value... 26,155 21,056 16,706
------ ------ ------
Total PV............... 69,893 67,426 65,164
</TABLE>
<TABLE>
<CAPTION>
2005 1996
------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Terminal Value --
Gordon Growth......... 45,463 16,706
Terminal Value -- Value
Driver 46,146 16,957
<CAPTION>
<S> <C> <C> <C>
Terminal Value --
Gordon Growth.........
Terminal Value -- Value
Driver
</TABLE>
F-28
<PAGE> 144
APPENDIX B-8
NEW ENERGY COMPANY OF INDIANA, L.P.
PROJECTED FINANCIAL STATEMENTS
FISCAL YEARS ENDING DECEMBER 31, 1996 -- 2005
(IN $000S)
<TABLE>
<CAPTION>
VALUATION OF TAX-SHIELD (SUBSIDY RENEWED) 1997 1998 1999 2000 2001 2002
- ------------------------------------------------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BOY Goodwill 43,918 40,998 38,029 35,142 32,002 29,295
Amortization 2,928 2,928 2,928 2,928 2,928 2,928
------ ------ ------ ------ ------ ------
EOY Goodwill 40,990 38,070 35,101 32,215 29,074 26,367
Discount Period 0.50 1.50 2.50 3.50 4.50 5.50
Tax shield 1,157 1,157 1,157 1,157 1,157 1,157
<CAPTION>
VALUATION OF TAX-SHIELD (SUBSIDY RENE 2003 2004 2005
- ---------------------------------------- ------- ------- -------
<S> <C<C> <C> <C> <C>
BOY Goodwill 26,161 23,412 20,323
Amortization 2,928 2,928 2,928
------ ------ ------
EOY Goodwill 23,233 20,493 17,395
Discount Period 6.50 7.50 8.50
Tax shield 1,157 1,157 1,157
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PV
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Present Value Calculations
12.25% 8,237 1,092 972 866 772 688 613
12.50% 8,138 1,090 969 862 766 681 605
12.75% 8,041 1,089 966 857 760 674 598
<CAPTION>
<S> <C<C> <C> <C> <C>
Present Value Calculations
12.25% 546 486 433
12.50% 538 478 425
12.75% 530 470 417
</TABLE>
<TABLE>
<CAPTION>
VALUATION OF TAX-SHIELD (SUBSIDY RENEWED) 2006 2007 2008 2009 2010 2011
- ------------------------------------------------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BOY Goodwill 17,395 14,481 11,572 8,656 5,763 2,835
Amortization 2,928 2,928 2,928 2,928 2,928 2,928
------- ------- ------- ------- ------- -------
EOY Goodwill 14,467 11,553 8,644 5,728 2,835 0
Discount Period 9.50 10.50 11.50 12.50 13.50 14.50
Tax shield 1,157 1,157 1,157 1,157 1,157 1,157
Present Value Calculations
12.25% 386 344 306 273 243 216
12.50% 378 336 298 265 236 210
12.75% 370 328 291 258 229 203
<CAPTION>
VALUATION OF TAX-SHIELD (SUBSIDY RENE 2012 2013 2014
- ---------------------------------------- ------- ------- -------
<S> <C<C> <C> <C> <C>
BOY Goodwill 0 0 0
Amortization 0 0 0
------- ------- -------
EOY Goodwill 0 0 0
Discount Period 15.50 16.50 17.50
Tax shield 0 0 0
Present Value Calculations
12.25% 0 0 0
12.50% 0 0 0
12.75% 0 0 0
</TABLE>
<TABLE>
<CAPTION>
SUBSIDY RENEWED
-----------------------------
TABLE TO RESOLVE CIRCULARITY HIGH MEDIAN LOW
- ---------------------------------------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Value of Operations 66,193 65,164 64,173
Value of Tax-shield 8,520 8,138 8,092
------- ------- -------
Total Purchase Price 74,713 73,302 72,266
Less Working Capital 6,014 6,014 6,014
------- ------- -------
Purchase Price Allocated to Fixed Assets 68,699 67,288 66,252
Book Value of Fixed Assets 23,548 23,548 23,548
------- ------- -------
Goodwill to be Amortized 44,151 43,740 42,704
Amortization Period 15 15 15
Tax rate 39.5% 39.5% 39.5%
<CAPTION>
TABLE TO RESOLVE CIRCULARITY
- ----------------------------------------
<S> <C<C> <C> <C> <C>
Value of Operations
Value of Tax-shield
Total Purchase Price
Less Working Capital
Purchase Price Allocated to Fixed Assets
Book Value of Fixed Assets
Goodwill to be Amortized
Amortization Period
Tax rate
</TABLE>
F-29
<PAGE> 145
APPENDIX B-9
NEW ENERGY COMPANY OF INDIANA, L.P.
PROJECTED FINANCIAL STATEMENTS
FISCAL YEARS ENDING DECEMBER 31, 1996 -- 2005
(IN $000S)
<TABLE>
<CAPTION>
VALUATION OF TAX-SHIELD (SUBSIDY REVOKED) 1997 1998 1999 2000 2001 2002
- -------------------------------------------------------- ------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BOY Goodwill 15,032 14,030 13,028 12,025 0 0
Amortization 1,002 1,002 1,002 1,002 0 0
------ ------ ----- ----- ----- -----
EOY Goodwill 14,030 13,028 12,025 11,023 0 0
Discount Period 0.50 1.50 2.50 3.50 4.50 5.50
Tax shield 396 396 396 396 0 0
<CAPTION>
VALUATION OF TAX-SHIELD (SUBSIDY REVOKED) 2003 2004 2005
- ------------------------------------------------ ------ ------ ------
<S> <C<C> <C> <C> <C>
BOY Goodwill 0 0 0
Amortization 0 0 0
-----
EOY Goodwill 0 0 0
Discount Period 6.50 7.50 8.50
Tax shield 0 0 0
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PV
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Present Value Calculations
12.25% 1,267 374 333 297 264 0 0
12.50% 1,262 373 332 295 262 0 0
12.75% 1,257 373 331 293 260 0 0
<CAPTION>
<S> <C<C> <C> <C> <C>
Present Value Calculations
12.25% 0 0 0
12.50% 0 0 0
12.75% 0 0 0
</TABLE>
<TABLE>
<CAPTION>
VALUATION OF TAX-SHIELD (SUBSIDY REVOKED) 2006 2007 2008 2009 2010 2011
- -------------------------------------------------------- ------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BOY Goodwill 0 0 0 0 0 0
Amortization 0 0 0 0 0 0
------- ------- ------ ------ ------ ------
EOY Goodwill 0 0 0 0 0 0
Discount Period 9.50 10.50 11.50 12.50 13.50 14.50
Tax shield 0 0 0 0 0 0
Present Value Calculations
12.25% 0 0 0 0 0 0
12.50% 0 0 0 0 0 0
12.75% 0 0 0 0 0 0
<CAPTION>
VALUATION OF TAX-SHIELD (SUBSIDY REVOKED) 2012 2013 2014
- ------------------------------------------------ ------ ------ ------
<S> <C<C> <C> <C> <C>
BOY Goodwill 0 0 0
Amortization 0 0 0
------ ------ ------
EOY Goodwill 0 0 0
Discount Period 15.50 16.50 17.50
Tax shield 0 0 0
Present Value Calculations
12.25% 0 0 0
12.50% 0 0 0
12.75% 0 0 0
</TABLE>
<TABLE>
<CAPTION>
SUBSIDY REVOKED
-----------------------------
TABLE TO RESOLVE CIRCULARITY HIGH MEDIAN LOW
- ------------------------------------------------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Value of Operations 43,555 43,332 43,111
Value of Tax-shield 1,282 1,262 1,242
------- ------- -------
Total Purchase Price 44,838 44,594 44,353
Less Working Capital 6,014 6,014 6,014
------- ------- -------
Purchase Price Allocated to Fixed Assets 38,823 38,580 38,339
Book Value of Fixed Assets 23,548 23,548 23,548
------- ------- -------
Goodwill to be Amortized 15,275 15,032 14,791
Amortization Period 15 15 15
Tax rate 39.5% 39.5% 39.5%
<CAPTION>
TABLE TO RESOLVE CIRCULARITY
- ------------------------------------------------
<S> <C<C> <C> <C> <C>
Value of Operations
Value of Tax-shield
Total Purchase Price
Less Working Capital
Purchase Price Allocated to Fixed Assets
Book Value of Fixed Assets
Goodwill to be Amortized
Amortization Period
Tax rate
</TABLE>
F-30
<PAGE> 146
APPENDIX C-1
COMPARABLE COMPANIES DESCRIPTIONS
- -- Arco Chemical Co. (RCM): Producer and marketer of intermediate and
specialty chemicals. Products include oxygenated fuels, propylene oxide,
various polymers and monomers. Markets include household furnishings,
automotive construction, plastics and the refining of gasoline. $4.0 billion
in revenues.
- -- Brimm Energy Corp. (BRIMF): Distributor and producer of ethanol active in
the states of Montana, Wyoming, Idaho, Oregon, Washington and Utah. $7.0
million in revenues.
- -- Great Lakes Chemical Corp. (GLK): Specialty chemicals manufacturer. Great
Lakes holds interest in companies that manufacture fuel additives and
styrene resins. Sells product in the United States, Europe and Japan. $2.3
billion in revenues.
- -- High Plains Corp. (HIPC): Producer of ethanol and distillers' dry grains.
Plants located in Minnesota and Nebraska. HIPC announced plans to enter the
industrial alcohol segment. $69.0 million in revenues.
- -- Methanex Corp. (MEOHF): Produces and sells methanol. Methanol is used to
manufacture products like formaldehyde, MTBE, acetic acid and others.
Methanex has plants in Canada, the United States, New Zealand and Chile.
$897 million in revenues.
F-31
<PAGE> 147
APPENDIX C-2
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
COMPARATIVE FINANCIAL PERFORMANCE
FINANCIAL PROFILE
1995-1996
<TABLE>
<CAPTION>
ARCO BRIMM GREAT LAKES HIGH NEW
CHEMICAL ENERGY CHEMICAL PLAINS METHANEX ENERGY
---------- ------- ----------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Quarterend Month (LTM) SEP96 JUN96 SEP96 SEP96 SEP96 SEP96
LTM (IN MILS EXCEPT PER SHARE)
Revenues.................................... $3,969.000 $ 7.838 $2,261.223 $69.202 $ 896.539 $131.223
Operating Cash Flow......................... 854.000 NA 608.044 14.266 175.393 -8.360
Pretax Income............................... 573.000 -0.953 458.630 15.774 61.974 NA
Net Income.................................. 399.000 -0.831 283.808 13.132 60.332 -14.717
Net Per Share............................... 4.13 -0.19 4.42 0.82 0.34 NA
Fiscal Yearend Month DEC95 DEC95 DEC95 JUN96 DEC95 DEC95
1995 (IN MILS EXCEPT PER SHARE)
Revenues.................................... $4,282.000 $ 7.001 $2,361.069 $87.925 $1,249.179 $134.087
Operating Cash Flow......................... 1,015.000 -0.419 607.988 16.835 400.923 17.928
Pretax Income............................... 756.000 -0.741 471.547 12.176 294.679 NA
Net Income.................................. 508.000 -0.619 295.573 11.821 224.459 11.654
Net Per Share............................... 5.28 -0.15 4.52 0.74 1.18 NA
I/B/E/S Estimates Date........................ 11/14/96 NA 11/14/96 11/14/96 11/14/96
Next Fiscal Yearend Date...................... Dec97 Dec97 Jun97 Dec97
Projected Next Fiscal Year Net Per Share...... 4.00 NA 4.78 0.53 0.45
</TABLE>
Note: Adjusted for special items.
Source: Standard & Poor's Compustat Services, Inc.
F-32
<PAGE> 148
APPENDIX C-3
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
COMPARATIVE FINANCIAL PERFORMANCE
GROWTH
1990-1996
<TABLE>
<CAPTION>
ARCO BRIMM GREAT LAKES HIGH NEW
CHEMICAL ENERGY CHEMICAL PLAINS METHANEX ENERGY
-------- ----- ----------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
REVENUES (%)
LTM................................................. -6.3 NA -4.2 6.9 -45.5 -1.4
1995................................................ 25.1 10.8 14.3 66.6 -16.0 4.8
1994................................................ 7.2 NA 15.2 57.2 178.9 10.7
1993................................................ 3.0 NA 19.8 6.6 359.2 -4.5
1992................................................ 9.2 NA 14.4 4.2 58.0 13.0
1991................................................ 0.2 NA 22.6 31.1 -57.0 -4.4
Five-Year CAGR........................................ 8.6 NA 17.2 30.7 48.9 3.7
OPERATING CASH FLOW (%)
LTM................................................. -15.1 NA 1.3 37.6 -73.9 NM
1995................................................ 45.4 NM 12.4 76.3 -34.5 -12.4
1994................................................ 13.9 NA 5.1 259.2 551.1 -29.2
1993................................................ -1.9 NA 17.6 -59.6 4,412.4 -7.0
1992................................................ 56.6 NA 21.8 39.1 -88.1 33.9
1991................................................ -28.2 NA 14.6 6.8 89.3 78.0
Five-Year CAGR........................................ 12.8 NA 14.1 30.6 112.4 6.6
NET INCOME (%)
LTM................................................. -16.0 NA -3.0 125.2 -86.3 NM
1995................................................ 83.9 NM 10.9 92.6 -49.3 NM
1994................................................ 24.5 NA -2.3 NM 4027.1 NM
1993................................................ -1.8 NA 15.9 NM NM -73.8
1992................................................ 110.2 NA 49.5 128.8 NM NM
1991................................................ -62.9 NA 13.3 117.6 NM NM
Five-Year CAGR........................................ 11.9 NA 16.3 65.8 NM NM
EARNINGS PER SHARE (%)
LTM................................................. -16.3 NA 0.0 114.8 -85.0 NA
1995................................................ 83.6 NM 18.1 87.7 -47.4 NA
1994................................................ 24.4 NA 1.5 NM 3,633.3 NA
1993................................................ -1.7 NA 15.8 NM NM NA
1992................................................ 109.8 NA 49.4 84.9 NM NA
1991................................................ -62.9 NA 12.4 114.7 NM NA
Five-Year CAGR........................................ 11.8 NA 18.4 44.4 NM NA
</TABLE>
Note: Adjusted for special items.
Source: Standard & Poor's Compustat Services, Inc.
F-33
<PAGE> 149
APPENDIX C-4
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
COMPARATIVE FINANCIAL PERFORMANCE
PROFITABILITY RATIOS
1991-1996
<TABLE>
<CAPTION>
ARCO BRIMM GREAT LAKES HIGH NEW
CHEMICAL ENERGY CHEMICAL PLAINS METHANEX ENERGY
-------- ----- ----------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
GROSS MARGINS (%)
LTM................................................. 30.5 0.6 39.4 23.5 19.6 7.2
1995................................................ 32.0 0.7 38.1 21.4 32.1 19.1
1994................................................ 30.1 7.2 38.6 21.0 41.1 15.9
1993................................................ 29.0 NA 41.8 13.6 17.6 23.5
1992................................................ 29.9 NA 41.9 25.0 1.8 24.9
1991................................................ 24.7 NA 40.1 18.6 23.9 19.0
Five-Year Average..................................... 29.1 NA 40.1 19.9 23.3 20.5
OPERATING CASH FLOW (%)
LTM................................................. 21.5 NA 26.9 20.6 19.6 1.3
1995................................................ 23.7 -6.0 25.8 19.1 32.1 13.4
1994................................................ 20.4 3.5 26.2 18.1 41.1 9.9
1993................................................ 19.2 NA 28.7 7.9 17.6 16.8
1992................................................ 20.2 NA 29.3 20.9 1.8 18.1
1991................................................ 14.1 NA 27.5 15.7 23.9 12.1
Five-Year Average..................................... 19.5 NA 27.5 16.3 23.3 14.1
EBIT MARGINS (%)
LTM................................................. 16.6 NA NA 25.7 9.6 -0.2
1995................................................ 19.7 -9.6 20.6 16.4 26.2 11.9
1994................................................ 15.0 2.8 20.6 14.4 36.5 1.7
1993................................................ 13.4 NA 23.6 1.8 7.3 5.3
1992................................................ 14.5 NA 25.2 15.1 0.3 7.1
1991................................................ 9.3 NA 25.3 10.4 19.4 -0.5
Five-Year Average..................................... 14.4 NA 23.0 11.6 17.9 5.1
NET INCOME MARGINS (%)
LTM................................................. 10.1 NA 12.6 19.0 6.7 -3.3
1995................................................ 11.9 -8.8 12.5 13.4 18.0 5.3
1994................................................ 8.1 1.9 12.9 11.6 29.8 -1.2
1993................................................ 7.0 NA 15.2 0.0 2.0 0.3
1992................................................ 7.3 NA 15.7 14.9 -7.4 1.2
1991................................................ 3.8 NA 12.0 6.8 4.4 -5.4
Five-Year Average..................................... 7.6 NA 13.7 9.3 9.4 0.0
</TABLE>
Note: Adjusted for special items.
Source: Standard & Poor's Compustat Services, Inc.
F-34
<PAGE> 150
APPENDIX C-5
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
COMPARATIVE FINANCIAL PERFORMANCE
RETURNS
1991-1996
<TABLE>
<CAPTION>
ARCO BRIMM GREAT LAKES HIGH NEW
CHEMICAL ENERGY CHEMICAL PLAINS METHANEX ENERGY
-------- ----- ----------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
RETURNS ON AVERAGE ASSETS (%)
LTM................................................. 10.9 NA NA 20.3 4.2 NA
1995................................................ 14.3 -10.9 14.8 18.5 14.1 18.6
1994................................................ 9.1 NA 15.2 11.9 34.7 2.3
1993................................................ 8.0 NA 17.0 0.0 4.3 5.4
1992................................................ 7.5 NA 16.0 15.6 -0.9 6.6
1991................................................ 4.2 NA 16.9 9.3 7.4 -0.4
Five-Year Average..................................... 8.6 NA 16.0 11.1 11.9 6.5
RETURNS ON AVERAGE INVESTED CAPITAL (%)
LTM................................................. 13.2 NA NA 21.7 NA NA
1995................................................ 17.3 -12.4 19.5 19.3 15.8 21.6
1994................................................ 10.8 NA 20.4 12.8 39.4 2.7
1993................................................ 9.4 NA 23.1 0.0 4.8 6.0
1992................................................ 8.9 NA 21.4 16.6 -1.1 7.4
1991................................................ 4.9 NA 22.1 10.0 10.8 -0.4
Five-Year Average..................................... 10.3 NA 21.3 11.7 13.9 7.5
RETURNS ON AVERAGE COMMON EQUITY (%)
LTM................................................. 20.2 NA 20.0 27.8 5.3 NA
1995................................................ 28.0 -52.5 21.7 25.2 20.9 NA
1994................................................ 17.1 NA 20.8 16.9 61.6 NA
1993................................................ 13.8 NA 23.6 -0.1 4.2 NA
1992................................................ 13.6 NA 24.1 24.7 -34.4 NA
1991................................................ 6.2 NA 19.2 49.5 -5.9 NA
Five-Year Average................................... 15.7 NA 21.9 23.2 9.3 NA
</TABLE>
Note: Adjusted for special items.
Source: Standard & Poor's Compustat Services, Inc.
F-35
<PAGE> 151
APPENDIX C-6
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
COMPARATIVE FINANCIAL PERFORMANCE
LATEST BALANCE SHEET DATA
1996
<TABLE>
<CAPTION>
ARCO BRIMM GREAT LAKES HIGH NEW
CHEMICAL ENERGY CHEMICAL PLAINS METHANEX ENERGY
---------- ------- ----------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
SEP96 MAR96 SEP96 SEP96 SEP96 SEP96
Current Ratio.................................... 2.6 1.4 2.3 1.2 5.3 1.1
Quick Ratio...................................... 1.8 0.7 1.4 0.5 4.6 0.6
Total Assets (millions).......................... $4,220.000 $ 5.861 $2,499.758 $70.932 $1,775.600 $39.233
Cash and Cash Equivalents........................ 362.000 (0.180) 141.249 1.077 347.368 3.721
Total Invested Capital (millions)................ $3,467.000 $ 5.439 $1,990.488 $66.480 $1,633.970 $31.035
Total Debt..................................... 880.000 1.826 362.866 14.491 398.180 73.277
Deferred Taxes................................. 380.000 0.000 95.249 0.000 73.855 0.000
Minority Interest.............................. 184.000 0.000 41.722 0.000 0.000 0.000
Preferred Stock................................ 0.000 1.638 0.000 0.000 0.000 0.000
Common Equity.................................. 2,023.000 1.975 1,490.651 51.990 1,161.935 (42.242)
Total Invested Capital (percent)
Total Debt..................................... 25 34 18 22 24 236
Deferred Taxes................................. 11 0 5 0 5 0
Minority Interest.............................. 5 0 2 0 0 0
Preferred Stock................................ 0 30 0 0 0 0
Common Equity.................................. 58 36 75 78 71 -136
</TABLE>
Source: Standard & Poor's Compustat Services, Inc.
F-36
<PAGE> 152
APPENDIX C-7
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
ANALYSIS OF PUBLICLY TRADED COMPARABLE COMPANIES
VALUATION MULTIPLES
29 NOV 96
<TABLE>
<CAPTION>
PRICE AS A MULTIPLE OF CAPITALIZED VALUE AS A MULTIPLE OF
----------------------------------- -------------------------------------------------
PRICE AS A
EARNINGS PER SHARE* OPERATING CASH FLOW* MULTIPLE OF
----------------------------------- LTM ----------------------------------- LATEST -----------
LATEST PROJECTED 3-YEAR RELATIVE TO LATEST PROJECTED 3-YEAR 12 MONTHS' BOOK
12 MONTHS FISCAL YEAR AVERAGE S&P 500 (%) 12 MONTHS FISCAL YEAR AVERAGE REVENUES VALUE
--------- ----------- ------- ----------- --------- ----------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Arco
Chemical... 12.1x 12.5x 14.3x 55.8 6.5x NA 7.1x 1.4x 2.4x
Brimm
Energy... NM NA NM NA NA NA NM 2.5 6.8
Great
Lakes
Chemical... 12.1 11.2 13.3 56.0 6.2 5.7 6.8 1.7 2.3
High
Plains... 6.4 10.0 14.1 29.7 6.9 NA 10.1 1.4 1.6
Methanex... 29.2 22.2 8.6 134.7 11.2 NA 5.3 2.2 1.6
Range -- High... 29.2 22.2 14.3 134.7 11.2 5.7 10.1 2.5 6.8
-- Low... 6.4 10.0 8.6 29.7 6.2 5.7 5.3 1.4 1.6
Mean..... 15.0 14.0 12.6 69.1 7.7 5.7 7.3 1.8 3.0
Median... 12.1 11.9 13.7 55.9 6.7 5.7 6.9 1.7 2.3
S & P
500.... 21.7 18.8
Dow Jones
Industrial
Avg.... 20.1 17.6
</TABLE>
* Special items have been excluded from all calculations.
** Operating income plus depreciation and amortization.
Sources: Standard & Poor's Compustat Services, Inc., Value Line, Inc., and
Monthly Summary I/B/E/S.
F-37
<PAGE> 153
APPENDIX C-8
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
ANALYSIS OF PUBLICLY TRADED COMPARABLE COMPANIES
OPERATING PERFORMANCE
($ IN MILLIONS EXCEPT PER SHARE)
29 NOV 96
<TABLE>
<CAPTION>
EARNINGS PER SHARE* OPERATING CASH FLOW** LATEST
----------------------------------- ----------------------------------- BOOK 12 PROJECTED
LATEST PROJECTED 3-YEAR LATEST PROJECTED 3-YEAR VALUE MONTHS' LTM EPS FOR
12 MONTHS FISCAL YEAR AVERAGE 12 MONTHS FISCAL YEAR AVERAGE PER SHARE REVENUES ENDED YEAR ENDING
--------- ----------- ------- --------- ----------- ------- --------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Arco
Chemical... $ 4.13 $ 4.00 $3.49 $ 854.0 NA $775.3 $ 20.91 $3,969 Sep96 Dec97
Brimm
Energy... (0.20) NA (0.07) NA NA (0.1) 0.31 7 Sep96 NA
Great
Lakes
Chemical... 4.42 4.78 4.04 608.0 $ 662.5 554.6 22.96 2,261 Sep96 Dec97
High
Plains... 0.82 0.53 0.38 14.3 NA 9.7 3.26 69 Sep96 Jun97
Methanex... 0.34 0.45 1.16 175.4 NA 368.9 6.15 897 Sep96 Dec97
S &
P
500... 34.91 40.25
Dow
Jones
Industrial
Avg... 324.78 370.00
</TABLE>
* Special items have been excluded from all calculations.
** Operating income plus depreciation and amortization.
Sources: Standard & Poor's Compustat Services, Inc., Value Line, Inc., and
Monthly Summary I/B/E/S.
F-38
<PAGE> 154
APPENDIX C-9
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
ANALYSIS OF PUBLICLY TRADED COMPARABLE COMPANIES
MARKET DATA
($ IN MILLIONS EXCEPT PER SHARE)
29 NOV 96
<TABLE>
<CAPTION>
COMMON STOCK DATA DIVIDEND DATA CAPITAL STRUCTURE DATA
-------------------------------------- ---------------------------- ----------------------------
COMMON 52-WEEK RANGE
STOCK --------------- PRIMARY INDICATED CURRENT PERCENT SHARES EQUITY TOTAL
PRICE HIGH LOW MARKET DIVIDEND YIELD PAYOUT OUTSTANDING VALUE DEBT
--------- ------ ------ -------- -------- ------- ------- ----------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Arco Chemical................. 50.000 54.000 47.125 NYSE $ 2.80 5.6% 67.8% 96.767 $4,838 $880
Brimm Energy.................. 2.125 2.375 0.313 NSDQ 0.00 0.0 0.0 6.361 14 2
Great Lakes Chemical.......... 53.625 78.625 47.875 NYSE 0.60 1.1 13.6 64.937 3,482 363
High Plains................... 5.313 6.375 3.000 NSDQ 0.00 0.0 0.0 15.928 85 14
Methanex...................... 10.000 10.063 6.500 NSDQ 0.00 0.0 0.0 188.965 1,890 421
S & P 500..................... 757.020
Dow Jones Industrial Avg...... 6,521.700
<CAPTION>
% DEBT TO
CAPITALIZED CAPITALIZED
VALUE* VALUE
----------- -----------
<S> <C> <C>
Arco Chemical................. $ 5,540 15.9%
Brimm Energy.................. 17 10.6
Great Lakes Chemical.......... 3,746 9.7
High Plains................... 98 14.8
Methanex...................... 1,963 21.4
S & P 500.....................
Dow Jones Industrial Avg......
</TABLE>
*Equity value plus debt, preferred stock, and minority interest, less cash and
equivalents.
Sources: Standard & Poor's Compustat Services, Inc., Value Line, Inc., and
Monthly Summary I/B/E/S.
F-39
<PAGE> 155
EXHIBIT G
June 26, 1997
Board of Directors
New Energy Corporation of Indiana
3201 West Calvert Street
South Bend, Indiana 46613
To the Board of Directors:
Duff & Phelps, LLC ("Duff & Phelps") has been retained as an independent
financial advisor to the Board of Directors of New Energy Corporation of
Indiana, the general partner of New Energy Company of Indiana Limited
Partnership ("New Energy" or the "Company") with respect to a proposed Asset
Purchase Agreement (the "Agreement") and the transaction contemplated by the
Agreement (the "Asset Sale Transaction") in which Corn Energy, Inc. (the
"Purchaser") an affiliate of Chiquita Brands International, Inc. will offer to
acquire all or substantially all of the assets utilized by the Company in
operating its business. The Asset Sale Transaction, if consummated, will
dissolve the partnership and result in the winding-up and liquidation of the
Company. Upon the winding-up of the Company, the Asset Sale Transaction will
result in an anticipated distribution of no less than four hundred dollars
($400) to the Limited Partners of New Energy entitled to participate in the
remaining net assets of the partnership (the "Limited Partners"). Specifically,
Duff & Phelps was retained to determine whether the distribution of no less than
$400 per Limited Partnership unit is fair to the Limited Partners from a
financial point of view. Duff & Phelps previously valued the Company, but not
the individual limited partnership units, in the years 1994 through 1996.
BACKGROUND AND SCOPE OF ANALYSIS
As background for our analysis, we held discussions with senior management
of the Company regarding the past and current operations, financial condition
and future outlook of New Energy. We held these discussions at the Company's
headquarters in South Bend, Indiana and also toured the Company's ethanol plant,
the primary operating asset. In addition, in the course of our analysis we
reviewed the following:
1. Annual reports to partners and annual reports on Forms 10-K of New
Energy for the fiscal years ended December 31, 1991 to 1996; and Form 10-Q for
the quarter ended March 31, 1997.
2. Internal operating information prepared by senior management, including
financial projections.
3. Draft Transaction Assurance Agreement between Corn Energy, Inc. and the
principal shareholders of New Energy Corporation of Indiana.
4. Draft Agreement between New Energy Company of Indiana Limited
Partnership, New Energy Corporation of Indiana and Business Development
Corporation of South Bend.
5. Draft Agreement and Plan of Liquidation of New Energy Company of Indiana
Limited Partnership and New Energy Corporation of Indiana.
6. Draft Assets Purchase Agreement between Corn Energy Inc. and New Energy
Company of Indiana Limited Partnership.
7. Draft Proxy Statement respecting the solicitation by New Energy
Corporation of Indiana of the Limited Partners' consent to the Assets Sale
Transaction.
8. Amended and Restated Limited Partnership Agreement of the New Energy
Company of Indiana.
9. Various debt and security agreements between the Company and its
creditors.
10. Certain reports prepared by outside consultants and delivered to senior
management of the Company including analyses performed by Ernst & Young, the
Company's auditors, related to various federal income tax issues.
We have relied upon industry information and other data obtained from
regularly published sources. We have conducted other studies, analyses and
investigations as we have deemed appropriate. We did not
G-1
<PAGE> 156
Board of Directors
New Energy Corporation of Indiana
June 26, 1997
Page 2
independently verify the information obtained from management at the Company or
that obtained from industry and investment sources.
In rendering its opinion, Duff & Phelps has relied, without independent
verification, on the accuracy and completeness of all financial and other
information publicly available or furnished to Duff & Phelps by or on behalf of
New Energy. Duff & Phelps did not make an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of New Energy, nor was Duff
& Phelps furnished with any such evaluations or appraisals. Duff & Phelps's
opinion is based on all economic, market and business and financial conditions
relevant to the Company existing on the date of such opinion. The valuation
standard which we have applied to the Asset Purchase Agreement is a control
standard. The Company did not place any limitation upon Duff & Phelps with
respect to the procedures followed or factors considered by Duff & Phelps in
rendering its opinion.
CONCLUSION
After considering all factors we regard as relevant and assuming the
accuracy and completeness of the information provided to us, it is our opinion
as of June 26, 1997 that the distribution amount of no less than $400 per
limited partnership unit is fair to the Limited Partners of the Company, from a
financial point of view.
Respectfully submitted,
Duff & Phelps, LLC
G-2
<PAGE> 157
EXHIBIT H
BALANCE SHEET
NEW ENERGY CORPORATION OF INDIANA
December 31, 1996
With Report of Independent Auditors
H-1
<PAGE> 158
NEW ENERGY CORPORATION OF INDIANA
BALANCE SHEET
DECEMBER 31, 1996
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................................ H-3
Audited Balance Sheet
Balance Sheet....................................................................... H-4
Notes to Balance Sheet.............................................................. H-5
</TABLE>
H-2
<PAGE> 159
REPORT OF INDEPENDENT AUDITORS
Board of Directors
New Energy Corporation of Indiana
We have audited the accompanying balance sheet of New Energy Corporation of
Indiana as of December 31, 1996. This balance sheet is the responsibility of the
Corporation's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of New Energy Corporation of Indiana
at December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Indianapolis, Indiana
March 30, 1997, except for Note 5, as to
which the date is July 1, 1997
H-3
<PAGE> 160
NEW ENERGY CORPORATION OF INDIANA
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 725,947
Prepaid expenses and other................................................... 346,178
Taxes recoverable............................................................ 439,882
------------
Total current assets........................................................... 1,512,007
Deferred management fees (Note 4).............................................. 351,758
------------
Total assets................................................................... $ 1,863,765
============
LIABILITIES AND SHAREHOLDERS' EQUITY DEFICIT
Current liabilities:
Accounts payable............................................................. $ 48,654
Accrued compensation (Note 4)................................................ 204,712
Accrued taxes................................................................ 4,500
------------
Total current liabilities...................................................... 257,866
Deficiency in investment in and loans to Partnership (Note 2).................. 29,303,459
Shareholders' equity deficit:
Common stock, no par value; 42,000 shares authorized, 41,351 shares issued
and 41,140 shares outstanding............................................. 7,003,304
Additional paid-in capital................................................... 2,906,893
Accumulated losses (deduction)............................................... (37,604,257)
Treasury stock (deduction)................................................... (3,500)
------------
Total shareholders' equity deficit............................................. (27,697,560)
------------
Total liabilities and shareholders' equity deficit............................. $ 1,863,765
============
</TABLE>
See accompanying notes.
H-4
<PAGE> 161
NEW ENERGY CORPORATION OF INDIANA
NOTES TO BALANCE SHEET
DECEMBER 31, 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
New Energy Corporation of Indiana (the "Corporation") was incorporated on
December 14, 1979 in the State of Indiana. The Corporation was organized to
finance, construct and operate an ethanol production facility (the "Plant") in
South Bend, Indiana. The Corporation is the General Partner of New Energy
Company of Indiana Limited Partnership (the "Partnership") which owns and
operates the Plant.
The Corporation's operating results are dependent upon the results of the
Partnership's operations, which to a large extent are dependent upon market
factors which are outside the Partnership's control. The Partnership's cost of
production is largely dependent upon the cost of corn, its principal raw
material. In addition, the Partnership'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 distillers' dried
grains and solubles, the price of which fluctuates with the agricultural
by-product market. Because the Partnership 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 conditions could adversely affect the future
operations of the Partnership, thereby affecting the Corporation's results of
operations and financial position.
The Partnership has several programs which management believes serve to
reduce, but not eliminate, the risk associated with the purchase of corn and
sale of ethanol and its by-products. First, the Partnership enters into
long-term contracts with major gasoline refiners to sell a significant portion
of its ethanol production. Second, the Partnership 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 Partnership has purchased option contracts for certain
time periods to reduce the risk of significant upward price fluctuations in corn
prices.
On a long term basis, the Partnership'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.
INVESTMENT IN PARTNERSHIP
Investment in Partnership is carried at cost adjusted for equity in income
(losses).
The losses allocable to the limited partners have exceeded their invested
capital balances. The limited partners have no obligation to fund any amounts in
excess of their investment. Since the Corporation, as general partner, is
responsible for all debts and obligations of the Partnership, the Corporation's
policy is to recognize all losses in excess of the limited partners' investment.
FEDERAL INCOME TAXES
The Corporation accounts for federal income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", which requires an asset and liability approach in accounting for income
taxes.
USE OF ESTIMATES
Preparation of the balance sheet in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported in the balance sheet and accompanying notes. Actual
results could differ from those estimates.
H-5
<PAGE> 162
NEW ENERGY CORPORATION OF INDIANA
NOTES TO BALANCE SHEET (CONTINUED)
2. DEFICIENCY IN INVESTMENT IN AND LOANS TO PARTNERSHIP
The deficiency in investment in and loans to Partnership at December 31,
1996 is as follows:
<TABLE>
<S> <C>
Equity in loss of partnership......................................... $ 8,421,131
Limited partner losses in excess of investment........................ 33,438,633
Investment in partnership............................................. (3,008,250)
Loans, including accrued interest of $3,710,109....................... (9,548,055)
-----------
$29,303,459
===========
</TABLE>
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>
The "Conversion Date", which has not occurred, 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 Limited Partnership Agreement.
Commencing October, 1989, a Special Limited Partner was eligible to receive
allocations of income, losses or distributions from the Partnership. The Special
Limited Partner is entitled to receive over a period of ten years out of
distributions made by the Partnership, 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 certain Department of Energy (DOE) notes payable are repaid by the
Partnership and, accordingly, no amounts have been distributed to date.
The following summarizes the significant assets (liabilities) of the
Partnership at December 31, 1996 (in thousands):
<TABLE>
<S> <C>
Cash and cash equivalents................................................ $ 3,766
Accounts receivable...................................................... 6,880
Inventories.............................................................. 4,822
Spare parts.............................................................. 2,420
Other current assets..................................................... 513
Property and equipment................................................... 22,980
Accounts payable and accrued liabilities................................. (6,271)
Working capital loan..................................................... (1,200)
Long-term debt, including current portion................................ (71,941)
Deferred management fees................................................. (352)
--------
Deficiency in net assets................................................. $(38,383)
========
</TABLE>
On August 23, 1996, the Partnership entered into a revolving working
capital loan with Great American Insurance Company ("GAIC"), an affiliate of a
shareholder of the Corporation. The loan provides a $10,000,000 line of credit,
collateralized by a senior lien on the Partnership'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
H-6
<PAGE> 163
NEW ENERGY CORPORATION OF INDIANA
NOTES TO BALANCE SHEET (CONTINUED)
2. DEFICIENCY IN INVESTMENT IN AND LOANS TO PARTNERSHIP (CONTINUED)
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 loan also calls for an annual .75% unused
commitment fee payable monthly.
The Partnership's long-term debt is collateralized by substantially all its
assets and consists of the following as of December 31, 1996:
<TABLE>
<S> <C>
Department of Energy note payable ("Note A"), interest at 6.75%, due
March 31, 2002...................................................... $34,807,983
Department of Energy note payable ("Note B"), interest at 4%, due
March 31, 2002...................................................... 26,559,414
South Bend Development Corporation note payable ("Note I"), interest
at 8%, due November, 1999........................................... 687,367
South Bend Development Corporation note payable ("Note II"), interest
at 8%, due November, 1999........................................... 50,037
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
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
===========
</TABLE>
On December 23, 1991, the Partnership's debt with the DOE 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.
Note A is an amortizing debt with an interest rate of 6.75%. Payments of Note B
are based upon monthly cash flow as defined by the Restructuring Agreement and
include interest at 4%. On March 25, 1996, the Partnership and DOE entered into
an agreement ("DOE Letter Agreement") which allowed the Partnership 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 Partnership 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. Substantially all of the assets of the Corporation are pledged as
collateral to the DOE.
Based upon present facts and circumstances, the Partnership 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 Partnership is subject to various market
factors which are outside of its control. The ultimate amount paid during 1997
will
H-7
<PAGE> 164
NEW ENERGY CORPORATION OF INDIANA
NOTES TO BALANCE SHEET (CONTINUED)
2. DEFICIENCY IN INVESTMENT IN AND LOANS TO PARTNERSHIP (CONTINUED)
depend upon the status of market conditions on a monthly basis. In addition, the
Restructuring Agreement requires the Partnership to maintain cash balances of
$3,300,000 for working capital and capital expenditures. However, Amendment No.
1 required the Partnership 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 Partnership and the BDC entered into an agreement
("BDC Letter Agreement") which allowed the Partnership 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 Partnership and the BDC entered into an
agreement ("Third Amendment to Loan Agreement") which allows the Partnership 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.
The DOE and BCD 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 Partnership has
terminated the GAIC loan and the Partnership has on deposit certain cash reserve
balances, the suspension of the monthly payments due on Note A shall be
irrevocably terminated and the Partnership shall be required to resume the
monthly payments of $631,533.
The Corporation's note payable (Loan I) represents certain cash payments
made by the Corporation on behalf of the Partnership 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 Corporation was required to
contribute $578,832 to the Partnership's working capital reserves. This amount
was classified as a loan (Loan II) by the Corporation to the Partnership. On
August 23, 1996, the Corporation made an additional loan (Loan III) to the
Partnership in the amount of $500,000. The Corporation loans are subordinated to
the GAIC, DOE and BDC notes and payment of these loans 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 Corporation has agreed to further limit permitted distributions by the
Partnership to $50,000 per month during the term of the agreements. Effective in
1996, the Corporation's Board of Directors elected to offset amounts due to the
Partnership from the Corporation in the amount of $973,411 and $462,617 against
the balance of Loan II and Loan III, respectively.
The Partnership's management has estimated, based upon present facts and
circumstances, payments of the Partnership's long-term debt for the next five
years, excluding Note B and the Corporation's 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.
H-8
<PAGE> 165
NEW ENERGY CORPORATION OF INDIANA
NOTES TO BALANCE SHEET (CONTINUED)
3. INCOME TAXES
Significant components of the Corporation's deferred tax liabilities and
assets as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Tax credit carryforwards.......................................... $ 2,405,690
Tax loss carryforwards............................................ 5,030,129
Book over tax amortization........................................ 117,345
-----------
Total deferred tax assets........................................... 7,553,164
Valuation allowance for deferred tax assets......................... (6,675,569)
-----------
Net deferred tax assets............................................. 877,595
Less deferred tax liability for tax over book equity in loss of
affiliate......................................................... (877,595)
-----------
$ --
===========
</TABLE>
As a result of its investment in the Partnership, at December 31, 1996, the
Corporation has net operating loss carryforwards and tax credit carryforwards of
approximately $12,860,000 and $2,405,690, respectively, which expire in 1997
through 2011 for income tax purposes. For financial reporting purposes, a
valuation allowance of $6,675,569 at December 31, 1996 has been recognized to
offset the deferred tax assets related to those carryforwards.
4. RELATED PARTY TRANSACTIONS
In accordance with the terms of the Amended and Restated Limited
Partnership Agreement dated October 26, 1982, the Corporation is entitled to an
annual management fee of $850,000 plus annual increases based on the Consumer
Price Index. In connection with the Partnership's Restructuring Agreement (see
Note 2), the Corporation has agreed to defer payment of 50% of the management
fee, except for certain permitted distributions from excess cash flow, as
defined, until such time as the Partnership's DOE notes are paid in full. Under
the terms of the DOE Letter Agreement (see Note 2), the Corporation has agreed
to limit permitted distributions to $50,000 per month during the term of the
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 Corporation 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. The Corporation had an Employment Agreement and a
Termination Benefits Agreement (Employment Arrangements) with its former
Chairman, President and Chief Executive Officer, and the Chief Financial
Officer. The Termination Benefits Agreement provided for severance benefits, as
defined, to the employee if employment was terminated without cause prior to the
expiration of the Employment Agreement. In May 1996, the employment of the then
Chairman, President and Chief Executive Officer, and the Chief Financial Officer
was terminated and settlement costs paid. At December 31, 1996, the Corporation
has $200,000 of unpaid termination settlement costs payable in 1997.
5. SUBSEQUENT EVENT
On July 1, 1997, the Partnership entered into an Asset Purchase Agreement
with Corn Energy, Inc., an affiliate of GAIC and of a shareholder of the
Corporation, in which Corn Energy, Inc. will purchase substantially all of the
business and assets and assume all of the liabilities of the Partnership (the
"Transaction"). As part of the Transaction and conditioned thereon, the
Partnership and Corporation entered into a Transfer Agreement pursuant to and in
accordance with an Agreement and Plan of Complete Liquidation and Dissolution
between the Partnership and Corporation (the "Plan") executed contemporane-
H-9
<PAGE> 166
NEW ENERGY CORPORATION OF INDIANA
NOTES TO BALANCE SHEET (CONTINUED)
5. SUBSEQUENT EVENT
ously with the Asset Purchase Agreement and conditioned thereon. The Plan shall
terminate in the event the Transaction closing shall not have occurred by
October 31, 1997, or in the event that the Asset Purchase Agreement is
terminated, as defined. The Transaction is also contingent on, among other
things, the approval of the Transaction by the Limited Partners of the
Partnership. Further, as a part of the Transaction and conditioned thereon, the
BDC, the Partnership and the Corporation agree that if the Transaction closes,
the BDC will accept $2,500,000 as payment in full of the notes payable and of
all other obligations of the Partnership and Corporation to it including but not
limited to their obligations with respect to the Special Limited Partnership
Interest in the Partnership.
The Transfer Agreement provides, among other things, for the Corporation to
contribute to the Partnership all of the obligations of the Partnership to the
Corporation, including loans payable, retaining only the right to the payment of
$4,000,000, and for the Corporation to transfer and assign to the Partnership
all of its assets, leaseholds and other contracts, agreements, contract rights
and general intangibles, excepting only its rights as an insured under all
policies providing insurance with respect to directors and officers liability.
The Partnership assumes and agrees to pay all of the liabilities and obligations
of the Corporation now existing or hereafter arising. The Partnership will also
provide to the Corporation complete releases from each entity with respect to
all the obligations of the Corporation related to the indebtedness of the
Partnership to the DOE, BDC, and GAIC.
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